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TMI Blog2016 (4) TMI 740X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed by the learned CIT(A). 2. On facts and in circumstances of the case and in law, the learned CIT(A) has erred in confirming the actions of the learned AO in applying provisions of Rule 8D of the Income Tax Rules, 1962 ("the Rules") while making disallowance of Rs. 6,967 under section 14A of the Income-tax Act, 1961 ("the Act"). 3. On facts and in circumstances of the case and in law, the learned CIT(A) has erred in not adjudicating on the disallowance of Rs. 2,50,00,000 being fees paid by Appellant to Piramal Enterprises Limited (''PEL''). On query from the Bench, the ld. Sr. DR has not objected for the same. Hence, these grounds are dismissed as not pressed. 3. First we take up ITA No.3099/Mum/2013 of assessee's appeal. The only effective issue remains for our adjudication in this appeal of the assessee is as regards to the order of the CIT(A) confirming the action of the AO in disallowing the expenditure incurred in connection with the Offshore Fund II of Rs. 1,07,48,723/-, treating the same expenses as capital in nature. For this assessee has raised the following ground: "4. On facts and in circumstances of the case and in law, the Ld. CIT(A) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO disallowed the claim of expenses by stating that the assessee is engaged in the business of advising and existing fund as an investment advisory and the said expenses are not for the purpose of existing business or profession rather this is expended for new business, i.e., the set up of a new offshore fund called Offshore Fund II. Aggrieved, the assessee preferred an appeal before the CIT(A), who confirmed the action of the A.O. by observing in paras 8.7 and 8.8 as under: '8.7 Thus the facts are that the appellant established a trust called Ïndiareit Fund which was approved by SEBI and which was to carry on the activity of a venture capital fund under its different Schemes by pooling together resources and finances from institutional and high net worth investors. The said "Indiareit Fund" floated 'Offshore Fund-II' and the appellant assigned itself the responsibility of organising funds for the 'Offshore Fund-II' for which the expenses incurred by the appellant were to be reimbursed. The expenses were not reimbursed because the appellant could not raise the capital for the said 'Offshore Fund-II'. The appellant, as admitted, has been in the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc and scooters, motorcycles, two and three wheelers sought to be manufactured are also of steel. From such slender similarities it cannot be contended that the expenditure incurred is in connection with the expansion of the old business". 6. We find that ld. CIT(A) also relied on the decision of Andhra Pradesh High Court decision in the case of Hyderabad Allwyn Metal Works Ltd. v. CIT [1975] 98 ITR 555 and also one Jurisdictional High Court decision in the case of Trade Wings Ltd. vs. CIT [1990] 185 ITR 267 (Bom.). Aggrieved against the action of the CIT(A), the assessee preferred the appeal before the tribunal. 7. Before us, the ld. Counsel for the assessee stated that the above stated expenditure on foreign travel, loading and boarding is in connection with the assistance it provided in relation to the Offshore Fund II to raise the desired level of funds from overseas investors. The assessee in order to generate interest among international investors, the employees of the assessee has to travel overseas for its business meetings and promotional events. In view of these facts, the ld. Counsel for the assessee stated that the expenses incurred by the assessee are necessarily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lower authorities. 11. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee-company is in the business of providing investment advisory services. During the year under consideration it has shown management fees from Indiareit Fund Scheme I and Scheme III and also shown monetary fees and advisory fees from Indiareit Investment Management Co. The assessee also claimed expenditure towards promotion of its Offshore Fund II, which was proposed to be launched by trust credit by the name Indiareit Fund, i.e., the assessee. We find from the assessee's own arguments that if the desired funds had been raised by the assessee in regard to the said Offshore Fund II launched by the said trust, the assessee would have received advisory fees as well as reimbursement of expenses but this could not happen and therefore these expenses were claimed in the hands of the assessee. From the facts it is clearly established that the Trust called Indiareit Fund was approved by SEBI which was to carry out activity on venture capital to the funds under its different schemes by pulling resources and any finances from institution investors a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices to the assessee, failing to note that A.O. has made disallowance also on the premise that payment to 'related party' was excessive, unreasonable and not commensurate with the benefits received by the assessee company to the payment made. The CIT(A) erred in giving this direction of verifying the facts post assessment, which is not permissible under the law, means impliedly giving relief in respect of disallowance u/s 40A(2)( a) without bringing on record any evidence in support of the contention and assuming even if there was any evidence then relief has been given without giving reasonable opportunity of being heard to the A.O. as required under Rule 46A of the IT. Rules". 13. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the AO has disallowed the expenditure of Rs. 2.50 crores incurred on services procured from Parimal Enterprises Limited (PEL), who was engaged for providing and giving advisory and support services. During the course of the assessment proceedings, the assessee provided to the AO the detailed list of various services for which PEL was appointed along with the copy of agreement and invoice ..... 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