Hdfc Asset Management Co. Ltd., Mumbai vs Assessee
- CitationI.T.A. No. 754 /Mum/2013
Ratio decidendi
The rule this decision rests on
The Tribunal restored the Rule 8D(2)(iii) disallowance to the Assessing Officer for fresh consideration, holding that an investment-based disallowance cannot be computed without reducing investments in mutual funds and group concerns that do not require incurrence of major expenditure, where the Assessing Officer has assigned no reason for not doing so. Upfront brokerage fees, incurred wholly and exclusively for business, cannot be disallowed merely because the assessee changed its accounting policy for such expenses, where the change is bona fide, in line with industry practice, not contrary to regulatory directions, and the same treatment was followed in subsequent years without disallowance. Office renovation expenditure that was actually incurred and not disputed as genuine is not to be disallowed outright on the plea that it is capital in nature; where the premises were never occupied and the assessee has suffered a complete loss of the expenditure, the question of its character and allowability is to be redetermined by the Assessing Officer in light of the judicial pronouncements cited.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
IN THE INCOME TAX APPELLATE TRIBUNAL "H" BENCH, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER & SHRI SANJAY GARG, JUDICIAL MEMBER
आयकर अपील सं./I.T.A. No. 754 /Mum/2013 ( नधा रण वष / Assessment Year : 2009-2010
HDFC Asset Management बनाम/ Addl. C.I.T. Rg. 1(1), Co. Ltd., Aayakar Bhavan, Vs. 2 n d floor, HUL House, M.K. Marg, Backbay Reclamation, Mumbai 20. H.T. Parekh Marg, Churchgate, Mumbai - 400 020. थायी ले खा सं . /PAN : AAACH7614L (अपीलाथ /Appellant) .. ( यथ / Respondent)
Appellant by Shri Soumen Adak & Shri Kirt Shah Respondent by : Shri Jeetendra Kumar
ु वाई क तार ख / Date of Hearing सन : 10-02-2015 घोषणा क तार ख /Date of Pronouncement : 20-02-2015 [
आदे श / O R D E R PER R.C. SHARMA, A.M. :
This is an appeal filed by the Revenue is directed against the order of ld. CIT(A) -1, Mumbai dated 27-11-2012 for the A.Y. 2009-10 in the matter of order passed u/s 143(3) of the Income Tax Act, 1961.
2. Rival contentions have been heard and perused the records. The first grievance of the assessee relates to disallowance of Rs. 81,08,683/- u/s 14A of the Income Tax Act, 1961.
2 ITA 754/M/13
3. It was submitted by the ld. D.R. that the issue is covered against the assessee by the order of the Tribunal for the immediately preceding year.
4. On the other hand the ld. A.R. brought to our notice distinguishing feature to the effect that strategic investment was made by the assessee during the year which should not be taken into account while computing disallowance under Rule 8D(2)(iii). It was submitted by the ld. A.R. that all the investments, income from which is exempt, made by the assessee company are in the schemes of HDFC Mutual Fund. These investments made in the various schemes of HDFC Mutual Fund are usually made out of business policy and the same does not require complex analysis by technical experts and does not involve or requires any incurrence of expenditure. Hence, these investments should not be considered in working out disallowance under Rule 8D. Reliance was placed on the decision of Tribunal in Reliance Capital Asset Management Ltd. vs. DCIT (ITA No. 4459/Mum/2012) on identical sets of facts held that Rule 8D(iii) should not be applied as investments made by the assessee is mainly in schemes of Reliance Mutual Fund and group concern which does not requires incurrence of any major expenditure as these investment are driven by the central business policy and strategy.
5. Further reliance was placed on the following decisions of Mumbai Bench of ITAT:-
- Garware Wall Ropes Limited vs. Add!. CIT (I.T.A. No. 4957/Mum/2012).
- JM financial Ltd. vs. Addl. CIT (I.T.A. No. 4521/Mum/2012). - Interglobe Enterprises Ltd. vs. DCIT (I.T.A. No. 1580/Del./2013). 3 ITA 754/M/13
6. We have considered the rival contentions and the judicial
pronouncements cited at bar according to which calculation of disallowance as per Rule 8D(2)(iii) is erroneous, as the AO without assigning any reason did not reduce the investment in mutual funds and group concern which does not quire incurrence of major expenditure.
7. In view of the above, we restore this ground back to the file of A.O. for fresh consideration in terms of our above discussion.
8. The next grievance of the assessee relates to disallowance upfront brokerage fees.
9. From the record we found that the A.O. has disallowed the said expenses on the ground that assessee has changed its accounting policy with regard to expense on upfront brokerage fees. We found that looking into the nature of expenses, the same were incurred in the revenue field and the same has been incurred wholly and exclusively for the purpose of business. The change in the accounting system is not violative of any regulations issued by regulatory authorities in this regard. Furthermore change in accounting policy is bonafide and in line with the industry practice. In earlier years the assessee witnessed many times either the clients exited from the scheme or they switched to the other scheme. The same has necessitated the assessee to change their accounting practice and the assessee followed the same in all the subsequent years. It was also brought to our notice that no disallowance was made in next year while framing assessment u/s 143(3) of the Act.
Accordingly, we do not see any justification for the disallowance made in respect of upfront brokerage fees actually paid by the assessee during the year under consideration. We direct accordingly.
10. The next issue relates to the disallowance of office renovation expenses amounting to Rs. 1,35,71,810/-.
4 ITA 754/M/13
11. It was the contention of the assessee that the entire expenditure incurred by the assessee is primarily on wiring, cabling, light fitting, ceiling work, built-in units, dismantling, water proofing, painting, etc. All the expenses are revenue in nature and invoices in respect of which are duly submitted before the AO. Neither the AO nor the ld. CIT(A) has disputed the genuineness of said expenditure. It was further submitted that the assessee decided not to move ahead with the new office considering the market scenario, the assessee has neither received any enduring benefit nor was any capital asset generated out of the said expenses. Accordingly the said expenditure is allowable as business expenses u/ s 37(1) of the Act.
12. Reliance was placed on the decision of Delhi Tribunal in the case of Fab India Overseas (P) Ltd. vs. ACIT (ITA No. 199/DeV2012) dated 28-06-2013. In this case, the assessee has given a security deposit and also advance rent to the owner of a property before entering into a formal leasing arrangement. In the meantime assessee decided to exit from the said arrangement and thereby lost its security deposit and advance rent to property owner. The assessee has claimed this as business loss, which is in the revenue field. The Tribunal has allowed the claim of assesse by treating the above expenditure as business loss.
13. As an alternate, it was submitted that the impugned expenditure is capital in nature, necessary direction may please be given to the AO to allow depreciation on the same.
14. We have considered the rival contentions and found that, no doubt the expenses were actually incurred by the assessee. However, the same was disallowed on the plea that it was capital in nature. Looking to the fact that the premises were not occupied at all, therefore, there was complete loss of expenditure incurred by the assessee. In the interest of justice, this ground is 5 ITA 754/M/13
also restored to the file of A.O. for fresh adjudication in terms of our above discussion and judicial pronouncement cited by ld. A.R.
15. In the result, appeal of the assessee is allowed in part.
Order pronounced in the open court on 20th Feb. 2015.
आदे श क घोषणा खल ु े #यायालय म% &दनांकः 20-02-2015 को क गई ।
Sd/- sd/- (SANJAY GARG) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER मंब ु ई Mumbai; &दनांक Dated 20-2-2015 [
व.;न.स./ RK , Sr. PS
आदे श क! " त$ल%प अ&े%षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आय< ु त(अपील) / The CIT(A) -1,, Mumbai
4. आयकर आयु<त / CIT -1, Mumbai
5. ?वभागीय ;त;नAध, आयकर अपील य अAधकरण, मंब ु ई / DR, ITAT, Mumbai H Bench
6. गाडE फाईल / Guard file.
ु ार/ BY ORDER, आदे शानस
स या?पत ;त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai
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