COMMISSIONER OF INCOME TAX Vs. ECS LTD

JUDGEMENT

(1.) In these three appeals preferred by the Revenue, we are concerned with the validity of the orders passed by the Tribunal deleting the penalty levied under Section 271(1)(c) of the IT Act (hereinafter referred to as 'the Act') in respect of asst. yrs. 1994-95, 1995-96 and 1996-97. The reasons for passing penalty orders by the AO in all the three assessment years are recapitulated below:

(2.) Deduction under the said section was admissible @ 50 per cent of the income received in convertible foreign exchange from rendering technical services outside India and brought into India. The respondent/assessee claimed deduction under Section 80O in respect of all the three assessment years qua the foreign consultancy income earned by it. While doing so, it made computation of deduction with reference to the foreign exchange received and brought in India. The assessee did not enter the expenses incurred in India in the computation of deduction under the aforesaid provision. The deduction claimed, in the aforesaid manner, was not acceptable to the AO. Holding that expenses incurred in India have to be suitably allocated/apportioned to the foreign consultancy income and deduction under Section 80O of the Act, he quantified the deduction with reference to the net foreign consultancy, after taking into account the expenses incurred in India. The year-wise position of foreign consultancy income earned, deduction under Section 80O of the Act claimed by the appellant and deduction allowed under that section by the AO may be tabulated as under: Asst. yr. Foreign Deduction under Section 80O consultancy income Claimed by the Allowed by the AO assessee 1994-95 Rs. 15,74,543 Rs. 7,87,272 Rs. 68,437 1995-96 Rs. 38,74.260 Rs. 19,37,637 1,76,630 1996-97 Rs. 1,20,92,449 Rs. 60,46,224 Rs. 4,49,947 + allowed by Tribunal and confirmed by the High Court. Rs. 67,82,500

(3.) The order of the AO was upheld by the CIT(A) as well as Tribunal.