ASK PROPERTY INVESTMENT ADVISORS PVT. LTD.,MUMBAI vs. DCIT , CIRCLE 2(1)(1), MUMBAI

The Ld. Sr. Counsel, at the outset, submitted that identical issue arose in AYs 2010-11 & 2012-13 which has been adjudicated by the Tribunal vide & 1635/Mum/2016 common order dated 04/10/2019. The copy of the order has been placed on record. The Ld. DR could not controvert the said position. No change in factual matrix could be brought out before the bench. In fact the impugned order relies upon first appellate orders for AYs 2010-11 & 2012-13. In the above background, our adjudication to the subject matter of appeal would be as given in succeeding paragraphs.

During assessment proceedings, it transpired that the assessee paid Client Referral Fees (CRF) of Rs.403.21 Lacs. In AY 2010-11, similar expenditure as claimed by the assessee was allowed to be amortized for 7 years. In AY 2013-14, the said expenditure was treated as capital expenditure. Though the assessee defended its stand of claiming full expenditure during the year, however, following assessment order for AY 2010-11, Ld. AO allowed 1/7th of the expenditure and disallowed the balance amount of Rs.345.61 Lacs.

The Ld. CIT(A), following first appellate orders for AYs 2010-11 & 2012-13, dismissed the grounds urged by the assessee. Aggrieved the assessee is in further appeal before us.

As rightly pointed out by Ld. Sr. Counsel, this issue stood squarely in assessee’s favor by the cited decision of the Tribunal wherein it has been held as under: - 6.2. From the aforesaid judgment, 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 judgment. 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 chooses to do so in the return. We find that the ratio laid down in the aforesaid judgment 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 CIT(A) 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 :- …….. The ld DR relied on the decision of Hon‟ble Karnataka High Court in the case 6.4 of Fidelity Business Services India Pvt Ltd vs ACIT in dated 23.7.2018 to support his arguments that this tribunal should set right the error committed by the ld CIT(A) in the facts of the instant case in as much as, the ld CIT(A) 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 CIT(A) 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 CIT(A) should be rectified by this tribunal by remanding the entire issue to the file of ld CIT(A) 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 CIT(A). The assessee is in appeal before us only for the allowability of remaining 6/7th 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 judgments 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. 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.