2007 (2) TMI 237 - AT - Income Tax

Tribunal Dismisses Appeals on Tax Assessments; Allows Claims for Prior Expenses, Bad Debts, and Commissions.

The Tribunal dismissed appeals concerning the reopening of assessment under Section 147, deductions under Sections 80-O and 80HHE, and computation of ... Deduction u/s 80HHE - profits of the business - separate books of account are maintained for different units - CIT(A) confirmed the order of the Assessing Officer in considering total turnover of entire business instead of turnover of only the unit located at SEPZ for the purpose of deduction u/s 80HHE - HELD THAT:- It is the case of the assessee that assessee-company is exporting the computer software manufactured in SEPZ unit. The entire activity of the assessee in this Zone is independent from assessee's other business. There is no overlapping and mingling of the services or any link between the manufacturing activities of both. Both are exclusive of each other. As rightly contended by the learned counsel, section 80HHC speaks of deduction in respect of profits derived by the assessee from export of such goods or merchandise; whereas section 80HHE speaks of such business. 'Such business' only could mean the business of export of computer software. The scope of consideration has been narrowed down. In other words, whether the assessee derives income from any other business or not, is not a criteria and it is wholly extraneous while granting deduction u/s 80HHE, which is exclusively for computing deduction in respect of profit from export of computer software etc. Thus, we allow the claim of the assessee on this ground. Interest payable u/s 234B - intimation u/s 143(1)(a) - HELD THAT:- It is not disputed that the assessee received a huge refund as a result of processing of the return under section 143(1)(a). Subsequently, the tax component was enhanced as a result of the reassessment done under section 143(3) read with section 147. As such, the decision of the Hon'ble Delhi High Court in the case of K.K. Marketing is applicable on facts. there is no default on the part of the assessee in paying the advance tax. For the first time the dispute arose consequent to the reassessment done under section 143(3) read with section 147. The stand of the revenue is that charging of interest under section 234B is mandatory. Mandatory does not mean that it is mandatory under all circumstances. It is mandatory when the conditions are fulfilled. The condition is that the assessee should have defaulted. If the assessee has not anticipated reopening or the assessee has not anticipated a superior court decision, which goes against the assessee, it is difficult to hold that such an assessee is a defaulter. If the assessee takes due diligence and care and make the payment and if it is accepted by the revenue, such an assessee cannot be held as a defaulter only because subsequently the assessee's income has been enhanced. Reading of section 234B(3) makes it clear that where, as a result of an order of reassessment or re-computation under section 147 or section 153A, the amount on which interest was payable under sub-section (1) is increased, the assessee shall be liable to pay simple interest at the rate of one per cent.... The reading of the section further makes it clear that first of all there should be a default on the part of the assessee in the regular assessment and the assessee should have been held liable to pay interest under section 234B. In that case, if there is reassessment or recomputation under section 147 or 153A, the liability of the assessee is increased and not otherwise. Thus, the claim of the assessee is liable to be allowed. Hence, the appeal of the assessee on this ground is allowed. In the result appeal of the assessee stands allowed in part. Issues Involved:1. Reopening of assessment under Section 147.2. Deduction under Section 80-O and Section 80HHE.3. Computation of interest under Section 234B.4. Disallowance of prior period expenses.5. Bad debts written off.6. Doubtful advances given to employees.7. Commission paid to foreign parties.Detailed Analysis:1. Reopening of Assessment under Section 147:The assessee challenged the validity of the assessment reopened under Section 147, arguing that the assessment was completed without providing the assessee with the recorded reasons for reopening, contrary to the Supreme Court's decision in GKN Driveshafts (India) Ltd. The Tribunal, however, dismissed the appeal, holding that non-communication of reasons is not fatal, referencing the Supreme Court's decision in S. Narayanappa v. CIT.2. Deduction under Section 80-O and Section 80HHE:The assessee claimed deductions under Section 80-O for technical services rendered outside India and under Section 80HHE for software exports. The Tribunal upheld the CIT(A)'s decision that the assessee cannot claim deductions under both sections for the same profits due to the explicit bar in Section 80HHE(5). The Tribunal also rejected the assessee's claim for deduction under Section 80-O on a gross basis, affirming the need to deduct expenses as per the Special Bench decision in Petroleum India International.3. Computation of Interest under Section 234B:The Tribunal addressed the issue of interest under Section 234B, holding that interest is not chargeable if the assessee had paid excess TDS and advance tax resulting in a refund. The Tribunal referenced various judicial decisions, including Haryana Warehousing Corpn. and K.K. Marketing, to conclude that interest under Section 234B is not justified if the assessee could not have anticipated the reassessment or judicial decisions leading to enhanced tax liability.4. Disallowance of Prior Period Expenses:The Tribunal allowed the assessee's claim for prior period expenses, holding that the liability crystallized during the year under consideration. The Tribunal referenced the Allahabad High Court's decision in CIT v. Apollo Textiles Agency, which supports the allowance of such expenses if the liability accrued during the relevant year.5. Bad Debts Written Off:The Tribunal upheld the CIT(A)'s decision to allow the write-off of bad debts amounting to Rs. 31,90,000, noting that the write-off was bona fide and supported by the Special Bench decision in Dy. CIT v. Oman International Bank SAOG.6. Doubtful Advances Given to Employees:The Tribunal upheld the CIT(A)'s decision to allow the write-off of doubtful advances given to employees who had left the company. The Tribunal agreed that this was a business loss and referenced the Supreme Court's decision in Ramchander Shivnarayan v. CIT.7. Commission Paid to Foreign Parties:The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 18,69,207 on account of commission paid to foreign parties. The Tribunal noted that the payments were made through banking channels as per RBI regulations, which substantiated the genuineness of the payments.Conclusion:The Tribunal's consolidated order addressed multiple issues, ultimately dismissing the appeals on the grounds of reopening of assessment, deductions under Sections 80-O and 80HHE, and computation of interest under Section 234B. The Tribunal allowed the claims for prior period expenses, bad debts, doubtful advances, and commission payments, emphasizing the need for substantiating claims with proper documentation and adherence to judicial precedents.