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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 ..... any event, adhoc disallowances cannot be upheld. Respectfully applying the proposition laid down in case laws to the facts in the case of CIT vs. Binny Ltd. [ 1994 (11) TMI 27 - MADRAS HIGH COURT] and CIT vs. Jafarbhai Akbarlal and Bros. [ 1992 (1) TMI 17 - BOMBAY HIGH COURT] we delete the adhoc disallowance as confirmed by the first appellate authority, as none of the expenditure mentioned is in the capital field. 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 - HELD THAT:- 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 the appeal of the assessee. deleting the addition of 2 crores - HELD THAT:- The CIT(A) held that In a scrutiny assessment of this nature, specific additions should be made and where the estimate is inevitable proper opportunity should be given to the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 information databases accessible exclusively by the member firms. These knowledge material and information is regularly updated and revised. The member firms are required to follow the uniform standard and methods in providing various Auditing, Taxation and Consulting services to its clients. Accordingly, every member firm has to source the tools and methodologies from AWSC and use the same in providing services to its clients. 4. For the assessment year 2003-04 the assessee filed a return of income on 01-12-2003, declaring a total income of ₹ 6,14,46,420/-. The return was accompanied with an audit report in form 3CD as stipulated u/s 44AB. The AO passed an order on 18th Feb., 2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the circumstances of the case and in law, the Ld. CIT(A)-XI, Mumbai, has erred in restricting the addition to ₹ 25,00,000/- out of total addition of ₹ 50,00,000/- made by the Assessing Officer on account of professional fees and other services claimed by the assessee without any supporting evidences. 5. Mr. Soli E. Dastur, learned Senior Advocate, submitted that there are, four grounds of appeal raised by the assessee, for the assessment year 2003-04, the first being against the CIT(Appeals) confirming the disallowance of claim of expenses of ₹ 12,87,10,987/- paid to Anderson Worldwide SC. The other three grounds, Mr. Dastur submitted, were regarding part confirmation of disallowance of claim for expenses on account of repairs and maintenance, professional fees and finally disputing the confirmation of the entire disallowance, by the first appellate authority, on account of travelling and conveyance, staff training etc. 6. Mr. Dastur submitted a paper book running into 179 pages. He submitted that the assessee had received an invoice for U.S. $21,52,000 from AWSC, for reimbursement of its shares of establishment cost, for the period from 1st April, 2000 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 copy of the order and not a certified copy, as well as also on the ground that res judicata does not apply in income-tax proceedings. He further referred to page 4 Para 4 of the CIT(Appeals) order, wherein a reference has been made to the ITAT's order for assessment years 1997-98 and 1998-99 and took this Bench through reasoning given by the first appellate authority, for not following the Tribunal's order. He submitted that the Assessee could remit a maximum of 15% of the gross receipts, in foreign exchange, to AWSC, as per the terms and conditions laid down by R.B.I. He submitted that the AO was in error in coming to a conclusion that there were significant discrepancies in foreign inward remittances, specifically wherever the payments were received in Indian currency from the liaison office of a foreign client. The assessee's case is that, there are two types of payments, such as those directly remitted to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 to the AO and under such circumstances, he emphasised that no disallowance is called for. 10. On ground No.2, the learned counsel for the assessee submitted that the AO disallowed ₹ 25 lakhs, on adhoc basis, whereas the CIT(Appeals) has restricted the disallowance to ₹ 10,82,890/- that too on adhoc basis. He contended that the Revenue has not pointed out any particular item of expense which is to be disallowed and only on certain general observations, both the AO as well as the CIT(Appeals) made an adhoc disallowance. For the proposition that such adhoc disallowance cannot be made on a general discussion, the learned Senior Advocate relied upon the following decisions: i) CIT vs. Binny Ltd. 215 ITR 536 (Mad.) ii) CIT vs. Jafarbhai Akbarlal and Bros. 211 ITR 496 (Bom) He prayed that the adhoc disallowance be deleted. 11. Coming to ground No.3, he pointed out that the AO disallowed an amount of ₹ 50 lak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. 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 1997-98, the learned DR submitted that the assessee had provided substantial evidence to the AO during the assessment proceedings of that assessment year and under those circumstances the Tribunal upheld the claim of the assessee. For the assessment year 1998-99, he read out the order of the AO passed u/s 143(3) on 26-02-2001 and submitted that no proof has been furnished by the assessee for that year. He submitted that the High Court dismissed the case of the Revenue for the assessment year 1997-98 for the reason that, the Revenue has not preferred an appeal for the assessment year 1997-98. He argued that this is a factual matter and submitted that the principles of res judicata does not apply. He relied on the following case law: Kotak Mahindra Finance Ltd. vs. DCIT, 265 ITR 114 (Bom) The learned DR took this Bench through