INCOME TAX OFFICER(TDS),WARD-18(2), BANGALORE vs. M/S SYMPHONY MARKETING SOLUTIONS I P LTD, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH ‘ B ’ BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T. A. Nos.874, 1252 & 1586/Bang/2014 (Assessment Years : 2009-10 to 2011-12) Income Tax Officer (TDS), Ward 18(2), Bangalore. …. Appellant. Vs. M/s. Symphony Marketing Solutions India Pvt. Ltd., Block B,Salarpuria Softzone, Bellandur Village, Varthur Hobli, Bangalore. ….. Respondent. PAN AAKCS 6235N Appellant By : Dr.P.K. Srihari, Addl. CIT (D.R.) Respondent By : Shri K.R. Vasudevan, Advocate. Date of Hearing : 15.7.2015. Date of Pronouncement : 24.07.2015. O R D E R Per Shri Jason P. Boaz, A.M. : These appeals by Revenue are directed against the orders of the Commissioner of Income Tax (Appeals)-V, Bangalore for Assessment Years 2009-10 & 2010-11 orders Dt. 25.9.2014 & 14.8.2014 respectively and CIT (Appeals), Mysore for Assessment Year 2011-12 Dt.17.10.2013. Since common issues are involved, these appeals were heard together and are disposed off by way of this combined order. 2. The facts of the case, briefly, are as under :- 2.1 The assessee company is engaged in the business of ‘Business Analysis’ (‘BPO’). A survey under Section 133A of the Income Tax Act, 1961 (in short 'the Act') was conducted by Revenue

2 ITA Nos.874, 1252 & 1586/Bang/2014 at the assessee's premises on 11.12.2012 in the course of which it was noticed that the assessee had not deducted tax at source under Section 192 of the Act in respect of certain per-diem paid to employees deputed overseas on official work. On being querried in this regard, the assessee submitted that it gives a nominal amount as per diem to its employees travelling for the purpose of business, to cover the expenses of meals, travel, laundry and other miscellaneous items @ $ 50 for USA and $ 75 for Europe on official trips which was reasonable enough to enable its employees to subsist in a foreign company; considering the cost of living in those countries. The assessee contended that such per diem allowance was exempt under Section 10(14) of the Act r.w. Rule 2BB(1)(a) and (b) of the IT Rules, 1962 (‘the Rules’). In support of its contentions, the assessee also referred to the CBDT Circular No.33(LXXVI-5) dt.1.8.1955 to submit that where specific allowances are reasonable with regard to the nature and place of duty performed by the employees and are not disproportionate compared to the salaries received by them, no attempt ought to be ordinarily made to call for details/invoices of the actual expenses of the per diem paid to employees. 2.2 In order to demonstrate that the per diem allowance paid to its employees on foreign/official trips was reasonable, the assessee referred to and submitted Circular No.Q/FD /695/1/90 dt.11.11.1996 issued by the Ministry of External Affairs, Govt. of India. It was pointed out that at para 5 thereof, that officers of the Ministry were eligible for daily allowance in the range of US $ 75 to 100 and it was submitted that in these circumstances, the per diem of US $ 50 for US official visits and $ 75 for Europe official visits paid by the assessee to its employees was reasonable. The assessee placing reliance on the decision of the

3 ITA Nos.874, 1252 & 1586/Bang/2014 ITAT, Kolkata Bench in the case of ITO V V Saptharshi Ghosh (48 SOT 522) and of the ITAT, Mumbai Bench in the case of Madanlal Mohanlal Narang V ACIT (2007)(104 ITD 190)(Mum) submitted that it is not open for Revenue to call for the details of expenses actually incurred unless the specific allowance paid are disproportionately high compared to the salary and nature of duties performed by the employees. 2.3 The above arguments/submissions put forth by the assessee did not find favour with the Assessing Officer. The Assessing Officer observed that the two major heads of expenditure; i.e. accommodation and conveyance are separately reimbursed, apart form the per diem allowance paid to employees. According to the Assessing Officer, as per the provisions of Section 10(14) of the Act, the per diem allowance should have actually been expended by the employees and since the assessee could not bring on record any evidence to establish such actual expenditure having been incurred by the employees, held that such per diem allowance were not exempt, but was liable to TDS under Section 192 of the Act. In that view of the matter, the Assessing Officer passed orders under Section 201(1) and 201(1A) of the Act for Assessment Years 2009- 10 to 2011-12 raising demands as under :- S.No. Asst. Year Date of order Demand Raised (Rs) U/s. 201(1) U/s. 201(1A) 1. 2009-10 19.3.2013 23,78,937 12,93,117 2. 2010-11 19.3.2013 42,59,313 17,68,730 3. 2011-12 22.2.2013 24,46,724 14,63,878

4 ITA Nos.874, 1252 & 1586/Bang/2014 learned CIT (Appeals)’s vide orders dt.25.9.2014 for Assessment Year 2009-10; order dt.14.8.2014 for Assessment Year 2010-11 and order dt.17.10.2013 for Assessment Year 2011-12 allowed the assessee's appeals. The learned CIT (Appeals) held that per diem allowance @ $ 50 and $ 75 to USA and Europe on official trips would be covered under Section 10(14) of the Act; that the assessee is not held to be in default under Section 201(1) of the Act for not including such exempt allowance of per diem from the amounts liable to TDs under Section 192 of the Act and that consequently interest under Section 201(1A) of the Act is also not held to be chargeable in the case on hand. 4.1 Revenue, being aggrieved by the orders of the CIT (Appeals) dt.25.9.2014 for Assessment Years 2009-10, dt.14.8.2014 for Assessment Year 2010-11 and order dt.17.10.2013 for Assessment Year 2011-12, has preferred these appeals raising the following common grounds for all three years on the solitary issue of the applicability of TDS provisions to per diem allowances paid to its employees on official trips to USA and Europe :- “1. The CIT (Appeals) has erred in allowing relief to the assessee holding that the per diem allowance was reasonable and was covered under Section 10(14). 2. The CIT (Appeals) has erred in not appreciating the fact that exemption under Section 10(14) could be claimed only to the extent the expenditure was actually incurred. 3. The CIT (Appeals) has erred in not appreciating the fact that the claim was not substantiated by the assessee company. 4. The CIT (Appeals) has erred in placing reliance on circulars No.33 (LXXX-VI-5) dtd.1.8.1955 and No. Q/FD/695/1/90 dtd.11.11.1996 (issued by the Ministry of External Affairs) without considering the fact that per diem allowance does not fall into the category of allowances covered under the above circulars.” The learned Departmental Representative was heard in respect of the grounds raised (supra) and supported and placed reliance on the decisions of the Assessing Officer.

5 ITA Nos.874, 1252 & 1586/Bang/2014 4.2 Per contra, the learned Authorised Representative for the assessee supported the impugned orders of the learned CIT (Appeals), submitting that they were in order and no interference was called for therein. The learned Authorised Representative reiterated the submissions put forth before both the Assessing Officer and the learned CIT (Appeals). It was submitted that in allowing the appeals, the learned CIT (Appeals) had considered the Circular No.Q/FD/695/1/90 dt.11.11.1996 issued by the Ministry of External Affairs, Govt. of India and the decision of the Kolkata ITAT in ITO V Saptharshi Ghosh (supra) and of the Mumbai ITAT in Madanlal Mohanlal Narang (supra) and held that the per diem paid in the case on hand @ $ 50 for US and $ 75 for Europe official trips would be covered under Section 10(14) of the Act. 4.3.1 We have heard the rival submissions and perused and carefully considered the material on record; including the judicial pronouncements and Govt. of India Circulars cited and referred to. The facts of the matter in respect of payment of per diem by the assessee to its employees travelling for business/official trips to USA and Europe @ $ 50 and $ 75 respectively to cover actual expenses of meals, travel, laundry and other miscellaneous expenses etc. are not disputed and the contrasting views of both the assessee and the Assessing Officer thereon; as to the same being reasonable and exempt under Section 10(14) of the Act or liable to deduction of tax under Section 192 of the Act have been laid out briefly at paras 2.1 to 2.3 of this order (supra). 4.3.2 We find that the learned CIT (Appeals)’s in their impugned orders had considered the decisions of the ITAT, Kolkata Bench in the case of Saptarshi Ghosh (supra) and decision of the Mumbai Bench of the ITAT in the case of Madanlal Mohanlal Narang (supra) wherein it was held that it is not open to Revenue to call for details of expenditure incurred unless the per diem

6 ITA Nos.874, 1252 & 1586/Bang/2014 allowance paid is disproportionately high compared to the salary received or with regard to the duties performed by the employee. In this context, the learned CIT (Appeals)’s also examined the Circular No. Q/FD/695/1/90 dt.11.11.1996 and Circular No.Q/FD/695/2/2000 dt.21.9.2010 issued by Ministry of External Affairs, Govt. of India and came to the conclusion that the per diem allowance of $ 50 to $ 75 paid by the assessee to its employees on official trips to USA and Europe to be reasonable and that the same would be covered as exempt under Section 10(14) of the Act. In the impugned order for Assessment Year 2009-10 dt.25.9.2014, the last of the impugned orders to be passed, the learned CIT (Appeals) held as under at 3 to 5 as under:- “3.0 I have carefully considered the facts, the appellant’s submissions and perused the impugned order. I agree with the argument of ld. A.R. that the per diem allowance paid to its employees qualifies for exemption under Section 10(14)(i) of the Act r.w. Rule 2BB(1). Clause (b) of Rule 2BB(1) refers to any allowance to meet the ordinary daily charges incurred by an employee on account of absence from normal place of duty. There is no monetary limit prescribed and hence unless such allowance is said to be fictitious or abnormally high or otherwise taxable in the hands of the employee, no liability could be fastened under Section 192 on the employer to deduct tax on such allowance. Moreover, it is also not possible to collate bills for every minuscule expenses and mere non-collation of bills in support of amount expenses cannot prevail over the fact of incurring such expenses. It is found that the Assessing Officer has not gone through the CBDT Circular wherein it is clarified that where specific allowances are reasonable with reference to the nature of the duties performed by the employee and are not disproportionately high compared to the salary received by him, no attempt will ordinarily be made to call for details of expenses actually incurred by him with a view to disentitling him to some extent from the exemption. 3.1 Useful reference could also be made to the following decisions : 1. CIT Vs. L&T Ltd (2009) 313 ITR 1 (SC0 2. CIT Vs. ITI Ltd. (2009) 221 CTR (SC) 609 3. CIT Vs. Gostino Mario & Others 241 ITR 312 (SC) 4. CIT Vs. Micro Land Ltd. (2010) 323 ITR 670 (Karnataka) To the question as to whether assessee-employer is bound to collect and verify proof of journey and actual expenditure incurred for section 10(5) before granting exemption

7 ITA Nos.874, 1252 & 1586/Bang/2014 under that provision, it was held by the Hon'ble Courts that there is no such requirement in the law. The provision of section 10(14) and 10(5) are somewhat pari material, in the sense that proviso to section 10(5) also puts a ceiling that such allowance shall not exceed the actual expenditure. In any case, the allowance cannot be denied exemption under Section 10(14) and assessee-employer said to be in default for failure to deduct tax on the ground of absence of proof of such actual expenses on food, travel, laundry incurred by the employees, while performing duties in a foreign country. 3.2 In view of the above reasons, also accepted in case of appellant for Assessment Year 2011-12 (appellate order dt17.10.2013) where it was held that the per diem allowance is reasonable at $ 50 to $ 75 for the US and Europe, and would be covered under Section 10(14). The appellant could not be said to be in default within the meaning of section 201(1) for not including such attempt allowance for the purpose of section 192. The Assessing Officer is directed to exclude such amounts of per diem allowances form the amounts liable to TDS under Section 192. Appellate Grounds of appeal (No.1.1 to 1.4) on the issue are allowed. 4. The other ground (No.2) of appeal raised is with regard to levying of interest under Section 201(1A), amounting to Rs.12,93,117 relating to default under Section 201(1) rws 192. Since, the assessee has been held to be not in default under Section 201(1) with regard to the per diem allowances paid the interest under Section 201(1A) is also held to be not chargeable, and hence deleted. 5. As a result, the appeal is allowed.” 4.3.3 Before us, except for raising the grounds of appeal and supporting the views of the Assessing Officer, which are not tenable in the light of the judicial pronouncements of the Tribunal and the Circulars of Ministry of External Affairs, Govt. of India referred to above, Revenue has not been able to controvert the findings in the impugned orders of the learned CIT (Appeals)’s. Following the decision of the Hon'ble ITAT, Kolkata Bench in the case of Saptarshi Ghosh (supra) wherein it has been held that there is no requirement for the assessee-employer to collect and verify the proof of journey, actual expenditure incurred in respect of per diem allowance and further that it is not open to revenue to call for details of expenditure unless the allowances are highly disproportionate or unreasonable to the salary received or nature of duties performed; we also concur with the findings of the learned CIT (Appeals) that, in the

8 ITA Nos.874, 1252 & 1586/Bang/2014 light of the circulars issued by the Ministry of External Affairs, Govt. of India dt.11.1996 and 21.9.2010 (supra), the per diem allowance of $ 50 to $ 75 paid to employees on their official trips to USA and Europe are reasonable and would be exempt under Section 10(14) of the Act. In this view of the matter, we uphold the decisions of the learned CIT (Appeals), that since the assessee has been held to be not in default under Section 201(1) of the Act with regard to per diem allowances paid, interest under Section 201(1A) of the Act is also consequently not chargeable. Consequently, the Grounds at S. Nos. 1 to 4 raised by Revenue are rejected for all three Assessment Years 2009-10 to 2011-12. 5. In the result, Revenue’s appeal for Assessment Years 2009-10 to 2011-12 are dismissed. Order pronounced in the open court on 24th July, 2015.

Sd/- Sd/- (P. MADHAVI DEVI) (JASON P BOAZ) Judicial Member Accountant Member *Reddy gp Copy to : 1. Appellant 2. Respondent 3. C.I.T. 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard File. (True copy) By Order

Asst. Registrar, ITAT, Bangalore