The Mumbai Bench declined to follow the decision of the Pune Bench of the Tribunal. It is the settled proposition of law that when two view are possible on the same issue the view which is favourable to the assessee has to be followed (CIT vs. Vegetable Products 88 ITR 192 (SC)). Further, as the Tribunal in the assessee’s own case has already taken a view in favour of the assessee, that has to be followed unless it is reversed by a higher court

The activities carried out by the foreign parties involved assembly, disassembly, inspection, reporting and evaluation. These are routine maintenance repairs and do not involve services of technical nature so as to be assessable as “fees for technical services” u/s 9(1)(vii). Routine repairs do not constitute ‘FTS’ as they are merely repair works and not technical services. Technical repairs are different from ‘technical services’ (Lufthansa Cargo 274 ITR (AT) 20 (Del) followed; Mannesmann Demag 26 ITD 198(Hyd) distinguished)

The entire scheme in the Act & Rules for determining the ALP of an international transaction is based on making comparison with certain comparable uncontrolled transactions. The various methods prescribed for determining ALP clearly divulge that the comparison is always sought to be made of the assessee’s international transactions with comparable ‘uncontrolled transactions’. An ‘uncontrolled transaction‘ is defined under Rule 10A(a) to mean ‘a transaction between enterprises other than associated enterprises whether resident or non-resident‘. A transaction between two associated enterprises goes out of the ambit of ‘uncontrolled transaction’ under Rule l0A. There is no statutory sanction for roping in a comparable controlled transaction for the purposes of benchmarking. If the view that a controlled transaction should not be shunted out for the purposes of benchmarking, is accepted, then all the relevant provisions contained in Chapter X in this regard, will become otiose. The argument that once controlled transactions are verified by the TPO and found at ALP, then the difference between controlled and controlled transactions is obliterated cannot be accepted because it is possible that higher/lower prices for India may have been charged to reduce the overall incidence of tax. The TPO may accept that the transaction does not require adjustment if it benefits India even though the transaction may not be at ALP and cannot be used as a benchmark for purposes of making comparison in other cases. That is why the legislature has ignored controlled transactions, even though at ALP, and restricted the ambit only to uncontrolled transactions for computing ALP in respect of international transactions between two AEs

In view of the judgment of the Allahabad High Court in Jagran Prakashan, there is a paradigm shift in the manner in which recovery provisions u/s 201(1) can be invoked. S. 201 is intended to make good the loss of revenue suffered by the revenue as a result of non-deduction of tax. However, the question of making good the loss arises only when the recipient of income has not paid tax and, therefore, the department has to establish that the recipient of income has not paid due taxes thereon. The non payment of taxes by the recipient is a condition precedent to invoking s. 201(1) & the onus is on the AO to demonstrate that the condition is satisfied. The assessee has to submit all such information about the recipient as he is obliged to maintain under the law. Once this information is submitted, it is for the AO to ascertain whether or not the taxes have been paid by the recipient of income

The assessee was exclusively engaged in blending and packing of tea for export and was not manufacturing or producing any other article or thing. It was recognised as a 100% EOU division and the Department had no case that the assessee’s unit engaged in export of tea bags and tea packets was not a 100% EOU. If exemption was denied on the ground that products exported were not produced or manufactured in the industrial unit of the assessee’s 100% EOU, it would defeat the very object of s. 10B of the Act. When the products for which the assessee’s unit is recognized as a 100% EOU are tea bags, tea in packets and tea in bulk packs and the assessee is exclusively engaged in blending and packing of tea for export may not be manufacturer or producer of any other article or thing in common parlance. However, for purposes of s. 10A, 10AA & 10B, the definition of the word “manufacture” as defined in s. 2(r) of SEZ Act, Exim Policy, Food Adulteration Rules, 1955, etc have to be considered. The definition of ‘manufacture’ as per s. 2(r) of SEZ Act, 2005 is incorporated in s. 10AA of the I. T. Act w.e.f. 10.02.2006. This amendment is clarificatory in nature. The definition of ‘manufacture’ under the SEZ Act etc is much wider than what is the meaning of the term ‘manufacture’ under the Income-tax Act

The AO’s objection that a non-compete right is not an “intangible asset” u/s. 32(1)(ii) on the ground that (a) it is not “any other business or commercial right of a similar nature” and (b) it is not capable of transfer like other intangible assets is not acceptable because (i) the right of absence of competition or the ‘non-compete right’ is an asset which is capable of being transferred and is of a similar nature as the other items referred to. This is shown by the fact that the right was transferred by the assessee at the time of its amalgamation and (ii) the expenditure resulted in the acquisition of an unrivaled and non-competed business territory for 10 years which brought advantages in the capital field. Though in Srivatsan Surveyors 125 TTJ 286 (Chennai), it was held that a restrictive covenant is a “right in persona” and not a “right in rem”, a contrary view was taken in ITO vs. Medicorp Technologies India Ltd 30 SOT 506 (Chennai). When two views are possible, the view favourable to the assessee should be followed held in CIT vs. Vegetable Products Ltd. 88 ITR 192 (SC).

It is very sad that the AO without following the principles of natural justice and inspite of clear findings of the ITAT in the order dated 18.06.2010 has repeated the same orders as was done originally way back in 1998. Inspite of levying cost of Rs. 5000 on AO there is no change in the attitude of the Revenue with reference to the assessee. By taking up the assessment at the fag end of the time barring period and by denying natural justice and not considering the evidence on record, the assessee was forced to file appeals before the ITAT unnecessarily by incurring heavy cost of not only appeal fees but also engaging Counsels to defend the case. There should be an end to this sorry state of affairs

Though the allotment of the shares was not done as of 31.3.2006, the number of shares to be allotted to the employees as on 31.3.2006 was specified and immediately thereafter the said shares were so allotted. Consequently, the mere non-allotment of the shares pending completion of certain formalities does not merit the disallowance of said expenditure as being a contingent liability. The fact that the scheme provided for a lock in period of five years under which in case the employee left employment before the expiry of five years, the shares so allotted to him would revert to the assessee, did not make the liability contingent because where the shares were forfeited, the value thereof would be offered to tax in that year (S.S.I. Ltd. vs. DCIT 85 TTJ 1049 (Chennai) followed; Ranbaxy Laboratories 124 TTJ 771 (Del) & VIP Industries (ITAT Mum) distinguished)

Despite the insertion of sub-section (1B) to s. 271, the necessity for “prima facie satisfaction” for initiation of penalty proceedings continues to be a jurisdictional fact. The AO has to record the finding that there was concealment of income. In the s. 143(3) assessment order, the AO has not mentioned a word that there was furnishing of inaccurate particulars or concealment of income. He made the addition merely on the ground that the assessee was not able to produce any evidence for writing off of the amount in the books of account. As the satisfaction that the assessee had concealed income or furnished inaccurate particulars of such income is not discernible from the assessment order, the penalty order suffers from lack of jurisdiction to impose penalty (Madhu Shree Gupta 317 ITR 107 (Del) followed)

Under Explanation 1 to s. 271(1)(c), the onus is on the assessee to prove that the explanation given by him (for not offering the correct income to tax) is bona fide. The explanation must be an “acceptable explanation”. While, the assessee is not required to prove what he asserts to the hilt positively, he must bring material on record to show that what he says is reasonably valid. On facts, the assessee’s conduct cannot be regarded as “bona fide”. Though the assessee claimed to have relied on the CA’s opinion, the opinion lacked credibility because while he referred to Bhor Industries, he did not deal with s. 35DDA which was in effect as of 1.4.2001. Further, in the immediately preceding year, the assessee itself applied s. 35DDA and so it cannot claim ignorance of that provision and there was no reason for it to deviate from the tax treatment given to the VRS payments in the earlier assessment years. Just because a claim is supported by a CA’s opinion, this fact per se cannot absolve the assessee from penalty u/s 271(1)(c). The assessee’s claim was contrary to s. 35DDA and such that no two opinions were possible thereon