BMC Software India Pvt. Ltd., Pune V. Dy. CIT, Circle 1(1), Pune

ITA 1473/PUN/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9507 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-12-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 15-07-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS M S VERMA
• Assessee Lawyers: FAROOQ V IRANI
• Keywords: Transfer pricing; International transaction
• Section: 43B; 143(3); 263; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.1473/PN/2013 (ASSESSMENT YEAR : 2006-07) BMC SOFTWARE INDIA PVT. LTD., TOWER A, ICC TECHNOLOGY PARK, SENAPATI BAPAT ROAD, PUNE 411 016. PAN : AABCB6110E . APPELLANT VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(1), PUNE. . RESPONDENT ASSESSEE BY : MR. FAROOQ V. IRANI DEPARTMENT BY : MRS. M. S. VERMA, CIT DATE OF HEARING : 11-12-2014 DATE OF PRONOUNCEMENT : 04-02-2015 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AG AINST AN ORDER OF THE COMMISSIONER OF INCOME TAX I, PUNE (IN SHORT THE COMMISSIONER) DATED 28.03.2013 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 27.09.2010 PASSED BY THE ASSESSING OFFICER U/S 143(3) R.W.S. 144(C(13 ) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT Y EAR 2006-07. 2. IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWIN G GROUNDS OF APPEAL :- BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, BMC SOFTWARE INDIA PRIVATE LIMITED (HEREINAFTER REFERRED TO AS THE 'AP PELLANT') RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER DATED 2 8 MARCH 2013 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX - I, PUNE (H EREINAFTER REFERRED TO AS 'THE LEARNED CIT') UNDER SECTION 263 OF THE INCOME- TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'ACT') ON THE FOLLOWING GROUNDS WHIC H ARE INDEPENDENT OF AND WITHOUT PREJUDICE TO ONE ANOTHER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HONORABLE CIT HAS: ITA NO.1473/PN/2013 ON VALIDITY OF REVISION PROCEEDINGS GROUND 1: ERRED IN SETTING ASIDE THE MATTER TO THE FILE OF AO AND DIRECTING THE LEARNED ASSESSING OFFICER TO FRAME FRESH ASSESSMENT WITHOUT CONSIDERING THE DETAILED SUBMISSIONS OF THE APPELLANT ON MERITS OF THE CASE. ON MERITS OF THE CASE GROUND 2: ERRED IN CONCLUDING THAT THE PROVISION FOR EXPENSES (ON WHICH TAXES WERE DEDUCTED AND NOT PAID) WHICH WAS REVERSED AND OFFER ED THE INCOME TO INCOME IN SUBSEQUENT YEAR, SHOULD BE DISALLOWED UNDER SECT ION 40(A)(I). GROUND 3: ERRED IN CONCLUDING THAT DEDUCTION UNDER SECTION 10 A OF THE ACT SHOULD NOT BE ALLOWED ON INCOME OF THE APPELLANT WHICH IS ENHANCE D ON ACCOUNT OF DISALLOWANCES UNDER SECTION 40(A)(I) OF THE ACT. HENCE THE ORDER PASSED BY LEARNED CIT IS CONTRARY T O THE LAW AND THEREFORE BE SET ASIDE. 3. BRIEFLY PUT, THE RELEVANT FACTS ARE THAT FOR THE ASSESSMENT YEAR 2006-07 ASSESSEE-COMPANY FILED A RETURN OF INCOME DECLARING TOTAL INCOME OF RS.6,87,913/-, WHICH WAS SUBJECT TO A SCRUTINY ASSE SSMENT. THE ASSESSING OFFICER PASSED AN ORDER U/S 143(3) R.W.S. 144C(13) OF THE ACT DATED 27.09.2010 WHEREBY THE TOTAL INCOME WAS DETERMINED AT RS.12,46,71,930/- AFTER MAKING AN ADDITION OF RS.1,23,98,478/- ON ACC OUNT OF THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION RELATING TO RENDERING OF SALE SUPPORT SERVICES TO ITS ASSOCIATED ENTERPRISES. 4. SUBSEQUENTLY, THE COMMISSIONER INVOKED HIS REVIS IONARY JURISDICTION U/S 263 OF THE ACT AND ON THE BASIS OF HIS EXAMINATION OF THE RECORD OF PROCEEDINGS, HE SHOW-CAUSED THE ASSESSEE AS TO WHY THE ASSESSMENT ORDER DATED 27.09.2010 (SUPRA) SHOULD NOT BE CONSIDERED A S ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE WITH IN THE MEANING OF SECTION 263 OF THE ACT. THE SHOW-CAUSE NOTICE ISSUED BY THE CO MMISSIONER WAS ON ACCOUNT OF TWO FACETS, NAMELY, (I) THE TREATMENT OF FACILITY RELOCATION OF EXPENSES OF RS.1,07,24,297/-, WHICH ACCORDING TO TH E COMMISSIONER WERE CAPITAL IN NATURE AND THAT THE ASSESSING OFFICER AL LOWED ASSESSEES CLAIM FOR ITA NO.1473/PN/2013 DEDUCTION WITHOUT RAISING ANY QUERY ON THIS ISSUE; AND, (II) THAT THE ASSESSEE HAD FAILED TO DEPOSIT TO THE CREDIT OF THE CENTRAL GOVERNMENT, THE TAXES DEDUCTED AT SOURCE IN A FEW INSTANCES AND THEREFORE THE CORRESPONDING EXPENDITURE OF RS.1,32,83,963/- WAS TO BE DISALLOWE D AS PER SECTION 40(A)(IA) OF THE ACT, WHICH THE ASSESSING OFFICER HAD FAILED TO DO. AFTER ALLOWING AN OPPORTUNITY TO THE ASSESSEE OF BEING HEARD ON THE A BOVE ASPECTS, THE COMMISSIONER ULTIMATELY SET-ASIDE THE ISSUE PERTAIN ING TO ADMISSIBILITY OR OTHERWISE OF THE RELOCATION EXPENSES TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING IT AFRESH; AND, ON THE ASPECT OF DISALLOWA NCE IN TERMS OF SECTION 40(A)(IA) OF THE ACT, THE COMMISSIONER DIRECTED THE ASSESSING OFFICER TO MODIFY THE ASSESSMENT ORDER DATED 27.09.2010 SO AS TO DISA LLOW A SUM OF RS.1,32,83,963/- ON THIS COUNT. AGAINST SUCH AN OR DER OF THE COMMISSIONER, ASSESSEE IS IN APPEAL BEFORE US ON THE AFORESTATED GROUNDS OF APPEAL. 5. AT THE TIME OF HEARING, THE LD. REPRESENTATIVE F OR THE ASSESSEE HAS NOT AGITATED THE ISSUE RELATING TO THE ADMISSIBILITY OR OTHERWISE OF THE RELOCATION EXPENSES AND THEREFORE THE ORDER OF THE COMMISSIONE R ON THIS ASPECT IS AFFIRMED. 6. NOW, WE MAY REFER TO THE ACTION OF THE COMMISSIO NER RELATING TO THE DISALLOWANCE U/S 40(A)(IA) OF THE ACT. IN THIS CON TEXT, THE COMMISSIONER HAS OBSERVED THAT HIS EXAMINATION OF RECORD REVEALED TH AT IN FEW INSTANCES ASSESSEE HAD FAILED TO DEPOSIT TO THE CREDIT OF THE CENTRAL GOVERNMENT TAXES DEDUCTED AT SOURCE. THE DETAILS IN THIS REGARD HAV E BEEN CULLED OUT BY THE COMMISSIONER IN PARA 5 OF THE SHOW-CAUSE NOTICE DAT ED 25.02.2013 ISSUED TO THE ASSESSEE. IN TERMS OF THE SAID DETAILS, THE CO MMISSIONER HAS NOTED THAT THE EXPENDITURE CORRESPONDING TO THE OUTSTANDING AM OUNT OF TDS WAS RS.1,32,83,963/-. AS PER THE COMMISSIONER, THE AFO RESAID EXPENDITURE WAS LIABLE TO BE DISALLOWED IN TERMS OF SECTION 40(A)(I A) OF THE ACT. AS PER THE ITA NO.1473/PN/2013 COMMISSIONER, ONCE TAXES ARE DEDUCTED AT SOURCE BY THE ASSESSEE, IT IS A STATUTORY OBLIGATION OF THE DEDUCTOR-ASSESSEE TO RE MIT SUCH TAXES TO THE CREDIT OF THE CENTRAL GOVERNMENT WITHIN THE PRESCRIBED DAT ES. IN THE EVENT OF FAILURE TO DO SO, THE EXPENDITURE CORRESPONDING TO SUCH OUT STANDING TDS WAS LIABLE TO BE DISALLOWED U/S 40(A)(IA) OF THE ACT. AS PER THE COMMISSIONER, THE FAILURE OF THE ASSESSING OFFICER TO DISALLOW SUCH EXPENDITURE IN THE ASSESSMENT ORDER DATED 27.09.2010 (SUPRA) HAS RENDERED THE ORDER WAS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE WITH IN THE MEANING OF SECTION 263 OF THE ACT. 7. THE ASSESSEE PUT-UP A TWO-FOLD DEFENSE BEFORE TH E COMMISSIONER. FIRSTLY, IT WAS CONTENDED THAT THE EXPENSES CORRESP ONDING TO THE OUTSTANDING TAXES REPRESENTED EXCESS PROVISIONS, WHICH WERE REV ERSED IN THE NEXT YEAR AND OFFERED TO TAX U/S 41(1) OF THE ACT, THUS, THER E WAS NO JUSTIFICATION FOR DISALLOWING SUCH EXPENDITURE IN THE YEAR UNDER CONS IDERATION. SECONDLY, IT WAS CONTENDED THAT EVEN IF THE EXPENSES WERE TO BE DISALLOWED U/S 40(A)(IA) OF THE ACT IN THIS YEAR, THE SAME WOULD NOT HAVE ANY E FFECT ON THE TAX LIABILITY AS ASSESSEE IS ENTITLED FOR THE DEDUCTION U/S 10A OF T HE ACT AS THE ENHANCED PROFITS RESULTING ON ACCOUNT OF THE DISALLOWANCE U/ S 40(A)(IA) OF THE ACT WOULD BE ELIGIBLE FOR THE DEDUCTION U/S 10A OF THE ACT. 8. THE AFORESAID PLEAS OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE COMMISSIONER. AS PER THE COMMISSIONER, FAILURE OF THE ASSESSEE TO REMIT THE TAXES TO THE CREDIT OF THE CENTRAL GOVERNMENT WITHI N THE PRESCRIBED DUE DATE AUTOMATICALLY RESULTS IN DISALLOWANCE OF CORRESPOND ING EXPENDITURE U/S 40(A)(IA) OF THE ACT. ACCORDING TO HIM, THE REVERS AL OF EXPENSE IN THE SUBSEQUENT YEAR WOULD NOT COME IN THE WAY OF DISALL OWANCE TO BE MADE IN THE CURRENT YEAR BY INVOKING SECTION 40(A)(IA) OF THE A CT. THUS, AS PER THE COMMISSIONER, THE ASSESSING OFFICER OUGHT TO HAVE D ISALLOWED THE EXPENSES ITA NO.1473/PN/2013 CORRESPONDING TO THE TAXES DEDUCTED AT SOURCE BUT N OT PAID TO THE CREDIT OF THE CENTRAL GOVERNMENT. WITH REGARD TO THE OTHER PLEA THAT ASSESSEE WAS ELIGIBLE FOR THE DEDUCTION U/S 10A OF THE ACT, THE COMMISSIO NER DID NOT ACCEPT THE SAME. FIRSTLY, ACCORDING TO HIM, THE INCOME OF THE ASSESSEE HAS TO BE FIRST DETERMINED AND THE DEDUCTION U/S 10A OF THE ACT COM ES NEXT. AS PER THE COMMISSIONER, THE DETERMINATION OF INCOME CANNOT BE WISHED AWAY MERE LY ON REFERENCE TO THE DEDUCTION WHICH THE ASSESSEE MA Y BECOME ELIGIBLE FOR. HE, THEREFORE, CONCLUDED THAT THE FAILURE ON THE PA RT OF THE ASSESSING OFFICER TO APPLY THE PROVISIONS OF SECTION 40(A)(IA) OF THE AC T ADVERSELY EFFECTED THE DETERMINATION OF INCOME THEREBY RENDERING THE ASSES SMENT ORDER AS ERRONEOUS. THE COMMISSIONER FURTHER WENT ON TO HOL D THAT ASSESSEE WAS NOT ELIGIBLE FOR CLAIMING DEDUCTION U/S 40(A)(IA) OF TH E ACT WITH RESPECT TO THE INCOME BEING ENHANCED UPON DISALLOWANCE U/S 40(A)(I A) OF THE ACT. IN COMING TO SUCH CONCLUSION, THE COMMISSIONER HAS RELIED UPO N A DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. SHRI RAMESHBHAI C. PRAJAPATI VIDE ITA NO.226/AHD/2010 DATED 21.09.2012 . FOR THE ABOVE REASON, THE COMMISSIONER REJECTED ASSESSEES CONTENTIONS TH AT THE DISALLOWANCE ENVISAGED BY HIM U/S 40(A)(IA) OF THE ACT WILL BE T AX NEUTRAL. HE, DIRECTED THE ASSESSING OFFICER TO RE-COMPUTE ASSESSEES INCOME A FTER EFFECTING THE DISALLOWANCE OF IMPUGNED EXPENSES AMOUNTING TO RS.1 ,32,83,963/- (SUBJECT TO THE CORRECTNESS OF THE AMOUNT). 9. BEFORE US, THE EMPHASIS OF THE LD. REPRESENTATIV E FOR THE ASSESSEE WAS TO DEMONSTRATE THAT EVEN IF THERE IS A DISALLOW ANCE U/S 40(A)(IA) OF THE ACT IN THE CURRENT YEAR, IT WOULD BE TAX NEUTRAL AND TH EREFORE THE ASSESSMENT ORDER DATED 27.09.2010 (SUPRA) CANNOT BE CONSIDERED AS PR EJUDICIAL TO THE INTERESTS OF THE REVENUE WITHIN THE MEANING OF SECTION 263 OF THE ACT QUA THE AFORESAID ISSUE. THE AFORESAID PLEA IS RAISED ON THE GROUND THAT THE ENHANCED INCOME WITH REFERENCE TO THE DISALLOWANCE U/S 40(A)(IA) OF THE ACT IS ENTITLED TO ITA NO.1473/PN/2013 EXEMPTION U/S 10A OF THE ACT. IN SUPPORT OF THE SA ID PROPOSITION, RELIANCE HAS BEEN PLACED ON THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD., (2011) 33 0 ITR 175 (BOM.). AS PER THE HONBLE HIGH COURT, ANY DISALLOWANCE MADE BECAU SE OF THE APPLICATION OF STATUTORY PROVISIONS I.E. SECTION 43B IN THE CASE O F EMPLOYERS CONTRIBUTION AND SECTION 36(1)(V) R.W.S. 2(24)(X) IN THE CASE OF EMP LOYEES CONTRIBUTION WOULD ONLY LEAD TO INCREASE IN THE BUSINESS PROFITS OF THE ASSESSEE, AND IN THE CASE OF AN ASSESSEE WHO IS ENTITLED TO THE BENEFITS OF S ECTION 10A OF THE ACT, THE CLAIM OF EXEMPTION U/S 10A OF THE ACT WOULD BE AVAI LABLE WITH REFERENCE TO SUCH ENHANCED INCOME ALSO. ALTERNATIVELY, IT HAS B EEN POINTED OUT THAT THE EXPENDITURE SOUGHT TO BE DISALLOWED U/S 40(A)(IA) O F THE ACT REPRESENTED PROVISION FOR EXPENSES, WHICH HAVE INDEED BEING REV ERSED IN THE NEXT YEAR AND OFFERED TO TAX U/S 41(1) OF THE ACT. ON THIS B ASIS ALSO, IT IS SOUGHT TO BE CANVASSED THAT IF THE DISALLOWANCE IS MADE IN THIS YEAR AS HELD BY THE COMMISSIONER, IT WOULD OBVIOUSLY MEAN THAT THE SAME AMOUNT WHICH STANDS OFFERED TO TAX BY THE ASSESSEE SUO MOTU IN THE NEXT YEAR, WOULD HAVE TO BE ADJUSTED. LD. REPRESENTATIVE POINTED OUT THAT THE TAX RATES IN THE CURRENT YEAR AS WELL AS IN THE SUBSEQUENT ASSESSMENT YEAR ARE SA ME AND THEREFORE THERE IS NO PREJUDICE CAUSED TO THE REVENUE BY THE ORDER OF THE ASSESSING OFFICER DATED 27.09.2010 (SUPRA) BY NOT MAKING THE IMPUGNED DISALLOWANCE U/S 40(A)(IA) OF THE ACT IN THIS YEAR. 10. THE LD. CIT-DR APPEARING FOR THE REVENUE HAS DE FENDED THE ORDER OF THE COMMISSIONER BY RELYING ON THE REASONING TAKEN IN THE IMPUGNED ORDER, WHICH WE HAVE ALREADY NOTED IN THE EARLIER PARAS AN D IS NOT BEING REPEATED FOR THE SAKE BREVITY. THE SUM AND SUBSTANCE OF THE STA ND OF THE LD. CIT-DR IS THE ISSUE OF DETERMINATION OF TOTAL INCOME COMES BEFORE CONSIDERING ASSESSEES ELIGIBILITY FOR THE CLAIM OF ANY DEDUCTION/EXEMPTIO N AND IF THERE IS AN ERROR ITA NO.1473/PN/2013 MADE IN SUCH DETERMINATION OF INCOME, THE SAME CANN OT BE WISHED AWAY MERELY ON THE GROUND THAT THE RESULTANT INCOME IS E LIGIBLE FOR EXEMPTION. 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. OSTENSIBLY, THE CLAIM SETUP BY THE ASSESSEE WAS THAT THE NON-INVOKI NG OF SECTION 40(A)(IA) OF THE ACT BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER DATED 27.09.2010 (SUPRA) TO DISALLOW THE IMPUGNED SUM OF RS.1,32,83, 963/- DOES NOT RESULT IN ANY LOSS OF TAX TO THE DEPARTMENT. THE AFORESAID W AS BASED ON THE PLEA THAT THE ENHANCED INCOME RESULTING ON APPLICATION OF SEC TION 40(A)(IA) OF THE ACT, WOULD BE ENTITLED FOR EXEMPTION U/S 10A OF THE ACT. THE FACTUM OF THE ASSESSEES ENHANCED INCOME BEING ELIGIBLE FOR THE B ENEFITS OF SECTION 10A OF THE ACT IS NOT DISPUTED BY THE REVENUE AT ANY STAGE . IN-FACT, THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GEM PL US JEWELLERY INDIA LTD. (SUPRA) CLEARLY SUPPORTS THE PLEA OF THE ASSESSEE. THEREFORE, IT WOULD BE APPROPRIATE TO INFER THAT THE DISALLOWANCE OF RS.1, 32,83,963/- SOUGHT TO BE MADE BY THE COMMISSIONER BY INVOKING SECTION 40(A)( IA) OF THE ACT WOULD RESULT IN AN ENHANCED INCOME WHICH IS ELIGIBLE FOR THE BENEFIT OF SECTION 40(A)(IA) OF THE ACT. IF SUCH BE THE SITUATION, TH E MOOT POINT IS WHETHER THE COMMISSIONER WAS JUSTIFIED IN INVOKING SECTION 263 OF THE ACT AND DIRECTING THE ASSESSING OFFICER TO MODIFY THE ASSESSMENT ORDER BY DISALLOWING RS.1,32,83,963/- U/S 40(A)(IA) OF THE ACT ? IT IS A WELL-SETTLED PROPOSITION THAT A COMMISSIONER IS DENUDED FROM EXERCISING HIS REVISIO NARY POWER U/S 263 OF THE ACT UNLESS HE IS ABLE TO ESTABLISH THAT THE ORDER U NDER REVISION IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE . THE ABSENCE OF EITHER OF THE TWO CONDITIONS WOULD NOT JUSTIFY INVOKING SECTI ON 263 OF THE ACT BY THE COMMISSIONER. IN THE PRESENT CASE, THE ACTION OF T HE COMMISSIONER TO DIRECT THE ASSESSING OFFICER TO DISALLOW RS.1,32,83,963/- U/S 40(A)(IA) OF THE ACT DOES NOT ESTABLISH ANY LOSS OF TAX FOR THE DEPARTMENT IN THE FACE OF ASSESSEES ASSERTIONS THAT SUCH INCOME IS EXEMPT U/S 10A OF TH E ACT, WHICH IS IN LINE WITH ITA NO.1473/PN/2013 THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN T HE CASE OF GEM PLUS JEWELLERY (SUPRA). THEREFORE, IN THE ABSENCE OF FU LFILLMENT OF ONE OF THE CONDITION OF THE ORDER BEING PREJUDICIAL TO THE INT EREST OF THE REVENUE, THE IMPUGNED ACTION OF THE COMMISSIONER IS NOT TENABLE. THE ORDER OF THE COMMISSIONER QUA THE DISALLOWANCE U/S 40(A)(IA) OF THE ACT IS HEREBY SET- ASIDE, AND THE ASSESSEE SUCCEEDS. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED, AS ABOVE. ORDER PRONOUNCED ON 04 TH FEBRUARY, 2015. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 04 TH FEBRUARY, 2015. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT-I, PUNE; 4) THE DR A BENCH, I.T.A.T., PUNE; 5) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE