TMI Blog2012 (11) TMI 1151X X X X Extracts X X X X X X X X Extracts X X X X ..... R. Vijayaraghavan, Advocate ORDER PER S.S. Godara, Judicial Member This Revenue s appeal is directed against the order of the Commissioner of Income Tax (Appeals) Large Taxpayer Unit, Chennai dated 24.02.2012 in ITA No. 67/09-10/LTU-A for the assessment year 2002-03 in proceedings under section 143(3) read with section 147 of the Income Tax Act 1961 [in short the Act ]. 2. The Revenue has raised the following grounds in the instant appeal: 1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case. 2.1 The learned CIT(A) erred in deleting the addition of ₹ 15,06,00,000/- made by the Assessing Officer towards 'unearned income' relying upon his order in ITA No.4/09-10/LTU(A) dated 11/12/2009 for A.Y. 2003-04. 2.2. It is submitted that the relied upon order has not become final and appeal before the Hon'ble ITAT has already been preferred. 2.3. Having regard to the Hon'ble Kerala High Court decision in the case of CIT Vs Southern Cables Engineering Works (289 ITR 167), the learned CIT(A) ought to have upheld the action of the Assessing Officer. 3.1 The learned CIT(A) erred in delet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the assessee's claim. 5. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored. Ground No. 2.1 to 2.3 3. Facts pertaining to these grounds are that the assessee, who is a company engaged in the business of networking services and development of software, filed its return on 30.10.2002 admitting loss of ₹ 1,07,31,27,150/-. The return was processed under section 143(1) of the Act followed by scrutiny assessment which was completed under section 143(3) read with section 147 of the Act on 28.12.2006; wherein, loss was computed as ₹ 1,06,84,41,581/-. Thereafter, since in the opinion of the Assessing Officer, the assessee s income had escaped assessment, he served a notice under section 148 of the Act on the assessee on 18.03.2009. In furtherance to the reopening notice, the assessee did not chose to file a fresh return. The Assessing Officer took cognizance of an amount of ₹ 15.06 crores as unearned income which had been disclosed by the assessee in schedule 10 of the balance sheet and not offered to tax. Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year. We find that the same very issue had arisen in assessment year 2003-04 in I.T.A. No. 1954/Mds/2007 (supra), wherein the Coordinate Bench had decided it in favour of the assessee as under: Ground No. 4 4.1 The learned CIT(A) erred in directing the assessing officer to delete the addition of ₹ 39,68,208 recorded in the assessee's books for the relevant previous year as 'unearned income'. 4.2 The learned CIT(A) ought to have noted that the impugned income had accrued to the assessee, as the assessee was following mercantile system of accounting. 4.3 The learned CIT(A) ought to have seen that the assessee adopted a device to postpone the income for the purpose of Income Tax only. 4.4 The learned CIT(A) failed to appreciate that the Hon'ble Supreme Court in the case of CIT v. Thanthi Trust (239 ITR 502) has approved in principle the proposition that book entries to have a legal effect and cannot be ignored merely because they are book entries. 31. It was noticed by the AO during assessment proceeding that in the balance sheet as on 31.03.2003 ₹ 45,67,354 was shown as 'unearned income' under the head 'curre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or service income are as under:- Income from software development (IDC) LMNK 1175 Income from software development non LMNK 162 Income from IT training 48 Income from software services -LMS 3 Income from - LL 2 Miscellaneous others 4 Total 1394 35. The CIT(A) has deleted the addition for the reasons given in paragraph 4.3 of his order. He has, interalia, observed that the revenue earned by the assessee from software and consultancy services was recognized on delivery of goods / services, that as per the existing scheme, M/s. Satyam Education Services Limited was assigned the responsibility to 'sign off on completion of the project in the case of all customers, that the assessee-company was following the AS 9 prescribed by the Institute which was in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for the above assessment year. The Hon ble ITAT in appellant s own case for A.Ys. 2002-03 and 2003-04 in ITA Nos. 1272 1283/Mds/2008 dated 02.02.2012 referred to the decision of Hon ble Delhi High Court in the case of Asia Satellite Telecommunications Co. Ltd. v. DIT, 332 ITR 304 (Del) and confirmed the order of CIT(A) and dismissed the grounds of appeal of revenue. For the reasons given therein, the claim of the appellant is allowed. Accordingly, the ground is allowed. Therefore, the Revenue is aggrieved. 11. Before us, the DR has reiterated the submissions raised in the grounds and prayed for upholding the disallowance made by the Assessing Officer by setting aside the order of the CIT(A). However, the AR representing the assessee has submitted that regarding assessment years 2002-03 and 2003-04 in assessee s own cases, the Chennai Bench of ITAT in I.T.A. Nos. 1277 and 1283/Mds/2008 dated 02.02.2012 has decided the issue in favour of the assessee and by producing copy of the order, he prayed for upholding the order of the CIT(A). 12. In rebuttal, the only contention of the DR is the order of Coordinate Bench above said has not yet been attained finality. 13. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bandwidth service. (3) The bandwidth service is not a specified service. (4) Equipment of the nonresident company through which connectivity is provided is used by the assessee the requisite bandwidth along with equipments is for exclusive for the assessee which cannot be used by others nor by the non-resident company; on termination of the agreement the assessee must cease to use the service and all equipment of the non-resident company. Thus the payment by the assessee can be treated as royalty for use of equipment. The ITO further argued that case has to be distinguished from the case of BSNL and Others Vs. Union of India (Supreme Court). In that case the Supreme Court dealt with the issue of using standard facility provided to an average householder or consumer whereas in the present case it dealt with payment for use of equipment. 6:1. In the report dated 07-09-2007 the Assessing Officer has reiterated the arguments made in the impugned order. 6.2 On the other hand the learned AR has vehemently argued that the learned Assessing Officer has not properly appreciated the facts of the case and submitted that the bandwidth charges are provided either by way of u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to technical services or royalty u/s 9(1)(vii) of the IT Act. Accordingly, it was held that no TDS is to be made. The Hon'ble Tribunal also held that payments for accessing data is like reading a book in a library which could not be passed on to anyone else. Since the copyright was not for literary, artistic or scientific work, the payment is not to be treated as royalty and it was held that no TDS was required to be made. The Hon'ble ITAT, Bangalore Bench in the case of ITO Vs. Madhura Coats Pvt. Ltd., in ITA No. 1711 and 1712jBang/2005 for AYs. 2005-06 and 2006-07 vide order dated 28-09-2006, relying on the decision of the Apex court in the case of Bharat Sanchar Nigam Ltd., (Supra)' wherein, it was held that providing telecom services do not fall under the category of 'goods', the Hon'ble ITAT held that payments made for connectivity for transmission of data would. not fall into the category 'royalty' or 'fees for technical. 6.4. In view of these facts and In the circumstances of the case and the position of law set out above, it is held that the transactions in respect of which the impugned payments were made was purely on account of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rified and depreciation allowed in respect of assets like generator and furniture and fixtures, while the other items was allowable as revenue expenditure. Following the reasons given in that order, the AO is directed to verify the nature of expenditure incurred on acquisition of assets and allow relief as per the above directions. The ground is allowed for statistical purposes. Therefore, the Revenue has raised the instant ground. 15. Before is, the contention of the DR is that the CIT(A) has wrongly deleted the addition since the Assessing Officer had rightly disallowed assessee s claim by terming it as capital expenditure providing the assessee enduring benefit. Accordingly, he prayed for restoring the findings as recorded by the Assessing Officer. 16. On the other hand, the arguments advanced on behalf of the assessee is that the CIT(A) has rightly directed the Assessing Officer to verify the nature of expenditure in question and prayed for upholding the same. 17. We have considered the rival submissions and also perused the relevant findings of the Assessing Officer as well as CIT(A). It is evident that the claim of the assessee was declined by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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