DCIT 2(3), MUMBAI V. SUBHKAM VENTURES INDIA LTD, MUMBAI

ITA 6061/MUM/2010

• Counselvise Citation: 606119914 RSA 2010
• Duration Of Justice: 3 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 09-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 06-08-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRADEEP SHOURYA ARYA
• Assessee Lawyers: K SHIVRAM; RAHUL K HAKANI
• Keywords: Business income; Business expenditure; Opportunity of being heard; Additional evidence; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 37(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE HONBLE S/SHRI H.L. KARWA, PRESIDENT AND B. R.BASKARAN (AM) . . , . . , ./I.T.A. NO.5493/MUM/2010 ( / ASSESSMENT YEAR : 2007-08) SUBHKAM VENTURES (I) PVT.LTD., (FORMERLY SUBHKAM VENTURES INDIA LTD., THE INTERNATIONAL HOUSE, 4 TH FLOOR, NEW MARINE LINES, CROSS-ROAD NO.1, NEAR AMERICAN CENTRE, 16 TH M.K.ROAD, CHURCHGATE, M K ROAD, MUMBAI-400020 / VS. A DDL . COMMISSIONER OF INCOME TAX 2(3), 5 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ( / APPELLANT) .. ( !' / RESPONDENT) ./I.T.A. NO.6061/MUM/2010 ( / ASSESSMENT YEAR : 2007-08) DY. COMMISSIONER OF INCOME TAX-2(3), ROOM NO.555, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 / VS. M/S SUBH K AM VENTURES INDIA LTD. , THE INTERNATIONAL HOUSE, 4 TH FLOOR, NEW MARINE LINES, CROSS-ROAD NO.1, NEAR AMERICAN CENTRE, 16 TH M.K.ROAD, CHURCHGATE, MUMBAI-400020 . ( / APPELLANT) .. ( !' / RESPONDENT) ./ #$ ./PAN/GIR NO. : AADCS0992F % / ASSESSEE BY : S/ SHRI K SHIVRAM & RAHUL K HAKANI !' & % /REVENUE BY : SHRI PRADEEP SHOURYA ARYA ' & ( ) / DATE OF HEARING : 9.7.2014 *+ & ( ) /DATE OF PRONOUNCEMENT : 18.7.2014 I.T.A. NO.5493 & 6061/MUM/2010 2 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 18.05.2010 PASSED BY LD CIT(A)-6, MUMBAI AND THEY RELATE TO TH E ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE DISALLOWANCE MADE BY THE AO ON THE FOLLOWING ISSUES :- (A) DISALLOWANCE MADE U/S 14A R.W. RULE 8D OF THE I.T RULES. (B) DISALLOWANCE OF EXPENDITURE INCURRED FOR ACQUI RING MEMBERSHIP OF CRICKET CLUB OF INDIA 3. THE REVENUE IS IN APPEAL BEFORE US ASSAILING THE DECISION OF LD CIT(A) IN HOLDING THAT THE PURCHASE AND SALE OF SHARES RESULT ING IN AN INCOME OF RS.14.90 CRORES IS ASSESSABLE AS SHORT TERM CAPITAL GAIN AND NOT ASSESSABLE AS BUSINESS INCOME. 4. THE FACTS RELATING TO THE CASE IS STATED IN BRIEF. THE ASSESSEE COMPANY WAS PREVIOUSLY KNOWN AS SWEET SOLUTIONS LTD HAVING P. A.NO. AADCS0992F. THE NAME OF THE COMPANY IS CHANGED INTO SUBHKAM VENTUR ES INDIA LTD AND THE PRESENT ASSESSMENT HAS BEEN FRAMED IN THAT NAME ONL Y. THE NAME WAS AGAIN CHANGED AND IT IS PRESENTLY KNOWN AS SUBHKAM VENTU RES (I) PVT. LTD. THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION WAS COM PLETED BY THE AO ON 04.12.2009 U/S 143(3) OF THE ACT, WHEREIN HE MADE D ISALLOWANCE U/S 14A OF THE ACT BY FOLLOWING RULE 8D OF THE I.T RULES, DISALLOW ED THE MEMBERSHIP FEES OF CRICKET CLUB OF INDIA AND ALSO TREATED INCOME ARISI NG ON SALE OF SHARES AMOUNTING TO RS.14.90 CRORES AS BUSINESS INCOME OF THE ASSESS EE AS AGAINST THE CLAIM OF THE ASSESSEE THAT IT WAS SHORT TERM CAPITAL GAIN. THE LD CIT(A) CONFIRMED THE I.T.A. NO.5493 & 6061/MUM/2010 3 DISALLOWANCE MADE U/S 14A AND ALSO THE DISALLOWANCE OF MEMBERSHIP FEE, BUT REVERSED THE DECISION OF THE AO IN RESPECT OF PROFI T ARISING ON SALE OF SHARES, I.E., HE HELD THAT THE SAME IS ASSESSABLE UNDER THE HEAD SHORT TERM CAPITAL GAINS. AGGRIEVED BY THE DECISION OF LD CIT(A), BOTH THE PA RTIES ARE IN APPEAL BEFORE US ON THE ISSUES DECIDED AGAINST EACH OF THEM. 5. IN THE APPEAL FILED BY THE ASSESSEE, THE FIRS T ISSUE URGED IS ABOUT THE DISALLOWANCE MADE U/S 14A OF THE ACT. THE LD A.R S UBMITTED THAT THE HONBLE JURISDICTIONAL BOMBAY HIGH COURT HAS RENDERED ITS D ECISION IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (194 TAXMAN 203; 328 ITR 81), WHEREIN IT HAS BEEN HELD THAT THE PROVISIONS OF RULE 8D IS APPLICABLE FROM A Y 2008-09 ONWARDS AND NOT TO THE YEAR UNDER CONSIDERATION. ACCORDINGLY, HE SUBM ITTED THAT THE TAX AUTHORITIES ARE NOT JUSTIFIED IN APPLYING RULE 8D TO THE YEAR U NDER CONSIDERATION. HE SUBMITTED THAT THE TRIBUNAL HAS CONSIDERED AN IDENT ICAL ISSUE IN THE IMMEDIATELY PRECEDING YEAR AND IT HAS SET ASIDE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO RECOMPUTE THE DISALLOWANCE THAT IS REQ UIRED TO BE MADE U/S 14A OF THE ACT BY FOLLOWING THE DECISION OF THE JURISDICTI ONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (SUPRA). THE LD D.R DI D NOT CONTROVERT THE FACTUAL ASPECTS OF THE MATTER STATED ABOVE. 6. WE HEARD THE PARTIES ON THIS ISSUE AND PERUS ED THE RECORD. WE NOTICE THAT THE IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO. 6019/MUM/2009 RELATING TO ASSESSMENT YEAR 2 006-07 AND THE TRIBUNAL, VIDE ITS ORDER DATED 30.11.2011, HAS SET ASIDE THE MATTER TO THE FILE OF THE AO WITH THE DIRECTION TO COMPUTE DISALLOWANCE TO BE MA DE U/S 14A OF THE ACT ON A REASONABLE BASIS BY FOLLOWING THE DECISION RENDERED BY HONBLE JURISDICTIONAL HIGH I.T.A. NO.5493 & 6061/MUM/2010 4 COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING C OMPANY LTD (SUPRA). THERE IS NO DISPUTE BETWEEN THE PARTIES THAT THE PROVISIO NS OF RULE 8D IS NOT APPLICABLE TO THE INSTANT YEAR, IN VIEW OF THE DECISION OF JUR ISDICTIONAL HIGH COURT REFERRED ABOVE. HENCE, CONSISTENT WITH THE VIEW TAKEN BY TH E TRIBUNAL IN THE IMMEDIATELY PRECEDING YEAR, WE SET ASIDE THIS ISSUE TO THE FILE OF THE AO WITH THE DIRECTION TO COMPUTE THE DISALLOWANCE TO BE MADE U/S 14A OF THE ACT ON A REASONABLE BASIS BY FOLLOWING THE DECISION RENDERED BY HONBLE JURIS DICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING COMPANY LTD (S UPRA). 7. THE NEXT ISSUE CONTESTED BY THE ASSESSEE RELATES TO THE DISALLOWANCE OF MEMBERSHIP FEE/ ENTRANCE FEE PAID FOR ACQUIRING COR PORATE MEMBERSHIP IN CRICKET CLUB OF INDIA. THE AO TOOK THE VIEW THAT THE ABOVE SAID PAYMENT IS NOT RELATED TO THE CURRENT YEAR AND THE BENEFIT OF SUCH MEMBERSHIP SHALL COME FOR FUTURE YEARS AS WELL AND HENCE THE SAME CONSTITUTES CAPITAL EXPENDITURE. ACCORDINGLY HE HELD THE SAME IS NOT ALLOWABLE U/S 3 7(1) OF THE ACT AND HENCE DISALLOWED THE CLAIM. THE LD CIT(A) ALSO CONFIRMED THE SAME. 8. THE LD A.R SUBMITTED THAT THE TRIBUNAL HAS CO NSIDERED AN IDENTICAL ISSUE IN THE CASE OF TATA SERVICES LTD IN ITA NO.7523/MUM/20 11 AND THE TRIBUNAL, VIDE ITS ORDER DATED 16.10.2012, HAS DELETED THE DISALLO WANCE BY HOLDING THAT THE MEMBERSHIP FEE PAID TO CRICKET CLUB OF INDIA IS ALL OWABLE U/S 37(1) OF THE ACT. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ASSE SSEE DID NOT PLACE ANY MATERIAL ON RECORD TO SHOW THAT IT HAS INCREASED IT S BUSINESS RELATIONSHIPS AND PROSPECTS BY OBTAINING MEMBERSHIP OF CRICKET CLUB O F INDIA. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS PAID ENTRANCE FEE I N THIS YEAR AND HENCE THE SAME CONSTITUTES CAPITAL EXPENDITURE. THE ANNUAL F EE PAID FOR AVAILING AMENITIES I.T.A. NO.5493 & 6061/MUM/2010 5 MAY BE IN THE NATURE OF REVENUE EXPENDITURE, BUT TH E SAME CAN BE ALLOWED AS DEDUCTION ONLY IF THE ASSESSEE PROVES THAT IT WAS I NCURRED IN THE COURSE OF CARRYING ON BUSINESS OF COMPANY. 9. WE HAVE HEARD RIVAL CONTENTIONS PERUSED THE RECO RD. THERE SHOULD NOT BE ANY DISPUTE THAT THE FEE PAID FOR ACQUIRING CORPORA TE MEMBERSHIP IN A CLUB IS ALLOWABLE AS BUSINESS EXPENDITURE IF IT FACILITATES SMOOTH AND EFFICIENT RUNNING OF A BUSINESS ENTERPRISES OR IF IT ENABLES THE ASSESSE E TO INCREASE ITS BUSINESS RELATION AND PROSPECTS. IN THIS REGARD, GAINFUL R EFERENCE CAN BE MADE TO THE DECISIONS RENDERED BY HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF OTIS ELEVATOR CO. (INDIA) LTD VS. CIT (195 ITR 682) AND THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF SAMTEL COLO UR LTD (326 ITR 425). BUT THE CASE OF THE REVENUE IS THAT THE ASSESSEE HAS FA ILED TO PROVE ABOUT THE BUSINESS EXIGENCIES OR BUSINESS ADVANTAGE IN CONNEC TION WITH ACQUIRING CORPORATE MEMBERSHIP OF CRICKET CLUB OF INDIA. THO UGH THE ASSESSEE CONTENDED THAT IT HAS HELPED TO IMPROVE BUSINESS RELATIONS AN D PROSPECTS, YET WE NOTICE THAT IT WAS A GENERALIZED STATEMENT. IN OUR VIEW, THE AS SESSEE HAS TO SHOW AS TO HOW THE MEMBERSHIP OF CRICKET CLUB OF INDIA WOULD IMPRO VE THE BUSINESS RELATIONS AND PROSPECTS VIS--VIS THE BUSINESS ACTIVITIES CAR RIED ON BY IT. IN THE ABSENCE OF ANY MATERIAL ON RECORD, WE ARE UNABLE TO RENDER ANY OPINION ON THIS ISSUE. ACCORDINGLY, IN OUR VIEW, THIS ISSUE ALSO REQUIRES FRESH EXAMINATION AT THE END OF THE AO. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFIC ER WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH BY DULY CONSIDERING THE INFORMATI ON /EXPLANATIONS THAT MAY BE I.T.A. NO.5493 & 6061/MUM/2010 6 FURNISHED BY THE ASSESSEE AND TAKE APPROPRIATE DECI SION IN ACCORDANCE WITH THE LAW. 10. IN THE APPEAL FILED BY THE REVENUE, THE ONLY IS SUE CONTESTED RELATES TO THE HEAD OF INCOME UNDER WHICH THE GAIN ARISING ON SALE OF SHARES IS ASSESSABLE. THE LD A.R SUBMITTED THAT THE TRIBUNAL HAS CONSIDER ED AN IDENTICAL ISSUE IN THE IMMEDIATELY PRECEDING YEAR AND THE SAME WAS DECIDED AGAINST THE ASSESSEE, I.E., THE TRIBUNAL HAS CONFIRMED THE VIEW TAKEN BY THE AO ON THIS ISSUE. THE LD A.R SUBMITTED THAT THERE IS MATERIAL DIFFERENCE IN FACT S PREVAILING IN THE CURRENT YEAR VIS--VIS THE FACTS THAT PREVAILED IN THE IMMEDIATE LY PRECEDING YEAR. ACCORDINGLY, THE LD A.R PLEADED THAT THIS ISSUE MAY BE SET ASIDE TO THE FILE OF THE AO FOR CONSIDERATION OF THE SAME AFRESH BY DULY CON SIDERING THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE. 11. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ORDER PASSED BY THE TRIBUNAL IN THE IMMEDIATELY PRECEDING YEAR MAY BE F OLLOWED IN THIS YEAR ALSO. 12. WE HAVE HEARD THE PARTIES AND PERUSED THE R ECORD. WE NOTICE THAT THE LD CIT(A), DURING THE INSTANT YEAR, HAS REVERSED THE D ECISION OF THE ASSESSING OFFICER BY FOLLOWING HIS ORDER PASSED FOR THE IMMEDIATELY P RECEDING YEAR. HOWEVER, IN THE IMMEDIATELY PRECEDING YEAR (AY 2006-07), THE TR IBUNAL HAS REVERSED THE DECISION OF LD CIT(A) AND HAS RESTORED THAT OF THE AO. HENCE, NORMALLY THE DECISION TAKEN BY THE ITAT IN THE IMMEDIATELY PRECE DING YEAR IS REQUIRED TO BE FOLLOWED IN THIS YEAR ALSO. HOWEVER, THE CONTENTIO N OF THE ASSESSEE IS THAT THE FACTS THAT PREVAILED IN THE IMMEDIATELY PRECEDING Y EAR ARE MATERIALLY DIFFERENT FROM THE FACTS AVAILABLE IN THE INSTANT YEAR. ACCO RDINGLY IT WAS CONTENDED THAT I.T.A. NO.5493 & 6061/MUM/2010 7 THE DECISION GIVEN BY THE TRIBUNAL FOR THE IMMEDIAT ELY PRECEDING YEAR SHOULD NOT BE FOLLOWED. TO SUBSTANTIATE ITS CONTENTION, THE A SSESSEE HAS FILED A CHART DIFFERENTIATING THE FACTS BETWEEN THE CURRENT YEAR AND THE PRECEDING YEAR. 13. THERE SHOULD NOT BE ANY DISPUTE THAT THE QUE STION WHETHER THE INCOME ARISING ON SALE OF SHARES IS ASSESSABLE AS CAPITAL GAINS OR BUSINESS INCOME MAY BE REQUIRED TO BE EXAMINED EVERY YEAR BY FOLLOWING VARIOUS CRITERION ILLUSTRATED BY THE COURTS. HENCE, WE FIND MERIT IN THE CONTENT IONS OF THE ASSESSEE. SINCE THE ASSESSEE HAS FILED A COMPARATIVE CHART, THE SAM E IS REQUIRED TO BE EXAMINED AT THE END OF THE AO. ACCORDINGLY, WE ARE OF THE V IEW THAT THIS ISSUE SHOULD BE EXAMINED AFRESH AT THE END OF THE AO. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FI LE OF THE AO WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH BY CONSIDERING THE COM PARATIVE CHART AND ALSO BY GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE A ND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. 14. IN THE RESULT, THE APPEALS FILED BY THE REVE NUE AS WELL AS THE ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 18TH JULY, 2014 . *+ ' , -. / 0 18TH JULY, 2014 + & 2 3 SD SD ( . . / H.L. KARWA) ( . . , / B.R. BASKARAN ) / PRESIDENT / ACCOUNTANT MEMBER - ' MUMBAI: 18TH JULY,2014. . . ./ SRL , SR. PS I.T.A. NO.5493 & 6061/MUM/2010 8 ! ' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT. 3. ' 5( ( ) / THE CIT(A)- CONCERNED 4. ' 5( / CIT CONCERNED 5. 67 2 !(8 , ) 8 , - ' / DR, ITAT, MUMBAI CONCERNED 6. 2 9 : / GUARD FILE. ; ' / BY ORDER, TRUE COPY < # (ASSTT. REGISTRAR) ) 8 , - ' /ITAT, MUMBAI