M/S. B S R & CO LLP,MUMBAI vs. ACIT, CIRCLE-16(2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL "I" BENCH, MUMBAI SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER (Assessment Year: 2012-13) M/s B S R & Co. LLP, 14th Floor, Central B Wing And North C Wing, Nesco IT Park, Nesco Centre, Western Express Highway, Goregaon (East), Mumbai - 400063 [PAN: AAAFB9852F] …………. Appellant Vs Assistant Commissioner of Income Tax Circle - 16(2), Mumbai, Room No. 625, 6th Floor, Aayakar Bhavan, M.K. Road, Churchgate, …………. Mumbai - 400020 Respondent (Assessment Year: 2012-13) Deputy Commissioner of Income Tax 16(2), Mumbai, Room No. 625, 6th Floor, Aayakar Bhavan, M.K. Road, Mumbai - 400020 …………. Appellant M/s B S R & Co. LLP, Vs Lodha Eceleus, 1st Floor, Apollo Mills Compound, N M Joshi Marg, Mahalakshmi, Mumbai - 400011 Respondent …………. [PAN: AAAPA9707G] Appearance For the Appellant/Assessee : Shri Ajit Jain Shri Siddhesh Chougule For the Respondent/Department : Shri Anil Sant Date Conclusion of hearing : 24.08.2023 Pronouncement of order : 26.09.2023 & 736//Mum/2023 Assessment Year 2012-13

O R D E R Per Rahul Chaudhary, Judicial Member: These cross-appeals pertaining to Assessment Year 2012-13 arising 1. from the order, dated 11/01/2023, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] for the Assessment Year 2012-13, whereby the Ld. CIT(A) had partly allowed appeal of the Assessee against the Assessment Order, dated 26/12/2009, passed under Section 143(3) read with Section 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

The Appellant has raised following grounds of appeal in ITA No. 2. 736/Mum/2023: “Ground No. 1 – Reassessment is bad in law 1.1. On the facts and circumstances of the case and in law, the Commissioner of Income tax (Appeals) erred in upholding the action of the Assessing Officer in reopening the assessment under Section 148 of the Income tax Act, 1961 ("the Act")) The Appellant prays that the re-opening of the assessment and reassessment is erroneous, unwarranted and be quashed. Ground No. 2- Disallowance of bad debts Rs. 2,28,27,496 inadvertently stated as Doubtful Debts in the Profit and Loss Account 2.1 On the facts and in the circumstances of the case and in law, the Commissioner of Income tax (Appeals) erred in upholding the disallowance made by the Assessing Officer of Rs 2,28,27,496 which was in the nature of bad debts but inadvertently stated as doubtful debts in the Profit and Loss Account. The Appellant prays that the disallowance of Rs. 2,28,27,496 & 736//Mum/2023 Assessment Year 2012-13 is erroneous, unwarranted and be deleted. 2.1. The Revenue has raised following grounds of appeal in “On the facts and the circumstances of the case and in law, allowing tax relief in regard to income earned in Japan. The Ld. CIT(A) has not considered the provisions of Article 14A of India-Japan DTAA dealing with Independent Personal Services. As per the provision of Article 14A the income itself is not taxable, the tax credit in respect thereof is not allowable.” Reassessment Proceedings were initiated and vide order dated 3. 26/12/2019, passed under Section 143(3) read with Section 147 of the Act the AO made an addition of INR 2,28,27,496/- holding that the Assessee had incorrectly claimed deduction for Provisions for Doubtful Debts. The Assessing Officer also denied foreign tax credit of INR 51,32,635/- claimed by the Assessee under Section 90 of the Act.

Being aggrieved, the Assessee preferred appeal before CIT(A) 4. against the Assessment Order, dated 26/12/2019, challenging validity of reassessment proceedings as well as disallowance of INR 2,28,27,496/- made by the Assessing Officer on merits. The CIT(A) partly allowed the appeal vide order dated 11/01/2023. The CIT(A) dismissed challenge to validity of reassessment proceedings; and confirmed the addition of INR 2,28,27,496/-. However, the CIT(A) granted relief to the Assessee by directing the Assessing Officer to grant foreign tax credit of INR 51,32,635/-.

Now both the Assessee and the Revenue are in appeal challenging 5. the order passed by the CIT(A) on grounds reproduced in paragraph 2 and 2.1 above, respectively. & 736//Mum/2023 Assessment Year 2012-13 We have considered the rival submissions and perused the material 6. on record.

Appeal by Assessee : We would first take up grounds raised by the Assessee in its appeal. 7.

Ground No 2 & 2.1 Ground No 2 & 2.1 raised by the Assessee are directed against the 8. disallowance of INR 2,28,27,496/-.

8.1. During the reassessment proceedings, on perusal of Schedule ‘N’ forming part of the Financial Statements for the Financial Year 2011-12 relevant to the Assessment Year 2012-13, the Assessing Officer noted that the Assessee has debited to the Profit & Loss Account for relevant previous year an amount of INR 2,28,27,396/- under the head ‘Doubtful Debts’ clubbed under the head ‘Administrative Expenses’. Therefore, the Assessee was asked for explanation. In response, the Assessee submitted that amount of INR 2,28,27,496/- was ‘Bad Debts’ written off during the relevant previous year which were inadvertently classified as 'Doubtful Debts'. Relying upon Circular No. 12 of 2016, dated 30/05/2016, issued by the Central Board of Direct Taxes (CBDT), the Assessee claimed that deduction for the Bad Debts written off was allowable under Section 36(1)(vii) read with Section 36(2) of the Act. The Assessing Officer rejected the aforesaid submission of the Assessee and made disallowance of INR 2,28,27,496/- stating that the Assessee had incorrectly claimed deduction for Provisions for Doubtful Debts. In appeal preferred by the Assessee on this issue, the CIT(A) agreed with the Assessing Officer and declined to grant & 736//Mum/2023 Assessment Year 2012-13 any relief. Therefore, the Assessee is now in appeal before us on this issue.

8.2. We have perused the relevant extract of the Balance Sheet of the Assessee for the Financial Year 2010-11 & 2011-12 placed at pages 144 to 151 of the paper-book. There is no change in the Provisions for Doubtful Debts as on 31.03.2011 and as on 31.03.2012 stood as INR 3,42,611/-. Therefore, the reasoning given by the Assessing Officer while making the disallowance is based upon incorrect understanding of facts. Therefore, the contention of the Appellant that the INR 2,28,27,496/- is the aggregate amount of bad debts written off during the relevant previous year though the same were incorrectly clubbed under the head Administrative Expenses and classified as provision for doubtful debts in the books of account has gone uncontroverted. Thus, addition of INR 2,28,27,496/- is deleted. Accordingly, disallowance of INR 2,28,27,496/- made by the Assessing Officer and confirmed by the CIT(A) is deleted. Ground No. 2 to 2.1 raised by the Assessee are allowed.

Ground No 1. Further, on perusal of documents placed before us as part of paper- 9. book filed by the Assessee [at pages 57 to 64], we are satisfied that reassessment proceedings have not been initiated in compliance with the provisions of Section 147 of the Act. Accordingly, notice dated 20/03/2019, issued under section 148 of the Act, the consequential reassessment proceedings and the reassessment order, dated 26/12/2019, are quashed. Ground No. 1 raised by the Assessee is allowed. & 736//Mum/2023 Assessment Year 2012-13 Appeal by Revenue: : By way of solitary ground raised in the appellant, Revenue has 10. challenged order of CIT(A) granting foreign tax credit of INR 51,32,635/- under Section 90 of the Act.

10.1. The relevant facts in brief are that the Assessee had claimed relief of INR.51,32,635 under Section 90 of the Act in respect of tax withheld by Japanese entities on professional fees paid to the Assessee. The Assessing Officer rejected the aforesaid claim holding that the Assessee was not entitled to tax relief of INR 51,32,635 as the income earned by the Assessee in Japan was not taxable in Japan in terms of Article 14 of the Double Taxation Avoidance Agreement between India and Japan (for short ’DTAA’).

10.2. In appeal preferred by the Assessee on issue, the CIT(A) granted relief to the Assessee and directed the Assessing Officer to grant foreign tax credit of INR 51,32,635/- to the Assessee.

10.3. The Revenue is now in appeal before us against the above relief granted by the CIT(A).

10.4. Having heard the rival submissions and on perusal of record, we do not find any infirmity in the order passed by the CIT(A) as the CIT(A) has granted relief by placing reliance on the order of the Tribunal in the case of Amarchand & Mangaldas & Suresh A. Shroff & Co. vs. ACIT, Circle 16(2), Mumbai : [2020] 122 taxmann.com 248 (Mumbai - Trib.)/[2021] 187 ITD 750 (Mumbai - Trib.)[18-12- 2020] In any case, in view of paragraph 9 above, the reassessment order dated 26/12/2019 stands quashed and therefore, the ground & 736//Mum/2023 Assessment Year 2012-13 raised by the Revenue does not survive. Accordingly, Ground No. 1 raised by the Revenue is dismissed.

In result, the appeal preferred by the Assessee is allowed and the 11. appeal preferred by the Revenue is dismissed.

Order pronounced on 26.09.2023.