ITO WD 1(1)(3), MUMBAI V. FLYTXT MOBILE SOLUTIONS P.LTD, MUMBAI

ITA 321/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7345 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 20-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP
• Assessee Lawyers: HOMIYAR MADAN
• Keywords: Retrospective amendment
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.321/M/2016 ASSESSMENT YEAR: 2012-13 INCOME TAX OFFICER, WARD-1(1)(3), 531A/579, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S. FLYTXT MOBILE SOLUTIONS PVT. LTD., 30, ORIENTAL INSURANCE BUILDING, DR. V. B. GANDHI MARG, FORT, MUMBAI-400 001 PAN: AABCF1310L (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI HOMIYAR MADAN, A.R. REVENUE BY : MS. POOJA SWAROOP, D.R. DATE OF HEARING : 20.02.2018 DATE OF PRONOUNCEMENT : 27.04.2018 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 05.10.2015 OF THE COMMISSIONE R OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2012-13. 2. THE ISSUE RAISED IN GROUND NOS.1 & 2 IS AGAINST T HE DELETION OF DISALLOWANCE BY LD. CIT(A) TO THE TUNE OF RS.24,00,000/- AS MADE BY THE AO UNDER SECTION 40(A )(IA) OF THE ACT TOWARDS SOFTWARE USAGE CHARGES PAID BY THE ASSESSEE. THE REVENUE FURTHER RAISED THE ISSUE WHETHER THE LD . CIT(A) ITA NO.321/M/201 M/S. FLYTXT MOBILE SOLUTIONS PVT. LTD 2 WAS CORRECT IN RELYING ON THE CBDT NOTIFICATION NO. 21/2012 DATED 13.06.12 WHICH CAME INTO FORCE W.E.F. 01.07.2012 . 3. THE FACTS IN BRIEF ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO OBSERVED THAT A SUM OF RS .24 LAKHS WAS CHARGED TO THE P & L ACCOUNT ON ACCOUNT O F SOFTWARE USAGE CHARGES AND HE ACCORDINGLY RAISED A QUERY UPO N THE ASSESSEE TO FURNISH DETAIL OF THE SAME. THE ASSESSE E REPLIED TO THE AOS QUERY BY SUBMITTING THAT THE SAID SUM W AS PAID PURSUANT TO A CONSENT TERMS FILED BEFORE HONBLE DE LHI HIGH COURT ON WHICH NO TDS WAS DEDUCTED. ACCORDING TO TH E AO THE TDS SHOULD HAVE BEEN DEDUCTED ON THE SAID PAYME NT FAILING WHICH THE SAME COULD NOT BE ALLOWED UNDER S ECTION 40(A)(IA) OF THE ACT. 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ALL OWED THE APPEAL OF THE ASSESSEE AFTER CONSIDERING THE DETAIL ED SUBMISSIONS WHICH HAVE BEEN INCORPORATED IN PARA 3.1 BY OBSERVING AND HOLDING AS UNDER: 3.2. I HAVE GONE THROUGH THE ASSESSMENT ORDER AS W ELL THE SUBMISSIONS M BY THE AR OF THE APPELLANT COMPANY. THE AO IS OF THE O PINION THAT APPELLANT COMPANY SHOULD HAVE DEDUCTED THE TDS FOR THE SOFTWA RE CHARGES PAID OF RS.24,00,000/-. WHEREAS THE AR OF THE APPELLANT ARG UES THAT THE SOFTWARE CHARGES PAID OF RS.24,00 , 000/- IS NOT COVERED BY THE DEFINITION OF ROYALTY F OR WHICH HE IS HIGHLY RELYING ON THE NOTIFICATION NO.2 1/2012 [F.NO.142/10/2012- SO(TPL) S.O. 1323(E) ISSUED BY THE CBDT ON 13.06.20 12 WHICH IS NARRATED ABOVE. I HAVE ALSO GONE THROUGH THE NOTIFICATION A S ISSUED BY THE CBDT, WHEREIN CBDT CATEGORICALLY GAVE THE FINDING THAT FO R ACQUISITION OF SOFTWARE LOCALLY THERE IS NO NEED TO DEDUCT TDS. SO ACCORDINGLY THI S GROUND OF APPEAL IS ALLOWED. 5. THE LD. D.R. VEHEMENTLY SUBMITTED BEFORE US THAT T HE ORDER OF LD. CIT(A) WAS COMPLETELY AGAINST THE LAW A ND MORE SO WHEN THE CIRCULAR ON WHICH THE LD. CIT(A) RELIED WAS ITA NO.321/M/201 M/S. FLYTXT MOBILE SOLUTIONS PVT. LTD 3 APPLICABLE W.E.F. 01.07.2012 WHICH WAS NOT APPLICABL E TO THE PRESENT CASE. 6. LD. D.R. SUBMITTED THAT THERE ARE THREE CONDITION S ENVISAGED IN THE NOTIFICATION NO. 21/2012 DATED 13.6 .2012 WHICH ARE REQUIRED TO BE COMPLIED WITH BY THE ASSE SSEE SIMULTANEOUSLY OTHERWISE THE TDS HAS TO BE DEDUCTED AND DEPOSITED BUT THE LD. CIT(A) HAS NOT GIVEN ANY FIN DINGS IN THAT REGARD. BESIDES THE ORDER OF LD. CIT(A) IS CRYP TIC AND THEREFORE THE SAME DESERVED TO BE REVERSED AND THE ORDER OF AO SHOULD BE RESTORED. 7. THE LD. A.R., ON THE OTHER HAND, WHILE COUNTERING THE ARGUMENT OF THE LD. D.R. SUBMITTED THAT THE PAYMENT FO R THE SAID SOFTWARE USAGE CHARGES WERE MADE ON 06.01.12 AN D THERE WAS NO PROVISION IN THE INCOME TAX ACT TILL T HAT DATE FOR DEDUCTION OF TAX AT SOURCE FROM THE PAYMENT OF SOFT WARE USAGE CHARGES EVEN IF THE SAME IS CONSIDERED TO BE COVERED BY THE PROVISION OF SECTION 9 OF THE ACT. THE LD. A.R. SUBMITTED THAT EXPLANATIONS 4, 5 & 6 WERE INSERTED TO SECTION 9 BY FINANCE ACT, 2012 W.E.F. 01.06.1976 BUT THE FACT OF THE MATTER IS THAT AS ON THE DATE OF PAYMENT EVEN THIS AMENDMENT WAS NOT ON THE STATUTE BOOKS BRINGING IT WITHIN THE DEFINITION OF ROYALTY. WHILE COUNTERING THE AR GUMENTS OF THE LD. D.R. THE LD. A.R. SUBMITTED THAT THOUGH THE CIRC ULAR WAS EFFECTIVE W.E.F. 01.07.12 ON WHICH THE LD. CIT(A) PLACED RELIANCE BUT EVEN OTHERWISE THE PROVISION OF TAX DE DUCTION AT SOURCE COULD NOT BE APPLICABLE AS THE ASSESSEE COUL D NOT HAVE FORESEEN THE AMENDMENT IN THE SUBSEQUENT YEAR WHICH TOOK ITA NO.321/M/201 M/S. FLYTXT MOBILE SOLUTIONS PVT. LTD 4 PLACE BY WAY OF INSERTION OF EXPLANATIONS 4, 5 & 6 T O SECTION 9 BY THE FINANCE ACT, 2012. FINALLY, THE LD. A.R. SUBMIT TED THAT IN VIEW OF THE ABOVE, THE APPEAL OF THE REVENUE ON T HIS GROUND SHOULD BE DISMISSED. 8. AFTER CAREFULLY PERUSING THE MATERIAL ON RECORD AND HEARING BOTH THE PARTIES, WE FIND THAT IN THE PRESE NT CASE THE PAYMENT FOR ROYALTY CHARGES WAS MADE UNDER CONSENT TERMS BEFORE THE HONBLE DELHI HIGH COURT ON WHICH NO TDS WAS DEDUCTED. IT IS TRUE THAT EXPLANATION 4 TO 6 WERE INSERTED TO SECTION 9 BY THE FINANCE ACT, 2012 WITH RETROSPECTI VE EFFECT FROM 01.06.1976 BUT AT THE SAME TIME THERE IS MERIT IN THE SUBMISSIONS OF THE LD. A.R. THAT AS ON THE DATE OF PA YMENT THE ASSESSEE COULD NOT HAVE FORESEEN THE AMENDMENT WHIC H WAS TO TAKE PLACE IN THE SUBSEQUENT YEAR MAKING THE DED UCTION OF TDS FROM SOFTWARE APPLICABLE FROM THE RETROSPECTIVE EFFECT. THUS, IN VIEW OF THESE FACTS, WE ARE OF THE CONSIDER ED VIEW THAT THE LD. CIT(A) HAS CORRECTLY ALLOWED THE APPEAL OF THE ASSESSEE AND ACCORDINGLY WE UPHOLD THE SAME BY DISM ISSING THE GROUND NOS.1 & 2. 9. THE ISSUE RAISED IN GROUND NO.3 IS AGAINST THE DE LETION OF ADDITION OF RS.1,03,22,354/- BY LD. CIT(A) AS MADE B Y THE AO ON THE BASIS OF AIR INFORMATION. 10. THE FACTS IN BRIEF ARE THAT AO DURING THE COURS E OF ASSESSMENT PROCEEDINGS OBSERVED FROM THE AIR INFORM ATION VIS--VIS BOOKS OF ACCOUNTS OF THE ASSESSEE THAT TH ERE WAS DIFFERENCE OF RS.1,03,22,354/- AND ACCORDINGLY THE AS SESSEE ITA NO.321/M/201 M/S. FLYTXT MOBILE SOLUTIONS PVT. LTD 5 WAS ASKED TO RECONCILE THE AIR DATA. THE ASSESSEE V IDE LETTER DATED 10.3.2015 SUBMITTED THAT A RECONCILIATION WAS CARRIED OUT WITH THE AIR INFORMATION AND AS REPORTED IN FOR M 26AS IT WAS HIGHER BY RS.1,03,22,354/- AND CONFIRMED THAT NO SUCH INVOICE WAS ISSUED BY THE ASSESSEE. THEREAFTER, THE AO SENT NOTICE UNDER SECTION 133(6) OF THE ACT TO THE PARTI ES AS PER THE ADDRESSES APPEARING IN FORM 26AS BUT NO RESPONSE WA S RECEIVED. FINALLY THE AO OBSERVED THAT UNRECONCILED AMOUNT OF RS.1,03,22,354/- WAS NOT EXPLAINED BY THE ASSESSEE A ND ACCORDINGLY THE SAME WAS ADDED TO THE INCOME OF THE ASSESSEE. 11. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) DELE TED THE ADDITION AFTER CONSIDERING THE SUBMISSION OF THE AS SESSEE BY OBSERVING AND HOLDING AS UNDER: 4.3 I HAVE CAREFULLY GONE THROUGH THE SUBMISSIONS OF THE APPELLANT AND THE DOCUMENTS ATTACHED TO THEM. IT IS CLEAR THAT THE CU STOMERS OF THE APPELLANT DEDUCTED TDS ON PROVISIONS MADE IN THE BO OKS OF ACCOUNT WHEREAS THE APPELLANT RECORDED THE SALES IN ITS BOOKS OF ACCOUN T IN THE FOLLOWING FINANCIAL YEAR. A PROVISION OF EXPENDITURE MADE BY ONE PERSON CANNO T AND DOES NOT NEED TO BE IDENTICALLY REPRODUCED IN THE BOOKS OF ACCOUNT OF THE OPPOSITE PERSON AS REVENUE / INCOME UNLESS THERE IS A CONFIRMATION. IN THE ABOVE CASE DUE TO A LONG CONFIRMATION, PERIOD THE SALES WERE BOOKED BY THE A PPELLANT IN THE SUBSEQUENT FINANCIAL YEAR AND HAVE BEEN OFFERED TO TAX. THE CO NFIRMATIONS HAVE COM AS LATE AS DECEMBER OF THE FOLLOWING YEAR THAT IS 9 MONTHS INT O THE NEXT FINANCIAL YEAR. THERE IS NO ESCAPEMENT OF TAX AND THE EXPLANATION O F THE APPELLANT IS FOUND BONAFIDE. IN LIGHT OF THIS, I HOLD THAT THE ENTIRE ADDITION O F RS.1,03,22,354/- BE DELETED. 