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TMI Blog2021 (2) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... the years under consideration and direct the Assessing Officer to delete the disallowance. Allowability of legal and professional fees - whether the fees 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 been incurred for the purpose of the business of the assessee? - HELD THAT:- Assessee firm is a firm of Chartered Accountants and Shri Deepak Roy, while working in the capacity of the 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, 1956 and it was under these circumstances that the assessee company decided to defend the case of Mr. Deepak Roy. Although, the assessee company was defending a case which was in the name of the partner Mr. Deepak Roy, it cannot be said that defending the said 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 criminal complaint was filed against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Assessing Officer was of the view that the subscription fee was not wholly and exclusively 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 ₹ 17,41,389/- to M/s Dua Associates as legal fees. The assessee was required to explain the nature 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 Hon ble Allahabad High Court. The Assessing Officer was of the view that the fees paid were with reference to defending a criminal case which could not be said to be related to the business of the assessee. Accordingly, the entire amount of professional fees paid was also disallowed by the Assessing Officer. The assessment was completed at an income of ₹ 12,63,60,210/-. 2.2 Aggrieved, the assessee approached the Ld. First 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 Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. It was submitted by the Ld. counsel for the assessee that disallowance was directed to be deleted. The Ld. counsel for the assessee further relied upon the decision of the co-ordinate bench in the case of Deloitte Haskins and Sells, Kolkata in ITA Nos. 587 and 588/Kol/2016 vide order dated 11.07.2018. It was submitted by the Ld. Counsel 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. Counsel for the assessee further relied upon the decision of the Co-ordinate Bench in the cases of other sister consultancy firms who have paid subscription fees to their parent body. The Ld. Counsel for the assessee concluded by stating that the fees have been incurred wholly and exclusively for the purposes of business and have to be allowed. 3.1 With respect to Ground No.3 of the appeal, the Ld. Authorized Representative submitted that this ground pertained to disallowance of legal professional fees amounting to ₹ 17,41,389/- paid to M/s Dua Associates. The Ld. Authorized Representative submitted that during the Financial Year 2009-10, the assessee had deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation and goodwill of the firm, expenditure was incurred by the assessee and, therefore, the aforesaid expenditure was incurred wholly and exclusively for the purpose of profession of the assesses. Reliance was placed on the decision of Gujarat Agro Oil Enterprises Ltd. v. CIT [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 firm to protect itself from such Acts. It was also submitted that it is the partner of the firm who signs the audit report and, therefore, the partner is not signing in his personal capacity but in capacity 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 partner of the firm. The Ld. Authorized Representative also submitted that the Assessing Officer s reliance on the judgment of Swadeshi Cotton Mills Company Ltd. vs. CIT reported in 100 ITR 59 (Allahabad Full Bench) was misplaced and was misapplication of law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-05 and 2005-06, payment 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 Mumbai as its share of contribution. 14. In our considered opinion, the reasons given by the Assessing Officer for making disallowance are not based on sound principles. In our understanding of the facts, by becoming part of global net work of professional firms, it is easier to get work of international clients which are referred by firms of other companies from other countries. Similarly, the assessee may also refer its clients to its associated firm in other 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 domicile in Zurich, Switzer l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id portion of the Member Finn's contribution outstanding on the date of dissolution 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 the purpose of Verein is to further the international cooperation and cohesion among the member firms; to assure that practices of the Members shall conform to professional standards of highest quality; to advance the international and national leadership of the Member firms in rendering professional services, etc. Each Member contributes towards the budgeted operating expenses of Verein in 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 aggregate 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 operational budget. This is evident from certificate of the Chartered Accountant given at page 67. While making the said payment, the assessee had not deducted t h e TDS inter alia on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es issued by DHS, Mumbai as supporting evidence. The assessee has to pay subscription fees through Delloite, 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 required to be deducted again in respect of its reimbursement of share of expenses of ₹ 48,95,212/- to OHS, Mumbai. We note that it is not the case of the AO that the expenses were not 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 the purposes of business or profession. The assessee has claimed the expenses in accordance with its cash system of accounting and the AO has not disputed the system 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, Mumbai mentioning the amount debited as being your share o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not denied by the revenue and these are reimbursement of expenses. Once these are reimbursement of expenses, the assessee is not liable to deduct TDS u/s 195. Accordingly, the order of the Commissioner (Appeals) is to be confirmed. Therefore, we note that the said amount of ₹ 48,95,212/- was towards the reimbursement of the expenses, which 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 the 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 in 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 hesitation in setting aside the findings of the Ld. CIT (A). The Assessing Officer is directed to delete the addition of ₹ 2,16,68,412/-. Ground No.1 with its sub grounds is allowed. 5.1 We also note that the Ahmedabad Bench of ITAT also reached a similar conclusion by dismissing the Departmental Appeal on the issue for Assessment Years 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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