AHA HOLDINGS P. LTD,MUMBAI vs. PRINCIPAL COMMISSIONER OF INCOME TAX 6, MUMBAI

आयकर अपीलीय अधिकरण “A” न्यायपीठ म ुंबई में। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI श्री महावीर स िंह, उपाध्यक्ष एविं श्री एम बालगणेश, लेखा दस्य के मक्ष । BEFORE SRI MAHAVIR SINGH, VP AND SRI M BALAGANESH, AM आयकर अपील सुं./ (निर्ाारण वर्ा / Assessment Year 2014-15) AHA Holdings Private Limited The Pr. Commissioner of 2nd Floor, Trade View Building, Income TAx-6, बनाम/ Oasis Complex, Kamala Mills, Room No. 515, 5 th Floor, Gate No.4, Pandurang Budhkar Aayakar Bhavan, Maharishi Vs. Marg, Lowe Parel, Karve Road, Mumbai-400 013 Mumbai -400 020 (अपीलार्थी / Appellant) (प्रत्यर्थी/ Respondent) स्र्थायी लेखा सुं./PAN No. AAFCS6404E अपीलार्थी की ओर े / Appellant by : Shri Hioro Rai, AR प्रत्यर्थी की ओर े / Respondent by : Shri Rajeev Harit, CIT DR ुिवाई की तारीख / Date of hearing: 09.01.2020 घोर्णा की तारीख / Date of pronouncement : 04.02.2020 आदेश / O R D E R महावीर ससुंह, उपाध्यक्ष / PER MAHAVIR SINGH, VP:

This appeal by the assessee is arising out of revision order passed by Pr. Commissioner of Income Tax -6, Mumbai [in short PCIT], in Appeal No. PCIT-6/u/s.263/AHA Holdings/2018-19/275 vide dated 13.03.2019. The Assessment was framed by the Dy. Commissioner of Income Tax, Circle-6(1)-1, Mumbai (in short DCIT/ AO) for the A.Y. 2014-15 vide order dated 19.12.2016 under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).

2 | P a g e M/s AHA Holdings Private Limited 2. The only issue in this appeal of assessee is against the revision order passed by Pr. CIT under section 263 of the Act and setting aside the assessment made by the DCIT, Circle 6(1)-1, Mumbai dated 19.12.2016 under section 143(3) of the Act. For this, the assessee has raised the following three grounds: - “1. The learned Pr. CIT was not justified in passing an order under section 263 setting aside the assessment made under section 143(3) of the Act. The assumption of jurisdiction under section 263 and also the order passed thereon are illegal, invalid and unjustified.

3. The learned Pr. CIT was not justified in holding that “Hence, “Branding and Advertisement” expenses of ₹2,36,33,769/- towards promoting its subsidiary M/s Smaaash Entertainment Pvt. Ltd. should have been disallowed”.

3 | P a g e M/s AHA Holdings Private Limited The reasons given by him in this regard are incorrect and unjustified.”

3. It is seen that said promotion expenses have been incurred for 4 | P a g e M/s AHA Holdings Private Limited promoting/ advertising of subsidiaries and not for enhancing the business of assessee company. Further, it is seen that you have invested in lare in these subsidiaries. Even if expenses are investment in subsidiary companies, are capital in nature and the same cannot be claimed as expenses in profit and loss account. Hence, ‘Branding and Advertisement’ expenses in profit and loss account. Hence, ‘Branding and Advertisement’ expenses of ₹2,36,33,769/- towards promoting its subsidiary M/s Smaaash Entertainment Pvt. Ltd. should have been disallowed. It appears that during the course of assessment proceedings, this aspect has not been given due consideration.”

6 | P a g e M/s AHA Holdings Private Limited that original assessment was completed by the AO under section 143(3) of the Act vide order dated 19.12.2016 and AO during the course of assessment proceedings issued notice dated 29.07.2016 vide No. DCIT-6(1)(1)/142(1)/29/2016-17 asked for the details of sales promotion expenses vide point No.12 as under: - “12. Details of Sales promotion expenses.”

Enclosed herewith vide Annexure 9.”

7 | P a g e M/s AHA Holdings Private Limited Charge-local Tournament Winners 638,337 Grand total 24,204,468 8. Further, the supplied details are also given at pages 7 to 10 of the assessee’s Paper Book which were filed before the AO during the course of assessment proceedings. Subsequently, on enquiry by the AO the same was replied by the assessee vide letter dated 13.12.2016 and the justification on sales promotion expenses was given, explaining the commercial expenditure as under: - “During the year under consideration, the assessee has incurred ₹2,42,04,468/- as sales promotion expenses. Details of the same have been already been submitted to you vide our earlier submission dated 26th August, 2016. On perusal of the same, you will notice that the said expenses are in the nature of promotion of business of assessee’s subsidiaries viz. Smaaash Entertainment Private Limited, Creo Lifestyles private Limited and others. The assessee is the promoter of its subsidiaries as well as it has invested a large stake in them. Further, these companies have been incurring losses as it’s still their initial years from commencement of their business and also some of the business of the assessee’s

8 | P a g e M/s AHA Holdings Private Limited subsidiary company being capital intensive in nature, the assessee has incurred certain promotion expense for promoting/advertising their business. Accordingly, these expenses have been incurred by the assessee to give a hitch to their business and the same is mad in nature of commercial expediency.”

“The jurisdiction of the revenue is confined to deciding reality of the expenditure, namely, whether the amount claimed as deduction has been factually expended or laid down and whether it has been wholly and exclusively for the purpose of business. The reasonableness of the expenditure can be gone into only

9 | P a g e M/s AHA Holdings Private Limited for the purpose of determining whether, in fact, the amount is spent. Once it is established that there is a nexus between the expenditure and the purpose of business, the revenue cannot justifiably claim to put itself in the armchair of a businessman or in the position of the board of directors and assume the said role to decide how much is a reasonable expenditure having regard to the circumstances of the case.”

10 | P a g e M/s AHA Holdings Private Limited expediency. We noted that the revision order passed by PCIT only talks about the claim of expenditure as capital in nature but has not held how it is capita in nature. Further, according to PCIT, the expenditure incurred is branding and advertisement expenses towards promoting its subsidiaries, which has not been held for non-business purposes. But we failed to understand that how this is a branding expenditure whereas this is clearly sales promotion expenses as from the very nature of expenses explained by assessee. Even otherwise, this issue has been considered by the AO as detailed out above and assessee has filed complete details before the AO on specific query and even justification was filed by the assessee regarding claim of this expenses before the AO during the scrutiny assessment proceedings and thereafter the AO has framed assessment under section 143(3) of the Act. Hon’ble Bombay High Court in similar situation has considered the issue, wherein the AO has examined the details and allowed the claim of the assessee in the case of CIT vs. Gabriel India Ltd. 203 ITR 108 (Bom), the another case law of Hon’ble Bombay High Court in the case of CIT vs. Gera Development P. Ltd. 387 ITR 691 (Bom.), wherein the similar issue was considered and held as under: - “7. We have considered the rival submissions. With regard to issue (a) i.e. taxability of the transfer of development right, we find that the impugned order of the ITAT records findings of Assessing Officer in detail from which it is evident

11 | P a g e M/s AHA Holdings Private Limited that the Assessing Officer applied his mind to the above claim and on the basis of the facts before him, came to the conclusion that an amount of Rs.5.86 Crores out of Rs. 41 Crores received could alone be subjected to the tax as income during the subject assessment year. The balance amount Rs.35.14 Crores has to be treated as deposit as the same is subject to being refunded in the absence of the environmental clearance. Thus, we find that the Assessing Officer has taken a view/formed an opinion on the facts before him and such a opinion cannot be said to be an erroneous as it does not proceed on the incorrect assumption of facts or law and the view taken is a possible view. Therefore, as held by the Apex Court in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83/109 Taxman 66 where two views are possible and the Income Tax Officer has taken one view with which the Commissioner of the Income Tax does not agree, cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless

12 | P a g e M/s AHA Holdings Private Limited the view taken by the Income Tax Officer is itself unsustainable in law.

So far as issue (b) i.e. warranty expenses claimed by the respondent - assessee is concerned, we find that the ITAT has recorded the fact that a specific query with regard to the same was made by the Assessing Officer during the assessment proceedings. This query was responded to by the respondent - assessee justifying the warranty expenses. The Assessing Officer being satisfied with regard to the justification offered, allowed the claim of warranty expenses as made by the respondent - assessee. It is thus clear that the Assessing Officer had considered the issue by raising questions during the assessment proceedings. The mere fact that it does not fall for discussion in the assessment order would not ipso facto lead to the conclusion that the Assessing Officer did not apply his mind. It is clear that if the Assessing Officer is satisfied with the response of the assessee on the issue and drops the likely addition, it cannot be said to be non-application of mind to the issue arising before the 13 | P a g e M/s AHA Holdings Private Limited Assessing Officer. In fact this issue was a subject matter of the consideration by this Court in the CIT v. Fine Jewellery (India) Ltd. [2015] 55 taxmann.com 514/230 Taxman 641/372 ITR 303. In the above case, an identical submission made on behalf of the Revenue was negatived in the context of exercising of power under Section 263 of the Act to hold that if a query is raised during the assessment proceedings and responded to by the assessee, the mere fact that it has not been dealt with in the assessment order would not lead to a conclusion that the Assessing Officer has not applied his mind to the issues.

14 | P a g e M/s AHA Holdings Private Limited 11. In view of the above facts and circumstances of the case, the proposition of law laid down by Hon’ble Bombay High Court that once the issue has been examined by the AO in detail and one of the permissible view is taken by allowing the claim of expenditure of assessee, no revision is possible under section 263 of the Act. Hence, we quash the revision order passed by PCIT and allow the appeal of the assessee.