JCIT Vs Mphasis Ltd. (ITAT Bangalore)
The issue under consideration is whether the profit enhanced due to disallowance u/s 40(a)(ia) is allowed for dedcution u/s 10AA?
ITAT states that, the disallowance u/s 40a (ia) is to be made of the expenses incurred and claimed by the assessee but before the payment of which, the assessee has failed to deduct tax at source. The genuineness of the expenditure is not in dispute. The dispute is whether TDS was to be made before making the payment. Without going into the nature of the transaction, ITAT are inclined to accept the alternate plea of the assessee that the disallowance of the expenditure would automatically enhance the taxable income of the assessee and the assessee is eligible for the deduction u/s 10A of the Income-tax Act on the enhanced income. Thus, this ground of appeal is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
ITA No.3418/Bang/2018 is an appeal by the revenue while ITA No.65/Bang/2019 is an appeal by the assessee. Both these appeals are directed against the order of CIT(Appeals)-IV, Bangalore dated 29.10.2018 and are in relation to assessment year 2009-10.
2. The assessee is a company engaged in the business of providing software development services. For the AY 2009-10, the assessee filed a return of income on 30.9.2009 declaring a total income of Rs.45,78,65,652 after claiming deduction u/s. 10A, 10B and 10AA of the Income-tax Act, 1961 [the Act]. The final order of assessment after directions of the Dispute Resolution Panel (DRP) was passed u/s. 143(3) r.w.s. 144C of the Act on 31.3.2014. Against the aforesaid order, the assessee preferred appeal before the Tribunal and the same is stated to be pending.
3. The AO issued a notice u/s. 148 of the Act dated 30.3.2016. As we have already seen, the assessee is in the business of rendering software development services. The software is developed both on-site and off-site. The assessee designed software in India in its own premises by its own employees. However, certain parts of the software development are required to be executed physically at the customer’s premises outside India. The services rendered at the customer’s site are referred to as on-site services. The assessee sub-contracts the on-site services to its Associated Enterprise [AE] which is located outside India. Apart from on-site services, Assessee’s AE’s located outside India also rendered marketing services for which the assessee pays selling commission. The assessee paid the following sums to the AE on account of on-site services and selling commission:-
