Loading judgment…
No AI summary yet for this case.
Before: SHRI G. D. AGRAWAL & SMT SUCHITRA KAMBLE
ORDER PER SUCHITRA KAMBLE, JM
This appeal is filed against the order dated 08/06/2012 passed by CIT(A)-IV, New Delhi. 2. The grounds of appeal are as follows:-
“1. The Ld.CIT(A) has erred on facts in law treating the facts of earlier years and the year under consideration as the same.
The Ld.CIT(A) has erred on facts and in law in deleting the addition of Rs.63,82,442/- on a/c of lease rental paid even though it was a provision debited to P & L a/c.
3. The Ld.CIT(A) has erred on facts and in law in deleting the addition of Rs.11,11,500/- on a/c of Legal & Professional cast even though it was a provision debited to P & L A/c. 4. The Ld.CIT(A) has erred on facts and in law in deleting the addition of Rs.52,56,526/- on a/c of Travel Cost/travelling expenses even though it was a provision debited to P & L a/c. 5. The ld has erred on facts and in law in deleting the addition of Rs.1,17,85,481/- on a/c of selling cost amount even though it was a provision debited to P & La/.c. 6. The Ld.CIT(A) has erred on facts and in law in accepting the evidence in violation of Rs.46A of the IT Act, 1961. 7. Even though the A.O agreed that the payments have been made in the next year and TDS deducted there on and in directing the ITO and allow the expenses during this year.
The assessee company is a Service sector BPO and IT enabled services provider, engaged in the development of computer software and IT enabled projects in back office operations and data processing. Net profit of Rs.5,40,93,552/- has been declared form the Service income receipts and other income aggregating to Rs.34,04,33,406/- as per copies of audited Profit & Loss Account Balance Sheet and its annexures filed along with Audit Report during the course of assessment proceedings. Net taxable income at Nil has been declared, after taking into account inadmissible, admissible, depreciation allowable as per Income Tax Rules after claiming deduction u/s 10A of Rs.5,64,62,298/- and unabsorbed brought forward loss of Rs.17,70,217/- as per the ‘Computation of Taxable Income’ filed during the course of assessment proceedings.
Notices u/s 142(1) dated 8/1/2011, 25/2/2011, and 15/12/2011 were issued during the course of assessment proceedings requiring the assessee company to file the details/evidences etc. as called for therein. The Authorized Representative of the assessee company filed details in parts during assessment proceedings.
As regards the lease rental, an amount of Rs.63,82,442/- towards lease rental paid has been claimed as deduction from the profits resulted from profit & loss account as per the ‘Computation of Taxable Income’ filed during the course of assessment proceedings. The Assessing Officer observed that no details/explanation nor any supporting document has been furnished /provided in respect of deduction of Rs.63,82,442/- claimed. Therefore, in the absence of details and supporting documents deduction of Rs.63,82,442/- disallowed the same and the amount reduced from the profits as peer ‘Computation of Taxable Income’ was added to the declared income.
As regards the Legal and Professional Cost, the Assessing Officer observed that from the perusal of details of Legal & Professional cost of Rs.91,18,881/- filed by the AR of the assessee company vide letter dated 13/12/2011 revealed that there is a provision of Rs.11,11,500/- bearing no particulars. Since the amount of Rs.11,11,500/- does not represents any actual expenditure and is merely a provision, same is, therefore, disallowed and added to the income of the assessee company by the Assessing Officer.
As regards the travel cost, the Assessing Officer observed that from the perusal of details of Travel cost of Rs.2,13,26,562/- filed by the AR of the assessee company vide letter dated 13/12/2011 revealed that there is a provision of Rs.52,56,526/- bearing no particulars. Since the amount of Rs.52,56,526/- does not represents and actual expenditure and is merely a provision, same was disallowed and added to the income of the assessee company.
As regards the selling cost, the Assessing Officer observed that the details of Selling Cost of Rs.1,17,85,481/- filed by the AR of the assessee company vide letter dated 13/12/2011 revealed that tax has not been Deducted at Source under the provisions of Chapter XVII of the Income Tax Act, from the amounts of certain consultancy/Marketing Support charges paid/credit to the recipients. The details of persons/parties claimed as overseas vendors in USA & UK as follows:
Sr. Particulars Amounts in Rs. No. 1 Jonathan Harding 12,82,652/- 2 Annik Inc. 85,72,815/- 3 Gary Stocks 11,72,234/- 4 Steven R Tucholski 39,989/- 5 3,58,290/- DNL Global Grand Total 1,17,85,481/- The Assessing Officer held that no supporting documents was provided in respect of above persons of having vendors of the assessee company’s products, therefore, the payments made credited to the above mentioned persons in contravention of Provisions of Section 40(a) (ia) of the Income Tax Act, were disallowed and added to the income of the assessee company.
The CIT(A) while deciding the case held in Para 9.2 as under:-
“9.2 I have carefully considered the assessment order and the submissions made by the Id. AR on the above issues as well as the documents placed on record as part of the paper book. At the outset, I find that the above grounds are academic in nature since the appellant would be entitled to deduction u/s 10A in respect of its entire assessed income inclusive of the above disallowances. However, for the sake of clarity, I would like to adjudicate on the above grounds. Perusal of the assessment order as reproduced above shows that the AO has made the above disallowances with very cryptic observations and without any detailed discussion. The AO has made the impugned disallowances on the ground that no particulars were filed in respect of the lease rentals paid, the legal and professional cost and travel cost were in the nature of provision and no TDS has been made in respect of the selling cost. In this regard, it is argued by the Id. AR that the AO never asked for the specific details of expenses and the above expenses were actually incurred during the year under consideration and were not in the nature of provision. The Id. AR has filed voluminous documents and details as part of the paper book evidencing that the above expenses were actually incurred and the same were for the purpose of the appellant’s business. Similarly, with regard to the selling cost the Id. AR has filed exhaustive details with regard to the payments made to various non-resident parties and the services rendered by the said parties alongwith copies of agreements and invoices. It is argued that the payments made to the said non-resident parties were for the purpose of marketing and consultancy services rendered outside India and the said payments were not exigible to tax deduction at source u/s 195 of the Act as there was no income accruing or arising in India in the hands of the said non-resident parties in view of Section 9(1 )(vii) of the Act read with Section 90(2) and the treaty provisions as per the India-USA DTAA. On careful consideration of the matter, I find that the AO has completely misconstrued the facts and legal provisions with regard to the above additions. The AO has also not given any adverse material observation whatsoever against the above submission of the appellant and the voluminous details filed as part of the remand proceeding. The AO has also not been able to make out any case for TDS u/s 195 in the case of selling cost. In view of the above, the impugned additions made by the AO in a casual manner cannot be sustained either in facts or in law. The same are therefore deleted and the above grounds of appeal are allowed.
The Ld. DR relied on the A.O’s order. The Ld. DR submitted that the CIT(A) erred in admitting the additional evidence submitted by the Assessee before the CIT(A).
The Ld. AR submitted that there was an application for admitting additional evidence under Rule 46A of the Income tax Rules, 1962 filed by the assessee before the CIT(A). The same was heard after calling for remand report by the CIT(A) and admitted the additional evidence. The Assessing Officer was cryptic in his order and the questionnaire put up during the assessment proceedings were also not specific as to produce the additional documents, therefore, the assessee when the appellate proceedings were going on before the CIT(A) made application under Rule 46A of the Income Tax Rules for admitting the additional evidence and taking cognizance of the same. The remand report was also called for, therefore, after Assessing Officer has the opportunity of verifying the additional evidence with proper justification from the assessee, the CIT(A) allowed the appeal of the assessee. The Ld. AR relied upon the order of the CIT(A).
We have heard both the parties and perused all the materials available on record. The additional evidence was supplied to the Assessing Officer and remand report was called for and after going through the remand report. The CIT(A) has given its correct finding in Para 9.2. The AO has made the impugned disallowances on the ground that no particulars were filed in respect of the lease rentals paid, the legal and professional cost and travel cost were in the nature of provision and no TDS has been made in respect of the selling cost. In this regard, it is argued by the Id. AR that the AO never asked for the specific details of expenses and the above expenses were actually incurred during the year under consideration and were not in the nature of provision. The Id. AR has filed voluminous documents and details as part of the paper book evidencing that the above expenses were actually incurred and the same were for the purpose of the assessee’s business. Similarly, with regard to the selling cost the Ld. AR has filed exhaustive details with regard to the payments made to various non-resident parties and the services rendered by the said parties alongwith copies of agreements and invoices. It is argued that the payments made to the said non-resident parties were for the purpose of marketing and consultancy services rendered outside India and the said payments were not exigible to tax deduction at source u/s 195 of the Act as there was no income accruing or arising in India in the hands of the said non-resident parties in view of Section 9(1)(vii) of the Act read with Section 90(2) and the treaty provisions as per the India-USA DTAA. Thus the finding of the CIT(A) that the AO has completely misconstrued the facts and legal provisions with regard to the above additions is correct. The AO has also not given any adverse material observation whatsoever against the above submission of the assessee and the voluminous details filed as part of the remand proceeding. The AO has also not been able to make out any case for TDS u/s 195 of the Act in the case of selling cost. In view of the above, the impugned additions made by the AO was rightly rejected by the CIT(A).
In the result, appeal of the Revenue is dismissed.
The order is pronounced in the open court 20th of October, 2016.