TaxTMI 
TaxTMI 
TaxTMI 
2016 (11) TMI 441
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.... 2004-05 nil 20.03.2009 Rs.3,51,943/- 31.12.2009 ITA./3139/Mum/2008,AY.2000-01: Assessee-company, filed its return of income on 02.12.1996, showing income of Rs. 3.15 crores. Subsequently, the Assessing Officer (A.O.) completed the assessment u/s. 143(3) r.w.s. 147 of the Act on 19.3.2007, determining the income of the assessee at Rs. 5.27 crores. 2. During the course of assessment proceedings, the AO found that the assessee had claimed expenditure of Rs. 2.31 crores on acquisition of fixed assets. The AO held that expenditure incurred by the assessee was capital in nature though it had claimed it as revenue expenditure. He further found that the assessee had not only claimed capital expenditure, but it had also claimed depreciation on the assets. He held that the assessee had claimed double deduction on the same expenditure to the extent of the depreciation claimed. He directed the assessee to show cause as to why a capital expenditure incurred on fixed assets should not be treated as capital expenditure. After considering the submission of the assessee, the AO held that the domestic law would apply in the case of the assessee , that the claim made by it was on ac....
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.... has been accepted and reiterated by the central Board of Direct Taxes in its Circular No.333 dated April 2, 1982. 2. The assessee's claims and contentions Vis-à-vis the various expenses heads as under:- (a) In view of the specific language of Article 7(3) of the Indo Mauritian Double Taxation Avoidance Agreement the assessee contends that all expenses (both revenue and capital) incurred for the purpose of the business of its branches in Bombay (permanent establishment in India) is deductible in computing its total income for the purpose of tax under the Income tax Act, 1961." It was argued that India & Mauritius had an Agreement of Avoidance of Double Taxation, that in terms of Article 7(3) of DTAA the business of a Permanent Establishment (PE) of a Mauritian Enterprise, operating in India, had to be computed by deducting all expenses incurred for the purpose of the business whether such expenses were incurred in India or elsewhere, that though the term business profit was not defined in the DTAA, that Article- 7(3) specifically provides for computation of business income in a particular manner, that the Treaty provisions would override the provisions of general law i....
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....ion. He also held that assessee had not interpreted the mandate of Article 7(3) of the DTAA correctly,that the said Article did not hold that even capital expenditure was allowable, that the assessee was not able to explain as to how it arrived at the conclusion that the word 'expenses' included capital expenditure also. He also referred to Article 23 of Indo-Mauritius DTAA and held that provisions of the Act relating to computation of taxable income would definitely apply in the case of the assessee except where the provisions contained in the DTAA were contrary to the conditions specifically mentioned in the Act, that the assessee could not have any advantage by citing the provisions of Article-3 of the DTAA, that there was no specific contrary provision in the treaty, that restriction on deductibility of expenses under the Act would be applicable in computation of profits attributable to Indian PE.s of Mauritius Tax Residence. He referred to the cases of Mitsubishi Heavy Industries Ltd (61TTJ656), Mashreq bank Psc (14SOT1), Cir.No.5 of 28/ 09/04 of the CBDT, Intl Tax Handbook of Internal Rev of the United Kingdom and book of K.Vogel on Double Taxation Conventions and held that t....
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....e referred to Explanation 1 to section 271(1)(c ) (A) and (B) of the Act and held that the assessee had not offered any explanation that was not substantiated by it. He also held that the assessee had made a disclosure of income in computation of income about allowability of capital expenses but it was not able to provide and substantiate the basis of the said claim. He further observed that the assessee had even claimed depreciation on the capital assets which had been written off by claiming the full expenditure, that during the assessment proceedings the assessee was asked to provide the basis of the claim made with regard to allowability of capital expenditure, that in support of its claim the assessee had advanced only theoretical arguments, that no conflicting jurisprudence was brought to light on the issue, that claim of depreciation alongwith the claim of full deduction of expenses of the capital assets could not by any stretch of imagination be supported by any accounting standard or principles, that it was virtually prohibited by all accounting norms the world over, that assessee had blatantly defrauded the Revenue, that it was the most appropriate case of furnishing inac....
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....as allowable as revenue expenditure as per the provisions of the Indo- Mauritius DTAA, that it had claimed depreciation for the assets in question, that the appeals for earlier years for quantum additions were decided against the assessee, that the AO levied penalty u/s.271(1)(c)of the Act for filing inaccurate particulars of income for the year under consideration and the FAA upheld the same. 5.1. Before proceeding further, we would like to mention that the object behind the enactment of Sec.271(1)(c) of the Act is to provide for a remedy for loss of revenue and it is a civil liability. Courts are of the opinion that imposition of penalty u/s.271(1)(c) is not akin to or like criminal proceedings and the question of mens rea or mala fides on the part of the assessee need not be examined and is not relevant. In such cases, it has to be examined as to what was the explanation of the assessee during the penalty proceedings and whether same could be treated a bona fide explanation. In other words,if an assessee fails to offer the explanation about filing of inaccurate particulars or concealing the particulars of income, or he offers the explanation which is found by the authorities to....
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....t interpreted the DTAA and decided that it was eligible for a particular deduction. Thus, it has acted as an interpreter of law and a judicial authority. As per the judicial procedure only and only the Courts are authorised to interpret the law. The assesseess, AO.s,FAA.s and even the Tribunal cannot interpret the law.It is out of their domain. The assessee had interpreted the Treaty for its own benefit resulting in paying lesser taxes. It is not a case where the assessee makes a claim during the assessment proceedings after paying taxes about the claims for which it had some doubt. If an assessee interprets provisions of law without any legal basis and resultantly deprives the State of its due taxes it is a case of filing of inaccurate particulars. We agree that the Act is one of most vexed and complicated legislation and has been subjected to numerous amendments from time to time, that it requires highest degree of interpretative skills and divergent views on interpretation of tax provisions, that law does not postulate that an assessee must accept an interpretation against him even when a favourable view is credible and tenable. But, the facts of the case prove that no judgment ....