DEPUTY COMMISSIONER OF INCOME TAX-6(1)(2), MUMBAI vs. M/S. AXIS ASSET MANAGEMENT CO. LTD, MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.16,50,40,070/- made on account of deferred brokerage expenditure without appreciating the fact that the corresponding income also has not been recoginized as income. Thus, the claim of assessee is against the basic principal of matching of revenue with expenditure.

3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.16,50,40,070/- made on account of deferred brokerage expenditure relying on Hon‟ble Apex Court decision in Taparia Tools Ltd. Vs. JCIT reported Court in 372 ITR 605 (SC) without appreciating the fact that in the instant case, income is offered by the assessee for more than one year and hence, as per revenue matching principle, expenditure has to be claimed for more than one year and not in the first yea itself; and hence, the facts are distinguishable.

4. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the AO be restored. A.Ys.2014-15 & 2015-16 5. The appellant craves leave to amend or alter any ground or to submit additional new ground, which may be necessary.”

4. The brief facts of the case are that the assessee filed its return of income on 26.11.2014 declaring total income to the tune of Rs. Nil for the A.Y.2014-15. The assessee claimed current year loss of Rs.5,28,29,936/-. The case was selected for scrutiny. Notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee is engaged in the business of investment management services and portfolio management services. The assessee claimed the deferred brokerage expenses of Rs.16,50,40,070/- which was declined and added to the income of the assessee. However, the income was assessed to the tune of Rs. Nil. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who allowed the claim of the assessee but the revenue was not satisfied, therefore, the revenue has filed the present appeal before us.

ISSUE Nos. 1 to 3 5. All the issues are in connection with the deletion of addition of Rs.16,50,40,070/- made on account of deferred brokerage expenditure. However, the Ld. Representative of the Department has claimed that the CIT(A) has wrongly deleted the addition, therefore, the finding of the CIT(A) is not justifiable, hence, is liable to be set aside. It is specifically argued that the CIT(A) has wrongly relied upon the order passed by the Hon’ble Apex Court in the case of Taparia Tools Ltd. Vs. JCIT reported in 372 ITR 605 (SC) wherein the claim was belonging to more than one year. However, on the other hand, the Ld. Representative of the assessee A.Ys.2014-15 & 2015-16 has strongly relied upon the order passed by CIT(A) in question and also argued that the issues have been decided by Hon’ble ITAT in the assessee’s own case in his favour in for the A.Y.2013-14 dated 13.07.2021. Before going further, we deem it necessary to advert the finding of the CIT(A) on these issues: - “3.2 1 have considered the facts of the case, the assessment order and the written submission of the appellant as well as case laws cited. There is no dispute that- during the year the appellant had incurred an expenditure of Rs.20,28,84,215, out of that a sum of Rs.3,78,44,145 is debited to P & L account and balance sum of R'-'30,50,40,070 is shown as deferred revenue expenditure in the books of account. It is also not disputed that the entire expenses are in the nature of revenue expenses, which were incurred during the previous year. The only dispute in this case is whether the entire amount of expenses is allowable during this year under ccms1&Atkonor only a proportionate of such expenditure relatable to the year under' consideration is allowable. However, the AO disallowed Rs.16,50,40,070 shown in the books of account based on the stand taken by the AO in the immediate preceding assessment years 201243 and 2013-14. 3.3 The appellant has stated that following the accepted accounting principle, it has amortized the upfront brokerage expenses paid in its books of account over the Life of the Mutual Fund Schemes. It is so because the entire brokerage becomes due and the liability to pay arises at the moment investor invests in Mutual Fund schemes. lithe appellant does not pay the brokerage expenses to the broker then, the broker can sue the A.Ys.2014-15 & 2015-16 appellant to recover the amount due. Therefore, for the purpose of accounting treatments, out of the total brokerage expenses incurred during the year, it has debited is.3,78,44,145 to the P & L Account and balance amounting to Rs.16,50,40,07O is deferred in its books of account over the life of the schemes. The appellant, however, in the return of income, has claimed deduction of: the entire brokerage expenses of Rs.20,28,84,215. The appellant placed reliance Oil the decision of the Hon'ble Supreme Court in the case of Taparia Tools Ltd. Vs. JOT 372 ITR 605 in support of its contention.

3.4 In the case of Taparia Tools Ltd. vs. JCIT (supra), the Hon‟ble Supreme Court held that there is no concept of deferred revenue expenditure in the I. T. Act, except under specified sections where amortization is specifca1Iy provided such as in section 35D. The Hon'ble Apex Court held that if a business liability has arisen in the Accounting Year, the deduction should be allowed evens if such a liability may have to be quantified and discharged at a future date. The Hon'ble Court held that in the said case, the liability had arisen in the assessment year in question, it was even quantified and discharged as well in the very accounting year and hence the deduction should be allowed.

3.5 The assessee has relied on the above mentioned decision of the Hon'ble Supreme Court in support of its contention that the entire amount of brokerage and stamp duty expenses incurred during the year with regard to the 'Mutual Fund Schemes represents an allowable expenditure. On careful examination of A.Ys.2014-15 & 2015-16 the facts of the case and the decision of the Hon‟ble Supreme Court relied on by assessee, it is seen that the said decision is squarely applicable to the facts of the assessee's case. As already mentioned, the brokerage in the case of the assessee represented revenue expenses and the liability for the same had arisen during the previous year itself. Hence, the ratio of the decision of the Hon'ble Supreme Court needs to applied to the assessee, case and it has to be held that the said expenditure is required to be treated as an allowable expenditure for the present assessment year itself. If the assessee claims the expenditure incurred, the Department cannot deny the same and the fact that assessee has deferred the expenditure in the books of account is irrelevant. In view of the above discussion, the disallowance of Rs:16,50,40,070 made by the A.O. is directed to be deleted. This ground of appeal is therefore allowed.”

“6. Against the above order revenue is in appeal before us. We have heard both the parties and perused the records.

9. Upon careful consideration, we note that issue in present case is the treatment of brokerage expenditure, which though already incurred in current period has been treated as deferred revenue expenditure in account of the assessee. In the computation of income the assessee has claimed said expenditure as adjustment from income for the current year. Hence, the question before us, whether the said claim can be allowed u/s 37 of the Act.

I. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of -Assessment years 2001-02 and 2002-03 - Expenditure on publicity and advertisement is to be treated as revenue in nature allowable fully in year in which it is incurred [In favour of assesee] The expenditure on publicity and advertisement is to be treated as revenue in nature allowable fully in year in which it is incurred. In the income-tax law, there is no concept of deferred revenue expenditure. Once A.Ys.2014-15 & 2015-16 the assessee claims the deduction for the whole amount of such an expenditure, even in the year in which it is incurred, and the expenditure fulfils the test laid down under section 37, it has to be allowed. In the assessment year 2001-02, the assessee- company claimed an expenditure of Rs. 3.93 crores on account of advertisement and publicity expenditure as revenue expenditure and the same had been debited to the profit and loss account. The Assessing Officer was of the view that this expenditure could not be termed as an expenditure relevant exclusively for the period of 12 months under consideration during the said assessment year; such advertisement and publicity expenses had a bearing on the period which spread over a period of five years and, therefore, the assessee could not claim the benefit in the year in which the expenditure was incurred. Thus, opining that the benefit was of an enduring nature, he was of the view that it was to be spread over a period of five years and, thus, allowed 1/5th of the aforesaid amount in the year in question. The Tribunal, however, allowed the assessee's claim.

Held that the expenditure in question was incurred by the assessee in the relevant assessment years in which the assessee was claiming deduction thereof under section 37. Thus, there was no dispute that the expenditure was, in fact, incurred, it was also not in dispute that the expenditure in question was business expenditure incurred wholly for the purpose of the business of the assessee. The expenditure incurred in the nature of advertisement and publicity was incurred forever and in no manner any portion thereof reverted back to the assessee. There A.Ys.2014-15 & 2015-16 was no advantage which had accrued to the assessee in the capital field. The expenditure was incurred to facilitate the assessee's trading operations. No fixed capital was created by this expenditure.

Only in exceptional cases, of the nature mentioned in Madras Industrial Investment Corporation .d. v. C/T [1997] 225 ITR 802 (SC). the expenditure can be allowed to be spread over, that too ,when the assessee chooses to do so. Hence, the assessee's claim was to be allowed in full in the year in question.

II. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of -Assessment years 2001-02 and 2002-03 - Where assessee had been financing hire-purchase of vehicles and homes, etc., and period of such financing ranged from less than one year to 5 years, on such transactions Direct selling expenses, stamping fee and commission paid to selling agents were to be allowed in year in which transactions took place [In favour of assessee] The assessee had been financing hire-purchase of vehicles and homes, etc., and the period of such financing ranged from less than one year to 5 years. Holding that on such transactions, direct selling expenses, stamping fee and commission paid to selling agents could not be treated as expenses relating to the year in which the transaction took place as the period of financing was normally more than one year, the Assessing Officer took the view that these expenses could not be termed as having the chargeability in the year which they were incurred. He took the average of three years for such agreements and A.Ys.2014-15 & 2015-16 spread the expenses over a period of three years, thereby allowing 1/3rd expenditure incurred in that particular year. The Tribunal held that as the expenditure incurred had nothing to do with the period or length of time and had no linkage, whatsoever, to any period, the entire expenditure was allowable in the year in which it was incurred. It further held that the expenditure was incurred once and for all in the form of stamping duty as well as commission paid to the direct selling agents for procuring the loan assignments and it was not dependent upon the working out of the agreements ultimately entered into between the assessee and the customers. It held that since the commission was paid to the direct selling agents, for their services in sourcing hires in the year in which the loan was disbursed, it was to be allowed as business expenditure.

Held that the Tribunal was right in holding that the expenditure was incurred once and for all in the form of stamping duty as well as commission paid to the direct selling agents for procuring the loan assignments and it was not dependent upon the working out of the agreements ultimately entered into between the assessee and the customers. Since the commission was paid to the direct selling agents, for their services in sourcing hires in the year in which the loan was disbursed, it was to be allowed as business expenditure. Thus, the expenditure was required to be allowed as revenue/business expenditure incurred in the year in which the transactions were entered into. A.Ys.2014-15 & 2015-16 14. Thus to recapitulate in the instant case before us, we find that assessee has incurred expenditure on brokerage expenditure paid for obtaining investments in mutual funds. The investment made in the funds yields income over a period of years, however the said amount of brokerage expenditure incurred is not refundable to the assessee in any circumstances. Undisputedly, the expenditure is wholly and exclusively for the purpose of business. The concept of deferred revenue expenditure is not there in I.T. Act, which is duly supported by the decision of Hon‟ble Supreme Court in Taporia Tools (supra). The expenditure cannot also not be categorized in the capital filed on the plea of enduring benefit, as per the ratio of Hon‟ble Supreme Court in Empire Jute Mills (supra) Hence, we have no hesitation to hold that in these circumstances and examining the present issue on the anvil of Hon‟ble Supreme Court decisions as above, the expenditure incurred on brokerage is to be allowed in full in the impugned assessment year, as deferral of the same over a number of years for income tax purposes is not sustainable. Accordingly, we uphold the Ld.CIT(A)‟s order.”

7. Since the issue has duly been considered by Hon’ble ITAT in the assessee’s own case in for the A.Y.2013-14 dated 13.07.2021 and the issue has duly been covered, therefore, it is quite clear that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, we affirm the finding of the CIT(A) on this issue and decide these issues in favour of the assessee against the revenue. A.Ys.2014-15 & 2015-16 ITA. No.5381/Mum/2019 8. The facts of the present case are quite similar to the facts as discussed above while deciding the appeal bearing , therefore, there is no need to repeat the same. However, the figure is different. The finding given above while deciding the ITA. No.5380/Mum/2019 is quite applicable to the facts of the present case also as mutatis and mutandis. Accordingly, we dismiss the appeal of the revenue bearing ITA. No.5381/Mum/2019 also.