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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI R.C SHARMA, AM & SHRI RAVISH SOOD, JM
आदेश / O R D E R
PER RAVISH SOOD, JUDICIAL MEMBER:
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-9, Mumbai, dated 29.03.2011 which in itself arises from the order passed by the A.O under Sec. 143(3) of the Act, 1961 (for short ‘Act’), dated 27.11.2009. The assessee assailing the order of the CIT(A) had raised before us the following grounds of appeal:-
2 M/s Centrum Broking Pvt. Ltd. Vs. Dy. CIT “ 1. The learned CIT(A) erred in law by exceeding his powers of enhancement , by making an adhoc disallowance of of 80% of the expenses reimbursed to the sister concern of your appellant, and as such this addition is bad in law and should be deleted.
2. The learned CIT(A) erred in law and on facts while enhancing the assessment by ignoring the various documents and explanation submitted before him in support of claim of expenses reimbursed to the sister concern and this disallowance is based on erroneous observations that no documentary evidence or workings etc. were filed and as such this disallowance ought to be deleted.
The basis adopted by the learned CIT(A) to determine the expenses as „unreasonable or excessive‟ while enhancing the assessment were erroneous in as much as expenses of the year 2006 could not have been compared wit that of the year 2007 as your appellant acquired the broking business in the year 2006 with 1 location that became 17 locations in the year 2007 and the income had risen by 170%.
The learned CIT(A) while concluding that the expenses were „unreasonable or excessive‟ failed to appreciate that the transaction of reimbursement of expense by your appellant to its sister concern did not have any tax saving at group level as both the companies with or without considering this transaction had taxable income chargeable at the same rate of tax.
The learned CIT(A) erred in law and on facts in making disallowance of 80% of the expenses reimbursed to the sister concern amounting to Rs. 77,51,789/- purely on adhoc basis and such adhoc addition is bad in law and ought to be deleted.
The learned CIT(A) erred in law by exceeding his powers by initiating penalty u/s 271(1)(c) of the Act on the ad hoc disallowance made while enhancing of income. Your appellant craves leave to add, amend, modify, substitute, alter or withdraw any of the Grounds of appeal.”
Briefly stated, the facts of the case are that the assessee company which is a Share and stock broker and is a member of Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) had e-filed its return of income for A.Y. 2007-08 on 15.11.2007, declaring total income at Rs.22,57,560/-. The return of income was processed as such under Sec. 143(1) of the Act. The case of the assessee was thereafter selected for scrutiny assessment under Sec. 143(2).
3 M/s Centrum Broking Pvt. Ltd. Vs. Dy. CIT 3. That during the course of the assessment proceedings the A.O made certain additions/disallowances in the hands of the assessee, viz. (i). disallowance under Sec 40(a)(ia) : Rs. 3,47,563/-; (ii). penalty paid to stock exchange : Rs. 70,293/- ;and (iii). disallowance under Sec. 14A : Rs. 91,120/-, and assessed the income of the assessee at Rs. 27,66,540/-.
4. Aggrieved, the assessee assailed the assessment order before the CIT(A). The CIT(A) partly allowed the issues which were assailed by the assessee before him. That during the course of the appellate proceedings the CIT(A) observed that the assessee had claimed that an amount of Rs. 97,59,789/- was reimbursed towards expenditure incurred by its sister concern Centrum Direct Limited (for short ‘CDL’) on its behalf. The CIT(A) observed that out of the aforesaid amount Rs.94,87,025/- was shown as payable in the balance sheet. The CIT(A) called upon the assessee to furnish details as regards the aforesaid transaction, viz. (i). on what basis the payment of Rs. 97,57,789/- was made; (ii). furnish supporting documents, details of persons and expenses involved in the work of the assessee; and (iii). that now when the assessee was having its own staff and facility then what was the need to obtain the services of the sister concern, viz. Centrum Direct Limited.
5. The assessee explaining the nature of the aforesaid transaction, submitted before the CIT(A) that as it had a presence in all segments of financial intermediary business except broking, therefore, it had with the intent to complete its product range acquired a company, viz. Advani Share Brokers Pvt. Ltd. (for short ‘ASBPL’) which was engaged in the business of share broking as a member of BSE and NSE and mainly catered to retail and some institutional clients. The assessee submitted before the CIT(A) that as ABSPL was a single office company 4 M/s Centrum Broking Pvt. Ltd. Vs. Dy. CIT operating in Mumbai, therefore, its retail client base was very small. It was submitted by the assessee that due to competition in the trade line the brokerage rates were substantially scaled down, while for on the contrary due to manifold factors, viz. increase in compliance requirements in the trade line, heavy computerization costs etc., the expenses involved in running the trade as per the need of the day had witnessed a steep rise. The assessee submitted that due to the said shift in the trade, it was but essential for the assessee to increase the turnover. That as per the assessee one of its group company, viz. Centrum Direct Limited which was engaged in the Foreign Exchange business under RBI license had already established country wide branches for handling its foreign exchange business. It was submitted by the assessee that as it had intended to set up a country wide branch network for its share broking business, therefore, being guided by business prudence it decided to co-locate broking branches in the country wide offices of Centrum Direct Link. The assessee on the basis of its aforesaid strategic approach identified 15 locations across India for setting up its share broking business, and its group concern, viz. Centrum Direct Limited agreed to share office space, common facilities and administrative staff with the assessee company, in order to facilitate the carrying on of the share broking business by the assessee. The assessee in order to fortify the veracity of its aforesaid contention, submitted that as the trading terminals could only be operated by the broker on his own or his employees, therefore, in order to facilitate setting up and operation of such trading terminals at the branches of its group concern, viz. Centrum Direct Limited, it had obtained necessary permissions from the concerned Stock Exchanges. The assessee brought to the notice of the CIT(A) that it had appointed around 25 persons directly at various locations for carrying out such activities which were business critical, while for reimbursed salary of 5 M/s Centrum Broking Pvt. Ltd. Vs. Dy. CIT employees recruited by Centrum Direct Limited for carrying out support and non critical activities relating to its share broking business. The assessee in order to drive home its aforesaid contention, therein placed on record of the CIT(A) a list of the 15 locations where NEAT and CTCL terminals of the assessee were set up and operated by the assesse’s employees only. It was submitted by the assessee that adopting of such cost sharing model made business sense. The assessee fortifying its said contention, submitted that in the month of March, 2007 with 53 employees on roll the salary expenditure amounted to Rs. 19.38 lacs, i.e average salary of Rs. 36,560/-, while for 26 support employees of Centrum Direct Limited who were reimbursed by the assessee amounted to Rs. 4.05 lac, which therein worked out to an average salary reimbursement expense of Rs. 15,600/- only. The assessee further submitted that it had also reimbursed rent, electricity charges and telephone expenses on the basis of reasonable estimate of use of the said facilities. It was averred by the assessee that sharing of the office premises of Centrum Direct Limited made business sense, as the same not only saved the time taken for identification of locations, finalizing agreements with landlords, renovation/repairs of premises to make it usable for business, but rather, the assessee was further benefited by not being called upon to give any deposits for accommodation, electric meters or telephone connections. The assessee furnished the bifurcated details of the reimbursement expenses of Rs. 97,51,789/- pertaining to its group concern, viz. Centrum Direct Limited, out of which an amount of Rs. 94,87,025/- was outstanding in the balance sheet for year under consideration. Thus, in the backdrop of the aforesaid facts it was averred by the assessee that as the reimbursement of expenses to its group concern, viz. Centrum Direct Limited was wholly, exclusively and necessarily for the purpose of its business, therefore, the same 6 M/s Centrum Broking Pvt. Ltd. Vs. Dy. CIT was allowable in the hands of the assessee while computing its income. The assessee in order to remove any scope of doubt as regards the veracity of its claim of the reimbursement expenditure, submitted that as its sister concern, viz. Centrum Direct Limited had taxable income, therefore, there remained no occasion to apprehend that the assessee had came up with a tailored arrangement and claimed the said expenditure with the purpose and intent to hoodwink payment of taxes.
6. The CIT(A) after deliberating on the contentions of the assessee was however not persuaded to be in agreement with the same. The CIT(A) held a conviction that the assessee had came forth with a cooked up story, which was without any basis. The CIT(A) observed that not only the aforesaid claim of the assessee was not backed by any documentary evidence, but rather, there was no cost sharing agreement of the assessee with its sister concern, viz. Centrum Direct Limited. The CIT(A) in order to fortify his aforesaid conviction, observed that as against the salaries and welfare expenses of Rs. 66,63,901/- and telephone expense of Rs. 7,60,871/- in the immediate preceding year, viz. A.Y. 2006-07, the salary and welfare expenses had witnessed a steep rise to Rs. 1,46,98,289/-(including salary expenses of Rs. 1,35,29,903/-), while for the telephone expenses had escalated to Rs. 37,84,219/- during the year under consideration, viz. A.Y. 2007-08, which rise in expenses as per the CIT(A) was beyond comprehension. The CIT(A) on the basis of his aforesaid observations concluded that as the assessee was having its own staff and infrastructure, therefore, the expenses of Rs. 97,51,789/-(supra) claimed by the assessee to have been reimbursed to its sister concern, viz. Centrum Direct Limited appeared to be substantially inflated and unreasonable. The CIT(A) observed that as the assessee had expanded its business network to some extent, 7 M/s Centrum Broking Pvt. Ltd. Vs. Dy. CIT therefore, some part of the expenditure so claimed by the assessee was to be allocated and allowed in the hands of the assessee. The CIT(A) on the basis of his aforesaid observations allowed a lump sum payment of Rs. 20 lac as against the claim of Rs. 97,51,789/- raised by the assessee. Thus, on the basis of the aforesaid deliberations the CIT(A) directed the A.O to enhance the income of the assessee to the extent of Rs. 77,51,789/-.
The ld. authorised representative (for short ‘A.R’) for the assessee Sh. J.D Mistry, Senior advocate, at the very outset submitted that the issue involved in the case pertained to the enhancement made by the CIT(A), disregarding the arrangement of cost sharing of expenses between the assessee and its sister concern, viz. Centrum Direct Limited during the year under consideration. The ld. A.R drew our attention to the details of the brokerage income and the bifurcated details of the expenses, viz. salary, telephone expenses, electricity expenses and rent for the year under consideration, as against those for the preceding two years, as well as the share of branch expenses of Rs. 97,51,788/- which were to be reimbursed by the assessee to its sister concern, viz. Centrum Direct Limited that had incurred the same on its behalf. The ld. A.R submitted that the CIT(A) had made an adhoc disallowance of Rs. 77,51,788/-, which being devoid of any basis could not be sustained. The ld. A.R took us through the ‘Schedule 7’ of the ‘Balance sheet’ of the assessee for the year under consideration, wherein the amount of expenses payable to its sister concern, viz. Centrum Direct Limited stood reflected at Rs. 94,87,025.68. The ld. A.R further took us through the letter dated. 11.01.2011 that was filed with the CIT(A) (Page 65) of ‘Paper book’ (for short ‘APB’), wherein the assessee had explained at length the nature and basis of claim of expenses of Rs. 97,51,788/- raised by the assessee, out of which an amount of Rs. 94,87,025/- stood reflected 8 M/s Centrum Broking Pvt. Ltd. Vs. Dy. CIT as payable on 31.03.2007. The ld. A.R in order to fortify the veracity of the expenses which were reimbursed to its group concern, viz. Centrum Direct Limited, therein drew our attention to the details of the NEAT and CTCL terminals in NSE (Page 68 of ‘APB’), the details as regards the salary reimbursements to Centrum Direct Limited during the year under consideration (Page 69-71 of ‘APB’) and the details of the allocated common expenses shared by the assessee with Centrum Direct Limited during the period 01.07.2006 to 31.03.2007 (Page 72 of ‘APB’). The ld. A.R further drew our attention to its replies dated 25.11.2010 and 19.11.2010 filed with the CIT(A), wherein the explanation as regards the amount of Rs. 94,87,025/- payable to Centrum Direct Limited was furnished (Page 75 & Page 78 of ‘APB’). The ld. A.R further took us through the copy of the ledger a/c of Centrum Direct Limited appearing in the ‘books of account’ of the assessee for the period 01.04.2006 to 31.03.2007. The ld. A.R further referred to the letter dated. 07.12.2010 filed with the CIT(A), wherein the copy of the ‘Memorandum of Understanding’, dated. 30.06.2006 and copy of ‘debit notes’ raised by Centrum Direct Limited in respect of sharing of expenses for the period 01.07.2006 to 31.03.2007 (Page 95-99 of ‘APB’). The ld. A.R further drew our attention to the ‘Profit & loss a/c’ of the group concern of the assessee, viz. Centrum Direct Limited (Page 102 of ‘APB’), in order to fortify its claim that as the said latter concern was also a profit making concern, therefore, no doubts as regards hoodwinking of taxes or revenue leakage in the garb of booking of bogus reimbursement of expenses by the assessee to its aforesaid sister concern, viz. Centrum Direct Limited, could logically be inferred. The ld. A.R further drew our attention to the observations of the CIT(A) as regards the enhancement of income by him by an amount of Rs. 77,59,789/-. The ld. A.R further averred that the business model of sharing of expenses adopted by the assessee had 9 M/s Centrum Broking Pvt. Ltd. Vs. Dy. CIT substantially benefited the assessee, which could safely be gathered from the fact that in the immediately succeeding year, viz. A.Y. 2008- 09 the ‘brokerage receipts’ of the assessee had increased to Rs. 6,65,75,258/- (Page 100 of ‘APB’).
The ld. A.R further assailed the validity of the enhancement made by the assessee, on the ground that as the issue as regards the reimbursement of expenses was not the subject matter of the assessment order, therefore, the CIT(A) in the garb of exercising his powers of enhancement had traversed beyond the limited scope of his jurisdiction. The ld. A.R in support of his contention relied on the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC) and the judgment of the Hon’ble High Court of Delhi in the case of CIT Vs. Sardari Lal & Co. (2002) 120 Taxman 595 (Del). Per contra, the ld. Departmental representative (for short D.R’) submitted that the letter dated. 20.12.2010 relied upon was never filed by the assessee with the CIT(A). The ld. D.R submitted that the CIT(A) by enhancing the income of the assessee had acted well within his jurisdiction. The ld. D.R in order to support his aforesaid contention relied on the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC) and drew our attention to the observations of the Hon’ble Apex Court recorded at Page 6 of its order. The ld. A.R in rebuttal submitted that Page 4 of the CIT(A) order clearly referred to the letter dated. 20.12.2010, therefore, the contention of the ld. D.R that no such letter was filed with the CIT(A) was disproved. The ld. D.R submitted that as the contentions of the assessee did not merit acceptance, therefore, its appeal may be dismissed. The ld. A.R further submitted that the judgment of the Hon’ble Apex Court in the case of Kanpur Coal Syndicate (supra) was duly considered by the Hon’ble High Court of Delhi in the case of 10 M/s Centrum Broking Pvt. Ltd. Vs. Dy. CIT Sardari Lal & Co.(supra). The ld. A.R submitted that as the enhancement made by the CIT(A) was neither legally sustainable, nor could be sustained on merits, therefore, the same was liable to be vacated.
We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that our indulgence in the present appeal had been sought to adjudicate the validity of the enhancement of the income of the assessee by the CIT(A) by an amount of Rs. 77,59,789/-. The ld. A.R for the assessee Sh. J.D Mistry, Senoir advocate after taking us at length through the facts of the case, had assailed the very maintainability of the enhancement of income by the CIT(A), by claiming that the latter had traversed beyond the scope of his jurisdiction and enhanced the income of the assessee. The ld. A.R averred that though the powers of the CIT(A) are coterminous with that of an A.O, however, the same are open qua the subject matter of appeal before him. The ld. A.R in order to drive home his aforesaid contention had relied before us on the judgment of the Hon’ble Apex Court in the case of CIT Vs. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC) and the judgment of the Hon’ble High Court of Delhi in the case of CIT Vs. Sardari Lal & Co. (2002) 120 Taxman 595 (Del). Thus, the ld. A.R in the backdrop of his aforesaid contentions submitted that though the issue as regards reimbursement of the expenses by the assessee to its group concern, viz. Centrum Direct Limited was not before the CIT(A), however, the latter transgressing the arena of his jurisdiction had enhanced the income of the assessee on the said issue.
We have given a thoughtful consideration to the issue pertaining to the scope of the powers of enhancement of income which are vested 11 M/s Centrum Broking Pvt. Ltd. Vs. Dy. CIT with the CIT(A). We find that as per Sec. 251(1)(a), the CIT(A) in an appeal against an order of assessment, may confirm, reduce, enhance or annul the assessment. Still further, Sec. 251(2) cast a statutory obligation on the CIT(A) to afford a reasonable opportunity of showing cause against an enhancement proposed by him. We find that a bare perusal of the aforesaid statutory provisions which regulate the powers of the CIT(A) to enhance the income of the assessee appellant, had specifically been used in harmony with the term assessment. We are of the considered view that from a literal interpretation of the language used by the legislature in the aforesaid statutory provisions, it can safely be concluded that the powers of enhancement of the CIT(A) are wide enough to enable him to correct the A.O not only with regard to a matter which had been raised by an assessee before him, but also with regard to a matter which had been considered by the A.O and determined in the course of the assessment. That our aforesaid view is fortified by the judgment of the Hon’ble High Court of Bombay in the case of Narrondas Manordass Vs. CIT (1957) 31 ITR 909 (Bom). We have further deliberated at length on the judgment of the Hon’ble Apex Court in the case of CIT Vs. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC) as relied upon by the ld. A.R, and find that the Hon’ble Apex Court had held that it was not permissible for the first appellate authority to travel outside the record, i.e the return made by the assessee or the assessment order of the A.O, with a view to find out new sources of income, and the power of enhancement was restricted to the sources of income which had been the subject matter of consideration by the A.O from the point of view of taxability. We find that the Hon’ble Apex Court while deliberating on the scope of powers of enhancement of the CIT(A), had observed as under:
12 M/s Centrum Broking Pvt. Ltd. Vs. Dy. CIT “There must be something in the assessment order to show that the income-tax officer applied his mind to the particular subject matter or the particular source of income with a view to its taxability or to its non-taxability and not to any incidental connection.” We have further perused the judgment of the Hon’ble High Court of Delhi in the case of Commissioner of Income-tax Vs. Sardari Lal & Co. (2002) 120 Taxman 595 (Delhi). We find that the High court after deliberating on various judgments of the Hon’ble Apex court, therein concluded that the power of enhancement under section 31(3) of the 1922 Act, was restricted to the subject matter of assessment or the source of income, which was considered either expressly or by clear implication by the A.O from the point of view of taxability, and the first appellate authority had no power to assess the source of income which had not been taken into consideration by the A.O. We have deliberated at length on the aforesaid judicial pronouncements, and are of the considered view that it can safely be concluded that though the CIT(A) in the garb of exercise of powers of enhancement vested with him cannot find out and assess a new source of income, however, his powers of enhancement are in no way jeopardised as regards correcting the A.O not only with regard to a matter which had been raised by an assessee before him, but also with regard to a matter which had been considered by the A.O and determined in the course of the assessment.
We shall now in the backdrop of our aforesaid observations adjudicate the validity of the enhancement made by the CIT(A) in the case of the assessee before us. We have deliberated on the facts of the case and find that the expenses of Rs. 97,51,788/- under consideration were debited in the ‘Profit & loss a/c’ of the assessee 13 M/s Centrum Broking Pvt. Ltd. Vs. Dy. CIT (Page 34 of ‘APB’), out of which an amount of Rs. 94,87,025/- stood reflected as payable in the ‘Balance sheet’ of the assessee on 31.03.2007 (Page 33 of ‘APB’). We find that the assessee in its submissions filed alongwith its letter dated. 20.12.2010 with the CIT(A), had in context of the amount of Rs. 94,87,025/- payable to Centrum Direct Limited submitted before him that the complete details of the said expenses were verified by the A.O during the course of the assessment proceedings, by stating as under: “The company humbly submits that these details were verified by the Ld. Assessing Officer („AO‟) during the course of assessment proceedings.”
We are of the considered view that in the backdrop of the aforesaid facts, it can safely be concluded that the details of expenses under consideration were verified by the A.O, and the latter after applying his mind to the same, had accepted the claim of the assessee. Thus, now when the aforesaid claim of the assessee had been vetted by the A.O during the course of the assessment proceedings, therefore, we are of the considered view that the CIT(A) was well within his jurisdiction to correct the A.O as regards the aforesaid matter which had been considered by the A.O, irrespective of the fact that the same was not carried in appeal before him. We have perused the aforesaid judgments as had been relied upon by both the parties before us, and are of the considered view that as there is no embargo as regards exercise of powers of enhancement by the CIT(A) on the issues which were the subject matter of assessment before the A.O, therefore, we are unable to persuade ourselves to be in agreement with the contention of the ld. A.R that the CIT(A) had exceeded his jurisdiction while enhancing the income of the assessee. We thus, in the backdrop of our aforesaid observations reject the contention of the ld. A.R that 14 M/s Centrum Broking Pvt. Ltd. Vs. Dy. CIT the CIT(A) had exceeded his jurisdiction while enhancing the income of the assessee.
We shall now advert to the validity of the enhancement made by the CIT(A) on merits. We find that it remains as a matter of a conceded fact that the assessee which had a presence in all segments of financial intermediary business except broking, had with the intent to complete its product range acquired a company, viz. Advani Share Brokers Pvt. Ltd. (for short ‘ASBPL’) which was engaged in the business of share broking as a member of BSE and NSE and mainly catered to retail and some institutional clients. We find that as ASBPL was a single office company operating in Mumbai, therefore, the assessee prompted by its business prudence and in the fitness of things decided to establish branches for its share broking business across the country. However, the assessee remained well conversant of the fact that opening of country wide branches of its share broking business would require an extensive infrastructure and deployment of substantial funds. That it was at this stage that the assessee realized that one of its group companies, viz. Centrum Direct Limited which was engaged in the Foreign Exchange business under RBI license was having country wide branches for handling its foreign exchange business. The assessee being guided by business prudence adopted a wise and a strategic approach, and in order to avoid the financial hardships and hassles that otherwise would have been involved in setting up of its independent infrastructure, decided to co-locate its broking branches on cost sharing basis in the country wide branches of Centrum Direct Limited. That as mutually agreed between the assessee and its group concern, viz. Centrum Direct Limited, the assessee identified 15 locations across India for starting its broking business, and as agreed, the office space, common facilities and administrative staff were to be shared between them. We find that it 15 M/s Centrum Broking Pvt. Ltd. Vs. Dy. CIT was submitted by the assessee that as the trading terminals could only be operated by the broker on his own or his employees, therefore, in order to facilitate setting up and operating of such trading terminals at the branches of its group concern, viz. Centrum Direct Limited, the necessary permissions from the concerned Stock Exchanges were obtained by the assessee, which fact in itself, as per our strong conviction, puts to rest any apprehension that the assessee merely in order to justify the genuineness and veracity of its claim towards reimbursed expenses had came forth with a cooked up story. We find that the assessee explaining the nature of functioning of its cost sharing business model, had brought to the notice of the CIT(A) that it had appointed around 25 persons directly at various locations for carrying out such activities which were business critical, while for reimbursed salary of employees recruited by Centrum Direct Limited for carrying out support and non critical activities relating to its broking business. We had perused the material available on record and find that the assessee in order to drive home its aforesaid contention, had therein placed on record of the CIT(A) a complete list of the 15 locations where NEAT and CTCL terminals of the assessee were set up and operated by the assesse’s employees only. We though are not oblivious of the fact that an assessee in order to justify its entitlement towards claim of an expenditure is only required to prove that the same was incurred wholly and exclusively for its business, however, the assessee in the present case in order to remove any scope of doubt as regards veracity of its aforesaid claim, had even gone a step further and established that adoption of the aforesaid cost sharing business model for its share broking business had substantially benefited its business by way of cost cutting and steep rise in the brokerage receipts in the immediate succeeding year, viz. A.Y. 2008-09. We find that the assessee had placed on record of the 16 M/s Centrum Broking Pvt. Ltd. Vs. Dy. CIT CIT(A) complete details of the 26 support employees of Centrum Direct Limited, as well as carried out a comparative analysis of the average cost of such support employees, as against those on his pay rolls. We further find that the assessee had further submitted that it had reimbursed rent, electricity charges and telephone expenses on the basis of reasonable estimate of use of the said facilities. We have further observed that the assessee had culled out before the CIT(A) the multiple benefits from adopting the aforesaid cost sharing business model, viz. saving of time taken for identification of locations, finalizing agreements with landlords, renovation/repairs of premises to make it usable for business and dispensing with the requirement of furnishing deposits for accommodations, electric meters or telephone connections. We have perused the material placed before us by the assessee, which reveals that the assessee had furnished before the CIT(A) the bifurcated details of the reimbursement expenses of Rs. 97,51,789/- pertaining to its group concern, viz. Centrum Direct Limited, out of which an amount of Rs. 94,87,025/- was outstanding in the balance sheet.
We have deliberated at length on the submissions of the authorised representatives for both the parties, perused the order of the CIT(A) and the material placed on our record. We have given a thoughtful consideration to the issue before us and are of the considered view that the assessee as a matter of fact had not only proved that as the reimbursement of expenses by the assessee to its group concern, viz. Centrum Direct Limited was wholly, exclusively and necessarily for the purpose of its business, therefore, the same was allowable while computing its income, but rather, as observed by us hereinabove, had on the basis of irrefutable evidence demonstrated the multiple ways it was benefited by adopting the said cost sharing business model. We find that a careful perusal of the observations of 17 M/s Centrum Broking Pvt. Ltd. Vs. Dy. CIT the CIT(A), who though initially had serious doubts about the veracity of the claim of the assessee in respect of reimbursed expenses, reveals that while culminating the appellate proceedings had disallowed the expenses by observing that the same were found to be excessive and unreasonable. We are afraid that as the CIT(A) had failed to point out as to on what basis the claim towards expenses under consideration were being characterised by him as excessive and unreasonable, therefore, are unable to persuade ourselves to accept the said observations. We further find that the apprehension of the CIT(A) that the assessee by coming forth with a tailored arrangement with its group concern, was trying to hoodwink payment of legible taxes due from it, had also been dislodged by the assessee by proving on the basis of documentary evidence that the said group concern, viz. Centrum Direct Limited was also a profit yielding concern, as a result whereof there remained no occasion for any revenue leakage.
We have deliberated at length on the issue under consideration and find substantial force in the claim of the assessee as regards its entitlement towards the reimbursed expenses as an allowable expenditure incurred in the course of its business. We are of the considered view that a perusal of the material placed on record by the assessee inescapably proves beyond any scope of doubt that the assessee had ventured into a cost sharing business model for its share broking business and had incurred expenses on cost sharing basis with its group concern, viz. Centrum Direct Limited. We are of the considered view that as observed by us hereinabove, the aforesaid reimbursement expenses having been incurred wholly and exclusively for the business of the assessee, was thus allowable while computing of its income for the year under consideration. We would not hesitate to observe that the very basis of restricting the entitlement of the assessee by the CIT(A) as regards the reimbursed expenses to an