TaxTMI 
TaxTMI 
2017 (1) TMI 440
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....ment record of assessee for the impugned AY and after examining the same was of the view that assessment order passed is erroneous and prejudicial to the interests of revenue for the following reasons: 1. Though assessee has not deducted tax at source on payment of bandwidth charges/leaseline charges and computer maintenance charges totalling to Rs. 3,46,04,997, but, the AO failed to apply the provisions of section 40(a)(ia) of the Act. 2. As per the balance sheet under the head 'provision' an amount of Rs. 6,05,905 and Rs. 90,920 was shown as service tax payable and FBT payable but no evidence is available on record, which attract the provisions fo section 43B of the Act. 3. On the basis of the aforesaid issues, ld. CIT issued a show cause notice to assessee calling upon to show cause as to why assessment order shall not be revised. In response to the said show cause notice, it was submitted by assessee that as far as payment of bandwidth charges and leaseline charges are concerned, they cannot be treated as royalty as assessee was trading in bandwidth and it was not making use of the same in its activities. It was submitted that bandwidth was neither produced nor there w....
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..... Accordingly, assessment order passed by AO was set aside with a direction to redo the assessment de-novo after affording reasonable opportunity of being heard to assessee. Being aggrieved, assessee is before us raising seven main grounds and two additional grounds. 4. As far as ground Nos. 1 & 2 are concerned, they are on the validity of power exercised by ld. CIT in invoking the provisions of section 263. As far as Ground Nos. 3 & 7 are concerned, no specific argument was advanced by ld. R, hence, these grounds are dismissed as not pressed. As far as Ground Nos. 5 & 6 are concerned, ld. AR submitted that in the consequential order passed, AO after verification has accepted assessee's claim and no addition/disallowance has been made. In view of the aforesaid submission, ground Nos. 5 & 6 having become infructuous, are not required to be adjudicated. The only ground, which survives for consideration is ground No. 4, which reads as under: "The ld. CIT erred in holding that the amounts paid for bandwidth and lease line charges are to be treated as Royalty without appreciating the fact that an amount paid for an item that is consumed and cannot be retrieved cannot be royalty an....
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....bandwidth charges is not in the nature of royalty, hence, TDS provisions are not applicable. ITAT, Bangalore Bench in case of Infosys Technologies Ltd. Vs. DCIT (supra) while dealing with similar issue held as under: 4.8 Software developed by companies in India is exported either in physical mode (i.e. through floppy disks) or through wireless communication using satellite links. When an Indian Company exports software to companies outside India using satellite communication facilities, the digital signals are converted into analog signals through earth stations and are transmitted to one of the geo-stationery satellites using the required bandwidth provided by Videsh Sanchar Nigal Ltd. (VSNL) or Software Technology Parks of India (STPI). The signals that have been beamed to the satellite will be downlinked to the earth station in the United States and sent to the client locations using the bandwidth and downlinking facility provided by international service providers such as AT&T, MCI Telecommunications etc. The assessee shares the bandwidth provided by the international service providers. Bandwidth in 'normal parlance' refers to the amount of traffic that could be carried on t....
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.... of the possible view supported by judicial pronoucements, provisions of section 263 cannot be invoked on the pretext that assessment order is erroneous and prejudicial to the interests of revenue. In this context, it needs to be mentioned for the impugned assessment year proceedings u/s 201 were also initiated against assessee for non-deduction of TDS u/s 194J on payment of bandwidth charges and ultimately orders were passed by raising demand u/s 201(1) and 201(1A). When assessee preferred appeal against the said order, ld. CIT(A) decided the issue in favour of assessee by holding that assessee is engaged in trading of bandwidth, hence, the provisions of section 194J are not applicable. It was brought to our notice by ld. AR, this order of ld. CIT(A) has been accepted by the department as no further appeal was filed. This contention of ld. AR remained uncontroverted. Thus, as can be seen from the aforesaid facts, opinion of the departmental authorities on applicability of section 194J to payment of bandwidth charges are also different. Therefore, the assessment order cannot be held to be erroneous and prejudicial to the interests of revenue on such a debatable issue. For the reaso....