INFOOBJECTS SOFTWARE INDIA PRIVATE LIMITED, JAIPUR,JAIPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 4, JAIPUR, JAIPUR

Ground No. 2: In the facts and circumstances of the case and in law, Id. AO has erred in not following the directions issued by Id. DRP and in making disallowance of Rs.2,09,794/- to the income of the assessee u/s 40(a) (ia) on account of non-deduction of TDS on business promotion expense. The action of the Id. AO is illegal, unjustified, arbitrary, contrary to the facts of the case. It is, therefore, prayed that the entire addition of Rs. 2,09,794/- made to the income of the assessee be deleted.

Ground No. 3: In the facts and circumstances of the case and in law, Id. DRP has erred in not providing specific directions to the Id. TPO/AO, as required under Section 144C, and leaving it to the Id. AO to ascertain the disallowance based on the evidence which were already presented before Id. DRP. The action of the Id. DRP is illegal, unjustified, and arbitrary, contrary to the legal position as set out in Section 144C of the Income Tax Act, 1961.”

3.1 While scrutiny of records ld. AO noted that the assessee had incurred catering expenditure for an amount of Rs. 75,15,792/- for purpose of supply of food packets for their employees from M/s Ganesh Lal Yadav HUF where the assessee was liable to deduct TDS but had not deducted TDS on the payment. The company paid business promotion expenditure of Rs. 6,99,314/- to promote business and rewards to employees to achieve work targets where the assessee was liable to deduct TDS but had not deducted TDS on the payment. The assessee stated that it had incurred for catering expenditure for Rs.75,15,792/- for purpose of supply of food packets for did not enter into any agreement with M/s Ganesh Lal Yadav HUF. The assessee submitted that the company was dealing with vendors in principle-to-principle capacity not as per principal to contractor capacity.

Therefore, the company was not liable to deduct TDS under the provisions of section 194C of the Act. Ld. AO did not consider the contention of the assessee and held that the assessee is liable to deduct TDS under the provisions of section 194C of the I.T. Act, 1961 as this falls under contractual payment. Hence, 30% of the catering expenditure of Rs.75,15,792/- was disallowed u/s 40(a)(ia) of the Act.

3.2 The company also paid business promotion expenditure of Rs. 6,99,314/- to promote business and rewards to employees to achieve work targets. The company was not liable to deduct TDS on such expenses. The contention of the assessee is that the expenses are the incentives provided to the best employees to achieve work targets. However, it is not so.

Perusal of documentary evidence submitted by the assessee reveals that the said expenses are the hotel bills in respect of the various persons, e- voucher Amazon and of attendance at 2nd Predictive Analytics Asia summit 2020. No supporting evidence as to whether the said persons are were the incentives to employees the same would be under head "Employees Benefit Expenses". The Auditor also has shown these expenses under Business Promotion Expenses. Thus, in view of the facts stated above, the contention of the assessee was not considered. Hence, 30% of the Business Promotion Expenses amount to Rs. 6,99,314/- was disallowed u/s 40(a)(ia) of the Act.

10.2 The matter has been considered. The Panel is of the view that the impugned transaction with the catering service provider was covered under section 194C of the Act and hence, assessee was liable to deduct the TDS. Assessee has claimed that its case is covered under the second proviso to section 40(a)(ia) of the Act wherein disallowance is not to be made in the hands of the TDS deductor if deductee has offered the corresponding income to tax in ROI u/s 139(1) of the Act and paid the due taxes etc. Being a factual issue, AO is hereby directed to verify averment of the assessee and decide accordingly as per law.

Infoobjects Software India Pvt. Ltd. vs. DCIT 11.2 The matter has been considered. Assessee has pointed out that TPO has not specified the section under which assessee was liable to deduct the TDS. Upon consideration of the nature of transaction, prima-facie, the Panel is of the view that same cannot be treated as perquisite to employees but is in the nature of business promotion expenditure. Being factual, the TPO is hereby directed to re-verify the evidence already furnished during the assessment proceeding in connection with this expenditure and decide accordingly as per preliminary findings of the Panel. This ground is disposed of accordingly.

AO’s comments: The contention of the assessee is not acceptable as the assessee was in fact liable for TDS under the provisions of section 194C of the I.T. N Act, 1961 as this falls under contractual payment. It is seen that the said expenditure was related to supply of food packets and not purchases and the assessee has also shown it as Catering Expenses. Even the invoices furnished by the assessee shows the expenses under the head-supply of food packets which clearly shows that M/s Ganesh Lal Yadav HUF prepares food and supplies the same to the assessee company as per the requirements of the assessee company. Thus, these are not purchases and are in fact Catering Expenses which has been rightly shown by the Auditor under the head Catering Expenses in the P&L Account. Further, on perusal of ITR of deductee and computation of income, it is seen that deductee has not shown the corresponding income in his ITR u/s 139(1) of the Act. Hence, assessee was liable to deduct TDS under the provisions of section 194C of the I.T. Act, 1961 as this falls under contractual payment. Thus, the assessee was liable to deduct TDS under section 194C of the IT Act, 1961. Hence, 30% of the catering expenditure of Rs.75,15,792/- amounting to Rs.22,54,737/-is being disallowed u/s 40(a)(ia) of the IT Act, 1961. Penalty u/s 270A of the IT Act, 1961 for under reporting of income is also being initiated separately.

AO’s comments: The contention of the assessee is not acceptable as the assessee was in fact liable for TDS under the provisions of section 194C of the I.T. Act, 1961 as the expenditure is the nature of the business promotion expenses which was already mentioned at Point no. 4 (at 3rd para of conclusion drawn in draft para passed 28.12.2023).

Infoobjects Software India Pvt. Ltd. vs. DCIT Further, on perusal of documents in connection with this expenditure submitted by the assessee during the assessment proceedings, it is found that the said expenses are the hotel bills in respect of the various persons, e-voucher Amazon and of attendance at 2nd Predictive Analytics Asia summit 2020. No supporting evidences as whether the said persons are its employees has been furnished by the assessee. Further, even if these were the incentives to employees the same would be under head "Employees Benefit Expenses". The Auditor also has shown these expenses under Business Promotion Expenses. Thus, in view of the facts stated above, the contention of the assessee is not acceptable. Hence, 30% of the Business Promotion Expenses of Rs. 6,99,314/- amounting to Rs. 2,09,794/- is being disallowed u/s 40(a)(ia) of the IT Act, 1961, as no TDS has been deducted on these payment. Penalty u/s 270A of the IT Act, 1961 for under reporting of income is also being initiated separately.

Assessee company was founded in 2008 and is a leading technology service provider which provides a full range of technology-driven business solutions which include consulting and IT services to client globally. During the year under consideration, the case of the assessee company was opened for assessment and was also referred to ld. TPO. However, no adjustments were upheld by Hon’ble DRP in relation to TP. Further, during the course of DRP proceedings, there were two disallowances for non-deduction of TDS which were proposed by ld. AO and in regarding to same, we would like to most humbly submit before your goodself as under: Ground no. 1: Rs. 2254737 i.e. 30% of food packets expense of Rs. 7515792 is being disallowed u/s 40(a)(ia) of the IT Act, 1961. i. During the year under consideration, assessee company had incurred expenditure of Rs.75,15,792/- for the purpose of purchase of food packets for their employees from M/s Ganesh Lal Yadav HUF.

Infoobjects Software India Pvt. Ltd. vs. DCIT ii. Also, assessee company was dealing with vendor on principal to principal business and not in principal to contractor capacity. Ld. AO in his draft order disallowed 30% of expenditure of Rs.75,15,792/- amounting to Rs. 22,54,737/- considering it as catering service and stated that assessee company is liable to deduct TDS under section 194C of the Act. However, assessee company did not enter into any contract/ agreement with Ganesh Lal Yadav HUF, it is only supply of food packets on order basis hence as per assessee it was not liable for TDS deduction. iii. Further, during the course of assessment proceedings and DRP proceedings the expense incurred by assessee was accepted and no question was raised regarding the same and considering the nature of activity TDS was not required to be deducted on such transaction. iv. Without prejudice to above, during the course of lower authority proceedings assessee company had furnished a certificate as required under provision of section 40(a)(ia) r.w.s. 201(1) of the Act along with ITR V and computation of deductee wherein the provision states that if the deductor proves that the deductee has included such amount in his income and paid tax on same, then the deductor will not be considered as assessee in default and no disallowance will be made to the income of deductor. Relevant extract of the provision is as under:

Proviso of section 40(a)(ia)- “Where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee referred to in the said proviso.” Proviso of section 201(1)- “Any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a payee or on the sum credited to the account of a payee shall not be deemed to be an assessee in default in respect of such tax if such payee— (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income” v. Assessee had although submitted the said documents before ld. AO before issuing draft assessment order and also before Hon’ble DRP, and ld. DRP had directed ld. AO that if assessee has provided required documents, then assessee company shall not be considered as assessee in default and accordingly the certificate along with it’s annexures proves that deductee has filed income tax return, after taking into account such sum received from deductor in computation Infoobjects Software India Pvt. Ltd. vs. DCIT and has paid due tax on same. However, ld. AO has erred in not fully following the directions issued by Hon’ble DRP and stating that corresponding income was not shown in the ITR of deductee, although the same is highlighted in the computation of income attached with Form 26A and ld. AO passed his final order stating that the above expenditure is in relation to catering expenses was liable for TDS u/s 194C of the Act and disallowed 30% of the said expenditure. vi. Hence, we would like to conclude by stating that as per the proviso of section 40(a)(ia) read with section 201(1) of the Act, if deductee has taken into account the corresponding income and has paid the tax due on the such income, then, assessee company shall not be considered as assessee in default and it shall be deemed that the assessee company has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee. Hence, we would humbly request before your good self to kindly delete the disallowance made on the income assessee company otherwise it will result in double taxation and oblige.

Ground no. 2: Rs.209794 i.e. 30% of business promotion expenses of Rs.6,99,314/- is being disallowed u/s 40(a)(ia) of the IT Act, 1961. i. During the year under consideration, assessee company incurred business promotion expense of Rs. 6,99,314/- to promote business which includes expenditure to attend conferences by employees and coupons to employees to rewards for their performance. ii. During the course of assessment proceedings, ld. AO in his draft order stated that assessee company was liable to deduct TDS on such expense under the provisions of 194C of the Act and disallowed 30% of expenditure of Rs.6,99,314/- amounting to Rs. 2,09,794/-. However, no explanation was provided as to how such expense were covered under the provisions of section 194C of the Act. iii. Further, during the course of hon’ble DRP proceedings, Hon’ble panel had directed ld. AO to re-verify the claim of such expense and had mentioned that such expense cannot be considered as expense for employees and is a business related expense but ld. AO has erred in not following the directions issued by Hon’ble DRP and passed his final order stating that the above expenditure is in relation to business promotion expenses and assessee company was liable to deduct TDS u/s 194C of the Act. iv. Further, the above expenditure includes expense for attending 2nd predictive analytics Asia summit 2020, hotel bills and e-voucher of amazon. All these expenses were incurred on the business promotion of the assessee company.

Details of expenses incurred:

Particulars Amount Total amount Remarks Hotel booking 187740 Not liable for TDS under 194C as per case law Hotel booking 300000 487740 Not liable for TDS under 194C as per case law Reimbursement of virtual 15000 Reimbursement to employee conference to employee and not liable to TDS Reimbursement of virtual 16574 31574 Reimbursement to employee conference to employee and not liable to TDS Amazon vouchers 180000 180000 Purchase of vouchers and not liable to be covered under 194C Total 699314

As per the judgement of Hon’ble Bangalore Tribunal in case of Ratnagiri Impex (P.) Ltd. v. Deputy Commissioner of Income-tax [2014] 52 taxmann.com 111 (Bangalore - Trib.) payment for hotel booking not covered under 194C of Act. v. Accordingly, none of the expenses being incurred were falling within the definition of work as mentioned under section 194C of the Act and accordingly not liable for TDS. Relevant extract of section 194C of the Act is as under:

“Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, .. … (iv) "work" shall include— (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods or passengers by any mode of transport other than by railways; (d) catering; (e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.” vi. Further, as per circular no. 5 of 2002 read with circular no. 715 of 1995 it has been held that such hotel expense are not liable for TDS on rent. Hence, these expenses are not covered under the provisions of section 194C, so not liable Infoobjects Software India Pvt. Ltd. vs. DCIT to deduct TDS. Hence, we would humbly request before your good self to kindly delete the disallowance made on the income assessee company and oblige.”

S. No. Particulars Page No. 1 Form 26A of Supplier of Food Packets (Ganesh Lal Yadav HUF) 1-9 2 Invoices of Catering Expenses 10-21 3 Ledger and Invoices of Business Promotion Expenses 22-28

Before us on this issue ld. AR invited our attention to the invoice [ page 10-21] which are of the nature supply of foods packets and not of the catering service. Had been a case of catering service the provision of section 194C shall apply but in this case this being the case of supply of foods and the same being subjected to GST the same shall not be considered as contract and therefore, the provision of section 194C shall not apply on those transaction entered into by the assessee in the case of M/s. Ganesh Lal Yadav-HUF. Considering that aspect of the matter ground no. 1 raised by the assessee is allowed.

The contention of the assessee is that the expenses are the incentives provided to the best employees to achieve work targets. Ld. AO noted from various persons, e-voucher Amazon and of attendance at 2nd Predictive Analytics Asia summit 2020. The bench noted from the ledger account of Business promotion expenses that out of total expenditure claimed Rs. 6,99,314/-, Rs. 6,67,740/- relates to the Hotel Room booking amount and Rs. 15,000/- and Rs. 16,574/- for conference. That conference fees being below the threshold in section 194C the same cannot be considered as liable for TDS and coming to the balance amount of Rs. 6,67,740/- the bench noted that the said payment relates to hotel room booking payment and the same supported by three separate invoices of Hotel having value of Rs. 3,00,000/-, Rs. 1,87,740/- and Rs. 1,80,000/. All these invoices were in the name of the assessee company. When the matter carried by the assessee before DRP, assessee contended that the ld. AO has not specified under which section he made applicability of TDS on the business promotion expenses or perquisite to employee. DRP held that the expenditure are in the nature of business promotion and therefore, he directed the ld. AO to verify the record and decided the issue. Ld. AO in the final order hold that the payment is liable to TDS as per provisions of section 194C of the Act and accordingly he disallowed Rs. 2,09,794/-. bench of ITAT Bangalore in the case of Ratnagiri Impex Private Limited Vs. DCIT [ 52 taxmann.com 111 ]. The bench noted that ITAT Bangalore decision refers the Bombay high court decision in the case of East India Hotels Ltd. Vs. CBDT [ 320 ITR 526 ] wherein the court held that ; 20. It is true that the word 'work' in section 194C is not restricted to 'works contract' only as held by the Apex Court in the case of Associated Cement Co. Ltd. (supra). However, as held by the Apex Court in the case of Birla Cement Works (supra) the word 'work' in section 194C has to be understood in a limited sense and would extend only to the service contracts specifically included in the said section by way of Explanation III. Therefore, the argument of the revenue that the service contracts between the petitioner No. 1 hotel and its customers is covered under section 194C of the Act cannot be accepted because, neither such a contract constitutes 'work' within the meaning of section 194C of the Act nor those contracts are covered under service contracts specifically included by way of Explanation III to section 194C of the Act.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 28/04/2025.

Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 28/04/2025 *Ganesh Kumar, Sr. PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Infoobjects Software India Pvt. Ltd., Jaipur izR;FkhZ@ The Respondent- DCIT, Circle-04, Jaipur 2. vk;dj vk;qDr@ The ld CIT 3. 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File (ITA No. 1499/JP/2024) vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत