Bellwether Microfinance Fund Private Limited, Hyderabad V. DCIT, Circle-1(3), Hyderabad, Hyderabad

ITA 1637/HYD/2014

• Counselvise Citation: 163722514 RSA 2014
• Duration Of Justice: 1 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 19-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 24-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Assessee Lawyers: MANASVANI BAJPAI
• Keywords: Business expenditure; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA.NO.1636 & 1637/HYD/2014 ASSESSMENT YEARS 2006-2007 & 2008-2009 CASPIAN IMPACT INVESTMENTS P. LTD., (FORMERLY KNOWN AS BELLWETHER MICROFINANCE FUND P. LTD.,), HYDERABAD 500 034. PAN AADCS4132K VS. THE ACIT, CIRCLE 1(3) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. DEEPAK CHOPRA & MISS. MANASVANI BAJPAI FOR REVENUE : MR. B. KURMI NAIDU DATE OF HEARING : 1 9 . 1 0 .2015 DATE OF PRONOUNCEMENT : 23 .12 .2015 ORDER PER SMT. P. MADHAVI DEVI, J.M. BOTH ARE ASSESSEES APPEALS FOR THE A.YS. 2006- 07 AND 2008-09 RESPECTIVELY AND ARE FILED AGAINST T HE SEPARATE ORDERS OF THE LD. CIT(A)-V, HYDERABAD DATE D 30.06.2014. 2. FOR THE A.Y. 2006-07, THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR THE RELEVANT A.Y. ON 18.10.2006 DECLARIN G A TOTAL LOSS OF RS.80,89,166. DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE I.T. ACT, T HE A.O. 2 ITA.NOS.1636 & 1637/HYD/2014 CASPIAN IMPACT INVESTMENTS P. LTD., HYDERABAD. NOTICED THAT THE ASSESSEE HAS CHANGED ITS NAME FROM SUFALA FINANCE P. LTD., TO BELLWETHER MICRO FINA NCE P. LTD., AND FURTHER THAT DURING THE RELEVANT A.Y. TH ERE IS ALSO A CHANGE IN THE NATURE OF BUSINESS. HE OBSERVE D THAT EARLIER, THE COMPANY WAS IN THE BUSINESS OF HIRE PU RCHASE WHILE NOW THE COMPANY IS MAKING INVESTMENTS IN PROMISING MICROFINANCE INSTITUTIONS IN INDIA. HE OB SERVED THAT AS THERE IS CHANGE IN SHARE HOLDINGS OF THE CO MPANY, THE BROUGHT FORWARD LOSSES OF THE COMPANY CANNOT BE SET OFF IN TERMS OF SECTION 79 OF THE I.T. ACT, 1961. F URTHER, ON VERIFICATION OF THE DETAILS FILED BY THE ASSESSEE, THE A.O. OBSERVED THAT THE ASSESSEE HAS PAID A SUM OF RS.1,25,02,935 TO M/S. CASPIAN ADVISORS P. LTD., IN RESPECT OF FUND MANAGEMENT FEES. ACCORDING TO HIM, THIS PAYMENT OF FEES WAS EXCESSIVE. THEREFORE, HE REQUES TED THE ASSESSEE TO FILE DETAILS AND EXPLANATION FOR JUSTIFICATION FOR THE PAYMENT. IT WAS STATED BY THE ASSESSEE THAT M/S. CASPIAN ADVISORS P. LTD., WAS APPOINTED AS THE FUND MANAGER VIDE AGREEMENT DATED 27 TH MAY, 2005 AND THE SAID PAYMENT WAS MADE AS PER THE AGREEMENT WHICH PROVIDED FOR THE PAYMENT OF MANAGEMENT FEES AS UNDER : 2.1.1. FUND BASED SERVICES : A) 3.50% PER ANNUM ON OUTSTANDING EQUITY OR EQUITY LINKED INVESTMENTS ON COST BASIS. B) 2.25% PER ANNUM ON OUTSTANDING DEBT INVESTMENTS ONLY ON PRINCIPAL. C) 1.00% PER ANNUM ON ALL OTHER ASSETS. 