Ita/180/2017 Of Pr Commissioner Of Income Tax-6 v. M/S Subex Technologies Ltd

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 71 DAY OF DECEMBER 2070PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD BETWEEN: LT.A. NO.180 OF 2017 1.|PR. COMMISSIONER OF INCOME TAX-6. BMTC COMPLEX, KORMANGALA BANGALORE. 2.|THE JOINT COMMISSIONER OF INCOME TAX. (OSD), CIRCLE-12(3), BENGALURU. (BY SRI. E.I. SANMATHI, ADV.,)- .., APPELLANTS~ AND* M/S. SUBEX TECHNOLOGIES LTDNO.999, 9TH MAIN, HSR LAYOUTSECTOR-7, BENGALURU-560102PAN: AAICS9433Q. (BY SRI. CHYTHANYA K.K. ADV.) .., RESPONDENT THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,|1961L ARISING OUT OF ORDER DATED 29.0/.2016 PASSED INIT(IT)A NO.715/BANG/2014 FOR THE ASSESSMENT YEAR 2008-O09, PRAYING [TO (1) DECIDE THE FOREGOING QUESTION OF LAW AND/OR|SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BYTHE HON BLE COURT AS DEEMED FIT. (II) SET ASIDE THE APPELLATE ORDERS DATED 29.07.2016.THE ITAT, ‘C’ BENCH, BENGALURU, IN IT(IT)A NO.715/B/2014FOR ASSESSMENT YEAR 2ZOO8-O9 AND TO GRANT SUCH OTHERRELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE. THIS|LIACOMING|ONFOR.HEARING,THISALOK ARADHE J.,DELIVERED THE FOLLOWING: | DAY, | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (hereinafter referred to as the Act for short)has been preferred by the revenue. The subject matter|of the appeal pertains to the Assessment year 2008-09.The appeal was initially admitted by a bench of thisCourt vide order dated 03.01.2018 on the following|substantial question of law: “Whether on the facts and In thecircumstances of tne case, the Tribunal was|justifiedIn|lawIn|settingaside thedisallowance made under section 40(a)(ia)|of the Act by holding that assessee madeonly journal entries in the books and assuch it does not require deduction of TDSeven when the assessing authority has|rightly neld that the assessee required to|dqeauct [DS towards payments made sub contractor as per section 195 of the Act andnon deduction of TDS attracts section.40(a)(la) of the Act?”. 2 |Thereafter, after hearing the parties, by an order passed today, the substantial question of law was.re framed as under: WhetherOP)thefactsand|In|thecircumstances of the case, the tribunal is right|In|law.In|holdingthat|eExDellSOF|Rs.624,983,348/- to Subex Technologies Inc|(STI) is merely a Journal entry and as invokingof Section 40(a)(ia) read with Section 195 of|the Act does not arise ignoring the contents ofthe agreement entered into by the assessee|with STI coupled with other documentary|evidence brought on record by the Assessing|Authority and when assessee had failed to|substantiate its claim that the said amount I[spaid towards reimbursement of expenses andwhen Commissioner of Income Tax (Appeals)rightly confirmed the said disallowance after|appreciation of aforesaid materials? 3Facts leading to filing of this appeal brieflystated are that assessee is engaged in the development,sales and service of software products. Under a scheme.of arrangement approved by this court, the service|business of the assessee's parent company i.e., Subex.Technologies Inc (STI) was transferred to the assessee|for a consideration of Rs.31,00,00,000/-. Out of the.aggregateconsiderationofan|amount of Rs.28,00,00,000/- Crores was treated asinterest fee Unsecured loan payable on demand by the.transferor company in the books of accounts of theassessee for balance amount of Rs.30,00,00,000/- fully|paid up equity shares of Rs.10/- each were issued to thetransferor. Tne assessee filed tne return for tne’Assessment Year 2008-09 on 06.09.2008 In wnhnicn totaincome of Rs.1,/70,10,894/- was declared. The case wasselected for scrutiny and notices under Section 143(2).dated 21.08.2009 and Section 142(1) dated 04.06.2010.and 12.08.2010 were tssued and served on tne! aSSesSsSsee aSSesSsSsee 4The Assessing Officer on perusal of thestatement of accounts, noticed that assessee hasdebited a sum of Rs.62,49,85,438/- as sub contract.charges under the head of personnel cost as per profit.and loss account. Thereupon the show cause notice was.issued as to why the aforesaid payment should not be.disallowed under Section 40(a)(i) of the Act. TheAssessing Officer by an order dated 29.12.2011 held|that the assessee has not established by substantialevidence that no services were made available by Subex.Tecnnologies Inc (STI) and mere reliance on the caselaw on the existence of an agreement on the partiesdoes not validate the assessee's claim. The Assessing.Officer therefore, by invoking Section 40(a)(i) of the Act|made an addition of Rs.62,49,85,348/-. The aforesaid|order was upheld by the Commissioner of Income Tax.(Appeals) vide order dated 25.02.2014. Thereupon tneassessee filed an appeal before the Income Tax. Appellate Tribunal (hereinafter referred to as ‘thetribunal for short). The tribunal by an order dated29.07.2016 inter alia held that income and expenses—recorded in the books of Subex Technologies Inc (ST1)|between the period from 01.09.2007 to 31.03.2008were recorded in the books of the assessee by way of.journal entry and therefore, there was no need for'deduction of tax at source under Section 195 of the Act|and it was held tnat the authorities erred in disallowing|the amount in question under Section 40(a)(ia) of theAct. Accordingly, the appeal preferred by the assessee|was allowed. In the aforesaid factual background, the|revenue has filed this appeal. 5.|Learned counsel for the revenue submittedthat|theASS@SSINQ|Authorityas|well.as|theCommissioner.Of Income.Tax(Appeals)have|categorically held that the assessee nas failed toestablisn tne claim witn substantial evidence tnat no'services were made available by Subex Technologies Inc (STI) to it and has merely produced invoices detailing|out the transactions to show that they were raised in.connection with providing of services claimed by the|aSS@CSSC2and the!said amountISpaid|towardsreimbursement of expenses. It is also urged that the|tribunal ought to Nave appreciated that the assessee|had failed to discharge the burden. It is also argued that|the tribunal ought to have determined the question|whether tne claim of tne assessee nas been establisnecdor not but, the tribunal without analyzing the findings|recorded by the Assessing Authority as well as the|Commissioner of Income Tax (Appeals) has held that theentry in question is a journal entry and allowed theappeal. It is submitted that the finding recorded by thetribunal is perverse and it has failed to consider theissue whether sub contract charges are liable for'deduction at source by examining contents of agreement|and provisions stipulated in Section 40(a)(i), Explanation|(i) to (vi) read with Section 195 and Section 9 of the Act. It is further submitted that the tribunal has failed torecord any findings with regard to nature of services.Therefore, the matter deserves to be remitted to thetribunal as it is a final fact finding authority. 6.|On the other hand, learned counsel for theassessee submitted that on 01.04.2009 Subex Limited|entered into an agreement with Subex Technologies Inc|(STI) and the aforesaid agreement was produced before|the Assessing Authority as well as Commissioner of.Income Tax (Appeals). It is further submitted thatcondition precedent for invoking Section 40(a)(ia) of the|Act was not satisfied as the assessee was neitner tne|person responsible for making payment nor nad made.payment. It is further submitted that the seller was.responsible for making payment. In this connections,|our attention was invited to Section 204 of the Act. It Isalso urged that paragraphs 8, 10 and 13 of the orderpassed by tne tribunal deserves to be read togetner andthe instant case does not call for remand as tne matter| 6.|On the other hand, learned counsel for theassessee submitted that on 01.04.2009 Subex Limited|entered into an agreement with Subex Technologies Inc|(STI) and the aforesaid agreement was produced before|the Assessing Authority as well as Commissioner of.Income Tax (Appeals). It is further submitted thatcondition precedent for invoking Section 40(a)(ia) of the|Act was not satisfied as the assessee was neitner tne|person responsible for making payment nor nad made.payment. It is further submitted that the seller was.responsible for making payment. In this connections,|our attention was invited to Section 204 of the Act. It Isalso urged that paragraphs 8, 10 and 13 of the orderpassed by tne tribunal deserves to be read togetner andthe instant case does not call for remand as tne matter| has become barred by limitation. In support of aforesaidsubmission, reliance has been placed on decision of High Court.OF RajasthanIn/CITVS,DAULAT|ENTERPRISES’, (2018) 94 TAXMANN.COM 261.(Rajasthan),which was affirmed by Supreme Court. It |is also argued that the person who has paid moneyis |responsible to deduct tax and pay the same to thegovernment and no tax at source has to be deducted inthe absence of any oral / written agreement. 7We have considered the submissions made.by learned counsel for the parties and have perused therecord. The Assessing Authority inter alia held that|even though opportunities were given to the assessee to.substantiate its claim, however, the assessee has only.relied on several decisions without establishing its claim|by producing the documents called for, which would|Support its claim. The Assessing Authority for thereasons recorded in para 3.3 to para 6 has rejected the.claim of the assessee under Section 40(a)(i) of the Act. The aforesaid finding has been affirmed by _ thCommissioner of Income Tax (Appeals) for the reasons.assigned in para 6.2 to para 7. However, the tribunal|has not adverted either to the findings recorded by the|Assessing Officer or the Commissioner of Income Tax((Appeals). It is well settled in law that even a quasijudicial authority is required to assign reasons in support|of its order. 8 _It has been held by the Supreme court in)‘VICTORIAMEMORTIALHALLVS,HOWRAHGANATANTRIK NAGRIK’, 2010 (3) SCC 732,reaSOnswere neild to be the heartbeat of every conclusion, apartfrom being an essential feature of the principles of naturaljustice, that ensure transparency and fairness, in thedecision making process. [SEE:‘MAYA DEVI VS, RAJKUMARI BATRA AND OTHERS’, (2010) 9 SCC 486,"SANT LAL GUPTA AND OTHERS VS, MODERN CO-OPERATIVE GROUP HOUSING SOCIETY LIMITED ANDOTHERS’, (2010) 13 SCC 336, UNION OF INDIA AND ANOTHER VS. TALWINDER SINGH, (2012) 5 SCC 480,and‘UNION OF INDIA VS. RAVINDER KUMAR‘, (2015)12 SCC 291. ] oiIn the backdrop of aforesaid well settled|principles, we may advert to the order of the tribunal andthe relevant extract viz., para 13 of the order is reproducedbelow for the facility of reference: 13. We have heard the rival submIssSIonsand perused the material on record. We|find that the income and expenses recordedin the books of Subex Ltd., in intervening:period between 01.09.2007 and 31.03.2008were recorded in the assessee’s books by|way of journal entry. We have perused the|relevant ledger account extracts of the|expenses of Rs.624,983,348 to STI is|merely a journal entry and hence the needfor tax deduction at source Under Section195 of the Act does not arise and the lower.authorities have erred in disallowing the|impugned amount under Section 40(a)(Ia)|of the Act. oiIn the backdrop of aforesaid well settled|principles, we may advert to the order of the tribunal andthe relevant extract viz., para 13 of the order is reproducedbelow for the facility of reference: 13. We have heard the rival submIssSIonsand perused the material on record. We|find that the income and expenses recordedin the books of Subex Ltd., in intervening:period between 01.09.2007 and 31.03.2008were recorded in the assessee’s books by|way of journal entry. We have perused the|relevant ledger account extracts of the|expenses of Rs.624,983,348 to STI is|merely a journal entry and hence the needfor tax deduction at source Under Section195 of the Act does not arise and the lower.authorities have erred in disallowing the|impugned amount under Section 40(a)(Ia)|of the Act. 10. Thus, from perusal of the aforesaid paragrapn, it is evident that the tribunal has merely recorded itsconclusion and has not assigned any reasons in support ofthe conclusion. Thus, for the aforementioned reasons, theimpugned order dated passed by the tribunal is herebyquashed. The substantial question of law is answeredaccordingly. The tribunal is directed to decide the claim ofthe assessee under Section 40(a)(ia) of the Act afresh onthe pasis of tne material available on record and on tnebasis of the reasoning assigned by the Assessing Officer aswell as Commissioner of Income Tax (Appeals) and shallalso advert to the issue whether the condition precedent forinvocation of Section 40(a)(ia) of the Act have been fulfilledin tne fact situation of tne case. In the result, the appeal is disposed of. Sd/-JUDGE. Sd/-—JUDGE.