12. THE LD. D.R. VEHEMENTLY RELIED ON THE ORDER OF AO AND SUBMITTED THAT THE PARTICULAR INCOME WHICH ACCRUED DURING THE YEAR HAS TO BE TAXED IN THAT PARTICULAR YEAR AND TH E EXCUSE OF ITA NO.321/M/201 M/S. FLYTXT MOBILE SOLUTIONS PVT. LTD 6 THE ASSESSEE THAT IT HAS BEEN OFFERED IN THE NEXT Y EAR SHOULD NOT BE ACCEPTED AND THE ORDER OF AO DESERVED TO BE RESTORED ON THIS ISSUE. 13. THE LD. A.R., ON THE OTHER HAND, SUBMITTED THAT A CUSTOMER OF THE ASSESSEE AIRCEL CELLULAR LTD. DEDUCT ED TDS ON THE PROVISIONS MADE IN THE BOOKS OF ACCOUNTS AT THE YEAR END WHICH THE ASSESSEE WAS NOT AWARE OF AS THERE WAS NO CONFIRMATION OF THE SAME FROM THE SAID CUSTOMER. TH E LD. A.R. SUBMITTED THAT THE ASSESSEE ISSUED THE INVOICE IN THE NEXT FINANCIAL YEAR AND THE SAME WAS INCLUDED IN THE SAL E OF THE ASSESSEE IN THAT YEAR AND THE PAYMENT WAS ALSO RECE IVED IN THE NEXT YEAR. THE LD. A.R. ALSO SUBMITTED THAT NO T DS WAS CLAIMED IN THE NEXT YEAR. FINALLY, THE LD. A.R. ARGU ED THAT NO LOSS OF REVENUE IS CAUSED TO THE DEPARTMENT AS THE INCOME HAS BEEN OFFERED TO TAX AND THEREFORE THE APPEAL OF THE DEPARTMENT SHOULD BE DISMISSED AS THE ORDER OF LD. C IT(A) IS CORRECTLY PASSED CONSIDERING ALL THE FACTS OF THE C ASE. 14. HAVING HEARD BOTH THE PARTIES AND CAREFULLY PER USING THE RELEVANT MATERIAL PLACED BEFORE US, WE FIND THAT IN THIS CASE TDS HAS BEEN DEDUCTED BY THE CUSTOMER ON THE PROVIS IONS CREATED IN THE BOOKS OF ACCOUNTS WHEREAS THE ASSES SEE INVOICED AND RECORDED THE SALE IN THE NEXT FINANCIA L YEAR. WE OBSERVE THAT THE LD. CIT(A) HAS TAKEN A VERY BALANC ED AND CORRECT VIEW OF THE MATTER AND ALSO RECORDED THE FI NDING OF THE FACT THAT THERE IS NO ESCAPEMENT OF TAX AS THE INCO ME STANDS OFFERED TO TAX IN THE NEXT FINANCIAL YEAR WHEN THE ASSESSEE INVOICED THE CUSTOMER AND IT IS IRRELEVANT THAT TH E CUSTOMER ITA NO.321/M/201 M/S. FLYTXT MOBILE SOLUTIONS PVT. LTD 7 HAS DEDUCTED TDS ON THE PROVISIONS CREATED IN THE B OOKS OF ACCOUNTS. ACCORDINGLY, WE AFFIRM THE ORDER OF LD. CI T(A) BY DISMISSING THE GROUND RAISED BY THE REVENUE. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27.04.2018. SD/- SD/- (SAKTIJIT DEY) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 27.04.2018. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.