Pricewaterhouse Coopers Private Limited Vs ACIT, Circle-2(2) (ITAT Kolkata)
Issue raised by the assessee is no linger res integra. The Coordinate Bench of Kolkata ITAT in the case of REI Agro Ltd. vs. DCIT [(2013) (144 ITD 141)] has held that only dividend bearing securities should be considered for the purpose of disallowance under rule 8D(2) (iii) of the Income Tax Rules. The relevant findings of the Coordinate Bench are given below:
“8.1 Thus, not all investments become the subject-matter of consideration when computing disallowance under section 14A read with rule 8D. The disallowance under section 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. Under the circumstances, the computation of the disallowance under section 14A read with rule 8D(2)(iii), which is issue in the assessee’s appeal, is restored to the file of the AO for re-computation in line with the direction given above. No disallowance under section 14A read with rule 8D(2)(i) and (ii) can be made in this case.
In the light of the judgment of the Coordinate Bench of ITAT Kolkata in the case of REI Agro Ltd (supra), we note that only dividend bearing securities should be considered for disallowance under rule 8D(2)(iii) of the I.T. Rules. Therefore, we direct the assessing officer to compute the disallowance under Rule 8D(2)(iii) of the Rules by taking into account dividend bearing securities only.
FULL TEXT OF THE ITAT JUDGEMENT
The captioned appeal filed by the assessee pertaining to Assessment Year 2014 – 15 is directed against the fair assessment order passed by the Assessing Officer u/s 143(3)/144C/ 144C(5) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’), dated 30.10.2018 which incorporates the findings of the Ld Dispute Resolution Penal (For short ‘DRP’), vide DRP order dated 11.09.2018.
2. Pricewaterhouse Coopers Private Limited (hereinafter referred to as ‘PWCPL’) is in the business of providing, inter alia, management consultancy services and also accounting and business advisory services. The Company’s operations are segregated into different line of services like advisory, taxation services. The assessee provides both onshore as well as offshore services in the wide areas of Consulting, Deals, Forensic Services, Government Reforms and Infrastructure Developments (GRID), Accounting Advisory, Risk Advisory Services, Tax and Regulatory Services. The Company filed revised return of income on 31 March 2016 determining total income of Rs. 69,83,53,700/-. During the AY under consideration, the Learned Assessing Officer (‘Ld. AO’), pursuant to the Directions of the Hon’ble Dispute Resolution Panel (‘Hon’ble DRP’) issued in September 2018, passed the final assessment order dated 30 October 2018 under section 143(3) r.w.s 144C/144C(5) of the Income-tax Act, 1961 (‘the Act’) wherein adjustments/variations were made, thereby computing the total assessed income at Rs. 75,16,99,450/-. Aggrieved by the impugned fair assessment order, the Assessee Company is in appeal before us.
3. Ground No.1 raised by the assessee company reads as follows:
“ On the facts and in law and in the circumstances of the case, the ld AO erred in not following the Directions of the Hon`ble DRP and making in addition of Rs.1,17,57,533/-, being provision for bad debts and doubtful debts written back during the year, without appreciating the fact that the amount of such provisions were already offered to tax in the earlier AYs.”
4. Facts of the issue which can be stated quite shortly are as follows: During the year under consideration, the Company has claimed an amount of Rs. 1,17,57,533/-, in its computation of income on account of ‘reversal of provision for bad & doubtful debts of earlier years’. Assessee submitted before the Ld. AO that the said provision was duly offered to tax in the earlier years, hence the reversal of the same during the year has been considered to be allowable in the return of income. However, in the draft assessment order, the Ld. AO proposed to disallow the same by alleging that the assessee failed to substantiate the claim with proper documentary evidences. Aggrieved, by the order of the ld AO, the assessee filed reference before the Ld DRP.
Before the ld DRP, assessee submitted party-wise details of reversal of the provision during the course of the proceedings before the Hon’ble DRP and the Hon’ble DRP asked the Ld. AO to furnish a remand report on the same. The Ld. AO, upon perusal and verification of the details furnished and further explanations and details provided during the hearings, furnished his remand report dated 24 July 2018 wherein it was mentioned that ‘reversal of the said provision is nothing but a creation of further provision’ and no specific comments were made on the details furnished by the assessee. The Hon’ble DRP observed that the reversal of provision is apparently allowable and directed the ld. AO to verify the claim on the basis of the details submitted (refer para 2.5 at page nos. 10 to 12 of the Directions of the Hon’ble DRP).
However, the Ld. AO, without appreciating the above fact and the details and documents submitted in this regard, made an addition of Rs. 1,17,57,533/- in the impugned final assessment order dated 30th October 2018. Aggrieved, the assessee is in appeal before us.
5. We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon and perused the fact of the case including the findings of the ld DRP/AO and other materials brought on record. We note that ld DRP had given the directions to the assessing officer as follows:
“2.5.3 The AO has apparently completely misunderstood the accounting principles in this regard. It was sufficient to examine whether the provisions reversed during this year had been offered to tax in the preceding year, the amount actually written off as bad debt out of the provisions of preceding year, and how much of the provisions created during the year has been included in the amount claimed, if any, and whether the provisions created during the year are ascertained and related to the business transactions of the assessee. On facts available it is apparent that the amount of provision claimed in this year is allowable. The AO is directed to verify the above observations (in this para) and allow the claim accordingly.”
(emphasis supplied)
We note that Ld. AO, without taking into account, the above directions of ld DRP, made an addition of Rs.1,17,57,533/- in the impugned final assessment order dated 30th October 2018, which is in violation of the Directions of the Ld DRP.
6. We note that judicial discipline demands that once an order has been passed in the assessee’s own case, lower authorities are duty bound to act in accordance with the same. The ld Counsel for the assessee submitted before us the following details and information about bad debts and provision for doubtful debts, which is given below:
“ During the year under consideration i.e. AY 2014-15, the Company has reversed the provision for doubtful debts as under:
