Deloitte Haskins & Sells, Gurgaon V. ACIT, New Delhi

ITA 6749/DEL/2015

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 6902 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2010-2011
• Appeal Filed On: 23-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAGDISH SINGH
• Keywords: Business expenditure; Corroborative evidences; Revenue expenditure; TDS; Set aside; Liquidation
• Section: 37(1); 195; 194J; 40a(ia); 13; 22; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE, SHRI G.S. PANNU, VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER I.T.A NO.6749/DEL/2015 (ASSESSMENT YEAR 2010-11) DELOITTE HASKINS & SELLS , 7 TH FLOOR, BUILDING 10, TOWER B, DLF CYBER CITY COMPLEX, DLF CITY PHASE-II, GURGAON-122 002. PAN-AABFD 2095B VS. ASST. CIT, CIRCLE-37(1), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY SH. PERCY PARDIWALLA, ADV. RESPONDENT BY SH. JAGDISH SINGH, SR. DR DATE OF HEARING 04.11.2020 DATE OF PRONOUNCEMENT 29.01.2021 ORDER PER SUDHANSHU SRIVASTAVA, JM: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST OR DER DATED 12.10.2015 PASSED BY THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS)-20, NEW DELHI {CIT(A)} FOR ASSESSMENT YE AR 2010-11. 2 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT 2.0 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SE IS A CHARTERED ACCOUNTANT FIRM AND DERIVES INCOME FROM P ROFESSION. THE RETURN OF INCOME FOR THE YEAR WAS FILED DECLARIN G AN INCOME OF RS.9,37,46,160/-. THE CASE WAS SELECTED FOR SCRUTINY . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.3,14,24,019/- TOWARDS SUBSCRIPTION FEES PAID TO D ELOITTE TOUCHE TOHMATSU (DTT). THE ASSESSEE WAS REQUIRED TO GIVE C OMPLETE DETAILS OF SUBSCRIPTION FEES, EXPLAIN THE PURPOSE OF MAKING THE PAYMENT, PRODUCE ORIGINAL BILLS AND PRODUCE COPY OF THE AGRE EMENT. THE ASSESSEE WAS ALSO ASKED TO ESTABLISH THAT THE EXPEND ITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF B USINESS AND ALSO TO INDICATE IF ANY TAX WAS DEDUCTED AT SOURCE. IT WAS THE SUBMISSION OF THE ASSESSEE THAT THE ASSESSEE FIRM I S A PART OF GLOBAL ORGANIZATION OF PROFESSIONAL SERVICE FIRMS AND THE MEMBER FIRMS ARE LOCATED ALL OVER THE WORLD AND ENGAGED IN RENDERING PROFESSIONAL SERVICES UNDER THE LOCAL LAWS OF A PARTICULAR COUNTR Y IN THE FIELD OF ACCOUNTING, AUDITING, INSOLVENCY LAW, MANAGEMENT CON SULTING, TAXATION ETC. IT WAS FURTHER SUBMITTED BEFORE THE A SSESSING OFFICER 3 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT THAT DELOITTEE TOUCHE TOHMATSU (DTT) CHARGES SUBSCR IPTION FEES TO DELOITTE HASKING & SELLS, MUMBAI AND THIS FIRM IN T URN CHARGES THE MEMBER FIRMS (INCLUDING THE ASSESSEE) THE SHARE OF DTT SUBSCRIPTION BY WAY OF DEBIT NOTES. IT WAS SUBMITTED THAT THE SUBSCRIPTION CHARGES WERE CHARGED ON THE BASIS OF P ROPORTION OF REVENUE EARNED BY THE ASSESSEE FIRM TO THE TOTAL RE VENUE OF THE DELOITTE FIRMS IN INDIA. HOWEVER, THE ASSESSING OFF ICER WAS OF THE VIEW THAT THE SUBSCRIPTION FEE WAS NOT WHOLLY AND EXCL USIVELY FOR THE PURPOSE OF THE BUSINESS/PROFESSION AND HE PROCEEDED TO DISALLOW THE ENTIRE AMOUNT OF SUBSCRIPTION FEE PAID. 2.1 THE ASSESSING OFFICER FURTHER NOTICED THAT THE ASSESSEE FIRM HAD PAID RS.17,41,389/- TO M/S DUA & ASSOCIATE S AS LEGAL FEES. THE ASSESSEE WAS REQUIRED TO EXPLAIN THE NATU RE AND PURPOSE OF THE SAME. IT WAS SUBMITTED BY THE ASSESSEE THAT THIS AMOUNT HAD BEEN PAID ON BEHALF OF THE MR. DEEPAK ROY (PARTNER) TO DEFEND PROCEEDINGS U/S 482 OF THE CRIMINAL PROCEDURE CODE BEFORE THE HONBLE ALLAHABAD HIGH COURT. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE FEES PAID WERE WITH REFERENCE TO DEFEND ING A CRIMINAL 4 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT CASE WHICH COULD NOT BE SAID TO BE RELATED TO THE BU SINESS OF THE ASSESSEE. ACCORDINGLY, THE ENTIRE AMOUNT OF PROFESS IONAL FEES PAID WAS ALSO DISALLOWED BY THE ASSESSING OFFICER. THE AS SESSMENT WAS COMPLETED AT AN INCOME OF RS.12,63,60,210/-. 2.2 AGGRIEVED, THE ASSESSEE APPROACHED THE LD. FIR ST APPELLATE AUTHORITY CHALLENGING THE TWO ADDITIONS. HOWEVER, BOTH THE DISALLOWANCES WERE UPHELD BY THE LD. CIT (A). 2.3 THE ASSESSEE HAS NOW APPROACHED THIS TRIBUNAL CHALLENGING TO UPHOLD THE DISALLOWANCES BY RAISING T HE FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED AO ERRED IN DISALLOWING AND THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE DISALLO WANCE OF SUBSCRIPTION FEES PAID TO DELOITTE TOUCHE TOHMATSU AMOUNTING TO RS.3,08,72,662/- BY HOLDING THAT THE S AME IS NOT IN THE NATURE OF REVENUE EXPENDITURE AND IS ALS O NOT EXPENSES WHOLLY & EXCLUSIVELY RELATED TO THE BUSINE SS AND THEREFORE NOT ALLOWABLE U/S SECTION 37(1) OF THE AC T. 2. THAT ON THE FACTS, THE LEARNED CIT (A) ERRED IN OBSERVING THAT THE SUBSCRIPTION FEES PAID TO DELOIT TE TOUCHE TOHMATSU AMOUNTING TO RS.3,08,72,662/- IS TRANSFER OF PROFIT BY THE APPELLANT TO ITS PRINCIPAL ENTITY. 3. THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN DISALLOWING AND THE 5 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT LEARNED CIT (A) HAS ERRED IN CONFIRMING THE DISALLO WANCE OF LEGAL & PROFESSIONAL FEES OF RS. 17,41,389 PAID TO M/S DUA & ASSOCIATES BY HOLDING THAT IT IS IN THE NATURE OF PERSONAL EXPENSES AND NOT INCURRED WHOLLY & EXCLUSIVELY FOR BUSINESS PURPOSE. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, A LTER, AMEND OR WITHDRAW ANY GROUND OF APPEAL EITHER BEFOR E OR AT THE TIME OF HEARING OF THIS APPEAL. 3.0 THE LD. AUTHORIZED REPRESENTATIVE (AR) SUBMI TTED THAT GROUND NOS. 1 & 2 OF THE ASSESSEES APPEAL PERTAINE D TO THE DISALLOWANCE OF SUBSCRIPTION FEES. IT WAS SUBMITTED T HAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF T HIS TRIBUNAL IN ASSESSEES CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO.2927/DEL/2013 VIDE ORDER DATED 23.10.2018. THE LD. AUTHORIZED REPRESENTATIVE EXPLAINED THE NECESSITY O F PAYING THE SUBSCRIPTION FEES AND FURTHER EXPLAINED HOW THE SUBS CRIPTION FEES IS COLLECTED FROM THE MEMBERS/COMPANIES BY DELOITTE HA SKINS & SELLS, MUMBAI. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SU BMITTED THAT IN THE CASE OF DTT, THE SUBSCRIPTION FEES RECEIVED FRO M THE MEMBERS HAVE BEEN TAXED AS ITS INCOME. THE LD. COUNSEL FOR THE ASSESSEE FURTHER DREW OUR ATTENTION TO THE DECISION OF THE CO -ORDINATE BENCH IN THE CASE OF DELOITTE HASKINS AND SELLS, MUMBAI I N ITA NO. 6 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT 5096/MUM/2011 VIDE ORDER DATED 30.11.2016 WHEREIN AN IDENTICAL ISSUE AROSE FOR CONSIDERATION BEFORE THE BENCH WHERE THE SUBSCRIPTION FEES PAID BY DELOITTE HASKINS AND SELL S, MUMBAI TO DTT WAS DISALLOWED U/S 40A (IA) OF THE ACT. IT WAS SU BMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT DISALLOWANCE WAS D IRECTED TO BE DELETED. THE LD. COUNSEL FOR THE ASSESSEE FURTHER R ELIED UPON THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF DE LOITTE HASKINS AND SELLS, KOLKATA IN ITA NOS. 587 AND 588/KOL/2016 VIDE ORDER DATED 11.07.2018. IT WAS SUBMITTED BY THE LD. COUNSE L FOR THE ASSESSEE THAT SIMILAR SUBSCRIPTION FEES WAS PAID BY THE KOLKATA FIRM WHICH WAS DISALLOWED BY THE ASSESSING OFFICER AND WAS SUBSEQUENTLY ALLOWED BY THE TRIBUNAL. THE LD. COUNS EL FOR THE ASSESSEE FURTHER RELIED UPON THE DECISION OF THE CO -ORDINATE BENCH IN THE CASES OF OTHER SISTER CONSULTANCY FIRMS WHO H AVE PAID SUBSCRIPTION FEES TO THEIR PARENT BODY. THE LD. COU NSEL FOR THE ASSESSEE CONCLUDED BY STATING THAT THE FEES HAVE BE EN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND HAVE TO BE ALLOWED. 7 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT 3.1 WITH RESPECT TO GROUND NO.3 OF THE APPEAL , THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THIS GROUN D PERTAINED TO DISALLOWANCE OF LEGAL & PROFESSIONAL FEES AMOUNTING TO RS.17,41,389/- PAID TO M/S DUA & ASSOCIATES. THE LD . AUTHORIZED REPRESENTATIVE SUBMITTED THAT DURING THE FINANCIAL YEAR 2009-10, THE ASSESSEE HAD DEBITED TO THE PROFIT & LOSS ACCOU NT A SUM OF RS.17,41,389/- THE SAID AMOUNT WAS IN THE NATURE OF LEGAL CHARGES PAID TO M/S. DUA & ASSOCIATES. IT WAS SUBMITTED THAT THE ASSESSEE WAS THE STATUTORY AUDITOR OF A COMPANY U/S.226 OF TH E COMPANIES ACT, 1956. THE STATUTORY AUDIT REPORT WAS ISSUED U/S .227 OF THE COMPANIES ACT, 1956 AND WAS SIGNED BY MR. DEEPAK ROY AS PARTNER OF THE FIRM. IT WAS SUBMITTED THAT INSPECTION WAS CAR RIED OUT BY THE REGISTRAR OF COMPANIES UNDER THE PROVISIONS OF THE COMPANIES ACT IN RESPECT OF THE FINANCIAL ACCOUNTS OF THE CLIENT COMPANY AND THE REPORT OF INVESTIGATIONS CONDUCTED BY THE INSPE CTOR OF THE COMPANY LAW AUTHORITIES CONTAINED CERTAIN OBSERVATIO NS ABOUT THE INACCURACIES / ERRORS OF OMISSION IN THE FINANCIAL STATEMENTS AND THE AUDIT REPORT. THEREAFTER, A CRIMINAL COMPLAINT WAS INSTITUTED AGAINST MR. DEEPAK ROY IN THE COURT OF HONBLE CHIE F JUDICIAL 8 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT MAGISTRATE, MEERUT BY THE REGISTRAR OF COMPANIES, U TTAR PRADESH AND UTTARANCHAL UNDER SECTION 233 OF THE COMPANIES ACT AND THE HONBLE COURT, ON THE BASIS OF COMPLAINT, ISSUED SU MMONS TO MR. DEEPAK ROY, THE PARTNER OF THE FIRM. IT WAS SUBMITTE D THAT MR. DEEPAK ROY FILED A MISCELLANEOUS PETITION BEFORE TH E HONBLE HIGH COURT OF ALLAHABAD TO CHALLENGE THE SUMMONS ISSUED BY THE CHIEF JUDICIAL MAGISTRATE, MEERUT. THE LD. AR FURTHER SUB MITTED THAT THE HON'BLE HIGH COURT HEARD THE PETITION AND GRANT ED STAY AGAINST THE PROCEEDINGS BEFORE THE CHIEF JUDICIAL MAGISTRAT E, MEERUT OBSERVING THAT ON PERUSAL OF THE COMPLAINT IT IS NO TICED THAT WILLFUL INCORRECT REPORTING IS NOT ALLEGED AND, THEREFORE, NO OFFENCE IS MADE OUT. THE HONBLE HIGH COURT STAYED FURTHER PROCEEDI NGS ON THE GROUND THAT IN ABSENCE OF CHARGE OF WILLFUL/ERRONEOU S REPORTING THERE DOES NOT APPEAR TO BE AN OFFENCE UNDER SECTIO N 227 OF THE COMPANIES ACT, 1956. THE LD. AR SUBMITTED THAT THE ASSESSEE FIRM HAD APPOINTED M/S. DUA & ASSOCIATES FOR DEFENDING T HE ABOVE CRIMINAL PROCEEDING AGAINST MR. DEEPAK ROY WHO HAD S IGNED THE AUDIT REPORT ISSUED BY THE ASSESSEE FIRM AND ACCORD INGLY PAID RS.17,41,389/- AS PROFESSIONAL FEES AND DEDUCTED AP PLICABLE TDS 9 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT THERE FROM. IT WAS SUBMITTED THAT EXPENDITURE INCURR ED FOR DEFENDING CRIMINAL PROCEEDINGS AGAINST THE PARTNER OF THE FIRM FOR HIS ACTIONS AS PARTNER IS NOT HIS PERSONAL EXPENDIT URE. MR. DEEPAK ROY HAD SIGNED THE AUDIT REPORT AS A PARTNER OF THE FIRM AND, THEREFORE, TO SAVE THE REPUTATION AND GOODWILL OF T HE FIRM, EXPENDITURE WAS INCURRED BY THE ASSESSEE AND, THEREF ORE, THE AFORESAID EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF PROFESSION OF THE ASSESSES. RELIANCE WAS PLACED ON THE DECISION OF GUJARAT AGRO OIL ENTERPRISES LTD. V. CI T [2002] 125 TAXMAN 912 (GUJ) IN SUPPORT OF HIS CONTENTION. THE LD. AUTHORIZED REPRESENTATIVE CONCLUDED THE ARGUMENTS ON THE ISSUE BY SAYING THAT THE PROFESSIONAL FEES WERE PAID TO DEFEND THE CRIMINAL COMPLAINT BECAUSE THE GOODWILL AND REPUTATION OF THE ASSESSEE FIRM WAS AT STAKE AND IT WAS INCUMBENT ON THE ASSESSEE FIR M TO PROTECT ITSELF FROM SUCH ACTS. IT WAS ALSO SUBMITTED THAT I T IS THE PARTNER OF THE FIRM WHO SIGNS THE AUDIT REPORT AND, THEREFORE, THE PARTNER IS NOT SIGNING IN HIS PERSONAL CAPACITY BUT IN CAPACIT Y OF THE PARTNER OF THE FIRM AND, THEREFORE, THE COMPANY HAS TO DEFEND ACTS WHICH HAVE BEEN DONE IN FURTHERANCE OF THE DUTIES AS THE PARTN ER OF THE FIRM. 10 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT THE LD. AUTHORIZED REPRESENTATIVE ALSO SUBMITTED TH AT THE ASSESSING OFFICERS RELIANCE ON THE JUDGMENT OF SWA DESHI COTTON MILLS COMPANY LTD. VS. CIT REPORTED IN 100 ITR 59 ( ALLAHABAD FULL BENCH) WAS MISPLACED AND WAS MISAPPLICATION OF LAW. 4.0 PER CONTRA, THE LD. SR. DEPARTMENT REPRESENTA TIVE (DR) PLACED EXTENSIVE RELIANCE ON THE OBSERVATIONS AND FINDINGS OF BOTH THE LOWER AUTHORITIES AND SUBMITTED THAT THESE OBSERVATIONS SHOULD BE GIVE DUE CONSIDERATION BY THE BENCH WHILE DECIDING THE ISSUE. 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO P ERUSED THE MATERIAL ON RECORD. AS FAR AS THE ISSUE OF DISA LLOWANCE OF SUBSCRIPTION FEES IS CONCERNED, WE AGREE WITH THE CO NTENTIONS OF THE LD. AUTHORIZED REPRESENTATIVE THAT THIS ISSUE STAND S COVERED BY THE ORDER OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSMENT YEAR 2009-10 IN ITA NO.2927/DEL/2013 VIDE ORDER DATED 23 .10.2018. THE RELEVANT OBSERVATIONS AND FINDINGS OF THE TRIBU NAL ARE CONTAINED IN PARAGRAPHS 11 TO 17 OF THE SAID ORDER AND THE SAME ARE BEING REPRODUCED HEREIN UNDER FOR READY REFEREN CE: 11 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT 11. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT IN DISPUTE THAT THE AS SESSEE HAS BEEN PAYING SUBSCRIPTION CHARGES SINCE ASSESSMENT Y EAR 2007- 08. IT APPEARS THAT THIS PAYMENT OF SUBSCRIPTION CH ARGES HAS BEEN QUESTIONED ONLY IN THE YEAR UNDER CONSIDERATIO N. THE OBSERVATIONS OF THE ASSESSING OFFICER WHILE DISALLO WING THE CLAIM OF SUBSCRIPTION CHARGES HAVE BEEN MENTIONED E LSEWHERE. 12. FIRST OBJECTION RELATES TO THE PAN OF THE DTT. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS PA ID SUBSCRIPTION FEES TO A COMPANY REGISTERED IN USA. A CCORDING TO THE ASSESSING OFFICER, IT CANNOT BE CLAIMED AS BUSI NESS EXPENDITURE. IN OUR UNDERSTANDING OF LAW, SUCH OBSE RVATION OF THE ASSESSING OFFICER DOES NOT HOLD ANY WATER, BECA USE UNDER THE COMPANIES ACT, A COMPANY CAN BE INCORPORATED UN DER ANY OTHER LAW ALSO. THE ASSESSING OFFICER HAS FURTHER M ENTIONED THAT IN THE PARTNERSHIP DEED, THERE IS NO CLAUSE RE LATING TO PAYMENT OF DTT. WE FAIL TO UNDERSTAND THE NECESSITY OF SUCH CLAUSE IN THE PARTNERSHIP DEED. 13. THE ASSESSING OFFICER FURTHER OBSERVED THAT DHS MUMBAI HAS PAID TO DTT AFTER DEDUCTING TAX AT SOURCE U/S 1 94J OF THE ACT WHICH MEANS THAT TDS HAS BEEN DEDUCTED FOR FEES FOR PROFESSION OR TECHNICAL SERVICES. THE ASSESSING OFF ICER WAS OF THE OPINION THAT ON THE ONE HAND DHS MUMBAI IS MAKING PAYMENT AS FEES FOR PROFESSION OR TECHNICAL SERVICE S AND, ON THE OTHER HAND, THE ASSESSEE IS CLAIMING THE SAME AS SU BSCRIPTION 12 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT FEES. AS MENTIONED ELSEWHERE, IN THE CASE OF DHS MUMBAI IN ASSESSMENT YEARS 2003-04, 2004-05 AND 2005-06, PAYM ENT MADE TO DTJ-WAS DISALLOWED U/S 40A(IA) OF THE ACT. THEREAFTER, DHS MUMBAI STARTED DEDUCTING TAX AT SOURCE TO AVOID UNNECESSARY LITIGATION. BUT THIS HAS NOTHING TO DO WITH THE SUBSCRIPTION CHARGES PAID BY THE ASSESSEE TO DHS MU MBAI AS ITS SHARE OF CONTRIBUTION. 14. IN OUR CONSIDERED OPINION, THE REASONS GIVEN BY THE ASSESSING OFFICER FOR MAKING DISALLOWANCE ARE NOT B ASED ON SOUND PRINCIPLES. IN OUR UNDERSTANDING OF THE FACTS , BY BECOMING PART OF GLOBAL NET WORK OF PROFESSIONAL FIRMS, IT I S EASIER TO GET WORK OF INTERNATIONAL CLIENTS WHICH ARE REFERRED BY FIRMS OF OTHER COMPANIES FROM OTHER COUNTRIES. SIMILARLY, THE ASSE SSEE MAY ALSO REFER ITS CLIENTS TO ITS ASSOCIATED FIRM IN OT HER COUNTRIES WHERE THE CLIENTS MAY REQUIRE PROFESSIONAL SERVICES . THE USE OF THE NAME DELOTTE IS IN ITSELF SUFFICIENT TO JUSTIFY THE BUSINESS NECESSITY OF THE SUBSCRIPTION CHARGES. 15. THE CO-ORDINATE BENCH IN THE CASE OF DHS MUMBAI ITA NO. 5096/MUM/2011 AND ANOTHER HAS EXAMINED ARTICLE 1 OF VEREIN IN DETAIL. THE RELEVANT PART READS AS UNDER: 'ARTICLE 1 NAME, DOMICILE AND PURPOSES 1.1 NAME AND DOMICILE. A VEREIN IS HEREBY ESTABLISHED WITH D OMICILE IN ZURICH, SWITZER LAND, UNDER THE NAME OF DELOITTE TOUCHE TOHMATSU ('VEREIN'). THE VEREIN CONSISTS OF MEMBERS THAT 13 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT ARE PROFESSIONAL FIRMS ('MEMBER FIRMS'). THE MEMBER FIR MS ARE ENGAGED IN RENDERING PROFESSIONAL SERVICES, TO THE EXTENT THEY MAY LAWFULLY BE PERFORMED UNDER LOCAL L AWS (7.1), IN THE FIELDS OF ACCOUNTING, AUDITING, INSO LVENCY, LAW, MANAGEMENT CONSULTING, TAXATION AND RELATED SE RVICES ('PROFESSIONAL SERVICES'). THE VEREIN IS GOVERNED B Y THESE ARTICLES, BY THE SUPPLEMENTARY AGREEMENT AMONG THE MEMBER FIR MS SUPPLEMENTING THESE ARTICLES ('SUPPLEMENTAL AGREEMENT'), AND BY THE APPLICABLE PROVISIONS OF THE SWISS CIVIL CODE . 1.2 PURPOSES. THE PURPOSES OF THE VEREIN SHALL BE: 1. TO FURTHER INTERNATIONAL COOPERATION AND COHESION AMONG THE MEMBER FIRMS; 2. TO ASSURE THAT THEIR PRACTICES SHALL CONFORM TO PROFESSIONAL STANDARDS OF THE HIGHEST QUALITY; 3. TO ADVANCE THE INTERNATIONAL AND NATIONAL LEADERSH IP OF THE MEMBER FIRMS IN RENDERING PROFESSIONAL SERVI CES; AND TO PERFORM ALL OTHER FUNCTIONS INCIDENTAL TO TH E ABOVE PURPOSES. ARTICLE 8 DEALS WITH FINANCIAL MATTERS AND CLAUSE ( B) OF THE SAID ARTICLE READS AS UNDER:- (A) EACH MEMBER FIRM SHALL CONTRIBUTE TO WARD THE BUDGETED OPERATING EXPENSES OF THE VEREIN FOR EACH FISCAL YEAR IN SUCH PROPORTIONS AS SHALL BE ALLOCATED BY T HE BOARD OF DIRECTORS; AND 14 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT (B) THE AMOUNT ALLOCATED TO EACH MEMBER FIR M SHALL BE BASED UPON AGGREGATE REVENUES AND SUCH OTHER F ACTO RS, IF ANY, AS DELOTTE HASKINS AND SELLS IT A NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO.: 5094/MUM/2011 MAY BE DETERMINED BY THE BOARD OF DIRECTORS AND APPROVED BY THE MEMBER FIRMS. AND ARTICLE 12 DEALS WITH DISSOLUTION, WHICH READS AS UNDER:- 12.1 BY RESOLUTION A DISSOLUTION OF THE VEREIN SHA LL OCCUR IF A RESOLUTION TO THAT EFFECT IS, ADOPTED BY THE M EMBER FINNS. 12.2 DISTRIBUTIONS. UPON DISSOLUTION OF THE VEREIN, ANY LIQUIDATION PROCEEDS SHALL BE APPLIED IN THE FOLLOW ING ORDER: PAYMENT OR DISCHARGE OF ALL LIABILITIES OF THE VERE IN, INCLUDING ANY UNPAID PRINCIPAL OF AND ACCRUED INTER EST ON ANY LOANS AND ADVANCES MADE BY THE MEMBER FIRMS TO THE VEREIN; AND PAYMENT OF ANY REMAINING BALANCE TO EACH MEMBER FINN IN THE PROPORTION THAT ITS ALLOCATED , CONTRIB UTIONS TO BUDGETED OPERATING EXPENSES OF THE VEREIN BEAR TO T HE TOTAL BUDGETED OPERATING EXPENSES OF THE VEREIN FOR THE T HEN CURRENT FISCAL YEAR, LESS ANY UNPAID PORTION OF THE MEMBER FINN'S CONTRIBUTION OUTSTANDING ON THE DATE OF DISS OLUTION' 15 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT FROM THE READING OF ABOVE ARTICLES, IT IS SEEN THAT THE ASSOCIATION CONSTITUTES OF MEMBER FIRMS WHICH ARE ENGAGED IN RENDERING OF PROFESSIONAL SERVICES AND T HE PURPOSE OF VEREIN IS TO FURTHER THE INTERNATIONAL C OOPERATION AND COHESION AMONG THE MEMBER FIRMS; TO ASSURE THAT PRACTICES OF THE MEMBERS SHALL CONFORM TO PROFESSIO NAL STANDARDS OF HIGHEST QUALITY; TO ADVANCE THE INTERN ATIONAL AND NATIONAL LEADERSHIP OF THE MEMBER FIRMS IN REND ERING PROFESSIONAL SERVICES, ETC. EACH MEMBER CONTRIBUTES TOWARDS THE BUDGETED OPERATING EXPENSES OF VEREIN I N SUCH PROPORTION WHICH HAS BEEN DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. 5094/MUM/2011 ALLOCATED TO THEM. THE AMOUNT ALLOCATED TO THE EACH MEMBER FIRM IS BASED ON AGGRE GATE REVENUES AND OTHER FACTORS AS ILLUSTRATED THEREIN. IN PURSUANCE OF SUCH ALLOCATION, INVOICES WERE ISSUED BY DTT TO ASSESSEE IN INDIA ALLOCATING THE DTT'S OPERATION AL BUDGET. THIS IS EVIDENT FROM CERTIFICATE OF THE CHA RTERED ACCOUNTANT GIVEN AT PAGE 67. WHILE MAKING THE SAID PAYMENT, THE ASSESSEE HAD NOT DEDUCTED THE &TDS INT ER ALIA ON THE GROUND THAT, FIRSTLY, THE RELATIONSHIP BETWEEN 'THE DTT AND ITS MEMBER IS BASED ON PRINCIPLE OF MUTUALITY', THEREFORE, THE VEREIN ITSELF DOES NOT E ARN ANY INCOME OR RENDERS ANY KIND OF PROFESSIONAL SERVICES AND THE EXPENSES ARE MADE THROUGH CONTRIBUTION BY ITS 16 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT MEMBERS; AND SECONDLY, THE REIMBURSEMENT OF EXPENSE S IS BASED ON ALLOCATION MADE BY THE DTT WHICH IN TURN I S ON THE BASIS OF ACTUAL EXPENSES. HOWEVER BOTH THE AUTHORITIES, ASSESSING OFFICER AS WELL AS CIT (A), INSTEAD OF ADJUDICATING THE ISSUE WHETHER THE SUBSCRIPTION FEES PAID BY THE ASSESSEE TO DTT SWITZ ERLAND IS TAXABLE UNDER THE ACT IN INDIA OR NOT, HAVE PROC EEDED TO DISALLOW THE PAYMENT ON THE PREMISE THAT EVEN IF TH ERE EXISTED A DOUBT REGARDING CHANGEABILITY OF INCOME T AX, THE ASSESSEE SHOULD HAVE ANY WAY DEDUCTED THE TAX AND SHOULD HAVE COMPLIED WITH THE PROVISION OF SECTION 195 AND 197. IN SUPPORT, STRONG RELIANCE HAS BEEN PLACE D ON THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF AR THUR ANDERSEN & CO. AND HONBLEE SUPREME COURT JUDGMENT IN THE CASE TRANSMISSION CORPORATION ANDHRA PRADESH (SUPRA).' 16. AS MENTIONED ELSEWHERE, SIMILAR ISSUE WAS CONSI DERED BY THE KOLKATA BENCH IN THE CASE OF DHS KOLKATA [SUPRA ]. THE RELEVANT FINDINGS READ AS UNDER: 10. WE HAVE HEARD LEARNED ARGUMENTS ON PERUSED THE MATERIAL AVAILABLE ON RECORD, WE NOTE FAR AS THE CA SE BEFORE US IS CONCERNED, THE ASSESSEE PAID AN AMOUNT OF RS. 48,95,212/- TO OHS, MUMBAI. IT IS THE CLAIM OF THE ASSESSEE THAT PAYMENT WAS ITS SHARE OF SUBSCRIPTION 17 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT ALLOCATED TO VARIOUS INDIAN ENTITIES OF A COMMON GL OBAL NETWORK ON THE BASIS OF THE REVENUE BY OHS, MUMBAI, OF WHICH THE ASSESSEE IS A MEMBER. THE TOTAL SUBSCRIPT ION IS PAID BY OHS, MUMBAI AFTER DEDUCTION OF TAX AT SOURC E (TDS) TO DTT TOWARDS UTILIZATION OF COMMON KNOWLEDG E SYSTEMS, COMMON INFORMATION TECHNOLOGY SYSTEMS AND BETTER ACCESS FOR CLIENTS OF UNIFORM AND HIGH QUALI TY SERVICES BY THE INDIAN MEMBERS OF THE NETWORK. THE ASSESSEES CONTRIBUTION/SHARE OF RS.48,95,212/- COMPRISED IT SHARE OF RS.31,86,534/- FOR THE RELEVA NT PREVIOUS YEAR AND DIFFERENTIAL SHARE OF RS.17,08,67 9/- PAID FOR THE EARLIER YEARS BEING THE DIFFERENCE BET WEEN THE CONTRIBUTION PAYABLE ON THE BASIS OF THE REVENUE AN D CONTRIBUTION ALREADY PAID EARLIER FOR THOSE YEARS A ND WAS CLAIMED IN LINE WITH THE CASH SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE. THE ASSESSEE PRODUCED DEB IT NOTES ISSUED BY DHS, MUMBAI AS SUPPORTING EVIDENCE. THE ASSESSEE HAS TO PAY SUBSCRIPTION FEES THROUGH DELLO ITE, HASKINS AND SELLS, MUMBAI (DHS, MUMBAI) FOR THIS PURPOSE TO DTT. HOWEVER, AS DHS MUMBAI MAKES THE PAYMENT AFTER DEDUCTING TOS AND THE ASSESSEE ONLY REIMBURSES ITS SHARE OF EXPENSES, TAX WAS NOT REQUI RED TO BE DEDUCTED AGAIN IN RESPECT OF ITS REIMBURSEMENT O F SHARE OF EXPENSES OF RS.48,95,212/- TO OHS, MUMBAI. WE NO TE THAT IT IS NOT THE CASE OF THE AO THAT THE EXPENSES WERE NOT 18 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT GENUINE. IT IS ALSO NOT THE CASE OF THE AO THAT THE EXPENSES WERE NOT INCURRED PAGE / 6 M/S. DELOITTE HASKINS & SELLS IT NOS .587 & 588/ KOL/ 2 0 16 ASSESSMENT YEARS : 2 0 10- 11 SI 2 0 11 -1 2 WHOLLY AND EXCLUSIVELY FOR TH E PURPOSES OF BUSINESS OR PROFESSION. THE ASSESSEE HA S CLAIMED THE EXPENSES IN ACCORDANCE WITH ITS CASH SY STEM OF ACCOUNTING AND THE AO HAS NOT DISPUTED THE SYSTE M OF ACCOUNTING. THE AO HAS CONCLUDED THAT THE ASSESSEE HAD PAID FOR THE PROFESSIONAL SERVICES RENDERED BY OHS, MUMBAI WITHOUT SPECIFYING THE NATURE AND DETAILS OF SERVICES RENDERED BY OHS, MUMBAI. THE ASSESSEE HAS FURNISHED COPIES OF DEBIT NOTES ISSUED BY OHS, MUMB AI MENTIONING THE AMOUNT DEBITED AS 'BEING YOUR SHARE OF OTT OPERATIONAL BUDGET (SUBSCRIPTION FEE) & TECH, SUBSCRIPTION FEES PAID TO DELOITTE TOUCH TOHMATSU, NEW YORK' WHICH HAVE NOT BEEN QUESTIONED BY THE AO. THE ASSESSEE HAS ALSO FURNISHED EVIDENCE TO PROVE THAT THE ASSESSEE IS A MEMBER OF THE GLOBAL NETWORK OF OTT, ENJOYS CERTAIN ADVANTAGES AS A RESULT OF THE MEMBERSHIP AN D HAS PAID ITS CONTRIBUTION OF ; THE SUBSCRIPTION TO THE MEMBERSHIP OF THE GLOBAL NETWORK. 11. WE NOTE THAT HON'BLE HIGH COURT OF BOMBAY IN TH E CA OF CIT VS. ZEE ENTERTAINMENT ENTERPRISES LTD. [2018] 9 2 TAXMANN.COM 30 (BOMBAY) HELD THAT REIMBURSEMENT OF EXPENSES IS NOT TAXABLE. SIMILARLY, THE HON'BLE HIG H COURT 19 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT OF KARNATAKA IN THE CASE OF CIT VS. KALVANI STEELS LTD. [2018] 91 TAXMANN.COM 359 (KARNATAKA), HELD AS FOLL OWS: '11. THIS PROVISION MAKES IT CLEAR THAT DEDUCTION A T SOURCE SHALL BE ON SUCH INCOME NOT OTHERWISE. THE PRIMARY FACTOR TO ATTRACT SECTION 194J IS THE INGREDIENT OF 'INCOM E COMPRISED THEREIN'. IF NO INCOME IS REFLECTED IN TH E BALANCE SHEET AND P&L A/C OF HSL TOWARDS THE REIMBURSEMENT CHARGES PAID ON COST TO COST BASIS BY KSL AND ML, I T CEASES TO HAVE THE CHARACTER OF INCOME. AS SUCH, TH E ASSESSEE CANNOT BE TREATED AS THE ASSESSEE IN DEFAU LT IN NOT DEDUCTING TAX AT SOURCE U/S 194J OF THE ACT. TH E ARGUMENTS OF THE REVENUE THAT THE FEES PAID BY THE ASSESSEE IS TOWARDS TECHNICAL SERVICES IS IMAGINARY ONE NOT ESTABLISHED WITH SUBSTANTIAL MATERIALS.' MOREOVER, WE NOTE THAT COORDINATE BENCH OF ITAT KOL KATA IN THE CASE OF CIT VS. ERNST & YOUNG (P.) LTD. [201 4] 49 TAXMANN.COM386 (KOLKATA-TRIB.) UPHELD THE SAME PRIN CIPLE ON THE IDENTICAL ISSUE UNDER CONSIDERATION, WHEREIN IT WAS HELD AS FOLLOWS: 'THE TWO CONCERNS, NAMELY, EY&S LLP AND ERNST AND YOUNG U.K. LLP, WERE SET UP BY MEMBER FIRMS OF ERNS T AND YOUNG FOR PROVIDING RESOURCES TO OBTAIN BEST METHOD OLOGIES AT A LOWER COST WHICH IN THE PRESENT DAYS OF GLOBAL IZATION 20 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT IS IMPERATIVE FOR ANY PROFESSIONAL FIRM. DEVELOPMEN T OF SUCH METHODS BY ANY ONE CONCERN WOULD HAVE BEEN COS T PROHIBITIVE APART FROM LACKING UNIFORMITY AND MUTUA L COMPATIBILITY. ACCORDINGLY, ARRANGEMENT WAS ARRIVED AT FOR SUCH SERVICES TO BE DEVELOPED IN A POOL BY THE SAID TWO CONCERNS TO WHICH THE MEMBER FIRMS WOULD HAVE ACCES S TO IT AND REIMBURSING THEIR RESPECTIVE SHARES OF COST INCURRED THEREFOR. SUCH REIMBURSEMENT WAS AGREED ON THE BASI S OF RESPECTIVE TURNOVER OF THE MEMBER FIRMS. THESE FACT S ARE NOT DENIED BY THE REVENUE AND THESE ARE REIMBURSEME NT OF EXPENSES. ONCE THESE ARE REIMBURSEMENT OF EXPENSES, THE ASSESSEE IS NOT LIABLE TO DEDUCT TDS U/S 195. ACCOR DINGLY, THE ORDER OF THE COMMISSIONER (APPEALS) IS TO BE CONFIRMED.' THEREFORE, WE NOTE THAT THE SAID AMOUNT OF RS.48,95 ,212/- WAS TOWARDS THE REIMBURSEMENT OF THE EXPENSES, WHIC H WAS IN FACT INCURRED ON BEHALF OF THE ASSESSEE AND THERE WAS NO PROFIT ELEMENT. THAT BEING SO, WE DECLINE TO INTERFERE WITH THE ORDER OF LD. CIT (A) DELETING TH E AFORESAID ADDITION. HIS ORDER ON THIS ADDITION IS, THEREFORE, UPHELD AND THE GROUND NO.1 RAISED BY THE REVENUE IN ITA NO.567/KOL/2016 AND GROUND NO.2 RAISED BY REVENUE I N ITA NO.588/KOL/2016, ARE DISMISSED. 17. CONSIDERING THE FACTS OF TOTALITY, IN THE LIGHT OF THE DECISION OF THE CO-ORDINATE BENCH (SUPRA) WE HAVE NO HESITAT ION IN 21 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT SETTING ASIDE THE FINDINGS OF THE LD. CIT (A). THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION OF RS.2, 16,68,412/-. GROUND NO.1 WITH ITS SUB GROUNDS IS ALLOWED. 5.1 WE ALSO NOTE THAT THE AHMEDABAD BENCH O F ITAT ALSO REACHED A SIMILAR CONCLUSION BY DISMISSING THE DEPA RTMENTAL APPEAL ON THE ISSUE FOR ASSESSMENT YEARS 2013-14 & 2014-15 IN ITA NO.1983/AHD/2017 AND 1984/AHD/2017 VIDE ORDER D ATED 01.10.2019. FURTHER, A SIMILAR VIEW WAS TAKEN AGAIN BY THE CO- ORDINATE BENCH IN DELHI IN ASSESSEES OWN CASE FOR A SSESSMENT YEARS 2011-12 AND 2012-13 IN ITA NOS. 3715 AND 3716 /DEL/2017. RESPECTFULLY FOLLOWING THE DECISIONS OF THE CO-ORDIN ATE BENCHES (SUPRA), WE ALLOW THE GROUNDS 1 AND 2 RAISED BY THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWA NCE. 5.2 AS FAR AS GROUND NO.3 OF THE ASSESSEES A PPEAL PERTAINING TO LEGAL AND PROFESSIONAL FEES IS CONCERNED, IT IS SEEN THAT THE UNDISPUTED FACTS ARE THAT SHRI DEEPAK ROY IS A PART NER IN THE ASSESSEE FIRM AND HE WAS CARRYING ON AUDITING ON BEH ALF OF THE ASSESSEE FIRM. IT IS ALSO UNDISPUTED THAT THE REGIS TRAR OF COMPANIES HAD CONDUCTED AN INVESTIGATION AND ALLEGED PROFESSI ONAL 22 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT MISCONDUCT ON THE PART OF SHRI DEEPAK ROY AND HAD I NSTITUTED A CRIMINAL COMPLAINT AGAINST SHRI DEEPAK ROY. TO DEF END THE PARTNER SHRI DEEPAK ROY, THE ASSESSEE FIRM HAD ENGAGED M/S DUA & ASSOCIATES TO CHALLENGE THE CRIMINAL PROCEEDINGS AG AINST HIM AND HAD DEBITED THE FEE PAID AS LEGAL AND PROFESSIONAL EXPENSES. THE ONLY QUESTION FOR OUR CONSIDERATION IS WHETHER THE F EES PAID FOR DEFENDING THE ACT OF A PARTNER CAN BE CONSIDERED TO BE AN ACT COMMITTED DURING THE ORDINARY COURSE OF BUSINESS OF THE FIRM AND WHETHER THE SAID EXPENDITURE CAN BE SAID TO HAVE BEE N INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. IN T HIS CONTEXT, IT IS SEEN THAT THE ASSESSEE FIRM IS A FIRM OF CHARTERED ACCOUNTANTS AND SHRI DEEPAK ROY, WHILE WORKING IN THE CAPACITY OF TH E PARTNER OF THE FIRM, HAD SIGNED AN AUDIT REPORT. THE REGISTRAR OF COMPANIES, UTTAR PRADESH AND UTTARANCHAL LODGED A COMPLAINT AGAINST SHRI DEEPAK ROY IN TERMS OF SECTION-233 OF THE COMPANIES ACT, 1 956 AND IT WAS UNDER THESE CIRCUMSTANCES THAT THE ASSESSEE COMPANY DECIDED TO DEFEND THE CASE OF MR. DEEPAK ROY. ALTHOUGH, THE AS SESSEE COMPANY WAS DEFENDING A CASE WHICH WAS IN THE NAME OF THE PARTNER MR. DEEPAK ROY, IT CANNOT BE SAID THAT DEFE NDING THE SAID 23 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT CASE WAS NOT A PART OF THE BUSINESS ACTIVITY FOR THE COMPANY IN AS MUCH AS THE REPUTATION AND GOODWILL OF THE ASSESSEE COMPANY WAS AT STAKE. IT IS ALSO BEYOND THE DOUBT THAT THE CRIM INAL COMPLAINT WAS FILED AGAINST MR. DEEPAK ROY IN A MATTER WHICH WAS RELATED TO THE BUSINESS OF THE COMPANY. IN SUCH CIRCUMSTANCES, IT IS OUR CONSIDERED VIEW THAT THE IMPUGNED EXPENDITURE INCURR ED BY THE ASSESSEE COMPANY TOWARDS DEFENDING THE SUIT IN THE N AME OF THE PARTNER IS DEDUCTIBLE BUSINESS EXPENDITURE. ACCORDI NGLY, WE SET ASIDE THE ORDER OF THE LD. CIT (A) ON THE ISSUE AND DIRECT THE DELETION OF THIS AMOUNT. 6.0 IN THE FINAL RESULT, BOTH THE APPEALS STA ND ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 29 TH JANUARY, 2021. SD/- SD/- (G.S.PANNU) (SUDHANSHU SRIVASTAVA) VICE PRESIDENT JUDICIAL MEMBER DATED: 29/01/2021 PK/PS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 24 ITA NO.6749 /DEL/2015 DELOITTE HASKING S & SELLS VS. ACIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI