2014 (1) TMI 1445 - AT - Income Tax

Admission of additional evidence Charging of interest on loan converted to equity shares Held that - The assessee has now provided evidence that they have been allotted shares for the amount advanced to its American Subsidiary - This alters the entire colour of transaction - the additional evidence admitted in the present appeal under the provisions of Rule 29 of the Appellate Tribunal Rules, 1963 Following Abhay Kumar Shroff. Versus Income-Tax Officer 1997 (6) TMI 75 - ITAT PATNA - The assessee as a matter of right could not file or filed them before the Tribunal as a matter of course - if the documents sought to be admitted even at the second appellate stage are of a nature and quantitatively such that they render assistance to the Tribunal in passing orders or are required to be admitted for any other substantial cause , it would rather be the duty of the Tribunal to admit them - if the receipt or admission of additional evidence is vital and essential for the purpose of consideration of the subject matter of appeal and to arrive at a final and ultimate decision, the Tribunal is amply empowered to admit additional evidence under Rule 29 - The TPO had no occasion to consider the new fact which goes to the root of the matter the matter remitted back to the AO for fresh adjudication. Exemption u/s 10A of the Act Adjustment on exempted income allowed Held that - The assessee company does not provide any technical services either in India or abroad and the company does not undertake any offshore development of software and hence no part of the expenses can be attributed towards providing technical services outside India - In the absence of any finding given by the Assessing Officer, contrary to the above contention of the assessee, so as to suggest that foreign travel expenditure has been incurred for providing technical services outside India - the claim of the assessee accepted and the Assessing Officer is directed to exclude the foreign travel expenditure while computing the exemption under section 10B of the Act Decided in favour of Assessee.

Summary

Issues:
1. Determination of arm's length price (ALP) for international transactions.
2. Admissibility of additional evidence in appeal.
3. Exemption under section 10A of the Income Tax Act.

Analysis:

Issue 1: Determination of arm's length price (ALP) for international transactions:
The case involved the assessee company declaring income with international transactions with an associated enterprise (AE). The Assessing Officer found discrepancies in the ALP of interest on a loan transaction. The Dispute Resolution Panel (DRP) upheld the TPO's decision regarding the ALP, leading to an increase in the total income of the taxpayer. The taxpayer contended that the loan had been converted into equity, but failed to provide proof. The DRP noted the absence of relevant documentation and denied an extension for submission due to time constraints. The Tribunal admitted additional evidence of share allotment certificate, altering the transaction's nature. Consequently, the matter was remanded to the Assessing Officer for fresh determination of ALP in compliance with the law.

Issue 2: Admissibility of additional evidence in appeal:
The Tribunal admitted the additional evidence of share allotment certificate under Rule 29 of the Appellate Tribunal Rules, emphasizing the importance of such evidence for rendering justice. The decision referenced a previous case to support the admission of documents crucial for the final decision. As the new evidence was fundamental and not considered by the TPO initially, the Tribunal deemed it necessary to set aside the matter for reassessment based on the new facts.

Issue 3: Exemption under section 10A of the Income Tax Act:
The appeal raised concerns regarding exemption under section 10A of the Income Tax Act. The Tribunal referenced a previous decision to address the issue, emphasizing the exclusion of expenses related to providing technical services outside India for computing the exemption. As the Assessing Officer had not provided findings contradicting the assessee's contentions, the Tribunal directed the exclusion of foreign travel expenditure while computing the exemption under section 10B of the Act. Consequently, the Tribunal partially allowed the appeal for statistical purposes.

In conclusion, the Tribunal partially allowed the appeal related to ALP determination and exemption under section 10A, emphasizing the importance of evidence and compliance with legal provisions in tax assessments.