2004 (12) TMI 347 - AT - Income Tax

Tribunal Affirms Deductions for International Services and Justifies Commission Payments to Sister Concern.

The Tribunal dismissed the revenue's appeals, affirming the CIT(A)'s decisions on both issues. It upheld the deduction u/s 80-O, recognizing the services ... Deduction u/s 80-O - Return Of Income - Whether the claim of assessee u/s 80-O can be denied merely on the ground that such claim was raised by the assessee in the revised return which was filed after the prescribed time but before the completion of assessment - HELD THAT:- No doubt, the claim of exemption/deduction cannot be thrust upon, the assessee but, at least, it is the duty of Assessing Officer to apprise of the relevant provisions under which assessee is entitled to exemption/deductions. Therefore, in our opinion, assessee is entitled to claim deduction if such claim is made by assessee before the completion of assessment proceedings. Deduction under section 80-O - Having held that the rightful claim of the assessee for deduction permissible under the law can be entertained and allowed at any stage including the stage of appeal and even the Assessing Officer is duty bound to apprise the assessee of such claim being available to him in accordance with law, it would not be fair and proper to contend, as has been attempted to be done by the learned DR, that the assessee cannot make such claim before the Assessing Officer even before the completion of assessment after a period of one year from the end of the relevant assessment year merely because as per the amendment made with effect from 1-4-1989 in the provisions of section 139(5), he is not entitled to file a revised return after that period. This contention of the learned DR is not tenable so also because such claim need not always be made by the assessee by way of filing a revised return but the same can very well be made even otherwise directly during the course of assessment proceedings or even during the course of appellate proceedings which is the extension of assessment proceedings as held in the judicial pronouncements referred to earlier in this order. Thus, it is held that claim of exemption/deduction can be made by assessee at any time before the Assessing Officer in the course of assessment proceedings and consequently, the Assessing Officer is duty bound to adjudicate upon such claim even was, therefore, justified in entertaining such claim of assessee. The Board Circular No. 700 dated 23-3-1995 on which reliance has been placed by the assessee goes one step further by clarifying that deduction would be allowed even if foreign enterprise utilizes the benefit of such services in India. The only condition, as per circular, is that services are rendered from India and are received by a foreign enterprise outside India. In the present case, the assessee gathered the industrial information and sent the same to his constituent outside India who, in turn, had utilized the same for manufacture of analytical instruments. Therefore, the only inference which can be drawn is that such services were rendered from India to P.E. Thus, it is held that assessee was entitled to deduction u/s 80-O. The orders of CIT(A) are, therefore, upheld on this issue. Disallowance under section 40A(2)(a) - It is also not the case of revenue that Labtek was showing losses and commission was paid to evade the tax. Further, it is seen from the submission made by assessee before the CIT(A) that 10% commission was paid to outsiders for obtaining the orders only in respect of instruments manufactured by Perkin Elmer (P.E.) while the entire, follow up was done by the assessee itself. On the other hand, in respect of other agencies, 20 per cent commission was paid since entire work was to be done by Labtek. Hence, the CIT(A) found that there was no comparison between the two cases. It is the settled legal position that comparison has to be made among equals. The onus is on the Assessing Officer to establish that payments made by assessee are excessive or unreasonable. No other material has been brought by the Assessing Officer to prove the excessive-ness of payment. Therefore, in the absence of adverse material and considering the facts of the case as a whole, we are in agreement with the finding given by the CIT(A). Accordingly, the orders of CIT(A) in all the appeals are upheld. In the result, appeals of revenue are dismissed. Issues Involved:1. Deduction u/s 80-O of the Income-tax Act, 1961.2. Disallowance u/s 40A(2)(a).Summary:Issue 1: Deduction u/s 80-O of the Income-tax Act, 1961The main issue in these appeals is whether the CIT(A) was justified in allowing the deduction u/s 80-O. The assessee, a distributor of analytical instruments in India, claimed a deduction u/s 80-O for commission received from a foreign principal, Perkin Elmer Inc. (PE), in convertible foreign exchange. The Assessing Officer (AO) rejected the claim on several grounds, including the late filing of the revised return and the assertion that services were rendered in India. The CIT(A) upheld the claim, stating that the services rendered from India for use outside India qualify for the deduction u/s 80-O, as clarified by Board Circular No. 700 dated 23-3-1995. The Tribunal agreed with the CIT(A), emphasizing that the AO is duty-bound to determine the correct income and allow legitimate claims even if made during assessment proceedings. The Tribunal also held that the services provided by the assessee involved technical and industrial knowledge, making them eligible for the deduction u/s 80-O.Issue 2: Disallowance u/s 40A(2)(a)The second issue pertains to the disallowance u/s 40A(2)(a) made by the AO, which was deleted by the CIT(A). The AO disallowed a portion of the commission paid by the assessee to its sister concern, Lab Tek Engineers (P.) Ltd. (Lab Tek), on the grounds that the payment was excessive compared to commissions paid to outsiders. The CIT(A) deleted the disallowance, noting that Lab Tek had lower overheads and wage structures, making the higher commission justified. The Tribunal upheld the CIT(A)'s decision, agreeing that the AO had not provided sufficient evidence to prove the excessiveness of the payment and that the comparison made by the AO was irrational. The Tribunal also noted that the tax rate for both the assessee and Lab Tek was the same, and there was no loss to revenue.Conclusion:The Tribunal dismissed the revenue's appeals, upholding the CIT(A)'s decisions on both issues. The assessee was entitled to the deduction u/s 80-O and the commission payments to Lab Tek were justified and not excessive.