TMI Blog2016 (9) TMI 597X X X X Extracts X X X X X X X X Extracts X X X X ..... ed liability and claimed the same as deduction while filing return of income with the Revenue for the assessment year 2009-10 . It is not the case of the Revenue that the assessee has not incurred the aforesaid expenses of ₹ 3,12,27,390/-. The assessee entered into an ‘expenses reimbursement agreement’ with parent company AIGCC for reimbursement of the salary and other expenses with respect to ‘CFG Management employees’ at cost without any mark up subsequently on 13-05-2010 albeit the said expenses reimbursement agreement was effective from 01-04-2008 meaning thereby right to receive reimbursement of expenses from parent company AIGCC got vested and accrued in favour of the assessee only when the said ‘expenses reimbursement agreement’ was entered into by the assessee on 13- 05-2010 albeit to claim reimbursement w.e.f.01-04-2008 , but that does not mean that the assessee liability to pay these expenses towards salary and other expenses related thereto ‘CFG management employees’ did not get fastened and accrued against the assesssee in the previous year ended 31-03- 2009 itself rather in-fact it was assessee who was liable to pay said ‘CFG management employees’ salaries an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee may be given proper and sufficient opportunity of being heard in accordance with principles of natural justice in accordance with law and the relevant evidences and explanations submitted by the assessee will be admitted by the AO before de-novo determination of the issue on merits. - I.T.A. No. 4355/Mum/2013 - - - Dated:- 12-9-2016 - Shri Mahavir Singh, Judicial Member And Shri Ramit Kochar, Accountant Member Assessee by Shri Nitesh Joshi Revenue by : Shri Naveen Gupta ORDER Per Ramit Kochar, Accountant Member This appeal, filed by the assessee company, being ITA No. 4355/Mum/2013, is directed against the appellate order dated 28th February, 2013 passed by learned Commissioner of Income Tax (Appeals)- 14, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2009-10, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 27-10-2011 passed by the learned Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called the Act ). 2. The grounds of appeal raised by the assessee company in the memo of appeal filed with the Income Tax Appellate Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o ₹ 12,62,666/- and interest income from escrow balance amounting to ₹ 17,46,737/-. The assessee has incurred major expenses on account of employee cost amounting to ₹ 40,622,512/- out of which an amount of ₹ 7,587,585/- had been disallowed by the assessee for various reasons. The assessee was asked to explain why expense of ₹ 3.12 crores should be allowed against only interest income on FD and escrow balance. In reply, the assessee submitted that the assessee has only five employees. The assessee had incurred employee costs towards salary, bonus, allowances etc. amounting to ₹ 40,622,512/- for which summary of the employee cost was given. Further an amount of ₹ 7,587,585/- was disallowed by the assessee for the financial year ended 31st March, 2009. It was submitted that for the financial year relevant to assessment year 2010-11 assessee s parent company namely AIG Capital Corporation, USA (AIGC) reimbursed salary costs and other expenses pertaining to certain personnel employed by the assessee for the financial year ended 31st March 2009 and 31st March, 2010 in accordance with the reimbursement agreement between AIGCC and the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the ld. CIT(A). 5. Before the ld. CIT(A) the assessee submitted that the A.O. without appreciating the nature of the expenses incurred and also without granting sufficient opportunity to the assessee to show cause as to why salary costs should not be disallowed sought to disallow the salary expenditure and other administrative expenses amounting to ₹ 31,227,390/- incurred by the assessee during the financial year ended 31 March, 2009 which was reimbursed by the AIGCC during the financial year ended 31 March 2010. It was submitted that the asessee was incorporated on 25 April 2006 and started its business operation as an NBFC subsequent to its registration with the RBI in October, 2006. The assessee had made its first strategic investment in AIG Global Asset Management Company (India) Private Limited in December 2006 and also thereafter made investment in other AIG group of companies in India. It was submitted that during the financial year ended 31 March 2009 the assessee had incurred salary expenses amounting to ₹ 40,622,512/- and administrative and other expenses amounting to ₹ 5,752,345 for conducting its business activities and has claimed the same as de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of certain managerial persons( CFG management