2024 (10) TMI 472 - AT - Income Tax

TDS reconciliation remanded for verification despite assessee offering Rs. 127.10 crores income exceeding Form 26AS by Rs. 52.04 crores

ITAT Mumbai remanded TDS reconciliation issue to CIT(A) for verification after assessee failed to reconcile ITS data with accounting records despite ... Addition on account of non-reconciliation of tax deducted at source ('TDS') data as reflected in Individual Transaction Statement ('ITS') - HELD THAT:- As observed that the assessee has entered into 39 transactions as per the AIR with 576 parties with respect to Form 26AS. Though the assessee tried its best to reconcile its ITS details with its accounting record, the same became futile for various reason such as the difference in the method of accounting followed by its customers, delayed deduction or payment of TDS, the date when the customer has deducted tax did not match with the books of accounts of the assessee company, variation in time of recognition of expenses by the deductor and the income by the assessee and the tax deducted on amount whether including/excluding service tax. It is further observed that as per the ITS, the income reflected is Rs. 75.06 crores, whereas the total income offered by the company is Rs. 127.10 crores which exceeds the total as per 26AS by Rs. 52.04 crores. On the above factual matrix of the case, we deem it fit to restore these issues back to the file of the ld. CIT(A) for verification of the details and for reconciliation of the tax deducted at source by giving sufficient opportunity to the assessee to furnish all documentary evidences, pertaining to its claim. Hence, ground nos. 1 & 2 are allowed for statistical purpose. Nature of expenses - Addition on account of software license fee which the Revenue claims it to be of ‘enduring benefit’ - AO observed that the assessee is not the owner of the software but had merely procured only the license to use the software which are in the nature of ‘intangible assets’ as per clause (ii) of section 32(1) which according to the ld. AO had enduring benefit to the assessee which are in the nature of capital expenditure - HELD THAT:- The Tribunal for A.Y. 2008-09 [2017 (1) TMI 1818 - ITAT MUMBAI] had followed the order of the ld. CIT(A) for A.Y. 2009-10 where on identical issue, the same has been treated as ‘revenue expenditure’ and not ‘capital in nature’ having enduring benefit to the assessee. On no change in the facts and circumstances, we deem it fit to take a consistent view as that taken by the Tribunal in assessee’s own case for A.Y. 2008-09. Hence, ground no. 1 raised by the Revenue is dismissed. Characterization of income - interest received by the assessee on bank FDs as per the P & L account of the assessee - ‘business income’ v/s ‘income from other sources’ - HELD THAT:- As in the case of CIT vs. Chinna Nachimuthu Constructions [2007 (11) TMI 40 - HIGH COURT, KARNATAKA] which held that the investment made in fixed deposits for bank guarantee and the interest arised out of it, is to betreated as ‘business income’ and not ‘income from other sources’. Decided against revenue. Disallowance made u/s. 14A at 0.5% of the investment - assessee had earned dividend income which was claimed as ‘exempt’ - FAA has restricted the disallowance to 0.5% of the average investment made by the assessee during the year under consideration and had directed the ld. A.O. to verify the suo moto disallowance made by the assessee - HELD THAT:- As observed that the ld. CIT(A) has rightly restricted the disallowance u/s. 14A r.w. Rule 8D to 0.5% of the average investment of the assessee and we find no infirmity in the order of the ld. CIT(A) in directing the ld. A.O. to compute the disallowance to 0.5% of the average investment after considering the suo moto disallowance made by the assessee. Hence, ground no. 3 raised by the Revenue is dismissed. Issues Involved:1. Addition due to non-reconciliation of Tax Deducted at Source (TDS) data.2. Short grant of TDS credit.3. Treatment of software license fees as capital or revenue expenditure.4. Classification of interest income on bank FDs as business income or income from other sources.5. Disallowance under Section 14A of the Income Tax Act.Detailed Analysis:1. Addition due to Non-Reconciliation of TDS Data:The assessee challenged the addition of INR 5,12,06,771, which was based on discrepancies between the Individual Transaction Statement (ITS) and the assessee's books of accounts. The discrepancy arose due to differences in accounting methods, delayed TDS deductions, and timing variations in recognizing expenses and income. The Tribunal observed that the income reflected in the ITS was significantly lower than the income offered by the company, indicating a need for reconciliation. The Tribunal decided to remit the matter back to the Commissioner of Income Tax (Appeals) for verification, allowing the assessee the opportunity to furnish necessary documentary evidence to reconcile the TDS data.2. Short Grant of TDS Credit:The assessee contended that there was a shortfall of INR 57,122 in the TDS credit granted by the CIT(A), which was less than what was claimed in the Return of Income. The Tribunal, noting the need for verification, remanded this issue back to the CIT(A) for further examination and appropriate action, allowing the ground for statistical purposes.3. Treatment of Software License Fees:The Revenue argued that the software license fees of INR 1,70,67,431 should be treated as capital expenditure due to their enduring benefit, allowing only depreciation. However, the assessee maintained that these were recurring expenses related to annual maintenance and support services, thus qualifying as revenue expenses. The Tribunal upheld the CIT(A)'s decision, which treated these expenses as revenue in nature, consistent with prior rulings in the assessee's favor for earlier assessment years.4. Classification of Interest Income on Bank FDs:The Revenue classified the interest income of INR 1,59,32,000 from bank FDs as income from other sources. The assessee argued that the FDs were maintained as margin money for bank guarantees, thus making the interest income part of business income. The Tribunal supported the CIT(A)'s view, aligning with previous decisions that classified such interest as business income, given the business necessity of maintaining the FDs.5. Disallowance under Section 14A:The Revenue's appeal challenged the CIT(A)'s restriction of disallowance under Section 14A to 0.5% of the investment, contrary to the Assessing Officer's application of Rule 8D. The Tribunal found no fault in the CIT(A)'s approach, which aligned with prior decisions, and dismissed the Revenue's ground, affirming the restricted disallowance as appropriate.Conclusion:The Tribunal allowed the assessee's appeal for statistical purposes, remanding issues related to TDS reconciliation and credit back to the CIT(A) for further verification. The Revenue's appeal was dismissed, with the Tribunal upholding the CIT(A)'s decisions on software license fees, classification of interest income, and disallowance under Section 14A. The judgment emphasizes the importance of consistency with prior rulings and the necessity of detailed verification in cases of discrepancies.