2017 (12) TMI 1669

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....T (A) and the CIT(A) allowed the appeal . Against the order of the CIT(A) , the Revenue filed this appeal. 3. The DR assailed the order of the CIT(A)on the basis of the assessment order and the grounds of appeal. Per contra, the AR supported the order of the CIT(A) and made further submissions. They are dealt, issue wise, as under. 4. Non-deduction of TDS: The assessee company has not deducted TDS on the payments made to foreign partiesfor the services rendered in various foreign destinations and hence, the Assessing Officer disallowed Rs. 56,51,905/-. In this regard the CIT(A) held as under: "8. I have carefully perused the facts in issue, the reasons based on which the AO has preferred the disallowance / addition, the arguments advanced by the appellant and material on record. The dispute relates to the exigibility of tax in relation to the payment made by the appellant to the foreign entity for the services rendered in various foreign destinations. It is in this context that the exigibility of tax to the payment have to be examined as to whether the tax liability is triggered in terms of Sec.9(1)(i) r.w.s.5 of the Income Tax Act. 9. It is settled law w....

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....untry of residence. It is held therefore that since the payments are not chargeable to tax in India u/s 9(1)(vii) r.w.s. 195, the provisions of s.40(a)(i) will not be applicable. The AO is directed to delete the addition made towards payments made to non residents." 4.1 The Revenue's relevant grounds of appeal are as under: 1. The order of the learned CIT(A) is contrary to law, facts and circumstances of the case 2. The learned CIT(A) erred in directing the Assessing Officer to delete the disallowance made u/s.40(a)(i)/40(a)(ia) rws 195 of the LT. Act to the tune of Rs. 56,51,905/-. 2.1 The ld. CIT(A) failed to appreciate the fact there was violation of the provisions of section 195 of the IT Act, in as much as the foreign payments were made without deduction of tax at source, and such payments are liable to disallowed u/s. 40(a)(i)/40(a)(ia) of the IT Act. 2.2 The learned CIT(A) ought to have appreciated the fact that the services offered by the foreign entities amounts to services in the nature of managerial, technical or consultancy. 2.3 The learned CIT(A) failed to appreciate that the nature of services rendered by the foreign ent....

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.... Allen Maxwell USA 88,975 Maintenance of database of the customers of the assessee 6. Thawate USA 46,096 Webpage security certifications 7. Magento USA 7,36,921 Open source software development tools 8. Brilliance UK 94,779 Bulk promotion mails 9. Curebit.com USA 36,852 Customer care tool 10. Optimizity Canada 3,950 Tool enabling mobile version of assessee's website 11. Netflow USA 32,873 Website performance analysis 12. Paypal UK 75,983 Payment Gateway (b) Though it was a custom made software, since the following entities are of USA origin with which India has a DTAA with 'Make available clause' and since these entities have not made available the know how, the following payments are not FTS Sl.No Name of the foreign country Country Amount paid by the assessee Nature of service provided 1. Constant Contact USA 1,29,344 Publicity Material-Content writers 2. Crazy Egg.com USA 1,35,484 Analysis of customer behaviour on website 3. MVI Marketing Ltd USA 18,43,021 US market research (c) In respect of the pa....

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....to Handup Ltd, Israel, even though charged to tax as FTS as per DTAA between India and Israel, the same won't be charged to taxation as per Most Favoured Nation Clause mentioned as above. 5. We heard the rival contentions and gone through relevant material. From the AR's submissions and on the facts, it is clear that these entities who have rendered the impugned services admittedly have no presence in India by way of permanent establishment and no business connection in as much as that the services were rendered outside India. It would suffice to hold that the basic ingredients to trigger the operation of Sec.9(1)(i) are conspicuous in their absence in the above services as explained by the assessee, supra. The payment(s) made to them would not be exigible to tax unless and until a case has been made out that they are in the nature of the services within the meaning of Sec. 9(1 )(vi) or 9(1)(vii) being "royalty " or "technical services". The Revenue could not assail the assessee's above contentions . Since the abovepayments are not chargeable to tax in India u/s 9(1)(vii) r.w.s. 195, the provisions of s.40(a)(i) will not be applicable. The corresponding grounds of the Revenu....

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....on that no purchases or transactions were made with M/s. Maan Diamonds by the appellant during the year under appeal. The bald statement of one Shri.Banwarilal Jain cannot form the basis of the substantive disallowance from the total purchases accounted for in the absence of material to show that any purchase was attributed to M/s. Maan Diamonds at the first place. The disallowance made by the AO cannot be upheld and hence the plea of the appellant succeeds. This ground of appeal is allowed." 6.2 The Revenue's relevant grounds of appeal are as under: "3. The learned CIT(A) erred in deleting the disallowance made in respect of bogus purchases of Rs. 3,17,126/-. 3.1 The learned C!T(A) failed to appreciate that the addition was made based on the findings of the Investigation Wing that the purchases were bogus in nature. 3.2 The learned CIT(A) failed to appreciate that the assessee did not furnish any material evidence to prove that the transaction took place in the earlier A.Y.2011-12." 6.3 The DR assailed the order of the CIT(A) based on the assessment order and on the above grounds of appeal. Per contra, the AR submitted during the assessment proceed....