Income Tax Appellate Tribunal - Chandigarh
Acit, C-5(1), Chandigarh vs M/S Ids Infotech Ltd., Chandigarh on 4 February, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH'B', CHANDIGARH
BEFORE MS. DIVA SINGH, JUDICIAL MEMBER AND
MS. ANNAPURNA GUPTA , ACCOUNTANT MEMBER
ITA No.352/Chd/2018
Assessment Year: 2011-12
M/s I DS I nfotech Ltd. Vs. The Asstt. CI T
Plot No. 1-8, RGCTP Circle-5(1)
Chandigarh Chandigarh
PAN No. AAACI 4364E
ITA No.442/Chd/2018
Assessment Year: 2011-12
The Asstt. CI T. Vs. M/s I DS I nfotech Ltd.
Circle-5(1) Plot No. 1-8, RGCTP
Chandigarh Chandigarh
(Appellant) (Respondent)
Assessee By : Shri. Tej Mohan Singh
Revenue By : Sm t. Chandrakanta
Date of hearing : 05/12/2018
Date of Pronouncement : 04/02/2019
ORDER
PER BENCH The impugned cross appeals filed by the Assessee and the Revenue respectively are against the order of the Ld. Commissioner of Income Tax (Appeals) -2, Chandigarh(in short referred to as CIT(A), dt. 24/01/2018 , passed u/s 250(6) of the Income Tax Act,1961 (hereinafter referred to as "Act").
We shall first be taking up the Revenues appeal in ITA No. 442/Chd/2018.
2. Ground No. i) to iv) raised by the Revenue, it was stated by the Ld. DR, related to the same issue of adjustment made by determining the Arms Length Price of International Transaction undertaken by the assessee u/s 92 of the Act and the sole grievance of the Revenue it was pointed out was against allowing the foreign entity to be treated as tested party for the purpose of determining the Arms length price of International transactions undertaken by the assessee. All the grounds were therefore taken up together for hearing and they read as under;
(i) Whether on the facts and circumstances of the case, the Ld. CIT(A) has 2 not erred in directing to take foreign entity as a tested party when foreign entity is complex entity based on FAR analysis and both UN and OECD transfer and pricing guidelines mandate that the tested party be the least complex entity.
ii) Whether on the facts and circumstances of the case, the Ld. CIT(A)has not erred in directing to take foreign entity as a tested party when there was no insufficient data and information of the comparable companies when the assessee has chosen a foreign entity as a tested party and when the Indian AE has low margin as compared to the comparable set and comparable set has similar FAR (Functional assets and risk Analysis) as the assessee.
iii) Whether on the facts and circumstances of the case, the Ld. CIT(A)has not erred in directing to take foreign entity as a tested party when there is insufficient data and information with no reliable data either for itself or comparables which could be used without significant adjustment, and it is difficult to reliably isolate its financials with respect to intercompany transactions.
iv) Whether on the facts and circumstances of the case, the Ld. CIT(A) has not erred in directing to take foreign entity as a tested party when foreign entity did not meet any of the attributes laid down by UN manual or OECD guidelines for transfer pricing i.e. availability of reliable and accurate data, least complex entity and that data could be used with minimum adjustments.
4. Brief facts relating to the issue as pointed out from the order of the CIT(A) are that the assessee company had entered into international transactions with its associated enterprise. The case was referred to TPO u/s 92CA(1) of the I.T. Act. The TPO passed order u/s 92CA and made adjustment of Rs. 1,18,52,149/- on account of the following transactions:
a) Provision of IT/IT enabled services Rs.1,13,54,000/-
b) Interest on receivables Rs2,39,149/- c) Excess charge out of mark-up to IDS-A Rs.2,59,000/- Total Rs.1,18,52,149/-
5. During assessment proceedings the assessee was asked to show cause as to why Transfer Pricing Adjustment of Rs. 1,18,52,149/-made by the TPO should not be applied in its case. The assesee could not present any forceful submission to rebut the TPO's calculations. Hence, Assessing Officer relying on transfer pricing adjustment of Rs. 1,18,52,149/-, made on addition of Rs. 1,18,52,149/- to the returned income of the assessee.
6. Before the Ld.CIT(A) the assessee did not press the adjustment made on account of Interest receivables while the rest it was pointed out had been decided by the ITAT in favour of the assessee in A.Y 2010-11,wherein identical adjustment had been made. Ld. CIT(A) accordingly deleted the adjustment 3 made on account of Provision of IT/IT enabled services and excess charge out of mark up to IDS-A on finding that identical issue had arisen in the case of the assessee for A.Y. 2010-11 also and had travelled up to the ITAT wherein the matter was decided in favour of the assessee vide order in ITA No. 130/Chd/2016 dt. 09/03/2017.
7. Before us the Ld. DR fairly conceded that the fact and the issue involved in the present case were identical to that in A.Y. 2010-11 also in the case of the assessee which had been decided in favour of the assessee by the ITAT. Our attention was drawn to the findings of the ITAT in the said case reproduced at para 6.2 of the CIT(A)'s order ,wherein it had upheld the act of the assessee in treating the foreign entity as the tested party for determining the Arms Length Price of the International Transaction undertaken. The Ld. DR though relied on the order of the AO/ TPO.
8. Ld. Counsel for the Assessee on the other hand relied on the order of the Ld. CIT(A) pointing out that the issue was squarely covered by the decision of the ITAT in the case of the assessee itself for A.Y. 2010-11.
9. Having heard the rival contention we find no infirmity in the order of the Ld. CIT(A). Admittedly identical issue had arisen in the case of the assessee in A.Y. 2010-11 which was decided in favour of the assessee by the ITAT vide their order in ITA No. 130/Chd/2016 dt. 09/03/2017 categorically holding that the foreign party could be treated as a tested party. Ld. DR has been unable to point out any distinguishing fact in the present case. Since this is the sole grievance of the Revenue in the grounds raised before us, We see no reason to interfere in the order of the Ld. CIT(A) deleting the addition made on account of Transfer Pricing Adjustment.
Ground of appeal No. i) to iv) raised by the Revenue are therefore dismissed.
10. Ground No. v) & vi) raised by the Revenue read as under:
v) Whether on the facts and circumstances of the case, the Ld.CIT(A) has not erred in deleting the disallowance of Rs.6,04,18,007/- made on account of non deduction of TDS on commission , legal and professional charges, marketing and selling expenses, out sourcing and business development expenses and holding that TDS was not required to be deducted relying upon ITAT order wherein the Hon'ble ITAT had refused to adjudicate that services rendered were in the nature of fees for technical services and required TDS thereon and disallowance u/s 40(a)(ia) as such the order is perverse and arbitrary
vi) Whether on the facts and circumstances of the case, the Ld. CIT(A) has not erred in deleting the addition of Rs. 6,04,18,007/- which was made by invoking the provisions of Section 40(a) (ia) as the assessee has failed to deduct tax at sources u/s 195 of the Act on the payments made to non residents without appreciating 4 the fact that income accrued in India as per the provisions of Section 9(l)(vi) of the IT. Act, 1961.
11. Brief fact relevant to the issue as emerging from the order of the CIT(A), are that the assessee company was receiving software related services and professional services and was making payments on account of professional services, technical services, marketing and selling expenses, consulting services, software usage expenses to various companies abroad which were its associated enterprises. The Assessing Officer noted that the assesee had made payments amounting to Rs. 6,04,18,007/- to various companies without deducting TDS. As the assessee company has failed to deduct TDS on the said payments, the assessing officer disallowed the expenditure of Rs. 6,04,18,007/- under section 40(a)(ia) on account of commission, legal and professional charges, marketing and selling expenses and business development expenses.
12. Ld. CIT(A) decided the issue in favour of the assessee on finding that identical issue had arisen in the case of the assessee for A.Y. 2009-10 and 2010- 11 which had travelled up to the ITAT wherein it was decided in favour of the assessee vide order in ITA no. 52/Chd/2016 dt. 24/05/2016 and 130/Chd/2016 dt. 14/12/2016 respectively.
13. Before us Ld. DR relied on the order of the Assessing Officer though fairly conceded that the issue and the facts in the present case were identical to that in the case of the assessee for A.Y. 2009-10 and 2010-11 which had been decided in favour of the assessee by the ITAT and followed by the Ld. CIT(A).
14. Ld. Counsel for the assessee relied on the order of the Ld. CIT(A) and drew our attention to para 9.2 of the order wherein the findings of the ITAT on the impugned issue in the case of the assessee for A.Y 2009-10 were reproduced .
15. In view of the above we do not see any reason to interfere in the order of the Ld.CIT(A).Admittedly identical issue had arisen in the case of the assessee in A.Y. 2009-10 & 2010-11, which was decided in favour of the assessee by the ITAT vide their order in ITA No. 52/Chd/2016 dt.24-05-16 &ITA No. 130/Chd/2016 dt. 09/03/2017 respectively.. Ld. DR has been unable to point out any distinguishing fact in the present case. We therefore uphold the order of the Ld. CIT(A) deleting the addition of Rs.6.04,18,007/- made u/s 40(a)(ia) of the Act.
Ground of appeal No. v) and vi) raised by the Revenue are therefore dismissed.
16. Ground No. vii) raised by the Revenue reads as under:
5vii) Whether on the facts and circumstances of the case, the Ld.CIT(A) has erred in law as well as on the facts in deleting the addition of Rs. 5,22,317/- made by the AO by invoking the provisions of Section 36(i)(iii) of the Act in view of Judgment of Abhishek Industries Ltd. (2006) 286 ITR 1(P&H) without appreciating the fact that commercial expediency as envisaged by the Hon'ble Supreme Court in the case of M/s Hero Cycles Pvt. Ltd. Vs CIT 379 ITR 347 (SC) has not been proved by the assessee.
17. Brief facts relevant to the issue are that the AO noted that the assessee had claimed financial charges of Rs.78,54,000/- and also shown loans of Rs. 10,24,45,000/- in the balance sheet while at the same time the assessee had made investments amounting to Rs. 1,59,90,000/-. The AO further noted that in the A.Y. 2004-05, proportionate interest was disallowed and added to the returned income of the assessee and no appeal against the order has been preferred and also that in A.Y. 2009-10 & A.Y. 2010-11 also the proportionate interest on the funds diverted for the non business purpose was disallowed and the addition was upheld by the Ld. CIT(A). Also, the assessee itself had added back notional interest on loan to subsidiary amounting to Rs. 4,99,407/- in its computation. In view of the said facts and circumstances, interest amounting to Rs. 10,21,724/- was disallowed by the AO on proportionate basis u/s 36(1)(iii) of the Act. Taking into account the notional interest already added to income by the assessee the balance amount of Rs. 5,22,317/- (Rs. 10,21,724- Rs.4,99,407) was added back to the returned income of the assessee.
18. Ld. CIT(A) decided the issue in favour of the assessee on finding that idencial issue had arisen in the case of the assessee for A.Y. 2009-10 and 2010-11 which had travelled up to ITAT wherein it was decided in favour of the assessee vide their order in ITA no. 52/Chd/2016 dt 24/05/2016 and ITA No.130/Chd/2016 dt. 14/12/2016 respectively.
19. Before us Ld. DR relied on the order of the Assessing Officer though fairly conceded that the issue and the facts in the present case were identical to that in the case of the assessee for A.Y. 2009-10 and 2010-11 which had been decided in favour of the assessee by the ITAT and followed by the Ld. CIT(A).
20. Ld. Counsel for the assessee relied on the order of the Ld. CIT(A) and drew our attention to para 8.2 of the order wherein the findings of the ITAT on the impugned issue in the case of the assessee for A.Y 2009-10 were reproduced .
21. In view of the above we do not see any reason to interfere in the order of the Ld.CIT(A).Admittedly identical issue had arisen in the case of the assessee in A.Y. 2009-10 & 2010-11, which was decided in favour of the assessee by the ITAT 6 vide their order in ITA No. 52/Chd/2016 dt.24-05-16 &ITA No. 130/Chd/2016 dt. 09/03/2017 respectively.. Ld. DR has been unable to point out any distinguishing fact in the present case. We therefore uphold the order of the Ld. CIT(A) deleting the addition of Rs.5,22,317/- made u/s 36(1)(iii) of the Act.
Ground of appeal No. vii) raised by the Revenue is therefore dismissed.
22. Ground No. viii) raised by the Revenue reads as under:
(viii) Whether on the facts and circumstances of the case, the Ld. CIT(A) has not erred in deleting the addition of Rs. 66,92,194/- which was made by invoking the provisions of Section 40(a)(iii)/40(a)(ia) as the assessee has failed to deduct tax at sources on the salary payments made to non residents without appreciating that income accrued in India.
23. Brief facts relevant to the issue are that during the course of assessment proceedings the AO noted that the assessee company had made payment of salaries to persons outside India. The provisions of section 40(a)(iii) were held applicable as no Tax at Source had been deducted on the same. The assessee was asked to show cause why these payments should not be disallowed and the assessee submitted that these payments had been made for services rendered outside India and TDS was not applicable on the same. The plea taken by the assessee was not accepted by the AO and applying the provisions of section 40(a)(iii) the payments made outside India and to a non resident as salary amounting to Rs. 66,92,194/- was disallowed and added back to the income of the assessee.
24. Ld. CIT(A) decided the issue in favour of the assessee on finding that identical issue had arisen in the case of the assessee for A.Y. 2009-10 and 2010- 11 which had travelled up to ITAT wherein it was decided in favour of the assessee vide order no. 52/Chd/2016dt 24/05/2016 and 130/Chd/2016 dt. 14/12/2016.
25. Before us Ld. DR relied on the order of the Assessing Officer though fairly conceded that the issue and the fact in the present case were identical to that in the case of the assessee for A.Y. 2009-10 and 2010-11 which had been decided in favour of the assessee by the ITAT and followed by the Ld. CIT(A).
26. Ld. Counsel for the assessee relied on the order of the Ld. CIT(A) and drew our attention to para 10.2 of the order wherein the findings of the ITAT on the impugned issue in the case of the assessee for A.Y 2010-11 (incorrectly mentioned as A.Y 2009-10) were reproduced .
727. In view of the above we do not see any reason to interfere in the order of the Ld.CIT(A).Admittedly identical issue had arisen in the case of the assessee in A.Y. 2010-11, which was decided in favour of the assessee by the ITAT vide their order in ITA No. 130/Chd/2016 dt. 09/03/2017. Ld. DR has been unable to point out any distinguishing fact in the present case. We therefore uphold the order of the Ld. CIT(A) deleting the addition of Rs.66,92,194/- made u/s 40(a)(iii) of the Act.
Ground of appeal No. viii) raised by the Revenue is therefore dismissed.
28. Ground No. ix) raised by the Revenue reads as under:
(ix) Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in law as well as on the facts in deleting the addition of Rs. 19,27,755/- made by the Assessing Officer on account of additional depreciation on computers by ignoring the fact that the computers are not a part of the plant & machinery in the assessee's business.
29. Brief fact relevant to the issue are that assessee company was doing business of export of information technology, technology services and software development, and had claimed additional deprecation on computers which was disallowed by the A.O on the ground that the definition of block of assets was a group of assets having the same percentage of prescribed depreciation and the A.O noted that the assessee had shown plant and machinery and computers and software under separate blocks in which machinery and plants were entitled to deprecation @ 15% and computers and computer software @ 60%.The A.O held that additional depreciation was available to plant and machinery and not to computer and software as the same had not been used in the production/manufacture of an article/things. The A.O further held that computers were merely used in processing of data or preparing software which was not manufacturing new article/things and therefore additional depreciation of Rs. 19,27,755/- was disallowed.
30. The Ld. CIT(A) allowed the assesses claim of additional depreciation on computers, on finding that similar disallowance made in the case of the assessee for A.Y. 2009-10 was deleted in appeal by the Ld. CIT(A)-2, Chandigarh vide order no. 888/ 13-14 dt. 14/12/2015 following the decision of the Hon'ble Gujarat High Court in the case of CIT Vs. Statronics & Enterprises Pvt. Ltd. (2007) 288 ITR.
31. Before us the Ld. DR relied on the order of the Assessing Officer. While the Ld. Counsel for the assessee heavily relied on the order of the Ld. CIT(A) and the 8 decision of the Hon'ble Gujarat High Court in the case of Statronics & Enterprises Pvt. Ltd. (supra). Our attention was drawn to the findings of the Ld.CIT(A) in A.Y 2009-10 reproduced at para 7.2 of the order of the CIT(A).
32. We have heard the rival contentions and perused the orders of the authorities below. The Ld. CIT(A) has allowed the assessee's claim of additional depreciation on computers following the decision of the Hon'ble Gujarat High Court in this regard. Ld. DR has neither brought to our notice any contrary decision of the Hon'ble jurisdictional High Court or the Hon'ble Apex court on the issue, nor has any distinguishing fact been pointed out to us to show the inapplicability of the said decision to the facts of the present case. We therefore see no reason to interfere in the order of the Ld. CIT(A) allowing assessees claim of additional depreciation on computers amounting to Rs.19,27,755/-.
Ground of appeal no.viii) raised by the Revenue is therefore dismissed.
33. As a result, the appeal of the Revenue is dismissed.
We shall now be taking up assessees appeal in ITA No. 352/Chd/2018
34. The sole ground raised by the assessee reads as under:
1. That the Ld. CIT(Appeals) has erred in law as well as on facts in upholding the addition of Rs. 14,34,464/-made on account of non deduction of TDS on rental payments applying the provisions of Section 40a(ia) of the Act which are not attracted and as such the addition upheld is arbitrary and unjustified.
35. Brief facts relevant to the issue are that the assessee has made rent payments amounting to Rs. 14,34,464/- without deducting any tax at source thereon. The assessee, during assessment proceedings, was asked as to why the said expenditure should not be disallowed for non deduction of TDS. The assessee in this regard submitted that Rent was apportioned among the family members and the limit u/s 194 I was not surpassed, so TDS was not deducted. The reply of the assessee was rejected by the AO stating that the assessee had not produced any proof that these payments were further bifurcated and holding thus that the limit of Rs. 1,80,000/- for deduction of tax at source had been clearly surpassed. An amount of Rs. 14,34,464/- was as a consequence disallowed and added back to the income of the assessee.
36. Before the Ld. CIT(A) the assessee contended the identical issue had arisen in the case of the assessee for A.Y. 2009-10 also wherein the assessee's claim had been allowed. The Ld. CIT(A) found that while in that case the assessee had produced proof that the payment of rent was bifurcated and on 9 account of which they fell below the prescribed limit for the purpose of deduct of tax at source under section 194 I of the Act no such proof that the payment were bifurcated was produced in the present case. The Ld. CIT(A) therefore held that the decision of the ITAT in A.Y. 2009-10 would not apply to the facts of the present case . The CIT(A) further noted that in A.Y 2009-10 the lease deeds were before the AO and therefore the matter had been restored back to him. The Ld. CIT(A) therefore upheld the disallowance in the absence of details and evidence to substantiate the claim of the assessee.
37. Before us Ld.Counsel for the assessee contended that the CIT(A) had inadvertently mentioned A.Y 2009-10 as the year in which the issue was decided by the ITAT while the fact was that the said issue had been decided in A.Y 2010-
11.Our attention was drawn to the copy of the order of the ITAT in A.Y 2010-11 and more specifically to para 38-48 wherein it was dealt with. Further it was contended that the facts in the impugned year were identical to that in A.Y 2010-11 with the payments having been made to the same parties by virtue of the same lease deed and therefore in the impugned year also the direction of the ITAT in A,Y 2010-11 would apply.
38. Ld.DR was unable to controvert the factual contentions of the LD.Counsel for the assessee but relied on the order of the CIT(A)
39. Considering the above fact as pointed out by the Ld.Counsel for the assessee which the Ld.DR was unable to controvert, we see no reason why the findings of the ITAT in A,Y 2010-11 should not apply in the impugned year also. The ITAT we find had held in A.Y 2010-11, after going through the contents of the lease agreement that there were several coowners of the property and the rental income therefore belonged to the said coowners in their agreed proportion. The ITAT had thereafter restored the issue to the AO to determine the rental income attributable to each coowner and thereafter determine whether the assessee was liable to deduct tax as per the provisions of section 194I of the Act failing which the provisions of section 40(a)(ia) be applied. The relevant findings of the ITAT at para 47-48 of the order are as under:
"47. It is evident from the said lease deeds, which was there even before the Assessing Officer, that there are several co-owners of the properties which have been taken on lease by the assessee and rent paid thereon.
The income in such circumstances cannot, therefore, be said to be the income of the recipient of the rent only. When they have received the same only on behalf of other co-owners the rent paid constitutes the income of 10 all the co-owners and the same is to be apportioned among them as per the method prescribed, if any, in the lease agreement or in proportion of their co-ownership and thereafter only if the rental income in the case of any co-owners exceeds the prescribed limit for the purpose of deduction of tax u/s 194I of the Act, the tax is to be deducted at source.
48. In the light of the above, we, therefore, restore the matter back to the Assessing Officer to apportion the rental income in the hands of the co-owners as per legally permissible, determine the rental income attributable to each co-owner and thereafter apply the provisions of section 194(I) of the Act to the same as also the provisions of section 40(a)(i a) of the Act for non deduction of tax, if found in any case. This ground of appeal No.5 of the assessee is, therefore, allowed for statistical purposes."
40. Since the facts admittedly are identical in the present case, the decision rendered in A.Y 2010-11 will squarely apply in the present case following which we restore the issue to the AO to be decided in the light of the directions given by the ITAT in A.Y 2010-11. The ground raised by the assessee is accordingly allowed for statistical purposes.
41. In effect the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court.
Sd/- Sd/-
दवा संह अ नपूणा ग ु ता
(DIVA SINGH ) (ANNAPURNA GUPTA)
याय क सद य/Judicial Member लेखा सद य/Accountant Member
दनांक /Dated: 4th February, 2019
AG
आदे श क त ल प अ े षत/ Copy of the order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आयु त/ CIT
4. आयकर आयु त (अपील)/ The CIT(A)
5. वभागीय त न ध, आयकर अपील!य आ धकरण, च$डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड' फाईल/ Guard File
आदे शानस
ु ार/ By order,
सहायक पंजीकार/ Assistant Registrar