Income Tax Appellate Tribunal - Chennai
Info-Drive Software Limited, Chennai vs Ito, Chennai on 30 June, 2017
आयकर अपील य अ धकरण, 'डी' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'D', CHENNAI
ी संजय अरोड़ा, लेखा सद य एवं
ी ध!ु व"
ु आर.एल रे #डी, या$यक सद य के सम& ।
BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER
AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER
आयकर अपील सं./ITA Nos.397 & 398/Mds/2014
$नधा(रण वष( / Assessment Years : 2010-11 & 2011-12
Info-Drive Software Ltd., Income Tax Officer,
3, Moores Road, Vs. International Taxation-II(2),
Chennai - 600 002. Chennai.
[PAN: AAACI 9430R]
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ+ क- ओर से / Appellant by : Ms. S.Deepika, Advocate
/0यथ+ क- ओर से/Respondent by : Shri P.Nagendra Kumar, Jt. CIT
सन
ु वाई क- तार ख/ Date of hearing : 20.06.2017
घोषणा क- तार ख /Date of Pronouncement : 30.06.2017
आदे श /ORDER
Per Sanjay Arora, AM:
This is a set of two appeals by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-VII, Chennai ('CIT(A)' for short) dated 01.01.2014, dismissing the assessee's appeals contesting its' assessment u/s. 201(1)/201(1A) of the Income Tax Act, 1961 ('the Act' hereinafter) for assessment years (AYs) 2010-11 & 2011-12 of even date, 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 'Reimbursements' by the assessee, a Chennai based software company, handling business verticals 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 integration 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 claims the same to be toward reimbursement of salary to it's employees working onsite on different projects for GOS, the service recipient, as well as their travelling expenditure, which had been paid for, in the first instance, by the service recipient, the Revenue claims it to be in the nature of fee for technical services toward services being provided by GOS to the assessee-company through Info-Drive LLC, UAE. The issue arises as the payments have been admittedly made without 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 the tax deductible at source as well as liable for interest thereon.
3. We have heard the parties, and perused the material on record.
We find the assessee to have spelled out its' case to the ld. CIT(A) per written submissions thereto during appellate proceedings (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 reason for GOS paying salaries of the assessee's employees is stated to be to observe the UAE laws, which oblige the service recipient to timely pay for even contracted labour, and toward which copy of the Minutes dated 17/6/2009 (at PB-I/pg.19), stated to be furnished before both, the Assessing Officer (AO) and the ld. CIT(A), was referred to during hearing. Though the same, as point out thereat, does not bear the signature of the assessee's representative, nor in fact states of his presence thereat, so that it is a unilateral document and, therefore, by itself of no moment, the fact remains that the debit notes have been raised 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., which is not authorized by the assessee-company. That is, how could it validate the expenditure and, besides, has control implications, while with regard to salary the same may have been communicated by the assessee-company thereto, which though would require being substantiated by some contemporaneous evidence. The expenditure is the assessee's contractual obligation and the onus is on it to make suitable arrangements for timely payment for salary of, and other expenditure incurred by, it's employees. Why, the payment could be made directly to the bank accounts of the employees. In fact, even in India the salary is customarily paid by the 7th of the following month, and also legally required to be paid within a reasonable time; presumably, the 10th day thereof. The relevant law/s of UAE assumes significance in this regard, which shall have to explain both, the salary as well as other expenditure. Further, not only does the 'service recipient' agree to make the payment in the first instance, it extends 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 case, 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 assessee's employee cost, which constitutes the principal cost, enabling it to bargain for a lower cost on its contract with the assessee. The assessee clearly has much explaining to do; it's case, though valid in principle, is largely unsubstantiated, with several loose ends. In fact, the Revenue's stand (refer para
2) itself, as a reading of the orders by the Revenue authorities shows, is based on the assessee's explanation of GOS rendering services to Info-Drive LLC, UAE at the behest of the assessee-company, depicting thus also an inconsistency in it's (assessee's) stand.
4ITA Nos.397 & 398/Mds/2014 (AY 2010-11 & 2011-12) Info-Drive Software Ltd. v. ITO The Revenue's stand, we may at the same time state, does not take into account the employment agreements and the monthly debit notes raised by GOS on the assessee. The treatment of the said transactions in the books of GOS, both at the time of payment and its' recovery, would also be relevant, which (the said books) would also throw light on the relationship, 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 least 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 employee 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 the ld. Departmental Representative (DR) during hearing, are not on the assessee's rolls. In-as-much as the same suggests payments by GOS for other than on salary (to the assessee's employees), contradicting it's case, the same needs to be explained.
4. The matter is thus clearly in-determinate, and would 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 it is in the intimate know of its affairs, is on the assessee, even as the Revenue's stand also has to be consistent with it's 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 during hearing as to how does the assessee's stand effectively helps it's case 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 therefore require being examined. Also, the functional role of Info-Drive LLC, UAE, having 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 obscure, 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 related expenditure would also have to be duly substantiated. The AO shall decide issuing definite findings of fact after allowing the assessee a reasonable opportunity 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 expression of opinion, one way or the other, in any manner.
We decide accordingly.
5. In the result, the assessee's appeal is allowed for statistical purposes.
Order pronounced on June 30, 2017 at Chennai.
Sd/- Sd/-
(ध!ु व"
ु आर.एल रे #डी) (संजय अरोड़ा)
(Duvvuru RL Reddy) (Sanjay Arora)
या$यक सद य/Judicial Member लेखा सद य/Accountant Member
नई/Chennai,
3दनांक/Dated, June 30, 2017
EDN
आदे श क- /$त5ल6प अ7े6षत/Copy to:
1. अपीलाथ+/Appellant 2. /0यथ+/Respondent 3. आयकर आय8 ु त (अपील)/CIT(A)
4. आयकर आय8 ु त/CIT 5. 6वभागीय /$त$न ध/DR 6. गाड( फाईल/GF