M/S. HASHAM INVESTMENTS & TRADING CO PVT LTD ,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-3(1)(2), BANGALORE

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

1. That the order of the authorities below in so far as it is against the Appellant, is against the law, facts, circumstances, weight of evidence, natural justice, probabilities, without jurisdiction, bad in law and all other known principles of law.

2. The total income computed and total tax computed is hereby disputed.

Hasham Investment and Trading Company Pvt. Ltd., Bangalore Page 2 of 8 3. That the Learned CIT-Appeals-NFAC without looking into records maintained in the office of CIT-Appeals erred in dismissing the appeal for want of prosecution on the facts and circumstances of the case. 4. That the Learned CIT-Appeals-NFAC ought to have passed an order based on the statement of facts, grounds of appeal

. and the submissions made during the course of hearing of the appeal.

5. That the order passed by the Learned CIT-Appeals-NFAC without providing adequate and sufficient opportunity as required in law is in violation of the principles of natural justice and consequently the order requires to be set aside on the facts and circumstances of the case.

6. That the order passed by the Learned CIT-Appeals-NFAC is in violation of the provisions of section 250(6) of the Act, hence, requires to be set aside for deciding the same on merits.

7. That the Learned CIT-Appeals-NFAC ought to have appreciated that the AO was not justified in law in disallowing all the expenses incurred and debited to the Profit and Loss Account based on surmises a irrelevant facts, ignoring the overwhelming evidence on record.

8. That the Learned CIT-Appeals-NFAC ought to have appreciated that the AO was not justified in law in disallowing expenses amounting to Rs. 27,50,26,230/- (including the book depreciation previously disallowed by the Appellant) debited to the Profit and Loss Account, by construing that the Appellant has not done any business during the year, which is contrary to facts as the AO has acknowledged the fact that the Appellant is engaged in rendering advisory services and the AO has also assessed the revenues earned from business reported in the Profit and Loss Account.

9. That the Learned CIT-Appeals-NFAC ought to have appreciated that the AO was not justified in law in overlooking the fact that two investment trusts constituted as SEBI approved venture capital funds viz. PI Opportunities Fund — I and PI Opportunities Fund — II were the recipients of investment advisory services provided by the Appellant and the revenues earned from the Appellant's business activity cannot be ignored merely because the service recipients are related, the Appellant raised invoices on their Trustee-company i.e.. Hasham Premji Private Limited, which made the payment of those invoices while the expenses were borne by the respective investment trusts.

10. That the Learned CIT-Appeals-NFAC ought to have appreciated that the AO having regard to the facts and circumstances of the case was not justified in law in disallowing the expenses clearly eligible for deduction u/s. 37(1) of the Act, Tabulated below:

Hasham Investment and Trading Company Pvt. Ltd., Bangalore Page 3 of 8 Particulars Amount claimed Amount disallowed in the order u/s u/s 37(1)/32 143(3) Salaries and bonus 18,85,47,832 18,71,39,157 Professional charges 2,81,92,332 2,81,92,332 Travel and conveyance 2,75,33,025 2,75,33,025 Database access charges 80,20,370 80,20,370 Staff recruitment expenses 3,48,929 3,48,929 Other expenses 1,52,48,086 (*) 2,37,92,417 Total 26,78,90,573 27,50,26,230 (*) includes depreciation u/s 32 amounting to Rs. 54,65,906/- 11. That the Learned CIT-Appeals-NFAC ought to have appreciated that the AO was not justified in law and had erred in not allowing the depreciation amounting to Rs. 54,65,906/-, claimed u/s. 32 of the Act.

Page 4 of 8 17.11.2014 declaring a loss of Rs. 21,73,58,780, of which Rs. 54,65,906 was by way of unabsorbed depreciation. The intimation under section 143(1) of the Income-tax Act,1961 ['the Act' for short] dated 21.12.2014 was issued and a refund of TDS of Rs. 59,25,750 together with interest under section 244A of Rs. 2,00,386 were granted. The case was selected for scrutiny and notice under section 143(2) of the Act dated 31.08.2015 was issued. The AO verified the background and recorded the following finding of facts in the assessment order, the Company had returned a loss of Rs. 21.73 Crores for the AY 2014 15, the Company has been offering continuous loss right from A Y 2006- 07, from the perusal of the Profit and Loss account, the Company has accounted total revenue of Rs. 5,17,17,322. The major part of the total revenue is revenue from operations to the tune of 4,74,16,574, interest income of Rs. 11,05,627, against the total revenue, the Company has debited an amount of Rs. 27,70,62,033 to the Profit and Loss account, the major part of the expenses include salary and bonus Rs. 19.27 Crores, professional charges Rs. 2.81 Crores, travel and conveyance Rs. 2.75 Crs, database access charges Rs. 0.8 Crs and others; the total value of fixed assets as on March 31, 2014 amounts to Rs. 1,82,77,779. The value of net blocks are computer and peripherals Rs. 9.44 lacs, office equipments Rs. 81.82 lacs, vehicles Rs. 57.12 lacs, furniture and fixtures Rs. 28.82 lacs and computer software Rs. 1.13 lacs. The AO vide Notice under section. 142(1) dated 08.07.2016, received by the Assessee on 13.07.2016, called for several details, which were furnished by the Assessee. The AO vide Notice under section 142(1) r.w.s 129 dated 03.10.2016, received by the assessee on 05.10.2016, called for further details and reconciliations, which were also duly furnished by the assessee.

Hasham Investment and Trading Company Pvt. Ltd., Bangalore

Page 5 of 8 2.1 During the personal hearing the AO sought the detailed note on salary and bonus, Professional Charges, travel and conveyance, database charges, and proof for the services rendered by the Appellant. The details were duly furnished by the assessee. The AO directed that the proof of services rendered to Hasham Premji Private Limited (HPPL) be furnished and in this regard the AO also called for the financial statements of the said company. Apart from the bills raised and Form No. 16A, the assessee also furnished the Service Agreements with its clients to whom investment advisory services were rendered including the agreements with PI Opportunities Fund I and PI Opportunities Fund II, of which HPPL was a trustee. The Appellant also submitted a copy of the financial statements of HPPL and it was also clarified that the bills raised on HPPL were in its capacity as Trustee of PI Opportunities Fund I and PI Opportunities Fund II and therefore the actual beneficiary of the services rendered by the Appellant is the said two funds viz. PI Opportunities Fund I and PI Opportunities Fund II. From the documents on record, the AO further observed that from the invoices filed by the assessee, the major part of the business turnover has been from HPPL as professional services, that similar transactions were also shown in the earlier years, that HPPL and the assessee are related parties having the same address, that as the assessee is engaged in advisory services, in view of the above,' it is construed that the assessee has not done any business activity during the year. Stating that the company has been claiming huge expenses against such income where there is no business activity, th0 AO disallowed expenses amounting to Rs. 27,50,26,230 debited to the Profit and Loss Account on the ground that against the claim of huge expenses against the income where there is no business activity. After

Hasham Investment and Trading Company Pvt. Ltd., Bangalore

Page 6 of 8 allowing Rs. 20,35,803/-stating that this amount is towards minimum requirements to meet statutory compliances for the company, the AO has computed Rs. 4,96,81,519 as the total income for the year, under the normal provisions. The assessee was also asked to substantiate the business expediency of the expenses claimed as salary and wages, professional charges, travelling and conveyance, database access charges and staff recruitment expenses. The assessee explained the business expediency vide its note dated 25.11.2016. Stating that the aforesaid submissions of the Appellant is very much general in nature and the same can be said by any entity for any type of business, without adducing to any of the submissions or details on record or producing any evidence to the contrary, the AO has come to the conclusion that the Appellant could not furnish any proof to substantiate that the expenses were incurred in relation to business activity. The AO has stated that the Appellant could not furnish any business report, certificate of attending meetings, seminar certificates, project summary, reports etc. In view of the same, the AO has proceeded to make a disallowance, under normal computation of expenses incurred under the various heads, amounting to Rs. 27,50,26,230. The AO has made an assessment by allowing only Rs. 20,35,803 as expenses under normal computation. Thus, the AO has treated the total revenue of Rs. 5,17,17,322 as the income by allowing only Rs. 20,35,803 as the expenses incurred by the Appellant required for meeting statutory compliances. The AO has stated that penalty proceedings under section 271(1)(c) are initiated separately for concealment of income and furnishing inaccurate particulars of income. Aggrieved

Hasham Investment and Trading Company Pvt. Ltd., Bangalore

Page 7 of 8 by the Assessment Order passed by the AO, this appeal was filed by the assessee to grant relief.

Order pronounced in the open court on 5th Jan, 2023.