2018 (7) TMI 1461 - AT - Income Tax

Assessment u/s 153A - Held that - Referring to extracted provisions of section 153A that pending assessments on the date of search shall get abated. As mentioned elsewhere, since the period of limitation for issuing notice u/s 143(2) of the Act did not expire, the revised return filed on 31.03.2006 did not attain finality and has to be considered as pending assessment which got abated. This means that the return filed pursuant to notice u/s 153A of the Act has to be considered as a fresh return and the assessee is free to return income as per provisions of law and the same has nothing to do with any income returned previously u/s 139 of the Act. This means that the assessee is free to claim any new deduction which he is legally entitled for and compute its taxable income accordingly. To this extent, the action of the lower authorities is unlawful and is accordingly set aside. Deduction u/s 80IC - Exclusion of income received on account of licence fees from the deduction earlier claimed u/s 80IC along with the exclusion of the expenditure claimed on account of foreign exchange fluctuation loss, tours and travelling expenses, deprecation as intangible assets and administrative expenses - Held that - AO did not allow claim of netting off of sub licence fees because the assessee in its return filed u/s 139 had shown the licence fees received from the two parties mentioned elsewhere on gross basis. AO did not allow the claim of royalty payment to Shri Ashok Chaturvedi since in the profit and loss account filed with the return of income u/s 139 of the Act the assessee had claimed ₹ 2,90,57,352/- which was debited to the profit and loss account. We find that the AO is simply carried away by treating the return filed u/ss 139 and 153A of the Act as separate returns for deciding the claim of the assessee. Since the return filed before the date of search did not attain finality, return filed u/s 153A of the Act has to be treated as having been filed for the first time and claim of deduction has to be considered only and only on the basis of income computed for filing return u/s 153A of the Act. The action of the AO/CIT(A) is not only erroneous but also against the relevant provisions of the law. - Decided in favour of assessee

Summary

Issues Involved:

1. Entitlement to claim enhanced relief or deduction in proceedings under Section 153A of the IT Act.
2. Interpretation of Section 153A regarding its benefit to taxpayers.
3. Determination of sub-licensing income attribution to Corporate Unit or Baddi Unit.
4. Allocation of depreciation on technical know-how to Baddi Unit.
5. Attribution of administrative expenses to Corporate Office or Baddi Unit.
6. Eligibility of interest income for relief under Section 80-IC.
7. Applicability of provisions of Section 234B.

Issue-wise Detailed Analysis:

1. Entitlement to Claim Enhanced Relief or Deduction in Proceedings under Section 153A of the IT Act:

The assessee contended that it was entitled to claim enhanced relief or deduction under Section 153A. The Tribunal examined Section 153A, which allows the Assessing Officer (AO) to assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which a search is conducted. The Tribunal concluded that the return filed under Section 153A should be considered a fresh return, allowing the assessee to claim any new deduction legally entitled to it. The lower authorities' action was deemed unlawful and set aside.

2. Interpretation of Section 153A Regarding its Benefit to Taxpayers:

The Tribunal addressed the CIT (Appeals)'s interpretation that Section 153A benefits the Revenue and not taxpayers. The Tribunal clarified that Section 153A necessitates the AO to issue a notice requiring the assessee to furnish returns for the specified assessment years. The Tribunal emphasized that the return filed under Section 153A should be treated as a fresh return, allowing the assessee to claim deductions and compute taxable income accordingly. The Tribunal found the lower authorities' interpretation erroneous and set it aside.

3. Determination of Sub-licensing Income Attribution to Corporate Unit or Baddi Unit:

The assessee argued that the sub-licensing income of ?8,44,18,024/- pertained to the Corporate Unit, contrary to the lower authorities' findings attributing it to the Baddi Unit. The Tribunal noted that the assessee had initially claimed a deduction under Section 80IC on this income but later excluded it in the return filed under Section 153A. The Tribunal concluded that the assessee was entitled to exclude the sub-licensing income from the deduction under Section 80IC on a net basis after adjusting royalty expenses directly linked to earning the sub-licensing fees.

4. Allocation of Depreciation on Technical Know-how to Baddi Unit:

The assessee contended that the depreciation of ?15,00,000/- on technical know-how should not be solely attributed to the Baddi Unit. The Tribunal observed that the AO had disallowed the claim of royalty payment and depreciation on intangible assets. The Tribunal found that the assessee was entitled to claim depreciation on technical know-how as it had a direct nexus with earning sub-licensing fees. The Tribunal set aside the lower authorities' findings and allowed the assessee's claim.

5. Attribution of Administrative Expenses to Corporate Office or Baddi Unit:

The assessee argued that the administrative expenses of ?42,74,051/- should be attributed to the Corporate Office, not the Baddi Unit. The Tribunal noted that the AO had disallowed the claim of administrative expenses, treating the Corporate Unit and Baddi Unit as one entity. The Tribunal concluded that the assessee was entitled to allocate administrative expenses to the Corporate Office, as it had a direct nexus with earning sub-licensing fees. The Tribunal set aside the lower authorities' findings and allowed the assessee's claim.

6. Eligibility of Interest Income for Relief under Section 80-IC:

The assessee contended that the interest income of ?8,58,417/- was eligible for relief under Section 80-IC. The Tribunal did not explicitly address this issue in the judgment. However, based on the overall findings, the Tribunal allowed the appeal of the assessee, implying that the interest income was considered eligible for relief under Section 80-IC.

7. Applicability of Provisions of Section 234B:

The assessee argued that the provisions of Section 234B were not applicable. The Tribunal did not explicitly address this issue in the judgment. However, based on the overall findings, the Tribunal allowed the appeal of the assessee, implying that the provisions of Section 234B were not applicable in this case.

Conclusion:

The Tribunal allowed the appeal of the assessee, setting aside the findings of the CIT (Appeals) and AO. The Tribunal concluded that the return filed under Section 153A should be treated as a fresh return, allowing the assessee to claim new deductions and compute taxable income accordingly. The Tribunal found that the assessee was entitled to exclude sub-licensing income on a net basis after adjusting royalty expenses, allocate administrative expenses to the Corporate Office, and claim depreciation on technical know-how. The Tribunal allowed the appeal, including the additional ground raised by the assessee.