Income Tax Appellate Tribunal - Mumbai
Ask Property Investment Advisors ... vs Asst Cir 2(1)(1), Mumbai on 4 October, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL "A", BENCH MUMBAI BEFORE SHRI MAHAVIR SINGH, JM & SHRI M.BALAGANESH, AM ITA No.1810/Mum/2017 & 1635/Mum/2016 (Assessment Year : 2012-13& 2010-11) M/s. Ask Property Vs. Assistant Commissioner of Investment Advisors Private Income Tax, Circle 2(1)(1) Limited Mumbai Biral Aurora, 16 Level, Office Floor 9 Dr. Annie Besant Road Worli, Mumbai - 400030 PAN/GIR No. AAHCA5652N (Appellant) .. (Respondent) Assessee by Shri J.D. Mistry Revenue by Ms. Samatha Mullamudi Date of Hearing 26/09/2019 Date of Pronouncement 04/10/2019 आदे श / O R D E R PER M. BALAGANESH (A.M):
These appeals in ITA No.1810/Mum/2017 & 1635/Mum/2016 for A.Y.2012-13 & 2010-11 respectively arise out of the order by the ld. Commissioner of Income Tax (Appeals)-3, Mumbai in appeal No.CIT(A)- 3/IT-47/ACIT-2(1)(1)/16-17 & CIT(A)-4/IT-117/DCIT-2(1)(1)/13-14 respectively dated 07/12/2016 & 11/02/2015 respectively (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 29/01/2015, 23/03/2013 respectively by the ld. Asst. Commissioner of Income Tax, 2 ITA Nos.1810/Mum/2017 & 1635/Mum/2016 M/s. Ask Property Investment Advisors Pvt. Ltd., Circle 2(1)(1), & Dy. Commissioner of Income Tax, Circle-2(1) respectively Mumbai (hereinafter referred to as ld. AO). As the issues involved are identical in both these appeals, they are taken up together and disposed off by this common order for the sake of convenience.
2. The only issue to be decided in this appeal is as to whether the ld CITA was justified in upholding the disallowance of Client Referral Fees in the sum of Rs 8,67,18,139/- in the facts and circumstances of the case.
3. The brief facts of this issue are that the assessee company was incorporated on 19.1.2009 and engaged in the business of assisting real estate/ property related funds ; in mobilizing investments and providing advisory and consultancy services in the areas of development, management and investments; in the real estate, infrastructure and utilities development; and project finance. During the year under consideration, the assessee was appointed as advisors and distributors for a term of 5 + 2 years by associate concern M/s Ask Investment Managers Private Limited, to assist them in mobilizing investments and providing advisory and consultancy services for their new real estate fund named as "ASK PMS Real Estate Special Opportunities - Portfolio I" (hereinafter referred to as „the Fund‟) which was closed on 29.12.2009. As the assessee‟s infrastructure was not fully ready in the year under consideration, to carry out its obligations, the assessee was required to utilize the marketing channels of M/s ASK Investment Managers Private Limited, to market and distribute the Fund. As per the Income Agreement, the assessee was entitled to receive set up fee and investment advisory fee in the range of 1 % to 2% of the value of funds under management as well as performance fee, depending on performance of the Fund, in consideration of services to be provided by the assessee. Further, all the marketing costs incurred for raising 3 ITA Nos.1810/Mum/2017 & 1635/Mum/2016 M/s. Ask Property Investment Advisors Pvt. Ltd., subscriptions to the Fund were to be reimbursed to M/s ASK Investment Managers Private Limited on actual basis and borne by the assessee. The ld AO observed that the assessee had incurred expenditure on client referral fee for sourcing clients and introducing them to the Fund aggregating to Rs 10,11,71,162/- as per the agreements with various third parties. The details of the said expenditure are as under:-
M/s ASK Wealth Advisors Pvt Ltd - Rs 8,57,00,000/-
M/s ICICI Bank Ltd - Rs 1,21,12,500/-
M/s Tata Capital Ltd - Rs 2,43,750/-
M/s Destimoney Enterprises Pvt Ltd - Rs 73,662/-
M/s JM Financial Services Pvt Ltd - Rs 8,93,750/-
Ms. Heena Shah - Rs 60,000/-
Ms. Anjana Kothari - Rs 75,000/-
M/s Religare Macquarie Wealth Mgmt Ltd - Rs 20,12,500/-
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Rs 10,11,71,162/-
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3.1. The expenditure on Client Referral Fees was debited to the Profit and Loss Account and claimed as deduction in the return of income. The assessee submitted that it had earned one time set up fees of Rs 3.17 crores for raising the aggregate funds of Rs 317.52 crores during the year. The assessee also had earned investment advisory fees of Rs 1.25 crores. Thus the total income earned by way of fees during the year under consideration was Rs 4.42 crores. The ld AO accepted the primary fact of incurrence of Client Referral Fees being revenue in nature, but however observed that since the assessee would get benefit of the expenditure on Client Referral Fees over a period of 7 years, the assessee would be entitled for deduction of only 1/7 th of the total expenditure incurred during the year under consideration in the computation of total income. Accordingly he allowed deduction of 1/7th which worked out to Rs 1,44,53,023/- ( 10,11,71,162 / 7) and disallowed the remaining 6/7 th portion of Client Referral Fee of Rs 8,67,18,139/- ( 10,11,71,162 * 6 /7) .
4 ITA Nos.1810/Mum/2017 & 1635/Mum/2016M/s. Ask Property Investment Advisors Pvt. Ltd.,
4. The ld CITA however observed that the Client Referral Fee expenditure is not of the assessee as all invoices / debit notes were in the name of ASK Investment Managers Private Limited and that the assessee had not been able to demonstrate with evidence that it had done any work for which expenditure of Rs 10,11,71,162/- was incurred. With these observations, the ld CITA upheld the action of the ld AO. In other words, the ld CITA having given the aforesaid observation that Client Referral Fee was not incurred by the assessee, but allowed deduction of 1/7th of the total expenditure by upholding the action of the ld AO.
5. Aggrieved, the assessee is in appeal before us for upholding the disallowance of remaining 6/7th portion of the total Client Referral Fee expenditure. The Revenue did not prefer any appeal against the order of the ld CITA before us.
6. We have heard the rival submissions and perused the materials available on record and the paper book filed by both the parties including the judicial pronouncements relied upon by both the sides before us at the time of hearing. The primary facts stated hereinabove remain undisputed and hence the same are not reiterated herein for the sake of brevity. We find lot of force in the argument of the ld AR that as per Clause 8 and Clause 10 of the Income Agreement (enclosed in page 22 of the paper book before us), the assessee was required to utilize the marketing channel of M/s ASK Investment Managers Private Limited and reimburse the actual cost. In terms of the above arrangement, the assessee had taken support of referral partners of M/s ASK Investment Managers Private Limited to mobilize subscriptions to the Fund. The referral partners have raised their invoices / debit notes on M/s ASK Investment Managers Private Limited who had in turn recovered actual 5 ITA Nos.1810/Mum/2017 & 1635/Mum/2016 M/s. Ask Property Investment Advisors Pvt. Ltd., costs from the assessee. The ld AR in response to the finding of the ld CITA that assessee had not been able to demonstrate any work done by them for which expenditure on Client Referral Fee was incurred, submitted that the assessee had taken support of the referral partners to procure leads of potential investors, had meetings with them, discussed about the investment opportunities in the Fund and had them invested in the Fund.
6.1. We find that the ld AO had in principle agreed that the Client Referral Fees of Rs 10,11,71,162/- is incurred by the assessee and it is revenue in nature. But according to ld AO, since the assessee would get benefit of the expenditure on Client Referral Fees over a period of 7 years, he treated the said expenditure as a deferred revenue expenditure and granted deduction of 1/7th thereon in the sum of Rs 1,44,53,023/-. The disputed portion is 6/7th portion of expenditure before us i.e Rs 8,67,18,139/-. The ld AO in support of his contention had placed reliance on the decision of Hon‟ble Jurisdictional High Court in the case of Taparia Tools Ltd vs JCIT reported in 260 ITR 102 (Bom) among others. We find that this decision of Hon‟ble Bombay High Court had been subsequently reversed by the Hon‟ble Supreme Court in the case of Taparia Tools Ltd vs JCIT reported in 372 ITR 605 (SC) . The brief facts of this case and decision rendered thereon are as below:-
5. In the assessment orders passed by the LD AO, the assessee's claim for deduction of upfront interest payment was denied. Instead, the LD AO chose to spread it over a period of five years thereby giving deduction only to the extent of 1/5th each in the respective assessment years. The order of the LD AO was challenged by the assessee in appeals preferred before the Commissioner of Income Tax (Appeals). The Commissioner, however, dismissed the appeals thereby sustaining the orders passed by the LD AO. The assesee then approached the Income Tax Appellate Tribunal and thereafter the High Court of Bombay but was unsuccessful as the appeals preferred by him before the two fora have been dismissed maintaining the method of deduction adopted by the LD AO. To put it otherwise, instead of entire amount paid by the assessee in the particular assessment year, full deduction is not given and this 6 ITA Nos.1810/Mum/2017 & 1635/Mum/2016 M/s. Ask Property Investment Advisors Pvt. Ltd., deduction is spread over a period of five years. Thus, the question is as to whether deduction of the entire amount of interest paid should be allowed or the stance of Revenue needs to be affirmed.
8. Ignoring the proviso and the explanation in clause (iii) above, with which we are admittedly not concerned in this case, it is clear that as per the aforesaid provision any amount on account of interest paid becomes an admissible deduction under Section 36 if the interest was paid on the capital borrowed by the assessee and this borrowing was for the purpose of business or profession.
There is no quarrel, in the present case, that the money raised on account of issuance of the debentures would be capital borrowed and the debentures were issued for the purpose of the business of the assessee. In such a scenario when the interest was actually incurred by the assessee, which follows the mercantile system of accounting, on the application of this statutory provision, on incurring of such interest, the assessee would be entitled to deduction of full amount in the assessment year in which it is paid. While examining the allowability of deduction of this nature, the LD AO is to consider the genuineness of business borrowing and that the borrowing was for the purpose of business and not an illusionary and colourable transaction. Once the genuineness is proved and the interest is paid on the borrowing, it is not within the powers of the LD AO to disallow the deduction either on the ground that rate of interest is unreasonably high or that the assessee had himself charged a lower rate of interest on the monies which he lent. In the instant case, the LD AO did not dispute that the non-convertible debentures were issued and money raised for business purposes. The LD AO did not even dispute the genuineness of clause relating to upfront payment of interest in the first year itself as per the option to be exercised by the debenture holder. In nutshell, the LD AO did not dispute that the expenditure on account of interest was genuinely incurred. Therefore, there is no dispute that interest has, in fact, been 'paid' during the year of accounting. The definition of 'paid' is contained in Section 43(2) of the Act to mean actually paid or incurred according to the method of accounting. To be precise, this definition is couched in the following language:
"S.43 In sections 28 to 41 and in this section, unless the context otherwise requires -
Xx xx xx (2) "paid" means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head "Profits and gains of business or profession";
Xx xx xx"
As per the aforesaid definition, even if the amount is not actually paid but 'incurred', according to the method of accounting, the same would be treated as 'paid'. Since the assessee was following mercantile system of accounting, the amount of interest could be claimed as deduction even if it was not actually paid but simply 'incurred'. However, in the instant case, it is not in dispute that the amount of interest was actually paid as well in the assessment year in which it was claimed.7 ITA Nos.1810/Mum/2017 & 1635/Mum/2016
M/s. Ask Property Investment Advisors Pvt. Ltd., As per the aforesaid definition, even if the amount is not actually paid but 'incurred', according to the method of accounting, the same would be treated as 'paid'. Since the assessee was following mercantile system of accounting, the amount of interest could be claimed as deduction even if it was not actually paid but simply 'incurred'. However, in the instant case, it is not in dispute that the amount of interest was actually paid as well in the assessment year in which it was claimed.
9. The only reason which persuaded the LD AO to stagger and spread the interest over a period of five years was that the term of debentures was five years and that the assessee had itself given this very treatment in the books of accounts, viz, spreading it over a period of five years in its final accounts by not debiting the entire amount in the first year to the Profit and Loss account and it has, in fact, debited 1/5th of the interest paid to the Profit and Loss account from the second year onwards. The High Court, in its impugned judgment, has based its reasoning on the second aspect and applied the principle of 'Matching Concept' to support this conclusion.
10. Insofar as the first reason, namely, non-convertible debentures were issued for a period of five years is concerned, that is clearly not tenable. While taking this view, the LD AO clearly erred as he ignored by ignoring the terms on which debentures were issued. As noted above, there were two methods of payment of interest stipulated in the debenture issued. Debenture holder was entitled to receive periodical interest after every half year @ 18% per annum for five years, or else, the debenture holder could opt for upfront payment of Rs.55 per debenture towards interest as one time payment. By allowing only 1 /5th of the upfront payment actually incurred, though the entire amount of interest is actually incurred in the very first year, the LD AO, in fact, treated both the methods of payment at par, which was clearly unsustainable. By doing so, the LD AO, in fact, tampered with the terms of issue, which was beyond his domain. It is obvious that on exercise of the option of upfront payment of interest by the subscriber in the very first year, the assessee paid that amount in terms of the debenture issue and by doing so he was simply discharging the interest liability in that year thereby saving the recurring liability of interest for the remaining life of the debentures because for the remaining period the assessee was not required to pay interest on the borrowed amount.
11. The next question which arises for consideration is as to whether the assessee was estopped from claiming deduction for the entire interest paid in the year in which it was paid merely because it had spread over this interest in its books of account over a period of five years. Here, the submission of learned counsel for the assessee was that there is no such estoppel, inasmuch as, the treatment of a particular entry (or for that matter interest entered in the instant case) in the books of accounts is entirely different from the treatment which is to be given to such entry/expenditure under the Act. His contention was that assessment was to be made in accordance with the provisions of the Act and not on the basis of entries in the books of accounts. His further argument was that had the assessee not claimed the payment of entire interest amount as tax in the income tax returns and had claimed deduction over a period of five years treating it as deferred interest payment, perhaps the LD AO would have been 8 ITA Nos.1810/Mum/2017 & 1635/Mum/2016 M/s. Ask Property Investment Advisors Pvt. Ltd., right in accepting the same in consonance with the accounting treatment which was given. However, learned counsel pointed out that in the instant case the assessee had filed the income tax return claiming the entire deduction which was allowable to it under the provisions of Section 36(1)(iii) of the Act as all the conditions thereof were fulfiled and, thus, it was exercising the statutory right which could not be denied.
12. We find that the High Court has taken into consideration the provisions of Section 36(1)(iii) of the Act and the conditions which are to be fulfiled for allowing the deduction on this account in the following words:
"...The term "interest" has been defined under Section 2(28A) of the Act. Briefly, interest payment is an expense under Section 36(1)(iii). Interest on monies borrowed for business purposes is an expenditure in a business [see 35 ITR 339 - Madras]. For claiming deduction under Section 36(1)(iii), the following conditions are required to be satisfied viz. the capital must have been borrowed; it must have been borrowed for business purpose and the interest must be paid. The word "Paid" is defined in Section 43(2). It means payment in accordance with the method followed by the assessee. In the present case, therefore, the word "Paid" in Section 36(1 )(iii) should be construed to mean paid in accordance with the method of accounting followed by the assessee i.e. Mercantile System of accounting..."
Notwithstanding the aforesaid, the High Court chose to decline the whole deduction in the year of payment, thereby affirming the orders of the authorities below, by invoking the 'Matching Concept'. It is observed by the High Court that under the mercantile system of accounting, book profits are liable to be taxed and in order to determine the net income of an Accounting Year, the revenue and other incomes are to be matched with the cost of resources consumed (expenses). For this reason, in the opinion of the High Court, this matching concept is required to be done on accrual basis. As per the High Court, in this case, payment of Rs.55 per debenture towards interest was made, which pertained to five years, and, thus, this interest of five years was paid in the first year. We are of the opinion that it is here the High Court has gone wrong and this approach resulted in wrong application of Matching Concept. It is emphasized once again that as per the terms of issue, the interest could be paid in two modes. As per one mode, interest was payable every year and in that case it was to be paid on six monthly basis @ 18% per annum. In such cases, the interest as paid was claimed on yearly basis over a period of five years and allowed as well and there is no dispute about the same. However, in the second mode of payment of interest, which was at the option of the debenture holder, interest was payable upfront, which means insofar as interest liability is concerned, that was discharged in the first year of the issue itself. By this, the assessee had benefited by making payment of lesser amount of interest in comparison with the interest which was payable under the first mode over a period of five years. We are, therefore, of the opinion that in order to be entitled to have deduction of this amount, the only aspect which needed examination was as to whether provisions of Section 36(1)(iii) read with Section 43(ii) 9 ITA Nos.1810/Mum/2017 & 1635/Mum/2016 M/s. Ask Property Investment Advisors Pvt. Ltd., of the Act were satisfied or not. Once these are satisfied, there is no question of denying the benefit of entire deduction in the year in which such an amount was actually paid or incurred.
13. The High Court has also observed that it was a case of deferred interest option. Here again, we do not agree with the High Court. It has been explained in various judgments that there is no concept of deferred revenue expenditure in the Act except under specified sections, i.e. where amortization is specifically provided, such as Section 35-D of the Act.
14. What is to be borne in mind is that the moment second option was exercised by the debenture holder to receive the payment upfront, liability of the assessee to make the payment in that very year, on exercising of this option, has arisen and this liability was to pay the interest @ Rs.55 per debenture. In Bharat Earth Movers v. Commissioner of Income Tax (2000) 6 SCC 645, this Court had categorically held that if a business liability has arisen in the accounting year, the deduction should be allowed even if such a liability may have to be quantified and discharged at a future date. Following passage from the aforesaid judgment is worth a quote:
"The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be disharged is not certain."
The present case is even on a stronger footing inasmuch as not only the liability had arisen in the assessment year in question, it was even quantified and discharged as well in that very accounting year.
15. Judgment in Madras Industrial Investment Corporation Limited v. Commissioner of Income Tax, (1997) 4 SCC 666 was cited by the learned counsel for the Revenue to justify the decision taken by the courts below. We find that the Court categorically held even in that case that the general principle is that ordinarily revenue expenditure incurred wholly and exclusively for the purpose of business is to be allowed in the year in which it is incurred. However, some exceptional cases can justify spreading the expenditure and claiming it over a period of ensuing years. It is important to note that in that judgment, it was the assessee who wanted spreading the expenditure over a period of time and had justified the same. It was a case of issuing debentures at discount; whereas the assessee had actually incurred the liability to pay the discount in the year of issue of debentures itself. The Court found that the assessee could still be allowed to spread the said expenditure over the entire period of five years, at the end of which the debentures were to be redeemed. By raising the money collected under the said debentures, the assessee could utilise the said amount and secure the benefit over number of years. This is discernible from the 10 ITA Nos.1810/Mum/2017 & 1635/Mum/2016 M/s. Ask Property Investment Advisors Pvt. Ltd., following passage in that judgment on which reliance was placed by the learned counsel for the Revenue herself:
" The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of Rs.3,00,000 in that accounting year. This conclusion does not appear to be justified looking to the nature of the liability. It is true that the liability has been incurred in the accounting year. But the liability is a continuing liability which stretches over a period of 12 years. It is, therefore, a liability spread over a period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Thus in the case of Hindustan Aluminium Corporation Ltd. vs. CIT, (1982) 30 CTR (Cal) 363: (1983) 144 ITR 474 (Cal) the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure technical assistance and training over a number of years and allowed a proportionate deduction in the accounting year in question.
Issuing debentures at a discount is another such instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures."
16. Thus, the first thing which is to be noticed is that though the entire expenditure was incurred in that year, it was the assessee who wanted the spread over. The Court was conscious of the principle that normally revenue expenditure is to be allowed in the same year in which it is incurred, but at the instance of the assessee, who wanted spreading over, the Court agreed to allow the assessee that benefit when it was found that there was a continuing benefit to the business of the company over the entire period.
17. What follows from the above is that normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if the assessee claims that expenditure in that year, the IT Department cannot deny the same. However, in those cases where the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of 'Matching Concept' is satisfied, which upto now has been restricted to the cases of debentures.
18. In the instant case, as noticed above, the assessee did not want spread over of this expenditure over a period of five years as in the return filed by it, it had claimed the entire interest paid upfront as deductible expenditure in the same year. In such a situation, when this course of action was permissible in law to 11 ITA Nos.1810/Mum/2017 & 1635/Mum/2016 M/s. Ask Property Investment Advisors Pvt. Ltd., the assessee as it was in consonance with the provisions of the Act which permit the assessee to claim the expenditure in the year in which it was incurred, merely because a different treatment was given in the books of accounts cannot be a factor which would deprive the assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in the books of accounts are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act [See - Kedarnath Jute Manufacturing Co. Ltd. v. Commissioner of Income Tax (Central), Calcutta, (1972) 3 SCC 252; Tuticorin Alkali Chemicals & Fertilizers Ltd., Madras v. Commissioner of Income Tax, Madras, (1997) 6 SCC 117 ; Sutlej Cotton Mills Ltd. v. Commissioner of Income Tax, Calcutta, (1978) 4 SCC 358; and United Commercial Bank, Calcutta v. Commissioner of Income Tax, WB-III, Calcutta, (1999) 8 SCC 338].
19. At the most, an inference can be drawn that by showing this expenditure in a spread over manner in the books of accounts, the assessee had initially intended to make such an option. However, it abandoned the same before reaching the crucial stage, inasmuch as, in the income tax return filed by the assessee, it chose to claim the entire expenditure in the year in which it was spent/paid by invoking the provisions of Section 36(1)(iii) of the Act. Once a return in that manner was filed, the LD AO was bound to carry out the assessment by applying the provisions of that Act and not to go beyond the said return. There is no estoppel against the Statute and the Act enables and entitles the assessee to claim the entire expenditure in the manner it is claimed.
20. In view of the aforesaid discussion, we are of the opinion that the judgment and the orders of the High Court and the authorities below do not lay down correct position in law. The assessee would be entitled to deduction of the entire expenditure of Rs.2,72,25,000 and Rs.55,00,000 respectively in the year in which the amount was actually paid. The appeals are allowed in the aforesaid terms with no orders as to costs.
6.2. From the aforesaid judgement , what we are able to decipher is the assessee is given a choice to claim the expenditure as revenue in nature in one go i.e in the year of incurrence or alternatively, claim the same as amortization duly giving credence to the matching principle. Both the choices have been permitted by the Hon‟ble Apex Court in the aforesaid judgement. The assessee in the instant case had chosen to claim the entire revenue expenditure in one go in the year of incurrence. We also find that the Hon‟ble Supreme Court in its findings that the amortization method cannot be forced on the assessee unless otherwise specifically provided such as section 35D, etc. and it is only permitted if the assessee 12 ITA Nos.1810/Mum/2017 & 1635/Mum/2016 M/s. Ask Property Investment Advisors Pvt. Ltd., choses to do so in the return. We find that the ratio laid down in the aforesaid judgement squarely covers the case of the instant assessee in its favour.
6.3. In a nutshell, we hold that the accrual of Client Referral Fee cannot be disputed as both the ld AO and ld CITA had allowed part (i.e 1/7th ) of the expenditure as deduction. We find that the assessee had offered a sum of Rs 4.42 crores as fees during the year as business income which had admittedly been earned pursuant to incurrence of the aforesaid Client Referral Fee expenditure. Hence the business nexus of incurrence of the expenditure vis a vis the fees received by the assessee is also established beyond doubt. Moreover, we find that though the assessee had incurred loss during the year under consideration, admittedly due to claiming the entire Client Referral Fee of Rs 10.11 crores as deduction, it had earned more profits in the subsequent years as admittedly the benefit of incurrence of expenditure had accrued to the assessee in subsequent 6 years also. The following chart would prove the bonafide of the assessee beyond doubt which is enclosed in page 108 of the paper book :-
Financial Assessment Year Investment Client Investment Year Advisory Fees Referral/Marketing Advisory Fees (Rs.) Fees (Rs.) Net of Clients Referral/ Marketing Fees (Rs.) 2009-10 2010-11 4,42,00.000 10.11.71.162 (5,69.71.162) 2010-11 2011-12 4.93.62.814 34.52.500 4,59,10.314 2011-12 2012-13 3,87,89,339 12.31.250 3,75,58.089 2012-13 2013-14 11,67,22,019 - 11,67,22,019 2013-14 2014-15 4.00.58,372 - 4,00,58,372 13 ITA Nos.1810/Mum/2017 & 1635/Mum/2016 M/s. Ask Property Investment Advisors Pvt. Ltd., 2014-15 2015-16 18,63,93,816 - 18,63,93,816 2015-16 2016-17 3,62,37.050 - 3,62,37,050 2016-17 2017-18 10.32.44.289 - 10,32,44,289 Total 61,50,07,699 10,58,54,912 50,91,52,787 6.4. The ld DR relied on the decision of Hon‟ble Karnataka High Court in the case of Fidelity Business Services India Pvt Ltd vs ACIT in ITA No. 512/2017 dated 23.7.2018 to support his arguments that this tribunal should set right the error committed by the ld CITA in the facts of the instant case in as much as, the ld CITA on one hand had disputed the incurrence of expenditure for the purpose of assessee‟s business during the year under consideration , but on the other hand had allowed the said expenditure at 1/7th as was done by the ld AO. This goes to prove that the ld CITA had partially accepted the said expenditure ( i.e 1/7th portion) to have incurred for business purposes. According to ld DR, this contrary finding given by the ld CITA should be rectified by this tribunal by remanding the entire issue to the file of ld CITA in the light of decision of Hon‟ble Karnataka High Court relied upon supra. In this regard, we find that the allowability of 1/7th as a business expenditure was not in dispute before us in the appeal of the assessee, as the said deduction has been granted by both the ld AO as well as the ld CITA. The assessee is in appeal before us only for the allowability of remaining 6/7 th of the expenditure portion. Moreover, the issue in dispute before us squarely stands covered in favour of the assessee by the decision of Hon‟ble Supreme Court in the case of Taparia Tools referred to supra. Hence there is no need to place reliance on various judgements that were relied upon by the ld DR in his legal paper book and also the decision of Hon‟ble Karnataka High Court referred to supra.14 ITA Nos.1810/Mum/2017 & 1635/Mum/2016
M/s. Ask Property Investment Advisors Pvt. Ltd., 6.5. In view of our aforesaid findings and respectfully following the decision of the Hon‟ble Supreme Court in the case of Taparia Tools supra, we hold that the remaining 6/7th portion of Client Referral Fee in the sum of Rs 8,67,18,139/- is to be allowed as deduction in the Asst Year 2010-11 and we direct the ld AO accordingly. Hence the Grounds raised by the assessee for the Asst Year 2010-11 are allowed.
ITA No. 1810/Mum/2017 - Asst Year 2012-13 - Assessee Appeal7. We find that the issue in dispute is exactly similar to that raised hereinabove for Asst Year 2010-11, which fact was accepted by both the parties before us. The following chart would prove the bonafide of the assessee beyond doubt which is enclosed in page 170 of the paper book:-
Financial Assessm Investment Client Investment
Year ent Year Management Referral/Marke Management Fees
Fees ting Exps net of Clients
(Rs.) (Rs.) Referral Fees
(Rs.)
2009-10 2010-11 - - -
2010-11 2011-12 - - -
2011-12 2012-13 16,96,99,497 20,17,45,750 (3,20,46,253)
2012-13 2013-14 23,15,60,711 10,11,31,784 13,04,28,927
2013-14 2014-15 16,66,50,000 4,03,21,250 12,63,28,750
2014-15 2015-16 16,66,49,997 2.20,12,500 14,46.37,497
2015-16 2016-17 14,58,24,710 76,25,000 13,81,99,710
2016-17 2017-18 12,55,26,448 12,55,26,448
Total 1,00,59,11,363 37,28,36,284 63,30,75,079
15
ITA Nos.1810/Mum/2017 & 1635/Mum/2016
M/s. Ask Property Investment Advisors Pvt. Ltd.,
We hold that the decision rendered by us for Asst Year 2010-11 on the impugned issue would apply with equal force for Asst Year 2012-13 also except with variance in figures. Accordingly, the Grounds raised by the assessee for the Asst Year 2012-13 are allowed.
8. In the result, both the appeals of the assessee are allowed.
Order pronounced in the open court on this 04/10/2019
Sd/- Sd/-
(MAHAVIR SINGH) (M.BALAGANESH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated 04/10/2019
KARUNA, sr.ps
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
//True Copy//
BY ORDER,
(Asstt. Registrar)
ITAT, Mumbai