2023 (2) TMI 406 - AT - Income Tax

Disallowance u/s 40 (a) (ia) - TDS on reimubusement of expenses - payment of car hire charges which is reimbursed to the directors of the company - HELD THAT - Assessee has submitted that it is a reimbursement of expenditure to the director of the company who is undergoing frequent travel. These payments have been made by the director of the company to various taxi owners. The instances of four persons are mentioned wherein the payment made by the director to those persons - As the above payment is in the nature of reimbursement and paid to Mr. Pankaj Dalal, we find that no tax is required to be deducted at source on amount reimbursement to Mr. Pankaj Dalal. The addition therefore requires to be deleted. Software consultancy charges paid to Orbit Software - As pointed out that assessee has deducted tax at source on the above sum. This fact has also been recorded in the order of CIT (A) that assessee has already deducted tax at source on sum paid to Orbit Software. As the ld CIT (A) has also recorded the factum of payment on which tax is deducted, there is no reason to sustain the disallowance. Accordingly, disallowance is not correct. It is also deleted. Software consultancy charges paid to M/s Springfield Organics - Software is goods therefore, in the given instance; it cannot be subjected to tax deduction at source - this fact needs to be verified by the learned assessing officer. In view of this, we set-aside this ground of appeal to the file of the learned assessing officer for verification. If the purchases of software is traded goods and supplied to another client and not for the use of the assessee, no tax is required to be deducted at source. Appeal of assessee allowed.

Summary

Issues Involved:
Disallowance under section 40(a)(ia) of the Income-tax Act, 1961 for assessment year 2005-06.

Detailed Analysis:

Issue 1: Disallowance of Car Hire Charges Reimbursement
The assessing officer disallowed a payment of Rs. 60,000 as car hire charges reimbursement to the director of the company due to non-deduction of tax at source. The appellant argued that this amount was reimbursement towards car hire charges incurred by the director and no tax deduction was required. The Tribunal agreed, noting that the payment was in the nature of reimbursement and no tax needed to be deducted. The addition of Rs. 60,000 was deleted.

Issue 2: Disallowance of Software Consultancy Charges to Orbit Software
A disallowance of Rs. 7,71,752 was made by the assessing officer on software consultancy charges paid to Orbit Software for non-deduction of tax at source. However, the appellant had deducted tax at source on this amount, which was acknowledged by the CIT (A). The Tribunal found no basis for the disallowance and deleted the amount.

Issue 3: Disallowance of Software Consultancy Charges to M/s Springfield Organics
The disallowance of Rs. 7,00,000 on software consultancy charges paid to M/s Springfield Organics was related to the purchase of software for trading. The appellant argued that as a trader in software, no tax deduction was required as the software was traded goods supplied to a client and not for internal use. The Tribunal directed the assessing officer to verify this claim and set aside the issue for further examination.

In conclusion, the Tribunal allowed the appeal of the assessee with directions for verification on the issue of software consultancy charges paid to M/s Springfield Organics. The disallowances on car hire charges reimbursement and software consultancy charges to Orbit Software were deleted.