PINEBRIDGE INVESTMENTS CAPITAL INDIA PVT. LTD., MUMBAI V. ACIT, CIRCLE-6(1), MUMBAI

ITA 4355/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3142 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 31-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAVEEN GUPTA
• Keywords: Business income; Opportunity of being heard; Principle of natural justice; Wholly owned subsidiary; Revenue expenditure
• Section: 143(3); 37(1)

Judgement Text

C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.4355 /MUM/2013 ( / ASSESSMENT YEAR : 2009-10) PINEBRIDGE INVESTMENTS CAPITAL INDIA PRIVATE LIMITED, 1101, TOWER B, PENINSULA BUSINESS PARK, G.K. MARG, LOWER PAREL, MUMBAI 400 013. / V. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 6(1), ROOM NO. 506, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AAFCA7262A ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI NITESH JOSHI REVENUE BY : SHRI NAVEEN GUPTA / DATE OF HEARING : 15-6-2016 / DATE OF PRONOUNCEMENT : 12-09-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE COMPANY, BEING ITA NO. 4355/MUM/2013, IS DIRECTED AGAINST THE APPELLATE OR DER DATED 28 TH FEBRUARY, 2013 PASSED BY LEARNED COMMISSIONER OF INCOME TAX ( APPEALS)- 14, MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR THE ASSESSME NT YEAR 2009-10, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARI SING FROM THE ASSESSMENT ORDER DATED 27-10-2011 PASSED BY THE LEARNED ASSESS ING OFFICER (HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INCOME TAX ACT,1 961 (HEREINAFTER CALLED THE ACT). ITA 4355/MUM/2013 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE COM PANY IN THE MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL , MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- AGGRIEVED BY THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) - 14, MUMBAI [HEREINAFTER REFERRED TO AS ' THE LEARNED CIT(A)'], UNDER SECTION 250 OF THE INCOME-TAX ACT, 1961 (ACT) AND BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, PINEBRIDGE INVEST MENTS CAPITAL INDIA PRIVATE LIMITED (PICIPL) (HEREINAFTER REFERRE D TO AS 'THE APPELLANT') RESPECTFULLY SUBMITS THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THE ORDER OF THE ASSISTANT COMMISSIONER OF INCOME-TAX, CI RCLE 6(1) (HEREINAFTER REFERRED TO AS 'THE LEARNED ASSESSING O FFICER'). IN PASSING THE AFOREMENTIONED ORDER, THE LEARNED CIT(A) ERRED ON THE FOLLOWING GROUNDS: 1. IN DISALLOWING THE SALARY EXPENDITURE AMOUNTING TO RS 31,227,390 INCURRED BY THE APPELLANT DURING THE FINANC IAL YEAR ENDED 31 MARCH 2009, INTER ALIA ON THE BASIS TH AT THE SAME WAS NOT INCURRED FOR THE BUSINESS PURPOSES OF THE APPELLANT BUT FOR AND ON BEHALF OF AIG CAPITAL CORPORATION, USA (AIGCC). FURTHER, AND WITHOUT PREJUDICE TO THE ABOVE, THE LEARN ED CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT SALAR Y EXPENDITURE WAS REIMBURSED BY AIGCC AND THE SAID REIMBURSEMENT AMOUNT WAS OFFERED TO TAX BASED ON MERCANTILE SYSTEM OF ACCOUNTING WHILE CALCULATING THE TOTAL INCOME FOR THE ASSESSMENT YEAR 2010-11. 2. IN FAILING TO APPRECIATE THAT THE APPELLANT WAS IN THE BUSINESS TO PROMOTE, ACQUIRE OR INVEST BY WAY OF CAP ITAL OR OTHERWISE, IN ANY NON-BANKING FINANCIAL ACTIVITIES INCLUDING INVESTMENTS IN FIXED DEPOSITS AND THEREFOR E, ERRING IN CHARACTERIZING THE INTEREST INCOME EARNED FROM SUCH FIXED DEPOSIT AMOUNTING TO RS 1,262,666 AS 'INCOM E FROM OTHER SOURCES' INSTEAD OF 'PROFITS AND GAINS FRO M BUSINESS AND PROFESSION' DURING THE SAID ASSESSMENT YEAR. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INVESTMENT HOLDING COMPANY OF THE AIG GROUP IN INDIA. THE ASS ESSEE IS A WHOLLY OWNED SUBSIDIARY OF AIG CAPITAL CORPORATION, USA(AIGCC) A ND REGISTERED WITH THE ITA 4355/MUM/2013 3 RESERVE BANK OF INDIA AS NON-DEPOSIT TAKING NON-BAN KING FINANCIAL COMPANIES. THE PRINCIPAL BUSINESS OF THE ASSESSEE IS TO PROMOTE, ACQUIRE OR INVEST BY WAY OF CAPITAL OR DEBT IN SECURITIES OF A NY BODY CORPORATE, TRUSTS, SOCIETIES ETC. . DURING THE PREVIOUS YEAR UNDER CO NSIDERATION , THE ASSESSEE EARNED INTEREST INCOME ON FIXED DEPOSITS AMOUNTING TO RS. 12,62,666/- AND INTEREST INCOME FROM ESCROW BALANCE AMOUNTING TO RS . 17,46,737/-. THE ASSESSEE HAS INCURRED MAJOR EXPENSES ON ACCOUNT OF EMPLOYEE COST AMOUNTING TO RS. 40,622,512/- OUT OF WHICH AN AMOUN T OF RS. 7,587,585/- HAD BEEN DISALLOWED BY THE ASSESSEE FOR VARIOUS REA SONS. THE ASSESSEE WAS ASKED TO EXPLAIN WHY EXPENSE OF RS. 3.12 CRORES SHO ULD BE ALLOWED AGAINST ONLY INTEREST INCOME ON FD AND ESCROW BALANCE. IN REPLY, THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS ONLY FIVE EMPLOYEES. THE ASSESSEE HAD INCURRED EMPLOYEE COSTS TOWARDS SA LARY, BONUS, ALLOWANCES ETC. AMOUNTING TO RS. 40,622,512/- FOR WHICH SUMMAR Y OF THE EMPLOYEE COST WAS GIVEN. FURTHER AN AMOUNT OF RS. 7,587,585/- WAS DISALLOWED BY THE ASSESSEE FOR THE FINANCIAL YEAR ENDED 31 ST MARCH, 2009. IT WAS SUBMITTED THAT FOR THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2010-11 ASSESSEES PARENT COMPANY NAMELY AIG CAPITAL CORPORATION, USA (AIGC) REIMBURSED SALARY COSTS AND OTHER EXPENSES PERTAINING TO CERTAIN PERS ONNEL EMPLOYED BY THE ASSESSEE FOR THE FINANCIAL YEAR ENDED 31 ST MARCH 2009 AND 31 ST MARCH, 2010 IN ACCORDANCE WITH THE REIMBURSEMENT AGREEMENT BETW EEN AIGCC AND THE ASSESSEE. IT WAS SUBMITTED THAT OUT OF THE TOTAL R EIMBURSEMENT RECEIVED OF RS. 78,324,357/-, AN AMOUNT OF RS. 31,227,390/- WAS RECEIVED BY AIGCC TOWARDS SALARY FOR THE FINANCIAL ENDED 31 ST MARCH, 2009 PERTAINING TO THE SALARY COST AND OTHER EXPENSES SUCH AS STAFF WELFAR E EXPENSES, ROUTINE ADMINISTRATIVE EXPENSES INCURRED FOR THE EMPLOYEES SUCH AS TRAVELING, CONVEYANCE OF EMPLOYEES OF THE ASSESSEE. IT WAS SUB MITTED THAT THE TOTAL AMOUNT OF RS. 78,324,357/- HAS BEEN INCLUDED IN THE TOTAL INCOME CHARGEABLE TO TAX IN THE RETURN OF INCOME FILED BY THE ASSESSE E FOR THE ASSESSMENT YEAR ITA 4355/MUM/2013 4 2010-11. THUS, THE ASSESSEE SUBMITTED THAT TOTAL A MOUNTING TO RS. 31,227,390/- WAS REIMBURSED BY AIGCC TO THE ASSESSE E IN THE SUBSEQUENT FINANCIAL YEAR ENDED 31 ST MARCH, 2010 WHICH HAS BEEN INCLUDED IN THE TOTAL INCOME FOR THE ASSESSMENT YEAR 2010-11 AND SUFFERED TAXATION. IT WAS OBSERVED BY THE A.O. THAT THE EXPENSES INCURRED WER E NOT IN CONNECTION WITH THE BUSINESS ACTIVITY OF THE ASSESSEE AS THE SAME W AS REIMBURSED TO THE ASSESSEE BY THE PARENT COMPANY I.E. AIGCC IN THE SU BSEQUENT YEAR. THE A.O. DISALLOWED EXPENSES AMOUNTING TO RS. 31,227,390/- B Y HOLDING THAT THE EXPENSES ARE NOT ALLOWABLE EXPENSES AS THE SAME WER E NOT INCURRED FOR THE BUSINESS PURPOSE OF THE ASSESSEE BUT FOR BUSINESS P URPOSES OF OTHERS I.E. AIGCC AND HENCE SAME WERE REIMBURSED BY AIGCC. IT WAS HELD THAT THE REIMBURSEMENT OF EXPENSES WERE PERTAINING TO THE AS SESSMENT YEAR 2009-10 AND ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING HENCE THE SAME WAS REQUIRED TO BE OFFERED AS INCOME FOR THE A SSESSMENT YEAR 2009-10 ONLY. THUS, THE AO DISALLOWED AN AMOUNT OF RS.3,12, 27,390/- CLAIMED AS AN EMPLOYEE COST FOR ASSESSMENT YEAR AND ADDED THE SAM E TO THE INCOME OF THE ASSESSEE VIDE ASSESSMENT ORDER DATED 27-10-2011 PAS SED U/S. 143(3) OF THE ACT. FURTHER IT WAS HELD BY THE A.O. THAT THE INTEREST INCOME ON FIXED DEPOSIT OF RS. 12,62,666/- AND INCOME FROM ESCROW BALANCE AMOU NTING TO RS. 17,46,737/- SHOULD BE CHARGED TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES AND NOT UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION AS CLAIMED BY THE ASSESSEE WHICH IS NOT ACCEPTABLE AS HELD BY THE AO VIDE ASSESSMENT ORDER U/S 143(3) OF THE ACT DATED 27 TH OCTOBER, 2011. 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 27-10-20 11 PASSED BY THE A.O. U/S 143(3) OF THE ACT, THE ASSESSEE FILED FIRST APP EAL BEFORE THE LD. CIT(A). ITA 4355/MUM/2013 5 5. BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED THA T THE A.O. WITHOUT APPRECIATING THE NATURE OF THE EXPENSES INCURRED AN D ALSO WITHOUT GRANTING SUFFICIENT OPPORTUNITY TO THE ASSESSEE TO SHOW CAUS E AS TO WHY SALARY COSTS SHOULD NOT BE DISALLOWED SOUGHT TO DISALLOW THE SAL ARY EXPENDITURE AND OTHER ADMINISTRATIVE EXPENSES AMOUNTING TO RS 31,227,390/ - INCURRED BY THE ASSESSEE DURING THE FINANCIAL YEAR ENDED 31 MARCH, 2009 WHICH WAS REIMBURSED BY THE AIGCC DURING THE FINANCIAL YEAR E NDED 31 MARCH 2010. IT WAS SUBMITTED THAT THE ASESSEE WAS INCORPORATED ON 25 APRIL 2006 AND STARTED ITS BUSINESS OPERATION AS AN NBFC SUBSEQUEN T TO ITS REGISTRATION WITH THE RBI IN OCTOBER, 2006. THE ASSESSEE HAD MADE ITS FIRST STRATEGIC INVESTMENT IN AIG GLOBAL ASSET MANAGEMENT COMPANY ( INDIA) PRIVATE LIMITED IN DECEMBER 2006 AND ALSO THEREAFTER MADE INVESTMEN T IN OTHER AIG GROUP OF COMPANIES IN INDIA. IT WAS SUBMITTED THAT DURING TH E FINANCIAL YEAR ENDED 31 MARCH 2009 THE ASSESSEE HAD INCURRED SALARY EXPENSE S AMOUNTING TO RS 40,622,512/- AND ADMINISTRATIVE AND OTHER EXPENSES AMOUNTING TO RS 5,752,345 FOR CONDUCTING ITS BUSINESS ACTIVITIES AN D HAS CLAIMED THE SAME AS DEDUCTION UNDER SECTION 37(1) OF THE ACT. THE ASSES SEE SUBMITTED THAT THE SALARY AND ADMINISTRATIVE EXPENSES INCURRED BY THE ASSESSEE DURING THE FINANCIAL YEAR ENDED 31 MARCH 2009 WAS INCURRED IN THE NORMAL COURSE OF ITS BUSINESS ACTIVITIES AND WERE NEITHER CAPITAL IN NAT URE NOR PERSONAL IN NATURE. THE ASSESSEE SUBMITTED THAT IT IS AN UNDISPUTED POS ITION THAT THE ASSESSEE IS ENGAGED IN BUSINESS OF INVESTING IN INDIAN COMPANIE S SINCE ASSESSMENT YEAR 2007-08 WHICH IS ACCEPTED BY REVENUE. IT WAS SUBMIT TED THAT AO HAS FAILED TO APPRECIATE THE FACTS OF THIS CASE AND ERRONEOUSLY C ONCLUDED THAT THE EXPENSES WERE INCURRED FOR THE ACTIVITIES OF THE ASSESSEES PARENT COMPANY I. E. AIGCC. THE SALARY EXPENSES AND OTHER ADMINISTRATIVE EXPEND ITURE INCURRED BY THE ASSESSEE WHICH WERE LATER REIMBURSED BY AIGCC WERE INCURRED FOR THE PURPOSE OF CONDUCTING THE BUSINESS ACTIVITY OF THE ASSESSEE AND NOT FOR THE BUSINESS PURPOSES OF AIGCC AND HENCE SHOULD BE ALLO WED AS DEDUCTIBLE UNDER SECTION 37(1) OF THE ACT IN COMPUTING THE TOT AL INCOME OF THE ASSESSEE. ITA 4355/MUM/2013 6 IT WAS ALSO SUBMITTED THAT THE A.O. HAS ERRED IN HO LDING THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE R EIMBURSEMENT AMOUNT PERTAINING TO FINANCIAL YEAR 2008-09 SHOULD BE OFFE RED TO TAX IN THE SAID FINANCIAL YEAR AND NOT IN FINANCIAL YEAR 2009-10, T HE YEAR IN WHICH THE REIMBURSEMENT WAS RECEIVED. IT WAS SUBMITTED THAT T HE REIMBURSEMENT AGREEMENT WAS ENTERED INTO ONLY ON 13 TH MAY 2010, THOUGH EFFECTIVE FROM 1 ST APRIL 2008 AND THEREFORE THE ASSESSEE RECEIVED THE REIMBURSEMENT AMOUNT FOR THE ASSESSMENT YEAR 2009-10 IN THE ASSESSMENT YEAR 2010-11, HENCE THE RIGHT TO RECEIVE THE REIMBURSEMENT ONLY AROSE IN FI NANCIAL YEAR 2009-10 AND THEREFORE THE ASSESSEE HAS OFFERED THE SAID AMOUNT OF RS 31,227,390 TO TAX IN THE RETURN OF INCOME OF THE ASSESSMENT YEAR 2010-11 AND NOT IN THE ASSESSMENT YEAR 2009-10. THUS THE ASSESSEE CONTENDE D THAT THE EMPLOYEE COST AND OTHER EXPENSES RELATED THERETO AMOUNTING T O RS 31,227,390/- REIMBURSED BY AIGCC TO THE ASSESSEE PERTAIN TO THE BUSINESS ACTIVITIES OF THE ASSESSEE AND SHOULD BE ALLOWED AS A DEDUCTION UNDER SECTION 37(1) OF THE ACT. THE LD. CIT(A) REJECTED THE CONTENTIONS OF THE ASSE SSEE WHEREBY THE LEARNED CIT(A) HELD THAT THE ASSESSEE IS A WHOLLY-OWNED SUB SIDIARY COMPANY OF AIGCC. THE PURPOSE FOR WHICH THE REIMBURSEMENT WAS CLAIMED BY THE ASSESSEE WAS ON ACCOUNT OF CERTAIN MANAGERIAL PERSO NS(CFG MANAGEMENT EMPLOYEES) WHICH WERE EMPLOYED FOR AND ON BEHALF OF THE PARENT COMPANY I.E. AIGCC. THUS, RIGHT FROM THE BEGINNING I.E. FRO M 1ST APRIL, 2008 FROM WHICH DATE EXPENSE REIMBURSEMENT AGREEMENT WAS EN TERED INTO BY THE ASSESSEEE WITH AIGCC, IT WAS CLEAR TO THE ASSESSEE THAT THE EXPENSES INCURRED IN RESPECT OF SUCH CFG MANAGEMENT EMPLOYEES EMPLO YED ON BEHALF OF THE PARENT COMPANY I.E. AIGCC WERE NOT FOR ITS OWN BUSI NESS PURPOSES AND SHALL EVENTUALLY BE REIMBURSED TO THE ASSESSEE BY ITS PAR ENT COMPANY. IT WAS HELD THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND WAS NOT ENTITLED TO CLAIM THESE EXPENSES WHETHER OR NOT THE Y WERE REIMBURSED BY AIGCC IN THE CURRENT YEAR AS THE SAID EXPENSES REI MBURSEMENT AGREEMENT ITA 4355/MUM/2013 7 WAS EFFECTIVE FROM 01-04-2008 DUE TO WHICH SUCH SAL ARIES AND OTHER EXPENSES BECAME REIMBURSABLE TO THE ASSESSEE W.E.F. 01-04-20 08 AND HENCE THE A.O WAS JUSTIFIED IN DISALLOWING THE SAME AND ACCORDING LY THE ACTION OF THE A.O. IN DISALLOWING THE EXPENSES OF RS. 3,12,27,390/- WAS C ONFIRMED BY THE LEARNED CIT(A) VIDE APPELLATE ORDER DATED 28-02-2013. WITH REGARD TO THE TREATMENT OF THE INTEREST INCOME ON FIXED DEPOSIT AMOUNTING TO RS. 1,262,666/- WHICH WAS BROUGHT TO T AX BY THE AO UNDER THE HEAD INCOME FROM OTHER SOURCES INSTEAD OF CLAIM O F THE ASSESSEE TO BRING THE SAME TO TAX UNDER THE HEAD INCOME FROM PROFIT AND GAINS OF BUSINESS OR PROFESSION , THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THAT THE ASSESSEE WAS AN NBFC REGISTERED WITH THE RBI UNDERTAKING INV ESTMENT ACTIVITIES AND WAS ENGAGED IN THE BUSINESS OF MAKING INVESTMENTS. THE ASSESSEE HAD, INTER- ALIA, EARNED INTEREST INCOME ON FIXED DEPOSITS AMOU NTING TO RS 1,262,666/- FOR THE PREVIOUS YEAR ENDING 31-03-2009. IT WAS SUB MITTED THAT INTEREST INCOME OF RS.12,62,666/- ON FIXED DEPOSITS WAS EARN ED IN THE NORMAL COURSE OF BUSINESS OF THE ASSESSEE AND THE SAME WAS OFFERE D TO TAX AS BUSINESS INCOME WHICH IS CHARGEABLE TO TAX UNDER THE HEAD IN COME FROM PROFITS AND GAINS FROM BUSINESS OR PROFESSION IN ACCORDANCE WIT H THE PROVISIONS OF SECTION 28 TO 44C OF THE ACT. THE ASSESSEE SUBMITTED THAT D URING THE PREVIOUS YEAR ENDED 31 ST MARCH 2009, IT WAS REGISTERED AS AN NBFC AND WAS I N THE BUSINESS TO PROMOTE, ACQUIRE OR INVEST BY WAY OF CA PITAL OR DEBT IN SECURITIES OF ANY BODY CORPORATE, TRUSTS, SOCIETIES OR PARTNER SHIPS, IN SHARES, GOVERNMENT BONDS, MONEY MARKET INSTRUMENTS AND OTHE R TYPES OF SECURITIES. IT WAS SUBMITTED THAT AS PER THE OBJECT CLAUSE IN T HE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPANY , THE PRINCIPA L BUSINESS OF THE ASSESSEE IS TO PROMOTE, ACQUIRE OR INVEST BY WAY OF CAPITAL OR DEBT IN SECURITIES OF ANY BODY CORPORATE, TRUSTS, SOCIETIES ETC. ENGAGED OR P ROPOSED TO BE ENGAGED IN ANY NON-BANKING FINANCIAL SERVICE ACTIVITY SUCH AS ASSET MANAGEMENT, CONSUMER FINANCE, LEASING AND FINANCING AND IN TRUS TEESHIP OF MUTUAL FUNDS, ITA 4355/MUM/2013 8 OFFSHORE FUNDS, PENSION FUNDS, ETC. IT WAS SUBMITTE D THAT ASSESSEE HAD MADE INVESTMENT IN VARIOUS AIG GROUP OF COMPANIES . IT W AS SUBMITTED THAT THE ASSESSEE IS AN NBFC REGISTERED WITH THE RBI , UNDER TAKING INVESTMENT ACTIVITIES AND ITS BUSINESS WAS THAT OF MAKING INVE STMENTS INCLUDING FIXED DEPOSITS HENCE, THE INCOME FROM SUCH INVESTMENTS IS REQUIRED TO BE COMPUTED UNDER THE PROVISIONS OF SECTION 28 OF THE ACT AS IT IS EARNED IN NORMAL COURSE OF ITS BUSINESS OF MAKING INVESTMENTS . THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS:- 1. DELHI TRIBUNAL IN THE CASE OF ACIT V. VASHULINGA FI NANCE P. LTD. (ITA NO. 5464/DEL/2011). 2. THE HONBLE CALCUTTA HIGH COURT DECISION IN THE CAS E OF CIT V. EVEREADY INDUSTRIES INDIA LTD.(2009) 323 ITR 312. 3. THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT V. TIRUPATI WOOLEN MILLS LTD. [1992], 193 ITR 252 4. THE MADRAS HIGH COURT IN THE CASE OF CIT V. TAMIL N ADU DAIRY DEVELOPMENT CORPORATION LTD. [1995] 216 ITR 535 5. SUPREME COURT IN THE CASE OF CIT V. NAGPUR ENGINEER ING CO LTD. 245 ITR 806 6. BOMBAY HIGH COURT IN THE CASE OF CIT V. PARAMOUNT P REMISES (P) LTD. 190 ITR 259 7. KARNATAKA HIGH COURT IN THE CASE OF CIT V. CHINNA N ACHIMUTHU CONSTRUCTIONS , 297 ITR 70. THUS THE ASSESSEE PRAYED THAT INTEREST INCOME EARNE D FROM PLACING FIXED DEPOSIT BE CONSIDERED TO BE INCOME FROM PROFITS AND GAINS FROM BUSINESS OR PROFESSION AND NOT INCOME FROM OTHER SOURCES. THE LD. CIT(A) REJECTED THE CONTENTIONS OF THE ASSE SSEE AND HELD THAT THIS ACTIVITY IS NOT COVERED IN THE MAIN OBJECTS OF THE BUSINESS OF THE ASSESSEE HENCE IT IS IN THE NATURE OF INCOME FROM OTHER SOUR CES VIDE APPELLATE ORDER DATED 28-02-2013 PASSED BY THE LEARNED CIT(A). ITA 4355/MUM/2013 9 6. AGGRIEVED BY THE APPELLATE ORDER DATED 28-02-201 3 PASSED BY THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBU NAL. 7. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS INCURRED SALARY EXPENSES AND OTHER EXPENSES RELATED THERETO DURING THE YEAR AMOUNTING TO RS. 31,227,390/- WHICH HAS BEEN CORREC TLY CLAIMED AS EXPENSES FOR THE PREVIOUS YEAR ENDED 31-03-2009. THE LEARNED COUNSEL SUBMITTED THAT THE PARENT COMPANY AIGCC HAS REIMBURSED SUCH COST O F SALARY AND EXPENSES RELATED THERETO W.R.T. CFG MANAGEMENT EMPLOYEES ON COST BASIS WITHOUT MARKUP VIDE AGREEMENT DATED 13-05-2010 AND THE SAID AMOUNT WAS RECEIVED IN FINANCIAL YEAR 2009-10 AND OFFERED FOR TAXATION IN THE ASSESSMENT YEAR 2010-11. IT WAS SUBMITTED THAT THE ASSESSEE ENTERE D INTO AN EXPENSES REIMBURSEMENT AGREEMENT WITH AIGCC ON 13 TH MAY, 2010 AND THE ASSESSEE RECEIVED THE REIMBURSEMENT AMOUNT FOR THE ASSESSMEN T YEAR 2009-10 ONLY IN THE ASSESSMENT YEAR 2010-11 WHICH WAS OFFERED FOR T AXATION BY THE ASSESSEE IN THE RETURN OF INCOME FILED WITH THE REVENUE FOR ASSESSMENT YEAR 2010-11. THE COPY OF THE SAID EXPENSES REIMBURSEMENT AGREEME NT IS PLACED ON RECORD VIDE PAPER BOOK PAGE NO. 109 TO 114. THE AGREEMENT WAS W.E.F. 1.4.2008 AND THE PARENT COMPANY HAS AGREED TO REIMBURSE THE SALA RY AND OTHER EXPENSES INCURRED IN CONNECTION WITH ASSESSEES EMPLOYMENT O F CFG MANAGEMENT EMPLOYEES W.E.F. 01-04-2008 AT COST AND WITHOUT MA RK UP, AND THE SAME WAS OFFERED FOR TAXATION IN THE ASSESSMENT YEAR 201 0-11. THUS THE ASSESSEE HAS RIGHTLY CLAIMED THE EXPENSES IN THE IMPUGNED AS SESSMENT YEAR 2009-10 KEEPING IN VIEW FACTUAL MATRIX OF THE CASE. THE LD. COUNSEL FURTHER SUBMITTED THAT DIRECTION MAY BE GIVEN TO THE A.O. FOR LIMITED VERIFICATION WITH REGARD TO THE FACT THAT IT HAS OFFERED FOR TAXATION THE SAID REIMBURSEMENT OF EXPENSES OF RS. 31,227,390/- RECEIVED FROM AIGCC IN TERMS OF EX PENSES REIMBURSEMENT AGREEMENT DATED 13-05-2010 IN THE ASSESSMENT YEAR 2 010-11. THE LD. COUNSEL ALSO RELIED ON THE DECISION OF HONBLE BOMB AY HIGH COURT IN THE CASE OF SHRIKANT TEXTILES V. CIT, 1970-(BOI)-GJX-0035-BO M. WITH RESPECT TO THE ITA 4355/MUM/2013 10 OTHER GROUND, IT WAS SUBMITTED THAT ASSESSEE HAS EA RNED INTEREST ON FD AMOUNTING TO RS.1,262,666/- WHEREIN IT WAS SUBMITTE D THAT THE ASSESSEE IS ENGAGED IN MAKING INVESTMENTS IN AIG GROUP OF COMPA NIES AND IS AN NBFC REGISTERED WITH RBI ENGAGED IN ACTIVITIES SUCH AS A SSET MANAGEMENT, CONSUMER FINANCE, LEASING AND: FINANCING AND IN TRU STEESHIP OF MUTUAL FUNDS, OFFSHORE FUNDS, PENSION FUNDS, ETC. IT WAS SUBMITTE D THAT THE MATTER MAY BE SET ASIDE TO THE FILE OF THE A.O. FOR VERIFICATION THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF NBFC AS A FINANCING COMPANY. 8. THE LD. D.R. RELIED ON THE ORDER OF THE LD. CIT (A). 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND ALS O PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASSE SSEE IS A WHOLLY OWNED SUBSIDIARY OF AIG CAPITAL CORPORATION, USA AND REGI STERED WITH THE RESERVE BANK OF INDIA AS NBFC BEING NON-DEPOSIT TAKING NON- BANKING FINANCIAL COMPANIES. WE HAVE OBSERVED THAT THE ASSESSEE HAS I NCURRED SALARY AND OTHER EXPENSES RELATING TO CFG MANAGEMENT EMPLOYEES AM OUNTING TO RS. 3,12,27,390/- FOR THE PREVIOUS YEAR ENDED 31-03-200 9. THE ASSESSEE HAS CLAIMED THE SAID EXPENDITURE AS DEDUCTION AS REVENU E EXPENDITURE IN THE RETURN OF INCOME FILED WITH THE REVENUE FOR THE ASS ESSMENT YEAR 2009-10 , WHILE THE SAID EXPENSES WAS REIMBURSED TO THE ASSES SEE VIDE EXPENSES REIMBURSEMENT AGREEMENT DATED 13 TH MAY, 2010 ENTERED INTO BETWEEN THE ASSESSEE AND THE PARENT COMPANY AIGCC EFFECTIVE W.E .F. 01-04-2008 WHEREIN THE PARENT COMPANY AGREED TO REIMBURSE THE CFG MAN AGEMENT EMPLOYEESS SALARIES AND OTHER EXPENSES IN CONNECTION THERETO I NCURRED BY THE ASSESSEE W.E.F. 01-04-2008 . THE REIMBURSEMENT OF SAID EXPEN SES WAS STATED TO BE RECEIVED BY THE ASSESSEE IN THE PREVIOUS YEAR ENDED 31-03-2010(PAGE 9/PB) AND THE SAME WAS STATED TO BE OFFERED FOR TAXATION IN THE ASSESSMENT YEAR 2010-11. . THE ASSESSEE HAS ALSO PLACED COPY OF B ALANCE SHEET FOR THE ASSESSMENT YEAR 2010-11 WHEREIN THE SAID AMOUNT OF REIMBURSEMENT OF ITA 4355/MUM/2013 