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TMI Blog2024 (12) TMI 546X X X X Extracts X X X X X X X X Extracts X X X X ..... monstrated 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling expenses which has been disallowed by the AO under section 37(1) of the Act. 3. In this regard, briefly the facts of the case are that during the course of assessment proceedings, the AO observed that out of total travelling expenses debited in the P L Account, an amount of Rs. 9,21,58,400/- has been claimed by the assesssee in respect of foreign travelling expenses. Thereafter, referring to the proceedings in the earlier years, the AO asked the assessee to show cause as to why the foreign travelling expenses so incurred by the assessee company should not be disallowed. 3.1 In response, the assessee filed its submission which were considered but not found acceptable to the AO. 3.2 The AO referring to the assessment proceedings for A.Y 2007-08 held that providing of service to the foreign clients on behalf of M/s SF USA and M/s Fidelity Information Services Inc, USA was not the responsibility of the assessee company, therefore, the expenditure incurred on foreign traveling amounting to Rs. 9,21,58,400/- is treated as expenditure pertaining to M/s SF Inc, USA and M/s Fidelity Information Services Inc. USA and is disallowable in the hands of the assessee company. It was held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for claiming the said expenses makes no mention of foreign travel. The 'costs' as defined by this article of the Agreement simply refer to the normal and ordinary course operating expenses. The assessee during the course of assessment proceedings could not prove that the foreign travel expenses were incurred in the normal and ordinary course of its business. iii) Further, and more importantly the nature of services to be provided by the assessee to its US based counterparts, is not such as would entail international travel. Article 1.6 of the services agreement as submitted by the assessee, clearly mentions that the services performed by 'Fidelity India' shall be transmitted to 'Fidelity USA' through various Communication Links, which in turn are defined at Article 1.2 of the same Agreement. Therefore, the services to be provided by the assessee to its US based counterparts are meant to be transmitted through Electronic and Telecommunication links primarily. Such huge expenditure on foreign travel is therefore not justified. iv) The contention of the assessee that these expenses are included in the service revenue received by the assessee company is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 It was further held by the AO that the assessee has filed copies of certain documents in support of its contention, which were also filed by the assessee in the earlier AYs. The travel confirmation filed by the assessee has been issued by Second Foundation inc. USA. This document was also submitted by the assessee during the assessment proceeding of A.Y. 2007-08 onwards. Thus, the AO had considered these submissions filed by the assessee and only after that, the Travel expenses were disallowed by the AO in these years as well. For example, in paras 3.3 3.4 of the assessment order u/s 144C(13) r.w.s. 143(3), dated 14.12.2010 for AY. 2007-08, the AO has highlighted that the assessee company was not receiving any servicing income for servicing the clients of M/s Second Foundation, USA. Further, as per the agreement, the expenses incurred were not the responsibility of the assessee Company and were required to be borne by M/s Second Foundation Inc. USA only. Similarly, para 2.4 of assessment order u/s 144C(13) r.w.s. 143(3) dated 31.10.2012 for A.Y. 2008-09, that the AO has held that the assessee had failed to show how the inclusion of the expenses was done in the cost charged by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aveling expenses and visa expenses of the visiting employees. Infact, the cost of foreign traveling expenses and visa expenses of the visiting employees was to be borne by M/s SF Inc. USA, as during the foreign visits by the assessee's employees, they were basically rending services to M/s SF Inc. USA and not to the assessee company. Thus, the copy of communication in respect of the employees is no way challenges the arguments taken by the AO for disallowing the expenses. 3.7 It was further held by the AO that the assessee has also filed a list of invoices raised to customers. The assessee has once again tried to establish that the persons had actually travelled abroad to work on the projects. However, the main question is not whether the person had travelled. The main issue at hand is whether the expenses were allowable in the business of the assessee. The invoices also do not establish whether that the expense was an allowable expense or not. 3.8 It was accordingly held by the AO that the expenditure on account of foreign travel of Rs. 9,21,58,400/- for A.Y. 2014-15 is not allowable to the assessee and the said amount was disallowed and added to the returned income of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok foreign travelling for providing onsite software development services as per the instructions by the Associated Enterprises. The visit of the employees was primarily for the purpose of rendering software development services, debugging, training, etc. to the clients of the AEs and the same forms intrinsic part of software development services rendered by the Assessee company. The Assessee company incurred foreign travelling expenditure amounting to INR 9,21,58,400/- during the subject year in this regard. 9.1 It was submitted that the Assessee company entered into service agreements with its AE's - agreement dated May 12,2007 with Fidelity Information Services Inc. USA and agreement dated November 1, 2007 with Second Foundations Inc., USA. It was submitted that in terms of the service agreements entered with the AE's, the Assessee company was required to provide services of development of computer software and allied products on specific directions and specifications provided from time to time by the AE and that the Assessee company would be remunerated for its services on cost plus 15% including travel cost. Thus, all foreign travelling expenses are invoiced to the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly for the purpose of business. In view of the above, the foreign travelling expenditure was incurred for the purpose of Assessee company's business and hence, should be considered as an allowable expense under section 37 of the Act. 9.6 It was submitted that under identical facts and circumstances, the Chandigarh Bench of the Tribunal vide order dated 30 May, 2019, passed in Assessee company's case for assessment years 2011-12 and 2012-13, has decided the issue of foreign travelling expenditure in favour of the Assessee company by directing the AO to delete the disallowance made in those years. The relevant extracts from the order of the ITAT are reproduced below for your ready reference: 7. At the outset. Ld. Counsel for the assessee has submitted that the assessee is engaged in the sale of software development services. The aforesaid expenditure incurred on foreign travel of the employees was relating to the activity of software development services of the assessee. That the aforesaid expenditure of foreign travel was duly included in the head 'Operating and administrative expenses totalling to ₹ 1.39.702.000. The total expenditure of the assessee as per the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is not required to incur foreign travelling expenses. The Hon'ble Tribunal remanded the issue back to the DRP, Delhi to pass a speaking order (copy of order is attached at pages 258 to 274 of paper book volume 2). The Respondent has settled the same under VSV Scheme as no tax impact involved. 2 2007-08 1,02,69,448 Service agreement dated April 15,2002 entered with Second Foundation Inc., USA Foreign travelling expenditure disallowed alleging that the Respondent is not required to incur foreign travelling expenses. The Hon'ble Tribunal remanded the issue back to the DRP, Delhi to pass a speaking order, proceedings yet to be initiated by the DRP (copy of order is attached at pages 275 to 304 of paper book volume 2). Not opted the subject AY under VSV as Transfer Pricing adjustment involved. 3 2008-09 2,18,67,637 New Service agreement dated May 12,2007 with Fidelity Information Services Inc., USA and dated November 1,2007 with Second Foundations Inc., USA. Foreign travelling expenditure disallowed alleging that the Respondent is not required to incur foreign travelling expenses and that the Respondent has failed to establish that foreign travelling expenses were reimbursed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... costs. The Hon ble Chandigarh Bench of the Tribunal vide order dated May 30,2019 directed to delete disallowance of foreign traveling expenditure as it was clear that the Respondent is recovering cost plus 15% on all operating expenditure including foreign travelling expenses (copy of order is attached at pages 311 to 320 of paper book volume 2). 7. 2012-13 1,3,08,19,376 New Service agreement dated May 12,2007 with Fidelity Information Services Inc. USA and dated November 1,2007 with Second Foundations Inc. USA DRP allowed the claim of foreign travelling expenditure in favour of the Respondent by directing the AO to allow the claim after verifying whether foreign travelling expenditure was reimbursed to the Respondent by the AEs. The AO grossly erred in facts by holding that the service agreements between the Respondent and its AE s did not include reimbursement of foreign travelling costs. Same as above (copy of order is attached at pages 311 to 320 of paper book volume 2). 8. 2013-14 4,83,70,355 New Service agreement dated May 12,2007 with Fidelity Information Services Inc. USA and dated November 1,2007 with Second Foundations Inc. USA Foreign travelling expenditure disallowed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered by the Assessee company and its implication were not considered by the lower authorities. The Hon'ble Chandigarh Bench of the Tribunal appreciated the new agreements and the documents placed on record and remanded the matter back to the file of the DRP for passing a speaking order after analyzing the complete details filed and giving opportunity of being heard to the Assessee company. 9.12 It was submitted that the Hon'ble Tribunal disposed the appeal for assessment year 2013-14 in favor of the Assessee company by holding that the fact that the expenses incurred on foreign travelling have been reimbursed by the customers/ AE's as agreed, by itself proves that the expenses were incurred during the course of rendering services to its customers who have therefore, agreed to reimburse the same and also that the said expenditure was the responsibility of the Assessee company to incur, thus, entitling it to claim the same as expense. It was submitted that the Tribunal further held that the Assessee company, by way of documents, workings and other evidences, has been able to clearly distinguish the case for the subject year as regards the earlier assessment years and tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re be allowed to the Assessee company following the Hon'ble Tribunal's order passed in Assessee company's own case for assessment years 2011-12 and 2012-13. 9.16 Without prejudice to the above, it was submitted that where any disallowance is made for the foreign travelling expenditure, the corresponding service revenue should also be accordingly reduced as the Assessee company is charging the costs on a cost plus basis to its customers. In this regard, reference may be made to the decision of Hon'ble Delhi ITAT in the case of XL India Business Services Private Limited vs. ITO (ITA. No. 1427/ Del/ 2014). 9.17 The ld AR accordingly supported the order of the ld CIT(A) and submitted that the appeal filed by the Revenue be dismissed and the order of the ld CIT(A) be confirmed. 10. We have heard the rival contentions and purused the material available on record. We find that the issue of allowability of foreign travelling expenses has been a subject matter of dispute for past many assessment years between the assessee and the Revenue. In the past, the matter has reached the Tribunal and during the course of hearing, our reference was drawn to the decision of the Coordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7) A 1,32,92,68,880 2 Finance Cost Note No.21 12,63,752 Less: Expenditure not eligible for mark-up (12,63,752) B - 3 Other expenses (refer Note 1 below) Note No. 22 C 29,14,59,649 4 Depreciation Note No. 10 D 4,29,71,713 Total operating cost E=A+B+C+D 1,66,37,00,242 Mark-up on operating cost (as per APA with CBDT) F = E* 16.60% 27,61,74,240 Mark-up on Employee Stock Option Plan and Employee Stock Purchase Plan G= 1,05,34,107 16.60% 17,48,662 service revenue recoverable from the AES H=E+F+G 1,94,16,23,144 Service revenue of the Appellant (as per financial statements) Note No. 18 I 1,91,42,32,704 Additional income offered to tax pursuant to Advance Pricing Agreement with CBDT Refer modified tax return enclosed at Annexure 10 J 2,73,90,440 Service revenue of the Appellant recovered from the AEs K=I+J 1,94,16,23,144 Note 1 : Other expenses debited to Profit and Loss Account as mentioned in the above table include total Travelling and conveyance expense of INR 10,68,86,458 which includes foreign travelling expenditure of INR 9,21,58,400 13. As can be seen from the aforesaid table, the assessee has taken total operating cost of Rs 1,66,37,00,242/- for the purposes of working out the mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l year relevant to impugned assessment year. 15. We therefore find 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, the 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. 16. In light of aforesaid discussions and in the entirety of facts and circumstances of the case, 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 bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon ble Apex Court order dated January 10, 2022, since the limitation to file cross objections in the instant case expired within 15.03.2020 till 28.02.2022, the Assessee had time till May 30, 2022 (01.03.2022 + 90 days) to file the subject cross-objections thus, there is effectively delay of 58 days in filing the subject cross-objection. 21. It was further submitted that the delay of 68 days is neither intentional nor deliberate and has occurred on account of the following reasons, which were bona fide and beyond the control of the Assessee company. It was submitted that the Assessee company did not file any cross objections earlier as it was under a bonafide belief that since the issues in respect of the adjustments / additions in the captioned appeal were decided by the CIT(A) in favour of the Assessee company, the Assessee company would only be required to defend the same before the Tribunal. Further, any additional arguments that may be deemed appropriate to support of the order passed by the CIT(A), could be taken by the Assessee company during the course of hearing before the Tribunal. It was further submitted that recently the Delhi Tribunal in the case of Colt Tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... courts. It is common knowledge that this court has been making a justifiably liberal approach in matters instituted in this court. But the message does not appear to have percolated down to all the other courts in the hierarchy. 23. The Ld. AR accordingly submitted that in view of the above reasons, that there is sufficient cause for the delay in filing the cross-objections and the same deserves to be condoned and the cross-objection be admitted for adjudication on merits. 24. Per contra the Ld. DR submitted that even where the period of COVID-19 pandemic is excluded, there is still a delay of 58 days beyond the extended limitation period, as admitted by the Ld. AR. It was submitted that in this regard no reasonable cause has been shown by the assessee as to why the delay so happened in filing the Cross Objection should be condoned. It was accordingly submitted that the Revenue likes to object to the condonation petition so filed by the assessee and it was submitted that the same may be dismissed and the Cross Objection should not admitted for adjudication. 25. We have heard the rival contentions and purused the material available on record. The explanation of the assessee for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factual position, we therefore find that it is not a case where the AO while completing the assessment has levied the interest under Section 234B and 234C on the additional income so declared by the assessee in terms of the modified return of income. It is in fact the assessee suo- motu act whereby filing its modified return of income, it has computed the additional tax liability under section 234B and 234C of the Act and which has finally been accepted by AO. 28. Having said that, there is no estoppel against the law and where the assessee under the mistaken belief has computed the interest liability and deposited the same while filing the modified return of income, the assessee can still agitate the same before the appellate authorities. In this regard, it is noted that in its grounds of appeal taken before the Ld. CIT(A), one of the grounds of appeal taken by the assessee infact relates to challenging the action of the AO in levying the interest under Section 234B of the Act however, there has been no ground of appeal which has been taken in respect of levy of interest under Section 234C of the Act. 29. Moving further, it is noted that the Ld. CIT(A) has dismissed the said groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature. In our understanding, though silence is generally understood as acceptance but for construing a fiscal law, such an inference is unwarranted and unjustified. Silence cannot be construed as positive acceptance and non-filing of submissions cannot also mean an acquiescence so as to treat the conduct the assessee as person not aggrieved by the order of the ld CIT(A). The ld CIT(A) has also nowhere stated that he is passing the order based on any acceptance or agreement by the assessee. It is also not the case of the Revenue either that the order so passed by the ld CIT(A) is based on any acceptance or concession on part of the assessee. In view of the same, we have no hesitation to hold that the assessee is duly eligible to file the cross objection against the order of the ld CIT(A) as far as levy of interest u/s 234B of the Act as the same has been decided against it. 35. Secondly, as we have noted above, no ground of appeal has been raised by the assessee before the ld CIT(A) against the levy of interest u/s 234C of the Act and therefore, in absence of the ground of appeal, there is no occasion for the ld CIT(A) to adjudicate the same and thus, in absence of any ground of ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly submitted that the cross objection filed by the assessee deserves to be allowed and interest under section 234B levied on the additional income determined pursuant to APA be directed to be deleted. 38. Per contra, the Ld. CIT/DR relied submitted that the levy of interest u/s 234B of the Act is consequential in nature. It was submitted that it is an automatic levy which comes into play once the income and consequently the advance tax payable, get enhanced. Thus, it is a mandatory levy which is dependent upon the total income and the consequent advance tax payable. Once, the advance tax payable increases, interest payable thereon increases automatically. This position has been upheld in the case of M/s. IBM India Pvt. Ltd. vs. ACIT by the ITAT Bangalore Bench [2020] 83 ITR(T) 24 (Bangalore-Trib.). It was submitted that in the said decision, the Bangalore Bench has considered the various judgments relied upon by the Id. counsel for the assessee in the instant case, and categorically held that the assessee is liable to pay the interest u/s 234B of the Act on incremental income (for a rollback/prior year) pursuant to the Advance Pricing Agreement. It is worthwhile to mention here t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessee, there cannot be any recovery of interest as has been provided in the provisions for payment of advance taxes. The said legal position has not been analysed by the Bangalore Bench in the case of IBM India (supra); and (ii) the Bangalore Bench has next relied on the decision of the Bombay High Court in the case of E Merk India, in that case, the Bombay High Court was dealing with the situation wherein the liability to pay advance taxes had not just arisen because of the retrospective amendment to section 80J of the Act but on the facts, the Bombay High Court also came to the conclusion that dehors the amendment, the Assessee in that case was liable to pay interest for default in the payment of advance taxes. It was further noted by the Hon'ble Bombay High Court that it was not the assessee's case that there is any subsequent change in facts which could not be anticipated at the time of determining the advance tax (refer para 5(f) of the decision) as against the farts of the instant case where it was impossible for the Assessee to contemplate the modified assessable income and to pay advance tax on that basis, until the finalization of the APA. 42. We have he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n turn require the assessee to estimate his income and determine the quantum of advance tax, the emphasis is equally on the assessed tax which is also evident from the provisions of Sub-Section (3) which talks about the additional tax liability pursuant to re-assessment and re-computation under section 147 and 153A of the Act and the contents thereof reads as under: (3) Where as a result of an order of reassessment or recomputation under section 147 or section 153A the amount on which interest was payable in respect of shortfall in payment of advance tax for any financial year under sub-section (1) is increased, the assessee shall be liable to pay simple interest at the rate of one percent for every month or part of a month comprises in the period commencing on the 1st day of April next following such financial year and ending on the date of the reassessment or recomputation under section 147 or section 153A, on the amount by which the tax on the total income determined on the basis of the reassessment or recomputation exceeds the tax on the total income determined under sub-section (1) of section 143 or on the basis of the regular assessment as referred to in sub-section(1), as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of APA post close of the financial year, the additional income so determined in terms of APA, offered in the modified return of income after payment of additional taxes and form part of the assessed income, would still be brought to tax and form part of the assessed tax. 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. 47. 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 under section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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