WNS NORTH AMERICA INC., MUMBAI V. D.C.I.T. (IT)4(3)(2), MUMBAI

ITA 6561/MUM/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4120 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2008-2009
• Appeal Filed On: 19-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SREEKAR
• Keywords: Double taxation relief; Initiation of penalty proceedings; TDS; Set aside
• Section: 143(3); 144C; 274; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I , MUMBAI BEFORE S HRI PRAMOD KUMAR (VP ) AND SHRI RAM LAL NEGI (JM) ITA NO. 6561 /MUM/20 1 8 ASSESSMENT YEAR: 2008 - 09 WNS NORTH AMERICA INC, PL - 10, GATE - 4, GODREJ & BOYCE COMPLEX, PIROJSHANAGAR, VIKHRO LI W), MUMBAI - 400079 PAN: AAACW5493Q VS. THE DEPUTY COMMISSIONER OF INCOME TAX - (INTERNATIONAL TAXATION) - 4(3)(2), ROOM NO. 1611, 17 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI - 400021 (APPELLANT) (RESPONDENT) ITA NO. 6562 /MUM/201 8 ASSE SSMENT YEAR: 2009 - 10 WNS GLOBAL SERVICES (UK) LTD., PL - 10, GATE - 4, GODREJ & BOYCE COMPLEX, PIROJSHANAGAR, VIKHROLI W), MUMBAI - 400079 PAN: AAACW5544Q VS. THE DEPUTY COMMISSIONER OF INCOME TAX - (INTERNATIONAL TAXATION) - 4(3)(2), ROOM NO. 1611, 17 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI - 400021 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MANISH KANT ( A R ) REVENUE BY : SHRI V. SREEKAR (DR) DATE OF HEARING: 09 /12/2019 DATE OF PRONOUN CEMENT: 06 / 03 /2020 O R D E R PER RAM LAL NEGI, JM THESE APPEAL S HAVE BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 17.09.2018 P ASSED BY THE LD. AO UNDER SECTION 143(3) READ WITH SECTION 144C(13) AND 254 OF THE ACT IN PURSUANCE OF TH E DIRECTIONS ISSUED BY THE LD. DISPUTE RESOLUTION PANEL - 2 (LD.DRP),MUMBAI PERTAINING TO THE ASSESSMENT 2 ITA NO. 6561 & 6562 / MUM/2018 ASSESSMENT YEAR S : 2008 - 09 & 200 9 - 10 YEAR 2008 - 09 IN THE CASE OF WNS NORTH AMERICA AND ORDER DATED 17.09.2018 P ASSED BY THE LD. AO UNDER SECTION 143(3) READ WITH SECTION 144C(13) AND 254 OF THE ACT IN PURSUANCE OF THE DIRECTIONS ISSUED BY THE LD. DISPUTE RESOLUTION PANEL - 2 (LD.DRP),MUMBAI PERTAINING TO THE ASSESSMENT YEAR 2009 - 10 IN THE CASE OF WNS GLOBAL SERVICES (UK) LTD. 2. SINCE THE GROUNDS OF APPEALS ARE COMMON IN BOTH THE CASES THESE APPEAL WERE CLUBBED HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON AND CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 6561 /MUM/201 8 ( ASSESSMENT YEAR: 2008 - 09) 3 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FOREIGN COMPANY INCORPO RATED IN USA, ENGAGED IN THE BUSINESS OF PROVIDING INFORMATION TECHNOLOGY ENABLED SERVICES TO ITS CUSTOMERS DIRECTLY OR THROUGH SUBCONTRACTING THE SAME TO ITS ASSOCIATE ENTERPRISES (AE) LOCATED ACROSS VARIOUS PARTS OF THE WORLD . DURING THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE INTER ALIA RECEIVED AN AMOUNT OF RS. 12,99,13,821/ - FROM WNS INDIA AND WNS MORTGAGE SERVICES PVT. LTD. THE ASSESSEE CONTENDED THAT SINCE THE AMOUNTS ARE REIMBURSEMENT OF EXPENSES, THE SAME IS NOT TAXABLE IN INDIA. HOWEVER, THE AO REJECTING THE CONTENTION OF THE ASSESSEE , MADE ADDITION OF THE SAID AMOUNT TO THE INCOME OF THE ASSESSEE AND C OMPLETED ASSESSMENT U/S 144C R.W.S. 143(3) R.W.S. 254 OF THE ACT , DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 15,66,61,181/ - AGAINS T THE ACTION OF THE AO, THE ASSESSEE FILED OBJECTIONS WITH THE LD DRP AND ON THE BASIS OF THE DIRECTIONS PASSED BY THE LD. DRP U/S 144C(5) OF THE ACT, THE AO PASSED THE IMPUGNED ORDER. 4 . THE ASSESSEE WNS NORTH AMERICA HAS PREFERRED THE PRESENT APPEAL AG AINST THE IMPUGNED ORDER BY RAISING THE FOLLOWING GROUND S : GENERAL GROUND 1. ERRED IN COMPUTING TOTAL INCOME OF ASSESSEE AT RS. 15,66,61,181/ - AS AGAINST THE RETURNED INCOME OF RS. 2,67,47,360 FOR THE SUBJECT ASSESSMENT YEAR. 2. ERRED IN TAXING THE AMOUNT OF RS . 12,99,13,821 RECEIVED FROM WNS GLOBAL SERVICES PVT. LTD. (WNS INDIA), WHICH WAS RECEIVED TOWARDS REIMBURSEMENT OF EXPENSES INCURRED ON BEHALF OF WNS 3 ITA NO. 6561 & 6562 / MUM/2018 ASSESSMENT YEAR S : 2008 - 09 & 200 9 - 10 INDIA, AS FEES FOR INCLUDED SERVICES (FIS) UNDER ARTICLE 12 (4) OF THE INDIA USA DTAA. IMPUGNED ORDER PASSED BY THE LEARNED AO WAS BAD IN LAW 3. ERRED IN PASSING THE ALLEGED DRAFT ASSESSMENT ORDER U/S 144C(1) R.W.S. 143 (3) R.W.S. 254 OF THE ACT DATED 18 DECEMBER 2017 INSPITE OF THE FACT THAT THERE WAS ALREADY AN ORDER GIVING EFFECT TO THE ORDER OF TRIBUNAL W HICH WAS PASSED ON 13 FEBRUARY 2017 BY THE LEARNED AO. WITHOUT APPRECIATING THAT POST THIS FIRST ORDER GIVING EFFECT TO ITAT ORDER DATED 13 FEBRUARY 2017, THE LEARNED AO IS FUNCTUS OFFICIO AND THEREBY IMPUGNED SECOND ORDER GIVING EFFECT TO ITAT ORDER DATED 18 DECEMBER 2017 IS WITHOUT ANY SANITY OF LAW AND LIABLE TO BE QUASHED. LEARNED AP PASSED A FINAL ASSESSMENT ORDER AS AGAINST A DRAFT ASSESSMENT ORDER MAKING ENTIRE PROCEEDINGS BAD IN LAW. 4. ERRED IN PASSING THE ALLEGED DRAFT ASSESSMENT ORDER U/S 144C(1) R. W.S. 143 (3) R.W.S. 254 OF THE ACT WITHOUT FOLLOWING THE PROCEDURE LAID DOWN IN SECTION 144C OF THE ACT WHEREIN THE LEARNED AO ISSUED A NOTICE OF DEMAND UNDER SECTION 156 AND NOTICE UNDER SECTION 274 READ WITH SECTION 271 (1) (C) OF THE ACT ALONG WITH THE ALLEGED DRAFT ASSESSMENT ORDER, THEREBY IN EFFECT PASSING FINAL ASSESSMENT ORDER WHICH MAKES THE ASSESSMENT ORDER BAD IN LAW. NOT FOLLOWING THE BINDING ITAT ORDER 5. ERRED IN NOT FOLLOWING THE ORDER OF THE ITAT IN THE ASSESSEES OWN CASE FOR AY 2009 - 10, AY 20 10 - 11 AND AY 2012 - 13, EVEN THOUGH THE HONBLE DRP CONCLUDED THAT THE ISSUE IS COVERED BY THESE ITAT ORDERS, WHEREIN IT WAS HELD THAT THE PAYMENT BY WNS INDIA TO THE ASSESSEE IS IN THE NATURE OF PURE REIMBURSEMENT OF COSTS WITHOUT MARK UP AND SHOULD NOT BE TAXABLE AS INCOME IN THE HANDS OF THE ASSESSEE. NON GRANT OF CREDIT FOR PRE - PAID TAXES 6. ERRED IN NOT GRANTING CREDIT FOR ADVANCE TAX OF RS. 88,49,000 AND TAXES DEDUCTED AT SOURCE (TDS) OF RS. 1,11,59,246 AS CLAIMED IN THE RETURN OF INCOME DISREGARDING THE D IRECTIONS BY THE HONBLE CIT (A) IN FIRST ROUND OF LITIGATION, WHEREIN CIT (A) HAD DIRECTED TO ALLOW THE SAME AFTER DUE VERIFICATION. INITIATION OF PENALTY PROCEEDINGS 7. THE LEARNED AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271 (1) (C) OF THE ACT. 4 ITA NO. 6561 & 6562 / MUM/2018 ASSESSMENT YEAR S : 2008 - 09 & 200 9 - 10 EACH OF THE ABOVE GROUND OF APPEALS IS WITHOUT PREJUDICE TO AND INDEPENDENT OF ONE ANOTHER. 5 . THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER INTER ALIA ON THE GROUND THAT THE AO HAS ERRED IN NOT FOLLOWING THE ORDER OF THE ITAT RENDERED IN A SSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2009 - 10, 2010 - 11 AND 2012 - 13, EVEN THOUGH THE LD. DRP HAD OBSERVED THAT THE ISSUE IS COVERED BY THE ORDERS OF THE ITAT, WHEREIN THE T RIBUNAL HAS HELD THAT THE PAYMENT BY WNS INDIA TO THE ASSESSEE IS IN THE NATURE OF REIMBURSEMENT OF COSTS WITHOUT MARK UP, THEREFORE , NOT TAXABLE IN THE HANDS OF THE ASSESSEE. T HE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT MUMBAI IN ASSESSEES OWN CASES PE RTAINING TO THE ASSESSMENT YEARS 2010 - 11, 2011 - 12 AND 2012 - 13 THEREFORE, THE FINDINGS OF THE LD AO IS LIABLE TO BE SET ASIDE. THE LD COUNSEL INVITED OUR ATTENTION TO PARA 7.3 OF THE DRP DIRECTION IN WHICH THE LD DRP HAS OBSERVED THAT THE TRIBUNAL HAS DECID ED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN ASSESSEES APPEALS FOR THE ASSESSMENT YEAR 2010 - 11, 2011 - 12 AND 2012 - 13. THE LD. COUNSEL FURTHER SUBMITTED THAT THE LD DRP HAS UPHELD THE ACTION OF THE AO ONLY FOR THE REASON THAT THE DEPARTMENT HAS PREFERRED APPE AL AGAINST THE FINDINGS OF THE ITAT BEFORE THE HONBLE HIGH COURT. IN VIEW OF THE AFORESAID FACTS, THE LD. COUNSEL SUBMITTED THAT SINCE THE IDENTICAL ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL, THE IMPUGNED ORDER IS LIABLE TO BE SET ASIDE. 6 . ON THE OTHER HAND THE LD. DEPARTMENTAL REPRESENTATIVE (DR) FAIRLY ADMITTED THAT THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL, HOWEVER, SUPPORTED THE IMPUGNED ORDER ON THE GROUND THAT THE DEPARTMENT HAS NOT ACCEPTED THE DECISION OF THE ITAT AND CHALLENGED THE SAME BEFORE THE HONBLE HIGH COURT. 7 . WE HAVE PERUSED THE MATERIAL ON RECORD INCLUDING THE ORDERS OF THE AUTHORITIES BELOW AND THE DECISIONS OF THE COORDINATE BENCHES RENDERED IN ASSESSEE S CASE. AS POI NTED OUT BY THE LD. COUNSEL, THE COORDINATE BENCH HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN REVENUES APPEAL ITA NO 5 ITA NO. 6561 & 6562 / MUM/2018 ASSESSMENT YEAR S : 2008 - 09 & 200 9 - 10 1407/MUM/2014 IN ASSESSEES CASE PERTAINING TO THE ASSESSMENT YEAR2009 - 10, HOLDING AS UNDER: - 30. DURING THE COURSE OF HE ARING BEFORE US, IT WAS SUBMITTED BY THE LD. COUNSEL THAT FAIRLY SPEAKING, IN THE EARLIER YEARS REQUISITE DETAILS WERE NOT ON RECORD AND THAT IS WHY BOTH THE ABOVE ISSUES ARISING IN THIS GROUND PERTAINING TO TAXABILITY OF REIMBURSEMENT OF EXPENSES RECEIVED BY THE ASSESSEE HAD TO BE SENT BACK TO THE FILE OF AO FOR ASCERTAINING THE NATURE OF EXPENSES AND OTHER ALLIED FACTS, BUT IN THIS YEAR, COMPLETE DETAILS AND OTHER ALLIED FACTS ARE AVAILABLE IN THIS REGARD WHICH WERE DULY VERIFIED BY DRP AND AFTER THAT FAC TUAL FINDINGS WERE RECORDED BY THE DRP THAT IT WAS A CASE OF PURE REIMBURSEMENT OF EXPENSES ON COST TO COST BASIS AND THERE WAS NO INVOLVEMENT OF ANY PROFIT ELEMENT OR MARK UP. 31. THESE FACTS WERE NOT CONTROVERTED BY THE LD. DR. UNDER THESE CIRCUMSTANCES, WE HAVE NO OTHER OPTION BUT TO UPHOLD THE FINDINGS OF THE DRP THAT SINCE THERE WAS NO ELEMENT OF ANY MARK UP OR INCOME EMBEDDED IN THESE ITEMS AND ALSO IN ABSENCE OF ANY EVIDENCE OF KNOWLEDGE, SKILL OR EXPERIENCE HAVING BEEN MADE AVAILABLE BY THE ASSESSEE UNDER THE IMPUGNED PAYMENTS, THE SAME WAS NEITHER LIABLE TO BE TAXED AS FTS/FIS NOR AS PROFIT ATTRIBUTABLE TO THE SERVICE FEE. IT WAS STATED BY THE LD. COUNSEL THAT EVEN IF ANY AMOUNT WAS TO BE REGARDED AS ATTRIBUTABLE TO SERVICE FEES, THE NET INCOME THAT COULD BE ATTRIBUTED TO THE SERVICE FEE WOULD BE NIL AS THERE WAS NO INCOME ELEMENT INVOLVED THREREIN. THIS SUBMISSION WAS NOT CONTROVERTED BY THE LD. DR. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY FORCE IN THE GROUNDS RAISED BY THE REVENUE AND, THEREFO RE, GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 8 . WE FURTHER NOTICE THAT THE LD. DRP IN ITS DIRECTIONS HAS OBSERVED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES CASES PERTAINING TO THE ASSESSM ENT YEARS 2010 - 11, 2011 - 12 AND 2012 - 13. HOWEVER, THE LD. DRP HAS DECLINED TO INTERFERE WITH THE FINDINGS OF THE AO BASICALLY ON THE GROUND THAT THE DEPARTMENT HAS CHALLENGED THE FINDINGS OF THE TRIBUNAL BEFORE THE HONBLE HIGH COURT. THE OBSERVATIONS OF TH E LD. DR ON THIS ISSUE READ AS UNDER: - 6 ITA NO. 6561 & 6562 / MUM/2018 ASSESSMENT YEAR S : 2008 - 09 & 200 9 - 10 7.3. 1 WE HAVE CONSIDERED THE FACTS O F THE CASE AND THE SUBMISSIONS MADE BY THE ASSESSEE. THIS GROUND IS IN RESPECT OF TAXABILITY OF REIMBURSEMENT OF EXPENSES. IN THE IMPUGNED ORDER THE AO HAS PROPOSED TO TAX THE RE IMBURSEMENT OF EXPENSES CONSIDERING THE SAME AS FTS UNDER THE ACTOR UNDER ARTICLE 12(4) OF THE INDIA US DTAA. WE FIND THAT THIS ISSUE WAS DECIDED BY THE HONBLE TRIBUNAL IN FAVOUR OF THE ASSESSEE IN THE ORDER DATED 24.07.2017 FOR THE A.Y. 2012 - 13. THE ISS UE WAS ALSO DECIDED IN FAVOUR OF THE ASSESSEE BY THE HONBLE TRIBUNAL DURING A.Y. 2010 - 11 AND 2011 - 12. IT IS HOWEVER, FOUND THAT AN APPEAL HAS BEEN FILED BY THE REVENUE IN THE HONBLE HIGH COURT AGAINST THE SAID ORDER OF THE TRIBUNAL. 9. AS POINTED O UT BY THE LD. COUNSEL FOR THE ASSESSEE, THE FINDINGS OF THE AO ARE CONTRARY TO THE DECISION OF THE COORDINATE BENCH RENDERED IN ASSESSEE S CASES DISCUSSED ABOVE. SINCE THE COORDINATE BENCH HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN ASSESS EES OWN CASES PERTAINING TO THE SUBSEQUENT YEARS DISCUSSED ABOVE AND SINCE THE HONBLE HIGH COURT HAS NOT STAYED THE OPERATION OF THE ORDERS PASSED BY THE COORDINATE BENCHES, WE DO NOT FIND ANY REASON TO TAKE A DIFFERENT VIEW. HENCE , RESPECTFULLY FOLLOWIN G THE DECISIONS OF THE COORDINATE BENCHES IN ASSESSEES OWN CASES, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND DIRECT THE AO TO DELETE THE ADDITION IN QUESTION. 10. THE LD. COUNSEL SUBMITTED THAT THE ASSESSEE DOES NOT WANT TO PRESS GROUND NO. 6 OF THE APPEAL. HENCE WE DISMISS THIS GROUND OF APPEAL AS NOT PRESSED. 11. SINCE WE HAVE DECIDED THE MAIN ISSUE IN FAVOUR OF THE ASSESSEE, THE REMAINING GROUNDS HAVE BECOME ACADEMIC. HENCE, THE SAME DO NOT REQUIRE ADJUDICATION. ITA NO. 6562 /MUM/201 8 ( ASSESSM ENT YEAR: 2009 - 10) THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO THE FACTS OF THE CASE ITA NO. 6561/MUM/2018 (AY 2008 - 09) AFORESAID AND THE ISSUES INVOLVED IN BOTH THE CASES ARE IDENTICAL IN BOTH THE CASES. IN THIS CASE THE AO PASSED ASSESSMENT O RDER U/S 144(13) R.W.S. 143(3) R.W.S. 254 OF THE ACT IN PURSUANCE OF DIRECTIONS 7 ITA NO. 6561 & 6562 / MUM/2018 ASSESSMENT YEAR S : 2008 - 09 & 200 9 - 10 ISSUED BY THE LD. DRP U/S 144C(5) OF THE ACT AND MADE ADDITION OF REIMBURSEMENT OF EXPENSES AMOUNTING TO RS. 4,44,09,535/ - TREATING THE SAME AS FTS UNDER THE ACT OR UNDER ARTI C LE 13(4)(C) OF THE INDIA - UK DTAA. THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER ON IDENTICAL GROUNDS. SINCE W E HAVE DECIDED THE MAIN ISSUE IN FAVOUR OF THE ASSESSEE IN ITA NO. 6561/MUM/2018 (AY 2008 - 09) UNDER THE SIMILAR SET OF FACTS, OUR DECISION IN THE SAID APPEAL SHALL MUTATIS MUTA NDI S APPLY IN THE PRESENT APPEAL. IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR THE AY 2008 - 09 AND APPEAL FILED BY THE ASSESSEE FOR THE AY 2009 - 10 ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH MAR CH , 2020 . SD/ - SD/ - ( PRAMOD KUMAR ) ( RAM LAL NEGI ) VICE PRESIDENT JUDICIAL MEMBER MUMBAI ; DATED: 06 / 0 3 / 2020 ALINDRA, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI