M. Tech India P. Ltd., New Delhi vs Assessee

ITA NO.3893/Del/2012 & CO NO. 352/DEL/2012

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH "E", NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI H.S. SIDHU, JUDICIAL MEMBER I.T.A. No. 3893/Del/2012 A.Y. : 2008-09 INCOME TAX OFFICER, VS. M/S M. TECH INDIA P LTD., WARD 6(1), C-58, KAILASH APARTMENT, NEW DELHI KASILASH COLONY, NEW DELHI - 48 (PAN: AAACM9794N) (APPELLANT) (RESPONDENT) AND C.O. NO. 352/Del/2012 (In ITA No. 3893/Del/2012) A.Y. : 2008-09 M/S M. TECH INDIA P LTD., VS. INCOME TAX OFFICER, C-58, KAILASH APARTMENT, WARD 6(1), KASILASH COLONY, NEW DELHI NEW DELHI - 48 (PAN: AAACM9794N) (APPELLANT) (RESPONDENT)

Department by : Sh. P. DAM KANUNJNA, Sr. DR Assessee by : Sh. Ved Jain, CA, Ms. Rano Jain, Adv. & Sh. V. Chaurasiya, Adv

Date of Hearing : 26-3-2015 Date of Order : 31-3-2015 ORDER

PER H.S. SIDHU : JM This appeal filed by the Revenue and Cross objection filed by

the Assessee emanate out of the Order passed by the

Ld. CIT(A)-IX, New Delhi pertaining to assessment year 2008-09.

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ITA NO.3893/Del/2012 & CO NO. 352/DEL/2012

2. The grounds raised in the Revenue's appeal read as under:-

"1. The order of the Ld. CIT(A) is erroneous and

contrary to the facts and law.

2. On the facts and in the circumstances of the case

and in law, the Ld. CIT(A) has erred in deleting the

addition of Rs. 76,23,426/- u/s. 40(a)(ia) on account

of payment made to licensor.

3. On the facts and in the circumstances of the case

and in law, the Ld. CIT(A) has erred in deleting the

addition of Rs. 13,78,496/- u/s. 40(a)(ia) on account

of payment made for Catche License procurement

and software update catch.

4. On the facts and in the circumstances of the case

and in law, the Ld. CIT(A) has erred in deleting the

addition of Rs. 2,96,861/- on account of expenditure

made on tour to Maldives.

5. On the facts and in the circumstances of the case

and in law, the Ld. CIT(A) has erred in deleting the

addition of Rs. 4,38,980/- on account of expenditure

made on client hardware.

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ITA NO.3893/Del/2012 & CO NO. 352/DEL/2012

6. The appellant craves leave to add, to alter, or

amend any grounds of appeal raised above at the

time of hearing."

3. The grounds raised in the Assessee's Cross Objection read as

under:-

"1. On the facts and circumstances of the case, the

Ld. CIT(A) has erred both on facts and in law in

rejecting the contention of the assessee that the

assessment made under section 143(3) is bad in

law being made by an AO and having proper

jurisdiction.

2. On the facts and circumstances of the case,

the Ld. CIT(A) has erred both on facts and in law in

rejecting the contention of the assesse that the

order passed under section 143(3) is bad and liable

to be quashed as the same has been made without

proper service of notice under section 143(2) of the

Act.

3. The appellant craves leave to add, amend or

alter any of the grounds of cross objection."

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ITA NO.3893/Del/2012 & CO NO. 352/DEL/2012

4. Briefly stated the facts are that the assessee company carried

on the business of licensing of health care software. The Return of

income was filed on 27.9.2008 declaring NIL income. The case was

processed u/s. 143(1) and subsequently selected for scrutiny.

Statutory notice u/s. 143(2) was issued and served on the assessee.

The assessment was completed u/s. 143(3) vide order dated

28.12.2010 at an income of Rs. 77,46,180/- making various

additions.

5. At the time of hearing, Ld. Counsel of the assessee filed

Synopsis and stated that the facts of the case and the law applicable

to the issues in dispute have already been decided in favor of the

assessee in assessee's own case by the Hon'ble Jurisdictional High

Court, therefore, in view of the synopsis the appeal filed by the

Revenue may be dismissed.

6. On the contrary, Ld. DR relied upon the order passed by the

AO and reiterated the contentions raised by the Revenue in the

Grounds of Appeal.

7. We have heard both the counsel and perused the records

available on record with us, especially the orders passed by the

Revenue Authorities alongwith the Synopsis filed by the Ld. Counsel

of the assessee. As regards the issue involved in Ground No. 1, the

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same is general in nature, therefore need not be adjudicated the

same.

8. As regards Ground No. 2 relating to disallowance u/s. 40(A)(i)

of the I.T. Act on payment to the licensor amounting to Rs.

76,23,426/-. We find that the AO has discussed this issue at para 1-

2 from pages 1-2 regarding the payment to M/s Tracer Health Pty.

Ltd., Australian Company - Rs. 66,87,509/- and Speed Miners,

Malaysia Rs. 9,35,987/-, the additions made by the AO. In appeal

Ld. CIT(A) has discussed the same at page 9 and para 5.4 to 5.6.

After going through the order of the Revenue Authorities and the

Written submissions of the assessee, we are of the view that the

assessee deals in resale of software. During the year it purchased

software from Mls Track Health Pvt. Ltd. & Speed Miners, Malaysia

for Rs.76,23,426. These purchases were made against the specific

order from the end user only, i.e. for sale. Agreement with Track

Health s placed at PB Pg. 30 onwards. There was no written

agreement with Speed Miners. The assessee has actually been

appointed on VAR (Value Added Reseller) by these entities. The AO

made the disallowance invoking the provision of Section 40(a)(i),

treating the nature of the amount to be that of royalty. In the past,

the same transaction of purchase from Track Health has been

treated as purchaser only. Assessments have been made under

section 143(3) of the Act. No doubt the AO had relied on the order 5 ITA NO.3893/Del/2012 & CO NO. 352/DEL/2012

of Delhi ITAT in the case of Microsoft Corporation, the facts are

distinguishable with the facts of the assessee. After going through

the orders passed by the ITAT, Delhi Bench and the Hon'ble

Jurisdictional High Court in the case of CIT vs. Dynamic Vertical

Software India (P) Ltd. (2011) 332 ITR 222 (Del) whereby it has been

held that:-

"3. What is found, as a matter of fact, is that the

assessee has been purchasing the software from

Microsoft and sold it further in Indian market. By no

stretch of imagination it would be termed as

"royalty".

8.1 Keeping in view of the decision of the Hon'ble Jurisdictional

High Court passed in the case of CIT vs. Dynamic Vertical Sofware

India (P) Ltd, (2011) 332 ITR 222 (Del.), we are of the considered

view that the dispute is squarely covered in favor of the assessee.

Respectfully, following the same precedent, the issue involved in

Ground No. 2 is decided against the Revenue by upholding the

order of the Ld. CIT(A) on this issue.

9. As regards Ground No. 3 relating to disallowance u/s. 40(a)(ai)

of the I.T. Act on payment to Catche License Procurement &

Software update - Catch amounting to

Rs. 13,78,496/-. We find that the AO has discussed this issue at

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para 3 and at page 2 regarding the payment made to Intersystem

India Private Limited, the additions made by the AO. In appeal Ld.

CIT(A) has discussed the same at page 11 and para 6.4 After going

through the order of the Revenue Authorities and the Written

submissions of the assessee, we are of the view that the amount

was paid to M/s Intersystem India Pvt. Ltd., Gurgaon relating to

payment of Catche Licenses Procurement. This has also been

disallowed by the AO invoking the provision of section 40(a)(ia) for

non deduction of TDS, treating the nature of payment as royalty. In

view of the submissions made under Ground No. 2, as aforesaid, the

disallowance is not called for, therefore, we uphold the order of the

Ld. CIT(A) on this issue also and accordingly, issue raised by the

Revenue in the Ground No. 3 is dismissed.

10. As regards Ground No. 4 relating to disallowance on account of

expenditure made on Tour to Maldives amounting to Rs. 2,96,861/-.

We find that the AO has discussed this issue at para 5 and at page

3 regarding the payment made on the allegation that no business

was explored during the year in consequence to vistis to Maldives,

out of total expenditure of Rs. 4,43,893/- an amount of Rs,

2,96,861/- disallowed. In appeal Ld. CIT(A) has discussed the same

at page 11 vide para 7. After going through the order of the

Revenue Authorities and the Written submissions of the assessee,

we are of the view that the Managing Director of the company 7 ITA NO.3893/Del/2012 & CO NO. 352/DEL/2012

visited Maldives for exploring the business prospects. The reason for

disallowance given by the AO is that no business was explored

during the year, hence the same does not pertain wholly and

exclusively for business purposes. The assessee had business

relationships with M/s M Plus Maldives Pvt. Ltd. who had invested a

sum of Rs.1,27,21,150/- towards share capital of the assessee

company. During preceding year the assessee had installed and sold

software to M/s Magic Kingdom Resorts at Maldives. We also find

that details of foreign travels are placed at PB Pgs. 45-55. The

correspondence with Mahogany, Maldives for installation/ sale of

software placed at PB Pg. 56-61. Copy of invoice from Magic

Kingdom Resorts, Maldives are placed at PB Pg. 85. Further, it is to

be noticed that the total expenses incurred on foreign travel to

Maldives were Rs.4,43,893 out of which an amount of Rs.2,96,861

only has been disallowed which shows that the AO himself does not

fully think the expenses not for business purposes. We also find that

similar addition was made in AY 2007-08, which was deleted by

CIT(A), the department did not go in further appeal. In view of

above detailed discussions, we are of the considered view that such

adhoc disallowance cannot be upheld. Therefore, Ld. CIT(A) was

right in deleting the addition of Rs. 2,96,861/-, hence, we do not find

any infirmity in the order of the Ld. CIT(A). Accordingly, we affirm

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the same and the Ground No. 4 raised by the Revenue stands

rejected.

11. As regards Ground No. 5 relating to disallowance on account of expenditure made on client hardware amounting to Rs. 4,38,980/-. We find that the AO has discussed this issue at para 6 and at page

3. The AO disallowed the amount relating to client hardware holding the same to be not related to current year. There was an agreement with Sir Ganga Ram Hospital, dt.12.11.2002, (PB Pg. 79), whereby it was an obligation of the assessee to supply computer hardware as per Article 3 of the Agreement. Just on the basis of date of agreement the AO disallowed the expense. The facts are that the agreement was an going agreement and software are generally implemented on make shift servers and once it is tested and completed in all respects, it is moved to the New Server. The copy of ledger account is placed at PB Pg. 77-78. Further copies of emails from Mr. Rajiv Saxena, Sir Ganga Ram Hospital are placed at PB Pg. 102-106 which shows that the assessee has settled the claim of the client on 50% i.e. for Rs.4,38,980. We find considerable force in the finding of the Ld. CIT(A) that the assessee has also filed a copy of the debit note dated 20.4.2007 raised by Sir Ganga Ram Hospital. In view of the facts of the case, Ld. CIT(A) was of the opinion that the liability to incur the expenditure arose during the year and the AO was not justified in holding it to be pertaining to prior period. Therefore, Ld. CIT(A) has rightly deleted the disallowance of Rs. 4,38,980/- made by the AO as prior period expenses, which does not need any interference on our part, hence, we uphold the same. Accordingly, the Ground No. 5 raised by the Revenue is rejected.

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ITA NO.3893/Del/2012 & CO NO. 352/DEL/2012

ASSESSEE'S CROSS OBJECTION

12. Since we have already upheld the decisions of the Ld. CIT(A) on all the issues involved in the present Revenue's Appeal and the grounds raised by the Assessee in the Cross Objection have not seriously been contested by the Assessee's Counsel before us, therefore, we dismiss the Cross Objection raised by the Assessee, as such.

13. In the result, the Appeal filed by the Revenue stands dismissed and Cross Objection filed by the Assessee stands dismissed.

Order pronounced in the Open Court 31-3-2015.

Sd/- Sd/-

[N.K. SAINI] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER Date 31/3/2015 "SRBHATNAGAR" Copy forwarded to: - 1. Appellant - 2. Respondent - 3. CIT 4. CIT (A) 5. DR, ITAT

TRUE COPY By Order,

Assistant Registrar, ITAT, Delhi Benches

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