Case Law Details

Case Name : M/s Pricewaterhouse Coopers Pvt. Ltd. Vs ACIT (ITAT Kolkata)
Appeal Number : I.T.A No. 757/Kol/2017
Date of Judgement/Order : 18/09/2017
Related Assessment Year : 2010-11
Courts : All ITAT (4340) ITAT Kolkata (274)

M/s Pricewaterhouse Coopers Pvt. Ltd. Vs ACIT (ITAT Kolkata)

Facts of the case

The brief facts off this issue is that the assessee is in the business of providing , inter alia, management consultancy services and also accounting and business advisory services. The company’s operations are aggregared into different line of services like advisory and taxation services. The assessee filed its return of income electronically for the Asst Year 2010-11 on 30.3.2012 declaring taxable income of Rs 33,70,69,038/- . The assessee filed its audited accounts, tax audit report, computation of total income and notes to computation before the ld AO vide letter dated 2.4.2012. The assessee during the course of assessment proceedings filed all such details as were required to be furnished and were called upon to be furnished by the ld AO. The assessment was completed by the ld AO u/s 143(3) r.w.s. 144C of the Act determining total income at Rs 138,14,36,330/-. The assessee preferred an appeal against the order of the ld AO before the ld CITA against the additions made in the assessment. Later the ld CIT issued show cause notice u/s 263 of the Act treating the order passed by the ld AO as erroneous in as much as it is prejudicial to the interest of the revenue. According to ld CIT, the assessee had debited a sum of Rs 1063.07 lakhs in its profit and loss account under the head ‘Repairs & Maintenance – Buildings’ and that substantial part of the expenditure was incurred on ‘interior design’ etc of various buildings of the company and that such expenditure does not fall under the ambit of ‘Current Repairs’ and should have been added back treating the same as capital expenditure. The ld CIT observed that this aspect has not been inquired / examined by the ld AO in the assessment proceedings thereby making his order erroneous. The assessee replied that the expenditure were incurred on rented / leased premises and that as far as rented premises are concerned, all expenditure in respect of repairs are allowable and the restriction of current repairs is applicable on owned premises and not otherwise. Further, it was submitted that the expenditure incurred on account of renovation, interior decoration, etc ought to be considered as an allowable revenue expenditure as such expenses were required to keep the office building and premises not only operational but also in presentable and good condition, which is necessary for smooth and efficient running of the business of the assessee. Moreover, the expenditure incurred on account of repairs and maintenance of office building did not bring any capital asset into existence. Hence it was submitted that a plausible view has been taken by the ld AO in this regard in the light of various decisions and accordingly the same cannot be subject matter of revision u/s 263 of the Act.

Held by CIT (A)

The ld CIT observed that the ld AO had not inquired into the eligibility of interior design and layout of owned office premises, guest houses etc u/s 37(1) of the Act or under any other sections of the Act. The ld AO had not examined the applicability of section 30 of the Act. Accordingly he held that absolutely no inquiry was carried out with regard to allow ability of ‘Repairs & Maintenance – Buildings’ by the ld AO in the assessment proceedings and non- inquiry itself would make the order of the ld AO erroneous and prejudicial to the interest of the revenue. Based on these observations, he set aside the assessment order dated 20.5.2014 to frame the assessment afresh after considering the aforesaid observations.

Held by ITAT

We hold that there was no occasion for the ld AO to examine the allow ability of repairs and maintenance of buildings and whether the same is incurred for the purpose of business of the assessee or whether the same is capital or revenue in nature. We find that absolutely no query was raised or any inquiry was carried out by the ld AO in this regard. Hence this is a clear case of lack of inquiry on the part of the ld AO for which the revisionary jurisdiction u/s 263 of the Act could be invoked by the ld CIT. It has already been held that mere non- inquiry of an item itself would made the order of the ld AO erroneous and prejudicial to the interest of the revenue as has been held by the Hon’ble Supreme Court in the case of Rampriya Devi Saraogi vs CIT reported in 67 ITR 84 (SC) and Tara Devi Aggarwal vs CIT reported in 88 ITR 323 (SC). When the requisite inquiry that is warranted in the facts of the instant case was not made, then that itself would make the order of the ld AO erroneous and prejudicial to the interest of the revenue. Hence we do not find any infirmity in the revision order passed by the ld CIT u/s 263 of the Act.

Full Text of the ITAT Order is as follows:-

1. This appeal by the Assessee arises out of the order of the Learned Principal Commissioner of Income Tax -1, Kolkata [in short the ld CIT] in M.No. Pr. CIT-1/Kol/Revision u/s. 263/2016-17/13718-21 dated 16.02.2017 passed u/s 263 of the Act against the order passed by the DCIT, Circle-2, Kolkata [ in short the ld AO] under section 143(3)/144C of the Income Tax Act, 1961 (in short “the Act”) dated 20.05.2014 for the Assessment Year 2010-11.

2. The only issue to be decided in this appeal is as to whether the Ld CIT was justified in invoking revisionary jurisdiction in the facts and circumstances of the case.

3. The brief facts off this issue is that the assessee is in the business of providing , inter alia, management consultancy services and also accounting and business advisory services. The company’s operations are aggregared into different line of services like advisory and taxation services. The assessee filed its return of income electronically for the Asst Year 2010-11 on 30.3.2012 declaring taxable income of Rs 33,70,69,038/- . The assessee filed its audited accounts, tax audit report, computation of total income and notes to computation before the ld AO vide letter dated 2.4.2012. The assessee during the course of assessment proceedings filed all such details as were required to be furnished and were called upon to be furnished by the ld AO. The assessment was completed by the ld AO u/s 143(3) r.w.s. 144C of the Act determining total income at Rs 138,14,36,330/-. The assessee preferred an appeal against the order of the ld AO before the ld CITA against the additions made in the assessment. Later the ld CIT issued show cause notice u/s 263 of the Act treating the order passed by the ld AO as erroneous in as much as it is prejudicial to the interest of the revenue . According to ld CIT, the assessee had debited a sum of Rs 1063.07 lakhs in its profit and loss account under the head ‘Repairs & Maintenance – Buildings’ and that substantial part of the expenditure was incurred on ‘interior design’ etc of various buildings of the company and that such expenditure does not fall under the ambit of ‘Current Repairs’ and should have been added back treating the same as capital expenditure. The ld CIT observed that this aspect has not been inquired / examined by the ld AO in the assessment proceedings thereby making his order erroneous. The assessee replied that the expenditure were incurred on rented / leased premises and that as far as rented premises are concerned, all expenditure in respect of repairs are allowable and the restriction of current repairs is applicable on owned premises and not otherwise. Further, it was submitted that the expenditure incurred on account of renovation, interior decoration, etc ought to be considered as an allowable revenue expenditure as such expenses were required to keep the office building and premises not only operational but also in presentable and good condition, which is necessary for smooth and efficient running of the business of the assessee. Moreover, the expenditure incurred on account of repairs and maintenance of office building did not bring any capital asset into existence. Hence it was submitted that a plausible view has been taken by the ld AO in this regard in the light of various decisions and accordingly the same cannot be subject matter of revision u/s 263 of the Act.

4. The ld CIT observed that the ld AO had not inquired into the eligibility of interior design and layout of owned office premises, guest houses etc u/s 37(1) of the Act or under any other sections of the Act. The ld AO had not examined the applicability of section 30 of the Act. Accordingly he held that absolutely no inquiry was carried out with regard to allow ability of ‘Repairs & Maintenance – Buildings’ by the ld AO in the assessment proceedings and non- inquiry itself would make the order of the ld AO erroneous and prejudicial to the interest of the revenue. Based on these observations, he set aside the assessment order dated 20.5.2014 to frame the assessment afresh after considering the aforesaid observations. Aggrieved, the assessee is in appeal before us on the following grounds:-

Based on the facts and circumstances of the case, PricewaterhouseCoopers Private Limited (here-in-after referred to as ‘PwCPL’ /,the Appellant’ /,the assessee’) respectfully craves leave to prefer an appeal against the order dated 16 February 2017 issued by the Learned Principal Commissioner of Income-tax – 1, Kolkata (‘Ld. Pr. CIT’) on the following grounds:

1. On the facts and in law and in the circumstances of the case, the order dated 16 February 2017 passed by the Ld. Pr. CIT under section 263 of the Income-tax Act, 1961 (‘the Act’) is without jurisdiction, bad in law, and is liable to be quashed.

2. On the facts and in law and in the circumstances of the case, the Ld. Pr. CIT erred in assuming jurisdiction under section 263 of the Act without satisfying the pre- conditions necessary for assumption of such jurisdiction i.e. an error in assessment order must be an error of law or fact.

3. On the facts and circumstances of the case and in law, the Ld. Pr. CIT erred in invoking his jurisdiction under section 263 of the Act on an issue which has been already considered by the Assessing Officer while completing the assessment order dated 20 May 2014 under section 143(3)/144C of the Act.

4. On the facts and in law and in the circumstances of the case, the Ld. Pr. CIT erred in passing the order under section 263 of the Act on the basis of mere conjecture and surmise, without considering the detailed submissions made by the appellant on facts as well as in legal position of law on allow ability of expenditure incurred on rented premises.

The Appellant submits that the above grounds are independent and without prejudice to one another.

The Appellant desires leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of objections, at any time before or during the hearing of the Appeal.

5. The ld AR stated that the assessee had enclosed the detailed notes to computation of total income which was filed before the ld AO on 2.4.2012 wherein it was clearly stated that the expenditure in the sum of Rs 1063.07 lakhs towards expenditure for repairs and maintenance of buildings were incurred in repairing and renovation, which included interalia obtaining interior design and layout of the office and incidental expenses on interior work at various buildings and rented property of the assessee. Such expenses were required to keep the office building and premises not only operational but also in presentable and good condition, which is necessary for smooth and efficient running of the business of the assessee. The assessee also placed reliance on certain judgements in support of its claim of revenue expenditure thereon. The same is enclosed in page 67 of the Paper Book. Along with this, the assessee had also filed detailed notes about some other 5 items of expenditure including the details about foreign exchange loss. The ld AR argued that the ld AO had gone through the same and had made dis allowance of the foreign exchange loss while completing the assessment. Hence it should be deemed that the ld AO had duly examined the other points included in the said notes which admittedly included note on repairs and maintenance of buildings. In fact the ld AO called for details of all expenses debited to profit and loss account. The assessee in response thereon requested the ld AO to call for specific items of expenditure which required examination as filing of details of all expenditure debited in profit and loss account would be very voluminous. Thereafter the ld AO did not call for any specific items of expenditure for examination. He further argued that similar dis allowance was made in Asst Year 2005-06 and the ld CITA had deleted the same and no further appeal was preferred by the revenue against this order to tribunal. The order of the ld CITA was passed for the Asst Year 2005-06 on 4.2.2013 and the impugned assessment order was passed by the ld AO on 20.5.2014. Hence the order of the ld CITA for Asst Year 2005-06 was very much available before the ld AO before the date of completion of assessment, which has been duly taken into consideration by the ld AO and that’s why he did not deem it fit to pose any query regarding the allow ability of repairs and maintenance of buildings. In response to this, the ld DR vehemently relied on the order of the ld CIT and argued that the ld CIT had not given any direction to the ld AO to consider this issue of repairs and maintenance of buildings in a particular manner. It is a simple set aside made by the ld CIT to the ld AO to frame the assessment afresh after giving adequate opportunity of being heard to the assessee and hence no fault could be found in the said revision order of the ld CIT.

6. We have heard the rival submissions and perused the materials available on record. We find that the assessee had filed the details of repairs and maintenance of buildings before the ld CITA as under :-

Account Name Amount (Rs.)
R/M – Office Premises-Rented 67,150,476
R/M – Office Premises – Owned 14,474,928
R/M – Leased Resident Premises 10,800
Less: Reversal in R/M Leased Residential Premises (11,181)
Guest House – R/M 10,774,150
Guest House – Washing Charges 50,502
Guest House – Soft Furnishing 328,876
Guest House – Security Charges 12,164
Security Charges 13,516,536
106,307,251

We find from the entire paper book filed by the assessee that no query was indeed raised by the ld AO in the course of assessment proceedings with regard to the issue of repairs and maintenance of buildings. In-fact the ld AO called for details of all expenses debited to profit and loss account at the initial stage of assessment proceedings. The assessee in response thereon requested the ld AO to call for specific items of expenditure which required examination as filing of details of all expenditure debited in profit and loss account would be very voluminous. Thereafter the ld AO did not call for any specific items of expenditure for examination. The reliance placed by the ld AR on the note filed along with computation of total income would not come to the rescue of the assessee as admittedly the said note did not contain any break up of repairs and maintenance so as to warrant further examination by the ld AO. The said note only stated that assessee had incurred expenditure towards rented premises and the same has been debited in the profit and loss account. We hold that there was no occasion for the ld AO to examine the allow ability of repairs and maintenance of buildings and whether the same is incurred for the purpose of business of the assessee or whether the same is capital or revenue in nature. We find that absolutely no query was raised or any inquiry was carried out by the ld AO in this regard. Hence this is a clear case of lack of inquiry on the part of the ld AO for which the revisionary jurisdiction u/s 263 of the Act could be invoked by the ld CIT. It has already been held that mere non- inquiry of an item itself would made the order of the ld AO erroneous and prejudicial to the interest of the revenue as has been held by the Hon’ble Supreme Court in the case of Rampriya Devi Saraogi vs CIT reported in 67 ITR 84 (SC) and Tara Devi Aggarwal vs CIT reported in 88 ITR 323 (SC). When the requisite inquiry that is warranted in the facts of the instant case was not made, then that itself would make the order of the ld AO erroneous and prejudicial to the interest of the revenue. Hence we do not find any infirmity in the revision order passed by the ld CIT u/s 263 of the Act. Accordingly the grounds raised by the assessee are dismissed.

7. In the result, the appeal of the assessee is dismissed.

Order pronounced in the Court on 17.10.2017

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