HOME LOAN SERVICES INDIA P.LTD, MUMBAI V. ASST CIT OSD RG 1(3), MUMBAI

ITA 1452/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4521 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 20-08-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 03-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY SONI
• Keywords: Opportunity of being heard; Revenue expenditure; Capital expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN , AM AND AMARJIT SINGH , JM ./ I.T.A. NO . 1452 / MUM/ 20 1 4 ( / ASSESSMENT YEA R : 20 0 5 - 06 ) HOME LOAN SE RVICES INDIA PRIVATE LIMITED (NOW KNOWN AS HDFC SALES PRIVATE LIMITED), RAMON HOUSE, H T PAREKH MARG, 169, BACKBAY RECLAMATION, CHURCHGATE, MUMBAI - 400020 / VS. ASSTT. COMMISSIONER OF INCOME TAX (OSD), RANGE 1 (3), ROOM NO.642, AAYAKAR BHAVAN , MUMBAIU0 - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO .2995/ MUM/ 2014 ( / ASSESSMENT YEA R : 2006 - 07 ) HOME LOAN SERVICES INDIA PRIVATE LIMITED (NOW KNOWN AS HDFC SALES PRIVATE LIMITED), RAMON H OUSE, H T PAREKH MARG, 169, BACKBAY RECLAMATION, CHURCHGATE, MUMBAI - 400020 / VS. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE - 1(1), ROOM NO.533 AND 579, 5 TH FLOOR, AAYAKAR BHAVAN, MUMBAIU0 - 400020 ( / APPELLANT ) .. ( / RESPONDEN T ) ./ ./PAN. : AABCH4278H / APPELLANT BY SHRI NITESH JOSHI / RESPONDENT BY SHRI VIJAY SONI / DATE OF HEARING : 4.1.2016 / DATE OF PRONOUNCEMENT: 4. 1.2016 ITA NO. 1452/ MUM/ 201 4 ITA NO.2995/M/2014 2 / O R D E R P ER B R BASKARAN, AM : BOTH THE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE TWO SEPARATE ORDERS PASSED BY THE LD.CIT(A) - 1, MUMBAI FOR THE ASSESSMENT YEARS 2005 - 06 AND 2006 - 07. 2. SI NCE ONE OF THE ISSUE S URGED IN THESE APPEALS IS IDENTICAL IN NATURE , THEY WERE HEARD TOGETHER AND BOTH THESE APPEALS ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE LD A.R SUBMITTED THAT THE ASSESSEE COMPANY IS A SUBSIDIARY OF HOUSING DEVELOPMENT FINANC E CORPORATION LIMITED (HDFC LTD) AND THE SAME WAS FORMED WITH THE OBJECTIVE OF C ANVASSING LOAN PROPOSALS FOR HDFC LTD. IN ORDER TO STRENGTHEN AND SMARTEN THE MANAGEMENT OF T HE ASSESSEE AND ALSO TO ENHANCE THE CAP ACITY AND CAPABILITY OF ITS EMPLOYEES, M/S HDFC LTD DEPUTED ONE OF SENIOR O FFICERS TO THE ASSESSEE COMPANY. THE SALARY PAYABLE TO ABOVE SAID S ENIOR O FFICER NAME D MR. GAUTAM BHAGAT WAS REIMBURSED BY THE ASSESSEE IN BOTH THE YEARS AS DETAILED BELOW : I ) ASSESSMENT YEAR : 2005 - 06 RS.12,00,694/ - II ) ASSESSMENT YEAR : 2006 - 07 RS.68,53,166/ - THE ASSESSEE CLAIMED THE SAME AS STAFF DEPUTATION COST IN BOTH THE YEARS AS REVENUE EXPENDITURE. THE AO HOWEVER TOOK THE VIEW THA T THE ASSESSEE HAS OBTAINED ENDURING BENEFIT THROUGH THE SENIOR OFFICER BY INCURR ING THE SAID EXPENDITURE AND ACCORDINGLY TREATED THE SAME AS CAPITAL EXPENDITURE . A CCORDINGLY HE DISALLOWED THE SAME IN BOTH THE YEARS. THE LD. CIT(A) ALSO CONFIRMED THE SA I D DISALLOWANCE IN BOTH THE YEARS . ITA NO. 1452/ MUM/ 201 4 ITA NO.2995/M/2014 3 4. THE LD.AR SUBMITTED THAT THE ASSESSEE HAS SET UP ITS BUSINESS IMMEDIATELY ON ITS INCORPORATION AND DURING THE ASSESSMENT YEAR 2005 - 06 IT HAS EARNED COMMISSION INCOME OF RS.4.88 CR. THE ASSESSEE DID NOT HAVE ANY GESTAT ION PERIOD FOR COMMENCING ITS BUSINESS AND HENCE THE DEPUTATION COST CANNOT BE CONSIDERED AS PRE - COMMENCEMENT EXPENDITURE. HE ALSO SUBMITTED THAT THE ASSESSEE , INSTEAD OF EMPLOYING A SENIOR O FFICER AT THE HELM OF IT AFFAIRS , HAS OBTAINED THE SERVICES OF SENIOR OFFICER OF ITS PARENT COMPANY. HE SUBMITTED THAT HE WAS EMPLOYED TO MANAGE THE AFFAIRS OF THE ASSESSEE COMPANY AND THE SAME WOULD NOT GIVE RISE TO ANY ADVANTAGE OF ENDURING NATURE. ACCORDINGLY, THE LD.AR SUBMITTED THAT THE ASSESSEE CANNOT BE SAID T O HAVE OBTAINED ANY ENDURING BENEFIT BY REIMBURSING THE SALA RY COST OF SENIOR OFFICER. 5. ON THE CONTRARY, THE LD. DR HAS PLACED STRONG RELIANCE ON THE ORDER PASSED BY THE LD. CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE A SSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF CANVASSING AND PROCURING HOME LOANS PROPOSALS FOR THE HDFC LTD . AS SUBMITTED BY THE LD.AR, THE ACTIVITIES OF THE ASSESSEE DOES NOT REQUIRE MUCH GESTATION PERIOD , SINCE IT INVOLVES ONLY CONSULTANCY WORK . THE PA RENT COMPANY M/S HDFC LTD, IN ORDER TO STREAMLINE THE OPERATIONS OF THE ASSESSEE COMPANY , HAS DEPUTED ONE OF ITS SENIOR EMPLOYEE S TO THE ASSESSEE COMPANY AND ACCORDINGLY, SALARY PAYABLE TO THE SAID OFFICER WAS REIMBURSED BY THE ASSESSEE. AS SUBMITTED BY T HE LD. AR , THE ASSESSEE WOULD HAVE EMPLOYED DIRECTLY ANY OTHER PERSON IN PLACE OF THE DEPUTED OFFICER, IF THE SAID OFFICER WAS NOT DEPUTED TO THE ASSESSEE COMPANY. HENCE, WE AGREE WITH THE CONTENTION S OF THE LD. AR THAT THE ASSESSEE CANNOT BE SAID TO HA VE OBTAINED ANY BENEFIT OF ENDURING NATURE , BY REIMBURSING THE COST OF SALARY OF DEPUTED ITA NO. 1452/ MUM/ 201 4 ITA NO.2995/M/2014 4 OFFICER. IN ANY CASE, THE EXPENDITURE INCURRED ON SALARY ON HIGHER OFFICIALS CANNOT BE CONSIDERED AS CAPITAL EXPENDITURE DURING THE COURSE OF RUNNING OF BUSINESS OF T HE ASSESSEE COMPANY. THE SAME CANNOT BE CONSIDERED TO BE THE EXPENDITURE INCURRED PRIOR TO SETTING UP OF BUSINESS. I N VIEW OF THE ABOVE , WE SET ASIDE THE ORDER OF THE LD.CIT(A) ON THIS ISSUE FOR BOTH THE YEARS UNDER CONSIDERATION AND DIRECT THE AO TO D ELETE THE IMPUGNED ADDITION FOR BOTH THE YEARS. 7 . FOR THE ASSESSMENT YEAR 2006 - 07, THE ASSESSEE URGED TWO MORE ISSUES. THE FIRST ISSUE RELATE TO THE DISALLOWANCE OF RS.1 , 59 , 814/ - EXPENSES INCURRED IN RELATION TO THE INCREASE IN SHARE CAPITAL. DURING TH E YEAR UNDER CONSIDERATION, THE ASSESSEE HAS INCREASED ITS SHARE CAPITAL. THE AO NOTICED THAT THE ASSESSEE HAS INCURRED A SUM OF RS.3,36,514/ - IN THAT CONNECTION, BUT IT HAS DISALLOWED A SUM OF RS.1,76,700/ - . ACCORDINGLY, THE AO DISALLOWED THE REMAINING AMOUNT AND THE SAME WAS ALSO CONFIRMED BY THE LD CIT(A). 8. THE LD A.R SUBMITTED THAT THE AMOUNT OF RS.1,59,814/ - REPRESENTS REGISTRATION CHARGES PAID FOR TAKING PREMISES ON LEASE AND FOR MAKING PAYMENTS TO VARIOUS LOCAL AUTHORITIES. HE SUBMITTED THA T THE TAX AUTHORITIES HAVE ERRONEOUSLY PRESUMED THAT THE SAME REPRESENTS EXPENDITURE INCURRED ON INCREASING THE SHARE CAPITAL OF THE COMPANY. 9. WE HEARD LD D.R AND PERUSED THE RECORD. THE SUBMISSIONS MADE BY THE LD A.R DO NOT FIND PLACE IN THE ORDE RS PASSED BY THE TAX AUTHORITIES. HENCE THE SAME REQUIRES EXAMINATION AT THE END OF THE ASSESSING OFFICER, SINCE THE ASSESSEE HAS CLAIMED THAT THE AMOUNT OF RS.1,59,814/ - WAS NOT INCURRED IN CONNECTION WITH THE INCREASE IN SHARE CAPITAL. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE ITA NO. 1452/ MUM/ 201 4 ITA NO.2995/M/2014 5 FILE OF THE AO WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH BY PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. 10. THE NEXT ISSUE RELATE TO THE DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT. ON NOTICING THAT THE ASSESSEE HAS DEDUCTED TAX AT SOURCE AT REDUCED RATE, THE AO DISALLOWED A SUM OF RS28,645/ - AND THE SAME WAS CONFIRMED BY THE LD CIT(A). THE LD . A.R SUBMITTED THAT THIS DISALLOWANCE WAS MADE ON THE BASIS OF TAX AUDIT REPORT, WHEREIN THE TAX AUDITOR HAS REPORTED THE DETAILS OF SHORT DEDUCTION OF TAX AS UNDER: - PAYMENT MADE TO MUKESH BHAVSAR 30,750 TAX DEDUCTIBLE AT SOURCE 1,725 TAX ACTUALLY DEDUC TED AT SOURCE 1,607 SHORT FALL IN DEDUCTION 118 AMOUNT INADMISSIBLE U/S 40(A)(IA) 2,105 THE LD A.R SUBMITTED THAT THE TAX AUDITOR HAS COMPUTED THE DISALLOWANCE ON PROPORTIONATE BASIS AND HENCE THE DISALLOWANCE REQUIRED TO BE MADE U/S 40(A)(IA) IS RS.2,105/ - ONLY . HOWEVER, THE TAX AUTHORITIES HAS MADE DISALLOWANCE OF RS.28,645/ - (RS.30,750/ - ( - ) RS.2,105/ - ), WHICH IS APPARENTLY INCORRECT. 11. THE LD D.R DID NOT OBJECT TO THE FACTUAL ASPECTS PRESENTED BY LD A.R. ACCORDINGLY, WE MODIFY THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO RESTRICT THE ADDITION U/S 40(A)(IA) TO RS.2,105/ - . ITA NO. 1452/ MUM/ 201 4 ITA NO.2995/M/2014 6 12 . IN THE RESULT , THE APPEAL FILED BY THE ASSESSEE FOR AY 2005 - 06 IS ALLOWED AND THE OTHER APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURP OSES. PRONOUNCED ACCORDINGLY ON 4TH JAN,2016 . 4TH JAN, 2016 SD SD ( AMARJIT SINGH ) ( B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 4TH JAN , 2015 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI