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Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
Before: SHRI PRAMOD KUMAR, VICE- & SHRI RAVISH SOOD.
ORDER
PER RAVISH SOOD, JM
The captioned cross-appeals filed by the assessee and the revenue are directed against the respective orders passed by the CIT(Appeals)- 58, Mumbai, dated 29.08.2016 and CIT(Appeals)-55, Mumbai, dated 23.03.2017, for A.Y 2010-11 and A.Y 2011-12, respectively, which in turn arises from the respective assessment orders passed by the A.O u/s 143(3) r.w.s 153 r.w.s 144C(4) of the Act, dated 05.01.2015 AND u/s 143(3) r.w.s 144C(13) of the Act, dated 25.05.2015. As the issues involved in the captioned appeals are inextricably interlinked or in fact interwoven, therefore, the same are being disposed off by way of a common order. We shall first advert to the cross-appeals for A.Y 2010-11. The assessee has assailed the impugned order on the following grounds of appeal before us:
“Being aggrieved by the order under section 250 of the Income-tax Act, 1961 ('the Act') passed by the Commissioner of Income-tax (Appeals) - 58, Mumbai (hereinafter referred to as "the CIT(A)" ), the Appellant hereby submits the following grounds of appeal for your sympathetic consideration: 1) Ground No. 1 —Adding reversal of unbilled revenue to the total income — Rs. 1,90,52,225/. 1.1. 0n the facts and in the circumstances of the case and in law, the learned AO erred and the Hon'ble CIT(A) further erred in treating the reversal of unbilled revenue of Rs. 1,90,52,225/- as taxable income, through recognized as revenue in prior years. 2) Disallowance of penalties paid in foreign countries — Rs. 32.60 Lakhs 2.1 On the facts and in the circumstances of the case and in law, the learned AO erred and the Hon'ble CIT(A) further erred in upholding the action of the learned AO of disallowing an amount of Rs. 32.60 lakhs under Explanation 1 to Section 37(1) of the Act. 3) Disallowance under Section 14A - 85,10,737/- 3.1 On the facts and circumstances of the case and in law, the learned AO erred and the Hon'ble CIT(A( further erred in confirming the disallowance of Rs. 85,10,737/- under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 ('the Rules'). 4) Disallowance of depreciation on Company cars — Rs. 7,76,47,184/- On the facts and in the circumstances of the case and in law, the learned AO erred and the Hon'ble CIT(A) further erred in confirming the disallowance of depreciation on cars purchased by the Appellant and provided to its employees for official purposes.
The Appellant craves leave to add, amend, delete, rectify, substitute and modify any of the aforesaid grounds of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing the appeal.” On the other hand, the revenue has assailed the impugned order before us by raising the following grounds of appeal :
“On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below:
1. On the facts and the circumstances of the case and in law, the ld. CIT(A) erred in deciding Rs.854 million is unearned income as part of operating income of the current year under consideration.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in justifying in his findings that how unearned income which was not supported by required documents can be treated as operating income.
3. On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in rejecting revenue contention on treatment given to M/s Accentia Technologies Ltd being in business of software business whereas assesse himself has submitted that M/s Accentia Technologies Ltd. is in the business of software business.
4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing expenses of Rs.1,51,12,637/- allegedly as prior year expenses as expenses do not pertains to expenditure where earlier disallowance u/s. 43B of the IT Act. 1961 is made.
On the facts and in the circumstances of the case and in law. The Ld. CIT(A) erred allowing expenses incurred Rs.13,53,40,000/- in relation to computers as capital expenditure as assessee failed to reconcile the software and hardware expenditure with neither reimbursement from client nor milestones of the customer identifying the supply of hardware and software.
6. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in allowing leasehold land registration 'expenses of Rs.8,80,000/- as revenue expenditure instead of capital expenditure.
On the facts and in the circumstances of the case and in law, the I d. CIT (A) erred in restricting u/s 14A disallowance to the extent of tax exempt income i.e. Rs.85,10,737/- without considering the fact that Notification 43/2016 dated 2.6.2016 will not apply for the this Assessment year.
