2016 (1) TMI 662 - AT - Income Tax

TDS u/s 194C - Addition on account of payment of software charges without making TDS - CIT(A) deleted the addition - Held that - 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 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) - Decided in favour of assessee Addition on account of payment of training charges to M/s Leggiadro Consultancy Pvt. Ltd. without making TDS - CIT(A) deleted the addition - Held 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. 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.- Decided in favour of assessee Addition on account of reimbursement of expenses without making TDS - CIT(A) deleted the addition - Held 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 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).- Decided in favour of assessee

Summary

Issues:
1. Deletion of addition of payment of software charges without TDS
2. Deletion of addition of payment of training charges without TDS
3. Deletion of addition of reimbursement of expenses without TDS

Issue 1: Deletion of addition of payment of software charges without TDS

The appeal concerned the deletion of an addition of Rs. 1,02,39,690 on account of payment of software charges without TDS. The Assessing Officer disallowed the claim of the assessee as TDS was not deducted on the payment. The Commissioner of Income Tax (Appeals) deleted the addition, stating that the software was supplied by vendors and the purchase was correctly debited under "Software Development Charges." The ITAT Kolkata upheld the CIT(A)'s decision, emphasizing that the nature of the transaction was a purchase of software and not a service, hence TDS provisions did not apply.

Issue 2: Deletion of addition of payment of training charges without TDS

The second issue involved the deletion of an addition of Rs. 2,20,400 on account of payment of training charges without TDS. The AO disallowed the expense, alleging a violation of TDS provisions. However, the CIT(A) found that the expense was for upgrading the knowledge of the company's personnel and did not attract TDS. The ITAT Kolkata concurred with the CIT(A) and dismissed the Revenue's appeal, noting that the expense related to employee training and did not fall under TDS provisions.

Issue 3: Deletion of addition of reimbursement of expenses without TDS

The final issue addressed the deletion of an addition of Rs. 39,05,827 on account of reimbursement of expenses without TDS. The AO disallowed the sum, citing a contractual relationship between the assessee and the party to whom the reimbursement was made. However, the CIT(A) found that the expenses were legitimate and reimbursed as per the agreement, not warranting TDS deduction. The ITAT Kolkata upheld the CIT(A)'s decision, stating that the reimbursement transaction was outside the purview of TDS provisions, as it was based on a joint venture agreement and involved genuine expenses such as salaries, wages, and administrative charges.

In conclusion, the ITAT Kolkata dismissed all the Revenue's appeals, upholding the CIT(A)'s decisions in each case regarding the deletion of additions related to software charges, training charges, and reimbursement of expenses without TDS deductions.