2010 (10) TMI 701 - AT - Income Tax

Dis-allowance under rule 8D(2)(ii) - the gross interest paid at Rs.1,11,43,922/- Rule 8D is not retrospective and hence it cannot be made applicable in the assessment year 2006-07 as in the present case but still disallowance has to be made by the Assessing Officer on reasonable basis - Hence, matter should go back to the file of the Assessing Officer for a fresh decision on this issue in the light of the judgment of Hon ble Bombay High Court rendered in the case of Godrej Boyce Mfg. Co. (2010 (8) TMI 77 - BOMBAY HIGH COURT) - Therefore, set aside the order of Ld CIT(A) and restore the matter back to the file of the Assessing Officer for a fresh decision in the light of this judgment of Hon ble Bombay High Court rendered in the case of Godrej Boyce Mfg. Co. (2010 (8) TMI 77 - BOMBAY HIGH COURT). 5% of the technical know-how fees paid by the assessee to SNIC and Co., Japan - the agreement in question dated 11.5.1973 though initially made for a period of four years is still in operation - The renewal agreement, if any, has not been furnished by the assessee - The fresh terms and conditions applicable to the present asstt. years have not been placed on record, nor the ld. Representative for the assessee was in a position to make any comment thereupon - Further, the assessee has not presented its case with reference to Article 7 and 7.2; and also other articles of the agreement except making a reference to article 2 and 3, and had no occasion to give its explanation and comment thereupon - Therefore, restore this issue to the file of AO for his fresh adjudication after deliberating upon all the articles of the agreement taken together and after providing the assessee an opportunity to give its explanation and comment thereupon, in the light of several decisions of the courts - The assessee appeal allowed for statistical purposes.

Summary

Issues:
1. Disallowance under rule 8D(2)(ii) and 8D(2)(iii) for AY 2006-07.
2. Disallowance of capital expenditure on technical know-how fees.

Issue 1: Disallowance under rule 8D(2)(ii) and 8D(2)(iii) for AY 2006-07:

The appeal challenged the disallowance under rule 8D(2)(ii) and 8D(2)(iii) for AY 2006-07. The appellant argued that the provisions of sec. 14A as it stood for AY 06-07 only allowed for disallowance of actual expenditure, not notional expenditure. Additionally, the appellant contended that rule 8D, being inserted w.e.f. 24.3.08, could not be invoked for AY 06-07. The appellant further asserted that disallowance under rule 8D(2)(ii) should be based on net interest expenditure, not gross interest, considering interest income. The Tribunal referred to the decision of the Hon'ble Bombay High Court in the case of Godrej and Boyce Manufacturing P. Ltd., holding that rule 8D is not retrospective and cannot be applied to AY 2006-07. Consequently, the Tribunal set aside the disallowance and directed the AO to reconsider the matter in line with the judgment of the Hon'ble Bombay High Court.

Issue 2: Disallowance of capital expenditure on technical know-how fees:

The appeal contested the disallowance of Rs. 6,60,149/- as capital expenditure, which was treated as the net amount after deducting 25% of technical know-how fees paid to SNIC and Co., Japan. The appellant argued that the CIT(A) erred in various aspects, including misinterpretation of facts regarding technology exclusivity, failure to consider relevant case laws, and reliance on a decision from AY 1998-99 despite factual differences. The Tribunal, following precedent, restored the issue to the AO for fresh adjudication after hearing the appellant, similar to previous cases. The Tribunal allowed this ground for statistical purposes, directing the AO to decide the matter afresh in accordance with the law.

In conclusion, the Tribunal allowed the appeal for statistical purposes, setting aside the disallowances and directing the AO to review the issues in light of the relevant legal principles and judgments cited during the proceedings.