Haworth (India) Private Limited, Kancheepuram V. DCIT Corporate Circle 2(2), CHENNAI

ITTPA 100/CHNY/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8450 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 6 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 02-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 26-12-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M SRINIVASA RAO
• Keywords: Business income; Transfer pricing; Double taxation relief; Opportunity of being heard; Principle of natural justice; International transaction; Rule of consistency; Additional evidence; Reasonable cause; Corroborative evidences; Revised return; TDS
• Section: 143(3); 142(1); 139(5); 143(1); 195; 139

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . , . , BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.(TP)A.NO.100/CHNY/2018 / ASSESSMENT YEAR :2014-15 M/S. HAWORTH (INDIA) PRIVATE LIMITED, SURVEY NO. 260, VAYALUR ROAD, KILOY VILLAGE, SRIPERUMBUDUR TALUK, KANCHEEPURAM DISTRICT, TAMIL NADU 602 105. [PAN: AAACH8417K] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2(2), NUNGAMBAKKAM, CHENNAI 600 034. ( /APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI S.P. CHIDAMBARAM, ADVOCATE / RESPONDENT BY : SHRI M. SRINIVASA RAO, CIT / DATE OF HEARING : 03.06.2019 /DATE OF PRONOUNCEMENT : 02.07.2019 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE FINAL ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 [ACT IN SHORT] DATED 29.10.2018 RELEVANT TO THE ASSESSMENT YEAR 2014-15. IN THIS APPEAL, THE ASSESSEE HAS CHALLENGED BOTH TRANSFER PRICING ISSUE AS WELL AS CORPORATE TAX ISSUES. FIRST, WE SHALL TAKE UP TRANSFER PRICING ISSUE. I.T(TP).A. NO.100/M/18 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2014-15 ON 31.03.2016 DECLARING TOTAL INCOME AT .5,47,53,010/-. THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE ACT AND SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. AGAINST THE STATUTORY NOTICES, THE ASSESSEE FURNISHED NECESSARY DETAILS/INFORMATION AS CALLED FOR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS SUBMITTED BY THE ASSESSEE VIDE ITS LETTER DATED 12.04.2016 THAT THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2014-15 WAS FILED BY IT ON THE BASIS OF MANAGING ACCOUNTS AS THE BALANCE SHEET WAS NOT AUDITED AS ON THE DATE OF THE FILING OF RETURN OF INCOME. SUBSEQUENTLY, THE COMPANY FILED THE AUDITED FINANCIAL STATEMENTS, TAX AUDIT REPORT, FORM NO. 3CEB, REVISED RETURN OF INCOME (MANUAL RETURN) VIDE SUBMISSION DATED 14.02.2017. AS PER THE REVISED COMPUTATION OF INCOME, THE ASSESSEE HAS REPORTED A LOSS OF .10,39,49,587/- AND CLAIMED A REFUND OF .2,13,92,418/-. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2014-15 ON 31.03.2016. SINCE THE ASSESSEE HAS NOT FILED THE REVISED RETURN OF INCOME UNDER SECTION 139(5) OF THE ACT, WHICH CAN ONLY BE FILED WITHIN ONE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR OR BEFORE THE COMPLETION OF THE ASSESSMENT, WHICHEVER IS EARLIER, THE ASSESSING OFFICER TREATED THE REVISED RETURN OF INCOME MANUALLY FILED ON 14.02.2017 AS INVALID, WHICH WAS FILED AFTER THE TIME LIMIT SPECIFIED UNDER SECTION 139(5) OF THE ACT. THUS, THE ASSESSING OFFICER CONSIDERED THE TOTAL I.T(TP).A. NO.100/M/18 3 INCOME OF .5,47,35,010/- DECLARED IN THE ORIGINAL RETURN OF INCOME FOR THE ASSESSMENT. 2.1 A REFERENCE WAS MADE TO THE TRANSFER PRICING OFFICER (TPO) UNDER SECTION 92CA(1) OF THE ACT FOR COMPUTATION OF ARMS LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS. ORDER UNDER SECTION 92CA(3) OF THE ACT DATED 27.10.2017 PASSED BY THE DCIT-TP, WHEREIN AN ADJUSTMENT OF .9,76,93,024/- HAD BEEN SUGGESTED TOWARDS THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS AE RELATED TO MANAGEMENT SERVICES AND RECHARGE OF REMUNERATION BY HOLDING THAT THE EVIDENCES FURNISHED BY THE ASSESSEE ARE INSUFFICIENT. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND AS PER SECTION 92CA(4) OF THE ACT, THE ASSESSING OFFICER PASSED A DRAFT ASSESSMENT ORDER BY MAKING ADDITION OF .9,76,93,024/-. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. DRP AND FILED ITS OBJECTIONS. AFTER CONSIDERING THE OBJECTIONS OF THE ASSESSEE AND ADJUDICATED THE ISSUE AND GAVE DIRECTIONS UNDER SECTION 144C(5) OF THE ACT, WHEREIN THE TP ADJUSTMENTS WERE DETERMINED AT .9,76,93,024/-. ACCORDINGLY, THE ASSESSING OFFICER PASSED THE FINAL ASSESSMENT ORDER BY ADDING THE ABOVE TP ADJUSTMENTS TO THE TOTAL INCOME OF THE ASSESSEE. 3. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST THE TP ADJUSTMENTS. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE ASSESSEE HAS SUBMITTED EVIDENCES TO PROVE THE RECEIPT OF I.T(TP).A. NO.100/M/18 4 SERVICES, NEED AND BENEFITS DERIVED FROM THE SERVICES BEFORE THE TPO. IT WAS ALSO SUBMITTED THAT THE COST INCURRED FOR PROVIDING THE SERVICES ARE ALLOCATED TO ALL THE GROUP COMPANIES USING SCIENTIFIC ALLOCATION KEYS ON COST-TO-COST BASIS WITHOUT CHARGING ANY MARK-UP. BY ASSIGNING VARIOUS REASONS FOR NOT FURNISHING THE ADDITIONAL EVIDENCES DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE FILED ADDITIONAL EVIDENCES AND PRAYED FOR ITS ADMISSION AND ADJUDICATION OF THE ISSUE. THE LD. COUNSEL HAS ALSO RELIED ON THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEAR. 4. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 5. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE TPO HAS MADE ADJUSTMENT IN RESPECT OF MANAGEMENT SERVICE FEES ON THE GROUND THAT THE ASSESSEE HAS FAILED TO SHOW NEED FOR SERVICES AND BENEFIT RECEIVED. THE TPO AND THE DRP HAVE CATEGORICALLY OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED ANY SUPPORTING DOCUMENTS TO SUBSTANTIATE ANY SERVICES RENDERED BY THE AE AND THE BENEFITS DERIVED BY THE ASSESSEE FROM SUCH SERVICES. THE ASSESSEE HAS FILED A PAPER BOOK CONTAINING 406 PAGES AS ADDITIONAL EVIDENCE IN THE FORM OF THIRD PARTY INVOICES, E-MAIL CORRESPONDENCE, REPORT ON MANAGEMENT CHARGES AND COST ALLOCATION WORKINGS IN SUPPORT OF THE I.T(TP).A. NO.100/M/18 5 SERVICES RECEIVED AND TO SUBSTANTIATE THE BENEFITS DERIVED BY THE ASSESSEE. THE REASONS FOR NOT FURNISHING THE ADDITIONAL EVIDENCES DURING THE ASSESSMENT PROCEEDINGS AS SUBMITTED BY THE ASSESSEE ARE REPRODUCED AS UNDER: DURING THE YEAR 2012, THERE WAS LABOUR UNREST AND PROTEST BY THE LABOUR UNION IN THE PUNE FACTORY OF THE APPELLANT. DUE TO THE ABOVE BUSINESS REASONS, THE APPELLANT DECIDED TO MORE THE FACTORY FROM PUNE TO CHENNAI. THE THEN FINANCE DIRECTOR AND OTHER EMPLOYEES RESIGNED IN THIS PROCESS. ALSO, DURING THE PROCESS OF SHIFTING, SEVERAL DOCUMENTS WERE MISPLACED. IN FACT, THE STATUTORY AUDIT FOR THE YEAR UNDER CONSIDERATION I.E., AY 2014-15 AND FOR THE SUBSEQUENT YEAR I.E., AY 2015-16 WAS DELAYED AND WAS CONCLUDED ONLY IN SEPTEMBER, 2016. ONLY DURING SEPTEMBER, 2016, THE PRESENT FINANCE DIRECTOR WAS APPOINTED AND RENEWED EFFORTS WERE TAKEN BY HIM TO COLLATE THE EVIDENCES. INITIALLY THE APPELLANT COLLATED ADDITIONAL EVIDENCES FOR AY 2010-11 AND AY 2011-12 WERE SUBMITTED DURING 20-17-18 RESPECTIVELY AS THOSE MATTERS WERE ALREADY PENDING BEFORE THE APPELLATE AUTHORITIES. HENCE, DURING THE ASSESSMENT PROCEEDINGS BEFORE THE TPO IN 2017, CERTAIN EVIDENCES WERE SUBMITTED PROVING THE NEED AND BENEFIT OF MANAGEMENT FEES. HOWEVER, THE TPO WAS NOT CONVINCED BY THE EVIDENCES SUBMITTED AND CONSIDERED THE ALP TO BE NIL WHICH WAS LATER CONFIRMED BY THE DRP. HENCE, FURTHER EFFORTS WERE TAKEN TO COLLATE ADDITIONAL EVIDENCES FOR THE YEAR UNDER CONSIDERATION AND THEREFORE THE SAME IS NOW BEING SUBMITTED BEFORE THE HONBLE ITAT FOR CONSIDERATION. 5.1 WE HAVE CONSIDERED THE ABOVE SUBMISSIONS OF THE ASSESSEE AND FIND THAT THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE FOR NOT FURNISHING THE ADDITIONAL EVIDENCES DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND I.T(TP).A. NO.100/M/18 6 ADMIT THE ADDITIONAL EVIDENCES FURNISHED BY THE ASSESSEE BEFORE THE TRIBUNAL. WE HAVE ALSO PERUSED THE TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2011-12 IN I.T.A. NO. 109/PUN/2016 DARTED 21.08.2018, WHEREIN, BY FOLLOWING ITS OWN ORDER IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 IN I.T.A. NO. 281/PUN/2014, THE PUNE BENCH OF THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: 5. WE HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE IN APPEAL HAS ASSAILED THE ASSESSMENT ORDER AND DIRECTIONS OF DRP ON TWO GROUNDS : I. DISALLOWANCE OF MANAGEMENT SERVICE FEES RS.6,51,28,097/- II. DISALLOWANCE OF PROVISION FOR WARRANTY RS.11,82,576/-. MANAGEMENT SERVICE FEES 6. THE TPO HAS MADE ADJUSTMENT IN RESPECT OF MANAGEMENT SERVICE FEES ON THE GROUND THAT THE ASSESSEE HAS FAILED TO SHOW NEED FOR SERVICES AND BENEFIT RECEIVED. THE TPO AND THE DRP HAVE CATEGORICALLY OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED ANY SUPPORTING DOCUMENTS TO SUBSTANTIATE ANY SERVICES RENDERED BY THE AE AND THE BENEFITS DERIVED BY THE ASSESSEE FROM SUCH SERVICES. THE ASSESSEE HAS FILED A PAPER BOOK CONTAINING 182 PAGES AS ADDITIONAL EVIDENCE IN THE FORM OF THIRD PARTY INVOICES, E-MAIL CORRESPONDENCE, REPORT ON MANAGEMENT CHARGES AND COST ALLOCATION WORKINGS IN SUPPORT OF THE SERVICES RECEIVED AND TO SUBSTANTIATE THE BENEFITS DERIVED BY THE ASSESSEE/APPELLANT. THE LD. AR OF THE ASSESSEE HAS ALSO FILED AN AFFIDAVIT OF THE FINANCE DIRECTOR OF THE ASSESSEE COMPANY CITING REASONS FOR NON- FURNISHING OF SUPPORTING DOCUMENTS BEFORE THE AUTHORITIES BELOW. THE RELEVANT EXTRACT OF THE AFFIDAVIT READS AS UNDER : '6. I UNDERSTAND THAT THE DETAILS/EVIDENCES COULD NOT BE FURNISHED DURING THE ASSESSMENT PROCEEDINGS FOR THE FOLLOWING REASONS: A. DURING THE YEAR 2012, THERE WAS LABOUR UNREST AND PROTEST BY THE LABOUR UNION IN THE PUNE FACTORY OF THE APPELLANT. B. OWING TO THE ABOVE AND ALSO DUE TO OTHER BUSINESS REASONS, THE APPELLANT DECIDED TO MOVE THE FACTORY FROM PUNE TO CHENNAI. C. DURING THE MIDDLE OF YEAR 2013, POST IDENTIFYING THE PLACE IN CHENNAI, THE APPELLANT ANNOUNCED THE CLOSURE OF THE FACTORY AT PUNE AND ALSO ANNOUNCED VOLUNTARY RETIREMENT SCHEME FOR ITS EMPLOYEES. I.T(TP).A. NO.100/M/18 7 D. POST ANNOUNCEMENT OF THE CLOSURE OF THE FACTORY AT PUNE, THE THEN FINANCE DIRECTOR AND CERTAIN OTHER EMPLOYEES RESIGNED FROM THE OFFICE OF THE APPELLANT. E. SUBSEQUENTLY, THE APPELLANT APPOINTED ANOTHER DIRECTOR, MR. ARAVIND DEVARAKONDA, DURING JULY 2013 IN PLACE OF ERSTWHILE DIRECTOR. HOWEVER, SINCE HE WAS NEW TO THE ORGANISATION AND ALSO THERE WERE NO RELEVANT SUPPORT STAFF IN PUNE OFFICE, WAS NOT IN A POSITION TO COLLATE THE NECESSARY INFORMATION. FURTHER, DUE TO LABOUR UNREST AND UNION ISSUES, ENTRY OF PEOPLE INTO THE FACTORY WAS OFTEN INTERRUPTED. F. BY DECEMBER 2014, THE APPELLANT ENTIRELY SHIFTED ITS FACTORY FROM PUNE TO CHENNAI. IT IS ALSO UNDERSTOOD THAT SEVERAL DOCUMENTS WERE MISPLACED DURING THE PROCESS OF SHIFTING THE OFFICE FROM PUNE TO CHENNAI. G. IN FACT THE STATUTORY AUDIT FOR THE FINANCIAL YEAR 2013-14 AND FINANCIAL YEAR 2014-15 WAS DELAYED AND WAS CONCLUDED ONLY IN SEPTEMBER, 2016. 7. IN THE MEANWHILE, DRP PROCEEDINGS TOOK PLACE DURING DECEMBER 2015 AND FOR THE AFORESAID REASONS THE EVIDENCES COULD NOT BE FURNISHED EVEN AT THAT STAGE AS WELL. HENCE, THE DRP CONFIRMED THE ADDITION MADE BY THE TPO AND UPHELD THE DISALLOWANCE MADE WITH RESPECT TO THE MSF CHARGES VIDE ITS DIRECTION DATED 09.12.2015. 8. DURING SEPTEMBER 2016, I WAS APPOINTED AS THE FINANCE DIRECTOR AND SUBSEQUENTLY DUE TO MY RENEWED EFFORTS WE WERE ABLE TO COLLATE THE RELEVANT DOCUMENTS. IN FACT, I HAD TRAVELLED TO THE REGIONAL HEADQUARTERS (MALAYSIA) DURING JANUARY 2017 FOR MEETING THE RELEVANT PERSONNEL AT THE REGIONAL HEADQUARTERS AND SEEKING THEIR SUPPORT THEREOF. PURSUANT TO THESE EFFORTS UNDERTAKEN, I WAS ABLE TO COLLATE NECESSARY DOCUMENTS IN CONNECTION WITH RECEIPT OF MANAGEMENT CHARGES IN THE MID OF 2017. SINCE THE INFORMATION WAS COLLATED FOR ASSESSMENT YEARS STARTING FROM ASSESSMENT YEAR 2009- 10, THE DETAILS RELATING TO THE PRECEDING ASSESSMENT YEARS, I.E., 2009-10 AND AY 2010- 11 WERE COLLATED AND FILED IN THE YEAR 2017. SIMILARLY, THE EVIDENCES RELATING THE SUBJECT ASSESSMENT YEAR WAS COLLATED AND WAS FILED AS ADDITIONAL EVIDENCE ON 23 MARCH 2018 BEFORE THIS HONBLE INCOME TAX APPELLATE TRIBUNAL.' AFTER EXAMINING THE CONTENTS OF THE AFFIDAVIT WE ARE SATISFIED THAT THE ASSESSEE WAS PREVENTED FROM FURNISHING THE NECESSARY DOCUMENTS TO SUBSTANTIATE ITS CLAIM ON ACCOUNT OF LABOUR UNREST RESULTING IN ASSESSEE SHIFTING ITS FACTORY FROM PUNE TO CHENNAI. IN THE LIGHT OF BONAFIDE REASONS, WE ADMIT THE ADDITIONAL EVIDENCES FILED BY ASSESSEE IN THE PAPER BOOK. WE FURTHER OBSERVE THAT IN ASSESSMENT YEAR 2009-10 SIMILAR ADJUSTMENT REJECTING ALP OF THE MANAGEMENT SERVICE FEES PAID BY THE ASSESSEE TO ITS AE WAS MADE. THE TRIBUNAL AFTER ADMITTING ADDITIONAL EVIDENCE RESTORED THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER/TPO FOR EXAMINATION AND DECIDING THE ISSUE AFRESH. I.T(TP).A. NO.100/M/18 8 THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL IN ITA NO. 281/PUN/2014 (SUPRA) READS AS UNDER : '15. THE ASSESSEE HAS PAID MANAGEMENT SERVICE FEE TO ITS AE HAWORTH HONG KONG LTD. THE MANAGEMENT TEAM OF HAWORTH GROUP IS PROVIDING GUIDELINES AND STRATEGIC DIRECTIONS TO THE GROUP AS WHOLE INCLUDING THE ASSESSEE. IT HAS BEEN CONTENDED THAT THE SALARY AND OVERHEADS ARE POOLED IN HAWORTH HONG KONG LTD. THEN THE COSTS ARE ALLOCATED TO ALL GROUP ENTITIES ON THE BASIS OF SALES. THE LD. AR POINTED THAT CHARGES ARE ALLOCATED ON COST BASIS ALONE AND NO MARK UP IS CHARGED BY HAWORTH HONG KONG LTD. THE ASSESSEE HAS GIVEN THE DETAILS OF BENEFITS DERIVED BY THE ASSESSEE FROM THE MANAGEMENT SERVICE RENDERED BY ITS AE HAWORTH HONG KONG LTD. AT PAGE 282 OF THE PAPER BOOK. THE ASSESSEE HAS ALSO FILED ADDITIONAL EVIDENCE IN RESPECT OF MANAGEMENT SERVICES PROVIDED BY ITS AE. IN VIEW OF FRESH EVIDENCE FURNISHED BY ASSESSEE, WITHOUT COMMENTING ON THE MERITS, WE DEEM IT APPROPRIATE TO REMIT THIS ISSUE BACK TO FILE OF ASSESSING OFFICER/TPO FOR DE NOVO ADJUDICATION. THE ASSESSING OFFICER SHALL CONSIDER FRESH DOCUMENTS FILED BY ASSESSEE AND ALL OTHER RELEVANT DOCUMENTS. THE ASSESSING OFFICER SHALL ALSO GRANT OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE DECIDING THE ISSUE, IN ACCORDANCE WITH LAW. ACCORDINGLY, GROUND NO. 7 RAISED IN THE APPEAL BY ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE.' THUS, IN VIEW OF THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE AND THE DECISION OF CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009-10, WE DEEM IT APPROPRIATE TO REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER/TPO TO RE-ADJUDICATE THE ISSUE AFTER CONSIDERING THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE BEFORE THE TRIBUNAL. NEEDLESS TO SAY, THE TPO/ASSESSING OFFICER SHALL GRANT REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE DECIDING THE ISSUE DE-NOVO, IN ACCORDANCE WITH LAW. THE GROUND NO. 1 RAISED IN APPEAL BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 5.2 RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE PUNE BENCH OF THE TRIBUNAL, FOR THE ASSESSMENT YEAR 2014-15 ALSO, WE REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER/TPO TO READJUDICATE THE ISSUE IN ACCORDANCE WITH LAW AFTER CONSIDERING THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE BEFORE THE TRIBUNAL BY ALLOWING AN OPPORTUNITY OF BEING HEARD TO THE I.T(TP).A. NO.100/M/18 9 ASSESSEE. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 6. UNDER CORPORATE TAX, THE FIRST GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS RELATING TO REJECTION OF REVISED COMPUTATION OF TOTAL INCOME FILED BY THE ASSESSEE DURING THE COURSE OF SCRUTINY ASSESSMENT. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE COMPANY HAD FILED BELATED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2014-15 ON 31.03.2016 DECLARING TOTAL INCOME AT .5,47,35,010/-. HOWEVER, IN THE REVISED COMPUTATION OF INCOME FILED ON BEHALF OF THE ASSESSEE VIDE LETTER DATED 14.02.2017, THE TOTAL LOSS HAS BEEN REPORTED AT .10,39,49,587/-. IT WAS THE SUBMISSION BEFORE THE ASSESSING OFFICER THAT THE CLAIM OF CHANGE IN THE TOTAL INCOME FOR THE ASSESSMENT YEAR 2014-15 WAS BECAUSE OF FINANCIAL STATEMENTS GOT FINALIZED AFTER FILING THE BELATED RETURN OF INCOME. CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER OBSERVED THAT A REVISED RETURN OF INCOME UNDER SECTION 139(5) OF THE ACT CAN ONLY BE FILED WITHIN ONE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR OR BEFORE THE COMPLETION OF THE ASSESSMENT, WHICHEVER IS EARLIER. SINCE THE ASSESSEE HAS FILED MANUAL REVISED RETURN OF INCOME ON 14.02.2017, WHICH IS AFTER THE TIME LIMIT SPECIFIED UNDER SECTION 139(5) OF THE ACT, THE ASSESSING OFFICER TREATED THE SAME AS INVALID. 6.1 BY ASSIGNING VARIOUS REASONS LEADING TO DELAY IN SIGNING OF ACCOUNTS, FILING BELATED RETURN OF INCOME AS WELL AS BELATED MANUAL REVISED RETURN OF I.T(TP).A. NO.100/M/18 10 INCOME INCLUDING COMPUTATION OF INCOME, THE LD. COUNSEL FOR THE ASSESSEE HAS VEHEMENTLY ARGUED THAT THE ASSESSING OFFICER SHOULD HAVE ACCEPTED ENTIRE SIGNED FINANCIAL STATEMENTS OR SHOULD HAVE REJECTED IN TOTO. HOWEVER, THE ASSESSING OFFICER HAS CONSIDERED THE SIGNED FINANCIAL STATEMENTS FOR THE PURPOSE OF MAKING VARIOUS DISALLOWANCES BY SPECIFICALLY MAKING REFERENCE TO NOTES TO ACCOUNTS OF SIGNED FINANCIAL STATEMENTS, WHEREAS, FOR COMPUTING THE ASSESSED INCOME, THE ASSESSING OFFICER REJECTED THE SAME IS ERRONEOUS AND ASSESSED A HIGHER TOTAL INCOME SHALL NOT MEET THE ENDS OF NATURAL JUSTICE AND PRAYED FOR ACCEPTING THE BELATED MANUAL REVISED RETURN OF INCOME AND RENDER JUSTICE. 6.2 ON THE OTHER HAND, THE LD. DR SUPPORTED THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE ACT. 6.3 WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS AN UNDISPUTED FACT THAT THE REVISED RETURN OF INCOME OF AN ASSESSEE SHOULD HAVE BEEN FILED THE REVISED RETURN OF INCOME WITHIN ONE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR OR BEFORE THE COMPLETION OF THE ASSESSMENT WHICHEVER IS EARLIER. ADMITTEDLY, THE ASSESSEE FILED THE REVISED RETURN OF INCOME DURING THE COURSE OF ASSESSMENT PROCEEDINGS I.E., BEFORE COMPLETION OF THE ASSESSMENT OF THE RELEVANT ASSESSMENT YEAR. THE ASSESSEE HAS SUBMITTED FOLLOWING REASONS FOR SIGNING OF ACCOUNTS AND FILING BELATED RETURN OF INCOME: I.T(TP).A. NO.100/M/18 11 DURING THE YEAR 2012, THERE WAS LABOUR UNREST AND PROTEST BY THE LABOUR UNION IN THE PUNE FACTORY OF THE APPELLANT. DUE TO THE ABOVE BUSINESS REASONS, THE APPELLANT DECIDED TO MORE THE FACTORY FROM PUNE TO CHENNAI. THE THEN FINANCE DIRECTOR AND OTHER EMPLOYEES RESIGNED IN THIS PROCESS. ALSO, DURING THE PROCESS OF SHIFTING, SEVERAL DOCUMENTS WERE MISPLACED. ONLY AFTER THE NEW MANAGEMENT TEAM WAS APPOINTED, ALL THE NECESSARY STATUTORY COMPLIANCES WERE COMPLETED BELATEDLY. FROM THE ABOVE REASONS, IT IS AMPLY CLEAR THAT THE ASSESSEE WAS PREVENTED BY REASONABLE CAUSE FOR THE DELAY IN SIGNING OF ACCOUNTS AND FILING ITS BELATED RETURN OF INCOME WITHIN THE TIME LIMIT PRESCRIBED UNDER SECTION 139 OF THE ACT. MOREOVER, IT IS NOT THE CASE OF THE DEPARTMENT THAT THE ASSESSING OFFICER HAS OUT RIGHTLY REJECTED THE REVISED COMPUTATION OF INCOME. FOR MAKING DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT, DISALLOWANCE OF PROVISION FOR WARRANTY, DISALLOWANCE ON DELAYED DEPOSIT OF EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND, ETC. THE ASSESSING OFFICER SPECIFICALLY MADE REFERENCE TO NOTES TO ACCOUNTS OF SIGNED FINANCIAL STATEMENTS, THEREBY, PARTIALLY ACCEPTED THE FINANCIAL STATEMENTS FILED ALONG WITH THE BELATED REVISED RETURN OF INCOME, WHEREAS, THE ASSESSING OFFICER HAS REJECTED THE REVISED COMPUTATION FOR ASSESSING THE CORRECT INCOME OF THE ASSESSEE. THE VERY PURPOSE OF THE PROVISION MADE IN THE STATUTE THAT AN ASSESSEE SHOULD HAVE FILED THE REVISED RETURN OF INCOME WITHIN ONE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR OR BEFORE THE COMPLETION OF THE ASSESSMENT WHICHEVER IS EARLIER IS TO ACCEPT THE LEGITIMATE CLAIM OF THE ASSESSEE. I.T(TP).A. NO.100/M/18 12 ESPECIALLY, THE SECOND LIMB OF THE PROVISION THAT BEFORE THE COMPLETION OF THE ASSESSMENT WHICHEVER IS EARLIER HAS BEEN MADE IN THE STATUTE SO THAT THE VERY PURPOSE OF ASSESSMENT IS TO ASSESS THE CORRECT INCOME OF THE ASSESSEE WHEN THE RETURN OF INCOME WAS TAKEN UP FOR SCRUTINY. WHEN THE EXPENDITURES INCURRED BY THE ASSESSEE AND ADMITTED IN THE REVISED COMPUTATION OF INCOME FILED ALONG WITH REVISED RETURN OF INCOME WERE TAKEN INTO ACCOUNT BY THE ASSESSING OFFICER FOR MAKING DISALLOWANCES/ADDITIONS, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING THE SAME FOR COMPUTING CORRECT INCOME OF THE ASSESSEE, WHEN THE CASE OF THE ASSESSEE WAS TAKEN UP FOR SCRUTINY UNDER SECTION 143(3) OF THE ACT. A CLAIM WHICH IS LEGALLY ALLOWABLE CANNOT BE DISALLOWED FOR THE REASON THAT THE SAME WAS POINTED OUT IN THE COURSE OF ASSESSMENT PROCEEDINGS BY WAY OF FILING OF REVISED COMPUTATION OF INCOME. DUE TO THE REJECTION OF A LEGITIMATE CLAIM, THE CORRECT INCOME HAS NOT BEEN ASCERTAINED IN THE INSTANT CASE AND THE VERY PURPOSE OF ASSESSMENT STANDS DEFEATED. 6.4 EVEN IN APPEAL, A FRESH CLAIM COULD BE ADMITTED BY THE FIRST APPELLATE AUTHORITY AS DECIDED BY THE HONBLE SUPREME COURT IN THE CASE OF JUTE CORPORATION OF INDIA LIMITED V. CIT 187 ITR 688(SC) AND IN THE CASE OF NATIONAL THERMAL POWER CORPORATION LIMITED V. CIT 229 ITR 383(SC). MOREOVER, THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V. LAB INDIA INSTRUMENT PVT. LTD 277 ITR (AT) 39(PUNE) HAS HELD THAT HAD THE LEGISLATURE I.T(TP).A. NO.100/M/18 13 INTENDED TO DISENTITLE THE ASSESSEE TO MAKE ANY CLAIM OF DEDUCTION AFTER THE EXPIRY OF THE PERIOD SPECIFIED UNDER SECTION 139(5) OF THE ACT, IT COULD DO SO BY MAKING A SPECIFIC PROVISION IN THIS REGARD. THEREFORE IN THE ABSENCE OF SUCH PROVISION, THE ASSESSEE WAS ENTITLED TO MAKE ANY CLAIM OF DEDUCTION/EXEMPTION IN THE COURSE OF ASSESSMENT PROCEEDINGS AND CONSEQUENTLY THE ASSESSING OFFICER WAS DUTY BOUND TO ADJUDICATE UPON SUCH CLAIM, EVEN THOUGH IT WAS FILED AFTER THE PRESCRIBED PERIOD UNDER SECTION 139(5) OF THE ACT. 6.5 UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE DIRECT THE ASSESSING OFFICER ACCEPT THE REVISED COMPUTATION OF INCOME FILED ALONG WITH THE BELATED REVISED RETURN OF INCOME FOR ASSESSING CORRECT INCOME OF THE ASSESSEE. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO DISALLOWANCE OF SOFTWARE SUPPORT CHARGES AMOUNT TO .31,59,064/- REIMBURSED TO HAWORTH INC. MADE UNDER SECTION 40(A)(I) OF THE ACT. THE ASSESSEE HAS CLAIMED EXPENSES OF .31,59,064/- TOWARDS SOFTWARE SUPPORT SERVICES RECEIVED FROM HAWORTH INC., U.S.A. BEFORE THE ASSESSING OFFICER, THE ASSESSEE HAS OFFERED EXPLANATION ON THE NATURE OF EXPENSES AND WHY TDS SHOULD NOT BE MADE ON THE SAME. HOWEVER, SINCE NO EVIDENCE WAS FURNISHED BY THE ASSESSEE IN SUPPORT OF ITS CLAIM, THE ASSESSING OFFICER DISALLOWED .31,59,064/- UNDER SECTION 40(A)(I) OF THE ACT. I.T(TP).A. NO.100/M/18 14 7.1 WE HAVE HEARD RIVAL CONTENTIONS. IT WAS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT AGAINST THE SOFTWARE SUPPORT SERVICES RECEIVED FROM HAWORTH INC., U.S.A., THE ASSESSEE HAS REIMBURSED ITS PORTION ON A COST TO COST BASIS. IT WAS FURTHER SUBMISSION THAT NO INCOME WAS ACCRUED OR ARISED FOR THE NON-RESIDENT IN INDIA AND THUS, TAXES WERE NOT DEDUCTED BY THE ASSESSEE. FURTHER, IT WAS SUBMITTED THAT SINCE THE REMITTANCES ARE MERE REIMBURSEMENT OF SOFTWARE SUPPORT CHARGES MADE ON COST TO COST BASIS, THERE WOULD NOT BE ANY OTHER EVIDENCE EXCEPT DEBIT NOTE AND MOREOVER, IT IS NOT CHARGEABLE TO TAX IN INDIA IN THE HANDS OF THE NON- RESIDENT AND TDS PROVISIONS UNDER SECTION 195 OF THE ACT ARE NOT APPLICABLE AND RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF ATMEL R & D INDIA PVT. LTD. [2016] 74 TAXMAMNN.COM 106. WE FIND FORCE IN THE ARGUMENT OF THE LD. COUNSEL. WE HAVE PERUSED THE CASE LAW RELIED ON BY THE LD. COUNSEL. SIMILAR ISSUE WAS SUBJECT MATTER IN APPEAL BEFORE THE TRIBUNAL IN THE CASE OF ATMEL R & D INDIA PVT. LTD. (SUPRA) AND THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MAIN CONTENTION OF THE ASSESSEES COUNSEL THAT THE PAYMENT WAS MADE TOWARDS COST OF THE SOFTWARE NAMELY CADENCE AND SYNOPSIS PAID TO THE ATMEL CORPORATION USA AT A COST WITHOUT ANY MARK-UP AND IT DOES NOT INCLUDE ANY PROFIT ELEMENT. HOWEVER, THE AO IS OF THE OPINION THAT IT IS PAYMENT IN THE NATURE OF ROYALTY AS PER PROVISIONS OF THE SECTION 9(1)(VI) OF THE ACT. SINCE THE SOFTWARE IS USED IN INDIA FOR THE PURPOSE OF BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE IN INDIA, HE INVOKED THE PROVISIONS 195 OF THE ACT AND DISALLOWED THE EXPENDITURE SINCE THERE WAS NO DEDUCTION OF TDS U/S.40(A)(I) OF THE ACT. NOW THE CONTENTION OF THE LD.A.R IS THAT IT IS ONLY PURCHASE OF SOFTWARE TO USE IN ASSESSEES BUSINESS AND THE ASSESSEE HAS NOT ACQUIRED THE COPYRIGHT OF THE PROGRAMME. THE LD. D.R IS NOT ABLE TO SHOW THAT THE ASSESSEE I.T(TP).A. NO.100/M/18 15 HAS GOT ANY RIGHT TO USE THE COPYRIGHT AS SOFTWARE PROGRAMME. IN OTHER WORDS, IF THE ASSESSEE ACQUIRES ONLY RIGHT TO USE SOFTWARE AND NOT COPYRIGHT OF THE SOFTWARE, THEN IN OUR OPINION THE ORDER OF TRIBUNAL IN THE CASE OF ADIT VS. BARTRONICS INDIA LTD.,(SUPRA) IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE WHEREIN HELD AS FOLLOWS:- 39. IN ORDER TO QUALIFY AS ROYALTY PAYMENT, IT IS NECESSARY TO ESTABLISH THAT THERE IS TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF ANY LICENCE) IN RESPECT OF COPYRIGHT OF A LITERARY, ARTISTIC OR SCIENTIFIC WORK. IN ORDER TO TREAT THE CONSIDERATION PAID BY THE LICENSEE AS ROYALTY, IT IS TO BE ESTABLISHED THAT THE LICENSEE, BY MAKING SUCH PAYMENT, OBTAINS ALL OR ANY OF THE COPYRIGHT RIGHTS OF SUCH LITERARY WORK. DISTINCTION HAS TO BE MADE BETWEEN THE ACQUISITION OF A COPYRIGHT RIGHT AND A COPYRIGHTED ARTICLE. COPYRIGHT IS DISTINCT FROM THE MATERIAL OBJECT, COPYRIGHTED. COPYRIGHT IS AN INTANGIBLE INCORPOREAL RIGHT IN THE NATURE OF A PRIVILEGE, QUITE INDEPENDENT OF ANY MATERIAL SUBSTANCE, SUCH AS A MANUSCRIPT. JUST BECAUSE ONE HAS THE COPYRIGHTED ARTICLE, IT DOES NOT FOLLOW THAT ONE HAS ALSO THE COPYRIGHT IN IT. IT DOES NOT AMOUNT TO TRANSFER OF ALL OR ANY RIGHT INCLUDING LICENCE IN RESPECT OF COPYRIGHT. COPYRIGHT OR EVEN RIGHT TO USE COPYRIGHT IS DISTINGUISHABLE FROM SALE CONSIDERATION PAID FOR COPYRIGHTED ARTICLE. THIS SALE CONSIDERATION IS FOR PURCHASE OF GOODS AND IS NOT ROYALTY. 40. THE LICENSE GRANTED BY THE ASSESSEE IS LIMITED TO THOSE NECESSARY TO ENABLE THE LICENSEE TO OPERATE THE PROGRAM. THE RIGHTS TRANSFERRED ARE SPECIFIC TO THE NATURE OF COMPUTER PROGRAMS. COPYING THE PROGRAM ONTO THE COMPUTERS HARD DRIVE OR RANDOM ACCESS MEMORY OR MAKING AN ARCHIVAL COPY IS AN ESSENTIAL STEP IN UTILIZING THE PROGRAM. THEREFORE, RIGHTS IN RELATION TO THESE ACTS OF COPYING, WHERE THEY DO NO MORE THAN ENABLE THE EFFECTIVE OPERATION OF THE PROGRAM BY THE USER, SHOULD BE DISREGARDED IN ANALYZING THE CHARACTER OF THE TRANSACTION FOR TAX PURPOSES. PAYMENTS IN THESE TYPES OF TRANSACTIONS WOULD BE DEALT WITH AS BUSINESS INCOME IN ACCORDANCE WITH ARTICLE 7. 41. THERE IS A CLEAR DISTINCTION BETWEEN ROYALTY PAID ON TRANSFER OF COPYRIGHT RIGHTS AND CONSIDERATION FOR TRANSFER OF COPYRIGHTED ARTICLES. RIGHT TO USE A COPYRIGHTED ARTICLE OR PRODUCT WITH THE OWNER RETAINING HIS COPYRIGHT, IS NOT THE SAME THING AS TRANSFERRING OR ASSIGNING RIGHTS IN RELATION TO THE COPYRIGHT. THE ENJOYMENT OF SOME OR ALL THE RIGHTS WHICH THE COPYRIGHT OWNER HAS, IS NECESSARY TO INVOKE THE ROYALTY DEFINITION. VIEWED FROM THIS ANGLE, A NON-EXCLUSIVE AND NONTRANSFERABLE LICENCE ENABLING THE USE OF A COPYRIGHTED PRODUCT I.T(TP).A. NO.100/M/18 16 CANNOT BE CONSTRUED AS AN AUTHORITY TO ENJOY ANY OR ALL OF THE ENUMERATED RIGHTS INGRAINED IN ARTICLE 12 OF DTAA. WHERE THE PURPOSE OF THE LICENCE OR THE TRANSACTION IS ONLY TO RESTRICT USE OF THE COPYRIGHTED PRODUCT FOR INTERNAL BUSINESS PURPOSE, IT WOULD NOT BE LEGALLY CORRECT TO STATE THAT THE COPYRIGHT ITSELF OR RIGHT TO USE COPYRIGHT HAS BEEN TRANSFERRED TO ANY EXTENT. THE PARTING OF INTELLECTUAL PROPERTY RIGHTS INHERENT IN AND ATTACHED TO THE SOFTWARE PRODUCT IN FAVOUR OF THE LICENSEE/CUSTOMER IS WHAT IS CONTEMPLATED BY THE TREATY. MERELY AUTHORIZING OR ENABLING A CUSTOMER TO HAVE THE BENEFIT OF DATA OR INSTRUCTIONS CONTAINED THEREIN WITHOUT ANY FURTHER RIGHT TO DEAL WITH THEM INDEPENDENTLY DOES NOT, AMOUNT TO TRANSFER OF RIGHTS IN RELATION TO COPYRIGHT OR CONFERMENT OF THE RIGHT OF USING THE COPYRIGHT. THE TRANSFER OF RIGHTS IN OR OVER COPYRIGHT OR THE CONFERMENT OF THE RIGHT OF USE OF COPYRIGHT IMPLIES THAT THE TRANSFEREE/LICENSEE SHOULD ACQUIRE RIGHTS EITHER IN ENTIRETY OR PARTIALLY CO-EXTENSIVE WITH THE OWNER/TRANSFEROR WHO DIVESTS HIMSELF OF THE RIGHTS HE POSSESSES IN HIS FAVOUR. 42. THE LICENSE GRANTED TO THE LICENSEE PERMITTING HIM TO USE THE PROGRAMME FOR ITS BUSINESS PURPOSE IS ONLY INCIDENTAL TO THE FACILITY EXTENDED TO THE LICENSEE TO MAKE USE OF THE COPYRIGHTED PRODUCT FOR ITS INTERNAL BUSINESS PURPOSE. THE SAID PROCESS IS NECESSARY TO MAKE THE PROGRAMME FUNCTIONAL AND TO HAVE ACCESS TO IT AND IS QUALITATIVELY DIFFERENT FROM THE RIGHT CONTEMPLATED BY THE SAID PARAGRAPH BECAUSE IT IS ONLY INTEGRAL TO THE USE OF COPYRIGHTED PRODUCT. APART FROM SUCH INCIDENTAL FACILITY, THE LICENSEE HAS NO RIGHT TO DEAL WITH THE PRODUCT JUST AS THE OWNER WOULD BE IN A POSITION TO DO. 43. THERE IS NO TRANSFER OF ANY RIGHT IN RESPECT OF COPYRIGHT BY THE ASSESSEE AND IT IS A CASE OF MERE TRANSFER OF A COPYRIGHTED ARTICLE. THE PAYMENT IS FOR A COPYRIGHTED ARTICLE AND REPRESENTS THE PURCHASE PRICE OF AN ARTICLE AND CANNOT BE CONSIDERED AS ROYALTY EITHER UNDER THE INCOME TAX ACT OR UNDER THE DTAA. 44. THE LICENSEES ARE NOT ALLOWED TO EXPLOIT THE COMPUTER SOFTWARE COMMERCIALLY, THEY HAVE ACQUIRED UNDER LICENCE AGREEMENT, ONLY THE COPY RIGHTED SOFTWARE WHICH BY ITSELF IS AN ARTICLE AND THEY HAVE NOT ACQUIRED ANY COPYRIGHT IN THE SOFTWARE. IN THE CASE OF THE ASSESSEE COMPANY, THE LICENSEE TO WHOM THE ASSESSEE COMPANY HAS SOLD/LICENSED THE SOFTWARE WERE ALLOWED TO MAKE ONLY ONE COPY OF THE SOFTWARE AND ASSOCIATED SUPPORT INFORMATION FOR BACKUP PURPOSES WITH A CONDITION THAT SUCH COPYRIGHT SHALL INCLUDE INTRA ASIA TRADING (P) LTD. COPYRIGHT AND ALL COPIES OF THE SOFTWARE SHALL BE EXCLUSIVE PROPERTIES OF INTRA ASIA TRADING (P) LTD. LICENSEE WAS ALLOWED TO USE I.T(TP).A. NO.100/M/18 17 THE SOFTWARE ONLY FOR ITS OWN BUSINESS AS SPECIFICALLY IDENTIFIED AND WAS NOT PERMITTED TO LOAN/RENT/SALE/SUB-LICENCE OR TRANSFER THE COPY OF SOFTWARE TO ANY THIRD PARTY WITHOUT THE CONSENT OF INTRA ASIA TRADING (P) LTD. 45. THE LICENSEE HAS BEEN PROHIBITED FROM COPYING, DECOMPILING, DE-ASSEMBLING, OR REVERSE ENGINEERING THE SOFTWARE WITHOUT THE WRITTEN CONSENT OF LNTRA ASIA TRADING (P) LTD. THE LICENCE AGREEMENT BETWEEN THE ASSESSEE COMPANY AND ITS CUSTOMERS STIPULATES THAT ALL COPYRIGHTS AND INTELLECTUAL PROPERTY RIGHTS IN THE SOFTWARE AND COPIES MADE BY THE LICENSEE WERE OWNED BY INTRA ASIA TRADING (P) LTD. AND ONLY INTRA ASIA TRADING (P) LTD. HAS THE POWER TO GRANT LICENCE RIGHTS FOR USE OF THE SOFTWARE. THE LICENCE AGREEMENT STIPULATES THAT UPON TERMINATION OF THE AGREEMENT FOR ANY REASON, THE LICENCEE SHALL RETURN THE SOFTWARE INCLUDING SUPPORTING INFORMATION AND LICENCE AUTHORIZATION DEVICE TO LNTRA ASIA TRADING (P) LTD. 46. THE INCORPOREAL RIGHT TO THE SOFTWARE I.E. COPYRIGHT REMAINS WITH THE OWNER AND THE SAME WAS NOT TRANSFERRED BY THE ASSESSEE. THE RIGHT TO USE A COPYRIGHT IN A PROGRAMME IS TOTALLY DIFFERENT FROM THE RIGHT TO USE A PROGRAMME EMBEDDED IN A SOFTWARE AND THE PAYMENT MADE FOR THE SAME CANNOT BE SAID TO BE RECEIVED AS CONSIDERATION FOR THE USE OF OR RIGHT TO USE OF ANY COPYRIGHT TO BRING IT WITHIN THE DEFINITION OF ROYALTY AS GIVEN IN THE DTAA. WHAT THE LICENSEE HAS ACQUIRED IS ONLY A COPY OF THE COPYRIGHT ARTICLE WHEREAS THE COPYRIGHT REMAINS WITH THE OWNER AND THE LICENSEES HAVE ACQUIRED A COMPUTER PROGRAMME FOR BEING USED IN THEIR BUSINESS AND NO RIGHT IS GRANTED TO THEM TO UTILIZE THE COPYRIGHT OF A COMPUTER PROGRAMME AND THUS THE PAYMENT FOR THE SAME IS NOT IN THE NATURE OF ROYALTY. 47. WE HAVE NOT EXAMINED THE EFFECT OF THE SUBSEQUENT AMENDMENT TO SECTION 9 (1)(VI) OF THE ACT AND ALSO WHETHER THE AMOUNT RECEIVED FOR USE OF SOFTWARE WOULD BE ROYALTY IN TERMS THEREOF FOR THE REASON THAT THE ASSESSEE IS COVERED BY THE DTAA, THE PROVISIONS OT WHICH ARE MORE BENEFICIAL. THE AMOUNT RECEIVED BY THE ASSESSEE UNDER THE LICENCE AGREEMENT FOR ALLOWING THE USE OF THE SOFTWARE IS NOT ROYALTY UNDER THE DTAA. 48. WHAT IS TRANSFERRED IS NEITHER THE COPYRIGHT IN THE SOFTWARE NOR THE USE OF THE COPYRIGHT IN THE SOFTWARE, BUT WHAT IS TRANSFERRED IS THE RIGHT TO USE THE COPYRIGHTED MATERIAL OR ARTICLE WHICH IS CLEARLY DISTINCT FROM THE RIGHTS IN A COPYRIGHT. THE RIGHT THAT IS TRANSFERRED IS NOT A RIGHT TO USE THE COPYRIGHT BUT IS ONLY LIMITED TO THE RIGHT TO USE THE COPYRIGHTED MATERIAL AND THE SAME DOES NOT GIVE RISE TO ANY ROYALTY INCOME AND WOULD BE BUSINESS INCOME. I.T(TP).A. NO.100/M/18 18 49. IN VIEW OF ELABORATE DISCUSSION AND IN THE LIGHT OF THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF DIT VS. INFRASOFT LTD. (SUPRA), ON WHICH RELIANCE PLACED BY THE LEARNED AR, IN THE PRESENT CASE, THE ASSESSEE HAS ACQUIRED A READYMADE OFF THE SHELF COMPUTER PROGRAMME TO BE USED IN THEIR BUSINESS AND NO RIGHT WAS GRANTED TO THE ASSESSEE TO UTILIZE THE COPY RIGHT OF THE PROGRAMME AND, THEREFORE, CONSIDERATION CANNOT BE TREATED AS ROYALTY. AS HELD BY THE CIT(A), THE PAYMENTS MADE BY THE ASSESSEE COMPANY CANNOT BE HELD AS ROYALTIES COMING INTO THE AMBIT OF ARTICLE 12 OF DTAA OR FEE FOR TECHNICAL SERVICES U/S 9(1 )(VII) OF THE IT ACT AND ACCORDINGLY NO TAX NEED TO BE DEDUCTED U/S 195 OF THE IT ACT. WE, THEREFORE, UPHOLD THE ORDER OF THE CIT(A) ON THIS COUNT AND DISMISS THE GROUNDS RAISED BY THE REVENUE IN THIS REGARD. IN VIEW OF THE ABOVE, WE ARE INCLINED TO ALLOW THE GROUND TAKEN BY THE ASSESSEE. THIS GROUND IS ALLOWED. 7.2 IN THE PRESENT CASE, THE ASSESSEE HAS EXPLAINED THE NATURE OF EXPENSES AND WHY TDS SHOULD NOT BE MADE ON THE SAME BEFORE THE ASSESSING OFFICER. ON PERUSAL OF THE ASSESSMENT ORDER, WE FIND THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS NEITHER DUE TO USAGE OF COPYRIGHT OR THE REIMBURSEMENT OF SOFTWARE SUPPORT CHARGES DOES NOT FALL WITHIN THE DEFINITION OF ROYALTY. THE ASSESSING OFFICER ALSO NOT DISPUTED THE NATURE OF EXPENSES INCURRED BY THE ASSESSEE. BUT, THE ONLY OBJECTION OF THE ASSESSING OFFICER IS THAT THE ASSESSEE HAS NOT FILED ANY EVIDENCE. WHEN THERE IS NO USAGE OF ANY COPYRIGHT OR THE REIMBURSEMENT FALLS UNDER ROYALTY AND SINCE THE REMITTANCES ARE MERE REIMBURSEMENT OF SOFTWARE SUPPORT CHARGES MADE ON COST TO COST BASIS, THE ASSESSEE COULD FURNISH NO OTHER EVIDENCE EXCEPT DEBIT NOTE. IN VIEW OF THE ABOVE AND THE LD. DR COULD NOT CONTROVERT THE I.T(TP).A. NO.100/M/18 19 DECISION OF THE TRIBUNAL IN THE CASE OF ATMEL R & D INDIA PVT. LTD. (SUPRA), WE DELETE THE ADDITION MADE UNDER SECTION 40(A)(I) OF THE ACT. 8. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO DISALLOWANCE OF PROVISION FOR WARRANTY AMOUNTING TO .16,48,860/- (NET OF UTILIZATION). FROM THE NOTES TO THE FINANCIAL STATEMENTS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS MADE WARRANTY PROVISION OF .31,40,042/- AGAINST WHICH UTILIZATION OF THE SAME HAD BEEN SHOWN AT .14,91,182/-. THUS, THE ASSESSING OFFICER ASCERTAINED THAT AN EXCESSIVE/UNUTILIZED PROVISIONS FOR WARRANTY AMOUNTING TO .16,48,860/- HAD BEEN CLAIMED BY THE ASSESSEE. THE ASSESSEE WAS ASKED TO FURNISH DETAILS IN CONNECTION WITH THE PROVISIONS FOR WARRANTY AND ALSO ASKED TO SHOW-CAUSE AS TO WHY THE EXCESSIVE/ UNUTILIZED WARRANTY PROVISIONS SHOULD NOT BE DISALLOWED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT GIVEN ANY SCIENTIFIC METHOD OF CALCULATION TO ARRIVE AT SUCH LIABILITY AND MOREOVER, THE LIABILITY WAS NOT CRYSTALIZED ON THE DATE OF THE SALE AND THEREFORE, HE HELD THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION IN RESPECT OF THE PROVISION MADE FOR WARRANTY CHARGES. 8.1 WE HAVE CONSIDERED THE RIVAL CONTENTIONS. BY FILING COPY OF THE ORDER OF THE PUNE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2011-12, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT SIMILAR ISSUE WAS SUBJECT MATTER IN APPEAL AND PRAYED FOR FOLLOWING THE I.T(TP).A. NO.100/M/18 20 SAME. WE HAVE PERUSED THE DECISION IN ASSESSEES OWN CASE IN I.T.A. NO. 109/PUN/2016 DATED 21.08.2018, WHEREIN, THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: 8. WHILE PASSING DRAFT ASSESSMENT ORDER THE ASSESSING OFFICER MADE ADDITION OF THE ENTIRE CLOSING BALANCE OF THE PROVISION RS.39,05,668/- ON THE GROUND THAT THE ASSESSEE HAS NOT UTILIZED PROVISION IN THE PAST YEARS AND EVEN IN THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL PROVISION HAS NOT BEEN UTILIZED. THE PROVISION CANNOT BE ALLOWED TILL THE TIME IT IS ACTUALLY UTILIZED. THE DRP GRANTED PART RELIEF TO THE ASSESSEE BY RESTRICTING THE DISALLOWANCE TO THE EXTENT OF PROVISION CREATED DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL I.E. RS.11,82,576/-. THE LD. AR HAS POINTED THAT THE PROVISION FOR WARRANTY HAS BEEN UTILIZED TO THE EXTENT OF RS.24,66,660/- DURING THE FINANCIAL YEAR 2011-12. WE FIND THAT SIMILAR SUBMISSIONS WERE MADE BY THE ASSESSEE BEFORE THE DRP. HOWEVER, THE CONTENTIONS OF THE ASSESSEE HAVE NOT BEEN VERIFIED. WE FURTHER OBSERVE THAT THOUGH THE ASSESSEE HAS BEEN CONSISTENTLY CREATING PROVISION IN THE PAST AND THE SAME (UNUTILIZED AMOUNT) HAS BEEN ALLOWED TO CARRY FORWARD IN THE NEXT FINANCIAL YEAR. WE FIND THAT THE ASSESSING OFFICER HAS NOT GIVEN ANY COGENT REASON FOR DEVIATING FROM THE PRINCIPLE OF CONSISTENCY IN ALLOWING SUCH PROVISION IN THE PAST. IN THE BACKDROP OF THESE FACTS WE DEEM IT APPROPRIATE TO REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO DECIDE THIS ISSUE AFRESH. SIMILARLY, FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ALSO, WE REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO ADDITION ON ACCOUNT OF DELAYED REMITTANCE OF EMPLOYEES CONTRIBUTION TO PF/ESI AMOUNTING TO .74,880/-. ON EXAMINATION OF THE FORM NO. 3CD OF THE AUDIT REPORT IN RESPECT OF PAYMENT OF EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND, THE ASSESSING OFFICER NOTICED THAT FOR THE MONTH OF NOVEMBER, 2013, .74,880/- HAD BEEN DEPOSITED AFTER THE DUE DATE AS I.T(TP).A. NO.100/M/18 21 PRESCRIBED UNDER THE PROVIDENT FUND ACT. WHEN THE ASSESSEE WAS ASKED TO EXPLAIN, IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE SAID PAYMENTS WERE MADE BEFORE THE DUE DATE FOR FILING OF RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT. HOWEVER, THE ASSESSING OFFICER TREATED THE DELAYED PAYMENTS AS INCOME OF THE ASSESSEE AND BROUGHT TO TAX UNDER SECTION 2(24)(X) R.W.S. 36(1)(VA) OF THE ACT. 9.1 WE HAVE HEARD THE RIVAL CONTENTIONS. IN THIS CASE, THE ASSESSING OFFICER DISALLOWED .74,880/- BEING DELAYED REMITTANCE OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND ON THE GROUND THAT THE SAID CONTRIBUTIONS HAVE NOT BEEN MADE WITHIN THE STATUTORY PERIOD GIVEN IN THE RELEVANT ACTS. HOWEVER, IT IS NOT DISPUTED BY THE REVENUE THAT THE ASSESSEE HAS NOT PAID THE EMPLOYEES CONTRIBUTION RECEIVED BY IT BEFORE THE DUE DATE OF FILING OF THE RETURN UNDER SECTION 139(1) OF THE ACT. VARIOUS COURTS INCLUDING THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. INDUSTRIAL SECURITY AND INTELLIGENCE INDIA PVT. LTD. IN T.C.A. NO. 585 & 586 OF 2015 DATED 24.07.2015 HELD THAT THERE CAN BE NO DEEMED ADDITION UNDER SECTION 36(1)(VA) R.W.S. 2(24)(X) OF THE ACT, IF THE IMPUGNED AMOUNT HAS BEEN PAID BEFORE THE DUE DATE OF FILING OF THE RETURN. THE LD. DR COULD NOT CONTROVERT THE ABOVE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT. IN VIEW OF THE ABOVE, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION AND THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. I.T(TP).A. NO.100/M/18 22 10. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS WITH REGARD TO DISALLOWANCE OF AD-HOC EXPENDITURE AMOUNTING TO .2,00,00,000/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE EXPENSES REPORTED IN THE RETURN OF INCOME FILED FOR ASSESSMENT YEAR 2014-15 ARE NOT MATCHING WITH THE AUDITED FINANCIAL STATEMENTS. IN THIS REGARD, THE ASSESSEE COMPANY WAS ASKED TO FURNISH THE DETAILS OF EXPENSES CLAIMED UNDER VARIOUS HEADS IN THE PROFIT & LOSS ACCOUNT ALONG WITH JUSTIFICATION THEREOF PARTICULARLY WITH RESPECT TO FOLLOWING EXPENSES: PARTICULARS AMOUNT (IN .) ADVERTISEMENT AND BUSINESS PROMOTION 3,60,73,259/- TRAVELLING AND CONVEYANCE 2,55,95,691/- COMMUNICATION EXPENSES 1,90,91,695/- MISCELLANEOUS EXPENSES 8,52,951/ - TOTAL 8,16,13,596/ - BEFORE THE ASSESSING OFFICER, THE ASSESSEE COMPANY VIDE ITS SUBMISSION DATED 20/11/2017 SUBMITTED PARTIAL DETAILS IN SUPPORT OF CLAIM OF EXPENSES UNDER THE ABOVE EXPENSES ON A SAMPLE BASIS. ON VERIFICATION, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS MERELY SUBMITTED THE COPIES OF VOUCHERS WITHOUT ANY LEDGER EXTRACTS TO VERIFY THE CORRECTNESS OF THE SAME. FURTHER, NOTICE UNDER SECTION 142(1) OF THE ACT DATED 12/12/2017 WAS ISSUED TO THE ASSESSEE COMPANY REQUIRING IT TO SHOW-CAUSE WHY VARIOUS EXPENSES REPORTED INTO ITR BE ALLOWED. IN RESPONSE, THE ASSESSEE COMPANY HAS SUBMITTED THAT IT HAD FILED A BELATED RETURN OF INCOME FOR AY 2014-15 DUE TO THE LABOUR UNREST IN THE COMPANY AND OTHER OPERATIONAL ISSUES. HOWEVER, I.T(TP).A. NO.100/M/18 23 THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPANY HAS NOT PRODUCED ANY RECONCILIATION BETWEEN THE FIGURES OF EXPENSES APPEARING IN THE RETURN OF INCOME AND THAT OF SHOWN IN THE FINANCIAL STATEMENTS. FURTHER, THE ASSESSEE COMPANY HAS NOT GIVEN ANY JUSTIFICATION AS TO ON WHAT BASIS THE EXPENSES CLAIMED IN THE RETURN OF INCOME SHOULD BE CONSIDERED. THUS, FOR WANT OF SUFFICIENT AND PROPER CORROBORATIVE EVIDENCES AS WELL AS CONVINCING EXPLANATION THE CLAIM OF VARIOUS EXPENSES MADE BY THE ASSESSEE COMPANY IN THE ITR AND AS PER FINANCIAL STATEMENTS ARE NOT FOUND TO BE FULLY VERIFIABLE AND JUSTIFIABLE. UNDER THE FACTS, THE ASSESSING OFFICER PROPOSED A SUM OF . 2,00,00,000/- TO BE DISALLOWED OUT OF THE VARIOUS EXPENSES CLAIMED BY THE COMPANY TO COVER-UP ALL THE DISCREPANCIES AND ACCORDINGLY, THE ABOVE AMOUNT WAS BROUGHT TO TAX. 10.1 WE HAVE HEARD THE RIVAL CONTENTIONS. AGAINST THE MISMATCHING OF EXPENSES MATCHING WITH THE AUDITED FINANCIAL STATEMENTS AND THE RETURN OF INCOME FILED, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE DIFFERENCE WAS DUE TO DRAFT MANAGEMENT ACCOUNTS VIS--VIS AUDITED FINANCIALS. IT WAS FURTHER SUBMISSION THAT THE ASSESSEE HAS FILED THE COPIES OF LEDGER EXTRACTS BEFORE THE DRP BY WAY OF ADDITIONAL EVIDENCE. ACCORDINGLY, THE DRP CALLED FOR REMAND REPORT FROM THE ASSESSING OFFICER. DURING THE COURSE OF REMAND PROCEEDINGS, THE ASSESSING OFFICER CALLED THE ASSESSEE FOR HEARING ON 18.05.2018, BUT THE ASSESSEE RECEIVED THE SAID NOTICE ONLY ON I.T(TP).A. NO.100/M/18 24 21.05.2018. IT WAS FURTHER SUBMISSION THAT THE ASSESSEE FILED THE DETAILS BEFORE THE ASSESSING OFFICER ON 22.05.2018. HOWEVER, THE ASSESSING OFFICER STATED IN THE REMAND REPORT THAT THE ASSESSEE DID NOT APPEAR, BASED ON WHICH, THE DRP CONFIRMED THE ADDITION. IT WAS FURTHER SUBMITTED THAT ALL THE BILLS AND VOUCHERS ARE AVAILABLE WITH THE ASSESSING OFFICER AND PRAYED THAT THE ASSESSING OFFICER CANNOT MAKE AD-HOC DISALLOWANCE. AGAINST THE ABOVE SUBMISSIONS OF THE LD. COUNSEL, THE LD. DR HAS SUBMITTED THAT THE ISSUE MAY BE REMITTED BACK TO THE FILE OF ASSESSING OFFICER FOR VERIFICATION AND FRESH ADJUDICATION. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE BILLS AND VOUCHERS AS SUBMITTED BY THE ASSESSEE AND DECIDE THE ISSUE AFRESH BY GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 11. DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSING OFFICER HAS NOT GRANTED CREDIT FOR ADVANCE TAX AMOUNTING TO .1,14,00,000/- AS WELL AS CREDIT FOR SELF-ASSESSMENT AMOUNTING TO .90,00,000/- AND PRAYED THAT SUITABLE DIRECTIONS MAY BE GIVEN. SINCE WE HAVE DIRECTED THE ASSESSING OFFICER HEREINABOVE TO ACCEPT THE REVISED COMPUTATION OF INCOME FILED ALONG WITH BELATED REVISED RETURN OF INCOME, THE ASSESSING OFFICER IS DIRECTED TO GRANT DUE CREDIT TO THE ADVANCE TAX PAID BY THE ASSESSEE AS WELL AS OTHER TAX PAID BY SELF-ASSESSMENT WHILE I.T(TP).A. NO.100/M/18 25 DETERMINING CORRECT INCOME OF THE ASSESSEE. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 02 ND JULY, 2019 AT CHENNAI. SD/- SD/- (M. BALAGANESH) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, THE 02.07.2019 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.