2017 (6) TMI 1255 - AT - Income Tax

Case Remanded for Lack of Evidence in Software Company's Payment Dispute

The Tribunal found the matter inconclusive and directed the case back to the Assessing Officer for further investigation due to lack of substantiating ... TDS u/s 195 - nature of the payments, debited to the account head or classified as ‘Reimbursements’ by the assessee, a Chennai based software company, handling business verticals like, pension plan administration, health care practice, system integration solutions, etc., to Gulf Outsourcing LLC (‘GOS’ for short), a Dubai based foreign company (nonresident), to whom it is providing services under a consultancy agreement - Revenue claims it to be in the nature of fee for technical services toward services being provided by GOS to the assessee-company through Info-Drive LLC, UAE eld that:- The expenditure is the assessee’s contractual obligation and the onus is on it to make suitable arrangements for timely payment for salary of, and other expenditure incurred by, it’s employees. Why, the payment could be made directly to the bank accounts of the employees. In fact, even in India the salary is customarily paid by the 7th of the following month, and also legally required to be paid within a reasonable time; presumably, the 10th day thereof. The relevant law/s of UAE assumes significance in this regard, which shall have to explain both, the salary as well as other expenditure. Further, not only does the ‘service recipient’ agree to make the payment in the first instance, it extends a 90 day credit to the assessee for the same, which is surprising indeed. The minutes also refer to the assessee facing financial difficulty in making the payment without collection, which may explain the credit. GOC could, in that case, make the payment early on or even in advance. Further, details of employee emoluments are normally not divulged, as in that case the contractee would get a clear idea of the assessee’s employee cost, which constitutes the principal cost, enabling it to bargain for a lower cost on its contract with the assessee. The assessee clearly has much explaining to do; it’s case, though valid in principle, is largely unsubstantiated, with several loose ends. The Revenue’s stand, we may at the same time state, does not take into account the employment agreements and the monthly debit notes raised by GOS on the assessee. The treatment of the said transactions in the books of GOS, both at the time of payment and its’ recovery, would also be relevant, which (the said books) would also throw light on the relationship, if any, with Info-Drive LLC, UAE The matter is thus clearly in-determinate, and would therefore have to be restored back to the file of the AO, setting aside the impugned order, which we hereby direct. The burden of proof, in-as-much as it is in the intimate know of its affairs, is on the assessee, even as the Revenue’s stand also has to be consistent with it’s findings, based on material on record and explanation/s offered by the assessee. Assessee’s appeal is allowed for statistical purposes. Issues Involved:Nature of payments made to a foreign company without tax deduction at source under Income Tax Act, 1961.Detailed Analysis:1. Nature of Payments:The primary issue in the appeals was the nature of payments made by a Chennai-based software company to a Dubai-based foreign company, under a consultancy agreement. The payments were classified as 'Reimbursements' by the assessee, while the Revenue contended they were fees for technical services. The payments were made without tax deduction at source, leading to default under sections 201 and 201(1A) of the Income Tax Act, 1961.2. Assessing Officer's Findings:The Assessing Officer found discrepancies in the explanations provided by the assessee regarding the nature of payments. The assessee claimed the payments were reimbursements for salaries and travel expenses of its employees working on projects for the foreign company. However, the Assessing Officer raised questions about the validity of these claims and the lack of substantiating evidence.3. Tribunal's Decision:After hearing both parties and examining the material on record, the Tribunal found the matter to be inconclusive and directed the case to be sent back to the Assessing Officer for further investigation. The Tribunal emphasized the burden of proof on the assessee to substantiate its claims and ensure consistency in the Revenue's findings based on the evidence presented.4. Lack of Substantiating Evidence:The Tribunal highlighted the lack of concrete evidence supporting the assessee's claims, such as detailed employee lists with project specifics and inconsistencies in the explanations provided. The Tribunal also questioned the absence of monthly debit notes for total salary payments and the need for proper documentation of traveling and related expenses.5. Conclusion:The Tribunal allowed the assessee's appeal for statistical purposes, indicating that the decision was not a conclusive opinion on the matter but rather a directive for further investigation by the Assessing Officer. The Tribunal stressed the importance of clear and consistent evidence to support the nature of payments made to the foreign company, emphasizing the need for proper documentation and substantiation of claims.This detailed analysis of the legal judgment highlights the key issues, findings, and directives provided by the Tribunal regarding the nature of payments made by the assessee to the foreign company without tax deduction at source.