IN INCOME TAX APPELLATE TRIBUNAL, BENCH C , MUMBAI BEFORE SHRI R. C. SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA No. 3151/Mum/2013 for AY 2009-10 Progress Software Solutions (India) ACIT-5(3), Pvt. Ltd. (Formerly known as Savvion Aayakar Bhavan, M. K. Road, (India) Pvt. Ltd., 8th Floor, R-Tech Mumbai-400020. Park, Nirlon Complex, Off. Western Vs. Express Highway, Goregaon (E), Mumbai-400063 PAN: AAACT7450Q (Appellant) (Respondent) Assessee by : Shri Mahaveer C. Jain (AR) Revenue by : Ms. Bharti Singh (DR) Date of hearing : 02.08.2016 Date of Pronouncement : 28.09.2016 ORDER PER PAWAN SINGH, JM: 1. present appeal u/s 253 of Income Tax Act ( Act ) is directed by assessee against order of CIT(A)-9, Mumbai dated 10.01.2013 for AY 2009-10. 2. brief facts of case are that assessee is Company engaged in Computer software development, sale of product License on commission basis and trading of product software license, filed return of income for relevant Assessment Year ( AY ) on 28.09.2009. return of income was selected for scrutiny. AO while framing assessment order disallowed sum of Rs. 23,50,446/- u/s 40(a) (ia) due to non-deduction of TDS on expenses in relation to import of computer software from California. AO also disallowed Rs. 48,54,215/- on account of difference of loss on Non-Export Oriented Unit, in assessment order 2 ITA No. 3151/M/2013 Progress Software Solutions (India) Pvt. Ltd. dated 26.12.2011. AO also initiated penalty. Aggrieved by order of AO, assessee filed appeal before CIT(A) but without any success. Thus, present appeal is filed before us raising four grounds of appeal, assessee has further raised various sub grounds under main grounds of appeal. For disposal of appeal we have summarized grounds of appeal in following manner :- (1) Violation of principle of natural justice. (2) Disallowance u/s 40(a) (ia) on account of non-deduction of TDS of Rs. 23,50,446/- on purchase price of computer software. (3) Disallowance of difference of loss on non Export Oriented Unit of Rs. 48,54,215/-. (4) Initiation of penalty proceeding. 3. We have heard ld. Authorised Representative (AR) of assessee and ld Departmental Representative (DR) for Revenue and perused material available on record. Ground No.1 is with regard violation of Principle of Nature Justice and lack of reasoning. Ld. AR of assessee submitted that he is not pressing Ground No.1. Keeping in view submission of ld. AR of assessee, Ground No.1 of appeal is dismissed as not pressed. 4. Ground No.2, is with regard to disallowance u/s 40(a) (ia) on account of non-deduction of TDS on expenses of Rs. 23,50,446/- ( purchase price) of computer software. Ld. AR of assessee argued that this Ground of appeal is covered in favour of assessee by number of decisions of High Courts and decisions of this Tribunal. Ld. DR for Revenue relied on order of authorities below. 5. We have considered rival contentions of parties and perused orders of authorities below. AO while framing assessment issue show cause regarding disallowance of expenses in relation to import of software for non deduction of TDS. assessee furnished its reply (not discussing by AO in its order). reply of assessee was not accepted by AO. AO concluded that right to make copy of software and use it for internal business by making copy of same and storing it on hard dick amount to use of copyright. Thus, 3 ITA No. 3151/M/2013 Progress Software Solutions (India) Pvt. Ltd. contention of assessee that there was no transfer of any part of copy right was not accepted. Hence, AO disallowed amount of Rs. 23,50,446/- (cost of software). During first appellate stage, assessee furnished written submission and relied upon number of decisions on various High Courts and Tribunals. Ld. CIT(A) while deciding appeal of assessee hold that assessee is engaged in business of importing and reselling of certain computer software. amount paid by assessee to supplier for supply of computer software was neither price of CD/DVD alone or computer software alone nor price of license. It was combination of all, unless license was permitting end user to copy and download software, CD/DVD, cannot be used by individual and further relied upon Explanation 5, inserted vide Finance Act, 2012 in section 9(1)(vi) of Act. ld CIT(A) further hold that payment for license to use computer software programme constitute royalty for purpose of Act. We have noticed that ld AR for assessee not substantiated as to how facts of his case are similar to facts of cases, on which he relied. AO not discussed in its order contention raised by assessee during assessment. Similarly ld CIT(A) has also not discussed in its order, contents of various clause contained in buyers agreements of various dates relied by assessee. Thus, we restore this ground of appeal to file of AO to consider all documents and various decisions of High Courts and Tribunal and pass speaking order in accordance with law. In result this ground of appeal is allowed for statistical purpose. 6. Ground no.3 is with regards to difference of loss on non-Export Oriented Unit. Ld. AR of assessee not argued against this grounds of appeal. Ld DR has no occasion to counter submission of assessee. 7. We have considered order of authorities below. During assessment AO observed that assessee has incurred expenditure of Rs. 4 ITA No. 3151/M/2013 Progress Software Solutions (India) Pvt. Ltd. 6,56,96,521/- on account of salaries, bonus, allowance, contribution to Provided Fund and other funds for welfare of employees. These expenses are common expenses for both non-export oriented unit and export oriented unit as no allocation is for both units provided by assessee. AO concluded that he left with no option to appreciate expenditure in proportionate of turnover. Hence, apportionment has been done on basis of turnover. turnover of EOU is Rs. 8,38,77,285/- (86.51%) against turnover of Rs. 1,30,75,950/- (13.49%) of Non-EOU, thus expenses apportioned on basis of turnover of Rs. 5,68,34,060/- for EOU and thus reduced profit on EOU to Rs. 3,04,907/-, Rs. 88,62,481/- will represent expenses for Non- EOU and by reducing loss of Non-EOU as per P&L A/c, Rs. 48,54,215/- was disallowed. Ld. CIT(A) while considering this ground has not given any reason except sustaining finding of AO. We have seen that assessee has furnished copy of Circular for section 10B deduction in Form No. 56G along with his submission dated 11.01.2011 and further details submission dated 13.12.2011. Neither AO nor CIT(A) discussed all contention raised in both letters as well as on certification u/s 10(b). Moreover, one of units of assessee is EOU and assessee is entitled for deduction u/s 10B. assessee is entitled for 100% deduction in respect of business derived by him from 100% export oriented undertakings, thus apportionment of Non-EOU is not in accordance with law, thus we restore this ground of appeal to file of AO to give fresh finding after considering written submission of assessee dated 11.11.2011 & 13.12.2011filed before Ld CIT(A) and pass appropriate order in accordance with law. 8. Ground No. 4 is with regard to initiation of penalty. assessee has not made any submission in respect of this ground. Even otherwise mere initiation of penalty is not challengeable in appeal, unless substantive order is passed. Thus, this ground of appeal is dismissed as premature. 5 ITA No. 3151/M/2013 Progress Software Solutions (India) Pvt. Ltd. 9. In result, appeal filed by assessee is allowed for statical purpose. Order pronounced in open court on 28th September 2016. Sd/- Sd/- ( R.C. SHARMA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 28/09/2016 S.K.PS Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai BY ORDER, 6. Guard file. (Asstt.Registrar) //True Copy/ ITAT, Mumbai Progress Software Solutions (India) Pvt. Ltd. (Formerly known as Savvion (India) Pvt. Ltd. v. ACIT-5(3), Mumbai