M/s Filtrex Technologies Private Limited , Bangalore V. Assistant Commissioner of INCome TAx Circle-3(1)(1), Bangalore

ITA 2162/BANG/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2361 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 13-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Business income; Depreciation; Transfer pricing; Double taxation relief; Additional evidence; Set aside
• Section: 40(a)(ia); 201; 32; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER IT(TP)A NO.2162/BANG/2017 & IT(TP)A NO.3330/BAND/2018 ASSESSMENT YEARS : 2013-14 & 2014-15 M/S FILTREX TECHNOLOGIES PVT. LTD., #36/4, RAGHAVENDRA NAGAR, NEAR RING ROAD, 4 TH CROSS, HRBR LAYOUT, BANGALORE-560 043. PAN AAACF 4091 P. VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-3(1)(1), BANGALORE. APPELL ANT RESPONDENT ASSESSEE BY : SHRI PADAMCHAND KHINCHA, C.A REVENUE BY : SHRI C.H SUNDAR RAO, CIT DATE OF HEARING : 29.04.2019 DATE OF PRONOUNCEMENT : 21.06.2019 O R D E R PER B.R BASKARAN, ACCOUNTANT MEMBER BOTH THE APPEALS FILED BY THE ASSESSEE ARE RELATED TO AY 2013- 14 AND 2014-15. THE ASSESSEE IS CHALLENGING THE OR DER PASSED BY LD CIT(A) IN AY 2013-14 AND IS CHALLENGING THE ASSE SSMENT ORDER PASSED BY THE AO IN AY 2014-15 IN PURSUANCE OF DIRE CTIONS GIVEN BY LD DISPUTE RESOLUTION PANEL (DRP). BOTH THE APPEAL S WERE HEARD TOGETHER AND HENCE THEY ARE BEING DISPOSED OF BY TH IS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. IT(TP)A NO.2162/BANG/2017 & IT(TP)A NO.3330/BANG/2018 PAGE 2 OF 16 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF M ANUFACTURE OF CARBON BLOCK CARTRIDGES, WHICH ARE USED FOR REMOVAL OF HARMFUL CONTAMINANTS FROM DRINKING WATER. THE ASSOCIATED E NTERPRISES (AE) OF THE ASSESSEE ARE FILTREX HOLDING PTE LTD (FHPL) AND FILTRED INTERNATIONAL PET LTD (FIPL). BOTH THESE COMPANIES ARE SINGAPORE BASED COMPANIES. IT WAS STATED THAT BOTH THE ABOVE SAID AES ARE PIONEERS IN WATER PURIFICATION INDUSTRY. 3. WE SHALL FIRST TAKE UP APPEAL FILED FOR AY 2 013-14. THE FIRST ISSUE CONTESTED BY THE ASSESSEE IN AY 2013-14 RELAT ES TO THE T.P ADJUSTMENT MADE BY THE TPO AND CONFIRMED BY LD CIT( A). THE FACTS RELATING THERETO ARE STATED IN BRIEF. THE ASSESSEE HAD PAID A SUM OF RS.1358.75 LAKHS TO FHPL AS FEE FOR TECHNICAL SERV ICES. SIMILARLY, IT PAID A SUM OF RS.190.22 LAKHS AS MANA GEMENT CONSULTANCY CHARGES TO FITL. THE ASSESSEE CLAIMED TO HAVE BENCHMARKED THE TRANSFER PRICING TRANSACTIONS UNDER TNMM. THOUGH THE ASSESSEE HAD FURNISHED PRESCRIBED CERTIF ICATE FOR T.P STUDY, THE TPO NOTICED THAT THE ASSESSEE HAS NOT FU RNISHED T.P DOCUMENTATION. 4. BEFORE THE TPO, THE ASSESSEE SUBMITTED THAT T HE ABOVE SAID PAYMENTS HAVE BEEN MADE TO BOTH FHPL AND FIPL IN PU RSUANCE OF AGREEMENTS ENTERED WITH THEM. IT WAS SUBMITTED THAT THE ASSESSEE PAID ROYALTY OF USD 0.50 FOR EACH PRODUCT MANUFACTU RED BY IT DURING THE PREVIOUS YEAR TO FHPL, BUT SUBJECT TO A MAXIMUM AMOUNT OF USD 25,00,000/- P.A. IT WAS ALSO SUBMITT ED THAT THE MANAGEMENT FEE WAS PAID TO FIPL FOR OBTAINING ADMIN ISTRATIVE, FINANCIAL, MARKETING, QUALITY CONTROL, R & D, HUMAN RESOURCES AND IT(TP)A NO.2162/BANG/2017 & IT(TP)A NO.3330/BANG/2018 PAGE 3 OF 16 OTHER SUPPORT SERVICES. FOR ALL THESE SERVICES, TH E ASSESSEE HAS PAID LUMP SUM FEE SUBJECT TO A MAXIMUM OF USD 3,50,000/- P.A. THUS, THE ASSESSEE PRIMARILY RELIED UPON THE AGREEMENT EN TERED BY IT WITH FHPL AND FIPL TO SUBSTANTIATE ALP OF TRANSACTIONS. 5. THE TPO EXPRESSED THE VIEW THAT THE ALP OF T HE INTRA GROUP SERVICES RECEIVED BY ONE OF THE AES CAN BE ASCERTAI NED BY EXAMINING FOLLOWING POINTS:- (A) WHETHER THE AE HAS RECEIVED INTRA GROUP SERVI CES? (B) WHAT ARE THE ECONOMIC AND COMMERCIAL BENEFITS DERIVED BY THE RECIPIENT OF INTRA GROUP SERVICES? (C) IN ORDER TO IDENTIFY THE CHARGES RELATING TO SERVICES, THERE SHOULD BE A MECHANISM IN PLACE WHICH CAN IDENTIFY ( I) THE COST INCURRED BY THE AE IN PROVIDING THE INTRA GROU P SERVICES AND (II) THE BASIS OF ALLOCATION OF COST TO VARIOUS AES. (D) WHETHER A COMPARABLE INDEPENDENT ENTERPRISE W OULD HAVE PAID FOR THE SERVICES IN COMPARABLE CIRCUMSTAN CES? THE TPO NOTED THAT THE ASSESSEE HAS NOT FURNISHED A NY EVIDENCE TO SUBSTANTIATE THE NATURE OF SERVICES RECEIVED BY IT OR DID IT SHOW THAT THE SERVICES WERE ACTUALLY RECEIVED BY IT. THE TPO FURTHER OBSERVED THAT THE ASSESSEE HAS FAILED TO SHOW THAT IT DERIVE D ANY BENEFIT OUT OF SUCH SERVICES; IT DID NOT FURNISH THE DETAILS OF COST INCURRED BY THE AE IN PROVIDING THE SERVICES AND THE BASIS OF A LLOCATION. 6. IT IS PERTINENT TO NOTE THAT THE REVENUE HAD COLLECTED CERTAIN INFORMATION ABOUT THE ASSESSEES GROUP FROM INLAND REVENUE AUTHORITY OF SINGAPORE IN PURSUANCE TO THE REFERENC E MADE UNDER DTAA THROUGH THE LETTER DATED 06-01-2014 MADE BY DI RECTOR, FT & IT(TP)A NO.2162/BANG/2017 & IT(TP)A NO.3330/BANG/2018 PAGE 4 OF 16 TR-IV, NEW DELHI. THE TPO COLLECTED THOSE DOCUMENT S AND EXAMINED THE SAME. IT WAS NOTICED A PERSON NAMED S HRI BOMMI GOVIND, WHO IS RESIDENT OF SINGAPORE IS HOLDING 100 % SHARES IN FHPL. IT WAS FURTHER NOTICED THAT THE ABOVE SAID F HPL WAS HOLDING 100% SHARES IN FIPL. EVEN THOUGH THERE WAS DILUTIO N IN THE SHARE HOLDING PATTERN SUBSEQUENTLY, IT WAS NOTICED THAT S HRI BOMMI GOVIND WAS HOLDING ALMOST 100% CONTROL OVER FHPL AN D FIPL, I.E., IN BOTH THE AES OF THE ASSESSEE. 7. IT WAS INFORMED BY SHRI BOMMI GOVIND TO INL AND REVENUE AUTHORITY THAT FHPL HOLDS SEVERAL PATTERNS IN THE F IELD OF MAKING AND USE OF CARBON BLOCKS. IT ALSO HELD TRADEMARKS AND COPYRIGHTS INCLUDING THE BRAND FX. IT WAS SUBMITTED THAT FH PL PROVIDES INTELLECTUAL PROPERTY WHICH INCLUDE PATENT, TRADEMA RKS AND PROCESSING KNOWHOW. IT WAS SUBMITTED THAT SHRI BOM MI GOVIND IS A WATER SCIENTIST WITH 15 YEARS OF EXPERIENCE IN WA TER PURIFICATION INDUSTRY AND HAS INVENTED VARIOUS TECHNOLOGIES USED IN PURIFICATION OF DRINKING WATERS. ACCORDINGLY, THE TPO TOOK THE VIEW THAT SHRI BOMMI GOVIND IS THE ONLY PERSON WHO CAN PROVIDE KNO WHOW, PATENT AND TRADEMARK. IT WAS ALSO NOTICED THAT MAJORITY O F ASSISTANCE WAS PROVIDED TO THE ASSESSEE HEREIN BY SHRI BOMMI GOVIN D ONLY THROUGH MEETINGS, PHONE CALLS AND VIDEO CONFERENCING. ACCO RDINGLY, THE TPO TOOK THE VIEW THAT THE ALLEGED SERVICES WERE ACTUAL LY PROVIDED BY SHRI BOMMI GOVIND TO THE ASSESSEE AND NOT BY FHPL O R FIPL AS CLAIMED. 