ACIT, CIRCLE-1(1), NEW DELHI, C.R. BUILDING vs. AIRCOM INTERNATIONAL INDIA PVT LTD, DELHI

This is an appeal preferred by the Revenueagainst the order dated 14.07.2023 of the Commissioner of Income-tax (Appeals), NFAC, Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in appeal No.CIT(A), Delhi-1/10762/2016-17 arising out of the appeal before it against the order dated 30.12.2016 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the ACIT, Circle-2(1), New Delhi (hereinafter referred to as the Ld. AO).

On hearing both the sides, we find that there is an application of the Revenue for condonation of the delay which, though opposed by the ld. counsel for the assessee, has merit for the reason that the delay is not of any substantial period. Accordingly, the delay is condoned and the appeal is admitted for hearing.

Further, the only contention raised by the ld. DR is that the ld.CIT(A) has relied additional evidences of the assessee and without calling for any remand report the issues were decided in favour of the assessee. The ld. Counsel, at the same time, relies the powers of the ld.CIT(A) u/s 250(4) and (5) of the Act to submit that the CIT(A) has co-terminus powers and independent of the Rule 46A, the ld.CIT(A) can make inquiry and give factual findings. The ld. counsel has relied the following decisions:-

Now, admittedly, before the ld. CIT(A) no application for additional evidences was filed. The assessee company is engaged in the business of software solutions and consultancy services in the area of telecommunications. The ld. AO has made a disallowance on account of software licence fee, management fee, bad debts and depreciation. The ld.CIT(A) has deleted the same for which the Revenue is in appeal against the deletion of disallowance of management fee, bad debts and disallowance of depreciation.

As we go through the impugned order, we find that the management fee expenses have been allowed on the basis that: “4.1. The assessing officer has disallowed management fee expenses due to lack of supporting documents such as bills/invoices/advices even though the appellant’s books of accounts are regularly audited. The AO was also not satisfied with the nexus between the earnings and management fees paid by the assessee to its parent company. When the transaction is with the parent company it is obvious that there is nexus between the payments and appellant’s business. In this regard, a copy of the Management Services Agreement between the Appellant and Aircom UK was perused by this office. It is seen that the parent company provides General Management Support Services, Finance Support Services, Legal Support Services, customer management, IT Support Services, Marketing Support Services, Training, Product Support Services, and pre-sales, strategic development, network sharing and development support services to the appellant. So it is clear that payments are incurred wholly & exclusively for the purpose of business. The appellant had also uploaded copies of emails to and from parent company reflecting the execution of aforementioned services. In order to prove the actual payment the appellant submitted a copy of Form 26AS pertaining to Aircom UK showing all the payments made to the parent company and details of TDS deducted during the year. There is no doubt regarding proof and purpose of the payment. So it is held that management fee expenses shall be allowed u/s 37(1). Hence ground no 2 is allowed.” 5.1 Very apparently the ld. CIT(A) has appreciated the evidences afresh with regard to use of services and it is not case of admitting new evidences. The crucial evidence being the actual payment established by copy of Form 26AS pertaining to Aircom UK showing all the payments made to the parent company and details of TDS deducted during the year.

As with regard to the disallowance of bad debts the ld. CIT(A) observed as follows; “Ground no 3 is against Disallowance of Bad Debts amounting to Rs.1,26,71,902 under section 36(1)(vii) read with section 36(2) of the Act. During the assessment proceedings it was seen that the assessee has claimed trade receivables written off under the head 'Other Expenses' in the Profit & Loss A/c. The assessee had only furnished a list of parties from whom the aforesaid amount was receivable. However, no other details like copy of ledger account, date of transaction and documentary evidence showing that the aforesaid income was offered for taxation in any preceding year in ordinary course of business etc have been furnished. Merely on the basis of names of the parties the claim of bad debts cannot be justified. Thus in absence of any supporting documents as mentioned above the amount of Rs.1,26,71,902/- on account of bad debts was disallowed by the assessing officer.”

Then, with regard to the disallowance of depreciation, the AO had asserted that the assessee had not furnished bills/vouchers for the purchase of fixed assets, but, the same were produced before the ld.CIT(A). There is nothing coming up from the side of the Revenue to show that the assessee was called upon to file specific evidences which were not filed before the ld.AO and, therefore, if no evidence is filed at the appellate stage, the same is required to be 4