ADDL CIT RG 7(2), MUMBAI V. SONATA SOFTWARE LTD, MUMBAI

ITA 3539/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88326 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 10-02-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 18-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S PADMAJA
• Keywords: Depreciation; Transfer pricing; International transaction; Question of law; Wholly owned subsidiary
• Section: 143(3); 14A; 115JB; 32

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL L BE NCH, MUMBAI , ! '# % & ' , '# ( BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER ./I .T.A. NO. 3517/MUM/2012 ( ) ) ) ) / ASSESSMENT YEAR : A.Y. 2006-2007 M/S. SONATA SOFTWARE LTD., 207-208, T.V.INDUSTRIAL ESTATE, S.K.AHIRE MARG, WORLI, MUMBAI 400 030 / VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE 7(2), AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 #* ! ./ +, ./ PAN/GIR NO. : AABCS8459D ( *- / APPELLANT ) .. ( ./*- / RESPONDENT ) ./I .T.A. NO. 3539/MUM/2012 ( ) ) ) ) / ASSESSMENT YEAR : A.Y. 2006-2007 ADDL. COMMISSIONER OF INCOME TAX, RANGE 7(2), AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 / VS. M/S. SONATA SOFTWARE LTD., 207-208, T.V.INDUSTRIAL ESTATE, S.K.AHIRE MARG, WORLI, MUMBAI 400 030 #* ! ./ +, ./ PAN/GIR NO. : AABCS8459D ( *- / APPELLANT ) .. ( ./*- / RESPONDENT ) REVENUE BY SHRI VIJAY MEHTA ASSESSEE BY SMT. S. PADMAJA 0 %1! / DATE OF HEARING :10.02.2015 23) 0 %1! / DATE OF PRONOUNCEMENT:20.02.2015 I .T.A. NO. 3517& 3539/MUM/2012 A.Y. 2006-07. 2 2 '& / O R D E R PER N.K.BILLAIYA, JM: ITA NO.3517/MUM/2012 & 3539/MUM/2012 ARE CROSS AP PEALS BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF LD. CIT( A)-13, MUMBAI DATED 22/03/2012 PERTAINING TO ASSESSMENT YEAR 2006-07. BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. ITA NO. 3517/MUM/2012 ASSESSEES APPEAL: 2. THE ASSESSEE IS AGGRIEVED ON TWO GROUNDS. THE FIRST GROUND RELATES TO THE DENIAL OF DEDUCTION UNDER SECTION 10A OF THE INCOM E TAX ACT, 1961 (THE ACT) IN RESPECT OF EIGHT SEPARATE UNDERTAKINGS BEING CONSI DERED AS ONE UNDERTAKING AND NOT SEPARATE UNDERTAKING. THE SECOND GROUND RELA TES TO THE DISALLOWANCE OF RS.6,17,901/- UNDER SECTION 40(A) (I) OF THE ACT I N RESPECT OF DEPRECIATION CLAIM ON SOFTWARE PURCHASED BY THE ASSESSEE. 2.1 THE ASSESSEE IS IN THE BUSINESS OF DEVELOPMENT AND TRADING OF SOFTWARES AND HARDWARES. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED ON 27/11/2006 DECLARING TOTAL LOSS OF RS.20.98 CROR ES. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY STATUTORY N OTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. A REFERENCE UNDER SECTION 92CA( 1) WAS MADE TO THE TPO. THE TPO PASSED AN ORDER UNDER SECTION 92CA(3) ON 22 /10/2009 WITHOUT MAKING ANY ADJUSTMENT. DURING THE COURSE OF SCRUTINY ASSE SSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION UND ER SECTION 10A AT RS.42,94,66,344/- IN RESPECT OF FIVE UNITS. THE FURTHER OBSERVED THAT THE DEDUCTION UNDER SECTION 10A WAS DISALLOWED IN A.Y 1 998-99 AND 1999-2000 ON THE GROUND THAT UNDERTAKING WAS FORMED BY SPLITTING OR RECONSTRUCTION OF BUSINESS I .T.A. NO. 3517& 3539/MUM/2012 A.Y. 2006-07. 3 3 ALREADY IN EXISTENCE AND THE UNDERTAKING HAS BEEN C ARRYING ON ITS ACTIVITIES PRIOR TO 1995-96. IT IS FURTHER OBSERVED THAT THE TRIBUN AL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT A ND IN SUBSEQUENT ORDER, ASSESSMENT ORDERS OF A.Y 1998-99 AND 1999-2000 WER E FOLLOWED BY THE AO AND THE TRIBUNAL FOLLOWED ITS OWN ORDER. THE AO PROCE EDED BY FOLLOWING HIS OWN ORDER FOR A.Y 1998-99 AND 1999-2000. THE AO FURTHE R OBSERVED THAT IN THE PRESENT YEAR THE DEDUCTION UNDER SECTION 10A IS DIS ALLOWED FOR TWO ADDITIONAL GROUND; (A) 10A ELIGIBILITY OF THREE UNITS WHICH CA ME INTO EXISTENCE AFTER A.Y.1999-2000. THE MAJOR CLAIM OF DEDUCTION IS IN RESPECT OF TWO UNITS WHICH CAME INTO EXISTENCE IN A.Y 2005-06; (B) TREATING B USINESS OF THE ASSESSEE AS SINGLE INTEGRATED UNIT WITH COMPLETE INTER DEPENDEN CE AND INTER-LEASING OF FUNDS, RESOURCES, MANAGEMENT AND CONTROL. 2.2 THEREFORE, THE PRESENT YEAR IS NOT COVERED BY THE ORDERS OF THE TRIBUNAL IN EARLIER YEARS AS THESE ISSUES WERE NOT THERE BEFORE THE APPELLATE AUTHORITIES IN EARLIER YEARS. THE AO FURTHER OBSERVED THAT THRE E UNITS WHICH CAME INTO EXISTENCE AFTER 1999-2000, OUT OF WHICH DEDUCTION U NDER SECTION 10A HAS BEEN CLAIMED FOR TWO UNITS AT RS. 41,78,00,213/-. THES E UNITS CAME INTO EXISTENCE IN A.Y 2005-06 ONLY AND DEDUCTION UNDER SECTION 10A CL AIMED IS 97% ON TOTAL DEDUCTION. THE BUSINESS FROM THESE TWO UNITS IS 67 % OF TOTAL REVENUE WHICH MEANS THAT THE ASSESSEE IS TRANSFERRING BUSINESS F ROM OLDER UNITS TO NEW UNITS WHICH IS NOTHING BUT RECONSTRUCTION OF BUSINESS AL READY IN EXISTENCE. THEREFORE, EVEN IF THE ORDER OF TRIBUNAL IN A.Y 1998-99 AND 19 99-2000 IS FOLLOWED THESE THREE UNITS ARE NOT ELIGIBLE FOR DEDUCTION UNDER S ECTION 10A. THE AO CONCLUDED BY OBSERVING THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A ON THE GROUNDS THAT ALL 10 UNITS ARE AN INTEGRATED WHO LE, THAT IS NOT NEW UNITS AND WITHOUT PREJUDICE TO THE SAME THREE NEW UNITS A RE SIMPLE RESTRUCTURING / RECONSTRUCTION BUSINESS FOR TRANSFERRING BUSINESS TO NEW UNITS TO OLD UNITS AND THESE ISSUES ARE NOT COVERED BY THE DECISION OF THE TRIBUNAL IN A.Y 1998-99 AND I .T.A. NO. 3517& 3539/MUM/2012 A.Y. 2006-07. 4 4 1999-2000. THE AO ULTIMATELY DENIED THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT. AGGRIEVED BY THIS THE ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A). 2.3 IT WAS CONTENDED BEFORE LD. CIT(A) THAT THE ISS UE WAS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1998-99 AND 1999-2000 AND ALSO BY T HE ORDERS OF THE TRIBUNAL FOR A.Y 2000-01 TO 2004-05. IT WAS BROUGHT TO TH E NOTICE OF LD.CIT(A) THAT IN ALL THESE YEARS, THE LD. CIT(A) HAS HELD THAT THE A SSESSEE WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. AFTER CON SIDERING THE FACTS AND THE SUBMISSIONS MADE BY THE ASSESSEE LD. CIT(A) OBSERV ED THAT THE CUSTOMS AUTHORITIES HAVE RECOGNIZED ONLY THREE UNDERTAKINGS AND SUB-UNITS SHOWN BY THE ASSESSEE HAVE NOT BEEN RECOGNIZED AS SEPARATE UNDER TAKINGS BY CUSTOM AUTHORITIES /STP. LD. CIT(A) FURTHER OBSERVED THAT ALL THESE FACTS WERE NOT EARLIER BEFORE AO/APPELLATE AUTHORITIES. THEREFORE , EARLIER FINDING SHALL BE NOT APPLICABLE TO THE FACTS OF THE CASE. LD. CIT(A) FI NALLY ALLOWED THE CLAIM OF DEDUCTION IN RESPECT OF THREE UNITS. AGGRIEVED BY THIS THE ASSESSEE IS BEFORE US. 3. LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE FIRST APPELLATE AUTHORITY. LD. COUNSEL STRONGLY SUBMITTE D THAT IN EARLIER YEARS TRIBUNAL HAS ALLOWED THE CLAIM OF DEDUCTION AND, THEREFORE, LD. CIT(A) HAS ERRED IN DENYING THE CLAIM OF DEDUCTION IN RESPECT OF ALL TH E UNITS ON FRIVOLOUS GROUNDS. THE LD. COUNSEL POINTED OUT THAT IN RESPECT OF FIVE UNITS THE YEAR OF DEDUCTION IS 9 TH YEAR. IN RESPECT OF TWO UNITS THE YEAR OF DEDUCTI ON IS SECOND YEAR. OUT OF FIVE UNITS THE ASSESSEE HAS CLAIMED DEDUCTION IN RESPECT OF THREE UNITS ONLY. IT IS THE SAY OF THE LD. COUNSEL THAT IT IS A SETTLED PROPOSI TION OF LAW THAT WITHOUT DISTURBING THE CLAIM OF DEDUCTION IN THE INITIAL Y EAR OF CLAIM THE REVENUE AUTHORITIES CANNOT DENY THE CLAIM OF DEDUCTION IN S UBSEQUENT YEARS. RELIANCE HAS BEEN PLACED ON THE DECISION OF THE HONBLE GUJA RAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD., 123 I TR 669 (GUJ) AND ALSO ON I .T.A. NO. 3517& 3539/MUM/2012 A.Y. 2006-07. 5 5 THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF CIT VS. PAUL BROTHERS, 216 ITR 548 (BOM). 4. PER CONTRA, LD. DR STRONGLY SUPPORTED THE FINDIN GS OF THE LOWER AUTHORITIES. IT IS THE SAY OF THE LD. DR THAT THE AO HAS SPECIFI CALLY POINTED OUT THE DISTINGUISHING FACTS. LD. CIT(A) HAS ALSO ELABORA TELY DISCUSSED THE DISTINGUISHING FACTS AND, THEREFORE, FINDINGS OF E ARLIER YEARS CANNOT BE TAKEN INTO CONSIDERATION FOR THE YEAR UNDER CONSIDERATION. 5. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW AND THE DECISIONS BROUGHT TO OUR NOTICE. LET US FIRST SEE HOW THE CLAIM HAS BEEN MADE BY THE ASSESSEE. UNIT NAME ADDRESS 10A 10A PROFIT/LOSS FOR THE YEAR 10A DEDUCTION PROFIT/LOSS AFTER 10A DEDN. YEAR OF DEDN. U/S.10A 1 NW , APS TRUST BLDG., BULL TEMPLE RD., N.R. COLONY, BANGALORE 560019 NO N.A. 5806476 - 5806476 PERIOD EXPIRED. 3SW -DO- YES YES 8218399 8218 399 - 9 TH YEAR 4FL -DO- YES NO (29315948) - (29 315948) 9 TH YEAR 5SW -DO- YES NO (2812701) - ( 2812701) 9 TH YEAR 1SW -DO- YES YES 1345589 1345589 - 9 TH YEAR 5NW -DO- YES YES 2102143 21021 43 - 9 TH YEAR 3NW -DO- YES NO (22652254) - (22 652254) 8 TH YEAR BG2 NO.193, R.V.RD., NEXT TO VIJAYA COLLEGE, BASAVANAGUDI, BANGALORE 560004 YES NO (142604698) - (142604698) 7 TH YEAR BG3 NO.6, RICHMOND RD. BANGALORE 560 025 YES YES 340679999 340679999 - 2 ND YEAR HYD #1-10-176, GREEN TOWERS, OPP. HYDERABAD PUBLIC SCHOOL, BEGUMPET, HYDERABAD 500 016 YES YES 77120214 77120214 - 2 ND YEAR I .T.A. NO. 3517& 3539/MUM/2012 A.Y. 2006-07. 6 6 5.1 THUS, IT CAN BE SEEN THAT IN RESPECT OF THREE U NITS NAMELY 3SW, 1SW AND 5NW THE YEAR OF DEDUCTION IS 9 TH YEAR, WHICH MAKES INITIAL YEAR TO BE ASSESSMENT YEAR 1998-99. IN THE FIRST YEAR OF CLAIM OF DEDUC TION I.E. A.Y 1998-99 THE MATTER TRAVELLED UPTO THE HONBLE BOMBAY HIGH COURT AND T HE HONBLE COURT IN INCOME TAX APPEAL NO.311 OF 2004 HAD AN OCCASION TO CONSIDER INTER-ALIA THE FOLLOWING QUESTION OF LAW: (A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE WAS ENT ITLED TO AN EXEMPTION IN RESPECT OF THE PROFIT DERIVED FROM THE STP UNDERTAK ING ON THE BASIS OF THAT THE CONDITION OF SECTION 10A(2) ARE FULFILLED. AND AFTER CONSIDERING THE FACTS, HONBLE HIGH COURT AT PARA-13 OF ITS ORDER HELD THAT THE FIRST QUESTION OF LAW WOULD HAVE TO BE AN SERED IN THE AFFIRMATIVE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. I N RESPECT OF CLAIM OF DEDUCTION FOR UNITS BG3 & HYD THE YEAR OF DEDUCTION IS SECOND YEAR WHICH MAKES INITIAL ASSESSMENT YEAR 2005-06. THE CLAIM OF DEDUCTION I N THE INITIAL ASSESSMENT YEAR WAS ALLOWED BY THE TRIBUNAL VIDE ITA NO. 3514/MUM/2 010. 5.2 THUS, IT CAN BE SEEN THAT THE CLAIM OF DEDUCTIO N IN RESPECT OF EACH UNIT WHERE SECTION 10A DEDUCTION HAS BEEN CLAIMED AS PER CHART MENTIONED HEREIN ABOVE. THE ASSESSEE WAS ALLOWED THE DEDUCTION IN THE INITIAL ASSESSMENT YEAR WHICH MAKE FACT OF THE CASE SQUARELY COVERED BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT & CHEMICALS LTD. (SUPRA), WHEREIN HONBLE COURT HAS MADE THE FOLLOWING OBSERV ATIONS: THE NEXT QUESTION TO WHICH THE TRIBUNAL ADDRESSED ITSELF, AND IN OUR OPINION RIGHTLY, WAS WHETHER THE ITO WAS JUSTIFIED IN REFUSING TO CONTINUE THE RELIEF OF TAX HOLIDAY GRANTED TO THE ASSESSEE C OMPANY FOR THE ASSESSMENT YEAR 1968-69, IN THE ASSESSMENT YEAR UN DER REFERENCE, THAT IS, 1969-70, WITHOUT DISTURBING THE RELIEF GRANTED FOR THE INITIAL YEAR. IT SHOULD BE STATED THAT THERE IS NO PROVISION IN THE SCHEME OF S. 80 J SIMILAR TO THE ONE WHICH WE FIND IN THE CASE OF DEVELOPMEN T REBATE WHICH COULD BE I .T.A. NO. 3517& 3539/MUM/2012 A.Y. 2006-07. 7 7 WITHDRAWN IN SUBSEQUENT YEARS FOR BREACH OF CERTAIN CONDITIONS. NO DOUBT, THE RELIEF OF TAX HOLIDAY UNDER S. 80J CAN BE WITHH ELD OR DISCONTINUED PROVIDED THE RELIEF GRANTED IN THE IN THE INITIAL Y EAR OF ASSESSMENT IS DISTURBED OR CHANGED ON VALID GROUNDS. BUT WITHOU T DISTURBING THE RELIEF GRANTED IN THE INITIAL YEAR, THE ITO CANNOT EXAMIN E THE QUESTION AGAINST AND DECIDE TO WITHHOLD OR WITHDRAW THE RELIEF WHICH HAS BEEN ALREADY ONCE GRANTED. 5.3 SIMILARLY IN THE CASE OF PAUL BROTHERS (SUPRA), HONBLE BOMBAY HIGH COURT HAS HELD AS UNDER: HELD, THAT (I) SINCE THE ASSESSMENT ORDER FOR THE YEAR 1981-82 HAD MERGED IN THE APPELLATE ORDER, REVISIONAL JURISDICT ION COULD NOT BE EXERCISED; (II) THE ASSESSING OFFICERS ORDER BASED ON A BINDING DECISION OF THE HIGH COURT, COULD NOT BE INTERFERED WITH IN REV ISIONAL JURISDICTION; (III) UNLESS DEDUCTIONS ALLOWED FOR THE ASSESSMENT YEAR 1 980-81 ON THE SAME GROUND WERE WITHDRAWN, THEY COULD NOT BE DENIED FOR THE SUBSEQUENT YEARS. EITHER IN SECTION 80 HH OR IN SECTION 80J THERE IS NO PROVISION FOR WITHDRAWAL OF SPECIAL DEDUCTION FOR BREACH OF CERTA IN CONDITIONS. 5.4 CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE JUDICIAL DECISION CITED HEREIN ABOVE, IN OUR CONSIDERED OPINION THE CLAIM O F DEDUCTION CANNOT BE DENIED UNLESS CLAIM IS WITHDRAWN RIGHT FROM THE INITIAL A SSESSMENT YEAR. RESPECTFULLY FOLLOWING THE DECISIONS OF THE HONBLE BOMBAY HIGH COURT AND HONBLE GUJARAT HIGH COURT, WE SET ASIDE THE FINDINGS OF LD. CIT(A) AND DIRECT THE AO TO ALLOW THE CLAIM OF DEDUCTION AS MADE BY THE ASSESSEE UND ER SECTION 10A OF THE ACT. GROUND NO.1 IS ALLOWED. 6. GROUND NO.2 IS AGAINST DISALLOWANCE OF RS.6,17,9 01/- UNDER SECTION 40(A)(I) OF THE ACT DURING THE COURSE OF THE ASS ESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED SOFTWARE PURC HASES EXPENSES OF RS.4,28,65,714/- WHICH INCLUDES PURCHASES OF RS.20, 59,671/- CLAIMED TO BE PURCHASED BY FOREIGN BRANCHES OF THE ASSESSEE. TH E AO FOUND THAT NO TDS HAS BEEN MADE ON THIS AMOUNT ON THE GROUND THAT THE PUR CHASES ARE OUTSIDE INDIA FOR I .T.A. NO. 3517& 3539/MUM/2012 A.Y. 2006-07. 8 8 OUTSIDE INDIA. IN THE LIGHT OF THE PROVISIONS OF SECTION 195(2) OF THE ACT, THE AO DISALLOWED A SUM OF RS.20,59,671/- UNDER SECTION 4 0(A)(I) OF THE ACT. 6.1 AGGRIEVED, ASSESSEE CARRIED THE MATTER BEFORE L D. CIT(A). IT WAS POINTED OUT TO THE LD. CIT(A) THAT THE ASSESSEE HAS CAPITAL IZED THE SAID AMOUNT OF RS.20,59,619/- AND HAS CLAIMED ONLY DEPRECIATION OF RS.6,17,901/-. THEREFORE, THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT ARE N OT APPLICABLE FOR CLAIMING OF DEDUCTION UNDER SECTION 32 OF THE ACT. AFTER CONSI DERING THE FACTS AND THE SUBMISSIONS LD. CIT(A) OBSERVED THAT THE AO IS INCO RRECT IN HOLDING THAT THE ASSESSEE HAS CLAIMED THE ENTIRE EXPENDITURE OF RS.2 0,59,671/- AS A REVENUE. LD. CIT(A), THEREFORE, RESTRICTED THE DISALLOWANCE ONLY TO THE CLAIM OF DEPRECIATION OF RS.6,17,901/-. AGGRIEVED BY THIS THE ASSESSEE IS B EFORE US. 7. LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY SUBMITTE D THAT THE DISALLOWANCE HAVE BEEN MADE UNDER SECTION 40(A)(I) OF THE ACT, W HICH IS NOT AT ALL APPLICABLE