Appeal Details
Counselvise Citation
[2020] 110 COUNSELVISE.COM (IT) 8930 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 4 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-07-2020
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
C
Assessment Year
2013-2014
Appeal Filed On
08-03-2018
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI. B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A NO.725/BANG/2018 ASSESSMENT YEAR : 201314 IBM INDIA PVT. LTD., NO.12, SUBRAMANYA ARCADE, BANNERGHATTA ROAD, BANGALORE-560 029. PAN AAACI 4403 L. VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 4(1)(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI PERCY PARDIWALA, SR. ADVOCATE ALONG WITH AJAY ROTI, C.A RESPONDENT BY : SHRI K.V ARVI N D , ADVOCATE, STANDING COUNSEL ALONG SHRI DILIP ADVOCATE FOR DEPT. DATE OF HEARING : 03 - 06 - 2020 DATE OF PRONOUNCEMENT : 31 - 0 7 - 2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSES SEE AGAINST FINAL ASSESSMENT ORDER DATED 08/01/2018 PASSED BY LD.ACIT CIRCLE 4(1)(2), BANGALORE, UNDER SECTION 143 (3) R.W S.144 C (1) AND 92CD OF THE ACT, ON FOLLOWING GROUNDS OF APPEAL: IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 2 1. ASSESSMENT ORDER BAD IN LAW 1.1. AT THE OUTSET, M/S IBM INDIA PRIVAT E LIMITED (HEREINAFTER REFERRED TO AS 'THE APPELLANT' OR 'THE COMPANY') PRAYS THAT THE ORDER D ATED JANUARY 8, 2018 RECEIVED ON JANUARY 10, 2018, PASSED UNDER SECTION 143(3) RE AD WITH SECTION 144C(1) AND SECTION 92CD OF THE INCOME-TAX ACT, 1961 ('ACT'), B Y THE LEARNED ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE - 4(1)(2), BANGA LORE ('ACIT'), BE STRUCK DOWN AS INVALID, AS THE ORDER IS BAD IN LAW AND ON FACTS. 2. RELIANCE ON THE DRAFT ASSESSMENT ORDER ('DAO') OF AY 2009-10 FOR MAKING ADJUSTMENTS FOR AY 2013-14 2.1. THE LEARNED ACIT AND THE HON'BLE D ISPUTE RESOLUTION PANEL ('DRP') HAVE ERRED IN LAW AND ON FACTS BY PLACING RELIANCE ON THE DAO OF AY 2009-10. SPECIFICALLY, THE LEARNED ACIT AND HON'BLE DRP HAVE ERRED: A) IN NOT FOLLOWING THE SETTLED LEGAL PRINCIPLE OF RES JUDICATA NOT APPLYING TO INCOME- TAX PROCEEDINGS; B) IN NOT APPRECIATING THE FACT THAT THE ORDER ON W HICH THE LEARNED ACIT HAD PLACED RELIANCE WAS A DRAFT ASSESSMENT ORDER; C) IN NOT APPRECIATING THE FACT THAT THE ERSTWHILE DAO PASSED BY THE ERSTWHILE ASSESSING OFFICER HAS BEEN QUASHED BY THE HON'BLE K ARNATAKA HIGH COURT VIDE ITS ORDER DATED JULY 18, 2016. ; AND D) IN PLACING RELIANCE ON THE DAO OF AY 2009-10 WIT HOUT APPLICATION OF MIND AND WITHOUT TAKING COGNIZANCE OF THE SUBMISSIONS/ ARGUM ENTS PUT FORTH DURING THE ASSESSMENT PROCEEDINGS OF AY 2013-14. 3. DENIAL OF RELIEF UNDER SECTION IOAA OF THE ACT 3.1. THE LEARNED ACIT AND THE HON'BLE DRP HAVE ERRED IN LAW AND ON FACTS IN DENYING THE RELIEF CLAIMED BY THE APPELLANT UNDER S ECTION 10AA OF THE ACT OF INR 303,16,58,824. THE LEARNED ACIT HAS ALSO ERRED IN L AW AND ON FACT IN DENYING THE RELIEF CLAIMED BY THE APPELLANT UNDER SECTION 10AA OF THE ACT ON THE INCREMENTAL REVENUE PURSUANT TO THE ADVANCE PRICING ARRANGEMENT ENTERED BY THE APPELLANT. 3.2. THE LEARNED ACIT HAS ERRED IN LAW AN D ON FACTS BY HOLDING THAT THE APPELLANT DID NOT HAVE ANY EVIDENCE FOR MANUFACTURE AND EXPOR T OF COMPUTER SOFTWARE FROM ELIGIBLE UNITS IN SPECIAL ECONOMIC ZONE ('SEZ'). TH E HON'BLE DRP HAS ERRED IN FACT IN CONCLUDING THAT SINCE DOCUMENT OF UNDERSTANDING/STA TEMENT OF WORK ARE NOT REGISTERED WITH THE SEZ AUTHORITIES, THE REQUIREMEN TS OF SECTION 10AA OF THE ACT ARE NOT MET. 3.3. THE LEARNED ACIT HAS ERRED IN LAW AN D ON FACTS BY CONCLUDING THAT THE APPELLANT HAD MADE CONTRARY SUBMISSIONS IN CONNECTI ON TO TRANSMISSION OR EXPORT OF COMPUTER SOFTWARE OUTSIDE INDIA FROM ITS SEZ UNI TS WITHOUT TAKING COGNIZANCE OF THE SUBMISSIONS MADE BY THE APPELLANT. 3.4. THE LEARNED ACIT AND THE HON'BLE DR P HAVE ERRED IN LAW AND ON FACTS BY CONCLUDING THAT THE VARIOUS OBLIGATIONS AND PROCEDU RES PRESCRIBED UNDER THE SEZ IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 3 SCHEMES AND REGULATIONS HAVE NOT BEEN ADHERED TO AN D THAT FOR CLAIMING TAX BENEFIT THE SAME HAS TO BE COMPLIED WITH. 3.5. THE LEARNED ACIT HAS ERRED IN LAW AN D ON FACTS IN HOLDING THAT THE UNIT WISE P&L ACCOUNT SUBMITTED BY THE APPELLANT IN RELATION TO THE ELIGIBLE UNITS WAS NOT A RELIABLE DOCUMENT FOR ALLOWING CLAIM UNDER SECTION 10AA OF THE ACT. 3.6. THE LEARNED ACIT AND THE HON'BLE DRP HAVE ERRED IN LAW AND ON FACTS BY NOT TAKING COGNIZANCE OF THE JUDICIAL PRECEDENT IN THE APPELLANT'S OWN CASE, WHEREIN THE MANNER OF DETERMINING PROFITS ELIGIBLE FOR TAX HOLIDAY BY THE APPELLANT HAS BEEN HELD TO BE ACCURATE/APPROPRIATE. 3.7. THE LEARNED ACIT AND THE HON'BLE DR P HAVE ERRED IN LAW AND ON FACTS IN HOLDING THAT THE UNDERTAKINGS WERE NOT INDEPENDENT AND THAT THEY WERE FORMED BY THE SPLITTING UP AND RECONSTRUCTION OF BUSINESS ALR EADY IN EXISTENCE. 3.8. THE LEARNED ACIT AND HON'BLE DRP HAV E ERRED IN FACT BY RELYING ON HIS ANALYSIS OF INTER COMPANY AGREEMENTS ('ICA') EVEN T HOUGH THE APPELLANT HAS NOT SUBMITTED ANY ICA WITH THE LEARNED ACIT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS FOR THE SUBJECT AY. 3.9. THE HON'BLE DRP HAS ERRED IN FACT B Y CONCLUDING THAT THE APPELLANT FAILED TO MATCH THE ACCOUNTING INVOICES WITH THE SOFTEX FORMS WITHOUT TAKING COGNIZANCE OF THE SUBMISSIONS MADE BY THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS FOR THE SUBJECT AY. 3.10. THE HON'BLE DRP HAS ERRED IN FACT B Y CONCLUDING THAT THE APPELLANT FAILED TO PRODUCE INVOICES FOR VERIFICATION WITHOUT TAKING CO GNIZANCE OF THE SUBMISSIONS MADE BY THE APPELLANT DURING THE ASSESSMENT PROCEED INGS FOR THE SUBJECT AY. 4. DISALLOWANCE OF AMOUNTS UNDER SECTION 37(1) WHICH HAVE BEEN DISALLOWED SUO MOTO BY THE APPELLANT UNDER SECTION 40(A) OF THE ACT 4.1. THE LEARNED ACIT HAS ERRED IN FACTS AND IN LAW IN HOLDING THAT A SUM OF INR 3,456,564,364 DISALLOWED BY THE APPELLANT UNDER SEC TION 40(A) OF THE ACT SHOULD BE DISALLOWED UNDER SECTION 37(1) OF THE ACT 4.2. THE LEARNED ACIT HAS ERRED IN LAW AN D ON FACTS BY NOT APPRECIATING THAT THE BASIS OF YEAR-END PROVISIONS, AS FURNISHED BY THE A PPELLANT, DEMONSTRATE THAT THE SAME ARE FOR ABILITIES WHICH HAVE ARISEN/BEEN INCUR RED, AND THEREFORE, THE SAME CANNOT BE DISALLOWED BY UNDER SECTION 37(1) OF THE ACT. 4.3. THE LEARNED ACIT HAS ERRED IN LAW AN D ON FACTS BY CONCLUDING THAT BASED ON THE DOCUMENTS SUBMITTED BY THE APPELLANT, IT IS VER Y CLEAR THAT THE AMOUNTS UNDER DISPUTE ARE NOT AN ALLOWABLE EXPENDITURE. 4.4. THE LEARNED ACIT HAS ERRED IN FACTS AND IN LAW IN CONCLUDING THAT THE AMOUNTS ARE NOT ALLOWABLE EXPENSES WITHOUT TAKING COGNIZANC E OF THE FACT THAT THE DETAILS AND SUPPORTINGS WERE SUBMITTED DEMONSTRATING DEDUCT ION OF TAXES AT SOURCE (WHERE APPLICABLE) AND ALSO ESTABLISHING GENUINENES S AND BUSINESS EXPEDIENCY OF THE AMOUNTS. 4.5. THE LEARNED ACIT HAS ERRED IN LAW AN D ON FACTS BY HOLDING THAT THE FACT THAT THE PROVISIONS HAVE BEEN REVERSED SUBSEQUENTLY SIGN IFIES THAT THE EXPENSES PROVIDED FOR IN THE BOOKS ARE NO MORE REQUIRED. IN DOING SO, THE LEARNED ACIT HAS IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 4 FAILED TO APPRECIATE THAT THE SUBSEQUENT REVERSAL I S FOR ACCOUNTING PURPOSE (REPORTING CORRECT PROFIT FOR THE GIVEN YEAR), AND THE INVOICES RECEIVED SUBSEQUENTLY, AND WHICH HAVE BEEN OFFSET BY THE REVERSAL, CORROBO RATE THE FACT THAT THE LIABILITY HAS BEEN INCURRED IN THE CURRENT YEAR. 4.6. THE LEARNED ACIT HAS ERRED IN LAW A ND ON FACTS BY HOLDING THAT THE ACCOUNTING PRACTICE ADOPTED BY THE APPELLANT COULD RESULT IN MERGER OF EXPENSE OF DIFFERENT PERIODS IN THE BOOKS. IN DOING SO, THE LE ARNED ACIT HAS FAILED TO APPRECIATE THAT THE ENTRIES PASSED BY THE APPELLANT ENSURES THAT THE MATCHING PRINCIPLE IS FOLLOWED, AND IN CASE THE PROVISION EX CEEDS THE INVOICES RECEIVED SUBSEQUENTLY, THE EXCESS PROVISION WOULD BE OFFERED TO TAX IN THE SUBSEQUENT YEAR AND THERE IS NO LOSS TO THE REVENUE. 4.7. THE HON'BLE DRP HAS ERRED IN LAW IN DIRECTING THE LEARNED ACIT TO CARRY OUT FURTHER VERIFICATION WHICH IS NOT PERMISSIBLE IN VI EW OF SECTION 144C(8) OF THE ACT WHICH CLEARLY STATES THAT THE DRP SHALL NOT ISSUE A NY DIRECTION FOR FURTHER ENQUIRY AND PASSING OF ASSESSMENT ORDER. 4.8. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED ACIT HAS ERRED IN LAW AND ON FACT IN NOT TAKING COGNIZANCE OF THE ADDITIONAL EVIDENCE SUBMITTED BY THE APPELLANT AS A CONSEQUENCE OF THE DIRECTIONS OF THE HONBLE DRP. 5. DISALLOWANCE UNDER SECTION 40(A) OF TH E ACT IN RESPECT OF PAYMENTS TO NON-RESIDENT ASSOCIATED ENTERPRISES (AES) AND NON -AES. 5.1. THE LEARNED ACIT AND THE HON'BLE DR P HAVE ERRED IN LAW AND ON FACTS IN DISALLOWING PAYMENTS MADE BY THE APPELLANT TO NON-R ESIDENTS AMOUNTING TO INR 981,37,37,374 UNDER SECTION 40(A) OF THE ACT AS FOL LOWS: 5.1.1. INR 460,49,70,453 MADE TO IBM SINGAPORE PTE LTD BY TREATING THE SUM AS 'ROYALTY' 5.1.2. INR 520,87,66,921 MADE TO OTHER NON-RESIDENT S BY CONCLUDING THAT THE CERTIFICATES ISSUED BY THE CHARTERED ACCOUNTANT ('C A') ARE NOT RELIABLE 5.2. THE LEARNED ACIT HAS ERRED IN FACTS IN DISALLOWING THE FOREIGN PAYMENTS MADE DURING THE YEAR ON WHICH TAX IS NOT DEDUCTED BY NOT CONSIDERING THE EVIDENCE SUBMITTED BY THE APPELLANT. 5.3. THE LEARNED ACIT HAS ERRED IN FACT A ND IN LAW IN NOT APPRECIATING THAT CERTAIN SUMS ARE MERE REIMBURSEMENTS AND HENCE CANNOT BE CO NSIDERED AS 'INCOME'. 5.4. THE LEARNED ACIT HAS ERRED IN LAW A ND ON FACTS IN PLACING RELIANCE ON THE SWORN STATEMENT WHICH DOES NOT PERTAIN TO THE CURRE NT YEAR, IN HOLDING THAT THE CERTIFICATES ISSUED BY THE CA ARE NOT RELIABLE AND DISALLOWING THE AMOUNT FOR THE CURRENT YEAR. 5.5. THE LEARNED ACIT AND THE HON'BLE DR P HAVE ERRED IN LAW IN DISALLOWING THE PAYMENT MADE TO IBM SINGAPORE PTE LTD GIVEN THAT TH E AMENDMENT TO DEFINITION OF ROYALTY RELATED PROVISIONS UNDER SECTION 9(1)(VI) O F THE ACT IS NOT RELEVANT TO DETERMINE DISALLOWANCE FOR NON-DEDUCTION OF TAX AT SOURCE AS THE CORRESPONDING AMENDMENT HAS NOT BEEN MADE UNDER SECTION 40(A)(I) OF THE ACT. 5.6. THE HONBLE DRP HAS ERRED IN LAW IN DIRECTING THE LEARNED ACIT TO CARRY OUT FURTHER VERIFICATION WHICH IS NOT PERMISSIBLE IN VI EW OF SECTION 144C(8) OF THE ACT IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 5 WHICH CLEARLY STATES THAT THE DRIP SHALL NOT ISSUE ANY DIRECTION FOR FURTHER ENQUIRY AND PASSING OF ASSESSMENT ORDER. 5.7. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED ACIT HAS ERRED IN LAW AND ON FACT IN NOT TAKING COGNIZANCE OF THE ADDITIONAL EVIDENCE SUBMITTED BY THE APPELLANT AS A CONSEQUENCE OF THE DIRECTIONS OF THE HON'BLE DRP. 6. DISALLOWANCE OF CLAIM MADE UNDER SECTI ON 40(A) OF THE ACT PERTAINING TO AY 2012-13 6.1. THE LEARNED ACIT HAS ERRED IN FACTS AND IN LAW IN DISALLOWING A SUM OF INR 359,66,16,945 CLAIMED BY THE APPELLANT UNDER SECTIO N 40(A) OF THE ACT CONSEQUENT TO TAX DEDUCTION AND DEPOSIT (WHERE APPLICABLE) ON THE AMOUNTS DISALLOWED IN AY 2012-13 6.2. THE LEARNED ACIT HAS ERRED IN FACTS AND IN LAW IN NOT TAKING COGNIZANCE OF THE FACT THAT THE DETAILS AND SUPPORTINGS WERE SUBMITTE D DURING THE ASSESSMENT PROCEEDINGS OF AY 2012-13, DEMONSTRATING DEDUCTION OF TAXES AT SOURCE (WHERE APPLICABLE) AND ALSO ESTABLISHING GENUINENESS AND B USINESS EXPEDIENCY OF THE AMOUNTS 6.3 WITHOUT PREJUDICE TO THE ABOVE, THE L EARNED ACIT AND THE HONBLE DRP HAVE FAILED TO APPRECIATE THE FACT THAT AS A CONSEQUENCE OF THE SAID DISALLOWANCE OF THE AMOUNT IN AY 2012-13 UNDER SECTION 37(1) OF THE ACT , THE ASSESSEE IS TO BE ALLOWED A DEDUCTION IN THE CURRENT YEAR, SINCE THE REVERSAL OF PROVISION HAS BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT 7. DISALLOWANCE OF DEPRECIATION ON LEASED ASSETS 7.1. THE LEARNED ACIT AND THE HON'BLE DR P HAVE ERRED IN LAW AND ON FACTS IN DISALLOWING THE DEPRECIATION ON LEASED ASSETS (NET OF LEASE RENTAL AND INTEREST) AMOUNTING TO INR 24,60,33,070 BY NOT FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT OF INDIA IN ICDS LTD V. CIT [2013] 35 0 ITR 527 (SC) AND OTHER JUDICIAL PRECEDENTS. 8. DISALLOWANCE UNDER SECTION 14A OF THE A CT 8.1. THE LEARNED ACIT AND THE HON'BLE DRP HAVE ERRED IN LAW AND ON FACTS IN DISALLOWING EXPENDITURE AMOUNTING TO INR 78,54,075 WITHOUT APPRECIATING THAT THE APPELLANT HAS NOT EARNED ANY EXEMPT INCOME DURING T HE YEAR. 8.2. THE LEARNED ACIT HAS ERRED IN LAW AN D ON FACTS, BY NOT DISCHARGING THE ONUS OF ESTABLISHING THE INCURRENCE OF SOME EXPENDITURE IN RELATION TO EARNING EXEMPT INCOME, BEFORE INVOKING THE PROVISIONS OF RULE 8D R EAD WITH SECTION 14A OF THE ACT. 8.3. THE LEARNED ACIT AND THE HON'BLE DRP HAVE ERRED IN LAW AND ON FACTS IN NOT CONSIDERING THE EVIDENCE ON RECORD AND BY NOT FOLLO WING THE JUDICIAL PRECEDENTS. 9. RESTRICTION OF DEPRECIATION ON COMPUTE R SOFTWARE FROM 60 PER CENT TO 25 PER CENT 9.1. THE LEARNED ACIT AND THE HON'BLE DRP HAVE ERRED IN LAW AND ON FACTS IN RESTRICTING DEPRECIATION CLAIM TO A LOWER RATE OF 2 5% AS AGAINST THE APPELLANT'S CLAIM FOR DEPRECIATION ON COMPUTER SOFTWARE AT 60% UNDER SECTION 32 OF THE ACT, RESULTING IN DISALLOWANCE OF INR 24,44,33,932. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 6 9.2. THE LEARNED ACIT AND THE HON'BLE DRP HAVE ERRED IN LAW IN CONCLUDING THAT ONLY SOFTWARE PURCHASED ALONG WITH THE COMPUTER IS ELIGIBLE FOR DEPRECIATION AT THE RATE OF 60%. 9.3. THE LEARNED ACIT AND THE HON'BLE DRP HAVE ERRED IN FACTS AND IN LAW IN NOT TAKING INTO COGNIZANCE THE SUBMISSIONS INCLUDING JU DICIAL PRECEDENTS MADE BY THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS OF THE SUBJECT AY 10. INITIATION OF PENALTY PROCEEDINGS 10.1. THE LEARNED ACIT HAS ERRED IN INITIAT ING PENALTY PROCEEDINGS UNDER SECTION 271 OF THE ACT. 11. OTHER GROUNDS 11.1. THE LEARNED ACIT HAS ERRED IN LAW AND ON FACTS IN LEVYING INTEREST OF INR 409,68,25,501 UNDER SECTION 234B OF THE ACT. 11.2. THE LEARNED ACIT HAS ERRED IN LAW AND ON FACTS IN NOT GRANTING CREDIT FOR FOREIGN TAXES PAID BY THE APPELLANT. 12. RELIEF 12.1. THE APPELLANT PRAYS THAT DIRECTIONS BE GIVEN TO GRANT ALL SUCH RELIEF ARISING FROM THE PRECEDING GROUNDS AS ALSO ALL RELIEFS CONSEQUEN TIAL THERETO. 12.2 THE APPELLANT CRAVES LEAVE TO ADD TO OR ALTER, BY DELETION, SUBSTITUTION OR OTHERWISE, ANY OR ALL OF THE ABOVE GROUNDS OF APPEA L, AT ANY TIME BEFORE OR DURING THE HEARING OF THE APPEAL. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE IS A COMPANY, ENGAGED IN THE BUSINESS OF T RADING, LEASING AND FINANCING OF COMPUTER HARDWARE, MAINTEN ANCE OF COMPUTER EQUIPMENTS AND EXPORT OF SOFTWARE SERVICES TO ASSOCIATED ENTERPRISES. IT FILED ITS RETURN OF INCOME FOR YEAR UNDER CONSIDERATION ON 30/11/2013, FOR AN INCOME OF RS.1732,49,84,290/- AND CLAIMED DEDUCTION UNDER SECTION 10AA AMOUNTING TO RS.303,1 6,58,824,. LD.AO NOTED THAT ASSESSEE COMPUTED MAT U/S.115JB, P AYABLE AT RS.363,67,96,390/-. 2.1 LD.AO PASSED DRAFT ASSESSMENT ORDER MAKING VARI OUS ADDITIONS UNDER TRANSFER PRICING ISSUE AS PROPOSED BY LD.TPO AND CORPORATE TAX ISSUES IN THE HANDS OF ASSESSEE. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 7 2.2 AGGRIEVED BY DRAFT ASSESSMENT ORDER, ASSESSEE F ILED OBJECTIONS BEFORE DRP. DRP ITS ORDER DATED 28/09/2017, UPHEALD THE OBSERVATIONS OF LD.AO IN DRAFT ASSESSMENT ORDER. 2.3 BASED ON DRP DIRECTION, LD.AO PASSED IMPUGNED F INAL ASSESSMENT ORDER, BY MAKING TOTAL ADDITION OF RS.24 37,17,33,376/- IN THE HANDS OF ASSESSEE. 2.4 AGGRIEVED BY ADDITIONS MADE BY LD.AO IN FINAL A SSESSMENT ORDER DATED 08/01/2018, PASSED UNDER SECTION 143(3) R.W.144C(1) AND 92CD OF THE ACT, ASSESSEE IS IN APPEAL BEFORE U S NOW. WE SHALL CONSIDER OBSERVATIONS OF AUTHORITIES BELOW , AND SUBMISSIONS ADVANCED BY BOTH SIDES IN RESPECT OF EA CH GROUND RAISED BY ASSESSEE AS UNDER. 3. IT HAS BEEN SUBMITTED THAT GROUND NO.1 RAISED BY ASSESSEE IS GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ANY ADJUDICATION. 4. GROUND NO.2 RAISED BY ASSESSEE, CHALLENGES RELIANCE OF LD.AO/DRP ON DRAFT ASSESSMENT ORDER FOR ASSESSMENT YEAR 2009- 10, WHICH IS SET ASIDE BY HONBLE KARNATAKA HIGH COURT IN ASSESSEES OWN CASE, BY ORDER DATED 18/07/2016. LD.COUNSEL SUBMITTED THAT, AUTHORITIES BELOW FAILED TO APPRECIATE SETTLED LEGAL PRINCIPLES OF RES JUDICATA , NOT APPLYING TO INCOME TAX PROCEEDINGS, AND THAT CLAIM SHOULD BE ANALYSED, HAV ING REGARDS TO EVIDENCES FILED BY ASSESSEE FOR YEAR UNDER CONSIDER ATION. BEFORE DRP, ASSESSEE RAISED PRELIMINARY ISSUE IN RESPECT O F VALIDITY OF DRAFT ASSESSMENT ORDER DATED 29/12/2016 PASSED BY LD.AO. 4.1 BEFORE DRP, SIMILAR ARGUMENTS WERE RAISED BY AS SESSEE. IT WAS SUBMITTED THAT, SAID ORDER WAS SET-ASIDE, SINCE IT WAS PASSED IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 8 WITHOUT APPLICATION OF MIND, AND WITHOUT TAKING COG NIZANCE OF SUBMISSIONS/ARGUMENTS PUT FORTH DURING ASSESSMENT P ROCEEDINGS FOR YEAR UNDER CONSIDERATION. 4.2 DRP, WHILE DEALING WITH THIS ISSUE, OBSERVED TH AT, SIMILAR OBJECTION WAS RAISED BY ASSESSEE BEFORE DRP FOR ASS ESSMENT YEARS 2010-11 2011-12 AND 2012-13 WHICH WAS REJECTE D BY OBSERVING AS UNDER: ..WE ARE OF THE VIEW THAT THE EVIDENCES GATHERE D DURING THE PROCEEDINGS FOR EARLIER ASSESSMENT YEARS CAN BE USED FOR PROCEEDINGS FOR SUBSEQUENT ASSESSMENT YEAR S, IF SUCH EVIDENCE IS A RELEVANT TO THE ISSUE IN ASSESSM ENT YEAR UNDER CONSIDERATION. IT IS ALSO NOTICED BY IS THAT ASSESSING OFFICER BEFORE ARRIVING ON THE CONCLUSIONS IN RESPE CT OF RELEVANT ISSUES FOR ASSESSMENT YEAR HAS INDEPENDENT LY EXAMINED THE ISSUES BY ISSUES OF VARIOUS NOTICES AN D HEARING THE ASSESSEE AND ONLY THEREAFTER, USE MATERIALS GAT HERED DURING THE PROCEEDINGS FOR ASSESSMENT YEAR INCLUDIN G THE MATERIAL AVAILABLE ON RECORDS WHICH WERE RELEVANT T O THE ASSESSMENT YEARS UNDER CONSIDERATION. FURTHER EACH OF THE OBJECTIONS RAISED BY ASSESSEE IN RESPECT OF VARIOUS DISALLOWANCES OF EXPENSES AND DEDUCTIONS RESULTED I N ADDITION TO THE INCOME, HAVE BEEN ADJUDICATED IN SU BSEQUENT PARAGRAPHS AFTER HEARING THE ASSESSEE AND ALLOWING THE SUFFICIENT OPPORTUNITY AND THEREFORE, IN OUR VIEW, THE ASSESSEE SHOULD NOT HAVE ANY GRIEVANCE ON THIS ACCO UNT, THE OBJECTIONS ARE ACCORDINGLY REJECTED. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 9 4.3 LD.STANDING COUNSEL FOR REVENUE, PLACED RELIANC E ON OBSERVATIONS OF DRP. 4.4 WE HAVE CONSIDERED SUBMISSIONS ADVANCED BY BOTH SIDES IN RESPECT OF THIS ISSUE, AND PERUSED ORDER PASSED BY HONBLE KARNATAKA HIGH COURT (SUPRA) . 4.4.1 IT IS NOTED THAT LD.AO/TPO REFERRED TO ENQ UIRIES CONDUCTED IN DRAFT ASSESSE ORDER FOR AY:2009-10 AND FINAL ASS ESSMENT ORDER FOR AY:2008-09, SINCE ISSUES WERE COMMON. HOWEVER, IT IS ALSO NOTED THAT, LD.AO ISSUED SHOW CAUSE NOTICE DATED 21 /11/2016 TO VERIFY GENUINENESS OF VARIOUS CLAIMS BY ASSESSEE, F OR YEAR UNDER CONSIDERATION. 4.4.2 AT THE OUTSET, LD.COUNSEL SUBMITTED THAT, LD.AO PLACED RELIANCE ON DRAFT ASSESSMENT ORDER FOR A.Y.2009-10 WHICH IS NON EST IN LAW, AS IT WAS SET ASIDE BY HONBLE KARNATAKE HIGH COURT(SUPRA) . IT IS NOTED THAT, HONBLE KARNATAKA HIGH COURT, BY CONSENT OF BOTH PARTIES, SET ASIDE THE ISSUE WITH A DIRECTION TO PA SS FRESH ORDERS WITHIN SPECIFIED PERIOD MENTIONED THEREIN. ON PERUS AL OF DRAFT ASSESSMENT ORDER DATED 29/12/2016 PASSED FOR YEAR U NDER CONSIDERATION, LD.AO RECORDED THAT, VARIOUS ENQUIRI ES WERE MADE IN THE BACKDROP OF DRAFT ASSESSMENT ORDER IS FOR ASSES SMENT YEAR 2009-10 AND 2010-11. LD.AO ALSO NOTE THAT, ASSESSEE HAS BEEN CLAIMING DEDUCTION OF ITS PROFITS UNDER SECTION 10 AA SINCE ASSESSMENT YEAR 2008-09, AND THE SAME HAS BEEN DENI ED BY CONCERNED ASSESSING OFFICERS ON ACCOUNT OF ONE OR MORE VIOLATIONS. WE NOTED THAT, ASSESSEE WAS CALLED UPON TO ESTABLI SH ITS CLAIM FOR YEAR UNDER CONSIDERATION. ASSESSEE WAS ALSO CALLED UPON TO FURNISH IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 10 EVIDENCES FOR EXPORT OF COMPUTER SOFTWARE AND EVIDE NCES IN SUPPORT OF ELIGIBLE PROFIT CLAIMED U/S 10AA IN COMPUTATION OF INCOME. 4.4.3 IN FACT, LD.CIT.DR SUBMITTED THAT, ALL ISSU ES SHOULD BE RESTORED TO LD.AO, SINCE DETAILS FILED BY ASSESSEE PURSUANT TO SHOW CAUSE NOTICE ISSUED DURING THE YEAR HAS NOT BEEN CA REFULLY VERIFIED. 4.4.4 WE NOTE THAT, THIS TRIBUNAL CONSIDERED THIS PRELIMINARY OBJECTION WHILE CONSIDERING SIMILAR ISSUE FOR ASSES SMENT YEARS 2006-07. THIS TRIBUNAL SET ASIDE CLAIM U/S.10AA TO LD.AO FOR FRESH DECISION, FOLLOWING ITS ORDER FOR AY:2008-09 IN IBM INDIA (P) LTD VS JCIT REPORTED IN (2014) 46 TAXMANN.COM 129 . IT IS NOTED THAT, FOR ASST. YEAR 2008-09, THIS TRIBUNAL DISMISSED VARIOUS OBJECTIONS RAISED BY LD. AO TO DENY CLAIM U/S.10AA AND DIRECTE D LD.AO TO VERIFY, WHETHER CONVERTIBLE FOREIGN EXCHANGE WAS BR OUGHT INTO INDIA AND THAT, THEY REPRESENTED CONSIDERATION RECEIVED F OR EXPORT OF COMPUTER SOFTWARE. 4.4.5 WE NOTE THAT, THIS TRIBUNAL FOR ASSESSMENT YEAR 2008- 09(SUPRA), DEALT WITH ALL OBJECTIONS RAISED BY AUTH ORITIES BELOW, WHICH ARE COMMON FOR YEAR UNDER CONSIDERATION TO DE NY DEDUCTION U/S.10AA. LD.AO FOR YEAR UNDER CONSIDERATION, HAS R EFERRED TO FINAL ASSESSMENT ORDER PASSED FOR AY:2008-09. THEREFORE, IN OUR VIEW, IT WILL BE A FUTILE EXERCISE TO SET ASIDE THE ISSUE TO LD.AO FOR FRESH DECISION AS SUGGESTED BY BOTH SIDES, WHEN THE ISSUE STANDS SQUARELY COVERED ORDER OF THIS TRIBUNAL IN GREAT DETAIL, FOR AY:2008- 09 (SUPRA) . ACCORDINGLY THIS OBJECTION RAISED BY ASSESSEE STAND S REJECTED. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 11 5. GROUND NO.3 IS RAISED AGAINST DENIAL OF CLAIM UNDER SECTION 10AA OF THE ACT, AMOUNTING TO RS.303,16,58,824/-. LD.AO OBSERVED THAT, ASSESSEE HAS BEEN CLAIMING DED UCTION OF ITS PROFITS UNDER SECTION 10A/10AA OF THE ACT, SINCE AS SESSMENT YEAR 2008-09, AND, ASSESSING OFFICERS IN PRECEDING ASSES SMENT YEARS DENIED THE CLAIM FOR FOLLOWING VIOLATIONS: VIOLATION OF SOFTECH REGULATIONS UNDER THE SCHEME O F STPI; VIOLATION OF SECTION 10A(2), FOR NOT HAVING SUBMITT ED THE SOFTWARE DEVELOPMENT AGREEMENT ENTERED INTO BY ASSE SSEE WITH STPI/SEZ AUTHORITIES, WITHOUT FILING THE STATEMENT OF WORK AS SPECIFIED BY CBDT IN CIRCULAR DATED 17/01/2013; VIOLATION OF SECTION 10A(3), FOR NOT OBTAINING APPR OVAL OF FOREIGN CURRENCY ACCOUNT FROM RBI FOR NOT MAINTAINING UNIT WISE PROFIT AND LOSS ACCOU NT. 5.1 LD.AO OBSERVED THAT, EXPORT PROCEEDS FROM SALE OF COMPUTER SOFTWARE SERVICES WERE RECEIVED IN FOREIGN CURRENCY ACCOUNT MAINTAINED BY ASSESSEE OUTSIDE INDIA WITH HSBC, USA DURING THE YEAR UNDER CONSIDERATION, FOR WHICH ASSESSEE DID NO T HAVE PERMISSION IN ACCORDANCE WITH SECTION 10A(3) FROM R BI. 5.1.1 LD.AO, ISSUED NOTICE TO ASSESSEE TO VERIFY GENUINENESS OF THE CLAIM OF DEDUCTION UNDER SECTION 10AA FOR YEAR UNDE R CONSIDERATION. LD.AO WAS OF THE OPINION THAT, AS FA R AS DEDUCTION UNDER SECTION 10A AND 10AA IS CONCERNED, PROCEDURE AND LAWS ARE INTERLINKED, AND IT HAS TO BE STUDIED TOGETHER, TO UNDERSTAND ENTIRE ISSUE IN A COMPREHENSIVE MANNER. LD.AO CALLED FOR SUBMISSIONS AND REPLIES REGARDING CLAIM UNDER SECTION 10AA OF T HE ACT, FOR YEAR IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 12 UNDER CONSIDERATION. LD.AO ALSO REPRODUCED SUBMISSI ONS MADE BY ASSESSEE VIDE LETTER DATED 07/12/2016. THEREAFTER, LD.AO DISCUSSED REASONS/OBSERVATIONS RECORDED IN DRAFT ASSESSMENT O RDER FOR AY:2009-10, AND HELD THAT, VIOLATION UNDER SECTION 10AA ARE IDENTICAL, EVEN FOR YEAR UNDER CONSIDERATION. LD.AO AFTER REPRODUCING SUBMISSIONS AND STATEMENTS RECORDED DUR ING ASSESSMENT FOR ASSESSMENT YEAR 2009-10 UNDER SECTIO N 131 OF SH.T RAVINDRA CA, CAME TO FOLLOWING CONCLUSION FOR YEAR UNDER CONSIDERATION: MSA (MASTER SERVICE AGREEMENT) SUBMITTED WITH SEZ/S TPI AUTHORITY WAS ENTERED ON 01/01/2004 BETWEEN ASSESSE E AND IBM RELATED COMPANIES, WHICH DOES NOT REVEAL ANY SP ECIFIC DETAILS REGARDING THE SOFTWARE DEVELOPMENT ACTIVITY CARRIED ON BY ASSESSEE. THAT, DOU (DOCUMENT OF UNDERSTANDING) WAS NOT REGIS TERED WITH SEZ AUTHORITY, AND HENCE, IT WAS NOT VERIFIABL E WHETHER THE SOFTWARE ACTIVITY DEVELOPED WAS CARRIED OUT FRO M ELIGIBLE UNITS. LD.AO WAS OF THE OPINION THAT THE MSA AND ICA (INTE R COMPANY AGREEMENTS) REVEALED FACT THAT UNDERTAKING COMMENCED ITS ACTIVITY AFTER 2004-05 AND WERE NOT N EW UNDERTAKING THAT BEGAN TO MANUFACTURE OR PRODUCE CO MPUTER SOFTWARE AND RATHER ALL SUCH UNDERTAKINGS HAVE CONT INUED THE BUSINESS, ALREADY IN EXISTENCE, WHICH WAS IN VIOLAT ION OF SECTION 10A(2). IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 13 LD.AO WAS ALSO OF THE OPINION THAT ASSESSEE DID NOT SUBMIT INVOICES CORRESPONDING TO SOFTEX TO SEZ AUTHORITY, AND THEREFORE IT WAS IMPOSSIBLE TO MATCH ACCOUNTING INV OICES. LD.AO ALSO OBSERVED THAT THE INTER-COMPANY AGREEMEN TS WERE NOT REGISTERED WITH SEZ AUTHORITY, AND THEREFORE WE RE NOT RELIABLE. HE WAS OF THE OPINION THAT, INTERCOMPANY AGREEMENTS FURNISHED BEFORE LD.AO, REFERRED TO MISCELLANEOUS S ERVICES AND NOT TO SOFTWARE DEVELOPMENT SERVICES, AGAINST WHICH INCOME WAS RECEIVED THAT WAS SUBJECTED TO CLAIM UNDER SE CTION 10 AA OF THE ACT; LD.AO WAS OF THE OPINION THAT, PURPOSE OF REMITTANC E MENTIONED IN FIRC, WAS SOFTWARE CONSULTANCY, TECHNI CAL FEE, SYSTEM MAINTENANCE ETC BEING MISCELLANEOUS SERVICES AND NOT SOFTWARE DEVELOPMENT SERVICES; LD.AO WAS OF THE OPINION THAT, UNIT WISE P&L ACCOUN T WAS NOT RELIABLE AS CAS WHO ISSUED CERTIFICATE ABOUT THE T RUE AND CORRECT NATURE OF UNIT WISE P&L ACCOUNT ADMITTED IN THEIR STATEMENT THAT IT DID NOT REFLECT TRUE AND CORRECT PROFIT 5.1.2 LD.AO, THUS DENIED DEDUCTION OF RS.303,16,58, 824/- CLAIMED UNDER SECTION 10AA OF THE ACT FOR YEAR UNDE R CONSIDERATION. 5.2 AGGRIEVED BY PROPOSED ADDITION IN DRAFT ASSESSM ENT ORDER, ASSESSEE RAISED OBJECTION BEFORE DRP. 5.2.1 ON PERUSAL OF DRP ORDER, IT IS OBSERVED THAT DRP DENIED RELIEF CLAIMED BY ASSESSEE UNDER SECTION 10AA OF THE ACT F OR FOLLOWING REASONS: IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 14 SINCE DOCUMENT OF UNDERSTANDING/STATEMENT OF WORK (DSWD) ARE NOT REGISTERED WITH SEZ AUTHORITIES, THE REQUIREMENT OF SECTION 10AA OF THE ACT ARE NOT MET. DRP CONCLUDED THAT VARIOUS OBLIGATIONS AND PROCEDUR ES PRESCRIBED UNDER SEZ SCHEME AND REGULATIONS HAVE NO T BEEN ADHERED TO FOR CLAIMING BENEFIT UNDER SECTION 10AA OF THE ACT. DRP HELD THAT UNDERTAKING WAS NOT INDEPENDENT AND T HEY WERE FORMED BY SPLITTING UP AND RECONSTRUCTION OF B USINESS ALREADY IN EXISTENCE. DRP CONCLUDED THAT ASSESSEE FAILED TO MATCH THE ACC OUNTING INVOICES WITH THE SOFTEX FORMS. DRP ALSO HELD THAT ASSESSEE FAILED TO PRODUCE INVOI CES FOR VERIFICATION. 5.3 BEFORE US, FOLLOWING WERE THE SUBMISSIONS ADV ANCED BY BOTH SIDES. 5.3.1 IT HAS BEEN SUBMITTED THAT, DEDUCTION WAS DENIED TO ASSESSEE ON THE GROUND OF ALLEGED NON-COMPLIANCES UNDER SECT ION 10A/10AA OF THE ACT, THOUGH FOR YEAR UNDER CONSIDERATION ASS ESSEE CLAIMED DEDUCTION UNDER SECTION 10AA OF THE ACT. LD.COUNSEL REFERRED TO PROVISIONS OF RELEVANT SECTION AS UNDER: SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTABLISHED UNITS IN SPECIAL ECONOMIC ZONES. 10AA. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, IN C OMPUTING THE TOTAL INCOME OF AN ASSESSEE, BEING AN ENTREPRENEUR AS REFERRED TO I N CLAUSE (J) OF SECTION 2 OF THE SPECIAL ECONOMIC ZONES ACT, 2005, FROM HIS UNIT, WH O BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR PROVIDE ANY SERVICES DURING THE PREVIOUS YEAR RELEVANT TO ANY ASSESSMENT YEAR COMMENCING ON OR AF TER THE 1ST DAY OF APRIL, 2006, BUT BEFORE THE FIRST DAY OF APRIL, 2021, THE FOLLOWING DEDUCTION SHALL BE ALLOWED IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 15 (I) HUNDRED PER CENT OF PROFITS AND GAINS DERIVED FROM THE EXPORT, OF SUCH ARTICLES OR THINGS OR FROM SERVICES FOR A PERIOD OF FIVE CONSEC UTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS Y EAR IN WHICH THE UNIT BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR P ROVIDE SERVICES, AS THE CASE MAY BE, AND FIFTY PER CENT OF SUCH PROFITS AND GAIN S FOR FURTHER FIVE ASSESSMENT YEARS AND THEREAFTER; (II) FOR THE NEXT FIVE CONSECUTIVE ASSESSMENT YEAR S, SO MUCH OF THE AMOUNT NOT EXCEEDING FIFTY PER CENT OF THE PROFIT AS IS DEBITE D TO THE PROFIT AND LOSS ACCOUNT OF THE PREVIOUS YEAR IN RESPECT OF WHICH THE DEDUCTION IS TO BE ALLOWED AND CREDITED TO A RESERVE ACCOUNT (TO BE CALLED THE 'SPECIAL ECO NOMIC ZONE RE-INVESTMENT RESERVE ACCOUNT') TO BE CREATED AND UTILIZED FOR TH E PURPOSES OF THE BUSINESS OF THE ASSESSEE IN THE MANNER LAID DOWN IN SUB-SECTION (2) . 22 [EXPLANATION.FOR THE REMOVAL OF DOUBTS, IT IS HERE BY DECLARED THAT THE AMOUNT OF DEDUCTION UNDER THIS SECTION SHALL BE ALLOWED FR OM THE TOTAL INCOME OF THE ASSESSEE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT, BEFORE GIVING EFFECT TO THE PROVISIONS OF THIS SECTION AND THE DE DUCTION UNDER THIS SECTION SHALL NOT EXCEED SUCH TOTAL INCOME OF THE ASSESSEE.] (2) THE DEDUCTION UNDER CLAUSE (II) OF SUB-SECTION (1) SHALL BE ALLOWED ONLY IF THE FOLLOWING CONDITIONS ARE FULFILLED, NAMELY : (A) THE AMOUNT CREDITED TO THE SPECIAL ECONOMIC ZO NE RE-INVESTMENT RESERVE ACCOUNT IS TO BE UTILISED (I) FOR THE PURPOSES OF ACQUIRING MACHINERY OR PLA NT WHICH IS FIRST PUT TO USE BEFORE THE EXPIRY OF A PERIOD OF THREE YEARS FOLLOWING THE PRE VIOUS YEAR IN WHICH THE RESERVE WAS CREATED; AND (II) UNTIL THE ACQUISITION OF THE MACHINERY OR PLA NT AS AFORESAID, FOR THE PURPOSES OF THE BUSINESS OF THE UNDERTAKING OTHER THAN FOR DISTRIBU TION BY WAY OF DIVIDENDS OR PROFITS OR FOR REMITTANCE OUTSIDE INDIA AS PROFITS OR FOR THE CREATION OF ANY ASSET OUTSIDE INDIA; (B) THE PARTICULARS, AS MAY BE SPECIFIED BY THE CE NTRAL BOARD OF DIRECT TAXES IN THIS BEHALF, UNDER CLAUSE (B) OF SUB-SECTION (1B) OF SEC TION 10A HAVE BEEN FURNISHED BY THE ASSESSEE IN RESPECT OF MACHINERY OR PLANT ALONG WITH THE RETURN OF INCOME FOR THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR I N WHICH SUCH PLANT OR MACHINERY WAS FIRST PUT TO USE. (3) WHERE ANY AMOUNT CREDITED TO THE SPECIAL ECONOM IC ZONE RE-INVESTMENT RESERVE ACCOUNT UNDER CLAUSE (II) OF SUB-SECTION (1 ), (A) HAS BEEN UTILISED FOR ANY PURPOSE OTHER THAN T HOSE REFERRED TO IN SUB-SECTION (2), THE AMOUNT SO UTILISED; OR (B) HAS NOT BEEN UTILISED BEFORE THE EXPIRY OF THE PERIOD SPECIFIED IN SUB-CLAUSE (I) OF CLAUSE (A) OF SUB-SECTION (2), THE AMOUNT NOT SO UT ILISED, SHALL BE DEEMED TO BE THE PROFITS, (I) IN A CASE REFERRED TO IN CLAUSE (A), IN THE YE AR IN WHICH THE AMOUNT WAS SO UTILISED; OR (II) IN A CASE REFERRED TO IN CLAUSE (B), IN THE Y EAR IMMEDIATELY FOLLOWING THE PERIOD OF THREE YEARS SPECIFIED IN SUB-CLAUSE (I) OF CLAUSE ( A) OF SUB-SECTION (2), AND SHALL BE CHARGED TO TAX ACCORDINGLY : IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 16 PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME OF THE UN IT FOR ANY ASSESSMENT YEAR, ITS PROFITS AND GAINS HAD NOT BEEN INCLUDED B Y APPLICATION OF THE PROVISIONS OF SUB-SECTION (7B) OF SECTION 10A, THE UNDERTAKING , BEING THE UNIT SHALL BE ENTITLED TO DEDUCTION REFERRED TO IN THIS SUB-SECTION ONLY F OR THE UNEXPIRED PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS AND THEREAFTER IT SHAL L BE ELIGIBLE FOR DEDUCTION FROM INCOME AS PROVIDED IN CLAUSE (II) OF SUB-SECTION (1 ). EXPLANATION.FOR THE REMOVAL OF DOUBTS, IT IS HEREB Y DECLARED THAT AN UNDERTAKING, BEING THE UNIT, WHICH HAD ALREADY AVAI LED, BEFORE THE COMMENCEMENT OF THE SPECIAL ECONOMIC ZONES ACT, 2005, THE DEDUCT IONS REFERRED TO IN SECTION 10A FOR TEN CONSECUTIVE ASSESSMENT YEARS, SUCH UNIT SHALL NOT BE ELIGIBLE FOR DEDUCTION FROM INCOME UNDER THIS SECTION : PROVIDED FURTHER THAT WHERE A UNIT INITIALLY LOCATED IN ANY FREE TR ADE ZONE OR EXPORT PROCESSING ZONE IS SUBSEQUENTLY LOCATED IN A SPECIAL ECONOMIC ZONE BY REASON OF CONVERSION OF SUCH FREE TRADE ZONE OR EXP ORT PROCESSING ZONE INTO A SPECIAL ECONOMIC ZONE, THE PERIOD OF TEN CONSECUTIV E ASSESSMENT YEARS REFERRED TO ABOVE SHALL BE RECKONED FROM THE ASSESSMENT YEAR RE LEVANT TO THE PREVIOUS YEAR IN WHICH THE UNIT BEGAN TO MANUFACTURE, OR PRODUCE OR PROCESS SUCH ARTICLES OR THINGS OR SERVICES IN SUCH FREE TRADE ZONE OR EXPORT PROCE SSING ZONE: PROVIDED ALSO THAT WHERE A UNIT INITIALLY LOCATED IN ANY FREE TR ADE ZONE OR EXPORT PROCESSING ZONE IS SUBSEQUENTLY LOCATED IN A SPECIA L ECONOMIC ZONE BY REASON OF CONVERSION OF SUCH FREE TRADE ZONE OR EXPORT PROCES SING ZONE INTO A SPECIAL ECONOMIC ZONE AND HAS COMPLETED THE PERIOD OF TEN C ONSECUTIVE ASSESSMENT YEARS REFERRED TO ABOVE, IT SHALL NOT BE ELIGIBLE FOR DED UCTION FROM INCOME AS PROVIDED IN CLAUSE (II) OF SUB-SECTION (1) WITH EFFECT FROM THE 1ST DAY OF APRIL, 2006. (4) THIS SECTION APPLIES TO ANY UNDERTAKING, BEING THE UNIT, WHICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY: (I) IT HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODU CE ARTICLES OR THINGS OR PROVIDE SERVICES DURING THE PREVIOUS YEAR RELEVANT TO THE A SSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2006 IN ANY SPECIAL ECONOMIC ZONE; (II) IT IS NOT FORMED BY THE SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE: PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RESPECT OF A NY UNDERTAKING, BEING THE UNIT, WHICH IS FORMED AS A RESULT OF THE RE-EST ABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASSESSEE OF THE BUSINESS OF ANY SUCH UNDERTAKING AS IS REFERRED TO IN SECTION 33B, IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN THAT SECTION; (III) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUS INESS, OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. EXPLANATION.THE PROVISIONS OF EXPLANATIONS 1 AND 2 TO SUB-SECTION (3) OF SEC-TION 80-IA SHALL APPLY FOR THE PURPOSES OF CLAUSE (III) OF THIS SUB-SECTION AS THEY APPLY FOR THE PURPOSES OF CLAUSE (II) OF THAT SUB-SECTION . (5) WHERE ANY UNDERTAKING BEING THE UNIT WHICH IS E NTITLED TO THE DEDUCTION UNDER THIS SECTION IS TRANSFERRED, BEFORE THE EXPIRY OF T HE PERIOD SPECIFIED IN THIS SECTION, TO ANOTHER UNDERTAKING, BEING THE UNIT IN A SCHEME OF AMALGAMATION OR DEMERGER, IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 17 (A) NO DEDUCTION SHALL BE ADMISSIBLE UNDER THIS SE CTION TO THE AMALGAMATING OR THE DEMERGED UNIT, BEING THE COMPANY FOR THE PREVIOUS Y EAR IN WHICH THE AMALGAMATION OR THE DEMERGER TAKES PLACE; AND (B) THE PROVISIONS OF THIS SECTION SHALL, AS THEY WOULD HAVE APPLIED TO THE AMALGAMATING OR THE DEMERGED UNIT BEING THE COMPANY AS IF THE AMALGAMATION OR DEMERGER HAD NOT TAKEN PLACE. (6) LOSS REFERRED TO IN SUB-SECTION (1) OF SECTION 72 OR SUB-SECTION (1) OR SUB-SECTION (3) OF SECTION 74, IN SO FAR AS SUCH LOSS RELATES T O THE BUSINESS OF THE UNDERTAKING, BEING THE UNIT SHALL BE ALLOWED TO BE CARRIED FORWA RD OR SET OFF. (7) FOR THE PURPOSES OF SUB-SECTION (1), THE PROFIT S DERIVED FROM THE EXPORT OF ARTICLES OR THINGS OR SERVICES (INCLUDING COMPUTER SOFTWARE) SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE U NDERTAKING, BEING THE UNIT, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT O F SUCH ARTICLES OR THINGS OR SERVICES BEARS TO THE TOTAL TURNOVER OF THE BUSINES S CARRIED ON BY THE UNDERTAKING : PROVIDED THAT THE PROVISIONS OF THIS SUB-SECTION [AS AMENDE D BY SECTION 6 OF THE FINANCE (NO. 2) ACT, 2009 (33 OF 2009)] SHALL HAVE EFFECT FOR THE ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2006 AND SUBSEQU ENT ASSESSMENT YEARS. (8) THE PROVISIONS OF SUB-SECTIONS (5) AND (6) OF S ECTION 10A SHALL APPLY TO THE ARTICLES OR THINGS OR SERVICES REFERRED TO IN SUB-S ECTION (1) AS IF (A) FOR THE FIGURES, LETTERS AND WORD '1ST APRIL, 2001', THE FIGURES, LETTERS AND WORD '1ST APRIL, 2006' HAD BEEN SUBSTITUTED; (B) FOR THE WORD 'UNDERTAKING', THE WORDS 'UNDERTA KING, BEING THE UNIT' HAD BEEN SUBSTITUTED. (9) THE PROVISIONS OF SUB-SECTION (8) AND SUB-SECTI ON (10) OF SECTION 80-IA SHALL, SO FAR AS MAY BE, APPLY IN RELATION TO THE UNDERTAKING REFERRED TO IN THIS SECTION AS THEY APPLY FOR THE PURPOSES OF THE UNDERTAKING REFE RRED TO IN SECTION 80-IA. (10) WHERE A DEDUCTION UNDER THIS SECTION IS CLAIME D AND ALLOWED IN RESPECT OF PROFITS OF ANY OF THE SPECIFIED BUSINESS, REFERRED TO IN CLAUSE (C) OF SUB-SECTION (8) OF SECTION 35AD, FOR ANY ASSESSMENT YEAR, NO DEDUCT ION SHALL BE ALLOWED UNDER THE PROVISIONS OF SECTION 35AD IN RELATION TO SUCH SPECIFIED BUSINESS FOR THE SAME OR ANY OTHER ASSESSMENT YEAR.] EXPLANATION 1.FOR THE PURPOSES OF THIS SECTION, (I) 'EXPORT TURNOVER' MEANS THE CONSIDERATION IN R ESPECT OF EXPORT BY THE UNDERTAKING, BEING THE UNIT OF ARTICLES OR THINGS OR SERVICES RE CEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE BUT DOES NOT INCLUDE FREIGHT, TELECOMM UNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THI NGS OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN RENDERING OF S ERVICES (INCLUDING COMPUTER SOFTWARE) OUTSIDE INDIA; (II) 'EXPORT IN RELATION TO THE SPECIAL ECONOMIC Z ONES' MEANS TAKING GOODS OR PROVIDING SERVICES OUT OF INDIA FROM A SPECIAL ECONOMIC ZONE BY LAND, SEA, AIR, OR BY ANY OTHER MODE, WHETHER PHYSICAL OR OTHERWISE; (III) 'MANUFACTURE' SHALL HAVE THE SAME MEANING AS ASSIGNED TO IT IN CLAUSE (R) OF SECTION 2 OF THE SPECIAL ECONOMIC ZONES ACT, 2005; (IV) 'RELEVANT ASSESSMENT YEAR' MEANS ANY ASSESSMEN T YEAR FALLING WITHIN A PERIOD OF FIFTEEN CONSECUTIVE ASSESSMENT YEARS REFERRED TO IN THIS SECTION; IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 18 (V) 'SPECIAL ECONOMIC ZONE' AND 'UNIT' SHALL HAVE THE SAME MEANINGS AS ASSIGNED TO THEM UNDER CLAUSES (ZA) AND (ZC) OF SECTION 2 OF TH E SPECIAL ECONOMIC ZONES ACT, 2005. EXPLANATION 2.FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT THE PROFITS AND GAINS DERIVED FROM ON SITE DEVELOPMENT OF COMPU TER SOFTWARE (INCLUDING SERVICES FOR DEVELOPMENT OF SOFTWARE) OUTSIDE INDIA SHALL BE DEEMED TO BE THE PROFITS AND GAINS DERIVED FROM THE EXPORT OF COMPUT ER SOFTWARE OUTSIDE INDIA. 5.3.2 IT HAS BEEN SUBMITTED BY LD.COUNSEL THAT, ON SIMILA R FACTS AND CIRCUMSTANCES, DEDUCTION UNDER SECTION 10A/AA W AS DENIED BY AUTHORITIES BELOW IN PRECEDING ASSESSMENT YEARS, BY RAISING IDENTICAL OBJECTIONS. HE SUBMITTED THAT, MOST OF TH E OBJECTIONS HAVE BEEN ADDRESSED BY COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 REPORTED IN IBM INDIA (P) LTD VS JCIT REPORTED IN (2014) 46 TAXMANN.COM 129. LD.COUNSEL, SUBMITTED THAT, ELIGIBILITY CRITERIA ARE TO BE TEST ED IN THE 1 ST YEAR OF CLAIM. IN SUPPORT, HE PLACED RELIANCE UPON DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS NIPPON ELECTRONICS (INDIA) (P) LTD REPORTED IN (1990) 51 TAXMAN 187, AND DECISION OF HONBLE DELHI HIGH COURT IN CASE OF CIT VS TATA COMMUNICATIONS INTERNET SERVICES LTD., REPORTED IN (2012) 17 TAXMANN.COM 241 . 5.3.3 AT THE OUTSET LD.COUNSEL SUBMITTED THAT, A UTHORITIES BELOW ALSO REFERRED TO SECTION 10A OF THE ACT, AS THE TER M COMPUTER SOFTWARE FOR PURPOSES OF SECTION 10 AA, HAS BEEN D EFINED IN EXPLANATION 2 TO SECTION 10A(8). HE SUBMITTED THAT AUTHORITIES BELOW HAVE LOOKED INTO DEDUCTION CLAIMED BY ASSESSEE UNDE R SECTION 10AA, HAVING REGARD TO VARIOUS CONDITIONS STIPULATE D UNDER SECTION 10A/10AA JOINTLY. AT THE OUTSET, HE SUBMITTED THAT, SOME OF THE CONDITIONS ARE NOT REQUIRED TO BE FULFILLED BY ASSE SSEE, FOR ELIGIBILITY OF CLAIM UNDER SECTION 10AA, VIS-A-VIS SECTION 10A OF THE ACT. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 19 5.3.4 SUBMISSIONS ADVANCED BY BOTH SIDES REGARDING OBJECTIONS RAISED BY AUTHORITIES BELOW FOR YEAR UNDER CONSIDER ATION TO DENY CLAIM UNDER SECTION 10AA, ARE DEALT WITH AS UNDER: A. MSA DOES NOT REVEAL ANY SPECIFIC DETAILS REGARDI NG SOFTWARE DEVELOPMENT ACTIVITY: A.1. AT THE OUTSET, LD.COUNSEL SUBMITTED THAT, SECTION1 0A/10AA OF THE ACT, DOES NOT REQUIRE DOUS TO BE REGISTERED WI TH SEZ AUTHORITIES. HE SUBMITTED THAT NON-REGISTRATION OF DOUS WITH SEZ AUTHORITIES, DOES NOT HAVE ANY BEARING ON THE CLAIM UNDER SECTION10A/10AA OF THE ACT. HOWEVER, HE SUBMITTED T HAT, COPIES OF MSA AND DOUS HAVE BEEN SUBMITTED BEFORE AUTHORITIE S BELOW, WHICH IS THE PART OF RECORD. REFERRING TO PAGE 430- 434 BEING IBM AGREEMENT FOR SERVICES BETWEEN AND AMONG RELATED CO MPANIES AND 435-508 OF PAPER BOOK VOLUME 2, BETWEEN ASSESSEE AN D IBM US, IT IS SUBMITTED THAT, ALL AGREEMENTS INTER ALIA REVEAL S ASSESSEE TO BE ENGAGED IN BUSINESS OF DEVELOPMENT OF COMPUTER SOFT WARE FOR EXPORTS AND MAINTENANCE OF COMPUTER EQUIPMENTS. LD. COUNSEL FURTHER REFERRED TO GLOBALLY INTEGRATED DELIVERY D OCUMENT OF UNDERSTANDING FOR MANAGED SERVICE ENGAGEMENT, PLAC ED AT PAGE 509 BETWEEN ASSESSEE AND IBM ITALY THAT GIVES SCOPE OF WORK TO BE RENDERED BY ASSESSEE UNDER THE SAID AGREEMENT. IT I S SUBMITTED THAT, THESE DOCUMENTS ESTABLISH SOFTWARE DEVELOPMEN T ACTIVITIES WERE CARRIED OUT BY ASSESSEE. A.2. HE SUBMITTED THAT ASSESSEE OPERATES FROM SOFTWARE TECHNOLOGY PARKS IN INDIA/SPECIAL ECONOMIC ZONE UNITS, FOR EXP ORT OF SOFTWARE DEVELOPMENT SERVICES, PREDOMINANTLY TO OVERSEAS GRO UP ENTITIES. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 20 REFERRING TO SUBMISSIONS DATED 07/12/2016 FILED BEF ORE AUTHORITIES BELOW PLACED AT PAGE 416 OF PAPER BOOK VOLUME 2, LD .COUNSEL SUBMITTED THAT MSA DATED 01/01/2004 IS AN UMBRELLA AGREEMENT, THAT PROVIDES BASIS, ON WHICH EACH TRANSACTION IS C ARRIED OUT BY ASSESSEE, WHICH HAS BEEN REGISTERED WITH STPI UNIT. HE SUBMITTED THAT MSA REFERS TO TRANSACTION DOCUMENTS, WHICH PRO VIDES ADDITIONAL TERMS FOR INTER-COMPANY SERVICES. IT HAS BEEN SUBMITTED THAT EACH PROJECT/TRANSACTION COULD HAVE ONE OR MOR E TRANSACTION DOCUMENTS (SUCH AS INVOICE PROJECT, PROJECT, INTO C OMPANY AGREEMENT, WORK ITEM, STATEMENT OF WORK, SUPPLEMENT OR DOCUMENT OF UNDERSTANDING), THAT DETERMINE NATURE OF SERVICE S RENDERED BY ASSESSEE. IT WAS SUBMITTED BY LD.COUNSEL THAT, THES E DOCUMENTS ARE TO BE REFERRED IN CONJUNCTION WITH MSA, TO DETE RMINE SCOPE OF WORK PERFORMED BY ASSESSEE, FOR ITS RELATED AES GL OBALLY. LD.COUNSEL SUBMITTED THAT ASSESSEE CANNOT BE DENIED EXEMPTION FOR THE REASON THAT SEPARATE SCOPE OF WORK CONTRACT WAS NOT FILED WITH STPI/SEZ AUTHORITY. A.3. ON THE CONTRARY, LD.STANDING COUNSEL FOR REVENUE SU BMITTED THAT, SOW IS NOT REGISTERED WITH SEZ AUTHORITY, AND THEREFORE, CONTENTIONS OF ASSESSEE HAVE BEEN RIGHTLY REJECTED BY AUTHORITIES BELOW. HE SUBMITTED THAT MSA DATED 01/01/2004 AVAIL ABLE ON RECORD DOES NOT REVEAL ANY SPECIFIC DETAIL ABOUT NA TURE AND SCOPE OF WORK. LD.STANDING COUNSEL EMPHASISED THAT, NONE OF THE DOUS/ICAS WERE REGISTERED WITH STPI/SEZ AUTHORITY ADMITTEDLY. REFERRING TO CIRCULAR NO.1 DATED 17/01/2013 HE SUBM ITTED THAT ISSUES RELATING TO EXPORT OF COMPUTER SOFTWARE HAVE BEEN CLARIFIED BY IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 21 CBDT IN THIS CIRCULAR, WHEREIN PARTICULAR ATTENTION WAS DRAWN TO THE REQUIREMENT OF ESTABLISHING DIRECT NEXUS WITH D EVELOPMENT OF SOFTWARE DONE ABROAD, WITH ELIGIBLE UNIT, SET UP IN INDIA, PURSUANT TO A CONTRACT BETWEEN AE CLIENT AND ELIGIBLE UNIT O F ASSESSEE. HE SUBMITTED THAT AS PER SECTION 2(J) OF SEZ ACT 2005, ASSESSEE HAS TO ESTABLISH THAT MANUFACTURE/ PRODUCE OF ARTICLES OR THINGS OR PROVIDE ANY SERVICES COMMENCED ON OR AFTER 1.04.2006. HE SU BMITTED THAT ASSESSEE HAS CONTINUED THE BUSINESS ALREADY IN EXIS TENCE WITHOUT HAVING ANY NEW CONTRACT/AGREEMENT OF ALLEGED EXPORT S OF COMPUTER SOFTWARE. A.4. HE SUBMITTED THAT IN PRESENT FACTS OF THE CASE, ASS ESSEE FAILED TO SUBMIT ANY SUCH DETAILS OF WORK ORDER ISSUED TO ASSESSEE IN CONNECTION WITH ANY WORK ASSIGNED, AND THAT, NO EVI DENCE HAS BEEN PRODUCED BY ASSESSEE OF ANY NATURE LIKE COMMUNICATI ONS MADE, MANUAL OR OTHERWISE, WHERE ASSESSEE HAS BEEN INSTRU CTED TO CARRY OUT SOFTWARE DEVELOPMENT WORK OR FOR THAT MATTER AN Y OTHER WORK. LD.STANDING COUNSEL SUBMITTED THAT, ONUS OF PROVING THAT, WORK CARRIED OUT BY ASSESSEE WAS SOFTWARE DEVELOPMENT, E NTIRELY DEPENDED ON THESE DOCUMENTS, AND ABSENCE OF THESE B ASIC DOCUMENTS, SHOWS THAT, ASSESSEE HAD ONLY CARRIED OU T MISCELLANEOUS WORK LIKE SERVER MANAGEMENT, TECHNICA L SERVICES, PROVIDING FINANCIAL SERVICES, SOFTWARE CONSULTANCY ETC. HE SUBMITTED THAT THESE ARE EVIDENT FROM SEVERAL FIRCS PLACED I N PAPER BOOK, AND THEREFORE CLAIM OF ASSESSEE UNDER SECTION 10AA, REMAINS UNSUBSTANTIATED. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 22 A.5 WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. OBJECTION RAISED BY AUTHORITIES BELOW IS THAT, ASSE SSEE DID NOT ESTABLISH BY WAY OF DOCUMENTARY EVIDENCES REGARDING SERVICES RENDERED TO ITS AES GLOBALLY, AND THAT, THESE WERE IN THE NATURE OF SOFTWARE DEVELOPMENT SERVICES. IT HAS BEEN ALLEGED BY REVENUE THAT, MSA DATED 01/01/2004, WAS THE ONLY DOCUMENT REGISTE RED WITH STPI/SEZ AUTHORITIES, WHICH DO NOT SPECIFY THE SCOP E OF WORK. WE PLACE RELIANCE UPON CIRCULAR NO.01/2013, DATED 1 7/01/2013 ISSUED BY CBDT, WHEREIN, NECESSITY TO HAVE SEPARATE MASTER SERVICE AGREEMENT FOR EACH WORK CONTRACT AND TO WHAT EXTENT IT IS RELEVANT HAS BEEN DEALT WITH AS UNDER: (2).. (I).. (A) (B) (II). WHETHER IT IS NECESSARY TO HAVE SEPARATE MAST ER SERVICE AGREEMENT (MSA) FOR EACH WORK CONTRACT AND TO WHAT EXTENT IT IS RELEVAN T. AS PER THE PRACTICE PREVALENT IN THE SOFTWARE DEVEL OPMENT INDUSTRY, GENERALLY TWO TYPES OF AGREEMENT ENTERED INTO BETWEEN THE INDIAN SOFTWARE DEVELOPER AND THE FOREIGN CLIENT. MASTER SERVICE AGREEMENT (MSA) IS A N INITIAL GENERAL AGREEMENT BETWEEN A FOREIGN CLIENT AND THE INDIAN SOFTWARE DE VELOPERS SETTING OUT THE BROAD AND GENERAL TERMS AND CONDITIONS OF BUSINESS UNDER THE UMBRELLA OF WHICH SPECIFIC AN INDIVIDUAL STATEMENT OF WORK (SOW) ARE FORMED. THESE SOW, IS IN FACT, ENUMERATE THE SPECIFIC SCOPE AND NATURE OF TH E PARTICULAR TASK OR PROJECT THAT HAS TO BE RENDERED BY A PARTICULAR UNIT UNDER THE O VERALL AMBIT OF THE MSA. CLARIFICATION HAS BEEN SOUGHT WHETHER MORE THAN ONE SOW CAN BE EXECUTED UNDER THE AMBIT OF A PARTICULAR MSA AND WHETHER SOW SHOULD BE GIVEN PRECEDED AND OVER MSA. THE MATTER HAS BEEN EXAMINED. IT IS CLARIFIED THAT THE TAX BENEFIT UNDER SECTION 10 AA, 10 AA AND 10 B WOULD NOT BE DENIED MERELY ON THE GROUND THAT A SEPARATE AND SPECIFIC MSA DOES NOT EXIST FOR EACH S OW. THE SOW WOULD NORMALLY PREVAIL OVER MSA IN DETERMINING THE ELIGIB ILITY FOR TAX BENEFITS UNLESS THE ASSESSING OFFICER IS ABLE TO ESTABLISH THAT THERE H AS BEEN SPLITTING UP OR RECONSTRUCTION OF AN EXISTING BUSINESS OR NON-FULFI LMENT OF ANY OTHER PRESCRIBED CONDITION. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 23 FROM THE ABOVE, IT IS CLEAR THAT, BENEFIT UNDER SEC TION 10A,10AA AND 10 B CANNOT BE DENIED AS SEPARATE AND SPECIFIC MSA DOES NOT EXIST FOR EACH SOW. BE THAT AS IT MAY, FROM SOFTEX FORMS PLACED IN PAPER BOOK AT PAGE 536 ONWARDS, COLUMNS 7 SPECIFICA LLY REVEALS, EXPORT CONTRACT/PURCHASE ORDER, BEING FILED WITH S EZ. WE ALSO NOTE THAT, EACH FORM CONSIST ENCLOSURES, LIKE COPIES OF EXPORT CONTRACT, ROYALTY AGREEMENT, COMMUNICATION FROM FOREIGN CUSTO MERS. SUBMISSIONS BY LD.STANDING COUNSEL FOR REVENUE IS T HUS FOUND TO BE CONTRARY TO SEZ APPROVALS PLACED AT PAGE 782 ONW ARDS OF PAPER BOOK VOLUME 3. LD.STANDING COUNSEL FOR REVENUE ALSO PLACED RELIANCE ON CIRCULAR NO.1/2013 DATED 17/01/2013 ISS UED BY CBDT, WHICH ADDRESSES VARIOUS REQUIREMENTS FOR BEING ELIG IBLE TO CLAIM DEDUCTION UNDER SECTION 10AA OF THE ACT, BUT DID NO T BRING TO OUR NOTICE, ANYTHING CONTRARY EXCEPT FOR SAYING THAT AS SESSEE DID NOT FILE SEPARATE SOW WITH SEZ. LD.COUNSEL SUBMITTED THAT, ASSESSEE CLAIMED DEDUCTI ON UNDER SECTION 10AA OF THE ACT FOR YEAR UNDER CONSIDERATIO N, HOWEVER, FOR PURPOSES OF DEFINITION OF COMPUTER SOFTWARE, ONE HAS TO REFER TO EXPLANATION 2 TO SECTION 10A(8) OF THE ACT. LD.COUNSEL SUBMITTED THAT COMPUTER SOFTWARE FOR PURPOSES OF SECTION 10 AA WOULD MEAN: (I) COMPUTER SOFTWARE MEANS,- (A) ANY COMPUTER PROGRAM RECORDED ON ANY DISK, TAPE, PE RFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICES; OR (B) ANY CUSTOMISED ELECTRONIC DATA OR ANY PRODUCT OR SE RVICE OF SIMILAR NATURE, AS MAY BE NOTIFIED BY THE BOARD, IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 24 WHICH IS TRANSMITTED OR EXPORTED FROM INDIA TO ANY PLACE OUTSIDE INDIA BY ANY MEANS. WE NOTE THAT TRANSFER PRICING ADJUSTMENT PROPOSED B Y LD.TPO WAS IN RESPECT OF PAYMENTS RECEIVED ON ACCOUNT OF SERVI CES RENDERED BY ASSESSEE UNDER SOFTWARE DEVELOPMENT SEGMENT. THEREF ORE, IT CANNOT BE HELD THAT SERVICES RENDERED BY ASSESSEE, DOES NO T FALL UNDER SOFTWARE DEVELOPMENT SERVICE SEGMENT. SO, TO ALLEGE THAT, ASSESSEE WAS PROVIDING MISCELLANEOUS SERVICES, IS LIKE BLOWI NG HOT AND COLD AT THE SAME TIME. REVENUE HAS NOT BEEN ABLE TO PROV E ANYTHING CONTRARY BY WAY OF DOCUMENTARY EVIDENCES ON THIS AS PECT BEFORE US. THEREFORE, THIS OBJECTION RAISED BY REVENUE DOES NO T HOLD GOOD IN EYES OF LAW AND IS REJECTED. B. NO EVIDENCE OF DATA TRANSMISSION AND EXPORT OF S OFTWARE OUTSIDE INDIA: B.1. LD.COUNSEL SUBMITTED THAT, AUTHORITIES BELOW ERRED IN CONCLUDING THAT, ASSESSEE DID NOT TRANSMIT OR EXPOR T COMPUTER SOFTWARE OUTSIDE INDIA FROM ITS SEZ UNITS. HE SUBMI TTED THAT, VARIOUS DETAILS WERE FILED BEFORE AUTHORITIES BELOW TO PROVE, MANNER IN WHICH DATA WAS TRANSMITTED/EXPORTED. LD.COUNSEL RELIED ON, COPIES OF ROYALTY AGREEMENT, EXPORT CONTRACT AND CO MMUNICATION WITH FOREIGN CUSTOMERS, PLACED IN PAPER BOOK VOLUME 2 AT PAGE 416-696 & 697-834, FILED WITH AUTHORITIES BELOW, VI DE SUBMISSIONS DATED 7/12/2016. HE SUBMITTED THAT, ASSESSEE WORKS ON VARIOUS TECHNICAL PLATFORMS TO TRANSMIT SOFTWARE FROM ITS V ARIOUS UNIT, AND THAT, ONE SUCH PLATFORM IS, WORLD WIDE IP-BASED WID E AREA NETWORK, REFERRED TO AS POWER 9, PROVIDED BY AT&T TO ASSES SEE GLOBALLY. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 25 B.2. HE SUBMITTED THAT, STRATEGIC NETWORK DESIGNED BY AT &T MEETS ASSESSEES DATA COMMUNICATION REQUIREMENT GLOBALLY. HE SUBMITTED THAT, THESE NETWORK ARE COST-EFFECTIVE ARCHITECTURE AND FLEXIBLE AS PER ASSESSEES NEEDS, AS IT IS BUILT ON A GLOBAL MU LTI-PROTOCOL SWITCHED SHARED BACKBONE, THAT PROVIDES FOUNDATION FOR THE LOGICAL, ANY TO ANY IP CONNECTIVITY, AMONG ALL IBM SITES, TH AT ARE CONNECTED TO THE MIGHTY PROTOCOL SWITCHED BACKBONE, IN THE AP REGION. HE FURTHER SUBMITTED THAT IN TERMS OF GLOBAL CONNECTIV ITY, EACH GEOGRAPHICAL AREA IS A SELF-CONTAINED NETWORK WITH A HIGH-SPEED BACKBONE AND CARRIER AGGREGATION OF INDIVIDUAL SITE S AND SUB- NETWORKS. THIS ENABLES ASSESSEE TO TRANSMIT DATA TO ITS GROUP COMPANIES ACROSS THE GLOBE THROUGH MULTIPROTOCOL SW ITCHED SHARED BACKBONE. HOWEVER, LD.COUNSEL ALSO EMPHASIZED THAT, THIS IS N OT A REQUIREMENT TO BE SATISFIED FOR BEING ELIGIBLE TO C LAIM DEDUCTION UNDER SECTION 10AA OF THE ACT. B.3. ON THE CONTRARY, LD.STANDING COUNSEL APPEARING FOR REVENUE SUBMITTED THAT, REPLIES FILED BY ASSESSEE WITH SEZ AUTHORITY REGARDING DETAILS OF SERVICE PROVIDER WHO RENDERED SERVICES FOR TRANSMISSION OF DATA EXPORTED BY ASSESSEE IS INCONS ISTENT WITH SUBMISSIONS MADE BY ASSESSEE FOR YEAR UNDER CONSIDE RATION. HE VEHEMENTLY SUPPORTED OBSERVATIONS OF AUTHORITIES BE LOW. B.4. IN REJOINDER, LD.COUNSEL FOR ASSESSEE SUBMITTED THA T, AUTHORITIES BELOW HAVE RELIED ON REPLIES FILED BY A SSESSEE, RELATING TO EXPORT OF SOFTWARE FOR YEAR 2008-09. HE SUBMITTED T HAT, AUTHORITIES BELOW REPRODUCED REPLIES FILED BY ASSESSEE AND NOTI CE ISSUED BY SEZ IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 26 AUTHORITIES CALLING FOR DETAILS OF SERVICE PROVIDER WHO ASSISTED ASSESSEE FOR TRANSMISSION OF DATA. REFERRING TO LET TER DATED 10/10/2013 FILED BY ASSESSEE BEFORE LD.AO REPRODUCE D AT PAGE 28 OF IMPUGNED ORDER, LD.COUNSEL SUBMITTED THAT, FOR Y EAR UNDER CONSIDERATION, DATACOM SERVICE PROVIDER FOR INTERNA TIONAL LINK WAS AT&T, WHEREAS LOCAL LINK WAS TATA TELE SERVICES AND BHARATHI. B.5. LD.COUNSEL REFERRING TO THE SAID LETTER, SUBMITTED THAT DURING INITIAL DAYS AT&T AND VSNL HAD AN ARRANGEMENT TO JO INTLY OFFER MULTIPROTOCOL SWITCHED NETWORKING SERVICES IN INDIA , AS INFRASTRUCTURE OF AT&T WAS CO-LOCATED WITH VSNL. VS NL WAS THEREFORE CONSIDERED TO BE THE PARENT SERVICE PROVI DER AND WAS CONSISTENTLY MENTIONED IN SOFTEX FORM. HE SUBMITTED THAT THOUGH VSNL WAS BEING MENTIONED IN SOFTEX FORM, THE INTERN ATIONAL TRAFFIC FOR SOFTWARE DEVELOPMENT EXPORT SERVICES WA S ALWAYS BEING SUPPORTED THROUGH AT&T. FOR ASSESSEE IN INDIA MOS T OF WAN LINKS ARE OWNED AND MANAGED BY AT&T AND, ACCESS LINKS WHE RE INTERNATIONAL TRAFFIC IS CARRIED OUT WAS ALSO THROU GH AT&T. . LD.COUNSEL SUBMITTED THAT ALL THESE EVIDENCES/DETAI LS HAVE BEEN HELD TO BE INCONSISTENT BY AUTHORITIES BELOW. HOWEV ER, HE AGAIN SUBMITTED THAT, FOR PURPOSES OF ELIGIBILITY UNDER S ECTION 10 AA OF THE ACT, THIS ALLEGED DEFICIENCY POINTED OUT BY LD.AO I S NOT OF ANY RELEVANCE. B.6. LD.STANDING COUNSEL FOR REVENUE, PLACED RELIANCE ON , OBSERVATIONS AUTHORITIES BELOW. B.7. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH S IDES IN LIGHT OF RECORDS PLACED BEFORE US. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 27 IT IS OBSERVED THAT, COORDINATE BENCH OF THIS TRIBUNAL FOR ASSESSMENT YEAR 2008-09 (SUPRA) HAS ALREADY TAKEN A VIEW THAT DECLARATION ON STPI FORMS SHOULD BE HELD TO BE SUFFICIENT IN THIS REGARD. FURTHER, WE AGREE WITH LD.COUNSEL THAT, FOR PURPOSE OF ELIGI BILITY OF CLAIM UNDER SECTION 10AA OF THE ACT, THIS OBJECTION DOES NOT HAVE ANY RELEVANCE. THEREFORE, RESPECTFULLY FOLLOWING THE SAME, THIS OB JECTION RAISED BY AUTHORITIES BELOW IS REJECTED AT THE THRUSHOLD. C. NON SUBMISSION OF ACCOUNTING INVOICES TO STPI/SE Z AUTHORITIES, NON APPROVAL OF UNITS BY SEZ AUTHORITY : C.1. LD.COUNSEL SUBMITTED THAT ACCOUNTING INVOICES RAIS ED ON ASSOCIATED ENTERPRISES AND SOFTEX INVOICES ARE SUBM ITTED TO STPI/SEZ AUTHORITIES. IT HAS BEEN SUBMITTED THAT TH E WORK CONTRACT RECEIVED FROM GROUP ENTITIES, ARE EXECUTED THROUGH STPI UNITS AND FINISHED WORK ARE EXPORTED THERE FROM, AS EVIDENCED IN SOFTEX FORMS. REFERRING TO PAGE 536 OF PAPER BOOK VOLUME 2 , BEING SOFTES FORM LD.COUNSEL SUBMITTED THAT IN COLUMN-9, UNDER TYPE OF SOFTWARE EXPORTED, ASSESSEE SELECTED, SOFTWARE DEVELOPMENT. REFERRING TO PAGE 539 BEING PART OF SOFTEX FORM. C.2. LD.COUNSEL AT THIS JUNCTURE, TOOK US THROUGH WRITTE N SUBMISSION DATED 7/12/2016, FILED IN PAPER BOOK AT PAGE 416 OF PAPER BOOK, TO DEMONSTRATE THAT, INVOICES RAISED CO ULD NOT BE CO- RELATED WITH WORK CARRIED OUT FOR A PARTICULAR OVER SEAS CLIENT BY ASSESSEE. EXTRACT OF PROCEDURE ADOPTED BY ASSESSEE AS SUBMITTED IN WRITTEN SUBMISSION DATED 7/12/2016 ARE REPRODUCED A S UNDER: IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 28 LD.COUNSEL SUBMITTED THAT, IBM GROUP ENTITIES ACROS S THE GLOBE, PROCURE BUSINESSES FROM VARIOUS END CUSTOMER S. PART OF THE CONTRACTUAL COMMITMENTS OF IBM GROUP ENTITY IS SUB CONTRACTED TO ASSESSEE ON NEED BASIS. SERVICES REND ERED BY ASSESSEE BASED ON NATURE OF WORK ASSIGNED, COULD BE CARRIED EITHER FROM OFFSHORE OR ON-SITE. HE SUBMITTED THAT IBM OVERSEAS ENTITIES SUB-CONTRACTS WORK IN A COMPOSITE FORM AND ASSESSEE DETERMINES THE BASIS OF SERVICING THE PROJ ECT. LD.COUNSEL SUBMITTED THAT ASSESSEE USES COMMON INTERCOMPANY ACCOUNTING SYSTEM AND INTERNET LABOUR CLOCKING SYSTEM, TO RECORD TIME UTILISED FOR SOFTWA RE DEVELOPMENT WORK, PERSON WENT TO DOUS WITH OTHER I BM GROUP ENTITIES AND TO GENERATE INVOICES FOR SERVICE S RENDERED TO IBM GROUP COMPANIES. LD.COUNSEL SUBMITTED THAT, WHEN IBM OVERSEAS ENTITY ENTERS INTO AN ICA/SOW/DOU WITH ASSESSEE, A UNIQUE ACCOUNT ID IS CREATED FOR ASSESSEE. FOR EACH ACCOUNT ID CREATED B Y IBM OVERSEAS ENTITY, SUB IDS IN THE FORM OF WORK ITEMS ARE CREATED BASED ON NATURE OF WORK ITEMS ASSIGNED AND WORK DEL IVERABLES FOR EACH PROJECT. HE SUBMITTED THAT EMPLOYEES ARE A SSIGNED TO EACH OF THESE ACCOUNT IDS AND WORK ITEMS, WHEREIN LABOUR TIME IS RECORDED VIA INTERNET LABOUR CLOCKING SYSTE M. LD.COUNSEL FURTHER SUBMITTED THAT EMPLOYEES PERFORM ING EXPORT ACTIVITY ARE TACKED TO PARTICULAR BUILDING/L ICENSE (STPI/SEZ UNIT). ALL RESOURCE/WORK PERFORMED BY SUC H EMPLOYEES ARE TACKED TO RESPECTIVE LICENSE TO WHICH THE IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 29 EMPLOYEE IS TAGGED. SEAT VERIFICATION TOOL IS USED AS A FRAMEWORK, IN ORDER TO CONTROL, IDENTIFY AND TAG EM PLOYEES TO PARTICULAR STPI/SEZ LICENSE FOR PURPOSE OF SOFTWARE DEVELOPMENT WORK. LD.COUNSEL FURTHER SUBMITTED THAT A GLOBAL RATE CAR D TO CAPTURE HOURLY COST ON AN ABSORPTION COSTING PRINCI PLE FOR INDIA IS AGREED AND FINALISED ON AN ANNUAL BASIS. H E SUBMITTED THAT THE RATE CARD CONTAINS DETAILS OF HOURLY, EMPL OYEE BAND WISE CHARGE OUT RATES AND THIS SO IS FROM THE PROJE CT AND ACCOUNTS CONTROLLED TABLE FOR PURPOSE OF INVOICE GE NERATION. FINALLY, HE SUBMITTED THAT, THE SYSTEM SERVICE COST ING LEDGER BRIDGE, CALCULATES LABOUR COST, BASED ON INPUT FROM , LABOUR HOURS AND RATE CARD OF EMPLOYEES IN INDIA FROM PROJ ECT AND ACCOUNTS CONTROLLED TABLES. OTHER COST ELEMENTS ALS O FLOW INTO THE SYSTEM SERVICE COSTING LEDGER, WHICH ARE IN THE NATURE OF EMPLOYEE REIMBURSEMENTS AND PROJECT SPECIFIC EXPENS ES. THE DATA FROM SYSTEM COSTING LEDGER THEN FEEDS INTO COM MON INTERCOMPANY ACCOUNTING SYSTEM THAT GENERATES INVOI CES. C.3. LD.COUNSEL SUBMITTED THAT, SUCH COMMON INTERCOMPANY ACCOUNTING SYSTEM/ACCOUNTING INVOICES, ARE FOR SPEC IFIC COUNTRY AND IS COMPOSITE IN NATURE, WHICH MEANS THAT IT MAY CON TAIN MULTIPLE ACCOUNT IDS AND BILLING REFERRED FOR MULTIPLE STPI/ SEZ. HE SUBMITTED THAT ACCOUNTING INVOICES MAY CONTAIN REVE NUE OF DIFFERENT STPI/SEZ LOCATIONS, AND REVENUES FOR BOTH OFFSHORE AND ON-SITE SERVICES. IT IS ALSO SUBMITTED THAT, SUCH INVOICE W OULD ALSO INCLUDE REIMBURSEMENT OF PROJECT SPECIFIC COST IF ANY. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 30 C.4. LD.COUNSEL SUBMITTED THAT, SOFTEX FORMS ARE REQUIRE D TO BE SUBMITTED FOR EACH STPI/SEZ LOCATIONS SEPARATELY, B UT IS NOT APPLICABLE FOR ON-SITE REVENUES. IN VIEW OF COMPOSI TE NATURE OF SYSTEM GENERATED ACCOUNTING INVOICES, A SPLIT IN CO MPOSITE INVOICES INTO OFFSHORE/ON-SITE RAISED ON STPI/SEZ LOCATION F OR FILING OF SOFTEX FORMS ARE CARRIED OUT. LD.COUNSEL THUS SUBMI TTED THAT SOFTEX INVOICES ARE SEPARATE AND DERIVED AS A SUBSE CTION OF ACCOUNTING INVOICES, BUT SEPARATELY MAINTAINED FOR FILING WITH STPI/SEZ AUTHORITIES, WITH RESPECT TO OFFSHORE SERV ICES ONLY. ON THE BASIS OF ABOVE COMPLEX PROCEDURE FOR INVOICI NG, LD.COUNSEL SUBMITTED THAT, IT WOULD NOT BE POSSIBLE TO IDENTIF Y EACH INVOICES QUA SERVICES RENDERED BY ASSESSEE. C.5. ON THE CONTRARY, LD.STANDING COUNSEL FOR REVENUE, S UBMITTED THAT, THERE MAY BE NO DENYING OF FACT THAT, WHATEVE R WORK ASSESSEE CARRIED OUT, MAY HAVE BEEN DONE AT VARIOUS UNITS, B UT, THE MAIN QUESTION STILL REMAINS IS, WHETHER, SUCH WORK WAS S OFTWARE DEVELOPMENT WORK OR OTHER WORKS. HE ALSO CONTENDED THAT, NONE OF THE UNITS WERE REGISTERED WITH SEZ AUTHORITY, AND T HEREFORE ELIGIBILITY OF SUCH UNITS HAS ALSO NOT BEEN ESTABLI SHED BY ASSESSEE. C.6. IN REJOINDER, LD.COUNSEL FOR ASSESSEE SUBMITTED THA T ASSESSEE SUBMITTED RELEVANT DOCUMENTS TO ESTABLISH GRANTING OF APPROVAL BY SEZ AUTHORITIES IN RESPECT OF UNITS FOR WHICH RELIE F WAS CLAIMED UNDER SECTION 10AA OF THE ACT. HE REFERRED TO PAGES 782-783, 791, BEING EXTENSION RECEIVED OR FRESH APPROVAL AND VARI OUS OTHER LETTERS FROM AUTHORITIES FOR SETTING UP OF NEW UNIT PLACED AT PAGES 784-790 AND 792-807 OF PAPER BOOK VOLUME 3. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 31 C.7. LD.COUNSEL, WITHOUT PREJUDICE, SUBMITTED THAT, COMP LIANCE WITH SEZ REGULATIONS IS NOT A MANDATORY CONDITION F OR ELIGIBILITY OF BENEFIT UNDER SECTION 10AA OF THE ACT. IN SUPPORT O F THIS CONTENTION, HE REFERRED TO DECISION OF MUMBAI TRIBUNAL IN CASE OF M/S.HDFC PROPERTY FUND VS ITO IN ITA NO. 7472/MUM/2017 FOR A SSESSMENT YEAR 2014-15 BY ORDER DATED 28/02/2019 . PLACING RELIANCE ON PARA 10 OF THE ORDER, LD.COUNSEL SUBMITTED THAT, IN THE ABSENCE OF ANY ADVERSE ACTION BY SEZ AUTHORITY, IT IS INCORRECT TO ASSUME THAT ASSESSEE HAS NOT COMPLIED WITH REQUIREMENTS UNDER S EZ ACT, 2005. PLACING RELIANCE UPON DECISION OF HONABLE SUPREME COURT IN CASE OF GESTENTNER DUPLICATORS PVT.LTD VS CIT REPORTED IN 117 ITR 1 , IT HAS BEEN EMPHASISED THAT, IT WAS NOT OPEN FOR AUTHORITI ES BELOW TO ASSUME ANY VIOLATION UNDER SEZ ACT, 2005 SO LONG AS THE CERTIFICATES OF APPROVAL/RENEWAL OF A UNIT IS NOT W ITHDRAWN BY A PROCESS KNOWN TO LAW. C.8. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH S IDES IN LIGHT OF RECORDS PLACED BEFORE US. C.8.1. UPON A QUERY BEING RAISED BY THE BENCH REGARDING PR ODUCING INVOICES FOR VERIFICATION BEFORE AUTHORITIES BELOW, LD.COUNSEL ON INSTRUCTIONS, SUBMITTED THAT, THESE ARE HUGE VOLUMI NOUS DOCUMENTS, WHICH ARE DIFFICULT TO COMPILE. HOWEVER HE SUBMITTED THAT, ASSESSEE WOULD BE IN A POSITION TO FILE DOCUM ENTS AS FAR AS POSSIBLE TO CO-RELATE INVOICES WITH SOFTEX FORMS. C.8.2. LD.STANDING COUNSEL FOR REVENUE PLACED RELIANCE UPO N DECISION OF HONBLE SUPREME COURT IN CASE OF DCIT VS ACE MULTI AXIS SYSTEMS LTD ., REPORTED IN (2017) 88 TAXMANN.COM 69 . LD.STANDING IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 32 COUNSEL BY RELYING ON THIS DECISION, PROPOSED THAT, ELIGIBILITY/SATISFACTION UNDER THE SECTION 10A/10AA HAS TO BE ESTABLISHED EVERY YEAR BY ASSESSEE FOR CLAIMING DED UCTION. ON PERUSAL OF THE DECISION, IT IS NOTED THAT THE RATIO LAID DOWN BY HONBLE SUPREME COURT IS IN THE CONTEXT OF SECTION 80 IB, WHICH IS A SEPARATE CODE IN ITSELF. FURTHER HONBLE SUPREME COURT UPHELD DENIAL OF EXEMPTION FOR THE REASON THAT, SECTION 80 IB IS AVAILABLE TO AN UNDERTAKING THAT REMAINS A SMALL SCALE INDUSTRY FOR THE PERIOD WHEN DEDUCTION IS CLAIMED AND ASSESSEE THEREIN CEAS ED TO BE A SMALL SCALE INDUSTRY. IT WAS FOR THIS VIOLATION TH AT THE CLAIM U/S 80IB WAS DENIED. C.8.3 I N THE PRESENT FACTS OF THE CASE ASSESSEE PLACED ON RECORD APPROVALS OBTAINED BY SEZ AUTHORITIES WHICH HAS NOT BEEN REJECTED. IT IS NOTICED THAT NOTHING HAS BEEN BROUGHT ON RECO RD BY LD.STANDING COUNSEL TO SHOW THAT ALLEGED UNITS CEAS ES TO BE AN ELIGIBLE UNIT REGISTERED WITH SEZ AUTHORITY. FURTHE R WE REFER TO THE DECISION RELIED UPON BY LD.COUNSEL IN CASE OF CIT VS NIPPON ELECTRONICS (SUPRA) BY HONBLE KARNATAKA HIGH COURT AND CIT VS TATA COMMUNICATIONS INTERNET SERVICES LTD (SUPRA) BY HONBLE DELHI HIGH COURT . C.8.4. RESPECTFULLY FOLLOWING AFORESTATED DECISION WE AGREE WITH SUBMISSIONS OF LD.COUNSEL THAT, IN ABSENCE OF ANY A DVERSE ACTION BY SEZ AUTHORITIES, NO PRESUMPTION COULD BE DRAWN T HAT ASSESSEE VIOLATED ANY REQUIREMENTS UNDER THE SCHEME. WE REF ER TO DECISION OF AHMEDABAD TRIBUNAL IN CASE OF ITO VS E-INFOTECH LTD REPORTED IN IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 33 (2009) 124 TTJ 176 , TO SUPPORT THE AFORESTATED VIEW. THIS TRIBUNAL IN THE SAID CASE HAS HELD AS UNDER: AS REGARDS VIOLATION OF NORMS OF STPI, WE ARE OF T HE VIEW THAT UNLESS VIOLATION OF CONDITIONS OF APPROVAL, IMPINGE ON CON DITIONS FOR GRANT OF DEDUCTION UNDER THE RELEVANT PROVISIONS OF THE ACT, THERE IS NO GROUND FOR DENIAL OF DEDUCTION. IN THIS CASE THE STATUS OF TAX BEAR AS HUNDRED PERCENT EOU AND UNDER STPI SCHEME CONTINUES. FOR THE DEFAUL T, ALREADY PENALTY HAS BEEN IMPOSED BY CONCERNED AUTHORITIES FACTS IN PRESENT CASE IS MORE STRONGER THAN FACTS B ASED UPON WHICH HONBLE AHMEDABAD TRIBUNAL. NOTHING HAS BEEN PLACED ON RECORD BY REVENUE TO SHOW THAT APPROVALS RELIED UPON BY LD .COUNSEL REFERRED TO HEREIN ABOVE HAS BEEN REJECTED BY SEZ A UTHORITY. THEREFORE, RESPECTFULLY FOLLOWING RATIO LAID DOWN B Y HONBLE SUPREME COURT IN CASE OF GESTENTNER DUPLICATORS PVT.LTD VS CIT (SUPRA), IT WAS NOT OPEN FOR AUTHORITIES BELOW TO ASSUME ANY VIOLAT ION UNDER SEZ ACT, 2005 SO LONG AS CERTIFICATES OF APPROVAL/RENEW AL OF UNITS ARE NOT WITHDRAWN BY A PROCESS KNOWN TO LAW. WE ARE THEREFORE OF OPINION THAT THIS OBJECTION RAI SED BY LD.AO DOES NOT HOLD GOOD IN TEST OF LAW. D. RBI APPROVAL FOR BANK ACCOUNT MAINTAINED OUTSIDE INDIA WITH REGARD TO EXPORT EARNINGS NOT OBTAINED: D.1. AT THE OUTSET, LD.COUNSEL VEHEMENTLY URGED THAT, TH IS CONDITION IS NOT A REQUISITE TO CLAIM DEDUCTION UND ER SECTION 10AA OF THE ACT, AND THEREFORE DEDUCTION CANNOT BE DENIE D ON THIS BASIS. BE THAT AS IT MAY, REFERRING TO SUBMISSIONS DATED 0 7/09/2015 FILED BEFORE LD.AO DURING ASSESSMENT PROCEEDINGS UNDER SE CTION 144C IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 34 (1), LD.COUNSEL SUBMITTED THAT, SECTION 10A(3), ALL OW ASSESSEE TO EITHER; (I) DIRECTLY RECEIVE EXPORT PROCEEDS IN INDIA, OR (II) BRING EXPORT PROCEEDS TO INDIA AFTER THE SAME IS RECEIVED OUTSIDE INDIA. D.2. LD.COUNSEL SUBMITTED THAT, AS PER EXPLANATION 2 TO SECTION 10A(3) , SALE PROCEEDS REFERRED TO THEREIN, SHALL BE DEEME D TO HAVE BEEN RECEIVED TO INDIA, WHERE SUCH SALE PROCEEDS AR E CREDITED TO A SEPARATE ACCOUNT MAINTAINED FOR THE PURPOSE, BY ASS ESSEE, WITH ANY BANK OUTSIDE INDIA, WITH APPROVAL OF RBI. D.3. IT HAS BEEN SUBMITTED THAT, EVEN OTHERWISE, AN UNAP PROVED BANK ACCOUNT MAINTAINED BY ASSESSEE OUTSIDE INDIA, IN WHICH EXPORT SALE PROCEEDS ARE DEPOSITED, STILL ASSESSEE WOULD BE ENTITLED TO BENEFITS OF SECTION 10A, TO THE EXTENT THAT, IT IS BROUGHT INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE AS PER SECTION 10A( 3)(I) OF THE ACT. D.4. HOWEVER, LD.COUNSEL SUBMITTED THAT, VIDE LETTERS DATED 24/08/2012 AND 04/01/2013, RBI GRANTED PERMISSION T O ASSESSEE, TO HOLD AND MAINTAIN FOREIGN CURRENCY ACCOUNT OUTSI DE INDIA, WHICH WAS PLACED BEFORE AUTHORITIES BELOW. D.5. IT IS SUBMITTED THAT ASSESSEE RECEIVED PART OF EXP ORT PROCEEDS FROM SALE OF COMPUTER SOFTWARE INTO FOREIGN CURRENC Y ACCOUNT MAINTAINED OUTSIDE INDIA WITH APPROVAL OF RBI AND A CCORDINGLY COMPANY IS ELIGIBLE TO CLAIM TAX HOLIDAY AS PER SEC TION 10A OF THE ACT. IT HAS BEEN ALSO SUBMITTED THAT AMOUNT OF EXPO RT PROCEEDS FROM SALE OF COMPUTER SOFTWARE RECEIVED INTO FOREIG N CURRENCY IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 35 ACCOUNT MAINTAINED OUTSIDE INDIA, BEING HSBC (USA), IS TO BE TREATED AS SALE PROCEEDS DEEMED TO HAVE BEEN RECEIV ED IN INDIA. LD.COUNSEL SUBMITTED THAT AUTHORITIES BELOW DO NOT DISPUTE SATISFACTION OF CONDITIONS LAID DOWN IN SECTION 10 A (1) AND (2) OF THE ACT. IT IS ALSO BEEN SUBMITTED THAT, LD.AO DO NOT D ISPUTE THAT ASSESSEE DERIVED PROFITS FROM EXPORT OF COMPUTER SO FTWARE AND THAT, EXPORT TURNOVER IN RESPECT OF SUCH ACTIVITY HAS ALS O NOT BEEN DISPUTED BY LD.AO IN TRANSFER PRICING PROCEEDINGS. LD.COUNSEL THUS, SUBMITTED THAT, UNDER SUCH CIRCUMSTANCES, LD. AO CANNOT REJECT CLAIM OF ASSESSEE IN TOTALITY UNDER SECTION 10A/10AA OF THE ACT. D.5. LD.COUNSEL REFERRED TO AND RELIED UPON DATE WISE EV ENTS, SHOWING REINSTATEMENT OF APPROVAL BY RBI VIDE LETTE R DATED 28/02/2014 WHICH IS REPRODUCED AS UNDER: DATE PARTICULARS 22 JAN1998 APPROVAL GRANTED BY THE RBI TO OPEN AND MAINTAIN A FCA WITH HSBC (ERSTWHILE MIDLAND BANK OR CITY BANK), NEW YOR K, USA (COPY ENCLOSED AS ANNEXURE 10) 1998 0NWARDS ANNUAL CERTIFICATIONS/ APPROVALS FROM THE RBI WAS R ECEIVED BY IBM INDIA -LATEST APPROVAL BEING RECEIVED VIDE LETT ER DATED 10 NOVEMBER 2001. JUNE 2002 RBI ISSUED CIRCULAR NO 54 DATED 29 JUNE 2 002 PERTAINING TO MAINTENANCE OF FCA ABROAD BY A COMPANY/ FIRM/ BODY CORPORATE REGISTERED OR INCORPORATED IN INDIA (COPY ENCLOSED ANNEXURE 11). THE CIRCULAR PROVIDED FOR LIBERALIZAT ION IN APPROVALS AND DELEGATION PROCESS IN CONNECTION WITH FCA OPENED FOR NORMAL BUSINESS OPERATIONS SUBJECT TO CE RTAIN CONDITIONS. IBM INDIA WAS OF THE BONAFIDE BELIEF TH AT IT DID NOT REQUIRE TO OBTAIN RENEWAL OF ITS RBI APPROVAL ON TH E BASIS OF THE ABOVE- MENTIONED CIRCULAR. 2011-12 IBM INDIA APPROACHED RBI AND REQUESTED FOR RATIFICATION TO IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 36 MAINTAIN THE FCA FOR THE PERIOD 2002-2011. AUG 2012 AND JAN 2013 RBI GRANTS APPROVAL TO HOLD AND MAINTAIN THE FGA FO R ONE YEAR. FURTHER,RBI CONDONED THE LAPSE ON PART OF IBM INDIA IN NOT OBTAINING THE RENEWAL OF RBI APPROVAL TO MAINTA IN FCA AT REGULAR INTERVALS AFTER THE LAST RENEWAL GIVEN IN N OVEMBER 2001 (COPY OF LETTERS ENCLOSED AS ANNEXURE 12). APRIL 2013 RBI REQUESTED ADDITIONAL INFORMATION FOL LOWING NOTICES ISSUED/ ENQUIRIES CONDUCTED BY THE ERSTWHILE ASSESSING OFFI CER. 8 MAY 2013 RBI REVOKED THE APPROVAL GRANTED VIDE LE TTERS IN AUGUST 2012 AND JANUARY 2013 (COPY ENCLOSED AS ANNEXURE 13). 23/26 AUGUST 2013 DEUTSCHE BANK ('DB) RECEIVED A LETTER (COPY ENCLOSE D AS ANNEXURE 14) FROM RBI INSTRUCTING IT TO CONDUCT A TRANSACTIONAL AUDIT OF EXPORT TRANSACTIONS UNDERTAK EN BY IBM INDIA BY THE DB OFFICERS OR BY AN EXTERNAL STATUTOR Y AUDITOR. PURSUANT TO THIS, DB APPOINTED DELOITTE HASKINS AND SELLS ('DHS) AS THE INDEPENDENT AUDITOR TO PERFORM THE T RANSACTIONAL AUDIT, THE SCOPE OF WHICH WAS US FOLLOWS: A. TRANSACTIONAL AUDIT HIGHLIGHTING TRANSPARENTLY THE TRAIL OF EACH AND EVERY EXPORT TRANSACTION PERT AINING TO THE EXPORTER FROM 2001 TO 2012; B. CONTRACT WISE MATCHING OF REPATRIATION OF 30% ON SITE REVENUE FOR THE PERIOD TILL FEBRUARY 2007) / PROFIT (FEBRUARY 2007 ONWARDS); AND C. CERTIFY THAT THE ACTIONS OF THE COMPANY ARE IN A CCORDANCE WITH FEMA AND RELEVANT GUIDELINES ISSUED BY RESERVE BANK OF INDIA. OCT 2013 DB SUBMITTED DHS AUDIT REPORT (COPY ENCLOS ED AS ANNEXURE 8) TO RBI ON THE PROCESS REVIEW, SAMPLE TESTING, TRANS ACTION AUDIT AND FEMA GUIDELINES REVIEW. DEC 2013 DB SUBMITTED A LETTER TO RBI STATING, INTE R-ALIA, THAT IBM HAS LARGELY COMPLIED WITH THE PROVISIONS OF FEMA AND OT HER GUIDELINES ISSUED BY RBI IN THIS REGARD (COPY ENCLO SED AS ANNEXURE 15). 28 FEB 2014 LETTER FROM RBI STATING, INTER-ALIA, THAT AFTER A C AREFUL ANALYSIS OF THE AUDIT REPORT SUBMITTED BY DHS AND SUBSEQUENT CLARIFICATIONS, THE FCA FACILITY HAS BEEN RESTORED (COPY ENCLOSED AS ANNEXURE 9). D.6. LD.COUNSEL SUBMITTED THAT LD.AO DID NOT AGREE WITH SUBMISSIONS BY OBSERVING AS UNDER: IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 37 .. THE SUBMISSIONS MADE BY ASSESSEE HAVE B EEN CONSIDERED. IT IS SEEN FROM THE SUBMISSION THAT THE DB HAD SUBM ITTED A LETTER TO RBI STATING THAT IBM HAS LARGELY COMPLIED WITH T HE PROVISIONS OF FEMA AND OTHER GUIDELINES ISSUED BY RBI. IN VIEW OF THE DETAILS AVAILABLE IT IS CLEAR THAT ASSESSEE HAS NOT FULLY COMPLIED WITH THE REQUIREMENTS OF INCOME TAX ACT AS PER RBI APPROVAL HAS BEEN TAKEN ONLY AFTER SPECIFIC FINDINGS MADE BY THE ASSESSING OFFICER. D.7. IT HAS BEEN SUBMITTED THAT THIS ISSUE STANDS CONCLU DED BY COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 (SUPRA) IN PARA 3.84-3.86. D.8. ON THE CONTRARY, LD.STANDING COUNSEL FOR REVENUE SU BMITTED THAT, RBI HAS TO GRANT APPROVAL TO HOLD AND MAINTAI N FOREIGN CURRENCY ACCOUNT, OUTSIDE INDIA, AS A REQUIREMENT, FOR ELIGIBILITY TO CLAIM DEDUCTION UNDER SECTION 10A/10AA UNDER SCHEME OF SEZ. IN THE PRESENT FACTS OF THE CASE, RBI HAS NOT APPROVED BANK ACCOUNT OUTSIDE INDIA, IN WHICH SALE PROCEEDS WERE DEPOSITE D. HE SUBMITTED THAT, ASSESSEE VIOLATED CONDITION REQUIRED 10A (3) OF THE ACT. HE VEHEMENTLY SUPPORTED OBSERVATIONS OF AUTHORITIES BE LOW FOR DENIAL OF CLAIM, DUE TO RELATION OF THE SPECIFIC CONDITION. D.9. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH S IDES IN LIGHT OF RECORDS PLACED BEFORE US. D.9.1. WE NOTE THAT, DEDUCTION U/S.10AA IS DENIED FOR VIOL ATING EXPLANATION 2 TO SECOION 10A(3), AS, IT IS ALLEGED BY AUTHORITIES BELOW THAT, BANK ACCOUNT OUTSIDE INDIA IN WHICH SAL E PROCEEDS WERE DEPOSITED WAS NOT APPROVED BY RBI. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 38 AS RIGHTLY SUBMITTED BY LD.COUNSEL, THIS WOULD BE M ATERIAL ONLY FOR CLAIMING BENEFIT OF EXPLANATION 2 TO SECTION 10A(3) OF THE ACT. AT THE OUTSET WE ALSO NOTE THAT THIS IS NOT A REQUIREMENT TO BE FULFILLED UNDER SECTION 10AA OF THE ACT. EVEN OTHERWISE, CONS IDERING THIS OBJECTION, ASSESSEE IS ANYWAYS NOT BARRED FROM CLA IMING DEDUCTION UNDER MAIN PROVISIONS OF SECTION10A(3) OF THE ACT, WHEREBY, IT CAN SATISFY LD.AO REGARDING RECEIPT OF SALE PROCEEDS OU T OF INDIA BEING BROUGHT INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE WITHIN THE PERIOD STIPULATED IN THE PROVISIONS OF THE ACT. D.9.2. AT THIS JUNCTURE, WE UNDERSTAND THE APPREHENSION OF REVENUE REGARDING THE QUESTION AS TO WHETHER, FOREIGN EXCHA NGE REMITTANCES WERE IN RELATION TO EXPORT OF COMPUTER SOFTWARE OUT SIDE INDIA. ASSESSEE HAS PLACED ON RECORD SOFTEX FORMS AT PAGES 536 OF VOLUME 2. CATEGORY MENTIONED IN COLUMN 9 IN THE FOR M INDICATES THAT PROCEEDS HAVE BEEN RECEIVED FOR SOFTWARE EXPOR TED UNDER. HOWEVER, FROM THE REASONING BY AUTHORITIES BELOW, I T IS NOTED THAT IT HAS NOT VERIFIED, AS TO WHETHER, CONVERTIBLE FOREIG N EXCHANGE BROUGHT INTO INDIA, REPRESENTS CONSIDERATION RECEIV ED TOWARDS EXPORT OF COMPUTER SOFTWARE. D.9.3. WE NOTE THAT, HONBLE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY:2008-09 DEALT WITH THIS OBJECTION I N LIGHT OF IDENTICAL ARGUMENT RAISED BY LD.COUNSEL THEREIN AS UNDER: 3.84. WE NOW TAKE UP THE QUESTION WITH REGARD TO THE ABS ENCE OF AN RBI APPROVED BANK ACCOUNT IN WHICH THE EXPORT SALE PROC EEDS HAVE TO BE DEPOSITED OUTSIDE INDIA. ON THIS ASPECT, WE FIND TH AT THE ASSESSEE HAS BEEN DEPOSITING THE EXPORT PROCEEDS IN HSBC ACCOUNT IN N EW YORK. IT WAS ALSO SEEN THAT THIS BANK ACCOUNT HAD APPROVAL ONLY FOR T HE PERIOD UP TO 2001, THEREAFTER, THE APPROVAL WAS REQUIRED TO BE RENEWED , BUT HAD NOT BEEN RENEWED BY THE ASSESSEE. WE HAVE ALSO SEEN THAT IF THERE HAD BEEN A RBI IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 39 APPROVED BANK ACCOUNT IN WHICH THE EXPORT PROCEEDS WERE DEPOSITED OUTSIDE THE COUNTRY, THAN UNDER EXPTANATION-2 TO -S ECTION 10A(3) OF THE ACT THE ASSESSEE WOULD SATISFY THE REQUIREMENTS OF SECT ION 10A(3) OF THE ACT VIZ., BRINGING INTO INDIA THE SALE PROCEEDS OF COMP UTER SOFTWARE EXPORTED OUT OF INDIA IN CONVERTIBLE FOREIGN EXCHANGE. 3.85 WE HAVE ALSO SEEN THAT EVEN BEFORE THE AO, THE ASS ESSEES PUT FORTH A CLAIM THAT EVEN IN THE ABSENCE OF A RBJ APPROVED BA NK ACCOUNT MAINTAINED BY THE ASSESSEE OUTSIDE INDIA IN WHICH THE SALE PRO CEEDS OF COMPUTER SOFTWARE EXPORTED OUT OF INDIA ARE DEPOSITED, STILL THE ASSESSEE WOULD BE ENTITLED TO BENEFITS OF SECTION 10A DEDUCTION TO TH E EXTENT IT BRINGS INTO INDIA THE SALE PROCEEDS IN CONVERTIBLE FOREIGN EXCHANGE. WE HAVE ALSO SEEN THAT THE ASSESSEE IN THIS REGARD HAS FILED DETAILS BEFOR E THE AO. THESE ARE DETAILED IN THE EARLIER PART OF THIS ORDER IN WHICH THE SUBMISSION OF THE LD COUNSEL FOR THE ASSESSEE WITH REGARD TO THE VARIOUS DOCUMENTS FILED BY THE ASSESSEE BEFORE THE AO ARE DISCUSSED. WE HAVE ALSO ADMITTED AS ADDITIONAL EVIDENCE THE LETTER DATED 12.07.2013 ADD RESSED BY THE DEUTSCHE BANK TO THE RBI, CERTIFYING THE INWARD REMITTANCES RECEIVED BY THE ASSESSEE ON ACCOUNT OF EXPORT OF COMPUTER SOFTWARE. 3.86 AS RIGHTLY SUBMITTED BY THE LD. COUNSEL FOR THE AS SESSOR, THE AO AS WELL AS THE DRP PROJECTED THE CLAIM OF THE ASSESSEE FAR DEDUCTION U/S 10A OF THE ACT ONLY ON THE GROUND THAT THERE WAS NO RBI APPROVED BANK ACCOUNT OUTSIDE INDIA IN WHICH THE SALE PROCEEDS OF COMPUTE R SOFTWARE EXPORTED OUT OF INDIA WERE DEPOSITED THIS WOULD BE MATERIAL ONLY FOR TAKING THE BENEFIT OF EXPLANATION TO SECTION 10A(3) OF THE ACT THE ASSESS EE IS NOT BARRED FROM CLAIMING DEDUCTION UNDER THE MAIN PROVISIONS OF SEC TION 10A(3) OF THE ACT, WHEREBY IT CAN SATISFY THE AO ABOUT THE RECEIPT OF SALE PROCEEDS OF COMPUTER SOFTWARE EXPORTED OUT OF INDIA BEING BROUG HT INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE WITHIN THE PERIOD STIP ULATED IN THE PROVISIONS U/S 10A(3) OF THE ACT. AS RIGHTLY SUBMITTED ON BEHA LF OF THE ASSESSES, DEDUCTION U/S. 10/10AA OF THE ACT CANNOT BE TOTALLY DENIED. THE FACT THAT THE ASSESSEE HAS EXPORTED COMPUTER SOFTWARE OUT OF INDIA AND BROUGHT CONVERTIBLE FOREIGN EXCHANGE INTO THE COUNTRY IS NO T DISPUTED. THE QUANTUM HAS LO BE ARRIVED AT ON THE DEDUCTION WHICH THE ASS ESSEE IS ENTITLED TO HAS TO BE ALLOWED. 3.87 WE ARE THEREFORE OF THE VIEW THAT IT WOULD BE JUST AND APPROPRIATE TO SET ASIDE THE ORDER OF THE DRP AND REMAND THE ISSUE TO THE DRP FOR FRESH CONSIDERATION AND DIRECT THE DRP TO EXAMINE THE CLA IM OF THE ASSESSEE ON THE BASIS OF EVIDENCE THAT THE ASSESSEE MAY LEAD TO PROVE THE RECEIPT OF SALE PROCEEDS OF COMPUTER SOFTWARE EXPORTED OUT OF INDIA BEING BROUGHT INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE. THE DRP WILL BE AT LIBERTY TO EXAMINE AS TO WHETHER THE CONVERTIBLE FOREIGN EXCHANGE WAS BROUGHT INTO INDIA AND THAT THEY REPRESENT CONSIDERATION RECEIVED FOR EXPO RT OF COMPUTER SOFTWARE. THE AO IN THE SET ASIDE PROCEEDINGS BEFORE THE DRP WILL BE AT LIBERTY TO REBUT SUCH CLAIM OF THE ASSESSEE INCLUDING THE CLAI M THAT THE FOREIGN EXCHANGE BROUGHT IN DOES NOT REPRESENT SAFE PROCEED S OF COMPUTER SOFTWARE IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 40 EXPORTED OUT OF INDIA. AS MENTIONED IN PARA 3.56 OF THIS ORDER, THE ASSESSEE SHOULD PRODUCE BEFORE THE AO ALL DOCUMENTS REFERRED TO IN THE LETTER DATED 12.07.2012 OF DEUTSCHE BANK TO RBI. WE GIVE LIBERTY TO THE ASSESSES TO FILE SUCH DOCUMENTS AS MAY BE NECESSARY TO ESTABLISH ITS CLAIM FOR DEDUCTION U/S. 10A/10AA OF THE ACT THUS, GROUND NOS. 3 1 TO 3 .4 RAISED BY THE ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PUR POSES. D.9.4. RESPECTFULLY FOLLOWING THE SAME, WE REMAND THIS ISS UE TO DRP TO VERIFY RECEIPTS IF SALE PROCEEDS OF COMPUTER SOFTWARE EXPORTED OUT OF INDIA, BEING BROUGHT INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE. DRP IS AT LIBERTY TO EXAMINE WHETHER, CON VERTIBLE FOREIGN EXCHANGE BROUGHT INTO INDIA REPRESENTS CONSIDERATIO N RECEIVED FOR EXPORT OF COMPUTER SOFTWARE. ACCORDINGLY, THIS OBJECTION IS REMANDED TO DRP. E. ANALYSIS OF BOOKS OF ACCOUNT AND UNIT WISE P&L A CCOUNT AT THE OUTSET, WE NOTE THAT THIS IS NOT A REQUIREME NT U/S 10AA OF THE ACT. E.1. LD.COUNSEL SUBMITTED THAT AUTHORITIES BELOW HAS ERR ED IN HOLDING THAT UNIT WISE P&L ACCOUNT SUBMITTED BY ASS ESSEE IN RELATION TO ELIGIBLE UNIT WAS NOT RELIABLE. HE SUBM ITTED THAT THIS OBSERVATION IS BASED ON ASSESSMENT ORDER PASSED FOR ASSESSMENT YEAR 2008-09 AND STATEMENT RECORDED UNDER SECTION 1 31 OF THE ACT, DURING ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2 009-10, OF CA SH.J.MAJMUDAR WHO CONDUCTED STATUTORY AUDIT, AND SH .T.RAVINDRA WHO ISSUED CERTIFICATE OF CLAIM UNDER SECTION 10A/1 0AA,. E.2. LD.COUNSEL SUBMITTED THAT COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09(SUP RA) HELD THAT, NO SEPARATE BOOKS OF ACCOUNT HAVE TO BE MAINTAINED. HE PLACED IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 41 RELIANCE UPON OBSERVATIONS RECORDED BY THIS TRIBUNAL IN RESPECT OF THIS OBJECTION IN PARA 3.75 TO 3.83. E.3. ON THE CONTRARY, LD.STANDING COUNSEL FOR REVENUE PL ACED RELIANCE UPON OBSERVATIONS RECORDED IN DRAFT ASSESS MENT ORDER FOR ASSESSMENT YEAR 2009-10. HE SUBMITTED THAT, STATEME NTS OF CAS RECORDED THEREIN ESTABLISH THAT, ASSESSEE COULD NOT DEMONSTRATE THE BASIS OF UNIT WISE EXPENSES ALLOCATION BETWEEN S EZ AND NON-SEZ UNITS. LD.STANDING COUNSEL FOR REVENUE SUBMITTED TH AT, BY RELYING ON OBSERVATIONS OF HIS PREDECESSOR FOR ASSESSMENT Y EAR 2009-10 REPRODUCED IN ASSESSMENT ORDER, LD.AO PROJECTED H IS GRIEVANCE THAT, ASSESSEE COULD NOT ESTABLISH ANY SYSTEM OF AL LOCATION OF EXPENSES. HE THUS SUBMITTED THAT UNIT WISE P&L ACCO UNT CANNOT BE RELIED FOR ALLOWING THE CLAIM. E.4. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH S IDES AND OBSERVATIONS OF AUTHORITIES BELOW ON RECORD. E.4.1. IN THIS CONNECTION, WE REFER TO AND RELY UPON FINDI NGS OF COORDINATE BENCH OF THIS (TRIBUNAL) IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 (SUPRA) WHEREIN, HONBLE BENCH AFTER ANALYSING VARIOUS RULINGS OF HONBLE SUPREME COURT IN CASE OF CWT VS KRIPASHANKAR DAYASHANKAR WORAH REPORTED IN (1971) 81 ITR 763 , PHILIP JOHN PLASKET THOMAS VS CIT REPORTED IN (1963) 49 ITR 97 AND SMT. TARULATA SHYAM VS CIT REPORTED IN (1977) 108 ITR 345, HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS FUSION SOFTWARE ENGINEERING PVT. LTD., REPORTED IN (2012) 18 TAXMANN.COM 57 OBSERVED AS UNDER: 3.77. APART FROM THE ABOVE, WE FIND THAT THAT THI S ISSUE HAS ALREADY BEEN CONCLUDED BY ITAT BANGALORE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 42 YEAR 2000-01 IN ITA NO. 3464/BANG/2004 BY ORDER DAT ED 31/10/2007. ONE OF THE ISSUES DEALT WITH BY THE TRIBUNAL IN THE AFORESAID DECISION WAS AS TO WHETHER THERE WAS REQUIREMENT OF ASSESSEE IN MAINTAINING SEPARATE BOOKS OF ACCOUNT WITH REGARD TO EACH STPI UNIT. THI S TRIBUNAL AFTER ELABORATE DISCUSSION ON THE ISSUE HELD THAT, THERE WAS NO REQUIREMENT OF MAINTENANCE ACCEPTED SEPARATE BOOKS OF ACCOUNT FOR VARIOUS STPI UNITS. AT PAGE 23 OF TRIBUNALS ORDER REVENUE HAS ACCEPTED TH E IDENTIFICATION OF SALES TURNOVER OF VARIOUS STPI UNIT WAS POSSIBLE. THIS DE CISION OF TRIBUNAL HAS BEEN FOLLOWED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002-03 IN ITA NO. 1151/B ANGEL/2009 BY ORDER DATED 24/06/2011. . 3.81 . ANOTHER BASIS GIVEN BY THE AO IN PARA 3.4 OF HIS ORDER IS THAT THERE IS NO SYSTEM OF IDENTIFYING EXPENSES AND REVENUES AND THAT BOOKS OF ACCOUNTS ARE WRITTEN WITHOUT PRIMARY DOCUMENTS BEING IN EXIS TENCE. ON THE VARIOUS BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE, WE HAV E ALREADY ELABORATED AS TO HOW THE ASSESSEE HAS EXPLAINED BEFORE THE AO ITS METHOD OF MAINTAINING BOOKS OF ACCOUNT AND ARRIVING AT THE PR OFITS OF VARIOUS STP UNITS. THE ORDER OF ASSESSMENT AS WELL AS THE ORDER OF THE DRP IS ABSOLUTELY SILENT ON THE PLEA PUT FORTH BY ASSESSEE IN THIS RE GARD. WE HAVE TO THEREFORE PROCEED ON THE BASIS THAT THE REVENUE HAS FOUND NO FAULT WHATSOEVER WITH THE VARIOUS SYSTEM OF ACCOUNTING MAINTAINED BY THE ASSESSEE. E.4.2. FOR YEAR UNDER CONSIDERATION, LD.AO AT PAGE 36 OF IMPUGNED ORDER ACCEPTS THAT, ASSESSEE MAINTAINED BOOKS OF AC COUNTS IN THE SAME MANNER AS IN PAST. WE NOTE THAT LD.AO SOUGHT TO RELY ON STATEMENTS OF CA SH.J.MAJMUDAR AND SH.T.RAVINDRA EVEN FOR ASST. YEAR 2008-09. THIS TRIBUNAL WHILE CONSIDERING THE OBJECTION FOR ASSESSMENT YE AR 2008-09 (SUPRA) OBSERVED AS UNDER: IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 43 3.82. THE AO HAS ALSO SOUGHT TO RELY ON STATEMENT OF MR T RAVINDRA, PARTNER OF KRISHNASWAMY AND CO., WHO HAVE GIVEN REP ORTED IN FORM 50 6F CERTIFYING THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 10 A OF THE ACT. WE OBSERVE THAT THE DEDUCTION UNDER SECTION 10 A OF THE ACT IS DEPENDENT ON FULFILMENT OF CONDITIONS LAID DOWN IN THAT SECTION, THE STATEMENT OF AUDITOR CANNOT ALTER THE CLAIM FOR DED UCTION UNDER SECTION 10A OF THE ACT, IF OTHERWISE THE CONDITIONS LAID DOWN I N THE SAID SECTION ARE FULFILLED BY AN ASSESSEE. BESIDES THE ABOVE, THE CA HAS GIVEN A DETAILED EXPLANATION AS TO HOW PROFITABILITY OF VARIOUS STP UNITS HAVE BEEN ARRIVED AT. THE AO HAS ALSO REFERRED TO THE FACT THAT AUDIT ED FINANCIAL STATEMENTS OF STATUTORY AUDITORS WAS RELIED UPON BY KRISHNASWA MY AND CO., WHILE CERTIFYING FORM 53F OF THE ACT. WE HAVE ALREADY EXP LAINED THE VARIOUS DOCUMENTS FILED BY ASSESSEE BEFORE THE AO ON THE ME THOD OF MAINTAINING BOOKS OF ACCOUNT. THERE IS NEITHER A DISCUSSION NOT ERRORS POINTED OUT BY THE AO OR THE DRP ON THE CLAIM OF THE ASSESSEE THAT THE DOCUMENTS MAINTAINED BY IT SUFFICIENTLY ENABLES DETERMINATION OF PROFITS OF EACH OF THE STPI UNITS E.4.3. ADMITTEDLY, FACTS AND CIRCUMSTANCES FOR YEAR UNDER CONSIDERATION IS IDENTICAL AND SIMILAR TO ASSESSMEN T YEAR 2008-09. WE REFER TO PAGE 835 OF PAPER BOOK VOLUME 3, WHEREI N, ASSESSEE FILED UNIT WISE PROFIT AND LOSS ACCOUNT AND COST IDENTIFICATION/ALLOCATION METHODOLOGY BETWEEN EXPOR TS AND DOMESTIC OPERATION. IT IS APPARENT THAT HONBLE BENCH FOR AS ST. YEAR 2008-09 ALSO NOTED THAT, VIEW TAKEN BY COORDINATE BENCH OF THIS TRIBUNAL FOR ASSESSMENT YEAR 2000-01 AND 2002-03, HAS NOT BEEN D ISPUTED BY REVENUE. FURTHER, IT IS ALSO A MATTER OF FACT, THAT , AUTHORITIES BELOW HAVE NOT DISPUTED SALE PROCEEDS CLAIMED BY ASSESSE E AGAINST EACH SEZ UNITS, AND THEREFORE, WE HAVE TO PROCEED ON THE FOOTING THAT IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 44 BIFURCATIONS OF PROFITS OF VARIOUS SEZ UNITS AS GIV EN BY ASSESSEE ARE CORRECT. E.4.4. IN VIEW OF THE ABOVE, RESPECTFULLY FOLLOWING OBSERV ATIONS BY THIS TRIBUNAL IN ASST. YEAR 2008-09, WE ARE OF THE VIEW THAT THERE IS NO REQUIREMENT FOR MAINTAINING SEPARATE BOOKS OF AC COUNT FOR CLAIMING DEDUCTION UNDER SECTION 10A/10AA OF THE AC T, AND BOOKS OF ACCOUNT MAINTAINED BY ASSESSEE IS SUFFICIENT TO ENABLE COMPUTATION OF PROFITS OF VARIOUS SEZ UNITS. FURTHE R THE CIRCULAR ISSUED BY CBDT DATED 17/01/2013 (SUPRA) ALSO CLARIF IES THAT THERE IS NO REQUIREMENT IN LAW TO MAINTAIN SEPARATE BOOKS OF ACCOUNT AND THE SAME CANNOT BE INSISTED UPON. WE THEREFORE DO NOT FIND ANY MERIT IN THIS OBJECTIO N RAISED BY LD.AO. F. AO HELD THAT ASSESSEE CONTINUED EXISTING BUSINES S THROUGH SEZ UNITS F.1. LD.COUNSEL SUBMITTED THAT, AUTHORITIES BELOW RELIED UPON DRAFT ASSESSMENT ORDER FOR AY:2009-10, IN WHICH, ONE OF T HE REASON RECORDED FOR DENIAL OF DEDUCTION CLAIMED WAS THAT, ASSESSEE MERGED WITH IBM GLOBAL SERVICES INDIA PVT.LTD.(IGS), AND T HEREFORE, THE SAME BUSINESS OF IGS WAS CONTINUED BY ONLY CHANGING THE NAME OF COMPANY. F.2. LD.COUNSEL REFERRING TO SUBMISSIONS PLACED AT PAGE 1032 OF PAPER BOOK VOLUME 4, SUBMITTED AS UNDER: 10.39. IBM WTC ESTABLISHED ITS PRESENCE IN INDIAN MARKET IN THE EARLY 1990S AS A JOINT VENTURE COMPANY WITH THE TATA GRO UP, TATA IBM LTD.,(TATA IBM) PERSUANT TO THE LIBERALISATION OF F OREIGN DIRECT INVESTMENT IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 45 POLICY IN INDIA, THE STAKE OF THE TATAS IN IBM WAS DILUTED OVER A PERIOD OF TIME AND EVENTUALLY, TATA IBM WAS ENTIRELY OWNED BY IBM WTC AND TATA IBM WAS RENAMED AS IBM INDIA LTD. THE OPERATIONS OF IBM INDIA LTD., COMPRISED OF MANUFACTURING AND DISTRIBUTION OF IBM PRODUCTS AND PROVISION OF MARKETING SUPPORT SERVICES TO ASSOCIAT ED ENTERPRISES. IBM INDIA LTD., MANUFACTURED DESKTOP COMPUTERS AND SERV ERS AND DISTRIBUTED A RANGE OF HARDWARE AND SOFTWARE PRODUCTS OF IBM IN DIA. IN THE LATE 1990S, IBM WTC SET UP A SUBSIDIARY IN INDIA, IGS W ITH THE OBJECTIVE OF BEING ENGAGED IN SOFTWARE DEVELOPMENT AND RELATED S ERVICES. 10.40. THEREAFTER, IT WAS PROPOSED TO CONSOLIDATE O PERATIONS OF IBM INDIA LTD INTO IGS W.E.F. 01/04/2002 AND THEREFORE AN APP ROVAL OF HONABLE KARNATAKA HIGH COURT WAS OBTAINED FOR AMALGAMATION VIDE ORDER DATED 25/09/2004. PURSUANT TO THIS AMALGAMATION, IBM INDI A LTD STOOD DISSOLVED AND IGS WAS LEFT AS SURVIVING ENTITY. SUB SEQUENTLY, IGS WAS RENAMED AS IBM INDIA PRIVATE LIMITED. 10.41. THEREFORE, THERE HAS BEEN NO SPLITTING OR RE CONSTRUCTION OF THE BUSINESS OF IGSI (NOW IBM INDIA) WHICH CONTINUES TO RENDER SOFTWARE DEVELOPMENT SERVICES. F.3. LD.COUNSEL ALSO SUBMITTED THAT DRP DURING PROCEEDIN GS FOR ASSESSMENT YEAR 2010-11, EXAMINED THIS ISSUE AND AC CEPTED ASSESSEES VIEW THAT, ISSUE OF SPLITTING AND RECONS TRUCTION OF BUSINESS CAN BE EXAMINED ONLY IN 1 ST YEAR OF COMMENCEMENT OF UNDERTAKING. F.4. ON THE CONTRARY, LD.STANDING COUNSEL FOR REVENUE SU BMITTED THAT, AS PER SECTION 10AA OF THE ACT, AN ENTERPRISE , REFERRED IN CLAUSE (J) OF SECTION 2 OF SEZ ACT 2005, IS, WHO BE GINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR PROVID E ANY SERVICES DURING PREVIOUS YEAR RELEVANT TO ANY ASSESSMENT YEA R COMMENCING IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 46 ON OUR AFTER 01/04/2006, SHALL BE ENTITLED FOR DEDU CTION OF THEIR PROFIT. HE SUBMITTED THAT IN THE PRESENT CASE, ASSE SSEE CONTINUED THE BUSINESS ALREADY IN EXISTENCE, WITHOUT HAVING A NY NEW CONTRACT AGREEMENT OF ALLEGED EXPORT OF COMPUTER SOFTWARE, A ND HENCE, CLAIM OF ASSESSEE UNDER SECTION 10AA OF THE ACT WAS RIGHT LY DENIED. F.5. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH S IDES IN LIGHT OF RECORDS BEFORE US. F.5.1. IT IS SUBMITTED BY BY ASSESSEE THAT, THERE WAS ONLY A CHANGE IN NAME OF ASSESSEE. LD.AO HAS NOT BEEN ABLE TO EST ABLISH BY WAY OF ANY MATERIAL EVIDENCES THAT SUCH CHANGE IN NAME, RE SULTED IN FORMATION OF A NEW UNDERTAKING FOR DENIAL OF EXEMPT ION, OTHERWISE ENTITLED TO ASSESSEE. IN PRESENT CASE, ASSESSEE STA RTED CLAIMING EXEMPTION UNDER SECTION 10A FROM ASSESSMENT YEAR 20 00-01. LD.COUNSEL PLACED RELIANCE UPON DECISION OF HONBLE DELHI HIGH COURT IN CASE OF CIT VS TATA COMMUNICATION INTERNET SERVICES LTD (SUPRA) , WHEREIN, HONBLE COURT UPHELD THE VIEW TAKEN BY THINS TRIBUNAL THAT, CONDITIONS MENTIONED IN SECTION 80IA(3) OF T HE ACT, WHICH IS PARI MATERIA TO SECTION 10 AA (4) OF THE ACT, CANNOT BE CONSIDERED FOR EVERY YEAR OF THE CLAIM OF DEDUCTION UNDER SECTION 80 IA OF THE ACT, BUT CAN BE CONSIDERED ONLY IN THE YE AR OF FORMATION OF BUSINESS. THIS PREPOSITION HAS BEEN ACCEPTED BY DRP IN ASSESSMENT YEAR 2011-12 IN ASSESSEES OWN CASE. IT IS ALSO NOT ED THAT THE AMALGAMATION TOOK PLACE DURING THE YEAR 2004 AS APP ROVED BY HONBLE KARNATAKA HIGH COURT, BY ORDER DATED 25/09/2004, AND ACCORDINGLY, UNITS STOOD ALREADY TRANSFERRED. WE AL SO DRAW SUPPORT FROM DECISION OF MUMBAI TRIBUNAL IN CASE OF PIRAMAL HEALTH CARE IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 47 LTD., VS.DCIT IN ITA NO.1257/MUM/2014 BY ORDER DATED 07/05/2019 , WHEREIN , HONBLE BENCH DECIDED AN IDENTICAL ISSUE UNDER SECTION 80 IC(4), WHICH IS PARI MATERIA TO SECTION 10AA(4). WE HAVE PERUSED DECISION OF HONBLE SUPREME COURT IN CASE OF DCIT, BANGALORE VS.ACE MULTI AXES SYSREMS LTD., REPORTED IN (2018) 400 ITR 141, RELIED BY LD.STANDING COUSEL FOR REVENUE. HONBLE S UPREME COURT IN THIS CASE WAS CONSIDERING CLAIM U/S.80IB(2 ). HONBLE COURT OBSERVED AS UNDER: 12. THE SCHEME OF THE STATUTE DOES NOT IN ANY MANNER I NDICATE THAT THE INCENTIVE PROVIDED HAS TO CONTINUE FOR 10 CONSECUTI VE YEARS IRRESPECTIVE OF CONTINUATION OF ELIGIBILITY CONDITIONS. APPLICABILI TY OF INCENTIVE IS DIRECTLY RELATED TO THE ELIGIBILITY AND NOT DE HORS THE SAME . IF AN INDUSTRIAL UNDERTAKING DOES NOT REMAIN SMALL SCALE UNDERTAKING OR IF IT DOES NOT EARN PROFITS, IT CANNOT CLAIM THE INCENTIVE. NO DOUBT, C ERTAIN QUALIFICATIONS ARE REQUIRED ONLY IN THE INITIAL ASSESSMENT YEAR, E.G. REQUIREMENTS OF INITIAL CONSTITUTION OF THE UNDERTAKING. CLAUSE 2 LIMITS EL IGIBILITY ONLY TO THOSE UNDERTAKINGS AS ARE NOT FORMED BY SPLITTING UP OF E XISTING BUSINESS, TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PR EVIOUSLY USED. CERTAIN OTHER QUALIFICATIONS HAVE TO CONTINUE TO EXIST FOR CLAIMING THE INCENTIVE SUCH AS EMPLOYMENT OF PARTICULAR NUMBER OF WORKERS AS PE R SUB-CLAUSE 4(I) OF CLAUSE 2 IN AN ASSESSMENT YEAR. FOR INDUSTRIAL UNDE RTAKINGS OTHER THAN SMALL SCALE INDUSTRIAL UNDERTAKINGS, NOT MANUFACTUR ING OR PRODUCING AN ARTICLE OR THINGS SPECIFIED IN 8TH SCHEDULE IS A RE QUIREMENT OF CONTINUING NATURE. HONBLE SUPREME COURT , CATEGORICALLY OBSERVED IN ABOVE REFERRED PARAGRAPH THAT, CONDITION REGARDING FORMATION ARE R EQUIRED TO BE ESTABLISHED IN THE INITIAL YEAR ALONE. ON THE BASIS OF ABOVE DISCUSSIONS, THAT THE SATISFA CTION OF CONDITIONS IN SECTION 10AA(4) ARE REQUIRED TO BE SA TISFIED IN THE YEAR OF FORMATION, WE HOLD, THIS OBJECTION RAISED BY LD. AO DOES NOT HOLD GOOD FOR THE YEAR UNDER CONSIDERATION. G. CONCLUSION: IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 48 BASED UPON ARGUMENTS ADVANCED BY BOTH SIDES AND DIS CUSSIONS, IN RESPECT OF EACH OBJECTION RAISED BY AUTHORITIES BEL OW, WE OBSERVE THAT EXPORTS PROCEEDS DECLARED BY ASSESSEE IN SOFTEX FOR MS, HAS NOT BEEN CONSIDERED BY AUTHORITIES BELOW, THOUGH, A SSESSEE FILED VOLUMINOUS DETAILS. WE ARE OF THE VIEW THAT, LD.AO FAILED TO VERIFY WHETHER, REVENUE RECEIVED BY ASSESSEE WAS ON ACCOUN T OF COMPUTER SOFTWARE EXPORTED OUT OF INDIA. COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 (SU PRA), IN THIS CONTEXT OBSERVED AS UNDER: 3.86 AS RIGHTLY SUBMITTED BY THE LD. COUNSEL FOR THE AS SESSEE, THE AO AS WELL AS THE DRP REJECTED THE CLAIM OF THE ASSESSEE FAR DEDUCTION U/S 10A OF THE ACT ONLY ON THE GROUND THAT THERE WAS NO RBI APPROVED BANK ACCOUNT OUTSIDE INDIA IN WHICH THE SALE PROCEEDS OF COMPUTER SOFTWARE EXPORTED OUT OF INDIA WERE DEPOSITED. THIS WOULD BE MATERIAL ONLY FOR TAKING THE BENEFIT OF EXPLANATION TO SECTION 10A(3) OF THE ACT THE ASSESSEE IS NOT BARRED FROM CLAIMING DEDUCTION UNDER THE MAI N PROVISIONS OF SECTION 10A(3) OF THE ACT, WHEREBY IT CAN SATISFY THE AO AB OUT THE RECEIPT OF SALE PROCEEDS OF COMPUTER SOFTWARE EXPORTED OUT OF INDIA BEING BROUGHT INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE WITHIN THE PE RIOD STIPULATED IN THE PROVISIONS U/S 10A(3) OF THE ACT. AS RIGHTLY SUBMIT TED ON BEHALF OF THE ASSESSES, DEDUCTION U/S. 10/10AA OF THE ACT CANNOT BE TOTALLY DENIED. THE FACT THAT THE ASSESSEE HAS EXPORTED COMPUTER SOFTWA RE OUT OF INDIA AND BROUGHT CONVERTIBLE FOREIGN EXCHANGE INTO THE COUNT RY IS NOT DISPUTED. THE QUANTUM HAS TO BE ARRIVED AT ON THE DEDUCTION WHICH THE ASSESSEE IS ENTITLED TO HAS TO BE ALLOWED. 3.87 WE ARE THEREFORE OF THE VIEW THAT IT WOULD BE JUST AND APPROPRIATE TO SET ASIDE THE ORDER OF THE DRP AND REMAND THE ISSUE TO THE DRP FOR FRESH CONSIDERATION AND DIRECT THE DRP TO EXAMINE THE CLA IM OF THE ASSESSEE ON THE BASIS OF EVIDENCE THAT THE ASSESSEE MAY LEAD TO PROVE THE RECEIPT OF SALE PROCEEDS OF COMPUTER SOFTWARE EXPORTED OUT OF INDIA BEING BROUGHT INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE. THE DRP WILL BE AT LIBERTY TO EXAMINE AS TO WHETHER THE CONVERTIBLE FOREIGN EXCHA NGE WAS BROUGHT INTO INDIA AND THAT THEY REPRESENT CONSIDERATION RECEIVE D FOR EXPORT OF COMPUTER SOFTWARE. THE AO IN THE SET ASIDE PROCEEDINGS BEFOR E THE DRP WILL BE AT LIBERTY TO REBUT SUCH CLAIM OF THE ASSESSEE INCLUDI NG THE CLAIM THAT THE FOREIGN EXCHANGE BROUGHT IN DOES NOT REPRESENT SALE PROCEEDS OF COMPUTER SOFTWARE EXPORTED OUT OF INDIA. AS MENTIONED IN PAR A 3.56 OF THIS ORDER, THE ASSESSEE SHOULD PRODUCE BEFORE THE AO ALL DOCUMENTS REFERRED TO IN THE IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 49 LETTER DATED 12.07.2012 OF DEUTSCHE BANK TO RBI. WE GIVE LIBERTY TO THE ASSESSES TO FILE SUCH DOCUMENTS AS MAY BE NECESSARY TO ESTABLISH ITS CLAIM FOR DEDUCTION U/S. 10A/10AA OF THE ACT THUS, GROUND NOS. 3 1 TO 3.4 RAISED BY THE ASSESSEE ARE TREATED AS ALLOWED FOR S TATISTICAL PURPOSES G.1. ASSESSEE IS THUS DIRECTED TO FILE ALL RELEVANT DOCU MENTS TO SUBSTANTIATE THE EXPORTS PROCEEDS, BROUGHT INTO IND IA, CLAIMED AS DEDUCTION UNDER SECTION 10AA. ASSESSEE IS DIRECTED TO FILE ALL REQUSITE INFORMATION, AS FAR AS POSSIBLE, MENTIONED IN PARAGRAPH D..6.9.4, HEREINABOVE. LD.AO IS DIRECTED TO VERIFY THESE DOCUMENTS AND ALLOW DEDUCTION TO ASSESSEE RELATABLE TO SALE P ROCEEDS FROM EXPORT OF SOFTWARE DEVELOPMENT SERVICES. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED FOR STATISTICAL PURPOSES AS INDICATED HEREINABOVE. 6. GROUND NO.3.1: BRIEF FACTS TO BE CONSIDERED FOR THIS GROUND ARE AS UNDER: THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143 (2) WAS ISSUED TO ASSESSEE. IN RESPONSE TO STATUTORY NO TICES, ASSESSEE FILED VARIOUS DETAILS. ASSESSEE FILED FORM 3CEB, WH ICH REVEALED INTERNATIONAL TRANSACTION ENTERED INTO BY ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. LD.AO ACCORDINGLY, REFERRED THE CASE TO TRANSFER PRICING OFFICER ON 24/08/2015 TO DETERMINE ARMS LENGTH PRICE OF SUCH INTERNATIONAL TRANSACTIONS. 6.1. UPON RECEIPT OF REFERENCE, LD.TPO CALLED FOR ECONOM IC DETAILS OF INTERNATIONAL TRANSACTIONS, ENTERED INTO BY ASSE SSEE WITH ITS ASSOCIATED ENTERPRISES. LD.TPO OBSERVED THAT ASSESS EE CATEGORISED ITSELF TO BE SOFTWARE DEVELOPMENT SERVICE PROVIDER. IT IS RECORDED IN TP DOCUMENTATION THAT, EXPORT OF SERVICE SEGMENT BY ASSESSEE WAS IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 50 AS A GLOBAL DELIVERY CENTRE ON SERVICE REQUEST FROM ITS ASSOCIATED ENTERPRISES GLOBALLY. TP DOCUMENTATION ALSO REFERS TO DISTRIBUTION SEGMENT, WHEREIN, ASSESSEE OFFERS BROAD RANGE OF PR ODUCTS FROM ENTRY LEVEL, MID-RANGE TO HIGH END SERVERS AND MAIN FRAMES TO SUPPORT E-BUSINESS INFRASTRUCTURE REQUIREMENTS. LD. TPO NOTED THAT ASSESSEE SELECTED 7 COMPARABLES IN RESPECT OF SOFTW ARE DEVELOPMENT SERVICES, WITH AVERAGE OF 11.90% MARGIN. LD.TPO DIS AGREED WITH COMPARABLES SELECTED BY ASSESSEE AND SHORTLISTED FI NAL SET OF COMPARABLES CONSISTING CERTAIN COMPARABLES ALSO SEL ECTED BY ASSESSEE HAVING TOTAL AVERAGE MARGIN OF 20.90%. 6.2. LD.TPO PROPOSED ADJUSTMENT AT RS.1054,96,94,224/- BEING SHORTFALL IN THE MARGIN COMPUTED BY ASSESSEE UNDER SOFTWARE DEVELOPMENT SERVICE SEGMENT. 6.3. BE THAT AS IT MAY, ASSESSEE HAD PREFERRED APPLICATI ON UNDER RULE 10I AND 10MA RESPECTIVELY, OF INCOME TAX RULES 1962, ON 22/03/2013 AND 29/06/2015 RESPECTIVELY, PROPOSING T O ENTER INTO UNILATERAL ADVANCED PRICING AGREEMENT(APA) WITH CBD T TO DETERMINE ARMS LENGTH PRICE OF INTERNATIONAL TRANS ACTION, PURSUANT TO PROVISIONS UNDER SECTION 92ML AND 92CD OF INCOME TAX ACT 1961 READ WITH RULE 10F AND RULE 10T. TRANSACTIONS COVER ED UNDER APA DATED 29/12/2016, BETWEEN CBDT AND ASSESSEE WERE, E XPORT OF SERVICES AND RECOVERY OF EXPENSES PERTAINING TO EXP ORT OF SERVICES. EXPORT OF SERVICES FOR PURPOSES OF APA WERE CATEGOR ISED UNDER 3 SEGMENTS BEING: SOFTWARE AND SUPPORT SERVICES I T ENABLED SERVICES IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 51 KPO SERVICES INDIA SOFTWARE LABS INDIA RESEARCH LABS 6.4. FIRST THREE SEGMENTS WERE CLASSIFIED AS IT SERVICE S AND LAST TWO SEGMENTS AS RESEARCH AND DEVELOPMENT SERVICES. IT MAY BE MENTIONED AT THE OUTSET THAT, IN PRESENT APPEAL, WE ARE ONLY CONCERNED WITH IT SERVICES RENDERED BY ASSESSE E TO ITS AE, WHICH WAS ALSO SUBJECT MATTER OF TRANSFER PRICING A DJUSTMENT PROPOSED BY LD.TPO BY ORDER DATED 14/10/2016. LD.AO WHILE PASSING DRAFT ASSESSMENT ORDER OBSERVED THAT ASSESSEE ORIGINALLY CLAIMED DEDUCTION UNDER SECTION 10AA AM OUNTING TO RS.303,16,58,824, (PAGE 322 OF PAPER BOOK) IN RESPE CT OF PROFITS EARNED FROM FOLLOWING SEZ UNITS: SEZ-BANGALORE - RS.120,13,50,087/- SEZ-CHENNAI - RS. 48,55,84,345/- SEZ-HYDRABAD - RS. 31,23,49,065/- SEZ-PUNE - RS. 82,85,97,835/- SEZ-KOLKATA - RS. 12,62,33,445/- SEZ-GURGAON - RS. 5,24,69,048/- SEZ-MUMBAI - RS. 2,50,74,999/- 6.5. SUBSEQUENTLY, DUE TO INCREASE OF EXPORT INCOME IN T HE HANDS OF ASSESSEE DUE TO APA DATED 29/12/2016, CLAIM UNDER SECTION 10AA WAS REVISED BY SUM OF RS.459,81,15,229 (PAGE 329 OF PAPER BOOK), DETAILS OF WHICH ARE AS UNDER: SEZ-BANGALORE - RS.1,84,27,60,543/- IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 52 SEZ-CHENNAI - RS. 72,97,71,716/- SEZ-HYDRABAD - RS. 46,44,58,385/- SEZ-PUNE - RS.1,25,36,40,014/- SEZ-KOLKATA - RS. 18,44,50,860/- SEZ-GURGAON - RS. 8,22,33,583/- SEZ-MUMBAI - RS. 4,08,00,128/- 6.6. AFTER ENTERING INTO APA, INCOME OF ASSESSEE FROM E XPORT OF IT SERVICES INCREASED BY SUM OF RS.7,74,21,28,914/-, T HEREBY, INCREASING INCOME IN THE HANDS OF ASSESSEE BY RS.23,73,23,41,974/-(BEING SUM OF NET PROFIT BEFORE TAXES AS PER PROFIT AND LOSS ACCOUNT, RS.15,99,02,13,060/- {PAGE 323 OF PAPER BOOK} THAT GAVE RISE TO INCREMENTAL INCOME OF RS.7, 74,21,28,914/-). ASSESSEE MODIFIED ITS RETURN OF INCOME ON 22/03/201 7, AND IT WAS INTIMATED TO DRP VIDE LETTERS DATED 17/03/2017 AND 13/09/2017. COPIES OF SAID LETTERS ARE PLACED AT PAGED 1223 AND 1225 RESPECTIVELY IN PAPER BOOK VOLUME 4. 6.7. LD.COUNSEL SUBMITTED THAT, DRP/LD.AO DID NOT ACCEP T CLAIM OF ASSESSEE FOR ENHANCED DEDUCTION ON ADDITIONAL INCOM E FOR PURPOSES OF COMPUTING DEDUCTION UNDER SECTION 10AA OF THE AC T, THOUGH THERE WAS SUFFICIENT TIME TO PASS RESPECTIVE ORDERS AS PER SECTION 92CD(5)(B). WE NOTE THAT, LD.AO IN IMPUGNED ORDER F AILED TO CONSIDER INCREMENTAL INCOME PURSUANT TO APA DATED 2 9/12/2016 FOR PURPOSES OF DEDUCTION UNDER SECTION 10AA. 6.8. LD.STANDING COUSEL FOR REVENUE, PLACED RELIANCE ON OBSERVATIONS OF LD.AO. 6.9. WE HAVE HEARD RIVAL SUBMISSIONS BY BOTH SIDES IN T HIS REGARD. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 53 ADMITTEDLY, ASSESSEE ORIGINALLY CLAIMED DEDUCTION U /S.10AA, BASED ON TRANSFER PRICING ADJUSTMENT. IN PRECEDING PARAGR APHS, WE HAVE DISCUSSED IN GREAT DETAIL REGARDING, ELIGIBILITY OF ASSESSEE TO CLAIM DEDUCTION UNDER SECTION 10AA OF THE ACT. WE HAVE DE ALT WITH VARIOUS OBJECTIONS RAISED BY AUTHORITIES BELOW AND HAS REMITTED THE ISSUE TO DRP FOR VERIFYING SUCH DOCUMENTS, IN RESPE CT OF FOREIGN CURRENCY ACCOUNT, AND, AMOUNT THAT WAS BROUGHT TO I NDIA IN CONVERTIBLE FOREIGN EXCHANGE, THAT IS RELATABLE TO EXPORT OF SOFTWARE DEVELOPMENT SERVICES. 6.9. BE THAT AS IT MAY, ASSESSEE ENTERED INTO APA WITH C BDT ON 29/12/2016 IN RESPECT OF TRANSACTIONS PERTAINING TO EXPORT OF IT SERVICES. THE APA AGREEMENT, ALONG WITH INVOICES IN RESPECT OF INCREMENTAL INCOME ARE PLACED BEFORE US. WE NOTE TH AT, YEAR UNDER CONSIDERATION IS COVERED UNDER ROLLBACK PERIOD AS P ER CLAUSE 2 OF THE AGREEMENT. IT IS ALSO NOTED IN CLAUSE 6 THAT, ASSESSEE SETTLED ARMS LENGTH MARGIN AT 16% FOR IT SERVICES COVERING APA YEARS AND ROLLBACK YEARS THAT INCLUDES YEAR UNDER CONSIDERATI ON. IT IS SUBMITTED THAT ASSESSEE IN TRANSFER PRICING STUDY C OMPUTED ITS MARGIN AT 10% AND OP/OC AS PLI FOR SWD & ITES SEGME NT. IN CONSONANCE WITH APA, ASSESSEE FILED ITS MODIFIED RE TURN FOR YEAR UNDER CONSIDERATION WITH 16% OPERATING PROFIT MARGI N AND RAISED FURTHER INVOICES AMOUNTING TO RS.774,21,28,914/- TH AT GAVE RISE TO INCREMENTAL PROFITS AMOUNTING TO RS. 1,5664,56,405/ -. ASSESSEE FILED REVISED RETURN ON 2/03/2017. 6.10. IT IS BROUGHT TO OUR NOTICE THAT, COORDINATE BENC H OF PUNE TRIBUNAL IN DAL AL HANDASAH CONSULTANTS (SHAIR & PARTNERS) INDI A PVT IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 54 LTD VS DCIT IN ITA NO.1413/PUN/2019 FOR ASSESSMENT YEAR 2010-11 BY ORDER DATED 02/12/2019, ADDRESSED IDENTICAL ISSUE. HE PLACED RRLIANCE ON FOLLOWING PARAGRAPHS: 4. THE FOUNDATION OF THE ACTION OF THE AUTHORITIES BE LOW FOR THE DENIAL OF DEDUCTION IS PREMISED ON THE UNDERSTANDING THAT THE MODIFIED RETURN CANNOT BREACH THE MANDATE OF THE APA, WHICH, IN TUR N, RESTRICTS ITS SCOPE ONLY TO THE DETERMINATION OF THE ALP AND NOTHING MO RE THAN THAT. 5. IN ORDER TO APPRECIATE THE RIVAL CONTENTIONS, IT WOULD BE APPOSITE TO HAVE A GLANCE AT THE RELEVANT PROVISIONS IN THIS REGARD. SECTION 92CC WITH THE CAPTION ADVANCE PRICING AGREEMENT PROVIDES THROU GH SUB-SECTION (1): `THE BOARD, WITH THE APPROVAL OF THE CENTRAL GOVERN MENT, MAY ENTER INTO AN ADVANCE PRICING AGREEMENT WITH ANY PERSON, DETER MINING THE ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRAN SACTION . SUB-SECTION (2) GIVES THE MANNER OF DETERMINATION OF THE ALP RE FERRED TO IN SUB-SECTION ) BY STATING THAT IT: `MAY INCLUDE THE METHODS REFERR ED TO IN SUBSECTION (1) OF SECTION 92C OR ANY OTHER METHOD, WITH SUCH ADJUSTME NTS OR VARIATIONS, AS MAY BE NECESSARY OR EXPEDIENT SO TO DO. SUB-SECTIO N (3), WHICH STARTS WITH THE NON OBSTANTE CLAUSE QUA SECTIONS 92C/92CA, STAT ES THAT THE ALP OF ANY INTERNATIONAL TRANSACTION IN RESPECT OF WHICH T HE APA HAS BEEN ENTERED INTO: `SHALL BE DETERMINED IN ACCORDANCE WITH THE ADVANCE PRICING AGREEMENT SO ENTERED. THE CRUX OF THE ABOVE REFERRED PROVISION S DEALING WITH THE ADVANCE PRICING AGREEMENT IS THAT THE ARMS LENGTH MARGIN OR PRICE IS SETTLED AS PER THE TERMS OF THE APA; THE MANNER OF DETERMINATION OF SUCH ALP MAY BE BY ANY OF THE METHODS REFERRED TO IN SEC TION 92C(1) OR ANY METHOD DE HORS THE PRESCRIPTION OF SECTION 92C(1); AND THE PROVISIONS OF SECTION 92C (COMPUTATION OF ALP) AND SECTION 92CA ( REFERENCE TO THE TPO) SHALL NOT APPLY IN RESPECT OF THE DETERMINATION OF THE ALP UNDER THE APA. 6. SECTION 92CD DEALS WITH GIVING ` EFFECT TO THE ADVA NCE PRICING AGREEMENT. SUB-SECTION (1) REQUIRES FILING OF THE MODIFIED RETURN BY THE IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 55 ASSESSEE IN ACCORDANCE WITH THE APA. SUB-SECTION ( 3) STATES THAT IF THE ASSESSMENT ETC. FOR AN ASSESSMENT YEAR RELEVANT TO A PREVIOUS YEAR TO WHICH THE AGREEMENT APPLIES HAS BEEN COMPLETED BEFO RE THE EXPIRY OF PERIOD ALLOWED FOR FURNISHING OF MODIFIED RETURN UN DER SUB-SECTION (1), WHICH IS A CASE UNDER CONSIDERATION, THE ASSESSING OFFICER SHALL: `PROCEED TO ASSESS OR REASSESS OR RECOMPUTE THE TOTAL INCOME OF THE RELEVANT ASSESSMENT YEAR HAVING REGARD TO AND IN ACCORDANCE WITH THE AGREEMENT. SUB-SECTION (4) DEALS WITH A SITUATION IN WHICH THE ASSESSMENT ETC. FOR AN ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR TO WH ICH THE APA APPLIES ARE PENDING ON THE DATE OF FILING OF MODIFIED RETUR N. IT LAYS DOWN THAT : `THE ASSESSING OFFICER SHALL PROCEED TO COMPLETE TH E ASSESSMENT OR REASSESSMENT PROCEEDINGS IN ACCORDANCE WITH THE AGR EEMENT TAKING INTO CONSIDERATION THE MODIFIED RETURN SO FURNISHED. O N GOING THROUGH THE PRESCRIPTION OF SUB-SECTIONS (3) AND (4) OF SECTION 92CD, IT BECOMES EXPLICITLY CLEAR ONCE AN ASSESSEE HAS FILED MODIFIE D RETURNS UNDER SUB- SECTION (1) OF SECTION 92CD, THE AO IS OBLIGED TO MAKE/COMPLETE THE ALREADY COMPLETED OR PENDING ASSESSMENTS U/S.92CD I TSELF AFRESH HAVING REGARD TO OR IN ACCORDANCE WITH THE TERMS OF THE AP A. NOT ONLY THAT, SUB- SECTION (5) OF SECTION 92CD ALSO ENSHRINES PERIOD O F LIMITATION FOR MAKING/COMPLETING SUCH ASSESSMENTS. IT, THEREFORE, FOLLOWS THAT THE ACT CONTAINS A SEPARATE DESIGNATED PROCEDURE FOR DEALIN G WITH THE ASSESSMENTS PURSUANT TO THE APA, WHICH ALSO CONTAIN S DISTINCT TIME LIMITS IN THIS REGARD. 7. HAVING TAKEN AN OVERVIEW OF THE RELEVANT PROVISIONS OF THE APA, WHICH ARE GERMANE TO THE ISSUE UNDER CONSIDERATION, LET U S PROCEED TO EXAMINE THE QUESTION AS TO WHETHER THE ASSESSEE, IN THE GIV EN FACTS AND CIRCUMSTANCES AND AS PER LAW, IS ENTITLED TO DEDUCT ION U/S 10A IN ASSESSMENT U/S 92CD OF THE ACT ON THE ADDITIONAL IN COME OFFERED IN THE MODIFIED RETURN? THE PRECISE ANSWER TO THE QUESTION CAN BE FOUND OUT BY ANSWERING THE FOLLOWING THREE SUB-QUESTIONS:- IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 56 I.WHETHER PROVISO TO 92C(4) DEBARS DEDUCTION U/S 1 0A ON ADDITIONAL INCOME IN ASSESSMENT U/S 92CD? II.IF NO, WHETHER ASSESSMENT U/S 92CD PROVIDES FOR GRANTING DEDUCTION U/S 10A? III. IF YES, WHETHER THE ASSESSEE HAS SATISFIED THE CONDITIONS OF DEDUCTION U/S 10A? I. WHETHER PROVISO TO 92C(4) DEBARS DEDUCTION U/S10 A ON ADDITIONAL INCOME IN ASSESSMENT U/S 92CD? 8. THE CASE OF THE AO IS THAT THE ASSESSEE CANNOT BE ALLOWED DEDUCTION U/S 10A IN RESPECT OF THE INCREMENTAL INCOME OFFERE D IN THE MODIFIED RETURN, WHICH AS PER THE AO, IS ELOQUENTLY PROSCRI BED BY THE PROVISO TO SUB-SECTION (4) OF SECTIONS 92C/92CA OF THE ACT. IN THIS REGARD, IT IS SEEN THAT SECTION 92C DEALS WITH THE COMPUTATION OF ALP BY THE AO. SUB-SECTION (4) PROVIDES THAT WHERE AN ALP IS DETERMINED BY THE AO UNDER SUB-SECTION (3): THE ASSESSING OFFICER MAY COMPUTE THE TOTAL I NCOME OF THE ASSESSEE HAVING REGARD TO THE ARMS LENGTH PRICE SO DETERMIN ED. PROVISO TO THIS SUB-SECTION, WHICH IS THE BEDROCK FOR THE DENIAL OF THE ASSESSEES CLAIM, STATES THAT .... NO DEDUCTION U/S.10A . . . . . . SHALL BE ALLOWED IN RESPECT OF THE AMOUNT OF INCOME BY WHICH THE TOTAL INCOME OF T HE ASSESSEE IS ENHANCED AFTER COMPUTATION OF INCOME UNDER THIS SUB -SECTION. SECTION 92CA, THROUGH WHICH A REFERENCE IS MADE BY THE AO TO THE TPO FOR DETERMINATION OF THE ALP AND THEREAFTER THE ASSESSM ENT IS COMPLETED BY THE AO IN TERMS OF THE TPOS ORDER, PROVIDES THRO UGH SUB-SECTION (4) THAT ON RECEIPT OF ORDER FROM THE TPO, `THE ASSESSING OF FICER SHALL PROCEED TO COMPUTE THE TOTAL INCOME OF THE ASSESSEE UNDER SUB- SECTION (4) OF SECTION 92C IN CONFORMITY WITH THE ALP DETERMINED BY THE T PO. THUS, NOTWITHSTANDING THE ALP DETERMINATION BY THE AO OR THE TPO, THE ASSESSMENT IS FINALIZED BY THE AO IN TERMS OF THE M ANDATE CONTAINED IN SUB-SECTION (4) OF SECTION 92C, WHICH SPECIFICALLY PROVIDES THAT NO DEDUCTION U/S.10A SHALL BE ALLOWED IN RESPECT OF TH E AMOUNT OF INCOME BY IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 57 WHICH THE TOTAL INCOME IS ENHANCED AFTER COMPUTATIO N OF INCOME UNDER THIS SUB-SECTION. A CLOSE SCRUTINY OF THE CRUCIAL WORDS IN THE PROVISO DECODES THAT THE DENIAL OF DEDUCTION IS PERMISSIBLE ONLY WH EN, FIRST THERE IS COMPUTATION OF INCOME UNDER SUB-SECTION (4) OF SECT IONS 92C/92CA OF THE ACT AND SECOND, THE TOTAL INCOME IS ENHANCED BECAUS E OF SUCH COMPUTATION, NAMELY, BY VIRTUE OF THE TRANSFER PRIC ING ADJUSTMENT. THUS, IT IS VIVID THAT THE PROVISO RESTRICTING THE GRANTING OF DEDUCTION U/S.10A ON ENHANCED INCOME APPLIES ONLY WHERE THE COMPUTATION OF INCOME IS MADE UNDER THE SUB-SECTION (4) OF SECTIONS 92C/92CA, WHI CH TALKS OF MAKING SOME TRANSFER PRICING ADDITION BY THE AO. IF THE C OMPUTATION OF INCOME IS NEITHER U/S.92C NOR 92CA, NAMELY, NO TRANSFER PRICI NG ADDITION IS MADE BY THE AO,THEN IT IS OBVIOUS THAT THE PROVISO SHALL HA VE NO APPLICATION AND THE FORTIORI IS THAT THERE WILL NOT BE ANY DENIAL OF DE DUCTION UNDER THE SECTIONS GIVEN IN THE PROVISO. 9. WE HAVE NOTED ABOVE THE SCHEME OF ASSESSMENT U/S 9 2CD PURSUANT TO THE APA, UNDER WHICH THE ASSESSEE IS MANDATED TO FI LE MODIFIED RETURNS IN CONSONANCE WITH THE APA. THEREAFTER, THE ASSESSMENT IS MADE BY THE AO U/S. 92CD(3)/(4) IN ACCORDANCE WITH THE APA. AS THE INCREMENTAL INCOME IS OFFERED BY THE ASSESSEE ITSELF IN THE MODIFIED RETU RN IN ACCORDANCE WITH THE APA, IT CANNOT BE EQUATED WITH THE COMPUTATION OF I NCOME U/SS. 92C/92CA OF THE ACT, AS THE LATER PROVISIONS TALKS OF MAKING SOME TRANSFER PRICING ADDITION BY THE AO. THE SUO MOTU OFFERING OF ADDITI ONAL INCOME BY THE ASSESSEE PURSUANT TO THE APA IS OF THE SAME NATURE AS THE ASSESSEE ITSELF OFFERING SOME TRANSFER PRICING ADJUSTMENT IN THE OR IGINAL RETURN OF INCOME. IN THAT CASE ALSO, DEDUCTION U/S 10A, IF OTHERWISE PERMISSIBLE, WOULD BE ALLOWED AND NOT CURTAILED AS IT WILL NOT BE A CASE OF TRANSFER PRICING ADDITION MADE BY THE AO. IN THE SAME MANNER, DEDUCT ION U/S 10A CANNOT BE DISALLOWED IN RESPECT OF ADDITIONAL INCOME OFFER ED IN THE MODIFIED RETURN AS IT IS NOT A TRANSFER PRICING ADDITION MADE BY TH E AO BUT THE ADDITIONAL IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 58 TRANSFER PRICING INCOME OFFERED BY THE ASSESSEE IN CONSONANCE WITH THE APA WITH THE CBDT. 10. THE SECOND COMPONENT FOR MAGNETIZING THE PROVISO I S THAT THE `TOTAL INCOME OF THE ASSESSEE IS ENHANCED. AN ENHANCEMEN T OF INCOME IN THIS CONTEXT PRE-SUPPOSES SOME ACTION OF THE AUTHORITIES AFTER THE FILING OF THE RETURN OF INCOME BY THE ASSESSEE, WHICH HAS THE CON SEQUENCE OF INCREASING THE TOTAL INCOME FROM THE ONE DECLARED BY THE ASSES SEE. FILING OF THE MODIFIED RETURN U/S 92CD OF THE ACT WITH THE INCOME AS AGREED BETWEEN THE ASSESSEE AND THE CBDT UNDER THE APA IS AN ACT O F THE ASSESSEE IN OFFERING THE ADDITIONAL INCOME AND NOT AN ACT OF TH E AO IN MAKING THE ENHANCEMENT OF THE TOTAL INCOME. 11. INSTANTLY, WE ARE DEALING WITH A SITUATION IN WHIC H THE ASSESSEE ITSELF HAS FILED A MODIFIED RETURN OF INCOME AT THE MUTUAL LY AGREED RATE OF 17% UNDER THE APA. AS SUCH, THERE CANNOT BE ANY QUESTI ON OF THE AO MAKING ANY ENHANCEMENT IN THE INCOME AS A RESULT OF TRANSF ER PRICING ADJUSTMENT SO AS TO ATTRACT THE PROVISO TO SECTION 92C(4) OF T HE ACT. 12. THUS THE FIRST SUB-QUESTION IS ANSWERED BY HOLDING THAT PROVISO TO SECTION 92C(4) DOES NOT PER SE DEBAR DEDUCTION U/S 10A ON ADDITIONAL INCOME IN ASSESSMENT U/S 92CD. II. WHETHER ASSESSMENT U/S 92CD PROVIDES FOR GRANTI NG DEDUCTION U/S 10A? 13. HAVING ANSWERED THE FIRST QUESTION IN NEGATIVE, IT REMAINS TO BE DECIDED AS TO WHETHER THE ASSESSEE IS ENTITLED TO D EDUCTION U/S.10A WITHIN THE FRAMEWORK OF THE APA PROVISIONS. IN THIS REGAR D, IT ASSUMES SIGNIFICANCE TO NOTE THE MANDATE OF SUB-SECTION (2) OF SECTION 92CD OF THE ACT, WHICH PROVIDES THAT: SAVE AS OTHERWISE PROVI DED IN THIS SECTION, ALL OTHER PROVISIONS OF THIS ACT SHALL APPLY ACCORDINGL Y AS IF THE MODIFIED RETURN IS A RETURN FURNISHED UNDER SECTION 139. A CAREFU L CIRCUMSPECTION OF SUB- SECTION (2) DECIPHERS AND DELINEATES THAT IN THE CO MPUTATION OF TOTAL INCOME BY THE AO PURSUANT TO THE FILING OF THE MODIFIED RE TURN BY THE ASSESSEE IN IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 59 TERMS OF THE APA, ALL OTHER PROVISIONS OF THIS ACT SHALL APPLY ACCORDINGLY. IN OTHER WORDS, IF AN ASSESSEE IS OTHERWISE ELIGIBL E FOR DEDUCTION UNDER ANY OTHER APPROPRIATE PROVISION IN RESPECT OF THE I NCOME OFFERED IN THE MODIFIED RETURN, THERE CANNOT BE ANY EMBARGO ON GRA NTING DEDUCTION UNDER SUCH RELEVANT PROVISION. THE SAVING CLAUSE CONTAIN ED IN SUB-SECTION (2), MAKING ALL OTHER PROVISIONS OF THE ACT APPLICABLE I N THE ASSESSMENT OF THE MODIFIED RETURN, OSTENSIBLY INCLUDES THE APPLICABIL ITY OF SECTION 10A AS WELL, OF COURSE, SUBJECT TO THE FULFILLMENT OF OTHE RS CONDITIONS AS SET OUT IN THE SECTION. IT, THEREFORE, FOLLOWS THAT IF AN ASSE SSEE IS OTHERWISE ENTITLED TO DEDUCTION U/S.10A, OR FOR THAT MATTER UNDER ANY OT HER PROVISION OF THE ACT, IN RESPECT OF THE INCOME OFFERED IN THE MODIFIED RE TURN, THE SAME CANNOT BE DENIED. AS SUCH, THE VIEW OF THE AUTHORITIES BELOW THAT IN THE ABSENCE OF ANY SP ECIFIC PROVISION IN SECTION 92CD FOR GRANTING OF DEDUCTION U/S.10A, NO DEDUCTION CAN BE ALLOWED, IS SANS MERIT. SUCH STIPULATION IS CONTAI NED IN SUBSECTION (2) OF 92CD ITSELF. IT IS, ERGO, HELD THAT THE ASSESSMENT U/S 92CD PROVIDES FOR GRANTING DEDUCTION U/S 10A OF THE ACT. III. WHETHER THE ASSESSEE HAS SATISFIED THE CONDITI ONS OF DEDUCTION U/S 10A? 14. NOW WE TURN TO THE VIEW CANVASSED BY THE AO THAT TH E ASSESSEE FAILED TO COMPLY WITH THE MANDATE OF SUB-SECTION (3) OF SE CTION 10A, WHICH PROVIDES THAT: THIS SECTION APPLIES TO THE UNDERTA KING, IF THE SALE PROCEEDS OF ARTICLES OR THINGS OR COMPUTER SOFTWARE EXPORTED OUT OF INDIA ARE RECEIVED IN, OR BROUGHT INTO INDIA, BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE, WI THIN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR WITHIN SUCH FURTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF. A PERUSAL OF SUB- SECTION (3) OF SECTION 10A TRANSPIRES THAT THE COND ITION FOR BRINGING INTO INDIA THE REQUISITE CONVERTIBLE FOREIGN EXCHANGE WI THIN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR IS NOT BE ALL END ALL OF THE ISSUE. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 60 IT ALSO EXTENDS TO SUCH FURTHER PERIOD AS THE COMP ETENT AUTHORITY MAY ALLOW IN THIS BEHALF. IN OTHER WORDS, IF THE COMP ETENT AUTHORITY HAS ALLOWED FURTHER PERIOD FOR BRINGING INTO INDIA THE CONVERTIBLE FOREIGN EXCHANGE, THE ASSESSEE WILL BE ENTITLED TO DEDUCTIO N U/S.10A. EXPLANATION 1 TO SECTION 10A(3) STATES THAT: `FOR THE PURPOSES OF THIS SUB-SECTION, THE EXPRESSION 'COMPETENT AUTHORITY' MEANS THE RESERVE BANK OF INDIA OR SUCH OTHER AUTHORITY AS IS AUTHORISED UNDER ANY LAW FOR THE TIME BEING IN FORCE FOR REGULATING PAYMENTS AND DEALINGS IN FOREIGN EXC HANGE. 15. SUB-SECTION (1) OF SECTION 92CC PROVIDES THAT THE BOARD, WITH THE APPROVAL OF THE CENTRAL GOVERNMENT, MAY ENTER INTO AN ADVANCE PRICING AGREEMENT WITH ANY PERSON . . . . . . .. IT IS TH US CLEAR FROM THE MANDATE OF SUB-SECTION (1) OF SECTION 92CC THAT THE CBDT ENTER S INTO AN APA WITH THE APPROVAL OF THE CENTRAL GOVERNMENT. THE APA IS A P ACKAGE DEAL AIMED AT REDUCING LITIGATION. IF THE APA CONTAINS SOME CLAUS E RELAXING THE RIGOR OF ANY PROVISION OR TO FACILITATE ITS WORKABILITY, SUC H A CLAUSE WILL PREVAIL OVER THE NORMAL PROVISIONS OF THE ACT. IT IS MANDATED BY THE LEGISLATURE ITSELF THROUGH SUB-SECTION (2) OF SECTION 92CD, WHICH OPEN S WITH A SAVING CLAUSE BY PROVIDING: `SAVE AS OTHERWISE PROVIDED IN THIS S ECTION, ALL OTHER PROVISIONS OF THE ACT SHALL APPLY. SUB-SECTION (1) OF SECTION 92CD PROVIDES THAT: `. SUCH A PERSON SHALL FURNISH . A MODIFIED RETURN IN ACCORDANCE WITH AND LIMITED TO THE AGREEMENT. A COROLLARY WHI CH FOLLOWS ON A HARMONIOUS CONSTRUCTION OF SUB-SECTIONS (1) AND (2) OF SECTION 92CD IS THAT IF THE APA CONTAINS A CLAUSE DEPARTING FROM THE NOR MAL PROVISIONS, IT IS SUCH CLAUSE WHICH SHALL PREVAIL UPON THE NORMAL PRO VISION. 16. WE HAVE GONE THROUGH THE APA ENTERED BETWEEN THE A SSESSEE AND THE CBDT. CLAUSE 7 OF THE APA DISCUSSES THE CRITICAL ASSUMPTIONS. IT PROVIDES THAT: `THE CRITICAL ASSUMPTIONS (AS REFERR ED TO IN THE RULES) SHALL, FOR THE PURPOSES OF THIS AGREEMENT, BE AS SPECIFIED IN APPENDIX II. CLAUSE 5 OF THE APPENDIX II DEALS WITH INVOICING AND CRED IT TERMS. THE MATERIAL PART OF SUCH A CLAUSE, WHICH IS RELEVANT FOR THE YE AR UNDER CONSIDERATION, IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 61 STATES THAT: ` THE APPLICANT SHALL SHOW THE DIFFER ENCE BETWEEN THE INVOICED AMOUNT FOR THE PREVIOUS YEAR/ROLLBACK YEAR S AND THE ALP AS AGREED, AS TAX ADJUSTMENT IN THE MODIFIED TAX RETUR NS FOR ASSESSMENT YEAR 2010-11 TO ASSESSMENT YEAR 2014-15 AND WILL ALSO RA ISE AN INVOICE (AND REALISE IT) FOR THE EQUIVALENT AMOUNT IN THE MONTH FOLLOWING THE MONTH IN WHICH THE AGREEMENT IS SIGNED. ON GOING THROUGH T HE RELEVANT PARTS OF CLAUSE 5 OF THE APPENDIX II, IT CLEARLY EMERGES THA T THE CBDT PROVIDED FOR RAISING THE INVOICE FOR THE ADDITIONAL AMOUNT AND A LSO REALISE IT IN THE MONTH FOLLOWING THE MONTH IN WHICH THE APA IS SIGNE D. TO PUT IT SIMPLY, THE CBDT NOT ONLY STIPULATED FOR RAISING OF THE INV OICE FOR THE ADDITIONAL INCOME BUT ALSO FOR THE REALIZATION OF THE ADDITION AL AMOUNT WITHIN THE MONTH FOLLOWING THE MONTH IN WHICH THE AGREEMENT IS SIGNED. THUS, IT IS OVERT THAT THE APA CONTAINS A CLAUSE FOR REALIZING THE AMOUNT OR BRINGING INTO INDIA CONVERTIBLE FOREIGN EXCHANGE FOR THE ADD ITIONAL AMOUNT OF INVOICE WITHIN ONE MONTHS PERIOD. THERE CAN BE NO OTHER RE ASON FOR MANDATING IN THE APA FOR BRINGING INTO INDIA CONVERTIBLE FOREIGN EXCHANGE WITHIN ONE MONTH FOLLOWING THE MONTH IN WHICH THE APA IS SIGNE D EXCEPT FOR THE GRANTING THE CONSEQUENTIAL BENEFITS OF SUCH REALIZA TION, EVEN THOUGH SUB- SECTION (1) OF SECTION 92CD GIVES TIME OF THREE MO NTHS FOR FILING THE MODIFIED RETURN. THE SEQUITUR IS THAT THE APA HAS M ADE IT MANDATORY FOR THE ASSESSEE TO BRING IN CONVERTIBLE FOREIGN EXCHAN GE IN INDIA WITHIN ONE MONTH. BUT FOR GRANTING THE RELEVANT DEDUCTIONS CON NECTED WITH THE REALIZATION OF CONVERTIBLE FOREIGN EXCHANGE IN INDI A, THERE WAS NO PURPOSE TO STIPULATE IT IN THE APA. THIS STIPULATION IS, TH US, A DIRECTION TO GRANT DEDUCTION U/S 10A ONLY IF THE ASSESSEE SUCCEEDS IN BRINGING IN CONVERTIBLE FOREIGN EXCHANGE IN INDIA WITHIN ONE MONTH, BRINGIN G THE CASE WITHIN THE SAVING CLAUSE OF SUB-SECTION (2) OF SECTION 92CD. AS THE ASSESSEE BROUGHT INTO INDIA THE CONVERTIBLE FOREIGN EXCHANGE WITHIN THE STIPULATED ONE MONTHS PERIOD, IT BECAME ENTITL ED TO DEDUCTION U/S 10A. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 62 17. WHAT IS FURTHER PERTINENT TO NOTE FROM PARA 2 OF TH E CLAUSE 6 OF THE APA IS THAT: THE DETERMINATION OF ALP FOR ROLLBACK YEARS IS SUBJECT TO THE CONDITION THAT THE ALP WOULD GET MODIFIED TO THE EXTENT THAT IT DO ES NOT RESULT IN REDUCING THE TOTAL INCOME OR INCREASING THE TOTAL LOSS, AS THE C ASE MAY BE, OF THE APPLICANT AS ALREADY DECLARED IN THE RETURN OF INCOME OF THE SAI D YEAR. REVERTING TO FACTS OF THE EXTANT CASE, IT IS SEEN THAT THE ASSESSEE DECLA RED TOTAL INCOME OF RS.45,21,431/- IN THE ORIGINAL RETURN. AFTER THE I NCREASE IN THE INCOME DUE TO THE APA AND WITH THE SIMULTANEOUS CLAIM OF DEDUCTION U/ S.10A, THE TOTAL INCOME OF THE ASSESSEE AS DECLARED IN THE MODIFIED RETURN REM AINED AT THE SAME LEVEL. THUS, IT IS NEITHER A CASE OF REDUCING THE TOTAL IN COME NOR INCREASING THE TOTAL LOSS. EX CONSEQUENTI, IT IS HELD THAT THE ASSESSEE HAS SA TISFIED THE CONDITION OF DEDUCTION U/S 10A(3) READ WITH SECTION 92CD(2) OF THE ACT. 18. TO SUM UP, WE HOLD THAT THE PROVISO TO SECTION 92C (4) DOES NOT DEBAR DEDUCTION U/S 10A ON ADDITIONAL INCOME IN ASSESSMEN T U/S 92CD; ASSESSMENT U/S 92CD PROVIDES FOR GRANTING DEDUCTION U/S 10A; A ND THE ASSESSEE HAS SATISFIED THE REQUIREMENT OF SECTION 10A(3) READ WITH SECTION 92CD(2), THEREBY ENTITLING IT TO DEDUCTION U/S.10A ON THE ADDITIONAL AMOUNT OF RS.20,36,023/-. THE IMPUGNED ORDER IS OVERTURNED AND DEDUCTION IS GRANT ED. 6.11. AS OBSERVED IN DETAIL BY COORDINATE BENCH OF PUNE TRIBUNAL , FOLLOWING RATIO LAID DOWN THEREIN, WE HOLD THAT ASS ESSEE IS ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 10AA, ON INCREMENTAL INCOME ARISEN PURSUANT TO APA DATED 29/12/2016. WE DIRECT DRP TO GRANT DEDUCTION UNDER SECTION 10AA OF THE ACT, TO THE EXT ENT OF SALE PROCEEDS RECEIVED FROM EXPORT OF SOFTWARE SERVICES, BROUGHT INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE WITHIN STIPUL ATED PERIOD. ACCORDINGLY, THIS ISSUE IS SET ASIDE TO DRP FOR VER IFICATION VERIFY AND TO ALLOW CLAIM OF ASSESSEE AS DIRECTED H EREINABOVE, R.W., OUR OBSERVATIONS IN PARA D.9.4 HEREINABOVE. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 63 AT THE OUTSET, BOTH SIDES SUBMITTED THAT, ISSUE ALL EGED IN GROUND 4 &6 INTERLINKED WITH EACH OTHER. BASED ON T HIS SUBMISSION, FOR SAKE OF CONVENIENCE, WE CONSIDER G ROUND 4 & 6 TOGETHER AS UNDER. 7. GROUND NO.4 IS IN RESPECT OF DISALLOWANCE OF SUM OF RS.345,65,64,364/- UNDER SECTION 37 (1) OF THE ACT. 7.1. LD.AO OBSERVED THAT, ASSESSEE DEBITED VARIOUS EXP ENDITURE IN P&L ACCOUNT LIKE RENT, PROFESSIONAL CHARGES, SUB CO NTRACT CHARGES, INTEREST, COMMISSION, ADVERTISEMENT, RECRUITMENT EX PENSES, ROYALTY ETC., THAT ATTRACTED PROVISIONS OF TDS. IT WAS OBSE RVED THAT SUM OF RS.345,65,64,364/- WAS QUANTIFIED AND THEN DISALLOW ED UNDER SECTION 40(A)(IA) OF THE ACT, BY ASSESSEE IN COMPUT ATION FOR YEAR UNDER CONSIDERATION. LD.AO ALSO NOTED THAT, PROVISI ONS CREATED, WERE REVERSED ON 1 ST APRIL OF SUBSEQUENT YEAR. LD.AO CALLED FOR DETAILS IN RESPECT OF EXPENSES AND TDS COMPLIANCES VIDE NOTICE DATED 21.11.2016 AND CALLED UPON ASSESSEE, TO SHOW CAUSE AS TO WHY, THE AMOUNTS DISALLOWED UNDER SECTION 40(A) OF THE ACT, SHOULD NOT BE DISALLOWED UNDER SECTION 37(1) OF THE ACT, F OR YEAR UNDER CONSIDERATION, ON ACCOUNT OF THE FACT THAT, PROVISI ONS WERE REVERSED AS ON 1 ST APRIL. 7.2. ASSESSEE SUBMITTED THAT YEAR-END PROVISION ARE CR EATED FOR VARIOUS TYPES OF EXPENSES, LIKE RENT, PROFESSIONAL CHARGES, SUB CONTRACT CHARGES, INTEREST, COMMISSION, ADVERTISEME NT, RECRUITMENT EXPENSES, ROYALTY ETC., BASED ON ESTIMATION. ASSESSEE SUBMITTED THAT, SUCH PROVISIONS ARE CREATED TAKING INTO ACCOU NT INFORMATION FROM VARIOUS PERSONNEL, WHICH INCLUDE INTER ALIA, F INANCIAL ANALYST IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 64 FOR PROJECT SPECIFIED ACCRUALS, DEPARTMENT HEADS AN D ACCOUNTING PERSONNEL. IT WAS SUBMITTED THAT, EACH PROVISIONS U NDER DIFFERENT EXPENSE HEAD, HAS A BASIS FOR ESTIMATION, AND THE S AME IS CREATED ON A SCIENTIFIC METHODOLOGY, IN ORDER TO ENSURE THA T, APPROPRIATE EXPENDITURES ARE PROVIDED WITHIN SAME FINANCIAL YEA R. IT WAS SUBMITTED THAT, YEAR-END PROVISIONS ARE THEN REVERS ED BY CREDITING THE SAME TO PROFIT AND LOSS ACCOUNT, WHEN ACTUAL IN VOICES ARE RECEIVED FROM THE VENDORS, AND EXPENSES ARE BOOKED BY DEBITING PROFIT AND LOSS ACCOUNT. IT WAS SUBMITTED THAT TAXE S ARE DEDUCTED AT SOURCE AT THE TIME OF PAYMENT IN SUBSEQUENT YEAR(20 14-15), EVEN THOUGH CREDIT TO PROVISION ACCOUNT ACCRUED IN CURRE NT ASSESSMENT YEAR. 7.3. IT WAS SUBMITTED THAT, THIS PROCEDURE IS CONSISTENT LY FOLLOWED BY ASSESSEE AND THAT, SUCH DEDUCTION OF TAXES ARE R EPORTED IN QUARTERLY RETURNS, WHICH IS FILED IN RESPECT OF QUA RTERS IN WHICH TAX WAS DEDUCTED. 7.4. ASSESSEE SUBMITTED THAT, REVERSAL IN SUBSEQUENT YEA R HAD NO BEARING ON INCOME OF THAT YEAR(2014-15), AS REVERSA L OF PROVISION APPEARS ON CREDIT SIDE OF PROFIT AND LOSS ACCOUNT T O TAKE CARE OF EXPENSES RELATED TO THAT YEAR, BEING CHARGED TO PRO FIT AND LOSS ACCOUNT. 7.5. LD.AO RELYING ON OBSERVATION RECORDED BY ASSESSING OFFICER IN DRAFT ASSESSMENT YEAR 2009-10, WAS OF THE OPINION T HAT, ASSESSEE REVERSED PROVISION CREATED ON 1 ST APRIL OF NEXT YEAR, AND THAT, EXPENDITURE DISALLOWED DOES NOT PERTAIN TO YEAR UND ER CONSIDERATION, AND THEREFORE, DOES NOT QUALIFY TO B E CLAIMED AS IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 65 DEDUCTION UNDER SECTION 37 OF THE ACT. AND ONCE EXP ENDITURE GOES OUT OF AMBIT OF SECTION 37 OF THE ACT, PROVISIONS O F SECTION 40(A)(IA) OF THE ACT, WOULD NOT APPLY. LD.AO, THUS REJECTED A SSESSEES CONTENTION OF REVERSAL OF PROVISION, AND DISALLOWED SUM OF RS.345,65,64,364/-. 7.6. AGGRIEVED BY PROPOSED ADDITION IN DRAFT ASSESSMENT ORDER, ASSESSEE RAISED OBJECTION BEFORE DRP. 7.6.1. DRP AFTER CONSIDERING SUBMISSIONS ADVANCED BY ASSE SSEE AND OBSERVATIONS BY LD.AO, WAS OF OPINION THAT, LD. AO DID NOT EXAMINE IN DETAIL, SO AS TO MAKE DISALLOWANCE UNDER SECTION 37(1) OF THE ACT. DRP ALSO NOTED THAT ASSESSEE DID NOT FURNI SH COMPLETE DETAILS OF SUCH EXPENSES. ACCORDINGLY, DRP DIRECTED ASSESSEE TO FURNISH DETAILS OF EXPENSES WITH A DIRECTION TO LD. AO TO VERIFY THE CLAIM ON BASIS OF DETAILS FILED BY ASSESSEE TO ASCE RTAIN, WHETHER EXPENSES WERE MADE FOR PURPOSES OF BUSINESS. DRP AL SO NOTED THAT SIMILAR DIRECTION WAS GIVEN FOR ASSESSMENT YEAR 201 2-13 BY THE THEN DRP. 7.7. BEFORE US, BOTH PARTIES SUBMITTED AS UNDER: 7.7.1. LD.COUNSEL SUBMITTED THAT VIDE NOTICE DATED 21/11/ 2016, LD.AO CALLED UPON ASSESSEE TO SHOW CAUSE, AS TO WHY , AMOUNTS DISALLOWED UNDER SECTION 40(A) SUO MOTO BY ASSESSEE, SHOULD NOT BE DISALLOWED UNDER SECTION 37(1) OF THE ACT, ON ACCOU NT OF THE FACT THAT, YEAR-END PROVISIONS ARE REVERSED IN SUBSEQUEN T YEAR. IT WAS SUBMITTED THAT, PROVISIONS ARE BUSINESS LIABILITIES ARISEN/BEEN INCURRED IN CURRENT YEAR, AND THEREFORE, THE SAME C ANNOT BE DISALLOWED UNDER SECTION 37(1) OF THE ACT. HE SUBMI TTED THAT, IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 66 SUBSEQUENT REVERSAL IN IMMEDIATE SUBSEQUENT YEAR (2 014-15), DOES NOT MEAN THAT, LIABILITY HAS NOT ACCRUED TO ASSESSE E IN CURRENT YEAR. 7.7.2. LD.COUNSEL SUBMITTED THAT, ASSESSEE FOLLOWS MERCANT ILE SYSTEM OF ACCOUNTING AND AS PER AS-1 ON DISCLOSURE OF ACCOUNTING POLICIES, AND THAT CONCEPT OF ACCRUAL IS A FUNDAM ENTAL CONCEPT THAT, IS TO BE FOLLOWED BY COMPANIES. LD.COUNSEL SU BMITTED THAT, AMOUNT HAS BEEN SUO MOTO DISALLOWED U/S.40(A) BY ASSESSEE FOR YEAR UNDER CONSIDERATION. ASSESSEE HAS ALSO FURNISH ED RECEIPTS OF INVOICE TO PROVE THAT EXPENSES WERE GENUINE BUSINES S EXPENSES. 7.8 GROUND NO.6 IS IN RESPECT OF DISALLOWANCE OF CLAIM UNDER SECTION 40 (A) IN RESPECT OF PAYMENTS THAT WERE REV ERSED AS ON 1 ST APRIL 2012, PERTAINING TO PROVISIONS DISALLOWED BY ASSESSEE U/S.40(A) IN AY 2012-13. 7.8.1. LD.AO IN COMPUTATION OF INCOME FOR YEAR UNDER CONSIDERATION, OBSERVED THAT, ASSESSEE CLAIMED DEDU CTION OF RS.429,89,38,0342, ON THE GROUND THAT, IT PERTAINED TO DISALLOWANCE MADE UNDER SECTION 40(A), IN COMPUTATION FOR AY:201 2-13, AS TAX WAS NOT DEDUCTED ON THE PROVISIONS MADE FOR BUSINES S EXPENDITURES . IT WAS SUBMITTED BY ASSESSEE THAT, THESE WERE PROVISIONS CREATED IN ASSESSMENT YEAR 2012-13, WHIC H WAS OFFERED TO TAX UNDER SECTION 40 (A) OF THE ACT,, AND THE SA ME WAS REVERSED AS ON 01/04/2012(FINANCIAL YEAR RELEVANT TO ASSESSM ENT YEAR UNDER CONSIDERATION). IT WAS SUBMITTED THAT, BASED ON INV OICES RECEIVED BY ASSESSEE DURING THE YEAR UNDER CONSIDERATION, TDS W AS DEDUCTED IN RESPECT OF SUCH PAYMENTS. IT WAS SUBMITTED THAT, AS SESSEE CLAIMED IT AS EXPENDITURE FOR YEAR UNDER CONSIDERATION, TO THE EXTENT IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 67 PAYMENT WAS MADE AND TDS BEEN DEDUCTED AND DEPOSITE D IN RELEVANT QUARTERS. 7.8.2. LD.AO NOTED THAT SIMILAR DISALLOWANCE U/S.40(A) IN AY:2012- 13. LD.AO OBSERVED THAT, ASSESSEE HAD FILED OBJECTI ONS WITH DRP AGAINST DRAFT ASSESSMENT ORDER FOR ASSESSMENT YEAR 2012-13 AND DRP WAS YET TO GIVE DIRECTION IN RESPECT OF THE SAM E. SIMILARLY, LD.AO WAS OF THE VIEW THAT, AS THE AMOUNT WAS DISAL LOWED UNDER SECTION 37 FOR ASSESSMENT YEAR 2012-13, ASSESSEE WA S NOT ELIGIBLE TO CLAIM THE SAME AS DEDUCTION UNDER SECTION 40(A) OF THE ACT, FOR YEAR UNDER CONSIDERATION. LD.AO THUS DISALLOWED THE CLAIM OF RS.429,89,38,034, MADE UNDER SECTION 40(A) OF THE A CT. 7.9 . AGGRIEVED BY PROPOSED ADDITION IN DRAFT ASSESSMEN T ORDER, ASSESSEE RAISED OBJECTION BEFORE DRP. 7.9.1. DRP DIRECTED LD.AO TO EXAMINE, WHETHER TDS WAS EFF ECTED ON THESE PAYMENTS, AND IF SO, ASSESSEE WAS TO BE AL LOWED RELIEF IN RESPECT OF THE AMOUNT. 7.10. BEFORE US, LD.COUNSEL SUBMITTED THAT ASSESSEE FILE D VOLUMINOUS DETAILS IN SUPPORT OF ITS CLAIM, LIKE CO PIES OF INVOICES, TO SUBSTANTIATE THE EXPENSES INCURRED TO BE GENUINE, B ASIS OF CREATION OF PROVISION OF EXPENSES AND SUBMISSION ON REMAND R EPORT ISSUED BY LD.AO, VIDE LETTERS DATED 10/11/2016 AND 19/12/2 016 RESPECTIVELY. LD.COUNSEL ALSO SUBMITTED THAT AS THE DISPUTED AMOUNT HAS BEEN SUO MOTO DISALLOWED BY ASSESSEE IN A.Y:2012-13 UNDER SECTION 40(A), THE SAME AMOUNT CANNOT BE AGAI N DISALLOWED ON REVERSAL IN THE YEAR UNDER CONSIDERATION. ASSESS EE MUST BE GIVEN IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 68 BENEFIT IN RESPECT OF PAYMENTS ON WHICH TDS HAS BEE N DEDUCTED AND DEPOSITED WITH GOVERNMENT. 7.10.1. ON THE CONTRARY, LD.STANDING COUNSEL FOR REVENUE, IN RESPRCT OF BOTH ISSUES SUBMITTED THAT, PROCEDURE FO LLOWED BY ASSESSEE WAS CONTRARY TO ACCOUNTING POLICY, BECAUSE , ONCE EXPENDITURE WAS BOOKED IN PROFIT AND LOSS ACCOUNT, IT COULD NOT BE REVERSED. ASSESSEE HAD TO DEDUCT TAX ON THE PROVISI ON SO CREATED IN THE BOOKS OF ACCOUNT. HOWEVER, THE ASSESSEE COULD N OT PRODUCE THE DETAILS OF PAYMENT OF TDS. ALTERNATIVELY, HE SUGGES TED THAT THE ISSUES MAY BE REMANDED FOR VERIFICATION. 7.11 . WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDE S ON THESE ISSUES, IN LIGHT OF RECORDS PLACED BEFORE US. 7.11.1. THE CLAIM OF ASSESSEE IS THAT, IT CREATED PROVISION IN BOOKS OF ACCOUNT ON ESTIMATION IN CURRENT YEAR(ISSUE RAIS ED IN GROUND NO.4). AUTHORITIES BELOW CONCLUDED THAT, ASSESSEE H AS FULL KNOWLEDGE OF WHAT IS DUE TO ITS VENDORS, SUB-CONTRA CTORS, COMMISSION AGENTS ETC., THEREFORE THERE WAS NO NECE SSITY TO CREATE PROVISION AND DISALLOWANCE WAS JUSTIFIED IN FACTS A ND CIRCUMSTANCES OF THE INSTANT CASE. 7.11.2. WE NOTE THAT ASSESSEE HAS SUBMITTED FOLLOWING DETA ILS BEFORE AUTHORITIES BELOW, IN SUPPORT OF ITS CLAIM: SI. NO SUPPORTING EVIDENCE / DETAILS SUBMITTED DATE OF FILING IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 69 1. LISTING OF TRANSACTIONS WITH FOREIGN ENTITIES FOR W HICH FORM 15CBS HAVE BEEN ISSUED ALONG WITH SAMPLE COPIES OF INVOICES AND CORRESPONDING FORM 15C8 CERTIFICATES. EXPLANATION FOR NON-DEDUCTION OF TAXES ON THE PAYMENTS 07 DECEMBER 2016 (EXHIBIT 3) 2. DETAILED WRITE-UP ON BASIS OF CREATION AND SUBMISSIONS ON WHY AMOUNTS DISALLOWED UNDER SECTION 40(A) OF THE ACT SHOULD NOT BE DISALLOWED UNDER SECTION 37(1) OF THE ACT ON ACCOUNT OF THE FA CT THAT YEAR-END PROVISIONS ARE REVERSED IN THE SUBSEQUENT YEAR 16 DECEMBER 2016 (EXHIBIT 4) 3. SUMMARY OF ENTRIES PASSED IN THE PROFESSIONAL AND CONSULTANCY CHARGES LEDGER PROVIDING DETAILS OF TDS COMPLIANCE AND SUPPORTING DOCUMENTS FOR AMOUNTS ON WHICH TAXES HAVE NOT BEEN DEDUCTED AT SOURCE COPIES OF INVOICES SUBSTANTIATING THAT THE EXPENSES IN 23 DECEMBER 2016 (EXHIBIT 5) 4. EXTRACT OF LEDGERS WITH SUMMARY OF TDS COMPLIANCE (ALONG WITH SAMPLE INVOICES ON WHICH TAXES HAVE NOT BEEN DEDUCTED) ACCOMPANIED WITH DETAILS OF TAX DEDUCTED AND DEPOSITED AT SOURCE: RECRUITMENT 23 DECEMBER 2016 IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 70 5. DETAILS OF MAPPING TO SUBSEQUENT RECEIPT OF INVOICE S AND TAX DEDUCTED AND DEPOSITED (WHERE APPLICABLE) ON THE AMOUNTS DISALLOWED IN AY 2013-14 ALONG WITH SAMPLE COPIES OF INVOICES TO SUBSTANTIATE THAT THE EXPENSES INCURRED ARE GENUINE IN NATURE. 26 DECEMBER 2016 7.11.3. IN RESPECT OF ISSUE RAISED IN GROUND 6, WE NOTE THAT ASSESSEE FILED FOLLOWING DETAILS BEFORE AUTHORITIES BELOW: SI. NO SUPPORTING EVIDENCE / DETAILS SUBMITTED DATE OF FILING 6. RELIANCE WAS PLACE ON THE FOLLOWING SUBMISSIONS IN SUPPORT OF THE CLAIM IN THE CURRENT YEAR'S RETURN O F INCOME DETAILS OF MAPPING OF TAX DEDUCTED AND DEPOSITED (WHERE APPLICABLE) ON THE AMOUNTS DISALLOWED IN AY 2012-13 ALONG WITH SAMPLE COPIES OF INVOICES TO SUBSTANTIATE THAT THE EXPENSES INCURRED WERE GENUINE IN NATURE 26 DECEMBER 2016 (EXHIBIT 6) .,_..,_ IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 71 SUBMITTED TO THE LEARNED AO DURING THE DRP PROCEEDI NGS FOR AY 2012-13 VIDE SUBMISSION DATED 19 SEPTEMBER 2016 BASIS FOR CREATION OF PROVISION OF EXPENSES AND SUB MISSIONS ON THE REMAND REPORT ISSUED BY THE LEARNED AO SUBMITTED VIDE LETTERS DATED 10 NOVEMBER 2016 AND 19 DECEMBER 2016 RESPECTIVELY PLEA FOR ALTERNATE CLAIM TO GRANT RELIEF TO THE EX TENT OF MAPPING AND EVIDENCES PROVIDED, IN THE EVENT THE LEARNED AO DOES NOT AGRE E WITH THE SUBMISSIONS WAS MADE. 7.11.4. IT IS NOTED THAT, FOLLOWING WERE THE PROVISIONS SUO MOTO DISALLOWED BY ASSESSEE IN A.Y:2012-13 UNDER SECTION 40(A), WHICH WERE REVERSED AS ON 01/04/2012,(FINANCIAL YEAR RELE VANT TO ASSESSMENT YEAR UNDER CONSIDERATION) AND CLAIMED AS ALLOWANCE IN COMPUTATION FOR YEAR UNDER CONSIDERATION: SI. NO. PARTICULARS OF PAYMENT AMOUNT DISALLOWED U/S 40 (A)(I)/(IA) (AMOUNT IN INR) 1 PROFESSIONAL FEES 56,047,434 2 AMOUNTS PAYABLE CONTRACTORS TO CONTRACTORS /SUB- 2,972,548,455 3 COMMISSION 379,565,554 4 FOREIGN 4,619,777 3,936,182 35,747,826 IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 72 5 RENT 846,472,807 TOTAL 4,298,938,035 7.11.5. IT WAS SUBMITTED THAT, REVERSAL IS AN ACCOUNTING EN TRY, PASSED TO OFFSET INVOICES RECEIVED IN SUBSEQUENT YE AR, TO ENSURE MATCHING PRINCIPLE IS FOLLOWED. LD.COUNSEL SUBMITTE D THAT, ANY PROVISION IN EXCESS HAS BEEN OFFERED TO TAX IN SUBS EQUENT YEAR. HE PLACED RELIANCE ON COMPUTATION OF TOTAL INCOME PLAC ED AT PAGE 322- 324, IN SUPPORT OF THIS SUBMISSION. LD.COUNSEL PLAC ED RELIANCE ON DECISION OF HONBLE SUPREME COURT IN CASE OF METAL BOX CO. OF INDIA LTD., VS.THEIR WORKMAN REPORTED IN (1969) 73 ITR 53 AND BHARAT EARTH MOVERS REPORTED IN (2000) 112 TAXMAN 61. 7.12. WE HAVE PERUSED THESE DECISIONS. 7.12.1. FACTS IN CASE OF METAL BOX CO. OF INDIA LTD., VS.THEIR WORKMA(SUPRA) IS THAT: IT WAS A CASE WHERE, THE APPELLANT-COMPANY ESTIMATE D ITS LIABILITY UNDER TWO GRATUITY SCHEMES FRAMED BY THE COMPANY AN D THE AMOUNT OF LIABILITY WAS DEDUCTED FROM THE GROSS REC EIPTS IN THE PROFIT AND LOSS ACCOUNT. THE COMPANY HAD WORKED OUT ON AN ACTUARIAL VALUATION ITS ESTIMATED LIABILITY AND MAD E PROVISION FOR SUCH LIABILITY NOT ALL AT ONCE BUT SPREAD OVER A NU MBER OF YEARS. THE PRACTICE FOLLOWED BY THE COMPANY WAS THAT EVERY YEA R THE COMPANY WORKED OUT THE ADDITIONAL LIABILITY INCURRED BY IT ON THE EMPLOYEES PUTTING IN EVERY ADDITIONAL YEAR OF SERVICE. THE GR ATUITY WAS PAYABLE ON THE TERMINATION OF AN EMPLOYEE'S SERVICE EITHER DUE TO RETIREMENT, DEATH OR TERMINATION OF SERVICE - THE EXACT TIME OF OCCURRENCE OF THE IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 73 LATTER TWO EVENTS BEING NOT DETERMINABLE WITH EXACT ITUDE BEFORE HAND. THEREIN, HONBLE COURT LAID DOWN FOLLOWING PRINCIPLES: (I) FOR AN ASSESSEE MAINTAINING HIS ACCOUNTS ON MERCAN TILE SYSTEM, A LIABILITY ALREADY ACCRUED, THOUGH TO BE DISCHARGED AT A FUTUR E DATE, WOULD BE A PROPER DEDUCTION WHILE WORKING OUT THE PROFITS AND GAINS OF HIS BUSINESS, REGARD BEING HAD TO THE ACCEPTED PRINCIPLES OF COMM ERCIAL PRACTICE AND ACCOUNTANCY. IT IS NOT AS IF SUCH DEDUCTION IS PERM ISSIBLE ONLY IN CASE OF AMOUNTS ACTUALLY EXPENDED OR PAID; (II) JUST AS RECEIPTS, THOUGH NOT ACTUAL RECEIPTS BUT A CCRUED DUE ARE BROUGHT IN FOR THE INCOME-TAX ASSESSMENT, SO ALSO LIABILITIES ACCRUED DUE WOULD BE TAKEN INTO ACCOUNT WHILE WORKING OUT THE PROFITS AN D GAINS OF THE BUSINESS; (III) A CONDITION SUBSEQUENT, THE FULFILMENT OF WHICH M AY RESULT IN THE REDUCTION OR EVEN EXTINCTION OF THE LIABILITY, WOU LD NOT HAVE THE EFFECT OF CONVERTING THAT LIABILITY INTO A CONTINGENT LIABILI TY; AND (IV) A TRADER COMPUTING HIS TAXABLE PROFITS FOR A PAR TICULAR YEAR MAY PROPERLY DEDUCT NOT ONLY THE PAYMENTS ACTUALLY MADE TO HIS E MPLOYEES BUT ALSO THE PRESENT VALUE OF ANY PAYMENTS IN RESPECT OF THE IR SERVICES IN THAT YEAR TO BE MADE IN A SUBSEQUENT YEAR IF IT CAN BE S ATISFACTORILY ESTIMATED. 7.12.2. FACTS IN CASE OF BHARAT EARTH MOVERS(SUPRA) IS THAT ; PROVISION WAS MADE FOR MEETING LIABILITY TO THE EXT ENT OF ENTITLEMENT OF THE OFFICERS AND STAFF TO ACCUMULATE EARNED/VACA TION LEAVE, SUBJECT TO CEILING LIMIT OF 240/ 126 DAYS AS WAS AP PLICABLE. HAVING ACCUMULATED LEAVE IN A PARTICULAR YEAR, IN THE SUCC EEDING YEAR THE EMPLOYEE MAY EITHER AVAIL THE LEAVE OR APPLY FOR IT S ENCASHMENT. IF THE EMPLOYEE AVAILS THE LEAVE, THEN ADDITIONAL PROV ISION FOR ENCASHMENT IS NOT MADE IN THE RESERVE ACCOUNT. HOWE VER, IF HE DOES NOT AVAIL THE LEAVE AND INSTEAD CHOOSES TO EN-CASH HIS ENTITLEMENT, HE BECOMES ENTITLED TO AN ADDITIONAL NUMBER OF DAYS . HONBLE COURT OBSERVED THAT, WHETHER THE AMOUNT IS PAID AS SALARY BY DRAWING UPON FROM THE CURRENT YEAR'S PROFIT AND LOSS ACCOUN T OR FROM THE RESERVE, IT WOULD NOT MAKE ANY DIFFERENCE IN PRACTI CE, AS THERE IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 74 WOULD BE NO DOUBLE PAYMENT AND, HENCE, NO DOUBLE CL AIM FOR DEDUCTION. IN EITHER CASE THE LIABILITY IS CERTAIN THOUGH THE PERIOD IN WHICH THE LIABILITY WOULD BE INCURRED IS NOT CERTAI N, IN AS MUCH AS, THE LEAVE ENCASHMENT CAN BE SOUGHT FOR, BY THE EMPL OYEE EITHER DURING THE YEARS OF SERVICE OR AT THE END OF THE SE RVICE. SUBJECT TO THE CEILING EVERY EMPLOYEE WOULD EITHER AVAIL THE L EAVE OR SEEK ENCASHMENT AND, THEREFORE, THE LIABILITY IS A CERTA INTY; IT CANNOT BE CALLED A CONTINGENT LIABILITY. ON THESE FACTS, HONBLE COURT OPINED AS UNDER: THE LAW IS SETTLED: IF A BUSINESS LIABILITY HAS DE FINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. WHAT SH OULD BE CERTAIN IS THE INCURRING OF THE LIABILITY. IT SHOULD ALSO BE CAPAB LE OF BEING ESTIMATED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATI ON MAY NOT BE POSSIBLE. IF THESE REQUIREMENTS ARE SATISFIED, THE LIABILITY IS NOT A CONTINGENT ONE. THE LIABILITY IS IN PRESENTI THOUGH IT WILL BE DISCHARGED AT A FU TURE DATE. IT DOES NOT MAKE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH THE LIABILIT Y SHALL HAVE TO BE DISCHARGED IS NOT CERTAIN. 7.12.3. FROM THE ABOVE VIEWS EXPRESSED BY HONBLE SUPREME COURT, IT IS CLEAR THAT, A BUSINESS LIABILITY SHOULD BE AL LOWED AS EXPENDITURE, ALTHOUGH IT MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. IT IS ALSO A SETTLED PRINCIPLE TH AT IN MERCANTILE SYSTEM OF ACCOUNTING, AS INCOME ACCRUED TO ASSESSEE IS BROUGHT TO TAX, EXPENDITURE/LIABILITY ACCRUED ALSO HAS TO BE C ONSIDERED. 7.13. ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING, A ND, IT IS TO ACCOUNT FOR LIABILITIES ON ACCRUAL BASIS. IT IS SUB MITTED THAT SINCE ASSESSEE DOES NOT KNOW ACTUAL LIABILITY, IT ESTIMAT ES LIABILITY ACCRUED, ON A SCIENTIFIC BASIS, DEPENDING ON INSTRU CTION RECEIVED FORM RESPECTIVE ADMINISTRATIVE HR HEAD FOR PURPOSE OF CREATING PROVISIONS. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 75 7.13.1. IT HAS BEEN SUBMITTED THAT, AT THE TIME OF MAKING Y EAR-END PROVISIONS, THE SAME WAS BEING SUO MOTO DISALLOWED BY ASSESSEE IN THE COMPUTATION AND SUFFERED TAX, IN THE PRECEEDING YEAR (YEAR IN WHICH THE DISALLOWANCE WAS MADE). IT WAS UNDER THES E CIRCUMSTANCES, LD.AO CONVERTED DISALLOWANCE FROM SE CTION 40(A) TO SECTION 37 (1) THEREBY DOUBTING GENUINENESS OF EXPE NSES. WE ALSO NOTE THAT LD. AO HAS NOT EVEN LOOKED INTO THE NATUR E OF PAYMENTS THAT HAS BEEN PROVIDED FOR BY ASSESSEE IN ITS BOOKS OF ACCOUNT FOR RELEVANT YEAR UNDER CONSIDERATION. 7.13.2. FURTHER, LD.AO DISALLOWED UNDER SECTION 40(A), YEAR -END PROVISION (CREATED IN PRECEDING YEAR BEING AY:2012- 13), THAT IS REVERSED BY CREDITING THE SAME TO PROFIT AND LOSS A CCOUNT OF CURRENT YEAR, AS AND WHEN, ACTUAL EXPENSES WERE BOOKED UNDE R RELEVANT TDS PROVISIONS. IT HAS BEEN SUBMITTED THAT TDS WAS DEDUCTED AT THE TIME OF BOOKING OF ACTUAL EXPENSES. 7.14. AT THE OUTSET, WE NOTE THAT ASSESSEE WAS CONSISTENT LY FOLLOWING SIMILAR PROCEDURE OF ACCOUNTING EVEN IN P RECEDING ASSESSMENT YEARS. IN SUPPORT, ASSESSEE PLACED BEFOR E US ORDER PASSED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 TO 2009-10, REPORTED IN (2015) 59 TAXMANN.COM 107 , PASSED IN CONTEXT TO SECTION 201(1) AND 201(1A). ON PERUSAL OF THE ORDER PASSED HONBLE BENCH , WE NOTE THAT THIS TRIBUNAL DIRECTED ASSESSEE TO FILE VARIOUS DETAILS BEFORE INCOME TAX OFFICER FOR VERIFICATION. 7.14.1. FROM WRITTEN SUBMISSIONS FILED BY ASSESSEE, WE NOTE THAT PROVISIONS IN THE BOOKS OF ACCOUNT FOR ASSESSMENT Y EARS 2012-13 IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 76 AND 2013-14 ARE TOWARDS SUB CONTRACTING CHARGES, CO MMISSION, PROFESSIONAL CHARGES, CONTRACTORS CHARGES, ADVERTI SE MEANT AND MARKETING EXPENSES, RECRUITMENT EXPENSES, REPAIR AN D MAINTENANCE EXPENSES, GENERAL EXPENDITURES, RENT AND OTHERS. IT CANNOT BE DOUBTED THAT THESE ARE NOT RELATED TO DAY-TO-DAY RU NNING OF BUSINESS OF ASSESSEE. THUS, WE ARE OF THE OPINION T HAT, THESE EXPENSES CANNOT BE DISALLOWED UNDER SECTION 37 (1) OF THE ACT. ASSESSEE, SUO MOTO DISALLOWED THESE PROVISION ACCOUNTS UNDER SECTION 40(A) OF THE ACT FOR NON-DEDUCTION OF TDS D URING THE RELEVANT YEAR. ALL THESE ASPECTS REQUIRES PROPER VE RIFICATION BY DRP. 7.14.2. IN OUR CONSIDERED OPINION, DISALLOWANCE OF PROVISIO N ACCOUNT UNDER SECTION 40(A), AND ITS SUBSEQUENT REV ERSAL REQUIRES PROPER VERIFICATION. AUTHORITIES BELOW HAVE NOT VER IFIED SUBMISSIONS OF ASSESSEE, IN LIGHT OF FINANCIAL ACCOUNTS FOR A.Y :2012-13 AND TDS RETURNS FILED FOR SUBSEQUENT ASSESSMENT YEARS, AY:2 013-14 & 2014- 15, VIS--VIS, INVOICES RAISED BY PAYEE DURING ASSE SSMENT YEARS AY:2013-14 & 2014-15. 7.14.3. WE NOTE THAT, ASSESSEE RAISED IDENTICAL ISSUE BEFOR E THIS TRIBUNAL IN ASSESSMENT YEAR 2008-09 (SUPRA). HONBLE BENCH IN PARAGRAPH 6.1, SET-ASIDE THE ISSUE FOR FRESH CONSID ERATION TO DRP, BY OBSERVING THAT, DRP DOES NOT HAVE POWER TO SET A SIDE ANY PROPOSED VARIATION OR ISSUE WITH A DIRECTION UNDER SECTION 144C(5) OF THE ACT, FOR FURTHER ENQUIRY AND PASSING OF ASSE SSMENT ORDER. 7.14.4. IN THE PRESENT FACTS FOR YEAR UNDER CONSIDERATION, WE NOTE THAT, DRP WHILE CONSIDERING DISALLOWANCE UNDER SECT ION 40 (A) OF THE IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 77 ACT (ISSUE RAISED IN GROUND 4& 6), DIRECTED LD.AO T O VERIFY THE CLAIM OF ASSESSEE. 7.14.5. WE DIRECT ASSESSEE TO PROVIDE FOR THE FOLLOWING: I. ASSESSEE SHALL PROVIDE OPENING BALANCE OF PROVISION ACCOUNTS, AND ENTRIES MADE RELATING TO TRANSACTIONS DURING TH E YEAR AND CLOSING BALANCES. II. ASSESSEE IS DIRECTED TO SUBMIT YEAR WISE DETAILS OF RENTAL CHARGES PROFESSIONAL CHARGES CONTRACT AMOUNT AND OT HER PAYMENTS THAT HAS BEEN CONSIDERED FOR YEAR-END PROV ISIONS, DISALLOWED UNDER SECTION 40 (A) OF THE ACT, DURING AY:2012-13. III. ASSESSEE IS DIRECTED TO PROVIDE FOR DETAILS OF PAYM ENT MADE IN YEAR UNDER CONSIDERATION AND THE DETAILS OF TAX DED UCTED AT SOURCE ON SUCH PAYMENT ALONG WITH PROOF OF DEPOSIT OF SUCH TDS INTO GOVERNMENT ACCOUNT IV. RECONCILIATION STATEMENT IN RESPECT OF EXPENSE PROV ISION ACCRUALS MADE WHICH WERE DISALLOWED UNDER SECTION 4 0 (A) WITH THE SUBSEQUENT VENDOR PAYMENTS MADE AGAINST TH ESE PROVISIONS. THESE EXPENDITURES ARE TO BE MATCHED BA SED ON DESCRIPTION AND PERIOD OF SERVICES MENTIONED IN THE VENDOR INVOICES. V. ALL THE PAYMENTS FOR SERVICES PERTAINING TO PRECEDI NG YEAR (AY:2012-13) ARE TO BE TRACED INTO THE TDS STATEMEN T FILED TO IDENTIFY AND ESTABLISH THE TDS PAYMENTS HAVING DONE . CERTIFICATE ISSUED BY CHARTERED ACCOUNTANT AFTER AS CERTAINING THE COMPLIANCE IN RESPECT OF TAX DEDUCTED AT SOURCE TO BE IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 78 APPROPRIATE, IN THE YEAR UNDER CONSIDERATION, IN RE LATION TO VARIOUS EXPENSES THAT IS REVERSED AS ON 01/04/2012. 7.14.6. DRP SHALL THEN VERIFY THE DETAILD FILED BY ASSESSEE , IN RESPECT OF DISALLOWANCES MADE UNDER SECTION 40 (A) FOR NON- DEDUCTION OF TDS: I. DRP SHALL VERIFY THE NATURE OF PROVISIONS CREATED B Y ASSESSEE IN PRECEDING YEAR (AY:2012-13), AND YEAR UNDER CONS IDERATION THAT IS DISALLOWED UNDER SECTION 40 (A) OF THE ACT. II. DRP SHALL VERIFY IF, TDS APPLIES ON AMOUNTS MENTION ED IN PROVISION ACCOUNT VIS-A-VIS THE VENDOR INVOICE, AND THAT, IF, TDS HAS BEEN COMPLIED WITH IN ACCORDANCE WITH THE R ELEVANT PROVISION IN THE YEAR UNDER CONSIDERATION; III. DRP SHALL VERIFY IF ANY VENDOR HAVE PROVIDED FOR A NIL WITHHOLDING/LOWER WITHHOLDING CERTIFICATE FROM THE DEPARTMENT AS PER SECTION 197 OF THE ACT. IV. DRP SHALL VERIFY THERE IS ANY VENDOR INVOICE ON WHI CH TDS PROVISION DOESNT APPLY. 7.15. BASE ON ABOVE DISCUSSIONS AND OBSERVATION FOR RELEV ANT YEAR, RESPECTFULLY FOLLOWING THE VIEW TAKEN BY HONBLE BENCH FOR AY:2008- 09, WE SET ASIDE FOR THESE ISSUE TO DRP FOR FRESH C ONSIDERATION. NEEDLESS TO SAY THAT, PROPER OPPORTUNITY OF BEING H EARD MUST BE GRANTED TO ASSESSEE AND THESE ISSUES MUST BE DECIDE D HAVING REGARD TO EVIDENCES/DOCUMENTS FILED BY ASSESSEE, IN ACCORD ANCE WITH LAW. WE ALSO DIRECT DRP TO CONSIDER THE ALTERNATE SUBMIS SION ADVANCED IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 79 BY LD.COUNSEL OF ALLOWING THE CLAIM OF ASSESSEE TO THE EXTENT THE PAYMENTS ARE MAPPED WITH THE PROVISIONS, INVOICES A ND TDS MADE AND DEPOSITED WITH THE GOVERNMENT. ACCORDINGLY, WE SET ASIDE GROUND 4&9 BACK TO DRP. 8. GROUND NO.5 IS IN RESPECT OF DISALLOWANCE UNDER SECTION 40(A) O F THE ACT, IN RESPECT OF PAYMENTS MADE TO ASSOCIATED ENTERPRISES AND NON-ASSOCIATED ENTERPRISES, WITHOUT TDS COMPLIANCE. 8.1. LD.AO OBSERVED THAT, ASSESSEE MADE PAYMENTS TO ASSO CIATED ENTERPRISES AND NON ASSOCIATED ENTERPRISES DURING T HE YEAR UNDER CONSIDERATION. IT WAS SUBMITTED THAT, THESE PAYMENT S INCLUDED, PURCHASE OF FINISHED GOODS, PURCHASE OF CAPITAL GOO DS PAYMENTS FOR AVAILING SERVICES ETC. ASSESSEE WAS CALLED UPON VID E NOTICE DATED 21/11/2016 BY LD.AO TO FURNISH DETAILS OF TDS COMPL IANCES WITH RESPECT TO VARIOUS PAYMENTS TO AE& NON AE. 8.2. ASSESSEE, VIDE LETTER DATED 07/12/2016 FILED VARIOU S SUBMISSIONS. LD.AO UPON VERIFICATION, OBSERVED THAT , ASSESSEE DID NOT DEDUCT TDS:- ON PAYMENTS MADE TO NON-RESIDENT 3 RD PARTIES BEING INSURANCE PAYMENTS AMOUNTING TO RS.155,05,88,065; ON PAYMENT OF RS.5,208,766,921 MADE TO OTHER AES AND NON- AES, ON THE BASIS OF CERTIFICATE ISSUED BY CHARTER ED ACCOUNTANTS; AND ON PAYMENT OF RS.4,604,970,453 TO IBM SINGAPORE PTE .LTD., A FOREIGN COMPANY, FOR PURCHASE OF SOFTWARE, WHICH WA S IN THE NATURE OF DISTRIBUTED SOFTWARE. LD.AO NOTED THAT SO FTWARE PURCHASED FROM IBM SINGAPORE PTE., WAS UNDER DISTRI BUTION IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 80 SOFTWARE AGREEMENT NAMELY, SOFTWARE REMARKET AGREE MENT, BETWEEN ASSESSEE AND IBM SINGAPORE, ON WHICH NO TDS WAS DEDUCTED. 8.3. IN REGARDS TO INSURANCE PAYMENT MADE BY ASSESSEE TO THIRD- PARTY NONRESIDENTS, LD.AO WAS OF VIEW THAT, NO TDS WAS TO BE DEDUCTED. 8.3.1. IN REGARDS TO PAYMENT MADE TO OTHER AES AND NON-AE S, LD.AO NOTED THAT TDS WAS NOT DEDUCTED BASED ON CERT IFICATE ISSUED BY CAS. LD.AO REFERRED TO DRAFT ASSESSMENT ORDER P ASSED FOR ASSESSMENT YEAR 2009-10, WHEREIN ON SIMILAR ISSUE, CERTIFICATES UNDER SECTION 195 ISSUED TO IBM INDIA ON THE BASIS OF SELF-SERVING INVOICES BY SAME CAS, WERE HELD TO BE UNRELIABLE. LD.AO FOR YEAR UNDER CONSIDERATION NOTED THAT, SAME CAS, ISSUED C ERTIFICATE UNDER SECTION 195 TO ASSESSEE, FOR YEAR UNDER CONSIDERATI ON. LD.AO THEREFORE, FOR YEAR UNDER CONSIDERATION HELD CERTIF ICATES TO BE UNRELIABLE ISSUED BY THE SAME CAS. 8.3.2. IN REGARDS TO PAYMENT MADE BY ASSESSEE TO IBM SINGA PORE, LD.AO NOTED THAT, FOR ASSESSMENT YEARS 2006-07 TO 2 011-12 PAYMENT MADE TO IBM SINGAPORE CONSTITUTED ROYALTY U NDER BOTH SECTION 9(1)(VI) AND UNDER DTAA BETWEEN INDIA AND S INGAPORE. LD.AO REFERRED TO DISALLOWANCE MADE ON IDENTICAL IS SUE FOR ASSESSMENT YEAR 2009-10, WHEREIN STATEMENTS OF CHAR TERED ACCOUNTANTS WHO, ISSUED CERTIFICATE UNDER SECTION 1 95 TO ASSESSEE, WERE RECORDED. LD.AO DISALLOWED, SUM OF RS.981,37,37,374/- UNDER S ECTION 40(A) THE DETAILS OF WHICH ARE AS UNDER: IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 81 AE(OTHER THAN IBM SINGAPORE) RS.5,246,403,860 IBM SINGAPORE RS.4,604, 970,453 THIRD PARTY NON-RESIDENTS RS. 62,363 ,061 8.4. AGGRIEVED BY PROPOSED ADDITION IN DRAFT ASSESSMENT ORDER, ASSESSEE RAISED OBJECTION BEFORE DRP. 8.4.1. DRP UPHELD DISALLOWANCE OF PAYMENTS MADE BY ASSESSE E TO NON-RESIDENT AMOUNTING TO RS.981,37,37,374/- UNDER SECTION 40(A) OF THE ACT, BY FOLLOWING DECISION OF HONABLE KARNATAKA HIGH COURT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2012-13 IN ITA NO. 540/2008, WHEREIN, HONABLE HIGH COURT FOLLOWED RATIO LAID DOWN BY COORDINATE BENCH IN CASE OF CIT VS. SAMSUNG ELECTRONICS CO.LTD., REPORTED IN (2009)185 TAXMAN 313. 8.5. BEFORE US, LD.COUNSEL SUBMITTED THAT, SUMS WERE MER ELY REIMBURSEMENTS, AND HENCE CANNOT BE CONSIDERED AS I NCOME. HE SUBMITTED THAT SOME PAYMENTS WERE REVERSAL OF PROVI SIONS CREATED IN ASSESSMENT YEAR 2012-13, AND HENCE EXPENDITURE C LAIMED TO THAT EXTENT HAD BEEN REDUCED, WHICH HAS BEEN DISALLOWED BY LD.AO AND IN DRAFT ASSESSMENT ORDER FOR ASSESSMENT YEAR 2012- 13. LD.COUNSEL SUBMITTED THAT, LD.AO CONSIDERED PAYMENT MADE TO IB M SINGAPORE UNDER SOFTWARE FREE-MARKET AGREEMENT, CONSTITUTED R OYALTY, BOTH UNDER SECTION 9(1)(VI) OF THE ACT, AND UNDER DTAA B ETWEEN INDIA AND SINGAPORE. LD.COUNSEL SUBMITTED THAT, IDENTICAL ISS UE AROSE FOR ASSESSMENT YEAR 2008-09 IN ASSESSEES OWN CASE (SUP RA), AND HONBLE BENCH IN PARA 6.12, REMANDED THE ISSUE TO DRP, FOR FRESH CONSIDERATION AND DECISION, AFTER AFFORDING DUE AND PROPER OPPORTUNITY TO ASSESSEE. LD.COUNSEL ALSO SUBMITTED THAT LD.AO IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 82 RELYING ON ORDER PASSED UNDER SECTION 201(1) AND (1 A) DISALLOWED THE AMOUNT PAID BY ASSESSEE TO IBM SINGAPORE. 8.6. ON THE CONTRARY, LD.STANDING COUNSEL FOR REVENUE SU BMITTED THAT, THIS ISSUE REQUIRES DETAILED VERIFICATION IN REGARDS TO NATURE OF PAYMENTS MADE BY ASSESSEE IN ORDER TO ASCERTAIN APP LICABILITY OF TDS PROVISIONS. HE HAS REQUESTED THIS ISSUE TO BE S ET-ASIDE THE ENTITY TO LD.AO. 8.7. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 8.7.1. ADMITTEDLY, ASSESSEE MADE CERTAIN PAYMENTS TO FOREI GN ENTITIES, AMONGST WHICH CERTAIN PAYMENTS WERE SUBJE CTED TO TDS PROVISIONS AND CERTAIN PAYMENTS WERE NOT SUBJECTED TO TDS. DETAILS OF WHICH, AS SUBMITTED BY ASSESSEE IN PAPER BOOK VO LUME 4 AT PAGE 1061 ARE AS UNDER: S. NO PARTICULARS PAYMENTS TO AE PAYMENTS TO NON-AE TOTAL 1. TRANSACTIO N ON WHICH TDS IS DEDUCTED 11,835,06 1 , 796 3,21 3,728, 622 15,048,790, 418 2. TRANSACTION ON WHICH TDS IS NOT DEDUCTED REIMBURSE -MENT 5,138,520, 108 8,131,330 5,146,651, 43 8 OTHERS 7, 8 83,71 5 1,604,819, 797 1,612,703, 548 IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 83 8.7.2. LD.COUNSEL SUBMITTED THAT, ASSESSEE DID NOT DEDUCTE D TAX ON TRANSACTION IN COLUMN 2, FOR FOLLOWING REASONS: TRANSACTIONS BEING REIMBURSEMENTS NOT LIABLE TO TAX AT SOURCE AND CERTAIN TRANSACTION PERTAINS TO PURCHASE OF SPA RE PARTS, MATERIALS AND COMPONENTS, MISCELLANEOUS SERVICES, I NSURANCE PAYMENTS ALLIED EXPENSES ETC WHICH ARE NOT LIABLE T O TAX AT SOURCE SUM OF RS.1,550,558,065/- IS INCLUDED UNDER OTHERS CATEGORY MADE BY ASSESSEE TO NON-RESIDENT INSURANCE PROVIDER S THAT ALSO DO NOT ATTRACT PROVISIONS OF TDS. 8.7.3. IT WAS SUBMITTED THAT, COPIES OF SAMPLE INVOICES AN D CORRESPONDING FORM 15CB, FOR AMOUNTS ON WHICH, TAX HAS NOT BEEN DEDUCTED AT SOURCE, WERE FURNISHED BY ASSESSEE, TO AUTHORITIES BELOW. 8.7.4. FURTHER SUM OF RS.4,604,970,453 HAS BEEN MADE TO IB M SINGAPORE BASED ON SOFTWARE FREE-MARKETERS AGREEMEN T. FROM WRITTEN SUBMISSION PLACED IN PAPER BOOK VOLUME 2, I T IS NOTED THAT DURING RELEVANT FINANCIAL YEAR, ASSESSEE MADE PAYME NT TO IBM SINGAPORE, FOR PURCHASE OF SOFTWARE, WHICH WAS THE NATURE OF DISTRIBUTED SOFTWARE, AND CONSISTED PRIMARILY OF MI DDLE SOFTWARE, ON WHICH, NO TAX AT SOURCE WAS DEDUCTED. 8.7.5. IN OUR OPINION, WE AGREE WITH SUBMISSIONS ADVANCED BY LD.STANDING COUNSEL FOR REVENUE THAT ALL THESE PAYM ENTS NEEDS TO BE VERIFIED HAVING REGARD EVIDENCES PLACED ON RECOR D BY IN ACCORDANCE WITH LAW. SIMILAR OBSERVATION WAS RECORD ED BY DRP. DRP DIRECTED LD.AO TO VERIFY PAYMENTS AND TO DISALL OW SUCH IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 84 PAYMENT, WHERE ASSESSEE FAILS TO FURNISH INFORMATIO NS AND DETAILS REQUIRED FOR VERIFICATION. 8.7.6. LD.COUNSEL, HOWEVER SUBMITTED THAT VOLUMINOUS DETAI LS WERE SUBMITTED BY ASSESSEE, WHICH HAS NOT BEEN CONSIDERE D BY LD.AO, WHILE PASSING IMPUGNED ORDER. WE HAVE PERUSED OBSER VATIONS OF THIS TRIBUNAL FOR ASSESSMENT YEAR 2008-09 WHEREIN, HONBLE BENCH REMANDED THE ISSUE TO DRP FOR FRESH CONSIDERATION A ND DECISION. RESPECTFULLY, FOLLOWING THE SAME, WE REMAND THE IS SUE TO DRP WITH SIMILAR DIRECTION TO CONSIDER THE CLAIM OF ASSESSEE IN LIGHT OF EVIDENCES FILED, AFTER AFFORDING OPPORTUNITY OF BEI NG HEARD IN ACCORDANCE WITH LAW. ASSESSEE IS DIRECTED TO FILE I NVOICES RAISED IN SUPPORT OF PAYMENTS MADE BY ASSESSEE TO RELEVANT PA RTIES. ASSESSEE IS AT LIBERTY TO FILE ALL RELEVANT DETAILS/EVIDENCE S TO SUBSTANTIATE ITS CLAIM. DRP IS THEN DIRECTED TO VERIFY NATURE OF PAY MENT IN THE LIGHT OF INVOICES FILED BY ASSESSEE. DRP IS ALSO DIRECTED TO ANALYSE PAYMENT MADE TO NONRESIDENTS ON WHICH TAX HAS NOT B EEN DEDUCTED AT SOURCE IN LIGHT OF EXPLANATION 2 TO SECTION 195 . DRP SHALL GRANT PROPER OPPORTUNITY OF BEING HEARD TO ASSESSEE. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED FOR STATISTICAL PURPOSES. 9. GROUND NO.7 IS IN RESPECT OF DISALLOWANCE OF DEP RECIATION ON LEASED ASSETS. 9.1. LD.AO OBSERVED THAT, ASSESSEE CLAIMED DEPRECIATION ON ASSETS GIVEN ON FINANCIAL LEASE TO THE TUNE OF RS.327,02,8 7,758/-. IN VIEW OF THE CLAIM, ASSESSEE WAS CALLED UPON TO FURNISH D ETAILS. ASSESSEE VIDE LETTER DATED 28/11/2016, FURNISHED WRITTEN SUB MISSION. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 85 ASSESSEE SUBMITTED THAT, IT IS ENGAGED IN THE BUSIN ESS OF LEASE OF HARDWARE PRODUCTS AND SAME WAS TREATED AS FINANCIAL LEASE FOR ACCOUNTING PURPOSES. ASSESSEE SUBMITTED THAT, LEASE D ASSETS WERE ACCOUNTED FOR IN ACCORDANCE WITH AS 19 PRESCRIBED B Y INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. AS A RESULT OF WHIC H, DURING THE YEAR UNDER CONSIDERATION, ASSESSEE CLAIMED DEPRECIA TION ON LEASED ASSET AS CLAIMED IN P&L ACCOUNT. 9.2. LD.AO OBSERVED THAT TO PREPARE P&L ACCOUNT FOR PURP OSE OF COMPANIES ACT, ASSESSEE FOLLOWED AS-19, WHEREIN, IT DID NOT CAPITALISE ASSETS IN DEPRECIATION SCHEDULE. HOWEVER, IN DEPRECIATION SCHEDULE, PREPARED AND FILED FOR PURPOSE OF INCOME TAX, ASSESSEE CAPITALISED THE ASSETS LEASED UNDER FINANCE LEASE, IN BALANCE SHEET AND CLAIMED DEPRECIATION AT 60% AMOUNTING RS.327,02 ,87,758/-. ASSESSEE PLACED RELIANCE ON DECISION OF HONABLE SUPREME COURT IN CASE OF ICDS LTD VS CIT REPORTED IN (2013) 29 TAXMANN.COM129, IN SUPPORT OF ITS CONTENTION. LD.AO OBSERVED THAT, IN ASSESSMENT YEAR 2009-10 IDENTICAL CONTENTION RAISED BY ASSESSEE WAS REJECTED, FOLLOWING DECISION OF MUMBAI SPECIAL BENCH IN CASE OF INDUSIND BANK REPORTED IN 135 ITD 165 . LD.AO WHILE PASSING DRAFT ASSESSMENT ORDER THEREIN, DISTINGUISHED DECISION OF HONBLE SUPREME COURT IN CASE OF ICDS LTD VS CIT (SUPRA) ON THE BASIS THAT, DECISION BY HONBLE SUPREME COURT PERTAINS TO MOTOR VEHICLES LEASED UNDER FINANCE LEASE AND NOT EQUIPMENTS/COMPUTERS SO LD UNDER FINANCE LEASE. LD.AO FOR YEAR UNDER CONSIDERATION, PLACED RELIANCE ON ENQUIRIES CONDUCTED UNDER SECTION 133(6) OF THE ACT, DURING ASSESSMENT YEAR 2009-10, WHEREIN ERSTWHILE ASSESSIN G OFFICER IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 86 OBSERVED THAT, LESSEES HAVE CAPITALISED THE ASSETS IN THEIR BOOKS AND CLAIMED DEPRECIATION. 9.3. FOR YEAR UNDER CONSIDERATION, LD.AO OBSERVED THAT A SSESSEE FAILED TO FILE CERTAIN SPECIFIC DETAILS TO SUBSTANT IATE ITS CLAIM AND DID NOT PRODUCE SUFFICIENT DOCUMENTARY EVIDENCES. LD.AO ALSO INFERRED THAT, THERE IS NO CHANGE IN ACCOUNTING TREATMENT OF LEASED ASSETS, AS WAS IN ASSESSMENT YEAR 2009-10, AND THEREFORE, D EPRECIATION CLAIMED FOR YEAR UNDER CONSIDERATION ON LEASED ASSE TS WAS DISALLOWED. 9.4. LD.AO, NOTED THAT FOR ASSESSMENT YEAR 2010-11 ASSES SEE RAISED ALTERNATIVE CLAIM BEFORE DRP, ACCORDING TO WHICH DI FFERENCE IN LEASE RENTALS WAS REDUCED FROM TAXABLE INCOME OF ASSESSEE , SUBJECT TO VERIFICATION. LD.AO, THEREFORE FOR YEAR UNDER CONSI DERATION, RESTRICTED ADDITION BEING DIFFERENCE BETWEEN DEPREC IATION CLAIMED THAT WAS DISALLOWED AND LEASE RENTALS THAT WAS ALLO WED, AMOUNTING TO RS.24,60,33,070/- IN THE HANDS OF ASSESSEE. 9.5. AGGRIEVED BY PROPOSED ADDITION IN DRAFT ASSESSMENT ORDER, ASSESSEE RAISED OBJECTION BEFORE DRP. 9.5.1. DRP, FOLLOWED ITS OWN DECISION FOR ASSESSMENT YEAR 2011-12 AND 2012-13, WHEREIN, ALTERNATIVE CLAIM OF ASSESSEE WAS DIRECTED TO BE CONSIDERED BY LD.AO, IN THE EVENT ASSESSEE FURNI SHES DETAILS OF LEASE RENTALS ON THE ASSETS REFLECTED IN DEPRECIATI ON SCHEDULE. 9.6. BEFORE US, BOTH SIDES SUBMITTED AS UNDER: LD.COUNSEL SUBMITTED THAT, LD.AO DISALLOWED DEPRECI ATION ON LEASED ASSETS BEING (NET OF LEASE RENTAL AND INTERE ST) AMOUNTING TO IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 87 RS.24,60,33,070/-, BY HOLDING THAT ASSESSEE IS NOT THE LEGAL OWNER OF ASSETS LEASED TO CUSTOMERS. 9.6.1. LD.COUNSEL SUBMITTED THAT, ASSESSEE IS ALSO ENGAGED IN BUSINESS OF LEASE OF HARDWARE PRODUCTS. THE ASSETS LEASED TO LESSEES, ARE TREATED AS FINANCIAL LEASE FOR ACCOUN TING PURPOSES. IT HAS BEEN SUBMITTED THAT, ASSESSEE IS THE LEGAL OWNE R OF SUCH ASSETS LEASED TO CUSTOMERS, AND HAS ACCOUNTED FOR LEASED A SSETS IN ACCORDANCE WITH AS-19, PRESCRIBED BY INSTITUTE OF C HARTERED ACCOUNTANTS OF INDIA WHICH IS AS FOLLOWS: ASSETS ARE NOT CAPITALISED AND THEY ARE REFLECTED A S DEBTOR RECEIVABLES OUT OF THE LEASE RENTALS RECEIVED, PRINCIPAL COMPON ENT OF LEASE RENTAL IS REDUCED FROM THE DEBTOR BALANCE, THAT IS THE COST PRICE AND, FINANCE CHARGES ARE RECOGNISED AS REVENUES. 9.6.2. HE SUBMITTED THAT FOR PURPOSE OF COMPUTATION OF INC OME AS PER PROVISIONS OF INCOME TAX ACT, ASSESSEE TREATED THESE ASSETS AS FOLLOWS: ASSETS ARE CAPITALISED AND DEPRECIATION ON THE SAME IS CLAIMED IN THE RETURN OF INCOME: ENTIRE LEASE RENTALS ARE OFFERED AS TAXABLE INCOME: AND FINANCE CHARGES ARE REDUCED FROM TAXABLE INCOME SIN CE THE SAME IS ALREADY FORMING PART OF THE LEASE RENTALS O FFERED TO TAX AND CREDITED TO THE PROFIT AND LOSS ACCOUNT. 9.6.3. LD.COUNSEL SUBMITTED THAT, ASSESSEE, IN SUPPOET OF THE CLAIM, FILED DETAILS LIKE ASSETS LEASED (PAGE 353 O F PAPER BOOK IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 88 VOLUME 2), DETAILS OF LESSEES, EMI DESCRIPTION AND VALUE OF ASSETS ALONG WITH RELEVANT SUPPORTING DOCUMENTS SUCH AS MA STER LEASE AGREEMENT(MLA), SUPPLEMENT TO THE MASTER LEASE AGRE EMENT, INVOICE FOR PURCHASE OF ASSETS AND LEAVE RENTALS IN VOICES ON SAMPLE BASIS. 9.6.4. LD.COUNSEL PLACED RELIANCE ON DECISION OF HONABLE SUPREME COURT IN CASE OF ICDS LTD VS CIT REPORTED IN (2013) 29 TAXMANN.COM 129 IN SUPPORT OF HIS CLAIM. IT HAS BEEN SUBMITTED THA T ON IDENTICAL FACTS AND CIRCUMSTANCES HONBLE SUPREME COURT WAS OF THE OPINION THAT AS LONG AS ASSESSEE HAS A RIGHT TO RETAIN LEGA L TITLE OF THE LEASED ASSETS, IT WOULD BE THE OWNER OF SUCH ASSETS. 9.6.5. LD.COUNSEL DREW OUR ATTENTION TO VARIOUS CLAUSES OF AGREEMENT PLACED AT PAGE 352 OF PAPER BOOK VOLUME 2 , WHEREIN, CLAUSE 19 AT PAGE 356, CLAUSE 24 AT PAGE 357, CLAUS E 13 TO READ WITH 33 AND CLAUSE 34 AT PAGE 360, REVEALS THAT OWN ERSHIP OF ASSETS ARE WITH ASSESSEE. HE SUBMITTED THAT, RATIO BY HONBLE SUPREME COURT IN CASE OF ICDS LTD VS CIT (SUPRA) ON IDENTICAL FACTS, SQUARELY COVERS ASSESSEES CASE. 9.7. ON THE CONTRARY, LD.STANDING COUNCIL FOR REVENUE, S UBMITTED THAT, RATIO BY HONBLE SUPREME COURT IN CASE OF ICDS LTD VS CIT (SUPRA) ARE NOT APPLICABLE TO PRESENT FACTS OF THE CASE. LD .STANDING COUNSEL PLACED EMPHASIS ON OWNERSHIP BEING ESTABLIS HED FOR CLAIMING DEPRECIATION OF ASSETS. HE PLACED RELIANCE ON OBSERVATIONS RECORDED IN DRAFT ASSESSMENT ORDER FOR ASSESSMENT Y EAR 2009-10, REPRODUCED AT PAGE 57 OF IMPUGNED ASSESSMENT ORDER. HE SUBMITTED THAT ACCOUNTING TREATMENT FOLLOWED BY ASS ESSEE FOR YEAR IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 89 UNDER CONSIDERATION IS SIMILAR TO ASSESSMENT YEAR 2 009-10. HE SUBMITTED THAT, LD.AO, VIDE NOTICE DATED 26/07/2012 CALLED FOR DETAILS AND DESCRIPTION OF ASSETS THAT WAS LEASED O UT, INVOICES RAISED, VALUE OF ASSETS LEASED OUT, WHICH WERE NOT SUBMITTED. HE SUBMITTED THAT, UNDER SUCH CIRCUMSTANCES THE CLAIM HAS BEEN RIGHTLY DENIED BY LD.AO. 9.8. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 9.8.1. LD.COUNSEL SUBMITTED THAT, LD.AO ERRED IN MENTIONIN G THAT NOTHING WAS FILED BEFORE HIM, DURING FINAL STAGE OF ASSESSMENT ORDER. LD.COUNSEL TOOK US THROUGH DOCUMENTS PLACED AT PAGE 353 VOLUME 2 OF PAPER BOOK BEING DETAILS OF LEASED ASSE TS. WE NOTE THAT LD.AO DID NOT VERIFY DETAILS FILED BY ASSESSEE. WE NOTE THAT THIS BEING A RECURRING ISSUE A CONSISTENT APPROACH HAS T O BE TAKEN IN THIS REGARD. ADMITTEDLY ASSESSEE HAS CAPITALISED TH ESE ASSETS. ON ONE HAND, LD.AO ACCEPTS LEASE RENTALS RECEIVED BY A SSESSEE TO BE BUSINESS INCOME, AND ON THE OTHER HAND DISALLOWED D EPRECIATION. IN OUR VIEW, ASSESSEE IS ELIGIBLE FOR DEPRECIATION ON LEASED ASSETS, HOWEVER THE SAME HAS TO BE COMPUTED IN ACCORDANCE W ITH LAW HAVING REGARD TO SCHEDULE OF ASSETS. 9.8.2. IN THE INTEREST OF JUSTICE, WE REMIT THIS ISSUE TOO LD.AO FOR PROPER VERIFICATION OF ALL DETAILS FILED BY ASSESSE E AND TO CONSIDER CLAIM IN ACCORDANCE WITH RATIO LAID DOWN BY HONBLE SUPREME COURT IN CASE OF ICDS LTD VS CIT (SUPRA). NEEDLESS TO SAY THAT PROPER OPPORTUNITY OF BEING HEARD MUST BE PROVIDED TO ASSE SSEE IN ACCORDANCE WITH LAW. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 90 ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED FOR STATISTICAL PURPOSES. 10. GROUND NO.8 IS IN RESPECT OF DISALLOWANCE UNDER SECTION 14 A. 10.1. LD.AO OBSERVED THAT DISALLOWANCE COMPUTED BY ASSESS EE WAS UNDER SECTION 14A READ WITH RULE 8D AMOUNTING TO RS .78,54,075/-. AGGRIEVED BY PROPOSED ADDITIONS BY LD.AO IN DRAFT A SSESSMENT ORDER, ASSESSEE RAISED OBJECTIONS BEFORE DRP. 10.2. DRP DISALLOWED SUM OF RS.78,54,075/- UNDER SECTION 14A OF THE ACT READ WITH RULE 8D, BY HOLDING THAT IT IS NO T NECESSARY THAT DURING THE ASSESSMENT YEAR ASSESSEE SHOULD HAVE EAR NED EXEMPT INCOME. 10.3. BEFORE US, BOTH SIDES SUBMITTED AS UNDER: 10.3.1. LD.COUNSEL SUBMITTED THAT, ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE YEAR AND THEREFORE PROVISI ONS OF SECTION 14 A READ WITH RULE 8D, CANNOT BE APPLIIED. HE PLAC ED RELIANCE UPON DECISION OF HONABLE DELHI HIGH COURT IN CASE OF CHEMINVEST LTD VS CIT REPORTED IN (2012) 317 ITR 33. 10.3.2. ON THE CONTRARY, LD.STANDING COUNSEL FOR REVENUE PL ACED RELIANCE UPON ORDERS PASSED BY IT IS BELOW. 10.4. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 10.4.1. IT IS NOTED THAT ADMITTEDLY THERE IS NO EXEMPT INCO ME EARNED BY ASSESSEE DURING THE YEAR UNDER CONSIDERAT ION. THEREFORE RESPECTFULLY FOLLOWING HONABLE DELHI HIGH COURT IN CASE OF IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 91 CHEMINVEST LTD VS CIT , DISALLOWANCE UNDER SECTION 14 A STANDS DELETED. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED. 11. GROUND NO.9 IS IN RESPECT OF DEPRECIATION ON CO MPUTER SOFTWARE BEEN RESTRICTED FROM 60% TO 25%. 11.1. LD.AO OBSERVED THAT ASSESSEE MADE ADDITION OF RS.69,83,82,63 UNDER THE HEAD COMPUTER SOFTWARE AND CLAIMED DEPRECIATION AT 60% ON THE SAME. LD.AO CALLED UPON ASSESSEE TO SUBMIT DETAILS OF SOFTWARE PURCHASES. 11.1.1. ASSESSEE, WIDE SUBMISSION DATED 26/12/2012 SUBMITTE D THAT APPENDIX 1 TO INCOME TAX RULES STATES THAT 60% DEPRECIATION IS ALLOWABLE ON COMPUTERS INCLUDING COMPUTER SOFTWARE. IT WAS SUBMITTED THAT THE WORD, INCLUDING, IS TO BE INTE RPRETED AS EXPANDING THE SCOPE OF THE WORD COMPUTERS, TO BRI NG WITHIN ITS AMBIT COMPUTER SOFTWARE. 11.1.2. ON VERIFICATION OF THE SAME, LD.AO OBSERVED THAT SO FTWARE PURCHASED BY ASSESSEE WAS LICENCE TO USE SOFTWARE . LD.AO, ACCORDINGLY RESTRICTED DEPRECIATION AT 25% BY PLACI NG RELIANCE ON DRP RESTRICTED DEPRECIATION CLAIMED TO A LOWER RATE OF 25% BY CONCLUDING THAT ONLY SOFTWARE PURCHASED ALONG WITH THE COMPUTER IS ELIGIBLE FOR DEPRECIATION AT THE RATE OF 60%. 11.2. BEFORE US BOTH SIDES SUBMITTED AS UNDER: 11.2.1. LD.COUNSEL SUBMITTED THAT, AUTHORITIES BELOW HAVE E RRED IN RESTRICTING DEPRECIATION TO LOWER RATE OF 25%, AS A GAINST CLAIM OF ASSESSEE AT 60% ON COMPUTER SOFTWARE UNDER, SECTION 32 OF THE ACT, THEREBY RESULTING IN NET DISALLOWANCE OF RS.24,44,3 3,932/-. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 92 11.2.2. LD.COUNSEL SUBMITTED THAT, AS PER APPENDIX 1 TO INC OME TAX RULES FOR YEAR UNDER CONSIDERATION, 60% DEPRECI ATION IS ALLOWABLE ON COMPUTER, INCLUDING COMPUTER SOFTWARE. HE SUBMITTED THAT, COMPUTER SOFTWARE HAS BEEN DEFINED TO MEAN AN Y COMPUTER PROGRAM RECORDED ON ANY DISK, TAPE, RELATED MEDIA O R OTHER INFORMATION STORAGE DEVICES. IT HAS BEEN SUBMITTED THAT SAID DEFINITION DOES NOT MAKE A DISTINCTION BETWEEN SYST EM AND APPLICATION SOFTWARE, AND THEREFORE, IT IS SOFTWARE FALLING WITHIN THE DEFINITION ARE TO BE REGARDED AS COMPUTER AND ACCOR DINGLY ELIGIBLE FOR DEPRECIATION AT THE RATE OF 60%. 11.3. ON THE CONTRARY LD.STANDING COUNSEL FOR REVENUE, PL ACED RELIANCE UPON ORDERS PASSED BY AUTHORITIES BELOW. H E SUBMITTED THAT SOFTWARE PURCHASED ALONG WITH HARDWARE IS ONLY ELIGIBLE FOR DEPRECIATION @60%. 11.4. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 11.4.1. IT HAS BEEN SUBMITTED THAT THE ISSUE NOW STANDS SET TLED BY DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF INFOSYS LTD VS ACIT IN ITA(TP)A NO.102 AND 233/BANG/2013 FOR ASSESSMENT YEAR 2005-06, BY ORDER DATED 10/11/2017 . THIS TRIBUNAL HELD AS UNDER: 9.1. THIS GROUND IS RAISED WITH RESPECT TO THE RATE OF D EPRECIATION ON SOFTWARE EXPENSES OF RS.97,84,35,963 WHICH ARE TREA TED AS CAPITAL BY THE ASSESSING OFFICER AND CIT (APPEALS). THE AUTHORIT IES BELOW HAVE ALLOWED DEPRECIATION AT 25% ON SOFTWARE EXPENSES HELD TO BE CAPITAL IN NATURE, FOR THE REASON THAT THE SOFTWARE EXPENDITURE RESULTED I N RIGHT TO USE SOFTWARE LICENSES IS AN INTANGIBLE ASSET AND THEREFORE EL IGIBLE FOR DEPRECIATION AT 25%. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 93 9.2. PER CONTRA, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE CONTENDS THAT AS PER PART A OF DEPRECIATION SCHEDUL E TO IT RULES, 1962. COMPUTERS INCLUDING COMPUTER SOFTWARE ARE ELIGIBL E FOR DEPRECIATION @ 60 %. AS PER NOTE 7 TO THE SAID DEPRECIATION SCHEDULE . COMPUTER SOFTWARE MEANS ANY SOFTWARE PROGRAM RECORDED ON ANY DISC, TA PE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE. 9.3.1. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED AND C AREFULLY CONSIDERED THE MATERIAL ON RECORD. WE HAVE RESTORE D THE ISSUE OF ALLOWABILITY OF SOFTWARE EXPENSES AS CAPITAL OR REV ENUE TO THE FILE OF THE ASSESSING OFFICER. IF THE SOFTWARE EXPENDITURE IS TREATED AS REVENUE EXPENDITURE, THEN THE QUANTUM OF CLAIMING DEPRECIAT ION WOULD NOT ARISE. THE ISSUE OF DEPRECIATION REMAINS ONLY IF THE SOFTW ARE EXPENSES ARE HELD TO BE CAPITAL EXPENDITURE. WE FIND FROM A PERUSAL OF THE ORDER OF ASSESSMENT THAT IN PARA 7.4 THEREOF THAT THE ASSESSING OFFICER HIMSELF HAS NOTED THAT DEPRECIATION OF SOFTWARE EXPENSES IS TO BE ALLOWED AT 60%, BUT ULTIMATELY ALLOWED THE ASSESSEE DEPRECIATION AT 25%. AS PER S EC. 32(1)(II) DEPRECIATION @ 25% IS APPLICABLE IN RESPECT OF KNOW -HOW, PATENTS, COPY RIGHTS, TRADEMARKS, LICENSES, FRANCHISES OR ANY OTH ER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE, BEING INTANGIBL E ASSETS, ACQUIRED ON OR AFTER 1.4.1998. IN THE CASE OF AMWAY INDIA ENTERPR ISES VS. DCIT (2008) 111 ITD 112 (SB) (DELHI), IT WAS HELD THAT COMPUTE R SOFTWARE IS ELIGIBLE FOR DEPRECIATION @ 60% THIS DECISION OF THE ITAT, DELH I (SB) IN THE CASE OF AMWAY INDIA ENTERPRISES (SUPRA) HAS BEEN UPHELD BY THE HON'BLE HIGH COURT OF DELHI. IN DCIT VS. DATACRAFT INDIA LTD. (2010) 133 TTJ 377 (MUM) (SB) WHEREIN IT WAS HELD THAT WHEN A DEVICE IS USED AS PART OF THE COMPUTER IN ITS FUNCTIONS, LIKE ROUTERS, SWITCHES, ETC., THEY ARE ELIGIBLE FOR DEPRECIATION @ 60%. IN THE LIGHT OF THE DISCUSSION ABOVE, WE HOLD THAT IF THE SOFTWARE EXPENSES ARE TREATED AS CAPITAL EXPEND ITURE BY THE ASSESSING OFFICER, THEN DEPRECIATION IS TO BE ALLOWED THEREON AT 60%. NEEDLESS TO ADD, THE ASSESSEE BE AFFORDED OPPORTUNITY OF BEING HEARD. CONSEQUENTLY, GROUND NO.3.2 OF THE ASSESSEE'S APPEAL IS ALLOWED F OR STATISTICAL PURPOSES. 11.4.2. BASED ON ABOVE DISCUSSIONS AND RESPECTFULLY FOLLOW ING DECISION OF COORDINATE BENCH IN CASE OF INFOSYS LTD. VS ACIT(SUPRA) , WE DIRECT LD.AO TO CONSIDER THE CLAIM OF ASSESSEE. LD. AO IS DIRECTED TO VERIFY IF THERE IS ANY SOFTWARE PURCHASED THAT F ALLS IN THE CATEGORY OF REVENUE EXPENDITURE, AS THEN THE QUESTION OF GRA NTING DEPRECIATION WOULD NOT ARISE. IN RESPECT OF THE OTH ER COMPUTER SOFTWARE THAT ARE CAPITALIZED, DEPRECIATION IS TO B E GRANTED TO IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 94 ASSESSEE AT 60%. NEEDLESS TO SAY THAT PROPER OPPORT UNITY MUST BE GRANTED TO ASSESSEE IN ACCORDANCE WITH LAW. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED FOR STATISTICAL PURPOSES. 12. GROUND NO.10 IS PREMATURE AT THIS STAGE AND DO NOT REQUIRE ANY ADJUDICATION. 13. GROUND NO.11 IS IN RESPECT OF LEVY OF INTEREST UNDER SECTION 234B OF THE ACT. 13.1. IT HAS BEEN SUBMITTED BY LD.COUNSEL THAT AS A CONSE QUENCE OF APA ENTERED INTO BY ASSESSEE, INCOME WAS INCREAS ED VIS-A-VIS ORIGINAL COMPUTATION AT PAGE 322. REFERRING TO REVI SED COMPUTATION AT PAGE 328 OF PAPER BOOK VOLUME 1, HE SUBMITTED TH AT, INCREMENTAL INCREASE IN THE INCOME IS RS.7,74,21,28,914/- PURSU ANT TO APA ON WHICH INTEREST UNDER SECTION 234B CANNOT BE LIVING. 13.2. HAVING SAID SO, LD.COUNSEL ALSO ADMITTED THAT 234B IS A MANDATORY LEVY, BY REFERRING TO DECISION OF HONBLE SUPREME COURT IN CASE OF CIT VS. ANJUM.M.H.GHASWALA REPORTED IN (2001)119 TAXMAN352 . HOWEVER, HE SUBMITTED THAT, INTEREST UNDER SECTIO N 234B CANT BE CASTED, UNLESS THERE IS A DEFAULT IN MAKING ADVANCE TAX. AND IN THE PRESENT CASE, THERE IS AN INCREASE IN THE INCOME OF ASSESSEE, POST APA. HE PLACED RELIANCE ON DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF PRIME SECURITIES VS ACIT REPORTED IN (2012) 20 TAXMAN.COM 757 , HONBLE GUJRAT HIGH COURT IN CASE OF CIT VS. RAINBOW REPORTED IN 277 ITR 507 AND DECISION OF ITAT IN CASE OF JSW STEEL LTD IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 95 13.3. ON THE CONTRARY, LD.STANDING COUNSEL FOR REVENUE, EMPHASISED THAT, INTEREST UNDER SECTION 234B IS A M ANDATORY LEVY, AS THE SECTION DEFINES LEVY OF INTEREST ON THE ASSE SSED TAX. IN THE PRESENT FACTS OF CASE, TAX IS ASSESSED INCLUDING IN CREMENTAL INCOME DUE TO APA AND THEREFORE THE CONSEQUENCE SHOULD FOL LOW. 13.4. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. RELEVANT PROVISION FOR CONSIDERATION IS AS UNDER: 234B.: INTEREST FOR DEFAULTS IN PAYMENT OF ADVANCE TAX. (1) SUBJECT TO THE OTHER PROVISIONS OF THIS SECTION , WHERE, IN ANY FINANCIAL YEAR, AN ASSESSEE WHO IS LIABLE TO PAY ADVANCE TAX UNDER SECTION 208 HAS FAILED TO PAY SUCH TAX OR, WHERE THE ADVANCE TAX PA ID BY SUCH ASSESSEE UNDER THE PROVISIONS OF SECTION 210 IS LESS THAN NI NETY PER CENT OF THE ASSESSED TAX, THE ASSESSEE SHALL BE LIABLE TO PAY S IMPLE INTEREST AT THE RATE OF ONE PER CENT FOR EVERY MONTH OR PART OF A MONTH COMPRISED IN THE PERIOD FROM THE 1ST DAY OF APRIL NEXT FOLLOWING SUCH FINAN CIAL YEAR TO THE DATE OF DETERMINATION OF TOTAL INCOME UNDER SUB-SECTION (1) OF SECTION 143 AND WHERE A REGULAR ASSESSMENT IS MADE, TO THE DATE OF SUCH R EGULAR ASSESSMENT, ON AN AMOUNT EQUAL TO THE ASSESSED TAX OR, AS THE CASE MA Y BE, ON THE AMOUNT BY WHICH THE ADVANCE TAX PAID AS AFORESAID FALLS SHORT OF THE ASSESSED TAX EXPLANATION 1.IN THIS SECTION, 'ASSESSED TAX' MEAN S THE TAX ON THE TOTAL INCOME DETERMINED UNDER SUB-SECTION (1) OF SECTION 143 AND WHERE A REGULAR ASSESSMENT IS MADE, THE TAX ON THE TOTAL INCOME DET ERMINED UNDER SUCH REGULAR ASSESSMENT AS REDUCED BY THE AMOUNT OF, (I) ANY TAX DEDUCTED OR COLLECTED AT SOURCE IN ACCO RDANCE WITH THE PROVISIONS OF CHAPTER XVII ON ANY INCOME WHICH IS SUBJECT TO S UCH DEDUCTION OR COLLECTION AND WHICH IS TAKEN INTO ACCOUNT IN COMPU TING SUCH TOTAL INCOME; (II) ANY RELIEF OF TAX ALLOWED UNDER SECTION 90 ON ACCOUNT OF TAX PAID IN A COUNTRY OUTSIDE INDIA; (III) ANY RELIEF OF TAX ALLOWED UNDER SECTION 90A O N ACCOUNT OF TAX PAID IN A SPECIFIED TERRITORY OUTSIDE INDIA REFERRED TO IN TH AT SECTION; (IV) ANY DEDUCTION, FROM THE INDIAN INCOME-TAX PAYA BLE, ALLOWED UNDER SECTION 91, ON ACCOUNT OF TAX PAID IN A COUNTRY OUT SIDE INDIA; AND (V) ANY TAX CREDIT ALLOWED TO BE SET OFF IN ACCORDA NCE WITH THE PROVISIONS OF SECTION 115JAA. EXPLANATION 2.WHERE, IN RELATION TO AN ASSESSMENT YEAR, AN ASSESSMENT IS MADE FOR THE FIRST TIME UNDER SECTION 147 OR SECTIO N 153A THE ASSESSMENT SO MADE SHALL BE REGARDED AS A REGULAR ASSESSMENT FOR THE PURPOSES OF THIS SECTION. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 96 EXPLANATION 3. IN EXPLANATION 1 AND IN SUB-SECTIO N (3) 'TAX ON THE TOTAL INCOME DETERMINED UNDER SUB-SECTION (1) OF SECTION 143' SHALL NOT INCLUDE THE ADDITIONAL INCOME-TAX, IF ANY, PAYABLE UNDER SECTIO N 143. (2) WHERE, BEFORE THE DATE OF DETERMINATION OF TOTA L INCOME UNDER SUB-SECTION (1) OF SECTION 143 OR COMPLETION OF A REGULAR ASSES SMENT, TAX IS PAID BY THE ASSESSEE UNDER SECTION 140A OR OTHERWISE, (I) INTEREST SHALL BE CALCULATED IN ACCORDANCE WITH THE FOREGOING PROVISIONS OF THIS SECTION UP TO THE DATE ON WHICH THE TAX IS SO PAID, AND REDUCED BY THE INTEREST, IF ANY, PAID UNDER SECTION 140A TOWARDS T HE INTEREST CHARGEABLE UNDER THIS SECTION; (II) THEREAFTER, INTEREST SHALL BE CALCULATED AT TH E RATE AFORESAID ON THE AMOUNT BY WHICH THE TAX SO PAID TOGETHER WITH THE ADVANCE TAX PAID FALLS SHORT OF THE ASSESSED TAX. (3) WHERE, AS A RESULT OF AN ORDER OF REASSESSMENT OR RECOMPUTATION UNDER SECTION 147 OR SECTION 153A THE AMOUNT ON WHICH INT EREST WAS PAYABLE UNDER SUB-SECTION (1) IS INCREASED, THE ASSESSEE SH ALL BE LIABLE TO PAY SIMPLE INTEREST AT THE RATE OF ONE PER CENT FOR EVERY MONT H OR PART OF A MONTH COMPRISED IN THE PERIOD COMMENCING ON THE DAY FOLLO WING THE DATE OF DETERMINATION OF TOTAL INCOME UNDER SUB-SECTION (1) OF SECTION 143 AND WHERE A REGULAR ASSESSMENT IS MADE AS IS REFERRED TO IN S UB-SECTION (1) FOLLOWING THE DATE OF SUCH REGULAR ASSESSMENT AND ENDING ON T HE DATE OF THE REASSESSMENT OR RECOMPUTATION UNDER SECTION 147 OR SECTION 153A ON THE AMOUNT BY WHICH THE TAX ON THE TOTAL INCOME DETERMI NED ON THE BASIS OF THE REASSESSMENT OR RECOMPUTATION EXCEEDS THE TAX ON TH E TOTAL INCOME DETERMINED UNDER SUB-SECTION (1) OF SECTION 143 OR ON THE BASIS OF THE REGULAR ASSESSMENT AFORESAID. (4) WHERE, AS A RESULT OF AN ORDER UNDER SECTION 15 4 OR SECTION 155 OR SECTION 250 OR SECTION 254 OR SECTION 260 OR SECTION 262 OR SECTION 263 OR SECTION 264 OR AN ORDER OF THE SETTLEMENT COMMISSION UNDER SUB- SECTION (4) OF SECTION 245D, THE AMOUNT ON WHICH INTEREST WAS PAYABLE UNDE R SUB-SECTION (1) OR SUB-SECTION (3) HAS BEEN INCREASED OR REDUCED, AS T HE CASE MAY BE, THE INTEREST SHALL BE INCREASED OR REDUCED ACCORDINGLY, AND (I) IN A CASE WHERE THE INTEREST IS INCREASED, THE ASSESSING OFFICER SHALL SERVE ON THE ASSESSEE A NOTICE OF DEMAND IN THE PRESCRIBE D FORM SPECIFYING THE SUM PAYABLE AND SUCH NOTICE OF DEMAND SHALL BE DEEM ED TO BE A NOTICE UNDER SECTION 156 AND THE PROVISIONS OF THIS ACT SH ALL APPLY ACCORDINGLY; (II) IN A CASE WHERE THE INTEREST IS REDUCED, THE E XCESS INTEREST PAID, IF ANY, SHALL BE REFUNDED. (5) THE PROVISIONS OF THIS SECTION SHALL APPLY IN R ESPECT OF ASSESSMENTS FOR THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1989 AND SUBSEQUENT ASSESSMENT YEARS. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 97 13.4. ASSESSEE DOES NOT DISPUTE THAT ADVANCE TAX IS PAYAB LE ON INCREMENTAL INCOME. TAX HAS TO BE PAID ON ADDITIONA L INCOME, WHICH DID NOT FORM PART OF ORIGINAL RETURN OF INCOME. 13.5. LD.COUNSEL RELIED ON FOLLOWING DECISIONS: DECISION OF HONBLE GUJARAT HIGH COURT IN RAINBOW INDUSTRIES (P.) LTD. ( SUPRA ), RELIED ON BY LD.COUNSEL IS IN RESPECT OF DEMAND FOR INTEREST ON SHORT PAYMENT OF ADVANCE TAX DELETED BY TRIBUNAL . IN REFERENCE BEFORE HONBLE COURT AT THE INSTANCE OF REVENUE, IT WAS HELD THAT, THIS TRIBUNAL AS A MATTER OF FACT HAD FOUND THAT T HE ADVANCE TAX LIABILITY WAS DETERMINED BY THE ASSESSEE THEREI N ON THE BASIS OF ITS METHOD OF VALUING CLOSING STOCK WHICH IT HAD FOLLOWED EVEN FOR THE EARLIER ASSESSMENT YEARS. THE REFORE, IN THE ABSENCE OF THE REVENUE POINTING OUT THAT THE FI GURES ADOPTED FOR COMPUTING THE INCOME WAS INCORRECT, THE LEVY OF INTEREST COULD NOT BE SUSTAINED. 13.6. RELIANCE WAS ALSO PLACED ON DECISION OF HONBLE BOMBAY HIGH COURT IN PRIME SECURITIES (SUPRA) WHEREIN, DEFAULT WAS COMMITTED BY ASSESSEE IN PAYMENT OF ADVANCE TAX AT THE TIME WHEN IT WAS PAID. ON THESE FACTS, HONBLE COURT HELD THAT, AT THE TIME OF MAKING PAYMENT OF ADVANCE TAX, IT WAS NOT POSSIBLE TO ANTI CIPATE EVENTS AND MAKE PAYMENT OF ADVANCE TAX ON THAT BASIS. 13.7. IN THE PRESENT CASE, IT IS THE CASE OF THE REVENUE THAT THERE IS DEFAULT ON PART OF THE ASSESSEE IN PAYING ADVANCE T AX ON ACCOUNT OF INCREMENTAL INCOME RECEIVED DURING THE YEAR UNDER C ONSIDERATION, IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 98 PURSUANT TO APA DATED 29/12/2016. IN OUR VIEW, THES E DECISIONS THEREFORE DO NOT RECUE ASSESSEE. 13.8. WE REFER TO DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF E.MERK (INDIA) LTD VS CIT REPORTED IN (2017) 79 TAXMAN.COM21 , WHEREIN THIS DECISION HAS BEEN DEALT WITH AS UNDER: (I) MOREOVER, BOTH OF THE ABOVE DECISIONS OF GUJAR AT HIGH COURT COMPLETELY IGNORE SUB-SECTION (4) OF SECTION 215 OF THE ACT, WHICH PR OVIDES FOR REDUCTION OR WAIVER OF THE INTEREST PAYABLE BY THE ASSESSEE UNDE R SECTION 215 OF THE ACT. THEREFORE, BOTH THE ABOVE DECISIONS OF THE GUJARAT HIGH COURT MOST RESPECTFULLY IN OUR VIEW WERE RENDERED SUB-SILENTIO . IT IS THIS SUB-SECTION (4) OF SECTION 215 WHICH INTER ALIA TAKES INTO ACCOUNT THE CIRCUMSTANCES BEYOND THE CONTROL OF THE ASSESSEE FOR HAVING PAID LESS ADVANC E TAX THAN THAT FINALLY DETERMINED TO BE PAYABLE. THE ARGUMENT OF HARDSHIP, BONA FIDE CONDUCT ETC. WOULD BE APPROPRIATELY CONSIDERED WHEN APPLYING SUB -SECTION (4) OF SECTION 215 OF THE ACT WHILE CONSIDERING WAIVER/REDUCTION O F INTEREST PAYABLE UNDER SECTION 215 OF THE ACT. THESE ARGUMENTS OF HARDSHIP ETC. CANNOT BE SUBJECT OF CONSIDERATION WHILE INTERPRETING A FISCAL LEGISLATI ON. THERE IS NO PLACE FOR ANY EQUITY WHILE INTERPRETING A FISCAL LEGISLATION. THE APEX COURT IN CST V. MODI SUGAR MILLS, AIR 1961 (SC) 1047 HAS OBSERVED THAT ' IN INTERPRETING A TAXING STATUTE, EQUITABLE CONSIDERATION ARE ENTIRELY OUT O F PLACE.' THEREFORE, THE SUBMISSION OF THE APPLICANT ASSESSEE THAT NON-PAYME NT OF ADVANCE TAX WAS ON ACCOUNT OF CIRCUMSTANCES BEYOND THE CONTROL OF T HE ASSESSEE AND FOR A REASONABLE CAUSE, WOULD NOT WARRANT DELETION OF INT EREST PAYABLE ON ACCOUNT OF SHORT PAYMENT/NON-PAYMENT OF THE ADVANCE TAX WHI LE CONSIDERING THE SUB-SECTION (1) OF SECTION 215 OF THE ACT. THE CONS IDERATIONS MAY HAVE BEEN DIFFERENT IF WE WERE CONSIDERING AN APPLICATION OF WAIVER UNDER SUB-SECTION (4) OF SECTION 215 OF THE ACT. (J) IN THE ABOVE VIE W THE APPLICANT ASSESSEE IS LIABLE TO PAY THE INTEREST UNDER SECTION 215 OF THE ACT AS HELD BY THE TRIBUNAL. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 99 13.9. IN OUR VIEW, FACTS CONSIDERED BY HONBLE BOMBAY HIG H COURT IN CASE OF E-MERK (INDIA) LTD VS CIT (SUPRA) IS IDENTICAL TO THE FATS OF THE CASE. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF E.MERK(INDIA) PVT.LTD(SUPRA) , AND IN PARTICULAR DECISION OF HONBLE SUPREME COURT IN CASE OF CIT VS. ANJUM.M.H.GHASWALA(SUPRA), WE DO NOT FIND ANY MERIT IN SUBMISSIONS OF LD.COUNSEL. WE THUS HOLD THAT ASSESSEE IS LIABLE TO PAY INTERES T UNDER SECTION 234B OF THE ACT, ON INCREMENTAL INCOME PURSUANT TO APA. ACCORDINGLY, WE DISMISS THIS GROUND OF ASSESSEE. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS PARTL Y ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 31/7/20 20 SD/- SD/- (B. R. BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 31 ST JULY, 2020. /VMS/* IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 100 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL. BANGALORE. IT(TP)A NO.725/BANG/2018 ASST.YR.2013-14 101 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK SR.PS 10. DAT E ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS
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