3 ITA.NOS.1636 & 1637/HYD/2014 CASPIAN IMPACT INVESTMENTS P. LTD., HYDERABAD. THE ABOVE AMOUNT ARE EXCLUSIVE OF ANY SERVICE TAX (TOGETHER SURCHARGE AND ADDITIONAL SURCHARGE, AS MAY BE APPLICABLE) LEVIABLE ON MANAGEMENT FEE, THE SAME TO BE BORNE BY THE FUND. IF A LOAN OR PART OF A LOAN WERE TO FALL DELINQUENT AND ANY INTEREST PAYMENT AND/OR FEE PAYMENT IS NOT RECEIVED, THE FUND MANAGER SHALL NOT COLLECT ITS MANAGEMENT FEE ON THIS PARTICULAR LOAN OR PART THEREOF UNTIL SUCH PAYMENT IS RECEIVED. THE MANAGEMENT FEE SPECIFIED ABOVE SHALL BE SUBJECT TO A MINIMUM OF RS.8 MILLION (RS. EIGHT MILLION) PER ANNUM. 2.1. IN RESPONSE TO THE QUERY RAISED BY THE A.O. T HE ASSESSEE FURNISHED A LETTER DATED 17.09.2008 GIVING DETAILS OF THE AMOUNT OF THE MANAGEMENT FEES PAYABL E AS PER THE AGREEMENT. THE TABLE IS REPRODUCED BY THE A .O. AT PAGE-3 OF THE ASSESSMENT ORDER. ON GOING THROUGH TH ESE DETAILS, THE A.O. OBSERVED THAT THE FUND MANAGEMENT FEES DEBITED BY THE ASSESSEE INCLUDES A SUM OF RS.33,33, 335 (INCLUSIVE OF SERVICE TAX OF RS.3,40,000) RELATING TO THE PRIOR PERIOD I.E., FROM 1 ST NOVEMBER, 2004 TO MARCH, 2005. IT WAS SUBMITTED THAT THE SERVICES OF THE FUND MANA GER I.E., M/S. CASPIAN ADVISORS P. LTD., WERE ENGAGED F ROM 1 ST NOVEMBER, 2004 AND THE MANAGEMENT FEES PAYABLE FROM THAT PERIOD HAS BEEN DEBITED DURING THE RELEVANT F. Y. I.E., 2005-06 AND THEREFORE, THE EXPENDITURE HAS TO BE AL LOWED. HOWEVER, THE A.O. OBSERVED THAT IF THE SERVICES WER E ENGAGED AND AVAILED DURING THE PERIOD FROM 1 ST NOVEMBER, 2004 TO MARCH, 2005 THEN THE EXPENDITURE WAS INCURR ED 4 ITA.NOS.1636 & 1637/HYD/2014 CASPIAN IMPACT INVESTMENTS P. LTD., HYDERABAD. AND ACCRUED FOR THE YEAR ENDING 31.03.2005 AND CANN OT BE ALLOWED AS DEDUCTION FOR THE YEAR ENDING 31.03.2 006 AND THEREFORE, HE PROPOSED THE DISALLOWANCE OF SUM OF RS.36,73,334 (INCLUDING THE SERVICE TAX OF RS.3,40, 000) OUT OF THE AMOUNT DEBITED UNDER THE FUND MANAGEMENT FEES. THE ASSESSEE VIDE ITS LETTER DATED 31.01.2008 SUBMITTED THAT THE LIABILITY GOT FRUCTIFIED IN THE F.Y. 2005- 06 SINCE THE ASSESSEE COMPANY WAS CAPITALIZED ONLY DURING THE RELEVANT FINANCIAL YEAR AND DID NOT HAVE ANY PARTICULARS TO PAY THIS FEES IN THE EARLIER YEAR. I T WAS SUBMITTED THAT THE NEW BOARD WAS CONSTITUTED IN F.Y . 2005-06 AND THE COMPANY RECEIVED INVESTMENT FROM EXTERNAL SHAREHOLDERS IN JUNE, 2005 AND THEREFORE, THE ASSESSEE COMPANY COMMENCED ITS BUSINESS OF MICROFINANCE INVESTMENTS DURING THIS FINANCIAL YEAR . IT WAS ALSO SUBMITTED THAT THE RECIPIENT I.E., M/S. CA SPIAN ADVISORS P. LTD., HAS FULLY PAID THE TAX ON THE SAM E IN THE RELEVANT A.Y. I.E., 2006-07 AND SINCE THE OUTSTANDI NG TAX HAS BEEN FULLY PAID, THERE IS NO ROOM FOR DISALLOWA NCE OF ANY PORTION OF THE EXPENDITURE AS PERTAINING TO THE EARLIER YEAR AS IT IS A GENUINE BUSINESS EXPENDITURE ARISIN G OUT OF A BUSINESS CONTRACT AND MANAGEMENT OF THE FUND. IT WAS THUS PRAYED THAT THE SAME SHOULD BE FULLY ALLOWED I N THE RELEVANT ASSESSMENT YEAR. AN ALTERNATIVE PRAYER WAS MADE THAT THE SAME MAY BE ALLOWED IN THE NEXT FINANCIAL YEAR SINCE THE NEW BUSINESS OF THE COMPANY COMMENCED ONL Y DURING THE A.Y. 2005-06. THE A.O. HOWEVER, WAS NOT CONVINCED WITH THE ASSESSEES CONTENTIONS THAT THE LIABILITY GOT FRUCTIFIED IN THE F.Y. 2005-06. HE OB SERVED 5 ITA.NOS.1636 & 1637/HYD/2014 CASPIAN IMPACT INVESTMENTS P. LTD., HYDERABAD. THAT THE SERVICES OF M/S. CASPIAN ADVISORS P. LTD., WERE CLAIMED TO HAVE BEEN DULY AVAILED DURING THE F.Y. 2 004-05 AND THEREFORE HELD THAT THE LIABILITY TO PAY THE CONSIDERATION THEREON, ACCRUED DURING THE F.Y. 2004 -05 ITSELF AND MERELY BECAUSE THE COMPANY COULD NOT PAY THE LIABILITY DURING THE F.Y. 2004-05, THE SAID LIABILI TY CANNOT BE ALLOWED AS A DEDUCTION DURING THE F.Y. 2005-06. IT WAS FURTHER OBSERVED THAT EVEN IF THE PLEA OF THE ASSES SEE THAT THE COMPANY COMMENCED ITS BUSINESS OF MICROFINANCE DURING THE F.Y. 2004-05 IS TO BE CONSIDERED, THERE WAS NO NEED TO PAY FEES TO M/S. CASPIAN ADVISORS P. LTD., AND HENCE, THE SAID EXPENDITURE CANNOT BE SAID TO BE IN CURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. AS REG ARDS THE ASSESSEES CONTENTION THAT THE PAYEE HAS PAID T AX ON THIS PAYMENT IN HIS HANDS, HE HELD THAT IT DOES NOT IPSO FACTO MAKE THE SAID PAYMENT ADMISSIBLE AS DEDUCTION IN THE HANDS OF THE PAYER. HENCE, HE DISALLOWED THE SU M OF RS.33,33,335 EXCLUSIVE OF THE SERVICE TAX ON RS.3,4 0,000 RELEVANT TO THE PRIOR PERIOD I.E., FROM 1 ST NOVEMBER, 2004 TO MARCH, 2005 AS DEDUCTION FOR THE F.Y. 2005-06. FURTHER, WITHOUT PREJUDICE TO THE ABOVE DISALLOWANC E, HE ALSO DISALLOWED THE FEE PAID TO MANAGEMENT FUND FOR THE RELEVANT F.Y. ALSO AS EXCESSIVE AND UNREASONABLE WI THIN THE MEANING OF SECTION 40(A)(2)(A) OF THE I.T. ACT. FURTHER, HE ALSO MADE THE DISALLOWANCE UNDER SECTION 14A OF THE I.T. ACT OF THE EXPENDITURE INCURRED BY THE ASSESSE E TOWARDS THE FUND MANAGEMENT FEE OF RS.16,70,771. AGGRIEVED BY THESE DISALLOWANCES, ASSESSEE PREFERRE D AN APPEAL BEFORE THE LD. CIT(A) WHO CONFIRMED THE 6 ITA.NOS.1636 & 1637/HYD/2014 CASPIAN IMPACT INVESTMENTS P. LTD., HYDERABAD. DISALLOWANCES MADE BY THE A.O. AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. FOR THE A.Y. 2006-07, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL . BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - V ('CIT(A)') ERRED IN : 1. CONFIRMING THE ADDITIONS/DISALLOWANCES AND/OR DENIAL OF CLAIMS MADE BY THE LEARNED ASSESSING OFFICER ('AO'). DISALLOWANCE OF EXPENDITURE CONSIDERING THE SAME AS PRIOR PERIOD 2. CONFIRMING THE ADDITION OF FUND MANAGEMENT FEES PAID TO CASPIAN ADVISORS PRIVATE LIMITED ('CAPL') AMOUNTING TO RS. 36,73,335/- AS PRIOR PERIOD ITEM WITHOUT APPRECIATING THE FACT THAT THE LIABILITY TO PAY SUCH FEE CRYSTALLISED ONLY AFTER ENTERING INTO FUND MANAGEMENT AGREEMENT ON MAY 27, 2005 I.E, IN FINANCIAL YEAR ('FY') 2005-06. 3. WITHOUT PREJUDICE TO THE GROUND NO 2 ABOVE, THE LD CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE TDS ON THE AFORESAID FUND MANAGEMENT FEES WAS DEDUCTED IN THE FY 2005-06 AND WAS CORRECTLY CLAIMED AS A DEDUCTIBLE EXPENDITURE IN THE FY 2005-06. 4. WITHOUT PREJUDICE TO THE GROUNDS 2 AND 3 ABOVE, THE LD CIT(A) FAILED TO APPRECIATE THE FACT THAT TH AT CAPL HAS INCLUDED THE AFORESAID FEE IN ITS INCOME FOR THE FY 2005-06 AND HAS PAID APPROPRIATE TAXES ON THE SAME AND THUS, THERE WAS NO LOSS OF REVENUE TO GOVERNMENT ACCOUNT. 7 ITA.NOS.1636 & 1637/HYD/2014 CASPIAN IMPACT INVESTMENTS P. LTD., HYDERABAD. DISALLOWANCE U/S 40A OF THE ACT 5. CONCLUDING THAT THE FUND MANAGEMENT FEES PAID TO CAPL DURING THE YEAR AS UNREASONABLE AND EXCESSIVE AND CONFIRMING DISALLOWANCE OF RS.57,90,356 UNDER SECTION ('U/S') 40A(2) OF THE INCOME-TAX ACT, 1961, ('THE ACT'). 6. CONFIRMING THE DISALLOWANCE OF FUND MANAGEMENT FEE PAID TO CAPL U/S 40A(2) WITHOUT ESTABLISHING THE FACT THAT THE FUND MANAGEMENT FEES PAID TO CAPL WAS UNREASONABLE AND EXCESSIVE. 7. CONFIRMING THE CONCLUSION DERIVED BY ASSESSING OFFICER ('AO') THAT NO FUND MANAGEMENT FEE WAS PAYABLE TO CAPL FOR INVESTMENTS MADE BY THE APPELLANT THROUGH ITS TRUST VIZ. BELLWETHER MICROFINANCE TRUST. 8. DISREGARDING THE AGREEMENT OF THE APPELLANT WITH CAPL FOR DETERMINING THE FUND MANAGEMENT FEE PAYABLE TO CAPL. 9. WITHOUT PREJUDICE TO GROUND NO 5 TO 8 ABOVE, THE LD CIT(A) ERRED IN NOT CONSIDERING THE COMPARABLE FEE CHARGED BY FUND MANAGEMENT COMPANIES PROVIDED BY THE APPELLANT. 10. WITHOUT PREJUDICE TO THE GROUNDS 5 TO 9 ABOVE, THE LD CIT(A) FAILED TO APPRECIATE THAT THERE IS NO INCENTIVE FOR SHIFTING PROFITS SINCE CAPL HAD PAID TAXES ON ITS INCOME COMPRISING OF FUND MANAGEMENT FEES. DISALLOWANCE U/S 14A OF THE ACT 11. CONFIRMING THE DISALLOWANCE OF FUND MANAGEMENT FEE U/S 14A OF THE ACT. 12. APPLYING RULE 8D FOR THE PURPOSE OF COMPUTING DISALLOWANCE, WITHOUT APPRECIATING THAT RULE 8D IS 8 ITA.NOS.1636 & 1637/HYD/2014 CASPIAN IMPACT INVESTMENTS P. LTD., HYDERABAD. APPLICABLE PROSPECTIVELY FROM ASSESSMENT YEAR 2008-09. MISCELLANEOUS 13.CONFIRMING THE ADDITION OF RS.89,006/- AS INTERE ST ACCRUED ON ADVANCES WITHOUT APPRECIATING THE FACT THAT THE SAME IS A REVERSAL OF INCOME WHICH DID NOT ACCRUE IN CURRENT YEAR. 14. WITHOUT PREJUDICE TO THE GROUND NO. 13 ABOVE, T HE LD CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT T HE APPELLANT HAS RECORDED THE AFORESAID INTEREST INCOME IN THE SUBSEQUENT YEAR AND HAS PAID APPROPRIATE TAXES ON THE SAME. THE APPELLANT CRAVES, TO CONSIDER EACH OF THE ABOVE GROUNDS OF APPEAL WITHOUT PREJUDICE TO EACH OTHER AND CRAVES LEAVE TO ADD, ALTER, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 3. WE FIND THAT GROUND NOS. 2 TO 4 ARE AGAINST THE DISALLOWANCE OF THE FUND MANAGEMENT FEES PAID TO M/ S. CASPIAN ADVISORS P. LTD., AMOUNTING TO RS.36,73,335 (INCLUSIVE OF SERVICE TAX AS PRIOR PERIOD ITEM) WHI LE GROUND NOS. 5 TO 10 ARE AGAINST THE DISALLOWANCE OF RS.57, 90,356 UNDER SECTION 40A(2) OF THE I.T. ACT ON THE GROUND THAT IT IS UNREASONABLE AND EXCESSIVE. 4. AS REGARDS GROUND NOS. 2 TO 4, THE LD. COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TO THE AGR EEMENT ENTERED INTO BY THE ASSESSEE WITH M/S. CASPIAN ADVI SORS P. LTD., WHICH IS PLACED AT PAGE NO. 394 OF THE PAP ER BOOK WHICH IS DATED 27 TH MAY, 2005. HE HAS ALSO DRAWN OUR ATTENTION TO CLAUSE-1.2 OF THE AGREEMENT, WHEREIN T HE TERM OF AGREEMENT IS MENTIONED AS COMMENCING ON 1 ST OF 9 ITA.NOS.1636 & 1637/HYD/2014 CASPIAN IMPACT INVESTMENTS P. LTD., HYDERABAD. NOVEMBER, 2004 FOR A TERM OF 5 YEARS FROM SUCH DATE . HE HAS ALSO DRAWN OUR ATTENTION TO THE PERCENTAGE OF F EE FOR SERVICES WHICH IS PROVIDED UNDER CLAUSE 2.1.1. THUS , ACCORDING TO HIM, SINCE THE AGREEMENT, HAS BEEN ENT ERED INTO ON 27.05.2005 THE FEE FOR SERVICES RENDERED BY THE FUND MANAGER W.E.F. 1 ST NOVEMBER, 2004, HAVE FRUCTIFIED DURING THE FINANCIAL YEAR RELEVANT TO THE A.Y. BEFO RE US AND THEREFORE, THE FEE PAID BY ASSESSEE IS ALLOWABL E DURING THE RELEVANT ASSESSMENT YEAR ONLY. HE HAS ALSO DRAW N OUR ATTENTION TO THE FINANCIALS OF THE M/S. CASPIAN ADV ISORS P. LTD., WHEREIN IN THE NOTES OF ACCOUNTS, THE SAID COMPANY HAS MENTIONED THAT THE FUND MANAGEMENT FEE FOR TH E YEAR INCLUDES RS.33,33,335 RELATING TO THE PERIOD 1 ST NOVEMBER, 2004 TO MARCH, 2005 ARISING OUT OF THE CONTRACT ENTERED INTO ON 27 TH MAY, 2005 BETWEEN THE SAID COMPANY AND THE ASSESSEE HEREIN. THUS, ACCORDING TO HIM, M/S. CASPIAN ADVISORS P. LTD., HAS OFFERED THE INCOME IN ITS HANDS FOR THE RELEVANT ASSESSMENT YEA R AND BRINGING THE SAME AMOUNT TO TAX BY DISALLOWING THE SAME IN THE HANDS OF THE ASSESSEE WOULD AMOUNT TO DOUBLE TAXATION OF THE SAME AMOUNT. HE THEREFORE, SUBMITTE D THAT THIS AMOUNT SHOULD BE ALLOWED IN THE HANDS OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR. 5. THE LEARNED D.R., ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT ACCORDING TO THE ASSESSEE ITSELF THE SAID SUM RELATES TO THE PERIOD 1 ST NOVEMBER, 2004 TO 30.03.2005 RELEVANT TO THE A.Y. 2005-06 AND THEREFO RE, 10 ITA.NOS.1636 & 1637/HYD/2014 CASPIAN IMPACT INVESTMENTS P. LTD., HYDERABAD. CLAIMING THE SAME IN THE NEXT ASSESSMENT YEAR I.E., A.Y. 2006-07 IS NOTHING BUT POSTPONEMENT OF THE LIABILIT Y WHICH IS NOT PERMISSIBLE UNDER THE INCOME TAX ACT. HE HAS SUBMITTED THAT THE SAID EXPENDITURE BEING RELEV ANT TO THE F.Y. 2004-06, THE SAME CANNOT BE CLAIMED IN THE A.Y. 2006-07 MERELY ON THE GROUND THAT THE COMPANY HAS B EEN FORMED ONLY DURING THE RELEVANT ASSESSMENT YEAR. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE COMPA NY HAS CHANGED ITS NAME AS WELL AS BUSINESS ONLY DURIN G THE F.Y. 2005-06. IT IS ALSO NOT DISPUTED THAT THE ASSE SSEE HAS ENTERED INTO AN AGREEMENT WITH M/S. CASPIAN ADVISOR S P. LTD., AS FUND MANAGERS OF THE ASSESSEE ON 27 TH OF MAY, 2005. THEREFORE, AS RIGHTLY HELD BY THE A.O., THE S AID EXPENDITURE EVEN IF IT WERE TO BE CONSIDERED AS ARI SING OUT OF THE CONTRACT WITH M/S. CASPIAN ADVISORS P. LTD., CANNOT BE SAID TO BE THE EXPENDITURE OF THE ASSESSEE AS TH E ASSESSEE ITSELF WAS FORMED DURING THE RELEVANT FINA NCIAL YEAR, WHILE THE EXPENDITURE IS ALLEGED TO HAVE BEEN INCURRED FOR THE F.Y. 2004-05. FURTHER, WHEN THE AGREEMENT ITSELF HAS BEEN ENTERED INTO ON 27 TH MAY, 2005 WITH M/S. CASPIAN ADVISORS P. LTD.,, IT IS NOT UNDERSTANDABLE AS TO HOW THE SAID FUND MANAGER COUL D HAVE RENDERED THE SERVICES TO THE ASSESSEE FROM 1 ST NOVEMBER, 2004. THEREFORE, WE ARE IN AGREEMENT WITH THE FINDING OF THE A.O. AND THE LD. CIT(A) THAT THIS EXPENDITURE CANNOT BE CONSIDERED AS THE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF BUSINES S OF 11 ITA.NOS.1636 & 1637/HYD/2014 CASPIAN IMPACT INVESTMENTS P. LTD., HYDERABAD. THE ASSESSEE DURING THE RELEVANT FINANCIAL YEAR. IN VIEW OF THE SAME, THE GROUND NOS. 2 TO 4 RAISED BY THE ASSE SSEE ARE REJECTED. 7. AS REGARDS THE DISALLOWANCE UNDER SECTION 40A(2) OF THE ACT WHICH ARE COVERED UNDER GROUND NO S. 5 TO 10 OF THE I.T. ACT, WE FIND THAT THE ASSESSEE HA S RAISED DETAILED SUBMISSIONS BEFORE THE A.O. WITH REGARD TO THE REASONABLENESS OF THE FEE PAID BY THE ASSESSEE TO M /S. CASPIAN ADVISORS P. LTD., FOR THE RELEVANT ASSESSME NT YEAR. THE A.O. HAS DISALLOWED THE SAME AFTER CONSID ERING THE EVIDENCE FILED BY THE ASSESSEE BUT THE LD. CIT( A) HAS SUMMARILY REJECTED THE ASSESSEES CONTENTIONS. THIS , IN OUR OPINION, IS NOT JUSTIFIED. IN VIEW OF THE SAME, WE DEEM IT FIT AND PROPER TO REMAND THIS ISSUE TO THE FILE OF THE A.O. FOR RECONSIDERATION AFTER CONSIDERING ASSESSEES CONTENTIONS WHICH HAVE BEEN FILED BEFORE THE A.O. A S WELL AS THE LD. CIT(A). THIS GROUND OF THE ASSESSEE THER EFORE, IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 8. AS REGARDS GROUND NOS. 11 AND 12 WHICH ARE AGAINST THE DISALLOWANCE OF FUND MANAGEMENT FEE UND ER SECTION 14A OF THE I.T. ACT BY APPLYING RULE 8D, IT IS THE CASE OF THE ASSESSEE THAT RULE 8D IS NOT APPLICABLE FOR THE RELEVANT ASSESSMENT YEAR I.E., A.Y. 2006-07. THE LD . COUNSEL FOR THE ASSESSEE HAS FURTHER DRAWN OUR ATTE NTION TO THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CAS E FOR THE A.Y. 2005-06 WHEREIN THE TRIBUNAL, AFTER CONSIDERIN G THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF 12 ITA.NOS.1636 & 1637/HYD/2014 CASPIAN IMPACT INVESTMENTS P. LTD., HYDERABAD. GODREJ & BOYCE MFG. CO. LTD., VS. DCIT REPORTED IN 328 ITR 81 (BOM.) HELD THAT RULE-8D IS NOT APPLICABLE T O THE IMPUGNED ASSESSMENT YEAR THEREIN AND THEREFORE, THE CALCULATIONS PRESCRIBED UNDER RULE 8D CANNOT BE INV OKED IN THE GUISE OF THE REASONABLE DISALLOWANCE. THE TR IBUNAL THEREFORE, SET ASIDE THE ORDER OF THE A.O. ON THIS ISSUE AND RESTORED THE ISSUE TO THE FILE OF THE A.O. TO DETER MINE THE REASONABLE DISALLOWANCE ON FACTS AND CONSIDERING TH E LAW ON THE ISSUE. SINCE THE ASSESSMENT YEAR CONCERNED B EFORE US IS 2006-07, WE FIND THAT RULE-8D IS NOT APPLICAB LE TO THIS ASSESSMENT YEAR ALSO AND RESPECTFULLY FOLLOWIN G THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL I N ASSESSEES OWN CASE, WE REMAND THE ISSUE TO THE FIL E OF THE A.O. FOR RECONSIDERATION IN ACCORDANCE WITH LAW. G ROUND 11 AND 12 ARE ALLOWED FOR STATISTICAL PURPOSES. 9. AS REGARDS THE GROUND NOS. 13 AND 14 ARE CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE, SUBMIT TED THAT THE ASSESSEE IS NOT PRESSING THESE GROUNDS IN VIEW OF THE SMALLNESS OF THE AMOUNT. THEREFORE, GROUND NOS. 13 AND 14 ARE REJECTED AS NOT PRESSED. 10. IN THE RESULT, ITA.NO.1636/HYD/2014 OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTIC AL PURPOSES. ITA.NO.1637/HYD/2014 A.Y. 2008-09 : 11. AS REGARDS THE ASSESSEES APPEAL FOR A.Y. 2008 - 09 IS CONCERNED, WE FIND THAT THE ONLY GROUND IS AG AINST 13 ITA.NOS.1636 & 1637/HYD/2014 CASPIAN IMPACT INVESTMENTS P. LTD., HYDERABAD. THE DISALLOWANCE MADE BY THE A.O. UNDER SECTION 14A READ WITH RULE 8D OF THE I.T. ACT. THE GRIEVANCE OF THE ASSESSEE IS THAT THE EXPENDITURE IN RELATION TO INV ESTMENTS WHICH HAVE NOT YIELDED ANY EXEMPT INCOME SHALL NOT BE CONSIDERED FOR THE PURPOSE OF COMPUTING DISALLOWANC E UNDER CLAUSE-(I) OF RULE 8D(2) OF THE I.T. RULES WH EREAS, THE A.O. WITHOUT CONSIDERING THE SAME, HAS MADE THE DISALLOWANCE. 12. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE OF DISALLOWANCE UNDER SECTION 14A HA S ALSO ARISEN IN ASSESSEES OWN CASE FOR THE A.Y. 2009-10 AND THIS TRIBUNAL VIDE ORDERS DATED 27.06.2014 IN ITA.NO.1743/HYD/2013 HAS HELD THAT THE INVESTMENT WHICH HAS NOT RESULTED IN ANY INCOME CANNOT BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE UNDER RU LE- 8D(2)(I) BUT WHILE COMPUTING THE DISALLOWANCE UNDER RULE 8D(2)(III), THE AVERAGE OF THE TOTAL INVESTMENT OF THE ASSESSEE AS APPEARING IN THE BALANCE SHEET ON THE F IRST DAY AND LAST DAY OF THE YEAR IRRESPECTIVE OF THE FA CT THAT WHETHER IT HAS YIELDED INCOME OR NOT CAN BE CONSIDE RED FOR THE PURPOSE OF DISALLOWANCE. HE HAS SUBMITTED THAT THE ISSUE HAS THEREFORE, BEEN SET ASIDE TO THE A.O. FOR COMPUTATION OF EXPENDITURE TO BE DISALLOWED UNDER R ULE 8D(2)(III) OF THE ACT. 13. THE LD. D.R. HOWEVER, SUPPORTED THE ORDERS OF THE ASSESSING OFFICER. 14 ITA.NOS.1636 & 1637/HYD/2014 CASPIAN IMPACT INVESTMENTS P. LTD., HYDERABAD. 14. HAVING REGARD TO THE RIVAL CONTENTIONS AND MATERIAL ON RECORD, WE FIND THAT THE A.O. HAS MADE THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D AN D HAS ALSO TAKEN INTO CONSIDERATION THE DISALLOWANCE TO BE MADE UNDER RULE 8D(2)(I). SINCE THE FACTS AND CIRCUMSTANCES FOR THE RELEVANT ASSESSMENT YEAR ARE SIMILAR TO THE FACTS OF THE CASE FOR A.Y. 2009-2010 , WE DEEM IT FIT AND PROPER TO REMIT THIS ISSUE TO THE F ILE OF THE A.O. FOR RECONSIDERATION OF THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D IN ACCORDANCE WITH THE FINDIN GS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 20 09-10. 15. IN THE RESULT, ITA.NO.1637/HYD/2014 OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURP OSES. 16. TO SUM-UP, ITA.NO.1636/HYD/2014 OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTIC AL PURPOSES AND ITA.NO.1637/HYD/2014 OF THE ASSESSEE I S TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 23.12.2015. SD/- SD/- (B. RAMAKOTAIAH) (SMT. P. MADHAVI DEVI) ACOUNTANT MEMBER JUDICIALMEMBER HYDERABAD, DATED 23 RD DECEMBER, 2015 VBP/- 15 ITA.NOS.1636 & 1637/HYD/2014 CASPIAN IMPACT INVESTMENTS P. LTD., HYDERABAD. COPY TO : 1. CASPIAN IMPACT INVESTMENTS P. LTD., 8 - 2 - 596/5/B/1, ROAD NO.10, BANJARAHILLS, HYDERABAD 500 034. 2. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 1(3), AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD - 500 004. 3. CIT(A) - V , HYDERABAD. 4 . CIT - I, HYDERABAD 5 . D.R. ITAT B BENCH, HYDERABAD. 6 . GUARD FILE