TaxTMI 
TaxTMI 
2006 (4) TMI 217
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....o the undertaking and not to the assessee. The income earned from AMC charges (Annual Maintenance Charges of ATM), installation and technical charges, consultation charges and licence fee of software constitute income of the assessee and not of industrial undertaking situated at Pondicherry since this income was not derived from this industrial undertaking as the men, material and machinery of Pondicherry industrial undertaking were not used to earn this income and hence, not eligible for deduction under s. 80-IA of the Act. Further, for this assessment year the income on account of the above elements was not earned from eligible business referred to in s. 80-IA(4) of the Act. The assessee is not also entitled for deduction under s. 80-IB though this section is applicable, for the same reason stated therein in that order as the above earnings were not from industrial undertaking situated at Pondicherry, as the benefit of deduction can be given only to the profit and gains derived from industrial undertaking as per s. 80-IB(4) of the Act. Accordingly, this ground is rejected. 3. The next ground is that the CIT(A) has erred in confirming the disallowance of Rs. 53,21,968 as inflat....
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....the assessee submitted that provision was towards the cost of software for which the assessee has placed orders with the NRI vendors. The statement given by the director, Shri Harish Murthy on 10th Jan., 2003 cannot be relied upon as he is not conversant with the accounting procedures and IT law and that cannot be used as an evidence against the assessee to disallow the claim of the assessee. Actually, there was no suppression of any income by inflating the purchase figures as the assessee was consistently following this method of accounting of making provision towards the purchase on the last day of the year and reversing it on the immediate next day of the subsequent year. He further submitted that the admission to declare this amount as income for the asst. yr. 2001-02 was erroneously made and there was no evidence with the Department to show that the assessee has suppressed the income. He relied on the judgment of Hon'ble apex Court in the case of CIT vs. C. Parakh & Co. (India) Ltd. (1956) 29 ITR 661 (SC) and the judgment of Hon'ble Delhi High Court in the case of Swaran Yash vs. CIT (1982) 138 ITR 734 (Del). He further submitted that even if the assessee has admitted the addi....
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....68 as income for the asst. yr. 2001-02 and file a revised return claiming this amount as a deduction in the asst. yr. 2002-03. We are waiting for the completion of this assessment to file the revised return." 9. The above contents show that the assessee is fully aware of the fact and consequence of its statement and submission. Now, the assessee coming back with the plea that the agreed addition was erroneously made cannot be accepted. First of all, there is no evidence to show that the provision for purchase was made on the basis of specific purchase price of the software. The assessee cannot also say that within less than 24 hours, it has collected full information regarding the actual purchase price of the software. Further, the assessee cannot have any grievance towards addition as the assessee itself has agreed for offering this amount for taxation while examining under s. 131 of the IT Act and also by its own letter cited. In the case of Ramanlal Kamdar vs. CIT 1976 CTR (Mad) 185 : (1977) 108 ITR 73 (Mad), the Hon'ble Madras High Court has held that once the assessee had stated that it had no objection to the proposed revision or addition and the assessment was made as ....
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....) since the party to whom payments were made did not fall within the purview of cl. 2(a) of s. 40A of the Act. 12. The brief facts of the issue are that the assessee has a 50 : 50 joint venture with HMA Data Systems (P) Ltd., and Diebold Inc., USA engaged in the manufacture and trading of Automated Teller Machines & Accessories. M/s Chip Trans and M/s Diebold Inc., USA were associate concerns of the assessee-company. The managing director, Shri Harish Murthy was substantially interested in HMA Data Systems Ltd., and Chip Trans, USA. Thus, HMA Data Systems (P) Ltd., Diebold Inc., USA., HMA Software (P) Ltd., and Chip Trans, USA are specified persons as enumerated under s. 40A(2)(a) of the IT Act. During the year, the assessee has purchased software from Chip Trans, USA., Diebold Inc., USA and HMA Software (P) Ltd. The assessee has purchased ATM related software from Chip Trans, USA during the period 1st April, 2000 to 31st Oct., 2000. The AO compared the purchase cost and sales price of software. As mentioned by the AO, the purchase and sales cost of soft ware are as follows: --------------------------------------------------------------- Name of the No. of ....
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....bsp; 1% x C Basic customs duty (BCD) 69,251.21 -- (AV x 25%) Counterveiling duty (CVD) 66,481.16 -- (AV + BCD + SC x 16%) Special Addl. duty 4% 19,279.54 -- Customs duty 1,55,011.91 Clearing 2,351.91 charges 3.5% &n....
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....------------------------------------ Total Cost 8,53,390.64 ------------------------------------------------ Total order value (HW & SW) 10,14,215.69 ------------------------------------------------ Total margin 1,60,825.05 ------------------------------------------------ Margin percentage 15.86% ------------------------------------------------ Bank of Punjab Ltd. 1064ixFL All figures in INR unless otherwise mentioned Hardware 47.00 to a $ &n....
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....bsp; charges 3.5% on AV Clearing charges 3.5% on 13,887.02 AV Landed cost 6,08,290.85 Landed cost 64,622.41 Maintenance modules 1,333.20 Local ----------------------------------- ----------------------- Ex factory Price 6,09,424.05 Ex factory 64,622.41 Hardware Software ....
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....tware matches with the value of software in closing stock for the asst. yr. 1998-99 and 1999-2000. The AO further discussed on the purchase price and sales price of software sets purchased from Chip Trans and Diebold Inc., as under: Comparative chart indicating software purchase price regarding supply to Bank of Punjab Ltd., by Chip Trans. & Diebold in asst. yr. 2001-02. ---------------------------------------------------------- S. Purchase from Chip Trans Inv. No. Selling Purchase No. price price ---------------------------------------------------------- 1. BOP Autocare Centre, 1,110 2,25,000 3,17,646 New Delhi ---------------------------------------------------------- 2. BOP Laxm....
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....P Banga 319 2,25,000 50,568 ---------------------------------------------------------- 3. BOP Patiala 320 2,25,000 50,568 ---------------------------------------------------------- 4. BOP Nabha 321 2,25,000 50,568 ---------------------------------------------------------- 5. BOP Chandni Chowk 322 2,25,000 50,568 ---------------------------------------------------------- 6. BOP Jalandhar 323 2,25,000 50,568 ---------------------------------------------------------- 7. BO....
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....he assessee has maintained regular books of account and stock register showing purchase, sales and stock. He further submitted that the AO wrongly took the purchase from Chip Trans at 312 instead of 709 sets. The purchase of 312 sets is factually incorrect. Actually it was 709 sets which is supported by purchase bills. He drew our attention to pp. 197 to 199 of the paper book I which shows the details of purchase of 697 sets of software from Chip Trans during the year 200001 at a cost of Rs. 6,27,24,879. He further drew our attention to the paper book filed on 6th March, 2006 containing Annexs. I to VII as below: S.No. Annexure No. Particulars Page No. 1. Annexure 1 Affidavit of the appellant 1-2 under r. 10 of the ITAT Rules, 1963 ....
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....p; the software sourced from M/s Chip Trans, USA with the stock Register 7. Annexure 7 Quantitative Reconciliation of 249-252 the software issued with the stock register 15. The learned counsel for the assessee vehemently argued that all purchases were approved by the customs authorities and as such, customs approved details cannot be questioned by the Department. He contended that when payments are approved by one wing of the Government, there is no question of such payments being treated as excessive or unreasonable. For this purpose, he relied on the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Shriram Pistons & Ri....
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....iven vide letter dt. 11th April, 2003, it is stated that sale price has been determined on the basis of actual invoice issued to the bank. As regards the cost of software the software required as per the requirement of bank is prepared by the assessee by combining 2 to 3 softwares and the cost as per letter dt. 11th April, 2003 is the actual cost of such combined software. As far as sale and purchase out of provisions (software supplied by Diebold Inc. USA entry dt. 31st March, 2001), the set of software as required by bank has directly been sent to India. Thus, the software supplied by Diebold is a made to order software and hence there was delay in supply of software." 17. We have heard the rival submissions and perused the material on record. Though the assessee has stated that it has purchased 709 sets of software from Chip Trans, USA, it has not been able to co-relate as to how the 709 sets of software were embedded or grouped and sold to various parties. The assessee has not corroborated the unit-wise purchase cost and sale price of software set in its new place of purchase of 709 software sets. It is clear beyond doubt that the sale was for 312 sets of software only as....
