The sum paid was also not in the nature of compensation because there was no obligation on M/s Gillette Company USA, under any contract to compensate the assessee. Under these facts we do not find infirmity in the decision of the first appellate authority in treating the amount of Rs. 108.49 crores out of an aggregate addition of Rs. 118.49 crores made by the AO as capital receipt and hence not chargeable to tax. In this regard we also find support from the decisions relied upon by the Ld. AR in the cases of Smartalk (P) Ltd. (supra) and General Electrodes & Equipment Ltd. (Supra) wherein under almost identical circumstances addition made has been deleted.
In the books of account, assessee had made provision for doubtful debts for this amount. The matter is sub-judice before court or arbitration. This shows that the amount was not ascertained. It remained contingent at the relevant time. Moreover, it had been gone against assessee due to amendment in Act. The amendment made by inserting clause (i) in Explanation 1 to section 115JB by the Finance Act, 2009 with retrospective effect 1.4.2001, the amount set aside and provision for diminution in the value of an asset is to be added to arrive at the book profit under section 115JB of the Act. This empowers the Assessing Officer to add to income any amount debited in profit & loss account for provision of bad and doubtful debts.
We further note that in this case the loan agreement was for fixed rate of interest. The LIBOR has been accepted in decision referred above as the most suitable bench mark for judging Arms’ length price in case for foreign currency loan. Hence, adjustment as made by the TPO is not warranted.
Now we come to argument of the assessee that there is no change in the operating model or the business activity of the assessee company, hence, rule of consistency should be followed and hence no adjustment is warranted. In this regard we are of the opinion the res judicata is not applicable to taxation cases. Moreover, as held by Apex Court in Distributors (Baroda) (P.) Ltd. (supra) that to perpetuate an error is no heroism. To rectify is the compulsion of the judicial conscience.
Once in a particular trust, some default came to the notice of a trustee managing its affairs and the same trustee is also managing the affairs of other trust then, if the trustee of the second trust voluntarily comes forward before the department and discloses material facts, which have been duly accepted by the department, then it cannot be said that assessee’s conduct was not bona fide or voluntary. It can be said to be a case of concealment only when income comes to the notice of assessee but he still withholds the same from disclosing to the department.
It is well-settled law that merely on the ground of low gross profit ratio, the addition to the assessee’s returned income cannot be made. Even if, the assessee’s profit and loss account is discarded by the Assessing Officer, it has to be examined whether the Assessing Officer adopted the rational basis for making the addition. In the present case, we find that the Assessing Officer merely referred to the discount of 10 per cent. offered by retailers on the printed price but did not demonstrate as to how that affected the gross profit declared by the assessee. He had not brought on record any comparable case, wherein, the net profit declared by a tax payer in the similar business, was higher, than the one declared by the assessee.
There is no scrutiny assessment in the assessment years 2002-03 and 2003-04. Thus, the Assessing Officer has not formed any opinion on these issues, i.e., about the assessability of interest expenses. There is no condition in section 147 that information should have flown from an external source after filing of the return and only then a notice under section 148 can be issued.
From the perusal of the reasons recorded by the Assessing Officer, it is seen that in paragraph 1 the Assessing Officer has mentioned about the receipt of report from the office of the Commissioner of Income-tax indicating that enquiries were initiated by the Directorate of Income-tax (Investigation) to probe into bank account which were used by entry operators for the purpose issue of cheques to beneficiaries against cash paid by them.
In the present case, the main dispute is regarding revenue recognition relating to unused talk time remaining available as at the end of the year. As noted earlier, there is no dispute that company had to provide talk time to its subscriber till the expiry of the period of card or till complete utilization of talk time, whichever is earlier. As long as assessee is under obligation to provide talk time, it cannot be said that a debt has accrued in favour of assessee-company against the subscriber.
As regards another facet of addition in this case which has resulted from enhancement made by the Ld. Commissioner of Income Tax (A) by holding that assessee is not eligible for deduction u/s. 54F(1) on the payment of Rs. 55,70,800/-. This has been denied on the ground that the payment was made by M/s Capital Advertising Pvt. Ltd. wherein the assessee was Director and not by the assessee himself. In this regard, it is the assessee’s claim that the assessee has duly made the arrangement for booking of the flat and necessary documentation were made by the assessee in his individual capacity.
