M/s Samsung R & D Institute India Bangalore Private Limited, Bangalore V. Addl C.I.T., Bangalore

ITA 55/BANG/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8493 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 19-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Opportunity of being heard; Source of fund; Question of law; Cost of acquisition; Fair market value; Scheme of amalgamation; Right to appeal; Revised return
• Section: 43B; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH, B, BANGALORE BEFORE SHRI A.K GARODIA, ACCOUNTANT MEMBER SHRI LALIET KUMAR, JUDICIAL MEMBER IT(TP)A NO.55/ /BANG/2015 (ASST. YEAR 2009-10) M/S SAMSUNG R&D INSTITUTE INDIA BANGALORE PVT. LTD., BANGALORE. . APPELLANT AAICS 6290F. VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-6(1)(1), BENGALURU. . RESPONDENT IT(TP)A NO.60/ /BANG/2015 (ASST. YEAR 2009-10) THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-6(1)(1), BENGALURU. . APPELLANT VS. M/S SAMSUNG R&D INSTITUTE INDIA BANGALORE PVT. LTD., BANGALORE. . RESPONDENT REVENUE BY : SHRI KAPIL HIRANI, C.A RESPONDENT BY : SHRI NEERA MALHOTRA, CIT DATE OF HEARING : 09-02-2017 DATE OF PRONOUNCEMENT : 03-03-2017 IT(TP)A NO.55 & 60 /B/15 2 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER THESE APPEALS ARE FILLED BY THE REVENUE AS WELL AS THE ASSESSEE AGAINST THE ORDER PASSED BY THE COMMISSIONER OF IN COME-TAX (APPEALS) IV, BANGALORE DATED 14/11/2014 FOR THE ASST. YEAR 2009-10. FIRST WE SHALL TAKE UP APPEAL OF THE REVENUE. IT(TP)A NO.60/BANG/2015 2. THE GROUNDS OF THE APPEAL RAISED BY THE REVENUE ARE AS UNDER: IT(TP)A NO.55 & 60 /B/15 3 3. GROUND NO.1 IS GENERAL. 4. GROUND NO. 2 PERTAINS TO THE RATE OF DEPRECIATI ON OF SERVER/NETWORKING EQUIPMENT. THE LEARNED AUTHORISED REPRESENTATIVE ON THE BEHALF OF THE ASSESSEE HAD SUBMITTED THAT THIS ISSU E IS COVERED BY THE JUDGMENT OF HONBLE MADRAS HIGH COURT AND THEREFORE THIS ISSUE IS REQUIRED TO BE DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE LD DEPARTMENTAL REPRESENTATIVE RELIES UPON THE ORDER P ASSED BY THE ASSESSING OFFICER. 5. WE HAVE NOTICED THAT THIS ISSUE OF DEPRECIATION OF SERVER/NETWORKING EQUIPMENT IS COVERED BY THE DECIS ION OF THE MADRAS HIGH COURT IN THE CASE OF DINAMALAR VS. CIT (2016) 74 TAXMAN.COM 14 AND ALSO THE DECISION OF HYDERABAD TRIBUNAL IN THE CASE OF ACIT VS. USHODAYA ENTERPRISES LTD., (2013) 33 TAXMANN.COM 381. 6. THE DECISION OF MADRAS HIGH COURT IN THE CASE OF DINAMALAR (SUPRA) HELD AS UNDER : IT(TP)A NO.55 & 60 /B/15 4 11. BEFORE THE TRIBUNAL, AS REGARDS CLAIM OF DEPRECIATION @ 80%, ON 'CONTROL PANEL BOARD AND TRANSFORMER', THE APPELLANT-ASSESSEE HAS CONTENDED THAT THE SAME CAN BE CLASSIFIED UNDER THE HEAD, 'B.INSTRUMENTATION AND MONETARY SYSTEMS FOR MONITORING ENERGY FLOWS', AS MENTIONED IN NEW APPENDIX-I-III-(8)(IX)B AND THEREFORE, THEY ARE ENTITLED TO DEPRECIATION @ 80%, AS PROVIDED UNDER THE ACT. CONSIDERING THE ARGUMENTS OF THE APPELLANT - ASSESSEE AND THE FINDINGS OF THE AUTHORITIES, THE INCOME TAX APPELLATE TRIBUNAL, VIDE ORDER, DATED 14.01.2016, IN I.T.A.NO.2829/MDS/2013, HELD AS FOLLOWS: 'WE FIND MERIT IN THE CONTENTION OF THE LD. A.R. CONTROL PANEL BOARD AND TRANSFORMERS ARE MORE OR LESS ITEMS EITHER FALLING IN THE CATEGORY OF 'INSTRUMENTATION AND MONITORING SYSTEMS' AS STATED IN THE DEPRECIATION SCHEDULE IN NEW APPENDIX-IIII-(8)(IX)B OF INCOME TAX RULES OR 'ELECTRICAL EQUIPMENT' AS STATED IN THE NEW APPENDIX-I- III-(8)(IX)E UNDER THE HEAD ELECTRICAL EQUIPMENTS TAKING INTO ACCOUNT OF THE PRINCIPLES OF EJUSDEM GENERIS. THEREFORE WE HEREBY DIRECT THE LD. ASSESSING OFFICER TO GRANT DEPRECIATION @ 80% TO THE ASSESSEE ON THESE ABOVE STATED ITEMS.' 12. ON THE CLAIM OF DEPRECIATION ON COMPUTERS AND COMPUTER PERIPHERALS, THE TRIBUNAL FURTHER HELD, AS FOLLOWS: 'WE AGREE WITH THE VIEW OF THE LD. CIT (A). ONLY COMPUTER PERIPHERALS CAN BE AT THE MOST CONSIDERED AS COMPUTERS FOR THE PURPOSE OF CLAIMING DEPRECIATION AT THE RATE PRESCRIBED IN NEW APPENDIX-III(5) OF THE INCOME TAX RULES. ALL OTHER ITEMS FALL IN THE CATEGORY MENTIONED IN NEW APPENDIX-III(1) OF THE INCOME TAX RULES AS HELD BY THE LD. CIT (A). THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT (A) ON THIS ISSUE WHO HAS ELABORATELY CONSIDERED THIS MATTER IN HIS ORDER.' IT(TP)A NO.55 & 60 /B/15 5 13. BEING AGGRIEVED BY THE SAME, THE ASSESSEE, HAS FILED THE INSTANT TAX CASE APPEAL, ON THE FOLLOWING SUBSTANTIAL QUESTION OF LAW: 'WHETHER THE APPELLATE TRIBUNAL IS CORRECT IN LAW, IN PASSING A CRYPTIC ORDER IN SUSTAINING THE ACTION OF THE RESPONDENT IN RESTRICTING THE CLAIM OF HIGHER DEPRECATION OF 15% AS AGAINST THE CLAIM OF 60% FOR THE COMPUTER MACHINERIES, THEREBY CONFIRMING THE ADDITION OF THE DIFFERENTIAL DEPRECIATION IN THE COMPUTATION OF TAXABLE TOTAL INCOME, WHILE OVERLOOKING THE FUNCTIONAL TEST PROVING AND ESTABLISHING PERVERSITY IN THE ORDER PASSED BY THEM BOTH ON FACTS AND IN LAW?' 14. THOUGH, REITERATING THE VERY SAME SUBMISSIONS MADE BEFORE THE APPELLATE AUTHORITY, MR. S. SRIDHAR , LEARNED COUNSEL FOR THE APPELLANT-ASSESSEE, ASSAILE D THE CORRECTNESS OF THE ORDER, STATED SUPRA, MADE SUBMISSIONS ON THE SUBSTANTIAL QUESTIONS OF LAW AND PRAYED FOR AN ANSWER, IN FAVOUR OF THE ASSESSEE, GO ING THROUGH THE MATERIAL ON RECORD AND THE ORDERS OF TH E AUTHORITIES AND TRIBUNAL, WE DO NOT FIND ANY MANIFE ST ERROR. ON THE OTHER HAND, WE ARE OF THE CONSIDERED OPINION THAT ORDERS OF THE AUTHORITIES AND THE APPELLATE TRIBUNAL, ARE CORRECT, IN HOLDING THAT TH E MACHINERIES, FOR WHICH, DEPRECIATION TO THE EXTENT, SOUGHT FOR, DO NOT FALL UNDER THE DEFINITION, 'COMPUTER, INCLUDING COMPUTER SOFTWARE'. FACT THAT THE MACHINERIES DO NOT FALL UNDER THE ABOVESAID CATEGORY, CANNOT BE TERMED AS PERVERSE AND THEREFOR E, THE ORDER IMPUGNED, DOES NOT CALL FOR INTERFERENCE. 15. WE HAVE GIVEN OUR CAREFUL CONSIDERATION, AS TO HOW BOTH THE APPELLATE AUTHORITY AND THE TRIBUNAL HAVE CONSIDERED THE FACTS OF THE CASE AND RENDERED FINDINGS, ON THE RIVAL SUBMISSIONS OF THE PARTIES. GOING THROUGH THE MATERIAL ON RECORD, WE ARE OF THE CONSIDERED VIEW THAT THE CONCURRENT FINDINGS OF FAC T, RENDERED BY THE CIT (APPEALS) AND THE INCOME TAX APPELLATE TRIBUNAL, DO NOT CALL FOR ANY INTERFERENC E, AS NO SUBSTANTIAL QUESTION OF LAW, IS INVOLVED. IT(TP)A NO.55 & 60 /B/15 6 7. RESPECTFULLY FOLLOWING THE DECISION OF MADRAS H IGH COURT IN THE CASE OF DINAMALAR (SUPRA), WE DISMISS THIS GROUND O F REVENUE. 8. THE SECOND GROUND IS WITH RESPECT TO THE DEPREC IATION ON GOODWILL. 9. THIS GROUND WAS DISCUSSED BY AO IN PARAGRAPH 9. 2 OF THE ASST. ORDER, WHEREIN IT HAS BEEN HELD AS UNDER: IT(TP)A NO.55 & 60 /B/15 7 IT(TP)A NO.55 & 60 /B/15 8 IT(TP)A NO.55 & 60 /B/15 9 10. THE LEARNED AUTHORISED REPRESENTATIVE ON THE BE HALF OF THE ASSESSEE HAD SUBMITTED THAT THIS ISSUE IS ALSO COVERED BY THE JU DGMENT OF HONBLE SUPREME COURT AND MADRAS HIGH COURT AND THEREFORE T HIS ISSUE IS REQUIRED TO BE DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE LD DEPARTMENTAL REPRESENTATIVE RELIES UPON THE ORDER P ASSED BY THE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSEE HAS NOT FIL ED THE RECTIFIED RETURN OF INCOME BEFORE THE ASSESSING OFFICER, CLAIMING THE D EPRECIATION ON THE GOODWILL THEREFORE THIS ISSUE SHOULD BE DECIDED IN FAVOUR OF THE REVENUE IN VIEW OF THE LAW LAID DOWN BY GOETZE (INDIA) LTD. . [2006] 157 TAXMAN 1 (SC) 11. WE HAVE GONE THROUGH THE ORDER PASSED BY THE CI T(A). THE CIT(A) RELIED UPON THE DECISION OF MADRAS HIGH COUR T IN THE CASE OF PENTASOFT TECHNOLOGIES LTD., WHEREIN DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF SMIFS SECURITIES LTD. , 348 ITR 302 WAS FOLLOWED. 11. WE HAVE HEARD BOTH PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN THE RECENT DECISION OF DELHI HIGH COURT IN THE CASE OF TRIUNE ENERGY SYSTEMS VS. DCIT (2016) 65 TAXMAN.COM 288 AT PARAGR APH 15 TO 18 IT HAS HELD AS UNDER: 15. FROM AN ACCOUNTING PERSPECTIVE, IT IS WELL ESTABLISHED THAT 'GOODWILL' IS AN INTANGIBLE ASSET, IT(TP)A NO.55 & 60 /B/15 10 WHICH IS REQUIRED TO BE ACCOUNTED FOR WHEN A PURCHASER ACQUIRES A BUSINESS AS A GOING CONCERN BY PAYING MORE THAN THE FAIR MARKET VALUE OF THE NET TANGIBLE ASSETS, THAT IS, ASSETS LESS LIABILITIES. THE DIFFERENCE IN THE PURCHASE CONSIDERATION AND THE NE T VALUE OF ASSETS AND LIABILITIES IS ATTRIBUTABLE TO THE COMMERCIAL BENEFIT THAT IS ACQUIRED BY THE PURCHASE R. SUCH GOODWILL IS ALSO COMMONLY UNDERSTOOD AS THE VALUE OF THE WHOLE UNDERTAKING LESS THE SUM TOTAL O F ITS PARTS. THE 'FINANCIAL REPORTING STANDARD 10' ISSUED BY ACCOUNTING STANDARD BOARD WHICH IS APPLICABLE IN UNITED KINGDOM AND BY INSTITUTE OF CHARTERED ACCOUNTANTS OF IRELAND IN RESPECT OF ITS APPLICATION IN THE REPUBLIC OF IRELAND, EXPLAINS TH AT 'THE ACCOUNTING REQUIREMENTS FOR GOODWILL REFLECT T HE VIEW THAT GOODWILL ARISING ON AN ACQUISITION IS NEI THER AN ASSET LIKE OTHER ASSETS NOR AN IMMEDIATE LOSS IN VALUE. RATHER, IT FORMS THE BRIDGE BETWEEN THE COST OF AN INVESTMENT SHOWN AS AN ASSET IN THE ACQUIRER'S O WN FINANCIAL STATEMENTS AND THE VALUES ATTRIBUTED TO T HE ACQUIRED ASSETS AND LIABILITIES IN THE CONSOLIDATED FINANCIAL STATEMENTS'. 16. THE ABOVEMENTIONED FINANCIAL REPORTING STANDARD 10 ALSO PROVIDES FOR ACCOUNTING OF PURCHASED GOODWILL AS 'THE DIFFERENCE BETWEEN THE COST OF AN ACQUIRED ENTITY AND THE AGGREGATE OF THE FAIR VALUES OF THAT ENTITY'S IDENTIFIABLE ASSETS AN D LIABILITIES. POSITIVE GOODWILL ARISES WHEN THE ACQUISITION COST EXCEEDS THE AGGREGATE FAIR VALUES OF THE IDENTIFIABLE ASSETS AND LIABILITIES. NEGATIVE GOODWILL ARISES WHEN THE AGGREGATE FAIR VALUES OF T HE IDENTIFIABLE ASSETS AND LIABILITIES OF THE ENTITY E XCEED THE ACQUISITION COST.' 17. AT THIS STAGE, IT IS ALSO RELEVANT TO REFER TO ACCOUNTING STANDARD 10 AS ISSUED BY THE INSTITUTE O F CHARTERED ACCOUNTANTS OF INDIA. THE RELEVANT EXTRAC T OF WHICH READS AS UNDER: '16.1 GOODWILL, IN GENERAL, IS RECORDED IN THE BOOKS ONLY WHEN SOME CONSIDERATION IN MONEY OR MONEY'S WORTH HAS BEEN PAID FOR IT. WHENEVER A IT(TP)A NO.55 & 60 /B/15 11 BUSINESS ID ACQUIRED FOR A PRICE (PAYABLE EITHER IN CASH OR IN SHARES OR OTHERWISE) WHICH IS IN EXCESS OF THE VALUE OF THE NET ASSETS OF THE BUSINESS TAKE N OVER, THE EXCESS ID TERMED AS 'GOODWILL'. GOODWILL ARISES FROM BUSINESS CONNECTIONS, TRADE NAME OR REPUTATION OF AN ENTERPRISE OR FROM OTHER INTANGIBLE BENEFITS ENJOYED BY AN ENTERPRISE.' 18. IT IS ALSO RELEVANT TO NOTE THAT SMIFS SECURITIES LTD. (SUPRA) WAS A CASE WHERE ASSETS OF COMPANY - YSN SHARES AND SECURITIES (P.) LTD. WERE TRANSFERRE D TO SMIFS SECURITIES LTD. UNDER A SCHEME OF AMALGAMATION. AND, THE EXCESS CONSIDERATION PAID BY THE ASSESSEE THEREIN OVER THE VALUE OF NET ASSETS O F YSN SHARES AND SECURITIES (P.) LTD. ACQUIRED BY THE ASSESSEE, WAS ACCOUNTED AS GOODWILL. 12. IN OUR VIEW THERE IS NO IMPEDIMENT ON THE POWE RS OF THE COMMISSIONER APPEAL AS WELL AS ON THE POWERS OF THE TRIBUNAL TO ENTERTAIN THE FRESH CLAIM FILED BY THE ASSESSEE BY WAY OF REC TIFICATION OR OTHERWISE. THE PURPOSES OF PROCEEDINGS BEFORE THE TRIBUNAL IS TO TAX THE TAXABLE INCOME AND ENSURE INCOME WHICH IS NOT REQUIRED TO BE TAXED UNDER THE LAW SHOULD NOT BE TAXED. THEREFORE THE JUDGMENT OF HPON ,BLE SUPREME COURT IN THE MATTER OF GOETZ (SUPRA) IS NOT APPLICABLE . 13. IN FACT OUR VIEW ALSO DRAWS STRENGTH FROM THE J UDGMENT OF BOMBAY HIGH COURT IN THE MATTER OF COMMISSIONER OF INCOME-TAX, CENTRAL-I, MUMBAI VS PRUTHVI BROKERS & SHAREHOLDERS* [2012] 23 TAXMAN N.COM 23 (BOM.) WHEREIN IT WAS HELD AS UNDER : IT(TP)A NO.55 & 60 /B/15 12 10 . A LONG LINE OF AUTHORITIES ESTABLISH CLEARLY THAT AN ASSESSEE IS ENTITLED TO RAISE ADDITIONAL GROUNDS NOT MERELY IN TERMS OF LEGAL SUBMISSIONS, BUT ALSO ADDITIONAL CLAIMS NOT M ADE IN THE RETURN FILED BY IT. IT IS NECESSARY FOR US TO REFER TO SOME OF THESE DECISIONS ONLY TO DEAL WITH TWO SUBMISSIONS ON BEHA LF OF THE DEPARTMENT. THE FIRST IS WITH RESPECT TO AN OBSERVA TION OF THE SUPREME COURT IN JUTE CORPN. OF INDIA LTD. V . CIT [1991] 187 ITR 688 /[1990] 53 TAXMAN 85 . THE SECOND SUBMISSION IS BASED ON A JUDGMENT OF THE SUPREME COURT IN GOETZE (INDIA) LTD. V. CIT [2006] 157 TAXMAN 1 . 11 . (A) IN JUTE CORPN. OF INDIA LTD. (SUPRA) FOR THE ASSESSMENT YEAR 1974-75 THE APPELLANT DID NOT CLAIM ANY DEDUCT ION OF ITS LIABILITY TOWARDS PURCHASE TAX UNDER THE PROVISIONS OF THE BENGAL RAW JUTE TAXATION ACT, 1941, AS IT ENTERTAIN ED A BELIEF THAT IT WAS NOT LIABLE TO PAY PURCHASE TAX UNDER TH AT ACT. SUBSEQUENTLY, THE APPELLANT WAS ASSESSED TO PURCHAS E TAX AND THE ORDER OF ASSESSMENT WAS RECEIVED BY IT ON 23RD NOVEMBER, 1973. THE APPELLANT CHALLENGED THE SAME AND OBTAINE D A STAY ORDER. THE APPELLANT ALSO FILED AN APPEAL FROM THE ASSESSMENT ORDER UNDER THE INCOME TAX ACT. IT WAS ONLY DURING THE HEARING OF THE APPEAL THAT THE ASSESSEE CLAIMED AN ADDITIONAL DEDUCTION IN RESPECT OF ITS LIABILITY TO PURCHASE T AX. THE APPELLATE ASSISTANT COMMISSIONER (AAC) PERMITTED IT TO RAISE THE CLAIM AND ALLOWED THE DEDUCTION. THE TRIBUNAL H ELD THAT THE AAC HAD NO JURISDICTION TO ENTERTAIN THE ADDITI ONAL GROUND OR TO GRANT RELIEF ON A GROUND WHICH HAD NOT BEEN R AISED BEFORE THE INCOME TAX OFFICER. THE TRIBUNAL ALSO RE FUSED THE APPELLANT'S APPLICATION FOR MAKING A REFERENCE TO T HE HIGH COURT. THE HIGH COURT UPHELD THE DECISION OF THE TR IBUNAL AND REFUSED TO CALL FOR A STATEMENT OF CASE. IT IS IN T HESE CIRCUMSTANCES THAT THE APPELLANT FILED THE APPEAL B EFORE THE SUPREME COURT. THE SUPREME COURT HELD AS UNDER :- '5. IN CIT V. KANPUR COAL SYNDICATE, A THREE JUDGE BENCH OF THIS COURT DISCUSSED THE SCOPE OF SECTION 31(3)( A) OF THE INCOME TAX ACT, 1922 WHICH IS ALMOST IDENTICAL TO S ECTION 251(1)(A). THE COURT HELD AS UNDER: (ITR P. 229) 'IF AN APPEAL LIES, SECTION 31 OF THE ACT DESCRIBES THE POWERS OF THE APPELLATE ASSISTANT COMMISSIONER IN S UCH AN APPEAL. UNDER SECTION 31(3)(A) IN DISPOSING OF S UCH AN APPEAL THE APPELLATE ASSISTANT COMMISSIONER MAY, IN THE CASE OF AN ORDER OF ASSESSMENT, CONFIRM, REDUCE, EN HANCE OR ANNUL THE ASSESSMENT; UNDER CLAUSE (B) THEREOF H E MAY SET ASIDE THE ASSESSMENT AND DIRECT THE INCOME TAX OFFICER TO MAKE A FRESH ASSESSMENT. THE APPELLATE ASSISTANT COMMISSIONER HAS, THEREFORE, PLENARY POWERS IN DISP OSING OF AN APPEAL. THE SCOPE OF HIS POWER IS CO-TERMINUS WITH IT(TP)A NO.55 & 60 /B/15 13 THAT OF THE INCOME-TAX OFFICER. HE CAN DO WHAT THE INCOME-TAX OFFICER CAN DO AND ALSO DIRECT HIM TO DO WHAT HE HAS FAILED TO DO.' (EMPHASIS SUPPLIED) 6. THE ABOVE OBSERVATIONS ARE SQUARELY APPLICABLE T O THE INTERPRETATION OF SECTION 251(1)(A) OF THE ACT. THE DECLARATION OF LAW IS CLEAR THAT THE POWER OF THE A PPELLATE ASSISTANT COMMISSIONER IS CO-TERMINUS WITH THAT OF THE INCOME TAX OFFICER, IF THAT BE SO, THERE APPEARS TO BE NO REASON AS TO WHY THE APPELLATE AUTHORITY CANNOT MOD IFY THE ASSESSMENT ORDER ON AN ADDITIONAL GROUND EVEN I F NOT RAISED BEFORE THE INCOME TAX OFFICER. NO EXCEPTION COULD BE TAKEN TO THIS VIEW AS THE ACT DOES NOT PLACE ANY RESTRICTION OR LIMITATION ON THE EXERCISE OF APPELL ATE POWER. EVEN OTHERWISE AN APPELLATE AUTHORITY WHILE HEARING APPEAL AGAINST THE ORDER OF A SUBORDINATE AUTHORITY HAS ALL THE POWERS WHICH THE ORIGINAL AUT HORITY MAY HAVE IN DECIDING THE QUESTION BEFORE IT SUBJECT TO THE RESTRICTIONS OR LIMITATIONS IF ANY PRESCRIBED BY TH E STATUTORY PROVISIONS. IN THE ABSENCE OF ANY STATUTO RY PROVISION THE APPELLATE AUTHORITY IS VESTED WITH AL L THE PLENARY POWERS WHICH THE SUBORDINATE AUTHORITY MAY HAVE IN THE MATTER. THERE APPEARS TO BE NO GOOD REASON A ND NONE WAS PLACED BEFORE US TO JUSTIFY CURTAILMENT OF THE POWER OF THE APPELLATE ASSISTANT COMMISSIONER IN ENTERTAINING AN ADDITIONAL GROUND RAISED BY THE ASS ESSEE IN SEEKING MODIFICATION OF THE ORDER OF ASSESSMENT PASSED BY THE INCOME TAX OFFICER.' [EMPHASIS SUPPLIED] (B) IT IS CLEAR, THEREFORE, THAT AN ASSESSEE IS ENT ITLED TO RAISE NOT MERELY ADDITIONAL LEGAL SUBMISSIONS BEFORE THE APPELLATE AUTHORITIES, BUT IS ALSO ENTITLED TO RAISE ADDITION AL CLAIMS BEFORE THEM. THE APPELLATE AUTHORITIES HAVE THE DIS CRETION WHETHER OR NOT TO PERMIT SUCH ADDITIONAL CLAIMS TO BE RAISED. IT CANNOT, HOWEVER, BE SAID THAT THEY HAVE NO JURISDIC TION TO CONSIDER THE SAME. THEY HAVE THE JURISDICTION TO EN TERTAIN THE NEW CLAIM. THAT THEY MAY CHOOSE NOT TO EXERCISE THE IR JURISDICTION IN A GIVEN CASE IS ANOTHER MATTER. THE EXERCISE OF DISCRETION IS ENTIRELY DIFFERENT FROM THE EXISTENCE OF JURISDICTION. 12. AT PAGE 694, AFTER REFERRING TO CERTAIN OBSERVATIO NS OF THE SUPREME COURT IN ADDL. CIT V. GURJARGRAVURES (P.) LTD., [1978] 111 ITR 1 , THE SUPREME COURT OBSERVED AT PAGE 694 AS UNDER :- 'THE ABOVE OBSERVATIONS DO NOT RULE OUT A CASE FOR RAISING AN ADDITIONAL GROUND BEFORE THE APPELLATE ASSISTANT COMMISSIONER IF THE GROUND SO RAISED COULD NOT HAVE BEEN RAISED AT THAT PARTICULAR STAGE WHEN THE RETURN WAS FILED OR WHEN THE ASSESSMENT ORDER WAS MADE, OR THAT THE IT(TP)A NO.55 & 60 /B/15 14 GROUND BECAME AVAILABLE ON ACCOUNT OF CHANGE OF CIRCUMSTANCES OR LAW. THERE MAY BE SEVERAL FACTORS JUSTIFYING RAISING OF SUCH NEW PLEA IN APPEAL, AND EACH CASE HAS TO BE CONSIDERED ON ITS OWN FACTS. IF THE APPELLATE ASSISTANT COMMISSIONER IS SATISFIED HE WOULD BE ACT ING WITHIN HIS JURISDICTION IN CONSIDERING THE QUESTION SO RAISED IN ALL ITS ASPECTS. OF COURSE, WHILE PERMITT ING THE ASSESSEE TO RAISE AN ADDITIONAL GROUND, THE APPELLA TE ASSISTANT COMMISSIONER SHOULD EXERCISE HIS DISCRETI ON IN ACCORDANCE WITH LAW AND REASON. HE MUST BE SATISFIE D THAT THE GROUND RAISED WAS BONA FIDE AND THAT THE SAME C OULD NOT HAVE BEEN RAISED EARLIER FOR GOOD REASONS. THE SATISFACTION OF THE APPELLATE ASSISTANT COMMISSIONE R DEPENDS UPON THE FACTS AND CIRCUMSTANCES OF EACH CA SE AND NO RIGID PRINCIPLES OR ANY HARD AND FAST RULE C AN BE LAID DOWN FOR THIS PURPOSE.' [EMPHASIS SUPPLIED] 13. THE UNDERLINED OBSERVATIONS IN THE ABOVE PASSAGE D O NOT CURTAIL THE AMBIT OF THE JURISDICTION OF THE APPELL ATE AUTHORITIES STIPULATED EARLIER. THEY DO NOT RESTRICT THE NEW/AD DITIONAL GROUNDS THAT MAY BE TAKEN BY THE ASSESSEE BEFORE TH E THE APPELLATE AUTHORITIES TO THOSE THAT WERE NOT AVAILA BLE WHEN THE RETURN WAS FILED OR EVEN WHEN THE ASSESSMENT ORDER WAS MADE. THE SENTENCE READ AS A WHOLE ENTITLES AN ASSESSEE T O RAISE NEW GROUNDS/MAKE ADDITIONAL CLAIMS :- 'IF THE GROUND SO RAISED COULD NOT HAVE BEEN RAISED AT THAT PARTICULAR STAGE WHEN THE RETURN WAS FILED OR WHEN THE ASSESSMENT ORDER WAS MADE....' 'OR' IF 'THE GROUND BECAME AVAILABLE ON ACCOUNT OF CHANG E OF CIRCUMSTANCES OR LAW' THE APPELLATE AUTHORITIES, THEREFORE, HAVE JURISDIC TION TO DEAL NOT MERELY WITH ADDITIONAL GROUNDS, WHICH BECAME AV AILABLE ON ACCOUNT OF CHANGE OF CIRCUMSTANCES OR LAW, BUT W ITH ADDITIONAL GROUNDS WHICH WERE AVAILABLE WHEN THE RE TURN WAS FILED. THE FIRST PART VIZ. 'IF THE GROUND SO RAISED COULD NOT HAVE BEEN RAISED AT THAT PARTICULAR STAGE WHEN THE RETUR N WAS FILED OR WHEN THE ASSESSMENT ORDER WAS MADE...' CLEARLY R ELATE TO CASES WHERE THE GROUND WAS AVAILABLE WHEN THE RETUR N WAS FILED AND THE ASSESSMENT ORDER WAS MADE BUT 'COULD NOT HAVE BEEN RAISED' AT THAT STAGE. THE WORDS ARE 'COULD NO T HAVE BEEN RAISED' AND NOT 'WERE NOT IN EXISTENCE'. GROUNDS WH ICH WERE NOT IN EXISTENCE WHEN THE RETURN WAS FILED OR WHEN THE ASSESSMENT ORDER WAS MADE FALL WITHIN THE SECOND CA TEGORY VIZ. WHERE 'THE GROUND BECAME AVAILABLE ON ACCOUNT OF CH ANGE OF CIRCUMSTANCES OR LAW.' IT(TP)A NO.55 & 60 /B/15 15 14. THE FACTS IN JUTE CORPN. OF INDIA LTD. (SUPRA) VAR IOUS JUDGMENTS REFERRED TO THEREIN AS WELL AS IN SUBSEQU ENT CASES, WHICH WE WILL REFER TO, ESTABLISHES THIS BEYOND DOU BT. IN MANY OF THE CASES, THE GROUNDS WERE, IN FACT, AVAILABLE WHEN THE RETURN WAS FILED AND/OR THE ASSESSMENT ORDER WAS MA DE. IN JUTE CORPN. OF INDIA LTD. (SUPRA) THE GROUND WAS AVAILAB LE WHEN THE RETURN WAS FILED. THE ASSESSEE DID NOT CLAIM AN Y DEDUCTION OF ITS LIABILITY TO PAY PURCHASE TAX AS 'IT ENTERTA INED A BELIEF THAT IT WAS NOT LIABLE TO PAY PURCHASE TAX UNDER TH E BENGAL RAW JUTE TAXATION ACT, 1941'. THUS, THE GROUND EXIS TED WHEN THE RETURN WAS FILED. THE ASSESSMENT ORDER WAS EVEN MADE AND RECEIVED BY THE ASSESSEE. IT IS ONLY AFTER THE APPE AL WAS FILED THAT THE ASSESSEE CLAIMED A DEDUCTION IN RESPECT OF THE AMOUNT PAID TOWARDS THE PURCHASE TAX UNDER THE SAID ACT. I T IS ALSO SIGNIFICANT TO NOTE THAT THE ASSESSEE'S ENTITLEMENT TO CLAIM DEDUCTION HAD BEEN HELD TO BE VALID IN VIEW OF AN E ARLIER JUDGMENT OF THE SUPREME COURT IN KEDARNATH JUTE MFG . CO. LTD. V. CIT [1971] 82 ITR 363 . THIS WAS, THEREFORE, A CASE OF ERROR IN PERCEPTION/JUDGMENT. DESPITE THE SAME, THE SUPREME COURT UPHELD THE DECISION OF THE APPELLATE ASSISTAN T COMMISSIONER IN ALLOWING THE DEDUCTION. THE WORDS ' COULD NOT HAVE BEEN RAISED' MUST, THEREFORE, BE CONSTRUED LIB ERALLY AND NOT STRICTLY. 15. IT IS INDEED A QUESTION OF EXERCISE OF DISCRETION WHETHER OR NOT TO ALLOW AN ASSESSEE TO RAISE A CLAIM WHICH WAS NOT RAISED WHEN THE RETURN WAS FILED OR THE ASSESSMENT ORDER W AS MADE. AS HELD BY THE SUPREME COURT THERE MAY BE SEVERAL F ACTORS JUSTIFYING THE RAISING OF A NEW PLEA IN APPEAL AND EACH CASE MUST BE CONSIDERED ON ITS OWN FACTS. HOWEVER, SUCH CASES INCLUDE THOSE, WHERE THE GROUND THOUGH AVAILABLE WH EN THE RETURN WAS FILED OR THE ASSESSMENT ORDER WAS MADE, WAS NOT TAKEN OR RAISED FOR REASONS WHICH THE APPELLATE AUT HORITIES MAY CONSIDER VALID. IN OTHER WORDS, THE JURISDICTIO N OF THE APPELLATE AUTHORITIES TO CONSIDER A FRESH OR NEW GR OUND OR CLAIM IS NOT RESTRICTED TO CASES WHERE SUCH A GROUN D DID NOT EXIST WHEN THE RETURN WAS FILED AND THE ASSESSMENT ORDER WAS MADE. 16. (A) A FULL BENCH OF THIS COURT IN AHMEDABAD ELECTRI CITY LTD. V. CIT [1993] 199 ITR 351 CONSIDERED A SIMILAR SITUATION. IN THAT CASE, THE APPELLANT/ASSESSEE DID NOT CLAIM A DEDUCTION IN RESPECT OF THE AMOUNTS IT WAS REQUIRED TO TRANSF ER TO CONTINGENCIES RESERVE AND DIVIDEND AND TARIFF RESER VE EITHER BEFORE THE INCOME TAX OFFICER OR BEFORE THE APPELLA TE ASSISTANT COMMISSIONER IN APPEAL. SUBSEQUENTLY, THI S COURT HAD, IN AMALGAMATED ELECTRICITY CO. LTD. V. CIT [19 74] 97 ITR 334 , HELD THAT SUCH AMOUNTS REPRESENTED ALLOWABLE DEDU CTIONS ON REVENUE ACCOUNT. THE APPELLANT, THEREFORE, RAISE D A NEW IT(TP)A NO.55 & 60 /B/15 16 CLAIM AND ADDITIONAL GROUNDS BEFORE THE TRIBUNAL IN THAT CONNECTION. THE TRIBUNAL REJECTED THE SAME. THE SEC OND QUESTION WHICH WAS RAISED IN THE REFERENCE BEFORE T HE DIVISION BENCH WAS AS UNDER :- '(2) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL ERRED IN NOT ALLOWING THE ASSESS EE LEAVE TO RAISE IN ITS OWN APPEALS ADDITIONAL GROUNDS AND IN THE DEPARTMENTAL APPEALS CROSS OBJECTIONS REGARDING THE DEDUCTIBILITY OF THE SUMS TRANSFERRED TO CONTINGENC Y RESERVE AND TARIFF AND DIVIDEND CONTROL RESERVE?' (B) THE DIVISION BENCH WHICH HEARD THE REFERENCE, F INDING THAT THERE WAS A CONFLICT OF DECISIONS, PLACED THE PAPER S BEFORE THE HON'BLE CHIEF JUSTICE FOR CONSTITUTING A LARGER BEN CH TO RESOLVE THE CONTROVERSY. THE FULL BENCH ANSWERED THE REFERE NCE IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. THE FULL BENCH HELD :- 'THUS, THE APPELLATE ASSISTANT COMMISSIONER HAS VER Y WIDE POWERS WHILE CONSIDERING AN APPEAL WHICH MAY B E FILED BY THE ASSESSEE. HE MAY CONFIRM, REDUCE, ENHA NCE OR ANNUL THE ASSESSMENT OR REMAND THE CASE TO THE ASSE SSING OFFICER. THIS IS BECAUSE, UNLIKE AN ORDINARY APPEAL , THE BASIC PURPOSE OF A TAX APPEAL IS TO ASCERTAIN THE C ORRECT TAX LIABILITY OF AN ASSESSEE IN ACCORDANCE WITH LAW . HENCE AN APPELLATE ASSISTANT COMMISSIONER ALSO HAS THE PO WER TO ENHANCE THE TAX LIABILITY OF THE ASSESSEE ALTHOU GH THE DEPARTMENT DOES NOT HAVE A RIGHT OF APPEAL BEFORE T HE APPELLATE ASSISTANT COMMISSIONER. THE EXPLANATION T O SUBSECTION (2), HOWEVER, MAKES IT CLEAR THAT FOR TH E PURPOSE OF ENHANCEMENT, THE APPELLATE ASSISTANT COMMISSIONER CANNOT TRAVEL BEYOND THE PROCEEDINGS WHICH WERE ORIGINALLY BEFORE THE INCOME-TAX OFFICER OR REFER TO NEW SOURCES OF INCOME WHICH WERE NOT BEFOR E THE INCOME-TAX OFFICER AT ALL. FOR THIS PURPOSE, THERE ARE OTHER SEPARATE REMEDIES PROVIDED UNDER THE INCOME-T AX ACT.' (C) IT IS UNNECESSARY TO REFER TO ALL THE JUDGMENTS THAT THE FULL BENCH REFERRED TO WHILE ANSWERING THE REFERENCE. TH E FULL BENCH REFERRED TO THE OBSERVATIONS OF THE SUPREME C OURT IN JUTE CORPN. OF INDIA LTD. (SUPRA) SET OUT ABOVE. IT IS IMPORTANT TO NOTE THAT EVEN IN THIS CASE, THEREFORE , THE GROUND EXISTED WHEN THE RETURN WAS FILED. THE MERE FACT TH AT A DECISION OF A COURT IS RENDERED SUBSEQUENTLY DOES NOT INDICA TE THAT THE GROUND DID NOT EXIST WHEN THE LAW WAS ENACTED. JUDG MENTS ARE ONLY A DECLARATION OF THE LAW. THE ASSESSEE COULD H AVE RAISED THE GROUND IN ITS RETURN ITSELF. IT DID NOT HAVE TO AWAIT A DECISION OF A COURT IN THAT REGARD. INDEED, EVEN IF A JUDGMENT IS AGAINST AN ASSESSEE, IT IS ALWAYS OPEN TO THE ASSES SEE TO CLAIM IT(TP)A NO.55 & 60 /B/15 17 THE DEDUCTION AND CARRY THE MATTER HIGHER. THE WORD S 'COULD NOT HAVE BEEN RAISED', THEREFORE, CANNOT BE READ ST RICTLY. NEITHER THE SUPREME COURT NOR THE FULL BENCH OF THI S COURT MEANT THEM TO BE READ STRICTLY. THEY INCLUDE CASES WHERE THE ASSESSEE DID NOT RAISE THE CLAIM FOR A REASON FOUND TO BE REASONABLE OR VALID BY THE APPELLATE AUTHORITIES IN THE FACTS AND CIRCUMSTANCES OF A CASE. 17. THE NEXT JUDGMENT TO WHICH OUR ATTENTION WAS INVIT ED BY MR. MISTRI IS THE JUDGMENT OF A BENCH OF THREE LEAR NED JUDGES OF THE SUPREME COURT IN NATIONAL THERMAL POWER CO. LTD. V. CIT [1998] 229 ITR 383 . IN THAT CASE, THE ASSESSEE HAD DEPOSITED ITS FUNDS NOT IMMEDIATELY REQUIRED BY IT ON SHORT TERM DEPOSITS WITH BANKS. THE INTEREST RECEIVED ON SUCH DEPOSITS WAS OFFERED BY THE ASSESSEE ITSELF FOR TAX AND THE ASSESSMENT WAS COMPLETED ON THAT BASIS. EVEN BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), THE INCLUSION OF THIS AMOUNT WAS NEITHER CHALLENGED BY THE ASSESSEE NOR C ONSIDERED BY THE COMMISSIONER OF INCOME-TAX (APPEALS). THE AS SESSEE FILED AN APPEAL BEFORE THE TRIBUNAL. THE INCLUSION OF THE AMOUNT WAS NOT OBJECTED TO EVEN IN THE GROUNDS OF A PPEAL AS ORIGINALLY FILED BEFORE THE TRIBUNAL. SUBSEQUENTLY, THE ASSESSEE BY A LETTER, RAISED ADDI TIONAL GROUNDS TO THE EFFECT THAT THE SAID SUM COULD NOT B E INCLUDED IN THE TOTAL INCOME. THE ASSESSEE CONTENDED THAT ON A ERRONEOUS ADMISSION, NO INCOME CAN BE INCLUDED IN THE TOTAL I NCOME. IT WAS FURTHER CONTENDED THAT THE ITO AND THE COMMISSI ONER OF INCOME-TAX (APPEALS) HAD ERRED AND FAILED IN THEIR DUTY IN ADJUDICATING THE MATTER CORRECTLY AND BY MECHANICAL LY INCLUDING THE AMOUNT IN THE TOTAL INCOME. IT IS PER TINENT TO NOTE THAT THE ASSESSEE CONTENDED THAT IT WAS ENTITLED TO THE DEDUCTION IN VIEW OF TWO ORDERS OF THE SPECIAL BENCHES OF THE TRIBUNAL AND THE ASSESSEE FURTHER STATED THAT IT HAD RAISED THESE ADDITIONAL GROUNDS ON LEARNING ABOUT THE LEGAL POSI TION SUBSEQUENTLY. THE TRIBUNAL DECLINED TO ENTERTAIN THESE ADDITIONAL GROUNDS. THE SUPREME COURT DID NOT ANSWER THE QUESTION ON ME RITS, BUT FRAMED THE FOLLOWING QUESTION AND HELD AS UNDER :- ' 4. THE TRIBUNAL HAS FRAMED AS MANY AS FIVE QUESTION S WHILE MAKING A REFERENCE TO US. SINCE THE TRIBUNAL HAS NOT EXAMINED THE ADDITIONAL GROUNDS RAISED BY THE ASSES SEE ON MERIT, WE DO NOT PROPOSE TO ANSWER THE QUESTIONS RE LATING TO THE MERIT OF THOSE CONTENTIONS. WE REFRAME THE Q UESTION WHICH ARISES FOR OUR CONSIDERATION IN ORDER TO BRIN G OUT THE POINT WHICH REQUIRES DETERMINATION MORE CLEARLY . IT IS AS FOLLOWS: IT(TP)A NO.55 & 60 /B/15 18 'WHERE ON THE FACTS FOUND BY THE AUTHORITIES BELOW A QUESTION OF LAW ARISES (THOUGH NOT RAISED BEFORE TH E AUTHORITIES) WHICH BEARS ON THE TAX LIABILITY OF TH E ASSESSEE, WHETHER THE TRIBUNAL HAS JURISDICTION TO EXAMINE THE SAME.' UNDER SECTION 254 OF THE INCOME TAX ACT THE APPELLA TE TRIBUNAL MAY, AFTER GIVING BOTH THE PARTIES TO THE APPEAL AN OPPORTUNITY OF BEING HEARD, PASS SUCH ORDERS THE REON AS IT THINKS FIT. THE POWER OF THE TRIBUNAL IN DEAL ING WITH THE APPEALS IS THUS EXPRESSED IN THE WIDEST POSSIBL E TERMS. THE PURPOSE OF THE ASSESSMENT PROCEEDINGS BEFORE TH E TAXING AUTHORITIES IS TO ASSESS CORRECTLY THE TAX L IABILITY OF AN ASSESSEE IN ACCORDANCE WITH LAW. IF, FOR EXAMPLE , AS A RESULT OF A JUDICIAL DECISION GIVEN WHILE THE APPEA L IS PENDING BEFORE THE TRIBUNAL, IT IS FOUND THAT A NON -TAXABLE ITEM IS TAXED OR A PERMISSIBLE DEDUCTION IS DENIED, WE DO NOT SEE ANY REASON WHY THE ASSESSEE SHOULD BE PREVE NTED FROM RAISING THAT QUESTION BEFORE THE TRIBUNAL FOR THE FIRST TIME, SO LONG AS THE RELEVANT FACTS ARE ON RECORD I N RESPECT OF THAT ITEM. WE DO NOT SEE ANY REASON TO RESTRICT THE POWER OF THE TRIBUNAL UNDER SECTION 254 ONLY TO DEC IDE THE GROUNDS WHICH ARISE FROM THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). BOTH THE ASSE SSEE AS WELL AS THE DEPARTMENT HAVE A RIGHT TO FILE AN APPEA1/CROSS-OBJECTIONS BEFORE THE TRIBUNAL. WE FAI L TO SEE WHY THE TRIBUNAL SHOULD BE PREVENTED FROM CONSIDERING QUESTIONS OF LAW ARISING IN ASSESSMENT PROCEEDINGS ALTHOUGH NOT RAISED EARLIER.' 18. IN THE CASE BEFORE US, THE CIT(A) AND THE TRIBUNAL HAVE HELD THE OMISSION TO CLAIM THE DEDUCTION OF RS.40,0 0,000/- TO BE INADVERTENT. BOTH THE APPELLATE AUTHORITIES HELD , AFTER CONSIDERING ALL THE FACTS, THAT THE ASSESSEE HAD IN ADVERTENTLY CLAIMED A DEDUCTION OF RS.20,00,000/-PAID AFTER THE END OF THE YEAR IN QUESTION. WE SEE NO REASON TO INTERFERE WIT H THIS FINDING. WE SEE LESS REASON TO INTERFERE WITH THE E XERCISE OF DISCRETION BY THE APPELLATE AUTHORITIES IN PERMITTI NG THE RESPONDENT TO RAISE THIS CLAIM. THAT THE RESPONDENT IS ENTITLED TO THE DEDUCTION IN LAW IS ADMITTED AND, IN ANY EVE NT, CLEARLY ESTABLISHED. IN THE CIRCUMSTANCES, THE RESPONDENT O UGHT NOT BE PREJUDICED. 19. THE ORDERS OF THE CIT(A) AND THE TRIBUNAL CLEARLY INDICATE THAT BOTH THE APPELLATE AUTHORITIES HAD EXERCISED T HEIR JURISDICTION TO CONSIDER THE ADDITIONAL CLAIM AS TH EY WERE ENTITLED TO IN VIEW OF THE VARIOUS JUDGMENTS ON THE ISSUE, INCLUDING THE JUDGMENT OF THE SUPREME COURT IN NATI ONAL THERMAL POWER CORPN. LTD. (SUPRA) . THIS IS CLEAR F ROM THE FACT IT(TP)A NO.55 & 60 /B/15 19 THAT THESE JUDGMENTS HAVE BEEN EXPRESSLY REFERRED T O IN DETAIL BY THE CIT(A) AND BY THE TRIBUNAL. 20. WE WISH TO CLARIFY THAT BOTH THE APPELLATE AUTHORI TIES HAVE THEMSELVES CONSIDERED THE ADDITIONAL CLAIM AND ALLO WED IT. THEY HAVE NOT REMANDED THE MATTER TO THE ASSESSING OFFICER TO CONSIDER THE SAME. BOTH THE ORDERS EXPRESSLY DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION OF RS. 40, 00,000/- UNDER SECTION 43B OF THE ACT. THE ASSESSING OFFICER IS, THEREFORE, NOW ONLY TO COMPUTE THE RESPONDENT'S TAX LIABILITY WHICH HE MUST DO IN ACCORDANCE WITH THE ORDERS ALLO WING THE RESPONDENT A DEDUCTION OF RS. 40,00,000/- UNDER SEC TION 43B OF THE ACT. 21. THE CONCLUSION THAT THE ERROR IN NOT CLAIMING THE DEDUCTION IN THE RETURN OF INCOME WAS INADVERTENT CANNOT BE F AULTED FOR MORE THAN ONE REASON. IT IS A FINDING OF FACT WHICH CANNOT BE TERMED PERVERSE. THERE IS NOTHING ON RECORD THAT MI LITATES AGAINST THE FINDING. THE APPELLANT HAS NOT SUGGESTE D, MUCH LESS ESTABLISHED THAT THE OMISSION WAS DELIBERATE, MALA- FIDE OR EVEN OTHERWISE. THE INFERENCE THAT THE OMISSION WAS INAD VERTENT IS, THEREFORE, IRRESISTIBLE. 22. IT WAS THEN SUBMITTED BY MR. GUPTA THAT THE SUPREM E COURT HAD TAKEN A DIFFERENT VIEW IN GOETZE (INDIA) LTD ( SUPRA). WE ARE UNABLE TO AGREE. THE DECISION WAS RENDERED BY A BENCH OF TWO LEARNED JUDGES AND EXPRESSLY REFERS TO THE JUDG MENT OF THE BENCH OF THREE LEARNED JUDGES IN NATIONAL THERMAL P OWER COMP. LTD. ( SUPRA). THE QUESTION BEFORE THE COURT WAS WHETHER THE APPELLANT-ASSESSEE COULD MAKE A CLAIM F OR DEDUCTION, OTHER THAN BY FILING A REVISED RETURN. A FTER THE RETURN WAS FILED, THE APPELLANT SOUGHT TO CLAIM A D EDUCTION BY WAY OF A LETTER BEFORE THE ASSESSING OFFICER. THE C LAIM, THEREFORE, WAS NOT BEFORE THE APPELLATE AUTHORITIES . THE DEDUCTION WAS DISALLOWED BY THE ASSESSING OFFICER O N THE GROUND THAT THERE WAS NO PROVISION UNDER THE ACT TO MAKE AN AMENDMENT IN THE RETURN OF INCOME BY MODIFYING AN APPLICATION AT THE ASSESSMENT STAGE WITHOUT REVISIN G THE RETURN. THE COMMISSIONER OF INCOME-TAX (APPEALS) ALLOWED TH E ASSESSEE'S APPEAL. THE TRIBUNAL, HOWEVER, ALLOWED T HE DEPARTMENT'S APPEAL. IN THE SUPREME COURT, THE ASSE SSEE RELIED UPON THE JUDGMENT IN NATIONAL THERMAL POWER CO. LTD. (SUPRA) CONTENDING THAT IT WAS OPEN TO THE ASS ESSEE TO RAISE THE POINTS OF LAW EVEN BEFORE THE TRIBUNAL. T HE SUPREME COURT HELD :- '4. THE DECISION IN QUESTION IS THAT THE POWER OF T HE TRIBUNAL UNDER SECTION 254 OF THE INCOME-TAX ACT, 1 961, IS TO ENTERTAIN FOR THE FIRST TIME A POINT OF LAW PROV IDED THE FACT ON THE BASIS OF WHICH THE ISSUE OF LAW CAN BE RAISED BEFORE THE TRIBUNAL. THE DECISION DOES NOT IN ANY W AY IT(TP)A NO.55 & 60 /B/15 20 RELATE TO THE POWER OF THE ASSESSING OFFICER TO ENT ERTAIN A CLAIM FOR DEDUCTION OTHERWISE THAN BY FILING A REVI SED RETURN. IN THE CIRCUMSTANCES OF THE CASE, WE DISMIS S THE CIVIL APPEAL. HOWEVER, WE MAKE IT CLEAR THAT THE IS SUE IN THIS CASE IS LIMITED TO THE POWER OF THE ASSESSING AUTHORITY AND DOES NOT IMPINGE ON THE POWER OF THE INCOME-TAX APPELLATE TRIBUNAL UNDER SECTION 254 OF THE INCOME- TAX ACT, 1961. THERE SHALL BE NO ORDER AS TO COSTS.' [E MPHASIS SUPPLIED] 23. IT IS CLEAR TO US THAT THE SUPREME COURT DID NOT H OLD ANYTHING CONTRARY TO WHAT WAS HELD IN THE PREVIOUS JUDGMENTS TO THE EFFECT THAT EVEN IF A CLAIM IS NOT MADE BEFO RE THE ASSESSING OFFICER, IT CAN BE MADE BEFORE THE APPELL ATE AUTHORITIES. THE JURISDICTION OF THE APPELLATE AUTH ORITIES TO ENTERTAIN SUCH A CLAIM HAS NOT BEEN NEGATED BY THE SUPREME COURT IN THIS JUDGMENT. IN FACT, THE SUPREME COURT MADE IT CLEAR THAT THE ISSUE IN THE CASE WAS LIMITED TO THE POWER OF THE ASSESSING AUTHORITY AND THAT THE JUDGMENT DOES NOT IMPINGE ON THE POWER OF THE TRIBUNAL UNDER SECTION 254. 14. WE FIND THAT THE ISSUE OF DEPRECIATION OF GOODW ILL IS COVERED BY THE JUDGMENT REFERRED HEREIN ABOVE. RESPECTFULLY F OLLOWING THE DECISIONS OF THE VARIOUS HIGH COURTS, WE DISMISS THIS GROUND OF THE REVENUE. 15. WITH RESPECT TO GROUND NO.4, THE LEARNED AR SUB MITTED THAT THE ISSUE WAS CONSIDERED BY THE LEARNED CIT(A) BY RELYI NG ON THE FOLLOWING DECISIONS OF HIGH COURTS AND ALSO THE TRIBUNAL. 1) OF MUMBAI TRIBUNAL IN THE CASE OF SKOL BREWERIES LTD. VS. ACIT (ITAT, MUM) IT(TP)A NO.55 & 60 /B/15 21 2) MADRAS HIGH COURT IN THE CASE OF PENTASOFT TECHN OLOGIES LTD., ( MADRAS, HC) 3) RAJSTHAN HIGH COURT IN THE CASE OF RAJASTHAN TA X CONSULTANTS ASSOCIATION VS. CBDT (RAJASTHAN HC) 16. PER CONTRA , IT HAS BEEN BROUGHT TO OUR NOTICE BY THE LEARNED DR THAT EXPLANATION TO SEC. 194J WAS AMENDED DURING THE ASSESSMENT YEAR UNDER CONSIDERATION AND IS APPLICABLE TO THE CASE I N HAND .THE EXPLANATION READS AS AS UNDER:- EXPLANATION. - FOR THE PURPOSES OF THIS SECTION,- (A) 'PROFESSIONAL SERVICES' MEANS SERVICES RENDERED BY A PERSON IN THE COURSE OF CARRYING ON LEGAL, MEDICAL, ENGINEERING OR ARCHITECTURAL PROFESSION OR THE PROF ESSION OF ACCOUNTANCY OR TECHNICAL CONSULTANCY OR INTERIOR DECORATION OR ADVERTISING OR SUCH OTHER PROFESSION AS IS N.OTLNED.99 B-Y THE BOARD. FOR THE 'PURPOSES OF SEC TION 44AA OR OF THIS SECTION; (B) 'FEES FOR TECHNICAL SERVICES SHALL HAVE THE SA ME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB- SECTION (1) OF SECTION 9; [(BA)] 'ROYALTY' SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9;] C) WHERE ANY SUM REFERRED TO IN SUB-SECTION (1) IS CREDITED IT(TP)A NO.55 & 60 /B/15 22 TO ANY ACCOUNT, WHETHER CALLED 'SUSPENSE ACCOUNT' O R BY ANY OTHER NAME, IN THE BOOKS OF ACCOUNT OF THE PERS ON LIABLE TO PAY SUCH SUM, SUCH CREDITING SHALL BE DEE MED TO BE CREDIT OF SUCH SUM TO THE ACCOUNT OF THE PAYEE A ND THE PROVISIONS OF THIS SECTION SHALL APPLY ACCORDINGLY. 17. THE BENCH HAS SOUGHT THE RESPONSE TO THE AMENDE D PROVISION , TO THAT, THE LEARNED AR DID NOT OPPOSE AND SUBMITTED T HAT THIS ISSUE IS COVERED BY THE AMENDED PROVISION INTRODUCED IN THE ACT. 18. SINCE THE ISSUE WAS DECIDED BY THE COMMISSIONER ON THE BASIS OF THE JUDGMENT PERTAINING TO THE PERIOD PRIOR TO THE AMENDMENT OF THE EXPLANATION TO SECTION 194J, THEREFORE THE JUDGMENT S RELIED WERE NOT APPLICABLE AND THE APPLICABLE PROVISION WAS THE AME NDED EXPLANATION. IN OUR VIEW THE CASE OF THE ASSESSEE FALLS WITHIN THE AMBIT OF EXPLANATION TO SECTION 194J, THEREFORE THE VIOLATION COMMITTED BY THE ASSESSEE IS REQUIRED TO BE DEALT ACCORDINGLY. ACCORDINGLY, THE GROUND OF THE REVENUE WITH RESPECT TO DISALLOWANCE U/S 194J IS ALLOWED. 19. GROUND NOS. 5 AND 6 ARE WITH RESPECT TO INCLUSI ON OF INFOSYS LTD. AND `LGS GLOBAL LTD., RESPECTIVELY. 20. THE LEARNED AUTHORIZED REPRESENTATIVE ON THE BE HALF OF THE ASSESSEE HAD SUBMITTED THAT THIS ISSUE PERTAINING TO INFOSYS LTD. IS COVERED BY THE IT(TP)A NO.55 & 60 /B/15 23 JUDGMENT OF COORDINATE BENCH AND THEREFORE THIS ISS UE IS REQUIRED TO BE DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE. THE LD DEPARTMENTAL REPRESENTATIVE RELIES UPON THE ORDER P ASSED BY THE ASSESSING OFFICER. 21. THE COORDINATE BENCH IN IT(T.P)A NO.1009/BANG/2014, IN PARA 10.2.1, 11 TO 11.4 HELD AS UNDER:- 10.2.1 WE HAVE HEARD BOTH THE LEARNED AUTHORISED REPRESENTATIVE AND THE LEARNED DEPARTMENTAL REPRESENTATIVE AND HAVE PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JU DICIAL PRONOUNCEMENTS CITED AND PLACED RELIANCE UPON. WE F IND THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF AIRBUS INDIA OPERATIONS PVT. LTD. (SUPRA) EXCLUDED THESE TWO COMPANIES AS COMPARABLE TO AN ASSESSEE WHO IS PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER, HOL DING AS UNDER AT PARAS 19 & 20 THEREOF :- ' 19. THE NEXT SUBMISSION OF THE LEARNED COUNSEL FO R THE ASSESSEE WAS THAT THOUGH, INFOSYS TECHNOLOGIES LTD. , & TATA ELXSI LTD. (SEG.) HAVE TO BE EXCLUDED BY APPLY ING THE TURNOVER FILTER, THEY ARE ALSO ADDITIONALLY FUNCTIO NALLY NOT COMPARABLE AS HELD BY THIS TRIBUNAL IN THE CASE OF GENISYS INTEGRATING SYSTEMS (INDIA) LTD. (SUPRA) AN D IT(TP)A NO.55 & 60 /B/15 24 CISCO SYSTEMS (INDIA) (SUPRA). WE HAVE CONSIDERED H IS SUBMISSION AND WE FIND THAT IN THE CASE OF CISCO SY STEMS (INDIA) (SUPRA), THIS TRIBUNAL HAS ALSO HELD THAT T HE AFORESAID TWO COMPANIES ARE ALSO NOT FUNCTIONALLY COMPARABLE TO A COMPANY SUCH AS THE ASSESSEE RENDER ING PURELY SOFTWARE IT(T.P)A NO.1009/BANG/2014 DEVELOPMENT SERVICES. THE FOLLOWING WERE THE RELEVA NT OBSERVATIONS OF THE TRIBUNAL. '26.2 INFOSYS LTD.:- AS FAR AS THIS COMPANY IS CONC ERNED, IT IS NOT IN DISPUTE BEFORE US THAT THIS COMPANY HA S BEEN CONSIDERED TO BE FUNCTIONALLY DIFFERENT FROM A COMP ANY PROVIDING SIMPLE SOFTWARE DEVELOPMENT SERVICES, AS THIS COMPANY OWNS SIGNIFICANT INTANGIBLES AND HAS HUGE REVENUES FROM SOFTWARE PRODUCTS. IN THIS REGARD, WE FIND THAT THE BANGALORE BENCH OF THE TRIBUNAL IN THE CAS E OF M/S. TDPLM SOFTWARE SOLUTIONS LTD. V. DCIT, ITA NO.1303/BANG/2012, BY ORDER DATED 28.11.2013 WITH REGARD TO THIS COMPARABLE HAS HELD AS FOLLOWS:- '11.0 INFOSYS TECHNOLOGIES LTD. 11.1 THIS WAS A COMPARABLE SELECTED BY THE TPO. BEF ORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THE COMPANY IN THE SET OF COMPARABLES, ON THE GROUNDS O F TURNOVER AND BRAND ATTRIBUTABLE PROFIT MARGIN. THE TPO, HOWEVER, REJECTED THESE OBJECTIONS RAISED BY THE AS SESSEE ON THE GROUNDS THAT TURNOVER AND BRAND ASPECTS WERE NOT MATERIALLY RELEVANT IN THE SOFTWARE DEVELOPMENT SEG MENT. IT(TP)A NO.55 & 60 /B/15 25 11.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE IN THE CASE ON HAND. THE LEARNED AUTHORISED REPRESENTATIVE DREW OUR ATTENTIO N TO VARIOUS PARTS OF THE ANNUAL REPORT OF THIS COMPANY TO SUBMIT THAT THIS COMPANY COMMANDS SUBSTANTIAL BRAND VALUE, OWNS INTELLECTUAL PROPERTY RIGHTS AND IS A M ARKET LEADER IN SOFTWARE DEVELOPMENT ACTIVITIES, WHEREAS THE ASSESSEE IS MERELY A SOFTWARE SERVICE PROVIDER OPER ATING ITS BUSINESS IN INDIA AND DOES NOT POSSESS EITHER A NY BRAND VALUE OR OWN ANY INTANGIBLE OR INTELLECTUAL PROPERTY RIGHTS (IPRS). IT WAS ALSO SUBMITTED BY TH E LEARNED AUTHORISED REPRESENTATIVE THAT :- (I) THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE C ASE OF 24/7 CUSTOMER.COM PVT. LTD. IN ITA NO.227/BANG/2010 HAS HELD THAT A COMPANY OWNING INTANGIBLES CANNOT B E COMPARED TO A LOW RISK CAPTIVE SERVICE PROVIDER WHO DOES NOT OWN ANY INTANGIBLE AND HENCE DOES NOT HAVE AN ADDITIONAL ADVANTAGE IN THE MARKET. IT IS SUBMITTED THAT THIS DECISION IS APPLICABLE TO THE ASSESSEE'S CASE, AS THE ASSESSEE DOES NOT OWN ANY INTANGIBLES AND HENCE INF OSYS TECHNOLOGIES LTD. CANNOT BE COMPARABLE TO THE ASSES SEE ; (II) THE OBSERVATION OF THE ITAT, DELHI BENCH IN TH E CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.38 56 (DEL)/2010 AT PARA 5.2 THEREOF, THAT INFOSYS TECHNO LOGIES LTD. BEING A GIANT COMPANY AND MARKET LEADER ASSUMI NG IT(TP)A NO.55 & 60 /B/15 26 ALL RISKS LEADING TO HIGHER PROFITS CANNOT BE CONSI DERED AS COMPARABLE TO CAPTIVE SERVICE PROVIDERS ASSUMING LI MITED RISK ; (III) THE COMPANY HAS GENERATED SEVERAL INVENTIONS AND FILED FOR MANY PATENTS IN INDIA AND USA ; (IV) THE COMPANY HAS SUBSTANTIAL REVENUES FROM SOFT WARE PRODUCTS AND THE BREAK UP OF SUCH REVENUES IS NOT AVAILABLE ; (V) THE COMPANY HAS INCURRED HUGE EXPENDITURE FOR RESEARCH AND DEVELOPMENT; (VI) THE COMPANY HAS MADE ARRANGEMENTS TOWARDS ACQUISITION OF IPRS IN 'AUTOLAY', A COMMERCIAL APPLICATION PRODUCT USED IN DESIGNING HIGH PERFORMA NCE STRUCTURAL SYSTEMS. IN VIEW OF THE ABOVE REASONS, THE LEARNED AUTHORISE D REPRESENTATIVE PLEADED THAT, THIS COMPANY I.E. INFO SYS TECHNOLOGIES LTD., BE EXCLUDED FORM THE LIST OF COMPARABLE COMPANIES. 11.3 PER CONTRA, OPPOSING THE CONTENTIONS OF THE AS SESSEE, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED T HAT COMPARABILITY CANNOT BE DECIDED MERELY ON THE BASIS OF SCALE OF OPERATIONS AND THE BRAND ATTRIBUTABLE PROF IT MARGINS OF THIS COMPANY HAVE NOT BEEN EXTRAORDINARY . IN VIEW OF THIS, THE LEARNED DEPARTMENTAL REPRESENTATI VE IT(TP)A NO.55 & 60 /B/15 27 SUPPORTED THE DECISION OF THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. 11.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS BROUGHT ON RECORD SUFFICIENT EVIDENCE TO ESTABLISH THAT THIS COMPANY IS FUNCTION ALLY DIS-SIMILAR AND DIFFERENT FROM THE ASSESSEE AND HEN CE IS NOT COMPARABLE AND THE FINDING RENDERED IN THE CASE OF TRILOGY E- BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA ) FOR ASSESSMENT YEAR 2007- 08 IS APPLICABLE TO THIS YEAR ALSO. WE ARE INCLINED TO CONCUR WITH THE ARGUMENT PUT FOR TH BY THE ASSESSEE THAT INFOSYS TECHNOLOGIES LTD IS NOT FUNCTIONALLY COMPARABLE SINCE IT OWNS SIGNIFICANT INTANGIBLE AND HAS HUGE REVENUES FROM SOFTWARE PROD UCTS. IT IS ALSO SEEN THAT THE BREAK UP OF REVENUE FROM S OFTWARE SERVICES AND SOFTWARE PRODUCTS IS NOT AVAILABLE. IN THIS VIEW OF THE MATTER, WE HOLD THAT THIS COMPANY OUGHT TO BE OMITTED FROM THE SET OF COMPARABLE COMPANIES. IT IS ORDERED ACCORDINGLY.' THE DECISION RENDERED AS AFORESAID PERTAINS TO A.Y. 2008- 09. IT WAS AFFIRMED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE FACTS AND CIRCUMSTANCES IN THE PR ESENT YEAR ALSO REMAINS IDENTICAL TO THE FACTS AND CIRCUM STANCES AS IT PREVAILED IN AY 08-09 AS FAR AS THIS COMPARAB LE COMPANY IS CONCERNED. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE, WE HOLD THAT IT(TP)A NO.55 & 60 /B/15 28 INFOSYS LTD. BE EXCLUDED FROM THE LIST OF COMPARABL E COMPANIES.' 26.3 ........ IT(T.P)A NO.1009/BANG/2014 '26.4 TATA ELXSI LTD.:- AS FAR AS THIS COMPANY IS CONCERNED, IT IS NOT IN DISP UTE BEFORE US THAT IN ASSESSEE'S OWN CASE FOR THE A.Y. 2007- 08, THIS COMPANY WAS NOT REGARDED AS A COMPARABLE I N ITS SOFTWARE DEVELOPMENT SERVICES SEGMENT IN ITA NO.1076/BANG/2011, ORDER DATED 29.3.2013. FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL:- II . UNREASONABLE COMPARABILITY CRITERIA : 19. THE LEARNED CHARTERED ACCOUNTANT PLEADED THAT O UT OF THE SIX COMPARABLES SHORTLISTED ABOVE AS COMPARABLE S BASED ON THE TURNOVER FILTER, THE FOLLOWING TWO COM PANIES, NAMELY (I) TATA ELXSI LTD; AND (II) M/S. FLEXTRONIC S SOFTWARE SYSTEMS LTD., DESERVE TO BE ELIMINATED FOR THE FOLLOWING REASONS : (I) TATA ELXSI LTD., : THE COMPANY OPERATES IN THE SEGMENTS OF SOFTWARE DEVELOPMENT SERVICES WHICH COMPRISES OF EMBEDDED PRODUCT DESIGN SERVICES, INDUSTRIAL DESIGN AND ENGINEERING SERVICES AND VISU AL COMPUTING LABS AND SYSTEM INTEGRATION SERVICES SEGM ENT. THERE IS NO SUB-SERVICES BREAK UP/INFORMATION PROVI DED IN THE ANNUAL REPORT OR THE DATABASES BASED ON WHIC H THE MARGIN FROM SOFTWARE SERVICES ACTIVITY ONLY COULD B E IT(TP)A NO.55 & 60 /B/15 29 COMPUTED. THE COMPANY HAS ALSO IN ITS RESPONSE TO T HE NOTICE U/S.133(6) STATED THAT IT CANNOT BE CONSIDER ED AS COMPARABLE TO ANY OTHER SOFTWARE SERVICES COMPANY BECAUSE OF ITS COMPLEX NATURE. HENCE, TATA ELXSI LT D., IS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. (II) FLEXTRONICS SOFTWARE SYSTEMS LTD. : THE LEARNE D TPO HAS CONSIDERED THIS COMPANY AS A COMPARABLE BASED O N 133(6) REPLY WHEREIN THIS COMPANY REFLECTED ITS SOF TWARE DEVELOPMENT SERVICES REVENUES TO BE MORE THAN 75% O F THE 'SOFTWARE PRODUCTS AND SERVICES' SEGMENT REVENU ES. FLEXTRONICS HAS A HYBRID REVENUE MODEL AND HENCE SH OULD BE REJECTED AS FUNCTIONALLY DIFFERENT. BASED ON THE INFORMATION PROVIDED UNDER 'REVENUE RECOGNITION' IN ITS ANNUAL REPORT, IT CAN BE INFERRED THAT THE SOFTWARE SERVICES REVENUES ARE EARNED ON A HYBRID REVENUE MO DEL, AND THE SAME IS NOT SIMILAR TO THE REGULAR MODELS A DOPTED BY OTHER SOFTWARE SERVICE PROVIDERS. THE LEARNED REPRESENTATIVE PLEADED THAT A REGULAR SOFTWARE SERV ICES PROVIDER COULD NOT BE COMPARED TO A COMPANY HAVING SUCH A UNIQUE REVENUE MODEL, WHEREIN THE REVENUES O F THE COMPANY FROM SOFTWARE/PRODUCT DEVELOPMENT SERVICES DEPENDS ON THE SUCCESS OF THE PRODUCTS SOLD BY ITS CLIENTS IN THE MARKETPLACE. HENCE, IT WOULD BE INAPPROPRIAT E TO COMPARE THE BUSINESS OPERATIONS OF THE ASSESSEE WIT H THAT OF A COMPANY FOLLOWING HYBRID BUSINESS MODEL COMPRISING OF ROYALTY INCOME AS WELL AS REGULAR SOF TWARE SERVICES INCOME, FOR WHICH REVENUE BREAK-UP IS NOT IT(TP)A NO.55 & 60 /B/15 30 AVAILABLE. HE FINALLY SUBMITTED THAT THIS WAS A GOO D REASON TO EXCLUDE THIS COMPANY ALSO FROM THE LIST O F COMPARABLES. 20. ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE ORDER OF THE LOWER AUTHORITIES REGARDING THE INCLUS ION OF TATA ELXSI AND FLEXTRONICS SOFTWARE SYSTEMS LTD., I N THE LIST OF COMPARABLES. HE REITERATED THE CONTENTS OF PARA 14.2.25 OF THE TPO'S ORDER. HE ALSO READ OUT THE FOLLOWING PORTION FROM THE TPO'S ORDER : 'THUS AS STATED ABOVE BY THE COMPANY, THE FOLLOWING FACTS EMERGE : 1. THE COMPANY'S SOFTWARE DEVELOPMENT AND SERVICES SEGMENT CONSTITUTES THREE SUB-SEGMENTS I) PRODUCT D ESIGN SERVICES; II) ENGINEERING DESIGN SERVICES AND III) VISUAL COMPUTING LABS. 2. THE PRODUCT DESIGN SERVICES SUB-SEGMENT IS INTO EMBEDDED SOFTWARE DEVELOPMENT. THUS THIS SEGMENT IS INTO SOFTWARE DEVELOPMENT SERVICES. 3. THE CONTRIBUTION OF THE EMBEDDED SERVICES SEGMEN T IS TO THE TUNE OF RS.230 CRORES IN THE TOTAL SEGMENT R EVENUE OF RS.263 CRORES. EVEN IF WE CONSIDER THE OTHER TWO SUB- SEGMENTS PERTAIN TO IT ENABLED SERVICES, THE 87.45% (75%) OF THE SEGMENT'S REVENUES IS FROM SOFTWARE DEVELOPMENT SERVICES. IT(TP)A NO.55 & 60 /B/15 31 4. THIS SEGMENT QUALIFIES ALL THE FILTERS APPLIED B Y THE TPO.' REGARDING FLEXTRONICS SOFTWARE SYSTEMS, THE FOLLOWI NG EXTRACT FROM PAGE 143 OF TPO'S ORDER WAS READ OUT B Y HIM AS HIS SUBMISSIONS : 'IT IS VERY PERTINENT TO MENTION HERE THAT THE COMP ANY WAS CONSIDERED BY THE TAXPAYER AS A COMPARABLE FOR THE PRECEDING ASSESSMENT YEAR I.E., AY 2006-07. WHEN TH E SAME WAS ACCEPTED BY THE TPO AS A COMPARABLE, THE SAME WAS NOT OBJECTED TO IT BY THE TAXPAYER. AS THE FACTS MENTIONED BY THE TAXPAYER ARE THE SAME AND THESE WE RE THERE IN THE EARLIER FY 2005-06, THERE IS NO REASON WHY THE TAXPAYER IS OBJECTING TO IT. HOW THE COMPANY IS FUNCTIONALLY SIMILAR IN THE EARLIER FY 2005-06 BUT THE SAME IS NOT FUNCTIONALLY SIMILAR FOR THE SUBSEQUENT FY 2006-07 EVEN WHEN NO FACTS HAVE BEEN CHANGED FROM T HE PRECEDING YEAR. THUS THE TAXPAYER IS ARGUING AGAINS T THIS COMPARABLE AS THE COMPANY WAS NOT CONSIDERED AS A COMPARABLE BY THE TAXPAYER FOR THE PRESENT FY 2006- 07.' 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDE RED THE FACTS AND MATERIALS ON RECORD. AFTER CONSIDERIN G THE SUBMISSIONS, WE FIND THAT TATA ELXSI AND FLEXTRONIC S ARE FUNCTIONALLY DIFFERENT FROM THAT OF THE ASSESSEE AN D HENCE THEY DESERVE TO BE DELETED FROM THE LIST OF SIX COM PARABLES AND HENCE THERE REMAINS ONLY FOUR COMPANIES AS COMPARABLES, AS LISTED BELOW:' IT(TP)A NO.55 & 60 /B/15 32 FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, W E HOLD THAT M/S.TATA ELXSI LTD. SHOULD NOT BE REGARDED AS A COMPARABLE.' 20. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL REFERRED TO ABOVE AND TAKING NOTE OF THE FACT THAT THE FACTS AND CIRCUMSTANCES UNDER WHICH THE AFORESAID COMPANY WAS CONSIDERED BY THE TPO AS COMPARABLE WITH A SOFTWARE DEVELOPMENT SERVICE PROVIDER SUCH AS THE ASSESSEE FOR IDENTICAL REASONS, WE DIRECT THE TPO T O EXCLUDE THE AFORESAID TWO COMPANIES FROM THE LIST O F COMPARABLE COMPANIES FOR THE PURPOSE OF COMPUTATION OF ALP.' 10.2.2 FOLLOWING THE DECISION OF THE CO-ORDINATE BE NCH OF THIS TRIBUNAL IN THE CASE OF AIRBUS INDIA OPERATION S PVT. LTD. (SUPRA) AND OTHER TRIBUNAL DECISIONS REFERRED TO ABOVE, AND TAKING NOTE OF THE FACTS AND CIRCUMSTANC ES UNDER WHICH THE AFORESAID TWO COMPANIES [VIZ. INFOS YS TECHNOLOGIES LTD. AND TATA ELXSI LTD. (SEG.)] WERE CONSIDERED TO BE COMPARABLE WITH A SOFTWARE DEVELOPMENT SERVICE PROVIDER, SUCH AS IS THE ASSESS EE IN THE CASE ON HAND, FOR IDENTICAL REASONS WE DIRECT T HE TPO TO EXCLUDE AFORESAID TWO COMPANIES FROM THE LIST OF COMPARABLES. IT IS ORDERED ACCORDINGLY. THE LD DEPARTMENT REPRESENTATIVE RELIES UPON THE OR DER OF TPO AND SUBMITS THAT THE INFOSYS SHOULD NOT BE EXCLUDED FROM THE LIST OF COMPARABLE . IT(TP)A NO.55 & 60 /B/15 33 22. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PART IES AND PERUSED THE RECORD. IN OUR VIEW THE EXCLUSION OF IN FOSYS HAS BEEN DEALT BY THE COORDINATE BENCH, THE COORDINATE BENCH AFTER THE DETAILED EXAMINATION FOUND THAT THE INFOSYS IS NOT COMPARABLE WITH THE COMPANIES REFERRED IN THE JUDGEMENT . AS THE PR OFILE OF THE ASSESSEE IS SIMILAR TO THAT OF THE ASSESSEE REFERRE D IN THE JUDGEMENT, THEREFORE IN OUR VIEW THE INFOSYS IS REQUIRED TO BE EXCLUDED AND HAS BEEN EXCLUDED BY THE COMMISSIONER AT THE APPELLATE STAGE. THEREFORE WE HAVE NO HESITATION TO DIRECT THE EXCLU SION OF INFOSYS IN THE LIST OF COMPARABLE . WE FOUND THAT THE ORDER OF THE LD CIT WAS IN ACCORDANCE WITH LAW AND IN CONFORMITY WITH THE JUDG EMENT PASSED BY THE COORDINATE BENCH. LGS GLOBAL LTD. : 23. WITH RESPECT TO LGS GLOBAL LTD., THE FOLLOWING GROUND WAS RAISED BY THE REVENUE. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE CIT(A) ERRED IN DIRECTING THE TPO TO INCLUDE M/ S LGS GLOBAL LTD, THE COMPANY WHICH WAS EXCLUDED BY EH TPO AS THE SAME HAD FAILED TO PASS THE TPOS FIL TER EXPORT SALES/SALES ,75% THIS FILTER IS ALSO DECIDIN G FACTOR FOR TREATING A COMPANY AS A COMPARABLE AND ACCORDINGLY ERRED IN INCLUDING THE COMPARABLE, M/S LGS GLOBAL LTD., IN SOFTWARE DEVELOPMENT SEGMENT. IT(TP)A NO.55 & 60 /B/15 34 24. IN THIS REGARD, THE LEARNED DR BROUGHT TO OUR N OTICE THE ORDER OF THE TP AT PAGE 45 WHICH READS AS UNDER:- AS IN THE CASE OF AZTECSOFT, THIS COMPANY ALSO WAS REJECTED BECAUSE, THE FOREX EARNINGS REPATRIATE D ON EXPORT SALES WAS LESS THAN 75% OF REVENUES EARNED DURING THE YEAR. THOUGH EXPORT SALES WERE 96% OF TOTAL SALES IN THE P&L ACCOUNT, THE FOREX EARNINGS REPATRIATED WAS ONLY 40.61%. IF THE P&L ACCOUNT OF THIS COMPANY IS FURTHER EXAMINED, IT IS OBSERVED THAT AS AGAINST TOTAL STANDALONE SALES OF RS.189 CRORES, SUNDRY DEBTORS FIGURE STANDS AT RS.175 CRORES (INCLUDING RS.96.7 CRORES DEBTORS OUTSTANDING FOR MORE THAN SIX MONTHS , REF. SCH.6 TO BALANCE SHEET). OBVIOUSLY, THE BUSIN ESS MODEL OF THIS COMPANY IS NOT COMPARABLE TO THAT OF THE TAXPAYER. THEREFORE, THIS COMPANY IS ALSO NOT ACCE PTED AS A COMPARABLE. 25. THE LEARNED DR ON THE BASIS OF THE ORDER OF THE TPO SUBMITTED THAT THE TPO HAS EXCLUDED THE LGS GLOBAL LTD., ON THE BA SIS OF THE BUSINESS MODEL OF THE ASSESSEE AND ALSO ON ACCOUNT OF THE FA CT THAT THE FOREX EARNINGS REPATRIATED WAS ONLY 40.61%. THUS, IT WAS SUBMITTED THAT AS FOREX EARNINGS REPATRIATED WAS VERY LOW, THEREFORE, IT WAS SUBMITTED THAT THOUGH THE EXPORT SALES BEING MADE, THE TAX PAYER WAS NOT IN A HURRY TO IT(TP)A NO.55 & 60 /B/15 35 REALIZE EXPORT PROFITS AS THE FOREX EARNINGS REPATR IATED APPEARS TO BE POSTPONED. 26. ON THE OTHER HAND, THE LEARNED AR HAS DRAWN OUR ATTENTION TO PAGE 29 OF THE CIT(A) ORDER WHEREIN IT READS AS UNDER:- 12.2. ON THE BASIS OF THIS REASONING, WHICH TAKES I NTO ACCOUNT THE DECISION RENDERED IN THE SONY INDIA CAS E, BEING ONE OF THE INITIAL CASES ON THE SAME ISSUE, O F THE SAME BENCH OF THE HON'BLE TRIBUNAL, THE ACTION OF T HE TPO WITH RESPECT TO RPT FILTER IS HELD TO BE JUSTIF IED. HENCE, IN SUMMATION, I FIND THAT THE - TPO HAS PROVIDED COGENT REASONS FOR REJECTING SOME OF THE ASSESSEE'S COMPARABLES AND THUS. HIS / HER ACTION O F REJECTING/INTRODUCING HIS OWN COMPARABLES IS UPHELD .. IT WAS POINTED OUT THAT ONE OF THE ASSESSEE'S COMPARABLE VIZ .. LGS GLOBAL SATISFIES THE TPO'S EXPORT EARNING FILTER. IT WAS STATED THAT THE ASSES SEE FOLLOWS A MERCANTILE SYSTEM OF ACCOUNTING AND SALE PROCEEDS WERE REALIZED IN THE NEXT YEAR. BUT F OR ACCOUNTING PURPOSE, THE EXPORT REVENUE WAS DEFINITE LY MORE THAN 75% .. THE TPO IS DIRECTED TO LOOK INTO T HIS MATTER AND TAKE RECTIFICATORY ACTION ON HIS/HER SATISFACTION. IT(TP)A NO.55 & 60 /B/15 36 27. WE HAVE HEARD THE RIVAL CONTENTIONS OF PARTIES AND HAVE GONE THROUGH THE ORDER PASSED BY THE LEARNED CIT(A). IT IS CONTENDED THAT THE LEARNED CIT(A) INSTEAD OF DECIDING THE ISSUE OF EXC LUSION OF LGS GLOBAL LTD., HAS REMITTED BACK THE ISSUE TO THE FILE OF T HE TPO FOR FRESH ADJUDICATION. IN OUR VIEW, THE LEARNED CIT(A) UNDE R THE INCOME-TAX ACT IS REQUIRED TO DECIDE ISSUE AT HIS OWN LEVEL AND S HOULD NOT HAVE REMITTED MATTER BACK TO THE FILE OF THE TPO. 28. IN THE LIGHT OF ABOVE, THIS ISSUE IS SENT BACK TO THE FILE OF THE CIT(A) TO DECIDE AFRESH ON THE BASIS OF MATERIAL AV AILABLE WITH HIM IN ACCORDANCE WITH LAW. IT(TP)A NO.55/BANG/2015 (ASSESSEE APPEAL) 29. AT THE OUTSET, THE LEARNED AR HAS BROUGHT TO OU R NOTICE THE ORDER PASSED BY THE DCIT CIRCLE-6(1)(1), BANGALORE DATED 31/12/2014, WHEREBY THE ORDER OF THE CIT DATED 14/11/2014 ON TH E SUBJECT MATTER OF THE APPEAL HAS BEEN GIVEN EFFECT AND THE REVISED TA XABLE INCOME WAS COMPUTED BY THE AO. 30. THE ASSESSEE IN FACT FILED THE RETURN OF INCOME ELECTRONICALLY DECLARING THE INCOME OF RS.67,94,36,842/- WHICH INC LUDED THE INCOME UNDER THE HEAD BUSINESS/PROFESSION AMOUNTING TO RS. 5360,28,657/- AND IT(TP)A NO.55 & 60 /B/15 37 INCOME FROM OTHER SOURCE AMOUNTING TO RS.14,34,08,1 85/-. SUBSEQUENT TO THE FILING OF THE ELECTRONIC RETURN, A REVISED R ETURN WAS ALSO FILED ON 30/3/2011, WHEREIN THE TOTAL INCOME WAS MENTIONED A S RS.67,86,55,021/- THE LEARNED AR HAS POINTED OUT THAT AFTER GIVING TH E APPEAL EFFECT, REVISED TAXABLE INCOME COMPUTED BY THE AO ON 31/12 /2014 COMES TO RS.66,35,52,329/- AND, THEREFORE, THE ISSUES RAISED IN THE APPEAL OF THE ASSESSEE ARE ACADEMIC IN NATURE AND HE DOES NOT WIS H TO ADJUDICATE UPON THE ISSUES RAISED BY THE ASSESSEE IN THE APPEAL. 31. ON THE CONTRARY, THE LEARNED DR FOR THE REVENUE SUBMITTED THAT THOUGH THE APPEAL EFFECT HAS BEEN GIVEN BY LEARNED AO PURSUANT TO THE ORDER PASSED BY THE CIT(A) ON 14/11/2014, HOWEVER T HE ORDER PASSED BY THE CIT(A) ON 14/11/2014 HAS NOT ATTAINED FINALITY AND IS SUBJECT TO THE OUTCOME OF THE REVENUE APPEAL. 32. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. THE INCOME DECLARED BY THE ASSESSEE IN THE REVISED RETURN OF INCOME ON 30/3/2014 WAS RS.67,86,55,021/- AND THE T OTAL TAXABLE INCOME CALCULATED BY THE AO WAS RS.91,54,21,780/-. IN OUR VIEW, THE GROUNDS OF THE ASSESSEE ARE NOT REQUIRED TO BE ADJUDICATED AS THE APPEAL EFFECT HAS BEEN GIVEN AND THE INCOME OF THE ASSESSEE WAS FOUND TO BE RS.6 6,35,42,329/- AGAINST THE DECLARED INCOME OF THE ASSESSEE TO RS.67,86,55, 021/-. IT(TP)A NO.55 & 60 /B/15 38 33. WE ARE CONSCIOUS THAT WHILE DECIDING THE APPEAL OF THE REVENUE, WE HAVE RESTORED BACK THE MATTER TO THE LEARNED CIT (A) TO DECIDE AFRESH ABOUT THE INCLUSION OR EXCLUSION OF LGS GLOBAL LTD. , INTO FINAL LIST OF COMPARABLES BUT WE ALSO FIND THAT WHATEVER BE THE R ESULT OF THAT EXERCISE, THE ASSESSED INCOME OF THE ASSESSEE AS PER THE APPE AL EFFECT ORDER WILL NOT CHANGE BECAUSE EVEN AFTER EXCLUDING LGS GLOBAL LTD . FROM THE LIST OF FINAL COMPARABLES AS PER THE CLAIM OF THE REVENUE, PLI COMES TO 10.834% AS AGAINST APPELLANTS MARGIN OF 15.45%. I N THIS VIEW OF THE MATTER, WE HOLD THAT THE APPEAL OF THE ASSESSEE IS OF ACADEMIC INTEREST AND HENCE NO ADJUDICATION IS CALLED FOR IN RESPECT OF A NY OF THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL. THEREFORE, WE DISM ISS THE APPEAL OF ASSESSEE AS OF ACADEMIC INTEREST. 34. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 3RD MARCH, 2017 . SD/- SD/- (A.K GARODIA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEM BER BANGALORE DATED : 3/03/2017 VMS IT(TP)A NO.55 & 60 /B/15 39 COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGISTR AR, ITAT, BANGALORE.