Natwest Digital Services India Private Limited vs Assessment Unit

An intimation order was issued u/s 143(1) of the Act on 21 October 2022 vide which the deduction of expenses claimed u/s 43B were disallowed amounting to INR 4,81,42,250. The Appellant being aggrieved by the intimation order issued u/s 143(1) filed an appeal before the Ld. CIT for the disallowances made u/s 43B. The Ld. CIT(A) passed an order dated 19 November 2024 vide which all the disallowance u/s 43B were deleted.

In the draft assessment order dated 06th December 2023, issued under section 144C(1) of the Act, the Assessing Officer ('AO') proposed transfer pricing adjustments amounting to INR 7,73,78,620. The Appellant aggrieved by the additions proposed in the draft assessment order filed objection before the DRP on 04 January 2024, challenging the proposed transfer pricing adjustments.

The DRP vide its order dated 11 September 2024 reduced the transfer pricing additions to INR 6,70,73,930 and directed the AO to consider the said additions in the final order.

Final assessment order was passed u/s 143(3) dated 30 October 2024, wherein the AO considered the reduced disallowances and passed the final order at assessed income at INR 11,77,74,081 and raised a demand of INR 56,86,940. The Appellant, being aggrieved by the order passed by the Ld. AO has preferred the present appeal and ld. Counsel has not argued on leal grounds. It was contended that the Ld. AO has erred in not considering the total income declared in the amended income tax return filed by NWM Services India Private Limited ('NWM SIPL) for the period 1 April 2020 - 31 July 2020, pursuant to amalgamation of NWM SIPL'with NatWest Digital Services India Private Limited ('NWD SIPL), with 1 August 2020 as the appointed date.

It was also submitted that at the time of filing the revised computation for the period of 4 months (i.e., April 2020 - July 2020), the Appellant had split the advance tax challans proportionate to the income attributable to the 4-month period. In the course of apportioning the tax payments, a challan bearing reference number 23204, amounting to INK 3,00,00,000, was allocated to the extent of INR 88,62,953 to the Appellant, being the amalgamating company, while the balance amount of INR 2,61,37,047 was claimed by Nat West Digital, being the amalgamated company.Whereas, in the computation of income issued by the AO, the credit of amount of TDS, advance tax and TCS is same as claimed in the original return of income and the revised 4-month period income tax computation and income tax return furnished by the Appellant was completely disregarded.

Settled law is that real and actual income should be taxed. If there was any change in the reportable income of the entity consequent to amalgamation then that only should be considered for determining tax liability. As ld. DR was unable to show any specific provision which provides for filing any return or compliance to take into consideration the income after amalgamation, we consider it appropriate to restore the issue back to files of ld. AO, to take into consideration the revised computation of income submitted by the Appellant. Once the income as per amended income tax return is considered, the Ld. AO is directed to apportion / transfer the advance tax between successor entity (i.e., NWD SIPL) and NWM SIPL, as per law.

Then ld. with regard toGround No. 8, it was submitted that the computation sheet issued by the Ld. AO along with the final assessment order passed under Section 143(3) reflects an inadvertent error. The Ld. AO has incorrectly reported the total interest and fees payable in Column 42 of the computation sheet as IN 4,28,823, despite the fact that no interest under Sections 234A, 234B, 234C, 234D or 234F has been computed therein. This appears to be a clerical mistake, accordinly the said figure be rectified and deleted accordingly.

In aforesaid terms corresponding grounds are allowed and the appeal ITA No. 5809/Del/2024 AY: 2021-22,is allowed with consequences to follow as directed.

Additional evidence regarding disallowance u/s 36(1)(va) were submitted before the DRP but the DRP noted that the Appellant's technical challenge to jurisdiction was beyond its mandate. However, it directed the AO to address the aforesaid concerns in the final order, as the Appellant was not given an opportunity to present its case.

Final assessment order was passed u/s 143(3) dated 16 July 2024, wherein the AO did not consider the evidences submitted by the Assessee and concluded that the matter has been already settled by the Hon'ble Supreme Court in the case of M/s Checkmate Services P Ltd.The Appellant, being aggrieved by the order passed by the Ld. AO has preferred the present appeal.

As with regard to ground no. 2.1 arising out of disallowance under section 36(1)(va) of the Act on account of employee's contribution to provident fund. It was submitted before us that NWD SIPL made provident fund payments totaling of IN 8,04,95,120, including INR 4,09,85,828 as employee's contribution to the provident fund. The Appellant has reported this amount in Form 3CD and claimed the corresponding deduction. The details of the amount along with the challan number was provided to the Bench and same is reproduced below:

Apr-19 94,52,984 15-May-19 15-May-19 2031905012940 1,86,21,082 Jun-19 1,06,85,002 15-Jul-19 12-Jul19 2031907010861 2,07,87,295 Sep-19 1,03,56,207 15-Oct-19 14-Oct-19 2031910009084 2,03,99,743 Feb-20 1,04,91,335 15-Mar-20 12-Mar-20 2032003008328 2,06,87,010 Total 4,09,85,528 8,04,95,130

We find from aforesaid that payments for the statutory liability were debited from NWD SIPL's bank account before the due date i.e., well within the statutory due date, but was credited to EPFO account after the due date due to technical issues on the portal. Bank statements and corresponding challans are made available from page no. 291 to 299 of Paper book depicting that the payment was made before the due date. The Co-ordinate bench in the case of FIL India Business & Research Services (P.) Ltd. vs. DCIT (2023) 154 taxmann.com 251 (Delhi- Tribunal), has held that when the Assessee had initially deposited employees contribution towards PF before prescribed due dates but due to glitches on online portal at the end of respective authorities, amounts were reversed by the bank, then assessee could not be penalized with addition on account of delayed deposits.

Accordingly we allow the appeal of assessee and remit issue to the files of AO, to verify the payments, and allow the expenditure.

Accordingly, we allow the appeal of assessee and remit issue to the files of AO, to verify the payments, and allow the expenditure.

Then Ground No. 7, arises out of disallowance of payment made towards leave encashment, labor welfare fund, pension and gratuity under section 43B of the Act. Ld. Counsel has submitted that, the Appellant paid the leave encashment amount from a pre-existing liability, which was disallowed in the ROL of the relevant year. The amount was claimed as a deduction on a payment basis in the ROI. The difference between the amounts in Form 3CD and ROI is due to the liability paid after filing Form 3CD but before the ROI due date. This was submitted on the e-filing portal on 3 November 2021, in response to the intimation under section 143(1)(a) dated 7 October 202l.

Similarly, during the year, the Assessee disallowed IN 108,13,91,601 under section 43B for Gratuity, Pension, and Labour Welfare Fund as these amounts were unpaid by the due date of filing the Return of Income (ROL). Ld. Counsel has stated that the difference between the amounts reported in Form 3CD and the ROl arises from two main factors:

Labour Welfare Fund Contribution: A contribution of IN 5,80,524 was made after filing Form 3CD but before the due date of filing the ROI. This payment is evidenced by a challan.

Inter-group Transfers: There were inter-group transfers of assets/liabilities related to pension and gratuity, amounting to INR 1,52,26,107, IN 18,72,08,800, and INR (1,60,53,530). These transfers were made directly between balance sheets and not through the profit and loss account. Consequently, these amounts were adjusted in the tax audit report (TAR) but not reflected in the ROI.

As, the tax auditor has disclosed these facts in the notes to Form 3CD, which have been uploaded to the Income Tax Portal, we direct the ld. AO to verify, and allow the expenses.