the order of the AO and submitted that the assessee during the course of assessment proceedings had given many ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstitutional 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 out that the Hon'ble Court has laid down that unless there is a "just cause" for the Revenue to prefer an appeal, it would not be normally permissible for the Revenue to appeal in a particular case, when on similar facts and law, it has not done so in another case. He referred to the judgment of Jammu and Kashmir Charitable Trust 308 ITR 161 (SC) and submitted that this decision is in favour of the assessee as the Hon'ble Court laid down that, where the facts, the situation in all the assessment years is the same, and the Revenue has not appealed against the decision of the earlier year, its appeal against the decision of a succeeding year, will be dismissed. He vehemently contended that the AO has not urged a new ground nor is there material change in the factual position and hence the principle of consistency has to apply. He pointed out that the assessee was not relying on the judgment in somebody else's cases, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 the decision of the Tribunal in the case of ACIT vs. Navdeep Co.Op. Bank Ltd. 43 ITD 697. He reiterated that no commercial activity is permitted for a liaison office of a foreign company and that no disallowance can be made based on such conclusions. 20. The learned DR, Mr. S.S. Rana, on the revenue appeal, submitted that ground No.1 is on the adhoc addition of ₹ 2 crores to income. On ground Nos. 2 and 3, he submitted that the arguments are the same as in the assessee's appeal and he relies on the order of the AO. 21. Mr. S.E. Dastur, learned Senior Advocate, on behalf of the assessee, submitted that no money was received by the assessee from ASWC and assuming that the assessee has received ₹ 2 crores and treating the same as income and that too when the assessee follows mercantile system of accounting, is against law. He relied on the order of the CIT(Appeals). 22. On ground Nos. 2 and 3, he reiterated his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 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 directions, written and oral, of superior authorities to conclude assessment proceedings in all high revenue yielding cases within the current financial year expeditiously in such a way that sufficient time is available with the AO to collect the demand within the current financial year." (emphasis ours) This explains why the Assessing Officer has not given opportunity to the assessee and as to why, he refused to be just and fair in his approach. If this can happen to a Multi-National firm of Chartered Accountants, who are experts in taxation and accounts and are renowned in this field, we shudder to think, as what would be the fate of lesser mortals, if they are placed in similar situations. Even this assessee could not stand-up to the predetermined and obsessed approach of the Department, forcing the assessee to approach a higher forum to seek justice. 26. We now come to the merits of the matter. On the first ground of reimbu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 proper to direct the Assessing Officer to delete the impugned disallowance. The assessee gets relief accordingly. The Revenue did not prefer an appeal for the assessment year 1997-98, but has preferred an Appeal only in respect of assessment year 1998-99. In so far as that question is concerned, it will thus be apparent that the A.O. for the assessment year 1997-98 allowed the expenditure. It is in that context that we have to consider what is the effect of non-filing of Appeal by the Revenue for the assessment year 1997-98 on the first question." Thereafter the Hon'ble High Court considered the judgment of Hon'ble Supreme Court in the case of Berger Paints India Ltd. vs. CIT 266 ITR 99, CIT vs. Oswal Woollen Mills Ltd. (no.1) 289 ITR 261 (P.andH.). Finally at para 7 it concluded as follows: "Considering that the very issue was in issue for the assessment year 1997-98 and as Revenue did not prefer an appeal in respect of the said assessment year in o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." In this case the Revenue has not even made an attempt to state that it has a "just cause" in not filing an appeal for the assessment year 1997-98. In the case of J.K. Charitable Trust (supra), the Hon'ble Court held that when the facts, situation in all the assessment years is the same and if the Revenue has not appealed from the decision of an earlier year, its appeal from the decision for the succeeding year will be dismissed. 30. Be that as it may, it is not for this Tribunal, to express any opinion on the finding of the Hon'ble High Court, that as the Revenue has not filed an appeal against the same issue for the assessment year 1997-98, it is debarred from agitating the same question in the subsequent assessment year. Thus, in our considered view, the issue is not only covered by the order of the Co-ordinate Bench, but also by the judgments of the jurisdictional High Court. 31. Now we come to the issue whether the facts are identical. The agreement in question with AWSC, in pursuance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s filed all the documents required to support the claim for the expenditure as discussed in para 14 above; b. The assessee has provided substantial evidence of benefits received from AWSC and utilized in its professional activities as discussed in para 13, 15 and 16 above; c. The comments received from the Jt.DIT(IT), Rg 1, Mumbai, International Taxation, states that the said payment by the assessee to AWSC is in the nature of royalty and fees for included services per discussion in para 17 above; d. The assessee has also satisfied the issues mentioned in the original assessment order and the CIT(A) order has satisfied the conditions of section 37(1) of the Inccome tax Act, as discussed in para 20 above. e. The assessee has satisfied the conditions of section 37(1) of the Income tax Act, as discussed in para 20 above; f. The assessee has remitted the said expenditure after deducting the required tax and accordingly, it cannot be disallowed u/s 40(a)(i) of the Act. In view of the facts and the circumstances discussed above, the payment to AWSC represents reimbursement of establishment costs, royalty for use of name 'Arthur Andersen' and access to knowledge and da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scenario in which Department was contesting both 100% disallowance of expenses as well as 20% disallowance. Assessment u/s.143(3) for A.Y. 2001-02 and u/s.143(3) r.w.s.254 for A.Y. 1997-98, incidentally, were completed in F.Y. 2003-04. Perusal of office note attached to this order indicated that assessment proceedings u/s.143(3) r.w.s. 254 for A.Y. 1997-98 were concluded vide order dated 29.03.2004, by the AO with prior approval of CIT-11, Mumbai and CCIT, Mumbai. 7) Consequently, letter No.Addl.CIT-11(2)/Asst. Proceedings/2004-05 dated 16.12.2004 was addressed to CIT-11, Mumbai, seeking guidance/clarification on the matter. In response, letter No. CIT/Mumbai-11/143(3)/2004-05 dated 06.01.2005 was received wherein CIT-11, Mumbai, directed to complete the assessment by independently examining all the issues involved in the case for the year and 'ignoring' the contents of office note dated 29.03.2004, mentioned supra. 8) The evidences produced by the assessee as well as arguments forwarded in support of his claim are the same which have been given in earlier years including A.Y. 1997-98. Discussions made in the orders clearly indicate that assessee's claim of remitta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es is given on lease, it cannot be held that the same becomes inadmissible. In any event, adhoc disallowances cannot be upheld. The Hon'ble Madras High Court in the case of CIT vs. Binny Ltd. 215 ITR 536, held as follows: "Held, that the entire structure of the spinning department was not altered. Replacing of the roof was for the purposing of repairing the existing roof. The expenditure incurred for replacing the roof could not be considered to be for the purpose of obtaining an enduring benefit. The expenditure incurred for re-roofing of the spinning department was allowable as revenue expenditure." Similarly, the Hon'ble Bombay High Court in the case of CIT vs. Jafarbhai Akbarlal and Bros. 211 ITR 496 (Bom) held as follows: "If an expenditure was incurred for acquiring and bringing into existence an asset for the enduring benefit of the business it would normally be "capital expenditure" and if the expenditure was made for running the day-to-day business with a view to produce more income, it would be "revenue expenditure'. This is normally a question of fact unless it is demonstrated that there is non-application of basic principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.1 is against the CIT(Appeals) deleting the addition of ₹ 2 crores made by the AO on an assumption that certain income may be receivable by the assessee in terms of para 8.2(A) of Member Interfirm Agreement. Admittedly the assessee follows cash system of accounting. When it is not the case of the AO, that the assessee has received money from AWSC, the question of taxing the same does not arise. The addition has been made on a pure surmise. The first appellate authority at para 5.1 page 7 of his order for the assessment year 2003-04 held as follows: "I have considered the rival contentions. The Assessing Officer has forcefully argued his case in the assessment order. It is, however, seen that the issue was not discussed at the time of assessment. The appellant, therefore, never had a chance of rebuttal. No basis has been given as to how this figure of ₹ 2 crore has been arrived at by the Assessing Officer. In a scrutiny assessment of this nature, specific additions should be made and where the estimate is inevitable proper opportunity should be given to the appellant and a proper basis should be determined of the estimated disallowance. This has not been done in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porting evidences. 41. As submitted by both the parties, we find that the isisues in both the years are common. Consistent with the view taken for the assessment year 2003-04 and for the reasons given therein, we allow all the grounds of appeal of the assessee and dismiss the grounds of the Revenue for the assessment year 2004-05. 42. Now we take up ITA Nos. 3028/Mum/2006, 3029/Mum/2006, filed by the assessee and ITA Nos. 2886/Mum/2006 and 2887/Mum/2006, filed by the Revenue. The assessee's appeals are against penalties levied by the AO u/s 271(1)(c) and to the extent confirmed by the first appellate authority and the Revenue's appeals are against the penalties to the extent deleted by the first appellate authority for the assessment years 2003-04 and 2004-05. 43. As we have deleted all the additions/disallowances made for both the assessment years in the quantum appeal, the penalties have no legs to stand on. Thus we quash the penalties levied for the assessment years 2003-04 and 2004-05 u/s 271(1)(c) and allow the appeals of the assessee. 44. For the same reasons, the appeals filed by the Revenue for assessment years 2003-04 and 2004-05 against the deletion of penalti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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