DCIT., Central Circle-2(3), Hyderabad, Hyderabad v. M/s Sentini Technologies Private Limited, Hyderabad

ITA 1916/HYD/2014 | 2009-2010
Pronouncement Date: 30-04-2015

Appeal Details

RSA Number 191622514 RSA 2014
Assessee PAN AAFCS7501L
Bench Hyderabad
Appeal Number ITA 1916/HYD/2014
Duration Of Justice 4 month(s) 7 day(s)
Appellant DCIT., Central Circle-2(3), Hyderabad, Hyderabad
Respondent M/s Sentini Technologies Private Limited, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2015
Appeal Filed By Department
Bench Allotted A
Tribunal Order Date 30-04-2015
Assessment Year 2009-2010
Appeal Filed On 23-12-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A HYDERABAD BEFORE SHRI P.M. JAGTAP ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY JUDICIAL MEMBER I.T.A. NO. 1916/HYD/2014 ASSESSMENT YEAR: 2009-10 DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-2(3) HYDERABAD VS M/S. SENTINI TECHNOLOGIES PVT. LTD. JUBILEE HILLS HYDERABAD [PAN: AAFCS7501L] (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI RAMA KRISHNA BANDI DR FOR ASSESSEE : S HRI SHAIK ALTAF AR DATE OF HEARING : 2 7 - 0 4 - 201 5 DATE O F PRONOUNCEMENT : 30 - 04 - 2015 O R D E R PER SAKTIJIT DEY J.M. : THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE OR DER DATED 29-10-2014 PASSED BY LD. COMMISSIONER OF INCOME TAX (APPEALS)-VII HYDERABAD FOR THE ASSESSMENT YEAR (AY) 2009-10. 2. THE DEPARTMENT HAS RAISED THE FOLLOWING EFFECTIV E GROUNDS: ' 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS O F THE CASE IN DIRECTING THE AO TO REDUCE THE EXPENDITURE INCURRE D ON 'NETCOOL' SOFTWARE FROM 'TOTAL TURNOVER' EVEN WHEN NO SUCH A DJUSTMENT IS ALLOWED AS PER SECTION 10A OF THE INCOME TAX ACT 1961. 2. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN NOT CONSIDERING THE SHORT DEDUCTION OF TAX AT SOURCE F OR DISALLOWANCE U/S. 40(A)(IA) OF THE IT ACT'. I.T.A. NO. 1916/HYD/2014 M/S. SENTINI TECHNOLOGIES PVT. LTD. :- 2 -: 3. BRIEFLY THE FACTS RELATING TO GROUND NO.1 ARE T HE ASSESSEE A PRIVATE LIMITED COMPANY IS ENGAGED IN THE BUSINESS OF PROVI DING SERVICE MANAGEMENT SOLUTIONS AND NETWORK MANAGEMENT SERVICE S FOR ITS OVERSEAS CLIENTS. FOR THE ASSESSMENT YEAR UNDER CO NSIDERATION ASSESSEE FILED ITS RETURN OF INCOME ON 27-09-2009 DECLARING TOTAL INCOME OF RS. 11 55 984/- AFTER CLAIMING DEDUCTION OF RS. 4 49 87 385/- U/S. 10A OF THE INCOME TAX ACT (ACT). IN THE COURSE OF ASSESSM ENT PROCEEDINGS THE ASSESSING OFFICER (AO) WHILE VERIFYING ASSESSEE'S C LAIM OF DEDUCTION U/S. 10A OF THE ACT OBSERVED THAT DURING THE PREVIOUS YE AR ASSESSEE HAD IMPORTED NETCOOL A SOFTWARE SUITE WORTH OF RS. 15 67 71 394/- AND THE EXPENDITURE WAS INCURRED IN FOREIGN EXCHANGE. THE AO OBSERVED THAT NETCOOL IS A SUITE OF NETWORK MANAGEMENT TOOLS AND IS CUSTO MIZED TO SUIT THE REQUIREMENTS OF THE CUSTOMERS DEPENDING ON THE NATURE OF NETWORK INFRASTRUCTURE AND ITS COMPONENTS. SUCH CUSTOMIZED SOLUTION IS THEN EXPORTED FOR DEPLOYMENT AT THE CLIENTS' NETWORK ENV IRONMENT. AO OBSERVED THE IMPORTED SOFTWARE TOOLS SEEMS TO HAVE BEEN UTILIZED FOR THE PURPOSE OF PROVIDING TECHNICAL SERVICES OUTSIDE IND IA. AO REFERRING TO EXPLANATION 2 TO SECTION 10A WHICH DEFINES EXPORT TURNOVER OPINED THAT EXPENSES INCURRED IN FOREIGN EXCHANGE FOR IMPORT OF THE SOFTWARE TOOLS WHICH WERE UTILIZED FOR THE PURPOSE OF PROVIDING TE CHNICAL SERVICES OUTSIDE INDIA CANNOT BE PART OF EXPORT TURNOVER FOR COMPUTING DEDUCTION U/S. 10A. THOUGH ASSESSEE RELYING UPON NUMBER OF DECISIONS OF THE ITAT SUBMITTED THAT THE EXPENDITURE INCURRED FOR IM PORTING SOFTWARE IS NOT THE SAME AS INCURRING AN EXPENDITURE FOR RENDER ING TECHNICAL SERVICES OUTSIDE INDIA AND FURTHER THOUGH ASSESSEE ALTERNATIVELY SUBMITTED THAT IF AT ALL THE EXPENDITURE IS REDUCED FROM THE EXPORT TURNOVER THEN THE SAME SHOULD ALSO BE REDUCED FROM TOTAL TURNOVER BY APPLYING THE MATCHING PRINCIPLE BUT THE AO DID NOT FIND ANY MERIT IN THE SUBMISSIONS OF THE ASSESSEE. ACCORDINGLY REJECTIN G ASSESSEE'S SUBMISSIONS AO PROCEEDED TO COMPUTE THE DEDUCTION U/S. 10A OF THE I.T.A. NO. 1916/HYD/2014 M/S. SENTINI TECHNOLOGIES PVT. LTD. :- 3 -: ACT AFTER EXCLUDING THE EXPENSES INCURRED IN FOREIG N EXCHANGE FOR IMPORT OF NETCOOL SOFTWARE FROM THE EXPORT TURNOVER. BEING AGGRIEVED OF SUCH ACTION OF THE AO ASSESSEE PREFERRED AN APPEAL BEFO RE THE LD.CIT(A). BEFORE THE FIRST APPELLATE AUTHORITY THE ASSESSEE REITERATING THE SUBMISSIONS BEFORE THE AO ALSO STATED THAT IN ASSES SEE'S OWN CASE FOR AY. 2004-05 TO 2007-08 THE ITAT HAS HELD THAT EXPE NDITURE INCURRED BY THE ASSESSEE IF REDUCED FROM EXPORT TURNOVER HAS AL SO TO BE REDUCED FROM THE TOTAL TURNOVER. LD.CIT(A) AFTER CONSIDERING TH E FACT THAT IN ASSESSEE'S OWN CASE FOR PRECEDING ASSESSMENT YEARS ITAT HAS H ELD THAT EXPENDITURE INCURRED ON NETCOOL SOFTWARE IF REDUCED FROM EXPORT TURNOVER IS ALSO REQUIRED TO BE REDUCED FROM TOTAL TURNOVER DIRECTED THE AO TO REDUCE THE EXPENDITURE INCURRED ON NETCOOL SOFTWARE FROM TOTAL TURNOVER ALSO FOR COMPUTING DEDUCTION U/S. 10A. 4. HAVING CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIALS ON RECORD WE DO NOT FIND ANY INFIRMITY I N THE ORDER OF LD.CIT(A) AS THE ISSUE IN DISPUTE IS SQUARELY COVERED NOT ONL Y BY THE ORDER OF ITAT IN ASSESSEE'S OWN CASE BUT ALSO BY THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLER Y INDIA LTD. [330 ITR 175] AND DECISION OF SPECIAL BENCH OF ITAT CHENNAI IN THE CASE OF ITO VS. SAK SOFT LTD. [313 ITR 353 (AT)]. IN V IEW OF THE AFORESAID WE UPHOLD THE ORDER OF LD.CIT(A) BY DISMISSING GROUND RAISED BY THE DEPARTMENT. 5. THE NEXT ISSUE AS RAISED IN GROUND NO.2 RELATES TO DISALLOWANCE MADE BY THE AO U/S. 40(A)(IA) OF THE ACT BUT DELETE D BY THE LD.CIT(A). BRIEFLY THE FACTS ARE DURING THE ASSESSMENT PROCEE DINGS AO NOTICED THAT ASSESSEE HAS INCURRED EXPENDITURE OF RS. 1 57 06 40 0/- TOWARDS PAYMENT MADE TO SOFTWARE CONSULTANTS FOR SOFTWARE D EVELOPMENT CHARGES DURING THE PREVIOUS YEAR. FURTHER ASSESSEE ON SUC H PAYMENTS HAS I.T.A. NO. 1916/HYD/2014 M/S. SENTINI TECHNOLOGIES PVT. LTD. :- 4 -: DEDUCTED TAX AT SOURCE @ 2.26%. AO WAS OF THE VIEW THAT SINCE THE EXPENDITURE INCURRED IS IN THE NATURE OF FEE FOR PR OFESSIONAL/TECHNICAL SERVICES TAX IS REQUIRED TO BE DEDUCTED @ 11.33% A ND NOT @ 2.26% AS HAS BEEN DONE BY THE ASSESSEE. BY ALLEGING SHORT D EDUCTION OF TAX BY THE ASSESSEE AO WHILE ALLOWING PROPORTIONATE EXPENDITU RE TO THE EXTENT OF TAX DEDUCTED AT SOURCE DISALLOWED THE BALANCE EXPE NDITURE OF RS. 1 25 73 438/- BY APPLYING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. BEING AGGRIEVED OF SUCH DISALLOWANCE ASSESSEE PREF ERRED AN APPEAL BEFORE THE LD.CIT(A). 6. BEFORE THE FIRST APPELLATE AUTHORITY IT WAS SUB MITTED BY THE ASSESSEE THAT THE AO CANNOT MAKE PROPORTIONATE DISA LLOWANCE AS THE STATUTORY PROVISIONS DO NOT PERMIT HIM TO DO SO. I T WAS SUBMITTED EITHER THE EXPENDITURE CLAIMED HAS TO BE DISALLOWED IF NO TDS IS DONE OR IT IS TO BE ALLOWED IF TDS IS DONE. IN SUPPORT OF SUCH CLA IM ASSESSEE RELIED UPON THE ORDER OF THE ITAT IN ITS OWN CASE IN ITA N O. 1205/HYD/2012 DT. 25-02-2015 WHEREIN THE ITAT FOLLOWING THE DECISION OF THE CALCUTTA BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. S.K. TEKRIWALA IN ITA NO. 1135/KOL/2010 DT. 21-10-2011 HELD THAT NO DISALLOWA NCE U/S. 40(A)(IA) CAN BE MADE FOR SHORT DEDUCTION OF TAX. LD.CIT(A) FOLLOWING THE DECISION OF THE ITAT IN ASSESSEE'S OWN CASE DELETED THE ADD ITION MADE BY THE AO BY APPLYING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 7. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD. IT IS MANIFEST FROM THE ASSESSMENT ORDER THAT DISALLOWANCE U/S. 40(A)(IA) O F THE ACT BY THE AO IS ON THE ALLEGATION THAT DEDUCTION OF TAX AT SOURCE @ 2.26% BY ASSESSEE IS NOT APPROPRIATE. IN OTHER WORDS THERE IS SHORT DED UCTION OF TAX. HOWEVER AS CAN BE SEEN IN ASSESSEE'S OWN CASE FOR AY. 2008-09 THE CO- I.T.A. NO. 1916/HYD/2014 M/S. SENTINI TECHNOLOGIES PVT. LTD. :- 5 -: ORDINATE BENCH IN ITA NO. 1205/HYD/2012 DT. 25-02-2 015 WHILE CONSIDERING SIMILAR DISALLOWANCE HELD AS UNDER: '9. WE HEARD BOTH THE PARTIES AND PERUSED THE RECO RDS. WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) WHERE IN HE HAS FOLLOWED THE DECISION OF THE ITAT KOLKATA BENCH IN THE CASE OF DCIT VS. S.K. TEKRIWALA IN ITA NO.1135/KOL/2010 DA TED 21.10.2011. IN THAT DECISION IT HAS BEEN HELD THAT THERE IS NOTHING IN THE SAID SECTION TO TREAT INTER ALIA THE ASSESSEE AS A DEFAULTER WHERE THERE IS A SHORTFALL IN DEDUCTIO N AND IF THERE IS ANY SHORTFALL DUE TO ANY DIFFERENCE OF OPINION AS TO THE TAXABILITY OF ANY ITEM OR THE NATURE OF PAYMENTS F ALLING UNDER VARIOUS TDS PROVISIONS THE ASSESSEE CAN BE DECLAR ED TO BE AN ASSESSEE IN DEFAULT U/S 201 OF THE ACT AND NO DISA LLOWANCE CAN BE MADE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. HENCE WE DISMISS THE DEPARTMENTAL APPEA L ON THIS ISSUE'. SINCE LD.CIT(A) HAS FOLLOWED THE ORDER OF THE CO-O RDINATE BENCH IN ASSESSEE'S OWN CASE AND LD. DR HAS NOT BROUGHT ANY OTHER CONTRARY DECISION TO OUR NOTICE WE UPHOLD THE ORDER OF LD.C IT(A) BY DISMISSING THE GROUNDS. 8. IN THE RESULT APPEAL OF THE DEPARTMENT IS DISMI SSED. ORDER PRONOUNCED IN OPEN COURT ON 30 TH APRIL 2015 SD/- SD/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD DATED 30 TH APRIL 2015 TNMM I.T.A. NO. 1916/HYD/2014 M/S. SENTINI TECHNOLOGIES PVT. LTD. :- 6 -: COPY TO : 1. DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-2 (3) 3 RD FLOOR POSNETT BHAVAN TILAK ROAD HYDERABAD. 2. M/S. SENTINI TECHNOLOGIES PVT LTD. PLOT NO. 122 9 ROAD NO. 60 JUBILEE HILLS HYDERABAD. 3. CIT(APPEALS)-VII HYDERABAD. 4. CIT-CENTRAL HYDERABAD. 5. D.R. ITAT HYDERABAD