DELOITE CONSULTING INDIA P. LTD, v. DCIT RG 2(2),

MA 344/MUM/2012 | 2006-2007
Pronouncement Date: 27-07-2012 | Result: Partly Allowed

Appeal Details

RSA Number 34419924 RSA 2012
Assessee PAN AACCM6469M
Bench Mumbai
Appeal Number MA 344/MUM/2012
Duration Of Justice 1 month(s) 28 day(s)
Appellant DELOITE CONSULTING INDIA P. LTD,
Respondent DCIT RG 2(2),
Appeal Type Miscellaneous Application
Pronouncement Date 27-07-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted L
Tribunal Order Date 27-07-2012
Assessment Year 2006-2007
Appeal Filed On 30-05-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI L BENCH MUMBAI BENCHES MUMBAI BEFORE SHRI B RAMAKOTAIAH AM & SHRI VIJAY PAL R AO JM MISCELLANEOUS APPLICATION NO.344/MUM/2012 ARISING OUT OF ITA NO. 579/MUM/2011 (ASST YEAR 2006-07) DELOITTE CONSULTING INDIA P LTD FAIRMONT LEVEL 2 HIRANANDANI BUSINESS PARK POWAI MUMBAI 76 VS THE DY COMMR OF INCOME TAX RANGE 2(2) MUMBAI (APPLICANT) (RESPONDENT) PAN NO. AACCM6469M ASSESSEE BY SH ARVIND SONDE/AYUSH RAJANI REVENUE BY SH A K N AYAK DT.OF HEARING 29 TH JUNE 2012 DT OF PRONOUNCEMENT 27 TH JULY 2012 PER VIJAY PAL RAO JM THIS MISCELLANEOUS APPLICATION BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 30.3.2012 OF THIS TRIBUNAL WHEREBY THE APPEAL S OF THE ASSESSEE IN ITA NOS.579 1272 1273/MUM/2011 FOR THE AYS 2006-07 20 04-05 AND 2005-6 ALONG WITH OTHER APPEALS WERE DISPOSED OFF. 2 THE FIRST MISTAKE POINTED OUT IN THE MISCELLANEOU S APPLICATION BY THE ASSESSEE IS REGARDING NON ADJUDICATION OF THE ISSUE OF DISAL LOWANCE U/S 14A OF THE IT ACT. 3 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS RAISED GROUND NO.2 OF THE APPEAL REGARDING THE DISALLOWANCE U/S 14A AS UNDER: MA 344/M/2012 DELOITTE CONSULTING INDIA P LTD 2 2 DISALLOWANCE U/S 14A OF THE I T ACT 1961. 2.1 THE CITIA) ERRED IN DIRECTING THE ASSESSING OFF ICER TO MAKE REASONABLE DISALLOWANCE U/S 14A OF THE I T ACT 1961 IN ACCORDA NCE WITH THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MAN UFACTURING CO LTD VS DCIT REPORTED IN (20120)43 DTR 177). 3.1 AFTER GOING THROUGH THE IMPUGNED ORDER WE FIND THAT THIS ISSUE REGARDING THE DISALLOWANCE U/S 14A OF THE ACT HAS BEEN LEFT UN-AD JUDICATED AND THEREFORE THERE IS AN APPARENT MISTAKE IN THE IMPUGNED ORDER OF THIS T RIBUNAL WHICH REQUIRES TO BE RECTIFIED. 3.2 SINCE THE ISSUE IS NOW COVERED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO & LTD VS ACIT REPORTED IN 328 ITR 81(BOM) AND THE COMMISSIONER OF INCOME TAX(APPEALS) HAS DIRECTED THE ASSESSING OFFICER TO MAKE THE REASONABLE DISALLOWANCE U/S 14A IN ACCORDANCE WITH THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA); THEREFORE WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE COMMI SSIONER OF INCOME TAX(APPEALS) QUA THIS ISSUE. 3.3 AS THE ASSESSEE HAS RAISED A POINT THAT NO DIRE CT OR INDIRECT EXPENSE HAS BEEN INCURRED TO EARN THE EXEMPT INCOME; THEREFORE THE ASSESSING OFFICER IS DIRECTED TO TAKE INTO CONSIDERATION THE CONTENTION OF THE ASSES SEE WHILE DECIDING THE ISSUE. 4 THE SECOND MISTAKE AS ALLEGED BY THE ASSESSEE IN THE MISCELLANEOUS APPLICATION IS REGARDING THE DISALLOWANCE OF DEDUCT ION U/S 10A ON SUO-MOTO MA 344/M/2012 DELOITTE CONSULTING INDIA P LTD 3 DISALLOWANCE MADE BY THE ASSESSEE IN RELATION TO RE IMBURSEMENT OF SALARY AND EXPENSES OF ITS AE. 5 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD AR HAS SUB MITTED THAT THERE WAS NO ADJUSTMENT BY THE TPO WITH REGARDING THE ALP IN RES PECT OF THE EXPENDITURE BECAUSE THE ASSESSEE ITSELF HAS MADE SUO-MOTO DISALLOWANCE; THEREFORE THE PROVISO TO SEC. 92C(4) IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE AND ACCORDINGLY NO DISALLOWANCE IS CALLED FOR U/S 10A. HE HAS FURTHER SUBMITTED THAT DURING THE HEARING THE ASSESSEE HAS ADVANCED THE ARGUMENTS THAT NO ADJ USTMENT WAS MADE BY THE TPO AND THE ASSESSEE MADE SUO-MOTO ADJUSTMENT; THERE IS NO ENHANCEMENT IN THE INCOME OF THE ASSESSEE AND ACCORDINGLY PROVISO TO SEC. 92C(4) IS NOT APPLICABLE IN VIEW OF THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF I GATE GLOBAL SOLUTIONS LTD VS ACIT REPORTED IN 112 TTJ 10 02 . HE HAS FURTHER SUBMITTED THAT THIS TRIBUNAL HAS DECIDED THE ISSUE AGAINST THE ASS ESSEE BY HOLDING THAT THE ASSESSEE DOES NOT FULFIL THE CONDITIONS OF SEC. 10A OF THE ACT WHEREAS THIS ASPECT OF THE MATTER WAS NEVER MENTIONED/DISCUSSED NOR PUT FORTH TO THE ASSESSEE BY THE TRIBUNAL DURING THE COURSE OF HEARING OF THE APPEAL. HE HAS FURTHER CONTENDED THAT THE OBSERVATIONS OF THE TRIBUNAL ARE THEREFORE INCORR ECT AND AGAINST THE DECISION OF THE BANGALORE BENCHES OF THE TRIBUNAL IN THE CASE OF I GATE GLOBAL SOLUTIONS LTD (SUPRA). 5.1 THE LD AR HAS REITERATED THE SUBMISSIONS AS MAD E DURING THE HEARING OF THE APPEAL AND SUBMITTED THAT THE ISSUE IS COVERED BY T HE DECISION OF THE BANGALORE BENCHES OF THE TRIBUNAL IN THE CASE OF I GATE GLOBA L SOLUTIONS LTD (SUPRA). 5.2 ON THE OTHER HAND THE LD DR HAS SUBMITTED THAT THE TRIBUNAL HAS ALREADY CONSIDERED ALL THE CONTENTIONS AS WELL AS THE RELEV ANT FACTS ON THE ISSUE AND MA 344/M/2012 DELOITTE CONSULTING INDIA P LTD 4 THEREFORE THE DECISION OF THE TRIBUNAL CANNOT BE R EVIEWED IN THE PRESENT PROCEEDINGS. 5.3 THE MAIN GRIEVANCE OF THE ASSESSEE AS RAISED I N THE MISCELLANEOUS APPLICATION ON THE ISSUE OF DISALLOWANCE OF DEDUCTI ON U/S 10A IS THAT THE TRIBUNAL HAS DECIDED THE ISSUE AGAINST THE ASSESSEE ON A DIFFERE NT AND FRESH POINT WITHOUT GIVING THE ASSESSEE AN OPPORTUNITY TO EXPLAIN THE SAME. T HIS CONTENTION OF THE ASSESSEE IS ENTIRELY CONTRARY TO THE RECORD. IT IS EVIDENT FROM THE ASSESSMENT ORDER THAT THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF DEDUC TION U/S 10A ON THE GROUND THAT THE INCOME DUE TO SUO-MOTO ADJUSTMENT MADE BY THE ASSESSEE DOES NOT BEARS THE CHARACTER OF INCOME WHICH HAS A NEXUS WITH THE SOF TWARE DEVELOPMENT ACTIVITY OF THE ASSESSEE. THUS THE ASSESSING OFFICER WAS OF T HE VIEW THAT THE INCOME BEING NOT DERIVED FROM THE SOFTWARE DEVELOPMENT ACTIVITY DOES NOT QUALIFY FOR DEDUCTION U/S 10A. THE RELEVANT PART OF THE ORDER OF THE ASSESSI NG OFFICER IS AS UNDER: I HAVE CAREFULLY PERUSED AND CONSIDERED THE SUBMIS SIONS MADE BY THE REPRESENTATIVE OF THE ASSESSEE. AT THE OUTSET IT NEEDS TO BE MENTIONED THAT THE IM PUGNED ADDITION MADE BY THE ASSESSEE IN THE COMPUTATION OF TOTAL INCOME WHE THER CAN BE TERMED AS INCOME DERIVED FROM THE ACTIVITY QUALIFYING FOR DEDUCT ION U/S 10A.IN THIS REGARD EMPHASIS NEEDS TO BE PLACED ON THE FACT THAT THIS ADDITION IS AN AD- HOC ADDITION WITHOUT ANY SUPPORT FROM THE BOOKS OF A CCOUNT AND AUDIT REPORT U/S 93A. THE ADDITION SO MADE AS A MATTER OF ACT BE ARS THE CHARACTER OF AN INCOME WHICH HAS NO NEXUS WITH THE SOFTWARE DEVELOP MENT ACTIVITY ASSESSEE IS ENGAGED IN. IT IS MORE ANALOGOUS WITH THE BUSINES S INCOME WHICH IS NOT DERIVED FROM SUCH ACTIVITY. FOLLOWING THE RULING OF HONBLE SUPREME COURT IN THE CASE OF STERLING FOODS (237 ITR 579) THE INCOM E BEING NOT DERIVED FROM THE SOFTWARE DEVELOPMENT ACTIVITY DOES NOT QUALIFY FOR DEDUCTION U/S 10A. AS A MATER OF FACT THE AVAILABILITY OF DEDUCTION U/S 1 0A TO BE UNDERTAKING HAS PROMPTED ASSESSEE TO MAKE SUCH VARIATION IN THE INCO ME KNOWING FULLY WELL THAT IT HAS NO IMPACT ON THE TAX. IN THE LIGHT OF AFORESAID DISCUSSION AND HAVING REGAR D TO THE PRECEDENCE IN ASSESSES OWN CASE I DECLINE TO ENTERTAIN ASSESSEE S CLAIM OF DEDUCTION U/S 10A ON THIS ADDITIONAL INCOME OF ` 4 94 97 317/-. PROCEEDINGS U/S 271(1)( C) ARE INITIATED AS THE ASSESSEE HAS COMMITTED DEFAULT WITHIN THE MEANING OF THAT SECTION. MA 344/M/2012 DELOITTE CONSULTING INDIA P LTD 5 5.4 WE FURTHER NOTE THAT THE COMMISSIONER OF INCOME TAX(APPEALS) HAS CONFIRMED THE DISALLOWANCE ON SIMILAR REASONS IN PA RA 3.3.4 AS UNDER: 3.3.4 I ALSO AGREE WITH THE ASSESSING OFFICER THAT OTHERWISE ALSO THE ENHANCED INCOME BEING NOT GERMANE TO THE APPELLANT S SOFTWARE BUSINESS IS INELIGIBLE FOR THE EXEMPTION U/S 10A. AS I FIND TH E ASSESSING OFFICER HAS RIGHTLY POINTED OUT THAT THE INCOME RESULTING OUT OF THE AD JUSTMENT HAS NOTHING TO DO WITH THE APPELLANTS LINE OF BUSINESS AND THIS BEIN G SO EXEMPTION U/S 10A CANNOT BE GIVEN. IN THIS RESPECT THE DECISION OF TH E HON. SUPREME COURT IN THE CASE LIBERTY INDIA VS CIT 317 ITR 218 BEARS SPE CIAL MENTION. AS ELUCIDATED IN THIS DECISION DEDUCTIONS U/S 10I 901A 801B AR E TO BE ALLOWED ONLY ON THE PROFITS AND GAINS WHICH HAVE ONLY THE FIRST DEGREE NEXUS WITH THE BUSINESS/UNDERTAKINGS. TESTED ON THIS PARAMETER TH E INCOME IN QUESTION HERE BEING MERELY THE RESULT OF COMPUTATION CANNOT BE SAI D TO BE WITHIN THE FIRST DEGREE NEXUS WITH THE APPELLANTS BUSINESS. IN T TH IS LIGHT I FIND THE ASSESSING OFFICERS DECISION LOGICAL. 6 THUS IT IS CLEAR THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE COMMISSIONER OF INCOME TAX(APPEALS ) WAS ON THE GROUND THAT THE INCOME RESULTING DUE TO THE ADJUSTMENT MADE BY THE ASSESSEE IN ALP HAS NO FIRST DEGREE NEXUS WITH THE BUSINESS/UNDERTAKING OF THE A SSESSEE AND THEREFORE THE ISSUE BEFORE THE TRIBUNAL WAS WHETHER THE CONDITIONS SPEC IFIED U/S 10A WERE FULFILLED OR NOT? 7 THE TRIBUNAL HAS CONSIDERED AND DECIDED THIS ISSU E IN PARAS 50 & 51 AS UNDER: 50. COMING TO THE BANGALORE BENCH OF THE TRIBUNAL IN I-GATE GLOBAL \SOLUTIONS LTD. (SUPRA) THE TRIBUNAL HELD THAT IF THE ASSESSEE ITSELF DISCLOSES INCOME AT ALP WHICH IS MORE THAN THE PRICE SHOWN I N THE BOOK IT IS NOT A CASE OF ENHANCEMENT WITHIN THE MEANING OF PROVISO TO SECTION 92C(4). DUE TO DETERMINATION OF ALP BY THE ASSESSEE AT A HIGHER FIGURE AND THE ASSESSEE WILL BE ENTITLED TO EXEMPTION UNDER SECTION BA ON S UCH DECLARED INCOME. THE TRIBUNAL WAS NOT CONCERNED WITH THE ISSUE AS TO WHETH ER THE CONDITIONS SPECIFIED UNDER SECTION 1OA WERE FULFILLED BY THE AS SESSEE OR NOT. IN THE CASE ON HAND THE ASSESSEE HAS NOT COMPLIED WITH THE PROV ISIONS OF SECTION 10A TO THE TUNE OF INCOME BY WAY OF ADJUSTMENT OF ALP. IN FACT THE ASSESSEE ENHANCED ITS INCOME NOT BY MAKING ADJUSTMENT OF AL P BY FILING A REVISED TP REPORT BUT ONLY BY SUO-MOTU DISALLOWING CERTAIN EXPEN DITURE U/S 37 SECTION 10A(I)READS AS FOLLOWS - SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED U NDERTAKINGS IN FREE MA 344/M/2012 DELOITTE CONSULTING INDIA P LTD 6 10A. () SUBJECT TO THE PROVISIONS OF THIS SECTION A DEDUCTION OF SUCH PFL AND GAINS .S ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES PR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSE SSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE P REVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SUC H ARTICLES OR THINGS OR COMPUTER SOFTWARE AS THE CASE MAY BE SHALL BE ALLOW ED FROM THE TOTAL INCOME OF THE ASSESSEE: PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME OF THE UNDERTAKING FOR ANY ASSESSMENT YEAR ITS PROFITS AND GAINS HAD NOT B EEN INCLUDED BY APPLICATION OF THE PROVISIONS OF THIS SECTION AS IT STOOD IMMEDIATELY BEFORE ITS SUBSTITUTION BY THE FINANCE ACT 2000 THE UNDERTAKI NG SHALL BE ENTITLED TO DEDUCTION REFERRED TO IN THIS SUB-SECTION ONLY FAR TH E UNEXPIRED PERIOD OF THE AFORESAID TEN CONSECUTIVE ASSESSMENT YEARS: PROVIDED FURTHER THAT WHERE AN UNDERTAKING INITIALLY LO CATED IN ANY FREE TRADE ZONE OR EXPORT PROCESSING ZONE IS SUBSEQUENTLY LOCATE D IN A SPECIAL ECONOMIC ZONE BY REASON OF CONVERSION OF SUCH FREE TRADE ZONE OR EXPORT PROCESSING ZONE INTO A SPECIAL ECONOMIC ZONE THE PERIOD OF TE N CONSECUTIVE ASSESSMENT YEARS REFERRED TO IN THIS SUB-SECTION SHALL BE RECKON ED FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTA KING BEGAN TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE) IN SUCH FREE TRADE ZONE OR EXPORT PROCESSING ZONE: (PROVIDED ALSO THAT FOR THE ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL 2003 THE DEDUCTION UNDER THIS SUB-SECTION SHALL BE NINETY PER CENT OF THE PROFITS AND GAINS DERIVED BY AN UNDERTAKING FROM THE E XPORT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE: PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SH ALL BE ALLOWED TO ANY UNDERTAKING FOR THE ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL 2012 AND SUBSEQUENT YEARS. 51. THE C.LT (A) AT PAGE 6 PARA 3. 3.4 OF HIS ORDER F OR ASSESSMENT YEAR 2006-07 HELD THAT THE INCOME ARISING OUT OF THE ADJUSTMENT IS NOT DERIVED BY THEUNDERTAKING FROM EXPERT THIS FINDING THAT REQUIREME NT OF SECTION 10A HAVE NOT BEEN COMPILED WITH BY THE ASSESSEE IS NOT BEIN G FACTUALLY CONTROVERTED BY THE LEARNED COUNSEL. THUS THIS FINDING HAS TO B E UP ASSESSMENT YEARS. THE OTHER REQUIREMENTS OF SECTION 10A ARE ALSO NOT COMPL IED WITH WHICH ON THESE ADJUSTMENTS.. HENCE THE ASSESSEE IS NOT TO DEDUCTIO NS UNDER SECTION 10 A. 8 IT IS MANIFEST FROM THE IMPUGNED ORDER OF THE TRI BUNAL THAT THE FINDING OF THE TRIBUNAL IS NOT BASED ON ANY NEW ISSUE OR POINT; BU T THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE COMMISSI ONER OF INCOME TAX (APPEALS) ON THE VERY SAME POINT. ACCORDINGLY THERE IS NO A PPARENT AND PATENT MISTAKE IN MA 344/M/2012 DELOITTE CONSULTING INDIA P LTD 7 THE ORDER OF THE TRIBUNAL RELATING TO THE FINDING O N THE ISSUE OF DISALLOWANCE OF DEDUCTION U/S 10A WHICH CAN BE RECTIFIED UNDER THE PROVISIONS OF SEC. 254(2). 9 EVEN OTHER OTHERWISE THE SCOPE OF SEC 254(2 ) IS VERY LIMITED AND CIRCUMSCRIBED. FOR EXERCISING THE JURISDICTIONAL U/ S 254(2) IT IS THE MANDATORY CONDITION THAT SUCH MISTAKE SHOULD BE WIDE APPARENT MANIFEST AND PATENT AND NOT SOMETHING WHICH COULD BE INVOLVED SERIOUS CIRCUMSTA NCES OF DISPUTES OF QUESTION OF FACTS OR LAW AND CAN BE ESTABLISHED BY LONG DRAWN P ROCESS AND REASONING ON THE POINT TO BE RECTIFIED. A PATENT MISTAKE AS WELL AS EVIDENT ERROR WHICH DOES NOT REQUIRE AN ELABORATE DISCUSSION OF EVIDENCE OR ARGU MENTS TO ESTABLISH CAN BE SAID TO BE AN ERROR APPARENT ON THE FACE OF THE RECORDS AND CAN BE RECTIFIED UNDER THE AMBIT OF SECTION 254(2). IT IS WELL SETTLED THAT S EC 254(2) DOES NOT CONFER POWER ON THE TRIBUNAL TO REVIEW IS EARLIER ORDER. THUS THE TRIBUNAL HAS NO POWER TO REVIEW ITS ORDER PASSED ON MERIT AND IN THE GRAB OF RECTIFICAT ION OF MISTAKE NO ORDER CAN BE PASSED U/S 254(2) WHICH AMOUNTS TO REVERSAL OF THE ORDER PASSED AFTER DISCUSSING ALL THE FACTS AND STATUTORY PROVISIONS IN DETAIL. THER EFORE WE DO NOT FIND ANY MERIT IN THE MISCELLANEOUS APPLICATION FILED BY THE ASSESSEE ON THIS ISSUE. 10 IN THE RESULT THE MISCELLANEOUS APPLICATION FIL ED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 27 TH DAY OF JULY 2012 SD/- SD/- ( B RAMAKOTIAH ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 27 TH JULY 2012 RAJ* MA 344/M/2012 DELOITTE CONSULTING INDIA P LTD 8 COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR ITAT MUMBAI