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....he assessee has switched over to the purchase of software from Chip Trans to Diebold Inc., USA w.e.f. 31st Oct., 2000. The purchase was stopped because, the managing director, Harish Murthy was no more managing director of the assessee-company and also the new managing director, was not interested in Chip Trans. 19. Further, when we analyze the purchase price and the sale price, it is interesting to not!3 that the sale price of software sold by the assessee-company to various banks was usually same, i.e., RS.2,25,000. However, the purchase price of software purchased from Chip Trans varies from Rs. 3,17,646 to Rs. 3,34,004. In the case of Diebold, the purchase price of software was usually Rs. 50,568. The assessee was selling the software set at loss when the purchase was made from Chip Trans and made exorbitant profit when the purchase was made from Diebold Inc. Even at the cost of repetition, we reproduce the relevant chart below: Comparative chart indicating software purchase price regarding supply to Bank of Punjab Ltd., by Chip Trans. & Diebold in ass....
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....-------- ---------------------------------------------------------- S. Purchase from Diebold Inv. No. Selling Purchase No. Inc. price price ---------------------------------------------------------- 1. BOP Jalandhar 318 2,25,000 50,568 ---------------------------------------------------------- 2. BOP Banga 319 2,25,000 50,568 ---------------------------------------------------------- 3. BOP Patiala 320 2,25,000 50,568 ----------------------------------------------------------....
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....a) is not applicable. Admittedly, as enumerated in the facts of the case, Mr. Harish Murthy, managing director, of the assessee-company was interested in HMA Data Systems (P) Ltd., and also in Chip Trans, USA. The assessee is a specified person as per s. 40A(2)(a) of the Act. In our opinion, the conditions laid down in s. 40A(2)(a) are squarely applicable to the facts of this case. The purchase price paid by the assessee towards purchase cost of software has directly resulted in deriving benefit to the specified person who has substantial interest in other companies. The payment for purchase of software sets was very excessive and unreasonable having regard to the market value of the goods, legitimate needs of the assessee's business and benefit derived by the assessee. These facts are evident from the comparison of purchase price paid for software purchased from Diebold Inc., USA and Chip Trans, USA The affidavit filed by the assessee regarding the purchase of 709 software and also the statement and the letter dt. 6th March, 2006 at Annexure are only self-serving in nature as the assessee has failed to furnish item-wise cost of each software embedded to each software set sold by t....
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....bsp; 377 2,00,000 2,01,979 1 ------------------------------------------------------------ J&K Bank - Ansal Plaza. 379 2,00,000 2,01,979 1 ------------------------------------------------------------ Abhudaya Bank 380 41,000 36,246 1 ------------------------------------------------------------ XXX XXX XXX XXX XXX ------------------------------------------------------------ XXX XXX XXX XXX XXX ----------------------------------------------------....
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....bsp; FOB 1062 ATMs 268 10,23,81,069 3,82,018 FOB -------------------------------------------------------------- The AO computed the average cost of CD and ATM purchased from Diebold Inc with CD and ATM purchased from Chip Trans. As mentioned above, the average purchase price of ATM from Chip Trans works out to Rs. 4,53,329 (9,61,05,815 divided by 212) as against Rs. 3,82,019 purchased from Diebold Inc. The assessee submitted before the AO that this variation was due to C&F freight in the case of Chip Trans. However, the cost of Diebold Inc., was as per FOB value. The AO, after giving credit to freight and insurance, estimated the variation at around Rs. 10,000 per ATM purchased from Chip Trans and in the opinion of the AO, the price paid to Chip Trans for the purchase of ATM is in excess of Rs. 10,000 and thus, he estimated the addition in the purchase of 212 ATMs at Rs. 21 lakhs and added the same to the income of the assessee, invoking the provisions of s. 40A(2)(a)/40A(2)(b) of the IT Act. 24. On appeal, the CIT(A) ascertained the average pri....
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.... invoked. The basis for adopting the average price of Rs. 3,26,651 for ATM CD supplied by M/s Chip Trans has not come through. Hence, we are not in a position to express any opinion on this. Accordingly, we set aside this issue to the file of the AO to examine the correct price paid for ATM CD to Chip Trans and thereafter compare it with the price paid to Diebold Inc. On comparison if the AO finds that the price paid to Chip Trans was excessive or unreasonable, then he is directed to invoke the provisions of s. 40A(2)(a)/40A(2)(b) of the Act and our findings with regard to purchase of software set in earlier paragraphs will be applicable to the purchase of hardware. In this context, we make it abundantly clear that the AO, while concluding this issue, is directed to give due credit towards the difference on account of C&F Price and FOB price. 26. This issue is allowed for statistical purpose. 27. The last issue is that the CIT(A) has erred on facts and law in confirming the disallowance of Rs. 4,164,000 on account of sales commission paid to independent parties as being excessive. 28. The brief facts of the issue are that the assessee was doing business with the Bank of Pu....
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.... that was payable to the agents on the order of 100 machines procured by them from Bank of Punjab Ltd., was Rs. 35,000,000. The main services rendered by the sales agent for which they were paid commission by the assessee are in the nature of relationship services to obtain orders and as the services are relationship based, and work on the contracts of persons involved, no contemporary/recordable documentation is generated. However, the payment of commission is made by cheque on receipt of order but the commission is charged to P&L a/c in the year the machine is dispatched and the payment mechanism is based on actual order received which is evident from the copy of the ledger account of commission and brokerage for the period 1994 to 2003, i.e., from the inception of the company. These details were placed before the AO vide letter dt. 9th Dec., 2003. The AO, though admitted that the commission was paid to get orders, he held it to be in the nature of kickback and corruption money and disallowed the commission payment. The learned counsel for the assessee vehemently argued that the AO has not brought any evidence on record to prove that the money has flown to the assessee by way of ....
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....9) 71 ITD 412 (Mumbai) 30. On the other hand, the learned Departmental Representative submitted that the commission was paid to identify the customers as evident from the agreement with the agents. This commission is said to have been paid for transactions with Bank of Punjab Ltd., The assessee was transacting with the Bank of Punjab Ltd., since 1995 and no commission was paid to anybody till 1999. It is, therefore, evident that no service was rendered by the so-called agents. He contended that for obtaining orders worth of Rs. 11 crores, commission was claimed to have been paid to the tune of Rs. 3.5 crores, i.e., about 32 per cent which is abnormally high. It is observed from the sworn statement from Shri P.P. Manjunath Rao, Vice President, Sales and Operations of the assessee-company that commission was paid to four concerns to identify only one customer, i.e., Bank of Punjab Ltd. The party to whom agents were stated to have been employed, i.e., Bank of Punjab Ltd., did not furnish any confirmation letter to that effect. The learned Departmental Representative relied on the judgment of the Hon'ble Supreme Court in the case of CIT vs. Calcutta Agency Ltd. (1951) 19 ITR 191 (SC....
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....es are concerned, right now I am not able to furnish details regarding the person/persons with whom the deal was negotiated. Q.13 How did they meet you? Where did they meet you? And what was the basis for payment of commission? A.13 I have not met them personally. As far as the basis of commission is concerned it is based on order quantity and a certain percentage of value. Q.14 If the order is from one company, why should 4 entities be paid the commission? A.14 These orders were for various periods. Q.15 If one of the companies was capable of getting the order, why is it that others were approached for the same order A.15 The way they handled the deal, we were not comfortable and hence had to approach others who expressed their interest to represent us." 32. On going through the above questionnaire, even the person incharge of sales was not aware of the marketing activities done by the sales agents. He was not aware of the details of orders procured by these sales agents. Even the Vice President of the Bank of Punjab Ltd., was not aware of the sales agents. The assessee has been dealing with the Bank of Punjab Ltd., since 1995 and the business was continuous o....