M/S. NOV SARA INDIA PVT. LTD.,NEW DELHI vs. ACIT, NEW DELHI

Ground No.1 of the Revenue’s appeal is against the deletion of addition of Rs.6,95,404/- made by the assessee on account of Commission. Facts of this ground are that the assessee paid commission for the above sum which was disallowed by the Assessing Officer for ITA Nos.6143 &6180 /Del/2013 & lack of any documentary evidence in support of such payment. The ld.

After considering the rival submissions and perusing the relevant material on record, we find that similar issue has been decided by the Tribunal in the assessee’s own case in its order dated 18.01.2016 for the A.Ys. 2004-05 to 2006-07. Addition made on the same count for the A.Y. 2006-07 has been deleted by observing that the commission was paid to Directors as per Board Resolution, after due deduction of tax at source. In the absence of any distinguishing feature having been brought to our notice by the ld. DR in the facts of the instant year vis-à-vis the preceding year, respectfully following the precedent, we uphold the deletion of disallowance.

Ground No.1.2 is against the deletion of disallowance of Foreign commission payment by invoking the provisions of section 40(a)(i) of the Act. The factual matrix of this ground is that the assessee paid commission to foreign agents for a sum of Rs.48,17,517/-. The ITA Nos.6143 &6180 /Del/2013 & Assessing Officer opined that tax ought to have been deducted at source from this payment. In the absence of the assessee having withheld any tax before payment, the Assessing Officer made disallowance u/s 40(a)(i) of the Act. The ld. CIT(A) vide para on page 6 of the impugned order, directed the Assessing Officer to verify if the relevant Circular of CBDT was withdrawn subsequent to the date on which the payment was made by the assessee. If it was so, then, the addition should not be sustained. That is how, the ld. CIT(A) restored the matter to the Assessing Officer with necessary direction.

After considering the rival submissions and perusing the relevant material on record, we find that the ld. CIT(A) has simply restored the matter to the file of Assessing Officer for making necessary verification in regard to the applicability of the relevant Circular to the commission payment, which is germane to the issue. Finding no fault with this direction, we uphold the impugned order. This ground is not allowed.

Ground No.2 of the Revenue’s appeal is against allowing relief in respect of deduction u/s 80IC. The assessee claimed deduction u/s 80IC

After considering the rival submissions and perusing the relevant material on record, we find that issue relevant to the Revenue’s appeal came up for consideration before the Tribunal in the assessee’s own case for the preceding year. The Tribunal has upheld the granting of deduction u/s 80IC on the question of ‘substantial expansion.’

The only other ground which survives in the Revenue’s appeal is against deduction for `Prior period expenses’. The assessee claimed deduction for a sum of Rs.29,11,799/- by claiming this amount as `Prior period expenses’. The Assessing Officer negatived the assessee’s claim. The ld. CIT(A) set aside the assessment order on this issue and directed the Assessing Officer to verify if these expenses actually arose during the year even though pertaining to earlier year. If so, then, the amount should be allowed as deduction. The Revenue is upset with this direction.

After considering the rival submissions and perusing the relevant material on record, we do not find any infirmity in the impugned order.

The ld. AR did not press Ground No.2 of the assessee’s appeal, which is hereby dismissed.

In the result, both the appeals are partly allowed for statistical purposes.

The first ground of the Revenue’s appeal is against allowing of deduction u/s 80IC in respect of Unit-1 amounting to Rs.50,34,885/-.

Having gone through the factual matrix of this ground, we find that the facts are, mutatis mutandis, similar to those of preceding year.

Ground No.2 is against the deletion of disallowance of deduction u/s 80IC amounting to Rs.1,21,27,566/- against income from Unit-2.

After considering the rival submissions and perusing the relevant material on record, we find that there is no provision u/s 80IC which debars inter-unit transfers of stock. The only provision, as rightly noted by the ld. CIT(A) with reference to transfer of goods and services, is contained in section 80IC(7) read with section 80IA(8), whose relevant part is as under:-

It is manifest from the language of section 80IA(8) that the Assessing Officer can recompute deduction u/s 80IC by taking stock transfer at market value, if the transfer of stock from ineligible business to eligible business does not correspond to its market value. In the instant case, the assessee purchased raw material in Unit-1 from independent parties which was transferred to newly set up Unit-2 on cost to cost basis without any mark up. This finding is contained in para 4.4.4 of the impugned order, which has not been controverted by the ld. DR with any material. Thus, it is clear that the stock transfer from Unit- 1 to Unit-2 corresponds with its market value. As the assessee is otherwise eligible for deduction u/s 80IC in respect of Unit-1, which has also been granted by the Assessing Officer to that extent, we hold that the proportionate disallowance made by the Assessing Officer, on an ITA Nos.6143 &6180 /Del/2013 & inapt interpretation of the provision, cannot be sustained. We, therefore, uphold the impugned order on this issue. This ground is not allowed.

Ground No.3 of the Revenue’s appeal is against the direction given by the ld. CIT(A) on deduction of Rs.16,41,607/- being the amount of Prior period expenses. Here again, we find that the Assessing Officer as well as the ld. CIT(A) proceeded in the same manner as they did it for the preceding year. As the ld. CIT(A) has restored the matter to the file of Assessing Officer with a direction as discussed above, following the view taken for the assessment year 2007-08, we are not inclined to disturb the impugned order on this score.

Ground No.1, 2, 2.1 and 2.3 of the assessee’s appeal are against not allowing deduction u/s 80IC in respect of Commission, Export incentive and Service charges etc. As the facts and circumstances of these grounds are similar to those of earlier year, we set aside the impugned order and remit the matter to the file of Assessing Officer for deciding it in conformity with the direction given by the Tribunal in its earlier order.

Ground No.2.2 of the assessee’s appeal is against confirmation of disallowance of Rs.1,13,550/- towards Software expenses, which was treated by the Revenue authorities as capital expenditure. The assessee claimed deduction of Rs.1,13,550/- towards Software expenses. The ld. CIT(A) approved the view of the Assessing Officer in treating it as a capital expenditure, but, directed to allow depreciation on the amount capitalized.

We have heard the rival submissions and perused the relevant material on record. On a specific query, though the ld. AR placed on record a copy of the account of `Software development expenditure’ incurred by it, but, full details of such expenses were not available. In the absence of such details, we cannot adjudicate upon the treatment of such expenditure as revenue or capital. We, therefore, set aside the impugned order and remit the matter to the file of the Assessing Officer for deciding the issue afresh, after allowing a reasonable opportunity of being heard to the assessee.

In the result, both the appeals are partly allowed for statistical purposes.