ITO, New Delhi V. M/s. Annik Technology System (P) Ltd., New Delhi

ITA 4763/DEL/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6815 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 06-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K JAIN
• Assessee Lawyers: PARAG MOHANTY; VIKAS SRIVASTAVADV
• Keywords: Depreciation; Double taxation relief; Services rendered outside India; Additional evidence
• Section: 142(1)

Judgement Text

1 ITA NO. 4763/DEL/2 012 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI G. D. AGRAWAL, VICE PRESIDENT AND SMT SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO.-4763/DEL/2012 (ASSESS MENT YEAR 2009-10) ITO WARD-1(4) NEW DELHI (APPELLANT) VS ANNIK TECHNOLOGY SYSTEMS (P) LTD. A-16/9, VASANT VIHAR NEW DELHI AAFCA5135Q (RESPONDENT) APPELLANT BY SH. S. K. JAIN, SR. DR RESPONDENT BY SH. VIKAS SRIVASTAV,ADV & PARAG MOHANTY, ADV ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED AGAINST THE ORDER DATED 08/06/ 2012 PASSED BY CIT(A)-IV, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS:- 1. THE LD.CIT(A) HAS ERRED ON FACTS IN LAW TREATIN G THE FACTS OF EARLIER YEARS AND THE YEAR UNDER CONSIDERATION A S THE SAME. DATE OF HEARING 09.08.2016 DATE OF PRONOUNCEMENT 20.10.2016 2 ITA NO. 4763/DEL/2 012 2. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN D ELETING THE ADDITION OF RS.63,82,442/- ON A/C OF LEASE RENTAL P AID EVEN THOUGH IT WAS A PROVISION DEBITED TO P & L A/C . 3. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN D ELETING THE ADDITION OF RS.11,11,500/- ON A/C OF LEGAL & PROFES SIONAL CAST EVEN THOUGH IT WAS A PROVISION DEBITED TO P & L A/C. 4. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN D ELETING THE ADDITION OF RS.52,56,526/- ON A/C OF TRAVEL COST/TR AVELLING EXPENSES EVEN THOUGH IT WAS A PROVISION DEBITED TO P & L A/C. 5. THE LD HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS.1,17,85,481/- ON A/C OF SELLING COST AMOUNT EVEN THOUGH IT WAS A PROVISION DEBITED TO P & LA/.C . 6. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN A CCEPTING THE EVIDENCE IN VIOLATION OF RS.46A OF THE IT ACT, 1961. 7. EVEN THOUGH THE A.O AGREED THAT THE PAYMENTS HAV E BEEN MADE IN THE NEXT YEAR AND TDS DEDUCTED THERE ON AND IN DIRECTING THE ITO AND ALLOW THE EXPENSES DURING THI S YEAR. 3. THE ASSESSEE COMPANY IS A SERVICE SECTOR BPO AND IT ENABLED SERVICES PROVIDER, ENGAGED IN THE DEVELOPMENT OF CO MPUTER SOFTWARE AND IT ENABLED PROJECTS IN BACK OFFICE OPERATIONS A ND DATA PROCESSING. NET PROFIT OF RS.5,40,93,552/- HAS BEE N DECLARED FORM THE SERVICE INCOME RECEIPTS AND OTHER INCOME AGGREG ATING TO RS.34,04,33,406/- AS PER COPIES OF AUDITED PROFIT & LOSS ACCOUNT BALANCE SHEET AND ITS ANNEXURES FILED ALONG WITH AU DIT REPORT DURING THE COURSE OF ASSESSMENT PROCEEDINGS. NET T AXABLE INCOME AT NIL HAS BEEN DECLARED, AFTER TAKING INTO ACCOUNT INADMISSIBLE, ADMISSIBLE, DEPRECIATION ALLOWABLE AS PER INCOME TA X RULES AFTER CLAIMING DEDUCTION U/S 10A OF RS.5,64,62,298/- AND UNABSORBED 3 ITA NO. 4763/DEL/2 012 BROUGHT FORWARD LOSS OF RS.17,70,217/- AS PER THE COMPUTATION OF TAXABLE INCOME FILED DURING THE COURSE OF ASSESSME NT PROCEEDINGS. NOTICES U/S 142(1) DATED 8/1/2011, 25/2/2011, AND 1 5/12/2011 WERE ISSUED DURING THE COURSE OF ASSESSMENT PROCEED INGS REQUIRING THE ASSESSEE COMPANY TO FILE THE DETAILS/EVIDENCES ETC. AS CALLED FOR THEREIN. THE AUTHORIZED REPRESENTATIVE OF THE ASSE SSEE COMPANY FILED DETAILS IN PARTS DURING ASSESSMENT PROCEEDING S. 4. AS REGARDS THE LEASE RENTAL, AN AMOUNT OF RS.63, 82,442/- TOWARDS LEASE RENTAL PAID HAS BEEN CLAIMED AS DEDUC TION FROM THE PROFITS RESULTED FROM PROFIT & LOSS ACCOUNT AS PER THE COMPUTATION OF TAXABLE INCOME FILED DURING THE COURSE OF ASSES SMENT PROCEEDINGS. THE ASSESSING OFFICER OBSERVED THAT N O DETAILS/EXPLANATION NOR ANY SUPPORTING DOCUMENT HAS BEEN FURNISHED /PROVIDED IN RESPECT OF DEDUCTION OF RS.6 3,82,442/- CLAIMED. THEREFORE, IN THE ABSENCE OF DETAILS AND S UPPORTING DOCUMENTS DEDUCTION OF RS.63,82,442/- DISALLOWED TH E SAME AND THE AMOUNT REDUCED FROM THE PROFITS AS PEER COMPUT ATION OF TAXABLE INCOME WAS ADDED TO THE DECLARED INCOME. 5. AS REGARDS THE LEGAL AND PROFESSIONAL COST, THE ASSESSING OFFICER OBSERVED THAT FROM THE PERUSAL OF DETAILS O F LEGAL & PROFESSIONAL COST OF RS.91,18,881/- FILED BY THE AR OF THE ASSESSEE COMPANY VIDE LETTER DATED 13/12/2011 REVEALED THAT THERE IS A PROVISION OF RS.11,11,500/- BEARING NO PARTICULARS. SINCE THE AMOUNT OF RS.11,11,500/- DOES NOT REPRESENTS ANY AC TUAL EXPENDITURE AND IS MERELY A PROVISION, SAME IS, THE REFORE, 4 ITA NO. 4763/DEL/2 012 DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE COMPANY BY THE ASSESSING OFFICER. 6. AS REGARDS THE TRAVEL COST, THE ASSESSING OFFICE R OBSERVED THAT FROM THE PERUSAL OF DETAILS OF TRAVEL COST OF RS.2 ,13,26,562/- FILED BY THE AR OF THE ASSESSEE COMPANY VIDE LETTER DATED 13/12/2011 REVEALED THAT THERE IS A PROVISION OF RS.52,56,526/ - BEARING NO PARTICULARS. SINCE THE AMOUNT OF RS.52,56,526/- DO ES NOT REPRESENTS AND ACTUAL EXPENDITURE AND IS MERELY A P ROVISION, SAME WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSE SSEE COMPANY. 7. AS REGARDS THE SELLING COST, THE ASSESSING OFFIC ER OBSERVED THAT THE DETAILS OF SELLING COST OF RS.1,17,85,481/- FIL ED BY THE AR OF THE ASSESSEE COMPANY VIDE LETTER DATED 13/12/2011 REVEA LED THAT TAX HAS NOT BEEN DEDUCTED AT SOURCE UNDER THE PROVISION S OF CHAPTER XVII OF THE INCOME TAX ACT, FROM THE AMOUNTS OF CER TAIN CONSULTANCY/MARKETING SUPPORT CHARGES PAID/CREDIT T O THE RECIPIENTS. THE DETAILS OF PERSONS/PARTIES CLAIMED AS OVERSEAS VENDORS IN USA & UK AS FOLLOWS: SR. NO. PARTICULARS AMOUNTS IN RS. 1 JONATHAN HARDING 12,82,652/- 2 ANNIK INC. 85,72,815/- 3 GARY STOCKS 11,72,234/- 4 STEVEN R TUCHOLSKI 39,989/- 5 DNL GLOBAL 3,58,290/- GRAND TOTAL 1,17,85,481/- 5 ITA NO. 4763/DEL/2 012 THE ASSESSING OFFICER HELD THAT NO SUPPORTING DOCUM ENTS WAS PROVIDED IN RESPECT OF ABOVE PERSONS OF HAVING VEND ORS OF THE ASSESSEE COMPANYS PRODUCTS, THEREFORE, THE PAYMENT S MADE CREDITED TO THE ABOVE MENTIONED PERSONS IN CONTRAVE NTION OF PROVISIONS OF SECTION 40(A) (IA) OF THE INCOME TAX ACT, WERE DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE COMPANY. 8. THE CIT(A) WHILE DECIDING THE CASE HELD IN PARA 9.2 AS UNDER:- 9.2 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND THE SUBMISSIONS MADE BY THE ID. AR ON THE ABOVE ISSUES AS WELL AS THE DOCUMENTS PLACED ON RECORD AS PART OF THE PAPER BOOK. AT THE OUTSET, I FIND THAT THE ABOVE GROUNDS ARE ACADEMIC IN NATURE SINCE THE APPELLANT WOULD BE ENTITLED TO DEDUCTION U/S 10A IN RESPECT OF ITS ENTIRE ASSESSED INCOME INCLUSIVE OF THE ABOVE DISALLOWANCES. HOWEVER, FOR THE SAKE OF CLARITY, I WOULD LIKE TO ADJUDICATE ON THE ABOVE GROUNDS. PERUSAL OF THE ASSESSMENT ORDER AS R EPRODUCED ABOVE SHOWS THAT THE AO HAS MADE THE ABOVE DISALLOWANCES WITH V ERY CRYPTIC OBSERVATIONS AND WITHOUT ANY DETAILED DISCUSSION. THE AO HAS MAD E THE IMPUGNED DISALLOWANCES ON THE GROUND THAT NO PARTICULARS WER E FILED IN RESPECT OF THE LEASE RENTALS PAID, THE LEGAL AND PROFESSIONAL COST AND TRAVEL COST WERE IN THE NATURE OF PROVISION AND NO TDS HAS BEEN MADE IN RES PECT OF THE SELLING COST. IN THIS REGARD, IT IS ARGUED BY THE ID. AR THAT THE AO NEVER ASKED FOR THE SPECIFIC DETAILS OF EXPENSES AND THE ABOVE EXPENSES WERE ACT UALLY INCURRED DURING THE YEAR UNDER CONSIDERATION AND WERE NOT IN THE NATURE OF PROVISION. THE ID. AR HAS FILED VOLUMINOUS DOCUMENTS AND DETAILS AS PART OF T HE PAPER BOOK EVIDENCING THAT THE ABOVE EXPENSES WERE ACTUALLY INCURRED AND THE SAME WERE FOR THE PURPOSE OF THE APPELLANTS BUSINESS. SIMILARLY, WIT H REGARD TO THE SELLING COST THE 6 ITA NO. 4763/DEL/2 012 ID. AR HAS FILED EXHAUSTIVE DETAILS WITH REGARD TO THE PAYMENTS MADE TO VARIOUS NON-RESIDENT PARTIES AND THE SERVICES RENDERED BY T HE SAID PARTIES ALONGWITH COPIES OF AGREEMENTS AND INVOICES. IT IS ARGUED THA T THE PAYMENTS MADE TO THE SAID NON-RESIDENT PARTIES WERE FOR THE PURPOSE OF M ARKETING AND CONSULTANCY SERVICES RENDERED OUTSIDE INDIA AND THE SAID PAYMEN TS WERE NOT EXIGIBLE TO TAX DEDUCTION AT SOURCE U/S 195 OF THE ACT AS THERE WAS NO INCOME ACCRUING OR ARISING IN INDIA IN THE HANDS OF THE SAID NON-RESID ENT PARTIES IN VIEW OF SECTION 9(1 )(VII) OF THE ACT READ WITH SECTION 90(2) AND T HE TREATY PROVISIONS AS PER THE INDIA-USA DTAA. ON CAREFUL CONSIDERATION OF THE MAT TER, I FIND THAT THE AO HAS COMPLETELY MISCONSTRUED THE FACTS AND LEGAL PROVISI ONS WITH REGARD TO THE ABOVE ADDITIONS. THE AO HAS ALSO NOT GIVEN ANY ADVERSE MA TERIAL OBSERVATION WHATSOEVER AGAINST THE ABOVE SUBMISSION OF THE APPE LLANT AND THE VOLUMINOUS DETAILS FILED AS PART OF THE REMAND PROCEEDING. THE AO HAS ALSO NOT BEEN ABLE TO MAKE OUT ANY CASE FOR TDS U/S 195 IN THE CASE OF SE LLING COST. IN VIEW OF THE ABOVE, THE IMPUGNED ADDITIONS MADE BY THE AO IN A C ASUAL MANNER CANNOT BE SUSTAINED EITHER IN FACTS OR IN LAW. THE SAME ARE T HEREFORE DELETED AND THE ABOVE GROUNDS OF APPEAL ARE ALLOWED. 9. THE LD. DR RELIED ON THE A.OS ORDER. THE LD. DR SUBMITTED THAT THE CIT(A) ERRED IN ADMITTING THE ADDITIONAL E VIDENCE SUBMITTED BY THE ASSESSEE BEFORE THE CIT(A). 10. THE LD. AR SUBMITTED THAT THERE WAS AN APPLICAT ION FOR ADMITTING ADDITIONAL EVIDENCE UNDER RULE 46A OF THE INCOME TAX RULES, 1962 FILED BY THE ASSESSEE BEFORE THE CIT(A) . THE SAME WAS HEARD AFTER CALLING FOR REMAND REPORT BY THE CIT(A) AND ADMITTED THE ADDITIONAL EVIDENCE. THE ASSESSING OFFICER WAS CRY PTIC IN HIS ORDER AND THE QUESTIONNAIRE PUT UP DURING THE ASSESSMENT PROCEEDINGS WERE ALSO NOT SPECIFIC AS TO PRODUCE THE ADDITIONAL DOCUMENTS, 7 ITA NO. 4763/DEL/2 012 THEREFORE, THE ASSESSEE WHEN THE APPELLATE PROCEEDI NGS WERE GOING ON BEFORE THE CIT(A) MADE APPLICATION UNDER RULE 46 A OF THE INCOME TAX RULES FOR ADMITTING THE ADDITIONAL EVIDENCE AND TAKING COGNIZANCE OF THE SAME. THE REMAND REPORT WAS ALSO CALLED FOR, THEREFORE, AFTER ASSESSING OFFICER HAS THE OPPORTUN ITY OF VERIFYING THE ADDITIONAL EVIDENCE WITH PROPER JUSTIFICATION F ROM THE ASSESSEE, THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE. THE LD. AR RELIED UPON THE ORDER OF THE CIT(A). 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE MATERIALS AVAILABLE ON RECORD. THE ADDITIONAL EVIDENCE WAS S UPPLIED TO THE ASSESSING OFFICER AND REMAND REPORT WAS CALLED FOR AND AFTER GOING THROUGH THE REMAND REPORT. THE CIT(A) HAS GIVEN IT S CORRECT FINDING IN PARA 9.2. THE AO HAS MADE THE IMPUGNED DISALLOWA NCES ON THE GROUND THAT NO PARTICULARS WERE FILED IN RESPECT OF THE LEASE RENTALS PAID, THE LEGAL AND PROFESSIONAL COST AND TRAVEL CO ST WERE IN THE NATURE OF PROVISION AND NO TDS HAS BEEN MADE IN RES PECT OF THE SELLING COST. IN THIS REGARD, IT IS ARGUED BY THE I D. AR THAT THE AO NEVER ASKED FOR THE SPECIFIC DETAILS OF EXPENSES AN D THE ABOVE EXPENSES WERE ACTUALLY INCURRED DURING THE YEAR UND ER CONSIDERATION AND WERE NOT IN THE NATURE OF PROVISI ON. THE ID. AR HAS FILED VOLUMINOUS DOCUMENTS AND DETAILS AS PART OF THE PAPER BOOK EVIDENCING THAT THE ABOVE EXPENSES WERE ACTUAL LY INCURRED AND THE SAME WERE FOR THE PURPOSE OF THE ASSESSEES BUS INESS. SIMILARLY, WITH REGARD TO THE SELLING COST THE LD. AR HAS FILE D EXHAUSTIVE DETAILS WITH REGARD TO THE PAYMENTS MADE TO VARIOUS NON-RESIDENT PARTIES AND THE SERVICES RENDERED BY THE SAID PARTI ES ALONGWITH 8 ITA NO. 4763/DEL/2 012 COPIES OF AGREEMENTS AND INVOICES. IT IS ARGUED THA T THE PAYMENTS MADE TO THE SAID NON-RESIDENT PARTIES WERE FOR THE PURPOSE OF MARKETING AND CONSULTANCY SERVICES RENDERED OUTSIDE INDIA AND THE SAID PAYMENTS WERE NOT EXIGIBLE TO TAX DEDUCTION AT SOURCE U/S 195 OF THE ACT AS THERE WAS NO INCOME ACCRUING OR ARISI NG IN INDIA IN THE HANDS OF THE SAID NON-RESIDENT PARTIES IN VIEW OF S ECTION 9(1)(VII) OF THE ACT READ WITH SECTION 90(2) AND THE TREATY PROV ISIONS AS PER THE INDIA-USA DTAA. THUS THE FINDING OF THE CIT(A) THAT THE AO HAS COMPLETELY MISCONSTRUED THE FACTS AND LEGAL PROVISI ONS WITH REGARD TO THE ABOVE ADDITIONS IS CORRECT. THE AO HAS ALSO NOT GIVEN ANY ADVERSE MATERIAL OBSERVATION WHATSOEVER AGAINST THE ABOVE SUBMISSION OF THE ASSESSEE AND THE VOLUMINOUS DETAI LS FILED AS PART OF THE REMAND PROCEEDING. THE AO HAS ALSO NOT BEEN ABLE TO MAKE OUT ANY CASE FOR TDS U/S 195 OF THE ACT IN THE CASE OF SELLING COST. IN VIEW OF THE ABOVE, THE IMPUGNED ADDITIONS MADE B Y THE AO WAS RIGHTLY REJECTED BY THE CIT(A). 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. THE ORDER IS PRONOUNCED IN THE OPEN COURT 20TH OF OCTOBER, 2016. SD/- SD/- (G. D. AGRAWAL) (S UCHITRA KAMBLE) VICE PRESIDENT JUD ICIAL MEMBER DATED: 20/10/2016 R. NAHEED * COPY FORWARDED TO: 9 ITA NO. 4763/DEL/2 012 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT R EGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 09.08.2016 PS 2. DRAFT PLACED BEFORE AUTHOR 10.08.2016 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2016 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 2 0 .10.2016 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 2 0 .10.2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 10 ITA NO. 4763/DEL/ 2012