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TMI Blog2017 (4) TMI 871X X X X Extracts X X X X X X X X Extracts X X X X ..... and liabilities of the amalgamating company - Held that:- apart from not claiming any expenditure (claimed @ 1/5th, as provided u/s. 35DD) for the current year, also ‘surrender’ that claimed for the earlier years, citing the receipt from OBL on that account. In fact, if there was any such understanding with OBL, it would not have preferred any claim for merger expenses in the first place, debiting the said expenditure to the account of OBL in it’s accounts. In any case, it would, on its receipt (of merger expenses), transfer back the expenditure deducted from the ‘General Reserve a/c’ (falling under the head ‘Reserve & Surplus’) in accounts and adjust the same against the sum received, i.e., credit the reserve account and debit the account in which the receipt (from OBL) is held. Doing so would result in only the excess ₹ 33 lacs being reflected in this account, so that it is this balance only which could be transferred directly to the Balance Sheet. This only would be in consistence with what is being stated in the Notes to the Accounts. In other words, the assessee’s claim is contradicted by its’ own accounts as well as it’s return of income. The AO is thus justified in ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f and, accordingly, only a capital receipt, not liable to tax. This is of course subject to the assessee producing some external material toward evidencing the nature of the receipt, i.e., as toward merger expenses. Further, it’s claim qua the balance amount, i.e., received in excess, being treated as so, cannot be accepted; there being no expenditure against which the same could be considered as received. Also, the expenditure incurred, where and to the extent claimed as a deduction, cannot also be considered as having been recovered, which would be inconsistent with the assessee’s accounts, duly audited, and the returns, duly verified, furnished for the current, preceding and even succeeding year/s. The same is, as other receipts, in-asmuch as there is no corresponding obligation to return the value received, either in cash or any kind, only in the nature of income, and rightly assessed as so and, in fact, to that extent, rightly taken in accounts to the income account. As regards the assessee’s alternate claim, the amount is neither in respect of export nor received in convertible foreign exchange and, accordingly, there is no basis for it’s claim for deduction u/s. 10A or s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order by the Tribunal in the assessee s own case for the two immediately preceding years (in ITA Nos. 1908 1909/Mds/2012 dated 18.03.2016/copy on record). 3. We have heard the parties, and perused the material on record. 3.1 The reasons for reopening the assessment, as communicated by the Assessing Officer (AO) (PB pg.5), bears three reasons. We shall, accordingly, examine the assessee s case on merits qua each of them. The tribunal has for the earlier two years allowed the assessee s appeal on the basis of a finding of fact that the assessee had produced all the relevant material. The first reason (PB pg.5) is that the assessee had not adjusted the loss of the STP units at Hyderabad and Gurgaon against the profit from other section 10A units, swelling it s claim for deduction under section10A to that extent. A perusal of the assessment order dated 26.12.2008 shows that the assessee had in fact claimed deduction at a higher amount, i.e., without adjusting the loss (being at Rs. . 268.72 lacs), only during the assessment proceedings (vide letter dated 18.12.2008/PB pg. 29) that per the return of income being upon such adjustment, duly supporting it with a certificate fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee s replies, so that his decision not to effect any adjustment on this count in assessment implies his satisfaction with the assessee s explanation. The assessee s case is thus unexceptional; the only rider or caveat being that what the assessee has stated in the assessment proceedings is full and true and nothing material has been omitted to be disclosed. The reason is simple; where not so, the condition of the first proviso to s. 147 would stand satisfied and, besides, the satisfaction of the AO on that basis, i.e., incomplete or untrue facts, can hardly be regarded as a valid satisfaction in law so as to attract the charge of change of opinion . Toward this, we find the assessment order records the following, and which stands also reproduced in the impugned order (para 5): a) the assessee has already claimed pre-merger expenditure in the year of amalgamation as per the High Court s order and reduced the amount from the General Reserve; b) deduction is also claimed on merger expenses (at the rate of 1/5th ) in the statement of income from assessment year 2003-04 onwards; [ c) the assessee s annual report for the relevant previous year (i.e., f.y. 2004- 05) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ped assessment. The condition of the first proviso to section 147 is satisfied. The reassessment notice is accordingly valid on this count. 3.3 The third reason recorded for the reopening of assessment is with reference to Schedules VII and VIII to the Balance Sheet (as at the relevant year-end), which are in respect of Loans Advances and Current Liabilities respectively. The same bear balances under the account heads billing in excess of revenue and revenue in excess of billing respectively. The reason recorded states that as the assessee is following mercantile method of accounting, the entire income accrued during the year is to be offered as income for that year. There is nothing on record, or referred to, to suggest that the accounts do not reflect the correct position in this regard. If the amount billed is in excess of the revenue, implying that chargeable on the basis of the services rendered, the same is liable to be shown as a current liability. Similarly, where the services rendered are in excess of that billed, revenue has to be recognized irrespective of it being not billed as at the year-end. There being no material to support the reason, which could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances of the case. In our view, the first aspect that needs to be considered is if it is income. The head of income is of secondary importance, relevant for determining if it is liable for deduction u/s.10A or s. 80 HHE, as the assessee claims in the alternative. Surely, if it is received, as claimed, toward merger expenses, it is only a capital receipt in the assessee s hands. There is however no material to support this. There is in fact even no corroborative evidence as (say) copy of the agreement pursuant to which it was paid; the Board resolution of OBL authorizing the payment or a certificate from it s auditors, etc., to that effect, on record. In fact, where so, the assessee s explanation, claiming it to have incurred merger expenses at Rs. . 717 lacs, stands wholly met, so that there is no question of it claiming deduction u/s. 35 DD, which the AO states is being claimed regularly @ 1/5th since AY 2003- 04 onwards. How could, even as observed earlier, deduction be claimed in respect of reimbursable or reimbursed expenditure? It is in fact for these reasons that the reassessment stands upheld qua jurisdiction. Even if the amount is received subsequently, and there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim for deduction u/s. 10A or s. 80HHE in its respect. Qua quantum, the AO shall verify the assessee s claim in this regard and decide on the foregoing terms on the basis of his factual findings. The onus to prove its claim/s, we may add, would be on the assessee. The assessee s claim is partly allowed on the foregoing terms, disposing the aforesaid grounds of the appeal. 6. The final issue raised in appeal is in respect of disallowance of legal and professional fee, paid of Rs. . 13.53 lacs (vide Gds. 10 11). The same, it was observed by the AO with reference to the Notes to the Accounts to the assessee s final accounts for AY 2009-10, is part of the legal charges paid to a law firm for acquisition of a US company by the name Data Inc., USA (at USD 6 lacs). The expenditure being in respect of acquisition of a company, was thus construed as capital in nature and, accordingly, disallowed in computing the assessable income. 7. We have heard the parties, and perused the material on record. The primary facts are not disputed; in fact, at any stage, including before us, being, rather, arising from the assessee s own audited accounts. We accordingly find no infirmity in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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