2016 (9) TMI 1605 - AT - Income Tax

Disallowance u/s 40(a) (ia) - non-deduction of TDS on the expenses of purchase price of computer software - HELD THAT - The amount paid by the assessee to the supplier for supply of the computer software was neither the price of CD/DVD alone or the computer software alone nor the price of license. It was a combination of all, unless the license was permitting the end user to copy and download the software, CD/DVD, cannot be used by the individual and further relied upon the Explanation 5, inserted vide Finance Act, 2012 in section 9(1)(vi) - CIT(A) further hold that the payment for the license to use the computer software programme constitute royalty for the purpose of the Act - assessee not substantiated as to how the facts of his case are similar to the facts of cases, on which he relied. AO not discussed in its order the contention raised by assessee during the assessment. Similarly the ld CIT(A) has also not discussed in its order, the contents of various clause contained in the buyers agreements of various dates relied by assessee - we restore this ground of appeal to the file of AO to consider all the documents and various decisions of the High Courts and Tribunal and pass speaking order - this ground of appeal is allowed for statistical purpose. Disallowance of difference of loss on non Export Oriented Unit - apportionment of expenditure incurred on account of salaries, bonus, allowance, contribution to Provided Fund and other funds for welfare of the employees - expenses are common expenses for both non-export oriented unit and export oriented unit as no allocation is for both the units provided by the assessee - HELD THAT - We have seen that the assessee has furnished the copy of Circular for section 10B deduction in Form No. 56G along with his submission dated 11.01.2011 and further the details submission dated 13.12.2011. Neither the AO nor the CIT(A) discussed all the contention raised in both the letters as well as on the certification u/s 10(b). Moreover, one of the units of the assessee is EOU and the assessee is entitled for deduction u/s 10B. The assessee is entitled for 100% deduction in respect of business derived by him from 100% export oriented undertakings, thus the apportionment of Non-EOU is not in accordance with law, thus we restore this ground of appeal to the file of AO to give the fresh finding after considering the written submission of assessee filed before the Ld CIT(A) and pass appropriate order in accordance with law.

Summary

Issues:
1. Violation of principle of natural justice.
2. Disallowance u/s 40(a) (ia) on account of non-deduction of TDS.
3. Disallowance of difference of loss on non-Export Oriented Unit.
4. Initiation of penalty proceeding.

Issue 1: Violation of principle of natural justice
The appeal raised concerns about the violation of the principle of natural justice and lack of reasoning. The assessee did not press this ground, leading to its dismissal as not pressed.

Issue 2: Disallowance u/s 40(a) (ia) on account of non-deduction of TDS
The AO disallowed expenses related to the import of computer software due to non-deduction of TDS. The assessee argued citing decisions in their favor, but the AO disallowed the amount. The CIT(A) held that the payment for the license constituted royalty, supported by the Finance Act, 2012. The matter was restored to the AO to consider all documents and pass a speaking order.

Issue 3: Disallowance of difference of loss on non-Export Oriented Unit
The AO disallowed a portion of expenses based on turnover apportionment between non-export oriented unit and export-oriented unit. The CIT(A) upheld this without providing reasons. The matter was sent back to the AO to reconsider after reviewing all submissions and certification under section 10B.

Issue 4: Initiation of penalty proceeding
The appeal did not address the initiation of penalty, which was deemed premature for challenge without a substantive order. This ground was dismissed.

In conclusion, the appeal was allowed for statistical purposes, with different issues being either dismissed, allowed for statistical purposes, or sent back to the AO for fresh consideration. The judgment highlighted the importance of thorough reasoning and consideration of all relevant factors in tax assessment matters.