DCIT, New Delhi V. M/s. VLS Finance Ltd., New Delhi

ITA 3743/DEL/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7219 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2010-2011
• Appeal Filed On: 26-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Non compliance; Revenue expenditure
• Section: 143(3); 37(1)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI D BENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA , ACCOUNTANT MEMBER, AND S MT BEENA A. PILLAI, JUDICIAL MEMBER ITA NO. 3743 /DEL/201 4 [ A.Y 201 0 - 1 1 ] THE D . C. I.T VS. M/S VLS FINANCE LTD CENTRAL CIRCLE - 10 13, SANT NAGAR, 2 ND FLOOR NEW DELHI EAST OF KAILASH, NEW DELHI PAN : AAACV 4183 G [APPELLANT] [RESPONDENT] DATE OF HEARING : 0 5 . 0 7 .201 8 DATE OF PRONOUNCEMENT : 06 .0 7 .2018 ASSESSEE BY : DR. SHASHWAT BAJPAI, SHRI SHARAD AGARWAL, ADV. REVENUE BY : S HRI AMIT JAIN, SR. DR ORDER PER N.K. BILLAIYA , ACCOUNTANT MEMBER, THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (A) - XXXII , DATED 24 . 0 3 .201 4 PERTAINING TO A.Y 201 0 - 1 1 . 2 2. THE GRIEVANCE OF THE REVENUE IS TWO - FOLD. FIRST GRIEVANCE RELATES TO DELETION OF ADDITION OF RS. 10,97,280 / - MADE BY THE AO ON ACCOUNT OF EXPENDITURE U/S 37(1) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT'. 3. DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS. 10,97,280/ - AS EXPENDITU RE ON ACCOUNT OF CONSENT FEE CHARGED BY THE SECURITY EXCHANGE BOARD OF INDIA [SDEBI]. THE AO WAS OF THE FIRM BELIEF THAT THE SAID PAYMENT HAS BEEN MADE IN VIOLATION OF THE STATUTORY PROVISIONS OF THE SEBI ACT AND, THEREFORE, CANNOT BE ALLOWED AS REVENUE E XPENDITURE U/S 37(1) OF THE ACT. ACCORDINGLY, RS. 10,97,280/ - WAS DISALLOWED. 4. THE MATTER WAS AGITATED BEFORE THE CIT(A) AND IT WAS EXPLAINED THAT THE CONSENT FEE PAID TO SEBI WAS IN SETTLEMENT OF ON - GOING DISPUTE AND, THEREFORE, IT WAS INCUR R ED DURING THE COURSE OF CARRYING ON OF THE BUSINESS AND IS, THEREFORE, ALLOWABLE AS LEGITIMATE REVENUE EXPENDITURE. THE CIT(A) , CONVINCED WITH THE CLAIM OF THE ASSESSEE , DELETED THE ADDITION OF RS. 10,97,280/ - . 3 5. BEFORE US, THE LD. DR STRONGLY SUPPORTED THE FIN DINGS OF THE AO AND REITERATED THAT THE SAID PAYMENT WAS IN VIOLATION OF LAW. 6. PER CONTRA, THE LD. AR RELIED UPON THE FINDINGS OF THE CIT(A) AND FURTHER RELIED UPON THE JUDGMENT OF THE MUMBAI BENCH OF THE ITAT IN THE CASE OF ITO VS. RELIANCE SHARE AND S TOCK BROKERS [P] LTD ITA NO. 274/MUM/2013. 7 . WE HAVE CAREFULLY CONSIDER ED THE ORDERS OF THE AUTHORITIES BELOW . WE FIND THAT THE CONSENT FEE PAID BY THE ASSESSEE WAS FOR NON COMPLIANCE OF CERTAIN BYE - LAWS/GUIDELINES OF SEBI. THE FACT OF PAYMENT OF CONSE NT FEE CANNOT BE TREATED A S VIOLATION OF STATUTORY LAW. THE CHARGE S LEVIED BY SEBI WERE IN THE ORDINARY COURSE OF BUSINESS OF THE ASSESSEE AND IT CANNOT BE CONSTRUED THAT THE PAYMENTS WERE MADE IN VIOLATION OR INFRINGEMENT OF ANY CENTRAL OR STATE LAWS. THE CONSENT FEE PAID CANNOT BE EQUATED TO A PENALTY WHICH MUST NECESS ARILY BE A PUNISHMENT FOR INFRACTION OF A LAW OR A REGULATION HAVING STATUTORY FORCE. THE FEE IS PAID FOR THE PURPOSE OF BUSINESS TO SETTLE A DISPUTE WITH THE REGULATOR SEBI AND TO BE ABLE TO CONDUCT ITS BUSINESS WITHOUT INTERRUPTION. WE, THEREFORE, DO N OT FIND ANY INFIRMITY IN THE FINDINGS OF THE CIT(A). GROUND NO. 1 IS DISMISSED. 