DCIT, Circle-3(1), Hyderabad V. M/s Share Microfin Ltd., Hyderabad

MA 29/HYD/2014

• Counselvise Citation: [2014] 124 COUNSELVISE.COM (IT) 1635 (ITAT-HYDERABAD)
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 21-03-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 13-01-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: A G SITARAMAN
• Keywords: Revenue expenditure
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER MA NO.29/HYD/2014 (IN ITA NO.455/HYD/12) : ASSESSMENT YEAR 2008 - 09 DY. COMMISSIONER OF INCOME - TAX CIRCLE 3(1), HYDERABAD V/S. M/S. SHARE MICROFIN LTD., HYDERABAD ( PAN - AAECS 9243 C) (APPLICANT) (RESPONDENT) APPLICANT BY : SMT. K.HARITHA RESPONDENT BY : SHRI A.G.SITARAMAN DATE OF HEARING 07.03.2014 DATE OF PRONOUNCEMENT 21.3.2014 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER: BY I T S APP LICATION UNDER S.254(2) OF THE INCOME - TAX ACT, 1961, REVENUE SEEKS RECTIFICATION/RECALL OF THE ORDER OF THIS TRIBUNAL DATED 7.6.2013 IN ITA NO.455/HYD/2012 FOR THE ASSESSMENT YEAR 2008 - 09, ON THE GROUND THAT CERTAIN MISTAKE APPARENT FROM RECORD HA S CREPT INTO THE SAID ORDER , ON ACCOUNT OF NON - ADJUDICATION, ON THE PART OF THE TRIBUNAL , OF THE FOLLOWING GROUND RAISED BY THE REVENUE, IN ITS SAID APPEAL - (2) THE LEARNED CIT(A) SHOULD HAVE UPHELD THE ADDITION ON ACCOUNT O F DISALLOWANCE OF SOCIAL DEVELOPMENT EXPENSES AND SOCIAL SECURITY EXPENSES, AS THE SAME WI LL GIVE ENDURING BENEFIT TO THE ASSESSEE IN FORM OF GOODWILL. 2. WE HEARD BOTH SIDES AND PERUSED OUR ORDER DATED 7.6.2013 IN THE LIGHT OF THE MATERIAL AVAILABLE ON RECORD AND AVERMENTS MADE IN THE PRESENT APPLICATION. WE FI ND THAT THE ABOVE GROUND HAS INDEED BEEN RAISED BY THE REVENUE IN ITS APPEAL ITA NO.455/HYD/2012, B UT THE SAME HAS INADVERTENTLY BEEN OMITTED TO BE ADJUDICATED UPON BY THIS TRIBUNAL. WE ACCORDINGLY, AS PRONOUNCED IN THE COURT, PROCEED HEREUNDER, TO DISPOSE OF THE SAID GROUND O F MA 29/HYD/2014 (IN ITA NO.455/HYD/2012) M/S. SHARE MICROFIN LTD., HYDERABAD 2 APPEAL RAISED BY THE REVENUE , BY MODIFYING OUR ORDER DATED 7 TH JUNE, 2013, BY WITH THE FOLLOWING PARAS AFTER PARA 13 ON PAGE 5 THEREOF, AND DELETING PARA 14 ON PAGE 5 OF THE SAID ORDER DATED 7 TH JUNE, 2013. 14 . AS FOR GROUND NO.3 RELATING TO DISALLOWANCE OF SOCIAL DEVELOPMENT EXPENSES AND SOCIAL SECURITY EXPENSES, F ACTS , IN BRIEF RELATING TO DISALLOWANCE IN DISPUTE, ARE THAT THE ASSESSING OFFICER NOTICED THAT AS PER SCHEDUL E 18 TO TH E PROFIT & LOSS ACCOUNT, THE ASSESSEE CLAIMED TOTAL EXPENDITURE OF RS.18,47,5 4,661. OUT OF TH E SAME, RS.1,96,18,940 HAD BEEN CLAIMED AS MISC. EXP E NSES . FROM TH E D E TAILS O F T H E SAID MI S C. E XPENSES, THE ASSESSING OFFICER NO T ICE D THAT THE ASSESSEE HAD INCURRED AN AMOUNT OF RS.7,88,909 TOW A RDS SOCIAL D EVELOPMENT AND CAPACITY B UILDI NG E XPENDITURE , BESIDES SPENDING R S .14,78,065 TOWARDS SOCIAL SECURITY EXPENSES . IT WAS EXPLAIN E D BEFORE THE ASSESSING OFFICER THAT SOCIAL DEVELOPMENT ACTIVITIES LIKE EDU C ATION, HEALTH, CLEANLINESS, DRINKING WATER, UPGRADATION OF HOUSES, PRESERVING ENVIR ONMENT AND ECOLOGY, SELF GOVERNING IS S UES WERE ALL PART OF THE SOCIAL DEVE L OPMENT PROGR A M M E . BESIDES, IT WAS STA T ED THAT SUCH EXPENDITURE WAS ALSO CO M PRISED OF H E LP TO THEIR MEMBERS IN P R O B LEMS LIKE HOU S E B U R N ING , FLOODS, ETC., AND SUCH EXPENDITURE ALSO IMPROVED THE STAN D A R D OF THE WOMEN JOINING THE PROGRAMME. 1 5 . THE ASSESSING OFFICER WAS OF THE VIEW THAT THE EXPENDITURE IN QUESTION W AS FOR EAR N ING GOOD W ILL FOR THE ASSESSEE S OPERATIONS AND TO PENETRATE THE M A RK E T, POPULATED WITH VARIOUS MFIS. HE NO T ED THAT T H E ASSESSEE WAS PRIMARILY A MICRO FINAN C E INSTI T UTION FOR SELF HELP G R OUPIN G RURAL AREAS. HE FEL T TH A T T H E LOAN SEEKERS FO R M A GROUP AND LOANS ARE DISBURSED TO THEM FOR GENERAL OR SPECIFIC PU R PO SE S BASED ON THE APPROVAL O F TH E G R OUP. TH E G R OUP ITSELF MONITORS THE REPAYMENT SCHEDULES AND ENFORCES REPAYMENT. THE ASSESSING OFFICER FELT THAT IT IS FOR TH E SE GROUP ACTIVIT I ES THAT MA 29/HYD/2014 (IN ITA NO.455/HYD/2012) M/S. SHARE MICROFIN LTD., HYDERABAD 3 THE ASSESSEE IS REQUIRED TO UN D ERTAKE GROUP DEVELOPMENT AN D CAPACITY BUILDING EXPENDITURE, AND THEREFORE, SUCH EXPENDITURE BRINGS INTO EXISTENCE ADVANTAGE WHOSE BENEFITS CAN BE HARVESTED IN FUTURE OPERATION S . ACCOR D INGLY, TH E ASSESSING OFFICER CON C LU D ED THAT THE EXPENDITURE INCURRED T H ER E ON CANNO T B E TR E ATED AS REVENUE EXPENDITURE , BUT HAS TO BE TR E ATED AS DEFERRED RE VE NUE EX PENDITURE , WHICH SHOULD BE AMORTIZED OVER A PERIOD OF TIME . FURTHER, THE ASSESSING OFFICER F ELT THAT THE ACTIVITIES UNDERTAKEN ARE FOR MARKET VISIBI LIT Y O F TH E MICRO FINANCE INSTITUTIONS AND CREATES GOO D WILL O F THE COMPANY. IT HELP S NOT ONLY IN ENTERTAI N IN G TH E EXISTING CUSTOMERS, BU T ALSO IN MAKING DENT INTO THE COMPETITION. CONSIDERING ALL TH E SE ASPECTS, THE ASSESSING OFFICER HELD THAT THE EXPENDITURE IN QUESTION HAS TO BE TREATED TO BE TREATED AS DEFERRED REVENUE EXPENDITURE AND ACCORDINGLY ALLOWED 20% OF RS.22,66,974 UND E R S.35D, DISALLO W IN G THE BALANCE 8 0 % OF RS.18,13,579. 1 6. ON APPEAL, THE CIT(A), FOLLOWING THE ORDER OF THE FIRST APPELLATE AUTHORITY IN ASSESSEES OWN CA S E DATED 28 . 1 . 2010 FOR TH E ASSESSMENT YEAR 2006 - 07, DELETED THE DISALLOWANCE M ADE BY THE ASSESSING OFFICER. AGGRI E VED, R E VENUE IS IN APPEAL BEFORE US. 1 7. WE HEARD BOTH SIDES ON THE GROUND TAKEN BY THE REVENUE WITH RE G ARD TO THE ABOVE DISALLOWANCE. WE FIND THAT THE IMPUGNED ORDER OF TH E CIT(A) , AS NOTED ABOVE , IS BASED ON THE DECISION OF THE CIT(A) IN ASSESSEES OWN CASE FOR TH E ASSESSMENT YEAR 2006 - 07, DATED 29.1.2010 . I T HAS BEEN BROUGHT TO OUR NOTICE THAT THE SAID ORDER OF THE CIT(A) FOR THE ASSESSMENT YEAR 2006 - 07 , HAS BECOME SUBJECT MATTER OF APPEAL BEFORE THE TRIBUNAL IN ITA NO.680/HYD/2010, AND THE TRIBUNAL VIDE ITS ORDER DATED 4.7.2013, HAS UPHELD THE ORDER OF THE CIT(A) , FOLLOWING THE DECISION OF COORDINATE BENCH OF THE TRIBUNAL IN THE C A SE OF AMARRAJA BATTERI E S ( 272 ITR (AT) 17 ). IN THIS VIEW OF THE MATTER, WE FIND NO INFIRMITY MA 29/HYD/2014 (IN ITA NO.455/HYD/2012) M/S. SHARE MICROFIN LTD., HYDERABAD 4 IN THE IMPUGNED O R DER OF T H E CIT(A), WHICH IS ACCORDINGLY CONFIRMED AND THE GROUND OF THE REVENUE ON THIS ISSUE, IS REJECTED. 1 8. IN THE RESULT, THE APPEAL OF THE REVENUE , IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 4 . IN THE RESULT, THE M ISCELLANEOUS APPLICATION OF THE REVENUE IS ALLOWED , AND THE ORDER OF THE TRIBUNAL DATED 7.6.2013, IS MODIFIED AS DETAILED ABOVE. ORDER PRONOUNCED IN THE COURT ON 21.3.2014 SD/ - SD/ - (CHANDRA POOJARI ) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/ - 21 ST MARCH, 2014 COPY FORWARDED TO: 1. M/S. SHARE MICROFIN LTD., 1 - 224/58, RAJEEV NAGAR, NACHARAM, HYDERABAD 2 . DY COMMISSIONER OF INCOME - TAX CIRCLE 3(1), HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) IV HYDERABAD 4. COMMISSIONER OF INCOME - TAX III, HYDERABAD 5 DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S