The order of the Bench was delivered by
R S Syal-This appeal by the Revenue and the Cross Objections by the assessee arise out of the order passed by the CIT(A) on 26.03.2013 in relation to the Assessment year 2009-10.
2. The first ground of the Revenue's appeal is against the deletion of addition of Rs. 13,46,200/- made by the AO on account of payment of management fees without deduction of tax at source. The facts relating to this ground are that the assessee debited a sum of Rs. 7,83,087/- and Rs. 13,46,200/- on account of 'Royalty' and 'Management fee' respectively, paid to its foreign AE. The AO noticed that the Management fee was paid exclusive of tax and the tax was to be borne by the assessee. The AO noticed that the assessee failed to deduct tax at source properly and, further, no TDS certificate was furnished. He, therefore, made disallowance, inter alia, for Rs. 13,46,200/- u/s 40(a)(i) of the Act. The ld. CIT(A) observed that the assessee had deducted tax at source @ 10% on the Management fee which was deposited on 16.07.2009. He, therefore, deleted the disallowance after calling for the remand report from the AO. The Revenue is aggrieved against such deletion of addition.
3. After considering the rival submissions and perusing the relevant material on record, it is noticed that the disallowance has been made and sustained for non-deduction of tax at source on the management fee, which is presently disputed. The ld. CIT(A) deleted the addition by observing that the assessee deducted and paid tax on time. However, we find from the copy of account of the payee, that there is no deduction of tax at source. The ld. AR stated that the assessee was liable to pay the management fee net of tax and the tax liability was to be borne by it. Section 195A provides that where income is payable net of tax, then, for the purpose of deduction of tax, such amount of payment would be increased by the amount of tax. In other words, the net amount is required to be grossed up for the purpose of deduction of tax at source. If we accept the assessee's contention that the sum of Rs. 13,46,200/- was net of tax, in that case, the amount of tax to be borne by the assessee should have been added to this amount for the purposes of deduction of tax at source. However, we find that the assessee made deduction of tax at source @ 10% of the net amount paid. That apart, it appears that the assessee did not furnish any details about deduction of tax at source from this management fee and its resultant payment. This issue was taken up before the ld. CIT(A) for the first time. In our considered opinion, the ends of justice would meet adequately if the impugned order on this score is set aside and the matter is restored to the file of the AO. We order accordingly and direct him to decide this issue afresh as per law, after allowing reasonable opportunity of being heard to the assessee.
4. The second ground is against the deletion of addition of Rs. 16,12,058/- made by the AO out of expenses incurred under the head 'Fees and subscription.' The AO observed that the assessee's claim in this year at Rs. 17,97,785/- was much in excess vis-a-vis similar claim made for the preceding year at Rs. 1,26,283/-. The AO noticed that the assessee purchased some software against which subscription/fee was paid. As software is a capital asset, the AO held that such amount was not liable to be allowed as revenue expenditure. Since the total claim of Rs. 17.97 lac included a sum of Rs. 1,85,727/- pertaining to the earlier year which was already added back by the assessee in computation of total income, the AO made addition for the remaining sum of Rs. 16,12,058/-. The ld. CIT(A) deleted this addition by observing that the AO erred in considering the nature of expenditure which was not towards the purchase of software, but the amount spent on registration fee, basic training of employees, subscription fee towards website redesign, development and AMC, annual fee of corporate card, domain registration and renewal, etc. The Revenue is aggrieved against this deletion of addition.
5. After considering the rival submissions and perusing the relevant material on record, it is noticed that when the ld. CIT(A) sent evidence furnished by the assessee in support of deletion of disallowance to the AO for submission of a remand report, the AO remained silent on this issue. Even from the assessment order, it can be seen that the AO proceeded to make disallowance by observing, "it appears that the assessee purchased some software against which the subscription/fee was paid." Without examining the actual detail of such expenses, the AO went on to make addition. Despite the fact that the details of such expenses, which do not relate to software purchase as was made out by the AO, were sent to him for remand report, he considered it expedient not to offer any comment. In such circumstances, we do not find any reason to deviate from the finding recorded by the ld. CIT(A) that such expenses were not for software purchase but revenue in the nature towards fees and subscription. This ground is not allowed.
6. The last ground of the Revenue's appeal is against the deletion of addition of Rs. 1,25,86,495/- made by the AO on account of Communication and Travelling expenses. The AO observed from the documents filed by the assessee that Communication expenses and Travelling & conveyance expenses claimed by the assessee as deduction for the current year were much higher than those claimed in the preceding year. He, therefore, disallowed the entire sum of Rs. 1.25 crore. The ld. CIT(A) overturned the assessment order on this point and ordered for the deletion of addition by considering the details furnished by the assessee and also the remand report.
7. After considering the rival submissions and perusing the relevant material on record, we find that the AO was not justified in disallowing the entire expenditure of Rs. 1.25 crore merely on the ground that this expenditure was excessive in comparison with the preceding year. He observed that the assessee did not file any details of such expenses, but it can be seen from pages 5-6 of the impugned order that the assessee did furnish the necessary details of such expenses on various dates. In view of the foregoing discussion, we are of the considered opinion that the view taken by the ld. CIT(A) on this issue does not require any interference. The same is, therefore, upheld.
8. The ld. AR did not press the Cross Objection filed by the assessee.
9. In the result, the appeal of the Revenue is partly allowed for statistical purposes and the CO of the assessee is dismissed.
The order pronounced in the open court on 16.06.2014.