M/S DVARA TRUST (FORMERLY KNOWN AS IFMR TRUST), CHENNAI V. ACIT NON CORPORATE CIRCLE 13 (1), CHENNAI

ITA 232/CHNY/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 1480 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 31-01-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S BHARATH
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Business expenditure; Source of fund; Revenue expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A BENCH, CHENNAI [ , , BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A.NO.232/CHNY/2019 ( [ [ / ASSESSMENT YEAR: 2010-11) & S.P. NO. 238/CHNY/2019 [IN ITA NO.232/CHNY/2019] M/S. DVARA TRUST (FORMERLY KNOWN AS IFMR TRUST), 10 TH FLOOR, PHASE-I, IIT-MADRAS RESEARCH PARK, KANAGAM VILLAGE, TARAMANI, CHENNAI 600 113. VS THE ACIT, NON CORPORATE CIRCLE 13(1), CHENNAI 34. PAN: AAATI5801P ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE / RESPONDENT BY : SHRI S. BHARATH, CIT /DATE OF HEARING : 26.08.2019 /DATE OF PRONOUNCEMENT : 26.08.2019 / O R D E R PER S.JAYARAMAN, AM: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-14, CHENNAI IN ITA NO.31/CIT(A)-14/2017-18 DATED 25.09.2018 FOR THE ASSESSMENT YEAR 2010-11. 2 ITA NO.232/CHNY/2019 & SP NO.238/CHNY/2019 2. M/S. IFMR TRUST, THE ASSESSEE, IS A PRIVATE TRUST SET UP ON 19.10.2006 IN CHENNAI WITH A MISSION TO PRIMARILY FINANCE THE RURAL SEGMENT AND ALSO TO SUPPORT ENTREPRENEURS, PROMOTE INNOVATIVE BUSINESS OPPORTUNITIES IN RURAL AREAS AND EARN INCOME FROM SUCH BUSINESS VENTURES. WHILE MAKING ASSESSMENT FOR THE ASSESSMENT YEAR 2010-11, THE AO FOUND THAT THE ASSESSEE HAD FOLLOWING SOURCES OF INCOME VIZ., INTEREST ON LOANS, INTEREST ON FIXED DEPOSITS WITH BANK AND OTHER INCOME, TOTALING AT RS.13,24,43,287/-. AGAINST SUCH INCOME, THE ASSESSEE CLAIMED EXPENSES TOWARDS STAFF COST, ADMINISTRATIVE & OTHER COST AND INTEREST, TOTALING AT RS.22,16,82,729/-. THE AO ON DUE EXAMINATION HELD THAT THE EXPENSES INCURRED ARE NOT HAVING ANY RELATION TO THE INCOME OFFERED IN THE P&L ACCOUNT. THUS THE AO DISALLOWED THE ENTIRE EXPENDITURE. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). THE LD.CIT(A) FOLLOWED HIS PREDECESSOR ORDER FOR THE ASSESSMENT YEAR 2009-10 AND CONFIRMED THE DISALLOWANCE MADE BY THE AO. ON APPEAL, THE ITAT REMITTED BACK THE APPEAL TO THE FILE OF THE CIT(A) IN PURSUANCE OF THAT THE CIT(A) PASSED THE ORDER AGAINST WHICH THE ASSESSEE IS ON APPEAL, BEFORE US. 3 ITA NO.232/CHNY/2019 & SP NO.238/CHNY/2019 3. AGAINST THE APPEAL PENDING FOR HEARING, THE ASSESSEE FILED A STAY PETITION IN SP NO.238/CHNY/2019. 4. AT THE TIME OF HEARING, THE LD.AR SUBMITTED THAT THE LD.CIT(A) FOLLOWING THE ORDER OF THE ITAT IN ITA NO.1035/MDS/2013 FOR THE ASSESSMENT YEAR 2009-10 DATED 07.07.2014, CONFIRMED THE DISALLOWANCE MADE BY THE AO AND DIRECTED THE AO TO ALLOW 2% OF THE GROSS INCOME REPORTED BY THE ASSESSEES TRUST AS AN ALLOWABLE EXPENSES. 5. WE HEARD THE RIVAL SUBMISSIONS. THE RELEVANT PORTION OF THE ORDER OF THE LD.CIT(A) IS EXTRACTED AS UNDER: 8.5. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT. THE BASIC SUBMISSION OF THE APPELLANT IS THAT BUSINESS EXPENDITURE INCURRED CANNOT BE DISALLOWED AND RELIED UPON HON'BLE ITAT DECISION IN ITS OWN CASE FOR A.Y. 2012-13. THE SUBMISSIONS OF THE ASSESSEE ARE NOT ACCEPTABLE. BECAUSE THE FACTS IN THE CASE OF THE ASSESSEE FOR THE A. Y. 2010-11 ARE EXACTLY SIMILAR TO THE FACTS IN THE CASE OF THE ASSESSEE FOR THE A.Y. 2009-10. 8.6. THE HON'BLE ITAT, CHENNAI FOR A.Y. 2009-10 VIDE ITA NO.1035/MDS/2013 DATED 07.07.2014 UPHELD THE POSITION OF THE DEPARTMENT THAT THE INCUBATION EXPENSES INCURRED BY THE ASSESSEE ARE PRE-OPERATIVE EXPENSES IN THE NATURE OF PROMOTING NEW UNITS AND AS SUCH NON-DEDUCTIBLE AS REVENUE EXPENDITURE. AS REGARDS THE NATURE OF EXPENSES FOR THE A.Y. 2009-10, THE HON'BLE TRIBUNAL GAVE A CLEAR FINDING 4 ITA NO.232/CHNY/2019 & SP NO.238/CHNY/2019 THAT THESE ARE M THE NATURE OF INCUBATION EXPENSES, CONSULTANCY, LEGAL AND PROFESSIONAL CHARGES, ALL INCURRED FOR CONDUCTING STUDIES AND RESEARCH IN SETTING UP OF INDIVIDUAL PRODUCTIVE UNITS IN DIFFERENT SECTORS. THE HON'BLE ITAT FURTHER OBSERVED THAT THE ASSESSEE IS ENGAGED IN THE PROCESS OF ASSET CREATION FOR SUCH UNITS SO THAT THEY MAY SURVIVE AND FLOURISH THEREON. THE ASSESSEE IS ACTING AS A PROVIDER AND A FACILITATOR. THE ACTUAL PRODUCTION OR SERVICE ACTIVITIES ARE CARRIED OUT BY THOSE MICRO INDIVIDUAL UNITS. THE APPELLATE TRIBUNAL NEGATED THE ARGUMENT OF THE AR OF THE ASSESSEE THAT THE ASSESSEE IS CARRYING ON THE BUSINESS OF INVESTMENT. THE HON'BLE TRIBUNAL AGREED WITH THE VIEW OF THE CIT(APPEALS) IN THE A.Y. 2009-10 AND HELD THAT THE INCOME OF THE ASSESSEE HAS TO BE NECESSARILY ASSESSED UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THE HON'BLE TRIBUNAL ALSO GAVE A CLEAR FINDING THAT THE ASSESSEE MAY BE CHARACTERIZED AS A 'PRIVATE CHARITY' AND IT IS NOT POSSIBLE TO HOLD THAT THE ASSESSEE IS CARRYING ON ANY BUSINESS AND THE INCOME REPORTED BY THE ASSESSEE IS 'INCOME FROM BUSINESS'. 8.7 IN THE A.Y. 2009-10 AS WELL AS IN THE A.Y. 2010-11 THE ASSESSEE IS ONLY OPERATING IN SEGMENT - I RELATING TO INCUBATION OF NEW ENTITIES. THEREFORE, THE DECISION RENDERED BY HON'BLE ITAT FOR THE A.Y. 2009-10 IS APPLICABLE FOR THE A.Y. 2010-11. THE ORDER OF THE HON'BLE ITAT FOR THE A.Y. 2012-13 IS NOT APPLICABLE, BECAUSE IN THAT YEAR THE HON'BLE ITAT HAS HELD THAT THE ASSESSEE IS NOT ANYMORE CARRYING ON THE ACTIVITY OF INCUBATION OF NEW ENTITIES AND IT WAS OPERATING ONLY IN SEGMENT - II RELATING TO PROVIDING SHARED SERVICES AND INFRASTRUCTURE SERVICES. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE ITAT FOR THE A.Y.2009-10, THE DISALLOWANCE OF EXPENSES MADE BY THE A.O. IS CONFIRMED. THE HON'BLE ITAT ALSO DIRECTED FOR A.Y. 2009-10 THAT IT IS NECESSARY FOR EVERY INSTITUTION TO INCUR EXPENDITURE FOR ITS SUSTENANCE AND OPERATION AND THEREFORE THE OVERALL DEDUCTION OF EXPENDITURE @ 2% OF THE GROSS COLLECTION OF INCOME ALLOWED BY CIT(A) IS REASONABLE AND UPHELD THE ORDER OF CIT(A). SINCE THE FACTS ARE SAME, RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE ITAT FOR THE A.Y.2009-10, THE ASSESSING OFFICER IS DIRECTED TO ALLOW 2% OF THE GROSS INCOME REPORTED BY THE ASSESSEE TRUST, AS ALLOWABLE EXPENSES. 5 ITA NO.232/CHNY/2019 & SP NO.238/CHNY/2019 SINCE, THE LD.CIT(A) FOLLOWED THE DECISION OF THIS TRIBUNAL, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) AND HENCE, THE ASSESSEES APPEAL IS DISMISSED. 6. SINCE THE ASSESSEES APPEAL IS DISMISSED, THE STAY PETITION FILED BY THE ASSESSEE IS ALSO DISMISSED. 7. IN THE RESULT, BOTH THE APPEAL AND THE STAY PETITION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH AUGUST, 2019 AT CHENNAI. SD/- SD/- /CHENNAI, /DATED 26 TH AUGUST, 2019 RSR /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( ) /CIT(A) 4. /CIT 5. /DR 6. [ /GF ( ) (GEORGE MATHAN) /JUDICIAL MEMBER ( ) (S. JAYARAMAN) /ACCOUNTANT MEMBER