TaxTMI 
TaxTMI 
2015 (9) TMI 1358
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....fter referred to as the 'Act'). 2. Shri S.N. Soparkar, Senior Advocate, the Learned AR argued on behalf of the assessee and Shri Sachidanand Srivastava, the Learned CIT (D.R.) argued on behalf of the Revenue. 3. The first ground raised by the assessee is that the assessment order is barred by limitation. During the course of hearing, the Learned AR informed the Bench that the said ground is not pressed and his statement is taken as the Statement from the Bar. The Learned AR also filed a chart comprising of various issues at the time of hearing wherein in respect of Ground No.1, he has specifically stated against this Ground as Not Pressed. Accordingly, the Ground No. 1 raised by the assessee is dismissed as not pressed. 4. The first issue to be decided in this appeal is as to whether the roaming charges of Rs. 55,41,01,320/- paid by the assessee to other telecom operators is liable for deduction of tax at source under the provisions of the Act. 4.1. The brief facts of this issue are that the assessee is a subsidiary of Vodafone Essar Limited, engaged in providing Cellular Mobile Telephony Services (CMTS) in Kolkata Telecom Circle after receipt of approval from t....
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....ereby a subscriber of a cellular phone uses cellular services outside the home network and will get services from the host operator. The assessee has entered into roaming arrangements with other telecom operators to make or receive calls when the subscribers move out of the licensed territory. For example, suppose the Home Operator is licensed to provide telecom services only in Kolkata Telecom Circle and Visiting Operator is licensed to provide services only in Delhi Telecom Circle. Further Home Operator and Visiting Operator have entered into a roaming arrangement whereby a customer of Home Operator, travelling to Delhi would be able to use the network of Visiting Operator to avail telecom services. Pursuant to this roaming arrangement, when a subscriber of Home Operator travels to Delhi, he will be able to seamlessly latch on the network of Visiting Operator and continue to use telecom services in Delhi. Depending upon the usage of the subscriber and the arrangement between the Home Operator and Visiting Operator, Visiting Operator shall raise an invoice on Home Operator for such usage by the subscriber and Home Operator shall subsequently recover such charges from the subscribe....
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....ether the payment made by the home operator (i.e. the assessee herein) to the host operator for roaming charges would come under the ambit of TDS provisions. 4.4. The Learned AR argued that an identical issue was the subject matter of litigation before the Hon'ble Supreme Court in the case of CIT - vs.- Bharti Cellular Ltd reported in 330 ITR 239 (SC), wherein the question raised before the Supreme Court is as below:- "Whether tax was deductible by Bharti Cellular Ltd when it paid interconnect charges/access/port charges to BSNL"? The Supreme Court observed that the problem which arose in such cases was that there was no expert evidence from the side of the department to show how human intervention takes place, particularly during the process when calls take place, let us say, from Delhi to Nainital and vice versa. If, for example, M/s Bharti Cellular Ltd has no network in Nainital, whereas it had a network in Delhi, the interconnect agreement enabled M/s. Bharti Cellular Ltd to access the network of BSNL in Nainital; and the same situation could arise vice versa in a given case. During the traffic of such calls, whether there is any manual intervention, was one ....
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.... issue to prove that none of the provisions of section 194C, 194I and 194J of the Act are applicable in the facts and circumstances of the case. 4.7. The Learned DR vehemently argued that no technology in world could survive without human intervention. He argued that even nuclear reactor requires human intervention and he explained further that 100 scientists view the monitor in a control room and though nothing could be seen and everything is automated, but without the intervention of the human beings the reactor would not function without any defect s. He argued that similar is the case with space technology. He argued that telecom technology could not be different. The assessee pays roaming charges for services provided by the other operator (Visiting Operator) for connectivity of two mobile handsets while roaming. This is not wireless connectivity. Wireless connection is between handset and connecting tower. Thereafter it is only transmission lines through which the electrical signals travel. It has to be seen that how the voice travels to the other mobile network. It is pertinent to note that the sound does not travel. It gets converted into electrical signals and only thos....
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....rvices are standard automated services, which are provided by other telecom operators to subscribers of VEL using the same network/infrastructure as is used by such operators for provision of telecommunication services to its own subscribers. Therefore, in essence, roaming services are similar in nature to the telecom services provided by a telecom operator to its own subscribers and hence roaming charges would partake the same character as the normal telecommunication charges paid by a subscriber to its service provider. 4.11. We are not in agreement with the arguments of the Learned DR that the word 'technical' used in Explanation 2 to Section 9(1)(vii) of the Act should take the same character of 'managerial' or 'consultancy' provided in the said section wherein human intervention is required and accordingly even for technical services, human intervention is definitely required. In this regard, the Hon'ble Delhi High Court in the case of CIT vs Bharti Cellular Ltd in 319 ITR 139 (Del) had held that since the entire process of making a call and switching the call from one network to the other is done automatically on the basis of machines and does n....
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....ri Tanay Krishna on 29.9.2010 have been relied upon by the Learned CIT(Appeals) vide page 29 of his order but the cross examination of Shri Tanay Krishna is not in records of the lower authorities. We find that the statement is very much relevant for the disposal of these appeals and are hereby admitted as additional evidence (in respect of cross examination statement of Shri Tanay Krishna on 29.9.2010) in terms of Rule 29 of ITAT Rules as they go into the root of the issue. 4.13. We find that this issue need not be set aside to the file of the Learned Assessing Officer for seeking fresh technical evidences from experts as the same had al ready been obtained in the case of the group company of the assessee and CBDT had also issued Instructions in this regard to seek evidences. Any technical evidence obtained in a case can be used in the case of another assessee as long as the facts and circumstances involved are identical. In the instant case, the facts in the case of Vodafone Essar Mobile Services Ltd are identical with the facts of the assessee herein and also it happens to be the group company of the assessee. 4.14. Shri Tanay Krishna's statement-questions and answers ....
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....under which human intervention would be required. I would briefly tell you about each of such circumstances - (a) There could be a case where there is failure in physical hardware. (b) There could be a problem due to software bug. (c) There could be snapping of fibre optic cables. In (a), (b), (c) above you are required intervention of teams of technical experts to remedy the situation. Question 16: Please tell us the places or points or areas where human intervention with each other? Ans. 16: As has been detailed in several answers that I have given earlier, one can broadly say that when there is an interconnection between two service providers, human intervention is constantly required for management of network/System, capacity enhancement and monitoring of system/network. 4.15. Cross examination proceedings of Shri Tanay Krishna - questions and answers - 3,4,5,7,11 & 12 are reproduced below:- Q.3. What is the process of carriage of calls originating on network of one operator and terminating on the network of the other operator? The call from one network to the other network flows automatically, i.e. with....
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...., and set-up? We agree that the telecom networks are automated networks and do not require human intervention for carriage of calls. However, as stated in Question 4 of this cross examination, human intervention is required at the inter-connect set-up stage (including configuration, installation, testing, etc) and capacity enhancement, monitoring (including network monitoring), maintenance, fault identification, repair and ensuring quality of service as per interconnect. 4.16. The next argument of Learned DR that roaming charges are paid for both interconnectivity and also for usage of transmission lines and human intervention is very much involved with regard to usage of transmission lines. We find that the human involvement is involved only when something goes wrong in the maintenance of transmission lines and for connectivity per se, human intervention is not involved. This issue could also be looked into from the angle of applicability of TDS provisions on Transmission Charges / wheeling charges paid by power generating companies. This issue had reached the corridors of various judicial forums and now has been put to rest by the following decisions:- CIT(TD....
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....harges across licensees when found to be uneconomical and uncompetitive. It is further observed that MERC has considered pooling of transmission charges during bulk power transmission from one licensee to another licensee. It is after considering all these aspects that a composite charge method for any such transmission was adopted. Thus, it is seen that the methodology for determining of the transmission tariff could not be determined in a mechanical manner as if the charge was only for use of the State transmission utility. The MERC while passing this order on transmission charges had received various objections some, inter alia, supporting the composite tariff, some against. However, we need not divert our attention to the details of pricing formula finally adopted. There is nothing on record to support the Revenue's contention that the wheeling and transmission charges assumes the character of rent. We are in agreement with Mr. Mistri that the expression "rent" must be conceptually understood. The concept of rent under the Income-tax Act does not encompass, in our view, the wheeling and transmission charges payable by the assessee especially when the assessee is di....
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....ng of the said transmission utility to be used by open access concept for distribution of electricity to the licensees and consumers. In view of the above discussion, we are of the view that the wheeling and transmission charges are neither rent nor fees for technical services. Keeping the said interpretation into effect, we find that while interpreting the expression "rent" in the present scenario, we must bear in mind that taking into account the functioning of MSEDCL which is a public utility, it will not be appropriate to equate the transmission charges or wheeling charges to rent or fees for technical service. In our view, the transmission charges and/or wheeling charges are not amounts paid under any arrangement for use of land, building, plant machinery, equipment, furniture, fitting, etc. and, therefore, not rent. Equally, the amounts are not fees for technical services. In the facts and circumstances of this case, we answer the question in favour of the assessee and against the Revenue. The appeal is disposed of accordingly. There will be no order as to costs. b) Auro Mira Biopower India P Ltd vs ITO TDS reported in (2015) 55 taxmann.com 452 (Chennai-Tribunal) ....
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....stern Regional Electricity Board and the Regional Load Dispatch Centers, and cooperate with the Bulk Power Beneficiaries of the Region, so as to maintain the system parameters within acceptable/reasonable limits except where it is necessary to take measures to prevent imminent damage to any equipment". In respect of these services, the bulk power beneficiaries are to pay to PGCIL a monthly charges computed in the manner set out in clause 9 of the said agreement. This clause, in turn, refers to formula set out in A.4 of Annexure 1 which refers to the same ratio of agreed annual charges divided by 12 as is between power transmitted to each beneficiary to total sales from that particular point of delivery. In other words, while the annual charges are fixed, these are divided between the beneficiaries in the same ratio as is ratio of power evacuated by a beneficiary to the total sale of power from that delivery point. It is, however, not in dispute that the transmission lines are in the physical control of PGCIL, these are maintained and operated by the PGCIL and, so far as the assessee is concerned, its interest in the transmission lines is restricted to the fact that electrical power....
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....r turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section. Explanation : For the purposes of this section, [(i) "rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any, -, (a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings, whether or not any or all of the above are owned by the payee;] (ii) where any income is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the pro....
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....e sense that the same transmission lines continue to be in the control of PGCIL for transmission of electricity for other entities and for all practical purposes. Even as electricity purchased by the assessee is transmitted to the assessee from the NTPC busbar to its landing points, the same transmission lines continue to be engaged in similar transmission of electricity for other entities and the assessee has no say in the manner in which such transmission lines can be controlled and used by the PGCIL. Undoubtedly, for the purpose of an arrangement being termed as in the nature of rent for the purpose of Section 194-I, the 'control' and 'possession', in legal terms, of an asset may not not needed to be with the person benefiting from the asset in question, it is a condition precedent for invoking Section 194 I that the asset, for the use of which the payment in question is made, should have some element of its control by the assessee. Here is a case in which the assessee has no control over the operations of the transmission lines, and all that he gets from the arrangements is that he can draw the electrical power purchased from PGCIL's transmission lines in an....
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....n the negative, as there is no transfer of the "use of the lorry" for the following reasons : (i) The lorry is never in the control, let alone effective control of the customer; (ii) the carrier decides how, when and where the lorry moves to the destination, and continues to be in effective control of the lorry; (iii) the carrier can at any point (of time or place) transfer the consignment in the lorry to another lorry; or the carrier may unload the consignment en route in any of his godowns, to be picked up later by some other lorry assigned by the carrier for further transportation and delivery at destination. (ii) On the other hand, let us consider the case of a customer (say a factory) entering into a contract with the transport operator, under which the transport operator has to provide a lorry to the customer, between the hours 8 a.m. to 8 p.m. at the customer's factory for its use, at a fixed hire per day or hire per km. subject to an assured minimum, for a period of one month or one week or even one day; and under the contract, the transport operator is responsible for making repairs apart from providing a driver to drive the lorry and filling the vehi....
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....ly for installation / setting up / repairing / servicing / maintenance / capacity augmentation of the network. But after completing this process, mere interconnection between the operators while roaming, is done automatically and does not require any human intervention and accordingly cannot be const rued as technical services. It is common knowledge that when one of the Subscribers in the assessee's circle travels to the jurisdiction of another circle, the call gets connected automatically without any human intervention and it is for this, the roaming charges is paid by the assessee to the Visiting Operator for providing this service. Hence we have no hesitation to hold that the provision of roaming services do not require any human intervention and accordingly we hold that the payment of roaming charges does not fall under the ambit of TDS provisions u/s 194J of the Act. 4.18. As far as the applicability of provisions of section 194C are concerned, we hold that the provisions of section 194C of the Act would become applicable only where some work (works contract) is being carried out and there is some human intervention involved in the carriage of such work. The term '....
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....factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings whether or not any or all of the above are owned by the payee." The real test to be considered is whether it is possible to say that it is the assessee who has used the equipment and has paid the roaming charges to the other service provider with whom it has entered into a national roaming agreement. We hold that it is not possible to say so because if at all anyone can be said to have used the equipment it can only be the Subscriber of the assessee but not the assessee. If anything the assessee is placed in a position of a mere facilitator between its subscriber and the other service provider, facilitating a roaming call to be made by the Subscriber. The assessee cannot be said to have used the equipment which is involved in providing the roaming facility. The assessee collects the roaming charges from its Subscriber and passes it on to the other service provider. It is relevant at this juncture to get into the judgement of the apex court in the case of BSNL and Another vs Union of India and Others (2006) 282 ITR 273 (SC). ....
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....h regard to the non-applicability of TDS provisions for roaming charges, the next argument of the Learned AR that the provisions of sect ion 40(a) (ia) of the Act would apparently be applicable only for amounts payable at the end of the year and not for amounts paid before the end of the previous year. We find that this issue is al ready covered against the assessee by the decision of the Jurisdictional High Court in CIT vs Crescent Export Syndicate (2013) 33 taxmann.com 250 (Cal) wherein it was held that provisions of 40(a)(ia) could be invoked on amounts paid before the end of the previous year. Accordingly, this ground no. 2.2 raised by the assessee is dismissed. However, this ground becomes infructuous in view of our decision rendered for Ground No. 2.1. 4.22. Without prejudice to the main Ground No. 2.1 and alternative Ground No. 2.2, the Learned AR argued that the second proviso to section 40(a)(ia) inserted with effect from 1.4.2013 should be construed as curative in nature and hence has to be given retrospective effect. This issue has been recently decided by the Hon'ble Delhi High Court in the case of CIT vs Ansal Land Mark Township (P) Ltd wherein it was held as fo....
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....see to its subsidiary. 5.1. The brief facts of this issue is that the assessee advanced loan of Rs. 410 crores to its subsidiary Vodafone Digilink Ltd. It is also not in dispute that out of Rs. 410 crores advanced by the assessee, a sum of Rs. 250 crores represent loan funds of the assessee and balance Rs. 160 crores was advanced out of internal accruals and own funds of the assessee. The Learned Assessing Officer disallowed the interest payment on a proportionate basis as according to him the borrowed funds were diverted for granting interest free loans to subsidiary which is for non business purposes. This addition was also upheld by the Learned CIT(Appeals) on the ground that the assessee has not established commercial expediency on funds advanced to its subsidiary The Learned CIT(Appeals) invoked the provisions of section 14A of the Act though the Learned Assessing Officer invoked the provisions of section 36(1)(iii) of the Act while making the disallowance. Aggrieved, the assessee is in appeal before us on the following grounds:- Ground No. 3- Disallowance of interest on loans borrowed 3.1. On the facts and circumstances of the case and in law, the learned CIT(A....
