[2014]

47 taxmann.com 370 (Delhi - Trib.)/[2014] 33

ITR(T) 118 (Delhi - Trib.)/[2015] 152 ITD 769 (Delhi -
Trib.)[16-06-2014]

IT/ILT : Income being payable net of tax, for purpose

of deduction of tax, such amount of payment would
be increased by amount of tax
IT : Where software was purchased in earlier year
and fees and subscription was paid, expenditure
would be revenue expenditure
IT : Where assessee had furnished all details,
Assessing Officer should not disallow
communication and travelling expenses merely on
ground that expenditure was excessive in
comparison to preceding year

■■■

[2014] 47 taxmann.com 370 (Delhi - Trib.)

IN THE ITAT DELHI BENCH 'G'
Deputy Commissioner of Income-tax, Circle 8(1), New Delhi
v.
Sergi Transformer Explosion Prevention (P.) Ltd.*
R.S. SYAL, ACCOUNTANT MEMBER
AND C.M. GARG, JUDICIAL MEMBER
IT APPEAL NO. 3776 (DELHI) OF 2013
CROSS OBJECTION NO. 224 (DELHI) OF 2013
[ASSESSMENT YEAR 2009-10]
JUNE 16, 2014

I. Section 195, read with sections 40(a)(i) and 195A, of the

Income-tax Act, 1961 - Deduction of tax at source - Non-
residents, payments to (Payment net of tax) - Assessment
year 2009-10 - Whether section 195A provides that net
amount is required to be grossed up for purpose of
deduction of tax at source - Held, yes - Assessee debited a
sum of Rs. 13.46 lakh on account of management fee paid
to its foreign AE - Assessing Officer noticed that assessee
failed to deduct tax at source - He made disallowance of
Rs. 13.46 lakh under section 40(a)(i) - Assessee claimed to
have made deduction of tax at source at rate of 10 per cent
of net amount paid - Whether since assessee contended
that impugned sum was net of tax, amount of tax to be
borne by assessee had to be added to this amount for
purposes of deduction of tax at source - Held, yes -
Whether further, since assessee did not furnish any details
about deduction of tax at source from management fee and
its resultant payment and this issue was taken up before
Commissioner (Appeals) for first time, matter was to be
restored to file of Assessing Officer - Held, yes [Para 3] [In
favour of revenue/Matter remanded]
Section 37(1) of the Income-tax Act, 1961 - Business
expenditure - Allowability of (Software) - Assessment year
2009-10 - Assessee purchased software in earlier year -
Against software, subscription/fee was paid - Assessing
Officer held that such amount was towards purchase of
software and, hence, was not liable to be allowed as
revenue expenditure - Commissioner (Appeals) found that
impugned expenditure was not towards purchase of
software, but was amount spent on registration fee, basic
training of employees, subscription fee towards website
redesign, development and AMC, annual fee of corporate
card, domain registration and renewal, etc. - He held same
to be revenue expenditure - Whether finding of
Commissioner (Appeals) was to be upheld - Held, yes [Para
5] [In favour of assessee]
Section 37(1) of the Income-tax Act, 1961 - Business
expenditure - Allowability of (Communication/and
travelling expenses) - Assessment year 2009-10 - Assessee
claimed sum of Rs. 1.25 crore on account of
communication and travelling expenses as deduction -
Assessing Officer disallowed entire sum on ground that
this expenditure was excessive in comparison to preceding
year and that assessee had not filed details of such
expenses - However, assessee furnished necessary details
of expenses on various dates and Commissioner (Appeals)
deleted addition by considering details furnished by
assessee and also remand report - Whether order of
Commissioner (Appeals) was to be upheld - Held, yes [Para
7] [In favour of assessee]
Parminder Kaur for the Appellant. Kapil Goyal for the
Respondent.
ORDER

R.S. Syal, Accountant Member - This appeal by the Revenue
and the Cross Objections by the assessee arise out of the order
passed by the CIT(A) on 26.03.2013 in relation to the Assessment
year 2009-10.
2. The first ground of the Revenue's appeal is against the
deletion of addition of Rs. 13,46,200/- made by the AO on account
of payment of management fees without deduction of tax at
source. The facts relating to this ground are that the assessee
debited a sum of Rs. 7,83,087/- and Rs. 13,46,200/- on account of
'Royalty' and 'Management fee' respectively, paid to its foreign
AE. The AO noticed that the Management fee was paid exclusive
of tax and the tax was to be borne by the assessee. The AO
noticed that the assessee failed to deduct tax at source properly
and, further, no TDS certificate was furnished. He, therefore,
made disallowance, inter alia, for Rs. 13,46,200/- u/s 40(a)(i) of
the Act. The ld. CIT(A) observed that the assessee had deducted
tax at source @ 10% on the Management fee which was
deposited on 16.07.2009. He, therefore, deleted the disallowance
after calling for the remand report from the AO. The Revenue is
aggrieved against such deletion of addition.
3. After considering the rival submissions and perusing the
relevant material on record, it is noticed that the disallowance
has been made and sustained for non-deduction of tax at source
on the management fee, which is presently disputed. The ld.
CIT(A) deleted the addition by observing that the assessee
deducted and paid tax on time. However, we find from the copy of
account of the payee, that there is no deduction of tax at source.
The ld. AR stated that the assessee was liable to pay the
management fee net of tax and the tax liability was to be borne
by it. Section 195A provides that where income is payable net of
tax, then, for the purpose of deduction of tax, such amount of
payment would be increased by the amount of tax. In other
words, the net amount is required to be grossed up for the
purpose of deduction of tax at source. If we accept the assessee's
contention that the sum of Rs. 13,46,200/- was net of tax, in that
case, the amount of tax to be borne by the assessee should have
been added to this amount for the purposes of deduction of tax at
source. However, we find that the assessee made deduction of tax
at source @ 10% of the net amount paid. That apart, it appears
that the assessee did not furnish any details about deduction of
tax at source from this management fee and its resultant
payment. This issue was taken up before the ld. CIT(A) for the
first time. In our considered opinion, the ends of justice would
meet adequately if the impugned order on this score is set aside
and the matter is restored to the file of the AO. We order
accordingly and direct him to decide this issue afresh as per law,
after allowing reasonable opportunity of being heard to the
assessee.
4. The second ground is against the deletion of addition of Rs.
16,12,058/- made by the AO out of expenses incurred under the
head 'Fees and subscription.' The AO observed that the
assessee's claim in this year at Rs. 17,97,785/- was much in
excess vis-a-vis similar claim made for the preceding year at Rs.
1,26,283/-. The AO noticed that the assessee purchased some
software against which subscription/fee was paid. As software is
a capital asset, the AO held that such amount was not liable to be
allowed as revenue expenditure. Since the total claim of Rs.
17.97 lac included a sum of Rs. 1,85,727/- pertaining to the
earlier year which was already added back by the assessee in
computation of total income, the AO made addition for the
remaining sum of Rs. 16,12,058/-. The ld. CIT(A) deleted this
addition by observing that the AO erred in considering the nature
of expenditure which was not towards the purchase of software,
but the amount spent on registration fee, basic training of
employees, subscription fee towards website redesign,
development and AMC, annual fee of corporate card, domain
registration and renewal, etc. The Revenue is aggrieved against
this deletion of addition.
5. After considering the rival submissions and perusing the
relevant material on record, it is noticed that when the ld. CIT(A)
sent evidence furnished by the assessee in support of deletion of
disallowance to the AO for submission of a remand report, the AO
remained silent on this issue. Even from the assessment order, it
can be seen that the AO proceeded to make disallowance by
observing, "it appears that the assessee purchased some software
against which the subscription/fee was paid." Without examining
the actual detail of such expenses, the AO went on to make
addition. Despite the fact that the details of such expenses, which
do not relate to software purchase as was made out by the AO,
were sent to him for remand report, he considered it expedient
not to offer any comment. In such circumstances, we do not find
any reason to deviate from the finding recorded by the ld. CIT(A)
that such expenses were not for software purchase but revenue
in the nature towards fees and subscription. This ground is not
allowed.
6. The last ground of the Revenue's appeal is against the deletion
of addition of Rs. 1,25,86,495/- made by the AO on account of
Communication and Travelling expenses. The AO observed from
the documents filed by the assessee that Communication
expenses and Travelling & conveyance expenses claimed by the
assessee as deduction for the current year were much higher
than those claimed in the preceding year. He, therefore,
disallowed the entire sum of Rs. 1.25 crore.
The ld. CIT(A) overturned the assessment order on this point and
ordered for the deletion of addition by considering the details
furnished by the assessee and also the remand report.
7. After considering the rival submissions and perusing the
relevant material on record, we find that the AO was not justified
in disallowing the entire expenditure of Rs. 1.25 crore merely on
the ground that this expenditure was excessive in comparison
with the preceding year. He observed that the assessee did not
file any details of such expenses, but it can be seen from pages 5-
6 of the impugned order that the assessee did furnish the
necessary details of such expenses on various dates. In view of
the foregoing discussion, we are of the considered opinion that
the view taken by the ld. CIT(A) on this issue does not require
any interference. The same is, therefore, upheld.
8. The ld. AR did not press the Cross Objection filed by the
assessee.
9. In the result, the appeal of the Revenue is partly allowed for
statistical purposes and the CO of the assessee is dismissed.
SB

*Partly in favour of assessee.