2016 (9) TMI 1605 - AT - Income Tax

Appeal allowed with issues dismissed, remanded for fresh assessment. Emphasis on comprehensive reasoning in tax cases.

The appeal was allowed for statistical purposes, with various issues either dismissed, allowed for statistical purposes, or remanded to the Assessing ... Disallowance for failure to deduct tax at source under section 40(a)(ia) - royalty characterisation of payment for computer software license - apportionment of common expenses between EOU and non-EOU for deduction under section 10B - prematurity of challenge to initiation of penalty proceedingsPrinciple of natural justice - Ground alleging violation of principle of natural justice not pressed by the assessee and dismissed as not pressed. - HELD THAT: - The authorised representative expressly did not press the ground alleging violation of natural justice and lack of reasoning. The Tribunal recorded this concession and dismissed the ground as not pressed, without further adjudication on merits. [Paras 3]Ground No.1 dismissed as not pressed.Disallowance for failure to deduct tax at source under section 40(a)(ia) - royalty characterisation of payment for computer software license - Disallowance of expenses under section 40(a)(ia) on account of non-deduction of TDS on purchase of computer software remanded for fresh and speaking consideration by the AO. - HELD THAT: - The AO disallowed the purchase price paid for imported computer software on the view that the payment constituted royalty and that the assessee had effectively obtained rights to use/copy the software. The assessee had filed replies and relied on agreements and judicial decisions, but the AO did not discuss the assessee's contentions in the assessment order. The CIT(A) sustained the AO's view relying on a broad conclusion that the payment constituted royalty and referred to Explanation 5 to section 9(1)(vi) (inserted later). The Tribunal observed that the assessee did not demonstrate how the relied cases matched its facts and that neither the AO nor the CIT(A) examined the buyer agreements and the submissions on record. In view of these lacunae, the Tribunal restored the matter to the file of the AO for consideration of the documents, the assessee's submissions and relevant authorities, and for passing a speaking order in accordance with law; the ground was allowed for statistical purposes. [Paras 5]Ground No.2 restored to the AO for fresh consideration; allowed for statistical purpose.Apportionment of common expenses between EOU and non-EOU for deduction under section 10B - Disallowance of difference of loss on account of apportionment of common employee-related expenses between EOU and non-EOU remanded to the AO for fresh consideration. - HELD THAT: - The AO apportioned common employee-related expenses between the assessee's EOU and non-EOU on the basis of turnover, reducing the loss claimed by the non-EOU. The CIT(A) sustained the AO's finding without discussing the detailed submissions and certification filed by the assessee under section 10B (Form No.56G) and other written submissions dated 11.01.2011 and 13.12.2011. The Tribunal noted that one of the assessee's units is an EOU entitled to deduction under section 10B and that the apportionment was not shown to be in accordance with law. Because the AO and CIT(A) did not consider the assessee's documentary submissions and certification, the Tribunal restored the matter to the AO to examine those documents and pass an appropriate order in accordance with law. [Paras 7]Ground No.3 restored to the AO for fresh adjudication after considering the assessee's submissions and certification.Prematurity of challenge to initiation of penalty proceedings - Challenge to mere initiation of penalty proceedings dismissed as premature. - HELD THAT: - The assessee made no submissions on the ground relating to initiation of penalty proceedings. The Tribunal reiterated the settled principle that initiation of penalty proceedings, by itself, is not challengeable in appeal unless a substantive penalty order has been passed. In absence of a substantive penalty adjudication, the ground was rejected as premature. [Paras 8]Ground No.4 dismissed as premature.Final Conclusion: The appeal is disposed of by (a) dismissing the unpressed natural justice ground, (b) restoring the issues relating to disallowance under section 40(a)(ia) and apportionment between EOU and non-EOU to the AO for fresh and speaking consideration after examining the assessee's submissions and documents, and (c) dismissing the challenge to initiation of penalty proceedings as premature; appeal allowed for statistical purposes. Issues:1. Violation of principle of natural justice.2. Disallowance u/s 40(a) (ia) on account of non-deduction of TDS.3. Disallowance of difference of loss on non-Export Oriented Unit.4. Initiation of penalty proceeding.Issue 1: Violation of principle of natural justiceThe appeal raised concerns about the violation of the principle of natural justice and lack of reasoning. The assessee did not press this ground, leading to its dismissal as not pressed.Issue 2: Disallowance u/s 40(a) (ia) on account of non-deduction of TDSThe AO disallowed expenses related to the import of computer software due to non-deduction of TDS. The assessee argued citing decisions in their favor, but the AO disallowed the amount. The CIT(A) held that the payment for the license constituted royalty, supported by the Finance Act, 2012. The matter was restored to the AO to consider all documents and pass a speaking order.Issue 3: Disallowance of difference of loss on non-Export Oriented UnitThe AO disallowed a portion of expenses based on turnover apportionment between non-export oriented unit and export-oriented unit. The CIT(A) upheld this without providing reasons. The matter was sent back to the AO to reconsider after reviewing all submissions and certification under section 10B.Issue 4: Initiation of penalty proceedingThe appeal did not address the initiation of penalty, which was deemed premature for challenge without a substantive order. This ground was dismissed.In conclusion, the appeal was allowed for statistical purposes, with different issues being either dismissed, allowed for statistical purposes, or sent back to the AO for fresh consideration. The judgment highlighted the importance of thorough reasoning and consideration of all relevant factors in tax assessment matters.