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2016 (9) TMI 597 - ITAT MUMBAI

2016 (9) TMI 597 - ITAT MUMBAI - TMI - Reimbursement received from Holding company of the expenses with respect to salaries and other related costs thereto w.r.t. ‘CFG management employees’- Expenses allowance against only interest income on FD and escrow balance - assessee is a wholly owned subsidiary of AIG Capital Corporation, USA(AIGCC) and registered with the Reserve Bank of India as non-deposit taking non-banking financial companies - Held that:- The assessee is entitled for deduction .....

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g rightly debited the same as an revenue expenditure being an accrued 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 Ma .....

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se 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 and other expenses related thereto of it own account in the previous year ended 31-03-2009 and it is an subsequent event happening on 13-05-2010 wherein ‘expenses reimbursement agreement’ was entered into with AIGCC .....

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C of the expenses with respect to salaries and other related costs thereto w.r.t. ‘CFG management employees’ received in the previous ended 31-03-2010 for taxation in the return of income filed with Revenue for assessment year 2010-11. In our considered view the said expenditure of ₹ 3,12,27,390/- towards salaries and other expenses related thereto w.r.t. ‘CFG management employees’ incurred by the assessee during the previous year ended 31-03-2009 is an allowable revenue expenditure for th .....

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ss or profession - Held that:- As observed that the assessee is contending that it is engaged in the business of NBFC whereby it is engaged in activities of financing as an NBFC and hence interest income received on FD should be brought to tax as income under the head profit and gains of business or profession . In our considered view, this claim of the assessee that it is engaged in business of financing as an NBFC needs verification and accordingly we set aside and restore this ground to the f .....

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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 appell .....

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[hereinafter referred to as 'the learned CIT(A)'], under section 250 of the Income-tax Act, 1961 (Act) and based on the facts and circumstances of the case, Pinebridge Investments Capital India Private Limited (PICIPL) (hereinafter referred to as 'the Appellant') respectfully submits that the learned CIT(A) erred in upholding the order of the Assistant Commissioner of Income-tax, Circle 6(1) (hereinafter referred to as 'the learned Assessing Officer'). In passing the afor .....

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as reimbursed by AIGCC and the said reimbursement amount was offered to tax based on mercantile system of accounting while calculating the total income for the assessment year 2010-11. 2. In failing to appreciate that the Appellant was in the business to promote, acquire or invest by way of capital or otherwise, in any non-banking financial activities including investments in fixed deposits and therefore, erring in characterizing the interest income earned from such fixed deposit amounting to &# .....

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ote, acquire or invest by way of capital or debt in securities of any body corporate, trusts, societies etc. . During the previous year under consideration , the assessee earned interest income on fixed deposits amounting to ₹ 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 asses .....

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r 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. It was submitted that out of the total reimbursement received of ₹ 78,324 .....

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ent year 2010-11. Thus, the assessee submitted that total amounting to ₹ 31,227,390/- was reimbursed by AIGCC to the assessee in the subsequent financial year ended 31st March, 2010 which has been included in the total income for the assessment year 2010-11 and suffered taxation. It was observed by the A.O. that the expenses incurred were not in connection with the business activity of the assessee as the same was reimbursed to the assessee by the parent company i.e. AIGCC in the subsequen .....

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e assessment year 2009-10 only. Thus, the AO disallowed an amount of ₹ 3,12,27,390/- claimed as an employee cost for assessment year and added the same to the income of the assessee vide assessment order dated 27-10-2011 passed u/s. 143(3) of the Act. Further it was held by the A.O. that the interest income on fixed deposit of ₹ 12,62,666/- and income from escrow balance amounting to ₹ 17,46,737/- should be charged to tax under the head income from other sources and not under t .....

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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 .....

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same as deduction under section 37(1) of the Act. The assessee submitted that the salary and administrative expenses incurred by the assessee during the financial year ended 31 March 2009 was incurred in the normal course of its business activities and were neither capital in nature nor personal in nature. The assessee submitted that it is an undisputed position that the assessee is engaged in business of investing in Indian companies since assessment year 2007-08 which is accepted by Revenue. .....

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) of the Act in computing the total income of the assessee. It was also submitted that the A.O. has erred in holding that the assessee is following mercantile system of accounting and the reimbursement amount pertaining to financial year 2008-09 should be offered to tax in the said financial year and not in financial year 2009-10, the year in which the reimbursement was received. It was submitted that the reimbursement agreement was entered into only on 13th May 2010, though effective from 1st A .....

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7; 31,227,390/- reimbursed by AIGCC to the assessee pertain to the business activities of the assessee and should be allowed as a deduction under section 37(1) of the Act. The ld. CIT(A) rejected the contentions of the assessee whereby the learned CIT(A) held that the assessee is a wholly-owned subsidiary company of AIGCC. The purpose for which the reimbursement was claimed by the assessee was on account of certain managerial persons( CFG management employees ) which were employed for and on beh .....

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cantile 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) vi .....

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business of making investments. The assessee had, interalia, earned interest income on fixed deposits amounting to ₹ 1,262,666/- for the previous year ending 31-03-2009. It was submitted that interest income of ₹ 12,62,666/- on fixed deposits was earned in the normal course of business of the assessee and the same was offered to tax as business income which is chargeable to tax under the head income from profits and gains from business or profession in accordance with the provisions .....

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ness of the assessee is to promote, acquire or invest by way of capital or debt in securities of any body corporate, trusts, societies etc. engaged or proposed to be engaged in any non-banking financial service activity such as asset management, consumer finance, leasing and financing and in trusteeship of mutual funds, offshore funds, pension funds, etc. It was submitted that assessee had made investment in various AIG group of companies . It was submitted that the assessee is an NBFC registere .....

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e 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 Nac .....

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). 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. Counsel for the assessee submitted that the assessee has incurred salary expenses and other expenses related thereto during the year amounting to ₹ 31,227,390/- which has been correctly claimed as expenses for the previous year ended 31-03-2009. The learned counsel submitted that the parent company AIGCC has reimbursed such cost of salary and expenses .....

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see in the return of income filed with the Revenue for assessment year 2010-11. The copy of the said expenses reimbursement agreement is placed on record vide paper book page No. 109 to 114. The agreement was w.e.f. 1.4.2008 and the parent company has agreed to reimburse the salary and other expenses incurred in connection with assessee s employment of CFG management employees w.e.f. 01-04-2008 at cost and without mark up, and the same was offered for taxation in the assessment year 2010-11. Thu .....

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sion of Hon ble Bombay High Court in the case of Shrikant Textiles v. CIT, 1970-(BOI)-GJX-0035-Bom. With respect to the other ground, it was submitted that assessee has earned interest on FD amounting to ₹ 1,262,666/- wherein it was submitted that the assessee is engaged in making investments in AIG group of companies and is an NBFC registered with RBI engaged in activities such as asset management, consumer finance, leasing and: financing and in trusteeship of mutual funds, offshore funds .....

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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 .....

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s also placed copy of balance sheet for the assessment year 2010-11 wherein the said amount of reimbursement of expenses to the tune of ₹ 3,12,27,390/- for the previous year ended 31-03- 2009 had been reflected in the P&L account for the year ended 31.3.2010(pb/page9) as income earned by the assessee. The reimbursement of said expenses which has been elaborated vide Schedule 13 in the audited financial statement which is as under:- Reimbursement of expenses The Company entered into an .....

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g held on March 26, 2010. The amount of reimbursement for the year April 1, 2008 to March 31., 2009 aggregating to ₹ 31,227,390 (Previous year Rs. Nil) has been disclosed in the Profit and Loss Account under the head 'Income' and the amount for the year April 1, 2009 to March 31, 2010 aggregating to ₹ 47,096,967 has been disclosed in Schedule 9 as annexed to Profit and loss account as a reduction from expenses. In our considered view , the assessee is entitled for deduction a .....

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ing mercantile system of accounting rightly debited the same as an revenue expenditure being an accrued 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 expense .....

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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 and other expenses related thereto of it own account in the previous year ended 31-03-2009 and it is an subsequent event happening on 13-05-2010 wherein expenses reimbursement agreement was entered i .....

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iles v. CIT, 1970-(BOI)-GJX-0035-Bom squarely applies to the instant case of the assessee and supports the assessee s contentions. Thus in our considered view, the assessee has rightly offered as income the reimbursement received from AIGCC of the expenses with respect to salaries and other related costs thereto w.r.t. CFG management employees received in the previous ended 31-03-2010 for taxation in the return of income filed with Revenue for assessment year 2010-11. In our considered view the .....

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