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TMI Blog2011 (11) TMI 509X X X X Extracts X X X X X X X X Extracts X X X X ..... e envisaged in section 40(a)(ia) can be invoked only in the event of non-deduction of tax, but not in cases involving short deduction of tax at source - Decided in favor of assessee. Provision for doubtful debts - Dis-allowance being contingent liability - Held that:- Though the claim of the assessee is under head "provision for doubtful debts", in actuality the claim is based on certain deductions claimed to be made by the Government buyers as liquidated damages for late supply of goods, etc. CIT (A) in his order has referred to two journal entries in this regard and on that basis directed the AO to allow the claim, subject to the verification that the liability crystallized in this year or not but AO in his order has not carried out the directions of the CIT (A) in its proper perspective & has merely gone by the fact that the claim has been made under "provision for doubtful debts"- matter restored to the file of the AO with directions to consider the true nature of the claim - in favor of the assessee by way of remand. Excise duty payment on finished goods not included in the value of closing stock - CIT deleted the addition - As similar issue has been adjudicated by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement was for five years, the appellant was entitled to deduction of Swiss Kroner 7,71,600/- being 1/5th of the amount payable under the Agreement in five assessment years commencing from the assessment year 1991-92. However, at that point of time, the assessee had deducted the prescribed tax deductible at source (TDS) also and remitted the same to the exchequer, on the entire amount of fee payable to the foreign collaborator, including the future instalments as the assessee had credited the entire amount to the account of the collaborator in the account books. Accordingly, in the year under consideration, assessee claimed deduction of Rs. 42,89,872/- as fourth instalment of research and know how fee in its return of income. While remitting the instalment to the foreign collaborator during the year, it suffered foreign exchange fluctuation loss of Rs. 8,82,234/- which was comprised in its claim of Rs. 42,85,872/-. At the time of original assessment, the Assessing Officer disallowed the loss of Rs. 8,82,234/- on the ground that the additional claim of exchange loss did not pertain to the year under consideration. Therefore, he allowed deduction for research and know how fee to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) assuming for the sake of argument that the said provision required consideration, even then the same did not permit disallowance of the sum of Rs. 8,82,234/-. 5. The CIT(A) gravely erred in holding that the previous appellate order of the CIT(A) dated 28.11.1997 directed tat the provisions of S. 40(a)(i) of the Act were to be applied when considering deductibility of Rs. 8,82,234/-. At the very highest the said order can be read as directing the AO to consider whether section 40(a)(i) of the Act had any bearing when considering deductibility of Rs. 8,82,234/-. 6. Assuming for the sake of argument that it is held that the previous CIT(A)'s order dt 28.11.97 required that S, 40(a)(i) of the Act was to be applied, if it is found that the said provision is not applicable the CIT(A) ought to have so held and therefore, allowed the deduction of Rs. 8,82,234/-." 6. Before us, the learned Counsel for the assessee has made multi-faceted arguments assailing the disallowance of Rs. 8,82,234/- representing loss on account of foreign exchange fluctuation in remitting the instalment of research and know-how fee to the foreign collaborator. The first and foremost argument set up by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the instant case. Apart from the aforesaid submissions, the learned Counsel also pointed out that the Assessing Officer while giving effect to the order of the Commissioner of Income-tax (Appeals) dated 28.11.1997, has travelled beyond his jurisdiction by invoking the provisions of section 40(a)(i) in the context of the impugned sum of Rs. 8,82,234/. In this regard, reference has been made to the directions of the Commissioner of Income-tax (Appeals) contained in his order dated 28.11.1997 to point out that the Commissioner of Income-tax (Appeals) had required the Assessing Officer to merely verify if the remittance was actually made in the year and the wordings "appropriate deduction of tax at source as per section 40(a)(i)" contained in the order of the Commissioner of Income-tax (Appeals) was only to examine whether the requisite tax has been deducted with reference to the amount of 1/5th instalment payable, on which the necessary tax had already been deducted in the preceding year. Thus, it was submitted that the disallowance of Rs. 8,82,234/- has been wrongly perpetuated by the Assessing Officer. 7. On the other hand, the learned Departmental Representative, appearing fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation loss in terms of section 195(1) of the Act and the assessee not having done so, the same is to suffer disallowance in terms of section 40(a)(i) of the Act. Quite clearly, the case made out by the Revenue is founded on the assumption that the exchange rate fluctuation loss also partakes the character of technical fee. Without going into this controversy, it transpires from the material on record that loss on account of foreign exchange in relation to the earlier instalments remitted to the foreign collaborator has been allowed in the case of the assessee, and it is only in this year the Revenue has made out a case for invoking section 40(a)(i) for the assessee not having deducted the requisite tax at source. The provisions of section 195(1) of the Act cast an obligation on the assessee to deduct tax at source on any sum payable to a non-resident. The relevant portion of Section 195(1) reads as under: "195(1): Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries" shall, at the time of credit of such inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fee to the foreign concern and it deducted requisite tax at source as per section 195(1) of the Act at the time when such income was credited to the account of the foreign concern as per the then prevailing foreign exchange rate. Consequently, it would follow that when such income is actually paid by the assessee to the foreign concern, the same would not again invite the deduction of tax at source as per section 195(1) of the Act. Ostensibly, as per the agreement, the assessee is to make a total payment of Swiss Kroner 38,58,000/- to the foreign concern and out of which, it was required to remit Swiss Kroner 7,71,600/- during the year under consideration. The amount of income credited to the account of the payee concern in the earlier year corresponded to Swiss Kroner 38,58,000/-, albeit it was stated in Indian rupees at the then prevailing exchange rate. During the year, out of the above amount, Swiss Kroner 7,71,600/- has been remitted. The amount remitted is only a part of the total obligation of Swiss Kroner 38,58,000/- and not in addition to the aforesaid amount. In this year, on account of fluctuation in foreign exchange rate, only the cost of remitting the amount to foreig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer to delete the addition of Rs. 8,82,234/-. Thus, on the first issue, assessee succeeds. 11. The second grievance of the assessee articulated in terms of Ground Nos. (7) (8) relate to a disallowance of Rs. 6,11,000/-, and read as under:- "(7) The CIT(A) erred in setting aside the issue of deduction of Rs. 6,11,000/-, (8) The CIT(A) ought to have allowed deduction of Rs. 6,11,000/- being liquidated damages in view of inter alia the facts and circumstances of the case i.e. the refusal to comply with the direction in the CIT(A)'s order dated 28.11.1997." 12. In brief the facts are that in the original assessment order dated 17.2.1997, the Assessing Officer disallowed a sum of Rs. 6,11,000/-, as according to him, it was a provision for doubtful debts and was a contingent liability. Before the Commissioner of Income-tax (Appeals), it was contended that the claim was on account of liquidated damages for late supply of goods etc., which was actually deducted by the Government authorities at the time of making payment and, therefore, was an allowable deduction. The Commissioner of Income-tax (Appeals) vide his order dated 28.11.1997 disposed of the issue in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rguments put-forth on behalf of the appellant is that the Assessing Officer while passing order dated 10.3.1998 went beyond the scope of directions given by the Commissioner of Income-tax (Appeals) in his order dated 28.11.1997 and, therefore, the claim has been wrongly disallowed. The learned Counsel quite fairly submitted that the direction of the Commissioner of Income-tax (Appeals) dated 28.11.1997 contained in para 6.3 which reads as under: "The AO is directed to allow the deduction subject to verification that the liability crystalised in this year." be carried out in its proper perspective so as to examine whether the liability reflected by the impugned sum has been crystalised in the instant assessment year or not. 16. On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below in support of the case of the Revenue. 17. We have carefully considered the rival submissions. Looking at the conspectuous of facts as emerging from the orders of the authorities below, it appears that though the claim of the assessee is under head "provision for doubtful debts", in actuality the claim is based on certain deductions claimed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer on account of valuation of closing stock of finished goods due to Excise Duty payable. The Commissioner of Income-tax (Appeals) has deleted the addition by observing that similar issue was considered in assessee's own case for the assessment years 1992-93 and 1993-94 in favour of the assessee. 22. Before us, it was a common ground between the parties that for the assessment year 1992-93, similar issue has been adjudicated by the Tribunal vide its order in ITA No 119/PN/96 dated 13.9.2011 in favour of the assessee. In view of the precedent, copy of which has been placed on record, the decision of the Commissioner of Income-tax (Appeals) deleting the addition of Rs. 1,99,43,610/- on account of Excise Duty payable on finished goods not included in the valuation of closing stock is hereby affirmed. Thus, Revenue fails on this Ground. 23. The facts in relating to second Ground are that during the year, the assessee received interest of Rs. 25,63,992/- from the Income-tax Department and also paid interest of Rs. 10 lakhs to the Department. The claim of the assessee was that only the net interest should be charged to tax. This plea was rejected by the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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