DDIT, New Delhi V. M/s. Virage Logic International India Branch Office, Noida

ITA 516/DEL/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0081 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 01-06-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 29-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA
• Assessee Lawyers: PAWAN KUMAR ADV SH P GUPTA
• Keywords: Transfer pricing
• Section: 143(3); 10

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL IN (DELHI BENCH H NEW DELHI) BEFORE SHRI N.K.SAINI, ACCOUNTANT MEMBER AND SMT GEORGE GEORGE K, JUDICIAL MEMBER ITA NO. 516 /DEL/2013 (ASSESSMENT YEAR: 2001-02) DDIT VS. VIRAGE LOGIC INTERNATIONAL INDIA INTERNATIONAL TAXATION, BRAN CH OFFICE CIRCLE-2 (2), A-75, SECTOR-57 NEW DELHI NOIDA PAN : AACFV3976E (APPELLANT) (RESPONDE NT) APPELLANT BY : SH. P.DAM KANUNJNA, SR. DR RESPONDENT BY : SH. PAWAN KUMAR, ADV. SH. P. GUPTA, CA DATE OF HEARING : 01/06/2015 DATE OF PRONOUNCEMENT : 03 /06/2015 ORDER PER N.K.SAINI, A. M. : THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE O RDER DATED 19/11/2012 OF CIT(A)- XXV, NEW DELHI. ITA NO. 516 / DEL/2013 2 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL :- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN ALLOWING DEDUCTION U/ S 10A TO THE ASSESSEE BY NOT DISTINGUISHING BETWEEN ACTUAL EXPORT AND MERE TRANSFER TO HEAD OFFICE AS THE ASSESSEE HAS MERELY TRANSMITTED THE SOFTWARE TO ITS HEAD OFFICE WHICH CANNOT BE TERMED AS EXPORT IN T HE SENSE AS USED IN SECTION 10A OF THE INCOME TAX ACT, 1961. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) HAS ERRED IN INTERPRETING THE TRUE INTENTION OF LEGISLATURE FOR BRINGING PROVISIONS OF SEC. 10A(3) TO THE STATUTE WHICH STIPULATES BRINGING IN OF PRECIOUS FOREIGN EXCHANGE INTO THE COUNTRY WHEREAS IN CASE OF THE ASSESSEE BEING A FOREIGN COMPANY THE SA LE PROCEEDS WOULD NOT BE RETAINED IN INDIA BUT ONLY TH E TAX ON A FRACTION OF THE PROFIT WHICH IS ATTRIBUTABLE T O INDIAN BRANCH OF THE FOREIGN COMPANY THAT WOULD BE RETAINE D IN INDIA. 3. THE APPELLANT PRAYS FOR LEAVE TO ADD, AMEND, MODIFY OR ALTER ANY GROUNDS OF APPEAL AT THE TIME O R BEFORE THE HEARING OF THE APPEAL. 3. THE ONLY GRIEVANCE OF THE DEPARTMENT IN THI S APPEAL RELATES TO THE DEDUCTION U/S 10A OF THE IT ACT 1961 (HEREINAFT ER REFERRED TO AS THE ACT). 4. FACTS OF THE CASE IN BRIEF ARE THAT THE AS SESSEE FILED ITS RETURN OF INCOME ON 30.10.2001 DECLARING NIL INCOME. THE A SSESSEE HAD SHOWN INCOME OF RS. 10,877,823/- HOWEVER, CLAIMED T HE SAME AS ITA NO. 516 / DEL/2013 3 EXEMPT U/S 10A OF THE IT ACT, 1961(HEREINAFTER REFE RRED TO AS THE ACT). THE AO FRAMED THE ASSESSMENT U/S 143(3) OF THE ACT ON 19.3.2004 AT A TOTAL TAXABLE INCOME OF RS. 6,64,57.670/- AND THE EXEMPTION CLAIMED U/S 10A WAS DENIED. AGAINST THE SAID ORDER , THE ASSESSEE PREFERRED AN APPEAL TO THE LD. CIT(A) WHO CONFIRM ED THE FINDING OF AO IN RESPECT OF DENIAL OF EXEMPTION CLAIMED U/S 10 A OF THE ACT. AGAINST THE SAID ORDER, THE ASSESSEE PREFERRED AN APPEAL TO THE ITAT WHEREIN VIDE ORDER DATED 16.12.2005, THE MATTER REL ATING TO TRANSFER PRICING WAS RESTORED TO THE AO, WHO AGAIN FRAMED T HE ASSESSMENT ON 19.12.2006 AND ALLOWED THE COST INCURRED AT INDI AN BRANCH WHICH WAS RS. 2,44,47,140/-. THE AO DID NOT ALLOW EXEMPTI ON U/S 10A OF THE ACT BY OBSERVING THAT THE REVENUE WAS EARNED F OR THE PARENT COMPANY FROM ROYALTY AND LICENSING OF THE SOFTWARE AND THAT THE SOFTWARE DEVELOPED IN INDIA WERE NEVER SOLD. HE FU RTHER OBSERVED THAT ONLY RIGHT TO USE WAS GRANTED TO VARIOUS CUS TOMERS, THEREFORE, IT CANNOT BE SAID THAT THE SOFTWARE WERE SOLD OR EXPOR TED OUT OF INDIA. 