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TMI Blog2015 (12) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... use such an amount is deductible even under the mercantile system of accounting. It is, therefore, palpable that the amount of encashed performance bank guarantee calls for deduction both under cash system of accounting as well as the mercantile system of accounting because not only the liability for this expenditure was incurred, but it also stood discharged/collected during the year resulting in the outgo of the amount from the coffers of the assessee. This issue is, therefore, decided in favour of the assessee. Disallowance of expenses u/s 40(a)(i) & (ii) - Held that:- Once the assessee had suo motu made disallowance of ₹ 7.39 crore, there could have been no reason to make a further disallowance of the same amount included in ₹ 7.80 crore. Such double disallowance is hereby deleted. On reducing a sum of ₹ 7.39 crore from the total disallowance of ₹ 7.80 crore, we are left with the remaining disallowance of ₹ 41.51 lac. The AO made such total disallowance of ₹ 7.80 crore by recording that the assessee failed to furnish sufficient evidence in support of the deduction of expenses. The position remains status quo before the Tribunal as well. U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Prasar Bharathi, India) for producing and providing the coverage of the CWG 2010 to the Host Broadcaster, Prasar Bharathi. This contract for ₹ 246 crore allotted by Prasar Bharathi, was further sub-contracted by the assessee to M/s Zoom Communications Ltd., for ₹ 177 Crore on back-to-back basis. The assessee did not file any return of income for the year in question. In response to notice u/s 142(1), the assessee initially filed its return on 30.9.2011 declaring a loss of ₹ 6,01,46,503/-, which was revised to a loss of ₹ 45,06,99,539/- on 28.9.2012. The assessee did not report any international transaction nor filed Form No.3CEB along with these returns of income. During the course of assessment proceedings, the assessee declared some international transactions at the instance of the Assessing authority. The AO made reference to the Transfer Pricing Officer (TPO) for determining the arm s length price (ALP) of the international transactions. The TPO, vide his order dated 30.1.2014, rejected the assessee s contention that the transfer pricing provisions were not applicable. He recomputed the ALP of international transactions of Technical service, Reimbur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the charges of financial irregularities leveled against the assessee have been dropped and the matter is now lying in arbitration proceedings. The ld. DR opposed this contention and submitted that the matter has not been finalized as has been stated on behalf of the assessee. 6. After considering the rival submissions and perusing the relevant material on record about the transfer pricing adjustment, we find that there is an elaborate discussion in the final assessment order about the order passed by the TPO recommending the transfer pricing adjustment. However, the total income of the assessee has been computed by the AO in the final assessment order at ₹ 32.81 crore without making any addition towards transfer pricing adjustment. It, therefore, becomes vivid that albeit there is a discussion in the assessment order about the transfer pricing adjustment, but eventually no addition has been made by the AO on this score. In the absence of any such addition, we fail to find any cause of grievance to the assessee insofar as the discussion is contained in the final assessment order about the transfer pricing adjustment. When this position was confronted, the ld. AR submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply, there is also a reference to the assessee having furnished a performance bank guarantee for a sum of ₹ 24.60 crore, equivalent to 10% of the contract price, with the validity upto 31.3.2011. In view of the performance related issues and deficiencies in executing the contract assigned to the assessee as per the terms of the contract, Prasar Bharathi sought advice of its Standing Counsel, who advised that: since the PBG expires on March 31, 2011, Prasar Bharathi should immediately quantify its claim and encash the guarantee. The quantification of the claim of the Prasar Bharathi was done on four broader heads, namely, International coverage of Queen s Baton Relay ₹ 24 lac; Hiring of Lighting consultant ₹ 27,89,000/-; Supply of power cables ₹ 50,19,464/-; and Equipment deviations/shortfall ₹ 17.39 crore, all totaling to ₹ 18.41 crore. Then, there is an elaboration of these four broader heads representing deficiencies on the part of the assessee in the execution of the work assigned to it. For example, in respect of `International coverage of QBR , it has been mentioned that the assessee was to cover the national leg extensivel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e draft order on the second aspect of making disallowance of ₹ 24.60 crore. Though the assessee filed objections before the DRP on 12.5.2014, the Revenue chose not to prefer any appeal against the final assessment order containing the adverse direction of the DRP on the acceptance of cash system of accounting. The assessee is in appeal against the disallowance of ₹ 24.60 crore on account of encashment of performance bank guarantee. 9. At the outset, the ld. DR assailed the correctness of the final assessment order by contending that the cash system of accounting followed by the assessee was not in order and the view of the DRP in accepting such a method was erroneous and hence be overturned. On a specific query as to whether the Revenue was in appeal against the assessment order, the ld. DR contended that notwithstanding the fact that no cross appeal or cross objection was filed, he has a right to take up this issue. He also pressed into service Rule 27 of Income-tax Appellate Tribunal Rules, 1963. He contended that the amount of bank guarantee encashed was not deductible under the mercantile system of accounting. Sounding a contra note, the ld. AR submitted that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are concerned with a situation in which the assessee, a partnership firm, has followed cash system of accounting, which was also followed and accepted by the AO in the immediately preceding year and the DRP has approved such a cash system of accounting for the extant year. It is further clear that the Revenue has neither filed any cross appeal nor any cross objection against the assessment order as is otherwise permissible under the Act as will be seen infra. 11. Now let us take stock of the legal position about the filing of appeal by the Revenue against the assessment order passed pursuant to the direction given by the DRP. In this regard, it is pertinent to note that the institution of the DRP came into being by means of insertion of section 144C by the Finance (No. 2) Act, 2009 w.r.e.f. 1.4.2009. As per this section, an assessee who is dissatisfied with a draft order can approach the DRP for necessary relief. Such a relief can be allowed by giving direction under sub-section (5) of this section. Sub-section (13) of section 144C provides that the AO is obliged to pass a final assessment order in conformity with the direction given by the DRP. This shows that the direction te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... file cross objection has been given to the AO u/s 253(4) of the Act only against that part of the order of the Assessing Officer which is in pursuance of the directions of the Dispute Resolution Panel. This provision does not encompass a case of the AO filing cross objection against that part of the assessment order which has not been disturbed by the DRP. 13. In a nutshell, the position is that after the insertion/amendment by the Finance Act, 2012 of/to sub-sections (2A) and (4) of section 253, the Department has acquired a right to file appeal or cross objection against the assessment order passed in pursuance of the direction of the DRP to the extent it is aggrieved against such direction. It has no right to file appeal or cross objection against the voluntary decision of the AO/TPO which was not subject matter of any adverse direction by the DRP. Here we want to clarify that what has been prohibited against such an adverse position is the appellate recourse and not other remedies, if any, available as per law de hors the appellate option. Insofar as the adverse direction given by the DRP is concerned, the AO has now got a right to assail its correctness before the tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he scope of interference by the respondent. This is contained in the later part of the rule, which provides that the respondent `may support the order appealed against on any of the grounds decided against him . A cursory reading of this part divulges that the respondent can support the impugned order on any of the grounds which were decided against him. It can be understood with the help of a simple example in which the AO initiates reassessment and makes an addition by disallowing some expenses. The assessee challenges the assessment order before the CIT(A) on both the counts, that is, the initiation of reassessment and also the disallowance of expenses. The CIT(A) upholds the initiation of reassessment but deletes the disallowance of expenses on merits. In an appeal by the Revenue before the tribunal against the deletion of disallowance of expenses, the assessee under rule 27 can argue that the initiation of reassessment be also declared as invalid. This is a situation in which the assesseerespondent is supporting the impugned order (that is, the deletion of disallowance of expenses) under rule 27 on the ground decided against it (that is, upholding of the initiation of reassess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR may not be allowed to argue against the approval of cash system of accounting by the DRP in dealing with its ground about the confirmation of disallowance on account of encashment of bank guarantee, is devoid of merits and consequently rejected. 18. Now let us examine the merits of the disallowance. The AO has applied section 69C of the Act for making the disallowance of ₹ 24.60 crore. This section provides that : `Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year. Obviously this section has no application inasmuch as the amount of bank guarantee was encashed by Prasar Bharathi, which was furnished by the assessee from its regular books and its encashment was also properly recorded in the accounts. 19. Next thing to examine is the deductibility or otherwise of the amount of ₹ 24.60 crore under Chapter IV-D of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of such guarantee encashed cannot be treated as a charge against the income and hence not deductible. The situation can be seen from another angle by which Prasar Bharathi has paid ₹ 133.81 crore to the assessee for the work done during the year and thereafter recovered ₹ 24.60 crore for non-performance of the contract work. In our considered opinion, outcome remains same under both the circumstances, namely, the first in which the amount is first given and then a part of it is recovered by encashment of bank guarantee and the second, in which only net amount is given to the assessee. Under both the circumstances, it is the net amount of receipt which is chargeable to tax as the assessee s real income. By no standard, the encashment of performance bank guarantee can be viewed as independent of the income from production and telecasting of the CWG 2010, which is the sole source of the assessee s business income. Thus it transpires that encashment of performance guarantee is an expenditure incurred wholly and exclusively for the purpose of business. Further it is neither any expenditure of the nature described in sections 30 to 36 nor a capital or personal expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided in favour of the assessee. 24. The next issue raised in this appeal is against the disallowance of expenses amounting to ₹ 7,80,76,387/-. During the course of assessment proceedings, the assessee was asked to furnish documentary evidence to prove the genuineness of expenses claimed. The assessee furnished copies of certain documents, the details of which have been tabulated on pages 18 and 19 of the final assessment order. The AO found such documents to be inadequate and also containing certain discrepancies, which have been discussed in the same table. After discussing such deficiencies, the AO noticed that out of the total amount received by the assessee from Prasar Bharathi totaling ₹ 133.81 crore, the assessee paid ₹ 101.41 crore to Zoom Communications. Further, taking note of the fact that he had already disallowed ₹ 24.60 crore on account of encashment of bank guarantee, the AO held that the rest of the amount of ₹ 7.80 crore (Rs.133.81 crore minus ₹ 101.41 crore minus ₹ 24.60 crore) was not deductible as expenses for want of necessary evidence/support. The assessee argued before the DRP that it had voluntarily disallowed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 41.51 lac. The AO made such total disallowance of ₹ 7.80 crore by recording that the assessee failed to furnish sufficient evidence in support of the deduction of expenses. The position remains status quo before the Tribunal as well. Under such circumstances, we uphold the disallowance of ₹ 41.51 lac. Ex consequenti, this issue is partly allowed. 26. The last issue taken up before us is against the addition of ₹ 46,19,89,585/- towards unexplained contribution made by the partners of the assessee firm. The AO noticed that both the partners had introduced fresh capital during the year. In the absence of the assessee furnishing confirmations from the partners and the source of their capital contributions, the AO proposed disallowance of ₹ 46.19 crore in the draft order. No relief was allowed by the DRP. Addition of ₹ 46.19 crore was made in the final assessment order, which has been assailed before us. 27. Having heard the rival submissions and perused the relevant material on record, we find that the Schedule of partners capital accounts is available at page 25 of the paper book. It can be noticed that there is addition in Capital as w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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