TMI Blog2016 (7) TMI 1180X X X X Extracts X X X X X X X X Extracts X X X X ..... nd any suppression of sale nor anything was pointed before us. Even otherwise, nothing was brought on record by the Revenue evidencing that the project was completed during the year itself, thus, we affirm the stand of the ld. Commissioner of Income Tax (Appeals).This matter was kept for clarification by the Bench with respect to the front end commissions and as per the facts as emerging from the records, orders of the authorities below and statements and submissions as made by both the counsels, we are of considered view that the front end commission as are paid by the assessee company to M/s 3I Infotech, Dubai , the pith and substance of the agreement of the assessee with the foreign agent M/s 3I Infotech, Dubai is for arranging export order of software in favour of the assessee company and since it could not be brought on record by the Revenue that services were rendered from or in India by the said foreign agent i.e. 3I Infotech nor it could be brought on record that any technical services or technical knowhow or technical expertise, experience or expertise is provided by the 3I Infotech, Dubai and also the front commission pertains to the period prior to the new circular no. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record. - ITA No. 1275 /Mum/2012, ITA No.1780/Mum/2013, ITA No. 2295/Mum/2013 - - - Dated:- 18-5-2016 - Shri Joginder Singh, Judicial Member And Shri Ramit Kochar, Accountant Member For the Assessee : Shri A.K.Ghosh For the Revenue : Shri Maurya Pratap ORDER Per Joginder Singh ( Judicial Member ) The assessee as well as the Revenue is in cross appeal for A.Y. 2009-10, challenging the order dated 10/12/2009, whereas, the Revenue is aggrieved by the impugned order dated 12/12/2011 (A.Y. 2008-09) of the ld. First Appellate Authority, Mumbai. 2. First, we shall take up appeal of the Revenue (ITA No.1275/Mum/2012) for A.Y. 2008-09, wherein, the first ground pertains to deleting the addition of ₹ 18,57,208/-, made on account of disallowance of depreciation on capitalization of software development. The crux of argument by Shri Maurya Pratap, ld. DR, is identical to the ground raised by placing reliance upon the assessment order by inviting our attention to para 4 and para 4.2 of the assessment order and further para 3.3 of the impugned order. On the other hand, the ld. counsel for the assessee, Shri A.K.Ghosh, defended the relief granted to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961, u/s 32, Rule 5(appendix -1 part-B). The ld. Assessing Officer asked the assessee to justify the claimed expenses under the head depreciation against intangible assets capitalized in software development. The assessee explained his position, however, the same was declined and the impugned addition was made. 2.2. On appeal before the ld. Commissioner of Income Tax (Appeals), the provision of the Act, factual matrix and accounting standard (AS 26), issued by ICAI, with respect to accounting and amortization period were considered. For ready reference, we are reproducing hereunder:- The following are not components of the cost of an internally generated intangible asset. a. Selling, administrative and other general overhead expenditure unless this expenditure can be directly attributed to making the asset ready for use. b. Clearly identified inefficiencies and initial operating losses incurred before an asset achieves planes performance; and c. Expenditure on training the staff to operate the asset. Past Expenses not to be Recognised as an Asset 58. Expenditure on an intangible item that was initially recognised as an expense by a reporting enterpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach such a level; (g) the period of control over the asset and legal or similar limits on the use of the asset, such as the expiry dates of related leases; and (h) whether the useful life of the asset is dependent on the useful life of other assets of the enterprise. 65. Given the history of rapid changes in technology, computer software and many other intangible assets are susceptible to technological obsolescence. Therefore, it is likely that their useful life will be short. 66. Estimates of the useful life of an intangible asset generally become less reliable as the length of the useful life increases. This Standard adopts a presumption that the useful life of intangible assets is unlikely to exceed ten years. Know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature Notes: 1. Buildings include roads, bridges, culverts, wells and tubewells. 2. A building shall be deemed to be a building used mainly for residential purposes, if the built up floor area thereof used for residential purposes is not less than sixty-six and two-third per cent of its total built-up floo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the same Assessing Officer. Further, for A.Y. 2008-09, addition was made but the same was deleted by the ld. Commissioner of Income Tax (Appeals). Identical is the situation for A.Y. 2009-10 and for A.Y. 2010-11, no addition was made by the Assessing Officer. In view of these facts, the ld. Assessing Officer is expected to follow the principle of consistency unless and until contrary material/facts are brought on record. On the issue of consistency, we are supported by following decisions:- i. Parshuram Pottery Works Ltd. vs ITO 106 ITR 1 (SC) ii. Security Printers 264 ITR 276(Del.) iii. CIT vs Neo Polypack Pvt. Ltd. 245 ITR 492 (Del.) iv. CWT vs Allied Finance Pvt. Ltd. 289 ITR 318 (Del.) v. Berger Paints India Ltd. vs CIT 266 ITR 99 (SC) vi. DCIT vs United Vanaspati (275 ITR 124) (AT)(Chandigarh ITAT) vii. Union of India vs Kumudini N. Dalal 249 ITR 219 (SC) viii. Union of India vs Satish Pannalal Shah 249 ITR 221 ix. B.F.Varghese vs State of Kerala 72 ITR 726 (Ker.) x. CIT vs Narendra Doshi 254 ITR 606 (SC) xi. CIT vs Shivsagar Estate 257 ITR 59 (SC) xii. Pradip Ramanlal Seth vs UOI 204 ITR 866 (Guj.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book (invoice), which is identical i.e. $ 1,60,000. Our attention was further invited to page 75 containing the ledger account of the party. It was also explained that prior to issue of Circular No. 7 of 2009 dated 22/10/2009 income was not taxable in India (page 253 of the paper book) and further Circular NO.786 dated 07/02/2000 (page 254 of the paper book). It was explained that the case of the assessee is prior to circular, thus, the circular has to be applied prospectively for which reliance was placed upon the jurisdictional High Court Basf(India) Ltd. Ors. vs Commissioner (280 ITR 136) (Bom.) and also the decision of the Tribunal in Sanjiv Gupta vs Dy. CIT (ITA No.587 (LKW)/2010). The clarifications were called by the Bench with respect to front end commissions paid to the foreign agent. The ld. Counsel for the assessee made statement before the Bench that the pith and substance of the agreement is to appoint 3I infotech,Dubai as the foreign agent of the assessee for procuring order from the Skype Bank and for which the said foreign agent is paid the front end commission for securing the export order of the software for the assessee company, realize the payments from the ul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that as per the working of the contract value, the assessee only invoiced only $ 1,60,000 against the total contract of $ 4,12,000 but the ld. Assessing Officer added the balance income of $ 2,52,000 as unaccounted sale at the rate 39.77 per USD making addition of ₹ 1,00,22,040. We find that the ld. Commissioner of Income Tax (Appeals) justifiably considered the agreement specially the terms and conditions as has been considered in para 4.2 of the impugned order and then reached to conclusion. The working mentioned in para 4.2 is exactly in terms of the agreement, wherein, no contradiction was pointed out by the department. Neither the ld. Commissioner of Income Tax (Appeals) found any suppression of sale nor anything was pointed before us. Even otherwise, nothing was brought on record by the Revenue evidencing that the project was completed during the year itself, thus, we affirm the stand of the ld. Commissioner of Income Tax (Appeals).This matter was kept for clarification by the Bench with respect to the front end commissions and as per the facts as emerging from the records, orders of the authorities below and statements and submissions as made by both the counsels, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found that 50% of the payment were to be received on implementation. The contract was signed on 27/03/2008 and up to 31/03/2008, there was no implementation of work rather the work started on 01/04/2008 for which invoice for USD 70000 was raised which is 50% of USD 1,40,000. It is also noted that in case of product, License Company and accounting of the Revenue is based on percentage completion of work method. We find no suppression of sale as has been alleged by the Revenue. We have also perused and analyzed the agreement entered into between the parties and found that practically no work was commenced in the month of March, thus, no addition was warranted. We affirm the stand of the ld. Commissioner of Income Tax (Appeals). 5. The next ground pertains to deleting the addition made on account of sale of ₹ 3,02,726/- to M/s Centurian Bank of Punjab, being unaccounted sales. The crux of argument on behalf of the Revenue, is identical to the ground raised. On the other hand, the ld. counsel for the assessee contended that the facts are identical to ground no. 3. 5.1. We have considered the rival submissions and perused the material available on record. We have also perus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) ignored Circular No.7/2009 dated 22/10/2009. On the other hand, the ld. counsel for the assessee, defended the conclusion arrived at in the impugned order by placing reliance upon the decision in 201 CTR (Bom.) 196 by inviting our attention to page 253 to 257 of the paper book. 7.1. We have considered the rival submissions and perused the material available on record. Before the ld. Commissioner of Income Tax (Appeals), the stand of the assessee was that the alleged circular no.7, dated 22/10/2009 is not applicable to the facts of the case as the same is effective prospectively. We note that the ld. Assessing Officer applied Circular No. 7 of 2009 to the transaction of the assessee prior to F.Y. 2007-08 when the circular was not in force as has been deliberated upon in Sanjiv Gupta vs DCIT b y the Lucknow Bench of the Tribunal (ITA No.587/LKW/2007), order dated 07/01/2011. The ratio laid down by Hon ble jurisdictional High Court in Basf(India) Ltd. Ors. vs Commissioner (2006) 280 ITR 136 (Bom.), thus, we affirm the stand of the ld. Commissioner of Income Tax (Appeals). We find that identically we have deliberated upon this issue while dealing with ground no. 2 and 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cated. It was contended that no adjustment was made in other years. Our attention was invited to accountant standard AS-26 (Page 446 of the paper book) and further page 464( point 9). On the other hand, the ld. DR defended the addition made by the ld. Assessing Officer. 9.2. We have considered the rival submissions and perused the material available on record. Without going into much deliberation, it has not been disputed by the ld. DR that for earlier assessment year, the Assessing Officer accepted the claim of the assessee on identical fact, thus, on the issue of consistency, as discussed in earlier para of this order, the assessee is having a merit in its contention because in the absence of contrary facts/adverse material, the department is expected to follow the consistency. Even otherwise, as para 54 (Page 446) with respect to AS-26, the following are not components of the cost of an internally generated intangible asset. a. Selling, administrative and other general overhead expenditure unless this expenditure can be directly attributed to making the asset ready for use. b. Clearly identified inefficiencies and initial operating losses incurred before an asset ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee contended that this ground is similar to ground no.2 of the appeal of the Revenue for A.Y. 2008-09. The ld. DR did not controvert the assertion of the assessee. 11.1. So far as the issue of suppression of sale is concerned, we have deliberated upon, identically, on the issue while discussing ground no. 2 for A.Y. 2008-09 in the appeal of the Revenue, wherein, we find that there was no suppression of sale by the assessee as was alleged by the Assessing Officer, therefore, on the same reasoning, we allow this ground of the assessee. 12. The next ground with respect to not allowing the front end commission as expenses in spite of making additions to the sales value by applying the provision of section 195 and treating the same is in admissible expenditure u/s 40(a) of the Act referring to CBDT Circular No. 7/2009 dated 22/10/2009, which was not applicable on the date of transaction. 12.1. The crux of argument on behalf of the assessee is that this ground is identical to ground no. 6 for A.Y. 2008-09. The ld. DR did not object to the assertion of the assessee. 12.2. We have made an elaborate discussion in earlier para of this order, while deciding the appeal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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