8. THE TPO EXAMINED THE FINANCIAL STATEMENTS OF FHPL AND FIPL FOR FINANCIAL YEARS 2006-07 TO 2011-12. HE NOTICED THAT BOTH THE IT(TP)A NO.2162/BANG/2017 & IT(TP)A NO.3330/BANG/2018 PAGE 5 OF 16 COMPANIES DID NOT HAVE ANY BUSINESS INCOME OTHER TH AN THE AMOUNTS PAID BY THE ASSESSEE HEREIN TO THEM BY WAY OF ROYALTY AND MANAGEMENT FEE. BOTH THESE COMPANIES HAVE, IN TURN , PAID REMUNERATION TO SHRI BOMMI GOVIND. 9. THE TPO ALSO NOTICED THAT, AS PER THE AGREEME NT ENTERED BETWEEN THE ASSESSEE AND THE ABOVE SAID TWO COMPANI ES, THE AMOUNT PAYABLE TO BOTH THESE COMPANIES ARE DETERMIN ED ON THE BASIS OF DIRECT AND INDIRECT EXPENSES INCURRED BY T HEM. ON THE CONTRARY, THE PAYMENTS HAVE BEEN MADE BY THE ASSESS EE ON THE BASIS OF PRODUCTION, WHICH WAS NOT IN ACCORDANCE WI TH THE TERMS OF AGREEMENT. ACCORDINGLY, THE TPO TOOK THE VIEW THAT THE PAYMENTS MADE TO THESE TWO COMPANIES SHOULD NOT HAVE EXCEEDE D THE EXPENSES INCURRED BY THEM. THE TPO NOTICED THAT TH E MAJOR EXPENSE INCURRED BY THESE TWO COMPANIES WAS FOUND T O BE THE REMUNERATION PAID TO SHRI BOMMI GOVIND. APART FROM THIS, OTHER EXPENSES INCURRED BY THEM WERE NOMINAL ONLY. THE T PO ALSO NOTICED THAT THE ASSESSEE DID NOT FURNISH ANY EVIDE NCE TO SUBSTANTIATE THE CLAIM OF RECEIPT OF SERVICES. ACC ORDINGLY, THE TPO TOOK THE VIEW THAT THE PAYMENTS MADE TO FHPL AND FI PL ARE NOT INCURRED FOR THE PURPOSES OF BUSINESS AND THEY HAVE BEEN PAID ONLY TO SHIFT THE PROFITS TO ITS AES ASSESSED IN SINGAPO RE AT LOWER RATE OF TAX. THE TPO ALSO TOOK SUPPORT OF THE DECISION REN DERED BY HONBLE KERALA HIGH COURT IN THE CASE OF MIL CONTROLS LTD V S. CIT (340 ITR 190) IN SUPPORT OF HIS VIEW THAT IT IS IMPERATIVE F OR THE ASSESSEE TO PROVE THE ALP OF THE PAYMENTS MADE TO AES. ACCORDI NGLY, HE TOOK THE VIEW THAT PAYMENTS MADE TO BOTH THE AES ARE NOT JUSTIFIED AND ACCORDINGLY DETERMINED THE ALP AS NIL. IT(TP)A NO.2162/BANG/2017 & IT(TP)A NO.3330/BANG/2018 PAGE 6 OF 16 10. THE LD CIT(A) ALSO CONFIRMED THE SAME AND HE NCE THE ASSESSEE IS CHALLENGING THE DECISION OF LD CIT(A). 11. WE HEARD THE PARTIES ON THIS ISSUE AND PERU SED THE RECORD. THE LD A.R SUBMITTED THAT THE CO-ORDINATE BENCH OF TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE IN THE ASSESSEES OWN CASE IN IT(TP)A NO.469/BANG/2017 DATED 11.4.2018 RELATING TO AY 201 2-13 AND THE MATTER WAS RESTORED TO THE FILE OF AO/TPO FOR E XAMINING THE SAME AFRESH. HE SUBMITTED THAT THE CO-ORDINATE BEN CH HAS SPECIFICALLY HELD THAT THE TPO SHALL NOT DISPUTE TH AT SERVICES WERE RENDERED BY AE. HE ALSO SUBMITTED THAT THE CO-ORD INATE BENCH HAS ALSO OBSERVED THAT THE ASSESSEE SHOULD BE PERMITTED TO FILE TP STUDY, IF THE TNMM METHOD ADOPTED BY THE ASSESSEE I S DISPUTED BY THE TPO. 12. ON THE CONTRARY, THE LD DR SUBMITTED THAT TH E ASSESSEE HAS NOT FURNISHED ANY DETAILS THAT WERE REQUIRED TO SUB STANTIATE THE PAYMENTS MADE TO THESE TWO COMPANIES. FURTHER THE PAYMENTS MADE WERE ALSO NOT IN ACCORDANCE WITH THE TERMS OF PAYMENTS SPECIFIED IN THE AGREEMENT ENTERED BY THEM. 13. WE NOTICE THAT AN IDENTICAL ISSUE WAS CONSID ERED BY THE CO- ORDINATE BENCH IN THE ASSESEES OWN CASE IN AY 2012 -13 (SUPRA) AND THE MATTER HAS BEEN RESTORED TO THE FILE OF AO/TPO. SINCE THERE IS NO CHANGE IN FACTS, CONSISTENT WITH THE VIEW TAKEN BY THE CO- ORDINATE BENCH, WE RESTORE THIS ISSUE TO THE FILE O F THE AO WITH THE SIMILAR DIRECTIONS AS GIVEN BY THE CO-ORDINATE BENC H IN AY 2012-13. IT(TP)A NO.2162/BANG/2017 & IT(TP)A NO.3330/BANG/2018 PAGE 7 OF 16 14. THE NEXT ISSUE CONTESTED BY THE ASSESSEE IN A Y 2013-14 RELATES TO THE DISALLOWANCE OF DEPRECIATION CLAIMED BY THE ASSESSEE ON FACTORY SHED. THE FACTS RELATING THERETO ARE TH AT THERE WAS A FIRE IN THE BUSINESS PREMISES OF THE ASSESSEE AND CONSEQ UENTLY, THE ASSESSEE CONSTRUCTED A NEW FACTORY. THE BLOCK OF A SSETS WAS REDUCED BY THE WDV OF OLD BUILDING AND INCREASED BY THE COST OF NEW FACTORY SHED. THE ASSESSEE CLAIMED TO HAVE COM PLETED THE FACTORY SHED IN MARCH, 2013 AND ACCORDINGLY CLAIMED DEPRECIATION THEREON. THE AO ASKED THE ASSESSEE TO PROVE THE CL AIM THAT THE NEW FACTORY SHED WAS PUT TO USE BEFORE 31.3.2013. THE ASSESSEE FURNISHED A COPY OF STABILITY CERTIFICATE DATED 25. 03.2013 ISSUED BY A CHARTERED ENGINEER UNDER KARNATAKA FACTORY RULES, 1969. HOWEVER, THE AO NOTICED THAT THE ASSESSEE HAS SUBMI TTED APPLICATION TO THE KARNATAKA BOILERS AND FACTORY DE PARTMENT ONLY ON 03-04-2013, I.E., AFTER THE END OF FINANCIAL YEA R. THE AO WAS OF THE VIEW THAT THE ASSESSEE COULD NOT HAVE USED THE FACTORY BEFORE OBTAINING PERMISSION FROM THE ABOVE SAID DEPARTMENT . ACCORDINGLY, THE AO TOOK THE VIEW THAT THE FACTORY SHED WAS NOT PUT TO USE DURING THE YEAR UNDER CONSIDERATION AND ACCORDINGLY DISALLOWED THE DEPRECIATION CLAIMED ON THE FACTORY SHED. 15. BEFORE LD CIT(A), THE ASSESSEE TOOK AN ALTE RNATIVE CONTENTION THAT THE FACTORY WAS READY FOR USE BEFORE 31.3.2013 , WHICH CONSTITUTES PASSIVE USE OF ASSETS AND SUCH PASSIV E USE ALSO SATISFIES THE CONDITION OF PUT TO USE SPECIFIED I N SEC.32 OF THE ACT. THE LD CIT(A) DID NOT AGREE WITH THE SAID CONTENTIO NS OF THE ASSESSEE. HE TOOK THE VIEW THAT THE ASSESSEE COULD NOT HAVE USED IT(TP)A NO.2162/BANG/2017 & IT(TP)A NO.3330/BANG/2018 PAGE 8 OF 16 THE FACTORY SHED WITHOUT OBTAINING APPROVAL FROM TH E KARNATAKA BOILERS AND FACTORY DEPARTMENT. FURTHER, HE OBSERV ED THAT THE ASSESSEE DID NOT BRING ANY MATERIAL TO PROVE THAT T HE MANUFACTURING ACTIVITIES WERE STARTED IN THE FACTORY SHED BEFORE 31.3.2013. ACCORDINGLY, THE LD CIT(A) CONFIRMED THE DISALLOWAN CE MADE BY THE AO. 16. WE HEARD THE PARTIES ON THIS ISSUE AND PER USED THE RECORD. THE LD A.R RELIED UPON THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE LD CIT(A). THE LD A.R SUBMITTED THAT THE FA CTORY SHED WAS READY IN ALL RESPECTS BY FEBRUARY, 2013 AND THE COM MERCIAL PRODUCTION HAS STARTED IN THE NEW FACTORY SHED ON 2 5.03.2013 ITSELF. HE SUBMITTED THAT THE STABILITY CERTIFICATE WAS OBT AINED BY THE ASSESSEE ACCORDINGLY FROM A CHARTERED ENGINEER ON 2 5.03.2013 ITSELF. E SUBMITTED THAT THE APPLICATION BEFORE TH E STATE GOVERNMENT WAS MADE SUBSEQUENTLY, BUT THE SAME CANNOT MILITATE AGAINST THE FACT THAT THE FACTORY WAS PUT TO USE BEFORE 31.3.20 13. THE LD A.R ALSO TOOK ALTERNATIVE PLEA THAT THE FACTORY WAS REA DY TO USE AND THE SAID FACT ALONE WOULD SATISFY THE REQUIREMENT OF P UT TO USE SPECIFIED IN SEC.32 OF THE ACT. IN THIS REGARD, HE PLACED HIS RELIANCE ON THE DECISION RENDERED BY HONBLE PUNJAB & HARYAN A HIGH COURT IN THE CASE OF CIT VS. O.P.KHANNA & SONS (1982)(101 TAXMAN 243). 17. ON THE CONTRARY, THE LD D.R PLACED HIS RELI ANCE ON THE DECISION RENDERED BY HONBLE KARNATAKA HIGH COURT I N THE CASE OF DCIT VS. YELLAMMA DASAPPA HOSPITAL (290 ITR 353) TO CONTEND THAT THE ASSET HAS TO BE ACTUALLY USED FOR CLAIMING DEPR ECIATION U/S 32 OF THE ACT AND HENCE ASSET WAS READY TO USE THEORY I S NOT AVAILABLE TO IT(TP)A NO.2162/BANG/2017 & IT(TP)A NO.3330/BANG/2018 PAGE 9 OF 16 THE ASSESSEE. THE LD D.R FURTHER PLACED HIS RELIAN CE ON THE ORDER OF LD CIT(A) AND SUBMITTED THE ASSESSEE COULD NOT HAVE USED THE FACTORY SHED WITHOUT APPROVAL FROM THE STATE GOVERN MENT. ACCORDINGLY, HE SUBMITTED THAT THE LD CIT(A) WAS JU STIFIED IN CONFIRMING THE DISALLOWANCE. 18. WE NOTICE THAT THE CONTENTIONS OF THE ASSESS EE ARE TWO FOLD. FIRST CONTENTION OF THE ASSESSEE WAS THAT THE FACTO RY WAS ACTUALLY PUT TO USE ON 25.3.2013 ITSELF AND THE PRODUCTION H AS STARTED THEREFROM, I.E., THE FACTORY SHED WAS ACTUALLY PUT TO USE. IN THE ALTERNATIVE, IT HAS CONTENDED THAT THE FACTORY SHED WAS READY TO USE IN ALL ASPECTS AND HENCE THE SAME CONSTITUTES PASSIVE USE OF THE ASSET. ADMITTEDLY, THE ALTERNATIVE CONTENTION OF THE ASSESSEE WOULD BECOME INFRUCTUOUS, IF THE ASSESSEE IS ABLE T O SHOW THAT THE FACTORY WAS ACTUALLY PUT TO USE. 19. THE ASSESSEE HAS GIVEN CHRONOLOGY OF EVENTS IN THE CHART PLACED IN PAGE 412 OF THE PAPER BOOK. ACCORDING TO THE CHART, THE COMMERCIAL PRODUCTION IN THE NEW FACTORY SHED HAS B EEN STARTED ON 25.03.2013 ITSELF BY MOVING THE PLANT AND MACHINERY INTO THE NEW SHED. IF THE ASSESSEE IS ABLE TO PROVE THIS FACT, THEN WE ARE OF THE VIEW THAT THE ASSESSEE SHOULD BE ELIGIBLE TO CLAIM DEPRECIATION ON THE FACTORY SHED. THE APPLICATION FURNISHED TO THE KARNATAKA BOILERS AND FACTORY DEPARTMENT IN THE SUCCEEDING YE AR SHOULD NOT COME INTO THE WAY OF THE ASSESSEE, IF IT IS ABLE TO PROVE THAT THE FACTORY WAS ACTUALLY PUT TO USE. THE CASE OF THE L D CIT(A) WAS THAT THE ASSESSEE DID NOT FURNISH ANY MATERIAL TO PROVE ITS CASE THAT THE FACTORY WAS ACTUALLY PUT TO USE. IT(TP)A NO.2162/BANG/2017 & IT(TP)A NO.3330/BANG/2018 PAGE 10 OF 16 20. IN CASE, IF THE ASSESSEE FAILS TO PROVE ABOVE SAID FACT, THEN THE ALTERNATIVE CONTENTION OF THE ASSESSEE BECOMES RELE VANT. THE LD D.R HAS PLACED HIS RELIANCE ON THE DECISION RENDERE D BY HONBLE KARNATAKA HIGH COURT IN THE CASE OF YELLAMMA DASAPP A HOSPITAL (SUPRA), WHEREIN THE THEORY OF READY TO USE OR P ASSIVE USE HAS BEEN REJECTED BY THE HONBLE JURISDICTIONAL HIGH CO URT. SINCE THE MAIN ISSUE IS RESTORED TO THE FILE OF THE AO, WE RE STORE THIS ALTERNATIVE CONTENTION ALSO TO THE FILE OF THE ASSE SSING OFFICER FOR HIS EXAMINATION. 21. THE NEXT ISSUE CONTESTED BY THE ASSESSEE IN AY 2013-14 RELATES TO THE DISALLOWANCE OF RS.2,89,747/- MADE U /S 40(A)(IA) OF THE ACT. THE AO NOTICED THAT THE ASSESSEE HAS PAID TESTING CHARGES TO WATER QUALITY ASSOCIATION, USA AND M/S PARAGON W ATER SYSTEMS INC, USA WITHOUT DEDUCTING TAX AT SOURCE. HENCE HE DISALLOWED THE SAME U/S 40(A)(I) OF THE ACT. BEFORE LD CIT(A), TH E ASSESSEE SUBMITTED THAT THESE SERVICES WERE RENDERED OUTSIDE INDIA AND HENCE THERE WAS NO REQUIREMENT TO DEDUCT TAX AT SOU RCE FROM THESE PAYMENTS. THE ASSESSEE ALSO SUBMITTED THAT THESE SE RVICES DO NOT SATISFY THE CONDITION OF MAKE AVAILABLE UNDER IND IA-USA DTAA AND ON THIS COUNT ALSO, THESE PAYMENTS ARE NOT LIABLE F OR TAX DEDUCTION. HOWEVER, THE LD CIT(A) CONFIRMED THE DISALLOWANCE B Y HOLDING THAT THE SERVICES WERE MADE AVAILABLE TO THE ASSESSEE. 22. WE HEARD THE PARTIES ON THIS ISSUE AND PERUS ED THE RECORD. THE LD A.R SUBMITTED THAT THE PROVISIONS OF INDIA-U SA DTAA WILL APPLY TO THE IMPUGNED PAYMENTS. HE SUBMITTED THAT THE LD IT(TP)A NO.2162/BANG/2017 & IT(TP)A NO.3330/BANG/2018 PAGE 11 OF 16 CIT(A)S VIEW ON MAKE AVAILABLE IS CONTRARY TO TH E DECISION RENDERED BY THE HONBLE JURISDICTIONAL KARNATAKA HI GH COURT IN THE CASE OF CIT VS. DE BEERS INDIA MINERALS (P) LTD (20 12)(21 TAXMANN.COM 214). HE SUBMITTED THAT THE PAYMENTS M ADE BY THE ASSESSEE WERE TOWARDS EXPENSES ONLY AND NOT FOR ACQ UIRING ANY TECHNICAL KNOW-HOW. ACCORDINGLY HE SUBMITTED THAT THE QUESTION OF DEDUCTING TAX AT SOURCE FROM THESE PAYMENTS DO NOT ARISE. 23. WE HEARD LD D.R, WHO SUPPORTED THE ORDER PASSE D BY LD CIT(A). HAVING HEARD RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE. THE ASSESSEE HAS SUBMITTED THE DETAILS OF EXPENSES BEFORE LD CIT(A) AND A PERUSAL OF THE SAME WOULD SHOW THAT THE PAYMENTS WERE MADE FOR ANNUAL LISTING CHARGES, SPONSORSHIP CHARGES, TESTING CHARG ES, REIMBURSEMENT OF EXPENSES. THUS WE NOTICE THAT THE PAYMENTS HAVE BEEN MADE TOWARDS EXPENSES AND NOT FOR ACQUIRI NG ANY TECHNICAL KNOWHOW FALLING WITHIN THE MEANING OF IND IA-USA DTAA. THESE PAYMENTS DO NOT MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE TO THE ASSESSEE WHICH WOULD ENABLE IT TO APPLY INDEPEN DENTLY. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THESE SERVI CES WERE RENDERED OUTSIDE INDIA AND HENCE THESE PAYMENTS CANNOT BE BR OUGHT TO TAX IN INDIA IN THE HANDS OF THE RECIPIENTS. HENCE WE A GREE WITH THE CONTENTIONS OF THE ASSESSEE THAT THE PROVISIONS OF SEC.195 OF THE ACT DO NOT APPLY TO THESE PAYMENTS AND HENCE THERE IS N O REQUIREMENT TO DEDUCT TAX AT SOURCE FROM THESE PAYMENTS. ACCO RDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE A ND DIRECT THE AO TO DELETE THE DISALLOWANCE MADE U/S 40(A)(I) OF THE ACT. IT(TP)A NO.2162/BANG/2017 & IT(TP)A NO.3330/BANG/2018 PAGE 12 OF 16 24. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE ASSESSEE FOR AY 2014-15. THE FIRST ISSUE RELATES TO THE TRANSFER P RICING ADJUSTMENT MADE IN RESPECT OF PAYMENT MADE TOWARDS ROYALTY AND MANAGEMENT FEE. WE HAVE RESTORED AN IDENTICAL ISSU E TO THE FILE OF THE AO/TPO IN AY 2013-14 FOR THE REASONS STATED IN THE PRECEDING PARAGRAPHS. CONSISTENT WITH THE VIEW TAKEN THEREIN , WE RESTORE THIS ISSUE TO THE FILE OF AO/TPO IN THIS YEAR ALSO WITH SIMILAR DIRECTIONS. 25. THE AO HAD MADE THE ADDITION OF TRANSFER PR ICING ADJUSTMENT ON PROTECTIVE BASIS U/S 37 OF THE ACT. SINCE THE M AIN ISSUE IS RESTORED TO THE FILE OF AO/TPO, WE RESTORE THIS ISS UE ALSO TO HIS FILE. 26. THE NEXT ISSUE CONTESTED BY THE ASSESSEE IN AY 2014-15 RELATES TO THE DISALLOWANCE OF EXPORT COMMISSION PA ID TO FOREIGN AGENTS. THE ASSESSEE CLAIMED TO HAVE PAID TO SALES COMMISSION TO FOREIGN AGENTS NAMED M/S ECO FIL MARKETING PTE LTD AND M/S PREMIUM CARBON PTE LTD, BOTH BEING SINGAPORE BASED COMPANIES. THE AO NOTICED THAT BOTH THESE COMPANIES ARE HAVING LOW CAPITAL AND FURTHER THEY HAVE BEEN WOUND UP IN THE YEAR 201 6. BOTH THESE COMPANIES WERE HAVING COMMON DIRECTOR NAMED SHRI FA RIDAH EHSAN. THE AO ALSO NOTICED THAT THE ASSESSEE DID N OT PROVE THAT THESE TWO COMPANIES HAVE RENDERED SERVICES TO THE A SSESSEE COMPANY. HENCE THE AO DISALLOWED THE EXPENSES INCL UDING THE EXPENSES RELATING TO FOREIGN EXCHANGE FLUCTUATION R ELATING THERETO. 27. BEFORE LD DRP, THE ASSESSEE FURNISHED CERTAI N ADDITIONAL EVIDENCES. HOWEVER, THE LD DRP TOOK THE VIEW THAT THE ADDITIONAL EVIDENCES DO NOT ANSWER THE QUERY RAISED BY THE AO, I.E., THE IT(TP)A NO.2162/BANG/2017 & IT(TP)A NO.3330/BANG/2018 PAGE 13 OF 16 ASSESSEE HAS NOT PROVED THE BONAFIDE OF THE TRANSAC TIONS. ACCORDINGLY IT REJECTED THE CONTENTIONS OF THE ASSE SSEE. ACCORDINGLY THE AO SUSTAINED THE DISALLOWANCE OF COMMISSION EXP ENSES. 28. THE LD A.R SUBMITTED THAT THE FOREIGN AGEN TS ARE NOT RELATED PARTIES AND THE ADDITIONAL EVIDENCES FURNISHED BEFO RE THE LD DRP HAS BEEN REJECTED WITHOUT CONSIDERATION. HE SUBMITT ED THAT THE ASSESSEE HAS FURNISHED COMPREHENSIVE DETAILS AND HE NCE THEY SHOULD NOT HAVE BEEN REJECTED BY LD DRP. ON THE CO NTRARY, THE LD D.R SUBMITTED THAT THE CASE OF THE AO IS THAT THE A SSESSEE HAS NOT PROVED THAT THESE AGENTS HAVE REALLY RENDERED SERVI CES TO THE ASSESSEE. HE SUBMITTED THAT THE PROMOTER OF THE AS SESSEE COMPANY IS A SINGAPORE RESIDENT AND HENCE THE RESPONSIBILIT Y TO PROVE THAT THESE AGENTS HAVE RENDERED SERVICES IS HEAVY ON THE ASSESSEE. HE SUBMITTED THAT IT MAY BE THE CASE OF ROUTING THE SA LES THROUGH THESE AGENTS IN ORDER TO DIVERT THE PROFITS TO FOREIGN CO UNTRY. ACCORDINGLY, THE LD D.R SUBMITTED THAT THERE IS NO REASON TO INT ERFERE WITH THE ORDER PASSED BY THE AO ON THIS ISSUE. 29. WE HEARD THE PARTIES ON THIS ISSUE AND PERUS ED THE RECORD. WE NOTICE THAT THE ASSESSEE HAS FURNISHED ADDITIONA L EVIDENCES BEFORE LD DRP, BUT THE SAME HAVE NOT BEEN CRITICALL Y EXAMINED BY THE IT. IN OUR VIEW, THESE ADDITIONAL EVIDENCES RE QUIRE PROPER EXAMINATION AND WITHOUT EXAMINING THEM, IT MAY NOT BE PROPER TO REJECT THE CONTENTIONS OF THE ASSESSEE. ACCORDINGL Y WE SET ASIDE THE ORDER PASSED BY THE AO ON THIS ISSUE AND RESTORE TH E SAME TO HIS FILE FOR EXAMINING IT AFRESH BY DULY CONSIDERING TH E ADDITIONAL EVIDENCES FURNISHED BY THE ASSESSEE. IT(TP)A NO.2162/BANG/2017 & IT(TP)A NO.3330/BANG/2018 PAGE 14 OF 16 30. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF HIGHER RATE OF DEPRECIATION CLAIMED BY THE ASSESSEE. THE AO NOTIC ED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON COMPUTER SOFTW ARE @ 60%. HE RESTRICTED THE SAME TO 25%. THE LD DRP NOTICED THAT THE ASSESSEE HAS ACQUIRED LICENCE FEE AND HENCE THE SAM E IS ELIGIBLE FOR DEPRECIATION @ 25% ONLY. 31. BEFORE US, THE ASSESSEE SUBMITTED THAT THE AO HAD MADE SIMILAR DISALLOWANCE IN AY 2013-14, BUT HIGHER DEPR ECIATION HAS BEEN ALLOWED BY LD CIT(A). HE SUBMITTED THAT THE R EVENUE HAS NOT CHALLENGED THE DECISION OF LD CIT(A). ON THE CONTRA RY, THE LD DR SUPPORTED THE ORDER PASSED BY THE AO. 32. WE HEARD THE PARTIES AND PERUSED THE RECO RD. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT HIGHER DEPRECI ATION IS ALLOWED UNDER DEPRECIATION TABLE (NOTE 7 BELOW THE TABLE) T O COMPUTER INCLUDING COMPUTER SOFTWARE. WE NOTICE THAT THE A O HAS TAKEN THE VIEW THAT THE TERM COMPUTER SOFTWARE SHOULD INTER PRETED TO MEAN THOSE SOFTWARE WHICH HAVE BEEN EMBEDDED WITH THE CO MPUTER AT THE TIME OF PURCHASE. WE NOTICE THAT THE ABOVE SAID IN TERPRETATION IS AGAINST THE VIEW EXPRESSED IN THE FOLLOWING CASE LA W:- (A) AMWAY INDIA ENTERPRISES VS. DCIT (111 ITD 112( SB)(DELHI) (B) CIT VS. AMWAY INDIA ENTERPRISES (346 ITR 341) (DELHI) (C) USHODAYA ENTEPRISES LTD (2015)(60 TAXMANN.COM 8 5)(HYD- TRIB) (D) ZYDUS INFRASTRUCTURE P LTD (72 TAXMANN.COM 199) (AHD. TRIB) IT(TP)A NO.2162/BANG/2017 & IT(TP)A NO.3330/BANG/2018 PAGE 15 OF 16 ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CI T(A) ON THIS ISSUE AND DIRECT THE AO TO ALLOW DEPRECIATION AT HI GHER RATE ON COMPUTER SOFTWARE. 33. THE ASSESSEE HAS RAISED CERTAIN LEGAL GROUND S IN BOTH THE YEARS. HOWEVER NO ARGUMENT WAS ADVANCED ON THEM AN D HENCE THEY ARE DISMISSED AS NOT CONTESTED. 34. OTHER GROUNDS URGED ON CHARGING OF INTEREST ARE CONSEQUENTIAL IN NATURE. 35. IN THE RESULT, BOTH THE APPEALS OF THE ASS ESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON JUNE, 2019. SD/- (PAVAN KUMAR GADALE) JUDICIAL MEMBER SD/- (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, 21 ST JUNE, 2019. / VMS / COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3 . THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER A SST. REGISTRAR, ITAT, BANGALORE. IT(TP)A NO.2162/BANG/2017 & IT(TP)A NO.3330/BANG/2018 PAGE 16 OF 16 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..