TMI Blog2023 (10) TMI 768X X X X Extracts X X X X X X X X Extracts X X X X ..... s organizations, common funds, etc. Since, there is a complete unity of control, management and funds between the IT-enabled services and financial consultancy and investment advisory in relation to mutual fund investments, carried out by assessee be construed as one business of the assessee. Hence, keeping in view the ratio laid down by B.R. Limited Vs. Gupta (VP) [ 1978 (5) TMI 3 - SUPREME COURT] we hold that the directions of the ld. DRP cannot be supported. - SH. SAKTIJIT DEY, VICE PRESIDENT DR. B. R. R. KUMAR, ACCOUNTANT MEMBER For the Appellant : Sh. Kamal Sawhney Adv. Sh. Nikhil Agarwal, Adv. For the Respondent : Sh. P. Praveen Sidharth, CIT DR ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeal has been filed by the assessee against the order dated 27.01.2016 passed by the AO u/s 143(3) r.w.s. 144C(1) of the Income Tax Act, 1961. 2. Following grounds have been raised by the assessee: 1. Ground No. 1 - Disallowances of lease rental payments. 1.1 On the facts and circumstances of the case and in law, the learned DRP/AO has erred in making disallowance under section 37(1) of the Act on account of lease rental p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiating penalty proceedings under section 271(1)(c) of the Act against the Appellant on account of the above adjustments made in the assessment order. 3. Heard the arguments of both the parties and peruse d the material available on record. 4. The appeal filed by the assessee mainly consists of two grievances namely, disallowance of lease rental payments of Rs. 32,44,083/- and addition on account of pre-operative expenses of Rs. 1,12,78,603/-. These issues have been discussed at page no. 53 of the 54 pages order of the ld. DRP. For the sake of ready reference and convenience, the said order of the ld. DRP is reproduced as under: 22. Corporate Issues 22.1 Disallowance of rentals, amounting to Rs. 3,244,083, paid by AIPL to a non-resident The assessing officer pointed out that the assessee had claimed an expense of Rs. 32,44,083/- on lease rent payment for property taken on rent in US. It was claimed that the property was taken on rent in USA for stay of employees travelling for business meetings. However, no de tails in respect of addresses and names of persons to whom payments had been made, the purpose for which the property was taken on rent and the deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. The addition proposed by the assessing officer is therefore, upheld. Lease Rentals: 5. We find that the assessee is a company incorporated on 18 th August 2005 under Companies Act, 1956, and is a subsidiary of Ameriprise Financial Inc, USA ( Ameriprise USA ) which is engaged in the business of providing Information Technology enabled back-office services to its associated enterprises. 6. During the Assessment Year, the assessee incurred expenditure towards rental payments made to a non- resident, CSM Executive Lodging LLC ( CSM), towards property taken on rent in US for stay/ accommodation of employees travelling to USA for business purposes. The assessee claimed this expenditure as allowable expenditure under section 37(1) of the Indian Income -tax Act, 1961. The AO in the Draft Assessment Order dated 27.01.2016 disallowed such expenditure on the ground that the Petitioner failed to furnish any evidence as to what the expenditure was, why was it incurred and to whom the payments were made. The said order of the AO has been affirmed by the ld. DRP. 7. We have gone through the documents produced by the assessee pertaining to allowability of lease rental expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interconnection, interlacing is demonstrable through common management, common business organization, common administration, common funds etc. 11. The ld. AR placed reliance on the Hon ble jurisdictional High Court decision in Jay Engineering Works Ltd. vs. CIT, (2008) 166 taxman 115 wherein assessee engaged in manufacturing fans and sewing machines at various units including Hyderabad, expanded its activities and undertook a fuel injection equipment project in Hyderabad during the year. The High Court after referring to a series of judgments, held that when there was common management, unity of control, and common funds, it was merely an expansion of the existing business and therefore, expense in relation to the project was allowable as revenue expenditure. Relevant para has been reproduced be low: On an appreciation of the law laid down by the various decisions referred to above, it is clear that the nature of the new business is not a decisive test for determining whether or not there is an expansion of an existing business. The nature of the business could be as distinct as a jewellery business and a business of cinematographic films: it could be as different as manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he main consideration which has to prevail is whether, notwithstanding the fact that the assessee may close one activity, it does not interfere in the carrying on of the other activity The fact that one business cannot conveniently be carried on after the closure of the other may furnish a strong indication that the two businesses constitute the same business. But the decision of this court in Prithvi Insurance Co. [1967] 63 ITR 632 (SC) shows that no decisive inference can be drawn from the fact that after the closure of one business, another may or may not conveniently be carried on. 15. Therefore, we hold that on the basis of the above decisions, it is evident that the decisive test to determine if the two businesses of the assessee (IT enabled support services and financial consultancy and investment advisory in relation to mutual fund investments) constitute the same business or not, is not the nature of two businesses but whether two businesses are inter-connected and inter-dependent, which can be demonstrated through existence of common management common business organizations, common funds, etc. Since, there is a complete unity of control, management and funds bet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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