2009 (12) TMI 852 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of expenses for want of details.
2. Applicability of Rule 6D(i) and Rule 6D(ii) of Income-tax Rules.
3. Allowability of expenditure incurred by way of rent for housing provided to expatriate employees.
4. Addition of Rs.63,86,848/- for want of requisite invoices.
5. Inclusion of Rs.12,58,181/- as income representing tax paid by MRPL.
6. Taxability of profit in respect of offshore supply contract to MRPL.
7. Rejection of books of account and estimation of profit under Rule 10 of the I.T. Rules.
8. Tax rate applicable for computing the appellant's tax liability.
9. Levy of interest under Section 234B.

Detailed Analysis:

1. Disallowance of Expenses for Want of Details:
The Revenue's appeal included disallowances of Rs.9,53,664/- (20% of foreign currency spent), Rs.8,53,316/- (domestic traveling expenses), and Rs.24,75,847/- (traveling expenses outside India). The Tribunal dismissed the grounds related to domestic traveling expenses and Rule 6D as misconceived. For the foreign currency and traveling expenses outside India, the Tribunal followed its previous decision in ITA No. 4053/Mum/99, noting that the assessee had furnished reasonable particulars certified by Japanese and Indian auditors. Consequently, these grounds were dismissed.

2. Applicability of Rule 6D(i) and Rule 6D(ii):
The Tribunal confirmed that Rule 6D does not apply to expenses incurred outside India, even if they are for traveling expenses. This was consistent with the Tribunal's earlier view, leading to the dismissal of this ground.

3. Allowability of Expenditure Incurred by Way of Rent for Housing Provided to Expatriate Employees:
The Tribunal examined whether the accommodation provided was in the nature of a guest house under Section 37(4) and (5). The Tribunal agreed with the CIT(A)'s view that the accommodation was for employees on deputation, not guests, and thus Section 37(4) was not applicable. The Tribunal also rejected the argument that the Double Taxation Agreement with Japan would preclude disallowance under Section 37(5), affirming that domestic law governs such allowances.

4. Addition of Rs.63,86,848/- for Want of Requisite Invoices:
The Tribunal upheld the CIT(A)'s decision to allow the deduction based on circumstantial evidence, noting that the assessee had provided substantial documentation and that the payments were audited and made by cheque with TDS deducted. This ground was dismissed.

5. Inclusion of Rs.12,58,181/- as Income Representing Tax Paid by MRPL:
The Tribunal found that Section 10(6A) exempts tax paid by an Indian concern on behalf of a foreign company under specific agreements. The Tribunal dismissed the Revenue's argument that this exemption does not apply in cases of loss returns, affirming that such tax payments cannot be treated as income.

6. Taxability of Profit in Respect of Offshore Supply Contract to MRPL:
The Tribunal held that income from offshore supply contracts, executed and paid for outside India, does not accrue in India and thus cannot be taxed in India. This conclusion was based on the Supreme Court's decision in Ishikawajima-Harima Heavy Industries Co. Ltd. and other relevant case law. The Tribunal dismissed the Revenue's ground on this issue.

7. Rejection of Books of Account and Estimation of Profit Under Rule 10:
The Tribunal found that the AO's rejection of the books of account was arbitrary and uncalled for, as the assessee had consistently maintained and audited its accounts. The Tribunal also noted that the AO had no basis for estimating the profit at 20% and had not properly applied Rule 10. This ground was dismissed.

8. Tax Rate Applicable for Computing the Appellant's Tax Liability:
The Tribunal upheld the application of a 48% tax rate as per the Act, instead of the 35% claimed by the assessee under Article 24 of the India-Japan treaty, following the decision in Chohung Bank vs. DCIT. The assessee's appeal on this ground was dismissed.

9. Levy of Interest Under Section 234B:
The Tribunal found that no interest under Section 234B was chargeable, as the assessee's entire income was subject to TDS and the assessee had obtained a certificate for deduction at a lower rate. The Tribunal upheld the CIT(A)'s decision to delete the interest.

Conclusion:
The Tribunal dismissed the Revenue's appeals and upheld the CIT(A)'s decisions on all grounds. The assessee's appeal regarding the tax rate was also dismissed. The Tribunal's detailed analysis relied heavily on existing case law and the consistent application of legal principles, particularly concerning the treatment of offshore supply contracts and the applicability of domestic tax provisions in the context of international agreements.