INFO-DRIVE SOFTWARE LIMITED,CHENNAI vs. ITO, CHENNAI

This is a set of two appeals by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-VII, Chennai (‘CIT(A)’ for short) dated 01.01.2014, dismissing the assessee’s appeals contesting its’ assessment u/s. 201(1)/201(1A) of the Income Tax Act, 1961 (‘the Act’ hereinafter) for assessment years (AYs) 2010-11 & 2011-12 of even date, i.e., 15/12/2011.

The issue arising in the instant appeals is the nature of the payments, debited to the account head or classified as ‘Reimbursements’ by the assessee, a Chennai based software company, handling business verticals like, pension plan

We have heard the parties, and perused the material on record. We find the assessee to have spelled out its’ case to the ld. CIT(A) per written submissions thereto during appellate proceedings (refer PB-I/pg.23). The same is supported by employment agreements (of its’ employees) as well as the debit notes raised by GOS on the assessee-company (Appendix-2), some of which we were taken through during hearing. The reason for GOS paying salaries of the assessee’s employees is stated to be to observe the UAE laws, which oblige the service recipient to timely pay for even contracted labour, and toward which copy of the Minutes dated 17/6/2009 (at PB-I/pg.19), stated to be furnished before both, the Assessing Officer (AO) and the ld. CIT(A), was referred to during hearing. Though the same, as point out thereat, does not bear the signature of the assessee’s representative, nor in fact states of his presence thereat, so that it is a unilateral document and, therefore, by itself of no moment, the fact remains that the debit notes have been raised by GOS on the assessee. Then, again, the question arises as to why would it pay for the travelling or 3 & 398/Mds/2014 (AY 2010-11 & 2011-12) Info-Drive Software Ltd. v. ITO other related expenditure incurred by the employees, which may in fact exceed their entitlement, or may be for travel, etc., which is not authorized by the assessee-company. That is, how could it validate the expenditure and, besides, has control implications, while with regard to salary the same may have been communicated by the assessee-company thereto, which though would require being substantiated by some contemporaneous evidence. The expenditure is the assessee’s contractual obligation and the onus is on it to make suitable arrangements for timely payment for salary of, and other expenditure incurred by, it’s employees. Why, the payment could be made directly to the bank accounts of the employees. In fact, even in India the salary is customarily paid by the 7th of the following month, and also legally required to be paid within a reasonable time; presumably, the 10th day thereof. The relevant law/s of UAE assumes significance in this regard, which shall have to explain both, the salary as well as other expenditure. Further, not only does the ‘service recipient’ agree to make the payment in the first instance, it extends a 90 day credit to the assessee for the same, which is surprising indeed. The minutes also refer to the assessee facing financial difficulty in making the payment without collection, which may explain the credit. GOC could, in that case, make the payment early on or even in advance. Further, details of employee emoluments are normally not divulged, as in that case the contractee would get a clear idea of the assessee’s employee cost, which constitutes the principal cost, enabling it to bargain for a lower cost on its contract with the assessee. The assessee clearly has much explaining to do; it’s case, though valid in principle, is largely unsubstantiated, with several loose ends. In fact, the Revenue’s stand (refer para 2) itself, as a reading of the orders by the Revenue authorities shows, is based on the assessee’s explanation of GOS rendering services to Info-Drive LLC, UAE at the behest of the assessee-company, depicting thus also an inconsistency in it’s (assessee’s) stand.

The matter is thus clearly in-determinate, and would therefore have to be restored back to the file of the AO, setting aside the impugned order, which we hereby direct. The burden of proof, in-as-much as it is in the intimate know of its affairs, is on the assessee, even as the Revenue’s stand also has to be consistent with it’s findings, based on material on record and explanation/s offered by the assessee. In this context, it may be added that the ld. Authorized Representative (AR), on being asked by the Bench during hearing as to how does the assessee’s stand effectively helps it’s case in-as-much as even considering the payment made, to the extent proved, being on account of salary, the same would warrant deduction of tax at source u/s. 192, could not furnish any satisfactory answer. This aspect would therefore require being examined. Also, the functional role of Info-Drive LLC, UAE, having been ostensibly specifically incorporated/instituted to facilitate the execution of the projects

In the result, the assessee’s appeal is allowed for statistical purposes. Order pronounced on June 30, 2017 at Chennai.