ACIT, Circle -3(1), Visakhapatnam V. Miracle Software Systems( India ) Private Limited, Visakhapatnam

ITA 371/VIZ/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3924 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 19-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SRINIVASA RAO
• Assessee Lawyers: Y SURYACHANDRA RAO
• Keywords: Transfer pricing; Business expenditure; Wrong claim; Capital expenditure; TDS; Set aside
• Section: 43B; 143(3); 37(1); 143(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , HONBLE ACCOUNTANT MEMBER ITA NO. 371 / VIZ /201 7 (ASST. YEAR : 20 12 - 13 ) ACIT, CIRCLE - 3(1), VISAKHAPATNAM. V S . M/S. MIRACLE SOFTWARE SYSTEMS (INDIA) PVT. LTD., MIG - 49, 4 - 67 - 3/1, LAWSONS BAY COLONY, V ISAKHAPATNAM. PAN NO. AABCM 4988 R (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI Y.SURYA CHANDRA RAO CA . DEPARTMENT BY : SHRI V. SRINIVASA RAO SR. DR DATE OF HEARING : 22 / 0 5 /201 8 . DATE OF PRONOUNCEMENT : 06 / 0 6 /201 8 . O R D E R PER V. DURGA RAO, JUDICIAL MEMBER TH IS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 1 , VISAKHAPATNAM , DATED 23 /0 3 /201 7 FOR THE ASSESSMENT YEAR 20 12 - 13 . 2. FACTS OF THE CASE, IN BRIEF, ARE THAT ASSESSEE IS A PRIVATE LIMITED COMPANY , ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT, BUSINESS PROCESS OUTSOURCING AND CONSULTANCY SERVICES , HAD FILED ITS RETURN OF INCOME BY DECLARING TOTAL LOSS OF RS. 27,18,983/ - . THE RETURN FILED BY THE ASSESSEE WAS PROCESSED 2 ITA NO. 371/VIZ/2017 ( M/S. MIRACLE SOFTWARE SYSTEMS (INDIA) PVT. LTD. ) UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'ACT') . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND AF TER FOLLOWING DUE PROCEDURE, ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 10/03/2015 . IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS DISALLOWED AN AMOUNT OF RS. 7 2 ,2 6 ,4 28 / - PAID TO M/S. I.T. LOKAM P. LTD. AND ALSO DISALLOWED AN AMOUNT OF RS. 5,07, 987/ - TOWARDS CONTRIBUTION TO PROVIDENT FUND. ON APPEAL, LD. CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFF ICER. 3 . ON BEING AGGRIEVED, REVENUE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUNDS OF APPEAL: - 1. THE ORDER OF THE LD.CIT ( A) IS ERRONEOUS ON FACTS AND IN LAW. 2. THE LD.CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE A O ON ACCOUNT OF DISALLOWANCE OF CONSULTANCY CHARGES IGNORING AND NOT APPRECIATING THAT THE ASSESSEE FAILED TO PROVE THE EXACT NATURE OF SERVICES RENDERED BY THE ASSOCIATED ENTERPRISE WITH CREDIBLE AND COGENT EVIDENCE AND THEREFORE SUCH PAYMENTS ARE NOT ALLOWABLE DEDUCTION U/S 37 OF THE ACT. 3. LD.CI T(A) OUGHT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER AS THE ASSESSEE FAILED TO PRODUCE ANY EVIDENCE TO SHOW THAT THE RE M UNERATION TO ITS AE WAS ACTUALLY BASED ON THE SERVICES RENDERED BY A E IN A PARTICULAR CASE OR PROJECT. 4. LD. CIT(A) FAILED TO NOTE THAT MERE EXISTENCE OF AGREEMENT BETWEEN THE ASSESSEE AND ITS AE OR MERE PAYMENT TO AE BY ITSELF WOULD NOT ENTITLE THE ASSESSEE FOR DEDUCTION OF SUCH EXPENDITURE UNLESS THE SAME IS PROVED TO BE PA ID FOR COMMERCIAL CONSIDERATION AND FOR BUSINESS PURPOSES OF THE ASSESSEE. 