ING INVESTMENT MANAGEMENT (I) P. LTD, MUMBAI V. ACIT 5(2), MUMBAI

ITA 1975/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8882 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2004-2005
• Appeal Filed On: 11-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: SHITAL BANDEKAR
• Keywords: Depreciation; Opportunity of being heard; Diversion of income; Corroborative evidences; Revenue expenditure
• Section: 143(3); 5(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI T.R. SOOD ,(AM) ITA NO.1975/MUM/2010 ASSESSMENT YEAR : 2004-05 ITA NO.1976/MUM/2010 ASSESSMENT YEAR : 2005-06 ING INVESTMENT MANAGEMENT (INDIA) PRIVATE LIMITED 601/602, WINDSOR, OFF C.S.T. ROAD KALINA, SANTACRUZ (EAST) MUMBAI. ..( APPELLANT ) P.A. NO: (AAACI 4057 N) VS. ASSTT. COMMISSIONER OF INCOME TAX WARD 5(2) AAYAKAR BHAVAN, M.K. MARG MUMBAI-400 020 ..( RESPONDENT ) ITA NO.2264/MUM/2010 ASSESSMENT YEAR : 2004-05 DY. COMMISSIONER OF INCOME TAX RANGE 10(1), ROOM NO.455 AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. ..( APPELLANT ) VS. ING INVESTMENT MANAGEMENT (INDIA) PRIVATE LIMITED 601/602, WINDSOR, OFF C.S.T. ROAD VIDYANAGARI MARG, KALINA, SANTACRUZ (EAST) MUMBAI 400 098. ..( RESPONDENT ) ASSESSEE BY : SHRI DHANESH BAFNA AND MS. SHITAL BANDEKAR DEPARTMENT BY : SHRI PI TAMBAR DAS ITA NO.1975, 76 AND 2264/M/10 A.Y:04-05 AND 05-06 2 O R D E R PER D.K. AGARWAL (JM). THESE CROSS APPEALS BY ASSESSEE AND REVENUE ARE DIRECTED AGAINST THE ORDER DATED 8.1.2010 PASSED BY THE LD. C IT(A) FOR THE ASSESSMENT YEAR 2004-05. THE ASSESSEE HAS ALSO FILED APPEAL FOR THE ASSESSMENT YEAR 2005-06 AGAINST THE SEPARATE ORDER DATED 8.1.2010 PASSED BY THE LD. CIT(A). SINCE FACTS ARE IDENTICAL AND GROUNDS ARE COMMON, ALL THESE APPEALS ARE DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. 2. BRIEFLY STATED FACTS OF THE CASE EXTRACTED FROM ITA NO.1975/MUM/2010 FOR ASSESSMENT YEAR 2004-05 ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE SPONSORSHIP AND MANAGEMENT OF ASSETS OF VARIOUS SCHEMES LAUNCHED BY ING VYSYA MUTUAL FUND. THE RETURN WAS FILED DECLARING A LOSS OF RS.9,60,46,146/-. HOWEVER, TH E ASSESSMENT WAS COMPLETED AT A LOSS OF RS.824,90,355/- VIDE ORDER DA TED 28.12.2006 PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). ON APPEAL THE LD. CIT(A) PARTLY ALLOWED THE APPEAL. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE ASSESSEE AND THE REVENUE BOTH ARE IN APPEAL BEFORE US. ITA NO.1975/M/10 (ASSESSEE'S APPEAL) (ASSESSMENT Y EAR 2004-05):- 4. GROUND NO.1 IS AGAINST THE SUSTENANCE OF DISALLOWANCE OF RS.13,45,013/- U/S. 14A. ITA NO.1975, 76 AND 2264/M/10 A.Y:04-05 AND 05-06 3 5. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDING IT WAS INTERALIA OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF RS.1,34,50,128/-. THE ASSESSEE WAS ASKED TO FURNISH THE DE TAILS WITH RESPECT TO EXPENSES INCURRED ON EARNING DIVIDEND INCOME. IN RESPONSE IT WAS INTERALIA SUBMITTED BY THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED ON EARNING DIVIDEND INCOME FOR THE YEAR UNDE R CONSIDERATION, THEREFORE, NO DISALLOWANCE MAY BE MADE U/S.14A OF THE ACT. THE RELIANCE WAS ALSO PLACED ON THE DECISION IN MARUTI UDYOG LTD. VS. DY.CIT 92 ITD 119 (DEL.), STATE BANK OF INDORE VS. C IT 193 CTR 62(MP) AND MAFATLAL HOLDINGS LTD. VS. ADDL. CIT 85 TT J 821 . HOWEVER, THE ASSESSING OFFICER IN VIEW OF THE DETAILED FINDINGS R ECORDED IN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2002-03 WHILE HOLDING THAT A SIZABLE AMOUNT OF EXPENDITURE IS NECESSARY FOR MANAGING SUCH A HUGE INVESTMENT OF RS.10.31 CRORES, DISALLOWED RS.13,45,013/- BEING 10% OF DIVIDEND INCOME AND ADDED TO THE INCOME OF THE ASSE SSEE. ON APPEAL THE LD. CIT(A) FOLLOWING THE DECISION OF SPECIA L BENCH OF THE TRIBUNAL IN DAGA CAPITAL MANAGEMENT LTD. 26 SOT 603 (MUM.) DIRECTED THE ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESSEE AND MAKE THE DISALLOWANCE AS PER PROVISION OF RULE 8D. 6. AT THE TIME OF HEARING BOTH PARTIES HAVE AGREED T HAT THIS ISSUE STANDS COVERED BY THE JUDGMENT OF HON'BLE JURISDICTIONA L HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD., VS. DCIT, THEREFORE, TH E ISSUE MAY BE DECIDED ACCORDINGLY. 7. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL P ARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND ME RIT IN PLEA OF THE PARTIES THAT THE ISSUE STANDS COVERED BY THE RECENT JUDGM ENT OF THE ITA NO.1975, 76 AND 2264/M/10 A.Y:04-05 AND 05-06 4 HONBLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG . CO. LTD. VS. DCIT IN INCOME TAX APPEAL NO.626 OF 2010 AND WRIT P ETITION NO.758 OF 2010 DATED 12.8.2010 SINCE REPORTED IN (2010) 328 ITR 81 (BOM.) WHEREIN THEIR LORDSHIPS AFTER CONSIDERING THE DECISION O F THE TRIBUNAL IN DAGA CAPITAL MANAGEMENT PVT. LTD. (117 ITD 169 ( MUM)(SB), WHILE HOLDING THAT THE PROVISIONS OF SUB SECTIONS (2) AND (3) OF SEC.14A OF THE ACT ARE CONSTITUTIONALLY VALID HAVE HELD VIDE PLA CITUM 88(VI) APPEARING AT PAGE 138 OF THE 328 ITR AS UNDER : (VI) EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFI CER HAS TO ENFORCE THE PROVISIONS OF SUB SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DU TY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFI CER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURN ISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD; RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT WE SET ASIDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND SEN D BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICER WHO SHALL DECI DE THE SAME AFRESH IN THE LIGHT OF THE DIRECTIONS OF THE HON'BLE JU RISDICTIONAL HIGH COURT IN THE ABOVE CITED CASE AFTER PROVIDING REASONABL E OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 8. AS REGARDS THE PLEA OF THE LD. COUNSEL FOR THE ASSESSEE FOR THE ASSESSEE THAT THE DISALLOWANCE U/S.14A SHOULD NOT EXCEED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN VIEW OF THE DECISION OF THE TRIBUNAL IN THE CASE OF ACIT VS. INDEXPORT LTD. 20 09-TIOL-136- ITAT-MUM AND DCIT VS. CITIZEN HOTELS PVT. LTD. 2009-T IOL-398-ITAT- ITA NO.1975, 76 AND 2264/M/10 A.Y:04-05 AND 05-06 5 MUM WE DO NOT FIND ANY MERIT AS BOTH THE CASES ARE PRIO R TO THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT(SUPRA). T HE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSES. 9. GROUND NO.2 IS AGAINST THE SUSTENANCE OF DISALLOWANCE OF ALLOCATED REGIONAL OVERHEADS RS.23,39,857/-. 10. IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSE E HAS DEBITED EXPENSES OF RS.32,64,593/- AS ALLOCATED REGIONAL OVERHEADS. IN THE AUDIT REPORT IT WAS STATED THAT THE ASSESSEE HAD PROVIDED RS.23,39,857/- TOWARDS REIMBURSEMENT OF ALLOCATED R EGIONAL OVERHEADS TO ITS HEAD OFFICE/REGIONAL OFFICE. HOWEVER, IN THE ABSENCE OF ANY SUPPORTING EVIDENCE AND CONSIDERING THE FACT THAT THE ASSESSEE HAD MAD E PROVISION OF EXPENSES, THE ASSESSING OFFICER DISALLOWED RS.2 3,39,857/- AND ADDED TO THE INCOME OF THE ASSESSEE. ON APPEAL, THE LD. CIT(A) WHILE AGREEING WITH THE VIEWS OF THE ASSESSING OFFICER, CO NFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. ON THE CLAIM OF THE ASSESSEE THAT THESE EXPENSE ARE WRITTEN BACK IN THE ASSESSMEN T YEAR 2007-08 AND THE SAME SHOULD NOT BE TAXED IN ASSESSMENT Y EAR 2007- 08, HE OBSERVED THAT THE ASSESSEE IS FREE TO RAISE THIS ISSUE IN THE ASSESSMENT YEAR 2007-08. 11. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE VERY FAIRLY SUBMITS THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY THE ORDER OF THE TRIBUNAL IN THE ASSESSE E'S OWN CASE IN DCIT VS. ING INVESTMENT MANAGEMENT (INDIA) PRIVATE LI MITED AND VICE VERSA IN ITA NO.1239 & 5203 AND 1435 & 5346/MUM/2005 FOR ASSESSMENT YEARS 2001-02 AND 2002-03 ORDER DATED 18.7.20 08. HE ITA NO.1975, 76 AND 2264/M/10 A.Y:04-05 AND 05-06 6 ALSO PLACED ON RECORD THE COPY OF THE ORDER OF THE TRIB UNAL APPEARING AT PAGE 1-14 OF THE ASSESSEE'S PAPER BOOK. 12. ON THE OTHER HAND THE LD. DR ALSO RELIED ON THE ORDER OF THE ASSESSING OFFICER, LD. CIT(A) AND THE TRIBUNAL SUPRA. 13. HAVING CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVA L PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUTE THA T THE TRIBUNAL IN ASSESSEE'S OWN CASE HELD IN PARA-27 OF THE ORDER DATED 18 .7.2008 SUPRA THAT A WRONG DEDUCTION CANNOT BE ALLOWED IN ONE YEAR SIMPLY BECAUSE THE EQUAL AMOUNT HAS BEEN OFFERED FOR TAXATION IN THE S UBSEQUENT YEAR. THE CORRECT COURSE OF ACTION IS TO DISALLOW THE AMOUNT, WHERE I T IS NOT ALLOWABLE AND DO NOT CHARGE TAX IT IN THE YEAR IN WHICH IT HAS BEEN INAD VERTENTLY OFFERED FOR TAXATION. UNDER THESE CIRCUMSTANCES, WE HOLD THAT THE ADDITIO N HAS BEEN RIGHTLY CONFIRMED IN THIS YEAR. HOWEVER, THE ASSESSEE IS AT LIBERTY TO T AKE REMEDIAL ACTION IN THE ASSESSMENT YEAR 2007-08 IF THE SAME AMOUNT WAS OFFE RED FOR TAXATION THERE. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGHT ON RE CORD WE, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL SUPRA , CONFIRM THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THE YEAR UND ER CONSIDERATION. HOWEVER, THE ASSESSEE IS AT LIBERTY TO TAKE REMEDIAL ACTION IN THE ASSESSMENT YEAR 2007-08 IF THE SAME AMOUNT WAS OFFERED FOR TAXATION THERE. THE GROUND TAKEN BY TH E ASSESSEE IS THEREFORE, REJECTED. 14. GROUND NO.3 IS AGAINST THE SUSTENANCE OF DISALLOWAN CE OF SOFTWARE EXPENSES RS.9,46,032/-. 15. UNDER THE HEAD SOFTWARE EXPENSES THE ASSESSING OFFICER FOUND THAT THE FOLLOWING EXPENSES ARE INCURRED BY THE ASSESSEE O N SOFTWARE:- ITA NO.1975, 76 AND 2264/M/10 A.Y:04-05 AND 05-06 7 S.NO. PARTICULARS AMOUNT IN RUPEES 1. ORACLE 9I AND IBM MQ SERIES SOFTWARE 6,46,032 2. ONSITE SOFTWARE DEVELOPMENT WORK 3,00,000 TOTAL 9,46,032 THE ASSESSING OFFICER AFTER CONSIDERING THE ASSESSEE'S EXPLANA TION THAT THE INFORMATION TECHNOLOGY EXPENSES ARE ALLOWABLE AS R EVENUE EXPENDITURE U/S.37(1) OF THE ACT HELD THAT THESE SOFTW ARE EXPENSES ARE CAPITAL IN NATURE AND ACCORDINGLY HE DISALLOWED THE CLAI M OF THE ASSESSEE. 16. AT THE TIME OF HEARING BOTH PARTIES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN AMWAY INDIA ENTERPRISES VS. DY. CIT (2008 ) 111 ITD 112 (DEL.) (SB), THEREFORE THE ISSUE MAY BE SET ASIDE TO TH E FILE OF THE ASSESSING OFFICER. 17. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND MERIT IN THE PLEA OF THE PARTIES THAT THE ISSUE STANDS COVERED BY THE DECISIO N OF THE SPECIAL BENCH OF THE TRIBUNAL IN AMWAY INDIA ENTERPRI SES VS. DY. CIT (2008) 111 ITD 112 (DEL.) (SB) WHEREIN IT HAS BEEN HELD VIDE PARA-59 APPEARING AT PAGE 170 OF 111 ITD AS UNDER : 59. OUR CONCLUSIONS ON THE ISSUE UNDER CONSIDERATI ON THUS CAN BE SUMMARIZED AS UNDER :- (I) WHEN THE ASSESSEE ACQUIRES A COMPUTER SOFTWARE OR FOR THAT MATTER LICENCE TO USE SUCH SOFTWARE, HE ACQUIRES A TANGIBLE ASSET AND BECOMES OWNER THEREOF AS HELD ABOVE RELYING ON THE DECISION ITA NO.1975, 76 AND 2264/M/10 A.Y:04-05 AND 05-06 8 OF HONBLE SUPREME COURT IN THE CASE OF TCS (SUPRA) . (II) HAVING REGARD TO THE FACT THAT SOFTWARE BECOMES OBSOLETE WITH TECHNOLOGICAL INNOVATION AND ADVANCEMENT WITHIN A SHORT SPAN OF TIME, IT CAN BE SAID THAT WHERE THE LIFE OF THE COMPUTER SOFTWARE I S SHORTER (SAY LESS THAN 2 YEARS), IT MAY BE TREATED AS REVENUE EXPENDITURE. ANY SOFTWARE HAVING ITS UTILITY TO THE ASSESSEE FOR A PERIOD BEYOND TWO YEARS CAN BE CONSIDERED AS ACCRUAL OF BENEFIT OF ENDURING NATURE. HOWEVER, THAT BY ITSELF WILL NOT MAKE THE EXPENDITURE INCURRED ON SOFTWARE AS CAPITAL IN NATURE AND THE FUNCTIONAL TEST AS DISCUSSED ABOVE ALSO NEEDS TO BE SATISFIED. (III) ONCE THE TESTS OF OWNERSHIP AND ENDURING BENEFIT ARE SATISFIED, THE QUESTION WHETHER EXPENDITURE INCURRED ON COMPUTER SOFTWARE IS CAPITAL OR REVENUE HAS TO BE SEEN FROM THE POINT OF VIEW OF ITS UTILIT Y TO A BUSINESSMAN AND HOW IMPORTANT AN ECONOMIC OR FUNCTIONAL ROLE IT PLAYS IN HIS BUSINESS. IN OT HER WORDS, THE FUNCTIONAL TEST BECOMES MORE IMPORTANT AND RELEVANT BECAUSE OF THE PECULIAR NATURE OF THE COMPUTER SOFTWARE AND ITS POSSIBLE USE IN DIFFERENT AREAS OF BUSINESS TOUCHING EITHER CAPITAL OR REVENU E FIELD OR ITS UTILITY TO A BUSINESSMAN WHICH MAY TOUCH EITHER CAPITAL OR REVENUE FIELD. IN PARA-60 IT HAS BEEN OBSERVED THAT AFTER HAVING L AID DOWN THE CRITERIA FOR DETERMINING THE NATURE OF EXPENDITURE ON ACQUISITION OF SOFTWARE, WHETHER CAP ITAL OR REVENUE THE TRIBUNAL RESTORED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE FACTS OF THE CASE IN THE LIGHT OF THE CRITERIA LAID DOWN IN PARA-59 OF THE O RDER SUPRA, AND IF THE ASSESSING OFFICER COMES TO THE CONCLUSION THAT THE EXPENDITURE IS CAPITAL EXPENDIT URE THEN HE SHOULD ALLOW DUE DEPRECIATION. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL WE SET ASIDE THE ORDER PASSED BY THE REVENUE A UTHORITIES ON THIS ACCOUNT AND SEND BACK THE MATTER TO FILE OF THE ASSES SING OFFICER WHO SHALL DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE DI RECTIONS OF THE TRIBUNAL (SUPRA), AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, PARTLY ALLOWED FOR STATISTICAL PUR POSES. ITA NO.1975, 76 AND 2264/M/10 A.Y:04-05 AND 05-06 9 18. GROUND NO.4 IS AGAINST THE SUSTENANCE OF DISALLOWANCE OF ADVERTISEMENT EXPENSE RS.10,49,722/- . 19. ON PERUSAL OF ADMINISTRATIVE AND OTHER EXPENSES SCHED ULE, IT WAS INTERALIA OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY HAS DEBITED RS.1,35,35,020/- ON ACCOUNT OF ADVERTISEMENT EXPENSES. THE ASSESSEE WAS ASKED TO PRODUCE BILLS FOR VERIFICATION. T HE ASSESSEE WHILE SUBMITTING DETAILS OF ADVERTISEMENT EXPENSES WITH SUPPORTING DOCUMENTS ON A SAMPLE BASIS INTERALIA SUBMITTED THAT THE SAID EXPENSES ARE ALLOWABLE U/S.37(1) OF THE ACT AND ALSO RE LIED ON CERTAIN DECISIONS. HOWEVER, THE ASSESSING OFFICER HELD THAT OUT OF EXPENSES CLAIMED RS.1,35,35,020/-, EXPENSES OF RS.10,49,722/- (2, 47,322/- VOUCHER(VR.) DATED 25.7.2005 + 1,51,200/- VR.DT. 14. 7.2003 + 5,00,000/- VR. DATED 3.3.2004) ARE NOT ALLOWABLE AS THE SAME HAVE NOT BEEN INCURRED FOR BUSINESS OF THE ASSESSEE COMPANY. ON APPEAL, THE LD. CIT(A) IN THE ABSENCE OF ANY BASIS OF SHARING AND THE REASONS THAT THESE EXPENSES HAVE BEEN INCURRED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE, CONFIRMED THE DISALL OWANCE MADE BY THE ASSESSING OFFICER . 20. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE SUBMITS THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEE'S OWN CASE IN ACIT VS. M/S. ING INVESTME NT MANAGEMENT (INDIA) PVT. LTD. AND VICE VERSA IN ITA NO .1571/MUM/08 AND ITA NO.1828/MUM/2008 FOR ASSESSMENT YEAR 2003-04 OR DER DATED 12.8.2009 WHEREIN THE TRIBUNAL RESTORED BACK THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO ALLOW THE EXPENSES AFTER VERIFI CATION. HE ALSO PLACED ON RECORD THE COPY OF THE SAID ORDER OF THE TRIB UNAL APPEARING AT PAGE 16 TO 19 OF ASSESSEE'S PAPER BOOK. HE FURTHER SUB MITS THAT ITA NO.1975, 76 AND 2264/M/10 A.Y:04-05 AND 05-06 10 THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2003-04 VIDE ORDER DATED 29.12.2010 PASSED UNDER SECTION 143(3) R.W.S. 254 OF THE ACT HAS ALLOWED THE ADVERTISEMENT EXPENSES IN FULL, VIDE COP Y OF ORDER APPEARING AT PAGE 49-51 OF THE ASSESSEE'S PAPER BOOK. 21. ON THE OTHER HAND THE LD. DR SUPPORTS THE ORDER O F THE ASSESSING OFFICER AND THE LD. CIT(A). HOWEVER, HE SUBMITS THAT HE HAS NO OBJECTION IF THE ISSUE IS SET ASIDE TO THE FILE OF THE ASSE SSING OFFICER. 22. HAVING CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVA L PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND MERIT IN THE PLEA OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2003-04 WHILE UPHOLDING THE ORDER OF THE LD. CIT(A) WHO HAS RESTORED BACK THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO ALLOW THE SAME AFTER VERIFICATION OF THE QUANTUM AND NATURE OF THESE EXPENSES, CONFIRMED THE ORDER OF TH E LD. CIT(A). IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGHT ON RE CORD BY THE REVENUE WE, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL SUPRA, SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WHO SH ALL DECIDE THE SAME AFRESH IN THE LIGHT OF THE DIRECTION OF THE TRIBU NAL SUPRA, AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTUNIT Y OF BEING HEARD TO THE ASSESSEE. THE GROUND TAKEN BY THE ASSESSEE IS, THER EFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.2264/MUM /2010 (REVENUES APPEAL) (ASSESSMENT YEAR 2004-05) :- 23. ALL THE GROUNDS TAKEN BY THE REVENUE ARE AGAINST DELETION OF DISALLOWANCE OF RS.38,56,963/- OUT OF RENT PAID BY TH E ASSESSEE TOWARDS SHARING OF GARDEN SPACE. ITA NO.1975, 76 AND 2264/M/10 A.Y:04-05 AND 05-06 11 24. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT IT WAS O BSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAS PAID EXPENSES OF RS .95,01,986/- IN RESPECT OF OFFICE AND GARDEN PREMISES SITUATED AT 17, LINCOLN LODGE, ALT AMOUNT ROAD, MUMBAI. THE BREAK UP OF THESE EXPENSES ARE AS UNDER: NATURE OF EXPENSES AMOUNT(RS.) REPAIRS & MAINTENANCE(FOR 6 YEARS) 1,029,741.00 COMPENSATION FOR NOT CONTRIBUTING PROPORTIONATE SECURITY DEPOSIT OF RS.4.67 CRORES 5,418,498.38 OTHERS 3,053,747.16 TOTAL 9,501,986.54 THIS PROPERTY BELONGS TO M/S. KRISHNA & CO. AND HAS BEEN TAKEN ON RENT BY ING BANK. THE AREA OF THE BUILDING IS 6,000 SQ.FT. AND AREA OF THE GARDEN IS 8,200 SQ.FT. THE ASSESSEE CLAIMED TO HAVE U SED 2/3 RD OF THE PROPERTY. ON BEING ASKED TO EXPLAIN THE SAME, IT WAS SUBMITTED BY THE ASSESSEE THAT GARDEN SPACE WAS HIRED BY THE ASSESSEE AS PART OF THE ENTIRE OFFICE BLOCK AND IT IS SHARED WITH ING BA NK. THE COMPANY USED THE GARDEN SPACE FOR HOLDING OF MEETINGS SUCH AS MEE TING OF BOARD OF DIRECTORS, CLIENTS MEETINGS AND CERTAIN INTERNAL SEMINARS. THE ASSESSEE FURTHER SUBMITTED THAT FACILITIES ARE USED FOR P URPOSE OF BUSINESS OF THE ASSESSEE COMPANY. THERE IS NO PERSONAL USAGE AND, THEREFORE, NO DISALLOWANCE CAN BE MADE. THE ASSESSING OFF ICER HOWEVER RELIED ON THE DECISION OF LD. CIT(A) DATED 1 3.12.2004, IN WHICH LD. CIT(A) HELD THAT PAYMENT OF RENT TOWARDS GARDEN SPACE IS CLEARLY A DIVERSION OF INCOME TO SISTER CONCERN. ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE HAS NOT USED THE GARDEN PREMISES FOR THE PURPOSE OF BUSINESS AND THE EXPLANATION FILED BY TH E ASSESSEE IS JUST AN ATTEMPT ON THE PART OF THE ASSESSEE TO JUSTIFY IT S CLAIM OF ITA NO.1975, 76 AND 2264/M/10 A.Y:04-05 AND 05-06 12 PAYMENT TOWARDS GARDEN SPACE. THEREFORE, THE ASSESSING OF FICER DISALLOWED THE CLAIM OF THE ASSESSEE FOR PROPORTIONATE EX PENSES OF RENT ON MAINTENANCE OF GARDEN RS .38,56,963/- AND ADDED TO THE INCOME OF THE ASSESSEE . 25. ON APPEAL THE LD. CIT(A) WHILE OBSERVING THAT TH ERE IS NO CHANGE OF FACTS IN THIS YEAR FOLLOWED THE ORDER OF THE TRIBUN AL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEARS 2001-02 AND 2002-03, DEL ETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER . 26. AT THE TIME OF HEARING BOTH PARTIES HAVE AGREED THAT THIS ISSUE IS COVERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMEN T YEARS 2001-02 & 2002-03 AND 2003-04 THEREFORE, THE ISSUE MA Y BE DECIDED ACCORDINGLY. HE ALSO PLACED ON RECORD THE COPY OF THE TR IBUNAL ORDERS APPEARING AT PAGE 1-19 OF THE ASSESSEE'S PAPER BOOK. 27. HAVING CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVA L PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND MERIT IN PLEA OF THE PARTIES THAT THE ISSUE IS COVERED IN FAVOUR OF THE A SSESSEE AND AGAINST THE REVENUE BY THE ORDER OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEARS 2001-02 AD 2002-03 SUPRA WHE REIN THE TRIBUNAL WHILE FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN JCIT VS. ITC LTD. (2008) 115 TTJ (KOL.) (SB) 45 HAS HELD VIDE PARA-11 OF ITS ORDER DATED 18.7.2008 AS UNDER : - 11. THE ASSESSING OFFICER HAS DISALLOWED THE RENT OF GARDEN SPACE SIMPLY ON THE GROUND THAT THE NATURE O F ASSESSEES BUSINESS DID NOT NECESSITATE ANY GARDEN SPACE. WHAT AMOUNT OF EXPENDITURE IS TO BE INCURRED BY THE ASSESSEE IN CARRYING ON ITS BUSINESS PURELY FALLS I N HIS DOMAIN AND THE ASSESSING OFFICER CANNOT INTERFERE S O LONG AS THE EXPENDITURE IS FOR BUSINESS AND HAS BEEN GEN UINELY INCURRED. FOR THE REASON THAT THE ASSESSING OFFICE R HAS NOT DENIED THAT THE ASSESSEE WAS IN FACT USING THE GARDEN ITA NO.1975, 76 AND 2264/M/10 A.Y:04-05 AND 05-06 13 SPACE FOR WHICH IT HAD PAD RENT IN INCLUSIVE MANNER , THEN THE ADDITION IS NOT CALLED FOR IN LIGHT OF THE AFOR E-NOTED SPECIAL BENCH ORDER IN ITC LTD. (SUPRA). WE THERE FORE, HOLD THAT THE SUSTAINANCE OF DISALLOWANCE OF RS.7,1 9,954 TOWARDS RENT FOR GARDEN SPACE IS ERRONEOUS. ACCORD INGLY, THIS ADDITION IS ORDERED TO BE DELETED. NOW WE CO ME TO THE SECOND COMPONENT, BEING THE RENT FOR OFFICE SPA CE. THE ASSESSING OFFICER HIMSELF CONSIDERED RENT OF RS .100 PER SP.FT. AS REASONABLE. HOWEVER, WHILE CALCULATIN G THE PER SQUARE FEET RENT, HE DIVIDED THE MONTHLY RENT W ITH 4000 SQ.FT. INSTEAD OF 6733 SQ.FT., WHICH WAS THE T OTAL AREA OCCUPIED BY THE ASSESSEE INCLUSIVE OF GARDEN S PACE. IF THE RENT ATTRIBUTABLE TO GARDEN SPACE IS EXCLUDE D, THE RESULTANT RENT COMES TO RS. 87.81 PER SQ.FT., WHICH IS BELOW RS. 100 PER SQ.FT. CONSIDERED AS REASONABLE BY THE ASSESSING OFFICER. WE, THEREFORE, UPHOLD THE IMPU GNED ORDER TO THIS EXTENT. RESULTANTLY, THE GROUND RAI SED BY THE ASSESSEE IS ACCEPTED AND THAT OF THE REVENUE IS NOT ALLOWED. THE ABOVE ORDER HAS BEEN FOLLOWED BY THE TRIBUNAL IN THE ASSESSMENT YEARS 2002-03 AND 2003-04. 28. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGH T ON RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL DECLINE TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A) AND ACCORDINGLY THE GROUNDS TAKEN BY THE REVENUE ARE R EJECTED. ITA NO.1976/MUM/2010 (ASSESSEE'S APPEAL) (ASSESSMENT YEAR 2005-06) :- 29. GROUND NO.1 IS AGAINST SUSTENANCE OF DISALLOWANCE OF REGIONAL OVERHEAD EXPENSES RS.24,17,890/-, GROUND NO.2 IS AGAINS T THE SUSTENANCE OF DISALLOWANCE OF SOFTWARE EXPENSES RS.21,07,024 /- AND GROUND NO.3 IS AGAINST THE SUSTENANCE OF DISALLOWANCE OF ADVERTISEMENT OF RS.5.00 LACS. 30. AT THE TIME OF HEARING BOTH PARTIES HAVE AGREED THAT FACTS OF THE ABOVE ISSUE ARE SIMILAR AS IN ASSESSEE'S APPEAL FOR ASSESSMENT Y EAR ITA NO.1975, 76 AND 2264/M/10 A.Y:04-05 AND 05-06 14 2004-05, THEREFORE, THE PLEA TAKEN BY THEM IN THE SA ID APPEAL MAY BE CONSIDERED WHILE DECIDING THE APPEAL FOR 2005-06. 31. HAVING CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVA L PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD AND KEE PING IN VIEW THAT THERE IS NO DISPUTE THAT THE FACTS OF THE ABOVE APPEAL ARE SIMILAR TO THE FACTS OF THE APPEAL FOR THE ASSESSMENT YEAR 2004-05, WE F OR THE SAME REASONS AS MENTIONED IN PARA 13 OF THIS ORDER, CONFIRM THE DISALLOWANCE OF REGIONAL OVERHEAD EXPENSES RS.24,17,890/ -. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, REJECTED. 32. AS REGARDS THE DISALLOWANCE OF SOFTWARE EXPENSES RS.21,07,024/- AND DISALLOWANCE OF ADVERTISEMENT OF RS. 5.00 LACS WE FOR THE SAME REASONS AS MENTIONED IN PARAS 17 AND 22 OF THIS ORDER, SET ASIDE BOTH THE ISSUES TO THE FILE OF THE ASSESSING OFFI CER WHO SHALL DECIDE THE SAME AFRESH IN THE LIGHT OF OUR AFORESAID DI RECTIONS AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTUNIT Y OF BEING HEARD TO THE ASSESSEE. THE GROUNDS TAKEN BY THE ASSESSEE ARE, TH EREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSES. 33. IN THE RESULT, ASSESSEE'S APPEALS FOR ASSESSMENT YEARS 2004 -05 AND 2005-06 ARE PARTLY ALLOWED FOR STATISTICAL PURPOS ES AND THE REVENUES APPEAL FOR ASSESSMENT YEAR 2004-05 STANDS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 21.1.2011. SD/- SD/- (T.R. SOOD) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 21.1.2011. JV. ITA NO.1975, 76 AND 2264/M/10 A.Y:04-05 AND 05-06 15 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.