S. 158BE (1) prescribes the time limit for completion of the block assessment with reference to the end of the month in which the “last of the authorisations for search” was executed. Explanation 2 provides that the authorisation shall be deemed to have been executed “on the conclusion of search as recorded in the last panchnama drawn“. The “panchnama” referred to in Explanation 2 (a) to s.158BE is a panchnama which documents the conclusion of a search. If a panchnama does not reveal that a search was at all carried out on the day to which it relates, it would not be a panchnama relating to a search and consequently would not be relevant to determine the time limit for passing the assessment order (SK Katyal 308 ITR 168 (Del), White & White Minerals 239 CTR 330 (Raj) & C. Ramaiah Reddy 244 CTR (Kar) 126 followed

While it is true that reimbursement of expenditure is not income, the payment made by the subsidiary to the assessee cannot be regarded as a “reimbursement” because (a) the subsidiary had no technical expertise to carry out the contract & the assessee had rendered technical services to it such as arranging the dredgers from abroad & choosing appropriate parties to execute the work. The facilities arranged by the assessee to support the operations of the subsidiary are not layman’s activities and require technical know-how. The argument that the dredgers were simply brought from outside India and taken back is over-simplified, (b) though it is claimed that the expenses were reimbursed at par with the invoices issued by third parties, there is nothing on record to show that the price negotiated between the assessee and the third parties are prices comparable to similar services provided by international parties. It is not established that the assessee offered services to the subsidiary on cost to cost basis at best reasonable and competent prices available at that point of time. Therefore, an element of profit in the invoices raised by third parties cannot be ruled out even though what was paid by the subsidiary to the assessee is the amount reflected in the invoice. Therefore, the fact that what has was paid by the subsidiary to the assessee was only the amount reflected in the invoices issued by the third parties, does not go to support the argument that the payments were only reimbursement of expenditure and there was no element of profit in those amounts. As the subsidiary had no technical expertise, the inevitable conclusion is that the assessee rendered technical services to its subsidiary and the payments are in the nature of fees for technical services

The professional services rendered does not fall in the definition of “royalty” in Article 12 of the DTAA. It was purely a professional service for consultancy which were rendered outside India and not for supply of scientific, technical, industrial or commercial knowledge or information. Thus, there was no liability to deduct TDS and consequently no disallowance u/s 40(ia) can be made

Though in Bharati Shipyard 132 ITD 53 (Mum)(SB), it was held that the amendment to s. 40(a)(ia) by the FA 2010 w.e.f. 1.4.2010 cannot be treated to be retrospective, a contrary view has been taken by the Calcutta High Court in CIT vs. Virgin Creations. As this is the sole High Court judgement on the point, it has to be followed in preference to the view of the Special Bench. Accordingly, the amendment to s. 40(a)(ia) by the FA 2010 is applicable retrospectively from 1.4.2005 and no disallowance u/s 40(a)(ia) can be made if the TDS is paid on or before the due date for filing the ROI (Piyush C. Mehta (Mum) & M.K. Gurumurthy (Bang) followed)

Though a firm and its partners are not different entities in general law, under the Act, they are treated as separate entities. The salary and interest paid by the firm to the partners is deductible in the hands of the firm and taxable in the hands of the partners u/s 28(v). The balance profits are taxed in the hands of the firm and exempt in the hands of the partners u/s 10(2A). As s. 10(2A) provides that the share of profit of the partner shall not be included in his total income, it is not possible to hold that the share income is not excluded from the total income of the partner because the firm has already been taxed thereon. When s. 10(2A) speaks of its exclusion from the total income it means the total income of the person whose case is under consideration i.e. the partner. As the share income is excluded from his total income, s. 14A would apply and any expenditure incurred to earn the share income will have to be disallowed (Dhamasingh M. Popat 127 TTJ 63 (Mum) approved; Sudhir Kapadia & Hitesh Gajaria reversed)

There was no dispute that the assessee had in fact paid Alia. Though the Volker Committee report stated that the amounts paid to Alia were actually kickbacks to Iraqi regime, that fact per se would not attract Explanation to s. 37(1). In order to fall within the Explanation to s. 37(1), the expenditure has to be for “for any purpose which is an offence or which is prohibited by law“. Alia was a Jordanian company and while the transactions between Alia and the Iraqi regime may be contrary to the UN sanctions, the transactions between the assessee and Alia were not hit by the UN sanctions. The Revenue has not pointed out any other specific violation of law. The assessee’s payment accordingly cannot be said to be for a purpose which is an offence or which is prohibited by law. What the recipient of the payment does is not important from this perspective because the assessee has no control over the matter. It is not the case that the assessee knew that the monies would be used for the purposes of kickbacks to the Iraqi regime. The onus of demonstrating that the assessee was aware that the payments were intended for kickbacks is on the AO which has not been discharged. The “purpose” of the expenditure has to be seen. If the payment is for bonafide business purposes, the fact that they end up being used as illegal kickbacks, will not attract Explanation to s. 37(1). The commercial expediency of the payments was not called into question by the AO (TIL Ltd 16 SOT 33 (Kol) referred)