SOFTCELL TECHNOLOGIES LTD, MUMBAI V. ADDL CIT 7(2), MUMBAI

ITA 832/MUM/2012

• Counselvise Citation: 83219914 RSA 2012
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Appeal Filed On: 07-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Non-deduction of tax
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SHRI N.V. VASUDEVAN, JUDICIAL MEMBER. I.T.A. NO. 832/MUM/2012. ASSESSMENT YEAR : 2008-09. SOFTCELL TECHNOLOGIES LTD., ADDL. COMMISSIONER OF 301, PRABHADEVI INDUSTIAL ESTATE, VS. INCOME-TAX-7(2), 408, VEER SAVARKAR MARG, MUMBAI. PRABHADEVI, MUMBAI 400 025. PAN AADCS0965J APPELLANT. RESPOND ENT. APPELLANT BY : SHRI PORUS KAKA. RESPONDENT B Y : SHRI B. JAYA KUMAR. DATE OF HEARI NG : 17-04-2012. DATE OF PRONOUNC EMENT : 16-05-2012, O R D E R PER P.M. JAGTAP, A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LEARNED CIT(APPEALS)-13, MUMBAI DATED 02-11-2012. 2. GROUND NOS. 1,2 AND 3 OF THIS APPEAL INVOLVE COM MON ISSUES RELATING TO DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LE ARNED CIT(APPEALS) U/S 40(A)(IA) ON ACCOUNT OF PURCHASES AND COMMISSION AM OUNTING TO RS.77,18,28,053/- AND RS.61,15,336/- RESPECTIVELY FOR NON DEDUCTION O F TAX AT SOURCE. 2 ITA NO.832/MUM/2011 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF MARKETING AND DISTRIBUTION OF PACKAGED LICENCED SOFTWARE. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILE D BY IT ON 27-09-2008 DECLARING TOTAL INCOME OF RS.13,03,32,496/-. IN THE ASSESSMEN T COMPLETED FOR ASSESSMENT YEAR 2007-08, A DISALLOWANCE OF RS.65,41,72,734/- W AS MADE U/S 40(A)(IA) AS THE ASSESSEE COMPANY HAD FAILED TO DEDUCT TAX AT SOURCE FROM THE AMOUNT OF PURCHASE OF SOFTWARE MADE LOCALLY. FOLLOWING THE SAME STAND AS TAKEN IN ASSESSMENT YEAR 2007-08, THE PURCHASES MADE BY THE ASSESSEE LOCALLY OF SOFTWARE AMOUNTING TO RS.77,18,28,053/- WERE DISALLOWED BY THE AO FOR ITS FAILURE TO DEDUCT TAX AT SOURCE FROM THE PAYMENT OF THE SAID PURCHASES. SIMILARLY, COMMISSION OF RS. 61,15,336/- PAID BY THE ASSESSEE TO A FOREIGN COMPANY, NAMELY, M/S INSIDE TECHNOLOGY SOLUTION PTE. LTD., AUSTRALIA, WAS DISALLOWED BY T HE AO U/S 40(A)(IA) FOR THE FAILURE OF THE ASSESSEE TO DEDUCT TAX AT SOURCE FRO M THE PAYMENT OF THE SAID COMPANY. ON APPEAL, THE LEARNED CIT(APPEALS) CONFIR MED THE DISALLOWANCE MADE BY THE AO U/S 40(A)(IA) ON ACCOUNT OF PURCHASE OF S OFTWARE HOLDING THAT IT WAS NOT A PURCHASE OF SOFTWARE AS A PRODUCT AS CLAIMED BY THE ASSESSEE BUT IT WAS ONLY A LICENSE/RIGHT GIVEN TO THE ASSESSEE TO USE THE SAID SOFTWARE TO THE EXCLUSION OF OTHERS. IT WAS HELD BY THE LEARNED CIT(APPEALS) THA T THE ASSESSEE DID NOT HAVE ANY RIGHT TO RESALE THE SAID SOFTWARE TO ANY OTHER PERS ON IN THE OPEN MARKET AND WHAT IT ACQUIRED WAS ONLY A LICENSE TO USE THE SOFTWARE FOR THE PURPOSE OF ITS BUSINESS. HE HELD THAT THE PAYMENT MADE BY THE ASSESSEE AGAINST SOFTWARE THUS WAS IN THE NATURE OF ROYALTY AND IT WAS NOT FOR THE PURCHASE OF SOFTW ARE AS A PRODUCT. ACCORDINGLY, THE DISALLOWANCE MADE BY THE AO U/S 40(A)(IA) WAS C ONFIRMED BY HIM HOLDING THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DE DUCT TAX AT SOURCE FROM THE PAYMENT MADE AGAINST SOFTWARE. HE ALSO CONFIRMED TH E DISALLOWANCE MADE BY THE AO U/S 40(A)(IA) ON ACCOUNT OF COMMISSION PAID TO M /S INSIDE TECHNOLOGY SERVICES PTE. LTD. AUSTRALIA HOLDING THAT THE PAYME NT MADE BY THE ASSESSEE 3 ITA NO.832/MUM/2011 COMPANY TO THE SAID PARTY WAS NOT IN THE NATURE OF COMMISSION BUT THE SAME WAS FOR RENDERING TECHNICAL SERVICES. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT DISALLOWANC E ON ACCOUNT OF PURCHASE OF SOFTWARE BY INVOKING THE PROVISIONS OF SECTION 40( A)(IA) HAS BEEN MADE BY THE AO IN THE YEAR UNDER CONSIDERATION FOLLOWING THE ASSES SMENT MADE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 WHEREIN A SIMILAR DISALLOWANCE WAS MADE AND THE TRIBUNAL VIDE ITS ORDER DATED 9 TH MARCH, 2011 PASSED IN ASSESSEES CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO. 4709/MUM/2010 HA S RESTORED THIS ISSUE TO THE FILE OF THE AO FOR DECIDING THE SAME AFRESH. ALTHOU GH THE LEARNED COUNSEL FOR THE ASSESSEE HAS MADE AN ATTEMPT TO CONTEND THAT FACTS INVOLVED IN ASSESSMENT YEAR 2007-08 WERE DIFFERENT INASMUCH AS DISALLOWANCE IN THAT YEAR WAS MADE FOR THE FAILURE OF THE ASSESSEE TO MAKE AN APPLICATION U/S 195 WHEREAS IN THE YEAR UNDER CONSIDERATION, PAYMENT HAVING BEEN MADE FOR DOMESTI C SUPPLIERS, SECTION 195 HAS NO APPLICATION, IT IS OBSERVED THAT EVEN IN ASSESSM ENT YEAR 2007-08, DISALLOWANCE U/S 40(A)(IA) WAS MADE BY THE ASSESSEE FOR FAILURE TO DEDUCT TAX AT SOURCE ON THE PURCHASES OF SOFTWARE MADE LOCALLY AS CLEARLY MENTI ONED ON PAGE NO.2 OF THE ASSESSMENT YEAR FOR THE YEAR UNDER CONSIDERATION. I N ANY CASE, IF THESE ISSUES INVOLVED IN GROUND NOS. 1,2 AND 3 OF THE ASSESSEES APPEAL ARE RESTORED TO THE FILE OF THE AO FOR DECIDING THE SAME AFRESH FOLLOWING TH E DECISION OF THE TRIBUNAL FOR ASSESSMENT YEAR 2007-08 (SUPRA), THE ASSESSEE IS FR EE TO RAISE THIS CONTENTION ALSO WHICH THE AO SHALL CONSIDER IT ON MERIT AFTER VERIF YING THE RELEVANT RECORD. AS ALREADY NOTED, SIMILAR ISSUES INVOLVED IN ASSESSEE S CASE FOR IMMEDIATELY PRECEDING YEAR I.E. ASSESSMENT YEAR 2007-08 HAD BEEN RESTORED BY THE TRIBUNAL TO THE FILE OF THE AO VIDE PARAGRAPH NO.4 OF ITS ORDER DATED 9 TH MARCH, 2011 (SUPRA) WHICH READS AS UNDER : 4 ITA NO.832/MUM/2011 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD. IT IS NOTED THAT THE BASIS FOR MAKING A ND SUSTAINING THE DISALLOWANCE IN RESPECT OF THESE TWO GROUNDS IS THE JUDGEMENT IN THE CASE OF SAMSUNG ELECTRONICS LTD. (SUPRA). THE HONBLE SUPRE ME COURT IN G.E. INDIA TECHNOLOGY CENTRES LTD. VS. CIT (2010) 327 ITR 456 (SC) HAS SET ASIDE THE VIEW THAT THE DEDUCTION OF TAX DEDUCTED AT SOURCE H AS TO NECESSARILY FOLLOW FROM THE PAYMENTS MADE TO NON-RESIDENT UNLESS PERMI SSION IS TAKEN FROM A.O. U/S. 195. IN THIS CASE THE HONBLE SUPREME COU RT HAS HELD THAT A PERSON PAYING INTEREST OR ANY OTHER SUM TO A NON-RESIDENT IS LIABLE TO DEDUCT TAX U/S. 195 ONLY IF SUCH SUM IS CHARGEABLE TO TAX IN INDIA AND NOT OTHERWISE. SINCE THE ISSUE WAS NOT EXAMINED ON MERITS, THE HONBLE S UPREME COURT REMITTED THE MATTER TO THE HIGH COURT FOR DE NOVO CONSIDERAT ION OF THE CASE. AS IN THE INSTANT CASE ALSO THE AUTHORITIES BELOW HAVE MADE A ND UPHELD THE DISALLOWANCE SIMPLY ON THE GROUND THAT THE TAX WAS NOT DEDUCTED AT SOURCE, WITHOUT EXAMINING WHETHER SUCH SUM IS CHARGEABLE TO TAX IN INDIA OR NOT, WE SET ASIDE THE IMPUGNED ORDER AND RESTORE THIS MATTE R TO THE FILE OF A.O. FOR TAKING A FRESH DECISION AS PER LAW AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TR IBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 ON SIMILAR ISSUES, WE S ET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) ON THE ISSUES INVOLVED IN GROUND NOS. 1,2 AND 3 OF THE ASSESSEES APPEAL AND RESTORE THE SAME TO THE FILE OF THE AO FOR DECIDING THE SAME AFRESH AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD. GROUND NOS. 1, 2 AND 3 OF THE ASSESSEES APPEAL ARE ACCORDINGLY TREA TED AS ALLOWED FOR STATISTICAL PURPOSES. 5. THE ISSUE RAISED IN GROUND NO. 4 OF THE ASSESSEE S APPEAL RELATES TO THE ADDITION OF RS.2,47,973/- MADE BY THE AO AND CONFIR MED BY THE LEARNED CIT(APPEALS) ON ACCOUNT OF VAT IN RESPECT OF CLOSIN G STOCK U/S 145A. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT A SIMILAR ISSUE RELATIN G TO ADDITION MADE TO THE VALUE OF 5 ITA NO.832/MUM/2011 CLOSING STOCK ON ACCOUNT OF VAT U/S 145A HAS BEEN R ESTORED BY THE TRIBUNAL TO THE FILE OF THE AO IN ASSESSMENT YEAR 2007-08 VIDE ITS ORDER DATED 9 TH MARCH, 2011 (SUPRA) FOR THE FOLLOWING REASONS GIVEN IN PARAGRAP H NO. 7 : WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD. SECTION 145 WAS INSERTED BY THE FINANCE (NO.2) ACT, 1998 WITH EFFECT FROM 1.4.1999. IT PROVIDES THAT THE VALUATIO N OF PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION SHALL BE IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE AND FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS ETC. PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AS ON THE DATE OF VALUATION. ACCORDING TO THE PRESCRIPTION OF THIS SECTION, WHICH IS APPLICABLE TO THE YEAR UNDER CONS IDERATION, THE AMOUNT OF TAX, DUTY, CESS ETC. IS LIABLE TO BE INCLUDED IN TH E VALUE OF PURCHASES, SALES, OPENING AND CLOSING STOCK. IT IS NOT APPROPRIATE TO INCLUDE THE CLOSING MODVAT IN THE FIGURE OF CLOSING STOCK WITHOUT MODIF YING THE FIGURES OF PURCHASES, SALES AND OPENING STOCK. THE HONBLE JUR ISDICTIONAL HIGH COURT IN CIT VS. MAHALAXMI GLASS WORKS PVT. LTD. [(2009) 318 ITR 116 (BOM.)] AND THE HONBLE DELHI HIGH COURT IN CIT VS. MAHAVIR ALLUMINIUM [2(2008) 297 ITR 77 (DEL)] HAVE HELD TO THIS EXTENT. AS THE AUTHORITIES BELOW HAVE NOT ADJUSTED OTHER FIGURES WITH THE AMOUNT OF TAX, DUTY , CESS ETC., WE SET ASIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE FI LE OF THE A.O. FOR DECIDING IT AFRESH IN ACCORDANCE WITH THE AFORE-NOTED JUDGEM ENTS AND THE PROVISIONS OF SECTION 145A. 7. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDER ATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO ASSE SSMENT YEAR 2007-08, WE RESPECTFULLY FOLLOW THE ORDER OF THE COORDINATE BEN CH OF THIS TRIBUNAL FOR ASSESSMENT YEAR 2007-08 AND RESTORE THE ISSUE TO TH E FILE OF THE AO FOR DECIDING THE SAME AFRESH AS PER THE SAME DIRECTION AS GIVEN IN A SSESSMENT YEAR 2007-08. GROUND 6 ITA NO.832/MUM/2011 NO.4 OF THE ASSESSEES APPEAL IS ACCORDINGLY TREATE D AS ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TRE ATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 16 TH DAY OF MAY, 2012. SD/- SD/- (N.V.VASUDEVAN) (P.M. JAG TAP) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI, DATED: 16 TH MAY, 2012. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, E-BENCH. (TRUE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI. WAKODE