Dy.CIT., Circle-3(1), Hyderabad V. M/s Share Microfin Limited, Hyderabad

ITA 1681/HYD/2014

• Counselvise Citation: 168122514 RSA 2014
• Duration Of Justice: 1 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 28-10-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 03-11-2014
• Court: TRIBUNAL
• Department Lawyers: KONDA RAMESH
• Assessee Lawyers: A G SITARAMAN
• Keywords: Corroborative evidences; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 1681/HYD/2014 ASSESSMENT YEAR: 2010-11 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-3(1), HYDERABAD VS M/S. SHARE MICROFIN LTD., HYDERABAD [PAN: AAECS9243C] (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI KONDA RAMESH , DR FOR ASSESSEE : SHRI A.G. SITARAMAN , AR DATE OF HEARING : 28 - 1 0 - 201 5 DATE OF PRONOUNCEMENT : 20 - 1 1 - 2015 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS A REVENUES APPEAL AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS)-IV, HYDERABAD DATED 22-08-2014. AMONGST THE VARIOUS ISSUES ON WHICH LD . CIT(A) HAS GIVEN RELIEF, REVENUE IS AGGRIEVED ON TWO ISSUES I. E., (I) ALLOWANCE OF EXPENDITURE OF AUDIT PROGRAMME EXPENSES AND (II) RATING FEE PAID TO CRISIL, WHICH THE ASSESSING OFFICER (AO) CO NSIDERED AS EXPENDITURE OF CAPITAL NATURE NOT ALLOWABLE U/S. 37 (1) OF THE INCOME TAX ACT [ACT]. I.T.A. NO. 1681/HYD/2014 M/S. SHARE MICROFIN LTD., :- 2 -: 2. BRIEFLY STATED, ASSESSEE IS ENGAGED IN THE BUSI NESS OF MICRO FINANCE AND ADMITTED INCOME OF RS. 170.70 CRO RES. AO DISALLOWED VARIOUS EXPENDITURE INTER ALIA DISALLOWING AUDIT PROGRAMME EXPENSES OF RS. 33,25,173/- ON THE REASON THAT ASSESSEE DID NOT SUBSTANTIATE THE CLAIM AND RATING FEE OF RS. 28,83,766/- ON THE REASON THAT SIMILAR EXPENDITURE WAS DISALLOWED IN THE EARLIER ASSESSMENT YEAR WHICH WAS NOT CONTES TED. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE, ALLO WED THESE EXPENDITURE ON WHICH REVENUE IS AGGRIEVED. 3. WE HAVE HEARD LD. DR AND LD. COUNSEL AND PERUSE D THE PAPER BOOK ON RECORD. GROUND NO.2 RAISED BY RE VENUE IS AS UNDER: 2. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED T HE FACT THAT THE ASSESSEE HAD FAILED TO SUBSTANTIATE I TS CLAIM OF AUDIT PROGRAMME EXPENSES THROUGH ANY SUPPORTING EVI DENCE AND THAT SIMILAR CLAIM IN SIMILAR CIRCUMSTANCES WAS NOT ALLOWED BY THE CIT(A) FOR THE AY. 2008-09 AND THE A SSESSEE DID NOT CONTEST THIS FURTHER. 3.1. EVEN THOUGH REVENUE CONTESTED NOW THAT CLAIM OF AUDIT EXPENSES WAS NOT SUPPORTED BY ANY EVIDENCE, WE DO N OT FIND ANY SUCH ISSUE BEFORE THE AUTHORITIES. AS SEEN FROM TH E ASSESSMENT ORDER, AO RECORDS IN THE ORDER THAT ASSESSEE HAS FU RNISHED ENTIRE INFORMATION AS CALLED FOR. EVEN PARA 4 IN PAGE 6 O F THE ASSESSMENT ORDER, IT IS VERY CLEARLY STATED THAT THE ASSESSEE COULD NOT FURNISH ANY SATISFACTORY EXPLANATION FOR THE SAME . AS SEEN FROM THE ORDER OF THE AO, IT IS CLEAR THAT AO ASKED TO SUBSTANTIAT E THE CLAIM AS TO HOW THE SAME CAN BE REVENUE EXPENDITURE. THERE IS NO ISSUE ON I.T.A. NO. 1681/HYD/2014 M/S. SHARE MICROFIN LTD., :- 3 -: NOT FURNISHING ANY SUPPORTING EVIDENCE, THEREFORE, PART OF THE GROUND RAISED BY THE REVENUE IS INFRUCTUOUS. 4. COMING TO THE ISSUE THAT CLAIM WAS NOT SUBSTANT IATED IT WAS SUBSTANTIATED STATING THAT ASSESSEE HAD 1007 BR ANCHES LOCATED ALL OVER THE COUNTRY AND THAT THE BRANCH HE AD AND ACCOUNTANT VISITS THE HEAD OFFICE/ZONAL OFFICE FOR VERIFICATION AND CONSOLIDATION OF THE BOOKS OF ACCOUNT AND THAT EXPE NDITURE WAS INCURRED ON RENT FOR THE PREMISES HIRED FOR CONDUCT ING THIS EXERCISE, FIELD EXPENSES, PRINTING AND STATIONERY, ELECTRICAL EXPENSES AND HIRING OF GENERATOR ETC. IT WAS FURTHER SUBMIT TED THAT THIS WAS A ONETIME ANNUAL EXPENDITURE WHICH WAS NECESSARY FO R ESTABLISHING THE INTEGRITY AND RELIABILITY OF THE B OOKS. CONSIDERING THE EXPLANATION, LD. CIT(A) FOUND THAT EXPLANATION OF ASSESSEE IS LOGICAL AND REASONABLE AND ALLOWED THE EXPENDITURE. WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. C IT(A) AS ASSESSEE HAS JUSTIFIED THE CLAIM AND AS SEEN FROM THE NATURE OF EXPENDITURE, ASSESSEE HAS MORE THAN 1007 BRANCHES AND AVERAGE EX PENDITURE PER BRANCH IS ABOUT RS. 3,300/- WHICH CANNOT BE CON SIDERED EXCESSIVE ALSO. IN VIEW OF THIS, WE APPROVE THE OR DER OF THE CIT(A) AND REJECT THE GROUND RAISED BY THE REVENUE. 5. GROUND NO. 3 RAISED BY REVENUE IS AS UNDER: 3. THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORD ER OF THE AO THAT THE RATING FEE PAID TO CRISIL IS CAP ITAL EXPENDITURE SINCE EVEN IF THE PURPOSE IS FOR AVAILI NG LOAN FROM BANKS, IT IS OF ENDURING NATURE. I.T.A. NO. 1681/HYD/2014 M/S. SHARE MICROFIN LTD., :- 4 -: 5.1. HEREIN ALSO AO DISALLOWED RATING FEE OF RS. 2 8,83,766/- PAID TO CRISIL AND TO ICRA FOR OBTAINING CREDIT RAT ING FOR OBTAINING LOANS WHEREAS, THE AO HAS STATED THAT SIMILAR EXPEN DITURE WAS DISALLOWED IN EARLIER YEAR AND THEREFORE, RATING FE E WAS TO BE DISALLOWED IN THIS YEAR ALSO. IT WAS SUBMITTED BEF ORE THE CIT(A) THAT IN AY. 2008-09, AO HAS DISALLOWED THE SUM OF R S. 22,47,200/- PAID TOWARDS GOVERNANCE AND VALUE CREATION (GVC) RA TING FEE OUT OF THE TOTAL RATING FEE EXPENSES OF RS. 29,76,229/- . IT WAS SUBMITTED THAT THE GVC RATING FEE WAS FOR CERTIFYIN G CORPORATE GOVERNANCE STANDARD AND WAS NOT RELATED TO GRADING OF ASSESSEES CREDITWORTHINESS. IT IS ALSO SUBMITTED THAT SIMILA R RATING FEE PAID IN 2008-09 WAS ALLOWED BY THE AO HIMSELF. CONSIDER ING THE EXPLANATION OF ASSESSEE, LD. CIT(A) ALLOWED THE CLA IM BY STATING AS UNDER: 8.3 IT IS CLEAR FROM THE DETAILS OF RATING FEES PA ID DURING AY. 2008-09, THAT A SUM OF RS. 7,29,029/- HAD BEEN PAID TO AGENCIES OTHER THAN GVC WHICH HAD BEEN ALLOWED BY T HE ASSESSING OFFICER HIMSELF IN THE PRECEDING YEAR. I T IS ALSO CLEAR FROM THE ORDER OF THE CIT(A) CITED ABOVE THAT HIS O BSERVATIONS HAD BEEN MADE IN THE CONTEXT OF GVC RATING FEES FOR RATING THE CORPORATE GOVERNANCE STANDARDS. THE PAYMENT BY THE APPELLANT DURING THE YEAR TO CRISIL AND TO ICRA WAS NOT FOR CORPORATE GOVERNANCE STANDARDS RATING AND WAS OF TH E SAME NATURE AS THE EXPENSES OF RS. 7,29,029/- INCURRED D URING AY. 2008-09. THE INCURRING OF THE RATING EXPENSES WAS FOR THE PURPOSE OF ENABLING THE APPELLANT TO AVAIL OF LOANS FROM BANKS AND FINANCIAL INSTITUTIONS. THESE LOANS WERE REQUI RED BY THE APPELLANT FOR THE MICRO FINANCE LENDING IN THE COUR SE OF ITS BUSINESS. IT CAN, THEREFORE, BE HELD THAT THE EXPE NSES WERE INCURRED FOR THE PURPOSES OF THE APPELLANTS BUSINE SS. THE DISALLOWANCE IS, THEREFORE, DIRECTED TO BE DELETED . 5.1.I. WE DO NOT FIND ANY REASON TO DISTURB THE FI NDINGS OF THE LD. CIT(A), AS NOTHING WAS BROUGHT ON RECORD TO COU NTER THE ABOVE FINDING. WHEN AO HAS ALLOWED SIMILAR RATING FEE IN AY. 2008-09 TO I.T.A. NO. 1681/HYD/2014 M/S. SHARE MICROFIN LTD., :- 5 -: AN EXTENT OF RS. 7,29,029/-, WITHOUT EXAMINING THE NATURE OF EXPENDITURE AO DISALLOWED THE ENTIRE AMOUNT OF SIMI LAR NATURE IN THIS YEAR. CONSIDERING THE DETAILS PLACED ON RECOR D AND ORDER OF THE CIT(A), WE APPROVE THE SAME AND REJECT THE REVE NUES CONTENTIONS. HENCE, THIS GROUND IS ALSO REJECTED. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH NOVEMBER, 2015 SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBE R HYDERABAD, DATED 20 TH NOVEMBER, 2015 TNMM COPY TO : 1. THE DY. COMMISSIONER OF INCOME TAX, DCIT, CIRCLE - 3(1), 7 TH FLOOR, B-BLOCK, IT TOWERS, HYDERABAD. 2. M/S. SHARE MICROFIN LTD., 1-224/58, RAJEEV NAGAR , NACHARAM, HYDERABAD. 3. CIT(APPEALS)-IV, HYDERABAD. 4. CIT-III, HYDERABAD. 5 . D.R. ITAT, HYDERABAD. 6 . GUARD FILE.