CliniRx Tangent Research India P.Ltd, New Delhi V. Addl.CIT, Special Range-2, New Delhi

ITA 6304/DEL/2018

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 8424 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 02-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: TDS; Set aside
• Section: 143(3); 40(a)(ia); 194C; 194J

Judgement Text

Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL [DELHI BENCH “B”: NEW DELHI] BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER (Through Video Conferencing) ITA. No. 6304/Del/2018 (Assessment Year: 2014-15) M/s. CliniRx Tangent Research India Pvt. Ltd., Patriot House, 4 th Floor, Bahadur Shah Zafar Marg, New Delhi – 110 002. PAN: AAFCC1451M Vs. Addl. CIT, Special Range : 2, New Delhi. (Appellant) (Respondent) Assessee by : Shri Pankaj Saraogi, C. A.; Department by: Shri Mrinal Kumar Das, Sr. D.R.; Date of Hearing : 16/11/2021 Date of pronouncement : 16/11/2021 O R D E R PER PRASHANT MAHARISHI, A.M. : 1. This appeal is filed by the assessee against the order passed by the ld. Commissioner of Income Tax (Appeals)–33, New Delhi, dated 25.06.2018, for assessment year 2014-15. 2. The assessee has raised the following grounds of appeal:- “1) For that the Id. First Appellant Authority erred on facts and in law in not holding that the disallowances made in the assessment are based on presumptions and assumptions and are contrary to the facts, wholly arbitrary, erroneous, unjust and perverse and therefore, deserves to be cancelled. 2) Under the facts and circumstances of case, Id. First Appellant Authority has grossly erred in affirming the conclusion made by Id. Assessing Authority that TDS on cloud charges and charges for domain name was deductible u/s 194J of the Income Tax Act 1961 (“Act”) as Fees for Technical Services instead of section 194C of the Act which is grossly injudicious, unwarranted, against the facts of the case and bad at law. - 3) Under the facts and circumstances of case, Id. First Appellant Authority has grossly erred in affirming the disallowance of Rs.3,49,744/- made by Id. Assessing Authority u/s 40(a)(ia) of the Income Tax Act 1961 which is Page | 2 grossly injudicious, unwarranted, against the facts of the case and bad at law. 4) Without prejudice to above, under the facts and circumstances of case. Id. First Appellant Authority has grossly erred in affirming the disallowance of Rs.3.49,744/- made by Id. Assessing Authority u/s 40(a)(ia) of the Income Tax Act 1961 without appreciating that amendment in section 40(a)(ia) by Finance (No. 2) Act, 2014 is retrospective in nature which is grossly injudicious, unwarranted, against the facts of the case and bad at law. 5) Under the facts and circumstances of case, Id. First Appellant Authority has grossly erred in affirming the addition of Rs.2,35,347/- made by Id. Assessing Authority under the Income Tax Act 1961 as mark-up over pass through expenses which is grossly injudicious, unwarranted, against the facts of the case and bad at law. 6) The appellant prays for leave to add, amend, alter or withdraw any grounds of appeal. “ 3. Brief facts of the case shows that assessee is engaged in the business of clinical research. It filed its return of income on 29.11.2014 declaring income of Rs. 52,62,700/-. 4. During the course of assessment proceedings, it was found that assessee has paid cloud charges of Rs. 2,68,315/-, charge for domain name of Rs. 1,68,865/- and installation and commissioning of DG Sets amounting to Rs. 67,275/-. On the above sum, assessee has deducted tax at source @ 2% as payment for contract fees. 5. The ld. Assessing Officer held that in all these cases the provisions of Section 194J of the Income Tax Act, 1961 (the Act) applied as the payment falls as a fees for professional services. Accordingly, he disallowed the above sum. It was further noted that assessee has made provision for expenses of Rs. 1,78,400/- whereas the assessee disallowed a sum of Rs. 98,000/- only under Section 40(a)(ia) of the Act. Therefore, Rs. 80,000/- further was disallowed. Accordingly, total Rs. 4,83,564/- was disallowed. 6. It was further found that assessee has claimed a sum of Rs. 25,27,608/- as pass through expenses. Against this assessee has shown pass through income of Rs. 25,45,001/-. The ld. Assessing Officer held that assessee did not receive any professional incomes from the parties against which pass through expenses have been incurred. Therefore, he held that the assessee should have recovered a mark- up of such expenditure. Accordingly, he presumed 10% mark-up on the expenditure and made an addition of Rs. 2,35,367/-. Consequently, the Page | 3 assessment order was passed under Section 143(3) of the Act on 20.12.2016 determining total income of the assessee at Rs. 60,15,263/-. 7. The assessee preferred an appeal before the ld. CIT (Appeals). The ld. CIT (Appeals) with respect to disallowance under Section 40(a)(ia) of the Act confirming the disallowance to the extent of payment made of Rs. 3,49,744/-. With respect to the mark-up of the expenditure of pass through expenses, he upheld the action of the Assessing Officer. Therefore, the assessee is in appeal. 8. We have heard the rival contentions and perused the orders of the lower authorities. 9. Ground Nos. 1–4 of the appeal is against the disallowance confirmed by the ld. CIT (Appeals) of Rs. 3,49,744/-. The facts show that assessee has paid cloud charges, charges for domain name and installation and commissioning charges of DG Sets, the assessee considered that tax is deductible on these payments under Section 194C of the Act. The ld. Assessing Officer held that tax should have been deducted under Section 194J of the Act. Therefore, disallowance under Section 40(a)(ia) of the Act was made. We find that the assessee has deducted tax at source allegedly under wrong provisions resulting in short deduction of tax and, therefore, disallowance has been made under Section 40(a)(ia) of the Act. We find that Hon’ble Calcutta High Court in the case of CIT Vs. S. K. Tekriwal (361 ITR 432 (Cal.) has held that where the assessee deducted tax at source under wrong provisions, which resulted into short deduction of tax, no disallowance under Section 40(a)(ia) of the Act can be made. Therefore, respectfully following the decision of the Hon’ble Calcutta High Court, we direct the ld. Assessing Officer to delete the disallowance of Rs. 3,49,744/-. Thus, grounds Nos. 1–4 of the appeal are allowed. 10. Ground No. 5 of the appeal is against the addition made of Rs. 2,35,347/- as mark-up determined by the Assessing Officer over the pass through expenses incurred. The fact shows that the assessee company has claimed pass through expenditure of Rs. 25,27,608/-. These expenses have been incurred towards travelling and conveyance, legal and professional expenses, communication charges and printing and stationery expenses. These expenses have been incurred by the assessee on behalf of third party. The assessee claims that these are pure reimbursement of expenditure. It is also not clear that why assessee would incur such kind of expenditure on behalf of third party without there being any mandate or direction of incurring such expenditure on behalf of third party. Further, it is also not clear that why an assessee would incur any expenditure by involving its effort without having any mark-up on the same. The assessee has failed to produce any evidence that there is any consideration received for services from the Page | 4 companies on behalf of which it has incurred any expenditure. Therefore, it is also not clear that why assessee will incur some expenditure on behalf of third party without any agreement. In view of these facts, we set aside this issue back to the ld. Assessing Officer with a direction to the assessee to produce the agreement and to show that these are purely re-imbursement of the expenditure. Accordingly, ground No. 5 of the appeal is allowed with above direction. 11. In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 16/11/2021. -Sd/- -Sd/- (AMIT SHUKLA) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 16/11/2021 *MEHTA* Copy forwarded to 1. Appellant; 2. Respondent; 3. CIT 4. CIT (Appeals) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi