INDUS VALLEY PARTNERS (INDIA) PRIVATE LIMITED,NOIDA vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 12(1), DELHI, DELHI
Income Tax Appellate Tribunal, DELHI BENCH ‘C’: NEW DELHI
Before: SHRIS.RIFAUR RAHMAN & SHRI ANUBHAV SHARMAIndus Valley Partners (India) Pvt. Ltd., vs. DCIT, Circle 12 (1), SDF C – 7, 3rd Floor,
PER S.RIFAUR RAHMAN, ACCOUNTANT MEMBER :
This appeal is filed by the assessee against the order of ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT (A)] dated 28.08.2024 for Assessment Year 2018-19 raising following grounds of appeal :- “1. That on the facts and circumstances of the case & in law, the Ld. AO has erred in assessing the income of the Appellant, at INR 94,69,56,429 as against the returned income of INR 40,21,77,760 under normal provisions of the Act.
On the facts and circumstances of the case & in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO in alleging that the Appellant has understated its income and making an addition of INR 49,79,19,935 under section 2 68 read with section 115BBE of the Income Tax Act, 1961. In doing so, the Ld. AO erred in mechanically relying on the revenue figures of the consolidated financial statements and blatantly ignoring the standalone financial statements and clarifications submitted by appellant.
1 On the facts and circumstances of the case & in law, the Ld. CIT(A) erred in confirming the action Ld. AO w.r.t. to the disallowance of INR 4,11,37,160 by not appreciating that the Appellant has INR 2,01,20,502 for software expenses and licensee fee and hence, made an excessive disallowance of repair and maintenance on building and others aggregating to INR 2,10,16,658. 3.2 On the facts and circumstances of the case & in law, the Ld. CIT(A)/ AO erred in treating the expenditure of INR 2,01,20,502 as a capital expenditure without appreciating that the same is in the re of license fee and upgradation of software.
That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO in making an addition or INR 57,21,574 based on an erroneous assumption that the Appellant has claimed deduction towards Net Loss from Sale of Investments.
That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in uploading ac ion of the Ld. AO in levying consequential interest under section 234B of the Act.
That the Ld. CIT(A) has erred in uploading the action of the Ld. AO in initiating the penalty proceedings under section 274 and 270A of the Act.”
Ground No.1 is general in nature, hence dismissed as such. 3. With regard to Ground Nos.2 and 3.1 & 3.2, the relevant facts are, assessee filed its return of income on 30.11.2018 declaring total income of Rs.40,21,77,760/-. The case was selected for scrutiny under CASS with the issues i.e. (i) refund claim, (ii) deduction claimed for industrial undertaking and (iii) expenses incurred for earning exempt income. Accordingly, notices under section 143(2) and 142(1) of the Income-tax Act, 1961 (for short ‘the Act’) were issued and served on the assessee. In response, ld. AR of the assessee attended and submitted relevant information.
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4. During assessment proceedings, the Assessing Officer observed that assessee is in the business of computer and related services and software development.
The papers and documents in relation to renewal of LOA received from Government of India, Ministry of Commerce and Industry, Department of Commerce, Noida Special Economic Zone vide letter dated 27.06.2016,
Form No.56F relating to the claim by the exporter for deduction u/s 10A of the Act was issued and perused. The Assessing Officer observed from the ITR filed by the assessee in which ‘revenue from operations’ was mentioned as Rs.209,63,44,024/- and ‘other income’ is mentioned as Rs.8,61,76,493/- in Part A – Profit & Loss account, further observed that in the consolidated statement of Profit & Loss account for the year ending 31.03.2018 of annual report, the ‘revenue from operations’ is mentioned as Rs.259,36,62,735/- and ‘other income’ is mentioned as Rs.8,67,77,717/-. When the issue was raised during the proceedings and in response, the assessee submitted that to ignore the consolidated financial statement prepared as mandated under accounting standard in the case of presentation of financial statements of holding company. What is relevant is the statement prepared for the assessee on standalone basis for computation of income. After considering the submissions of the assessee, the Assessing Officer rejected the same and proceeded to make the addition of difference between revenue declared in the consolidated Profit & Loss account and revenue declared in ITR 6 as 4
undisclosed income of the assessee to the extent of Rs.49,79,19,935/- u/s 68
of the Act.
5. Further the Assessing Officer observed that in the consolidated statement of Profit & Loss account under the head ‘other expenses’, the assessee has mentioned software expenses as zero whereas it has created a new head viz.
‘others (including facility and IT infrastructure)’ for an amount of Rs.4,11,37,160/- which was not found in earlier year’s financial statement.
When the same was asked to the assessee to clarify, the Assessing Officer observed that assessee has not explained/clarified about the reasons for creation of such head of expenses and purpose of the same. He further observed that in the immediate preceding assessment year, disallowance was made on account of software expenses while observing that software purchase was capital in nature and not revenue. Since the assessee has created this new head i.e. ‘others (including facility and IT infrastructure)’ of Rs.4,11,37,160/- on the same expenses in order to divert its capital expenses and to claim the same as revenue. With the above observation, he treated the above software expenses as capital expenditure and proceeded to make the addition of Rs.4,11,37,160/-.
6. Further the Assessing Officer observed that assessee has claimed net loss from sale of investment which was worked out at Rs.57,21,574/- which is pertinent to FY 2016-17. When the assessee was asked to produce
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supporting documents, the assessee could not produce any supporting documents till the completion of the assessment. Accordingly, he rejected the claim of the assessee in absence of documentary evidences and proceeded to make the addition of Rs.57,21,574/- as income of the assessee.
7. Aggrieved with the above order, assessee preferred an appeal before the ld.
CIT (A). With regard to addition made by the Assessing Officer of Rs.49,79,19,935/- on account of under-statement of revenue from operations, ld. CIT (A) observed that this income was charged u/s 68 of the Act.
Consequently, rectification order u/s 154 dated 17.03.2024 was passed, charging this income u/s 115BBE of the Act and accordingly, he proceeded to sustain the addition u/s 68 and charging of tax u/s 115BBE and accordingly dismissed this ground raised by the assessee.
8. Aggrieved with the above order, assessee preferred an appeal before us and made the detailed submissions and also filed case synopsis which read as under :-
“8.6
It is submitted that only the Appellant’s audited standalone financial statements should be considered for the purpose of assessing its income.
The Ld. AO’s reference to the consolidated financial statement for the purpose of reckoning of the revenue of the Appellant is completely unjust and blatantly incorrect. The Appellant’s submission with respect to the said matter is as under:
(A)
Legal and accounting basis for Consolidated Financial Statements
7 Section 129 of the Companies Act 2013 provides that where a company has one or more subsidiaries or associate company , it shall, in addition to standalone financial statements, prepare a consolidated financial statement of the company in the same form and manner as that of its own and in accordance with applicable accounting standards.
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8.8
Accordingly, the Appellant had prepared the consolidated financial statements in accordance with Accounting Standard 21 on ‘Consolidated
Financial Statements’ prescribed under section 133 of the Companies Act,
2013. The extract of the objective mentioned in the Accounting Standard
21 is reproduced as under:-
"The objective of this Standard is to lay down principles and procedures for preparation and presentation of consolidated financial statements. Consolidated financial statements are presented by apparent (also known as holding enterprise) to provide financial information about the economic activities of its group.
These statements are intended to present financial information about a parent and its subsidiary(ies) as a single economic entity to show the economic resources controlled by the group, the obligations of the group and results the group achieves with its resources.”
(emphasis supplied by us)
9 The Appellant has two wholly owned foreign subsidiaries:
Indus Valley Partners Corporation incorporated Delaware, United States of America (IVP USA) and
Indus Valley Partners UK Limited (IVP UK) incorporated in the United
Kingdom.
10 The consolidated financial statements comprise the financial statements of the Appellant and its subsidiaries (IVP USA and IVP UK), combined on a line-by-line basis by adding together the value of like items of assets, liabilities, income and expenses after eliminating intra-group balances and transactions. The aforesaid has also been mentioned in Note 2(b) of the consolidated financial statements. Hence, the revenue and the other income in the consolidated financial statements include income earned by both foreign subsidiaries.
(B)
Reconciliation of income as per standalone with consolidated financials
11 The Appellant submitted a reconciliation between standalone and consolidated financials, clearly demonstrating the additional income pertains to subsidiaries and is not part of IVP India’s books. Particulars Standalone Financial Statements Consolidated Financial Statements Difference Revenue from Operations 209,63,44,024 259,36,62,735 49,73,18,711
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A copy of the Standalone financial statements is enclosed at page 116 to 151 of the PAPER BOOK and consolidated financial statements is enclosed at Page 152 to 183 of the PB.
12 A further bifurcation of the revenue from operations and other income appearing in the consolidated financial statements is as under:
Particulars
Reference
Revenue from Operations
Other
Income
Total
IVP India – Standalone
(Page 116 to 151 of the PB)
(A)
209,63,44,024
8,61,76,493
218,25,20,517
Add:
IVP USA (B)
(B)
187,18,90,853
6,01,224
187,24,92,077
IVP UK
(C)
-
16,61,123
16,61,123
Total
(D=A+B+C)
396,82,34,877
8,84,38,839
405,66,73,717
Less: Inter-company transaction to be excluded on account of lid ti
(E)
(137,45,72,143
)
(16,61,123)
(137,62,33,266
)
Amount appearing in IVP consolidated financial statements
(Page 152 to 183 of the PB)
(F=D-E)
259,36,62,735
8,67,77,717
268,04,40,452
Addition made by the Ld. AO
(G=F-A)
49,73,18,711
601,224
49,79,19,935
(C) Unique CIN
13 The Ld. AO pointed out that the consolidated financial statements as well as the standalone financial statements have the same Corporate Identification Number (CIN) U72200DL2000PTC264692. 8.14 It is submitted that the consolidated financial statements are prepared by the parent company to provide the information about economic activities of the group. Since the presenter of the consolidated financial statements is the parent company, the unique CIN of the parent company is quoted on the consolidated financial statements. Other Income 8,61,76,493 8,67,77,717 6,01,224 Total 218,25,20,517 268,04,40,452 49,79,19,935
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8.15
Further, section 12(3)(c) of the Companies Act, 2013 provides as under:
12(3) Every company shall-
(a)…
(c) get its name, address of its registered office and the Corporate
Identity Number along with telephone number, fax number, if any, e-mail and website addresses, if any, printed in all its business letters, billheads, letter papers and in all its notices and other official publications; and (d)….
16 In light of the above provision, the Appellant, being the parent company of IVP USA and IVP UK, has quoted its CIN on the consolidated financial statements.
17 The Appellant further submits that both the subsidiaries of the Appellant are foreign companies which are not allotted a unique CIN by the MCA. Hence, question of quoting of any other CIN on the consolidated financial statements does not arise. Since the standalone financial statements are also prepared by the appellant, it has quoted its CIN on such document as well.
(D)
Revenue reconciles with Tax Audit Report (‘TAR’)
19 It is submitted that the revenue from operations and other income of INR 2,09,63,44,024 and INR 8,61,76,493 respectively as per the standalone financial statements was also confirmed by the tax auditor of the Appellant in the TAR issued under section 44AB of the Act. A copy of the TAR is enclosed at Page 184 to 201 of the PB.
20 Attention of the Hon’ble Tribunal is invited to clause 40 of the TAR (at page 198 of the PB) wherein the total turnover of the Appellant is reported at INR 2,09,63,44,024. Further, the said amount is also matching with the amount of revenue reported in ROI for the year under consideration.
(E)
Revenue reconciles with Forms filed with the