ITUPLE TECHNOLOGIES PRIVATE LIMITED,GURGAON V. ACIT CIRCLE 4(1), GURGAON

ITA 6354/DEL/2025

AI Insights

The case involves Ituple Technologies Pvt. Ltd., which appealed against the orders of the CIT(A) confirming the disallowance of Rs. 2,03,43,700 under section 40(a)(i) due to non-deduction of tax under section 195 of the Income Tax Act, 1961. The primary contention was the absence of a proper show cause notice and the applicability of section 9(1)(vii) which the assessee argued exempted them from deducting TDS as the income did not accrue in India. The CIT(A) upheld the disallowance, leading to the appeal before the Income Tax Appellate Tribunal.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 840217 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Appeal Filed On: 08-10-2025
• Other Referred Cases: Puri Construction Pvt. Ltd. Vs Additional commissioner of Income Tax, ITO Ward 6(1)(1) Bangalore Vs. Shubhankar Estates Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJAY KUMAR ARORA
• Assessee Lawyers: UMESH THAKUR
• Keywords: Opportunity of being heard; Principle of natural justice; TDS; Non-deduction of tax
• Section: 143(3); 142(1); 201(1)

Judgement Text

"6354_DEL_2025_Ituple Technologies Pvt Ltd 1 | P a g e IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’, NEW DELHI BEFORE SHRI MAHAVIR SINGH, HON’BLE VICE PRESIDENT & MRS. RENU JAUHRI, HON’BLE ACCOUNTANT MEMBER ITA No. 6354/DEL/2025; Assessment Year: 2017-18 ITUPLE TECHNOLOGIES PVT. LTD. SR-38D, Siris Estates, DLF III Gurgaon- 122010 Haryana Vs ACIT CICRCLE 4(1) (APPELLANT) (RESPONDENT) PAN No. AAECI1720J Assessee by : Shri Umesh Thakur, CA Revenue/Department by : Shri Ajay Kumar Arora, Sr. DR Date of Hearing: 20.01.2026 Date of Pronouncement: 25.02.2026 ORDER PER RENU JAUHRI : 1. The above captioned appeal is filed by revenue is preferred against the orders of Ld. CIT(A)/NFAC, New Delhi passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as, “Act”) dated 07.10.2025 in Appeal No. CIT(A), Gurgaon-1/10992/2019-20 2. The assessee has raised following grounds of appeal which are reproduced as under: “1. That on the facts and circumstances of the case Ld. CIT(A) was not justified in ignoring the fact that proper show cause notice as required under the law was not issued by the Ld. Assessing Officer, before passing a final order. Order of the CIT(A), is totally silent on this legal and factual ground. It is well settled legal position that show cause notice should clearly state the reason for issuing the notice and the implication of the non- Printed from counselvise.com 6354_DEL_2025_Ituple Technologies Pvt Ltd 2 | P a g e compliance. In the absence of requisite particulars, the Show Cause Notice would be liable to be quashed on the ground of being wholly vague. Therefore, the action of AO in completing the assessment without giving proper show cause notice and the action of the Ld. CIT(A), of totally ignoring the important legal aspect and confirming the action of the Ld. AO is against the provision of the laws and need to be quashed. 2. That on the facts and circumstances of the case Ld. CIT (appeal) is not justified in confirming disallowance of Rs. 2,03,43700/- u/s 40(a)(i) due to non-deduction of tax u/s 195. Section 195 requires deduction of tax if the sum is chargeable to tax under the provision of the Income Tax Act. No TDS was deducted by the assessee on these payments because as per the provision of Section 9(1)(vii) no income accrue or arise in India in this case, so no tax was deductible. Therefore, disallowance made by ld. AO and confirmed by CIT(A) is not justified, against the provision of law and uncalled for. 3. That on the facts and circumstances of the case Ld. CIT (appeal) is not justified in concluding that documents submitted by the assessee does not demonstrate that services have been utilized for the purpose of earning income from source outside India. During the year assessee was only providing services to only one client situated in USA, so there cannot be any doubt of services not used for the purpose of earning income from source outside India. 4. Assessee craves leave to add, amend, alter or withdraw any or all the above grounds of appeal before or at the time of the hearing.” 3. Brief facts of the case are that the assessee company filed its return for A.Y. 2017-18 on 25.08.2017, declaring an income of Rs. 3,87,25,850/-. The case was selected for limited scrutiny for the following reasons. ‘Commission, Royalty or Professional fee is paid outside India but no corresponding TDS statement has been filed’. 3.1 In response to the notice u/s 142(1) calling for details of expenses on which no TDS was deducted, the assessee furnished the details from which it was Printed from counselvise.com 6354_DEL_2025_Ituple Technologies Pvt Ltd 3 | P a g e seen that no TDS on payment of Rs. 2,03,43,700/- made towards professional services received from outside India had been made. After rejecting the assessee’s contention that fees payable in respect of services utilized for the purpose of earning income from source outside India is not covered u/s 40(a)(i) as no TDS was deductible, the Ld. AO proceeded to disallow Rs. 20,34,3700/- u/s 40(a)(i) of the Act and completed the assessment u/s 143(3) vide order dated 03.12.2019. 3.2 Aggrieved, the assessee preferred an appeal before the Ld. CIT(A). Before Ld. CIT(A), the assessee submitted that no show-cause notice was issued by the Ld. AO for making the impugned addition. After obtaining remand report from the Ld. AO, on the detailed submissions filed by the assessee, Ld. CIT(A) dismissed the assessee’s appeal with the following observations: “The contentions of the appellant have been carefully examined in light of the remand report, rejoinder, submissions, and record. and documentary evidence placed on record. It is noted that while the appellant has made detailed legal submissions regarding the non-applicability of section 195, the factual foundation required to invoke the exception under section 9(1)(vii) (b) has not been sufficiently substantiated. In particular:  Despite submission of agreements and sales ledgers, the appellant has not conclusively demonstrated that the services rendered by the non-residents were \"utilized for the purpose of earning income from a source outside India\" within the narrow meaning of clause (b) of section 9(1)(vii).  No independent verification or contemporaneous evidence (such as client confirmation, technical documentation linking services rendered by the foreign consultants to Printed from counselvise.com 6354_DEL_2025_Ituple Technologies Pvt Ltd 4 | P a g e export deliverables, or work-product trails) has been submitted to establish the direct nexus as claimed.  The reliance on Form 15CA/15CB, while relevant for remittance compliance, does not conclusively prove non- taxability of the income in the absence of adequate supporting documentation and analysis of the nature of services. Further, while the appellant relies heavily on legal interpretations and judicial pronouncements, the applicability of those precedents is contingent upon clear demonstration of facts which support the non-taxability claim a burden the appellant has not discharged convincingly in the instant case. Moreover, the appellant chose not to apply for a certificate under section 195(2), which, while not mandatory in all cases, would have certainly aided in establishing bona fides and clarifying the taxability of payments in question. In the absence of such a determination, and given the insufficiency of direct evidence linking the foreign services to offshore revenues, the Assessing Officer's decision to invoke disallowance under section 40(a) (i) cannot be said to be unjustified. Accordingly, I find no merit in the contentions raised by the appellant in this appeal. The legal arguments, though well- articulated, are not supported by adequate factual substantiation. The disallowance made by the Assessing Officer under section 40(a)(i) is, therefore, upheld.” Further aggrieved, the assessee is in appeal before the Tribunal. 4. Before us, Ld. AR has argued that no show cause notice was issued to the assessee before making the impugned disallowance, which is a violation of the CBDT Instruction No. 20/2015 dated 29.12.2015 whereby the AO is required to issue a show cause notice indicating the reasons for proposed additions/disallowances. Ld. AR has place reliance on several judicial pronouncements in support of his claim that in the absence of the show cause Printed from counselvise.com 6354_DEL_2025_Ituple Technologies Pvt Ltd 5 | P a g e notice, the order is liable to be quashed. Some of the cases relied upon by the Ld. AR are as under : “(a) Puri Construction Pvt. Ltd. Vs Additional commissioner of Income Tax W.P.(C) 9483/2019 & CM APPL 39041/2019 DHC 13/02/2024 wherein Hon’ble Delhi High Court have held as under: 76. We are of the firm opinion that in matters pertaining to taxation we would not readily import the principle of a power otherwise inhering being sufficient for the purposes of examining the validity of a Show Cause Notice. Chapter XVII-B embodies Sections 192 to 206AB and refers to various contingencies and situations where a payer is bound in law to deduct tax. The respondents were thus clearly obliged to indicate with sufficient clarity the specific statutory provision contained in Chapter XVII-B and which according to them placed an obligation on the petitioners to deduct tax. This aspect of criticality could not have been left to supposition or for the writ petitioners grappling to understand and discern an obligation to deduct tax flowing from any one of the more than the fifty sections comprised in Chapter XVII-B.A Show Cause Notice fundamentally must apprise the noticee of the case that it is called upon to answer, the context in which an explanation is sought and the charge that it has to answer. The notice thus cannot leave the assessee grappling with or trying to discern the provision which it is supposed to have infringed. In the absence of requisite particulars, the Show Cause Notice would be liable to be quashed on the ground of being wholly vague. (b) ITO Ward 6(1)(1) Bangalore Vs. Shubhankar Estates Pvt. Ltd. ITA No.1917/Bang/2024 wherein it has been held as under: 11.2 We are completely in agreement with the Id. CIT(A)/NFAC that assessment order has been passed in breach of the CBDT. instruction no.20/2015 which cast mandatory obligation on the AO to issue prior show cause notice before making additions in the assessment order. Failure to do so is a gross violation of principles of natural justice. Further, we are also of the opinion that CBDT instructions are binding upon the AO and therefore, we also held that the assessment framed by the AO in contravention of the CBDT instruction are liable to be quashed. Since the revenue notably and admittedly has not assailed findings/ conclusion of Id. CIT(A) qua absence of show cause notice in violation of Printed from counselvise.com 6354_DEL_2025_Ituple Technologies Pvt Ltd 6 | P a g e CBDT instruction No.20/2015 in which the Id. CIT(A)/NFAC considering this as principle issue held the impugned proceedings invalid and quashed the assessment framed & therefore, we are of the considered opinion that revenue appeal needs to be dismissed at the outset being infructuous/academic on this count alone.” 5. On the other hand, Ld. DR has placed on record a copy of the notice u/s 142(1) dated 21.11.2019 wherein the assessee had been given a show cause notice as under: “It is seen that you have not deducted TDS on payments of professional fees. However, any expenditure made u/s 40(a)(i) is allowed only if TDS is deducted on it. You are hereby required to show cause as to why the expenditure should not be disallowed.” 5.1 Ld. DR has further argued that the judicial citations relied upon by Ld. AR are distinguishable on facts, and therefore, the disallowance made in the instant case after due show-cause and opportunity given to the assessee, deserves to be upheld. 6. We have heard the rival submissions and carefully perused the material placed on record as well as the relevant judicial pronouncements. Admittedly, the case of the assessee was selected for limited scrutiny for the sole issue relating to TDS on commission, royalty or professional fee paid outside India. Notices were duly issued on 21.09.2018 u/s 143(2) as well as 142(1) along with the questionnaire seeking relevant details. The details of these expenses were duly submitted by the assessee from which it was noted by the Ld. AO that the assessee had not deducted TDS on payment of Rs. 2,03,43,700/- made towards Printed from counselvise.com 6354_DEL_2025_Ituple Technologies Pvt Ltd 7 | P a g e professional services received outside India. Thereafter, another notice u/s 142(1) dated 22.11.2019 was issued asking the assessee to show cause as to why the expenditure on professional fees paid on which TDS is not deducted should not be disallowed u/s 40(a)(i). Finally, after considering the assessee’s reply, assessment order was passed on 03.12.2019 making the impugned disallowance. 6.1 We further note that the cases relied upon by the assessee are distinguishable on facts as in the present case the sole reason for selection of case for limited scrutiny was ‘Non deduction of TDS on commission, Royalty or Professional fee outside India’. The assessee was required to furnish the details of such payments on which no TDS was deducted. Thereafter, considering the assessee’s submissions, Ld. AO issued a show-cause notice on 22.11.2019 in response to which the assessee filed its objections. Thus, the assessee’s claim that it was not made aware of the proposed disallowance is not borne out from above facts. On the other hand, in the judicial citations relied upon by the Ld. AR, the assessee was not apprised of the default in the show cause notice to enable it to furnish proper explanation. 6.2 In view of the peculiar facts and circumstances of the instant case discussed hereinbefore, we are of the view that the assessee was given requisite opportunity to submit its objections to the proposed addition and, thus, the ground no. 1 relating to the legal issue regarding non-issue of proper show-cause notice is, hereby, dismissed. Printed from counselvise.com 6354_DEL_2025_Ituple Technologies Pvt Ltd 8 | P a g e 7. Ground No. 2 & 3 relate to the merits of the issue regarding disallowance of Rs. 2,03,43,700/- u/s 40(a)(i) due to non-deduction of tax u/s 195 of the Act. It has been contended by the Ld. AR that as per provisions of section 9(1)(vii), no income accrued or arose in India in this case, and therefore, no tax was deductible. It is the claim of the Ld. AR that during the year, the assessee was providing services to only one client situated at USA. Thus, there is no doubt that the services have been utilized for the purpose of earning income from sources outside India. 7.1 In his order, Ld. CIT(A) has examined the issue in the light of assessee’s submissions as well as the remand report obtained from Ld. AO during the course of assessment proceedings and has given the following findings: “The contentions of the appellant have been carefully examined in light of the remand report, rejoinder, submissions, and documentary evidence placed on record. It is noted that while the appellant has made detailed legal submissions regarding the non-applicability of section 195, the factual foundation required to invoke the exception under section 9(1)(vii) (b) has not been sufficiently substantiated. In particular:  Despite submission of agreements and sales ledgers, the appellant has not conclusively demonstrated that the services rendered by the non-residents were \"utilized for the purpose of earning income from a source outside India\" within the narrow meaning of clause (b) of section 9(1)(vii).  No independent verification or contemporaneous evidence (such as client confirmation, technical documentation linking services rendered by the foreign consultants to export deliverables, or work-product trails) has been submitted to establish the direct nexus as claimed.  The reliance on Form 15CA/15CB, while relevant for remittance compliance, does not conclusively prove non-taxability Printed from counselvise.com 6354_DEL_2025_Ituple Technologies Pvt Ltd 9 | P a g e of the income in the absence of adequate supporting documentation and analysis of the nature of services. Further, while the appellant relies heavily on legal interpretations and judicial pronouncements, the applicability of those precedents is contingent upon clear demonstration of facts which support the non-taxability claim a burden the appellant has not discharged convincingly in the instant case. Moreover, the appellant chose not to apply for a certificate under section 195(2), which, while not mandatory in all cases, would have certainly aided in establishing bona fides and clarifying the taxability of payments in question. In the absence of such a determination, and given the insufficiency of direct evidence linking the foreign services to offshore revenues, the Assessing Officer's decision to invoke disallowance under section 40(a)(i) cannot be said to be unjustified. Accordingly, I find no merit in the contentions raised by the appellant in this appeal. The legal arguments, though well- articulated, are not supported by adequate factual substantiation. The disallowance made by the Assessing Officer under section 40(a)(i) is, therefore, upheld.” 8. We have heard the rival submissions and perused the material placed on record. We note that the relevant provisions of section 40(a)(i) provide as under: “40 Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”- (i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,- (A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been Printed from counselvise.com 6354_DEL_2025_Ituple Technologies Pvt Ltd 10 | P a g e paid on or before the due date specified in sub-section (1) of section 139: Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub- section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid: Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purposes of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee referred to in the said proviso.” 9. From above provisions, it is clear that the payment of any interest, royalty, fee for technical services or other sum which is payable outside India or in India to a non-resident would be disallowed in case TDS has not been deducted and deposited by the prescribed due date. However, the section provides exceptions in terms of the two provisos whereby the disallowance shall not be made if certain conditions are satisfied. Specifically, in the second proviso, it is provided that if the assessee is able to demonstrate that it is not an assessee in default under the first proviso to section 201(1) then it shall be deemed that the assessee had deducted and paid the tax on such sum and the amount would be allowed as deduction in computing the income. 9.1 We further note that the lower authorities have not examined the issue in the light of these provisos to determine whether the impugned amount is Printed from counselvise.com 6354_DEL_2025_Ituple Technologies Pvt Ltd 11 | P a g e allowable to the assessee subject to fulfilment of the prescribed conditions. Accordingly, in the interest of justice, we deem it appropriate to restore the matter to the Ld. AO for fresh consideration in the light of above provisos of section 40(a)(i) r.w.s. 201(1) after giving reasonable opportunity of being heard to the assessee. The assessee is also directed to make requisite compliance before the Ld. AO to enable him to decide the issue on merits. 10. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the Open Court on 25 -02-2026. Sd/- Sd/- (MAHAVIR SINGH) (RENU JAUHRI) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 25.02.2026 Pooja Mittal Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi Printed from counselvise.com "