2017-TII-INSTANT-ALL-445
03 April 2017   
CASE LAWS

2017-TII-60-ITAT-HYD-INTL

PACC CONTAINER LINE PTE LTD Vs ITO: HYDERABAD ITAT (Dated: March 31, 2017)

Income Tax - Sections 154, 163, 172(3), 172(4), 250, 264 - India-Singapore DTAA - Article 24 & rule 46A

Keywords: tax residency certificate - shipping income - POEM - foreign owner -guarantee bond - freight beneficiary & local agent

The assessee is a Non- Resident Shipping Company and a resident of Singapore. Two of its vessels "MV PAC SCHEDER" and "MV PAC ATHENA" had departed Krishnapatnam Port on 2.6.2013 and 13.9.2013 respectively to Huston, USA carrying freight. A local agent filed for an NOC claiming that the freight beneficiary was the resident of Singapore and in view of the DTAA existing between India and Singapore, the entire freight earned by the freight beneficiary was exempt from tax in India. At the time of obtaining NOC, the local agent furnished a copy of TRC in respect of the freight beneficiary to prove that it was a resident of Singapore. The local agent had also filed a certificate from the freight beneficiary to enable it to act as a local agent on their behalf along with the guarantee bond executed by local agent. After verification of information filed, AO passed an order u/s 163 treating such local agent as representative assessee of non-resident foreign shipping company. Accordingly NOC was issued to the local agent and it was asked to file the return u/s 172(3) in respect of freight tax payable by non-resident freight beneficiary within 30 days from the date of departure of the vessel from the port. The local agent of assessee filed the returns for both the vessels u/s 172(3). AO directed the local agent to file breakup of expenditure, net freight paid to freight beneficiary and copy of bank a/c showing transfer of funds to FB A/c in Singapore. In response thereto, the local agent of assessee filed the copy of the A/c in OCBC Bank, where the name of the beneficiary account holder was not reflecting. AO therefore, observed that in absence of primary information, the genuineness of transaction cannot be accepted. AO observed that since the local agent had failed to demonstrate that the income sourced in India had been remitted or received in Singapore and offered the same to tax at Singapore, it had held that the income of the non-resident freight beneficiary was taxable in India. AO accordingly computed the tax u/s 172(4). On appeal, CIT(A) dismissed assessee's appeal.

Having heard the matter, the Tribunal held that,

Whether in case an assessee, acting as an agent of foreign shipping company has filed the copy of Bank statement, which proves that such assessee had received the freight charges in Singapore, any income can be taxed in India u/s 172(3) - NO: ITAT

+ we are also convinced that the assessee was vigilant in pursuing its remedies. We are of the opinion that the facts of the case before us satisfy the above parameters. Therefore, respectfully following the same, we condone the delay of 249 days in filing of the appeal before the CIT (A). The only reason for bringing to tax the income of the freight beneficiary in India by the AO is that the assessee has not filed the bank a/c statement reflecting the name of the assessee therein and to prove that the income is received in Singapore. It is seen that the assessee has now filed the certificate from the Banker certifying that the Bank A/c is held by the assessee company and the Bank A/c copy is also is filed before the CIT (A) along with a petition under rule 46A. The Bank A/c copy would prove whether the assessee has received the freight charges in Singapore. Therefore, we are of the opinion that the assessee's appeals needs to be considered on merit. In view of the same and also since the certificate of the banker needs verification by the AO, we are of the opinion that it would be in the fitness of the case that the issue is remitted to the file of the AO and not the CIT (A). Therefore, we are allowing the assessee's appeal by condoning the delay and we are setting aside the issue on merits to the file of the AO for de novo consideration in accordance with law after taking into the consideration the banker's certificate submitted by the assessee;

Whether in case it has been admitted that an assessee has withdrawn the rectification application u/s 264 in writing, its appeal for condonation of delay can still be rejected - NO: ITAT

+ the assessment order u/s 172(4) was passed on 31.12.2014 and within a period of one month thereafter, the assessee had filed an application u/s 154 of the Act and after its rejection, the application u/s 264 was filed on 1.7.2015. An application u/s 264 of the Act can be filed within a period of one year from the date on which the order in question, was communicated to the assessee or the date on which he otherwise came to know of it, whichever is earlier. Therefore, it is clear that there was no delay in filing of the application u/s 264 of the Act. It is the case of the assessee that it had withdrawn its application u/s 264 on 21.9.2015 orally and before us has filed a copy of the letter dated 22.3.2017, whereby the assessee has withdrawn the revision petition in writing. Therefore, the finding of the CIT (A) that there is no evidence of the assessee withdrawing the application u/s 264 appears to be correct. However, the CIT (A) has dismissed the assessee's application for condonation of delay on the ground that the assessee has not substantiated the reasons for delay in filing of appeal and not because the assessee has not withdrawn the application u/s 264. Since, the assessee has withdrawn the application in writing, the said objection also does not survive.

Case remanded

2017-TII-117-ITAT-HYD-TP

DCIT Vs MONSTER.COM INDIA PVT LTD: HYDERABAD ITAT (Dated: March 31, 2017)

Income Tax - Sections 92CA, 142(1), 143(1), 143(2), 144C & 145(2)

Keywords: loss return - ALP determination - valuation of stock - accrual basis - unmatured income - BPO services - advance receipts & mark up

The assessee company is engaged in the business of providing online recruitment services. It filed its return of income for AY 2007-08 admitting loss of Rs. 3,68,28,299/-. AO observed that advances shown by assessee were already accrued to him and they were not refundable receipts. As per notes to Accounts, it was mentioned that 'Unmatured income includes the amount whereof had not been linked and identified with individual customers - contracts in view of volumes and heterogeneous nature of contracts. Besides, there were no uniform payment terms in the variety of contracts entered into during the year. This, however, does not impact income accrual and disclosure in the balance sheet except in case of debtors to the extent of amount not so determined.' This note to accounts clearly indicates that the income was already accrued in respect of these advances. Assessee was requested to submit confirmations from companies from whom these advances were received to show that these amounts were appearing as liabilities in their balance sheet to prove the point that this income was not accrued to assessee. If the paying company debits the full expenditure on these payments, the receiving company cannot show part of amount as receipt and part of the amount as advance.

Assessee had already debited huge direct or indirect expenses on these receipts and postponement of all these receipts results in distortion of true profits. Whatever be the method followed, recognition of revenue has to be in consonance with the method of accounting so followed vis-à-vis the nature and character of the amount accrued or received and the year of such accrual or receipt [State Bank of Travancore 2002-TIOL-1099-SC-IT-LB]. AO had the power to adopt correct method of valuation of closing stock instead of wrong method adopted by assessee for a long period. Method of stock valuation followed should not only be consistent but should also be correct. Similar issue was involved in assessee's own case and additions were made on this issue for the AYs 2004-05 to 2006-07. Accordingly, unmatured income of Rs.51,02,38,034/- was treated as assessee's income. In this case, while completing scrutiny assessment for the AY 2006-07, the unmatured income/advance shown of Rs.30,11,23,732/- was taxed as income. In AY 2007-08, assessee offered these advances as receipts and therefore, these amounts were excluded from receipts. On appeal, CIT(A) following the decision of the ITAT in assessee's own case, deleted the addition made by the AO.

Regarding ALP adjustment by TPO

Assessee made certain international transactions pertaining to BPO services to its AEs Viz., Monster Worldwise Inc., USA, Monster Worldwide Ltd., UK and Monster SG Pte Ltd., Singapore. TPO determined ALP of international transactions at Rs. 14,45,74,324/- as against Rs. 9,86,40,527/- adopted by assessee. On appeal before CIT(A), assessee submitted that it had entered into BPO services with its AEs for the first time during this year and one time data cleaning services. In these transactions, assessee had adopted 15% mark up on the cost relating to BPO services and for data cleaning charges. It had charged fee of Rs. 18,000/- per month + $ 2 dollars each for records processed. It had earned huge margin of 63.8% on such data cleaning services. For the purpose of TP regulations, assessee adopted the cost + 15% mark up as ALP in respect of BPO services. In respect of data cleaning services, as the transactions were one time and the margin worked out at 63.8% on the turnover and at Rs. 176.5% on cost, assessee did not work out any comparables. The assessee submitted that TPO had adopted mark up of 36.41% and subsequently, after considering the objections of assessee, TPO had reduced the mark up to 30.21%. Assessee further submitted that TPO had increased operating cost of international transactions to Rs. 11,10,31,660/- as against the cost of Rs. 7,89,354,010/- as declared by assessee. On the operating cost of Rs. 11,10,31,660/-, TPO had adopted ALP margin of 30.21% and determined the ALP at Rs. 14,45,74,324/-. Accordingly, determined ALP adjustment of Rs. 4,59,33,797/-.

Having heard the matter, the Tribunal held that,

Taxing of accrued income shown as unmatured advances

Whether in case an assessee has followed a recognized method of accounting, in such case, can there be any question of making further additions merely because such 'Accounting Standard' has not been notified by CBDT u/s 145(2) - NO: ITAT

+ the issue is covered in favour of assessee by the decision of the ITAT, Hyderabad in assessee's own case in ITA No. 1081/Hyd/04, for AY 2001-02, order dated 10/08/2007 wherein the coordinate bench observed that it was noted by AO that as per two TDS certificates, the assessee had received professional fees aggregating to Rs. 1,39,125 (Rs. 1,18,125 + 21,000). However, the assessee had shown total receipts of Rs. 60,558/- only. The explanation of the assessee was that it follows mercantile system of accounting and under the said system, it recognizes the revenue on the basis of proportionate completion method which is recognized by ICAI in its Accounting Standard of Revenue Recognition. AO held that since the said Accounting Standard has not been notified recognized by the CBDT u/s 145(2), the receipts have to be accounted for on the basis of TDS certificates. Accordingly, the amount of Rs.78,567 was added as difference in professional receipts. CIT(A) considered the explanation of assessee and following the order of Hyderabad Bench of the Tribunal in the case of Bharat Television Ltd. In ITA No.1797/Hyd/89 and of the Madras Bench in the case of Sakura Electronics (P) Ltd. allowed the claim of assessee. The contention of DR was that since assessee had accounted for only proportional receipt, credit for the entire TDS cannot be allowed. On due consideration of the matter, we uphold the order of CIT(A). Whether a particular Accounting Standard has been notified or not is not material. What is to be seen is whether the assessee has followed a recognized method of accounting or not. If method followed by assessee is such whereby correct income cannot be deduced, then only the assessing officer has the authority to adopt a reasonable basis to determine the total income. In the instant case, it cannot be disputed that the assessee has followed a recognized method of accounting and hence, there is no question of adding any further amount to the total income. There being no infirmity in the order of CIT(A), we uphold the same. Therefore, we do not find any infirmity in the order of CIT(A) in deleting the addition made by AO following the decision of ITAT and, accordingly, we uphold the order of CIT(A) and dismiss the ground raised by the revenue in its appeal;

Regarding ALP adjustment by TPO

Whether for the purpose of determining ALP of international transactions, only the relevant cost attributable to such operations must be considered by either the assessee or the TPO - YES: ITAT

+ the total cost of assessee adopted by TPO is not correct as he should have adopted the cost what is relevant for the international transactions. As observed by the CIT(A), the cost adopted by the assessee are only relating to man power and depreciation relating to computer, may not be sufficient, there may be other cost associated to the international transactions like administration, management resources etc. To substantiate the cost allocation method adopted by the assessee, Assessee has filed additional evidence before us, which requires verification. At the same time, some of the filters adopted by the TPO, as highlighted by CIT(A), are not proper and some of the comparables considered by the TPO are not relevant to the assessee. Considering the above factual errors, we remit the issue back to the file of the TPO for de-novo consideration. We direct TPO to re-do the assessment after giving proper opportunity to the assessee in this regard. Accordingly, the grounds raised by the assessee are allowed for statistical purposes. In the result, appeal of the revenue is dismissed and appeal of the assessee is allowed for statistical purposes as far as AY 2007-08 is concerned.

Revenue's appeal dismissed

 

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