ACIT, New Delhi V. M/s. Lok Advisory Services Pvt. Ltd., New Delhi

ITA 1033/DEL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3820 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 29-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S R SENAPTHY
• Assessee Lawyers: ALOK VASANT; RICHA SONI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : C : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO.1033/DEL/2016 ASSESSMENT YEAR : 2012-13 ACIT, CIRCLE-15(2), CR BUILDING, NEW DELHI. VS. LOK ADVISORY SERVICES PVT. LTD., 2B, RAMKISHORE ROAD, CIVIL LINES, NEW DELHI. PAN: AABCL0625J (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ALOK VASANT, CA & MS RICHA SONI, CA DEPARTMENT BY : SHRI S.R. SENAPTHY, SR. DR DATE OF HEARING : 23.01.2017 DATE OF PRONOUNCEMENT : 24.01.2017 ORDER PER R.S. SYAL, VP: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER PASSED BY THE CIT(A) ON 08.12.2005 IN RELATION TO T HE ASSESSMENT YEAR 2012-13. ITA NO.1033/DEL/2016 2 2. THE ONLY GROUND RAISED IN THIS APPEAL IS AGAINST THE DELETION OF ADDITION OF RS.2,88,43,934/- MADE BY THE ASSESSING OFFICER. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN PROVIDING MANAGERIAL, TECHNICAL, CONSULTANCY AND INVESTMENT RESEARCH SERVICES TO TWO OVERSEAS FUNDS FOR WHICH IT RECEIVE S A SERVICE INCOME. A SUM OF RS.2,88,43,934/- WAS CLAIMED AS DEDUCTION BY THE ASSESSEE, BEING, THE AMOUNT PAID TO LOK FOUNDATION, AN ENTI TY REGISTERED IN MAURITIUS. ON BEING CALLED UPON TO JUSTIFY SUCH DE DUCTION, THE ASSESSEE SUBMITTED THAT IT WAS HAVING ADVISORY AGREEMENTS WI TH TWO OVERSEAS FUNDS, NAMELY, LOK I AND LOK II FOR PROVIDING THEM NON-BINDING INVESTMENT ADVISORY SERVICES. IN ORDER TO FACILITA TE THE RENDERING OF SUCH SERVICES, THE ASSESSEE ENTERED INTO AGREEMENT WITH LOK FOUNDATION TO HELP THEM IDENTIFY CERTAIN INVESTORS AND INFLUENCE THEM TO PARTICIPATE IN LOK II. FOR RENDERING SUCH SERVICES, THE ASSESSEE PAID A SUM OF RS.2.88 CRORE WHICH WAS CLAIMED AS DEDUCTION. THE ASSESSIN G OFFICER DID NOT GRANT DEDUCTION BY HOLDING THAT SUCH PAYMENT WAS NO T WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE LD. C IT(A) OVERTURNED THE ITA NO.1033/DEL/2016 3 ASSESSMENT ORDER ON THIS ISSUE AND DELETED THE ADDI TION. THE REVENUE HAS COME UP IN APPEAL AGAINST SUCH DELETION. 4. HAVING HEARD BOTH THE SIDES AND PERUSED THE RELE VANT MATERIAL ON RECORD, IT IS OBSERVED THAT THE ASSESSEE WAS SUPPOS ED TO PROVIDE SERVICES TO THE TWO OVERSEAS FUNDS, NAMELY, LOK I AND LOK II . ADVISORY FEES RECEIVED BY THE ASSESSEE FROM THESE TWO ENTITIES IS CONSIDERATION FOR THE SERVICES RENDERED BY IT AS WELL AS LOK FOUNDATION, TO WHICH A SUM OF RS.2.88 CRORE WAS PAID. IT IS BECAUSE THE SERVICES PROVIDED BY LOK FOUNDATION THAT THE INCREASE IN COMMITTED FUNDS TOO K PLACE WHICH CONSEQUENTLY INCREASED THE ASSESSEES ADVISORY FEES FROM RS.4.7 CRORE IN THE PRECEDING YEAR TO RS.9.21 CRORE IN THE CURRENT YEAR, WHICH IS ROUGHLY 93%. AS AGAINST THIS, THE ASSESSEE PAID ONLY A SUM OF RS.2.88 CRORE TO THE LOK FOUNDATION. WHEN THE ASSESSEE RECEIVED A CO MPOSITE AMOUNT OF ADVISORY FEE WHICH COVERED NOT ONLY THE SERVICES RE NDERED BY IT ALONE, BUT ALSO BY LOK FOUNDATION, BY NO STANDARD, THE PAY MENT MADE FOR SECURING SERVICES OF LOK FOUNDATION CAN BE CONSIDER ED AS NOT INCIDENTAL TO BUSINESS. BUT FOR SUCH SERVICES, THE ASSESSEE W OULD NOT HAVE EARNED ITA NO.1033/DEL/2016 4 THE REVENUE OF THIS MAGNITUDE. SINCE SUCH PAYMENT IS INCIDENTAL TO CARRYING ON OF BUSINESS. WE ARE SATISFIED THAT THE LD. CIT(A) RIGHTLY APPRECIATED THE FACTS IN DELETING THE ADDITION. 5. IN THE RESULT, THE APPEAL IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 24.01.201 8. SD/- SD/- [BEENA A. PILLAI] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 24 TH JANUARY, 2018. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.