ITO, Bangalore V. M/s CSE Systems & Enginering India Pvt. Ltd., Bangalore

ITA 181/BANG/2012

• Counselvise Citation: 18121114 RSA 2012
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 08-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 03-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A SUNDAR RAJAN JT
• Assessee Lawyers: M V GURU PRASAD
• Keywords: Corroborative evidences
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.181/BANG/2012 ASSESSMENT YEAR : 2007-08 THE INCOME TAX OFFICER, WARD 11(1), BANGALORE. VS. M/S. CSE SYSTEMS & ENGINEERING INDIA PVT. LTD., NO.3, 3 RD FLOOR, 100 FT. ROAD, 2 ND STAGE, 1 ST PHASE, BTM LAYOUT, BANGALORE 560 076. PAN:AABCC 1592M APPELLANT RESPONDENT C.O. NO.62/BANG/2012 (IN ITA NO.181/BANG/2012 ) ASSESSMENT YEAR : 2007-08 M/S. CSE SYSTEMS & ENGINEERING INDIA PVT. LTD., NO.3, 3 RD FLOOR, 100 FT. ROAD, 2 ND STAGE, 1 ST PHASE, BTM LAYOUT, BANGALORE 560 076. PAN:AABCC 1592M VS. THE INCOME TAX OFFICER, WARD 11(1), BANGALORE. APPELLANT RESPONDENT REVENUE BY : SHRI A. SUNDAR RAJAN, JT. CIT(DR) ASSESSEE BY : SHRI M.V. GURU PRASAD, C.A. DATE OF HEARING : 08.10.2012 DATE OF PRONOUNCEMENT : 12.10.2012 ITA NO.181/BANG/12 & CO NO.62/BANG/12 PAGE 2 OF 7 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO.181/BANG/2012 IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 17.11.2011 OF THE CIT(APPEALS)-I, BANGA LORE RELATING TO ASSESSMENT YEAR 2007-08. THE ASSESSEE HAS FILED CR OSS OBJECTION AGAINST THE VERY SAME ORDER OF THE CIT(APPEALS). B OTH THE APPEAL AND THE CO ARE PERTAINING TO ONE ISSUE I.E., REGARDING THE TAXABILITY OF A SUM OF Q 54,31,708. 2. THE FACTS GIVING RISE TO THE PRESENT APPEAL AND THE CO ARE AS FOLLOWS. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND EXPORT OF SOFTWARE, INCLUDING ONSIT E SOFTWARE CONSULTANCY SERVICES. 3. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT IN ANNEXURE-2 TO TAX AUDIT REPORT IN FORM 3CEB, IT HAS BEEN MENTIONED THAT THE ASSESSEE HAS RECEIVED REIMBURSEMENT OF EXPENSES OF Q 54,31,708 WHICH HIS NOT REFLECTED IN THE PROFIT & LOSS ACCOUN T. THE AO CALLED UPON THE ASSESSEE TO CLARIFY ABOUT THE NATURE OF THE AFORESA ID RECEIPT. IT APPEARS THAT THE ASSESSEE FILED BILLS REGARDING REIMBURSEME NT EXPENSES OUTSTANDING FROM CSE GLOBAL LTD., BUT DID NOT CLARIFY ON THE EX ACT NATURE OF THESE EXPENSES. THE ASSESSEE ALSO SUBMITTED THAT THE AFO RESAID REIMBURSEMENT OF EXPENSES WERE NOT CLAIMED IN THE PROFIT & LOSS A CCOUNT. IN THE ABOVE CIRCUMSTANCES, THE ASSESSING OFFICER HELD AS FOLLOW S:- AS SEEN FROM JOURNAL VOUCHERS FILED BY THE ASSESSE E COMPANY, IT IS CLEAR THAT THE ASSESSEE HAS RECEIVED MONEY FROM CSE GLOBAL LTD. AND APPROPRIATED IT AS REIMBURSEMENT OF PROJEC T EXPENSES. ITA NO.181/BANG/12 & CO NO.62/BANG/12 PAGE 3 OF 7 SINCE THE ASSESSEE COMPANY FAILED TO PROVIDE THE DE TAILS OF THE EXPENSES OF REIMBURSEMENT, I AM CONSTRAINED TO ADD BACK THE TOTAL REIMBURSEMENT RECEIVED BY IT TO THE TOTAL INC OME IN THE ABSENCE OF PROPER EXPLANATION BY THE ASSESSEE COMPA NY. 4. BEFORE THE CIT(APPEALS), THE ASSESSEE SUBMITTED THAT IT DOES ONSITE SOFTWARE CONSULTANCY SERVICES. THE ASSESSEE SENDS ITS EMPLOYEES TO WORK AT DIFFERENT SITES OF ITS CUSTOMERS. THE EXPENSES ON THESE EMPLOYEES ARE PAID BY HE ASSESSEE. LATER THE CUSTOMERS ON WHOSE SITES THE EMPLOYEES WORKED REIMBURSE THE ASSESSEE, THE COST INCURRED ON THE EMPLOYEES. THE ASSESSEE ALSO SUBMITTED THAT FOR SERVICES RENDERED TO THE CUSTOMERS, SEPARATE INVOICES ARE RAISED AND SUCH SERVICE CHARG ES ARE SHOWN AS INCOME IN THE PROFIT & LOSS ACCOUNT. THE ASSESSEE ALSO POINTED OUT THAT THE EXPENSES REIMBURSED ARE NOT SHOWN AS EXPENSES IN TH E PROFIT & LOSS ACCOUNT. THE ASSESSEE THEREFORE SUBMITTED THAT THE SUM OF Q 54,31,708 IS NOTHING BUT REIMBURSEMENT OF EXPENSES ON A COST TO COST BASIS. THERE IS NO ELEMENT OF INCOME INVOLVED WHATSOEVER AND THE AD DITION MADE BY THE AO SHOULD BE DELETED. THE CIT(A) HOWEVER HELD AS F OLLOWS:- 9. I HAVE CONSIDERED THE ABOVE. ADMITTEDLY THE REIMBURSEMENT OR RECEIPT HAS NOT BEEN REFLECTED THE P/L A/C. THIS IS SUPPORTED BY THE REMARK OF THE AUDITOR IN ANNEXU RE-2 TO FORM NO.3CEB. THE APPELLANT PLEADED THAT THE PROJECT ACC OUNT ENDS IN NO PROFIT AND NO LOSS AND THEREFORE THE LOSS OR PRO FIT IS NOT TAKEN IN TO THE P/L A/C. IN FACT NO PRUDENT BUSINESSMAN W ILL LIKE TO CARRY ON THE ONSITE PROJECTS UNLESS HE EARNS SOME P ROFIT. THAT THE APPELLANT HAS INCURRED EXPENDITURE IS CLEAR FROM TH E DETAILS PROVIDED UNDER THE CAPTIONS OF AIR TICKET, VISA, HO TEL STAY ETC., THAT SUCH IS ALSO REIMBURSED IS EVIDENCED BY SUPPOR TING ENTRIES IN PROJECT ACCOUNT. BUT AS POINTED OUT THE PREPONDERAN CE OF PROBABILITY WEIGHS HEAVILY AGAINST PRESUMPTION THAT MORE THAN 12 PROJECTS HAD BEEN UNDERTAKEN ABROAD WITHOUT ANY PRO FIT. SINCE THE EXPENDITURE IS OF RS.54,31,708/- IT IS PRESUMED THA T NET PROFIT FROM SUCH PROJECT IS AROUND RS.8,14,756/- (15%) AND THEREFORE ITA NO.181/BANG/12 & CO NO.62/BANG/12 PAGE 4 OF 7 THE ADDITION IS RESTRICTED TO RS.8,14,756/-. APPELL ANT GETS RELIEF OF RS.46,16,952/- GROUND NOS.2 TO 6 ARE ALLOWED PARTLY . 5. AGGRIEVED BY THE RELIEF GRANTED BY THE CIT(A), T HE REVENUE HAS PREFERRED THE APPEAL BEFORE THE TRIBUNAL. AGGRIEVE D BY THE ORDER OF THE CIT(A) IN SUSTAINING THE ADDITION TO THE EXTENT OF Q 8,14,756, THE ASSESSEE HAS PREFERRED THE CO BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD. CO UNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS WERE MADE BE FORE THE CIT(A). THE LD. DR RELIED ON THE ORDER OF THE AO. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE AR E OF THE VIEW THAT THE PLEA OF THE ASSESSEE WAS THAT THE ENTIRE SUM OF Q 54,31,708 IS REIMBURSEMENT OF EXPENSES INCURRED BY THE ASSESSEE IN RESPECT OF ITS EMPLOYEES, WHO HAD BEEN DEPUTED TO WORK ONSITE OF I TS CUSTOMERS. THIS IS A FACT WHICH THE ASSESSEE HAS TO PROVE. THE ASSESS EE IS ALSO EXPECTED TO SHOW THAT THESE REIMBURSEMENTS ARE ON A COST TO COS T BASIS AND THERE IS NO ELEMENT OF INCOME IN SUCH RECEIPTS. THE ASSESSEE IN THIS REGARD HAS EXPLAINED THE MODUS OPERANDI BY WHICH IT CARRIES OUT ONSITE SOFTWARE DEVELOPMENT. THE ASSESSEE DOES THE DEVELOPMENT AND EXPORT OF SOFTWARE INCLUDING ONSITE SOFTWARE CONSULTANCY SERVICES. TH E ASSESSEE RAISES INVOICES FOR THE SERVICES RENDERED BY IT TO THE CUS TOMERS AND THE SAME IS SHOWN AS THE INCOME IN THE PROFIT AND LOSS ACCOUNT. THE EMPLOYEES OF THE COMPANY INCUR VARIOUS EXPENDITURES AT THE SITE OF THE CUSTOMERS. EMPLOYEES ARE PAID THE AMOUNT OF EXPENDITURE BY THE COMPANY AS AND WHEN INCURRED BY THEM. THE EXPENDITURE ON EMPLOYEE S ARE DEBITED TO AN ITA NO.181/BANG/12 & CO NO.62/BANG/12 PAGE 5 OF 7 ACCOUNT HEAD CALLED PROJECT ACCOUNT AS AND WHEN INC URRED, THROUGH JOURNAL VOUCHERS. (SCHEME OF ENTRIES GIVEN BELOW AS ANNEXUR E-I). THOSE EXPENSES ARE NOT DEBITED TO ANY EXPENDITURE ACCOUNT . AT THE END OF EACH MONTH AN INVOICE IS RAISED TO THE COMPANY FOR THE A MOUNT OUTSTANDING IN THE PROJECT ACCOUNT. (INVOICE DETAILS GIVEN BELOW A S ANNEXURE-II). ANNEXURE I SEQUENCE OF ENTRIES FOR THE REIMBURSEMENT OF EXPENS ES ACCOUNT WHEN THE EXPENSES ARE INCURRED THE FOLLOWING ARE TH E ENTRIES (EXAMPLE TRAVEL TICKETS CHARGES, VISA CHARGES, TRAVEL AND OT HER REIMBURSEMENT) DR. PROJECT ACCOUNT CR. TO VENDOR ACCOUNT THESE IS ENTRY TOWARDS THE RECEIPT OF BILL FROM THE SERVICE PROVIDER OR EXPENSES STATEMENT FROM THE EMPLOYEE. WHEN THE EXPENSES ARE INVOICED TO THE CLIENT THE FO LLOWING ARE THE ENTRIES. DR. CLIENT ACCOUNT CR. PROJECT ACCOUNT THESE IS ENTRY TOWARDS FOR INVOICING THE CLIENT L IMITED TOWARDS THE REIMBURSEMENT OF EXPENSES. THE PROJECT ACCOUNT WILL BE ZERO, UNTIMATELY THE FO LLOWING ENTRIES WILL BE THERE. DR CLIENT ACCOUNT CR VENDOR ACCOUNT ITA NO.181/BANG/12 & CO NO.62/BANG/12 PAGE 6 OF 7 ANNEXURE II LIST OF INVOICES FOR REIMBURSEMENT OF EXPENSES INVOIC E NO. DATE CUSTOME R AMOUN T IN INR EXPENSES SUMMARY TRAVEL TICKETS VISA CHAR- GES TRAVEL REIMB- URSE OTHER REIMB- URSE- MENT TOTAL INITIAL- LY DEBITE D TO INV # 35 11.08.2006 CSE GLOBAL LTD. 991,163 194,939 2,607 793,052 565 991,163 PROJ ECT ACCO- OUNT INV # 36 11.08.2006 CSE GLOBAL LTD. 232,919 42,083 189,557 1,279 232,919 PROJECT ACCO- OUNT INV # 37 11.08.2006 CSE GLOBAL LTD. 585,599 88,237 496,522 840 595,599 PROJECT ACCO- OUNT INV # 38 11.08.2006 CSE GLOBAL LTD. 217,570 192,841 14,643 9,086 1,000 217,570 PR OJECT ACCO- OUNT INV # 39 11.08.2006 CSE GLOBAL LTD. 10,000 10,000 10,000 PROJECT ACCO- OUNT INV # 42 11.09.2006 CSE GLOBAL LTD. 18,713 18,713 18,713 PROJECT ACCO- OUNT INV # 47 16.10.2006 CSE GLOBAL LTD. 18,221 18,221 18,221 PROJECT ACCO- OUNT INV # 53 18.12.2006 CSE GLOBAL LTD. 914,322 723,554 15,348 174,692 728 914,322 PRO JECT ACCO- OUNT INV # 54 18.12.2006 CSE GLOBAL LTD. 630,170 183,812 1,010 445,348 630,170 PROJECT ACCO- OUNT INV # 12 26.03.2007 CSE GLOBAL LTD. 555,761 127,328 2,375 426,058 555,761 PROJECT ACCO- OUNT INV # 13 26.03.2007 CSE GLOBAL LTD. 799,068 427,507 38,735 289,658 43,168 799,068 PROJE CT ACCO- OUNT INV # 16 31.03.2007 CSE GLOBAL LTD. 458,202 433,546 2,280 22,376 458,202 PROJECT ACCO- OUNT TOTAL 5,431,708 2,413,847 76,998 2.846,349 94,514 5431708 8. NEITHER THE AO NOR THE CIT(A) HAS EXAMINED THE C LAIM OF THE ASSESSEE. IF THE INCOME FROM ONSITE PROJECT HAS BE EN ACCOUNTED FOR IN THE BOOKS OF ACCOUNT AND IF IT IS FOUND THAT, THAT INCO ME IS NET OF THE REIMBURSEMENT OF EXPENSES BY THE CUSTOMER TO THE AS SESSEE, THEN THE ASSESSING OFFICER HAS TO EXAMINE AS TO WHETHER THE REIMBURSEMENT IS ON COST TO COST BASIS. THE ONUS WILL BE ON THE ASSESS EE TO ESTABLISH ALL THE ITA NO.181/BANG/12 & CO NO.62/BANG/12 PAGE 7 OF 7 ABOVE FACTS. THE ASSESSEE HAS ALREADY GIVEN THE BR EAK-UP OF EXPENSES AND HE HAS TO FURNISH THE SUPPORTING EVIDENCE TO SH OW THAT THESE WERE ACTUAL COST TO COST REIMBURSEMENT. WITH THE AFORES AID OBSERVATIONS, THE ORDER OF THE CIT(A) IS SET ASIDE AND THE AO IS DIRE CTED TO EXAMINE THE ISSUE AFRESH IN THE LIGHT OF THE DIRECTIONS GIVEN ABOVE. 9. FOR STATISTICAL PURPOSES, THE APPEAL AS WELL AS THE CROSS OBJECTION ARE TREATED AS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF OCTOBER, 2012. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 12 TH OCTOBER , 2012. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. C IT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE..