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Income Tax Appellate Tribunal, DELHI BENCH: ‘A’, NEW DELHI
Before: SH. AMIT SHUKLA & SH. O.P. KANT
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘A’, NEW DELHI BEFORE SH. AMIT SHUKLA, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER Assessment Year: 2008-09 Vs. Income Tax Officer, Company Acro Technologies India Pvt. Ltd., G-10, Hemkunt Chamber Ward-1(2), New Delhi 89, Nehru Place, New Delhi PAN : AADCA0088Q (Appellant) (Respondent) Appellant by Sh. K. Sampath, Adv. Respondent by Sh. R.C. Danday, Sr.DR Date of hearing 12.09.2017 Date of pronouncement 17.10.2017 ORDER PER O.P. KANT, A.M.:
This appeal by the assessee is directed against order dated 18/02/2013 passed by the Commissioner of Income-tax (Appeals)-IV, New Delhi [in short ‘the CIT-(A)’] for assessment year 2008-09 raising sole ground as follows: “That on the facts and in the circumstances of the case and in law the order of the ld. CIT(A) in confirming the action of the learned Assessing Officer in estimating expenses @ 20% of domestic income of Rs.24,78,764/- and taking income from domestic operations atRs.19,38,011/- in derogation of the provisions of Sec. 10A(4) of the Income-tax Act, 1961 and the relevant audit report as filed is arbitrary, erroneous and unjust and must be quashed with directions for relief including one to do the computation as proposed by the Appellant.”
The facts in brief the case are that the assessee was registered as STPI unit and was engaged in the business of export of software as well as in the domestic business of counseltancy and placement charges. The assessee filed return of income declaring loss of Rs.12,37,383/-. In the prescribed form No.56F, filed in respect of deduction under section 10A of the Income-tax Act, 1961 (in short ‘the Act’), the assessee did not claim any deduction under section 10A of the Act, on account of losses during the year. In assessment proceedings, the Assessing Officer observed that no separate books of account were maintained for domestic business and export business. The assessee filed different amount of bifurcations of expenditure against the revenue from domestic business and revenue from export business in the letters filed dated 01/09/2010 before the Assessing Officer and letter dated 06/02/2013 filed before the learned CIT-(A). The Assessing Officer rejected the claim of the expenditure of Rs.48,77,924/- against the revenue from domestic operation of Rs.24,78,764/- and he restricted the expenses to the extent of 20% of the revenue are from domestic operations and computed the net taxable income at Rs.19,83,011/-. Other facts mentioned by the lower authorities in their orders, have not been disputed by the parties. Aggrieved with the addition of Rs.19,83,011/-, the assessee filed appeal before the Ld. CIT-(A), however could not succeed. Aggrieved, the assessee is before the Tribunal raising the grounds as reproduced above.
The Ld. counsel of the assessee submitted that there is no basis for restricting the expenses of the domestic operation at the rate of 20% of the revenue earned. Accordingly, he requested for restoring the matter back to the file of the Assessing Officer for allowing expenses on reasonable basis. 4. On the other hand, learned Sr. DR opposed restoration of the matter to the Assessing Officer on the ground that assessee has allocated expenses without any basis and, therefore, action of the Assessing Officer was justified.
We have heard the rival submission and perused the relevant material on record. From the order of the Assessing Officer, it is evident that he has not adopted any scientific basis for restricting the expenditure at the rate of 20% of the total earning from domestic operations. The relevant paragraph of the order of the Assessing Officer is reproduced as under: “6h) In view of the above, the undersigned is left with no alternative but to estimate allocation of expenses towards earning of domestic income comprising of the following:- S.No. Income from Domestic Amount(Rs.) Operations 1. Consultancy 22,95,813 2. Placement charges 182,951 Total 24,78,764 Considering the nature of Income from Domestic Operations, 20% of total earnings of Rs.24,78,764/- are estimated to be the expenses incorrect towards earning of such income, meaning thereby, expenses related to income from Domestic Operations are estimated to be Rs.495,753/-. Thus, net taxable income from Domestic Operations is determined at Rs.19,83,011/-.”
The Ld. CIT-(A) upheld the finding of the Assessing Officer without examining the basis of restricting the expenditure against domestic operations. The finding of the Ld. CIT-(A) on the issue in dispute is reproduced as under: “6.1 The Id. AR for the appellant relied on the provisions of Section 10A(4) of the Act. However, he could not make any submission on the provisions of Section 10A(7) which says that the provisions of sub-section 8 and sub section 10 of Section 80IA shall apply in relation to the undertaking referred to in Section 10A. Explanation to Section 80IA(8) provides that where in the opinion of the assessing officer, the computation of the profit and gains of the eligible business presents exceptional difficulties, the assessing officer may compute such profits and gains on such reasonable basis as he may deem fit. The AO has estimated the income of Rs. 19,83,011/- from domestic operations after allowing 20% of expenditure on domestic operations on the basis of material available on the record and made elaborate discussion on the issue for rejecting book results and lifting of corporate veil. On careful consideration of facts and circumstances of the case, I am of the considered view that the income of Rs. 19,83,011/- determined by the AO from domestic operation is quite reasonable. Therefore, the addition made by the AO is confirmed. These grounds of appeal
are rejected.”
7. On perusal of the above finding of the lower authorities, we are of the opinion that no basis has been adopted for restricting the expenses at the rate of 20% of the revenue from domestic operations. The Assessing Officer cannot assess the income in a ad hoc manner without any justification. In the fact and circumstances of the case, we feel it appropriate to restore the issue in dispute of estimation of expenses against the revenue from domestic operations to the file of the Assessing Officer. He may examine the books of accounts and the vouchers and bifurcate the expenses towards domestic operations and export operations in accordance with law. The assessee shall be afforded sufficient opportunity of hearing. Accordingly, the sole ground of the appeal is allowed for statistical purposes.
8. In the result, appeal of the assessee is allowed for statistical purposes. The decision is pronounced in the open court on 17th Oct., 2017.