Vildirect: IncomeTax-caselaws-2004-VIL-265-ITAT-PNE

2004-VIL-265-ITAT-PNE

Equivalent Citation: ITD 093, 120, TTJ 094, 113,

Income Tax Appellate Tribunal PUNE

Date: 20.12.2004

DEPUTY COMMISSIONER OF INCOME-TAX.

LAB INDIA INSTRUMENTS (P.) LTD.

BENCH

Member(s) : K. C. SINGHAL., P. M. JAGTAP.

JUDGMENT

Per K.C. Singhal, J.M. - Since common issues are involved in these appeals, the same are being disposed of by the common order for the sake of convenience. The main issue arising in these appeals is whether CIT(A) was justified in allowing the deduction under section 80-O of Income-tax Act, 1961.

2. Briefly stated, the facts as gathered from the record and submissions of the parties are these: Assessee is a distributor of the analytical and other instruments in India manufactured by various companies abroad. One of such manufacturers of the sophisticated analytical instruments in Perkin Elmer Inc of Switzerland (hereinafter referred to as PE). Assessee had entered into an agreement with that company on 23-10-1990 as per which it is appointed as a distributor for India for the various instruments manufactured by PE. As per this agreement, assessee can purchase the equipments on its own from PE and sell them in India. It also acts as a distributor in respect of sales made directly by PE to Indian customers for which it receives commission @21% of the sale price from PE in foreign exchange as per details given below:

(a) 11% - for technical support and services

(b) 7% - for installation and warranty services

Though no claim under section 80-O was made by the assessee in respect of such commission in the original return filed, it made such claim in the revised returns for all the years under consideration. It was noted by the Assessing Officer that assessee was providing following services from India to its foreign principal:

(a) Making efforts to locate customers for product of foreign principals;

(b) Making known to the foreign principals the overall market conditions;

(d) Maintaining the equipment during the warranty period by periodical servicing.

The claim of assessee was made in respect of the commission received by assessee in respect of above services in convertible foreign exchange. Reliance was placed on the Board Circular No. 700 dated 23-3-1995. At this stage, it may be mentioned that no claim was made by assessee in respect of services mentioned in (c) and (d) category. It restricted its claim only with reference to services in (a) and (b) category. The Assessing Officer rejected the claim of assessee on various grounds. Firstly, because no claim was made in the original return and the revised return was filed after the expiry of time prescribed under section 139(5); secondly, by observing "from the very nature of services mentioned, it can be made out that the services have been rendered in India by the company"; thirdly, because there is no provision in the Act for bifurcating the services rendered. If part of services are not eligible then no claim can be made under section 80-O in respect of the other part of the services and fourthly, the reliance placed by assessee on judgment of Supreme Court in the case of J.B. Boda & Co. (P.) Ltd. v. CBDT [1997] 223 ITR 271 was misplaced.

3. On appeal, the CIT(A) upheld the claim of assessee under section 80-O by observing in Para 3.9 as under:

"The claim for deduction under section 80-O made in the course of assessment proceedings following Board's clarification in March, 1995 has been carefully considered. On analysis of this section (as relevant to the appellant's case) a deduction of 50% is available to an Indian Company receiving (a) income by way of royalty, commission, fees etc., (b) from a foreign enterprise, (c) as consideration for technical/professional services rendered or agreed to be rendered outside India to the foreign enterprise, (d) in convertible foreign exchange which is brought into India within specified time. The Board in the Circular of 1995 amplified by way of clarification the scope of section 80-O to direct that services rendered from India, received by the foreign enterprise for use outside India for which payment is received and brought into India in convertible foreign exchange would also qualify for the deduction. In the appellant's case the technical and professional input/data is provided by it to P.E., the foreign enterprise, for the latter use in supplying specialized instruments as per customer requirement. The appellant had not claimed the deduction in earlier years because it was unclear whether services rendered from India qualified for the deduction. The Board's clarification apparently covered the appellant's case, hence the deduction was claimed during the course of assessment proceedings. In section 80-O what is essential is that the use of the technical/professional services must be outside India, although it may be rendered from India, the objective of the section being to encourage export of Indian technical/professional expertise and augmentation of foreign exchange resources. After carefully perusing the facts and documents in the appellant's case it is held that the appellant is eligible for the deduction under section 80-O."

In Para 3.10, it was held that assessee was entitled to deduction in respect of 11% commission only and not in respect of 14% commission claimed by assessee. Lastly, it was held that deduction was eligible only in respect of net income included in the gross total income of assessee and not with reference to gross receipt of foreign exchange (Para 3.14). Aggrieved by the finding of CIT(A) in Para 3.9, the revenue is in appeal before the Tribunal.

4. The learned DR, on behalf of the revenue, has vehemently assailed the order of CIT(A) for the reasons given by the Assessing Officer. The first contention raised by him is that the assessee could make its claim either in the original return or in the revised return under section 139(5). Since revised return filed by assessee were beyond the prescribed time, the claim of assessee could not be entertained, he also drew our attention to the provisions of section 139(5) as amended w.e.f. 1-4-1989 to point out that prior to the amendment, the revised return could be filed even upto the date of assessment while after amendment the revised return can be filed only within one year from the end of the assessment year. This change, according to him, has made the difference in the legal position. According to him, in view of such provisions, the assessee could make any claim before Assessing Officer during the assessment proceedings, prior to the amendment, as the assessee was permitted in law to file the revised return before the completion of assessment proceedings. Therefore, any decision rendered with reference to the provisions prior to 1-4-1989 would not help the assessee.

5. Secondly, it was contended that services were rendered in India only and, therefore, no deduction was permissible. According to him, the assessee was locating the customers in India for his foreign principle and obtaining orders on their behalf. Since such services were rendered in India, the question of allowing any deduction did not arise. He also relied on High Court judgment in the case of Eastman Consultants (P.) Ltd. v. CBDT [1981] 132 ITR 637 (Ori.) wherein it has been held that deduction under section 80-O is available regarding export of know how or skill and mere supply of particulars or bio data of various Indians willing to work abroad would not entitle the assessee to claim such deduction.

6. In reply, it is contended by the learned counsel for the assessee that claim of assessee cannot be rejected on the basis of reasoning advanced by the ld. DR. According to him, the tax authorities are duty bound to determine the correct and true income of assessee and consequently collect the legitimate tax due on such income. He drew our attention to the judgment of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 wherein it has been held that legitimate claim can be raised for the first time before the Tribunal even when no claim is made either in the return or before Assessing Officer in assessment proceedings. Further, reliance was placed on the judgment of Supreme Court in the case of Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688 and judgment of Bombay High Court in the case of Ahmedabad Electricity Co. Ltd. v. CIT [1993] 199 ITR 351(FB). He also drew our attention to the decision of Tribunal in the case of Dy. CIT v. Sanmukhdas Wadhwani [2003] 85 ITD 734 (Nag.) where the Tribunal was concerned with a case under Block assessment proceedings in Chapter XIV-B. It was argued that under section 158BC, the revised return was not permissible. Despite the same, the claim of assessee was allowed. Another decision of Tribunal of Pune Bench in the case of Flotech Welding & Cutting System Ltd. [IT Appeal No. 1430 (Pune) of 1993] was brought to our notice where similar observations are made.

7. On merits, he drew our attention to the nature of services rendered by the assessee. At the direction of the bench, he has furnished all such details in the synopsis to which detailed reference would be made by us in later part of our order. According to him, the analytical instruments manufactured by its foreign principal are so high tech and sophisticated that such instruments are to be manufactured according to specific requirement of each customer since such instruments are not of universal use. An instrument manufactured for 'A' customer may not be useful for 'B' customer. Therefore, all technical information are collected by the assessee from the prospective buyers and then such information is then transferred to its foreign principal. On the basis of such information, the required instruments are manufactured by P.E. Hence, it is pleaded that business of PE is dependent on the technical input gathered by the assessee and, therefore, such services are eligible to deduction under section 80-O. Proceeding further, it is contended that assessee is entitled to deduction when such services are rendered from India for use outside India. Reliance was placed on the Board circular No. 700 dated 23-3-1995 as well as Explanation (iii) to section 80-O. Reliance was placed on the decision of Tribunal in the case of Dy. CIT v. Ramnath & Co. [2002] 83 ITD 698 (Cochin) where the claim of assessee was allowed after considering the Bombay High Court judgment relied upon by the learned DR. In addition, he relied on following decisions:-

