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The facts of the case are that assessee is a limited company engaged in the business of manufacture of vacuum insulated tanks, cold convertor systems, atmospheric vaporizers and cryo containers, etc. The learned Commissioner of Income-tax-Departmental representative for the Revenue submitted that penalty has been levied on the addition amounting to Rs.5,04,326. He submitted that expenditure was claimed as business expenditure under the head “Staff and labour training expenses” incurred on the sponsorship of advance education of the son of the managing director for higher studies at abroad.
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.
It is seen that in the course of the assessment proceedings the Assessing Officer found that the assessee had made payments towards purchase of land in the Devanahalli taluk of Bangalore District out of which sums amounting to Rs. 87,92,635 were found to have been paid in cash in contravention of the provisions of section 40A(3) of the Act. The assessee’s explanation in letter dated December 18, 2008, that the payments were made at places which were not served by any banking facilities was not accepted by the Assessing Officer for the reason that Devanahalli taluk is a well developed suburb of Bangalore having a large number of banks and the recipients of the consideration were residing in that area and some of them were in receipt of government compensation for land acquisition and had accounts and deposits in such banks.
In the instant case also services were provided by the assessee outside India and for this business the services of non-residents were utilized to whom technical fee in question was paid. No good reason could be shown by the DR as to why the aforesaid decision of the Tribunal is not applicable in the instant case and why the said decision should not be followed in the instant case. We, therefore, following the above decision, hold that the services of non-residents to whom the technical fee of Rs. 74,63,768/- was paid by the assessee were utilized for the business which was carried out outside India for earning income from a source outside India. Therefore, the grounds of appeal of the assessee are allowed.
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.
In our considered opinion, the notice issued under section 148 of the Act is nothing but mere change of opinion. The issues which have already been considered in the original assessment cannot be reappreciated in reassessment proceedings under the garb of income escaping assessment. If the Assessing Officer has not given any finding after considering the evidence on record, it cannot be said that the income had escaped assessment on account of concealment of income of the assessee.
Observations of the assessing officer to the effect that no one makes a loss in real estate business and that the market perceptions indicate that the prices of the immoveable properties are always on the upward trend. These observations have, inter alia, formed the basis of the additions made by the assessing officer. It was even suggested before us on behalf of the revenue that it is a “notorious practice” prevailing in real estate circles that in all property transactions there is non-disclosure of the full consideration. As pointed out earlier, this cannot per se constitute the basis of the addition, though we must hasten to add that it can very well be a starting point for further investigation. In Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288, the Supreme Court disapproved the practice of making additions in the assessment on mere suspicion and surmises or by taking note of the “notorious practice” prevailing in trade circles.
If income arises out of the transfer of a long term capital asset being an equity share in a listed company, the said income would be exempt under section 10(38) of the said Act. There is no doubt that the shares of Goodyear India Limited are listed shares and therefore even if a consideration had been charged for the transfer of the 74% share, the income arising therefrom would be exempt by virtue of the provisions of section 10(38) of the said Act.
As far as the assessee’s claim on payment of additional interest is concerned, while confirming the Assessing Officer’s view that the payments were contrary to the RBI guidelines, the First Appellate Authority as well as the Income Tax Appellate Tribunal held that all that the assessee could pay as per the RBI guidelines was 8% interest only and any amount paid over and above the permissible limit was against the public policy, hence, hit by Explanation 237 of the Income Tax Act, 1961. As far as this line of reasoning is concerned, we find from the Circular issued by the RBI that there is ceiling on interest payable in current account/saving bank account and discretion is available on interest to be paid on term deposits. The circular reads as under:-
