2020 (10) TMI 1320 - HC - Income Tax

Addition u/s 40(a)(a) - whether assessee failed to bring any evidence on record to the effect that the payments made are covered under circular No.723 of 1995 and that the non-residents ship owners/charters had filed returns u/s 172 - addition on account of interest and on account of insurance expense claimed on vehicle - addition on account of depreciation petrol and repair expenses claimed on vehicle - disallowance of expenses being web designing and development expenses which is intangible and capital in nature - disallowance of expenses for market survey and production of commercial film for broadcasting on TV Channels - disallowance of expenses being payment made for making advertisement film which is in the nature of an intangible asset - addition made on account of under invoicing of sales made to sister concern - addition more particularly when AO has pointed out specific examples of under invoicing which has been dismissed by way of generic finding - crucial findings of AO including that sister concern operates from tax exempt jurisdiction and assessee has incurred huge advertisement expenses in foreign markets - Whether the Appellate Tribunal has erred in stating that net profit of 46.38% is not possible when the Hon ble Karnataka HC has held in CIT vs. Vesesh Infotechnics Ltd. 2012 (9) TMI 70 - KARNATAKA HIGH COURT that even a profitability of 94.8% is possible? HELD THAT - Having gone through the materials on record we are of the view that none of the questions as proposed by the revenue could be termed as the substantial questions of law. All the questions proposed are on factual aspects of the matter.

Summary

Issues:
1. Interpretation of questions proposed by the Revenue in tax appeals.
2. Determination of substantial questions of law based on the proposed questions.
3. Dismissal of appeals based on factual aspects.

Analysis:
1. The High Court of Gujarat heard two tax appeals analogously where the Revenue raised identical questions regarding the deletion of various additions made under the Income Tax Act, 1961. The appeals were directed against the order of the Income Tax Appellate Tribunal for the assessment year 2010-11.

2. The Revenue proposed several questions challenging the deletion of additions related to expenses, disallowances, under-invoicing, and profitability. However, after considering the arguments presented by Ms. Mauna Bhatt, the Court found that the questions raised were primarily based on factual aspects rather than substantial questions of law.

3. The Court emphasized that the questions raised by the Revenue did not involve substantial legal issues but were more focused on the factual circumstances of the case. Consequently, the Court dismissed both appeals, stating that none of the proposed questions could be categorized as substantial questions of law, leading to the failure of the appeals.

4. A modification order was issued to correct an error in the initial order regarding the uniformity of questions raised by the Revenue in both appeals. The modification clarified that while the assessee was the same in both appeals, the questions raised were specific to each case. The Court reiterated the dismissal of the appeals based on the factual nature of the questions proposed by the Revenue.

5. The Court further addressed a specific question in one of the appeals related to prior period expenses, emphasizing that even in that instance, the question did not constitute a substantial question of law. Consequently, the Court dismissed the additional appeal, reiterating the lack of substantial legal issues in the case.

6. The judges, Honorable the Chief Justice Mr. Vikram Nath and Honorable Mr. Justice J.B. Pardiwala, concurred in the decision to dismiss both appeals based on the factual nature of the questions proposed by the Revenue, emphasizing the absence of substantial legal issues warranting further consideration.