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...., and such funds are utilized by the subsidiary for business purposes, then the interest expenses incurred for availing such funds necessarily need to be allowed as deduction in the hands of the said enterprise. In response to this, the Learned DR vehemently supported the orders of the lower authorities and the case laws relied upon in the Learned CIT(Appeals) order for justifying the disallowance of interest. 5.3. We have heard the rival submissions and perused the materials available on record. There is no dispute on the facts with regard to usage of borrowed funds to the tune of Rs. 250 crores for advancing interest free loans to subsidiary. Hence the nexus between borrowed funds and interest free loans have been clearly established by the Learned Assessing Officer. Now the short point that arises for our consideration whether the said interest free loans advanced is done by the assessee during the course of its business of the assessee and done as a measure of commercial expediency. We also admit the additional evidences filed by the Learned AR filed before us in the form of filing the balance sheet s of Subsidiary Company to prove that how the funds borrowed from the ass....
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.... also benefits thereby. The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. It has been repeatedly held by this court that the expression "for the purpose of business" is wider in scope than the expression "for the purpose of earning profits" vide CIT vs Malayalam Plantations Ltd (1964) 53 ITR 140, CIT vs Birla Cotton Spinning & Weaving Mills Ltd (1971) 82 ITR 166. The High court and the other authorities should have examined the purpose for which the assessee advanced the money to its sister concern, and what the sister concern did with this money, in order to decide whether it was for commercial expediency, but that has not been done. What is relevant is whether the assessee advanced such amount to its sister concern as a measure of commercial expediency. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advan....
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....In the result, the appeal of the assessee in ITA No. 1864/Kol/2012 for the Asst Year 2009-10 is partly allowed. ITA No. 243 / Kol / 2014 - Asst Year 2010-11 - Assessee's Appeal 7. This appeal arises out of the order of the Learned CIT(Appeals) in Appeal No.118/CIT(A)-VIII/Kol/13-14 dated 31.12.2013 for the Asst Year 2010-11 arising out of the order of the Learned Assessing Officer framed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act'). 8. The first issue to be decided in this appeal is as to whether the domestic roaming charges of Rs. 64,48,54,654/- paid by the assessee to other telecom operators is liable for deduction of tax at source under the provisions of the Act. 8.1. This issue is elaborately discussed above for the Asst Year 2009-10 and the decision rendered thereon is applicable for this asst year also. 9. The second issue to be decided in this appeal is as to whether the International roaming charges of Rs. 10,64,45,346/- paid by the assessee to other telecom operators is liable for deduction of tax at source under the provisions of the Act. 9.1. The Learned AO held that in respect of international roaming charge....
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....d is well placed and directly in favour of the assessee on this principle. 9.4. We hold that the payment of roaming charges does not fall under the ambit of Fee for Technical Services as no human intervention is required for the same and hence the income of non-resident telecom operator is not chargeable to tax in India u/s 195 of the Act and hence we refrain to give our opinion on the other beneficial provisions provided in the DTAAs for the assessee in the facts of the impugned issue. Accordingly, the ground raised by the assessee with regard to applicability of TDS provisions for international roaming charges of Rs. 10,64,45,346/- is allowed. 10. Disallowance of Penalty paid to Department of Telecommunications- Rs. 5,05,000/- The next issue to be decided in this appeal is as to whether the sum paid as penalty to Department of Telecommunications (DOT) by the assessee would fall under the Explanation to section 37(1) of the Act treating the same as amount paid for infraction of any law. 10.1. The brief facts of this issue is that the assessee is providing cellular mobile telephonic services in Kolkata Telecom Circle based on the telecom license granted by Department of....
