Info-Drive Software Limited, CHENNAI V. ITO, CHENNAI

ITA 398/CHNY/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4155 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 19-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 17-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P NAGENDRA KUMAR JT
• Assessee Lawyers: S DEEPIKA
• Keywords: Onus to prove

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D, CHENNAI , ! ' . # , $ %& ' BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ITA NOS.397 & 398/MDS/2014 $ ( )( / ASSESSMENT YEARS : 2010-11 & 2011-12 INFO-DRIVE SOFTWARE LTD., 3, MOORES ROAD, CHENNAI 600 002. [PAN: AAACI 9430R] VS. INCOME TAX OFFICER, INTERNATIONAL TAXATION-II(2), CHENNAI. ( /APPELLANT ) ( / RESPONDENT ) *+ - . / APPELLANT BY : MS. S.DEEPIKA, ADVOCATE /0*+ - . / RESPONDENT BY : SHRI P.NAGENDRA KUMAR, JT. CIT - 1 / DATE OF HEARING : 20.06.2017 2) - 1 / DATE OF PRONOUNCEMENT : 30.06.2017 /ORDER PER SANJAY ARORA, AM : THIS IS A SET OF TWO APPEALS BY THE ASSESSEE DIREC TED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-VII, CHENN AI (CIT(A) FOR SHORT) DATED 01.01.2014, DISMISSING THE ASSESSEES APPEALS CONTESTING ITS ASSESSMENT U/S. 201(1)/201(1A) OF THE INCOME TAX ACT, 1961 (T HE ACT HEREINAFTER) FOR ASSESSMENT YEARS (AYS) 2010-11 & 2011-12 OF EVEN DA TE, I.E., 15/12/2011. 2. THE ISSUE ARISING IN THE INSTANT APPEALS IS THE NATURE OF THE PAYMENTS, DEBITED TO THE ACCOUNT HEAD OR CLASSIFIED AS REIMB URSEMENTS BY THE ASSESSEE, A CHENNAI BASED SOFTWARE COMPANY, HANDLING BUSINESS V ERTICALS LIKE, PENSION PLAN 2 ITA NOS.397 & 398/MDS/2014 (AY 2010-11 & 2011-12) INFO-DRIVE SOFTWARE LTD. V. ITO ADMINISTRATION, HEALTH CARE PRACTICE, SYSTEM INTEGR ATION SOLUTIONS, ETC., TO GULF OUTSOURCING LLC (GOS FOR SHORT), A DUBAI BASED FOREIGN COMPANY (NON- RESIDENT), TO WHOM IT IS PROVIDING SERVICES UNDER A CONSULTANCY AGREEMENT DATED 04/03/2009 (PB-I/PGS.1-10). WHILE THE ASSESSEE CLAI MS THE SAME TO BE TOWARD REIMBURSEMENT OF SALARY TO ITS EMPLOYEES WORKING O NSITE ON DIFFERENT PROJECTS FOR GOS, THE SERVICE RECIPIENT, AS WELL AS THEIR TR AVELLING EXPENDITURE, WHICH HAD BEEN PAID FOR, IN THE FIRST INSTANCE, BY THE SERVIC E RECIPIENT, THE REVENUE CLAIMS IT TO BE IN THE NATURE OF FEE FOR TECHNICAL SERVICE S TOWARD SERVICES BEING PROVIDED BY GOS TO THE ASSESSEE-COMPANY THROUGH INFO-DRIVE L LC, UAE. THE ISSUE ARISES AS THE PAYMENTS HAVE BEEN ADMITTEDLY MADE WI THOUT DEDUCTION OF TAX AT SOURCE, AS REQUIRED TO BE U/S. 195, ATTRACTING SS. 201 & 201(1A) OF THE ACT, SO THAT THE ASSESSEE IS DEEMED TO BE IN DEFAULT FOR TH E TAX DEDUCTIBLE AT SOURCE AS WELL AS LIABLE FOR INTEREST THEREON. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WE FIND THE ASSESSEE TO HAVE SPELLED OUT ITS CASE TO THE LD. CIT(A) PER WRITTEN SUBMISSIONS THERETO DURING APPELLATE PROCEE DINGS (REFER PB-I/PG.23). THE SAME IS SUPPORTED BY EMPLOYMENT AGREEMENTS (OF ITS EMPLOYEES) AS WELL AS THE DEBIT NOTES RAISED BY GOS ON THE ASSESSEE-COMPANY (APPENDIX-2), SOME OF WHICH WE WERE TAKEN THROUGH DURING HEARING. THE REA SON FOR GOS PAYING SALARIES OF THE ASSESSEES EMPLOYEES IS STATED TO B E TO OBSERVE THE UAE LAWS, WHICH OBLIGE THE SERVICE RECIPIENT TO TIMELY PAY FO R EVEN CONTRACTED LABOUR, AND TOWARD WHICH COPY OF THE MINUTES DATED 17/6/2009 (A T PB-I/PG.19), STATED TO BE FURNISHED BEFORE BOTH, THE ASSESSING OFFICER (AO) A ND THE LD. CIT(A), WAS REFERRED TO DURING HEARING. THOUGH THE SAME, AS POI NT OUT THEREAT, DOES NOT BEAR THE SIGNATURE OF THE ASSESSEES REPRESENTATIVE, NOR IN FACT STATES OF HIS PRESENCE THEREAT, SO THAT IT IS A UNILATERAL DOCUMENT AND, T HEREFORE, BY ITSELF OF NO MOMENT, THE FACT REMAINS THAT THE DEBIT NOTES HAVE BEEN RAI SED BY GOS ON THE ASSESSEE. THEN, AGAIN, THE QUESTION ARISES AS TO WHY WOULD IT PAY FOR THE TRAVELLING OR 3 ITA NOS.397 & 398/MDS/2014 (AY 2010-11 & 2011-12) INFO-DRIVE SOFTWARE LTD. V. ITO OTHER RELATED EXPENDITURE INCURRED BY THE EMPLOYEES , WHICH MAY IN FACT EXCEED THEIR ENTITLEMENT, OR MAY BE FOR TRAVEL, ETC., WHIC H IS NOT AUTHORIZED BY THE ASSESSEE-COMPANY. THAT IS, HOW COULD IT VALIDATE TH E EXPENDITURE AND, BESIDES, HAS CONTROL IMPLICATIONS, WHILE WITH REGARD TO SALA RY THE SAME MAY HAVE BEEN COMMUNICATED BY THE ASSESSEE-COMPANY THERETO, WHICH THOUGH WOULD REQUIRE BEING SUBSTANTIATED BY SOME CONTEMPORANEOUS EVIDENC E. THE EXPENDITURE IS THE ASSESSEES CONTRACTUAL OBLIGATION AND THE ONUS IS O N IT TO MAKE SUITABLE ARRANGEMENTS FOR TIMELY PAYMENT FOR SALARY OF, AND OTHER EXPENDITURE INCURRED BY, ITS EMPLOYEES. WHY, THE PAYMENT COULD BE MADE DIRECTLY TO THE BANK ACCOUNTS OF THE EMPLOYEES. IN FACT, EVEN IN INDIA T HE SALARY IS CUSTOMARILY PAID BY THE 7 TH OF THE FOLLOWING MONTH, AND ALSO LEGALLY REQUIRED TO BE PAID WITHIN A REASONABLE TIME; PRESUMABLY, THE 10 TH DAY THEREOF. THE RELEVANT LAW/S OF UAE ASSUMES SIGNIFICANCE IN THIS REGARD, WHICH SHALL HA VE TO EXPLAIN BOTH, THE SALARY AS WELL AS OTHER EXPENDITURE. FURTHER, NOT ONLY DOE S THE SERVICE RECIPIENT AGREE TO MAKE THE PAYMENT IN THE FIRST INSTANCE, IT EXTEN DS A 90 DAY CREDIT TO THE ASSESSEE FOR THE SAME, WHICH IS SURPRISING INDEED. THE MINUTES ALSO REFER TO THE ASSESSEE FACING FINANCIAL DIFFICULTY IN MAKING THE PAYMENT WITHOUT COLLECTION, WHICH MAY EXPLAIN THE CREDIT. GOC COULD, IN THAT CA SE, MAKE THE PAYMENT EARLY ON OR EVEN IN ADVANCE. FURTHER, DETAILS OF EMPLOYEE EMOLUMENTS ARE NORMALLY NOT DIVULGED, AS IN THAT CASE THE CONTRACTEE WOULD GET A CLEAR IDEA OF THE ASSESSEES EMPLOYEE COST, WHICH CONSTITUTES THE PRI NCIPAL COST, ENABLING IT TO BARGAIN FOR A LOWER COST ON ITS CONTRACT WITH THE A SSESSEE. THE ASSESSEE CLEARLY HAS MUCH EXPLAINING TO DO; ITS CASE, THOUGH VALID IN PRINCIPLE, IS LARGELY UNSUBSTANTIATED, WITH SEVERAL LOOSE ENDS. IN FACT, THE REVENUES STAND (REFER PARA 2) ITSELF, AS A READING OF THE ORDERS BY THE REVENU E AUTHORITIES SHOWS, IS BASED ON THE ASSESSEES EXPLANATION OF GOS RENDERING SERV ICES TO INFO-DRIVE LLC, UAE AT THE BEHEST OF THE ASSESSEE-COMPANY, DEPICTIN G THUS ALSO AN INCONSISTENCY IN ITS (ASSESSEES) STAND. 4 ITA NOS.397 & 398/MDS/2014 (AY 2010-11 & 2011-12) INFO-DRIVE SOFTWARE LTD. V. ITO THE REVENUES STAND, WE MAY AT THE SAME TIME STATE , DOES NOT TAKE INTO ACCOUNT THE EMPLOYMENT AGREEMENTS AND THE MONTHLY D EBIT NOTES RAISED BY GOS ON THE ASSESSEE. THE TREATMENT OF THE SAID TRANSACT IONS IN THE BOOKS OF GOS, BOTH AT THE TIME OF PAYMENT AND ITS RECOVERY, WOUL D ALSO BE RELEVANT, WHICH (THE SAID BOOKS) WOULD ALSO THROW LIGHT ON THE RELATIONS HIP, IF ANY, WITH INFO-DRIVE LLC, UAE. IN THIS REGARD WE ALSO WONDER, AS TO WHY THE PAYEE DOES NOT RAISE MONTHLY DEBIT FOR THE TOTAL SALARY PAYMENT, OR AT L EAST PROJECT WISE, RATHER THAN SEPARATELY FOR EACH EMPLOYEE, ALL OF WHOM WOULD BE NORMALLY PAID ON THE SAME DATE. THE ASSESSEE, THOUGH HAS FURNISHED AN EMPLOYE E LIST (APPENDIX-4), THE SAME DOES NOT BEAR THE PROJECT DETAILS. FURTHER, OF THE SAMPLE LIST OF 71 EMPLOYEES FURNISHED DURING HEARING, AT THE INSTANCE , AS EXPLAINED TO US, OF THE TRIBUNAL ON AN EARLIER OCCASION, 10, AS STATED BY T HE LD. DEPARTMENTAL REPRESENTATIVE (DR) DURING HEARING, ARE NOT ON THE ASSESSEES ROLLS. IN-AS-MUCH AS THE SAME SUGGESTS PAYMENTS BY GOS FOR OTHER THAN ON SALARY (TO THE ASSESSEES EMPLOYEES), CONTRADICTING ITS CASE, THE SAME NEEDS TO BE EXPLAINED. 4. THE MATTER IS THUS CLEARLY IN-DETERMINATE, AND W OULD THEREFORE HAVE TO BE RESTORED BACK TO THE FILE OF THE AO, SETTING ASIDE THE IMPUGNED ORDER, WHICH WE HEREBY DIRECT. THE BURDEN OF PROOF, IN-AS-MUCH AS I T IS IN THE INTIMATE KNOW OF ITS AFFAIRS, IS ON THE ASSESSEE, EVEN AS THE REVENU ES STAND ALSO HAS TO BE CONSISTENT WITH ITS FINDINGS, BASED ON MATERIAL ON RECORD AND EXPLANATION/S OFFERED BY THE ASSESSEE. IN THIS CONTEXT, IT MAY BE ADDED THAT THE LD. AUTHORIZED REPRESENTATIVE (AR), ON BEING ASKED BY THE BENCH DU RING HEARING AS TO HOW DOES THE ASSESSEES STAND EFFECTIVELY HELPS ITS CA SE IN-AS-MUCH AS EVEN CONSIDERING THE PAYMENT MADE, TO THE EXTENT PROVED, BEING ON ACCOUNT OF SALARY, THE SAME WOULD WARRANT DEDUCTION OF TAX AT SOURCE U /S. 192, COULD NOT FURNISH ANY SATISFACTORY ANSWER. THIS ASPECT WOULD THEREFOR E REQUIRE BEING EXAMINED. ALSO, THE FUNCTIONAL ROLE OF INFO-DRIVE LLC, UAE, H AVING BEEN OSTENSIBLY SPECIFICALLY INCORPORATED/INSTITUTED TO FACILITATE THE EXECUTION OF THE PROJECTS 5 ITA NOS.397 & 398/MDS/2014 (AY 2010-11 & 2011-12) INFO-DRIVE SOFTWARE LTD. V. ITO UNDERTAKEN BY THE ASSESSEE IN UAE, CANNOT BE OBSCUR E, AND WOULD THEREFORE REQUIRE BEING SHOWN. THE AGREEMENTS ENTERED INTO BY INFO DRIVE LLC, UAE, AS WELL AS THE ENTRIES IN ITS BOOKS OF ACCOUNT, MAY BE RELEVANT IN THIS REGARD. NEEDLESS TO ADD, THE PAYMENT FOR TRAVELING AND RELA TED EXPENDITURE WOULD ALSO HAVE TO BE DULY SUBSTANTIATED. THE AO SHALL DECIDE ISSUING DEFINITE FINDINGS OF FACT AFTER ALLOWING THE ASSESSEE A REASONABLE OPPOR TUNITY TO STATE AND PRESENT ITS CASE BEFORE HIM. WE MAY BEFORE PARTING WITH THIS ORDER ADD THAT OUR OBSERVATIONS HEREIN ONLY HIGHLIGHT THE VARIOUS ISSUES OR QUESTIONS THAT MAY BE REQUIRED TO BE ADDRESSED, AND MAY NOT BE CONSTRUED AS AN EXPRESSIO N OF OPINION, ONE WAY OR THE OTHER, IN ANY MANNER. WE DECIDE ACCORDINGLY. 5. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON JUNE 30, 2017 AT CHENNAI . SD/- SD/- ( ! ' . # ) (DUVVURU RL REDDY) $ /JUDICIAL MEMBER ( ) (SANJAY ARORA) /ACCOUNTANT MEMBER /CHENNAI, 3 /DATED, JUNE 30, 2017 EDN 4 - /$156 76)1 /COPY TO: 1. *+ /APPELLANT 2. /0*+ /RESPONDENT 3. 81 ( )/CIT(A) 4. 81 /CIT 5. 69: /$1$ /DR 6. : ( ; /GF