THE DY CIT CIR 4(1), V. M/S. DSP MEMILL LYNCH LTD.,

ITA 2727/MUM/2004

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 9688 (ITAT-MUMBAI)
• Duration Of Justice: 15 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-01-2017
• Assessment Year: 1995-1996
• Appeal Filed On: 16-04-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NITESH JOSHI LD
• Assessee Lawyers: KAVITA P KAUSHIKLD
• Keywords: Wrong claim; Set aside
• Section: 143(3); 142(1); 148; 154

Judgement Text

DSP MERRILL LYNCH LIMITED ASSESSMENT YEAR :1995-96 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , , BEFORE HONBLE SHRI MAHAVIR SINGH, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.2727/MUM/2004 ( / ASSESSMENT YEAR: 1995-96 ) D CIT - CIRCLE 4(1) 6 TH FLOOR, ROOM NO.640 AAYKAR BHAVAN MUMBAI-400 020. / VS. DSP MERRILL LYNCH LIMITED (FORMERLY KNOWN AS DSP FINANCIAL CONSULTANTS LIMITED) GROUND FLOOR, A WING ONE BKC, G BLOCK BANDRA KURLA COMPLEX BANDRA (EAST), MUMBAI-400 005 ! ./ ! ./PAN/GIR NO. AAACD-0535-G ( /APPELLANT ) : ( / RESPONDENT ) & ./ I.T.A. NO.7806/MUM/2004 ( / ASSESSMENT YEAR: 1995-96 ) DSP MERRILL LYNCH LIMITED (FORMERLY KNOWN AS DSP FINANCIAL CONSULTANTS LIMITED) GROUND FLOOR, A WING ONE BKC, G BLOCK BANDRA KURLA COMPLEX BANDRA (EAST), MUMBAI-400 005 / VS. D CIT - CIRCLE 4(1) 6 TH FLOOR, ROOM NO.640 AAYKAR BHAVAN MUMBAI-400 020. ! ./ ! ./PAN/GIR NO. AAACD-0535-G ( /APPELLANT ) : ( / RESPONDENT ) APPELLANT BY : SHRI NITESH JOSHI- LD. AR RESPONDENT BY : MS. KAVITA P. KAUSHIK- LD. DR / DATE OF HEARING : 28/11/2019 / DATE OF PRONOUNCEMENT : 02/01/2020 DSP MERRILL LYNCH LIMITED ASSESSMENT YEAR :1995-96 2 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEALS BY REVENUE AS WELL AS ASSESSEE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 1995-96 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-IV, MUMBAI, [I N SHORT REFERRED TO AS CIT(A)], APPEAL NO. CIT(A)-IV/CIR.4/450/03-04 DATED 09/08/2004 ON CERTAIN GROUNDS OF APPEAL. REVENUES APPEAL, ITA NO.2727/MUM/2004 2. THE REVENUE HAS TAKEN UP FOLLOWING GROUNDS OF AP PEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) HAS ERRED IN DIRECTING THE A.O. TO MODIFY THE CLAIM OF THE ASSESSEE U/S.80-0 TREATING THE RECEIPT OF RS.3,96,86,123/- FROM MERRILL LYNCH LTD. AS FEE RECEIVED IN CONSIDERATION OF THE SERVICES RENDERED IN TERMS OF AGREEMENT DT. 23.3.1993 WITHOUT APPRECIATING THE FACT THAT THE SAID AMOUNT WAS ON ACCOUNT OF CO- LEAD MANAGER AND NOT FOR ANY COMMERCIAL AND TECHNICAL SERVICES AS SPECIFIED U/S. 80-0 OF THE INCOME-TAX ACT. 2. FURTHER, PLACED IN THE ABOVE FACTUAL AND LEGAL S CENARIO, THE IMPUGNED ORDER OF THE CIT(A) IS, THE APPELLANT PRAYS, PATENTLY PERVERSE A ND CONTRARY TO LAW AND CONSEQUENTLY MERITS TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. IT IS EVIDENT THAT THE SOLE SUBJECT MATTER OF REVEN UES APPEAL IS QUANTUM OF ASSESSEES CLAIM U/S 80-O. 3. WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS, P ERUSED RELEVANT MATERIAL ON RECORD INCLUDING WRITTEN SUBMISSIONS FI LED BEFORE US AND APPLIED OUR MIND TO THE SUBJECT MATTER OF THE APPEA L. WE HAVE ALSO DELIBERATED ON JUDICIAL PRONOUNCEMENTS AS CITED BEF ORE US. OUR ADJUDICATION WOULD BE AS GIVEN IN SUCCEEDING PARAGR APHS. 4.1 FACTS ON RECORD WOULD REVEAL THAT THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE STATED TO BE ENGAGED IN PROVIDIN G FINANCIAL CONSULTANCY AND ALLIED SERVICES WAS SUBJECTED TO RE ASSESSMENT PROCEEDINGS FOR YEAR UNDER CONSIDERATION U/S 143(3) R.W.S.147 OF THE ACT, DSP MERRILL LYNCH LIMITED ASSESSMENT YEAR :1995-96 3 ON 28/03/2003 WHEREIN THE ELIGIBLE AMOUNT U/S 80-O WAS REDUCED TO RS.375.65 LACS AS AGAINST RS.772.51 LACS STATED TO BE DETERMINED IN AN ASSESSMENT FRAMED U/S 143(3) ON 30/03/1998. 4.2 THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80-O FOR RS.382.57 LACS, BEING 50% OF FEES RECEIVED FROM 5 ENTITIES. THE MAN NER AS WELL AS COMPUTATION OF DEDUCTION CLAIMED HAS ALREADY BEEN E XTRACTED IN PARA-2 OF THE REASSESSMENT ORDER UNDER CONSIDERATION. IN A N ASSESSMENT FRAMED U/S 143(3), THE SAID CLAIM WAS ALREADY REDUC ED TO RS.297.14 LACS AFTER MAKING SOME ADJUSTMENT IN THE FEES AS WE LL AS EXPENDITURE, AS CLAIMED BY THE ASSESSEE. OUT OF 5 ENTITIES, ONE OF THE ENTITIES WAS MERRILL LYNCH, AGAINST WHOM THE ASSESSEE REFLECTED TOTAL FEES OF RS.706.35 LACS AND CLAIMED DEDUCTION U/S 80-O. 4.3 SUBSEQUENTLY, THE CASE WAS REOPENED BY ISSUANCE OF NOTICE U/S 148 DATED 22/03/2002 IN VIEW OF THE FACT THAT THE A SSESSEE MADE FALSE CLAIM U/S 80-O IN RESPECT OF ADR ISSUE OF M/S RAYMOND (I) LIMITED (RAYMOND) AS NO SERVICES WERE PROVIDED BY THE ASSESSEE TO ME RRILL LYNCH INTERNATIONAL. IT WAS ALLEGED THAT WHAT THE A SSESSEE RECEIVED FROM MERRILL LYNCH INTERNATIONAL ( MLINT ) WAS ITS SHARE OF UNDERWRITING SPREAD (SELLING COMMISSION) OF THE RAYMOND ISSUE FOR WHICH IT WAS AN INDEPENDENT MANAGER, DEHORS THE LEAD MANAGER I.E. MLINT. THE ASSESSEE RECEIVED ITS SHARE OF COMMISSION FROM RAYM OND AND MLINT MERELY COORDINATED THE ISSUE AND REMITTANCES BY THE LATTER TO THE ASSESSEE WAS ON BEHALF OF RAYMOND AND NOT ON ITS OW N BEHALF FOR SERVICE RENDERED. THUS, THE ASSESSEE RENDERED NO SE RVICES TO MLINT FOR WHICH IT CLAIMED DEDUCTION U/S 80-O. ACCORDINGLY, T HE CASE WAS DSP MERRILL LYNCH LIMITED ASSESSMENT YEAR :1995-96 4 REOPENED AND STATUTORY NOTICES WERE ISSUED U/S 143( 2) & 142(1) CALLING FOR REQUISITE DETAILS FROM THE ASSESSEE. 4.4 THE PERUSAL OF REASSESSMENT ORDER WOULD REVEAL THAT THE SUBJECT MATTER OF DISPUTE BEFORE US IS ON ACCOUNT OF FEES R ECEIVED FROM THREE ENTITIES, FOR WHICH THE ASSESSEE ACTED AS CO-LEAD M ANAGER AND RECEIVED FEES FROM MLINT: - NO. NAM E AMOUNT (R S.) 1. EAST INDIA HOTELS 104.38 LACS 2. JCT LTD 115.93 LACS 3. RAYMOND WOOLEN MILLS 176.55 LACS T OTAL 396.8 6 LACS THE ASSESSEE DEFENDED THE CLAIM BY RELYING UPON AGR EEMENT DATED 23/03/1993 BETWEEN THE ASSESSEE AND MLINT. IT WAS S UBMITTED THAT AS PER THE TERMS OF THE AGREEMENT, THE FEES WERE RECEI VED FOR SERVICES RENDERED AND NOT TOWARDS UNDERWRITING COMMISSION AS ALLEGED. IT WAS ALSO SUBMITTED THAT IN TERMS OF FERA REGULATIONS, T HE ASSESSEE COULD NOT HAVE PURCHASED ANY SHARES WITHOUT THE PRIOR APP ROVAL OF RESERVE BANK OF INDIA (RBI) WHICH WAS EVIDENCED BY RBI APPR OVAL LETTER DATED 02/11/1994 WHICH SPECIFICALLY PROVIDED THAT THERE W OULD BE NO DEVOLVEMENT OF ANY FOREIGN EXCHANGE OBLIGATIONS ON THE ASSESSEE WHILE ACTING AS CO-LEAD MANAGER. THEREFORE, NO SECURITIES WERE UNDERWRITTEN BY THE ASSESSEE AND NO PAYMENT, ON THIS ACCOUNT WAS EVER RECEIVED EITHER BY ASSESSEE OR ANY OTHER ISSUER. IT WAS ALSO SUBMITTED THAT ASSESSEES NAME WAS MERELY MENTIONED AS CO-LEAD MAN AGER TO ENHANCE ITS IMAGE IN THE INTERNATIONAL MARKETS. NEV ERTHELESS, THE SERVICES WERE RENDERED BY THE ASSESSEE TO MLINT AS PER SPECIFIC TERMS OF AGREEMENT DATED 23/03/1993. A CONFIRMATORY LETTE R DATED 24/01/2003 FROM MLINT WAS ALSO SUBMITTED TO SUPPORT THE SAME. DSP MERRILL LYNCH LIMITED ASSESSMENT YEAR :1995-96 5 4.5 HOWEVER, UPON PERUSAL OF SUBSCRIPTION AGREEMENT CONCERNING RAYMOND, LD. AO NOTED THAT THE ASSESSEE, IN ITS OWN CAPACITY, GAVE A COMMITMENT TO PURCHASE PART OF THE ISSUE AND IT ACT ED AS AN INDEPENDENT AGENT IN ITS OWN CAPACITY TO PROVIDE MANAGERIAL SER VICES TO RAYMOND IN SUCCESSFULLY CARRYING OUT THE ADR ISSUE. FURTHER, A S PER THE TERMS OF SEPARATE AGREEMENT DATED 09/11/1994 BETWEEN MLINT A ND OTHER MANAGERS, IT WAS AGREED THAT MLINT BEING THE LEAD M ANAGER WOULD COORDINATE THE ISSUE AND COLLECT THE COMMISSION PAY ABLE BY THE RAYMOND TO ALL THE MANAGERS BY WAY OF DEDUCTING THE SAME FROM THE SALE PROCEEDS OF THE ADRS ABROAD AND THEN REMIT TO EACH MANAGER ITS PROPORTIONATE SHARE OF MANAGEMENT-CUM-UNDERWRITING COMMISSION. NOT ONLY THIS, AS PER CERTIFICATE GIVEN BY INDIAN SOLIC ITOR IN THE OFFERING CIRCULAR, THE ASSESSEE WAS NAMED AS CO-LEAD MANAGER FOR THE AFORESAID ISSUE. FURTHER, AS PER SERVICE AGREEMENT DATED 27/0 3/1995 ENTERED INTO BY MERRILL LYNCH GROUP ENTITIES, THE ASSESSEE COULD PROVIDE AS WELL AS AVAIL SERVICES IN RESPECT OF NEW ISSUE TRANSACTIONS AND DERIVATIVE INSTRUMENT TRANSACTIONS. 4.6 IN THE ABOVE BACKGROUND, IT WAS NOTED THAT THE ASSESSEE COULD NOT LEAD ANY EVIDENCES OF RENDERING OF SERVICES. NO COR RESPONDENCES COULD BE FILED BY THE ASSESSEE. THEREFORE, THE FACT THAT THE TRANSACTIONS WERE BETWEEN PERSONS WHO WERE CLOSELY LINKED WITH EACH O THER AND THE OPTION CLAUSE WAS A COLORABLE DEVICE. THE AGREEMENT DATED 23/03/1993 (WRONGLY REFERRED TO AS DATED 31/03/1993 IN THE REA SSESSMENT ORDER) WAS MERELY A LETTER WRITTEN BY MLINT TO ASSESSEE WHICH MENTIONED RENDERING OF GENERAL SERVICES RATHER THAN SPECIFIC SERVICES. THE RBI APPROVAL LETTER WAS TERMED AS MERE NO OBJECTION TO THE ASSESSEE TO ACT AS CO-LEAD DSP MERRILL LYNCH LIMITED ASSESSMENT YEAR :1995-96 6 MANAGER. IN THE ABOVE BACKGROUND, IT WAS CONCLUDED THAT THE ASSESSEE RECEIVED COMMISSION FROM RAYMOND AND NO SERVICES WE RE EVER RENDERED BY THE ASSESSEE TO MLINT. THEREFORE, THE A GGREGATE AMOUNT OF RS.396.86 LACS STATED TO BE RECEIVED FROM MLINT WIT H RESPECT TO 3 ENTITIES WAS REDUCED WHILE COMPUTING ELIGIBLE AMOUN T U/S 80-O. THE SAID ACTION WOULD REDUCE THE FINAL DEDUCTION U/S 80-O AN D ACCORDINGLY, ENHANCE THE TOTAL INCOME OF THE ASSESSEE. 5.1 AGGRIEVED, THE ASSESSEE PREFERRED FURTHER APPEA L BEFORE LEARNED FIRST APPELLATE AUTHORITY VIDE IMPUGNED ORDER DATED 06/02/2004 WHEREIN THE ASSESSEES CLAIM WAS ACCEPTED BY OBSERVING AS U NDER: - 6. I HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESSE E AND ALSO THE ORDER OF THE A.O. ASSESSING OFFICER HAS MAINLY RELIED ON SUBSCRI PTION AGREEMENT ENTERED INTO BETWEEN RAYMOND WOOLLEN MILLS LTD. AND MERRILL LYNC H I.E. ASSESSEE WHERE ASSESSEE HAS BEEN NAMED AS ONE OF THE CO-LEAD MANAG ERS. ASSESSING OFFICER ALSO ACCEPTED THE FACT THAT IN HIS CAPACITY AS CO-LEAD M ANAGERS, THE ASSESSEE SHOULD BUY 9 MILLION WORTH SHARES AND ASSESSEE HAS GREEN SHOE OPTION TO PURCHASE FURTHER 10% BUT RBI APPROVAL GIVEN TO THE ASSESSEE CLEARLY STATES THAT THERE WILL BE NO DEVOLVEMENT OF FOREIGN EXCHANGE ON ASSESSEE FOR ACT ING AS LEAD MANAGER. IN THE ABSENCE OF PERMISSION FROM RBI, ASSESSEE WOULD NOT HAVE DISCHARGED THIS COMMITMENT AS CO-LEAD MANAGER WHEN IT WAS REQUIRED TO PURCHASE THE SHARES IN HIS CAPACITY AS LEAD MANAGER. FURTHER THIS FACT WAS ALS O CONFIRMED BY MERRILL LYNCH THAT AMOUNTS WHICH HAVE BEEN PAID TO THE ASSESSEE ARE IN CONSIDERATION OF THE SERVICES RENDERED BY THE ASSESSEE TO MERRILL LYNCH IN TERMS OF AGREEMENT DATED 23.3.1993. FURTHER THERE IS NO EVIDENCE ON RECORD TO SHOW THAT THE AMOUNTS HAVE BEEN RECEIVED BY ASSESSEE IN HIS CAPACITY AS CO-LEAD MAN AGER. THE WORKING FILED BY THE ASSESSEE SHOW THAT ASSESSEE HAS BEEN IN RECEIPT OF FEE IN TERMS OF AGREEMENT WITH MERRILL LYNCH AS PER AGREEMENT DATED 23.3.1993. FRO M THE EVIDENCE FURNISHED BY ASSESSEE, IT IS CLEAR THAT ASSESSEE HAS NOT RECEIVE D ANY AMOUNT FROM MERRILL LYNCH IN HIS CAPACITY AS CO-LEAD MANAGER BUT ONLY IN CONS IDERATION OF THE SERVICES RENDERED IN ACCORDANCE WITH AGREEMENT DATED 23.3.19 93. HENCE THE ASSESSING OFFICER IS DIRECTED TO MODIFY THE CLAIM OF THE ASSE SSEE U/S 80-O TREATING THE RECEIPT OF FEE AS FEE RECEIVED IN CONSIDERATION OF THE SERV ICES RENDERED IN TERMS OF AGREEMENT DATED 23.03.1993. IT IS EVIDENT THAT LEARNED CIT(A) HAS GIVEN RELIEF BY NOTICING THAT FEE WAS RECEIVED BY THE ASSESSEE AGAINST SERVICES RENDERED IN TERMS OF SERVICE AGREEMENT DATED 23/03/1993 AS SUPPORTED BY THE CONF IRMATORY LETTER OF DSP MERRILL LYNCH LIMITED ASSESSMENT YEAR :1995-96 7 MLINT. IT WAS ALSO NOTED THAT THERE WAS NO EVIDENCE WHICH WOULD PROVE THAT THE SAID FEE WAS RECEIVED IN THE CAPACITY OF C O-LEAD MANAGER. AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 5.2 THE LD. DR, SUPPORTING THE FINDINGS OF LD.AO AS GIVEN IN REASSESSMENT ORDER, SUBMITTED THAT THE ASSESSEE WAS NOT ELIGIBLE TO CLAIM THE DEDUCTION U/S 80-O WITH RESPECT TO THE 3 ENTITIES. AU CONTRAIRE, LD. AR, REITERATING THE STAND TAKEN BEFORE LD. CIT( A), SUBMITTED THAT FEES WAS RECEIVED ONLY IN TERMS OF SERVICE AGREEMENT DAT ED 23/03/1993 AS PER REVENUE SHARING FORMULA AGREED THEREIN. THE ATT ENTION HAS ALSO BEEN DRAWN TO CONFIRMATORY LETTER OF MLINT CONFIRMING TH E AFORESAID FACT. IT HAS ALSO BEEN POINTED OUT THAT THE RBI APPROVAL LET TER SPECIFICALLY PROHIBITED DEVOLVEMENT OF FOREIGN EXCHANGE TO THE A SSESSEE AND THEREFORE, THE ASSESSEE COULD NOT HAVE DISCHARGED T HE COMMITMENT OF UNDERWRITING AS A LEAD MANAGER. 6. UPON CAREFUL CONSIDERATION OF FACTUAL MATRIX AS ENUMERATED IN THE PRECEDING PARAGRAPHS, WE ARE OF THE CONSIDERED OPIN ION THAT NO ADDITION WOULD BE SUSTAINABLE IN LAW MERELY ON THE BASIS OF SUSPICION, CONJECTURES OR SURMISES. THE ASSESSEE HAD PLACED ON RECORD SUFFICIENT DOCUMENTARY EVIDENCES TO SUBSTANTIATE ITS CLAIM U/S 80-O WITH RESPECT TO SERVICES RENDERED TO MLINT. THE CLAIM WAS DULY SUPP ORTED BY THE CONFIRMATORY LETTER OF MLINT AS WELL AS RBI APPROVA L LETTER WHICH SPECIFICALLY PROHIBITED DEVOLVEMENT OF FOREIGN EXCH ANGE TO THE ASSESSEE. ON THE CONTRARY, EXCEPT FOR MERE SUSPICION & ALLEGA TION, NOTHING WAS BROUGHT ON RECORD BY LD. AO TO COUNTER THE ASSESSEE S CLAIM. IT IS BEYOND DOUBT THAT THE ASSESSEE WAS ACTING AS CO-LEA D MANAGER IN THE AFORESAID ISSUES BUT THE ALLEGATIONS OF LD.AO THAT THE FEE WAS RECEIVED IN DSP MERRILL LYNCH LIMITED ASSESSMENT YEAR :1995-96 8 THAT CAPACITY THROUGH MLINT IS WITHOUT ANY CORROBOR ATIVE EVIDENCES. THEREFORE, THE CONCLUSION OF LD. CIT(A) COULD NOT B E FAULTED WITH AND HENCE CONCURRING WITH THE SAME, WE DISMISS THE APPE AL FILED BY THE REVENUE. ASSESSEES APPEAL, ITA NO.7806/MUM/2004 7. THIS APPEAL IS AGAINST THE ORDER PASSED BY LEARN ED FIRST APPELLATE AUTHORITY IN APPEAL NO. CIT(A)-IV/CIR.4/450/03-04 O RDER DATED 09/08/2004 IN THE MATTER OF RECTIFICATION U/S 154 C ARRIED OUT BY LD. AO VIDE ORDER DATED 05/12/2003. THE LD. AR SUBMITTED T HAT THE APPEAL IS NOT PRESSED. THE REVENUE DID NOT RAISE ANY OBJECTION AG AINST THE SAME. IN VIEW OF ADMITTED POSITION, THE APPEAL STANDS DISMIS SED AS BEING NOT PRESSED. CONCLUSION 8. BOTH THE APPEALS STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 02 ND JANUARY, 2020. SD/- SD/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) ! '# / JUDICIAL MEMBER '# / ACCOUNTANT MEMBER MUMBAI; !' DATED : 02/01/2020 SR.PS, JAISY VARGHESE $%& ( / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ' ( ) / THE CIT(A) 4. ' / CIT CONCERNED 5. !()!!! , ! , / DR, ITAT, MUMBAI 6. )+,- / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.