CIT vs. MC CANN ERICKSON INDIA PVT LTD

IN THE HIGH COURT OF DELHI AT NEW DELHI . ITA 571/2011 . CIT ..... Appellant Through Mr. N.P.Sahni with Mr. Ruchesh Sinha, Advocates for the Appellant. . versus MC CANN ERICKSON INDIA PVT LTD. ..... Respondent Through Mr. S.Ramachandani with Mr. Aseem Chaturvedi, Advocates for Respondent. . CORAM: HON'BLE MR. JUSTICE A.K.SIKRI HON'BLE MR. JUSTICE M.L.MEHTA . O R D E R 28.03.2011 . This case pertains to the Assessment Year 2001-2002 in respect of which the respondent/assessee had filed the return declaring income of Rs.7,62,68,250/-. The assessment was completed under Section 143(3) of the Income Tax Act on 31.03.2003 determining the income of the assessee at Rs.7,80,99,150/-. Much more than 4 years thereafter, a notice dated 27.03.2008 under Section 148 of the Income Tax Act was issued to the respondent for reopening the assessment. The following reasons were given for reopening the assessment:- ?1. The assessee had made a payment of Rs.3309142/- towards Regional Coordination Cost outside India but has not deducted tax on the same and claimed revenue expenditure. The same . :2: . is not allowable u/s 40(a)(i) of the tax. Hence income of Rs.3309142/- has escaped assessment. 2. The assessee had claimed expenses of Rs.2055790/- in P and L A.C as ?fluctuation in foreign exchange?. Since the amount was not backed by actual remittance and the loss had arisen due to year end revaluation of foreign currency balances, the deduction in the computation of business income was not in order and the same is not allowable. Hence income of Rs.2055790/- has escaped assessment. 3. The assessee had debited a sum of Rs.40,26,226/- as ?Advances written off ? in the P and L A/C. Since the advances were given by the assesses from the Capital account and this amount has never been credited in the P and L Account, the same is not admissible as a Revenue expenditure. Hence income of Rs.40,26,226/- has escaped assessment. In view of the above, I am satisfied that income of Rs.9391158/- (Rs.3809142+ Rs.2055790/- + Rs.4026226) has escaped assessment. It is proposed . . to issue a note u/s 148 of the I.T. Act to the assessee in order to take action u/s 147 of the I.T. Act, 1961.? . Thereafter, reassessment order dated 19.12.2008 was passed making additions of all the aforesaid three amounts. Feeling aggrieved by the order of the Assessing Officer, the assessee had preferred an appeal before the CIT(A). It was the contention of the assessee that the notice was issued after a lapse of 4 years of the last date when the assessment order was made and no such case was made out by the Assessing Officer that the assessee . :3: had failed to disclose all the necessary facts fully and truly for its assessment and further that it was a case of mere change of opinion inasmuch as an action was initiated on the basis of audit objections. The CIT(A) has accepted the aforesaid plea of the assessee and quashed the reassessment order. The additions made in respect of all the three items are dealt with by the CIT(A) in the following manner:- 1. ?I find that with regard to Regional Coordination Cost of Rs.33.05 lakhs, it was explained through letter of 14.01.2003 that the company was executing various multinational/global accounts. Certain coordination costs arising out of global interaction on common strategies for clients between agencies spread across the globe arise from such accounts. The appellant had attached copies of correspondence/e-mails to explain the transaction considered to be coordination activity as AnnexureP-6(C ). An expert opinion obtained from m/s. Pricewater House was also furnished to the AO. ? 2. With reference to Foreign Currency Transactions Rs.20,55,790/-, it was explained vide letter dated 14.01.2003 that the Foreign Currency Transactions are recorded on the date of transaction and differences on settlement of such transactions are recognized in the P and L Account. Current assets and liabilities in foreign currencies and foreign currency advances are translated at the rate applicable at the end of the year and the resultant exchange rate differences are recognized in the P and L Account. The appellant had also furnished branch-wise summary of fluctuation in foreign exchange rates which were accounted for as gain (+) and loss (-). The branch-wise details of fluctuation of foreign exchange rates attached as per Annexure P-6(d). In a subsequent submission dated 28.01.2003, :4: . 3. the appellant further explained the loss arising out of foreign exchange fluctuation. This issue was further clarified in a letter of 17 February, 2003, wherein the appellant furnished details of loss on account of foreign exchange fluctuation in earlier assessment years and explained that the claim is based on AS 11 issued by institute of Chartered Accountants of India. 4. Through letter dated 28.01.2003, the appellant furnished as note on advance/amount written off amounting to Rs.40,26,225/-. It was explained that as per past practice the company was writing off balances of various suppliers/customers/staff/media etc. with whom business transactions had been completed and no further relationship existed. It was explained that no recovery had been made till date of filing of the said reply. Branch-wise summary of the expenses written off was also filed and is available on the original assessment proceedings record.? . This order of the CIT(A) has been upheld by the Income Tax Appellate Tribunal. . . Mr. Sahni, learned counsel appearing for the Revenue argues that though the assessee had furnished certain facts claiming the deduction on account of all the three aforesaid items, complete and full facts were not furnished and because of this reason notice under Section 148 of the Income Tax Act was issued and the Assessing Officer was competent to do so in view of the judgment of this Court titled Carlton Overseas Pvt. Ltd. v. Income Tax Officers and Others (2009) 318 ITR 295(Delhi). . :5: No doubt the assessee is under an obligation to furnish the complete and make full disclosure of all the relevant facts. However, in the present case, we find that the assessee had not suppressed any material. We also find that at the time of making the original assessment order, the Assessing Officer had gone into all the three items in detail and after due application of mind had allowed the deduction. In so far expenses with regard to the coordination costs are concerned, it has come on record that the assessee had attached copies of correspondence/emails to explain the transaction considered to be coordination activity. Even an expert opinion was obtained from M/s Pricewater House and was furnished to the Assessing Officer. After going through the same, the Assessing Officer was satisfied that the payments were actually made and the assessee was entitled to claim the same on the business expenditure. In so far as the claim on account of Foreign Exchange Fluctuation is concerned it is an accepted position that the law in this behalf was in its debatable situation at that time and is now authoritatively determined by the Supreme Court in CIT Vs. Woodward Governor India P.Ltd. (2009) 312 ITR 254(SC). This issue stands decided in favour of the assessee holding that on account of such fluctuations, the assessee would be entitled to claim deduction. Be that as it may, this very fact itself shows that :6: there was no conflict of opinion at the relevant time and therefore, it would be nothing but a case of change of opinion. Apart from the fact that even this question now stands decided in favour of the assessee. In so far as advance/amount written off by the assessee which were claimed in the original assessment are concerned, the records shows that the assessee had duly explained that as per the past practice of the company it was written off balances of various suppliers/customers/staff/media etc. and branch-wise summary of the written off was duly furnished. The Assessing Officer had, again, undertaken a proper exercise before allowing the assessee to written off this expenses. We thus do not find any infirmity in the orders of the below authorities. No question of law arises. Dismissed. . A.K. SIKRI, J. . . . M.L. MEHTA, J. . . MARCH 28, 2011 hk . . .