BA CONTINUUM INDIA PRIVATE LIMITED ,HYDERABAD vs. DY. COMMISSIONER OF INCOME TAX , CIRCLE-1(2), HYDERABAD

Brief facts of the case are that the assessee company is engaged in the business of Information Technology Enabled Services (ITES) filed the return of income for the assessment year 2013-14 on 26/11/2013 declaring an income of Rs. 3,93,95,10,230/- under normal provisions and Rs. 4,31,27,42,884/- under the provisions of section 115JB of the Act. Assessment under section 143(3) read with section 92CA(4) of the Act was completed by order dated 30/12/2016 by determining the total income at Rs. 3,94,12,18,233/- under the normal provisions and by accepting the book profits admitted.

Subsequently, on perusal of assessment record, from Col. No. 22(b) of 3CD report learned PCIT found that the company claimed prior period expenditure of Rs. 18,11,06,491/- (3350933 USD) pertaining to 2010-11, it was represented before the learned Assessing Officer that demand of Rs. 18,11,06,491/- was raised by Department of Treasury, IRS, USA on the company towards past years pay roll taxes which was accepted by the company, that the said taxes pertain to employees who travelled to the USA during the period 2008-2011 and accordingly, the company provided for the aforesaid demand in its books of accounts in the previous year relevant to the assessment year 2013-14 and paid the same in April, 2013, assessee claimed that as the liability crystalized during the year, the same is allowable as expenditure for the year under consideration, and the learned Assessing Officer accepted the claim of assessee.

On this the learned PCIT was of the opinion that the pay roll taxes were collected from the gross salaries of the employees from 2008 to 2011, remitted to US Revenue Department during the financial year 2013- 14 and this has resulted in incorrect claim of Federal Income Tax, and, therefore, the Federal Income Tax and other taxes paid were withheld from the gross salary of the employees was not to be allowed as the same was allowed in gross salaries in the respective financial year. On this premise learned PCIT held that the assessment under section 143(3) read with section 92CA(4) of the Act so made on 30/12/2016 was prima facie erroneous and prejudicial to the interest of revenue as envisaged under section 263 of the Act and accordingly, held that the claim of the assessee that the said prior period expenditure crystalised in the year under consideration was without any substance.

Aggrieved by such an action of the learned PCIT, assessee is in this appeal before us contending that the learned Assessing Officer made adequate enquiries and verification of the details submitted by the assessee as a part of assessment proceedings and, therefore, the revisionary jurisdiction exercised by the learned PCIT is legally incorrect.

Learned AR, however, at the outset, narrating the facts, submitted that in the impugned order under section 263 of the Act, learned PCIT, while referring to the decision of the Hon'ble Supreme Court in the case of Indian Alluminium Company Ltd., Vs. CIT (1971) 79 ITR 514 (Supreme Court), observed that “the assessee did not have any contractual obligation to its employees to pay the pay roll taxes without deducting from their salaries. During the course of discussion with the Authorised Representatives, it was categorically stated by them that there was no contract between the assessee and its employees to this effect. Therefore, keeping in view the facts of the instant case and in the light of the above mentioned decision of the Hon'ble Supreme Court, I have no hesitation to hold that impugned expenditure is not an allowable expenditure.” According to the learned AR, however, as a matter of fact, there was a contract between the assessee and its employees under which the assessee was under a contractual obligation to pay the pay roll taxes without deducting from their salaries. He, therefore, submits that inasmuch as the assessee possess evidence as to the existence of a contract it would be in the interest of justice to permit the assessee to produce all such evidence before the learned PCIT to show that the assessee was under a contractual obligation to its employees to pay the pay roll taxes without deducting the same from their salaries, by restoring the issue to the file of the learned PCIT.

Learned DR, though disputed the fact as narrated by the learned AR, submitted that if for any reason, the matter is held to be remanded to the file of the learned PCIT, there may not be any fetters on the scope of enquiry to be conducted by the learned PCIT and the learned PCIT may be permitted to re-visit the issue on a first principle basis. Learned AR agrees with the suggestion of the learned DR.

Recording the submissions on either side, we are of the considered opinion that it would be in the interest of justice to accept the request of the learned AR and while setting aside the impugned order, it is just and proper to restore the issue to the file of the learned PCIT for fresh examination by allowing the assessee a reasonable opportunity of being heard and to produce the relevant record. We accordingly, set aside the impugned order the restore the matter to the file of the learned PCIT to take a fresh view after considering the material and submissions of the assessee. Grounds are accordingly treated as allowed for statistical purposes.

In the result, appeal of assessee is treated as allowed for statistical purposes.