MAHARASHTRA URBAN INFRASTRUCTURE FUND (HUF), MUMBAI V. ADDL CIT RG 19(3), MUMBAI

ITA 2010/MUM/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2184 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 24-03-2014
• Court: TRIBUNAL
• Department Lawyers: VIVEK BATRA

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B , BENCH MUMBAI BEFORE SHRI R.C.SHARMA , A M & SHRI SANDEEP GOSAIN , J M ./ ITA NO . 2010 / MUM/20 1 4 ( / ASSESSMENT YEAR : 20 10 - 201 1 ) MAH ARASHTRA URBAN INFRASTRUCTURE FUND (MUIF) , CR - 2, BLDG., GROUND FLOOR, BARRISTER RAJNI PATEL ROAD, NARIMAN POINT, MUMBAI - 400021 VS. ADCIT, RANGE - 19(3), MUMBAI ./ ./ PAN/GIR NO. : A A BTM 8094 M ( / APPELLANT ) .. ( / RE SPONDENT ) /ASSESSEE BY : SHRI J.P.BAIRAGRA /REVENUE BY : SHRI VIVEK BATRA / DATE OF HEARING : 1 4 / 09 / 2015 / DATE OF PRONOUNCEMENT 09/12 /2015 / O R D E R PER R.C .SHARMA (A.M) : TH IS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT (A) , MUMBAI , DATED 9 - 1 - 2014 , FOR THE ASSESSMENT YEAR 20 10 - 2011 . 2. IN THIS APPEAL, THE ASSESSEE IS AGGRIEVED FOR DISALLOWANCE OF VARIOUS EXPENSES. 3. RIVAL CONTENTIONS HAVE BEE N HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE TRUST HAS BEEN SET UP THE BY THE GOVT. OF MAHARASHTRA AND MUMBAI METROPOLITAN REGION DEVELOPMENT AUTHORITY (MMRDA) VIDE INDENTURE OF TRUST DTD. 21.05.2004 AND THE OPERATION OF THE ASSESSEE TR UST, I.E. MUIF, IN SHORT IS BEING SUPERVISED BY MAHARASHTRA URBAN INFRASTRUCTURE FUND TRUSTEE CO. LTD. (MUIFTCL). THE OBJECTIVES OF THE TRUST ARE BEING EXECUTED/ROUTED THROUGH THE MAHARASHTRA URBAN ITA NO. 2010/14 2 INFRASTRUCTURE FUND DEVELOPMENT COMPANY LIMITED (MUIDCL). THE ENVISAGED FUNCTIONS OF THE ASSESSEE TRUST ARE PROJECT DEVELOPMENT, CAPACITY BUILDING, FACILITATING FINANCE AND PARTIAL DIRECT LENDING. IN ORDER TO MANAGE THE TRUST FUND, THE TRUSTEE OF THE FUND HAS ENTERED INTO A FUND MANAGEMENT AGREEMENT WITH MAHARASH TRA URBAN INFRASTRUCTURE DEVELOPMENT CO. LTD. (MUIDCL) ON JUNE 2ND, 2010 EFFECTIVE FROM 21.05.2004. THE SAID AGREEMENT EMPOWERS THE FUND MANAGER FOR MANAGEMENT AND ADMINISTRATION OF THE TRUST, INCLUDING MANAGING INVESTMENTS OF THE TRUST, EVOLVING, FORMULAT ING AND ADOPTING FROM TIME TO TIME SUCH POLICIES AND PROCEDURES, AS MAY BE CONDUCIVE FOR THE EFFECTIVE ADMINISTRATION AND MANAGEMENT OF THE TRUST, AND, AS PER THE TERMS OF THE AGREEMENT, THE ASSESSEE FUND IS LIABLE TO PAY MANAGEMENT FEES AS PER CLAUSE 14 O F THE FUND MANAGEMENT AGREEMENT (FMA) TO THE FUND MANAGER, I.E. MUIDCL. THE AO HAS GIVEN THE FINDING IN PARA 4.7 OF HIS ORDER, AND DISALLOWED THE ABOVE EXPENSES. THE AO HAS DISALLOWED THE ABOVE EXPENSES ON THE GROUND THAT SINCE NO BUSINESS ACTIVITY HAS TAK EN PLACE DURING THE YEAR, THEREFORE, ISSUE OF PAYMENT OF EXPENSES DOES NOT ARISE AS THE SAID EXPENSES HAVE NOT ACCRUED TO THE ASSESSEE. THE AO HAS ALSO STATED THAT SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE ABOVE EXPENSES WERE NOT ACCRUED AND HENCE THE SAME CANNOT BE ALLOWED. A S PER THE AGREEMENT BETWEEN THE ASSESSEE AND MUIDCL, THESE CHARGES ARE PAYABLE TO THEM W. E.F 21 - 5 - 2004 FOR PROVIDING TREASURY MANAGEMENT SERVICES TO THE ASSESSEE . THE DEDUCTIONS OF ALL THESE EXPENSES CLAIMED BY THE ASSESSEE ARE DECLARED BY THE MUIDCL IN ITA NO. 2010/14 3 THEIR PROFIT & LOSS ACCOUNT. R EGARDING THE OBJECTION OF THE AO THAT THESE EXPENSES HAVE NOT ACCRUED DURING THE YEAR, EVEN THOUGH THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, WE FOUND THAT AS PER THE AGREEMENT, THESE AMOUNTS ARE CLEARLY PAYABLE TO MUIDCL W.E.F 21 - 5 - 2004, BUT SINCE THE SAME WAS NOT PAID OR PROVIDED FOR IN EARLIER YEARS AS THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING, HOWEVER, SINCE IN THIS ASST YEAR, THE ASSESSEE IS FOLLOWIN G MERCANTILE SYSTEM OF ACCOUNT, THEREFORE, THE EXPENSES PAYABLE AS PER THE AGREEMENT EVEN FOR EARLIER ASST. YEARS 2005 - 06 TO 2009 - 2010 AND FOR THE ASST. YEAR 2010 - 11 ARE PROVIDED IN THE BOOKS OF ACCOUNTS. THE YEAR - WISE CALCULATION OF THESE CHARGES PAYABLE WAS ALSO PROVIDED TO THE AO. DURING THE YEAR, THE ASSESSEE HAS CLAIMED VARIOUS CHARGES PAYABLE TO MUIDCL W. E.F. 21 - 5 - 2004 AND THEREFORE, CLAIMED THESE EXPENSES RELATING TO ASSESSMENT YEAR 2005 - 06 TO 2009 - 10 TOGETHER WITH EXPENSES FOR THE YEAR I. E. ASST. YEAR 2010 - 11 . THE ASSESSEE FUND FOLLOWED CASH SYSTEM OF ACCOUNTING TILL A. Y 2009 - 10. DURING THE YEAR THE ASSESSEE HAS CHANGED THE SYSTEM OF ACCOUNTING TO MERCANTILE AND HENCE THE PROVISION FOR THE EXPENSES PAYABLE IS MADE DURING THE YEAR. EVEN THOUGH TH E PART OF EXPENSES ARE PAYABLE FOR EARLIER ASSESSMENT YEARS I. E. 2004 - 05 TO 2009 - 10, SINCE IN THE EARLIER YEARS NO PAYMENTS WERE MADE THESE EXPENSES WERE NOT CLAIMED. FURTHER AS PER GOVERNMENT OF MAHARASHTRA RESOLUTION DT 19 - 07 - 2002 IT IS SPECIFICALLY PRO VIDED THAT AN ASSET MANAGEMENT COMPANY, NAMELY, MAHARASHTRA URBAN INFRASTRUCTURE DEVELOPMENT COMPANY LIMITED (MUIDCL) WILL BE FORMED FOR MANAGING THE FUND OF THE A SSESSEE . FURTHER ITA NO. 2010/14 4 IN THE TRUST DEED DT 21 - 05 - 2004, IT IS CLEARLY MENTIONED IN PARA 1.1.10 THAT FUND OF THE ASSESSEE WILL BE MANAGED BY MUIDC L. THE FUND MANAGEMENT AGREEMENT (FMA) WAS ENTERED ON 02 - 6 - 2010 WHICH IS EFFECTIVE FROM 21 - 5 - 2004 AND IT CONTAINS ALL THE TERMS AS PER THE TRUST DEED OF THE ASSESSEE AND THE GOVERNMENT GR. R EGARDING THE OBJECT ION OF THE A O THAT THESE EXPENSES HAVE NOT ACCRUED DURING THE YEAR, EVEN THOUGH THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, WE FOUND THAT AS PER THE AGREEMENT, THESE AMOUNTS ARE CLEARLY PAYABLE TO MUIDCL W. E.F 21 - 5 - 2004, BUT SINCE THE SAME W ERE NOT PAID OR PROVIDED FOR IN EARLIER YEARS AS THE ASSESSEE WAS FOLLOWING CAS H SYSTEM OF ACCOUNTING, HOWEVER, SINCE IN THIS ASS T YEAR, THE ASSESSEE IS FOLLOWIN G MERCANTILE SYSTEM OF ACCOUNT, THEREFORE, THE EXPENSES PAYABLE AS PER THE AGREEMENT EVEN FOR E ARLIER ASST. YEARS 2005 - 06 TO 2009 - 10 AND FOR THE ASST. YEAR 2010 - 11 ARE PROVIDED IN THE BOOKS OF ACCOUNTS. THE YEAR - WISE CALCULATION OF THESE CHARGES PAYABLE WAS ALSO PROVIDED TO THE A O . FURTHER, ALL THESE EXPENSES AR E SHOWN IN THE PROFIT & LOSS A/C . BY M UIDCL WHICH IS CLEAR FROM THE AUDITED STATEMENT OF ACCOUNTS FOR THE YEAR ENDED 31S1 MARCH, 2010. HENCE, THE A SSESSEE IS ENTITLED TO DEDUCTION OF THESE EXPENSES AFTER DUE VERIFICATION BY THE AO . 4. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY MERIT IN THE ACTION OF THE LOWER AUTHORITIES FOR DISALLOWING THE EXPENSES IGNORING THE CHANGED METHOD OF ACCOUNTING DURING THE YEAR UNDER CONSIDERATION . IN THE INTEREST OF JUSTICE AND FAIR - PLAY, WE RESTORE THE MATTER BACK TO THE FILE OF AO FOR CONSIDERING BONAF IDE IN THE CHANGE IN THE METHOD OF ACCOUNTING ITA NO. 2010/14 5 DURING THE YEAR UNDER CONSIDERATION AND FOR DECIDING AFRESH THE ALLOWABILITY OF ABOVE EXPENSES, IN TERMS OF MERCANTILE SYSTEM OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. WE DIRECT ACCORDINGLY. 5 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . O RDER PRONOUNCED IN THE OPEN COURT ON THIS 09/12 / 201 5 . SD/ - SD/ - ( SANDEEP GOSAIN ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 09/12 /201 5 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / T HE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//