Ita/484/2023 Of Pr. Commissioner Of Income Tax-3 v. M/S Harman Connected Services Corporation India Private Ltd

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 9 DAY OF DECEMBER, 2024 PRESENT THE HON'BLE MR JUSTICE V KAMESWAR RAO AND THE HON'BLE MR JUSTICE S RACHAIAH INCOME TAX APPEAL NO. 484 OF 2023BETWEEN: 1. PR. COMMISSIONER OF INCOME TAX-3, BMTC COMPLEX, KORAMANGALA, BANGALORE. INCOME TAX-3, BMTC COMPLEX, KORAMANGALA, BANGALORE. 2. THE DY COMMISSIONER OF INCOME TAX, CIRLCE 3(1)(2), BENGALURU. OF INCOME TAX, CIRLCE 3(1)(2), BENGALURU. (BY SRI. SANMATHI .E.I, ADVOCATE) …APPELLANTS AND: Digitally signedby K GM/S HARMAN CONNECTED SERVICES by K GM/S HARMAN CONNECTED SERVICES RENUKAMBACORPORATION INDIA PRIVATE LTD., CORPORATION INDIA PRIVATE LTD., Location: HighCourt of(FORMERLY KNOWN AS KarnatakaSYMPHONEY TELECA CORPORATION INDIA PVT LTD, PLOT NO 3 AND 3A, EOIZ INDUSTRIAL AREA, SY NO.85 AND 86, SADARAMANGALA VILLAGE, KRISHNARAJAPURAM HOBLI, BANGALORE-560 066. Court of(FORMERLY KNOWN AS KarnatakaSYMPHONEY TELECA CORPORATION INDIA PVT LTD, PLOT NO 3 AND 3A, EOIZ INDUSTRIAL AREA, SY NO.85 AND 86, SADARAMANGALA VILLAGE, KRISHNARAJAPURAM HOBLI, BANGALORE-560 066. …RESPONDENT (BY SRI. K. SURYANARAYANA, SENIOR ADVOCATE - 2 - FOR SMT.TANMAYEE RAJKUMAR, ADVOCATE ) THIS ITA IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, PRAYING TO (1) DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HONBLE COURT AS DEEMED FIT (2) SET ASIDE THE APPELLATE ORDER DATED 23/05/2022 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEES CASE, IN APPEAL PROCEEDINGS IN IT(TP)A NO.705/BANG/2016 (ANNEXURE-A) FOR ASSESSMENT YEAR 2011-2012. THIS APPEAL COMING ON FOR ORDERS THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: CORAM: HON'BLE MR JUSTICE V KAMESWAR RAO and HON'BLE MR JUSTICE S RACHAIAH ORAL JUDGMENT (PER: HON'BLE MR JUSTICE V KAMESWAR RAO) This appeal has been filed challenging the order passed by the Income Tax Appellate Tribunal (in short ‘ITAT’) in IT(TP)A No.705/Bang/2016 dated 23/05/2022, which is an appeal filed by the respondent herein, whereby the ITAT has partly allowed the appeal on two issues, in favour of the respondent/assessee. 2. The memorandum of appeal raises the following substantial questions of law for consideration: 1. "Whether on the facts and in the circumstances of case, the Tribunal's order can be said as perverse in nature in setting aside disallowance of marked to market loss (for short MTM) to an extent of Rs.5,22,43,701/- as hedging loss relating to outstanding contracts ignoring that assessing authority as well as Dispute Resolution Panel rightly rejected said claim by holding that it is as notional in nature by following CBDT Circular No.3/2010"? 2 "Whether on the facts and in the circumstances of case, the Tribunal's order can be said as perverse in nature in setting aside the disallowance of depreciation on computer software amounting Rs.4.13 Cr made under section 40(a)(ia) of the Act as assesse had not deducted TDS on said payment made towards purchase of software"? 3. Both the issues which have been raised by the appellants-revenue, in this appeal, have been dealt with by the ITAT in paragraph Nos.4.2 and 6.2, which we reproduced as under: 2 "Whether on the facts and in the circumstances of case, the Tribunal's order can be said as perverse in nature in setting aside the disallowance of depreciation on computer software amounting Rs.4.13 Cr made under section 40(a)(ia) of the Act as assesse had not deducted TDS on said payment made towards purchase of software"? 3. Both the issues which have been raised by the appellants-revenue, in this appeal, have been dealt with by the ITAT in paragraph Nos.4.2 and 6.2, which we reproduced as under: “4.2 We heard the Ld DR and perused the material on record. It is now well settled proposition of law that the MTM losses arising on revaluation of revenue assets and the related forward contracts as at the end of the year is allowable as deduction as per the decisions referred to in the previous paragraph. We notice that the AO has disallowed the loss of Rs.5,22,43,701/-. However, the break-up details of losses are not given in the Assessment Order and hence we could not identify as to whether they are related to revenue items only. The Ld D.R also submitted that the loss arising from revenue assets and related forward contracts are allowable as deduction. Accordingly, we are of the view that this factual aspect needs to be verified. Accordingly, we restore this issue to the file of the AO to examine the claim of the assessee afresh following the decision rendered by the jurisdictional High Court in the case of M/s. Mphasis Ltd) (supra) and also the decision rendered by Hon'ble Supreme Court in the case of Woodward Governor India P Ltd (supra). Needless to mention that, the losses arising on revaluation as at the yearend of revenue items and the forward contracts related to the revenue items should be allowed as deduction. Xxx xxx xxx xxx xxx xxx xxx xxx xxx. 6.2 We heard Ld DR on this issue and perused the record. We notice that the contention of the assessee would get support from the decision rendered by Hon'ble Karnataka High Court in the case of Tally Solutions Pvt. Ltd., (supra) wherein the Hon'ble High Court has upheld the view that the provisions of section 40(a)(ia) of the Act is not attracted in respect of claim for depreciation. Accordingly, following the above said binding decision, we direct the AO to delete the disallowance of depreciation claimed on computer software u/s 40(a)(ia) of the Act.” 4. Suffice to state that, on both the issues, the ITAT has relied upon the judgment of this Court in the case of THE PRINICPAL COMMISSIONER OF INCOME TAX, BENGALURU VS. MPHASIS LTD., (2021) 128 TAXMANN.COM 138 (KARNATAKA) and in the case of PRINICPAL COMMISSIONER OF INCOME TAX, BANGALORE VS.TALLY SOLUTIONS (P) LTD.,(2021) 123 TAXMANN.COM 2021 (KARNATAKA.) 5. Mr.Tiwari and Mr.Sanmathi E.I, learned counsel appearing for the appellants-revenue state that, it appears that, on both the issues, the judgments of this Court have not been taken in appeals before the Hon’ble Supreme Court. 6. If that be so, there is no merit in substantial questions of law raised in the appeal. The appeal is dismissed against the appellants-revenue and in favour of the respondent-assessee. 7. No costs. Sd/- (V KAMESWAR RAO) JUDGE Sd/- (S RACHAIAH) JUDGE SMC List No.: 1 Sl No.: 6