By TIOL News Service

NEW DELHI, MAR 15, 2017: THE issue is - Whether necessary recess taken by a professional for refreshment during normal working hours, to render quality work, can be excluded while computing his billing hours viv-a-vis professional fees. NO is the verdict.

Facts of the case: The petitioner firm was engaged by the CIT to conduct a special audit for seven years of M/s Micromax Informatics Limited. consequent to the same, an addition of over Rs.720 crores was made to the returns of the auditee/ assessee. For their professional services, the petitioner submitted a bill to the CIT detailing 1078 hours as having been spent by its team at the client's place. Additionally, 237 hours were billed for time spent by the audit team at the petitioner's office and a total bill for Rs.1,10,81,505/- inclusive of service tax of Rs.12,19,005/- was raised. This amount was not paid since the AO was of the view that the total of 1315 man hours multiplied by the maximum prescribed average rate of Rs.7,500/- per hour was not justified. He reasoned that all the members of the team not being qualified personnel, the billing could not have been at the maximum prescribed rate. Accordingly, 85% of the billed hours were considered by him as reasonable. Thus, an order for payment of Rs.28,36,000/- plus service tax as applicable was passed in favour of petitioner by the CIT. The petitioners have disputed the computation and consequential order, however, pending the adjudication of their dispute, they had agreed to accept the aforesaid amount without prejudice to their rights and contentions.

On appeal, the HC held that,

++ the Court is of the view that spending 9 to 10 hours a day for a special audit would include the time spent on basic necessities, food and refreshments etc. Unlike employees, professionals do spend 9 to 10 hours a day on their work, even at odd hours, and attend to their basic necessities in the remaining hours of the day. Exclusion of such necessary recess for consumption of food and refreshment, etc. for a person to render quality work is illogical. In any case, the billing is not for 24 hours a day but for a part thereof. Therefore, to assume that the time billed was not exclusively for the professional work is without basis and untenable. Chartered Accountants are not automatons who, without having access to food or being able to attend to all other necessities, would churn out good quality reports after analysing voluminous records. It is noteworthy that the quality of the report has been assessed as 'very good' by the AO. An addition of over Rs.720 crores has been made to the income tax of the auditee. The work was rendered by the petitioner's four partners, Chartered Accountants and other personnel i.e. by qualified assistants and semi-qualified assistants, however, the impugned order questions the billing only on the basis of their experience and number of years in the profession and not on the quality of the work. This reasoning is questionable;

++ notably, the work experience of the partners ranges from 3 to 27 years while the range permissible billing rate is between Rs.3,500/- to Rs.7,500/- and the rate of sitting could have been correspondingly adjusted as per their regular sitting hours or accepted degree of competence; instead it has arbitrarily been reduced to an average rate of Rs.4,000/- per hour. The disallowance of certain hours based on the assumption that the auditors would have spent some time on lunches, refreshments etc. is erroneous. If such disallowance is permitted then the corollary argument would be that some members of the audit team or the entire team was not adequately focussed on the special audit. This kind of reasoning assumes thought-control or thought-intensity monitoring. Such nature of control is neither envisaged under the Rules nor is it reasonable. What the Revenue is to assess in such circumstances is whether the special audit report was (i) within time, (ii) of the desired quality (iii) the billing is commensurate to the nature of inquiry and the quantum of the records to be looked into; etc. If the audit report is of good quality and inter alia, authored by a qualified professional having a fair number of years of experience then he/she may well be entitled to ask for the highest prescribed billing rate. In the circumstances, the Court is of the view that the bill submitted by the petitioner needs a fresh look. Accordingly, the impugned order is hereby set aside and the CIT is hereby directed to re-determine the fee payable to the petitioner in light of the above observations and directions.

(See 2017-TIOL-492-HC-DEL-IT)