2009 (4) TMI 982 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the assessment order passed by the ACIT.
2. Addition of negative cash balance.
3. Charging of interest u/s 234B and 234D.
4. Treatment of expenditure on application software.
5. Disallowance of 10% of total operating and other expenses.
6. Disallowance of international relocation expenses.

Summary:

1. Validity of the Assessment Order:
The assessee contended that the assessment order dated 27.3.2006 was passed without jurisdiction as the assessee, Software and Silicon Systems India Pvt. Ltd. (SSSIPL), had ceased to exist due to its amalgamation with Intel Technology India Pvt. Ltd. (ITIPL) effective from 1.4.2004. The Ld. CIT(A) upheld the assessment, stating that the appellant had voluntarily furnished its return and participated in the scrutiny proceedings. However, the Tribunal found that the AO was aware of the amalgamation and that the assessment on a non-existent entity was null and void. The Tribunal emphasized that section 292B does not cure a substantial defect such as lack of jurisdiction.

2. Addition of Negative Cash Balance:
The AO added Rs. 5,311 due to a negative cash balance found in the cash book as of 31.12.2002. The Ld. CIT(A) sustained this addition, considering the size of the assessee's financial transactions and the clerical error admitted by the assessee.

3. Charging of Interest u/s 234B and 234D:
The Ld. CIT(A) held that charging interest u/s 234B and 234D was mandatory and not appealable unless it contravened the relevant sections. The AO was directed to charge interest after considering the relief allowed in the impugned order.

4. Treatment of Expenditure on Application Software:
The AO treated the expenditure on application software as capital in nature, citing enduring benefits. The Ld. CIT(A) reversed this, treating it as revenue expenditure based on the Tribunal's decision in the assessee's own case for AY 2002-03.

5. Disallowance of 10% of Total Operating and Other Expenses:
The AO disallowed 10% of the operating and other expenses, stating that most payments were made to the holding company, ITIPL. The Ld. CIT(A) found this ad hoc disallowance unsustainable, as the AO had not verified the genuineness or reasonableness of the expenses.

6. Disallowance of International Relocation Expenses:
The AO disallowed international relocation expenses, claiming they were not incurred wholly for the assessee's business. The Ld. CIT(A) deleted this disallowance, noting the AO's failure to substantiate his action even in the remand report.

Conclusion:
The Tribunal cancelled the assessment order as null and void due to lack of jurisdiction, rendering other grounds raised by both the assessee and the Revenue infructuous. The assessee's appeal was allowed, and the Revenue's appeal was dismissed as infructuous.