TaxTMI 
TaxTMI 
2024 (12) TMI 546
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....O observed that out of total travelling expenses debited in the P&L Account, an amount of Rs. 9,21,58,400/- has been claimed by the assesssee in respect of foreign travelling expenses. Thereafter, referring to the proceedings in the earlier years, the AO asked the assessee to show cause as to why the foreign travelling expenses so incurred by the assessee company should not be disallowed. 3.1 In response, the assessee filed its submission which were considered but not found acceptable to the AO. 3.2 The AO referring to the assessment proceedings for A.Y 2007-08 held that providing of service to the foreign clients on behalf of M/s SF USA and M/s Fidelity Information Services Inc, USA was not the responsibility of the assessee company, therefore, the expenditure incurred on foreign traveling amounting to Rs. 9,21,58,400/- is treated as expenditure pertaining to M/s SF Inc, USA and M/s Fidelity Information Services Inc. USA and is disallowable in the hands of the assessee company. It was held that no new fact has been brought out by the assessee company while giving his submissions on this issue. That the assessee company has new service agreements with both the said customers ....
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....mal and ordinary course operating expenses. The assessee during the course of assessment proceedings could not prove that the foreign travel expenses were incurred in the normal and ordinary course of its business. iii) Further, and more importantly the nature of services to be provided by the assessee to its US based counterparts, is not such as would entail international travel. Article 1.6 of the services agreement as submitted by the assessee, clearly mentions that the services performed by 'Fidelity India' shall be transmitted to 'Fidelity USA' through various Communication Links, which in turn are defined at Article 1.2 of the same Agreement. Therefore, the services to be provided by the assessee to its US based counterparts are meant to be transmitted through Electronic and Telecommunication links primarily. Such huge expenditure on foreign travel is therefore not justified. iv) The contention of the assessee that these expenses are included in the service revenue received by the assessee company is not verifiable from the record and the submissions of the assessee on this issue do not in any way show that the foreign traveling expenses have....
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....n, which were also filed by the assessee in the earlier AYs. The travel confirmation filed by the assessee has been issued by Second Foundation inc. USA. This document was also submitted by the assessee during the assessment proceeding of A.Y. 2007-08 onwards. Thus, the AO had considered these submissions filed by the assessee and only after that, the Travel expenses were disallowed by the AO in these years as well. For example, in paras 3.3 & 3.4 of the assessment order u/s 144C(13) r.w.s. 143(3), dated 14.12.2010 for AY. 2007-08, the AO has highlighted that the assessee company was not receiving any servicing income for servicing the clients of M/s Second Foundation, USA. Further, as per the agreement, the expenses incurred were not the responsibility of the assessee Company and were required to be borne by M/s Second Foundation Inc. USA only. Similarly, para 2.4 of assessment order u/s 144C(13) r.w.s. 143(3) dated 31.10.2012 & for A.Y. 2008-09, that the AO has held that the assessee had failed to show how the inclusion of the expenses was done in the cost charged by the assessee company to its client. Further, the AO held that the assessee failed to explain how these expenses re....
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....enses and visa expenses of the visiting employees was to be borne by M/s SF Inc. USA, as during the foreign visits by the assessee's employees, they were basically rending services to M/s SF Inc. USA and not to the assessee company. Thus, the copy of communication in respect of the employees is no way challenges the arguments taken by the AO for disallowing the expenses. 3.7 It was further held by the AO that the assessee has also filed a list of invoices raised to customers. The assessee has once again tried to establish that the persons had actually travelled abroad to work on the projects. However, the main question is not whether the person had travelled. The main issue at hand is whether the expenses were allowable in the business of the assessee. The invoices also do not establish whether that the expense was an allowable expense or not. 3.8 It was accordingly held by the AO that the expenditure on account of foreign travel of Rs. 9,21,58,400/- for A.Y. 2014-15 is not allowable to the assessee and the said amount was disallowed and added to the returned income of the assessee and the assessed income was determined at Rs 47,78,89,933/-. 4. The assessee being aggri....
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....per the instructions by the Associated Enterprises. The visit of the employees was primarily for the purpose of rendering software development services, debugging, training, etc. to the clients of the AEs and the same forms intrinsic part of software development services rendered by the Assessee company. The Assessee company incurred foreign travelling expenditure amounting to INR 9,21,58,400/- during the subject year in this regard. 9.1 It was submitted that the Assessee company entered into service agreements with its AE's - agreement dated May 12,2007 with Fidelity Information Services Inc. USA and agreement dated November 1, 2007 with Second Foundations Inc., USA. It was submitted that in terms of the service agreements entered with the AE's, the Assessee company was required to provide services of development of computer software and allied products on specific directions and specifications provided from time to time by the AE and that the Assessee company would be remunerated for its services on cost plus 15% including travel cost. Thus, all foreign travelling expenses are invoiced to the respective customers on the basis of cost plus 15%. 9.2 It was further sub....
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....e foreign travelling expenditure was incurred for the purpose of Assessee company's business and hence, should be considered as an allowable expense under section 37 of the Act. 9.6 It was submitted that under identical facts and circumstances, the Chandigarh Bench of the Tribunal vide order dated 30 May, 2019, passed in Assessee company's case for assessment years 2011-12 and 2012-13, has decided the issue of foreign travelling expenditure in favour of the Assessee company by directing the AO to delete the disallowance made in those years. The relevant extracts from the order of the ITAT are reproduced below for your ready reference: "7. At the outset. Ld. Counsel for the assessee has submitted that the assessee is engaged in the sale of software development services. The aforesaid expenditure incurred on foreign travel of the employees was relating to the activity of software development services of the assessee. That the aforesaid expenditure of foreign travel was duly included in the head 'Operating and administrative expenses totalling to Rs. 1.39.702.000. The total expenditure of the assessee as per the profit and loss account was at Rs. 6.50,292.000/-....
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....ncur foreign travelling expenses. The Hon'ble Tribunal remanded the issue back to the DRP, Delhi to pass a speaking order (copy of order is attached at pages 258 to 274 of paper book volume 2). The Respondent has settled the same under VSV Scheme as no tax impact involved. 2 2007-08 1,02,69,448 Service agreement dated April 15,2002 entered with Second Foundation Inc., USA Foreign travelling expenditure disallowed alleging that the Respondent is not required to incur foreign travelling expenses. The Hon'ble Tribunal remanded the issue back to the DRP, Delhi to pass a speaking order, proceedings yet to be initiated by the DRP (copy of order is attached at pages 275 to 304 of paper book volume 2). Not opted the subject AY under VSV as Transfer Pricing adjustment involved. 3 2008-09 2,18,67,637 New Service agreement dated May 12,2007 with Fidelity Information Services Inc., USA and dated November 1,2007 with Second Foundations Inc., USA. Foreign travelling expenditure disallowed alleging that the Respondent is not required to incur foreign travelling expenses and that the Respondent has failed to establish that foreign travelling expenses wer....
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....ent and its AE's did not include reimbursement of foreign traveling costs. The Hon'ble Chandigarh Bench of the Tribunal vide order dated May 30,2019 directed to delete disallowance of foreign traveling expenditure as it was clear that the Respondent is recovering cost plus 15% on all operating expenditure including foreign travelling expenses (copy of order is attached at pages 311 to 320 of paper book volume 2). 7. 2012-13 1,3,08,19,376 New Service agreement dated May 12,2007 with Fidelity Information Services Inc. USA and dated November 1,2007 with Second Foundations Inc. USA DRP allowed the claim of foreign travelling expenditure in favour of the Respondent by directing the AO to allow the claim after verifying whether foreign travelling expenditure was reimbursed to the Respondent by the AEs. The AO grossly erred in facts by holding that the service agreements between the Respondent and its AE's did not include reimbursement of foreign travelling costs. Same as above (copy of order is attached at pages 311 to 320 of paper book volume 2). 8. 2013-14 4,83,70,355 New Service agreement dated May 12,2007 with Fidelity Information Services Inc. USA an....
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....ders passed for the earlier assessment years, i.e., 2006-07 and 2007-08. The fact that the fresh agreements were entered by the Assessee company and its implication were not considered by the lower authorities. The Hon'ble Chandigarh Bench of the Tribunal appreciated the new agreements and the documents placed on record and remanded the matter back to the file of the DRP for passing a speaking order after analyzing the complete details filed and giving opportunity of being heard to the Assessee company. 9.12 It was submitted that the Hon'ble Tribunal disposed the appeal for assessment year 2013-14 in favor of the Assessee company by holding that the fact that the expenses incurred on foreign travelling have been reimbursed by the customers/ AE's as agreed, by itself proves that the expenses were incurred during the course of rendering services to its customers who have therefore, agreed to reimburse the same and also that the said expenditure was the responsibility of the Assessee company to incur, thus, entitling it to claim the same as expense. It was submitted that the Tribunal further held that the Assessee company, by way of documents, workings and other evidenc....
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....and Assessee company had decided the appeals in favour of the Assessee company. Thus, the claim of foreign travelling expenditure be allowed to the Assessee company following the Hon'ble Tribunal's order passed in Assessee company's own case for assessment years 2011-12 and 2012-13. 9.16 Without prejudice to the above, it was submitted that where any disallowance is made for the foreign travelling expenditure, the corresponding service revenue should also be accordingly reduced as the Assessee company is charging the costs on a cost plus basis to its customers. In this regard, reference may be made to the decision of Hon'ble Delhi ITAT in the case of XL India Business Services Private Limited vs. ITO (ITA. No. 1427/ Del/ 2014). 9.17 The ld AR accordingly supported the order of the ld CIT(A) and submitted that the appeal filed by the Revenue be dismissed and the order of the ld CIT(A) be confirmed. 10. We have heard the rival contentions and purused the material available on record. We find that the issue of allowability of foreign travelling expenses has been a subject matter of dispute for past many assessment years between the assessee and the Revenue. In....
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....ference Amount (INR) 1 Personnel expenses Note No. 20 1,33,98,02,987 Less: Employee Stock Option Plan and Employee Stock Purchase Plan expense being non-operating in nature (1,05,34,107) A 1,32,92,68,880 2 Finance Cost Note No.21 12,63,752 Less: Expenditure not eligible for mark-up (12,63,752) B - 3 Other expenses (refer Note 1 below) Note No. 22 C 29,14,59,649 4 Depreciation Note No. 10 D 4,29,71,713 Total operating cost E=A+B+C+D 1,66,37,00,242 Mark-up on operating cost (as per APA with CBDT) F = E* 16.60% 27,61,74,240 Mark-up on Employee Stock Option Plan and Employee Stock Purchase Plan G= 1,05,34,107 16.60% 17,48,662 service revenue recoverable from the AES H=E+F+G 1,94,16,23,144 Service revenue of the Appellant (as per financial statements) Note No. 18 I 1,91,42,32....
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.... out the compliance audit in terms of checking whether the ALP and most appropriate method has been applied by the assessee in the modified return of income and has returned no adverse finding in this regard. The AO has taken cognizance of the order of the TPO u/s 92CA(3) dated 14/09/2017 as evident again from the assessment order wherein he has infact reproduced the TPO order where he has referred to the APA dated 6/02/2017, modified return filed by the assessee u/s 92CD and the annual compliance report and has stated clearly that no adverse inference is drawn in respect of the international transaction undertaken by the assessee during the financial year relevant to impugned assessment year. 15. We therefore find that where the assessee given the past litigative history has tried to resolve the dispute by entering into a unilateral APA with the CBDT and has duly complied with the terms therein as so verified by the TPO, the AO has continued with the stand taken by his predecessors in the earlier assessment years and has disallowed the foreign travel expenses which clearly form part of the operating expenses and the cost base and on which the assessee has reported the revenues ....
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....021. However, it is pertinent to note that in view of the order dated January 10, 2022 in suo moto writ petition (C) No. 3 of 2020 passed by the Hon'ble Supreme Court, it was directed that the period from 15.03.2020 till 28.02.2022 shall stand excluded for the purposes of limitation, as may be prescribed under any general or special laws in respect of all judicial or quasi-judicial proceedings. Further, the Hon'ble Apex Court clarified that in case where the limitation expired during the period between 15.03.2020 till 28.02.2022, notwithstanding the actual period of limitation remaining, all persons shall have a limitation period of 90 days from 01.03.2022. It was submitted that in view of the Hon'ble Apex Court order dated January 10, 2022, since the limitation to file cross objections in the instant case expired within 15.03.2020 till 28.02.2022, the Assessee had time till May 30, 2022 (01.03.2022 + 90 days) to file the subject cross-objections thus, there is effectively delay of 58 days in filing the subject cross-objection. 21. It was further submitted that the delay of 68 days is neither intentional nor deliberate and has occurred on account of the following reasons....
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....fficient cause" should receive liberal construction. Reliance is also placed on the judgement of the Hon'ble Supreme Court in the case of Collector, Land Acquisition vs Mst. Katiji 167 ITR 471. The relevant observations of the Court are as under: "The Legislature has conferred the power to condone delay by enacting section 51 of the Limitation Act of 1963 in order to enable the courts to do substantial justice to parties by disposing of matters on de merits ". The expression "sufficient cause" employed by the Legislature is adequately elastic to enable the courts to apply the law in a meaningful manner which subserves the ends of justice that being the life- purpose of the existence of the institution of courts. It is common knowledge that this court has been making a justifiably liberal approach in matters instituted in this court. But the message does not appear to have percolated down to all the other courts in the hierarchy." 23. The Ld. AR accordingly submitted that in view of the above reasons, that there is "sufficient cause" for the delay in filing the cross-objections and the same deserves to be condoned and the cross-objection be admitted for adjudication ....
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....me of Rs 35,83,41,090/- and has computed the tax liability of Rs 12,18,00,137/- and interest liability under section 234B and 234C amounting to Rs. 266,747/-. Thereafter, pursuant to APA in terms of modified return of income which was filed on 29/04/2017, the assessee has disclosed gross total income of Rs. 3,85,73,1530/- which include the additional income of Rs. 2,73,90,440/- and the assessee has computed the interest liability under section 234B and 234C amounting to Rs. 49,15,295/-. We therefore find that the assessee has suo-motu determined the additional interest liability under Section 234B and 234C amounting to Rs. 46,48,548/- and the same was deposited while filing the modified return of income pursuant to APA. Given the said factual position, we therefore find that it is not a case where the AO while completing the assessment has levied the interest under Section 234B and 234C on the additional income so declared by the assessee in terms of the modified return of income. It is in fact the assessee suo- motu act whereby filing its modified return of income, it has computed the additional tax liability under section 234B and 234C of the Act and which has finally been accept....
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....d such memorandum shall be disposed of by the Appellate Tribunal as if it were an appeal presented within the time specified in sub-section(3). 33. As can be noted from reading of the aforesaid provisions, the assessee on receipt of notice that the Revenue has preferred an appeal against the order of the ld CIT(A), notwithstanding the fact that the assessee may not have appealed against such order or any part of such order, the cross-objection can be filed by the assessee against any part of such order of the ld CIT(A). 34. In the instant case, as we have noted above, the assessee has chosen to remain silent before the ld CIT(A) resulting in dismissal of the ground of appeal against levy of interest u/s 234B of the Act which has been held as consequential in nature. In our understanding, though silence is generally understood as acceptance but for construing a fiscal law, such an inference is unwarranted and unjustified. Silence cannot be construed as positive acceptance and non-filing of submissions cannot also mean an acquiescence so as to treat the conduct the assessee as person not aggrieved by the order of the ld CIT(A). The ld CIT(A) has also nowhere stated that he is p....
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....see had no occasion to pre-empt and make the estimate of income for payment of advance tax during F.Y. in respect of additional income pursuant to the advance comprising agreement which has been entered into subsequently after the close of the financial year. It was accordingly submitted that levy of interest under section 234B on the amount of income computed pursuant to APA is against the legislative intent being an act of impossibility to pre-empt enhanced assessed income and therefore interest under section 234B cannot be levied on the amount of declared income offered pursuant to APA and in support, reliance was placed on the decision of Coordinate Delhi Benches in case of Colt Technology Services (I) (P) Ltd. Vs. DCIT [2022] 141 taxmann.com 386 (Delhi). It was accordingly submitted that the cross objection filed by the assessee deserves to be allowed and interest under section 234B levied on the additional income determined pursuant to APA be directed to be deleted. 38. Per contra, the Ld. CIT/DR relied submitted that the levy of interest u/s 234B of the Act is consequential in nature. It was submitted that it is an automatic levy which comes into play once the income and ....
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.... Anjum MH Ghaswala [2001] 252 ITR 1 and in the said decision, the following contention raised by the assessee have not been considered: (i) there was no default on the part of the Assessee for payment of taxes pursuant to the modified return filed under section 92CD(3) of the Act as per the provisions of sections 207 to 209 of the Act basis which the Assessee is liable to pay interest on the income which was chargeable to tax. In other words if there was no default on the part of the Assessee in filing the modified return of Income-tax as well as payment of taxes within the window period of three months provided under section 92CD(3) of the Act, the interest liability cannot be saddled. In other words, if the Government is not deprived of any revenue / taxes for any default on the part of the Assessee, there cannot be any recovery of interest as has been provided in the provisions for payment of advance taxes. The said legal position has not been analysed by the Bangalore Bench in the case of IBM India (supra); and (ii) the Bangalore Bench has next relied on the decision of the Bombay High Court in the case of E Merk India, in that case, the Bombay High Court was ....
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....e said language in terms of partial liability towards advance tax or any component of income to be excluded while working out and estimating the income and for that matter, partial payment towards such advance tax. The second scenario is where there is liability towards advance tax, however there is partial payment of advance tax and the advance tax so paid is less than 90% of the assessed tax and in such a situation, it has been provided that on the amount by which the advance tax so paid fall short of the assessed tax, the assessee shall be liable to pay interest under section 234B of the Act. It therefore needs to be examined as to which of the two scenarios, the facts of the present case falls. 44. Further, we find that the emphasis is not just on the liability to pay advance tax under section 208 which in turn require the assessee to estimate his income and determine the quantum of advance tax, the emphasis is equally on the assessed tax which is also evident from the provisions of Sub-Section (3) which talks about the additional tax liability pursuant to re-assessment and re-computation under section 147 and 153A of the Act and the contents thereof reads as under: ....
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....mation of additional income basis subsequent event post closure of the financial year. As we have discussed supra, there are two situations which have been envisaged in section 234B of the Act. The case of the assessee doesn't fall in the first category and reason for the same is that the assessee has infact paid advance tax of Rs 10,40,00,000/- as evident from the original return of income filed on 29/04/2017 and modified return of income filed on 29/11/2014 and it is therefore not a case of absolute failure to pay advance tax. The case of the assessee thus falls in the second category which talks about the shortfall in payment of advance tax. In this regard, we find that even where the contention of the assessee regarding impossibility of carrying out the estimation of additional income is accepted in view of determination of additional income due to signing of APA post close of the financial year, the additional income so determined in terms of APA, offered in the modified return of income after payment of additional taxes and form part of the assessed income, would still be brought to tax and form part of the assessed tax. There is nothing which has either been provided or can ....