HDFC Asset Management Co. Ltd., MUMBAI V. Addl. CIT-Rg.1(1), MUMBAI

ITA 754/MUM/2013

• Counselvise Citation: 75419914 RSA 2013
• Duration Of Justice: 2 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 12-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 29-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR
• Assessee Lawyers: KIRT SHAH
• Keywords: Capital asset; Depreciation; Business expenditure
• Section: 143(3); 14A; 37(1)

Judgement Text

H IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER & SHRI SANJAY GARG, JUDICIAL MEMBER ./ I.T.A. NO. 754 /MUM/2013 ( / ASSESSMENT YEAR : 2009-2010 HDFC ASSET MANAGEMENT CO. LTD., 2 ND FLOOR, HUL HOUSE, BACKBAY RECLAMATION, H.T. PAREKH MARG, CHURCHGATE, MUMBAI 400 020. / VS. ADDL. C.I.T. RG. 1(1), AAYAKAR BHAVAN, M.K. MARG, MUMBAI 20. ./ PAN : AAACH7614L ( / APPELLANT ) .. ( / RESPONDENT ) A PPELLANT BY SHRI SOUMEN ADAK & SHRI KIRT SHAH R E SPONDENT BY : SHRI JEETENDRA KUMAR / DATE OF HEARING : 10-02-2015 / DATE OF PRONOUNCEMENT : 20-02-2015 [ !' / O R D E R PER R.C. SHARMA, A.M . : THIS IS AN APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) -1, MUMBAI DATED 27-11-2012 FOR THE A.Y. 2009-10 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 . 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND PERUSED TH E RECORDS. THE FIRST GRIEVANCE OF THE ASSESSEE RELATES TO DISALLOWANCE O F RS. 81,08,683/- U/S 14A OF THE INCOME TAX ACT, 1961. ITA 754/M/13 2 3. IT WAS SUBMITTED BY THE LD. D.R. THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE TRIBUNAL FOR THE IMMED IATELY PRECEDING YEAR. 4. ON THE OTHER HAND THE LD. A.R. BROUGHT TO OUR NO TICE DISTINGUISHING FEATURE TO THE EFFECT THAT STRATEGIC INVESTMENT WAS MADE BY THE ASSESSEE DURING THE YEAR WHICH SHOULD NOT BE TAKEN INTO ACCO UNT WHILE COMPUTING DISALLOWANCE UNDER RULE 8D(2)(III). IT WAS SUBMITT ED BY THE LD. A.R. THAT ALL THE INVESTMENTS, INCOME FROM WHICH IS EXEMPT, MADE BY THE ASSESSEE COMPANY ARE IN THE SCHEMES OF HDFC MUTUAL FUND. THE SE INVESTMENTS MADE IN THE VARIOUS SCHEMES OF HDFC MUTUAL FUND ARE USUA LLY MADE OUT OF BUSINESS POLICY AND THE SAME DOES NOT REQUIRE COMPLEX ANALYSIS BY TECHNICAL EXPERTS AND DOES NOT INVOLVE OR REQUIRES ANY INCURRENCE OF EXPENDITURE. HENCE, THESE INVESTMENTS SHOULD NOT BE CONSIDERED IN WORKING OUT DISALLOWANCE UNDER RULE 8D. RELIANCE WAS PLACED ON THE DECISION OF TRIBUNAL IN RELIANCE CAPITAL ASSET MANAGEMENT LTD. VS. DCIT (ITA NO. 4459/MUM/2012) ON IDENTICAL SETS OF FACTS HELD THAT RULE 8D(III) SHOULD NOT BE APPLIED AS INVESTMENTS MADE BY THE ASSESSEE IS M AINLY IN SCHEMES OF RELIANCE MUTUAL FUND AND GROUP CONCERN WHICH DOES N OT REQUIRES INCURRENCE OF ANY MAJOR EXPENDITURE AS THESE INVESTMENT ARE DR IVEN BY THE CENTRAL BUSINESS POLICY AND STRATEGY. 5. FURTHER RELIANCE WAS PLACED ON THE FOLLOWING DEC ISIONS OF MUMBAI BENCH OF ITAT:- - GARWARE WALL ROPES LIMITED VS. ADD!. CIT (I.T.A. NO. 4957/MUM/2012). - JM FINANCIAL LTD. VS. ADDL. CIT (I.T.A. NO. 4521/MUM/2012). - INTERGLOBE ENTERPRISES LTD. VS . DCIT (I.T.A. NO. 1580/DEL./2013). ITA 754/M/13 3 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND THE JUDICIAL PRONOUNCEMENTS CITED AT BAR ACCORDING TO WHICH CALC ULATION OF DISALLOWANCE AS PER RU LE 8D(2)(III) IS ERRONEOUS, AS THE AO WITHOUT ASSIG NING ANY REASON DID NOT REDUCE THE INVESTMENT IN MUTUAL FUNDS AND G ROUP CONCERN WHICH DOES NOT QUIRE INCURRENCE OF MAJOR EXPENDITURE. 7. IN VIEW OF THE ABOVE, WE RESTORE THIS GROUND BAC K TO THE FILE OF A.O. FOR FRESH CONSIDERATION IN TERMS OF OUR ABOVE DISCUSSIO N. 8. THE NEXT GRIEVANCE OF THE ASSESSEE RELATES TO DI SALLOWANCE UPFRONT BROKERAGE FEES. 9. FROM THE RECORD WE FOUND THAT THE A.O. HAS DISAL LOWED THE SAID EXPENSES ON THE GROUND THAT ASSESSEE HAS CHANGED IT S ACCOUNTING POLICY WITH REGARD TO EXPENSE ON UPFRONT BROKERAGE FEES. WE FOU ND THAT LOOKING INTO THE NATURE OF EXPENSES, THE SAME WERE INCURRED IN THE R EVENUE FIELD AND THE SAME HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF BUSINESS. THE CHANGE IN THE ACCOUNTING SYSTEM IS NOT VIOLATIVE OF ANY REGULATIONS ISSUED BY REGULATORY AUTHORITIES IN THIS REGARD. FURTHERMORE CHANGE IN ACCOUNTING POLICY IS BONAFIDE AND IN LINE WITH THE INDUSTRY PR ACTICE. IN EARLIER YEARS THE ASSESSEE WITNESSED MANY TIMES EITHER THE CLIENTS EX ITED FROM THE SCHEME OR THEY SWITCHED TO THE OTHER SCHEME. THE SAME HAS NEC ESSITATED THE ASSESSEE TO CHANGE THEIR ACCOUNTING PRACTICE AND THE ASSESSEE F OLLOWED THE SAME IN ALL THE SUBSEQUENT YEARS. IT WAS ALSO BROUGHT TO OUR NO TICE THAT NO DISALLOWANCE WAS MADE IN NEXT YEAR WHILE FRAMING ASSESSMENT U/S 143(3) OF THE ACT. ACCORDINGLY, WE DO NOT SEE ANY JUSTIFICATION FOR TH E DISALLOWANCE MADE IN RESPECT OF UPFRONT BROKERAGE FEES ACTUALLY PAID BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. WE DIRECT ACCORDINGLY. 10. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF O FFICE RENOVATION EXPENSES AMOUNTING TO RS. 1,35,71,810/-. ITA 754/M/13 4 11. IT WAS THE CONTENTION OF THE ASSESSEE THAT THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE IS PRIMARILY ON WIRING, CA BLING, LIGHT FITTING, CEILING WORK, BUILT-IN UNITS, DISMANTLING, WATER PROOFING, PAINTING, ETC. ALL THE EXPENSES ARE REVENUE IN NATURE AND INVOICES IN RESP ECT OF WHICH ARE DULY SUBMITTED BEFORE THE AO. NEITHER THE AO NOR THE LD. CIT(A) HAS DISPUTED THE GENUINENESS OF SAID EXPENDITURE. IT WAS FURTHER SUB MITTED THAT THE ASSESSEE DECIDED NOT TO MOVE AHEAD WITH THE NEW OFFICE CONSI DERING THE MARKET SCENARIO, THE ASSESSEE HAS NEITHER RECEIVED ANY END URING BENEFIT NOR WAS ANY CAPITAL ASSET GENERATED OUT OF THE SAID EXPENSES. A CCORDINGLY THE SAID EXPENDITURE IS ALLOWABLE AS BUSINESS EXPENSES U/ S 37(1) OF THE ACT. 12. RELIANCE WAS PLACED ON THE DECISION OF DELHI TR IBUNAL IN THE CASE OF FAB INDIA OVERSEAS (P) LTD. VS. ACIT (ITA NO. 199/DEV20 12) DATED 28-06-2013. IN THIS CASE, THE ASSESSEE HAS GIVEN A SECURITY DEPOSI T AND ALSO ADVANCE RENT TO THE OWNER OF A PROPERTY BEFORE ENTERING INTO A FORM AL LEASING ARRANGEMENT. IN THE MEANTIME ASSESSEE DECIDED TO EXIT FROM THE SAID ARRANGEMENT AND THEREBY LOST ITS SECURITY DEPOSIT AND ADVANCE RENT TO PROPE RTY OWNER. THE ASSESSEE HAS CLAIMED THIS AS BUSINESS LOSS, WHICH IS IN THE REVE NUE FIELD. THE TRIBUNAL HAS ALLOWED THE CLAIM OF ASSESSE BY TREATING THE ABOVE EXPENDITURE AS BUSINESS LOSS. 13. AS AN ALTERNATE, IT WAS SUBMITTED THAT THE IMP UGNED EXPENDITURE IS CAPITAL IN NATURE, NECESSARY DIRECTION MAY PLEASE B E GIVEN TO THE AO TO ALLOW DEPRECIATION ON THE SAME. 14. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FO UND THAT, NO DOUBT THE EXPENSES WERE ACTUALLY INCURRED BY THE ASSESSEE. HO WEVER, THE SAME WAS DISALLOWED ON THE PLEA THAT IT WAS CAPITAL IN NATUR E. LOOKING TO THE FACT THAT THE PREMISES WERE NOT OCCUPIED AT ALL, THEREFORE, T HERE WAS COMPLETE LOSS OF EXPENDITURE INCURRED BY THE ASSESSEE. IN THE INTER EST OF JUSTICE, THIS GROUND IS ITA 754/M/13 5 ALSO RESTORED TO THE FILE OF A.O. FOR FRESH ADJUDIC ATION IN TERMS OF OUR ABOVE DISCUSSION AND JUDICIAL PRONOUNCEMENT CITED BY LD. A.R. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH FEB. 2015. !' # $% &! ' 20-02-2015 ( ) SD/- SD/- (SANJAY GARG) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER $ 5 MUMBAI ; &! DATED 20-2-2015 [ .;../ RK , SR. PS ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. < () / THE CIT(A) 1,, MUMBAI 4. < / CIT 1, MUMBAI 5. ?@( ;;AB , AB , $ 5 / DR, ITAT, MUMBAI H BENCH 6. (DE F / GUARD FILE. ' / BY ORDER, ? ; //TRUE COPY// (/') * ( DY./ASSTT. REGISTRAR) , $ 5 / ITAT, MUMBAI