TMI Blog2013 (11) TMI 1577X X X X Extracts X X X X X X X X Extracts X X X X ..... t of refund on the subsequent orders by which the said benefit is sought to be withdrawn and thereafter calculate the interest taxable. Allowance of provision for advances as a revenue expenditure by furnishing details without actual examination of those details - HELD THAT:- the direction given to Assessing Authority to allow the deduction for provision for advances. Further, observed that corresponding adjustment to the income exempted under Section 10A would also be warranted. Deduction allowed for amount of expenditure incurred by the corporate office to 10A units despite non-involvement in any activity other than earning income mainly interest and dividend - HELD THAT:- the assessee is entitled to the benefit of deduction and thus answered in favour of the assessee and against the Revenue. - Decision in the case of Wipro Limited [ 2010 (8) TMI 1053 - KARNATAKA HIGH COURT ] followed Expenditure allowance for Provision for warranty expenses despite not being written off treated as the contingent liability - HELD THAT:- provision for warranty is rightly made by the appellant because it has incurred a present obligation as a result of past events. There is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . RATHNAKALA, JJ. Indra Kumar, Sr. Counsel and E. Sanmathi Indrakumar, Advocate for the Appellant N. Venkataraman, Sr. Counsel and R.B. Krishna, Advocate for the Respondent JUDGMENT N. Kumar, J. The Revenue has preferred these appeals against the order passed by the Appellate Tribunal, allowing the appeal preferred by the assessee partly and dismissing the appeal filed by the Revenue. 2. The Assessee Company M/s. Wipro Limited filed its returns of income for the assessment year 2000-2001 on 30.11.2000 disclosing a total income of ₹ 24,64,18,200/-after claiming exemption of income under Section 10A of the Income Tax Act (for short, hereinafter referred to as the I.T. Act) to the extent of ₹ 277,53,53,125/-. The return furnished on 30.11.2000 was processed under Section 143(1) of the I.T. Act on 15.06.2001. An amount of ₹ 8,66,15,805/- was refundable to the Assessee Company. This refund was adjusted against the outstanding demand of the Assessee Company for the assessment year 1998-99 on 30.08.2001. 3. The Assessee is engaged in the business of software exports, computer peripherals, IT enabled services, manufacture and sale of veget ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred an appeal before the Commissioner of Income Tax (Appeals). The Appellate Authority after carefully scrutinizing the entire material on record allowed the appeal in part by its order dated 28.2.2005. Aggrieved by the said order, the assessee preferred an appeal before the Tribunal in ITA No. 669/2005 whereas the revenue also preferred an appeal against the said order in ITA No. 804/2005. The appeal preferred by the assessee is partly allowed and the appeal preferred by the revenue was dismissed. Against both the orders the revenue has preferred these two appeals. Both the appeal memos are identical, i.e., the grounds urged in both the appeal memos are identical. The substantial questions of law which are raised in the appeal are as under:- 18. Whether the Tribunal was correct in having held that they need not record a finding whether the notice under Section 148 is valid or not proceeded to come to an observation that reopening under Section 148 of the Act pertaining to eligibility of deduction under Section 10A of the Act, was a change of opinion ? 19. Whether the Tribunal was correct in reversing the finding of the Assessing Officer that miscellaneous income from e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer. 26. Whether the Tribunal was correct in reversing the finding of the Assessing Officer that the loss from 10A units of ₹ 13.30 lakhs can be carried forward despite the restriction imposed under Section 10A(6)(ii) read with sub-section (1) of Section 72 of the Act. 27. Whether the fluctuation gain in the exchange rate of ₹ 11.81 crores is not liable to tax as held in the earlier assessment years 1998-99 and 1999-2000? 28. Whether the Tribunal was correct in holding that the expenditure incurred by the corporate office to 10A units of ₹ 9.28 crores is allowable deduction as held in the earlier assessment years despite the corporate office not being involved in any activity other than earning income mainly on account of interest and dividend. 29. Whether the Tribunal was correct in holding that the amount paid for importing software of ₹ 15,97,94,771/- without deducting TDS is an allowable expenditure as held in the earlier assessment years. 30. Whether the Tribunal was correct in holding that the provision for warranty expenses of a sum of ₹ 6,67,06,328/- is an allowable expenditure despite the same has not been written off and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed in I.A. No.1 of 2012 in FTA Nos. 1394-1395 of 2006. 3. The impugned order reads as follows:- I.A. No.1/2002 for amendment ordered subject to the right of the respondent to canvass as to whether the question arises and as to whether it is a substantial question of law. Counsel for the appellant to file amended memorandum of appeal within two weeks. It is submitted by Mr. Maninder Singh, learned Senior Counsel for the appellant, that when the Income Tax Appellate Tribunal had disposed of two appeals and the revenue had not preferred an appeal against one of them it was not legally permissible to incorporate a. ground which pertained to the judgment passed in the other appeal, by amending the memorandum of appeal. 3. Per contra, Mr. A. S. Chandiok, learned Additional Solicitor General appearing for the respondents, supported the order of the tribunal. 4. Having heard the learned counsel for the parties we are inclined to modify the order to the extent that IA.No.1 of 2012 for amendment shall be considered at the time of hearing of the concerned appeal and at that juncture, the court shall address to the issue whether a substantial question of law as sought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of the shares of Wipro Financial Limited to 3 persons for the paltry sum of ₹ 75,000/- who had long and rewarding relationship with the assessee group for a long period of time for being set off against the capital gain tax payable is a colourable device. In fact, a sum of ₹ 95 crores was invested in WFL and was withdrawn, immediately thereafter which . would clearly establish that it is a device to evade payment of tax on short term capital gains. The Commissioner of Income Tax (Appeals) on careful scrutiny of the entire material on record has upheld the said finding. The said finding of fact has been upset by the Tribunal ignoring the relevant material on record and without proper application of mind, with reasons which is not supported by the material on record and therefore a case for interference is made out. 10. Per contra, Sri Venkataram, the learned senior counsel as well as Sri R.B. Krishna, the learned counsel for the assessee contended that, it is not a case of avoidance of tax but it is a case of legitimate tax planning. Section 70 of the Income Tax Act provides for set. off incurred in sale of capital asset towards short term capital gains. The reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputation of income filed along with return for the financial year 1999-2000 relevant for the assessment year 2000-01, the assessee company had shown two major transactions relating to (a) short term capital gains on the sale of shares of M/s Wipro Net Limited by the assessee company to M/s KPN Asia Mauritius Holding and to M/s ICICI Limited, resulting in short term capital gains to the assessee company in a sum of ₹ 109,54,48,503/-. The particulars of such short term capital gain arising on the sale of shares of M/s. Wipro Net Ltd held by the assessee company, as referred to in the assessment order is tabulated below. Short Term Capital Gain on sale of share in Wipro Net Limited A Sale of shares to KPN Telecom - 29,03,410 Equity Shares Full consideration for sale 203,177,778 Less: Cost of acquisition-Section 48(i) 29,034,100 Sub-total 174,143,678 Less: Expenses Incurred Section 48(ii) 50,000,000 Capital Gains (A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,999,990 281 207,651,232 1996-97 25,476,188 305 1997-98 25,476,188 331 1998-99 22,837,956 48,314,144 228,379,560 228,379,560 1999-2000 48,334,144 389 Sub-Total (A) 48,314,444 628,379,500 829,830,991 B. 11% Cumulative convertible preference shares 1998-99 2,500,000 2,500,000 250,000,000 250,000,000 Sub-Total (B) 2.500,000 250,000,000 250,000,000 Total Indexed Cost of Acquisition (A+B) 1,079,830,991 Full consideration for the sale of above shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Commonwealth Development Corporation UK 1142857 1142857 1142857 P.G. Karania 16104715 28604715 286047 B.S. Shoukur Narayan 16104715 60605695 606056 Other Share Holder (S) 300000 300000 1442837 1442857 1442857 48614144 166919045 166910 % of Bolding 0.00% 0.00% 0.00% 1.74% 1.16% 5.36% 5.36% 2.76% 60.16% 100.00% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factor to be taken note of is the assessee-company deemed it proper to infuse a fresh capital of ₹ 95 crores in Wipro Finance Limited on 31.12.1999. Out of this amount, a sum of ₹ 45 crores was infused in the equity capital, while a sum of ₹ 20 crores was invested in convertible preference shares and a further sum of ₹ 30 crores was invested in redeemable preference shares. The explanation offered by the. assessee for such infusion of capital was the Prudential Norms issued by the Reserve Bank of India in respect of non-Banking Finance Companies governed the financial reporting of Wipro Finance Limited, As per the norms, a NBFC can never have a negative owned funds. Reporting a negative net worth would automatically result in cessation of the right to carry on the business of NBFC and cancellation of license by RBI followed by public notification. It also triggers the immediate repayment of all fixed deposits and failure to do so will result in the RBI notifying the NBFC as a defaulter. The consequences usually result in the winding up of the company. Thus there is no discretion in the infusion of capital as it is enforced by mandatory guidelines issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said transaction is nothing but a colourable device, a tool for tax avoidance, in order to circumvent tax payment on the windfall short term capital gains. (c) The circumstances point out that divestment was effected, in order to get over the incidence of taxation from the short term capital gains, The post facto Resolution of the Board is a futile attempt to cover up. (d) The assessee has not been able to justify the infusion of substantial amount of ₹ 95 crores on 31.12.1999. The reliance on the Prudential Norms of RBI is misplaced. (e) The assessee. Company sold off all the shares acquired through fresh infusion of capital, in the next financial year. Again the shares have been sold to key employees/associates for a nominal price and long term capital loss has been claimed. 15. The assessee company never chose to discontinue the business prior to divestment, when WFL was under its own management. On the contrary, fresh infusion of capital was done, ostensibly to meet the Prudential norms. The real purpose of infusion of capital was not the prudential norms for the following two reasons: (1) Infusion of ₹ 95 crores was received back by the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mandatory reporting requirements. 18. Therefore in view of the aforesaid legal evidence 'on record, the Assessing Authority held that the long term capital loss of ₹ 107,97,55,991/- is a colourable device used by the assessee company for avoidance of tax on short term capital gains reported on the sale of shares of M/s Wipro Net Ltd. Accordingly the said claim of the assessee was rejected. 19. The Commissioner of Income Tax (Appeals) has carefully scrutinized and re-appreciated the entire material on record and by detailed order held that he is in agreement with the Assessing Authority that the transfer of M/s WFL shares made by the assessee company to the three key employees/associates at a throw away price is nothing but a colourable device used by the appellate company for avoidance of tax on short term capital gains arising to it on the sale of shares of M/s Wipro Net held by it. Hence the disallowance of claim on long term capital loss of ₹ 107,97,55,591/- as done by the Assessing Officer was upheld. 20. However, the Tribunal interfered with the said concurrent finding of fact. The Tribunal held that transaction of transfer of shares is legal in n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the sale of shares is non-existent and a far fetched imagination. If someone alleges that apparent is not real, it is for them to prove it and merely on touchstone of suspicion the allegation is inadequate. There is no colourable device here. There is hardly any evidence of tax planning with an intention to avoid tax. There is no evidence of dubious method. There is no conflict between form and substance. 21. After referring to the judgments of the Apex Court, the Tribunal held that the transaction of transfer of shares resulting in capital loss is a legal transaction, not tainted by any ulterior motive or dubious method to reduce the tax. Accordingly, capital loss claimed by the assessee was allowed and a direction was given to set off against the short term gains earned from other transactions. 22. Therefore, the question for consideration is in the light of the aforesaid admitted facts, the disputed transaction constitutes a device to avoid short term capital gain or is it a case of legitimate tax plan? Therefore, it is necessary to keep in mind the clear distinction between a legitimate tax planning and a device to avoid tax. In order to appreciate this point, the jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 27. In Craven v. White [1988] 3 All ER 495 (HL), Lord Keith of Kinkel says, with reference to the trilogy of the aforesaid cases. 'The Court must first construe the relevant enactment in order to ascertain its meaning; it must then analyse the series of transactions in question, regarded as a whole, so as to ascertain its true effect in law; and finally it must apply the enactment as construed to the true effect of the series of transactions and so decide whether or not the enactment was intended to cover it. The most important feature of the principle is that the series of transactions is to be regarded as a whole. In ascertaining the true legal effect of the series it is relevant to take into account, if it be the case, that all the steps in it were contractually agreed in advance or had been determined on in advance by a guiding will which was in a position, for all practical purposes, to secure that all of them were carried through to completion. It is also relevant to take into account, if it be the case, that one or more of the steps was introduced into the series with no business purpose other than the avoidance of tax. The principle does not involve, in my ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which is common to all successive transactions where an actual transfer of property has taken place to a corporate entity which subsequently carries out a further disposition to an ultimate disponee. The question is: when is a disposal not a disposal within the terms of the statute? To give to that question the answer when, on an analysis of the facts, it is seen in reality to be a different transaction altogether' is well within the accepted canons of construction. To answer it 'when it is effected with a view to avoiding tax on another contemplated transaction' is to do more than simply to place a gloss on the words of the statute. It is to add a limitation or qualification which the Legislature itself has not sought to express and for which there is no context in the statute. That, however, desireable it may seem, is to legislate, not to construe, and that is something which is not within judicial competence. I can find nothing in Dawson or in the cases which preceded it which causes me to suppose that that was what this House was seeking to do. ' 28. While referring to the case of Duke of Westminster in Macniven (Inspector of Taxes) v. Westmoreland Investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with something else which might have been thought to do so, but does not. When an economist says that real incomes have fallen, he is not intending to contrast real incomes with imaginary incomes. The contrast is specifically between incomes which have been adjusted for inflation and those which have not. In order to know what he means by 'real', one must first identify the concept (inflation adjustment) by reference to which he is using the word. Thus in saying that the transactions in the Ramsay case were not sham transactions, one is accepting the juristic categorisation of the transactions as individual and discrete and saying that each of them involved no pretence. They were intended to do precisely what they purported to do. They had a legal reality. But in saying that they did not constitute a 'real' disposal giving rise to a 'real' loss one is rejecting the juristic categorisation as not being necessarily determinative for the purposes of the statutory concepts of 'disposal' and 'loss' as properly interpreted. The contrast here is with a commercial meaning of these concepts. And in saying that the income-tax legislation was intend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Internal Revenue [1968] US 50 TC 595: We infer than Stantus was created by petitioners with a view to reducing their taxes through qualification of the corporation under the convention. The test, however, is not the personal purpose of a taxpayer in creating a corporation. Rather, it is whether that purpose is intended to be accomplished through a corporation carrying out substantive business functions. If the purpose of the corporation is to carry out substantive business functions, or if it in fact engages in substantive business activity, it will not be disregarded for Federal tax purpose. Indian Law 32. Following the English decisions the Apex Court in the case of Jiyajeerao Cotton Mills v. CIT [1958] 34 ITR 888 held that every person is entitled to so arrange his affairs as to avoid taxation but the arrangement should be real and genuine and not a sham or make-believe. 33. The Supreme Court in case of Calcutta Discount Co. Ltd. v. ITO AIR 1961 SC 372 while dealing with the similar circumstances held that: Where a trader transfers his goods to another trader at a price less than the market price, and the transaction is a bona fide one, the taxing author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the case of CIT v. Calcutta Discount Co. Ltd. [1973] 91 ITR 8 (SC), has been held that if the assessee had arranged in such a manner as to reduce its tax liability by starting a subsidiary company and transferring its shares to that subsidiary company and thus foregoing part of its own profits and at the same time enabling its subsidiary to earn some profits, such a course is not impermissible under law. 37. A Constitution Bench of the Apex Court in the case of Mc. Dowell Co. Ltd. v. CTO [1985 STC Vol.59 277], in particular relied on the judgment of Chinnappa Reddy I.J., to the following effect: We think that time has come for us to depart from the Westminister [1936] AC 1 Principle as emphatically as the British Courts have done and to dissociate ourselves from the observations of Shah, J., and similar observations made elsewhere. The evil consequences of tax avoidance are manifold. First there is substantial loss of much needed public revenue, particularly in a welfare State like ours. Next there is the serious disturbance caused to the economy of the Country by the piling up of mountains of black money, directly causing inflation. Then there is the large hidden lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt subsequently had an occasion to consider this judgment in the case of Union of India v. Azadi Bachao Andolan [AIR 2004 SC 1107]. In the aforesaid decision, after referring to the entire catena of cases up-to-date including the aforesaid Constitution Bench judgment as well as the opinion expressed in the said judgment by Justice Chinnappa Reddy, the Apex Court held as under: ' 146. With respect, therefore, we are unable to agree with the view that Duke' of Westminster is dead, or that its ghost has been exorcised in England. The House of Lords does not seem to think so, and we agree with respect. In our view, the principle in Duke of Westminster is very much alive and kicking in the country of its birth. And as far as this country is concerned, the observations of Shah J. in CIT v. Raman are very much relevant even today. 153. The Constitution Bench reiterated the observations in Bank of Chettinad Ltd. v. CIT, quoting with approval the observations of Lord Russel of Killowen in IRC v. Duke of Westminster and the observations of Lord Simonds in Russell v. Scott . 154. It thus appears to us that not only is the principle in duke of Westminster alive and kickin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax payer is in a position to carry through a transaction in two alternative ways, one of which will result in liability to tax and the other of which will not, is at liberty to choose the latter and to do so effectively in the absence of any specific tax avoidance provision. The fact that the motive for a transaction may be to avoid tax does not invalidate it unless a particular enactment so provides. Every person is entitled to so arrange his affairs as to avoid taxation but the arrangement should be real and genuine and not a sham or make-believe. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Income-tax Act. Colourable devices cannot be part of tax planning. A tax-saving motivation does not justify the taxing authorities or the courts in nullifying or disregarding a taxpayer's otherwise proper and bona fide choice among courses of action. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented. Tax planning may be legitimate provided it is within the framew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under: Revenue cannot tax a subject without a statute to support and in the course we also acknowledge that every tax payer is entitled to arrange his affairs so that his taxes shall be as low as possible and that he is not bound to choose that pattern which will replenish the treasury. Revenue's stand that the ratio laid down in McDowell is contrary to what has been laid down in Azadi Bachao Andolan, in our view, is unsustainable and, therefore, call for no reconsideration by a. larger Bench. 42. After referring to the said judgment, this Court in the case of Bhoruka Engineering Inds. Ltd. v. Dy. CIT in ITA No.120/2011 dated 09.04.2013 held as under: '19. In view of the judgment of the Apex Court in Vodafone, it is held that tax planning may be legitimate provided it is within the frame work of law . Colourable devices cannot be a part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid payment of tax by resorting to dubious methods . It is an obligation of every citizen to pay the taxes without resorting to subterfuges. Therefore, though all tax planning is illegal/ illegitimate/impermissible, the revenue ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, a citizen is entitled to arrange his affairs as not to attract taxes imposed by the State, so far as he can do so within the law. He is entitled to order his affairs in such a manner that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure the said result, his ingenuity is to be respected and he cannot be compelled to pay an increased tax. The basic proposition underlining this taxation law is that any tax payer is entitled so as to order his affairs in such a manner as to see that his liability to tax is as low as possible. But the arrangement should be real and genuine and not a sham or make-believe. Colourable devices cannot be part of tax planning. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented. Tax planning may be legitimate provided it is within the framework of law. if the transaction in question is sham or colorable and entered into with the sole intention of evading payment of tax. then such a transaction would not have any legitimacy. Therefore, it is clear as the law as it stands today in India, tax planning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31.03.1999, the assessee acquired 1,52,19,182 equity shares of ₹ 10/- each for an consideration of ₹ 15,11,98,000/-. On 05.08.1999, it sold 29,03,410 equity shares in Wipro Net Limited for a consideration of ₹ 20,31,77,778/-. Thus after deducting other expenditure, the capital gains accrued as a result of the said transfer is ₹ 12,41,43,678. Similarly, on 28.12.1999, assessee sold 17,91,385/- of equity shares in favour of ICICI limited for a consideration of ₹ 99,42,18,675/-. The capital gain accrued on account of such transfer is ₹ 97,13,04,825. Thus the assessee earned short term capital gains in a sum of ₹ 1,09,54,43,503/-under Section 48(1) and (2) of the Act from the sale of shares in Wipro Net Limited. In the normal course, they ought to have paid taxes on these capital gains. However, they invoked Section 70 of the Act - set off loss from one source against income from another source under the same head of income which reads as under:- Section 70 : set off loss from one source against income from another source under the same head of income (1) Save as otherwise provided in this Act, where the net result for any assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company, more particularly, with respect to the net owned fund, the solvency, the outstanding amount of public deposits, the liquidity ratio, the total credit exposure and default in the maintenance of SLR. The Wipro Finance Limited was called upon to show cause with a letter dated 19.03,1999 as to why its application for Certificate of Registration should not be rejected. Wipro Finance Limited was expected to take steps to augment its net owned funds by infusing fresh capital and significant reduction in the deposits. Again an inspection of books of account of the company was conducted between 31.01.2001 and 14.02.2001, with reference to its financial position as on 31.03.2000. The inspection revealed that the company had violated various provisions of the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998 and also that its financial position was not satisfactory. Therefore, a letter was issued to the company on 16.07.2001, to take requisite steps and also a meeting with the CEO of the company was held on 23.07.2001, to call for an action plan in regard to the repayment of outstanding public deposits and other liabilities of the company. One more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otted 11,42,857 equity shares to Common Wealth Development Corporation, which accounted for ₹ 1,14,28,570/- with ₹ 85,71,430/- as share premium. They also entered into repayment and settlement agreement dated 12.03.1999. 48. What is interesting to note here is Wipro Finance Limited had entered into a loan agreement with Common Wealth Development Corporation on 31.12.1994 and made available a loan upto ₹ 50,00,000 UK sterling pounds for its business. Similarly, Wipro Finance Limited entered into subscription agreement on 30.03.1998 with ICICI Limited under which ICICI agreed to subscribe 25,00,000/- convertible preference shares of ₹ 100 each face value and accordingly, it paid ₹ 25 crores. It is in this background, the assessee company purchased 11,42,857 shares from Common Wealth Development Corporation in the month of September 1999 at a price of ₹ 17.25 per share. The face value of shares being ₹ 10 per share. Similarly, the assessee purchased 25,00,000 convertible preference shares on 23.12.1999 for a total consideration of ₹ 32 crores, out of which 31,68,75,000 was towards the purchase consideration paid towards ICICI Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Finance Limited at premium in one breadth and selling the shares of the said company for a pittance at the rate of less than a paisa in other breadth, which clearly shows the intention behind this arrangement. Secondly, the said shares are sold to the ex-employees who continued to hold the said shares without bringing any fresh capital for conducting the business of Wipro Finance Limited. Thirdly, though it is contended that a sum of ₹ 95 crores is infused to meet the requirement of company under the RBI Act, as demanded by the Reserve Bank of India, the amount of ₹ 95 crores infused is withdrawn on the very same day towards the repayment of the debt by Wipro Finance Limited to the assessee clearly demonstrates the intention behind such arrangement. Fourthly, as it is clear from the contention of the assessee that the capital gains was accrued to them because of wind fall profits by selling of shares of Wipro Net Limited, the quantum of short term capital gains disclosed by the assessee was a staggering amount of excess of ₹ 100 crores. The loss was generated by disinvestment of assessees share owned in subsidiary Non Banking Finance Company. The fact that three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty on careful consideration of the entire material on record, in particular, the explanation offered by the assessee far his queries has arrived at the finding that it is a colourable devise and a sham transaction which finding has been affirmed by the Appellate Commissioner on re-appreciation of the entire material on record after making note of the entire case law on the point. It is the Tribunal which has interfered with such a concurrent finding of fact without properly appreciating the mechanism adopted by the assessee to avoid payment of tax. In that view of the matter the finding of the Tribunal on this issue requires interference and accordingly, the same is set aside. The said substantial question of law is answered in favour of the revenue and against the assessee. 54. Learned Counsel for the assessee submitted that it is their specific case that they purchased the shares from CDC and IC1C1 at a premium, it is in pursuance of a contract entered into years prior to the said transaction. Though the shares did not have any value on the date of the said purchase, it was made in pursuance of the agreement of buyback and also to maintain their name in the market. It is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e what the Tribunal has held as in the present appeal is against regular assessment under Section 143(3) and not against reassessment under Section 147 of the Act. They need not record a finding as to whether notice under Section 148 of the Act is valid or not. No appeal is provided against mere issue of notice under Section 148 of the Act. What is appealable is re-assessment made under Section 147 pursuant to the notice under Section 148. The validity of notice or consequential assessment pursuant to such notice can be looked into only in an appeal against such assessment and not earlier to the same. In fact, it is submitted that against the order of re-assessment, the appeals are filed and it has reached this Court and pending consideration. Therefore, the said question has to be considered in the said proceedings and not in these proceedings. Hence, we decline the answer the said question of law. Question No.19 IN ITA 1395/2006: 19. Whether the Tribunal was correct in reversing the finding of the Assessing Officer that miscellaneous income from exchange rate fluctuation, sale of scrap and newspaper, reversal of customers balance and debit notes, and miscellaneous income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure incurred for purchase of newspapers was ₹ 30,000/-, they sold it for ₹ 2,000/- and the expenses which is eligible for claiming deduction was ₹ 8000/-. Without properly understanding the case putforth by the assessee, the authorities have proceeded on the basis that it is an income derived from the business which has no nexus and, therefore, the assessee is not entitled to claim exemption under Section 10A. Therefore, the Tribunal was justified, in setting aside those findings and granting the deduction sought for by the assessee. In that view of the matter, in the first place the said question do not arise for consideration. We decline to answer the same in the facts of the case. Questions Nos. 20 and 21 in I.T.A.NO. 1395/2006: 20. Whether the Tribunal was correct in holding that the liability to tax interest does not arise unless it accrues to the assessee irrevocably and not when the refund is actually granted in the relevant assessment year in the case of MODVAT Credit. 21. Whether the Tribunal was correct in holding that the liability to tax interest does not arise unless it accrues to the assessee irrevocably and not when the refund is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority held that the provision is merely in the nature of contingent liability and hence, did not represent the amount actually written off, which finding was upheld by the first appellate authority. The Assessing Authority also disallowed the alternative claim of the appellant for the right of advances against the provision on the ground that the details were nor made available to him. On that issue, the Tribunal remitted the matter back to the Assessing Authority and directed the assessee to furnish the details to decide the matter afresh. The Tribunal held on a careful scrutiny of the material on record, the details have been furnished by the assessee, for approval of advances and therefore, they directed the Assessing Authority to allow the deduction for provision for advances. Further, they observed that corresponding adjustment to the income exempted under Section 10A would also be warranted. In fact, this Court had an occasion to consider this question in the assessee's case in I.T.ANO.503/2002 decided on 1st September 2010, wherein this Court has held as under: 15. In that view of the matter, we decline to answer the aforesaid substantial question of law. But, affi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. This question also was considered by this Court in the assessee's case in I.T.A.No.503/2002 decided on 1st September 2010 at para-15, which reads thus: 15, In that view of the matter, we decline to answer the aforesaid substantial question of law. But, affirm the order of remand to the Assessing Officer to consider the claim for bad debts, in the light of the observations made by the Tribunal and in the light of the judgments of the Apex Court in the case of Vijaya Bank v. Commissioner of Income Tax [2010] 323 ITR 166 and T.R.F.Ltd. v. Commissioner of Income Tax [2010] 230 CTR (SC) 14. 65. In view of the law declared by the Apex Court in the case of Vijaya Bank v. CIT [2010] 323 ITR 166 and T.R.F.Ltd. v. CIT (2010) 230 CTR (SC) 14, the write-off of the bad debts of the assessee cannot be found fault with and as such, the said substantial question of law does not arise for consideration at all. Question No. 25: 25. Whether the Tribunal was correct in holding that the LD (liquidated damages) is a business loss allowable under Section 37 of the Act and the provisions of Section 36(1)(vii) of the Act is not applicable as the amount written off is not in the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal was correct in reversing the finding of the Assessing Officer that the loss from 10A units of ₹ 13,30 lakhs can be carried forward despite the restriction imposed under Section 10A(6)(ii) read with sub-section (1) of Section 72 of the Act 68. As the said question had not been raised before the Assessing Authority and it was raised for the first time before the First Appellate Authority, the Appellate Authority sent the file to the Assessing Authority to consider the said issue. However, the Tribunal in the appeal held that as the said question of law is covered by decision of the Apex Court as well as the judgment of the Tribunal at Mumbai had directed the Assessing Authority to allow the set off of loss from 10A units as held in the aforesaid judgments. 69. This question is decided by the Apex Court in the case of CIT v. Canara Workshop (P.) Ltd. [1986] 161 ITR 320. All that the Assessing Authority has to do is to give effect to the judgment of the Apex Court and grant set off as claimed by the assessee and therefore, we decline to answer the said substantial question of law, as it is answered by the Apex Court. Question No.28: 28. Whether the Tribunal was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quirements of the clients and, therefore, it amounts to royalty and TDS should have been deducted, the same having not been done, the entire amount cannot be claimed as deduction. The Commissioner rightly pointed out it is not a royalty, it is a revenue expenditure and the entire amount is held to deductible. In those circumstances, it was not open to the revenue to contend that it constitutes an asset Therefore, the Tribunal declined to entertain the said contention and affirmed the order of the Appellate Authority. In those circumstances, the substantial question of law as framed do not arise for consideration in this appeal and we decline to answer the same. Question No.30: 30. Whether the Tribunal was correct in holding that the provision for warranty expenses of a sum of ₹ 6,67,06,328/- is an allowable expenditure despite the same has not been written off and the same was treated as the contingent liability . 73. This question is no more res Integra, The Apex Court in the case of Rotork Controls India (P.) Ltd. v. CIT [2009] 314 ITR 62has held as under: 13. In this case we are concerned with product warranties. To give an example of product warranties, a. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te at year end of future warranty expenses. Such estimates need reassessment every year. As one reaches close to the end of the warranty period, the probability that the warranty expenses will be incurred is considerably reduced and that should be reflected in the estimation amount. Whether this should be done through a pro rata reversal or otherwise would require assessment of historical trend. If warranty provisions are based on experience and historical trend(s) and if the working is robust then the question of reversal in the subsequent two year, in the above example, may not arise in a significant way. In our view, on the facts and circumstances of this case, provision for warranty is rightly made by the appellant-enterprise because it has incurred a present obligation as a result of past events. There is also an outflow of resources. A reliable estimate of the obligation was also possible. Therefore, the appellant has incurred a liability, on the facts and circumstances of this case, during the relevant assessment year which was entitled to deduction under s. 37 of the 1961 Act Therefore, all the three conditions for recognizing a liability for the purposes of provisioning st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in computer software or providing technical services. The deduction is to the extent of the profits derived by an assessee from such business namely, computer software export business or technical services provided in connection therewith. Sub-section (3) of Section 80HHE provides how the profits from such business is to be arrived at The opening words of sub-section (3) is of utmost importance. It reads as under:- (3) For the purposes of sub-section (1), profits derived from the business referred to in that sub-section shall be the amount which bears to the profits of the business, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. The word, export turnover has been defined for the purpose of this Section which means the consideration in respect of computer software received or brought into in India by the assessee in convertible foreign exchange. Similarly the total turnover for the purposes of this Section has been defined as it shall not include the amounts mentioned therein which is also not included, in the export turnover. The word profits of the business is also defined for the purpose of this Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 143(2) and took up the case for scrutiny assessment, the assessee in the said proceedings realized that various disallowances were contemplated by the Assessing Authority resulting in an enhancement to the gross total income. Therefore, for the first time in the said proceedings, the assessee put forward its claim on 15.03.2002 for the deduction under Section 80HHE supported by a certificate from a Chartered Accountant in the prescribed form with reference to the business of export of computer software eligible for deduction under Section 80HHE. Question No. 33: 33. Whether the Appellate Authorities were correct in holding that the foreign tax credit of ₹ 17,75,35,671/- is an allowable deduction based on the conclusion arrived at by it in the case of loss from 10A units. ' 76. This substantial question of law does not arise for consideration because the Tribunal has set aside the finding of the Appellate Authority and has remanded the matter back to the Assessing Officer for proper determination and further action as per law and following the direction of the Tribunal given for the assessment years 1998-99 and 1999-2000. Therefore, we decline to answe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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