DCIT, Circle-3(1), Hyd, Hyderabad V. Share Microfin Ltd., Hyd, Hyderabad

ITA 359/HYD/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6003 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-01-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 06-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K MYTHILI RANI
• Assessee Lawyers: V NAGARAJAM
• Keywords: Corroborative evidences; Revenue expenditure; Capital expenditure
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA.NO.359/HYD/2015 ASSESSMENT YEAR 2009-2010 THE DCIT, CIRCLE - 3(1) HYDERABAD. VS. M/S. SHARE MICROFIN LTD., HYDERABAD. PAN AAECS9243C (APPELLANT) (RESPONDENT) FOR REVENUE : SMT. K. MYTHILI RANI FOR ASSESSEE : MR. V. NAGARAJAM DATE OF HEARING : 0 7.0 1 .2016 DATE OF PRONOUNCEMENT : 23 .03.2016 ORDER PER SMT. P. MADHAVI DEVI, J.M. THIS IS REVENUES APPEAL FOR THE A.Y. 2009-2010. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLOWIN G GROUNDS OF APPEAL: 1. THE LEARNED CIT (A) ERRED BOTH IN LAW AND ON FACTS OF THE CASE. 2. THE LD. CIT(A) OUGHT TO HAVE UPHELD THE DISALLOWANC E OF RS.77,74,500 UNDER 69A AS THE ASSESSEE HAD NOT PRODUCED ANY OF THE DOCUMENTS LIKE DEBIT VOUCHERS, REQUISITION LETTERS OF THE RECEIVING BRANCHES ETC. WITH RESPECT TO CASH SEIZED BY THE POLICE AUTHORITIES FR OM THE EMPLOYEES EITHER BEFORE THE ASSESSING OFFICER O R BEFORE THE SPECIAL AUDIT AND THE CIT(A) OUGHT TO HA VE ALLOWED THE ASSESSING OFFICER TO VERIFY THE DETAILS FILED BEFORE HER BY CALLING FOR A REMAND REPORT. 2 ITA.NO.359/HYD/2015 M/S. SHARE MICROFIN LTD., HYDERABAD. 3. THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ADDITION OF RS.9,59,000/- AS THE ASSESSEE HAD FAILED TO SUBSTANTIATE ITS CLAIM OF AUDIT PROGRAMME EXPENSES WITH ANY SUPPORTING EVIDENCE AND IT SHOULD HAVE BEE N APPRECIATED THAT SIMILAR CLAIM IN SIMILAR CIRCUMSTA NCES WAS NOT ALLOWED BY THE CIT(A) FOR THE A.Y. 2008-09, AND THE ASSESSEE DID NOT CONTEST THE SAME FURTHER. 4. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE A O HAS RIGHTLY DISALLOWED THE CLAIM OF RATING FEE PAID TO CRISIL BY TREATING IT AS IS CAPITAL IN NATURE SINCE EVEN IF THE PURPOSE IS FOR AVAILING LOAN FROM BANKS, THE BENEFIT IS ENDURING IN NATURE AND HENCE THE SAME CANNOT BE ALLOWED AS REVENUE EXPENDITURE. 5. ANY OTHER GROUND(S) THAT MAY BE URGED AT THE TIME O F HEARING. 2. BRIEF FACTS RELATING TO THE GROUND NO.2 ARE THA T THE ASSESSEE COMPANY WHICH IS ENGAGED IN THE BUSINESS O F MICRO FINANCE, FILED ITS RETURN OF INCOME FOR THE A.Y. 20 09-2010 ON 30.09.2009 ADMITTING INCOME OF RS.93,45,68,250. ON 19.11.2009, CASH AMOUNTING TO RS.77,74,500 WAS SEIZ ED BY THE CRIME BRANCH, BHOPAL FROM SIX PERSONS WHO WERE ABOUT TO BOARD A.P. EXPRESS FOR GOING TO HYDERABAD. APART FR OM CASH, POLICE AUTHORITIES HAVE ALSO SEIZED SOME PAPERS, LA P-TOPS AND PEN DRIVES FROM THEM. ON THE BASIS OF THE INFORMATI ON RECEIVED FROM THE THANA-IN-CHARGE, M.P. NAGAR, BHOPAL, THE D DIT (INVESTIGATION), BHOPAL RECORDED STATEMENT OF THE P ERSONS CAUGHT BY THE CRIME BRANCH, BHOPAL. THESE SIX PERSO NS WERE FOUND TO BE THE OFFICIALS OF THE ASSESSEE HEREIN. O N THE BASIS OF THE ABOVE INFORMATION, A SURVEY UNDER SECTION 133A WAS CARRIED OUT ON 19.11.2008 AT THE THREE BUSINESS PRE MISES OF M/S. SHARE MICROFIN FINANCE LTD., SITUATED AT BHOPA L. CERTAIN INVESTIGATIONS HAVE BEEN CARRIED OUT ALSO AT INDOOR AND HYDERABAD OFFICES OF THE COMPANY AT THE TIME OF CAS H SEIZURE MADE BY THE POLICE. ON ANALYSING THE IMPOUNDED VOUC HERS, THE 3 ITA.NO.359/HYD/2015 M/S. SHARE MICROFIN LTD., HYDERABAD. A.O. OBSERVED THAT VARIOUS EXPENSES IN THE NATURE O F STAFF TRAINING, OFFICE MAINTENANCE, SOCIAL DEVELOPMENT EX PENSES, WORK SHOPS, CASH PAYMENTS TO VARIOUS PERSONS AMOUNT ING TO LAKHS OF RUPEES, WERE MADE BY PASSING CHEQUES/VOUCH ERS WITHOUT ENTERING INTO THE CASH BOOK. HE OBSERVED TH AT THESE BOGUS VOUCHERS SHOWING INFLATED EXPENSES WERE PREPA RED TO SHOW LESS PROFIT AND THUS, EVADE TAX PAYMENTS DUE. 2.1. CONSIDERING THE FACTS THAT CAME TO LIGHT DURI NG THE COURSE OF SEARCH/SURVEY WITH REGARD TO NON-ACCOUNTI NG OF INCOME AND INFLATION OF EXPENDITURE ETC., BY THE AS SESSEE COMPANY, THE A.O. OBSERVED THAT THE ACCOUNTS DO NOT REFLECT TRUE PICTURE OF INCOME OF THE COMPANY AND FELT THAT THE ACCOUNTS OF THE ASSESSEE ARE COMPLEX AND DIFFICULT. THEREFORE, A SPECIAL AUDIT UNDER SECTION 142(2A) OF THE ACT WAS ORDERED. THE ASSESSEE FILED ITS OBJECTIONS TO THE SPECIAL AUDIT WHICH WERE REJECTED BY THE A.O. THE SPECIAL AUDITOR FURNISHED A REPORT ON 27.06.2012. AFTER CONSIDERING THE SAID REPORT, THE A.O. MADE VARIOUS DISALLOWANCES AND THE CONSEQUENTIAL ADDITIO NS TO THE RETURNED INCOME OF THE ASSESSEE. AGGRIEVED, ASSESSE E FILED AN APPEAL BEFORE THE LD. CIT(A) WHO GRANTED PARTIAL RE LIEF TO THE ASSESSEE. AGAINST THE RELIEF GIVEN BY THE LD. CIT(A ), THE REVENUE IS IN APPEAL BEFORE US. 3. AS REGARDS THE ADDITION OF RS.77,74,500, THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THAT THE E NTIRE SUM OF RS.77,74,500 SEIZED IN BHOPAL BELONGS TO THE ASSESS EE AND WAS FULLY ACCOUNTED FOR. IT WAS ALSO SUBMITTED THAT THE SPECIAL AUDITOR HAD NOT FOUND FAULT WITH THE BOOKS OF ACCOU NT OF THE ASSESSEE BUT YET HAD REJECTED THE ASSESSEES CLAIM WHICH WAS BASED ON METICULOUS ACCOUNTING SYSTEM WITH DOUBLE E NTRY 4 ITA.NO.359/HYD/2015 M/S. SHARE MICROFIN LTD., HYDERABAD. BOOK-KEEPING. AFTER CONSIDERING THE ASSESSEES CONT ENTIONS, THE LD. CIT(A) AT PARAS 6.6 AND 6.7 HAS HELD AS UNDER : 6.6. I HAVE VERIFIED THESE DOCUMENTS CONSISTING OF EXTRACTS OF ENTRIES IN THE CASH BOOK, MANUAL CASH B OOK MAINTAINED BY THE BRANCHES CONCERNED, DEBIT VOUCHER S, REQUISITION LETTERS BY THE RECEIVING BRANCHES, MANU AL CHEQUE REGISTER OF THE BRANCHES AND THE BANK STATEM ENTS SHOWING THE WITHDRAWAL OF CASH. THE CASH WAS STATED TO BE DRAWN FROM THE FOLLOWING BRANCHES. NAME OF THE BRANCH NAME OF THE DISTRICT OF THE BRANCH DATE OF TRANSACTION PAID AMOUNT (RS.) BHOPAL BHOPAL 18.11.2008 8,50,000 BHOPAL - 2 BHOPAL 18.11.2008 8,50,000 BHOPAL-2 BHOPAL 18.11.2008 9,25,000 INDORE INDORE 17.11.2008 7,50,000 INDORE-2 INDORE 17.11.2008 7,50,000 INDORE-3 INDORE 17.11.2008 7,00,000 GODHRA PANCHMAHAL 17.11.2008 6,00,000 KOTA (RAJASTHAN) SAWAI MADHOPUR 15.11.2008 5,50,000 FARIDABAD FARIDABAD 15.11.2008 6,50,000 AGRA AGRA 15.11.2008 4,25,000 ALLAHABAD ALLAHABAD 17.11.2008 7,25,000 TOTAL 77,75,000 6.7. THE CLAIM OF THE APPELLANT IS FOUND TO BE FUL LY BORNE OUT BY THE ENTRIES IN THE DOCUMENTS FILED BY THE APPELLANT WHICH FORM THE BASIS OF ITS AUDITED ACCOU NTS. THE CLAIM OF THE APPELLANT IS, THEREFORE, ACCEPTED AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITIO N OF RS.77,74,500. GROUND NO.1.1.1 IS ALLOWED. 4. THE LD. D.R., SUPPORTED THE ORDER OF THE A.O. W HILE THE LD. COUNSEL FOR THE ASSESSEE, RELIED ON THE ORD ER OF THE LD. CIT(A). 5. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE LD. CIT(A) HAS VERIFIED THE CONTENTIONS OF THE ASSESSEE AND HAS THEREAFTER HELD THAT THE 5 ITA.NO.359/HYD/2015 M/S. SHARE MICROFIN LTD., HYDERABAD. ASSESSEES CLAIM IS FULLY BORNE OUT BY THE ENTRIES IN THE DOCUMENTS FILED BY THE ASSESSEE WHICH ARE ALSO PART OF THE AUDITED ACCOUNTS. THE LD. D.R. HAS NOT BEEN ABLE TO POINT OUT ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) EXCEPT FOR RELYING UPON THE ORDER OF THE A.O. IN VIEW OF THE SAME, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. C IT(A). 6. AS REGARDS GROUND NOS.2 & 3 AGAINST THE DELETIO N OF THE ADDITION OF RS.9,69,000 ON ACCOUNT OF AUDIT PROGRAMME EXPENSES AND ALSO DELETION OF THE DISALLOWANCE OF R ATING FEE PAID TO CRISIL BY TREATING IT AS CAPITAL IN NATURE RESPECTIVELY, THE LD. COUNSEL FOR THE ASSESSEE, POINTED OUT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2010-2011. A COPY OF THE SAID ORDER IS FIL ED BEFORE US. 7. THE LD. D.R. HOWEVER, SUPPORTED THE ORDERS OF T HE AUTHORITIES BELOW. 8. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE TRIBUNAL IN ITA.NO.1681/HYD/2014 DATED 20.11.2015 HAS DEALT WIT H THIS ISSUE AT PARAS 2 TO 5.1.1 AS UNDER : 2. BRIEFLY STATED, ASSESSEE IS ENGAGED IN THE BUSINESS OF MICRO FINANCE AND ADMITTED INCOME OF RS . 170.70 CRORES. AO DISALLOWED VARIOUS EXPENDITURE INTER ALIA DISALLOWING AUDIT PROGRAMME EXPENSES OF RS. 33,25,173/- ON THE REASON THAT ASSESSEE DID NOT SUBSTANTIATE THE CLAIM AND RATING FEE OF RS. 28,83,766/- ON THE REASON THAT SIMILAR EXPENDITURE WAS DISALLOWED IN THE EARLIER ASSESSMENT YEAR WHICH WAS NOT CONTESTED. LD. CIT(A) AFTER CONSIDERING TH E SUBMISSIONS OF ASSESSEE, ALLOWED THESE EXPENDITURE ON WHICH REVENUE IS AGGRIEVED. 6 ITA.NO.359/HYD/2015 M/S. SHARE MICROFIN LTD., HYDERABAD. 3. WE HAVE HEARD LD. DR AND LD. COUNSEL AND PERUSED THE PAPER BOOK ON RECORD. GROUND NO.2 RAISED BY REVENUE IS AS UNDER: 2. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE HAD FAILED T O SUBSTANTIATE ITS CLAIM OF AUDIT PROGRAMME EXPENSES THROUGH ANY SUPPORTING EVIDENCE AND THAT SIMILAR CLAIM IN SIMILAR CIRCUMSTANCES WAS NOT ALLOWED BY THE CIT(A) FOR THE AY. 2008-09 AND THE ASSESSEE DID NOT CONTEST THIS FURTHER. 3.1. EVEN THOUGH REVENUE CONTESTED NOW THAT CLAIM OF AUDIT EXPENSES WAS NOT SUPPORTED BY ANY EVIDENCE, WE DO NOT FIND ANY SUCH ISSUE BEFORE THE AUTHORITIES. AS SEEN FROM THE ASSESSMENT ORDER, AO RECORDS IN THE ORDER THAT ASSESSEE HAS FURNISHED ENTIRE INFORMATION AS CALLED FOR. EVEN PARA 4 IN P AGE 6 OF THE ASSESSMENT ORDER, IT IS VERY CLEARLY STATE D THAT THE ASSESSEE COULD NOT FURNISH ANY SATISFACTO RY EXPLANATION FOR THE SAME. AS SEEN FROM THE ORDER OF THE AO, IT IS CLEAR THAT AO ASKED TO SUBSTANTIATE T HE CLAIM AS TO HOW THE SAME CAN BE REVENUE EXPENDITURE. THERE IS NO ISSUE ON NOT FURNISHING A NY SUPPORTING EVIDENCE, THEREFORE, PART OF THE GROUND RAISED BY THE REVENUE IS INFRUCTUOUS. 4. COMING TO THE ISSUE THAT CLAIM WAS NOT SUBSTANTIATED IT WAS SUBSTANTIATED STATING THAT ASSESSEE HAD 1007 BRANCHES LOCATED ALL OVER THE COUNTRY AND THAT THE BRANCH HEAD AND ACCOUNTANT VISITS THE HEAD OFFICE/ZONAL OFFICE FOR VERIFICATIO N AND CONSOLIDATION OF THE BOOKS OF ACCOUNT AND THAT EXPENDITURE WAS INCURRED ON RENT FOR THE PREMISES HIRED FOR CONDUCTING THIS EXERCISE, FIELD EXPENSES, PRINTING AND STATIONERY, ELECTRICAL EXPENSES AND HI RING OF GENERATOR ETC. IT WAS FURTHER SUBMITTED THAT TH IS WAS A ONETIME ANNUAL EXPENDITURE WHICH WAS NECESSARY FOR ESTABLISHING THE INTEGRITY AND RELIAB ILITY OF THE BOOKS. CONSIDERING THE EXPLANATION, LD. CIT (A) FOUND THAT EXPLANATION OF ASSESSEE IS LOGICAL AND REASONABLE AND ALLOWED THE EXPENDITURE. WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE L D. 7 ITA.NO.359/HYD/2015 M/S. SHARE MICROFIN LTD., HYDERABAD. CIT(A) AS ASSESSEE HAS JUSTIFIED THE CLAIM AND AS SEEN FROM THE NATURE OF EXPENDITURE, ASSESSEE HAS MORE THAN 1007 BRANCHES AND AVERAGE EXPENDITURE PER BRANCH IS ABOUT RS.3,300/- WHICH CANNOT BE CONSIDERED EXCESSIVE ALSO. IN VIEW OF THIS, WE APPROVE THE ORDER OF THE CIT(A) AND REJECT THE GROU ND RAISED BY THE REVENUE. 5. GROUND NO. 3 RAISED BY REVENUE IS AS UNDER: 3. THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO THAT THE RATING FEE PAID TO CRISIL IS CAPITAL EXPENDITURE SINCE EVEN IF THE PURPOSE IS FOR AVAILING LOAN FROM BANKS, IT IS OF ENDURING NATURE. 5.1. HEREIN ALSO AO DISALLOWED RATING FEE OF RS. 28,83,766/- PAID TO CRISIL AND TO ICRA FOR OBTAINING CREDIT RATING FOR OBTAINING LOANS WHEREAS , THE AO HAS STATED THAT SIMILAR EXPENDITURE WAS DISALLOWED IN EARLIER YEAR AND THEREFORE, RATING FE E WAS TO BE DISALLOWED IN THIS YEAR ALSO. IT WAS SUBMITTED BEFORE THE CIT(A) THAT IN AY. 2008-09, AO HAS DISALLOWED THE SUM OF RS. 22,47,200/- PAID TOWARDS GOVERNANCE AND VALUE CREATION (GVC) RATING FEE OUT OF THE TOTAL RATING FEE EXPENSES OF RS. 29,76,229/-. IT WAS SUBMITTED THAT THE GVC RATING FEE WAS FOR CERTIFYING CORPORATE GOVERNANCE STANDAR D AND WAS NOT RELATED TO GRADING OF ASSESSEES CREDITWORTHINESS. IT IS ALSO SUBMITTED THAT SIMILA R RATING FEE PAID IN 2008-09 WAS ALLOWED BY THE AO HIMSELF. CONSIDERING THE EXPLANATION OF ASSESSEE, LD. CIT(A) ALLOWED THE CLAIM BY STATING AS UNDER: 8.3 IT IS CLEAR FROM THE DETAILS OF RATING FEES PA ID DURING AY. 2008-09, THAT A SUM OF RS. 7,29,029/- HA D BEEN PAID TO AGENCIES OTHER THAN GVC WHICH HAD BEEN ALLOWED BY THE ASSESSING OFFICER HIMSELF IN THE PRECEDING YEAR. IT IS ALSO CLEAR FROM THE ORDER OF THE CIT(A) CITED ABOVE THAT HIS OBSERVATIONS HAD BEEN MADE IN THE CONTEXT OF GVC RATING FEES FOR RATING T HE CORPORATE GOVERNANCE STANDARDS. THE PAYMENT BY THE 8 ITA.NO.359/HYD/2015 M/S. SHARE MICROFIN LTD., HYDERABAD. APPELLANT DURING THE YEAR TO CRISIL AND TO ICRA WAS NOT FOR CORPORATE GOVERNANCE STANDARDS RATING AND W AS OF THE SAME NATURE AS THE EXPENSES OF RS. 7,29,029/ - INCURRED DURING AY. 2008-09. THE INCURRING OF THE RATING EXPENSES WAS FOR THE PURPOSE OF ENABLING THE APPELLANT TO AVAIL OF LOANS FROM BANKS AND FINANCIA L INSTITUTIONS. THESE LOANS WERE REQUIRED BY THE APPELLANT FOR THE MICRO FINANCE LENDING IN THE COUR SE OF ITS BUSINESS. IT CAN, THEREFORE, BE HELD THAT THE EXPENSES WERE INCURRED FOR THE PURPOSES OF THE APPELLANTS BUSINESS. THE DISALLOWANCE IS, THEREFO RE, DIRECTED TO BE DELETED. 5.1.1. WE DO NOT FIND ANY REASON TO DISTURB THE FINDINGS OF THE LD. CIT(A), AS NOTHING WAS BROUGHT ON RECORD TO COUNTER THE ABOVE FINDING. WHEN AO HAS ALLOWED SIMILAR RATING FEE IN AY. 2008-09 TO AN EXT ENT OF RS.7,29,029/-, WITHOUT EXAMINING THE NATURE OF EXPENDITURE AO DISALLOWED THE ENTIRE AMOUNT OF SIMILAR NATURE IN THIS YEAR. CONSIDERING THE DETAI LS PLACED ON RECORD AND ORDER OF THE CIT(A), WE APPROV E THE SAME AND REJECT THE REVENUES CONTENTIONS. HENCE, THIS GROUND IS ALSO REJECTED. 9. SINCE THE FACTS AND CIRCUMSTANCES ARE SIMILAR I N THIS YEAR ALSO, WE DO NOT SEE ANY REASON TO INTERFE RE WITH THE ORDER OF THE LD. CIT(A). 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.03.2016. SD/- SD/- (B. RAMAKOTAIAH) (SMT. P. MADHAVI DEVI) ACOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 23 RD MARCH, 2016 VBP/- 9 ITA.NO.359/HYD/2015 M/S. SHARE MICROFIN LTD., HYDERABAD. COPY TO : 1. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE - 3(1), 7 TH FLOOR, B BLOCK, I.T. TOWERS, HYDERABAD. 2. M/S. SHARE MICROFIN LTD., 1 - 224/58, RAJEEV NAGAR, NACHARAM, HYDERABAD. 3. CIT(A) - 3, HYDERABAD. 4. CIT - 3, HYDERABAD. 5. D.R. ITAT B BENCH, HYDERABAD. 6. GUARD FILE