TMI Blog2020 (2) TMI 247X X X X Extracts X X X X X X X X Extracts X X X X ..... he revenue. We need not examine the arguments of the learned counsel for the Assessee in this regard because Explnation-2 is only a deeming provision and if on facts it is found that the AO did not make any enquiries before concluding the assessment on the question whether service tax input written off can be allowed as a deduction in computing income from business, there is no need to take recourse to the deeming provisions. As far as the merits of the claim made by the learned counsel for the Assessee that the service tax input written off is an allowable deduction, he relied on the decision of Delhi ITAT in the case of Maruti Suzuki Ltd. [ 2015 (9) TMI 20 - ITAT DELHI ] . We do not think it necessary to deal with the merits of the claim of the Assessee as the same will be examined by the AO in the set aside proceedings. We, however, make it clear that the observations of the CIT in paragraphs 6 7 of the impugned order with regard to correctness of the claim of the Assessee regarding deductibility of the sum in question are not warranted because the jurisdiction u/s.263 of the Act is invoked on the ground that the AO failed to make necessary enquiry which he ought to ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial year relevant to AY 2014-15, the Assessee exported software services to MetricStream Inc to the tune of ₹ 1,68,77,13,290/- and as per the relevant Service tax law prevalent during FY 2013-14, no service tax was required to be paid by any exporter of service. However, various vendors who provided services to the Assessee in India had charged service tax on the services they provided to the Assessee during the relevant previous year. The service tax so charged was a cost/expenditure for the Assessee which was incurred wholly and exclusively for the purpose of business. The Assessee could not utilize the service tax so charged as input service tax because the services provided by the Assessee to its parent company was export of service which is not subject to levy of service tax. Since service tax which was charged by the service providers to the Assessee and since the service tax so charged was not available for use as service tax input credit, the service tax charged by the vendors who provided services to the Assessee had to be regarded as an expenditure which was incurred wholly and exclusively for the purpose of business and hence allowable as deduction under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 29.8.2015 and in response to the same, the assessee filed audited financial statement, tax audit report, IT return, etc. on 29.4.2015. The assessee also pointed out that in Note 20 to the financial statement, the details of Other Expenses which include service tax input receivable written off has been specifically mentioned. The assessee therefore claimed that the AO is deemed to have made enquiry with regard to service tax input receivable written off in the P L account. 9. The assessee also pointed out that the AO after conclusion of the assessment proceedings issued a notice u/s. 154 of the Act 5.12.2017 proposing to disallow service tax input receivable written off amounting to ₹ 2,15,89,831. The assessee sent a reply to the aforesaid notice u/s. 154 of the Act dated 5.12.2017. After receipt of the said reply dated 19.12.2017, the AO did not proceed further. However, proceedings u/s.263 of the Act has been initiated by the Principal CIT. The assessee therefore requested that the proceedings u/s. 263 of the Act should be dropped. 10. The Pr.CIT, however, did not agree with the submissions of the assessee. She found that on facts, scrutiny of records revealed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tire service tax input from the Service tax department , the claim of the assessee is not sustainable in law. 7. In the case of CIT Vs Noble And Hewitt (I) (P) Ltd (305 ITR 324), the Hon'ble High Court of Delhi held in the context of 43B payments held that when the assessee did not debit the amount to the Profit Loss Account as an expenditure, the question of disallowing the deduction not claimed would not arise. In view of the above decision the expenditure i.e., service tax not debited to Profit Loss account cannot be disallowed U/s 43B on actual payment basis. Taking the same analogy, the expenditure not debited to Profit Loss is not allowable as an expenditure. Further it is necessary to note that in the assessee's case, the claim made is on account of write off which is not in accordance with the accepted accounting principles or provisions of law. 12. Finally, the Pr. CIT gave the following directions to the AO:- 9. From the foregoing discussion, it is manifestly clear that the assessment order dated 27.09.2016 passed by the Assessing Officer in the case of the assessee for A.Y. 2014-15 is not only erroneous but also prejudicial to the interests ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the AO before concluding the assessment proceedings, nor was any enquiry raised in the notice issued u/s. 143(2) dated 29.8.2015 and notice u/s. 142(1) dated 12.4.2016. 17. We have given a careful consideration to the rival submissions. The Assessee was engaged in the business of development of software services. These software development services are provided to its Holding company MetricStream Inc, USA. During the financial year relevant to AY 2014-15, the Assessee exported software services to MetricStream Inc to the tune of ₹ 1,68,77,13,290/- and as per the relevant Service tax law prevalent during FY 2013-14, no service tax was required to be paid by any exporter of service. However, various vendors who provided services to the Assessee in India had charged service tax on the services they provided to the Assessee during the relevant previous year. The service tax so charged was a cost/expenditure for the Assessee which was incurred wholly and exclusively for the purpose of business. The Assessee could not utilize the service tax so charged as input service tax because the services provided by the Assessee to its parent company was export of service which is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interests of the revenue. It has been so held by the Hon ble Delhi High Court in the case of Gee Vee Enterprises Vs. DCIT 99 ITR 375 386(Delhi) . The following passage from the said decision would explain clearly the legal position in this regard:- (13) Shri G.C. Sharma argued that the orders passed by Income-tax authorities under sections 34 and 33B of the old Act corresponding to Section 147, and 263 of the new Act stood on the same footing when they were challenged as being without jurisdiction by way of a writ petitions We do not, however, think that he can derive any assistance from the decision in Calcutta Discount Company's case. As pointed out by the Supreme Court in Mysore State Road Transport Corporation V. The Mysore road Appellate Tribunal, (Civil Appeal No.1801 of 1970 decided on August 8, 1974) referring to an essay on Determining the Ratio Decidendi of a case by Dr. A. L. Goodhart, the principle of a' case is determined by taking into account the facts treated by the Judge deciding a case as material and his decision as based thereon. The ratio of the decision in Calcutta Discount Company's case cannot apply to the facts of the present case f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 33B contrary to Shri Sharma's contention. In Rampyari Devi Saraogi V. CIT, 67 I.T.R. 84, the Income Tax Officer accepted the return of the assessed in respect of the initial capital, the gift received and the sale of jewellery, the income from business, etc., without any inquiry or evidence whatsoever. For this reason the Commissioner held the order to be erroneous. In revision, he cancelled the order and ordered the Income Tax Officer to make a fresh assessment. In his order the Commissioner had used certain new grounds which had not been disclosed to the assessed in the notice given to him to show cause why the order of the Income Tax Officer should not be revised. But apart from these new grounds, the Supreme Court observed at page 88 of the report that- THERE was ample material to show that the Income Tax Officer made the assessments in undue hurry........,...The assessed made a declaration giving the facts regarding initial capital, the ornaments and presents received at the time of marriage, other gifts received from her father-in law, etc., which should have put any Income Tax Officer on his guard. But the Income Tax Officer without making any inquiries to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is obvious. The position and function of the Income Tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may he accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income Tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word erroneous in section 263 emerges out of this contract. It is because it is incumbent on the Income Tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word erroneous in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from business, there is no need to take recourse to the deeming provisions. 23. As far as the merits of the claim made by the learned counsel for the Assessee that the service tax input written off is an allowable deduction, he relied on the decision of Delhi ITAT in the case of Maruti Suzuki Ltd. (supra) . We do not think it necessary to deal with the merits of the claim of the Assessee as the same will be examined by the AO in the set aside proceedings. We, however, make it clear that the observations of the CIT in paragraphs 6 7 of the impugned order with regard to correctness of the claim of the Assessee regarding deductibility of the sum in question are not warranted because the jurisdiction u/s.263 of the Act is invoked on the ground that the AO failed to make necessary enquiry which he ought to have made before completing the assessment. The aforesaid observations in the impugned order should not therefore have any effect in the set aside proceedings before the AO and the subsequent appellate authorities. 24. With the above observations, the appeal of the assessee is dismissed. Pronounced in the open court on this 10th day of January, 2020. - - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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