Dy. CIT, Circle 1(1), Pune v. Calsoft Pvt. Ltd.,, Pune

ITA 331/PUN/2013 | 2009-2010
Pronouncement Date: 28-04-2014 | Result: Dismissed

Appeal Details

RSA Number 33124514 RSA 2013
Assessee PAN AAACC6961H
Bench Pune
Appeal Number ITA 331/PUN/2013
Duration Of Justice 1 year(s) 2 month(s) 27 day(s)
Appellant Dy. CIT, Circle 1(1), Pune
Respondent Calsoft Pvt. Ltd.,, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 28-04-2014
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 28-04-2014
Assessment Year 2009-2010
Appeal Filed On 01-02-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI G.S. PANNU ACCOUNTANT MEMBER ITA NO.331/PN/2013 (A.Y: 2009-10) DY. CIT CIRCLE 1(1) PUNE APPELLANT VS. CALSOFT PVT. LTD. SR IRIZ 3 RD FLOOR PLOT A.S.NO.134/2/1/1(PART)+ S.NO.134/3(PART) PASHAN-BANER LINK ROAD PASHAN PUNE 411008 PAN: AAACC6961H RESPONDENT APPELLANT BY : SHRI S.P. W ALIMBE RESPONDENT BY : SHRI KIS HOR PHADKE DATE OF HEARING: 13.03.2014 DATE OF ORDER : 28.04.2014 ORDER PER SHAILENDRA KUMAR YADAV J.M: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL)-I [IN SHORT CIT(A)] PUNE DATED 05.11.2012 FOR A.Y. 2009-10 ON THE FOLLOWING GROUNDS. 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX(APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AN D CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) GROSSLY ERRED IN DELETING THE ADDITION WHICH HAD BE EN MADE BY THE ASSESSING OFFICER AFTER DEMONSTRATING THAT T HE PROFIT SHOWN FROM THE ELIGIBLE UNIT IS MORE THAN NORMAL PR OFIT. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) GROSSLY ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING 2 OFFICER WHEN THE ASSESSEE HAD NOT ALLOCATED ANY COS T ON ACCOUNT OF REMUNERATION PAID TO THE DIRECTORS TO TH E UNIT ELIGIBLE FOR DEDUCTION U/S 10A. 4. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) GRO SSLY ERRED IN HOLDING THAT THE ASSESSING OFFICER OUGHT T O HAVE ASKED THE ASSESSEE 'TO BENCHMARK WITH REFERENCES TO COMPARABLE CASES TO ARRIVE AT THE CONCLUSION THAT THE PROFIT EARNED BY THE 10A UNIT IS MORE THAN ORDINARY' WHEN THERE IS NO SUCH REQUIREMENT UNDER THE ACT AND ALSO WHEN THE ASSESSING OFFICER HAD SPECIFICALLY BROUGHT ON RECOR D THE FACT THAT THE SALARY PAID TO THE TWO DIRECTORS BEING RE LATED PARTIES AND WHO ARE ALSO OTHERWISE WELL-QUALIFIED WAS IN NO WAY COMPARABLE WITH THE SALARY PAID TO AN EMPLOYEE- DIRECTOR. 5. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) GRO SSLY ERRED IN HOLDING THAT THE MORE THAN ORDINARY PROFIT (21.26%) ARRIVED AT FOR THE 10A UNIT EVEN AFTER ADJUSTMENT I S NEGLIGIBLY DIFFERENT FROM THE ORDINARY PROFIT (19.1 7%) WITHOUT APPRECIATING THAT THERE IS NO HARD AND FAST RULE PR ESCRIBED IN THE STATUTE AS TO THE MARGIN OF DIFFERENCE WHICH MUST BE ESTABLISHED TO APPLY THE PROVISIONS OF SECTION 10A( 7) R.W.S. 80IA OF THE INCOME-TAX ACT 1961. 6. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) GRO SSLY ERRED IN DELETING THE ADDITION MADE BY THE ASSESSIN G OFFICER WHEN THE ASSESSEE HAD ACCEPTED AT THE ASSESSMENT ST AGE THAT 'ACCORDING TO THE WORKING OF ALLOCATION OF SAL ARIES TO THE DIRECTORS DEDUCTION U/S 10A OF THE ACT (IN RESPECT OF) THE ELIGIBLE UNIT-II NEEDS TO BE REDUCED BY AN AMOUNT O F RS.31 27 923/-.' 7. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF THE HEARING THE ORDER OF THE LD. COMMI SSIONER OF INCOME-TAX(APPEALS) MAY BE VACATED AND THAT OF T HE ASSESSING OFFICER BE RESTORED. 8. THE APPELLANT CRAVES LEAVE TO ADD AMEND ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL DURING TH E COURSE OF THE APPELLATE PROCEEDINGS BEFORE THE HON' BLE TRIBUNAL. 2. THE ASSESSEE SOFTWARE COMPANY IS ENGAGED PRIMARI LY IN PROVIDING SOFTWARE PRODUCTS AND SERVICES ESPECIALL Y IN STORAGE VIRTUALIZATION CLOUD COMPUTING AND NETWORKING DOMA IN. THE COMPANY HAS A CORPORATE DIVISION AND 3 OTHER UNITS - UNIT-L 3 (WHOSE ELIGIBILITY FOR SECTION 10A DEDUCTION HAD AL READY EXPIRED) UNIT II (IN RESPECT OF WHICH 10A DEDUCTION WAS CLAI MED DURING THE IMPUGNED ASSESSMENT YEAR) AND SEZ UNIT WHICH WAS A LMOST NON-OPERATIONAL DURING THE YEAR. IT HAS MAINTAINED UNIT WISE PROFIT AND LOSS ACCOUNTS WHICH WERE FURNISHED TO T HE ASSESSING OFFICER DURING SCRUTINY PROCEEDINGS. THE ASSESSING OFFICER CALLED FOR DETAILS OF SALARY EXPENDITURE IN RESPECT OF ALL EMPLOYEES. HE FOUND THAT SALARIES OF TECHNICAL STAFF WERE ALLOCAT ED ON ACTUAL BASIS FOR ALL UNITS AND SALARIES OF NON-TECHNICAL S TAFF WERE ALLOCATED TO CORPORATE AND OTHER UNITS IN PROPORTIO N TO THE SALES TURNOVER OF RESPECTIVE UNITS. HOWEVER SALARIES PAI D TO TWO DIRECTORS OF THE COMPANY SHRI ANUPAM BHIDE AND HIS WIFE SMT. BHAGYASHREE NATU WERE FOUND DEBITED TO THE CORPORAT E UNIT. FURTHER HE FOUND THAT ALTHOUGH THEY WERE THEMSELVE S HIGHLY QUALIFIED SHRI ANUPAM BHIDE BEING B.TECH COMPUTE R SCIENCE FROM IIT MUMBAI AND PH.D FROM UNIVERSITY OF CALIFO RNIA AND SMT. BHAGYASHREE NATU BEING A CHARTERED ACCOUNTANT AND MBA FROM YALE UNIVERSITY ONLY 1 44 000/- AND 3 00 000/- WERE RESPECTIVELY PAID TO SHRI ANUPAM AND SMT. BHAGYASHR EE BHIDE WHEREAS ONE OF THE EMPLOYEE DIRECTOR (ENGINEERING) SHRI PARAG KULKARNI WAS PAID THE HIGHEST SALARY OF 50 LAKHS WHICH WAS ALLOCATED TO ALL UNITS. THIS SALARY OF 50 00 000/- AS WELL AS SALARY OF 11 28 000/- PAID TO ADMN. & FINANCE HEAD WERE ADOPTED BY THE ASSESSING OFFICER INSTEAD OF THE ACT UAL SALARIES PAID TO THE TWO DIRECTORS FOR THE PURPOSE OF APPORT IONMENT TO THE TWO UNITS (UNIT I AND UNIT II) IN PROPORTION TO SAL ES RATIO SINCE THE ASSESSING OFFICER FELT THAT TRANSACTIONS RELATI NG TO THESE SALARIES HAD BEEN SO ARRANGED SO AS TO INFLATE PROF ITS OF THE ELIGIBLE UNIT CLAIMING DEDUCTION U/S 10A. 3. THE MATTER WAS CARRIED BEFORE FIRST APPELLATE AU THORITY WHEREIN THE VARIOUS CONTENTIONS WERE RAISED ON BEHA LF OF ASSESSEE AND HAVING CONSIDERED THE SAME THE CIT(A) HAS GRAN TED THE RELIEF 4 TO THE ASSESSEE. THE SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF REVENUE INTER ALIA SUBMITTED THAT THE CIT(A) E RRED IN DELETING THE ADDITION WHICH HAS BEEN MADE BY THE ASSESSING O FFICER AFTER DEMONSTRATING THAT THE PROFIT SHOWN FROM THE ELIGIB LE UNIT IS MORE THAN NORMAL PROFIT. THE ASSESSEE HAS NOT ALLOCATED ANY COST ON ACCOUNT OF REMUNERATION PAID TO THE DIRECTORS TO TH E UNIT ELIGIBLE FOR DEDUCTION U/S.10A AND ULTIMATELY REQUESTED TO S ET ASIDE THE ORDER OF CIT(A). ON THE OTHER HAND THE LEARNED AU THORIZED REPRESENTATIVE HAS SUPPORTED THE ORDER OF CIT(A). 4. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD WE FIND THAT THE ASSESSEE HAS CLAIMED DEDUC TION U/S 10A ON THE PROFITS EARNED IN THE STPI UNIT OF THE ASSES SEE. WHILE GRANTING THE SAID DEDUCTION THE ASSESSING OFFICER OBSERVED THAT THE SALARY PAID TO KEY PERSONS IS LOWER THAN NORMAL SALARIES PAID TO OTHER EMPLOYEES. AS SUCH THE SALARIES PAID TO K EY PERSONS WERE NOTIONALLY ASSUMED AT A HIGHER RATE AND REVISE D PROFIT OF THE STPI UNIT WAS WORKED OUT. SUCH ADJUSTMENT WAS QUANT IFIED AT 31 27 923/-. THE TAXABLE PROFIT OF THE STPI UNIT WA S 21.26% BEFORE THE ADJUSTMENT AND THE SAME SCALED DOWN TO 1 9.17% AFTER THE ADJUSTMENT. THE SAID ADJUSTMENT WAS MADE BY THE ASSESSING OFFICER U/S.10A(7) R.W.S. 80IA(10) OF THE ACT. THE SAID ADDITION WAS CHALLENGED BEFORE THE CONCERNED CIT(A) WHEREIN THE SAME WAS DELETED. THE STAND OF THE ASSESSEE HAS BEEN TH AT THE PROFIT LEVEL OF 21.27% IS NOT EXCESSIVE OR UNREASONABLE FO R THE STPI UNIT PROVIDING IT ENABLED SERVICES:- A) PAST YEAR'S PROFIT LEVEL - THE ASSESSEE RELIED U PON IT'S OWN PROFIT LEVEL FOR A.Y. 2008-09 WHICH WAS 45.29% . FACTS AND BUSINESS LOGISTICS WERE SAME AS IN LAST YEAR. NOW THE LAST YEAR'S PROFIT LEVEL OF 45.29% HAS NOT DISTURBE D BY THE ASSESSING OFFICER AT ANY TIME. 5 B) TRANSFER PRICING PROFIT LEVELS FOR I-T ENABLED S ERVICES - THE TYPICAL PROFITS CONSIDERED AS ARM'S LENGTH PROFITS ARE WORKED OUT AT ABOUT 30% WHILE DOING TRANSFER PRICING ASSES SMENTS. AS COMPARED TO THIS PROFIT LEVEL PROFIT EARNED BY ASSESSEE IS LOWER AND NOT MORE THAN ORDINARY PROFITS. C) MAP PROFIT LEVEL - THE MAP PROFIT LEVEL FOR TRAN SACTIONS BETWEEN INDIA AND USA AUTHORITIES WAS DECIDED AT 17 .50% FOR SOME EARLIER PERIOD. ASSESSEE'S EARNED PROFIT I S WITHIN CLOSE VICINITY OF THE SAID PROFITS. D) SAFE-HARBOR NORMS - THE PROFIT LEVEL INDICATED T HEREIN WAS ABOUT 20% FOR THE IT ENABLED SERVICES. SAME LEVEL I S NOW BEING LAID DOWN. 4.1 ACCORDING TO THE ASSESSING OFFICER THE SALARY PAID TO THE TWO KEY DIRECTORS IS LESS THAN THE SALARY PAID TO O THER EXECUTIVES. THEREAFTER HE HAS DRAWN NOTIONAL PROFIT & LOSS ACC OUNT BY CONSIDERING THE TYPICAL SALARIES OF OTHER EMPLOYEES AND PROCEEDED TO INVOKE PROVISIONS OF 10A(7) R.W.S. 80IA(10). AS PER THE SAID SECTION 80IA(10) EXERCISE OF RE-COMPUTATION OF PRO FIT IS TO BE CARRIED OUT ONLY IN THE CASES WHERE THE ASSESSING O FFICER FOUND THAT SUCH A UNIT / UNDERTAKING HAS EARNED MORE THAN ORDINARY PROFITS. THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD IN EXPENSES TO SUGGEST WHETHER THE PROFITS EARNED BY T HE 10A UNIT ARE MORE THAN ORDINARY OR NOT. ON THE CONTRARY TH E ASSESSING OFFICER HAS SIMPLY ASSUMED THAT THE PROFIT OF 21.63 % OF THE SAID 10A UNIT IS MORE THAN ORDINARY PROFIT. THE ASSESSI NG OFFICER HAS NOT JUSTIFIED TO ORDINARY PROFITS IN ANY MANNER. T HE PROVISIONS OF SECTION 80IA(10) REVEALS THAT ONUS OF PRINCIPLE OBJ ECTION APPEARS TO HAVE BEEN CASTED UPON THE ASSESSING OFFICER. HE NCE THE ONUS OF ESTABLISHING THAT THE ASSESSEE HAS EARNED MORE T HAN ORDINARY PROFITS IS UPON ASSESSING OFFICER AND HE OUGHT TO HAVE 6 DISCHARGED THE SAME. THE NON-DISCHARGE OF ONUS HAS BEEN OBSERVED BY THE CIT(A) WHILE GRANTING THE RELIEF TO THE ASSESSEE. 4.2 THE SALARIES TO THE KEY PERSONS ARE DECIDED IN ADVANCE AND MORE OR LESS STATIC IN THE PAST FEW YEARS OWING TO PERSONAL ATTACHMENT OF THESE KEY PERSONS WITH THE COMPANY. AT THE START OF THE YEAR IT IS UNLIKELY FOR THE EMPLOYEES TO EN VISAGE AS TO WHAT WOULD BE THE NET PROFITS FOR THE ENSUING YEAR. ON THE CONTRARY THERE COULD BE AN EXEMPLARY CASE WHERE FOR CLAIMIN G HIGHER DEDUCTION U/S 80IA SOME BUSINESS MAY PROCURE GOODS FROM THEIR SISTER CONCERN AT AN UNFAIR LOWER PRICE. SUCH TRAN SACTIONS ARE ON DELIBERATELY LOWERED PURCHASED RATE; ARE THE REAL T ARGETS OF 80IA(10). IN THE PRESENT CASE THE PRE-DECIDED SALA RIES ARE NOT REARRANGED IN ANYWAY SO THAT MORE THAN ORDINARY PRO FITS COULD BE EARNED. 4.3 WE FIND THAT THE HONBLE KARNATAKA HIGH COURT I N THE CASE OF CIT & ANOTHER VS. H.P. GLOBAL SOFT LTD. (2012) 3 42 ITR 263 (KAR) WHEREIN IT WAS FOUND THAT THE PROFIT MARGIN AS REVEALED BY THE ASSESSEE IS A REASONABLE PROFIT IN COMPARISON T O OTHER SIMILAR UNITS. THE ASSESSING OFFICER HAVING FAILED TO SHOW THAT IS IT A COURSE OF BUSINESS SO ARRANGED AS TO RESULT IN INF LATED PROFIT PROVISIONS OF SECTION 10I(9) COULD NOT BE TO REDUCE THE DEDUCTION UNDER THE PROVISIONS OF SECTION 10A. WE ALSO FOUND THAT ITAT MUMBAI D BENCH IN THE CASE OF ITO VS. NOVEL CONSU MER PRODUCTS (P) LTD. (2006) 7 SOT 615 (MUMBAI) WHEREI N THE BENCH HELD THAT IN THE ABSENCE OF ANY EFFORTS BY THE ASSE SSING OFFICER TO ASCERTAIN THE EXACT PROFIT RATE FROM COMPARABLE CAS E SUB-SECTION OF SECTION 80IA HAS NOT JUSTIFIED. WE ALSO FOUND THAT ITAT CHENNAI A BENCH IN THE CASE OF TWEEZERMAN (INDIA) (P) LTD. VS. ADDL. CIT (2010) 133 TTJ (CHENNAI) 308 HELD THAT T HE ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING THE PROVISION S OF SECTION 80IA. 7 4.4 IN VIEW OF ABOVE DISCUSSION WE ARE NOT INCLINE D TO INTERFERE WITH THE FINDING OF CIT(A) WHO HAS DELETED THE ADDI TION WHICH HAS BEEN MADE BY THE ASSESSING OFFICER ON THE GROUND TH AT PROFIT SHOWN FROM ELIGIBLE UNIT IS MORE THAN NORMAL. ACCO RDINGLY THE ORDER OF CIT(A) NEEDS NO INTERFERENCE FROM OUR SIDE . WE UPHOLD THE SAME. 5. IN THE RESULT APPEAL FILED BY THE REVENUE IS DI SMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE DAY 28 TH OF APRIL 2014. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED: 28 TH APRIL 2014 GCVSR COPY TO:- 1) ASSESSEE 2) DEPARTMENT 3) THE CIT(A)-I PUNE 4) THE CIT-I PUNE 5) THE DR B BENCH I.T.A.T. PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY I.T.A.T. PUNE //FIT FOR PUBLICATION//