DCIT, C-1(1) , CHANDIGARH vs. M/S FIDELITY INFORMATION SERVICES INDIA PVT. LTD., CHANDIGARH

In this regard, briefly the facts of the case are that during the course of assessment proceedings, the AO observed that out of total travelling expenses debited in the P&L Account, an amount of Rs. 9,21,58,400/- has been claimed by the assesssee in respect of foreign travelling expenses. Thereafter, referring to the proceedings in the earlier years, the AO asked the assessee to show cause as to why the foreign travelling expenses so incurred by the assessee company should not be disallowed.

1 In response, the assessee filed its submission which were considered but not found acceptable to the AO.

2 The AO referring to the assessment proceedings for A.Y 2007-08 held that providing of service to the foreign clients on behalf of M/s SF USA and M/s Fidelity Information Services Inc, USA was not the responsibility of the assessee company, therefore, the expenditure incurred on foreign traveling amounting to Rs. 9,21,58,400/- is treated as expenditure pertaining to M/s SF Inc, USA and M/s Fidelity Information Services Inc. USA and is disallowable in the hands of the assessee company. It was held that no new fact has been brought out by the assessee company while giving his submissions on this issue. That the assessee company has new service agreements with both the said customers under which the assessee company is rendering services to the said customers and that the customers remunerate the assessee on cost + 15% and further that the cost which is charged by the assessee to its respective customers includes the travel cost, does not in any way make this an eligible business expenditure of the assessee company. It was stated by the AO that no details have been provided regarding the inclusion of the said expenses in the cost charged by the assessee company to its clients. Further, as per para 3.1 of Article 3 of the said settlement agreement filed by the assessee, cost shall include the allocable portion of all normal and ordinary course operating expenses including travel cost. However, the assessee has failed to prove that the said foreign travel cost is a normal and ordinary course business expense. In view of the same and detailed discussion on this issue in the order of the assessee company for the assessment year 2006-07 & 2007-08, foreign travelling expenses amounting to Rs. 9,21,58,400/- was held as not allowable u/s 37(1) of the I.T. Act, 1961. It was further stated by the AO that the DRP, New Delhi has confirmed the addition made on this account in the assessment year i.e. 2006- 07, 2007-08, 2008-09 & 2009-10. 3.3 It was further stated by the AO that even for the A.Y. 2011-12, the DRP had directed the AO to verify the contention of the assessee that all these expenses incurred on foreign travelling are being reimbursed by its foreign clients (A.Es). It was held by the AO that this aspect has been examined and following points are relevant to the issue which read as under:

5 It was further held by the AO that the second document submitted by the assessee i.e. communication from M/s Second Foundation Inc. USA was also submitted by the assessee in the assessment proceedings of A.Y. 2007-08 onwards & were duly considered by the AO in these assessment proceedings. Further, it is reiterated that the addition on this issue has been made because as per the terms of agreement, the assessee company had to provide the services for development of computer software and allied products on specific orders and specifications provided from time to time by M/s SF Inc. USA. Further, M/s. SF Inc USA was to provide technical support for the development of the software to the assessee company. It was further seen from the various clauses of the agreement that the assessee company was to develop specific software as per the direction of the company M/s SF Inc USA. Therefore, the assessee company was only

6 It was further held by the AO that as per terms of agreement, the responsibility for servicing of clients' of M/s SF Inc. USA is that of M/s SF Inc. USA only. The responsibility of the assessee company was limited to the development of the software as per the technical specifications provided by M/s SF Inc. USA. In fact, the assessee company was not receiving any servicing income for servicing the clients of M/s SF Inc. USA. The expenses incurred for servicing of the clients of M/s SF Inc. USA were not the responsibility of the assessee company, as per the terms of the agreement. Further, all the expenses for the stay of the visiting employees of the assessee company to foreign companies were being met by M/s SF Inc. USA. The assessee company was bearing only the foreign traveling expenses and visa expenses of the visiting employees. Infact, the cost of foreign traveling expenses and visa expenses of the visiting employees was to be borne by M/s SF Inc. USA, as during the foreign visits by the assessee's employees, they were basically rending services to M/s SF Inc. USA and not to the assessee company. Thus, the copy of communication in respect of the employees is no way challenges the arguments taken by the AO for disallowing the expenses.

7 It was further held by the AO that the assessee has also filed a list of invoices raised to customers. The assessee has once again tried to establish that the persons had actually travelled abroad to work on the projects. However, the main question is not whether the person had travelled. The main issue at hand is whether the expenses were allowable in the business of the assessee. The invoices also do not establish whether that the expense was an allowable expense or not.

8 It was accordingly held by the AO that the expenditure on account of foreign travel of Rs. 9,21,58,400/- for A.Y. 2014-15 is not allowable to the assessee

The assessee being aggrieved carried the matter in appeal before the Ld. CIT(A).

The contentions advanced before the AO were reiterated before the ld CIT(A). Further written submissions were filed, rejoinder to the remand report was submitted and reference was drawn to the decision of Coordinate Bench for A.Y. 2011-12 and 2012-13 wherein identical matter has been decided in favour of the assessee company.

Considering the findings of the AO in the assessment order, the submissions so made by the assessee, the remand report, the rejoinder submitted by the assessee and referring to the Coordinate Bench decision in ITA No. 363/Chd/2017 for A.Y. 2012-13 and in ITA No. 433/Chd/2016 for A.Y. 2011-12 dt. 30/05/2019, the Ld. CIT(A) held that the facts in the present case are identical to the facts in assessee’s own case for A.Y. 2011-12 and 2012-13 and following the same, the disallowance so made in respect of foreign travelling expenses was deleted.

Against the said findings and directions of the Ld. CIT(A), the Revenue is in appeal before us.

During the course of hearing, the Ld. CIT/ DR referred to the findings of the AO and it was submitted that the Ld. CIT(A) has failed to appreciate the clear finding given by the AO that the assessee could not substantiate its claim that the foreign travelling expenses were allowable expenses in the hands of the assessee company.

1 It was submitted by the ld CIT/DR that the Ld. CIT(A) has merely decided the mater by following the Coordinate Bench decision for earlier years without

In his submission, the Ld. AR submitted that during the subject assessment year, the employees of the assessee company undertook foreign travelling for providing onsite software development services as per the instructions by the Associated Enterprises. The visit of the employees was primarily for the purpose of rendering software development services, debugging, training, etc. to the clients of the AEs and the same forms intrinsic part of software development services rendered by the Assessee company. The Assessee company incurred foreign travelling expenditure amounting to INR 9,21,58,400/- during the subject year in this regard.

1 It was submitted that the Assessee company entered into service agreements with its AE's - agreement dated May 12, 2007 with Fidelity Information Services Inc. USA and agreement dated November 1, 2007 with Second Foundations Inc., USA. It was submitted that in terms of the service agreements entered with the AE's, the Assessee company was required to provide services of development of computer software and allied products on specific directions and specifications provided from time to time by the AE and that the Assessee company would be remunerated for its services on cost plus 15% including travel cost. Thus, all foreign travelling expenses are invoiced to the respective customers on the basis of cost plus 15%.

2 It was further submitted that employee-wise details containing the name, place, purpose of travel, project name and the amounts expended was duly submitted before the Revenue authorities. The foreign travelling was made on the specific requirements of the customers. Travel confirmations issued by both the customers of the Assessee company that the employees of the Assessee company were required to undertake foreign travelling for the purposes of rendering software development services was also placed on record before the Revenue authorities.

3 It was submitted that the service revenue earned by the Assessee company, i.e. cost plus 15% also includes travel cost which is evident from the audited financial statements. The foreign travelling expenses were charged in 'Other Expenses' in the Profit and Loss Account for the subject year. The Assessee company earned service revenue on cost plus arms' length markup from its customers for the said expenditure. The detailed margin computation forming part of Transfer Pricing Study is attached at pages 131 of the paperbook. Thus, perusal of the same makes it evident that the revenue and income of the Assessee company is based on its cost.

4 It was submitted that the Assessee company is a cost-plus entity where all expenses are reimbursed with an additional mark-up and added to the revenue base of the company. It is submitted that any variance in the cost would also correspondingly impact the revenue and income of the Assessee company. Tabulations of revenue calculated on applying 15% [16.60% (pursuant to Advance Pricing Agreement)] mark-up on cost is enclosed at pages 185 & 34 of the paperbook. assessee’s The workings demonstrate that foreign travelling expenditure incurred by the Assessee company is reimbursed from its customers as the same is included in the cost base used for charging the agreed mark-up.

5 It was submitted that the foreign travelling expenditure fulfils all the conditions prescribed under section 37(1) of the Act in so far as it is not capital in nature; it is not an expenditure of the nature described in sections 30 to 36 of the Act; It is not a personal expenditure; and it is laid out wholly and exclusively for the purpose of business. In view of the above, the foreign travelling expenditure was incurred for the purpose of Assessee company's business and hence, should be considered as an allowable expense under section 37 of the Act.

6 It was submitted that under identical facts and circumstances, the Chandigarh Bench of the Tribunal vide order dated 30 May, 2019, passed in Assessee company's case for assessment years 2011-12 and 2012-13, has decided the issue of foreign travelling expenditure in favour of the Assessee company by directing the AO to delete the disallowance made in those years. The relevant extracts from the order of the ITAT are reproduced below for your ready reference:

At the outset. Ld. Counsel for the assessee has submitted that the assessee is engaged in the sale of software development services. The aforesaid expenditure incurred on foreign travel of the employees was relating to the activity of software development services of the assessee. That the aforesaid expenditure of foreign travel was duly included in the head 'Operating and administrative expenses totalling to ₹ 1.39.702.000. The total expenditure of the assessee as per the profit and loss account was at ₹ 6.50,292.000/- which was recovered by the assessee from his foreign associate enterprise with a mark-up of 15% on total cost which comes to ₹7.47,836.000/- and assessee accordingly has shown its Revenue /gross total income at ₹ 7,47.841,000/- in the profit and loss account. The Ld. Counsel for the assessee in this respect has also invited our attention to page 49 of the paper book to show that the Revenue on account of business operations has been shown at ₹7,47.841.000/ - and further that the Operating and administrative expenses have been shown at ₹1.39,702,000/- which included an expenditure of ₹47,308,000/- incurred on travel and conveyance and that the foreign travel expenditure of ₹40,121,258/- was included in this amount. The entire amount has been reimbursed by the AE of the assessee along with mark up of 15% of the total cost. In view of the above, assessee had demonstrated that a direct income was earned by the assessee on the foreign expenditure @ 15% of the total cost.

7 It was submitted that the ratio of order passed by the Chandigarh Tribunal in the Assessee company's case for assessment years 2011-12 and 2012-13 is squarely applicable to the facts of the Assessee company for the year under consideration i.e. assessment year 2014-15. 9.8 It was further submitted that the Assessee company has been incurring foreign travelling expenditure since assessment year 2006-07. The details of the expenditure incurred, distinguishing facts, stand of Revenue authorities and current litigation status in respect of the foreign travelling expenditure from assessment year 2006-07 till assessment year 2013-14 is summarized in the tabulation below:

9 It was further submitted that the facts of assessment years 2006-07 and 2007- 08 are different to that involved in the instant case even though the issue involved therein inter-alia pertained to allowability of foreign expenditure as a deductible expense, as the service agreement pursuant to which the subject travelling cost was incurred was substantially different as compared to the ones which are entered and relevant for the subject assessment year. The service agreement dated April 15, 2002 entered with Second Foundation Inc. USA had different payment terms i.e. in terms of clause 3 of the said service agreement, the AE was required to pay a fee, for the services rendered by the Assessee company, according to the number of man-days upon receipt of the invoice from the Assessee company. On the other hand, the service agreements relevant to subject assessment year i.e. 2014-15, stipulate that the Assessee company be paid for the services rendered on cost-plus mark-up basis (15%).

10 It was submitted that the orders passed by this Hon'ble Tribunal and also the allegations/ contentions of the Revenue authorities in Assessee company's case for assessment years 2006-07 and 2007-08 are not applicable to the facts of the instant case as the factual matrix involved, including the service agreement(s) in question, is substantially different than involved in subject assessment year.

11 It was submitted that the order passed by the Hon'ble Tribunal for assessment year 2008-09 and 2009-10 is also inapplicable to the instant case as in that year the lower authorities passed the orders purely relying upon the orders passed for the earlier assessment years, i.e., 2006-07 and 2007-08. The fact that the fresh

12 It was submitted that the Hon'ble Tribunal disposed the appeal for assessment year 2013-14 in favor of the Assessee company by holding that the fact that the expenses incurred on foreign travelling have been reimbursed by the customers/ AE's as agreed, by itself proves that the expenses were incurred during the course of rendering services to its customers who have therefore, agreed to reimburse the same and also that the said expenditure was the responsibility of the Assessee company to incur, thus, entitling it to claim the same as expense. It was submitted that the Tribunal further held that the Assessee company, by way of documents, workings and other evidences, has been able to clearly distinguish the case for the subject year as regards the earlier assessment years and that the foreign travelling expenses incurred by it in the course of rendering services to its customers/ AE's was duly reimbursed to it. The Tribunal however, remanded the matter back to the file of the AO for limited purpose of verifying the documents and evidences relied upon by the Assessee company as the AO did not follow the DRP directions to verify the same. It was submitted that pursuant to the directions of the Tribunal vide order dated May 31, 2018 for assessment year 2013-14, the AO has passed the order dated September 27, 2021 whereby he has accepted the claim of the Assessee company and accordingly, deleted the disallowance of foreign travelling expenditure holding that foreign travelling expenses do form part of the total travelling expenditure which has been recovered by the Assessee company from the customers at an agreed mark-up.

13 It was submitted that in the subject year, the CIT(A) while disposing of the appeal in addition to going through the order passed by the Hon'ble Tribunal for assessment years 2011-12 and 2012-13, had also duly verified the workings and documents/ evidences furnished and only basis that came to the conclusion that claim of foreign travelling expenses should be allowed to the Assessee company as the expenses have been duly reimbursed by its AE's .

14 It was submitted that the cost plus 15% mark-up recovery has also been verified by the TPO as is evident from the TP order; the APA Authority, while determining the mark-up as 16.60%. Thus, it is not once but the cost-plus mark-up reimbursement has been verified by the lower authorities at various stages, i.e., TPO, APA and CIT(A).

15 It was submitted that the Hon'ble Tribunal while passing the order for assessment years 2011-12 and 2012-13 carefully analyzed the facts involved, verified the working submitted with reference to the audited financial statements and the margin computation annexed to the transfer pricing study report prepared for those assessment years and the orders passed in Assessee company’s case in the earlier years. In a nutshell, the Hon'ble Tribunal while passing the order for assessment years 2011-12 and 2012-13 had considered all the relevant documents and after considering the arguments of Revenue and Assessee company had decided the appeals in favour of the Assessee company. Thus, the claim of foreign travelling expenditure be allowed to the Assessee company following the Hon'ble Tribunal's order passed in Assessee company's own case for assessment years 2011-12 and 2012-13. 9.16 Without prejudice to the above, it was submitted that where any disallowance is made for the foreign travelling expenditure, the corresponding service revenue should also be accordingly reduced as the Assessee company is charging the costs on a cost plus basis to its customers. In this regard, reference may be made to the decision of Hon'ble Delhi ITAT in the case of XL India Business Services Private Limited vs. ITO (ITA. No. 1427/ Del/ 2014).

17 The ld AR accordingly supported the order of the ld CIT(A) and submitted that the appeal filed by the Revenue be dismissed and the order of the ld CIT(A) be confirmed.

We have heard the rival contentions and purused the material available on record. We find that the issue of allowability of foreign travelling expenses has been a subject matter of dispute for past many assessment years between the assessee and the Revenue. In the past, the matter has reached the Tribunal and during the course of hearing, our reference was drawn to the decision of the Coordinate Bench for A.Y 2011-12, 2012-13 and 2013-14 and it has been argued on behalf of the assessee that the facts are pari-materia and thus, the matter for the impugned assessment year be decided following the same especially where the ld CIT(A) has verified the fact that the foreign travel expenses are part of the cost on which the mark up has been charged from the Associated Enterprises whereas the Revenue has argued that it is a factual matter and whether the foreign travelling expenses have to be allowed, has to be decided based on facts and circumstances of each year and basis findings for the earlier years, the same cannot be decided.

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:

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/-

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.

Now coming to the Cross Objection filed by the Assessee wherein following grounds have been raised:

That on the facts and circumstances of the case and in law, the levy of interest under sections 234B and 234C of the Act on the additional income assessed

That on the facts and circumstances of the case and in law, the levy of interest under sections 234B and 234C of the Act on the amount of income concluded pursuant to APA is against the legislative intent and tantamount to penalizing the Appellant / Assessee for impossibility of performance.

At the outset, it is noticed that the Registry has highlighted the fact that there is a delay in filing the Cross Objection by 533 days.

In this regard, the Ld. AR submitted that as per the provisions of section 253(4) of the Act, the cross objections before the Tribunal are required to be filed within 30 days from the receipt of notice of appeal filed by the Revenue Department. In this case, the appeal by the Department was received by the Assessee company on January 19, 2021 and thus, 30 days expired on February 18, 2021. However, it is pertinent to note that in view of the order dated January 10, 2022 in suo moto writ petition (C) No. 3 of 2020 passed by the Hon'ble Supreme Court, it was directed that the period from 15.03.2020 till 28.02.2022 shall stand excluded for the purposes of limitation, as may be prescribed under any general or special laws in respect of all judicial or quasi-judicial proceedings. Further, the Hon'ble Apex Court clarified that in case where the limitation expired during the period between 15.03.2020 till 28.02.2022, notwithstanding the actual period of limitation remaining, all persons shall have a limitation period of 90 days from 01.03.2022. It was submitted that in view of the Hon’ble Apex Court order dated January 10, 2022, since the limitation to file cross objections in the instant case expired within 15.03.2020 till 28.02.2022, the Assessee had time till May 30, 2022 (01.03.2022 + 90 days) to file the subject cross-objections thus, there is effectively delay of 58 days in filing the subject cross-objection.

It was further submitted that the delay of 68 days is neither intentional nor deliberate and has occurred on account of the following reasons, which were bona fide and beyond the control of the Assessee company. It was submitted that the Assessee company did not file any cross objections earlier as it was under a bonafide belief that since the issues in respect of the adjustments / additions in the captioned appeal were decided by the CIT(A) in favour of the Assessee company, the Assessee company would only be required to defend the same before the Tribunal. Further, any additional arguments that may be deemed appropriate to support of the order passed by the CIT(A), could be taken by the Assessee company during the course of hearing before the Tribunal. It was further submitted that recently the Delhi Tribunal in the case of Colt Technology Services (I) Pvt. Limited vs DCIT (ITA No. 536/Del-2015) held that interest under section 234B and 234C of the Act for non/ short payment of advance tax installment and delay in payment of income tax respectively should not be levied on such additional income declared by the assessee in its modified return of income. It was further submitted that the said decision of the Delhi Bench in the case of Colt Technology Services (I) Pvt. Limited (supra) has been pronounced ion April 13, 2022 and is squarely applicable to the issue involved in Assessee company's case i.e. erroneous levy of interest under section 234B and 234C of the Act on additional income declared in modified return pursuant to APA. The Assessee, now being apprised of the correct legal position that interest under sections 234B and 234C of the Act cannot be levied on the additional income agreed as per the APA, which is also supported by the recent decision of the Hon'ble Delhi Tribunal craves leave to file the subject cross-objections.

It was submitted that as per sub-section (5) of section 253 of the Act, the Tribunal is empowered to condone the delay in filing appeal or cross-objections if there is "sufficient cause" for the delay. Reliance in this regard is placed on the judgement of the Hon'ble Supreme Court in the case of Vedabai alias case keeping in mind that in construing the expression "sufficient cause", the principle of advancing substantial justice is of prime importance. The Court held that the expression "sufficient cause" should receive liberal construction. Reliance is also placed on the judgement of the Hon'ble Supreme Court in the case of Collector, Land Acquisition vs Mst. Katiji 167 ITR 471. The relevant observations of the Court are as under: "The Legislature has conferred the power to condone delay by enacting section 51 of the Limitation Act of 1963 in order to enable the courts to do substantial justice to parties by disposing of matters on de merits ". The expression "sufficient cause" employed by the Legislature is adequately elastic to enable the courts to apply the law in a meaningful manner which subserves the ends of justice that being the life- purpose of the existence of the institution of courts. It is common knowledge that this court has been making a justifiably liberal approach in matters instituted in this court. But the message does not appear to have percolated down to all the other courts in the hierarchy."

The Ld. AR accordingly submitted that in view of the above reasons, that there is "sufficient cause" for the delay in filing the cross-objections and the same deserves to be condoned and the cross-objection be admitted for adjudication on merits.

Per contra the Ld. DR submitted that even where the period of COVID-19 pandemic is excluded, there is still a delay of 58 days beyond the extended limitation period, as admitted by the Ld. AR. It was submitted that in this regard no reasonable cause has been shown by the assessee as to why the delay so happened in filing the Cross Objection should be condoned. It was accordingly submitted that the Revenue likes to object to the condonation petition so filed by the assessee and it was submitted that the same may be dismissed and the Cross Objection should not admitted for adjudication.

We have heard the rival contentions and purused the material available on record. The explanation of the assessee for the delay in filing the cross-objection is that due to covid 19 pandemic, the period of limitation stood extended in view of the decision of the Hon’ble Supreme Court and secondly, the assessee came to know of the decision of the Delhi Bench in the case of Colt Technology Services (I) Pvt. Limited (supra) which was pronounced on 13/04/2022 and once the assessee was apprised of the legal position, it took steps to file the cross objection which was filed on 05/08/2022. There is no dispute that the extended period of limitation i.e, May 29, 2022 as per dicta laid down by the Hon’ble Supreme Court applies in the instant case. Secondly, where a decision has been pronounced by the Tribunal which the assessee understood as laying down a legal proposition as applicable to its facts and took necessary steps and filed the cross objection, we find that the end of justice would be met where the delay of 68 days which is not an inordinate long period is condoned. In the result, the delay in filing the cross- objection is condoned and the same is hereby admitted for necessary adjudication.

Now, coming to the various grounds of appeal taken by the assessee in its cross-objection so filed, it is noted that the assessee has effectively challenged the action of the AO in levying interest amounting to Rs 43,45,973/- and Rs 302,575/- under Section 234B and 234C on the additional income assessed pursuant to APA entered into by the assessee with CBDT dated 6/02/2017. 27. Firstly, from the perusal of the original return filed by the assessee on 29/11/2014, it is noted that the assessee while filing the return of income has disclosed gross total income of Rs 35,83,41,090/- and has computed the tax liability of Rs 12,18,00,137/- and interest liability under section 234B and 234C amounting to Rs. 266,747/-. Thereafter, pursuant to APA in terms of modified return of income which was filed on 29/04/2017, the assessee has disclosed gross total income of Rs. 3,85,73,1530/- which include the additional income of Rs. 2,73,90,440/- and the assessee has computed the interest liability under section 234B and 234C amounting to Rs. 49,15,295/-. We therefore find that the assessee has suo-motu determined the additional interest liability under Section 234B and 234C amounting to Rs. 46,48,548/- and the same was deposited while filing the modified return of income pursuant to APA. Given the said factual position, we therefore find that it is not a case where the AO while completing the assessment has levied the interest under Section 234B and 234C on the additional income so declared by the assessee in terms of the modified return of income. It is in fact the assessee suo- motu act whereby filing its modified return of income, it has computed the additional tax liability under section 234B and 234C of the Act and which has finally been accepted by AO.

Having said that, there is no estoppel against the law and where the assessee under the mistaken belief has computed the interest liability and deposited the same while filing the modified return of income, the assessee can still agitate the same before the appellate authorities. In this regard, it is noted that in its grounds of appeal taken before the Ld. CIT(A), one of the grounds of appeal taken by the assessee infact relates to challenging the action of the AO in levying the interest under Section 234B of the Act however, there has been no ground of appeal which has been taken in respect of levy of interest under Section 234C of the Act.

Moving further, it is noted that the Ld. CIT(A) has dismissed the said ground of appeal against levy of interest u/s 234B on account of fact that the fact that the same is consequential in nature and also the fact that the assessee has not submitted any submission on this ground of appeal during the appellate proceedings.

We therefore find that the assessee has failed to raise any contention and filed any submissions before the ld CIT(A) against levy of interest u/s 234B, and nothing has been brought to our notice during the course of hearing as to why the assessee choose not to agitate the said ground, it is a case where the assessee has chosen to remain silent before the ld CIT(A) leaving it to the judgment of the ld CIT(A) who has held the levy of interest as consequential in nature and resulting in dismissal of the said ground of appeal. Secondly, no ground of appeal has been taken against levy of interest u/s 234C of the Act.

In the aforesaid factual background, the question that arises for consideration is whether the cross-objection so filed by the assessee is maintainable at the very threshold and meets the requirement of law.

In this regard, we refer to the provisions of section 253(4) which reads as under:

As can be noted from reading of the aforesaid provisions, the assessee on receipt of notice that the Revenue has preferred an appeal against the order of the ld CIT(A), notwithstanding the fact that the assessee may not have appealed against such order or any part of such order, the cross-objection can be filed by the assessee against any part of such order of the ld CIT(A).

In the instant case, as we have noted above, the assessee has chosen to remain silent before the ld CIT(A) resulting in dismissal of the ground of appeal against levy of interest u/s 234B of the Act which has been held as consequential in nature. In our understanding, though silence is generally understood as acceptance but for construing a fiscal law, such an inference is unwarranted and unjustified. Silence cannot be construed as positive acceptance and non-filing of submissions cannot also mean an acquiescence so as to treat the conduct the assessee as person not aggrieved by the order of the ld CIT(A). The ld CIT(A) has also nowhere stated that he is passing the order based on any acceptance or agreement by the assessee. It is also not the case of the Revenue either that the order so passed by the ld CIT(A) is based on any acceptance or concession on part of the assessee. In view of the same, we have no hesitation to hold that the assessee is duly eligible to file the cross objection against the order of the ld CIT(A) as far as levy of interest u/s 234B of the Act as the same has been decided against it.

