9911796707
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Issues Involved:
1. Disallowance under Section 40(a)(i) of the Income Tax Act. 2. Addition of amount received/receivable from Birla AT&T Communications Ltd. 3. Levy of interest under Sections 234B and 234D. Issue-wise Detailed Analysis: 1. Disallowance under Section 40(a)(i) of the Income Tax Act: The first issue pertains to the disallowance of Rs. 1,31,58,290 made by the AO under Section 40(a)(i) and confirmed by the CIT(A). The assessee, a company engaged in network design and management communication connectivity services, claimed a deduction for an amount payable to AT&T Worldwide Communication Services, Singapore, with tax deducted at source (TDS) at 10%. The AO noted that the bill from AT&T was dated 23rd November 2001, and the TDS was also deposited on the same date. The AO held that since the TDS was deducted and paid in the subsequent year, the assessee was not entitled to claim the deduction in the year under consideration. The CIT(A) upheld the AO's decision, stating that the liability was not crystallized before November 2001, and the assessee did not comply with the legal requirements for TDS deduction and payment. The CIT(A) emphasized that the liability was determined only in November 2001, and the assessee's claim that TDS was deducted on 31st March 2001 was not substantiated. The Tribunal, however, disagreed with the CIT(A)'s stand that the liability had not crystallized during the year under consideration. It noted that the services were rendered as per an agreement effective from 1st April 2000, and the liability had arisen during the year under consideration. However, the Tribunal upheld the disallowance under Section 40(a)(i), as the TDS was deducted only in November 2001, making the deduction allowable in the subsequent year. 2. Addition of Amount Received/Receivable from Birla AT&T Communications Ltd.: The second issue involves the addition of Rs. 3,98,36,108 received/receivable from Birla AT&T Communications Ltd. The assessee had shown this amount as a liability under "Brand Building Fund" in its balance sheet. The AO treated this amount as business income, stating that it was royalty for the usage of the AT&T brand. The assessee contended that it was merely a designee of AT&T Corporation, USA, to collect the amount from Birla AT&T and incur specified expenses on behalf of AT&T Corporation, USA. The CIT(A) confirmed the AO's addition, stating that the amount was received as royalty and should be treated as revenue receipt. The Tribunal noted that the exact nature of the amount received by the assessee needed to be ascertained by examining the arrangement between the assessee and AT&T Corporation, USA. It found that the AO and CIT(A) had relied more on the agreement between AT&T Corporation, USA, and Birla AT&T rather than the arrangement between the assessee and AT&T Corporation, USA. The Tribunal set aside the CIT(A)'s order and remanded the matter to the AO for fresh examination of the arrangement between the assessee and AT&T Corporation, USA. 3. Levy of Interest under Sections 234B and 234D: The third issue pertains to the levy of interest under Sections 234B and 234D. The Tribunal noted that the levy of interest under Section 234B is consequential. Regarding Section 234D, the Tribunal referred to the decision of the Delhi Special Bench in the case of ITO vs. Ekta Promoters (P) Ltd., which held that interest under Section 234D, applicable from 1st June 2003, cannot be applied to assessment years 2003-04 or earlier. Since the assessment year in question was 2001-02, the Tribunal directed the AO to cancel the interest imposed under Section 234D. Conclusion: The appeal of the assessee was partly allowed. The Tribunal upheld the disallowance under Section 40(a)(i) but set aside the addition of the amount received from Birla AT&T and remanded the matter for fresh examination. The interest under Section 234D was directed to be canceled.
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