M/s M. Tech India P. Ltd., New Delhi V. ITO, New Delhi

CO 352/DEL/2012

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0377 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 4 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-03-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 26-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 26-09-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA
• Assessee Lawyers: VED JAIN CA MS RANO JAIN; V CHAURASIYA A
• Section: 143(3)

Judgement Text

ITA NO. 3893 /DEL/ 2012 & CO NO. 352/DEL/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E , NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI H.S. SIDHU, JUDICIAL MEMBER I.T.A. NO. 3893/DEL/2012 A.Y. : 2008 - 09 INCOME TAX OFFICER, WARD 6(1), NEW DELHI VS. M/S M. TECH INDIA P LTD., C - 58, KAILASH APARTMENT, KASILASH COLONY, NEW DELHI 48 (PAN: AAACM9794N) (APPELLANT) (RESPONDENT) AND C.O. NO. 352/DEL/2012 (IN ITA NO. 3893/DEL/2012) A.Y. : 2008 - 09 M/S M. TECH INDIA P LTD., C - 58, KAILASH APARTMENT, KASILASH COLONY, NEW DELHI 48 (PAN: AAACM9794N) VS. INCOME TAX OFFICER, WARD 6(1), NEW DELHI (APPELLANT) (RESPONDENT) DEPARTMENT BY : SH. P. DAM KANUNJNA, SR. DR ASSESSEE BY : SH. VED JAIN, CA, MS. RANO JAIN, ADV. & SH. V. CHAURASIYA, ADV DATE OF HEARING : 26 - 3 - 201 5 DATE OF ORDER : 3 1 - 3 - 201 5 ORDER PER H.S. SIDHU : JM THIS APPEAL FILED BY THE REVENUE AND CROSS OBJECTION FILED BY THE ASSESSEE EMANATE OUT OF THE O RDER PASSED BY THE LD. CIT(A) - I X , NEW DELHI PERTAINING TO ASSESSMENT YEAR 200 8 - 0 9 . ITA NO. 3893 /DEL/ 2012 & CO NO. 352/DEL/2012 2 2. THE GROUNDS RAISED IN THE REVENUE S APPEAL READ AS UNDER: - 1. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND CONTRARY TO THE FACTS AND LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 76,23,426/ - U/S. 40(A)(IA) ON ACCOUNT OF PAYMENT MADE TO LICENSOR. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 13,78,496/ - U/S. 40(A)(IA) ON ACCOUNT OF PAYMENT MADE FOR CATCHE LICENSE PROCUREMENT AND SOFTWARE UPDATE CATCH. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 2,96,861/ - ON ACCOUNT OF EXPENDITURE MADE ON TOUR TO MALDIVES. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 4,38,980/ - ON ACCOUNT OF EXPENDITURE MADE ON CLIENT HARDWARE. ITA NO. 3893 /DEL/ 2012 & CO NO. 352/DEL/2012 3 6. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AMEND ANY GROUNDS OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 3. THE GROUNDS RAISED IN THE ASSESSEE S CROSS OBJECTION READ AS UNDER: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN REJECTING THE CONTENTION OF THE ASSESSEE THAT THE ASSESSMENT MADE UNDER SECTION 143(3) IS BAD IN LAW BEING MADE BY AN AO AND HAVING PROPER JURISDICTION. 2. ON THE FACTS AND CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN REJECTING THE CONTENTION OF THE ASSESSE THAT THE ORDER PASSED UNDER SECTION 143(3) IS BAD AND LIABLE TO BE QUASHED AS THE SAME HAS BEEN MADE WITHOUT PROPER SERVICE OF NOTICE UNDER SECTION 143 (2) OF THE ACT. 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE GROUNDS OF CROSS OBJECTION. ITA NO. 3893 /DEL/ 2012 & CO NO. 352/DEL/2012 4 4. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE COMPANY CARRIED ON THE BUSINESS OF LICENSING OF HEALTH CARE SOFTWARE. THE RETURN OF INCOME WAS FILED ON 27.9.2008 DECLARING NIL INCOME. THE CASE WAS PROCESSED U/S. 143(1) AND SUBSEQUENTLY SELECTED FOR SCRUTINY. STATUTORY NOTICE U/S. 143(2) WAS ISSUED AND SERVE D ON THE ASSESSEE. THE ASSESSMENT WAS COMPLETED U/S. 143(3) VIDE ORDER DATED 28.12.2010 AT AN INCOME OF RS. 77,46,180/ - MAKING VARIOUS ADDITIONS. 5. AT THE TIME OF HEARING, LD. COUNSEL OF THE ASSESSEE FILED SYNOPSIS AND STATED THAT THE FACTS OF THE CASE AND THE LAW APPLICABLE TO THE ISSUES IN DISPUTE HAVE ALREADY BEEN DECIDED IN FAVOR OF THE ASSESSEE IN ASSESSEE S OWN CASE BY THE HON BLE JURISDICTIONAL HIGH COURT, THEREFORE, IN VIEW OF THE SYNOPSIS THE APPEAL FILED BY THE REVENUE MAY BE DISMISSED. 6. ON THE CONTRARY, LD. DR RELIED UPON THE ORDER PASSED BY THE AO AND REITERATED THE CONTENTIONS RAISED BY THE REVENUE IN THE GROUNDS OF APPEAL. 7. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS AVAILABLE ON RECORD WITH US, ESPECIALLY THE ORD ERS PASSED BY THE REVENUE AUTHORITIES ALONGWITH THE SYNOPSIS FILED BY THE LD. COUNSEL OF THE ASSESSEE. AS REGARDS THE ISSUE INVOLVED IN GROUND NO. 1, THE ITA NO. 3893 /DEL/ 2012 & CO NO. 352/DEL/2012 5 SAME IS GENERAL IN NATURE, THEREFORE NEED NOT BE ADJUDICATED THE SAME. 8. AS REGARDS GROUND NO. 2 RELATING TO DISALLOWANCE U/S. 40(A)(I) OF THE I.T. ACT ON PAYMENT TO THE LICENSOR AMOUNTING TO RS. 76,23,426/ - . WE FIND THAT THE AO HAS DISCUSSED THIS ISSUE AT PARA 1 - 2 FROM PAGES 1 - 2 REGARDING THE PAYMENT TO M/S TRACER HEALTH PTY. LTD., AUSTRALIAN COMPA NY RS. 66,87,509/ - AND SPEED MINERS, MALAYSIA RS. 9,35,987/ - , THE ADDITIONS MADE BY THE AO. IN APPEAL LD. CIT(A) HAS DISCUSSED THE SAME AT PAGE 9 AND PARA 5.4 TO 5.6. AFTER GOING THROUGH THE ORDER OF THE REVENUE AUTHORITIES AND THE WRITTEN SUBMISSIONS OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE ASSESSEE DEALS IN RESALE OF SOFTWARE. DURING THE YEAR IT PURCHASED SOFTWARE FROM MLS TRACK HEALTH PVT. LTD. & SPEED MINERS, MALAYSIA FOR RS.76,23,426. THESE PURCHASES WERE MADE AGAINST THE SPECIFIC ORDER FROM THE END USER ONLY, I.E. FOR SALE. AGREEMENT WITH TRACK HEALTH S PLACED AT PB PG. 30 ONWARDS. THERE WAS NO WRITTEN AGREEMENT WITH SPEED MINERS. THE ASSESSEE HAS ACTUALLY BEEN APPOINTED ON VAR (VALUE ADDED RESELLER) BY THESE ENTITIES. THE AO MADE THE DISALLO WANCE INVOKING THE PROVISION OF SECTION 40(A)(I), TREATING THE NATURE OF THE AMOUNT TO BE THAT OF ROYALTY. IN THE PAST, THE SAME TRANSACTION OF PURCHASE FROM TRACK HEALTH HAS BEEN TREATED AS PURCHASER ONLY. ASSESSMENTS HAVE BEEN MADE UNDER SECTION 143(3) O F THE ACT. NO DOUBT THE AO HAD RELIED ON THE ORDER ITA NO. 3893 /DEL/ 2012 & CO NO. 352/DEL/2012 6 OF DELHI ITAT IN THE CASE OF MICROSOFT CORPORATION, THE FACTS ARE DISTINGUISHABLE WITH THE FACTS OF THE ASSESSEE. AFTER GOING THROUGH THE ORDERS PASSED BY THE ITAT, DELHI BENCH AND THE HON BLE JURISDICT IONAL HIGH COURT IN THE CASE OF CIT VS. DYNAMIC VERTICAL SOFTWARE INDIA (P) LTD. (2011) 332 ITR 222 (DEL) WHEREBY IT HAS BEEN HELD THAT : - '3. WHAT IS FOUND, AS A MATTER OF FACT, IS THAT THE ASSESSEE HAS BEEN PURCHASING THE SOFTWARE FROM MICROSOFT AND SO LD IT FURTHER IN INDIAN MARKET. BY NO STRETCH OF IMAGINATION IT WOULD BE TERMED AS 'ROYALTY'. 8.1 KEEPING IN VIEW OF THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT PASSED IN THE CASE OF CIT VS. DYNAMIC VERTICAL SOFWARE INDIA (P) LTD, (2011) 332 ITR 222 (DEL.), WE ARE OF THE CONSIDERED VIEW THAT THE DISPUTE IS SQUARELY COVERED IN FAVOR OF THE ASSESSEE. RESPECTFULLY, FOLLOWING THE SAME PRECEDENT, THE ISSUE INVOLVED IN GROUND NO. 2 IS DECIDED AGAINST THE REVENUE BY UPHOLDING THE ORDER OF THE LD. CIT( A) ON THIS ISSUE. 9. AS REGARDS GROUND NO. 3 RELATING TO DISALLOWANCE U/S. 40(A)(AI) OF THE I.T. ACT ON PAYMENT TO CATCHE LICENSE PROCUREMENT & SOFTWARE UPDATE CATCH AMOUNTING TO RS. 13,78,496/ - . WE FIND THAT THE AO HAS DISCUSSED THIS ISSUE AT ITA NO. 3893 /DEL/ 2012 & CO NO. 352/DEL/2012 7 PARA 3 AND AT PAGE 2 REGARDING THE PAYMENT MADE TO INTERSYSTEM INDIA PRIVATE LIMITED, THE ADDITIONS MADE BY THE AO. IN APPEAL LD. CIT(A) HAS DISCUSSED THE SAME AT PAGE 11 AND PARA 6.4 AFTER GOING THROUGH THE ORDER OF THE REVENUE AUTHORITIES AND THE WRITTEN SUBMISSIONS OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE AMOUNT WAS PAID TO M/S INTERSYSTEM INDIA PVT. LTD., GURGAON RELATING TO PAYMENT OF CATCHE LICENSES PROCUREMENT. THIS HAS ALSO BEEN DISALLOWED BY THE AO INVOKING THE PROVISION OF SECTION 40(A)(IA) FOR NON DEDUCTION OF TDS, TREATING THE NATURE OF PAYMENT AS ROYALTY. IN VIEW OF THE SUBMISSIONS MADE UNDER GROUND NO. 2, AS AFORESAID, THE DISALLOWANCE IS NOT CALLED FOR, THEREFORE, WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE ALSO AND ACCORDING LY, ISSUE RAISED BY THE REVENUE IN THE GROUND NO. 3 IS DISMISSED. 10. AS REGARDS GROUND NO. 4 RELATING TO DISALLOWANCE ON ACCOUNT OF EXPENDITURE MADE ON TOUR TO MALDIVES AMOUNTING TO RS. 2,96,861/ - . WE FIND THAT THE AO HAS DISCUSSED THIS ISSUE AT PARA 5 AND AT PAGE 3 REGARDING THE PAYMENT MADE ON THE ALLEGATION THAT NO BUSINESS WAS EXPLORED DURING THE YEAR IN CONSEQUENCE TO VISTIS TO MALDIVES, OUT OF TOTAL EXPENDITURE OF RS. 4,43,893/ - AN AMOUNT OF RS, 2,96,861/ - DISALLOWED. IN APPEAL LD. CIT(A) HAS DISCUSSED THE SAME AT PAGE 11 VIDE PARA 7. AFTER GOING THROUGH THE ORDER OF THE REVENUE AUTHORITIES AND THE WRITTEN SUBMISSIONS OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE MANAGING DIRECTOR OF THE COMPANY ITA NO. 3893 /DEL/ 2012 & CO NO. 352/DEL/2012 8 VISITED MALDIVES FOR E XPLORING THE BUSINESS PROSPECTS. THE REASON FOR DISALLOWANCE GIVEN BY THE AO IS THAT NO BUSINESS WAS EXPLORED DURING THE YEAR, HENCE THE SAME DOES NOT PERTAIN WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. THE ASSESSEE HAD BUSINESS RELATIONSHIPS WITH M/S M PLUS MALDIVES PVT. LTD. WHO HAD INVESTED A SUM OF RS.1,27,21,150/ - TOWARDS SHARE CAPITAL OF THE ASSESSEE COMPANY. DURING PRECEDING YEAR THE ASSESSEE HAD INSTALLED AND SOLD SOFTWARE TO M/S MAGIC KINGDOM RESORTS AT MALDIVES. WE ALSO FIND THAT DETAILS OF FORE IGN TRAVELS ARE PLACED AT PB PGS. 45 - 55. THE CORRESPONDENCE WITH MAHOGANY, MALDIVES FOR INSTALLATION/ SALE OF SOFTWARE PLACED AT PB PG. 56 - 61. COPY OF INVOICE FROM MAGIC KINGDOM RESORTS, MALDIVES ARE PLACED AT PB PG. 85. FURTHER, IT IS TO BE NOTICED THAT T HE TOTAL EXPENSES INCURRED ON FOREIGN TRAVEL TO MALDIVES WERE RS.4,43,893 OUT OF WHICH AN AMOUNT OF RS.2,96,861 ONLY HAS BEEN DISALLOWED WHICH SHOWS THAT THE AO HIMSELF DOES NOT FULLY THINK THE EXPENSES NOT FOR BUSINESS PURPOSES. WE ALSO FIND THAT SIMILAR ADDITION WAS MADE IN AY 2007 - 08, WHICH WAS DELETED BY CIT(A), THE DEPARTMENT DID NOT GO IN FURTHER APPEAL. IN VIEW OF ABOVE DETAILED DISCUSSIONS, WE ARE OF THE CONSIDERED VIEW THAT SUCH ADHOC DISALLOWANCE CANNOT BE UPHELD. THEREFORE, LD. CIT(A) WAS RIG HT IN DELETING THE ADDITION OF RS. 2,96,861/ - , HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). ACCORDINGLY, WE AFFIRM ITA NO. 3893 /DEL/ 2012 & CO NO. 352/DEL/2012 9 THE SAME AND THE GROUND NO. 4 RAISED BY THE REVENUE STANDS REJECTED. 11. AS REGARDS GROUND NO. 5 RELATING TO DISALLOWANCE ON ACCOUNT OF EXPENDITURE MADE ON CLIENT HARDWARE AMOUNTING TO RS. 4,38,980/ - . WE FIND THAT THE AO HAS DISCUSSED THIS ISSUE AT PARA 6 AND AT PAGE 3. THE AO DISAL L OWED THE AMOUN T RELATING TO CLIENT HARDWAR E HOLDING THE SAME TO BE NOT R ELATED TO CURRENT YEAR . THERE WAS AN AGREEMENT W I TH SIR GANGA RAM HOSPITAL, DT . 12 . 11.2002, (P B PG. 79) , WHEREBY IT WAS AN OBLIGATION OF THE ASSESSEE TO SUPPLY COMPUTER HARDWARE AS PER ARTICLE 3 OF THE AGREEMENT . JUST ON THE BASIS OF DATE OF AGREEMENT THE AO DISALLOWED THE EXPENSE . THE FACTS ARE THAT THE AGREEMENT WAS AN GOING AGREEMENT AND SOFTWARE ARE GENERALLY IMPLEMENTED ON MAKE SHIFT SERVERS AND ONCE IT IS TESTED AND COMPLETED IN ALL RESPECTS , IT IS MOVED T O THE NEW SERVER . THE COPY OF LEDGER ACCOUNT IS PLACED AT P B PG . 77 - 78 . FURTHER COPIES OF EMAILS FROM MR . RAJIV SAXENA , SIR GANGA RAM HOSPITAL ARE PLACED AT P B PG . 102 - 106 WHICH SHOWS THAT THE ASSESSEE HAS SETTLED THE CLAIM OF THE CLIENT ON 50% I . E. FO R RS . 4,38 , 980 . WE FIND CONSIDERABLE FORCE IN THE FINDING OF THE LD. CIT(A) THAT THE ASSESSEE HAS ALSO FILED A COPY OF THE DEBIT NOTE DATED 20.4.2007 RAISED BY SIR GANGA RAM HOSPITAL. IN VIEW OF THE FACTS OF THE CASE, LD. CIT(A) WAS OF THE OPINION THA T THE LIABILITY TO INCUR THE EXPENDITURE AROSE DURING THE YEAR AND THE AO WAS NOT JUSTIFIED IN HOLDING IT TO BE PERTAINING TO PRIOR PERIOD. THEREFORE, LD. CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE OF RS. 4,38,980/ - MADE BY THE AO AS PRIOR PERIOD EXP ENSES, WHICH DOES NOT NEED ANY INTERFERENCE ON OUR PART, HENCE, WE UPHOLD THE SAME. ACCORDINGLY, THE GROUND NO. 5 RAISED BY THE REVENUE IS REJECTED. ITA NO. 3893 /DEL/ 2012 & CO NO. 352/DEL/2012 10 ASSESSEE S CROSS OBJECTION 12. SINCE WE HAVE ALREADY UPHELD THE DECISIONS OF THE LD. CIT(A) ON ALL THE ISSUES INVOLVED IN THE PRESENT REVENUE S APPEAL AND THE GROUNDS RAISED BY THE ASSESSEE IN THE CROSS OBJECTION HAVE NOT SERIOUSLY BEEN CONTESTED BY THE ASSESSEE S C OUNSEL BEFORE US, THEREFORE, WE DISMISS THE CROSS OBJECTION RAISED BY THE ASSESSEE, AS SUCH. 1 3 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED AND CROSS OBJECTION FILED BY THE ASSESSEE STANDS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT 3 1 - 3 - 201 5 . SD / - S D / - [ N.K. SAINI ] [ H.S. SIDHU ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 3 1 / 3 /201 5 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES