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TMI Blog2017 (3) TMI 1948X X X X Extracts X X X X X X X X Extracts X X X X ..... ss for more than the fair market value of its net tangible assets. The Tribunal dismissed the Revenue's ground, stating that the judgment of the Supreme Court in Goetze (India) Ltd. [ 2006 (3) TMI 75 - SUPREME COURT ] does not apply to the powers of the Tribunal to entertain fresh claims. Disallowance u/s 194J - scope of amended provision - HELD THAT:- Since the issue was decided by the Commissioner on the basis of the judgment pertaining to the period prior to the amendment of the explanation to section 194J, therefore the judgments relied were not applicable and the applicable provision was the amended explanation. In our view the case of the assessee falls within the ambit of explanation to section 194J, therefore the violation committed by the assessee is required to be dealt accordingly. Accordingly, the ground of the Revenue with respect to disallowance u/s 194J is allowed. TP Adjustment - comparable selection - inclusion of Infosys Ltd. and LGS Global Ltd. - HELD THAT:- In our view the exclusion of Infosys has been dealt by the coordinate bench, the coordinate bench after the detailed examination found that the Infosys is not comparable with the companies referred in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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: 'We find merit in the contention of the Ld. A.R. Control panel board and Transformers are more or less items either falling in the category of Instrumentation and monitoring systems as stated in the depreciation schedule in New Appendix-IIII-(8)(ix)B of Income Tax Rules or Electrical equipment as stated in the New Appendix-I- III-(8)(ix)E under the head Electrical Equipments taking into account of the principles of ejusdem generis. Therefore we hereby direct the Ld. Assessing Officer to grant depreciation @ 80% to the assessee on these above stated items.' 12. On the claim of depreciation on computers and computer peripherals, the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terference, 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 this issue is also covered by the judgment of Hon ble Supreme court and Madras High Court 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 and submitted that the assessee has not filed the rectified return of income before the assessing officer, claiming the depreciation on the goodwill therefore this issue should be decided in favour of the revenue in view of the law laid down by Goetze (India) Ltd.. [2006] 157 Taxman 1 (SC) 11. We have gone through the order passed by the CIT(A). The CIT(A) relied upon the decision of Madras High Court in the case of Pentasoft Technologies Ltd., wherein decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enever 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 Smifs Securities Ltd. (supra) was a case where assets of company - YSN shares and Securities (P.) Ltd. were transferred to Smifs Securities Ltd. under a scheme of amalgamation. And, the excess consideration paid by the Assessee therein over the value of net assets of YSN Shares and Securities (P.) Ltd. acquired by the Assessee, was accounted as goodwill. 12. In our view there is no impediment on the powers of the Commissioner appeal as well as on the powers of the Tribunal to entertain the fresh claim filed by the assessee by way of rectification or otherwise. The purposes of proceedings before the Tribunal is to tax the taxable income and ensure income which is not required to be taxed under the law should not be taxed. Therefore the judgment of Hon ble Supreme court in the matter of Goetz ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 aside the assessment and direct the Income Tax Officer to make a fresh assessment. The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is co-terminus with that of the Income-tax Officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do. (emphasis supplied) 6. The above observations are squarely applicable to the interpretation of Section 251(1)(a) of the Act. The declaration of law is clear that the power of the Appellate Assistant Commissioner is co-terminus with that of the Income Tax Officer, if that be so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income Tax Officer. No exception could be taken to this view as the Act doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scretion 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 principles or any hard and fast rule can be laid down for this purpose. [Emphasis supplied] 13. The underlined observations in the above passage do not curtail the ambit of the jurisdiction of the appellate authorities stipulated earlier. They do not restrict the new/additional grounds that may be taken by the assessee before the satisfied, appellate authorities to those that were not available when the return was filed or even when the assessment order was made. The sentence read as a whole entitles an assessee to raise new grounds/make additional claims :- 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 if the ground became available on account of change of circumstances or law The appellate authorities, therefore, have jurisdiction to deal not merely with additional grounds, which became av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 appellate authorities may consider valid. In other words, the jurisdiction of the appellate authorities to consider a fresh or new ground or claim is not restricted to cases where such a ground did not exist when the return was filed and the assessment order was made. 16. (A) A Full Bench of this Court in Ahmedabad Electricity Ltd. v. CIT [1993] 199 ITR 351 considered a similar situation. In that case, the appellant/assessee did not claim a deduction in respect of the amounts it was required to transfer to contingencies reserve and dividend and tariff reserve either before the Income Tax Officer or before the Appellate Assistant Commissioner in appeal. Subsequently, this Court had, in Amalgamated Electricity Co. Ltd. v. CIT [1974] 97 ITR 334, held that such amounts represented allowable deductions on revenue account. The appellant, therefore, raised a new claim and additional grounds before the Tribunal in that connection. The Tribunal rejected the same. The second quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be read strictly. Neither the Supreme Court nor the Full Bench of this Court meant them to be read strictly. They include cases where the assessee did not raise the claim for a reason found to be reasonable or valid by the appellate authorities in the facts and circumstances of a case. 17. The next judgment to which our attention was invited by Mr. Mistri is the judgment of a Bench of three learned Judges of the Supreme Court in National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383. In that case, the assessee had deposited its funds not immediately required by it on short term deposits with banks. The interest received on such deposits was offered by the assessee itself for tax and the assessment was completed on that basis. Even before the Commissioner of Income-tax (Appeals), the inclusion of this amount was neither challenged by the assessee nor considered by the Commissioner of Income-tax (Appeals). The assessee filed an appeal before the Tribunal. The inclusion of the amount was not objected to even in the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of Income Tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier. 18. In the case before us, the CIT(A) and the Tribunal have held the omission to claim the deduction of Rs. 40,00,000/- to be inadvertent. Both the appellate authorities held, after considering all the facts, that the assessee had inadvertently claimed a deduction of Rs. 20,00,000/-paid after the end of the year in question. We see no reason to interfere with this finding. We see less reason to interfere with the exercise of discretion by the appellate authorities in permitting the respondent to raise this claim. That the respondent is entitled to the deduction in law is admitted and, in any event, clearly established. In the circumstances, the respondent ought not be prejudiced. 19. The orders of the CIT(A) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal, however, allowed the department's appeal. In the Supreme Court, the assessee relied upon the judgment in National Thermal Power Co. Ltd. (supra) contending that it was open to the assessee to raise the points of law even before the Tribunal. The Supreme Court held :- 4. The decision in question is that the power of the Tribunal under section 254 of the Income-tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the Assessing Officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income-tax Appellate Tribunal under section 254 of the Income-tax Act, 1961. There shall be no order as to costs. [Emphasis supplied] 23. It is clear to us that the Supreme Court did not hold anything contrary to what was held in the previous judgments to the effect that even if a claim is not made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that this issue is covered by the amended provision introduced in the Act. 18. Since the issue was decided by the Commissioner on the basis of the judgment pertaining to the period prior to the amendment of the explanation to section 194J, therefore the judgments relied were not applicable and the applicable provision was the amended explanation. In our view the case of the assessee falls within the ambit of explanation to section 194J, therefore the violation committed by the assessee is required to be dealt accordingly. Accordingly, the ground of the Revenue with respect to disallowance u/s 194J is allowed. 19. Ground Nos. 5 and 6 are with respect to inclusion of Infosys Ltd. and `LGS Global Ltd., respectively. 20. The learned authorized representative on the behalf of the assessee had submitted that this issue pertaining to Infosys Ltd. is covered by the judgment of coordinate Bench 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. 21. The Coordinate Bench in IT(T.P)A No. 1009/Bang/2014, in para 10.2.1, 11 to 11.4 held as under:- 10.2.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious parts of the Annual Report of this company to submit that this company commands substantial brand value, owns intellectual property rights and is a market leader in software development activities, whereas the assessee is merely a software service provider operating its business in India and does not possess either any brand value or own any intangible or intellectual property rights (IPRs). It was also submitted by the learned Authorised Representative that :- (i) the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. in ITA No. 227/Bang/2010 has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any intangible and hence does not have an additional advantage in the market. It is submitted that this decision is applicable to the assessee's case, as the assessee does not own any intangibles and hence Infosys Technologies Ltd. cannot be comparable to the assessee ; (ii) the observation of the ITAT, Delhi Bench in the case of Agnity India Technologies Pvt. Ltd. in ITA No. 3856 (Del)/2010 at para 5.2 thereof, that Infosys Technologies Ltd. being a giant company and market leader assumin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned. Respectfully following the decision of the Tribunal referred to above, we hold that Infosys Ltd. be excluded from the list of comparable companies. 26.3........ IT(T.P)A No. 1009/Bang/2014 26.4 Tata Elxsi Ltd.:- As far as this company is concerned, it is not in dispute before us that in assessee's own case for the A.Y. 2007- 08, this company was not regarded as a comparable in its software development services segment in ITA No. 1076/Bang/2011, order dated 29.3.2013. Following were the relevant observations of the Tribunal:- II. UNREASONABLE COMPARABILITY CRITERIA : 19. The learned Chartered Accountant pleaded that out of the six comparables shortlisted above as comparables based on the turnover filter, the following two companies, namely (i) Tata Elxsi Ltd; and (ii) M/s. Flextronics Software Systems Ltd., deserve to be eliminated for the following reasons : (i) Tata Elxsi Ltd., : The company operates in the segments of software development services which comprises of embedded product design services, industrial design and engineering services and visual computing labs and system integration services segment. There is no sub-services break up/information provided in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribution of the embedded services segment is to the tune of Rs. 230 crores in the total segment revenue of Rs. 263 crores. Even if we consider the other two subsegments pertain to IT enabled services, the 87.45% ( 75%) of the segment's revenues is from software development services. 4. This segment qualifies all the filters applied by the TPO. Regarding Flextronics Software Systems, the following extract from page 143 of TPO's order was read out by him as his submissions : It is very pertinent to mention here that the company was considered by the taxpayer as a comparable for the preceding assessment year i.e., AY 2006-07. When the same was accepted by the TPO as a comparable, the same was not objected to it by the taxpayer. As the facts mentioned by the taxpayer are the same and these were there in the earlier FY 2005-06, there is no reason why the taxpayer is objecting to it. How the company is functionally similar in the earlier FY 2005-06 but the same is not functionally similar for the subsequent FY 2006-07 even when no facts have been changed from the preceding year. Thus the taxpayer is arguing against this comparable as the company was not considered as a comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by the coordinate bench. LGS Global Ltd. : 23. With respect to LGS Global Ltd., the following ground was raised by the Revenue. On the facts and in the circumstances of the case, the CIT(A) erred in directing the TPO to include M/s LGS Global Ltd, the company which was excluded by eh TPO as the same had failed to pass the TPO s filter export sales/sales, 75% this filter is also deciding factor for treating a company as a comparable and accordingly erred in including the comparable, M/s LGS Global Ltd., in Software Development Segment. 24. In this regard, the learned DR brought to our notice the order of the TP at page 45 which reads as under:- As in the case of Aztecsoft, this company also was rejected because, the forex earnings repatriated on export sales was less than 75% of revenues earned during the year. Though export sales were 96% of total sales in the P L account, the forex earnings repatriated was only 40.61%. If the P L account of this company is further examined, it is observed that as against total standalone sales of Rs. 189 crores, sundry debtors figure stands at Rs. 175 crores (including Rs. 96.7 crores debtors outstanding for more than six months, ref. Sch.6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned AR has brought to our notice the order passed by the DCIT Circle-6(1)(1), Bangalore dated 31/12/2014, whereby the order of the CIT dated 14/11/2014 on the subject matter of the appeal has been given effect and the revised taxable income was computed by the AO. 30. The assessee in fact filed the return of income electronically declaring the income of Rs. 67,94,36,842/- which included the income under the head business/profession amounting to Rs. 5360,28,657/- and income from other source amounting to Rs. 14,34,08,185/-. Subsequent to the filing of the electronic return, a revised return was also filed on 30/3/2011, wherein the total income was mentioned as Rs. 67,86,55,021/- The learned AR has pointed out that after giving the appeal effect, revised taxable income computed by the AO on 31/12/2014 comes to Rs. 66,35,52,329/- and, therefore, the issues raised in the appeal of the assessee are academic in nature and he does not wish to adjudicate upon the issues raised by the assessee in the appeal. 31. On the contrary, the learned DR for the Revenue submitted that though the appeal effect has been given by learned AO pursuant to the order passed by the CIT(A) on 14/11/2014, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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