M/s. Pricewaterhouse Coopers Private Limited, Kolkata V. ACIT, Circle - 2(2), Kolkata

ITA 2633/KOL/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0590 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 21-12-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: BIKASH KR JAIN
• Keywords: Gift; Transfer pricing; Business expenditure; Earning of tax free income; Question of law; Bad and doubtful debts; Corroborative evidences; Revised return; TDS; Rule 8D; Set aside; FORM 26AS
• Section: 271(1)(c); 143(3); 14A; 37(1); 201; 113; 13; 145(3); 22; 145; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH KOLK ATA BEFORE SHRI S. S. GODARA, JM & DR. A.L. SAINI, AM ITA NO.2633/KOL/2018 (ASSESSMENT YEAR: 2014-15) M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED BLOCK-EP, PLOT-Y-14, SALT LAKE CITY, SECTOR-V, KOLKATA 700091. VS. ACIT, CIRCLE-2(2), KOLKATA. ./ ./PAN/GIR NO. : AABCP9181H ( /APPELLANT ) .. ( / RESPONDENT ) APPELLANT BY : SHRI KANCHAN KAUSHAL, AR & BIKASH KR. JAIN, CA RESPONDENT BY : SHRI VIJAY SHANKAR, CIT / DATE OF HEARING : 25/02/2020 /DATE OF PRONOUNCEMENT : 17/06/2020 / O R D E R PER DR. A. L. SAINI, AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE PERTAINI NG TO ASSESSMENT YEAR 2014-15 IS DIRECTED AGAINST THE FAIR ASSESSMENT ORD ER PASSED BY THE ASSESSING OFFICER U/S 143(3)/144C/ 144C(5) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT), DATED 30.10.2018 WHICH I NCORPORATES THE FINDINGS OF THE LD DISPUTE RESOLUTION PENAL (FOR SHORT DRP), VIDE DRP ORDER DATED 11.09.2018. 2. PRICEWATERHOUSE COOPERS PRIVATE LIMITED (HEREINA FTER REFERRED TO AS 'PWCPL') IS IN THE BUSINESS OF PROVIDING, INTER ALIA, MANAGE MENT CONSULTANCY SERVICES AND ALSO ACCOUNTING AND BUSINESS ADVISORY SERVICES. THE COMPANY'S OPERATIONS ARE SEGREGATED INTO DIFFERENT LINE OF SERVICES LIKE ADV ISORY, TAXATION SERVICES. THE ASSESSEE PROVIDES BOTH ONSHORE AS WELL AS OFFSHORE SERVICES IN THE WIDE AREAS OF CONSULTING, DEALS, FORENSIC SERVICES, GOVERNMENT RE FORMS AND INFRASTRUCTURE ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 2 DEVELOPMENTS (GRID), ACCOUNTING ADVISORY, RISK ADVI SORY SERVICES, TAX AND REGULATORY SERVICES. THE COMPANY FILED REVISED RETU RN OF INCOME ON 31 MARCH 2016 DETERMINING TOTAL INCOME OF RS. 69,83,53,700/- . DURING THE AY UNDER CONSIDERATION, THE LEARNED ASSESSING OFFICER ('LD. AO'), PURSUANT TO THE DIRECTIONS OF THE HON'BLE DISPUTE RESOLUTION PANEL ('HON'BLE DRP') ISSUED IN SEPTEMBER 2018, PASSED THE FINAL ASSESSMENT ORDER D ATED 30 OCTOBER 2018 UNDER SECTION 143(3) R.W.S 144C/144C(5) OF THE INCOME-TAX ACT, 1961 ('THE ACT') WHEREIN ADJUSTMENTS/VARIATIONS WERE MADE, THEREBY C OMPUTING THE TOTAL ASSESSED INCOME AT RS. 75,16,99,450/-. AGGRIEVED BY THE IMPU GNED FAIR ASSESSMENT ORDER, THE ASSESSEE COMPANY IS IN APPEAL BEFORE US. 3. GROUND NO.1 RAISED BY THE ASSESSEE COMPANY READS AS FOLLOWS: ON THE FACTS AND IN LAW AND IN THE CIRCUMSTANCES OF THE CASE, THE LD AO ERRED IN NOT FOLLOWING THE DIRECTIONS OF THE HON`BLE DRP AND MAK ING IN ADDITION OF RS.1,17,57,533/- , BEING PROVISION FOR BAD DEBTS AND DOUBTFUL DEBTS WRITTEN BACK DURING THE YEAR, WITHOUT APPRECIATING THE FACT THAT THE AMOUNT OF SUCH PROVI SIONS WERE ALREADY OFFERED TO TAX IN THE EARLIER AYS. 4. FACTS OF THE ISSUE WHICH CAN BE STATED QUITE SHO RTLY ARE AS FOLLOWS: DURING THE YEAR UNDER CONSIDERATION, THE COMPANY HAS CLAIM ED AN AMOUNT OF RS. 1,17,57,533/-, IN ITS COMPUTATION OF INCOME ON ACCO UNT OF 'REVERSAL OF PROVISION FOR BAD & DOUBTFUL DEBTS OF EARLIER YEARS'. ASSESSE E SUBMITTED BEFORE THE LD. AO THAT THE SAID PROVISION WAS DULY OFFERED TO TAX IN THE EARLIER YEARS, HENCE THE REVERSAL OF THE SAME DURING THE YEAR HAS BEEN CONSI DERED TO BE ALLOWABLE IN THE RETURN OF INCOME. HOWEVER, IN THE DRAFT ASSESSMENT ORDER, THE LD. AO PROPOSED TO DISALLOW THE SAME BY ALLEGING THAT THE ASSESSEE FAI LED TO SUBSTANTIATE THE CLAIM WITH PROPER DOCUMENTARY EVIDENCES. AGGRIEVED, BY TH E ORDER OF THE LD AO, THE ASSESSEE FILED REFERENCE BEFORE THE LD DRP. ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 3 BEFORE THE LD DRP, ASSESSEE SUBMITTED PARTY-WISE DE TAILS OF REVERSAL OF THE PROVISION DURING THE COURSE OF THE PROCEEDINGS BEFO RE THE HON'BLE DRP AND THE HON'BLE DRP ASKED THE LD. AO TO FURNISH A REMAND RE PORT ON THE SAME. THE LD. AO, UPON PERUSAL AND VERIFICATION OF THE DETAILS FU RNISHED AND FURTHER EXPLANATIONS AND DETAILS PROVIDED DURING THE HEARIN GS, FURNISHED HIS REMAND REPORT DATED 24 JULY 2018 WHEREIN IT WAS MENTIONED THAT 'REVERSAL OF THE SAID PROVISION IS NOTHING BUT A CREATION OF FURTHER PROV ISION' AND NO SPECIFIC COMMENTS WERE MADE ON THE DETAILS FURNISHED BY THE ASSESSEE. THE HON'BLE DRP OBSERVED THAT THE REVERSAL OF PROVISION IS APPARENTLY ALLOWA BLE AND DIRECTED THE LD. AO TO VERIFY THE CLAIM ON THE BASIS OF THE DETAILS SUBMIT TED (REFER PARA 2.5 AT PAGE NOS. 10 TO 12 OF THE DIRECTIONS OF THE HON'BLE DRP). HOWEVER, THE LD. AO, WITHOUT APPRECIATING THE ABOVE FACT AND THE DETAILS AND DOCUMENTS SUBMITTED IN THIS REGARD, MADE AN ADDITIO N OF RS. 1,17,57,533/- IN THE IMPUGNED FINAL ASSESSMENT ORDER DATED 30 TH OCTOBER 2018. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 5. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE THR OUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD DRP/AO AND OTHER MATERIALS BROUGHT ON RECORD. WE NO TE THAT LD DRP HAD GIVEN THE DIRECTIONS TO THE ASSESSING OFFICER AS FOLLOWS: 2.5.3 THE AO HAS APPARENTLY COMPLETELY MISUNDERSTO OD THE ACCOUNTING PRINCIPLES IN THIS REGARD. IT WAS SUFFIC IENT TO EXAMINE WHETHER THE PROVISIONS REVERSED DURING THIS YEAR HA D BEEN OFFERED TO TAX IN THE PRECEDING YEAR, THE AMOUNT ACTUALLY WRIT TEN OFF AS BAD DEBT OUT OF THE PROVISIONS OF PRECEDING YEAR, AND HOW MU CH OF THE PROVISIONS CREATED DURING THE YEAR HAS BEEN INCLUDE D IN THE AMOUNT CLAIMED, IF ANY, AND WHETHER THE PROVISIONS CREATED DURING THE YEAR ARE ASCERTAINED AND RELATED TO THE BUSINESS TRANSACTION S OF THE ASSESSEE. ON FACTS AVAILABLE IT IS APPARENT THAT THE AMOUNT OF P ROVISION CLAIMED IN THIS YEAR IS ALLOWABLE. THE AO IS DIRECTED TO VERIF Y THE ABOVE OBSERVATIONS (IN THIS PARA) AND ALLOW THE CLAIM ACC ORDINGLY.' (EMPHASIS SUPPLIED) ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 4 WE NOTE THAT LD. AO, WITHOUT TAKING INTO ACCOUNT, THE ABOVE DIR ECTIONS OF LD DRP, MADE AN ADDITION OF RS.1,17,57,533/- IN THE IMPUGNE D FINAL ASSESSMENT ORDER DATED 30 TH OCTOBER 2018, WHICH IS IN VIOLATION OF THE DIRECTI ONS OF THE LD DRP. 6. WE NOTE THAT JUDICIAL DISCIPLINE DEMANDS THAT ON CE AN ORDER HAS BEEN PASSED IN THE ASSESSEES OWN CASE, LOWER AUTHORITIES ARE DUTY BOUND TO ACT IN ACCORDANCE WITH THE SAME. THE LD COUNSEL FOR THE ASSESSEE SUBM ITTED BEFORE US THE FOLLOWING DETAILS AND INFORMATION ABOUT BAD DEBTS AND PROVISI ON FOR DOUBTFUL DEBTS, WHICH IS GIVEN BELOW: DURING THE YEAR UNDER CONSIDERATION I.E. AY 2014- 15, THE COMPANY HAS REVERSED THE PROVISION FOR DOUBTFUL DEBTS AS UNDER: PARTICULARS AMOUNT (RS.) PROVISION CREATED DURING THE YEAR (NET) 24,79,28,49 9 PROVISIONS REVERSED DURING THE YEAR OUT OF THE PROV ISIONS CREATED IN PRECEDING YEAR (I.E. AY 2013-14) (25,96,86,032) AMOUNT OF REVERSAL (NET) CLAIMED IN THE COMPUTATION OF INCOME [REFER PAGE NO. 130 OF THE PAPER BOOK ('PB')] (1,17,57,533) THE AFORESAID REVERSAL OF RS.25,96,86,032 HAS BEEN MADE OUT OF PROVISIONS CREATED IN PRECEDING YEAR (I.E. AY 2013-14) AND DULY OFFERED TO TAX IN T HAT YEAR, AS UNDER: PARTICULARS AMOUNT (RS.) PROVISION CREATED DURING THE YEAR (NET) 25,96,86,03 2 PROVISIONS REVERSED DURING THE YEAR (54,13,34,822) AMOUNT OF REVERSAL (NET) CLAIMED IN THE COMPUTATION OF INCOME (REFER PAGE NO. 430 OF THE PB) (28,16,48,790) TO SUBSTANTIATE THE ABOVE, THE ASSESSEE SUBMITTED THE FOLLOWING DETAILS: A) PARTY-WISE DETAILS OF THE REVERSAL OF PROVISION DURING THE AY UNDER CONSIDERATION (REFER PAGE NO. 414 OF THE PB WHERE THE REFERENCE OF THE DETAIL S HAS BEEN MADE, COMPLETE DETAILS ENCLOSED AT PAGE NOS. 451 TO 522 OF THE PB) B) YEAR-WISE MOVEMENT IN PROVISION FOR DOUBTFUL DEB TS (REFER PAGE NOS. 415 TO 445 OF THE PB) C) COPIES OF INVOICES (656 IN NUMBERS) IN A CD VIDE LETTER DATED 23 JULY 2018 (REFER PAGE NO. 447 OF THE PB) DURING THE COURSE OF THE HEARING ON 23 JULY 2018, THE LD. AO ASKED THE ASSESSEE TO RECONCILE THE PROVISIONS CREATED, RECOVERED & PAID (PARTY-WISE) F OR EARLIER AS WELL AS CURRENT YEAR, ON THE SAME DAY (BY 5 PM). THE ASSESSEE DULY FURNISHED THE PARTY-WISE DETAILS OF PROVISION CREATED AND REVERSED DURING THE YEAR UNDER CONSIDERATION ALONG WITH THE RECONCILIATION OF PROVISION REVERSED ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 5 DURING THE YEAR WITH THE PROVISION CREATED IN PRECE DING YEAR (AY 2013-14) ON THE SAME DAY VIDE ANOTHER LETTER DATED 23 JULY 2018 REFER PAGE NOS. 451 TO 522 OF THE PB. ON PERUSAL OF THE DETAILS SUBMITTED VIDE LETTERS DA TED 23 JULY 2018, IT IS CLEAR THAT THE PROVISION REVERSED DURING THE YEAR HAVE BEEN CLAIMED OUT OF T HE ASCERTAINED PROVISIONS CREATED AND OFFERED TO TAX IN THE PRECEDING YEAR AND HENCE SHOULD NOT B E DISALLOWED AGAIN. THE HON'BLE DRP HAS ALSO OBSERVED THAT THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWED. WE NOTE LD DRP IS HIGHER AUTHORITY, THEREFORE AO OU GHT TO FOLLOW THE DIRECTION OF LD DRP. WE NOTE THAT AO HAD NEITHER FOLLOW THE DIRE CTIONS OF LD DRP NOR HE HAD EXAMINED THE SUBMISSIONS, DOCUMENTS AND DETAILS FIL ED BY THE ASSESSEE IN RIGHT PERSPECTIVE, AS NOTED ABOVE. THEREFORE, WE DIRECT T HE AO TO EXAMINE THE ASSESSEE`S CLAIM IN RESPECT OF PROVISIONS FOR BAD A ND DOUBTFUL DEBTS AND ADJUDICATE THE ISSUE IN ACCORDANCE TO LAW. 7. GROUND NOS. 2 & 2.1 RAISED BY THE ASSESSEE READS AS FOLLOWS: 2.ON THE FACTS AND IN LAW AND IN THE CIRCUMSTANCES OF THE CASE, THE HON`BLE DRP/LD AO ERRED IN MAKING A DISALLOWANCE OF RS.8,20,500/- UND ER SECTION 14A READ WITH RULE 8D(2)(III) OF THE INCOME TAX RULES 1962 AS AGAINST THE DISALLOWANCE OF RS.30,000/-MADE BY THE APPELLANT IN THE RETURN OF INCOME. 2.1 THAT THE LD AO/DRP ERRED IN NOT APPRECIATING TH AT THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(III) OF THE RULES OUGHT TO BE RESTRICTED WITH RESPECT TO ONLY THOSE INVESTMENTS WHICH YIELDED EXEMPT INCOME DURING THE YEAR. 8. THE FACTS OF THE ISSUE WHICH CAN BE STATED QUITE SHORTLY ARE AS FOLLOWS: DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE EARNED E XEMPT DIVIDEND INCOME AMOUNTING TO RS. 21.01 CRORES FROM PRICEWATERHOUSEC OOPERS SERVICE DELIVERY CENTRE (KOLKATA) PVT. LTD. ('PWC SDC') WHICH IS EXE MPT UNDER SECTION 10(34) OF THE ACT. THE COMPANY VOLUNTARILY DISALLOWED A SUM O F RS. 30,000/- UNDER SECTION 14A OF THE ACT IN THE COMPUTATION OF TOTAL INCOME, BEING EXPENDITURE ATTRIBUTABLE TO EARNING OF SUCH EXEMPT INCOME AND SAME IS ALSO C ERTIFIED BY A CHARTERED ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 6 ACCOUNTANT, WHICH IS REPORTED IN CLAUSE 21(H) OF TH E TAX AUDIT REPORT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION (REFER PAGE. NO .45 OF THE PB). HOWEVER, THE LD. AO IGNORED THE CONTENTION OF THE A SSESSEE AND ARRIVED AT AN AMOUNT OF RS.49,35,100/- FOR DISALLOWANCE UNDER SEC TION 14A OF THE ACT BY APPLYING THE FORMULA PROVIDED IN RULE 8D OF THE INC OME TAX RULES. SINCE THE ASSESSEE HAD ALREADY OFFERED TO TAX RS. 30,000/- AS EXPENSES INCURRED TOWARDS EARNING EXEMPT INCOME, THE LD. AO ADDED BACK A FURT HER AMOUNT OF RS. 49,05,100 [I.E. RS. 49,35,100 LESS RS.30,000]. 9. AGGRIEVED BY THE ORDER OF THE LD AO, THE ASSESSE E FILED THE OBJECTION BEFORE THE HON'BLE DRP, WHO DELETED THE ADDITION MADE BY THE L D. AO BY APPLYING THE FIRST AND SECOND LIMB OF RULE 8D AND UPHELD THE DISALLOWA NCE IN THIRD LIMB, UNDER RULE 8D(2)(III) OF THE RULES. THE RELEVANT EXTRACTS OF T HE DIRECTIONS OF THE HON'BLE DRP, TO THE EXTENT APPLICABLE FOR OUR DISCUSSION, A RE REPRODUCED BELOW: '2.6.2. THE AO HAS COMPUTED THE DISALLOWANCE U/S 14 A OF THE ACT BY CONSIDERING EXPENDITURE DIRECTLY RELATING TO EXEMPT INCOME AT 'NIL' UNDER RULE 8D(2)(I) OF THE INCOME TAX RULE (THE RULES), R S. 40.846 LAKH U/R 8D(2)(II) OF THE RULES AND RS 8.505 LAKH U/R 8D(2)( III) OF THE RULES. THE AO HAS HOWEVER NOT GIVEN ANY FINDING WITH REGARD TO THE NEXUS BETWEEN THE INVESTMENTS AND THE INTEREST PAID ON LOANS DURI NG THE YEAR IN TERMS THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN MAXXO P. NOW IT IS SETTLED LAW THAT ONLY SUCH INVESTMENTS IN RESPECT O F WHICH THE DIVIDEND INCOME OR EXEMPTED INCOME HAS BEEN EARNED CAN BE CO NSIDERED WHEN COMPUTING THE DISALLOWANCE U/S 14A READ WITH RULE 8 D. ON PERUSAL OF THE AUDITED FINANCIALS IT IS OBSERVED THAT THE ASSE SSEE'S INVESTMENT ARE EITHER IN ITS SUBSIDIARIES (RS. 10.99 CR., BEING OP ENING BALANCE IN THIS YEAR) OR IN PRICEWATERHOUSECOOPERS SERVICE DELIVERY CENTRE (KOLKATA) PUT. LTD. (RS. 1.00 LAKH, BEING OPENING BALANCE IN THIS YEAR) BESIDE FRESH INVESTMENT OF RS. 12.02 CR. IN HERCULES MERGER PARE NT LTD. FROM WHICH NO DIVIDEND HAS BEEN RECEIVED DURING THE YEAR. AS S UCH NO DISALLOWANCE IS CALLED FOR U/R 8D(2)() OF THE RULES. HOWEVER, T HE DISALLOWANCE U/R 8D(2)(III) OF THE RULES IS MANDATORY. THEREFORE, DI SALLOWANCE IS UPHELD TO THE EXTENT OF RS.8.505 LAKH. ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 7 10. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE TH ROUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD DRP/AO AND OTHER MATERIALS BROUGHT ON RECORD. WE NO TE THAT ISSUE RAISED BY THE ASSESSEE IS NO LINGER RES INTEGRA. THE COORDINATE BENCH OF KOLKATA ITAT IN THE CASE OF REI AGRO LTD. VS. DCIT [(2013) (144 ITD 141 )] HAS HELD THAT ONLY DIVIDEND BEARING SECURITIES SHOULD BE CONSIDERED FO R THE PURPOSE OF DISALLOWANCE UNDER RULE 8D(2) (III) OF THE INCOME TAX RULES. THE RELEVANT FINDINGS OF THE COORDINATE BENCH ARE GIVEN BELOW: '8.1 THUS, NOT ALL INVESTMENTS BECOME THE SUBJECT-M ATTER OF CONSIDERATION WHEN COMPUTING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D IS TO BE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL IN COME AND THIS CAN BE DONE ONLY BY TAKING INTO CONSIDERATION THE INVESTME NT WHICH HAS GIVEN RISE TO THIS INCOME WHICH DOES NOT FORM PART OF THE TOTA L INCOME. UNDER THE CIRCUMSTANCES, THE COMPUTATION OF THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2)(III), WHICH IS ISSUE IN THE AS SESSEE'S APPEAL, IS RESTORED TO THE FILE OF THE AO FOR RE-COMPUTATION I N LINE WITH THE DIRECTION GIVEN ABOVE. NO DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2)(I) AND (II) CAN BE MADE IN THIS CASE. IN THE LIGHT OF THE JUDGMENT OF THE COORDINATE BENC H OF ITAT KOLKATA IN THE CASE OF REI AGRO LTD (SUPRA), WE NOTE THAT ONLY DIVIDEND BEARING SECURITIES SHOULD BE CONSIDERED FOR DISALLOWANCE UNDER RULE 8D(2)(III) O F THE I.T. RULES. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO COMPUTE THE DISALLO WANCE UNDER RULE 8D(2)(III) OF THE RULES BY TAKING INTO ACCOUNT DIVIDEND BEARING S ECURITIES ONLY. FOR STATISTICAL PURPOSES, THE GROUNDS RAISED BY THE ASSESSEE ARE AL LOWED. 11. GROUND NOS. 3 TO 4 RAISED BY THE ASSESSEE ARE I DENTICAL AND COMMON AND THEY RELATE TO ADHOC ADDITION/DISALLOWANCE MADE BY LD DRP/AO THEREFORE WE SHALL ADJUDICATE THEM TOGETHER. GROUND NOS. 3 TO 4 READ A S FOLLOWS: 3.ON THE FACTS AND IN LAW AND IN THE CIRCUMSTANCES OF THE CASE, THE HON`BLE DRP/LD AO ERRED IN MAKING AN AD HOC ADDITION OF RS.8,13,368/- BEING 15% OF THE TOTAL AMOUNT OF EXPENDITURE OF RS.54,22,452/- INCURRED AS ENTERTAI NMENT EXPENSES, WITHOUT ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 8 APPRECIATING THAT THE SAID EXPENSES WERE INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND THE COMPLETE DETAILS OF TH E EXPENDITURE WERE FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 3.1 ON THE FACTS AND IN LAW AND IN THE CIRCUMSTANCE S OF THE CASE, THE LD AO, IN MAKING THE AD HOC DISALLOWANCE OF ENTERTAINMENT EXPENSES, ERRED IN NOT FOLLOWING THE DIRECTIONS OF THE HON`BLE DRP BY NOT RESTRICTING THE AD HOC DI SALLOWANCE TO THE EXTENT OF EXPENSES RELATED TO REIMBURSEMENT TO EMPLOYEES. 4. ON THE FACTS AND IN LAW AND IN THE CIRCUMSTANCES OF THE CASE, THE HON`BLE DRP/LD AO ERRED IN MAKING IN AD HOC ADDITION OF RS.53,00,938/ - BEING 10% OF RS.5,30,09,377/- ( I.E. TOTAL AMOUNT OF EXPENDITURE OF RS. 8,09,86,625/- LE SS RS. 2,79,77,248/- SUO MOTO DISALLOWED BY THE ASSESSEE) INCURRED ON ACCOUNT OF SEMINAR & CONFERENCES, WITHOUT APPRECIATING THAT THE SAID EXPENSES WERE INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE COMPLETE DETAILS OF THE EXPENDI TURE WERE FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 12. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE A SSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAS DEBITED AN AMOUNT O F RS.54,22,452/- IN THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF ENTERTAINMENT EXPENS ES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED DETA ILS OF ENTERTAINMENT EXPENSE, ALONG WITH SAMPLE SUPPORTING DOCUMENTS, IN THE FORM AT REQUISITIONED BY THE LD. AO, INCLUDING NAME OF THE PARTIES, PAN AND ADDRESS, NATURE, AMOUNT, TDS DETAILS, ETC., AS UNDER: DETAILS OF ENTERTAINMENT EXPENSES (SL. NOS. 1 TO 25 9) SUBMITTED VIDE LETTER DATED 22 NOVEMBER 2017 (REFER PAGE NOS. 186 TO 196 OF THE PB) SAMPLE SUPPORTING DOCUMENTS (BILLS, VOUCHERS, ETC.) SUBMITTED VIDE LETTER DATED 8 DECEMBER 2017 (REFER PAGE NOS. 253 TO 259 OF THE PB) IN THE DRAFT ASSESSMENT ORDER, THE LD. AO PROPOSED AN AD HOC DISALLOWANCE OF 50% OF THE TOTAL ENTERTAINMENT EXPENSE. ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 9 13. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED THE OBJECTIONS BEFORE THE LD DRP. THE HON'BLE DRP UPHELD THE DISALLOWANCE ONL Y TO THE EXTENT OF 15% OF REIMBURSEMENT TO EMPLOYEES, AND OBSERVED AS UNDER: '2.10.3 WE HAVE EXAMINED THE DETAILS GIVEN AT PAGES - 4.400 TO 4.410.IT IS OBSERVED THAT MOST OF THE EXPENSES REIMBURSEMENT TO THE EMPLOYEES FOR CERTAIN EXPENSES INCURRED BY THEM, AND THE OTHER EX PENSES RELATE TO SUBSCRIPTION FOR MEMBERSHIP TO CLUBS AND BUSINESS C HAMBERS WHERE TDS HAS BEEN MADE AS APPLICABLE. ADMITTEDLY, ALL EXPENS ES VOUCHERS/INVOICES OF EXPENSES RELATED TO REIMBURSEMENT TO THE EMPLOYE ES WERE NOT PRODUCED BEFORE THE AO. HOWEVER, THERE IS NO FINDING ON FACT S BY THE AO THAT THE EXPENSES ARE NOT RELATED TO BUSINESS OF THE ASSESSE E. UNDER THESE FACTS, WHILE IT IS SETTLED NOW THAT EXPENSES FOR MEMBERSHI P OF CLUBS/BUSINESS CHAMBERS ARE RELATED TO BUSINESS, IT WOULD BE SUFFI CIENT TO RESTRICT THE DISALLOWANCE TO 15% OF THE EXPENSES RELATED TO REIM BURSEMENT TO THE EMPLOYEES.' 14. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.8,09,86,523/- IN THE PROFIT AND LOSS A CCOUNT TOWARDS SEMINAR AND CONFERENCE EXPENSES, OUT OF WHICH AN AMOUNT OF RS. 2,79,77,248 WAS SUO-MOTO DISALLOWED BY THE ASSESSEE. DURING THE COURSE OF AS SESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED DETAILS OF THE SEMINAR AND CONFE RENCE EXPENSES, ALONG WITH SAMPLE SUPPORTING DOCUMENTS, IN THE FORMAT REQUISIT IONED BY THE LD. AO, INCLUDING NAME OF THE PARTIES, PAN AND ADDRESS, NAT URE, AMOUNT, TDS DETAILS, ETC., AS UNDER: DETAILS OF SEMINAR AND CONFERENCE EXPENSES (SL. NOS . 1 TO 1,097) SUBMITTED VIDE LETTER DATED 22 NOVEMBER 2017 (REFER PAGE NOS. 197 TO 233 OF THE PB) SAMPLE SUPPORTING DOCUMENTS (BILLS, VOUCHERS, ETC.) SUBMITTED VIDE LETTER DATED 8 TH DECEMBER 2017 (REFER PAGE NOS. 260 T0 402 OF THE PB) IN THE DRAFT ASSESSMENT ORDER, THE LD. AO PROPOSED AN ADHOC DISALLOWANCE OF 25% OF THE SEMINAR AND CONFERENCE EXPENSE. ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 10 15. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED THE OBJECTIONS BEFORE THE LD DRP. THE HONBLE DRP RESTRICTED THE DISALLOWANC E TO 10% OF THE SAID EXPENSE OTHER THAN ALREADY DISALLOWED BY THE ASSESS EE. THE FINDINGS OF THE LD DRP IS REPRODUCED BELOW: 2.11.1 THESE EXPENSES ARE SIMILAR TO THOSE CONSIDE RED IN GROUND NO. 17 HEREIN ABOVE AND THE REPLY OF THE ASSESSEE IS ALSO SIMILAR. THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE TO 10% OF THE EXPENSES OTHER THAN ALRE ADY DISALLOWED BY THE ASSESSEE. 16. AGGRIEVED BY THE ORDER OF THE LD DRP/AO THE ASS ESSEE IS IN APPEAL BEFORE US. 17. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFO RE US WRITTEN SUBMISSIONS, THE RELEVANT PORTION OF THE WRITTEN SUBMISSIONS ARE RE PRODUCED BELOW: WRITTEN SUBMISSIONS FOR GROUND NO. 3 3.5 ON PERUSAL OF THE DETAILS OF ENTERTAINMENT EXPE NSE (AT PAGE NOS. 186 TO 196 OF THE PB), YOUR HONOURS WOULD OBSERVE THAT EXPENSES IN THE NAT URE OF REIMBURSEMENT TO EMPLOYEES (AMOUNTING TO RS. 39,41,940) INCLUDED UNDER THE ENT ERTAINMENT EXPENSE, HAVE BEEN INCURRED TOWARDS VARIOUS CLIENT AND TEAM MEETINGS AND ARE NO T AT ALL PERSONAL IN NATURE. THESE EXPENSES PLAY A PIVOTAL ROLE IN BUILDING GOOD RELATIONSHIP W ITH THE CLIENTS/TEAM AND ARE EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. HENCE, NO DIS ALLOWANCE SHOULD BE MADE ON ACCOUNT OF REIMBURSEMENT TO EMPLOYEES FOR EXPENSES INCURRED BY THEM IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE. 3.6. THE ASSESSEE FURTHER WISHES TO SUBMIT THAT DIS ALLOWANCE CANNOT BE MADE ON AN AD HOC BASIS. THE LD. AO/ HON'BLE DRP HAVE FAILED TO BRING COGENT AND CREDIBLE SUBMISSION/EVIDENCE ON RECORD TO SUBSTANTIATE THE AD HOC DISALLOWANCE. THE LD. AO/HON'BLE DRP HAVE ALSO NOT BEEN ABLE TO POINT OUT AS TO HOW THE EXPENDITURE WAS NOT INCURRED WHOLLY FOR ASSESSEE'S BUSINESS PURPOSES. 3.7 IT IS THE SUBMISSION OF THE ASSESSEE THAT IT HA S DISCHARGED ITS INITIAL ONUS OF ITS CLAIM FOR THE EXPENDITURE UNDER THIS HEAD AND THE LD. AO/ HON 'BLE DRP COMPLETELY FAILED IN BRINGING OUT ANY SPECIFIC INSTANCES OF EXPENDITURE BEING USED FO R NON-BUSINESS PURPOSES OR SUCH EXPENSES NOT HAVING BEEN ACTUALLY INCURRED OR BEING EXCESSIVE OR LACK OF SUPPORTING EVIDENCE. 3.8 IT IS ALSO ADMITTED FACT THAT THE ACCOUNTS OF T HE ASSESSEE WERE DULY AUDITED AND WERE ALSO EXAMINED FOR THE PURPOSE OF TAX AUDIT, WHICH WERE N EITHER REJECTED BY THE LD. AO NOR ANY ALLEGATION THAT THE SAME IS NOT IN ACCORDANCE WITH SECTION 145 OF THE ACT WAS MADE. THUS, THERE IS NO BASIS OR MATERIAL WITH THE LD. AO/ HON'BLE DR P TO DISALLOW ABOVE EXPENSES, THAT TOO ON AN AD HOC BASIS. ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 11 3.9 RELIANCE IN THIS REGARD IS PLACED ON THE DECISI ON OF THE JURISDICTIONAL KOLKATA TRIBUNAL IN THE CASE OF SHREE VENKATESH AGRO FOOD PUT. LTD. VS. DCIT [IT(SS)A NO. 54-56/KOL/2011] [REFER PAGE NOS. 4 TO 12 OF THE CASE LAW PB] WHEREIN THE A SSESSING OFFICER HAD MADE AN AD HOC DISALLOWANCE OF 5% ON VARIOUS EXPENSES ON THE REASO NING THAT THE ASSESSEE FAILED TO FILE THE DETAILS DESPITE THE FACT THAT THE ASSESSEE'S ACCOUN TS WERE FULLY AUDITED. THE HON'BLE TRIBUNAL DELETED THE AD HOC DISALLOWANCE AND HELD THAT DISAL LOWANCE PURELY RESORTING TO AD HOC METHOD AND WITHOUT ANY COGENT REASON, CANNOT BE MADE, RELE VANT EXTRACTS REPRODUCED BELOW: '4. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUG H THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT AO HAS MADE DISALLOWANCE ON AD HOC BASIS @ 5% AND THERE IS NO BASIS FOR MAKING DISALLO WANCE. WE ALSO OBSERVE THAT CIT(A) HAS SIMPLY CONFIRMED THE DISALLOWANCE. WHETH ER THE DISALLOWANCE BY RESTRICTING @ 5% ON ACCOUNT OF BUSINESS EXPENDITURE CAN BE MADE OR NOT IN THE ABSENCE OF ANY REASONING? THE DISALLOWANCE PURELY B Y RESORTING TO AD HOC METHOD CANNOT BE MADE. THESE ARE BUSINESS EXPENDITU RE, AND IN THE ABSENCE OF COGENT REASON, THE DISALLOWANCE SHOULD NOT HAVE BEE N MADE. WE HOLD THAT DISALLOWANCE MADE BY AO IS WITHOUT ANY BASIS AND HE NCE DESERVES TO BE DELETED. ACCORDINGLY, WE DELETE THE DISALLOWANCE. THIS ISSUE OF ASSESSEE'S APPEAL IS ALLOWED.' WRITTEN SUBMISSIONS FOR GROUND NO. 4 4.5. THE ASSESSEE RELIES ON THE LEGAL SUBMISSION MA DE IN GROUND NO. 3 ABOVE WITH RESPECT TO AD HOC DISALLOWANCE MADE BY THE LD. AO/ HON'BLE DRP . 4.6. THE ASSESSEE FURTHER WISHES TO SUBMIT THAT THE EXPENSE INCURRED TOWARDS SEMINAR AND CONFERENCES WERE WHOLLY AND EXCLUSIVELY INCURRED FO R THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. YOUR HONOURS MAY PLEASE APPRECIATE THE ASSESSEE IS ENGAGED IN CONSULTANCY PROFESSION AND APPOINTS LARGE NUMBER OF EMPLOYEES ACROSS VARIOUS C ITIES IN INDIA (AROUND 4000 EMPLOYEES WORKING ACROSS 8 LOCATIONS). THE PROFESSION ENTAILS PARTICIPATION IN VARIOUS SEMINARS AND CONFERENCES AND OTHER INCIDENTAL EXPENSES (SUCH AS DINNER, LUNCH, TRAVEL AND STAY EXPENSES, TRAINING PROGRAM, ETC.) HAVE BEEN INCURRED WHOLLY A ND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 4.7. YOUR HONOURS WOULD OBSERVE FROM THE DETAILS FU RNISHED (REFER PAGE NOS. 197 TO 233 OF THE PB) THAT MOST OF THE PAYMENTS HAVE BEEN MADE BY THE AS SESSEE TO RENOWNED INSTITUTIONS/ASSOCIATIONS/CHAMBERS SUCH AS: AMERICAN CHAMBER OF COMMERCE IN INDIA ASSOCHAM ASSOCIATION OF CERTIFIED FRAUD EXAMINERS (ACFE) BOMBAY CHAMBER OF INDUSTRY AND COMMERCE BOMBAY CHARTERED ACCOUNTANTS' SOCIETY CONFEDERATION OF INDIAN INDUSTRY (CII) FEDERATION OF INDIAN CHAMBERS OF COMMERCE AND INDUS TRY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA THE BENGAL CLUB LIMITED ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 12 4.8. FURTHER, OUT OF THE TOTAL EXPENSE OF RS. 8,09, 86,523, REIMBURSEMENT TO EMPLOYEES AGGREGATES TO RS. 74,96,813 ONLY AND THE SAID EXPENSES HAVE BE EN INCURRED BY ITS EMPLOYEES FOR BUSINESS PURPOSE, THE REIMBURSEMENT OF WHICH HAS BEEN SUBSEQ UENTLY CLAIMED BY THEM. SOME OF THE REASONS/BUSINESS PURPOSE OF THE EXPENSES CLAIMED BY THE EMPLOYEES ARE ENUMERATED BELOW: ATTENDING ICAI INTERNATIONAL CONFERENCE CONFERENCE REGISTRATION FEES ATTENDING BANKING COLLOQUIUM TOWNHALL MEETINGS/ INTERNAL MEETINGS/ CLIENT MEETIN GS CII CONFERENCE DELEGATE CHARGES ATTENDING M2M WORKSHOP ORGANIZED BY ASSOCHAM ATTENDING FICCI CONFERENCE ATTENDING SEMINAR ARRANGED BY BOMBAY CHAMBER OF COM MERCE NASSCOM CONFERENCE DELEGATE FEES FOR SEMINAR ON SUSTAINABLE MINING 4.9 THE ASSESSEE FURTHER SUBMITS THAT THE DETAILS O F DATE, VENUE/TOPICS, NATURE OF EXPENSE, ETC. ALONG WITH SAMPLE SUPPORTING DOCUMENTS (BILLS/VOUCH ERS, ETC.) HAVE ALSO BEEN FURNISHED BEFORE THE LD. AO. SOME OF THE TOPICS ATTENDED ARE LISTED BELOW: TAX SYMPOSIUM EVENT AT WESTIN HOTEL CII CONFERENCE ON FINANCIAL MARKET CONCLAVE IFA CONFERENCE ON INTERNATIONAL TAXATION & TRANSFER PRICING EVOLVING LANDSCAPE PHD SEMINAR ON APPEALS SETTLEMENT COMMISSION SEMINAR ON VALUATION COURSE CONDUCTED BY ICAI. ASSOCHAM SEMINAR ON INTERNATIONAL TAX & TRANSFER PR ICING ASSOCHAM NATIONAL SEMINAR ON TAX DEDUCTION NATIONAL LAW SCHOOL INTERNATIONAL ARBITRATION MOOT 4.10. IN VIEW OF THE ABOVE, THERE IS NO IOTA OF DOU BT THAT THE EXPENSE HAS BEEN INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND AD HOC DISALLOWANCE OF THE SAME WITHOUT ASSIGNING ANY COGENT REASON THEREFORE, IS UNWARRANTED. 18. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE H AS PRIMARILY REITERATED THE STAND TAKEN BY THE LD DRP/ASSESSING OFFICER, WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 19. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE TH ROUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 13 DRP/AO AND OTHER MATERIALS BROUGHT ON RECORD. WE NO TE THAT THE LD DRP/ AO COULD HAVE VENTURED INTO ESTIMATION ONLY AFTER REJE CTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE U/S 145(3) AND THEREAFTER BY BEST JUDG MENT ASSESSMENT U/S 144 OF THE ACT. HERE IN THIS CASE, THE DRP/ AO HAS NOT PASSED ANY ORDER U/S 144 OF THE ACT. THE DRP/ AO THUS WITHOUT REJECTING THE BOOKS OF ACC OUNT OF THE ASSESSEE HAS GONE FOR ESTIMATION ON SUSPICION AND CONJECTURES TH AT THE ASSESSEE MAY BE INFLATING ITS EXPENSES. WHILE SCRUTINIZING THE EXPE NDITURE IF THE EXPENSES CLAIMED ARE NOT HAVING ANY NEXUS TO THE BUSINESS OF THE ASS ESSEE OR IF THERE IS DEFICIENCY IN THE VOUCHERS OR THERE IS NO BILLS SUPPORTING THE IN CURRENCE OF AN EXPENDITURE, AT THE MOST EXPENSES TO THE EXTENT THAT ARE NOT SUPPOR TED BY THE VOUCHERS CAN BE HELD TO BE NON-GENUINE AND CAN BE DISALLOWED BY THE DRP/ AO; AND ITEM-WISE THE DRP/ AO COULD HAVE DISALLOWED THE EXPENDITURE RATHE R THAN GOING FOR ADHOC DISALLOWANCE OF PERCENTAGE BASIS OF THE EXPENSES C LAIMED BY THE ASSESSEE WHICH ACTION OF THE DRP/ AO IS ARBITRARY IN NATURE AND CA NNOT BE SUSTAINED. FOR THAT WE RELY ON THE JUDGMENT OF THE HON`BLE DELHI HIGH COUR T IN THE CASE OF NATIONAL INDUSTRIAL CORP. LTD, 258 ITR 575 (DEL-HC) WHEREIN IT WAS HELD AS FOLLOWS: 26. REGARDING THE SALE PROMOTION EXPENSES, ACCORDING T O THE ASSESSEE-COMPANY IT SPENT RS. 23,75,170 ON GIVING MAJOR GIFT ITEMS. THE AO HELD T HAT KEEPING IN VIEW THE NATURE OF THE BUSINESS OF THE ASSESSEE-COMPANY AND THE REASONABLE NESS OF SUCH EXPENDITURE HE DEEMED IT FIT TO DISALLOW 50 PER CENT OF THE EXPENDITURE ON GIFT ITE MS AS DETAILED IN THE TABLE BEING OF A NON- BUSINESS NATURE AND THUS DISALLOWABLE AS PER PROVIS IONS OF S. 37(1) OF THE IT ACT AND INITIATED PENALTY PROCEEDINGS UNDER S. 271(1)(C) OF THE ACT S EPARATELY ON THIS ISSUE. 27. THE CIT(A) MENTIONED ABOUT THE DISALLOWANCE OF SAL E PROMOTION EXPENSES OF RS. 11,83,585 AND ALLOWED RS. 10 LAKHS, WHICH ACCORDING TO HER WA S RELATED TO BUSINESS AND A PART OF RS. 1,83,585 WAS CONFIRMED AS USED IN PERSONAL GIFTS AN D PERSONAL EXPENDITURE. 28. THE TRIBUNAL HAS OBSERVED THAT THE CIT(A) HAS ALLO WED BULK OF THE RELIEF BY OBSERVING THAT THE EXPENDITURE WAS RELATED TO BUSINESS EXPENDITURE . THE CIT(A) HAS SUSTAINED THE DISALLOWANCE WHICH ACCOUNTS FOR ABOUT 5 PER CENT OF THE TOTAL CL AIM. THE TRIBUNAL OBSERVED THAT 'IN OUR OPINION, THE DISALLOWANCE OF RS. 75,000 UNDER THIS HEAD WILL MEET THE END OF JUSTICE. THUS, WE CONFIRM THE DISALLOWANCE TO THE EXTENT OF RS. 75,00 0 UNDER THIS HEAD AND DELETE THE BALANCE AMOUNT'. 29. IT MAY BE PERTINENT TO MENTION THAT MR. GUPTA ARGU ED THAT THERE WAS NO MATERIAL ON RECORD TO SHOW THAT ANY PART OF THE SAID EXPENDITURE WAS N OT FOR THE SALE PROMOTION AND THE TRIBUNAL WAS, THEREFORE, IN ERROR IN LAW IN SUSTAINING THE D ISALLOWANCE OF RS. 75,000 WITHOUT ANY BASIS. ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 14 HE SUBMITTED THAT THE ORDER OF THE TRIBUNAL REGARDI NG SALE PROMOTION EXPENSES IS BASED ON NO MATERIAL AND THAT IS HOW THIS BECOMES A SUBSTANTIAL QUESTION OF LAW. 30. WE HAVE CAREFULLY EXAMINED THE JUDGMENT OF THE TRI BUNAL AND THERE IS NO MATERIAL ON RECORD TO SHOW THAT ANY PART OF THE SALE PROMOTION EXPENDI TURE WAS INCURRED FOR NON-BUSINESS PURPOSES. THE TRIBUNAL HAS NOT GIVEN ANY BASIS WHATSOEVER WHI LE CONFIRMING THE DISALLOWANCE TO THE EXTENT OF RS. 75,000. ALL THAT THE TRIBUNAL OBSERVE D WAS THAT THE DISALLOWANCE OF RS. 75,000 UNDER THIS HEAD WILL MEET THE ENDS OF JUSTICE. THE APPROACH OF THE TRIBUNAL IN DEALING WITH THIS ASPECT OF THE MATTER WAS ERRONEOUS AND CANNOT BE SU STAINED. WE SET ASIDE THIS PART OF THE ORDER. ON THE BASIS OF OUR AFORESAID FINDINGS, THE APPEAL IS ACCORDINGLY ALLOWED AND DISPOSED OF. IN THE FACTS AND CIRCUMSTANCES OF THIS CASE WE DIRECT THE PARTIES TO BEAR THEIR OWN COSTS. 20. OUR VIEW IS ALSO FORTIFIED BY THE JUDGMENT OF T HE HON`BLE DELHI HIGH COURT IN THE CASE OF JAY ENGINEERING WORKS LTD, 113 ITR 3 89 (DEL-HC), WHEREIN IT WAS HELD AS FOLLOWS: 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL IN THE ABSENCE OF ANY EVIDENCE WAS LEGALLY CORRECT IN HOLDING THAT THE AM OUNTS OF RS. 3,26,200 AND OF RS. 83,523 WERE DEDUCTIBLE FROM DETERMINATION OF PROFITS FOR THE AS ST. YRS. 1962- 63 AND 1963-64 RESPECTIVELY ?' THE APPLICANT-ASSESSEES CARRY ON BUSINESS OF MANUFA CTURING OF FANS, ETC., ON A LARGE SCALE. THE RELEVANT ACCOUNT BOOKS FOR THE ACCOUNTING YEARS 196 1-62 AND 1962-63 WAS DESTROYED IN FIRE IN NOVEMBER, 1962. IN THE RETURNS FILED BY THE ASSESSE ES ALONG WITH THE STATEMENTS OF PROFIT AND LOSS ACCOUNTS AND BALANCE-SHEETS A DEDUCTION OF RS. 3,36 ,200 FROM THE DETERMINATION OF PROFITS FOR THE ASST. YR. 1962-63 AND A DEDUCTION OF RS. 83,523 FROM THE DETERMINATION OF THE PROFITS FOR THE ASST. YR. 1963-64 WERE CLAIMED BY THE ASSESSEES. TH E DEDUCTIONS WERE DISALLOWED BY THE ITO, BUT WERE ALLOWED BY THE AAC AND BY THE TRIBUNAL. THE AP PLICATIONS MADE BY THE ASSESSEES FOR REFERENCE OF THE ABOVE QUESTION OF LAW TO THIS COUR T WERE ALSO DISMISSED BY THE TRIBUNAL. HENCE THE PRESENT APPLICATIONS. IN FINDING OUT WHETHER THE TRIBUNAL SHOULD BE ASKED TO REFER TO THIS COURT THE ABOVE QUESTION OF LAW, TWO POINTS REQUIRE CONSIDERATION, VIZ.: (1) WHEN CAN IT BE SAID THAT A FINDING BY AN INCOME -TAX AUTHORITY IS NOT SUPPORTED BY ANY EVIDENCE ? AND (2) WHETHER IN THE PRESENT CASE THE ORDERS ALLOWING THE DEDUCTIONS CLAIMED BY THE ASSESSEES COULD BE SAID TO BE UNSUPPORTED BY ANY EVIDENCE ? POINT NO. 1 THE ITO AND CERTAIN OTHER AUTHORITY FUNCTIONING UND ER THE IT ACT HAVE A DUAL CHARACTER. THEY ARE BOTH AGENCIES OF INVESTIGATION MADE INTO THE IN COMES OF ASSESSEES AND THEY ARE ALSO QUASI- JUDICIAL AUTHORITIES ASSESSING THE LIABILITIES OF T HE ASSESSEES TO PAYMENT OF INCOME-TAX. UNDER S. 142(2) OF THE ACT THE ITO MAY MAKE SUCH ENQUIRY AS HE CONSIDERS NECESSARY FOR THE PURPOSE OF OBTAINING FULL INFORMATION IN RESPECT OF THE INCOME OR LOSS OF AN ASSESSEE. UNDER S. 143(3) OF THE ACT, THE ITO DOES NOT ONLY HEAR SUCH EVIDENCE AS TH E ASSESSEE MAY PRODUCE OR AS HE MAY REQUIRE ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 15 TO BE PRODUCED, BUT ALSO TAKES INTO CONSIDERATION ' ALL RELEVANT MATERIAL WHICH HE HAS GATHERED' FOR THE PURPOSE OF MAKING AN ASSESSMENT. WHILE THE WORD 'EVIDENCE' MAY RECALL THE ORAL AND DOCUMENTARY EVIDENCE AS MAY BE ADMISSIBLE UNDER THE INDIAN EVIDENCE ACT, THE USE OF THE WORD 'MATERIAL' SHOWS THAT THE ITO NOT BEING A COURT CAN RELY UPON MATERIAL WHICH MAY NOT BE STRICTLY EVIDENCE ADMISSIBLE UNDER THE INDIAN EVIDE NCE ACT FOR THE PURPOSE OF MAKING AN ORDER OF ASSESSMENT. COURTS OFTEN TAKE JUDICIAL NOTICE OF CE RTAIN FACTS WHICH NEED NOT BE PROVED, WHILE ADMINISTRATIVE AND QUASI-JUDICIAL AUTHORITIES CAN T AKE 'OFFICIAL NOTICE' OF WIDER VARIETIES OF FACTS WHICH NEED NOT BE PROVED BEFORE THEM. THUS, NOT ONL Y IN RESPECT OF THE RELEVANCY BUT ALSO IN RESPECT OF PROOF THE MATERIAL WHICH CAN BE TAKEN IN TO CONSIDERATION BY THE ITO AND OTHER AUTHORITIES UNDER THE ACT IS FAR WIDER THAN THE EVI DENCE WHICH IS STRICTLY RELEVANT AND ADMISSIBLE UNDER THE EVIDENCE ACT. UNDER S. 34 OF THE INDIAN EVIDENCE ACT ACCOUNT BOOK S MAINTAINED IN THE REGULAR COURSE OF BUSINESS ARE EVIDENCE AFTER THE RELEVANT ENTRIES AR E PROVED BY ORAL EVIDENCE OR ARE ADMITTED. THE ITOS, HOWEVER, HAVE TO DEAL WITH SUCH NUMEROUS CASE S OF ASSESSMENT THAT THEY CAN ACCEPT AS CORRECT BOOKS OF ACCOUNT MAINTAINED IN REGULAR COUR SE OF BUSINESS WITHOUT SUCH A FORMAL PROOF. IN THE PRESENT CASE, THE RELEVANT BOOKS OF ACCOUNT IN WHICH DETAILED INFORMATION AS TO THE EXPENSES WHICH WERE CLAIMED AS DEDUCTIONS FOR THE A SST. YRS. 1962-63 AND 1963-64 ARE DESTROYED BY FIRE IN NOVEMBER, 1962. UNDER THE INDI AN EVIDENCE ACT SECONDARY EVIDENCE OF THE CONTENTS OF THESE ACCOUNT BOOKS WOULD HAVE TO BE AD DUCED IF THEY WERE TO BE USED TO PROVE ANY FACT. THE EXTERNAL AUDITORS OF THE ASSESSEE-COMPANI ES HAD, HOWEVER, MADE THEIR ANNUAL REPORTS UNDER S. 227(2) OF THE COMPANIES ACT, 1956, TO THE MEMBERS OF THE COMPANY ON THE ACCOUNTS EXAMINED BY THEM AND ON THE BALANCE-SHEETS AND PROF IT AND LOSS ACCOUNTS FOR THESE TWO YEARS. THESE REPORTS DO NOT DOUBT THE CORRECTNESS OF THE E XPENSES, DEDUCTIONS OF WHICH WERE CLAIMED BY THE ASSESSEES. UNDER S. 227(3)(B) AND (C) THE AUDIT OR'S REPORT HAD TO STATE WHETHER IN THEIR OPINION PROPER BOOKS OF ACCOUNT AS REQUIRED BY LAW HAVE BEEN KEPT BY THE COMPANY AND WHETHER THE COMPANY'S BALANCE-SHEETS AND PROFIT AND LOSS AC COUNTS WERE IN AGREEMENT WITH THE BOOKS OF ACCOUNT AND RETURNS. UNDER S. 209 OF THE COMPANIES ACT, THE ASSESSEE-COMPANY WAS REQUIRED TO MAINTAIN PROPER BOOKS OF ACCOUNT WITH REFERENCE TO THE RECEIPTS AND EXPENDITURE TAKING PLACE IN THE BUSINESS OF THE ASSESSEES. THE ACCOUNT BOOKS MA INTAINED BY THEM MUST BE SUCH AS TO GIVE A TRUE AND FAIR VIEW OF THE STATE OF AFFAIRS OF THE C OMPANIES. THE QUESTION ARISES, THEREFORE, WHETHER THE REPORTS OF THE AUDITORS COULD BE SAID TO BE 'MATERIAL' ON WHICH RELIANCE COULD BE PLACED BY THE IT AUTHORI TIES. UNLIKE THE PROOF REQUIRED OF SUCH REPORTS AS ALSO OF THE ACCOUNT BOOKS UNDER THE INDI AN EVIDENCE ACT, IT IS QUITE COMPETENT FOR THE IT AUTHORITIES NOT ONLY TO ACCEPT THE AUDITORS' REP ORT, BUT ALSO TO DRAW THE PROPER INFERENCE FROM THE SAME. THE IT AUTHORITIES COULD, THEREFORE, COME TO THE CONCLUSION THAT SINCE THE AUDITORS WERE REQUIRED BY THE STATUTE TO FIND OUT IF THE DED UCTIONS CLAIMED BY THE ASSESSEES IN THEIR BALANCE-SHEETS AND PROFIT AND LOSS ACCOUNTS WERE SU PPORTED BY THE RELEVANT ENTRIES IN THEIR ACCOUNT BOOKS, THE AUDITORS MUST HAVE DONE SO AND M UST HAVE FOUND THAT THE ACCOUNT BOOKS SUPPORTED THE CLAIMS FOR DEDUCTIONS, WHEN THE DEDUC TIONS WERE DISALLOWED, BY THE ITO ON THE GROUND THAT DETAILED INFORMATION REGARDING THEM WAS NOT AVAILABLE, JUSTICE WAS NOT DONE TO THE ASSESSEES. IT WAS NOT POSSIBLE FOR THE ASSESSEES TO PRODUCE THE ORIGINAL ACCOUNT BOOKS, WHICH WERE DESTROYED IN FIRE. THERE WAS, HOWEVER, OTHER M ATERIAL MAINLY CONSISTING OF THE AUDITORS' REPORTS FROM WHICH IT COULD BE INFERRED THAT THE DE DUCTIONS WERE PROPERLY SUPPORTED BY THE RELEVANT ENTRIES IN THE ACCOUNT BOOKS. IN A SENSE I T MAY BE A QUESTION OF LAW AS TO WHAT THE MEANING OF 'MATERIAL' IS AND WHETHER THE AUDITORS' REPORTS WERE MATERIAL. BUT THE QUESTION OF LAW IS WELL SETTLED AND IS NOT CAPABLE OF BEING DIS PUTED AND DOES NOT, THEREFORE, CALL FOR REFERENCE. ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 16 POINT NO. 2 THE TRIBUNAL HAS STATED THAT, THOUGH, ORDINARILY, T HE ADJUSTMENTS RELATING TO EXPENSES SHOULD HAVE BEEN MADE BY THE ASSESSEES IN THE ACCOUNTS OF THE YEAR TO WHICH THE ADJUSTMENTS RELATE AND NOT IN A SUBSEQUENT YEAR, IT IS OFTEN INEVITABLE TH AT SUCH ADJUSTMENTS RELATING TO EARLIER YEARS HAVE TO BE MADE IN SUBSEQUENT YEARS. THIS IS SPECIA LLY SO, WHEN THE BUSINESS, AS OF THE ASSESSEES, IS OF GIANT PROPORTIONS AND THE BRANCHES ARE FARFLU NG. THE TRIBUNAL HAS ALSO VERY PROPERLY RELIED UPON THE AUDITORS' REPORTS TO DRAW THE PROPER INFER ENCE FROM THE SAME. SINCE THE EVIDENCE IN INCOME-TAX PROCEEDINGS NEED NOT CONSIST NECESSARILY OF EVIDENCE ADMISSIBLE UNDER THE EVIDENCE ACT BUT MAY CONSIST OF OTHER MATERIAL WHICH HAS A P ROBATIVE VALUE, THE TRIBUNAL WAS JUSTIFIED IN TAKING SUCH MATERIAL INTO ACCOUNT. IT CANNOT, THERE FORE, BE SAID THAT THE DECISION OF THE TRIBUNAL WAS NOT BASED ON ANY EVIDENCE. ON THE CONTRARY, IT WAS BASED ON EVIDENCE MEANING THEREBY THAT IT WAS BASED ON RELEVANT MATERIAL WHICH CAN BE CONS IDERED IN THE INCOME-TAX PROCEEDINGS. THE APPLICATIONS ARE, THEREFORE, DISMISSED. THERE W ILL BE NO ORDER AS TO COSTS. 21. WE NOTE THAT THERE IS NO MATERIAL ON RECORD TO SHOW THAT ANY PART OF THESE EXPENSES WERE INCURRED FOR NON-BUSINESS PURPOSES.WE NOTE THAT ASSESSEE`S BOOKS OF ACCOUNTS ARE AUDITED BY CHARTERED ACCOUNTANT. TH E REPORTS OF THE AUDITORS COULD BE SAID TO BE 'MATERIAL' ON WHICH RELIANCE CO ULD BE PLACED BY THE IT AUTHORITIES. THE IT AUTHORITIES NOT ONLY TO ACCEPT THE AUDITORS' REPORT, BUT ALSO TO DRAW THE PROPER INFERENCE FROM THE SAME. HERE IN AS SESSEE`S CASE, THE DRP/ AO HAS NOT PASSED ANY ORDER U/S 144 OF THE ACT. THE DR P/ AO THUS WITHOUT REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE HAS GONE FOR E STIMATION ON SUSPICION AND CONJECTURES THAT THE ASSESSEE MAY BE INFLATING ITS EXPENSES. IT MAY BE PERTINENT TO MENTION HERE THAT THERE WAS NO MATERIAL ON RECORD T O SHOW THAT ANY PART OF THE THESE EXPENDITURES WERE NOT FOR THE PURPOSE OF BUSI NESS. THEREFORE, THE AD HOC ADDITIONS OF RS.8,13,368/- ON ACCOUNT OF ENTERTAINM ENT EXPENSES AND RS.53,00,938/- ON ACCOUNT OF SEMINARS/CONFERENCES M ADE BY LD DRP/AO ARE DIRECTED TO BE DELETED. 22. GROUND NO.5 RAISED BY THE ASSESSEE COMPANY REA DS AS FOLLOWS: 5 ON THE FACTS AND IN LAW AND IN THE CIRCUMSTANCES OF THE CASE, THE LD AO ERRED IN MAKING A DISALLOWANCE OF RS. 13,90,869/- INCURRED T OWARDS PURCHASE OF SOFTWARE BY WRONGFULLY HOLDING THAT THE SAID EXPENSE RELATED TO PRECEDING ASSESSMENT YEAR. ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 17 23. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE A SSESSMENT YEAR UNDER CONSIDERATION, THE COMPANY HAS DEBITED AN AMOUNT OF RS. 4,09,78,069/- IN THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF PURCHASE OF S OFTWARE FOR RESALE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBM ITTED COMPLETE DETAILS OF THE EXPENSE INCLUDING THE NAME OF THE PARTIES, PAN, ADD RESS, NATURE, AMOUNT, INVOICE AND TDS DETAILS, ETC. IN SL. NOS. 1 TO 68 (REFER PAGE NOS. 241 TO 244 OF THE PB). IN THE DRAFT ASSESSMENT ORDER, THE LD. AO, INTER ALIA, PROPOSED TO DISALLOW AN AMOUNT OF RS. 13,90,869/- OUT OF THE TOTAL EXPENSE ON THE UNDERSTANDING THAT THE SAID EXPENSE DID NOT PERTAIN TO THE YEAR UNDER CONSIDERA TION. 24. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED THE OBJECTIONS BEFORE THE LD DRP. THE LD DRP HAD DIRECTED THE AO TO ALLOW THE CLAIM OF THE ASSESSEE AFTER VERIFICATION THAT WHETHER THE EXPENSES ARE RELATED TO THE YEAR UNDER CONSIDERATION OR NOT. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 25. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE TH ROUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD DRP/AO AND OTHER MATERIALS BROUGHT ON RECORD. THE L D COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US FOLLOWING WRITTEN SUBMISSIONS W HICH IS REPRODUCED BELOW: 5.5 THE ASSESSEE HUMBLY SUBMITS THAT THE ABOVE EXP ENSE OF RS.13,90,869 WERE PREPAID EXPENSES SHOWN IN PREVIOUS AY 2013-14 (NOT DEBITED IN PROFIT AND LOSS ACCOUNT) AND PAID DURING AY 2013-14 AFTER DEDUCTION OF APPLICABLE WITHHOLDIN G TAXES. HOWEVER, AS THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING, THE ACTUAL EXPENSE S HAVE BEEN BOOKED DURING AY 2014-15 ON ACCOUNT OF THE FACT THAT THEY RELATE TO THE CURRENT FINANCIAL YEAR. 5.6. IN CONNECTION WITH THE SAME, THE ASSESSEE HAS SUBMITTED THE FOLLOWING DETAILS ALONG WITH THE TDS CERTIFICATE BEFORE THE HON'BLE DRP AND THE LD. AO (REFER PAGE NOS. 535 TO 537 OF THE PB): TOTAL AMOUNT OF TRANSACTION DEDUCTED RATE AMOUNT CHARGED TO P&L A/C IN FY 2012-13 AMOUNT CHARGED TO P&L A/C IN FY 2013-14 OUTSTANDING IN PREPAID ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 18 1,71,74,463 17,17,446 10% 18,09,552 13,90,869 1,39, 74,042 5-7.FROM PERUSAL OF THE ABOVE DETAILS AND THE TDS C ERTIFICATE, YOUR HONOURS WOULD APPRECIATE THAT THOUGH TDS WAS DEDUCTED ON THE FULL VALUE OF T HE TRANSACTION OF RS.1,71,74,463 IN FY 2012- 13 AT THE TIME OF PAYMENT/ CREDIT TO THE VENDOR, AN AMOUNT OF ONLY RS. 18,09,552 WAS BOOKED AS AN EXPENSE DURING FY 2012-13 AND THE REST WAS CARRI ED TO THE PREPAID ACCOUNT. THEREAFTER, IN THE SUCCEEDING FINANCIAL YEAR 2013-1 4 I.E. THE YEAR UNDER CONSIDERATION, AN AMOUNT OF RS. 13,90,869/- WAS CORRECTLY CHARGED FRO M PREPAID ACCOUNT TO THE PROFIT AND LOSS ACCOUNT AS ACTUAL EXPENSES FOR THE YEAR UNDER CONSI DERATION AND THE BALANCE WAS CARRIED OVER TO THE NEXT YEAR UNDER THE MERCANTILE SYSTEM OF ACCOUN TING. 5.8. HOWEVER, THE LD. AO, ON A COMPLETE MISUNDERSTA NDING OF FACTS AND SOLELY OBSERVING THE TDS CERTIFICATE, HAS WRONGLY CONCLUDED THAT THE IMPUGNE D EXPENSE OF RS. 13,90,869 PERTAINED TO FY 2012-13 (AY 2013-14) AS TAX WAS DEDUCTED IN THAT YE AR AND DISALLOWED THE SAME. 26. HOWEVER, LD DR FOR THE REVENUE SUBMITTED BEFORE US THAT THIS ISSUE SHOULD BE EXAMINED BY THE ASSESSING OFFICER AFRESH. WE NOTE T HAT LD DRP HAD ALREADY DIRECTED THE AO TO EXAMINE THE SAID CLAIM OF THE A SSESEE. THE RELEVANT DIRECTIONS OF THE LD DRP IS REPRODUCE BELOW: AO IS DIRECTED TO VERIFY THE INVOICE AND GIVE A CL EAR FINDINGS AS TO WHICH YEAR THIS EXPENSE RELATES AND, CONSIDERING THAT THE EXPENDITURE IS OT HERWISE ALLOWABLE AS BUSINESS EXPENSES, ALLOW THE SAME BASED ON THE FACTS NARRATED ABOVE, WE DIRECT THE AO TO EXAMINE THE SUBMISSION OF THE ASSESSEE AND DOCUMENTS /INVOICES INVOLVED IN TH ESE SUBMISSIONS, AS NOTED ABOVE, AND ADJUDICATE THE ISSUE IN ACCORDANCE TO LA W. FOR STATISTICAL PURPOSES, THE GROUND NO. 5 RAISED BY THE ASSESSEE IS ALLOWED. 27. GROUND NO.6 RAISED BY THE ASSESSEE COMPANY READ S AS FOLLOWS: 6. ON THE FACTS AND IN LAW AND IN THE CIRCUMSTANCES OF THE CASE, THE LD AO ERRED IN REJECTING THE CLAIM OF FOREIGN TAX CREDIT AMOUNTING TO RS.3,22,24,046/- FOR THE TAXES PAID IN UNITED STATES OF AMERICA (USA) ON THE DOUBLY TAX ED INCOME IN ACCORDANCE WITH THE PROVISIONS OF SECTION 90/91 OF THE ACT ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 19 6.1 ON THE FACTS AND IN LAW AND IN THE CIRCUMSTANCE S OF THE CASE, THE LD AO ERRED IN NOT APPRECIATING THAT THE SAID CLAIM COULD NOT BE MADE AT THE TIME OF FILING OF THE RETURN OF INCOME AS THE PAYMENT OF TAXES IN USA WAS NOT MADE TILL THAT TIME. 28. BRIEF FACTS QUA THE ISSUE ARE THAT THE ASSESSEE HAS BEEN DERIVING INCOME FROM RENDERING OF SERVICES IN USA. HOWEVER, THE ASSESSEE WAS UNDER A BONA FIDE BELIEF THAT IT WAS NOT REQUIRED TO FILE A TAX RETURN OR PA Y TAXES IN USA IN RESPECT OF INCOME EARNED FROM RENDERING THE SERVICES IN FY 201 3-14 IN USA. ACCORDINGLY, THE ASSESSEE HAD NOT FILED ANY TAX RETURN IN USA FO R FY 2013-14. FOR THE AY 2014-15 PERTAINING TO PREVIOUS YEAR 2013-14, THE AS SESSEE, BEING A RESIDENT COMPANY OF INDIA, FILED ITS TAX RETURN IN INDIA INC LUSIVE OF THE INCOMES EARNED FROM THE TRANSACTIONS CARRIED IN USA. SUBSEQUENTLY, THE ASSESSEE CAME TO KNOW THAT IT WAS REQUIRED TO PAY TAXES IN USA. ACCORDING LY, THE ASSESSEE FILED ITS TAX RETURN IN USA FOR FY 2013-14 IN MAY 2018, COMPUTING A TOTAL INCOME OF USD 11,59,173 AND DETERMINING A TAX LIABILITY OF USD 4, 59,032. THE ABOVE TAX LIABILITY HAS BEEN ACCEPTED BY THE INTERNAL REVENUE SERVICE ( IRS) VIDE FORM 4549 DATED 7 JUNE 2018 AND THE TAX LIABILITY WAS PAID BY THE ASS ESSEE ON 11 SEPTEMBER 2018. AS MENTIONED ABOVE, INCOME THUS TAXED IN USA IS AL SO INCLUDED IN THE TOTAL INCOME IN THE RETURN OF INCOME FILED IN INDIA AND T AX ON THE SAME IS PAID IN INDIA UNDER THE PROVISIONS OF THE ACT. HENCE, INCOME IS D OUBLY TAXED, ONCE IN USA AS A SOURCE COUNTRY AND AGAIN IN INDIA AS A RESIDENT COU NTRY. HENCE, THE ASSESSEEE IS ELIGIBLE TO CLAIM FOREIGN TAX CREDIT OF TAXES PAID IN USA AGAINST THE TAX LIABILITY DETERMINED IN INDIA. THEREFORE, THE ASSESSEE AFTER PAYMENT OF TAXES IN USA RAISED THE AFORESAID CLAIM OF FOREIGN TAX CREDIT (FTC) AMO UNTING TO RS. 3,22,24,046/- (USD 4,59,032) BEFORE THE LD. AO BY WAY OF APPLICAT ION DATED 15 OCTOBER 2018 (REFER PAGE NOS. 538 TO 555 OF THE PB). HOWEVER, THE LD. AO, WITHOUT ASSIGNING ANY COGENT R EASON AND WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CAS E, REJECTED THE CLAIM OF THE ASSESSEE BY SIMPLY MENTIONING THAT THE ASSESSEE DID NOT MAKE THE AFORESAID CLAIM ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 20 OF FOREIGN TAX CREDIT (FTC) AT THE TIME OF FILING T HE RETURN OF INCOME OR DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. (REFER PAGE NO. 556 OF THE PB). 29. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE IS IN APPEAL BEFORE US. 30. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE TH ROUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD DRP/AO AND OTHER MATERIALS BROUGHT ON RECORD. THE L D COUNSEL SUBMITS THAT AT THE TIME OF FILING OF INCOME TAX RETURN IN INDIA FO R AY 2014-15, THE ASSESSEE HAD NOT CLAIMED FOREIGN TAX PAYABLE AS CREDIT AS NO TAX FOR THE YEAR UNDER CONSIDERATION WAS DETERMINED AND PAID IN USA AT THA T TIME AND ALSO THE TAX RETURN WAS NOT FILED IN USA. HENCE, THE ASSESSEE AFTER PAY MENT OF TAXES IN USA, RAISED THE AFORESAID CLAIM OF FOREIGN TAX CREDIT (FTC) BEF ORE THE LD. AO BY WAY OF APPLICATION DATED 15 TH OCTOBER 2018 IN ACCORDANCE WITH RULE 128 OF THE I NCOME TAX RULES, 1962. THE LD COUNSEL DRAWS OUR ATTENTIO N THAT RULE 128 OF THE I.T. RULES IN CONNECTION WITH CLAIM OF FOREIGN TAX CREDI T WHICH PROVIDES AS UNDER: '128. (1) AN ASSESSEE, BEING A RESIDENT SHALL BE AL LOWED A CREDIT FOR THE AMOUNT OF ANY FOREIGN TAX PAID BY HIM IN A COUNTRY OR SPECIFIED TERRITORY OUTSIDE INDIA, BY WAY OF DEDUCTION OR OTHERWISE, IN THE YEAR IN WHICH THE INCOME CORRESPONDING TO SUCH TAX HAS BEEN OFFERED T O TAX OR ASSESSED TO TAX IN INDIA, IN THE MANNER AND TO THE EXTENT AS SP ECIFIED IN THIS RULE : .............. (4) NO CREDIT UNDER SUB-RULE (1) SHALL BE AVAILABLE IN RESPECT OF ANY AMOUNT OF FOREIGN TAX OR PART THEREOF WHICH IS DISP UTED IN ANY MANNER BY THE ASSESSEE: PROVIDED THAT THE CREDIT OF SUCH DISPUTED TAX SHALL BE ALLOWED FOR THE YEAR IN WHICH SUCH INCOME IS OFFERED TO TAX OR ASSESSED TO TAX IN INDIA IF THE ASSESSEE WITHIN SIX MONTHS FROM THE END OF THE MONT H IN WHICH THE DISPUTE IS FINALLY SETTLED, FURNISHES EVIDENCE OF SETTLEMEN T OF DISPUTE AND AN EVIDENCE TO THE EFFECT THAT THE LIABILITY FOR PAYME NT OF SUCH FOREIGN TAX HAS BEEN DISCHARGED BY HIM AND FURNISHES AN UNDERTAKING THAT NO REFUND IN RESPECT OF SUCH AMOUNT HAS DIRECTLY OR INDIRECTLY B EEN CLAIMED OR SHALL BE CLAIMED.' ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 21 31. THE LD COUNSEL FOR THE ASSESSEE SUBMITS BEFORE US THAT THE CLAIM OF CREDIT FOR TAXES PAID IN USA WITH RESPECT TO TAX LIABILITY FIN ALIZED IN JUNE 2018 IS IN ACCORDANCE WITH THE LAW. THE LD COUNSEL ALSO RELIED ON THE JUDGMENT OF COORD INATE BENCH OF KOLKATA TRIBUNAL IN THE CASE OF TCG LIFESCIENCES PUT. LTD. VS. DCIT [ITA NO. 121/KOL/2016] WHEREIN, ON SIMILAR FACTS, THE HON'BL E TRIBUNAL DIRECTED THE ASSESSING OFFICER TO CONSIDER THE CLAIM OF THE ASSE SSEE IN ACCORDANCE WITH LAW AFTER DUE VERIFICATION. FINDINGS OF THE COORDINATE BENCH IS GIVEN BELOW: '32. AS FAR AS THE QUESTION OF GIVING CREDIT TO TAX ES PAID IN JAPAN IS CONCERNED, IT REQUIRES VERIFICATION BY THE AO AND T HEREFORE THE AO IS DIRECTED TO CONSIDER THE PLEA OF THE ASSESSEE RAISE D IN THE ADDITIONAL GROUND IN ACCORDANCE WITH LAW AFTER DUE VERIFICATIO N.' 32. WE HAVE GONE THROUGH THE SUBMISSION OF THE ASSE SSEE, AS NOTED ABOVE. THE LD DR FOR THE REVENUE ALSO FAIRLY AGREED THAT FOREIGN TAX CREDIT (FTC) MAY BE ALLOWED TO THE ASSESSEE IN ACCORDANCE TO LAW. THERE FORE, WE DIRECT THE ASSESSING OFFICER TO EXAMINE THE CORRECTNESS OF THE ASSESSEE` S CLAIM FOR FOREIGN TAX CREDIT (FTC), AS PER INDIA USA-TREATY, AND ALLOW THE CLAIM OF THE ASSESSEE IN ACCORDANCE TO LAW. FOR STATISTICAL PURPOSES, THE GR OUND NO. 6 RAISED BY THE ASSESSEE IS ALLOWED. 33. GROUND NO.7 RAISED BY THE ASSESSEE COMPANY READ S AS FOLLOWS: 7. ON THE FACTS AND IN LAW AND IN THE CIRCUMSTANCES O F THE CASE, THE LD AO ERRED IN GRANTING OF TAX DEDUCTED AT SOURCE OF RS.23,48,66,8 31/- INSTEAD OF RS.73,17,90,335/- AS CLAIMED IN THE RETURN OF INCOME AND ALSO REFLECTED UNDER FORM 26AS STATEMENT, THEREBY RESULTING IN SHORT GRANT OF CREDIT OF RS.49,69,23,5 04/-. 34. WE HAVE HEARD BOTH THE PARTIES. WE NOTE THAT A SSESSEE IS ENTITLED TO GET THE CREDIT OF TDS THEREFORE, WE DIRECT THE ASSESSING OF FICER TO GIVE TDS CREDIT AS ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 22 CLAIMED IN THE REVISED RETURN OF INCOME FILED BY THE ASSESSEE ON 31 ST MARCH 2016 IN ACCORDANCE TO LAW. 35. BEFORE PARTING, IT IS NOTED THAT THE ORDER IS B EING PRONOUNCED AFTER 90 DAYS OF HEARING. HOWEVER, TAKING NOTE OF THE EXTRAORDINARY SITUATION IN THE LIGHT OF THE COVID-19 PANDEMIC AND LOCKDOWN, THE PERIOD OF LOCKDOWN DAYS NEED TO BE EXCLUDED. FOR COMING TO SUCH A CONCLUSION, WE RELY UPON THE DECISION OF THE CO-ORDINATE BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF DCIT VS JCB LIMITED IN ITA NO 6264/MUM/2018 AND ITA NO. 6103/MUM/2018 FOR A.Y. 2013-14 ORDER DATED 14.05.20 20. 36. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17/06/20 20. SD/- (S. S. GODARA) SD/- (A. L. SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA; DATED:17/06/2020 RS, SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT- M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 2. / THE RESPONDENT.- ACIT, CIRCLE-2(2), KOLKATA. 3. ( ) / THE CIT(A), (SENT THROUGH EMA IL) 4. / CIT 5. ! $$% , % , / DR, ITAT, KOLKATA (SENT THROUGH EMAIL) 6. ( / GUARD FILE. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR, I.T.A.T, KOLKATA BENCHES, KOLKATA . ITA NO.2633/KOL/2018 M/S PRICEWATERHOUSECOOPERS PRIVATE LIMITED 23