BIRLA SUN LIFE ASSET MANAGEMENT CO LTD, MUMBAI V. JCIT 8(1), MUMBAI

ITA 5456/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8657 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 12-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Keywords: Commercial expediency
• Section: 143(3); 37(1)

Judgement Text

D B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.5456 /MUM/2013 ( / ASSESSMENT YEAR : 2007-08) M/S BIRLA SUN LIFE ASSET MANAGEMENT COMPANY LIMITED, ONE INDIA BULLS CENTRE, TOWER 1, 17 TH FLOOR, JUPITER MILLS COMPOUND, 841 SENAPATI BAPAT MARG, ELPHINSTONE ROAD, MUMBAI 400 013. / V. JOINT COMMISSIONER OF INCOME TAX (OSD)-8(1) ROOM NO. 209, 2 ND FLOOR, AAYAKAR BHAWAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AAACB6134D ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI MANTHAN SHAH REVENUE BY : SHRI SUMA N KUMAR ,DR / DATE OF HEARING : 27-12-2016 / DATE OF PRONOUNCEMENT : 23.01.2017 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE, BEING ITA NO. 5456/MUM/2013, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 3 RD JUNE, 2013 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 16, MUMBAI (H EREINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2007-08, THE APPE LLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM THE PENALTY ORDER D ATED 22 ND MARCH, 2012 PASSED BY THE LEARNED ASSESSING OFFICER (HEREINAFTE R CALLED THE AO) U/S 271(1)(C) OF THE INCOME-TAX ACT,1961 (HEREINAFTER C ALLED THE ACT). ITA 5456/MUM/2013 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THE MEMO OF APPEAL FILED WITH THE INCOME-TAX APPELLATE TRIBUNAL, MUMBA I (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- GROUND NO. I: LEVY OF PENALTY U/S.271 (1) (C) - RS . 17,12,092/- : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN UPHOLDING THE ACTION OF JO INT COMMISSIONER OF INCOME TAX (0SD) - 8 (1) (THE AO') IN LEVYING PENALTY U/S. 271(L)(C) OF THE ACT ON THE ALLEGED GR OUND THAT THE APPELLANT HAS CONCEALED / FURNISHED INACCURATE PART ICULARS OF ITS INCOME. 2. THE CIT{A) FAILED TO APPRECIATE AND OUGHT TO HAV E HELD THAT: A) THE APPELLANT HAD FURNISHED FULL AND CORRECT PAR TICULARS OF INCOME, IN THE RETURN OF INCOME FILED BY IT; B) THE CLAIMS MADE BY THE APPELLANT IS BONAFIDE; C) MERE DISALLOWANCE OF EXPENDITURES WOULD NOT AUTO MATICALLY LEAD TO CONFIRMATION OF PENALTY; D) WHEN TWO VIEWS ARE POSSIBLE OR ISSUE IS DEBATABL E, THE QUESTION OF PENALTY WOULD NOT ARISE; 3. THE APPELLANT PRAYS THAT THE PENALTY LEVIED U/S. 271(L)(C) IN RESPECT OF THE ADDITION / DISALLOWANCE SHOULD BE DE LETED. 3. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) READ WITH SECTION 143(2) OF THE ACT, THE A.O. OBSERVED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF ASS ET MANAGEMENT AND PORTFOLIO MANAGEMENT AND ADVISORY SERVICES . THE AO OBSERVED THAT THE ASSESSEE HAD PAID COMPENSATION OF RS. 50,86,434/- T O INVESTORS, AS DETAILED HEREUNDER:- ITA 5456/MUM/2013 3 SR NO INVESTORS NAME DATE OF PAYMENT AMOUNT DESCRIPTION 1 RAMADEVI SOOD 03.05.2006 15,98,083 UNITS ERRONEOUS LY NOT ALLOTTED TO THE INVESTOR IN JANUARY, 2000 2 V. MEENAKSHI 13.07.2006 6,96,257 NON RECEIPT OF DI VIDEND WARRANT 3 V. MEENAKSHI 22.08.2006 6,54,959 INTEREST ON DELA YED DIVIDEND PAYMENT 4 NARESHKUMAR TREHAS 31.03.2007 8,83,000 COMPENSATION TO INVESTOR FOR REDEMPTION PROCEEDS 5 VARIOUS INVESTORS 12,54,135 COMPENSATION EXPENSES VARIOUS INVESTORS LESS THAN RS. 5 LAKH 50,86,434 THE CLAIM OF RS.50,86,434/- BEING PAID BY THE ASSES SEE TO THE INVESTORS AS REVENUE EXPENSES U/S 37(1) OF THE ACT WAS NOT ALLOW ED BY THE AO IN THE ASSESSMENT PROCEEDINGS VIDE ASSESSMENT ORDER DATED 30 TH DECEMBER, 2009 PASSED BY THE AO U/S 143(3) OF THE ACT ON THE GROU NDS THAT IT WAS NOT THE LIABILITY OF THE ASSESSEE . THE AO ALSO INITIATED P ENALTY PROCEEDINGS AGAINST THE ASSESSEE. 4. ON FIRST APPEAL FILED BY THE ASSESSEE WITH THE L EARNED CIT(A) AGAINST THE ASSESSMENT ORDER DATED 30 TH DECEMBER, 2009 PASSED BY THE AO U/S 143(3) OF THE ACT , THE LD. CIT(A) CONFIRMED THE DISALLOWANC E MADE BY THE A.O. IN QUANTUM ASSESSMENT BY SUSTAINING/CONFIRMING THE AS SESSMENT ORDERS OF THE AO AND DISMISSING THE APPEAL OF THE ASSESSEE. 5. THE A.O. INITIATED PENALTY PROCEEDINGS U/S 271(1 )(C) OF THE ACT ON THE GROUNDS OF ASSESSEE CONCEALING INCOME BY FURNISHING INACCURATE PARTICULARS OF INCOME . ITA 5456/MUM/2013 4 6. DURING THE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT, THE ASSESSEE SUBMITTED THAT AS PER SEBI REGULATION, THE ASSESSEE IS NOT ONLY RESPONSIBLE FOR ACTS OF COMMISSION AND OMISSION BY ITS EMPLOYEE S BUT ALSO OF PERSON WHOSE SERVICES HAS BEEN OBTAINED/PRODUCED BY AMC. T HE ASSESSEE SUBMITTED THAT THESE PAYMENTS WERE MADE TO COMPENSATE THE INV ESTORS . IT WAS OBSERVED BY THE AO THAT THE ABOVE PAYMENTS WERE NOT RELATED TO ANY OMISSION COMMITTED BY THE ASSESSEE. IT WAS OBSERVED BY THE A O THAT THE COMPENSATION WAS PAID AS PER ACTS OF EARLIER CONSULTANT M/S. KA RVY CONSULTANTS LIMITED APPOINTED BY THE MUTUAL FUND. THE A.O. OBSERVED THA T IT IS NOT A LIABILITY OF THE ASSESSEE TO MAKE THE PAYMENT AS THERE WAS NO CO NTRACTUAL /STATUTORY OBLIGATION ON THE ASSESSEE TO PAY THESE AMOUNTS TO INVESTORS AS THE OMISSION WAS COMMITTED BY THE TRANSFER AGENT M/S KARVY CONSU LTANTS LIMITED AND NOT BY THE ASSESSEE AND THE AO OBSERVED THAT THE ASSESS EE HAD TRIED TO REDUCE ITS TAX LIABILITY . HENCE , THE PENALTY OF RS. 17,12,09 2/- WAS LEVIED ON THE ASSESSEE BY THE AO U/S 271(1)(C) OF THE ACT , VIDE PENALTY ORDERS DATED 22 ND MARCH, 2012 PASSED BY THE AO U/S 271(1)(C) OF THE A CT. 7. ON FIRST APPEAL FILED BY THE ASSESSEE BEFORE LEA RNED CIT(A) AGAINST PENALTY ORDERS DATED 22-03-2012 PASSED BY THE AO U/S 271(1) (C) OF THE ACT, THE LD. CIT(A) CONFIRMED/SUSTAINED THE PENALTY LEVIED BY TH E AO OF RS.17,12,092/- U/S 271(1)(C) OF THE ACT VIDE HIS APPELLATE ORDERS DATED 3 RD JUNE, 2013. 8. AGGRIEVED BY THE APPELLATE ORDERS DATED 03-06-20 13 PASSED BY THE LD. CIT(A) CONFIRMING/SUSTAINING THE PENALTY OF RS. 17, 12,092/- LEVIED BY THE AO U/S 271(1)(C) OF THE ACT, THE ASSESSEE FILED SECOND APPEAL BEFORE THE TRIBUNAL. 9. THE LD. COUNSEL FOR THE ASSESSEE, AT THE VERY OU TSET, SUBMITTED THAT THE MUMBAI TRIBUNAL VIDE ITS ORDER DATED 18 TH MAY, 2016 IN ITA NO. 2716/MUM/2011 IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 IN ASSESSEES APPEAL AGAINST THE SUSTENANCE OF THE QUA NTUM ADDITIONS HAS ITA 5456/MUM/2013 5 DELETED THE QUANTUM ADDITIONS MADE BY THE A.O. IN ASSESSMENT ORDER DATED 30 TH DECEMBER, 2009 PASSED U/S 143(3) OF THE ACT WHICH ORDER OF ASSESSMENT WAS LATER CONFIRMED BY THE LD. CIT(A) IN THE FIRST APPEAL VIDE APPELLATE ORDERS DATED 12/01/2011. THE TRIBUNAL IN ITS AFORE-SAID O RDERS DATED 18-05-2016 HELD AS UNDER:- 7. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISS UE AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM T HE FACTS OF THE CASE THAT THE TRUSTEES OF THE TRUST APPOINTED THE ASSESSEE FOR CA RRYING DAY TO DAY ACTIVITIES LIKE FUND RAISING FROM INVESTORS, ISSUANCE OF UNIT TO INVESTORS, MANAGEMENT OF FUNDS, ISSUING AND ACCOUNTING OF REDEMPTION PROCEED S, ISSUING AND ACCOUNTING DIVIDEND WARRANTS, ETC. WE FIND FROM THE FACTS OF THE CASE THAT THAT THE ASSESSEE DOES NECESSARY ACTIVITY FOR THE BENEFICIAL OWNERS AND FOR THE SAME CHARGING ASSET MANAGEMENT FEE FROM THE VARIOUS SCHE MES AS PER SEBI REGULATIONS. WE ALSO FIND THAT IN THIS PROCESS T HE ASSESSEE COMPANY HAS SETTLED CLAIM TOWARDS COMPENSATION TO VARIOUS INVES TORS ON ACCOUNT OF BUSINESS EXPEDIENCY AND AS PER REGULATIONS OF SEBI AMOUNTING TO RS.50,86,431/-. THE COMPLETE DETAILS ARE GIVEN IN THE ASSESSMENT ORDER. THE ASSESSEE HAS CLAIMED THESE EXPENSES AS DEDUCTION, WHICH WAS INCURRED, IN THE COURSE OF BUSINESS ON ACCOUNT OF BUSINESS EXPEDIENCY. AS CLAIMED BY THE ASSESSEE, WE ARE OF THE OPINION THAT IN SUCH NATURE OF BUSINESS, THE ASSESS EE HAS TO INCUR SUCH EXPENSES TO SAFEGUARD ITS BUSINESS INTEREST AGAINST COMPLAINT MADE BY INVESTORS ON SEBI, WHICH MAY LEAD TO VIOLATION OF S EBI REGULATIONS AND ALSO IT IS DUTY BOUND TO MAKE THE LOSS GOOD OF THE INVESTORS. WE ALSO FIND FROM THE FACTS OF THE CASE THAT THE ASSESSEE AND TRUSTEES OF THE M UTUAL FUND ENTERED INTO AN INVESTMENT MANAGEMENT AGREEMENT, WHICH WAS GUIDING FACTOR FOR RIGHTS AND OBLIGATION OF ASSET MANAGEMENT COMPANY. WE ALSO FIN D THAT THE ASSESSEE HAS RAISED THIS ISSUE AND FILED RECONCILIATION DURING THE ASSESSMENT YEAR 2002-03, WHEREIN THE RECONCILIATION DIFFERENCE AMOUNTING TO RS.16.00 CRORES WAS DEFICIT AGAINST THE MUTUAL FUND AND RS.6.00 CRORES BEING SU RPLUS IN FAVOUR OF THE MUTUAL FUND. BUT THERE WAS A NET DEFICIT OF RS.10. 00 CRORES AGAINST MUTUAL FUND. THE ASSESSEE APPOINTED A FIRM OF CHARTERED A CCOUNTANT TO CARRY OUT THIS RECONCILIATION AND AFTER PROLONGED EXERCISE THE DIF FERENCE LARGELY REMAIN UNREALIZED AND THE MATTER WAS TAKEN-UP WITH SEBI AN D IN CONSULTATION WITH SEBI IT WAS DECIDED THAT THE DEFICIT OF RS.16.00 CR ORES SHOULD BE MADE OVER BY ASSET MANAGEMENT COMPANY AND REPLENISHED TO THE MUT UAL FUNDS. IT IS ALSO A FACT THAT OUT THERE ARE UNKNOWN CREDITS LYING IN T HE BANK ACCOUNT TO THE EXTENT OF RS.6.00 CRORES, WHICH WAS ADJUSTED AND BALANCE R S.10.00 CRORES WERE PAID TO MUTUAL FUNDS. AS EXPLAINED BY THE LD. COUNSEL F OR THE ASSESSEE BEFORE US NOW AND HE RELIED ON TRIBUNAL DECISION ASSESSEES OWN CASE WHEREIN, IN ASSESSMENT YEAR 2002-03 THE TRIBUNAL TAKING NOTE OF THE PROVISIONS OF THE ACT AND SEBI REGULATIONS, CONTRACTUAL AGREEMENT BETWEEN ASSESSEE AND THE PROSPECTS OF MUTUAL FUND, HELD THAT THE ASSESSEE W AS CONTRACTUALLY AND STATUTORILY BOUND TO MAKE THE PAYMENT SO AS TO KEEP ASSESSEES BUSINESS INTEREST AND, THEREFORE, HELD THAT MAKING GOOD OF D EFICIT OF RS.16.00 CRORES, AFTER ITA 5456/MUM/2013 6 ADJUSTING CREDITS OF UNKNOWN BANK BALANCE OF RS.6.0 0 CRORES, BALANCE AMOUNT OF RS.10.00 CRORES IS ALLOWABLE AS DEDUCTION. WE FI ND THAT THE ASSESSEE IS CARRYING OVER THE ENTIRE LEGACY PERTAIN TO EARLIER PERIOD, FOR WHICH, IT CLAIMED AMOUNTING TO RS.50.86 LACS IN RESPECT TO ABOVE NOTE D FIVE PERSONS. NOW THE QUESTION ARISES, WHETHER THE ABOVE PAYMENTS QUALIFY FOR ALLOWANCE FOR THE REASON THAT THESE ARE COMMERCIAL EXPEDIENCY, CONTRA CTUAL OBLIGATIONS AND STATUTORY OBLIGATIONS. WE ARE OF THE VIEW THAT IN THE PRESENT CASE THE UNIT HOLDERS, WHO MADE CLAIM WITH THE TRANSFER AGENT, AR E ENTITLED FOR RETURN OF THEIR MONEY INVESTED IN ASSESSEES MUTUAL FUND. EVEN THE SEBI REGULATION STATES SO AND IF THERE IS VIOLATION OF THE SAME, SEBI CAN P ROSECUTE THE ASSESSEE. IT MEANS THAT THE LIABILITY PAID BY ASSESSEE IS IN THE NATURE OF STATUTORY AS WELL AS CONTRACTUAL. THE ASSESSEE HAS PAID THE LEGITIMATE CLAIM OF THE UNIT HOLDERS, WHO HAVE LODGED THE CLAIM WITH THE REGISTRAR AND TRANSF ER AGENT OF THE ISSUE. WE ARE OF THE VIEW THAT THIS EXPENDITURE IS INCIDENTAL TO TRADE ITSELF AND ASSESSING OFFICER CANNOT IGNORE THE SAME. WE ARE OF THE VIEW THAT EVEN THIS COMES WITHIN THE AMBIT OF COMMERCIAL EXPEDIENCY FOR THE REASON T HAT THIS IS INDIRECTLY FOR FACILITATION OF CARRYING ON OF THE BUSINESS OF THE ASSESSEE. IN VIEW OF THIS REASONING, WE ALLOW THE CLAIM OF THE ASSESSEE AND T HE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE ARE REVERSED. THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED. THUS, THE LD. COUNSEL SUBMITTED THAT SINCE THE QUAN TUM ADDITIONS MADE BY THE A.O. AND CONFIRMED BY LEARNED CIT(A), HAVE BEE N DELETED BY THE TRIBUNAL VIDE ITS ORDER DATED 18 TH MAY, 2016 IN ITA NO. 2716/MUM/2011 FOR THE ASSESSMENT YEAR 2007-08, THE PENALTY LEVIED U/S 271 (1)(C) OF THE ACT BY THE AO AND AS CONFIRMED BY LEARNED CIT(A), CANNOT BE SUSTAINED AND HAS TO BE DELETED. 10. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE ORDER OF THE LD. CIT(A). HOWEVER, THE LD. D.R. FAIRLY CONCEDED THAT IN VIEW OF THE AFORESAID ORDER OF THE TRIBUNAL DATED 18 TH MAY, 2016 (SUPRA) IN ASSESSEES OWN CASE, THE PENA LTY LEVIED BY THE AO U/S 271(1)(C) OF THE ACT AND AS SU STAINED BY LEARNED CIT(A), CANNOT BE NOW SUSTAINED/CONFIRMED . 11. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASS ESSEE IS ENGAGED IN THE BUSINESS OF ASSET MANAGEMENT AND PORTFOLIO MANAGEME NT AND ADVISORY ITA 5456/MUM/2013 7 SERVICES .WE HAVE OBSERVED THAT THE ASSESSEE HAS MA DE COMPENSATION PAYMENTS OF RS. 50,86,434/- TO VARIOUS INVESTORS AS UNDER:- SR NO INVESTORS NAME DATE OF PAYMENT AMOUNT DESCRIPTION 1 RAMADEVI SOOD 03.05.2006 15,98,083 UNITS ERRONEOUS LY NOT ALLOTTED TO THE INVESTOR IN JANUARY, 2000 2 V. MEENAKSHI 13.07.2006 6,96,257 NON RECEIPT OF DI VIDEND WARRANT 3 V. MEENAKSHI 22.08.2006 6,54,959 INTEREST ON DELA YED DIVIDEND PAYMENT 4 NARESHKUMAR TREHAS 31.03.2007 8,83,000 COMPENSATION TO INVESTOR FOR REDEMPTION PROCEEDS 5 VARIOUS INVESTORS 12,54,135 COMPENSATION EXPENSES VARIOUS INVESTORS LESS THAN RS. 5 LAKH 50,86,434 THESE COMPENSATION WERE PAID AS PER ACTS OF OMISSI ON BY EARLIER CONSULTANT M/S. KARVY CONSULTANTS LIMITED APPOINTED BY THE MUT UAL FUND. THESE PAYMENTS ARE SETTLEMENT OF CLAIMS AS PER SEBI REGUL ATIONS. THE AO IN QUANTUM ASSESSMENT DISALLOWED THESE PAYMENTS MADE B Y THE ASSESSEE TO INVESTORS WHICH WAS LATER CONFIRMED BY LEARNED CIT( A), WHILE THE TRIBUNAL VIDE ITS ORDER DATED 18 TH MAY, 2016 IN ITA NO. 2716/MUM/2011 FOR ASSESSMENT YEAR 2007-08, ALLOWED THE APPEAL OF THE ASSESSEE AN D THE QUANTUM ADDITIONS HAS BEEN DELETED BY THE TRIBUNAL. THE TRIBUNAL IN I TS ORDER DATED 18 TH MAY, 2016 OBSERVED AS UNDER:- 7. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISS UE AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM T HE FACTS OF THE CASE THAT THE TRUSTEES OF THE TRUST APPOINTED THE ASSESSEE FOR CA RRYING DAY TO DAY ACTIVITIES LIKE FUND RAISING FROM INVESTORS, ISSUANCE OF UNIT TO INVESTORS, MANAGEMENT OF FUNDS, ISSUING AND ACCOUNTING OF REDEMPTION PROCEED S, ISSUING AND ACCOUNTING DIVIDEND WARRANTS, ETC. WE FIND FROM THE FACTS OF THE CASE THAT THAT THE ASSESSEE DOES NECESSARY ACTIVITY FOR THE BENEFICIAL OWNERS AND FOR THE SAME CHARGING ASSET MANAGEMENT FEE FROM THE VARIOUS SCHE MES AS PER SEBI REGULATIONS. WE ALSO FIND THAT IN THIS PROCESS T HE ASSESSEE COMPANY HAS SETTLED CLAIM TOWARDS COMPENSATION TO VARIOUS INVES TORS ON ACCOUNT OF BUSINESS EXPEDIENCY AND AS PER REGULATIONS OF SEBI AMOUNTING TO RS.50,86,431/-. THE COMPLETE DETAILS ARE GIVEN IN THE ASSESSMENT ORDER. THE ASSESSEE HAS CLAIMED ITA 5456/MUM/2013 8 THESE EXPENSES AS DEDUCTION, WHICH WAS INCURRED, IN THE COURSE OF BUSINESS ON ACCOUNT OF BUSINESS EXPEDIENCY. AS CLAIMED BY THE ASSESSEE, WE ARE OF THE OPINION THAT IN SUCH NATURE OF BUSINESS, THE ASSESS EE HAS TO INCUR SUCH EXPENSES TO SAFEGUARD ITS BUSINESS INTEREST AGAINST COMPLAINT MADE BY INVESTORS ON SEBI, WHICH MAY LEAD TO VIOLATION OF S EBI REGULATIONS AND ALSO IT IS DUTY BOUND TO MAKE THE LOSS GOOD OF THE INVESTORS. WE ALSO FIND FROM THE FACTS OF THE CASE THAT THE ASSESSEE AND TRUSTEES OF THE M UTUAL FUND ENTERED INTO AN INVESTMENT MANAGEMENT AGREEMENT, WHICH WAS GUIDING FACTOR FOR RIGHTS AND OBLIGATION OF ASSET MANAGEMENT COMPANY. WE ALSO FIN D THAT THE ASSESSEE HAS RAISED THIS ISSUE AND FILED RECONCILIATION DURING THE ASSESSMENT YEAR 2002-03, WHEREIN THE RECONCILIATION DIFFERENCE AMOUNTING TO RS.16.00 CRORES WAS DEFICIT AGAINST THE MUTUAL FUND AND RS.6.00 CRORES BEING SU RPLUS IN FAVOUR OF THE MUTUAL FUND. BUT THERE WAS A NET DEFICIT OF RS.10. 00 CRORES AGAINST MUTUAL FUND. THE ASSESSEE APPOINTED A FIRM OF CHARTERED A CCOUNTANT TO CARRY OUT THIS RECONCILIATION AND AFTER PROLONGED EXERCISE THE DIF FERENCE LARGELY REMAIN UNREALIZED AND THE MATTER WAS TAKEN-UP WITH SEBI AN D IN CONSULTATION WITH SEBI IT WAS DECIDED THAT THE DEFICIT OF RS.16.00 CR ORES SHOULD BE MADE OVER BY ASSET MANAGEMENT COMPANY AND REPLENISHED TO THE MUT UAL FUNDS. IT IS ALSO A FACT THAT OUT THERE ARE UNKNOWN CREDITS LYING IN T HE BANK ACCOUNT TO THE EXTENT OF RS.6.00 CRORES, WHICH WAS ADJUSTED AND BALANCE R S.10.00 CRORES WERE PAID TO MUTUAL FUNDS. AS EXPLAINED BY THE LD. COUNSEL F OR THE ASSESSEE BEFORE US NOW AND HE RELIED ON TRIBUNAL DECISION ASSESSEES OWN CASE WHEREIN, IN ASSESSMENT YEAR 2002-03 THE TRIBUNAL TAKING NOTE OF THE PROVISIONS OF THE ACT AND SEBI REGULATIONS, CONTRACTUAL AGREEMENT BETWEEN ASSESSEE AND THE PROSPECTS OF MUTUAL FUND, HELD THAT THE ASSESSEE W AS CONTRACTUALLY AND STATUTORILY BOUND TO MAKE THE PAYMENT SO AS TO KEEP ASSESSEES BUSINESS INTEREST AND, THEREFORE, HELD THAT MAKING GOOD OF D EFICIT OF RS.16.00 CRORES, AFTER ADJUSTING CREDITS OF UNKNOWN BANK BALANCE OF RS.6.0 0 CRORES, BALANCE AMOUNT OF RS.10.00 CRORES IS ALLOWABLE AS DEDUCTION. WE FI ND THAT THE ASSESSEE IS CARRYING OVER THE ENTIRE LEGACY PERTAIN TO EARLIER PERIOD, FOR WHICH, IT CLAIMED AMOUNTING TO RS.50.86 LACS IN RESPECT TO ABOVE NOTE D FIVE PERSONS. NOW THE QUESTION ARISES, WHETHER THE ABOVE PAYMENTS QUALIFY FOR ALLOWANCE FOR THE REASON THAT THESE ARE COMMERCIAL EXPEDIENCY, CONTRA CTUAL OBLIGATIONS AND STATUTORY OBLIGATIONS. WE ARE OF THE VIEW THAT IN THE PRESENT CASE THE UNIT HOLDERS, WHO MADE CLAIM WITH THE TRANSFER AGENT, AR E ENTITLED FOR RETURN OF THEIR MONEY INVESTED IN ASSESSEES MUTUAL FUND. EVEN THE SEBI REGULATION STATES SO AND IF THERE IS VIOLATION OF THE SAME, SEBI CAN P ROSECUTE THE ASSESSEE. IT MEANS THAT THE LIABILITY PAID BY ASSESSEE IS IN THE NATURE OF STATUTORY AS WELL AS CONTRACTUAL. THE ASSESSEE HAS PAID THE LEGITIMATE CLAIM OF THE UNIT HOLDERS, WHO HAVE LODGED THE CLAIM WITH THE REGISTRAR AND TRANSF ER AGENT OF THE ISSUE. WE ARE OF THE VIEW THAT THIS EXPENDITURE IS INCIDENTAL TO TRADE ITSELF AND ASSESSING OFFICER CANNOT IGNORE THE SAME. WE ARE OF THE VIEW THAT EVEN THIS COMES WITHIN THE AMBIT OF COMMERCIAL EXPEDIENCY FOR THE REASON T HAT THIS IS INDIRECTLY FOR FACILITATION OF CARRYING ON OF THE BUSINESS OF THE ASSESSEE. IN VIEW OF THIS REASONING, WE ALLOW THE CLAIM OF THE ASSESSEE AND T HE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE ARE REVERSED. THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED. ITA 5456/MUM/2013 9 THUS, IN OUR CONSIDERED VIEW, SINCE THE QUANTUM ADD ITIONS ITSELF HAVE BEEN DELETED BY THE TRIBUNAL IN ASSESSEES OWN CASE VIDE AFORE-STATED ORDERS OF THE TRIBUNAL DATED 18-05-2016, THE PENALTY OF RS. 17,12 ,092/- LEVIED BY THE A.O. U/S 271(1)(C) OF THE ACT AND AS SUSTAINED BY LEARNE D CIT(A) , CANNOT NOW BE SUSTAINED AND HENCE IS HEREBY ORDERED TO BE DELETED . WE ORDER ACCORDINGLY. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO . 5456/MUM/2013 FOR ASSESSMENT YEAR 2007-08 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JANUARY, 2017. # $% &' 23-01-2017 ( ) SD/- SD/- (JOGINDER SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 23-01-2017 [ .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 B BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI