M/s Ansys Software Pvt. Ltd., Bangalore V. CIT, Bangalore

ITA 673/BANG/2012

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4354 (ITAT-BANGALORE)
• Duration Of Justice: 6 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 15-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: BISWARAJAN SASMAL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Retrospective amendment; TDS; Set aside
• Section: 143(3); 40(a)(ia); 195; 263; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ITA NO. 673/BANG/201 2 ASSESSMENT YEAR : 2006 - 07 M/S. ANSYS SOFTWARE PVT. LTD., KABRA EXCELSIOR, NO.6A, 7 TH MAIN, 1 ST BLOCK, KORAMANGALA, BANGALORE 560 034. PAN: AADCA 1658E VS. THE COMMISSIONER OF INCOME TAX, BANGALORE 1, BANGALORE. APP ELL ANT RESPONDENT APPELLANT BY : SHRI NARENDRA SHARMA, ADVOCATE RESPONDENT BY : SHRI BISWARAJAN SASMAL, CIT DATE OF HEARING : 11 .03.2019 DATE OF PRONOUNCEMENT : 15 .03.2019 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 22.03.2012 PASSED BY THE COMMISSIONER OF INCOME-TAX , BANGALORE-1, BANGALORE [CIT] U/S. 263 OF THE INCOME-TAX ACT, 196 1 [THE ACT]. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF IMPORT AND SALE OF COMPUTER SOFTWARE RENDERING TECHNICAL SUPPO RT SERVICES AND SOFTWARE DEVELOPMENT SERVICES. FOR THE AY 2006-07, THE ASSESSEE FILED ITA NO. 673/BANG/2012 PAGE 2 OF 8 RETURN OF INCOME ON 08.11.2006 DECLARING TOTAL INCO ME OF RS.2,92,48,080. AN ORDER OF ASSESSMENT U/S. 143(3) OF THE ACT WAS P ASSED ON 10.11.2009, ACCEPTING TOTAL INCOME RETURNED BY THE ASSESSEE. BEFORE PASSING SUCH AN ORDER, THE AO NOTICED THAT THE ASSESSEE HAD THE FOL LOWING INTERNATIONAL TRANSACTIONS WITH ANSYS INC., USA, WHICH WAS ITS HO LDING COMPANY:- PARTICULARS AMOUNT IN RS. PURCHASE OF SOFTWARE 16,77,83,068 COST OF TECHNICAL ENHANCEMENTS 4,35,35,177 LESS: COST OF UNEARNED REVENUE ( 1, 60,54,115) NET COST OF PURCHASES 19,52,64,129 ADD: OTHER INCIDENTAL DIRECT COSTS AS REGARD TO PURCHASE OF SOFTWARE CUSTOM DUTY : RS.37,06,559 CLEARANCE CHARGES : RS. 1,98,486 INWARD FREIGHT : RS. 1,53,389 OTHER CHARGES : RS. 3,68,144 44,26,578 TOTAL COST OF SALES 19,96,90,707 3. SINCE THE ABOVE TRANSACTIONS ARE INTERNATIONAL T RANSACTIONS, THE ALP IN RESPECT OF INTERNATIONAL TRANSACTIONS, THE ARMS LENGTH PRICE (ALP) IN RESPECT OF INTERNATIONAL TRANSACTION HAD TO BE DETE RMINED IN VIEW OF THE PROVISIONS OF SECTION 92 OF THE ACT. THE AO MADE A REFERENCE TO THE TPO IN TERMS OF SECTION 92CA OF THE ACT. THE TPO IN HI S ORDER DATED 10.08.2009 ACCEPTED THE TRANSACTION AS AT ARMS LEN GTH, REQUIRING NO FURTHER ADJUSTMENT. 4. THE CIT IN EXERCISE OF HIS POWERS U/S. 263 OF TH E ACT WAS OF THE VIEW THAT THE AFORESAID ORDER OF AO WAS ERRONEOUS AND PR EJUDICIAL TO THE INTERESTS OF REVENUE. ACCORDING TO THE CIT, SCHEDU LE 15 TO PROFIT & LOSS ACCOUNT CONTAINED THE FOLLOWING DETAILS OF THE PAYM ENTS MADE BY THE ASSESSEE TO ANSYS INC., USA:- ITA NO. 673/BANG/2012 PAGE 3 OF 8 (A) PURCHASE OF SOFTWARE LICENCES : 17,72,09,649 (B) COST OF TECHNICAL ENHANCEMENT : 4,35,35,177 (C) LESS: COST OF UNEARNED REVENUE : 1,60,54,11 5 ---------------- 19,96,90,708 ---------------- 5. ACCORDING TO THE CIT, THE ABOVE PAYMENTS MADE TO ANSYS INC., USA, WERE IN THE NATURE OF ROYALTY AND THEREFORE IN TERM S OF SECTION 195 OF THE ACT, THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOU RCE ON THE AFORESAID PAYMENTS AND SINCE THE ASSESSEE FAILED TO DO SO, TH E AFORESAID AMOUNTS WHICH WERE CLAIMED AS EXPENDITURE IN THE PROFIT & L OSS ACCOUNT OUGHT TO HAVE BEEN DISALLOWED AND ADDED TO THE TOTAL INCOME OF ASSESSEE U/S. 40(A)(IA) OF THE ACT. SINCE THE AO FAILED TO DO SO AND DID NOT MAKE ENQUIRIES IN THIS REGARD, THE ORDER OF AO WAS ERRON EOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. A SHOW CAUSE NOTICE U/S . 263 DATED 05.03.2012 WAS ACCORDINGLY ISSUED BY THE CIT. 6. THE ASSESSEE VIDE REPLY DATED 20.03.2012 TOOK A STAND THAT THE ASSESSEE DEDUCTED TAX ON THE FOLLOWING PAYMENTS:- PARTICULARS AMOUNT PAID/ CREDITED IN RS. TDS IN RS. ANSYS INC, USA 9,09,37,457 1,36,40,752 LIVERMORE SOFTWARE TECHNOLOGY CORPORATION, USA 10,31,826 1,54,774 7. THE ASSESSEE POINTED OUT THAT THE ITAT IN ASSESS EES OWN CASE FOR AYS 2002-03 TO 2004-05 IN ITS ORDER DATED 27.07.200 6 HELD THAT THERE IS NO OBLIGATION FOR DEDUCTION OF TAX AT SOURCE ON SIMILA R PAYMENTS IN THOSE ITA NO. 673/BANG/2012 PAGE 4 OF 8 ASSESSMENT YEARS. THE ASSESSEE TOOK A STAND THAT A FTER THE PASSING OF THE ORDER BY THE ITAT, THE ASSESSEE STOPPED DEDUCTING T AX AT SOURCE AS THE PAYMENTS IN QUESTION CANNOT BE REGARDED AS IN THE N ATURE OF ROYALTY. THE ASSESSEE ALSO TOOK A STAND THAT THE MERE FACT THAT THERE IS A REFERENCE TO THE TPO IN RESPECT OF INTERNATIONAL TRANSACTIONS FO R PURCHASE OF SOFTWARE BY ITSELF WOULD GO TO SHOW THAT THE AO MADE ENQUIRIES BEFORE COMPLETING THE ASSESSMENT ON THE PAYMENTS FOR PURCHASE OF COMPUTER SOFTWARE. THE FURTHER STAND TAKEN BY THE ASSESSEE WAS THAT THERE ARE TWO VIEWS POSSIBLE ON THE ISSUE AND THE AO HAS TAKEN ONE VIEW AND THER EFORE, IT CANNOT BE SAID THAT THE ORDER OF AO WAS ERRONEOUS AND PREJUDI CIAL TO THE INTERESTS OF REVENUE. 8. THE CIT HOWEVER, HELD THAT THE AMOUNT PAID WAS I N THE NATURE OF ROYALTY AND THEREFORE THE ASSESSEE OUGHT TO HAVE DE DUCTED TAX AT SOURCE. THE CIT ALSO HELD THAT FAILURE TO MAKE ENQUIRIES IN THIS REGARD BY THE AO BEFORE COMPLETING THE ASSESSMENT RENDERED THE ORDER OF AO ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. THE CIT F INALLY SET ASIDE THE ORDER OF AO AND DIRECTED HIM TO MAKE ADEQUATE AND PROPER ENQ UIRY ON THE ISSUE, AFTER AFFORDING ASSESSEE OPPORTUNITY OF BEING HEARD , BY OBSERVING AS FOLLOWS:- 7.1 THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. INFOSYS TECHNOLOGIES LTD. (ITA NO.588 OF 2006 DATED 04.01.2012) HAS HELD THAT IN A CASE WHERE THE ASSESSING OFFICER ALLOWED CERTAIN CLAIMS/TAX CREDITS WITHOUT INDICATING THE BASIS OF THE SAME IN THE ASSESSMENT ORDER, MAKE THE ORDER ERRONEOUS AND PREJ UDICIAL TO THE INTEREST OF THE REVENUE. IT IS HELD THAT REASONS F OR CONCLUSION ARRIVED AT BY THE ASSESSING OFFICER SHOULD BE FORTH COMING IN THE ASSESSMENT ORDER. 