Delhi High Court
Jt. Cit vs Apten Corpn. on 30 June, 2004
Equivalent citations: [2004]140TAXMAN57(DELHI)
ORDER
P.M. Jagtap, A.M. This appeal is preferred by the revenue against the order of learned Commissioner (Appeals)-X, New Delhi dated 1-11-1999.
2. In ground No. 1, the revenue has challenged the action of learned Commissioner (Appeals) in directing the assessing officer to allow deduction under section 80-O as claimed by the assessed.
3. In this case, return of income was filed by the assessed declaring a total income at Rs. 26,89,800. In the said return, the assessed had claimed deduction under section 80-O to the extent of Rs. 44,99,385. During the course of assessment proceedings, the assessing officer asked the assessed to file copy of agreement with the foreign client, as well as note of its activities in support of its claim for deduction under section 80-O. In reply, it was submitted by the assessed that deduction under section 80-O has been claimed in respect of the consultancy fees received by it from Ws. Sumitomo Corporation, Japan for rendering technical and engineering consultancy services for plant and equipment manufactured in Japan. On further query by the assessing officer, it was also explained by the assessed that such services had been rendered in the previous year relevant to assessment years 1992-93 and 1993-94 and deduction claimed under section 80-O in those years was already allowed in the assessments completed under section 143(3). Details of such services were also explained by the assessed before the assessing officer and it was pointed out that although the services were rendered in the past, fees for such services have been received in the year under consideration as per the mutual agreement on actual shipment of machinery. It was also explained that the payment of such fees was sent directly by the foreign enterprise to the assesseds bank account after such shipment and no separate bills were raised for claiming the said amount. The assessing officer, however, was not satisfied with the explanation offered by the assessed on this issue and in the absence of any agreement with the foreign company produced by the assessed to support and substantiate its explanation, he rejected the same. According to him, the fees received for services rendered by the assessed in earlier year could not qualify for deduction under section 80-O during the year under consideration and since the assessed was following mercantile system of accounting, it should have accounted for the fees in the year of its accrual when the services had actually been rendered in favor of the foreign client. He observed that the onus to prove on evidence that the services rendered by it were covered within the ambit of section 80-O was on the assessed and since the assessed has failed to discharge such onus passed upon him by producing the necessary supporting evidence, its claim for deduction under section 80-O was not tenable. Accordingly, he disallowed the claim of the assessed for deduction under section 80-O in the assessment completed under section 143(3). Aggrieved by the same, the assessed preferred an appeal before the learned Commissioner (Appeals) and besides other evidence, it also filed additional evidence in the form of copy of agreement with M/s. Sumitomo Corporation, Japan during the appellate proceedings before the learned Commissioner (Appeals). This evidence was forwarded by the learned Commissioner (Appeals) to the assessing officer for her comments and since & assessed failed to clarify the points raised by the assessing officer as regards the additional evidence in the form of agreement with M/s. Sumitomo, Corporation despite further opportunity, the assessing officer furnished her remand report to the learned Commissioner (Appeals) pointing out the non-cooperation on the part of the assessed and standing by her assessment order holding the assessed to be not entitled for deduction under section 80-O. The learned Commissioner (Appeals), however, afforded opportunity to the assessed to explain its stand on the issue relating to its claim of deduction under section 80-O and it availed the said opportunity by making an elaborate submission on all relevant points including the clarification sought by the assessing officer in the remand proceedings. In the said submissions, the assessed also explained the reasons for noncompliance before the assessing officer in the remand proceedings and also clarified all the objections raised by the assessing officer in her assessment order as well as during the course of remand proceedings. The nature of services rendered. by, it to the foreign client was also explained by the assessed in the submissions made before the learned Commissioner (Appeals) pointed out that the same were duly covered by the provisions of section 80-O. Referring to the terms and conditions of the agreement with M/s. Sumitomo Corporation, it was explained by the assessed that although the actual services had been rendered in the earlier years, 20 per cent of the total fees for such services was received in the previous Year relevant to assessment year 1992-93 whereas the balance 80 per cent payment was to be received in six equal Installments after the shipment of relevant machinery. It was pointed out on behalf of the assessed that deduction in respect of the said 20 per cent payment received by the assessed was claimed in assessment year 1992-93 and department having accepted the same in the regular assessment completed under section 143(3), there was no reason to deny such deduction in the years under consideration when the balance payment was received for the same services rendered in the previous year relevant to assessment years 1992-93. As regards the method of accounting, it was explained by the assessed before the learned Commissioner (Appeals) that mixed system of accounting was being followed by it up to the year under consideration i.e., assessment year 1996-97 but the assessing officer mistook the same as mercantile merely on the basis of audit report filed along with the return of income wherein it was wrongly mentioned as such. Having considered the detailed submissions made on behalf of the assessed in the light of material available on record including the additional evidence in the form of agreement with M/s. Sumitomo Corporation, the learned Commissioner (Appeals) found the assessed to be entitled for deduction under section 80-O in respect of payments received from M/s. Sumitomo Corporation, Japan and, accordingly, directed the assessing officer to allow deduction under section 80-O as claimed by the assessed. Aggrieved by the same, the revenue in the appeal before us.
4. The learned Departmental Representative submitted before us that copy of agreement with M/s. Sumitomo Corporation was not produced by the assessed before the assessing officer to support and substantiate its claim for deduction under section 80-O despite sufficient opportunity afforded to it during the course of assessment proceedings. He submitted that even when the said agreement was produced by the assessed before the learned Commissioner (Appeals) and an opportunity was sought to be given by the learned Commissioner (Appeals) to the assessing officer to examine the same, there was no compliance by the assessed to the notices issued by the assessing officer during the course of assessment proceedings to clarify the several queries raised by him in connection with the said agreement. He contended that the assessing officer thus had no effective opportunity to examine this vital evidence due to non-compliance on the part of the assessed and the learned Commissioner (Appeals), therefore, was not justified in allowing relief to the assessed on the basis of such evidence. He further contended that specific and cogent reasons were given by the assessing officer in his assessment order for denying the deduction claimed by the assessed under section 80-O and strongly placed reliance on the same in support of the revenues case that the assessed was not entitled for deduction under section 80-O in respect of payments received from M/s. Sumitomo Corporation in the year under consideration.
5. The learned counsel for the assessed, on the other hand, reiterated the submissions made before the learned Commissioner (Appeals) and strongly supported the order of learned Commissioner (Appeals) stating that the same is well-reasoned and well-discussed on the issue under consideration. As required by the Bench, he also furnished a statement showing year-wise payment of fees received by the assessed from M/s. Sumitomo Corporation under the agreement in question and also pointed out that the said payments received by the assessed were in conformity with the payment terms mutually agreed as per the said agreement. He contended that the services under the said agreement were rendered by the assessed in the earlier years and department having allowed the deduction claimed by the assessed under section 80-O in respect of payment of fees received in assessment year 1992-93, there was no justification in denying such deduction in the year under consideration for the payments received against the same services as held by Honble Supreme Court in the case of Continental Construction Ltd. v. CIT (1992) 195 ITR 811 (SC).
6. We have considered the rival submissions and also perused the relevant material on record to which our attention was drawn during the course of hearing. It is observed that the claim of the assessed for deduction under section 80-O was disallowed by the assessing officer mainly for the following reasons :
(a) Copy of relevant agreement between the assessed and M/s. Sumitomo Corporation, Japan was not produced by the assessed despite sufficient opportunity and in the absence of the same, the nature of services provided by it to the foreign client was not ascertainable.
(b) Fees received for services rendered by the assessed in earlier years was not qualified for deduction under section 80-O during the year under consideration especially when mercantile system of accounting was followed by it.
7. As regards the non-production of copy of agreement with M/s. Sumitomo Corporation during the course of assessment proceedings before the assessing officer, it is observed that this non-compliance was specifically explained by the assessed stating that such agreement was seized by the CBI in connection with the case made out against Mr. V. Krishnamoorthy and the same, therefore, was not available with it at the relevant time. However, when a copy of the said agreement was made available to the assessed subsequently, the same was filed by the assessed before the learned Commissioner (Appeals) as additional evidence which was forwarded by the learned Commissioner (Appeals) to the assessing officer along with the other evidence in order to give him an opportunity to examine the same. During the course of examination of the said evidence in the remand proceedings, the assessing officer raised certain queries and sought clarification from the assessed in respect of the same. The assessed, however, could not comply with the requirements of the assessing officer in the remand proceedings which culminated in reporting of such non-compliance by the assessing officer in the remand report submitted to the learned Commissioner (Appeals). Here again, the assessed explained the reasons for such noncompliance before the assessing officer during the remand proceedings and having satisfied with the sufficiency of such reasons, the learned Commissioner (Appeals) proceeded to examine the claim of the assessed for deduction under section 80-O on merits in the light of the said additional evidence as well as elaborate submissions made on behalf of the assessed. It is a settled position of law that the powers of the learned Commissioner (Appeals) are co-terminus with that of the assessing officer and he can do what the assessing officer can. During the course of such examination, he required the assessed to offer its explanation in respect of all the objections raised by the assessing officer while denying the deduction to it under section 80-O and also required it specifically to furnish a note on its activities and the services rendered to M/s. Sumitomo Corporation as well as on the method of accounting followed by it. It is observed from the submissions so made by the assessed before the learned Commissioner (Appeals) which have been reproduced in the impugned appellate order that the assessed firm had entered into an agreement with M/s. Sumitomo Corporation, Japan for providing assistance on technical matters and commercial conditions in connection with the supply to its Indian clients. The scope of such services mainly included providing of engineering consultancies/project consultancies to M/s. Sumitomo Corporation, Japan regarding the power projects in India and also the specification for fabricating the power plant to the requirements of the clients of M/s. Sumitomo Corporation as per the said agreement, total fees for such services was fixed at 0.8 per cent of the total FOB value of machinery/equipment supplied by M/s. Sumitomo Corporation out of which 20 per cent was to be received in the initial period whereas balance 80 per cent was to be paid in six equal Installments after the major shipment of said machinery/equipment. Accordingly, the assessed received the initial payment of 20 per cent in the previous years relevant to assessment years 1990-91 to 1993-94. As far as the assessment years 1990-91 and 1991-92 are concerned, deduction under section 80-O was not available to the assessed whereas the same was made available from assessment year 1992-93 onwards. Accordingly, the assessed claimed such deductions under section 80-O in assessment years 1992-93 and 1993-94 and the same was also allowed by the department in the regular assessment completed under section 143(3). It is worthwhile to note here that the entire proceeds received by the assessed from M/s. Sumitomo Corporation was against the aforesaid services rendered by it under the composite agreement and most of such services having been already rendered in the initial period, the subsequent payments of 80 per cent balance amount were to be received by the assessed automatically after the shipment of concerned machinery/equipment by M/s. Sumitomo Corporation. It is thus clear that although the subsequent payments including the payments received in the year under consideration had been made over subsequently on actual shipment, the same were related to the services rendered by the assessed in the initial period i.e., assessment years 1990-91 to 1993-94 and when the claim of the assessed for deduction under section 80-O was accepted by the department in assessment year 1992-93 and 1993-94, the payment of fees received in the subsequent year for the same services as per the specific terms of payment ought to have been accepted as held by Honble Supreme Court in the case of Continental Construction Ltd. (supra). For entitlement of deduction under section 80-O, there is no requirement that the services ought to have been rendered in the relevant previous year and if the assessed receives income by way of fee/commission/royalty from a foreign enterprise for technical/professional services rendered outside India and such income is received by him in India in convertible foreign exchange, he is entitled for deduction under section 80-O in respect of such income. In the present case, all these conditions were duly satisfied by the assessed as held by the learned Commissioner (Appeals) after elaborate discussion in his impugned order having regard to the nature of services rendered by the assessed as well as the terms of agreement with M/s. Sumitomo Corporation. As regards the method of accounting followed by the assessed, it is observed that mixed system of accounting was being followed by the assessed consistently up to assessment year 1996-97 whereby income was being accounted for on cash basis whereas the expenditure was being accounted for on accrual basis and a specific finding to this effect was given by the learned Commissioner (Appeals) after examining the relevant material on record. In these circumstances, we find no merits in the stand taken by the revenue merely on the basis of audit report filed along with the return of income that the method of accounting followed by the assessed was mercantile and the services having been rendered in the earlier years, deduction under section 80-O could not have been allowed in the year under consideration. As pointed out by the learned counsel before us, even if this stand of the revenue is accepted, there was no case to tax the fees received by the assessed in the years under consideration as per the mercantile system of accounting and consequently, there was no question of claiming any deduction under section 80-O. As such, considering all the facts and circumstances of the case, we are of the opinion that all the objections raised by the assessing officer for disallowing the claim of the assessed for deduction under section 80-O had been properly and satisfactorily met by the assessed during the course of appellate proceedings before the learned Commissioner (Appeals) and such claim having been allowed by the learned Commissioner (Appeals) on proper appreciation of detailed submission made on behalf of the assessed as well as the material placed on record by him, there was no justifiable reason to interfere with his impugned order on this issue. The same is, therefore upheld dismissing ground No. 1 of the revenues appeal.
8. The next issue relating to charging of interest under section 234B raised in ground No. 2 is consequential in nature and the learned Commissioner (Appeals) having directed the assessing officer to allow consequential relief to the assessed on this count, we find no infirmity in his impugned order on this issue. The same is, therefore, upheld and ground No. 2 of the revenues appeal is dismissed.
9. In the result, the appeal of the revenue is dismissed.