SUTHERLAND GLOBAL SERVICES PRIVATE LIMITED ,CHENNAI V. DCIT , CHENNAI

ITTPA 70/CHNY/2022

AI Insights

The case involves Sutherland Global Services Private Limited appealing against the order of the Deputy Commissioner of Income Tax, which was passed following directions from the Dispute Resolution Panel. The appeal primarily contested the adjustments and disallowances made by the tax authorities, which included a significant downward adjustment related to international transactions and disallowances under various sections of the Income Tax Act. The Tribunal considered the modifications and additional grounds of appeal submitted by the assessee post-MAP proceedings and decided to remit several issues back to the Ld. AO and Ld. TPO for a detailed examination and re-adjudication.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 314108 (ITAT-CHENNAI)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 07-05-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2016-2017
• Other Referred Cases: TRF Limited vs. CIT, Jute Corporation of India Ltd. vs. CIT, National Thermal Power Co. Ltd. vs. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V. SREENIVASAN
• Assessee Lawyers: VIJAY MEHTA; C.A; HARSH BAFNA
• Keywords: Set aside; Opportunity of being heard; Revised return; Transfer pricing; International transaction; Bad and doubtful debts; Competent authority; Double taxation relief
• Section: 143(3); 37; 37(1)

Judgement Text

"आयकर अपीलीय अधिकरण, ’डी’ न्यायपीठ, चेन्नई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH: CHENNAI माननीय श्री मनु क ुमार धिरर ,न्याधयक सदस्य एवं माननीय श्री अमिताभ शुक्ला, लेखा सदस्य क े सिक्ष BEFORE HON’BLE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND HON’BLE SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER आयकर अपील सं./IT(TP)A No.70/Chny/2022 Assessment Years: 2016-17 Sutherland Global Services Private Limited, Gateway Office Parks, 2nd floor, Building B2, No.16, GST Road, Perungalathur, Chennai-600 063. [PAN: AAECS8093A] Deputy Commissioner of Income Tax, Central Circle-3(3), Chennai. (अपीलार्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलार्थी की ओर से/ Assessee by : Shri Vijay Mehta, C.A, Mr.Harsh Bafna, C.A and Ms.Asmita Desouza, C.A. प्रत्यर्थी की ओर से /Revenue by : Shri AR V.Sreenivasan, CIT सुनवाई की तारीख/Date of Hearing : 30.04.2025 घोषणा की तारीख /Date of Pronouncement : 07.05.2025 आदेश / O R D E R PER AMITABH SHUKLA, A.M : This appeal is filed by the assessee against the order bearing DIN & Order No.ITBA / AST / S / 143(3) / 2022-23 / 1044995457(1) dated 29.08.2022 of the Learned Deputy Commissioner of Income Tax for the assessment years 2016-17 passed in compliance to directions of Dispute Resolution Panel-2, Bengaluru vide order dated 29.06.2022. IT(TP)A No.70/Chny/2022 Page - 2 - of 13 2.0 The assessee had through Form-36 raised some 10 grounds of appeal including sub-grounds of appeal contesting the impugned order. The Ld. Counsel for the assessee submitted that, subsequently, the appellant assessee had preferred MAP proceedings for redressal of its issues. Accordingly, in consonance with the relief obtained through MAP proceedings the appellant has modified its grounds of appeal through its letter dated 08.04.2025 r.w.17.04.2025. Further, the appellant had also filed additional ground of appeal vide its request dated 23.04.2025. The present appeal is adjudicated taking into consideration the modifications in the grounds of appeal as well as the additional grounds filed. 3.0 At the outset, Ld. Counsel for the assessee submitted that ground of appeal nos.2, 3, 6, 8 and 10 are not pressed and hence the same were dismissed. Ground of appeal No.1 is found to be general in nature and hence dismissed. Through its letter dated 17.04.2025 the appellant assessee has submitted that ground no.4, 5A and 5B of the amended grounds have been resolved by the competent authority during the MAP proceedings and therefore it is withdrawn. 4.0 The first issue which requires to be adjudicated pertaining to amended grounds of No.5C is concerned, is regarding downward adjustments made by the Ld. TPO of Rs.11,28,20,896/- which has been confirmed by the Ld. DRP. It is the case of the assessee that the overall IT(TP)A No.70/Chny/2022 Page - 3 - of 13 addition of Rs.54 Crores was made out of which Rs.43 Crores relief has been already received by the assessee on account of MAP proceedings concerning transactions with USA. The balance amount in dispute is now only Rs.11 Crores approximately. The Ld. Counsel further submitted that on this unresolved amount also the same ratio analysis be applied and that corresponding relief be granted. In support of its contentions, the Ld. Counsel drew our attention to order dated 27.04.2018 of the ITAT Bangalore in ITA No.76/Bang/2014 order dated 15.09.2022 in ITA No.39/Chny/2017 and order dated 10.07.2024 in ITA (TP)A 2/Chny/2019 of this tribunal. 5.0 The Ld. DR though conceding the MAP proceedings, would like to place reliance upon the order of lower authorities as far as decisions of lower authorities qua non-US countries was concerned. 6.0 We have heard rival submissions in the light of material available on records. We have noted that majorly the amounts of adjustments have been got covered by the MAP proceedings. The only issue left now is regarding an adjustment of about Rs.11 Crores for non-US countries. After considering the totality of the facts as well as judicial precedents cited by the Ld. Counsel, we are inclined to set aside the issue regarding adjustments made by the Ld. TPO in respect of international transactions of the assessee with non-US entities (Not covered by the MAP) which is restored back to the file of the Ld. TPO for consideration as to whether IT(TP)A No.70/Chny/2022 Page - 4 - of 13 the international transactions of the assessee with non-US entities are similar in nature as contended by the assessee and if it is found correct, then the Ld. TPO may consider the same treatment to be given to the transactions as adopted by the MAP in the case of US companies. The Ld. TPO is directed to pass a suitable order after giving due opportunity of being heard to the assessee and in accordance with law. The amended ground of appeal no.5C raised by the assessee is therefore partly allowed. 7.0 The next issue raised by the assessee through ground of appeal no.7 is regarding a disallowance of a sum of Rs.32,91,15,217 u/s 40(a)(i) of the act. The Ld. Counsel for the assessee argued that the Ld. TPO has failed to correctly appreciate the facts of the case. Thus, out of the total disallowance, an amount of Rs.5,75,96,049/- pertained to reimbursement of connectivity charges, an amount of Rs.1,79,18,554/-, and an amount of Rs.12,53, 79,946/- was wrongly held as Royalty / fee for technical services and applicable under DTAA and an amount of Rs.12,82,20,678/- pertaining to software and other data processing charges by treating the same as Royalty / fee for technical services and by not considering the fact that tax has already been deducted on the aforesaid amount. The Ld. Counsel submitted that the Ld. AO failed to appreciate that there was no claim of expenses as the Ld. TPO has held ALP to be Nil. The Ld. Counsel submitted that the order of Ld. DRP on IT(TP)A No.70/Chny/2022 Page - 5 - of 13 the issue is also not very clear and has been passed in a summary and cryptic manner. It was accordingly requested that the matter particularly in the light of MAP proceedings be considered for remitting back to the Ld.AO for readjudication. 8.0 The Ld. DR wishes to place reliance upon the order of lower authorities. 9.0 We have heard rival submissions in the light of material available on records. The order of the Ld.AO and the Ld. DRP has been perused. We have noted that the lower authorities have not brought full and clear facts on records while drawing their conclusions. The factum of MAP proceedings also requires the issue to be revisited by the Ld.AO. After considering the totality of the facts, we are inclined to set aside the order of lower authorities and remit the issue regarding the disallowances made u/s 40(a)(i) to the file of the Ld.AO for readjudication of the matter by passing a speaking order in accordance with law. The Ld. AO shall give due opportunity of being heard to the assessee. The assessee shall comply all the statutory notices issued by the Ld.AO and any non- compliance shall be adversely viewed. Accordingly, the ground of appeal no.7 is allowed for statistical purposes. 10.0 The next issue raised by the assessee through grounds of appeal no.9 is regarding the disallowance of its bad debts amounting to Rs.86,89,185/- by the Ld.AO invoking provisions of section 36(1)(vii) of IT(TP)A No.70/Chny/2022 Page - 6 - of 13 the Act. The learned council for the assessee submitted that the allowance has been made by the Ld. AO without bringing any detailed reasoning on records as to why the same was disallowed. It was submitted that the Ld.AO has premised in para 5.4 on page-5 of his order, that the assessee has not brought on record sufficient proof or evidence in support of its claim. The Ld. AR submitted that the Ld. DRP has also confirmed the findings of the Ld. AO by making irrelevant and un-contextual observations. The learned council placed heavy reliance upon the decision of honorable apex court in the case of TRF Limited. It was stated that the law of the land, as laid down by honorable apex court is now crystal clear in as much as every bad debts claimed by an assessee and which fulfils all other accounting conditions are to be allowed in the year in which it is claimed. 11.0 The learned DR would like to make us believe on the correctness of the order of the lower authorities 12. We have heard rival submissions in the light of material available on records. We have noted that the Ld.AO in para 5.4 on page 5 of his order has categorically gave a finding that the impugned disallowances was being made for want of sufficient evidences coming from the assessee. He had remarked that “….The assessee submissions along with attachment is considered and found to be not acceptable. As the sufficient proof / evidence is not produced, the claim of doubtful debts to IT(TP)A No.70/Chny/2022 Page - 7 - of 13 the tune of Rs.86,89,185/- is disallowed.………………….. the Hon’ble DRP vide order dated 29.06.2022 received in this office on 06.07.2022 upheld the disallowance made in the draft assessment order…..” We have also noted that the findings of the Ld. DRP are not in consonant with those given by the Ld. AO. Apropos to para 5.4 of the assessment order, before the Ld.AO the assessee had submitted that it follows mercantile system of accounting and the doubtful debts relates to Revenue already offered in earlier years. It was submitted that the present claim pertained to debts qua Air India, the then owned public service enterprise of Government of India. We have also noted that honourable apex court in the case of TRF Limited 323 ITR 397 has now finally settled the controversy regarding allowance of bad debts. Thus, it has been laid down that:- “…. 36.(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28-- (i) to (vi) xxxx xxxx xxxx (vii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year.\" This position in law is well-settled. After 1st April, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of Companies, the provision is deducted from Sundry Debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, IT(TP)A No.70/Chny/2022 Page - 8 - of 13 the matter is remitted to the Assessing Officer for de novo consideration of the above-mentioned aspect only and that too only to the extent of the write off….” 13.0 Thus, we have noted that the allowance of bad debts is required to be made in the year in which it is claimed by an assessee. We have, however noted that the impugned allowance is subject to filing of necessary evidences in this regard by the assessee qua disclosure of income in earlier years. We have also noted that Ld.AO has given a categorical finding that the assessee was found wanting in having filed the required details. Accordingly, we are of the considered view that the matter deserves to be remitted back to the Ld. AO, for limited verification of the details of the assessee qua, its claim of expenditure under the head, bad debts. Accordingly, we direct the Ld. AO to consider allowance of the impugned expenditure u/s 36(1)(vii) by giving due opportunity of being heard to the assessee, and in the light of decision of Hon’ble Apex Court in the case of TRF Limited supra. The assessee shall be at liberty to file all the details deemed necessary for the purpose. Accordingly, the ground of appeal no.9 raised by the assessee is allowed for statistical purposes. 14.0 During the course of present proceedings the appellant has filed 3 additional grounds for consideration of our adjudication. All these grounds were admittedly not contested before the lower authorities. IT(TP)A No.70/Chny/2022 Page - 9 - of 13 Reliance has been placed by the Ld.AR, upon Rule 11 of the Tribunal rules mandating admission of any issue/ground during the course of proceedings which was not contested before the lower authorities. The Ld.Counsel for the assessee has also placed reliance upon the decision of the Hon’ble Apex Court in the case of Jute Corporation of India Ltd. vs. CIT, 187 ITR 688 (SC) and National Thermal Power Co. Ltd. vs. CIT, 229 ITR(SC). 15.0 The Ld.DR would like the matter to be decided on its merits. 16.0 We have considered rival submissions in the light of material brought on records. Thus, the ground of appeal no.1 & 2 are regarding the application of decision of Hon’ble Madras High Court in the case of Roca Bathwares & the present controversy on DIN issue pending with the Hon’ble Apex Court respectively. The ground of appeal no.3 is regarding appellant’s claim of deduction qua Employees Stock Option Preferences (ESOP) issue as an allowable expenditure u/s 37 of the Act. In support of its contentions the appellant has filed a paper book for consideration. As regards admission per se of the additional grounds, We have noted that Rule 11 of the ITAT rules provide for admission of any ground /issue, during proceedings before the tribunal, which was not contested before the lower authorities. Thus, rule 11 provides as under:- “…..11. Grounds which may be taken in appeal - The appellant shall not, except by leave of the Tribunal, urge or be heard in support of any ground not set forth in the memorandum of appeal, but the Tribunal, in deciding the appeal, shall not be IT(TP)A No.70/Chny/2022 Page - 10 - of 13 confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal under this rule: Provided that the Tribunal shall not rest its decision on any other ground unless the party who may be affected thereby has had a sufficient opportunity of being heard on that ground….” 17.0 So far as admission of additional ground is concerned, the law is fairly settled in view of decision of Hon’ble Supreme Court in the case of Jute Corporation of India Ltd. vs. CIT, 187 ITR 688 (SC) and National Thermal Power Co. Ltd. vs. CIT, 229 ITR(SC) and other catena of decisions from various authorities, wherein it is held that if consideration of additional grounds does not require any additional material and such additional grounds could be adjudicated with reference to the material already available on record, it would be just and proper to entertain the additional ground for adjudication, as under the Act all the endeavor of the authorities should be to determine the just tax liability of the assessee. In this case, the facts are admitted and are not in dispute. Hence, we admit the additional ground for adjudication. The similar proposition has reiterated by the Hon’ble Apex Court while dealing with the similar issue in the case National Thermal Power Co. Ltd. Vs CIT 229 ITR 383. The Apex Court reiterated that in the case of Jute Corporation of India Ltd. v. C.I.T. this Court, while dealing with the powers of the Appellate Assistant Commissioner observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, IT(TP)A No.70/Chny/2022 Page - 11 - of 13 prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also. In Goetze (India) Limited v. Commissioner of Income Tax wherein deduction claimed by way of a letter before Assessing Officer, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. Appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of assessing authority to entertain claim for deduction otherwise than by revised return, and did not IT(TP)A No.70/Chny/2022 Page - 12 - of 13 impinge on the power of Tribunal. The impugned additional grounds raised by the assessee are therefore admitted for adjudication. 18.0 As far as additional ground no.3 is concerned, we have noted that the same concerns assessee’s claim qua ESOP’s which was not made before the Ld AO in the Return of Income filed. It is the case of the assessee that it is legally entitled for impugned claim u/s 37(1) of the Act. In support of its contentions, the assessee has filed a detailed paper book. We are of the considered view that in the interest of justice, it would be appropriate to remit the matter to the Ld.AO. Accordingly, the Ld. AO is directed to adjudicate the matter after giving due opportunity of being heard and by passing a speaking order. The decision to remit it back to the Ld. AO is taken in view of the fact that an Assessing Officer is the fulcrum of assessment proceedings. He possess the first right and responsibilities to examine facts of a case before arriving at his decision qua determination of taxable income in a particular case. We have noted with respectful deference the decision of Hon’ble Apex Court in the case of TIN box 249 ITR 216 on the subject matter. The Ld. AO shall give opportunities of being heard to the assesse and it shall be bounden upon the assesse to comply with the notices issued by the Ld. AO. Any non- compliance on the part of the assesse would be adversely viewed. The assessee is at liberty to produce all or any other evidences deemed IT(TP)A No.70/Chny/2022 Page - 13 - of 13 relevant in support of its claims before the Ld. AO during the adjudication proceedings. Accordingly, the additional ground of appeal no.3 raised by the assessee is therefore allowed for statistical purposes. 19.0 As the assessee has succeeded before us in terms of remission of issues on merits, to the Ld. AO for adjudication / re-adjudication, the additional ground of nos.1 & 2 raised by the assessee are kept open. 20.0 In the result, the appeal of the assessee is partly allowed. Order pronounced on 7th , May-2025 at Chennai. Sd/- (मनु क ुमार धिरर) (MANU KUMAR GIRI) न्याधयक सदस्य / Judicial Member Sd/- (अधमताभ शुक्ला) (AMITABH SHUKLA) लेखा सदस्य /Accountant Member चेन्नई/Chennai, धदनांक/Dated: 7th , May-2025. KB/- आदेश की प्रतितिति अग्रेतिि/Copy to: 1. अिीिार्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकर आयुक्त/CIT - Chennai 4. तिभागीय प्रतितिति/DR 5. गार्ड फाईि/GF "