National Association of Software and Service Companies (NASSCOM), New Delhi V. DDIT (E), New Delhi

ITA 1927/DEL/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1682 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 20-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAMITA M BISWAS
• Keywords: Business income; Charitable institution; Application of stay
• Section: 12A; 6; 2; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E, NEW DELHI BEFORE SH. KULDIP SINGH, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) SA NO. 318 & 326/DEL/2020 (IN ITA NO. 1927/DEL/2018 : ASSTT. YEAR : 2011-12) & ITA NO. 1927/DEL/2018 : ASSTT. YEAR : 2011-12 NATIONAL ASSOCIATION OF SOFTWARE AND SERVICE COMPANIES (NASSCOM), OFFICE CUM SHOP NO. 30-31, ASHOKA HOTEL, 50B, CHANAKYAPURI, NEW DELHI-110021 VS DDIT(E), NEW DELHI-110002 (APPELLANT) (RESPONDENT) PAN NO. A AATN2595F ASSESSEE BY : SH. KAMAL SAWHNEY, ADV. REVENUE BY : MS. PRAMITA M. BISWAS, CIT DR DATE OF HEARING: 25.11.2020 DATE OF PRONOUNCEMENT: 26.11.2020 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: ITA NO. 1927/DEL/2018 THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-36, NEW DELHI DATED 23.01.2018. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESS EE: 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] ERRED ON FACTS AND IN LAW NOT DELETING T HE DISALLOWANCE OF GLOBAL TRADE DEVELOPMENT EXPENSES (GTD EXPENSES), TO THE EXTENT OF RS.2,08,08,291/- MADE IN THE ASSESSMENT ORDER ON THE GROUND THAT SA NOS. 318 & 326/DEL/2020 ITA NO. 1927/DEL/2018 NATIONAL ASSOCIATION OF SOFTWARE & SERVICE COMPANIE S 2 THE SAID EXPENSES WERE NOT INCURRED IN ACCORDANCE WITH THE AIMS AND OBJECTIVES OF THE APPELLANT SOCIETY, FAILING TO APPRECIATE THE CONTEMPORANEOUS EVIDENCES FILED ON RECORD SUBSTANTIATING THE BUSINE SS NEXUS OF SAID EXPENDITURE. 3. THE ASSESSEE IS A SOCIETY REGISTERED UNDER THE S OCIETIES REGISTRATION ACT, 1860, A NOT FOR PROFIT ORGANIZATI ON, ENGAGED IN ACTIVITIES THAT ARE AIMED AT ADVANCEMENT, PROMOTION OF THE INFORMATION TECHNOLOGY AND SOFTWARE INDUSTRY. THE A SSESSEE IS REGISTERED UNDER SECTION 12A OF THE INCOME-TAX ACT, 1961 AS A CHARITABLE INSTITUTION CARRYING ON OBJECT OF GENERA L PUBLIC UTILITY, IN TERMS OF SECTION 2(15) OF THE ACT. THE ASSESSEE HAD BEEN CLAIMING EXEMPTION UNDER SECTION 11 OF THE ACT IN R ESPECT OF INCOME EARNED UPTO AY 2008-09. FROM AY 2009-10 AND ONWARDS, THE ASSESSEE HAD NOT CLAIMED EXEMPTION UND ER SECTION 11 READ WITH SECTION 2(15) OF THE ACT. ACCORDINGLY, THE ASSESSEE OFFERED TO TAX, THE INCOME EARNED FROM VARIOUS ACTI VITIES AS BUSINESS INCOME. DURING THE RELEVANT AY 2011-12, AS SESSEE HAD INCURRED GROSS EXPENDITURE OF RS. 4,13,45,917 INCLU DING TRAVEL AND INCIDENTAL EXPENSES ON ACCOUNT OF GLOBAL TRADE DEVELOPMENT ('GTD') ACTIVITIES IN CONSORTIUM WITH M INISTRY OF COMMUNICATION AND INFORMATION TECHNOLOGY, GOVERNMEN T OF INDIA ('MCIT'). PART OF THE AFORESAID EXPENDITURE, TO THE EXTENT OF RS. 2,05,37,626 WAS FUNDED BY GOVERNMENT OF INDI A BY WAY OF GRANT. 4. THE GTD EXPENSES HAVE BEEN DISALLOWED BY THE AO, VIDE ORDER DATED 30.03.2014, HOLDING THAT THE EXPENSES H AVE NOT BEEN INCURRED IN ACCORDANCE TO THE AIMS AND OBJECTS FOR WHICH IT HAS BEEN ESTABLISHED. THE RELEVANT FINDING OF THE A O IS REPRODUCED BELOW: SA NOS. 318 & 326/DEL/2020 ITA NO. 1927/DEL/2018 NATIONAL ASSOCIATION OF SOFTWARE & SERVICE COMPANIE S 3 THE REPLY OF THE ASSESSEE HAS BEEN DULY CONSIDERED . ON GOING THROUGH THE EXPENDITURE INCURRED BY THE ASSESSEE IN RESPECT OF GLOBAL TRADE DEVELOPMENT ACTIVITIES (GTD) IT IS EXPLICITLY CLEAR THAT THESE EXPENSES HAVE NOT BEEN INCURRED BY THE ASSESSEE IN ACCORDANCE TO THE AIMS AND OBJECTS FOR WHICH IT HAS BEEN ESTABLISHED. THE ASSESSEE HAS FAILED TO DEMONSTRATE THAT GTD EXPENSES WERE NECESSITATED FOR PURSUING ITS AIMS AND OBJECTS. IN VIEW OF THIS EXPENSES OF RS.4,13,45,917/- INCURRED ON ACCOUNT OF GTD ACTIVITIES (INCLUSIVE OF GRANT OF RS.2,05,37,62 6/- RECEIVED FROM MINISTRY OF COMMUNICATION & INFORMATION TECHNOLOGY) ARE DISALLOWED FOR THE REAS ON NOT BEING INCURRED FOR THE PURPOSES OBJECTS OF THE ASSESSEE. 5. THE LD. CIT(A) UPHELD THE PARTIAL DISALLOWANCE REDUCING THE DISALLOWANCE FROM RS.4,13,45,917/- TO RS.2,08,0 8,291/- ON THE GROUNDS THAT THE DONATIONS GIVEN BY THE GOVERNM ENT OF INDIA FOR GTD EXPENSES OUGHT NOT BE DISALLOWED. THE RELEVANT PART OF THE ORDER OF THE LD. CIT (A) IS AS UNDER: 4.4.3. THE APPELLANT HAD SUBMITTED THAT THE GTD EXPENSES OF SIMILAR NATURE HAS BEEN CONSISTENTLY INCURRED BY THE APPELLANT OVER PAST MANY YEARS. SIN CE ASSESSMENT YEAR 2009-10, APPELLANT HAS BEEN OFFERIN G ITS INCOME AS BUSINESS INCOME UNDER THE PROVISIONS OF THE ACT AND HAS BEEN CLAIMING SUCH GTD EXPENSES INCURRED AS BUSINESS DEDUCTION. THE SAID CLAIM OF T HE APPELLANT HAS CONSISTENTLY BEEN ALLOWED BY THE AO I N EARLIER YEARS VIZ., AYS 2009-10, 2010-11 AND IN THE IMMEDIATELY SUCCEEDING YEAR 2012-13. THE APPELLANT HAS FURTHER SUBMITTED WITHOUT PREJUDICE, THAT THE DISALLOWANCE OF GTD EXPENSES MAY BE RESTRICTED TO RS.2,08,08,291 AFTER NETTING OF RS.2,05,37,626 BEIN G AMOUNT OF GRANT GIVEN BY MCIT AS PER GOVERNMENT'S SA NOS. 318 & 326/DEL/2020 ITA NO. 1927/DEL/2018 NATIONAL ASSOCIATION OF SOFTWARE & SERVICE COMPANIE S 4 SHARE OF EXPENDITURE INCURRED IN GTD EXPENSES [REFE R CIT VS. SHRIRAM HONDA POWER EQUIPMENT LTD.: 289 ITR 475(DEL.)]. THE SUBMISSION FILED BY THE APPELLA NT HAVE BEEN CONSIDERED AND THE DISALLOWANCE OF GTD EXPENSES IS RESTRICTED TO RS.2,08,08,291/-. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 6. THE ONLY GROUND RAISED IN THE PRESENT APPEAL IS AGAINST THE SAID ORDER OF THE CIT(A) UPHOLDING THE DISALLOWANCE OF GTD EXPENSES TO THE TUNE OF RS. 2,08,08,291. 7. BEFORE US DURING THE ARGUMENTS, THE LD. AR ARGUE D THAT THE CLAIM OF GTD EXPENSES HAVE BEEN ALLOWED IN THE ASSE SSMENT YEAR 2009-10, 2010-11 AND 2012-13 ALSO. IT IS ONLY FOR THE ASSESSMENT YEAR 2011-12, THE SIMILAR EXPENSES HAVE BEEN DISALLOWED. HE FURTHER ARGUED THAT AS PER THE OBJEC TIVE OF THE ASSESSEE, SUCH EXPENSES HAVE PRIMARILY CRUCIAL IN N ATURE TO FULFILL THE OBJECTIVE OF THE SOCIETY. HE ARGUED THA T THE LD.CIT(A) HAS HAS NOT GIVEN ANY REASON FOR THE REDUCTION OF T HE PARTIAL EXPENSES NOR FOR SUSTAINING THE REMAINING AMOUNT. 8. ON THE OTHER HAND, THE LD. DR ARGUED THAT THE PR INCIPLES OF RES JUDICATA ARE NOT APPLICABLE TO THE INCOME TAX PROCEEDINGS AND EVERY ASSESSMENT HAS TO BE EXAMINED INDEPENDENT LY. SHE ARGUED THAT THE EXPENSES ARE NOT FOR THE PURPOSE OF BUSINESS. 9. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERU SED THE MATERIAL AVAILABLE ON RECORD. 10. WE HAVE GONE THROUGH THE OBJECTIVES OF THE ASSE SSEE COMPANY WITH REGARD TO GTD EXPENSES. GLOBAL TRADE DEVELOPMENT ACTIVITY IS AN ONGOING PROGRAM PRIMARIL Y FOR SA NOS. 318 & 326/DEL/2020 ITA NO. 1927/DEL/2018 NATIONAL ASSOCIATION OF SOFTWARE & SERVICE COMPANIE S 5 STRENGTHENING THE INDIA BRAND, TO PUT AND MAINTAI N THE STATUS OF THE INDIA IT-BPO INDUSTRY ON THE MAP OF THE WORL D, BY STRENGTHENING ITS CREDENTIALS IN THE SPECIFIC INTER NATIONAL MARKET, AS A PREFERRED OUTSOURCING DESTINATION FOR THE ADVANCEMENT OF INFORMATION TECHNOLOGY (I.T.) BUSINE SS SOLELY FOR INDIA. THE PROGRAM HAS BEEN COMMENCED TO HARNES S THE POWER OF EXISTING PARTNERSHIPS, COLLABORATIONS AND MOU'S WITH GOVERNMENTS, INDUSTRY ASSOCIATIONS AND CUSTOMER ORG ANIZATIONS ABROAD, THE WORLD OVER TO ENSURE THAT THE COUNTRY L EADERSHIP POSITION IN THE OUTSOURCING DOMAIN REMAINS INTACT F OR THE SOLE BENEFITS OF INDIAN I.T. INDUSTRY. THE ASSESSEE HAS AIMED THROUGH GTD, ISSUES SUCH AS IMMIGRATION POLICIES, V ISA REGIMES, SOFTWARE QUALITY STANDARDS. WTO AND FREE TRADE IN S ERVICES DATA SECURITY AND NEXT GENERATION BEST PRACTICES AND THE IMPORTANCE OF COLLABORATION AND TRADE COOPERATION, ESPECIALLY DURING THESE TIMES OF ECONOMIC RECESSION. THE ASSESSEE IS WORKIN G CLOSELY WITH THE INDIAN GOVERNMENT TO REPRESENT THE TRUE PO TENTIAL OF INDIAN IT INDUSTRY FOR INCREASING THE INDIAN MARKET SHARE IN INFORMATION AND COMMUNICATION TECHNOLOGY (ICT) AND HELPING TO ENSURE THAT THE GOVERNMENTS OF OTHER NATIONS DO NOT CREATE IMPEDIMENTS TO FREE TRADE OR BARRIER-FREE BUSINESS EXCHANGES. 11. THE GTD EXPENDITURE INCURRED FOR THE ABOVE PURP OSE PRIMARILY CONSISTED OF: (I) CONSULTING FEES PAID TO VARIOUS INTERNATIONAL F IRMS IN RESPECT OF THEIR STRATEGIC AND TACTICAL PLANNING FOR POSITI ONING IT INDUSTRY OF INDIA VIS-A-VIS THE FOREIGN COUNTRY'S E CONOMIC OUTLOOK. SA NOS. 318 & 326/DEL/2020 ITA NO. 1927/DEL/2018 NATIONAL ASSOCIATION OF SOFTWARE & SERVICE COMPANIE S 6 (II) EXPENDITURE ON GLOBAL PROTECTIONISM SENTIMENTS AND CAMPAIGN; (III) EXPENDITURE IN PUBLIC RELATIONS/ PUBLIC AWAR ENESS AND (IV) TRAVELLING EXPENSES. 12. FURTHER, WE ALSO FIND THAT THE SIMILAR EXPENSES HAS BEEN ALLOWED BY THE CO-ORDINATE BENCH OF ITAT FOR THE AS SESSMENT YEAR 2010-11 IN ITA NO. 3187/DEL/2015, ORDER DATED 17.05.2019 WHEREIN IT WAS HELD THAT THE DISALLOWANC E OF GTD EXPENSES ARE NOT SUSTAINABLE ON THE GROUNDS THAT TH E PURPOSE OF SUCH EXPENDITURE AND THE BENEFITS DERIVABLE THER E FROM IS AIMED AT BENEFITTING L.C.T & BUSINESS PROCESS MANAG EMENT (BPM) INDUSTRY AS A WHOLE, WHICH NOT DENOTES THE ME MBER FRATERNITY OF THE ASSESSEE, BUT ALSO THE INDUSTRY A T LARGE IN INDIA. THE MONETARY AND IN PRINCIPAL SUPPORT TO GTD ACTIVITY BY GOVERNMENT OF INDIA CLEARLY ESTABLISH THE UTILITY O F SUCH EXPENSES FOR THE INDIA I.T. INDUSTRY AS A WHOLE. 13. WE ALSO FIND THAT THE SIMILAR EXPENSES HAVE BEE N ACCEPTED UPON BY THE REVENUE FOR THE ASSESSMENT YEAR 2009-10 , BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 2011-12 AND FURTHE R BY THE REVENUE FOR THE ASSESSMENT YEARS 2012-13, 2013-14, 2014-15, 2015-16, 2017-18 IN THE ASSESSMENT COMPLETED U/S 14 3(3) OF THE ACT WHICH GIVE RISE TO A STRONG CONTENTION THAT THESE EXPENSES ARE DULY ALLOWABLE. 14. ERGO, KEEPING IN VIEW THE ACTIVITIES OF THE ASS ESSEE AND ITS RELEVANCE TO THE EXPENSES INCURRED, THE CONTINUOUS STAND OF THE REVENUE TO ALLOW SUCH EXPENSES IN ALL THE PREVIOUS AND SA NOS. 318 & 326/DEL/2020 ITA NO. 1927/DEL/2018 NATIONAL ASSOCIATION OF SOFTWARE & SERVICE COMPANIE S 7 SUBSEQUENT YEARS, WE HEREBY HOLD THAT THE DISALLOWA NCE CONFIRMED BY THE LD. CIT (A) IS LIABLE TO BE QUASHE D. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. STAY APPLICATION NO. 318 & 326/DEL/2020 16. SINCE, THE APPEAL OF THE ASSESSEE HAS BEEN DISP OSED OFF, THEREFORE, THE STAY APPLICATIONS OF THE ASSESSEE BE COME INFRUCTUOUS AND HENCE DISMISSED. 17. IN THE RESULT, THE STAY APPLICATIONS ARE DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 26/11/2020. SD/- SD/- (KULDIP SINGH) (DR . B. R. R. KUMAR) JUDICIAL MEMBER ACCOU NTANT MEMBER DATED: 26/11/2020 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR