QUANTIUM ADVISORS P. LTD, MUMBAI V. DCIT CIR 1(3), MUMBAI

ITA 3418/MUM/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2700 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 04-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT KUMAR SINGH
• Assessee Lawyers: J D MISTRYNIRAJ D SET H
• Keywords: Business income; Transfer pricing; Business expenditure; Earning of tax free income; Additional evidence; Wholly owned subsidiary; Non-deduction of tax; Commercial expediency; Revenue expenditure
• Section: 143(3); 14A; 37(1); 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) QUANTUM ADVISORS PVT. LTD., 503, REGENT CHAMBER, NARIMAN POINT, MUMBAI 400 021. PAN:AAACQ 0281C ... APPELL ANT VS. THE DY. COMM. OF INCOME-TAX, CIRCLE -1 (3), AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 .... RESPONDENT APPELLANT BY : S/SHRI J.D.MISTRY/NIRAJ D. SET H RESPONDENT BY : SHRI AMIT KUMAR SINGH DATE OF HEARING : 09/09/2015 DATE OF PRONOUNCEMENT : 15/07/2016 ORDER PER G.S. PANNU,AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE PERT AINING TO ASSESSMENT YEAR 2011-12 IS DIRECTED AGAINST AN OR DER PASSED BY CIT(A)-15, MUMBAI DATED 29/05/2015, WHICH IN TURN A RISES OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 20 /03/2014. 2 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) 2. IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWIN G GROUNDS OF APPEAL:- 1:0 RE.: DISALLOWANCE OF RS. 3,26,05,268/- PAID T O QIEF MANAGEMENT LLC FOR 'MARKETING SUPPORT SERVICES': I :I THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN HOLDING THAT THE MARKETING AND DISTRIBUTION FEES PAID BY THE APPELLA NT DURING THE YEAR TO QIEF MANAGEMENT LLC ARE NOT ALLOWABLE U/S.37(1) OF THE I NCOME-TAX ACT, 1961. I:2 THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS E RRED IN MAKING VARIOUS ERRONEOUS AND UNSUBSTANTIATED OBSERVATIONS (WHICH I GNORE THE FACTS SUBMITTED BEFORE HIM AND/OR ARE CONTRARY TO THE FAC TS ON RECORD) IN THE IMPUGNED ORDER TO BUTTRESS HIS STAND VIS-A-VIS THE DISALLOWANCE OF MARKETING AND DEVELOPMENT FEES. I:3 THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN MAKING THE DISALLOWANCE WITHOUT PROVIDING AN OPPORTUNITY TO TH E APPELLANT TO SHOW- CAUSE WHY THE SAID DISALLOWANCE SHOULD NOT BE MADE. I : 4 THE APPELLANT SUBMITS THAT CONSIDERING THE F ACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT THE MARKETING AND DISTRIBUTION FEE I INCURRED BY IT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS AND THE STAND TAKEN BY THE COMMISSIONER OF INCOME-TAX ( APPEALS) IS MISCONCEIVED, ERRONEOUS AND NOT IN ACCORDANCE WITH LAW. I:5 THE APPELLANT SUBMITS THAT THE ASSESSING OFFIC ER BE DIRECTED TO ALLOW THE MARKETING AND DISTRIBUTION FEES PAID BY IT TO QIEF WHILE COMPUTING THE APPELLANT'S TOTAL INCOME FOR THE YEAR UNDER CONSIDE RATION. 2 : 0 RE.: DISALLOWANCE OF ADVERTISING EXPENDITURE OF RS. 3,77,14,278/-: 2 : I THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER OF DISALLOWING THE AMOUNT OF RS. 3.77.14.278 - BEING THE ADVERTISEMENT EXPENDITURE INCURRED BY THE APPEL LANT DURING THE YEAR UNDER CONSIDERATION. 2:2 THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ER RED IN MAKING VARIOUS ERRONEOUS AND UNSUBSTANTIATED OBSERVATIONS (WHICH I GNORE THE FACTS SUBMITTED BEFORE HIM AND/OR ARE CONTRARY TO THE FAC TS ON RECORD) IN THE IMPUGNED ORDER TO BUTTRESS HIS STAND VIS-A-VIS THE DISALLOWANCE OF MARKETING AND DEVELOPMENT FEES. 2:3 THE APPELLANT SUBMITS THAT CONSIDERING THE FAC TS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT THE ADVE RTISING EXPENDITURE INCURRED BY THE APPELLANT WAS REVENUE IN NATURE AND WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF ITS BUSINESS AN D THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE HELD AS SUCH. 3 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) 2:3 THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN MAKING THE DISALLOWANCE WITHOUT PROVIDING AN OPPORTUNITY TO TH E APPELLANT TO SHOW- CAUSE WHY THE SAID DISALLOWANCE SHOULD NOT BE MADE. 2:4 THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN REJECTING THE ADDITIONAL EVIDENCE FILED BY THE APPELLANT. 2:5 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICE R BE DIRECTED TO DELETE THE DISALLOWANCE SO MADE BY HIM AND TO RE-COMPUTE ITS T OTAL INCOME AND TAX THEREON ACCORDINGLY. 3. AS A PERUSAL OF THE AFORESAID GROUNDS OF APPEAL REVEAL, APPELLANT HAS RAISED TWO ISSUES, WHICH WE SHALL DEAL IN SERIA TIM. THE APPELLANT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE CO MPANIES ACT, 1956 AND IS CARRYING ON THE BUSINESS AS SEBI REGISTERED PORTFOLIO MANAGER AND ADVISORY SERVICES. FOR THE ASSESSMENT YEAR UN DER CONSIDERATION, IT FILED RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.29,65,75,840/-, WHICH WAS SUBJECT TO SCRUTINY ASSESSMENT, WHEREBY T HE TOTAL INCOME HAS BEEN DETERMINED AT RS.36,68,95,810/- AFTER MA KING CERTAIN DISALLOWANCES, WHICH HAVE FURTHER BEEN AFFIRMED BY THE CIT(A). NOT BEING SATISFIED WITH THE ORDER OF THE CIT(A), ASSES SEE COMPANY IS IN APPEAL BEFORE THE TRIBUNAL ON THE ABOVE STATED GRO UNDS OF APPEAL. 4. THE FIRST ISSUE RELATES TO A DISALLOWANCE OF RS. 3,26,05,689/- REPRESENTING MARKETING AND DISTRIBUTION FEE PAID TO QIEF MANAGEMENT LLC, MAURITIUS ( IN SHORT QEIF). ON BEING ASKED BY THE ASSESSING OFFICER TO JUSTIFY SUCH EXPENDITURE, ASSESSEE HAD EXPLAINED THAT THE PAYMENT WAS MADE FOR MARKETING AND DISTRIBUTION SERVICES RENDERED BY QIEF AND SINCE THE PAYEE DID NOT HAVE A PERMANENT ESTABL ISHMENT (PE) IN INDIA, SUCH AMOUNTS WERE NOT TAXABLE IN INDIA. THE ASSESSING OFFICER HOWEVER, NOTED THAT SINCE QIEF WAS A GROUP CONCERN; ITS DIRECTORS ARE RESIDENTS IN INDIA; AND, QIEF OPERATES AN ADMINIST RATIVE BACK-OFFICE IN 4 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) INDIA AND, THEREFORE, QIEF HAS A PE IN INDIA, WHICH RENDERED SUCH PAYMENTS LIABLE TO TAX IN INDIA. THEREFORE, ACCORD ING TO THE ASSESSING OFFICER, ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOU RCE (TDS) ON THE PAYMENT OF RS.3,26,05,689/- MADE TO QIEF AND ASSESS EE NOT HAVING DEDUCTED SUCH TDS, THE IMPUGNED SUM WAS DISALLOWABL E UNDER SECTION 40(A)(I) OF THE ACT. BE THAT AS IT MAY, THE AFORES AID BASIS OF DISALLOWANCE IS NOT RELEVANT FOR THE PRESENT, INASM UCH AS, THE CIT(A) DISAGREED WITH THE ASSESSING OFFICER ON THE ASPECT OF APPLICABILITY OF SECTION 40(A)(I) OF THE ACT, INSTEAD HE HAS RETAIN ED THE DISALLOWANCE ON A DIFFERENT GROUND. AS PER THE CIT(A), THE IMPUGNE D EXPENDITURE DOES NOT QUALIFY FOR DEDUCTION UNDER SECTION 37(1) OF TH E ACT. THE REASONS WHICH WEIGHED WITH THE CIT(A) TO HOLD SO CAN BE SUM MARIZED AS FOLLOWS. FIRSTLY, ACCORDING TO CIT(A), ASSESSEE HAD FAILED TO DEMONSTRATE THAT THE INFRASTRUCTURE AVAILABLE WITH QIEF WAS SUFFICIENT TO CANVASS BUSINESS ON BEHALF OF THE ASSESSEE IN EUROPE OR IN ANY OTHER PART OF THE WORLD. AS PER THE CIT(A), THE TRANSFER PRICING DOCUMENTS A ND THE ANNUAL ACCOUNTS OF QIEF SHOWED THAT IT WAS A MAURITIUS-CE NTRIC CONCERN HAVING NO BRANCH OFFICE ANYWHERE IN THE WORLD. ON THIS BASIS, THE CIT(A) CONCLUDED THAT QIEF COULD NOT HAVE UNDERTAKEN MARKE TING ACTIVITIES ON BEHALF OF THE ASSESSEE IN EUROPE OR ANYWHERE ELSE. SECONDLY, AS PER THE CIT(A), THE FACT THAT THERE WAS AN AGREEMENT BETWE EN ASSESSEE AND QIEF IS NOT DETERMINATIVE OF THE ISSUE OF ALLOWA BILITY OF EXPENDITURE UNDER SECTION 37(1) OF THE ACT . BY RELYING ON THE RATIO OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF LACHMIN ARAYAN MADAN LAL VS. CIT, 86 ITR 439(SC) HE OBSERVED THAT IT WAS OPEN FOR THE REVENUE TO EXAMINE THE RELEVANT FACTORS AND DETERMINE ALLOWABI LITY OF EXPENDITURE 5 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) UNDER SECTION 37(1) OF THE ACT. ACCORDING TO HIM, T HE FACTORS IN THE PRESENT CASE SHOW THAT THE AMOUNTS HAVE NOT BEEN LA ID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, AND HE RET AINED THE DISALLOWANCE, ALBEIT ON A DIFFERENT GROUND. IN THIS BACKGROUND, ASSESSE E COMPANY IS IN APPEAL BEFORE TRIBUNAL. 5. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSESS EE HAS MADE DETAILED SUBMISSIONS ASSAILING THE FINDINGS OF THE CIT(A). FIRSTLY, THE LD. REPRESENTATIVE FOR THE ASSESSEE CONTESTED THE FIND INGS OF THE CIT(A) ON LACK OF INFRASTRUCTURE WITH QIEF, WHICH WAS A MAURI TIUS BASED COMPANY. IT WAS EXPLAINED THAT QIEF HAD A 100% SUBSIDIARY, Q INDIA CORP. BASED IN USA. BY REFERRING TO PAGE -338 OF THE PAPER BOO K, IT IS SOUGHT TO BE CANVASSED THAT THE US SUBSIDIARY OF QIEF HAD ON ITS ROLLS ONE MR. ARVIND RANGARAJAN, BASED IN AMERICA, WHOSE PROFILE DEMONST RATES EXPERTISE IN INDIA-RELATED RESEARCH AND INVESTMENT EFFORTS. APA RT THEREFROM, IT HAS ALSO BEEN POINTED OUT THAT PAGE 339 OF THE PAPER BO OK CONTAINS A LIST OF CLIENTS REFERRED BY QIEF ALONGWITH THE CORRESPONDIN G FEES EARNED BY THE ASSESSEE FROM SUCH CLIENTS, WHICH CLEARLY DEMONSTR ATES THAT A SUBSTANTIAL PORTION OF ASSESSEES INCOME IS ON ACCO UNT OF CLIENTS REFERRED BY QIEF. FURTHERMORE, LD. REPRESENTATIVE FOR THE ASSESSEE HAS REFERRED TO PAGES 34 TO 35 OF PAPER BOOK, WHEREIN I S PLACED A COPY OF THE AGREEMENT WITH QIEF DATED 01/07/2008 PERTAINING TO RENDERING OF MARKETING SERVICES TO NON-USA AND NON-CANADA BASED CLIENTS, INCLUDING EUROPE, MIDDLE EAST AND ASIAN CLIENTS. F URTHERMORE, OUR ATTENTION HAS ALSO BEEN DRAWN TO PAGES 39 TO 42 OF THE PAPER BOOK, WHEREIN IS PLACED AGREEMENT WITH QIEF RELATING TO M ARKETING SERVICES FOR THE CLIENTS LOCATED IN USA. LD. REPRESENTATIVE FOR THE ASSESSEE 6 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) POINTED OUT THAT THE AFORESAID MATERIAL WAS VERY MU CH BEFORE THE LOWER AUTHORITIES AND THERE WAS NO JUSTIFICATION TO DISB ELIEVE THE SAME AND HOLD THAT THE REQUISITE SERVICES WERE NOT PROVIDED BY QIEF TO THE ASSESSEE. IT WAS ALSO CANVASSED THAT THE AGREEMENT BETWEEN ASSESSEE AND QIEF HAS BEEN DULY ACTED UPON AND, THEREFORE, I T CANNOT BE DISBELIEVED BY THE REVENUE AND IN THIS REGARD RELI ANCE WAS PLACED ON THE JUDGMENT OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS ARUN DUA, 186 ITR 494(CAL). EMPHASIZING ON THE ADE QUACY OF INFRASTRUCTURAL AND OTHER FACILITIES AVAILABLE WITH QIEF TO RENDER SERVICES TO ASSESSEE, LD. REPRESENTATIVE FOR THE ASSESSEE AL SO REFERRED TO PAGES 242 TO 298 OF PAPER BOOK, WHEREIN IS PLACED COPIES OF THE ANNUAL ACCOUNTS OF QIEF FOR YEARS ENDING 31/12/2010 AND 3 1/12/2011. BY REFERRING TO THE RELEVANT PORTIONS, IT IS SOUGHT TO BE EMPHASIZED THAT THE SAID CONCERN IS CARRYING ON REQUISITE LEVELS OF BUS INESS, INASMUCH AS, THE GROSS REVENUES FOR 31/12/2010 AMOUNTED TO USD 56,63 ,538/-, OUT OF WHICH THE IMPUGNED MARKETING FEE OF USD 22,55,95 2 HAS BEEN RECEIVED FROM ASSESSEE COMPANY. BY REFERRING TO R ELEVANT NOTES ON PAGE 260 OF THE PAPER BOOK IT IS SOUGHT TO BE POINT ED OUT THAT QIEF HAD ENTERED INTO FUND DEVELOPMENT AGREEMENT WITH CELERI TY VENTURE LLC, A DELAWARE LIMITED LIABILITY COMPANY AND THE ASSESSEE COMPANY, UNDER WHICH THE INTERESTS AND OBLIGATIONS OF CELERITY VEN TURE LLC WERE ASSIGNED TO THE ASSESSEE-COMPANY. THUS, QIEF WAS C ARRYING OUT VARIOUS ACTIVITIES, INCLUDING LAUNCH OF A FUND IN DELAWARE . IT HAS ALSO BEEN SOUGHT TO BE POINTED OUT THAT QIEF WAS ALSO ACTING AS CIS MANAGER AND INVESTOR MANAGER(UNREGISTERED) AND WAS GRANTED CER TIFICATE OF REGISTRATION AS FOREIGN INSTITUTIONAL INVESTMENT (F II) BY SEBI IN 7 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) SEPTEMBER, 2008. ALL THESE ASPECTS HAVE BEEN REFER RED BY THE LD. REPRESENTATIVE TO DEMONSTRATE THAT REQUISITE INFRAS TRUCTURAL FACILITIES WERE AVAILABLE WITH QIEF FOR RENDERING MARKETING SE RVICES TO THE ASSESSEE. 6. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE APPEARING FOR THE REVENUE HAS PRIMARILY REITERATED THE ARGUMENTS TAKEN BY THE CIT(A), WHICH WE HAVE ALREADY ADVERTED TO IN AN EARLIER PARA, AND ARE NOT BEING REPEATED FOR THE SAKE OF BREVITY. AC CORDING TO THE LD. DEPARTMENTAL REPRESENTATIVE, THE CIT(A) HAS DENIED THE DEDUCTION UNDER SECTION 37(1) OF THE ACT PRIMARILY FOR THE R EASON THAT ASSESSEE COULD NOT ESTABLISH RENDERING OF SERVICES BY QIEF T O THE ASSESSEE COMPANY ON THE BASIS OF ANY EVIDENCE. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. PERTINENTLY, THE DISPUTE BEFORE US PERTAINS TO THE ALLOWABILITY OF EXPENDITURE INCURRED BY THE ASSESSEE ON FEE PAID TO QIEF FOR MARKETING SUPPORT SERVICES. THE ASSESSING OFFICER AS WELL AS THE CIT (A) HAVE FOUND IT EXPEDIENT TO DISALLOW THE EXPENDITURE, ALBEIT ON DI FFERENT GROUNDS. THE ASSESSING OFFICER DISALLOWED IT ON THE GROUND THA T THE REQUISITE TAX WAS NOT DEDUCTED AT SOURCE AND HENCE SUCH EXPENDITURE W AS TO BE DISALLOWED UNDER SECTION 40(A)(I) OF THE ACT. THI S POSITION DID NOT FIND FAVOUR WITH THE CIT(A) AS ACCORDING TO HIM TAX WAS NOT REQUIRED TO BE DEDUCTED AT SOURCE ON THE IMPUGNED AMOUNT, AS IT WAS NOT LIABLE TO BE TAXED IN INDIA IN THE HANDS OF QIEF. ON THIS ASPEC T OF THE MATTER, THERE IS NO APPEAL PREFERRED BY THE REVENUE AND, THEREFOR E, SUCH FINDING OF CIT(A) HAS ATTAINED FINALITY. THEREFORE, WE PROCEED TO EXAMINE THE BASIS 8 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) ON WHICH THE CIT(A) HAS SUSTAINED THE DISALLOWANCE . AS PER THE CIT(A) THE EXPENDITURE DOES NOT QUALIFY FOR DEDUCTION UNDE R SECTION 37(1) OF THE ACT. SHORN OF OTHER ASPECTS OF SECTION 37(1) O F THE ACT, WHAT HAS BEEN INVOKED BY THE CIT(A) IN THE PRESENT CASE IS THAT THE IMPUGNED EXPENDITURE CANNOT BE CONSIDERED TO HAVE BEEN INCUR RED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF TH E ASSESSEE COMPANY. THE EFFICACY OF SUCH A CONCLUSION IS REQUIRED TO BE JUDGED HAVING REGARD TO THE REASONS ADVANCED BY THE CIT(A), WHICH WE DO HEREINAFTER. 7.1 ON THE ISSUE OF AVAILABILITY OF INFRASTRUCTURE WITH QIEF, IN OUR VIEW, THE CIT(A) HAS MERELY BRUSHED ASIDE THE MATER IAL AND EVIDENCE WHICH THE ASSESSEE SOUGHT TO PUT-FORTH BEFORE HIM. IN PARA 1.13(A) OF THE ORDER, THE CIT(A) OBSERVES THAT ASSESSEE HAD F AILED TO SHOW THE INFRASTRUCTURE AVAILABLE WITH QIEF TO RENDER SERV ICES TO ASSESSEE- COMPANY. SUCH AN OBSERVATION BY THE CIT(A) IS A BL AND ASSERTION BECAUSE THE MATERIAL WHICH WAS BEFORE HIM, AND WHIC H HAS ALSO BEEN PLACED IN THE PAPER BOOK FILED BEFORE US, CLEARLY SHOWS THAT IT IS NOT A CASE WHERE QIEF COULD BE SAID TO BE A CONCERN WITHO UT ADEQUATE INFRASTRUCTURE AND ABILITY TO RENDER SERVICES TO A SSESSEE. THE ANNUAL ACCOUNTS OF THE SAID CONCERN, COPIES OF WHICH HAVE BEEN PLACED IN THE PAPER BOOK, CLEARLY SHOW THAT QIEF IS A CONCERN WHI CH IS CARRYING ON REGULAR ACTIVITIES IN THE FIELD OF MANAGEMENT OF IN VESTORS, ETC. AND IT WAS HAVING A SUBSIDIARY IN USA. NOTABLY, ASSESSEE IS E NGAGED IN PROVIDING INVESTMENT MANAGEMENT SERVICES TO INTERNATIONAL INS TITUTIONAL CLIENTS SUCH AS SOVEREIGN FUNDS, PENSION FUND, ETC. IN RELA TION TO THEIR INVESTMENT EXPOSURES IN INDIA-LISTED SECURITIES. OS TENSIBLY, SUCH INSTITUTIONAL CLIENTS WOULD REQUIRE APPROPRIATE AND DILIGENT EVALUATION 9 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) OF THEIR INVESTMENT MANAGER AND FOR THAT PURPOSE AS SESSEE HAD UNDERTAKEN MARKETING EFFORTS THROUGH QIEF. IN TER MS OF THE AGREEMENT WITH QIEF, THE SAID CONCERN WAS TASKED TO LOOK FOR POTENTIAL OPPORTUNITIES AND TO MARKET THE CAPABILITIES AND E XPERIENCE OF THE ASSESSEE-COMPANY ON INDIA-FOCUSED INVESTMENT OPTI ONS. IN FACT, AT PAGE-339 OF THE PAPER BOOK, A LIST OF CLIENTS HAVE BEEN PLACED, WHO WERE REFERRED TO THE ASSESSEE BY QIEF AND AT THE TI ME OF HEARING IT WAS EXPLAINED THAT MORE THAN 90% OF ASSESSEES REVENUES HAVE BEEN EARNED FROM THE CLIENTS REFERRED BY QIEF. FROM THE SUBMIS SIONS OF THE ASESSEE MADE TO THE LOWER AUTHORITIES, IT IS SEEN THAT ASSE SSEE HAS CONSISTENTLY EXPLAINED THAT QIEF WAS MARKETING ASSESSEES SER VICES TO PROSPECTIVE INSTITUTIONAL INVESTORS SUCH AS SOVEREIGN FUNDS, PE NSION FUNDS, ETC. IN EUROPE, MIDDLE EAST AND ASIA AND ALSO TO PRIVATE SE CTOR INSTITUTIONAL CLIENTS IN USA. IN OUR CONSIDERED OPINION, THE ASS ERTIONS WHICH HAVE BEEN MADE BY THE ASSESSEE BEFORE THE LOWER AUTHORIT IES AS WELL AS BEFORE US ARE BORNE OUT OF RECORD INASMUCH AS AS SESSEE HAS EARNED INCOME THROUGH CLIENTS REFERRED BY QIEF, WHICH IS NOT DISPUTED. MUCH HAS BEEN MADE OUT BY THE CIT(A) THAT MERE EXISTENCE OF AN AGREEMENT BETWEEN ASESSEE AND QIEP WOULD NOT IPSO-FACTO LEAD TO THE ALLOWABILITY OF THE IMPUGNED EXPENDITURE. IN ABSOL UTE TERMS, WE HAVE NO QUARREL WITH THE SAID PROPOSITION ADVANCED BY TH E CIT(A) BUT THE ONUS IN THE PRESENT CASE WAS ON HIM TO ESTABLISH O N THE BASIS OF EVIDENCE AND MATERIAL THAT THE ACTUAL STATE OF AFF AIRS WAS CONTRARY TO THE AGREEMENT. IN FACT, THE AGREEMENT BETWEEN ASSE SSEE AND QIEF HAS BEEN ACTED UPON INASMUCH AS ASSESSEE HAS EARNED BUS INESS THEREUPON AND IN RETURN ASSESSEE MADE PAYMENTS FOR THE SERVIC ES RENDERED BY THE 10 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) PAYEE. IN OUR CONSIDERED OPINION, HAVING REGARD TO THE MATERIAL AND EVIDENCE ON RECORD, THE CIT(A) HAS SOUGHT TO DISREG ARD THE AGREEMENT ON A MERE HYPOTHETICAL BASIS, WITHOUT ANY FACTUAL S UPPORT. 7.2 BEFORE PARTING, WE MAY MENTION TWO MORE ASPECTS WHICH WERE BEFORE THE CIT(A) . IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ONLY OBJECTION OF THE ASSESSING OFFICER WAS BASED O N NON-DEDUCTION OF TAX AT SOURCE AND IN SO FAR AS THE ISSUE OF SECTIO N 37(1) OF THE ACT WAS CONCERNED, THE ASSESSING OFFICER HAD NO OBJECTION. IT WAS ONLY DURING THE APPELLATE PROCEEDINGS THAT THE CIT(A) SHOW CAU SED THE ASSESSEE- COMPANY ON THE ASPECT OF SECTION 37(1) OF THE ACT. IT IS SEEN FROM THE RECORD THAT DURING THE APPELLATE PROCEEDINGS, CIT(A ) CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER ON THE ISSUE OF A LLOWABILITY OF THE EXPENDITURE UNDER SECTION 37(1), WHICH WAS NOT A PO INT RAISED IN THE ASSESSMENT ORDER. IN SUCH REMAND REPORT, THE ASSES SING OFFICER OBSERVED THAT THE IMPUGNED EXPENDITURE WAS INCURRED DURING THE COURSE OF NORMAL BUSINESS ACTIVITY BY THE ASSESSEE AND HENCE DEDUCTIBLE UNDER SECTION 37(1) OF THE ACT. THUS, IMPLIEDLY THE ASSESSING OFFICER REITERATED THE STAND TAKEN IN THE ASSESSMENT ORDER ON THE ISSUE OF SECTION 37(1) OF THE ACT. SECOND ASPECT WHICH NE EDS MENTIONS IS THE ASSESSMENT MADE BY THE ASSESSING OFFICER UNDER SECT ION 143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2012-13, WHEREIN A PORT ION OF THE MARKETING SUPPORT FEE PAID TO QIEF WAS DISALLOWED BY INVOKING SECTION 40A (2)(B) OF THE ACT. AS PER THE CIT(A), THE AFOR ESAID TWO ASPECTS REFLECTED THAT THE ASSESSING OFFICER WAS CONTRAD ICTING HIS OWN POSITION TAKEN IN THE ASSESSMENT FOR ASSESSMENT YEAR 2012-13 BY ACCEPTING THAT THE EXPENDITURE WAS DEDUCTIBLE UNDE R SECTION 37(1) OF 11 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) THE ACT IN THE REMAND REPORT. IT APPEARS THAT FOR THE AFORESAID REASON, THE CIT(A) DISREGARDED THE STAND OF THE ASSESSING O FFICER IN THE REMAND REPORT AND PROCEEDED TO EXAMINE AFRESH THE ISSUE OF ALLOWABILITY UNDER SECTION 37(1) OF THE ACT. 7.3 IN OUR CONSIDERED OPINION, THE STAND OF THE CI T(A) IS MISDIRECTED AND IS BASED ON A WRONG PERSPECTIVE. IN FACT, THE INVOKING OF SECTION 40A(2)(B) OF THE ACT TO DISALLOW A PORTION OF THE EXPENDITURE IN ASSESSMENT YEAR 2012-13 DOES NOT LEND ANY SUPPORT TO THE INFERENCE OF THE CIT(A) THAT THE EXPENDITURE HAS NOT BEEN MAD E WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINESS BECAUSE WHAT IS ENVISAGED BY SECTION 40A(2)(B) IS TO DISALLOW AN EXPENDITURE WHICH IS FOUND TO BE UNREASONABLE OR EXCESSIVE IN RELATION T O ITS MARKET VALUE. INVOKING OF SECTION 40A(2)(B) OF THE ACT TO DISA LLOW A PORTION OF THE EXPENDITURE IS AN ALTOGETHER DIFFERENT DIMENSION THAN INVOKING SECTION 37(1) OF THE ACT TO SAY THAT THE EXPENDITURE IS NO T LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. IN FACT, UNDER SUCH A SITUATION, IT WAS ALL THE MORE ONEROUS ON THE PART OF THE CIT (A) TO DEMONSTRATE AS TO WHY THE ENTIRE EXPENDITURE WAS DISALLOWABLE UND ER SECTION 37(1) OF THE ACT, HAVING REGARD TO THE STAND OF THE ASSESSIN G OFFICER IN THE REMAND REPORT AS WELL AS IN THE ASSESSMENT FOR ASSE SSMENT YEAR 2012- 13. THE SAID BURDEN, IN OUR VIEW, HAS NOT BEEN DIS CHARGED BY THE CIT(A) IN THE PRESENT CASE AND, THEREFORE, WE ARE UNABLE TO ACQUIESCE TO THE SAME. AS A CONSEQUENCE, WE HEREBY SET-ASIDE THE ORD ER OF THE CIT(A) ON THIS ASPECT AND DIRECT THE ASSESSING OFFICER TO DEL ETE THE ADDITION OF RS.3,26,05,268/- REPRESENTING PAYMENT MADE TO QIEF FOR MARKETING SUPPORT SERVICES. THUS, ON THIS ASPECT ASSESSEE SU CCEEDS. 12 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) 8. THE SECOND ISSUE IN THIS APPEAL RELATES TO DISAL LOWANCE OF ADVERTISEMENT EXPENDITURE OF RS.3,77,14,278/-. IN CONTEXT OF THIS DISPUTE, THE RELEVANT FACTS CAN BE SUMMARIZED AS FO LLOWS. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE-COMPANY HAD CLAIMED ADVERTISEMENT EXPENDITURE OF RS.3,97,53,486/- IN THE INSTANT YEAR AS COMPARED TO RS.70,645/- IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. THE ASSESSING OFFICER ALSO NOTICED THAT AN EXPENDITURE OF RS.3,77,14,278/- WAS INCURRED BY WAY OF PAYMENT TO M/S. HANSA VISION PVT. LTD. FOR PLACING ADVERTISEMENTS IN NEWSPAPERS. ON BEING ASK ED TO JUSTIFY THE CLAIM OF ADVERTISEMENT EXPENSES, ASSESSEE FURNISHED THE DETAIL OF EXPENDITURE, SAMPLE COPIES OF INVOICES RAISED BY M/ S. HANSA VISION PVT. LTD. AND ALSO PHOTOCOPIES OF NEWSPAPER CUTTINGS EVI DENCING THE ADVERTISEMENTS PLACED. ASSESSEE ALSO EXPLAINED THA T THE ADVERTISEMENT EXPENSE WAS INCURRED IN ITS CAPACITY AS THE SPON SOR OF QUANTUM MUTUAL FUND ON THE MEDIA CAMPAIGN TO PROMOTE THE V ARIOUS SCHEMES OF THE FUND. IT WAS FURTHER CANVASSED THAT SUCH EX PENDITURE WAS A ROUTINE BUSINESS EXPENDITURE INCURRED IN THE COURSE OF REGULAR BUSINESS. THE ASSESSING OFFICER HAS MADE VARIED OBSERVATIONS IN PARAGRAPHS 6.8 TO 6.14 OF THE ASSESSMENT ORDER AND HAS ULTIMATELY DIS ALLOWED THE ENTIRE EXPENDITURE ON THE GROUND THAT IT HAS BEEN INCURRED FOR ADVERTISING AND PROMOTING QUANTUM MUTUAL FUND AND THAT THE ADVERT ISEMENTS NOWHERE MENTION THE NAME OF THE ASSESSEE AND, THERE FORE, ACCORDING TO HIM, THE EXPENDITURE WAS INCURRED FOR A GROUP CO MPANY AND IT WAS NOT ALLOWABLE AS A BUSINESS EXPENSE IN THE HANDS OF THE ASSESSEE- COMPANY. BEFORE REACHING TO HIS ULTIMATE CONCLUSIO N, THE ASSESSING OFFICER NOTED THAT THE NEWSPAPER CUTTINGS FOR THE E NTIRE ADVERTISEMENT 13 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) EXPENDITURE WERE NOT FURNISHED; AND, THUS THE ENTIR E CLAIM OF RS.3,77,14,278/- COULD NOT BE SAID TO BE SUPPORTED BY DOCUMENTARY EVIDENCE. FURTHER, THE ASSESSING OFFICER OBSERVED T HAT THE ADVERTISEMENT EXPENDITURE WAS INCURRED BY THE ASSES SEE FOR BRAND BUILDING AND HENCE IT WAS CAPITAL IN NATURE. BE T HAT AS IT MAY, THE ENTIRE EXPENDITURE ON ADVERTISEMENT CLAIMED BY THE ASSESSEE AT RS.3,77,14,278/- WAS DISALLOWED AND ADDED TO THE RE TURNED INCOME. 9. IN APPEAL BEFORE THE CIT(A), ASSESSEE-COMPANY MA DE VARIOUS SUBMISSIONS ON POINTS OF FACT AND LAW. THE ASSESSE E-COMPANY POINTED OUT THAT IT HAD ENTERED INTO AGREEMENT WITH M/S. HA NSA VISION PVT. LTD. FOR PLACING ADVERTISEMENTS IN NEWSPAPERS AND THUS P AYMENT WAS MADE TO ONE PARTY; A CONFIRMATION FROM M/S. HANSA VISION PVT. LTD. WAS ADDUCED AS ADDITIONAL EVIDENCE BY MAKING APPLICATIO N UNDER RULE 46A OF THE INCOME-TAX RULES, 1962; AN AGREEMENT ENTERED WITH M/S. HANSA VISION PVT. LTD. DATED 15.2.2011 WAS ALSO ADDUCED A S ADDITIONAL EVIDENCE BY WAY OF AN APPLICATION UNDER RULE 46A OF THE RULES; THAT THE ASSESSING OFFICER COULD NOT HAVE QUESTIONED THE BUS INESS DECISION OF THE ASSESSEE TO INCUR THE IMPUGNED ADVERTISEMENT EX PENDITURE; THAT THE NON-FILING OF NEWSPAPER CUTTINGS FOR THE ENTIRE EXPENDITURE WAS BECAUSE ASSESSEE HAD FILED ONLY SAMPLE COPIES OF TH E NEWSPAPER CUTTINGS AND THE INVOICES ISSUED BY M/S. HANSA VISI ON PVT. LTD.; THAT THE EXPENDITURE WAS INCURRED BY THE ASSESSEE AS A SPONS OR OF QUANTUM MUTUAL FUND IN ORDER TO ATTRACT PROSPECTIVE INVESTO RS TO INVEST IN THE VARIOUS SCHEMES OF THE FUND; THAT THE SAMPLE ADVERT ISEMENTS ITSELF SHOW THAT THE PURPOSE WAS TO ATTRACT PROSPECTIVE IN VESTORS TO INVEST IN 14 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) THE SCHEMES OF QUANTUM MUTUAL FUND; THAT UNDER SUCH CIRCUMSTANCES IT COULD NOT BE SAID THAT THE EXPENDITURE WAS INCUR RED FOR BRAND BUILDING; THAT THE NAME OF THE ASSESSEE WAS APPEAR ING IN THE NEWSPAPER ADVERTISEMENTS AS SPONSOR OF THE MUTUAL F UND AND THEREFORE IT COULD NOT BE SAID THAT THE ADVERTISEME NTS DID NOT REFLECT THE NAME OF ASSESSEE-COMPANY; AND, LASTLY THAT EVE N IF IT WAS TO BE HELD THAT THE EXPENDITURE WAS MADE FOR A GROUP CONC ERN, IT WAS POINTED THAT THE ASSESSEE-COMPANY HAD A DIRECT INTEREST IN THE BUSINESS OF THE QUANTUM ASSET MANAGEMENT COMPANY (QAMC), WHICH MANA GED THE ASSETS OF QUANTUM MUTUAL FUND AND, THEREFORE, SUCH EXPENDITURE WAS ALLOWABLE IN THE HANDS OF THE ASSESSEE. RELIANCE W AS SOUGHT TO BE PLACED ON THE FOLLOWING DECISIONS I) CIT V/S CHANDULAL KESHAVLAL & CO. [1960] 38 ITR 601 (SC) II) CIT V/S ROYAL CALCUTTA TURF CLUB [1961] 41 ITR 414 (SC) III) EASTERN INVESTMENT LIMITED V/S CIT [1951] 20 I TR 1 IV) CAMPA BEVERAGES (P) LTD. V/S IAC [1990] 34 ITD 241 (DEL.) V) CIT V/S ALFA LAVAL (I) PVT. LTD. [2005] 149 TAXM AN 29 VI) S.A. BUILDERS V/S CIT [2007] 158 TAXMAN 74 TO SAY THAT AN EXPENDITURE INCURRED FOR THE PURPOSE S OF BUSINESS IS ALLOWABLE EVEN IF SOME BENEFIT ARISES TO A THIRD PA RTY. APART FROM RELYING ON THE AFORESAID DECISIONS, ASSESSEE ALSO R ELIED ON THE FOLLOWING DECISIONS FOR THE PROPOSITION THAT THE NATURE OF THE IMPUGNED ADVERTISEMENT EXPENDITURE COULD NOT BE CONSTRUED AS HAVING BEEN INCURRED FOR BRAND BUILDING:- I) ACIT V/S GLOBAL HEALTHLINE (P) LTD. [2012] 19 IT R(T) 298 15 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) II) ITO V/S SPICE COMMUNICATIONS LTD. [2010] 35 SOT 78 III) JCIT V/S ITC LTD. [2008] 112 ITD 57 FURTHER, RELIANCE WAS ALSO PLACED ON THE JUDGMENT O F THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CORE HEALTHCARE LTD., 308 ITR 263 AND THAT OF HON'BLE DELHI HIGH COURT IN THE CASE OF MODI REVLON PVT. LTD., 26 TAXMANN.COM 133 FOR THE PROPOSITION THAT EVEN ADVERTISEMENT EXPENSES INCURRED TO CREATE A BRAND IMAGE WAS ALLOW ABLE AS REVENUE EXPENDITURE. THE CIT(A) CONSIDERED THE EXHAUSTIVE SUBMISSIONS MADE BY THE ASSESSEE AND CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER ON VARIOUS ISSUES, INCLUDING THE APPLICATIO N OF THE ASSESSEE SEEKING ADMISSION OF ADDITIONAL EVIDENCES UNDER RUL E 46A OF THE RULES. IN RESPONSE, THE ASSESSING OFFICER SUBMITTED THAT M /S. HANSA VISION PVT. LTD. HAD RAISED ALL THE INVOICES IN THE MONTHS OF F EBRUARY AND MARCH, 2011 AND EVEN THE AGREEMENT WAS DATED 15.2.2011, WH ICH WAS TOWARDS THE FAG END OF THE YEAR, WHICH APPEARED TO BE DOUBT FUL. SECONDLY, THE ASSESSING OFFICER SUBMITTED THAT THE ASSESSEE WAS A LLOWED OPPORTUNITY DURING THE ASSESSMENT PROCEEDINGS TO FURNISH THE CO MPLETE EVIDENCE AND, THEREFORE, NO ADDITIONAL EVIDENCE OUGHT TO BE ADMITTED BY THE CIT(A). THIRDLY, THE ASSESSING OFFICER CANVASSED T HAT ASSESSEE HAD PAID TO A SINGLE ENTITY , I.E. M/S. HANSA VISION PVT. LT D. FOR ADVERTISEMENT AND PROMOTION OF QUANTUM MUTUAL FUND, WHICH WAS A T RUST AND A SEPARATE TAXABLE ENTITY EXEMPT FROM TAX AND HENCE T HE ADVERTISEMENT EXPENDITURE OUGHT TO HAVE BEEN INCURRED BY THE MUTU AL FUND ITSELF AND NOT BY THE ASSESSEE-COMPANY ACTING AS A SPONSOR. I N SUM AND SUBSTANCE, THE ASSESSING OFFICER REITERATED HIS EAR LIER POSITION AND ALSO OPPOSED THE PLEA OF THE ASSESSEE FOR ADMISSION OF A DDITIONAL EVIDENCE. 16 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) IT IS NOTICED FROM THE ORDER OF CIT(A) THAT ASSESSE E ALSO FURNISHED ITS SAY ON THE REMAND REPORT SUBMITTED BY THE ASSESSING OFF ICER, WHICH HAS BEEN REPRODUCED BY THE CIT(A) IN PARA 2.5 OF HIS OR DER. THE CIT(A) CONSIDERED THE RIVAL STANDS AND CONCLUDED AS FOLLOW S. FIRSTLY, ON THE ISSUE OF ADMISSION OF ADDITIONAL EVIDENCE UNDER RUL E 46A OF THE RULES, THE CIT(A) DECLINED THE PLEA OF THE ASSESSEE. AT T HIS STAGE, WE MAY NOTICE THAT APART FROM OTHER ADDITIONAL EVIDENCES, ASSESSEE PRODUCED BEFORE THE CIT(A) AN AGREEMENT DATED 1.6.2011 ENTER ED WITH QUANTUM ASSET MANAGEMENT CO. PVT. LTD., WHO MANAGED THE ASS ETS OF QUANTUM MUTUAL FUND. THE AFORESAID AGREEMENT WAS PRODUCED BY THE ASSESSEE TO SHOW THAT IT WAS ALSO EARNING MANAGEMENT FEES F ROM QUANTUM ASSET MANAGEMENT CO. PVT. LTD. AND THUS, THE ACTION OF INCURRING EXPENDITURE ON PROMOTION OF VARIOUS SCHEMES OF QUAN TUM MUTUAL FUND WAS ON RELEVANT CONSIDERATIONS. THE CIT(A) DEC LINED TO ADMIT SUCH AN EVIDENCE AS, ACCORDING TO HIM, THE AGREEMENT D ID NOT PERTAIN TO THE IMPUGNED ASSESSMENT YEAR AS IT WAS DATED 1.6.2011. WITH REGARD TO THE MERITS, CIT(A) CONCLUDED THAT THE EXPENDITURE DID N OT QUALIFY FOR DEDUCTION U/S 37(1) OF THE ACT AS IT WAS NOT LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF ASSESSEES BUSINESS . 10. FURTHERMORE, THE CIT(A) NOTED THAT AS A SPONSOR OF THE FUND, ASSESSEE WAS HAVING SUBSTANTIAL INTEREST IN THE QAM C AND WOULD EARN INCOME BY WAY OF DIVIDEND FROM THE QAMC OR BY WAY O F INCREASE IN THE CAPITAL NET WORTH OF SUCH COMPANY. ACCORDING TO TH E CIT(A), BOTH THE POSSIBLE GAINS ACCRUING TO THE ASSESSEE-SPONSOR, WH ETHER BY WAY OF DIVIDEND OR LONG TERM CAPITAL GAIN, WOULD BE EXEMPT FROM TAX UNDER 17 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) THE ACT. IN SUCH A SITUATION, ACCORDING TO THE CIT (A), THE IMPUGNED EXPENDITURE ON ADVERTISEMENTS CAN BE CONSIDERED TO HAVE BEEN INCURRED FOR EARNING TAX-FREE INCOMES AND THE SAME WAS NOT ALLOWABLE U/S 14A OF THE ACT. FOR THE SAID REASONS, HE HAS A FFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 11. BEFORE US, THE LEARNED REPRESENTATIVE FOR THE A SSESSEE VEHEMENTLY POINTED OUT THAT THE MATERIAL ON RECORD CLEARLY SHOWS THAT THE ENTIRE EXPENDITURE WAS INCURRED BY THE ASSESSEE FOR THE PURPOSE OF ATTRACTING INVESTORS TOWARDS INVESTING IN THE QUANT UM MUTUAL FUND, OF WHICH ASSESSEE WAS THE SPONSOR. THE LEARNED REPRES ENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE CAUSE FOR INCURRING T HE EXPENDITURE AT THE FAG END OF THE YEAR WAS THAT ONE OF THE FUNDS LAUNC HED BY QUANTUM MUTUAL FUND, I.E., QUANTUM LONG TERM EQUITY FUND (Q LTEF) WAS COMPLETING 5 YEARS ON 13.3.2011 AND, THEREFORE, IT WAS DECIDED TO MARKET THE PERFORMANCE OF THE FUND AS ITS TRACK REC ORD WAS FAVOURABLE IN COMPARISON TO THE OTHER FUNDS. IT WAS DECIDED T O ENTER INTO A MARKETING AGREEMENT WITH M/S. HANSA VISION PVT. LTD . IN FEBRUARY/MARCH, 2011 AND THEREAFTER THE INCURRENCE OF THE ADVERTISEMENT EXPENDITURE STARTED. IN THIS MANNER, IT WAS SOUGHT TO BE CANVASSED THAT INCURRENCE OF THE EXPENDITURE TOWARD S THE FAG END OF THE YEAR IS NOT FOR ANY DOUBTFUL REASONS, AS MADE OUT BY THE LOWER AUTHORITIES. EMPHASIZING THAT THE EXPENDITURE WAS FALLING WITHIN THE TESTS LAID DOWN IN SEC. 37(1) OF THE ACT, IT WAS PO INTED OUT THAT THE WHOLLY OWNED SUBSIDIARY OF THE ASSESSEE-COMPANY, I. E., QAMC WAS MANAGING THE ASSETS OF QUANTUM MUTUAL FUND WHICH HA D VARIOUS 18 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) MUTUAL FUND SCHEMES AND THE ADVERTISEMENT EXPENDITU RE WAS INCURRED PRIMARILY FOR ATTRACTING INVESTORS FOR INVESTING IN THE VARIOUS EXISTING SCHEMES OF THE FUND. AS A SPONSOR OF THE MUTUAL FU ND, AND AS A HOLDING COMPANY OF QAMC, WHICH WAS MANAGING THE ASS ETS OF THE FUND, ASSESSEE-COMPANY HAS A DIRECT INTEREST IN THE PERFO RMANCE OF THE MUTUAL FUND. THE LEARNED REPRESENTATIVE FOR THE AS SESSEE ALSO REFERRED TO THE SEBI (MUTUAL FUNDS) REGULATIONS, 1996 TO POI NT OUT THE LOCUS STANDI OF THE ASSESSEE-COMPANY TO INCUR SUCH ADVERTISEMEN T EXPENDITURE FOR ATTRACTING INVESTORS TO INVEST IN T HE MUTUAL FUND. IN PARTICULAR, ATTENTION WAS INVITED TO REGULATION 52( 7) OF SEBI (MUTUAL FUNDS) REGULATION, 1996 TO EMPHASIZE THAT ANY EXPEN DITURE IN EXCESS OF THE LIMITS SPECIFIED IN THE REGULATIONS WAS LIABLE TO BE BORNE ONLY BY THE CONCERNED ASSET MANAGEMENT COMPANY OR BY THE TRUSTE ES OR SPONSORS OF THE MUTUAL FUND. THE LEARNED REPRESENTATIVE EXP LAINED THAT IN VIEW OF THE FACT THAT THE MUTUAL FUND COULD NOT CHARGE E XPENSES OVER AND ABOVE THE PRESCRIBED LIMITS, ANY EXPENDITURE INCURR ED OVER AND ABOVE SUCH LIMIT WAS BORNE BY THE ASSESSEE-COMPANY. IN F ACT, BY REFERRING TO REGULATION 52(4)(B) AND 52(5) OF THE SEBI (MUTUAL F UND) REGULATIONS, 1996 IT WAS POINTED OUT THAT ADVERTISEMENT EXPENDI TURE COULD NOT BE INCURRED BY THE MUTUAL FUND BUT COULD ONLY BE BORNE BY THE ASSET MANAGEMENT COMPANY OR TRUSTEE OR SPONSORS OF THE FU ND. APART THEREFROM, THE LEARNED REPRESENTATIVE ALSO POINTED OUT THAT IT WAS WRONG ON THE PART OF THE CIT(A) TO HAVE OBSERVED TH AT THE ASSESSEE- COMPANY WAS ENTITLED TO EARN ONLY TAX-EXEMPT INCOME S FROM QAMC. IN THIS CONTEXT, REFERENCE WAS INVITED TO THE AGREEMEN T DATED 1.6.2011 WITH QAMC, A COPY OF WHICH HAS BEEN PLACED AT PAGES 223 TO 226 OF THE 19 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) PAPER BOOK, TO SHOW THAT ASSESSEE WAS ENTITLED TO E ARN MANAGEMENT FEE ALSO, WHICH WAS A TAXABLE RECEIPT. THE LEARNED REPRESENTATIVE POINTED OUT THAT THE AFORESAID CRUCIAL PIECE OF EVI DENCE WAS PUT BEFORE THE CIT(A), WHO HAD ALSO CALLED FOR A REMAND REPORT ON SUCH EVIDENCE, BUT SAME HAS NOT BEEN ADMITTED BY THE CIT(A) ON UNJ USTIFIED GROUNDS. THE LEARNED REPRESENTATIVE POINTED OUT THAT THE AGR EEMENT DATE WAS 1.6.2011, WHICH WAS BEYOND THE YEAR UNDER CONSIDERA TION, BUT THE SAME WAS NECESSITATED BECAUSE OF THE FACT THAT RELE VANT APPROVAL FROM THE REGIONAL DIRECTOR, WESTERN REGION, MUMBAI UNDER PROVISO TO SEC. 297(1) OF THE COMPANIES ACT, 1956 WAS RECEIVED ONLY ON 30.5.2011. FOR THIS ASPECT, ATTENTION WAS INVITED TO THE RELEVANT CLAUSE IN THE AGREEMENT DATED 1.6.2011. IT WAS, THEREFORE, CONTE NDED THAT THE REFUSAL OF THE CIT(A) TO CONSIDER SUCH AN EVIDENCE WAS ON IRRELEVANT CONSIDERATIONS. NOTWITHSTANDING THE AFORESAID, THE LEARNED REPRESENTATIVE POINTED OUT THAT SEC. 14A OF THE ACT WAS OF NO RELEVANCE FOR THE PERIOD UNDER CONSIDERATION INASMUCH AS THER E WAS NO TAX-FREE DIVIDEND INCOME EARNED BY THE ASSESSEE FROM QAMC, A S NO DIVIDEND HAS BEEN PAID BY QAMC AT ALL. ON THIS ASPECT, RELI ANCE WAS PLACED ON THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD., 378 ITR 33 . IT WAS ALSO POINTED OUT THAT QAMC WAS A 100% SUBSIDIARY OF THE ASSESSEE-COMPANY, AND THUS, ASSES SEES INVESTMENTS IN ITS SUBSIDIARY WERE LIABLE TO BE CONSIDERED IN T HE NATURE OF STRATEGIC INVESTMENTS, WHICH WERE OUTSIDE THE PURVIEW OF SEC. 14A OF THE ACT. IN SUPPORT OF SUCH PROPOSITION, RELIANCE WAS PLACED ON THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF ORIENTAL STRUCTURAL ENGINEERS (P) LTD., 35 TAXMANN.COM 210 , ORDER OF CHENNAI BENCH OF TRIBUNAL IN THE 20 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) CASE OF EIH ASSOCIATED HOTELS LTD. (ITA NO. 1503/MDS/2012 D ATED 17.7.2013) , ORDER OF MUMBAI BENCH OF TRIBUNAL IN THE CASE OF M/S. JM FINANCIAL LTD. (ITA NO. 4521/MUM/2012 DATED 26.3.20 14) AND ORDER OF DELHI BENCH OF TRIBUNAL IN THE CASE OF INTERGLOBE ENTERPRISES LTD. (ITA NOS. 1362 & 1032/DEL/2013 DATED 4.4.2014) . FOR ALL THE ABOVE REASONS, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE SUBMITT ED THAT THE IMPUGNED EXPENDITURE HAS BEEN UNJUSTLY DISALLOWED B Y THE LOWER AUTHORITIES. 12. ON THE OTHER HAND, THE LD. DR APPEARING FOR THE REVENUE HAS DEFENDED THE ACTION OF THE LOWER AUTHORITIES BY POI NTING OUT THAT THE ADVERTISEMENT EXPENSES WAS RELATABLE TO THE ACTIVIT IES OF THE MUTUAL FUND AND NOT OF THE ASSESSEE AND, THEREFORE, THE SA ME HAS BEEN RIGHTLY DISALLOWED IN THE HANDS OF THE ASSESSEE. IT WAS AL SO POINTED THAT THE IMPUGNED EXPENSES WOULD HAVE BEEN JUSTIFIABLY INCUR RED BY QAMC, WHICH WAS THE ASSET MANAGEMENT COMPANY OF THE MUTUA L FUND AND NOT BY THE ASSESSEE WHO WAS SPONSOR OF THE FUND. W ITH REGARD TO THE EARNING OF TAXABLE MANAGEMENT FEE FROM QAMC, THE LD . DR POINTED OUT THAT SUCH INCOME EARNED BY THE ASSESSEE OVER THE YE ARS WAS LESS THAN THE EXPENDITURE INCURRED BY THE ASSESSEE ON ADVERTI SEMENT, ETC., AND IT WOULD NOT DEFEAT THE INVOKING OF SEC. 14A OF THE AC T. ACCORDING TO HIM, THE INCOMES THAT ASSESSEE WAS LIABLE TO EARN IN FUT URE ON ACCOUNT OF DIVIDEND AND LONG TERM CAPITAL GAIN FROM QAMC WERE INDEED EXEMPT FROM TAX AND THUS, INVOKING OF SEC. 14A OF THE ACT WAS JUSTIFIED IN ORDER TO DISALLOW THE IMPUGNED ADVERTISEMENT EXPENDITURE. 21 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE CRUX OF THE CONTROVERSY IN THIS GROUND REVOLVES AROUND AS T O WHETHER THE ADVERTISEMENT EXPENDITURE INCURRED BY THE ASSESSEE COULD BE CONSTRUED TO HAVE BEEN INCURRED FOR THE PURPOSES OF THE BUSINESS WITHIN THE MEANING OF SEC. 37(1) OF THE ACT. THE APPELLANT-CO MPANY HAS ESTABLISHED A MUTUAL FUND, I.E., QUANTUM MUTUAL FUN D AS A SPONSOR IN TERMS OF SEBI (MUTUAL FUND) REGULATIONS, 1996. A M UTUAL FUND IS SET-UP IN THE FORM OF A TRUST, WHICH HAS A SPONSOR, TRUSTE ES, ASSET MANAGEMENT COMPANY AND A CUSTODIAN. IN TERMS OF SE BI (MUTUAL FUND) REGULATIONS, 1996 A SPONSOR IS AKIN TO A PROM OTER OF A CORPORATE BODY AS IT IS THE SPONSOR WHO ESTABLISHES A MUTUAL FUND AND REGISTERS IT UNDER THE SEBI (MUTUAL FUND) REGULATIONS, 1996. IN TERM OF THE SEBI (MUTUAL FUND) REGULATIONS, 1996 IT IS THE SPONSOR W HO FORMS THE TRUST, APPOINTS THE BOARD OF TRUSTEES AND HAS ALSO THE FRE EDOM TO APPOINT THE ASSET MANAGEMENT COMPANY, WHICH WOULD MANAGE THE FU NDS OF THE FUND. BEFORE US, THE RELEVANT PROVISIONS OF THE SE BI (MUTUAL FUND) REGULATIONS, 1996 WERE REFERRED TO EMPHASIZE THAT A SPONSOR OF A MUTUAL FUND IS OBLIGATED TO CONTRIBUTE ATLEAST 40% OF THE NET WORTH OF THE ASSET MANAGEMENT COMPANY. THE TRUSTEES OF THE MUTUAL FUND ACT AS PROTECTORS OF THE UNIT-HOLDERS INTEREST. THE T RUSTEES DO NOT DIRECTLY MANAGE THE PORTFOLIO OF SECURITIES AND INSTEAD, THE SAME IS DONE BY AN ASSET MANAGEMENT COMPANY IN TERMS OF SEBI (MUTUAL F UND) REGULATIONS, 1996. THE ASSET MANAGEMENT COMPANY TH US MANAGES THE FUNDS SCHEMES AND ALSO ITS CORPUS. THE FUND MANAG EMENT INCLUDES BUYING AND SELLING OF SECURITIES IN LARGE VOLUMES A ND IN ORDER TO KEEP A TRACK OF SUCH TRANSACTIONS, THERE IS A CUSTODIAN. THE AFORESAID BRIEFLY 22 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) BRINGS OUT THE SCHEMATIC POSITION OF THE ASSESSEE-C OMPANY IN THE CONTEXT OF THE COMPLEXITIES INVOLVED IN THE FUNCTIO NING OF A MUTUAL FUND. 14. NOW, THE CASE OF THE ASSESSEE IS THAT IT HAS IN CURRED ADVERTISEMENT EXPENDITURE SO AS TO PROMOTE THE VARI OUS SCHEMES LAUNCHED BY QUANTUM MUTUAL FUND. THE ASSESSEE HAS EXPLAINED THAT THE EXPENDITURE HAS BEEN INCURRED FOR ATTRACTING IN VESTORS FOR INVESTING IN THE EXISTING SCHEMES OF QUANTUM MUTUAL FUND. IT HAS ALSO BEEN SOUGHT TO BE POINTED OUT THAT THE ASSET MANAGEMENT COMPANY, I.E., QAMC IS ITS 100% SUBSIDIARY. ACCORDING TO THE ASSE SSEE, IT HAS A DIRECT INTEREST IN THE BUSINESS OF THE QAMC, WHO IN TURN M ANAGES THE ASSETS OF QUANTUM MUTUAL FUND. THE AFORESAID FACTUAL MATRIX IS NOT IN DISPUTE AND IS ALSO EMERGING FROM RECORD. HAVING REGARD TO THE SAME, THE MOOT QUESTION IS AS TO WHETHER THE ASSESSEE WAS DRIVEN B Y CONSIDERATIONS OF COMMERCIAL EXPEDIENCY OR NOT WHILE INCURRING THE IM PUGNED EXPENDITURE ON ADVERTISEMENT? NO DOUBT, THE EXPRES SION COMMERCIAL EXPEDIENCY IS NOT AMENABLE TO A STRAIGHTJACKETED D EFINITION, BUT ITS MEANING IS REQUIRED TO BE UNDERSTOOD IN THE CONTEXT OF THE FACTS AND CIRCUMSTANCES OF EACH CASE. SO HOWEVER, IN THE CON TEXT OF A BUSINESSMAN, IT WOULD BE SAFE TO DEDUCE THAT THE EX PRESSION COMMERCIAL EXPEDIENCY WOULD SUGGEST THAT EXPENDIT URE IS INCURRED WITH A SENSE OF PRUDENCE FOR THE PURPOSES OF BUSINE SS. IN FACT, IT IS A TRITE LAW THAT IN ORDER TO DETERMINE THE ALLOWABILI TY OF BUSINESS EXPENDITURE, LEGAL OBLIGATION TO INCUR THE EXPENDIT URE IS NOT THE REQUIREMENT, BUT IT WOULD SUFFICE IF THE EXPENDITUR E WAS INCURRED ON THE 23 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) GROUND OF COMMERCIAL EXPEDIENCY. IF WE EXAMINE THE IMPUGNED ADVERTISEMENT EXPENDITURE INCURRED BY THE ASSESSEE AS A SPONSOR OF THE MUTUAL FUND AND AS A HOLDING COMPANY FOR THE ASSET MANAGEMENT COMPANY OF THE MUTUAL FUND, IT COULD NOT BE SAID TH AT ASSESSEE WAS DEVOID OF ANY LOCUS STANDI . IN FACT, THERE CAN BE NO DENYING THE FACT THAT THE PURPORT OF THE EXPENDITURE WAS TO INCREASE ASSE SSEES OWN EARNINGS INASMUCH AS THE MANAGEMENT FEE WHICH THE ASSESSEE I S ENTITLED TO EARN FROM QAMC IS ALSO DEPENDENT ON THE LEVEL OF AVERAGE ASSETS OF THE FUND MANAGED BY QAMC. THE AFORESAID BECOMES CLEAR FROM THE AGREEMENT OF THE ASSESSEE WITH QAMC, A COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK AT PAGES 223 TO 226. IN FACT, THE AGREE MENT DATED 1.6.2011 ENUMERATES THE ROLE AND RESPONSIBILITIES OF ASSESSE E-COMPANY WHICH, INTER-ALIA , INCLUDES PROMOTION OF SCHEMES OF QUANTUM MUTUAL F UND THROUGH ONLINE/OFFLINE/PRINT-MEDIA, ETC. IN THIS V IEW OF THE MATTER, IN OUR VIEW, THE STAND OF THE LOWER AUTHORITIES THAT T HERE IS NO NEXUS BETWEEN THE EXPENDITURE AND THE BUSINESS OF THE ASS ESSEE IS QUITE FALLACIOUS AND CONTRARY TO THE FACT-SITUATION. AT THIS STAGE, WE MAY ALSO REFER TO A CONCURRENT STAND OF THE REVENUE THAT AS THE ADVERTISEMENTS RELATE TO SECURING INVESTORS TO INVEST IN THE SCHEM ES OF QUANTUM MUTUAL FUND, THE EXPENDITURE, AT BEST, COULD BE SAI D TO BE FOR THE BENEFIT OF QUANTUM MUTUAL FUND, WHICH IS A SEPARATE TAXABLE ENTITY. THUS, AS PER THE REVENUE, SUCH EXPENDITURE IS FOR T HE BENEFIT OF A THIRD PARTY AND NOT FOR ASSESSEES BUSINESS. IN THIS CON TEXT, WE MAY REFER TO THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CA SE OF S.A. BUILDERS LTD., 288 ITR 1 (SC) , WHICH WAS ALSO RELIED UPON BEFORE US BY THE LEARN ED REPRESENTATIVE FOR THE ASSESSEE. THOUGH THE JUDGME NT OF THE HON'BLE 24 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) SUPREME COURT WAS IN THE CONTEXT OF SEC. 36(1)(III) OF THE ACT RELATING TO EXPENDITURE ON INTEREST, BUT THE OBSERVATIONS OF TH E HON'BLE COURT ARE RELEVANT FOR SEC. 37(1) OF THE ACT DUE TO THE PRESE NCE OF THE EXPRESSION FOR THE PURPOSES OF BUSINESS IN BOTH THE SECTIONS . THE HON'BLE SUPREME COURT EMPHASIZED THAT EVEN IN THE CONTEXT O F SEC. 37(1) OF THE ACT, THE EXPRESSION FOR THE PURPOSES OF BUSINESS WOULD INCLUDE AN EXPENDITURE VOLUNTARILY INCURRED FOR COMMERCIAL EXP EDIENCY AND IT WOULD BE IMMATERIAL IF A THIRD PARTY ALSO BENEFITTE D FROM THE SAME. THE FOLLOWING EXTRACT FROM THE JUDGMENT OF THE HON'BLE SUPREME COURT IS NOTABLE:- . ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS B ETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS (WHICH N EED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF), THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM-CHAIR OF T HE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE CO MPELLED TO MAXIMIZE ITS PROFIT. THE INCOME TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT B USINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOOK AT THE MAT TER FROM THEIR VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. IN VIEW OF THE AFORESAID, WE THEREFORE DO NOT FIND ANY MERIT IN THE STAND OF THE INCOME-TAX AUTHORITIES THAT THE EXPENDITURE IN QUESTION IS NOT LAID OUT FOR THE PURPOSES OF ASSESSEES BUSINESS, M ERELY BECAUSE IT COULD BENEFIT ANOTHER ENTITY ALSO. 15. WE MAY ALSO REFER TO THE RELIANCE PLACED BY CIT (A) ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF AMALGAMATIONS (P) 25 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) LTD., 226 ITR 188 (SC) . ACCORDING TO THE CIT(A), THE RATIO OF THE ABOVE DECISION JUSTIFIES THE INFERENCE THAT THE IMPUGNED EXPENDITURE WAS NOT INCURRED FOR THE PURPOSES OF ASSESSEES BUSINESS. WE HAVE PERUSED THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF AMALGAMATIONS (P) LTD. (SUPRA) AND FIND THAT THE SAME HAS BEEN UNJUSTLY APPLIED I N THE PRESENT CASE INASMUCH AS THE FACTS AND CIRCUMSTANCE S IN THE CASE BEFORE THE HON'BLE SUPREME COURT STOOD ON AN ENTIRE LY DIFFERENT FOOTING. THE ASSESSEE BEFORE THE HON'BLE SUPREME C OURT WAS A BULK SHAREHOLDER IN SEVERAL COMPANIES AND IT WAS RENDERI NG SERVICES TO ITS SUBSIDIARIES IN VARIOUS AREAS OF FINANCE, LIAISONIN G, EXPORT PROMOTION ETC. THE DIRECTORS OF THE SUBSIDIARY COMPANIES WER E EARNING REMUNERATION FROM THE RESPECTIVE COMPANIES IN TERMS OF THE LIMITS FIXED UNDER THE COMPANIES ACT, 1956. THE ASSESSEE-COMPAN Y PAID REMUNERATION TO DIRECTORS OF THE SUBSIDIARY COMPANI ES IN EXCESS OF THE CEILING PRESCRIBED IN THE COMPANIES ACT, 1956. SUC H EXCESS REMUNERATION PAID BY THE ASSESSEE-COMPANY TO THE DI RECTORS OF THE SUBSIDIARY COMPANIES WAS CLAIMED AS A DEDUCTION ON THE GROUND THAT IT WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINES S OF THE ASSESSEE- COMPANY. THE HON'BLE SUPREME COURT NOTED THAT THER E WAS NO NEXUS BETWEEN THE EXPENDITURE AND THE BUSINESS OF THE ASS ESSEE. THE BUSINESS OF THE ASSESSEE WAS NOTED TO BE OF HOLDING ITS INVESTMENTS AND IT WAS NOTICED THAT SUCH INCOME COULD BE EARNED BY THE ASSESSEE WITHOUT INCURRING THE DISPUTED EXPENDITURE. IT IS FOR THE SAID REASON THE CLAIM OF THE ASSESSEE WAS NEGATED BY THE HON'BLE SU PREME COURT. SO HOWEVER, IN THE PRESENT CASE, THE COMPLEXION OF THE FACTUAL MATRIX IS QUITE DIFFERENT. HEREIN, IT IS THE ASSESSEE-COMPAN Y WHICH HAS SET-UP THE 26 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) MUTUAL FUND AS A SPONSOR AND IS ALSO THE HOLDING CO MPANY FOR THE ASSET MANAGEMENT COMPANY, WHICH IN TURN IS MANAGING THE A SSETS OF THE MUTUAL FUND. THE INCOME-EARNING APPARATUS OF THE A SSESSEE INCLUDES A STREAM OF INCOME FROM SUCH AN ACTIVITY IN WHICH ASS ESSEE HAS A DEEP INTEREST, MAY IT BE THE AFFAIRS OF THE ASSET MANAGE MENT COMPANY OR THE MUTUAL FUND. NO DOUBT, THE ADVERTISEMENTS ARE INTE NDED TO SECURE INVESTORS FOR INVESTING IN THE SCHEMES OF THE MUTUA L FUND, WHICH IS A SEPARATE ENTITY, SO HOWEVER, THE INCURRENCE OF SUCH EXPENDITURE VIS-- VIS ASSESSEES BUSINESS CANNOT BE DISCOUNTED EVEN I F ITS INCURRENCE WOULD RESULT IN A BENEFIT TO A THIRD PARTY. ON THI S ASPECT OF THE MATTER, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE RELIED UPON THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF TATA SONS (P) LTD., 18 ITR 460 WHICH HAS ALSO BEEN REFERRED TO BY THE HON'BLE SUP REME COURT IN THE CASE OF AMALGAMATIONS (P) LTD. (SUPRA) . IN THE CASE OF TATA SONS (P) LTD. (SUPRA) ASSESSEE WAS MANAGING AGENT OF AN ANOTHER COMPANY AND IT WAS EARNING AGENCY COMMISSION COMPUTED WITH REFEREN CE TO THE NET PROFITS OF THE MANAGED COMPANY. ASSESSEE-COMPANY V OLUNTARILY PAID CERTAIN SUMS TO SOME OF THE OFFICERS OF MANAGED COM PANY AS BONUS, AND SUCH EXPENDITURE WAS CLAIMED AS DEDUCTION WHILE COMPUTING ITS TAXABLE BUSINESS INCOME. SUCH CLAIM WAS UPHELD ON T HE GROUND OF COMMERCIAL PRINCIPLES AS ACCORDING TO THE HON'BLE H IGH COURT, WHAT THE ASSESSEE HAD DONE WAS SOMETHING, WHICH HAD AN OBJEC TIVE OF INCREASING THE PROFITS OF THE MANAGED COMPANY, WHICH IN TURN W OULD INCREASE ITS OWN SHARE OF COMMISSION INCOME. THE HON'BLE SUPREM E COURT IN THE CASE OF AMALGAMATIONS (P) LTD. (SUPRA) CONSIDERED THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT AND OBSERVED THAT THERE W AS A DIRECT NEXUS 27 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) BETWEEN THE INCREASED PROFITS OF THE MANAGED COMPAN Y AND THE MANAGERIAL COMMISSION PAYABLE TO THE ASSESSEE SINCE SUCH AGENCY COMMISSION WAS CALCULATED AS A PRESCRIBED PERCENTAG E OF THE NET PROFITS OF THE MANAGED COMPANY. IN OUR CONSIDERED OPINION, THE PARITY OF REASONING IN THE CASE OF TATA SONS (P) LTD. (SUPRA) IS CLEARLY ATTRACTED IN THE PRESENT CASE TOO. THERE CAN BE NO GAIN SAYING THAT-BETTER THE PERFORMANCE OF THE MUTUAL FUND AND THE ASSET MANAGE MENT COMPANY, BETTER WOULD BE THE RETURNS OF THE ASSESSEE-COMPANY . THEREFORE, IN OUR VIEW, THE CIT(A) HAS ERRED IN HOLDING THAT THE ADVERTISEMENT EXPENDITURE IS NOT LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE APPELLANTS BUSINESS. HAVING REGARD TO THE AFO RESAID DISCUSSION, WE REVERSE THE STAND OF THE LOWER AUTHORITIES ON THIS ASPECT. 16. THE OTHER PLEA OF THE REVENUE, BASED ON THE PRO VISIONS OF SEC. 14A OF THE ACT, IN OUR VIEW, IS ALSO QUITE UNTENABL E. THE SAID PLEA IS BASED ON THE PREMISE THAT THE ONLY POSSIBLE EARNING S OF THE ASSESSEE AS A SPONSOR OF THE MUTUAL FUND, AND AS A HOLDING COMP ANY OF THE ASSET MANAGEMENT COMPANY, BY WAY OF DIVIDENDS OR LONG TER M CAPITAL GAIN WOULD BE EXEMPT FROM TAX AND, THEREFORE, THE IMPUGN ED EXPENDITURE WOULD CONSTITUTE AN EXPENDITURE INCURRED FOR EARNIN G OF EXEMPT INCOME, WHICH IS HIT BY THE PROVISIONS OF SEC. 14A OF THE ACT. FACTUALLY SPEAKING, THE SAID PREMISE IS MISPLACED INASMUCH AS ASSESSEE IS ALSO ENTITLED TO EARN MANAGEMENT FEE FROM QAMC, WHICH IS A TAXABLE RECEIPT. IN FACT, BEFORE THE CIT(A), ASSESSEE HAD SPECIFICALLY BROUGHT OUT THE SAME AND THE TABULATION OF SUCH EARNINGS IN DIF FERENT YEARS HAVE BEEN REPRODUCED IN THE ORDER OF CIT(A) IN PARA 2.2. HOWEVER, THE CIT(A) 28 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) HAS NOT CONSIDERED THE SAME BECAUSE IT WAS BASED ON AN AGREEMENT DATED 1.6.2011 BETWEEN THE ASSESSEE-COMPANY AND QAM C, WHICH WAS SOUGHT TO BE PRODUCED BEFORE HIM AS AN ADDITIONAL E VIDENCE WHICH HITHERTO WAS NOT BEFORE THE ASSESSING OFFICER DURIN G THE ASSESSMENT PROCEEDINGS. IN OUR CONSIDERED OPINION, THE SAID E VIDENCE HAS BEEN UNJUSTLY DISREGARDED BY THE CIT(A). A COPY OF THE SAID AGREEMENT IS PLACED IN THE PAPER BOOK AT PAGES 223 TO 226 AND IT IS AVERRED THEREIN THAT THE SAME IS GOVERNED BY THE TERMS AND CONDITIO NS APPROVED BY THE REGIONAL DIRECTOR, WESTERN REGION, MUMBAI UNDER THE PROVISO TO SEC. 297(1) OF THE COMPANIES ACT, 1956. SUCH APPROVAL O F THE AUTHORITY UNDER THE COMPANIES ACT, 1956 IS DATED 30.5.2011, W HICH OSTENSIBLY EXPLAINS THE DATE OF THE AGREEMENT TO BE 1.6.2011. THE AGREEMENT DATED 1.6.2011, WHICH WAS IN TURN BASED ON THE APPR OVAL OF A STATUTORY AUTHORITY UNDER COMPANIES ACT, 1956, CANNOT BE SAID TO BE AN EVIDENCE LACKING IN BONA FIDES . IT ALSO CANNOT BE CONSTRUED AS AN AFTERTHOUGHT BECAUSE THE SAME IS OF A DATE PRIOR TO THE DATE OF FILING OF RETURN OF INCOME BY THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR AND IS IN TERMS OF CONDITIONS APPROVED BY A STATUTORY AUTHORI TY. BE THAT AS IT MAY, IN OUR VIEW, THE AFORESAID MATERIAL WAS ONLY I N SUPPORT OF ASSESSEES PRIMARY ASSERTION THAT THE EXPENDITURE W AS INCURRED ON CONSIDERATIONS OF COMMERCIAL EXPEDIENCY. IN OUR CONSIDERED OPINION, THE AFORESAID PIECE OF EVIDENCE WAS QUITE GERMANE F OR THE PURPOSES OF APPRECIATING THE ENTIRE TRANSACTION IN ITS PROPER P ERSPECTIVE, AND THE CIT(A) ERRED IN NOT CONSIDERING SUCH MATERIAL TO DE CIDE THE CONTROVERSY BEFORE HIM. 29 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) 17. IN ANY CASE, ON THE ISSUE OF SEC. 14A OF THE AC T, ASSESSEE HAS ALSO POINTED OUT THAT NO EXEMPT INCOME HAS BEEN EARNED D URING THE YEAR AND, THEREFORE, SEC. 14A OF THE ACT CANNOT BE INVOK ED TO DISALLOW ANY EXPENDITURE HAVING REGARD TO THE JUDGMENT OF THE HO NBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. (SUPRA) . THE FACTUAL MATRIX OF THE ASSESSEE-COMPANY NOT HAVING EARNED ANY EXEMPT INCOM E IN THE INSTANT YEAR HAS NOT BEEN CONTROVERTED BY THE REVENUE AND, THEREFORE, ON THIS LIMITED POINT ITSELF WE FIND NO REASON TO UPHOLD IN VOKING OF SEC. 14A OF THE ACT BY CIT(A) IN THIS YEAR IN ORDER TO DISALLOW THE IMPUGNED EXPENDITURE ON ADVERTISEMENT. 18. INSOFAR AS THE OTHER GROUNDS OF DISALLOWANCE DI SCUSSED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, NAMELY T HE EXPENDITURE BEING OF CAPITAL NATURE HAVING BEEN INCURRED FOR BRAND BUILDING; OR THAT THE COMPLETE NEWSPAPER CUTTINGS OF ADVERTISEME NTS NOT HAVING BEEN FILED IS CONCERNED, WE FIND NO SPECIFIC DETERM INATION BY CIT(A) ON THIS ASPECT. IN ANY CASE, WE FIND THAT BEFORE THE CIT(A), ASSESSEE HAD ASSAILED THE AFORESAID POSITION IN A DETAILED MANNE R AND IN THE ABSENCE OF ANY REBUTTAL OF THE SAME BY THE CIT(A), IT CAN O NLY BE INFERRED THAT THE CIT(A) ACQUIESCED TO THE SAME. NEVERTHELESS, W E FIND THAT FACTUALLY THERE IS NOTHING ON RECORD TO SHOW THAT THE EXPENDI TURE HAS BEEN INCURRED WITH THE OBJECTIVE OF BRAND BUILDING INASM UCH AS THE ADVERTISEMENTS ARE INTENDED TO CANVAS INVESTORS TO INVEST IN THE SCHEMES OF THE QUANTUM MUTUAL FUND. THEREFORE, ON FACTS ALSO, WE FIND NO SUPPORT FOR THE PLEA OF THE ASSESSING OFFIC ER. INSOFAR AS THE NON- FURNISHING OF SOME OF THE NEWSPAPER CUTTINGS IS CON CERNED, BEFORE THE CIT(A) ASSESSEE HAD EXPLAINED IT PROPERLY AND WE FI ND THAT THERE ARE NO 30 ITA NO. 3418/MUM/2015 (ASSESSMENT YEAR : 2011-12) CREDIBLE REASONS TO DISBELIEVE THE ASSESSEE ON THIS ASPECT, AS THE SAMPLE NEWSPAPER CUTTINGS CLEARLY SUPPORT THE INVOICES RAI SED BY M/S. HANSA VISION PVT. LTD. 18. IN CONCLUSION, HAVING REGARD TO THE AFORESAID D ISCUSSION, WE DEEM IT FIT AND PROPER TO SET-ASIDE THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.3,77,14,278/- OUT OF ADVERTISEMENT EXPENDITURE. 19. RESULTANTLY, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/07/20 16 SD/- SD/- (PAWAN SINGH) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTAN T MEMBER MUMBAI, DATED 15/07/2016 VM/SSL , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI