DCIT 9(3)(2), MUMBAI V. FUTURE CONSUMER ENTERPRISE LTD, MUMBAI

ITA 5554/MUM/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0587 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 12-09-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Business expenditure; Principle of natural justice; Earning of tax free income; Commercial expediency; Revenue expenditure
• Section: 142(1); 14A; 37(1)

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL F BENCH MUMB AI BEFORE SHRI G.S. PANNU, VICE-PRESIDENT AND SHRI PAWAN SINGH JUDICIAL MEMBER ITA NO. 5554/MUM/2016 (ASSESSMENT YEAR 2012-13 ) DCIT 9(3)(2) 418, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG, MUMBAI-400020. VS. M/S FUTURE CONSUMER ENTERPRISES LTD. (FORMERLY KNOWN AS FUTURE VENTURES INDIA LTD.), KNOWLEDGE HOUSE, OFF JOGESHWARI-VIKHROLI LINK ROAD,, SHYAM NAGAR, JOGESHWARI (E), MUMBAI-400060. PAN: AABCF0279B APPELLANT RESPONDE NT ITA NO. 3994/MUM/2015 (ASSESSMENT YEAR 2010-11 ) DCIT 9 (3)(2) 418, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG, MUMBAI-400020. VS. M/S FUTURE CONSUMER ENTERPRISES LTD. (FORMERLY KNOWN AS FUTURE VENTURES INDIA LTD.), KNOWLEDGE HOUSE, OFF JOGESHWARI-VIKHROLI LINK ROAD,, SHYAM NAGAR, JOGESHWARI (E), MUMBAI-400060. PAN: AABCF0279B APPELLANT RESPONDE NT ITA NO. 4018/MUM/2015 (ASSESSMENT YEAR 2010-11 ) M/S FUTURE CONSUMER ENTERPRISES LTD. (FORMERLY KNOWN AS FUTURE VENTURES INDIA LTD.), KNOWLEDGE HOUSE, OFF JOGESHWARI-VIKHROLI LINK ROAD,, SHYAM NAGAR, JOGESHWARI (E), MUMBAI-400060. PAN: AABCF0279B VS. DCIT 8(1) AAYAKAR BHAVAN, M.K. MARG, MUMBAI-400020. APPELLANT RESPONDE NT ITA NO. 4414/MUM/2015 (ASSESSMENT YEAR 2011-12 ) DCIT 9(3) (2) 418, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG, MUMBAI-400020. VS. M/S FUTURE CONSUMER ENTERPRISES LTD. (FORMERLY KNOWN AS FUTURE VENTURES INDIA LTD.), KNOWLEDGE HOUSE, OFF JOGESHWARI-VIKHROLI LINK ROAD,, SHYAM NAGAR, JOGESHWARI (E), MUMBAI-400060. ITA NO. 5554 MUM 16, 3994, 4018, 4413 & 4019 MUM 15-M/S FUTURE CONSUMER ENTERPRISES LTD. 2 PAN: AABCF0279B APPELLANT RESPONDE NT ITA NO. 4019/MUM/2015 (ASSESSMENT YEAR 2011-12 ) M/S FUTURE CONSUMER ENTERPRISES LTD. (FORMERLY KNOWN AS FUTURE VENTURES INDIA LTD.), KNOWLEDGE HOUSE, OFF JOGESHWARI-VIKHROLI LINK ROAD,, SHYAM NAGAR, JOGESHWARI (E), MUMBAI-400060. PAN: AABCF0279B VS. DCIT 8(1) AAYAKAR BHAVAN, M.K. MARG, MUMBAI-400020. APPELLANT RESPONDE NT APPELLANT BY : SHRI S. PADMAJA (CIT- DR) WITH SHRI RAJIV GUBGOTRA (D R) RESPONDENT BY : SHRI VIPUL JOSHI (AR) DATE OF HEARING : 08.10.2018 DATE OF PRONOUNCEMEN T : 30.11.2018 ORDERUNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS GROUP OF FIVE APPEALS ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A)-16, MUMBAI FOR ASSESSMENT YEAR 2010-11, 2011-12 & 2012- 13. OUT OF WHICH THREE APPEALS BY REVENUE FOR EACH ASSESSMENT YEAR A ND TWO APPEALS BY ASSESSEE FOR ASSESSMENT YEAR 2010-11 & 20110-12. IN ALL APPEALS, THE PARTIES HAVE RAISED THE SOME COMMON GROUNDS OF APPE AL. THEREFORE, ALL THE APPEALS WERE CLUBBED HEARD AND ARE DECIDED BY COMMO N ORDER TO AVOID THE CONFLICTING DECISION. 2. IN ITA NO. 3994/MUM/2015 FOR ASSESSMENT YEAR 2010-1 1, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: ITA NO. 5554 MUM 16, 3994, 4018, 4413 & 4019 MUM 15-M/S FUTURE CONSUMER ENTERPRISES LTD. 3 I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT-(A) ERRED IN DELETING THE DISALLOWANCE MADE ON ACCOUNT OF TRAVELLING AND CONVEYANCE EXPENDITURE CLAIMED BY THE ASSESSEE, WIT HOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD NOT SUBMITTED ANY EVIDEN CE TO SUBSTANTIATE ITS ALLOWABILITY TO TERMS OF THE PROVISION OF SECTION 3 7(1) OF THE INCOME TAX ACT, 1961. II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT-(A) ERRED IN DELETING THE DISALLOWANCE MADE A.O. OUT OF EXPENSES CLAIMED BY THE ASSESSEE, WITHOUT APPRECIATING THE FACT THAT TH E A.O. HAD RIGHTLY HELD THAT THE SAID EXPENDITURE HAD BEEN INCURRED FOR INV ESTMENT ACTIVITY WHICH RESULTED IN INCOME EXEMPT FROM TAX AND HENCE WAS NO T ALLOWABLE UNDER THE PROVISION OF THE ACT. III) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT-(A) ERRED IN DELETING THE DISALLOWANCE OF LEGAL AND PRO FESSIONAL FEES CLAIMED BY THE ASSESSEE, WITHOUT APPRECIATING THE FACT THAT TH E ASSESSEE HAD FAILED TO FURNISH EVIDENCE TO SUBSTANTIATE THE ALLOWABILITY O F THE IMPUGNED EXPENDITURE IN TERMS OF SECTION 37(1) OF THE INCOME TAX ACT, 1961. IV) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT-(A) ERRED IN DELETING THE DISALLOWANCE ON ACCOUNT OF AD VERTISEMENT AND PUBLICITY EXPENSES WITHOUT APPRECIATING THE FACT TH AT THE IMPUGNED EXPENDITURE PERTAINS TO THE FUTURE GROUP AND NOT TO THE ASSESSEE'. V) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE ON ACCOUNT OF AD VERTISEMENT AND PUBLICITY EXPENSES WITHOUT APPRECIATING THE FACT TH AT THE IMPUGNED EXPENDITURE IS NOT RELATED TO OR ATTRIBUTABLE TO TH E ASSESSEE'S INVESTMENT ACTIVITY AND WITHOUT PREJUDICE THERETO, SUCH EXPEND ITURE IS OTHERWISE DISALLOWABLE AS THE INVESTMENT ACTIVITY OF THE ASSE SSEE RESULTS IN INCOME, WHICH DOES NOT FORM PART OF TOTAL INCOME OF THE ASS ESSEE. ' THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE DCIT 9(3)(2) BE RESTOR ED. 3. AT THE OUTSET OF HEARING, THE LD. AUTHORIZED REPRES ENTATIVE (AR) OF THE ASSESSEE SUBMITS THAT THE GROUNDS OF APPEAL RAISED BY REVENUE ARE COVERED BY THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR ITA NO. 5554 MUM 16, 3994, 4018, 4413 & 4019 MUM 15-M/S FUTURE CONSUMER ENTERPRISES LTD. 4 2009-10 IN ITA NO. 6550/MUM/2012 DATED 14.07.2016. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENUE AF TER GOING THROUGH THE GROUNDS OF APPEAL AND THE DECISION OF TRIBUNAL CONC EDED THAT ALL THE GROUNDS OF APPEAL RAISED BY REVENUE ARE COVERED AGAINST THE REVENUE BY THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASS ESSMENT YEAR 2009-10 IN ITA NO. 6550/MUM/2012. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND PERUSED THE RECORD. WE HAVE ALSO PERUSED THE CONTENTS OF DECISI ON OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO. 6550/MUM/2012. 5. GROUND NO. 1 & 2 OF THE APPEAL RELATES TO DELETING THE DISALLOWANCE ON ACCOUNT OF TRAVELLING & CONVEYANCE EXPENDITURE. WE HAVE NOTED THAT SIMILAR GROUND OF APPEAL WAS RAISED BY REVENUE IN A PPEAL FOR ASSESSMENT YEAR 2009-10 IN ITA NO. 6550/MUM/2012 AND THE CO-OR DINATE BENCH OF TRIBUNAL ON IDENTICAL GROUNDS PASSED THE FOLLOWING ORDER: 11. WE HAVE HEARD THE COUNSELS FOR BOTH THE PARTIE S ON THIS GROUND AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY THE REVENUE AUTHORITIES. ALTHOUGH THE EVALUATION OF BUSINESS MODEL OF THE ASSESSEE IS EXTREMELY CRITICAL IN THE OVERALL ANALY SIS OF THE ISSUES INVOLVED. HOWEVER, THE ASSESSEE HAS SUBMITTED THAT IT IS A NB FC CARRYING ON THE BUSINESS OF INVESTING IN SMALL AND MEDIUM SIZED FIRMS COMPAN IES. IN NORMAL COURSE, THE WORKING AND OPERATIONS OF NBF CS ARE REGULATED BY THE RESERVE BANK OF INDIA (RBI) WITHIN THE FRAMEWOR K OF THE RESERVE BANK OF INDIA ACT. IN THIS RESPECT, THE ASSESSEE HAS ENCLOS ED A COPY OF THE REGISTRATION CERTIFICATE DATED 9 OCTOBER 2007 ISSUED BY THE RBI AUTHORIZING IT TO UNDERTAKE THE BUSINESS OF THE NBFC WITHOUT ACCEPTING PUBLIC DEPOS ITS. ITA NO. 5554 MUM 16, 3994, 4018, 4413 & 4019 MUM 15-M/S FUTURE CONSUMER ENTERPRISES LTD. 5 12. THE LD. AR HAS STATED THAT ASSESSEES MAIN BUSI NESS IS INVESTMENT IN SMALL AND MEDIUM SIZED FIRMS WHICH HAVE VERY FEW AVENUES FOR RAISING FUNDS. THE ASSESSEE HAS SUBMITTED THE COPY OF THE MEMORANDUM O F ASSOCIATION WHEREIN IT IS REFLECTED THAT THE MAIN OBJECT OF THE BUSINESS OF T HE ASSESSEE IS TO CARRY ON THE BUSINESS OF INVESTMENT IN SHARES AND SECURITIES AND TO GENERALLY DO ALL SUCH ACTIVITIES AND ENTER INTO ALL KINDS OF FINANCIAL AR RANGEMENTS SO AS TO ENABLE MOBILIZATION OF FUNDS. FURTHER THE LD. AR HAS POINT ED OUT THAT THE ROLE OF ASSESSEE IS NOT RESTRICTED TO MERELY MAKING INVESTMENT IN TH E SHARES AND SECURITIES ALONE. ADDITIONALLY IT TAKES ACTIVE PARTICIPATION IN THE M ANAGEMENT OF THE COMPANIES IN WHICH THE ASSESSEE INVESTS AS WELL AS ARRANGES FOR PROFESSIONAL EXPERTISE LIKE BANKER, TECHNOLOGIST, PLANNER AND MANAGER ETC AS AN D WHEN REQUIRED BY THE INVESTEE COMPANIES. THE AR OF THE ASSESSEE HAS DRAW N OUR ATTENTION TO THE SPECIFIC CLAUSES OF THE MEMORANDUM OF ASSOCIATION O F THE COMPANY EMPOWERING SUCH BUSINESS ACTIVITIES. THUS FROM THE DOCUMENTS, IT IS APPARENT THAT THE MA IN BUSINESS OF THE ASSESSEE IS INVESTMENT IN SHARES AND SECURITIES WIT H AN ADDED RESPONSIBILITY OF LENDING A HELPING HAND IN THE OVERALL MANAGEMENT AN D CONTROL OF THE INVESTEE COMPANY. THE ASSESSEE INVESTS IN SHARES AND SECURITIES OF SM ALL AND MEDIUM SIZED FIRMS HAVING A HUGE POTENTIAL FOR EARNING LARGE PRO FITS IN THE FUTURE. SINCE THE ASSESSEE INVESTS IN COMPANIES WHICH ARE IN THE NATU RE OF SMALL AND MEDIUM ENTERPRISES THERE IS NO CERTAINTY THAT THE VENTURE WOULD RESULT INTO PROFITS. THE FACT THAT AN INVESTMENT MADE DID NOT RESULT INTO PROFITS WOULD NOT MEAN THAT THE ASSESSEE CANNOT CLAIM EXPENSES ON THE EXPENDITURE I NCURRED BY IT. LD. AR SUBMITTED THAT THE ASSESSEE HAD INCURRED EXPENSES F OR LOOKING AFTER THE BUSINESS OPERATIONS WHICH ARE NECESSARY FOR THE CONDUCT OF T HE BUSINESS AS A WHOLE. THE ISSUE OF CHARACTERIZATION OF INCOME FROM INVEST MENT IN COMPANIES INTO INCOME FROM BUSINESS INCOME OR CAPITAL GAINS, HAS B EEN HEAVILY LITIGATED BY TAXPAYERS AND REVENUE ALIKE. IN THIS REGARD, THE COURTS AS WELL AS CBDT CIRCULAR S HAVE HELD THAT FREQUENCY OF THE TRANSACTIONS IS ONE OF THE KEY DET ERMINING FACTORS BEHIND ASCERTAINING WHETHER THE INCOME IS IN THE NATURE OF BUSINESS INCOME OR CAPITAL GAINS. ITA NO. 5554 MUM 16, 3994, 4018, 4413 & 4019 MUM 15-M/S FUTURE CONSUMER ENTERPRISES LTD. 6 THE SUPREME COURT IN THE CASE OF CIT V. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. (P.) LTD. (82 ITR 586) HAD HELD THAT WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSE E WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POSITION T O PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINC TION BETWEEN THOSE SHARES WHICH ARE ITS STOCK-IN-TRADE AND THOSE WHICH ARE HE LD BY WAY OF INVESTMENT. IN THE PRESENT CASE, SINCE THE ASSESSEE IS REGISTER ED AS AN NBFC WITH THE MAIN BUSINESS OF THE COMPANY AS INVESTMENT IN SECUR ITIES AND BUSINESS VENTURES THEREFORE THE INVESTMENTS MADE BY THE COMPANY SHOUL D BE CONSIDERED AS STOCK IN TRADE AND THE INCOME FROM SUCH INVESTMENTS SHOULD B E SHOWN AS BUSINESS INCOME. BASED ON A PERUSAL OF THE INVESTMENT SCHEDULE FORMI NG PART OF THE AUDITED ACCOUNTS OF THE ASSESSEE, COPIES OF THE CONTRACT NO TES ISSUED BY THE BROKERS, MUTUAL FUND HOLDING STATEMENTS, IT IS OBSERVED THAT THERE ARE SUBSTANTIAL TRANSACTIONS IN THE NATURE OF BUYING AND SELLING OF INVESTMENTS WHICH HAVE TAKEN PLACE DURING THE YEAR UNDER CONSIDERATION. IN THIS REGARD, IT IS RELEVANT TO NOTE THE RULING OF THE AAR IN THE CASE OF FIDELITY NORTHSTAR (288 ITR 641) (AAR) WHEREIN THE AAR REFERRED TO VARIOUS SUPREME COURT D ECISIONS AND HELD THAT THE SUBSTANTIAL NATURE OF TRANSACTIONS, THE MAGNITUDE O F PURCHASES AND SALES AND THE RATIO BETWEEN PURCHASES AND SALES AND THE HOLDING W OULD FURNISH A GOOD GUIDE TO DETERMINE THE NATURE OF TRANSACTIONS. IN THE PRESENT CASE, THE ASSESSEE HAS FILED AUDITED STATEMENTS FOR THREE YEARS WHICH PRIMA FACIE IS AN EVIDENCE THAT THERE H AS BEEN A SUBSTANTIAL AND FREQUENT TRANSACTIONS OF BUYING AND SELLING. FURTHER THE ASSESSEE HAS ITSELF CHARACTERIZED ITS I NCOME FROM BUYING/SELLING ACTIVITIES AS INCOME FROM OPERATIONS IN THE BOOKS OF ACCOUNTS. THERE HAS ALSO BEEN AN INCREASE IN THE INTEREST INC OME AND THE TOTAL INCOME (EXCEPT IN AY 2011-12) FROM OPERATIONS OF THE ASSES SEE IN THE SUBSEQUENT THREE YEARS WHICH IS ENUMERATED IN THE TABLE BELOW: A.Y. INTEREST INCOME (RS.) TOTAL IN COME FROM OPERATIONS (RS.) 2009-10 79,05,115 (31,046,674) 2010-11 82,820,044 2,57,572,045 2011-12 1,01,552,000 1,31,164,067 ITA NO. 5554 MUM 16, 3994, 4018, 4413 & 4019 MUM 15-M/S FUTURE CONSUMER ENTERPRISES LTD. 7 2012-13 4,82,774,000 5,52,578,000 THEREFORE, BASED ON THE ABOVE TABLE IT IS OBSERVED THAT INTEREST INCOME FORMS A SUBSTANTIAL COMPONENT OF THE TOTAL INCOME O F THE ASSESSEE. THE ASSESSEE HAS ALSO PROVIDED ASSISTANCE TO THE INVESTEE COMPAN IES IN THEIR OVERALL MANAGEMENT AND CONTROL. FROM THE PERUSAL OF THE RECORDS, IT APPEARS THAT TH E AO DID NOT CONSIDER AT ALL THE FACTUAL ASPECTS MENTIONED ABOVE, ESPECIALLY THE NATURE OF THE BUSINESS OF THE ASSESSEE, BUSINESS SUPPORT PROVIDED TO THE INVE STEE COMPANIES, THE FREQUENCY OF TRANSACTIONS ETC. WE ARE OF THE VIEW THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INVESTMENT ACTIVITY. ON PERUSAL OF THE RECORDS, IT APPEARS THAT THE AO DID NOT CONSIDER AT ALL THE FACTUAL ASPECTS MENTIONED ABOVE , ESPECIALLY THE NATURE OF THE BUSINESS OF THE ASSESSEE, BUSINESS SUPPORT PROVIDED TO THE INVESTEE COMPANIES, THE FREQUENCY OF TRANSACTIONS ETC. WE FIND THAT ON PERUSAL OF THE FACTS PRESENTED BEFO RE US THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INVESTMENT ACTIVITY AND THEREFORE IT IS ENTITLED TO CLAIM DEDUCTION IN RESPECT OF ALL THE EXPENSES WHILE COMP UTING ITS TOTAL INCOME. THESE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 6. CONSIDERING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE ON IDENTICAL GROUNDS OF APPEAL, RESPECTIVELY FOLLOWING THE SAME, THE GROUND NO. 1&2 OF APPEAL RAISED BY REVENUE IS DISMISSED. 7. GROUND NO.3 RELATES DELETING THE DISALLOWANCE OF LE GAL & PROFESSIONAL FEES. WE HAVE NOTED THAT THE REVENUE HAS CHALLENGED THE S IMILAR ADDITION OF LEGAL & PROFESSIONAL EXPENSES IN APPEAL FOR ASSESSMENT YE AR 2009-10 IN ITA NO. 6550/MUM/2012 AND THE TRIBUNAL PASSED THE FOLLOWING ORDER: 17. WE HAVE HEARD THE COUNSELS FOR BOTH THE PARTIES ON THIS GROUND AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY THE REVENUE AUTHORITIES. WE NOTICED THAT THE ASSESSEE D EBITED AN AMOUNT OF RS. ITA NO. 5554 MUM 16, 3994, 4018, 4413 & 4019 MUM 15-M/S FUTURE CONSUMER ENTERPRISES LTD. 8 2,03,00,577 TOWARDS LEGAL AND PROFESSIONAL FEES. O UT OF THE SAID AMOUNT AN AMOUNT OF RS.1,48,08,327/- HAS BEEN SUO MOTO DISALL OWED BY THE ASSESSEE AND THE BALANCE AMOUNT OF RS.54,92,250 WAS CLAIMED ALLOWABL E BY THE ASSESSEE. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE DETAI LS OF LEGAL EXPENSES INCURRED TO THE EXTENT RS.16.44 LAKHS, WAS SUBMITTED. THE ASSES SEE HAS SUBMITTED THAT THE SAID EXPENDITURE WAS INCURRED FOR CARRYING OUT DUE DILIGENCE OF THOSE COMPANIES IN WHICH THE ASSESSEE WISHES TO PURCHASE AND SELL T HE SHARES. THE A.O HAS NOT DOUBTED THE SAME IN HIS ASSESSMENT ORDER. SUBSEQUEN TLY THE CIT(A) REVERSED THE DECISION OF THE A.O AGAINST WHICH THE REVENUE IS IN APPEAL. THE ASSESSEE IS AN NBFC WITH ITS MAIN BUSINESS AS I NVESTING IN SHARES AND SECURITIES. BEFORE INVESTING IT IS NECESSARY FOR TH E ASSESSEE TO CARRY OUT A FEASIBILITY STUDY BEFORE INVESTING ITSSURPLUS FUNDS IN A POTENTIAL HIGH GROWTH COMPANY. THE DETAILS OF THE PROFESSIONAL FEES PROVI DED BY THE ASSESSEE BEFORE THE AO AND THE CIT(APPEALS) IS AS UNDER: BEFORE LD. AO DETAILS OF LEGAL AND PROFESSIONAL FEES THE DETAI LS OF LEGAL AND PROFESSIONAL FEES ARE BEEN ATTACHED ALONG WITH BILL . DURING THE YEAR UNDER THE CONSIDERATION, THE COMPAN Y HAS REIMBURSED THE LEGAL AND PROFESSIONAL FEES OF RS. 1057374/- TO THE FUTURE CAPITAL HOLDING LIMITED AND RS. 587080/- TO MCHEK INDIA PAYMENT SYS TEM PRIVATE LIMITED. THE REIMBURSE WAS DONE ON THE BASIS OF DOCUMENTARY EVIDENCE PRODUCE BEFORE US. THE COPY OF BILL IS ATTACHED HEREWITH FO R YOUR REFERENCE. FURTHER, THE COMPANY HAS MADE PAYMENT TO PAYMENT OF RS. 1,32,00,000/- TO LINKLATERS ALLEN & GLEDHILL P. LTD. TOWARD IPO EXPE NSES. HOWEVER, WE HEREBY ATTACHED THE CERTIFICATION FROM THE CHARTERE D ACCOUNTANT TOWARD NON-APPLICABILITY OF TDS FOR THE PAYMENT MADE TO LI NKLATERS ALLEN & GLEDHILL P. LTD. BEFORE LD. CIT(A) DURING THE COURSE OF ASSESSMENT, THE DEPUTY COMMIS SIONER OF INCOME TAX CHENNAI CIRCLE II (I) HAS ISSUED NOTICE U/S 1 42(1), DATED 24 TH AUGUST, 2011 OF POINT 38 WHICH INCLUDE THE DETAILS OF PAYME NT MADE IN NATURE OF TECHNICAL FEES, CONSULTANCY CHARGES, MANAGEMENT FEE S, ROYALTY ETC. AGAINST THE APPELLANT HAS SUBMITTED ALL THE DETAILS INCLUDI NG THE DETAILS OF LEGAL AND ITA NO. 5554 MUM 16, 3994, 4018, 4413 & 4019 MUM 15-M/S FUTURE CONSUMER ENTERPRISES LTD. 9 PROFESSIONAL FEES AS MENTION AT POINT NO. 28 OF THE QUESTIONER (PAGE 68 TO 78 OF THE PAPER BOOK). THE APPELLANT FURTHER RECEIVED NOTICE U/S 142(1) FROM A.O. AFTER THE TRANSFER OF FILE FROM CHENNAI I NCOME TAX DEPARTMENT TO MUMBAI INCOME TAX DEPARTMENT AGAINST WHICH THE APPE LLANT VIDE LETTER DATED 1 ST DECEMBER, 2011 (PAGE 84 OF THE PAPER BOOK ) HAS SUBMITTED THE DETAILS OF LEGAL AND PROFESSIONAL FEES. AFTER SCREE NING OF LEGAL AND PROFESSIONAL FEES, THE A.O HAS OBSERVED THAT ON CER TAIN PAYMENT THE TDS WAS NOT PAID AND THEREFORE HE REQUESTED TO PRODUCE THE BILL ON WHICH THE TDS WAS NOT DEDUCTED. THE APPELLANT VIDE LETTER DAT ED 8 TH DECEMBER, 2011 HAS SUBMITTED THE DETAILS OF INVOICE ON WHICH THE T DS WAS NOT DEDUCTED ALONG WITH THE EXPLANATION (PAGE 152 OF THE PAPER BOOK). YOUR HONOR, WITHOUT PROVIDING AN OPPORTUNITY AND GI VING ANY EXPLANATION VIDE PROCEEDING SHEET OR ORALLY, THE A.O. DIRECTLY MADE A DISALLOWANCE OF ENTIRE LEGAL AND PROFESSIONAL FEES. THE ASSESSMENT ORDER WAS FRAMED ON SURMISES, SUSPICION AND CONJECTURE, AS THE SAME IS FRAMED IN BREACH OF THE PRINCIPLES OF NATURAL JUSTICE THE OBJECT OF THE EXPENDITURE WAS TO HAVE THE FEASI BILITY REPORT BEFORE EXPLORING THE AREA FOR INVESTING THE SURPLUS FUNDS. THE OBJECT OF EXPENDITURE WAS TO MAKE THE BEST USE OF SURPLUS FUN DS BY INVESTING INTO HIGH-QUALITY COMPANY. THEREFORE, IT WAS WHOLLY CONN ECTED WITH THE EXISTING BUSINESS AS MENTION IN THE MEMORANDUM OF ASSOCIATIO N AND IT WAS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF CARRYIN G ON ITS BUSINESS. THE INTENTION WAS TO UTILIZE THE SURPLUS FUNDS MORE EFF ICIENTLY AND MORE PROFITABLE WHILE LEAVING THE FIXED CAPITAL UNTOUCHE D. EXPENDITURE INCURRED ON GROUND OF COMMERCIAL EXPEDI ENCY IS ALLOWABLE EXPENDITURE AT THE OUTSET, IT IS WELL SETTLE LAW THAT THE EXPEN DITURE MAY NOT BE INCURRED UNDER ANY LEGAL OBLIGATION BUT YET IT IS ALLOWABLE AS BUSINESS EXPENDITURE IF IT IS INCURRED ON GROUND OF COMMERCIAL EXPEDIENCY. REFER ADDIDAS INDIA MARKETING (P) LIMITED V AO 10 TAXMANN.COM 18. AGA IN, EXPENSES INCURRED WHICH WAS BASED ON COMMERCIAL CONSIDERATIO N AND BUSINESS EXPEDIENCY, NO INTERFERENCE IS WARRANTED. REFER, UD AIPUR DISTILLERY CO. LTD. 224 CTR 32 (SC). SIMILARLY, THE ISSUE WAS OF DEDUCTION OF CERTAIN EXPENDITURE ISSUE MANAGEMENT EXPENSES AND THE ASS ESSEE SUCCEEDED ITA NO. 5554 MUM 16, 3994, 4018, 4413 & 4019 MUM 15-M/S FUTURE CONSUMER ENTERPRISES LTD. 10 ONLY ON THE GROUND OF CONSISTENCY. WITHOUT GOING IN TO THE MERITS, THE SUPREME COURT REMITTED BACK THE MATTER TO THE HIGH COURT HOLDING THAT THE HIGH COURT SHOULD HAVE EXAMINED THE NATURE OF THE S AID EXPENDITURE. REFER, OSWAL AGRO MILLS LTD. 313 ITR 24. LEGAL EXPENSES FOR ACQUIRING NEW ASSET IS REVENUE E XPENDITURE AT THE OUTSET, IT IS WELL SETTLED LAW THAT CONSULTA NCY CHARGES PAID FOR OBTAINING STUDY REPORTS IS REVENUE EXPENDITURE. REFER CIT VS. SHELL BITUMEN INDIA (P) LTD. 221 TAXATION 44. LEGAL EXPENSES INCURRED ON OBTAINING ADVICE AS TO FEASIBILITY OF ACQUIRING A N EW UNIT IS A REVENUE EXPENDITURE. REFER, CIT VS. UNITED BREWERIES LTD. 36 DTR 80, ALSO IN THE CASE OF KJS INDIA (P) LTD. VS. DY. CIT 134 TTJ 697 IT WAS HELD THAT ASSESSEE A MANUFACTURER OF A SOFT DRINK HAVING COND UCTED A MARKET RESEARCH BY USING THE SERVICES OF A PROFESSIONAL AG ENCY TO DETERMINE ITS BRAND PERFORMANCE WITH PRICE, GAUGE THE CONSUMER DE MAND AT THE CURRENT PRICE OR A LOWER PRICE AND TO KNOW WHETHER ITS BRAN D CAN ADOPT A DIFFERENT PRICING BETWEEN THE BASE FLAVORS AND THE NEW FLAVOR S, THE EXPENSES WERE INCURRED FOR EXPLORING THE CIRCUMSTANCES AS TO HOW ASSESSEE CAN CARRY ON ITS BUSINESS MORE POTENTIALLY AND NOT EXPLORING THE MARKET OF A NEW PRODUCT AND THEREFORE, SAME IS ALLOWABLE AS REVENUE EXPENDI TURE. / ASSESSEE HAVING SUSPENDED ONLY ITS MANUFACTURING ACTIVITY AND NOT C LOSED DOWN ITS TRADING ACTIVITY, IT IS NOT A CASE OF CLOSURE OF BUSINESS A ND THEREFORE, EXPENSES INCURRED BY IT TOWARDS SEVERANCE COST OF EMPLOYEES IS ALLOWABLE AS REVENUE EXPENDITURE. AGAIN, EXPENDITURE FOR RESTRUCTURING A ND VIABILITY STUDY AND PREPARATION OF RESTRUCTURING PROPOSAL IS REVENUE EX PENDITURE. CIT V JCT ELECTRONICS LTD 188 TAXMAN 191 EXPENSES INCURRED FOR SETTING UP NEW UNIT IN EXPANS ION OF AN EXISTING BUSINESS ARE ALLOWABLE AS REVENUE EXPENDITURE. CIT V GHANHYAM STEEL WORKS LIMITED 6 TAXMANN.COM 4. EXPENDITURE INCURRED ON LAUNCHING OF A NEW MODEL OF CAR IS REVENUE EXPENDITURE. PREMIER LTD. ITA NO. 2091/MUM/2008, DT. 30-6-2009 . SIMILARLY WHERE ASSESSEE IS ALREADY IN BUSINESS, PAYMENTS MADE FOR TENDER FEE AND CONSULTA NCY CHARGES FOR ESTABLISHING CAPTIVE POWER PLANT ARE ALLOWABLE REVE NUE EXPENDITURE. POLYPLEX CORPORATION LTD. 176 TAXMAN 57 ITA NO. 5554 MUM 16, 3994, 4018, 4413 & 4019 MUM 15-M/S FUTURE CONSUMER ENTERPRISES LTD. 11 DEDUCTIBILITY OF LEGAL EXPENSES WILL DEPEND ON NATU RE & PURPOSE OF LEGAL PROCEEDING IN RELATION TO BUSINESS WHOSE PROFITS AR E UNDER COMPUTATION AND CANNOT BE AFFECTED BY FINAL OUTCOME OF THOSE PROCEE DINGS. VIVEK P TALWAR V ACIT 8 TAXMANN.COM 268. THE A.O. FIRST CONTENTION WAS THAT FOUR INVOICE HA S BEEN INCURRED IN ACQUISITION OF SHARES AND DUE DILIGENCE OF COMPANIE S SHARES OFF WHICH SHARES PROPOSED TO ACQUIRED/ SOLD. SINCE PURCHASE A ND SALE OF SHARES HAS BEEN SHOWN AS INVESTMENT ACTIVITIES BY THE ASSESSEE , NO EXPENSES RELATING TO THOSE ACTIVITIES CAN BE ALLOWED AS DEDUCTION EITHER OUT OF INCOME FROM BUSINESS FROM OTHER IN THIS CONNECTION, WE WOULD L IKE TO SUBMIT CONSULTANCY CHARGES PAID FOR OBTAINING FEASIBILITY REPORT OR DUE-DILIGENCE REPORT BEFORE INVESTING IN THE COMPANY THEREFORE SA ME IS REVENUE EXPENDITURE REFER CIT VS. SHELL BITUMEN INDIA (P) LTD. 221 TAXATION 44. IT WAS FURTHER HELD THATEXPENSES INCURRED ON OBTAIN ING ADVICE AS TO FEASIBILITY OF ACQUIRING A NEW UNIT IS REVENUE EXPE NDITURE. THE A.O. SECOND CONTENTION WAS THAT ASSESSEE HAS N OT PRODUCED ANY OTHER DETAILS FOR BALANCE PROFESSIONAL FEES OF RS. 38,47, 796/-. THE ASSESSEE, EVEN HAS NOT PRODUCED COPIES OF BILLS TO SUBSTANTIATE IT S CLAIMS FOR ALLOWANCE EVEN AFTER AFTER SPECIALLY CALLED FOR. IN THIS CO NNECTION, WE WOULD LIKE TO SUBMIT THE APPELLANT VIDE LETTER DATED 1 ST DECEMBER, 2011 HAS SUBMITTED THE DETAILS OF LEGAL AND PROFESSIONAL FEES. AFTER SCREE NING OF LEGAL AND PROFESSIONAL FEES, THE A.O HAS OBSERVED THAT ON CER TAIN PAYMENT THE TDS WAS NOT PAID AND THEREFORE HE REQUESTED TO PRODUCE THE BILL ON WHICH THE TDS WAS NOT DEDUCTED. THE APPELLANT VIDE LETTER DAT ED 8 TH DECEMBER, 2011 HAS SUBMITTED THE DETAILS OF INVOICE ON WHICH THE T DS WAS NOT DEDUCTED ALONG WITH THE EXPLANATION. YOUR HONOR, ALL THE DETAILS WERE SUBMITTED DURING T HE COURSE OF ASSESSMENT AND THE A.O HAS NOT NOTED ANYTHING IN THE PROCEEDIN G SHEET THAT BILL WAS CALLED FOR. THEREFORE, WITHOUT PROVIDING AN OPPORTU NITY AND GIVING ANY EXPLANATION VIDE PROCEEDING SHEET OR ORALLY, THE A. O. DIRECTLY MADE A DISALLOWANCE OF ENTIRE LEGAL AND PROFESSIONAL FEES. THE ASSESSMENT ORDER WAS FRAMED ON SURMISES, SUSPICION AND CONJECTURE, A S THE SAME IS FRAMED IN BREACH OF THE PRINCIPLES OF NATURAL JUSTICE ITA NO. 5554 MUM 16, 3994, 4018, 4413 & 4019 MUM 15-M/S FUTURE CONSUMER ENTERPRISES LTD. 12 THIS IS WHOLLY CONNECTED WITH THE BUSINESS OF THE A SSESSEE AND WAS INCURRED FOR CARRYING OUT ITS BUSINESS IN AN EFFICI ENT AND IN A PROFITABLE MANNER. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE O F ACIT VS JP MORGAN INDIA PRIVATE LTD (46 SOT 450 ) HELD THAT THE LEGAL AND PROFESSIONAL FEES INCURRED FOR CARRYING OUT A STUDY OF THE INTERNET B ROKING ACTIVITIES IS FOR CARRYING OUT THE BUSINESS MORE EFFECTIVELY AND EFFICIENTLY A ND HENCE IS A REVENUE EXPENDITURE. THE RELEVANT EXTRACT FROM THE SAID JUD GEMENT IS REPRODUCED HEREUNDER THE ASSESSEE WAS PROVIDING BROKING SERVICES TO ITS CLIENTS. THE EXPENDITURE HAD BEEN INCURRED TO EXPLORE OPTIONS FOR PROVIDING VALU E ADDED SERVICES TO THE CUSTOMERS THROUGH THE INTERNET. THE EXPENDITURE DID NOT RESULT IN ACQUISITION OF ANY NEW ASSETS OR IN ANY NEW SOURCE OF INCOME. THE FINDING OF THE COMMISSIONER (APPEALS) THAT THE EXPENDITURE HAD BEEN INCURRED FO R MORE EFFICIENT CONDUCT OF THE EXISTING BUSINESS WAS AGREEABLE. HENCE THERE WAS NO INFIRMITY IN ALLOWING THE CLAIM AS REVENUE EXPENDITURE. THE SAME WAS TO BE UP HELD. AS REGARDS THE GROUND OF THE REVENUE THAT THE ASSES SEE DID NOT FURNISH SUFFICIENT EVIDENCE TO SUBSTANTIATE THE ALLOWABILIT Y OF THE EXPENSES THE LD. AR SUBMITTED THAT ALL THE DETAILS WERE SUBMITTED DURIN G THE COURSE OF THE ASSESSMENT PROCEEDINGS WHICH FORMS PART OF THE PAPER BOOK. WE HAVE PERUSED THE SAME AND FIND THAT ALL THE NECE SSARY DETAILS HAVE BEEN PROVIDED AND THEREFORE THE GROUND RAISED BY TH E REVENUE IS NOT SUSTAINABLE. THEREFORE WE ARE IN AGREEMENT WITH THE ORDER OF THE CIT(A) AND THEREFORE THIS GROUND OF THE REVENUE IS DISMISSED . 8. CONSIDERING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE IN AY 2009-10 ON IDENTICAL GROUNDS OF APPEAL, RESPECTIVELY FOLLOW ING THE SAME, THE GROUNDS OF APPEAL RAISED BY REVENUE IS DISMISSED. 9. IN THE RESULT, GROUND NO. 3 OF APPEAL OF THE REVENU E IS DISMISSED. 10. GROUND NO.4 & 5 RELATES TO DELETING THE ADVERTISEME NT AND PUBLICITY EXPENSES. WE HAVE NOTED THAT THE REVENUE HAS CHALLE NGED THE DELETION OF SIMILAR ADDITION IN APPEAL FOR ASSESSMENT YEAR 2009 -10. THE CO-ORDINATE BENCH OF TRIBUNAL PASSED THE FOLLOWING ORDER: ITA NO. 5554 MUM 16, 3994, 4018, 4413 & 4019 MUM 15-M/S FUTURE CONSUMER ENTERPRISES LTD. 13 22. WE HAVE HEARD THE COUNSELS FOR BOTH THE PARTIES ON THIS GROUND AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS TH E ORDERS PASSED BY THE REVENUE AUTHORITIES. THE ASSESSEE HAD INCURRED ADVERTISEMEN T EXPENSES ON ORGANIZING A REALITY SHOW IN ORDER TO PROMOTE THE ASSESSEE. THE AGREEMENT BETWEEN THE ASSESSEE AND NETWORK 18 WHICH FORMS PART OF THE PAPERBOOK CL EARLY STATES ALL THREE CAMPS SPECIFY BRANDING FOR FUTURE VENTURE PRESENTS CNBC A WAAZ BAN JAOBIYANI. THE MAIN OBJECTIVE BEHIND INCURRING SUCH EXPENSES WAS T O BUILD THE BRAND OF THE ASSESSEE AND INCURRING SUCH EXPENSES ENSURES AND CR EATES A FAVOURABLE ENVIRONMENT FOR THE BRAND AND TREATS THE BRAND IN A UNIQUE MANN ER WHICH ENHANCES THE BRAND EXPERIENCE. THE IDEA BEHIND INCURRING SUCH EXPENSE S BY THE ASSESSEE WAS TO CREATE A MARK ON GLOBAL AUDIENCES. THE CONTENTION OF THE R EVENUE THAT THE EXPENSES INCURRED ARE FOR THE GROUP AND NOT FOR THE ASSESSEE IS NOT FOUNDED ON REALITY. THE ASSESSEE HAS CLEARLY SUBMITTED THAT FUTURE GROUP IS NOT A LEGAL ENTITY. THE FUTURE GROUP IS A BUSINESS GROUP WITH CONSUMPTION LED BUSI NESS IN INDIA THROUGH VARIOUS FORMATS SUCH AS BIG BAZAAR, FOOD BAZAAR ETC. THE AG REEMENT CLEARLY PROVIDED THAT THE BANNER WOULD DISPLAY THAT THE FUTURE VENTURE IS PRESENTING THE REALTY SHOW. WE ARE IN AGREEMENT WITH THE ORDER OF THE CIT(A) THAT THE EXPENDITURE RELATES PROMOTION OF THE ENTIRE GROUP AND PROMOTION OF THE BIYANI BRAND IS INCORRECT SINCE THERE IS NO ENTITY IS EXISTING WHICH IS A GROUP ENT ITY AND THE EXPENDITURE IS INCURRED TO PROMOTE THE SAME. THE FACT IS THAT THE ASSESSEE HAS INCURRED EXPENSES FOR THE PROMOTION OF BUSINESS AND THE MAIN BUSINESS OF THE ASSESSEE IS INVESTING AND OPERATING IN INNOVATIVE BUSINESS IN THE CONSUMPTION SECTOR THEREFORE THE SAID BUSINESS IS INCURRED FOR THE PURPOSE OF THE BUSINES S. THE EXPENSES ARE INCURRED ON A SHOW WHICH PROVIDES A PLATFORM FOR YOUNG ENTREPRENE URS TO SHOWCASE THEIR IDEAS AND INNOVATION. THEREFORE THE CONTENTION THAT THE E XPENDITURE IS INCURRED FOR THE ENTIRE GROUP IS INCORRECT SINCE THERE IS NO OTHER C OMPANY IN THE GROUP WHICH IS ENGAGED IN THE PROMOTION OF NEW AND INNOVATIVE IDEA S AS WELL AS TO GIVE NECESSARY FINANCIAL SUPPORT TO BUDDING ENTREPRENEURS. THEREFO RE THE EXPENDITURE INCURRED IS TAILORED FOR THE ASSESSEE AND NOT FOR OTHER COMPANI ES IN THE GROUP. AS REGARDS TO THE REVENUES SECOND GROUND THAT THE EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS ADVERTISEMENTS IS NOT RELATED TO THE INVESTMENT BUSINESS OF THE ASSESSEE WE HAVE PERUSED THE MEMORANDUM OF ASSOCIAT ION OF THE ASSESSEE WHICH FORMS PART OF THE PAPERBOOK WHEREIN ITIS CLEARLY ST ATED THAT ONE OF THE ANCILLARY OBJECTS OF THE ASSESSEE IS FOR IDENTIFYING INVESTME NT OPPORTUNITIES AND CONDUCTING ITA NO. 5554 MUM 16, 3994, 4018, 4413 & 4019 MUM 15-M/S FUTURE CONSUMER ENTERPRISES LTD. 14 ANALYSIS. THE OBJECTIVE BEHIND INCURRING SUCH ADVER TISEMENT EXPENSES BY THE ASSESSEE WAS TO IDENTIFY OPPORTUNITIES FOR INVESTME NTS IN THE CONSUMPTION SECTOR. THE HOSTING OF A REALTY SHOW AND THAT TOO THROUGH A TELEVISION MEDIUM WOULD HAVE ALLOWED THE ASSESSEE ACCESS TO A WIDE VARIETY OF EN TREPRENEURS AND INVESTMENT IDEAS. MOREOVER IN ORDER TO DETERMINE WHETHER THE E XPENDITURE IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS REASONA BLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE ASSESSEES PERSPECTIVE AND NOT T HE REVENUE. THIS CONTENTION HAS BEEN HELD BY THE APEX COURT IN THE CASE OF CIT VS WALCHAND& CO PVT LTD AS REPORTED IN 65 ITR 381 (SC) AND TRAVANCORE TITANIUM PRODUCTS IN (60 ITR 227 (SC). WE WOULD LIKE TO PLACE RELIANCE ON THE JUDGE MENT OF THE KERALA HIGH COURT IN THE CASE OF CIT VS ALUMINUM LTD AS REPORTED IN 2 14 ITR 541 WHEREIN THE KERALA HIGH COURT HELD THAT IT IS NO THE REVENUES CASE TO JUDGE THE COMMERCIAL EXPEDIENCY ON THE EXPENDITURE INCURRED ON ADVERTISEMENT BY THE ASSESSEE. THE RELEVANT EXTRACT OF THE JUDGEMENT IS ENUMERATED HEREUNDER IT IS AN ACCEPTED PROPOSITION THAT AN EXPENDITURE L AID OUT WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF BUSINESS WOULD INCLUDE THE COST OF ADVERTISEMENT. ONCE IT WAS FOUND THAT THE EXPENDITURE HAD BEEN, AS A MATTER OF FACT, INCURRED BY THE ASSESSEE FOR PUBLICITY OR ADVERTISEMENT, IT WAS NOT FOR THE DEPARTMENT TO CONSIDER WHETHER COMMERCIAL EXPEDIENCY JUSTIFIED THE EXPENDITURE. RE ASONABLENESS OF THE EXPENDITURE COULD BE GONE INTO ONLY FOR THE PURPOSE OF DETERMINING WHETHER IN FACT THE AMOUNT WAS SPENT. A SIMILAR VIEW HAS ALSO BEEN ECHOED BY THE CALCUTTA HIGH COURT IN THE CASE OF SARDA PLYWOOD INDUSTRIES LTD VS CIT (238 ITR 354) THE RELEVANT EXTRACT OF THE JUDGEMENT IS REPRODUCED HEREUNDER: IT HAS BEEN HELD THAT ONCE IT IS FOUND THAT THE EX PENDITURE HAD BEEN, AS A MATTER OF FACT, INCURRED BY THE ASSESSEE FOR PUBLICITY OR ADVERTISEMENT, IT IS NOT FOR THE DEPARTMENT TO CONSIDER WHETHER COMMERCIAL EXPEDIENC Y JUSTIFIED THE EXPENDITURE. REASONABLENESS OF THE EXPENDITURE CAN BE GONE INTO ONLY FOR THE PURPOSE OF DETERMINING WHETHER IN FACT THE AMOUNT W AS SPENT. WE RESPECTFULLY AGREE WITH THE AFOREMENTIONED OBSERVATIONS. AS REGARDS THE WITHOUT PREJUDICE GROUND RAISED BY T HE ASSESSEE WE HAVE ALREADY GIVEN OUR FINDINGS IN GROUND NUMBER 1 THAT THE INVESTMENT ACTIVITY IS THE BUSINESS OF THE ASSESSEE AND THEREFORE THE INCO ME FROM INVESTMENT ACTIVITY IS TAXABLE AS INCOME UNDER THE HEAD INCOME FROM BUSIN ESS AND PROFESSION. HENCE ITA NO. 5554 MUM 16, 3994, 4018, 4413 & 4019 MUM 15-M/S FUTURE CONSUMER ENTERPRISES LTD. 15 THE ASSESSEE OUGHT TO BE ALLOWED DEDUCTION IN RESPE CT OF THE EXPENSES INCURRED ON THE INVESTMENT ACTIVITY. WE ARE IN AGREEMENT WITH THE ORDER PASSED BY THE CI T(A) AND ACCORDINGLY THIS GROUND OF THE REVENUE IS DISMISSED. 11. CONSIDERING THE DECISION OF TRIBUNAL ON IDENTICAL G ROUNDS OF APPEAL, WHEREIN THE SIMILAR GROUNDS OF APPEAL WAS DISMISSED BY TRIBUNAL FOR ASSESSMENT YEAR 2009-10. THEREFORE, RESPECTFULLY FO LLOWING THE DECISION OF TRIBUNAL, WE DO NOT FIND ANY ILLEGALITY OR INFIRMIT Y IN THE DECISION OF LD. CIT(A). 