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Income Tax Appellate Tribunal, DELHI BENCH ‘I-1’, NEW DELHI
Before: Sh. Saktijit DeyDr. B. R. R. Kumar
Per Dr. B. R. R. Kumar, Accountant Member:
This appeal and Stay Application has been filed by the assessee against the order passed by the AO dated 19.04.2021 u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961.
The Assessee commenced its operations in India in 2004 as a service provider that performs energy management consulting services, data analytics and information technology sendees. The Assessee provides services to various national and international companies in the area of energy management. Additionally, it also provides IT services to ICF Consulting; Group, Inc. USA and ICF Group Companies under the contract dated December 5, 2013. Under the aforesaid intercompany
SA No. 139/Del/2021 & ICF Consulting India Pvt. Ltd. agreement, the Assessee had rendered services to ICF Consulting Group, Inc. USA and other Associated Enterprises CAE’s) wherein all work orders of services are requested or approved by ICF Consulting Group, Inc. USA, and the compensation of such services is paid or reimbursed by ICF Consulting Group, Inc. USA through central treasury function, though the invoices are raised by ICF India on respective AE’s as per the work order requested or approved by ICF Consulting Group, Inc. USA. The compensation of such services include all relevant service costs incurred by the Assessee in connection with such services plus the Arm’s Length Markup as determined with mutual consent of the parties to the contract.
Advance received-Section 68:
For the year under consideration, the Assessee had reported inter-company revenue of Rs. 12,45,15,405/- which was duly credited to profit & loss account and offered to tax. Additionally, the Assessee for relevant period received ‘Advance from Head Office’ aggregating to Rs. 13,28,10,952/-. Closing balance of ‘Advance from Head Office’ aggregated to Rs. 22,22,65,865/- being shown in the Balance Sheet of the year under consideration as ‘Advance from Head office’ under the head ‘Other Current Liabilities’. Such closing balance comprised of advance received during the year i.e. Rs. 13,28,10,952/-, opening balance of Rs. 3,11,74,071/- and Inter-company credit note of Rs. 5,82,80,842/-.
SA No. 139/Del/2021 & ICF Consulting India Pvt. Ltd. 4. In the draft assessment order, the AO added the aforesaid amount of Rs. 22,22,65,864/- under section 68 of the Act for want of confirmation.
In the draft assessment order, the AO added the aforesaid amount of Rs. 22,22,65,864/- under section 68 of the Act for want of confirmation.
In the course of the proceedings before the Ld. DRP, the Assessee had submitted an application for admission of additional evidence wherein it had submitted the confirmed copy of the account of the Advance from Head Office, a copy of the report of an Independent Accountant evidencing the application of ‘Advance from Head Office’ against outstanding receivable as well as other necessary evidence to support the genuineness of the transaction entered by the Assessee during the year such as proof of identity, copy of FIRC, bank statements and relevant ledgers of the books of accounts.
The Ld. DRP took the cognizance of the documents submitted by the Assessee and held that identity of the creditor, creditworthiness of the creditor and the genuineness of the transaction under consideration is clearly established. The Ld. DRP while holding that section 68 of the Act has no application, sustained the addition on a different ground.
The relevant extract of the observation of Ld. DRP on this issue is as under:
“...DRP has considered the submissions of the Appellant and additional evidence filed during DRP proceedings. From the details filed the identity
SA No. 139/Del/2021 & ICF Consulting India Pvt. Ltd. and creditworthiness of the creditor is clearly established. Regarding genuineness of the transaction, the details such as FIRC reference No. and other details have been filed to establish the transfer of funds by ICF Consulting Group Inc. against service invoices raised by ICF Consulting India Pvt. Ltd. It is observed that ICF Consulting India Pvt. Ltd. receives monies from ICF Consulting Group Inc. during 2013-2016 for work performed and services rendered to various ICF entities. It is claimed that this arrangement is supported by a set of agreements signed between ICF Consulting Group Inc. and ICF Consulting India Pvt. Ltd. The assessee has claimed that these invoices have already been offered to tax in respective years. However, no co-relation with the final accounts and tax return has been filed to prove the same. Since the amount is reflected as advance in the current liabilities and this amount has been received against services rendered by the assessee, therefore the same is liable to tax.”
Thus, the Objections of the assessee were dismissed.
Aggrieved the assessee filed appeal before us. It was brought to our notice that,
i. The Assessee, being a cost-plus entity, is providing IT services to ICF Consulting Group, Inc. USA and ICF Group Companies under the contract December 5, 2013. (copy attached as Annexure 18 at pages 213 to 219 of PB). ii. The compensation of such services is paid or reimbursed by the ICF Consulting Group, Inc. USA through central treasury function. The Assessee is regularly receiving the compensation for such services from ICF Consulting Group, Inc. USA by way of advance time to time in the year under consideration as well as earlier/'subsequent years.
SA No. 139/Del/2021 & ICF Consulting India Pvt. Ltd. iii. The aforesaid compensation was adjusted with the invoices of the work done were raised on respective AE’s on completion of work order under the agreement from time to time, if any left, then the same is carried forward to subsequent periods. iv. Under the agreement, the parties have also agreed that the Assessee at year end determines the aggregate service fee paid by the ICF Consulting Group, Inc. USA for the previous year, and if such service fee is overstated or understated the proper amount , then, the variance would be adjusted by raising an invoice or credit note as the case may be issued. It is pertinent to add that in the year under consideration, the ICF Consulting Group, Inc. USA had raised invoice of Rs. 9,27,21,592/- (net off) in accordance with agreement payable to ICF Consulting Group, Inc. USA. The summary of such invoices are as under:
Sr. Date Invoice Number Amount (Rs.) No. 1. 31-Mar-2016 357-TP-102-0316 (37,00,272) 2. 31-Mar-2016 102-TP-357-0316 7,14,41,435 3. 31-Mar-2016 102-TP-357-0316 68,52,090 4. 31-Mar-2016 102-TP-357-0316 1,81,28,339 Total 9,27,21,592 v. The Assessee for the year under consideration received an amount of Rs. 13,28,10,952/- from ICF Consulting Group, Inc. USA by way of advance which was duly credited to the aforesaid account of ‘Advance from Head Office’.
SA No. 139/Del/2021 & ICF Consulting India Pvt. Ltd. vi. For the year under consideration, the Assessee had shown revenue of Rs. 12,45,15,406/- being professional fee from Holding and Group Company which is duly considered for total income. vii. It is further stated that out of the advance of Rs.13,28,10,952/- from ICF Consulting Group, Inc. USA, a sum of Rs. 11,76,44,465/- was duly adjusted in FY 2016-17 in the books of account against the receivable in the hands of respective group entities for the year under consideration.
The ld. DR supported the order of the ld. DRP.
Having gone through the facts, we find that assessee had duly recognized net income of Rs. 12,45,15,406 during the year under consideration in respect of services rendered during the year for which invoices have been raised on the group entities. In that view of the matter, no part of the advances received could be taxed as income of the assessee, over and above amount of Rs. 12,45,15406 already offered to tax, considering that services were to be rendered in future against the unadjusted advance. It was argued before us that a sum of Rs. 11,76,44,465 (out of Rs. 12,45,15406) was duly adjusted against the closing balance of advances from head office in the immediately succeeding year, i.e., financial year 2016-17 in the books of accounts.
Thus, we hold that the opening balance of Rs.3,11,74,071/- cannot be considered as accrued during the year. The advance received of Rs.13.28 crores cannot be taxed as the amount of Rs.12.45 crores has already been adjusted
SA No. 139/Del/2021 & ICF Consulting India Pvt. Ltd. against the receipts/work and offer to tax. The remaining Rs.5.82 crores of advance must have been offered to tax by the assessee in the succeeding year or if not spend the amount must have been refunded to the headquarters. The AO is hereby directed to examine the facts and come to a conclusion after reconciliation. The matter is being referred to the file of the AO only for reconciliation purpose.
The appeal of the assessee on this ground is allowed for statistical purpose.
TP Adjustment:
At the outset, it was submitted that due to inadvertent error of reflecting ‘payable’ as ‘receivable’ in the Accountant Report in Form 3CEB, the aforesaid addition had been made in the transfer pricing order.
The nature of the above mistake was that in the Audited Financial Statements, in the related party schedule, the Revenue from the Related Party carried the negative balance of Rs. 8,50,59,097/- in the name of ICF Services Company LLC (Correct name ICF Consulting Group Inc.). The Accountant Report in Form 3CEB had incorrectly considered the same as ‘receivable’ as against the same being ‘payable’ and thereby reported the same as transaction in the nature of services provided whereas the same was actually the reversal of excess amount erroneously billed to the AE’s, for which the invoices were raised by the AE in accordance with agreement for services entered by the parties.
SA No. 139/Del/2021 & ICF Consulting India Pvt. Ltd. 17. Reconciliation of the same is provided hereunder:
ICF India’s Provision of Services to ICF Consulting 76,61,686 Group Inc (Inadvertently referred to as ICF Services Company LLC in financials statement) (A) Receivable ICF India received debit note adjustment from the (9,27,21,592) parent entity through the account of ICF Consulting Group Inc (aka ICF Services Company LLC in the financial statements) (B) - Payable Net payable to ICF Consulting Group Inc (inadvertently referred to as ICF Service Company (8,50,59,907) LLC in financials statement) (C=A+B)
In view of the submission, we deem it appropriate to refer the matter to the file of the AO for re-examination and take a decision in accordance with the provisions of the Act.
Since, the appeal of the assessee is decided, the Stay Application No.139/Del/2021 filed by the assesse is dismissed as infructuous.
In the result, the appeal of the assessee is allowed for statistical purpose and the SA of the assessee is dismissed. Order Pronounced in the Open Court on 05/05/2022.