TMI Blog2003 (7) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... unit for eligibility certificate was passed on 19th May, 1999, i.e., beyond the previous year. 2. The CIT(A) erred on facts and in law in confirming the action of the AO in disallowing royalty amounting to Rs. 70,87, 102 paid by the appellant to foreign collaborator, M/s Futures GmbH, Germany, under s. 40(a)(i) of the Act. 2.1 That the CIT(A) erred on facts and in law in holding that s. 40(a)(i) of the Act requires both the conditions to be fulfilled i.e. deduction of tax at source and payment of tax to the credit of the Government within the relevant previous year before deductions admissible for payment made to non-resident. 2.2 That the CIT(A) erred on facts and in law in sustaining the disallowance made by the AO in respect of a sum of Rs. 9,23,227 representing the loss incidental to business on account of material not received by customers alleging that the CIT(A) erred on facts and in law in commercial prudence demanded the appellant to make efforts for claiming the aforesaid amount from the insurance company. 4. That the CIT(A) erred on facts and in law in confirming the action of the AO in making an ad hoc disallowance of Rs. 1,00,000 out of telephone expenses of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of these aforesaid documents. 3. On careful perusal of the record in the light of rival submissions, we are of the considered view that since these documents are essential in order to adjudicate the controversy regarding the claim of deferment of trade tax and its payment, we admit the same. Accordingly, these documents are placed on record. 4. We have heard the rival submissions and carefully perused the orders of the authorities below and documents placed on record. 5. Apropos ground No. 1, it is noticed from the record that during the course of assessment proceedings, the AO noticed that the assessee claimed deduction of Rs. 95,13,591 under s. 43B of the IT Act (hereinafter referred to as an Act). This sum comprises of two amounts i.e., Rs. 65,95,132 which was claimed by the assessee as paid by PICUP to the Sales-tax Department on assessee s behalf under the Sales Tax Deferment Scheme and the sum of Rs. 29,15,459 was claimed by the assessee on the basis of sales-tax Tribunal. The AO did not allow the claim of the assessee. The AO was of the view that the sanction letter for Rs. 65,95,132 was issued by PICUP during the financial year 1998-99 and since this liability neit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of receiving certified copy of the order. Thus, the very event which decided the eligibility of the assessee for tax exemption, occurred beyond the previous year under consideration. The date of deemed payment of sales-tax in this case would also be the date on which industrial department sanctioned the loan to PICUP and deemed the assessee to have made sales-tax payment. The assessee had neither given the date on which the loan was sanctioned by PICUP nor specified the date on which the order of the industrial department directed he book adjustment. Since the deemed payment was not made during the previous year relevant to the impugned assessment year, the CIT(A) rejected the claim of the assessee. 7. Now, the assessee has preferred an appeal before the Tribunal and reiterated his argument. The learned counsel for the assessee invited our attention to the fact that the assessee received the order of the State Government sanctioning deferral of the amount of sales-tax. Having compliance thereto, PICUP, vide letter dt.7th April, 1998, has also accorded sanction for treating the sales-tax collected by the assessee as interest free loan w.e.f.31st March,1998. The PICUP has also p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oresaid order, the PICUP sanctioned the loan to the assessee in the relevant assessment year. But the financial institution has paid the amount of sales-tax to the Sales Tax Department after the due date of furnishing the return of income for the impugned assessment year i.e., 1998-99. The learned counsel for the assessee submits that this payment after the due date should not militate against the admissibility of the claim for deduction under s. 43B to the assessee for asst. yr. 1998-99. The payment of sales-tax by the financial institution to the sales-tax authorities under the deferral scheme is not on behalf of the assessee but by way of adjustment between the different Government authorities. This is a matter of internal arrangement with the two Government authorities without any recourse to the eligible unit. The date of payment by the financial institution cannot, therefore, determine the entitlement to the deduction under s. 43B in the hands of the assessee. What is relevant for the assessee s claim is the date on which the assessee was sanctioned the determent of sales-tax; if such sanction is before the due date of filing the return of income, the sales-tax collected has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax liability was discharged by the financial institution. We have also carefully examined the Board s circular and the judgments referred to by the parties and we find that they all relate to the enforcement of deferment of sales-tax scheme. It has been repeatedly held or clarified by the Board that the scheme can be enforced through the notification without bringing any amendment to this effect in the Sales-tax Act. But the issue when the sales-tax is deemed to have been paid, whether it is on the date when the eligibility certificate is granted or the date when the tax liability is finally converted into a loan liability of some financial institution who have taken over the tax liability after making the payment to the sales-tax or trade tax to Department, was examined by the Tribunal in the case of Eicher Ltd. vs. Dy. CIT in ITA No. 1161/98 dt. 4th June, 2003, in which we have held that the assessee is not entitled for claim of deduction under the Department of Sales Tax Scheme for the purpose of s. 43B of the IT Act unless and until the sales-tax liability is finally converted into a loan liability of some financial institution. Deduction of the same would only be allowed in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) on this count. 14. Apropos ground No. 2, it is noticed from the record that the assessee has claimed the payment of royalty amounting to Rs. 70,87,102 to its foreign collaborator under s. 40(a)(i) of the Act. The claim was disallowed by the AO on the ground that the assessee has not fulfilled the twin conditions envisaged under s. 40(a)(i) of the Act that the deduction and payment of tax deducted at source be made within the previous year in which the tax has been deducted. He was of the view that since the assessee had deducted the tax and has not paid the same to its German collaborator within the previous year relevant to the impugned assessment year, the assessee has not fulfilled the requisite conditions. In support of his decision, he has relied upon the decision of the CIT(A) in the case of Subros Ltd. for the asst. yr. 1997-98. The assessee carried the matter before the CIT(A) who did not find favour with him. 15. Now, the assessee has carried the matter before us with the submission that the assessee had deducted tax at source on the amount of royalty of Rs. 70,87,102 on 31st March, 1998 during the previous year relevant to the assessment year in question i.e., 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the 1st day of April, 1938), royalty, fees for technical service or other sum chargeable under this Act, which is payable outside India, on which tax has not been paid or deducted under chapter XVII-B: Provided that where in respect of any such sum, tax has been paid or deducted under Chapter XVII-B in any subsequent year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid or deducted." 17. From a bare reading of sub-cl. (i), we are of the view that any payment of royalty for technical services which is payable outside India, shall not be deductible in computing the income chargeable under the head "profits and gains of business and profession" unless tax on such sum has been paid or deducted under Chapter XVII-B in relevant previous year. It has also been clarified in the proviso that deduction of such royalty amount shall be allowed in computing the income of the previous year in which such tax has been paid or deducted. The legislature has used the conjunction as or which means if any one of the conditions is fulfilled, the assessee is entitled to claim deduction of the payment of royalty. Had the legisl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial while dispatching it to the customer. Moreover, the assessee was not timely informed about the short delivery of the material. When they refused to make the payment of short delivery, the assessee realized that the material was not received by the customers. Since this material was neither received by the customer nor returned to the assessee and was apparently lost in transit, the same could not be reflected in closing stock of finished goods. Accordingly, the same was allowable under s. 28 of the Act as loss incidental to business. The learned counsel for the assessee further submits that the aforesaid amounts also include the advances made by the assessee to vendors against the purchase orders for the supply of raw material. The pending advances from the aforesaid vendors have become irrecoverable due to the following reasons: (a) The advances had been paid to the vendor against the purchase orders issued for supply of raw material but the vendors neither supplied the material nor returned the money. (b) The advances were paid to the vendors and vendors also supplied the material but the material was rejected due to quality problems. The amount of debit note issued fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansit, why the assessee did not take any action against the transporter or the carrier who has not delivered the entire material upon the customers? If the assessee claims the short delivery as loss incidental to the business, he is required to place some documentary evidence on record to this effect but we do not find any concrete evidence in support of the contention of the assessee. So far as second limb of the argument of the assessee is concerned that the aforesaid amount includes the advances to the vendors against the purchase orders issued for supply of material, we are of the view that this a new plea raised first time before the Tribunal. Since this factual aspect requires investigation and no evidence is placed in support of this stand before us, we find no justification to entertain this new limb of the argument. In these circumstances, we do not find any merit in the contentions of the assessee. We, therefore, decide this ground against the assessee. Accordingly, the order of the CIT(A) is hereby confirmed. 22. Apropos ground No. 4, it is noticed from the record that the AO has disallowed a sum of Rs. 1 lakh out of telephone expenses of Rs.12,22,335 on account of per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Having considered the rival submissions and from a careful perusal of the orders of the authorities below and various judgments referred to by the parties, we are of the considered opinion that the impugned issue is squarely covered by the aforesaid judgment in favour of the assessee. We, therefore, set aside the order of the CIT(A) and delete the addition. 25. Apropos ground No. 5, it is noticed from the record that the assessee has filed return declaring loss of Rs. 35,45,020 for the relevant assessment year. A note was appended in the statement of computation of income to the effect that the assessee was eligible for the benefit under s. 80-IA of the Act which was, however, not claimed on account of loss returned by the assessee but in case the assessment resulted in a positive income, the deduction under s. 80-IA of the Act should be allowed to the assessee. The AO, however, did not allow deduction under s. 80-IA, both while computing the income under the normal provisions of the Act and also while computing book profit under s. 115JA of the Act on the ground that the brought forward losses relating to eligible unit were to be set off prior to allowing deduction under s. 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me in sub-s. (4) of s. 80HHC found in ss. 127(b), 32AB, 80HH/80-I has been held directory. He further contented that it has been repeatedly held by various High Courts that if the audit report is filed before the completion of the assessment or even for the first time before the appellate authorities, it meets the requirement of law. In support of his contention, he has relied upon the following judgments: (i) CIT vs. Rai Bahadur Bissesswarlal Motilal Malwasie Trust (1992) 195 ITR 825 (Cal) (ii) CIT vs. Hardeodas Agarwalla Trust (1992) 198 ITR 511 (Cal) (iii) Murali Expot House Ors. vs. CIT (2000) 159 CTR (Cal) 427 : (1999) 238 ITR 257 (Cal) (iv) Monarch Foods (P) Ltd. vs. Asstt. CIT (1996) 54 TTJ (Ahd) 405 : (1996) 86 Taxman 126 (Ahd) (v) Berger Paints India Ltd. vs. Dy. CIT (1992) 42 ITD 546 (Cal) (vi) Mrs. Sudha Sharma vs. ITO (1993) 46 TTJ (Del) 276 : (1993) 44 ITD 351 (Del) (vii) Suhag Traders (P) Ltd. vs. ITO (1996) 89 Taxman 287 (Del) (viii) Dhanoolal Sons vs. Dy. CIT (1996) 55 TTJ (Cal) 250 : (1996) 57 ITD 426 (Cal) (ix) Nemco Enterprises vs. CIT (1993) 46 TTJ (Pune) 110 : (1992) 65 Taxman 307 (Pune) (x) ITO vs. Manav Hitkari Trust (1987) 28 TTJ (Del ..... X X X X Extracts X X X X X X X X Extracts X X X X
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