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Income Tax Appellate Tribunal, DELHI BENCH “I”: NEW DELHI
Before: SHRI M. BALAGANESH & SHRI YOGESH KUMAR US
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in & 2337/Del/2022 and the Cross Objection in CO No. 1430/Del/2022 for AYs 2017-18 & 2018-19, arises out of the order of the ld Commissioner of Income Tax (Appeals)-Delhi, [hereinafter referred to as „ld. CIT(A)‟, in short] dated 08.05.2022 for AY 2018-19 and National Faceless Appeal Centre (NFAC), Delhi dated 29.03.2022 for AY 2017-18 against the order of assessment
ITA Nos. 1248 & 2337/Del/2022 (A) (R) Teradata India Pvt. Ltd passed u/s 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟).
2. The assessee has raised the following grounds of appeal for AY 2017- 18:-
“1. That on facts and in law, the order passed by the Assistant Commissioner of Income Tax Transfer Pricing Officer - 1(3)(2). New Delhi (the Learned TPO"), the draft assessment order and the final assessment order passed by the National Faceless Assessment Centre, Delhi ("Learned AO") pursuant to the directions of Dispute Resolution Panel 1, New Delhi ("Hon'ble DRP"), are bad in law and contrary to provisions in law 2. The learned AO following the order of the learned TPO and the Hon'ble DRP has erred in law and on the facts of the case in making an upward adjustment of INR 4,02.41,692 and INR 27,03,104 on account of interest on delayed receivables and disallowance of deduction u/s 80G respectively. Part 1-Transfer Pricing Grounds 3. That on facts of the case and in law, the Hon'ble DRP/ Learned TPO/ Learned AO have erred in rejecting the economic analysis undertaken by the Appellant by conducting a fresh economic analysis for the impugned transactions.
That on facts and in law, the Hon'ble DRP/Learned TPO/ Learned AO have grossly erred by charging interest on credit period granted by the company under normal trade practices: 4.1. by Identifying outstanding receivables as a separate international transaction; 4.2. by re-characterizing the nature of outstanding receivables as loan advanced to Associated Entities ("AES"); 4.3. by determining the Comparable Uncontrolled Price ("CUP") method as the most appropriate method without providing any comparable uncontrolled transaction(s) thereby compromising the most fundamental rules and provisions laid down in the Act and the Rules to determine the arm's length price of the international transaction; 4.4. by applying an interest rate on outstanding receivables at LIBOR plus 400 basis points; 4.5. by disregarding the order passed by the Hon'ble ITAT in Appellant's own case for AY 2012-13, AY 2013-14, AY 2014-15 and AY 2015-16;
ITA Nos. 1248 & 2337/Del/2022 (A) (R) Teradata India Pvt. Ltd
4.6. by disregarding the fact that the Hon'ble ITAT had placed reliance on the order passed in case of Kusum Health Care Private Limited (ITA No. 765/2016) by the Hon'ble High Court of Delhi 5. That once working capital adjustment is granted no separate adjustment on account of outstanding receivables is maintainable. Part III-Corporate Tax Grounds 6. Denial of deduction under Section 80G 6.1. That on the facts and circumstances of the case and in law, the Learned AO has erred in disallowing the deduction of INR 27,03,104/- claimed under section 80G of the Act towards donation to various eligible institutions by incorrectly holding that that any expenses incurred by the Appellant towards Corporate Social Responsibility (CSR) cannot be allowed as deduction under section 80G of the Act. 6.2. That on the facts and circumstances of the case and in law, the Learned AO has erred in denying deduction under section 80G of the Act without appreciating that the Appellant had suo-moto disallowed the corresponding CSR expense while computing income: chargeable to tax under 'Profits and gains of business or profession' for the year under consideration. 6.3. That on the facts and circumstances of the case and in law, the Learned AO has erred in denying deduction under section 80G of the Act pertaining to eligible payments without appreciating that section 37 of the Act does not provides any restriction towards deduction under Chapter VI-A of the Act, which is otherwise eligible. 6.4. That on the facts and circumstances of the case and in law, the Learned AO has erred in not appreciating the intent of the legislature that the disallowance of deduction under Section 80G of the Act by way of CSR contribution was limited to clauses (iiihk) and (iiihl) of section 80G(2) of the Act (i.e. Clean Ganga Fund and Swacch Bharath Kosh) and not to be extended to other donations to various trusts and institutions which are otherwise eligible under section 80G of the Act. 6.5. That on the facts and circumstances of the case and in law, the Learned AO has erred in stating that the amount grouped under CSR contributions has not been paid by the Appellant on a voluntary basis and the same is not eligible to be claimed as deduction under section 80G of the Act. 6.6. That on the facts and circumstances of the case and in law, the Learned AO has erred in disregarding the various judicial precedents relied upon by the Appellant which hold that donations satisfying the condition of section 80G of the Act shall be allowable as deduction even if the same are made pursuant to contribution by way of CSR. Part II-Consequential grounds of appeal Page | 3
ITA Nos. 1248 & 2337/Del/2022 (A) (R) Teradata India Pvt. Ltd
That on the facts and circumstances of the case and in law, the Learned AO has grossly erred in computing the amount of refund and the corresponding interest under section 244A of the Act.
8. The Learned AO has erred on the facts and circumstances of the case and in law in proposing to initiate the penalty proceedings under section 270A of the Act against the Appellant. The above grounds of appeal
are mutually exclusive & without prejudice to each other.”
3. Ground Nos. 1 and 2 of the assessee are general nature and does not require any specific adjudication.
4. Ground Nos. 3 to 5 raised by the assessee challenging the transfer pricing adjustment made by the ld AO/ TPO with regard to imputing interest on outstanding receivables from AEs.
We have heard the rival submissions and perused the materials available on record. The assessee company was incorporated in 2007 as part of separation from NCR which was finalized in September 2007. The assessee further has presence in India since 2003 when the Teradata “solutions” in India was sold through NCR’s Teradata Division. The assessee is the local sales and distribution centre in India of Teradata “solutions”. It is wholly owned subsidiary of Teradata International. Teradata International, Inc is a wholly owned US subsidiary of Teradata. In addition to the distribution activity, the assessee also has two additional roles:
1) Serving as a contract R & D facility for Teradata US, which is the global owner of all Teradata intellectual property
2) Hosting a global consulting center ("GCC") wherein professional support services are provided to other non-Indian Teradata affiliates.
ITA Nos. 1248 & 2337/Del/2022 (A) (R) Teradata India Pvt. Ltd 5.1 The original and primary role of assessee is to act as the complete solution provider of Teradata "solutions" in the Indian territorial market. Teradata "solutions" is a mix of computer hardware, software and services which is sold and distributed by assessee within India are developed by the Teradata Group outside of India. The asssessee purchases all Teradata "solutions" from Teradata Ireland and the sales arrangement is covered by a "Distribution Agreement". The Distribution Agreement governs all aspects of assessee's acquisitions of hardware and software products from Teradata Ireland for purposes of its solution sales activities. The assessee has GCCs offices at 2 locations i.e., Mumbai and Pune.
The list of international transactions carried out by the assessee during the year with Associated Enterprises (AEs) together with the Most Appropriate Method (MAM) used by the assessee for benchmarking the same are as under:-
S. Transaction Type Transaction Method used for No. Value (non us determining the segment) price 1. Purchase of hardware and software 155033679 TNMM for local distribution 2. Provision of GCC support Services 2489690928 TNMM 3. Provision of software support 954659566 TNMM Services 4 Availing of professional services 12785131 TNMM 5. Subvention income 107394187 TNMM 6. Reimbursement of Expenses by AEs 23601270 Other method 7 Reimbursement of Expenses to AEs 187142084 TNMM 7. During the course of assessment proceedings before the ld TPO, the details of outstanding receivables from AEs by the assessee and details of outstanding payables to AEs were called for. From the perusal of the details filed by the assessee on outstanding receivables, the ld TPO concluded that the assessee had recovered its dues from its AEs beyond the agreed credit period. The agreed credit period was considered as 60 days from the date of receipt of goods by the ld. TPO as there was no agreement to this effect between the assessee and its AEs. The ld TPO concluded that the assessee did not consider the imputation of interest on Page | 5
ITA Nos. 1248 & 2337/Del/2022 (A) (R) Teradata India Pvt. Ltd outstanding receivables as a separate international transaction in the Transfer Pricing Study Report (TPSR). The ld TPO concluded that the provisions of section 92CA(2B) of the Act which is with retrospective effect from 01.06.2002 sought to consider the imputation of interest on outstanding receivables from AE also as a separate international transaction even though the same was not considered by the assessee in the TPSR. The ld TPO also considered the amendment brought in the Explanation to section 92B of the Act by the Finance Act, 2012 with retrospective effect from 01.04.2022, wherein, deferred payment or receivables or any other debt arising during course of business from AE shall constitute an international transaction. Accordingly, we hold that ld AO/ TPO was duly justified in considering the imputation of interest on outstanding receivables as a separate international transaction within the meaning of Explanation (C) to section 92B of the Act. Hence, the argument advanced by the ld AR that it is not an international transaction at all is hereby dismissed.
The ld TPO observed that the assessee had allowed its AE to pay the outstanding receivables to the assessee beyond the agreed credit period. The ld AO/ TPO sought invoice wise details of outstanding receivables from the AEs which was not provided by the assessee. Accordingly, the ld TPO took the total outstanding receivables as on 01.04.2016 and closing outstanding receivables as on 31.03.2017 and arrived at the average thereon. The ld TPO also took the outstanding payables (average balance thereon) of opening and closing and arrived at the net average receivables of Rs. 93,00,51,969/-. The ld DRP directed the ld TPO to apply LIBOR+400 basis points (bps) for imputing interest. Accordingly, the ld AO/ TPO arrived at the imputation of interest on net outstanding receivables of Rs. 4,02,41,692/- for AY 2017-18 and Rs. 4,88,40,680/- for AY 2018-19. It is pertinent to note that the ld DRP in para 2.4.8 of its directions had categorically stated that the factual matrix for AY 2017-18 remains the same with that of fact prevailing for AY 2014-15 and 2015-16. Similar Page | 6
ITA Nos. 1248 & 2337/Del/2022 (A) (R) Teradata India Pvt. Ltd observation was also made by the ld DRP in page 109 in para 2 of its order. It is pertinent to note that working capital adjustment has been granted by the ld TPO on the outstanding receivables and outstanding payables while benchmarking the SWD and GCC segments of the assessee for both the years. No adverse inference was drawn by the ld TPO with regard to working capital adjustment margins used by the assessee for benchmarking international transaction for distribution segments for both the years. The assessee had not granted any credit period to its AEs with regard to date of realization of invoices as per the agreement. The ld TPO had granted 60 days credit period to be a reasonable period. We find that the ld DRP while deciding this issue of imputation of interest on outstanding receivables for AY 2017-18, had relied on the directions given by it for AY 2016-17 which is evident from page 111 of its directions. The ld DRP in page 115 of its directions at para 3.7.2 had stated that the factual matrix of AY 2016-17 remains the same for AY 2017-18 also. We find that this Tribunal in assessee’s own case for AY 2016-17 in dated 06.05.2022 by placing reliance on the Tribunal decision for AY 2015-16 in ITA No. 7890/Del/2019 dated 21.11.2019 had deleted the transfer pricing adjustment made on account of receivables. This decision was also rendered by following the decision of Hon’ble Jurisdictional High Court in the case of Kusum Healthcare reported in 398 ITR 66 and many other Tribunal decisions.
The ld DR vehemently argued by placing reliance at page 495 of the appeal set for AY 2018-19 stating that the invoice wise details of outstanding receivables were called for by the ld TPO from the assessee and which was never provided by the assessee. In these circumstances, he argued that the ld TPO was justified in taking the opening balance and closing balance of receivables for arriving at the average receivables. The ld DR argued that the earlier year’s tribunal decision in assessee’s own case where this addition was deleted should not be followed as it had not properly considered the issue in dispute and the decision of the Hon’ble Page | 7
ITA Nos. 1248 & 2337/Del/2022 (A) (R) Teradata India Pvt. Ltd Jurisdictional High Court in the case of Kusum Healthcare (supra). He argued that an error which had occurred in the earlier order of the Tribunal need not be perpetuated. In this regard, he placed reliance on the decision of Hon'ble Supreme Court in the case of Distributors (Baroda) Pvt Ltd Vs. Union of India reported in 155 ITR 120, wherein, it was held that “To perpetuated an error is no heroism. To rectify the same is the compulsion of judicial conscience”. Accordingly, he argued that the issue in dispute should be viewed independently for the years under consideration dehors the decision taken consistently by this Tribunal in favour of the assessee.
At the outset, we find that the assessee had not submitted the invoice-wise details of outstanding receivables from its AEs before the ld TPO. We have gone though the decision of the Hon'ble Delhi High Court in the case of Kusum Healthcare reported in 398 ITR 66 (supra). The relevant observations are reproduced herein below:-
“10. The Court is unable to agree with the above submissions. The inclusion in the Explanation to Section 92B of the Act of the expression 'receivables' does not mean that de hors the context every item of receivables' appearing in the accounts of an entity, which may have dealings with foreign AES would automatically be characterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the Assessee will have to be studied. In other words, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-à-vis the receivables for the supplies made to an AE, the arrangement reflects an international transaction intended to benefit the AE in some way.
11. The Court finds that the entire focus of the AO was on just one AY and the figure of receivables in relation to that AY can hardly reflect a pattern that would justify a TPO concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. With the Assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-à-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and re-characterised the transaction. This was clearly impermissible in law as explained by this Court in CIT v. EKL Appliances Ltd. (2012) 345 ITR 241 (Delhi).”
ITA Nos. 1248 & 2337/Del/2022 (A) (R) Teradata India Pvt. Ltd
From the perusal of the aforesaid decision, we find that Hon’ble High Court noted that there has to be a proper inquiry by the ld TPO by analyzing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an AE, the arrangement reflects an international transaction intended to benefit the AE in some way. On perusal of the orders of the Tribunal in assessee’s own case for earlier years, this aspect of the decision of the Hon'ble Delhi High Court had not been addressed in those years. Further whether the ld TPO had examined the pattern of receivables from the AE by the assessee is also not discernable. Hence, we are in agreement with the ld DR in principle on this issue.
But we find that the ld AR had also made an alternative argument that assessee had already recovered alleged short fall on account of delayed receivables by way of excess service income received from its AE thereby obviating requirement for any further adjustment on account of notional interest on delayed receivables. The ld AR also furnished a tabulation to this effect before us:-
Particulars Distribution SWD Segment GCC Segment segment (OP/OC) (OP/OC) (OP/OR) AY 2017-18 TP margin as per TPO (SWD & GCC Segment)/ TP -0.44% 11.41% 10.22% Study (Distribution Segment) (35th percentile*) —(A) Taxpayer PLI —(B) 3.80% 13.33% 13.51% Difference (C=A-B) 4.24% 1.92% 3.29% Operating cost as per TP order (SWD & GCC Segment)/ 73,15,48,116 84,29,69,289 2,19,76,78,533 Operating Revenue as per TP Study (Distribution Segment) --------------------------------- (D) Excess amount received by Appellant from its AEs E- 3,10,17,640 1,61,85,010 7,23,03,624 (C*D) Total excess margin earned from AEs 11,95,06,274 Adjustment made on account of outstanding 4,02,41,692 receivables AY 2018-19 TP margin as per TPO (SWD & GCC Segment)/ TP 0.38% 10 91% 9.86% Study (Distribution Segment) (35th percentile*) --(A) Taxpayer PLI —(B) 3.59% 14.47% 14.27% Difference (C=A-B) 3.21% 3.56% 4.41% Operating cost as per TP order (SWD & GCC Segment)/ 65,77,20,573 1,12,41,08,640 2,49,83,27,233
ITA Nos. 1248 & 2337/Del/2022 (A) (R) Teradata India Pvt. Ltd
Operating Revenue as per TP Study (Distribution Segment) --------------------------------- (D) Excess amount received by Appellant from its AEs E- 2,11,12,830 4,00,18,268 11,01,76,231 (C*D) Total excess margin earned AEs 17,13,07,329 adjustment made on account of outstanding 4,88,40,680 receivables 13. The aforesaid working, in our considered opinion, requires factual verification of the ld AO/ TPO. Hence, we deem it fit to restore the entire issue in dispute to the file of the ld AO/ TPO to consider the applicability of the decision of Hon'ble Delhi High Court rendered in Kusum Healthcare (supra) in its true spirit vis a vis the pattern followed by the assessee and also alternative argument made by the ld AR with regard to the aforesaid workings and decide the entire issue in accordance with law. The ld AR also made an alternative argument with regard to the adoption of LIBOR +200 basis points as against 400 basis points by placing reliance on certain decisions. The ld AO/ TPO is also directed to examine this alternative argument of the ld AR while deciding this issue. Accordingly, ground Nos. 3 to 5 raised by the assessee are allowed for statistical purposes.
Ground No. 6 raised by the assessee is challenging the confirming the disallowance of deduction of Rs. 27,03,104/- u/s 80G of the Act in respect of donations made to various eligible institutions by the assessee.
We have heard the rival submissions and perused the materials available on record. The assessee claimed an amount of Rs. 54,06,208/- towards Corporate Social Responsibility (CSR) expenses in the profit and loss account for the year under consideration. This sum was added back to the total income in the computation of income by the assessee. The assessee thereafter claimed deduction u/s 80G of the Act to the extent of 50% of the value of donation. The details of donations made to various trusts are tabulated in page 7 of the assessment order. In the said tabulation, the assessee clearly demarcated those donations that are eligible for 100% relief and those donations that are eligible for 50% relief
ITA Nos. 1248 & 2337/Del/2022 (A) (R) Teradata India Pvt. Ltd in accordance with the provisions of section 80G of the Act. The ld AO sought to disallow the said claim of deduction on the ground that corporate social responsibility expenses has been incurred as per mandate of Companies Rules, 2014, Schedule vii read with section 135 of the Companies Act, 2013. Accordingly, any contribution that is made pursuant to the legal mandate under the CSR cannot be claimed as donation eligible deduction u/s 80G of the Act. Further, the ld AO observed that donation payment involved voluntary act and when that is being made out of any legal obligations, the same cannot be categorized as eligible donation u/s 80G of the Act. In other words, the revenue addressed the issue from the angle that these CSR payments were actually thrusted by law on the assessee and the same cannot be treated as voluntary action by the assessee. With these observations, the ld AO granted relief to the extent of Rs. 33,921/- in respect of contribution made to the Prime Minister Relief Fund and rejected the remaining claim of donation made u/s 80G of the Act of Rs. 27,03,104/-.
It is not in dispute that contributions made by the assessee are made to eligible institutions which are enjoying exemption u/s 80G of the Act. The fact that those contributions were made only to eligible institutions are not in dispute before us. We find that all the institutions listed in the tabulation are enjoying exemption u/s 80G of the Act and accordingly, assessee would be entitled for deduction u/s 80G of the Act thereon, irrespective of the fact that it is made as part of CSR obligations. The assessee in the instant case had duly complied the provisions of Companies Act, 2013 read with CSR rules thereon and as per the provisions of the Income Tax Act had also voluntarily disallowed the CSR expenditure while computing the taxable income. Since, the donee institutions are eligible institutions enjoying exemption u/s 80G of the Act, the assessee has claimed deduction u/s 80G of the Act which is also provided in the statute itself to the assessee. Hence, denial of deduction u/s 80G of the Act to the assessee would result in gross injustice. We Page | 11
ITA Nos. 1248 & 2337/Del/2022 (A) (R) Teradata India Pvt. Ltd direct the ld AO to grant deduction u/s 80G of the Act to the assessee. Accordingly, the ground No. 6 to 6.6 raised by the assessee are allowed.
Ground No. 7 raised by the assessee is challenging the error in computing the interest on refund u/s 244A of the Act. This matter requires factual verification by the ld AO and we direct the ld AO to reconsider the claim of interest u/s 244A of the Act and decided the same in accordance with law. Accordingly, ground No. 7 is allowed for statistical purposes.
Ground No. 8 raised by the assessee is challenging the initiation of penalty proceedings u/s 270A of the Act which is premature for adjudication at this stage. Hence dismissed.
In the result, the appeal of the assessee for AY 2017-18 is allowed for statistical purposes.
ITA No. 2377/Del/2022 (AY 2018-19)
The assessee has raised the following grounds of appeal for AY 2018- 19:-
“1. That on facts and in law, the order passed by the Assistant Commissioner of Income Tax Transfer Pricing Officer - 1(3)(2). New Delhi ("the Learned TPO"), the draft assessment order and the final assessment order passed by the National Faceless Assessment Centre, Delhi ("Leamed AO") pursuant to the directions of Dispute Resolution Panel 1, New Delhi ("Hon'ble DRP"), are bad in law and contrary to provisions in law.
The learned AO following the order of the learned TPO and the Hon'ble DRP has erred in law and on the facts of the case in making an upward adjustment of INR 4,88,40,680, and INR 21,47,646 on account of interest on delayed receivables, and disallowance of deduction u/s 80G respectively. Part 1-Transfer Pricing Grounds 3. That on facts of the case and in law, the Hon'ble DRP/ Learned TPO/ Learned AO have erred in rejecting the economic analysis undertaken by the Appellant by conducting a fresh economic analysis for the impugned transaction.
ITA Nos. 1248 & 2337/Del/2022 (A) (R) Teradata India Pvt. Ltd
4. That on facts and in law, the Hon'ble DRP/Learned TPO/Learned AO have grossly erred by charging interest on credit period granted by the company under normal trade practices: 4.1. by Identifying outstanding receivables as a separate international transaction; 4.2. by re-characterizing the nature of outstanding receivables as loan advanced to Associated Entities ("AES"); 4.3. by determining the Comparable Uncontrolled Price ("CUP") method as the most appropriate method without providing any comparable uncontrolled transaction(s) thereby compromising the most fundamental rules and provisions laid down in the Act and the Rules to determine the arm's length price of the international transaction; 4.4. by applying an interest rate on outstanding receivables at LIBOR plus 400 basis points; 4.5. by disregarding the order passed by the Hon'ble ITAT in Appellant's own case for AY 2012-13, AY 2013-14, AY 2014-15, AY 2015-16 and AY 2016-17: 4.6. by disregarding the fact that the Hon'ble ITAT had placed reliance on the order passed in case of Kusum Health Care Private Limited (ITA No. 765/2016) by the Hon'ble High Court of Delhi 5. That once working capital adjustment is granted no separate adjustment on account of outstanding receivables is maintainable. Part II-Corporate Tax Grounds 6. Denial of deduction under Section 80G. 6.1. That on the facts and circumstances of the case and in law, the Learned AO has erred in disallowing the deduction of INR 21,47.646/- claimed under section 80G of the Act towards donation to various eligible institutions by incorrectly holding that that any expenses incurred by the Appellant towards Corporate Social Responsibility (CSR) cannot be allowed as deduction under section 80G of the Act. 6.2. That on the facts and circumstances of the case and in law, the Learned AO has erred in denying deduction under section 80G of the Act without appreciating that the Appellant had suo-moto disallowed the corresponding CSR expense while computing income chargeable to tax under Profits and gains of business or profession' for the year under consideration. 6.3. That on the facts and circumstances of the case and in law, the Learned AO has erred in denying deduction under section 80G of the ITA Nos. 1248 & 2337/Del/2022 (A) (R) Teradata India Pvt. Ltd
Act pertaining to eligible payments without appreciating that section 37 of the Act does not provides any restriction towards deduction under Chapter VI-A of the Act, which is otherwise eligible. 6.4. That on the facts and circumstances of the case and in law, the Learned AO has erred in not appreciating the intent of the legislature that the disallowance of deduction under Section 80G of the Act by way of CSR contribution was limited to clauses (iiihk) and (iiihl) of section 80G(2) of the Act (i.e. Clean Ganga Fund and Swacch Bharath Kosh) and not to be extended to other donations to various trusts and institutions which are otherwise eligible under section 80G of the Act. 6.5. That on the facts and circumstances of the case and in law, the Learned AO has erred in stating that the amount grouped under CSR contributions has not been paid by the Appellant on a voluntary basis and the same is not eligible to be claimed as deduction under section 80G of the Act. 6.6. That on the facts and circumstances of the case and in law, the Learned AO has erred in disregarding the various judicial precedents relied upon by the Appellant which hold that donations satisfying the condition of section 80G of the Act shall be allowable as deduction even if the same are made pursuant to contribution by way of CSR. Part III-Consequential grounds of appeal
7. The learned AO has erred in taking the income as per intimation u/s 143(1) of the Act instead of returned income without considering the order of Commissioner of Income Tax (Appeals).
8. That on the facts and circumstances of the case and in law, the Learned AO has grossly erred in computing the amount of demand and the consequential interest under sections 234B and 234C of the Act.
9. The Learned AO has erred on the facts and circumstances of the case and in law in proposing to initiate the penalty proceedings under section 274 read with 270A of the Act against the Appellant.
10. That on the facts and circumstances of the case and in law, the Learned AO has erred in granting short credit of TDS as per Form 26AS amounting to Rs. 27,051.”
21. Ground Nos. 1 to 6.6 raised by the assessee for AY 2018-19 are identical with grounds raised thereon in AY 2017-18. Hence, the decision rendered by us herein above in AY 2017-18 in the said grounds shall apply mutatis mutandis to AY 2018-19 also in view of the identical facts except with variance in figures.
ITA Nos. 1248 & 2337/Del/2022 (A) (R) Teradata India Pvt. Ltd
Ground No. 7 raised by the assessee is challenging the starting point of computation of income by the ld AO. We have gone through the said ground and we are in agreement with the same. The ld AO is accordingly directed to start the computation of total income with the return of income and not from intimation u/s 143(1) of the Act. Accordingly, ground No. 7 raised by the assessee is hereby allowed.
Ground No. 8 raised by the assessee is challenging the chargeability of interest u/s 234B of the Act which is consequential in nature. We make it clear that interest u/s 234 C of the Act should be charged only on the returned income not on the assessed income.
The ground No. 9 raised by the assessee is challenging the initiation of penalty proceedings u/s 270A of the Act, which is premature for adjudication at this stage and hence dismissed.
Ground No. 10 raised by the assessee is seeking proper credit of TDS amount. This aspect requires verification by the ld AO and accordingly, the said ground is restored to the file of the ld AO to decide the same in accordance with law.
In the result, the appeal of the assessee for AY 2018-19 in is allowed for statistical purposes.
1430/Del/2022 (Revenue’s appeal)
The only issue to be decided in this appeal of the revenue is as to whether the ld CIT(A) was justified in deleting the addition made on account of disallowance of employees contribution to PF and Labour Welfare fund (LWF).
We have heard the rival submissions and perused the materials available on record. It is not in dispute that the employees’ contribution to provident fund and LWF were deposited by the assessee to the ITA Nos. 1248 & 2337/Del/2022 (A) (R) Teradata India Pvt. Ltd Government account beyond the due dates prescribed under the respective acts but well before the date of filing the return of income. We find that the recent decision of the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd Vs. CIT reported 448 ITR 518 had settled the entire dispute to rest by deciding it in favour of the revenue by observing as under:-
“53. The distinction between an employer‟s contribution which is its primary liability under law – in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers‟ income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts – the employer‟s liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees‟ income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B.
In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer‟s obligation to deposit the amounts retained by it or deducted by it from the employee‟s income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees‟ contributions- which are deducted from their income. They are not part of the assessee employer‟s income, nor are they heads of deduction per se in the form of statutory pay out. They are others‟ income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee‟s contribution on or before the due date as a condition for deduction.
In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, Page | 16
ITA Nos. 1248 & 2337/Del/2022 (A) (R) Teradata India Pvt. Ltd this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed.” 29. In view of the same, grounds raised by the revenue are allowed.
To sum up, appeals of the assessee are allowed for statistical purposes for AYs 2017-18 and 2018-19 and appeal of the revenue is allowed for AY 2018-19.