DCIT 6(2), MUMBAI v. C.A. (INDIA) TECHNOLOGIES P. LTD, MUMBAI

ITA 332/MUM/2009 | 2002-2003
Pronouncement Date: 22-02-2010 | Result: Dismissed

Appeal Details

RSA Number 33219914 RSA 2009
Assessee PAN AAACC4971S
Bench Mumbai
Appeal Number ITA 332/MUM/2009
Duration Of Justice 1 year(s) 1 month(s) 7 day(s)
Appellant DCIT 6(2), MUMBAI
Respondent C.A. (INDIA) TECHNOLOGIES P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 22-02-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 22-02-2010
Date Of Final Hearing 16-02-2010
Next Hearing Date 16-02-2010
Assessment Year 2002-2003
Appeal Filed On 15-01-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI T.R.SOOD (A.M) AND SHRI V.D.RAO(J.M) ITA NO.332/MUM/2009(A.Y.2002-03) THE DCIT CIR. 6(2) ROOM NO. 563 AAYKAR BHAVAN M.K.ROAD MUMBAI 20. (APPELLANT) VS. M/S. C.A (INDIA) TECHNOLOGIES PVT. LTD. GROUND FLOOR VIBGYOR TOWERS PLOT C-62 G- BLOCK BANDRA KURLA COMPLEX BANDRA (E) MUMBAI 51. PAN:AAACC 4971S (RESPONDENT) C.O. NO.133/MUM/2009 (ARISING OUT OF ITA NO.332/MUM/2009) A.Y. 2002-03 M/S. C.A (INDIA) TECHNOLOGIES PVT. LTD. GROUND FLOOR VIBGYOR TOWERS PLOT C- 62 G- BLOCK BANDRA KURLA COMPLEX BANDRA (E) MUMBAI 51. PAN:AAACC 4971S (CROSS OBJECTOR) VS. THE DCIT CIR. 6(2) ROOM NO. 563 AAYKAR BHAVAN M.K.ROAD MUMBAI 20. (APPELLANT IN APPEAL) REVENUE BY : SHRI YESHWANT U. CHAVAN RESPONDENT BY : SHRI. R.R.VORA ORDER PER T.R.SOOD A.M THIS IS AN APPEAL FILED BY THE REVENUE AGAINST ORDER PASSED BY THE LD. CIT(A) XIX MUMBAI DATED 4/11/2008 FOR THE ASSESSMEN T YEAR 2002-03 AND THE CROSS OBJECTION IS FILED BY THE ASSESSEE. 2. FIRST WE TAKE UP THE APPEAL FILED BY THE REVENU E. IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 1(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE BY THE ASSE SSING OFFICER IN RESPECT OF EXEMPTION CLAIMED U/S. 10A BY THE ASSESSEE WITHOUT APPRECIATING THAT THE ITA NO.332/M/09&CO 133/M/09 2 ASSESSEE HAD NOT PRODUCED ANY SEPARATE PROFIT & LOS S ACCOUNT IN RESPECT OF 10A UNIT DURING THE COURSE OF ASSESSMENT PROCEEDINGS. (B) THE LD. CIT(A) HAS ADMITTED ADDITIONAL EVIDENCE DURING THE APPELLATE PROCEEDINGS BY WAY OF PROFITS & LOSS ACCOUNT OF 10A UNIT IN VIOLATION OF RULE 46A OF INCOME TAX RULES. (C) THE LD. CIT(A) ERRED IN HOLDING THAT ROYALTY PA YMENT IN RESPECT OF WHICH ADJUSTMENT HAS BEEN MADE BY THE TRANSFER PRICING OF FICER HAS NO RELEVANCE FOR THE PURPOSE OF DETERMINATION OF PROFITS OF 10A UNIT . 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING EXEMPTION U/S. 10A TO THE ASSESSE E EVEN ON THE AMOUNT OF INCOME ENHANCED U/S. 92C WITHOUT APPRECIATING THE P ROVISIONS OF SECTION 92C(4) OF THE INCOME TAX ACT READ WITH FIRST PROVISO THERE TO. 2. AFTER HEARING BOTH THE PARTIES WE FIND THAT ORIG INALLY ASSESSMENT WAS COMPLETED U/S. 143(3) ON 21/3/2005. LATER ON IT WAS REOPENED ON THE BASIS THAT DEDUCTION UNDER SECTION 10A IN RESPECT OF CHENNAI UNIT HAD BEEN EXC ESSIVELY ALLOWED IN VIEW OF THE FACT THAT ENHANCED ARMS LENGTH PRICE HAD BEEN INCLUDED IN THE PROFITS AND UNDER THE HEAD PROFITS AND GAINS OF THE BUSINESS. IT WAS FURTHER OBSERVED THAT AS PER SUB-SECTION (4) OF SECTION 92C NO DEDUCTION UNDER SECTION 10A OR 10B S HALL BE ALLOWED IN RESPECT OF THE AMOUNT OF INCOME BY WHICH THE TOTAL INCOME OF THE A SSESSEE WAS ENHANCED. DURING THE ASSESSMENT PROCEEDINGS ON BEHALF OF THE ASSESSEE DE TAILED SUBMISSIONS WERE MADE VIDE LETTER DATED 2/11/2006. IT WAS MAINLY SUBMITT ED THAT THE ASSESSEE COMPANY WAS ENGAGED IN TWO TYPES OF BUSINESS NAMELY (A) DISTRIB UTION OF VARIOUS SOFTWARE PRODUCTS OF ITS PRINCIPAL I.E. COMPUTER ASSOCIATE(C.A) AND (B ) RUNNING OF AN UNDERTAKING AT TIDEL PARK A SOFTWARE TECHNICAL PART (STP) A UNIT IN C HENNAI AND PROFITS OF THIS STP UNITS WERE ELIGIBLE FOR TAX HOLIDAY UNDER SECTION 10. 3. IT WAS FURTHER EXPLAINED TO THE AO THAT ADJUSTME NT WAS MADE IN RESPECT OF ARMS LENGTH PRICE IN RESPECT OF DISTRIBUTION BUSINESS. IN THAT BUSINESS ASSESSEE WAS PAYING 30% ROYALTY TO THE PRINCIPAL. SOME BAD DEBTS WERE INCURRED AND IN THE ORIGINAL ITA NO.332/M/09&CO 133/M/09 3 ASSESSMENT AO EXPRESSED THE OPINION THAT WHY IN VIE W OF THE BAD DEBT THE PRICE PAID TO THE PRINCIPALS SHOULD NOT BE ADJUSTED AND ACCORDING LY ADJUSTMENT WAS MADE. THEREFORE THE ADJUSTMENT IN ARMS LENGTH PRICE WAS NOTHING B UT DIFFERENT WITH THE TECHNICAL SUPPORT CENTRE AT TIDEL PARK CHENNAI WHICH IS A SE PARATE UNDERTAKING. 4. THE A.O AFTER CONSIDERING THE SUBMISSIONS WAS NO T IMPRESSED. HE REFERRED TO THE PROVISO TO SECTION 92C(4) AND HELD THAT IN VIEW OF THE ADJUSTMENT THE DEDUCTION UNDER SECTION 10A HAS TO BE REDUCED AND ACCORDINGLY THE DEDUCTION WAS REDUCED. 5. BEFORE LD. CIT(A) SIMILAR SUBMISSIONS WERE REITE RATED AND LD. CIT(A) AFTER EXAMINING THE SUBMISSIONS ALLOWED THE DEDUCTION UND ER SECTION 10A. 6. BEFORE US LD. D.R RELIED ON THE GROUNDS OF APPEA L AND ORDER OF A.O. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE REITERATED T HE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND AGAIN EMPHASIZED THAT ADJUST MENT UNDER SECTION 92C IN THE ORIGINAL ASSESSMENT WAS MADE ONLY IN RESPECT OF BU SINESS FOR DISTRIBUTION OF SOFTWARE PRODUCTS WHERE ASSESSEE WAS PAYING 30% ROYALTY TO ITS MEMBERS. HE MENTIONED THAT EVEN THAT ADJUSTMENT HAS ALSO BEEN DELETED BY THE T RIBUNAL. IN ANY CASE THE DEDUCTION UNDER SECTION 10A IS AVAILABLE IN RESPECT OF EACH O F THE UNDERTAKING RUN BY THE ASSESSEE WHICH ARE ELIGIBLE FOR THAT PURPOSE AS PER THE PROV ISIONS OF SECTION 10A. IN CASE BEFORE US THE ASSESSEE WAS ALSO RUNNING A SEPARATE UNDERTA KING FOR DEVELOPMENT OF SOFTWARE ETC. IN TIDEL PARK CHENNAI WHICH WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A AND THEREFORE THE SAME COULD NOT BE REDUCED WITH REFER ENCE TO OTHER BUSINESS. 7. HE ALSO SUBMITTED THAT REVENUE HAS ALSO POINTED OUT IN THE GROUNDS OF APPEAL THAT SINCE NO SEPARATE ACCOUNTS WERE BEING MAINTAI NED THEREFORE PROFITS WERE COMBINED AND DEDUCTION UNDER SECTION 10A WAS RIGHTL Y DENIED BY THE A.O. HE ARGUED THAT THIS IS NOT CORRECT. IN THIS RESPECT HE REFER RED TO PAGE 1 TO 5 OF THE PAPER BOOK ITA NO.332/M/09&CO 133/M/09 4 WHICH IS COPY OF THE COMPUTATION OF INCOME WHICH C LEARLY SHOWS THAT DEDUCTION UNDER SECTION 10A WAS WORKED OUT AT RS.1 79 85 729/- AND THIS FIGURE IS BASED ON SEPARATE P&L ACCOUNT AND SAME WAS ACCORDINGLY CERTIFIED IN F ORM NO.56F COPY OF WHICH IS PLACED AT PAGE- 6 OF THE REPORT. HE FURTHER REFERR ED TO PAGE 29 WHICH IS COPY OF THE LETTER DATED 8/11/2006 ADDRESSED TO AO IN WHICH IT IS CLEARLY MENTIONED THAT COPY OF THE P&L ACCOUNT PERTAINING TO SOFTWARE TECHNICAL PARK UNIT IN CHENNAI WAS ENCLOSED. THIS CLEARLY SHOWS THAT SEPARATE P&L ACCOUNT WERE PREPAR ED AND FURNISHED BEFORE THE A.O DURING THE ASSESSMENT PROCEEDINGS. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND FORCE IN THE SUBMISSIONS OF LD. COUNSEL FOR THE ASSESSEE. THIS ISSUE HAS BEEN ADJUDICATED BY CIT(A) VIDE PARA 4.14 WHICH IS AS UNDER:- I HAVE PERUSED THE ASSESSMENT ORDER AS WELL AS THE WRITTEN SUBMISSIONS OF THE APPELLANT. THE A.O HAS RESTRICTED THE DEDUCTION U /S. 10A TO RS.23 54 372/- BASED ON THE COMBINED READING OF PROVISO OF SECTION 92C(4) AND SEC. 10A OF THE I.T. ACT 1961. HE HAS TAKEN THE STAND THAT THE DE DUCTION U/S. 10A OF THE ACT CAN NOT BE ALLOWED ON THE AMOUNT WHICH HAS BEEN ENHANCE D CONSEQUENT TO TRANSFER PRICING ADJUSTMENTS. HOWEVER HE HAS MISSED A VITA L POINT THAT THE ADJUSTMENT UNDER THE TP WAS MADE IN RESPECT OF BUSINESS OF DIS TRIBUTION OF PRODUCT CARRIED OUT BY NON STP UNIT OF THE APPELLANT AND NO DEDUCTI ON U/S. 10A OF THE ACT WAS CLAIMED BY THE APPELLANT IN THE FIRST PLACE IN RES PECT OF THIS ACTIVITY. THE DEDUCTION U/S. 10A OF THE ACT IS IN RESPECT OF AN UNDERTAKING WHICH IS DISTINCT FROM THE COMPANY WHICH OWNS THE UNDERTAKING. THE U NDERTAKING IN THE PRESENT CASE IS CHENNAI UNIT WHICH IS REGISTERED AS A STP U NIT ENGAGED IN PROVIDING TECHNICAL SUPPORT. THE CHENNAI UNIT HAS NO ROLE IN THE BUSINESS OF DISTRIBUTION OF PRODUCT IN RESPECT OF WHICH ROYALTY WAS PAID TO AS SOCIATED ENTERPRISES (CAMI) WHICH WAS SUBJECTED TO TRANSFER PRICING ADJUSTMENTS . THE VARIOUS REVENUES STREAMS OF THE APPELLANT HAS ALSO BEEN HIGHLIGHTED IN PARA 4.9 OF THE SUBMISSIONS AND IT IS OBSERVED THAT IT IS SEPARATE FROM THE CHE NNAI UNIT ON WHICH DEDUCTION U/S. 10A WAS CLAIMED BY THE APPELLANT. THE APPELLA NT HAVE ALSO FILED A COPY OF THE PROFIT AND LOSS ACCOUNT PERTAINING TO THE CHENN AI UNIT AND IT IS OBSERVED THAT NO ROYALTY HAS BEEN CLAIMED AS EXPENDITURE WHILE CO MPUTING ITS PROFIT. A UNIT MAY BE ENTITLED TO EXEMPTION U/S. 10A AND C AN ALSO BE SUBJECTED TO TP SCRUTINY IN RESPECT OF THE INTERNATIONAL TRANSACTIO NS WITH ITS AE BY THIS UNIT AND IN CASE CERTAIN ENHANCEMENTS ARE MADE IN IT THEN IT (U NIT) IS BARRED FROM CLAIMING EXEMPTION U/S. 10A IN RESPECT OF THOSE ADJUSTMENTS. THIS IS THE INTENT AND ITA NO.332/M/09&CO 133/M/09 5 PURPOSE OF PROVISO TO SECTION 92C(4). SINCE IN TH E PRESENT CASE NO TP ADJUSTMENT HAS BEEN MADE AS REGARDS THIS CHENNAI UN IT WHICH IS OTHERWISE ENTITLED TO EXEMPTION U/S. 10A THE QUESTION OF RED UCING THIS EXEMPTION OWING TO ENHANCEMENTS MADE ELSEWHERE IS NOT IN ACCORDANCE WI TH THE LAW AND HENCE THE AO IS DIRECTED TO ALLOW EXEMPTION U/S.10A AS PER TH E ACT WITHOUT REDUCTION. THIS GROUND OF THE APPELLANT IS ALLOWED. 8.1 WE AGREE WITH THE REASONING GIVEN BY LD. CIT(A) . FURTHER AS IS CLEAR FROM THE LETTER DATED 8/11/2006 COPY OF WHICH IS PLACED AT PAGE 29 THAT ASSESSEE WAS MAINTAINING SEPARATE ACCOUNTS AND EVEN COPY OF THE P&L ACCOUNT IN RESPECT OF SOFTWARE TECHNICAL PARK UNIT WAS FURNISHED TO THE A O. MOREOVER DEDUCTION UNDER SECTION 10A IS AVAILABLE IN RESPECT OF VARIOUS UNDE RTAKINGS WHICH ARE ELIGIBLE UNDER THAT SECTION AND AS HELD BY LD. CIT(A) UNDERTAKING IS D IFFERENT FROM THE ASSESSEE BECAUSE AN ASSESSEE MAY HAVE DIFFERENT BUSINESS UNDERTAKING S. WE AGREE WITH THE FINDING OF LD. CIT(A) THAT ADJUSTMENT MADE IN RESPECT OF TRANSFER PRICING WAS AGAIN ALTOGETHER DIFFERENT BUSINESS WHICH WAS DEALING WITH SALE OF COMPUTER SO FTWARE PRODUCTS. IN THIS CIRCUMSTANCES WE FIND NOTHING WRONG WITH FINDING OF THE LD. CIT(A) AND CONFIRM THE SAME. 9. IN THE RESULT REVENUES APPEAL IS DISMISSED. C.O NO .133/MUM/2009: 10. IN THIS CROSS OBJECTION ASSESSEE HAS RAISED TH E FOLLOWING GROUND. 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN NOT HOLDING THE REASSESSMENT PROCEEDINGS UNDER SECTION 148 OF THE I NCOME TAX ACT 1961 TO BE BAD IN LAW. 11. AFTER HEARING BOTH PARTIES WE FIND THAT WHILE A DJUDICATING THE REVENUES APPEAL WE HAVE ALREADY DECIDED THE ISSUE AGAINST THE REVENUE I.E. IN FAVOUR OF THE ASSESSEE ITA NO.332/M/09&CO 133/M/09 6 THEREFORE THE ISSUE REGARDING REOPENING OF THE ASS ESSMENT IS ONLY OF ACADEMIC IN NATURE AND DOES NOT REQUIRE SEPARATE ADJUDICATION. 12. IN THE RESULT CROSS OBJECTION IS DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED ON THE 22 ND DAY OF FEB.2010. SD/- SD/- (V.D.RAO) (T.R.SOOD) JUDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI DT. 22 ND FEB.2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT(A)CONCERNED 4. THE CIT CONCERNED. 5. THE D.RL1 BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR I TAT MUMBAI BENCHES MUMBAI. VM. ITA NO.332/M/09&CO 133/M/09 7 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER ITA NO.332/M/09&CO 133/M/09 8