On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred allowing of Rs. Rs.51,50,00,000/- (gross debit balances' reflected in the balance Sheet) as unexplained cash credit without considering the fact that assessee failed to explain cash credit in his books of account.
For these and other grounds that may, Inc urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored.” Further, the assessee vide its letter dated 18.11.2019 for A.Y 2010-11, had moved an application seeking admission of an additional ground of appeal, which reads as under:
“On facts and circumstances of the case and in law, the learned A.O has erred in passing the assessment order dated 5 January 2015 in the name of non-existent entity and would thus be non-est in the eyes of law.” In the course of the hearing of the appeal, it was submitted by the ld. A.R that as the assessee by raising the aforesaid additional ground of appeal, has sought an adjudication of a legal issue the basis of the available on record, therefore, the same may be admitted. In support of his aforesaid contention the ld. A.R had relied on the judgments of the Hon‟ble Supreme Court in the case of viz. (i). Jute Corporation of India Ltd. Vs. CIT & Anr. (1991) 187 ITR 688 (SC); (ii). New India Industries Ltd. Vs. CIT (1994) 207 ITR 1010 (Guj); and (iii). Controller of Estate Duty Vs. R. Brahadeeswaran (1987) 163 ITR 680 (Mad). Relying on the aforesaid judgments, it was submitted by the ld. A.R that in the absence of any statutory provision, the appellate authority is vested with all the plenary powers, which the subordinate authority may have in the matter. Also, support was drawn by the ld. A.R from the judgment of the Hon‟ble Apex Court in the case of National Thermal Power Co. Ltd. Vs. CIT (1998) 229 ITR 383 (SC). Relying on the said judgment, it was submitted by the ld. A.R that as held by the Hon‟ble Apex Court, the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee, notwithstanding the fact that same was not raised before the lower authorities. In the backdrop of his aforesaid contentions, it was submitted by the ld. A.R that as the adjudication of the aforesaid legal issue was based on the facts available on record and no further investigation on facts was required, therefore, the same may be admitted. Apart from that, it was averred by the ld. A.R that the said additional ground of appeal was raised by the assessee in the backdrop of the recent order of the Tribunal in the assessee‟s own case for A.Y 2011-12, wherein the order passed u/s 263 of the Act was quashed by the Tribunal by following the judgment of the Hon‟ble Supreme Court in the case of Pr. CIT, New Delhi Vs. Maruti Suzuki India Limited (Civil appeal No. 5409 of 2019, dated 25.07.2019). It was further submitted by the ld. A.R, that in case the additional ground of appeal was decided in favour of the assessee, then the other grounds of appeal would be rendered as merely academic in nature. Per contra, the ld. Departmental representative (for short “D.R‟) strongly objected to the admission of the additional ground of appeal as was sought by the assessee. It was submitted by the ld. D.R that as substantial delay was involved on the part of the assessee in seeking admission of the additional ground of appeal, therefore, the same did not merit to be admitted. Apart from that, it was averred by the ld. D.R that now when the assessee had participated in the assessment proceedings, henceforth validity of the same could not be challenged by it. Rebutting the said claim of the ld. D.R, Mr. J.D Mistry, Ld. Senior advocate for the assessee submitted, that the Hon‟ble Apex Court in the case of PCIT Vs. Maruti Suzuki India Ltd. (2019) 416 ITR 613 (SC), had observed, that now when the very basis on which jurisdiction was invoked was fundamentally at odds with the legal principle that the amalgamating entity had ceased to exist upon the approved scheme of amalgamation, the participation in the proceedings by the appellant in the circumstances cannot operate as an estoppel against law. Accordingly, it was submitted by the ld. A.R that participation by the assessee in the assessment proceedings would not validate the assessment which was framed in the hands of a non-existent entity.
We have heard the authorized representatives for both the parties on the issue pertaining to the admission of the aforesaid additional ground of appeal. In our considered view, the assessee by raising the aforesaid additional ground of appeal has sought an adjudication of a legal issue on the basis of the facts already borne on record. In other words, the adjudication of the legal issue raised by the assessee would not require looking into any such fact which is not available on record. As submitted by the ld. A.R, the Hon‟ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT (1998) 229 ITR 383 (SC), had observed, that the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and have a bearing on the tax liability of the assessee, notwithstanding the fact that same was not raised before the lower authorities. Also, as observed by us hereinabove, the Hon‟ble Apex Court in the case of Jute Corporation of India Ltd. Vs. CIT & Anr. (1991) 187 ITR 688 (SC, had held, that P a g e | 6 in the absence of any statutory provision, the appellate authority is vested with all the plenary powers, which the subordinate authority may have in the matter. As regards the objection of the revenue that now when the assessee had participated in the assessment proceedings, it could thereafter not be permitted to assail the validity of the assessment on a technical issue, and that too after a substantial lapse of time, we are afraid the same does not find favour with us. We find that the Hon‟ble Apex Court in the case of PCIT Vs. Maruti Suzuki India Ltd. (2019) 416 ITR 613 (SC), had observed, that now when the very basis on which jurisdiction was invoked was fundamentally at odds with the legal principle that the amalgamating entity had ceased to exist upon the approved scheme of amalgamation, the participation in the proceedings by the appellant in the circumstances cannot operate as an estoppel against law. Accordingly, in the totality of the aforesaid facts, we find no reason as to why the additional ground of appeal raised by the assessee, therein seeking adjudication of a legal issue based on the facts borne from the records may not be admitted. We thus not being persuaded to accept the objection raised by the ld. D.R as regards admission of the aforesaid additional ground of appeal raised by the assessee, admit the same.
Briefly stated, M/s Satyam Computers Services Ltd. which was engaged in the business of Software development had e-filed its return of income for A.Y. 2010-11 on 15.10.2010, declaring its total income at Rs.nil under the normal provisions of the Act. The return of income filed by the aforementioned assessee viz. M/s Satyam Computers Services Ltd. was processed as such under Sec. 143(1) of the Act on 08.03.2011. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act.
As is discernible from the records the objects of the assessee company which was incorporated as Satyam Computer Services Pvt. Ltd. at Hyderabad on 24.06.1987, were to undertake design and development of system and application software either for its own use or for export. On 15.07.1991 the company changed its name to M/s Satyam Computers Services Ltd. AS on 07.01.2009 Shri B. Ramalinga Raju, the then chairman of Satyam Computers Services Ltd. addressed a confessional letter to the board of directors and brought certain serious infirmities to their notice viz. (i). inflated (non-existent) cash and bank balance of Rs. 5,040 Crores (as against 5,361 Crores reflected in the books of account; (ii). accrued interest of Rs. 376 Crores which was non-existent; (iii). understatement of liabilities of Rs. 1,230 Crores on account of funds arranged by him; and (iv). overstated debtors of Rs. 490 Crores (as against Rs. 2,651 Crores reflected in the books of accounts). In the backdrop of the aforesaid facts, the Government of India appointed a board to help the company to steer through the crisis. In April, 2009, Venturbay Consultant Pvt. Ltd. i.e a 100% subsidiary of Tech Mahindra merged as a successful bidder in acquisition of Satyam Computers Services Ltd. Subsequently, the assessee viz. Satyam Computers Services Ltd. w.e.f 01.04.2011 merged with M/s Tech Mahindra Ltd. After the said merger, all the 5. As the assessee had during the year entered into international transactions with its related parties, therefore, a reference was made to the Transfer Pricing Officer (for short “TPO”) u/s 92CA(1) of the Act. The TPO vide his order dated 29.01.2014 suggested adjustment of Rs. 24,01,91,345/- to the Arm‟s Length Price (for short “ALP”) of the International transactions carried out by the assessee during the year, as under:
Sr. No. Transaction Adjustment proposed 1. Receipt of Services Rs. 1,84,00,000/- 2. Provision of Software Development Services Rs. 43,20,000/- 3. Interest on loan given to AE viz. Citisoft Plc. Rs. 18,31,345/- 4. Interest on outstanding loan to AEs Rs. 8,70,00,000/- 5 Interest on share application money pending allotment Rs. 12,86,40,000/- Total Rs. 24,01,91,345/- Further, in the course of the assessment proceedings the case of the assessee was referred for special audit u/s 142(2A) of the Act. On 18.09.2014 the Special auditors submitted their report. The assessee was thereafter served a draft assessment order dated 14.11.2014 u/s 143(3) r.w.s 144C(1) r.w.s 153 of the Act. In reply, the assessee vide its letter dated 01.12.2014 intimated that it would prefer an appeal before the CIT(A). The A.O thereafter framed the assessment in the case of the assessee and after making certain additions/disallowances, vide his assessment order passed u/s 143(3) r.w.s 153 r.w.s 144C(4), dated 05.01.2015 assessed its loss at (Rs. 250,86,52,830/-). On appeal, the additions/disallowances made by the A.O were partly vacated by the CIT(A), details as regards which are charted as under:
Sr. No. Particular of addition Amount As per order of CIT(A) /disallowance made by A.O 1. TP adjustment as regards receipt Rs. 1,84,00,000/- (i). Rejection of CPM as the MAM as per the of Services from AEs. TPSR was upheld by the CIT(A); TP adjustment as regards (ii). The exclusion of Rs. 854 million as the 2. Rs. 43,20,000/- provision of Software operating income of the assessee was set Development Services to AEs aside by the CIT(A);
(iii) The exclusion of M/s Akshay Software Technologies Limited AND M/s Quintegra Solutions as comparables by the TPO was upheld by the CIT(A); (iv). As regards inclusion of M/s Accentia Technologies as a comparable, the TPO was directed by the CIT(A) to exclude the same; (v). The claim of the assessee for use of multiple year data was rejected by the CIT(A); (vi). The claim of the assessee for working capital adjustment was rejected by the CIT(A); (vii). The claim of the assessee for risk adjustment was also turned down by the CIT(A); (viii). Although the PLI/Tested Party/MAM selected by the assessee was found by the CIT(A) to be correct, however, the TPPO was directed that the arithmetic mean of P a g e | 9 comparable margin was to be computed after effecting changes in list of comparables as directed.
3. TP adjustment as regards the Rs. 18,31,345/- Adjustment made by TPO using Indian PLR interest charged on the loan was vacated by CIT(A). advanced by the assessee in foreign currency viz. GBP (Great Britain Pounds) to its AE viz. Citisoft PLC, U.K..
4. TP adjustment of notional Rs. 8,70,00,000/- The TPO was directed to charge notional interest on outstanding loans to interest on the amounts outstanding from the AEs AEs only till the date of write off of the loans or till the initiation of liquidation proceedings, whichever was earlier 5. Interest on share application Rs. 12,86,40,000/- (i). As regards share application money paid money pending allotment by the assessee to two its AEs viz. (a). Satyam Computer Services, Egypt; and (b). Satyam Europe Limited, the CIT(A) observed that in respect of companies which went in for liquidation and were either under liquidation or had been liquidated before the financial year under reference, no interest could be levied on the capital financing done by the assessee.
(ii). As regard share application money paid by the assessee to its AE viz. Satyam Computer Services, Belgium, the CIT(A) directed the TPO to treat the amount as loan for the period starting with receipt of amount by the AE and ending with the notification of the Authorities in Belgium granting approval for increase in share capital or the date of actual allotment of shares, whichever was earlier. Further, the TPO was directed to adopt for its aforesaid working of interest the rate of 7% that was charged by the assessee from its other AEs.
Addition of unbilled revenue Rs. 1,90,52,225/- Addition was sustained by the CIT(A). recognized as revenue in the preceding year, to the extent the same was in excess of the prior period reversal.
7. Addition of short recorded Rs. 72,00,000/- Addition was confirmed by the CIT(A) (as the interest on bank deposit. assessee had claimed that it had offered the interest income for tax in A.Y 2011-12 i.e at the time of maturity of deposits, therefore, the CIT(A) had directed the A.O to verify the factual position and allow relief to the said extent in the year of maturity of deposits. 8. Disallowance of prior period Rs. 1,51,12,637/- Disallowance was deleted by the CIT(A). expenses 9. Disallowance of amounts paid by Rs. 34,00,000/- Disallowance was confirmed by the CIT(A). the assessee as penalties to (i). Municipal Corporation of Vishakapatnam; (ii).