ON THE FACTS OF THE CASE. IT IS THE SAY OF THE LD . COUNSEL THAT THE ASSESSEE HAS ONLY CLAIMED DEPRECIATION AND, THEREFORE, NO DISALL OWANCE NEED TO BE MADE. THE LD. COUNSEL FURTHER POINTED OUT THAT TDS ON ROYALTY WAS MADE APPLICABLE FROM 13/07/2006 AND THE ASSESSMENT YEAR IS ASSESSMENT YE AR 2006-07, THEREFORE, THERE WAS NO TDS LIABILITY EVEN IF ENTIRE AMOUNT IS TREA TED AS ROYALTY. LD. COUNSEL REFERRED TO THE NON-DISCRIMINATORY CLAUSE IN INDO-U S TREATY AND SUBMITTED THAT IF THE DOMESTIC TRANSACTION WOULD NOT HAVE ATTRACTED A NY TAX LIABILITY A SIMILAR INTERNATIONAL TRANSACTION CANNOT BE SUBJECT TO TD S LIABILITY. 7.1 LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE DE CISION OF THE TRIBUNAL DELHI BENCH IN THE CASE OF SMG DEMAG (P) LTD., ITA NO.36 36/DELHI/2008, A.Y. 2000-01. I .T.A. NO. 3517& 3539/MUM/2012 A.Y. 2006-07. 9 9 8. PER CONTRA, LD. DR STRONGLY SUPPORTED THE FINDIN GS OF THE REVENUE AUTHORITIES. 9. HAVING PERUSED THE ORDERS CAREFULLY WE AGREE WI TH THE SUBMISSIONS MADE BY LD. COUNSEL. FIRSTLY, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS ONLY CLAIMED DEPRECIATION AND NOT THE ENTIRE EXPENDITUR E. THE TRIBUNAL DELHI BENCH IN THE CASE OF SMG DEMAG (P) SUPRA) HAS HELD THAT PROVISIONS OF SECTION 40(A) (I) ARE NOT APPLICABLE FOR CLAIM OF DEDUCTION OF DE PRECIATION UNDER SECTION 32 OF THE ACT. PAYMENTS FOR PURCHASE OF SOFTWARE WITHOUT DEDUCTION TAX WILL NOT BE SUBJECT TO THE PROVISIONS OF SECTION 40(A)(I) OF TH E ACT. 9.1 FURTHER, IF A SIMILAR DOMESTIC TRANSACTION WAS MADE DURING THE YEAR UNDER CONSIDERATION, IT WOULD NOT HAVE ATTRACTED THE LIAB ILITY FOR TDS. THEREFORE, IN THE LIGHT OF THE NON-DISCRIMINATORY CLAUSE IN THE TREA TY A SIMILAR INTERNATIONAL TRANSACTION WOULD ALSO NOT ATTRACT LIABILITY OF TH E TDS. CONSIDERING THE FACTS IN THE LIGHT OF THE JUDICIAL DECISIONS AND OUR OBSERV ATIONS MADE HEREIN ABOVE, THE FINDINGS OF LD. CIT(A) IS SET ASIDE AND THE AO IS DIRECTED TO DELETE THE ADDITION OF RS.6,17,901/-. GROUND NO.2 IS ACCORDINGLY ALLOW ED. ITA NO.3539/MUM/2012: REVENUES APPEAL: 10. THE REVENUE HAS RAISED SEVEN SUBSTANTIAL GROUND S OF APPEAL. GRIEVANCE RAISED VIDE GROUND NO.1 RELATES TO THE CLAIM OF DED UCTION UNDER SECTION 10A OF THE ACT. THIS ISSUE HAS BEEN DISCUSSED BY US IN DE TAIL IN ASSESSEES APPEAL, QUA GROUND NO.1 OF ITA NO.3517/MUM/2012. FOR THE DETA ILED REASONS GIVEN THEREIN, GROUND NO.1 IS ACCORDINGLY DISMISSED. 11. GROUND NO.2 RELATES TO THE DELETION OF ADDITION OF RS.15,25,91,438/- ON ACCOUNT OF ARBITRATION SETTLEMENT CLAIM. THE AO H AS CONSIDERED THIS ISSUE AT I .T.A. NO. 3517& 3539/MUM/2012 A.Y. 2006-07. 10 10 PARA-21 OF HIS ORDER. THE AO OBSERVED THAT THE AS SESSEE HAS MADE THE CLAIM ON THE BASIS OF INTERNATIONAL ARBITRATION AWARD. THE AO FURTHER OBSERVED THAT THE ARBITRATION AWARD MENTION PAYMENT OF RS.15 LACS BRI TAIN POUNDS IN RESPECT OF CLAIM OF M/S. NEW WATER CONSULTING LTD., INCLUDING VAT AND COST. THE AO HAS FURTHER NOTICED THAT OUT OF THE SAID AMOUNT ONLY 7 ,50,000 BRITAIN POUNDS WERE TO BE PAID IN F.Y. 2005-06 AND THE REMAINING AMOUNT W AS TO BE PAID IN F.Y. 2006- 07. HOWEVER, THE ASSESSEE HAS CLAIMED THE ENTIRE AMOUNT IN A.Y 2006-07. THE AO, ACCORDINGLY, DISALLOWED RS.15,25,91,238/-. AGG RIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A). 11.1 LD. CIT(A) HAS CONSIDERED THE GRIEVANCE VIDE PARA-9 OF HIS ORDER. IT WAS POINTED OUT BEFORE THE LD. CIT(A) THAT AS PER ARBIT RATION AWARD THE SETTLEMENT SUM WAS PAYABLE IN THREE INSTALLMENTS, 7.50 LACS BR ITAIN POUNDS + VAT BY 15/04/2006 AND 3.75 LACS POUNDS + VAT BY 15/5/2006. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) WAS CONVI NCED THAT THE LIABILITY TO PAY M/S. NEW WATER CONSULTING LTD., HAD CRYSTALLIZED DU RING THE FINANCIAL YEAR 2005- 06 AND SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING THE CLAIM OF PAYMENT OF AMOUNT OF RS.12,04,19,094/- IS AN ALLOWABLE DEDUCTION FOR A.Y 2006-07. AGGRIEVED BY THIS REVENUE IS BEFORE US. 12. LD. DR RELIED UPON THE ASSESSMENT ORDER. 13. LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HA S BEEN SUBMITTED BEFORE LOWER AUTHORITIES. 14. IT IS AN UNDISPUTED FACT THAT THE LIABILITY OF RS.15 LACS BRITAIN POUNDS IS BASED ON ARBITRATION AWARD DATED 10/3/2006. ONLY A TIME TABLE HAS BEEN GIVEN FOR MAKING THE PAYMENT BUT THE LIABILITY HAS BEEN CRYST ALLIZED DURING THE YEAR UNDER CONSIDERATION ITSELF AND, THEREFORE, THE ASSESSEE I S ENTITLTED FOR THE CLAIM OF I .T.A. NO. 3517& 3539/MUM/2012 A.Y. 2006-07. 11 11 DEDUCTION OF THE FULL LIABILITY DURING THE YEAR ITS ELF. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF LD. CI T(A). GROUND NO.2 IS DISMISSED. 15. GROUND NO.3, RELATES TO THE DELETION OF THE ADD ITION MADE UNDER SECTION 14A R.W. RULE 8D. 16. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE SU BMITTED A DETAILED CHART OF EARLIER YEARS AND SUBSEQUENT YEARS, WHERE NO DISALL OWANCE HAS BEEN MADE UNDER SECTION 14A OF THE ACT. THE FACTUAL MATRIX IS AS UNDER: SR.NO. ASSESSMENT YEAR DIVIDEND (RS.) SUO MOTO DISALLOWANCE (RS.) REMARKS 1 2004-05 8,29,586 - NO DISALLOWANCE MADE IN ASSESSMENT MADE U/S. 143(3) 2. 2005-06 44,46,572 - NO DISALLOWANCE MADE IN ASSESSMENT MADE U/S. 143(3) 3. 2006-07 62,68,268 3,13,413 YEAR UNDER CONSIDERATION. DISALLOWANCE MADE AS PER RULE 8D 4. 2007-08 39,04,061 1,95,203 NO DISALLOWANCE MADE IN ASSESSMENT MADE U/S. 143(3) 5. 2008-09 29,14,685 1,45,734 NO DISALLOWA NCE MADE IN ASSES SMENT MADE U/S. 143(3) 6. 2009-10 6,10,892 3,91,355 NO DISALLOWANCE MADE IN ASSESSMENT MADE U/S. 143(3) AS SUO MOTO DISALLOWANCE WAS AS PER RULE 8D. 7. 2010-11 24,24,940 4,81,316 NO DISALLOWANCE MADE IN ASSESSMENT MADE U/S. 143(3) AS SUO MOTO DISALLOWANCE WAS AS PER RULE 8D. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF T HE FACTUAL MATRIX MENTIONED HEREIN ABOVE, WE DO NOT FIND ANY REASON TO INTERFER E WITH THE FINDINGS OF LD. CIT(A). GROUND NO.3, IS DISMISSED. 17. GROUND NO.4 IS IN RELATION TO THE DELETION OF THE ADDITION OF RS.8,15,75,087/- IN RESPECT OF UNBILLED SOFTWARE INCOME. I .T.A. NO. 3517& 3539/MUM/2012 A.Y. 2006-07. 12 12 18. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE POIN TED OUT THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAI NST THE REVENUE BY THE DECISION OF THE TRIBUNAL FOR A.Y 2002-03. THE AO HAS CONSIDERED THIS ISSUE AT PARA 20 OF HIS ORDER. LD. CIT(A) HAS CONSIDERED T HE GRIEVANCE AT PARA 8 OF HIS ORDER AND AT PARA 8.3 FOLLOWING THE DECISION OF TH E TRIBUNAL, THE LD. CIT(A) HAS DELETED THE ADDITION OF RS.8,15,75,087/-. AS THE LD. CIT(A) HAS FOLLOWED THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER YEARS NO INTERFERENCE IS CALLED FOR. GROUND NO.4 IS ACCORDINGLY DISMISSED. 19. GROUND NO.5 RELATES TO THE COMPUTATION OF THE B OOK PROFIT UNDER SECTION 115JB OF THE ACT. IN OUR CONSIDERED OPINION THIS I SSUE IS CONSEQUENTIAL TO OUR FINDING ALLOWING THE CLAIM OF DEDUCTION UNDER SECT ION 10A OF THE ACT. THE A.O IS DIRECTED TO RECOMPUTE THE BOOK PROFIT UNDER SEC TION 115JB OF THE ACT AFTER GIVING APPEAL EFFECT TO OUR ORDER. THIS GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 20. GROUND NO. 6 RELATES TO THE RECOMPILATION OF D EDUCTION UNDER SECTION 10A OF THE ACT. THIS ISSUE IS DIRECTLY RELATED TO OUR DECISION IN ASSESSEES APPEAL ALLOWING THE CLAIM OF DEDUCTION UNDER SECTION 10A. AS WE HAVE ALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 10A, THIS GROUND I S DISMISSED. 21. GROUND NO.7 RELATES TO DELETION OF THE ADDITION ON ACCOUNT OF SERVICE CHARGES RECOVERED FROM 100% SUBSIDIARY. THIS ISSU E HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE TRIBUNAL FROM A.Y 2001- 02 TO 2005-06. LD. CIT(A) HAS DECIDED THIS ISSUE A T PARA 7.4 OF HIS ORDER, WHEREIN HE HAS FOLLOWED THE FINDING OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR .Y 2001-02 TO 2006-07. SINCE LD. CIT(A) HAS FOLLOWED THE DECISION OF THE TRIBUNAL I .T.A. NO. 3517& 3539/MUM/2012 A.Y. 2006-07. 13 13 IN ASSESSEES OWN CASE FOR EARLIER YEARS WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). ACCORDINGLY, GROUND NO.7 IS DISMISSED. 22. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON 20TH DAY OF FEB. 2015. SD/- SD/- (AMIT SHUKLA ) (N.K. BILLAIYA) '# /JUDICIAL MEMBER ! '# / ACCOUNTANT MEMBER MUMBAI; 4' DATED : 20. 02.2015 . . ./ VM , SR. PS '& '& '& '& 0 00 0 .% .% .% .% 5)% 5)% 5)% 5)% / COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 78 .% , , / DR, ITAT, MUMBAI 6. 89 : / GUARD FILE. '& '& '& '& / BY ORDER, /% .% //TRUE COPY// ; ;; ; / < < < < + + + + (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI