ITO 9(2)(2), MUMBAI V. KALYPTO RISK TECHNOLOGIES P.LTD, NAVI MUMBAI

ITA 1275/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3627 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 23-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Revenue expenditure
• Section: 143(3); 32; 2

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAM IT KOCHAR, ACCOUNTANT MEMBER ITA NO.1275 /MUM/2012 ASSESSMENT YEAR: 2008-09 ITO-9(2)(2), R. NO.225, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 / VS. M/S KALYPTO RISK TECHNOLOGIES P. LTD. OFFICE NO.204 SECTOR 17, 2 ND FLOOR, APEEJAY COMMERCIAL COMPLEX, VASHI, NAVI MUMBAI-400703 ( / REVENUE) ( !'# /ASSESSEE) PAN. NO. AAACY0839L ITA NO.1780/MUM/2013 ASSESSMENT YEAR: 2009-10 ITO-9(2)(2), R. NO.225, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 / VS. M/S KALYPTO RISK TECHNOLOGIES P. LTD. OFFICE NO.204 SECTOR 17, 2 ND FLOOR, APEEJAY COMMERCIAL COMPLEX, VASHI, NAVI MUMBAI-400703 ( / REVENUE) ( !'# /ASSESSEE) PAN. NO.AAACY0839L M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 2 ITA NO. 2295/MUM/2013 ASSESSMENT YEAR: 2009-10 M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. OFFICE NO.204, SECTOR 17, 2 ND FLOOR, APEEJAY COMMERCIAL COMPLEX, VASHI, NAVI MUMBAI-400703 / VS. ITO-9(2)(2), R. NO.225, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 ( !'# /ASSESSEE) ( / REVENUE) PAN. NO. AAACY0839L $ % & ' / DATE OF HEARING : 13/05/2016 & ' / DATE OF ORDER: 18/05/2016 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE AS WELL AS THE REVENUE IS IN CROSS APP EAL FOR A.Y. 2009-10, CHALLENGING THE ORDER DATED 10/12 /2009, WHEREAS, THE REVENUE IS AGGRIEVED BY THE IMPUGNED O RDER DATED 12/12/2011 (A.Y. 2008-09) OF THE LD. FIRST AP PELLATE AUTHORITY, MUMBAI. 2. FIRST, WE SHALL TAKE UP APPEAL OF THE REVENUE ( ITA NO.1275/MUM/2012) FOR A.Y. 2008-09, WHEREIN, THE FI RST GROUND PERTAINS TO DELETING THE ADDITION OF RS.18,5 7,208/-, MADE ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON CAPITALIZATION OF SOFTWARE DEVELOPMENT. THE CRUX O F ARGUMENT !'# ! / ASSESSEE BY SHRI A.K.GHOSH ! / REVENUE BY SHRI MAURYA PRATAP M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 3 BY SHRI MAURYA PRATAP, LD. DR, IS IDENTICAL TO THE GROUND RAISED BY PLACING RELIANCE UPON THE ASSESSMENT ORDE R BY INVITING OUR ATTENTION TO PARA 4 AND PARA 4.2 OF TH E ASSESSMENT ORDER AND FURTHER PARA 3.3 OF THE IMPUG NED ORDER. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE , SHRI A.K.GHOSH, DEFENDED THE RELIEF GRANTED TO THE ASSES SEE BY INVITING OUR ATTENTION TO ACCOUNTING STANDARD 26, W HICH WERE NOT FOLLOWED BY THE ASSESSING OFFICER. OUR ATTENTI ON WAS INVITED TO PAGES 446, 448 AND 449 OF THE PAPER BOOK BY FURTHER SUBMITTING THAT IPRS USEFUL LIFE SHOULD NO T EXCEED TEN YEARS BY CONTENDING THAT DEPRECATION IS GOVERNED BY APPENDIX OF INCOME TAX RULES, WHEREIN, RATE OF DEPRECIATION IS PROVIDED AT THE RATE OF 25%, WHEREAS, THE ASSESSING OFFICER HAS APPLIED RATE OF 10% FOR THE WHOLE YEAR. IT WAS ALSO PLEADED THAT THE ASSESSEE WAS ASSESSED U/S 143(3) OF THE ACT BY THE SAME ASSESSING OFFICER FOR A.Y. 2007-08 TO 2012-13, GRAN TING RELIEF TO THE ASSESSEE BY THE ASSESSING OFFICER EXCEPT 20 08-09 (PRESENT APPEAL) AND THAT ADDITION WAS ALSO DELETED BY THE LD.CIT(A). LIKEWISE, NO ADDITION WAS MADE FOR A.Y. 2009-10 AND A.Y. 2011-11, THEREFORE, IT WAS PLEADED THAT ON THE ISSUE OF CONSISTENCY ALSO, THE ASSESSEE IS HAVING A GOOD CASE IN ITS FAVOUR. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IF THE OB SERVATION MADE IN THE ASSESSMENT ORDER, LEADING TO ADDITION M ADE TO THE TOTAL INCOME, CONCLUSION DRAWN IN THE IMPUGNED ORDE R, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY TH E LD. M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 4 RESPECTIVE COUNSEL, IF KEPT IN JUXTAPOSITION AND AN ALYZED, THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY, ENGAGED IN DEVELOPMENT OF RISK BASED SOFTW ARE MAINLY FOR BANKING INDUSTRY. THE ASSESSEE ALONG WIT H DEVELOPMENT OF SOFTWARE ALSO PROVIDING ANNUAL MAINT ENANCE CONTRACT (AMC), AFTER COMPLETION OF WARRANTY PERIOD . AS PER THE ASSESSEE, NORMALLY, THE DEVELOPMENT OF SOFTWARE AND ITS IMPLEMENTATION SERVICES ARE LIKE A PROJECT, WHICH C OVERS A PERIOD OF MORE THAN ONE YEAR AND THE ACCOUNTING OF THE REVENUE ARE THEREFORE, SPLIT INTO MORE THAN ONE ACC OUNTING PERIOD. DURING THE RELEVANT ASSESSMENT YEAR, THERE WERE ONGOING PROJECTS AND ALSO NEW PROJECTS WERE SIGNED AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT AND FURTHER R AISING THE INVOICES. DURING THE RELEVANT PERIOD, THE ASSESSEE MADE THE ADDITIONS TO THE INTANGIBLE ASSETS BEING THE SOFTWA RE DEVELOPMENT COST ON A SYSTEMATIC BASIS PROVIDED FOR AMORTIZATION OF THE SAME, WHICH WAS REGULARLY FOLLO WED BY THE ASSESSEE AND THE DEPARTMENT ACCEPTED THE SAME. HOWE VER, THE LD. ASSESSING OFFICER APPLIED THE AMORTIZATION OVER A PERIOD OF TEN YEARS IGNORING THE RATES OF DEPRECIATION, PROVI DED UNDER THE INCOME TAX ACT, 1961, U/S 32, RULE 5(APPENDIX - 1 PART-B). THE LD. ASSESSING OFFICER ASKED THE ASSESSEE TO JUS TIFY THE CLAIMED EXPENSES UNDER THE HEAD DEPRECIATION AGAINS T INTANGIBLE ASSETS CAPITALIZED IN SOFTWARE DEVELOPME NT. THE ASSESSEE EXPLAINED HIS POSITION, HOWEVER, THE SAME WAS DECLINED AND THE IMPUGNED ADDITION WAS MADE. M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 5 2.2. ON APPEAL BEFORE THE LD. COMMISSIONER OF INCO ME TAX (APPEALS), THE PROVISION OF THE ACT, FACTUAL MA TRIX AND ACCOUNTING STANDARD (AS 26), ISSUED BY ICAI, WITH R ESPECT TO ACCOUNTING AND AMORTIZATION PERIOD WERE CONSIDERED. FOR READY REFERENCE, WE ARE REPRODUCING HEREUNDER:- THE FOLLOWING ARE NOT COMPONENTS OF THE COST OF AN INTERNALLY GENERATED INTANGIBLE ASSET. A. SELLING, ADMINISTRATIVE AND OTHER GENERAL OVERHEAD EXPENDITURE UNLESS THIS EXPENDITURE CAN BE DIRECTLY ATTRIBUTED TO MAKING THE ASSET READY FOR USE. B. CLEARLY IDENTIFIED INEFFICIENCIES AND INITIAL OPERA TING LOSSES INCURRED BEFORE AN ASSET ACHIEVES PLANES PERFORMANC E; AND C. EXPENDITURE ON TRAINING THE STAFF TO OPERATE THE AS SET. PAST EXPENSES NOT TO BE RECOGNISED AS AN ASSET 58. EXPENDITURE ON AN INTANGIBLE ITEM THAT WAS INIT IALLY RECOGNISED AS AN EXPENSE BY A REPORTING ENTERPRISE IN PREVIOUS ANNUAL FINANCIAL STATEMENTS OR INTERIM FINANCIAL RE PORTS SHOULD NOT BE RECOGNISED AS PART OF THE COST OF AN INTANG IBLE ASSET AT A LATER DATE. SUBSEQUENT EXPENDITURE 59. SUBSEQUENT EXPENDITURE ON AN INTANGIBLE ASSET A FTER ITS PURCHASE OR ITS COMPLETION SHOULD BE RECOGNISED AS AN EXPENSE WHEN IT IS INCURRED UNLESS: (A) IT IS PROBABLE THAT THE EXPENDITURE WILL ENABLE THE ASSET TO GENERATE FUTURE ECONOMIC BENEFITS IN EXCESS OF ITS ORIGINALLY ASSESSED STANDARD OF PERFORMANCE; AND (B) THE EXPENDITURE CAN BE MEASURED AND ATTRIBUTED TO T HE ASSET RELIABLY. M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 6 IF THESE CONDITIONS ARE MET, THE SUBSEQUENT EXPENDITURE SHOULD BE ADDED TO THE COST OF THE INTANGIBLE ASSET . AMORTISATION PERIOD 63. THE DEPRECIABLE AMOUNT OF AN INTANGIBLE ASSET SHOULD BE ALLOCATED ON A SYSTEMATIC BASIS OVER THE BEST ESTIMATE OF ITS USEFUL LIFE. THERE IS A REBUTTABLE PRESUMPTION THAT THE USEFUL LIFE OF AN INTANGIBLE ASS ET WILL NOT EXCEED TEN YEARS FROM THE DATE WHEN THE ASS ET IS AVAILABLE FOR USE. AMORTISATION SHOULD COMMENCE WHEN THE ASSET IS AVAILABLE FOR USE. 64. AS THE FUTURE ECONOMIC BENEFITS EMBODIED IN AN INTANGIBLE ASSET ARE CONSUMED OVER TIME, THE CARRYI NG AMOUNT OF THE ASSET IS REDUCED TO REFLECT THAT CONS UMPTION. THIS IS ACHIEVED BY SYSTEMATIC ALLOCATION OF THE CO ST OF THE ASSET, LESS ANY RESIDUAL VALUE, AS AN EXPENSE OVER THE ASSET'S USEFUL LIFE. AMORTIZATION IS RECOGNISED WHE THER OR NOT THERE HAS BEEN AN INCREASE IN, FOR EXAMPLE, THE ASS ET'S FAIR VALUE OR RECOVERABLE AMOUNT. MANY FACTORS NEED TO B E CONSIDERED IN DETERMINING THE USEFUL LIFE OF AN INT ANGIBLE ASSET INCLUDING: (A) THE EXPECTED USAGE OF THE ASSET BY THE ENTERPRI SE AND WHETHER THE ASSET COULD BE EFFICIENTLY MANAGED BY A NOTHER MANAGEMENT TEAM; (B) TYPICAL PRODUCT LIFE CYCLES FOR THE ASSET AND P UBLIC INFORMATION ON ESTIMATES OF USEFUL LIVES OF SIMILAR TYPES OF ASSETS THAT ARE USED IN A SIMILAR WAY; (C) TECHNICAL, TECHNOLOGICAL OR OTHER TYPES OF OBSO LESCENCE; (D) THE STABILITY OF THE INDUSTRY IN WHICH THE ASSE T OPERATES AND CHANGES IN THE MARKET DEMAND FOR THE PRODUCTS O R SERVICES OUTPUT FROM THE ASSET; (E) EXPECTED ACTIONS BY COMPETITORS OR POTENTIAL CO MPETITORS; (F) THE LEVEL OF MAINTENANCE EXPENDITURE REQUIRED T O OBTAIN THE EXPECTED FUTURE ECONOMIC BENEFITS FROM THE ASSE T AND THE COMPANY'S ABILITY AND INTENT TO REACH SUCH A LEVEL; (G) THE PERIOD OF CONTROL OVER THE ASSET AND LEGAL OR SIMILAR LIMITS ON THE USE OF THE ASSET, SUCH AS THE EXPIRY DATES OF RELATED LEASES; AND M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 7 (H) WHETHER THE USEFUL LIFE OF THE ASSET IS DEPENDE NT ON THE USEFUL LIFE OF OTHER ASSETS OF THE ENTERPRISE. 65. GIVEN THE HISTORY OF RAPID CHANGES IN TECHNOLOG Y, COMPUTER SOFTWARE AND MANY OTHER INTANGIBLE ASSETS ARE SUSCEPTIBLE TO TECHNOLOGICAL OBSOLESCENCE. THEREFOR E, IT IS LIKELY THAT THEIR USEFUL LIFE WILL BE SHORT. 66. ESTIMATES OF THE USEFUL LIFE OF AN INTANGIBLE A SSET GENERALLY BECOME LESS RELIABLE AS THE LENGTH OF THE USEFUL LIFE INCREASES. THIS STANDARD ADOPTS A PRESUMPTION THAT THE USEFUL LIFE OF INTANGIBLE ASSETS IS UNLIKELY TO EXC EED TEN YEARS. KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES , FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATU RE NOTES: 1. 'BUILDINGS' INCLUDE ROADS, BRIDGES, CULVERTS, WE LLS AND TUBEWELLS. 2. A BUILDING SHALL BE DEEMED TO BE A BUILDING USED MAINLY FOR RESIDENTIAL PURPOSES, IF THE BUILT UP FLOOR ARE A THEREOF USED FOR RESIDENTIAL PURPOSES IS NOT LESS THAN SIXT Y-SIX AND TWO-THIRD PER CENT OF ITS TOTAL BUILT-UP FLOOR AREA AND SHALL INCLUDE ANY SUCH BUILDING IN THE FACTORY PREMISES. 3. IN RESPECT OF ANY STRUCTURE OR WORK BY WAY OF RE NOVATION OR IMPROVEMENT IN OR IN RELATION TO A BUILDING REFE RRED TO IN EXPLANATION 1 OF CLAUSE (II) OF SUB-SECTION (1) OF SECTION 32, THE PERCENTAGE TO BE APPLIED WILL BE THE PERCENTAGE SPECIFIED AGAINST SUB-ITEM (1) OR (2) OF ITEM 1 AS MAY BE APP ROPRIATE TO THE CLASS OF BUILDING IN OR IN RELATION TO WHICH TH E RENOVATION OR IMPROVEMENT IS EFFECTED. WHERE THE STRUCTURE IS CONSTRUCTED OR THE WORK IS DONE BY WAY OF EXTENSION OF ANY SUCH BUILDING, THE PERCENTAGE TO BEAPPLIED WOULD BE SUCH PERCENTAGE AS WOULD BE APPROPRIATE, AS IF THE STRUC TURE OR WORK CONSTITUTED A SEPARATE BUILDING. 4. WATER TREATMENT SYSTEM INCLUDES SYSTEM FOR DESAL INATION, DEMINERALISATION AND PURIFICATION OF WATER. M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 8 5. ELECTRICAL FITTINGS' INCLUDE ELECTRICAL WIRING, SWITCHES, SOCKETS, OTHER FITTINGS AND FANS, ETC. 6. COMMERCIAL VEHICLE' MEANS 'HEAVY GOODS VEHICLE', 'HEAVY PASSENGER MOTOR VEHICLE', 'LIGHT MOTOR VEHICLE', 'M EDIUM GOODS VEHICLE' AND 'MEDIUM PASSENGER MOTOR VEHICLE' BUT DOES NOT INCLUDE 'MAXI-CAB', 'MOTOR-CAB', 'TRACTOR' AND 'ROAD- ROLLER'. THE EXPRESSIONS 'HEAVY GOODS VEHICLE', 'HE AVY PASSENGER MOTOR VEHICLE', 'LIGHT MOTOR VEHICLE', 'M EDIUM GOODS VEHICLE', 'MEDIUM PASSENGER MOTOR VEHICLE', ' MAXI- CAB', 'MOTOR-CAB', 'TRACTOR' AND 'ROAD-ROLLER' SHAL L HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN SECTION 2 OF THE MOTOR VEHICLES ACT, 1988 (59 OF 1988). 7. 'COMPUTER SOFTWARE' MEANS ANY COMPUTER PROGRAM RECORDED ON ANY DISC, TAPE, PERFORATED MEDIA OR OTH ER INFORMATION STORAGE DEVICE. 8 'TUFS' MEANS TECHNOLOGY UPGRADATION FUND SCHEME ANNOUNCED BY THE GOVERNMENT OF INDIA IN THE FORM OF A RESOLUTION OF THE MINISTRY OF TEXTILES VIDE NO. 28/ 1 /99-CTI OF 31/03/1999. 9. MACHINERY AND PLANT INCLUDES PIPES NEEDED FOR DE LIVERY FROM THE SOURCE OF SUPPLY OF RAW WATER TO THE PLANT AND FROM THE PLANT TO THE STORAGE FACILITY. 10. 'SPEED BOAT' MEANS A MOTOR BOAT DRIVEN BY A HIG H SPEED INTERNAL COMBUSTION ENGINE CAPABLE OF PROPELLING TH E BOAT AT A SPEED EXCEEDING 24 KILOMETRES PER HOUR IN STILL W ATER / AND SO DESIGNED THAT WHEN RUNNING AT A SPEED, IT WI LL PLANE, I:E; ITS BOW WILL RISE FROM THE WATER] 2.3. IF THIS ISSUE IS ANALYZED WITH RESPECT TO PRI NCIPLE OF CONSISTENCY, IT IS ALSO NOTED THAT FOR A.Y. 2007-08 , NO ADDITION WAS MADE BY THE SAME ASSESSING OFFICER. FURTHER, F OR A.Y. 2008-09, ADDITION WAS MADE BUT THE SAME WAS DELETED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). IDENTICAL IS THE SITUATION FOR A.Y. 2009-10 AND FOR A.Y. 2010-11, NO ADDITION WAS MADE BY THE ASSESSING OFFICER. IN VIEW OF THES E FACTS, THE M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 9 LD. ASSESSING OFFICER IS EXPECTED TO FOLLOW THE PRI NCIPLE OF CONSISTENCY UNLESS AND UNTIL CONTRARY MATERIAL/FACT S ARE BROUGHT ON RECORD. ON THE ISSUE OF CONSISTENCY, WE ARE SUPPORTED BY FOLLOWING DECISIONS:- I. PARSHURAM POTTERY WORKS LTD. VS ITO 106 ITR 1 (SC) II. SECURITY PRINTERS 264 ITR 276(DEL.) III. CIT VS NEO POLYPACK PVT. LTD. 245 ITR 492 (DEL.) IV. CWT VS ALLIED FINANCE PVT. LTD. 289 ITR 318 (DEL.) V. BERGER PAINTS INDIA LTD. VS CIT 266 ITR 99 (SC) VI. DCIT VS UNITED VANASPATI (275 ITR 124) (AT)(CHANDIGARH ITAT) VII. UNION OF INDIA VS KUMUDINI N. DALAL 249 ITR 219 (SC ) VIII. UNION OF INDIA VS SATISH PANNALAL SHAH 249 ITR 221 IX. B.F.VARGHESE VS STATE OF KERALA 72 ITR 726 (KER.) X. CIT VS NARENDRA DOSHI 254 ITR 606 (SC) XI. CIT VS SHIVSAGAR ESTATE 257 ITR 59 (SC) XII. PRADIP RAMANLAL SETH VS UOI 204 ITR 866 (GUJ.) XIII. RADHASWAMY SATSANG VS CIT 193 ITR 321 (SC) XIV. AGGARWAL WAREHOUSING & LEASING LTD. 257 ITR 235 (MP) THE SUM AND SUBSTANCE OF THE AFORESAID JUDICIAL PRONOUNCEMENTS IS THAT ON THE BASIS OF PRINCIPLE OF JUDICIAL DISCIPLINE, CONSISTENCY HAS TO BE FOLLOWED AND ONCE IN A PARTICULAR YEAR, IF ANY VIEW IS TAKEN, IN THE ABSEN CE OF ANY CONTRARY MATERIAL, NO CONTRARY VIEW IS TO BE TAKEN AS FINALITY TO THE LITIGATION IS ALSO A PRINCIPLE WHICH HAS TO BE FOLLOWED. M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 10 BEFORE US, NO CONTRARY FACTS OR ANY ADVERSE MATERIA L WAS BROUGHT ON RECORD BY THE REVENUE, THEREFORE, WE FIN D NO INFIRMITY IN THE FINDING/CONCLUSION OF THE LD. FIRS T APPELLATE AUTHORITY. WE AFFIRM HIS VIEW BEING UNCONTROVERTED ON FACT. 2.4. THUS, TOTALITY OF FACTS, CLEARLY INDICATES T HAT THE ASSESSEE IS A SOFTWARE DEVELOPMENT COMPANY AND THE COST OF THE DEVELOPMENT OF THE SOFTWARE IS AN INTANGIBLE AS SET AND THE PRODUCT LICENSE ARE IPRS. IN VIEW OF THE PROVISIO N OF THE ACT AND AS-26 AND FURTHER THE FACT THAT THE COST OF DEV ELOPMENT OF THE SOFTWARE IS AN INTANGIBLE ASSET AND THE IPRS I S THE PRODUCT, LICENSE IS NOT IN DISPUTE, THEREFORE, WE F IND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. COMMIS SIONER OF INCOME TAX (APPEALS) TO MAKE THE IMPUGNED ADDITION. WE AFFIRM THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 3. THE NEXT GROUND PERTAINS TO ADDITION MADE ON ACC OUNT OF SALES OF DOLLAR 2,52,000/- (1,00,22,040/-) TO M/S 3 I INFOTECH BEING SUPPRESSED SALES AS PER AGREEMENT WITH 3I INF OTECH. 3.1. THE CRUX OF ARGUMENT ADVANCED BY LD. DR IS IN SUPPORT TO THE ASSESSMENT ORDER BY INVITING OUT ATT ENTION TO THE FINDING CONTAINED IN THE ORDER OF THE LD. ASSES SING OFFICER AS WELL AS OF THE LD. COMMISSIONER OF INCOME TAX (A PPEALS). ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE DR EW OUR ATTENTION TO PAGE 62 OF THE PAPER BOOK, CONTAINING AGREEMENT WITH THE ASSESSEE DATED 29/10/2010, PAGE 72, PAGE 7 4 WITH M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 11 RESPECT TO TERMS OF PAYMENT BY EXPLAINING THAT THE ASSESSEE BILLED LICENSE FEE AT 50% AND THE TOTAL FEE IS $ 2, 55,000, THE 50% OF WHICH COMES TO $ 1,20,500. THE FRONT END COM MISSION WAS $ 90,000/-, THUS, THE 50% OF WHICH COMES TO $ 4 5,000. THE WARRANTY FEE FOR THREE YEARS WAS EXPLAINED TO B E $ 66,000, THE 50% OF WHICH WAS BILLED AT $ 33,000. THE GROSS BILLING WAS THUS CLAIMED TO BE $ 2,39,000 AND THUS THE NET COME S TO $1,60,000. OUR ATTENTION WAS INVITED TO PAGE 76 OF THE PAPER BOOK (INVOICE), WHICH IS IDENTICAL I.E. $ 1,60,000. OUR ATTENTION WAS FURTHER INVITED TO PAGE 75 CONTAINING THE LEDGE R ACCOUNT OF THE PARTY. IT WAS ALSO EXPLAINED THAT PRIOR TO ISS UE OF CIRCULAR NO. 7 OF 2009 DATED 22/10/2009 INCOME WAS NOT TAXAB LE IN INDIA (PAGE 253 OF THE PAPER BOOK) AND FURTHER CIRC ULAR NO.786 DATED 07/02/2000 (PAGE 254 OF THE PAPER BOOK ). IT WAS EXPLAINED THAT THE CASE OF THE ASSESSEE IS PRIO R TO CIRCULAR, THUS, THE CIRCULAR HAS TO BE APPLIED PROSPECTIVELY FOR WHICH RELIANCE WAS PLACED UPON THE JURISDICTIONAL HIGH CO URT BASF(INDIA) LTD. & ORS. VS COMMISSIONER (280 ITR 13 6) (BOM.) AND ALSO THE DECISION OF THE TRIBUNAL IN SANJIV GUP TA VS DY. CIT (ITA NO.587 (LKW)/2010). THE CLARIFICATIONS WER E CALLED BY THE BENCH WITH RESPECT TO FRONT END COMMISSIONS PAI D TO THE FOREIGN AGENT. THE LD. COUNSEL FOR THE ASSESSEE MAD E STATEMENT BEFORE THE BENCH THAT THE PITH AND SUBSTA NCE OF THE AGREEMENT IS TO APPOINT 3I INFOTECH,DUBAI AS THE F OREIGN AGENT OF THE ASSESSEE FOR PROCURING ORDER FROM THE SKYPE BANK AND FOR WHICH THE SAID FOREIGN AGENT IS PAID THE FRONT END COMMISSION FOR SECURING THE EXPORT ORDER OF THE SOF TWARE FOR M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 12 THE ASSESSEE COMPANY, REALIZE THE PAYMENTS FROM THE ULTIMATE USER OF THE SOFTWARE I.E. SKYPE BANK AND TO REMIT T HE SAME TO THE ASSESSEE COMPANY IN INDIA. FURTHER STATEMENT W AS ALSO MADE BY THE LD COUNSEL FOR THE ASSESSEE THAT THE SA ID 3I INFOTECH, DUBAI HAS NOT RENDERED ANY PART OF THE SE RVICES IN OR FROM INDIA AND ALL THE SERVICES FOR GENERATING EXPO RT ORDER IN FAVOUR OF THE ASSESSEE WERE RENDERED FROM ABROAD. I T WAS ALSO STATED BEFORE THE BENCH THAT THIS IS THE ONLY AGREE MENT WITH THE 3I INFOTECH , DUBAI ENTERED INTO BY THE ASSESSE E COMPANY AND THERE IS NO OTHER AGREEMENT ENTERED INTO BY THE ASSESSEE WITH 3I INFOTECH, DUBAI WITH RESPECT TO THIS TRANSA CTION OF BANKING SOFTWARE BEEN SUPPLIED BY THE ASSESSEE TO S KYPE BANK, NIGERIA. THE LD COUNSEL SUBMITTED THAT 3I INF OTECH , DUBAI HAS BEEN GRANTED NON-EXCLUSIVE LICENSE BY THE ASSESSEE COMPANY , OF WHICH THE ASSESSEE COMPANY IS THE OWNE R OF THE SAID PROPRIETARY SOFTWARE . THE SAID 3I INFOTECH HA S SUB- LICENSED THE SAID PROPRIETARY SOFTWARE TO SKYPE BAN K, NIGERIA ON THE TERMS AND CONDITIONS SET FORTH IN THE AGREEM ENT. THE LD AR RELIED UPON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. FARIDA LEATHER COMPANY IN TAX CA SE APPEAL NO. 484 OF 2015 , JUDGMENT DATED 20-01-2016. THE LD COUNSEL MADE STATEMENT THAT THE FOREIGN AGENT RENDERED ALL SERVICES OUTSIDE INDIA AND NO PART OF SERVICES ARE RENDERED IN OR FROM INDIA AND AS PER THE AGREEMENT THE PITH AND SUBSTAN CE OF THE AGREEMENT WAS TO SECURE EXPORT ORDERS OF THE SOFTWA RE IN FAVOUR OF THE ASSESSEE FOR WHICH FRONT END COMMISSI ON IS PAID TO THE FOREIGN AGENT .IT IS STATED BEFORE US BY THE LD COUNSEL FOR M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 13 THE ASSESSEE THAT NO SUCH TECHNICAL SERVICES, EXPER IENCE , EXPERTISE , TECHNICAL KNOWHOW, OR TECHNICAL KNOWLED GE WAS PROVIDED BY 3I INFOTECH, DUBAI .THE 3I INFOTECH MER ELY SOURCED THE PROSPECTIVE BUYERS FOR EFFECTING SALES OF THE S OFTWARE OF THE ASSESSEE. ON BEING ASKED BY THE BENCH,THE LD DR DID NOT CONTROVERT THE STATEMENT AND SUBMISSIONS MADE BY TH E LD COUNSEL FOR THE ASSESSEE. 3.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IF THE OB SERVATION MADE IN THE ASSESSMENT ORDER, LEADING TO ADDITION M ADE TO THE TOTAL INCOME, CONCLUSION DRAWN IN THE IMPUGNED ORDE R, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY TH E LD. RESPECTIVE COUNSEL, IF KEPT IN JUXTAPOSITION AND AN ALYZED, WE FIND THAT THE ASSESSING OFFICER ALSO CONSIDERED THE TERMS OF THE CONTRACT BUT WE FIND THAT AS PER THE WORKING OF THE CONTRACT VALUE, THE ASSESSEE ONLY INVOICED ONLY $ 1,60,000 A GAINST THE TOTAL CONTRACT OF $ 4,12,000 BUT THE LD. ASSESSING OFFICER ADDED THE BALANCE INCOME OF $ 2,52,000 AS UNACCOUNT ED SALE AT THE RATE 39.77 PER USD MAKING ADDITION OF RS. 1, 00,22,040. WE FIND THAT THE LD. COMMISSIONER OF INCOME TAX (AP PEALS) JUSTIFIABLY CONSIDERED THE AGREEMENT SPECIALLY THE TERMS AND CONDITIONS AS HAS BEEN CONSIDERED IN PARA 4.2 OF TH E IMPUGNED ORDER AND THEN REACHED TO CONCLUSION. THE WORKING MENTIONED IN PARA 4.2 IS EXACTLY IN TERMS OF THE AG REEMENT, WHEREIN, NO CONTRADICTION WAS POINTED OUT BY THE DE PARTMENT. NEITHER THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) FOUND M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 14 ANY SUPPRESSION OF SALE NOR ANYTHING WAS POINTED BE FORE US. EVEN OTHERWISE, NOTHING WAS BROUGHT ON RECORD BY TH E REVENUE EVIDENCING THAT THE PROJECT WAS COMPLETED D URING THE YEAR ITSELF, THUS, WE AFFIRM THE STAND OF THE LD. C OMMISSIONER OF INCOME TAX (APPEALS).THIS MATTER WAS KEPT FOR CL ARIFICATION BY THE BENCH WITH RESPECT TO THE FRONT END COMMISSI ONS AND AS PER THE FACTS AS EMERGING FROM THE RECORDS, ORDE RS OF THE AUTHORITIES BELOW AND STATEMENTS AND SUBMISSIONS AS MADE BY BOTH THE COUNSELS, WE ARE OF CONSIDERED VIEW THA T THE FRONT END COMMISSION AS ARE PAID BY THE ASSESSEE COMPANY TO M/S 3I INFOTECH, DUBAI , THE PITH AND SUBSTANCE OF THE AGREEMENT OF THE ASSESSEE WITH THE FOREIGN AGENT M/S 3I INFOT ECH, DUBAI IS FOR ARRANGING EXPORT ORDER OF SOFTWARE IN FAVOUR OF THE ASSESSEE COMPANY AND SINCE IT COULD NOT BE BROUGHT ON RECORD BY THE REVENUE THAT SERVICES WERE RENDERED FROM OR IN INDIA BY THE SAID FOREIGN AGENT I.E. 3I INFOTECH NOR IT COUL D BE BROUGHT ON RECORD THAT ANY TECHNICAL SERVICES OR TECHNICAL KNOWHOW OR TECHNICAL EXPERTISE, EXPERIENCE OR EXPERTISE IS PRO VIDED BY THE 3I INFOTECH, DUBAI AND ALSO THE FRONT COMMISSION PE RTAINS TO THE PERIOD PRIOR TO THE NEW CIRCULAR NO. 7/2009 DAT ED 22.10.2009, WE HOLD THAT THERE WAS NO LIABILITY ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE ON THE SAID PA YMENT U/S 195 OF THE ACT AND THE AO ERRED IN INVOKING THE PRO VISIONS OF SECTION 40(A) OF THE ACT READ WITH SECTION 195 OF T HE ACT. WE CONFIRM THE ORDERS OF THE CIT(A). WE ORDER ACCORDIN GLY. M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 15 4. THE NEXT GROUND PERTAINS TO ADDITION MADE ON ACC OUNT OF SALE OF $ 70,000/- (RS.28 LAKH) TO M/S MUSHREQ BANK , BEING UNACCOUNTED SALES. THE LD. DR ADVANCED ARGUMENTS I N SUPPORT OF THE ADDITION MADE BY THE LD. ASSESSING O FFICER, WHEREAS, THE LD. COUNSEL FOR THE ASSESSEE INVITED O UR ATTENTION TO THE AGREEMENT DATED 27/03/2008 (PAGE 91 OF THE P APER BOOK) WHICH WAS AGREED UPON IN DUBAI. OUR ATTENTION WAS FURTHER INVITED TO PAGE 113 OF THE PAPER BOOK (SCHE DULE III) BY CONTENDING THAT THE ASSESSEE EMPLOYED TECHNICIAN IN DUBAI FOR WHOM VISA WAS APPLIED, THEREFORE, IT WAS PRACTICALL Y IMPOSSIBLE TO EMPLOY WITHIN THREE DAYS, THEREFORE, THE ASSESSE E BILLED ON 01 ST APRIL, 2008 BY INVITING OUR ATTENTION TO PAGE 132 OF THE PAPER BOOK BY FURTHER EXPLAINING THAT EVEN THE IMPLEMENTATION OF THE PROJECT WAS NOT STARTED IN MA RCH. THIS FACTUAL FINDING WAS NOT CONTROVERTED BY THE REVENUE . 4.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE STAND OF THE REVENUE IS THAT THE ASSESSEE SUPPRESSED THE SALES B Y ANALYZING THE AGREEMENT WITH M/S MASHREQ BANK, DATE D 27/03/2008 AND FURTHER ANALYZE THE PAYMENT TERMS CO NTAINED IN SCHEDULE III AND MADE THE ADDITION. WE NOTE THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) JUSTIFIABLY EX AMINED THE DOCUMENTARY EVIDENCE FILED BY THE ASSESSEE (PAR A 5.2 OF THE IMPUGNED ORDER), TERMS OF THE AGREEMENTS, AND F OUND THAT 50% OF THE PAYMENT WERE TO BE RECEIVED ON IMPLEMENT ATION. THE CONTRACT WAS SIGNED ON 27/03/2008 AND UP TO M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 16 31/03/2008, THERE WAS NO IMPLEMENTATION OF WORK RAT HER THE WORK STARTED ON 01/04/2008 FOR WHICH INVOICE FOR US D 70000 WAS RAISED WHICH IS 50% OF USD 1,40,000. IT IS ALSO NOTED THAT IN CASE OF PRODUCT, LICENSE COMPANY AND ACCOUNTING OF THE REVENUE IS BASED ON PERCENTAGE COMPLETION OF WORK M ETHOD. WE FIND NO SUPPRESSION OF SALE AS HAS BEEN ALLEGED BY THE REVENUE. WE HAVE ALSO PERUSED AND ANALYZED THE AGRE EMENT ENTERED INTO BETWEEN THE PARTIES AND FOUND THAT PRA CTICALLY NO WORK WAS COMMENCED IN THE MONTH OF MARCH, THUS, NO ADDITION WAS WARRANTED. WE AFFIRM THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 5. THE NEXT GROUND PERTAINS TO DELETING THE ADDITI ON MADE ON ACCOUNT OF SALE OF RS.3,02,726/- TO M/S CEN TURIAN BANK OF PUNJAB, BEING UNACCOUNTED SALES. THE CRUX O F ARGUMENT ON BEHALF OF THE REVENUE, IS IDENTICAL TO THE GROUND RAISED. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE FACTS ARE IDENTICAL TO GROUND NO . 3. 5.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE A LSO PERUSED THE AGREEMENT ALONG WITH THE TERMS OF CONTR ACT AS PER WHICH 50% OF THE LICENSE FEE AND 50% OF THE IMPLEME NTATION WAS TO BE RECEIVED AS ADVANCE DURING F.Y. 2006-07. THE ASSESSEE RAISED THE 50% OF THE BALANCE AMOUNT OF IMPLEMENTATION DURING F.Y. 2008-09 AS THE PROJECT W AS COMPLETED DURING THAT YEAR ONLY. THERE WAS MERGER B ANK WITH HDFC BANK. DURING THE F.Y. 2007-08, THE BANK REQUES TED M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 17 CUSTOMIZATION WORK. THE ASSESSEE RAISED THE BILL AS PER THE TERMS OF THE CONTRACT BUT THE RECOGNITION OF THE RE VENUE IN SERVICE SECTOR DEPENDS ON NATURE OF AGREEMENT AND N OTHING HAS BEEN BROUGHT ON RECORD TO SUGGEST THAT, RIGHT, INTEREST AND TITLE PASSED ON THE CUSTOMER DURING THE YEAR ITSELF . THERE IS NO QUESTION OF SUPPRESSION OF SALE AS HAS BEEN ALLEGED . WE AFFIRM THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (AP PEALS). 6. THE NEXT GROUND PERTAINS TO ADDITION OF RS.19,00 ,044/- ($ 48200) ON ACCOUNT OF M/S DUCONT FZ-LLC, BEING UNACCOUNTED SALES AS PER AGREEMENT WITH M/S DUNCONT FZ- LLC. THE CRUX OF ARGUMENT ON BEHALF OF THE REVENUE IS IDENTICAL TO THE GROUND RAISED BY DEFENDING THE ADD ITION MADE BY THE LD. ASSESSING OFFICER. ON THE OTHER HAND, TH E LD. COUNSEL FOR THE ASSESSEE, CONTENDED THAT THIS GROUND IS SIM ILAR TO GROUND NO.2. 6.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT IDENTICALLY WE HAVE DELIBERATED UPON THIS ISSUE WHI LE DEALING WITH GROUND NO. 2 AND FIND THAT THE DETAILS OF PAYM ENT HAS BEEN REPRODUCED IN PARA 7.2 AND THE REASONING OF TH E LD. ASSESSING OFFICER WHILE MAKING THE ADDITION IN PARA 7.1 OF THE IMPUGNED ORDER. THE DETAILED REASONING HAS BEEN CON SIDERED IN PARA 7.2 ALONG WITH THE CIRCULAR NO. 7 OF 2009 DATED 22/10/2009 WITHDRAWING ALL CIRCULARS AND FIND THAT THE LD. ASSESSING OFFICER ERRONEOUSLY MADE ADDITION OF 100% OF FRONT END COMMISSION OF $ 48200, WHEREAS, THE INVOICE WAS IN FACT M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 18 RAISED ON ONLY OF 40% OF THE CONTRACT VALUE. THE CI RCULAR ARE TO BE APPLIED PROSPECTIVELY UNLESS AND UNTIL SPECIFICA LLY MENTIONED TO BE APPLICABLE RETROSPECTIVELY. WE AFFI RM THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL S). 7. THE NEXT GROUND PERTAINS TO DELETING THE ADDITI ON MADE ON ACCOUNT OF DISALLOWANCE OF COMMISSION EXPEN SES. THE CRUX OF ARGUMENT ON BEHALF OF THE REVENUE IS IDENTI CAL TO THE GROUND RAISED BY CONTENDING THAT WHILE GRATING RELI EF TO THE ASSESSEE, THE LD. COMMISSIONER OF INCOME TAX (APPEA LS) IGNORED CIRCULAR NO.7/2009 DATED 22/10/2009. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE, DEFENDED TH E CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER BY PLAC ING RELIANCE UPON THE DECISION IN 201 CTR (BOM.) 196 BY INVITING OUR ATTENTION TO PAGE 253 TO 257 OF THE PAPER BOOK. 7.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. BEFORE TH E LD. COMMISSIONER OF INCOME TAX (APPEALS), THE STAND OF THE ASSESSEE WAS THAT THE ALLEGED CIRCULAR NO.7, DATED 22/10/2009 IS NOT APPLICABLE TO THE FACTS OF THE CASE AS THE S AME IS EFFECTIVE PROSPECTIVELY. WE NOTE THAT THE LD. ASSESS ING OFFICER APPLIED CIRCULAR NO. 7 OF 2009 TO THE TRANSACTION O F THE ASSESSEE PRIOR TO F.Y. 2007-08 WHEN THE CIRCULAR WA S NOT IN FORCE AS HAS BEEN DELIBERATED UPON IN SANJIV GUPTA VS DCIT B Y THE LUCKNOW BENCH OF THE TRIBUNAL (ITA NO.587/LKW/2007), ORDER DATED 07/01/2011. THE RATIO LAID DOWN BY HONBLE JURISDICTIONAL HIGH COURT IN BASF(I NDIA) LTD. M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 19 & ORS. VS COMMISSIONER (2006) 280 ITR 136 (BOM.), T HUS, WE AFFIRM THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). WE FIND THAT IDENTICALLY WE HAVE DELIBER ATED UPON THIS ISSUE WHILE DEALING WITH GROUND NO. 2 AND 5 WI TH RESPECT TO FRONT END COMMISSION AND THE SAME DECISION SHALL APPLY TO THE FRONT END COMMISSION OF RS.62,83,660 PAID BY TH E ASSESSEE TO 3I INFOTECH, DUBAI AND RS.19,00,044/- P AID BY THE ASSESSEE TO M/S DUCONT FZ-LLC IN THE INSTANT GROUND OF APPEAL 8. THE LAST GROUND RAISED BY THE ASSESSEE PERTAIN S TO APPLICABILITY OF SECTION 145(1) AND 145(3) IN REJEC TING THE BOOKS OF ACCOUNTS BY THE ASSESSING OFFICER. THE CRUX OF T HE ARGUMENT ON BEHALF OF THE REVENUE IS IDENTICAL TO THE GROUND RAISED. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE CO NTENDED THAT THE ASSESSEE FOLLOWED ACCOUNTING STANDARD, AS- 26 AND THERE IS NO ADVERSE COMMENT BY THE AUDITOR, THEREFO RE, THE BOOKS OF ACCOUNT WERE REJECTED BY THE ASSESSING OFF ICER. 8.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE BOOKS OF ACCOUNTS WERE REJECTED BY THE LD. ASSESSING OFFICER ON THE PLEA THAT ACCOUNTING STANDARD WERE NOT COMPLIED WITH BY THE ASSESSEE. HOWEVER, WE NOTE THAT THE BOOKS OF ACCOU NTS WERE AUDITED BY M/S DELLOITTE HASKINS, ONE OF THE BIG AU DIT FIRMS, WHO HAVE NOT COMMENTED ANYTHING ADVERSE/DEVIATION I N THEIR AUDIT REPORT, THUS, WE FIND NO INFIRMITY IN THE CON CLUSION OF THE M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 20 LD. COMMISSIONER OF INCOME TAX (APPEALS). WE AFFIRM THE SAME. FINALLY, WE FIND NO MERIT IN THE APPEAL OF THE REVE NUE, CONSEQUENTLY, DISMISSED. 9. NOW, WE SHALL TAKE UP THE APPEAL OF THE ASSESSE E (ITA NO.2295/MUM/2013) FOR A.Y. 2009-10, WHEREIN, F IRST GROUND RAISED, PERTAINS TO CONFIRMING THE ADDITION OF RS.30,33,657/-, ARBITRARILY, TO THE COST OF SOFTWAR E DEVELOPMENT COST BY TREATING THE PROPORTIONATE VALU E OF INCIDENTAL EXPENSES IGNORING THE STANDARD PRACTICE, FOLLOWED AND THE EXPLANATION GIVEN BY THE ASSESSEE. 9.1. THE CRUX OF ARGUMENT ADVANCED ON BEHALF OF TH E ASSESSEE IS THAT THE ASSESSEE HAD BEEN CONSISTENTLY CAPITALIZING CERTAIN EXPENSES ON REASONABLE BASIS F OR BUSINESS SOFTWARE DEVELOPMENT WITH RESPECT TO EMPLOYEES COST (ENGAGED IN SOFTWARE DEVELOPMENT), OCCUPYING RENTAL PREMISES (FOR SOFTWARE DEVELOPMENT AND DEPRECIATION ON FIXED ASSE TS OF THE PREMISES USED BY THE EMPLOYEES (LOCATED IN THE PREM ISES). IT WAS EXPLAINED THAT FROM A.Y. 2007-08 AND TILL DATE, NO DISTURBANCE TO THE CLAIM OF THE ASSESSEE WAS MADE A ND THE ASSESSING OFFICER ACCEPTED FOR A.Y. 2007-08, 2008-0 9 AND MERELY FOR A.Y. 2009-10, HE SAYS OTHER ADMINISTRATI VE COST ALSO TO BE ALLOCATED. IT WAS CONTENDED THAT NO ADJUSTMEN T WAS MADE IN OTHER YEARS. OUR ATTENTION WAS INVITED TO A CCOUNTANT STANDARD AS-26 (PAGE 446 OF THE PAPER BOOK) AND FUR THER PAGE M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 21 464( POINT 9). ON THE OTHER HAND, THE LD. DR DEFEN DED THE ADDITION MADE BY THE LD. ASSESSING OFFICER. 9.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WITHOUT G OING INTO MUCH DELIBERATION, IT HAS NOT BEEN DISPUTED BY THE LD. DR THAT FOR EARLIER ASSESSMENT YEAR, THE ASSESSING OFFICER ACCEPTED THE CLAIM OF THE ASSESSEE ON IDENTICAL FACT, THUS, ON T HE ISSUE OF CONSISTENCY, AS DISCUSSED IN EARLIER PARA OF THIS O RDER, THE ASSESSEE IS HAVING A MERIT IN ITS CONTENTION BECAUS E IN THE ABSENCE OF CONTRARY FACTS/ADVERSE MATERIAL, THE DEP ARTMENT IS EXPECTED TO FOLLOW THE CONSISTENCY. EVEN OTHERWISE, AS PARA 54 (PAGE 446) WITH RESPECT TO AS-26, THE FOLLOWING ARE NOT COMPONENTS OF THE COST OF AN INTERNALLY GENERATED I NTANGIBLE ASSET. A. SELLING, ADMINISTRATIVE AND OTHER GENERAL OVERHEAD EXPENDITURE UNLESS THIS EXPENDITURE CAN BE DIRECTLY ATTRIBUTED TO MAKING THE ASSET READY FOR USE. B. CLEARLY IDENTIFIED INEFFICIENCIES AND INITIAL OPERA TING LOSSES INCURRED BEFORE AN ASSET ACHIEVES PLANES PERFORMANC E; AND C. EXPENDITURE ON TRAINING THE STAFF TO OPERATE THE AS SET . AS PER CLAUSE 9 OF AS-26 (PAGE 464 OF THE PAPER BOO K), THE FOLLOWING ARE NOT COMPONENTS OF THE COST OF INTERNA LLY GENERATED SOFTWARE:- M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 22 (A) SELLING, ADMINISTRATION AND OTHER GENERAL OVERHEAD EXPENDITURE UNLESS THIS EXPENDITURE CAN BE DIRECTLY ATTRIBUTABL E TO THE DEVELOPMENT OF THE SOFTWARE; (B) CLEARLY IDENTIFIED INEFFICIENCIES AND INITIAL OPERA TING LOSSES INCURRED BEFORE SOFTWARE ACHIEVES THE PLANNED PERFO RMANCES; AND (C) EXPENDITURE ON TRAINING THE STAFF TO USE THE INTERN ALLY GENERATED SOFTWARE. 9.3. IN VIEW OF THE ABOVE, WE NOTE THAT THE LD. AS SESSING OFFICER HAS NOT POINTED OUT ANY INFIRMITY IN THE EX PLANATION OF THE ASSESSEE. THE TOTALITY OF FACTS, CLEARLY INDICA TES MERITS IN THE CONTENTION OF THE ASSESSEE AND AS CANVASSED BY THE ASSESSEE, THE LD. ASSESSING OFFICER MADE THE ADDITI ON TO THE COST OF TREATING THE PROPORTIONATE VALUE OF INCIDEN TAL EXPENSES IGNORING THE STANDARD PRACTICES ADOPTED BY THE ASSE SSEE. IN VIEW OF THE EXPLANATION OF THE ASSESSEE, WE ALLOW T HIS GROUND AND MORE SPECIFICALLY WHEN FOR EARLIER ASSESSMENT YE AR, THE DEPARTMENT HAD BEEN ACCEPTING THE CLAIM OF THE ASSE SSEE AND IN THE IMPUGNED YEAR, NO CONTRARY FACTS WERE BROUGH T ON RECORD. 10. THE NEXT GROUND PERTAINS TO ADDITION OF RS.24,69,585/- ARBITRARILY DECIDING THE USEFUL LIFE OF THE ASSET AND ACCORDINGLY DEPRECIATION ON THE INTANGIBLE ASSE T AS DEFERRED REVENUE EXPENDITURE TO BE W/OFF OVER A PER IOD OF 10 YEARS BY APPLYING OF 10% IGNORING THE RATES OF DEPR ECIATION AS M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 23 PROVIDED BY THE ACT UNDER SECTION 32 RULE 5 (APPEND IX 1-PART B). 10.1. THE CRUX OF ARGUMENT ON BEHALF OF THE ASSESS EE IS IDENTICAL TO GROUND NO. 1 OF THE APPEAL OF THE REVE NUE FOR A. Y. 2008-09. THE LD. DR CONSENTED THAT THIS GROUND IS IDENTICAL TO THE GROUND IN THE APPEAL OF THE REVENUE. 10.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AN ELABO RATE DISCUSSION HAS BEEN MADE BY US IN EARLIER PARA OF T HIS ORDER WHILE DECIDING IDENTICAL GROUND (GROUND NO.1) IN TH E APPEAL OF THE REVENUE FOR. A.Y. 2008-09, THEREFORE, ON THE SA ME REASONING, WE ALLOW THE GROUND OF THE ASSESSEE. 11. GROUND NO.3 IS WITH RESPECT TO FRONT END COMMISSION PAYABLE BY ALLEGING SUPPRESSION OF SALES AND CONSEQUENT ADDITION MADE BY THE ASSESSING OFFICER. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THIS GROUND IS SIMILAR TO GROUND NO.2 OF THE APPEAL OF THE REVENUE FOR A.Y . 2008-09. THE LD. DR DID NOT CONTROVERT THE ASSERTION OF THE ASSESSEE. 11.1. SO FAR AS THE ISSUE OF SUPPRESSION OF SALE I S CONCERNED, WE HAVE DELIBERATED UPON, IDENTICALLY, O N THE ISSUE WHILE DISCUSSING GROUND NO. 2 FOR A.Y. 2008-09 IN T HE APPEAL OF THE REVENUE, WHEREIN, WE FIND THAT THERE WAS NO SUPPRESSION OF SALE BY THE ASSESSEE AS WAS ALLEGED BY THE ASSESSING OFFICER, THEREFORE, ON THE SAME REASONING , WE ALLOW THIS GROUND OF THE ASSESSEE. M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 24 12. THE NEXT GROUND WITH RESPECT TO NOT ALLOWING T HE FRONT END COMMISSION AS EXPENSES IN SPITE OF MAKING ADDITIONS TO THE SALES VALUE BY APPLYING THE PROVISION OF SEC TION 195 AND TREATING THE SAME IS IN ADMISSIBLE EXPENDITURE U/S 40(A) OF THE ACT REFERRING TO CBDT CIRCULAR NO. 7/2009 DATED 22/ 10/2009, WHICH WAS NOT APPLICABLE ON THE DATE OF TRANSACTION . 12.1. THE CRUX OF ARGUMENT ON BEHALF OF THE ASSESS EE IS THAT THIS GROUND IS IDENTICAL TO GROUND NO. 6 FOR A .Y. 2008-09. THE LD. DR DID NOT OBJECT TO THE ASSERTION OF THE A SSESSEE. 12.2. WE HAVE MADE AN ELABORATE DISCUSSION IN EARL IER PARA OF THIS ORDER, WHILE DECIDING THE APPEAL OF TH E REVENUE FOR A.Y. 2008-09, HAVING DISCUSSED CIRCULAR NO.7 OF 200 9 DATED 22/10/2009, WHICH WAS HELD TO BE NOT APPLICABLE TO THE FACTS OF THE CASE AND FURTHER HOLDING THAT IT IS APPLICAB LE PROSPECTIVELY, THUS, THIS GROUND OF THE ASSESSEE IS ALSO ALLOWED. 13. THE LAST GROUND PERTAINS TO MAKING DISALLOWANC E OF RS.1,14,681/- U/S 40(A)(IA) OF THE ACT INSTEAD OF D ISALLOWING OF RS.4,000/- ON WHICH TDS AMOUNTING TO RS. 453 WAS RE MITTED IN THE GOVERNMENT TREASURY AFTER END OF THE RELEVAN T FINANCIAL YEAR. THE LD. COUNSEL FOR THE ASSESSEE ADVANCED A RGUMENT WHICH IS IDENTICAL TO THE GROUND RAISED. 13.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE T HAT IN PARA 8 OF THE ASSESSMENT ORDER, THE LD. ASSESSING OFFICE R HAS M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 25 MENTIONED THE AUDITOR REPORT (CLAUSE 27) (B)(III) W ITH RESPECT TO DETAILS OF PAYMENT AND TAX DEDUCTED AT SOURCE AS IS EXPLAINED IN THE TABLE PROVIDED IN PARA 8 OF THE ASSESSMENT. THE LD. COUNSEL FOR THE ASSESSEE, EXPLAINED THAT THERE WAS TYPOGRAPHICAL ERROR IN WRITING THE DUE DATE OF REMI TTANCE TO THE GOVERNMENT. WE HAVE PERUSED THE RECORD AND FIND MER IT IN THE CONTENTION OF THE AR BECAUSE INSTEAD OF 07 TH FEBRUARY OF 07 TH MARCH, 2000, IT WAS ON 07 TH FEBRUARY AND 07 MARCH, 2009, THUS, SINCE THERE IS NO LOSS TO THE REVENUE. THE CL AIM OF THE ASSESSEE IS FURTHER FORTIFIED BY PAGE 42 OF THE PAP ER BOOK. THUS, THIS GROUND OF THE ASSESSEE IS ALLOWED AS TDS AMOUNTING TO RS.453 WAS REMITTED TO THE GOVERNMENT ACCOUNT/TREASURY AFTER END OF THE FINANCIAL YEAR. 14. GROUND NO. 6 IS PREMATURE, WHICH IS WITH RESPE CT TO PENALTY U/S 271(1)(C) OF THE ACT. THE APPEAL OF THE ASSESSEE IS, THEREFORE, ALLOWED. 15. NOW, WE SHALL TAKE UP THE CROSS APPEAL, FILED BY THE REVENUE FOR A.Y. 2009-10 (ITA NO.1780/MUM/2013), WH EREIN, ONLY GROUND RAISED BY THE DEPARTMENT PERTAINS TO DE LETING THE ADDITION OF RS.24,69,858/- ON ACCOUNT OF DISALLOWAN CE OF DEPRECIATION DESPITE THE FACT THAT ASSESSEE DEVELOP ING SOFTWARE PRODUCT AND NOT UTILIZING THE SAME FOR BUSINESS PUR POSES, THEREFORE, THE DEPRECIATION RATES, AS PER INCOME TA X ACT, ARE NOT APPLICABLE. M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 26 15.1. THE LD. DR ADVANCED ARGUMENTS WHICH IS IDENT ICAL TO THE GROUND RAISED, WHEREAS, THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THIS ISSUE IS SIMILAR TO GROUND NO. 1, RAISED BY THE REVENUE, FOR A. Y. 2008-09. THIS WAS NOT CONTR OVERTED BY THE LD. DR BEING FACTUALLY CORRECT. 15.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AN D PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT WHILE DELIBERATING UPON GROUND NO.1 FOR A.Y. 2008-09 IN T HE APPEAL OF THE REVENUE, WE HAVE MADE AN ELABORATE DISCUSSIO N ON THIS ISSUE, THEREFORE, ON THE SAME REASONING, WE FIND NO MERIT IN THE CONTENTION OF THE DEPARTMENT, THEREFORE, AFFIRM THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), TH E APPEAL OF THE REVENUE, CONSEQUENTLY, DISMISSED. FINALLY, THE APPEALS OF THE REVENUE ARE DISMISSED A ND THAT OF THE ASSESSEE IS ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 18/05/2016 SD/- SD/- ( RAMIT KOCHAR ) (JOGINDER SINGH) '!# / ACCOUNTANT MEMBER $!# /JUDICIAL MEMBER $ % MUMBAI; ) DATED : 18/05/2016 F{X~{T? P.S/. . . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. +,-. / THE APPELLANT 2. /0-. / THE RESPONDENT. 3. 1 1 $ 2 ( +, ) / THE CIT, MUMBAI. 4. 1 1 $ 2 / CIT(A)- , MUMBAI M/S KALYPTO RISK TECHNOLOGIES PVT. LTD. ITA NO.1275/MUM/2012 AND ITA NOS. 1780 & 2295/MUM/2013 27 5. 45 / ! , 1 +,' +! 6 , $ % / DR, ITAT, MUMBAI 6. 7' 8% / GUARD FILE. ! / BY ORDER, 04, / //TRUE COPY// /! (DY./ASSTT. REGISTRAR) , $ % / ITAT, MUMBAI