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2018 (5) TMI 61 - AT - Income TaxDisallowance u/s 40(a)(ia) towards software usage charges paid by the assessee - Held that - In the present case the payment for royalty charges was made under consent terms before the Hon ble Delhi High Court on which no TDS was deducted. It is true that explanation 4 to 6 were inserted to section 9 by the Finance Act, 2012 with retrospective effect from 01.06.1976 but at the same time there is merit in the submissions of the Ld. A.R. that as on the date of payment the assessee could not have foreseen the amendment which was to take place in the subsequent year making the deduction of TDS from software applicable from the retrospective effect. We are of the considered view that the Ld. CIT(A) has correctly allowed the appeal of the assessee and accordingly we uphold the same by dismissing the ground Nos.1 & 2. Addition on the basis of AIR information - Held that - In this case TDS has been deducted by the customer on the provisions created in the books of accounts whereas the assessee invoiced and recorded the sale in the next financial year. We observe that the CIT(A) has taken a very balanced and correct view of the matter and also recorded the finding of the fact that there is no escapement of tax as the income stands offered to tax in the next financial year when the assessee invoiced the customer and it is irrelevant that the customer has deducted TDS on the provisions created in the books of accounts. We affirm the order of Ld. CIT(A) by dismissing the ground raised by the Revenue.
Issues:
1. Disallowance of software usage charges under section 40(a)(ia) of the Act. 2. Applicability of CBDT Notification No. 21/2012 dated 13.06.12. 3. Addition of unreconciled amount based on AIR information. Issue 1 - Disallowance of Software Usage Charges: The Revenue appealed against the deletion of disallowance of software usage charges by the Ld. CIT(A). The AO disallowed ?24,00,000 under section 40(a)(ia) of the Act for non-deduction of TDS on software usage charges paid by the assessee. The Ld. CIT(A) allowed the appeal, citing that the CBDT Notification No. 21/2012 exempted TDS deduction for software acquisition locally. The Revenue contended that the circular was not applicable to the case. The Ld. A.R. argued that as the payment was made before the amendment, TDS deduction was not foreseeable. The ITAT upheld the Ld. CIT(A)'s decision, considering the retrospective effect of the amendment and the circumstances of the case. Issue 2 - Applicability of CBDT Notification: The main contention was whether the CBDT Notification No. 21/2012 dated 13.06.12 applied to the case. The Ld. CIT(A) relied on the notification to allow the appeal of the assessee regarding TDS deduction on software charges. The Revenue argued against the applicability of the circular, emphasizing the conditions for compliance. The ITAT upheld the Ld. CIT(A)'s decision, considering the unforeseeability of the subsequent year's amendment affecting TDS deduction. Issue 3 - Addition based on AIR Information: The AO added ?1,03,22,354 to the assessee's income based on unreconciled AIR information. The Ld. CIT(A) deleted the addition, noting that the TDS was deducted by customers on provisions in the books, while the assessee recorded sales in the next financial year. The Revenue contended that income accrued in a year should be taxed in that year. The Ld. A.R. argued that the income was offered to tax in the subsequent year when invoiced. The ITAT upheld the Ld. CIT(A)'s decision, emphasizing that the income was offered for tax and there was no loss of revenue to the department. In conclusion, the ITAT dismissed the Revenue's appeal, upholding the decisions of the Ld. CIT(A) on all the issues raised in the case.
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