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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 ..... nch but the assessee could not answer. The gain or benefit accrual to the assessee for incurring these expenditure in the assessee’s own business. We find that the assessee in addition to fees, also received reimbursement of expenses incurred by Offshore Fund-II. Since the Offshore Fund II was not launched, no corpus was received and in the absence of such launch, the assessee company could not claim reimbursement of any such expenses and these were met out of the income of the assessee and claimed the same as deduction. We also find that assessee is engaged in the business of Offshore Fund-I & III 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. setting up of a new offshore fund called Offshore Fund II. In such circumstances, we find that the issue is clearly covered by the decision of Hon’ble Bombay High Court in the case of Trade Wings Ltd. (1989 (9) TMI 21 - BOMBAY High Court ). CIT(A) did not erred in confirming the actions of the Ld. AO disallowing expenditure incurred in connection with Offshore Fund II on the alleged ground that the said expenses are cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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) has erred in confirming the actions of the Ld. AO disallowing expenditure incurred in connection with Offshore Fund II of ₹ 1,07,48,723/- on the alleged ground that the said expenses are capital in nature. 4. Briefly stated facts are that the assessee is engaged in the business of providing investment advisory services in the real estate. The assessee company during the year under consideration has disclosed management fees from Indiareit Fund Scheme I and Scheme III and also disclosed monetary fees and advisory fees from Indiareit Investment Management Co. The Assessing Officer (AO) during the course of assessment proceedings noticed from the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a trust called ndiareit 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 business of 'investment advisory services and not in the activity of establishing a venture capital fund trust' and earning income there-from by raising capital for the trust'. Hence, this activity of establishing the 'venture capital fund trust' and earning the income there-from was a new activity and a new source of income for the appellant. Thus the appellant incurred expenses in respect of searching and exploring a new source of income, which could not fructify. Unless, a new business or source of income is set up and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst 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 in the course of regular business activity of the assessee since the assessee is engaged in the business of providing investment advisory services in the real estate sector. According to him, as a part of its role, it is required to assists the other Funds in launching the new scheme which was explained by him in view of the Investment Management Agreement dated 30.6.2006 and the trustees of the funds have been appointed by the assessee to prefer the following activities: advice the Trustees in floating new Schemes under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 as well as higher network individuals. But that could not happen and the assessee claimed these expenses in the hands of the assessee. In such circumstances, whether the expenses of other entity that also a new entity is allowable in the hands of the assessee, we have raised a query from the bench but the assessee could not answer. The gain or benefit accrual to the assessee for incurring these expenditure in the assessee s own business. We find that the assessee in addition to fees, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd 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 ₹ 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 invoices from PEL. The assessing authority made a disallowance only on the reason that the assessee has not furnished evidences of the actual services rendered by PEL and moreover the assessee does not derived any tangible direct benefit from the services rendered by the PEL. He also noted that the expenditure is unreasonable having regard to the legitimate need of the business of the assessee. The CIT(A) merely directed the AO to verify the documents furnished by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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