Mphasis Limited, Bangalore V. CIT, Bangalore

ITA 653/BANG/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4698 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-07-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 13-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Transfer pricing
• Section: 143(3); 10B; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO , ACCOUNTANT MEMBER ITA NO. 653/BANG/2014 ASSESSMENT YEAR : 2008 - 09 MPHASIS LIMITED, BAGMANE WORLD TECHNOLOGY CENTRE, BLOCK B, 1 ST FLOOR, K R PURAM, MARATHALLI ORR, DODDANEKUNDI, BANGALORE 560 048. PAN: AAACB 6820C VS. THE COMMISSIONER OF INCOME TAX, BANGALORE III, BANGALORE. APP ELLANT RESPONDENT A PPELLANT BY : SHRI PADAMCHAND KHINCHA, CA RE SPONDENT BY : SMT. N EERA MALHOTRA, CIT(DR - II)(ITAT), BENGALURU. DATE OF HEARING : 14 . 0 5 .201 8 DATE OF PRONOUNCEMENT : 01.06 .201 8 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 25.02.2014 OF THE COMMISSIONER OF INCOME TAX-III, BANGALORE ( THE CIT) PASSED U/S. 263 OF THE INCOME-TAX ACT, 1961 [THE ACT]. 2. THE ASSESSEE IS A COMPANY ENGAGED IN PROVIDING I NFORMATION TECHNOLOGY SERVICES OF DEVELOPING COMPUTER SOFTWARE TO ITS ASSOCIATED ENTERPRISE (AE). THE ASSESSEE CLAIMED DEDUCTION U/S. 10A/10B OF THE ACT IN RESPECT OF PROFITS DERIVED FROM MANUFACTURING OR PRODUCING COMPUTER SOFTWARE AND EXPORTING THE SAME. THE ISSUE BEFORE THE AO WAS AS TO WHETHER DEDUCTION U/S. 10A/10B CAN BE ALLOWED IN RE SPECT OF ONSITE PORTION ITA NO.653/BANG/2014 PAGE 2 OF 4 OF SOFTWARE DEVELOPMENT SUB-CONTRACTED TO AE. ACCO RDING TO THE REVENUE, WHEN CONTRACT FOR DEVELOPMENT OF SOFTWARE IS DONE O NSITE, THE SAME CANNOT BE CONSIDERED AS DONE BY THE ASSESSEE. SINCE IT WA S GIVEN ON SUB- CONTRACT TO THE AE, IT IS ONLY THE AE WHICH CAN BE CONSIDERED AS HAVING CARRIED OUT THE SOFTWARE DEVELOPMENT ACTIVITY THROU GH ITS PERSONNEL. HENCE THE REVENUE TOOK THE STAND THAT PROFITS & GAINS DER IVED FROM CONTRACTS EXECUTED ONSITE BY THE ASSESSEE BY SUB-CONTRACTING THE JOB OF DEVELOPING COMPUTER SOFTWARE TO ITS AE OUTSIDE INDIA CANNOT BE REGARDED AS PROFITS & GAINS DERIVED BY THE ASSESSEE FROM THE EXPORT OF CO MPUTER SOFTWARE OUTSIDE INDIA AND TO THAT EXTENT DEDUCTION U/S 10A/ 10B OF THE ACT SHOULD NOT BE ALLOWED. ACCORDINGLY, FOR THE AY 2008-09 IN AN ORDER OF ASSESSMENT U/S. 143(3) R.W.S. 144C OF THE ACT, DEDUCTION U/S. 10A/1 0B WAS WORKED OUT BY THE AO. 3. THE CIT IN EXERCISE OF HIS POWERS U/S. 263 OF TH E ACT WAS OF THE VIEW THAT THE AFORESAID ORDER OF THE AO WAS ERRONEOUS AN D PREJUDICIAL TO THE INTERESTS OF THE REVENUE. ACCORDING TO THE CIT, FO R WORKING OUT THE DISALLOWANCE U/S. 10A/10B OF THE ACT, THE AO CONSID ERED THE RATIO OF EXPENDITURE IN FOREIGN CURRENCY FOR SOFTWARE DEVELO PMENT CHARGES AND TOTAL EXPENDITURE, WHEREAS THE DISALLOWANCE SHOULD HAVE B EEN BASED ON THE RATIO OF SOFTWARE DEVELOPMENT CHARGES WITH REFERENC E TO THE TOTAL SOFTWARE DEVELOPMENT EXPENSE. THIS WAS THE BASIS ON WHICH T HE PROCEEDINGS U/S. 263 OF THE ACT WERE INITIATED. BY THE IMPUGNED ORD ER, THE CIT DIRECTED THE AO TO PASS A FRESH ORDER CONSIDERING THE STAND TAKE N BY THE CIT IN THE ORDER U/S. 263 OF THE ACT. AGGRIEVED BY THE AFORESA ID ORDER OF THE CIT, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE THE TR IBUNAL. 4. AT THE TIME OF HEARING IT WAS BROUGHT TO OUR NOT ICE THAT ON IDENTICAL GROUNDS, PROCEEDINGS U/S. 263 OF THE ACT WAS INITIA TED BY THE RESPONDENT IN ASSESSEES OWN CASE FOR THE AY 2004-05 BY AN ORDER DATED 26.02.2014. THE ASSESSEE CHALLENGED THE AFORESAID ORDER OF THE CIT IN THAT YEAR BEFORE ITA NO.653/BANG/2014 PAGE 3 OF 4 THE ITAT AND THE TRIBUNAL WAS PLEASED TO HOLD THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION U/S. 10A/10B OF THE ACT EVEN ON REVENUE DERIVED BY DEVELOPING SOFTWARE ONSITE BY SUB-CONTRACTING THE W ORK OF SOFTWARE DEVELOPMENT TO ITS AE OUTSIDE INDIA. SINCE THE ASS ESSEE WAS ENTITLED TO DEDUCTION U/S. 10A/10B OF THE ACT EVEN ON REVENUE D ERIVED FROM ONSITE DEVELOPMENT WORK PERFORMED BY THE AE OUTSIDE INDIA, THE QUESTION OF RESTRICTING THE DISALLOWANCE U/S. 10A/10B OF THE AC T DID NOT ARISE FOR CONSIDERATION. THE TRIBUNAL FOLLOWED THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE IN AY 2007-08 IN ITA NO.1209 /BANG/2012, ORDER DATED 20.12.2013, WHEREIN THE TRIBUNAL TOOK THE VIE W THAT DEDUCTION U/S. 10A/10B OF THE ACT SHOULD BE ALLOWED IN RESPECT OF ONSITE PORTION OF SOFTWARE DEVELOPMENT CONTRACTING TO AE CARRIED OUT OUTSIDE INDIA. THE TRIBUNAL ACCORDINGLY QUASHED THE ORDER U/S. 263 OF THE ACT FOR AY 2004-05. 5. IT WAS BROUGHT TO OUR NOTICE THAT THE ORDER U/S. 263 PASSED BY THE CIT IN AY 2004-05 AND THE IMPUGNED ORDER OF THE CIT FOR AY 2008-09 ARE PARI MATERIA THE SAME AND IS BASED ON THE SIMILAR FACTS AND CIR CUMSTANCES. IT WAS ALSO BROUGHT TO OUR NOTICE THAT THE ORDER OF TRIBUNAL FOR AY 2007-08 HOLDING THAT ASSESSEE IS ENTITLED TO DEDUCTION U/S. 10A/10B OF THE ACT IN RESPECT OF ONSITE PORTION OF SOFTWARE DEVELOPMENT S UB-CONTRACTING TO AE EXECUTED OUTSIDE INDIA WAS ALSO ENTITLED TO DEDUCTI ON U/S. 10A/10B OF THE ACT HAS SINCE BEEN UPHELD BY THE HONBLE HIGH COURT OF KARNATAKA IN CIT V. MPHASIS SOFTWARE & SERVICES INDIA PVT. LTD. (2015) 234 TAXMAN 732 (KAR) . 6. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT TH E IMPUGNED ORDER U/S. 263 OF THE ACT FOR THE PRESENT AY 2008-09 ALSO DESE RVES TO BE QUASHED, AS THE ISSUE DEALT WITH BY THE CIT IN THE IMPUGNED ORD ER HAS ALREADY BEEN DECIDED BY THE JURISDICTIONAL HIGH COURT IN FAVOUR OF THE ASSESSEE. CONSEQUENTLY, THE IMPUGNED ORDER U/S. 263 OF THE AC T IS HEREBY QUASHED. ITA NO.653/BANG/2014 PAGE 4 OF 4 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED IN THE OPEN COURT ON THIS 1 ST DAY OF JUNE, 2018. SD/- SD/- ( INTURI RAMA RAO ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 1 ST JUNE, 2018. / D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT , BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.