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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI B R BASKARAN & SHRI AMIT SHUKLA
आदेश ORDER अिमत शु�ला : �या. स.: PER AMIT SHUKLA, JM: The aforesaid appeal has been filed by the assessee against impugned order dated 12.12.2011, passed by ld. CIT(Appeals)-5, Mumbai for the quantum of assessment passed under section 143(3) for the assessment year 2005-
2 बीएनपी प�रबास एसेट मैनेजम�ट �ाइवेट �ल�मटेड BNP Paribas Asset Management Pvt Ltd,
In the grounds of appeal, the assessee has challenged the disallowance of claim of expenditure of Rs.31,13,420/- which has been held as capital expenditure by the AO and confirmed by the CIT(A). The relevant grounds as raised by the assessee reads as under:-
“1.2 The learned CIT(A) erred in holding that the AO was correct in disallowing the Appellant’s claim of expenditure incurred on registration charges, stamp duty and filing fees of Rs.31,13,420/- by holding the same to be capital in nature on the ground that the benefit extended to the Appellant is of enduring nature.
1.2 The learned CIT(A) failed to appreciate that the expenditure incurred is in the nature of revenue expenses and did not confer any advantage of an enduring nature.
1.3 Without prejudice to the above, the Appellant submits that on facts and in the circumstances of the case the learned CIT(A) erred in not allowing the depreciation on the same as it being in nature of capital asset, an intangible asset.
1.4 The Appellant prays that the learned CIT(A) be directed to grant all such relief arising from the preceding grounds as also all relief consequential thereto”.
Brief facts are that, the assessee is an Asset Management Company, which is responsible for launching and floating schemes of mutual funds. The assessee during the year had incurred expenditure of Rs.31,13,420/- on 3 बीएनपी प�रबास एसेट मैनेजम�ट �ाइवेट �ल�मटेड BNP Paribas Asset Management Pvt Ltd, ABN AMRO Mutual Fund (“AMF”)., the break- up of which was as under:-
Sub groupings Amount in (Rs) Company registration fees 3,500 SEBI registration fees 2,906,600 Tax not depend on profit 3,540 Membership fees 197,780 In response to the show cause notice by the AO, the assessee has stated as under:-
The company had paid Rs.25,00,000/- during the captioned assessment year as registration fees to SEBI for registration of ABN AMRO Mutual Fund (“AMF”). The Company is an asset management to AMF and hence responsible for launching and floating the scheme of the AMF. The registration is mandatory and is a statutory obligation under SEBI to undertake the operation of the Company. Under section 37(1) of the Income Tax Act, 1961, any expenditure laid out or expended wholly and exclusively for the purpose of the business or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession”. We submit that the said expenses incurred by the company are incurred wholly and exclusively for the purpose of the business. We wish to also submit that the expenditure is incurred for seeking registration with the Govt. Authorities (i.e. SEBI) and does not bring into existence an asset or an advantage of enduring benefit. Hence the said expenses have been claimed as revenue expenses while computing taxable income”.
4 बीएनपी प�रबास एसेट मैनेजम�ट �ाइवेट �ल�मटेड BNP Paribas Asset Management Pvt Ltd, However, the AO held that the same cannot be treated as ‘revenue expenses’ and disallowed the same as capital expenditure on the ground that, assessee has started the business operation during the year and the registration for Amro Mutual Fund for which it had paid the registration fee and Stamp Duty etc., the assessee will receive management fee from AMF over the period of time/years and hence the assessee will derived enduring benefit for years and hence the assessee will derive enduring benefit on account of such expenses.
Before the first appellate authority, the assessee reiterated that it is revenue expenditure and alternatively submitted that if it is to treated as capital expense, then depreciation should be allowed. The Ld. CIT (A) rejected the assessee’s contention on both the counts not only by holding that it is capital expenditure but also depreciation will not be allowed. For coming to this conclusion, he has passed a very detailed and reasoned order which has been discussed from pages 3 to 5 of the appellate order.
Before us, the Ld. Counsel submitted that, here in this case, firstly, there has been double disallowance by the AO, because assessee had already added up the expenditure which were incurred prior to the setting-up of the business and was part of its net profit and loss account shown in the computation of income; and secondly, there are certain items of expenditures which have been incorporated post incorporation, therefore, the same cannot be held to be capital expenditure, because the only ground taken by the Department for making the disallowance of these
5 बीएनपी प�रबास एसेट मैनेजम�ट �ाइवेट �ल�मटेड BNP Paribas Asset Management Pvt Ltd, expenditures was that it were incurred prior to incorporation. He drew our attention to computation of profit and loss account at page 173 of the Paper-book, which for the sake of ready reference is reproduced hereunder:-
Particulars Rs. Rs. Profit and gains of business Loss after tax as per the Profit and Loss (8,79,62,388) Account Add: Adjustments Disallowance under section 40(a)(ia) of the Act 6,88,890 Depreciation as per books 48,21,194 Bonus not paid before the due date of Filing the return 23,73,871 Tax (FY 04-05) 14,254 Provision for gratuity 2,50,014 Business expenses incurred prior to set-up 70,06,960 1,51,55,183 (7,28,07,205) Less: Adjustments Depreciation under the Act 64,75,737 Profit on sale of Investments 80,10,043 Preliminary Expenses allowable u/s 35D 6,92,142 Profit on foreclosure of leased vehicle 2,25,713 1,54,03,635 INCOME FROM BUSINESS AND PROFESSION (8,82,10,840)
The AO while computing the income has proceeded with profit and loss account shown by the assessee and had then further proceeded to disallow the expenditures. Thus, he submitted that this matter should be verified by the AO that no double disallowance should be made. He further drew our attention to details of registration fee, stamp duty and other expenditures incurred on various dates to show that some of the expenses have been incurred after incorporation given at page 77 of the paper book and submitted that same can also be verified by the AO.
6 बीएनपी प�रबास एसेट मैनेजम�ट �ाइवेट �ल�मटेड BNP Paribas Asset Management Pvt Ltd,
Ld. DR after supporting the order of the CIT(A), submitted that the contention raised by the Ld. Counsel can be verified by the AO, as this issue was not pointed by the assessee before AO or CIT(A).
6. After considering the aforesaid submission of the Ld. Counsel, now the only dispute which has been raised before us is that, firstly, already the assessee has added most of the business expenses incurred prior to set-up of the business and AO while disallowing the same has made a double disallowance, because he has proceeded with the profit and loss accounts as shown by the assessee, which also included the said disallowance added by the assessee, as incorporated by us herein above. Accordingly, we direct the AO to verify the expenses disallowed and added by the assessee. Secondly, he has further pointed out that, certain expenditures have been incurred post incorporation/setup of business; therefore, same should not be disallowed as capital expenditure. We agree with the contention of the Ld. Counsel that, so far as the expenditure incurred post incorporation cannot be treated as capital expenditure, because the revenue’s case is that, these expenditures have been incurred prior to setting-up off business. Once these expenditures are post incorporation, then on same logic the same needs to be allowed, however subject to verification of nature of expenses. As regards the contention of double disallowance, we direct the AO to examine this issue and decide accordingly. Thus, we remand this matter back to the file of the AO, firstly to verify the expenditure which has been incurred post incorporation and secondly, to verify double disallowance, as 7 बीएनपी प�रबास एसेट मैनेजम�ट �ाइवेट �ल�मटेड BNP Paribas Asset Management Pvt Ltd, contended by the ld. Counsel before us. With this direction the grounds raised by the assessee are accordingly allowed for statistical purposes.
In the result, appeal of the assessee stands partly allowed for statistical purposes. Order pronounced in the open court on 26th July, 2016.
Sd/- Sd/- (बी आर भा�करन) (अिमत शु�ला) लेखा सद�य �याईक सद�य (B R BASKARAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 26th July, 2016 ��त/Copy to:- 1) अपीलाथ� /The Appellant. 2) ��यथ� /The Respondent. 3) The CIT(A) –5, Mumbai. 4) The CIT-3, Mumbai. 5) िवभागीय �ितिनिध ”बी ” , आयकर अपीलीय अिधकरण, मुंबई/ The D.R. “B” Bench, Mumbai. 6) गाड� फाईल \ Copy to Guard File. आदेशानुसार/By Order / / True Copy / /