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Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA
Before: Shri N.V. Vasudevan & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the Revenue is arising out of order of Commissioner of Income Tax (Appeals)-I, Kolkata in appeal No.417/CIT(A)-I/Wd-2(3)/08-09 dated 10.09.2010. Assessment was framed by ITO Ward-2(3), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 31.12.2008 for assessment year 2006-07.
First issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition of ₹1,02,39,690/- on account of payment of software charges without making TDS.
ITA No.2287/Kol/2010 A.Y.2006-07 ITO Wd-2(3) Kol. v. M/s Intelsys Technologies Pvt. Ltd. Page 2 3. Briefly stated facts are that during the year assessee debited an amount of ₹1,02,39,690/- as payment towards software development charges without deducting TDs u/s. 194-J of the Act. On question by AO to assessee about the violation of TDS provision assessee submitted that expense claimed is for the purchase consideration of new software package/products/components etc., Therefore the provision u/s 194-C/J will not attract to the said transaction. However, AO found from the books of account that the assessee has booked an expense of ₹4,46,354/- under purchase head. Therefore, AO has disallowed the claim of assessee and added it to the income of assessee.
Aggrieved, assessee preferred appeal before Ld. CIT(A) who deleted the addition made by Assessing Officer by observing as under:- “The A/R had furnished the relevant records/documents before me which shows that the vendors supplied canned softwares to the assessee which was required for the assessee’s business. Regarding the existence of a purchase account in which the assessee did not debit the purchase of canned software, I am of the opinion that there is no wrong in debiting the purchase of canned software under the account head “Software Development Charges” which was the policy maintained all through by the assessee. In the circumstances, this ground could go in favour of the appellant. The Ground is allowed.”
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us on the following ground:- “1. That on the facts and circumstances of the case the Ld. CIT(A) has erred din deleting the additions of Rs.1,02,39,690/- on account of payment of Software charges without making TDS despite the fact that software charges was paid for the services of vendor for new alternative technology packages, technology up-gradation packages/ products/ components and software driven systems, sub-programmes and sub- routines which are in the nature of professional and Technology services and hit by the provision of section 197J of the IT Act for deduction of taxes at source.”
Shri Ravi Tulsiyan, Ld. Authorized Representative appearing on behalf of assessee and Shri P.B. Pramanik, Ld. Departmental Representative appearing on behalf of Revenue.
ITA No.2287/Kol/2010 A.Y.2006-07 ITO Wd-2(3) Kol. v. M/s Intelsys Technologies Pvt. Ltd. Page 3 5. We have heard rival submissions of both the parties and perused the materials available on record. Ld. DR submitted that it is not a case of purchase of software and drew our attention on page 3 to 19 of assessee’s paper book where the bills for software purchase were placed and on these bills it was clearly mentioned in the column of particulars that description/service rendered. Hence, it is beyond doubt that invoice has been issued by party to assessee for developing the software which has to be classified as service and accordingly the provisions of TDS are very much attracted. The Ld. DR further submitted that technical expertise is required for development of software and assessee has not classified such expense as purchase in the audited financial statement of the assessee. The assessee has clearly classified such expense with the nomenclature software development charges. Therefore, it is clear that assessee has paid the charges for the development of the said software. Finally, Ld. DR relied on the orders of Assessing Officer. On the other hand, Ld. AR submitted paper book running from pages 1 to 37 and he submitted that it is the purchase of software from market and there was no service of any type taken from the party from whom the software was purchased. Ld. AR further drew our attention on the bills of purchase where in some of the bills in the particular column only software product/component was mentioned which are placed from pages 3 to 27 of the paper book. Ld. AR said that AO has not verified the purchase bills by issuing notice u/s. 133(6) of the Act asking whether these expenses are for the purchase of software or it involves some services as well. All the relevant details were available before AO but he has not exercised his power to verify the purchase bills. The AO has just only treated the purchase transaction as software development charges on premise and on the basis of nomenclature shown in financial statement of assessee. It is pertinent to note that merely nomenclature of the expense will not change the nature of the expense per se and he relied on the order of Ld. CIT(A). From the aforesaid discussion, we find that AO has disallowed the expense claimed by assessee on account of violation of provision of Sec. 194-C of the Act and
ITA No.2287/Kol/2010 A.Y.2006-07 ITO Wd-2(3) Kol. v. M/s Intelsys Technologies Pvt. Ltd. Page 4 AO inferred from the classification of the expense under head “software development charges” was liable for TDS. However, we find force from the submission made by Ld. AR before us that it is a pure transaction of purchase. Therefore, the provision of TDS will not be attracted. In view of this, we are inclined not to interfere with the order of Ld. CIT(A) and ground raised by Revenue is dismissed.
Next ground raised by Revenue is that Ld. CIT(A) has erred in deleting the addition of Rs.2,20,400/- on account of payment of training charges to M/s Leggiadro Consultancy Pvt. Ltd. without making TDS.
During the course of assessment proceedings, AO found that assessee has incurred an expense of ₹ 2,20,400/- which was shown under the head “training charges” and said expense is attracting the provision of TDS but assessee failed to deduct TDS from the payment made to the concerned party. On question by AO to assessee regarding the violation of TDS provision, the assessee submitted that such expense was incurred for online facility from the above said company for providing on line training to the employees on purely technical matters. However, AO disregarded the claim of assessee and disallowed the expense on account of violation of TDS provision vis-à-vis Sec. 40(a)(ia) of the Act.
Aggrieved, assessee preferred appeal before Ld. CIT(A) deleted the addition made by Assessing Officer by observing as under:- “The assessee had furnished the relevant records related to the payment of training charges and I find that the payment made to M/s. Leggiadro Consultancy Pvt. Ltd. for availing the website facilities to upgrade the knowledge of the personal of the assessee is not against any service of technical nature rendered. The AO's observation appears a bit premature more so as he has not provided any clinching facts for evidence or case law to buttress his presumption. This ground also succeeds.”
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.
ITA No.2287/Kol/2010 A.Y.2006-07 ITO Wd-2(3) Kol. v. M/s Intelsys Technologies Pvt. Ltd. Page 5 9. We have heard rival contentions of both the parties and perused the materials available on record. Ld. DR supported the orders of AO whereas Ld. AR supported the order of Ld. CIT(A). From the aforesaid discussion, we find that assessee has incurred this expense for upgrading the knowledge of the personnel of the company. As and when there is a query about the technical matter the employees used to avail the services by accessing the website of the party online. Ld. AR drew our attention on agreement between assessee and M/s Leggiadro Consultancy Pvt. Ltd. which is placed at pages 33 to 37 of paper book. We find that said expenses incurred by assessee does not attract the provision of TDS as this expense relates to up-gradation of the knowledge of its employees and for this purpose the assessee has availed certain online facility. Therefore, we are not inclined to interfere into the order of Ld. CIT(A). Hence, this ground raised by Revenue is dismissed.
Next ground raised by Revenue in this appeal is that Ld. CIT(A) has erred in deleting the addition of ₹39,05,827/- on account of reimbursement of expenses without making TDS.
During the year assessee has reimbursed an amount of₹39,05,827/- to 11. M/s NSE.IT. Ltd. for the expense in encompassing mainly electricity charges, travelling / administrative expenses salaries / wages etc., but assessee could not furnish the supportive evidence in support of said expenses as claimed reimbursement of expense. During the assessment proceedings, AO found the payment was being made to the above stated party on regular basis which establishes a contractual relationship between the two parties – assessee and M/s NSE.IT.Ltd. Therefore, the provision of Sec. 194C is very much applicable. On finding the violation of TDS provision, AO disallowed the said sum and added it to the income of assessee.
Aggrieved, assessee preferred appeal before Ld. CIT(A) who deleted the addition made by Assessing Officer by observing as under:-
ITA No.2287/Kol/2010 A.Y.2006-07 ITO Wd-2(3) Kol. v. M/s Intelsys Technologies Pvt. Ltd. Page 6 “I have gone through the relevant records, agreement furnished before me and find that there was legitimate expenditure which was reimbursed to NSE-IT Limited as per their agreement, this was also available to the A.O. To that extent, I find that the AO failed to appreciate and take into consideration the Accounts of the assessee and made the addition more on presumption than on the equitable consideration of facts in accordance with law. What would constitute proper facts and details (rf. Assessing Officer's order) in addition to those supplied by the appellant have not been spelt out by the AO. be it what it may this addition cannot be sustained in the circumstances narrated. This ground is allowed.”
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.
We have heard rival contentions of both the parties and perused the materials available on record. Ld. DR vehemently relied on the order of Assessing Officer whereas Ld. AR relied on the order of Ld. CIT(A) and he submitted that there was a joint agreement between assessee and NSE-IT Ltd. and copy of said agreement is placed on pages 28 to 32 of the paper book. Ld. AR further submitted that assessee made a joint venture agreement with the party on certain activities, wherein they are entitled to share the profit and loss in equal ratio and all the expenses in relation to joint venture activities were incurred by NSE-IT Ltd. on behalf of assessee. It is established law that TDS provisions do not attract to the expense as claimed reimbursement, now in this case the main party M/s NSE.IT.Ltd. was claiming the expense and it was the duty of the party concern to ensure the provision of TDS that all formalities have been duly complied with. Now the assessee as per the understanding has reimbursed the cost to the party. So this transaction of reimbursement is out of purview of TDS. From the aforesaid discussion, we find that AO has disallowed the expense on account of violation of TDS provision. However, as per the submission of assessee this transaction of reimbursement was out of purview of TDS provision besides this, we further find from the order of AO that expense incurred by assessee were in the nature of salary, wages, electricity charges, travelling & administrative charges and AO has not doubted the genuineness of the
ITA No.2287/Kol/2010 A.Y.2006-07 ITO Wd-2(3) Kol. v. M/s Intelsys Technologies Pvt. Ltd. Page 7 expense but disallowed those expenses on account of violation of TDS provision. We understand this transaction was out of purview of the TDS provision because it was the reimbursement of cost to the concern party. In view of above, we are inclined not to interfere into the order of Ld. CIT(A). Hence, this ground raised by Revenue is dismissed.
In the result, Revenue’s filed is dismissed. Order pronounced in the open court 11/12/2015 Sd/- Sd/- (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata, *Dkp �दनांकः- 11/12/2015 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-ITO-Wd-2(3), P7,Chowringhee Square, 7th Fl, Kolkata-69 2. ��यथ�/Respondent-M/s Intelsys Technologies Pvt. Ltd. 1 Chowrnghee Terrace, 1st Floor, Kolkata-20. 3. संबं�धत आयकर आयु�त / Concerned CIT Kolkata 4. आयकर आयु�त- अपील / CIT (A) Kolkata 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guard file. By order/आदेश से, /True Copy/ उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, कोलकाता ।