ITO 2(1)(3), MUMBAI V. BOB ASSET MANAGEMENT CO. LTD, MUMBAI

ITA 915/MUM/2010

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0804 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-05-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 05-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAVAN KUMAR BEER LA
• Keywords: Capital asset; Gift; Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NOS.914 & 915/M/2010 ASSESSMENT YEARS: 2002-03 & 2003-04 ACIT (OSD) 2(1), AAYAKAR BHAVAN, R.NO.561, 5 TH FLOOR, M.K. ROAD, MUMBAI - 400020 VS. M/S. BOB ASSETS MANAGEMENT CO. LTD., 105, MAKER CHAMBERS-III, NARIMAN POINT, MUMBAI 400 020 PAN: AAACB 4358B (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI DHANESH BAFNA, A.R. & MS. CHAN DNI SHAH, A.R. REVENUE BY : SHRI PAVAN KUMAR BEERLA, D.R. DATE OF HEARING : 21.05.2015 DATE OF PRONOUNCEMENT : 31.07.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE ABOVE TITLED APPEALS HAVE BEEN PREFERRED BY TH E REVENUE AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)]DATED 16.11.2009 AND 17.11.2009 RELEV ANT TO ASSESSMENT YEARS 2002-03 & 2003-04 RESPECTIVELY. SINCE THE FACTS AN D ISSUES INVOLVED IN BOTH THE APPEALS ARE IDENTICAL, HENCE THE SAME ARE TAKEN TOGETHER FOR DISPOSAL BY THIS COMMON ORDER. FOR THE SAKE OF CONVENIENCE, THE FAC TS HAVE BEEN TAKEN FROM THE APPEAL FOR THE A.Y. 2002-03. 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF A PPEAL: 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. THE LEARNED CIT(A) ERRED IN ALLOWING THE INITIAL ISSUE EXPENSES OF RS.87,97,581/- WITHOUT APPRECIATING THE FACT THA T AS PER SEBI ITA NOS.914 & 915/M/2010 M/S. BOB ASSETS MANAGEMENT CO. LTD. 2 GUIDELINES THE ASSET MANAGEMENT COMPANY HAS TO RECO VER THE INITIAL ISSUE EXPENSES OVER A PERIOD OF SUCCEEDING YEARS. 3. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE INITIAL ISSUE EXPENSES ARE CONTINUING LIABILITIES F OR THE ASSET MANAGEMENT COMPANY TO BE ADJUSTED IN THE MANAGEMENT FEES OVER A NUMBER OF YEARS. 4. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE INITIAL ISSUE EXPENSES SECURE A BENEFIT OVER A NUMB ER OF YEARS. 5. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT IN ALLOWING THE INITIAL ISSUE EXPENSES IN ONE PARTICUL AR YEAR WILL GIVE A DISTORTED PICTURE OF THE PROFITS OF A PARTICULAR YE AR. 6. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE CIT(A) MAY BE SET ASID E AND THAT OF THE AO RESTORED. 3. THE BRIEF FACTS OF THE CASE ARE THAT IN THE ASSE SSMENT ORDER, THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) HAS NOT ED THAT THE ASSESSEE HAS LAUNCHED THREE MUTUAL FUND SCHEMES NAMELY BOB INCOM E FUND, BOB GIFT FUND AND BOB LIQUID FUND. THE ASSESSEE HAD INCURRE D A SUM OF RS.87,97,581/- TOWARDS INITIAL ISSUE EXPENSES FOR L AUNCHING THESE THREE SCHEMES. AS PER THE COMPANIES ACT, THE ASSESSEE HA D DEFERRED THESE EXPENSES TO BE WRITTEN OFF OVER A PERIOD OF 5 YEARS WHEREAS IN THE RETURN OF INCOME, WHOLE OF THESE EXPENSES HAD BEEN CLAIMED AS ALLOWAB LE EXPENSES. THE AO OBSERVED THAT AS PER SEBI GUIDELINES, THE AMC WAS T O RECOVER THE INITIAL ISSUE EXPENSES OVER A PERIOD OF SUCCEEDING YEARS. THE IN ITIAL ISSUE EXPENSES WERE CONTINUING LIABILITIES FOR THE AMC TO BE ADJUSTED I N THE MANAGEMENT FEES OVER A NUMBER OF YEARS. HE FURTHER OBSERVED THAT THESE EXPENSES HAD TO SECURE A BENEFIT OVER A NUMBER OF YEARS AND THAT THE COMPANI ES ACT RECOGNIZES THE DEFERMENT OF INITIAL LAUNCH EXPENSES TO GIVE CORREC T PICTURE OF PROFITS OF THE BUSINESS. HE THEREFORE HELD THAT THE ASSESSEE COMP ANY WAS NOT ENTITLED TO ITA NOS.914 & 915/M/2010 M/S. BOB ASSETS MANAGEMENT CO. LTD. 3 DEDUCT WHOLE OF INITIAL LAUNCH EXPENSES OF RS.87,97 ,581/- IN A.Y. 2002-03 AND THAT THESE EXPENSES WERE REQUIRED TO BE DEFERRED OV ER A PERIOD OF YEARS. 4. IN APPEAL, THE LD. CIT(A), HOWEVER, DELETED THE ADDITIONS SO MADE BY THE AO WHILE RELYING UPON THE DECISION OF THE CO-OR DINATE BENCH OF THE TRIBUNAL IN THE CASE OF DSP MERRILL LYNCH INVESTME NT MANAGERS LTD. 15 SOT 639 WHEREIN IT HAS BEEN HELD THAT THERE IS NO B AR ON THE ASSESSEE TO INCUR THESE EXPENSES AND THAT THESE EXPENSES ARE ALLOWABL E IN THE YEAR IN WHICH THESE HAVE BEEN INCURRED. THE RELEVANT PART OF THE OBSER VATION OF THE LD. CIT(A) ARE REPRODUCED AS UNDER: 5. I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE A .R. AND I FIND THAT THE A.O. HAS AGREED THAT THESE EXPENSES A RE REVENUE IN NATURE. NEVERTHELESS HE IS OF THE VIEW THAT THE ASS ESSEE IS DERIVING ADVANTAGE OF ENDURING NATURE. THEREFORE, HE INTENDS TO SPREAD OVER THE EXPENSES OVER A PERIOD OF 10 YEARS. THE A. R. SUBMITTED THAT THERE IS NO CONCEPT OF DEFERRED REVE NUE EXPENDITURE. IF THE ASSESSEE HAS INCURRED SOME EXPE NDITURE FOR THE PURPOSE OF BUSINESS, THE SAME IS ALLOWABLE IN THE Y EAR IN WHICH IT IS INCURRED. IN THIS CASE THE ASSESSEE HAS INCURRED THE EXPENSES IN THIS YEAR. HENCE IT IS TO BE ALLOWED IN THIS YEA R ALTHOUGH THE ASSESSEE HAS SPREAD OVER THE EXPENSES IN PROFIT AND LOSS A/C. FOR FIVE YEARS. THERE IS NOTHING AGAINST ALLOWING THE EXPENS ES WHICH HAVE BEEN INCURRED BY THE ASSESSEE FOR THE PURPOSE OF TH E BUSINESS IN THIS YEAR. RELIANCE IS PLACED ON THE DECISION OF ITAT, M UMBAI, IN THE CASE OF DSP MERRILL LYNCH INVESTMENT MANAGERS LTD. (15 SOT 639) WHEREIN IT WAS HELD THAT THERE IS NO BAR ON THE ASSESSEE TO INCUR THESE EXPENSES. OTHERWISE ALSO THERE IS NO DISPUTE IN GENUINENESS O F THESE EXPENSES. THE ASSESSEE INCURRED THESE EXPENSES AS PART AND PARCEL OF THE PROFIT MAKING ACTIVITY. IT HAS A DIRECT NEXUS WITH THE ASSESSEE S OWN BUSINESS OF ASSET MANAGEMENT. HENCE, THIS GROUND OF APPEAL IS ALLOWE D. 5. WE FURTHER FIND THAT THE ISSUE IS NOW SQUARELY C OVERED WITH ANOTHER DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL I N THE CASE OF ACIT VS. STANDARD CHARTERED ASSET MANAGEMENT CO. PVT. LTD. IN ITA NO.4330/M/2008 DECIDED ON 23.07.2010 WHEREIN THE TRIBUNAL IN IDENT ICAL FACTS HAS HELD THAT THE DISALLOWANCE OF EXPENDITURE IN RESPECT OF LAUNCHING OF OPEN ENDED MUTUAL FUND ITA NOS.914 & 915/M/2010 M/S. BOB ASSETS MANAGEMENT CO. LTD. 4 SCHEMES ARE ALLOWABLE AS REVENUE EXPENDITURE IN THE YEAR IN WHICH THE SAME HAVE BEEN OCCURRED. THE RELEVANT PART OF THE ORDER OF THE TRIBUNAL IS REPRODUCED AS BELOW: 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS THERE IS NO DISPUTE THAT THE EXPENSES INCURRED B Y THE ASSESSEE ON ADVERTISEMENT, COURIER, MARKETING AND CONSULTANCY IN RESPECT OF 'O PEN ENDED' SCHEME AMOUNTING TO RS.66,25,941/- ARE REVENUE IN NATURE. HOWEVER, T HE ASSESSING OFFICER WAS OF THE VIEW THAT THE SAID EXPENSES ARE TO BE AMORTIZED OVE R FIVE YEARS AND HENCE HE ALLOWED ONLY 1/5TH OF THE SAME AND DISALLOWED THE B ALANCE AMOUNT OF RS.53,00,753/-. 8. IN ASHIMA SYNTEX LTD. SUPRA, THE SPECIAL BENCH O F THE TRIBUNAL AFTER CONSIDERING THE DECISION OF HON'BLE SUPREME COURT IN MADRAS IND USTRIAL INVESTMENT CORPN. LTD. VS. CIT (1997) 225 ITR 802 HAS OBSERVED AT PARA-14 APPEARING AT PAGE- 16 OF 117 ITD AS UNDER : '14. TO CONCLUDE, THE POSITION EMERGING FROM THE AB OVE DISCUSSION CAN BE SUMMED UP AS FOLLOWS :- - THE NATURE OF THE EXPENDITURE TREATED AS A 'DEFER RED REVENUE EXPENDITURE' IN THE BOOKS NEEDS TO BE PROPERLY ANALYSED BEFORE T AKING A VIEW ON ITS ALLOWABILITY OR OTHERWISE UNDER THE PROVISIONS OF T HE ACT; - WHERE SUCH EXPENDITURE RESULTS IN THE CREATION OF ANY CAPITAL ASSET (TANGIBLE OR INTANGIBLE), A CASE CAN BE MADE OUT TO TREAT THE SAME AS A CAPITAL EXPENDITURE WITH CORRESPONDING ALLOWABILITY OF DEPRECIATION IN ACCORDANCE WITH LAW; - IN CASES WHERE THE NATURE OF THE REVENUE EXPENDIT URE IS SUCH THAT THE SAME CAN BE CLEARLY AND UNAMBIGUOUSLY IDENTIFIED OV ER SPECIFIED FUTURE TIME PERIOD (E.G., DISCOUNT ON ISSUE OF DEBENTURES) AKIN TO PRE-PAID EXPENSES THE SAME WOULD BE ALLOWABLE OVER THE PERIOD TO WHICH TH ESE RELATE PROPORTIONATELY, APPLYING THE MATCHING PRINCIPLE. - IN OTHER CASES WHERE THE SAME DOES NOT RESULT IN THE CREATION OF ANY CAPITAL ASSET OR WHERE THE SAME IS NOT ALLOCABLE OV ER DEFINED FUTURE TIME PERIODS THERE CAN BE NO CASE FOR AMORTISING THE SAM E UNDER THE ACT OVER THE EXPECTED PERIOD OVER WHICH THE BENEFIT IS LIKELY TO ARISE THEREFROM SINCE IN SUCH CASES THE EXPENDITURE IS ESSENTIALLY REVENUE I N NATURE BUT IS AMORTISED IN THE BOOKS ONLY ON ACCOUNT OF SOME OTHER CONSIDER ATIONS.' ITA NOS.914 & 915/M/2010 M/S. BOB ASSETS MANAGEMENT CO. LTD. 5 9. APPLYING THE ABOVE TEST TO THE FACTS OF THE PRES ENT CASE WE FIND THAT THERE IS NOTHING TO SUGGEST THAT WITH THE SAID EXPENDITURE, ANY ASSET, TANGIBLE OR INTANGIBLE, HAS BEEN CREATED. THERE IS NO EVIDENCE ON RECORD RE GARDING ACCRUAL OF ANY SPECIFIC REVENUE OVER THE YEARS. THIS BEING SO AND KEEPING I N VIEW THAT THE ASSESSING OFFICER HIMSELF ADMITTED THAT THE SAID EXPENSES ARE REVENUE IN NATURE WE ARE OF THE VIEW THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT SUSTAINABLE IN LAW AND ACCORDINGLY WE ARE INCLINED TO UPHOLD THE FINDING O F THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS.53.00,753/-. THE GROUNDS TAKEN B Y THE REVENUE ARE THEREFORE, REJECTED. 10. IN THE RESULT, REVENUE'S APPEAL STANDS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 23.7.2010. 6. THE ISSUE IS THUS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF THE CO-ORDINATE BENCH OF THE TRIBUNAL. WE THEREFORE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN ACC EPTING THE CLAIM OF THE ASSESSEE ON IDENTICAL FACTS. ACCORDINGLY, THE APPE AL OF THE ASSESSEE IS THEREFORE DISMISSED. ITA NO.915/M/2010 FOR A.Y. 2003-04 7. THE FACTS AND ISSUES INVOLVED IN REVENUES APPEA L FOR A.Y. 2002-03 ARE IDENTICAL IN NATURE AND IN VIEW OF FINDINGS GIVEN A BOVE, THIS APPEAL OF THE REVENUE FOR A.Y. 2003-04 IS ALSO DISMISSED. 8. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE HEREBY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.07.2015. SD/- SD/- (G.S. PANNU) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 31.07.2015. * KISHORE, SR. P.S. ITA NOS.914 & 915/M/2010 M/S. BOB ASSETS MANAGEMENT CO. LTD. 6 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.