TMI Blog2014 (2) TMI 1112X X X X Extracts X X X X X X X X Extracts X X X X ..... within the meaning of Article 12(4)(b) of DTAA and provisions of section 90(2) are applicable even if the payments constitute fees for technical services under section 9(1)(vii) - Since they are not chargeable under the IT Act, provisions of section 195 are not attracted and assessee has no liability to deduct tax at source - the CIT(A) did not consider fit enough to consider the issue of genuineness of the expenditure, when there are already findings on the issue which was examined in detail by the CIT(A) in another proceeding – thus, it cannot be held that the expenditure is not genuine – there is no merit in the appeal of the revenue – Decided in favour of assessee. - ITA.No.318 & 319/Hyd/2013, ITA.No.398 & 399/Hyd/2013, Cross Objection No. 31 & 32/Hyd/2013 - - - Dated:- 19-2-2014 - Shri B. Ramakotaiah And Shri Saktijit Dey,JJ. For the Petitioner : Mr. Subramanyam Chimalapati For the Respondent : Mr. P. Somasekhar Reddy, CIT DR ORDER Per Bench These cross-appeals are by Assessee and Revenue and Cross Objections by assessee are on the specific grounds raised by the Revenue in their appeals for the assessment years 2005-2006 and 2006-2007. Since common iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for such observation was that the profit in the year has come down and A.O. sought explanation vide its letter dated 14.11.2007. In the letter A.O. was of the view that assessee booked huge expenditure under the head 'Salaries' which is to the tune of 62% of the receipts and therefore, proposed the disallowance of salaries. Assessee replied vide letter dated 07.12.2007 explaining the nature of expenditure with reasons. However, A.O. while completing the assessment, changed his stand and resorted to disallowance of part of the total expenditure claimed. Since no specific nature of expenditure which was inflated was identified, AO has resorted to a method of calculation. A.O. compared domestic business expenditure with previous year domestic business expenditure. Since earlier year assessee had export business as well and as the expenditure in that year was not segment wise, A.O. calculated percentage of export business expenses vis- -vis export business income and arrived at 80% of expenses. Out of the total expenses in earlier year of Rs.4,51,29,344/- the expenses pertaining to export business was arrived at Rs.66,34,876/- and balance expenditure was considered for domestic busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome and deployment of personnel. 6.5. The third objection was that A.O. has neither rejected the books of accounts nor found out any specific nature of expenditure which was inflated and the methodology adopted by the A.O. was not correct. 6.6. It was submitted that disallowance of expenditure can be resorted only when the expenditure was not supported by bills, expenditure was bogus, expenditure was outside the purview of section 37 or expenditure was in the nature contemplated under provisions of section 40A(3) etc., The present case does not fit in any other of those conditions stated above as A.O. neither rejected the books of accounts nor pointed out any mistakes in the method followed. Not only that assessee has furnished all the bills and in fact most of the nature of expenditure was also subject matter of survey in the course of payments to foreign companies and therefore, there is no need for disallowing any expenditure. Assessee has relied on various case laws on various principles - (a) Increase in expenditure need not be justified for increasing the profit - CIT vs. WAlchand Co. (P) Ltd. 65 ITR 381 and CIT vs. Salitho Ores Ltd. 344 ITRT 161 (Bom.) (b) Reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. At least, he should have examined the contentions of the assessee and proved that they are not correct. Without doing anything on record, this sort of disallowance of expenditure claimed by the assessee cannot be accepted or justified. In view of this, we have no hesitation in cancelling the so-called disallowance of expenditure resorted by the Assessing Officer. A.O. is directed to allow expenditure as claimed. Since its factual issue and most of principles relied on by the assessee also supports the contentions, we need not go into to analyzing the various principles. Suffice to say, that A.O's action can not be justified on the facts of the case. Accordingly, disallowance is deleted. Grounds are allowed. ISSUE OF NON GENUINE EXPENDITURE RAISED IN REVENUE APPEALS : 9. This issue arises in a peculiar way. As briefly stated earlier, A.O. has resorted to disallowance of expenditure under section 40(a)(ia). The learned CIT(A) deleted the addition following the Orders of the ITAT in the same A.Ys on the same issue, decided when the issue was taken-up under section 195/201(1) consequent to survey proceedings conducted on the assessee. Therefore, to the extent of disallowance und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s entered into a contract on 2nd Jan., 2004 with M/s Apollo Consulting Services Corporation, USA (ACSC) for procuring software personnel in USA for the projects of IBM in USA. As per the arrangement, whenever IBM Bangalore issued work authorization/purchase order, the assessee in turn issued a work order/purchase order on ACSC, USA who procured the required personnel and deployed them on the projects of IBM, USA. For the services rendered, ACSC used to raise an invoice on the assessee on monthly basis and in turn the assessee raised invoice on IBM. The payments due to ACSC, USA was remitted in US dollars. However, such remittances have been made without deduction of tax at source. The AO was of the view that since the remittances to ACSC were made for supply of software professionals for executing the onsite work in USA in connection with the contract between the assessee and IBM Global Services (India) (P) Ltd., the amounts credited to the account of or remitted to ACSC, are in the nature of 'fees for technical services' covered under s. 9(1)(vii)(b) of the Act. Accordingly, the AO issued a show-cause notice to the assessee proposing to treat it as an 'assessee in default' for non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2006 and further report against the assessee's letter dated 20.12.2006. The order of the CIT(A)-II dated 05.01.2007 do indicate that all the transactions were indeed verified in detail by the A.O. and there is a finding by the CIT(A) in para 4.12 as under : "4.12. In the present case, as evident from the agreements and relevant invoices and documents, there is no doubt that the software personnel are deployed only for a specific project as determined by IBM to carry out work to be assigned by the pre-determined Project Manager and after completion of the project they do not remain with the appellant company who is the acquirer of the said personnel services since each work authorization/purchase order issued by IBM specifies the period in terms of hour for which the manpower (resource) is requisitioned. Similarly, what software is to be developed is not known to the appellant who is the acquirer of personnel from Appollo. Otherwise also the software that is developed by the said software personnel also do not remain with the appellant because the same is transferred to IBM, USA along with all intellectual property. In fact, clause No.9 of the agreement between the appellant and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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