8. IN VIEW OF THE DISCUSSION MADE ABOVE, THE ASSESS MENT ORDER IS SET ASIDE WITH A DIRECTION TO MAKE A FRESH ASSESSMENT ORDER BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF T HE ACT IN RESPECT ITA NO. 673/BANG/2012 PAGE 5 OF 8 OF THE PAYMENTS MADE BY THE ASSESSEE TO A FOREIGN C OMPANY AS DISCUSSED ABOVE. ADEQUATE OPPORTUNITY OF BEING HEA RD SHALL BE GIVEN TO THE ASSESSEE BY THE ASSESSING OFFICER. 9. AGGRIEVED BY THE AFORESAID ORDER OF CIT, THE ASS ESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 10. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE STAND OF THE ASSESSEE ON THE CORRECTNESS OF THE ORDER PASSED U/S . 263 OF THE ACT AND ARGUMENTS ADVANCED IN THIS REGARD ARE IDENTICAL TO THE REPLY GIVEN BY THE ASSESSEE TO SHOW CAUSE NOTICE U/S. 263 OF THE ACT. ACCORDING TO HIM, WHEN THE AO PASSED THE ORDER, THERE WAS AN ORDER IN FAVO UR OF REVENUE BY THE TRIBUNAL AND THEREFORE HE DID NOT MAKE ANY ADDITION . HE PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF CIT V. G.M. MITTAL STAINLESS STEEL P. LTD., 263 ITR 255 (SC) WHEREIN THE HONBLE APEX COURT HELD THAT WHEN ASSESSMENT ORDER IS PASSED ON A VIEW OF THE JURISDICTIONAL HIGH COURT AND WHEN THAT DECISION OF THE HIGH COURT IS NOT IN APPEAL TO SUPREME COURT, THE CIT CANNOT REVISE AN ORDER U/S. 263, EVEN IF HIGH COURTS DECISION IS LATER ON REVERSED BY THE SUPREM E COURT. REFERENCE WAS ALSO MADE TO THE DECISION OF THE HONBLE HIGH C OURT OF KARNATAKA IN THE CASE OF CIT V. SASKEN COMMUNICATION TECHNOLOGIES LTD. IN IT A NO.699/2008, ORDER DATED 04.08.2014, WHEREIN THE HONBLE HIGH COURT TOOK THE VIEW THAT WHEN THERE ARE TWO VIEWS POSSIBLE ON AN ISSUE AND THE AO HAS TAKEN ONE VIEW AND IF THERE IS A RETROSPECTIVE AMENDMENT TO THE LAW ON THAT VIEW DUE TO WHICH THE VIEW OF THE AO BECOMES E RRONEOUS, JURISDICTION U/S. 263 OF THE ACT CANNOT BE INVOKED. ITA NO. 673/BANG/2012 PAGE 6 OF 8 11. THE LD. DR RELIED ON THE ORDER OF THE CIT AND S UBMITTED THAT ON THE MERITS OF THE ISSUE AS TO, WHETHER THERE IS AN OBLI GATION TO DEDUCT TAX AT SOURCE ON PAYMENTS MADE TO ANSYS INC., USA, IT IS I RRELEVANT BECAUSE JURISDICTION U/S. 263 HAS BEEN INVOKED BY THE CIT O N THE GROUND THAT THE AO BEFORE COMPLETING THE ASSESSMENT FAILED TO MAKE ADE QUATE AND PROPER ENQUIRIES WITH REGARD TO SUCH OBLIGATION. ACCORDIN G TO HIM, IN THE PRESENT CASE, THERE WAS A FAILURE ON THE PART OF THE AO TO MAKE ENQUIRIES IN THIS REGARD AND THEREFORE JURISDICTION U/S. 263 OF THE A CT WAS RIGHTLY INVOKED BY THE CIT. 12. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. AS RIGHTLY CONTENDED BY THE LD. DR, THE JURISDICTION U /S. 263 OF THE ACT HAS BEEN INVOKED BY THE CIT ON THE GROUND THAT AO, BEFORE CO MPLETING THE ASSESSMENT, FAILED TO MAKE PROPER AND ADEQUATE ENQU IRY WITH REGARD TO THE TDS OBLIGATION ON PAYMENTS MADE TO ANSYS INC., USA AND DISALLOWANCE U/S. 40(A)(IA) OF THE ACT. IT IS CLEAR FROM PARA 7 .1 OF THE IMPUGNED ORDER THAT THOUGH IN THE EARLIER PARAS THE CIT HAS DISCUSSED T HE NATURE OF PAYMENTS AS BEING IN THE NATURE OF ROYALTY, THE CONCLUSION O F THE CIT FOR INVOKING JURISDICTION U/S. 263 OF THE ACT ARE JUSTIFIED IN T HE LIGHT OF FAILURE ON THE PART OF AO TO MAKE ENQUIRIES, WHICH HE OUGHT TO HAVE MAD E BEFORE COMPLETING ASSESSMENT. IN THIS REGARD, WE ARE ALSO OF THE VIEW THAT A MERE REFERENCE OF INTERNATIONAL TRANSACTION ON PURCHASE OF SOFTWARE T O THE TPO FOR DETERMINATION OF ALP CANNOT BE THE BASIS TO SAY THA T THE AO MADE ADEQUATE AND DUE ENQUIRIES BEFORE COMPLETING THE AS SESSMENT. THE LAW IS WELL SETTLED THAT FAILURE ON THE PART OF THE AO TO MAKE PROPER AND ADEQUATE ENQUIRIES RENDERS HIS ORDER ERRONEOUS AND PREJUDICI AL TO THE INTERESTS OF REVENUE. THE HONBLE DELHI HIGH COURT IN THE CASE OF GEE VEE ENTERPRISES V. ACIT, 99 ITR 375 (DEL) , HAS EXPLAINED THIS ASPECT OF THE EFFECT OF FAILUR E TO MAKE ENQUIRY AS FOLLOWS: - ITA NO. 673/BANG/2012 PAGE 7 OF 8 THE REASON IS OBVIOUS. THE POSITION AND FUNCTION O F THE INCOME-TAX OFFICER IS VERY DIFFERENT FROM THAT OF A CIVIL COUR T. THE STATEMENTS MADE IN A PLEADING PROVED BY THE MINIMUM AMOUNT OF EVIDE NCE MAY BE ACCEPTED BY A CIVIL COURT IN THE ABSENCE OF ANY REB UTTAL. THE CIVIL COURT IS NEUTRAL. IT SIMPLY GIVES DECISION ON THE BASIS O F THE PLEADING AND EVIDENCE WHICH COMES BEFORE IT. THE INCOME-TAX OFFICER IS NOT ONLY AN ADJUDICATOR BUT ALSO AN INVESTIGATOR. HE CANNOT REMAIN PASSIVE IN THE FACE OF A RETURN WHICH IS APPARENTLY IN ORDE R BUT CALLS FOR FURTHER INQUIRY. IT IS HIS DUTY TO ASCERTAIN THE TR UTH OF THE FACTS STATED IN THE RETURN WHEN THE CIRCUMSTANCES OF THE CASE ARE SUCH AS TO PROVOKE AN INQUIRY. THE MEANING TO BE GIVEN TO THE WORD 'ERRONEOUS' IN SECTION 263 EMERGES OUT OF THIS CONT EXT. IT IS BECAUSE IT IS INCUMBENT ON THE INCOME-TAX OFFICER TO FURTHE R INVESTIGATE THE FACTS STATED IN THE RETURN WHEN CIRCUMSTANCES WOULD MAKE SUCH AN INQUIRY PRUDENT THAT THE WORD 'ERRONEOUS' IN SECTIO N 263 INCLUDES THE FAILURE TO MAKE SUCH AN INQUIRY. THE ORDER BECO MES ERRONEOUS BECAUSE SUCH AN INQUIRY HAS NOT BEEN MADE AND NOT B ECAUSE THERE IS ANYTHING WRONG WITH THE ORDER IF ALL THE FACTS S TATED THEREIN ARE ASSUMED TO BE CORRECT. (EMPHASIS SUPPLIED) 13. ON THE FACTS OF THE PRESENT CASE, WE ARE SATISF IED THAT THERE WAS A FAILURE ON THE PART OF AO TO MAKE ANY ENQUIRY WITH REGARD TO PAYMENTS MADE TO ANSYS INC., USA IN THE LIGHT OF PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. IN THAT VIEW OF THE MATTER, WE ARE OF THE VIE W THAT THE JURISDICTION U/S. 263 OF THE ACT WAS RIGHTLY INVOKED BY THE CIT. WE ARE ALSO OF THE VIEW THAT THE CIT HAS REMANDED THE MATTER TO THE AO FOR FRESH CONSIDERATION AND HAS NOT CONCLUDED ON THE ISSUE, AS WAS SOUGHT TO BE CAN VASSED BY THE LD. COUNSEL FOR THE ASSESSEE BEFORE US. THEREFORE, THE ASSESSEE IS AT LIBERTY TO AGITATE ON THE ISSUE ON MERITS WITHOUT ANY FETTERS. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND NO MERIT IN THIS APPEAL BY THE ASSESSEE AND THE SAME IS ACCORDINGLY DISMISSED. ITA NO. 673/BANG/2012 PAGE 8 OF 8 14. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS DI SMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF MARCH, 2019. SD/- SD/- ( G. MANJUNATHA ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDIC IA L MEMBER BANGALORE, DATED, THE 15 TH MARCH, 2019. / D ESAI S MURTHY / COPY TO: 1. APP ELL ANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.