DCIT CIR 3(1), MUMBAI V. BAIN CAPITAL ADVISORS (INDIA) P.LTD, MUMBAI

ITA 1270/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88668 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2015
• Appeal Filed By: Department
• Bench Allotted: K
• Next Hearing Date: 06-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 26-02-2014
• Court: TRIBUNAL
• Department Lawyers: S D SHRIVASTAVA
• Assessee Lawyers: ARVIND SONDE
• Keywords: Transfer pricing; International transaction; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 92E; 37; 92

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL K , BENCH MUMBAI . . , , BEFORE SHRI R.C.SHARMA , A M & SHRI AMIT SHUKLA , J M ./ ITA NO. 1270 / MUM/20 1 4 ( / ASSESSMENT YEAR : 200 9 - 10 ) DCIT CIR - 3(1), MUMBAI - 20 VS. M/S BAIN CAPITAL ADVISORS (INDIA) PVT. LTD., 215, 2 ND FLOOR, FREE PRESS HOUSE, FREE PRESS JOURNAL MARG, NARIMAN POINT, MUMBAI - 21 ./ ./ PAN/G IR NO. : A A DCB 4464 B ( / APPELLANT ) .. ( / RESPONDENT ) /REVENUE BY : SHRI S.D.SHRIVASTAVA /ASSESSEE BY : SHRI ARVIND SONDE / DATE OF HEARING : 06 /0 1 /2015 / DATE OF PRONOUNCEMENT 31 / 03/2015 / O R D E R PER R.C.SHARMA (A.M) : TH IS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER PASSED U/S.143(3) R.W.S.144C(5) TO GIVE EFFECT TO THE ORDER PASSED BY DRP UNDER SECTION 144C(5) OF THE IT ACT, FOR ASSESSMENT Y EAR 2009 - 2010 ON THE FOLLOWING GROUNDS : 1. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, HAS THE DRP ERRED IN ALLOWING EXPENDITURE ON SUPERVISION AND MANAGING THE RENOVATION WORK ON LEASE PREMISES AND EXPENDITURE ON 'SHARED LOBBY AREA OF LEA SE PREMISES AS REVENUE EXPENDITURE INSTEAD OF CAPITAL EXPENDITURE AS HELD BY THE AO WITHOUT APPRECIATING THE FACT THAT THESE EXPENSES WILL RESULT IN TO BENEFIT OF ENDURING NATURE TO THE ASSESSEE AND THEREFORE SHOULD BE TREATED AS CAPITAL EXPENDITURE AND NO T THE REVENUE EXPENDITURE AS ENVISAGED IN THE S. 37 OF THE INCOME TAX ACT, 1961 ITA NO. 1270 / 1 4 2 2. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE HAS THE DRP ERRED IN ALLOWING EXPENDITURE ON ACCOUNT OF 'LEGAL & PROFESSIONAL CHARGES' OF RS.48,15,500/ - PAID TO M/S CUSHMAN & WAKEFIELD INDIA PVT. LTD. AS REVENUE EXPENDITURE INSTEAD OF CAPITAL EXPENDITURE AS HELD BY THE AO WITHOUT APPRECIATING THE FACT THAT THESE EXPENSES WILL RESULT IN TO BENEFIT OF ENDURING NATURE TO THE ASSESSEE AND THEREFORE SHOULD BE TREATED A S CAPITAL EXPENDITURE AND NOT THE REVENUE EXPENDITURE AS ENVISAGED IN THE S. 37 OF THE INCOME TAX ACT, 1961 ? 3. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE HAS THE DRP ERRED IN ALLOWING EXPENDITURE ON ACCOUNT OF 'LEGAL & PROFESSIONAL CHARG ES' OF RS.32,11,702/ - PAID TO M/S G.S. PROJECT MANAGEMENT (I) PVT. LTD. AS REVENUE EXPENDITURE INSTEAD OF CAPITAL EXPENDITURE AS HELD BY THE AO WITHOUT APPRECIATING THE FACT THAT THESE EXPENSES WILL RESULT IN TO BENEFIT OF ENDURING NATURE TO THE ASSESSEE A ND THEREFORE SHOULD BE TREATED AS CAPITAL EXPENDITURE AND NOT THE REVENUE EXPENDITURE AS ENVISAGED IN THE S. 37 OF THE INCOME TAX ACT, 1961 ? 4. 'THE APPELLANT PRAYS THAT THE ORDER OF DRP ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED' 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. THE ASSESSEE IS SUBSIDIARY OF BAIN CAPITAL MAURITIUS (BC MAURITIUS) , A MAURITIUS BASED PRIVATE LIMITED LIABILITY COMPANY. IT IS ENGAGED IN PROVIDING INVESTMENT RESEARCH/ADVISORY SERVIC ES TO BC MAURITIUS, ON A NON - EXCLUSIVE AND NON - BINDING BASIS, IN RESPECT OF IDENTIFYING PROSPECTIVE INVESTMENT OPPORTUNITIES IN INDIA AND HAS ENTERED INTO A CONSULTANCY AGREEMENT WITH BC MAURITIUS FOR PROVISION OF SUCH SERVICES. DURING THE YEAR THE ASSESSE E ENTERED INTO CERTAIN INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AES) WITHIN THE MEANING OF SECTION 92 OF THE INCOME - TAX ACT, 1961. THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WERE THE PROVISION OF INVESTMENT ADVISORY SERVICES AND THE REIMBURSEMENT OF EXPENSES, WHICH WERE DULY REPORTED BY THE ASSESSEE IN FORM 3CEB (UNDER SECTION 92E OF THE ACT,), WHICH WAS FILED ALONG WITH THE ORIGINAL ITA NO. 1270 / 1 4 3 RETURN OF INCOME FOR AY 2009 - 2010. THE AO REFERRED THE CASE TO THE DEPUTY COMMISSIONER OF INCOME TAX, TRANSFER PRICING - I(8)(TPO) FOR COMPUTATION OF ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. THE TPO PASSED AN ORDER DATED NOVEMBER, 27, 2012, UNDER SECTION 92CA(3) OF THE ACT AN D PROPOSED A TRANSFER PRICING ADJUSTMENT OF RS.10,72,11,995/ - . THE TP O MADE DISALLOWANCE OF BROKERAGE AMOUNTING TO RS.48,15,500/ - FOR LOCATING SUITABLE OFFICE PREMISES AVAILABLE ON LEASE. BY THE IMPUGNED ORDER THE DRP DELETED THE DISALLOWANCE AFTER HAVING THE FOLLOW ING OBSERVATION : - DRPS DIRECTIONS: - THE CONTENTIONS RAISED BY THE ASSESSEE VIS - - VIS THE ADDITIONS PROPOSED BY THE AO HAS BEEN CONSIDERED. IT IS PERTINENT TO NOTE THE NATURE OF EXPENSES. THE EXPENSES ARE TOWARD BROKERAGE FOR SEARCHING OF PREMISES TO BE TAKEN ON LEASE. IT IS NOT THE LEASE RENTALS. TO ENTITLE A BROKER TO THE BROKERAGE, HE HAS TO SEARCH FOR A SUITABLE PREMISES MEETING THE NEEDS AND BUDGET OF THE CLIENT. ONCE HE IS ABLE TO IDENTIFY SUITABLE PREMISES WITHIN THE BUDGET OF THE CLIENT AND CLIEN T FINALIZES A DEAL THEN ONLY HE BECOMES ENTITLED TO BROKERAGE. ONCE THE PREMISES ARE SEARCHED, SELECTED AND THE DEAL IS FINALIZED, HIS ROLE IS OVER. THIS SHOWS THAT THE SERVICES RECEIVED BY THE ASSESSEE TOWARDS BROKERAGE EXPENSES ARE FOR SEARCH OF SUITABLE PREMISES. ONCE THE PREMISES STAND SELECTED, DEAL FINALIZED THE BENEFIT STAND ACCRUED TO THE ASSESSEE. NO BENEFIT PERCOLATES TO SUBSEQUENT YEAR THAN THE YEAR IN WHICH DEAL IS FINALIZED. THUS, THE AO WAS NOT CORRECT IN HOLDING THAT THE BENEFIT FROM BROKERAG E WAS OF ENDURING NATURE. AO IS, THEREFORE, DIRECTED TO ALLOW THE WHOLE OF BROKERAGE AMOUNT AS REVENUE EXPENDITURE, ALLOWABLE IN THIS YEAR. ASSESSEES THIS GROUND IS ALLOWED ACCORDINGLY. 3. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT ASSESSEE HAS INCURRED THE EXPENDITURE FOR LOCATING OFFICE PREMISES AVAILABLE ON LEASE. THUS, THE ASSESS EE IS NOT ACQUIRED ANY ASSET OR ADVANTAGE OF ENDURING IN NATURE. THE DETAILED FINDING RECORDED BY DRP HAS BEEN REPRODUCED AT PARA 9 OF HIS ORDER, HAS NOT BEEN CONTRO VERTED BY LD. DR. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDINGS OF DRP RESULTING INTO ITA NO. 1270 / 1 4 4 DELETION OF DISALLOWANCE MADE ON ACCOUNT OF BROKERAGE PAID FOR LOCATING SUITABLE OFFICE PREMISES. 4. THE AO HAS ALSO DISALLOWED RS.32,11,702/ - FOR SUPERVISING AND MAINTAINING THE RENOVATION WORK ON LEASE PREMISES, BY TREATING THE SAME AS CAPITAL EXPENDITURE. THE DRP DELETED THE DISALLOWANCE AFTER HAVING FOLLOWING OBSERVATION : - DRP DIRECTIONS: - THE AOS REASONS FOR THE PROPOSED DISALLOWANCE AND ASSE SSEES OBJECTION S TO THE SAME ARE CONSIDERED. TO DECIDE THE ALLOWABILITY OF EXPENDITURE AS REVENUE OR CAPITAL, IT IS IMPORTANT TO UNDERSTAND THE NATURE OF WORK, ITS OBJECT, ITS EXPEDIENCY. THE ASSESSEE HAD TAKEN PREMISES ON LEASE. LEASE EXPENDITURE IS RE VENUE EXPENDITURE. BROKERAGE FOR ACQUIRING THE SUITABLE PREMISES HAS ALREADY BEEN HELD BY US TO BE OF REVENUE IN NATURE SUPRA. CERTAIN LEASEHOLD IMPROVEMENTS EXPENDITURE HAS ALREADY BEEN CAPITALIZED BY ASSESSEE HIMSELF, SUO MOTO. THE EXPENDITURE IN QUESTIO N CONSISTS OF APPROVALS, SUPERVISION AND PROJECT MANAGEMENT. WITHOUT THE APPROVALS/PERMISSIONS/AUTHORIZATIONS IN PLACE THE PREMISES CANNOT BE PUT TO FITOUTS/RENOVATION AND THEREFORE, CANNOT BE PUT TO USE. SUCH PERMISSIONS ARE ABSOLUTELY ESSENTIAL FOR USE O F PREMISES FOR BUSINESS. COMMERCIAL EXPEDIENCY WARRANTS INCURRANCE OF SUCH EXPENDITURE. IT IS THEREFORE REVENUE IN NATURE. EVEN THE SUPERVISORY EXPENDITURE ON INTERIOR FITOUT AND SEATING SYSTEMS IS REVENUE IN NATURE AS THE SAME IS ESSENTIAL FOR MAKING THE PREMISES FIT FOR BUSINESS USE. THE CAPITALISABLE AMOUNTS HAVE ALREADY BEEN CAPITALIZED BY THE ASSESSEE. AO IS THEREFORE DIRECTED ALLOW THESE AMOUNTS AS REVENUE EXPENDITURE, ALLOWABLE IN THIS YEAR. WE, ACCORDINGLY, ALLOW THIS OBJECTION OF THE ASSESSEE. 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT SUPERVISION EXPENSES INCURRED BY THE ASSESSEE DO NOT BRING INTO EXISTENCE AN ASSET OR ADVANTAGE OF ENDURING BENEFIT. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF DRP DELETING DISALLOWANCE ON ACCOUNT OF SUPERVISION EXPENSES. 6. THE AO HAS ALSO DISALLOWED EXPENDITURE ON SHARED LOBBY AREA OF THE PREMISES, BY TREATING THE SAME AS CAPITAL EXPENDITURE. THE DRP DELETED THE SAME AFTER HAVING FOLLOWING OBSERVATION : - ITA NO. 1270 / 1 4 5 DRPS DIRECTIONS: - THE CONTENTION S RAISED BY THE ASSESSEE HAVE BEEN CONSIDERED. IT IS PERTINENT TO NOTE THE OBJECTIVE FOR WHICH SAID EXPENDITURE WAS INCURRED. THE EXPENDITURE WAS INCURRED TO BEAUTIFY THE ENTRANCE TO THE PREMISES SO AS TO CREATE GOOD IMPRESSION ON THE CLIENTS. CLIENT IMPRE SSION PLAYS A VITAL ROLE IN CARRYING ON OF A BUSINESS. THIS ASPECT IS ESSENTIAL FOR RUNNING AND FACILITATING OF A BUSINESS. THE SAME IS, THEREFORE, REVENUE IN NATURE. AO IS THEREFORE DIRECTED TO ALLOW THESE AMOUNTS AS REVENUE EXPENDITURE, ALLOWABLE IN THIS YEAR. WE, ACCORDINGLY, ALLOW THIS OBJECTION OF THE ASSESSEE. 7. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT SHARED LOBBY AREA WAS NOT COVERED UNDER THE LEASE AGREEMENT. THUS, THE EXPENDITURE INCURRED ON THAT AREA COULD NOT BE SAID TO CREATE ANY ASSET OR PROVIDE AN ENDURING BENEFIT TO THE ASSESSEE. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF DRP DELETING THE DISALLOWANCE OF EXPENSES INCURRED ON SHARED LOBBY ASSET. 8 . IN THE RESULT, APPEAL OF REVENUE IS DISMISSED . O RDER PR ONOUNCED IN THE OPEN COURT ON THIS 31 /03/ 201 5 . SD/ - SD/ - ( ) ( AMIT SHUKLA ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT M EMBER MUMBAI ; DATED 31/03 /201 5 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//