Unreported Decisions – May 2019

By Ajay R. Singh, Advocate

1. S. 37(1) – Business expenditure – Asset Management Company of Mutual Funds due to business exigencies claims and recovers from Mutual Funds lesser amount than amount of expenditure, fees, etc., actually incurred during course of its business [as allowed under SEBI Regulation], then, unless it is established that there were no business exigencies or claim was not genuine, expenditure cannot be disallowed.

The assessee is engaged in the business of asset management and investment advisory services. During the year the assessee has launched NFOs on behalf of various clients. The AO observed that the expenses incurred in relation to launching of equities and NFOs on behalf of the above companies cannot be treated as expenses of the assessee as the said expenses were liability of the Mutual funds entities on whose behalf the assessee launched the NFOs. Accordingly, the AO disallowed the excess of expenditure as incurred by the assessee over and above the SEBI limit to the tune of ₹ 85,43,750/-.

The ITAT held that the SEBI Regulations specify the limit beyond which the companies on whose behalf the NFOs are launched cannot be exceeded and therefore the expenses in excess of the said SEBI limit of ₹ 85,43,750/- was claimed by the assessee as expenses incurred in the ordinary course of business u/s. 37(1) of the Act. The Ld. CIT(A) recorded a finding of facts that said expenses were incurred by the assessee under investment management agreement which provided that the excess expenses incurred over and above the limit specified by the SEBI Regulation shall be borne by the AMC i.e. assessee. In view of the same , the expenses are incurred by the assessee in the ordinary course of business as the assessee is in the business of providing asset management and investment revisionary services for launching the equity and NFOs on behalf of various clients the assessee. Moreover, it has been specifically agreed between the parties that any expenses incurred in excess of limit specified by the SEBI Regulation shall be borne by the AMC. The Tribunal relied on decision of Hon’ble Bombay High Court in the case of CIT vs. Templeton Asset Management (India) P. Ltd. In the result, the appeal of the Revenue is dismissed.

ACIT-14(2)(2) v M/s. Mirae Asset Global Investment (India) Pvt. Ltd, ITA No.230/Mum/2018, AY 2012-13; Bench: D; DOH: 19/02/2019 (Mum)(Trib)

Mirae Asset Global Investment (India) Pvt. Ltd.

2. S. 147 : Reassessment – Change of opinion – Assessment completed after enquiry and replies furnished by assesse could not be reopened. [S.148 ] S. 148 : Reassessment – Notice for reassessment – Recording of reasons –- Reasons recorded cannot be supplemented by detailed reason vide annexure – Reopening is bad in law.

The assessee being resident corporate entity stated to be engaged in financial advisory services, trading and investment in shares was subjected to reassessment proceedings for the impugned AY u/s 143(3) r.w.s 147 on 20/03/2015 by AO wherein the assessee was saddled with certain addition of ₹ 520 Lacs on account of Share Premium and Share Capital.

ITAT held that the reassessment proceedings have been initiated vide issuance of notice u/s. 148 dated 27/03/2014 which shows that the reassessment have been triggered within a period of four years from the end of the relevant assessment year and therefore, the rigors of first proviso to Section 147 of the Act viz. failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment, were not applicable to the fact of the present case. The only requirement to be fulfilled in such a case was that Ld. AO had reasons to believe that certain income escaped assessment in the hands of the assessee. The AO was not clinched with any new tangible material so as to initiate the reassessment proceedings against the assessee since upon perusal of records, Ld. AO came to a conclusion that share application money was reflected as Nil in the financial statements as against the information received from the investigation wing that the assessee received certain share premium during the impugned AY. However, the factum of mere receipt of share premium by assessee during impugned AY could not lead to a conclusion that there was escapement of income in the hands of the assessee unless some basic material on record substantiate the same. No prima-facie case was made out by Ld. AO as to how the receipt of share premium constituted unexplained cash credit in the hands of the assessee which has led to escapement of income for the impugned AY.

The revenue has placed on record form for recording the reasons for initiating proceedings under Section 148 and for obtaining the approval of The Addl. Commissioner / Pr. Commissioner of Income Tax along with Annexure containing reasons recorded for re-opening of assessment to submit that detailed reasons were recorded to initiate the reassessment proceedings against the assessee for the impugned AY. However, in our opinion, no cognizance of the same could have been taken in view of the fact that the said approval has been signed by the sanctioning authority only on 31/03/2016 whereas notice u/s. 148 was already issued to the assessee on 27/03/2014 and re-assessment was framed on 20/03/2015. Secondly, nothing could be placed on record to establish that the detailed reasons recorded by revenue as given in the attached Annexure were ever supplied to the assessee. Therefore, the only reasons recorded for re-opening, which were to be considered so as to adjudicate the jurisdictional issue, were the reasons dated 27/03/2014 as supplied to the assessee. It is trite law that reasons once recorded could not be altered, modified, substituted or amended subsequently so as to justify the reassessment proceedings

The Tribunal concluded that the reassessment proceedings suffered from jurisdictional defect and Ld. AO could not be clothed with second inning to review the already concluded issues in original assessment proceedings. Therefore, the reassessment proceedings could not be sustained under law.

Capri Global Advisory Services Pvt. Ltd. v DCIT-1(1)(1), ITA No. 170/Mum/2017, AY : 2009-10; Bench C ; DOH: 10/04/2019 (Mum)(Trib)

Capri Global Advisory Services Pvt. Ltd.

3. S 144C – the assessee a LLP – was not an ‘eligible assessee’ section 144C(15)(b) – Assessing Officer passed a draft assessment order under section 144C(1) – the draft assessment order passed u/s 144C(1) in case of the assessee is invalid.

The assessee claiming itself to be a limited liability partnership (LLP) was incorporated in Germany on 4th September 2012. During the year the Assessing Officer pass a draft assessment order under sub–section (1) of section 144C of the Act.

The assessee submits that, the assessee is not being an “eligible assessee” as defined under section 144C(15) of the Act, the A.O could not have passed the draft assessment order u/s. 144C(1) of the Act. The A.O can pass a draft assessment order under sub–section (1) of section 144C of the Act only in respect of an eligible assessee. The definition of eligible assessee under section 144C(15)(b) of the Act, it means any person in whose case there is a variation in income as a consequence of order passed by the T.P.O under section 92CA(3) of the Act, and any foreign company. In assessee.s case neither any variation has arisen as a consequence of an order passed by the T.P.O under section 92CA(3) of the Act nor the assessee is a foreign company as it is a limited liability partnership.

ITAT held that the A.O has neither made any reference to the T.P.O u/s. 92CA(1) of the Act nor the T.P.O has passed a ny order under section 92CA(3) of the Act. Therefore, the variation proposed in the draft assessment order is not as a consequence of any order passed by the T.P.O. Thus, it requires to be seen whether the assessee can fit into the definition of a foreign company as provide du/s 144C(15) (b)(ii) of the Act. As per the definition of foreign company under section 2(23A) of the Act, it means a company which is not a domestic company. Section 2(22A) of the Act defines domestic company to be an Indian Company or any other company which declares and pays dividend within India out of its income. Whereas, from the documentary evidences placed before us including the return of income filed by the assessee as well as the residency certificate issued u/s. 10F of the Act, it is seen that the status of the assessee has been shown as limited liability partnership. In fact, the Department has allotted PAN to the assessee in the status of a partnership firm. The definition of firm under section 2(23) of the Act includes a limited liability partnership. The status of the assessee has been shown as firm in the order . Thus, from these facts, it becomes clear that the assessee is not a foreign company but a limited liability partnership. Held that the draft assessment order passed in case of the assessee for the impugned assessment year is invalid. Therefore, all the proceedings consequent thereupon are also invalid.

Maquet Holdings B.V. & Co. KG. v DCIT-3(2)(1), ITA No. 2572/Mum/2017, AY 2013-14 Bench : I ; DOH: 12/04/2019 (Mum)(Trib)

Maquet Holdings B.V. & Co. KG.