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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI RAJESH KUMAR, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 23.05.2018 passed by the Commissioner of Income Tax (Appeals) -57, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2010- 11.
The revenue has raised the following grounds: - "
1) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to allow the expenses of A.Y.2010-11 Rs.1,96,74,479/- claimed by assessee and delete the disallowance.
2. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
3. The brief facts of the case are that the assessee filed its return of income on 15.10.2010 declaring total income to the tune of Rs.5,73,47,539/-. The case was selected for scrutiny assessment and assessment u/s 143(3) of the Act was completed on 31.12.2012 determining total income to the tune of Rs.7,70,22,020/- against the returned income of Rs.5,73,47,539/- after making disallowance of Rs.1,96,74,479/- on account of expenses. The AO observed that the assessee has credited income from treasury operation of Rs.7,70,65,255/- which consists of interest income only. Further, the AO observed that against this income, the assessee has claimed various expenses totaling to Rs.1,97,17,726/- which consists Rs.87,53,737/- on account of Administrative & Support Fees and an amount of Rs.39,85,264/- on account of Consulting Charges and an amount of Rs.48,39,573/- on account of Treasury Management Fees and an amount of Rs.11,92,373/- on account of Project Development Fee and an amount of Rs.3,53,420/- on account of Advertisement Expenses and an amount of Rs.5,50,112/- on account of Professional Charges and an amount of Rs.43,017/- on account of Audit Fees and an amount of Rs.230/- on account of bank charges. The AO also observed that during the year under consideration, the assessee has neither undertaken any business activity nor earned any income from business activity. Accordingly, the AO relying upon various judicial decision in the case titled as (i) CIT Vs. Govinda Choudhury and Sons (1993) 203 ITR 881 (SC) (ii) CIT Vs. Bokaro Steel Ltd. (1999) 236 ITR 315 (SC) (iii) CIT Vs. Coromandal Cement Ltd.
2 A.Y.2010-11 (1998) 234 ITR 412 (SC) and (iv) CIT Vs. Autokast Ltd. (2001) 248 ITR 110 (SC) allowed expenses of Rs.43,247/- incurred for the purpose of earning interest income and disallowed the balance expenses totaling to Rs.1,96,74,479/-.
Being aggrieved, the assessee preferred an appeal before the CIT(A) and the CIT(A) partly allowed the expenses vide order dated 09.01.2014. Being aggrieved, with the order of CIT(A), the assessee preferred an appeal before the Hon’ble ITAT. The Hon’ble ITAT vide order dated 09.12.2015 in restored the matter back to the file of AO for considering bona-fide in the change in the method of accounting during the year under consideration and for deciding afresh allowability of the expenses. On the basis of direction of Hon’ble ITAT vide order dated 09.12.2015 in ITA. No.2010/M/2014, the disallowance of expenditure in sum of Rs.1,97,17,726/- was again examined and the AO further disallowed the claim and added to the income of the assessee. The total income of the assessee was assessed in sum of Rs.7,70,22,018/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who allowed the claim of the assessee, therefore, the revenue has filed the present appeal before us.
We have heard arguments advanced by the Ld. Representative of the parties and perused the record. The Ld. Representative of the revenue has argued that the claim of expenses in sum of Rs.1,97,17,726/- was wrongly allowed by the CIT(A) however change of method of accounting from cash to mercantile nowhere allowed the earlier expenses, therefore, in the said circumstances, the finding of the CIT(A) is not justifiable hence is liable to be set aside. However, on the other hand, the Ld. Representative of the 3 A.Y.2010-11 assessee has strongly relied upon the order passed by the CIT(A) in question. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.:-
“4 1,96,74,47911- on account of expenses. The CIT (A) allowed the appeal of the assessee Partly vide order dt. 9.01.2014. The assesse preferred appeal before the Hon’ble. The Hon’ble ITAT vide order dt. 09.12.2015 in ITA /No. 2010/Mum/2014 restored the matter back to the file of AO for considering bona fide in the change in the method of accounting during tile year under consideration and for deciding afresh aliowability of the expenses. The assessing officer vide order cit. 23.12.2016 opined that from the perusal of the income & expenditure account filed by the assessee for the year ended 31.03.2010, it is seen that assessee has credited Income from treasury operations of Rs.7,70,65,255/- which consist of interest income only. Against this income, assessee claimed various expenses totaling of Its. 1,97,17,726/- which include major expenses oil of administration and support Fees Rs.87.53.737/- consulting charges of its. 39.85,264/- Treasury Management fee of RS. 4839,5731- Project Development fees of its. 11,92,373/-. Assessee also claimed expenses vu. Advertisement expenses of Rs.3,53,420/- professional charges of RS. 5.50,112/- audit fees of Rs. 43,017/- and batik charges of Rs. 230/-. From the details, it is ascertained that the assessee has not undertaken an' business activity during the year and the only income earned by the assessee is interest income &'FDR& in view of the same, vide order sheet noting dated 02.08.2016, the assessee,was asked to explain as to why the expenses should not be disallowed as there was no business activity as per objective of the trust and income has been assessed as "income from other Sources". These expenses are not allowable u/s. 57 of the Act. in response to the same, assessee tiled details of various expenses claimed by it along with copy of Fund Management Agreement, write up regarding the basis on which the Fund Management Fee is paid to the Fund Manager. Assessee has further submitted the expenses claimed are legitimate and thence, requested to allow the same as they were incurred for the functioning of the MUIF and hence are admissible the deduction from the income. The explanation offered by the assessee is not acceptable. As per the Fund Management Agreement (FMA), the objective of the assessee included facilitating assessee to institutional finance and capital markets for increased investment in urban infrastructure, reduction of cost of 4 A.Y.2010-11 capital, promote and community sector participation, improving creditworthiness of the local bodies, initiating and sustaining urban institutional reform through capacity building, assessee are Project development building facilitating finance, and partial direct lending. Admittedly. (luring the relevant assessment year the assessee has not carried out nay business activity. The corps fund available with the assessee was put in the form of a fixed deposit which has resulted in earning of interest income. The Fund Management Agreement (FMA) was entered into on 02.06.2010 between Maharashtra Urban Infrastructure Trustee Company Ltd Mumbai A corporate trustee of the MUIF Trust) and Maharashtra Urban Infrastructure Development it Company Ltd. (MUIDCL. Fund Manager of the ML'IF Trust. In order to facilitate the objectives of the MUIF the Fund management activities of MUIF are managed by the Fund Manager. Accordingly, MUICDCL also provides Treasury management services to MUIF for all investments made by it for which it changes a Treasury Management Fee @ 0.25% of weighted average of investments made during a particular year. Assessee has claimed Treasury Management Fee for the year under consideration at Its. 48,39,573/- which includes prior period fees of F.Y 2006-07 of Rs. 9,88,0822- F.Y 2007-08 Rs. 11 ,99,873/- and FY 2008-09 of Rs. 12:85,982f- and for FY 200-10 of RS. 13,65,636/- MUIDCI. also provides administrative and secretarial support of MUIF to carry out its objectives for which and Administration and Support Fee is chargeable which increase by 15% over the previous year. AO further contended that having held that interest income of the assessee is to be assessed as income from others trees, expenses for earning such interest can only be allowable u/s. 57(iii) of the LT Act 19 . The clause (iii) of section 57 states that any expenditure (not being in the nature of ca '.al expenditure) laid out or expended wholly and exclusively for the purpose of making earning such income shall be allowed as deduction. In view of section 57 (iii) of the IT Act 1961, assessee is allowed to claim expenses which are wholly and exclusively for the purpose of earning interest income from FDRs only. Accordingly, expense on account of bank charges and audit fee totaling to Rs. 43,247/- are allowed and the balance expenses totaling to Rs. I,96,74,479/- are disallowed and added to the total income. During the course of appellate proceedings, the appellant has raised nine grounds of appeal. Ground No. 1 and 6 is regarding Assessing