JT. CIT Vs. APTEN CORPN.

JUDGEMENT

(1.) 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 assessedbank account after such shipment and no separate bills were raised for claiming the said amount. The assessing officer, however, was not satisfied with the Explanationn 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 Explanationn, 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 and 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.