2021 (3) TMI 784 - AT - Income Tax

Rectification u/s 154 - TDS u/s 195 - Non deduction of TDS - payments made to non-residents - whether the TDS has been made by the assessee or not and since the assessee had made TDS on the payments made to non-residents, the AO ought to have deleted the disallowance to expenses made in the original order of assessment? - HELD THAT - Issue that was remanded by the Tribunal in the order dated 03.05.2017 was only to verify whether the assessee had made TDS. The question whether expenditure can be regarded as capital in nature has already been decided by the DRP in its direction dated 29.11.2018 and the DRP has already held that the expenditure in question cannot be regarded as an expenditure of capital in nature. The aforesaid directions of the DRP has not been challenged either by the Assessee or the revenue and have become final. Therefore, the AO while giving effect to the order of the Tribunal, was not competent to go into the question as to whether the expenditure of software is capital or revenue in nature. In the light of the DRP s findings which we have already extracted above there cannot be any debate or doubt on the claim of the assessee and the AO s Order Giving Effect to the directions of the Tribunal suffer from an apparent mistake from the face of the record and therefore the proceedings under section 154 of the Act were justified. We, therefore, direct that the deduction claimed by the assessee should be allowed.

Summary

Issues:
1. Disallowance of software purchase expenses for failure to deduct tax at source.
2. Disallowance of expenses claimed as revenue expenditure by treating them as capital in nature.
3. Rejection of application under section 154 of the Act by the AO.
4. Challenge of CIT(A)'s order regarding the treatment of expenditure as capital in nature.
5. Interpretation of DRP's directions on the nature of expenditure.
6. Competency of AO to reconsider the nature of expenditure in light of DRP's final directions.
7. Decision on allowing the deduction claimed by the assessee.

Issue 1:
The AO disallowed software purchase expenses due to the failure of the assessee to deduct tax at source as required under section 195 of the Income Tax Act, 1961.

Issue 2:
The AO treated the software expenses as capital in nature, disallowing them as revenue expenditure, and allowing only 60% depreciation on the value of computer software purchases.

Issue 3:
The AO rejected the assessee's application under section 154 of the Act, stating that no apparent mistake existed in the Order Giving Effect dated 31.01.2018.

Issue 4:
The CIT(A) upheld the AO's decision regarding the treatment of expenditure as capital in nature, stating that the assessee failed to challenge the alternative case made by the AO in the original order of assessment.

Issue 5:
The DRP's directions clarified that the expenditure in question was not capital in nature, as it did not create any capital asset for the assessee, and directed the AO accordingly.

Issue 6:
The Tribunal held that the DRP's final directions on the nature of expenditure were conclusive, and the AO could not reconsider the capital or revenue nature of the expenses while giving effect to the Tribunal's order.

Issue 7:
The Tribunal allowed the appeal by the assessee, directing that the deduction claimed by the assessee for software purchase expenses should be allowed based on the DRP's final directions.

In conclusion, the Tribunal ruled in favor of the assessee, emphasizing that the nature of the expenditure had been conclusively determined by the DRP's directions, and the AO was not competent to reassess it. The Tribunal directed that the deduction claimed by the assessee for software purchase expenses should be allowed.