Prodapt Solutions Pvt Ltd., CHENNAI V. DCIT, CHENNAI

ITA 1015/CHNY/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8022 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 24-10-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 05-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; Proportionate interest; Retrospective amendment; Commercial expediency; Revised return; TDS; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 115JB; 40(a)(ia); 143(2); 13; 119

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ ITA NOS.: 1015/MDS/2015 / ASSESSMENT YEARS : 2010-11 M/S. PRODAPT SOLUTIONS PVT LTD., NO.9, SESHADRI ROAD, ALWARPET, CHENNAI 600 018. PAN : AAACZ0985G V. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 5(2), CHENNAI 600 034. ( /APPELLANT) ( /RESPONDENT) /APPELLANT BY : SHRI VIKRAM VIJAYARAGHAVAN, ADVOCA TE /RESPONDENT BY : SHRI VIVEKANANDAN, CIT / DATE OF HEARING : 24.10.2016 / DATE OF PRONOUNCEMENT : 16.01.2017 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE ASSESSEE HAS FILED THE APPEAL AGAINST THE ORD ER OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) READ WITH SECTION 2 I.T.A. NO. 1015/MDS/2015 144C(13) OF THE ACT PASSED IN PURSUANCE TO THE DIRE CTIONS OF THE DRP, CHENNAI IN F.NO.DRP/CHE/81/2014-15 DATED 15.12 .2014. 2. THE ASSESSEE HAS RAISED THE GROUNDS ON CIT(APPEA LS), 2.1 THE LD. ASSESSING OFFICER ERRED IS NOT CONSIDER ING THE FACT THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTIO N 10A OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AND WHERE AS THE ACTUAL MANUFACTURING OF PRODUCTION COMMENCED IN THE FINANCIAL YEAR 2000-01 BEING THE ASSESSMENT YEAR 20 01-02 AND NOT ASSESSMENT YEAR 1999-2000 AS ASSUMED BY THE ASSESSING AUTHORITY. 2.2 THE LD. ASSESSING OFFICER DISALLOWED THE EXPEND ITURE INCURRED TOWARDS COMMUNICATION EXPENSES UNDER PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, IRRESPECTIVE OF THE FACT THAT THE PAYMENTS WERE MADE FOR INTERNET LEASED LINES AND SUCH PAYMEN T IS NOT IN THE NATURE OF ROYALTY. 2.3 THE THIRD GROUND, THE LD. ASSESSING OFFICER DIS ALLOWED THE INTEREST ON ADVANCES PROVIDED TO THE SUBSIDIARIES/G ROUP 3 I.T.A. NO. 1015/MDS/2015 COMPANIES FOR THE BUSINESS PURPOSE UNDER THE PROVIS IONS OF SECTION 36(I)(III) OF THE ACT. 2.4 LAST, THE LD. ASSESSING OFFICER HAS ERRED IN DI SALLOWING SOFTWARE DEVELOPMENT EXPENDITURE PAID TO ITS SUBSID IARY COMPANY PRODAPT CORPORATION FOR NON-DEDUCTION OF TD S WERE THE PAYMENTS ARE MADE TO THE SUBSIDIARY FOR THE SER VICES RENDERED OUTSIDE INDIA. 3. THE BRIEF FACTS OF THE CASE THAT THE ASSESSEE CO MPANY WAS INCORPORATED UNDER COMPANIES ACT AND IN EXISTENCE F OR MORE THAN 12 YEARS IN SOFTWARE SUPPORT SERVICES FOCUSING ON T ELECOM SEGMENT AND PROVIDES EXPERIENCE AND INNOVATION WITH STATE O F THE ART PROCESSING TECHNOLOGY AND A SOLID REPUTATION ENSURI NG OUTSTANDING CUSTOMIZED SERVICE TO EACH CLIENTS AND WORKS WITH C OMMUNICATION SERVICE PROVIDERS, TELECOM SOLUTIONS COMPANIES IN P ROVIDING SOFTWARE SERVICES AND FILED THE RETURN OF INCOME FO R THE ASSESSMENT YEAR 2010-11 ON 14.10.2010 WITH TOTAL INCOME OF 22,04,555/- UNDER NORMAL COMPUTATION OF INCOME AND INCOME COMPUTED UN DER PROVISIONS OF SECTION 115JB OF THE ACT, 3,20,23,696/-. 4 I.T.A. NO. 1015/MDS/2015 4. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UN DER SECTION 143(2) AND 142 (1) OF THE ACT WAS ISSUED. THE ASSE SSING OFFICER FOUND THAT THE ASSESSEE COMPANY HAS INTERNATIONAL T RANSACTIONS WITH ASSOCIATED ENTERPRISES (AE) FOR MORE THAN 15 CRORES AND WAS REFERRED TO THE TRANSFER PRICING OFFICER (TPO). TH E LD. TPO VIDE ORDER DATED 03.01.2014 HAS CONSIDERED THE METHODOLO GY ADOPTED AND DETERMINED THE ARMS LENGTH PRICE (ALP) WITH THE UPWARD ADJUSTMENT OF 21,41,590/- TOWARDS INTEREST ACCRUED TO THE ASSESSEE COMPANY ON ADVANCES GIVEN TO ITS WHOLLY OW NED SUBSIDIARY PRODAPT CORPORATION INC., USA AND WHEREA S THIS ADJUSTMENT WAS RECTIFIED UNDER THE DIRECTIONS OF TH E DRP TO 20,71,590/-. 5. FURTHER, THE LD. ASSESSING OFFICER FOUND THAT T HE ASSESSEE DOES NOT SATISFY THE CONDITIONS STIPULATED UNDER SE CTION 10A OF THE ACT AND ALSO NO REVISED RETURN OF INCOME WAS FILED TO CLAIM THE RELIEF, AND ON FURTHER VERIFICATION OF THE FORM NO. 56F FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2010-11, THE ASSES SEE COMMENCED MANUFACTURE OR PRODUCTION ON 29.01.1999 W HICH RELATES TO THE ASSESSMENT YEAR 1999-2000. THEREFORE, THE A SSESSING OFFICER IS OF THE OPINION, THAT THE EXEMPTION UNDER SECTION 10A OF 5 I.T.A. NO. 1015/MDS/2015 THE ACT, WAS CLAIMED IN THE FIRST YEAR BEING ASSESS MENT YEAR 2001-02 IS WITHOUT ANY BASIS AS THE ASSESSEE COMPAN Y HAS COMMENCED MANUFACTURE IN THE ASSESSMENT YEAR 1999-2 000. THE ASSESSING OFFICER DEALT ON THE PROVISIONS OF SECTIO N 10A OF THE ACT AND THERE WAS NO CLARIFICATION PROVIDED BY THE ASSE SSEE AND THE LD. ASSESSING OFFICER IS OF THE OPINION THAT THE 1 ST YEAR FOR CLAIM OF SECTION 10A OF THE ACT HAS TO BE CONSIDERED FROM AS SESSMENT YEAR 1999-2000 AND THE 10 TH YEAR HAS EXPIRED IN ASSESSMENT YEAR 2008- 09 AND THEREFORE ASSESSEE COMPANY IS NOT ELIGIBLE F OR SAID DEDUCTION OF 3,11,80,617/- AND DISALLOWED. THE DRP HAS CONSIDERED THESE FACTS AND CONFIRMED THE ACTION OF THE ASSESSING OFFICER AS THE ASSESSEE COULD NOT SATISFY THE PRESC RIBED ELIGIBILITY CONDITIONS FOR DEDUCTION UNDER SECTION 10A OF THE A CT. 6. ON APPEAL BEFORE US, THE LD. AR SUBMITTED THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 10 A FOR THE RELEVANT ASSESSMENT YEAR AND ALSO COMPLIED THE PROVISIONS OF SECTION 10A OF THE ACT, AND THE PRESENT ASSESSMENT YEAR PERTAIN S TO 10 TH YEAR OF CLAIM, THOUGH THE MANUFACTURING OR PRODUCTION HAS T AKEN PLACE ON 21.09.1999, BUT THE FIRST YEAR OF CLAIM BEING ASSES SMENT YEAR 2001-02. THEREFORE, THE ASSESSEE HAS RIGHTLY CLAI MED FOR THE LAST 6 I.T.A. NO. 1015/MDS/2015 YEAR BEING THE 10 TH YEAR AND THE REVENUE HAS ACCEPTED FOR THE EARLIER YEARS WITHOUT ANY DISPUTE. FURTHER, THE L D. AR SUPPORTED HIS ARGUMENTS WITH THE PAPER BOOK WITH THE DETAILS OF APPROVAL OF STP, ANNUAL REPORTS AND PRAYED FOR ALLOWING THE GRO UND OF THE APPEAL. CONTRA, THE LD. DR RELIED THE ORDER OF TH E LOWER AUTHORITIES. 7. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL AVAILABLE ON RECORD AND THE PAPER BOOK FILED BY THE ASSESSEE IN SUPPORT OF THE CLAIM FOR DEDUCTION UNDER SECTION 10 A OF THE ACT. THE SOLE CRUX OF THE ISSUE LIES ON THE DATE ON WHIC H THE PRODUCTION IS ACTUALLY COMMENCED. FOR CLAIMING EXEMPTION, THE LD. AR DREW OUR ATTENTION TO THE PAPER BOOK, WHERE THE ASSESSEE S COMPANY NAME WAS CHANGED FROM EARLIER ZEETRON SOLUTIONS PVT . LTD TO PRESENT PRODAPT SOLUTIONS PVT. LTD ON 22.05.2000, A ND APPROVAL FROM SOFTWARE TECHNOLOGY PARK OF INDIA REFERRED AT PAGE 2, EXPLAINING GRANT OF APPROVAL ON SETTING UP UNIT, FO LLOWED BY THE GREEN CARD AND THE COPY OF APPROVAL UNDER STP SCHEM E BY THE MINISTRY, FORWARDED TO THE ASSESSEE ON 30.03.2000 A ND FURTHER LETTER REQUESTING THE BONDING BETWEEN THE CUSTOMS AUTHORIT IES FILED ON 17.05.2000 AND APPROVAL WAS GRANTED BY STPI ON 18.0 3.2000. THE ASSESSEE COMPANY HAS FILED A LETTER TO THE STPI ON 26.06.2000 FOR 7 I.T.A. NO. 1015/MDS/2015 COMMENCEMENT OF OPERATIONS FROM 07.06.2000, TO SUBS TANTIATE THE CLAIM THAT THE PRODUCTION HAS COMMENCED IN THE FINA NCIAL YEAR 2000-01 AND ALSO SUPPORTED WITH INVOICE COPIES. W HEREAS, THE ASSESSING OFFICER RELIED ONLY ON THE FACTS, BASED O N THE FORM 56F, WHEREIN IT WAS MENTIONED THAT THE PRODUCTION WAS CO MMENCED ON 21.01.1999 RELATING TO ASSESSMENT YEAR 1999-2000, A S FIRST YEAR. WE FOUND THE REVENUE COULD NOT SUBSTANTIATE WITH AN Y EVIDENCE BEFORE US THAT THE PRODUCTION WAS COMMENCED IN THE ASSESSMENT YEAR 1999-2000 BUT RELIED ONLY ON THE FORM 56F FILE D BY THE ASSESSEE. CONSIDERING THE APPARENT FACTS, MATERIA L ON RECORD AND THE PAPER BOOK FILED, WE ARE OF THE OPINION THAT TH E MATTER HAS TO BE RE-EXAMINED BY THE AO AS THESE FACTS WERE NOT MENTI ONED IN THE ORDER OF THE DRP AND IT IS NOT CLEAR WHETHER THE AS SESSEE HAS FILED THESE DETAILS BEFORE THE DRP OR BEFORE THE ASSESSIN G OFFICER TO SUBSTANTIATE THE CLAIM. THEREFORE, IN THE INTERES T OF JUSTICE, WE REMIT THIS ISSUE TO THE FILE OF ASSESSING OFFICER T O VERIFY THE GENUINENESS AND THE ASSESSEE SHALL BE PROVIDED AN O PPORTUNITY OF HEARING BEFORE PASSING THE ORDER. 8. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HA S INCURRED EXPENSES TOWARDS THE COMMUNICATION CHARGES PAID TO TATA 8 I.T.A. NO. 1015/MDS/2015 COMMUNICATIONS AND RELIANCE COMMUNICATIONS AND THES E CHARGES ARE PAID FOR DEDICATED LEASE LINES. WHEREAS, THE A SSESSING OFFICER ALLEGED THAT NO TDS WAS DEDUCTED AND THE SAME WAS D ISALLOWED. THE LD.ASSESSING OFFICER ASSUMED THAT THE COMMUNICA TION CHARGES PAID FOR LEASE LINES ARE ON PAR WITH ROYALTY AND TH EREFORE DISALLOWED THE CLAIM UNDER SECTION 40(A)(IA) OF THE ACT. ON F ILING OBJECTIONS BEFORE THE DRP, THE DRP FOUND THE ACTION OF ASSESSI NG OFFICER IS IN ACCORDANCE WITH LAW AND CONFIRMED THE DISALLOWANCE. IN APPEAL BEFORE US, THE LD. AR ARGUED THAT THE EXPENDITURE W AS INCURRED TOWARDS DEDICATED LEASE LINES AND DOES NOT QUALIFY TO BE TREATED AS ROYALTY, AS PRESUMED BY THE ASSESSING OFFICER AND T HE DRP, IRRESPECTIVE OF THE FACT THAT THE ROYALTY RECIPIENT BEING AN INDIAN COMPANY I.E., TATA & RELIANCE COMMUNICATIONS. THES E COMPANIES WOULD HAVE PAID TAX ON THESE AMOUNT, HENCE CANNOT B E CONSIDERED FOR DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT AND RELIED ON MADRAS HIGH COURT JUDGMENT IN SKYCELL COMMUNICATION S LTD V DEPUTY COMMISSIONER OF INCOME TAX 119 TAXMAN 496 AN D PRAYED FOR ALLOWING THE APPEAL. CONTRA, THE LD. DR RELIED THE ORDERS OF THE LOWER AUTHORITIES. 9 I.T.A. NO. 1015/MDS/2015 9. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATE RIAL ON RECORD AND ON PERUSAL OF THE ASSESSMENT ORDER, WE F OUND THAT THE ASSESSEE HAS MADE A CLAIM THAT THE COMMUNICATION CH ARGES ARE PAID TO INDIAN COMPANIES M/S. TATA COMMUNICATIONS & M/S. RELIANCE COMMUNICATIONS, IN RESPECT OF LEASE L INES. BUT, THERE IS NO REFERENCE OF ANY AGREEMENT FOR ENTRUSTING WOR KS BETWEEN THE ASSESSEE AND SAID COMPANIES. THE ASSESSING OFFICE R ASSUMED THAT THIS DEDICATED LEASE CHARGES ARE ON PAR WITH R OYALTY. WHEREAS, WE ARE UNABLE TO COME TO A CONCLUSION ON THE NATURE OF INTERNET COMMUNICATION CHARGES PAID TO THESE COMPANIES, AS N EITHER THE ASSESSEE NOR REVENUE COULD PUT FORTH BEFORE US WITH EVIDENCE TO STATE THAT THIS AMOUNT PERTAINS TO INTERNET CHARGES OR TOWARDS THE ROYALTY. HENCE, WE ARE OF THE OPINION, THE MATTER HAS TO BE VERIFIED BY THE ASSESSING OFFICER. ACCORDINGLY WE SET ASIDE THIS ISSUE FOR LIMITED PURPOSE TO THE FILE OF THE ASSESSING OFFICE R TO EXAMINE THE NATURE OF CHARGES AND VERIFY WHETHER THIS INCOME HA S BEEN OFFERED IN THE HANDS OF THE RECIPIENTS AND THE ASSESSING OF FICER SHALL PROVIDE AN OPPORTUNITY TO THE ASSESSEE BEFORE PASSI NG THE ORDER AND THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STAT ISTICAL PURPOSE. 