Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI N. V. VASUDEVAN & SHRI JASON P. BOAZ
Per Jason P. Boaz, Accountant Member
This appeal by the assessee is directed against the order of assessment for Assessment Year 2013-14 passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in short ‘the Act’), vide order dated 25.10.2017, pursuant to directions issued by the Dispute
IT(TP)A No. 2813/Bang/2017
Page 2 of 9 Resolution Panel – 1 (DRP), Bangalore, under section 144C(5) of the Act on 31.08.2017.
Briefly stated, the facts of the case are as under:-
2.1 The assessee, a company, engaged in the business of providing talent acquisition solutions, filed its return for Assessment Year 2013- 14 on 27.11.2013 declaring income of Rs.9,81,76,490/-. The case was selected for scrutiny and thereafter a reference was made under section 92CA of the Act by the Assessing Officer (AO) to the Transfer Pricing Officer (TPO) for determination of the arm’s length price of the international transactions entered into by the assessee with its Associated Enterprises (AE). The TPO, vide order dated 19.10.2016 proposed a TP adjustment of Rs.2,21,84,595/-. The AO concluded the draft order of assessment under section 143(3) r.w.s. 144C(1) of the Act vide order dated 19.12.2016, wherein the assessee’s income was determined at Rs.14,45,664/-; which, inter alia, included the TP adjustment of Rs.2,21,84,595/-.
2.2 Aggrieved by the draft order of assessment dated 19.12.2016 for Assessment Year 2013-14, the assessee filed its objections thereto before the DRP. The DRP issued its directions thereon under section 144C(5) of the Act on 31.08.2017; observing at para 6 thereof that the assessee vide letter dated 30.05.2017 has withdrawn its objection with respect to the TP matters after entering into a unilateral Advance Pricing Arrangement (APA) with the CBDT on 27.04.2017; wherein the year under consideration i.e., Assessment Year 2013-14 is covered under the
IT(TP)A No. 2813/Bang/2017
Page 3 of 9 roll back years. Pursuant thereto, the final order of assessment for Assessment Year 2013-14 was passed under section 143(3) r.w.s. 144C(13) of the Act vide order dated 25.10.2017 wherein the assessee’s income was determined at Rs.14,45,66,443/-; which included TP adjustment of Rs.2,21,84,959/-.
The assessee, being aggrieved by the final order of assessment dated 25.10.2017 for Assessment Year 2013-14 has filed this appeal, wherein it has raised the following grounds:
General 1. 1.1. The order of the learned DRP/AO is based on incorrect interpretation of law and facts and therefore is bad in law. 1.2. The learned AO has erred in facts by considering the total income as per return of income filed to be INR 98,176,490 instead of INR 94,578,534. Grounds of appeal relating to corporate tax matters 2. 2.1. The learned DRP/AO erred, in law, and in facts, by classifying computer software purchased as being license to use the software and classified the same as Intangible Assets eligible for depreciation at 25% instead of 60%, thereby disallowing the excess depreciation claimed of INR 24,196,222. 2.2. The learned DRP/AO erred, in law and in facts, by not appreciating the contention of the Appellant that the functioning of the software purchased is integrally linked to that of the functioning of a computer and cannot be used in isolation. 2.3. The learned DRP/AO erred, in law and in facts, and held that only software that is embedded in the computer and comes along with computer is eligible for depreciation at 60% on the contention that the term 'software' is not separately mentioned in Appendix 1 Income-tax Rules' 1962. 2.4. The learned DRP/AO failed to consider the judicial precedents relied upon by the Appellant, which have held that computers software is eligible to be depreciated at 60% as against 25%.
IT(TP)A No. 2813/Bang/2017
Page 4 of 9 Grounds of appeal relating to transfer pricing matters
3.1. The learned AO/Transfer Pricing Officer ("TPO") has erred, in facts, in making a transfer pricing adjustment of INR 22,184,595 even though the Company has entered into an Advance Pricing Agreement ("APA") and the year under consideration, as well the transactions in relation to which such adjustment has been made, are covered under such APA. Further, the Company has already filed a modified return for the year, taking into consideration the additional income arising pursuant to the APA and has also paid the taxes arising on such additional income.
Grounds of appeal relating to other matters 4.1. The learned AO has erred, in facts, in stating that the Company has received the refund of INR 9.243,506 even though the Company has not received the refund. 4.2_ The learned AO has erred, in law and in facts, in levying interest of INR 1,478,961 under Section 234D of the Act. 43. The learned AO has erred, in law and in facts, in levying interest of INR 9,846,815 under Section 234B of the Act. 4.4. The learned AO erred, in law and in facts, in initiating penalty proceedings u/s 271 of the Act. The Appellant submits that each of the above grounds is independent and without prejudice to one another. The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with the law. 4. Ground 1 (1.1 & 1.2), being general in nature, it does not require adjudication.
Ground No.2 (2.1 to 2.4) – Depreciation on computer software
5.1 In these grounds (supra), the assessee contends that the authorities below have erred in classifying computer software purchased as being licence to use software and classified the same as intangible assets;
IT(TP)A No. 2813/Bang/2017
Page 5 of 9 thereby restricting the assessee’s claim for depreciation to 25% as against 60% claimed by the assessee as the term ‘software’ is not separately mentioned in Appendix 1 to Income Tax Rules, 1962. According to the learned AR, the authorities below have erred in not appreciating that the computer software purchased is integrally linked to the functioning of a computer and cannot be used in isolation. It is also submitted that the authorities below failed to consider the judicial precedents relied on by the assessee which have held that computer software is eligible for 60% depreciation as against 25% granted by the AO. In this regard, the learned AR, inter alia, placed reliance on the decision of the ITAT-Delhi Special Bench in the case of Amway India Enterprises Vs. DCIT (2008) 111 ITD 1112 (Delhi-Trib) (SB).
5.2 Per contra, the learned DR for Revenue vehemently supported the orders of the authorities below in restricting the depreciation on computer software to 25%.
5.3.1 We have heard and considered the rival contentions and perused the material on record. The issue for consideration before us is whether the assessee is entitled for depreciation on computer software at 60% as claimed or at 25% as held by the authorities below. We find that the Special Bench of the ITAT-Delhi in the case of Amway India Enterprises Vs. DCIT (2008) 111 ITD 1 (Delhi.Trib.) (SB) has held that with effect from 01.04.2003, computer software has been classified as a tangible asset under the head “Plant” in Appendix 1 to IT Rules, 1962 and entitled to depreciation @ 60% w.e.f. 01.04.2003. The relevant
IT(TP)A No. 2813/Bang/2017
Page 6 of 9 portion of the Tribunal’s order (supra) at paras 61 and 62 thereof are extracted hereunder:-
We have already discussed as to how computer software is a 61. tangible property. Though a licensee, the person purchasing the disk or other medium containing the software is owner to the extent of the rights comprised in the license. The decision of the Hon'ble Supreme Court in the case of Tata Consultancy Services (supra) supports the view that software contained in a disk is tangible property by itself. The use by the assessee of such software in his business is enough to allow the claim for depreciation. The rights which an assessee acquires by purchasing the disk or magnetic medium containing the computer software with limited or absolute right to use the same by itself would satisfy the requirements of the Plant. The assessee's ownership of limited right over the tangible asset is sufficient to conclude that the assessee is the owner of the Plant. There is therefore no difficulty in allowing depreciation claim at 25 per cent under section 32(1)(i) read 1 with Appendix-I, Part-A Division III (1) to the IT Rules, 1962. With effect from 1-4-2003, Computer Software has been classified as a tangible asset under the heading “Plant” in Appendix-I to the IT Rules entitled to depreciation at 60 Per cent. The assessee would be entitled to depreciation at 60 per cent from 1-4-2003. The argument raised on behalf of the assessees in this context 62. was that the rate of depreciation on computer software from 1-4-1999 should be 60 per cent. The basis of this argument was that depreciation on computers was originally allowed treating them as a plant only at 25 per cent. With effect from 1-4-1999, computers were treated as a different class of asset falling within the description of Plant• and depreciation was allowed at 60 per cent. With effect from 1-4-2003, computer software was also included along with computers. The argument of the assessee was that the amendment to the rules was merely clarificatory and therefore, even on computer software with effect from 1-4-1999, 60 per cent depreciation should be allowed. We do not agree with the submissions of the assessee in this regard. The amendment is prospective. It is not clarificatory for the reason that computer and computer software are two different items of assets. If the Legislature wanted to allow depreciation at 60 per cent with effect from 1-4-1999 on computer software, it would have said so specifically by making the provisions retrospective_ In this regard, we agree with the view expressed by the Delhi Bench of the ITAT in the case of Maruti Udyog Ltd. ( supra) wherein similar view has been taken.
5.3.2 Respectfully following the above decision of the ITAT- Delhi Special Bench in the case of Amway India Enterprises (2008) 111
IT(TP)A No. 2813/Bang/2017
Page 7 of 9 ITD 1 (Delhi Trib.) (SB), we are also of the view that in the facts and circumstances of the case on hand, the assessee is entitled to be allowed depreciation @ 60% on computer software in the year under consideration, as w.e.f. 01.04.2003 computer software has been classified as a tangible asset under the head “Plant” in Appendix-1 to IT Rules, 1962. Consequently, ground No.2 of assessee’s appeal is allowed.
Ground No.3 – Transfer Pricing Issues
6.1 In this ground the assessee contends that the TPO has erred in making the TP adjustment of Rs.2,21,84,595/- even though the assessee has entered into an APA and the year under consideration, as well as the transactions in relation to such adjustment have been covered by the APA.
6.2.1 We have heard both parties and perused the material on record. The DRP, at para 6 of its order, has observed / noted as under:-
“6…………………………………………………………………… ………………. The assessee vide letter dated 30.05.2017 has withdrawn the objection with respect to Transfer Pricing matters as the assessee has entered into a unilateral Advance Pricing Agreement with CBDT on 27th April 2017 and the year under consideration i.e., Assessment Year 2013-14 is covered under the roll back years……………………….”
6.2.2 We have also perused the aforesaid unilateral APA dated 27.04.2017 between the CBDT and the assessee; which confirms the
IT(TP)A No. 2813/Bang/2017
Page 8 of 9 DRP’s observations (supra). In the factual matrix as narrated above, in view of the terms of the unilateral APA and the fact that in pursuance thereof, the assessee itself vide letter dated 30.05.2017 has withdrawn the objections it raised on Transfer Pricing issues before the DRP, we are of the view that this ground raised by the assessee is not maintainable as no cause of grievance arises to the assessee from out of the DRP order. Consequently, ground No.3 of assessee’s appeal is dismissed.
Ground No.4.1 (supra), the assessee contends that the AO has stated that the assessee received refund of Rs.92,43,506/- even though the assessee has not received the same. In this regard, we direct the AO to examine and verify the assessee’s claim.
Grounds 4.2 & 4.3 – Charging of interest under section 234B and 234D of the Act
8.1 In this ground (supra), the assessee denies himself liable to be charged interest u/s 234B and 234D of the Act. The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This proposition has been upheld by the Hon’ble Apex Court in the case of Anjum H. Ghaswala (252 ITR 1) (SC) and I, therefore, uphold the action of the AO in charging the assessee the aforesaid interest u/s 234B and 234D of the Act. The AO is, however, directed to re-compute the interest chargeable u/s 234B and 234D of the Act, if any, while giving effect of this order.
IT(TP)A No. 2813/Bang/2017
Page 9 of 9 9. In ground No.4 (supra), the assessee challenges the action of the AO in initiating penalty proceedings under section 271(1)(c) of the Act for Assessment year 2013-14. In our view, this ground is not maintainable as no penalty under section 271(1)(c) of the Act has been levied on the assessee in the impugned order, which is before us for adjudication. We, therefore, dismiss this ground raised by the assessee as premature and hence not maintainable.
In the result, the assessee’s appeal for Assessment Year 2013-14 is partly allowed.
Pronounced in the open court on 26th April, 2019.
Sd/- Sd/- (N. V. VASUDEVAN) (JASON P. BOAZ) Vice President Accountant Member Bangalore. Dated: 26th April, 2019. /NS/*
Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order
Assistant Registrar, ITAT, Bangalore.