2018 (10) TMI 1108 - AT - Income Tax

Tribunal grants appeal, deletes service tax addition to gross receipts, applies Section 44BB, and remits matter for detailed review.

The Tribunal allowed the assessee's appeal, directing the AO to delete the service tax amount addition to gross receipts. The Tribunal applied Section ... Disallowance of the depreciation on data acquisition and incidental services, general and administration expenses and head office expenses - DRP declined to interfere with the action of the AO on the ground that similar disallowance was made by the AO in respect of AY 2007-08, 2008-09 and 2-009-10 and was upheld by the learned DRP and, therefore, rule of consistency demands that the said view - Held that:- In assessee’s own case for the AYs 2009- 10, we find that in all the appeals relating to the AY 2007-08 to 2009-10, the assessee alleged that the learned DRP did not dispose of the assessee’s objections by way of a detailed and speaking order. So also for this year also Ld. DRP recorded that because a view was taken for the earlier years by the DRP, the same course is followed and no discussion is made in the impugned order - remit the matter to the DRP for passing a speaking and reasoned order on the various objections taken by the assessee on disallowances made by the AO. Inclusion of service tax amount in respect of the M/s HOEC contract - denial of applicability of provisions of Section 44BB of the Act in respect of revenue earned by the assessee in terms of the agreement with the M/s HOEC - Held that:- For the purpose of computing the ‘presumptive income’ of the assessee for the purpose of Section 44BB of the Act, the service tax collected by the assessee on the amount paid to it for rendering services is not to be included u/s 44BB(2) of the Act. Since the service tax is not an amount paid or payable or received or deemed to have been received by the assessee for the services rendered by it and the assessee is only collecting the service charge for passing it on to the Government. In view of the binding precedent while respectfully following the same, we allow Ground No.5 and direct the learned AO to delete the addition. Denial of applicability of provisions of Section 44BB in respect of revenue earned by the assessee in terms of the agreement with the M/s HOEC - AO determined the income as fee for technical services u/s 9(1)(vii) of the Act read with Section 44BA of the Act and estimated the profit at 25% of the gross receipts in respect of the above contract - Held that:- Services are intrinsically related to the exploration etc. of the mineral oils and covered by Section 44BB of the Act. We are, therefore, of the considered opinion that the finding of the learned CIT(A) is perfectly correct and does not warrant any interference. We, therefore, do not find any substance in the grounds of appeal of the revenue and dismiss the same. - Decided in favour of assessee. Issues:1. Disallowance of expenses by AO.2. Inclusion of service tax amount in gross receipts.3. Application of Section 44BB for revenue earned.4. Disallowance of depreciation and expenses.5. Dispute over deemed profit rate application.6. Denial of Section 44BB applicability by AO.7. Correctness of DRP's decision on revenue earned.Analysis:1. The assessee, a UK company, declared a loss for the Asstt. Year 2010-11. The AO disallowed expenses due to non-commencement of commercial production. The AO also proposed to add service tax amount in gross receipts. The DRP upheld the AO's decision based on consistency with previous years.2. The DRP included the service tax amount in gross receipts following a Delhi Tribunal decision. However, the assessee cited a High Court ruling stating service tax should not be included for computing presumptive income under Section 44BB. The Tribunal allowed the assessee's appeal and directed the AO to delete the service tax amount addition.3. The AO treated the revenue earned as fee for technical services instead of applying Section 44BB. The DRP disagreed and applied the deemed profit rate of 10% under Section 44BB. The Tribunal noted that similar issues were resolved differently in subsequent years, aligning with the Supreme Court's decision. The services provided were deemed related to mineral oil exploration, justifying the application of Section 44BB.4. The appeal by the assessee challenged the disallowance of depreciation and expenses. The DRP upheld the AO's decision based on consistency with previous years. The Tribunal set aside the order and remitted the matter to the DRP for a detailed and reasoned decision.5. The dispute over the deemed profit rate application was resolved in favor of the assessee, allowing the appeal in part for statistical purposes. The revenue's appeal challenging the application of Section 44BB was dismissed, affirming the correctness of the DRP's decision on revenue earned.This judgment highlights the importance of consistency in tax assessments, the relevance of legal precedents in tax disputes, and the need for detailed reasoning in tax assessment orders to ensure fair treatment for taxpayers.