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. 13. ITA NO. 4414/MUM/2015 FOR ASSESSMENT YEAR 2011-12. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT-(A) ERRED IN DELETING THE DISALLOWANCE MADE ON ACCOUNT OF TRAVELLING AND CONVEYANCE EXPENDITURE CLAIMED BY THE ASSESSEE, WIT HOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD NOT SUBMITTED ANY EVIDENCE TO SUBSTANTIATE ITS ALLOWABILITY TO TERMS OF THE PROVISION OF SECTION 3 7(1) OF THE INCOME TAX ACT, 1961. II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT-(A) ERRED IN DELETING THE DISALLOWANCE MADE A.O. OUT OF EXPENSES CLAIMED BY THE ASSESSEE, WITHOUT APPRECIATING THE FACT THAT THE A. O. HAD RIGHTLY HELD THAT THE SAID EXPENDITURE HAD BEEN INCURRED FOR INVESTMENT A CTIVITY WHICH RESULTED IN INCOME EXEMPT FROM TAX AND HENCE WAS NOT ALLOWABLE UNDER THE PROVISION OF THE ACT. III) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT-(A) ERRED IN DELETING THE DISALLOWANCE OF LEGAL AND PRO FESSIONAL FEES CLAIMED BY THE ASSESSEE, WITHOUT APPRECIATING THE FACT THAT TH E ASSESSEE HAD FAILED TO FURNISH EVIDENCE TO SUBSTANTIATE THE ALLOWABILITY O F THE IMPUGNED EXPENDITURE IN TERMS OF SECTION 37(1) OF THE INCOME TAX ACT, 19 61. ITA NO. 5554 MUM 16, 3994, 4018, 4413 & 4019 MUM 15-M/S FUTURE CONSUMER ENTERPRISES LTD. 16 IV) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT-(A) ERRED IN DELETING THE DISALLOWANCE ON ACCOUNT OF AD VERTISEMENT AND PUBLICITY EXPENSES WITHOUT APPRECIATING THE FACT THAT THE IMP UGNED EXPENDITURE PERTAINS TO THE FUTURE GROUP AND NOT TO THE ASSESSEE'. V) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE ON ACCOUNT OF AD VERTISEMENT AND PUBLICITY EXPENSES WITHOUT APPRECIATING THE FACT THAT THE IMP UGNED EXPENDITURE IS NOT RELATED TO OR ATTRIBUTABLE TO THE ASSESSEE'S INVEST MENT ACTIVITY AND WITHOUT PREJUDICE THERETO, SUCH EXPENDITURE IS OTHERWISE DI SALLOWABLE AS THE INVESTMENT ACTIVITY OF THE ASSESSEE RESULTS IN INCO ME, WHICH DOES NOT FORM PART OF TOTAL INCOME OF THE ASSESSEE. ' THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE DCIT 9(3)(2) BE RESTOR ED. 14. GROUND NO.1 & 2 RELATES TO DELETING THE DISALLOWANC E ON TRAVELLING AND CONVEYANCE EXPENDITURE, GROUND NO.3 RELATES TO DELE TING THE DISALLOWANCE OF LEGAL AND PROFESSIONAL FEES AND GROUND NO. 4 & 5 RE LATES TO DELETING THE DISALLOWANCE OF ADVERTISEMENT AND PUBLICITY EXPENSE S. 15. WE HAVE NOTED THAT THE REVENUE HAS RAISED THE IDENT ICAL GROUNDS OF APPEAL AS RAISED IN APPEAL FOR ASSESSMENT YEAR 2010-11 WHI CH WE HAVE DISMISSED BY FOLLOWING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO. 6550/MUM/2012. THEREFORE, R ESPECTFULLY FOLLOWING THE DECISION OF TRIBUNAL IN ASSESSMENT YE AR 2009-10 AND OUR FINDING IN APPEAL FOR ASSESSMENT YEAR 2010-11, ALL THE GROUNDS OF APPEAL RAISED BY REVENUE ARE DISMISSED. 16. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. 17. ITA NO. 5554/MUM/2016 FOR ASSESSMENT YEAR 2012-13. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: ITA NO. 5554 MUM 16, 3994, 4018, 4413 & 4019 MUM 15-M/S FUTURE CONSUMER ENTERPRISES LTD. 17 (I) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN GRANTING RELIEF TO ASSESSEE U/S. 14A OF THE I.T. ACT, 1961 BY HOLDING THAT NO EXEMPT INCOME WAS EARNED DURING THE YEAR UNDER CONSIDERATION AND THAT THE INVESTMENTS WERE ONLY STRATEGIC INVEST MENTS IGNORING THE FACT THAT CIR. NO.5 OF 2014 CLARIFIES THAT RULE 8D READ WITH SECTION 14A OF THE ACT PROVIDES FOR DISALLOWANCE OF THE EXPENDITURE EVEN W HERE TAXPAYER IN A PARTICULAR YEAR HAS NOT EARNED ANY EXEMPT INCOME AND THE DECIS ION OF THE HIGH COURT OF KARNATAKAIN THE CASE OF UNITED BREWERIES LTD. (72 T AXMAN.COM 102) WHEREIN IT IS HELD THAT SEC.14A IS APPLICABLE EVEN WHERE MOTIV E OF ACQUIRING SHARES WAS TO OBTAIN CONTROLLING INTEREST IN COMPANIES?' (II) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE B Y THE AO OUT OF EXPENSES CLAIMED BY THE ASSESSEE WITHOUT APPRECIATING THE FA CT THAT THE AO HAD RIGHTLY .HELD THAT THE SAID EXPENDITURE HAD BEEN INCURRED F OR INVESTMENT ACTIVITY WHICH RESULTED IN INCOME EXEMPT FROM TAX AND HENCE WAS NO T ALLOWABLE UNDER THE PROVISION OF THE ACT?' THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE DCIT 9(3)(2) BE RESTORED. 18. AT THE OUTSET OF HEARING, THE LD. AR OF THE ASSESSE E SUBMITS THAT GROUND OF APPEAL RAISED BY REVENUE IS ALSO COVERED BY THE DEC ISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO. 6721/MUM/2012 WHEREIN SIMILAR DISALLOWANCE WAS DELE TED BY LD. CIT(A) AND ON APPEAL BEFORE THE LD. CIT(A), THE ORDER OF L D. CIT(A) WAS CONFIRMED. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE RELIE D UPON THE ORDER OF ASSESSING OFFICER. 19. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. DURING THE ASSESSMENT, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS EARNE D THE EXEMPT INCOME OF ITA NO. 5554 MUM 16, 3994, 4018, 4413 & 4019 MUM 15-M/S FUTURE CONSUMER ENTERPRISES LTD. 18 RS. 6,76,06,678/-. THE ASSESSEE IN ITS COMPUTATION OF INCOME DISALLOWED AMOUNT OF RS. 24,96,770/- AS DISALLOWANCE UNDER SEC TION 14A. THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH THE WORKING OF DISALLOWANCE UNDER SECTION 14A. THE ASSESSEE FURNISHED ITS WORKI NG OF DISALLOWANCE UNDER SECTION 14A. THE WORKING OF ASSESSEE WAS NOT ACCEPTED BY ASSESSING OFFICER HOLDING THAT THE SAME IS NOT AS PER RULE 8D AND THAT ONLY DIRECT EXPENSES RELATABLE TO EXEMPT INCOME HAVE BEEN CONSI DERED FOR DISALLOWANCE. THE ASSESSING OFFICER INVOKED THE PRO VISION OF RULE 8D AND DISALLOWED .5% OF AVERAGE VALUE OF INVESTMENT AS PE R RULE 8D(2)(3). THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE OF RS . 447.54 LAKHS. IN ADDITION TO THE SUO-MOTO DISALLOWANCE. ON APPEAL BE FORE THE LD. CIT(A), THE DISALLOWANCE WAS RESTRICTED TO SUO-MOTO DISALLOWANC E OFFERED BY ASSESSEE. THE LD. CIT(A) DELETED THE DISALLOWANCE OF RULE 8D (2)(3) BY FOLLOWING THE DECISION OF HIS PREDECESSOR FOR ASSESSMENT YEAR 201 0-11 & 2011-12, WHEREIN INVESTMENT IN SUBSIDIARY, JOINT VENTURE AND ASSOCIATE AND DEBENTURES WERE EXCLUDED FROM TOTAL INVESTMENT. THE HONBLE CO URT IN MAXOPP INVESTMENT LTD. VS. CIT [91 TAXMAN.COM 154 (SC) HEL D THAT THE APPLICABILITY OF SECTION 14A IS BASED ON THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE INCOME AND THE EXPENDITURE INCURRED IN ACQUIRING THOSE SHARE (ACQUIRED FOR CON TROLLING STAKE IN GROUP COMPANY) WILL HAVE TO BE APPORTIONED. THEREFORE, RE SPECTFULLY FOLLOWING THE DECISION OF HONBLE APEX COURT, THE GROUNDS OF APPE AL RAISED BY REVENUE IS ITA NO. 5554 MUM 16, 3994, 4018, 4413 & 4019 MUM 15-M/S FUTURE CONSUMER ENTERPRISES LTD. 19 RESTORED TO THE FILE OF ASSESSING OFFICER TO MAKE T HE DISALLOWANCE AFTER FOLLOWING THE DECISION OF MAXOPP INVESTMENT LTD. (S UPRA). NEEDLESS TO ORDER THAT BEFORE PASSING THE ORDER, THE ASSESSING OFFICER SHALL ALLOW THE OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE PASSI NG THE ORDER IN ACCORDANCE WITH LAW. 20. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. 21. ITA NO. 4018/MUM/2015 BY ASSESSEE FOR ASSESSMENT YE AR 2010-11. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1.1 THE LEARNED COMMISSIONER OF INCOME - TAX (APPEA LS) - 16, MUMBAI, [LD. CIT[(A)'] ERRED IN CONFIRMING THE DISALLOWANCE TO T HE EXTENT OF RS. 23,18,291/-, OUT OF THE AD HOC DISALLOWANCE OF EMPLOYEES COST AN D ADMINISTRATIVE & OTHER EXPENSES MADE BY THE A.O. 1.2 IT IS SUBMITTED THAT, IN THE FACTS AND THE CIRC UMSTANCES OF THE CASE, AND IN LAW, NO SUCH DISALLOWANCE WAS CALLED FOR. WITHOUT PREJUDICE TO THE ABOVE 2.1 WHILE DOING SO, THE LD. CIT (A) ERRED IN INVOKI NG THE PROVISIONS OF SECTION 14A OF THE ACT. 2.2 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCU MSTANCES OF THE CASE, AND IN LAW, THE PROVISIONS OF SECTION 14A WERE NOT APPLICABLE. WITHOUT FURTHER PREJUDICE TO THE ABOVE 3.1 ASSUMING - BUT NOT ADMITTING - THAT SOME DISALL OWANCE WAS CALLED FOR, THE CALCULATION OF THE SAME IS NOT IN ACCORDANCE WITH T HE LAW, IS ARBITRARY AND EXCESSIVE. 22. GROUND NO.1 RELATES TO AD HOC DISALLOWANCE OF EMPLOYEES COST AND ADMINISTRATIVE EXPENSES ON AD HOC BASIS. 23. WE HAVE NOTED THAT THE ASSESSING OFFICER DISALLOWED THE 78.31% OF TOTAL EXPENSES ON THE BASIS OF PRECEDING YEARS. THE LD. C IT(A) CONFIRMED THE ITA NO. 5554 MUM 16, 3994, 4018, 4413 & 4019 MUM 15-M/S FUTURE CONSUMER ENTERPRISES LTD. 20 ACTION OF ASSESSING OFFICER TO THE EXTENT OF RS. 23 ,18,291/-. THE LD. AR OF THE ASSESSEE SUBMITS THAT THE GROUNDS OF APPEAL MAY BE RESTORED TO THE FILE OF ASSESSING OFFICER WITH THE DIRECTION TO PASS THE OR DER BY TAKING INTO ACCOUNT THE ORDER OF EARLIER YEARS. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE HAS NO OBJECTION, IF THE GROUND OF APPEAL RAISED BY ASS ESSEE IS RESTORED TO THE FILE OF ASSESSING OFFICER. 24. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE NO TED THAT THE ASSESSING OFFICER DISALLOWED THE EXPENSES ON THE BASIS OF PRE CEDING YEARS. IN ALL PRECEDING YEARS, THE MAJOR PART OF DISALLOWANCE ON ACCOUNT OF VARIOUS EXPENDITURE HAVE BEEN DELETED. THEREFORE, CONSIDERI NG THE CONTENTION OF LD. AR OF THE ASSESSEE, THIS GROUND OF APPEAL IS RESTOR ED TO THE FILE OF ASSESSING OFFICER TO VERIFY THE EMPLOYEE COST, ADMINISTRATIVE AND OTHER EXPENSES AND PASSED THE ORDER IN ACCORDANCE WITH LAW. 25. IN THE RESULT, THE GROUND OF APPEAL RAISED BY ASSES SEE IS ALLOWED FOR STATISTICAL PURPOSE. 26. THE ASSESSEE HAS RAISED ALTERNATIVE GROUND OF APPEA L THAT LD. CIT(A) ERRED IN INVOKING THE PROVISION OF SECTION 14A. CONSIDERING THE FACT THAT WE HAVE ALREADY RESTORED THE SUBSTANTIAL GROUND OF APPEAL T O THE FILE OF ASSESSING OFFICER. THEREFORE, ALTERNATIVE GROUNDS OF APPEAL R AISED BY ASSESSEE HAVE BECOME ACADEMIC. 27. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSE. ITA NO. 5554 MUM 16, 3994, 4018, 4413 & 4019 MUM 15-M/S FUTURE CONSUMER ENTERPRISES LTD. 21 ITA NO. 4019/MUM/2015 BY ASSESSEE FOR ASSESSMENT YE AR 2011-12. 28. THE ASSESSEE HAS RAISED IDENTICAL GROUNDS OF APPEAL AS RAISED IN APPAL FOR ASSESSMENT YEAR 2010-11. CONSIDERING OUR DECISION F OR ASSESSMENT YEAR 2010-11 ON IDENTICAL GROUNDS OF APPEAL, WHEREIN WE HAVE RESTORED THE GROUND OF APPEAL TO THE FILE OF ASSESSING OFFICER. THEREFORE, THESE GROUNDS OF APPEAL BY ASSESSEE ARE ALLOWED WITH SIMILAR DIRE CTION. 29. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 30/11/2018. SD/- SD/- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUDICIAL MEMBER MUMBAI, DATE: 30.11.2018 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR F BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI