DCIT CORPORATE CIRCLE 6(2) , CHENNAI vs. VETRI SOFTWARE INDIA (P) LTD , CHENNAI

आदेश / O R D E R

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

2. The Ld.CIT(A) erred in directing the AO to verify and determine the income of assessee on the basis of the invoices raised by it during the relevant previous year and grant credit for corresponding TDS relatable to that income. 2. 1 The Ld.CIT(A) ought to have appreciated that as per section 251(1)(a) of the Act, the “power to set aside” or “examining the issue afresh” has been omitted with effect from 01.06.2001 as per Finance Act, 2001.

However, the assessee M/s. Vetri Software India (P) Ltd., which was assessed in Corporate Circ[e-3(2), has got merged with M/s.Source HOV India Private Ltd which is being assessed in Corporate CircLe- 6(2). It was submitted that in view of this merger, the files and related documents were transferred to the office of the DCIT, Corporate Circle 6(2) Chennai only on 27/07/2017 from the office of ACIT, Corporate Circle-3(2)(OSD). As soon as the record of the case was received in this office, the Scrutiny Report was prepared and forwarded for necessary approval. After that, immediately appeal papers were prepared and submitted on 18.08.2017 before Chennai Tribunal and the same was being submitted after a delay of 69 days.

The ld. DCIT Chennai requested that the delay in filling the appeal maybe condoned and the appeal may be heard on merits.

3.1 I have heard the ld. Representative of assessee’s counsel and the ld. DR. I find that there was sufficient cause for not filing the appeal within the stipulated time. Therefore, I condone the delay and admit the appeal.

Further, the assessee had produced fresh TDS certificates which was not accounted for its Unit-Il with amount of `1,03,08,485/- as amount credited and asked for the TDS credit of `11,67,952/-. The assessee had originally filed only one TDS certificate for its Unit-I with amount of `4,24,62,946/- as amount credited and asked for the TDS credit of `42,51,188/-. It was stated by the assessee that the TDS credit for the sum related to Unit-Il was not accounted due to omission and the same may be considered. After considering both TDS certificates, it was found that Amount credited as Sl.No. Amount credited as per Amount of per P&L Account TDS certificate TDS claim

1 424,62,946 42,51,188

2 103,08,485 11,67,952 433,30,017

Total 527,71,431 54,19,140 Upon confrontation on the difference between the amount credited as

per P & L account and TDS certificates, the assessee had replied vide its letter dated 02-12-2010 regarding reconciliation as under:

Reconciliation between Vetri Software India Put. Ltd. Vs. Lason India Put. Ltd. A.Y 2008-09.

Description Unit 1 Unit 2 Unit 3 Taxable amount as per Form 16A 42462946 10308485 52771431 Sales amount as per P & L 34155501 9174506 43330017 Difference 8307445 1133969 9441414 Difference break up Service Tax 4359712 1100941 5460653 Service tax Cess 125461 33028 158489 Taxable amount already included in April And May 07 but shown 65400 0 65400 separately due to Cess revised from 2% to 3% in Form 16A 3756872 0 3756872 Advance received from Lason Total 8307445 1133969 9441414 It is evident from the above that the assessee claims excess TDS credit and also clear that the assessee has not accounted its income correctly particularly with regard to the alleged “advance received from Lason” for the following reasons: a. It is apparent from the TDS certificates that a total sum of `5,27,71,431/- inclusive of service tax and cess and the alleged advance was credited into assessee ‘s account. b. In all the certificates it was mentioned that the payments were made on account of professional fee u/s 194J. c. In none of the certificates, it was mentioned that any sum was credited either as advance towards professional services. d. Also emphasized that as against the commercial prudence, any deductee will not allow the deductor to deduct TDS on the receipts which the deductee feels that such receipts are not of its income. e. The revenue recognition as part of the notes of accounts did not mention any of such treatment for not including any sum which has been duly credited into assessee’s account as evident from the TDS certificates. f. The assessee had consciously claimed the entire TDS credit in its return of income which vitiates the provision of section 199 of I.T. Act. The assessee’s practice of not offering the receipts as income, but claiming the relevant TDS do not find any merit.” Therefore, the AO reckoned an amount of advance of `37,56,872/- from the company as income. Against this, the assessee went in appeal before the Ld.CIT(A).

4.1 During the course of appeal proceedings, the AR of the appellant has filed his submission before the CIT(A) that the assessee does regular BPO work throughout the year for its parent company, Lason India and as and when services were rendered bills were raised by the assessee against Lason India and adjusted against the advance given by Lason India. According to ld.A.R, this system of adjusting bills payable against the advances received is clearly brought about in the cash flow statements and ledger accounts annexed. Furthermore, the income of the assessee and expenditure for Lason India for the F.Y 2007-08 clearly match showing that the balance of advances yet to be adjusted against bills to be raised. It is not income in the hands of the Assessee as it was not for any services which have been rendered by assessee to Lason India. There was a debt created in favour of the Assessee enabling the Assessee to receive the amount as its income. It is submitted that, Lason India deducted TDS on the advance in view of the provisions of sec 194J of the IT Act and this will not change the character of the receipt as revenue in the hands of the assessee.

According to ld.A.R, what is revenue i.e., income in the hands of Vetri Software (assessee) is only the payments received/ receivable for actual services which have been rendered by the assessee and billed to Lason. Further the Holding Company has given a confirmation stating that an amount of `37,56,872/- was paid to Vetri Software India Private Limited towards Trade Advance during the financial year 2007-08 and the same was adjusted against their subsequent billing to their holding company Lason India Private Limited [ presently Source HOV India Private Limited].

4.2 The Ld.CIT(A) placed reliance in the earlier order of Ld.CIT(A) for assessment year 2007-08 in vide order dated 06.01.2014 wherein it has been held that:-

“After carefully considering the facts of the case and the submissions of the ld.A.R the holding company Lason India has advanced an amount of Rs.4,13,39,600/- pertaining the relevant financial year (2006-07) against which the assessee has raised invoices amounting to Rs.3,63,70,455/- + service tax & cess amounting to Rs.4,05,45,850/-. The AQO has disallowed the entire difference between the advance provided and the invoices raised amounting to Rs.25, 93,750/- holding it as revenue. Firstly, this amount of Rs.25, 93,750/- was submitted by the Learned Counsels as being part of the working advances given year on year by holding company (Lason) to the assessee (Vetri) with total advance given to Vetri by Lason standing at Rs. 77,27,383/-. On perusal further of both companies Books, this amount is clearly an advance given by Lason India (the holding company) as seen in Lason’s Balance Sheet under the head Loans & Advances (Schedule 9) having an amount of Rs. 77,27,383/- as “Loans to Subsidiary Companies”. Correspondingly, the assessee (Vetri) has shown in its Balance Sheet, Liabilities (Schedule-6) an amount of Rs.7,99,174/- as “Due to Holding Company Lason India Pvt Ltd.” and the difference amount of Rs.69,96,344/- which was towards March 2007 invoices raised by Vetri (though not received by Lason India by March 2007) and included in the income of Vetri (assessee) amounting to Rs.3,63,70,455/-. Hence, the amount of Rs.25,93, 750/- which is part of the running advance account cannot be treated as a revenue receipt for the current year. Secondly, the amount of Rs.25, 93,750/- has been arrived at by subtracting the advance given during the year by Lason to Vetri as against the invoices raised during the year by Vetri. The assessee seems to have claimed credit on the entire amount including advances given by its holding company Lason India. The assessee should be taxed only on the income for which invoices have been raised during the year (i.e. Rs.4,05,45,850/-) even though the recipient has deducted tax on the total amount paid by them including the advances (i.e. Rs.4, 13,39,600/-). Therefore the AO is directed to verify and determine the income of the assessee on the basis of the invoices raised by it.”

Hence, Ld.CIT(A) remitted the issue to AO on similar direction given in the above cited assessment year 2007-08.