DCIT 8 (2) (2), MUMBAI V. SONATA SOFTWARE LTD, MUMBAI

MA 46/MUM/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9025 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 7 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 05-07-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2006-2007
• Appeal Filed On: 28-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAMOD HIKALJE
• Keywords: Depreciation; Transfer pricing; International transaction; TDS; Set aside
• Section: 40(a)(ia); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I , BENCH MUMBAI BEFORE SHRI M.BALAGANESH, AM & SHRI RAM LAL NEGI , JM MA NO.46/MUM/2019 (ARISING OUT OF ITA NO. 3539/ MUM/201 2 ( ASSESSMENT YEAR : 2006 - 07 ) DCIT - 8(2)(2), MUMBAI ROOM NO .625, 6 TH FLOOR AAYAKAR BHAVAN, M.K.ROAD, MUMBAI 400020 VS. M/S. SONATA SOFTWARE LTD. 208, T.V. INDUSTRIAL ESTATE S.K.AHIRE MARG, WORLI MUMBAI 400 030 PAN/GIR NO. AABCS8459D (APPELLANT ) .. (RESPONDENT ) REVENUE BY SHRI PRAMOD HIKALJE ASSESSEE BY SHRI VIJAY MEHTA DATE OF HEARING 26 / 04 /2019 DATE OF PRONOUNCEMENT 05 / 07 /2019 / O R D E R PER M. BALAGANESH (A.M) : BY VIRTUE OF THIS MISCELLANEOUS APPLICATION, THE REVENUE SEEKS TO RECALL THE ORDER PASSED BY THIS TRIBUNAL ON 2 0/02/2015. THE FOLLOWING MISTAKES WERE POINTED OUT BY THE REVENUE WHICH IN THE OPINION OF THE REVENUE HAD KEPT IN THE ORDER OF THIS TRIBUNAL. (I) 'THE HON'BLE ITAT FAILED TO APPRECIATE THE FACTS AND MERITS OF THE ISSUES IN QUESTION WHILE DISMISSING THE AP PEAL OF THE REVENUE PERTAINING TO ARBITRATION SETTLEMENT CLAIM AMOUNTING TO RS.15,25,91,4387 - WITHOUT DISCUSSING THE ISSUE IN ITS COMMON ORDER DATED 20.02.2015. THE HON'BLE ITAT FAILED TO CONSIDER AND M A NO. 46/MUM/2019 M/S.SONATA SOFTWARE LT D. 2 APPRECIATE THE FACT THAT THE ASSESSEE HAS CLAIMED THE E NTIRE AMOUNT IN A.Y.2006 - 07, WHEREAS OUT OF THE SAID AMOUNT ONLY 7,50,000/ - BRITAIN POUNDS WERE TO BE PAID IN F.Y.2005 - 06 AND THE REMAINING AMOUNT WAS TO BE PAID IN F.Y.2006 - 07 WHICH WAS RIGHTLY CURTAILED BY THE A.O.IN THE ASSESSMENT ORDER DATED 31.03.20 06,' (II) 'THE HON'BLE ITAT HAS FAILED TO APPRECIATE THE GROUNDS OF APPEAL RAISED BY THE REVENUE, TO THE EXTENT THAT IT HAD FAILED TO EXAMINE THE ISSUE OF APPLICABILITY OF PROVISION OF SECTION 40(A)(IA) OF THE ACT WHICH IS THE REASON FOR DISALLOWANCE WITH OUT CONSIDERING THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF CIT VS SAMSUNG ELECTRONICS LTD. (2010) 320 ITR 209 WHEREIN IT WAS HELD THAT THE ASSESSEE HAS LIABILITY TO DEDUCT TDS ON A PAYMENT MADE TO FOREIGN PARTIES.' (III) 'THE HON'BLE ITAT HAS FAILED TO APPRECIATE THE GROUNDS OF APPEAL RAISED BY THE REVENUE AND HAS DISMISSED THE REVENUE'S APPEAL WITHOUT EVEN CONSIDERING THE SAME ON ITS MERITS, WHICH MAY BE KINDLY CONSIDERED THE SAME ON ITS MERITS, WHICH MAY BE KINDLY CONSIDERED AND A FINDINGS M AY BE GIVEN ON THE ABOVE.' 2. WE FIND THAT TH E ISSUE FOR GROUND 2(I) ABOVE WAS ADJUDICATED BY THIS TRIBUNAL IN PARA 11 TO 14 WHICH ARE REPRODUCED HEREUNDER: - 11. GROUND NO.2 RELATES TO THE DELETION OF ADDITION OF RS.15,25,91,438/ - ON ACCOUNT OF ARBITRATIO N SETTLEMENT CLAIM. THE AO HAS CONSIDERED THIS ISSUE AT PARA - 21 OF HIS ORDER. THE AO OBSERVED THAT THE ASSESSEE HAS MADE THE CLAIM ON THE BASIS OF INTERNATIONAL ARBITRATION AWARD. THE AO FURTHER OBSERVED THAT THE ARBITRATION AWARD MENTION PAYMENT OF RS.15 LACS BRITAIN POUNDS IN RESPECT OF CLAIM OF M/S. NEW WATER CONSULTING M A NO. 46/MUM/2019 M/S.SONATA SOFTWARE LT D. 3 LTD., INCLUDING VAT AND COST. THE AO HAS FURTHER NOTICED THAT OUT OF THE SAID AMOUNT ONLY 7,50,000 BRITAIN POUNDS WERE TO BE PAID IN F.Y. 2005 - 06 AND THE REMAINING AMOUNT WAS TO BE PAID IN F.Y. 2006 - 07. HOWEVER, THE ASSESSEE HAS CLAIMED THE ENTIRE AMOUNT IN A.Y 2006 - 07. THE AO, ACCORDINGLY, DISALLOWED RS.15,25,91,238/ - . AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A). 11.1 LD. CIT(A) HAS CONSIDERED THE GRIEVANCE VIDE PARA - 9 OF HIS ORDER. IT WAS POINTED OUT BEFORE THE LD. CIT(A) THAT AS PER ARBITRATION AWARD THE SETTLEMENT SUM WAS PAYABLE IN THREE INSTALLMENTS, 7.50 LACS BRITAIN POUNDS + VAT BY 15/04/2006 AND 3.75 LACS POUNDS + VAT BY 15/5/2006. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) WAS CONVINCED THAT THE LIABILITY TO PAY M/S. NEW WATER CONSULTING LTD., HAD CRYSTALLIZED DURING THE FINANCIAL YEAR 2005 - 06 AND SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING THE CLAIM OF PAYMENT OF AMOUNT OF RS.12,04,19,094/ - IS AN ALLOWABLE DEDUCTION FOR A.Y 2006 - 07. AGGRIEVED BY THIS REVENUE IS BEFORE US. 12. LD. DR RELIED UPON THE ASSESSMENT ORDER. 13. LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE LOWER AUTHORITIES. 14. IT IS AN UNDISPUTED FACT THAT THE LIABILITY OF RS.15 LACS BRITAIN POUNDS IS BASED ON ARBITRATION AWARD DATED 10/3/2006. ONLY A TIME TABLE HAS BEEN GIVEN FOR MAKING THE PAYMENT BUT THE LIABILITY HAS BEEN CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION ITSELF AND, T HEREFORE, THE ASSESSEE IS ENTITLED FOR THE CLAIM OF DEDUCTION OF THE FULL LIABILITY DURING THE YEAR ITSELF. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF LD. CIT(A). GROUND NO.2 IS DISMISSED. 3. WE FIND THAT THIS TRIBUNAL HAD UPH ELD THE ACTION OF THE LD. CIT(A) IN ALLOWING THE ENTIRE LIABILITY BASED ON ARBITRATION AWARD DATED 10/03/2006 BY ACCEPTING THE FACT THAT THE LIABILITY HAD INDEED ACCRUED AND AROSE TO THE ASSESSEE IN A.Y.2006 - 07 AND ONLY TIME TABLE FOR PAYMENT OF THE SAID L IABILITY HAS BEEN PRESCRIBED TO BE PAID IN THREE INSTALLMENTS IN THE SUBSEQUENT YEAR. THIS TRIBUNAL HAD TAKEN A VIEW THAT MERELY BECAUSE THE PAYMENTS WERE MADE IN SUBSEQUENT YEAR THAT WOULD NOT HINDER THE CLAIM M A NO. 46/MUM/2019 M/S.SONATA SOFTWARE LT D. 4 OF THE ASSESSEE IN A.Y.2006 - 07 ON ACCRUAL BAS IS. WE DO NOT FIND ANY MERIT IN THE MISCELLANEOUS APPLICATION OF THE REVENUE IN THIS REGARD. WE FIND THAT THE REVENUE WAS ONLY TRYING TO SEEK REVIEW OF THE ORDER OF THIS TRIBUNAL WHICH IS NOT PERMISSIBLE WITHIN THE MEANING OF SECTION 254(2) OF THE ACT. ACC ORDINGLY, GROUND NO.2(I) OF MISCELLANEOUS APPLICATION RAISED BY THE REVENUE IS DISMISSED. 4. WITH REGARD TO GROUND NO.2(II) RAISED BY THE REVENUE IN ITS MISCELLANEOUS APPLICATION, WE FIND THAT THIS TRIBUNAL HAD OBSERVED IN ITS ORDER AS UNDER: - 9. HAVING P ERUSED THE ORDERS CAREFULLY WE AGREE WITH THE SUBMISSIONS MADE BY LD. COUNSEL. FIRSTLY, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS ONLY CLAIMED DEPRECIATION AND NOT THE ENTIRE EXPENDITURE. THE TRIBUNAL DELHI BENCH IN THE CASE OF SMG DEMAG (P) SUPRA) HA S HELD THAT PROVISIONS OF SECTION 40(A) (I) ARE NOT APPLICABLE FOR CLAIM OF DEDUCTION OF DEPRECIATION UNDER SECTION 32 OF THE ACT. PAYMENTS FOR PURCH ASE OF SOFTWARE WITHOUT DEDUCTION TAX WILL NOT BE SUBJECT TO THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. 9.1 FURTHER, IF A SIMILAR DOMESTIC TRANSACTION WAS MADE DURING THE YEAR UNDER CONSIDERATION, IT WOULD NOT HAVE ATTRACTED THE LIABILITY FOR TDS. THEREFORE, IN THE LIGHT OF THE NON - DISCRIMINATORY CLAUSE IN THE TREATY A SIMILAR INTERNATIONAL TRANSACTION WOULD ALSO NOT ATTRACT LIABILITY OF THE TDS. CONSIDERING THE FACTS IN THE LIGHT OF THE JUDICIAL DECI SIONS AND OUR OBSERVATIONS MADE HEREIN ABOVE, THE FINDINGS OF LD. CIT(A) IS SET ASIDE AND THE AO IS DIRECTED TO DELETE THE ADDITION OF RS.6,17,901/ - . GROUND NO.2 IS ACCORDINGLY ALLOWED. 5. WE FIND THAT THE REVENUE WAS NOT ABLE TO POINT OUT ANY ERROR IN TH E ORDER OF THIS TRIBUNAL AND INSTEAD TRYING TO SEEK ONLY REVIEW OF THE ORDER M A NO. 46/MUM/2019 M/S.SONATA SOFTWARE LT D. 5 PASSED BY THIS TRIBUNAL WHICH IS NOT PERMISSIBLE U/S.254(2), ACCORDINGLY, WE HOLD THAT GROUND NO.2(II) RAISED BY THE REVENUE IS DISMISSED. 6. GROUND NO.2(III) RAISED BY THE REVENU E WAS STATED TO BE IN CONNECTION WITH GROUND NO.2(I) RAISED BY THE REVENUE ABOVE BY THE REVENUE . SINCE, WE HAVE ALREADY HELD THAT THERE WAS NO ERROR IN THE ORDER OF THIS TRIBU NAL WITH REGARD TO GROUND NO.2(I ), WE DISMISS THE GROUND NO.2(III) RAISED BY THE REVENUE. 7. IN THE RESULT, MISCELLANEOUS APPLICATION RAISED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 05 / 07 /201 9 SD/ - ( RAM LAL NEGI ) SD/ - (M.BALAGANESH) JUDI CIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 05 / 07 / 2019 KARUNA , SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//