9911796707
TMI Blog2014 (6) TMI 942X X X X Extracts X X X X X X X X Extracts X X X X ..... pite that such expenses are capital in nature and the Assessing Officer has not been given opportunity to verify such expenses." 3. In this case the facts are that the appellant M/s Nortel Networks India International Inc. is a company incorporated under the laws of Delaware USA and is engaged in the business of supplying telecom hardware to customers in India. During the subject years the appellant supplied telecom hardware to customers in India. During the subject years the appellant supplied telecom hardware equipment to Reliance Infocomm Ltd. No return of income was filed for the AY 2003-04 and AY 2004-05. However, in response to notice u/s. 148 of the Act returns showing nil income for both the years were filed. Return of income for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of taxable income for these years wherein certain expenses were voluntarily excluded by the appellant as not relatable to it PE. Accordingly, the deduction was effectively claimed by the appellant in respect of only two expenses i.e. selling and administrative expenses and Research and Development expenses. in the appeal effect orders the AO allowed deduction for selling and administrative expenses but did not allow deduction in respect of Research and Development expenses. 4. Against the above order the assessee appealed before the Ld. CIT(A). Ld CIT(A) noted that in pursuance to the direction of the Ld. CIT(A), the AO passed the following appeal effect order (this appeal effect order is in respect of AY 2005-06, the orders i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings. During the course of giving appeal effect to the order of the CIT(A), it is not open for the AO to start any new line of enquiry as to the allowablity of any expense. Hence, the assessee's argument is misplaced, since the AO, under the existing legal provisions, cannot look into any issue which was not a subject matter of assessment. And also since the matter was not set aside to the AO for fresh review. However, if required and if directed by your goodself, the verification of allowability of the impugned expenditure can be done at this stage and report submitted accordingly. b) Passing of non speaking order A speaking order is an order that speaks for itself. The order should stand the test of legality, fairness and reason at al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment of improved products to keep up with the changes in technology. As regards the R&D being relatable to PE of the appellant, it is seen that the very existence of the PE is on the basis of supply, erection and commissioning of the telecom equipment and related services. Therefore, it cannot be said that the R&D expenses are not relatable to the PE. (iii) The R&D expenses appear in the same set of accounts of the appellant from which the sales figures of the equipment have been adopted and the a GP rate has also been applied on the basis of the same accounts. Further selling and administrative expenses appearing in the same accounts have also been allowed at the time of giving effects to the appellate orders but for no stated rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found that this is not proper approach. He observed that AO has not passed a reasoned order and AO has not given proper opportunity to the assessee. Ld. CIT(A) therefore, allowed the R&D expenses. We find that it is admitted that AO in this case has not verified the allowability of the expenditure. He has specifically asked the Ld. CIT(A) that the same will be done if directed by him. It is not a case that the Ld. CIT(A) has himself examined the nature of these expenses and examined the allowability of these expenses as to whether the same were incurred wholly or exclusively for the purpose of business. As a matter of fact that Ld. CIT(A) has not even mentioned about the quantum of R&D expenses in his appellate order. There is no mention ..... X X X X Extracts X X X X X X X X Extracts X X X X
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