AXIS P. EQUITY LTD, MUMBAI V. DCIT CIR 3(1), MUMBAI

ITA 3045/MUM/2013

• Counselvise Citation: 304519914 RSA 2013
• Duration Of Justice: 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 19-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROOPAK KUMAR
• Assessee Lawyers: HARISH MOTIWALLA
• Keywords: Business income; Business expenditure
• Section: 143(3)

Judgement Text

. , IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI , BEFORE SHRI R. K. GUPTA , JM ITA NO. 3045 / MUM/ 20 1 3 ( ASSESSMEN T YEAR : 200 7 - 08 ) AXIS PRIVATE EQUITY LTD., C/O H.N. MOTIWALLA & CO., 508 SHARDA CHAMBERS, 33, NEW MARINE LINES, MUMBAI - 400 020 VS. DCIT CIR. 3(1) MUMBAI PAN/GIR NO. : A A ACU 8677 N ( APPELLANT ) .. ( RESPOND ENT ) /ASSESSEE BY : SHRI HARISH MOTIWALLA & SHRI DEEPAK SHAH /REVENUE BY : SHRI ROOPAK KUMAR DATE OF HEARING : 19 TH AUGUST , 201 3 DATE OF PRONOUNCEMENT : 19 TH AUGUST , 2013 O R D E R TH E ASSESSEE HAS PREFERRED THIS APPEAL AGAINST THE ORDER OF LEANED CIT(A) - 5 , MUMBAI RELA TING TO THE ASSESSMENT YEAR S 200 7 - 08 . 2 . THE FIRST GROUND IN THE APPEAL OF THE ASSESSEE IS AGAINST CONFIRMING THE ORDER OF AO THAT THE ASSESSEE HAS NOT SET UP ITS BUSINESS ACTIVITY AND, THEREFORE, THE DISALLOW ED OF VARIOUS EXPENSES CLAIMED IN THE PROFIT AND LOSS ACCOUNT AT RS. 1,17 ,94,457/ - . ITA NO. 3045 /20 1 3 2 3 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS AN ASSET MANAGEMENT COMPAN Y, WHICH IS HUNDRED PER CENT SUBSIDIARY OF AXIS BANK LIMITED. DURING THE ASSESSMENT PROCEEDING, THE AO NOTED THAT THE ASSESSEE HAS SHOWN ONLY INCOME UNDER THE HEAD MISCELLANEOUS INCOME OF RS. 24,720/ - AS THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVIT Y AND NOT SHOWN ANY BUSINESS RECEIPT. THE AO NOTED THAT THE ASSESSEE HAD SHOWN BUSINESS LOSS OF RS. 1,17,69,736/ - . THE AO HAS OBSERVED IN HIS ORDER THAT THE ASSESSEE HAS NOT FURNISHED ANY REPLY ON THE ISSUE OF SETTING UP OF BUSINESS DURING THE YEAR UNDER CO NSIDERATION AND NO EVIDENCE WHATSOEVER HAD BEEN SUBMITTED TO PROVE THAT THE ASSESSEES BUSINESS WAS SET UP DURING THE YEAR UNDER CONSIDERATION. THE AO ALSO OBSERVED THAT THE ASSESSEE FAILED TO PROVE THAT THE EXPENSES CLAIMED IN ITS PROFIT AND LOSS ACCOUNT WERE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ACCORDINGLY, THE AO HELD THAT THE EXPENSES CLAIMED ARE NOT ALLOWABLE AS BUSINESS EXPENSES. 3.1 MISCELLANEOUS INCOME SHOWN AT RS. 24,720/ - , WHICH WAS ON ACCOUNT OF INTEREST EARNED BY THE ASSESSEE WAS TRE A TED AS INCOME FROM OTHER SOURCES. 4. IN APPEAL , LEARNED CIT(A) ALSO CONFIRMED THE ACTION OF THE AO. NOW, THE ASSESSEE IS IN APPEAL HERE BEFORE THE TRIBUNAL 5 . LEARNED COUNSEL OF THE ASSESSEE REITERATED THE CONTENTION RAISED BEFORE THE LOWER AUTHO RITIES. THE ATTENTION OF THE BENCH WAS DRAWN ON VARIOUS EVIDENCES PLACED ON RECORD TO PROVE THAT BUSINESS WAS SET UP ITA NO. 3045 /20 1 3 3 DURING THE YEAR UNDER CONSIDERATION AND VARIOUS EXPENSES WERE ALSO INCURRED DURING THE YEAR UNDER CONSIDERATION. IT WAS FURTHER SUBMITTED T HAT IN SUBSEQUENT YEAR I.E ASSESSMENT YEAR 2009 - 10, VARIOUS EXPENSES CLAIMED BY THE ASSESSEE HAVE BEEN ALLOWED BY THE AO HIMSELF WHILE COMPLETING ASSESSMENT UNDER SECTION 143(3) . COPY OF THE ORDER WAS ALSO FILED. 6 . ON THE OTHER HAND, LEARNED DR STRONGLY PLACED RELIANCE ON THE ORDER OF AO & CIT(A) . 7 . AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MATERIAL ON RECORD, I FOUND THAT THE ASSESSEE DESERVES TO SUCCEED IN ITS APPEAL IN PART . 7.1 REGARDING VARIOUS EXPENSES CLAIMED AT RS. 1,17,69,736/ - , I FOU ND THAT THEY WERE DISALLOWED ON THE GROUND THAT BUSINESS HAS NOT BEEN SET UP DURING THE YEAR UNDER CONSIDERATION. I NOTED THAT THE ASSESSEE COMPANY CAME INTO EXISTENCE IN THE YEAR 2006. COPY OF CERTIFICATE OF INCORPORATION IS PLACED AT PAGE 3 OF THE PAPER BOOK. COPY OF CERTIFICATE FOR COMMENCEMENT OF BUSINESS IS ALSO PLACED AT PAGE 5. THIS CERTIFICATE WAS ISSUED BY THE ASSISTANT REGISTRAR OF COMPANIES, MAHARASHTRA, MUMBAI , CERTIFYING THAT THE COMPANY COMMENCED ITS BUSINESS W.E.F. 3 - 10 - 2006 . EARLIER THE COMP ANY WAS FLOUTED NAME OF ASSET MANAGEMENT COMPANY LIMITED , WHICH WAS CONVERTED IN THE NAME OF M/S AXIS PRIVATE EQUITY LTD. ON 25 - 8 - 2007 . COPY OF THE CERTIFICATE ISSUED BY THE DY. REGISTRAR OF COMPANIES IS ALSO PLA C ED AT ITA NO. 3045 /20 1 3 4 PAGE 7. THE COPY OF MEMORANDUM O F ASSOCIATION IS PLACED AT PAGE 9 ONWARDS BY WHICH IT HAS BEEN SHOWN THAT THE MAIN OBJECTS OF THE COMPANY IS MANAGING DIRECTLY OR INDIRECTLY INVESTMENTS, MANAGING MUTUAL FUNDS, VENTURE CAPITAL FUNDS, OFF - SHORE FUNDS, PENSION FUNDS, PROVIDENT FUNDS, INSURAN CE FUNDS OR ANY OTHER FUNDS AND TO PROMOTE, MANAGE AND CARRY ON ANY VENTURE CAPITAL FUNDS OPERATION ETC. AT PAGE 99 ONWARDS, COPY OF DIRECTORS REPORT IS PLACED AND IN COLUMN OF OUTLOOK , IT HAS BEEN SHOWN THAT THIS BEING THE FIRST YEAR, THE COMPANY HAS T AKEN STEPS TOWARD FORMATION OF VENTURE CAPITAL FUND. THE COMPANY HAS ENGAGED LEGAL AND FINANCIAL ADVISORS TO RECOMMEND THE APPROPRIATE TAX EFFICIENT STRUCTURE FOR THE FUNDS. IT IS FURTHER SHOWN THAT STEPS HAVE BEEN INITIATED TO RECRUIT NECESSARY PERSONNEL AS GOING FORWARD, THE COMPANY PROPOSES TO BUILD A COMPETENT TEAM FOR MANAGEMENT OF THE FUNDS AS HUMAN CAPITAL IS KEY TO THE DEVELOPMENT OF THE BUSINESS. AT PAGE 109 , COPY OF PROFIT AND LOSS ACCOUNT IS PLACED SHOWING VARIOUS EXPENSES. THE ASSESSEE HAS SHOW N EMPLOYEES REMUNERATION AND BENEFITS AT RS. 63,84,233/ - , ADMINISTRATIVE & GENERAL EXPENSES HAS BEEN SHOWN AT RS. 89,06,818/ - . 7.2 FROM ALL THESE FACTS, IT IS SEEN THAT THE ASSESSEE HAS SET UP ITS BUSINESS DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT Y EAR 2007 - 08. IN SIMILAR CIRCUMSTANCES, IN CASE OF HSBC SECURITIES INDIA HOLDINGS PVT. LTD., DECIDED IN ITA NO.3181/M/1999, VIDE ORDER DATED 28 - 11 - 2001 , THE TRIBUNAL HAS HELD THAT IF THE ASSESSEE HAS TAKEN BUSINESS PREMISES AND HAS RECRUITED ITS PERSONNEL A ND HAS INCURRED ITA NO. 3045 /20 1 3 5 VARIOUS EXPENSES FOR PROMOTING ITS BUSINESS ACTIVITY, THEN IT HAS TO BE HELD THAT THE BUSINESS OF THE ASSESSEE HAS BEEN SET UP AND ACCORDINGLY VARIOUS EXPENSES CLAIMED IN THE PROFIT AND LOSS ACCOUNT WERE ALLOWED. WHILE HOLDING SO, THE TRIBU NAL HAS TAKEN INTO CONSIDERATION VARIOUS CASES DECIDED BY VARIOUS HIGH COURTS AND VARIOUS BENCHES OF THE TRIBUNAL. 7.3 I FURTHER NOTED THAT THERE IS NO DISPUTE IN RESPECT TO ALLOWABILITY OF EXPENSES AS SIMILAR EXPENSES WERE ALLOWED BY THE AO WHILE COMPLET ING ASSESSMENT FOR ASSESSMENT YEAR 2009 - 10 UNDER SECTION 143(3) . IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, I ALLOW THIS ISSUE IN FAVOUR OF THE ASSESSEE AND DIRECT THE AO TO ALLOW THE VARIOUS EXPENSES INCURRED BY THE ASSESSEE IN ITS PROFIT A ND LOSS ACCOUNT BY TREATING THE BUSINESS OF THE ASSESSEE COMPANY HAS SET UP. 8. REGARDING MISCELLANEOUS INCOME OF RS. 24,720/ - CLAIMED AS BUSINESS INCOME, I FIND THAT IN SUBSEQUENT YEAR IE. ASSESSMENT YEAR 2009 - 10 , SIMILAR INCOME SHOWN BY THE ASSESSEE HAS BEEN COMPUTED AS INCOME FROM OTHER SOURCES AND AS PER LEARNED COUNSEL OF THE ASSESSEE THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2009 - 10 HAS BEEN ACCEPTED BY THE ASSESSEE. ACCORDINGLY, I HOLD THAT THE AO AND LEARNED CIT(A) WERE JUSTIFIED IN TREATING THE NAT URE OF INCOME AS INCOME FROM OTHER SOURCES. ACCORDINGLY, I CONFIRM THE ORDER OF LEARNED CIT(A) ON THIS ISSUE. 9 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART . ITA NO. 3045 /20 1 3 6 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF AUG .2013 201 3 SD/ - ( ) ( R.K.GUPTA ) / JUDICIAL MEMBER MUMBAI ; DATED : 19/08/ 2013 /PKM , PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI