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2009 (8) TMI 854 - AT - Income TaxDisallowance for claim of interest - under the head ‘Interest on delayed payment of withholding taxes’ - Plea for admission of additional grounds - The assessee is an Indian company engaged in manufacture of computers and development of software - Third Member Appointment - Difference in the opinion of ld. JM and ld. AM - The additional grounds raised by the assessee before the Tribunal to the effect that the entire Rs. 243.50 lakhs consisted of interest paid for delayed payment of Federal Income-tax withheld, tax on social security wages and tax on medicare wages. The submission of the assessee was that in any case, the tax on social security wages and medicare wages do not represent tax on income but such payments amount to welfare payments akin to pension scheme or ESI scheme under Indian Law and, therefore, the interest paid on delayed payment of these taxes being compensatory in nature should be allowed as a deduction. The ld. JM upheld the order of the CIT. As regards the additional grounds and the extracts from the US Tax Laws filed by the assessee before the Tribunal in the course of hearing, the ld. JM, differing from the ld. AM held that (a) the papers were unsigned and unauthenticated and therefore cannot be accepted, (b) there is no application from the assessee under Rule 29 of the ITAT Rules, and (c) the additional grounds raised a plea to bifurcate the tax based on unsigned and unauthenticated papers and, therefore, cannot be admitted. Whether, by admitting additional grounds based on fresh unsigned and unauthenticated papers in the absence of application under Rule 29 of ITAT Rules, 1963 or calling for such papers by the Tribunal, the order of CIT, u/s 263, could be set aside and remitted back for reconsideration on such basis - Whether the CIT’s order u/s 263 should be upheld or the matter including the additional grounds should be remitted to him? HELD THAT:- The ld. AM was right in admitting the additional grounds. Here I have to mention that the CIT initiated the revision proceedings u/s 263 by notice dated 5-3-2007. The assessee submitted written objections on 19-3-2007 and 22-3-2007. The order u/s 263 was passed on 28-3-2007. Thus, the entire proceedings took only 23 days for being completed. In the notice dated 5-3-2007, the CIT had proposed revision on the ground that the interest was only provided for and not actually paid and was, hence, to be disallowed. The assessee had to point out that such a ground of disallowance could be taken only on the basis of section 43B and since under this section only taxes paid under the Indian Laws can be so disallowed, the section was not applicable since they were paid under the US Laws. Thereafter, the assessee had to point out that even section 40(a)(ii ) was not applicable, for the same reason. Ultimately, the CIT founded his order substantially on the provisions of section 40(a)( ii). The manner in which the proceedings were gone through and the short span of time within which they were finalised probably did not give any time or opportunity to the assessee to examine the break up of the interest and to claim that it included interest for delayed deposits of social security, medicare and State unemployment taxes which were essentially payments made to the employees as welfare measures. The additional grounds gain importance because it would be a matter for argument as to whether interest paid for delayed deposit of the welfare payments deducted from the payments made to the employees can be allowed as a deduction. In any case, the break up gives the factual picture of the entire interest and it is necessary that a decision should be taken only after bringing on record the necessary and relevant facts. By admitting the additional grounds and asking the CIT to examine the same in the light of the factual position, the ld. AM, in my humble opinion, did not commit any error. He has not taken any decision on the merits of the assessee’s claim raised in the additional grounds but has only asked the CIT to verify the factual position and decide the claim in accordance with law. I am inclined to uphold his decision on the question of additional grounds. So far as the additional evidence is concerned, It consists of the replies made by the Internal revenue Service of the USA to the assessee through E-mail. The E-mail itself is titled "IRS E-mail Tax Law Assistance". The assessee has also filed publication No. 538 Titled "Business Expenses" and this publication has also been issued by the Department of Treasury, Internal revenue Service, Washington DC. This gives details of what interest an assessee can and cannot deduct under the US Tax Laws. Another document filed before the Tribunal was an E-mail from the IRS, US Department of the Treasury which explains what are employment taxes, what is federal tax and so on. All these seem to have been gathered by the assessee from the Website of the IRS of USA. I am unable to say that the ld. AM exercised such discretion improperly. Rule 29 permits the Tribunal to admit the additional evidence for any substantial cause. Apparently, the ld. AM has admitted the additional evidence on this ground with which I am unable to disagree. The intention behind the Rule is that substantial justice should be done and the interest of justice should be the overriding consideration. Having this in mind I hold that there is no error in the ld. AM admitting the additional evidence and sending it to the CIT for examination and decision. Allowability of the interest - In the light of this factual position, the decision of the ld. Judicial Member that the taxes paid by the assessee on its foreign income are not allowable as a deduction and the interest, being an adjunct of the tax, cannot also be allowed as a deduction cannot be upheld. It is also seen that the assessee has raised an alternative plea before the CIT to the effect that even after the disallowance of the interest, the resultant income would be exempt u/s 10A. This has not been considered by the CIT as pointed out by the ld. AM. This aspect of the matter has not been adverted to by the JM in his dissent. This is one more reason for sending the matter back to the CIT for fresh consideration, according to the ld. AM I agree with his decision. For the above reasons, I answer the first point of difference by saying that the additional grounds and additional evidence were rightly admitted by the ld. Accountant Member and the matter was rightly remitted to the CIT for fresh consideration and decision. I answer the second point of difference by saying that the CIT’s order u/s 263 cannot be upheld and the matter including the additional grounds was rightly remitted to him by the ld. AM.
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