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....espondent), wherein it has been stated as below:- "Para 16: Section 20 of Indian Telegraph Act provides for penalties. Section 20A provides for penalties for breach of conditions of license in the following terms:- "Breach of condition of license - If the holder of a license granted under section 4 contravenes any condition contained in his license, he shall be punished with fine which may extend to one thousand rupees, and with a further fine which may extend to five hundred rupees for every week during which the breach of the condition continues. " Para 28. "Clause 41.14 provide that the complete list of subscribers shall be made available by the LICENSEE on their website (having password controlled access) so that authorized Intelligence Agencies are able to obtain the subscriber list at any time, as per their convenience with the help of the password. The list should be updated on regular basis. Hard copy as and when required by security agencies shall also be furnished. The LICENSEE shall ensure adequate verification of each and every customer before enrolling him as a subscriber; instructions issued by the licensor in this regard from time to time s....
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.... of contract on the part of the licensees, penalty to the extent of Rs. 50 crores would become payable. Para 58. Section 20 of the Act, to which our attention has been drawn, refers to fine and, thus, can be imposed only by a Criminal Court. If only a Criminal Court can impose fine in terms of section 20 of the Act, the same, evidently cannot be imposed by the licensor. Para 59. For similar reasons, the provision of section 20A can be resorted to only by a Criminal Court, if any case is made out therefor. 10.3. The Learned AR argued that from the aforesaid citation of TDSAT, it could be concluded that the DOT per se does not have any authority to levy penalty as the said power is vested only with a Criminal Court. He argued that the proceedings challenging the jurisdiction of DOT to levy penalty are pending and however the assessee had paid the penalty of Rs. 5,05,000/- under protest and claimed the same as deduction u/s 37(1) of the Act. 10.4. He argued that the lower authorities had not pointed out which law or statute has been violated by the assessee to come under the ambit of Explanation to section 37(1) of the Act. He further argued that there is no la....
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....enditure - Held, Yes". (b) Goldcrest Capital Markets Ltd vs ITO reported in (2010) 2 ITR (TRIB.) 355 (Mum) - ITAT Mumbai B Bench dated 21.1.2009. The head notes are reproduced below:- "Section 37(1) of the Income Tax Act, 1961- Business expenditure -Allowability of - Assessment Years 2002-03 & 2003-04 Fine paid by assessee stock broker who was a member of NSE, on account of unfair trade practice and un-business like conduct is not for violation of law and hence, cannot be disallowed. The members of NSE Ltd are bound through the articles of association to abide by the rules, regulations and bye-laws of the NSE Ltd. Nevertheless, such rules, regulations and bye-laws can be considered as regulations for controlling the internal inter se obligations and rights of the members of NSE Ltd. Though every member of NSE Ltd would be obliged to abide by such rules and regulations, a violation thereof cannot be treated as violation of a statutory law or rule. The fines and penalties levied for violation on account of "unfair trading practice" as specified in 4.6 of the NSE regulations and "un-business like conduct" as specified in IV(4)(e) of the NSE rules cannot be equated....
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.... ad same could not be considered as infraction of any statutory law. So, the expenses incurred by the assessee in regular course of business were allowable. Hence, the impugned orders were to be set aside. In the result, the appeal was to be allowed." 10.8. We find that analogy could be drawn from the aforesaid case laws to the facts of the instant issue before us and hold that the penalty paid to DOT does not come under the ambit of Explanation to Section 37(1) of the Act and accordingly, the grounds raised by the assessee in this regard are allowed. 11. Disallowance of provision for Asset Restoration Obligation (ARO) written back - Rs. 6,52,00,000/- The next issue to be decided in this appeal is that whether the Learned CIT(Appeals) is correct in upholding the action of the Learned Assessing Officer in not allowing to reduce the provision for Asset Restoration Obligation written back to the tune of Rs. 6,52,00,000/- while computing taxable income of the assessee. 11.1. The brief facts of this issue is that the assessee reduced a sum of Rs. 6,52,00,000/- while computing taxable income towards provision for Asset Restoration Obligation written back in the revised return....
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.... reversal, the ARO provision appearing in the books of account of the assessee was cancelled against the cost base of the corresponding written down value of the fixed assets of ARO and the balance (i.e such portion of ARO as has been already charged off as depreciation in earlier years), was credited to profit and loss account. He argued that since the provision for ARO in relation to asset s was included in the cost of assets under the block of 'plant and machinery', the amount of ARO writ ten back to the profit and loss account in fact represents the amount of book depreciation that was charged by the appellant on the provision for ARO obligation in the prior years prior to the demerger. Given that such write back of ARO provision is capital in nature, the same has been reduced in the computation of income for the Asst year 2010-11 in the revised return of income. The Learned AR argued that provisions of section 41(1) of the Act would not become applicable in the instant case as this provision was not charged to the profit and loss ac count for any earlier period. In response to this, the Learned DR vehemently supported the orders of the lower authorities. 11.3. We....
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....51,16,245/-. 12.1. The brief facts of this issue is that the assessee had entered into a service contract with IBM wherein IBM is meant to provide end to end IT services and solutions on receipt of consideration from the assessee. The sums paid by the assessee represented amortization of additional hardware charges for the support services. IBM continued to be the owner of the hardware and accordingly, the assessee sought to amortise the total payments made to IBM over the contract period in accordance with the decision of the Supreme Court in the case of Madras Industrial Investment Corporation Ltd (225 ITR 802). The Learned Assessing Officer sought to disallow this amortization of expenses without adducing any reasons in the assessment order. On first appeal, the Learned CIT(Appeals) sought a remand report from the Learned Assessing Officer in this regard who stated that it is not known whether the assessee had deducted tax at source on the payments made to IBM and ac cordingly declined to offer extensive comments on this issue for want of full facts. The Learned CIT(Appeals) proceeded to confirm the disallowance on the fact that the assessee had not furnished the agreement co....
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....ng Officer in the assessment order with regard to this issue. Hence in the interest of justice and fair play, we deem it fit and appropriate to set aside this issue to the file of the Learned Assessing Officer to decide the issue afresh in accordance with law. Needless to mention that the assessee be given reasonable opportunity of being heard. Accordingly, the ground raised by the assessee in this regard is allowed for statistical purposes. In the result, the appeal of the assessee in ITA No. 243/KOL/2014 is partly allowed for the Asst Year 2010-11. ITA No. 343/Kol/2014 - Department Appeal - Asst Year 2010-11 14. This appeal of the revenue arises out of the order of the Learned CIT(Appeals)-VIII, Kolkata in Appeal No. 118/CIT(A)-VIII/Kol/13-14 dated 31.12.2013 for the Asst Year 2010-11 arising out of the order of the Learned Assessing Officer framed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act'). 15. The first issue to be decided in this appeal is whether the Learned CIT(Appeals) is correct in allowing the relief of Rs. 2,55,01,032/- on account of unrealized foreign exchange fluctuation gain. 15.1. The brief facts of this issue....
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....ined for acquisition of fixed assets only at the time of making payment and accordingly the exchange gain, if any, would go to reduce the cost of the fixed asset. Since in the instant case, the exchange gain is derived only on a notional basis and is unrealized, by applying the provisions of section 43A of the Act, the said gain needs to be reduced from the taxable income. We also find that the Learned Assessing Officer having accepted to the facts of the case and the relevant provision of the Income Tax Act in his remand report, ought not to have come on appeal before us on this issue. We also find that this issue is covered by the decision of the Supreme Court in the case of CIT vs Woodward Governor of India P Ltd reported in 312 ITR 254 (SC) wherein the principles were laid down for recognition of exchange gain/loss under various circumstances. Respectfully following the provisions of the act and the decision of the apex court, we are not inclined to interfere with the decision of the Learned CIT(Appeals). Accordingly, the ground no. 1 raised by the revenue is dismissed. 16. The next issue to be decided in this appeal of the revenue is as to whether the Learned CIT(Appeals....