M/s Fidelity Information Services India Pvt. Ltd., Mohali V. DCIT, Mohali

ITA 363/CHANDI/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4532 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 23-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ASHISH GUPTA
• Keywords: Transfer pricing; Principle of natural justice; Wrong claim; Notional interest
• Section: 37(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, A, CHANDIGARH , ! . .., # $, %& BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ./ ITA NO. 363/CHD/2017 / ASSESSMENT YEAR : 2012-13 FIDELITY INFORMATION SERVICES INDIA PRIVATE LIMITED (EARLIER KNOWN AS SECOND FOUNDATION (INDIA) PVT. LTD.,] 5 TH FLOOR, LANDMARK PLAZA, QUARK CITY (SEZ), INDUSTRIAL FOCAL POINT, A-40A, PHASE VIII B,MOHALI-160059 THE DCIT, CIRCLE 1(1), CHANDIGARH ./PAN NO: AAGCS0395D / APPELLANT /RESPONDENT ./ ITA NO. 433/CHD/2016 / ASSESSMENT YEAR : 2011-12 FIDELITY INFORMATION SERVICES INDIA PRIVATE LIMITED (EARLIER KNOWN AS SECOND FOUNDATION (INDIA) PVT. LTD.,] 5 TH FLOOR, LANDMARK PLAZA, QUARK CITY (SEZ), INDUSTRIAL FOCAL POINT, A-40A, PHASE VIII B,MOHALI-160059 THE DCIT, CIRCLE 1(1), CHANDIGARH ./PAN NO: AAGCS0395D / APPELLANT /RESPONDENT ! /ASSESSEE BY : SH. ASHISH GUPTA, CIT DR ' ! / REVENUE BY : SH. VISHAL KALRA, CA # $ % /DATE OF HEARING : 06.05.2019 &'() % / DATE OF PRONOUNCEMENT : 30. 05.2019 %' / ORDER ITA NOS. 363/CHD/2017 & 433/CHD/2016- FIDELITY INFORMATION SERVICES INDIA PVT LTD, MOHALI 2 PER SANJAY GARG, JUDICIAL MEMBER: THESE APPEALS HAVE BEEN PREFERRED BY THE ASSESSEE A GAINST THE SEPARATE ORDERS DATED 16.12.2016 (IN ITA NO.363/CHD /2017) AND DATED 26.2.2016 (IN ITA NO. 433/CHD/2016) OF THE DCIT, CIRCLE -1 (1), CHANDIGARH. 2. SINCE IDENTICAL FACTS AND ISSUES ARE INVOLVED I N BOTH THE APPEALS AND THE SAME HAVE BEEN HEARD TOGETHER, THESE ARE BE ING DISPOSED OF BY THIS COMMON ORDER. 3. FIRST, WE TAKE UP THE ASSESSEES APPEAL FOR ASSE SSMENT YEAR 2011- 12. ITA NO. 433/CHD/2016 (A.Y. 2011-12) 4. THE ASSESSEE IN THIS APPEAL HAS TAKEN THE FOLLOW ING GROUNDS OF APPEAL:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER ('LD. AO') IS BAD IN LAW AND VOID AB-INITIO. 1.1 THAT ON FACTS OF THE CASE, THE LD. TPO / LD. AO HAVE PASSED THE IMPUGNED ORDER IN BREACH OF THE PRINCIPLES OF NATURAL JUSTICE. 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE REFERENCE MADE BY THE LD. ASSESSING OFFICE R SUFFERS FROM JURISDICTIONAL ERROR AS THE LD. AO DID NOT RECORD ANY REASONS THEREFORE. 3. THE LD. AO/LD. DRP/LD. TPO ERRED BY MAKING A NOTIONAL ADDITION OF INR 4,541,513 ON ACCOUNT OF ALLEGED INTEREST ON PERCEIVED DELAY IN COLLECTION O F RECEIVABLES FROM THE ASSOCIATED ENTERPRISES ('AE') WITHOUT TAKING DUE COGNIZANCE OF THE BUSINESS MODEL ITA NOS. 363/CHD/2017 & 433/CHD/2016- FIDELITY INFORMATION SERVICES INDIA PVT LTD, MOHALI 3 AND SUBMISSIONS MADE BY THE APPELLANT. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED, BOTH ON FACTS AND IN LAW, BY DISREGARDING THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL DIRECTING THE LD. AO TO ADOPT LIBOR PLUS 400 BASIS POINTS FOR THE CALCULATION OF ALLEGED INTEREST WITH REGARDS TO RECEIVABLE. THE LD . AO INSTEAD APPLIED SBI BASE RATE PLUS 150 BASIS POINTS FOR CALCULATION OF ALLEGED NOTIONAL INTEREST ON RECEIVABLES. 5. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED BOTH ON FACTS AND IN LAW, IN DISALLOWING THE EXPENDITURE OF INR 40,121,256 INCURRED ON FOREIGN TRAVEL OF THE EMPLOYEES FOR BUSINESS PURPOSES. 5.1 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN DISREGARDING THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL HOLDING THAT THE FOREIGN TRAVELLING EXPENSES WERE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSES OF THE APPELLANT'S BUSINESS AND ALLOWABLE UNDER SECTION 37(1) OF THE ACT. 5.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO ERRED BOTH ON FACTS AND IN LAW IN HOLDING THAT THE FOREIGN TRAVELLING EXPENSES WERE NOT INCURRED IN THE NORMAL AND ORDINARY COURSE OF BUSINESS OF THE APPELLANT. 5.3 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. ASSESSING OFFICER ERRED BOTH ON FACTS AND IN LAW IN HOLDING THAT THE APPELLANT FAILED TO ESTABLISH THAT FOREIGN TRAVELLING EXPENSES WERE REIMBURSED FROM THE APPELLANT'S CUSTOMERS AND IS A FALSE CLAIM, WHEREAS IT WAS FULLY ESTABLISHED BEFORE HIM THAT THE SAME WERE REIMBURSED. 5.4THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO HAS GROSSLY ERRED IN HOLDING THAT THE SERVICE AGREEMENTS BETWEEN THE APPELLANT AND ITS CUSTOMERS DID INCLUDE REIMBURSEMENT OF ITA NOS. 363/CHD/2017 & 433/CHD/2016- FIDELITY INFORMATION SERVICES INDIA PVT LTD, MOHALI 4 FOREIGN TRAVELLING COSTS, WHEREAS, THE SAME INCLUDED TRAVEL COST. 5.5WITHOUT PREJUDICE TO THE ABOVE GROUND, WHERE ANY DISALLOWANCE OF FOREIGN TRAVELLING EXPENDITURE IS MADE, THE CORRESPONDING SERVICE REVENUE SHOULD BE ACCORDINGLY REDUCED AS THE APPELLANT IS CHARGING THE COST ON A COST PLUS BASIS TO ITS CUSTOMERS. 6. THE LD. AO/ LD. DRP/LD. TPO ERRED IN NOT APPRECIATING THE FACT THAT THE APPELLANT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND ENJOYING THE TAX HOLIDAY BENEFITS CONFERRED UNDER THE TAX HOLIDAY BENEFITS A S PER THE SOFTWARE TECHNOLOGY PARK OF INDIA (HEREIN AFTER REFERRED TO AS ''STPI') SCHEME. SO THERE IS N O MOTIVE TO SHIFT THE PROFIT TO ANY OTHER JURISDICTIO N. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED BOTH IN FACTS AND IN LAW IN NOT GRANTING THE CREDIT OF TAXES PAID TO THE EXTENT OF RS. 544,959 WHILE COMPUTING THE PAYABLE CONSEQUENT TO THE IMPUGNED ASSESSMENT ORDER 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. AO HAS ERRED BOTH IN FACTS AND IN LAW IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271 (L)(C) OF THE ACT. 9. THAT THE LD. AO ERRED IN FACTS AND IN LAW IN CHARGING AND COMPUTING INTEREST UNDER SECTION 234D OF THE ACT. THAT THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, DELETE, RESCIND, FORGO OR WITHDRAW ANY OF THE ABOVE GROUNDS OF OBJECTION EITHER BEFORE OR DURING THE CO URSE OF PROCEEDINGS IN THE INTEREST OF THE NATURAL JUSTI CE. ITA NOS. 363/CHD/2017 & 433/CHD/2016- FIDELITY INFORMATION SERVICES INDIA PVT LTD, MOHALI 5 5. GROUND NOS. 1 TO 4 : AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT AS PER THE INSTRUCTIONS OF HIS C LIENT HE DOES NOT PRESS GROUND NOS. 1 TO 4 OF THE APPEAL. GROUND NOS. 1 TO 4 OF THE APPEAL ARE, THEREFORE, DISMISSED AS NOT PRESSED. 6. GROUND NO. 5 : VIDE GROUND NO. 5, THE ASSESSEE HAS AGITATED THE ACTION OF THE LOWER AUTHORITIES IN MAKING THE DISAL LOWANCE OF 40,121,256/- INCURRED ON FOREIGN TRAVEL OF THE EMPL OYEES FOR BUSINESS PURPOSES. 7. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE SALE OF SOFTWARE DEVELOP MENT SERVICES. THE AFORESAID EXPENDITURE INCURRED ON FOREIGN TRAVEL OF THE EMPLOYEES WAS RELATING TO THE ACTIVITY OF SOFTWARE DEVELOPMENT SE RVICES OF THE ASSESSEE. THAT THE AFORESAID EXPENDITURE OF FOREIGN TRAVEL WA S DULY INCLUDED IN THE HEAD OPERATING AND ADMINISTRATIVE EXPENSES TOTALL ING TO 1,39,702,000/-. THE TOTAL EXPENDITURE OF THE ASSESS EE AS PER THE PROFIT AND LOSS ACCOUNT WAS AT 6,50,292,000/- WHICH WAS RECOVERED BY THE ASSESSEE FROM HIS FOREIGN ASSOCIATE ENTERPRISE WITH A MARK UP OF 15% ON TOTAL COST WHICH COMES TO 7,47,836,000/- AND ASSESSEE ACCORDINGLY HAS SHOWN ITS REVENUE / GROSS TOTAL INCOME AT 7,47,841,000/- IN THE PROFIT AND LOSS ACCOUNT. THE LD. COUNSEL FOR THE ASSESSEE IN THIS RESPECT HAS ALSO INVITED OUR ATTENTION TO PAGE 49 OF THE PAPER BOOK TO SHOW THAT THE ITA NOS. 363/CHD/2017 & 433/CHD/2016- FIDELITY INFORMATION SERVICES INDIA PVT LTD, MOHALI 6 REVENUE ON ACCOUNT OF BUSINESS OPERATIONS HAS BEEN SHOWN AT 7,47,841,000/- AND FURTHER THAT THE OPERATING AND A DMINISTRATIVE EXPENSES HAVE BEEN SHOWN AT 1,39,702,000/- WHICH INCLUDED AN EXPENDITURE OF 47,308,000/- INCURRED ON TRAVEL AND CONVEYANCE AND THAT THE FOREIGN TRAVEL EXPENDITURE OF 40,121,258/- WAS INCLUDED IN THIS AMOUNT. THE ENTIRE AMOUNT HAS BEEN REIMBURSED BY THE AE OF THE ASSESSEE ALONG WITH MARK UP OF 15% OF THE TOTAL COS T. IN VIEW OF THE ABOVE, ASSESSEE HAD DEMONSTRATED THAT A DIRECT INCO ME WAS EARNED BY THE ASSESSEE ON THE FOREIGN EXPENDITURE @ 15% OF THE TO TAL COST. 8. THE LD. DR COULD NOT REBUT THE AFORESAID FACTS D EMONSTRATED BY THE LD. COUNSEL FOR THE ASSESSEE. IN VIEW OF THIS, WE DO NOT FIND ANY JUSTIFICATION ON THE PART OF THE LOWER AUTHORITIES IN MAKING THE IMPUGNED DISALLOWANCE ON FOREIGN TRAVEL EXPENSES OF THE EMPL OYEES OF THE ASSESSEE. THE ADDITION MADE BY THE LOWER AUTHORITIE S ON THIS ISSUE IS ORDERED TO BE DELETED. 9. GROUND NO. 6 : AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT AS PER THE INSTRUCTIONS OF THE CLIEN T, HE DOES NOT PRESS THIS GROUND AND THE SAME IS ACCORDINGLY DISMISSED AS NO T PRESSED. 10. GROUND NO.7: VIDE THIS GROUND THE ASSESSEE HAS AGITATED THE ACTION OF THE CIT(A) IN NOT GRANTING THE CREDIT OF TAX PAID TO THE EXTENT OF 5,44,959/- WHILE COMPUTING THE TAX PAYABLE CONSEQU ENT TO THE IMPUGNED ASSESSMENT ORDER. ITA NOS. 363/CHD/2017 & 433/CHD/2016- FIDELITY INFORMATION SERVICES INDIA PVT LTD, MOHALI 7 11. SINCE GROUND NO. 7 RELATES TO THE COMPUTATION O F THE INCOME AFTER GRANT OF CREDIT OF TAXES PAID, HENCE, THIS FACTUAL ASPECT IS REQUIRED TO BE EXAMINED BY THE ASSESSING OFFICER. WE, THEREFORE, RESTORE THE MATTER ON THIS FILE OF THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY THE CONTENTION OF THE ASSESSEE REGARDING TAX PAID OF 5,44,949/- AND AS IF CREDIT OF THE SAME HAS NOT BEEN GIVEN TO THE ASSESS EE. IF THE CONTENTION OF THE ASSESSEE IS FOUND TO BE CORRECT, THEN GIVE D UE CREDIT OF TAXES PAID TO THE ASSESSEE. 12. GROUND NO. 8 : THIS GROUND IS PREMATURE AND IS ACCORDINGLY DISMISSED. 13. GROUND NO.9 IS CONSEQUENTIAL IN NATURE AND DOES NOT REQUIRE AN Y ADJUDICATION AT THIS STAGE. IN VIEW OF THE FINDINGS GIVEN ABOVE, THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. ITA NO. 363/CHD/2107 (A./Y.2012-13) 14. THE ASSESSEE IN THIS APPEAL HAS TAKEN FOLLOWING GROUNDS OF APPEAL:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER ('LD. AO') IS BAD IN LAW AND VOID AB-INITIO. 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED BOTH ON FACTS AND IN LAW, IN DISALLOWING THE EXPENDITURE OF INR 30,819,376 INCURRED ON FOREIGN TRAVEL OF THE EMPLOYEES FOR BUSINESS PURPOSES. ITA NOS. 363/CHD/2017 & 433/CHD/2016- FIDELITY INFORMATION SERVICES INDIA PVT LTD, MOHALI 8 2.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO ERRED BOTH ON FACTS AND IN LAW IN HOLDING THAT THE FOREIGN TRAVELLING EXPENSES WERE N OT INCURRED IN THE NORMAL AND ORDINARY COURSE OF BUSINESS OF THE APPELLANT. 2.2 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN DISREGARDING THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL ('DRP') IN THE APPELLANT'S OWN CASE FOR AY 2010-11 AND AY 2011-12, HOLDING THAT THE FOREIGN TRAVELLING EXPENS ES WERE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSES OF THE APPELLANT'S BUSINESS AND IS AN ALLOWABLE EXPENDITURE UNDER SECTION 37(1) OF THE ACT. 2.3 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. AO GROSSLY ERRED IN MERELY RELYING UPON THE PREVIOUS ASSESSMENT ORDERS PASSED IN THE CASE OF THE APPELLANT AND IN HOLDING THAT THE SERVI CE AGREEMENTS BETWEEN THE APPELLANT AND ITS CUSTOMERS DID INCLUDE REIMBURSEMENT OF FOREIGN TRAVELLING COSTS, WHEREAS, THE SAME INCLUDED TRAVEL COST. 2.4 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. AO ERRED BOTH ON FACTS AND IN LAW BY MERELY RELYING UPON THE PREVIOUS ASSESSMENT ORDERS PASSED IN THE CASE OF THE APPELLANT, IGNORING THE SUBMISSIONS FILED BY THE APPELLANT DURING THE COURS E OF THE ASSESSMENT PROCEEDINGS FOR AY 2012-13. 2.5 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. AO ERRED BOTH ON FACTS AND IN LAW IN HOLDING THAT THE APPELLANT FAILED TO ESTABLISH THAT FOREIGN TRAVELLING EXPENSES WERE REIMBURSED FROM THE APPELLANT'S CUSTOMERS AND IS A FALSE CLAIM, IGNORIN G THE SUBMISSIONS FILED BY THE APPELLANT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS FOR AY 2012-13. ITA NOS. 363/CHD/2017 & 433/CHD/2016- FIDELITY INFORMATION SERVICES INDIA PVT LTD, MOHALI 9 2.6 WITHOUT PREJUDICE TO THE ABOVE GROUND, WHERE ANY DISALLOWANCE OF FOREIGN TRAVELLING EXPENDITURE IS MADE, THE CORRESPONDING SERVICE REVENUE SHOULD BE ACCORDINGLY REDUCED AS THE APPELLANT IS CHARGING THE COST ON A COST PLUS BASIS TO ITS CUSTOMERS. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED BOTH IN FACTS AND IN LAW IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(L)(C) OF THE ACT. THAT THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, DE LETE, RESCIND, FORGO OR WITHDRAW ANY OF THE ABOVE GROUNDS OF OBJECTION EITHER BEFORE OR DURING THE COURSE OF PROCEEDINGS IN THE INTEREST OF THE NATURAL JUSTICE. 15. GROUND NO.1 IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION, HENCE, DISMISSED. 16. GROUND NO. 2 : VIDE GROUND NO.2, THE ASSESSEE HAS AGITATED THE ACTION OF THE LOWER AUTHORITIES IN DISALLOWING THE EXPENDITURE OF 30,819,376/- INCURRED ON FOREIGN TRAVEL OF THE EMPL OYEES. THIS GROUND TAKEN BY THE ASSESSEE IS IDENTICAL TO THE GROUND NO . 5 OF THE ASSESSEES APPEAL FOR ASSESSMENT YEAR; 2011-12. THE LD. COUNS EL FOR THE ASSESSEE HAS DEMONSTRATED THAT THE ASSESSEE HAS EARNED A DIR ECT INCOME @ 15% ON THE AFORESAID EXPENDITURE AS THE ASSESSEE HAS BEEN REIMBURSED THE AFORESAID EXPENDITURE BY ITS AE WITH A MARK UP OF 1 5%. ITA NOS. 363/CHD/2017 & 433/CHD/2016- FIDELITY INFORMATION SERVICES INDIA PVT LTD, MOHALI 10 IN VIEW OF OUR FINDINGS GIVEN ABOVE WHILE DECIDING THE GROUND NO.5 OF THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2011-12, NO DISALLOWANCE IS ATTRACTED ON THIS ISSUE. THE ADDITI ONS MADE BY THE ASSESSING OFFICER ON THIS ISSUE ARE ACCORDINGLY ORD ERED TO BE DELETED. 17. GROUND NO.3: GROUND NO.3 OF THE APPEAL IS PRE-MATURE AND DOES NOT REQUIRE ANY ADJUDICATION AT THIS STAGE AND THE SAME IS ACCORDINGLY DISMISSED. ACCORDINGLY, THIS APPEAL OF THE ASSESSEE IS ALSO TR EATED AS PARTLY ALLOWED. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.5.2019. SD/- SD/- ( . . , # $ / B.R.R. KUMAR) %& / ACCOUNTANT MEMBER ( / SANJAY GARG ) / JUDICIAL MEMBER DATED : 30/05/2019 .. /'+ ,- .- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. # / / CIT 4. # / ( )/ THE CIT(A) 5. -01 2 , % 2 , 34516 / DR, ITAT, CHANDIGARH 6. 15 7$ / GUARD FILE '+ # / BY ORDER, 8 ' / ASSISTANT REGISTRAR