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TMI Blog2019 (10) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... cting one or between the two. Respectfully no hesitation in cancelling the levy of penalty on the technical ground of non-striking off of the irrelevant portion in the show cause notice for penalty by the revenue. Accordingly, the additional ground raised by the assessee for the Asst Year 1998-99 is allowed. In view of this decision, the other grounds raised by the assessee on merits need not be gone into and the arguments advanced by both the sides are left open and no decision is rendered herein on the same. Levy of penalty u/s 271(1)(c) - HELD THAT:- Asst Year 1998-99 on this technical issue of not striking off the irrelevant portion in the penalty notice would hold good for this asst year also except with variance in figures. Hence we have no hesitation in cancelling the levy of penalty on the technical ground of non-striking off of the irrelevant portion in the show cause notice for penalty by the revenue. Accordingly, the additional ground raised by the assessee for the Asst Year 2002-03 is allowed. In view of this decision, the other grounds raised by the assessee on merits need not be gone into and the arguments advanced by both the sides are left open and no decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of ₹ 21,46,63,119/- ( 23,20,51,011 1,73,87,892 disallowed voluntarily by assessee) as deduction in the return of income. This goes to prove that the assessee had effectively made a surplus / profit of ₹ 6,13,66,881/- out of rendering the group support services, which goes to prove that the assessee had recovered the entire group support fees including advertisement expenses with a mark up. Hence there cannot be any separate disallowance of group support fees including advertisement expenses. We direct the ld AO to delete the disallowance towards advertisement expenses. - ITA No.2870 to 2873/Mum/2016 - - - Dated:- 4-10-2019 - Shri Mahavir Singh, JM And Shri M. Balaganesh, AM For the Assessee : Shri Shivaram / Shri Sanjay P Parikh For the Revenue : Shri Rajeev Gubgotra ORDER PER M. BALAGANESH (A.M): ITA No.2870/Mum/2016 This appeal in ITA Nos.2870/Mum/2016 for A.Y.1998-99 arises out of the of the order by the ld. Commissioner of Income Tax (Appeals)-9, Mumbai in appeal Nos.CIT(A)-9/Cir.4/158/2014-15, dated 20/01/2016 (ld. CIT(A) in short) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef facts of this issue are that the assessee is a share and stock broker and had filed its return of income for the Asst Year 1998-99 on 27.11.1998 declaring loss of ₹ 3,39,24,610/- comprising of capital loss of ₹ 32,44,671/- and business loss of ₹ 3,06,79,939/-. The original assessment was completed u/s 143(3) of the Act on 28.3.2001 determining assessed loss at ₹ 91,99,620/-. One of the additions made was on account of disallowance of payment of brokerage of ₹ 74,05,267/- made by the assessee to its sub-brokers. The assessee filed an appeal before the ld CITA who vide order dated 28.10.2005 restricted the disallowance to ₹ 10,51,975/-. The revenue filed an appeal before this tribunal. This tribunal vide its order dated 16.11.2009 remanded the issue to the file of the ld AO to examine and verify the details filed by the assessee as no proper opportunity was afforded to the assessee in the original assessment proceedings. 2.2. The ld AO observed that in the original assessment proceedings, the assessee was asked to furnish the names and address of the sub-brokers to whom the brokerage in excess of ₹ 50,000/- was paid. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Right to Information Act (RTI) and got details of the parties to whom notices could not be served, parties to whom notices were served and who did not attend and the parties who responded to notices. As per information received under RTI, notices u/s 133(6) of the Act could not be served on 2 parties only. All the other parties have either not responded or informed the ld AO that they cannot confirm the details as the necessary records i.e for Asst Year 1998-99 are not available at their end. Before the ld CITA, the assessee also submitted the addresses of the said parties from the Permanent Account Number (PAN) database. It was contended that all the payments of sub-brokerage were made on the basis of information provided to the assessee by the merchant bankers. The ld CITA however confirmed the disallowance of brokerage to the extent of ₹ 51,67,026/-. This Tribunal in the second round of quantum proceedings confirmed the disallowance of brokerage to the extent of ₹ 27,41,056/- ; allowed the sub-brokerage of ₹ 2,74,069/- and set aside the issue back to the file of ld AO to the extent of ₹ 21,52,226/- vide order in ITA No. 5437/Mum/2012 date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e charge of offence committed by the assessee i.e whether the assessee had concealed its income or had furnished inaccurate particulars of income. We find that the ld AO in the quantum assessment order had stated that the penalty is initiated for both concealment of income and furnishing of inaccurate particulars of income. But in the show cause notice for penalty, the same is not mentioned by including the word and at the relevant place. But ultimately we find that the penalty has been levied only for furnishing inaccurate particulars of income as is evident from the reading of the penalty order u/s 271(1)(c ) of the Act dated 20.3.2014. This issue is now settled in favour of the assessee by the following decisions, among others :- a) Decision of Hon ble Jurisdictional High Court in the case of CIT vs Samson Perichery reported in 392 ITR 4 (Bom). b) Decision of Hon ble Karnataka High Court in the case of CIT vs Manjunatha Cotton and Ginning Factory and others reported in 359 ITR 565 (Kar). c) Decision of Hon ble Karnataka High Court in the case of CIT vs SSA S Emerald Meadows in ITA No. 380 of 2015 dated 23.11.2015. Special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in PCIT vs Smt Baisetty Revathi reported in 398 ITR 88 also held that when penalty proceedings are sought to be initiated by the revenue u/s 271(1)(c ) of the Act, the specific ground which forms the foundation, therefore, has to be spelt out in clear terms. Otherwise, an assessee would not have proper opportunity to put forth his defence. When the proceedings are penal in nature, resulting in imposition of penalty ranging from 100% to 300% of the tax liability, the charge must be unequivocal and unambiguous. When the charge is either concealment of particulars of income or furnishing of inaccurate particulars thereof, the revenue must specify as to which one of the two is sought to be pressed into service and cannot be permitted to club both by interjecting one or between the two. 2.6. Respectfully following the aforesaid judicial precedents, we have no hesitation in cancelling the levy of penalty on the technical ground of non-striking off of the irrelevant portion in the show cause notice for penalty by the revenue. Accordingly, the additional ground raised by the assessee for the Asst Year 1998-99 is allowed. In view of this decision, the other grounds raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act, the ld AO did not strike off the irrelevant portion specifying the charge of offence by the assessee. 4.3.1. The ld AO had considered the assessee as the owner with respect to all the properties. The assessee pointed out to the ld CITA that they were owners only with respect to P.M.Road, Mumbai, Ahmedabad and Pune properties and Borivali property was taken on rent by the assessee. The ld CITA however mistook that the assessee had taken all the properties on rent and accordingly held that the rental income was to be assessed under the head Income from Other Sources . Further the ld CITA was of the view that the assessee did not carry on any business. Accordingly, he confirmed the disallowance of expenses made by the ld AO. 4.4. On appeal to tribunal, the tribunal restored the matter back to the file of ld CITA since he had proceeded on erroneous assumption of facts. Since the taxability of rental income was set aside, the tribunal also set aside the issue regarding allowability of expenses. 4.5. The ld CITA in set aside proceedings confirmed the order of the ld AO wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lars of income. But in the show cause notice for penalty, the same is not mentioned by including the word and at the relevant place. But ultimately we find that the penalty has been levied only for furnishing inaccurate particulars of income as is evident from the reading of the penalty order u/s 271(1)(c ) of the Act dated 24.3.2014. 4.7.1. We find that the decision rendered hereinabove for the Asst Year 1998-99 on this technical issue of not striking off the irrelevant portion in the penalty notice would hold good for this asst year also except with variance in figures. Hence we have no hesitation in cancelling the levy of penalty on the technical ground of non-striking off of the irrelevant portion in the show cause notice for penalty by the revenue. Accordingly, the additional ground raised by the assessee for the Asst Year 2002-03 is allowed. In view of this decision, the other grounds raised by the assessee on merits need not be gone into and the arguments advanced by both the sides are left open and no decision is rendered herein on the same. 5. In the result, the appeal of the assessee in ITA No. 2871/Mum/2016 for the Asst Year 2002-03 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of the assessee itself. We find that the issue in dispute is fully settled in favour of the assessee by the decision of the Hon ble Supreme Court in the case of ICDS Ltd reported in 350 TIR 527 (SC) wherein it was held that depreciation on leased assets is allowable in the hands of the lessor who is the owner. Though this decision has been rendered on the allowability of depreciation on leased assets from the angle of the lessor, the principle laid down could be made very much applicable to the facts of the instant case conversely for allowability of lease rentals in the hands of the assessee (lessee). Hence respectfully following the said decision , we hold that the assessee is entitled for deduction of ₹ 42,48,067/- towards lease rentals paid on cars and we direct the ld AO accordingly. Since the Ground No. A raised by the assesee is allowed, the adjudication of Ground Nos. B and C need not be adjudicated. 7. The Ground Nos. D, E and F raised by the assessee are with regard to disallowance u/s 14A of the Act read with Rule 8D of the Rules under normal provisions of the Act. The assessee had also raised additional grounds contesting the point that n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sm provided in Rule 8D(2) of the Rules mechanically. It was also held that the ld AO had not recorded any satisfaction in terms of Section 14A(2) of the Act read with Rule 8D(1) of the Rules by examining the accounts of the assessee and correctness of the claim of the assessee. We find that this decision of the tribunal was upheld by the Hon ble Jurisdictional High Court in Income Tax Appeal No. 1482 of 2016 dated 29.1.2019 wherein the question raised by the revenue before the Hon ble High Court and the decision rendered thereon are as under:- 1. Revenue is in the appeal against the judgment of the Income Tax Appellate Tribunal ( the Tribunal for short) dated 7.10.2015 raising following question for our consideration:- Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in restricting the disallowance made by the Assessing Officer of Rs, 1,79,85,122/- to ₹ 7,64,949/- as offered by the assessee, without appreciating that when the assessee itself admitted that the disallowance had to be made with - regard to expenditure for earning of income which was exempt, the disallowance is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised by the assessee is with regard to disallowance of advertisement expenses in the sum of ₹ 84,00,000/-. 11.1. The brief facts of this issue are that the ld AO on perusal of the profit and loss account of the assessee observed that the assessee had debited an amount of ₹ 2,05,99,612/- towards advertisement expenses, for which the details were called for in the course of assessment proceedings. The details were submitted by the assessee vide submission dated 20.11.2013. From the said details, the ld AO observed that the assessee had debited ₹ 84,00,000/- under the head Living Media India Ltd Advertisement in Business Today . The assessee was show casued as to why the said expenses be not disallowed and added to the total income. The assessee in response to the show cause notice submitted as under:- 1) At the previous hearing your goodself had called for an explanation as to why the expenditure incurred on advertisement amounting to ₹ 84,00,000/- should not be disallowed treading the same as a capital expenditure. 2) During the financial year 2010-11, the company engaged Creative land Asia Private Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the business carried on by the assessee. (f) ft should have been expended wholly and exclusively for the purposes of the business. (g) It should not have been incurred for any purpose which is an offence or is prohibited by any law. The Company submits that the expenditure incurred during the relevant previous year satisfies all the conditions mentioned herein above. In this regard, your goodself would appreciate the above contention. Thus, it should be allowed u/s.37(l) of the Act. 6) We further wishes to state that said expenses does not result in acquiring a capital asset, the above expenditure is allowable as revenue expenditure. In this regard, we rely on the decision of the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. v. CIT (1980) 124 ITR I wherein the Hon'ble Supreme Court held that if an expenditure results in an enduring benefit without a capital asset being generated, the expenses are allowable as revenue expenses. In this regard, the Hon'ble Supreme Court held as under: The decided cases have, from time to time, evolved various tests for di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstance of a given case. But even if this were applied in the present case, it does not yield a conclusion in favour of the revenue. Here, by purchase of loom hours no new asset has been created. There is no addition to or expansion of the profit-marking apparatus of the assessee. The income-earning machine remains what it was prior to the purchase of loom hours. The assessee is merely enabled to operate the profit making structure for a longer number of hours. And this advantage is clearly not of an enduring nature. It is limited in its duration to six months and, moreover, the additional working hours per week transferred to the assessee have to be utilised during the week and cannot be carried forward to the next week. It is, therefore, not possible to say that any advantage of enduring benefit in the capital field was acquired by the assessee in purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration, the appellant had incurred advertisement expenses of ₹ 84,00,000/-. The said expenses were incurred for creating and releasing artworks for various signages, etc., intelligence series campaign with Business India and Business Today magazines, concept note and designing internet newsletters, designing Diwali and new year e- greeting cards, HR and other internal event communications mailers, various product leaflets and other marketing collaterals like bulleting, etc., branding for conferences and events, designing screen savers/desktop wallpapers, etc. and designing brouchers. 37) During the course of assessment proceedings, the AO had asked the appellant to clarify as to why the advertisement expenses should not be treated as capital in nature. The appellant had filed a letter giving a detailed explanation as to why the advertisement expenses should not be considered to be capital in nature. 38) The AO has disallowed the expenses on the alleged ground that the expenses do not have any direct nexus and hence cannot be considered as business expenses and the expenses would have an enduring benefit to the appellant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has recovered a total of ₹ 27,60,00,000/- as Group Support Fees which also includes reimbursement of advertisement expenses. If we consider the expense and the income, there is a surplus. Accordingly, as no expenditure has been incurred or debited to the profit and loss account, the question of any disallowance on account of advertisement f expenses does not arise. 43) The appellant therefore prays that the disallowance of advertisement expenses of ₹ 84,00,000/-as made by the AO may be deleted. 44) Without prejudice, if your honour is not inclined to delete the disallowance, the appellant prays that the income of the appellant may also be reduced by the like amount as the advertisement expenses are on account of the group, which has been also recovered from the group companies. Accordingly, the group support fees may be reduced by ₹ 84,00,000/- and there would be no net impact on the profit and loss account. 45) In view of the above, if your honour is not inclined to reduce the disallowance of advertisement expenses, the AO may be directed to disallow only the net advertisement expenses. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r.No.19 to 24) is dismissed. 11.6. Aggrieved, the assessee is in appeal before us. 11.7. We have heard the rival submissions. We find that the assessee had made a detailed submission by presenting all the facts before the ld CITA, which had been ignored by the ld CITA. We find that the assessee had duly stated that it had incurred certain advertisement expenses on behalf of all the group companies , which had been duly recovered by the assessee from its group companies. We find lot of force in the argument advanced by the ld AR that in case if the revenue is inclined to disallow the common advertisement expenses of ₹ 84 lacs then the revenue ought to have reduced the corresponding income in the form of recoveries from group companies also to that extent. The revenue cannot be allowed to disallow the expenditure on one hand as incurred for non- business purposes and incurred on capital account and correspondingly tax the income on other hand which is nothing but the recoveries of the said expenditure. This would result only in double jeopardy to the assessee and also result in contradictory stand taken by the revenue. It is not in dispute th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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