Outsytems Singapore Pte. Ltd. Vs DCIT (ITAT Delhi)
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) allowed the assessee’s appeal and quashed the assessment order for Assessment Year 2022–23 on both legal and merits grounds.
The appeal arose from a final assessment order dated 10 January 2025 passed under Section 143(3) read with Section 144C(13) of the Income-tax Act, 1961. The assessee had raised multiple grounds of appeal. One ground challenging the absence of a Document Identification Number (DIN) was not pressed and was dismissed accordingly. The Tribunal primarily examined the validity of the assessment order on the ground that it was manually signed despite being passed through electronic proceedings.
The assessee contended that the assessment was conducted under the “E-Proceedings” framework and that, as per CBDT Instruction No. 1/2018 dated 12 February 2018, all orders and communications issued through e-proceedings must be digitally signed by the Assessing Officer. Since the impugned assessment order bore a manual signature, it was argued to be invalid and bad in law.
The Revenue defended the assessment order and produced a factual report explaining that due to limitation constraints, technical issues with CPC accounting, and transfer of charge, the Assessing Officer had manually signed the order. Reliance was placed on a decision of the Cochin Bench of the Tribunal to argue that a manually signed order would not automatically invalidate the assessment where digital signing was not possible.
The Tribunal examined CBDT Instruction No. 1/2018 in detail, particularly paragraph 4.2, which mandates that all departmental orders, notices, and communications issued through the e-proceedings facility must be digitally signed by the Assessing Officer. The Tribunal noted that no exception permitting manual signatures in such cases was provided in the Instruction. Despite being granted time, the Revenue was unable to place on record any circular or instruction carving out an exception.
The Tribunal held that CBDT instructions governing electronic assessments are binding on the Department. Where the statute or binding instructions prescribe a particular procedure, that procedure must be followed strictly. Since the assessment was admittedly conducted under e-proceedings and the final assessment order was signed manually, the Tribunal held that the order suffered from an incurable defect. The reasons furnished by the Assessing Officer for manual signing could not override the mandatory requirement of digital signature. The reliance placed by the Revenue on the Cochin Bench decision was held to be distinguishable on facts. On this ground alone, the assessment order was held liable to be quashed.
The Tribunal also examined the merits of the addition, though it noted that the assessee had already succeeded on the legal issue. The Assessing Officer and the Dispute Resolution Panel had treated receipts from software licence fees and related services amounting to ₹32.52 crore as “Fees for Technical Services” (FTS).
On facts, the Tribunal recorded that the assessee sold standardized, off-the-shelf software to customers either directly or through distributors. The licences granted were limited, non-exclusive, and non-transferable, without any right to sublicense, modify, reverse engineer, or exploit copyright. No specialised knowledge or skill was imparted to customers, and the “make available” condition under the India–Singapore Double Taxation Avoidance Agreement was not satisfied.
In light of these undisputed facts, the Tribunal held that the issue was squarely covered by the Supreme Court’s decision in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT. Accordingly, the software licence receipts could not be characterised as Fees for Technical Services. The additions made on this account were therefore deleted.
Since the assessee succeeded both on the legal ground relating to the validity of the assessment order and on the merits of the additions, the remaining grounds were rendered academic and were not adjudicated. The appeal was allowed in full.
FULL TEXT OF THE ORDER OF ITAT DELHI
