M/s Synergia Consultants Pvt. Ltd., Bangalore V. DCIT, Bangalore

CO 45/BANG/2015

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4028 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 17-06-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 11-05-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 10-04-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S PARTHASARATHI SHRI SUNIL
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, BANGALORE BEFORE S HRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO S . 1572, 1605, 1573 & 1574 / BANG/2 014 (ASSESSMENT YEAR S : 20 06 - 07 TO 2009 - 10 ) DEPUTY COMMISSIONE R OF INCOME - TAX, CIRCLE 6(1)(2), BANGALORE. VS. APPELLANT M/S.SYNERGIA CONSULTANTS PVT. LTD. EMBASSY DIAMANTE, NO.34, VITTAL MALLYA ROAD, BANGALORE - 560001. RESPONDENT PA NO.AAGCS4363K AND CROSS OBJN.NOS.45, 71, 46 & 47/BANG/ 2015 (IN ITA NO S . 1572, 1605, 1573 & 1574 /BANG/2 014) (ASSESSMENT YEAR S : 20 06 - 07 TO 2009 - 10 ) (BY THE ASSESSEE) ASSESSEE BY : SHRI S.PARTHASARATHI, ADVOCATE. REVENUE BY : SHRI SUNIL KUMAR AGARWALA, JCIT(DR) DATE OF HEARING : 11/05/2016 DATE OF PRONO UNCEMENT : 17 /06/2016 O R D E R PER BENCH : THE APPEALS ARE FILED BY THE REVENUE AND THE CROSS OBJECTIONS ARE BY THE ASSESSEE DIRECTED AGA INST THE ORDERS OF THE CIT(A),III, BANGALORE, DATED 23/09/2014 FOR THE ASSESSMENT ITA NO S . 1572 TO 1574/B/2014 & CO 45 TO 4 7 /BANG/201 5 PAGE 2 OF 6 YEARS 2006 - 07 AND 2007 - 08, AND ORDERS DATED 24/09/2014 FOR THE ASSESSMENT YEARS 2008 - 09 AND 2009 - 10. SINCE COMMON ISSUES ARE INVOLVED IN ALL THESE APPEALS, WE PROCEED TO DISPOSE OF THE SAME BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. BRIEFLY, FACTS OF THE CASE A RE THAT THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF SOFTWARE. IN THE RETURN OF INCOME FILED BY THE ASSESSEE - COMPANY, IT CLAIMED DEDUCTION UNDER THE PROVISIONS OF SEC.10A OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT]. THE ASSESSING OFFICER [AO], WHILE COMPLETING THE ASSESSMENT DENIED THE DEDUCTION U/S 10A HOLDING THAT THE ASSESSEE - COMPANY HAD NOT CARRIED OUT ANY SOFTWARE DEVELOPMENT A ND MOST OF THE ACTIVITIES WERE BEING OUTSOURCED. 3. ON APPEAL BEFORE THE CIT(A), FOLLOWING THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 2004 - 05 AND 2005 - 06 IN THE ASSESSEE S OWN CASE IN ITA NOS.314 & 499/BANG/2008 DATED 22/01/2010, HELD THAT THE A SSESSEE - COMPANY IS ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT. HOWEVER, THE CIT(A) RESTRICTED THE DEDUCTION TO 80% APPLYING THE PROVISIONS OF SUB - SEC.(7) OF SEC.10A OF THE ACT. THE REVENUE IS IN APPEAL CHALLENGING THE ORDER OF THE CIT(A) ALLOWING DEDUCTIO N U/S 10A AND THE ASSESSEE - COMPANY IS IN CROSS - OBJECTIONS CHALLENGING RESTRICTION OF DEDUCTION U/S 10A TO 80%. ITA NO S . 1572 TO 1574/B/2014 & CO 45 TO 4 7 /BANG/201 5 PAGE 3 OF 6 4. THE REVENUE RAISED THE FOLLOWING COMMON GROUNDS OF APPEAL FOR THE ASSESSMENT YEARS 2006 - 07 TO 2009 - 10: 1. THE ORDER OF THE CIT (A) IS OPPOS ED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE CIT(A) ERRED IN DIRECTING THE AO TO ASSESS THE DEEMED PROFIT ELIGIBLE FOR DEDUCTION U/S 10A AT 20% WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IS NOT ENGAGED IN THE DEVELOPMENT OF SOFTWARE, AND IS NOT ELIGIBLE TO CLAIM DEDUCTION U/S 10A OF THE ACT. 3. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE ITAT DECISION IN ASSESSEE'S OWN CASE FOR THE EARLIER YEARS HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND APPEALS HAVE BEEN TILED BEFORE THE HON'BLE HIGH COURT. 4. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT(A) BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5. THE APPELLATE CRAVES TO ADD, TO ALTER, TO AMEND OR DELETE AN Y OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. 5. THE ASSESSEE - COMPANY RAISED THE FOLLOWING COMMON GROUNDS OF APPEAL FOR THE ASSESSMENT YEARS 2006 - 07 TO 2009 - 10: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME - TAX (A) ERRED IN UPHOLDING THE RESTRICTIONS OF RELIEF U/S. 1OA OF THE ACT TO 20% OF THE PROFIT ALLEGING THE RESPONDENT HAD FAILED TO ADDUCE ADEQUATE EVIDENCE. 2. THE LEARNED COMMISSIONER (A) FAILED TO APPRECIATE THAT THE SUBSTANTIAL EVI DENCE IN THIS REGARD HAD BEEN FURNISHED AND THE RESPONDENT HAD ALSO BROUGHT TO THE NOTICE THE PAST PRECEDENCE IN THE ITA NO S . 1572 TO 1574/B/2014 & CO 45 TO 4 7 /BANG/201 5 PAGE 4 OF 6 RESPONDENT'S OWN CASE FOR THE ASSESSMENT YEARS 2004 - 05 AND 2005 - 06 TO JUSTIFY THE CLAIM. 3. THE LEARNED COMMISSIONER (A) OUGHT TO HAVE APPRECI ATED THAT THE BENCHMARK PROVIDED BY THE BOARD WAS NOT CONCLUSIVE TO RESTRICTIONS OF THE PROFIT ELIGIBLE FOR DEDUCTION U/S. 1OA OF THE ACT. 4. THE LEARNED COMMISSIONER (A) OUGHT TO HAVE RESTRAINED TAUTHORITY TO DISALLOW THE EXPENDITURE U/S. 14A OF THE ACT OVER AND ABOVE WHAT WAS DISALLOWED BY THE RESPONDENT ITSELF WHILE FILING THE INCOME. 5. THE LEARNED COMMISSIONER (A) OUGHT TO HAVE APPRECIATED THAT THE RESPONDENT HAVING CONSIDERED THE NATURE OF EXPENDITURE HAD ADEQUATELY MADE DISALLOWANCE U/S. 14A OF THE ACT AN D ACCORDINGLY DISALLOWANCE WAS UNCALLED FOR. 6. WITHOUT PREJUDICE, THE DISALLOWANCE AS MADE IS EXCESSIVE, ARBITRARY AND UNREASONABLE AND LIABLE TO BE DELETED IN TOTO. 7. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL THE RES PONDENT PRAYS THAT THE APPEAL MAY BE ALLOWED. 6. LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY ARGUED THAT THE CIT(A) WAS NOT JUSTIFIED IN DIRECTING THE AO TO ALLOW DEDUCTION U/S 10A INASMUCH AS THE ASSESSEE - COMPANY HAS NOT CARRIED OUT ANY ACTIVITY IN THE NATURE OF DEVELOPMENT OF SOFTWARE. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SOFTWARE HAS BEEN DEVELOPED BY OUTSOURCING THE WORK AND THEREFORE, THE ASSESSEE - COMPANY IS ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT. HE PLACED R ELIANCE ON THE ORDER OF THE TRIBUNAL IN THE ASSESSEE S OWN CASE FOR ASSESSMENT YEARS 2004 - 05 AND 2005 - 06 (SUPRA). ITA NO S . 1572 TO 1574/B/2014 & CO 45 TO 4 7 /BANG/201 5 PAGE 5 OF 6 7. WE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT APPEALS IS ABOUT ELIGIBILITY OF THE ASSESSEE - CO MPANY FOR DEDUCTION U/S 10A OF THE ACT. IT IS THE CONTENTION OF THE REVENUE THAT NO SOFTWARE DEVELOPMENT ACTIVITY HAS BEEN UNDERTAKEN BY THE ASSESSEE - COMPANY AND THEREFORE, NOT ELIGIBLE FOR DEDUCTION U/S 10A, BECAUSE IT IS NOT ENGAGED IN THE PRODUCTION OF ANY ARTICLE OR THING AS ENVISAGED U/S 10A OF THE ACT. THE CONTENTION OF THE ASSESSEE - COMPANY IS THAT SOFTWARE DEVELOPMENT HAS BEEN OUTSOURCED. NOW, LAW IS FAIRLY SETTLED THAT EVEN WORK IS OUTSOURCED FOR PRODUCTION OF AN ARTICLE OR THING, ASSESSEE IS ENT ITLED FOR DEDUCTION U/S 10A OF THE ACT. BUT T HE AO DISBELIEVED THAT THE ASSESSEE - COMPANY HAD DEVELOPED ANY SOFTWARE. FOR THIS PURPOSE, SURVEY OPERATIONS WERE ALSO CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE - COMPANY ON 9/8/2005. STATEMENT OF THE MA NAGING DIRECTOR OF THE ASSESSEE - COMPANY WAS RECORDED WHEREIN THE MANAGING DIRECTOR DEPOSED THAT MANUFACTURING ACTIVITIES ARE OUTSOURCED. THE AO ALSO OBSERVED THAT NO EXPENSES WERE INCURRED BY THE ASSESSEE - COMPANY EVEN FOR OUTSOURCING THE WORK. IN OUR CONS IDERED OPINION, THESE FACTS ARE ENOUGH TO RAISE EYE - BROWS ON THE PART OF THE AO. THE ASSESSEE - COMPANY HAD NOT LED ANY EVIDENCE ON RECORD TO REBUT THE ABOVE MISGIVINGS OF THE AO. THEREFORE, IN OUR CONSIDERED OPINION, MATTER REQUIRES INVESTIGATION AND VERI FICATION OF THE RETURN S SUBMITTED TO STPI AND THE WORK - SHEETS ETC. , EXPENDITURE INCURRED ON OUTSOURCING OF WORK AND WHO HAD BORNE ITA NO S . 1572 TO 1574/B/2014 & CO 45 TO 4 7 /BANG/201 5 PAGE 6 OF 6 RISK AND COST OF PROJECT TO DETERMINE WHETHER THE ASSESSEE - COMPANY HAD CARRIED OUT ANY MANUFACTURING ACTIVITY. IN THE CIRCUMS TANCES, WE HAVE NO OPTION BUT TO REMAND THE ISSUE BACK TO THE FILE OF THE AO FOR DE NOVO ASSESSMENT IN ACCORDANCE WITH THE PROVISIONS OF LAW. 8. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 9. THE CROSS OB JECTIONS ARE FILED BY THE ASSESSEE - COMPANY CHALLENGING THE DIRECTIONS OF THE CIT(A) RESTRICTING THE DEDUCTION U/S 10A OF THE ACT. IN THE APPEALS FILED BY THE REVENUE, WE HAVE RESTORED THE VERY ISSUE OF ELIGIBILITY OF DEDUCTION U/S 10A TO THE FILE OF THE A O FOR DE NOVO ASSESSMENT. IN THE CIRCUMSTANCES, THE CROSS OBJECTIONS HAVE BECOME INFRUCTUOUS AND DISMISSED AS SUCH. ORDER PRONOUNCED IN THE OPEN COURT ON 17 T H JUNE , 2016 . S D/ - SD/ - ( SUNIL KUMAR YADAV ) (INTURI RAMA RAO) JUDICIAL MEMBE R ACCOUNTANT MEMBER PLACE : BANGALORE D A T E D : 17 /0 6 /2016 SRINIVASULU, SPS COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) - II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE