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2018 (8) TMI 53 - AT - Income TaxCIT-A enhanced the income of the assessee by discovering a new source of income - TDS u/s 194C - CIT(A) enhancing the income of the assessee u/s 251(1)(a) - disallowing the expenditure incurred on account of procurement of materials from third party vendors u/s 40(a)(ia) - assessee has entered into transactions with domestic third parties LGEK and its related parties for purchase of finished goods without deducting tax at source - Held that - There is no discussion of any such disallowance either in the return of income or in the assessment proceedings therefore the disallowance made by the ld. CIT(A) by discovering a new source of income is not sustainable in law. We therefore hold that the disallowance made by the ld. CIT(A) u/s 40(a)(ia) is void ab-initio. Since we are allowing the grounds raised by the assessee on the issue of enhancement of assessment by the ld. CIT(A) by discovering a new source of income the other alternate arguments made by the ld. counsel for the assessee become academic in nature and therefore are not being adjudicated. Treatment to sales-tax subsidy - taxable revenue receipt OR capital receipt - Held that - As following the order of the Tribunal in assessee s own case for assessment year 2002-03 has decided the issue against the assessee by observing that the facts concerning this ground are that the assessee treated sales tax subsidy as capital receipt which was held by the AO to be chargeable to tax in the nature of revenue receipt. It is noticed that this issue came up for consideration before the Tribunal in earlier years. For the first time the tribunal decided it against the assessee for the assessment year 2002-03 and such view has been followed for the subsequent years. In view of the consistent view taken by the Tribunal in deciding sales tax subsidy as revenue receipt we do not find any reason to interfere with the impugned order on this issue. Disallowing the provision for service warranty - Held that - We find the Tribunal following the order of the Tribunal in assessee s own case for assessment years 2002-03 2003-04 and 2004-05 has decided the issue in favour of the assessee Disallowing royalty paid to LG Electronics Inc. Korea holding the same to be capital expenditure - Held that - Respectfully following the decision of the Tribunal in assessee s own case for assessment year 2007-08 2014 (12) TMI 437 - ITAT DELHI we hold that the total royalty payment as reduced by the transfer pricing adjustment on this score be treated as revenue expenditure. The ground raised by the assessee on this issue is accordingly allowed. Disallowing the claim of bad debts - Held that - We find the ld. CIT(A) rejected the claim of the assessee on the ground that the assessee has not made out any case except making a bald claim that it has fulfilled the requirement of section 36(1)(vii) or 36(2) of the I.T. Act. Since the assessee is required to fulfill the twin conditions therefore considering the totality of the facts of the case and in the interest of justice we deem it proper to restore the issue to the file of the Assessing Officer with a direction to give one more opportunity to the assessee to substantiate the claim of allowability of bad debts. The ground raised by the assessee on this issue is accordingly allowed for statistical purposes. Disallowing the claim of deduction u/s 80JJAA - Held that - This issue is decided against the assessee by the Tribunal in assessee s own case in earlier years and in assessment year 2007-08 2014 (12) TMI 437 - ITAT DELHI Addition of sales promotion and advertisement expenditure - as submitted that sales promotion and advertisement expenditure is incurred by the appellant wholly and exclusively in connection with its own business in India and is not at all guided by the alleged motive of promoting the business interest of its overseas group company - Held that - Respectfully following the order of the Tribunal in assessee s own case for assessment year 2007-08 2014 (12) TMI 437 - ITAT DELHI which has been decided earlier i.e. prior to assessment years 2005-06 and 2006-07 we deem it proper to restore the issue to the file of the Assessing Officer/TPO for fresh adjudication of the issue in the light of the decision of the Tribunal for assessment year 2007-08. The grounds raised by the assessee are accordingly allowed for statistical purposes.
Issues Involved:
1. Enhancement of income by CIT(A) under Section 251(1)(a) and disallowance under Section 40(a)(ia) of the Income Tax Act. 2. Treatment of sales tax subsidy as taxable revenue receipt. 3. Disallowance of provision for service warranty. 4. Disallowance of royalty payment as capital expenditure. 5. Disallowance of export commission. 6. Disallowance of bad debts. 7. Disallowance of deduction under Section 80JJAA. 8. Transfer Pricing adjustment on account of international transaction of payment of royalty. 9. Transfer Pricing adjustment on account of AMP expenses. 10. Disallowance of sponsorship payment made to GCC. Detailed Analysis: 1. Enhancement of Income by CIT(A) and Disallowance under Section 40(a)(ia): The CIT(A) enhanced the income of the assessee by disallowing expenditure incurred on procurement of raw materials from third-party vendors under Section 40(a)(ia) due to non-deduction of tax at source. The Tribunal held that the CIT(A) exceeded his jurisdiction by discovering a new source of income not considered by the Assessing Officer. The Tribunal cited various judicial precedents, including the Hon'ble Supreme Court's decisions in CIT vs. Shapoorji Pallonji Mistry and CIT vs. Rai Bahadur Hardutroy Motilal Chamaria, emphasizing that the CIT(A) cannot travel beyond the subject matter of assessment. Consequently, the Tribunal declared the disallowance as void ab initio and allowed the grounds raised by the assessee. 2. Treatment of Sales Tax Subsidy as Taxable Revenue Receipt: The CIT(A) treated the sales tax subsidy received by the assessee as taxable revenue receipt. The Tribunal upheld this decision, following its earlier rulings in the assessee's own case for previous assessment years, where the sales tax subsidy was consistently treated as revenue receipt. 3. Disallowance of Provision for Service Warranty: The CIT(A) disallowed the provision for service warranty claimed by the assessee. The Tribunal reversed this decision, relying on its earlier orders in the assessee's own case for preceding assessment years, where such provisions were allowed as deductible expenses. 4. Disallowance of Royalty Payment as Capital Expenditure: The CIT(A) upheld the Assessing Officer's decision to treat royalty payments to LG Electronics Inc. Korea as capital expenditure. The Tribunal, however, ruled in favor of the assessee, determining that the royalty payments were for the use of technical know-how and not for acquiring ownership rights, thus qualifying as revenue expenditure. The Tribunal based its decision on various judicial precedents, including the Hon'ble Supreme Court's rulings in CIT vs. Ciba of India Ltd. and CIT vs. I.A.E.C (Pumps) Ltd. 5. Disallowance of Export Commission: The CIT(A) upheld the disallowance of export commission paid to LG Electronics Inc. Korea, considering it not a genuine business expenditure. The Tribunal dismissed the assessee's appeal on this issue, citing its earlier decisions in the assessee's own case. 6. Disallowance of Bad Debts: The CIT(A) disallowed the bad debts written off by the assessee. The Tribunal restored the issue to the Assessing Officer for re-examination, directing the assessee to substantiate its claim in light of the Hon'ble Supreme Court's decision in TRF Ltd. vs. CIT. 7. Disallowance of Deduction under Section 80JJAA: The CIT(A) upheld the disallowance of deduction claimed under Section 80JJAA. The Tribunal dismissed the assessee's appeal, following its earlier rulings in the assessee's own case for previous assessment years. 8. Transfer Pricing Adjustment on Account of International Transaction of Payment of Royalty: The CIT(A) upheld the TPO's determination of the arm's length royalty rate at 4.05% as against the 5% claimed by the assessee. The Tribunal found no infirmity in the CIT(A)'s order, which followed the Tribunal's earlier decision in the assessee's own case for the assessment year 2007-08. 9. Transfer Pricing Adjustment on Account of AMP Expenses: The CIT(A) disallowed 50% of the AMP expenses incurred by the assessee, assuming that such expenses benefited the associated enterprise. The Tribunal restored the issue to the Assessing Officer/TPO for fresh adjudication, following the Special Bench decision in the assessee's own case for the assessment year 2007-08. 10. Disallowance of Sponsorship Payment Made to GCC: The CIT(A) did not adjudicate the issue of disallowance of sponsorship payment made to GCC. The Tribunal restored the issue to the CIT(A) for adjudication as per law, after giving the assessee an opportunity to be heard. Conclusion: Both appeals filed by the assessee were partly allowed for statistical purposes, with several issues restored for re-examination or fresh adjudication. The Tribunal emphasized adherence to judicial precedents and proper jurisdictional limits in enhancing assessments and making disallowances.
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