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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI JOGINDER SINGH & SHRI RAMIT KOCHAR
सुनवाई क" तार"ख /Date of Hearing : 27-12-2016 घोषणा क" तार"ख /Date of Pronouncement : 23.01.2017 आदेश / O R D E R
PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee, being 3rd June, 2013 passed by learned Commissioner of Income Tax (Appeals)- 16, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2007-08, the appellate proceedings before the learned CIT(A) arising from the penalty order dated 22nd March, 2012 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 271(1)(c) of the Income-tax Act,1961 (Hereinafter called “the Act”).
ITA 5456/Mum/2013 2
The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:-
“GROUND NO. I: LEVY OF PENALTY U/S.271 (1) (c) - RS. 17,12,092/- :
1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the action of Joint Commissioner of Income Tax (0SD) - 8 (1) (“the AO") in levying penalty u/s. 271(l)(c) of the Act on the alleged ground that the Appellant has concealed / furnished inaccurate particulars of its income.
2. The CIT{A) failed to appreciate and ought to have held that: a) the Appellant had furnished full and correct particulars of income, in the return of income filed by it; b) the claims made by the Appellant is bonafide; c) mere disallowance of expenditures would not automatically lead to confirmation of penalty; d) when two views are possible or issue is debatable, the question of penalty would not arise;
3. The Appellant prays that the penalty levied u/s. 271(l)(c) in respect of the addition / disallowance should be deleted.”
The brief facts of the case are that during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act, the A.O. observed that the assessee is engaged in the business of Asset Management and Portfolio Management and advisory services . The AO observed that the assessee had paid compensation of Rs. 50,86,434/- to investors, as detailed hereunder:-
ITA 5456/Mum/2013 3 Sr Investors Name Date of Amount Description No payment 1 Ramadevi Sood 03.05.2006 15,98,083 Units erroneously not allotted to the investor in January, 2000 2 V. Meenakshi 13.07.2006 6,96,257 Non receipt of dividend warrant 3 V. Meenakshi 22.08.2006 6,54,959 Interest on delayed dividend payment 4 Nareshkumar 31.03.2007 8,83,000 Compensation to investor Trehas for redemption proceeds 5 Various Investors 12,54,135 Compensation expenses various investors less than Rs. 5 lakh 50,86,434 The claim of Rs.50,86,434/- being paid by the assessee to the investors as revenue expenses u/s 37(1) of the Act was not allowed by the AO in the assessment proceedings vide assessment order dated 30th December, 2009 passed by the AO u/s 143(3) of the Act on the grounds that it was not the liability of the assessee . The AO also initiated penalty proceedings against the assessee.
On first appeal filed by the assessee with the learned CIT(A) against the assessment order dated 30th December, 2009 passed by the AO u/s 143(3) of the Act , the ld. CIT(A) confirmed the disallowance made by the A.O. in quantum assessment by sustaining/confirming the assessment orders of the AO and dismissing the appeal of the assessee.
The A.O. initiated penalty proceedings u/s 271(1)(c) of the Act on the grounds of assessee concealing income by furnishing inaccurate particulars of income .
ITA 5456/Mum/2013 4
During the penalty proceedings u/s 271(1)(c) of the Act, the assessee submitted that as per SEBI regulation, the assessee is not only responsible for acts of commission and omission by its employees but also of person whose services has been obtained/produced by AMC. The assessee submitted that these payments were made to compensate the investors . It was observed by the AO that the above payments were not related to any omission committed by the assessee. It was observed by the AO that the compensation was paid as per acts’ of earlier consultant M/s. Karvy Consultants Limited appointed by the Mutual Fund. The A.O. observed that it is not a liability of the assessee to make the payment as there was no contractual /statutory obligation on the assessee to pay these amounts to investors as the omission was committed by the transfer agent M/s Karvy Consultants Limited and not by the assessee and the AO observed that the assessee had tried to reduce its tax liability . Hence , the penalty of Rs. 17,12,092/- was levied on the assessee by the AO u/s 271(1)(c) of the Act , vide penalty orders dated 22nd March, 2012 passed by the AO u/s 271(1)(c) of the Act.
On first appeal filed by the assessee before learned CIT(A) against penalty orders dated 22-03-2012 passed by the AO u/s 271(1)(c) of the Act, the ld. CIT(A) confirmed/sustained the penalty levied by the AO of Rs.17,12,092/- u/s 271(1)(c) of the Act vide his appellate orders dated 3rd June, 2013.
Aggrieved by the appellate orders dated 03-06-2013 passed by the ld. CIT(A) confirming/sustaining the penalty of Rs. 17,12,092/- levied by the AO u/s 271(1)(c) of the Act, the assessee filed second appeal before the tribunal.
The ld. Counsel for the assessee, at the very outset, submitted that the Mumbai tribunal vide its order dated 18th May, 2016 in in assessees’ own case for assessment year 2007-08 in assessee’s appeal against the sustenance of the quantum additions has ITA 5456/Mum/2013 5 deleted the quantum additions made by the A.O. in assessment order dated 30th December, 2009 passed u/s 143(3) of the Act which order of assessment was later confirmed by the ld. CIT(A) in the first appeal vide appellate orders dated 12/01/2011. The tribunal in its afore-said orders dated 18-05-2016 held as under:-
“7. We have heard the rival contentions on this issue and gone through the facts and circumstances of the case. We find from the facts of the case that the Trustees of the Trust appointed the assessee for carrying day to day activities like fund raising from investors, issuance of unit to investors, management of funds, issuing and accounting of redemption proceeds, issuing and accounting dividend warrants, etc. We find from the facts of the case that that the assessee does necessary activity for the beneficial owners and for the same charging asset management fee from the various schemes as per SEBI regulations. We also find that in this process the assessee company has settled claim towards compensation to various investors on account of business expediency and as per regulations of SEBI amounting to Rs.50,86,431/-. The complete details are given in the assessment order. The assessee has claimed these expenses as deduction, which was incurred, in the course of business on account of business expediency. As claimed by the assessee, we are of the opinion that in such nature of business, the assessee has to incur such expenses to safeguard its business interest against complaint made by investors on SEBI, which may lead to violation of SEBI regulations and also it is duty bound to make the loss good of the investors. We also find from the facts of the case that the assessee and Trustees of the mutual fund entered into an investment management agreement, which was guiding factor for rights and obligation of Asset Management Company. We also find that the assessee has raised this issue and filed reconciliation during the assessment year 2002-03, wherein the reconciliation difference amounting to Rs.16.00 crores was deficit against the mutual fund and Rs.6.00 crores being surplus in favour of the mutual fund. But there was a net deficit of Rs.10.00 crores against mutual fund. The assessee appointed a firm of Chartered Accountant to carry out this reconciliation and after prolonged exercise the difference largely remain unrealized and the matter was taken-up with SEBI and in consultation with SEBI it was decided that the deficit of Rs.16.00 crores should be made over by Asset Management Company and replenished to the mutual funds. It is also a fact that out there are unknown credits lying in the bank account to the extent of Rs.6.00 crores, which was adjusted and balance Rs.10.00 crores were paid to mutual funds. As explained by the Ld. Counsel for the assessee before us now and he relied on Tribunal decision assessee’s own case wherein, in assessment year 2002-03 the Tribunal taking note of the provisions of the Act and SEBI Regulations, contractual agreement between assessee and the prospects of mutual fund, held that the assessee was contractually and statutorily bound to make the payment so as to keep assessee’s business interest and, therefore, held that making good of deficit of Rs.16.00 crores, after ITA 5456/Mum/2013 6 adjusting credits of unknown bank balance of Rs.6.00 crores, balance amount of Rs.10.00 crores is allowable as deduction. We find that the assessee is carrying over the entire legacy pertain to earlier period, for which, it claimed amounting to Rs.50.86 lacs in respect to above noted five persons. Now the question arises, whether the above payments qualify for allowance for the reason that these are commercial expediency, contractual obligations and statutory obligations. We are of the view that in the present case the unit holders, who made claim with the transfer agent, are entitled for return of their money invested in assessee’s mutual fund. Even the SEBI Regulation states so and if there is violation of the same, SEBI can prosecute the assessee. It means that the liability paid by assessee is in the nature of statutory as well as contractual. The assessee has paid the legitimate claim of the unit holders, who have lodged the claim with the