2014 (4) TMI 823 - AT - Income Tax

Addition of disallowance of ESIC contribution Held that - After hearing both the parties and in view of the admitted facts, which also forms part of the details submitted by the assessee in the paper book, that all the payments of ESIC have been made before the due date of filing of the return of income, the amount is allowable as deduction u/s 43B Decided in favour of Assessee. Addition of advances written off Held that - The assessee had made deposits with the various Government Departments as per the tender requirement with various Government and Semi Government organizations as well as undertakings for getting the business in which the assessee is engaged i.e., inspection, verification, testing and certification services - The payments have been made in the form of demand draft / cheque at the time of tender submissions - The payments can very well be said to have been made in the course of business only - Once the amounts have not been recovered, the same results into loss - This aspect has not been examined either by the AO or by the DRP despite specific descriptions and details furnished thus, the matter is remitted back to the AO for verification Decided in favour of Assessee. Disallowance of deduction of right back of leave encashment Held that - The assessee has made a provision for leave encashment in the assessment year 2005-06 which was disallowed by the assessee itself in the computation of income and the same was added back - the view taken by the DRP cannot be sustained for the reason that it is not a new claim which is being made before the AO - If the assessee has written back the leave encashment on the basis of actuarial valuation, the same has to be allowed even though the assessee could not claim in the computation of income thus, the matter is remitted back to the AO for verification of the claim Decided in favour of Assessee. Non-grant of credit for TDS Disallowance of TDS credit Held that - The issue needs to be remanded back to examine the conditions of Article 24 of the Indo- Korean DTAA and whether credit of deduction can be given - Decided in favour of Assessee. Addition on account of TPA Technical fee paid to AE Held that - The Tribunal in assessee s own case for the previous assessment years have decided that the royalty @ 5% to 8% was accepted as per FIPB instruction issued by the Ministry of Commerce, Govt. of India - the assessee s payment of license fee @ 3% to its AE on the total turnover is at ALP - the rate of license fee @3% of the total turnover for the use of intellectual / intangible properties, is at ALP is accepted Decided in favour of Assessee. Admission of additional ground - Benefit of Article 10 of India Switzerland DTAA Liability for dividend distribution tax @ 10% - Held that - The assessee has raised the contention that the correct tax liability for deducting the TDS is at 10% in view of the Article-10 of the India Switzerland DTAA which is admittedly applicable in the case of the assessee - there is no requirement for investigation or examination of facts albeit it is clearly borne out from the records there is no reason to admit an additional ground which goes to the root of the tax liability of the assessee in accordance with the provisions of law thus, the additional ground is admitted and the matter is remitted back to the AO for adjudication Decided in favour of Assessee.

Summary

Issues Involved:

1. Disallowance of ESIC contribution
2. Addition on account of advances written off
3. Disallowance of claim of deduction of right back of leave encashment
4. Non-granting of credit for TDS
5. Disallowance of TDS credit
6. Levy of interest under sections 234B and 234C
7. Transfer pricing adjustment in respect of technical fees paid to the A.E.
8. Additional ground regarding the benefit of Article-10 of the India Switzerland Double Taxation Avoidance Agreement (DTAA) for dividend distribution tax

Issue-wise Detailed Analysis:

1. Disallowance of ESIC Contribution:
The assessee challenged the addition of Rs. 17,085 due to the disallowance of ESIC contribution. The Assessing Officer noted that the payment was made beyond the due date as per the ESIC Act, 1984, but within the grace period. The DRP allowed payments made within the grace period but disallowed those beyond it. The assessee argued that all payments were made before the due date of filing the return of income, invoking Section 43B. The Tribunal held that since all payments were made before the return filing due date, they are allowable as deductions under Section 43B. Thus, this ground was allowed.

2. Addition on Account of Advances Written Off:
The assessee contested the addition of Rs. 14,16,718 on account of advances written off. The Assessing Officer disallowed the claim due to lack of evidence supporting the business purpose of the advances and non-compliance with bad debt deduction conditions. The Tribunal noted that the deposits were business-related, but the timing and loss incurrence needed verification. Consequently, the issue was remanded back to the Assessing Officer for verification. This ground was allowed for statistical purposes.

3. Disallowance of Claim of Deduction of Right Back of Leave Encashment:
The assessee claimed a deduction for the right back of leave encashment amounting to Rs. 14,87,645, which was disallowed by the DRP on procedural grounds. The Tribunal found that the provision for leave encashment was made in the previous year and added back in the computation of income. The Tribunal directed the Assessing Officer to verify the claim and allow the deduction if found valid. This ground was allowed for statistical purposes.

4. Non-granting of Credit for TDS:
The assessee argued that the Assessing Officer failed to grant credit for TDS of Rs. 45,093 as per Article-24 of the Indo-Korean DTAA. The Tribunal remanded the issue back to the Assessing Officer to verify the conditions of Article-24 and grant the credit if applicable. This ground was allowed for statistical purposes.

5. Disallowance of TDS Credit:
The assessee contested the disallowance of TDS credit amounting to Rs. 6,18,805. The Assessing Officer denied the credit on the grounds that the revenue was not offered in the year under consideration. The Tribunal remanded the issue back to the Assessing Officer to verify the assessee's contention that the corresponding income was offered in the relevant assessment year. This ground was allowed for statistical purposes.

6. Levy of Interest Under Sections 234B and 234C:
Both parties agreed that the levy of interest under sections 234B and 234C was consequential in nature. The Tribunal directed the Assessing Officer to give consequential effect in accordance with the law while recomputing the income of the assessee.

7. Transfer Pricing Adjustment in Respect of Technical Fees Paid to the A.E.:
The assessee challenged the addition of Rs. 30 lakhs on account of transfer pricing adjustment for technical fees paid to the A.E. The Tribunal noted that similar issues in previous years were decided in favor of the assessee, holding that the payment of license fees at 3% of the turnover was at arm's length. The Tribunal followed the judicial precedence and allowed this ground.

8. Additional Ground Regarding the Benefit of Article-10 of the India Switzerland DTAA:
The assessee raised an additional ground claiming the benefit of Article-10 of the India Switzerland DTAA, arguing that the dividend distribution tax should be at 10%. The Tribunal admitted the additional ground, noting that the foundational facts were on record and restored the issue to the Assessing Officer for decision in accordance with the law. This ground was allowed for statistical purposes.

Conclusion:
For the assessment years 2006-07 and 2007-08, the appeals were partly allowed for statistical purposes. The Tribunal provided specific directions for the Assessing Officer to verify and decide various claims and deductions in accordance with the law.