IN THE HIGH COURT OF DELHI AT NEW DELHI
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ITA 571/2011
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CIT .....
Appellant
Through Mr. N.P.Sahni with Mr. Ruchesh Sinha,
Advocates for the Appellant.
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versus
MC CANN ERICKSON INDIA PVT LTD. ..... Respondent
Through Mr. S.Ramachandani with Mr. Aseem
Chaturvedi, Advocates for Respondent.
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CORAM:
HON'BLE MR. JUSTICE A.K.SIKRI
HON'BLE MR. JUSTICE M.L.MEHTA
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O R D E R
28.03.2011
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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
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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
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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.?
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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
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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,
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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.?
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This order of the CIT(A) has been upheld by the Income Tax Appellate
Tribunal.
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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).
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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
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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.
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A.K. SIKRI, J.
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M.L. MEHTA, J.
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MARCH 28, 2011
hk
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