10 I.T.A. NO. 1015/MDS/2015 10. THE ASSESSEE COMPANY HAS PROVIDED INTEREST FREE ADVANCE TO ITS GROUP CONCERNS WITHOUT INTEREST. THE ASSESS ING OFFICER FOUND THAT THE ASSESSEE HAS OBTAINED LOANS AND PAYING INT EREST. WHEREAS, INTEREST FREE ADVANCES WERE PROVIDED TO IT S GROUP CONCERNS AND THE LD. ASSESSING OFFICER DEALT ON THE ADVANCES MADE TO PRODAPT CORPORATION INC, USA BEING SUBSIDIA RY OF THE ASSESSEE COMPANY AND WHERE DAY TO DAY OPERATIONS AR E CONTROLLED AND ADVANCES MADE BY THE ASSESSEE COMPANY ON COMMER CIAL EXPEDIENCY. WHEREAS, THE ASSESSEE HAS LOAN LIABIL ITY OF 15,16,66,007/- AS ON 31.03.2010 AND CLAIMS INTEREST EXPENDITURE IN P&L ACCOUNT 64,68,160/-. WHEREAS THE INTEREST HAS BEEN PAID BY THE ASSESSEE, ON PROVIDING INTEREST FREE LOANS TO T HREE SUBSIDIARIES AND THE LD. AR RELIED ON THE DECISION OF THE SUPREM E COURT IN THE CASE OF SA BUILDERS V CIT (APPEALS) IN 288 ITR 1, W HERE IT WAS HELD THAT THE INTEREST BURDEN ON FUNDS ADVANCED TO A THI RD PARTY IS ALLOWABLE IF IT IS FOR COMMERCIAL EXPEDIENCY. THE ASSESSEE COMPANY COULD NOT PROVE WITH ANY EVIDENCE THAT THIS AMOUNT IS USED FOR THE PURPOSE OF BUSINESS. WHEREAS, THE LD. TPO HAS MADE AN ADJUSTMENT OF INTEREST ON ADVANCES TO PRODAPT CO RPORATION USA, THEREFORE NO ACTION WAS CONSIDERED BY THE ASSESSING OFFICER. BUT, IN RESPECT OF OTHER ADVANCES TO TWO GROUPS M/S. PRO DAPT 11 I.T.A. NO. 1015/MDS/2015 TECHNOLOGY HOLDINGS PVT. LTD. AND M/S. SOUTHERN GRO UP INDUSTRIES, THE ASSESSING OFFICER HAS DISCUSSED AT PAGE 4 & 5 O F THE ORDER AND MADE AN ADDITION HOLDING THAT INTEREST ON THESE LOA NS CANNOT BE ALLOWED AS DEDUCTION UNDER SECTION 36(1)(III) OF TH E ACT AND CALCULATED DISALLOWANCE OF PROPORTIONATE INTEREST, AS NO COMMERCIAL EXPEDIENCY WAS PROVED IN RESPECT OF M/S. PRODAPT TE CHNOLOGY HOLDING PVT. LTD. 9,59,558 AND M/S. SOUTHERN GROUP INDUSTRIES PVT. LTD. 2,27,451, AND AGGREGATED DISALLOWANCE 11,87,009/-. THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP. WHEREAS, THE DRP DISCUSSED THE ISSUE BASED ON THE FINDINGS OF THE AS SESSING OFFICER THAT THESE ADVANCES WERE NOT GRANTED AS LOANS FOR R ENDERING THE BUSINESS, WHEREAS, THE LD. DRP FOUND THAT THE ASSES SING OFFICER HAS JUSTIFIED IN HIS ACTION AS NO EVIDENCE WAS FILE D BY THE ASSESSEE IN RESPECT OF SUPPORTING THE CLAIM AND CONFIRMED TH E ORDER OF THE ASSESSING OFFICER. 11. BEFORE US, THE LD. AR ARGUED THAT THE ASSESSIN G OFFICER HAS DISALLOWED THE ADVANCES GIVEN BY THE ASSESSEE COMPA NY TO ITS SUBSIDIARY COMPANIES UNDER SECTION 36(1)(III) OF TH E ACT AND WERE SUCH ADVANCES ARE PART OF BUSINESS CONSIDERATIONS, AND RELIED ON THE HONBLE SUPREME COURT DECISION OF SA BUILDERS V . CIT IN 288 12 I.T.A. NO. 1015/MDS/2015 ITR 1. THE LD. ASSESSING OFFICER FOUND THAT ONE O F THE SUBSIDIARY HAS DEBIT BALANCE REFERRED AT PAGE 4 OF THE ASSESSM ENT ORDER PERTAINING TO THE AMOUNTS RECEIVABLE ON ACCOUNT OF SALE OF COMPUTERS AND FURNITURES IN THE YEAR 2006 AND THERE FORE NO INTEREST WAS CHARGED AND THIS AMOUNT PERTAINS TO OUTSTANDING BALANCE OF SALES. THE ASSESSING OFFICER HAS NOT CONSIDERED TH IS FACT INSPITE OF PROVIDING THE ADEQUATE INFORMATION IN THE ASSESSMEN T PROCEEDINGS. THE TRANSACTIONS WITH THE SUBSIDIARY COMPANIES ARE DUE TO BUSINESS EXIGENCIES AND COMMERCIAL EXPEDIENCY AND PRAYED FOR ALLOWING THE GROUND. CONTRA THE LD. DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 12. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MAT ERIAL ON RECORD AND JUDICIAL DECISION CITED. THE ASSESSEE COMPANY HAS MADE ADVANCES TO THE SUBSIDIARY COMPANIES WITHOUT C HARGING ANY INTEREST. WHEREAS, THE ASSESSING OFFICER FOUND THA T THE ASSESSEE HAS CLAIMED INTEREST ON ACCOUNT OF 64,68,160/- IN THE P&L ACCOUNT AS ON 31.03.2010 WHEREAS THE OUTSTANDING LOAN LIABI LITY IS 15,16,66,007/- IRRESPECTIVE OF THE FACTS, THE ASSES SEE COMPANY HAS PROVIDED THESE INTEREST FREE ADVANCES FOR THE R EASONS BEST KNOWN TO THEM. THE CONTENTION OF THE ASSESSEE THA T THE ADVANCE 13 I.T.A. NO. 1015/MDS/2015 TO M/S. PRODAPT CORPORATION INC, USA WAS ON COMMERC IAL EXPEDIENCY AND THE LD. TPO HAS ALREADY CONSIDERED T HESE FACTS AND MADE UPWARD ADJUSTMENT. IN RESPECT OF OTHER T WO ADVANCES OF M/S. PRODAPT CORPORATION INC & M/S. PRODAPT TECHNOL OGY HOLDING PVT. LTD., IT WAS CONTESTED AS OPENING BALANCE AVAI LABLE IN THE BOOKS OF THE ASSESSEE COMPANY AND SAME PERTAINS TO THE SALE OF FURNITURE AND COMPUTERS IN THE YEAR 2006 AND DURING THE YEAR ADVANCE WAS PROVIDED AND SAME WAS REPAID WITHIN THE FINANCIAL YEAR. WHEREAS, IN THE CASE OF M/S. SOUTHERN GROUP INDUSTRIES PVT. LTD, THERE IS OPENING BALANCE OF 8,91,447/- AND PERTAINS TO THE ADJUSTMENT OF RENTAL ADVANCE ORIGINALLY RECEIVED BY THE SOUTHERN GROUP INDUSTRIES. THEREFORE, THE NET AMOUNT IS DE BITED TO THE SOUTHERN GROUP INDUSTRIES. WE ON PERUSING THE PRO VISIONS OF SECTION 36(1)(III) OF THE ACT, FOUND ANY EXPENDITUR E IN NATURE OF INTEREST ON BORROWED CAPITAL SHALL BE ALLOWED AS DE DUCTION PROVIDED IT HAS BEEN UTILIZED FOR THE PURPOSE OF BUSINESS. WE ARE OF THE OPINION THAT THE ASSESSEE COULD NOT SATISFY WITH TH E CORRECT ALLOCATION OF INTEREST AND INTEREST ADVANCE INFORMA TION AND THE ASSESSING OFFICER ORDER ALSO DOES NOT SATISFY WITH THE REASONS EXCEPT RELYING ON THE CONTENTION OF THE ASSESSEE. T HE LD. TPO HAS ALSO MADE ADJUSTMENT AS ADVANCE WAS PROVIDED TO SUB SIDIARY 14 I.T.A. NO. 1015/MDS/2015 COMPANY AND THESE ASPECTS ARE TO BE VERIFIED FROM T HE ANGLE OF COMMERCIAL EXPEDIENCY, WHICH THE ASSESSING OFFICER HAS NOT MADE ANY ENQUIRY OR CALLED FOR ANY DOCUMENTS FROM SUBSID IARIES TO PROVE THAT THERE EXIST A COMMERCIAL EXPEDIENCY. THEREFO RE, WE ARE OF THE OPINION, ONE MORE OPPORTUNITY TO BE PROVIDED TO THE ASSESSEE TO EXPLAIN THE COMMERCIAL EXPEDIENCY OF THIS TRANSACTI ONS WITH THE SUBSIDIARY COMPANY BEFORE THE ASSESSING OFFICER AND WE REMIT THE DISPUTE OF ISSUE OF INTEREST DISALLOWANCE MADE BY T HE ASSESSING OFFICER ON M/S. PRODAPT CORPORATION INC, USA, M/S. PRODAPT TECHNOLOGY HOLDINGS PVT LTD AND M/S. SOUTHERN GROUP INDUSTRIES PVT. LTD TO THE FILE OF THE ASSESSING OFFICER TO VE RIFY AND PASS ORDERS AND THE ASSESSEE SHOULD BE PROVIDED OPPORTUNITY OF BEING HEARD BEFORE DISPOSAL OF THE ORDER ON MERITS. 13. THE LAST GROUND, IN THE FINANCIAL YEAR 2009-10, THE ASSESSEE HAS PAID AN AMOUNT OF 1.57 CRORES TO M/S. PRODAPT CORPORATION INC, A SUBSIDIARY OF THE ASSESSEES COMPANY TOWARDS SOFT WARE DEVELOPMENT. CONTENTION OF THE LD. ASSESSING OFFIC ER IS THAT THE ASSESSEE HAS NOT DEDUCTED TDS, WHEREAS THE ASSESSEE COMPANY HAS ENTERED INTO SERVICE AGREEMENTS WITH THREE CLIE NTS IN USA VIZ. INTRADO, WEST CORPORATION AND PACIFIC CREST TECHNOL OGY. BUT THESE 15 I.T.A. NO. 1015/MDS/2015 SERVICES WERE RENDERED BY THE SUBSIDIARY COMPANY PR ODAPT CORPORATION INC, USA TO WHICH THE ASSESSEE COMPANY HAS MADE THE PAYMENT OF 1.57 CRORES AND THE SERVICES TO THE SUBSIDIARY COMPANIES ARE NOT IN THE NATURE OF TECHNICAL SERVIC ES. HENCE, NO TDS WAS DEDUCTED. THE ASSESSING OFFICER EXAMINED T HE SERVICE AGREEMENT WITH PACIFIC CREST TECHNOLOGY INC AND CAM E TO A CONCLUSION BASED ON THE SCOPE AND TERMS OF AGREEMEN T, WHICH ARE HIGHLY TECHNICAL IN NATURE AND THEREFORE QUALIFIED PROFESSIONALS ARE SPECIFICALLY TRAINED FOR THIS PURPOSE. HENCE, PAYM ENT MADE TOWARDS THIS SERVICES COME WITHIN THE PURVIEW OF TECHNICAL SERVICES UNDER PROVISION TO SECTION 9(1)(VII) OF THE ACT AND TDS H AS TO BE DEDUCTED AND DISALLOWED THE AMOUNT OF 1.57 CRORES. ON OBJECTIONS TO THE DRP, DRP RELIED ON THE EVIDENCE OF THE ASSESSING OF FICER AND THE CONTRACTUAL AGREEMENT OF THE SUBSIDIARIES AND DOES NOT INTERFERE WITH THE DECISION OF THE ASSESSING OFFICER TO TREAT THE TRANSACTION AS IN THE NATURE OF TECHNICAL SERVICES UNDER SECTION 9 (1)(VII) OF THE ACT AND CONFIRMED. 14. BEFORE US ON APPEAL, THE LD. ARS CONTENTION TH AT THE SOFTWARE TRANSACTIONS MADE BY THE NON-RESIDENT SUBS IDIARY COMPANY IN USA AND THE PROVISIONS OF APPLICABILITY OF TDS D OESNT ARISE AND 16 I.T.A. NO. 1015/MDS/2015 THERE IS NO OBLIGATION TO DEDUCT TDS. THE LD. AR R ELIED ON THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF F INANCIAL SOFTWARE & SYSTEMS (P) LTD V INCOME TAX OFFICER (INTERNATION AL TAXATION) IN ITA NOS.822,823 & 824/MDS/2016 DATED 22.06.2016, WH ERE SIMILAR ISSUE HAS BEEN CONSIDERED AND THE DIFFICULTY LIES W ITH THE ASSESSEE COMPANY TO DEDUCT TDS ON CLIENTS IN USA INTRADO, WE ST CORPORATION AND PACIFIC CREST TECHNOLOGY AND PRAYED FOR ALLOWING THE APPEAL. CONTRA, THE LD. DR RELIED ON THE ORD ERS OF THE LOWER AUTHORITIES. 15. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MAT ERIAL ON RECORD AND THE JUDICIAL DECISIONS CITED. THE CRUX OF THE ISSUE LIES THAT THE ASSESSEE COMPANY HAS PAID 1.57 CRORES TO THE SUBSIDIARY COMPANY TOWARDS SOFTWARE DEVELOPMENT SERVICES. THE SERVICES TO COMPANIES ARE ACTUALLY RENDERED BY THE SUBSIDIARY C OMPANY M/S. PRODAPT CORPORATION INC, USA. THIS AMOUNT OF 1.57 CRORES WAS PAID TO THE SUBSIDIARY COMPANY FOR UPDATING THE SOF TWARE DEVELOPMENT SERVICES. THE ISSUE ARISES THAT NO TD S TO BE DEDUCTED IN RESPECT OF PURCHASE OF SOFTWARE WHICH I S NOT IN THE NATURE OF ROYALTY AND THEREFORE NO DISALLOWANCE UND ER SECTION 40(A)(I) OF THE ACT IS APPLICABLE. AND THE LD. AR DREW THE ATTENTION 17 I.T.A. NO. 1015/MDS/2015 TO PAGE 4 AND PARA 5 AND INTERNAL PARA AT 58 & 59 I N ITA NOS.822,823 & 824/MDS/2016 DATED 22.06.2016 ON THE APPLICABILITY OF LAW FOR DEDUCTION OF TDS. 58. WE FIND MUCH FORCE IN THE ABOVE CONTENTION ADV ANCED BY THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE. HERE ALSO, IT IS A SUBSEQUENT AMENDMENT WITH RETROSPECTIVE EFFECT . AS HELD BY ITAT, MUMBAI BENCH, IN SUCH CASES, THE ASSESSEE IS CONSTRAINED BY IMPOSSIBILITY OF PERFORMANCE. THE DICTUM IMPOSS IBILIUN NULLA OBLIGATION EST, STATES THAT THERE IS NO OBLIGATION TO DO IMPOSSIBLE THINGS. IT IS TO BE SEEN THAT THE LAW DOES NOT COM PEL TO DO THE IMPOSSIBLE AS ENSHRINED IN THE PRINCIPLE LEX NON CO GIT AND IMPOSSIBILIA. THE JURISPRUDENCE HAS ALSO ACCEPTED AS A BASIC DICTUM, IMPOTENTIA EXCUSAT LEGEM, THAT IMPOSSIBILIT Y IS AN EXCUSE IN LAW. 59. WHEN THE ASSESSEE IS CONSTRAINED WITH THE IMPOS SIBILITY OF PERFORMANCE, IT IS FUTILE TO ARGUE THAT THE ASSE SSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE IN THE ASSESSMENT YEARS EARLIER TO AMENDMENT BROUGHT IN SEC.9(1)(VI) BY FINANCE ACT, 2 012. IT IS NOT POSSIBLE TO DO OR UNDO OR TO BELL OR UNBELL THE PAST 16. CONSIDERING THESE FACTS AND THE PAYMENT MADE TO SUBSIDIARY FOR SOFTWARE DEVELOPMENT SERVICES DOES NOT COME INT O THE PURVIEW OF APPLICABILITY OF PROVISIONS OF TDS SECTION 40(A) (IA) OF THE ACT AND ACCORDINGLY WE FOLLOWING THE DECISION OF THIS COORD INATE TRIBUNAL DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION AND ALLOW THIS GROUND OF THE ASSESSEE. 18 I.T.A. NO. 1015/MDS/2015 21. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON MONDAY, 16 TH JANUARY, 2017 AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ) (G. PAVAN KUMAR) /JUDICIAL MEMBER /CHENNAI, /DATED, THE 16 TH JANUARY, 2017. JR. /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( )/CIT(A 4. /CIT 5. /DR 6. /GF.