TaxTMI 
TaxTMI 
2020 (6) TMI 533
X X X X Extracts X X X X
X X X X Extracts X X X X
.... onshore as well as offshore services in the wide areas of Consulting, Deals, Forensic Services, Government Reforms and Infrastructure Developments (GRID), Accounting Advisory, Risk Advisory Services, Tax and Regulatory Services. The Company filed revised return 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 dated 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 computing the total assessed income at Rs. 75,16,99,450/-. Aggrieved by the impugned 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 making in addition of Rs. 1,17,57,533/- , being provision for bad debts and doubtful debts wri....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "2.5.3 The AO has apparently completely misunderstood the accounting principles in this regard. It was sufficient to examine whether the provisions reversed during this year had been offered to tax in the preceding year, the amount actually written off as bad debt out of the provisions of preceding year, and how much of the provisions created during the year has been included in the amount claimed, if any, and whether the provisions created during the year are ascertained and related to the business transactions of the assessee. On facts available it is apparent that the amount of provision claimed in this year is allowable. The AO is directed to verify the above observations (in this para) and allow the claim accordingly." (emphasis supplied) We note that Ld. AO, without taking into account, the above directions of ld DRP, made an addition of Rs. 1,17,57,533/- in the impugned final assessment order dated 30th October 2018, which is in violation of the Directions of the Ld DRP. 6. We note that judicial discipline demands that once an order has been passed in the assessee's own case, lower authorities are duty bound to act in accordance with the same. The ld Counsel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and hence should not be 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 ought to follow the direction of ld DRP. We note that AO had neither follow the directions of ld DRP nor he had examined the submissions, documents and details filed by the assessee in right perspective, as noted above. Therefore, we direct the AO to examine the assessee`s claim in respect of provisions for bad and 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/- under 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 that 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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ewaterhouseCoopers 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 Parent Ltd. from which no dividend has been received during the year. As such no disallowance is called for u/r 8D(2)(ü) of the Rules. However, the disallowance u/r 8D(2)(iii) of the Rules is mandatory. Therefore, disallowance is upheld to the extent of Rs. 8.505 lakh. 10. We heard both the parties and carefully gone through 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 including the findings of the ld DRP/AO and other materials brought on record. We note 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 for the purpose of disallowance under rule 8D(2) (iii) of the Income Tax Rules. The relevant findings of the Co-ordinate Bench are given below: "8.1 Thus, not all investments become the subject-matter of consideration ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2,79,77,248/- suo moto disallowed by the assessee) incurred on account of Seminar & Conferences, without appreciating that the said expenses were incurred wholly and exclusively for the purpose of business and the complete details of the expenditure were furnished during the course of assessment proceedings." 12. Brief facts qua the issue are that during the assessment year under consideration, the assessee has debited an amount of Rs. 54,22,452/- in the profit and loss account on account of entertainment expenses. During the course of assessment proceedings, the assessee submitted details of entertainment expense, along with sample supporting documents, in the format 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 259) 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 enter....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee is also similar. The AO is directed to restrict the disallowance to 10% of the expenses other than already disallowed by the assessee." 16. Aggrieved by the order of the ld DRP/AO the assessee is in appeal before us. 17. Learned Counsel for the assessee submitted before us written submissions, the relevant portion of the written submissions are reproduced below: "Written submissions for ground No. 3 3.5 On perusal of the details of entertainment expense (at page nos. 186 to 196 of the PB), Your Honours would observe that expenses in the nature of reimbursement to employees (amounting to Rs. 39,41,940) included under the entertainment expense, have been incurred towards various client and team meetings and are not at all personal in nature. These expenses play a pivotal role in building good relationship with the clients/team and are exclusively incurred for the purpose of business. Hence, no disallowance 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 disallowance cannot be made on an ad hoc basis. The Ld.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 made 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 for 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 cities 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 and exclusively for the purpose of business of the assessee. 4.7. Your Honours would observe from the details furnished (refer page nos. 197 to 233 of the PB) that most of the payments have been made by the assessee to renowned institutions/associations/chambers....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ken 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 through 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 including the findings of the ld DRP/AO and other materials brought on record. We note that the ld DRP/ AO could have ventured into estimation only after rejecting the books of accounts of the assessee u/s 145(3) and thereafter by best judgment 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 account of the assessee has gone for estimation on suspicion and conjectures that the assessee may be inflating its expenses. While scrutinizing the expenditure if the expenses claimed are not having any nexus to the business of the assessee or if there is deficiency in the vouchers or there is no bills supporting the incurrence of an expenditure, at the most expenses to the extent that are not supported by the vouchers can be held to be non-genui....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ess purposes. The Tribunal has not given any basis whatsoever while confirming the disallowance to the extent of Rs. 75,000. All that the Tribunal observed 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 sustained. 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 the Hon`ble Delhi High Court in the case of Jay Engineering works Ltd, 113 ITR 389 (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 amounts of Rs. 3,26,200 and of Rs. 83,523 were deductible from determination of profits for the asst. yRs. 1962- 63 and 1963-64 respectively ?" The applicant-assessees carry on business of manufacturing of fans, etc., on a large scale. The relevant account books for t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pect of the relevancy but also in respect of proof the material which can be taken into consideration by the ITO and other authorities under the Act is far wider than the evidence which is strictly relevant and admissible under the Evidence Act. Under s. 34 of the Indian Evidence Act account books maintained in the regular course of business are evidence after the relevant entries are proved by oral evidence or are admitted. The ITOs, however, have to deal with such numerous cases of assessment that they can accept as correct books of account maintained in regular course 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 asst. yRs. 1962-63 and 1963-64 are destroyed by fire in November, 1962. Under the Indian Evidence Act secondary evidence of the contents of these account books would have to be adduced if they were to be used to prove any fact. The external auditors of the assessee-companies 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat, though, ordinarily, the 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 that such adjustments relating to earlier years have to be made in subsequent years. This is specially so, when the business, as of the assessees, is of giant proportions and the branches are farflung. The Tribunal has also very properly relied upon the auditors' reports to draw the proper inference 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 probative value, the Tribunal was justified in taking such material into account. It cannot, therefore, 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 considered in the income-tax proceedings. The applications are, therefore, dismissed. There will be no order as to costs." 21. We note that there is no material on record to show that any part of these....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld DRP/AO and other materials brought on record. The ld Counsel for the assessee submitted before us following written submissions which is reproduced below: "5.5 The assessee humbly submits that the above expense 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 withholding taxes. However, as the assessee follows mercantile system of accounting, the actual expenses 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 1,71,74,463 17,17,446 10% 18,09,552 13,90,869 1,39,74,042 5-7.From perusa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 pay taxes in USA in respect of income earned from rendering the services in FY 2013-14 in USA. Accordingly, the assessee had not filed any tax return in USA for FY 2013-14. For the AY 2014-15 pertaining to previous year 2013-14, the assessee, being a resident company of India, filed its tax return in India inclusive 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. Accordingly, 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 assessee on 11 September 2018. As mentioned above, income thus taxed in USA is also included in the total income in the return of income filed in India and tax on the same is paid in India under the provisions of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eign tax or part thereof which is disputed 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 month in which the dispute is finally settled, furnishes evidence of settlement of dispute and an evidence to the effect that the liability for payment 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 been claimed or shall be claimed." 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 finalized in June 2018 is in accordance with the law. The ld Counsel also relied on the judgment of Coordinate 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'ble Tribunal directed the Assessing Officer to consider the claim of the assessee in accordance with law after due verification. Findings of the Coordinate Bench is given below: "32. As far as ....