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2017 (5) TMI 353 - ITAT MUMBAI

2017 (5) TMI 353 - ITAT MUMBAI - TMI - Disallowance of depreciation on Business Development rights - Held that:- Except for raising this ground, the assessee has failed to bring on record before us any material evidence to establish its claim for being allowed depreciation @25% on business development rights and controvert the findings of the authorities below. In this view of the matter we find no reason to interfere with or deviate from the judicious findings of the learned CIT(A) in rejecting .....

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under section 72A(6) r.w.s. 47(xiv) of the Act is in order. In this view of the matter, we find no reason to interfere with the judicious decision rendered by the learned CIT(A) in rejecting the assessee’s claim for being allowed set off of brought forward losses under section 72A(6) r.w.s. 47(XIV) of the Act. Consequently, ground No. 2 of the assessee’s appeal is dismissed. - Disallowance of Market Intelligence Collection Charges - Held that:- Except for raising this ground, the assessee ha .....

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nt of ₹ 31,00,093/- @ `50/- per customer. - Decided against assessee. - ITA No. 4198/Mum/2014 - Dated:- 5-5-2017 - Shri Jason P. Boaz, Accountant Member, And Shri Ram Lal Negi, Judicial Member For the Appellant : None For the Respondent : Shri J. Mohammed Rizwan ORDER Per Jason P. Boaz, A.M. This appeal by the assessee is directed against the order of the CIT(A)- 18, Mumbai dated 07.03.2014 for A.Y. 2005-05. 2. The facts of the case, briefly, are as under: - 2.2 Aggrieved by the order of a .....

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12 lakhs and writing off excess provision of market intelligence collection charges amounting to ₹ 1,67,73,345/-. The case was taken up for scrutiny and the assessment was completed under section 143(3) of the Act vide order dated 26.12.2005 wherein the assessed loss determined at ₹ 1,14,60,051/- was allowed to be carried forward. 2.2 Aggrieved by the order of assessment dated 26.12.2005 for A.Y. 2004-05, the assessee preferred an appeal before the CIT(A)-18, Mumbai. The learned CIT( .....

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in law, the CIT(A) has erred in dismissing the ground No.2 and thereby confirming the disallowance of claim for the brought forward losses made under the provisions of Section 72A(6) read with 47(xiv) Proviso(c) of the Act; 3. On the Facts and circumstances of the case and in law, the CIT(A) has erred in not allowing full relief on the disallowance of Market Intelligence Collection charges which were claimed at ₹ 46,50,139/- and allowing relief only to the extent of ₹ 15,50,046/-the .....

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se was adjourned and next date was intimated by display on notice board. Even issue of notice for hearing by RPAD a number of times did not elicit any response by the assessee. In these circumstances, we are of the considered opinion that the assessee is not interested in pursuing this appeal. The learned D.R., however, was present and ready to argue Revenue s case. In these circumstances, we proceed to dispose off this appeal exparte with the assistance of the learned D.R. and the material on r .....

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y its claim. The assessee, though it submitted that it had taken over the business and assets/liabilities of M/s. JLI Insurance Brokerage Company, proprietary concern of one Sri Vasant Raj Pandit, and these business development rights were preoperation expenses incurred for training staff; could not furnish any details or documentary evidence to substantiate this claim and therefore the assessee s claim for depreciation @25% was disallowed. The learned D.R. states that, on appeal, the CIT(A), af .....

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the learned CIT(A) has dealt with this issue at length and rendered his findings at para 2.4 thereof which is extracted hereunder: - 2.4 1 have considered the submissions of the appellant, order of the AD and facts of the case carefully. It is noticed that the assessee has claimed depreciation @ 25% on the business development rights. During the assessment proceedings the AO has called for complete details and the nature of assets which has come into existence by incurring the expenditure of pr .....

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was filed along with this written submission. Thus the AO has held that as per Rule 5 of the LT. Rules no asset has come into existence and no documentary evidence has been filed to prove the existence of any asset. Therefore, the claim of depreciation of ₹ 36,76,397/- being 25% of Rs,1,47,05,589/- claimed by the appellant was disallowed. On the other hand the AR of the appellant has submitted that there is no depreciation claimed falls in the heading of intangible asset in part B of depr .....

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n was allowed in A.Y.2003-04. The remand report was also called. for on. this issue, the gist of which is reproduced as under.: As submitted in the letter dated 11.12.2013, the above case was received on transfer from the charge of DCIT-8(3) in the quarter ending March, 2013. It is seen that the case was earlier assessed with the charge of DCIT-8(2), Mumbai till July, 2011 and the assessment proceedings for the concerned years had been completed in that charge. However, the assessment records fo .....

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ent expenses in support of its claim of depreciation for that year along with copy of the assessment order passed for the AY 2003-04. In response to the above the Assessee vide letter dated 30.12.2013 sought one week's time to furnish the details. Accordingly, the assessee was asked to furnish the same by 06.01.2014. However, the assessee vide letter dated 06.01.2014 again asked to grant a further time of twenty days to submit the requisite information. Since no details were filed, the Asses .....

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Copy of Balance Sheet of PAN Insurance Brokerage Company Private Limited for the FY. 2003-04, 4. Copy of Notice for Remand Report. In the instant case, the Assessee was asked to furnish the details which had been submitted by the assessee in course of assessment proceedings for A Y 2003-04 in respect of' The Business Development Expenses' in support of its claim of depreciation for that year, along with copy of assessment order passed for the AY 2003-04. It is seen that other than appeal .....

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essee Company. It is seen that contrary to the claim made by the Assessee company, the claim of depreciation towards business development expenses was disallowed in the said order after a detailed discussion (Para 14, Page 15 & 16). Copy of Assessee's submission dated 11.02.2014 is enclosed herewith. Under the circumstances, the above claim made by the assessee is found to be factually incorrect. From the perusal of the remand report and submissions it is clear that the assessee company .....

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that no business asset was created. Hence not eligible for claiming depreciation. In the remand report also the AO has mentioned that in the Asst. Year 2003-04 the depreciation was not allowed by the AO. But on the other hand the AR of the appellant has submitted that in A.Y.2003-04 the depreciation was allowed. To verify this fact it is noticed that in the assessment order passed for A.Y. 2003-04 the issue of depreciation has been discussed in para 14 and 15 of the assessment order the gist of .....

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its claim. As regards the claim of depreciation on computer and furniture and fixtures, the assessee was specifically asked for the full address of the location where it is installed along with name and address of the party who had carried out the installation of computers and furniture and fixtures. For this also, the assessee has merely filed a typed statement. The assessee has not been able to give the address where it is installed. It has only mentioned at the top of the Annexure-IV "or .....

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to furnish the location where it has installed the computers and servers and also the furniture and fixtures. Accordingly, the depreciation claimed of ₹ 54,47,588/- is rejected and the same is added to the total income. A simple reading of this order it is clear that in absence of supporting evidence the AO has disallowed the depreciation claimed at ₹ 54,47,588/-. But it is not understandable how the AR of the appellant has made submission that depreciation was allowed in the A.Y.200 .....

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ow, we find that except for raising this ground, the assessee has failed to bring on record before us any material evidence to establish its claim for being allowed depreciation @25% on business development rights and controvert the findings of the authorities below. In this view of the matter we find no reason to interfere with or deviate from the judicious findings of the learned CIT(A) in rejecting the assessee s claim for being allowed depreciation @25% on business development rights. Conseq .....

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low in disallowing the assessee s claim for set off of brought forward losses under section 72A(6) r.w.s. 47(xiv) of the Act and have perused and carefully considered the orders of the authorities below on this issue. The learned CIT(A) has dealt with this issue at para 3.3 of the impugned order, which is extracted hereunder: - 3.3 I have considered the submissions of the appellant, order of the AO and facts of the case carefully. It is noticed that the assessee has claimed that it was entitled .....

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section 72A(6) r.w.s. 47(xiv) and proviso (c) to section 47(xiv) are not fulfilled because Shri Vasant Raj Pandit, proprietor of M/s. Frontier Trading has received indirect benefit in the nature of market Intelligence collection charges from the assessee company. In the proviso it is very clear that the proprietor cannot receive any consideration or benefit directly or indirectly in any form or manner other than by way of allotment of shares in the company. On the other hand the AR of the appel .....

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siness practice and that too at much reduced rate. It was also submitted that the payment of such charges to Frontier Trading Company has nothing to do with the succession of proprietary concern with the appellant company for which only consideration was the allotment of 99% shares to the proprietary concern which was evident from the notes to the accounts and Balance Sheet. It was also submitted that there is no law that once a proprietary concern has been succeeded or converted to a company th .....

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ssee company has paid the amount of ₹ 2,30,23,484/- to Frontier Trading Company, a proprietary concern of Shri Vasant Raj Pandit which clearly is a benefit given to the sole proprietor Shri Vasant Raj Pandit. In view of these facts and circumstances I do not agree with the argument of the AR of the appellant that no benefit has been received by Mr. Vasant Raj Pandit by collecting the market intelligence collection charges from assessee company. Thus I fully agree with the decision of the A .....

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is view of the matter, we find no reason to interfere with the judicious decision rendered by the learned CIT(A) in rejecting the assessee s claim for being allowed set off of brought forward losses under section 72A(6) r.w.s. 47(XIV) of the Act. Consequently, ground No. 2 of the assessee s appeal is dismissed. 7. Ground No. 3 - Disallowance of Market Intelligence Collection Charges - ₹ 31,00,093/- 7.1 In this ground the assessee challenges the order of learned CIT(A) in giving partial rel .....

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eing put forth for the same. The AO restricted the same expenditure to ₹ 7,54,023/- @ 25/- per customer, resulting in disallowance of ₹ 38,75,116/-. The learned D.R. submits that on appeal the learned CIT(A) affirmed the view of the AO that the expenses claimed by the assessee @150/- per customer was excessive and not established, but granted the assessee partial relief by directing the AO to allow the assessee s claim to the extent of ₹ 50/- per customer which worked out to &# .....

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the impugned order, we find that the learned CIT(A) has dealt with this issue at length and rendered his finding at paras 4.1 to 4.3 thereof as under: - 4.1 The AO has observed that assessee has debited ₹ 46,50,139/- towards market intelligence agencies. When the AO has asked for the explanation of these expenses the assessee has submitted that it was permitted to use third parties to collect information for procuring insurance business. The assessee used the services of another proprieta .....

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ence and 50% business was generated directly. The AO has considered the submissions of the appellant and observed that the conduct of the assessee with regard to the scaling down of the market Intelligence charges payable to M/s. Frontier Trading Co. from ₹ 2,13,23,484/- to ₹ 46,50,139/-.Moreover, during the assessment proceedings the assessee has stated that they earn upwards of ₹ 50/- and above per form from the insurance companies firm. From the insurance company and the add .....

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,18,000/- as salaries was paid to the marketing, personnel. Further the payments between the company where the director holds the substantial shares and his proprietary concern. Therefore, the reasonableness of the payment made to M/s. Frontier Trading Co. was in doubt. It was also observed by the AO that the Income of the insurance company is as low as ₹ 50/- per person in certain policies, payment of ₹ 150/- was shown for collecting the information about the prospective customer. I .....

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stricting the claim of expenses relating to the market intelligence collection charges from ₹ 150/- per questionnaire to just ₹ 25/- per questionnaire, thereby disallowing the expenditure to the extent of ₹ 38,75,116/- . The disallowance has been made on the ground that the payment has been made to a concern in which the director of the appellant company has substantial interest and that the income earned from such policies in some cases was as low as ₹ 50/- per policy. I .....

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this year, the expenditure incurred on such expenses has reduced from 271% to 89% as compared to last year and as such, the expenses claimed were highly reasonable and justified. It may further be mentioned that such charges have resulted in the generation has large revenues to the appellant. In support of this, the appellant is attaching a copy of the details submitted during the course of assessment proceedings showing the number of questionnaire issued and the policies generated there from ( .....

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e examined from the yardstick of a reasonable and normal businessman and no disallowance can be made merely because the expenditure should have generated more income. It may lastly be added that the AO's action in estimating the expenditure at ₹ 25/- per questionnaire is highly arbitrary and without any basis. No disallowance can be made in this arbitrary manner without giving any basis for the same. 4.3 I have considered the submissions of the appellant, order of the AO and facts of t .....

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ings. The AO has observed that the market intelligence charges were collected by M/s. Frontier Trading Co., a proprietary concern of Mr. Vasant Raj Pandit who has substantial interest in the assessee company. On the basis of information submitted the AO has analyzed the specimen forms containing the market intelligence as gathered by M/s. Frontier Trading Co. It revealed that no specialized or any skilled application was required for collecting this information. Since the payment was made to Shr .....

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75,023/- and balance amount of ₹ 38,75,116/- was disallowed. On the other hand the AR of the appellant has submitted that the income from certain policy was low of ₹ 50/- without pointing out even a single instance for the same. The low income of ₹ 50/- is there for almost negligible number of policies and that too for general insurance category whereas for most of the policies the amount was above ₹ 500/- for Life Insurance and Rs,100/- for general insurance. It was also .....

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39/- which were earlier claimed at ₹ 2,13,23,484/-. Earlier the claim was @ ₹ 450/- per customer but it was reduced to ₹ 150/- per customer. However, no reason was given for such a drastic fall in expenses. Moreover, no reason was also given by the appellant for claiming the expenses @ ₹ 150/- per person but the specimen form used for the market intelligence was very simple and has no need for any skilled worker. I have noticed that this issue has also been decided by the .....

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entioned in the earlier paragraph of this order. On the basis of the replies received from the six persons as mentioned earlier, the allowable incentive payment5 is worked out as shown below: The above working gives and average incentive payment of 35.38%. However, considering the fact that one party has admitted receipt of 85% and one party has admitted only 13% of the amount debited by the assessee as incentive in the Profit & Loss Account and taking liberal view in the matter, I allow 50% .....

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