11 EXPENSES TO THE TUNE OF RS. 3,12,27,390/- FOR THE P REVIOUS YEAR ENDED 31-03- 2009 HAD BEEN REFLECTED IN THE P&L ACCOUNT FOR THE YEAR ENDED 31.3.2010(PB/PAGE9) AS INCOME EARNED BY THE ASSESSE E. THE REIMBURSEMENT OF SAID EXPENSES WHICH HAS BEEN ELABORATED VIDE SCH EDULE 13 IN THE AUDITED FINANCIAL STATEMENT WHICH IS AS UNDER:- REIMBURSEMENT OF EXPENSES THE COMPANY ENTERED INTO AN EXPENSE REIMBURSEMENT AGREEMENT, AS EXECUTED ON APRIL 26, 2010 WITH EFFEC T FROM APRIL 1, 2008 WITH AIG CAPITAL CORPORATION (AIGCC), BEING TH E HOLDING COMPANY HOLDING 99% OF ITS SHARES, WHEREBY AIGCC RE IMBURSED EXPENSES ON ACCOUNT OF SALARY AND OTHER EXPENSES OF CERTAIN MANAGERIAL PERSONNEL EMPLOYED BY THE COMPANY FOR TH E SOLE PURPOSE OF MANAGING AND ADMINISTERING ITS CONSUMER FINANCE SUBSIDIARIES WITH EFFECT FROM APRIL 1, 2008. THE AG REEMENT WAS APPROVED BY THE BOARD OF DIRECTORS IN THEIR MEETING HELD ON MARCH 26, 2010. THE AMOUNT OF REIMBURSEMENT FOR THE YEAR APRIL 1, 2 008 TO MARCH 31., 2009 AGGREGATING TO RS 31,227,390 (PREVIOUS YE AR RS. NIL) HAS BEEN DISCLOSED IN THE PROFIT AND LOSS ACCOUNT U NDER THE HEAD 'INCOME' AND THE AMOUNT FOR THE YEAR APRIL 1, 2009 TO MARCH 31, 2010 AGGREGATING TO RS. 47,096,967 HAS BEEN DISCLOS ED IN SCHEDULE 9 AS ANNEXED TO PROFIT AND LOSS ACCOUNT AS A REDUCTION FROM EXPENSES. IN OUR CONSIDERED VIEW , THE ASSESSEE IS ENTITLED F OR DEDUCTION AS REVENUE EXPENDITURE WITH RESPECT TO THE CLAIM OF AFORE-STAT ED EXPENSES OF RS. 3,12,27,390/- IN THE INSTANT ASSESSMENT YEAR 2009-1 0 AS THE SAID EXPENSES WERE DULY INCURRED TOWARDS SALARY AND OTHER EXPENSE S RELATED THERE TO CFG MANAGEMENT EMPLOYEES IN THE IMPUGNED ASSESSMENT YE AR 2009-10 WHEREIN THE SAID LIABILITY BEING AN ASCERTAINED AND ACCRUED LIABILITY GOT CRYSTALLIZED AND FASTENED AGAINST THE ASSESSEE ON ACCRUAL BASIS IN THE INSTANT ASSESSMENT YEAR 2009-10 ITSELF AND THE ASSESSEE FOLLOWING MERC ANTILE SYSTEM OF ITA 4355/MUM/2013 12 ACCOUNTING RIGHTLY DEBITED THE SAME AS AN REVENUE E XPENDITURE BEING AN ACCRUED AND ASCERTAINED LIABILITY AND CLAIMED THE S AME AS DEDUCTION WHILE FILING RETURN OF INCOME WITH THE REVENUE FOR THE AS SESSMENT YEAR 2009-10 . IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HA S NOT INCURRED THE AFORE- SAID EXPENSES OF RS.3,12,27,390/-. THE ASSESSEE EN TERED INTO AN EXPENSES REIMBURSEMENT AGREEMENT WITH PARENT COMPANY AIGCC FOR REIMBURSEMENT OF THE SALARY AND OTHER EXPENSES WITH RESPECT TO CFG MANAGEMENT EMPLOYEES AT COST WITHOUT ANY MARK UP SUBSEQUENTLY ON 13-05-2 010 ALBEIT THE SAID EXPENSES REIMBURSEMENT AGREEMENT WAS EFFECTIVE FROM 01-04-2008 MEANING THEREBY RIGHT TO RECEIVE REIMBURSEMENT OF EXPENSES FROM PARENT COMPANY AIGCC GOT VESTED AND ACCRUED IN FAVOUR OF THE ASSES SEE ONLY WHEN THE SAID EXPENSES REIMBURSEMENT AGREEMENT WAS ENTERED INTO BY THE ASSESSEE ON 13- 05-2010 ALBEIT TO CLAIM REIMBURSEMENT W.E.F.01-04-2 008 , BUT THAT DOES NOT MEAN THAT THE ASSESSEE LIABILITY TO PAY THESE EXPEN SES TOWARDS SALARY AND OTHER EXPENSES RELATED THERETO CFG MANAGEMENT EMPL OYEES DID NOT GET FASTENED AND ACCRUED AGAINST THE ASSESSSEE IN THE P REVIOUS YEAR ENDED 31-03- 2009 ITSELF RATHER IN-FACT IT WAS ASSESSEE WHO WAS LIABLE TO PAY SAID CFG MANAGEMENT EMPLOYEES SALARIES AND OTHER EXPENSES R ELATED THERETO OF IT OWN ACCOUNT IN THE PREVIOUS YEAR ENDED 31-03-2009 AND I T IS AN SUBSEQUENT EVENT HAPPENING ON 13-05-2010 WHEREIN EXPENSES REIMBURSE MENT AGREEMENT WAS ENTERED INTO WITH AIGCC WHICH ENTITLED ASSESSEE TO CLAIM REIMBURSEMENT OF SAID CFG MANAGEMENT EMPLOYEES SALARIES AND OTHER RELATED COSTS FROM AIGCC UNDER EXPENSES REIMBURSEMENT AGREEMENT DATED 13-05-2010 AS THE RIGHT TO RECEIVE REIMBURSEMENT OF SAID CFG MANAGEM ENT EMPLOYEES SALARIES AND OTHER RELATED COSTS FROM PARENT COMPANY AIGCC G OT VESTED IN FAVOUR OF THE ASSESSEE ONLY ON SIGNING OF EXPENSES REIMBURSE MENT AGREEMENT ON 13- 05-2010. THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SHRIKANT TEXTILES V. CIT, 1970-(BOI)-GJX-0035-BOM SQUARELY A PPLIES TO THE INSTANT CASE OF THE ASSESSEE AND SUPPORTS THE ASSESSEES CO NTENTIONS. THUS IN OUR CONSIDERED VIEW, THE ASSESSEE HAS RIGHTLY OFFERED A S INCOME THE ITA 4355/MUM/2013 13 REIMBURSEMENT RECEIVED FROM AIGCC OF THE EXPENSES W ITH RESPECT TO SALARIES AND OTHER RELATED COSTS THERETO W.R.T. CFG MANAGEM ENT EMPLOYEES RECEIVED IN THE PREVIOUS ENDED 31-03-2010 FOR TAXATION IN TH E RETURN OF INCOME FILED WITH REVENUE FOR ASSESSMENT YEAR 2010-11. IN OUR C ONSIDERED VIEW THE SAID EXPENDITURE OF RS. 3,12,27,390/- TOWARDS SALARIES A ND OTHER EXPENSES RELATED THERETO W.R.T. CFG MANAGEMENT EMPLOYEES INCURRED BY THE ASSESSEE DURING THE PREVIOUS YEAR ENDED 31-03-2009 IS AN ALLOWABLE REVENUE EXPENDITURE FOR THE ASSESSMENT YEAR 2009-10 WHICH IS HEREBY DIRECTE D TO BE ALLOWED AS REVENUE EXPENDITURE FOR THE ASSESSMENT YEAR 2009-10 SUBJECT TO VERIFICATION BY THE A.O. THAT THE ASSESSEE HAS DULY OFFERED THE REIMBURSEMENT OF THE AFORE- SAID EXPENSES TO THE TUNE OF RS. 3,12,27,390/- RECE IVED FROM AIGCC AS INCOME FOR TAXATION IN THE RETURN OF INCOME FILED W ITH THE REVENUE FOR ASSESSMENT YEAR 2010-11 . WE ORDER ACCORDINGLY. WITH REGARD TO THE CONTENTION OF THE LD. COUNSEL FO R THE ASSESSEE WITH RESPECT TO CHARGEABILITY OF INTEREST INCOME ON FIXED DEPOS IT OF RS.12,62,666/- UNDER THE HEAD INCOME FROM PROFIT AND GAIN OF BUSINESS OR PROFESSION , WE HAVE OBSERVED THAT THE ASSESSEE IS CONTENDING THAT IT IS ENGAGED IN THE BUSINESS OF NBFC WHEREBY IT IS ENGAGED IN ACTIVITIES OF FINANC ING AS AN NBFC AND HENCE INTEREST INCOME RECEIVED ON FD SHOULD BE BROUGHT TO TAX AS INCOME UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION . IN OUR CONSIDERED VIEW, THIS CLAIM OF THE ASSESSEE THAT IT IS ENGAGED IN BUSINES S OF FINANCING AS AN NBFC NEEDS VERIFICATION AND ACCORDINGLY WE SET ASIDE AND RESTORE THIS GROUND TO THE FILE OF THE A.O. FOR DE-NOVO DETERMINATION OF THE I SSUE AFTER VERIFICATION OF THE CLAIM OF THE ASSESSEE THAT THE ASSESSEE IS AN NBFC ENGAGED IN THE BUSINESS OF FINANCING. NEEDLESS TO SAY THAT THE ASSESSEE MAY B E GIVEN PROPER AND SUFFICIENT OPPORTUNITY OF BEING HEARD IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LAW AND THE RELEVANT EVI DENCES AND EXPLANATIONS SUBMITTED BY THE ASSESSEE WILL BE ADMITTED BY THE A O BEFORE DE-NOVO DETERMINATION OF THE ISSUE ON MERITS. WE ORDER ACCO RDINGLY. ITA 4355/MUM/2013 14 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IN ITA NO. 4355/MUM/2013 FOR THE ASSESSMENT YEAR 2009-10 IS ALLOWED AS INDIC ATED ABOVE. . ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH SEPTEMBER, 2016. # $% &' ( ) SD/- SD/- (MAHAVIR SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 12-09-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI A BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI