M/s Infineon Technologies India Pvt. Ltd., Bangalore V. The Asst. Commissioner of Income Tax, Circle-3(1)(1), Bangalore

MA 96/BANG/2020

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4801 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 13 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 19-10-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 06-08-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S SUNDARA RAJAN
• Keywords: Depreciation; TDS; Capital Gains
• Section: 40(a)(ia)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI. B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER M.P NO.96/BANG/2020 IT(TP)A NO.656 & 633/BANG/2016 ASSESSMENT YEAR : 2011 12 INFINEON TECHNOLOGIES INDIA PVT. LTD., 9 TH FLOOR, PRESTIGE THIRULAKSHMI, NO.11, MAHATMA GANDHI ROAD, BENGALURU-560 001. PAN AABCS 6967 N. VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-3(1)(1), BENGALURU. APPELLANT RESPONDENT ASSESSEE BY : SHRI SHARATH RAO, C.A RESPONDENT BY : SHRI S SUNDARA RAJAN, ADDL. CIT (DR) DATE OF HEARING : 11-09-2020 DATE OF PRONOUNCEMENT : 19-10-2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT MISCELLANEOUS PETITION HAS BEEN FILED BY ASSESSEE SEEKING RECTIFICATION OF ALLEGED MISTAKES APPARENT ON RECORD IN ORDER PASSED BY THIS TRIBUNAL DATED 19/03/2020. 2. THE FIRST MISTAKE SOUGHT TO BE RECTIFIED BY ASSE SSEE IS IN RESPECT OF THE VIEW TAKEN BY THIS TRIBUNAL IN CASE OF SASKEN PAGE 2 OF 9 M.P NO.96/BANG/2020 COMMUNICATION TECHNOLOGIES LTD AT PAGE 24 OF THE IM PUGNED ORDER. LD.AR SUBMITTED THAT THIS COMPARABLE IS FUNC TIONALLY NOT SIMILAR AS IT LACKS SEGMENTAL INFORMATION. 3. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SID ES IN LIGHT OF RECORDS PLACED BEFORE US. 4. WE NOTE THAT LD.AR AT THE TIME OF HEARING ARGUED FOR EXCLUSION OF THIS COMPARABLE FOR NOT HAVING SEGMENT AL INFORMATION FOR PURPOSES OF COMPARING THE RELEVANT SEGMENT. WE ALSO NOTE THAT LD.AR ALLEGED FOR EXCLUSION OF THIS COMPARABLE FOR NOT HAVING SEGMENTAL DETAILS. HOWEVER AT THE TIME O F DICTATION, WE FOUND THAT THERE WAS SEGMENTAL INFORMATION REGARDIN G REVENUE EARNED BY THIS COMPARABLE UNDER VARIOUS SEGMENTS. T HIS TRIBUNAL REMANDED THIS COMPARABLE TO LD.AO/TPO FOR VERIFICAT ION. 5. HOWEVER WHILE ARGUING PRESENT MISCELLANEOUS PETI TION, LD.AR SUBMITTED THAT THIS COMPARABLE ONLY HAS PROVI DED SEGMENTAL INFORMATION OF REVENUE WITHOUT APPORTIONI NG EXPENDITURE TO RELEVANT SEGMENTS. UNDER SUCH CIRCUM STANCES, LD.AO/TPO CONSIDERED THE ENTITY LEVEL FIGURES. HE S UBMITTED THAT, IN E LECTRONICS FOR IMAGING INDIA PVT. LTD., VS. DCIT FOR ASSESSMENT YEAR 2011-12 REPORTED IN [2017] 85 TAXMANN.COM 124 , THIS COMPARABLE WAS EXCLUDED BY OBSERVING THAT SE GMENTAL DETAILS WERE AVAILABLE ONLY IN RESPECT OF REVENUE W HEREAS SEGMENTAL INFORMATION OF EXPENDITURE HAS NOT BEEN P ROVIDED FOR IN THE ANNUAL REPORTS OF THIS COMPARABLE. 6. WE HAVE PERUSED THE DECISION RELIED BY LD.AR AND NOTE THAT THE ASPECT ON WHICH THIS TRIBUNAL REMANDED THIS COMPARABLE TO LD.AO/TPO, HAS BEEN CONSIDERED BY THIS TRIBUNAL IN E LECTRONICS FOR IMAGING INDIA PVT. LTD., VS. DCIT (SUPRA). PAGE 3 OF 9 M.P NO.96/BANG/2020 7. WE THEREFORE ARE OF THE OPINION THAT MISTAKE HAS CREPT IN WHILE DECIDING COMPARABILITY OF SASKEN COMMUNICATIO N TECHNOLOGIES LTD WITH THAT OF ASSESSEE. WE THEREFOR E AFTER CONSIDERING ANNUAL REPORT PLACED ON RECORD VIS--VI S FAR ANALYSIS OF ASSESSEE AND THE VIEW TAKEN BY COORDINATE BENCH OF THIS TRIBUNAL DECIDE THIS COMPARABLE IN FOLLOWING MANNER. HENCEFORTH FOLLOWING PARAGRAPHS WILL BE READ AS PAR AGRAPH ( C) AT PAGE 24 OF IMPUGNED ORDER ( C) SASKEN COMMUNICATION TECHNOLOGIES LTD. LD.AR SUBMITTED THAT, THIS COMPANY IS ENGAGED IN DEVELOPM ENT OF SOFTWARE PRODUCTS, AS IT HAS INVENTORIES, INTANGIBL E ASSETS AND ALSO BECAUSE IT HAS HIGH EXPENDITURE ON R&D, AND IS THER EFORE FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE. LD.AR PLACED RELIANCE ON DECISION OF THIS TRIBUNAL IN CASE OF ELECTRONICS FOR IMAGING INDIA PVT. LTD (SUPRA). WE FIND THAT AS PER ITS ANNUAL R EPORT, SASKEN DERIVES REVENUE FROM SOFTWARE PRODUCTS AND, WHAT IS MORE, EVEN LAUNCHED A NEW PRODUCT CALLED VYPAAR SEWA DURING FY 2010-11. FURTHER, AS CAN BE SEEN FROM ITS ANNUAL REPORT, R&D CONSTITUTES AN IMPORTANT PART OF THE OPERATIONAL AND FUNCTIONAL PR OFILE OF SASKEN. ALSO, AS SASKEN HAS SIGNIFICANT INTANGIBLES AND INV ENTORIES, THE ASSESSEE SUBMITS THAT IT OUGHT TO BE REJECTED AS A COMPARABLE. THUS, SASKEN HAS DIVERSE FUNCTIONS AND SEGMENTAL DE TAILS ARE NOT GIVEN SEPARATELY FOR THE VARIED ACTIVITIES IT IS EN GAGED IN. IT IS THUS SUBMITTED THAT THIS COMPARABLE OUGHT TO BE EXCLUDED FROM THE FINAL LIST. 8. WE REFER TO AND RELY ON THE OBSERVATIONS OF THIS TRIBUNAL IN CASE OF ELECTRONICS FOR IMAGING INDIA PVT. LTD (SUP RA) AS UNDER: ' (VI) SASKEN COMMUNICATIONS TECHNOLOGIES LTD: PAGE 4 OF 9 M.P NO.96/BANG/2020 15.1 THE TPO INCLUDED THIS COMPANY IN THE SET OF CO MPARABLES DESPITE THE ASSESSEE'S OBJECTION THAT IT WAS FUNCTIONALLY DIFFE RENT AND ALSO HAD PRODUCT PORTFOLIO. 15.2 AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FI ND FROM PAGE 58 OF THE TPO'S ORDER THAT HE HAS RECOGNIZED SALE OF SOFTWARE PRODUCTS TO THE TUNE OF RS. 37 CRORE AND ODD. THOUGH THE BREAK-UP OF REVENU E FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS IS AVAILABLE, BUT, T HE BREAK-UP OF OPERATING COSTS AND NET OPERATING REVENUES FROM THESE TWO SEG MENTS HAVE NOT BEEN GIVEN. IT IS FURTHER OBSERVED THAT THE TPO HAS TAKE N ENTITY LEVEL FIGURES FOR THE PURPOSES OF MAKING COMPARISON. SINCE SUCH ENTIT Y LEVEL FIGURES CONTAIN REVENUE FROM BOTH SOFTWARE SERVICES AND SOFTWARE PR ODUCTS, AS AGAINST THE ASSESSEE ONLY PROVIDING SOFTWARE SERVICES, WE A RE DISINCLINED TO TREAT THIS COMPANY AS COMPARABLE. THE ASSESSEE'S CONTENTI ON IS ACCEPTED ON THIS ISSUE.' WE FURTHER NOTE THAT THE HON'BLE HIGH COURT VIDE IT S DECISION DT.28.09.2016 HAS CONFIRMED THE DECISION OF THE DELHI BENCH OF IT AT. WE ARE AWARE THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF A PPLIED MATERIALS INDIA( P)LTD. (SUPRA) HAS REMITTED THE IS SUE OF FUNCTIONAL COMPARABILITY OF SASKEN COMMUNICATION TECHNOLOGIES LTD. THAT IN THE SAID CASE THE DRP DID NOT ADJUDICATE THE OBJECTIONS OF T HE ASSESSEE. THEREFORE IN VIEW OF THE DECISION OF THE DELHI BENCH OF THE TRIB UNAL IN THE CASE OF SAXINDIA ( P.)LTD. (SUPRA) WHICH HAS BEEN CONFIRMED BY THE H ON'BLE DELHI HIGH COURT, WE DIRECT THE TPO/AO TO EXCLUDE THESE TWO COMPANIES FROM THE SET OF COMPARABLES. 9. WE ALSO FIND THAT THIS TRIBUNAL IN FINASTRA SOFT WARE SOLUTIONS (INDIA) (P.) LTD. V. ACIT IN (2018) 93 TAXMANN.COM 460 (PARA 17); CYPRESS SEMI-CONDUCTOR TECHNOLOGY INDIA PVT. L TD. V. DCIT IN IT(TP)ANO.356/BANG/2016(PARA8); AND COMMSCOPE NETWO RKS (INDIA) PVT. LTD. V. ITO IN IT(TP)A NOS.166 AND 18 1/BANG/2016 (PARA 9) DIRECTED EXCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. 10. BASED ON THE ABOVE DISCUSSION AND ANALYSIS, WE ARE OF THE VIEW THAT, THIS COMPARABLE CANNOT BE COMPARED WITH A CONTRACT SERVICE PROVIDER LIKE ASSESSEE AND ACCORDINGLY DIRE CT LD. AO/TPO TO EXCLUDE THIS COMPANY FROM FINALIST. ACCORDINGLY THIS COMPARABLE STANDS EXCLUDED. 11. NEXT MISTAKE ALLEGED BY ASSESSEE IS IN RESPECT OF GROUND NO. 14 (A) WHEREIN ASSESSEE SOUGHT DELETION OF NEGATIVE WORKING PAGE 5 OF 9 M.P NO.96/BANG/2020 CAPITAL ADJUSTMENT CARRIED OUT BY LEARNT TPO WHILE DETERMINING A LP. IT HAS BEEN SUBMITTED THAT THIS TRIBUNAL WHILE ADJUDICATING THIS GROUND AT PAGE 28 OF THE ORDER OBSERVED THAT W ORKING CAPITAL ADJUSTMENT WAS RESTRICTED AT 1.63% AND THEREAFTER P ROCEEDED TO HOLD THAT WORKING CAPITAL ADJUSTMENT SHOULD BE PROV IDED ON ACTUAL RELYING ON COORDINATE BENCH DECISION IN CASE OF HUAWAI TECHNOLOGIES INDIA PVT. LTD REPORTED IN (2019) 101 TAXMANN.COM 313. 12. LD. A.R. SUBMITTED THAT ISSUE REGARDING NEGATIV E WORKING CAPITAL ADJUSTMENT CANNOT BE CARRIED OUT WHILE DETE RMINING ALP, HAS NOT BEEN DECIDED BY THIS TRIBUNAL IN THE IMPUGN ED ORDER. HE SUBMITTED THAT OBSERVATION OF THIS TRIBUNAL AT PAGE 28 OF IMPUGNED ORDER, IS BASED ON ERRONEOUS FACTS AND THE REFORE THERE IS A MISTAKE APPARENT ON RECORD. 13. LD. A.R. ALSO ALLEGED THAT ASSESSEE HAD SOUGHT FOR EXCLUSION OF 2 COMPANIES BEING EVOKE TECHNOLOGIES PRIVATE LIM ITED AND THINK SOFTWARE GLOBAL PRIVATE LIMITED WHICH HAS NOT BEEN ADJUDICATED BY THIS TRIBUNAL WHILE DECIDING GROUND 12.2 14. LD.SR.DR SUPPORTED THE ORDER PASSED BY THIS TRIBUNAL . 15. WE HAVE PERUSED THE RECORDS PLACED BEFORE US AN D FOUND THE SUBMISSIONS OF ASSESSEE TO BE TRUE. WE ACCORDINGLY RECALL ORDER DATED 19/03/2020 FOR TH E PURPOSES OF ADJUDICATING THE EXCLUSION OF 2 COMPARABLES ALLE GED BY ASSESSEE IN GROUND 12.2 AND FOR ADJUDICATING GROUND 14(A). 16. NEXT ISSUE ALLEGED BY LD.AR IS IN RESPECT OF GR OUND NO. 15 WHEREIN, IT IS POINTED OUT THAT SECTION 55 HAS BEEN MENTIONED WRONGLY AS AGAINST SECTION 50 B OF THE ACT AND THAT THIS TRIBUNAL FOR COMPUTATION OF SLUMP SALE DIRECTED LD. AO TO GR ANT PAGE 6 OF 9 M.P NO.96/BANG/2020 INDEXATION, WHICH IS NOT IN ACCORDANCE WITH PROVIS IONS OF SECTION 50 B. 17. HE SUBMITTED THAT THE ISSUE CONSIDERED BY THIS TRIBUNAL IN GROUND 15 RELATES TO SLUMP SALE OF WIRELESS DIVISIO N AND THIS TRIBUNAL WHILE CONCLUDING THIS GROUND DIRECTED TO VALUE AS PER SECTION 55 OF THE ACT. HE SUBMITTED THAT CORRECT S ECTION THAT NEEDS TO BE MENTIONED SECTION 50 B, INSTEAD OF PROV IDING INDEXATION, CAPITAL GAIN NEEDS TO BE COMPUTED IN A CCORDANCE WITH SECTION 45-50 OF THE ACT. 18. LD.SR.DR RELIED ON OBSERVATION OF THIS TRIBUNAL . 19. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES AND THE RECORDS PLACED BEFORE US. WE NOTE THAT THIS TRIBUNAL INADVERTENTLY MENTIONED SECTION 55 INSTEAD OF SECTI ON 50 B, AND WRONGLY DIRECTED GRANTING OF INDEXATION FOR COMPUT ING CAPITAL GAINS ON SLUMP SALE. IN ORDER TO RECTIFY THE MISTAK E THAT HAS CREPT IN, OBSERVATION OF THIS TRIBUNAL AT PAGE 37 STANDS RECTIFIED AS UNDER. HENCEFORTH CONCLUDING PARAGRAPH OF GROUND 1 5 AT PAGE 37 SHALL BE READ AS UNDER: WE THEREFORE DIRECT LD.AO TO COMPUTE THE QUANTUM O F CAPITAL GAINS IN ACCORDANCE WITH LAW AS SLUM SALE. LD. AO IS DIRECTED TO DECIDE THE COST OF THE UNDERTAKING FOR THE PURPOSE OF COMPUTING CAPITAL GAINS THAT IS ARISEN O N TRANSFER OF ASSET AS A GOING CONCERN AND IS DIRECTE D TO VALUE AS PER SECTION 50 B OF THE