ACIT OSD 2(2), MUMBAI V. LAZARD INDIA P. LTD, MUMBAI

ITA 7277/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1737 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Department
• Bench Allotted: L
• Next Hearing Date: 26-05-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 26-12-2008
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Assessee Lawyers: S VENKATRAMA N
• Keywords: Capital asset; Depreciation; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 37(1); 32; 246

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L BEFORE SHRI N.V. VASUDEVAN (JM) & A.L. GEHLOT (AM) I.T.A.NO. 7277/MUM/2008 (ASSESSMENT YEAR : 2003-04 ) I.T.A.NO. 632/MUM/2009 (ASSESSMENT YEAR : 2005-06) I.T.A.NO. 4505/MUM/2009 (ASSESSMENT YEAR : 2006-07 ) DCIT 2(2) AAYAKAR BHAVAN ROOM NO. 545, 5 TH FLOOR M.K. ROAD MUMBAI-400 020. VS. M/S. LAZARD INDIA PVT. LTD. 20 TH FLOOR EXPRESS TOWER NARIMAN POINT MUMBAI-400 021. APPELLANT RESPONDENT I.T.A.NO. 5095/MUM/2006 (ASSESSMENT YEAR : 2002-03 ) M/S. LAZARD INDIA PVT. LTD. 20 TH FLOOR EXPRESS TOWER NARIMAN POINT MUMBAI-400 021. VS. DCIT 2(2) AAYAKAR BHAVAN ROOM NO. 545, 5 TH FLOOR M.K. ROAD MUMBAI-400 020. APPELLANT RESPONDENT PAN/GIR NO. : AAACL7233P ASSESSEE BY : SHRI S. VENKATRAMAN DEPARTMENT BY : SHRI NARENDRA SINGH ORDER PER N.V. VASUDEVAN, JM :- ITA NO. 5095/MUM/06 IS AN APPEAL BY THE ASSESSEE A GAINST THE ORDER DATED 28.7.2006 OF LEARNED CIT(A)-II, MUMBAI RELATING TO A.Y. 2002- 03. ITA NO. 7277/MUM/08 IS AN APPEAL BY THE REVENUE AG AINST THE ORDER DATED 12.9.2008 OF LEARNED CIT(A)-II, MUMBAI RELATING TO A.Y. 2003- 04. M/S. LAZARD INDIA PVT. LTD. 2 ITA NO. 632/MUM/09 IS AN APPEAL BY THE REVENUE AGA INST THE ORDER DATED 26.11.2008 OF LEARNED CIT(A)-II, MUMBAI RELATING TO A.Y. 2005-06. ITA NO. 4505/MUM/09 IS AN APPEAL BY THE REVENUE AG AINST THE ORDER DATED 20.5.2009 OF LEARNED CIT(A)-II, MUMBAI RELATING TO A.Y. 2006- 07. 2. SINCE, SOME COMMON ISSUES ARE INVOLVED IN THESE APPEAL AND THEY WERE HEARD TOGETHER. WE DEEM IT CONVENIENT TO PASS A COMMON CONSOLIDATED ORDER. 3. FIRST, WE SHALL TAKE UP FOR CONSIDERATION ITA NO . 5095/MUM/06 (A.Y.02-03): GROUND NO. 1&2 RAISED BY THE ASSESSEE READS AS FOL LOWS :- 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, LEARNED CIT(A) ERRED IN CONFIRMING AS CAPITAL EXPEN DITURE RS. 30,94,066/-INCURRED TOWARDS RENOVATION OF LEASE HOLD PREMISES. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE ASSESSEE SUBMITS THAT THE EXPENDITURE DID NOT RESUL T IN ACQUISITION OF ANY CAPITAL ASSET NOR IN ANY ENDURIN G BENEFIT IN THE CAPITAL FILED AND HENCE THE AMOUNT OF RS. 30 ,94,066 OUGHT TO BE ALLOWED AS A REVENUE EXPENDITURE. 4. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF CORPORATE AND PROJECT FINANCE AND MERCHANT BANKING. THE ASSESSEE HAD TAKEN PREMISES AT BARDY HOUSE, VEER NARIMAN ROAD, F ORT, MUMBAI-400 001 ON RENT. DURING THE PREVIOUS YEAR, IT INCURRED AN EXPENDITURE OF RS. 30,94,066/- IN CONNECTION WITH RENOVATION OF THE AF ORESAID LEASEHOLD PREMISES. THE ASSESSEE EXPLAINED BEFORE THE ASSESSI NG OFFICER THAT IT IS ASSOCIATED WITH LAZARD BROTHERS & CO., UK, WHICH IS A RENOWNED MERCHANT BANKER OPERATING AT A GLOBAL LEVEL; AND TH EREFORE IT HAS TO MAINTAIN ITS OFFICE AS PER THE GLOBAL STANDARDS OF THE GROUP. THE ASSESSEE ALSO EXPLAINED THAT IT HAS TO CATER TO SEVERAL HIGH PROFILE INDIAN AS WELL AS FOREIGN CORPORATE CLIENTS WHICH NECESSITATE FREQUEN T REPAIRS AND M/S. LAZARD INDIA PVT. LTD. 3 RENOVATION OF THE PREMISES TO KEEP IT TO GLOBAL STA NDARDS. THE RENOVATION EXPENSES WERE INCURRED BY THE ASSESSEE IN THE AFORE SAID OFFICE PREMISES FOR MODIFYING RECEPTION CABIN, CHAIRMANS OFFICE AN D FOUR HEAD OF DEPARTMENTS OFFICE. THE ASSESSEE EXPLAINED THAT TH E EXPENSES INVOLVED REPLACING OLD PARTS OF FURNITURE OR REPLACEMENTS OF OLD TILES WITH MARBLE ETC. AND ARE PURELY REVENUE EXPENSES IN NATURE AND HAVE TO BE ALLOWED AS A DEDUCTION U/S. 30 OF THE ACT. THE BREAK UP OF THE EXPENSES INCURRED BY THE ASSESSEE, THE NATURE OF EXPENSES INCURRED AND THE PERSONS TO WHOM THE PAYMENTS WERE MADE TOGETHER WITH ADDRESSES WERE FURNISHED BY THE ASSESSEE. THE NATURE OF EXPENSES AND THE PERSONS T O WHOM THE ASSESSEE MADE PAYMENTS ARE AS FOLLOWS :- DETAILS OF RENOVATION EXPENDITURE :- S. NO NAME AND ADDRESS OF THE SUPPLIER AMOUNT (RS.) PURPOSE 1. SHREE OM FURNITURE 154,520 LABOUR CHARGES (CARPENTRY WORK) 2 CLASSIC MARBLE 142,855 COST OF MARBLE SLABS 3 SHREE JALARAM TIMBER DEPOT P. LTD. 389,365 TIMBER, PLYWOOD, FEVICOL ETC. 4 VIMINA 111,379 LABOUR CHARGES FOR CUTTING, FIXING, POLISHING ETC. OF MARBLE AND GRANITE 5 MEHER DUBHASH 116,504 PROFESSIONAL FEE FOR INTERIOR DESIGN WORK 6 KISMAT 68,185 SUPPLY OF HARDWARE ITEMS 7 MANOJ GLASS HOUSE 26,728 COST OF GLASS CLEAR AND DESIGN 8 J.M. TRADING CO. 426,920 BLACK JET GRANITE AND TILES FOR FLOORING 9 SHAKTI TRADING CO. 716,935 PLYWOOD AND MATERIALS SUPPLIED FOR MAKING TABLES, PARTITIONS ETC. 10 J.K. ENTERPRISES 198,172 LABOUR CHARGES FOR MAKING DOOR FRAMES, PARTITION, STORAGE CABINET ETC. 11 ASSOCIATED ELECTRICAL SERVICES 69,405 SUPPLY OF ELECTRICAL MATERIAL AND LABOUR CHARGES 12 STYANARAYAN SUKHRAJ 75,512 PAINTING AND POLISH W ORK M/S. LAZARD INDIA PVT. LTD. 4 NISHAD 13 DOORS & DOORS SYSTEMS 40,220 PURCHASE OF HARDWAR E 14 JASMINE ADENWALLA 86,144 DESIGN AND SUPERVISION FEES 15 UNIQUE PLAST 69,415 PLASTERING WORK-FALSE CEILING A.C. GRILL, GYPSUM ETC. 16 COLUMBUS TRADERS LTD. 62,260 17 KHOZEM GLASS PROCESSING WORKS 32,511 12MM FLOAT GLASS ASSORTED 18 C BHOGILAL WEST END 25,320 COST OF SANITARY WARES PURCHASED 19 LOVELY LIGHTS 35,964 ELECTRICAL WORK-LIGHT POINT WIRING PLUG AND SWITCH BOARD CIRCUIT POINT WIRING, AC POINT WIRING ETC. 20 DURAFIT FLOORS 53,634 BERRY LOC LAMINATE FLOORING, WALL TO WALL WOODEN FLOORING 21 OTHERS (LESS THAN RS. 25,000/-) 192,118 TOTAL 3,094,066 5. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE A FORESAID EXPENSES WERE IN THE NATURE OF CAPITAL EXPENSES AND THEREFOR E THEY CANNOT BE ALLOWED AS A DEDUCTION. THE ASSESSING OFFICER REFER RED TO THE PROVISIONS OF EXPLANATION 1 TO SECTION 32 OF THE ACT, WHICH PR OVIDES THAT, WHERE AN ASSESSEE CARRIES ON BUSINESS IN RENTED PREMISES AND INCURS ANY CAPITAL EXPENDITURE IS INCURRED FOR CONSTRUCTION OF ANY STR UCTURE OR DOING OF ANY WORK IN OR IN RELATION TO, AND BY WAY OF RENOVATION OR EXTENSION OF, OR IMPROVEMENT TO, THE BUILDING, THEN, THE ASSESSEE CA N CLAIM DEPRECIATION AS IF BUILDING WAS OWNED BY THE ASSESSEE. THE ASSES SING OFFICER FURTHER REFERRED TO THE DETAILS OF THE EXPENDITURE AND CAME TO THE CONCLUSION THAT IT IS CAPITAL IN NATURE. THE ASSESSING OFFICER ALSO NOTICED THAT IN ITS BOOKS OF ACCOUNT, THE ASSESSEE HAD CAPITALIZED RENOVATION EXPENSES TO THE FIXED ASSET. ACCORDING TO THE ASSESSING OFFICER, THIS WAS ALSO AN INDICATOR OF THE FACT THAT THE EXPENDITURE WAS CAPITAL IN NATURE . THE ASSESSING OFFICER THEREFORE, DID NOT ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF A SUM OF RS. 30,94,066/-. THE ASSESSING OFFICER HOWEVER A LLOWED DEPRECIATION M/S. LAZARD INDIA PVT. LTD. 5 AT 5% NAMELY RS. 1,54,703/- AND DISALLOWED THE REMA INING SUM OF RS. 29,39,363/-. 6. ON APPEAL BY THE ASSESSEE, LEARNED CIT(A) UPHELD THE ORDER OF THE ASSESSING OFFICER. FOLLOWING WERE THE RELEVANT OBSE RVATIONS :- THERE IS NO DOUBT THAT THE EXPENDITURE INCURRED RE PRESENTED CAPITAL EXPENDITURE AS THE ENTIRE OFFICE HAD BEEN D ONE UP AND RENOVATED INCURRING THIS HUGE EXPENDITURE OF RS. 30 .94 LAKHS. THE EXAMINATION OF DETAILS CLEARLY SHOWED THE NATURE OF EXPENDITURE PROFESSIONAL FEE FOR INTERIOR DESIGN ITSELF WAS RS. 1.16 LAKHS, GRANITE AND TILES FOR FLOORING WAS RS. 4.26 LAKHS, PLYWOOD ITSELF WAS RS. 7.16 LAKHS, MARBLE WAS RS. 1.42 LAKHS, TIMBER W AS RS. 3.89 LAKHS, ETC. THERE IS NO DOUBT THAT THIS IS A ONE TI ME EXPENDITURE BRINGING IN ENDURING BENEFIT TO THE ASSESSEE. AS PE R THE PROVISIONS, THE ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION ON T HE SAME. AND BY IMPLICATION THE ASSESSEE IS NOT ENTITLED TO CLAIM T HE EXPENDITURE AS ON CURRENT REPAIRS. I THEREFORE, UPHOLD THE ACTION OF THE ASSESSING OFFICER IN TREATING THE SUM OF RS. 30,94,066/- AS R EPRESENTING CAPITAL EXPENDITURE. 7. AGGRIEVED BY THE ORDER OF LEARNED CIT(A), THE AS SESSEE HAS RAISED GROUND NO. 1&2 BEFORE THE TRIBUNAL. 8. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT EXPLANATION 1 TO SECTION 32(1) CAN BE INVOKED ONLY WHEN THE EXPENDIT URE IS CAPITAL IN NATURE. HE DREW OUR ATTENTION TO THE DETAILS OF EX PENDITURE AND SUBMITTED THAT THESE EXPENSES WERE NECESSARY FOR TH E PURPOSE OF CARRYING ON BUSINESS OF THE ASSESSEE MORE EFFICIENT LY. IT IS INCURRED FOR THE PURPOSE OF CREATING BETTER WORKING ENVIRONMENT. HE SUBMITTED THAT NONE OF THE EXPENSES INVOLVED CONSTRUCTION OF STRUC TURE OR RENOVATION, EXTENSION OR IMPROVEMENT TO THE BUILDING; AND THERE FORE, EXPLANATION 1 TO SECTION 32(1) WILL NOT BE APPLICABLE. IN THIS RE GARD, LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF HON 'BLE SUPREME COURT IN THE CASE OF EMPIRE JUTE CO. LTD. VS. CIT, 124 ITR 1 (SUPREME COURT), WHEREIN HON'BLE SUPREME COURT EXPLAINED AS TO HOW T EST OF ENDURING BENEFIT WAS NOT CONCLUSIVE IN THE FOLLOWING WORDS M/S. LAZARD INDIA PVT. LTD. 6 THERE MAY BE CASES WHERE EXPENDITURE, EVEN IF INCU RRED FOR OBTAINING ADVANTAGE OF ENDURING BENEFIT, MAY NONE T HE LESS BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING BENEFIT MA Y BREAK DOWN. IT IS NOT EVERY ADVANTAGE OF ENDURING NATURE ACQUIR ED BY AN ASSESSEE THAT BRINGS THE CASE WITHIN THE PRINCIPLE LAID DOWN IN THIS TEST. WHAT IS MATERIAL TO CONSIDER IS THE NATURE OF THE ADVANTAGE IN A COMMERCIAL SENSE AND IT IS ONLY WHERE THE ADVANTA GE IS IN THE CAPITAL FIELD THAT THE EXPENDITURE WOULD BE DISALLO WABLE ON AN APPLICATION OF THIS TEST. IT THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESSEES TRADING OPERATIONS OR E NABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEES BUSINESS T O BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVIN G THE FIXED CAPITAL UNTOUCHED THE EXPENDITURE WOULD BE ON REVEN UE ACCOUNT, EVEN THROUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFI NITE FUTURE. THE TEST OF ENDURING BENEFIT IS THEREFORE NOT CERTA IN OR CONCLUSIVE TEST AND IT CANNOT BE APPLIED BLINDLY AND MECHANICA LLY WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF A GIVEN CASE. IT WAS SUBMITTED BY HIM THAT NONE OF THE EXPENSES I NCURRED BY THE ASSESSEE GAVE THE ASSESSEE ANY ENDURING BENEFIT. FU RTHER RELIANCE WAS PLACED ON THE DECISION OF HON'BLE DELHI BENCH OF IT AT IN THE CASE OF HERBALIFE INTERANATIONAL INDIA (P) LTD. VS. ACIT, 1 01 ITD 450 (DEL) AND ESCORTS LTD. VS. ACIT, 104 ITD 427 (DEL). OUR ATTE NTION WAS ALSO DRAWN TO THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. AYESHA HOSPITALS P. LTD., 292 ITR 266 (MAD); WHEREI N IT WAS HELD THAT EXPENDITURE ON REPAIRS AND PAINTING ON PREMISES TAK EN ON LEASE IS REVENUE EXPENDITURE. RELIANCE WAS ALSO PLACED ON T HE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. HI LINE PEN S PVT. LTD., 306 ITR 182 (DEL); WHEREIN HON'BLE DELHI HIGH COURT HAS HEL D THAT WHERE REPAIRS TO RENTAL PREMISES ARE CLAIMED AS A DEDUCTION, THE SAME NEED NOT BE IN THE NATURE OF CURRENT REPAIRS AND EXPENDITURE ON AN Y REPAIR HAS TO BE ALLOWED AS A DEDUCTION. 9. LEARNED DR RELIED ON THE ORDER OF LEARNED CIT(A) . IT WAS SUBMITTED BY HIM THAT WITHOUT SEEING INDIVIDUAL ITEMS OF EXPE NDITURE, ONE HAS TO SEE CUMULATIVE EFFECT OF THE EXPENSES INCURRED AND ULTIMATE RESULT. ACCORDING TO HIM, BY REASON OF INCURRING EXPENSES, THE ASSESSEE GETS AN ADVANTAGE OF ENDURING NATURE AND THEREFORE EXPENDIT URE WAS CAPITAL EXPENDITURE. M/S. LAZARD INDIA PVT. LTD. 7 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE HA VE ALREADY LISTED ITEMS OF EXPENSES INCURRED BY THE ASSESSEE. PERUSAL OF THE SAME REVEALS THAT THE ASSESSEE HAS NOT MADE ANY CONSTRUCTION OF STRUCTURE OR CARRIED OUT ANY WORK IN THE FORM OF RENOVATION OR EXTENSION , IMPROVEMENT OF THE BUILDING. THE BUILDING THAT WAS TAKEN ON LEASE REMA INED INTACT. WHAT HAS BEEN DONE WAS ONLY TO CREATE A BETTER WORKING E NVIRONMENT. IN THIS REGARD, WE ALSO NOTICE THAT THE ASSESSEE IS AN ASSO CIATEOF LAZARD BROTHERS & CO., UK, WHICH IS A RENOWNED MERCHANT BANKER OPER ATING AT A GLOBAL LEVEL. IT IS ALSO NECESSARY FOR THE ASSESSEE, WHO I S ALSO A MERCHANT BANKER TO MAINTAIN GOOD OFFICE PREMISES WHICH IS FREQUENTE D BY FOREIGN GLOBAL CLIENTS AND HIGH PROFILE INDIAN CLIENTS. IN OUR VIE W, THESE EXPENSES CANNOT BE SAID TO BE CAPITAL EXPENDITURE. IT ALSO DOES NOT RESULT IN ANY ADVANTAGE OR ACQUISITION OF ASSET OF AN ENDURING NATURE. IN T HIS REGARD, WE ARE ALSO OF THE VIEW THAT THE PRINCIPLES LAID DOWN BY HON'BL E SUPREME COURT IN THE CASE OF EMPIRE JUTE CO. LTD. (SUPRA) SUPPORTS T HE PLEA OF THE ASSESSEE. THE OTHER DECISIONS RELIED UPON BY THE LE ARNED COUNSEL FOR THE ASSESSEE ALSO SUPPORT THE PLEA OF THE ASSESSEE THAT THE EXPENDITURE WERE REVENUE IN NATURE AND HAVE TO BE ALLOWED AS A DEDUC TION. IN THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF HI LINE PENS PVT. LTD. (SUPRA) HAS EXPLAINED ALLOWABILITY OF EXPENSES CLAIMED AS D EDUCTION BY WAY OF REPAIRS AND AS A REVENUE EXPENDITURE BY A TENANT, A S FOLLOWS :- WHAT THE ASSESSEE HAS DONE HAS BEEN CONSTRUED TO B E REPAIRS BY THE TRIBUNAL AS A FINDING OF FACT. IT HAS NOT BROUG HT ABOUT ANY NEW ASSET AND MORE IMPORTANTLY IT WAS NOT THE INTENTION OF THE ASSESSEE TO BRING ABOUT ANY NEW CAPITAL ASSET. THE EXPENSES THAT WERE INCURRED BY THE ASSESSEE WERE TOWARDS REPAIRIN G THE PREMISES TAKEN ON LEASE SO AS TO MAKE IT MORE CONDU CIVE TO ITS BUSINESS ACTIVITY. SUCH EXPENSES WOULD CLEARLY FALL WITHIN THE EXPRESSION OF REPAIRS TO THE PREMISES AS APPEARING IN S. 30(A)(I). THE LEGISLATURE HAS MADE A DISTINCTION BETWEEN EXPE NSES INCURRED BY A TENANT FOR REPAIRS OF THE PREMISES AND EXPEN SES INCURRED BY A PERSON WHO IS NOT A TENANT TOWARDS CURRENT REPAI RS TO THE PREMISES. THIS DISTINCTION HAS TO BE GIVEN MEANING. PERHAPS THE LOGIC BEHIND THE DISTINCTION WAS THAT A TENANT WOUL D, BY THE VERY NATURE OF HIS STATUS AS A TENANT, NOT UNDERTAKE EXP ENDITURES AS WOULD ENDURE BEYOND HIS LIKELY PERIOD OF TENANCY OR CREATE A NEW M/S. LAZARD INDIA PVT. LTD. 8 ASSET. WHEREAS, AN OWNER MAY UNDERTAKE EXPENDITURES SO AS TO EVEN BRING ABOUT NEW ASSETS OF CAPITAL NATURE. IT W AS, THEREFORE, NECESSARY TO QUALIFY THE EXPENDITURE ON REPAIRS. TH E DEDUCTION WAS, THEREFORE, LIMITED TO EXPENDITURE ON CURRENT REPAIRS ONLY. IT FOLLOWS, THEREFORE, THAT THE COST OF REPAIRS THAT H AS BEEN INCURRED BY A TENANT IN RESPECT OF SUCH PREMISES WOULD HAVE TO BE ALLOWED UNDER S. 30(A) (I). THE QUESTION OF DISALLOWING SUC H AN EXPENDITURE AND RELEGATING THE ASSESSEE TO CLAIM DEPRECIATION U NDER S. 32 DOES NOT ARISE. 11. IN THE AFORESAID DECISION, NATURE OF EXPENSES W ERE RENOVATION OF RENTAL PREMISES BY HAVING FALSE CEILING, FIXING TIL ES, REPLACING GLASSES, WOODEN PARTITIONS, REPLACEMENT OF ELECTRIC WIRING, EARTHING, REPLACEMENT OF GI PIPES ETC. WE ARE OF THE VIEW THAT THE EXPEND ITURE INCURRED BY THE ASSESSEE IN THE PRESENT CASE IS REVENUE EXPENDITURE AND HAS TO BE ALLOWED AS A DEDUCTION. GROUND NO. 1&2 RAISED BY TH E ASSESSEE IS ACCORDINGLY ALLOWED. 12. GROUND NO. 3&4 RAISED BY THE ASSESSEE READ AS F OLLOWS :- 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF BAD DEBT OF RS. 75,56,400. 4) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE ASSESSEE SUBMITTED THAT THE BAD DEBT OF RS. 75,56,4 00 BEING WRITTEN OFF AS IRRECOVERABLE IS AN ALLOWABLE DEDUCTION U/S. 36(1)(VII) OF THE INCOME TAX ACT, 1961 AND THE LEARNED CIT(A) ERRED IN NOT ALLOWING THE SAME. 13. ON PERUSAL OF THE PROFIT AND LOSS ACCOUNT, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED A SUM OF RS.8 7,02,583/- ON ACCOUNT OF BAD DEBT WRITTEN OFF. IT IS NOT IN DISPU TE THAT THE AMOUNT WHICH WAS WRITTEN OFF AS BAD DEBT HAS BEEN OFFERED AS INCOME IN THE EARLIER YEARS; AND THEREFORE THE CONDITION MENTIONE D IN SECTION 36(2) IS FULFILLED. THE AMOUNT WRITTEN OFF AS BAD DEBT IS IN RESPECT OF THREE PARTIES :- (I) MALACRON (CINCINNATI) RS. 53,61,300/- (II) VIJAY INDUSTRIES RS. 9,10,000/- (III) TELEIC GLOBAL RS. 21,95,100/- M/S. LAZARD INDIA PVT. LTD. 9 THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSE SSEE FAILED TO SUBSTANTIATE THAT THE DEBTS WHICH WERE WRITTEN OFF AS BAD HAS IN FACT BECOME BAD; AND HE THEREFORE REFUSED TO ALLOW THE C LAIM OF THE ASSESSEE FOR DEDUCTION. 14. ON APPEAL BY THE ASSESSEE, LEARNED CIT(A) WAS S ATISFIED THAT THE AMOUNT WRITTEN OFF AS BAD IN RESPECT OF VIJAY INDUS TRIES WAS JUSTIFIED BUT IN RESPECT OF OTHER TWO DEBTS WRITTEN OFF, LEARNED CIT(A) WAS OF THE VIEW THAT THE ASSESSEE FAILED TO ESTABLISH THAT THE DEBT S HAVE IN FACT BECOME BAD. 15. AGGRIEVED BY THE ORDER OF LEARNED CIT(A) SUSTAI NING IN PART DISALLOWANCE MADE BY THE ASSESSING OFFICER, THE ASS ESSEE HAS RAISED GROUND NO. 3&4 BEFORE THE TRIBUNAL. 16. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE ISSUE AS TO WHETHER IT IS NECESSARY FOR AN ASSESSEE TO ESTABLISH THAT THE DEB T HAS BECOME BAD, TO CLAIM IT AS A DEDUCTION ON ACCOUNT OF BAD DEBT WRIT TEN OFF, HAS BEEN LAID DOWN BY HON'BLE SUPREME COURT IN THE CASE OF T.R.F. LTD. VS. CIT, 323 ITR 397 (SUPREME COURT). THE HON'BLE SUPREME COURT NOTICED THAT PROVISIONS OF SECTION 36(1)(VII) OF THE ACT WERE A MENDED W.E.F. 1.4.1989. EARLIER PROVISIONS READ THE AMOUNT OF ANY DEBTS OR PART THEREOF WHICH IS ESTABLISHED TO HAVE BECOME BAD DEBTS CAN BE ALLOWED AS A DEDUCTION. AFTER THE AMENDMENT OF PROVISIONS READS AS FOLLOWS :- AMOUNT OF ANY BAD DEBT OR PART THEREOF, WHICH IS W RITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR T HE PREVIOUS YEAR. THE HON'BLE SUPREME COURT AFTER NOTICING THE AFORES AID AMENDMENT HELD THAT AFTER THE AMENDMENT, IT IS NOT NECESSARY FOR T HE ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BECOME BAD AND IRRECOVERABLE AND THAT IT IS ENOUGH IF THE DEBT IS WRITTEN OFF AS BAD AND IRRECOVERABLE IN THE ACCOUNT OF THE ASSESSEE. IN THE PRESENT CASE, THE A SSESSING OFFICER HAS NOT DISPUTED THAT THE DEBTS HAVE IN FACT BEEN WRITT EN OFF AS BAD AND IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR T HE PREVIOUS YEAR. WE M/S. LAZARD INDIA PVT. LTD. 10 THEREFORE HOLD THAT THE REVENUE AUTHORITIES WERE NO T JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON THE GROUND THAT THE ASSESSEE FAILED TO ESTABLISH THAT THE DEBT HAS IN FACT BECOME BAD. THE ADDITION MADE BY THE ASSESSING OFFICER IN THIS REGA RD IS DIRECTED TO BE DELETED. GROUND NO. 3&4 RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 17. GROUND NO. 5 WAS NOT PRESSED, THE SAME IS DISMI SSED AS NOT PRESSED. 18. GROUND NO. 6&7 READ AS FOLLOWS :- 6) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 1,17,26,209 BEING REIMBURSEMENT OF EXPENSES TO THE PARENT COMPANY BY ERRONEOUSLY INVOKING THE PROVISIONS OF S ECTION 40(A)(I) OF THE I.T. ACT, 1961. 7) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE ON THE REIMBURSEMENT TO ITS PARENT COMPANY AND CONSEQUENTL Y THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(I) OF THE I.T. ACT, 1961. 19. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD DEBITED A SUM OF RS. 1,17,26,209/- AS REIMBURSEMENT OF THE EXPENS ES TO PARENT COMPANY IN LONDON. THE ASSESSEE SUBMITTED THAT ITS PARENT COMPANY LAZARD & COMPANY SERVICES LTD. IS A UK COMPANY WHIC H RECOVERS COST INCURRED BY THEM FOR THE BENEFIT OF ITS SEVERAL ASS OCIATED COMPANIES WORLDWIDE. THE ASSESSEE EXPLAINED THAT REIMBURSEMEN T OF THE EXPENSES IN QUESTION PERTAIN TO THE RECOVERY OF INSURANCE CH ARGES OF DIRECTORS AND OFFICERS IN RESPECT OF COVERING THEIR LIABILITY, IF ANY, ARISING FROM RENDERING SERVICES IN FOREIGN COUNTRY. THE ASSESSEE ALSO EXPL AINED THAT THE REIMBURSEMENTS ARE ON ACTUAL BASIS TO COVER THE LIA BILITY OF THE INDIAN DIRECTORS AND OFFICERS. BESIDES THE ABOVE, PART OF THE PAYMENT ALSO RELATED TO THE PAYMENT MADE BY THE ASSESSEE FOR USE OF WEB AREA NETWORK CREATED BY LAZARD & COMPANY SERVICES LTD. UK FOR TH E BENEFIT OF USE OF ALL THE ASSOCIATE COMPANIES. THE ASSESSEE THEREFORE SUBMITTED THAT IT WAS REIMBURSEMENT OF ACTUAL EXPENSES. M/S. LAZARD INDIA PVT. LTD. 11 20. UNDER THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT, WHILE COMPUTING INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, ANY AMOUNT PAID AS INTEREST, ROYALTY, F EES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT OUT SIDE INDIA, WILL BE ALLOWED AS A DEDUCTION ONLY IF, THE ASSESSEE DEDUCT S TAX AT SOURCE ON SUCH PAYMENT. OF COURSE PAYMENT MADE OUTSIDE INDIA SHOULD BE CHARGEABLE TO TAX IN THE HANDS OF THE RECIPIENT IN INDIA UNDER THE INCOME TAX ACT, 1961. THE PLEA OF THE ASSESSEE WAS THAT TH E PAYMENT THAT IT MADE TO LAZARD & COMPANY SERVICES LTD. UK WAS MEREL Y REIMBURSEMENT OF EXPENSES AND WAS THEREFORE NOT OF THE NATURE OF INTEREST, ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUMS CHARGEABLE UND ER THIS ACT; AND THEREFORE, NO DISALLOWANCE OF THE AFORESAID PAYMENT CAN BE MADE WHILE COMPUTING INCOME UNDER THE HEAD PROFIT AND GAIN OF BUSINESS OR PROFESSION ON THE GROUND THAT NO TAX AT SOURCE HAS BEEN DEDUCTED. THE DETAILS OF EXPENSES INCURRED BY THE ASSESSEE ARE AS FOLLOWS :- MONTH INVOI CE NO. VOUCHER NO. INSURANCE IT TOTAL GBP INR GBP INR GBP INR APRIL 2001 305 PR 978C 10,683.00 702,231.44 - - 10, 683.00 702,231.44 MAY 2001 TO JULY 2001 479 PR 978B 32,049.00 2,225,350.52 - - 32,049.00 2, 225,350.52 AUGUST 2001 TO OCTOBER 2001 552 PR 978A 32,049.00 2,225,350.52 - - 32,049.00 2, 225,350.52 NOVEMBER 2001 TO DECEMBER 2001 591 PR 1270 51,606.79 3,551,063.22 - - 51,606.79 3, 551,063.22 JANUARY 2002 617 PR 1271 9,883.00 680,049.23 14,251 .23 980,627.14 24,134.23 1,660,676.37 FEBRUARY 2002 633 PR 1369 9,883.00 687,066.16 - - 9 ,883.00 687,066.16 MARCH 2002 667 PR 1496 9,883.00 686,670.84 (175.00) (12,159.00) 9,708.00 674,511.84 170,113.02 11,726,250.07 IN SUPPORT OF THE FACT THAT THESE WERE REIMBURSEMEN T OF EXPENSES INCURRED BY THE PARENT COMPANY IN UK, THE ASSESSEE SUBMITTED INVOICES RAISED BY THE LAZARD & COMPANY SERVICES LIMITED. CO PIES OF THESE INVOICES ARE AT PAGE NO. 15 TO 24 OF THE ASSESSEES PAPER BOOK. THESE INVOICES GIVE DESCRIPTION OF SERVICES. THE ASSESSIN G OFFICER WAS SATISFIED THAT THIS WAS REIMBURSEMENT OF EXPENSES INCURRED BY THE PARENT COMPANY; BUT HE HELD THAT THE AFORESAID PAYMENT WOU LD FALL UNDER THE M/S. LAZARD INDIA PVT. LTD. 12 CATEGORY OF OTHER SUMS CHARGEABLE UNDER THIS ACT MENTIONED IN SECTION 40(A)(I) OF THE ACT. SINCE, THE ASSESSEE HAD NOT DE DUCTED TAX AT SOURCE ON THE AFORESAID PAYMENT, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE CANNOT CLAIM AFORESAID SUM AS A DEDUCTION. THE ASSESSING OFFICER FURTHER REFERRED TO THE DECISION OF HON'BLE ITAT IN THE CASE OF M/S. ARTHUR ANDERSEN & CO. LTD.; WHEREIN THE TRIBUNAL HA D HELD THAT, ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS A CT, WOULD MEAN SUM ON WHICH INCOME TAX IS LEVIABLE. AS TO WHETHE R THAT SUM HAS ANY INCOME EMBEDDED IN IT IS IRRELEVANT AND THAT BY WAY OF ABUNDANT CAUTION TAX AT SOURCE SHOULD BE DEDUCTED. THE TRIBUNAL THER EAFTER HELD THAT WHERE PAYMENT IS CLAIMED TO BE REIMBURSED, IT HAS T O BE PROVED THAT THE AMOUNT IS ACTUALLY REIMBURSEMENT. AFTER MAKING REF ERENCE TO THE AFORESAID DECISION, THE ASSESSING OFFICER MADE A DI SALLOWANCE OF A SUM OF RS. 1,17,26,209/-. 21. ON APPEAL BY THE ASSESSEE, LEARNED CIT(A) UPHEL D THE ORDER OF THE ASSESSING OFFICER AND FURTHER GAVE HIS CONCLUSION O N THE ISSUE AS FOLLOWS:- FURTHER THE APPELLANT IS NOT IN POSSESSION OF ANY ACCEPTABLE EVIDENCE IN SUPPORT OF ITS CLAIM THAT THE REMITTANC E MADE OF A SUM OF RS. 1,17,26,209/- REALLY REPRESENTED REIMBURSEME NT OF INSURANCE PREMIUM PAID IN UK ON BEHALF OF THE OFFIC ERS OF APPELLANT. WHAT IS PRODUCED BEFORE THE ASSESSING OF FICER AND ALSO BEFORE ME IS A SHEET OF PAPER WITHOUT ANY AUTHENTIC ATION WHICH GIVES DETAILS OF THE MONTH OF PAYMENT, VOUCHER NUMB ER AND THE AMOUNT INVOLVED. THERE IS ABSOLUTELY NO OTHER EVIDE NCE TO ESTABLISH THAT THE SUM INVOLVED REPRESENTED EITHER INSURANCE PREMIUM PAID IN UK ON BEHALF OF THE OFFICERS OF THE APPELLANT OR REPRESENTED EVEN REIMBURSEMENT. THERE IS NO EVIDENC E OF BUYING ANY INSURANCE IN UK OR IN WHOSE NAME AND WITH WHAT PREMIUMS. IN THE ABSENCE OF BASICALLY ANY EVIDENCE TO THE EFF ECT THAT THE REMITTANCE REPRESENTED REIMBURSEMENT OF EXPENSES I AM OF FURTHER VIEW THAT THE APPELLANT IS NOT ENTITLED TO THE DEDU CTION ON FACTS. 22. AGGRIEVED BY THE ORDER OF LEARNED CIT(A), THE A SSESSEE HAS PREFERRED GROUND NO. 6&7 BEFORE THE TRIBUNAL. M/S. LAZARD INDIA PVT. LTD. 13 23. WE HAVE HEARD THE SUBMISSIONS OF LEARNED COUNSE L FOR THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE SUBM ITTED THAT PROVISIONS OF SECTION 40(A)(I) WILL NOT BE APPLICABLE IN THE C ASE OF REIMBURSEMENT OF ACTUAL EXPENSES. IT WAS FURTHER SUBMITTED BY HIM TH AT THE ASSESSING OFFICER DID NOT DISPUTE THE FACT THAT THE PAYMENTS IN QUESTION WERE REIMBURSEMENT OF EXPENSES. THE ASSESSING OFFICER MA DE THE DISALLOWANCE ON THE GROUND THAT THIS WOULD BE OTHER SUM CHARGEA BLE TO TAX UNDER THE ACT. IT WAS SUBMITTED BY HIM THAT REIMBURSEMENT OF EXPENSES CAN NEVER BE CHARGEABLE TO TAX. IN THIS REGARD, OUR ATTENTION WAS DRAWN TO THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. SIEMENS AKTIONGESELLSCHAFT, 310 ITR 320 (BOM); WHEREIN IT W AS HELD THAT REIMBURSEMENT OF EXPENSES ARE NOT TAXABLE IN INDIA. THE HON'BLE BOMBAY HIGH COURT FOLLOWED THE DECISION OF HON'BLE DELHI H IGH COURT IN THE CASE OF CIT VS. INDUSTRIAL ENGINEERING PROJECTS PVT. LTD ., 202 ITR 1014 (DEL) AND HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. DUNLOP RUBBER CO. LTD., 142 ITR 493 (CAL). HE FURTHER DREW OUR AT TENTION TO THE DECISION OF HON'BLE SPECIAL BENCH OF ITAT MUMBAI IN THE CASE OF MAHINDRA & MAHINDRA, 313 ITR 263 (AT)(SB)(MUM); WHEREIN IT WAS LAID DOWN THAT REIMBURSEMENT OF EXPENSES IS NOT INCOME; AND THEREF ORE CANNOT BE TREATED AS OTHER SUM CHARGEABLE TO TAX WITHIN THE MEANING OF SECTION 40(A)(I) OF THE ACT. FURTHER, RELIANCE WAS ALSO PLA CED FOR IDENTICAL PROPOSITION ON THE DECISION OF HON'BLE CHENNAI ITAT IN THE CASE OF IN THE CASE OF CAIRN ENERGY INDIA PTY. LTD., 126 TTJ 226 ( CHENNAI) AND DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF PORBAND AR STATE BANK VS. CIT, 28 ITR 134 (BOM). IN THE DECISION OF HON'BLE B OMBAY HIGH COURT IN THE CASE OF PORBANDAR STATE BANK (SUPRA), IN THE CO NTEXT OF IDENTICAL PROVISIONS AS THAT OF SECTION 40(A)(I) OF THE ACT, THE HON'BLE BOMBAY HIGH COURT HELD THAT SUM IN QUESTION WHICH IS PAID OUTSI DE INDIA SHOULD BE CHARGEABLE TO TAX. IT WAS ALSO SUBMITTED THAT FINDI NGS OF LEARNED CIT(A) ARE CONTRARY TO THE FINDINGS OF THE ASSESSING OFFIC ER. IT WAS ALSO SUBMITTED THAT LEARNED CIT(A) BEFORE GIVING HIS FIN DING THAT THERE WAS NO EVIDENCE PRODUCED BY THE ASSESSEE REGARDING INSURAN CE POLICY AND HOW IT BENEFITED THE ASSESSEE, DID NOT CALL UPON THE ASSES SEE FOR ANY OF THE M/S. LAZARD INDIA PVT. LTD. 14 DETAILS. FURTHER LEARNED CIT(A) HAS IGNORED EVIDENC E ON RECORD IN THE FORM OF INVOICE RAISED BY THE PARENT COMPANY. IT WA S THUS SUBMITTED THAT THE DISALLOWANCE SUSTAINED BY LEARNED CIT(A) SHOULD BE DELETED. 24. THE LEARNED DR ON THE OTHER HAND RELIED ON THE FINDINGS OF LEARNED CIT(A) AND SUBMITTED THAT THERE WAS NO REIMBURSEMEN T OF EXPENDITURE. IT WAS FURTHER SUBMITTED THAT AS TO WHETHER PAYMENT MADE BY THE ASSESSEE OUTSIDE INDIA IS CHARGEABLE TO TAX OR NOT, CANNOT BE DECIDED BY THE ASSESSING OFFICER IN THE PRESENT PROCEEDINGS AN D IN THIS REGARD RELIED ON THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS, 185 TAXMAN 313. IT WAS ALSO SUBMITTED BY HIM THAT EVIDENCE OF EXPENDITURE CANNOT BE THE INVOICE RAISE D BY THE PARENT COMPANY. ACCORDING TO HIM THE BEST EVIDENCE WOULD B E THE INSURANCE POLICY TAKEN OUT BY THE PARENT COMPANY AND BENEFIT WHICH THE ASSESSEE WILL DERIVE BY VIRTUE OF SUCH POLICY. IT WAS ALSO S UBMITTED BY HIM THAT AS TO HOW THE AMOUNTS RAISED IN THE INVOICE WAS ARRIVE D AT, HAVE NOT BEEN REVEALED BY THE ASSESSEE. IT WAS ALSO SUBMITTED THA T IT IS ALSO NOT KNOWN AS TO WHETHER HEAD OFFICE ALSO CLAIM THIS EXPENSES. IT WAS SUBMITTED BY HIM THAT THE ASSESSEES SELF CERTIFICATION WOULD NO T BE SUFFICIENT AND IN THE CIRCUMSTANCES THE DISALLOWANCE MADE BY THE ASSE SSING OFFICER SHOULD BE SUSTAINED. 25. THE LEARNED COUNSEL FOR THE ASSESSEE, IN REJOIN DER SUBMITTED THAT THAT IN THE A.YS. 2003-04, 2005-06 & 2006-07, THE L EARNED CIT(A) HAS ALLOWED CLAIM OF THE ASSESSEE FOR DEDUCTION ON IDEN TICAL FACTS TREATING THE PAYMENT OUTSIDE INDIA AS REIMBURSEMENT OF EXPENSES. IT WAS THEREFORE SUBMITTED BY HIM THAT CONTENTIONS OF LEARNED DR ARE WITHOUT ANY MERITS. 26. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. PERUS AL OF THE ORDER OF THE ASSESSING OFFICER SHOWS THAT HE HAS NOT DISPUTE D THAT PAYMENT OUTSIDE INDIA BY THE ASSESSEE TO LAZARD & CO. SERVI CES LTD., UK WAS REIMBURSEMENT OF EXPENSES. IN FACT, BEFORE THE ASSE SSING OFFICER, THE ASSESSEE HAS FILED STATEMENT OF REIMBURSEMENT OF EX PENSES AND INVOICE RAISED BY THE LAZARD & CO. SERVICES LTD., UK. DESC RIPTIONS OF SERVICES M/S. LAZARD INDIA PVT. LTD. 15 INCURRED BY THE PARENT COMPANY HAVE BEEN GIVEN IN T HIS INVOICE. INVOICE CLEARLY MENTIONS THE FACT THAT IT IS RECHARGE OF CO ST INCURRED BY THE PARENT COMPANY. THE ASSESSING OFFICER DID NOT CALLED UPON THE ASSESSEE TO FURNISH ANY FURTHER EVIDENCE. IT WAS ALSO STATED BY LEARNED COUNSEL FOR THE ASSESSEE BEFORE US THAT EVEN LEARNED CIT(A) DID NOT CALL UPON THE ASSESSEE TO FURNISH ANY FURTHER EVIDENCE; BUT LEARN ED CIT(A) HAS HOWEVER DRAWN ADVERSE INFERENCE AGAINST THE ASSESSEE. WE AR E OF THE VIEW THAT THE AMOUNT PAID BY THE ASSESSEE OUTSIDE INDIA WERE REIM BURSEMENT OF EXPENSES AND FINDING OF LEARNED CIT(A) TO THE CONTR ARY ARE WITHOUT ANY BASIS. IN THIS REGARD, WE ALSO FIND THAT IN A.Y. 20 03-04, 2005-06 & 2006- 07, IDENTICAL PAYMENTS HAVE BEEN ACCEPTED AS REIMBU RSEMENT OF EXPENSES BY LEARNED CIT(A) AND DISALLOWANCE HAVE BE EN DELETED. WE FAIL TO SEE AS TO HOW PAYMENTS CAN BE SAID TO BE NOT REI MBURSEMENT OF EXPENSES. DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SIEMENS AKTIONGESELLSCHAFT (SUPRA) SUPPORTS STAND O F THE ASSESSEE THAT REIMBURSEMENT OF EXPENSES CANNOT BE THE SUBJECT MAT TER OF DISALLOWANCE U/S. 40(A)(I) OF THE ACT. 27. BESIDES THE ABOVE, THE OTHER DECISIONS RELIED U PON BY LEARNED COUNSEL FOR THE ASSESSEE ALSO SUPPORTED THE PLEA OF THE ASSESSEE. AS FAR AS DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS (SUPRA) IS CONCERNED, IT WAS A CASE WHE RE PAYMENTS WERE MADE FOR PURCHASE OF READYMADE SOFTWARE WITHOUT DED UCTION OF TAX AT SOURCE. IN THOSE CIRCUMSTANCES, HON'BLE HIGH COURT HELD THAT THE ASSESSEE CANNOT ON HIS OWN DECIDE REGARDING TAXABIL ITY OF PAYMENTS MADE OUTSIDE INDIA. IT WAS NOT THE CASE OF REIMBURS EMENT OF EXPENSES. APART FROM THE ABOVE, HON'BLE DELHI HIGH COURT IN T HE CASE OF VANOORD ACZ INDIA VS. CIT, ITA NO. 439 OF 2008 VIDE JUDGEME NT DATED 15.3.2010 HAS TAKEN THE VIEW THAT OBLIGATION TO DEDUCT TAX AT SOURCE IS ATTRACTED ONLY WHEN PAYMENT IS CHARGEABLE TO TAX IN INDIA. WE ARE OF THE VIEW THAT IN THE PRESENT CASE, ISSUE IS LIMITED AS TO WHETHER PAYMENT IN QUESTION OUTSIDE INDIA WAS REIMBURSEMENT OF EXPENSES OR NOT. ON THE EVIDENCE FILED BY THE ASSESSEE, WE ARE SATISFIED THAT PAYMEN T IN QUESTION WAS M/S. LAZARD INDIA PVT. LTD. 16 REIMBURSEMENT OF EXPENSES. WE THEREFORE DIRECT THAT THE ADDITION SUSTAINED BY LEARNED CIT(A) SHOULD BE DELETED. WE O RDER ACCORDINGLY. GROUND NO. 6&7 RAISED BY THE ASSESSEE IS ALLOWED. 28. IN THE RESULT, APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. 29. ITA NO. 7277/MUM/2008 : A.Y. 2003-04 : REVENUE S APPEAL 30. GROUND NO. 1,2&3 RAISED BY THE REVENUE READ AS FOLLOWS :- 1) LEARNED CIT(A) ERRED IN ALLOWING THE LOSS OF RS. 16 ,94,711/- ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION. 2) LEARNED CIT(A) FAILED TO APPRECIATE THAT THE ABOVE LOSS HAD NOT ARISEN IN THE CURRENT YEAR. 3) LEARNED CIT(A) ERRED IN NOT TAXING RS. 13,00,000/- EARNED BY THE ASSESSEE ON ACCOUNT OF GAIN ON FOREIGN EXCHANGE FLUCTUATION IN RESPECT OF EXTERNAL COMMERCIAL BORRO WINGS (ECB) LOANS, DURING THE CURRENT YEAR. 31. THE ASSESSEE HAD REFLECTED AN AGGREGATE NET EXC HANGE LOSS OF RS. 3,94,711/- IN THE PROFIT AND LOSS ACCOUNT. THIS NE T EXCHANGE LOSS WAS BASED ON THREE TRANSACTIONS, WHICH ARE AS FOLLOWS: - 1) EXCHANGE LOSS ON PROFESSIONAL FEES/OUT RS. 4,7 5,309 OF POCKET EXPENSES 2) EXCHANGE LOSS ON REVENUE CHARGES BY WAY RS.12,19 ,402 OF INSURANCE PREMIUM/WAN FACILITY RS.16,94,711 3) LESS : EXCHANGE GAIN ON ECB LOAN (RS. 13,00,000 ) RS. 3,94,711/- 1) EXCHANGE LOSS ON PROFESSION FEES/OUT OF POCKET EXPE NSES : THE ASSESSEE COMPANY RENDERS SERVICES TO ITS OVERSE AS CLIENTS ON WHOM IT RAISES AN INVOICE TOWARDS PROFESSIONAL SERVICES AND OUT OF POCKET EXPENSES. THESE INVOICES ARE ACCOUNTED FOR IN RUPEE S BASED ON THE EXCHANGE RATE PREVAILING ON THE DATE OF THE INVOICE . ON ACCOUNT OF EXCHANGE FLUCTUATION, THE AMOUNT ACTUALLY RECEIVED IN RUPEES DIFFERS FROM THE AMOUNT ACCOUNTED FOR IN RUPEES. SUCH EXCHA NGE DIFFERENCE IN M/S. LAZARD INDIA PVT. LTD. 17 THE YEAR ENDED 31 ST MARCH, 2003 RELEVANT TO A.Y. UNDER APPEAL RESULTED IN AN EXCHANGE LOSS OF RS. 4,75,309/-. 2) EXCHANGE LOSS ON REVENUE CHARGES BY WAY OF INSURANC E PREMIUM/WAN FACILITY: THE ASSESSEES ASSOCIATE COMPANY, LAZARD & CO. SERV ICES LTD., UK TAKES A GLOBAL INSURANCE POLICY TO COVER THE RISK OF EMPL OYEES OF THE GROUP BEING HELD LIABLE FOR NEGLIGENCE IN THE DISCHARGE O F THEIR DUTIES. THE ASSOCIATE COMPANY ALSO PROVIDES A WEB AREA NETWORK (WAN) FACILITY TO ITS GROUP (INCLUDING THE APPELLANT COMPANY) ENABLING TH E EMPLOYEES IN GROUP USE THE INTERNET AND AVAIL GLOBAL INFORMATION . THE INSURANCE PREMIUM AND COSTS OF WAN FACILITY THAT ARE BILLED O N A MONTHLY BASIS ARE ACCOUNTED FOR BY THE ASSESSEE COMPANY BASED ON THE EXCHANGE RATE PREVAILING AT THE TIME OF RECEIPT OF INVOICE. WHEN THE AMOUNTS ARE REMITTED TO LAZARD & CO. SERVICES LTD. UK, THE RATE OF EXCHANGE DIFFERS FROM THAT PREVAILING ON THE DATE THE BILL IS ACCOUN TED. SUCH EXCHANGE DIFFERENCE IN THE YEAR ENDED 31 ST MARCH, 2003 RELEVANT TO A.Y. UNDER APPEAL RESULTED IN AN EXCHANGE LOSS OF RS. 12,19,40 2/-. 3) EXCHANGE GAIN ON ECB LOAN : THE ASSESSEE COMPANY HAD TAKEN A LOAN IN FOREIGN CU RRENT OF US$ 2 MILLION FOR WORKING CAPITAL, FROM ITS GROUP COMPANY LAZARD BROS. & CO. LTD. UK IN THE YEAR ENDED 31 ST MARCH, 1998. THE NECESSARY APPROVAL FROM RESERVE BANK OF INDIA HAD BEEN OBTAINED AND THE AMO UNT WAS UTILIZED FOR THE PURPOSE OF CLEARING THE OUTSTANDING LIABILITIES THAT THE ASSESSEE HAD AND TO MEET ITS OVERHEAD EXPENSES. ON 31 ST MARCH, 2003, THE LOAN OUTSTANDING WAS US$ 1 MILLION. AS REQUIRED BY THE A CCOUNTING STANDARD 11 ON EXCHANGE DIFFERENCES, THE ASSESSEE HAD RECORD ED THE FOREIGN CURRENCY LOAN AT THE RATE OF EXCHANGE PREVAILING ON THE DATE OF TAKING THE LOAN. AT THE BALANCE SHEET DATE AS REQUIRED BY THE ACCOUNTING STANDARD, THE FOREIGN CURRENCY LOAN WAS REVALUED AT THE CLOSI NG RATE OF EXCHANGE RESULTING IN FOREIGN GAIN OF RS. 13,00,000 WHICH WA S RECOGNIZED IN THE PROFIT AND LOSS ACCOUNT. M/S. LAZARD INDIA PVT. LTD. 18 THEREFORE, THE AGGREGATE NET EXCHANGE LOSS OF RS. 3 ,94,711/- REFLECTED IN PROFIT AND LOSS ACCOUNT WAS BASED ON THE ABOVE 3 TR ANSACTIONS AS FOLLOWS:- 1) EXCHANGE LOSS ON PROFESSIONAL FEES/OUT RS. 4,7 5,309 OF POCKET EXPENSES 2) EXCHANGE LOSS ON REVENUE CHARGES BY WAY RS.12,19 ,402 OF INSURANCE PREMIUM/WAN FACILITY RS.16,94,711 3) LESS : EXCHANGE GAIN ON ECB LOAN (RS. 13,00,000 ) RS. 3,94,711/- 32. THE ASSESSING OFFICER ACCEPTED THE FACT THAT SI NCE THE ECB LOAN WAS UTILIZED FOR WORKING CAPITAL, THE EXCHANGE LOSS IS TO BE ALLOWED AS REVENUE EXPENDITURE. HOWEVER, HE WAS OF THE OPINION THAT SINCE THE LIABILITY TO REMIT THE ECB LOAN HAD NOT ARISEN IN T HE ASSESSMENT YEAR UNDER APPEAL, A NOTIONAL ENTRY IN THE BOOKS OF ACCO UNT AS PER ACCOUNTING STANDARD TO REFLECT THE TRUE PICTURE OF OUTSTANDING PAYABLE WOULD NOT ENABLE THE ASSESSEE TO BE ALLOWED SUCH LOSS. HE REL IED ON THE DECISION OF HON'BLE MADRAS HIGH COURT IN INDIAN OVERSEAS BANK V S. CIT, 246 ITR 206 AND DISALLOWED THE GROSS EXCHANGE LOSS OF RS. 1 6,94,711/-. BY SO DOING, HE IN EFFECT DISALLOWED THE NET EXCHANGE LOS S OF RS. 3,94,711/- THAT WAS CLAIMED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT AS WELL AS TAXED THE EXCHANGE GAIN OF RS. 13,00,000/-. 33. THE LEARNED CIT(A), HOWEVER, FOLLOWING THE DECI SION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 1999-2000 & 2001-02 DELETED THE ADDITION OF RS. 16,94,711/- MADE BY THE ASSESSING OFFICER AN D ALLOWED NET FOREIGN EXCHANGE LOSS CLAIMED BY THE ASSESSEE AS A DEDUCTIO N. 34. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A), T HE REVENUE HAS RAISED GROUND NO. 1TO3 BEFORE THE TRIBUNAL. 35. WE HAVE PERUSED THE ORDER OF THE TRIBUNAL IN AS SESSEES OWN CASE IN ITA NO. 6966/MUM/08 IN A.Y. 1999-2000; WHEREIN T HE TRIBUNAL ON IDENTICAL ISSUE AFTER CONSIDERING SEVERAL DECISIONS HELD THAT FOREIGN M/S. LAZARD INDIA PVT. LTD. 19 EXCHANGE LOSS HAS TO BE ALLOWED AS DEDUCTION. IN TH E PRESENT CASE, THERE IS NO DISPUTE THAT LOSS IS ON REVENUE ACCOUNT. THE HON'BLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. WOODWARD GOVERNOR INDIA P. LTD. 312 ITR 254 (SUPREME COURT); HAS HELD THAT LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION HAS TO BE ALLOWED AS A DEDUCTION, IF IT IS ON CURRENT ACCOUNT. THE HONBL E COURT HELD THAT 'LOSS' SUFFERED BY THE ASSESSEE ON ACCOUNT OF FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE AS ON THE DATE OF THE BALANCE-SHEET IS AN ITEM OF EXPENDITURE UNDER SECTION 37(1) OF THE INCOME-TAX ACT, 1961. IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF LEARNED CIT(A) AND DISMISS GROU ND NO. 1TO3 RAISED BY THE REVENUE. 36. GROUND NO. 4 TO 6 READ AS FOLLOWS :- 4) LEARNED CIT(A) ERRED IN ALLOWING THE DISALLOWANCE O F RS. 1,20,52,000/- U/S. 40(A)(I) EVEN THOUGH NO TDS HAD BEEN DEDUCTED AT THE TIME OF REIMBURSEMENT TO NON RESIDE NT. 5) LEARNED CIT(A) FAILED TO APPRECIATE THAT THE REIMBU RSEMENT AS REFERRED TO IN THE INCOME TAX ACT ORDER FALLS UNDER THE OTHER SUM PAYABLE OUTSIDE INDIA AND THEREFORE THE PROVIS IONS OF SECTION 40(A)(I) OF THE INCOME TAX ACT IS ATTRACTED . 6) FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT TH E TIME OF HEARING, THE DECISION OF LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 37. THESE GROUNDS ARE IDENTICAL TO GROUND NO. 6&7, WHICH WAS DECIDED IN A.Y. 2002-03 IN ITA NO. 5095/MUM/06 ABOV E. IN THE PRESENT ASSESSMENT YEAR, THE LEARNED CIT(A) HELD THAT IT WA S THE CASE OF REIMBURSEMENT OF EXPENSES AND THEREFORE PROVISIONS OF SECTION 40(A)(I) WILL NOT BE APPLICABLE. FOR THE REASONS STATED WHIL E DECIDING SIMILAR GROUNDS OF APPEAL IN A.Y. 2002-03, WE UPHOLD THE OR DER OF LEARNED CIT(A) AND DISMISS GROUND NO. 4 TO 6 OF THE REVENUE. 38. ITA NO. 632/MUM/2009 FOR A.Y. 2005-06 & ITA NO. 4505/MUM/2009 : REVENUES APPEALS 39. GROUNDS RAISED IN BOTH THESE APPEALS READS AS F OLLOWS :- M/S. LAZARD INDIA PVT. LTD. 20 GROUNDS IN ITA NO. 623/MUM/2009 1) LEARNED CIT(A) ERRED IN ALLOWING THE DISALLOWANCE O F RS. 9,68,785/- U/S. 40(A)(I) EVEN THOUGH NO TDS HAD BEE N DEDUCTED AT THE TIME OF REIMBURSEMENT OF NON-RESIDE NT. 2) LEARNED CIT(A) FAILED TO APPRECIATE THAT REIMBURSEM ENT AS REFERRED TO IN THE INCOME TAX ORDER FALLS UNDER THE OTHER SUM PAYABLE OUTSIDE INDIA AND THEREFORE PROVISIONS OF S ECTION 40(A)(I) OF THE I.T. ACT IS ATTRACTED. 3) FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT TH E TIME OF HEARING, THE DECISION OF LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. GROUNDS IN ITA NO. 4505/MUM/2009 1) LEARNED CIT(A) ERRED IN ALLOWING PAYMENT OF RS. 27,17,176/- DISALLOWED U/S. 40(A)(I) SINCE NO TAX HAD BEEN DEDU CTED AT THE TIME OF REIMBURSEMENT OF NON-RESIDENT. 2) LEARNED CIT(A) FAILED TO APPRECIATE THAT REIMB URSEMENT AS REFERRED TO IN ASSESSMENT ORDER FALLS UNDER THE O THER SUM PAYABLE OUTSIDE INDIA AND THEREFORE PROVISIONS OF S ECTION 40(A)(I) OF THE I.T. ACT IS ATTRACTED. 3) FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 40. THESE GROUNDS ARE IDENTICAL TO GROUND NO. 6&7 R AISED BY THE ASSESSEE IN A.Y. 2002-03. FOR THE REASONS STATED TH EREIN, WE UPHOLD THE ORDER OF LEARNED CIT(A) AND DISMISS BOTH THESE APPE ALS BY THE REVENUE. 41. IN THE RESULT, APPEALS BY THE REVENUE ARE DISMI SSED WHILE APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 11 TH DAY OF JUNE, 2010. SD/- (A.L. GEHLOT) ACCOUNTANT MEMBER SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER DATED : 11 TH JUNE, 2010 COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. M/S. LAZARD INDIA PVT. LTD. 21 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS