Section 10A of the Income-tax Act, 1961, is a provision which is in the nature of a deduction and not an exemption. The deduction under section 10A has to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of section 72 which deals with the carry forward and set off of business losses. A distinction has been made by the Legislature while incorporating the provisions of Chapter VI-A. Section 80A(1) stipulates that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of the Chapter, the deductions specified in sections 80C to 80U. Section 80B(5) defines for the purposes of Chapter VI-A “gross total income” to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the Chapter. Therefore, the deduction under section 10A has to be given at the stage when the profits and gains of business are computed in the first instance.
The dispute is regarding disallowance of expenses relating to exempt income under section 14A of the Act. Under the said provisions, the disallowance of expenses relating to exempt income is required to be computed as per Rule 8D. The Hon’ble High Court of Bombay in the case of Godrej and Boyce Mfg. Co. v. Dy. CIT [2010] 328 ITR 81 have held that Rule 8D is applicable only from assessment year 2008-09 and in respect of prior years, it was held that disallowance had to be made on a reasonable basis after hearing the assessee. In this case, CIT(A) directed the AO to make disallowance as per Rule 8D which is not correct. We, therefore, set aside the order of CIT(A) and restore the matter back to him for necessary examination in the light of judgment of Hon’ble High Court of Bombay in case of Godrej and Boyce Mfg. Co. (supra) and for passing a fresh order after affording opportunity of hearing to the assessee.
The dispute is regarding allowability of claim of bad debt not made in the return of income. The claim had been made before AO only during assessment proceedings which had not been allowed following the judgment of Hon’ble Supreme Court in the case of Goetz India Ltd. (supra) in which it has been held that any claim before the AO has to be made by way of filing revised return if not made in the original return. CIT(A) has therefore, upheld the order of AO. It may however be noted that the judgment of the Hon’ble Supreme Court in the case of Goetz (I) Ltd. was regarding claim to be made before the AO.
The primary condition for rejecting the book results as laid down under section 145 of the Income-tax Act, 1961 (the Act) is that the Assessing Officer should be satisfied that the books of account maintained by the assessee are not complete and correct. As can be seen from the findings given by the Assessing Officer in the order of assessment, the Assessing Officer has merely proceeded on a surmise that the profits of the assessee are sought to be reduced by selling its products to M/s. Pragathi Automation P. Ltd., the assessee’s sister-concern at a lesser price.
The assessee AOP in the present case has been assessed as AOP and found to have fulfilled the condition laid down in section 80 IB(10) and has been held to be eligible for such deduction. The quantum of deduction under section 80 IB (10) will depend on the income earned from eligible project. The quantum of deduction will not depend upon the mode of distribution of shares amongst the members of AOP as income of AOP is taxable at maximum marginal rate.
In a case where assessee voluntarily deducted tax and claimed refund directly, grant of interest under section 244A may not arise and the Board Circulars on this issue are applicable, whereas in a case where AO demand the tax / interest consequent to an order under section 195/201 or 201A, and the refund arose consequent to the orders of the CIT (A)/ITAT, then interest under section 244A has to be granted. In the present case, the assessee has been found entitled to refund in accordance with the provisions of the Act and section 244A provides for payment of interest on the amount of refund which becomes due to assessee under the Act. We have no doubt in our mind to hold that the assessee is entitled to interest u/s 244A.
Hon’ble Jurisdictional High Court of Bombay in the case of John D’Souza (supra) has also held that any payment for not carrying out any activity or for refraining from carrying out activity in relation to business which otherwise was being allowed to be carried out by the assessee, by the erstwhile owner was assessable u/s. 28(va), squarely applies. The Hon’ble Jurisdictional High Court further held that question of capital gains did not arise as the assessee was not owner of any asset in the first place and there is no transfer of such alleged capital asset during the previous year.
While deciding Revenue’s appeal in ITA No. 6747/M/2011, this Bench had the occasion to consider the Circular issued by CBDT being Circular No. 8/2005 dt. 29.8.2005 wherein this Bench has held that employer/employee relationship is a pre-requisite for the levy of FBT. Rationale for introduction of FBT is that it is difficult to isolate the “personal element” if the benefits are collectively enjoyed by the people which means that the provisions of FBT will be applicable only in respect of those expenses which contain or atleast are likely to contain an element of personal benefit to employees. We do not find any such thing present on the facts of the present case. The subscription amount has been paid as per contractual agreement between the assessee and M/s. Tata Sons Ltd. The invoice raised by M/s. Tata Sons Ltd. is for the services provided for it. As no employer/employee relationship exists between the assessee and M/s. Tata Sons Ltd., we agree with the findings of the Ld. CIT(A) that subscription payment deserves to be kept outside the purview of FBT.
The above factual matrix of the case nowhere proves that the assessee had either concealed the income or furnished any inaccurate particulars. The very fact that it had duly mentioned the consideration in the year of receipt itself proves its bona fides. In this regard, we fortify our opinion from the hon’ble Bombay High Court judgment in the case of Metal Rolling Works Ltd. (supra).
AO is directed to give an opportunity to assessee for cross examining persons whose statements are used against assessee. The statements have been recorded from the Indian personnel and might have been examined with reference to the Indian Company, however, assessee’s contention that being a foreign company, it has a right to cross examine the persons who gave statements cannot be denied. It is already on record that assessee has made the request before AO as well as the DRP on this issue. Therefore, we direct AO to allow the assessee to cross examine the individuals whose statements were recorded and were relied upon by the Revenue so that assessee can contest/justify/accept the statements.
