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TMI Blog2010 (7) TMI 1022X X X X Extracts X X X X X X X X Extracts X X X X ..... es would be applicable and are to be followed in all other cases. Thus we first take up the cross appeals for the assessment years 2003-04 and 2004-05. 3. Facts in brief: Arthur Andersen and Co., is an Indian firm of Chartered Accountants. Arthur Andersen and Co. has signed a Member Firm Interfirm Agreement, with Andersen Worldwide SC (earlier known as Arthur Andersen and Co. SC ("AWSC"), to receive various technical services from AWSC, for its professional use, against an obligation to share the costs incurred by AWSC. Under the agreement with AWSC, Arthur Andersen and Co. is permitted to use the name. Under approval from RBI, Arthur Andersen and Co. is allowed to reimburse the costs incurred by AWSC. 3.1 AWSC is a Cooperative Company, organized and existing under the laws of Switzerland, carrying out co-ordination of the professional practice of the member firms worldwide. The costs incurred by AWSC, operating on a, no profit no loss basis, are shared by all member-firms, on a consistent and arms-length basis, which is audited and certified by reputed Firm of Auditors. 3.2 The services/benefits are largely provided by AWSC, electronically in the form of knowledge and informat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; iv. Telephone, fax and courier expenses disallowance of R.3,00,000/- v. Miscellaneous expenses disallowance of Rs. 2,00,000/-. Wherever the first appellate authority granted relief, the Revenue filed the appeal on the following grounds: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A)-XI, Mumbai, has erred in deleting the addition of Rs. 2 crores made by the Assessing Officer on account of income receivable in terms of Para 8.2(A) of Member Interfirm Agreement". 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A)-XI, Mumbai has erred in restricting the addition to Rs. 10,80,890/- out of total addition of Rs. 25,00,000/- made by the Assessing Officer on account of unsupported claim for expenses on repairs and maintenance expenses. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A)-XI, Mumbai, has erred in restricting the addition to Rs. 25,00,000/- out of total addition of Rs. 50,00,000/- made by the Assessing Officer on account of professional fees and ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue appeal, the order of the first appellate authority was upheld by the Tribunal. In the result the entire payment made to AWSC was allowed for the assessment year 1997-98. When the matter for the assessment year 1998-99 travelled to the Tribunal, the Tribunal followed its order for the assessment year 1997-98 and held that, as the facts and circumstances are the same as in the assessment year 1997-98, the AO was directed to delete the impugned disallowance. 8. Mr. Dastur drew the attention of the Bench to the order of the Tribunal, C-Bench, Mumbai for the assessment years 1997-98 and 1998-99 in ITA No.6192/Mum/2004 and ITA No.1785/Mum/2002, dated 31st December, 2004 and submitted that the facts being identical to the facts of the current year, the issue in question is covered in favour of the assessee. He drew the attention of the Bench to pages 10 and 11 of the assessment order to point out that the AO has noted the argument of the assessee, that the expenditure stands fully allowed by the order of the Hon'ble Tribunal for the assessment years 1997-98 and 1998-99 and pointed out that the AO, rejected the claim, on the ground that, the assessee has only furnished a photo co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t years 1999-2000 to 2001-02, and submitted that the Tribunal had followed its earlier orders and allowed the claim of the assessee. He further referred to the orders of the High Court as well as the Hon'ble Supreme Court, wherein the order of the Tribunal had not been disturbed for all these years. He submitted that for assessment year 2002-03, the issue did not arise as there was no remittance. He vehemently contended that, the remittances in question for all these years was based on the same agreement and as the facts were identical and as there are no change in circumstances, the rule of consistency has to be applied. He relied on the decision of the Supreme Court in the case of Radhaswamy Satsang reported in 193 ITR 341. He submitted that at page 71 of the paper book the permission granted by Reserve Bank of India is available and argued that it is not open for the assessment officer, to conduct an enquiry as to whether there is violation of FEMA, when the RBI does not say so. He pointed out that the entire details of the lision office of a foreign company having received foreign exchange and thereafter, remittance of the same to the assessee company as fees, were provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the AO. He submitted that the assessee's claim for similar expenditure was never disallowed in all the assessment years except for the assessment years 2000-01 and 2001-02 which was restored by the Tribunal to the AO for fresh consideration. He further submitted that, for the same arguments as advanced in ground No.2 and 3, the disallowance in question has to be deleted. Mr. Dastur submitted that the grounds are similar for assessment year 2004-05 in the assessee's appeal and that the same arguments are adopted for the other assessment years also. 13. Mr. S.S. Rana, learned DR, on the other hand, vehemently controverted the arguments of the learned Senior Counsel Mr. Dastur and submitted that Arthur Andrseen USA did not have lision office from 31-8-2002 and was held on criminal charges, as per the information he could gather by browsing the internet. He submitted that the entity was charged for obstruction of justice etc. On a query from the Bench, he agreed that this has no relevance to the case and is a general information. 14. Coming to the issue whether the payment made to AWSC is to be allowed in view of the decision of the Tribunal for the assessment year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his arguments into two parts, the first dealing with the issue whether the fact and circumstances are identical and hence covered by the decision of the Tribunal and the High Court in the assessee's own case and the second part is whether the AO has been fair to the assessee and whether the assessee did his best to cooperate with the AO, despite denial of time and opportunity by the AO. On the first issue whether the Hon'ble High Court has not followed the judgment of Hon'ble Supreme Court in the case of Oswal Woolan Mills Ltd. 289 ITR 261. The learned counsel furnished a list of dates to demonstrate that the decision in the case of Oswal Agro Mills Ltd. (313 ITR 24) as well as in the case of C.K. Gangadhar 304 ITR 61 were decided much before the dismissal of the SLP filed by the Revenue, by the Hon'ble Supreme Court in these cases. He filed a copy of the judgment in the case of C.K. Gangadhar and pointed out that the constitutional Bench had made it clear, that their was no doubt in the correctness of the view taken by the Court in the case of Union of India vs. Kaumudini Narayan Dalal (2001) 10 SCC 231, CIT vs. Narendra Doshi (2004) 2 2SCC 801 etc.. He pointed ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has nowhere in his order pointed out that, the facts of this year, are different from those of the earlier years. He also demonstrated that the details filed by the assessee for this year as evidence, are identical to the details filed by the assessee during the assessment proceedings for the assessment year 1997-98. Mr. Dastur read page No.6 of the order of the AO for the assessment year 1998-99 and pointed out that the AO himself has accepted that the facts of the case are same as of the earlier year. He filed the assessment order for the assessment year 2001-02 to demonstrate that there is no change in the facts and circumstances of the case. He distinguished the decision of the Bombay High court in the case of Kotak Mahindra Finance Ltd. 265 ITR 114. Mr. Dastur gave a chart showing refunds due to the assessee and submitted that the possible reason for not granting time to the assessee, is to raise huge demands, so as to withhold and adjust the refunds. 19. On the issue of foreign exchange, he submitted that the certificate is given by the Bank and for the proposition, that the AO is not authorized to hold that the assessee has violated the provisions of FEMA, he relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e him to adjust the refunds due to the assessee for those years, against the demands. In a calculation sheet filed, Mr. Dastur demonstrated that, the refunds that were due to the assessee for the assessment years 1997-98, 1999-2000, 2000-01 and 2001-02 along with the refund for the assessment year 1998-99 came to Rs. 26,98,26,132/-. Most of the refunds other than for the assessment year 1998-99 was to be paid on or before 31.03.2005. Thus, the assessment order raising demands were passed on 18.02.2005 and further on 29.03.2005, penalty orders were passed levying penalty of 200%. Further assessment for assessment years 1998-99 to 2002-03 were re-opened. The compulsion of the Assessing Officer can be seen from the "office note" at page 27 para 3 and 4 of the assessment order for the assessment year 2003-04 which reads as follows: "3) Meanwhile, vide order bearing No.CIT-Mumbai-11/SCR.ASG/1/2004-05 dated 15.12.2004 of CIT.11, Mumbai, undersigned was directed to complete above mentioned assessment proceedings in the case of the assessee for A.Ys. 2003-04 and 2004- 05. "4) The assessment in this case was concluded in compliance to repeated direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a case where one accepts all the contentions but not the consequences flowing from accepting the same. This cannot meet our approval. The CIT(A) was quite justified in deleting the disallowance. We approve and confirm the stand of the CIT(A). His action of deleting the disallowance does not call for any interference by us. Accordingly, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter." 27. The Hon'ble High Court in the Revenue's appeal for the assessment year 1998-99, after taking note of the decision of the Tribunal for the assessment year 1997-98, had held as follows: "It is thus clear that the Assessing Officer himself for the assessment year 1997-98 allowed the expenditure. However, disallowed 20% of the said expenditure which was set aside by the Commissioner (Appeals). In an appeal preferred by the Revenue, that order was upheld. Relying on the said order for the assessment year 1998-99 the Tribunal observed as under:- "Following our order for the assessment year 1997-98 and in the light of Assessing Officer's categorical findings in the remand proceedings, we deem it fit and prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant to note that in Karnamchari Union v. Union of India [2001] 243 ITR 143 (SC) and Union of India v. Kaumudini Narayan Dalal [2001] 249 ITR 219 (SC), this court observed that without a just cause the Revenue cannot file the appeal in one case while deciding not to file an appeal in another case. This position was also noted in CIT v. Shivsagar Estate [2004] 9 SCC 420. 11. The order of refer3nce would go to show that the same was necessary because of certain observations in Berger Paints India Ltd. v. CIT [2004] 12 SCC 42. The decision in Union of India v. Kaumudini Narayan Dalal [2001] 10 SCC 231 was explained in Hemalatha Grgya v. CIT [2003] 9 SCC 510 at paragraph 14. It has been stated in the said case that the fact that different High courts have taken different views and some of the High Courts are in fvour of the Revenue constituted 'just cause' for the Revenue to prefer an appeal. This court took the view that having not assailed the correctness of the order in one case, it would normally not be permissible to do so in another case on the logic that the Revenue cannot pick and choose. There is also another aspect which is the certainty in law." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also given reasons for entering into agreement with AWSC. The payment by the assessee is fee for technical services/royalty. The assessee had provided voluminous evidence in support of these contentions. The AO has not dealt with any of the evidence. He has not enquired into, or contradicted with evidence. Nor has he commented upon, any information and documentation given by the assessee. Lame excuses, such as the assessee has only filed a photo-stat copy of the Tribunal order etc. are made. Copy of the Tribunal order is also served on the AO and it is always possible for the A.O. to verify the genuineness of an order. Nothing is done by the A.O. He simply ignores all the evidences and come to the conclusion that the claim of the assessee is not allowable. 32. For the assessment year 1997-98, the AO in his order passed u/s 143(3) read with section 254, on 29th March, 2004 had made the following observations: "On the basis of the above the discussion are summarized below: a. The assessee has filed all the documents required to support the claim for the expenditure as discussed in para 14 above; b. The assessee has provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tested the matter before ITAT, Mumbai for A.Y. 1997-98. The assessee produced before ITAT certain evidences for its consideration which, as per records were not provided to the AO at the time of original assessment proceedings. Admitting these evidences, ITAT directed the AO to pass a fresh order after considering the evidences produced by the AO for A.Y. 1997-98. Order u/s. 143(3) r.w.s.254 was passed by the AO on 29.03.2004 whereby the AO allowed 80% of the remittances and added 20% on the grounds of personal element involved in these expenses. Action of the AO was dismissed by CIT(A) who deleted 20% addition on account of personal element. Department has filed a second appeal before Tribunal Mumbai against this order of CIT(A). Meanwhile, assessee's claim of remittances in A.Ys. 1999-2000, 2000-01 and 2001-02 were also disallowed by the AOs in full, and all such additions were deleted by CIT(A)s. Against the decision of CIT(A) for A.Ys.1999-2000, 2000-01 and 2001-02, Department had filed appeal before the Tribunal contesting relief given by CIT(A) in deleting 100% remittances disallowed to the assessee. 6) Thus, there existed a scenario in which Departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it could not overlook the fact that neither RBI or the Registrar of Co-operative Societies in that case, have held that the assessee had committed irregularities and have the A.O. cannot come to a contrary conclusion. 33. In the result, we allow this ground of the assessee and direct the AO to allow deduction of payment made to AWSC on cash basis. 34. Coming to ground No.2, the disallowance of repair and maintenance expenditure is made on adhoc basis. No particular information has been called for by the AO nor has the AO pointed out any deficiency in the details furnished by the assessee. At para 8 page 23 of the assessment order, the AO states that a perusal of the details of expenses filed, indicate that they include items of enduring benefit like replacement of hard disk in computers, server upgradation, furniture repairs, painting and masonry jobs, renovation of pantry, plumbing etc. The expenditure on these repairs, as per the AO, are in the capital field. We are unable to endorse such a view. Even the other reasons given in paragraph B and C of page 23 and 24 of the assessment order are devoid of merit. Just because the assessee has to incur expenses of repairs and mainten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd No.2 is allowed. 35. Ground Nos. 3 and 4 are of adhoc disallowance from out of professional fees paid, travel and conveyance expenses, staff training expenses, motor car expenses, telephone, fax and courier expenses and miscellaneous expenditure. In all these cases also the AO has not given any justifiable reasons for making adhoc disallowances. In the case of professional fees, he simply held that the same is excessive. The explanation given by the assessee that the expenditure under the head "Salaries" has been reduced and consequently the professional fees has increased, has not been taken note of. Similarly in the case of other expenses, the disallowance was made on the adhoc basis, without sound basis or reason. This cannot be permitted. The first appellate authority, in our considered opinion, has also not judiciously dealt with the matter. No disallowance can be made just for the sake of disallowance. In view of the lack of proper appreciation of the facts and lack of investigation and proper reasoning, we delete the disallowance and allow ground No.3 and 4 of the assessee. In the result the appeal of the assessee is allowed. 36. This brings us to the Revenue appeal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of disallowance of R.30,00,000/-. 4. The CIT(A) has further erred in confirming entire disallowance towards the following: i. Travel and Conveyance expenses disallowance of Rs. 30,000/- ii. Motor Car expenses disallowance of Rs. 5,000/-. iii. Miscellaneous expenses disallowance of Rs. 10,000/-. The grounds in Revenue's appeal for assessment year 2004-05 are as follows: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A)-XI, Mumbai, has erred in deleting the addition of Rs. 2 crores made by the Assessing Officer on account of income receivable in terms of Par 8.2(A) of member Interfirm Agreement. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A)-XI, Mumbai has erred in restricting the addition of Rs. 38,718/- out of total addition of Rs. 1,00,000/- made by the Assessing Officer on account of unsupported claim for expenses on repairs and maintenance expenses. 3. On the facts and in the circumstances of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition of an amount of Rs. 2 crore as income under para 8.2(A) of the agreement with AWSC. 47. Coming to ground No.2 for all these appeals, for the reasons given while allowing ground No.1 of the assessee's appeal for the assessment year 2003-04 in ITA No.483/Mum/2006, we allow this ground of the assessee for all the assessment years 1998-99 to 2002-03. 48. Ground No.3 is also allowed for the reason given while dismissing the revenue's appeal for the assessment year 2003-04 on the same issue. 49. Though Mr. Dastur has argued on the validity of the reopening, as we have decided the issue on merits in favour of the assessee, going into the validity of reopening of assessments and adjudicating the same, would be an academic exercise. Thus, we do not adjudicate this issue. 50. In the result, we direct the AO to grant deduction to the assessee on all the remittances made to AWSC and claimed as deduction, and also to delete the addition as income under para 8.2(A) of the agreement with AWSC. 51. Accordingly, all the appeals of the assessee are allowed for the assessment years 1998-99 to 2002-03. 52. In the result, the appeals filed by the assessee are allowed and the app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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