1. Overseas Merchandise Inspection Co. (India) (P.) Ltd. v. Dy. CIT [2002] 80 ITD 176 (Cal.)

2. Dy. CIT v. Mittal Corpn. [2001] 77 ITD 270 (Delhi)

3. E.P.W. Da Costa v. Union of India [1980] 121 ITR 751 (Delhi)

4. J.B. Boda & Co. (P.) Ltd. v. CBDT [1997] 223 ITR 271(SC)

In reply, the learned DR submitted that decision of Nagpur Bench relied upon by the assessee is distinguishable as the return was filed on ad hoc basis and right to correct the total income was retained by the assessee. Further, the decision of Pune Bench was with regard to section 139(9) and, therefore, is not relevant with regard to section 139(5). However, he submitted that such interpretation may prove to be harsh on assessee but the provisions of statute are to be interpreted as per the language of the provisions and nothing can be added or substracted. On merits, it was reiterated that services rendered by assessee did not involve any skill and, therefore, the judgment of Bombay High Court relied upon by him is relevant to the present issued.

8. Rival submissions of the parties have been considered carefully in the light of case law referred to and the material placed before us. The first question to be considered is whether the claim of assessee under section 80-O can be denied merely on the ground that such claim was raised by the assessee in the revised return which was filed after the prescribed time but before the completion of assessment. In our humble opinion, the answer to such question is in negative for the reasons given hereafter. It is the true and correct total income of every person which is assessable under section 4 of the Act. Consequently, the tax collector is rather duty bound to collect the legitimate tax due on such total income - neither a penny less nor a penny more. The determination/assessment of total income would depend on the relevant provisions of the Act irrespective of the nature of return filed by any person. An income which is not taxable cannot be taxed merely because the assessee forgot to claim the exemption/deduction under some mistaken belief. For example, assessee's profit and loss account may include agricultural income, exempt under section 10(1) or share of profit from registered firm exempt under section 10(2A) or dividend income exempt under section 10(33) of the Act, but the assessee may forgot to claim such exemption in the return filed by him. Such inadvertent mistake cannot be exploited by tax authorities for rejecting the claim of assessee for exemption/deduction even though such claim has been made by assessee in the course of assessment proceedings. Rather, it is the duty of the Assessing Officer to allow such deduction or exemption to which assessee is entitled to on the basis of material placed on record. No doubt, the claim of exemption/deduction cannot be thrust upon, the assessee but, at least, it is the duty of Assessing Officer to apprise of the relevant provisions under which assessee is entitled to exemption/deductions. Therefore, in our opinion, assessee is entitled to claim deduction if such claim is made by assessee before the completion of assessment proceedings.

9. The above view of ours is also fortified by the judgment of Supreme Court in the case of Anchor Pressings (P.) Ltd. v. CIT [1986] 161 ITR 159 wherein it has been held that if on the basis of material placed on the record, the assessee is entitled to claim any deduction but forget to make his claim in the return or in the course of assessment proceedings then assessee is entitled to make such claim by moving application under section 154 for rectification since non-granting of deduction/exemption would amount to mistake apparent from record. The ratio of this judgment is based on the principle that Assessing Officer is duty bound to grant the exemption/deduction even where assessee failed to claim the same. The relevant observations of their Lordships are extracted below:

"An obligation is imposed on the Income-tax Officer by section 84 of the Income-tax Act, 1961, to grant relief there under and the relief cannot be refused merely because the assessee had omitted to claim the relief, but the mere existence of such an obligation on the Income-tax Officer is not sufficient. Precise factual material and clear data must be contained in the record sufficient to enable the Income-tax Officer to consider whether the relief should be granted under section 84. In the absence of such material, no fault can be found with the Income-tax Office for not making an order under section 84 favouring the assessee."

10. Our view is further fortified by the judgment of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 wherein it has been held that entire assessment proceedings are open before the Tribunal and, therefore, assessee is entitled to raise additional ground of appeal to claim any deduction/exemption provided no investigation into facts is required at appellate stage. It was further held that claim of assessee cannot be rejected merely on the ground that assessee himself had offered the receipts to tax in the return filed by him. If any income is not taxable under the Act, the assessee is entitled to claim the same by raising the additional ground of appeal before the appellate authorities. If the claim can be raised before the appellate authorities for the first time then, in our opinion, there is no question of rejecting such claim if made before the Assessing Officer in the course of assessment proceedings.

11. The question before us can also be considered from another angle. The provisions of section 139 are procedural provisions for making the assessment [R. Dalima v. CIT [1999] 236 ITR 480 (SC)]. Therefore, such provisions cannot affect the rights and liabilities of the assessee unless specific provisions are made to that effect. Reference can be made to the provisions of section 80 which disentitles the assessee to claim the carry forward/set off losses under sections 72(1), 73(2), 74(1), 74(3) and section 74A(3) where return filed by assessee is not in accordance with the provisions of section 139(3). This provision supports the view taken by us. Had the legislature intended to disentitle the assessee to make any claim of deduction after the expiry of period specified under section 139(5), it could do so by making specific provisions in this regard. Therefore, in the absence of such provisions, the assessee is entitled to make any claim of deduction/exemption in the course of assessment proceedings.

12. Having held that the rightful claim of the assessee for deduction permissible under the law can be entertained and allowed at any stage including the stage of appeal and even the Assessing Officer is duty bound to apprise the assessee of such claim being available to him in accordance with law, it would not be fair and proper to contend, as has been attempted to be done by the learned DR, that the assessee cannot make such claim before the Assessing Officer even before the completion of assessment after a period of one year from the end of the relevant assessment year merely because as per the amendment made with effect from 1-4-1989 in the provisions of section 139(5), he is not entitled to file a revised return after that period. This contention of the learned DR is not tenable so also because such claim need not always be made by the assessee by way of filing a revised return but the same can very well be made even otherwise directly during the course of assessment proceedings or even during the course of appellate proceedings which is the extension of assessment proceedings as held in the judicial pronouncements referred to earlier in this order.

13. In view of the above discussions, it is held that claim of exemption/deduction can be made by assessee at any time before the Assessing Officer in the course of assessment proceedings and consequently, the Assessing Officer is duty bound to adjudicate upon such claim even was, therefore, justified in entertaining such claim of assessee.

14. The next question to be considered is whether on merits, the assessee is entitled to deduction under section 80-O. Since, this section has been amended from time to time, it would be useful to refer to the provisions of this section relevant to the assessment years under consideration. The same is being reproduced as under:

"Section 80-O: Where the gross total income of an assessee, being an Indian company or a person (other than a company) who is resident in India, includes any income by way of royalty, commission, fees or any similar payment received by the assessee from the Government of a foreign State or a foreign enterprise in consideration for the use outside India of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to such Government enterprise by the assessee or in consideration of technical or professional services rendered or agreed to be rendered outside India to such Government or enterprise by the assessee, and such income is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange, there shall be allowed, in accordance with and subject to the provisions of this section, a deduction of an amount equal to fifty per cent of the income so received in, or brought into, India in computing the total income of the assessee."

The perusal of the above section clearly shows that deduction is available in respect of income by way of commission received by any assessee from a foreign enterprise in convertible foreign exchange in consideration of information concerning industrial or commercial provided to such foreign enterprise or in consideration of technical or professional services rendered or agreed to be rendered outside India to such foreign enterprise. There is no dispute that income by way of commission has been received by the assessee from the foreign enterprises.

15. The only question for our consideration is whether services information rendered/provided by the assessee falls within the ambit of this section. At this stage, it would be useful to refer to the activities carried on by the assessee for earning such commission. The learned counsel for assessee at our direction place the same before us which are being narrated below:

(1) The assessee company gives information/updates to PE regarding

- Technical developments in India

- Thrust industries to be watched for further growth

- Techno-commercial information about WHO, UNDP, UNIDO, etc/grants and its recipients in India.

- Government spending on R&D and fund allocation to various sectors and its impact on the opportunities for analytical instrumentation.

(2) Assessee's sales and technical people collect information on various projects, expansions, diversifications, etc. coming up in the market - with existing customers or new prospective customers.

(3) Assessee's technical people visit such customers for educating them on the need of Analytical instrument.

(4) Assessee's technical experts discuss with the customer about the processes involved in the manufacturing quality control, quality assurance, research and development and try to map the use of analytical instrument in these functions.

(5) The technical people, after understanding the customer's requirements, study the process detailed by the customers, sometimes conduct tests on customer's samples in the laboratory and decide on the specific application where the analytical instrument is needed and work out a configuration of the system which is best suitable for the required analysis/study.

(6) The same configuration with changes/modifications needed for the system and/or application software is then informed to PE for further processing. The need for the changes/modifications, based on the study made by the technical people, is explained to PE. The technical people sometimes suggest certain accessories which are needed to be included in the system. If this accessory is not available with or not manufactured by PE, the technical people also suggest the source for procuring accessory to PE.

(7) The matter is then discussed with customers and/or their consultants either in India or abroad to finalize and/or understand their exact needs and accordingly. Labindia informs PE.

(8) PE then submits the quotation on the basis of the configuration suggested by Labindia which is based on

(i) Analysis of customers' samples

(ii) Technical discussion with the customer

(iii) Understanding the exact parameters of customer, needs

(iv) Labindia's expertise in the matter

(9) After finalisation of the deal, the customer places order on PE. The customer pays PE directly for the instrument and in turn, Labindia gets commission in foreign exchange from PE as per the agreement.

The perusal of the above clearly shows that it is a case of industrial information provided by the assessee to the foreign enterprises. P.E. (foreign enterprise) is engaged in manufacturing of high tech analytical instruments required in various industries. Such instruments are not of specification of each customer. It is on the basis of information gathered by the assessee from the existing or potential customers, the foreign enterprise, manufactures the instruments. Since such information is useful for manufacturing of instruments, the same has to be considered as information concerning industrial knowledge. Consequently, such information would fall within the ambit of section 80-O. Therefore, we are unable to accept the contention of the learned DR in this regard. The judgment of Bombay High Court in the case of Eastman Consultants (P.) Ltd. is quite distinguishable on facts. In that case, the assessee was merely collecting the bio data of various persons for their recruitment which could not be considered as information concerning either industrial or commercial or scientific. But in the present case, the information provided was very much industrial in asmuch as the analytical instruments could not be manufactured by the foreign enterprise unless such information was provided by the assessee.

16. The next contention of the revenue for rejecting assessee's claim is that such services were rendered in India. We are not inclined to accept this contention too. The perusal of section 80-O shows that consideration received by assessee from foreign enterprises is in two parts:

"1. Consideration for the use outside India of ...or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to made available or provided to such Government or enterprises by the assessee.

2. In consideration of technical or professional (services rendered or agreed to be rendered outside India to such Government or enterprises by the assessee"

The first part refers to various types of information which are required to be used outside India. Therefore, it is enough compliance of such condition if it is shown that information provided by the assessee is for use outside India. The concept of services rendered in India or from India or outside India is not relevant for the first part. It is only relevant for the second part. Explanation (iii) to section 80-O also speaks about the second part. Therefore, the contention that services were rendered in India can be raised only with reference to the second part and not with reference to the first part. The only condition to be fulfilled with reference to first part is that information supplied by assessee is for use outside India. In the present case, P.E. the foreign enterprises, is carrying its manufacturing activity outside India and therefore, the information provided by assessee was utilized outside India i.e., for manufacturing analytical instruments. Hence, the assessee was entitled to deduction under section 80-O.

17. The view taken by us is fortified by the judgment of Hon'ble Delhi High Court in the case of E.P.W. Da Costa v. Union of India [1980] 121 ITR 751 wherein the first part was considered by their Lordships and held as under:

"The expression "information concerning industrial, commercial or scientific knowledge, experience or skill" is not a very happy one. If we understand that information is something communicated and that the contents of the information concerned scientific knowledge, then the knowledge gathered and analysed by the petitioner from the Indian listeners and communicated to the BBC may be said to be information concerning commercial or scientific knowledge. Perhaps such information is itself commercial or scientific knowledge and it is not a very elegant way to say that it is information concerning commercial or scientific knowledge. If commercial or scientific knowledge is confined to mean the abstract exposition of commercial or scientific theories then only a book on commercial or scientific subject may be regarded as scientific knowledge. But knowledge may be general or particular. Such knowledge as was complied, classified and made useful for the use of the BBC may also be said to be commercial or scientific knowledge. BBC is a commercial corporation. Its function may be disseminate information, but in the discharge of this function it requires commercial or scientific knowledge as to the way its broadcasts are received in different countries. Such a highly organized concern as BBC would not be content with the general information as to the receipt of its broadcasts in India. The information would have to be specific, particular and analysed according to the languages in which the broadcasts are made and according to the classes of the public who listen to such broadcasts. In view of the trend to give a wider meaning to the words "science and scientific knowledge", it would not be possible to restrict the connotation of these words too narrowly. In our view they would include the statistical tables complied by the petitioner for the use of the BBC inasmuch as statistics itself has been recognized as a science."

In view of the above, it is clear that the first part is to be considered in a wider sense and would include information gathered in the fields mentioned in the section for use outside India.

18. Even assuming, for the sake of argument, that assessee's case falls in the second part, even then assessee would be entitled to deduction as such services were rendered from India in view of Explanation (iii) to section 80-O. Admittedly, the information was supplied by assessee to P.E. who is located outside India. Further, such information was also utilized by P.E. outside India in the manufacturing of analytical instruments. The Board Circular No. 700 dated 23-3-1995 on which reliance has been placed by the assessee goes one step further by clarifying that deduction would be allowed even if foreign enterprise utilizes the benefit of such services in India. The only condition, as per circular, is that services are rendered from India and are received by a foreign enterprise outside India. In the present case, the assessee gathered the industrial information and sent the same to his constituent outside India who, in turn, had utilized the same for manufacture of analytical instruments. Therefore, the only inference which can be drawn is that such services were rendered from India to P.E.

19. In view of the above discussion, it is held that assessee was entitled to deduction under section 80-O. The orders of CIT(A) are, therefore, upheld on this issue.

20. The next common issue relates to disallowance under section 40A(2)(a) made by Assessing Officer which has been deleted by the CIT(A).

21. Briefly stated, the facts are these: The assessee had claimed deduction of Rs. 8 lakhs on account of commission paid to Lab Tek Engineers (P.) Ltd. (Lab Tek) in assessment year 1994-95. The said company was found to be sister concern of assessee. The Assessing Officer noted that assessee had paid commission at the rate of 5 to 10 per cent to outsiders while payment to sister concern was around 20%. Hence, assessee was asked to explain why the excessive payment be not disallowed under section 40A(2)(a). The assessee concluded that LEPL does not fall under section 40A(2)(a) and, therefore, no disallowance could be made under section 40A(2)(a). Further, it was submitted that there was no loss to revenue as rate of tax in both cases was same. On merits, it was contended that group company was a low wage company where salaries are far less and overhead expenses in the case of assessee are far more than group company. If the assessee had done marketing on its own, it would not have earned anything against the commission received. Assessee also filed copies of correspondence between LEPL and the customers. The Assessing Officer rejected the legal contention of assessee and held that provisions of section 40A(2)(b) were attracted. Further, it was held that onus was on assessee to prove as to why excessive amount was paid to sister concern. According to Assessing Officer, such onus was not discharged. However, he allowed 10 per cent commission. Accordingly, the disallowance was made to the extent of Rs. 4 lakhs for assessment year 1994-95. For the similar reasons, he disallowed the sum of Rs. 2,75,000 for assessment year 1995-96 and Rs. 3 lakhs for assessment year 1996-97.

22. The matter was carried in appeal before the CIT(A) for all the years under consideration. Before the CIT(A), following submissions were made by the assessee:

(1) That assessee is a big organization having high wage structure and very high overheads whereas the Labtek has the benefit of low wage structure as well as low overhead expenses. A chart was also filed to demonstrate the same.

(2) Comparison made by Assessing Officer was irrational.

(3) Provisions of section 40A(2)(b) was not attracted.

(4) There was no loss of revenue as same rate of tax was paid by assessee as well as Labtek.

23. The CIT(A) accepted the appeal of the assessee on this issue by holding as under:

"The arguments against the disallowance have been carefully considered. In my view the facts narrated above justify the expenditure of Rs. 8 lakhs to Labtek. For earning commission of Rs. 40,23,820 on distribution/marketing of products of companies other than P.E. the appellant has spent 20 per cent as commission paid to Labtek saving on possible establishment costs. Then against the nature of activities/services rendered to P.E. are not comparable with the nature of services rendered for products of other foreign companies. In any case it is for the businessman to decide how best to organize his work/affairs. Then again section 40A(2)(b) does not come into play considering the structure of the shareholding which does not establish the interest of any director or his relative in Labtek in terms of his section. The disallowance is not justified. The addition of Rs. 4 lakhs is deleted."

For the similar reasons, the additions made in other years were also deleted. Aggrieved by the orders of CIT(A), the revenue is in appeal before the Tribunal.

24. At the outset, it is mentioned that learned counsel for assessee has fairly conceded that provisions of section 40A(2)(b) are applicable in view of clause (vi) of section 40A(2)(b) and not on the basis of clause (v) relied on by the Assessing Officer. Hence, we proceed on the basis that provisions of section 40A(2)(b) were applicable.

25. The learned DR has simply relied on the order of Assessing Officer while the learned counsel for assessee has reiterated the stand taken before the CIT(A). Therefore, the same need not be repeated. We have considered their submissions in the light of material placed before us. We have gone through the chart showing income and expenditure of assessee as well as Labtek and the same is reproduced below:

-----------------------------------------------------------

Lab India Lab Tek

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INCOME

(a) Gross margin from trading 1,52,33,384 11,88,246

manufacturing activity.

(b) Commission receipts

P.E. 1,66,70,878 -

Others 40,23,820 -

Lab India - 8,00,000

------------ ---------

3,63,55,592 19,88,296

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EXPENDITURE

(a) Salaries and benefits 97,40,340 9,65,305

(b) Travel and conveyance 65,74,740 1,83,190

(d) Commission/consultancy 20,86,980 35,415

(e) Other administration 1,04,30,528 3,40,421

expenses including

depreciation

------------ --------

3,11,15,682 15,89,454

------------ --------

Net Profit 52,39,910 3,98,842

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The perusal of the above chart shows that assessee is a high wage structure company while Labtek is a low wage structure company. If assessee had to do all the work itself, it might have proved detrimental to assessee. It is also true that rate of tax is the same in the case of assessee and Labtek. It is also not the case of revenue that Labtek was showing losses and commission was paid to evade the tax. Further, it is seen from the submission made by assessee before the CIT(A) that 10% commission was paid to outsiders for obtaining the orders only in respect of instruments manufactured by Perkin Elmer (P.E.) while the entire, follow up was done by the assessee itself. On the other hand, in respect of other agencies, 20 per cent commission was paid since entire work was to be done by Labtek. Hence, the CIT(A) found that there was no comparison between the two cases. It is the settled legal position that comparison has to be made among equals. The onus is on the Assessing Officer to establish that payments made by assessee are excessive or unreasonable. No other material has been brought by the Assessing Officer to prove the excessive-ness of payment. Therefore, in the absence of adverse material and considering the facts of the case as a whole, we are in agreement with the finding given by the CIT(A). Accordingly, the orders of CIT(A) in all the appeals are upheld.

26. In the result, appeals of revenue are dismissed.

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