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Income Tax Appellate Tribunal, MUMBAI BENCHES “I”, MUMBAI
Before: Shri Sanjay Garg, & Shri Ashwani Taneja
आदेश / O R D E R Per Ashwani Taneja (Accountant Member):
The present appeal has been filed by the Assessee against the order of Ld. Commissioner of Income Tax -10, Mumbai {(in short ‘Ld. CIT’}, dated 28.03.2011 for the assessment year
2 UTI Asset Management 2006-07, u/s 263 of the Act. The assessee has filed following grounds: " Ground No.: 1 On the facts and in the circumstances of the case, the Commissioner of Income Tax -10 (CIT) is not justified in invoking the proceedings under Section 263 of the Income Tax Act, 1961 ("the Act") and holding the assessment order u/s 143(3) dated 29.12.2008 to be erroneous and prejudicial to the interests of the revenue. Ground No.: 2 The CIT erred in directing the Assessing Officer to examine the admissibility of the scheme expenses of Rs.7,69,18,950 u/s 37(1) of the Act with reference to sub-regulation (6) and (7) of regulation 52 of the SEBI (Mutual Funds) Regulations, 1996 and the Investment Management Agreement dated 09.12.2002 with UTI Mutual Fund. The appellant prays that the admissibility of scheme expenses may kindly be allowed."
During the course of hearing, arguments were made by Shri Jehangir D. Mistry, Authorised Representative (Ld. Counsel) on behalf of the Assessee and by Shri B.C.S. Naik, Departmental Representative (Ld. CIT-DR) on behalf of the Revenue.
In this case, it is noted that there is delay in filing of appeal by the assessee for 169 days. The assessee has filed petition for seeking condonation of delay along with affidavit explaining
3 UTI Asset Management the reasons for delay, on oath. The reasons explained by the assessee in duly sworn affidavit are reproduced below:
“AFFIDAVIT IN SUPPORT OF APPLICATION SEEKING CONDONATION OF DELAY
1, Surojit Saha, aged 48 yrs, Executive Vice President of' the Appellant Company. Indian inhabitant residing at A 403 Temple View-I, Raheja Township Malad (E). Mumbai 97, do hereby solemnly affirm as under: 1. I say that an order dated March 28, 2011 I For the Assessment Year 2006-07 which was served on the appellant on 31.03.2011 was passed by the Commissioner of Income Tax -10 2. I say that on an effect from 18.02.2011, the Chairman & Managing Director of the Appellant Company, Mr. U.K. Sinha was appointed as Chairman of SEBI, and, therefore, he was not longer Chairman & Managing Director of the appellant company. The Appellant had no chairman & Managing Director. 3. when the petition for condonation of delay in respect to this appeal under Section 253(1)(c) in Appeal No.7730/Mum/201 I was required to be filed. I say that due to this, there was delay regarding various legal and financial decisions of the Appellant, one of them being the decision to file this appeal under Section 253 of the Income Tax Act, 1961 against the order of the Commissioner of Income Tax -10 dated 28.03.2011. 4. In absence of the Chairman & Managing Director, the Committee of Directors and thereafter ACEO were burdened with various decision making responsibilities, to follow certain procedures/internal departmental processes and advices were to be sought. 5. For the above reasons, the filing of the aforesaid
4 UTI Asset Management appeal was delayed and it was ultimately filed 15.11.2011 along with petition for condonation of delay. 6. I say that if the delay is not condoned great irreparable hardship and severe injustice and injury would be caused to the Appellant, whereas no hardship or injustice would be caused to the Respondents. 7. I say that if the delay is not condoned it would not only be unfair and unjust but would also be against the principles of justice. It is just and necessary and in the interest of justice that the Appellants case be heard by the Income Tax Appellate Tribunal and decide the case on merits. 8. I say that the Appellant has come before the Income Tax Appellate Tribunal in Appeal No.7730/Mum/2011 to. seek condonation of delay in filing the Appeal. 9. I say that the Appellant have an excellent case on facts and merits as more particularly set out in the Appeal. 10. I humbly pray to the Income Tax Appellate Tribunal to condone the delay of 169 days in filing this Appeal and in the interest of justice. 11. I say that it is within the power of the Income Tax Appellate Tribunal to condone the delay in filing the Appeal. 12. I say that whatever is stated by me in hereinabove is true to my knowledge and belief-and I believe the same to be true. 13. The Appellant, therefore, prays that: (a) the delay of 169 days in filing the Appeal in the above matter be condoned: and (b) for such further and other orders as the Income Tax Appellate Tribunal may deem fit and proper.
5 UTI Asset Management 3.1. Detailed submissions were made by the Ld. Counsel explaining the reasons for delay. It was noted from the facts explained before us that there was no Managing Director of the assessee company for some time. This situation had led to chaos in the administration of the assessee company. These factual assertions made in the affidavit were not controverted by the Ld. CIT-DR. Thus, having gone through the assertions made in the affidavit and the submissions before us, it was found by us that there was sufficient cause for the delay, in the peculiar facts of this case. It was explained before us that the delay was inadvertent and unintentional. Therefore, keeping in view all the facts and circumstances and in the interest of justice, the delay in filing this appeal was condoned, and after taking consent of both the parties, it was taken up for hearing and its adjudication on merits.
3.2. The present appeal is against the order passed by the Ld. CIT u/s 263. The brief facts are that the assessee is an asset management company of UTI mutual funds and was set up to manage the mutual funds schemes of UTI mutual funds. The original assessment for the impugned assessment year was completed on 29.12.2008 u/s 143(3) of the Act. In the profit and loss account, the assessee company had debited in its profit and loss account inter alia an amount of Rs.7,69,18,950/- under the head Scheme Expenses and the same was allowed by the AO in the assessment proceedings. Subsequently, Ld. CIT issued show cause notice dated 17.02.2011 u/s 263 asking the assessee to justify as to why
6 UTI Asset Management the order u/s 143(3) dated 29.12.2008 should not be treated as erroneous and prejudicial to the interest of the revenue, since Scheme Expenses were not allowable to the assessee. The relevant portion of the show cause notice is reproduced below: “During the year under consideration, you have claimed Scheme Expenses of Rs.7,69,18,950/- being the expenses related to UTI Mutual Fund in excess of stipulate rates prescribed by SEBI (Mutual Fund) Regulations 1996. The said expenses are liability of UTI Mutual Fund and transfer of such liability is not allowable under the provisions of I.T. Act. Therefore, the assessment order passed u/s 143(3) of the Act is erroneous and prejudicial to the interest of revenue in as much as the said amount of Rs.7.69 crores which was not allowable has been allowed as expenses in assessment.”
3.4. The assessee gave its reply, but Ld. CIT was not satisfied and accordingly he cancelled the aforesaid assessment order with the direction to AO to decide the same afresh after calling for details and supporting evidences in support of the Scheme Expenses and to examine the admissibility of these expenses u/s 37(1) of the Income Tax Act, 1961 and also with reference to Sub-Regulation (6) and (7) of regulation 52 of SEBI (Mutual Funds) Regulations, 1996.
3.5. Being aggrieved, the assessee filed before the Tribunal.
7 UTI Asset Management 3.6. During the course of hearing, Ld. Counsel has made detailed submissions assailing the order of Ld. CIT, his submissions can be summarised as under:
The assessee, being an Asset Management Company, Scheme Expenses incurred by it in the normal course of its business are allowable under the Income Tax Act as revenue expenditure. 2. As per law applicable, the Scheme Expenses of the UTI Mutual Fund in excess of the stipulated rates given under Regulation 52 of the SEBI (Mutual Funds) Regulations, 1996 are required to be borne by the assessee company, and therefore the same has been charged to the Profit and Loss Account. Thus, the question of transfer of liability of UTI Mutual Fund to the assessee in its capacity as the Asset Management Company does not arise. 3. It is necessary for the Mutual Funds and the Asset Management Company to comply with limits on expenses prescribed under the aforesaid Regulation 52(6) so that there is no additional burden of expenses on the unit holders. In the present case, had the limits not been complied with by the UTI Mutual fund or AMC, the expenses to be borne by the unit holders would increase, giving rise to qualifications in the mutual fund report as well as legal action by the unit holders. 4. The case of the assessee was squarely covered by the case of ACIT-2(1) vs Canara Robeco Asset Management Company Ltd. (formerly known as Canbank Investment Management Services Ltd.) decided on
8 UTI Asset Management 09.09.2010 wherein the Hon'ble ITAT, Mumbai decided the issue against the Revenue by placing reliance on the decision of the Hon'ble Bombay High Court in the case of DSP Merrill Lynch Investments Managers Limited in ITA No. 1286 of 2008 dated 10.12.2008. 5. The Ld. CIT, in his show cause notice had raised objection about allowbility of the impugned expenses only on the ground of its non-connection with the business of the assessee in view of sub-regulations (6) & (7) of regulations 52 of the SEBI, Mutual Funds regulations 1996. In the show cause notice, there was neither any objection, nor there was any mention of genuineness of the expenses and allowbility of the same u/s 37 of the Act. Therefore, while passing the order u/s 263, the Ld. CIT was obliged under the law to confine to the issues and objections raised by him in his show cause notice only. Therefore, order of Ld. CIT is bad in law. 6. Without prejudice to the above, during the course of original assessment proceedings, exhaustive queries were raised by the AO and these were replied. These expenses have been shown in the profit and loss account and its reference has also been made in the ‘Notes to accounts’, appended with balance sheet. No further details were asked by the AO and therefore, these were not supplied during the course of assessment proceedings.
3.7. Reliance has also been placed by the Ld. Counsel on the judgments of Hon’ble Bombay High Court in the case of CIT vs. Templeton Asset Management (India) P. Ltd 340 ITR
9 UTI Asset Management 279(Bom) and M/s. Birla Sunlife Asset Management Co. Ltd. ITA No.1912/Mum/2007 dated 26th September 2007.
3.8. On the other hand, Ld. DR has supported the order of Ld. CIT. It has been submitted by him that proper details were not submitted by the assessee during the course of assessment proceedings, and therefore, proper examination of claim of the assessee could not be done, and thus, order of the AO was erroneous and prejudicial to the interest of the revenue, and therefore, same has been rightly set aside by Ld. CIT.
3.9. We have gone through the orders of lower authorities, submissions made by both the sides, material placed before us for our consideration as well as copies of judgments placed before us. It is noted by us that in the show cause notice, the Ld. CIT had raised the issue only with respect to allowbility of the expenses with reference to sub-regulations (6) & (7) of regulations 52 of the SEBI, Mutual Funds Regulations, 1996. Therefore, as per law, Ld. CIT could have passed order u/s 263 only with respect to the above said issue. It is further noted by us that this issue is no more res-integra as on date. Hon’ble Tribunal in the case of M/s. Canara Robeco Asset Management Co. Ltd. (supra) has held as:
Similar principle also applies here for Regulation 52(6) as well. As already stated, the assessee is asset management company and it was allowed to incur expenditure for the purpose of managing various schemes but the expenditure that
10 UTI Asset Management
can be charged to a particular scheme is according to the sub-regulation (6). The balance of the expenditure, vide the same Regulation, becomes the expenditure of the asset management company (or the trustees or sponsors). Since the expenditure incurred is for the purpose of assessee's business and since there is nothing on record to suggest that the assessee had in any manner violated the Rules or Regulations set out by the said regulatory authority, the expenditure cannot he disallowed in assessee's hands. It is not the case of the A.O. that the expenditure has no connection with assessee's business. As the expenditure has a direct nexus with assessee's business, we uphold the order of the CIT(A) and reject grounds Nos. I , 2 & 3 of the Revenue.
Similar view has been taken in various other judgments including that of Hon’ble Bombay High Court whose names have been mentioned in ‘Para 3.7’. above. Thus, as on date, the issue stand covered in favour of the assessee. Hon’ble High Court has explained the law as it existed always. Thus view taken by the AO was legally correct, and in any case, it was certainly one of the possible views. Under these circumstances, the assessment order passed by the AO cannot be held to be erroneous or prejudicial to the interest of the revenue. Thus, the order passed by the Ld. CIT is contrary to law and therefore same is hereby quashed.
11 UTI Asset Management
In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 6th January, 2016.
Sd/- Sd/- (Sanjay Garg ) (Ashwani Taneja) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER मुंबई Mumbai; �दनांक Dated : 6/01/2016 ctàxÄ? P.S/.�न.स. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai