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TMI Blog2018 (2) TMI 1592X X X X Extracts X X X X X X X X Extracts X X X X ..... n expenses, made by the Assessing Officer, since CIT(A) has not justifiably countered the argument of the Assessing Officer that there was no rational basis of apportionment of expenses between the assessee and HDFC Asset Management Company?" The assessment for impugned AY was framed by Ld. Deputy Commissioner of Income Tax-10(1), Mumbai [AO] u/s 143(3) of the Income Tax Act, 1961 on 31/03/2014 wherein the income of the assessee was determined at Rs. 54.95 Lacs as against returned loss of Rs. 4.63 Lacs e-filed by the assessee on 27/09/2010. 2.1 Brief background is that the assessee was a Trustee Company for HDFC Mutual Fund and set up by a Deed of Trust dated 08/06/2000 between HDFC Limited and the assessee. Pursuant to the deed, the assessee had appointed HDFC Asset Management Company Ltd. [HDFC AMC] to act as an Asset Management Company with prior approval of the Securities & Exchange Board of India [SEBI] for the purpose of managing the affairs of the mutual fund and managing the trust funds mobilized under various schemes as approved by the Trustee Assessee and SEBI in accordance with Trust Deed and SEBI regulation. The Assessee was entitled to receive Trusteeship Fees from H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. petition to Special Leave to Appeal (Civil) No(s). 18121/2007 dated 26.10.2010, I am of the considered opinion that the disallowance of the above expenditure made by the AO is not justifiable. Therefore, I direct the AO to delete the addition of Rs. 59,52,500/- Aggrieved, the revenue is in further appeal before us. 4. The Ld. Departmental Representative [DR] pointed out that the assessee could not demonstrate the basis of apportionment of said expenditure and therefore, the stand of Ld. CIT(A) was not justified. Per Contra, Ld. Authorised Representative for Assessee [AR] pleaded that the revenue had not doubted the genuineness of the expenses but disallowed the same on the premise that the apportionment was not fair, which was none of revenue's business since manner of apportionment of expenditure was a business decision for the assessee and the same was within the framework of SEBI Regulation and duly approved by respective Board of Directors. The Ld. AR further drew our attention to the fact that whole exercise was tax neutral since if the expenditure was not allowed to the assessee, the same was certainly allowable to the HDFC AMC and both entities fell in the same tax br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal for AY 2011-12. Assessee's Appeal ITA No. 5444/Mum/2015 AY 2011-12 7. The sole ground raised in assessee's appeal pertains to disallowance of certain legal & professional fees amounting to Rs. 63,21,606/-, being reimbursed by the Assessee to HDFC AMC to carry out investigations pursuant to certain SEBI directions. 8.1 The brief facts qua the issue are that one employee of HDFC AMC namely Mr. Nilesh Kapadia-Asst. Vice President entrusted with executing orders on behalf of mutual fund, was found to be involved in certain front running activities in connivance with few outsiders. It was alleged that Mr. Nilesh Kapadia provided tips to few outsiders for purchases / sale of certain scrips based on which these outsiders placed their orders in respect of such scrips ahead of the orders of HDFC mutual fund schemes. The said activity would increase the price payable by HDFC mutual fund schemes for purchases of scrips and alternatively, would reduce the net realization of scrips sold by HDFC mutual fund. In other words, the outsiders, acting on tips given by the said employee, gained at the cost of Mutual Fund Schemes by carrying out intra-day transactions. Upon receipt of informa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween HDFC Ltd. and the assessee and as extracted by Ld. CIT(A) on Page Numbers 16 & 17 of the appellate order and as kept in the paper- book, reveals that Trustee had overall responsibility of managing the affairs of the mutual fund and were required to ensure that overall activities of the mutual fund were carried in accordance with applicable law, SEBI regulations and in the best interest of the unit holders. The Trustees were also required to ensure compliance of overall statutory formalities and put in place adequate system and manpower and strong internal control system to act in the best interest of the unit holders and ensure that AMC did not take up any activity in contravention of SEBI Regulation. The directors, vide clause 7.6, were required to undertake remedial steps, if the conduct of business of mutual fund was not in accordance with SEBI regulation. Lastly, the Trustees were accountable for and be the custodian of the funds and property of the Scheme and hold the same in Trust for the benefits of unit holders in accordance with the SEBI regulations. In nutshell, we find that vide said Deed of Trust, the Trustee assessee was entrusted with overall conduct of the mut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as above, we conclude that the said expenditure was incurred by the assessee to safeguard / protect its business interest and therefore, allowable to the assessee in terms of Section 37. The Ld.CIT(A) clinched the issue in the right perspective but had no justification to restrict the impugned expenditure to 50%. 13. Viewing the matter from another angle, we find that genuineness of the expenditure was not in dispute. If the expenditure was restricted to 50% then as a logical consequence, the remaining expenditure was to be allowed to HDFC AMC since as per the logic of Ld. first appellate authority, the said expenditure was to be shared equally between the two entities. Even in that eventuality, the whole exercise would remain revenue neutral as both entities fall in the same tax bracket and we see no fruitful reason to disturb the already concluded assessments. 14. Therefore, on the facts and circumstances, we uphold that the impugned disallowance of Rs. 63.21 Lacs was not justified and therefore, by deleting the same, we allow assessee's appeal. Resultantly, the assessee's appeal stands allowed. 15. Finally, revenue's appeal ITA Nos.5669 & 5670/Mum/2015 stands dismissed where ..... X X X X Extracts X X X X X X X X Extracts X X X X
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