PROGRESS SOFTWARE SOLUTIONS (I) P.LTD,MUMBAI vs. ASST CIT 5(3), MUMBAI

Assessee by : Shri Mahaveer C. Jain (AR) Revenue by : Ms. Bharti Singh (DR) Date of hearing : 02.08.2016 Date of Pronouncement : 28.09.2016 O R D E R

PER PAWAN SINGH, JM:

dated 26.12.2011. The AO also initiated penalty. Aggrieved by the order of AO, the assessee filed appeal before the CIT(A) but without any success. Thus, the present appeal is filed before us raising the four grounds of appeal

, the assessee has further raised various sub grounds under the main grounds of appeal. For disposal of the appeal we have summarized the grounds of appeal in the following manner :- (1) Violation of principle of natural justice. (2) Disallowance u/s 40(a) (ia) on account of non-deduction of TDS of Rs. 23,50,446/- on purchase price of computer software. (3) Disallowance of difference of loss on non Export Oriented Unit of Rs. 48,54,215/-. (4) Initiation of penalty proceeding.

3. We have heard the ld. Authorised Representative (AR) of assessee and the ld Departmental Representative (DR) for the Revenue and perused the material available on record. Ground No.1 is with regard the violation of Principle of Nature Justice and lack of reasoning. The Ld. AR of the assessee submitted that he is not pressing the Ground No.1. Keeping in view the submission of the ld. AR of the assessee, the Ground No.1 of the appeal is dismissed as not pressed.

4. Ground No.2, is with regard to disallowance u/s 40(a) (ia) on account of non-deduction of TDS on the expenses of Rs. 23,50,446/- ( purchase price) of computer software. The Ld. AR of the assessee argued that this Ground of appeal is covered in favour of the assessee by a number of decisions of High Courts and the decisions of this Tribunal. Ld. DR for Revenue relied on the order of authorities below.

5. We have considered the rival contentions of the parties and perused the orders of authorities below. The AO while framing assessment issue show cause regarding the disallowance of expenses in relation to import of software for non deduction of TDS. The assessee furnished its reply (not discussing by AO in its order). The reply of assessee was not accepted by the AO. The AO concluded that right to make a copy of the software and use it for internal business by making copy of the same and storing it on the hard dick amount to use of the copyright. Thus, the contention of the assessee that there was no transfer of any part of copy right was not accepted. Hence, the AO disallowed the amount of Rs. 23,50,446/- (cost of software). During the first appellate stage, the assessee furnished written submission and relied upon a number of decisions on various High Courts and Tribunals. Ld. CIT(A) while deciding the appeal of the assessee hold that assessee is engaged in the business of importing and reselling of certain computer software. The amount paid by the assessee to the supplier for supply of the computer software was neither the price of CD/DVD alone or the computer software alone nor the price of license. It was a combination of all, unless the license was permitting the end user to copy and download the software, CD/DVD, cannot be used by the individual and further relied upon the Explanation 5, inserted vide Finance Act, 2012 in section 9(1)(vi) of the Act. The ld CIT(A) further hold that the payment for the license to use the computer software programme constitute royalty for the purpose of the Act. We have noticed that the ld AR for assessee not substantiated as to how the facts of his case are similar to the facts of cases, on which he relied. The AO not discussed in its order the contention raised by assessee during the assessment. Similarly the ld CIT(A) has also not discussed in its order, the contents of various clause contained in the buyers agreements of various dates relied by assessee. Thus, we restore this ground of appeal to the file of AO to consider all the documents and various decisions of the High Courts and Tribunal and pass speaking order in accordance with law. In the result this ground of appeal is allowed for statistical purpose.

6. Ground no.3 is with regards to the difference of loss on non-Export Oriented Unit. The Ld. AR of the assessee not argued against this grounds of appeal. The Ld DR has no occasion to counter the submission of the assessee.

7. We have considered the order of authorities below. During assessment the AO observed that assessee has incurred expenditure of Rs.

6,56,96,521/- on account of salaries, bonus, allowance, contribution to Provided Fund and other funds for welfare of the employees. These expenses are common expenses for both non-export oriented unit and export oriented unit as no allocation is for both the units provided by the assessee. The AO concluded that he left with no option to appreciate the expenditure in the proportionate of turnover. Hence, the apportionment has been done on the basis of turnover. The turnover of EOU is Rs. 8,38,77,285/- (86.51%) against the turnover of Rs. 1,30,75,950/- (13.49%) of Non-EOU, thus the expenses apportioned on the basis of turnover of Rs. 5,68,34,060/- for EOU and thus reduced the profit on EOU to Rs. 3,04,907/-, Rs. 88,62,481/- will represent expenses for Non- EOU and by reducing the loss of Non-EOU as per P&L A/c, Rs. 48,54,215/- was disallowed. Ld. CIT(A) while considering this ground has not given any reason except sustaining the finding of AO. We have seen that the assessee has furnished the copy of Circular for section 10B deduction in Form No. 56G along with his submission dated 11.01.2011 and further the details submission dated 13.12.2011. Neither the AO nor the CIT(A) discussed all the contention raised in both the letters as well as on the certification u/s 10(b). Moreover, one of the units of the assessee is EOU and the assessee is entitled for deduction u/s 10B. The assessee is entitled for 100% deduction in respect of business derived by him from 100% export oriented undertakings, thus the apportionment of Non-EOU is not in accordance with law, thus we restore this ground of appeal to the file of AO to give the fresh finding after considering the written submission of assessee dated 11.11.2011 & 13.12.2011filed before the Ld CIT(A) and pass appropriate order in accordance with law.

8. Ground No. 4 is with regard to initiation of penalty. The assessee has not made any submission in respect of this ground. Even otherwise mere initiation of penalty is not challengeable in appeal, unless the substantive order is passed. Thus, this ground of appeal is dismissed as premature.