TaxTMI 
TaxTMI 
2010 (2) TMI 713
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.... section 80-O of the Act claimed at 50 per cent. of the net foreign consultancy income. No expenses incurred in India are allocated/apportioned to earning of foreign consultancy income. Section 80-O of the Act, as it stood at material time reads as under : "80-O. Deduction in respect of royalties, etc., from certain foreign enterprises.-Where the gross total income of an assessee, being an Indian company, or a person (other than a company) who is resident in India, includes any income received by the assessee from the Government of a foreign State or foreign enterprise in consideration for the use outside India of any patent, invention, design or registered trade mark, and such income is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange, there shall be allowed, in accordance with and subject to the provisions of this section, a deduction of an amount equal to....
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.... inter alia, on the following grounds : (a) The issue whether Indian expenses were to be taken into account for purposes of calculation of deduction, at the time of the filing of the return of income, was debatable. (b) No satisfaction was recorded in the assessment order while initiating proceedings under section 271(1)(c) of the Act. (c) The Assessing Officer having allocated/apportioned Indian expenses on estimate basis, the same could not constitute ground for levying penalty. 5. The Tribunal by a combined order deleted the penalty levied for the assessment years 1994-95 to 1996-97 on the grounds that (a) no satisfaction for initiation of penalty proceedings was discernible from the reading of the assessment orders ; and (b) the short allowance of deduction under section 80-O of the Act being made on estimate, the assessee could not be penalized by way of levy of penalty for furnishing inaccurate particulars of income. The Tribunal did not, however, accept the other submission of the assessee, viz., since the issue whether Indian expenses would enter the computation of deduction under section 80-O of the Act was debatable, at the time whe....
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....n the conclusions are summarized by the court in the following manner pages 155-156) : "In the result, our conclusions are as follows : (i) Section 271(1B) of the Act is not violative of article 14 of the Constitution. (ii) The position of law both pre and post amendment is similar, inasmuch as, the Assessing Officer will have to arrive at a prima facie satisfaction during the course of proceedings with regard to the assessee having concealed particulars of income or furnished inaccurate particulars, before he initiates penalty proceedings. (iii) 'Prima facie' satisfaction of the Assessing Officer that the case may deserve the imposition of penalty should be discernible from the order passed during the course of the proceedings. Obviously, the Assessing Officer would arrive at a decision, i.e., a final conclusion only after hearing the assessee. (iv) At the stage of initiation of penalty proceeding the order passed by the Assessing Officer need not reflect satisfaction vis-a-vis each and every item of addition or disallowance if overall sense gathered from the order is that a further prognosis is called for. (v) However, t....
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.... the Act at 50 per cent. of its gross income earned in foreign exchange and not at 50 per cent. of the net income earned in foreign exchange. In these circumstances, the Assessing Officer asked the assessee to furnish details of expenditure incurred to earn the income in foreign exchange by giving specific notice. The assessee, however, refused to do the needful even when the case was adjourned repeatedly. Under such circumstances, the Assessing Officer asked the assessee to explain as to why the expenditure relatable to the assessee's earning in convertible foreign exchange should not be estimated. In response to such show-cause notice, the assessee came out with the plea that the expenditure incurred in India to earn foreign exchange was not to be deducted. In this behalf, the Assessing Officer noted as under : "I have considered the above submission made by the assessee. I find that the assessee-company has only described the general customary practices in the business of consultancy but has not furnished any evidence to show that direct expenses relatable to their earning in foreign exchange have been borne by their clients or recovered from them. I find from th....
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.... in the books of account was allocated and apportioned by the Assessing Officer to arrive at the net foreign consultancy income on the basis of which reduction under section 80-O of the Act was made at 50 per cent. The Assessing Officer was not able to pinpoint any specific expenditure incurred in India, which was incurred in relation to the foreign consultancy income. The Assessing Officer merely resorted to an estimate to disallow part of the deduction under section 80-O as claimed by the assessee. He thus argued that in these circumstances, it was rightly held by the Tribunal that the estimated disallowance made by the Assessing Officer out of the claim of deduction under section 80-O of the Act was not on account of any expenditure, which was found to be bogus or excessive. We may also note that going by the aforesaid circumstance, the Tribunal has held that the assessee was not guilty if furnishing inaccurate particulars to sustain the levy of penalty and has relied upon the following judgments : (i) CIT v. Prem Das (No. 1) [2001] 248 ITR 234 (P&H) ; (ii) CIT v. Ajaib Singh and Co. [2002] 253 ITR 630 (P&H) ; and (iii) Harigopal Singh v. CIT [2002]....
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.... availability of deduction under section 80-O of the Act on gross or net income. The Tribunal has relied upon the decision of the Supreme Court in the case of Distributors (Baroda) Pvt. Ltd. v. Union of India [1985] 155 ITR 120 (SC) and the decision of this court in the case of CIT v. Marketing Research Corporation [1987] 61 CTR (Delhi) 204 in support of its conclusion that on the date of filing of return, the controversy was wellsettled, viz., the deduction under section 80-O of the Act had to be allowed on the net income. In the cross-objections filed by the assessee, this finding of the Tribunal is assailed. The argument advanced by the assessee, in this behalf, has two limbs. In the first place, it is argued that the Tribunal has completely missed the import/merit of the appellant's arguments. The controversy raised by the appellant was not whether the deduction under section 80-O had to be allowed on gross or net income. It is the settled proposition of law that deduction under section 80-O had to be allowed only on net income. The controversy in dispute was whether the expenses incurred in India could be apportioned to the earning of the foreign consultancy income f....
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....butors (Baroda) Pvt. Ltd. [1985] 155 ITR 120 (SC). The categorical view of the Supreme Court was that the deduction required to be allowed was available only with respect to the net amount as computed for the purpose of assessment to tax and not actual amount received. The court was concerned, in that case, with the provision of section 80M of the Act relating to the deduction in respect of income from dividend. The legislative history of this provision along with sections 80A(2) and 80AA was taken note of along with various earlier pronouncements. Relying upon this judgment, this court in Marketing Research Corporation [1987] 61 CTR 204, which pertains to section 80-O of the Act reiterated that the deduction had to be computed not on the basis of the gross income, but on the basis of the net income. This judgment of the jurisdictional court was binding on all the authorities including the Assessing Officer, the Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal. The reason for referring the matter to a Larger Bench was that the decision of the Division Bench in Marketing Research Corporation [1987] 61 CTR 204 was ex parte and it was also argued....