ITAT upholds Genuineness of Software Development Charges, Notes Services Not Designed to move Trust Funds out of India [Read Order]

The Income Tax Appellate Tribunal (ITAT), Chennai Bench, held that the assessee had genuinely charged for software development and the services were not designed to move trust funds out of India.

The facts of the case are that the assessee, Karunya Educational and Research Trust, e-filed return of income but was scrutinized and notices were issued under Section 143(2) and 142(1) of the Income Tax Act, 1961. The Assessing Officer (AO) found that the assessee was diverting donation collection and fees collection to a foreign entity without actual service or business.

In the show cause notices, it was directed against the assessee to explain the expenses claimed as software maintenance which were to be disallowed. The AO treated the transfer from trust or entity to other Trust or entity as a sham transaction but the Commissioner of Income Tax (Appeals) [CIT(A)] held that the software charges paid for development were genuine and deleted the disallowance made by the AO.

The departmental representative approached the ITAT and submitted that the CIT(A) had failed to consider the digital forensic report and the coloured expenses claimed by the assessee. The counsel for the assessee submitted the genuine difference in softwares.

The ITAT referred to the assessee's own case of 2022 wherein the reply to show cause was given merit to similar or identical facts. Accordingly, the tribunal found no infirmity with the order of the CIT(A) and the professional or technical services expenses which are in the nature of software charges by the assessee are genuine.

The counsel also argued that the AO held that the transactions were paper agreement without bringing evidence contrary to the evidence brought on record by the assessee. The bench of Inturi Rama Rao (Accountant Member) and S.S. Viswanethra Ravi (Judicial Member) thus dismissed the appeal.

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