2024 (12) TMI 546 - AT - Income Tax

Disallowance of foreign travelling expenses u/s 37(1) - HELD THAT - Where the assessee given the past litigative history has tried to resolve the dispute by entering into a unilateral APA with the CBDT and has duly complied with the terms therein as so verified by the TPO, AO has continued with the stand taken by his predecessors in the earlier assessment years and has disallowed the foreign travel expenses which clearly form part of the operating expenses and the cost base and on which the assessee has reported the revenues after considering the mark up of 16.60%. Such an action on part of the AO is clearly in breach of letter and spirit of the APA which has been entered into by CBDT to resolve such disputes and cannot be sustained and liable to be set-aside. We find that the assessee has duly demonstrated the recovery of foreign travel expenses from its Associated enterprises and corresponding revenues have been offered in the return of income as modified and therefore, there cannot be any justifiable basis for holding such expenses as not incurred for the purposes of the business. For the aforesaid reasons, the order of the CIT(A) is upheld and the ground of appeal taken by the Revenue is dismissed. Levying interest u/s 234B and 234C on the additional income assessed pursuant to APA entered into by the assessee with CBDT dated 6/02/2017 - HELD THAT - As no ground of appeal has been raised by the assessee before the CIT(A) against the levy of interest u/s 234C and therefore, in absence of the ground of appeal, there is no occasion for the CIT(A) to adjudicate the same and thus, in absence of any ground of appeal and adjudication by the CIT(A), how the order so passed by the CIT(A) can be held to be decided against the assessee giving the occasion to file the present cross-objection in respect of levy of interest u/s 234C - we are constrained to dismiss the cross objection and the grounds of appeal so taken in so far as it relates to levy of interest u/s 234C of the Act as not maintainable at the vey threshold in view of not meeting the statutory mandate of Section 253(4). Levy of interest u/s 234B - There is nothing which has either been provided or can be read in the language of section 234B as excluding the additional tax on the additional income from the assessed tax. In view of the same, on the differential between advance paid and assessed tax, the assessee would still be liable to pay interest under Section 234B of the Act. The only leeway is that such interest shall be calculated subject to provisions of sub-section (2) since the assessee has paid the tax on the additional income before the date of completion of assessment. The situation in the present case is akin to what has been envisaged in sub- section (3), as discussed supra, which talks about the additional tax liability pursuant to re-assessment and re-computation u/s 147 and 153A of the Act. In the instant case, only difference is that there has been negotiated settlement with the tax authorities and pursuant to signing of APA and as per terms of the APA, the assessee has filed the modified return of income and paid the taxes instead of the AO initiating any reassessment proceedings. In the ultimate analysis, we find that there is still a shortfall between the payment of advance tax and the assessed tax and the assessee is liable for payment of interest u/s 234B of the Act and various contentions raised by the ld AR cannot be accepted. Further, none of the authorities quoted at the Bar support the case of the assessee as the facts and findings therein are limited to examining the first situation as so envisaged in section 234B which as we have discussed above, is not applicable in the instant case and there has been no findings or discussions as regarding the second situation and the concept of assessed tax.

Summary

Issues Involved:

1. Deletion of addition of foreign travel expenses under Section 37(1) of the Income Tax Act.
2. Levy of interest under Sections 234B and 234C of the Income Tax Act on additional income assessed pursuant to the Advance Pricing Agreement (APA).

Detailed Analysis:

1. Deletion of Addition of Foreign Travel Expenses:

The primary issue in the Revenue's appeal was the deletion of the addition of Rs. 9,21,58,400/- related to foreign travel expenses, which the Assessing Officer (AO) disallowed under Section 37(1) of the Income Tax Act. The AO argued that the expenses were not the responsibility of the assessee company but were related to its US-based counterparts, M/s SF Inc. USA and Fidelity Information Services Inc. USA. The AO maintained that the foreign travel expenses were not incurred in the ordinary course of business and were not reimbursed by the foreign clients as claimed by the assessee. The AO further noted that similar disallowances were upheld in previous assessment years.

The assessee contended that the foreign travel expenses were incurred for providing on-site software development services to its associated enterprises (AEs) and were reimbursed on a cost-plus 15% basis, as per the service agreements. The assessee provided detailed evidence, including employee-wise travel details and confirmations from customers, to substantiate its claim.

The CIT(A) deleted the disallowance, following the decision of the Coordinate Bench for earlier years (A.Y. 2011-12 and 2012-13), which had ruled in favor of the assessee. The Tribunal upheld the CIT(A)'s decision, noting that the foreign travel expenses were part of the cost on which a markup was charged to the AEs, and thus, were incurred wholly for business purposes under Section 37(1). The Tribunal found that the assessee had demonstrated the recovery of these expenses from its AEs, and the APA with the CBDT confirmed the cost-plus markup arrangement.

2. Levy of Interest under Sections 234B and 234C:

The assessee filed a cross-objection challenging the levy of interest under Sections 234B and 234C on additional income assessed pursuant to the APA. The assessee argued that the interest should not be levied as the additional income was determined after the close of the financial year, making it impossible to estimate and pay advance tax on it. The assessee cited a recent decision by the Delhi Tribunal, which supported its position.

The Tribunal, however, dismissed the cross-objection. It noted that the assessee had already computed and paid interest under Sections 234B and 234C in its modified return of income filed pursuant to the APA. The Tribunal emphasized that the levy of interest is consequential and arises due to the shortfall in advance tax payment compared to the assessed tax. It held that even if the additional income was determined post the financial year, it still formed part of the assessed tax, and the assessee was liable to pay interest on the shortfall. The Tribunal distinguished the case from those where there was a complete failure to pay advance tax, noting that the assessee had paid a substantial amount as advance tax.

In conclusion, the Tribunal upheld the CIT(A)'s order on the deletion of foreign travel expenses and dismissed the assessee's cross-objection regarding interest levy, thereby dismissing both the Revenue's appeal and the assessee's cross-objection.