Joint Commissioner of Income TAx (LTU) , Bangalore V. M/s Dell International Services India Pvt Ltd , Bangalore

ITTPA 53/BANG/2014

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 9676 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 13-07-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 14-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Capital asset; Transfer pricing; International transaction; Cost of acquisition; Fair market value; Bad and doubtful debts; Procedural lapse; Surrender of tenancy right
• Section: 92C; 143(3); 2(14); 133(6); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER IT (TP) A NO. 53 / BANG/201 4 ASSESSMENT YEAR : 20 09 - 10 THE JOINT COMMISSIONER OF INCOME TAX, LTU, BANGALORE. VS. M/S. DELL INTERNATIONAL SERVICES INDIA PVT. LTD., NO. 12/1, 12/2A, 13/1A, DIVYASHREE GREENS, CHALLAGHATTA VILLAGE, VARTHURHOBLI, BANGALORE 560 071. PAN: AABCD1741M APPELLANT RESPONDENT IT(TP)A NO. 86 /BANG/2014 ASSESSMENT YEAR : 2009 - 10 M/S. DELL INTERNATIONAL SERVICES INDIA PVT. LTD., NO. 12/1, 12/2A, 13/1A, DIVYASHREE GREENS, CHALLAGHATTA VILLAGE, VARTHURHOBLI, BANGALORE 560 071. PAN: AABCD1741M VS. THE JOINT COMMISSIONER OF INCOME TAX, LTU, BANGALORE. APPELLANT RESPONDENT ASSESSEE BY : SHRI K.R. VASUDEVAN, ADVOCATE RE VENUE BY : MS. NEERA MALHOTRA, CIT (DR) DATE OF HEARING : 14 .0 6 .2018 DATE OF PRONOUNCEMENT : 13 .0 7 .2018 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND R EVENUE AND THESE ARE DIRECTED AGAINST THE ASSESSMENT ORDER DATED 23.12.2 013 PASSED BY THE AO U/S. IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 2 OF 27 143(3) R.W.S. 144C OF IT ACT FOR ASSESSMENT YEAR 20 09-10 AS PER THE DIRECTIONS OF DRP. 2. THE REVISED GROUNDS RAISED BY THE ASSESSEE ARE A S UNDER. I. TRANSFER PRICING 1. THE LEARNED ASSESSING OFFICER ('LEARNED AO') AND THE LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX (TRANSFER PRI CING-I), BANGALORE (-TRANSFER PRICING OFFICER' OR -LEARNED T PO') GROSSLY ERRED IN DETERMINING AN ADJUSTMENT TO THE ARM'S LEN GTH PRICE (*ALP') OF THE APPELLANT'S INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES (-AES-) OF RS.948,385,734 WITH RESPECT TO THE IT ENABLED SERVICES ('ITES') RENDERED BY THE TAX PAYER U/S 92C A OF THE INCOME TAX ACT. 2. THE LEARNED AO / LEARNED TPO ERRED IN REJECTING THE TRANSFER PRICING ('TP') DOCUMENTATION MAINTAINED BY THE APPE LLANT ON INVOKING PROVISIONS OF SUB-SECTION (3) OF 92C OF THE ACT CON TENDING THAT THE INFORMATION OR DATA USED IN THE COMPUTATION OF THE ARM'S LENGTH PRICE IS NOT RELIABLE OR CORRECT. IN DOING SO: 2.A THE LEARNED AO / LEARNED TPO ERRED IN REJECTION OF COMPARABILITY ANALYSIS CARRIED IN THE TP DOCUMENTAT ION AND IN CONDUCTING A FRESH COMPARABILITY ANALYSIS BY INTROD UCING VARIOUS FILTERS IN DETERMINING THE ARM'S LENGTH PRICE. 2.B THE LEARNED AO / LEARNED TPO ERRED IN REJECTING COMPANIES THAT ARE COMPARABLE TO THE APPELLANT WHILE PERFORMI NG THE COMPARABILITY ANALYSIS. SPECIFICALLY, THE APPELLANT BELIEVES THAT THE FOLLOWING COMPANIES SHOULD HAVE BEEN INCLUDED AS CO MPARABLE LEE & NEE SOFTWARE (EXPORTS) LIMITED CALIBER POINT BUSINESS SOLUTIONS LIMITED R SYSTEMS INTERNATIONAL LIMITED 2.C THE LEARNED AO / LEARNED TPO ERRED IN INCLUDING COMPANIES THAT DO NOT SATISFY THE TEST OF COMPARABILITY. SPEC IFICALLY, THE APPELLANT BELIEVES THAT THE FOLLOWING COMPANIES SEL ECTED AS COMPARABLE BY THE LEARNED AO/ LEARNED TPO SHOULD BE REJECTED INFOSYS BPO LTD ACCENTIA TECHNOLOGIES LTD COSMIC GLOBAL LTD ECLERX SERVICES LTD 3. THE LEARNED AO / LEARNED TPO ERRED IN COMPUTING MARK-UP FOR ALLSEC TECHNOLOGIES LIMITED. THE LEARNED TPO HAS ER RONEOUSLY CONSIDERED THE PROVISION FOR BAD AND DOUBTFUL DEBTS AS NON-OPERATING IN NATURE. 4. THE LEARNED AO / LEARNED TPO ERRED IN NOT CONSID ERING THE MULTIPLE IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 3 OF 27 YEAR / PRIOR YEAR FINANCIAL DATA OF COMPARABLE COMP ANIES WHILE DETERMINING THE ARM'S LENGTH PRICE. 5. THE LEARNED AO / LEARNED TPO ERRED IN USING DATA AS AT THE TIME OF ASSESSMENT PROCEEDINGS, INSTEAD OF THAT AVAILABLE A S ON THE DATE OF PREPARING THE TP DOCUMENTATION FOR COMPARABLE COMPA NIES WHILE DETERMINING ARM'S LENGTH PRICE. 6. THE LEARNED AO / LEARNED TPO ERRED IN IGNORING T HE LIMITED RISK NATURE OF THE CONTRACTUAL SERVICES PROVIDED BY THE APPELLANT AND IN NOT PROVIDING AN APPROPRIATE ADJUSTMENT TOWARDS THE RISK DIFFERENTIAL, EVEN WHEN THE FULL- FLEDGED ENTREPRENEURIAL COMPANI ES ARE SELECTED AS COMPARABLE COMPANIES. 7. THE LEARNED AO / LEARNED TPO ERRED IN NOT CONSID ERING THE CORRECTED SEGMENTAL PROFIT AND LOSS ACCOUNT SUBMITT ED BY THE APPELLANT DURING THE COURSE OF THE ASSESSMENT PROCE EDINGS. 8. THE LEARNED AO / LEARNED TPO ERRED IN MAKING TRA NSFER PRICING ADJUSTMENT TO DOMESTIC TRANSACTION WHICH THE APPELL ANT HAD ENTERED WITH ITS AE. II. CORPORATE TAX RELINQUISHMENT OF LEASE OPTION 1. THE LEARNED AO AND THE HON'BLE DRP ERRED IN HOLD ING THAT THE AMOUNT RECEIVED ON RELINQUISHMENT OF LEASE OPTION I S TAXABLE AS CAPITAL GAINS BY CONCLUDING THAT, LEASE OPTION AND TENANCY RIGHTS ARE ONE AND THE SAME, WITHOUT APPRECIATING THE FACT THA T THE APPELLANT WAS NEVER A TENANT IN RESPECT OF ADDITIONAL AREA WHICH WAS YET TO BE BUILT. 2. THE LEARNED AO AND HON'BLE DRP ERRED IN CONSIDER ING THE COST OF ACQUISITION OF THE ASSET TO BE NIL, BY INVOKING THE PROVISIONS OF SECTION 55(2) OF THE ACT. THEY OUGHT TO HAVE APPRECIATED TH E FACT THAT, THE DEFINITION OF CAPITAL ASSETS PROVIDED UNDER SECTION 55(2) DOES NOT SPECIFICALLY COVER THE CAPITAL ASSET IN THE NATURE OF LEASE OPTION. 3. THE HON'BLE DRP ERRED IN CONCLUDING THAT THE DEC ISION OF SUPREME COURT IN THE CASE OF CIT V. BC SRINIVASA SHETTY (12 8 ITR 294) IS DISTINGUISHABLE, WHEREAS THE PRINCIPLE ARISING THER EFROM. IS SQUARELY APPLICABLE TO THE CASE OF THE APPELLANT. 4. THE LEARNED AO HAS ERRED ON FACTS IN CONCLUDING THAT THE APPELLANT HAS SUPPRESSED OR CONCEALED ONE OF THE CRUCIAL AGRE EMENTS EXECUTED ON 8.5.2008, WITHOUT APPRECIATING THE FACT THAT, TH E INFORMATION RELATING TO SUCH AGREEMENT IS DISCLOSED IN THE NOTE S TO ACCOUNTS OF THE FINANCIAL STATEMENTS AND THE SUPPLEMENTARY AGREEMEN T DATED 15.9.2008 FURNISHED DURING THE ASSESSMENT PROCEEDIN GS SUMMARIZES THE MAIN TERMS OF THE ALLEGED CRUCIAL AGREEMENT. IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 4 OF 27 5. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AO H AS ERRED IN CONSIDERING RS.349,000,000/-BEING THE INITIAL COMPE NSATION AGREED UPON, AS CONSIDERATION, WITHOUT APPRECIATING THE FA CT FINAL SETTLEMENT AMOUNT RECEIVED BY THE APPELLANT WAS RS.284,000,000 . THE APPELLANT CRAVES LEAVE TO ADD, ALTER, RESCIND A ND MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMENTS, FACTS AND EVIDENCE BEFORE OR AT THE TIME OF HEARING OF THIS A PPEAL. FOR THE ABOVE AND ANY OTHER GROUNDS WHICH MAY BE RAISED AT THE TI ME OF HEARING, IT IS PRAYED THAT NECESSARY RELIEF MAY BE PROVIDED. 3. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER. 1. THE ORDER OF DRP IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. THE DRP ERRED IN DIRECTING THE AO TO DEDUCT FREI GHT, INSURANCE AND TELECOMMUNICATION FROM TOTAL TURNOVER AND EXPORT TU RNOVER WHILE COMPUTING THE ELIGIBLE DEDUCTION U/S 10 A. AS THIS IS AGAINST THE PROVISIONS OF SECTION 10A. 3. THE DRP OUGHT NOT TO HAVE ADMITTED REGULARIZED F IRC'S/ SOFTEX FORMS OF RS.14,84,16,444/- WITHOUT CALLING FOR REMA ND REPORT. 4. THE DRP ERRED IN TREATING THE 'BONUS ON INK' AND 'TONER' OF RS.11,37,70,621/- AS PART EXPORT TURNOVER OF SOFTWA RE WITHOUT THERE BEING ANY EVIDENCE THAT THEAMOUNT WAS RECEIVED IN C ONNECTION WITH EXPORT ACTIVITY OF ELIGIBLE STPI UNIT. 5. THE DRP OUGHT TO HAVE REJECTED ASSESSEE'S APPEAL ON DISALLOWANCES OF 10A OF PUNE STPI ON THE FACT THAT THE UNIT DID N OT ENGAGE IN SOFTWARE DEVELOPMENT WHERE THE INVOICES WERE RAISED FOR REIMBURSEMENT OF SERVICE CHARGES. 6. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING. 4. AT THE VERY OUTSET, IT WAS SUBMITTED BY LD. AR O F ASSESSEE THAT THE TP ISSUE IN RESPECT OF INTERNATIONAL TAXATION WITH US AE IS ALR EADY SETTLED UNDER MAP AND HE SUBMITTED A COPY OF MAP SETTLEMENT DATED 28.10.2 015 AND IT WAS POINTED OUT THAT FOR THE PRESENT YEAR I.E. ASSESSMENT YEAR 2009-10, AS AGAINST TP ADJUSTMENT FOR US TRANSACTIONS OF RS. 63,61,77,150/ -, THE SUSTAINED ADJUSTMENT IS RS. 6,62,31,271/- ONLY. THEREAFTER, HE SUBMITTE D THAT AS PER THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 20 06-07 IN IT(TP)A NO. 1302/BANG/2010 DATED 22.07.2016, COPY AVAILABLE ON PAGES 26 TO 45 OF CASE LAW COMPILATION, IT WAS HELD THAT THE MATTER MAY BE RESTORED BACK TO THE FILE OF IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 5 OF 27 TPO/AO FOR FRESH ANALYSIS ON THE LINES BETWEEN US A ND NON-US TRANSACTIONS AND IF IT IS FOUND THAT FACTORS INFLUENCING THE PRI CE ARE SIMILAR BETWEEN US AND NON-US TRANSACTION, THE PRICE ADOPTED FOR US TRANSA CTION MAY BE ADOPTED FOR NON-US TRANSACTIONS ALSO. IN THIS REGARD, OUR ATTE NTION WAS DRAWN TO PARAS 5, 9 AND 10 OF THIS TRIBUNAL ORDER. IT WAS SUBMITTED TH AT THEREFORE, FOR THE ENTIRE TP ISSUE IN ASSESSEES APPEAL, THE MATTER MAY BE DECID ED ON SIMILAR LINE. THE LD. DR OF REVENUE SUPPORTED THE DRAFT ASSESSMENT ORDER OF AO AND THE DIRECTIONS OF DRP. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND IN VIEW OF THIS FACT THAT IN RESPECT OF TP ADJUSTMENT FOR US TRANSACTIONS, THE I SSUE HAS BEEN FINALIZED AS PER MAP AND NOW THIS IS THE REQUEST OF LD. AR OF AS SESSEE BEFORE US THAT THE PRICE ADOPTED FOR US TRANSACTIONS MAY BE ADOPTED FO R NON-US TRANSACTIONS ALSO AND IN SUPPORT OF THIS CONTENTION, RELIANCE HAS BEE N PLACED ON TRIBUNAL ORDER RENDERED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07. WE, THEREFORE FIRST REPRODUCE THE RELEVANT PARAS OF THIS TRIBUNAL ORDER BEING PARA NOS. 5, 9 AND 10 AND THESE PARAS ARE AS UNDER. 5. USE OF CONTEMPORANEOUS DATA A) THE HONOURABLE DRP AND THE LEARNED AO ERRED IN C ONCLUDING THAT THE APPELLANT OUGHT TO HAVE EMPLOYED CONTEMPOR ANEOUS DATA IN THE PREPARATION OF THE TRANSFER PRICING REPORT. B) THE HONOURABLE DRP AND THE LEARNED AO ERRED IN I NTERPRETING THE WORD 'SHALL' IN RULE 10B (4) TO MEAN THAT DATA FOR THE SAME FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTI ON WAS ACTUALLY ENTERED INTO IS A MANDATORY REQUIREMENT. ALSO THE H ONOURABLE DRP AND THE LEARNED AO OUGHT TO HAVE APPRECIATED TH AT THE TRANSFER PRICING REGULATIONS PROVIDE CONTEMPORANEOU S DOCUMENTATION TO BE MANDATORY, AND NOT USE OF DATA FOR THE SAME FINANCIAL YEAR. C) THE HONOURABLE DRP AND THE LEARNED AO OUGHT TO H AVE APPRECIATED THE FACT THAT THE OBJECTIVE UNDERLYING THE USE OF MULTIPLE-YEAR DATA WAS TO ENSURE THAT THE OUTCOMES OF THE INTERNATIONAL TRANSACTIONS FOR THE YEAR UNDER CONSI DERATION WERE BASED ON ALL THE EARLIER PERIODS WHICH WERE RELEVAN T FOR DETERMINATION OF TRANSFER PRICE. 9. THE EMPLOYEE COST FILTER OF 25% OF REVENUE NEEDS TO BE APPLIED BY THE TPO IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 6 OF 27 B) THE LEARNED DRP AS WELL AS THE LEARNED AO FAILED TO APPRECIATE THE FACT THAT THE LOGIC OF APPLICATION OF THIS FILTER T O THE IT SEGMENT SHOULD HAVE BEEN EXTENDED TO THE ITES SEGMENT AS WELL AS E VEN IN THE ITES SEGMENT, EMPLOYEES CONSTITUTE THE PREDOMINANT ASSET . C) THE HONORABLE DRP AND THE LEARNED AU HAVE ERRED IN NOT ELIMINATING THE FOLLOWING COMPARABLES: COSMIC GLOBAL LTD VISHAL INFORMATION TECHNOLOGIES LTD ASIT C MEHTA FINANCIAL SERVICES LTD GOLDSTONE LNFRATECH LTD SPANCO LTD ACE SOFTWARE EXPORTS LTD A) COMPANIES ELIMINATED ERRONEOUSLY CITING INADEQUA TE INFORMATION SHOULD BE ACCEPTED AS COMPARABLES. A) THE HONOURABLE DRP AND THE LEARNED AU HAVE ERRED IN UPHOLDING TPO'S CONTENTION OF REJECTING THE FOLLOWI NG COMPARABLES ON THE GROUNDS OF INADEQUATE INFORMATION: NITTANY OUTSOURCING SERVICES PVT. LTD CAMEO CORPORATE SERVICES LTD B) THE HONOURABLE DRP AND THE LEARNED AU OUGHT TO H AVE APPRECIATED THAT THE LEARNED TPU FAILED TO BE CONSI STENT IN HIS APPROACH BY NOT ISSUING THE REQUISITE NOTICES UNDER THE PROVISIONS OF SECTION 133(6) OF THE ACT NOTICES TO THESE COMPA NIES AS WELL. 10. DATAMATICS FINANCIAL SERVICES LTD (DATAMATICS) SHOULD BE REJECTED A) THE HONOURABLE DRP AND THE LEARNED AU HAVE ERRED IN ACCEPTING THE LEARNED TPU'S CONTENTION OF TAKING DATAMATICS A S A COMPARABLE IGNORING THE SUBMISSION MADE BY THE APPELLANT. B) THE HONOURABLE DRP AND THE LEARNED AU OUGHT TO H AVE APPRECIATED THAT DATAMATICS SHOULD BE REJECTED BASE D ON THE FOLLOWING REASONS- THE COMPANY DOES NOT HAVE SEGMENTAL INFORMATION PER TAINING TO THE ITES SEGMENT OF THE COMPANY FOR FYE 2006. THE ITES REVENUE COMPRISES 28.04% OF THE TOTAL REVE NUES AND DOES NOT QUALIFY THE REVENUE FILTER POSTULATED BY T HE LEARNED TRANSFER PRICING OFFICER. 6. FROM THE ABOVE PARAS REPRODUCED FROM THE TRIBUNA L ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07, IT IS SEEN THAT I N THAT YEAR ALSO, THE PRICES WERE FIXED UNDER MAP IN RESPECT OF US AES AND THIS WAS THE CLAIM OF THE ASSESSEE BEFORE THE TRIBUNAL THAT THE SAME PRICE MA Y BE ADOPTED IN RESPECT OF NON-US AES. THE TRIBUNAL HAS RESTORED BACK THE MAT TER TO THE FILE OF AO/TPO IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 7 OF 27 FOR FRESH DECISION WITH THE DIRECTION THAT THE MATT ER SHOULD BE ANALYZED BY AO/TPO ON THE SAME LINE FOR NON-US TRANSACTIONS AND IF IT IS FOUND THAT FACTORS INFLUENCING THE PRICE ARE SIMILAR BETWEEN US AND NO N-US TRANSACTIONS, THE PRICE ADOPTED FOR US TRANSACTIONS MAY BE ADOPTED FOR NON- US TRANSACTIONS ALSO. THIS WAS ALSO DIRECTED BY TRIBUNAL THAT IT WAS OPEN TO TPO TO EXAMINE THE VALIDITY OF THE PROPOSITION THAT PRICE ADOPTED UNDE R MAP MECHANISM CAN BE ADOPTED IN RESPECT OF OTHER COUNTRIES ALSO WHERE MA P WAS NOT RESORTED TO. RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER, WE REST ORE THE TP MATTER BACK TO THE FILE OF AO/TPO FOR FRESH DECISION WITH THE SAME DIR ECTIONS. THE TP ISSUE STANDS DECIDED IN THIS MANNER. 7. REGARDING THE CORPORATE TAX ISSUES IN ASSESSEES APPEAL, IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT THE ONLY ISSUE INVOLVED IN ASSESSEES APPEAL IS REGARDING THE ADDITION MADE BY THE AO OF RS. 34.90 CRORES IN RESPECT OF RELINQUISHMENT AND COMPENSATION RECEIVED FOR SUCH R ELINQUISHMENT OF LEASE OPTION. IN THIS REGARD, IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT THIS ISSUE IS DISCUSSED AND DECIDED BY DRP AS PER PARA NOS. 20 TO 20.19. THEREAFTER, HE SUBMITTED THAT EVEN IF IT IS HELD THAT RELINQUISHME NT OF LEASE OPTION IS TAXABLE AS CAPITAL GAINS, IT SHOULD BE HELD THAT THE SAID GAIN IS NOT TAXABLE AS PER THE JUDGEMENT OF HONBLE APEX COURT RENDERED IN THE CAS E OF CIT V. B.C. SRINIVASA SETTY (1981) 128 ITR294 (SC). HE ALSO RAISED ONE MORE CONTENTION THAT THE AO HAS ERRED IN CONSIDERING RS. 34.90 CRORES AS THE CO NSIDERATION RECEIVED / RECEIVABLE BECAUSE THE ASSESSEE HAS IN FACT RECEIVE D ONLY RS. 28.40 CRORES. REGARDING THE COPY OF LEASE AGREEMENT AS PER WHICH THE ASSESSEE WAS GRANTED LEASE OPTION, HE SUBMITTED THAT THE COPY OF LEASE DEED IS AVAILABLE ON PAGES 637 TO 676 OF PAPER BOOK AND IN PARTICULAR, O UR ATTENTION WAS DRAWN TO CLAUSE 4 OF THIS LEASE DEED AS PER WHICH IT WAS SPE CIFIED THAT THE ASSESSEE HAS AN OPTION TO RETAIN 28,000 SQ.FT. OF CHARGEABLE ARE A FOR ITS USE AND ADDITIONAL 1,81,000 SQ.FT. OF CHARGEABLE AREA IN PLOT-A AND PL OT-B TOGETHER ON LEASE FROM VIPUL. THEREAFTER HE SUBMITTED THAT RELINQUISHMENT AGREEMENT IS AVAILABLE ON PAGES 677 TO 687 OF PAPER BOOK AS PER WHICH IT WAS SPECIFIED THAT THE ASSESSEE BEING THE LESSEE OFFERED FOR RELINQUISHMENT OF LEAS E OPTION TOGETHER WITH ALL ITS RIGHTS BENEFITS ARISING FOR A CONSIDERATION OF RS. 34.90 CRORES. THEREAFTER HE IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 8 OF 27 SUBMITTED THAT A SUPPLEMENTARY AGREEMENT DATED 15.0 9.2008 IS AVAILABLE ON PAGES 689 TO 693 OF PAPER BOOK AND THE AMENDED AND RESTATED SUPPLEMENTARY AGREEMENT DATED 27.04.2009 IS AVAILABLE ON PAGES 69 5 TO 713 OF PAPER BOOK. IT WAS POINTED OUT THAT IN THIS AGREEMENT, IT WAS N OTED THAT OUT OF THE AGREED CONSIDERATION OF RS. 34.90 CRORES, AN AMOUNT OF RS. 4.90 CRORES WAS PAID AND THEREAFTER RS. 6 CRORES WAS PAID AND THE BALANCE OF RS. 24 CRORES WAS REMAINING UNPAID. THIS AMOUNT OF RS. 24 CRORES WAS AGREED TO BE PAID DURING OCTOBER TO DECEMBER 2008 AND AGAINST THIS OUTSTANDI NG DEMAND OF RS. 24 CRORES, IT WAS AGREED BETWEEN THE PARTIES THAT THE PAYABLE AMOUNT SHOULD BE REDUCED TO RS. 16.95 CRORES AND OUT OF THAT, THE AS SESSEE RECEIVED PAYMENT OF RS. 5 CRORES BY WAY OF DD NO. 146818 DATED 25.04.20 09 DRAWN ON ICICI BANK LTD. AND OUT OF THE BALANCE AMOUNT OF RS. 11.95 CRO RES, IT WAS AGREED THAT VIPUL INFRACON WILL PAY RS. 5.95 CRORES ON 31.05.20 09 AND RS. 6 CRORES ON 30.06.2009. HE SUBMITTED THAT AS PER SUPPLEMENTARY AGREEMENT AND THE AMENDED AND RESTATED SUPPLEMENTARY AGREEMENT, THE T OTAL CONSIDERATION RECEIVED BY THE ASSESSEE HAS BEEN REDUCED AND THERE FORE, SUCH AMOUNT SHOULD BE CONSIDERED AND NOT INITIALLY AGREED AMOUN T. 8. AS AGAINST THIS, THE LD. DR OF REVENUE SUPPORTED THE ORDER OF AO AND DRP. OUR ATTENTION WAS DRAWN TO PAGES 13 TO 22 OF THE FINAL ASSESSMENT ORDER AND IT WAS POINTED OUT THAT AS PER THE AGREEMENT DATED 08.05.2 008, IT IS STATED THAT THE LESSEE I.E. THE PRESENT ASSESSEE IN CONSIDERATION O F THE COMPENSATION OF RS. 34.90 CRORES PAYABLE BY THE LESSOR HAS EXPRESSED IT S WILLINGNESS TO RELINQUISH THE LEASE OPTION AS ENVISAGED IN THE MEMORANDUM OF AGREEMENT DATED 31.01.2006 AND REAFFIRMED VIDE LEASE DEED DATED 10. 08.2007. SHE SUBMITTED THAT IN FACT, THE ASSESSEE HAS EXPRESSED ITS WILLIN GNESS TO RELINQUISH THE LEASE OPTION AND IT IS NOT A FACT THAT THE LESSOR HAS VIO LATED THE TERMS OF LEASE OPTION AND PAID AMOUNT AS DAMAGES. SHE ALSO DRAWN OUR ATT ENTION TO MOU DATED 31.01.2006 AVAILABLE ON PAGES 605 TO 635 OF PAPER B OOK AND POINTED OUT THAT GRANTING OF LEASE OPTION HAS BEEN AGREED AS PER THI S AGREEMENT DATED 31.01.2006 AND THE AREA AGREED FOR LEASE OPTION WAS OF 2,50,000 SQ.FT. SHE SUBMITTED THAT THE ORDER OF AO AND DRP ON THIS ISSU E SHOULD BE UPHELD. IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 9 OF 27 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL, WE REPRODUCE PARA NO. 20 TO 20.19 OF THE DIRECTIONS OF DRP FOR READY REFE RENCE BECAUSE THE DRP HAS DISCUSSED AND DECIDED THE ISSUE REGARDING LEASE OPT ION IN THESE PARAS. THESE PARAS ARE AS UNDER. 20. GROUND OF OBJECTION AMOUNT RECEIVED ON RELINQ UISHMENT OF LEASE OPTION CONSIDERED AS CAPITAL GAIN 20.1 THE AO CONTENDED THAT, RELINQUISHMENT OF LEASE OPTION IS NOTHING BUT SURRENDER OF TENANCY RIGHTS AND HENCE CAPITAL G AINS HAVE TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE S ECTION 48 OF THE ACT. 20.2 ON THE OTHER HAND THE ASSESSEE SUBMITTED THAT THE AO OUGHT TO HAVE APPRECIATED THE FACT THAT, THE DEFINITION OF C APITAL ASSETS PROVIDED UNDER SECTION 550 DOES NOT SPECIFICALLY COVER THE C APITAL ASSET IN THE NATURE OF LEASE OPTION AND THAT, THE COMPANY WAS NE VER A TENANT IN RESPECT OF THE ADDITIONAL AREA WHICH WAS YET TO BE BUILT BUT IT HAD ONLY AN OPTION TO TAKE SUCH ADDITIONAL AREA ON LEASE ONC E THE BUILDING IS COMPLETE. FURTHER, NO COSTS WERE INCURRED TO ACQUIR E THE LEASE OPTION. THE ASSESSEE FURTHER PLACED RELIANCE ON THE JUDGEME NT OF HON'BLE SUPREME COURT CIT V. B.C. SRINIVASA SHETTY [128 ITR 294(SC)]. THE ASSESSEE CLAIMED THAT THE ASSESSEE HAS NOT INCURRED ANY COST OF ACQUISITION ON A CAPITAL ASSET AND SUCH CAPITAL ASS ET DOES NOT FALL IN THE CATEGORY OF THE CAPITAL ASSETS SPECIFIED IN SEC TION 55(2), THEN THE JUDGMENT OF THE SUPREME COURT RULING IN THE CASE OF B C SRINIVASA SHETTY (SUPRA) SHALL APPLY AND NO CAPITAL GAIN WOUL D ARISE. 20.3 NOTWITHSTANDING THE ABOVE GROUNDS OF OBJECTION , THE ASSESSEE CONTENDED THAT THE AO HAS ERRED IN CONSIDERING RS 3 49,000,000 BEING THE INITIAL COMPENSATION AGREED UPON AND HAS IGNORE D THE SETTLEMENT AGREEMENT DATED 24 TH FEBRUARY 2010 WHERE THE FINAL SETTLEMENT AMOUNT RECEIVED BY THE COMPANY WAS RS 284,000,000/. 20.4 THE GROUND OF OBJECTION ALONG WITH ALL THE MAT ERIAL PLACED ON RECORD HAS BEEN PERUSED. IN THIS REGARD THE PANEL I S OF THE VIEW THAT THERE ARE TWO TYPES OF TENANCY AGREEMENTS IN I NDIA, LEASE AGREEMENTS WHICH ARE COVERED BY RENT CONTROL LAWS AND LEASE AND LICENSE AGREEMENT WHICH ARE NOT. THUS TENANCY OR A LEASE IS AN ARRANGEMENT WHEREBY THE OWNER OF LAND, THE LANDLORD OR THE LESSOR, AGREES TO GRANT THE RIGHT TO EXCLUSIVE POSS ESSION OF HIS LAND/BUILDING TO THE TENANT OR THE LESSEE, FOR A FI XED PERIOD, ON THE PAYMENT OF RENT. HOWEVER, IF THE ARRANGEMENT ONLY G IVES A PERSON A NONEXCLUSIVE RIGHT TO OCCUPY ANOTHER'S LAND, IT I S A LICENCE. THE MAIN DIFFERENCE BETWEEN A TENANCY/LEASE AND A LICEN CE IS THAT TENANCY/LEASE CREATES AN INTEREST IN LAND, WHEREAS A LICENCE DOES NOT. A LICENSEE HAS ONLY A PERSONAL INTEREST AND TH IS INTEREST CAN BE REVOKED BY THE LANDOWNER AT ANY TIME. IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 10 OF 27 20.5 TO FURTHER CLARIFY THAT TENANCY AND LEASE ARE ESSENTIALLY THE SAME. REFERENCE IS INVITED TO THE PROVISIONS OF TRA NSFER OF PROPERTY ACT, 1882, WHEREIN LEASE IS DEFINED AS UND ER: LEASE DEFINED: A LEASE OF IMMOVABLE PROPERTY IS A TRANSFER OF A RIGHT TO ENJOY SUCH PROPERTY , MADE FOR A CERTAIN TIME, EXPRESS OR IMPLIED, OR IN PERPETUITY, IN CONSIDERATION OF A PR ICE PAID OR PROMISED, OR OF MONEY, A SHARE OF CROPS, SERVICE OR ANY OTHER THING OF VALUE, TO BE RENDERED PERIODICALLY OR ON SPECIFIED OCCASIONS TO THE TRANSFEROR BY THE TRANSFEREE, WHO ACCEPTS THE TRANSFER ON SUCH TE RMS.' AND TENANCY IS UNDERSTOOD AS A CONTRACT BY WHICH THE OW NER OF REAL PROPERTY (THE LANDLORD), GRANTS EXCLUSIVE RIGHT TO ENJOY SUCH PROPERTY TO ANOTHER PERSON (TENANT), IN EXCHANGE FOR THE TE NAT'S PERIODIC PAYMENT OF SOME SUM OF MONEY (RENT). ' THE ESSENCE OF A TENANCY IS THE RIGHT TO POSSESS AND OCCUPY IMMOVABL E PROPERTY BELONGING TO ANOTHER. ' THE RELATIONSHIP OF LANDLORD AND TENANT IS CREATED BY A CONTRACT EXPRESSED OR IMPLIED, BY WHIC H ONE PERSON WHO IS POSSESSED WITH AN INTEREST IN REAL PROPERTY, AND WHO IS CALLED THE LANDLORD OR LESSOR, CONFERS ON ANOTHER PERSON, CALLED THE TENANT OR LESSEE, THE RIGHT TO EXCLUSIVE POSSESSION OF THE REAL PROPERTY OR SOME PART OF IT FOR A PERIOD OF TIME WHICH IS DEFIN ITE OR CAN BE MADE DEFINITE BY EITHER PARTY, USUALLY IN CONSIDERATION OF A PERIODICAL PAYMENT OF RENT EITHER IN MONEY OR ITS EQUIVALENT. 20.6 THUS IN ESSENCE THE LEASE AND TENANCY ARE SAME AND BOTH CREATE A RIGHT TO EXCLUSIVE POSSESSION OF LAND/BUILDING OF LESSOR IN FAVOUR OF LESSEE. 20.7 NOW COMING TO LEASE OPTIONS IT IS STATED THAT A LEASE OPTION IS AN OPTION THAT IS ASSOCIATED WITH A LEASE CONTRACT AND IS USED FOR THE PURPOSE OF GRANTING THE LESSEE THE EXCLUSIVE RIGHT TO EXTEND THE LEASE-PERIOD BEYOND ITS ORIGINAL TIME FRAME. 20.8 IT IS ALSO DEFINED AS A TYPE OF CONTRACT USED IN BOTH RESIDENTIAL AND COMMERCIAL REAL ESTATE IN WHICH THE LESSEE ACQU IRES THE RIGHT, AT THE END OF A SPECIFIED RENTAL PERIOD FOR A GIVEN PR OPERTY, OF PURCHASING THE PROPERTY FROM THE LAND OWNER. HOWEVER IN THE CA SE OF THE ASSESSEE IT WAS IN THE NATURE OF EXCLUSIVE RIGHT TO EXTEND T HE LEASE TO ADDITIONAL AREA. 20.9 A LEASE OPTION IS DIFFERENT FROM A LEASE PURCH ASE, IN THE SENSE THAT A LEASE PURCHASE BINDS BOTH PARTIES TO THE SAL E, WHEREAS IN A LEASE-OPTION THE BUYER HAS THE OPTION BUT THE SELLE R DOES NOT. THUS IN THE INSTANT CASE IT IS THE ASSSESSEE WHO HAD THE EXCLUSIVE RIGHT TO EXTEND THE LEASE TO ADDITIONAL AREA BUT THE SELLER HAD NO RIGHT TO REFUSE. IN ADDITION THE ASSESSEE ALSO HAD, TO QUOTE FROM THE AGREEMENT 'THE RIGHT TO SUB LEASE AND TO REAP ANY BENEFIT ARI SING THEREOF'. 20.10 THUS FROM THE ABOVE DISCUSSION IT IS CLEAR TH AT LEASE OPTION IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 11 OF 27 ARISES FROM THE LEASE CONTRACT AND THE NATURE OF LE ASE OPTION, LEASE AND TENANCY ARE SAME AND ALL THE ABOVE CREATE A RIG HT TO EXCLUSIVE POSSESSION OF LAND/BUILDING OF LESSOR IN FAVOUR OF LESSEE. 20.11 HAVING CLARIFIED AS ABOVE IT IS FURTHER STATE D THAT IT IS NOT IN DISPUTE THAT LEASE OPTION IS A CAPITAL ASSET AS PER THE PROVISIONS OF THE ACT. THE ONLY DISPUTE IS AS FOLLOWS: 1. THE DEFINITION OF CAPITAL ASSETS PROVIDED UNDER SECTION 55(2) DOES NOT SPECIFICALLY COVER THE CAPITAL ASSET IN TH E NATURE OF LEASE OPTION. 2. THE COMPANY WAS NEVER A TENANT IN RESPECT OF THE ADDITIONAL AREA WHICH WAS YET TO BE BUILT BUT IT HAD ONLY AN O PTION TO TAKE SUCH ADDITIONAL AREA ON LEASE ONCE THE BUILDING IS COMPLETE. FURTHER, NO COSTS WERE INCURRED TO ACQUIRE THE LEAS E OPTION. 20.12 AS DISCUSSED ABOVE THE LEASE RIGHTS, TENANCY RIGHTS AS WELL AS RIGHTS ORIGINATINGFROM LEASE OPTIONS ARE SAME AND A LL OF THE ABOVE CREATE A RIGHT TO EXCLUSIVE POSSESSION OFLAND/BUILD ING OFLESSORIN FAVOUROF LESSEE. THUSTENANCY RIGHTSARE INCLUSIVE O F ALLSUCH EXCLUSIVE RIGHTS, INCLUDING LEASE OPTION RIGHTS, CREATED IN F AVOUR OF LESSEE IN THE PROPERTY OF THE LESSOR. SINCE SECTION 55(2) PROVIDE S FOR ASCERTAINING THE COST OF TENANCY RIGHTS THEREFORE THE CAPITAL AS SET IN THE NATURE OF LEASE OPTION DOES FALL WITHIN THE PURVIEW OF SECTIO N 55(2). THE OPTION TO TAKE SUCH ADDITIONAL AREA ON LEASE ONCE THE BUIL DING IS COMPLETE IS ALSO AN EXCLUSIVE RIGHT WHICH RESTRICTS THE POSSESS ION OF THE PROPERTY OF THE LESSOR IN THE SAME MANNER AS OTHER TENANCY R IGHTS AND, THEREFORE, TRANSFER OF SUCH AN ASSET IS LIABLE TO C APITAL GAINS AS PER THE SCHEME OF THE ACT. 20.13 THE MODE OF COMPUTATION AND DEDUCTIONS SET FO RTH IN SECTION 48(II) PROVIDES THE PRINCIPAL BASIS FOR QUANTIFYING THE INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS'. THE SECT ION PROVIDES THAT THE INCOME CHARGEABLE UNDER THAT HEAD SHALL BE COMP UTED BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF A TRANSFER OF THE CAPITAL A SSET : '(II) THE COST OF ACQUISITION OF THE CAPITAL ASSET. . . .' 20.14 THUS CAPITAL GAIN IS LEVIABLE IF THE MACHINER Y PROVISIONS DO NOT FAIL I.E. IF THE COST OF ACQUISITION IS ASCERTAINAB LE. IN THE INSTANT CASE ASSESSEE ITSELF IN ITS SUBMISSION STATES THAT COST OF ACQUISITION TO ACQUIRE LEASE OPTION IS NIL. THEREFORE COST OF ACQU ISITION IS ASCERTAINABLE. THUS CAPITAL GAINS ARE LEVIABLE. 20.15 WITHOUT PREJUDICE TO THE ABOVE THAT TENANCY R IGHT INCLUDES LEASE OPTION RIGHTS IT IS FURTHER STATED THAT SECTI ON 55 PRESCRIBES COST OF ACQUISITION IN RESPECT OF CERTAIN CAPITAL A SSETS ONLY AND IT IS NOT EXHAUSTIVE. FOR LEVY OF CAPITAL GAINS ON TRANSF ER OF CAPITAL ASSET WHAT IS TO BE SEEN IS WHETHER COMPUTATION PRO VISION IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 12 OF 27 CONTAINED IN SECTION 48 CAN BE GIVEN EFFECT TO OR N OT. EVEN IF IT IS ASSUMED THAT THE LEASE OPTION RIGHTS ARE ANY DIFFER ENT FROM TENANCY RIGHTS EVEN THEN SINCE COST OF ACQUISITION AND FAIR MARKET VALUE AND OTHER INGREDIENTS TO GIVE EFFECT TO THE MACHINERY P ROVISIONS FOR COMPUTATION OF CAPITAL GAIN ARE AVAILABLE, THEREFOR E, CAPITAL GAINS ARE LEVIABLE IN THE INSTANT CASE. 20.16 FURTHER THE DECISION OF HON'BLE SC IN THE CAS E OF BC SRINIVAS SHETTY IS DISTINGUISHABLE FOR THE FOLLOWING REASONS : IT WAS IN THE CONTEXT OF GOODWILL NOT LEASE OPTIONS . IT WAS HELD THAT GOODWILL WAS NOT TAXABLE BECAUSE I T IS NOT AN ASSET WITHIN THE MEANING OF SECTION 45 BECAUSE 'THE DATE OF ACQUISITION OF ASSET IS A MATERIAL FACTOR IN APPLYI NG THE COMPUTATION PROVISION PERTAINING TO CAPITAL GAINS. HAVING REGARD TO THE NATURE OF GOODWILL, IT WILL BE IMPOSS IBLE TO DETERMINE ITS COST OF ACQUISITION' BUT IN THE CASE OF THE ASSESSEE IT IS NOT IN DISPUT E THAT LEASE OPTION RIGHTS ARE CAPITAL ASSETS AND IT IS NOT IMPOSSIBLE TO DETERMINE ITS COST OF ACQUISITION BECAUSE THE COST OF ACQUISITION IS C LEARLY ASCERTAINABLE AS ASSESSEE ITSELF IN ITS SUBMISSION STATES THAT CO ST OF ACQUISITION TO ACQUIRE LEASE OPTION IS NIL. FURTHER THE DATE ON WH ICH SUCH A LEASE OPTION RIGHT WAS CREATED IS ALSO ASCERTAINABLE IN T HE INSTANT CASE. 20.17 SO FAR AS THE ALTERNATIVE CLAIM OF THE ASSESS EE THAT THE FULL VALUE OF CONSIDERATION SHOULD BE TAKEN AS RS. 28.4 CRORES BEING THE FINAL SETTLEMENT AMOUNT AND NOT RS. 34.9 CRORES IS CONCERNED, IT IS NOTED THAT THE COMPANY HAS NOT RECEIVED THE E NTIRE COMPENSATION OF RS. 34.9 CRORES AS AGREED IN THE RE LINQUISHMENT AGREEMENT DATED 8 TH MAY 2008, AND THE ASSESSEE HAS RECEIVED RS.15.9 CRORES DURING THE YEAR UNDER CONSIDERATION AND THE FINAL ADDITIONAL SETTLEMENT AMOUNT OF RS.12.5 CRORES HAS BEEN RECEIVED DURING F.Y. 2009- 10. 20.18 CONSIDERING THE ABOVE FACTUAL POINTS, THE AO IS DIRECTED TO VERIFY THE FINAL CONSOLIDATED AMOUNT OF FULL VALUE OF CONSIDERATION CLAIMED AT RS.28.4 CRORES ONLY AND COMPUTE THE CAPI TAL GAINS BASED ON THE ACTUAL FIGURE OF THE ENTIRE COMPENSATION REC EIVED AT RS. 28.4 CRORES ONLY. 20.19 THUS CONSIDERING THE ABOVE POSITION OF LAW AN D FACTS, THE STAND OF AO IS JUSTIFIED AND THIS OBJECTION IS REJECTED S UBJECT TO RE- COMPUTATION OF CAPITAL GAINS BASED ON FINAL FIGURE OF FULL VALUE OF CONSIDERED AT RS. 28.4 CRORES SUBJECT TO VERIFICATI ON. 10. WE ALSO REPRODUCE SUB SECTION 14 OF SECTION 2 O F IT ACT BECAUSE THE SAME CONTAINS THE MEANING OF THE TERM CAPITAL ASSET. TH E SAME IS AS UNDER. IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 13 OF 27 (14) 'CAPITAL ASSET' MEANS (A) PROPERTY OF ANY KIND HELD BY AN ASSESSEE, WHET HER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION; (B) ANY SECURITIES HELD BY A FOREIGN INSTITUTIONAL INVESTOR WHICH HAS INVESTED IN SUCH SECURITIES IN ACCORDANCE WITH THE REGULATIONS MADE UNDER THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992), BUT DOES NOT INCLUDE (I) ANY STOCK-IN-TRADE OTHER THAN THE SECURITIES REFERRED TO IN SUB-CLAUSE (B), CONSUMABLE STORES OR RAW MATERIALS HELD FOR THE PUR POSES OF HIS BUSINESS OR PROFESSION ; (II) PERSONAL EFFECTS, THAT IS TO SAY, MOVABLE PRO PERTY (INCLUDING WEARING APPAREL AND FURNITURE) HELD FOR PERSONAL USE BY THE ASSESSE E OR ANY MEMBER OF HIS FAMILY DEPENDENT ON HIM, BUT EXCLUDES (A) JEWELLERY; (B) ARCHAEOLOGICAL COLLECTIONS; (C) DRAWINGS; (D) PAINTINGS; (E) SCULPTURES; OR (F) ANY WORK OF ART. EXPLANATION 1.FOR THE PURPOSES OF THIS SUB-CLAUSE, 'JEWELLERY' INCLUDES (A) ORNAMENTS MADE OF GOLD, SILVER, PLATINUM OR AN Y OTHER PRECIOUS METAL OR ANY ALLOY CONTAINING ONE OR MORE OF SUCH PRECIOUS M ETALS, WHETHER OR NOT CONTAINING ANY PRECIOUS OR SEMI-PRECIOUS STONE, AND WHETHER OR NOT WORKED OR SEWN INTO ANY WEARING APPAREL; (B) PRECIOUS OR SEMI-PRECIOUS STONES, WHETHER OR N OT SET IN ANY FURNITURE, UTENSIL OR OTHER ARTICLE OR WORKED OR SEWN INTO ANY WEARING APPAREL. EXPLANATION 2.FOR THE PURPOSES OF THIS CLAUSE (A) THE EXPRESSION 'FOREIGN INSTITUTIONAL INVESTOR ' SHALL HAVE THE MEANING ASSIGNED TO IT IN CLAUSE (A) OF THE EXPLANATION TO SECTION 115AD; (B) THE EXPRESSION 'SECURITIES' SHALL HAVE THE MEA NING ASSIGNED TO IT IN CLAUSE (H) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGUL ATION) ACT, 1956 (42 OF 1956); (III) AGRICULTURAL LAND IN INDIA, NOT BEING LAND S ITUATE (A) IN ANY AREA WHICH IS COMPRISED WITHIN THE JURI SDICTION OF A MUNICIPALITY (WHETHER KNOWN AS A MUNICIPALITY, MUNICIPAL CORPORA TION, NOTIFIED AREA COMMITTEE, TOWN AREA COMMITTEE, TOWN COMMITTEE, OR BY ANY OTHER NAME) OR A CANTONMENT BOARD AND WHICH HAS A POPULATION OF NOT LESS THAN TEN THOUSAND; OR (B) IN ANY AREA WITHIN THE DISTANCE, MEASURED AERI ALLY, (I) NOT BEING MORE THAN TWO KILOMETRES, FROM THE LOCAL LIMITS OF ANY MUNICIPALITY OR CANTONMENT BOARD REFERRED TO IN ITE M (A) AND WHICH HAS A POPULATION OF MORE THAN TEN THOUSAND BUT NOT EXCEEDING ONE LAKH; OR (II) NOT BEING MORE THAN SIX KILOMETRES, FROM THE LOCAL LIMITS OF ANY MUNICIPALITY OR CANTONMENT BOARD REFERRED TO IN ITE M (A) AND WHICH HAS A POPULATION OF MORE THAN ONE LAKH BUT NOT EXCE EDING TEN LAKH; OR (III) NOT BEING MORE THAN EIGHT KILOMETRES, FROM T HE LOCAL LIMITS OF ANY MUNICIPALITY OR CANTONMENT BOARD REFERRED TO IN ITE M (A) AND WHICH HAS A POPULATION OF MORE THAN TEN LAKH. IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 14 OF 27 EXPLANATION.FOR THE PURPOSES OF THIS SUB-CLAUSE, ' POPULATION' MEANS THE POPULATION ACCORDING TO THE LAST PRECEDING CENSUS O F WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFORE THE FIRST DAY OF THE PRE VIOUS YEAR; (IV) 6 PER CENT GOLD BONDS, 1977, OR 7 PER CENT GO LD BONDS, 1980, OR NATIONAL DEFENCE GOLD BONDS, 1980, ISSUED BY THE CENTRAL GOV ERNMENT; (V) SPECIAL BEARER BONDS, 1991, ISSUED BY THE CENT RAL GOVERNMENT ; (VI) GOLD DEPOSIT BONDS ISSUED UNDER THE GOLD DEPOS IT SCHEME, 1999 3 [OR DEPOSIT CERTIFICATES ISSUED UNDER THE GOLD MONETISATION SCH EME, 2015] NOTIFIED BY THE CENTRAL GOVERNMENT. EXPLANATION.FOR THE REMOVAL OF DOUBTS, IT IS HEREB Y CLARIFIED THAT 'PROPERTY' INCLUDES AND SHALL BE DEEMED TO HAVE ALWAYS INCLUDE D ANY RIGHTS IN OR IN RELATION TO AN INDIAN COMPANY, INCLUDING RIGHTS OF MANAGEMENT O R CONTROL OR ANY OTHER RIGHTS WHATSOEVER; 11. FROM THE PROVISIONS OF SECTION 2(14), IT IS SEE N THAT PROPERTY OF ANY KIND HELD BY ASSESSEE IS INCLUDED IN THE TERM CAPITAL ASSET EXCE PT CERTAIN SPECIFIC ITEMS WHICH ARE EXCLUSIVELY EXCLUDED FROM THE DEFINITION OF CAPITAL ASSET AS PER THIS SECTION. THE LEASE OPTION IS NOT ONE OF SUCH EXCLU SIONS AND THEREFORE, LEASE OPTION IS ALSO ONE OF THE CAPITAL ASSET. THE PROVI SIONS OF SECTION 55(2) ARE ALSO RELEVANT FOR THE DISPUTE IN PRESENT CASE AND HENCE, THE PROVISIONS OF SUB SECTION 2 OF SECTION 55 ARE ALSO RELEVANT AND IS RE PRODUCED HEREINBELOW FOR READY REFERENCE. (2) FOR THE PURPOSES OF SECTIONS 48 AND 49, 'COST O F ACQUISITION', (A) IN RELATION TO A CAPITAL ASSET, BEING GOODWILL OF A BUSINESS OR A TRADE MARK OR BRAND NAME ASSOCIATED WITH A BUSINESS OR A RIGHT TO MANUF ACTURE, PRODUCE OR PROCESS ANY ARTICLE OR THING OR RIGHT TO CARRY ON ANY BUSINESS 97 [OR PROFESSION], TENANCY RIGHTS, STAGE CARRIAGE PERMITS OR LOOM HOURS, (I) IN THE CASE OF ACQUISITION OF SUCH ASSET BY T HE ASSESSEE BY PURCHASE FROM A PREVIOUS OWNER, MEANS THE AMOUNT OF THE PURCHASE PR ICE; AND (II) IN ANY OTHER CASE [NOT BEING A CASE FALLING U NDER SUB-CLAUSES (I) TO (IV) OF SUB- SECTION (1) OF SECTION 49], SHALL BE TAKEN TO BE NI L ; (AA) IN A CASE WHERE, BY VIRTUE OF HOLDING A CAPI TAL ASSET, BEING A SHARE OR ANY OTHER SECURITY, WITHIN THE MEANING OF CLAUSE (H) OF SECTI ON 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) (HEREAFTER IN T HIS CLAUSE REFERRED TO AS THE FINANCIAL ASSET), THE ASSESSEE (A) BECOMES ENTITLED TO SUBSCRIBE TO ANY ADDITIONA L FINANCIAL ASSET ; OR (B) IS ALLOTTED ANY ADDITIONAL FINANCIAL ASSET WIT HOUT ANY PAYMENT, THEN, SUBJECT TO THE PROVISIONS OF SUB-CLAUSES (I) AND (II) OF CLAUSE (B), (I) IN RELATION TO THE ORIGINAL FINANCIAL ASSET, ON THE BASIS OF WHICH THE ASSESSEE BECOMES ENTITLED TO ANY ADDITIONAL FINANCIAL ASSET, MEANS THE AMOUNT ACTUALLY PAID FOR ACQUIRING THE ORIGINAL FINANCIAL ASSET ; (II) IN RELATION TO ANY RIGHT TO RENOUNCE THE SAID ENTITLEMENT TO SUBSCRIBE TO THE FINANCIAL ASSET, WHEN SUCH RIGHT IS RENOUNCED BY TH E ASSESSEE IN FAVOUR OF ANY PERSON, SHALL BE TAKEN TO BE NIL IN THE CASE OF SUC H ASSESSEE ; IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 15 OF 27 (III) IN RELATION TO THE FINANCIAL ASSET, TO WHICH THE ASSESSEE HAS SUBSCRIBED ON THE BASIS OF THE SAID ENTITLEMENT, MEANS THE AMOUNT ACT UALLY PAID BY HIM FOR ACQUIRING SUCH ASSET ; (IIIA) IN RELATION TO THE FINANCIAL ASSET ALLOTTED TO THE ASSESSEE WITHOUT ANY PAYMENT AND ON THE BASIS OF HOLDING OF ANY OTHER FINANCIAL ASSET, SHALL BE TAKEN TO BE NIL IN THE CASE OF SUCH ASSESSEE ; AND (IV) IN RELATION TO ANY FINANCIAL ASSET PURCHASED BY ANY PERSON IN WHOSE FAVOUR THE RIGHT TO SUBSCRIBE TO SUCH ASSET HAS BEEN RENOUNCED , MEANS THE AGGREGATE OF THE AMOUNT OF THE PURCHASE PRICE PAID BY HIM TO THE PER SON RENOUNCING SUCH RIGHT AND THE AMOUNT PAID BY HIM TO THE COMPANY OR INSTIT UTION, AS THE CASE MAY BE, FOR ACQUIRING SUCH FINANCIAL ASSET ; (AB) IN RELATION TO A CAPITAL ASSET, BEING EQUITY S HARE OR SHARES ALLOTTED TO A SHAREHOLDER OF A RECOGNISED STOCK EXCHANGE IN INDIA UNDER A SCHEME F OR DEMUTUALISATION OR CORPORATISATION APPROVED BY THE SECURITIES AND EXCH ANGE BOARD OF INDIA ESTABLISHED UNDER SECTION 3 OF THE SECURITIES AND EXCHANGE BOAR D OF INDIA ACT, 1992 (15 OF 1992), SHALL BE THE COST OF ACQUISITION OF HIS ORIGINAL ME MBERSHIP OF THE EXCHANGE: PROVIDED THAT THE COST OF A CAPITAL ASSET, BEING TRADING OR CLEARING RIGHTS OF THE RECOGNISED STOCK EXCHANGE ACQUIRED BY A SHAREHOLDER WHO HAS BEEN ALLOTTED EQUITY SHARE OR SHARES UNDER SUCH SCHEME OF DEMUTUALISATIO N OR CORPORATISATION, SHALL BE DEEMED TO BE NIL; 98 [ (AC) SUBJECT TO THE PROVISIONS OF SUB-CLAUSES (I) A ND (II) OF CLAUSE (B), IN RELATION TO A LONG- TERM CAPITAL ASSET, BEING AN EQUITY SHARE IN A COMP ANY OR A UNIT OF AN EQUITY ORIENTED FUND OR A UNIT OF A BUSINESS TRUST REFERRED TO IN S ECTION 112A, ACQUIRED BEFORE THE 1ST DAY OF FEBRUARY, 2018 SHALL BE HIGHER OF (I) THE COST OF ACQUISITION OF SUCH ASSET; AND (II) LOWER OF (A) THE FAIR MARKET VALUE OF SUCH ASSET; AND (B) THE FULL VALUE OF CONSIDERATION RECEIVED OR ACC RUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, (A) 'FAIR MARKET VALUE' MEANS, (I) IN A CASE WHERE THE CAPITAL ASSET IS LISTED ON ANY RECOGNISED STOCK EXCHANGE AS ON THE 31ST DAY OF JANUARY, 2018, THE HIGHEST PR ICE OF THE CAPITAL ASSET QUOTED ON SUCH EXCHANGE ON THE SAID DATE: PROVIDED THAT WHERE THERE IS NO TRADING IN SUCH ASSET ON SU CH EXCHANGE ON THE 31ST DAY OF JANUARY, 2018, THE HIGHEST PRICE OF SUCH ASSET ON SUCH EXCHANGE ON A DATE IMMEDIATELY PRECEDING THE 31ST D AY OF JANUARY, 2018 WHEN SUCH ASSET WAS TRADED ON SUCH EXCHANGE SHALL B E THE FAIR MARKET VALUE; (II) IN A CASE WHERE THE CAPITAL ASSET IS A UNIT WH ICH IS NOT LISTED ON A RECOGNISED STOCK EXCHANGE AS ON THE 31ST DAY OF JAN UARY, 2018, THE NET ASSET VALUE OF SUCH UNIT AS ON THE SAID DATE; (III) IN A CASE WHERE THE CAPITAL ASSET IS AN EQUIT Y SHARE IN A COMPANY WHICH IS (A) NOT LISTED ON A RECOGNISED STOCK EXCHANGE AS ON THE 31ST DAY OF JANUARY, 2018 BUT LISTED ON SUCH EXCHANGE ON THE DA TE OF TRANSFER; (B) LISTED ON A RECOGNISED STOCK EXCHANGE ON THE DA TE OF TRANSFER AND WHICH BECAME THE PROPERTY OF THE ASSESSEE IN CONSID ERATION OF SHARE WHICH IS NOT LISTED ON SUCH EXCHANGE AS ON THE 31ST DAY OF JANUARY, 2018 BY WAY OF TRANSACTION NOT REGARDED AS TRANSFER UNDER SECTION 47, IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 16 OF 27 AN AMOUNT WHICH BEARS TO THE COST OF ACQUISITION TH E SAME PROPORTION AS COST INFLATION INDEX FOR THE FINANCIAL YEAR 2017-18 BEARS TO THE COST INFLATION INDEX FOR THE FIRST YEAR IN WHICH THE ASS ET WAS HELD BY THE ASSESSEE OR FOR THE YEAR BEGINNING ON THE FIRST DAY OF APRIL, 2001, WHICHEVER IS LATER; (B) 'COST INFLATION INDEX' SHALL HAVE THE MEANING A SSIGNED TO IT IN CLAUSE (V) OF THE EXPLANATION TO SECTION 48; (C) 'RECOGNISED STOCK EXCHANGE' SHALL HAVE THE MEAN ING ASSIGNED TO IT IN CLAUSE (II) OF EXPLANATION 1 TO CLAUSE (5) OF SECTION 43; ] (B) IN RELATION TO ANY OTHER CAPITAL ASSET, (I) WHERE THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE BEFORE THE 1ST DAY OF APRIL, 99 [2001], MEANS THE COST OF ACQUISITION OF THE ASSET TO THE ASSESSEE OR THE FAIR MARKET VALUE OF THE ASSET ON THE 1ST DAY OF AP RIL, 1 [2001], AT THE OPTION OF THE ASSESSEE ; (II) WHERE THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE BY ANY OF THE MODES SPECIFIED IN SUB-SECTION (1) OF SECTION 49, AND THE CAPITAL ASSET BECAME THE PROPERTY OF THE PREVIOUS OWNER BEFORE THE 1ST DAY O F APRIL, 2 [2001], MEANS THE COST OF THE CAPITAL ASSET TO THE PREVIOUS OWNER OR THE FAIR MARKET VALUE OF THE ASSET ON THE 1ST DAY OF APRIL, 2 [2001], AT THE OPTION OF THE ASSESSEE ; (III) WHERE THE CAPITAL ASSET BECAME THE PROPERTY O F THE ASSESSEE ON THE DISTRIBUTION OF THE CAPITAL ASSETS OF A COMPANY ON ITS LIQUIDATION AND THE ASSESSEE HAS BEEN ASSESSED TO INCOME-TAX UNDER THE HEAD 'CAPITAL GAIN S' IN RESPECT OF THAT ASSET UNDER SECTION 46, MEANS THE FAIR MARKET VALUE OF TH E ASSET ON THE DATE OF DISTRIBUTION ; (IV) [***] (V) WHERE THE CAPITAL ASSET, BEING A SHARE OR A ST OCK OF A COMPANY, BECAME THE PROPERTY OF THE ASSESSEE ON (A) THE CONSOLIDATION AND DIVISION OF ALL OR ANY O F THE SHARE CAPITAL OF THE COMPANY INTO SHARES OF LARGER AMOUNT THAN ITS EXIST ING SHARES, (B) THE CONVERSION OF ANY SHARES OF THE COMPANY IN TO STOCK, (C) THE RE-CONVERSION OF ANY STOCK OF THE COMPANY INTO SHARES, (D) THE SUB-DIVISION OF ANY OF THE SHARES OF THE CO MPANY INTO SHARES OF SMALLER AMOUNT, OR (E) THE CONVERSION OF ONE KIND OF SHARES OF THE COM PANY INTO ANOTHER KIND, MEANS THE COST OF ACQUISITION OF THE ASSET CALCULAT ED WITH REFERENCE TO THE COST OF ACQUISITION OF THE SHARES OR STOCK FROM WHICH SUCH ASSET IS DERIVED. 12. FROM THE ABOVE PROVISIONS OF SECTION 55(2) (A), IT COMES OUT THAT TENANCY RIGHT IS ONE SUCH CAPITAL ASSET FOR WHICH IT HAS B EEN SPECIFIED THAT ITS COST OF ACQUISITION SHOULD BE TAKEN AT NIL IF THE SAME IS N OT ACQUIRED BY THE ASSESSEE BY WAY OF PURCHASE FROM THE PREVIOUS OWNER. IN THE PRESENT CASE, THE TENANCY OR LEASE OPTION HAS NOT BEEN PURCHASED BY ASSESSEE FROM ANY PREVIOUS OWNER AND THEREFORE, THIS IS THE CASE OF THE DEPARTMENT T HAT THE TENANCY/LEASE OPTION IS NOTHING BUT TENANCY RIGHT AND THEREFORE, ITS COS T OF ACQUISITION SHOULD BE TAKEN AS NIL AS PER SECTION 55(2) (A) OF IT ACT. T HE OBJECTION OF THE ASSESSEE IS IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 17 OF 27 THIS THAT THE LEASE OPTION IS NOT A TENANCY RIGHT A ND THEREFORE, SECTION 55(2) IS NOT APPLICABLE. IN SUPPORT OF THIS CONTENTION, IT WAS SUBMITTED THAT IN CASE OF TENANCY RIGHT, PROPERTY IS IN EXISTENCE AND THE SAM E IS OCCUPIED BY THE TENANT WITH A RIGHT TO OCCUPY THE PROPERTY AS TENANT BUT I N THE PRESENT CASE, THE PROPERTY IS NOT EVEN IN EXISTENCE AND IT IS HYPOTHE TICAL RIGHT GIVEN TO THE ASSESSEE THAT IN CASE THE PROPERTY IS BUILT BY THE DEVELOPER, THE LESSEE BEING THE ASSESSEE WILL HAVE AN OPTION TO TAKE AN EXTRA A REA ON LEASE AND THEREFORE, THIS LEASE OPTION CANNOT BE EQUATED WITH TENANCY RI GHT. HENCE WE FIND THAT WE HAVE TO DECIDE FIRST THIS ASPECT AS TO WHETHER THE LEASE OPTION IS A CAPITAL ASSET OR NOT AND THE SECOND ISSUE TO BE DECIDED IS THIS A S TO WHETHER THE LEASE OPTION CAN BE EQUATED TO TENANCY RIGHT AND THEREFORE COVER ED BY SECTION 55(2). REGARDING THE FIRST ASPECT AS TO WHETHER THE LEASE OPTION IS A CAPITAL ASSET OR NOT, WE ARE OF THE CONSIDERED OPINION THAT AS PER T HE DEFINITION OF CAPITAL ASSET IN SECTION 2(14) AS REPRODUCED ABOVE, PROPERTY OF A NY KIND HELD BY THE ASSESSEE WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION IS COVERED BY THE DEFINITION OF THE TERM CAPITAL ASSET. THERE ARE SOME EXCLUSIONS SUCH AS STOCK IN TRADE ANDCONSUMABLE STORES OR RAW MATERIAL S HELD FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION, PERSONAL EFFECTS EXCLUD ING JEWELLERY, ARCHAEOLOGICAL COLLECTIONS, DRAWINGS, PAINTINGS, SCULPTURES OR ANY WORK OF ART AND AGRICULTURAL LAND SITUATED AT SOME PLACES. THESE ARE EXCLUDED F ROM THE DEFINITION OF CAPITAL ASSET AND IN ADDITION TO THAT, CERTAIN GOLD BONDS, SPECIAL BEARER BONDS, 1991 AND GOLD DEPOSIT BONDS ISSUED UNDER THE GOLD DEPOSI T SCHEME, 1999 ARE ALSO EXCLUDED FROM THE DEFINITION OF TERM CAPITAL ASSET BUT LEASE OPTION IS NOT AN EXCLUSION AND THEREFORE, LEASE OPTION IS DEFINITELY A CAPITAL ASSET BECAUSE LEASE OPTION IS A VALUABLE RIGHT IN OUR OPINION. HENCE T HE FIRST ASPECT OF THE ISSUE IS DECIDED AGAINST THE ASSESSEE AND WE HOLD THAT LEASE OPTION IS A CAPITAL ASSET. 13. NOW THE SECOND ASPECT OF MATTER TO BE DECIDED B Y US IS WHETHER LEASE OPTION IS EQUIVALENT TO TENANCY RIGHT AND THEREFORE, SECTION 55(2) OF IT ACT IS APPLICABLE. IN THIS REGARD, WE FIND THAT THE TERM TENANCY RIGHT IS NOT DEFINED UNDER IT ACT, 1961 AND THEREFORE, WE HAVE TO GO BY THE GENERAL DE FINITION OF THIS TERM. IN OUR HUMBLE OPINION, THE ESSENCE OF TENANCY RIGHT IS TH E RIGHT TO POSSESS AND OCCUPY A LAND OR BUILDING BELONGING TO SOME OTHER P ERSON THIS WAS THE IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 18 OF 27 SUBMISSION OF LD. AR OF ASSESSEE THAT SINCE IN THE PRESENT CASE, THE LEASE OPTION GRANTED TO THE ASSESSEE IS GIVEN FOR A NON-E XISTING BUILDING AND IN THE PRESENT CASE, LEASE OPTION IS GIVEN FOR A BUILDIN G WHICH MAY BE CONSTRUCTED IN FUTURE BY THE LAND LORD, IT IS NOT A TENANCY RIGHT. IN OUR CONSIDERED OPINION, TENANCY RIGHT CAN BE GIVEN BY THE LANDLORD TO ANY O THER PERSON IN RESPECT OF AN EXISTING PROPERTY OR IN RESPECT OF THE PROPERTY WHI CH THE LANDLORD IS WILLING TO BUILD IN FUTURE. WE HOLD SO BECAUSE EVEN IN CASE O F EXISTING PROPERTY, THE LANDLORD CAN CONFER TENANCY RIGHT TO THE TENANT FRO M A FUTURE DATE. IT MAY BE LIKE THIS ALSO THAT A PROPERTY IS EXISTING AND IT IS OCC UPIED BY SOME OTHER TENANT AT PRESENT BUT THE LANDLORD MAY ENTER INTO A TENANCY A GREEMENT WITH SOME OTHER PERSON ALSO AND AS PER THE SAME AGREEMENT, IT CAN B E AGREED THAT THE EXISTING TENANT IS LIKELY TO VACATE THE PROPERTY SAY WITHIN SIX MONTHS FROM THE DATE OF THIS AGREEMENT AND THEREFORE, THE LANDLORD AGREED WITH T HE NEW PERSON TO GRANT HIM TENANCY RIGHT AFTER THE PROPERTY IS VACATED BY THE EXISTING TENANT. SIMILARLY A PERSON IS HOLDING/OCCUPYING A LAND AND ON THE SAME LAND, HE IS CONSTRUCTING A BUILDING AND IT IS EXPECTED THAT THE BUILDING WILL BE COMPLETED IN A GIVEN PERIOD AND WILL BE AVAILABLE WITHIN A SPECIFIC TIME PERI OD AND UNDER THAT SITUATION, THE LANDLORD CAN ENTER INTO TENANCY AGREEMENT FOR SUCH BUILDING BEING CONSTRUCTED OR TO BE CONSTRUCTED WITH AN UNDERSTANDING THAT THE TENANT WILL GET THE OCCUPATION OF THE BUILDING WITHIN A GIVEN POINT OF TIME. HENCE IN OUR CONSIDERED OPINION, THIS ARGUMENT OF THE LD. AR OF ASSESSEE TH AT IN THE PRESENT CASE, LEASE OPTION IS GIVEN IN RESPECT OF A BUILDING WHICH IS N OT IN EXISTENCE AND THEREFORE, THIS CANNOT BE EQUATED WITH TENANCY RIGHT HAS NO ME RIT. IN OUR CONSIDERED OPINION, THE GRANTING OF LEASE OPTION IS EQUAL TO T HE GRANTING OF TENANCY OPTION OF AN EXISTING PROPERTY WITH THE UNDERSTANDING THAT THE ACTUAL POSSESSION WILL BE GIVEN TO THE TENANT WITHIN A SPECIFIED TIME PERIOD. IN THE PRESENT CASE ALSO, THE ASSESSEE WAS GIVEN LEASE OPTION WHICH COULD BE EXER CISED WITHIN 24 MONTHS FROM 01.12.2006. AS PER THE AGREEMENT DATED 08.05. 2008, IT IS STATED THAT THE LEASE OPTION UNDER THE MOU AND THE LEASE DEED IS SU PPOSED TO EXPIRE ON 01.09.2008 AND THE LESSEE IN CONSIDERATION OF THE C OMPENSATION OF RS. 34.90 CRORES PAYABLE BY THE LESSOR HAS EXPRESSED ITS WILL INGNESS TO RELINQUISH THE LEASE OPTION AS ENVISAGED IN THE MEMORANDUM OF AGRE EMENT DATED 31.01.2006 AND REAFFIRMED VIDE LEASE DEED DATED 10.08.2007. H ENCE IT IS SEEN THAT IN THE IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 19 OF 27 PRESENT CASE, THE LEASE OPTION HAS EXPIRY DATE WHIC H MEANS THAT THE LEASE OPTION CAN BE EXERCISED ONLY UP TO THIS DATE I.E. 0 1.09.2008 AND HENCE, IN OUR CONSIDERED OPINION, WHETHER THE PROPERTY IS IN EXIS TENCE OR NOT HAS NO RELEVANCE BECAUSE THE BUILDER I.E. M/S. VIPUL LTD. HAS GIVEN AN OPTION TO THE ASSESSEE TO ACQUIRE, EXACT AREA ON LEASE AND ASSESS EE DECIDED TO SURRENDER AND RELINQUISH LEASE OPTION FOR A CONSIDERATION. I T IS ALSO SEEN THAT THE LEASE OPTION WAS ALONG WITH ALL RIGHTS AND BENEFITS ARISI NG THERE FROM, INCLUDING BUT NOT LIMITED TO ANY RIGHT TO SUB-LEASE AND ANY OTHER RIG HT, INTEREST BENEFIT ETC. CONSEQUENTIAL IN NATURE, BOTH UNDER THE MEMORANDUM OF AGREEMENT DATED 31.01.2006 AND THE LEASE DEED DATED 10.08.2007 AND ALL THESE RIGHTS WERE RELINQUISHED BY THE ASSESSEE FOR A CONSIDERATION OF RS. 34.90 CRORES AS PER AGREEMENT DATED 08.05.2008. UNDER THESE FACTS, IN OUR CONSIDERED OPINION, THE LEASE OPTION GRANTED TO THE ASSESSEE BY THE DEVELOP ER IS NOTHING BUT TENANCY RIGHT AND THEREFORE SECTION 55(2) IS APPLICABLE IN THE FACTS OF PRESENT CASE. 14. THE THIRD ASPECT TO BE DECIDED IS THIS AS TO WH AT IS THE AMOUNT OF CONSIDERATION RECEIVED. IT IS SEEN THAT AS PER THE AGREEMENT DAT ED 08.05.2008, CONSIDERATION FIXED IS RS. 34.90 CRORES. THE SAME IS THE AMOUNT A S PER SUPPLEMENTARY AGREEMENT DATED 15.09.2008. AS PER THE AMENDED AND RESTATED SUPPLEMENTARY AGREEMENT DATED 27.04.2009, IT WAS AG REED UPON BETWEEN THE PARTIES THAT THE OUTSTANDING CONSIDERATION SHOULD B E REDUCED TO RS. 16.95 CRORES AS AGAINST RS. 24 CRORES. THIS SUPPLEMENTAR Y AGREEMENT HAS BEEN EXECUTED BETWEEN THE PARTIES IN THE NEXT FINANCIAL YEAR I.E. FINANCIAL YEAR 2009-10 RELEVANT TO ASSESSMENT YEAR 2010-11 WHEREAS WE ARE DEALING WITH ASSESSMENT YEAR 2009-10. AS PER SECTION 48 OF IT A CT, INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS SHALL BE COMPUTED BY D EDUCTING FROM THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT O F THE TRANSFER OF CAPITAL ASSET, SOME AMOUNTS BEING COST OF ACQUISITION, COST OF TRA NSFER AND COST OF IMPROVEMENT. HENCE FOR THE PURPOSE OF COMPUTING CA PITAL GAINS, CONSIDERATION RECEIVED OR ACCRUED BOTH ARE RELEVANT. AS PER THE RELINQUISHMENT AGREEMENT DATED 08.05.2008, CONSIDERATION OF RS. 34.90 CRORES HAS ACCRUED TO THE ASSESSEE AND ASSESSEE HAS ALSO RECEIVED PART PAYMEN T OF IT AND HAS RELINQUISHED ITS RIGHTS OF LEASE OPTION. BY A SUBS EQUENT EVENT OF REDUCTION IN IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 20 OF 27 AGREED CONSIDERATION, THE ACCRUED CONSIDERATION DO ES NOT GET REDUCED AND SUCH REDUCTION IN ACCRUED CONSIDERATION IN FUTURE H AS NO RELEVANCE FOR THE PURPOSE OF DETERMINING THE CAPITAL GAIN IN THE PRES ENT YEAR. HENCE ON THIS ASPECT OF THE MATTER ALSO, WE FIND NO MERIT IN THE CLAIM OF THE ASSESSEE. ACCORDINGLY THIS ISSUE IS DECIDED AGAINST THE ASSES SEE. 15. THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. 16. NOW WE TAKE UP THE APPEAL OF THE REVENUE. IT W AS SUBMITTED BY LD. DR OF REVENUE THAT GROUND NO. 1 IS GENERAL. REGARDING GR OUND NO. 2, SHE FAIRLY CONCEDED THAT THIS ISSUE IS COVERED IN FAVOUR OF TH E ASSESSEE BY THE JUDGEMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CAS E OF CIT VS. TATA ELXSI LTD., 349 ITR 98. GROUND NO. 2 IS REJECTED BY RESPECTFULL Y FOLLOWING THIS JUDGMENT OF HONBLE KARNATAKA HIGH COURT. 17. REGARDING GROUND NO. 3, SHE SUBMITTED THAT THIS ISSUE WAS DECIDED BY THE DRP AS PER PARA 16.3 OF ITS DIRECTIONS AVAILABLE ON PAG E NO. 39 OF DRP DIRECTIONS. SHE POINTED OUT THAT FROM THIS PARA OF DRP DIRECTIO NS, IT IS CLEAR THAT THE ENDORSED FIRCS WERE PLACED BEFORE THE DRP FOR THE F IRST TIME AND DRP HAS DECIDED THE ISSUE WITHOUT OBTAINING REMAND REPORT F ROM THE AO AND THEREFORE, ON THIS ISSUE, THE MATTER SHOULD BE RESTORED BACK T O THE FILE OF DRP FOR FRESH DECISION AFTER OBTAINING REMAND REPORT FROM THE AO. IN REPLY, THE LD. AR OF ASSESSEE SUPPORTED THE DRP DIRECTIONS. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRS T OF ALL, WE REPRODUCE PARA 16.3 FROM THE DRP DIRECTIONS FOR READY REFERENCE. THE S AME IS AS UNDER. 16.3 THE GROUND OF OBJECTIONS ALONG WITH ALL THE MA TERIAL PLACED ON RECORD HAS BEEN PERUSED. THE AO DISALLOWED THE VAL UE OF UNENDORSED FIRCS AMOUNTING TO RS.148,416,444 FROM EXPORT TURNO VER OF THE COMPANY ON THE ONLY GROUND THAT THE SAME HAVE NOT B EEN ENDORSED BY THE AUTHORISED DEALER ('AD') BANK AS ON DATE. THE A SSESSEE HAS SUBMITTED THE ENDORSED FIRC'S BEFORE THE PANEL. ON PERUSAL OF THE SAME IT IS CLEAR THAT THE COMPANY HAS REALISED THE SAID AMOUNT AND IT HAS BEEN DULY ENDORSED BY THE AUTHORISED DEALER ('A D') BANK. THUS, THE REASON FOR ADDITION DOES NOT SURVIVE. IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 21 OF 27 19. FROM THE ABOVE PARA REPRODUCED FROM THE DIRECTI ONS OF DRP, IT IS CLEAR THAT THE DISALLOWANCE WAS MADE BY THE AO FOR THIS REASON THA T FIRCS AMOUNTING TO RS. 14,84,16,444/- HAD NOT BEEN ENDORSED BY AUTHORIZED DEALER BANK AS ON DATE AND BEFORE DRP, THE ASSESSEE SUBMITTED THAT THE END ORSED FIRCS AND DRP HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE WIT HOUT OBTAINING ANY REMAND REPORT FROM AO IN THIS REGARD. IN THIS VIEW OF THE MATTER, WE FIND FORCE IN THE SUBMISSION OF LD. DR OF REVENUE THAT THE MATTER SHO ULD GO BACK TO THE FILE OF DRP FOR FRESH DECISION AFTER OBTAINING REMAND REPOR T FROM THE AO. ACCORDINGLY WE SET ASIDE THE ORDER OF DRP AND CONSEQUENTLY THE ORDER OF AO ON THIS ISSUE AND THIS ISSUE IS RESTORED BACK TO THE FILE OF DRP FOR FRESH DECISION AFTER OBTAINING REMAND REPORT FROM THE AO. IN THIS MANNE R, GROUND NO. 3 OF THE REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE S. 20. REGARDING GROUND NOS. 4 AND 5, IT WAS SUBMITTED BY LD. DR OF REVENUE THAT THE ISSUE REGARDING DISALLOWANCE OF DEDUCTION U/S. 10A FOR PUNE STPI UNIT BY ASSESSEE COMPANY HAS BEEN DISCUSSED AND DECIDED BY DRP AS PER PARA 19 TO 19.5 OF THE ORDER OF DRP. THEREAFTER SHE POINTED O UT THAT AS PER DRAFT ASSESSMENT ORDER, IT IS NOTED BY THE AO IN PARA IV ON PAGE NO. 7 THAT THE INVOICE COPIES AND SOFTEX SUBMITTED BY THE ASSESSEE COMPANY DID NOT MENTION ABOUT THE PARTICULARS OF COMPUTER SOFTWARE / IT ENABLED SERVICE. SHE FURTHER POINTED OUT THAT THIS IS ALSO NOTED BY AO I N THE SAME PARA THAT RBI HAS GIVEN CERTAIN CODES TO REGULARIZE THE SOFTEX AND EX PORT OF COMPUTER SOFTWARE. AS PER THE RBI CODE, THE EXPORT COMPUTER SOFTWARE A ND IT ENABLED SERVICE ARE GOVERNED UNDER THE CODE 907. BUT AS PER THE SOFTEX SUBMITTED BY ASSESSEE COMPANY OF PUNE UNIT, IT DID NOT MENTION ABOUT THE NATURE OF SERVICE RENDERED AND THE COLUMNS WERE NOT DULY FILLED. SHE FURTHER POINTED OUT THAT IT IS ALSO NOTED BY THE AO THAT NONE OF THE INVOICES WERE RAIS ED AGAINST ANY IT ENABLED SERVICE LISTED IN THE NOTIFICATION SO890[E] DATED 2 6.09.2000 AND ALL THE INVOICES WERE RAISED TOWARDS SOFTWARE SOLUTION. THEREAFTER SHE DRAWN OUR ATTENTION TO PAGE NO. 11 OF THE DRAFT ASSESSMENT ORDER AND IT WA S POINTED OUT THAT IT IS NOTED BY THE AO ON THIS PAGE OF THE DRAFT ASSESSMENT ORDE R THAT IN ORDER TO CLAIM THE TAX BENEFIT U/S. 10A OF IT ACT, THE ASSESSEE COMPAN Y SHOULD HAVE EITHER DEVELOPED SOFTWARE OR RENDERED IT ENABLED SERVICE G IVEN IN THE NOTIFICATION IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 22 OF 27 REFERRED ON THE SAME PAGE OF THE DRAFT ASSESSMENT O RDER BUT IT IS NOTED BY THE AO THAT IN THE PRESENT CASE, THE INVOICES SUBMITTED BY ASSESSEE COMPANY HAS REVEALED THE FACT THAT THE COMPANY HAS CHARGED SOME SERVICE CHARGES FOR SOFTWARE SOLUTIONS FROM THE SISTER CONCERNS AND THI S PARTICULAR ITEM WAS NOT LISTED AS IT ENABLED SERVICE IN THE NOTIFICATION RE FERRED TO BY THE AO. SHE SUBMITTED THAT IN SPITE OF THIS CATEGORICAL FINDING OF AO IN THE DRAFT ASSESSMENT ORDER, THE DRP HAS DECIDED THE ISSUE IN FAVOUR OF T HE ASSESSEE ON THIS BASIS THAT THE ASSESSEE COMPANY HAD CLAIMED DEDUCTION ON PROFITS EARNED FROM THE PUNE UNIT U/S. 10A FOR THE EARLIER YEARS ALSO AND T HE SAME HAS NOT BEEN QUESTIONED. THEREAFTER THE DRP HAS GIVEN A FINDING IN PARA 19.4 THAT MERE ERROR OF NOT COMPLETING THE INFORMATION SOUGHT IN T HE SOFTEX FORMS CANNOT BE CONSIDERED AS THE ULTIMATE TEST TO DISALLOW THE DED UCTION UNDER SECTION 10A OF THE ACT. SHE SUBMITTED THAT THE ORDER OF DRP SHOUL D BE REVERSED AND THAT OF AO IN THE DRAFT ASSESSMENT ORDER SHOULD BE RESTORED . AS AGAINST THIS THE LD. AR OF ASSESSEE SUPPORTED THE ORDER OF DRP. IT WAS SUB MITTED BY LD. AR OF ASSESSEE THAT COPY OF LETTER DATED 26.03.2013 IS AV AILABLE ON PAGES 451 TO 463 OF PAPER BOOK AND IN PARTICULAR, OUR ATTENTION WAS DRAWN TO PAGE NO. 455 OF THE PAPER BOOK WHERE THE ASSESSEES CLAIM REGARDING DED UCTION U/S. 10A FOR PUNE UNIT HAS BEEN EXPLAINED AND IT WAS POINTED OUT THAT IN THE COPY OF INVOICES SUBMITTED BEFORE THE AO, IT WAS NOTICED BY THE AO T HAT CERTAIN INVOICES HAVE A COMPONENT OF BONUS ON INK AND TONER AND IN THIS R EGARD, THE AO ASKED FOR CLARIFICATION ON THE NATURE OF SUCH COMPONENT IN TH E INVOICES AND IT WAS SUBMITTED BY ASSESSEE BEFORE THE AO THAT THE COMPAN Y HAS RAISED THE INVOICES BASED ON THE CALL LOG REPORT, WHEREIN THE BILL AMOU NT WOULD BE WORKED OUT AS NUMBER OF MINUTES OF CALL MULTIPLIED BY FIXED RATE AND SUBSEQUENTLY AT THE END OF THE YEAR IN MARCH, AN ADDITIONAL COMPONENT BEING REFERRED TO AS BONUS WOULD BE BILLED FOR THE SERVICES RENDERED AND BILLE D ALREADY. HE FURTHER POINTED OUT THAT THIS WAS EXPLAINED THAT THIS IS AN ADDITIO NAL BILLING DONE FOR SERVICES ALREADY RENDERED AND REGARDING THE DESCRIPTION AS INK AND TONER IT WAS EXPLAINED THAT THE SAME IS BASED ON THE NAME OF COS T CENTER UNDER WHICH THE CONCERNED TRANSACTIONS ARE RECORDED. HE ALSO SUBMI TTED THAT ON PAGE NO. 577 OF THE PAPER BOOK IS THE RELEVANT INVOICES WHEREIN THERE IS AN ITEM BONUS ON IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 23 OF 27 INK AND TONER RELATING TO $3,18,150. HE SUBMITTED THAT UNDER THESE FACTS, THE ORDER OF DRP SHOULD BE AFFIRMED. 21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRS T OF ALL WE REPRODUCE THE RELEVANT PARA FROM THE DRAFT ASSESSMENT ORDER WHICH READS AS UNDER. IV. AS FAR AS PUNE UNIT IS CONCERNED IT IS TO BE ME NTIONED HERE THAT THIS UNIT WAS REGISTERED INITIALLY ON 5.3.2006. ON 31.3.2007 I.E. 1.4.2007 THE COMPANY HAS ACQUIRED NET ASSETS OF ACS INFO SOLUTION PVT LTD AND GOD FRESH REGISTRATION FROM 31.3.2007. THE INVOICE COPIES AND SOFTEX SUBMITTED BY THE COMPANY DID NOT MENTION ABOUT THE PARTICULARS OF COMPUTER SOFTWARE / IT ENABLED SERVI CE. THE RBI HAS GIVEN CERTAIN CODES TO REGULARIZE THE SOFTEX AND EX PORT OF COMPUTER SOFTWARE. AS PER THE RBI CODE THE EXPORT COMPUTER S OFTWARE AND IT ENABLED SERVICE ARE GOVERNED UNDER THE CODE 907. TH E SOFTEX SUBMITTED BY ASSESSEE COMPANY OF PUNE UNIT DID NOT MENTION ABOUT THE NATURE OF SERVICE RENDERED AND THE COLUMNS WERE NOT DULY FINED. FURTHER IT IS ALSO NOTICED THAT NONE OF THE INVOICE S WERE RAISED AGAINST ANY IT ENABLED SERVICE LISTED IN THE NOTIFICATION S 0890[E] DATED 26.9.2000. ALL THE INVOICES WERE RAISED TOWARDS SOF TWARE SOLUTION. IT IS ALSO NOTICED THAT THE INVOICE DID NOT MENTION AB OUT THE PURCHASE ORDERS OR CONTRACT AGREEMENTS. THE DISCREPANCIES LISTED ABOVE ARE DISCUSSED IN DET AIL WITH THE AR OF THE ASSESSEE COMPANY ON 5.3.2013 BY REPORTING THE C ASE TO 11.3.2013. HOWEVER, NEITHER THE COMPANY NOR THE AR HAS APPEARE D ON THE DATE OF HEARING. HENCE A SPECIFIC SHOW CAUSE NOTICE DATED 2 0.3.2013 WAS ISSUED TO THE COMPANY BY POSTED THE HEARING ON 26.3 .2012. ON THE DATE OF HEARING THE AR OF THE ASSESSEE COMPANY HAS APPEARED AND MADE FURTHER SUBMISSIONS: 1.2 ANALYSIS OF WRITTEN SUBMISSION: 1. AS FAR AS THE BONUS ON INK AND TONER IS CONCERNE D THE ASSESSEE COMPANY HAS FURNISHED THE FOLLOWING REPLY: 'IN POINT 'A' OF THE NOTICE DATED 20 TH MARCH 2013, IN THE COPY OF INVOICES SUBMITTED YOUR GOODSELF HAS NOTICED CERTAI N INVOICES HAVE A COMPONENT OF 'BONUS ON INK AND TONER'. SUBSEQUENTLY YOUR GOODSELF HAS SOUGHT CLARIFICATIONS ON THE NATURE OF SUCH COM PONENT IN THE INVOICES. IN THIS REGARDS WE SUBMIT THAT, IN THE CONCERNED CA SE THE COMPANY HAS RAISED THE INVOICES BASED ON THE CALL LOG REPORT, W HEREIN THE BILL AMOUNT WOULD BE WORKED OUT AS NUMBER OF MINUTES OF CALL MULTIPLIED BY A FIXED RATE. SUBSEQUENTLY AT THE END OF THE YEA R IN MARCH, AN ADDITIONAL COMPONENT (BEING REFERRED TO AS BONUS) W OULD BE BILLED FOR THE SERVICES RENDERED AND BILLED ALREADY. THUS THIS IS AN ADDITIONAL BILLING DONE FOR SERVICES ALREADY RENDERED. FURTHER THE DESCRIPTION IS IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 24 OF 27 GIVEN AS 'INK AND TONER' BASED THE NAME OF COST CEN TER UNDER WHICH THE CONCERNED TRANSACTIONS ARE RECORDED. HOWEVER THE ABOVE SAID REPLY IS NOT ACCEPTABLE. THE INVOICES ARE CLEARLY REVEALED A FACT THAT THE COMPANY WAS RE CEIVED CERTAIN BONUS ON INK AND TONER . THE SAID AMOUNT WAS RECEIVED AS A BONUS ONLY IN THE MONTH OF APRIL AND MAY. ALL THE INVOICE COPIES ARE ENCLOSED AS ANNEXURE-1 TO THE ORDER. WHEN THE COMPA NY HAS RAISED THE INVOICE BONUS ON INK AND TONER THE OTHER SUBMIS SION GIVEN BY THE COMPANY ARE NOT ACCEPTABLE. AS FAR AS REALIZATION O F EXPORT PROCEEDS ARE CONCERNED IN MANY CASES THE SOFTEX WERE NOT END ORSED. EACH AND EVERY SOFTEX, INVOICE AND THE REALIZATION ARE THORO UGHLY EXAMINED IN THE PRESENCE OF THE AR. IN CASE OF GUARGAON UNIT ONE INVOICE DATED 30.07.20 08 FOR A SUM OF 414,613 US$ OF RS.2,04,32,078/- WAS REALIZED IN THE MONTH OF OCTOBER 2009. AS DISCUSSED ABOVE, THE INVOICE RAISE D BY THE COMPANY HAS TO BE REALIZED WITHIN 12 MONTHS FROM THE END OF THE MONTH. HENCE THIS AMOUNT IS ALSO NOT ELIGIBLE AS EXPORT TURNOVER . 22. NOW WE REPRODUCE THE REPLY OF THE ASSESSEE REGA RDING ITS EXPLANATION IN RESPECT OF BONUS ON INK AND TONER FROM PAGE NO. 4 55 OF PAPER BOOK. THE SAME IS AS UNDER. 5. BONUS ON INK AND TONER IN POINT 'A' OF THE NOTICE DATED 20 TH MARCH 2013, IN THE COPY OF INVOICES SUBMITTED YOUR GOODSELF HAS NOTICED CERTAI N INVOICES HAVE A COMPONENT OF 'BONUS ON INK AND TONER. SUBSEQUENTL Y YOUR GOODSELF HAS SOUGHT CLARIFICATIONS ON THE NATURE OF SUCH COM PONENT IN THE INVOICES. IN THIS REGARDS WE SUBMIT THAT, IN THE CONCERNED CA SE THE COMPANY HAS RAISED THE INVOICES BASED ON THE CALL LOG REPOR T, WHEREIN THE BILL AMOUNT WOULD BE WORKED OUT AS NUMBER OF MINUTES OF CALL MULTIPLIED BY A FIXED RATE. SUBSEQUENTLY AT THE END OF THE YEA R IN MARCH, AN ADDITIONAL COMPONENT (BEING REFERRED TO AS 'BONUS') WOULD BE BILLED FOR THE SERVICES RENDERED AND BILLED ALREADY. THUS THIS IS AN ADDITIONAL BILLING DONE FOR SERVICES ALREADY RENDERED. FURTHE R THE DESCRIPTION IS GIVEN AS 'INK AND TONER' BASED ON THE NAME OF COST CENTER UNDER WHICH THE CONCERNED TRANSACTIONS ARE RECORDED. 23. NOW WE ALSO REPRODUCE THE FINDING OF DRP IN THI S REGARD FROM PAGES 46 & 47 OF THE ORDER OF DRP BEING PARAS 19 TO 19.5 OF SUCH DIR ECTIONS. THE SAME IS AS UNDER. 19. GROUND OF OBJECTION DISALLOWANCE OF DEDUCTION UNDER SECTION 10A CLAIMED FOR PUNE STP UNIT OF THE COMPANY. 19.1 THE AO DISALLOWED THE DEDUCTION CLAIMED UNDER SECTION 10A FOR PUNE STP UNIT OF THE COMPANY AMOUNTING TO RS 46,735 ,360 ON THE IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 25 OF 27 GROUND THAT THE SOFTWARE SOLUTION SERVICES RENDERED FROM SUCH UNIT IS NOT IN THE NATURE OF IT ENABLED SERVICES LISTED IN THE NOTIFICATION S0890[E] DATED 26TH SEPTEMBER 2000. 19.2 ON THE OTHER HAND THE ASSESSEE CLAIMED THAT AO OUGHT TO HAVE APPRECIATED THAT THE SOFTWARE SOLUTION SERVICES ARE IN THE NATURE OF COMPUTER SOFTWARE AS DEFINED IN EXPLANATION (2) (I) TO SECTION 10A OF THE ACT. THE ASSESSEE FURTHER CLAIMED THAT THE LEAR NED AO HAS FAILED TO APPRECIATE THAT THE UNIT IS PROVIDING SOFTWARE SOLU TION SERVICES AFTER OBTAINING VALID REGISTRATION FROM STPI AUTHORITIES. THE AO OUGHT TO HAVE CONSIDERED THE FACT THAT THE STPI AUTHORITIES HAVE ACCEPTED THE SOFTEX FORMS SUBMITTED AND THE ENDORSEMENT MADE BY THE AUTHORITY CONFIRMS SOFTWARE SERVICES BEING RENDERED FROM THE UNIT AND THAT A PROCEDURAL LAPSE LIKE NOT TICKING THE CODE IN THE S OFTEX FORM CANNOT BE THE BASIS TO DISALLOW THE ENTIRE CLAIM OF DEDUCTION . 19.3 ON PERUSAL OF THE GROUND OF OBJECTION ALONG WI TH ALL THE MATERIAL PLACED ON RECORD IT IS CLEAR THAT THE AO HAS NOT AP PRECIATING THE FACT THAT THE COMPANY HAD CLAIMED DEDUCTION OF PROFITS E ARNED FROM THE PUNE UNIT UNDER SECTION 10A-FOR-THE EARLIER AY/S A ND THE SAME HAS NOT BEEN QUESTIONED. THE AO HAS ALSO NOT APPRECIATE D THE FACT THAT THE EXPORT OF COMPUTER SOFTWARE AND IT ENABLED SERVICE FALLS WITHIN THE CODE 907 PROVIDED IN POINT 9 OF THE SOFTEX FORM WIT HOUT APPRECIATING THAT ALL THE CODES IN POINT 9 OF THE SOFTEX ARE FOR EXPORT OF SOFTWARE. THE PUNE UNIT OF THE COMPANY PROVIDES SOFTWARE SOLU TIONS TO DELL GLOBAL BV SINGAPORE AND SUCH SERVICES INCLUDE SERVI CES LIKE SOFTWARE QUALITY ASSURANCE, SOFTWARE TESTING ETC. WHICH ARE IN THE NATURE OF COMPUTER SOFTWARE AS DEFINED IN EXPLANATION (2)(I) TO SECTION 10A OF THE ACT. THE NATURE OF SERVICES RENDERED TO DELL GL OBAL BV SINGAPORE IS DETAILED IN THE SERVICE AGREEMENT OF THE COMPANY . 19.4 IN VIEW OF THE FACTS ABOVE IT IS CLEAR THAT ME RE ERROR OF NOT COMPLETING THE INFORMATION SOUGHT IN THE SOFTEX FOR MS CANNOT BE CONSIDERED AS THE ULTIMATE TEST TO DISALLOW THE DED UCTION UNDER SECTION 10A OF THE ACT. THE SOFTWARE SOLUTION SERVICES ARE BEING RENDERED FROM PUNE UNIT AND THE SAME IS ACKNOWLEDGED AND END ORSED BY THE STPI AUTHORITIES. FURTHER IT COULD BE NOTED FROM TH E FIRC AND INVOICE MAPPING ANNEXURE SUBMITTED BY THE ASSESSEE THAT THE COMPANY HAS REALIZED THE ENTIRE AMOUNT AGAINST THE INVOICES RAI SED BY THE PUNE UNIT. IN VIEW OF THE ABOVE, DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT, FOR THE PUNE UNIT IS ALLOWABLE. 19.5 IN VIEW OF THE ABOVE, THE GROUNDS OF OBJECTION S ARE ACCEPTED. 24. FROM THE DRAFT ASSESSMENT ORDER AS REPRODUCED A BOVE, WE FIND THAT FROM THE REPLY SUBMITTED BY ASSESSEE BEFORE THE AO WHICH IS REPRODUCED BY THE AO ALSO ON PAGES 7 AND 8 OF DRAFT ASSESSMENT ORDER AS REPRO DUCED ABOVE, IT IS SEEN THAT THIS IS THE REPLY OF THE ASSESSEE THAT INITIAL LY THE COMPANY HAS RAISED THE IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 26 OF 27 INVOICES BASED ON THE CALL LOG REPORT, WHEREIN THE BILL AMOUNT WAS COMPUTED ON THE BASIS OF NUMBER OF MINUTES OF CALL MULTIPLIED B Y A FIXED RATE AND SUBSEQUENTLY AT THE END OF THE YEAR IN MARCH, AN AD DITIONAL COMPONENT BEING REFERRED TO AS BONUS WOULD BE BILLED FOR THE SERVIC ES RENDERED AND BILLED ALREADY. NOW IN THE LIGHT OF THIS REPLY, WE EXAMIN E THE RELEVANT INVOICES WHICH IS AVAILABLE ON PAGE NO. 577 TO 591 OF PAPER BOOK A ND WE FIND THAT ALL THESE INVOICES ARE RAISED IN THE MONTH OF APRIL AND MAY, 2008. WHEN AS PER THE ASSESSEES REPLY ITSELF, THE INVOICES FOR DIFFERENC E RAISED IN THE MONTH OF MARCH, THEN THE SAID EXPLANATION OF THE ASSESSEE IS NOT RE LEVANT IN RESPECT OF THESE INVOICES WHICH ARE RAISED IN THE MONTH OF APRIL AND MAY 2008. FURTHER THIS IS ALSO NOT CLEAR FROM THE INVOICES AS TO WHEN THE SER VICES WERE ACTUALLY RENDERED FOR WHICH BONUS IS BILLED IN THE MONTH OF APRIL AND MAY 2008, WHAT ARE THE NATURE OF SERVICES WHICH WERE RENDERED FOR WHICH TH ESE BONUS INVOICES ARE RAISED IS ALSO NOT CLEAR. IT IS ALSO NOTED BY THE AO IN THE DRAFT ASSESSMENT ORDER THAT IN THE PRESENT CASE, FROM THE INVOICES SUBMITT ED BY ASSESSEE COMPANY, IT IS REVEALED THAT THE ASSESSEE COMPANY HAS CHARGED S OME SERVICE CHARGES FROM SISTER CONCERNS AND THIS WAS NOT LISTED AS ITE S IN THE RELEVANT NOTIFICATION. THE AO HAS ALSO NOTED THAT THE SOFTEX DID NOT SPECI FY ABOUT ANY ITES. WHEN THESE OBJECTIONS WERE RAISED BY AO BEFORE THE ASSESSEE, THE ASSESSEE HAS SUBMITTED REPLY DATED 26.03.2013 AS PER WHICH T HE ASSESSEE HAS GIVEN A VAGUE REPLY THAT THE PUNE UNIT OF ASSESSEE COMPANY PROVIDES SOFTWARE SOLUTIONS TO DELL GLOBAL BV SINGAPORE AND SUCH SERV ICE INCLUDE SERVICES LIKE SOFTWARE QUALITY ASSURANCE, SOFTWARE TESTING ETC. A ND THE SAME WOULD BE CATEGORIZED UNDER OTHERS (IT AND ITES) IN POINT 9(A ) OF THE SOFTEX FORMS. IT IS ALSO SUBMITTED BY ASSESSEE BEFORE THE AO THAT ASSES SEE COMPANY HAS INADVERTENTLY MISSED TO TICK THE APPROPRIATE NATURE OF SERVICES PROVIDED THROUGH THE PUNE STPI UNIT. THIS IS ALSO SUBMITTED BY ASSE SSEE BEFORE THE AO THAT 12 SOFTEX FORMS WERE SUBMITTED BY ASSESSEE COMPANY WIT H THE PUNE STPI AUTHORITIES OUT OF WHICH 9 SOFTEX FORMS ARE ENDORSE D BY THE PUNE STPI AUTHORITIES AND IN RESPECT OF THE REMAINING SOFTEX FORMS, THE ASSESSEE FILED A LETTER SEEKING THE ENDORSED COPY OF SOFTEX FILED. THIS WAS THE SUBMISSION OF THE ASSESSEE BEFORE THE AO THAT MERE INADVERTENT ER ROR OF NOT COMPLETING THE INFORMATION SOUGHT IN THE SOFTEX FORMS SHOULD NOT B E CONSIDERED AS THE ULTIMATE IT(TP)A NOS. 53 & 86/BANG/2014 PAGE 27 OF 27 TEST TO ALLOW THE DEDUCTION U/S. 10A OF THE ACT. T HE DRP HAS SIMPLY REPRODUCED THESE SUBMISSIONS OF ASSESSEE BEFORE THE AO AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND EVEN THE RESULT OF SUBMISSION OF THE ASSESSEE BEFORE STPI AUTHORITIES FOR ENDORSING OF T HE SOFTEX FORMS WHICH WERE HAVING MISTAKES AS PER THE ASSESSEE WAS NOT INSISTE D UPON. EVEN BEFORE US, THIS IS NOT SHOWN THAT THE STPI AUTHORITIES OF PUNE HAS ENDORSED SUCH SOFTEX FORMS WHICH WERE DEFECTIVE AS PER THE ASSESSEE. UN DER THESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE HAS NOT SA TISFIED THE REQUIREMENT OF LAW REGARDING ALLOWABILITY OF DEDUCTION U/S. 10A FO R PUNE UNIT. HENCE WE REVERSE THE ORDER OF DRP ON THIS ISSUE AND RESTORE THE ORDER OF AO IN DRAFT ASSESSMENT ORDER ON THIS ISSUE. ACCORDINGLY, GROUN D NOS. 4 AND 5 OF THE REVENUES APPEAL ARE ALLOWED. 25. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. 26. IN THE COMBINED RESULT, THE APPEALS FILED BY TH E ASSESSEE AND REVENUE ARE PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE DA TE MENTIONED ON THE CAPTION PAGE. SD/- SD/- (SUNIL KUMAR YADAV) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 13 TH JULY, 2018. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.