employees ) which were employed for and on behalf of the parent company i.e. AIGCC. Thus, right from the beginning i.e. from 1st April, 2008 from which date expense reimbursement agreement was entered into by the assesseee with AIGCC, it was clear to the assessee that the expenses incurred in respect of such CFG management employees employed on behalf of the parent company i.e. AIGCC were not for its own business purposes and shall eventually be reimbursed to the assessee by its parent company. It was held that the assessee is following mercantile system of accounting and was not entitled to claim these expenses whether or not they were reimbursed by AIGCC in the current year as the said expenses reimbursement agreement was effective from 01-04-2008 due to which such salaries and other expenses became reimbursable to the assessee w.e.f. 01-04-2008 and hence the A.O was justified in disallowing the same and accordingly the action of the A.O. in disallowing the expenses of ₹ 3,12,27,390/- was confirmed by the learned CIT(A) vide appellate order dated 28-02-2013. With regard to the treatment of the interest income on Fixed D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in the case of CIT v. Eveready Industries India Ltd.(2009) 323 ITR 312. 3. The Hon ble Calcutta High Court in the case of CIT v. Tirupati Woolen Mills Ltd. [1992], 193 ITR 252 4. The Madras High Court in the case of CIT v. Tamil Nadu Dairy Development Corporation Ltd. [1995] 216 ITR 535 5. Supreme Court in the case of CIT v. Nagpur Engineering Co Ltd. 245 ITR 806 6. Bombay High Court in the case of CIT v. Paramount Premises (P) Ltd. 190 ITR 259 7. Karnataka High Court in the case of CIT v. Chinna Nachimuthu Constructions , 297 ITR 70. Thus the assessee prayed that interest income earned from placing fixed deposit be considered to be income from profits and gains from business or profession and not income from other sources. The ld. CIT(A) rejected the contentions of the assessee and held that this activity is not covered in the main objects of the business of the assessee hence it is in the nature of income from other sources vide appellate order dated 28-02-2013 passed by the learned CIT(A). 6. Aggrieved by the appellate order dated 28-02-2013 passed by the ld. CIT(A), the assessee is in appeal before the Tribunal. 7. The ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the matter may be set aside to the file of the A.O. for verification that the assessee is engaged in the business of NBFC as a financing company. 8. The ld. D.R. relied on the order of the ld. CIT(A). 9. We have considered the rival contentions and also perused the material available on record. We have observed that the assessee is a wholly owned subsidiary of AIG Capital Corporation, USA and registered with the Reserve Bank of India as NBFC being non-deposit taking non-banking financial companies. We have observed that the assessee has incurred salary and other expenses relating to CFG management employees amounting to ₹ 3,12,27,390/- for the previous year ended 31-03-2009. The assessee has claimed the said expenditure as deduction as revenue expenditure in the return of income filed with the Revenue for the assessment year 2009-10 , while the said expenses was reimbursed to the assessee vide Expenses reimbursement agreement dated 13th May, 2010 entered into between the assessee and the parent company AIGCC effective w.e.f. 01-04-2008 wherein the parent company agreed to reimburse the CFG management employeess salaries and other expenses in connection ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and ascertained liability and claimed the same as deduction while filing return of income with the Revenue for the assessment year 2009-10 . It is not the case of the Revenue that the assessee has not incurred the aforesaid expenses of ₹ 3,12,27,390/-. The assessee entered into an expenses reimbursement agreement with parent company AIGCC for reimbursement of the salary and other expenses with respect to CFG Management employees at cost without any mark up subsequently on 13-05-2010 albeit the said expenses reimbursement agreement was effective from 01-04-2008 meaning thereby right to receive reimbursement of expenses from parent company AIGCC got vested and accrued in favour of the assessee only when the said expenses reimbursement agreement was entered into by the assessee on 13- 05-2010 albeit to claim reimbursement w.e.f.01-04-2008 , but that does not mean that the assessee liability to pay these expenses towards salary and other expenses related thereto CFG management employees did not get fastened and accrued against the assesssee in the previous year ended 31-03- 2009 itself rather in-fact it was assessee who was liable to pay said CFG management employees sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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