ACIT 10(1), MUMBAI V. ING INVESTMENT MANAGEMENT (I) P.LTD, MUMBAI

ITA 2843/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75672 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 18-04-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 11-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJAY SHRIVASTAVA
• Assessee Lawyers: DHANESH BAFNA; KANCHAN KAUSHAL
• Keywords: Business expenditure; Opportunity of being heard; Principle of natural justice; Rule of consistency; Earning of tax free income; Additional evidence; Commercial expediency
• Section: 37; 14A; 37(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L MUMBAI , / . , , ! ' BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER /AND SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER . / ITA NO. 2854/MUM/2011 $ $ $ $ % % % % / ASSESSMENT YEAR 2006-07 . / ITA NO. 2853/MUM/2011 $ $ $ $ % % % % / ASSESSMENT YEAR 2007-08 ING INVESTMENT MANAGEMENT (INDIA) PRIVATE LIMITED, 601/602, WINDSOR, OFF CST ROAD, KALINA, SANTACRUZ (EAST), MUMBAI 400 098 $ $ $ $ / VS. THE ACIT, WARD 10(1), AAYKAR BHAVAN,MK ROAD, MUMBAI 400 020. & ./ ' ./ PAN/GIR NO. : AAACI 4057N ( &( / APPELLANT ) .. ( )*&( / RESPONDENT ) . / ITA NO. 2843/MUM/2011 $ $ $ $ % % % % / ASSESSMENT YEAR 2006-07 . / ITA NO. 4109/MUM/2011 $ $ $ $ % % % % / ASSESSMENT YEAR 2007-08 THE DCIT, WARD 10(1), AAYKAR BHAVAN,MK ROAD, MUMBAI 400 020. $ $ $ $ / VS. ING INVESTMENT MANAGEMENT (INDIA) PRIVATE LIMITED, 601/602, WINDSOR, OFF CSYT ROAD, KALINA, SANTACRUZ (EAST), MUMBAI 400 098 & ./ ' ./ PAN/GIR NO. : AAACI 4057N ( &( / APPELLANT ) .. ( )*&( / RESPONDENT ) ASSESSEE BY : S/SHRI KANCHAN KAUSHAL & DHANESH BAFNA REVENUE BY SHRI AJAY SHRIVASTAVA $ + , / DATE OF HEARING : 10/02/2014 -.% + , / DATE OF PRONOUNCEMENT : /02/2014 ITA NO. 2854,2853,2843&4109/MUM/2011 2 / / O R D E R PER BENCH: THESE ARE TWO SETS OF CROSS APPEALS FILED AGAINST TWO SEPARATE ORDERS. ITA NO 2854/MUM/2011 & ITA NO.2843/MUM/2011 ARE APP EALS FILED AGAINST THE ORDER PASSED BY LD. CIT(A)-21 MUMBAI DATED 27/ 01/2011 FOR THE ASSESSMENT YEAR 2006-07 . FURTHER, ITA NO.2853/MUM/2011 & ITA NO.4109/MUM/2011 ARE APPEALS FILED AGAINST THE O RDER PASSED BY LD. CIT(A)- 21, MUMBAI DATED 07/03/2011 FOR THE ASSESSMENT YEA R 2007-08 . FIRST, WE SHALL TAKE UP THE CROSS APPEALS FOR THE AY 2006-07 HERE AS UNDER: ITA NO . 2854/MUM/2011, A.Y.2006-07- ASSESSEES APP EAL: 2. GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL RE AD AS UNDER: GROUND NO. 1: DISALLOWANCE UNDER SECTION 14A- RS.210,000 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) - 21 [HEREINAFTER REFERRED TO AS CIT(A)] ERRED IN CONFIRMING THE DISALLOWANCE AMOUNTING TO RS.210,000 UNDER SECT ION 14A OF THE INCOME-TAX ACT, 1961 (THE ACT) ON THE GROUNDS THAT THE AMOUN T OF DISALLOWANCE IS ATTRIBUTABLE TO ADMINISTRATIVE AND MANAGERIAL EXPEN SES TOWARDS INVESTMENT ACTIVITY FOR EARNING EXEMPT INCOME. GROUND NO.2 : MARKET SUPPORT SERVICES - RS. 41,58,078 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF MARKET SUPP ORT SERVICES AMOUNTING TO RS.41,58,078 UNDER SECTION 40(A)(IA) OF THE ACT. FU RTHER, THE LEARNED CIT(A) HAS ALSO ERRED IN UPHOLDING THE SAID DISALLOWANCE ON TH E GROUND THAT THE APPELLANT HAS FAILED TO EXPLAIN THAT THE SAID PAYMENT WAS MAD E WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 2.1 GROUND NO.1 RELATES TO DISALLOWANCE UNDER SECTI ON 14A R.W.R. 8D OF THE INCOME TAX ACT,1961 (THE ACT). IT IS AN UNDISPUTED FACT THAT DIVIDEND INCOME OF RS.15,76,758/- IS INCLUDABLE EXEMPT INCOME IN THE I NCOME OF THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS THE AO INVOKED PR OVISIONS OF THE RULE 8D OF THE I T RULES, 1962 AND ACCORDINGLY, AO MADE DISALL OWANCE OF RS.2,10,000/- AS ITA NO. 2854,2853,2843&4109/MUM/2011 3 PER CLAUSE (III) OF RULE 8D(2) OF IT RULE 1962. T HERE IS NO DISALLOWANCES UNDER OTHER CLAUSES OF THE SAID RULE ON ACCOUNTS OF THE D IRECT EXPENDITURE AND THE INTEREST EXPENDITURE. 2.2 ON THESE FACTS LD. AR BROUGHT TO OUR NOTICE THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AGROVET LTD . INCOME TAX APPEAL NO.934 OF 2011, WHICH IS RELEVANT FOR THE PROPOSITI ON THAT FOR THE AYS PRIOR TO THE INSERTION OF THE SAID RULE 8D, MAKING DISALLOWA NCE @ 2% OF THE EXEMPT INCOME SHALL CONSTITUTE A REASONABLE BASIS . ON THE OTHER HAND, LD CIT-DR FOR THE REVENUE RELIED ON THE ORDER OF THE AO AND T HE CIT(A). 2.3 ON HEARING BOTH THE PARTIES WE ARE OF THE OPINI ON THAT MAKING DISALLOWANCE AT 2% OF THE EXEMPT INCOME OF RS. 15,7 6,758/- WILL MEET BOTH ENDS OF JUSTICE OF THE FACTS OF THE PRESENT CASE. IN FACT, LD COUNSEL FOR THE ASSESSEE HAS NO OBJECTION FOR APPLYING THE SAID BIN DING JUDGMENT OF THE JURISDICTIONAL HIGH COURT. ACCORDINGLY GROUND NO.1 OF THE ASSESSEES APPEAL IS PARTLY ALLOWED AS ABOVE. 3. GROUND NO 2 RELATES TO DISALLOWANCE OF MARKET S UPPORT SERVICE EXPENSES BY INVOKING PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. AO MADE DISALLOWANCE OF RS.41,58,078/- HOLDING THAT THIS EXPENDITURE CONST ITUTE FEE FOR TECHNICAL SERVICES (FTS)/ROYALTY. CIT(A) CONFIRMED THE DISALLOWANCE OF MARKET SUPPORT SERVICES AMOUNTING TO RS.41,58,078 UNDER SECTION 40 (A)(IA) OF THE ACT. FURTHER, THE LEARNED CIT(A) UPHELD THE SAID DISALLOWANCE ON THE GROUND THAT THE ASSESSEE FAILED TO EXPLAIN THAT THE SAID PAYMENT WAS MADE WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF BUSINESS. ACCORDINGLY, CIT(A) CONFIRMED THE SAME. 3.1 DURING THE PROCEEDINGS BEFORE US BOTH THE PART IES AGREED TO THE PROPOSITION THAT THIS ISSUE NEED TO BE REMANDED TO THE FILES OF THE AO FOR A FRESH DECISION CONSIDERING THE AMENDED PROVISIONS O F THE LAW THAT DEALS WITH THE INCOME AS WELL AS FTS/ROYALTY OR OTHERS. IN TH IS REGARD, LD. COUNSEL RELIED ITA NO. 2854,2853,2843&4109/MUM/2011 4 ON THE CONTENTS OF THE PAPER BOOK FROM PAGE 42 ONW ARDS WHICH ARE BASICALLY COPIES OF TAX INVOICES. ON PERUSAL OF THE SAME WE FIND THAT THE SAID PAGES DO NOT ESTABLISH THE NEXUS OF THE EXPENDITURE TO THE C LIENTELE OF THE COMPANY WHO RECEIVED THE PAYMENT, QUA THE SERVICES RENDERED BY THE EMPLOYEES/CONTRACT WORKERS OF THE COMPANY AS THE CASE MAY BE. IN THE SET ASIDE ASSESSMENT THE AO IS DIRECTED TO EXAMINE NOT ONLY THE NATURE OF EM PLOYMENT OF THE PERSONS WHOSE NAMES APPEAR ON THE TAX INVOICES AND THE NATU RE OF SERVICES RENDERED BY THEM TO THE SO CALLED COMPANY. THE AO SHALL GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER PRINCIPLES OF NA TURAL JUSTICE. THE AO SHALL ALSO ADMIT EVIDENCES IF ANY IN SUPPORT OF THE SUBMI SSIONS TO BE MADE BY ASSESSEE DURING THE PROCEEDINGS. ACCORDINGLY, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. II. ITA NO.2843/MU,/2011, A.Y 2006-07: REVENUES APPEAL : 4. GROUNDS RAISED BY THE REVENUE IN THIS APPEAL REA D AS UNDER: 1(I). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE MUTUAL FUND SCHEME EXPENS ES OF RS.2,20,17,000/- WAS AN ALLOWABLE BUSINESS EXPENDITURE IN THE HANDS OF T HE ASSESSEE COMPANY. 1 (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE EXPENSES OF RS.2,20,1 7,000/- WAS INCURRED ON BEHALF OF ING MUTUAL FUND AND COULD NOT BE TREATED AS THE EXPENSES OF THE ASSESSEE COMPANY. 1 (III) ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE EXPENSES OF RS.2,20,1 7,000/- WAS NOT INCURRED BY THE ASSESSEE IN THE COURSE OF ITS BUSINESS AS AN AS SET MANAGEMENT COMPANY AND, HENCE, THE SAID EXPENDITURE COULD NOT BE SAID TO HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE AND ALLOWABLE U/S 37(1) OF THE INCOME TAX ACT, 1961. 2(I). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF FOREIGN TRAVE L EXPENSES OF RS.1,05,900/- ON THE GROUND THAT THE EXPENSES WERE INCURRED FOR MEET INGS HELD OUTSIDE INDIA BY THE ASSESSEE COMPANY FOR PROMOTING ITS BUSINESS. ITA NO. 2854,2853,2843&4109/MUM/2011 5 2(II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT IN THE COURSE OF THE ASSE SSMENT PROCEEDINGS, THE ASSESSEE WAS NOT ABLE TO PROVE THE COMMERCIAL EXPED IENCY OF THE FOREIGN TRAVEL EXPENSES AND THE ASSESSING OFFICER SHOULD HAVE BEEN ALLOWED AN OPPORTUNITY TO EXAMINE THE CONTENTION OF THE ASSESSEE THAT THE DET AILS OF THE FOREIGN TRAVEL EXPENSES INCLUDING THE NAMES OF PERSONS WHO TRAVELL ED, PLACE OF TRAVEL AND PURPOSE OF TRAVEL WAS GIVEN IN THE COURSE OF THE AS SESSMENT PROCEEDINGS AND THE EXPENDITURE WAS INCURRED FOR PROMOTING THE BUSINESS OF THE ASSESSEE. 3(I). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE INFORMATION TECHNOLOGY EX PENSES OF RS. 1,53,92,923/- WERE IN THE NATURE OF GENERAL/ROUTINE/ RECURRING EX PENSES AND THE SASSESSEE DID NOT ACQUIRE 4.1 GROUND NO.1 RELATES TO THE DISALLOWANCE ON ACCO UNT OF MUTUAL FUNDS SCHEME EXPENSES OF RS.2,20,17,000/- U/S 37 OF THE ACT. IT IS THE CLAIM OF THE ASSESSEE THAT THE ASSESSEE IS ENGAGED IN THE BUSINE SS OF MANAGING OF VARIOUS MUTUAL FUNDS SCHEMES AND EACH OF THE MUTUAL FUND MA INTAINS A BOOKS OF ACCOUNT SEPARATELY IN COMPLIANCE OF WITH THE PROVIS IONS OF SEBI (MUTUAL FUND REGULATIONS 1996). THE EXPENSES INCURRED IN EXCESS OF 6% CEILING PROVIDED IN THE SAID ACT ARE DEBITED TO THE ASSESSEE P&L ACCOUN T OF THE ASSESSEE AND THE SAME IS IN ACCORDANCE WITH THE PROVISIONS OF SECTIO N 52 OF THE SAID ACT. IN THIS REGARD LD. COUNSEL FOR THE ASSESSEE MENTIONED THAT THERE IS NO DISPUTE ON THE FACTS RELATING TO THE QUANTIFICATION AND PERCENTAGE S. THERE IS ALSO NO DISPUTE ON THE GENUINENESS OF EXPENDITURE BEFORE THE LOWER AUT HORITIES. THE ONLY LIMITED ISSUE FOR ADJUDICATION IS WHETHER THE EXPENSES IN E XCESS OF 6% CAN BE BOOKED TO THE ACCOUNTS OF THE ASSESSEE. AS PER THE ASSESSE ES COUNSEL, THIS ISSUE SHOULD BE ALLOWED IN FAVOUR OF THE ASSESSEE CONSIDE RING PROVISIONS OF SUB- SECTION (5) OF SECTION 52 OF THE ACT AND OTHER DECI SIONS IN FORCE. 4.2 BEFORE US LD. CIT-DR DRAW OUR ATTENTION TO CERT AIN ERRONEOUS ASSUMPTION OF THE LD. CIT(A) THAT REQUIRES RECTIFI CATION. ON PERUSAL OF THE SAID PROVISION OF SUB-SECTION (5) OF SECTION 52 OF THE S EBI REGULATIONS WE FIND THAT THE SAME READS AS UNDER: ITA NO. 2854,2853,2843&4109/MUM/2011 6 (5) ANY EXPENSE OTHER THAN THOSE SPECIFIED IN SUB-REGUL ATIONS (2) AND (4) SHALL BE BORNE BY THE ASSET MANAGEMENT COMPANY (OR TRUSTEE OR SPONSORS) LIKE THE ONE ABOVE, THERE ARE OTHER RESIDUAL PROVIS IONS IN THE SAID SECTION 52 OF THE SAID ACT THAT PROVIDES AND ENABLES THE AMC LIKE THE PRESENT ASSESSEE TO BEAR THE EXPENDITURE IN EXCESS OF THE SAID 6% LIMIT ATION. CONSIDERING THE ABOVE ENABLING PROVISION FOR DEBITING THE EXPENSES ABOVE 6% LIMITATION PROVIDED UNDER SEBI RULES, WE ARE OF THE OPINION THAT THE R ELIEF GRANTED BY LD. CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. IN ADDITION AN D IN SUBSTANCE, THE DECISIONS WHICH WERE CITED BY LD. COUNSEL, HELPS THE ASSESSEE . IN VIEW OF THE ABOVE, GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED . 5. GROUND NO.2 RELATES TO DISALLOWANCE OF FOREIGN TRAVEL EXPENSES . AT THE VERY OUTSET, LD. COUNSEL MENTIONED THAT AO DISALLOW ED A SUM OF RS.1,05,900/- AND ALSO MENTIONED ABOUT THE ADJUDICATION OF SIMIL AR ISSUE BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y 2003-04 IN ITA NO 1571/MUM/08. IN THIS REGARD HE BROUGHT TO ATTENTION TO THE CONTENTS OF T HE SAID ORDER OF THE TRIBUNAL COPY OF WHICH IS PLACED AT PAGE 29 TO 30 OF THE PAP ER BOOK. IN PARTICULAR, THE ASSESSEE;S COUNSEL READ OUT THE CONTENTS OF PARA 6 .3, WHICH IS REPRODUCED AS UNDER: 6.3 AFTER CONSIDERING THE SUBMISSIONS AND PERUSIN G THE MATERIAL ON RECORD, THE CIT(A) OBSERVED IN VIEW OF THE FACTU AL AND LEGAL SUBMISSIONS MADE BEFORE ME, AS ABOVE THE DISALLOWANCE MADE BY THE AO OF RS.9,21,795/- ON ACCOUNT OF FOREIGN TRAVELING EXPEN SES AND EXPENSES INCIDENTAL TO FOREIGN TRAVEL ARE DELETED IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE WHERE NO SPECIFIC ADVERSE MATERIAL IS NOT IN POSSESSION OF THE AO. ON HEARING THE PARTIES AND AFTER PERUSING THE FACTS OF THE PRESENT CASE, IN VIEW OF THE ABOVE FINDING, THIS GROUND 2 OF THE REVENUE IS DISMISSED . 6. GROUND NO.3 OF REVENUES APPEAL RELATES TO DISA LLOWANCE OF NON- TECHNICAL EXPENSES (IT EXPENSES) OF RS.1,53,92,923 /-. IN THIS REGARD LD. COUNSEL MENTIONED THAT AN IDENTICAL ISSUE CAME UP F OR ADJUDICATION BY THE ITA NO. 2854,2853,2843&4109/MUM/2011 7 TRIBUNAL FOR THE ASSESSMENT YEAR 2004-05 IN ASSESSE ES OWN CASE AND THE SAID ORDER OF THE TRIBUNAL DATED 29/1/2011 WAS NOT AVAIL ABLE TO THE LD. CIT(A) WHILE DECIDING THE ISSUE. REFERRING THE SB DECISION IN T HE CASE OF AMWAY INDIA ENTERPRISE, 111 ITD 112 (DEL)(SB), LD COUNSEL MENTI ONED THAT THE ISSUE REQUIRES REMANDING FOR DECIDING THE ISSUE AFRESH. F OR SUPPORTING THE ABOVE, LD. COUNSEL BROUGHT TO OUR ATTENTION PARA 14 TO 17 AND READ OUT THE FOLLOWING LINES: RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE S PECIAL BENCH OF THE TRIBUNAL WE SET ASIDE THE ORDER PASSED BY THE REVEN UE AUTHORITIES ON THIS ACCOUNT AND SEND BACK THE MATTER TO FILE OF THE ASS ESSING OFFICER WHO SHALL DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE DIRECTI ONS OF THE TRIBUNAL (SUPRA), AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPP ORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSES. 6.1 FROM THE ABOVE CONTENTS OF THE PARA 17 IT IS EV IDENT THAT THE TRIBUNAL SET ASIDE THE ISSUE FOR FRESH DECISION IN THE LIGHT OF THE ORDER IN THE CASE OF AMWAY INDIA ENTERPRISE, 111 ITD 112 (DEL)(SB). TO THE EX TENT SUCH EXPENDITURE IS CLAIMED IN THIS YEAR ALSO, ACCORDINGLY, THE SAME AR E SET ASIDE WITH IDENTICAL DIRECTIONS. A. REFERRING TO THE CONTENTS OF PARA 6.3 OF THE IMP UGNED ORDER THE LD. COUNSEL MENTIONED THAT THERE ARE OTHER EXPENDITURE SUCH AS IT INFRASTRUCTURE SUPPORT EXPENSES AND THE SAME NEEDS TO BE ALLOWED IN FAVOUR OF THE ASSESSEE CONSIDERING THE DECISION OF THE AO IN THE ASSESSMEN T YEAR 2008-09 IN ASSESSEES OWN CASE. HE MENTIONED THAT , DESPITE T HE SIMILARITY OF THE EXPENDITURE, THE AO DID NOT MAKE ANY DISALLOWANCE O N THIS ACCOUNT AND FILED A COPY OF THE ORDER OF THE AO DATED 30/11/2010. IN OUR OPINION THE ADDITION ON THIS ACCOUNT DESERVES DELETION OF SUCH EXPENSES IN THIS YEAR ALSO CONSIDERING THE HOMOLOGY OF THE FACTS. B. REGARDING OTHER EXPENSES APPEARING IN THE TABLE AT PARA 6.3, BOTH THE PARTIES AGREED THAT THESE EXPENSES HAVE TO BE EXAMI NED BY THE AO AND AFTER EXAMINING THE NATURE OF THE EXPENSES AND THE BUSINE SS CONNECTIVITY. ON PERUSAL OF THE ORDERS WE FIND THAT THERE IS NO SPEC IFIC DISCUSSION APPEARING IN ITA NO. 2854,2853,2843&4109/MUM/2011 8 THE ORDERS OF THE LOWER AUTHORITIES. THEREFORE, THE ORDERS OF THE LOWER AUTHORITIES CANNOT BE DESCRIBED AS SPEAKING ORDER O N EACH OF SUCH GROUNDS. WE, ACCORDINGLY, DIRECT THE AO TO ALLOW THE CLAIM O F THE ASSESSEE AFTER DUE VERIFICATION OF THE GENUINENESS AND BUSINESS NEXUS AND ALSO IN ACCORDANCE WITH THE PROVISIONS OF SECTION 37 OF THE ACT. ACCO RDINGLY, THIS GROUND IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. C. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED FOR STATISTICAL PURPOSE. 6.2 NOW WE SHALL TAKE UP THE CROSS APPEALS FOR THE AY 2007-08. III. ITA NO.2853/MUM/2011: A.Y.2007-08-ASSESSEES APPEAL : 7. GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER: GROUND NO. 1: MARKET SUPPORT SERVICES - RS. 43,26,130 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) - 21 [HEREINAF TER REFERRED TO AS CIT(A)] HAS ERRED IN CONFIRMING THE DISALLOWANCE OF MARKET SUPPORT SERVICES AMOUNTING TO RS.43,26,130 UNDER SECTION 40 (A)(IA) OF THE INCOME- TAX ACT (THE ACT). FURTHER, THE LEARNED CIT(A) HA S ALSO ERRED IN UPHOLDING THE SAID DISALLOWANCE ON THE GROUND THAT THE APPELL ANT HAS FAILED TO EXPLAIN THAT THE SAID PAYMENT WAS MADE WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF BUSINESS. GROUND NO. 2: RE-IMBURSEMENT OF OFFICE LICENSE FEES - RS.43,1O,46 5 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS LEGALLY ERRED IN DISALLOWING RE-IMBURSEMENT OF OFF ICE LICENSE FEES AMOUNTING TO RS. 43,10,465 UNDER SECTION 40(A)(I) O N THE GROUND THAT THE APPELLANT HAS NOT EXPLAINED THAT THE TAX WAS DEDUCT ED AT SOURCE WHILE MAKING PAYMENTS TO THE ULTIMATE VENDOR. THE APPELLA NT PRAYS THAT THE LEARNED CIT(A) BE DIRECTED TO CONSIDER THE PAYMENTS IN THE NATURE OF RE- IMBURSEMENT OF EXPENSES AND DELETE THE SAID DISALLO WANCE. GROUND NO.3 : INFORMATION TECHNOLOGY EXPENSES - RS.16,24,382 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS LEGALLY ERRED IN DISALLOWING A SUM OF RS.16,24,382 INCURRED TOWARDS ITA NO. 2854,2853,2843&4109/MUM/2011 9 INFORMATION TECHNOLOGY EXPENSES ON PURCHASE OF SOFT WARE ON THE GROUNDS THAT THE SAME RESULTED IN DERIVING BENEFITS OF ENDU RING NATURE. THE APPELLANT PRAYS THAT THE LEARNED CIT(A) BE DIRECTED TO DELETE THE SAID DISALLOWANCE. GROUND NO.4 : DISALLOWANCE UNDER SECTION 14A - RS100,000 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE TO THE EXTENT O F RS.100,000 UNDER SECTION 14A OF THE ACT ON THE GROUNDS THAT THE AMOU NT OF DISALLOWANCE IS ATTRIBUTABLE TO ADMINISTRATIVE AND MANAGERIAL EXPEN SES TOWARDS INVESTMENT ACTIVITY FOR EARNING EXEMPT INCOME. THE APPELLANT PRAYS THAT THE LEARNED CIT(A) BE DIRECTED TO DELETE THE SAID D ISALLOWANCE. GROUND NO.5 : ALLOCATED REGIONAL OVERHEADS - RS.19,04,521 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A) ERRED IN DISALLOWING THE ALLOCATED REGIONAL OVERHEA D EXPENSES AMOUNTING TO RS. 19,04,521 ON THE GROUNDS THAT THERE IS NO DI SCUSSION OF THE SAME BEING DISALLOWED IN THE ASSESSMENT ORDER FOR AY 200 6-07. THE APPELLANT PRAYS THAT THE LEARNED CIT(A) BE DIRECTED TO DELETE THE SAID DISALLOWANCE. 7.1 GROUND NO.1 RELATES TO THE DISALLOWANCE ON MAR KET SUPPORT SERVICES UNDER SECTION 40(A)(IA) OF THE ACT. ON FACTS THIS GROUND IS SIMILAR TO THE ONE ADJUDICATED BY US VIDE GROUND NO.2 OF ASSESSEES AP PEAL IN ITA NO.2854/MUM/2011 FOR A.Y 2006-07. DETAILED DISCUSS ION IS PROVIDED IN THE PARAGRAPHS ABOVE. ACCORDINGLY, THIS GROUND OF THE A SSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND NO.2 RELATES TO DISALLOWANCE OF OFFICE L ICENCE FEE UNDER SECTION 40(A)(IA) OF THE ACT. IN THIS REGARD, AT THE VERY OUTSET, LD. COUNSEL DREW OUR ATTENTION TO AN APPLICATION DATED 10/02/2014 SEEKIN G ADMISSION OF ADDITIONAL EVIDENCES (IE TDS CERTIFICATE). THE ASSESSEE PRESSED FOR ADMISSION OF THESE COPIES OF TDS CERTIFICATES AS AD DITIONAL EVIDENCE IN SUPPORT AND PRAYED FOR DELETION OF THE ADDITIONS MADE BY TH E AO ON ACCOUNT OF THE OFFICE LICENSE FEE. ITA NO. 2854,2853,2843&4109/MUM/2011 10 8.1 ON HEARING LD. DR FOR THE REVENUE, WE ARE OF T HE OPINION THAT THE SAID EVIDENCES ARE REQUIRED TO BE ADMITTED IN THE INTERE ST OF JUSTICE. IN ACCORDANCE WITH THE PRINCIPLE OF NATURAL JUSTICE, WE REMAND TH IS ISSUE TO THE FILE OF AO FOR FRESH ADJUDICATION AFTER CONSIDERING THE ADDITIONAL EVIDENCES AND OTHER FACTS ON RECORD. ACCORDINGLY, GROUND NO.2 IS ALLOWED FOR STATISTICAL PURPOSES. 9. GROUND NO.3 RELATES TO DISALLOWANCE OF NON-TECH NICAL EXPENSES. THESE EXPENDITURE CLAIM IS IDENTICAL TO THE ONES CLAIM BY THE ASSESSEE IN THE PRECEDING AY, WHICH IS ADJUDICATED ABOVE. THE CONTE NTS OF THE DISCUSSION GIVEN IN PARA 6.1 ABOVE IS MUTATIS MUTANDIS APPLICABLE HERE. AT THE VERY OUTSET LD. COUNSEL MENTIONED THAT THIS ISSUE IS REQUIRED TO BE REMANDED TO THE FILES OF AO IN ACCORDANCE WITH RULE OF CONSISTENCY FOR DECIDI NG THE ISSUE AFRESH AFTER CONSIDERING THE JUDGMENT IN THE CASE OF AMWAY ENTER PRISES (SUPRA). ACCORDINGLY, THIS GROUND IS SET ASIDE . 10. GROUND NO.4 RELATES TO DISALLOWANCE UNDER SECTI ON 14A R.W.R. 8D OF THE ACT. AT THE OUTSET BOTH THE PARTIES MENTIONED THAT THIS ISSUE IS IDENTICAL TO THE ONE ALREADY ADJUDICATED BY THE TRIBUNAL IN ACCORDA NCE WITH GROUND NO.1 OF THE ASSESSEES APPEAL IN ITA NO.2854/MUM/2011 FOR A.Y 2006-07. WE DIRECT THE AO TO ADJUDICATE THE SAME IN THE SAME LINES FO LLOWING THE JUDGMENT OF THE HONBLE HIGH COURT IN THE CASE OF GODREJ AGROVET LT D. (SUPRA). ACCORDINGLY, THIS GROUND IS PARTLY ALLOWED AS ABOVE. 11. GROUND NO.5 RELATES TO DISALLOWANCE OF ALLOCATE D REGIONAL OVERHEAD EXPENSES IS NOT PRESSED BY LD.COUNSEL AS CAN BE SEE N FROM THE CHART AT SL.NO.5. ACCORDINGLY THIS GROUND IS DISMISSED AS NOT PRESSED . 12. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED . IV. ITA NO.4109/MUM/2011, A.Y 2007-08- REVENUES AP PEAL: 13. GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ A S UNDER: ITA NO. 2854,2853,2843&4109/MUM/2011 11 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE FEES PAID OF RS.82 ,95,000/- TO M/S. OPTIMIX TECHNOLOGIES PVT. LTD. WAS REIMBURSEMENT OF EXPENSES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF MUTUAL FUND SCHEME EXPENSES HOLDING THAT THE EXPENDITURE CLAIMED BY THE ASSESSE E WAS ALLOWABLE AS BUSINESS EXPENDITURE. 3.(I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF FOREIG N TRAVEL EXPENSES OF RS.25,02,944/- ON THE GROUND THAT THE EXPENSES WERE INCURRED FOR MEETINGS HELD OUTSIDE INDIA BY THE ASSESSEE COMPANY FOR PROMOTING ITS BUSINESS. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT IN THE COURSE OF T HE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS NOT ABLE TO PROVE THE COMMERCIAL EXPEDIENCY OF THE FOREIGN TRAVEL EXPENSES AND THE A SSESSING OFFICER SHOULD HAVE BEEN ALLOWED AN OPPORTUNITY TO EXAMINE THE CON TENTION OF THE ASSESSEE THAT THE DETAILS OF THE FOREIGN TRAVEL EXP ENSES INCLUDING THE NAMES OF PERSONS WHO TRAVELED, PLACE OF TRAVEL AND PURPOSE OF TRAVEL WAS GIVEN IN THE COURSE OF THE ASSESSMENT PROCEEDINGS A ND THE EXPENDITURE WAS INCURRED FOR PROMOTING THE BUSINESS OF THE ASSE SSEE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE INFORMATION TE CHNOLOGY EXPENSES WERE IN THE NATURE OF GENERAL/ROUTINE/RECURRING EXPENSES AND THE ASSESSEE DID NOT ACQUIRE ANY ASSET OF ENDURING NATURE AND, HENCE , THE EXPENDITURE WAS ALLOWABLE AS BUSINESS EXPENDITURE. FURTHER, THE CIT(A) ERRED IN DELETING THE BALANCE D ISALLOWANCE INCURRED TOWARDS UPGRADATION OF EXISTING SOFTWARE, ANNUAL MA INTENANCE CONTRACT, INTERNET REVENUE CHARGES PAID TO M/S. OPTIMIX TECHN OLOGIES PVT. LTD. TREATING IT AS REVENUE EXPENSES IGNORING THE FACT T HAT EXPENSES INCURRED ON INFORMATION TECHNOLOGY IS CAPITAL IN NATURE. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE TO RS. 1,00,000/- AS AGAINST RS.6,19,8831- HOLDING THAT THE PROVISIONS OF RULE 8 D WERE NOT APPLICABLE IN THE YEAR UNDER CONSIDERATION IN VIEW OF BOMBAY HIGH COURT DECISION IN THE CASE OF GODREJ BOYCE MFG. CO.. 14. GROUNDS NO.1 & 4 ARE INTER-CONNECTED ONES. GRO UND NO.1 IS FACTUALLY AMOUNTS TO DOUBLE DISALLOWANCE FOR REASONS DISCUSSE D IN THE ORDERS OF THE LOWER AUTHORITIES. IN PRINCIPLE, CIT-DR AGREES WITH THE SAME. REGARDNG GROUND ITA NO. 2854,2853,2843&4109/MUM/2011 12 4, IT IS DEMONSTRATED THAT AN IENTICAL ISSUE WAS RA ISED AND ADJUDICATED BY US IN CONNECTION WITH REVENUES GROUND NO.3 IN ITA NO.284 3/MUM/2011 FOR A.Y 2006-07. FOLLOWING THE PRINCIPLE OF CONSISTENCY, WE REMAND THIS GROUND ALSO TO THE FILES OF AO WITH IDENTICAL DIRECTIONS. A.O IS D IRECTED TO ADJUDICATE THIS ISSUE AFRESH AFTER GIVING THE ASSESSEE REASONABLE OPPORTU NITY OF HEARING. ACCORDINGLY, GROUND 1 & 4 ARE SET ASIDE . 15. GROUND NO.2 RELATES TO DISALLOWANCE OF MUTUAL FUND SCHEME EXPENSES UNDER SECTION 37 OF THE ACT. THIS GROUND IS IDENTI CAL TO GROUND NO.1 OF REVENUES APPEAL FOR ASSESSMENT YEAR 2006-07 IN IT A NO. 2843/MUM/2011 WE REMAND THIS ISSUE ALSO TO THE FILES OF AO WITH SIMILAR DIRECTIONS. ACCORDINGLY, WE ALLOW THIS GROUND FOR STATISTICAL P URPOSES. 16. GROUND NO.3 RELATES TO FOREIGN TRAVEL EXPENSES . AFTER HEARING BOTH THE PARTIES WE FIND THIS GROUND IS REQUIRED TO BE DECI DED IN FAVOUR OF ASSESSEE CONSIDERING THE ORDER OF THE TRIBUNAL IN EARLIER YE ARS. ACCORDINGLY, GROUND NO.3 IS DISMISSED . 17. GROUND NO.5 RELATES TO DISALLOWANCE UNDER SECTI ON 14A R.W.R.8D OF THE ACT. THIS IS A CROSS GROUND RAISED IN THE ASSESEE S APPEAL ALSO. VIDE GROUND NO.4 OF THE ASSESSEES APPEAL FOR A.Y 2007-08 IN IT A NO 2853/MUM/2011. ACCORDINGLY, WITH IDENTICAL DIRECTIONS, THIS GROUND IS ALLOWED AS ABOVE. 18. IN THE RESULT BOTH THE APPEALS ARE PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON /02/2014 / + -.% 0 1$2 /02/2014 . + 3 ' SD/- SD/- ) VIJAY PAL RAO . , /D.KARUNAKARA RAO JUICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; 1$ DATED /02/2014 ITA NO. 2854,2853,2843&4109/MUM/2011 13 / / / / + ++ + ), ), ), ), 4%, 4%, 4%, 4%, / COPY OF THE ORDER FORWARDED TO : 1. &( / THE APPELLANT 2. )*&( / THE RESPONDENT. 3. 5 ( ) / THE CIT(A)- 4. 5 / CIT 5. 63 ),$ , , / DR, ITAT, MUMBAI 6. 3 7 / GUARD FILE. /$ /$ /$ /$ / BY ORDER, *, ), //TRUE COPY// 8 88 8 / 9 9 9 9 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . $ . ./ VM , SR. PS