Secondly, as we have noted above, no ground of appeal has been raised by the assessee before the ld CIT(A) against the levy of interest u/s 234C of the Act and therefore, in absence of the ground of appeal, there is no occasion for the ld CIT(A) to adjudicate the same and thus, in absence of any ground of appeal and adjudication by the ld CIT(A), how the order so passed by the ld CIT(A) can be held to be decided against the assessee giving the occasion to file the present cross-objection in respect of levy of interest u/s 234C of the Act. In light of same, we are constrained to dismiss the cross objection and the grounds of appeal so taken in so far as it relates to levy of interest u/s 234C of the Act as not maintainable at the vey threshold in view of not meeting the statutory mandate of Section 253(4) of the Act.

Now, reverting to levy of interest u/s 234B of the Act, during the course of hearing, the Ld. AR submitted that the assessee entered into APA with CBDT on 06/02/2017 in relation to the covered international transaction with AE as stated in the said agreement. It was submitted that the said agreement was entered into in respect of consecutive five years from A.Y. 2015-16 to 2019-20 referred to as APA

It was submitted that the liability to pay interest arises on the ground of failure to pay advance tax and in the instant case, it was submitted that the assessee had no occasion to pre-empt and make the estimate of income for payment of advance tax during F.Y. in respect of additional income pursuant to the advance comprising agreement which has been entered into subsequently after the close of the financial year. It was accordingly submitted that levy of interest under section 234B on the amount of income computed pursuant to APA is against the legislative intent being an act of impossibility to pre-empt enhanced assessed income and therefore interest under section 234B cannot be levied on the amount of declared income offered pursuant to APA and in support, reliance was placed on the decision of Coordinate Delhi Benches in case of Colt Technology Services (I) (P) Ltd. Vs. DCIT [2022] 141 taxmann.com 386 (Delhi). It was accordingly submitted that the cross objection filed by the assessee deserves to be allowed and interest under section 234B levied on the additional income determined pursuant to APA be directed to be deleted.

Per contra, the Ld. CIT/DR relied submitted that the levy of interest u/s 234B of the Act is consequential in nature. It was submitted that it is an automatic levy which comes into play once the income and consequently the advance tax payable, get enhanced. Thus, it is a mandatory levy which is dependent upon the total income and the consequent advance tax payable. Once, the advance tax payable increases, interest payable thereon increases automatically. This position has been upheld in the case of M/s. IBM India Pvt. Ltd. vs. ACIT by the ITAT Bangalore Bench [2020] 83 ITR(T) 24 (Bangalore-Trib.). It was submitted that in the said decision, the Bangalore Bench has considered the various judgments relied upon by the Id. counsel for the assessee in the instant case, and categorically held that the assessee is liable to pay the interest u/s 234B of the Act on incremental income (for a rollback/prior year) pursuant to the Advance Pricing Agreement. It is worthwhile to mention here that the assessee has a branch office based out of Bangalore and the judgment of the ITAT Bangalore Bench is more fit and apt to apply in the assessee's case rather than the judgment rendered in the case of M/s

It was further submitted that the Advance Pricing Agreement is a mechanism which is beneficial to the assessee. In exercising a beneficial provision, if the assessee has to declare more income and consequently pay more taxes thereon in the earlier year, he should be prepared to pay for the additional interest on advance tax, which although prima facie detrimental to the assessee, is a part of the larger 'beneficial package'. Therefore, assessee should not and cannot shy away from paying the consequential interest which would arise on the enhanced advance tax payable.

It was accordingly submitted that the cross objections filed by the assessee may be rejected and the mandatory interest levied u/s 234B on the additional income assessed pursuant to the Advance Pricing Agreement, may kindly be upheld.

The assessee in his rejoinder submitted that regarding the decision of Bangalore Bench in case of IBM India Pvt. Ltd. Vs. ACIT relied on by the Ld. CIT DR, the said decision of the Tribunal has only dealt with one facet of the assessee that liability of interest under section 234B and the fact that the same is mandatory and compensatory, relying on the decision of Hon’ble Supreme Court in case of CIT vs. Anjum MH Ghaswala [2001] 252 ITR 1 and in the said decision, the following contention raised by the assessee have not been considered:

We have heard the rival contentions and purused the material available on record. We have looked at and closely examined the provisions of Section 234B of the Act. Sub-Section (1) of Section 234B provides that where in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of Section 210 is less than 90% of the assessed tax, the assessee shall be liable to pay simple interest @ 1% for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub section (1) of Section 143 and where a regular assessment is made, to the date of such regular assessment on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax.

We therefore find that the statue emphasizes two situations or scenarios wherein the assessee is held liable for payment of interest under section 234B of the Act. The first situation is where the assessee was liable to pay advance tax under section 208 and it has failed to pay such tax and in such a scenario, the assessee has been made liable to pay interest under Section 234B of the Act on an amount equal to the assessed tax. The language of the statue is unambiguous and clear and it talks about the liability to pay advance tax and absolute failure to pay

Further, we find that the emphasis is not just on the liability to pay advance tax under section 208 which in turn require the assessee to estimate his income and determine the quantum of advance tax, the emphasis is equally on the assessed tax which is also evident from the provisions of Sub-Section (3) which talks about the additional tax liability pursuant to re-assessment and re-computation under section 147 and 153A of the Act and the contents thereof reads as under:

Further, useful reference can be drawn to the provisions of Sub-Section (4) which talks about the situation where subsequent to the assessment order, the matter has been carried in appeal before the higher appellate authority and the amount on which the interest was payable i.e, the assessed tax has been increased or reduced and it has been provided that the interest shall be increased or reduced accordingly and the contents thereof read as under:

During the course of hearing, the contentions advanced by the Ld. AR are restricted to the assessee’s liability to estimate its income in respect of the additional income determined pursuant to APA which has been entered into after the close of the financial year and the impossibility of carrying out such estimation of additional income basis subsequent event post closure of the financial year. As we have discussed supra, there are two situations which have been envisaged in section 234B of the Act. The case of the assessee doesn’t fall in the first category and reason for the same is that the assessee has infact paid advance tax of Rs 10,40,00,000/- as evident from the original return of income filed on 29/04/2017 and modified return of income filed on 29/11/2014 and it is therefore not a case of absolute failure to pay advance tax. The case of the assessee thus falls in the second category which talks about the shortfall in payment of advance tax. In this regard, we find that even where the contention of the assessee regarding impossibility of carrying out the estimation of additional income is accepted in view of determination of additional income due to signing of APA post close of the financial year, the additional income so determined in terms of APA, offered in the modified return of income after payment of additional taxes and form part of the assessed income, would still be brought to tax and form part of the assessed tax. There is nothing which has either been provided or can be read in the language of section 234B as excluding the additional tax on the additional income from the assessed tax. In view of the same, on the differential between advance paid and assessed tax, the assessee would still be liable to pay interest under Section 234B of the Act. The only leeway is that such interest shall be calculated subject to provisions of sub-section (2) since the assessee has paid the tax on the additional income before the date of completion of assessment.

The situation in the present case is akin to what has been envisaged in sub- section (3), as discussed supra, which talks about the additional tax liability pursuant to re-assessment and re-computation under section 147 and 153A of the Act. In the instant case, only difference is that there has been negotiated settlement with the tax authorities and pursuant to signing of APA and as per terms of the APA, the assessee has filed the modified return of income and paid the taxes instead of the AO initiating any reassessment proceedings.

In the ultimate analysis, we find that there is still a shortfall between the payment of advance tax and the assessed tax and the assessee is liable for payment of interest u/s 234B of the Act and various contentions raised by the ld AR cannot be accepted. Further, none of the authorities quoted at the Bar support the case of the assessee as the facts and findings therein are limited to examining the first situation as so envisaged in section 234B which as we have discussed above, is not applicable in the instant case and there has been no findings or discussions as regarding the second situation and the concept of assessed tax.

In light of aforesaid discussions and in the entirety of facts and circumstances of the case, the cross objection filed by the assessee as regards levy of interest u/s 234B is hereby dismissed.

In the result, the cross-objection filed by the assessee is dismissed.

In the result, both the appeal of the Revenue and cross-objection by the assessee are dismissed. Order pronounced in the open Court on 07/06/2024. आकाश दीप जैन िव"म िसंह यादव (AAKASH DEEP JAIN) ( VIKRAM SINGH YADAV) उपा"" / VICE PRESIDENT लेखा सद"/ ACCOUNTANT MEMBER AG आदेश की "ितिलिप अ"ेिषत/ Copy of the order forwarded to : 1. अपीलाथ"/ The Appellant

""थ"/ The Respondent 3. आयकर आयु"/ CIT 4. आयकर आयु" (अपील)/ The CIT(A) 5. िवभागीय "ितिनिध, आयकर अपीलीय आिधकरण, च"ीगढ़/ DR, ITAT, CHANDIGARH 6. गाड" फाईल/ Guard File