4 8. SECOND GRIEVAN C E RELATES TO A L LOWANC E OF LONG TERM CAPITAL LOSS OF RS. 2,39,92,582/ - . 9. WHILE SCRUTINISING THE RETURN OF INCOME, THE AO NOTICED THAT THE ASSESSEE HAS CLAI MED IN ITS RETURN OF INCOME LONG TERM CAPITAL LOSS OF RS. 2,63,96,983/ - . THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM OF LOSS. THE ASSESSEE, VIDE LETTER DATED 16.05.2012, HAS STATED AS UNDER: THE ASSESSEE COMPANY CLAIMED DURING THE YEAR IN ITS RETURN OF INCOME A LONG - TERM OF RS. 2,63,96,983/ - INCURRED ON INVESTMENTS IN SHARES OF ITS FOREIGN COMPANY NAMELY, VLS INTERNATIONAL SA. THE COMPANY FINALLY REALIZED R ENT OF THIS COMPANY THROUGH ANOTHER SUBSIDIARY COMPANY NAMELY, VLS INVESTMENT INC. DURING THE YEAR AND IN NET, A LOSS OF RS. 2,63,96,983/ - WAS THE COMPANY ON THIS ACCOUNT. COMPLETE DETAILS OF INVESTMENTS MADE AND AMO UNT REALIZED ALONG WITH RELEVANT DOCUMENTS, APPROVAL LETTER OF RBI, S UBMISSION DATED 14.06.2007 FILED DURING THE COURSE OF ASSESSMENT PROC EEDINGS FOR THE A.Y. 2005 - 06 AND COPY OF THE ASSESSMENT ORDER FOR THE A.Y. ARE ENCLOSED AS ANNEXURE NO. 1. A LOSS OF RS. 2,12,16,371/ - WAS WORKED O UT AND ACCOUNTED FOR IN THE BOOKS OF ACCOUNT DURING THE A. Y. 2005 - 06 ON OF LIQUIDATION OF VLS INTERNATIONAL SA BUT THE SAME HAD NOT BEEN CLAIMED R ETU RN OF INCOME AS THE ACTUAL REALIZABLE AMOUNT FORM INVESTMENTS HELD BY VLS INTERN ATIONAL SA COULD NOT BE DETERMINED AT THAT POINT OF TIME. THE CLAIM OF CAPITAL LOSS WAS ALLOWED TO BE CLAIMED IN THE YEAR ONLY 5 WHEN FIN ALLY THE AMOUNT IS REALIZED. ACCORDINGLY, DURING THE CURRENT ASSESSMENT YEAR, WHEN THE FINAL REALIZATION IS MADE, THE DIFFERENCE OF ACTUAL INVESTMENTS MADE IN FOREIGN SUBSIDIARY COMPANY AN ACTUAL AMOUNT REALIZED IN TOTAL HAS BEEN CLAIMED AS LONG TERM CAPIT AL LOSS. THIS ISSUE WAS EARLIER EXAMINED DURING THE ASSESSMENT YEAR 2005 - 06 BY YOUR PREDECESSOR AND ALL RELEVANT DOCUMENTS IN THIS REGARD FIL E D DURING THE COURSE OF ASSESSMENT PROCEEDINGS ARE ALSO ATTACHED HEREWITH. 10. THE AO WAS NOT SATISFIED WITH THE REPLY OF THE ASSESSEE AND OBSERVED THAT LONG TERM CAPITAL LOSS OF RS. 2,39,92,582/ - PERTAINS TO A.Y 2006 - 07 AND ONLY 23,53 , 451/ - PERTAINS TO THE YEAR UNDER CONSIDERATION. THE AO, ACCORDINGLY, ALLOWED THE CLAIM OF LOSS ONLY TO THE EXTENT OF RS. 23 , 53 , 451 AND DISALLOWED THE CLAIM OF LOSS TO THE TUNE OF RS. 2,39,92,582/ - . 11. THE ASSESSEE AGITATED THE MATTER BEFORE THE CIT(A) AND REITERATED ITS CLAIM OF LOSS. AFTER CONSIDERING THE FACTS AND SUBMISSIONS, THE CIT(A) WAS CONVINCED THAT THE ASSESSEE WAS ENTITLED TO THE CLAIM OF LONG TERM CAPITAL LOSS OF RS. 2,63,46,033/ - AS AGAINST RS. 23,53,451/ - ALLOWED BY THE AO. ACCORDINGLY , THE CIT(A) DIRECTED 6 THE AO TO ALLOW THE CLAIM OF THE ASSESSEE. AGGRIEVED BY THIS THE REVENUE IS BEFORE US. 12. THE LD. DR STR ONGLY SUPPORTED THE FINDINGS OF THE AO. IT WAS THE SAY OF THE LD. DR THAT SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE LOSS INCURRED IN A.Y 2006 - 07 CANNOT BE ALLOWED IN THE YEAR UNDER CONSIDERATION. 13. PER CONTRA, THE LD. AR REIT ERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. 14. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. THE CASE HISTORY OF THE ASSESSEE SHOWS THAT THE ASSESSEE ACCOUNTED FOR A LOSS OF RS. 2,12,16,371/ - IN I TS BOOKS OF ACCOUNT FOR THE A.Y 2005 - 06. LOSS WAS ON ACCOUNT OF LIQUIDATION OF ITS FOREIGN SUBSIDIARY COMPANY NAMELY, VLS INTERNATIONAL SA . THIS FACT COMES OUT FROM THE ASSESSMENT ORDER DATED 14.12.2007 FRAMED U/S 143(3) OF THE ACT FOR A.Y 2005 - 06 AND TH E RELEVANT FINDINGS OF T HE AO READ AS UNDER: 7 T HER EFORE, THE DIFFERENCE OF RS. 3,08, 13,629/ - OF THE INVESTMENTS/ASSETS RECEIVED FROM THAT WOS HAS BEEN TREATED AS LOSS BY THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION AND HAS BEEN ACCOUNTED FOR AC CORDINGLY IN ITS BOOKS OF ACCOUNT. SIMILARLY, IT HAS BEEN SHOWN AS LOSS FROM INVESTMENTS IN THE PROFIT AND LOSS ACCOUNT FOR THE FINANCIAL YEAR ENDING 31.3.2005 ALSO. FOR COMPUTING INCOME FOR INCOME TAX RETURN PURPOSES, THE LOSS ON INVESTMENTS SHOWN IN THE PROFIT AND LOSS ACCOUNT HAS BEEN ADDED BACK. HOWEVER, THE SAME HAS NOT BEEN CLAIMED IN THE RETURN OF INCOME AS THE INVESTMENTS/ASSETS RECEIVED FROM THE SAID SUBSIDIARY COULD NOT BE REALIZED DURING THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE REALIZATION WAS PENDING AND FURTHER LOSS OF RS. 2,12,16,371/ - ACCOUNTED FOR IN THE BOOKS OF ACCOUNT MAY INCREASE OR DECREASE IN THE RELEVANT YEAR ON ACTUAL REALIZATION . 15. A PERUSAL OF THE AFORESAID FINDINGS OF THE AO GIVEN IN A.Y 2005 - 06 CLEARLY SHOW S THAT IT WAS DURI NG THE YEAR UNDER CONSIDERATION THE ASSESSEE COULD MAKE FINAL REALISATION AND, THEREFORE, THE DIFFERENCE OF ACTUAL INVESTMENTS MADE IN THE FOREIGN SUBSIDIARY COMPANY AND ACTUAL AMOUNT REALISED MATERIALISED DURING THE YEAR UNDER CONSIDERATION AND, THEREFORE, THE CLAIM OF LONG TERM CAPITA L LOSS IS DEFINITELY ALLOWABLE DURING THE YEAR UNDER CONSIDERATION. WE, THEREFORE, DO NOT FIND ANY 8 REASON TO INTERFERE WITH THE FINDINGS OF THE CIT(A). GROUND NO. 2 IS DISMISSED. 16. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO. 37 43 /DEL/201 4 IS D ISMISSED . THE ORDER IS PRON OUNCED IN THE OPEN COURT ON 06 .0 7 .2018. SD/ - SD/ - [ BEENA PILLAI ] [ N.K. BILLAIYA ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 06 TH JU LY , 2018 VL/ COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI 9 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER