Cachar King Plantation (P) Ltd, Darjeeling V. D.C.I.T.Cir - 1,Siliguri, Sikkim

ITA 560/KOL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100250 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 15-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: P B PRAMANIK JCITSRDR
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 2287 / KOL / 2010 ASSESSMENT YEAR :2006-07 ITO, WARD-2(3), P-7, CHOWRINGHEE SQUARE, 7 TH FLOOR, KOLKATA-69 V/S . M/S INTELSYS TECHNOLOGIES PVT. LTD. 1, CHOWRINGHEE TERRACE, 1 ST FLOOR, KOLKATA 20 [ PAN NO.AAACI 6971 M ] /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI P.B.PRAMANIK, JCIT-SR-DR /BY RESPONDENT SHRI RAVI TULSIYAN, FCA /DATE OF HEARING 26-11-2015 /DATE OF PRONOUNCEMENT 11-12-2015 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS ARISING OUT OF ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-I, KOLKATA IN APPEAL NO.417/CI T(A)-I/WD-2(3)/08-09 DATED 10.09.2010. ASSESSMENT WAS FRAMED BY ITO WARD -2(3), KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT) VIDE HIS ORDER DATED 31.12.2008 FOR ASSESSMENT YEAR 2006 -07. 2. FIRST ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION OF 1,02,39,690/- ON ACCOUNT OF PAYMENT OF SOFTWARE CHARGES WITHOUT MAKING TDS. ITA NO.2287/KOL/2010 A.Y.2006-07 ITO WD-2(3) KOL. V. M/S INTELSYS TECHNOLOGIES PVT. LTD. PAG E 2 3. BRIEFLY STATED FACTS ARE THAT DURING THE YEAR AS SESSEE DEBITED AN AMOUNT OF 1,02,39,690/- AS PAYMENT TOWARDS SOFTWARE DEVELOPME NT CHARGES WITHOUT DEDUCTING TDS U/S. 194-J OF THE ACT. ON QUESTION BY AO TO ASSESSEE ABOUT THE VIOLATION OF TDS PROVISION ASSESSEE SUBMITTED THAT EXPENSE CLAIMED IS FOR THE PURCHASE CONSIDERATION OF NEW SOFTWARE PACKAGE/PROD UCTS/COMPONENTS ETC., THEREFORE THE PROVISION U/S 194-C/J WILL NOT ATTRAC T TO THE SAID TRANSACTION. HOWEVER, AO FOUND FROM THE BOOKS OF ACCOUNT THAT TH E ASSESSEE HAS BOOKED AN EXPENSE OF 4,46,354/- UNDER PURCHASE HEAD. THEREFORE, AO HAS DISALLOWED THE CLAIM OF ASSESSEE AND ADDED IT TO TH E INCOME OF ASSESSEE. 4. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) WHO DELETED THE ADDITION MADE BY ASSESSING OFFICER BY OBSERVING AS UNDER:- THE A/R HAD FURNISHED THE RELEVANT RECORDS/DOCUMEN TS BEFORE ME WHICH SHOWS THAT THE VENDORS SUPPLIED CANNED SOFTWA RES TO THE ASSESSEE WHICH WAS REQUIRED FOR THE ASSESSEES BUSI NESS. REGARDING THE EXISTENCE OF A PURCHASE ACCOUNT IN WHICH THE AS SESSEE DID NOT DEBIT THE PURCHASE OF CANNED SOFTWARE, I AM OF THE OPINIO N THAT THERE IS NO WRONG IN DEBITING THE PURCHASE OF CANNED SOFTWARE U NDER THE ACCOUNT HEAD SOFTWARE DEVELOPMENT CHARGES WHICH WAS THE POLICY MAINTAINED ALL THROUGH BY THE ASSESSEE. IN THE CIRC UMSTANCES, THIS GROUND COULD GO IN FAVOUR OF THE APPELLANT. THE GRO UND IS ALLOWED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED DIN DELETING THE ADDITIONS OF RS.1,02,39,690/ - ON ACCOUNT OF PAYMENT OF SOFTWARE CHARGES WITHOUT MAKING TDS DESP ITE THE FACT THAT SOFTWARE CHARGES WAS PAID FOR THE SERVICES OF VENDO R FOR NEW ALTERNATIVE TECHNOLOGY PACKAGES, TECHNOLOGY UP-GRADATION PACKAG ES/ PRODUCTS/ COMPONENTS AND SOFTWARE DRIVEN SYSTEMS, SUB-PROGRAM MES AND SUB- ROUTINES WHICH ARE IN THE NATURE OF PROFESSIONAL AN D TECHNOLOGY SERVICES AND HIT BY THE PROVISION OF SECTION 197J O F THE IT ACT FOR DEDUCTION OF TAXES AT SOURCE. SHRI RAVI TULSIYAN, LD. AUTHORIZED REPRESENTATIVE A PPEARING ON BEHALF OF ASSESSEE AND SHRI P.B. PRAMANIK, LD. DEPARTMENTAL R EPRESENTATIVE APPEARING ON BEHALF OF REVENUE. ITA NO.2287/KOL/2010 A.Y.2006-07 ITO WD-2(3) KOL. V. M/S INTELSYS TECHNOLOGIES PVT. LTD. PAG E 3 5. WE HAVE HEARD RIVAL SUBMISSIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. LD. DR SUBMITTED THA T IT IS NOT A CASE OF PURCHASE OF SOFTWARE AND DREW OUR ATTENTION ON PAGE 3 TO 19 OF ASSESSEES PAPER BOOK WHERE THE BILLS FOR SOFTWARE PURCHASE WE RE PLACED AND ON THESE BILLS IT WAS CLEARLY MENTIONED IN THE COLUMN OF PAR TICULARS THAT DESCRIPTION/SERVICE RENDERED. HENCE, IT IS BEYOND D OUBT THAT INVOICE HAS BEEN ISSUED BY PARTY TO ASSESSEE FOR DEVELOPING THE SOFT WARE WHICH HAS TO BE CLASSIFIED AS SERVICE AND ACCORDINGLY THE PROVISION S OF TDS ARE VERY MUCH ATTRACTED. THE LD. DR FURTHER SUBMITTED THAT TECHNI CAL EXPERTISE IS REQUIRED FOR DEVELOPMENT OF SOFTWARE AND ASSESSEE HAS NOT CLASSI FIED SUCH EXPENSE AS PURCHASE IN THE AUDITED FINANCIAL STATEMENT OF THE ASSESSEE. THE ASSESSEE HAS CLEARLY CLASSIFIED SUCH EXPENSE WITH THE NOMENC LATURE SOFTWARE DEVELOPMENT CHARGES. THEREFORE, IT IS CLEAR THAT AS SESSEE HAS PAID THE CHARGES FOR THE DEVELOPMENT OF THE SAID SOFTWARE. F INALLY, LD. DR RELIED ON THE ORDERS OF ASSESSING OFFICER. ON THE OTHER HAND, LD. AR SUBMITTED PAPER BOOK RUNNING FROM PAGES 1 TO 37 AND HE SUBMITTED THAT IT IS THE PURCHASE OF SOFTWARE FROM MARKET AND THERE WAS NO SERVICE OF AN Y TYPE TAKEN FROM THE PARTY FROM WHOM THE SOFTWARE WAS PURCHASED. LD. AR FURTHER DREW OUR ATTENTION ON THE BILLS OF PURCHASE WHERE IN SOME OF THE BILLS IN THE PARTICULAR COLUMN ONLY SOFTWARE PRODUCT/COMPONENT WAS MENTIONE D WHICH ARE PLACED FROM PAGES 3 TO 27 OF THE PAPER BOOK. LD. AR SAID T HAT AO HAS NOT VERIFIED THE PURCHASE BILLS BY ISSUING NOTICE U/S. 133(6) OF THE ACT ASKING WHETHER THESE EXPENSES ARE FOR THE PURCHASE OF SOFTWARE OR IT INV OLVES SOME SERVICES AS WELL. ALL THE RELEVANT DETAILS WERE AVAILABLE BEFOR E AO BUT HE HAS NOT EXERCISED HIS POWER TO VERIFY THE PURCHASE BILLS. T HE AO HAS JUST ONLY TREATED THE PURCHASE TRANSACTION AS SOFTWARE DEVELOPMENT CH ARGES ON PREMISE AND ON THE BASIS OF NOMENCLATURE SHOWN IN FINANCIAL STA TEMENT OF ASSESSEE. IT IS PERTINENT TO NOTE THAT MERELY NOMENCLATURE OF THE E XPENSE WILL NOT CHANGE THE NATURE OF THE EXPENSE PER SE AND HE RELIED ON THE O RDER OF LD. CIT(A). FROM THE AFORESAID DISCUSSION, WE FIND THAT AO HAS DISAL LOWED THE EXPENSE CLAIMED BY ASSESSEE ON ACCOUNT OF VIOLATION OF PROVISION OF SEC. 194-C OF THE ACT AND ITA NO.2287/KOL/2010 A.Y.2006-07 ITO WD-2(3) KOL. V. M/S INTELSYS TECHNOLOGIES PVT. LTD. PAG E 4 AO INFERRED FROM THE CLASSIFICATION OF THE EXPENSE UNDER HEAD SOFTWARE DEVELOPMENT CHARGES WAS LIABLE FOR TDS. HOWEVER, W E FIND FORCE FROM THE SUBMISSION MADE BY LD. AR BEFORE US THAT IT IS A PU RE TRANSACTION OF PURCHASE. THEREFORE, THE PROVISION OF TDS WILL NOT BE ATTRACT ED. IN VIEW OF THIS, WE ARE INCLINED NOT TO INTERFERE WITH THE ORDER OF LD. CIT (A) AND GROUND RAISED BY REVENUE IS DISMISSED. 6. NEXT GROUND RAISED BY REVENUE IS THAT LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.2,20,400/- ON ACCOUNT OF PAYMENT OF TRAINING CHARGES TO M/S LEGGIADRO CONSULTANCY PVT. LTD. WITHOUT MAKING TDS. 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO FOUND THAT ASSESSEE HAS INCURRED AN EXPENSE OF 2,20,400/- WHICH WAS SHOWN UNDER THE HEAD TRAINING CHARGES AND SAID EXPENSE IS ATTRACTING T HE PROVISION OF TDS BUT ASSESSEE FAILED TO DEDUCT TDS FROM THE PAYMENT MADE TO THE CONCERNED PARTY. ON QUESTION BY AO TO ASSESSEE REGARDING THE VIOLATION OF TDS PROVISION, THE ASSESSEE SUBMITTED THAT SUCH EXPENSE WAS INCURRED FOR ONLINE FACILITY FROM THE ABOVE SAID COMPANY FOR PROVIDING ON LINE TRAINING TO THE EMPLOYEES ON PURELY TECHNICAL MATTERS. HOWEVER, AO DISREGARDED THE CLAIM OF ASSESSEE AND DISALLOWED THE EXPENSE ON ACCOUNT OF V IOLATION OF TDS PROVISION VIS--VIS SEC. 40(A)(IA) OF THE ACT. 8. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) DELETED THE ADDITION MADE BY ASSESSING OFFICER BY OBSERVING AS UNDER:- THE ASSESSEE HAD FURNISHED THE RELEVANT RECORDS RE LATED TO THE PAYMENT OF TRAINING CHARGES AND I FIND THAT THE PAY MENT MADE TO M/S. LEGGIADRO CONSULTANCY PVT. LTD. FOR AVAILING THE WE BSITE FACILITIES TO UPGRADE THE KNOWLEDGE OF THE PERSONAL OF THE ASSESS EE IS NOT AGAINST ANY SERVICE OF TECHNICAL NATURE RENDERED. THE AO'S OBSERVATION APPEARS A BIT PREMATURE MORE SO AS HE HAS NOT PROVIDED ANY CLINCHING FACTS FOR EVIDENCE OR CASE LAW TO BUTTRESS HIS PRESUMPTION. T HIS GROUND ALSO SUCCEEDS. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. ITA NO.2287/KOL/2010 A.Y.2006-07 ITO WD-2(3) KOL. V. M/S INTELSYS TECHNOLOGIES PVT. LTD. PAG E 5 9. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. LD. DR SUPPORTED THE ORDERS OF AO WHEREAS LD. AR SUPPORTED THE ORDER OF LD. CIT(A). FROM THE AFOR ESAID DISCUSSION, WE FIND THAT ASSESSEE HAS INCURRED THIS EXPENSE FOR UPGRADI NG THE KNOWLEDGE OF THE PERSONNEL OF THE COMPANY. AS AND WHEN THERE IS A QU ERY ABOUT THE TECHNICAL MATTER THE EMPLOYEES USED TO AVAIL THE SERVICES BY ACCESSING THE WEBSITE OF THE PARTY ONLINE. LD. AR DREW OUR ATTENTION ON AGRE EMENT BETWEEN ASSESSEE AND M/S LEGGIADRO CONSULTANCY PVT. LTD. WHICH IS PL ACED AT PAGES 33 TO 37 OF PAPER BOOK. WE FIND THAT SAID EXPENSES INCURRED BY ASSESSEE DOES NOT ATTRACT THE PROVISION OF TDS AS THIS EXPENSE RELATES TO UP- GRADATION OF THE KNOWLEDGE OF ITS EMPLOYEES AND FOR THIS PURPOSE THE ASSESSEE HAS AVAILED CERTAIN ONLINE FACILITY. THEREFORE, WE ARE NOT INCLINED TO INTERFE RE INTO THE ORDER OF LD. CIT(A). HENCE, THIS GROUND RAISED BY REVENUE IS DISMISSED. 10. NEXT GROUND RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF 39,05,827/- ON ACCOUNT OF REIMBURSEMENT OF EXPENSES WITHOUT MAKING TDS. 11. DURING THE YEAR ASSESSEE HAS REIMBURSED AN AMOU NT OF 39,05,827/- TO M/S NSE.IT. LTD. FOR THE EXPENSE IN ENCOMPASSING MA INLY ELECTRICITY CHARGES, TRAVELLING / ADMINISTRATIVE EXPENSES SALARIES / WAG ES ETC., BUT ASSESSEE COULD NOT FURNISH THE SUPPORTIVE EVIDENCE IN SUPPORT OF S AID EXPENSES AS CLAIMED REIMBURSEMENT OF EXPENSE. DURING THE ASSESSMENT PRO CEEDINGS, AO FOUND THE PAYMENT WAS BEING MADE TO THE ABOVE STATED PART Y ON REGULAR BASIS WHICH ESTABLISHES A CONTRACTUAL RELATIONSHIP BETWEEN THE TWO PARTIES ASSESSEE AND M/S NSE.IT.LTD. THEREFORE, THE PROVISION OF SEC. 19 4C IS VERY MUCH APPLICABLE. ON FINDING THE VIOLATION OF TDS PROVISI ON, AO DISALLOWED THE SAID SUM AND ADDED IT TO THE INCOME OF ASSESSEE. 12. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) WHO DELETED THE ADDITION MADE BY ASSESSING OFFICER BY OBSERVING AS UNDER:- ITA NO.2287/KOL/2010 A.Y.2006-07 ITO WD-2(3) KOL. V. M/S INTELSYS TECHNOLOGIES PVT. LTD. PAG E 6 I HAVE GONE THROUGH THE RELEVANT RECORDS, AGREEMEN T FURNISHED BEFORE ME AND FIND THAT THERE WAS LEGITIMATE EXPENDITURE W HICH WAS REIMBURSED TO NSE-IT LIMITED AS PER THEIR AGREEMENT , THIS WAS ALSO AVAILABLE TO THE A.O. TO THAT EXTENT, I FIND THAT T HE AO FAILED TO APPRECIATE AND TAKE INTO CONSIDERATION THE ACCOUNTS OF THE ASSESSEE AND MADE THE ADDITION MORE ON PRESUMPTION THAN ON T HE EQUITABLE CONSIDERATION OF FACTS IN ACCORDANCE WITH LAW. WHAT WOULD CONSTITUTE PROPER FACTS AND DETAILS (RF. ASSESSING OFFICER'S O RDER) IN ADDITION TO THOSE SUPPLIED BY THE APPELLANT HAVE NOT BEEN SPELT OUT BY THE AO. BE IT WHAT IT MAY THIS ADDITION CANNOT BE SUSTAINED IN TH E CIRCUMSTANCES NARRATED. THIS GROUND IS ALLOWED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 13. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. LD. DR VEHEMENTLY RE LIED ON THE ORDER OF ASSESSING OFFICER WHEREAS LD. AR RELIED ON THE ORDE R OF LD. CIT(A) AND HE SUBMITTED THAT THERE WAS A JOINT AGREEMENT BETWEEN ASSESSEE AND NSE-IT LTD. AND COPY OF SAID AGREEMENT IS PLACED ON PAGES 28 TO 32 OF THE PAPER BOOK. LD. AR FURTHER SUBMITTED THAT ASSESSEE MADE A JOINT VENTURE AGREEMENT WITH THE PARTY ON CERTAIN ACTIVITIES, WHEREIN THEY ARE ENTITLED TO SHARE THE PROFIT AND LOSS IN EQUAL RATIO AND ALL THE EXPENSES IN REL ATION TO JOINT VENTURE ACTIVITIES WERE INCURRED BY NSE-IT LTD. ON BEHALF O F ASSESSEE. IT IS ESTABLISHED LAW THAT TDS PROVISIONS DO NOT ATTRACT TO THE EXPEN SE AS CLAIMED REIMBURSEMENT, NOW IN THIS CASE THE MAIN PARTY M/S NSE.IT.LTD. WAS CLAIMING THE EXPENSE AND IT WAS THE DUTY OF THE PARTY CONCER N TO ENSURE THE PROVISION OF TDS THAT ALL FORMALITIES HAVE BEEN DULY COMPLIED WI TH. NOW THE ASSESSEE AS PER THE UNDERSTANDING HAS REIMBURSED THE COST TO TH E PARTY. SO THIS TRANSACTION OF REIMBURSEMENT IS OUT OF PURVIEW OF T DS. FROM THE AFORESAID DISCUSSION, WE FIND THAT AO HAS DISALLOWED THE EXPE NSE ON ACCOUNT OF VIOLATION OF TDS PROVISION. HOWEVER, AS PER THE SUB MISSION OF ASSESSEE THIS TRANSACTION OF REIMBURSEMENT WAS OUT OF PURVIEW OF TDS PROVISION BESIDES THIS, WE FURTHER FIND FROM THE ORDER OF AO THAT EXP ENSE INCURRED BY ASSESSEE WERE IN THE NATURE OF SALARY, WAGES, ELECTRICITY CH ARGES, TRAVELLING & ADMINISTRATIVE CHARGES AND AO HAS NOT DOUBTED THE G ENUINENESS OF THE ITA NO.2287/KOL/2010 A.Y.2006-07 ITO WD-2(3) KOL. V. M/S INTELSYS TECHNOLOGIES PVT. LTD. PAG E 7 EXPENSE BUT DISALLOWED THOSE EXPENSES ON ACCOUNT OF VIOLATION OF TDS PROVISION. WE UNDERSTAND THIS TRANSACTION WAS OUT O F PURVIEW OF THE TDS PROVISION BECAUSE IT WAS THE REIMBURSEMENT OF COST TO THE CONCERN PARTY. IN VIEW OF ABOVE, WE ARE INCLINED NOT TO INTERFERE INT O THE ORDER OF LD. CIT(A). HENCE, THIS GROUND RAISED BY REVENUE IS DISMISSED. 14. IN THE RESULT, REVENUES FILED IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 11/ 12/2015 SD/- SD/- (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP !- 11 /1 2 /2015 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-ITO-WD-2(3), P7,CHOWRINGHEE SQUARE, 7 TH FL, KOLKATA-69 2. /RESPONDENT-M/S INTELSYS TECHNOLOGIES PVT. LTD. 1 C HOWRNGHEE TERRACE, 1 ST FLOOR, KOLKATA-20. 3. * +, - - . / CONCERNED CIT KOLKATA 4. - - .- / CIT (A) KOLKATA 5. 012 33+,, - +, , / DR, ITAT, KOLKATA 6. 267 89 / GUARD FILE. BY ORDER/ - , /TRUE COPY/ / - +, ,