Income Tax Appellate Tribunal - Bangalore
Mphasis Limited, Bangalore vs Cit, Bangalore on 1 June, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER
ITA No.653/Bang/2014
Assessment year : 2008-09
Mphasis Limited, Vs. The Commissioner of
Bagmane World Technology Centre, Income Tax,
Block B, 1st Floor, K R Puram, Bangalore III,
Marathalli ORR, Doddanekundi, Bangalore.
Bangalore - 560 048.
PAN: AAACB 6820C
APPELLANT RESPONDENT
Appellant by : Shri Padamchand Khincha, CA
Respondent by : Smt. Neera Malhotra, CIT(DR-II)(ITAT), Bengaluru.
Date of hearing : 14.05.2018
Date of Pronouncement : 01.06.2018
ORDER
Per N.V. Vasudevan, Judicial Member
This appeal by the assessee is against the order dated 25.02.2014 of the Commissioner of Income Tax-III, Bangalore ("the CIT") passed u/s. 263 of the Income-tax Act, 1961 ["the Act"].
2. The assessee is a company engaged in providing information technology services of developing computer software to its Associated Enterprise ("AE"). The assessee claimed deduction u/s. 10A/10B of the Act in respect of profits derived from manufacturing or producing computer software and exporting the same. The issue before the AO was as to whether deduction u/s. 10A/10B can be allowed in respect of onsite portion ITA No.653/Bang/2014 Page 2 of 4 of software development sub-contracted to AE. According to the revenue, when contract for development of software is done onsite, the same cannot be considered as done by the assessee. Since it was given on sub- contract to the AE, it is only the AE which can be considered as having carried out the software development activity through its personnel. Hence the revenue took the stand that profits & gains derived from contracts executed onsite by the assessee by sub-contracting the job of developing computer software to its AE outside India cannot be regarded as profits & gains derived by the assessee from the export of computer software outside India and to that extent deduction u/s 10A/10B of the Act should not be allowed. Accordingly, for the AY 2008-09 in an order of assessment u/s. 143(3) r.w.s. 144C of the Act, deduction u/s. 10A/10B was worked out by the AO.
3. The CIT in exercise of his powers u/s. 263 of the Act was of the view that the aforesaid order of the AO was erroneous and prejudicial to the interests of the revenue. According to the CIT, for working out the disallowance u/s. 10A/10B of the Act, the AO considered the ratio of expenditure in foreign currency for software development charges and total expenditure, whereas the disallowance should have been based on the ratio of software development charges with reference to the total software development expense. This was the basis on which the proceedings u/s. 263 of the Act were initiated. By the impugned order, the CIT directed the AO to pass a fresh order considering the stand taken by the CIT in the order u/s. 263 of the Act. Aggrieved by the aforesaid order of the CIT, the assessee has filed the present appeal before the Tribunal.
4. At the time of hearing it was brought to our notice that on identical grounds, proceedings u/s. 263 of the Act was initiated by the respondent in assessee's own case for the AY 2004-05 by an order dated 26.02.2014. The assessee challenged the aforesaid order of the CIT in that year before ITA No.653/Bang/2014 Page 3 of 4 the ITAT and the Tribunal was pleased to hold that the assessee was entitled to deduction u/s. 10A/10B of the Act even on revenue derived by developing software onsite by sub-contracting the work of software development to its AE outside India. Since the assessee was entitled to deduction u/s. 10A/10B of the Act even on revenue derived from onsite development work performed by the AE outside India, the question of restricting the disallowance u/s. 10A/10B of the Act did not arise for consideration. The Tribunal followed the decision of the coordinate Bench in assessee's own case in AY 2007-08 in ITA No.1209/Bang/2012, order dated 20.12.2013, wherein the Tribunal took the view that deduction u/s. 10A/10B of the Act should be allowed in respect of onsite portion of software development contracting to AE carried out outside India. The Tribunal accordingly quashed the order u/s. 263 of the Act for AY 2004-05.
5. It was brought to our notice that the order u/s. 263 passed by the CIT in AY 2004-05 and the impugned order of the CIT for AY 2008-09 are pari materia the same and is based on the similar facts and circumstances. It was also brought to our notice that the order of Tribunal for AY 2007-08 holding that assessee is entitled to deduction u/s. 10A/10B of the Act in respect of onsite portion of software development sub-contracting to AE executed outside India was also entitled to deduction u/s. 10A/10B of the Act has since been upheld by the Hon'ble High Court of Karnataka in CIT v. Mphasis Software & Services India Pvt. Ltd. (2015) 234 Taxman 732 (Kar).
6. In view of the above, we are of the view that the impugned order u/s. 263 of the Act for the present AY 2008-09 also deserves to be quashed, as the issue dealt with by the CIT in the impugned order has already been decided by the jurisdictional High Court in favour of the assessee. Consequently, the impugned order u/s. 263 of the Act is hereby quashed.
ITA No.653/Bang/2014 Page 4 of 47. In the result, the appeal of the assessee is allowed.
Pronounced in the open court on this 1st day of June, 2018.
Sd/- Sd/-
( INTURI RAMA RAO ) ( N.V. VASUDEVAN)
Accountant Member Judicial Member
Bangalore,
Dated, the 1st June, 2018.
/ Desai Smurthy /
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Senior Private Secretary
ITAT, Bangalore.