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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI S. JAYARAMAN
आदेश / O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
The assessee filed this appeal against the Order of Commissioner of Income Tax (Appeals)-15, Chennai, in dated 21.12.2016 for the AY 2011-12.
ITA No.657/Mds/2017 :- 2 -:
Shri Ramesh Babu Kuppilli, the assessee, is an independent software consultant and US citizen. He worked as a Consultant with Zhone Technologies Inc. (Zhone) which is a hardware/software solution provider of communication equipment with customers all over the world. Zhone had offshore development centre with Tech Mahendra, Chennai. The assessee was a Consultant to the offshore development team in Chennai on behalf of the Zhone . As per the agreement, he was paid a consultant fee based on the Invoices raised by him. The agreement also provided for reimbursement of expenses. He admitted income of Rs.43,04,260/- against which he claimed Rs.8,55,650/- expenditure towards postage & telephone expenses, travel, vehicle maintenance(in excess of Rs.2,828/-), salary , business promotion, other maintenance, electricity charges, printing & stationery, donation. In the assessment made for the a y 2011-12, the AO examined the contents of the contract of the agreement and found that as per the agreement, the assessee is eligible for the reimbursement of expenditure incurred w.r.t. the income from Zhone other than the professional fees. The assessee has produced a confirmation letter from Zhone Technology which state that the reimbursement for the a y 2011-12 is Nil. However, as per the original agreement entered between the assessee and the Zhone , the assessee is eligible to avail the benefit of reimbursement of expenditure incurred. So the AO had added Rs.8,55,650/- under the head shortages, for the reason that the assessee has not admitted the benefit of reimbursement of such expenditure but claimed them as expenditure ie as if such reimbursements
ITA No.657/Mds/2017 :- 3 -: have accrued but not admitted . Aggrieved , the assessee filed an appeal before the CIT (A). Before the CIT (A) , the assessee filed a confirmation letter from Zhone stating that he has received only consultancy charges and no other reimbursement was paid to him. He claimed that the impugned expenditure were relating to his profession or consultancy . The CIT (A) required the assesse to produce the relevant bills/vouchers, etc., and the assessee pleaded that the payments were made through cash, bank and credit card and produced the relevant bank account and credit card statements. In the absence of relevant bills and vouchers, the CIT (A) dismissed the assessee’s appeal. Aggrieved, the assessee filed this appeal.
The AR submitted that the assessee is an Independent software consultant and is a US citizen resident in India. He works as a consultant with Zhone Technologies inc (Zhone), located at 7195, Oakport Street, Oakland, California 94621, USA. Zhone is a hardware/software solution provider of communication equipment with customers all over the world.
As per the agreement (Exhibit A) with Zhone , the asessee was entitled to flat consulting fee of USD 9896 every month and the same was credited to his Citibank FCNR account. The agreement also provided for reimbursement of expense which is mainly in the nature of overseas travel for the company. During the financial year 2011-12 , the assessee did not get any reimbursement of expenses and the employer, Zhone have also confirmed vide their letter dated 20.08.2013 (Exhibit B) that during the ITA No.657/Mds/2017 :- 4 -: year there was no reimbursement paid. Further, Zhone have given another letter dated 11th December, 2016 confirming that they have not reimbursed any expenses during the year and that all local expenses in the resident city are to be borne by the assessee (Exhibit C) and the copy of the same was submitted to the CIT Appeals. The fact is that the assessee has rendered his consultancy services and had received income which has been declared fully for tax purposes. With regard to expenses, he has claimed the following expenses for the purpose of consultancy business:
Postages & Telephones 42,919 Travel 2,23,486 Vehicle Maintenance 1,04,140 Salary 2,72,300 Business Promotion 1,54,216 Other Maintenance 42,907 Electricity Charges 25,346 Printing and Stationery 7,356 Total 8,72,670 Out of the above, the Assessing officer has disallowed Rs.8,55,650/- on the basis of the agreement alone and in spite of a confirmation letter filed from employer that there has been no reimbursement. The lower authorities have failed to appreciate the fact that the assessee is an Independent software consultant, works as a consultant. As per the agreement, he is entitled for reimbursements that can be mainly in the nature of overseas travel for the company and he is not entitled for any local expenses. The required proof were also furnished before the lower authorities also. The assessee was in charge of Chennai operation of ITA No.657/Mds/2017 :- 5 -:
Zhone , received consultancy fee and admitted the same . He had to visit client in Mahindra city and other places for trouble shooting towards which he had incurred the expenses towards car maintenance, petrol, driver salary as an ordinary prudent man would do which are very nominal having regard to his income. The expenses claimed is minimal compared to the Income and these expenses were incurred by the assessee for the purpose of earning consultancy income. The CIT (A) erred in not considering the facts properly. Further, he has not considered the claim on the basis of reasonableness and hence pleaded to allow the claim. Per contra, the DR relied on the orders of the A O and the CIT (A).
We heard the rival contentions, gone through the orders and relevant material. The facts remain that the assessee has rendered consultancy services domestically at Mahindra city and other places for trouble shooting towards which he claimed to have incurred expenses towards car maintenance, petrol, driver salary as an ordinary prudent man would do which are very nominal having regard to his income. For earning such income, he is neither entitled for any reimbursement nor there is any proof for receipt of any reimbursement. The CIT (A) rejected the claim for want of proper evidences and the assessee pleads that the CIT (A) while disposing the appeal should have applied the test of reasonableness. In the facts and circumstances, we deem it fit to restore the matter to the AO. The AO on the basis of materials that are likely to ITA No.657/Mds/2017 :- 6 -:
be laid by the assessee shall decide the case, after allowing due opportunity to the assessee, which includes the test of reasonableness.
In the result, the assessee’s appeal is treated as allowed for statistical purpose.
Order pronounced in the Open Court on 31st October, 2017, at Chennai.