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2017 (3) TMI 1948
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....urt and therefore this issue is required to be decided in favour of the assessee and against the revenue. The ld Departmental representative relies upon the order passed by the assessing officer. 5. We have noticed that this issue of depreciation of server/networking equipment is covered by the decision of the Madras High Court in the case of Dinamalar Vs. CIT (2016) 74 taxman.com 14 and also the decision of Hyderabad Tribunal in the case of ACIT Vs. Ushodaya Enterprises Ltd., (2013) 33 taxmann.com 381. 6. The decision of Madras High Court in the case of Dinamalar (Supra) held as under : 11. Before the Tribunal, as regards claim of depreciation @ 80%, on "control panel board and transformer", the appellant-assessee has contended that the same can be classified under the head, "B. Instrumentation and monetary systems for monitoring energy flows", as mentioned in New Appendix-I-III-(8)(ix)B and therefore, they are entitled to depreciation @ 80%, as provided under the Act. Considering the arguments of the appellant-assessee and the findings of the authorities, the Income Tax Appellate Tribunal, vide order, dated 14.01.2016, in I.T.A. No. 2829/Mds/2013, held as follows:-....
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....n holding that the machineries, for which, depreciation to the extent, sought for, do not fall under the definition, "computer, including computer software". Fact that the machineries do not fall under the abovesaid category, cannot be termed as perverse and therefore, the order impugned, does not call for interference. 15. We have given our careful consideration, as to how both the appellate authority and the tribunal have considered the facts of the case and rendered findings, on the rival submissions of the parties. Going through the material on record, we are of the considered view that the concurrent findings of fact, rendered by the CIT (Appeals) and the Income Tax Appellate Tribunal, do not call for any interference, as no substantial question of law, is involved. 7. Respectfully following the decision of Madras High Court in the case of Dinamalar (Supra), we dismiss this ground of Revenue. 8. The second ground is with respect to the depreciation on goodwill. 9. This ground was discussed by AO in paragraph 9.2 of the Asst. order, wherein it has been held as under: 10. The learned authorised representative on the behalf of the assessee had submitted that ....
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....nting of purchased goodwill as "the difference between the cost of an acquired entity and the aggregate of the fair values of that entity's identifiable assets and liabilities. Positive goodwill arises when the acquisition cost exceeds the aggregate fair values of the identifiable assets and liabilities. Negative goodwill arises when the aggregate fair values of the identifiable assets and liabilities of the entity exceed the acquisition cost." 17. At this stage, it is also relevant to refer to Accounting Standard 10 as issued by the Institute of Chartered Accountants of India. The relevant extract of which reads as under:- "16.1 Goodwill, in general, is recorded in the books only when some consideration in money or money's worth has been paid for it. Whenever a business id acquired for a price (payable either in cash or in shares or otherwise) which is in excess of the value of the net assets of the business taken over, the excess id termed as 'goodwill'. Goodwill arises from business connections, trade name or reputation of an enterprise or from other intangible benefits enjoyed by an enterprise." 18. It is also relevant to note that Smi....
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....tax. The Appellate Assistant Commissioner (AAC) permitted it to raise the claim and allowed the deduction. The Tribunal held that the AAC had no jurisdiction to entertain the additional ground or to grant relief on a ground which had not been raised before the Income Tax Officer. The Tribunal also refused the appellant's application for making a reference to the High Court. The High Court upheld the decision of the Tribunal and refused to call for a statement of case. It is in these circumstances that the appellant filed the appeal before the Supreme Court. The Supreme Court held as under :- "5. In CIT v. Kanpur Coal Syndicate, a three Judge bench of this Court discussed the scope of Section 31(3)(a) of the Income Tax Act, 1922 which is almost identical to Section 251(1)(a). The court held as under: (ITR p. 229) "If an appeal lies, Section 31 of the Act describes the powers of the Appellate Assistant Commissioner in such an appeal. Under Section 31(3)(a) in disposing of such an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment; under clause (b) thereof he may set as....
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.... the Supreme Court in Addl. CIT v. Gurjargravures (P.) Ltd., [1978] 111 ITR 1, the Supreme Court observed at Page 694 as under :- "The above observations do not rule out a case for raising an additional ground before the Appellate Assistant Commissioner if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made, or that the ground became available on account of change of circumstances or law. There may be several factors justifying raising of such new plea in appeal, and each case has to be considered on its own facts. If the Appellate Assistant Commissioner is satisfied he would be acting within his jurisdiction in considering the question so raised in all its aspects. Of course, while permitting the assessee to raise an additional ground, the Appellate Assistant Commissioner should exercise his discretion in accordance with law and reason. He must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The satisfaction of the Appellate Assistant Commissioner depends upon the facts and circumstances of each case and no rigid pri....
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.... the assessee. It is only after the appeal was filed that the assessee claimed a deduction in respect of the amount paid towards the purchase tax under the said Act. It is also significant to note that the assessee's entitlement to claim deduction had been held to be valid in view of an earlier judgment of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. This was, therefore, a case of error in perception/judgment. Despite the same, the Supreme Court upheld the decision of the Appellate Assistant Commissioner in allowing the deduction. The words "could not have been raised" must, therefore, be construed liberally and not strictly. 15. It is indeed a question of exercise of discretion whether or not to allow an assessee to raise a claim which was not raised when the return was filed or the assessment order was made. As held by the Supreme Court there may be several factors justifying the raising of a new plea in appeal and each case must be considered on its own facts. However, such cases include those, where the ground though available when the return was filed or the assessment order was made, was not taken or raised for reasons which the app....
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....it clear that for the purpose of enhancement, the Appellate Assistant Commissioner cannot travel beyond the proceedings which were originally before the Income-tax Officer or refer to new sources of income which were not before the Income-tax Officer at all. For this purpose, there are other separate remedies provided under the Income-tax Act." (C) It is unnecessary to refer to all the judgments that the Full Bench referred to while answering the reference. The Full Bench referred to the observations of the Supreme Court in Jute Corpn. of India Ltd. (supra) set out above. It is important to note that even in this case, therefore, the ground existed when the return was filed. The mere fact that a decision of a court is rendered subsequently does not indicate that the ground did not exist when the law was enacted. Judgments are only a declaration of the law. The assessee could have raised the ground in its return itself. It did not have to await a decision of a court in that regard. Indeed, even if a judgment is against an assessee, it is always open to the assessee to claim the deduction and carry the matter higher. The words "could not have been raised", therefore, cannot ....
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....which requires determination more clearly. It is as follows: "Where on the facts found by the authorities below a question of law arises (though not raised before the authorities) which bears on the tax liability of the assessee, whether the Tribunal has jurisdiction to examine the same." Under Section 254 of the Income Tax Act the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with the appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal u....
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.... The appellant has not suggested, much less established that the omission was deliberate, mala-fide or even otherwise. The inference that the omission was inadvertent is, therefore, irresistible. 22. It was then submitted by Mr. Gupta that the Supreme Court had taken a different view in Goetze (India) Ltd (supra). We are unable to agree. The decision was rendered by a Bench of two learned Judges and expressly refers to the judgment of the Bench of three learned Judges in National Thermal Power Comp. Ltd. (supra). The question before the Court was whether the appellant-assessee could make a claim for deduction, other than by filing a revised return. After the return was filed, the appellant sought to claim a deduction by way of a letter before the Assessing Officer. The claim, therefore, was not before the appellate authorities. The deduction was disallowed by the Assessing Officer on the ground that there was no provision under the Act to make an amendment in the return of income by modifying an application at the assessment stage without revising the return. The Commissioner of Income-tax (Appeals) allowed the assessee's appeal. The Tribunal, however, allowed the depa....
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....nded during the Assessment year under consideration and is applicable to the case in hand.The explanation reads as Rajasthan under:- "Explanation. - For the purposes of this section,- (a) "professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board. for the "purposes of section 44AA or of this section; (b) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; [(ba)] "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;] c) where any sum referred to in sub-section (1) is credited to any account, whether called "suspense account" or by any other name, in the books of account of the person liable to pay such sum, such crediting shall be deemed to be credit of such sum to the account of the payee and the provisions of this section shall apply accordingly." 17. The bench has sought the re....
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....h as the Assessee rendering purely software IT(T.P)A No. 1009/Bang/2014 development services. The following were the relevant observations of the Tribunal. "26.2 Infosys Ltd.:- As far as this company is concerned, it is not in dispute before us that this company has been considered to be functionally different from a company providing simple software development services, as this company owns significant intangibles and has huge revenues from software products. In this regard, we find that the Bangalore Bench of the Tribunal in the case of M/s. TDPLM Software Solutions Ltd. v. DCIT, ITA No. 1303/Bang/2012, by order dated 28.11.2013 with regard to this comparable has held as follows:- "11.0 Infosys Technologies Ltd. 11.1 This was a comparable selected by the TPO. Before the TPO, the assessee objected to the inclusion of the company in the set of comparables, on the grounds of turnover and brand attributable profit margin. The TPO, however, rejected these objections raised by the assessee on the grounds that turnover and brand aspects were not materially relevant in the software development segment. 11.2 Before us, the learned Authorised ....
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.... of operations and the brand attributable profit margins of this company have not been extraordinary. In view of this, the learned Departmental Representative supported the decision of the TPO to include this company in the list of comparable companies. 11.4 We have heard the rival submissions and perused and carefully considered the material on record. We find that the assessee has brought on record sufficient evidence to establish that this company is functionally dis-similar and different from the assessee and hence is not comparable and the finding rendered in the case of Trilogy E- Business Software India Pvt. Ltd. (supra) for Assessment Year 2007- 08 is applicable to this year also. We are inclined to concur with the argument put forth by the assessee that Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and has huge revenues from software products. It is also seen that the break up of revenue from software services and software products is not available. In this view of the matter, we hold that this company ought to be omitted from the set of comparable companies. It is ordered accordingly." The decision rendered ....
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....vices revenues are earned on a hybrid revenue model, and the same is not similar to the regular models adopted by other software service providers. The learned representative pleaded that a regular software services provider could not be compared to a company having such a unique revenue model, wherein the revenues of the company from software/product development services depends on the success of the products sold by its clients in the marketplace. Hence, it would be inappropriate to compare the business operations of the assessee with that of a company following hybrid business model comprising of royalty income as well as regular software services income, for which revenue break-up is not available. He finally submitted that this was a good reason to exclude this company also from the list of comparables. 20. On the other hand, the learned DR supported the order of the lower authorities regarding the inclusion of Tata Elxsi and Flextronics Software Systems Ltd., in the list of comparables. He reiterated the contents of para 14.2.25 of the TPO's order. He also read out the following portion from the TPO's order : "Thus as stated above by the company, the....
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....parable with a software development service provider such as the Assessee for identical reasons, we direct the TPO to exclude the aforesaid two companies from the list of comparable companies for the purpose of computation of ALP." 10.2.2 Following the decision of the co-ordinate bench of this Tribunal in the case of Airbus India Operations Pvt. Ltd. (supra) and other Tribunal decisions referred to above, and taking note of the facts and circumstances under which the aforesaid two companies [viz. Infosys Technologies Ltd. and Tata Elxsi Ltd. (Seg.)] were considered to be comparable with a software development service provider, such as is the assessee in the case on hand, for identical reasons we direct the TPO to exclude aforesaid two companies from the list of comparables. It is ordered accordingly. The ld Department Representative relies upon the order of TPO and submits that the Infosys should not be excluded from the list of comparable. 22. We have heard the rival contentions of the parties and perused the record. In our view the exclusion of Infosys has been dealt by the coordinate bench, the coordinate bench after the detailed examination found that the I....
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....d appears to be postponed. 26. On the other hand, the learned AR has drawn our attention to page 29 of the CIT(A) order wherein it reads as under:- 12.2. On the basis of this reasoning, which takes into account the decision rendered in the Sony India case, being one of the initial cases on the same issue, of the same Bench of the Hon'ble Tribunal, the action of the TPO with respect to RPT filter is held to be justified. Hence, in summation, I find that the - TPO has provided cogent reasons for rejecting some of the assessee's comparables and thus. his / her action of rejecting/introducing his own comparables is upheld.. It was pointed out that one of the assessee's comparable viz.. LGS Global satisfies the TPO's export earning filter. It was stated that the assessee follows a mercantile system of accounting and sale proceeds were realized in the next year. But for accounting purpose, the export revenue was definitely more than 75% .. The TPO is directed to look into this matter and take rectificatory action on his/her satisfaction." 27. We have heard the rival contentions of parties and have gone through the order passed by the learned CIT(A)....
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....gainst the declared income of the assessee to Rs. 67,86,55,021/-. 33. We are conscious that while deciding the appeal of the Revenue, we have restored back the matter to the learned CIT(A) to decide afresh about the inclusion or exclusion of LGS Global Ltd., into final list of comparables but we also find that whatever be the result of that exercise, the assessed income of the assessee as per the appeal effect order will not change because even after excluding LGS Global Ltd. from the list of final comparables as per the claim of the Revenue, PLI comes to 10.834% as against appellant's margin of 15.45%. In this view of the matter, we hold that the appeal of the assessee is of academic interest and hence no adjudication is called for in respect of any of the grounds raised by the assessee in its appeal. Therefore, we dismiss the appeal of assessee as of academic interest. 34. In the result, the appeal of the Revenue is partly allowed for statistical purposes and the appeal of the assessee is dismissed. Order pronounced in the open court on 3rd March, 2017. ============= Document 1 1. 2. 3. 4. The order of the CIT (Appeals) is opposed to law and the fac....
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....onics Company Ltd., Korea, w.e.f. 01.12.2005. It is also submitted that though the assessee had paid consideration of Rs.30,42,60,000/-, the value of the net assets acquired was only Rs.17,32,24,951/-. The difference between the consideration paid and the value of net assets was treated as goodwill. In this regard, it may be noted that the assesee has not claimed any depreciation on goodwill under the Income-tax Act for the A.Y.2006-07 and subsequently. As there was no claim of depreciation on goodwill in the first year of acquisition of goodwill, i.e., A.Y.2006-07, this particular transaction was not the subject matter of scrutiny by the Income-tax Department for the A.Y.2006-07 and thereafter. In view of this, it is not possible to arrive at the correctness of allowability of depreciation on goodwill claimed by the assessee. This is precisely because of the reason that the difference between the consideration paid and the net assets acquired, as claimed by the assessee, cannot be considered as goodwill at face value without ascertaining -- iii. iv. a. Whether there was any valuation of the assets acquired at the time of ....