5. IN THE MEANWHILE, ASSESSEE REFERRED MISCELL ANEOUS APPLICATION NO. 135/DEL/2008 AGAINST THE ORDER DATED 16.12.2005 PASSED BY THE ITAT IN ITA NO. 77/DEL/2005 AND THE ITAT VIDE ORDER DATED 11.07.2008 RECALLED THE ORDER DATED 16.12.2005 AND SUBSEQUENTLY ITA NO. 516 / DEL/2013 4 DISPOSED OFF THE APPEAL BY ALLOWING FULL DEDUCTION U/S10A OF THE ACT VIDE ORDER DATED 19.02.2009. WHEN THE ASSESSEE PREF ERRED AN APPEAL TO THE LD. CIT(A) AGAINST THE ORDER DATED 19.12.200 6 PASSED BY THE AO. THE LD. CIT(A) DIRECTED THE A.O. TO ALLOW THE DEDUCTION U/S 10A BY OBSERVING IN PARA 3.3. OF THE IMPUGNED ORDER AS UNDER :- 3.3. I HAVE CONSIDERED THE ORDER OF THE AO AND TH E SUBMISSIONS OF THE ASSESSEE AND I FIND CONSIDERABLE MERIT IN THE SUBMISSION OF THE ASSESSEE THAT THE HONBLE TRI BUNAL HAS ALLOWED FULL DEDUCTION U/S 10A AND AS SUCH THE CASE OF THE ASSESSEE IS COVERED BY THE ORDER OF THE HONBLE TRIBUNAL VIDE PARA NO. 6 OF ITA NO. 77/DEL/2005 DATED 19/12/ 2009. IT IS ALSO APPARENT THAT THE PROVISIONS OF TP IN CHAPT ER-10 HAS BEEN INTRODUCED W.E.F. AY 2002-03 AND AS SUCH THE A O IS NOT JUSTIFIED TO INVOKE THE PROVISIONS OF TP. AFTER CONSIDERING ALL THE CASE FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE VIEW THAT THERE IS CONSIDERABLE MERIT IN THE SUBMI SSIONS OF THE ASSESSEE THAT THE CASE OF THE ASSESSEE IS COVER ED BY THE ASSESSEES OWN CASE OF THE HONBLE TRIBUNAL AND ACCORDINGLY, THE ASSESSEE IS ALLOWED DEDUCTION U/S 10A AS ALLOWED BY THE HONBLE TRIBUNAL AND AS SUCH THE ADD ITION MADE BY THE AO IS DELETED. NOW, THE DEPARTMENT IS IN APPEAL. 6. THE LD. DR STRONGLY SUPPORTED THE ORDER OF THE AO BUT FAILED TO REBUT THE FINDINGS GIVEN BY THE LD. CIT(A) IN THE I MPUGNED ORDER. IN HIS RIVAL SUBMISSIONS, THE LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT SINCE THE ISSUE HAS BEEN DECIDED BY THE ITAT V IDE ORDER DATED ITA NO. 516 / DEL/2013 5 19.02.2009 FOR THE ASSESSMENT YEAR UNDER CONSIDERAT ION AND THE LD. CIT(A) HAS FOLLOWED THE SAID ORDER OF THE ITAT, THE REFORE, THE APPEAL OF THE DEPARTMENT DESERVES TO BE DISMISSED. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH TH E PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON TH E RECORD. IN THE PRESENT CASE, IT IS NOTICED THAT THE LD. CIT(A) DIR ECTED THE AO TO ALLOW THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISION DATED 19.02.2009 OF THE ITAT IN ASSESSEES OWN CASE. COPY OF THE SAI D ORDER IS PLACED AT PAGE NO. 50 58 OF THE ASSESSEES PAPER BOOK AN D THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARA 5.3, 5.4 AND 6 OF THE ORDER DATED 19 TH FEBRUARY, 2009 WHICH READ AS UNDER :- 5.3 ON EXAMINING THE ORDERS OF TAX AUT HORITIES BELOW, WE FIND THAT THEY HAVE REFUSED THE DEDUCTION U/S 10A T O THE ASSESSEE MAINLY ON THE REASONING THAT THE ASSESSEE HAS NOT MADE ANY EXPORT SALE TO A THIRD PARTY RATHER ALL TH E WORK HAS BEEN TRANSFERRED TO HO, SO, IT COULD NOT BE SAID TH AT ASSESSEE EXPORTED SOFTWARE WITHIN THE MEANING OF SE C. 10A. SIMILARLY IN A.Y. 2002-03 ON ALMOST SAME REASONING DEDUCTION U/S 10A WAS REFUSED TO THE ASSESSEE BY TH E TAX AUTHORITIES BELOW AND THE TRIBUNAL ALLOWING THE APP EAL OF THE ASSESSEE VIDE ORDER (SUPRA) DIRECTED THE AO TO ALLO W THE ASSESSEES CLAIM OF EXEMPTION U/S 10A OF THE ACT WH ILE OBSERVING AT PAGE 16 OF THE ORDER AS UNDER. THE ONLY REASON ASSIGNED BY THE REVENUE A UTHORITIES FOR DENYING EXEMPTION U/S 10A OF THE ACT IS THAT THERE HAS BEEN NO EXPORT SALE BY THE ASSESSEE SINCE THE COMPUTER S OFTWARE WAS TRANSMITTED TO HEAD OFFICE AND SINCE THE ASSESS EE AND ITS HEAD OFFICE WERE ONE ENTITY, THERE WA S NO SALE TO ANY THIRD PARTY. THIS APPROACH OF THE REVENUE AUTHORITI ES WERE ITA NO. 516 / DEL/2013 6 NOT CORRECT IN VIEW OF THE PROVISIONS OF S.10-A(7) OF THE ACT. THE LEGAL FICTION OF TREATING AN ASSESSEE AS A SEPA RATE ENTITY VIS--VIS SALE BY IT OR TRANSFER BY IT FROM AN ELIG IBLE BUSINESS OR TO AN ELIGIBLE BUSINESS HAS BEEN RECOGNIZED U/S 10-A(7) OF THE ACT. 5.4. SIMILARLY, IN THE CASE OF MOSER BAER (I) LTD . (SUPRA) THEIR LORDSHIPS WHILE UPHOLDING THE ORDER OF THE TRIBUNAL WHEREIN THE TRIBUNAL ALLOWED THE CLAUSE U/S 10A, OBSERVED A S UNDER. THE MATTER WAS LOOKED AT BY THE ITAT FROM TWO STAN D POINTS. THE FIRST BEING FROM THE STAND POINT OF ITS EARLIER DECISION IN THE CASE OF VIRAGE LOGIC INTERNATIONAL VS. DDIT WHEREIN, UNDER SIMILAR CIRCUMSTANCES, THE TRIBUNAL WAS OF THE VIEW THAT THE TRANSMISSION OF COMPUTER SOFTWARE FROM THE INDIAN ENTITY TO ITS HEAD OFFICE SITUATED OUTSIDE, SINCE IT WAS AN ARMS LENGTH PRICE AMOUNT TO EXPORT, ENTITLED THE ASSESSEE THEREIN TO CLAIM EXEMPTION U/S 10A OF THE SAID ACT. FOLLOWING THIS DECISION, THE TRIBUNAL AGREED WITH THE PLEA RA ISED BY THE ASSESSEE AND REJECTED THE REVENUES CONTENTION THAT THE ASSESSEE WAS NOT ENTITLED TO EXEMPTIONS U/S 10A / 1 0B OF THE ACT. 6.IN THIS VIEW OF THE MATTER, SINCE THE IDENTICAL I SSUE REGARDING CLAIM OF EXEMPTION U/S 10A OF IT ACT AS I NVOLVED IN THE GROUND NO. 1 OF THE INSTANT APPEAL OF THE AS SESSEE, NOW STANDS COVERED IN FAVOUR OF THE ASSESSEE, WE AR E REQUIRED TO FOLLOW THE DECISIONS (SUPRA) AS NO DECI SION CONTRARY TO THE SAME HAS BEEN CITED BEFORE US BY LD . DR FOR THE REVENUE. RESPECTFULLY FOLLOWING THE DECISIONS ( SUPRA) IT IS HELD THAT ASSESSEE IS ENTITLED TO CLAIM THE DEDUCTI ON U/S 10A OF I.T.ACT. CONSEQUENTLY THE ORDER OF CIT(A) DECLIN ING THE DEDUCTION CLAIMED U/S 10A BY THE ASSESSEE IS SET AS IDE. THE GROUND NO. 1 OF THE APPEAL OF THE ASSESSEE IS ALLOW ED. 8. WE THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AS DISCUSSED HEREINABOVE DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT. 9. IN THE RESULT, APPEAL OF THE DEPARTMENT IS D ISMISSED. ITA NO. 516 / DEL/2013 7 (ORDER PRONOUNCED IN OPEN COURT ON 03 JUNE, 2015.) SD/- SD/- (GEORGE GEORGE K) (N.K.SAINI) JUDICIAL MEMBER ACC OUNTANT MEMBER DATED 03 JUNE, 2015 BINITA COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. CIT (ITAT), NEW DELHI. AR, ITAT N. DELHI