DCIT CIR 6(2)(1), MUMBAI vs. DELOITTE TOUCHE TOHMATSU INDIA P. LTD, MUMBAI

M/s Deloitte Touche Tohmatsu India Pvt. Ltd 2. The first issue to be decided in this appeal is as to whether the ld CIT(A) was justified in deleting the addition of Rs 46,00,000/- in the facts and circumstances of the case. 2.1. We have heard the rival submissions. Both the parties before us agreed that this issue is covered in favour of the assessee for Asst Year 2007-08 by the order of this tribunal in & 6489/Mum/2014 dated 27.2.2019 except with variance in figures, wherein the basic facts and conclusion drawn thereon are as under:- 2. In ground no.1, the Revenue has challenged deletion of addition of ` 47,92,500.

Brief facts are, the assessee company, as stated by the Assessing Officer, is engaged in the business of providing consultancy services relating to operations, finance, human resource and information technology. For the assessment year under dispute, the assessee filed its return of income on 6th November 2007, declaring nil income. In course of assessment proceedings, the Assessing Officer on verifying the audited financial statements of the assessee noticed that against professional fees shown of ` 31,84,59,835, the assessee has incurred substantial expenses on account of salary, bonus, etc., amounting to ` 16,37,40,274, compared to preceding years expenditure of ` 8,55,96,230. Being of the view that the expenditure claimed by the assessee is disproportionate to the increase in income, the Assessing Officer called upon the assessee to explain the details of income and expenses. On verifying the details furnished by the assessee, the Assessing Officer noticed that in the previous year relevant to the assessment year under dispute, the assessee had various on–going projects, whereas the assessee has not shown any work–in–progress. On cross verifying the bill register for the period 1st April 2007 to 30th April 2007, the Assessing Officer observed that the assessee has raised bills of ` 84,07,964, in the month of March 2007, which consists of the bill for an amount of ` 47,92,500, raised on Diageo India Pvt. Ltd., on 13th April 2007. In view of the aforesaid facts, the Assessing Officer was of the opinion that the unbilled portion of the work relating to various projects executed during the relevant previous year was required to be accounted for by the assessee as work–in–progress. Since, the assessee has not done so, the Assessing Officer treated the sales of ` 47,92,500, accounted for by the assessee in April 2007, as the unaccounted value of work–in–progress for the impugned assessment year and accordingly, added back to the M/s Deloitte Touche Tohmatsu India Pvt. Ltd income of the assessee. Being aggrieved with such addition, the assessee preferred appeal before the first appellate authority.

In the course of hearing before learned Commissioner (Appeals), the assessee furnished various documentary evidences to demonstrate that the amount of ` 47,92,500 was neither billed nor accrued as income in the impugned assessment year. On the basis of submissions made and evidences produced by the assessee, learned Commissioner (Appeals) called for a remand report from the Assessing Officer. After considering the remand report furnished by the Assessing Officer as well as the submissions of the assessee in the context of facts and material on record, learned Commissioner (Appeals) observed that not only the amount of ` 47,92,500, was billed by the assessee in April 2007, i.e., financial year 2007–08, but the assessee has also offered it as income in assessment year 2008–09. He observed, the said income has also been assessed at the hands of the assessee in the assessment year 2008–09. He observed, since the rate of tax on the income assessed at the hands of the assessee is same both for assessment year 2007–08 and 2008–09, it will not affect the interest of Revenue. Further, he observed, if the income of ` 47,92,500, is assessed in the impugned assessment year, the said amount has to be excluded from the income of the assessee in assessment year 2008–09. Therefore, following the decision of the Hon'ble Supreme Court in CIT v/s Excel Industries Ltd., [2013] 358 ITR 295 (SC) and the decision of the Hon’ble Delhi High Court in CIT v/s Vishnu Industrial Gasses Pvt. Ltd., ITR no.229/1988, daed 6th May 2008, as well as the decision of the Hon'ble Jurisdictional High Court in CIT v/s Nagri Mills Co. Ltd., [1958] 33 ITR 681, learned Commissioner (Appeals) deleted the addition made by the Assessing Officer.

The learned Departmental Representative relying upon the observations of the Assessing Officer submitted, since the major portion of the work was completed in the impugned assessment year, it should have been shown as work–in–progress in the accounts of the assessee and offered as income. He submitted, without offering the income in the assessment year wherein it accrued, the assessee has deferred it to the next assessment year. Therefore, he submitted, the Assessing Officer was justified in adding the amount to the income of the assessee.

The learned Authorised Representative submitted, the assessee is providing consultancy services, hence, there cannot be any work–in–progress. In any case of the matter, he submitted, the bill for the services rendered was raised in April 2007, the assessee has correctly offered it to tax in assessment year 2008–09 and the Assessing Officer has also assessed it as income in assessment year 2008–09. He submitted, the Assessing Officer has not disputed that the assessee has offered the unbilled amount of ` 47,92,500, as income in assessment year 2008–09. That being the M/s Deloitte Touche Tohmatsu India Pvt. Ltd case, the same amount cannot be taxed in two assessment years since it amounts to double assessment of the same income. He submitted, since the tax rate at which the income is assessed in assessment year 2007–08 and 2008–09 is same, there is no prejudice caused to the Revenue and there is absolutely no effect on the Revenue if it is taxed in assessment year 2008–09 instead of assessment year 2007–08. In this context, he relied upon the decisions of the Hon'ble Supreme Court in CIT V/s Excel Industries ltd. (supra) and other decisions referred to by the learned Commissioner (Appeals). Thus, he submitted, there is no need to disturb the order of learned Commissioner (Appeals) on this issue.

We have considered rival submissions and perused material on record. We have also applied our mind to the decisions relied upon. It is evident from the facts and material on record that the Assessing Officer has made the impugned addition purely on the reasoning that the bill dated 18th April 2007, raised by the assessee on Diageo India Pvt. Ltd., for the amount of ` 47,92,500, should have been accounted for by the assessee as work–in–progress for the impugned assessment year and offered to tax. However, the Assessing Officer has not disputed the fact that the aforesaid amount remained unbilled in assessment year 2007–08 and bill for the said amount was raised by the assessee on 18th April 2007, i.e., in the financial year relevant to assessment year 2008–09. It is also not disputed by the Department that the amount in dispute was not only offered as income by the assessee in assessment year 2008– 09, but it was also assessed at the hands of the assessee in the said assessment year. This fact has not only been verified by the learned Commissioner (Appeals) in course of proceedings before him but on a query from the Bench, the learned Authorised Representative has furnished before us relevant documentary evidences which demonstrate that not only the assessee has offered the disputed amount as income in assessment year 2008– 09, but has also claimed the corresponding TDS in the said assessment year. It is also a fact on record that the tax rate for assessment year 2007–08 and 2008–09 are the same. That being the case, whether the amount is taxed in the impugned assessment year or in assessment year 2008–09, will have no effect on the Revenue. On the contrary, if the amount is taxed in the impugned assessment year, it has to be excluded from the income of the assessee in assessment year 2008–09, since, it has already been assessed in that assessment year. This is due to the settled legal principle that the same income cannot be assessed in two assessment years.

One more interesting fact relating to the impugned addition which has come to our notice is, as per the facts narrated by the Assessing Officer in the impugned assessment order, in the month of April 2007, the assessee had raised a number of bills totaling to ` 84,07,964=28. Whereas, out of those bills, the Assessing Officer has picked up only one bill raised on 18th April 2007, to Diageo M/s Deloitte Touche Tohmatsu India Pvt. Ltd India Pvt. Ltd. for the amount of ` 47,92,500, while ignoring rest of the bills raised in April 2007. Even two other bills raised by the assessee on Diageo India Pvt. Ltd. on 18th April 2007 and 23rd April 2007, have been ignored by the Assessing Officer. We do not find any rationale / logic behind such selective approach of the Assessing Officer. Be that as it may, since the amount in dispute has already been offered as income by the assessee in assessment year 2008–09 and assessed to tax, we do not find any reason to interfere with the decision of the first appellate authority on the issue. Ground raised

In course of proceedings before the learned Commissioner (Appeals), the assessee furnished some more material reconciling the differences pointed out by the Assessing Officer. On the basis of submissions made and evidences filed, learned Commissioner (Appeals) called for a remand report from the Assessing Officer. After verifying the remand report and considering the submissions of the assessee in the context of facts and materials on record, learned Commissioner (Appeals) observed that out of the difference of ` 80,94,715, pointed out by the Assessing Officer, the assessee could reconcile / co–relate the difference of ` 17,66,983 and could not co–relate / reconcile the reversal of entries for an amount of ` 54,00,000 in respect of Ruchi Soya Industries Ltd. Thus, he sustained disallowance to the extent of ` 63,28,322.

The learned Departmental Representative submitted, since the assessee could not reconcile the differences pointed out by the Assessing Officer, the addition made should have been sustained. In this context, he relied upon the observations of the Assessing Officer in the assessment order as well as in the remand report.

The learned Authorised Representative submitted, the Department should not have any grievance since learned Commissioner (Appeals) after verifying the factual details has found that there is no difference / discrepancy with regard to the amount of ` 17,66,393. Further, he submitted, since the Assessing Officer has not rejected the books of account of the assessee, no disallowance could be made.

We have considered rival submissions and perused material on record. As could be seen from the facts on record, the Assessing Officer has disallowed an amount of ` 80,74,715 due to failure on the part of the assessee to co–relate the reversal of entries, however, before learned Commissioner (Appeals), the assessee has filed fresh material reconciling the differences pointed out by the Assessing Officer and the learned Commissioner (Appeals) after considering the observations of the Assessing Officer in the remand report, the submissions made by the assessee and evidences filed was satisfied that the assessee has properly reconciled / co–related the reversal of entries for an amount of ` 17,66,393. The learned Departmental Representative has not brought before us any material to controvert the factual M/s Deloitte Touche Tohmatsu India Pvt. Ltd finding of the learned Commissioner (Appeals) insofar as it relates to the amount of ` 17,66,393. Therefore, to that extent we uphold the decision of learned Commissioner (Appeals). Ground raised

The learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and material on record as well as the remand report furnished by the Assessing Officer observed that the expenditure was incurred by the assessee for enabling the profit making structure to work more efficiently. He observed, subscription made by the assessee for fine tuning business operation to enable the management to run its business effectively, efficiently and profitably leaving the fixed asset untouched, would be in the nature of revenue expenditure. Further, the learned Commissioner (Appeals) observed, since similar payment made towards DTT subscription was not disallowed in any of the earlier or subsequent assessment years, it should not be disallowed in the impugned assessment year. Accordingly, he deleted the addition made by the Assessing Officer.

The learned Departmental Representative relying upon the observations of the Assessing Officer submitted, since the assessee has paid the DTT subscription for availing a brand it is a capital expenditure as the assessee would be deriving enduring benefit. Thus, he submitted, the deduction claimed by the assessee cannot be allowed.

The learned Authorised Representative submitted, assessee makes the DTT subscription annually on the basis of turnover achieved. He submitted, neither in any earlier assessment year nor in the subsequent assessment year such disallowance was made by the Assessing Officer though the assessee has been contributing towards the DTT subscription. In this context, he drew our attention to the assessment orders passed under section 143(3) of the Act in respect of assessment years 2006–07, 2009– M/s Deloitte Touche Tohmatsu India Pvt. Ltd 10, 2010–11 and 2011–12. He submitted, though, the Assessing Officer disallowed the DTT subscription in assessment year 2008– 09 also, however, learned Commissioner (Appeals) deleted such disallowance. Thus, he submitted, applying rule of consistency also, assessee’s claim has to be allowed. Without prejudice to the aforesaid submissions, learned Authorised Representative submitted, in any case of the matter, the assessee has not acquired any brand but has made subscription for utilizing it. Therefore, it cannot be said that the amount paid by the assessee is a capital expenditure incurred for acquiring a brand for goodwill. In support of such contention, he relied upon the following decisions:– i) DCIT, v/s Hindustan Zinc Ltd., [1972] 84 ITR 277 (SC); and ii) Harrisons Malayalam Ltd. v/s ACIT, [2008] 19 SOT 363 (Cochin) 22. We have considered rival submissions and perused material on record. It is observed that the assessee has been paying the DTT subscription annually for utilizing the Deloitte brand along with certain technology. There is nothing on record to suggest that assessee has acquired the brand or the technology for good. Therefore, it cannot be said that the assessee has incurred the expenditure for acquiring an asset of enduring benefit. On the contrary, as rightly observed by the learned Commissioner (Appeals), the assessee has paid the subscription to run and manage its business activity more effectively, efficiently and profitably. Moreover, it is a fact on record that similar subscription was paid by the assessee in the preceding as well as succeeding assessment years. Notably, on verifying the scrutiny assessment orders passed under section 143(3) of the Act for the assessment years 2006–07, 2009–10 and 2010–11 and 2011–12, copies of which have been submitted befor us, it is observed that no such disallowance was made by the Assessing Officer in the aforesaid assessment years. There being no difference in facts brought to our notice in the impugned assessment year, applying the rule of consistency also, the expenditure claimed by the assessee has to be allowed, since, the nature of expenditure as revenue has been accepted by the Department in all other assessment years except the impugned assessment year. That being the case, we uphold the decision of the learned Commissioner (Appeals) on the issue. Ground raised is dismissed. Respectfully following the said decision of this tribunal in assessee’s own case for Asst Year 2007-08, the ground no. 4 raised by the revenue is dismissed.