TMI Blog2016 (5) TMI 1569X X X X Extracts X X X X X X X X Extracts X X X X ..... n these charges. As pointed out by the learned counsel for the assessee similar charges had been allowed as deduction in the past. There was no reason for the AO to doubt the nexus of these expenses with the business of the assessee. With regard to the payment of policy premium to cover the risk of damages owing to professional negligence it cannot be disputed that the same was in relation to the business of the assessee. It is no doubt true that the AO while completing the assessment did not make any specific inquiries with regard to this item of expenditure, the fact, however, remains that these expenses have direct nexus with the business of the assessee and had to be recorded as expenses wholly and exclusively incurred for the purpose of the business of the assessee. Besides the above as rightly pointed out by the learned counsel for the assessee the CIT has not set out as to why this item of expenditure need to be investigated and as to what type of inquiry ought to have conducted by the AO. A mere observation that no proper details have been obtained, cannot be sufficient to come to a conclusion that the AO did not make proper and adequate inquiries which he ought to ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 3,68,36,524/-. Under the provisions of Sec.40(b)(v) of the Act, notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession , in the case of any firm assessable as such, any payment of remuneration to any partner who is a working partner, which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as the amount of such payment to all the partners during the previous year exceeds the aggregate amount computed as hereunder :- (1) in case of a firm carrying on a profession referred to in section 44AA or which is notified for the purpose of that section- (a) on the first ₹ 1,00,000 of the book-profit or in case of a loss ₹ 50,000 or at the rate of 90 per cent of the book profit, whichever is more; (b) on the next ₹ 1,00,000 of the book-profit at the rate of 60 per cent; (c) on the balance of the book- profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red his order erroneous and prejudicial to the interest of the revenue. Accordingly, the CIT issued a show cause notice dated 6.3.2014 to the Assessee. After hearing the submissions of the Assessee, the CIT passed the impugned order wherein he held as follows: 1. On the sundry income of ₹ 10,35,13,136/- credited in the profit and loss account, the CIT was of the view that at the time of passing the original order u/s. 143(3) the then A.O. has not taken any details with respect to income from other sources and his order is also silent on this issue. The A.O. has simply treated this income as the business income. So even if he has rightly or wrongly treated this income as business income the aspect of giving benefit u/s. 40B should have also been seen in the light of the latest Court rulings and the position of Law. As such this lack of enquiry with respect to the discussion as above was definitely prejudicial and erroneous in its nature. 2. As regards PWC Global Charges, the CIT held that no proper enquiries have been made by the then A.O. before allowing this claim of the assessee. The CIT also observed that when the assessment was completed by the AO, the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e completing the assessment. It is in this background that the learned counsel for the assessee drew our attention to the inquiries made by the AO while completing the assessment on the issues considered by CIT in the impugned order u/s 263 of the Act. 7. As far as the sum of ₹ 10,35,13,136/- which was shown as sundry income in the profit and loss account is concerned, the AO vide letter dated Nil, (signed by the AO on 1-9-11) along with notice u/s.142(1) of the Act, called upon the Assessee to furnish certain details. Item No.20 of the list of details sought by the AO was the details with regard to Sundry Income . The assessee vide its letter dated 25.10.2010 gave explanations and details as desired by the AO. Annexure-III to the said letter gives the break-up of sundry income credited in the profit and loss account. The same is as follows :- Annexure III Price Waterhouse Details of Sundry Income Assessment year 2009-10 Rs. Billing to Price Waterhouse C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that there cannot be any dispute with regard to inclusion of the amounts credited on sale of scrap and recovery of old excess payment in the book profit. So also with regard to gain on account of exchange fluctuation which has to be regarded as income from profession. 9. Without prejudice to the above contentions, the learned counsel submitted that even if the non refundable grant is assumed to be assessable under the head 'income from other sources' as observed by the learned CIT, the same cannot be legally excluded while arriving at the 'book profit' as per Explanation 3 to section 40(b)(v) of the Act and in this regard placed reliance on the decision of the Hon'ble Kolkata High Court in the case of Md. Serajuddin Brothers vs. CIT [210 Taxman 84 (Kol)] wherein it was held that on a proper construction of the provisions of section 40(b)(v) and Explanation thereto, book profit comprises the entire net profit as shown in the profit and loss account and not the profits and gains of business assessed under Chapter VI-D. 10. With regard to the payments made to PwC Global services of ₹ 3,34,56,529/- the learned counsel for the assessee pointed out tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t given the nature of services rendered by PwC Services BV to the Assessee, there cannot be any doubt that the expenses there for have been incurred by the Assessee wholly and exclusively for the purpose of its business or profession and is accordingly allowable as deduction u/s. 37(1) of the Act while computing the total income of the firm for the year under consideration. 12. It was submitted that all the said details including agreement were duly considered and examined by the Assessing Officer at the time of the assessment proceedings and having satisfied that the same has been incurred wholly and exclusively for the purpose of the business or profession carried on by the Assessee, he has allowed deduction of the same in computing the assessed income for the year under consideration. It was contended by him that issues which are accepted, do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions/ disallowances are made. 13. The learned counsel for the assessee brought to our notice that in assessments completed for A.Yrs. 2003-04, 2005-06 and 2006-07 in reassessment proceedings fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served that the AO ought to have called for necessary details and made necessary inquiries. According to him CIT has not set out as to what is the nature of inquiry that has to be carried out by the AO. The learned counsel for the assessee also drew our attention to the fact that similar expenditure had been allowed in the assessments of the assessee in the past. The details in this regard are as follows :- Assessment Years Insurer Name Order Reference Remarks 2005-06 Cholamandalam MS General Insurance Co.Ltd. National Insurance Co.Ltd. Original Assessment u/s 143(3) Reassessment u/s 143(3)/147 Allowed in both original and reassessment order as revenue expenditure. 2006-07 Cholamandalam MS General Insurance Co.Ltd. National Insurance Co.Ltd. Original Assessment u/s 143(3) Reassessment u/s 143(3)/147 Allowed in both original and reassessment order as revenue expenditure. 2007-08 Cholamandalam MS General Insurance Co.Ltd. National Insurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assive 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. 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 enquiry. 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 therein are assumed to be correct. We derive support for the proposition as stated above from the decision of the Hon ble Delhi High Court in the case of Gee Vee Enterprises 99 ITR 375 (Del). 17. Since in the present case the CIT has exercised jurisdiction u/s.263 of the Act on the ground that the AO while completing the assessment proceeding did not make enquiries which he ought to have made, it is necessary to look into what enquiries the AO made on the issues raised in the order u/s.263 of the Act. It is clear from the submissions and material available o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned order was neither erroneous nor prejudicial to the interest of the revenue for the reason of any law of inquiry that the AO ought to have made in the given facts and circumstances of the case. We accordingly quash the order u/s 263 of the Act and allow the appeal of the assessee. 18. In the result the appeal of the assessee in ITA NO.1277/Kol/2014 is allowed. ITA NO.1278/Kol/2014 19. This is an appeal filed by the assessee against the order dated 28.03.2014 passed by CIT,Kolkata-XIX, Kolkata relating to A.Y.2009-10. 20. The assessee in this case is a firm of consultants engaged in the profession of providing financial consultancy, audit and accounting services in India. The assessee in this case filed its return of income on 30.09.2009 declaring total income of ₹ 24,84,85,909/-. By revised return filed on 30.03.2011 the total income enhanced to ₹ 25,37,78,154/-. The AO by an order dated 28.12.2011 passed u/s 143(3) of the Act determining the total income of the assessee at ₹ 25,41,15,580/-. The CIT, Kolkta-XIX in exercising of his powers u/s 263 of the Act was of the view that the aforesaid order of the AO was erroneous and prejudicial to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the A.O. and hence the order is prejudicial erroneous to the interest of the revenue. Hence, the show- notice and in response to which the assessee has furnished number of submissions. The AO is directed to examine all these details before arriving at any particular conclusion and also to give assessee a reasonable opportunity of being heard. And thus this order is set aside with directions to the A.O. as above. 22. It is seen that while completing the original assessment the AO have called for the details with regard to the payment of service charges to Price Water house Global services. The assessee had duly replied vide its letter dated 25.03.2014 which are placed at page 119 of the assessee s paper book. With regard to the insurance premium paid the details had been given by the assessee before the AO. Though there was no inquiry by the AO we have already seen while deciding the appeal of Price Water house that the absence of such inquiry alone cannot render the order of AO erroneous and prejudicial to the interest of the revenue. The other reasons while deciding the appeal of Price water house will equally apply to this assessee also. For the reasons given while deciding ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