5. LD. CIT(A) ERRED IN DELETING THE ADDITION MADE U/S 2(24)(X) ON ACCOUNT OF BELATED PAYMENT OF EMPLOYEES' CONTRIBUTION TO PE HOLDING THAT NO DISALLOWANCE C AN BE MADE TOWARDS 3 ITA NO. 371/VIZ/2017 ( M/S. MIRACLE SOFTWARE SYSTEMS (INDIA) PVT. LTD. ) BELATED EMPLOYEES' CONTRIBUTION TO PROVIDENT FUND IF THE CONTRIBUTION IS MADE ON OR BEFORE THE DUE DATE OF FURNISHING RETURN OF INCOME U/S 139(1) DESPITE PROVISIONS OF 36(L)(VA) R.W.S. 2(24)(X) OF THE INCOME TAX ACT, 1961. 6. LD. C I T(A) FAILED TO NOTE THE CLARIFICATI ON ISSUED BY THE CBDT VIDE CIRCULAR NO. 22/2015 DATED 17.12.2015 THAT THE PROVISIONS OF SEE. 43B ARE ATTRACTED ONLY IN CASE OF EMPLOYER'S CONTRIBUTION TO PF AND NOT TO EMPLOYEES' CONTRIBUTION TO P F ? 7. LD. CIT(A) OUGHT TO HAVE FURTHER APPRECIATED THE LEGAL PO SITION THAT THE DEDUCTION RELATING TO EMPLOYEES CONTRIBUTION TO PF IS GOVERNED BY SEC. 36(1)(VA) R.W.S.2(24)(X) OF THE I.T. ACT AND ASSESSEE WOULD GET DEDUCTION ONLY IF THE PAYMENT IS MADE BEFORE THE DATE AS PRESCRIBED UNDER THE PF ACT/RULES OR NOTIFICATIO N GOVERNING SUCH FUNDS? 8. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND OR ALTER OR SUBSTITUTE ANY GROUND AT THE TIME OF HEARING OF THE APPEAL. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF APPEAL HE A RING, THE APPELLANT PRAYS THAT THE IMPUGNED ADDITION OF RS. 72,26,428/ - ON ACCOUNT OF DISALLOWANCE OR CONSULTANCY CHARGES AND ADDITION OF RS. 7,29,431/ - TOWARDS BELATED PAYMENTS OF EMPLOYEES CONTRIBUTION O F PROVIDENT FUND, MADE BY THE AO BE RESTORED. 4 . GROUND NO.1 IS GENERAL IN NATURE, NO ADJUDICATION IS REQUIRED, THEREFORE SAME IS DISMISSED. 5. GROUND NOS. 2 TO 4 ARE RELATING TO DISALLOWANCE OF CONSULTANCY CHARGES PAID TO M/S. I.T. LOKAM P. LTD. IN THE ASSESSMENT ORDER , THE ASSESSING OFFICER HAS NOTED THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS. 88,80,989/ - TOWARDS CONSULTANCY CHARGES UNDER THE HEAD OTHER EXPENSES . OUT OF THIS, AN AMOUNT OF RS. 72,26,428/ - HAS BEEN PAID TO M/S. I.T. LOKAM SERVICES PVT. LTD., WHICH IS A SUBSIDIARY OF THE ASSESSEE COMPANY 4 ITA NO. 371/VIZ/2017 ( M/S. MIRACLE SOFTWARE SYSTEMS (INDIA) PVT. LTD. ) AND THE DIRECTORS/SHAREHOLDERS IN BOTH THE COMPANIES ARE ONE AND THE SAME. THE ISSUE WAS EXAMINED THOROUGH LY DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR S 2009 - 10 TO 2011 - 12 AND THE RELEVANT DETAILS WERE CALLED FOR. SINCE THE ISSUE , AS PERTAINING TO THE ABOVE ASSESSMENT YEARS , HAS ALSO CONTINUED FOR THE YEAR UNDER CONSIDERATION , THE FINDINGS THEREIN ARE RELIED UPON IN THIS ORDER. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE HA D NOT TAKEN SUCH SERVICES FROM ANY OTHER COMPANY EXCEPT FROM M/S. I.T. LOKAM SERVICES PVT. LTD. ALONE . SIMILARLY, IT WAS ALSO NOTI C ED FROM THE BALANCE OF M/S. I.T. LOKAM SERVICES PVT. LTD. THAT THE CONSULTANCY SERVICES ARE RENDERED BY IT ONLY TO THE ASSESSEE - COMPANY AND NOT TO ANYBODY ELSE . THE ASSESSING OFFICER KEEPING IN VIEW OF THE EARLIER ASSESSMENT ORDERS AND ALSO BY SUSPECTING THAT THE ASSESSEE IS ONLY TAKING SERVICES FROM M/S. I.T. LOKAM SERVICES PVT. LTD. AND M/S. I.T. LOKAM SERVICES PVT. LTD. ONLY RENDERED SERVICES TO THE ASS ESSEE, DISALLOWED CONSULTANCY CHARGES OF RS. 72,26,428/ - PAID TO M/S. I.T. LOKAM SERVICES PVT. LTD. 6 . ON APPEAL, LD. CIT(A) BY FOLL O W I NG THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2009 - 10 TO 2011 - 12 IN ITA NO S . 711 & 5 ITA NO. 371/VIZ/2017 ( M/S. MIRACLE SOFTWARE SYSTEMS (INDIA) PVT. LTD. ) 712 /VIZAG/2013 & 403/VIZAG/201 5 , ALLOWED THE CLAIM MADE BY THE ASSESSEE. 7 . ON APPEAL BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER PASSED BY THE ASSESSING OFFICER . 8 . ON THE OTHER HAND, LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS SUBMITTED THAT THE VERY SAME ISSUE HAS BEEN CONSIDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2009 - 10 TO 2011 - 12 IN ITA NO S .711 & 712/VIZAG/2013 & 403/VIZAG /2015 , BY ORDER DATED 25/11/2016 , AND PRAYED THAT APPEAL FILED BY THE REVENUE MAY BE DISMISSED. 9. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND ORDERS OF THE AUTHORITIES BELOW. 10 . THE PRESENT ISSUE IN THIS APPEAL IS WHETHER THE PAYMENT MADE BY THE ASSESSEE TO M/S. I.T. LOKAM SERVICES PVT. LTD., IS ALLOWABLE UNDER SECTION 37 OR NOT. THE ASSESSING OFFICER BY FOLLOWING HIS EARLIER ORDERS IN ASSESSMENT YEARS 2009 - 10 & 20 10 - 11 , DISALLOWED THE EXPENSES CLAIMED BY THE ASSESSEE. HE FURTHER DISBELIEVED THE EXPLANATION GIVEN BY THE ASSESSEE ON THE GROUND THAT THE ASSESSEE IS TAKING SERVICES FROM M/S. I.T. LOKAM SERVICES PVT. LTD. ALONE AND NOT FROM OTHER COMPANY . HE FURTHER 6 ITA NO. 371/VIZ/2017 ( M/S. MIRACLE SOFTWARE SYSTEMS (INDIA) PVT. LTD. ) NOTED THAT M/S. I.T. LOKAM SERVICES PVT. LTD. IS ONLY RENDERING CONSULTANCY SERVICES TO THE ASSESSEE - COMPANY, THEREFORE, IS OF THE OPINION THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE IS NOT ALLOWABLE. WE FIND THAT ON THE GROUND OF MERE SUSPICIOUS, THE BUSINESS EXPENDITURE CLAIMED BY THE ASSESSEE CANNOT BE DISALLOWED. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE CLAIM OF THE ASSESSEE IS A BOGUS OR A FALSE CLAIM. IN OUR OPINION, THE ASSESSING OFFICER IS NOT CORRECT IN DISALLOWING THE ABOVE EXPENSES CLAI MED BY THE ASSESSEE . ON APPEAL, LD. CIT(A) BY FOLLOWING THE DECISION OF ITAT, VIZAG BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2009 - 10 TO 2011 - 12 IN ITA NO.711 & 712/VIZAG/2013 & 403/VIZAG/2015 ALLOWED THE EXPENDITURE CLAIMED BY THE ASSESSEE. WE FIND THAT THE VERY SAME ISSUE HAS BEEN CONSIDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE (SUPRA) AND DIRECTED THE ASSESSING OFFICER TO ALLOW CONSULTANCY CHARGES PAID BY THE ASSESSEE FOR THE ASSESSMENT YEAR S 2009 - 10 TO 2011 - 12. FOR THE SAKE OF CONVENIENCE, THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: - 10. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE A.O. DISALLOWED CONSULTANCY CHARGES PAID TO M/S. I.T. LOKAM SERVICES INDIA PVT. LTD. FOR THE REASON THAT ASSESSEE HAS 7 ITA NO. 371/VIZ/2017 ( M/S. MIRACLE SOFTWARE SYSTEMS (INDIA) PVT. LTD. ) FAILE D TO PROVE THE NEXUS BETWEEN CONSULTANCY CHARGES PAID AND GENERATION OF REVENUE. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE FAILED TO FURNISH NECESSARY DETAILS WITH REGARD TO NATURE OF CONSULTANCY RECEIVED FROM M/S. I.T. LOKAM SERVICES INDIA PVT. LTD. AN D ITS CORRESPONDING APPLICATION/UTILITY TO THE PROJECT/SUPPORTING SERVICES UNDERTAKEN BY THE ASSESSEE TO ITS CLIENTS. THE ASSESSEE NEITHER LISTED OUT CLIENT - WISE SUPPORT SERVICES ALONG WITH CORRESPONDING CONSULTANCY RECEIVED NOR SPECIFIC INSTANCES HAVE BE EN CITED TO DEMONSTRATE THE NECESSITY FOR OBTAINING THE ALLEGED CONSULTANCY. THOUGH, THE ASSESSEE CLAIMS TO HAVE ENGAGED THE SERVICES OF EMPLOYEES OF M/S. I.T. LOKAM SERVICES INDIA PVT. LTD., FAILS TO PROVE THE NATURE OF SERVICES AVAILED FROM THE COMPANY AND ALSO CORRESPONDING SERVICES TO M/S. IBM INDIA PVT. LTD. THEREFORE, OPINED THAT THE CONSULTANCY CHARGES CLAIMED BY THE ASSESSEE IS HAVING NO NEXUS WITH THE BUSINESS OF THE ASSESSEE. 11. IT IS THE CONTENTION OF THE ASSESSEE THAT CONSULTANCY CHARGES PA ID TO M/S. I.T. LOKAM SERVICES INDIA PVT. LTD. IS A GENUINE BUSINESS TRANSACTION FOR AVAILING SERVICES OF SOFTWARE PROFESSIONALS TO BE DEPLOYED IN ITS PROJECT UNDERTAKEN WITH M/S. IBM INDIA PVT. LTD. THE ASSESSEE FURTHER CONTENDED THAT IT HAS PAID CONSULT ANCY CHARGES THROUGH BANKING CHANNELS, DULY DEDUCTING APPLICABLE TDS, THE PROOF OF WHICH HAS BEEN FURNISHED TO THE A.O. IT WAS FURTHER SUBMITTED THAT M/S. I.T. LOKAM SERVICES INDIA PVT. LTD. IS NOT A SHAM ENTITY, WHICH IS ASSESSED TO THE INCOME TAX DECLAR ING RECEIPTS RECEIVED FROM THE ASSESSEE COMPANY. THEREFORE, THE A.O. WAS NOT CORRECT IN DISALLOWING THE CONSULTANCY CHARGES PAID IN TOTAL WITHOUT POINTING OUT ANY SPECIFIC OBSERVATIONS WITH REGARD TO THE GENUINENESS OF THE CONSULTANCY CHARGES PAID. THE A SSESSEE FURTHER CLAIMS THAT IT HAS ENTERED INTO AGREEMENT WITH M/S. IBM INDIA PVT. LTD. FOR PROVIDING SOFTWARE DEVELOPMENT RELATED SERVICES FOR WHICH IT WAS PAID CHARGES ON HOURLY BASIS. AS PER THE SAID AGREEMENT, IT NEEDS TO DEPLOY AS MANY NUMBER OF TRAI NED AND SKILLED SOFTWARE PROFESSIONALS AT THE WORK SITE AND THE EMPLOYER M/S. IBM INDIA PVT. LTD. MAKES PAYMENT ON HOURLY BASIS BASED ON THE TIME SHEET CERTIFIED BY THE COMPANY. IT WAS FURTHER SUBMITTED THAT BY REFERRING TO THE AGREEMENTS BETWEEN THE ASSES SEE AND THE IBM, THE SCOPE OF WORK INCLUDES SOFTWARE SUPPORT DEVELOPMENT ACTIVITIES INCLUDING, BUT NOT LIMITED TO SOFTWARE DEVELOPMENT, SOFTWARE TESTING, PUBLICATION DEVELOPMENT, PROGRAMME MAINTENANCE, SOFTWARE DEVELOPMENT SUPPORT AND SUCH OTHER ACTIVITIES AS MAY BE DEFINED BY THE BUYER. 12. THE DETAILS OF WORKS TO BE PROVIDED AND CHARGES FOR SUCH WORK PROVIDED IN A SEPARATE ANNEXURE - I APPENDED TO THE 8 ITA NO. 371/VIZ/2017 ( M/S. MIRACLE SOFTWARE SYSTEMS (INDIA) PVT. LTD. ) AGREEMENT. SINCE, THE ASSESSEE COMPANY DOES NOT HAVE REQUIRED NUMBER OF TRAINED AND SKILLED SOFTWARE PRO FESSIONALS, IT HAS ENTERED INTO AGREEMENT WITH M/S. I.T. LOKAM SERVICES INDIA PVT. LTD., A SUBSIDIARY OF THE ASSESSEE TO HIRE THE SOFTWARE PROFESSIONALS TO BE DEPLOYED IN CLIENT PLACE. THE ASSESSEE HAS FURNISHED COPIES OF AGREEMENT ENTERED WITH M/S. I.T. LOKAM SERVICES INDIA PVT. LTD. AND ALSO COPIES OF BILLS SUBMITTED ALONG WITH TIME SHEETS CERTIFIED BY M/S. IBM INDIA PVT. LTD. THE NATURE OF WORK EXECUTED BY THE ASSESSEE TO M/S. IBM INDIA PVT. LTD. AND THE NATURE OF CONSULTANCY SERVICES AVAILED FROM M/S. I.T. LOKAM SERVICES INDIA PVT. LTD. ARE LISTED IN THE AGREEMENT, WHICH PROVES THAT THE ASSESSEE HAS AVAILED THE SERVICES OF M/S. I.T. LOKAM SERVICES INDIA PVT. LTD. ALL THESE ASPECTS HAS BEEN CLARIFIED TO THE A.O. WITH NECESSARY EVIDENCES. THE A.O. WITH OUT APPRECIATING THE FACTS, SIMPLY DISALLOWED EXPENDITURE BY HOLDING THAT THE ASSESSEE HAS FAILED TO PROVE THE NEXUS BETWEEN CONSULTANCY CHARGES PAID AND EARNING OF INCOME WHICH IS INCORRECT. 13. SECTION 37(1) OF THE ACT, IS A RESIDUARY SECTION WHICH ALLOW S DEDUCTION OF CERTAIN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. FOR CLAIMING DEDUCTION OF AN EXPENDITURE U/S 37(1) OF THE ACT, IT SHOULD BE ENSURED THAT THE EXPENDITURE IS NOT IN THE NATURE DESCRIBED BY SECTION 30 TO 36 AND IT SHOULD NOT BE IN THE NATURE OF CAPITAL EXPENDITURE AND PERSONAL EXPENDITURE OF THE ASSESSEE. THE MAIN REQUIREMENT OF THE PROVISIONS OF SECTION 37(1) OF THE ACT IS THAT EXPENDITURE SHOULD HAVE BEEN LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPO SE OF THE BUSINESS. THE NEXUS BETWEEN THE EXPENDITURE AND THE BUSINESS, IN CONNECTION WITH WHICH EXPENDITURE HAS INCURRED, HAS TO BE ESTABLISHED BEFORE THE ASSESSEE GETS ENTITLED TO DEDUCTION U/S 37(1) OF THE ACT. THEREFORE, TO CLAIM A PARTICULAR EXPENDI TURE DEDUCTIBLE UNDER THE PROVISIONS OF SECTION 37(1) OF THE ACT, THE ASSESSEE NEEDS TO PROVE BEYOND DOUBT THAT THE EXPENDITURE IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ONCE THE ASSESSEE PROVES THAT THE EXPENDITURE IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THEN THE EXPENDITURE IS DEDUCTIBLE EVEN IF IT MAY BRING A BENEFIT TO THE THIRD PARTY. 14. IN THE LIGHT OF THE ABOVE LEGAL POSITION, IF WE EXAMINE THE FACTS OF THE PRESENT CASE, WE FIND THAT THE ASSESSEE HAS I NCURRED CONSULTANCY CHARGES IN ITS BUSINESS. THE ASSESSEE HAS ENTERED INTO AGREEMENT WITH M/S IBM INDIA PVT. LTD. FOR PROVIDING IT RELATED CONSULTANCY SERVICES. ON PERUSAL OF THE AGREEMENT ENTERED BY THE ASSESSEE WITH M/S. IBM INDIA PVT. LTD., THE SCOPE OF WORK INCLUDES SOFTWARE DEVELOPMENT ACTIV ITIES WHICH WERE LISTED OUT IN A NNEXURE - I ANNEXED TO THE AGREEMENT. ON FURTHER 9 ITA NO. 371/VIZ/2017 ( M/S. MIRACLE SOFTWARE SYSTEMS (INDIA) PVT. LTD. ) VERIFICATION OF THE AGREEMENT, THE CLIENT HAS AGREED TO MAKE THE PAYMENT TO THE ASSESSEE ON HOURLY BASIS. CLAUSE 8 OF THE AGREEMENT S TIPULATES THAT THE ASSESSEE SHOULD SUBMIT ITS BILL FOR CONSULTANCY CHARGES ALONG WITH NECESSARY SUPPORTING DOCUMENTS LIKE APPROVED TIME SHEETS CERTIFIED BY THE CLIENT. THEREFORE, FROM THESE FACTS IT IS CLEAR THAT M/S. IBM INDIA PVT. LTD. WOULD MAKE THE PA YMENT TO THE ASSESSEE ON DEPLOYMENT OF NUMBER OF SKILLED AND TRAINED SOFTWARE PROFESSIONALS BASED ON THE APPROVED TIME SHEETS CERTIFIED BY THE CLIENTS. A CAREFUL EXAMINATION OF THE TECHNICAL SERVICES AGREEMENT WITH M/S. IBM INDIA PVT. LTD., THE ASSESSEES MAIN JOB IS TO PROVIDE TRAINED AND SKILLED SOFTWARE PROFESSIONALS TO THE CLIENTS. IT IS THE CLAIM OF THE ASSESSEE THAT IT DOES NOT HAVE REQUIRED NUMBER OF TRAINED AND SKILLED SOFTWARE PROFESSIONALS BECAUSE OF WHICH IT HAS SUB CONTRACTED PART OF ITS WORK TO ITS SUBSIDIARY COMPANY M/S. I.T. LOKAM SERVICES INDIA PVT. LTD. M/S. I.T. LOKAM SERVICES INDIA PVT. LTD. PROVIDES TRAINED SOFTWARE PROFESSIONALS FOR WHICH THE ASSESSEE HAS PAID CONSULTANCY CHARGES BASED ON THE BILLS SUBMITTED BY THE COMPANY ALONG WITH APPROVED TIME SHEETS FURNISHED BY THE CLIENT M/S. IBM INDIA PVT. LTD. THEREFORE, WE ARE OF THE VIEW THAT THE A.O. WAS ERRED IN HOLDING THAT THERE IS NO NEXUS BETWEEN THE CONSULTANCY CHARGES PAID TO M/S. I.T. LOKAM SERVICES INDIA PVT. LTD. AND GENERATION O F REVENUE FROM M/S. IBM INDIA PVT. LTD. 15. THE A.O. DISALLOWED CONSULTANCY CHARGES FOR THE REASON THAT THE ASSESSEE HAS FAILED TO PROVE THE NEXUS BETWEEN CONSULTANCY CHARGES PAID TO M/S. I.T. LOKAM SERVICES INDIA PVT. LTD. AND GENERATION OF REVENUE. TH E A.O. NEVER DOUBTED THE GENUINENESS OF EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSEE HAS UNDOUBTEDLY PROVED THE GENUINENESS OF EXPENDITURE BY FURNISHING NECESSARY EVIDENCES SUCH AS BILLS SUBMITTED BY THE COMPANY ALONG WITH AGREEMENT ENTERED FOR PROV IDING SERVICES. THE ASSESSEE ALSO FILED COPIES OF IT RETURNS FILED BY M/S. I.T. LOKAM SERVICES INDIA PVT. LTD. TO PROVE THAT THE RECIPIENT HAS OFFERED THE SAID CONSULTANCY CHARGES IN ITS INCOME TAX RETURNS WHICH WERE NOT DISPUTED BY THE REVENUE. ON PERUSA L OF THE INCOME TAX RETURNS FILED BY M/S. I.T. LOKAM SERVICES INDIA PVT. LTD., THE MAJOR SOURCE OF REVENUE FOR THE COMPANY IS FROM CONSULTANCY CHARGES RECEIVED FROM THE ASSESSEE. THE RECIPIENT ALSO PAID MORE THAN 50% OF CONSULTANCY CHARGES AS SALARY TO IT S EMPLOYEES DULY DEDUCTING TAX AT SOURCE WHEREVER APPLICABLE, THE PROOF OF WHICH HAS BEEN FURNISHED. ON PERUSAL OF ALL THESE DOCUMENTS FURNISHED BY THE ASSESSEE, IT WAS CLEAR THAT THE CONSULTANCY CHARGES PAID BY THE ASSESSEE IS GENUINE AND ALSO THE ASSESS EE HAS PROVED THE NECESSITY OF INCURRING SUCH CONSULTANCY CHARGES IN RELATION TO ITS WORKS EXECUTED TO M/S. IBM INDIA PVT. LTD. 10 ITA NO. 371/VIZ/2017 ( M/S. MIRACLE SOFTWARE SYSTEMS (INDIA) PVT. LTD. ) 16. THE ANOTHER IMPORTANT ASPECT TO BE CONSIDERED IN THIS CASE IS THAT THE ASSESSEE HAS DECLARED AVERAGE MARGIN OF 25 TO 30% O N ITS CONSULTANCY INCOME RECEIVED FROM DOMESTIC PROJECT WORKS. THE ASSESSEE CLAIMS THAT AVERAGE MARGIN IN THIS TYPE OF ACTIVITY AS PER THE INDUSTRY NORM AS GIVEN BY ITS ASSOCIATION NASCOM IS RANGES FROM 22 TO 26%. EVEN FOR SOME TIME, IF WE ASSUME THAT TH E PAYMENTS ARE FICTITIOUS AND UNPROVED, IT WILL LEAD TO WRONG CALCULATION OF MARGINS EARNED BY THE ASSESSEE THAT IF THE CONSULTANCY CHARGES INCURRED BY THE ASSESSEE ARE ADDED TO THE MARGINS RETURNED BY THE ASSESSEE FOR THESE ASSESSMENT YEARS, THE NET MARGI N WOULD GO UP TO 51% WHICH IS QUITE CONTRARY TO THE INDUSTRIAL AVERAGE DECLARED BY THE NASCOM. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE A.O. WAS ERRED IN DISALLOWING CONSULTANCY CHARGES PAID BY THE ASSESSEE. 17. CONSIDERING THE FACTS AND CIRCUMST ANCES OF THIS CASE, WE ARE OF THE VIEW THAT CONSULTANCY CHARGES PAID BY THE ASSESSEE TO M/S. I.T. LOKAM SERVICES INDIA PVT. LTD. IS HAVING NEXUS BETWEEN EARNING OF INCOME. THE ASSESSEE HAS PROVED BEYOND DOUBT WITH NECESSARY SUPPORTING DOCUMENTS THAT IT HA S INCURRED CONSULTANCY CHARGES WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE CIT(A), WITHOUT APPRECIATING THE FACTS, SIMPLY CONFIRMED THE ADDITIONS MADE BY THE A.O. BY HOLDING THAT THE IMPUGNED EXPENSES HAVE NOT BEEN PROVED TO BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINESS. THEREFORE, WE SET ASIDE ORDER PASSED BY THE CIT(A) AND DIRECT THE A.O. TO ALLOW CONSULTANCY CHARGES PAID BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2009 - 10 TO 2011 - 12. 11. KEEPING IN VIEW OF THE ABOV E DECISION IN ASSESSEES OWN CASE AND ALSO BY CONSIDERING THE FACTS AND CIRCUMSTANCES, WHICH ARE SIMILAR TO THE ABOVE REFERRED CASE, WE DISMISS THIS GROUND OF APPEAL RAISED BY THE REV E NUE. 1 2 . GROUND NOS. 5 TO 7 ARE RELATING TO DISALLOWANCE OF PAYMENT OF EMPLOYEES CONTRIBUTION TO THE PF . THE ASSESSING OFFICER HAS DISALLOWED EMPLOYEES CONTRIBUTION TO THE PF FOR THE REASON 11 ITA NO. 371/VIZ/2017 ( M/S. MIRACLE SOFTWARE SYSTEMS (INDIA) PVT. LTD. ) THAT THE ASSESSEE FAILED TO DEPOSIT EMPLOYEES CONTRIBUTION TO THE PF WITHIN THE DUE DATE AS PRESCRIBED UNDER THE PROVISIONS OF PROVIDENT FUND ACT. ACCORDING TO THE ASSESSING OFFICER, EMPLOYEES CONTRIBUTION TO THE PF NOT DEPOSIT ING WITHIN THE DUE DATE SPECIFIED UNDER THE PROVISIONS OF PROVIDENT FUND ACT, IS IN CONTRAVENTION OF PROVISIONS OF SECTION 2(24)(X) READ WITH SEC. 36(1)(VA) OF THE ACT , T HEREFORE, DISALLOWED THE PAYMENT MADE TOWARDS EMPLOYEES CONTRIBUTION TO THE PF UNDER THE PROVISIONS OF SECTION 36(1)(VA) OF THE ACT. 13. ON APPEAL, LD. CIT(A) BY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2009 - 10 TO 2011 - 12 IN ITA NO.711 & 712/VIZAG/2013 & 403/VIZAG/2015 , ALLOWED THE CLAIM MADE BY THE ASSESSEE. 14 . ON APPEAL BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER PASSED BY THE ASSESSING OFFICER. 15 . ON THE OTHER HAND, LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS SUBMITTED THAT THE VERY SAME ISSUE HAS BEEN CONSIDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2009 - 10 TO 2011 - 12 IN ITA NO.711 & 712/VIZA G/2013 & 403/VIZAG/2015 BY ORDER DATED 12 ITA NO. 371/VIZ/2017 ( M/S. MIRACLE SOFTWARE SYSTEMS (INDIA) PVT. LTD. ) 25/11/2016 AND PRAYED THAT APPEAL FILED BY THE REVENUE MAY BE DISMISSED. 1 6 . WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND ORDERS OF THE AUTHORITIES BELOW. 1 7 . WE FIND THAT THE VERY SAME ISSUE ABOUT THE PAYMENT OF EMPLOYEES CONTRIBUTION TO THE PF HAS BEEN CONSIDERED BY THE ITAT, VIZAG BENCH IN THE CASE OF ASSESSEE ITSELF FOR THE ASSESSMENT YEAR S 2009 - 10 TO 2011 - 12 IN ITA NO.711 & 712/VIZAG/2013 & 403/VIZAG/2015 AND DIRECTED THE ASSESSING OFFICER TO ALLOW THE PAYMENT S MADE TOWARDS EMPLOYEES CONTRIBUTION TO THE PF. FOR THE SAKE OF CONVENIENCE, THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER : - 18. THE LD. A.R. FOR THE ASSESSEE, AT THE TIME OF HEARING SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT, VISAKHAPATNAM IN THE CASE OF EASTERN POWER DISTRIBUTION COMPANY OF A.P. LTD. IN ITA NO.609/VIZAG/2014 DATED 29.7.2016, WHEREIN THE ITAT, HELD THAT THERE IS NO DISTINCTION BETWEEN EMPLOY EES AND EMPLOYER CONTRIBUTION TO PF AND IF TOTAL CONTRIBUTION IS DEPOSITED ON OR BEFORE THE DUE DATE OF FURNISHING RETURN OF INCOME U/S 139(1) OF THE ACT, THEN NO DISALLOWANCE CAN BE MADE TOWARDS EMPLOYEES CONTRIBUTION TO PROVIDENT FUND. WE FIND THAT THE COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF EASTERN POWER DISTRIBUTION COMPANY OF AP LIMITED HAS CONSIDERED SIMILAR ISSUE AND HELD THAT IF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND IS PAID ON OR BEFORE THE DUE DATE OF FURNISHING RETURN OF INCOME U/S 1 39(1) OF THE ACT, THEN NO DISALLOWANCE CAN BE MADE. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED HEREUNDER: 10. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THIS CASE AND ALSO FOLLOWING THE JUDICIAL PRECEDENTS AS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THERE IS NO DISTINCTION BETWEEN EMPLOYEES AND EMPLOYER CONTRIBUTION TO PF, AND IF 13 ITA NO. 371/VIZ/2017 ( M/S. MIRACLE SOFTWARE SYSTEMS (INDIA) PVT. LTD. ) THE TOTAL CONTRIBUTION IS DEPOSITED ON OR BEFORE THE DUE DATE OF FURNISHING RETURN OF INCOME U/S 139(1) OF THE ACT, THEN NO DISALLOWANCE CAN BE MADE TOWARDS EMPLOYEES CONTR IBUTION TO PROVIDENT FUND. THE CIT(A) AFTER CONSIDERING THE RELEVANT DETAILS RIGHTLY DELETED THE ADDITIONS MADE BY THE A.O. WE DO NOT SEE ANY REASONS TO INTERFERE WITH THE ORDER OF THE CIT(A). HENCE, WE INCLINED TO UPHOLD THE CIT(A) ORDER AND DISMISS THE APPEAL FILED BY THE REVENUE. 19. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO RESPECTFULLY FOLLOWING THE COORDINATE BENCH DECISION, WE ARE OF THE VIEW THAT IF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND IS PAID WITHIN THE DUE DATE SPECIFIED U/S 139(1) OF THE ACT, THEN NO DISALLOWANCE CAN BE MADE TOWARDS EMPLOYEES CONTRIBUTION TO PROVIDENT FUND. THEREFORE, WE DIRECT THE A.O. TO ALLOW CONTRIBUTION TO PROVIDENT FUND FOR THE ASSESSMENT YEAR 2009 - 10 TO 2011 - 12. 1 8 . R ESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2009 - 10 TO 2011 - 12 IN ITA NO.711 & 712/VIZAG/2013 & 403/VIZAG/2015 BY ORDER DATED 25/11/2016 , WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A). THUS, THIS GROUND OF APPEAL RAISED BY THE REVENUE IS DISMISSED. 1 9 . IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON TH IS 0 6 T H DAY OF J U N E , 201 8 . S D / - S D / - ( D.S. SUNDER SINGH ) ( V. DURGA RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 0 6 T H J U N E , 201 8 . VR/ - 14 ITA NO. 371/VIZ/2017 ( M/S. MIRACLE SOFTWARE SYSTEMS (INDIA) PVT. LTD. ) COPY TO: 1. THE ASSESSEE M/S. MIRACLE SOFTWARE SYSTEMS (INDIA) PVT. LTD., MIG - 49, 4 - 67 - 3/1, LAWSONS BAY COLONY, VISAKHAPATNAM. 2. THE REVENUE ACIT, CIRCLE - 3(1), VISAKHAPATNAM. 3. THE PR. CIT - 1, VISAKHAPATNAM. 4. THE CIT(A) - 1, VISAKHAPATNAM. 5. THE D.R . , VISAKHAPATNAM. 6. GUARD FILE. BY ORDER (VUKKEM RAMBABU) SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.