Revenue's TDS appeal allowed, but PF/ESI payment appeal dismissed.

The Tribunal allowed the Revenue's appeal on the disallowance under Section 40(a)(i) for non-deduction of TDS on software expenses, reversing the CIT(A)'s decision and restoring the AO's disallowance. However, the Tribunal dismissed the Revenue's appeal on the delayed payment of employees' contribution to PF and ESI, upholding the CIT(A)'s deletion of the addition. The Revenue's appeal was partly allowed.

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Issues Involved:
1. Disallowance under Section 40(a)(i) of the Income Tax Act for non-deduction of TDS on software expenses.
2. Deletion of addition due to delayed payment of employees' contribution to PF and ESI under Section 43B and Section 2(24) read with Section 36(1)(va).

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(i) of the Income Tax Act for non-deduction of TDS on software expenses:

The Revenue filed an appeal against the CIT(A)'s order allowing the assessee's appeal regarding the disallowance under Section 40(a)(i) for non-deduction of TDS on software expenses. The Assessing Officer (AO) had disallowed Rs. 10,07,64,509/- for non-deduction of TDS on foreign software purchases, relying on the Karnataka High Court's judgment in CIT v. Samsung Electronics Co. Ltd., which classified such payments as 'royalty' under Section 9(1)(vi) of the Act.

The CIT(A) allowed the appeal based on the ITAT's decision in the assessee’s own case for AY 2009-10, which held that software payments were not taxable as royalty. The Revenue contended that the CIT(A) erred in not following the jurisdictional High Court's judgment in Samsung Electronics.

The Tribunal noted that the CIT(A) had agreed with the AO's finding that the payments were in the nature of royalty, thus attracting Section 40(a)(i). However, the CIT(A) deleted the disallowance citing the doctrine of impossibility of performance, as the judgment in Samsung Electronics was pronounced after the relevant financial year.

The Tribunal emphasized that the judgment of the superior court was declaratory of the existing law, not a new law. The Tribunal rejected the CIT(A)'s reliance on the doctrine of impossibility of performance, stating that the law was clear and the assessee could have deducted TDS in subsequent payments. The Tribunal also noted that the assessee did not provide evidence of TDS deduction in subsequent years despite directions.

The Tribunal concluded that the CIT(A) had no power to disallow the disallowance made by the AO under Section 40(a)(i) and reversed the CIT(A)'s order, restoring the AO's disallowance.

2. Deletion of addition due to delayed payment of employees' contribution to PF and ESI under Section 43B and Section 2(24) read with Section 36(1)(va):

The Revenue appealed against the CIT(A)'s deletion of Rs. 3,66,020/- added by the AO for delayed payment of employees' contribution to PF and ESI. The AO's action was based on the pending SLP in the case of CIT v. Samsung India Electronics Ltd.

The Tribunal referred to the jurisdictional High Court's decision in CIT v. Magus Customers Dialog P. Ltd., which held that contributions made on or before the due date for filing the return under Section 139(1) are allowable. The Tribunal noted that the jurisdictional High Court had disagreed with the Gujarat High Court's contrary view in CIT v. Gujarat State Road Transport Corporation.

Following the jurisdictional High Court's decision, the Tribunal upheld the CIT(A)'s deletion of the addition for delayed payment of employees' contribution to PF and ESI.

Conclusion:

The Tribunal allowed the Revenue's appeal regarding the disallowance under Section 40(a)(i) for non-deduction of TDS on software expenses, reversing the CIT(A)'s order and restoring the AO's disallowance. However, the Tribunal dismissed the Revenue's appeal concerning the delayed payment of employees' contribution to PF and ESI, upholding the CIT(A)'s deletion of the addition. The appeal of the Revenue was thus partly allowed.

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