TaxTMI 
TaxTMI 
2024 (1) TMI 19
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....deleting the disallowance of Rs. 43,42,468/- made u/s 40(a)(ia) of the I.T. Act. 2. The ld. CIT(A) has erred in law and on facts in deleting the disallowance of compensation claim of Rs. 60,50,000/- made by the AO, when there was no such valid agreement with the parties for payment of compensation by the assessee company. 3. The ld. CIT(A) has erred In law and on facts in deleting the addition of Rs. 1,50,00,000/- being "income received but no accrued" and not shown in the current accounting period. 4. The ld. CIT(A) has erred in law and on facts in deleting the interest disallowance of Rs. 48,25,919/- made u/s 36(10(iii) of the Act, on account of interest-free advances. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be neces....
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....making the aforesaid payment. While allowing the relief to the assessee the Ld. CIT(A) made the following observations:- "3.3. I have carefully considered the facts on records and submission of the Ld. Authorized Representative. The contention of the Authorized Representative of the appellant is that during the year under consideration, the appellant paid translation charges for translating it's products into foreign languages for sale in foreign countries seems to be correct, as the entities located outside India and have no permanent place of establishment in India. The Assessing Officer's action of disallowing the payment made towards translation charges on the ground that the provision of section 195 of the Income Tax Act, 1961 have not been complied with by the appellant are far from the real facts in as much as there is some contrary discussion particularly the Authorized Representative of the appellant has furnished complete Justification in the form of technical analysis in respect of the provisions in details in its submission during the course of appeal proceedings. The Authorized Representative of the appellant has also submitted complete justification r....
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....50,000/-) 9. During the course of assessment, the Assessing Officer observed that assessee had debited an amount of Rs. 60,50,000/-, being compensation paid on Termination of Marketing Rights. On being enquired, the assessee submitted that the aforesaid amount was paid by the assessee for termination of Marketing Rights of various dealers / distributors of the company. The assessee submitted that during the year under consideration, the assessee got a lucrative offer from M/s. Educomp Solution Ltd. for sale of marketing rights of company's software to various private schools and M/s. Educomp Solution Ltd. agreed to provide advance money to the assessee for purchasing the long- term marketing rights of the assessee company's software. During the course of assessment, it was submitted that M/s. Educomp Solution Ltd. agreed to pay sum of Rs. 15 crores towards the marketing rights for a period of 10 years of the assessee company software to which the assessee agreed. Accordingly, the assessee had to terminate the existing marketing rights which had been given to various parties and for which the assessee had to give a total compensation of Rs. 60.50 lakhs during the impugned assessm....
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.... of the appellant that the Company has paid Rs. 60,50,000 being Termination of Marketing Rights has benefited the company since after termination of said Marketing Rights the company has sold its Marketing Rights to Educomp for Rs. 15,25,00,000 in other words the Total payment of Rs. 3,75,00,000 has yielded profit to the company and the commission payment has been reduced substantially in subsequent assessment years. In view of detailed submissions referred above, facts of the case and case law relied it is established that payment made by the appellant company is during course of business was for purpose of business and it was thus in the nature of "commercial expediency'. For this expression the reliance placed by the Authorized Representative of the appellant in the case of honorable Supreme Court judgment in the case of S.A. Builders Ltd. vs. CIT(A) reported in ITR page 1 is favorable to the appellant. Further the Hon'ble Supreme court held that: "We agree with the view taken by the Delhi High Court in CIT vs. Dalmia Cement (Bhart) Ltd. (2002) 254 ITR page 377, that once it is established that there was nexus between the expenditure and the pu....
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....ficer of making disallowance of Rs. 60,50,000/- on account of compensation paid for termination of marketing rights is not found justified and accordingly the said addition of Rs. 60,50,000/- is directed to be deleted. This ground of appeal is allowed." 11. The Department is in appeal before us against the aforesaid order passed by Ld. CIT(A) allowing the appeal of the assessee on this issue. 12. On going through the contents of the order passed by Ld. CIT(A), it is observed that the Ld. CIT(A) passed a non-speaking order while allowing the appeal of the assessee on this issue. The Ld. CIT(A) in the appellate order has not controverted any of the findings made by the Ld. AO at the time of making the aforesaid disallowance, we observe that neither has been the initial agreement towards granting of marketing rights to various parties was furnished before Ld. CIT(A) and neither was be subsequent termination agreement furnished before Ld. CIT(A). Further, we observe that the assessee has sought to produce a termination agreement before us for our perusal, but apparently the other party too of the parties to the agreement has not signed the same. Accordingly, in our considered vie....
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....e had not shown 1/10th of the aforesaid amount of Rs. 15 crores as its income in the P&L Account for the impugned Assessment Year. The Assessing Officer was of the view that assessee failed to provide the accounting standard / accounting policy under which the assessee company was not required to disclose the above income which had already accrued and received. The Assessing Officer observed that the assessee had already received an amount of Rs. 15 crores from Educom Solution Pvt. Ltd. for granting its marketing rights for a period of 10 years. Accordingly, in view of the above facts, the Assessing Officer added a sum of Rs. 1.5 crores as income of the assessee. 17. In appeal, Ld. CIT(A) allowed the appeal of the assessee with the following observations:- "5.3. I have carefully considered the facts on records and submission of the Ld. Authorized Representative. It is a fact that the company had entered in to long term agreement with M/s. Educomp India Private Limited for a period of 10 years and sale of 10000 licenses which-ever is earlier and based on this, the company to follow the prudent accounting practice decided to charge minimum of Rs. 150.00 Lac being one tent....
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....o the assessee and on the basis on which accounting practice, the recognition of Revenue was deferred to the succeeding assessment year. Accordingly, in the interest of justice, the matter is being restored to the file of Ld. CIT(A) to give a detailed and reasoned findings as to why the aforesaid income did not accrue to the assessee during the year under consideration. 20. In the result, Ground No. 3 of the Department's appeal is allowed for statistical purposes. Ground No. 4 of Department's appeal & Ground No.2 of Assessee's Cross Objection:- Interest disallowed under Section 36(1)(iii) (Rs. 48,25,919/-) 21. During the course of assessment, the Assessing Officer observed that the assessee had given interest free advances to various parties amounting to Rs. 1,77,69,418/-. On going through the details filed by the assessee the Assessing Officer held that the assessee suo moto admitted that an amount of Rs. 44 lakhs was given for non-business purposes. Further, even with regard to the balance amount, the Assessing Officer was of the view that the assessee was not able to give justification for giving interest free advances and accordingly, he added a sum of Rs. 48,25,....
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....ance for purchase of software Upper India Sales Agency 500000 Advance for purchase of software Virtual Education Pvt. Ltd. 500000 Advance for purchase of software Khodiyar CAD Centre Pvt. Ltd. 274040 Advance for CAD designing Lt. Col. A Siddique 988882 Office in charge of Dubai Operations It can be seen from the above the advances made to the parties were for the purpose of business only and not otherwise. And as per the provisions of Income tax Act, 1961, expenditure incurred for the purposes of business is allowable as deduction during the year. It is pertinent mention here that the majority of the advances are given in earlier years only. Chart showing details of year wise advance given is enclosed. From the chart your honor will observe that only to khodiar Cad and Iqbal Sidique the advance were made during the year. The amount given to Iqbal Siddique is for Dubai Office advance and the said amount will not attract interest u/s. 36(1)(iii). The advance given to khodiar CAD is against the advance for CAD designing. With regard to advance given to Mr. Kanwaljeet is concerned appellant wish to state that confirming led....
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.... given in earlier years only. The appellant has also furnished Chart showing year wise details of advance given. From the chart it is evident that only in the case of khodiar Cad and Iqbal Sidique the advance were made during the year. The amount given to Iqbal Siddique is for Dubai Office advance and the said amount will not attract interest u/s. 36(1)(iii). The advance given to khodiar CAD is against the advance for CAD designing. As far as the advance given to Mr. Kanwaljeet is concerned, the appellant has furnished confirming ledger of Mr. Kanwaljeet along with PAN and address. The advance given is in routine course of business, which was given in earlier years and out of the own funds of the company. As a matter of fact the Appellant submission that the advances made to various parties were from own funds of the Appellant and that it is not a case that the Appellant has taken loan from Bank or other financial institution on payment of interest and made advance of funds without charging interest. The appellant also invited attention to the chart giving; comparison of sufficient amount available with company during the A.Y. 2011-12 and 2012-13. Also the recent ....
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....d. CIT(A) has not erred in facts and law while allowing the appeal of the assessee. 25. In the result, Ground No. 4 of the Department's appeal is dismissed and Ground No. 2 of the assessee's Cross Objection is allowed. ITA No. 1188/Ahd/2018 (A.Y. 2013-14) & C.O. No. 92/Ahd/2019 (A.Y. 2013-14):- 26. The Department has raised the following grounds of appeal:- "(1) That the ld.CIT(A) erred in law and on facts in deleting the disallowance of Rs. 1,21,87,424/- made under section 40(a)(ia) of the IT Act, 1961. (2) That the ld.CIT(A) erred in law and on facts in deleting the addition made on account of compensation paid for termination of marketing rights of Rs. 62,50,000/-. (3) That the ld.CIT(A) erred in law and on facts in ignoring that the assessee had failed to prove the claim before the AO with evidences. (4) That the ld.CIT(A) erred in law and on facts in allowing the assessee to amortize the payment over a period of time ignoring the provisions of the Act. (5) That the ld.CIT(A) erred in law and on facts in deleting the disallowance of interest of Rs. 18,63,744/- made under section 36(1)(iii) of the IT Act. (6) The app....