ACT. LD. AO IS ALSO DIRE CTED TO DECIDE THE DEPRECIATION ON THE BLOCK OF ASSETS AND CAPITAL GAIN HAS TO BE COMPUTED IN ACCORDANCE WITH SECTION 40-50 AND SECTION 50 B OF THE ACT. ACCORDINGLY WE ALLOW T HIS GROUND RAISED BY ASSESSEE. PAGE 7 OF 9 M.P NO.96/BANG/2020 20. THE NEXT ISSUE ALLEGED BY ASSESSEE IN MISCELLAN EOUS PETITION IS IN RESPECT OF GROUND NO.16 WHEREIN, DISALLOWANCE MADE BY LD.AO/TPO UNDER SECTION 40(A)(IA) OF THE ACT FOR NO N-DEDUCTION OF TDS. 21. LD.AR SUBMITTED THAT, AT THE OUTSET, ASSESSEE D EDUCTED TDS ON PAYMENT OF RS.1,161,710/- MADE TO SOFTWARE PRODU CTIVITY RESEARCH ASIA PACIFIC PTE LTD., WHICH HAS NOT BEEN CONSIDERED BY THIS TRIBUNAL WHILE CONSIDERING THIS ISSUE. IT HAS BEEN SUBMITTE D THAT ASSESSEE HAD FURNISHED FORM 15 CB, WHEREIN TA XES WITHHELD AT SOURCE HAS BEEN CERTIFIED. LD.AR REFERR ED TO PAGE 2306-2313 OF PAPER BOOK, WHEREIN RELEVANT INFORMATI ON HAS BEEN FILED. 22. WE HAVE VERIFIED RELEVANT DETAILS FILED BY LD.A R FROM RECORDS PLACED BEFORE US. 23. WE NOTE THAT DIRECTION TO THE EXTENT OF TAX DED UCTED BY ASSESSEE NEEDS TO BE GRANTED. ACCORDINGLY FOLLOWING PARAGRAPH SHALL BE READ IN PLACE OF EXISTING PARA AT PAGE 38 OF IMPUGNED ORDER: WE HAVE PERUSED SUBMISSION ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. PRIMARILY, THIS ISSUE IS AGAINST ASSESEE BY DECISIO N OF HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS. SAMSUNG ELECTRONICS LTD. (SUPRA). HOWEVER, LD.AR SUBMITTED THAT TDS HAS BEEN DEDUCTED ON PAYMENT MADE TO SOFTWARE PRODUCTIVITY RESEARCH ASIA PACIFIC PTE LTD. DETAILS OF THE TDS DEDUCTED IS FURNISHED BY ASSESSEE IN FORM 15CB. WE THEREFOR E DIRECTED LD.AO TO VERIFY THE SAME. IF CLAIM OF ASS ESSEE IS FOUND TO BE CORRECT, NO DISALLOWANCE SHOULD BE MADE TO THE PAGE 8 OF 9 M.P NO.96/BANG/2020 EXTEND, TDS IS DEDUCTED. ACCORDINGLY THIS GROUND R AISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH OCT, 2020. SD/- SD/- (B. R. BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 19 TH OCT, 2020. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL. BANGALORE. PAGE 9 OF 9 M.P NO.96/BANG/2020 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -10-2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -10-2020 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -10-2020 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -10-2020 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -10-2020 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -10-2020 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -10-2020 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS