HBL GLOBAL P. LTD, THANE V. ACIT RG 6(3), MUMBAI

ITA 386/MUM/2010

• Counselvise Citation: 38619914 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 16-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 15-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NARENDRA SINGH
• Keywords: Business expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI H BENCH, MUMBAI BEFORE SHRI R V EASWAR, HONBLE PRESIDENT, AND SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER ITA NO. 386/MUM/10 ASSESSMENT YEAR: 2006-07 HBL GLOBAL PVT LTD .. APPELLANT KAMLA MILLS COMPOUND LOWER PAREL, MUMBAI 400 013 PAN : AABCH0171P VS. ADDITIONAL COMMISSIONER OF INCOME TAX CIRCLE 6(3) MUMBAI .. RESPONDENT APPEARANCES: AJAY THAKORE, FOR THE APPELLANT NARENDRA SINGH, FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR : 1. THIS IS AN APPEAL FILED BY THE ASSESSEE AND IS D IRECTED AGAINST THE ORDER DATED 14 TH JANUARY 2009 PASSED BY THE CIT(A), IN THE MATTER O F ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, F OR THE ASSESSMENT YEAR 2006-07. 2. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICA TE IN THIS APPEAL IS WHETHER OR NOT THE CIT(A) WAS JUSTIFIED IN UPHOLDING THE DI SALLOWANCE OF RS 2,73,32,019 ON ACCOUNT OF CASH SUBVENTION EXPENSES. 2 3. LEARNED REPRESENTATIVES FAIRLY AGREE THAT WHATEV ER WE DECIDE ON THIS ISSUE IN ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2003-0 4, WHICH WAS HEARD ALONGWITH THIS APPEAL, WILL APPLY MUTATIS MUTANDI ON THIS APPEAL AS WELL. VIDE OUR ORDER OF EVEN DATE, WE HAVE UPHELD THE GRIEVANC E OF THE ASSESSEE AND HELD THAT THE CLAIM OF SUBVENTION EXPENSES IS ADMISSIBLE IN NATURE. WHILE DOING SO, WE HAVE, INTER ALIA , OBSERVED AS FOLLOWS: 4. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE A SSESSEE IS ENGAGED IN THE BUSINESS OF MARKETING AND PROMOTION OF FINANCIAL PR ODUCTS AND SERVICES, SUCH AS CREDITS CARDS, AUTOMOBILE LOANS, PERSONAL LOANS, ME RCHANT ESTABLISHMENTS, E BROKING ACCOUNTS, DEMAT ACCOUNTS, LOANS AGAINST SHA RES AND LIFE INSURANCE POLICIES. IN CONSIDERATION OF SERVICES SO RENDERED BY THE ASSESSEE, THE ASSESSEE RECEIVES PROFESSIONAL FEES/ COMMISSION ETC. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED, OUT OF THE INCOME SO EARNED ON MARKETING AUTO LOANS, THE A SSESSEE HAS CLAIMED DEDUCTION OF RS 8,76,49,149 IN RESPECT OF SUBVENTIO N EXPENSES. THIS CLAIM OF SUBVENTION EXPENSES CONSISTED OF RS 92,04,873 AS S UBVENTION EXPENSES CASH AND RS 7,84,44,276 AS SUBVENTION EXPENSES OTHERS . WHEN ASSESSEE WAS REQUIRED TO EXPLAIN NATURE OF THESE EXPENSES, IT WA S SUBMITTED BY THE ASSESSEE THAT SUBVENTION EXPENSES IS THE AMOUNT GIVEN TO CUS TOMER OR DEALER FOR AUTO LOAN ARRANGED BY US FOR THE CUSTOMER. THE AMOUNT IS EITH ER PAID TO THE CUSTOMER OR DEALER, FOR THE BENEFIT OF THE CUSTOMER (CALLED AS CASH SUBVENTION) OR IT IS OFFERED TO THE CUSTOMER THROUGH REDUCTION IN EQUATED MONTHLY I NSTALLMENTS (EMIS). IT WAS ALSO EXPLAINED THAT THIS AMOUNT OF SUBVENTION EXPEN SES IS ADJUSTED AGAINST THE COMMISSION RECEIVED BY THE ASSESSEE FOR HDFC BANK L IMITED FOR SOURCING THE AUTO LOANS FOR THEM. IT WAS ALSO EXPLAINED THAT TH E EXPENSE HAS BEEN ALLOWED IN THE EARLIER YEARS AS WELL, AND IT HAS INCREASED IN THE CURRENT YEAR DUE TO INCREASE IN THE VOLUME OF BUSINESS AND ALSO COMPETITIVE MARKET CONDITIONS. IT WAS ONCE AGAIN EMPHASIZED BY THE ASSESSEE THAT WHAT IS TERMED AS C ASH SUBVENTION EXPENSES INFACT REPRESENTS AMOUNTS PAID BY CHEQUES TO THE CA R DEALER OR TO THE CUSTOMER DIRECTLY WHICH ENDS UP REDUCING THE MARGIN MONEY OU TGO OF THE ASSESSEE. THE ASSESSEE ALSO EXPLAINED THE MECHANISM OF THESE SUBV ENTION PAYMENTS. ALL THIS, HOWEVER, FAILED TO IMPRESS THE ASSESSING OFFICER WH O REJECTED THE SUBMISSIONS OF THE ASSESSEE ON THE GROUNDS THAT (A) THE ASSESSEE H AS NOT ESTABLISHED NECESSITY OF MAKING SUCH PAYMENTS TO THE CAR DEALERS; (B) THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE THAT ITS CUSTOMERS WANTED SUCH CONCESS IONS; (C) THE ASSESSEE HAS NOT SUBMITTED CONFIRMATIONS EVIDENCING RECEIPT OF S UCH DISCOUNTS; (D) THE ASSESSEE COULD NOT EXPLAIN AS TO WHY RECEIPTS , FOR PAYMENTS OF CASH SUBVENTION BY THE ASSESSEE ON BEHALF OF THE CUSTOMERS, WERE IN THE NA ME OF THE CUSTOMERS AND NOT THE ASSESSEE; (E) THE ASSESSEE COULD NOT EXPLAIN NE ED OF CASH SUBVENTION WHEN MECHANISM OF SUBVENTION BY WAY OF REDUCING EMIS WA S ALREADY IN PLACE; (G) THE ASSESSEE COULD NOT EXPLAIN POLICY AND PERCENTAGE OF GRANTING DISCOUNTS BY WAY OF CASH SUBVENTION ; (H) THE ASSESSEE COULD NOT EXPLAI N NECESSITY OF PARTING WITH SUBSTANTIAL PART OF COMMISSION RECEIVED BY THE ASSE SSEE FROM HDFC BANK: AND (I) LACK OF RECEIPTS BY CUSTOMERS, TRANSPARENT PROCEDUR ES AND PROPER DOCUMENTATION. IT WAS IN THIS BACKDROP THAT WHILE THE ASSESSING OF FICER DID NOT DISTURB THE CLAIM OF 3 SUBVENTION EXPENSES OTHERS, I.E. BY REDUCING EMIS , THE ASSESSING OFFICER REJECTED ENTIRE CLAIM OF DEDUCTION IN RESPECT OF S UBVENTION EXPENSES CASH AMOUNTING TO RS 92,04,873. AGGRIEVED, ASSESSEE CARR IED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. THE CIT( A) REITERATED THE STAND OF THE ASSESSING OFFICER, NOTED THAT OVERALL EXPENDITURE O F THE ASSESSEE IS VERY HIGH RESULTING IN LITTLE PROFITS, AND ALSO, INTER ALIA, OBSERVED AS FOLLOWS : .KEEPING IN VIEW OF NATURE OF BUSINESS AND ITS C ONNECTION WITH HDFC BANK LIMITED, THE CLAIM OF EXPENDITURE OF 99.9 7% OF RECEIPTS SEEMS HIGHLY ABNORMAL AND EXAGGERATED. IT IS ALSO R ELEVANT TO STATE THAT EXPENDITURE CLAIMED IN AY 2002-03, THE PRECEDING Y EAR, CONSTITUTES 96.36% OF TOTAL RECEIPTS. IN OTHER WORDS, EXPENDITU RE HAS GONE UP BY 3% WITHOUT ANY OSTENSIBLE REASONS. IN VIEW OF THE ABOV E, IT APPEARS THAT APPELLANT HAS EXAGGERATED ITS EXPENDITURE NOT SUPPO RTED BY EVIDENCE AND, THEREFORE, CASH SUBVENTION EXPENSES OF RS 92,0 4,873 HAVE RIGHTLY BEEN DISALLOWED BY THE ASSESSING OFFICER 5. THE ASSESSEE IS NOT SATISFIED WITH THE STAND SO TAKEN BY THE CIT(A) AND IS IN FURTHER APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE A PPLICABLE LEGAL POSITION. 7. DURING THE COURSE OF HEARING OF THIS CASE, WE AL SO PICKED UP A FEW SAMPLE CASES OF MARKETING AUTO LOANS AND GRANT OF SUBVENTI ON EXPENSES AND EXAMINED THE COMPLETE SEQUENCE OF TRANSACTIONS IN SUCH CASES . WE FIND THAT THE ASSESSEE IS USING SUBVENTION EXPENSES, AS AN ADDITIONAL INCE NTIVE OUT OF THE COMMISSION RECEIVED BY THE ASSESSEE, TO MARKET THESE AUTOMOBIL E LOANS WHICH HAS A HIGHLY COMPETITIVE MARKET. AS WE UNDERSTAND ON THE BASIS O F ANALYSIS OF MATERIAL AND SUBMISSIONS BEFORE US, THE INTEREST RATE OFFERED BY THE BANK ON SUCH AUTOMOBILE LOANS REMAINS THE SAME IN ALL CASES, BUT, AS A MARK ETING AGENT OF THE BANK AND TO MEET THE COMPETITION, THE ASSESSEE PARTS WITH A PAR T OF ITS COMMISSION WITH THE CUSTOMERS. THIS IS TERMED AS SUBVENTION EXPENSES, A ND IS DONE IN TWO WAYS FIRST, BY OFFERING REDUCED EMIS, AND THUS REDUCING THE EFF ECTIVE RATE OF INTEREST PAID BY THE CUSTOMER : AND, - SECOND, BY WAY OF MAKING A P AYMENT TO THE AUTOMOBILE DEALER OR THE CUSTOMER, AND THUS REDUCING EFFECTIVE DOWN PAYMENTS. DEPENDING ON WHATEVER ITS CUSTOMERS PREFER, A LOWER EMI OR A LOWER DOWN PAYMENT, SUBVENTION IS PAID BY WAY OF REDUCED EMI OR PAYING A PART OF DOWN PAYMENT TO THE DEALER OR THE CUSTOMER. AS FAR AS SUBVENTION BY WAY OF LOWER EMI IS CONCERNED, WHICH IS ALMOST NINETY PERCENT OF THE TOTAL SUBVENT ION EXPENSE, THE ASSESSING OFFICER HAS ALLOWED THE SAME. THERE IS NO GOOD REAS ON THUS TO DECLINE THE CLAIM OF SUBVENTION EXPENSES IN PRINCIPLE. WHAT HAS BEEN TER MED AS CASH SUBVENTION EXPENSES IS A MISNOMER INASMUCH AS THERE IS NO CASH PAYMENT INVOLVED AND IS ONLY A DIRECT FORM OF PAYMENT OF SUBVENTION EXPENSE S. WE FIND THAT THIS PAYMENT IS MADE DIRECTLY TO THE AUTO DEALER AND IS MADE, AS ON BEHALF OF THE CUSTOMERS IN 4 RESPECT OF DOWN PAYMENT FOR THE AUTOMOBILE, AND IT IS FOR THIS REASON THAT THE RECEIPT IS IN THE NAME OF THE CUSTOMER. THE PAYMENT IS MADE THROUGH BANKING CHANNELS BUT IS MADE ON BEHALF OF THE CUSTOMER, AND AS A PART PAYMENT OF DOWN PAYMENT, AND IT IS FOR THIS REASON THAT THE RECEIPT IS MADE OUT IN THE NAME OF THE CUSTOMER. THEN PAYMENTS ARE PROPERLY DOCUMENTED AND ARE LINKED TO THE SPECIFIC CUSTOMERS AND IN RESPECT OF SPECIFIC FINANCE TRANSA CTIONS. IT IS FOR THE CUSTOMERS OF THE ASSESSEE TO DECIDE AS TO WHICH FORM OF SUBVENTI ON THEY PREFER AND MERELY BECAUSE THE ASSESSEE HAS A FORM OF SUBVENTION, I.E. BY WAY OF REDUCTION OF EMIS, IT CANNOT BE SAID THAT THERE WAS NO NEED OF OTHER FORM S OF SUBVENTION EXPENSES. THESE ARE MATTERS OF COMMERCIAL EXIGENCIES AND THE ASSESSEE IS THE BEST PERSON TO DECIDE HOW SHOULD HE RUN HIS BUSINESS. IN ANY EV ENT, AUTO LOAN MARKET IS A HIGHLY COMPETITIVE MARKET AND THERE IS NO REASON TO DISPUTE THAT THE CASH SUBVENTION EXPENSE HAS BEEN INCURRED FOR THE PURPO SES OF BUSINESS. THE ASSESSEE CANNOT BE DECLINED DEDUCTION IN RESPECT OF AN EXPENSE INCURRED BY THE ASSESSEE BONAFIDE FOR BUSINESS PURPOSES, AS LONG AS THE ASSESSEE HAS DOCUMENTATION TO ESTABLISH THE FACT OF SUCH EXPENDI TURE AND ITS RELATIONSHIP WITH THE BUSINESS AS AN EXPENSE INCURRED WHOLLY AND EXCL USIVELY FOR THE PURPOSES OF BUSINESS. IN THE PRESENT CASE, AND HAVING REGARD TO THE FACT THAT THE AMOUNTS ARE PAID THROUGH BANKING CHANNELS, IN RESPECT OF SPECIF IC TRANSACTIONS ON BEHALF OF ASSESSEES CUSTOMERS AND IN THE NORMAL COURSE OF BU SINESS, THE EXPENDITURE INCURRED BY THE ASSESSEE CLEARLY MEETS THESE TESTS. 8. THE FACT THAT EXPENDITURE HAS GONE UP IN THIS YE AR BY 3% CANNOT BE A GOOD REASON TO DECLINE THE DEDUCTION PARTICULARLY WHEN T HERE IS NO EVIDENCE THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE IS BOGUS, INCOR RECT OR INFLATED. SIMILARLY, THE QUANTUM OF EXPENDITURE IS NOT RELEVANT FOR HOLDING THAT EXPENSE IS INADMISSIBLE EVEN AS THERE IS NOTHING TO INDICATE THAT THIS IS I NFLATED, UNRELATED OR BOGUS. THE CONSIDERATIONS WHICH HAVE INFLUENCED THE AUTHORITIE S BELOW ARE CLEARLY NOT SUSTAINABLE IN LAW OR SOUND BASIS FOR RESORTING TO A DISALLOWANCE OF LEGITIMATE BUSINESS EXPENSES. WE HAVE ALSO NOTED THAT THE AUTH ORITIES BELOW, AS ALSO LEARNED DEPARTMENTAL REPRESENTATIVE, HAVE EMPHASIZED THAT I N THE ABSENCE OF TRANSPARENT AND UNIFORM POLICIES REGARDING CASH SUBVENTION EXPE NSES CANNOT BE ALLOWED. HOWEVER, WE ARE UNABLE TO SEE ANY MERITS IN THIS OB JECTION EITHER. WHAT HAS BEEN TERMED AS SUBVENTION EXPENSES EITHER BY WAY OF RE DUCED EMIS OR LOWER DOWN PAYMENTS IS ESSENTIALLY IN THE NATURE OF A DISCOU NT AND IT IS NOT REALLY NECESSARY THAT IN ORDER OF DISCOUNT BEING AN ADMISSIBLE EXPEN SE, THE SAME MUST BE ALLOWED TO ALL CUSTOMERS ON A UNIFORM BASIS. IT IS FOR THE ASSESSEE TO DECIDE AS TO IN WHICH CASES, DEPENDING UPON THE MARKET CONDITIONS AND DEP ENDING UPON THE NEED TO GIVE DISCOUNT TO ATTRACT THE CUSTOMER, ASSESSEE SHO ULD GIVE DISCOUNT. A UNIFORM DISCOUNT POLICY CANNOT BE A CONDITION PRECEDENT FOR GRANT OF DEDUCTION IN RESPECT OF DISCOUNT, AND, IN OUR CONSIDERED VIEW, THE SAME LOG IC APPLIES TO SUBVENTION EXPENSES AS WELL. EVEN AS LEARNED DEPARTMENTAL REPR ESENTATIVE COULD NOT POINT OF ANY INCONSISTENCY IN THE RANDOM TEST CASES PICKED U P BY US FOR DETAILED EXAMINATION, LEARNED DEPARTMENTAL REPRESENTATIVE AR GUED THAT THERE IS NO EVIDENCE THAT THE ASSESSEE HAS NOT RECEIVED CASH PA YMENTS IN CONSIDERATION OF MAKING THE CHEQUE PAYMENTS, FOR CASH SUBVENTION EXP ENSES, AND THAT, FOR THIS REASON, THE DISALLOWANCE SHOULD BE CONFIRMED. WE AR E UNABLE TO SEE ANY MERITS IN THIS SUGGESTION. IT HAS NOT BEEN THE CASE OF ANY OF THE AUTHORITIES BELOW AND, IN ANY EVENT, THE ASSESSEE CANNOT BE IMPOSED AN IMPOSSIBLE BURDEN OF PROVING A 5 NEGATIVE. KEEPING IN MIND ALL THESE FACTORS, AS AL SO ENTIRETY OF THE CASE, WE SEE NO LEGALLY SUSTAINABLE MERITS IN THE DISALLOWANCE OF C ASH SUBVENTION EXPENSES, AMOUNTING TO RS 92,04,873 , RESORTED TO BY THE ASSE SSING OFFICER AND SUSTAINED BY THE LEARNED CIT(A). 9. FOR THE REASONS SET OUT ABOVE, WE DIRECT THE ASS ESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE OF RS 92,04,873. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 4. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY US IN ASSESSEES OWN CASE FOR THE ASSESSME NT YEAR 2003-04. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE GRIE VANCE OF THE ASSESSEE, AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE OF RS 2,73,32,019 5. IN THE RESULT, THE APPEAL IS ALLOWED IN THE TERM S INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 29 TH DAY OF APRIL, 2011. SD/- SD/- (R V EASWAR ) (PRAMOD KUMAR) HONBLE PRESIDENT ACCOUNTAN T MEMBER MUMBAI; 29 TH DAY OF APRIL , 2011 . COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER MUMBAI CITY , MUMBAI 4. COMMISSIONER (APPEALS) , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH, MUMBAI 6. GUARD FILE TRUE COPY BY ORDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI