Commissioner Of Income Tax,Kolkata-Iii v. M/S. Ernst And Young Privatelimited

O-102 ITA/471/2008 IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE COMMISSIONER OF INCOME TAX,KOLKATA-III -Versus- M/S. ERNST AND YOUNG PRIVATELIMITED BEFORE :THE HON’BLE JUSTICE T.S. SIVAGNANAMAndTHE HON’BLE JUSTICE HIRANMAY BHATTACHARYYADate : 5[th] January, 2023 Appearance :Mr. Smarajit Roychowdhury, Adv.…for the appellant.Mr. J. P. Khaitan, Sr. Adv.Mr. Akhilesh Gupta, Adv.Mr. Soham Sen, Adv....for the respondent.. The Court : This appeal filed by the revenue underSection 260A of the Income Tax Act, 1961 (the ‘Act’ forbrevity) is directed against the order dated 16[th] November,2007 passed by the Income Tax Appellate Tribunal, “E” Bench,Kolkata (the Tribunal) in ITA No.1750/Kol/2006 for theassessment year 2003-04. The appeal was admitted on the following substantialquestions of law: (i)Whether on the facts and in the circumstancesof the case the Income Tax Appellate Tribunalwas justified in deleting the allowance underSection 40(a)(i) of the Income Tax Act, 1961of Rs.2,58,26,000/- and erred in accepting theclaim of the assessee that the amount onlyrepresented reimbursement and there was noelement of income which is pre-requisite forapplication of Section 195 ?of the case the Income Tax Appellate Tribunalwas justified in deleting the allowance underSection 40(a)(i) of the Income Tax Act, 1961of Rs.2,58,26,000/- and erred in accepting theclaim of the assessee that the amount onlyrepresented reimbursement and there was noelement of income which is pre-requisite forapplication of Section 195 ? (ii) Whether on the facts and in the circumstancesof the case the Income Tax Appellate Tribunalwas justified in deleting the allowance ofRs.61,73,338/- and erred in not consideringthat the assessee failed to submit anyevidence that the dates actually became bad inrespect of RBI guidelines of due diligence inthis regard ?Whether on the facts and in the circumstancesof the case the Income Tax Appellate Tribunalwas justified in deleting the addition onaccount of leave encashment due to theemployees in view of the provision of Section43(B)(f) of the Income Tax Act, 1961 relyingon the decision of Exide Industries vs. Unionof India by the Calcutta High Court strikingdown Section 43(B)(f) and erred in notconsidering that the department has filedSpecial Leave Petition on the issue before theApex Court ?of the case the Income Tax Appellate Tribunalwas justified in deleting the allowance ofRs.61,73,338/- and erred in not consideringthat the assessee failed to submit anyevidence that the dates actually became bad inrespect of RBI guidelines of due diligence inthis regard ?Whether on the facts and in the circumstancesof the case the Income Tax Appellate Tribunalwas justified in deleting the addition onaccount of leave encashment due to theemployees in view of the provision of Section43(B)(f) of the Income Tax Act, 1961 relyingon the decision of Exide Industries vs. Unionof India by the Calcutta High Court strikingdown Section 43(B)(f) and erred in notconsidering that the department has filedSpecial Leave Petition on the issue before theApex Court ? (iii) We have heard Mr. Smarajit Roychowdhury, learnedstanding counsel for the appellant/revenue and Mr. J. P. Khaitan, learned senior counsel assisted by Mr. Akhilesh Guptaand Mr. Soham Sen, learned Advocates for therespondent/assessee. (iii) We have heard Mr. Smarajit Roychowdhury, learnedstanding counsel for the appellant/revenue and Mr. J. P. Khaitan, learned senior counsel assisted by Mr. Akhilesh Guptaand Mr. Soham Sen, learned Advocates for therespondent/assessee. The first substantial question of law is with regard tothe deletion of the disallowance under Section 40(a)(i) of theAct. On perusal of the order passed by the learned Tribunal,we find that the Tribunal has recorded that there is norebuttal from the side of the Income Tax Department that theexpenses are not relating to reimbursement of expenses forsupply of data as per the agreement made amongst the globalfirms to which the assessee is treated as one of the members.The Tribunal also took note of the decision if the case of CITvs. Dunlop India Ltd. reported in 142 ITR 493 and decided thefactual issue in favour of the assessee. Thus, we find thatthere is no error in the said decision for us to interfere.Accordingly, the substantial question of no.(a) is rejected. Substantial question of law no.(b) relates to thedeletion of the disallowance of Rs.61,73,338/- on the groundthat they are bad debts. On this aspect the learned Tribunal,after elaborately hearing the submissions of the learnedAdvocates for the parties and examining the factual position,accepted the contention raised by the assessee becausefactually whatever could have been done, the assessee has donein its part of the job in the globalisation process when supply of data among the global firms and other services have becomeessential to the foreign concern through the foreign co-ordinator or partner. Further, the Tribunal noted Indianassessee has no other means except to pursue with its foreigncounter-part which part appears to have been done properly bythe assessee, and this factual aspect was not controverted bythe revenue. Thus, we find that the findings rendered by theTribunal cannot be said to be a perverse or untenable as it hasbeen rendered on appreciation of the factual matrix. For suchreasons, the substantial question of law (b) stands rejected.So far as substantial question of law no.(c) isconcerned, the question has to be decided in favour of therevenue and against the assessee in the light of the decisionof the Hon’ble Supreme Court in the case of Union of India &Ors.vs. Exide Industries Limited & Anr. reported in [2020] 425ITR 1(SC) wherein the Hon’ble Supreme Court had held that theliability of leave encashment continues to be a presentliability as per the mercantile system of accounting. Further,the insertion of clause (f) has not extinguished the autonomyof the assessee to follow the mercantile system as it merelydefers the benefit of deduction to be availed of by theassessee for the purpose of computing his taxable income andlinks it to the date of actual payment thereof to the employeeconcerned. Thus, it was held that the only effect of the insertion of clause (f) is to regulate the stated deduction byputting it in a special provision. In the light of thedecision of the Hon’ble Supreme Court, the substantial questionof law no.(c) is decided in favour of the revenue and againstthe assessee. Needless to say that the assessing officer shallconsider the legal position and allow the deduction of theamounts which have been actually paid. In view of the above, the appeal filed by the revenue(ITA/471/2008) is partly allowed. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.) S.Das/As.