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

Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the Revenue and Cross Objection by the Assessee against the order of Ld. CIT(A) -1, Chandigarh dt. 26/07/2019 for the impugned assessment year 2014-15. 2. Firstly, we shall taken up the appeal of the Revenue wherein the only effective ground relates to the deletion of addition of Rs. 9,21,58,400/- on account of foreign travelling expenses which has been disallowed by the AO under section 37(1) of the Act.

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. 3.1 In response, the assessee filed its submission which were considered but not found acceptable to the AO. 3.2 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:

i) From the P & L Account submitted by the assessee, it is seen that in Schedule 10 thereof, the assessee has debited an amount of Rs. 10,68,86,458/- towards travelling and conveyance. After, further enquiry during the course of assessment, it was found that out of this expenditure, an amount of Rs.9,21,58,400/- was on account of foreign travel. The disallowance proposed was specific to the foreign travel expense only. ii) The Service Agreement submitted by the assessee makes no mention of foreign travelling expenses. Article 3.1 thereof, emphasized by the assessee as justification for claiming the said expenses makes no mention of foreign travel. The 'costs' as defined by this article of the Agreement simply refer to the normal and ordinary course operating expenses. The assessee during the course of assessment proceedings could not prove that the foreign travel expenses were incurred in the normal and ordinary course of its business. iii) Further, and more importantly the nature of services to be provided by the assessee to its US based counterparts, is not such as would entail international travel. Article 1.6 of the services agreement as submitted by the assessee, clearly mentions that the services performed by 'Fidelity India' shall be transmitted to 'Fidelity USA' through various Communication Links, which in turn are defined at Article 1.2 of the same Agreement. Therefore, the services to be provided by the assessee to its US based counterparts are meant to be transmitted through Electronic and Telecommunication links primarily. Such huge expenditure on foreign travel is therefore not justified. iv) The contention of the assessee that these expenses are included in the service revenue received by the assessee company is not verifiable from the record and the submissions of the assessee on this issue do not in any way show that the foreign traveling expenses have been reimbursed by the respective customers i.e. Second Foundation Inc. USA and Fidelity Information Services Inc. USA. Therefore, it cannot also be said that this amount/receipt has been considered by the TPO and the variation made on account of Transfer Pricing covers this receipt. Since, the basic premise of the assessee that the said expenses are laid out and subsequently reimbursed on the basis of the 'Master Services Agreement' is found to be false, the claim of the assessee of the expenditure on foreign travel also becomes void. v) It needs to be reiterated that foreign travel expense claimed by the assessee have been disallowed for the four years i.e. A.Y. 2006-07 to A.Y. 2009-10 and the said addition has been upheld by the DRP for all these years. The assessee had disputed this addition before the ITAT, where its appeal is pending adjudication. For the A.Y. 2006-07 the ITAT has recently set aside the matter to the file of the DRP, which is pending for adjudication. The submissions of the assessee in the course of assessment proceedings for A.Y. 2010-11, A.Y. 2011-12, A.Y. 2012-13, A.Y. 2013-14 as well as the year under consideration are the same as were made for earlier years. There is no new fact or point of law in the case for the instant year as would lead to a conclusion different from the one arrived at in the preceding years. vi) During the A.Y. 2011-12, the DRP's vide its order dated 23.12.2015 directed to verify whether the foreign travelling expenses have been reimbursed by the customers. On verification as per the directions of DRP for A.Y. 2011-12, it was noticed that the bill of reimbursement pertained to 'Software Development Charges'. The assessee was asked to produce documentary evidence regarding approval granted by the customers i.e. 2nd foundations Inc. USA & Fidelity Information Services, Inc. USA for re-imbursement of foreign travelling expenses. However the assessee expressed his inability to produce the same. Thus, the assessee failed to establish that the foreign travelling expenses were reimbursed by its customers i.e. 2nd foundations Inc. USA & Fidelity Information Services, Inc. USA. Accordingly the foreign travelling expenses were added back during the A.Y. 2011-12. 3.4 It was further held by the AO that the assessee has filed copies of certain documents in support of its contention, which were also filed by the assessee in the earlier AYs. The travel confirmation filed by the assessee has been issued by Second Foundation inc. USA. This document was also submitted by the assessee during the assessment proceeding of A.Y. 2007-08 onwards. Thus, the AO had considered these submissions filed by the assessee and only after that, the Travel expenses were disallowed by the AO in these years as well. For example, in paras 3.3 & 3.4 of the assessment order u/s 144C(13) r.w.s. 143(3), dated 14.12.2010 for AY. 2007-08 , the AO has highlighted that the assessee company was not receiving any servicing income for servicing the clients of M/s Second Foundation, USA. Further, as per the agreement, the expenses incurred were not the responsibility of the assessee Company and were required to be borne by M/s Second Foundation Inc. USA only. Similarly, para 2.4 of assessment order u/s 144C(13) r.w.s. 143(3) dated 31.10.2012 & for A.Y. 2008-09, that the AO has held that the assessee had failed to show how the inclusion of the expenses was done in the cost charged by the assessee company to its client. Further, the AO held that the assessee failed to explain how these expenses related to the normal business of the assessee. Thus, this evidence had also been considered in the case of the assessee in the assessment proceedings of the earlier years while making a disallowance on this issue. It is also pertinent to mention here that the reason for the disallowance is not based on whether the expenses have been incurred by the assessee or not, but on the allowability of the expense as such. 3.5 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 engaged in development of computer software and allied products for M/s SF Inc USA and was not required to do any servicing on behalf of M/s SF Inc. USA. 3.6 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. 3.7 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.

3.8 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 and the said amount was disallowed and added to the returned income of the assessee and the assessed income was determined at Rs 47,78,89,933/-.

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. 6. 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 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. 7. Against the said findings and directions of the Ld. CIT(A), the Revenue is in appeal before us. 8. 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. 8.1 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 appreciating the facts that in respect of the addition which has been made by the AO on account of foreign travelling expenses, there has to be a factual finding relevant for the impugned assessment year as each year is a separate year and whether the Associate Enterprises have reimbursed the foreign travelling expenses to the assessee needs to be verified for the impugned assessment year and merely because the same has been allowed in the earlier year, the same cannot be a basis for allowing for the year under consideration. It was accordingly submitted that the order so passed by the Ld. CIT(A) be set aside and that of the AO be sustained.

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. 9.1 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%.

9.2 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.

9.3 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.

9.4 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.

Therefore, nexus between incurrence of foreign travelling expenditure and service revenue earned thereon is fully established.

9.5 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.

9.6 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: "7. 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.

8 The Ld DR could not rebut the aforesaid facts demonstrated by the Ld. Counsel for the assessee. In view of this, we do not find any justification on the part of the lower authorities in making the impugned disallowance on foreign travel expenses of the employees of the assessee. The addition made by the lower authorities on this issue is ordered to be deleted." (emphasis supplied)

9.7 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: s. Assessment Year Amount (in INR) Agreement(s) Revenue Current status No. involved contentions 1 2006-07 34,80,858 Service Foreign travelling The Hon'ble Tribunal agreement dated expenditure disallowed remanded the issue April 15, 2002 alleging that the back to the DRP, Delhi entered with Respondent is not to pass a speaking Second required to incur foreign order (copy of order is Foundation Inc., travelling expenses. attached at pages 258 USA to 274 of paperbook volume 2). The Respondent has settled the same under VSV Scheme as no tax impact involved. 2 2007-08 1,02,69,448 Service Foreign travelling The Hon'ble Tribunal agreement dated expenditure disallowed remanded the issue April 15, 2002 alleging that the back to the DRP, Delhi entered with Respondent is not to pass a speaking Second required to incur foreign order, proceedings yet Foundation Inc., travelling expenses. to be initiated by the USA DRP (copy of order is attached at pages 275 to 304 of paperbook volume 2). Not opted the subject AY under VSV as Transfer Pricing adjustment involved.

3 2008-09 2,18,67,637 New Service Foreign travelling The Hon'ble Tribunal agreement dated expenditure disallowed remanded the issue May 12, 2007 alleging that the back to the DRP to with Fidelity Respondent is pass a speaking Information not required to incur order after Services Inc., foreign travelling considering all the USA and dated expenses and that the evidences / November 1, Respondent has failed documents (copy 2007 with to establish that of order is attached Second foreign travelling at pages 275 to 304 Foundations expenses were of paperbook Inc., USA. reimbursed by its AE. volume 2).

The Respondent has settled the same under VSV Scheme as no tax impact involved. 4 2009-10 3,44,47.773 New Service Foreign travelling The Hon'ble Tribunal aqreement expenditure remanded the issue dated May 12, disallowed alleging back to the DRP as 2007 with that the Respondent is per the request of the Fidelity not required to incur Assessee's/ Information foreign travelling Respondent's Services Inc., expenses and that the Counsel on the USA and dated Respondent has failed ground that fresh November 1, to establish that agreements were 2007 with foreign travelling involved in this year Second expenses were and the cost-plus Foundations reimbursed by its AE. position has not been Inc., USA. analyzed by the lower authorities. The authorities erred in following the earlier years' orders (copy of order is attached at pages 305 to 310 of paperbook volume 2). The Respondent opted to settled it under VSV Scheme as no tax impact involved. 5. 2010-11 2,41,27,534/- New Service DRP allowed the claim of The appeal is pending agreement dated foreign travelling disposal before the May 12, 2007 with expenditure in favour of Hon’ble Chandigarh Fidelity the Respondent by Bench of Tribunal Next Information directing the AO to allow listed for hearing on Services Inc. USA the claim after verifying July 27, 2021. and dated whether foreign travelling November 1, 2007 expenditure was with Second reimbursed to the Foundations Inc. Respondent by the AEs. USA, The AO grossly erred in facts by holding that the service agreements between the Respondent and its AE’s did not include reimbursement of foreign traveling costs. 6. 2011-12 4,01,21,256/- New Service DRP allowed the claim of The Hon’ble agreement dated foreign travelling Chandigarh Bench of May 12, 2007 with expenditure in favour of the Tribunal vide order Fidelity the Respondent by dated May 30, 2019 Information directing the AO to allow directed to delete Services Inc. USA the claim after verifying disallowance of and dated whether foreign travelling foreign traveling November 1, 2007 expenditure was expenditure as it was with Second reimbursed to the clear that the Foundations Inc. Respondent by the AEs. Respondent is USA. recovering cost plus The AO grossly erred in 15% on all operating facts by holding that the expenditure including service agreements foreign travelling between the expenses (copy of Respondent and its AE’s order is attached at did not include pages 311 to 320 of reimbursement of foreign paperbook volume 2). traveling costs. 7. 2012-13 1. 3,08,19,376 New Service DRP allowed the claim of Same as above agreement dated foreign travelling (copy of order is May 12, 2007 with expenditure in favour of attached at pages 311 Fidelity the Respondent by to 320 of paperbook Information directing the AO to allow volume 2). Services Inc. USA the claim after verifying and dated whether foreign travelling November 1, 2007 expenditure was with Second reimbursed to the Foundations Inc. Respondent by the AEs. USA The AO grossly erred in facts by holding that the service agreements between the Respondent and its AE’s did not include reimbursement of foreign travelling costs. 8. 2013-14 4,83,70,355 New Service Foreign travelling The Hon’ble agreement dated expenditure disallowed Chandigarh Bench of May 12, 2007 with alleging that the the Tribunal vide order Fidelity Respondent has ailed to dated May 31, 2018 Information establish that foreign restored the issue to Services Inc. USA travelling expenses were the file of AO with and dated reimbursed by its AE. direction to examine November 1, 2007 that whether foreign with Second travelling expenses Foundations Inc. were incurred as part USA of service agreement entered into with AE’s and includible in cost on which markup of 15% was to be charged. The remand was because the DRP directed the AO to verify the fact of cost- plus reimbursement and the same was neither done by the AO nor by the DRP (copy of order is attached at pages 321 to 342 of paper book volume 2)

9.9 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%).

9.10 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.

9.11 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 agreements were entered by the Assessee company and its implication were not considered by the lower authorities. The Hon'ble Chandigarh Bench of the Tribunal appreciated the new agreements and the documents placed on record and remanded the matter back to the file of the DRP for passing a speaking order after analyzing the complete details filed and giving opportunity of being heard to the Assessee company.

9.12 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.

9.13 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 .

9.14 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).

9.15 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).

9.17 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.

10.

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.

11.

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.

12.

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:

13.

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/- considering the cost base and mark up of 15% and since the additional mark up of 1.60% (over and above 15%) has been determined pursuant to the unilateral Advance Pricing Agreement entered into with CBDT dated 6/02/2017, the additional revenues of Rs 2,73,90,440/- has been offered as part of the modified return of income filed on 29/04/2017.

14.

The APA entered into by the assessee with CBDT covers the impugned assessment year, being one of the roll back years and covers the international transaction of provision of software development services and reimbursement of expenses as so described therein and TNMM has been determined as per the most appropriate method with the assessee being the tested party and operating profit margin being the PLI and it has been provided that the reimbursement of expenses shall be benchmarked along with the main transaction of provision of software development expenses as part of operating expenses and the arm length price has been determined of not less than 16.60% of the each of the years covered in the APA. The assessee pursuant to entering into the APA has filed the modified return of income on 29/04/2017 and has also submitted the annual compliance report. The Assessing officer has taken cognizance of the modified return of income as evident from the assessment order and thereafter, the matter was referred to the TPO. The TPO as so mandated in the APA has carried out the compliance audit in terms of checking whether the ALP and most appropriate method has been applied by the assessee in the modified return of income and has returned no adverse finding in this regard. The AO has taken cognizance of the order of the TPO u/s 92CA(3) dated 14/09/2017 as evident again from the assessment order wherein he has infact reproduced the TPO order where he has referred to the APA dated 6/02/2017, modified return filed by the assessee u/s 92CD and the annual compliance report and has stated clearly that no adverse inference is drawn in respect of the international transaction undertaken by the assessee during the financial year relevant to impugned assessment year.

15.

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.

16.

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.

17.

In the result, the appeal of the Revenue is dismissed.

18.

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 AO has erred 1. in levying interest amounting to Rs 43,45,973 and Rs. 302,575 under sections 234B and 234C of the Act respectively on the additional income assessed pursuant to the Advance Pricing Agreement ("APA").

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 pursuant to the APA is erroneous, being levied de hors the express provisions of law, and accordingly, should be directed to be deleted.

3. 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.

19.

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.

20.

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. 21. 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.

22.

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 Vaijayanatabai Baburao Patil vs Shantaram Baburao Patil 253 ITR 798, wherein it has been held that the Court has to exercise the discretion on the facts of each 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."

23.

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.

24.

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.

25.

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. 26. 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.

28.

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.

29.

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.

30.

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.

31. 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.

32.

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

Section 253 (4): The assessing Officer or the assessee, as the case may be, on receipt of notice that an appeal against an order, has been preferred under sub- section (1) or sub-section (2) by the other party, may, notwithstanding that he may not have appealed against such order or any part thereof, within thirty days of the receipt of the notice, file a memorandum of cross-objections, verified in the prescribed manner, against any part of such order, and such memorandum shall be disposed of by the Appellate Tribunal as if it were an appeal presented within the time specified in sub-section(3).

33.

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).

34.

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.

35.

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.

36. 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 years and consecutive four years from A.Y 2011-12 to 2014-15 referred to as rollback years which include the impugned assessment years 2014-15. It was submitted that pursuant to entering into APA, the assessee filed modified return of income under section 92CD(1) wherein the additional revenue to the tune of Rs. 2,73,90,440/- was offered to tax. It was submitted that it is in respect of its additional income offered pursuant to APA, additional interest amounting to Rs. 43,45,973/- under section 234B was levied by the AO.

37. 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.

38. 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 Colt Technology Services (I) (P.) Ltd. vs. DCIT (supra) rendered by the ITAT Delhi Bench, which has been relied upon by the Id. counsel for the assessee.

39. 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.

40. 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.

41.

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:

(i) there was no default on the part of the Assessee for payment of taxes pursuant to the modified return filed under section 92CD(3) of the Act as per the provisions of sections 207 to 209 of the Act basis which the Assessee is liable to pay interest on the income which was chargeable to tax. In other words if there was no default on the part of the Assessee in filing the modified return of Income-tax as well as payment of taxes within the window period of three months provided under section 92CD(3) of the Act, the interest liability cannot be saddled. In other words, if the Government is not deprived of any revenue / taxes for any default on the part of the Assessee, there cannot be any recovery of interest as has been provided in the provisions for payment of advance taxes. The said legal position has not been analysed by the Bangalore Bench in the case of IBM India (supra); and (ii) the Bangalore Bench has next relied on the decision of the Bombay Hiqh Court in the case of E Merk India, in that case, the Bombay High Court was dealing with the situation wherein the liability to pay advance taxes had not just arisen because of the retrospective amendment tosection 80J of the Act but on the facts, the Bombay High Court also came to the conclusion that dehors the amendment, the Assessee in that case was liable to pay interest for default in the payment of advance taxes. It was further noted by the Hon'ble Bombay High Court that it was not the assessee's case that there is any subsequent change in facts which could not be anticipated at the time of determining the advance tax (refer para 5(f) of the decision) as against the farts of the instant case where it was impossible for the Assessee to contemplate the modified assessable income and to pay advance tax on that basis, until the finalization of the APA.

42.

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.

43.

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 advance tax on part of the assessee. There is no scope for reading further in the said language in terms of partial liability towards advance tax or any component of income to be excluded while working out and estimating the income and for that matter, partial payment towards such advance tax. The second scenario is where there is liability towards advance tax, however there is partial payment of advance tax and the advance tax so paid is less than 90% of the assessed tax and in such a situation, it has been provided that on the amount by which the advance tax so paid fall short of the assessed tax, the assessee shall be liable to pay interest under section 234B of the Act. It therefore needs to be examined as to which of the two scenarios, the facts of the present case falls.

44.

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:

(3) Where as a result of an order of reassessment or recomputation under section 147 or section 153A the amount on which interest was payable in respect of shortfall in payment of advance tax for any financial year under sub-section (1) is increased, the assessee shall be liable to pay simple interest at the rate of one percent for every month or part of a month comprises in the period commencing on the 1st day of April next following such financial year and ending on the date of the reassessment or recomputation under section 147 or section 153A, on the amount by which the tax on the total income determined on the basis of the reassessment or recomputation exceeds the tax on the total income determined under sub-section (1) of section 143 or on the basis of the regular assessment as referred to in sub-section(1), as the case may be.

45.

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:

(4) Where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, the amount on which interest was payable under sub-section (1) or sub-section (3) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and- - In a case where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly; - in a case where the interest is reduced, the excess interest paid, if any, shall be refunded.

46.

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.

47.

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.

48.

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.

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