TMI Blog2020 (6) TMI 533X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that only dividend bearing securities should be considered for the purpose of disallowance under rule 8D(2) (iii) of the Income Tax Rules. Only dividend bearing securities should be considered for disallowance under rule 8D(2)(iii) of the I.T. Rules. Therefore, we direct the assessing officer to compute the disallowance under Rule 8D(2)(iii) of the Rules by taking into account dividend bearing securities only. For statistical purposes, the grounds raised by the assessee are allowed. Ad hoc additions on account of entertainment expenses and on account of Seminars/conferences made by ld DRP/AO are directed to be deleted - HELD THAT:- There is no material on record to show that any part of these expenses were incurred for non-business purposes.We note that assessee`s books of accounts are audited by Chartered Accountant. The reports of the auditors could be said to be material on which reliance could be placed by the IT authorities. The IT authorities not only to accept the auditors' report, but also to draw the proper inference from the same. Here in assessee`s case, the DRP/ AO has not passed any order u/s 144 of the Act. The DRP/ AO thus without rejecting the book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.09.2018. 2. Pricewaterhouse Coopers Private Limited (hereinafter referred to as 'PWCPL') is in the business of providing, inter alia, management consultancy services and also accounting and business advisory services. The Company's operations are segregated into different line of services like advisory, taxation services. The assessee provides both 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 ₹ 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 ₹ 75,16,99,450/-. Aggrieved by the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al before us. 5. 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 ld DRP had given the directions to the assessing officer as follows: 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated, recovered paid (party-wise) for earlier as well as current year, on the same day (by 5 pm). The assessee duly furnished the party-wise details of provision created and reversed during the year under consideration along with the reconciliation of provision reversed during the year with the provision created in preceding year (AY 2013-14) on the same day vide another letter dated 23 July 2018 refer page nos. 451 to 522 of the PB. On perusal of the details submitted vide letters dated 23 July 2018, it is clear that the provision reversed during the year have been claimed out of the ascertained provisions created and offered to tax in the preceding year 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 adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me tax rule (the Rules), ₹ 40.846 lakh u/r 8D(2)(ii) of the Rules and ₹ 8.505 lakh u/r 8D(2)(iii) of the Rules. The AO has however not given any finding with regard to the nexus between the investments and the interest paid on loans during the year in terms the judgement of the Hon'ble Supreme Court in Maxxop. Now it is settled law that only such investments in respect of which the dividend income or exempted income has been earned can be considered when computing the disallowance u/s 14A read with Rule 8D. On perusal of the audited financials it is observed that the assessee's investment are either in its subsidiaries (₹ 10.99 Cr., being opening balance in this year) or in PricewaterhouseCoopers Service Delivery Centre (Kolkata) Put. Ltd. (₹ 1.00 lakh, being opening balance in this year) beside fresh investment of ₹ 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)( ) of the Rules. However, the disallowance u/r 8D(2)(iii) of the Rules is mandatory. Therefore, disallowance is upheld to the extent of ₹ 8.505 lakh. 10. We heard both the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e incurred wholly and exclusively for the purposes of business and the complete details of the expenditure were furnished during the course of assessment proceedings. 3.1 On the facts and in law and in the circumstances of the case, the ld AO, in making the ad hoc disallowance of entertainment expenses, erred in not following the directions of the Hon`ble DRP by not restricting the ad hoc disallowance to the extent of expenses related to reimbursement to employees. 4. On the facts and in law and in the circumstances of the case, the Hon`ble DRP/ld AO erred in making in ad hoc addition of ₹ 53,00,938/- being 10% of ₹ 5,30,09,377/- ( i.e. total amount of expenditure of ₹ 8,09,86,625/- less ₹ 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 ₹ 54,22,452/- in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted vide letter dated 22 November 2017 (refer page nos. 197 to 233 of the PB) Sample supporting documents (bills, vouchers, etc.) submitted vide letter dated 8th December 2017 (refer page nos. 260 t0 402 of the PB) In the draft assessment order, the Ld. AO proposed an adhoc disallowance of 25% of the seminar and conference expense. 15. Aggrieved by the order of the AO, the assessee filed the objections before the Ld DRP. The Hon ble DRP restricted the disallowance to 10% of the said expense other than already disallowed by the assessee. The findings of the ld DRP is reproduced below: 2.11.1 These expenses are similar to those considered in ground no. 17 herein above and the reply of the 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t extracts reproduced below: 4. We have heard rival contentions and gone through the facts and circumstances of the case. We find that AO has made disallowance on ad hoc basis @ 5% and there is no basis for making disallowance. We also observe that CIT(A) has simply confirmed the disallowance. Whether the disallowance by restricting @ 5% on account of business expenditure can be made or not in the absence of any reasoning? The disallowance purely by resorting to ad hoc method cannot be made. These are business expenditure, and in the absence of cogent reason, the disallowance should not have been made. We hold that disallowance made by AO is without any basis and hence deserves to be 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. You ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion Seminar on valuation course conducted by ICAI. Assocham Seminar on International tax Transfer Pricing Assocham National Seminar On Tax Deduction National Law School International Arbitration Moot 4.10. In view of the above, there is no iota of doubt that the expense has been incurred for the purpose of the business of the assessee and ad hoc disallowance of the same without assigning any cogent reason therefore, is unwarranted. 18. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgued that there was no material on record to show that any part of the said expenditure was not for the sale promotion and the Tribunal was, therefore, in error in law in sustaining the disallowance of ₹ 75,000 without any basis. He submitted that the order of the Tribunal regarding sale promotion expenses is based on no material and that is how this becomes a substantial question of law. 30. We have carefully examined the judgment of the Tribunal and there is no material on record to show that any part of the sale promotion expenditure was incurred for non-business purposes. The Tribunal has not given any basis whatsoever while confirming the disallowance to the extent of ₹ 75,000. All that the Tribunal observed was that the disallowance of ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile the word evidence may recall the oral and documentary evidence as may be admissible under the Indian Evidence Act, the use of the word material shows that the ITO not being a Court can rely upon material which may not be strictly evidence admissible under the Indian Evidence Act for the purpose of making an order of assessment. Courts often take judicial notice of certain facts which need not be proved, while administrative and quasi-judicial authorities can take official notice of wider varieties of facts which need not be proved before them. Thus, not only in respect 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he original account books, which were destroyed in fire. There was, however, other material mainly consisting of the auditors' reports from which it could be inferred that the deductions were properly supported by the relevant entries in the account books. In a sense it may be a question of law as to what the meaning of material is and whether the auditors' reports were material. But the question of law is well settled and is not capable of being disputed and does not, therefore, call for reference. Point No. 2 The Tribunal has stated that, 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed to disallow an amount of ₹ 13,90,869/- out of the total expense on the understanding that the said expense did not pertain to the year under consideration. 24. Aggrieved by the order of the AO, the assessee filed the objections before the ld DRP. The ld DRP had directed the AO to allow the claim of the assessee after verification that whether the expenses are related to the year under consideration or not. Aggrieved, the assessee is in appeal before us. 25. 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. 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 ₹ 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 expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, and adjudicate the issue in accordance to law. For statistical purposes, the ground No. 5 raised by the assessee is allowed. 27. Ground No.6 raised by the assessee company reads as follows: 6.On the facts and in law and in the circumstances of the case, the ld AO erred in rejecting the claim of foreign tax credit amounting to ₹ 3,22,24,046/- for the taxes paid in United states of America (USA) on the doubly taxed income in accordance with the provisions of section 90/91 of the Act 6.1 On the facts and in law and in the circumstances of the case, the ld AO erred in not appreciating that the said claim could not be made at the time of filing of the Return of income as the payment of taxes in USA was not made till that time. 28. Brief facts 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of foreign tax credit (FTC) before the Ld. AO by way of application dated 15th October 2018 in accordance with Rule 128 of the Income Tax Rules, 1962. The ld Counsel draws our attention that Rule 128 of the I.T. Rules in connection with claim of foreign tax credit which provides as under: 128. (1) An assessee, being a resident shall be allowed a credit for the amount of any foreign tax paid by him in a country or specified territory outside India, by way of deduction or otherwise, in the year in which the income corresponding to such tax has been offered to tax or assessed to tax in India, in the manner and to the extent as specified in this rule : .............. (4) No credit under sub-rule (1) shall be available in respect of any amount of foreign 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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