IDFC INVESTMENT ADVISORS LTD, MUMBAI V. DCIT RG 1(2), MUMBAI

ITA 3935/MUM/2011

• Counselvise Citation: 393519914 RSA 2011
• Duration Of Justice: 2 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 21-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 13-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: F V IRANI
• Keywords: Depreciation; Business expenditure
• Section: 194C; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I, MUMBAI BEFORE SHRI P M JAGTAP, ACCOUNTANT MEMBER & SHRI SANJAY GARG, JUDICIAL MEMBER ITA NOS.3935/MUM/2011 : ASST.YEAR 2007-08 IDFC INVESTMENT ADVISORS LTD., ONE INDIA BULLS CENTRE, JUPITER MILLS COMPOUND, 841 SENAPATI BAPAT MARG, MUMBAI- 400 013 PAN : AABCI5524R DCIT RANGE 1(2), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI F V IRANI RESPONDENT BY : SHRI O P SINGH DATE OF HEARING : 09.01.2014 DATE OF PRONOUNCE MENT : 20.02.2014 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER OF THE CIT(A) DATED 14.02.2011 PERTAINING TO A.Y. 2007-08. THE GROUNDS OF APPEAL READ AS UNDER: 1. THE LD. COMMISSIONER OF INCOME TAX (APPEAL) [C IT(A)] ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER BY UPHOLDING THAT THE EXPENSES INCURRED BY IDFC LTD ON BEHALF OF THE APPELLANT WERE SERVICE FEES. 2. THE LD. CIT(A) ERRED IN NOT APPRECIATING THE APP ELLANTS CONTENTION THAT PAYMENTS MADE TO IDFC LTD ARE IN TH E NATURE OF REIMBURSEMENTS OF COMMON COSTS AND HENCE, NOT SUBJE CT TO TAX DEDUCTION AT SOURCE. 3. WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(A) E RRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN A PPLYING THE ITA NOS.: 3935/M/2011 IDFC INVESTMENT ADVISORS LTD. 2 PROVISIONS OF SECTION 40(A)(IA) READ WITH SECTION 1 94C OF THE ACT TO THE FOLLOWING EXPENSES. EXPENSES IN THE NATURE OF SALARY OF RS.19,561,723 WHICH ARE COVERED UNDER SECTION 192 AND NOT UNDER SECTION 194C OF THE ACT AND ARE THEREFORE NOT COVER ED UNDER THE PROVISIONS OF SECTION 40(A)(IA) OF THE AC T EXPENSES IN THE NATURE OF ELECTRICITY EXPENSES, TELEPHONE EXPENSES, STAFF WELFARE, POSTAGE, ETC. WH ICH ARE NOT SUBJECT TO TAX WITHHOLDING ON AN INDEPENDEN T BASIS. 4. WITHOUT PREJUDICE TO THE ABOVE, THE LD CIT(A) ER RED IN DIRECTING THE ASSESSING OFFICER OF NOT GRANT DEPRECIATION ON COMPUTERS BY HOLDING THAT THE COMPUTERS HAVE BEEN PURCHASED BY I DFC LTD AND NOT BY APPELLANT. THE ASSESSEE VIDE LETTERS DATED 10.07.2012 AND 16.1 1.2012 HAS TAKEN THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL. WITHOUT PREJUDICE TO THE EXISTING GROUNDS OF APPEA L, THE APPELLANT SUBMITS THAT IN VIEW OF THE SECOND PROVISO TO SECTI ON 40(A)(IA) OF THE ACT, READ WITH THE PROVISIONS OF SECTION 40(A)( IA) OF THE ACT, NO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT IS CALLED FOR IN LAW. 6. WITHOUT PREJUDICE TO THE EXISTING GROUNDS OF APP EAL, THE APPELLANT SUBMITS THAT THE CIT(A) ACTED ILLEGALLY, WITHOUT JURISDICTION, AND CONTRARY TO THE PRINCIPLES OF NAT URE JUSTICE IN ENHANCING THE ASSESSMENT BY: I. DIRECTING THE ASSESSING OFFICER NOT TO GRANT THE APPELLANT DEPRECIATION ON THE ASSETS CAPITALIZED BY IT. II. HOLDING THAT THE EXPENDITURE INCURRED BY THE APPELLANT COULD NOT BE ALLOWED AS BUSINESS EXPENDITURE OF THE APPELLANT. THE ASSESSEE, VIDE LETTER DATED 6.5.2013, HAS TAKEN FURTHER ADDITIONAL GROUND WHICH READ AS UNDER: THE APPELLANT PRAYS THAT IN THE EVENT OF IT BEING HELD THAT PRIOR PERIOD EXPENSES OF RS.1,19,51,553/- WERE NOT ALLOWA BLE IN AY 2008-09, THE SAME SHOULD BE ALLOWED IN AY 2007-08 ITA NOS.: 3935/M/2011 IDFC INVESTMENT ADVISORS LTD. 3 2. THE ISSUE RAISED BY THE ASSESSEE VIDE GROUNDS NO . 1 TO 4 IS RELATING TO DISALLOWANCE OF AN AMOUNT OF RS.3,53,07,461/- UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT ON THE GROUND THAT PAYMENT MADE TO I TS HOLDING COMPANY IDFC LTD WAS A CONSIDERATION OF SERVICES RECEIVED BY TH E ASSESSEE COMPANY REQUIRED TAX TO BE DEDUCTED AT SOURCE WHICH WAS NOT DONE. W HEREAS THE CONTENTION OF THE ASSESSEE HAS BEEN THAT WHAT THE ASSESSEE HAS PAID T O IDFC LTD WAS MERELY REIMBURSEMENT OF COSTS INCURRED ON BEHALF OF ASSESS EE AND CONSEQUENTLY THERE WAS NO LIABILITY FOR DEDUCTION OF TAX AT SOURCE. 3. AT THE OUTSET THE LEARNED COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE ISSUE TAKEN VIDE GROUNDS NO. 1 TO 4 IS SQUARELY COV ERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR A.Y. 2008-09 VIDE ORDER DATED 6.9.2013 PASSED IN IT A NO.537/MUM/2012. THE TRIBUNAL AFTER DISCUSSION OF THE MATTER DECIDED IDE NTICAL ISSUE VIDE PARA 11 OF THE ORDER AS UNDER: 11. IN THE PRESENT CASE, THE PAYMENT IN QUESTION W AS MADE BY THE ASSESSEE COMPANY TO IDFC LIMITED TOWARDS REIMBURSEM ENT OF EXPENSES ACTUALLY INCURRED BY THE SAID COMPANY ON B EHALF OF THE ASSESSEE WITHOUT ANY MARK-UP OR ELEMENT OF PROFIT A ND THIS BEING THE UNDISPUTED POSITION, WE HOLD, KEEPING IN VIEW T HE RATIO OF THE VARIOUS DECISIONS OF THE TRIBUNAL AS DISCUSSED ABOV E, THAT THE DISALLOWANCE MADE BY THE A.O. U/S. 40(A)(IA) OF THE ACT AND CONFIRMED BY THE LD. CIT(A) IS NOT SUSTAINABLE. TH E SAME IS ACCORDINGLY DELETED ALLOWING GROUND 1 TO 4 OF THE A SSESSEES APPEAL. RESPECTFULLY FOLLOWING THE FINDINGS OF THE TRIBUNAL ON IDENTICAL ISSUE IN THE PREVIOUS ASSESSMENT YEAR IN THE OWN CASE OF THE ASS ESSEE, GROUNDS NO.1 TO 4 ARE ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE. 4. THE LEARNED COUNSEL FOR THE ASSESSEE HAS FURTHER SUBMITTED THAT THE ISSUE RAISED IN THE ADDITIONAL GROUNDS VIDE LETTER DATED 10.7.2012 & 16.11.2012 BEING ALTERNATIVE TO GROUNDS NO. 1 TO 4 WOULD NOT S URVIVE IN CASE THE GROUNDS 1 ITA NOS.: 3935/M/2011 IDFC INVESTMENT ADVISORS LTD. 4 TO 4 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. ACCORDI NGLY THE ADDITIONAL GROUND RAISED VIDE LETTER DATED 10.7.2012 IS HEREBY DISMIS SED BEING RENDERED INFRUCTUOUS. 5. SO FAR THE ADDITIONAL GROUND NO.7 TAKEN VIDE LET TER DATED 6.5.2013 IS CONCERNED, THE SAID CLAIM WAS MADE BY THE ASSESSEE VIDE GROUND NO. 6 AND 6.1 BEFORE THE TRIBUNAL IN APPEAL RELATING TO A.Y. 2008 -09, WHICH FOR THE SAKE OF CONVENIENCE ARE REPRODUCED AS UNDER: 6. WITHOUT PREJUDICE TO THE EXISTING GROUNDS OF AP PEAL, THE LD. COMMISSIONER OF INCOME TAX (APPEAL)[CIT(A)] ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER BY UPHOL DING THE DISALLOWANCE OF 1,19,51,553/- WITH RESPECT TO EXPEN SES DEBITED UNDER THE HEAD PRIOR PERIOD EXPENSE 6.1 WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(A) ERRED IN NOT CONSIDERING THE SUBMISSION OF THE APPELLANT, THAT I N THE EVENT THE PRIOR PERIOD EXPENSES AMOUNTING TO 1,19,51,553/- AR E HELD AS EXPENSES PERTAINING TO AY 2007-08 AND NOT OF AY 200 8-09, THEN THE SAME SHOULD BE ALLOWED AS A DEDUCTION IN THE AY 200 7-08. IT MAY BE OBSERVED THE TRIBUNAL WHILE ADJUDICATING THE SAID GROUNDS VIDE PARA NOS. 17 & 18 HAS HELD AS UNDER: 17 AS REGARDS THE ISSUE RAISED IN GROUND NO.6 RELA TING TO DISALLOWANCE MADE BY THE A.O AND CONFIRMED BY THE L D. CIT(A) ON ACCOUNT OF PAYMENT OF BONUS PERTAINING TO A.Y. 2007 -08 TREATING THE SAME AS PRIOR PERIOD EXPENSES, IT IS OBSERVED T HAT THE SAID DISALLOWANCE WAS MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) MAINLY ON THE GROUND THAT THE ASSESSEE COULD NOT ESTABLISH THAT THE LIABILITY THAT THE LIABILITY ON ACCOUNT OF PAYMENT OF BONUS PERTAINING TO A.Y. 2007-08 WAS CRYSTALISED DURING T HE YEAR UNDER CONSIDERATION. EVEN AT THE TIME OF HEARING BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS NOT BEEN ABLE TO ESTAB LISH SATISFACTORILY THAT THE LIABILITY ON ACCOUNT OF BON US PERTAINING TO A.Y. 2007-08 WAS CRYSTALISED OR HAD ARISEN DURING T HE YEAR UNDER CONSIDERATION AND THIS BEING SO, WE FIND NO JUSTIFI ABLE REASON TO INTERFERE WITH THE IMPUGNED ORDER OF THE LD. CIT(A) CONFIRMING THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF PAYMENT OF BONUS ITA NOS.: 3935/M/2011 IDFC INVESTMENT ADVISORS LTD. 5 PERTAINING TO A.Y. 2007-08 TREATING THE SAME AS PRI OR PERIOD EXPENDITURE. GROUND NO.6 OF ASSESSEES APPEAL IS A CCORDINGLY DISMISSED. 18. AS REGARDS GROUND NO.6.1 RELATING TO THE ASSESS EES ALTERNATIVE CLAIM THAT DEDUCTION ON ACCOUNT OF PAYMENT OF BONUS PERTAINING TO A.Y. 2007-08 SHOULD BE DIRECTED TO BE ALLOWED IN A. Y. 2007-08, WE FIND NO MERIT IN THE SAME, AS THE PRESENT APPEAL BE FORE US IS FOR A.Y. 2008-09 AND THE DIRECTION SOUGHT BY THE ASSESS EE FOR ALLOWING DEDUCTION IN A.Y. 2007-08 CAN BE GIVEN ONLY WHILE D ISPOSING OF THE APPEAL FOR THAT YEAR. GROUND NO.6.1 IS ACCORDINGLY DISMISSED. WE ACCORDINGLY DIRECT THE AO TO CONSIDER THE CLAIM OF THE ASSESSEE FOR THE SAID EXPENSES IN THE YEAR UNDER CONSIDERATION I.E. A.Y. 2007-08 AS BEING DISALLOWED FOR A.Y. 2008-09 AS PRIOR PERIOD EXPENSES. THE AO S HALL CONSIDER THE CLAIM OF THE ASSESSEE ON MERITS IN ACCORDANCE WITH LAW AFTER NECESSARY VERIFICATIONS. GROUND NO. 7 OF THE APPEAL IS ACCORDINGLY TREATED A S ALLOWED. 6. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH FEBRUARY, 2014 SD/- SD/- (P M JAGTAP) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT : 20 TH FEBRUARY, 2014 SA COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE C.I.T. CONCERNED MUMBAI 4. THE CIT (A) CONCERNED MUMBAI 5. THE DR, I - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI