DCIT Corporate Circle 6(2) , CHENNAI V. Vetri Software India (P) Ltd , CHENNAI

ITA 2011/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5888 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 18-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN

Judgement Text

, C/ SMC , IN THE INCOME TAX APPELLATE TRIBUNAL C/SMC BENCH, CHENNAI . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER I.T.A.NO.2011 /MDS./2017 ( ASSESSMENT YEAR : 2008-09 ) DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(2), NEW BLOCK,AAYAKAR BHAVAN, CHENNAI-34. VS. M/S.VETRI SOFTWARE INDIA (P) LTD., ( NOW MERGED WITH M/S.SOURCE HOV INDIA PVT LTD.,) DOWLATH TOWERS, NO.59-60,8 TH FLOOR, TAYLORS ROAD, KILPAUK, CHENNAI 600 010. PAN AACCV 0694 E ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : MR.B.SAGADEVAN, JCIT, D.R / RESPONDENT BY : MR.R.VIJAYARAGHAVAN,ADVOCATE ! ' / DATE OF HEARING : 02.11.2017 #$%& ! ' /DATE OF PRONOUNCEMENT : 02.11.2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE REVENUE, AGGRIEVED B Y THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-11, CHENN AI DATED 28.03.2017 PERTAINING TO ASSESSMENT YEAR 2008-09. ITA NO.2011 /MDS/2017 2 2. THE REVENUE RAISED THE FOLLOWING GROUNDS FOR AD JUDICATION. 1. THE ORDER OF THE CIT(APPEALS) IS CONTRARY TO T HE LAW AND FACTS OF THE CASE. 2. THE LD.CIT(A) ERRED IN DIRECTING THE AO TO VER IFY AND DETERMINE THE INCOME OF ASSESSEE ON THE BASIS OF THE INVOICES RAI SED BY IT DURING THE RELEVANT PREVIOUS YEAR AND GRANT CREDIT FOR CORRESP ONDING TDS RELATABLE TO THAT INCOME. 2. 1 THE LD.CIT(A) OUGHT TO HAVE APPRECIATED THAT AS PER SECTION 251(1)(A) OF THE ACT, THE POWER TO SET ASIDE OR EXAMINING THE ISSUE AFRESH HAS BEEN OMITTED WITH EFFECT FROM 01.06.2001 AS PER FIN ANCE ACT, 2001. 3. THERE WAS A DELAY OF 69 DAYS IN FILING THIS APPEAL BY THE DEPARTMENT. THE DEPARTMENT FILED AN AFFIDAVIT DATED 18.08.2017 STATING THAT THE ORDER OF THE LD.CIT(A) IN ITA NO. 1379/2013- 14/CIT(A)-11 DATED 28.03.2017 FOR THE ASST YEAR 200 8-09 WAS COMMUNICATED TO AO, CORPORATE CIRCTE-3(2), CHENNAT ON 11.04.2017. HOWEVER, THE ASSESSEE M/S. VETRI SOFTWARE INDIA (P) LTD., WHICH WAS ASSESSED IN CORPORATE CIRC[E-3(2), HAS GOT MERGED W ITH M/S.SOURCE HOV INDIA PRIVATE LTD WHICH IS BEING ASSESSED IN CO RPORATE CIRCLE- 6(2). IT WAS SUBMITTED THAT IN VIEW OF THIS MERGER, THE FILES AND RELATED DOCUMENTS WERE TRANSFERRED TO THE OFFICE OF THE DCI T, CORPORATE ITA NO.2011 /MDS/2017 3 CIRCLE 6(2) CHENNAI ONLY ON 27/07/2017 FROM THE OFF ICE OF ACIT, CORPORATE CIRCLE-3(2)(OSD). AS SOON AS THE RECORD O F THE CASE WAS RECEIVED IN THIS OFFICE, THE SCRUTINY REPORT WAS PR EPARED AND FORWARDED FOR NECESSARY APPROVAL. AFTER THAT, IMMED IATELY APPEAL PAPERS WERE PREPARED AND SUBMITTED ON 18.08.2017 BE FORE CHENNAI TRIBUNAL AND THE SAME WAS BEING SUBMITTED AFTER A D ELAY OF 69 DAYS. THE LD. DCIT CHENNAI REQUESTED THAT THE DELAY IN FI LLING THE APPEAL MAYBE CONDONED AND THE APPEAL MAY BE HEARD ON MERIT S. 3.1 I HAVE HEARD THE LD. REPRESENTATIVE OF ASSESSE ES COUNSEL AND THE LD. DR. I FIND THAT THERE WAS SUFFICIENT CAUSE FOR NOT FILING THE APPEAL WITHIN THE STIPULATED TIME. THEREFORE, I CO NDONE THE DELAY AND ADMIT THE APPEAL. 4. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSES SEE HAD ACCOUNTED A SUM OF ` 4,33,30,017/- AS INCOME IN THE P&L ACCOUNT. FURTHER, THE ASSESSEE HAD PRODUCED FRESH TDS CERTIF ICATES WHICH WAS NOT ACCOUNTED FOR ITS UNIT-IL WITH AMOUNT OF ` 1,03,08,485/- AS AMOUNT CREDITED AND ASKED FOR THE TDS CREDIT OF ` 11,67,952/-. THE ASSESSEE ITA NO.2011 /MDS/2017 4 HAD ORIGINALLY FILED ONLY ONE TDS CERTIFICATE FOR I TS UNIT-I WITH AMOUNT OF ` 4,24,62,946/- AS AMOUNT CREDITED AND ASKED FOR THE TDS CREDIT OF ` 42,51,188/-. IT WAS STATED BY THE ASSESSEE THAT THE TDS CREDIT FOR THE SUM RELATED TO UNIT-IL WAS NOT ACCOUNTED DUE TO OMISSION AND THE SAME MAY BE CONSIDERED. AFTER CONSIDERING BOTH TDS CERTIFICATES, IT WAS FOUND THAT SL.NO. AMOUNT CREDITED AS PER TDS CERTIFICATE AMOUNT OF TDS CLAIM AMOUNT CREDITED AS PER P&L ACCOUNT 1 424,62,946 42,51,188 433,30,017 2 103,08,485 11,67,952 TOTAL 527,71,431 54,19,140 UPON CONFRONTATION ON THE DIFFERENCE BETWEEN THE AM OUNT CREDITED AS PER P & L ACCOUNT AND TDS CERTIFICATES, THE ASSESSE E HAD REPLIED VIDE ITS LETTER DATED 02-12-2010 REGARDING RECONCIL IATION AS UNDER: RECONCILIATION BETWEEN VETRI SOFTWARE INDIA PUT. LT D. VS. LASON INDIA PUT. LTD. A.Y 2008-09 . DESCRIPTION UNIT 1 UNIT 2 UNIT 3 TAXABLE AMOUNT AS PER FORM 16A SALES AMOUNT AS PER P & L DIFFERENCE DIFFERENCE BREAK UP 42462946 34155501 8307445 10308485 9174506 1133969 52771431 43330017 9441414 ITA NO.2011 /MDS/2017 5 SERVICE TAX SERVICE TAX CESS TAXABLE AMOUNT ALREADY INCLUDED IN APRIL AND MAY 07 BUT SHOWN SEPARATELY DUE TO CESS REVISED FROM 2% TO 3% IN FORM 16A ADVANCE RECEIVED FROM LASON 4359712 125461 65400 3756872 1100941 33028 0 0 5460653 158489 65400 3756872 TOTAL 8307445 1133969 9441414 IT IS EVIDENT FROM THE ABOVE THAT THE ASSESSEE CLAI MS EXCESS TDS CREDIT AND ALSO CLEAR THAT THE ASSESSEE HAS NOT ACC OUNTED ITS INCOME CORRECTLY PARTICULARLY WITH REGARD TO THE ALLEGED ADVANCE RECEIVED FROM LASON FOR THE FOLLOWING REASONS: A. IT IS APPARENT FROM THE TDS CERTIFICATES THAT A TOTAL SUM OF ` 5,27,71,431/- INCLUSIVE OF SERVICE TAX AND CESS AND THE ALLEGED ADVANCE WAS CREDITED INTO ASSESSEE S ACCOU NT. B. IN ALL THE CERTIFICATES IT WAS MENTIONED THAT TH E PAYMENTS WERE MADE ON ACCOUNT OF PROFESSIONAL FEE U/S 194J. C. IN NONE OF THE CERTIFICATES, IT WAS MENTIONED TH AT ANY SUM WAS CREDITED EITHER AS ADVANCE TOWARDS PROFESSIONAL SER VICES. D. ALSO EMPHASIZED THAT AS AGAINST THE COMMERCIAL P RUDENCE, ANY DEDUCTEE WILL NOT ALLOW THE DEDUCTOR TO DEDUCT TDS ON THE ITA NO.2011 /MDS/2017 6 RECEIPTS WHICH THE DEDUCTEE FEELS THAT SUCH RECEIPT S ARE NOT OF ITS INCOME. E. THE REVENUE RECOGNITION AS PART OF THE NOTES OF ACCOUNTS DID NOT MENTION ANY OF SUCH TREATMENT FOR NOT INCLUDING ANY SUM WHICH HAS BEEN DULY CREDITED INTO ASSESSEES ACCOUNT AS E VIDENT FROM THE TDS CERTIFICATES. F. THE ASSESSEE HAD CONSCIOUSLY CLAIMED THE ENTIRE TDS CREDIT IN ITS RETURN OF INCOME WHICH VITIATES THE PROVISION O F SECTION 199 OF I.T. ACT. THE ASSESSEES PRACTICE OF NOT OFFERIN G THE RECEIPTS AS INCOME, BUT CLAIMING THE RELEVANT TDS DO NOT FIN D ANY MERIT. THEREFORE, THE AO RECKONED AN AMOUNT OF ADVANCE OF ` 37,56,872/- FROM THE COMPANY AS INCOME. AGAINST THIS, THE ASSES SEE WENT IN APPEAL BEFORE THE LD.CIT(A). 4.1 DURING THE COURSE OF APPEAL PROCEEDINGS, THE A R OF THE APPELLANT HAS FILED HIS SUBMISSION BEFORE THE CIT(A ) THAT THE ASSESSEE DOES REGULAR BPO WORK THROUGHOUT THE YEAR FOR ITS PARENT COMPANY, LASON INDIA AND AS AND WHEN SERVICES WERE RENDERED BILLS ITA NO.2011 /MDS/2017 7 WERE RAISED BY THE ASSESSEE AGAINST LASON INDIA AND ADJUSTED AGAINST THE ADVANCE GIVEN BY LASON INDIA. ACCORDING TO LD.A.R, THIS SYSTEM OF ADJUSTING BILLS PAYABLE AGAINST THE ADVAN CES RECEIVED IS CLEARLY BROUGHT ABOUT IN THE CASH FLOW STATEMENTS A ND LEDGER ACCOUNTS ANNEXED. FURTHERMORE, THE INCOME OF THE AS SESSEE AND EXPENDITURE FOR LASON INDIA FOR THE F.Y 2007-08 CLE ARLY MATCH SHOWING THAT THE BALANCE OF ADVANCES YET TO BE ADJU STED AGAINST BILLS TO BE RAISED. IT IS NOT INCOME IN THE HANDS OF THE ASSESSEE AS IT WAS NOT FOR ANY SERVICES WHICH HAVE BEEN RENDERED BY AS SESSEE TO LASON INDIA. THERE WAS A DEBT CREATED IN FAVOUR OF THE AS SESSEE ENABLING THE ASSESSEE TO RECEIVE THE AMOUNT AS ITS INCOME. I T IS SUBMITTED THAT, LASON INDIA DEDUCTED TDS ON THE ADVANCE IN VI EW OF THE PROVISIONS OF SEC 194J OF THE IT ACT AND THIS WILL NOT CHANGE THE CHARACTER OF THE RECEIPT AS REVENUE IN THE HANDS OF THE ASSESSEE. ACCORDING TO LD.A.R, WHAT IS REVENUE I.E., INCOME I N THE HANDS OF VETRI SOFTWARE (ASSESSEE) IS ONLY THE PAYMENTS RECEIVED/ RECEIVABLE FOR ACTUAL SERVICES WHICH HAVE BEEN RENDERED BY THE ASS ESSEE AND BILLED TO LASON. FURTHER THE HOLDING COMPANY HAS GIVEN A C ONFIRMATION STATING THAT AN AMOUNT OF ` 37,56,872/- WAS PAID TO VETRI SOFTWARE ITA NO.2011 /MDS/2017 8 INDIA PRIVATE LIMITED TOWARDS TRADE ADVANCE DURING THE FINANCIAL YEAR 2007-08 AND THE SAME WAS ADJUSTED AGAINST THEIR SUB SEQUENT BILLING TO THEIR HOLDING COMPANY LASON INDIA PRIVATE LIMITE D [ PRESENTLY SOURCE HOV INDIA PRIVATE LIMITED]. 4.2 THE LD.CIT(A) PLACED RELIANCE IN THE EARLIER ORDER OF LD.CIT(A) FOR ASSESSMENT YEAR 2007-08 IN ITA NO.1397/2013-14 VIDE ORDER DATED 06.01.2014 WHEREIN IT HAS BEEN HELD THAT:- AFTER CAREFULLY CONSIDERING THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE LD.A.R THE HOLDING COMPANY LASON INDIA HAS ADVANCE D AN AMOUNT OF RS.4,13,39,600/- PERTAINING THE RELEVANT FINANCIAL YEAR (2006-07) AGAINST WHICH THE ASSESSEE HAS RAISED INVOICES AMOUNTING TO RS.3, 63,70,455/- + SERVICE TAX & CESS AMOUNTING TO RS.4,05,45,850/-. THE AQO HAS DIS ALLOWED THE ENTIRE DIFFERENCE BETWEEN THE ADVANCE PROVIDED AND THE INV OICES RAISED AMOUNTING TO RS.25, 93,750/- HOLDING IT AS REVENUE. FIRSTLY, THIS AMOUNT OF RS.25, 93,750/- WAS SUBMITT ED BY THE LEARNED COUNSELS AS BEING PART OF THE WORKING ADVANCES GIVEN YEAR ON YEAR BY HOLDING COMPANY (LASON) TO THE ASSESSEE (VETRI) WITH TOTAL ADVANCE GIVEN TO VETRI BY LASON STANDING AT RS. 77,27,383/-. ON PERUSAL FURTHER OF BOTH COMPANIES BOOKS, THIS AMOUNT IS CLEARLY AN ADVANCE GIVEN BY LASON INDIA ( THE HOLDING COMPANY) AS SEEN IN LASONS BALANCE SHEET UNDER THE HEAD LOANS & ADVANCES (SCHEDULE 9) HAVING AN AMOUNT OF RS. 77,27,383/- AS LOANS TO SU BSIDIARY COMPANIES. CORRESPONDINGLY, THE ASSESSEE (VETRI) HAS SHOWN IN ITS BALANCE SHEET, LIABILITIES (SCHEDULE-6) AN AMOUNT OF RS.7,99,174/- AS DUE TO HOLDING COMPANY LASON INDIA PVT LTD. AND THE DIFFERENCE AMOUNT OF RS.69, 96,344/- WHICH WAS TOWARDS MARCH 2007 INVOICES RAISED BY VETRI (THOUGH NOT REC EIVED BY LASON INDIA BY MARCH 2007) AND INCLUDED IN THE INCOME OF VETRI (AS SESSEE) AMOUNTING TO ITA NO.2011 /MDS/2017 9 RS.3,63,70,455/-. HENCE, THE AMOUNT OF RS.25,93, 75 0/- WHICH IS PART OF THE RUNNING ADVANCE ACCOUNT CANNOT BE TREATED AS A REVE NUE RECEIPT FOR THE CURRENT YEAR. SECONDLY, THE AMOUNT OF RS.25, 93,750/- HAS B EEN ARRIVED AT BY SUBTRACTING THE ADVANCE GIVEN DURING THE YEAR BY LASON TO VETRI AS AGAINST THE INVOICES RAISED DURING THE YEAR BY VETRI. THE ASSESSEE SEEMS TO HAVE CLAIMED CREDIT ON THE ENTIRE AMOUNT INCLUDING ADVANCES GIVEN BY ITS H OLDING COMPANY LASON INDIA. THE ASSESSEE SHOULD BE TAXED ONLY ON THE INCOME FOR WHICH INVOICES HAVE BEEN RAISED DURING THE YEAR (I.E. RS.4,05,45,850/-) EVEN THOUGH THE RECIPIENT HAS DEDUCTED TAX ON THE TOTAL AMOUNT PAID BY THEM INCLU DING THE ADVANCES (I.E. RS.4, 13,39,600/-). THEREFORE THE AO IS DIRECTED TO VERIF Y AND DETERMINE THE INCOME OF THE ASSESSEE ON THE BASIS OF THE INVOICES RAISED BY IT. HENCE, LD.CIT(A) REMITTED THE ISSUE TO AO ON SIMILA R DIRECTION GIVEN IN THE ABOVE CITED ASSESSMENT YEAR 2007-08. 5. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN MY OPINION, WITH EFFECT FROM 01.06.200 1, LD.CIT(A) HAS NO POWER TO SET ASIDE THE ISSUE TO THE FILE OF LD. ASS ESSING OFFICER FOR FRESH CONSIDERATION AS PER SECTION 251(1)(A) OF THE ACT. HOWEVER, AS SEEN FROM THE EARLIER ORDER OF THE LD.CIT(A), THIS ISSUE IS ALREADY DECIDED. IN VIEW OF THIS, I AM INCLINED TO REMIT TH IS ISSUE TO THE FILE OF LD. ASSESSING OFFICER WITH A DIRECTION TO DETERMINE THE INCOME OF ASSESSEE ON THE BASIS OF INVOICES RAISED BY IT DURI NG THE RELEVANT ITA NO.2011 /MDS/2017 10 PREVIOUS YEAR AND TO GRANT CREDIT FOR CORRESPONDING TDS RELATABLE TO THAT INCOME. 6. IN THE RESULT, THE APPEAL OF REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 02 ND NOVEMBER, 2017. SD/- ( ) ( CHANDRA POOJARI ) /ACCOUNTANT MEMBER CHENNAI, DATED THE 02 ND NOVEMBER, 2017 . K S SUNDARAM. ' ( )!*+ ,+%! / COPY TO: 1 . / APPELLANT 3. ' ' -! () / CIT(A) 5. +0 1 )!)23 / DR 2. / RESPONDENT 4. ' ' -! / CIT 6. 1 45 6 / GF