M/S. B S R & CO LLP, MUMBAI V. ACIT, CIRCLE-16(2), MUMBAI

ITA 736/MUM/2023

AI Insights

The case involves cross-appeals by M/s B S R & Co. LLP and the Income Tax Department concerning the Assessment Year 2012-13. The primary issues revolved around the validity of reassessment proceedings and the classification of debts in the financial statements. The Assessee contested the reassessment and the disallowance of bad debts amounting to INR 2,28,27,496/-, which were mistakenly recorded as 'Doubtful Debts'. The Revenue appealed against the CIT(A)'s decision to grant a foreign tax credit for taxes withheld by Japanese entities. The Tribunal's decision favored the Assessee on both counts, leading to the quashing of the reassessment and the deletion of the disallowance.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 113528 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 23-08-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 09-03-2023
• Other Referred Cases: Amarchand & Mangaldas & Suresh A. Shroff & Co. vs. ACIT, Circle 16(2), Mumbai
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; Bad and doubtful debts; Reassessment proceedings
• Section: 147; 148; 90; 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL "I" BENCH, MUMBAI SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 736/MUM/2023 (Assessment Year: 2012-13) M/s B S R & Co. LLP, 14 th Floor, Central B Wing And North C Wing, Nesco IT Park, Nesco Centre, Western Express Highway, Goregaon (East), Mumbai - 400063 [PAN: AAAFB9852F] Assistant Commissioner of Income Tax Circle - 16(2), Mumbai, Room No. 625, 6 th Floor, Aayakar Bhavan, M.K. Road, Churchgate, Mumbai - 400020 ............. Vs ............. Appellant Respondent ITA No. 722/MUM/2023 (Assessment Year: 2012-13) Deputy Commissioner of Income Tax 16(2), Mumbai, Room No. 625, 6 th Floor, Aayakar Bhavan, M.K. Road, Mumbai - 400020 ............. Appellant M/s B S R & Co. LLP, Lodha Eceleus, 1 st Floor, Apollo Mills Compound, N M Joshi Marg, Mahalakshmi, Mumbai - 400011 [PAN: AAAPA9707G] Vs ............. Respondent Appearance For the Appellant/Assessee For the Respondent/Department : : Shri Ajit Jain Shri Siddhesh Chougule Shri Anil Sant Date Conclusion of hearing Pronouncement of order : : 24.08.2023 26.09.2023 ITA No.722 & 736//Mum/2023 Assessment Year 2012-13 2 O R D E R Per Rahul Chaudhary, Judicial Member: 1. These cross-appeals pertaining to Assessment Year 2012-13 arising from the order, dated 11/01/2023, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] for the Assessment Year 2012-13, whereby the Ld. CIT(A) had partly allowed appeal of the Assessee against the Assessment Order, dated 26/12/2009, passed under Section 143(3) read with Section 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). 2. The Appellant has raised following grounds of appeal in ITA No. 736/Mum/2023: “Ground No. 1 – Reassessment is bad in law 1.1. On the facts and circumstances of the case and in law, the Commissioner of Income tax (Appeals) erred in upholding the action of the Assessing Officer in reopening the assessment under Section 148 of the Income tax Act, 1961 ("the Act")) The Appellant prays that the re-opening of the assessment and reassessment is erroneous, unwarranted and be quashed. Ground No. 2- Disallowance of bad debts Rs. 2,28,27,496 inadvertently stated as Doubtful Debts in the Profit and Loss Account 2.1 On the facts and in the circumstances of the case and in law, the Commissioner of Income tax (Appeals) erred in upholding the disallowance made by the Assessing Officer of Rs 2,28,27,496 which was in the nature of bad debts but inadvertently stated as doubtful debts in the Profit and Loss Account. The Appellant prays that the disallowance of Rs. 2,28,27,496 ITA No.722 & 736//Mum/2023 Assessment Year 2012-13 3 is erroneous, unwarranted and be deleted. 2.1. The Revenue has raised following grounds of appeal in ITA No. 722/Mum/2023: “On the facts and the circumstances of the case and in law, allowing tax relief in regard to income earned in Japan. The Ld. CIT(A) has not considered the provisions of Article 14A of India-Japan DTAA dealing with Independent Personal Services. As per the provision of Article 14A the income itself is not taxable, the tax credit in respect thereof is not allowable.” 3. Reassessment Proceedings were initiated and vide order dated 26/12/2019, passed under Section 143(3) read with Section 147 of the Act the AO made an addition of INR 2,28,27,496/- holding that the Assessee had incorrectly claimed deduction for Provisions for Doubtful Debts. The Assessing Officer also denied foreign tax credit of INR 51,32,635/- claimed by the Assessee under Section 90 of the Act. 4. Being aggrieved, the Assessee preferred appeal before CIT(A) against the Assessment Order, dated 26/12/2019, challenging validity of reassessment proceedings as well as disallowance of INR 2,28,27,496/- made by the Assessing Officer on merits. The CIT(A) partly allowed the appeal vide order dated 11/01/2023. The CIT(A) dismissed challenge to validity of reassessment proceedings; and confirmed the addition of INR 2,28,27,496/-. However, the CIT(A) granted relief to the Assessee by directing the Assessing Officer to grant foreign tax credit of INR 51,32,635/-. 5. Now both the Assessee and the Revenue are in appeal challenging the order passed by the CIT(A) on grounds reproduced in paragraph 2 and 2.1 above, respectively. ITA No.722 & 736//Mum/2023 Assessment Year 2012-13 4 6. We have considered the rival submissions and perused the material on record. Appeal by Assessee : ITA No. 736/MUM/2023 7. We would first take up grounds raised by the Assessee in its appeal. Ground No 2 & 2.1 8. Ground No 2 & 2.1 raised by the Assessee are directed against the disallowance of INR 2,28,27,496/-. 8.1. During the reassessment proceedings, on perusal of Schedule ‘N’ forming part of the Financial Statements for the Financial Year 2011-12 relevant to the Assessment Year 2012-13, the Assessing Officer noted that the Assessee has debited to the Profit & Loss Account for relevant previous year an amount of INR 2,28,27,396/- under the head ‘Doubtful Debts’ clubbed under the head ‘Administrative Expenses’. Therefore, the Assessee was asked for explanation. In response, the Assessee submitted that amount of INR 2,28,27,496/- was ‘Bad Debts’ written off during the relevant previous year which were inadvertently classified as 'Doubtful Debts'. Relying upon Circular No. 12 of 2016, dated 30/05/2016, issued by the Central Board of Direct Taxes (CBDT), the Assessee claimed that deduction for the Bad Debts written off was allowable under Section 36(1)(vii) read with Section 36(2) of the Act. The Assessing Officer rejected the aforesaid submission of the Assessee and made disallowance of INR 2,28,27,496/- stating that the Assessee had incorrectly claimed deduction for Provisions for Doubtful Debts. In appeal preferred by the Assessee on this issue, the CIT(A) agreed with the Assessing Officer and declined to grant ITA No.722 & 736//Mum/2023 Assessment Year 2012-13 5 any relief. Therefore, the Assessee is now in appeal before us on this issue. 8.2. We have perused the relevant extract of the Balance Sheet of the Assessee for the Financial Year 2010-11 & 2011-12 placed at pages 144 to 151 of the paper-book. There is no change in the Provisions for Doubtful Debts as on 31.03.2011 and as on 31.03.2012 stood as INR 3,42,611/-. Therefore, the reasoning given by the Assessing Officer while making the disallowance is based upon incorrect understanding of facts. Therefore, the contention of the Appellant that the INR 2,28,27,496/- is the aggregate amount of bad debts written off during the relevant previous year though the same were incorrectly clubbed under the head Administrative Expenses and classified as provision for doubtful debts in the books of account has gone uncontroverted. Thus, addition of INR 2,28,27,496/- is deleted. Accordingly, disallowance of INR 2,28,27,496/- made by the Assessing Officer and confirmed by the CIT(A) is deleted. Ground No. 2 to 2.1 raised by the Assessee are allowed. Ground No 1. 9. Further, on perusal of documents placed before us as part of paper- book filed by the Assessee [at pages 57 to 64], we are satisfied that reassessment proceedings have not been initiated in compliance with the provisions of Section 147 of the Act. Accordingly, notice dated 20/03/2019, issued under section 148 of the Act, the consequential reassessment proceedings and the reassessment order, dated 26/12/2019, are quashed. Ground No. 1 raised by the Assessee is allowed. ITA No.722 & 736//Mum/2023 Assessment Year 2012-13 6 Appeal by Revenue: : ITA No. 722/MUM/2023 10. By way of solitary ground raised in the appellant, Revenue has challenged order of CIT(A) granting foreign tax credit of INR 51,32,635/- under Section 90 of the Act. 10.1. The relevant facts in brief are that the Assessee had claimed relief of INR.51,32,635 under Section 90 of the Act in respect of tax withheld by Japanese entities on professional fees paid to the Assessee. The Assessing Officer rejected the aforesaid claim holding that the Assessee was not entitled to tax relief of INR 51,32,635 as the income earned by the Assessee in Japan was not taxable in Japan in terms of Article 14 of the Double Taxation Avoidance Agreement between India and Japan (for short ’DTAA’). 10.2. In appeal preferred by the Assessee on issue, the CIT(A) granted relief to the Assessee and directed the Assessing Officer to grant foreign tax credit of INR 51,32,635/- to the Assessee. 10.3. The Revenue is now in appeal before us against the above relief granted by the CIT(A). 10.4. Having heard the rival submissions and on perusal of record, we do not find any infirmity in the order passed by the CIT(A) as the CIT(A) has granted relief by placing reliance on the order of the Tribunal in the case of Amarchand & Mangaldas & Suresh A. Shroff & Co. vs. ACIT, Circle 16(2), Mumbai : [2020] 122 taxmann.com 248 (Mumbai - Trib.)/[2021] 187 ITD 750 (Mumbai - Trib.)[18-12- 2020] In any case, in view of paragraph 9 above, the reassessment order dated 26/12/2019 stands quashed and therefore, the ground ITA No.722 & 736//Mum/2023 Assessment Year 2012-13 7 raised by the Revenue does not survive. Accordingly, Ground No. 1 raised by the Revenue is dismissed. 11. In result, the appeal preferred by the Assessee is allowed and the appeal preferred by the Revenue is dismissed. Order pronounced on 26.09.2023. Sd/- Sd/- (Prashant Maharishi) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 26.09.2023 Alindra, PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त/ The CIT 4. प्रध न आयकर आय क्त / Pr.CIT 5. दिभ गीय प्रदिदनदध, आयकर अपीलीय अदधकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदधकरण, म ुंबई / ITAT, Mumbai