Income Tax Appellate Tribunal - Mumbai
Dcit 9(3)(2), Mumbai vs Future Consumer Enterprise Ltd, Mumbai on 30 November, 2018
IN THE INCOME-TAX APPELLATE TRIBUNAL "F" BENCH MUMBAI
BEFORE SHRI G.S. PANNU, VICE-PRESIDENT
AND SHRI PAWAN SINGH JUDICIAL MEMBER
ITA No. 5554/Mum/2016 (Assessment Year 2012-13)
DCIT - 9(3)(2) M/s Future Consumer Enterprises
th
418, 4 Floor, Ltd. (Formerly known as Future
Aayakar Bhavan, M.K. Marg, Vs. Ventures India Ltd.), Knowledge
Mumbai-400020. House, Off Jogeshwari-Vikhroli
Link Road,, Shyam Nagar,
Jogeshwari (E),
Mumbai-400060.
PAN: AABCF0279B
Appellant Respondent
ITA No. 3994/Mum/2015 (Assessment Year 2010-11)
DCIT - 9(3)(2) M/s Future Consumer Enterprises
418, 4th Floor, Ltd. (Formerly known as Future
Aayakar Bhavan, M.K. Marg, Vs. Ventures India Ltd.), Knowledge
Mumbai-400020. House, Off Jogeshwari-Vikhroli
Link Road,, Shyam Nagar,
Jogeshwari (E),
Mumbai-400060.
PAN: AABCF0279B
Appellant Respondent
ITA No. 4018/Mum/2015 (Assessment Year 2010-11)
M/s Future Consumer DCIT - 8(1)
Enterprises Ltd. (Formerly Aayakar Bhavan, M.K. Marg,
known as Future Ventures India Vs. Mumbai-400020.
Ltd.), Knowledge House, Off
Jogeshwari-Vikhroli Link Road,,
Shyam Nagar, Jogeshwari (E),
Mumbai-400060.
PAN: AABCF0279B
Appellant Respondent
ITA No. 4414/Mum/2015 (Assessment Year 2011-12)
DCIT - 9(3)(2) M/s Future Consumer Enterprises
418, 4th Floor, Ltd. (Formerly known as Future
Aayakar Bhavan, M.K. Marg, Vs. Ventures India Ltd.), Knowledge
Mumbai-400020. House, Off Jogeshwari-Vikhroli
Link Road,, Shyam Nagar,
Jogeshwari (E),
Mumbai-400060.
ITA No. 5554 Mum 16, 3994, 4018, 4413
& 4019 Mum 15-M/s Future Consumer Enterprises Ltd.
PAN: AABCF0279B
Appellant Respondent
ITA No. 4019/Mum/2015 (Assessment Year 2011-12)
M/s Future Consumer DCIT - 8(1)
Enterprises Ltd. (Formerly Aayakar Bhavan, M.K. Marg,
known as Future Ventures India Vs. Mumbai-400020.
Ltd.), Knowledge House, Off
Jogeshwari-Vikhroli Link Road,,
Shyam Nagar, Jogeshwari (E),
Mumbai-400060.
PAN: AABCF0279B
Appellant Respondent
Appellant by : Shri S. Padmaja (CIT-DR) with
Shri Rajiv Gubgotra (DR)
Respondent by : Shri Vipul Joshi (AR)
Date of Hearing : 08.10.2018
Date of Pronouncement : 30.11.2018
ORDERUNDER SECTION 254(1)OF INCOME TAX ACT
PER PAWAN SINGH, JUDICIAL MEMBER;
1. This group of five appeals are directed against the order of ld. CIT(A)-16, Mumbai for Assessment Year 2010-11, 2011-12 & 2012-13. Out of which three appeals by Revenue for each Assessment Year and two appeals by assessee for Assessment Year 2010-11 & 20110-12. In all appeals, the parties have raised the some common grounds of appeal. Therefore, all the appeals were clubbed heard and are decided by common order to avoid the conflicting decision.
2. In ITA No. 3994/Mum/2015 for Assessment Year 2010-11, the Revenue has raised the following grounds of appeal:
2ITA No. 5554 Mum 16, 3994, 4018, 4413 & 4019 Mum 15-M/s Future Consumer Enterprises Ltd.
i) "Whether on the facts and in the circumstances of the case, the ld. CIT-(A) erred in deleting the disallowance made on account of travelling and conveyance expenditure claimed by the assessee, without appreciating the fact that the assessee had not submitted any evidence to substantiate its allowability to terms of the provision of Section 37(1) of the Income Tax Act, 1961."
ii) "Whether on the facts and in the circumstances of the case, the ld. CIT-(A) erred in deleting the disallowance made A.O. out of expenses claimed by the assessee, without appreciating the fact that the A.O. had rightly held that the said expenditure had been incurred for investment activity which resulted in income exempt from tax and hence was not allowable under the provision of the Act."
iii) "Whether on the facts and in the circumstances of the case, the ld. CIT-(A) erred in deleting the disallowance of legal and professional fees claimed by the assessee, without appreciating the fact that the assessee had failed to furnish evidence to substantiate the allowability of the impugned expenditure in terms of Section 37(1) of the Income Tax Act, 1961.
iv)"Whether on the facts and in the circumstances of the case, the Ld. CIT-(A) erred in deleting the disallowance on account of advertisement and publicity expenses without appreciating the fact that the impugned expenditure pertains to the Future Group and not to the assessee".
v) "Whether on the facts and in the circumstances of the case, the Ld. CIT (A) erred in deleting the disallowance on account of advertisement and publicity expenses without appreciating the fact that the impugned expenditure is not related to or attributable to the assessee's investment activity and without prejudice thereto, such expenditure is otherwise disallowable as the investment activity of the assessee results in income, which does not form part of total income of the assessee. "
The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the DCIT 9(3)(2) be restored.
3. At the outset of hearing, the ld. Authorized Representative (AR) of the assessee submits that the grounds of appeal raised by Revenue are covered by the decision of Tribunal in assessee's own case for Assessment Year 3 ITA No. 5554 Mum 16, 3994, 4018, 4413 & 4019 Mum 15-M/s Future Consumer Enterprises Ltd.
2009-10 in ITA No. 6550/Mum/2012 dated 14.07.2016. The ld.
Departmental Representative (DR) for the Revenue after going through the grounds of appeal and the decision of Tribunal conceded that all the grounds of appeal raised by Revenue are covered against the revenue by the decision of Tribunal in assessee's own case for Assessment Year 2009-10 in ITA No. 6550/Mum/2012.
4. We have considered the rival submission of the parties and perused the record. We have also perused the contents of decision of Tribunal in assessee's own case for Assessment Year 2009-10 in ITA No. 6550/Mum/2012.
5. Ground No. 1 & 2 of the appeal relates to deleting the disallowance on account of Travelling & Conveyance Expenditure. We have noted that similar ground of appeal was raised by Revenue in appeal for Assessment Year 2009-10 in ITA No. 6550/Mum/2012 and the Co-ordinate Bench of Tribunal on identical grounds passed the following order:
"11. We have heard the counsels for both the parties on this ground and we have also perused the material placed on record as well as the orders passed by the revenue authorities. Although the evaluation of business model of the Assessee is extremely critical in the overall analysis of the issues involved. However, the Assessee has submitted that it is a NBFC carrying on the business of investing in small and medium sized firms companies.
In normal course, the working and operations of NBFCs are regulated by the Reserve Bank of India (RBI) within the framework of the Reserve Bank of India Act. In this respect, the Assessee has enclosed a copy of the registration certificate dated 9 October 2007 issued by the RBI authorizing it to undertake the business of the NBFC without accepting public deposits.4
ITA No. 5554 Mum 16, 3994, 4018, 4413 & 4019 Mum 15-M/s Future Consumer Enterprises Ltd.
12. The Ld. AR has stated that assessee's main business is investment in small and medium sized firms which have very few avenues for raising funds. The Assessee has submitted the copy of the memorandum of association wherein it is reflected that the main object of the business of the Assessee is to carry on the business of investment in shares and securities and to generally do all such activities and enter into all kinds of financial arrangements so as to enable mobilization of funds. Further the Ld. AR has pointed out that the role of assessee is not restricted to merely making investment in the shares and securities alone. Additionally it takes active participation in the management of the companies in which the Assessee invests as well as arranges for professional expertise like banker, technologist, planner and manager etc as and when required by the investee companies. The AR of the Assessee has drawn our attention to the specific clauses of the memorandum of association of the company empowering such business activities.
Thus from the documents, it is apparent that the main business of the Assessee is investment in shares and securities with an added responsibility of lending a helping hand in the overall management and control of the investee company.
The Assessee invests in shares and securities of small and medium sized firms having a huge potential for earning large profits in the future. Since the Assessee invests in companies which are in the nature of small and medium enterprises there is no certainty that the venture would result into profits. The fact that an investment made did not result into profits would not mean that the Assessee cannot claim expenses on the expenditure incurred by it. Ld. AR submitted that the assessee had incurred expenses for looking after the business operations which are necessary for the conduct of the business as a whole.
The issue of characterization of income from investment in companies into income from business income or capital gains, has been heavily litigated by taxpayers and revenue alike.
In this regard, the Courts as well as CBDT circulars have held that frequency of the transactions is one of the key determining factors behind ascertaining whether the income is in the nature of business income or capital gains.5
ITA No. 5554 Mum 16, 3994, 4018, 4413 & 4019 Mum 15-M/s Future Consumer Enterprises Ltd.
The Supreme Court in the case of CIT v. Associated Industrial Development Co. (P.) Ltd. (82 ITR 586) had held that "Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment."
In the present case, since the Assessee is registered as an NBFC with the main business of the company as investment in securities and business ventures therefore the investments made by the company should be considered as stock in trade and the income from such investments should be shown as business income. Based on a perusal of the investment schedule forming part of the audited accounts of the Assessee, copies of the contract notes issued by the brokers, mutual fund holding statements, it is observed that there are substantial transactions in the nature of buying and selling of investments which have taken place during the year under consideration. In this regard, it is relevant to note the Ruling of the AAR in the case of Fidelity Northstar (288 ITR 641) (AAR) wherein the AAR referred to various Supreme Court decisions and held that the substantial nature of transactions, the magnitude of purchases and sales and the ratio between purchases and sales and the holding would furnish a good guide to determine the nature of transactions.
In the present case, the Assessee has filed audited statements for three years which prima facie is an evidence that there has been a substantial and frequent transactions of buying and selling.
Further the Assessee has itself characterized its income from buying/selling activities as income from operations in the books of accounts. There has also been an increase in the interest income and the total income (except in AY 2011-12) from operations of the Assessee in the subsequent three years which is enumerated in the table below:
A.Y. Interest Income (Rs.) Total Income from
Operations (Rs.)
2009-10 79,05,115 (31,046,674)
2010-11 82,820,044 2,57,572,045
2011-12 1,01,552,000 1,31,164,067
6
ITA No. 5554 Mum 16, 3994, 4018, 4413
& 4019 Mum 15-M/s Future Consumer Enterprises Ltd.
2012-13 4,82,774,000 5,52,578,000
Therefore, based on the above table it is observed that interest income forms a substantial component of the total income of the Assessee. The Assessee has also provided assistance to the investee companies in their overall management and control.
From the perusal of the records, it appears that the AO did not consider at all the factual aspects mentioned above, especially the nature of the business of the assessee, business support provided to the investee companies, the frequency of transactions etc. We are of the view that the Assessee is engaged in the business of investment activity. On perusal of the records, it appears that the AO did not consider at all the factual aspects mentioned above, especially the nature of the business of the assessee, business support provided to the investee companies, the frequency of transactions etc. We find that on perusal of the facts presented before us that the assessee is engaged in the business of investment activity and therefore it is entitled to claim deduction in respect of all the expenses while computing its total income. These grounds raised by the revenue are dismissed.
6. Considering the decision of Tribunal in assessee's own case on identical grounds of appeal, respectively following the same, the ground No. 1&2 of appeal raised by Revenue is dismissed.
7. Ground No.3 relates deleting the disallowance of legal & professional fees.
We have noted that the Revenue has challenged the similar addition of legal & professional expenses in appeal for Assessment Year 2009-10 in ITA No. 6550/Mum/2012 and the Tribunal passed the following order:
17. We have heard the counsels for both the parties on this ground and we have also perused the material placed on record as well as the orders passed by the revenue authorities. We noticed that the Assessee debited an amount of Rs.7
ITA No. 5554 Mum 16, 3994, 4018, 4413 & 4019 Mum 15-M/s Future Consumer Enterprises Ltd.
2,03,00,577 towards legal and professional fees. Out of the said amount an amount of Rs.1,48,08,327/- has been suo moto disallowed by the Assessee and the balance amount of Rs.54,92,250 was claimed allowable by the Assessee. During the course of the assessment proceedings, the details of legal expenses incurred to the extent Rs.16.44 lakhs, was submitted. The Assessee has submitted that the said expenditure was incurred for carrying out due diligence of those companies in which the Assessee wishes to purchase and sell the shares. The A.O has not doubted the same in his assessment order. Subsequently the CIT(A) reversed the decision of the A.O against which the revenue is in appeal.
The Assessee is an NBFC with its main business as investing in shares and securities. Before investing it is necessary for the Assessee to carry out a feasibility study before investing itssurplus funds in a potential high growth Company. The details of the professional fees provided by the Assessee before the AO and the CIT(Appeals) is as under:
Before Ld. AO "Details of Legal and Professional Fees - The details of Legal and professional fees are been attached along with bill.
During the year under the consideration, the company has reimbursed the legal and professional fees of Rs. 1057374/- to the Future Capital holding Limited and Rs. 587080/- to Mchek India Payment System Private Limited. The reimburse was done on the basis of documentary evidence produce before us. The copy of bill is attached herewith for your reference. Further, the company has made payment to payment of Rs. 1,32,00,000/- to Linklaters Allen & Gledhill P. Ltd. toward IPO expenses. However, we hereby attached the certification from the chartered accountant toward non-applicability of TDS for the payment made to Linklaters Allen & Gledhill P. Ltd."
Before Ld. CIT(A) "During the course of assessment, the Deputy Commissioner of Income Tax - Chennai Circle II (I) has issued notice u/s 142(1), dated 24th August, 2011 of point 38 which include the details of payment made in nature of technical fees, consultancy charges, management fees, royalty etc. Against the appellant has submitted all the details including the details of legal and 8 ITA No. 5554 Mum 16, 3994, 4018, 4413 & 4019 Mum 15-M/s Future Consumer Enterprises Ltd.
professional fees as mention at point no. 28 of the questioner (page 68 to 78 of the paper book). The appellant further received notice u/s 142(1) from A.O. after the transfer of file from Chennai Income tax department to Mumbai Income Tax Department against which the appellant vide letter dated 1st December, 2011(page 84 of the paper book) has submitted the details of legal and professional fees. After screening of legal and professional fees, the A.O has observed that on certain payment the TDS was not paid and therefore he requested to produce the bill on which the TDS was not deducted. The appellant vide letter dated 8th December, 2011 has submitted the details of invoice on which the TDS was not deducted along with the explanation (page 152 of the paper book).
Your honor, without providing an opportunity and giving any explanation vide proceeding sheet or orally, the A.O. directly made a disallowance of entire legal and professional fees. The assessment order was framed on surmises, suspicion and conjecture, as the same is framed in breach of the principles of natural justice The object of the expenditure was to have the feasibility report before exploring the area for investing the surplus funds. The object of expenditure was to make the best use of surplus funds by investing into high-quality Company. Therefore, it was wholly connected with the existing business as mention in the memorandum of association and it was wholly and exclusively incurred for the purpose of carrying on its business. The intention was to utilize the surplus funds more efficiently and more profitable while leaving the fixed capital untouched. Expenditure incurred on ground of commercial expediency is allowable expenditure At the outset, it is well settle law that the expenditure may not be incurred under any legal obligation but yet it is allowable as business expenditure if it is incurred on ground of commercial expediency. Refer Addidas India Marketing (P) Limited v AO 10 Taxmann.com 18. Again, Expenses incurred which was based on commercial consideration and business expediency, no interference is warranted. Refer, Udaipur Distillery Co. Ltd. 224 CTR 32 (SC). Similarly, The issue was of deduction of certain expenditure "issue management expenses" and the assessee succeeded 9 ITA No. 5554 Mum 16, 3994, 4018, 4413 & 4019 Mum 15-M/s Future Consumer Enterprises Ltd.
only on the ground of consistency. Without going into the merits, the Supreme Court remitted back the matter to the High Court holding that the High Court should have examined the nature of the said expenditure. Refer, Oswal Agro Mills Ltd. 313 ITR 24."
Legal Expenses for acquiring new asset is revenue expenditure At the outset, it is well settled law that Consultancy charges paid for obtaining study reports is revenue expenditure. Refer CIT vs. Shell Bitumen India (P) Ltd. 221 Taxation 44.Legal expenses incurred on obtaining advice as to feasibility of acquiring a new unit is a revenue expenditure. Refer, CIT vs. United Breweries Ltd. 36 DTR 80, Also in the case of KJS India (P) Ltd. vs. Dy. CIT 134 TTJ 697it was held that assessee a manufacturer of a soft drink having conducted a market research by using the services of a professional agency to determine its brand performance with price, gauge the consumer demand at the current price or a lower price and to know whether its brand can adopt a different pricing between the base flavors and the new flavors, the expenses were incurred for exploring the circumstances as to how assessee can carry on its business more potentially and not exploring the market of a new product and therefore, same is allowable as revenue expenditure. / Assessee having suspended only its manufacturing activity and not closed down its trading activity, it is not a case of closure of business and therefore, expenses incurred by it towards severance cost of employees is allowable as revenue expenditure. Again, Expenditure for restructuring and viability study and preparation of restructuring proposal is revenue expenditure. CIT v JCT Electronics Ltd 188 Taxman 191 Expenses incurred for setting up new unit in expansion of an existing business are allowable as revenue expenditure. CIT v Ghanhyam Steel Works Limited 6 taxmann.com 4. Expenditure incurred on launching of a new model of car is revenue expenditure. Premier Ltd. ITA No. 2091/Mum/2008, dt. 30-6-2009. Similarly Where assessee is already in business, payments made for tender fee and consultancy charges for establishing captive power plant are allowable revenue expenditure. Polyplex Corporation Ltd. 176 Taxman 57 10 ITA No. 5554 Mum 16, 3994, 4018, 4413 & 4019 Mum 15-M/s Future Consumer Enterprises Ltd.
Deductibility of Legal Expenses will depend on Nature & purpose of legal proceeding in relation to business whose profits are under computation and cannot be affected by final outcome of those proceedings. Vivek P Talwar v ACIT 8 Taxmann.com 268.
The A.O. first contention was that "four invoice has been incurred in acquisition of shares and due diligence of companies shares off which shares proposed to acquired/ sold. Since purchase and sale of shares has been shown as investment activities by the assessee, no expenses relating to those activities can be allowed as deduction either out of income from business from other- In this connection, we would like to submit Consultancy charges paid for obtaining feasibility report or due-diligence report before investing in the company therefore same is revenue expenditure Refer CIT vs. Shell Bitumen India (P) Ltd. 221 Taxation
44.It was further held thatexpenses incurred on obtaining advice as to feasibility of acquiring a new unit is revenue expenditure.
The A.O. second contention was that "assessee has not produced any other details for balance professional fees of Rs. 38,47,796/-. The assessee, even has not produced copies of bills to substantiate its claims for allowance even after after specially called for. - In this connection, we would like to submit the appellant vide letter dated 1st December, 2011 has submitted the details of legal and professional fees. After screening of legal and professional fees, the A.O has observed that on certain payment the TDS was not paid and therefore he requested to produce the bill on which the TDS was not deducted. The appellant vide letter dated 8th December, 2011 has submitted the details of invoice on which the TDS was not deducted along with the explanation.
Your honor, all the details were submitted during the course of assessment and the A.O has not noted anything in the proceeding sheet that bill was called for. Therefore, without providing an opportunity and giving any explanation vide proceeding sheet or orally, the A.O. directly made a disallowance of entire legal and professional fees. The assessment order was framed on surmises, suspicion and conjecture, as the same is framed in breach of the principles of natural justice"
11ITA No. 5554 Mum 16, 3994, 4018, 4413 & 4019 Mum 15-M/s Future Consumer Enterprises Ltd.
This is wholly connected with the business of the Assessee and was incurred for carrying out its business in an efficient and in a profitable manner.
The co-ordinate bench of the Tribunal in the case of ACIT vs JP Morgan India Private Ltd (46 SOT 450) held that the legal and professional fees incurred for carrying out a study of the internet broking activities is for carrying out the business more effectively and efficiently and hence is a revenue expenditure. The relevant extract from the said judgement is reproduced hereunder "The assessee was providing broking services to its clients. The expenditure had been incurred to explore options for providing value added services to the customers through the internet. The expenditure did not result in acquisition of any new assets or in any new source of income. The finding of the Commissioner (Appeals) that the expenditure had been incurred for more efficient conduct of the existing business was agreeable. Hence there was no infirmity in allowing the claim as revenue expenditure. The same was to be upheld."
As regards the ground of the revenue that the Assessee did not furnish sufficient evidence to substantiate the allowability of the expenses the Ld. AR submitted that all the details were submitted during the course of the assessment proceedings which forms part of the paper book.
We have perused the same and find that all the necessary details have been provided and therefore the ground raised by the revenue is not sustainable. Therefore we are in agreement with the order of the CIT(A) and therefore this ground of the revenue is dismissed.
8. Considering the decision of Tribunal in assessee's own case in AY 2009-10 on identical grounds of appeal, respectively following the same, the grounds of appeal raised by Revenue is dismissed.
9. In the result, Ground No. 3 of appeal of the Revenue is dismissed.
10. Ground No.4 & 5 relates to deleting the advertisement and publicity expenses. We have noted that the Revenue has challenged the deletion of similar addition in appeal for Assessment Year 2009-10. The Co-ordinate Bench of Tribunal passed the following order:
12ITA No. 5554 Mum 16, 3994, 4018, 4413 & 4019 Mum 15-M/s Future Consumer Enterprises Ltd.
22. We have heard the counsels for both the parties on this ground and we have also perused the material placed on record as well as the orders passed by the revenue authorities. The Assessee had incurred advertisement expenses on organizing a reality show in order to promote the Assessee. The agreement between the Assessee and Network 18 which forms part of the paperbook clearly states "all three camps specify branding for Future Venture presents CNBC Awaaz Ban JaoBiyani". The main objective behind incurring such expenses was to build the brand of the Assessee and incurring such expenses ensures and creates a favourable environment for the brand and treats the brand in a unique manner which enhances the brand experience. The idea behind incurring such expenses by the Assessee was to create a mark on global audiences. The contention of the Revenue that the expenses incurred are for the group and not for the Assessee is not founded on reality. The Assessee has clearly submitted that Future group is not a legal entity. The Future group is a business group with consumption led business in India through various formats such as Big Bazaar, Food Bazaar etc. The agreement clearly provided that the banner would display that the future venture is presenting the realty show. We are in agreement with the order of the CIT(A) that the expenditure relates promotion of the entire group and promotion of the Biyani brand is incorrect since there is no entity is existing which is a group entity and the expenditure is incurred to promote the same. The fact is that the Assessee has incurred expenses for the promotion of business and the main business of the Assessee is investing and operating in innovative business in the consumption sector therefore the said business is incurred for the purpose of the business. The expenses are incurred on a show which provides a platform for young entrepreneurs to showcase their ideas and innovation. Therefore the contention that the expenditure is incurred for the entire group is incorrect since there is no other company in the group which is engaged in the promotion of new and innovative ideas as well as to give necessary financial support to budding entrepreneurs. Therefore the expenditure incurred is tailored for the Assessee and not for other companies in the group.
As regards to the Revenue's second ground that the expenditure incurred by the Assessee towards advertisements is not related to the investment business of the Assessee we have perused the memorandum of association of the Assessee which forms part of the paperbook wherein itis clearly stated that one of the ancillary objects of the Assessee is for identifying investment opportunities and conducting 13 ITA No. 5554 Mum 16, 3994, 4018, 4413 & 4019 Mum 15-M/s Future Consumer Enterprises Ltd.
analysis. The objective behind incurring such advertisement expenses by the Assessee was to identify opportunities for investments in the consumption sector. The hosting of a realty show and that too through a television medium would have allowed the Assessee access to a wide variety of entrepreneurs and investment ideas. Moreover in order to determine whether the expenditure is incurred wholly and exclusively for the purpose of business reasonableness of the expenditure has to be judged from the assessee's perspective and not the revenue. This contention has been held by the Apex Court in the case of CIT vs Walchand& Co Pvt Ltd as reported in 65 ITR 381 (SC) and Travancore Titanium Products in (60 ITR 227 (SC). We would like to place reliance on the judgement of the Kerala High Court in the case of CIT vs Aluminum Ltd as reported in 214 ITR 541 wherein the Kerala High Court held that it is no the revenue's case to judge the commercial expediency on the expenditure incurred on advertisement by the assessee. The relevant extract of the judgement is enumerated hereunder "It is an accepted proposition that an expenditure laid out wholly or exclusively for the purpose of business would include the cost of advertisement. Once it was found that the expenditure had been, as a matter of fact, incurred by the assessee for publicity or advertisement, it was not for the department to consider whether commercial expediency justified the expenditure. Reasonableness of the expenditure could be gone into only for the purpose of determining whether in fact the amount was spent."
A similar view has also been echoed by the Calcutta High Court in the case of Sarda Plywood Industries Ltd vs CIT (238 ITR 354) the relevant extract of the judgement is reproduced hereunder:
"It has been held that once it is found that the expenditure had been, as a matter of fact, incurred by the assessee for publicity or advertisement, it is not for the Department to consider whether commercial expediency justified the expenditure. Reasonableness of the expenditure can be gone into only for the purpose of determining whether in fact the amount was spent. We respectfully agree with the aforementioned observations."
As regards the without prejudice ground raised by the Assessee we have already given our findings in ground number 1 that the investment activity is the business of the Assessee and therefore the income from investment activity is taxable as income under the head "income from business and profession". Hence 14 ITA No. 5554 Mum 16, 3994, 4018, 4413 & 4019 Mum 15-M/s Future Consumer Enterprises Ltd.
the Assessee ought to be allowed deduction in respect of the expenses incurred on the investment activity.
We are in agreement with the order passed by the CIT(A) and accordingly this ground of the revenue is dismissed.
11. Considering the decision of Tribunal on identical grounds of appeal, wherein the similar grounds of appeal was dismissed by Tribunal for Assessment Year 2009-10. Therefore, respectfully following the decision of Tribunal, we do not find any illegality or infirmity in the decision of ld.
CIT(A).
12. In the result, appeal of the Revenue is dismissed.
13. ITA No. 4414/Mum/2015 for Assessment Year 2011-12. The Revenue has raised the following grounds of appeal:
i) "Whether on the facts and in the circumstances of the case, the ld. CIT-(A) erred in deleting the disallowance made on account of travelling and conveyance expenditure claimed by the assessee, without appreciating the fact that the assessee had not submitted any evidence to substantiate its allowability to terms of the provision of Section 37(1) of the Income Tax Act, 1961."
ii) "Whether on the facts and in the circumstances of the case, the ld. CIT-(A) erred in deleting the disallowance made A.O. out of expenses claimed by the assessee, without appreciating the fact that the A.O. had rightly held that the said expenditure had been incurred for investment activity which resulted in income exempt from tax and hence was not allowable under the provision of the Act."
iii) "Whether on the facts and in the circumstances of the case, the ld. CIT-(A) erred in deleting the disallowance of legal and professional fees claimed by the assessee, without appreciating the fact that the assessee had failed to furnish evidence to substantiate the allowability of the impugned expenditure in terms of Section 37(1) of the Income Tax Act, 1961.15
ITA No. 5554 Mum 16, 3994, 4018, 4413 & 4019 Mum 15-M/s Future Consumer Enterprises Ltd.
iv) "Whether on the facts and in the circumstances of the case, the Ld. CIT-(A) erred in deleting the disallowance on account of advertisement and publicity expenses without appreciating the fact that the impugned expenditure pertains to the Future Group and not to the assessee".
v) "Whether on the facts and in the circumstances of the case, the Ld. CIT (A) erred in deleting the disallowance on account of advertisement and publicity expenses without appreciating the fact that the impugned expenditure is not related to or attributable to the assessee's investment activity and without prejudice thereto, such expenditure is otherwise disallowable as the investment activity of the assessee results in income, which does not form part of total income of the assessee. "
The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the DCIT 9(3)(2) be restored.
14. Ground No.1 & 2 relates to deleting the disallowance on travelling and conveyance expenditure, ground no.3 relates to deleting the disallowance of legal and professional fees and ground no. 4 & 5 relates to deleting the disallowance of advertisement and publicity expenses.
15. We have noted that the Revenue has raised the identical grounds of appeal as raised in appeal for Assessment Year 2010-11 which we have dismissed by following the decision of Tribunal in assessee's own case for Assessment Year 2009-10 in ITA No. 6550/Mum/2012. Therefore, respectfully following the decision of Tribunal in Assessment Year 2009-10 and our finding in appeal for Assessment Year 2010-11, all the grounds of appeal raised by Revenue are dismissed.
16. In the result, appeal of the Revenue is dismissed.
17. ITA No. 5554/Mum/2016 for Assessment Year 2012-13. The Revenue has raised the following grounds of appeal:
16ITA No. 5554 Mum 16, 3994, 4018, 4413 & 4019 Mum 15-M/s Future Consumer Enterprises Ltd.
(i) "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in granting relief to assessee u/s.14A of the I.T. Act, 1961 by holding that no exempt income was earned during the year under consideration and that the investments were only strategic investments ignoring the fact that Cir. NO.5 of 2014 clarifies that Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income and the decision of the High Court of Karnatakain the case of United Breweries Ltd. (72 taxman.com 102) wherein it is held that Sec.14A is applicable even where motive of acquiring shares was to obtain controlling interest in companies?"
(ii) "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance made by the AO out of expenses claimed by the assessee without appreciating the fact that the AO had rightly .held that the said expenditure had been incurred for investment activity which resulted in income exempt from tax and hence was not allowable under the provision of the Act?"
The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the DCIT 9(3)(2) be restored.
18. At the outset of hearing, the ld. AR of the assessee submits that ground of appeal raised by Revenue is also covered by the decision of Tribunal in assessee's own case for Assessment Year 2009-10 in ITA No. 6721/Mum/2012 wherein similar disallowance was deleted by ld. CIT(A) and on appeal before the ld. CIT(A), the order of ld. CIT(A) was confirmed.
On the other hand, the ld. DR for the Revenue relied upon the order of Assessing Officer.
19. We have considered the rival submission of the parties and have gone through the orders of authorities below. During the assessment, the Assessing Officer noted that the assessee has earned the exempt income of 17 ITA No. 5554 Mum 16, 3994, 4018, 4413 & 4019 Mum 15-M/s Future Consumer Enterprises Ltd.
Rs. 6,76,06,678/-. The assessee in its computation of income disallowed amount of Rs. 24,96,770/- as disallowance under section 14A. The Assessing Officer asked the assessee to furnish the working of disallowance under section 14A. The assessee furnished its working of disallowance under section 14A. The working of assessee was not accepted by Assessing Officer holding that the same is not as per Rule 8D and that only direct expenses relatable to exempt income have been considered for disallowance. The Assessing Officer invoked the provision of Rule 8D and disallowed .5% of average value of investment as per Rule 8D(2)(3). The Assessing Officer worked out the disallowance of Rs. 447.54 Lakhs. In addition to the suo-moto disallowance. On appeal before the ld. CIT(A), the disallowance was restricted to suo-moto disallowance offered by assessee.
The ld. CIT(A) deleted the disallowance of Rule 8D (2)(3) by following the decision of his predecessor for Assessment Year 2010-11 & 2011-12, wherein investment in subsidiary, joint venture and associate and debentures were excluded from total investment. The Hon'ble Court in Maxopp Investment Ltd. vs. CIT [91 Taxman.com 154 (SC) held that the applicability of section 14A is based on the theory of apportionment of expenditure between taxable and non-taxable income and the expenditure incurred in acquiring those share (acquired for controlling stake in group company) will have to be apportioned. Therefore, respectfully following the decision of Hon'ble Apex Court, the grounds of appeal raised by Revenue is 18 ITA No. 5554 Mum 16, 3994, 4018, 4413 & 4019 Mum 15-M/s Future Consumer Enterprises Ltd.
restored to the file of Assessing Officer to make the disallowance after following the decision of Maxopp Investment Ltd. (supra). Needless to order that before passing the order, the Assessing Officer shall allow the opportunity of hearing to the assessee before passing the order in accordance with law.
20. In the result, appeal of the Revenue is allowed for statistical purpose.
21. ITA No. 4018/Mum/2015 by assessee for Assessment Year 2010-11. The assessee has raised the following grounds of appeal:
1.1 The learned Commissioner of Income - tax (Appeals) - 16, Mumbai, [ld.
CIT[(A)"] erred in confirming the disallowance to the extent of Rs. 23,18,291/-, out of the ad hoc disallowance of employees cost and administrative & other expenses made by the A.O. 1.2 It is submitted that, in the facts and the circumstances of the case, and in law, no such disallowance was called for.
WITHOUT PREJUDICE TO THE ABOVE 2.1 While doing so, the ld. CIT (A) erred in invoking the provisions of section 14A of the Act.
2.2 It is submitted that in the facts and the circumstances of the case, and in law, the provisions of section 14A were not applicable.
WITHOUT FURTHER PREJUDICE TO THE ABOVE 3.1 Assuming - but not admitting - that some disallowance was called for, the calculation of the same is not in accordance with the law, is arbitrary and excessive.
22. Ground No.1 relates to ad hoc disallowance of employees cost and administrative expenses on ad hoc basis.
23. We have noted that the Assessing Officer disallowed the 78.31% of total expenses on the basis of preceding years. The ld. CIT(A) confirmed the 19 ITA No. 5554 Mum 16, 3994, 4018, 4413 & 4019 Mum 15-M/s Future Consumer Enterprises Ltd.
action of Assessing Officer to the extent of Rs. 23,18,291/-. The ld. AR of the assessee submits that the grounds of appeal may be restored to the file of Assessing Officer with the direction to pass the order by taking into account the order of earlier years. On the other hand, the ld. DR for the Revenue has no objection, if the ground of appeal raised by assessee is restored to the file of Assessing Officer.
24. We have considered the submission of both the parties and have gone through the orders of authorities below. We have noted that the Assessing Officer disallowed the expenses on the basis of preceding years. In all preceding years, the major part of disallowance on account of various expenditure have been deleted. Therefore, considering the contention of ld.
AR of the assessee, this ground of appeal is restored to the file of Assessing Officer to verify the employee cost, administrative and other expenses and passed the order in accordance with law.
25. In the result, the ground of appeal raised by assessee is allowed for statistical purpose.
26. The assessee has raised alternative ground of appeal that ld. CIT(A) erred in invoking the provision of section 14A. Considering the fact that we have already restored the substantial ground of appeal to the file of Assessing Officer. Therefore, alternative grounds of appeal raised by assessee have become academic.
27. In the result, appeal of the assessee is allowed for statistical purpose.
20ITA No. 5554 Mum 16, 3994, 4018, 4413 & 4019 Mum 15-M/s Future Consumer Enterprises Ltd.
ITA No. 4019/Mum/2015 by assessee for Assessment Year 2011-12.28. The assessee has raised identical grounds of appeal as raised in appal for Assessment Year 2010-11. Considering our decision for Assessment Year 2010-11 on identical grounds of appeal, wherein we have restored the ground of appeal to the file of Assessing Officer. Therefore, these grounds of appeal by assessee are allowed with similar direction.
29. In the result, appeal of the assessee is allowed for statistical purpose.
Order pronounced in the open court on 30/11/2018.
Sd/- Sd/-
G.S. PANNU PAWAN SINGH
VICE-PRESIDENT JUDICIAL MEMBER
Mumbai, Date: 30.11.2018
SK
Copy of the Order forwarded to :
1. Assessee 2. Respondent
3. The concerned CIT(A) 4.The concerned CIT
5. DR "F" Bench, ITAT, Mumbai
6. Guard File
BY ORDER,
Dy./Asst. Registrar
ITAT, Mumbai
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