TaxTMI 
TaxTMI 
2020 (9) TMI 63
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.... to Vista Information Systems Pvt Ltd ("Vista‟) 1.1. On facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned AO in disallowing payment of INR 33,92,00,000 made to Vista, claimed by Appellant in the return of income for the subject year. 1.1.1. On the facts and in the circumstances of the case and in law, the learned CIT(A) as well' as the learned AO failed to appreciate that the liability for the aforesaid expense accrued in the subject year and hence, the Appellant had rightly claimed the deduction for the same in the return of income for the subject AY. Ground no. 2: Deduction of Actual Usage of Provision of Obsolescence 2.1. On facts and in the circumstances of the case and in law, the learned CIT(A) has erred in not holding that there has been violation of principles of natural justice as the learned AO did not provide a show-cause opportunity before making the aforesaid addition, and hence, the addition made by the learned AO is bad in law and void ab initio. 2.2. Without prejudice to Ground 2.1 above, on facts and in the circumstances of the case and in law, the learned CIT(A) has erred i....
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....eting and after sale support services to Nortel group of companies. 4. Assessee filed its return of income on 30 November 2013 declaring loss of Rs. 533,036,855. The case of the assessee was selected for scrutiny by issue of notice u/s 143 (2) of the act. During the course of assessment proceedings the various issues were examined and ultimately the assessment order u/s 143 (3) of the act was passed on 21st of March 2016 wherein the learned assessing officer made following additions which are the subject matter of dispute in this appeal :- i. Disallowance of expenses of Rs. 33.92 crore claimed by the assessee through computation of total income though not accounted in this year but in preceding previous year as well as held by the assessing officer that the claim of the above deduction pertains to assessment year 2012 - 13 and not to the year under consideration. ii. Disallowance of deduction claimed by the assessee of Rs. 25,851,322/- on account of usage of "provisions for obsolescence‟ claimed to have been offered to tax in prior years by the assessee but disputed by the assessing officer iii. Addition on account of interest income of Rs. 8,208,537/- comprising of le....
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....ation Systems private limited. Facts show that assessee due to global bankruptcy of Nortel group, sold its various businesses to various entities. Some of its business was sold to kapsch. The AMC and sale of spares related to business sold to that group was given to Kapsch India entity Vista Information systems Limited. As the contract was for AMC and supply of parts post warranty period, the assessee was to pay Rs. 33.92 Cr to Vista Information Pvt Ltd for performing the AMC and sale of parts to Telecom Consultants of India Limited. This sum was accounted for in the books of the assessee for the year ended on 31.3.2012. It was also claimed as deduction in that year i.e. AY 2012.13. The return for AY 2012-13 was not filed in time so LD AO disallowed the loss for that year. However, during assessment proceeding for that year assessee wrote a letter to AO that above liability did not pertain to AY 2012-13 but to AY 13-14 therefore the claim for the same in AY 2012-13 is withdrawn. Ld. AO did not consider it. Meanwhile, Assessee claimed above sum in computation of total income for AY 2013-14 though it was accounted for in AY 2012-13. The claim of the assessee was based on a tripartit....
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....ties are not correct in disallowing the above claim. 8. The learned departmental representative vehemently supported the order of the learned assessing officer, referred Para number 3.5 of the assessment order, and stated that the above sum accrues in assessment year 2012 - 13. He further referred to the agreement dated 30 December 2011 placed at page number 136 - 180 of the paper book and stated that the claim of the assessee is allowable for assessment year 2012 - 13 only. As assessee has filed belatedly return of income for that year and therefore such sum could not have been allowed to be carried forward to the next year and therefore the assessee is claiming that the same should be allowed for assessment year 2013 - 14. He further referred to page number 256 of the paper book where the amount provided for in assessment year 2012 - 13 and in that year it accrued. Therefore he submitted that when the annual accounts of the assessee prepared by the assessee itself states that the above sum accrued in the assessment year 2012 - 13, claimed in the return of income for that year, files a belated return, now it cannot say that the sum accrued in assessment year 2013 - 14 and not in....
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....ision was made in assessment year 2012 - 13 but there is no reason for revision of accounts of the assessment year 2013 - 14 to incorporate the above entries. Even otherwise, he relied on the decision of the honourable Supreme Court in case of Kedarnath Jute mills Ltd 82 ITR 365 and Sutlej Cotton Mills Limited 116 ITR 01 to submit that the manner of treatment in the accounts of particular sum cannot be determinative of the allowability of the expenditure. 10. We have carefully considered the rival contentions and perused the orders of the lower authorities. We have also gone through a paper books submitted by assessee where in annual accounts, correspondences and agreements are placed. Brief facts of these expenditure is that assessee has entered into service contract with Telecommunications Consultant India Ltd [ TCIL] for rendering services in connection with design, manufacture, supply, installation, testing and commissioning of Eastern Railways network. Nortel group companies performed most of the respective obligations under the telecommunication consultant India Ltd network contracts, which was for delivery, installation, and commissioning, final acceptance and warranty comp....
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....roceedings filed by the Nortel group and the subsequent sale of Nortel groups business across locations, the assessee company entered into a contract with Vista Information Systems private limited (Vista) whereby the assessee company was to pay to be stern amount of Rs. 33.92 crore is for taking over the residual obligation from the assessee company. 3.3 The assessee further intimated that the agreement between the Assessee Company and Vista was dated 30/12/2011 and the payment was made to Vista on 8/5/2012. It was stated that the assessee has claimed deduction of Rs. 33.92 crore is in assessment year 2012 - 13 but later sought to withdraw the claim vide written submission dated 28/11/2013 filed during the assessment proceedings for assessment year 2012 - 13, however, the AO allowed the said deduction, against which the assessee has filed an appeal before the learned CIT (A), which was pending. 3.4 The reply of the AR of the assessee has duly been considered. It is an undisputed fact that the pursuant to an agreement dated 30/12/2011 entered into by the assessee with Vista, the assessee had duly made the claim for the impugned deduction in its return of income for assessment ye....
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....wed to be shifted from assessment year 2012 - 13 to assessment year 2013 - 14 merely because of the fact that the assessee‟s return of loss for assessment year 2012 - 13 was not filed u/s 139 (3) of the act and the assessee could not avail the loss resulted from the impugned claim in assessment year 2012 - 13. 3.8 In view of the above facts and circumstances of the case, the assessee is impugned claim of deduction of Rs. 33.92 crore is not admissible for the year under consideration and the same is disallowed and added to the assessee is taxable income." 12. Aggrieved with the above addition, assessee challenged the same as per ground number [1] before the learned CIT - A. The learned CIT A in Para number 5.1 dealt with the whole issue as under:- "5.1 The matter has been examined. The appellant has not attended the appellate proceedings, nor submitted any submissions, the reasons therefore lies embedded in the contention of the assessment order which reveals that the appellant has as regards claim of Rs. 33.92 crore and claimed the said sum in its return of income for assessment year 2012 - 13 which has duly been allowed by AO. Thus as the claim as made by the appellant ....
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....East and Africa subsidiaries of the ultimate holding company have also made consequential filings. Subsequently, on July 14, 2009, Nortel Networks (CALA) incorporation (NCCI), a U.S.-based subsidiary that operates in the CALA region, also filed a voluntary petition for relief Under chapter 11 in the United States bankruptcy Court for the District of Delaware (US court) and became a party to the Chapter 11 proceedings. On July 17, 2009, this US court entered a further order of joint administration that provided for the joint administration of NN CALA‟s case with the pre-existing case of its debtor affiliates. As part of business and financial restructuring plans, the ultimate holding company to date, has completed a number of divestitures including:- i. the sale of substantially all of our code division multiple access (CDMA) business and long-term evolution (LTE) acess assets to TElefonaktiebolaget LM Ericsson (Ericsson), ii. the sale of substantially all of the assets of our enterprise solution (ES) business globally, including the shares of Nortel government solution Incorporated (NGS) and Diamondware limited to Avaya Inc. ( Avaya) iii. the sale of assets of our wir....
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.... asset sale agreement dated March 31, 2011 (which is also the effective date), whereby the company agreed to sell inventory at a consideration of Rs. to 717000 to the purchaser. Further, as part of the said asset sale agreement the company agreed to pay Rs. 1 2616768 to the purchaser for accepting liabilities of assignment of M is as contracts and purchase order as per the details and terms contained in the asset sale agreement. - Pursuant to above, the company discussed and entered into a tripartite agreement dated 9 December 2011 with Bharat Sanchar Nigam Ltd (BSNL) and Ericsson India private limited (Ericsson) whereby Ericsson has entered into new AMC contracts with BSNL for phase IV and phase IV.5 AMC with effect from first January 2012. Consequently, BSNL has released the company completely an irrevocable from all actions, damages, judgments, claims, demands, obligations and liabilities of whatsoever nature in connection with or arising out of BSNL‟s AMC contract for phase IV and phaseIV.5 arising on or after 1 January 2012. To facilitate the above, the company entered into an agreement dated 17th November 2011 with Ericsson whereby the company agreed to pay considerat....
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.... of Rs. 43720911/-. As the above return was filed belatedly i.e. not within the due date prescribed u/s 139 (1) of the act, the assessment order was passed u/s 143 (3) of the act on 24th of March 2015 wherein the learned assessing officer after raising the query on the carry forward u/s 72 of the act of the losses, disallowed the business loss of Rs. 6 91894858/- and assessed the income of the assessee at a loss of Rs. 43720911/- (i.e. Unabsorbed depreciation) . Thus it is apparent that the learned assessing officer has allowed assessee carry forward of unabsorbed depreciation of Rs. 43720911/- and disallowed the business loss of Rs. 6 91894858/- i.e. to not to carry forward , in view of the provisions of Section 72 of The Act as assessee has filed return of income belatedly. 17. This order of the assessment was challenged by the assessee before the learned CIT - A for the reason that assessing officer has issued the notice of demand u/s 156 of the income tax act along with the assessment order dated 24 March 2015 wherein in the first paragraph a sum of Rs. 4234710/- was found to be payable. Therefore, the notice of demand was issued to the assessee asking assessee to pay the abov....
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....ubmitted as under:- "In the return of income for the subject a while, Nortel India has erroneously claimed expenses of Rs. 33.92 crores in respect of payment made to Vista. Further, since Nortel India had filed a belated return for the subject AY, the same cannot be revised now to withdraw the aforesaid claim. Therefore, Nortel India hereby wishes to withdraw the claim of the aforesaid expenses in the subject assessment year. Nortel India, however, reserves the right to claim the aforesaid expenses in the relevant subsequent year in which the liability of the said expenses actually arose." 18. The learned Commissioner Of Income Tax (Appeals) - 33, New Delhi passed an order for assessment year 2012 - 13 on 11/11/2016 and in Para number 5.2 and 5.3 held as Under:- "5.2 During the present appellate proceedings the appellant had produced the copy of the assessment order for AY 2013 - 14 in which the claim of the appellant was held as not admissible by the AO. In the assessment order for assessment year 2013 - 14, the AO has recorded as under:- "In view of the above facts and circumstances of the case, the assessee‟s impugned claim of deduction of Rs. 33.92 crore is not a....
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....ween Nortel Networks (India) private limited, Nortel Networks Singapore Pte Ltd and Vista Information Systems private limited. The preamble to the agreement shows that Nortel companies i.e. India and Singapore has entered into supply and service contract with Telecommunication Consultants India Ltd [TCIL] dated 28 September 2004 pursuant to tender issued by Eastern Railways for design, manufacture, supply, installation, testing and commissioning of mobile train radio communication system on Howrah Section of the Eastern Railway. Nortel Singapore was awarded supply contract whereas Nortel India was awarded service contracts. In the maintenance contract, warranty period has already expired, all associated obligations have been completed, and both the provisional acceptance and final acceptance certificates have been issued by Telecommunication Consultants India Ltd and Eastern Railway in respect of the above work. Even the warranty period also expired on 12 March 2009. However certain obligations of Norton entities remained under the "network contracts‟ which were described in paragraph number (C) of the agreement as under:- 1) to enter into an annual maintenance contract wit....
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....are for that particular product. Apparently, it was part of the global group‟s sale of the business of the assessee as it is evident as per the notes to accounts of the assessee for the year ended on 31 March 2012 and 2013. 25. On reading paragraph number [3] of the agreement which is titled as new AMC contract, it is apparent that a fresh contract are required to be entered into by the telecommunication consultants India Ltd with Vista which would be facilitated by Nortel group. The contract of annual maintenance would also be similar to what Nortel was performing till now. According to paragraph number 3.3 Vista was to agree if TCIL seeks minor modification. According to paragraph number 3.6, the Nortel was to provide handholding services for 45 days to Vista, being a transition period. The assessee also indemnified Vista for the period prior to the above agreement. For agreeing to provide an annual maintenance contract to Telecommunication Consultant Of India Ltd for a further period of three years and for committing supply of spare parts for a period of eight years, the assessee agreed to pay Vista Rs. 33.92 crore. It is a matter of common knowledge that such a kind of c....
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.... in subsequent year cannot defer the accrual of such liability. The payment is merely a discharge of the liability already accrued. Further, if the accounts are maintained as per the correct accounting principles, they cannot be disregarded. The accounting entries can only be rejected if they are not in conformity with the proper accounting principles. Mandate of the decision of the Honourable Supreme Court in case of Sutlej cotton mills Ltd versus CIT (116 ITR1 ) has also held that:- "But it is now well settled that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. The assessee may, by making entries which are not in conformity with the proper accountancy principles, conceal profit or show loss and the entries made by him cannot, therefore, be regarded as conclusive one way or the other." [Underline supplied by us] Thus, in the present case on reading of the agreement executed by the assessee, disclosure of notes as discussed above in the financial statements, clearly shows that provision of expenses made by the assessee of Rs. 33.92 crore for assessment....
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....he total income created during the year nil Nil 31000171 Amount of provision utilized during the year claimed as a deduction in the computation of total income 25851322 6432504 55492445 Based on the above statement it is apparent that assessee is creating a provision for obsolescence of inventory, it is added back to the total income of the assessee for that year in which the provision is created. The assessee claimed deduction of the provision utilized by the assessee during the year. Accordingly, for assessment year 2013 - 14 the assessee claimed deduction of Rs. 25851322/- as the amount of provision is utilized during the year, which was created in earlier years. The learned assessing officer questioned the assessee about the allowability of the above claim and asked to intimate the corresponding income on account of the provision returned back credited to the profit and loss account with supporting evidence. The assessee submitted the copies of the financial statement for assessment year 2012 - 13 and 2013 - 14. On the basis of the above the learned assessing officer noted that in the computation of income for assessment year 2012 - 13 the assessee has nowhere added ba....
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....ssing officer referring to Para number 4.2 of the order of the learned AO and stated that it is the valuation of inventory and it is not a provision made in assessment year 2011 - 12. He submitted that the valuation of inventory is allowable in the year in which the value is derived at. He submitted that the assessee should have valued the inventory at the cost or market value whichever is less and whenever there is a valuation below the cost; the relevant expenditure is pertaining to that year and cannot be considered as allowable in next year. He submitted that merely because the assessee wants to claim it in this year but the law does not allow the valuation of the inventory and in its definition or provision should be allowed in any other year then the year in which it is made. He therefore submitted that there is no infirmity in the order of the learned assessing officer and CIT - A has rightly confirmed the same. He further submitted that the assessee has not produced evidence of the amount offered for taxation in the earlier years and therefore the orders of the lower authorities are in order. 33. In rejoinder the learned authorized representative referred the provisions ma....
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....e assessee has reduced Rs. 25851322/- from the value of inventory on account of provisions for obsolescence. In the computation of income for assessment year 2012 - 13, the assessee has nowhere added back this amount to total income. Further, it is observed from note 11 - inventory of notes to account for assessment year 2013 - 14 that the assessee had used the entire provision in assessment year 2012 - 13 and nothing was left to be carried forward. In the absence of offering the amount of Rs. 25851322/- tax in the earlier years is claimed by the assessee, the assessee is act of reducing the amount of Rs. 25851322/- from its income, in the computation of income for assessment year 2013 - 14, on account of usage of provision for obsolescence is not justified. 4.3 In view of the above, the assessee‟s impugned claim of Rs. 25851322/- is disallowed and the same is added to the assessee‟s taxable income." 35. Aggrieved with the above finding of the learned assessing officer assessee preferred an appeal before the learned CIT - A and challenged the above addition as per ground number [2] of appeal which was decided as per paragraph number 6.2 of the order of the learned CI....
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....25851232/- was offered to tax instead of obfuscating the core issue in the garb of "showing opening balance net of utilization" of subjective. The core matter still lies unexplained as to where and how the said sum has been offered for tax (earlier) by appellant and AO has rightly treated and added back the said sum with which this office concurs. The appeal of the appellant is thus dismissed GOA no. 2.1 and 2.2" . 36. On careful consideration of the relevant information submitted before us by the learned authorized representative it is apparent that before the assessing officer the assessee has not furnished the details of treatment given to it to the provision of obsolescence created by the assessee and utilized by the assessee. Assessee also did not substantiate with adequate evidence about the disallowance of the provision made in the earlier years. It is also not established that how the utilization of provision of the inventory is allowable as deduction in this year. It is pertinent to note that the provision has been made by the assessee for obsolescence of inventory applying the provisions of the accounting standard 29 related to the provisions, contingent liabilities and ....
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....found to be general in nature. AO was of the view that assessee is following the mercantile system of accounting and in respect of income, the assessee is required to recognize such income on accrual basis. Form number 26 AS shows the accrued income from the respective banks paid/payable to the assessee. The AO found that there is a difference in interest income of Rs. 296208/- in case of ICICI bank and Rs. 7912329/- in case of Citibank -. Therefore the learned assessing officer made an addition of Rs. 8 208537/- on account of interest which has been accrued to the assessee during the year under consideration but not shown by the assessee as income. 38. Aggrieved, assessee preferred an appeal before the learned CIT - A who decided this issue as per Para number seven of the order. The learned CIT - A held that the appellant is following the mercantile system of accounting and majority of the tax-deductors are bank. Therefore, she confirmed the addition holding that the appellant itself has accepted that there has been a shortfall, which it offered for taxation in subsequent years. CIT - A held that each assessment year is independent unit and since interest income is required to b....
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....tion at source thereon has been claimed, therefore the interest has accrued to the assessee and it is chargeable to tax in the year in which it has accrued and it does not help the case of the assessee if it has been offered to tax in the subsequent year. He submitted that the income should be chargeable to tax in the year in which it accrues. He submitted that when the assessee has been claiming for the tax deduction at source credit on such income towards his tax liability, the interest income should be also chargeable to tax. He submitted that there is no doubt that the above income has not accrued to the assessee as assessee is following the mercantile system of accounting. Therefore, lower authorities have correctly charged to tax the difference between the interest income shown in the books of account as well as shown in form number 26 AS. 41. We have carefully considered the rival contention and perused the orders of the lower authorities. We also gone through the relevant document submitted by the assessee before us in the form of a paper book. As per letter dated 24 February 2016, the assessee has submitted that the interest income earned by assessee from ICICI bank as c....