IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : G : NEW DELHI
BEFORE SHRI R.S. SYAL, AM AND SHRI C.M. GARG, JM
ITA No.3776/Del/2013
Assessment Year : 2009-10
DCIT, Vs. Sergi Transformer Explosion
Circle 8(1), Room No.163, Prevention Pvt. Ltd.,
CR Building, 324, Udyog Vihar,
New Delhi. Phase-IV,
Gurgaon.
PAN : AAJCS7046L
Cross Objection No.224/Del/2013
(ITA No.3776/Del/2013)
Assessment Year : 2009-10
Sergi Transformer Explosion Vs. DCIT,
Prevention Pvt. Ltd., Circle 8(1), Room No.163,
132, Suncity Business CR Building,
Tower, New Delhi.
Sec.54, Golf Course Road,
Gurgaon.
PAN : AAJCS7046L
(Appellant) (Respondent)
Assessee By : Shri Kapil Goyal, Advocate
Department By : Smt. Parminder Kaur, Sr.DR
ITA No.3776/Del/2013
CO No.224/Del/2013
ORDER
PER R.S. SYAL, AM:
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 ` 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 ` 7,83,087/- and ` 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 ` 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
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CO No.224/Del/2013
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 ` 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
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CO No.224/Del/2013
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 `
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 ` 17,97,785/- was much in
excess vis-a-vis similar claim made for the preceding year at `
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
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CO No.224/Del/2013
to be allowed as revenue expenditure. Since the total claim of `
17.97 lac included a sum of ` 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 ` 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
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CO No.224/Del/2013
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 ` 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 ` 1.25 crore.
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CO No.224/Del/2013
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 ` 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.
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CO No.224/Del/2013
9. In the result, the appeal of the Revenue is partly allowed
for statistical purposes and the CO of the assessee is dismissed.
The order pronounced in the open court on 16.06.2014.
Sd/- Sd/-
[C.M. GARG] [R.S. SYAL]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated, 16th June, 2014.
dk
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.
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