2013 (2) TMI 263 - AT - Income Tax

Non deduction of TDS u/s 194J - disallowance u/s 40a(ia) - Held that - As decided in Merilyn Shipping & Transports Visakhapatnam V/s. ACIT Range-I, Visakhapatnam 2012 (4) TMI 290 - ITAT VISAKHAPATNAM the provisions of S.40a(ia) are applicable only in respect of the expenditure which remains payable as on 31st of the March of the relevant previous year, and such disallowance cannot be made in respect of the expenditure which has already been paid during the relevant previous year, though without deducting tax at source - thus set aside order of the CIT(A) and directing AO to allow the claim to the extent already paid. Deduction under S.10A - disallowance in the absence of requisite proof and details furnished by the assessee - CIT(A) allowed the claim - Held that - The assessee is a software developer and this is not the first year of operation. In earlier years also, the assessee has claimed exemption under S.10A which was allowed by the AO as well. The assessee has filed all the requisite details as required under S10A before the CIT(A), thus no infirmity in the action of the CIT(A) in granting deduction under S.10A - AO cannot disturb the exemption under S.10A in the middle of the period, having granted the same in the earlier years, unless he has material to show that the assessee has violated any of the provisions of S.10A - in favour of assessee. Disallowance of US branch expenditure - assessee furnished the additional evidence as per Rule 46A(1)- Held that - Effective opportunity of hearing has been granted by the CIT(A) to the AO,the Revenue has not placed any material to suggest that the CIT(A) has not given reasonable opportunity of hearing to the assessing officer. In the circumstances, the order of the CIT(A) is upheld that the expenses incurred by the assessee in foreign branch is for the purposes of business only and has to be treated as expended for the purposes of business. Further that enhanced income, if any, on account of any disallowance, is construed as income from exports only, consequently boosting the income eligible for exemption under S.10A. Even on that count also, the claim of be assessee has to be allowed. Expenditure claimed towards product development expenditure - Allowance as expenditure is not allowable for amortization - Held that - As seen from the order of the CIT(A), this expenditure has been incurred by the assessee year after year and 10% of the product development expenditure is written off in the year under consideration. This being expenditure of regular nature, and has been incurred by the assessee for the purpose of business, we find no infirmity in the order of the CIT(A) on this issue - in favour of assessee.

Summary

Issues:
1. Disallowance of expenditure under S.40a(ia) of the Act for non-deduction of Tax at Source under S.194J.
2. Granting of deduction under S.10A of the Income-tax Act without requisite proof.
3. Disallowance of US branch expenditure.
4. Allowance of expenditure claimed by the assessee towards product development expenditure.

Issue 1: Disallowance of expenditure under S.40a(ia) of the Act for non-deduction of Tax at Source under S.194J:
The assessee's appeal focused on the disallowance of expenditure under S.40a(ia) due to non-compliance with S.194J. The Tribunal referred to a Special Bench decision emphasizing that S.40a(ia) applies only to payable expenditure as of March 31st and not to already paid amounts without TDS deduction. Consequently, the Tribunal set aside the CIT(A)'s order and directed the assessing officer to allow the expenditure already paid during the relevant previous year, restricting disallowance to the outstanding amount as of the end of the previous year.

Issue 2: Granting of deduction under S.10A of the Income-tax Act without requisite proof:
The Revenue's appeal challenged the CIT(A)'s decision to grant deduction under S.10A without sufficient evidence. The Tribunal upheld the CIT(A)'s decision, noting that the assessee, a software developer with prior years of claiming S.10A exemption, had submitted all required details. The Tribunal emphasized that the assessing officer could not disturb the exemption mid-period without evidence of violation of S.10A provisions, thereby affirming the CIT(A)'s decision to grant the deduction.

Issue 3: Disallowance of US branch expenditure:
The Revenue contested the disallowance of US branch expenditure. The CIT(A), after considering the details provided by the assessee and the absence of a remand report from the assessing officer, treated the expenditure as business-related and directed its allowance. The Tribunal supported the CIT(A)'s decision, highlighting the effective opportunity of hearing granted to the assessing officer and the absence of material suggesting inadequate hearing. The Tribunal upheld the CIT(A)'s order, considering the expenses as business-related and eligible for S.10A exemption.

Issue 4: Allowance of expenditure claimed by the assessee towards product development expenditure:
The Revenue appealed against the allowance of product development expenditure claimed by the assessee. The CIT(A allowed the expenditure, considering it a regular business expense written off annually. The Tribunal upheld the CIT(A)'s decision, noting the nature of the expenditure and its consistent treatment by the assessee. Consequently, the Tribunal rejected the Revenue's grounds on this issue.

In conclusion, the Tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeal, addressing the various issues related to disallowance of expenditure, granting of deductions under S.10A, and allowance of specific expenditures.