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Income Tax Appellate Tribunal, DIVISION BENCH, ‘A’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI KRINWANT SAHAY
The assessee is in appeal before the Tribunal against the assessment order dated 31.07.2024 passed u/s 143(3) read with Section 144C(13)/144B of the Income Tax Act in assessment year 2020-21.
The assessee has taken four grounds alongwith six sub- grounds in Ground No.2. Ground No.1 is a general ground A.Y.2020-21 2 which does not call for recording of any finding. Hence rejected.
In Ground No.3 assessee has pleaded that ld. AO has erred in charging interest u/s 234A of the Income Tax Act. The ld. counsel for the assessee placed on record copy of a Notification dated 31.12.2020 and submitted that due date of filing of the return u/s 139(1) was enhanced. The assessee has filed such return well within due date provided u/s 139(1) in view of this Notification, hence interest u/s 234A is not chargeable upon the assessee. This issue has not been adjudicated by the AO, therefore, we deem it appropriate to set aside this issue to the file of AO for verification and re-adjudication. Hence, this ground of appeal is allowed for statistical purposes.
GROUND NO.4
In this ground of appeal, grievance of the assessee is that ld. AO/DRP has erred in initiating the penalty proceedings u/s 270A of the Income Tax Act. We find that this ground is a pre- mature at this stage. The assessee will have sufficient opportunity when notice inviting his explanation as to why A.Y.2020-21 3 penalty be not imposed upon it will be served on the assessee. The assessee will have a separate remedy to appeal against the penalty order, if any passed in its case. Therefore, we do not find any merit in this ground of appeal at this stage. Accordingly, it is rejected.
GROUND NO.2
In this ground, assessee has taken six sub-grounds. The grievance of the assessee is that ld. AO has erred in confirming the disallowance of Foreign Travel Expenses amounting to Rs.12,64,95,898/-. In sub-grounds, assessee has taken peripheral arguments in support of this central point.
With the assistance of ld. Representative, we have gone through the record carefully. The assessee company has filed its return of income on 15.02.2021 disclosing total income at Rs.177,38,58,100/-. It has availed deduction under various heads. The case of the assessee was selected for scrutiny assessment and a notice u/s 143(2) was issued and served upon the assessee on 29.06.2021. On scrutiny of the accounts, it revealed to the AO that assessee has debited an expenditure of Rs.12,64,95,898/- under the head ‘Foreign A.Y.2020-21 4 Traveling Expenditure’. The break-up of this expenditure read as under :
Particulars Amount (in INR) Travelling Foreign - Boarding & Lodging 35,741,346 Travelling Foreign - Air Fare 24,663,200 Travelling Foreign - Local expenses abroad - Conveyance, 66,091,352 perdiem etc. Total 126,495,898 6.1 The assessee contended that it is engaged in providing software development and various services to its customers who happens to be an AE of the assessee, namely, ‘Fidelity Information Services LLC, USA’. The assessee had an Advance Pricing Agreement with the CBDT. The software development services of the assessee provided at the respective places and therefore, its employee has to undertake foreign travel. The expenditures incurred by the assessee were repaid by the AE with a mark-up at cost + 16.60%. This expenditure was not allowed to the assessee by the AO, though DRP has not made much discussion on the issue as to why it is not admissible. The DRP simply observed that in earlier year, issue was relegated to the AO to verify that the actual recovery has been made by the assessee from its AE of these expenses alongwith A.Y.2020-21 5 mark-up. The DRP has observed in paragraph No. 6.4 of its order that this panel is an extension of assessment proceedings and issue is still sub-judice and has not yet attained finality. Therefore, proposed addition on account of ‘Foreign Travel Expenses’ is hereby confirmed.
The ld. counsel for the assessee drew our attention towards past history and how this disallowance has been deleted by the ITAT. He also drew our attention towards page No. 75, 111 and 141 for demonstrating the fact that these expenses have been recovered by the assessee from its AE and has been shown in the receipts. The assessee has recovered it alongwith 16.60% in addition to the cost. If disallowance is being made, then it will be a double addition. He pointed out once it is included in the gross receipts alongwith the profit margin, thereafter expenditure would not be disallowed to it.
The ld. DR, on the other hand, relied upon the order of the AO.
We have duly considered the rival contentions and gone through the record carefully. We find that this issue was considered by the ITAT in for A.Y.2020-21 6 assessment year 2014-15. The Tribunal has decided this appeal alongwith Cross Petition No. 5/CHD/2022 on 07.06.2024. The Tribunal has examined this issue in detail and there is no disparity on facts. The nature of expenditure as well as the mark-up of 15% was collected by the assessee. The discussion made by the Tribunal read as under :
11. In this regard, we refer to the findings of the Coordinate Bench for A.Y 2013-14 wherein it was held that where the foreign travel expenses were part of the cost on which the mark up was charged by the assessee from its Associated Enterprises, it stand to reason that the foreign travel expenses were agreed to be incurred by virtue of the agreement entered into between the parties and in such circumstances, the foreign travel expenses would be expenses incurred wholly in relation to the business of the assessee and allowable as per provisions of Section 37(1) of the Act. There cannot be any dispute regarding the said proposition and the same will apply equally for the impugned assessment year.
As far as verification of cost base for the impugned assessment year as to whether the same includes the foreign travel expenses and on which mark up has been charged by the assessee as part of its billing/invoicing and reporting of the revenues from the Associated Enterprises, we find that the assessee has duly demonstrated the same before the ld CIT(A) as evident from the following table at paperbook page 34 as part of the assessee’s submissions dated 12.04/2019 filed before the ld CIT(A) and we deem it appropriate to reproduce the table as under:
x x x x
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 up and the same includes the foreign travel expenditure of Rs 9,21,58,400/-. Applying the mark up of 16.60%, the revenues from the Associated Enterprises has been determined at Rs 1,94,16,23,144/-. In the financial statements, the assessee has reported the revenues from the Associated Enterprises at Rs 1,91,42,32,704/- considering the cost base and mark up of 15% and since the additional mark up of 1.60% (over and above 15%) has been determined pursuant to the unilateral Advance Pricing Agreement entered into with CBDT dated 6/02/2017, the additional revenues of Rs 2,73,90,440/- has been offered as part of the modified return of income filed on 29/04/2017.
A.Y.2020-21 7 14. The APA entered into by the assessee with CBDT covers the impugned assessment year, being one of the roll back years and covers the international transaction of provision of software development services and reimbursement of expenses as so described therein and TNMM has been determined as per the most appropriate method with the assessee being the tested party and operating profit margin being the PLI and it has been provided that the reimbursement of expenses shall be benchmarked along with the main transaction of provision of software development expenses as part of operating expenses and the arm length price has been determined of not less than 16.60% of the each of the years covered in the APA. The assessee pursuant to entering into the APA has filed the modified return of income on 29/04/2017 and has also submitted the annual compliance report. The Assessing officer has taken cognizance of the modified return of income as evident from the assessment order and thereafter, the matter was referred to the TPO. The TPO as so mandated in the APA has carried out the compliance audit in terms of checking whether the ALP and most appropriate method has been applied by the assessee in the modified return of income and has returned no adverse finding in this regard. The AO has taken cognizance of the order of the TPO u/s 92CA(3) dated 14/09/2017 as evident again from the assessment order wherein he has infact reproduced the TPO order where he has referred to the APA dated 6/02/2017, modified return filed by the assessee u/s 92CD and the annual compliance report and has stated clearly that no adverse inference is drawn in respect of the international transaction undertaken by the assessee during the financial year relevant to impugned assessment year.
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.
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 business. For the aforesaid reasons, the order of the ld CIT(A) is upheld and the ground of appeal taken by the Revenue is dismissed.
In the result, the appeal of the Revenue is dismissed. ”
A.Y.2020-21 8 9.1 Similarly, this issue was considered in assessment year 2012-13 and 2011-12 in and 433/CHD/2016. The Tribunal has deleted the disallowance. The discussion of the Tribunal has been taken note in assessment year 2014-15.
On due consideration of the facts and circumstances, we are of the view that issue in dispute is squarely covered in favour of the assessee by the earlier orders of the ITAT. Respectfully following them, we delete the disallowance.
In the result, appeal of the assessee is partly allowed.
Order pronounced on 28.05.2025.