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2017 (3) TMI 1748 - AT - Income TaxRoyalty receipts - consideration received by the assessee for software licensed / sublicensed - assessee argued that the assessee company sells software to Indian companies for their use and not for resale - CIT-A took the view that software itself is a ‘secret process’ which is used in data processing and in as such the payment is made for using such process and the payment is in the nature of royalty and alternatively also held that software is a scientific equipment and the payment received being for use of such equipment would be construed as royalty - DTAA between India and USA - HELD THAT:- Respectfully following the legal position as determined by Hon’ble Delhi High Court in Infrasoft Ltd. [2013 (11) TMI 1382 - DELHI HIGH COURT] and Reliance Industries Ltd [2016 (6) TMI 96 - ITAT MUMBAI] we are of the opinion that the assessee has transferred the copyrighted article/ material which does not give rise to any royalty income as held by ld CIT(A) in the impugned order. VARs constituted a PE of the appellant in India - assessee submits that the CIT (A) not adjudicated the ground of appeal raised before him. It was further argued in alternative that M/s Satyam and Compaq are well established company in the field of software services and question of their dependent upon the assessee does not arise - HELD THAT:- CIT(A) has not adjudicate the ground of appeal despite specific ground of appeal raised by assessee. Hence, we deem it appropriate to restore this ground of appeal to the file of ld CIT(A) to decide the issue afresh in accordance with law. Penalty levied u/s 271(1)(c) - HELD THAT:- We have granted full relief to the assessee as holding that consideration received for software licence/sublicence is not royalty. As in the quantum assessment, the treatment of the income has been reversed; consequently the disallowance in the assessment order is deleted. Thus, the appeal filed by Revenue even on merit left no merit for further consideration. Because, as the order on the basis of which the penalty was levied has been set-aside by us. Even otherwise the penalty was levied by AO on account of different treatment besides claimed by the assessee. It is the settled law that mere disallowance of claim which is based on bonafide belief cannot be a basis for levy of penalty. There is no specific allegation or finding by AO the that assessee has intentionally and deliberately furnished the inaccurate particular or concealed the income. Hence, appeal filed by the Revenue is dismissed.
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