M/s. Rankin Solutions Ltd, Hyderabad V. DCIT, Hyderabad

ITA 1527/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59292 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 07-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K MYTHILI RANI
• Keywords: Reopening of assessment; Non compliance; Reassessment proceedings
• Section: 143(3); 142(1); 194C; 147; 148; 6; 154; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE CHANDRA POOJARI, ACCOUNTANT MEMBER & SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1527 & 1528/HYD/2010 ASSESSMENT YEAR 2006-07 & 2007-08 M/S RANKLIN SOLUTIONS, HYDERABAD (PAN AABCR6000R) VS THE DCIT, CIRCLE 3(1), HYDERABAD ASSESSEE RESPONDENT ASSESSEE BY : SHRI MOHD. AFZAL RESPONDENT BY : SMT. K. MYTHILI RANI DATE OF HEARING : 2.1.2012 DATE OF PRONOUNCEMENT : 29.2.2012 ORDER PER ASHA VIJAYARAGHAVAN, JM . THESE TWO APPEALS PREFERRED BY THE ASSESSEE AR E DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) IV, HYDERAB AD DATED 29.10.2007 AND PERTAINS TO THE ASSESSMENT YEAR 2 006-07. AS THE ISSUES IN THE ASSESSEES APPEALS FOR BOTH THE A SSESSMENT YEARS ARE COMMON THEY ARE DISPOSED OFF TOGETHER. ITA NO. 1527/H/10: ASSESSMENT YEAR 2006-07 2. THE ASSESSEE HAS COME UP ON APPEAL FOR THE AY 2 006-07 ON TWO ISSUES VIZ., REOPENING OF ASSESSMENT AND DIS ALLOWANCE OF EXPENDITURE FOR ACQUISITION OF SOFTWARE ON ACCOUNT OF NON- DEDUCTION OF TAX. THE GROUNDS OF APPEAL OF THE ASSE SSEE FOR THE AY 2006-07 ARE AS UNDER: ITA NO.1527 & 1528 OF 2010 M/S RANKIN SOLUTION LTD., HYDERABAD 2 1. THE LEARNED COMMISSIONER OF INCOME TAX (A)IV,HYDERABAD ERRED IN CONFIRMING THE ACTION OF T HE ASSESSING OFFICER WHO HAS ISSUED NOTICE U/S 148 UND ER ERRONEOUS ASSUMPTION THAT ASSESSEE HAS NOT FILED RE TURN OF INCOME WHERE AS THE ASSESSEE HAS FILED THE RETURN O F INCOME ON DUE DATE U/S 139(1) OF THE IT ACT. 2. THEE LEARNED ASSESSING OFFICER ISSUED 148 NOTICE A SSUMING THE INCOME ESCAPED AS PER EXPLANATION 2(A) TO SEC. 147 OF THE IT ACT WHEREAS THE LEARNED CIT CONFIRMED THE AC TION OF THE ASSESSING OFFICER ASSUMING THAT THE NOTICE IS I SSUED AS PER EXPLANATION 2(B) TO SEC 147 THEREFORE THE ORDER OF THE CIT IS ERRONEOUS. 3. THE LEARNED COMMISSIONER OF INCOME TAX ERRED IN ASSUMING THE PURCHASE TRANSACTIONS OF SOFTWARE PROD UCTS FROM MS.I. VINTAGE SOLUTIONS P. LTD AND ORPINE SYST EMS LTD ARE IN THE NATURE OF WORK CONTRACT TO ATTRACT 194C OF THE IT ACT. 4. THE LEARNED COMMISSIONER OF INCOME TAX HAS NOT APPRECIATED THE DEFINITION PROVIDED FOR WORK IN CLA USE (IV) OF EXPLANATION TO SEC 194C OF THE IT ACT. 5. THE LEARNED COMMISSIONER OF INCOME TAX ERRED IN APP LYING SEC 194C AND THEN THRUSTING THE PROVISIONS OF SEC 4 0(A)(IA) ON THE TRANSACTIONS WHICH ARE IN THE NATURE OF PURC HASE AND IN BETWEEN PRINCIPAL TO PRINCIPAL WITHOUT ANY RELAT IONSHIP OF CONTRACTOR AND CONTRACTEE. 3. THE FIRST ISSUE IS AGAINST THE REOPENING OF ASS ESSMENT. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF SOFT WARE DEVELOPMENT. FROM THE RECORDS, THE ASSESSING OFFIC ER NOTED THAT THE ASSESSEE HAD NOT FILED ITS RETURN OF INCOME FOR THE ASST.YEAR 2006-07 DESPITE HAVING TAXABLE INCOME. HE THEREFORE ISSUED A ITA NO.1527 & 1528 OF 2010 M/S RANKIN SOLUTION LTD., HYDERABAD 3 NOTICE U/S 148 ON 12.2.2009 WHICH WAS SERVED ON 17. 2.2009. HOWEVER THE ASSESSEE DID NOT RESPOND TO THE SAME NO R COMPLIED BY FILING A RETURN OF INCOME IN RESPONSE TO THE SAI D NOTICE. 4. SUBSEQUENT TO THE INITIATION OF THE SCRUTINY PR OCEEDINGS THE ASSESSEE WAS REQUIRED BY THE ASSESSING OFFICER TO FURNISH CERTAIN SPECIFIC DETAILS AS PER THE LETTER ANNEXED TO 142(1) DT 6.10.2009. THE ASSESSEE WAS ALSO ASKED TO FURNISH THE DETAILS OF TDS PAYMENTS ON THE EXPENSES DEBITED TO THE P& L AC COUNT WHICH WERE SUBJECT TO THE PROVISIONS UNDER CHAPTER XVII B, BESIDES FURNISHING CERTIFIED COPIES OF THE FROM NO. 3 CA AND 3CD. HOWEVER EVEN ON THE DATE OF HEARING I.E. 22.10.2009 THE ASSESSEE DID NOT APPEAR BEFORE THE ASSESSING OFFICER NOR IT SOUGHT ANY ADJOURNMENT. SUBSEQUENTLY THOUGH SRI NAGARAJ CA APP EARED FOR THE ASSESSEE ON 25.11.2009 HE COULD FURNISH SOME IN VOICES ONLY. NONE OF THE DETAILS SPECIFICALLY CALLED FOR WERE FU RNISHED, ASSESSING OFFICER THEREFORE REQUIRED THE ASSESSEE T O FURNISH THE SAID DETAILS AGAIN ALONG WITH CASH BOOK LEDGER ON 2 7.11.2009. HOWEVER THE ASSESSEE DID NOT COMPLY WITH THE SAID R EQUIREMENT ALSO. ON 11.12.2009 HOWEVER SRI NAGARAJ FURNISHED A FEW LEDGER ACCOUNT COPIES RELATING TO TRAVELLING ETC ALONG WIT H VOUCHERS AND SOME OTHER DETAILS. HOWEVER PROOF OF PAYMENT OF TDS INTO GOVERNMENT ACCOUNT WAS NOT FURNISHED. THE ASSESSING OFFICER ACCORDED FURTHER TIME TILL 14,12.2009. HOWEVER THE ASSESSEE DID NOT APPEAR EVEN ON THE SAID DATE AND ULTIMATELY FAI LED TO FURNISH ANY PROOF OF TDS. THE ASSESSING OFFICER THEREFORE PROCEEDED TO FINALISE THE ASSESSMENT RESULTING IN DETERMINATION OF THE TOTAL INCOME AT RS 6,72,26,917/- 5. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A). DURING THE COURSE OF APPELLATE PROCEEDINGS THE REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE A SSESSEE HAD FILED ITS RETURN OF INCOME U/S 139(1) OF THE ACT EL ECTRONICALLY ON ITA NO.1527 & 1528 OF 2010 M/S RANKIN SOLUTION LTD., HYDERABAD 4 30.11.2006. HE AVERRED THAT THE DEPARTMENT HAD TO ISSUE THE NOTICE U/S 143(2) BEFORE THE EXPIRY OF 12 MONTHS FR OM THE END OF THE MONTH IN WHICH THE SAID RETURN WAS FURNISHED IF IT INTENDED TO SELECT THE CASE FOR SCRUTINY. THEREFORE IN THE A SSESSEES CASE A NOTICE U/S 143(2) SHOULD HAVE BEEN SERVED ON THE AS SESSEE ON OR BEFORE 30.12.2007. HOWEVER NO NOTICE U/S 143(2) WA S RECEIVED BY THE ASSESSEE FROM THE ASSESSING OFFICER INSTEAD THE ASSESSING OFFICER ISSUED A NOTICE U/S 148 ON 12.2.2009. UNDER AN ERRONEOUS ASSUMPTION THAT THE ASSESSEE HAD NOT FILE D ITS RETURN OF INCOME. THE REPRESENTATIVE AVERRED THAT FROM THE ASSESSMENT ORDER IT CAN BE SEEN THAT EVEN AFTER THE ISSUE OF N OTICE U/S 148, NO NOTICE U/S 143(2) WAS ISSUED. 6. REFERRING TO THE PROVISIONS OF THE ACT THE REPRESENTATIVE CONTENDED THAT THE CASE OF THE ASSESSEE HAD NOT BEE N SELECTED FOR SCRUTINY AS PER THE PROCEDURE LAID DOWN THEREIN , THE AVERRED THAT THE QUESTION OF ESCAPEMENT OF INCOME AS PER SE C 147 ARISES WHEN NO RETURN IS FILED. THEREFORE IN THE ASSESSEE S CASE EXPLANATION 2(A) OF SEC 147 OF THE ACT WAS NOT APPL ICABLE. HE AVERRED THAT THE NOTICE U/S 148 IS INVALID. HE MAIN TAINED THAT THE ASSESSING OFFICER DID NOT HAVE ANY REASON TO BE LIEVE THAT THE INCOME HAD ESCAPED ASSESSMENT, THE REPRESENTATIVE P LACED RELIANCE ON THE DECISION OF THE HONBLE DELHI ITAT IN THE CASE OF ADARSH EDUCATIONAL SOCIETY VS ITO (8 SOT 847) BESID ES THAT O THE HONBLE LUCKNOW BENCH OF THE ITAT IN THE CASE O F HANDLOOM INTENSIVE DEVELOPMENT PROJECT (BIJNOR) LTD VS ACIT (114 TTJ 416) HE MENTIONED THAT EVEN AFTER THE AMENDMENT IN 1987, IT IS STILL A CONDITION PRECEDENT THAT BEFORE THE ASSESSMENT PROC EEDINGS CAN BE RESORTED TO THE ORIGINAL PROCEEDINGS WITH THE F ILING OF THE RETURN MUST HAVE TERMINATED EITHER BY WAY OF PROCES SING OF RETURN AND ISSUE OF INTIMATION U/S 143(1) AND IF AS SESSMENT ITA NO.1527 & 1528 OF 2010 M/S RANKIN SOLUTION LTD., HYDERABAD 5 PROCEEDINGS ARE STILL PENDING BEFORE THE ASSESSING OFFICER HE CANNOT RESORT TO THE PROVISIONS OF SEC 147. 7. THE REPRESENTATIVE ALSO REFERRED TO THE DECISI ON OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS RAJEEV SHARMA (192 TAXMAN 197) CONTENDING THAT WHEN THE ST ATUTE PROVIDES FOR A PARTICULAR PROCEDURE THE AUTHORITY H AS TO ALLOW THE SAME AND CANNOT BE PERMITTED TO ACT IN CONTRAVENTI ON TO THE SAME. IT WAS CLAIMED THAT SINCE THE RETURN OF INCOM E WAS FILED BY THE ASSESSEE U/S 139(1) ON 30.11.2006 AS PER SEC 15 4 OF THE ACT THE ASSESSMENT U/S 143(3) SHOULD HAVE BEEN COMPLETE D BEFORE 31.3.2008. HOWEVER THE ASSESSING OFFICER COMPLETED THE SAME ON 31.12.2009 AND THEREFORE THE SAME IS BARRED INVALID AND ILLEGAL. 8. THE CIT(A) HELD THAT EVEN THOUGH THE AO ISSUED A NOTICE U/S 148 OF THE ASSESSEE DID NOT RESPOND TO THE SAME . NOR DID IT COMPLY WITH THE SAID NOTICE BY FILING A RETURN OF I NCOME. SUBSEQUENTLY, DURING THE SUBSEQUENT PROCEEDINGS A N OTICE U/S 142(1) WAS ISSUED BY THE AO CALLING FOR SPECIFIC DE TAILS. THE CIT(A) OBSERVED THAT IN RESPONSE TO THE SAID NOTICE THE REPRESENTATIVE OF THE ASSESSEE DULY APPEARED BEFORE THE ASSESSING OFFICER. HOWEVER HE NEVER RAISED ANY OBJE CTION TO THE ISSUANCE OF NOTICE U/S 148 AND THE REPRESENTATIVE A LSO FILED COPIES OF A FEW LEDGER ACCOUNTS AND CERTAIN OTHER D ETAILS AND THEREBY PARTICIPATED IN THE RE ASSESSMENT PROCEEDIN GS THOUGH HE DID NOT FURNISH ALL THE REQUISITE DETAILS DESPITE B EING GIVEN MORE THAN SUFFICIENT OPPORTUNITY. FURTHER, THE CIT(A) PO INTED OUT THAT IT IS ONLY DURING THE ASSESSEE PROCEEDINGS THAT THE ASSESSEE HAS SOUGHT TO CHALLENGE THE VALIDITY OF THE ISSUE OF NO TICE U/S 148, AND CONTENDING THAT IT HAD ALREADY FILED ITS REGUL AR RETURN OF INCOME ON 30.11.2006, ELECTRONICALLY AND THEREFORE A NOTICE U/S 143(2) SHOULD HAVE BEEN ISSUED BY THE ASSESSING OFF ICER ON OR BEFORE 30.12.2007 AND INSTEAD THE ASSESSING OFFICER ISSUED A ITA NO.1527 & 1528 OF 2010 M/S RANKIN SOLUTION LTD., HYDERABAD 6 NOTICE U/S 148 ON 12.2.2009. THE CIT(A) HELD THAT THOUGH THE ASSESSEE REPRESENTATIVE HAS TRIED TO CONTEND THAT T HE NOTICE U/S 148 COULD NOT HAVE BEEN ISSUED TILL THE TIME THE OR IGINAL PROCEEDINGS STARTING WITH THE FILING OF THE RETURN GOT TERMINATED EITHER BY WAY OF PROCESSING OF RETURN AND ISSUE OF INTIMATION U/S 143(1). 9. THE CIT(A) FURTHER HELD THAT THE HONBLE MADRAS HIGH COURT IN THE CASE OF ITO VS K.M. PACHIAPPAN (311 IT R 31) HAVE OBSERVED THAT THE ABSENCE OF AN ORDER U/S 143(3) IS NOT A BAR TO THE ISSUE OF NOTICE U/S 148. THE CIT(A) OPINED THA T THE PROVISO TO SEC 147, WHICH PROVIDES THAT NO ACTION SHALL BE TAKEN UNDER THE SECTION AFTER THE EXPIRY OF 4 YEARS FROM THE EN D OF THE RELEVANT ASST. YEAR IN A CASE WHERE AN ASSESSMENT U/S 143(3) HAVE BEEN MADE FOR RELEVANT ASST. YEAR INDICATES TH AT SEC 147 CAN BE INVOKED NOT ONLY AFTER AN ORDER HAS BEEN PAS SED U/S 143(3) BUT EVEN OTHERWISE BEFORE SUCH AN ORDER IS P ASSED. THEY FURTHER NOTED THAT SUB CLAUSE (N) OF EXPLANATION 2 ALSO MAKES IT CLEAR THAT WHERE A RETURN OF INCOME HAS BEEN FURNIS HED BY THE ASSESSEE BUT NO ASSESSMENT HAS BEEN MADE AND IT IS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE UNDERSTATED THAT THE INCOME OR HAS CLAIMED EXCESS LESS DEDUCTION ALLOWAN CE OR RELIEF IN THE RETURN THAT WOULD BE DEEMED TO BE A CASE WH ERE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT AND BECOME S A CAUSE FOR INVOKING THE POWER UNDER SEC 147. THE CIT(A) R ELIED ON THE DECISION HONBLE H & P HIGH COURT ALSO IN THE CASE OF CIT VS SHAKUNTALA DEVI (185 TAXMAN 8) UNDER THE CIRCUMSTAN CES HELD THAT THERE IS NO MERIT IN THE CONTENTION OF THE AR OF THE ASSESSEE THAT THE NOTICE U/S 148 COULD NOT HAVE BEEN ISSUED TO THE ASSESSEE, AS IT HAD ALREADY FILED A RETURN OF INCOM E IN REGULAR COURSE. AS REGARDS THE CONTENTION THAT THE ASSESSIN G OFFICER DID NOT ISSUE A NOTICE U/S 143(2) AFTER ISSUE OF NOTICE U/S 148 IT WAS ITA NO.1527 & 1528 OF 2010 M/S RANKIN SOLUTION LTD., HYDERABAD 7 HELD THAT A NOTICE U/S 142(1) HAD BEEN DULY ISSUED AND SERVED WHEREBY SUFFICIENT OPPORTUNITY BY PARTICIPATING IN THE REASSESSMENT PROCEEDINGS HAS BEEN GIVEN AND HENCE T HE SAID OBJECTION THEREFORE CANNOT BE SUSTAINED. 10. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US . 11. CIT(A), OBSERVED THAT NOTICE U/S 142(1) HAD BE EN DULY ISSUED AND SERVED. FURTHER TO THE NOTICE, THE ASSE SSEE HAS PARTICIPATED IN THE REASSESSMENT PROCEEDINGS AND HE NCE THE ASSESSEE CANNOT DURING THE APPELLATE PROCEEDINGS BE FORE THE CIT(A) CHALLENGE THE VALIDITY OF ISSUE OF NOTICE U/ S 148. IN THESE CIRCUMSTANCES, WE CONFIRM THE ORDER OF THE CIT(A) A ND DISMISS THE GROUNDS RAISED BY THE ASSESSEE WITH RESPECT TO REOPENING OF THE ASSESSMENT. 12. THE NEXT ISSUE IS REGARDING THE DISALLOWANCE O F JOB WORK CHARGES OF RS 603,67,829/- U/S 40(A)(IA). THE ASSES SING OFFICER NOTED FROM THE ANNUAL REPORT P & L ACCOUNT THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS 603,67,829/- TOWARDS JO B WORK CHARGES ALL OF THE SAID AMOUNT HAD BEEN PAID TO TWO PARTIES VIZ I VINTAE SOLUTIONS P. LTD AND M/S ORPINE. THE ASSESSI NG OFFICER OPINED THAT THE PROVISIONS OF CHAPTER XVII B WERE A PPLICABLE TO THE SAID PAYMENTS AND THEREFORE THE ASSESSEE WAS RE QUIRED TO MAKE TDS ON SUCH PAYMENTS. HOWEVER IN THE ABSENCE O F FURNISHING OF ANY PROOF REGARDING SUCH TDS THE ASSE SSING OFFICER CONCLUDED THAT THE ASSESSEE HAD NOT MADE ANY TDS ON SUCH PAYMENTS AND DISALLOWED THE ENTIRE PAYMENT OF RS.60 3,67,829/ U/S 40(A)(IA). 13. DURING THE COURSE OF APPELLATE PROCEEDINGS THE REPRESENTATIVE OF THE ASSESSEE CONTENDED THAT DURIN G THE RELEVANT ASSESSMENT YEAR THE ASSESSEE HAD PURCHASED SOFTWARE PRODUCTS OF RS 603,67,829/- AND SOLD THE SAME. HE AVERRED THAT ITA NO.1527 & 1528 OF 2010 M/S RANKIN SOLUTION LTD., HYDERABAD 8 THE EXPENDITURE HAD BEEN SHOWN UNDER THE HEAD JOB W ORK CHARGES INSTEAD OF BEING SHOWN AS PURCHASES FILING FURTHER SUBMISSIONS THE REPRESENTATIVE ARGUED THAT THE PROV ISIONS OF SEC 194C ARE NOT APPLICABLE TO THE SAID TRANSACTIONS, H E AVERRED THAT EVEN THOUGH THE DIRECTOR OF THE ASSESSEE COMPANY IN HIS DEPOSITION HAD STATED THAT THE ASSESSEE HAD EFFECTE D TDS ON SUCH PAYMENT AND HAD ALSO PROMISED TO FURNISH EVIDE NCE THEREOF THE SAID STATEMENT ALONE DOES NOT CHANGE THE TRUE N ATURE OF THE TRANSACTIONS. HE AVERRED THAT THE ASSESSING OFFICER HAD RETAINED THE ORIGINAL INVOICES FOR SUCH TRANSACTIONS FOR VER IFICATION ENQUIRIES BUT HE PROCEEDED TO CONSIDER THE SAME WIT HIN THE AMBIT OF SEC 194C WITHOUT CONSIDERING THE SAME AND WITHOUT MAKING ANY FURTHER ENQUIRIES. 14. THE REPRESENTATIVE FURTHER ARGUED THAT THE ASS ESSING OFFICER HAS NOT SPECIFICALLY STATED AS TO WHICH PRO VISION OF CHAPTER XVII B IS APPLICABLE TO THE SUBJECT TRANSAC TIONS WHEREAS OUT OF XVI SECTIONS CONTAINED THEREIN ONLY FEW ATTR ACT ARE MENTIONED IN SEC 40(A)(IA). HE AVERRED THAT IT IS ONLY FROM THE USAGE OF THE TERM JOB WORK IN ASSESSMENT ORDER THAT IT CAN BE UNDERSTOOD THAT THE ASSESSING OFFICER WAS REFERRING TO SEC 194C. 15. IT WAS FURTHER SUBMITTED THAT FROM THE INVOICE S IT IS CLEAR THAT THE ASSESSEE HAD PURCHASED SOFTWARE PRODUCTS F ROM THE SAID PARTIES AND SOLD THEM. THE TRANSACTIONS THEREF ORE WAS BETWEEN THE PRINCIPAL TO PRINCIPAL IN THE FORM OF P URCHASE AND SALE AND THERE WAS NO CONTRACTOR AND CONTRACTEE REL ATIONSHIP. HE AVERRED THAT THE INVOICES CLEARLY STATE THAT THE AS SESSEE HAD TRADED IN SOFTWARE AND THEREFORE THE MERE USAGE OF THE PHRASE JOB WORK CHARGES COULD NOT HAVE BEEN TAKEN INTO AC COUNT TO CONCLUDE THAT THE SAME WER ENOT PURCHASE AND SALE T RANSACTION, THE REPRESENTATIVE RELIED ON THE DECISION IN THE CA SES OF HENLEY VS MURRAY (31 TC 351) AND RAJAH MANYAM MENAKSHAMMA VS ITA NO.1527 & 1528 OF 2010 M/S RANKIN SOLUTION LTD., HYDERABAD 9 CIT (30 ITR 286) AND AVERRED THAT THE NOMENCLATURE MAY NOT BE DECISIVE CONCLUSIVE THOUGH IT MAY HELP THE COURT, H AVING REGARD TO OTHER CIRCUMSTANCES TO ASCERTAIN THE INTENTION O F THE PARTIES. HE MAINTAINED THAT THE ASSESSING OFFICER DID NOT C ONSIDER ANY OTHER CIRCUMSTANCES IN THE LIGHT OF THE INVOICES SU BMITTED AND DID NOT MAKE ANY ENQUIRIES REGARDING THE NATURE OF TRANSACTIONS. 16. THE REPRESENTATIVE FURTHER ARGUED THAT THE ASS ESSING OFFICER DID NOT GIVE SUFFICIENT REASONS SO AS TO DE MONSTRATE PROPER APPRECIATION ON THE PROBLEMS. THE REPRESENTA TIVE FURTHER AGUED THAT CHAPTER XVII B DOES NOT CONTAIN THE CHAR GING SECTIONS AND ACCORDINGLY SEC 194C ALSO IS NOT A CHA RGING SECTION. NOR IS SEC 40(A)(IA) A CHARGING SECTION HE SUBMITTE D THAT THESE ARE ONLY A PROCEDURAL SECTIONS AND THEREFORE ALL TH E TRANSACTIONS CANNOT BE ROPED INTO CHAPTER XVII B SO AS TO THRUST SEC 40(A)(IA). 17. REFERRING TO THE EXPLANATION TO SEC 194C THE REPRESENTATIVE ARGUED THAT CLAUSE (E) OF THE DEFINITION OF THE TER M WORK WAS INTRODUCED BY THE FINANCE ACT 2009 FOR CLARIFYING T HE SCOPE OF WORK. HE AVERRED THAT IN THE LIGHT OF THE SAME IT I S CLEAR THAT THE EXPRESSION WORK SHALL NOT INCLUDE MANUFACTURE OR SU PPLY OF A PRODUCT ACCORDING TO THE REQUIREMENTS OF SPECIFICAT IONS OF A CUSTOMER BY USING MATERIAL WHICH I PURCHASED FROM A PERSON OTHER THAN SUCH CUSTOMER. HE MAINTAINED THAT IN THE ASSESSEES CASE THE MATERIAL I.E THE SOFTWARE WAS MANUFACTURED BY THE SELLERS ACCORDING TO THE SPECIFICATION AND REQUIREM ENT OF THE ASSESSEE CUSTOMERS. THE SAME WAS MANUFACTURED IN TH E LABS OF M/S ORPINE SYSTEMS P. LTD AND M.S I VENTAGE SOLUTON S P. LTD WITH THEIR OWN RESOURCES AND MAN POWER. HE EMPHASI ZED THAT THE ASSESSEE HAD NOT SUPPLIED ANY OF THE RAW MATERI AL FOR DEVELOPING OR MANUFACTURING OF THE PRODUCTS PURCHAS ED FROM THEM AND THEREFORE THE JOB WORK EXECUTED BY THEM IS NOT IN THE NATURE OF WORK DEFINED IN CLAUSE 4( E ) OF EXPLANAT ION TO SEC 194C ITA NO.1527 & 1528 OF 2010 M/S RANKIN SOLUTION LTD., HYDERABAD 10 OF THE ACT, HE ARGUED THAT ONCE 194C IS NOT APPLIC ABLE TO THE SAID TRANSACTION, THE PROVISIONS OF SEC 40(A) (IA) WOULD NOT ATTRACTED AS HELD BY THE HONBLE MUMBAI HIGH COURT IN THE CASE OF CIT VS GLENMARK PHARMACEUTICALS LTD (194 TAXMAN 455). 18. THE REPRESENTATIVE FURTHER ARGUED THAT THE SEC 194C IS ONLY A PROCEDURAL SECTION WHEREIN THE TAX PERTAININ G TO THE OTHER PARTY IS IMPOSED ON ANOTHER PARTY IN CERTAIN CIRCUM STANCES AND UNLESS THE CIRCUMSTANCES ARE STRICTLY SATISFIED SEC 194C SHOULD NOT BE APPLIED TO EACH AND EVERY TRANSACTION. THE R EPRESENTATIVE OF THE ASSESSEE ALSO FURNISHED COPIES OF THE RELEVA NT INVOICES ALONG WITH CERTIFICATES FROM M/S I VENTAGE SOLUTION S P.LTD AND M/S ORPINE SYSTEMS LTD TO THE EFFECT THAT THE TRANS ACTION WITH THE ASSESSEE BETWEEN THE PRINCIPAL TO PRINCIPAL AND THERE WAS NO CONTRACTEE AND CONTRACTOR RELATIONSHIP AND THE TRAN SACTION WAS SALE OF SOFTWARE PRODUCTS DEVELOPED BY THEM WITH TH EIR OWN RESOURCES ACCORDING TO THE MEETS OF THE ASSESSEE. 19. THE CIT(A) DISMISSED THE CLAIM OF THE ASSESSEE OBSERVING THAT: THE INVOICES RAISED BY M/S I VENTAGE SOLUTIONS P. L TD AND M/S ORPINE SYSTEMS LTD HAVE ALSO BEEN PERUSED. FROM THE INVOICE ISSUED BY M/S ORPINE IT IS CLEAR THAT THE BILLS HAD BEEN RAISED FOR DEVELOPMENT OF WEB BASED TRM SOFTWARE PACKAGE AS PE R MILESTONES SIMILARLY M/S I VENTAGE SOLUTIONS HAVE R AISED THE INVOICES FOR WEB BASED DATA BACKUP SOFTWARE MODULT IN VC ++ MODULE # 20 IN VER 1.00 REV. A (STAGES 1.01 TO 6.51 ). HE FURTHER HELD THAT IT IS SEEN THAT THE BILLS HAVE BEEN ISSUE D ON A REGULAR BASIS IN THE MANNER OF RUNNING BILLS, EVEN THOUGH T HE INVOICE CONTAINS A COLUMN FOR UNIT PRICE IN NONE OF THE BIL LS THE SAME HAS BEEN MENTIONED INSTEAD THE BILLS HAVE BEEN RAI SED FOR A CERTAIN AMOUNT. THE CIT(A) OBSERVED THAT AS MENTION ED IN THE ITA NO.1527 & 1528 OF 2010 M/S RANKIN SOLUTION LTD., HYDERABAD 11 BILLS ITSELF THE SAME HAD BEEN ISSUED AFTER ACHIEVE MENT OF A PARTICULAR STAGE IN THE DEVELOPMENT OF SOFTWARE. 20. THE CIT(A) OBSERVED THAT THE ABOVE IT IS CLEAR THAT THE ASSESSEE HAD GOT CERTAIN SOFTWARE DEVELOPED AS PER ITS INSTRUCTIONS AND REQUIREMENTS BY THE SAID TWO PARTI ES AND HAD PAID JOB WORK CHARGES FOR THE SAME. FURTHER, THE S AID CHARGES WERE ACCORDINGLY ACCOUNTED FOR IN THE BOOKS OF ACCO UNTS UNDER THE HEAD JOB WORK CHARGES IN FACT IT WAS IN VIEW OF THIS MATTER THAT THE DIRECTOR OF THE ASSESSEE COMPANY HAD HIMSE LF ADMITTED IN HIS STATEMENT THAT THEY HAD MADE TDS ON SUCH PAY MENTS. THE CIT(A) POINTED OUT THOUGH HE PROMISED TO FURNIS H SUCH DETAILS OF TDS NEITHER HE FURNISHED THE SAME NOR TH E ASSESSEE COMPANY THROUGH ITS AUTHORIZED REPRESENTATIVE FURNI SHED SUCH DETAILS DURING THE ASSESSMENT PROCEEDINGS. THE CIT (A) OBSERVED THAT THE REASON WAS THAT THE ASSESSEE HAD NOT MADE TDS ON SUCH PAYMENTS AND THE DIRECTOR HAD MADE A WRONG STA TEMENT BEFORE THE ASSESSING OFFICER THAT TDS HAD BEEN MADE THEREON AND SUCH STATEMENT HOWEVER IS A RELIABLE CIRCUMSTAN TIAL EVIDENCE TO DECIDE THE NATURE OF THE TRANSACTIONS A ND IT CAN BE SAFELY CONCLUDED THAT THE DIRECTOR MADE THE STATEME NT ON THE BASIS OF HIS PERSONAL KNOWLEDGE REGARDING THE NATUR E OF TRANSACTIONS. IT WAS ONLY AFTER THE ASSESSEE FOUND THAT IT HAD NOT MADE TDS ON SUCH TRANSACTIONS IT CAME UP WITH THE P LEA THAT THE TRANSACTIONS WERE THOSE OF PURCHASE AND SALE OF SOFTWARE. HOWEVER THE VERY DESCRIPTION OF THE TRANSACTIONS ON THE INVOICES SHOWS THAT THERE WAS NO PURCHASE OF SOFTWARE FROM A NY OF THE TWO PARTIES BUT THE ASSESSEE HAD GOT DEVELOPED SPEC IFIC SOFTWARE AS PER ITS REQUIREMENTS ON JOB WORK BASIS. THE CIT( A) HELD THAT THE SOFTWARE SO DEVELOPED IS NOT OFF THE SHELF SOFT WARE WHICH HAVE TO BE TREATED AS SALEABLE PRODUCTS IN VIEW OF THE D ECISION OF THE HONBLE APEX COURT IN THE CASE OF TATA CONSULTANCY SERVICES AND ITA NO.1527 & 1528 OF 2010 M/S RANKIN SOLUTION LTD., HYDERABAD 12 THE SAME WERE NOT SUBJECTED TO SALES TAX ALSO. AL SO THESE ARE IN FACT CUSTOMIZED SOFTWARE DEVELOPED AT THE INSTANCE OF THE ASSESSEE ON JOB WORK CHARGES BASIS. 21. WITH RESPECT TO THE CONTENTION OF THE ASSESSEE THAT THE ABOVE TRANSACTIONS WILL NOT FALL WITHIN THE SCOPE O F THE EXPRESS WORK AS NO MATERIAL WAS PURCHASED FROM THE ASSESSEE AND THAT THE PARTIES HAD USED THEIR OWN MANPOWER AND RESOURC ES FOR MANUFACTURING THE SAME. THE CIT(A) WAS OF THE VIEW THAT IN THE CASE OF DEVELOPMENT OF SOFTWARE THERE WOULD BE NO O CCASION FOR PURCHASE OF ANY MATERIALS AND IN SUCH CASES THE ONL Y RESOURCES TO BE USED ARE THE MANPOWER AND THE EQUIPMENTS HE OBSERVED THAT THE ASSESSEE HAD GOT SOFTWARE DEVELOPED THROUG H THE TWO PARTIES WHO UTILIZED THEIR MAN POWER AND EQUIPMENTS FOR DEVELOPING THE SOFTWARE AS PER THE INSTRUCTIONS OF THE ASSESSEE AS PER PRESCRIBED MILESTONES ON JOB WORK BASIS. AC CORDINGLY HE WAS OF THE VIEW THAT THE ASSESSEE WAS INDEED REQUIR ED TO MAKE TDS ON THE SAID JOB WORK CHARGES AS WERE PAID BY T TO THE TWO PARTIES ON A RUNNING BASIS FROM TIME TO TIME. 22. THE CIT(A) THEREFORE HELD AS FOLLOWS: LOOKING TO THE NATURE OF THE TRANSACTIONS THE PROV ISIONS OF CHAPTER XVII B, PARTICULARLY SEC 194C WERE CLEARLY ATTRACTED TO SUCH TRANSACTIONS. NON COMPLIANCE OF THE SAID PROVISIONS HAS BEEN RIGHTLY TREATED AS HAVING ATTRA CTED THE PROVISIONS OF SEC 40(A)(IA) LEADING TO THE DISALLOW ANCE OF SUCH EXPENSES. THE DISALLOWANCE OF RS 603,67,829/- IS THEREFORE UPHELD AND GROUND NO.4 AND 5 ARE DECIDED AGAINST THE ASSESSEE. 23. FROM THE RECORDS IT IS NOT CLEAR AS TO WHAT TH E ASSESSEE ACQUIRED FROM M/S I VENTAGE SOLUTIONS P.LTD AND M/S ORPINE SYSTEMS LTD. WHETHER IT WAS OFF THE SHELF SOFTWARE OR COMPLETE ITA NO.1527 & 1528 OF 2010 M/S RANKIN SOLUTION LTD., HYDERABAD 13 SOFTWARE EVEN THOUGH DEVELOPED AS PER THE SPECIFICA TION OF THE ASSESSEE. WHO IS THE OWNER OF THE SOFTWARE AND WHAT RIGHTS THE ASSESSEE OBTAINED. IS IT ABSOLUTE RIGHTS AS OWNER T O DEAL WITH IN ANY MANNER, PARTICULARLY AS IT IS MENTIONED THAT TH E ASSESSEE HAS SOLD THE SAME TO THIRD PARTIES. IT HAS BEEN SUB MITTED THAT THE ASSESSEE HAS BEEN PURCHASING THE SOFTWARE AND S ELLING TO THIRD PARTIES. IF THE FULL RIGHTS IN THE SOFTWARE A RE ACQUIRED AND THEN RESOLD, IT WILL BE A CASE PURCHASE AND SALE OF GOODS, WHICH WILL NOT ATTRACT PROVISIONS OF TDS. THUS IF THE ASS ESSEE HAS ACQUIRED OWNERSHIP RIGHTS IN THE SOFTWARE IT WOULD AMOUNT TO PURCHASE OF GOODS BEING SOFTWARE AND HENCE WOULD NO T REQUIRE DEDUCTION OF TAX AT SOURCE. ON THE CONTRARY IF IT I S IN THE NATURE OF LABOUR CHARGES PAID FOR THE WORK DONE, PROVISION S OF DEDUCTION OF TAX AT SOURCE WILL BE APPLICABLE. DISALLOWANCE U /S SEC 40(A) CAN BE MADE ONLY IF THE PAYMENT MADE REQUIRES DEDUC TION OF TAX AT SOURCE UNDER ANY OF THE PROVISIONS REGARDING TDS . THEREFORE IT IS ESSENTIAL TO FIRST DETERMINE THE RIGHTS ACQUIRED BY THE ASSESSEE OVER THE SOFTWARE BEFORE DECIDING ON THE APPLICABIL ITY TDS PROVISIONS. WE FIND THAT THIS HAS NOT BEEN DONE BY THE LOWER AUTHORITIES. WE THEREFORE THINK IT FIT TO REMIT TH E MATTER TO THE FILES OF THE AO TO ENABLE HIM TO BRING ALL THE FACT S ON RECORD AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW. ITA NO 1528/H/10 AY 2007-08 24. THE ONLY ISSUE ON APPEAL IS THE DISALLOWANCE O F RS. 6,27,89,138/- BEING THE AMOUNT PAID BY THE ASSESSEE TO TWO CONCERNS M/S I VENTAGE SOLUTIONS P.LTD AND M/S ORPI NE SYSTEMS LTD, FOR ACQUIRING SOFTWARE. THE AO AND THE CIT(A) HAS HELD THAT AS THE ASSESSEE DID NOT DEDUCT TAX AT SOU RCE U/S 194C, THE ENTIRE AMOUNT OF RS. 6,27,89,138/- PAID TO THE TWO CONCERNS WAS DISALLOWED BY THE AO AND CONFIRMED BY THE CIT(A ). ITA NO.1527 & 1528 OF 2010 M/S RANKIN SOLUTION LTD., HYDERABAD 14 24. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. WE FIND THAT THE ISSUE IS IDENTICAL WITH THE APPEAL OF THE ASSES SEE IN ITA NO 1527/H/10 FOR AY 2006-07. 25. FOLLOWING OUR DECISION IN ASSESSEES OWN CASE IN ITA 1527/H/10 FOR THE AY 2006-07 SUPRA, WE REMIT THIS A PPEAL ALSO TO THE FILES OF THE AO TO ENABLE HIM TO BRING ALL T HE FACTS ON RECORD AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WI TH LAW. 26. IN THE RESULT APPEALS OF THE ASSESSEE IN ITA N O 1527/H/10 FOR AY 2006-07 IS PARTLY ALLOWED FOR STATISTICAL P URPOSES AND ITA NO. 1528/H/10 FOR AY 2007-08 ALLOWED FOR STATISTICA L PURPOSES. ORDER PRONOUNCED IN THE COURT ON : 29. 2.2012 SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER DATED THE 29 TH FEBRUARY, 2012 COPY FORWARDED TO: 1. MOHD. AFZAL, ADVOCATE, 11-5-465, SHERSONS RESIDEN CY, FLAT NO.402, CRIMINAL COURT ROAD, RED HILLS, HYDERA BAD-4. HYDERABAD 2. THE DCIT, CIRCLE 3(1), HYDERABAD 3. THE CIT(A)-IV, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/