ASSTT. COMMISSIONER OF INCOME TAX-6(1)(1), MUMBAI, MUMBAI vs. EQUIFAX SOFTWARE SYSTEMS PVT. LTD., MUMBAI

Instant appeal of the revenue was filed against the order of the National Faceless Appeal Centre (NFAC), Delhi *for brevity, ‘Ld.CIT(A)’) passed under section 250 of the Income-tax Act, 1961 (for brevity, ‘the Act’) for Assessment Year 2013-14, date of order 12/08/2024. The impugned order was emanated from the order of the Learned Deputy Commissioner of Income-tax-3(2), Equifax Software Systems Pvt Ltd Mumbai(for brevity the “Ld. AO”) passed under section 143(3) of the Act, date of order 25/02/2016.

2. The revenue has taken the following grounds “1. Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) has erred in granting relief to the assessee company by deleting the disallowance/addition of Rs.8,17,36,990/- made by the AO , ignoring the fact that the invoices raised to sister concern by the assessee were netted off against the expenditure claimed by the assessee which is totally wrong as same was not included in gross turnover and therefore remained unexplained.

3. The brief facts of the case are that the assessee had provided services to its sister concern, Equifax Credit Information Services Pvt Ltd (ECIS). As per the agreement between the assessee and ECIS, the assessee recovered certain third partycost on cost to cost basis from ECIS. Accordingly, the expenditure was netted off in the books of account of the assessee. Neither the recovery was reflected in the turnover nor was the third-party cost charged to P&L account. The Ld.AO, in assessment order has considered the difference of expenses in the books of ECIS in relation to the invoices raised to assessee and the turnover of ECIS as income of the assessee. He difference was found in the income declared in P&L Account and the turnover declared in service tax return of ECIS which amount to Rs.8,17,36,986/-. The Ld.AO considered the transaction as undeclared transaction and added back to the total income of the assessee amount to Rs.8,17,36,986/-. Being aggrieved on the assessment order, the assessee filed an Equifax Software Systems Pvt Ltd appeal before the Ld.CIT(A). The Ld.CIT(A) considered the number of submissions of the assessee and the remand report was called for. The Ld.AO for hearing of remand issued the notice to assessee at a wrong address which was later on informed to the Ld.CIT(A). Finally, the Ld.CIT(A) called for remand report and the notice was issued. The assessee complied the notice of the Ld.AO in remand proceeding. But finally, the Ld.CIT(A) had not received any remand report from the Ld. AO and the appeal attained finality, in favour of the assessee. Being aggrieved on the appeal order, the revenue filed an appeal before us.

4. The Ld. AR argued that the impugned appeal order correctly identified the difference in the amounts between the assessee’s books of account and ECIS. We note that the variation in turnover arises due to the differing definitions of "turnover" under the Income-tax Act and the Service Tax Act. This issue has been explained in detail by the Ld. CIT(A) on pages 12–14 of the order, which are reproduced below: “Adjudication Ground No. 1:- The ground of appeal

has been raised on account of an addition of Rs.8,17,36,990/- on account of addition to the turnover of the assessee as reflected in the P&L account. During the course of assessment proceedings, the Ld. AO observed that there was a difference on account of the expenses claimed by Equifax Credit Service Information (ECIS), turnover as claimed in service tax return and income as declared in the P&L Account. Since, the Ld. AO was not satisfied with the reply furnished by the assessee hence, an addition of Rs.8,17,36,986/- was made to the income of the assessee. During the course of appellate proceedings, the appeal has submitted that it has provided services to ECIS which is a joint venture between Equifax Group, USA and various financial institutions. ECIS entered into a services agreement with the Equifax Software Systems Pvt Ltd appellant to configure and localize its software. The appellant recovers the operating expenses incurred by it from ECIS along with a mark-up. Further, as per the arrangement between the appellant and ECIS, the appellant recovers from ECIS certain third-party costs on a cost-to-cost basis. It has been further submitted by the appellant that the amount recovered from ECIS on a cost-to-cost basis is netted off against the particular expenditure in the books of accounts of the appellant. Thus, neither the recovery is reflected in the turnover not is the third-party cost charged to P&L account making a NIL impact to the P&L account. The appellant has attached copies of debit notes/invoices raised by the appellant on ECIS along with the expenditure ledgers which are netted with its submissions. The appellant has not reflected the reimbursement in its turnover whereas ECIS has claimed the amount as an expenditure in its books of accounts. It is seen that every item included in the sales turnover as per P&L account need be includible in the turnover definition for service tax purposes. Accordingly, the basis for inclusion of amounts in the two sets of documents (i.e. service tax return and P&L account) may be different due to underlying principles governing the same. The appellant has followed Indian accounting standard

1. (Ins AS-1), Para 32 of the Ins AS 1 issued by Accounting Standards Board of ICAI. Further, the appellant follows accrual basis for income recognition by the appellant in the notes to account [note no 17(2)(c)] to the financial statement. It has been submitted by the appellant that it charges service tax on its invoices/debit notes and pays the same to the government treasury after adjustment the cenvat credit on input services (i.e. from third parties) therefore, the net impact on account of the service tax is NIL for the appellant. As the appellant claimed the cenvat credit on the third-party invoices, the service tax component was considered in reimbursements. ECIS has claimed input credit of the service tax levied by the appellant. Thus, the entire scheme of transaction has been undertaken as per the application service tax laws and there is no leakage Equifax Software Systems Pvt Ltd of revenue at any juncture. The Ld. AO has not made any similar adjustments in earlier A.Ys i.e. 2011-12, A.Y. 2012-13 or in A.Y 2014-15 to the income of the appellant. The various observations made by the Ld. AO in the assessment order are not supported by any substantial arguments. In view of the facts and circumstances as stated above, the addition of Rs.8,17,36,990/- made by the Ld. AO is hereby directed to be deleted. The ground of appeal no. 1 is allowed.”