HSBC ASSET MANAGEMENT (INDIA) P.LTD, MUMBAI V. DCIT 1(1), MUMBAI

ITA 5178/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4951 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 05-09-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 06-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: YOGESH A THAR
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H , MUMBAI BEFORE SHRI B. RAMAKOTAIAH , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 4869/M/11 ASSESSMENT YEAR: 2006 - 07 THE ASSISTANT COMMISSIONER OF INCOME TAX - 1 (1), ROOM NO.579 AAYA KAR BHAVAN, MUMBAI 400020 VS. M/S. HSBC ASSET MANAGEMENT (I) PVT. LTD. 52/60 MAHATMA GANDHI ROAD, FORT, MUMBAI - 400 001 PAN: AA B C H0007 N (APPELLANT) (RESPONDENT) ITA NO. 5178/M/11 ASSESSMENT YEAR: 20 06 - 07 M/S. HSBC ASSET MANAGEMENT (I) PVT. LTD. D.N. ROAD, MUMBAI - 400 001 PAN: AA B C H0007 N VS. THE DEPUTY COMMISSIONER OF INCOME TAX - 1 (1), MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI YOGESH A. THAR REVENUE BY : SHRI SANJEEV JAIN, D.R. DATE OF HEARING : 05.09.13 DATE OF PRONOUNCEMENT : 16.09.13 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE ABOVE NOTED TWO APPEALS I.E. ONE FILED BY THE ASSESSEE AND THE OTHER FILED BY THE REV ENUE HAVE BEEN DIRECTED AGAINST THE ORDER OF THE CIT(A) DATED 15.02.11 RELEVANT TO THE ASSESSMENT YEAR 2006 - 07 . SINCE THE ISSUE S INVOLVED IN BOTH THE APPEALS ARE SIMILAR AND RELATING TO THE CASE OF THE ASSESSEE FOR THE SAME ITA NO. 4869/M/11 M/S. HSBC ASSET MANAGEMENT (I) P. LTD. 2 ASSESSM ENT YEAR , HENCE, FOR THE SAKE OF CONVENIENCE BOTH THE APPEALS ARE DISPO SED OFF WITH THIS COMMON ORDER. ITA NO.5178/M/11 DISALLOWANCE OF CREDIT CARD EXPENSES OF RS.3,37,245/ - THIS ISSUE HAS BEEN RAISED IN BOTH THE APPEALS AS GROUND NO. 1. THE ASSESSEE HAS CHALLENGED THE RETENT ION OF DISALLOWANCE OF 50% OF THE TOTAL DISALLOWANCE MADE BY THE AO AMOUNTING TO RS.3,37,245 / - WHERE AS THE REVENUE HAS CHALLENGED THE DELETION OF THE 50% OF THE DISALLOWANCE MADE BY THE AO. 2. D URING THE ASSESSMENT PROCEEDINGS , IT WAS NOTICED BY THE AO T HAT THE ASSESSEE HAD INCURRED EXPENSES ON VARIOUS DATES BY WAY OF DIRECT DEBIT THROUGH CREDIT CARD TOTALING RS.26 ,9 7,960/ - . THE AO CALLED FOR THE DETAILS OF THE EXPENSES FROM THE ASSESSEE AND NOTICED THAT THE LEDGER ACCOUNT DID NOT SHOW THAT THE CREDIT IN QUESTION BELONGS TO ANY OF THE DIRECTORS OF THE ASSESS EE COMPANY AND E VEN THE DETAILS OF THE EXPENSES HAD NOT BEEN FURNISHED. IN THE ABSENCE OF DETAILS AND FURTHER SEEING NO JUSTIFICATION FOR THE CREDIT CARD EXPENSES, THE AO , IN CONSIDERATION OF THE OVER ALL FACTS , DISALLOWED 25% OF THE SAID CREDIT CARD EXPENSES AMOUNTING TO RS.6,74,490/ - . 3 . IN FIRST APPEAL THE LD . CIT(A) NOTICED THAT AS PER DETAILS FURNISHED BY THE ASSESSEE COMPANY MOST OF THE EXPENSES WERE INCURRED THROUGH CREDIT CARD IN CONNECTION W ITH PAYMENTS TO DELUXE HOTELS, RESTAURANTS, FOR PURCHASE OF WINE AND LIQUOR ETC. THE LD. CIT(A) FURTHER OBSERVED THAT THE ASSESSEE COMPANY HAD NOT GIVEN THE FULL DETAILS OF THE EXPENSES EXCEPT PRODUCING A FEW SAMPLE BILLS OF EXPENDITURE THROUGH CREDIT CAR DS. AFTER CONSIDERING THE NATURE OF EXPENSES ITA NO. 4869/M/11 M/S. HSBC ASSET MANAGEMENT (I) P. LTD. 3 AND IN THE ABSENCE OF DETAILS & THE PURPOSE OF EXPENSES TO PROVE THE BUSINESS EXIGENCIES , THE LD. CIT(A) ARRIVED AT THE CONCLUSION THAT MOST OF THE EXPENSES WERE OF PERSONAL IN NATURE. HOWEVER, TAKING INTO CON SIDERATION OVERALL FACTS OF THE CASE HE FURTHER REDUCED THE DISALLOWANCE OUT OF THAT WAS MADE BY THE AO TO THE EXTENT OF 50% AND ACCORDINGLY HE CONFIRMED THE ADDITION OF RS.3,37,245/ - IN RELATION TO CREDIT CARD EXPENSES. 4 . BEFORE US THE LD. A.R. HAS SU BMITTED THAT THE EXPENDITURE THROUGH CREDIT CARDS WAS MADE BY THE EMPLOYEES OF THE COMPANY AND THE SAME WAS INCURRED FOR PROMOTIONAL ACTIVITIES OF THE BUSINESS. ON THE OTHER HAND THE LD. D.R. HAS SUBMITTED THAT THE DELETION OF 50% OUT OF THE DISALLOWANCE MADE BY THE AO WAS NOT JUSTIFIED. HE HAS BROUGHT OUR ATTENTION TO THE VARIOUS BILLS WHICH HAVE BEEN ANNEXED IN THE PAPER BOOK FILED BY THE ASSESSEE AT PAGES 32 TO 281 IN ORDER TO SHOW THAT MOST OF THE BILLS PERTAIN TO PURCHASE OF WINE & LIQUOR, FOOD AND H OTEL EXPENSES. EVEN , THERE ARE BILLS OF GENERAL PURCHASES AT SHOPPERS STOP AND PURCHASE OF GARMENTS FROM RAYMOND COMPANY. WE HAVE PERUSED THE PAPER BOOK ON THE FILE AND HAVE GONE THROUGH THE VARIOUS SAMPLES OF BILLS ATTACHED BY THE ASSESSEE. WE AGREE WI TH THE CONTENTION OF THE LD. D.R. THAT MOST OF THE BILLS RELATE TO PURCHASE OF WINE AND LIQUOR , GENERAL PURCHASES AT SHOPPERS STOP, HOTEL STAY AND AIR TRAVEL ETC. A PERUSAL OF THE SAID BILLS SHOWS THAT THESE BILLS INVOLVE PERSONAL NATURE OF EXPENSES. 6 . IN OUR VIEW, THE AO HAS RIGHTLY DISALLOWED THE 25% OF THE TOTAL EXPENSES INCURRED THROUGH CREDIT CARD AMOUNTING TO RS. 6,74,490/ - . THE LD. CIT(A) WHILE FURTHER REDUCING 50% OF THE SAID DISALLOWANCE MADE BY THE AO HAS NOT GIVEN ANY COGENT AND CONVI NCING R EASONING IN THIS RESPECT . T HOUGH , IN THE DISCUSSION PART OF THE ORDER HE HAS OBSERVED THAT THE DISALLOWANCE MADE BY THE AO IN THIS ITA NO. 4869/M/11 M/S. HSBC ASSET MANAGEMENT (I) P. LTD. 4 RESPECT WAS JUSTIFIED, H OWEVER, HE HAS DELETED THE 50% OF THE DISALLOWANCE WITHOUT GIVING ANY REASONING FOR THE SAME. 7 . A FTER PERUSAL OF THE FACTS AND DOCUMENTS ON THE FILE WE FIND THAT THE DELETION OF THE DISALLOWANCE MADE BY THE LD. CIT(A) IN THIS RESPECT WAS NOT JUSTIFIED. ACCORDINGLY, THE DELETION OF THE DISALLOWANCE MADE BY THE LD. CIT(A) UNDER THIS HEAD IS ORDERED TO BE SET ASIDE AND THAT MADE BY THE AO IS RESTORED. 8 . GROUND NO.1 OF THE APPEAL FILED BY THE ASSESSEE IS THUS DISMISSED AND THAT OF REVENUE IS ALLOWED. BUSINESS PROMOTION EXPENSES THE OTHER COMMON GROUND RAISED IN BOTH THE APPEALS IS RELATING TO THE DISALLOWANCE OF BUSINESS PROMOTION EXPENSES. THIS GROUND HAS BEEN TAKEN AS GROUND NO.4 BY THE ASSESSEE IN HIS APPEAL WHEREAS THE REVENUE HAS RAISED THIS ISSUE IN GROUND NO.2 OF ITS APPEAL. 9 . THE AO DURING THE ASSESSMENT PROCEEDINGS NOTICED THAT THERE WERE NUMBER OF REVERSAL ENTRIES OF BUSINESS PROMOTION EXPENSES IN THE LEDGER ACCOUNT. HE FOUND THAT THE FOLLOWING REVERSAL ENTRIES COULD NOT BE CORRELATED WITH THE ACCOUNTS SUBMITTED BY THE ASSESSEE. DATE AMOUNT 28.02.2006 RS.70,48,933/ - 03.03.2006 R S.18,62,840/ - 10 . HE FURTHER NOTICED THAT ALTHOUGH THE SAID REVERSAL HAD RESULTED INTO DEDUCTION OF EXPENSES , HOWEVER, IN THE ABSENCE OF DETAILS IT WAS NOT POSSIBLE TO VERIFY THE JUSTIFICATION OF THE EXPENSES. HE FURTHER NOTICED THAT THE ASSESSEE ITA NO. 4869/M/11 M/S. HSBC ASSET MANAGEMENT (I) P. LTD. 5 HA D INCURRED NET BUSINESS PROMOTION EXPENSES OF RS.2,79,75,456/ - . HE THEREFORE DISALLOWED 25% OF THE NET BUSINESS PROMOTION EXPENSES AMOUNTING TO RS.69,93,864/ - . 1 1 . IN APPEAL THE LD. CIT(A) OBSERVED THAT THOUGH THE CONTENTION OF THE ASSESSEE WAS RIGHT THA T BY REVERSING THE EXCESS PROVISION IT HAS OFFERED INCOME FOR TAX. HENCE THE DISALLOWANCE ON ACCOUNT OF REVERSAL ENTRIES COULD NOT BE MADE. HOWEVER, HE FURTHER OBSERVED THAT THE ASSESSEE COMPANY HAD NOWHERE GIVEN ANY KIND OF JUSTIFICATION FOR THE PURPOSE OF PAYMENTS MADE UNDER THE HEAD BUSINESS PROMOTION EXPENSES. THE ONLY CONTENTION OF THE ASSESSEE THAT THE SAID EXPENSES WERE INCURRED FOR LAUNCH OF HSBC ADVANTAGE INDIA FUND , DID NOT FIND JUSTIFICATION WITH HIM. HE FURTHER NOTICED THAT SUBSTANTIAL PAY MENTS WERE MADE TO SOME OF THE CONCERNS EXCEEDING RS.5 LAKHS WITHOUT FURNISHING OF ANY DETAILS AS TO NATURE AND PURPOSE OF THE PAYMENTS. HE FURTHER NOTICED THAT MAJORITY OF THE EXPENSES WERE RELATED TO LUXURY HOTEL EXPENSES. HE ALSO OBSERVED THAT THE ASS ESSEE COMPANY FAILED IN MAKING JUSTIFICATION OF CLAIM OF INCURRING OF EXPENSES FOR MANAGING MUTUAL FUND. HE THUS HELD THAT THE ASSESSEE COMPANY HAD FAILED TO PROVE THE BUSINESS EXIGENCIES FOR INCURRING THIS EXPENDITURE AS REQUIRED UNDER SECTION 37(1) OF T HE INCOME TAX ACT. HOWEVER, CONSIDERING THE SUBMISSIONS OF THE ASSESSEE COMPANY AS WELL AS THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE HE CONFIRMED THE ADDITION TO THE EXTENT OF 10% OF THE TOTAL EXPENSES AT RS.27,97,545/ - . THE ASSESSEE HAS ASSAILED T HE CONFIRMATION OF ABOVE SAID 10% OF EXPENSES WHEREAS THE REVENUE HAS CHALLENGED THE DELETION OF REMAINING 15% OF THE DISALLOWANCE OUT OF THE TOTAL 25% MADE BY THE AO. 1 2 . WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND HAVE GONE THROUGH T HE FILES. ITA NO. 4869/M/11 M/S. HSBC ASSET MANAGEMENT (I) P. LTD. 6 13 . THE LD. A.R. BEFORE US HAS SUBMITTED THAT THE RETENTION OF 10% DISALLOWANCE BY THE LD. CIT(A) WAS NOT JUSTIFIED AS THE DISALLOWANCE WAS MADE BY THE AO ON ACCOUNT OF NON RECONCILIATION OF REVERSAL ENTRIES. HE HAS FURTHER CONTENDED THAT THE AO DID NOT RECORD ANY FINDING TO THE EFFECT THAT THE EXPENSES WERE NOT FOR BUSINESS PURPOSES. HE HAS FURTHER SUBMITTED THAT FROM THE LEDGER ACCOUNTS , IT IS EVIDENT THAT THE SAID EXPENSES WERE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. ON THE OTHER HAND LD. D.R. HAS RELIED UPON THE A.O. 1 4 . IN OUR VIEW, THOUGH THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF NON RECONCILIATION OF REVERSAL ENTRIES DOES NOT SEEM TO BE JUSTIFIED , A S BY MAKING REVERSAL ENTRIES THE ASSESSEE HAS OFFERED THE IN COME FOR THE TAX. THE AO WAS REQUIRED TO RECORD HIS FINDINGS AS TO WHETHER THE EXPENSES WERE INCURRED FOR ONE PURPOSE OF BUSINESS EXIGENCIES OR NOT, BUT WITHOUT DOING SO, HE STRAIGHTWAY MADE THE DISALLOWANCE OF 25% OF THE TOTAL EXPENSES CLAIMED BY THE ASS ESSEE. THE LD. A.R. HAS SUBMITTED THAT ASSESSEE HAD FILED VOLUMINOUS DOCUMENTS BEFORE LD. CIT(A) JUSTIFYING THE EXPENDITURE. BEFORE US ALSO, PAPER BOOKS HAVE BEEN FILED TO EXPLAIN THE NATURE OF EXPENDITURE WITH SUPPORTING DOCUMENTS. AUTHORITIES BELOW SE EM TO HAVE NOT EXAMINED THE RECORDS FILED BY THE ASSESSEE. SO WE RESTORE THIS ISSUE TO THE FILE OF AO WITH A DIRECTION TO EXAMINE THE ISSUE AFRESH BY GIVING DUE OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE. ACCORDINGLY, THE GROUND TAKEN IN BOTH THE AP PEALS IS ALLOWED FOR STATISTICAL PURPOSES. ADDITION OF PRIOR PERIOD EXPENSES OF RS.7,93,016/ - THIS ISSUE HAS BEEN RAISED BY THE ASSESSEE IN GROUND NO.2 OF ITS APPEAL. THE LD. AO DURING THE ASSESSMENT PROCEEDINGS NOTICED THAT THE EXPENDITURE ITA NO. 4869/M/11 M/S. HSBC ASSET MANAGEMENT (I) P. LTD. 7 AMOUN T OF RS. 7,93,016/ - WAS RELATING TO THE PERIOD FROM 25.01.05 TO 31.01.05 I.E. PREVIOUS TO THE DATES WHICH FALL IN THE FINANCIAL YEAR IN QUESTION . HE FURTHER NOTICED THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND AS SUCH IT WAS REQUIRED TO CLAIM THE SAID EXPENDITURE AT THE TIME OF ITS ACCRUAL I.E. DURING THE PRECEDING FINANCIAL YEAR. HE THEREFORE DISALLOWED THE SUM OF RS.7,93,016/ - BEING PRIOR PERIOD EXPENSES. THE LD. CIT(A) UPHELD THE DISALLOWANCE MADE BY THE AO. THE ASSESSEE HAS THU S CHALLENGED THE SAID DISALLOWANCE BEFORE US. 1 5 . THE LD. A.R. BEFORE US HAS SUBMITTED THAT THE SAID EXPENSES WERE RELATING TO VICTORY F LAG C ONTEST WHICH WAS HELD DURING THE PREVIOUS FINANCIAL YEAR. HOWEVER, NO INVOICE/BILL WAS RECEIVED BY THE ASSESS EE IN THE PRECEDING YEAR. THE ASSESSEE COULD NOT ASCERTAIN ITS LIABILITY FOR THE AFORESAID EXPENSES AND AS SUCH IT DID NOT PROVIDE FOR THE SAID EXPENSES IN ITS BOOKS OF ACCOUNT IN THE PRECEDING YEAR. THE BILLS FOR THE ABOVE SAID EXPENDITURE W ERE RECEIVED BY THE ASSESSEE ONLY ON 30.09.05 I.E. DURING THE PREVIOUS YEAR RELATING TO THE ASSESSMENT YEAR IN QUESTION I.E. 2006 - 07. HENCE , THE ASSESSEE CLAIMED THE SAID AMOUNT DURING THIS YEAR. HE HAS FURTHER CONTENDED THAT THE LIABILITY WAS KNOWN AND MADE ASCERTA IN ONLY DURING THE YEAR RELATING TO ASSESSMENT YEAR IN QUESTION. HENCE THE SAME WAS ACCORDINGLY ENTERED INTO THE ACCOUNTS. ON THE OTHER HAND THE LD. D.R. HAS RELIED UPON THE AUTHORITIES BELOW. 1 6 . WE HAVE CONSIDERED THE SUBMISSIONS MADE BY THE LD. REP RESENTATIVES OF THE PARTIES. 1 7 . IN OUR VIEW, THE DISALLOWANCE MADE BY THE AU THORITIES BELOW UNDER THIS HEAD , ONLY ON THE GROUND THAT THE EXPENSES WERE RELATING TO PRIOR PERIOD , WAS NOT JUSTIFIED. THE AO SHOULD HAVE EXAMINED THE EVIDENCES/DOCUMENTS TO ITA NO. 4869/M/11 M/S. HSBC ASSET MANAGEMENT (I) P. LTD. 8 ASCERTAIN AS TO WHETHER THE LIABILITY WAS ASCERTAINED DURING THE FINANCIAL YEAR IN QUESTION AND IF SO NO DISALLOWANCE WAS REQUIRED TO BE MADE. WE ACCORDINGLY SET ASIDE THE FINDING OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE AO WITH A DIRECTION TO VERIFY AS TO WHETHER THE BILLS WERE RAISED AND LIABILITY WAS ASCERTAINED DURING THE FINANCIAL YEAR IN QUESTION AND IF FOUND TRUE THEN NO DISALLOWANCE BE MADE IN THIS RESPECT. HOWEVER, IF THE CONTENTION OF THE ASSESSEE WILL NOT BE F OUND CORRECT , THEN THE LD. AO WILL MAKE THE ASSESSMENT IN RESPECT OF THE MATTER IN ACCORDANCE WITH LAW. 1 8 . THE ASSESSEE HAS TAKEN AN ALTERNATIVE GROUND NO.3 IN ITS APPEAL TO THE EFFECT THAT IF THE EXPENDITURE CLAIMED BY THE ASSESSEE UNDER GROUND NO.2 I S FOUND TO BE CRYSTALLIZED IN THE ASSESSMENT YEAR 2005 - 06 , THEN THE AO TO BE DIRECTED TO ALLOW THE SAME IN ASSESSMENT YEAR 2005 - 06. 19 . SINCE, IN VIEW OF OUR OBSERVATIONS MADE ABOVE, WE HAVE ALREADY RESTORED THE MATTER ON THIS ISSUE TO THE FILE OF THE A O, NO FINDING IN THIS RESPECT IS REQUIRED TO BE GIVEN AT THIS STAGE . THE ASSESSEE , IF DEEM S IT NECESSARY , MAY RAISE THE ISSUE BEFORE THE AO AND THE AO THEREAFTER SHOULD DECIDE THE SAME IN ACCORDANCE WITH LAW. 2 0 . IN THE RESULT, IN VIEW OF OUR OBSERVATI ONS MADE ABOVE, BOTH THE APPEALS I.E. ONE FILED BY THE ASSESSEE AND THE OTHER FILED BY THE REVENUE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.09. 2013. SD/ - SD/ - ( B. RA MAKOTAIAH ) ( SANJAY GARG ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 16.09. 2013. * KISHORE ITA NO. 4869/M/11 M/S. HSBC ASSET MANAGEMENT (I) P. LTD. 9 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.