2020 (11) TMI 135 - AT - Income Tax

Condonation of delay - delay of 2625 days - According to the Assessee, it was on the basis of professional opinion, under the belief that the issues that were sought to be agitated before the CIT(A) against the order of assessment dated 30.12.2008 could be agitated before the AO in the proceedings pursuant to the order u/s.263. HELD THAT - We find that it is only on the receipt of Tribunal s order in the appeal arising out of proceeding subsequent to the order passed by the CIT u/s. 263 of the Act that the assessee came to know that the issues, which were not subject matter of 263 proceedings and which arose out of additions made in the original order of assessment, had to be challenged by way of filing appeals against the order of CIT(Appeals) dated 15.2.2010 for AY 2005-06. The date on which the assessee received the order of Tribunal was on 12.7.2016 for AY 2005-06. The appeal before the Tribunal has been filed only on 14.7.2017. As far as delay from the date of the impugned order passed in the year 2009 till 12.7.2016 is concerned, the belief entertained by the Assessee based on legal advice that the additions made in the original order of assessment can still be challenged in the proceedings pursuant to order passed u/s.263 of the Act, cannot be said to be not bonafide. As far as the delay from the date of Tribunal s order in the year 2016 till filing of the appeal only in the year 2017, is concerned, it has been submitted in the affidavit that after prolonged discussion and legal advice, it was suggested that the appeals should be filed against the orders of CIT(Appeals) dated 15.2.2010 for AY 2005-06. We are of the view that given the factual scenario and nature of disputes, the plea of assessee that delay in fling of the appeals before the Tribunal was due to bona fide reasons has to be accepted. Keeping in mind the principle that substantive rights should not be denied by technicalities, we condone the delay in filing the appeals before the Tribunal. Revision u/s 263 - TP Adjustment - addition on account of determination of ALP/transfer price - HELD THAT - It is not in dispute before us that the issues which were sought to be raised in the appeal before the CIT(A) were not at all subject matter of original proceedings u/s. 263 of the Act and therefore in terms of Explanation (1)(c) to section 263(1) issues raised in the appeals before the CIT(A) ought to have been adjudicated by the CIT(Appeals) and his conclusion that the entire assessment order has been set aside in the proceedings u/s. 263 is erroneous. The issue with regard to expenditure on computer software, method of computation of deduction u/s.10A of the Act have been considered from a different facet in the order u/s.10A of the Act and that facet had nothing to do with the issues that were raised by the Assessee in the appeal before the CIT(A). TPA issue was not at all an issue that was considered in the order u/s.263 of the Act. Therefore the CIT(A) ought to have adjudicated the issues raised by the Assessee before it. Since the issues sought to be now raised in the present appeals have not been adjudicated by the CIT(Appeals), we deem it fit and proper to set aside the order of CIT(A) and restore the issues raised in the appeals before the CIT(A) for adjudication by the CIT(Appeals) on merits. We hold and direct accordingly. Revision u/s 263 - AY 2004-05 - HELD THAT - CIT(A) passed an order dated 17.7.2012, wherein he held that the scope of proceedings before the AO pursuant to the order u/s.263 of the Act was only restricted to issues considered in the order u/s.263 of the Act and did not extend to other issues arising from the order of assessment dated 30.8.2008 passed u/s.143(3) of the Act that remain undisturbed. CIT(A) therefore did not adjudicate those issues. The Assessee filed appeal before the ITAT against the order of CIT(A) holding that he has no authority to adjudicate issues that did not emanate from the order u/s.263 . Tribunal by an order dated 17.10.2016 dismissed the appeal of the Assessee upholding the aforesaid order of the CIT(A) in so far as it relates to jurisdiction of the CIT(A) to consider issues other than the issues that were directed to be considered by the AO in the order u/s.263 of the Act. It was stated by the learned counsel for the Assessee that the Assessee has preferred appeal against the order of the Tribunal dated 17.10.2016 before the Hon ble High Court and the same is pending. Thus issues dealt with by the CIT in the order passed u/s.263 of the Act in AY 2004-05 had nothing to do with the issues that the Assessee sought to raise in its appeal against the original order of assessment dated 29.12.2006 passed u/s.143(3) of the Act. Therefore the CIT(A) ought to have adjudicated the issues raised by the Assessee before it. Since the issues sought to be now raised in the present appeals have not been adjudicated by the CIT(Appeals), we deem it fit and proper to set aside the order of CIT(A) and restore the issues raised in the appeals before the CIT(A) for adjudication by the CIT(Appeals) on merits. We hold and direct accordingly.

Summary

Issues Involved:
1. Delay in filing appeals.
2. Treatment of software expenses as capital or revenue expenditure.
3. Computation of deduction under Section 10A of the Income-tax Act.
4. Adjustment of Transfer Pricing (TP) and determination of Arm’s Length Price (ALP).
5. Jurisdiction of CIT(A) to adjudicate issues not covered under Section 263 proceedings.

Issue-wise Detailed Analysis:

1. Delay in Filing Appeals:
The appeals for AY 2005-06 and AY 2004-05 were delayed by 2625 days and 2944 days respectively. The delay was attributed to the assessee's belief, based on legal advice, that the issues could be challenged in the proceedings pursuant to the order under Section 263 of the Act. The Tribunal accepted the assessee's explanation, noting that substantive rights should not be denied on technical grounds, and condoned the delay for both assessment years.

2. Treatment of Software Expenses:
The Assessing Officer (AO) disallowed the expenditure on software claimed as revenue expenditure, treating it as capital expenditure but allowed depreciation at 60%. The Commissioner of Income-tax (CIT) in revisionary proceedings under Section 263 directed the AO to verify the nature of these expenses. The Tribunal found that the CIT(A) should have adjudicated this issue as it was not part of the Section 263 proceedings.

3. Computation of Deduction under Section 10A:
The AO recomputed the deduction under Section 10A by adjusting telecommunication expenses and setting off losses from one unit against the profits of others. The CIT(A) dismissed the appeal on these grounds, considering it infructuous due to the Section 263 proceedings. The Tribunal held that the CIT(A) should have adjudicated this issue as it was not part of the Section 263 proceedings.

4. Adjustment of Transfer Pricing (TP) and Determination of Arm’s Length Price (ALP):
The AO made an addition on account of TP adjustment. The Mutual Agreement Procedure settled the TP adjustment for transactions with the USA AE, but the balance TP adjustment for non-USA transactions was still under dispute. The Tribunal noted that the TP adjustment issue was not part of the Section 263 proceedings and should have been adjudicated by the CIT(A).

5. Jurisdiction of CIT(A) to Adjudicate Issues Not Covered Under Section 263 Proceedings:
The CIT(A) held that the scope of proceedings under Section 263 was limited to the issues considered in the Section 263 order and did not extend to other issues. The Tribunal disagreed, stating that issues not covered under Section 263 should have been adjudicated by the CIT(A). The Tribunal set aside the CIT(A)'s order and directed it to adjudicate the issues on merits.

Conclusion:
The Tribunal condoned the delay in filing the appeals for both assessment years, set aside the CIT(A)'s orders, and directed the CIT(A) to adjudicate the issues on merits, which were not part of the Section 263 proceedings. The appeals were treated as allowed for statistical purposes.