Global Foundries Engineering Private Limited, Bengaluru V. Deputy Commissioner Of Income Tax, Circle-3(1)(1), Bangalore

ITTPA 903/BANG/2022

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The case involves M/s. Global Foundries Engineering Pvt. Ltd., which appealed against the final order of assessment for the Assessment Year 2018-19. The primary issue was the disallowance of gratuity payments amounting to Rs.1,14,57,680 made after the Balance Sheet date. The AO initially disallowed these payments under Section 40A(7) of the Income Tax Act, 1961, as they were not paid before the Balance Sheet date. The Dispute Resolution Panel (DRP) directed the AO to verify if the payments were made before the due date for filing the return of income under Section 139(1). The AO, after verification, sustained the disallowance due to lack of sufficient evidence from the assessee. The Tribunal, after considering the additional evidence provided by the assessee, remitted the matter back to the AO for a detailed examination of the new documents.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 115322 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 27-11-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-11-2022
• Assessment Year: 2018-2019
• Appeal Filed On: 21-09-2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; Additional evidence
• Section: 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU “B” BENCH, BENGALURU Before Shri N.V. Vasudevan, Vice President and Ms. Padmavathy S., Accountant Member IT(TP)A No. 903/Bang/2022 (Assessment Year: 2018-19) M/s. Global Foundries Engineering Pvt. Ltd. 9th Floor, N1 Block Manyata Embassy Business Park Nagavara, Bengaluru 560045 PAN – AAFCG9652E vs DCIT, Circle - 3(1)(1) BMTC Building Koramangala Bengaluru 560095 (Appellant) (Respondent) Assessee by: Smt. Tanmayee Rajkumar, Adv. Revenue by: Dr. Manjunath Karkihalli, CIT-DR Date of hearing: 24/11/2022 Date of pronouncement: 28/11/2022 O R D E R Per: Padmavathy, A.M. This appeal is against the final order of assessment passed under Section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (the Act) dated 28.07.2022 for AY 2018-19. 2. The only issue through various grounds raised by the assessee is with regard to the disallowance of payments made toward gratuity after the Balance Sheet date for an amount of Rs.1,14,57,680/-. 3. The assessee is engaged in the business of rendering integrated circuit design, engineering services and software development services. For the assessment year 2018-19 the assessee filed the return of income on 29.11.2019 declaring a total income of Rs.26,87,53,110/-. The case was selected for IT(TP)A No. 903/Bang/2022 M/s. Global Foundries Engineering Pvt. Ltd. 2 scrutiny under CASS and a notice under Section 143(2) of the Act was duly served upon the assessee. A reference was made to the Transfer Pricing Officer (TPO) for determination of Arm’s Length Price (ALP) of the international transactions entered into by the assessee. The TPO made an adjustment of Rs.9,75,21,685/-. The AO passed draft assessment order incorporating TP adjustment. The AO while passing the draft assessment order besides the TP adjustment also disallowed a sum of Rs.11,45,768/- under Section 40A(7) of the Act towards provision for payment of gratuity on the ground that the same is not paid before the Balance Sheet date, i.e. 31 st March. 4. On further objections raised, the DRP gave relief to the assessee in terms of TP adjustments and with regard to the disallowance of gratuity, the DRP directed the AO to verify the contention of the assessee that the gratuity is paid after the Balance Sheet date but before the due date for filing the return of income u/s.139(1). 5. The AO while passing the final assessment order in accordance with the directions of the DRP sustained the disallowance of gratuity by holding as under: - 9. The Hon'ble DRP also directed the AO to verify the contention of the assessee in respect to disallowance of the gratuity amounting to Rs.1,14,57,680/- and if it was to be correct the delete the addition made. In this connection vide notice u/s142(1) dated: 08.07.2022, the assessee was asked to furnish the documentary evidence that the gratuity was paid before filling of return of income for the year under consideration. In response to the notice the assessee in support of its claim furnished copy of two Pay slips without employee name and code, for the month of Apri1,2018 and May 2018 reflecting gratuity payment of Rs.19,44,104/- and Rs.15,11,491/- respectively and copy of gratuity trust account. 9.1 As it was not clear from the pay slips that the pay slip belonged to which employee and which bank the statement of Trust gratuity IT(TP)A No. 903/Bang/2022 M/s. Global Foundries Engineering Pvt. Ltd. 3 fund was, a fresh notice u/s142(1) of the Income Tax Act, 1961 dated: 13.07.2022 was sent to the assessee calling following details : "i) Proof of payments of Rs.19,44,104/- and Rs.18,21,423/- made from gratuity account. ii) Detail of employees to whom gratuity paid within a period from 01.04.2018 to the date of filling ITR i.e 29.11.2018. Please also furnish copy of relevant part of the bank account statement of the employees reflecting gratuity amount. iii) Copy of bank account statement of gratuity trust for the relevant period." In response to the above notice the assessee failed to furnish any reply. In view of the fact that, the assessee during the course of assessment proceedings, was not able to furnish the supporting documents in relation to the payment of gratuity of Rs.1,14,57,680/- , the same was disallowed u/s 40A(7) of the Income Tax Act,1961 in the draft assessment order. The assessee did not furnish the relevant details even when draft assessment order in the form of show cause notice dated: 18.09.2021. Further, it appears from the order of the Hon'ble Disputed Resolution Panel-1, Bengaluru dated: 24.06.2022, that the relevant supporting documents of gratuity was not in possession of the assessee. Therefore, the Hon'ble Disputed Resolution Panel-1, Bengaluru vide order dated: 24.06.2022 directed the AO to verify the contention of the assessee in respect to disallowance of the gratuity amounting to Rs.1,14,57,680/-. The assessee had plenty of time to arrange evidence and justify its claim that the payment of gratuity was made after 31.03.2018 but before filling of return of income. Despite this, the assessee failed to furnish the necessary documents till the date passing this order. Moreover, two pay slip furnished by the assessee neither mention any name of the employee or employee code. In view of the above, the proposed addition in draft assessment order of Rs.1,14,57,680/- on account gratuity remains unchanged. It is clear that assessee has under reported the income for AY 2018-19 and hence penalty proceedings u/s 270A of the I.T. Act is applicable in this case. Penalty proceedings u/s 270A for under reporting of income is initiated separately. IT(TP)A No. 903/Bang/2022 M/s. Global Foundries Engineering Pvt. Ltd. 4 6. Aggrieved, the assessee is in appeal before the Tribunal. The learned A.R. submitted that the assessee has furnished the details of payment before the AO which is in pages 186 to 194 of the paper book. The learned A.R. also submitted that the AO issued one more notice u/s.142(1) calling for further details giving time till 18.07.2022 and the assessee could not file the said details due to technical issues in the portal while trying to upload the details. The learned A.R. drew our attention to the letter filed before the AO in this regard. The learned A.R. submitted that the AO has passed the final order without considering the details furnished. 7. The learned A.R. submitted an application for additional evidence where in the breakup of gratuity payments, payslips of employees and the details of employees to whom gratuity is paid, are furnished. The learned A.R. prayed for admission of the additional evidence. 8. The learned D.R. relied on the orders of the AO and objected to the admission of the additional evidence. 9. We have heard the rival contentions and perused the material on record. The additional evidence now furnished by the assessee goes to the root of the issue of disallowance gratuity. Therefore, in the interest of justice and for substantial cause, the additional evidence is taken on record and admitted for adjudication. From final order of the AO which is extracted in the earlier part of this order, it is clear that the AO has sustained the disallowance on the basis that the supporting documents were not furnished by the assessee and the name of the employees is not mentioned in the payslips submitted. We also notice that the AO has not considered the bank statement submitted by the assessee evidencing the payment through gratuity Fund Trust. The additional evidence now furnished contain the payslips with the name of the employee and the details of to whom the gratuity payments are made which need examination. In view of these discussions we remit this issue to the AO for IT(TP)A No. 903/Bang/2022 M/s. Global Foundries Engineering Pvt. Ltd. 5 verification of the details of payments as submitted by the assessee and allow the deduction accordingly after giving reasonable opportunity of being heard. It is ordered accordingly. 10. In the result, the appeal filed by the assessee is allowed for statistical purposes. Dictated and pronounced in the open Court on 28 th November, 2022. Sd/- Sd/- (N.V. Vasudevan) (Padmavathy S) Vice President Accountant Member Bengaluru, Dated: 28 th November, 2022 Copy to: 1. The Appellant 2. The Respondent 3. The DRP-1, Bengaluru 4. The CIT - 5. The DR, ITAT, Bengaluru 6. Guard File By Order //True Copy// Assistant Registrar ITAT, Bengaluru n.p.