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2015 (1) TMI 924 - AT - Income TaxAscertaining the correct amount of foreign currency expenses and telecommunication costs for exclusion from Export Turnover for working out the deduction u/s 10A - CIT(A) restored the matter back to the AO - Held that - Set aside the impugned order of the ld. CIT(A) on this issue and the AO is directed to reduce the expenses incurred in foreign currency and telecommunication from the export turnover as well the total turnover while working out the deduction u/s 10A of the Act. - Decided in favour of revenue. Disallowance u/s 14A read with rule 8D - CIT(A) deleted the addition - Held that - By keeping in view the ratio laid down in the case of CIT Vs Holcim India (P.) Ltd. 2014 (9) TMI 434 - DELHI HIGH COURT and CIT Vs M/s Lakhani Marketing (2014 (7) TMI 44 - PUNJAB AND HARYANA HIGH COURT) are of the considered view that no disallowance u/s 14A of the Act can be made if there is no income earned. - Decided against revenue. License fee paid to DOT - Revenue v/s Capital - Held that - Facts of the present case appears to be similar to the facts involved in the case of CIT Vs Bharti Hexacom Ltd. (Delhi) (2013 (12) TMI 1115 - DELHI HIGH COURT), we, therefore, restored this issue to the file of the AO to be decided in accordance and if any expenditure on account of licence fee was payable up to 31.07.1999, it should be treated as capital expenditure and the licence fee on revenue sharing basis after 01.08.1999 should be treated as revenue in nature. - Decided in favour of assessee for staistical purposes.
Issues Involved:
1. Jurisdiction of CIT(A) under Section 251(1) of the Income Tax Act, 1961. 2. Exclusion of foreign currency expenses and telecommunication costs from "Export Turnover" and "Total Turnover" for deduction under Section 10A. 3. Disallowance under Section 14A read with Rule 8D. 4. Nature of license fee paid to DOT - capital or revenue expenditure. Issue-wise Detailed Analysis: 1. Jurisdiction of CIT(A) under Section 251(1): - The assessee argued that the CIT(A) exceeded his jurisdiction by remanding the case to the AO for re-computation of expenses in foreign currency, which contravenes the provisions of Section 251(1) of the Act as amended by the Finance Act, 2001. - The tribunal agreed with the assessee, emphasizing that the CIT(A) does not have the power to remand cases post the amendment effective from 01.06.2001. 2. Exclusion of Foreign Currency Expenses and Telecommunication Costs: - The AO excluded telecommunication and foreign currency expenses from "Export Turnover" without making corresponding adjustments to "Total Turnover." - The CIT(A) directed the AO to ascertain the correct amount of such expenses and compute the deduction under Section 10A accordingly. - The tribunal held that if expenses are excluded from "Export Turnover," they must also be excluded from "Total Turnover," citing judgments from the ITAT Special Bench in ITO v. Sak Soft Ltd. and the jurisdictional High Court in Tata Elxsi Ltd. and Gem Plus Jewellery India Ltd. - The tribunal directed the AO to exclude these expenses from both "Export Turnover" and "Total Turnover" while computing the deduction under Section 10A. 3. Disallowance under Section 14A read with Rule 8D: - The AO made an addition under Section 14A, which was deleted by the CIT(A) on the grounds that Rule 8D was applicable from the assessment year 2008-09 and not for the year under consideration. - The tribunal upheld the CIT(A)'s decision, referencing the judgments in CIT v. Lakhani Marketing Incl., CIT v. Holcim India (P) Ltd., and others, which state that Section 14A cannot be invoked if no exempt income is earned during the year. - The tribunal concluded that no disallowance under Section 14A could be made in the absence of exempt income. 4. Nature of License Fee Paid to DOT: - The AO treated the license fee paid to DOT as a capital expenditure, allowing depreciation at 25%. - The CIT(A) held that since the license/transponder fees were linked to gross annual revenues, they were revenue expenditures allowable under Section 37. - The tribunal referred to the jurisdictional High Court's decision in CIT v. Bharti Hexacom Ltd., which held that the license fee up to 31-07-1999 should be treated as capital expenditure, and the fee on a revenue-sharing basis post-01-08-1999 should be treated as revenue expenditure. - The tribunal restored the issue to the AO to decide in accordance with the High Court's findings. Conclusion: - The appeal of the assessee was allowed, directing the AO to exclude telecommunication and foreign currency expenses from both "Export Turnover" and "Total Turnover." - The department's appeal was partly allowed for statistical purposes, with the issue of license fee expenditure remanded to the AO for reconsideration in line with the High Court's judgment.
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