DCIT 5(1)(2), MUMBAI V. C.S BUSINESS SERVICES P.LTD, MUMBAI

ITA 184/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8508 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 16-01-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 08-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital expenditure
• Section: 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI JASON P. BOAZ (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 184/MUM/2015 ASSESSMENT YEAR: 2010-2011 THE DCIT 5 (1) (2), ROOM NO. 568, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. VS. M/S C.S. BUSINESS SERVICES P. LTD., 19, BHULABHAI DESAI ROAD, MAHALAXMI, MUMBAI- 4000026 PAN: AADCC0742K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. PREMCHAND J (DR) RESPONDENT BY : NONE DATE OF HEARING: 16 /01 /201 7 DATE OF PRONOUNCEMENT: 31/01/20 17 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN PREFERRED BY THE REV ENUE AGAINST IMPUGNED ORDER DATED 29/10/2014 PASSED BY THE LD. CIT (APPEALS)-9, MUMBAI, FOR THE ASSESSMENT YEAR 2010-2011, WHEREBY THE LD. CIT(A) P ARTLY ALLOWED THE APPEAL OF THE ASSESSEE FILED AGAINST ASSESSMENT ORDER DATE D 22/03/2013 PASSED BY THE A.O U/S 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). 2. THIS APPEAL WAS FILED ON 08/01/2015 AND FIXED FO R HEARING ON 17/08/2016, NOTICE WAS SENT TO THE ASSESSEE/RESPOND ENT ON 22/07/2016 TO APPEAR ON 17/08/2016. HOWEVER, NONE APPEARED ON BEH ALF OF THE ASSESSEE AND FRESH NOTICE WAS ACCORDINGLY ISSUED FOR 18/10/2016. ON 18/10/2016 NONE APPEARED ON BEHALF OF THE ASSESSEE AND NOTICE THROU GH DEPARTMENTAL 2 ITA NO. 184/MUM/2015 ASSESSMENT YEAR: 2010-11 REPRESENTATIVE WAS ISSUED FOR 08/12/2016. ON 08/12/ 2016 AGAIN NOTICE BY RPAD WAS ISSUED FOR 16/01/2017, HOWEVER, NONE APPEA RED ON BEHALF OF THE ASSESSEE. FROM THE CONDUCT OF THE ASSESSEE, WE ARE CONVINCED THAT SUFFICIENT OPPORTUNITY HAS BEEN GIVEN TO THE RESPONDENT/ASSESS EE TO APPEAR BEFORE THE TRIBUNAL AND PRESENT ITS CASE. IN OUR CONSIDERED OP INION NO FRUITFUL PURPOSE WOULD BE SERVED IN CASE FRESH NOTICE IS ISSUED. FRO M THE CONDUCT OF THE ASSESSEE IT APPEARS THAT THE ASSESSEE IS WILLFULLY EVADING THE SERVICE OF NOTICE. WE ACCORDINGLY, DECIDED TO PROCEED FURTHER ON THE B ASIS OF MATERIAL ON RECORD AFTER HEARING THE DEPARTMENTAL REPRESENTATIVE (DR) 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY ENGAGED IN THE BUSINESS OF MANAGEMENT CONSULTANTS, FILED ITS RETUR N OF INCOME DECLARING THE TOTAL INCOME OF RS. 57,66,655/-. THE RETURN WAS PRO CESSED U/S 142(1) AND AFTER SCRUTINY ASSESSMENT ORDER U/S 143(3) OF THE ACT, WA S PASSED DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 98,50,330/- AFT ER MAKING ADDITIONS OF RS. 1,96,133/- I.E. 50% OF THE EXPENSES ON RECRUITMENT CLAIMED BY THE ASSESSEE, MAKING DISALLOWANCE OF RS. 7,82,474/- AND RS. 28,09 ,099/- ON ACCOUNT OF SOX COMPLIANCE TESTING, AND ISAP AWARD CLAIMED BY THE A SSESSEE. 4. FEELING AGGRIEVED BY THE ASSESSMENT ORDER, THE A SSESSEE PREFERRED FIRST APPEAL BEFORE THE LD. CIT (A). LD. CIT (A) AFTER HE ARING THE ASSESSEE DELETED ALL THE ADDITIONS MADE BY THE ASSESSEE. AGAINST THE SAI D ORDER THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUNDS OF APPEAL:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) WAS RIGHT IN DIRECTING THE ASS ESSING OFFICER TO DELETE THE ADDITION MADE ON ACCOUNT OF (1) RECRUITMENT EXPENSES AMOUNTING TO RS. 1,96,133/- 3 ITA NO. 184/MUM/2015 ASSESSMENT YEAR: 2010-11 (2) SOX COMPLIANCE TESTING EXPENSES AMOUNTING TO RS. 7,82,474/- (3) ISAP AWARD EXPENSES AMOUNTING TO RS. 28,09,009/- TREATING THE SAME AS REVENUE EXPENSES WHEREAS THE SAME IS E NDURING IN NATURE AND IS CAPITAL EXPENDITURE. 5. BEFORE US, THE LD. DR RELYING ON THE ASSESSMENT ORDER SUBMITTED THAT THE LD. CIT(A) HAS WRONGLY DELETED THE ADDITIONS MADE B Y THE AO. THE AO HAS MADE THE DISALLOWANCES IN ACCORDANCE WITH THE LAW L AID DOWN BY THE HONBLE SUPREME COURT IN BROOK BOND INDIA LIMITED (225 ITR 798) THEREFORE, THE FINDINGS OF THE LD. CIT(A) ARE LIABLE TO BE SET ASI DE. 6. WE NOTICE THAT THE LD. CIT(A) HAS DELETED THE AD DITIONS MADE BY THE AO OBSERVING AS UNDER:- GROUND NOS. 1,2 & 4 REGARDING RECRUITMENT EXPENSE S, SOX COMPLIANCE TESTING EXPENSES AND ISAP AWARDS TO THE DIRECTOR: THESE EXPENSES HAVE BEEN PRIMARILY DISALLOWED BY THE A.O ON THE GROUND THAT THESE EXPENSES ARE CAPITAL IN NATURE BECAUSE T HEY HAVE CREATED BENEFIT OF ENDURING NATURE, ACCORDINGLY, BY APPLYIN G THE RATION OF THE CASE OF M/S. BROOKE BOND INDIA LTD.(SUPRA) THE A.O HAS DISALLOWED 50% OF RECRUITMENT EXPENSES AND 100% OF SOX COMPLIA NCE TESTING EXPENSES AND ISAP AWARDS TO THE DIRECTOR. ON THE OTHER HAND, IT IS THE CLAIM OF THE APPELLAN T THAT THE EXPENSES OF ALL THE THREE HEADS ARE REGULAR ROUTINE EXPENDITURE WHICH ARE REVENUE IN NATURE. THE APPELLANT HAS SUBM ITTED THAT THE RECRUITMENT EXPENSES AND SOX COMPLIANCE TESTING EXP ENSES ARE INCURRED FOR FRESH RECRUITMENTS AND ON PROFESSIONAL FEES PAID FOR REGULAR AND FREQUENT TESTING AT THE SERVICES PROVID ER SITE OF THE GROUP COMPANIES, A PART OF WHICH IS REIMBURSED BY THE AP PELLANT COMPANY. AS REGARDS THE ISAP AWARDS PAID TO THE DIR ECTOR IT IS 4 ITA NO. 184/MUM/2015 ASSESSMENT YEAR: 2010-11 CONTENDED BY THE APPELLANT THAT IT IS A VERY COMMON METHOD OF REWARDING THE EMPLOYEES OF THE COMPANY ON THE BASIS OF THEIR PERFORMANCE. SUCH PAYMENT MADE TO THE DIRECTOR HAS ALSO BEEN DISCLOSED BY THE SAID DIRECTOR AS INCOME FROM SALAR Y. THEREFORE, IT WAS CONTENDED THAT NONE OF THE EXPENDITURES IN QUES TION QUALIFIES FOR THE TEST LAID DOWN BY THE APEX COURT FOR HOLDIN G AN EXPENDITURE AS CAPITAL EXPENDITURE. AFTER CONSIDERING THE RIVAL SUBMISSIONS AS WELL AS THE NATURE, FREQUENCY AND QUANTUM OF THE EXPENDITURES IN QUESTI ON, I AGREE WITH THE CONTENTION OF THE APPELLANT THAT NONE OF THE EX PENDITURE APPEARS TO BE OF CAPITAL IN NATURE BECAUSE THEY HAVE BEEN I NCURRED ON REGULAR ROUTINE WORKS OF RECRUITMENT OF NEW STAFF, PROFESSI ONAL FEES FOR COMPLIANCE TESTING AND BY WAY OF REMUNERATION TO EM PLOYEE DIRECTOR VIA ESOP AWARD. THE APPELLANT HAS NOT BEEN BENEFIT ED FROM THESE EXPENDITURES FOR VERY LONG PERIOD, THEREFORE, THE S AME CANNOT BE HELD AS CAPITAL EXPENDITURE GIVING RISE TO BENEFIT OF EN DURING NATURE. THE CASE LAW OF M/S. BROOKE BOND INDIA LTD. (SUPRA) REL IED UPON BY THE A.O IS NOT APPLICABLE TO THE FACTS OF THIS CASE AS THE EXPENSES WERE NOT INCURRED IN RESPECT OF EXPANSION OF CAPITAL BAS E OR CREATION OF ASSETS. SUCH EXPENSES ARE ROUTINE EXPENSES OF REVEN UE NATURE WHICH DESERVES TO BE ALLOWED. THE ADDITIONS ON THIS ACCOU NT ARE DIRECTED TO BE DELETED. 7. THE FIRST GROUND OF APPEAL RELATES TO ADDITION O F RECRUITMENT EXPENSES TO THE INCOME OF THE ASSESSEE. AFTER HAVING GONE THRO UGH THE MATERIAL ON RECORD INCLUDING THE CONTENTION OF THE ASSESSEE, WE FIND M ERIT IN THE CONTENTION OF THE ASSESSEE, MADE BEFORE THE AUTHORITIES BELOW THAT TH E RECRUITMENT EXPENSES IS THE ONE TIME PROFESSIONAL FEES PAID TO THE RECRUITM ENT AGENCY. SUCH EXPENDITURE IS INCURRED IN THE NORMAL COURSE FOR RU NNING THE BUSINESS MORE PROFESSIONALLY AND EFFICIENTLY. THEREFORE, THE SAME DOES NOT FALL WITHIN AMBIT OF 5 ITA NO. 184/MUM/2015 ASSESSMENT YEAR: 2010-11 CAPITAL EXPENDITURE. HENCE, THERE IS NO JUSTIFICATI ON IN DISALLOWING 50% OF EXPENDITURE INCURRED ON PAYMENT OF RECRUITMENT AGEN CY. THE LD. CIT (A) HAS ACCORDINGLY, HELD THAT THE EXPENDITURE IS REVENUE I N NATURE. WE THEREFORE, DO NOT FIND ANY INFIRMITY IN THE IMPUGNED ORDER. MOREO VER, IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS CLAIMED MORE THAN THE ACTUAL EXPENSES INCURRED. HENCE, WE UPHOLD THE FINDINGS OF THE LD. CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. GROUND NO 2 RELATES TO EXPENDITURE ON COMPLIANCE OF SARBANS OXLEY ACT, 2002 (SOX). AS PER THE ASSESSEE THE AFFILIATED/ASSOCIATE ENTERPRISES OF THE APPELLANT/ASSESSEE WERE BASED IN UNITED STATES AND THEREFORE, THE PROVISIONS OF SOX WERE APPLICABLE TO THE ASSESSEE DURING THE A SSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSEE ACCORDINGLY APPOINTED M /S MAHAJAN & AIBARA, CHARTERED ACCOUNTANTS, MUMBAI TO CARRY OUT SOX COMP LIANCE AUDIT. IN VIEW OF THE SUBMISSIONS OF THE ASSESSEE MADE BEFORE THE AUT HORITIES BELOW, THE LD. CIT(A) HAS RIGHTLY HELD THAT THE PAYMENT RELATES TO THE PROFESSIONAL FEES PAID TO M/S. MAHAJAN & AIBARA, WHO WERE APPOINTED TO CONDUC T SOX COMPLIANCE AT THE SERVICE PROVIDER SITE OF ITS GROUP COMPANIES. T HE LD. DR DID NOT PRODUCE ANY CASE LAW TO SUBSTANTIATE ITS CONTENTION. HENCE, WE CONCUR WITH THE LD. CIT (A) AND HOLD THAT THE EXPENDITURE ON COMPLIANCE OF PROVISIONS OF SOX DOES NOT FALL WITHIN AMBIT OF CAPITAL EXPENDITURE. THIS GROU ND OF APPEAL IS ACCORDINGLY DISMISSED. 8. GROUND NO. 3 OF THE APPEAL PERTAINS TO INTERNATI ONAL SHARE AWARD PLAN (ISAP). AS PER THE SUBMISSIONS OF THE ASSESSEE MADE BEFORE THE AUTHORITIES BELOW, THE ACTUAL AMOUNT OF ISAP AWARDS EXPENDITURE WAS RS. 11,26,726 WHICH HAS INADVERTENTLY BEEN MENTIONED AS 28,09,009 /-. THE EXPENDITURE ON ISAP AWARDS INCURRED BY THE ASSESSEE IS AKIN TO SAL ARY PAID TO THE EMPLOYEES FOR THEIR SERVICES WHICH CANNOT BE TREATED AS ENDUR ING BENEFIT TO THE ASSESSEE. MOREOVER, THE ISPA AWARD IS TAXED IN THE HANDS OF T HE DIRECTOR CONCERNED. 6 ITA NO. 184/MUM/2015 ASSESSMENT YEAR: 2010-11 THEREFORE, THE ISAP AWARD PAID TO MR. ANUPAM KASHIV UNDER THE HEAD REMUNERATION TO DIRECTORS CANNOT BE TREATED AS CA PITAL EXPENDITURE. IN OUR OPINION THE LD. CIT(A) HAS RIGHTLY HELD THAT ISPA A WARD EXPENDITURE/EXPENSES ARE ROUTINE EXPENSES OF REVENUE NATURE. THEREFORE, THE SAME MUST BE ALLOWED. IN OUR CONSIDERED OPINION SINCE HE FACTS OF THE CAS E OF BROOK BOND INDIA LTD.(SUPRA) ARE DIFFERENT FROM THE FACTS OF THE PRE SENT CASE, THE RATIO LAID DOWN IN THE SAID CASE IS NOT APPLICABLE IN THE PRESENT C ASE. HENCE, WE ARE OF THE OPINION THAT THERE IS NO INFIRMITY IN THE ORDER OF THE LD. CIT (A). WE THEREFORE, UPHOLD THE FINDINGS OF THE LD. CIT (A) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 9. IN THE RESULT, APPEAL FILED BY THE REVENUE FOR A SSESSMENT YEAR 2010-2011 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COUR T 31 ST JANUARY, 2017. SD/- SD/- (JASON P. BOAZ) (RAM LA L NEGI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED: 31/01/2017 7 ITA NO. 184/MUM/2015 ASSESSMENT YEAR: 2010-11 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. !' , $ !'% , / DR, ITAT, MUMBAI 6. &' ( / GUARD FILE. / BY ORDER, ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI PRAMILA