TaxTMI 
TaxTMI 
2022 (10) TMI 1238
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....ial to the interest of Revenue. Accordingly, he issued notice u/s. 263 of the Act and show-caused the assessee as to why the order passed by the assessing officer should not be revised under section 263 of the Act. In response authorised representative of the assessee attended and filed relevant information as called for. 3. During the proceedings, assessee filed its letter dated 22.12.2003 in response to and objecting to the initiation of the proceedings u/s. 263 of the Act, it was submitted that power u/s 263 of the Act can be exercised by the Commissioner/DIT only, and the preconditions has not been satisfied in the present case and further relied on certain case law. It was further submitted that the Assessment Order is in consonance with the decision of the Hon'ble Jurisdictional High Court. Therefore, it cannot be said that the decision is erroneous and also submitted that the Hon'ble Calcutta High Court in the case of Jeevanial v. Addl.CIT [108 ITR 407] has held that notice u/s. 263 at the instance of Audit without exercising own discretion and judgement cannot be sustained. 4. Ld.DIT rejected the submissions made by the assessee and observed that on all the is....
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.... cannot be erroneous so as to justify revision u's 263 of the Act. The assessee also relied uponthe following judgments (i). CIT Vs Simpson Co. Ltd. [230 ITR 749 (Mad)] (ii). CIT Vs. George Oakes Ltd [197 ITR 288 (Mad)] (iii). Sasson J David & Co. Pvt. Ltd vs. CIT [118 ITR 261 (SC)] (iv). Indian Cable Co. Ltd. vs. Their Workman AIR 1972 SC 2195 (v). Atherton vs. British Insulated &Helsby Cables Ltd. 10 TC 155, 191 H.L (vi). CIT Vs. Assam Oil Co. Ltd. [154 ITR 647 (Cal.)) (vii). K Ravindranathan Nair vs CIT (247 ITR 178 (SC)] • The CBDT Circular/Letter does not lay down the correct legal position which is laid down by the Supreme Court in the case of Empire Jute Co Ltd. [124 ITR 1] • The CBDT Circular cannot be binding upon Assessing Officers where judicial decisions are available. • Sec. 35DDA was inserted in the statute wef 01/04/2001 by the Finance Act, 2001 for amortisation of VRS Expenditure" 9. After considering the submissions of the assessee, Ld. DIT by fully relying on the CBDT Circular and further observed that the decision of the Hon'ble Jurisdictional High Cou....
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....n the deduction u/s 36(1)(viia) of the Act. Ld. DIT observed that in earlier years assessee has not claimed any deduction u/s 36(1)(viia) for provision for bad and doubtful debts. As per the provisions of the Act, a banking assessee gets a deduction for bad and doubtful debts to the extent of 5% of profits irrespective of the amount of bad debts actually written off. If the amount of bad debts actually written off exceeds the 5%, the excess is also to be allowed as per sec.36(1) (vii) of the Act. In the present case, the Assessing Officer allowed the entire bad debts actually written off i.e., Rs..43,29,97,000/- instead of the excess over 5% limit. In other words, if the actual bad debts written off is much higher than the 5% limit, then total deduction u/s 36(1)(vii) and 36(1)(viia) will be restricted to the actual bad debts written off. Finally, he observed that the Assessment Order passed by the Assessing Officer erroneous and prejudicial to the interest of revenue. 13. The next issue is disallowance u/s. 40(a)(ia) of the Act, Ld. DIT observed that as per clause 17(f), payments to visa / master card for the period January 1999 to March 1999 aggregating to Rs..75,24,627/- was ....
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....f provisions for doubtful debts. The provisions for doubtful debts is an unascertained liability and therefore it is required to be added for computing the book profit. 16. In response, assessee submitted that provision for doubtful debts is not a provision for a liability ascertained or unascertained. It is a provision for diminution in the value of assets, therefore such provision will not fall within the scope of explanation (c) to section 115JA (2) of the Act. This was accepted in the decision of the ITAT in Steel Authority of India Ltd. v DCIT [76 ITD 69] and Maharashtra State Electricity Board v JCIT [82 TTD 422] 17. After considering the submissions of the assessee, Ld. DIT observed that the contention of the assessee is not acceptable to the revenue and the decision of the ITAT and the interpretation was not accepted by the Department. Accordingly, he proceeded to make adjustment of book profit and accordingly, determined the liability u/s.115JAA of the Act. Hence, he directed the Assessing Officer to give effect as per the direction of his order. 18. Aggrieved assessee is in appeal before us raising following grounds in its appeal: - "1. Revision bad in l....
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.... • That the learned DIT erred in holding that the CBDT circular letter which was not in accordance with the laid down legal position and judicial precedents, was still binding onAssessing officers. • That on facts and circumstances, the DIT failed to demonstrate how the primary test mentioned in the circular letter to show how any advantage of enduring benefit resulted to assessee stood satisfied in the appellant's case to warrant the disallowance and hold the expenditure as being capital in nature. • That the learned DIT erred on facts and circumstances of the case in applying the circularto the whole expenditure which included payment towards Gratuity, pension etc besidesthe exgratia payment under the ESS scheme. 3. Disallowance u/s 40 (a) (i) -Payment to Visa and MasterCard • That on the facts and in the circumstances of the case, the learned DIT erred in holding that the payment of Rs. 75.24,627/- made to Visa and MasterCard came within the purview of section 40 (a) (i). That the learned erred in holding that the provisions of section 195(1) applied to thepayment when the section required tax to be deducted only if....
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.... is not incurred for acquiring any asset but were incurred to reduce the cost and the liability stood ascertained, quantified and discharged during the accounting year. He prayed that on merit the issue is covered in favour of the assessee. 20. With regard to bad debts, he brought to our notice Page No. 5 of the order passed u/s. 263 of the Act and brought to our notice section 36(1)(vii) and 36(1)(viia) of the Act. Further, he brought to our notice Page No. 32 of the Paper Book and relied in the decision of the Hon'ble Gujarat High Court in CIT v. UTI Bank Ltd., ([2013] 29 taxmann.com 79) and submitted that in this decision Hon'ble High Court has addressed the issue whether the closing credit balance in the provision account should be considered or the opening balance of such provision account should be considered for section 36(1)(vii) of the Act. He submitted that as per section 36(1)(vii) of the Act only opening balance of provision should be adjusted and not closing balance of such provision account, therefore, the conclusion reached by Ld. DIT (IT) is not proper. He prayed that this issue also is in favour of the assessee on merit. 21. With regard to issue u/s. ....
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....s deducted and paid tax on such sum on the date of furnishing of return of income by the payee. First proviso to section 201(1) of the Act provides that the payer shall not be deemed to be an assessee in default if the recipient has taken into account the said income while filing return income and tax due has been paid on such income by the payee and, a certificate to that effect has been issued. The Assessee submits that the aforesaid conditions have been satisfied in the case of the Assessee in view of the afore-stated certificate as well as the decision in the Assessee's own case of the Tribunal (ITA No. 6100/Mum/02 and ITA No. 6101/Mum/92) for the captioned assessment year holding the Assessee as not an Assessee in default for the very same payments made to VISA and Mastercard. The decision of the Tribunal is at Page No. 10 to 13 of the Paper Book. The Assessee submits that the direction given in the impugned order for making a disallowance has no legs to stand and must be set aside since the Assessee has been held not to be an Assessee in default and accordingly, first proviso to section 201(1) of the Act stands satisfied. Further, the Assessee submitted that second provis....
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....isallowance can be made in case of payments to the non-residents even if the amount is found taxable in India. In connection with no disallowance can be made under section 40(a)(i) of the Act, we place reliance on the following judicial precedents, wherein the above principles / arguments have been upheld. i. DIT (IT) vs. Citibank N.A. (2016) (66 taxmann.com 373) (Bom. HC) ii. Central Bank of India vs DCIT (2010) (42 SOT 450) (Mumbai ITAT); iii. Citibank N.A. vs. ACIT (ITA No.5275 and 5276/Mumbai /2001), and iv. Herbalife International India (P.) Ltd. Vs. ACIT (2006) (101 ITD 450). 30. In this regard Ld. AR submitted that in view of Article 26(1)&(2) of the India UK Treaty, no disallowance can be made in the hands of the PE, as it would amount to discriminating between Indian Resident making a payment to Master Card and VISA and non-resident making the payment to the same entities. Ld. AR prayed that impugned disallowance is not warranted in the present case of the Assessee and therefore the order of the Ld. DIT to disallow should be set aside. No other reasoning is given by the Ld. DIT with relation to disallowance of said expenditure, and th....
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....ervices are not covered under Article 26(3) of the DTAA. He heavily supported the findings of the Ld. DIT. With regard to other issues he relied on the orders of the Ld. DIT. 35. Considered the rival submissions and material placed on record, at the time of hearing, Ld. AR submitted that all the issued raised by the Ld. DIT are covered in favour of the assessee and even on merit of the issues raised by Ld. DIT are in favour of the assessee. With regard to early separation scheme, Ld. DIT by relying heavily on the letter issued by CBIT to all the Chief CIT's to consider the facts of the cases and disallow the schemes involving voluntary retirement where the expenditures are incurred which increases the nature of treatment, benefits of enduring nature which can be classified as capital in nature. However, we observe that the Hon'ble Jurisdictional High Court decided and held the similar issue in favour of the assessee in the case of CIT v. Bhor Industries Ltd., (supra) wherein the Voluntary Retirement Scheme expenditure allowed as revenue expenditure based on the criteria commercial expediency. These expenditure does not have enduring nature. Further, we observe that Ld. DIT h....
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....s. 40(a)(i) of the Act. However, as held in the case of Celltick Mobile Media (India) (P.) Ltd., v. DCIT [127 taxmann.com 598 (Mumbai - Trib)] the Coordinate Bench held as under: "16. It is submitted that the 2nd proviso to section 40(a)(i) inserted with effect from 01.04.2020 as per which, where assessee fails to deduct the whole or any part of the tax in accordance with the provisions of chapter XVII - B on any such sum but is not deemed to be an assessee in default under the 1st proviso to section 201(1). It shall be deemed that the assessee has deducted and paid the taxes on such sum on the date of furnishing of return of income by the payee referred to in the said proviso. As per proviso to section 201(1), a payee shall not be deemed to be an assessee in default in respect of such tax if such payee, (a) furnished its return of income under section 139, (b) has taken into account such sum for computing income in such return of income and (c) has paid the tax due on the income declared by him in such return of income and along with such payee furnishes a certificate to this effect from an accountant as per form prescribed for this purpose. 17. In the given case....
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....ons of section 40(a)(ia) are equally applicable u/s.40(a)(i) of the Act, with that above discussion we are inclined to accept the first proposition made by the assessee and accordingly, Ground No.3 raised by the assessee is allowed and we do not wish to consider the proposition No. 2 raised by the assessee at this point of time. 38. We observe from the record that assessee has filed additional Ground No. 2 which is relating to deduction u/s. 36(1)(vii) of the Act to the extent of deduction u/s. 36(1)(viia) of the Act claimed during current Assessment Year by disregarding the fact that in earlier years the assessee had incurred losses and no deduction u/s. 36(1)(viia) was claimed by the assessee in earlier years. In this regard, we observe that Ld. DIT discussed various aspects in this regard and came to the conclusion that action of the Assessing Officer in allowing the deduction u/s. 36(1)(vii) without proper verification and also assessee has not added back the provision for bad debts while computing the total income. He observed that there is no addition or change except that deduction u/s. 36(1)(viia) @5% had been allowed. Further, he observed that while allowing the bad deb....