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DCIT, Circle 8(1), Room No.163, CR Building, New Delhi. Vs. Sergi Transformer Explosion Prevention Pvt. Ltd., 324, Udyog Vihar, Phase-IV, Gurgaon.
June, 19th 2014
             DELHI BENCHES : G : NEW DELHI


                     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,

                                   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,


  (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



      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

                                                 ITA No.3776/Del/2013
                                                   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

                                                  ITA No.3776/Del/2013
                                                    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

                                                     ITA No.3776/Del/2013
                                                       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

                                                 ITA No.3776/Del/2013
                                                   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


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.

                                                  ITA No.3776/Del/2013
                                                    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,


8.   The ld. AR did not press the Cross Objection filed by the


                                                      ITA No.3776/Del/2013
                                                        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.


Copy forwarded to:

     1.   Appellant
     2.   Respondent
     3.   CIT
     4.   CIT (A)
     5.   DR, ITAT

                                              AR, ITAT, NEW DELHI.

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