Value First Digital Media Pvt. Ltd.,, New Delhi v. DCIT, Circle-26(1), New Delhi

ITA 487/DEL/2019 | 2013-2014
Pronouncement Date: 21-11-2019 | Result: Allowed

Appeal Details

RSA Number 48720114 RSA 2019
Assessee PAN AABCV8400B
Bench Delhi
Appeal Number ITA 487/DEL/2019
Duration Of Justice 9 month(s) 29 day(s)
Appellant Value First Digital Media Pvt. Ltd.,, New Delhi
Respondent DCIT, Circle-26(1), New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 21-11-2019
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted F
Tribunal Order Date 21-11-2019
Assessment Year 2013-2014
Appeal Filed On 23-01-2019
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI N.K. BILLAIYA ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE JUDICIAL MEMBER ITA NO.4389/DEL/2015 (A.Y. 2010-11) ITA NO.4658/DEL/2019 (A.Y. 2011-12) ITA NO.487/DEL/2019 (A.Y. 2013-14) VALUE FIRST DIGITAL MEDIA PVT. LTD. EARLIER KNOWN AS VALUE FIRST MESSAGING PRIVATE LIMITED PLOT NO. 40 OKHLA INDUSTRIAL ESTATE PHASE-III NEW DELHI SOUTH DELHI DELHI-110002 VS. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 17(1) NEW DELHI PAN : AABCV8400B (APPELLANT) (RESPONDENT) ORDER PER SUCHITRA KAMBLE JM: THESE THREE APPEALS ARE FILED BY THE ASSESSEE AGAI NST THE ORDER DATED 24.03.2015 22.03.2019 AND 12.10.2018 PASSED BY THE CIT(A)-IX NEW DELHI FOR ASSESSMENT YEARS 2010-11 2011-12 & 2013-14 RE SPECTIVELY. 2. THE GROUNDS OF APPEAL ARE AS UNDER: ITA NO. 4389/DEL/2015 A.Y. 2010-11 1.0 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ORDER PASSED BY THE LEARNED COMMISSIONER O F INCOME-TAX APPELLANT BY SH. AJAY VOHRA SR. ADV. SH. DIVYANI MITTAL CA RESPONDENT BY SHRI SURENDER PAL SR. DR DATE OF HEARING 31.10.2019 DATE OF PRONOUNCEMENT 21.11.2019 2 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 (APPEALS) (LEARNED CIT(A)) IS ERRONEOUS AND BAD I N LAW. 2.0 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ASS ESSED INCOME OF RS.5 16 94 850 DETERMINED BY THE LEARNED ASSESSING OFFICER (LEARNED AO) VIDE HIS ORDER PASSED UNDER SECTION 143(3) OF THE ACT. 3.0 DENIAL OF SET OFF AND CARRY FORWARD OF LOSSES A ND UNABSORBED DEPRECIATION OF DEMERGED BUSINESS UNDERT AKINGS OF CELLNEXT 3.1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN UPHOLDING THAT THE BUSINESS LOSS AND UNABSORBED DEPRECIATION AMOUNTING TO RS.9 95 67 606 AND RS.2 24 16 480 RESPECTIVELY DID NOT PERTAIN TO THE DEMERGED BUSINESS UNDERTAKINGS AND ARE CONSEQUENTLY NOT ELIGIBLE FOR SET-OFF AND CARRY- FORWARD IN THE HANDS OF THE APPELLANT. 3.2 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN UPHOLDING THE DENI AL OF THE SET OFF OF BROUGHT FORWARD LOSS AMOUNTING TO RS.1 92 18 032 OF THE DEMERGED BUSINESS UNDERTAKINGS UNDER SECTION 72A OF THE ACT DURING THE CAPTIONED ASSESSMENT YEAR. 3.3 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN UPHOLDING THE DENI AL OF THE SET OFF OF UNABSORBED DEPRECIATION OF THE DEMERGED BUSINESS UN DERTAKINGS AMOUNTING TO RS. 1 48 81 461 UNDER SECTION 72A OF T HE ACT DURING THE CAPTIONED ASSESSMENT YEAR. 3.4 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN HOLDING THAT THE A PPELLANT HAS FAILED TO CONTROVERT THE FINDINGS OF THE LEARNED AO AND HAS F AILED TO SHOW THAT THE CONDITIONS STIPULATED IN SECTION 72A ARE FULFILLED IN THIS CASE. 3.5 WITHOUT PREJUDICE TO THE ABOVE ON THE FACTS AN D CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE LEARNED AO TO ALLOW THE SET-OFF OF BUSINESS LOSSES AND UNABSORBED DEPRE CIATION AMOUNTING TO RS.9 95 67 606 AND RS.2 24 16 480 RESPECTIVELY OF T HE DEMERGED BUSINESS UNDERTAKINGS IN PROPORTION TO THE ASSETS TAKEN OVER BY THE APPELLANT. 4.0 DISALLOWANCE OF SMS AND SERVER HOSTING CHARGES 4.1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISA LLOWANCE OF SERVER HOSTING CHARGES AND SMS PURCHASE CHARGES AMOUNTING TO RS. 1 66 90 240 UNDER SECTION -40(A)(1) OF THE ACT. 4.2 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN 3 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 LAW THE LEARNED CIT(A) ERRED IN UPHOLDING THAT THE EXPENSES INCURRED ON ACCOUNT OF SEWER HOSTING CHARGES AND SMS PURCHASE C HARGES WERE ROYALTY IN NATURE AS PER SECTION 9(1 )(VI) OF THE ACT. 4.3 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISA LLOWANCE OF SERVER HOSTING CHARGES AND SMS PURCHASE CHARGES UNDER SECT ION 40(A)(I) OF THE ACT EVEN THOUGH THE LEARNED AO FAILED TO ELUCIDATE HOW THESE CHARGES ARE TENABLE IN INDIA AS ROYALTY UNDER SECTION 9(1)(VI) OF THE INCOME TAX ACT 1961 AND THE DOUBLE TAXATION AVOIDANCE AGREEMENTS B ETWEEN INDIA AND COUNTRY OF RESIDENCE OF THE SERVICE PROVIDERS. 4.4 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISA LLOWANCE OF SERVER HOSTING CHARGES AND SMS PURCHASE CHARGES UNDER SECT ION 40(A)(I) OF THE ACT BY APPLYING RETROSPECTIVE AMENDMENTS INTRODUCED BY THE FINANCE ACT 2012 TO A TRANSACTION WHICH TOOK PLACE IN FINANCIAL YEAR 2009-10 I.E. PRIOR TO THE INTRODUCTION OF AMENDMENTS BY FINANCE ACT 20 12. OTHER GROUNDS 5.0 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISA LLOWANCE OF RS.3 28 300 ON ACCOUNT OF RENTAL CHARGES PAID HOLDI NG THE SAME WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS UNDER SECTION 37 OF THE ACT. 6.0 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN UPHOLDING THE DENI AL OF CREDIT OF TAXES DEDUCTED AT SOURCE AMOUNTING TO RS.5 76 814. ITA NO. 4658/DEL/2019 A.Y. 2011-12 1 .0 THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CA SE AND IN LAW THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [LD. CIT(A)'] IS ERRONEOUS AND BAD IN LAW. 2.0 DENIAL OF SET OFF AND CARRY FORWARD OF LOSSES A ND UNABSORBED DEPRECIATION OF DEMERGED BUSINESS UNDERT AKINGS OF CELLNEXT SOLUTION LIMITED. 2.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DISMISSING THE APPELLANTS GROUND OF APPEAL ON SETOFF OF BUSINESS LOSS AND UNABSORBED DEPRECIATION AMOUNTING TO INR 4 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 3 44 47 508 AND INR 75 35 019 RESPECTIVELY. 2.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN ENHANCING THE I NCOME OF THE APPELLANT BY INR 34 677 567 BY HOLDING THAT BUSINES S LOSS AND UNABSORBED DEPRECIATION WAS DISALLOWED BY THE AO AN D CONFIRMED BY THE CIT(A) IN AY 2010-11. 2.3 THE LD. CIT(A) GROSSLY ERRED IN RELYING ON EARL IER YEARS I.E. AY 2010-11 OF THE THEN LD. CIT(A) WITHOUT APPRECIATING THE FACT THAT THE ORDER WAS NOT A REASONED ORDER AND DID NOT ADDRESS THE FLAWS OF THE LEARNED ASSESSING OFFICERS (LD. AO) ORDER. 2.4 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE AO TO DISPOSE THE RECTIFICATION APPLICATION FILED FOR AY 2010-11 CONS IDERING THE FACT THAT IT WAS A MISTAKE APPARENT FROM RECORD WHEREIN THE LD. AO CONTRADICTED HIS OWN OBSERVATION. 2.5 WITHOUT PREJUDICE TO ABOVE ON THE FACTS AND CI RCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN NOT DI RECTING THE LD. AO TO ALLOW THE SET-OFF OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION AMOUNTING TO INR 3 44 47 508 AND INR 37 15 251 RESP ECTIVELY OF THE DEMERGED BUSINESS UNDERTAKINGS IN PROPORTION TO THE ASSETS TAKEN OVER BY THE APPELLANT. 3.0 DISALLOWANCE OF SERVER HOSTING CHARGES PAID TO NON - RESIDENTS OF INR 22 992 319 3.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD. CIT(A) ERRED IN DISALLOWING SERVER HOSTING CHARGES (I.E. CHARGES FOR ACCESS TO AN OVERSEAS DATABASE) OF INR 27 741 6 33 (INCLUDING INR 47 49 344 PAID TO RESIDENTS IN INDIA) UNDER SECTION 40(A)(I) OF THE ACT TREATING IT AS ROYALTY UNDER SECTION 9(1 )(VI) OF T HE ACT. 3.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF SERVER HOSTING CHARGES UNDER SECTION 40(A)(I) OF THE ACT BY APPLYI NG RETROSPECTIVE AMENDMENTS INTRODUCED BY THE FINANCE ACT 2012 TO A TRANSACTION WHICH TOOK PLACE IN FINANCIAL YEAR 2009-10 I.E. PRI OR TO THE INTRODUCTION OF AMENDMENTS BY FINANCE ACT 2012. 3.3 WITHOUT PREJUDICE TO ABOVE ON FACTS AND CIRCUMSTAN CES OF CASE AND IN LAW THE LD. CIT(A) FAILED TO APPRECIAT E THE FACT THAT THE APPELLANT COULD NOT HAVE WITHHELD TAX ON PAYMENTS O F SERVER HOSTING CHARGES DUE TO IMPOSSIBILITY OF PERFORMANCE OF TASK SINCE THE DEFINITION OF ROYALTY AS DEFINED UNDER SECTION 9(1 )(VI) OF THE ACT WAS AMENDED BY FINANCE ACT 2012. 3.4 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW 5 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 THE LD. CIT(A) FAILED TO APPRECIATE THAT PAYMENT MA DE TO NON-RESIDENT VENDOR TOWARDS SERVER HOSTING CHARGES WERE FOR THE PURPOSE OF EARNING INCOME FROM A SOURCE OUTSIDE INDIA SPECIFICALLY CO VERED BY THE EXCEPTION UNDER SECTION 9(1 )(VI)(B) OF THE ACT. 3.5 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT T HAT PAYMENTS WERE MADE TO NON-RESIDENT VENDORS WHO WERE ELIGIBLE TO C LAIM BENEFIT OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) SIGNED B ETWEEN INDIA AND THE COUNTRY OF THEIR RESIDENCE SINCE THE SAID P AYMENTS ARE NOT TAXABLE AS PER THE DEFINITIONS CONTAINED IN THE APP LICABLE DTAA. 4.0 DISALLOWANCE OF AMOUNTS PAID TO RESIDENTS OF INR 47 49 344 4.1 THAT ON FACTS AND CIRCUMSTANCES OF CASE AND IN LAW THE LD. CIT(A) ERRED IN DISALLOWING THE PAYMENT MADE TO RES IDENT PAYEES AMOUNTING TO INR 47 49 344 UNDER SECTION 40(A)(I) O F THE ACT AS THE SAID SECTION ONLY COVERS PAYMENTS TO NON-RESIDENTS 4.2 THAT ON FACTS AND CIRCUMSTANCES OF CASE AND IN LAW THE LD. CIT(A) ERRED IN DISALLOWING THE PAYMENT MADE TO RES IDENT PAYEES WITHOUT APPRECIATING THE NATURE OF TRANSACTION AND APPLICABILITY OF WITHHOLDING TAXES ON IT. 5.0 DISALLOWANCE OF RENT DUE TO NON-DEDUCTION OF TAX AT SOURCE 5.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF INR 29 28 609 ON ACCOUNT OF PAYMENT OF RENTAL CHARGES FOR NON-DEDUCT ION OF TAXES UNDER THE PROVISION OF SECTION 194-I OF THE ACT. 5.2 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE SAID PAYMENTS WERE ACTUALLY REIMBURSEMENTS MADE TO A GROUP COMPAN Y AND DID NOT REPRESENT ACTUAL PAYMENT OF RENT. 5.3 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT NO TAX IS TO BE DEDUCTED AT SOURCE ON COST-TO-COST REIMBURSEMENT MA DE BY THE APPELLANT. 5.4 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) GROSSLY ERRED IN APPRECIATING THE FA CT THAT REQUISITE TAX WAS APPROPRIATELY WITHHELD BY GROUP COMPANY WHILE M AKING RENT PAYMENT TO THE VENDOR. OTHER GROUNDS 6 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 6.0 THE ON FACTS AND IN THE CIRCUMSTANCES OF CASE A ND IN LAW THE LD. CIT(A) ERRED IN NOT GIVING PROPER CREDIT OF PRE PAID TAXES. 7.0 THE ON FACTS AND IN THE CIRCUMSTANCES OF CASE A ND IN LAW THE LD. CIT(A) ERRED IN NOT DISPOSING THE GROUNDS OF AP PEAL ON LEVY OF INTEREST UNDER SECTION 234B AND 234C OF THE ACT. 8.0 THAT THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY E XCLUSIVE AND WITHOUT PREJUDICE TO EACH OTHER. ITA NO. 487/DEL/2019 A.Y. 2013-14 1.0 THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE C ASE AND IN LAW THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS) [LD. CIT(A)] IS ERRONEOUS AND BAD IN LAW. 2.0 DISALLOWANCE OF SMS PURCHASE CHARGES AND SERVER HOSTING CHARGES PAID TO NON-RESIDENTS 2.1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LD. CIT(A) ERRED IN DISALLOWING SMS PURCHA SE CHARGES OF INR 56 277 820 (I.E. INTERNATIONAL CONNECTIVITY CHARGES ) AND SERVER HOSTING CHARGES OF INR 24 701 338 (I.E. CHARGES FOR ACCESS TO AN OVERSEAS DATABASE) UNDER SECTION 40(A)(I) OF THE ACT TREATIN G IT AS ROYALTY UNDER SECTION 9(1 )(VI) OF THE ACT. 2.2 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LD. CIT(A) FAILED TO APPRECIATE THAT PAYME NT MADE TOWARDS SMS PURCHASE CHARGES WERE FOR THE PURPOSE OF EARNING IN COME FROM A SOURCE OUTSIDE INDIA SPECIFICALLY COVERED BY THE EXCEPTIO N UNDER SECTION 9(1 )(VI)(B) OF THE ACT. 2.3 THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN DENYING THE FAC T THAT SERVER HOSTING CHARGES PAID TO RACKSPACE HAS ALREADY BEEN ALLOWED BY HONBLE MUMBAI TRIBUNAL IN THE CASE OF ITO VS PEOPLE INTERACTIVE ( I) P LTD [ITA NO 2179 TO 2182 OF 2009] RELYING UPON THE DECISION OF DELHI HI GH COURT JUDGMENT IN THE CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO LT D [323 ITR 340] 2.4 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW LD. AO ERRED ON IGNORING THE FACT THAT RACKSPACE IS ONE OF THE PARTY TO WHOM THE APPELLANT HAS PAID SERVER HOSTING CHARGES. 7 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 2.5 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LD. CIT(A) ERRED IN NOT APPRECIATING THE F ACT THAT PAYMENTS WERE MADE TO NON-RESIDENT VENDORS WHO WERE ELIGIBLE TO C LAIM BENEFIT OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) SIGNED B ETWEEN INDIA AND THE COUNTRY OF THEIR RESIDENCE. 2.6 THAT ON FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE LD. CIT(A) ERRED IN CONCLUDING THAT TAX RESIDENCY C ERTIFICATE IS A PRE- REQUISITE TO CLAIM BENEFIT UNDER DTAA. 3.0 THAT THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCL USIVE AND WITHOUT PREJUDICE TO EACH OTHER. 4.0 THAT THE APPELLANT CRAVES LEAVE TO ADD ALTER AM END AND/OR RESCIND ANY OF THE ABOVE GROUNDS OF APPEAL AND TO S UBMIT SUCH STATEMENTS DOCUMENTS AND PAPERS AS MAY BE CONSIDER ED NECESSARY EITHER AT THE TIME OF OR BEFORE THE HEARING OF THIS APPEAL AS PER THE LAW. 3. WE ARE TAKING UP THE BRIEF FACTS OF ASSESSMENT Y EAR 2010-11 BEARING ITA NO. 4389/DEL./2015. 4. THE ASSESSEE COMPANY IS A PRIVATE LIMITED COMPAN Y INCORPORATED UNDER THE COMPANIES ACT 1956 ON 17.10.2003. ITS MA IN BUSINESS IS TO PROVIDE MESSAGING PRODUCT SERVICES AND VALUE ADDED SERVICES FOR VARIOUS COMMUNICATION MEDIA AND TO PROVIDE SERVICES ENABLIN G MOBILE MESSAGING VIA SOFTWARE DEVELOPMENT & SALES FOR MANAGING INBOU ND & OUTBOUND SMS MMS AND EMS. DURING THE YEAR THE ASSESSEE COMPANY HAS TAKEN OVER TWO UNDERTAKINGS OF CELLNEXT SOLUTIONS LIMITED NAMELY CELLPUSH BUSINESS UNDERTAKING AND MOBILE VALUE ADDED SERVICES BUSINES S UNDERTAKING IN A SCHEME OF ARRANGEMENT. THE MERGER TOOK PLACE IN ACC ORDANCE WITH THE PROVISIONS UNDER SECTIONS 391 TO SECTION 394 OF THE COMPANIES ACT 1956. THE SCHEMES OF ARRANGEMENT ENVISAGING THE MERGER WA S APPROVED BY THE HONBLE DELHI HIGH COURT VIDE ORDER DATED 27/03/201 2. AS A RESULT OF THIS MERGER ASSESSEE WAS ENTITLED TO CLAIM SET OFF OF AL L THE BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION PERTAIN ING TO THE TWO DEMERGED UNDERTAKINGS OF CELLNEXT SOLUTIONS LIMITED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 72A OF THE INCOME TAX ACT 19 61. DURING THE YEAR THE 8 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPR ECIATION OF CELLNEXT SOLUTIONS LIMITED (DEMERGED COMPANY) HAS BEEN ADJUS TED AGAINST INCOME UNDER THE HEAD BUSINESS AND PROFESSION AND INCOME UNDER THE HEAD OTHER SOURCES OF APPELLANT COMPANY (RESULTING COMPANY) T O THE EXTENT OF RS 1 92 18 031 AND RS 1 48 81 461 RESPECTIVELY. THE AS SESSING OFFICER DISALLOWED THE ENTIRE CLAIM OF SET OFF OF BROUGHT F ORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION. DURING THE YEAR ASSESSEE H AD PAID A SUM OF RS. 1 66 90 240/- TO A FOREIGN PARTIES AS SERVER HOSTIN G CHARGES AND TOWARDS CHARGES FOR PURCHASE OF SMS THE ASSESSING OFFICER TREATED THE SAID PAYMENT AS ROYALTY AND DISALLOWED THE ENTIRE AMOUNT PAID FO R NON DEDUCTION OF TDS. ASSESSEES GURGAON BUSINESS PREMISES ARE ON RENT. D URING THE YEAR IT HAD PAID A SUM OF RS. 57 91 192/-AS RENT TO THE LANDLOR D FOR THE USE OF THE SAME. THE ASSESSING OFFICER HELD THAT RENT PAYABLE WAS RS 54 62 892/-. CONSEQUENTLY ADDED A SUM OF RS. 3 28 300/- IN THE A SSESSABLE INCOME OF THE ASSESSEE. 5. BEING AGGRIEVED BY THE ASSESSMENT ORDER THE ASS ESSEE PREFERRED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 6. THE LD. AR SUBMITTED THAT GROUND NO. 1 AN D 2 GENERAL IN NATURE AND THEREFORE THE SAME IS NOT ADJUDICATED ABOVE. 7. AS REGARDS GROUND NO. 3 TO 3.5 REGARDING DENIAL OF SET OFF AND CARRY FORWARD OF LOSSES AND UNABSORBED DEPRECIATION OF DE MERGED BUSINESS UNDERTAKINGS OF CELLNEXT. THE LD. AR SUBMITTED THA T THE CIT(A) ERRED IN UPHOLDING THE FINANCE OF THE ASSESSING OFFICER THAT THE BUSINESS LOSS AND UNABSORBED DEPRECIATION AMOUNTING TO RS. 9 95 67 60 6/- AND RS. 2 24 16 480/- RESPECTIVELY DID NOT PERTAIN TO THE DEMERGED BUSINESS UNDERTAKINGS AND ARE CONSEQUENTLY NOT ELIGIBLE FOR SET OFF AND CARRY FORWARD IN THE HANDS OF THE ASSESSEE. THE LD. AR FURTHER SU BMITTED THAT CIT(A) ERRED IN UPHOLDING THE DENIAL OF THE SET OFF OF UNABSORBE D DEPRECIATION OF THE DEMERGED BUSINESS UNDERTAKINGS AMOUNTING TO RS. 1 4 8 81 461/- U/S 72A 9 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 OF THE ACT DURING THE PRESENT ASSESSMENT YEAR THE D ENIAL OF SET OFF OF BROUGHT FORWARD LOSS AMOUNTING TO RS. 1 92 18 032/- OF THE DEMERGED BUSINESS UNDERTAKINGS U/S 72A OF THE ACT DURING THE ASSESSME NT YEAR. THE LD. AR FURTHER SUBMITTED THAT THE CIT(A) WAS INCORRECT IN GIVING THE FINDING THAT THE ASSESSEE HAS NOT FULFILLED THE CONDITION SET OUT U/ S 72A. IN FACT THE CIT(A) SHOULD HAVE DIRECTED THE ASSESSING OFFICER TO ALLOW THE SET-OFF OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION AMOUNTING TO RS. 9 95 67 606/- AND RS. 2 24 16 480/- RESPECTIVELY OF THE DEMERGED BUSINESS UNDERTAKINGS IN PROPORTION TO THE ASSET TAKEN OVER BY THE ASSESSEE. THE LD. AR SUBMITTED THAT THE ASSESSEE COMPANY IS THE RESULTING COMPANY AND THE DEMERGED COMPANY HAS NOT CLAIMED ANY LOSSES OR CARRIED FORWA RD ANY SETOFF. THE LD. AR SUBMITTED THE DEFINITION OF MERGE U/S 2(19AA) OF THE ACT AS WELL AS SECTION 78(2) ALONG WITH 72A(4) AND (5). THE LD. AR ALSO QUOTED RULE 9 OF THE INCOME TAX RULES WHEREIN NO CONDITIONS HAS BEEN GI VEN AS REGARD MERGER OF THE COMPANIES. UNDER 72A(4) THE ASSESSEE COMPANY S HOULD NOT HAVE TO GIVE THE BOOKS OF ACCOUNTS IN RESPECT OF DEMERGER OF SUB SEQUENT ASSESSEE. THE LD. AR FURTHER POINTED OUT THAT THE ASSESSING OFFIC ER IN FACT BY CALCULATING THIS ADDITION IN RESPECT OF SET OFF OF CARRY FORWAR D LOSS MENTIONED THAT TO THE EXTENT OF RS.2 82 88 938.56/- SHOULD BE ALLOWED AND ONLY RS. 58 10 553.44/- SHOULD BE MADE AS ADDITION. THE LD. AR SUBMITTED THAT NEITHER THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAS GIVEN ANY FINDING AS TO WHY THE ADDITION HAS BEEN MADE TO THE EFFECT OF 3 4 0 99 493/- WHEN THE DEMERGE COMPANY HAS NOT CLAIMED DEPRECIATION ON THE SAME. 8. THE LD. DR AS REGARDS GROUND NO. 3 TO 3.5 SUBMIT TED THAT CIT(A) HAS GIVEN ITS FINDING IN PAGE 5 OF THE ORDER AND REQUES TED THE BENCH THAT THE MATTER MAY BE RESTORED BACK TO THE FILE OF THE CIT( A). IN ALTERNATIVE SUBMISSIONS THE LD. DR SUBMITTED THAT THE ASSESSIN G OFFICER HAS GIVEN COMPUTATION IN THE ORDER AND THE SAME SHOULD BE UPH ELD. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RELEVANT MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF THE ASSESS MENT ORDER IT CAN BE SEEN THAT WHILE CALCULATING SET OFF OF CARRY FORWAR D LOSS THE ASSESSING OFFICER 10 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 HAS NOT ALLOWED THE SET-OFF OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION OF THE DEMERGED BUSINESS UNDERTAKINGS IN PROPORTION TO THE ASSET TAKEN OVER BY THE ASSESSEE THOUGH THE ASSESSING OFFICER MENTI ONED THAT TO THE EXTENT OF RS. 2 82 88 938.56 SHOULD BE ALLOWED. THE FACT ALSO REMAINS THAT THE DEMERGED COMPANY HAS NOT CLAIMED DEPRECIATION ON TH E SAME. THUS THE CIT (A) AS WELL AS THE ASSESSING OFFICER FAILED TO APPR ECIATE THE PROPER IMPLEMENTATION OF PROVISIONS RELATED TO SET OFF OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION IN RESPECT OF RESULTING COM PANY. THEREFORE IT WILL BE APPROPRIATE TO REMAND BACK THIS ISSUE TO THE FIL E OF THE ASSESSING OFFICER FOR CALCULATING THE CORRECT AMOUNT OF SET OFF OF CA RRY FORWARD LOSS AS PER SECTION 72A AFTER TAKING INTO ACCOUNT THE UNABSORBE D DEPRECIATION. NEEDLESS TO SAY THE ASSESSEE BE GIVEN OPPORTUNITY O F HEARING BY FOLLOWING PRINCIPALS OF NATURAL JUSTICE. GROUND NO. 3 TO 3.5 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 10. AS REGARDS GROUND NO. 4 TO 4.4 RELATING TO DISA LLOWANCE OF SMS AND SERVER HOSTING CHARGES AMOUNTING TO RS. 1 66 90 240 /- U/S 40(A)(I) OF THE ACT. LD. AR SUBMITTED THAT THE CIT(A) ERRED IN UPHO LDING THAT THE EXPENSES INCURRED ON ACCOUNT OF SERVER HOSTING CHARGES AND S MS PURCHASE CHARGES WERE ROYALTY IN NATURE AS PER SECTION 9(1)(VI) OF T HE ACT. THE LD. AR FURTHER SUBMITTED THAT THE CIT(A) ERRED IN UPHOLDING THE DI SALLOWANCE OF SERVER HOSTING CHARGES AND SMS PURCHASE CHARGES U/S 40(A)( I) OF THE ACT EVEN THOUGH THE ASSESSING OFFICER FAILED TO GIVE THE PRO PER REASONING AS TO HOW THESE CHARGES ARE TAXABLE IN INDIA AS ROYALTY U/S 9 (1)(VI) OF THE ACT. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER TOTALLY IGN ORED THAT THE DOUBLE TAXATION AVOIDANCE AGREEMENTS BETWEEN INDIA AND CO UNTRY OF RESIDENCE OF THE SERVICE PROVIDERS IS APPLICABLE IN THE PRESENT CASE AND THE SERVER HOSTING CHARGES & SMS PURCHASE CHARGES CANNOT BE TERMED AS ROYALTY. THE LD. AR FURTHER SUBMITTED THAT APPLYING RETROSPECTIVE AMEND MENTS INTRODUCED BY THE FINANCE ACT 2012 TO A TRANSACTION WHICH TOOK PLACE IN FINANCIAL YEAR 2009- 10 I.E. PRIOR TO THE INTRODUCTION OF AMENDMENTS IS ALSO NOT PERMISSIBLE UNDER THE ACT. THE LD. AR SUBMITTED THAT THIS IS ONLY SER VER HOSTING CHARGES & SMS PURCHASE CHARGES AND DOES NOT HAVE ANY ELEMENT OF INCOME THEREFORE 11 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 THIS IS NOT A ROYALTY. TO DEMONSTRATE THIS THE LD. AR POINTED OUT EXPLANATION 2 WITH RESPECT TO ROYALTY AS WELL AS EX PLANATION 5 OF SECTION 9(1)(VI) OF THE INCOME TAX ACT 1961 AND FURTHER EL ABORATED THAT EXPLANATION 6 NOT COME IN THE PRESENT CASE. THE LD. AR ALSO POI NTED OUT ARTICLE 12 OF THE DTAA AND SUBMITTED THAT THE TREATY WILL OVER-RIDE T HE PROVISIONS OF THE INCOME TAX ACT. THE LD. AR RELIED UPON THE FOLLOWIN G DECISIONS: I) ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. VS. D IT 332 ITR 340 II) ITO VS. PEOPLE INTERACTIVE(I) P LTD. ITA NO. 21 80/MUM/2009 III) PCIT VS. M. TECH INDIA P. LTD. 381 ITR 31 (DEL HC) IV) CIT VS. VINZAS SOLUTIONS INDIA P. LTD. 292 CTR 332 (MAD HC) V) BHARTI AIRTEL LTD. VS. ITO 178 TTJ 708 (DEL TRI. ) VI) AMERICAN CHEMICAL SOCIETY VS. DCIT ITA NO. 6811 /MUM/2017 VII) RACKSPACE US INC. VS. DCIT (ITA NO. 1634/DEL/ 2016 VIII) DCIT VS. MAGNON SOLUTIONS PVT. LTD. ITA NO. 5 878/DEL/2014 IX) EPRSS PREPAID RECHARGE SERVICES INDIA (P.) LTD. VS. ITO (2018) 100 TAXMANN.COM 52 (PUNE TRIB.) X) DDIT VS. SAVVIS COMMUNICATION CORPORATION ITA NO . 7340/MUM/2012 THE LD. AR ALSO RELIED UPON FOLLOWING DECISIONS ON THE PREPOSITION THAT UNILATERAL AMENDMENT CANNOT HAVE A BINDING EFFECT O N A TAX TREATY AND RETROSPECTIVE AMENDMENT IN THE ACT CANNOT CREATE AN Y LIABILITY ON THE ASSESSEE: I) CIT VS. SIEMENS AKTIONGESELLSCHAFT 310 ITR 320 ( BOM HC) II) DIT VS. NOKIA NETWORK OY 358 ITR 259 (DEL HC) 12 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 III) DIT VS. INFRASOFT LTD. 220 TAXMAN 274 (DEL HC) IV) ASHOK PIRAMAL MANAGEMENT CORPN. LTD. VS. ACIT ( 2016) 161 ITD 234 V) HOLCIM SERVICES SOUTH ASIA LTD. VS. DCIT 157 ITD 892 (MUM TRI.) THE LD. AR HAS ALSO GIVEN AN ALTERNATE SUBMISSION T HAT THE SERVICES AND THE EXPENSES HAVE INCURRED OUTSIDE INDIA AND THE ASSESS EE BEING NON-RESIDENT THERE SHOULD NOT BE ANY ASSESSMENT IN INDIA AND THE RE IS NO OBLIGATION TO DEDUCT TAX AT SOURCE ON THE ASSESSEE. 11. AS REGARDS GROUND NOS. 4 TO 4.4 THE LD. DR SUB MITTED THAT THE EXPLANATION 6 OF ROYALTY HAS RETROSPECTIVE EFFECT. THE LD. DR FURTHER SUBMITTED THAT THE SERVER HOSTING AND SMS CHARGES A LL THESE ACTIVITIES COMES UNDER THE PROVISIONS OF PROCESS AND THUS RIGHTLY AD DED AS ROYALTY. IN FACT ARTICLE 12(3) OF THE DTAA THE WORD PROCESS IS AL SO USED AND ITS MEANING SHOULD BE TAKEN FROM INCOME TAX ACT ITSELF. THE LD. DR RELIED UPON THE DECISION OF THE VARIOUS HIGH COURTS AND TRIBUNALS. THE LD. DR ALSO RELIED UPON THE DECISION OF VERIZON COMMUNICATIONS SINGAPO RE PTE. LTD. VS. ITO INT. TAX. 361 ITR 575 (MAD HC) CIT INT. TAX. V S. INFOSYS TECHNOLOGIES LTD. 204 TAXMAN 311 (KARN. HC) AND CIT- INT. TAX. VS. SAMSUNG ELECTRONICS CO. LTD. 345 ITR 494 (KAR. HC). 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF THE FACTS IT CAN BE SEEN THAT THE ASSESSEE PURCHASES INTERNATIONAL SMS FOR ITS INTERN ATIONAL BUSINESS WHICH BROADLY COMPRISES OF TRADING IN SMS I.E. IT PURCHAS ES SMS FROM A FOREIGN CUSTOMER AND SELLS TO ANOTHER FOREIGN CUSTOMER. IT HAS NO OTHER ROLE IN THE DELIVERY OF SERVICES. THUS EVEN ASSUMING THAT PAYM ENT TO FOREIGN VENDORS FOR INTERNATIONAL SMS IS IN THE NATURE OF ROYALTY U NDER SECTION 9(1)(VI) OF THE ACT SUCH ROYALTY PAYMENT SHOULD NOT BE TAXED IN IN DIA AS IT PERTAINS TO PROPERTY UTILIZED FOR THE PURPOSE OF EARNING INCOME FROM A SOURCE OUTSIDE INDIA. IN THE PRESENT CASE INTERNATIONAL SMS ARE B EING PURCHASED FROM FOREIGN VENDORS FOR ONWARDS SALE TO FOREIGN CUSTOME RS. THE ASSESSEE DOES NOT 13 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 HAVE ANY OTHER ROLE IN THE DELIVERY OF SERVICES. TH US NO PART OF THE SERVICE IS BEING DELIVERED IN INDIA. THEREFORE THE PAYMENT OF SMS CHARGES TO FOREIGN SERVICE PROVIDERS IS NOT TAXABLE IN INDIA AS THE SM S FACILITY RECEIVED IS IN CONNECTION WITH EARNING OF INCOME FROM NON-RESIDENT S. ALSO THE PAYMENT FOR SMS CHARGES IS NOT TAXABLE AS ROYALTY BOTH UNDER TH E PROVISIONS OF THE INCOME TAX ACT AND DTAA. THE CASE LAWS CITED BY T HE REVENUE DOES NOT APPLY IN THE PRESENT CASE AS THE RATIO LAID DOWN IN THOSE MATTER DEPENDS UPON THE FACT THAT THERE WAS A ROYALTY ELEMENT IN E ACH OF THOSE CASE LAWS. BUT IN PRESENT CASE THERE IS NO ELEMENT OF ROYALTY AND BESIDES THAT NO SERVICE HAS BEEN PERFORMED OR DELIVERED IN INDIA. THUS THI S FACTUAL ASPECT IS IGNORED BY THE CIT(A) AS WELL AS THE ASSESSING OFFICER. GRO UND NOS. 4 TO 4.4 ARE ALLOWED. 13. AS REGARDS GROUND NO. 5 RELATING TO DISALLOWANC E OF RS. 3 28 300/- ON ACCOUNT OF RENTAL CHARGES PAID THE LD. AR SUBMITTE D THAT THE ASSESSING OFFICER QUOTED A WRONG SECTION I.E. SECTION 69C OF THE ACT. THE CIT(A) ALSO MADE MODIFICATION AND APPLIED SECTION 37(1) WHERE AS BOTH THESE SECTIONS ARE NOT AT ALL APPLICABLE WHEN THERE IS A RENT AGRE EMENT BETWEEN THE THIRD PARTY. WHILE COMPUTING THE RENT PAYABLE THE ASSESSI NG OFFICER FAILED TO CONSIDER THE INCREASE IN THE RENT WHICH IS PAYABLE. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER OUGHT NOT TO HAVE DISALL OWED SUCH AMOUNT ON PRESUMPTION BASIS. 14. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT T HERE IS A RENT AGREEMENT BETWEEN THE ASSESSEE AND THE THIRD PARTY AND AS PER THE ESCALATION CLAUSE OF THE SAID AGREEMENT THE RENT WAS INCREASED. THE ASSE SSING OFFICER IGNORED THIS ASPECT AND RELYING ON THE OLD AGREEMENT QUOTE D SECTION 69C WHICH IS NOT AT ALL APPLICABLE AS THE ASSESSEE EXPLAINED THE INCREASED RENT WITH THE DOCUMENTARY EVIDENCES. THE CIT(A) ALSO WHILE MODIFY ING THE ORDER OF THE ASSESSING OFFICER APPLIED SECTION 37(1) WHICH IS NOT AT ALL APPLICABLE WHEN 14 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 THERE IS A RENT AGREEMENT BETWEEN THE THIRD PARTY. WHILE COMPUTING THE RENT PAYABLE THE ASSESSING OFFICER FAILED TO CONSIDER TH E INCREASED IN RENT WHICH IS PAYABLE. THUS ASSESSING OFFICER AS WELL AS THE CIT(A) WERE NOT RIGHT IN MAKING THIS ADDITION. GROUND NO. 5 IS ALLOWED. 16. AS REGARDS GROUND NO. 6 RELATING TO DENIAL OF C REDIT OF TAXES DEDUCTED AT SOURCE AMOUNTING TO RS. 5 76 814/- THE LD. AR R EQUESTED THAT THE SAME SHOULD BE SET ASIDE TO THE FILE OF THE ASSESSING OF FICER IN RESPECT OF RECONCILIATION AS PER THE RECORDS AVAILABLE. 17. AS REGARD GROUND NO. 6 THE LD. DR SUBMITTED T HAT THE TDS IS APPLICABLE AS THE INCOME DERIVED IS ROYALTY IN NATU RE AND THERE IS NO APPLICATION MADE BY THE ASSESSEE UNDER SECTION 195( 2) OF THE ACT . 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. SINCE THE ISSUE HEREIN IS DECI DES AS THERE IS NO ROYALTY INVOLVED IN THE TRANSACTION THE ISSUE OF TDS WHETH ER ARISE OR NOT HAS TO BE LOOKED INTO BY THE ASSESSING OFFICER ON THE OTHER A SPECTS AND BE RECONCILED AS PER THE SUBMISSIONS OF THE LD. AR. THEREFORE IT WILL BE APPROPRIATE TO REMAND BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER AND DECIDE THIS ISSUE AFTER TAKING INTO ACCOUNT THE FINDINGS GIVEN BY US. NEEDLESS TO SAY THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWI NG PRINCIPLES OF NATURAL JUSTICE. GROUND NO. 6 IS PARTLY ALLOWED FOR STATIST ICAL PURPOSE. 19. IN RESULT APPEAL BEING ITA NO. 4389/DEL/2015 F OR A.Y. 2010-11 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 20. NOW WE ARE TAKING UP ITA NO. 4658/DEL/2019 (A.Y . 2011-12) 21. DURING THE YEAR THE BROUGHT FORWARD BUSINESS LO SSES AND UNABSORBED DEPRECIATION OF M/S CELLNEXT SOLUTIONS LIMITED (DEM ERGED COMPANY) HAS BEEN ADJUSTED AGAINST 'INCOME UNDER THE HEAD BUSINE SS AND PROFESSION AND INCOME UNDER THE HEAD OTHER SOURCES OF ASSESSEE C OMPANY (RESULTING 15 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 COMPANY) TO THE EXTENT OF RS 3 44 47 508/-.THE ASSE SSING OFFICER DISALLOWED THE SET OFF OF BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION ON THE PLEA THAT NO ENTRY OF LOSSES HAS MADE IN THE ASSESSEES BOOKS. THE TOTAL BROUGHT FORWARD BUSINESS LOSSES OF THE DEMERG ED UNDERTAKINGS OF M/S CELLNEXT SOLUTIONS LIMITED WERE OF RS.8 03 49 575/- .THE ASSESSEE HAS SET OFF OF RS 3 44 47 508/- ONLY TO THE EXTENT OF CURRENT Y EAR BUSINESS INCOME. THE ASSESSING OFFICER WHILE COMPUTING THE INCOME HAS AL LOWED SET OFF 82.96% OF RS.3 44 47 508/-. DURING THE YEAR ASSESSEE PAID A S UM OF RS.2 77 41 633/- TO FOREIGN PARTIES AS SERVER HOSTING CHARGES THE A SSESSING OFFICER TREATED THE SAID PAYMENT AS ROYALTY AND DISALLOWED THE ENTIRE A MOUNT PAID FOR NON DEDUCTION OF TDS. DURING THE YEAR CELLNEXT SOLUTION S LIMITED HAD CHARGED THE PROPORTIONATE RENT OF RS. 29 28 609/- TO THE AS SESSEE FOR SPACE OCCUPIED AND USED BY THE APPELLANT. CELLNEXT SOLUTION LIMITE D IS WHOLLY OWNED SUBSIDIARY OF APPELLANT OF WHICH TWO UNDERTAKINGS A RE MERGED WITH THE ASSESSEE. CELLNEXT HAD PAID TOTAL RENT OF RS. 45 05 550/- TO DAIS OVERSEAS PVT. LTD. AND TDS OF RS. 4 50 555/- WAS DULY DEDUCT ED AND DEPOSITED AS PER THE PROVISIONS OF SECTION 194I. DURING THE YEAR ASS ESSEE HAD INCOME FROM OTHER SOURCES OF RS. 1 46 96 961/- AND UNABSORBED D EPRECIATION OF RS.75 35 019/-. THUS THE ASSESSING OFFICER MADE AD DITION OF RS. 73 04 959/- ON ACCOUNT OF INAPPROPRIATE SET OFF CLA IMED BY THE ASSESSEE ADDITIONS OF RS. 2 77 41 633 ON ACCOUNT OF NON DEDU CTION OF TDS U/S 195 ADDITION OF RS. 29 28 609/- ON ACCOUNT OF NON DEDUC TION OF TDS U/S 195I AND ADDITIONS OF RS. 46 31 736/- ON ACCOUNT OF UNEA RNED REVENUE. 22. BEING AGGRIEVED BY THE ASSESSMENT ORDER THE AS SESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE AP PEAL OF THE ASSESSEE. 23. AS REGARDS GROUND NO. 1 THE SAME IS GENERAL IN NATURE THEREFORE IS DISMISSED. 16 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 24. AS REGARDS GROUND NO. 2 TO 2.5 SETOFF LOSS OF D EMERGED COMPANY SAME ARGUMENT HAS BEEN MADE BY THE LD. AR ONLY WITH THE MODIFICATION THAT CIT(A) HAS ENHANCED THE ADDITION WITHOUT JUSTIFYING THE SAME. 25. THE LD. DR ALSO SUBMITTED THE SAME. 26. WE HAVE GIVEN THE DETAILED FINDINGS ON THIS ISS UE HEREINABOVE. THE CIT (A) AS WELL AS THE ASSESSING OFFICER FAILED TO APPR ECIATE THE PROPER IMPLEMENTATION OF PROVISIONS RELATED TO SET OFF OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION IN RESPECT OF RESULTING COM PANY. THEREFORE IT WILL BE APPROPRIATE TO REMAND BACK THIS ISSUE TO THE FIL E OF THE ASSESSING OFFICER FOR CALCULATING THE CORRECT AMOUNT OF SET OFF OF CA RRY FORWARD LOSS AS PER SECTION 72A AFTER TAKING INTO ACCOUNT THE UNABSORBE D DEPRECIATION. NEEDLESS TO SAY THE ASSESSEE BE GIVEN OPPORTUNITY O F HEARING BY FOLLOWING PRINCIPALS OF NATURAL JUSTICE. THUS GROUND NOS. 2 TO 2.5 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 27. AS REGARDS GROUND NO. 3 TO 3.5 THE SAME ARGUMEN T HAS BEEN TAKEN BY THE LD. AR AS GIVEN UNDER GROUND NO. 4 TO 4.4 IN AS SESSMENT YEAR 2010-11 AS THE ISSUE IS IDENTICAL. 28. THE LD. DR ALSO SUBMITTED THAT THE ISSUE IS IDE NTICAL. 29. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. SINCE THE ISSUE IS IDENTICAL THEREFORE WE FOLLOW THE SAME REASONING GIVEN BY US IN A.Y. 2010-11 FOR THIS ISSU E HEREINABOVE AND THE SAME WILL APPLY IN THE PRESENT ASSESSMENT YEAR AS W ELL. THUS GROUND NOS. 3 TO 3.5 ARE ALLOWED. 30. AS REGARDS GROUND NO. 4 TO 4.2 THE LD. AR SUBM ITTED THAT THE PAYMENT MADE TO RESIDENT PAYEES AMOUNTING TO RS. 4 7 49 344 DOES NOT COME UNDER THE PURVIEW OF SECTION 40(A)(I) OF THE A CT AS THE SAID SECTION ONLY 17 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 COVERS PAYMENTS TO NON-RESIDENTS. THEREFORE THE AS SESSING OFFICER WAS NOT RIGHT IN MAKING THIS ADDITION. 31. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). 32. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT I N RELATION TO PAYMENTS MADE TO RESIDENT VENDORS THE APPLICABILITY OF WITHHOLDI NG TAX ON THESE PAY-OUTS HAS NOT BEEN DISCUSSED BY THE ASSESSING OFFICER AND THE ASSESSING OFFICER HAS NOT GIVEN ANY OPPORTUNITY TO THE ASSESSEE TO CL ARIFY THE POSITION ON WITHHOLDING TAXES ON RESIDENT PAY-OUTS. THEREFORE IT WILL BE APPROPRIATE TO REMAND BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. NEEDLESS TO SAY THE ASSESSEE BE GIVE N OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. GROUND NOS. 4 TO 4.2 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 33. AS REGARDS GROUND NOS. 5 TO 5.4 RELATING TO REN T DUE TO NON-DEDUCTION OF TAXES AT SOURCE THE LD. AR SUBMITTED THAT THE A SSESSEE MADE RENTAL PAYMENTS AMOUNTING TO RS. 1 29 01 020 AND PARTY WIS E DETAILS OF THE RENT PAID AND DEDUCTION OF TAX THEREON ALONG WITH THE AG REEMENT WAS SUBMITTED TO THE ASSESSING OFFICER ON 05.02.2014. OUT OF THE TOTAL RENT AMOUNT THE ASSESSEE DEDUCTED TAX ON RENT OF RS. 87 21 214 AND AN AMOUNT OF RS. 16 09 941 WAS PAID TO CELLNEXT. CELLNEXT HAD DEDUCT ED TAX ON THIS AMOUNT UNDER SECTION 194I OF THE ACT. FURTHER ON THE REMA INING AMOUNT OF RS. 25 69 365 NO TAX HAS BEEN DEDUCTED SINCE THE RENT PAID EACH OF THE PARTIES WAS BELOW THE EXEMPTION THRESHOLD OF RS. 1 80 000/- AS PRESCRIBED UNDER SECTION 194I OF THE ACT. THE SAID PAYMENT WAS A COS T-TO-COST REIMBURSEMENT OF RENTAL EXPENDITURE INCURRED BY CELLNEXT ON BEHAL F OF THE ASSESSEE. DURING THE YEAR THE CELLNEXT HAS PROPORTIONATELY APPROPRI ATED THE RENT OF RS. 29 28 609 TO THE ASSESSEE FOR THE SPACE OCCUPIED AN D USED BY THE ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT CELLNEXT HAS MADE TOTAL PAYMENT OF RS. 18 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 45 05 550 TO DALS OVERSEAS PRIVATE LIMITED AND ACCO RDINGLY DEDUCTED TAX AT SOURCE OF RS. 4 50 555 UNDER SECTION 194I OF THE AC T. THUS DEDUCTION OF TAX AT SOURCE BY THE ASSESSEE WOULD RESULT IN DOUBLE TA XATION OF TAX ON AFORESAID INCOME. 34. THE LD. DR SUBMITTED THAT IT IS NOT DISPUTED TH AT THE PAYMENT MADE BY THE ASSESSEE IS IN THE NATURE OF RENT AND THAT T HE SAME WAS PAID TO THE GROUP CONCERN WITHOUT ANY PROPER RENT AGREEMENT. FU RTHER THERE IS NO EVIDENCE GIVEN BY THE ASSESSEE TO DEMONSTRATE THAT THE RENT PAYMENT WAS A TEMPORARY AFFAIR ON COST TO COST BASIS. THE ASSESSE E THEREFORE COULD NOT PROVE THE PAYMENT WAS IN THE NATURE OF RENT AND THE REFORE THE ASSESSEE WAS IN DEFAULT ON ACCOUNT OF NON DEDUCTION OF TDS AS RE QUIRED U/S 194I OF THE ACT WHICH LEADS TO DISALLOWANCE OF THE SAID PAYMENT U/S 40(A)(IA) OF THE ACT. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). 35. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT T HE ASSESSEE MADE RENTAL PAYMENTS AMOUNTING TO RS. 1 29 01 020 AND PARTY WIS E DETAILS OF THE RENT PAID AND DEDUCTION OF TAX THEREON ALONG WITH THE AG REEMENT WAS SUBMITTED TO THE ASSESSING OFFICER ON 05.02.2014. OUT OF THE TOTAL RENT AMOUNT THE ASSESSEE DEDUCTED TAX ON RENT OF RS. 87 21 214 AND AN AMOUNT OF RS. 16 09 941 WAS PAID TO CELLNEXT. CELLNEXT HAD DEDUCT ED TAX ON THIS AMOUNT UNDER SECTION 194I OF THE ACT. FURTHER ON THE REMA INING AMOUNT OF RS. 25 69 365 NO TAX HAS BEEN DEDUCTED SINCE THE RENT PAID EACH OF THE PARTIES WAS BELOW THE EXEMPTION THRESHOLD OF RS. 1 80 000/- AS PRESCRIBED UNDER SECTION 194I OF THE ACT. THE SAID PAYMENT WAS A COS T-TO-COST REIMBURSEMENT OF RENTAL EXPENDITURE INCURRED BY CELLNEXT ON BEHAL F OF THE ASSESSEE. THESE CONTENTIONS OF THE ASSESSEE APPEARS TO CORRECT FROM THE SUBMISSIONS AND THE DOCUMENTS PRODUCED BEFORE THE REVENUE AUTHORITIES. BUT THESE DOCUMENTS WERE TOTALLY IGNORED BY THE ASSESSING OFFICER AS WE LL AS BY THE CIT(A). DURING THE YEAR THE CELLNEXT HAS PROPORTIONATELY APPROPRI ATED THE RENT OF RS. 29 28 609 TO THE ASSESSEE FOR THE SPACE OCCUPIED AN D USED BY THE ASSESSEE. 19 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 FROM THE PERUSAL OF THE RECORDS IT CAN BE SEEN THAT CELLNEXT HAS MADE TOTAL PAYMENT OF RS. 45 05 550 TO DALS OVERSEAS PRIVATE L IMITED AND ACCORDINGLY DEDUCTED TAX AT SOURCE OF RS. 4 50 555 UNDER SECTIO N 194I OF THE ACT. THUS DEDUCTION OF TAX AT SOURCE BY THE ASSESSEE WOULD RE SULT IN DOUBLE TAXATION OF TAX ON AFORESAID INCOME. THEREFORE THE CIT(A) AS W ELL AS ASSESSING OFFICER WAS NOT RIGHT IN DISALLOWING THE RENT DUE TO NON-DE DUCTION OF TAX AT SOURCE. GROUND NOS. 5 TO 5.4 IS ALLOWED. 36. AS REGARDS GROUND NO. 6 RELATING TO NON GIVING OF PROPER CREDIT OF PREPAID TAXES THE LD. AR SUBMITTED THAT DIRECTION MAY BE GIVEN. 37. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). 38. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. SINCE THE PREPAID TAXES HAS NO T BEEN CONSIDERED BY THE ASSESSING OFFICER WHILE DETERMINED THE TOTAL INCOME . IT WILL BE APPROPRIATE TO REMAND BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR CONSIDERING THE ASPECT OF PREPAID TAXES AND GIVING PROPER CREDIT TO THAT EFFECT. NEEDLESS TO SAY THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING B Y FOLLOWING PRINCIPLES OF NATURAL JUSTICE. GROUND NO. 6 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 39. AS REGARDS GROUND NO. 7 THE LD. AR SUBMITTED T HAT INTEREST UNDER SECTION 234C SHOULD BE RE-COMPUTED AND BE GIVEN PRO PER EFFECT. 40. THE LD. DR SUBMITTED THAT INTEREST UNDER SECTIO N 234C HAS NOT BEEN ADJUDICATED BY THE CIT(A) AND RELIED UPON THE ASSES SMENT ORDER. 41. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT I NTEREST UNDER SECTION 234B AND SECTION 234C WERE NOT ADJUDICATED UPON BY THE C IT(A) THEREFORE IT WILL BE APPROPRIATE TO REMAND BACK THIS ISSUE TO THE FIL E OF THE ASSESSING OFFICER 20 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 TO DECIDE IT AFTER VERIFYING ALL THE ASPECT OF THE INCOME OF THE ASSESSEE RELATING TO INTEREST UNDER SECTION 234B AND 234C OF THE ACT. NEEDLESS TO SAY THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOL LOWING PRINCIPLES OF NATURAL JUSTICE. GROUND NO. 7 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 42. IN RESULT APPEAL BEING ITA NO. 4658/DEL/2019 F OR A.Y. 2011-12 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 43. NOW WE ARE TAKING UP ITA NO. 487/DEL/2019 (AY 2 013-14) 44. THE ASSESSEE FILED ITS ORIGINAL RETURN OF INCOM E UNDER SECTION 1391 OF THE ACT ON 29.11.2013 DECLARING AN INCOME OF RS. 54 65 300/- AND REVISED RETURN SHOWING INCOME OF RS. 54 65 300 WAS ELECTRON ICALLY FILED ON 19.12.2014. THE RETURN OF INCOME WAS REVISED TO CLA IM THE ADDITIONAL AMOUNT OF CREDIT OF TDS WHICH THE APPELLANT WAS ELI GIBLE TO CLAIM AFTER MERGER OF UNDERTAKINGS OF CELLNEXT SOLUTIONS LIMITE D. THE ASSESSEES RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE WAS ISSUED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER ASSESSED THE TOTAL I NCOME AT RS. 8 90 37 553/- BY MAKING FOLLOWING ADDITIONS: I) DISALLOWANCE OF PAYMENT AMOUNTING TO RS.8 09 79 158/- MADE BY THE ASSESSEE TO FOREIGN SERVICES PROVIDERS ON ACCOUNT O F SERVER HOSTING CHARGES AND SMS CHARGES UNDER SECTION 40(A)(I)/37(1 ) OF THE ACT. II) DISALLOWANCE OF EXPENSES AMOUNTING TO RS. 14 38 554 UNDER SECTION 14A OF THE ACT. III) DISALLOWANCE OF INTEREST EXPENSES AMOUNTING TO RS. 11 54 541 UNDER SECTION 40(A)(IA) OF THE ACT. 45. BEING AGGRIEVED BY THE ASSESSMENT ORDER THE AS SESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE AP PEAL OF THE ASSESSEE. 46. AS REGARDS GROUND NO. 1 THE SAME IS GENERAL IN NATURE HENCE DISMISSED. 21 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 47. AS REGARDS TO GROUND NOS. 2 TO 2.6 THE LD. AR SUBMITTED THAT THE SAME IS IDENTICAL TO THE GROUND NOS. 4 TO 4.2 FOR A SSESSMENT YEAR 2010-11. 48. THE LD. DR ALSO SUBMITTED THAT THE ISSUE IS ID ENTICAL. 49. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. SINCE THE ISSUE IS IDENTICAL THEREFORE WE FOLLOW THE SAME REASONING GIVEN BY US IN A.Y. 2010-11 FOR THIS ISSU E HEREINABOVE AND THE SAME WILL APPLY IN THE PRESENT ASSESSMENT YEAR AS W ELL. THUS GROUND NOS. 2 TO 2.6 ARE ALLOWED. HENCE APPEAL BEING ITA NO. 487 /DEL/2019 (AY 2013-14) IS ALLOWED. 50. IN RESULT TWO APPEALS BEING ITA NO. 4389/DEL/2 015 FOR A.Y. 2010-11 AND ITA NO. 4658/DEL/2019 FOR A.Y. 2011-12 ARE PART LY ALLOWED FOR STATISTICAL PURPOSE AND APPEAL BEING ITA NO. 487/DE L/2019 FOR AY 2013-14 IS ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 21 ST NOVEMBER 2019. SD/- SD/- (N.K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 21 ST NOVEMBER 2019. *BR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR ITAT NEW DELHI 22 ITA NO.4389/DEL/2015 ITA NO. 4658 487/DEL/2019 SL. NO. PARTICULARS DATE 1. DATE OF DICTATION: 24/10/2019 2. DATE ON WHICH THE DRAFT OF ORDER IS PLACED BEFORE THE DICTATING MEMBER: 25/10/2019 3. DATE ON WHICH THE DRAFT OF ORDER IS PLACED BEFORE THE OTHER MEMBER: 21/11/2019 4. DATE ON WHICH THE APPROVED DRAFT OF ORDER COMES TO THE SR. PS/PS: 21/11/2019 5. DATE OF WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT: 21/11/2019 6. DATE ON WHICH THE FINAL ORDER RECEIVED AFTER HAVING BEEN SINGED/PRONOUNCED BY THE MEMBERS: 21/11/2019 7. DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT: 21/11/2019 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 21/11/2019 9. DATE ON WHICH FILES GOES TO THE HEAD CLERK: 10. DATE ON WHICH FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 11. DATE OF DISPATCH OF ORDER: