M/s. Linguanext Technologies Private Limited, Pune V. Pr. Commissioner Of Income Tax -6, Pune

ITA 806/PUN/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2011 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 07-06-2021
• Assessment Year: 2014-2015
• Appeal Filed On: 24-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Salary income; Opportunity of being heard; TDS
• Section: 143(3); 142(1); 14A; 195; 192; 9(1); 9(1); 9(1); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE (THROUGH VIRTUAL COURT) BEFORE SHRI INTURI RAMA RAO, AM AND SHRI S. S. VISWANETHRA RAVI, JM . / ITA NO.806/PUN/2019 / ASSESSMENT YEAR : 2014-15 M/S. LINGUANEXT TECHNOLOGIES PVT. LTD., 401, GALORE TECH PARK, BEHIND MARATHA MANDIR, BAVDHAN, PUNE-411021. PAN : AABCL7322G ....... / APPELLANT / V/S. PR.CIT-6, PUNE. / RESPONDENT ASSESSEE BY : SHRI KISHOR B. PHADKE REVENUE BY : SHRI DEEPAK GARG / DATE OF HEARING : 07.06.2021 / DATE OF PRONOUNCEMENT : 08.06.2021 / ORDER PER INTURI RAMA RAO, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE CHALLENGING THE VALIDITY OF THE ORDER PASSED BY THE LD. PR. COMMISSIONER OF INCOME TAX-6, PUNE (THE PCIT) DATED 26.03.2019 PASSED U/S 263 OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE APPELLANT RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. LEARNED PR. CIT - 6, PUNE ERRED IN LAW AND ON FACTS IN TREATING THE ASSESSMENT ORDER U/S 143(3) BEING ERRONEOUS & THEREBY PREJUDICIAL TO THE REVENUE U/S 263 WITHOUT APPRECIATING THE FACT THAT, THE LEARNED AO HAS ALLOWED PAYMENT MADE TO MR DAVID CROUCH, A JAPANESE RESIDENT, TOWARDS PROVIDING MARKETING RELATED SERVICES IN JAPANESE TERRITORY, AFTER APPLICATION OF MIND & ON DUE VERIFICATION. 2. LEARNED PR. CIT - 6, PUNE ERRED IN LAW AND ON FACTS IN TREATING THE ASSESSMENT ORDER U/S 143(3) BEING ERRONEOUS & THEREBY PREJUDICIAL TO THE REVENUE U/S 263 WITHOUT APPRECIATING THE FACT THAT, TWO VIEWS ARE PRESENT WITH 2 ITA NO.806/PUN/2019 RESPECT TO TAXABILITY OF PAYMENT MADE TO MR. DAVID CROUCH TOWARDS MARKETING RELATED SERVICES IN THE JAPANESE TERRITORY. IN ARRIVING AT ABOVE CONCLUSION, THE LEARNED PR.CIT-6 ERRED IN CONSULTING THAT MR. DAVID CROUCH IS AN EMPLOYEE OF THE APPELLANT AND HENCE PAYMENT SO MADE IS LIABLE FOR WITHHOLDING U/S 195 OF INCOME TAX ACT. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, CLARIFY, EXPLAIN, MODIFY, DELETE ANY OF THE GROUNDS OF APPEAL, AND TO SEEK ANY JUST AND FAIR RELIEF. 3. BRIEFLY THE FACTS OF THE CASE ARE AS UNDER :- THE APPELLANT IS A PRIVATE LIMITED COMPANY ENGAGED IN PROVIDING ITES SERVICES IN THE FORM OF SOLUTIONS FOR LANGUAGE LOCALIZATION, LANGUAGE MANAGEMENT AND LOCAL LANGUAGE SUPPORT FOR CLIENT INFORMATION TECHNOLOGY SYSTEMS. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2014-15 WAS FILED ELECTRONICALLY ON 29.11.2014 DECLARING TOTAL INCOME OF RS.8,74,700/-. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE INCOME TAX OFFICER, WARD-14(3), PUNE (THE ASSESSING OFFICER) VIDE ORDER DATED 29.12.2016 PASSED U/S 143(3) OF THE ACT AT A TOTAL INCOME OF RS.30,64,750/- AFTER MAKING FOLLOWING ADDITIONS :- (I) PROFESSIONAL FEES FOR PATENT DRAFTING RS.15,69,849/- (II) TRANSLATION EXPENSES FOR SOFTWARE DEVELOPMENT RS.5,17,630/- (III) DISALLOWANCE U/S 14A OF THE ACT RS.1,02,574/- 4. WHILE MATTER STOOD THUS, THE LD. PCIT HAD ISSUED A SHOW-CAUSE NOTICE U/S 263 OF THE ACT DATED 12.09.2018 PROPOSING TO REVISE THE ASSESSMENT ORDER, AS ACCORDING TO LD. PCIT, THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, AS THE ASSESSING OFFICER HAD FAILED TO VERIFY WHETHER THE MARKETING EXPENSES PAID TO ONE MR. DAVID CROUCH FALLS UNDER SALARY EXPENDITURE, SINCE THE APPELLANT HAD FAILED TO DEDUCT AT SOURCE 3 ITA NO.806/PUN/2019 ON THE SAID PAYMENT, THE SAME IS REQUIRED TO BE DISALLOWED U/S 40(A)(I) OF THE ACT. IN RESPONSE TO THE SAID SHOW-CAUSE NOTICE, THE APPELLANT FILED A DETAILED REPLY VIDE ITS LETTER DATED 02.11.2018 AND 01.03.2019 PRIMARILY RAISED THE FOLLOWING CONTENTIONS :- (1) THE ISSUE WAS EXAMINED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE ASSESSING OFFICER TOOK A POSSIBLE VIEW. (2) THERE EXIST TWO OPINIONS ON THE ISSUES SOUGHT TO BE REVISED BY THE PCIT, AS THE ASSESSING OFFICER ADOPTED ONE OF POSSIBLE VIEWS, THE ASSESSMENT ORDER CANNOT BE TERMED AS ERRONEOUS ORDER BY PLACING RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. MALABAR INDUSTRIAL CO. LTD., 109 TAXMAN 66 (SC) AND CIT VS. MAX INDIA LTD., 295 ITR 282 (SC). 5. IT IS FURTHER CONTENDED THAT EVEN IF THE NATURE OF SERVICES RENDERED BY THE SAID MR. DAVID CROUCH WHO IS A NON-RESIDENT FALLS UNDER EMPLOYEE AND EMPLOYER RELATIONSHIP, THE ENTIRE SERVICES WERE RENDERED BY THE SAID MR. DAVID CROUCH OUTSIDE INDIA. THE SALARY PAID BY THE APPELLANT COMPANY BECOMES TAXABLE IN INDIA ONLY IN CASE THE SERVICES WERE RENDERED BY THE EMPLOYEE WITHIN THE TAXABLE TERRITORY OF INDIA. 6. ON CONSIDERATION OF THE EXPLANATION FILED BY THE ASSESSEE, THE LD. PCIT HAD REQUIRED THE APPELLANT TO FILE THE DETAILS, SUCH AS COPY OF AGREEMENT ENTERED WITH THE SAID MR. DAVID CROUCH ALONG WITH INVOICES ETC. VIDE LETTER DATED 22.02.2019. ON CONSIDERATION OF THE SAID REPLY, THE LD. PCIT HELD AS FOLLOWS :- 4 ITA NO.806/PUN/2019 (A) THE ASSESSING OFFICER HAD NOT RAISED ANY QUERY AS TO THE TRUE NATURE OF THE SERVICES RENDERED BY THE SAID MR. DAVID CROUCH. (B) THE ASSESSING OFFICER HAD NOT EXAMINED EXACT NATURE OF THE PAYMENT MADE TO MR. DAVID CROUCH. THEREFORE, IT IS THE CASE OF NON-ENQUIRY BY THE ASSESSING OFFICER, THE ASSESSMENT ORDER IS ERRONEOUS ORDER WITHIN THE MEANING OF SECTION 263 OF THE ACT. (C) THE LD. PCIT WAS OF THE OPINION THAT THE PAYMENT FALLS WITHIN THE MEANING OF THE SALARY AND, THEREFORE, THE ARGUMENT OF THE APPELLANT THAT SALARY INCOME NOT TAXABLE IN INDIA AS SERVICES WERE RENDERED OUTSIDE INDIA WAS NOT ACCEPTED AS THE ASSESSEE HAD FAILED TO DEDUCT AT SOURCE U/S 192 OF THE ACT. ACCORDINGLY, THE LD. PCIT VIDE ORDER DATED 26.03.2019 PASSED U/S 263 OF THE ACT SET- ASIDE THE ASSESSMENT ORDER WITH A DIRECTION TO THE ASSESSING OFFICER TO REDO THE ASSESSMENT AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS, THE ASSESSMENT WAS SET-ASIDE BY THE LD. PCIT U/S 263 OF THE ACT. 7. BEING AGGRIEVED BY THE ORDER OF REVISION PASSED U/S 263 OF THE ACT, THE APPELLANT IS BEFORE US IN THE PRESENT APPEAL. 8. BEFORE US, IT WAS CONTENDED THAT THE PAYMENTS MADE TO MR. DAVID CROUCH WERE DEBITED UNDER THE HEAD MARKETING EXPENSES THE DETAILS OF MARKETING EXPENSES WERE EXAMINED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. HE DRAWN OUR ATTENTION TO THE COPY OF NOTICE PLACED AT PAGE NO.67 OF THE PAPER BOOK. IT IS SUBMITTED THAT THE ASSESSEE HAD FILED A DETAILED REPLY TO THE SAID NOTICE WHEREIN THE PAYMENTS 5 ITA NO.806/PUN/2019 MADE TO NON-RESIDENTS AND THE DETAILS OF THE MARKETING EXPENSES WERE ALSO FILED WHEREIN IT WAS CLEARLY MENTIONED THAT MR. DAVID CROUCH IS A JAPANESE RESIDENT APPOINTED FOR PROVIDING THE MARKETING RELATED SERVICES IN THE JAPAN. THE SCOPES OF WORK OF SERVICES WERE ALSO EXPLAINED TO THE ASSESSING OFFICER. IT IS SUBMITTED THAT THE ASSESSING OFFICER AFTER DUE APPLICATION OF MIND HAD CHOSEN NOT TO MAKE ANY ADDITION ON THIS SCORE. IT CANNOT BE CALLED A CASE OF NON-ENQUIRY BY THE ASSESSING OFFICER. WITHOUT PREJUDICE, HE IS SUBMITTED THAT THE SCOPE OF WORK DONE BY MR. DAVID CROUCH FALLS WITHIN A CONTRACT SERVICE AND THERE IS NO RELATIONSHIP OF EMPLOYEE AND EMPLOYER BETWEEN THE SAID MR. DAVID CROUCH AND THE APPELLANT COMPANY. EVEN ASSUMING FOR MORE ARGUMENT, IT IS FURTHER SUBMITTED THAT PAYMENT MADE TO MR. DAVID CROUCH FALLS WITHIN THE MEANING OF SALARY, THE SAME DOES NOT BECOME TAXABLE IN INDIA SINCE NO SERVICES ARE RENDERED BY THE SAID MR. DAVID CROUCH IN INDIA. THUS, HE SUBMITTED THAT THE ORDER OF REVISION PASSED BY THE LD. PCIT CANNOT BE SUSTAINED IN THE EYES OF LAW AS THE ASSESSMENT ORDER CANNOT BE SAID TO BE ERRONEOUS. 9. ON THE OTHER HAND, LD. CIT-DR, SHRI DEEPAK GARG PLACED HEAVILY RELIANCE ON THE IMPUGNED ORDER. 10. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT APPEAL RELATES TO THE VALIDITY OF THE REVISION ORDER PASSED BY THE LD. PCIT IN EXERCISE OF POWER VESTED U/S 263 OF THE ACT. THE PROVISIONS OF SECTION 263 PROVIDE THAT THE COMMISSIONER OF INCOME TAX, ON EXAMINATION OF THE RECORDS, IF HE FORMS AN OPINION THAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THE ASSESSMENT ORDER SO PASSED CAN BE CANCELLED/SET-ASIDE. 6 ITA NO.806/PUN/2019 THE EXPLANATION (2) OF SECTION 263 INSERTED BY THE FINANCE ACT, 2015 W.E.F. 01.06.2015 PROVIDE THAT AN ORDER PASSED BY THE ASSESSING OFFICER SHALL BE DEEMED IT TO BE ERRONEOUS, IF IN OPINION OF THE COMMISSIONER OF INCOME TAX, THE ASSESSMENT ORDER WAS PASSED WITHOUT MAKING AN ENQUIRY. THEREFORE, THE QUESTION IS IN THE PRESENT CASE WHICH REQUIRES TO BE EXAMINED WHETHER THE ASSESSING OFFICER HAD MADE NECESSARY ENQUIRIES. NO DOUBT FROM THE PERUSAL OF THE NOTICE ISSUED U/S 142(1) OF THE ACT WHICH IS PLACED AT PAGE NO.71 OF THE PAPER BOOK AND THE EXPLANATION FILED THERETO, IT IS CLEAR THAT THE ASSESSING OFFICER HAD EXAMINED THE DETAILS OF THE PAYMENT TO NRI AND THE PAYMENT OF DETAILS OF THE MARKETING EXPENSES WHEREIN THE PAYMENT MADE TO MR. DAVID CROUCH WAS ALSO CLEARLY EXPLAINED. NO DOUBT, THE ASSESSING OFFICER HAD NOT EXAMINED THE ISSUE FROM THE ASPECT OF APPLICABILITY OF TDS PROVISION TO THE PAYMENTS MADE TO SAID MR. DAVID CROUCH AND THE CONSEQUENT DISALLOWANCE U/S 40(A)(I). BUT THE CRUCIAL POINT TO BE NOTED IS THAT EVEN IN SUCH EVENT, THE QUESTION TO BE EXAMINED IS THAT, EVEN IF, THE VIEW OF LD. CIT IS CORRECT I.E. THE NATURE OF THE PAYMENT FALLS WITHIN THE MEANING OF SALARY, EVEN THEN IMPUGNED PAYMENT DOES NOT BECOME TAXABLE IN INDIA FOR THE REASON THAT THE SERVICES WERE NOT RENDERED BY THE SAID MR. DAVID CROUCH WITHIN INDIA. THEREFORE, IT CANNOT BE SAID THAT INCOME IS TO BE DEEMED TO BE ACCRUED OR ACCRUE IN INDIA OR PAYMENT IS DEEMED TO BE RECEIVED IN INDIA WITHIN THE MEANING OF EXPLANATION (2)(II) OF SECTION 9(1) OF THE ACT. IN THE LIGHT OF THIS LEGAL POSITION, THE PAYMENT MADE TO SAID MR. DAVID CROUCH DOES NOT BECOME TAXABLE IN INDIA, THEREFORE, THE ASSESSMENT CANNOT BE CALLED AS ERRONEOUS ORDER. PERHAPS A DOUBT MAY ARISE AS TO WHY THE ASSESSMENT ORDER CANNOT BE TERMED AS ERRONEOUS FOR THE FAILURE OF THE ASSESSING OFFICER TO EXAMINE THE ISSUE FROM ASPECT OF APPLICABILITY OF THE TDS PROVISIONS AND CONSEQUENT DISALLOWANCE U/S 40(A)(I). EVEN IF THE ASSESSMENT ORDER IS SET-ASIDE FINAL OUTCOME AFTER DUE 7 ITA NO.806/PUN/2019 VERIFICATION BY THE ASSESSING OFFICER REMAIN THE SAME, IN SUCH CIRCUMSTANCES, THE REVISION ORDER CANNOT BE SUSTAINED. THEREFORE, IN THE LIGHT OF THE ABOVE DISCUSSION, WE ARE OF THE CONSIDERED OPINION THAT THE LD. PCIT WAS NOT JUSTIFIED IN EXERCISING THE POWER OF REVISION IN THE CIRCUMSTANCES OF THE PRESENT CASE. THUS, THE ORDER OF THE REVISION PASSED BY THE LD. PCIT U/S 263 OF THE ACT IS SET-ASIDE/QUASHED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED ON THIS 08 TH DAY OF JUNE, 2021. SD/- SD/- (S. S. VISWANETHRA RAVI) (INTURI RAMA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 08 TH JUNE, 2021. SUJEET / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE PR. CIT-6, PUNE. 4 . , , , / DR, ITAT, A BENCH, PUNE. 5. / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.