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M/s Business Match Services (I) Pvt. 2,Nepture II, Smt.Nargis Dutta Road, Pali Hill, Bandra (W), Mumbai-400050 Vs. Dy.Commissioner of Income Tax -9(1), Aayakar Bhavan, M.K.Road, Mumbai-400020
August, 21st 2015
                   ,    ""  
     IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, MUMBAI

BEFORE HON'BLE S/SHRI JOGINDER SINGH (JM), AND B.R.BASKARAN (AM)
     ,                                     .. ,   

                ./I.T.A. No.7267/Mum/2010
                 (   / Assessment Year :2007-08)
 M/s Business Match Services (I) / Dy.Commissioner of Income Tax
 Pvt.
                                 Vs. -9(1),
 2,Nepture II,                       Aayakar Bhavan,
 Smt.Nargis Dutta Road,
 Pali Hill,
                                     M.K.Road,
 Bandra (W),                         Mumbai-400020
 Mumbai-400050
        ( /Appellant)            ..  (  / Respondent)

                ./I.T.A. No.8076/Mum/2011
                (   / Assessment Year : 2008-09)
 M/s Business Match Services (I) / Addl.Commissioner of Income
 Pvt.
                                 Vs. Tax -9(1),
 2,Nepture II,                       Aayakar Bhavan,
 Smt.Nargis Dutta Road,
 Pali Hill,
                                     M.K.Road,
 Bandra (W),                         Mumbai-400020
 Mumbai-400050
        ( /Appellant)            ..  (  / Respondent)


         . /   . /PAN/GIR No. :AAACB6129N

          / Appellant by             Shri Vijay Mehta
            /Rspondent by            Shri Asgar Zain V P


           / Date of Hearing              : 7.7.2015
           /Date of Pronouncement: 19.8.2015

                             / O R D E R

PER B.R. BASKARAN (AM)

     Both the appeals filed by the assessee are directed against the two
separate orders dated 15.9.2010 and 5.9.2011 passed by Ld CIT(A)-19,
Mumbai and they relate to the assessment years 2007-08 and 2008-09
                                      2               I . T . A . N o s . 7 2 6 7 / Mu m / 2 0 1 0
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respectively. Both the appeals were heard together and hence they are
being disposed of by this common order, for the sake of convenience.

2.    In the assessment year 2007-08, the following issues are urged by
the assessee:
a)    Disallowance of Foreign Travelling expenses; and
b)    Assessment of Short Term Capital Gains (STCG) as business income.


2.1   In the assessment year 2008-09, the following issues are urged by
the assessee:
a)    Assessment of Short Term Capital Gains (STCG) as business income;
      and
b)    Disallowances made under section 14A of the Act.


3.    Facts of the case are stated in brief. The assessee company is
engaged in the business of providing consultancy services in the field of
private placement of shares to foreign institutional investors, financial
institutions. It is also engaged in the business of arranging finance and
advising on insurance business. During the two years under consideration,
the assessee also dealt in purchase and sale of shares.                It declared a
portion of profits arising on sale of shares as Short term Capital Gain
(STCG) and the remaining portion was offered as its business income, i.e.
the assessee has maintained separate portfolios for investment and
trading assets. In both the years under consideration, the AO did not
agree with the claim of STCG declared by the assessee and accordingly
assessed the same as business income.


4.    In assessment year 2007-08, the assessee had claimed foreign
travelling expenses to the tune of Rs.11.84 lakhs. The AO took the view
that this expenditure was not related to the existing business, but it has
been incurred for exploring new business opportunity. Accordingly, the AO
took the view that it is in the nature of capital expenditure or pre-operative
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                                                                         & 8 0 7 6 / M/ 2 0 1 1


expenses.   Though the assessee explained that it has incurred foreign
travelling expenses for expansion of its business in foreign countries, the
AO took the view that the assessee did not specify the purpose of
expenditure.   In view of the above, he disallowed the claim of foreign
travel expenses.


5.     In the assessment year 2008-09, the assessee had declared the
dividend income of Rs.42.05 lakhs. The assessee has disallowed Rs.2.07
lakhs under section 14A of the Act.       However, the AO proceeded to
compute the disallowance u/s 14A of the Act as per the provisions of Rule
8D of the Income Tax Rules, 1962 and the same worked out to Rs.13.57
lakhs. The AO disallowed the above said amount u/s 14A of the Act.





6.    In the appellate proceeding, the ld. CIT(A) confirmed the
assessment of STCG as business income of the assessee.                          He also
confirmed the disallowance of foreign travelling expenses accepting the
order of AO that it is capital in nature. With regard to the disallowance
made under section 14A of the Act in assessment year 2008-09, the ld.
CIT(A) restored the matter to the file of the AO with a direction to re-work
the disallowance in the light of discussion made by him. Aggrieved by the
order of the ld. CIT(A), the assessee has filed these appeals before us.


7.   We heard the parties and perused the record. The first issue relates
to the assessment of Capital Gains as Business income.                  In the year
relevant to the assessment year 2007-08, the assessee initially declared
STCG of Rs.383.52 lakhs. However, later it reduced the STCG claim to
Rs.371.45 lakhs and declared balance amount of Rs.12.07 lakhs as
Business income. It is pertinent to note that the assessee has earned the
entire amount of STCG in dealing with a single scrip viz., M/s Adani
Enterprises Limited. The assessee has furnished the details of workings of
                                     4               I . T . A . N o s . 7 2 6 7 / Mu m / 2 0 1 0
                                                                          & 8 0 7 6 / M/ 2 0 1 1


STCG at page 17 of the paper book. A perusal of the same would show
that the assessee has held the shares of M/s Adani Enterprises Limited for
an average period of 60 days. The assessee has purchased shares initially
in several instalments and sold them subsequently in instalments, meaning
thereby there are no successive repetition of purchase and sale of shares.
There is an exception only to the extent of Rs.1.13 lakhs against the total
purchases of Rs.588.01 lakhs. A perusal of Balance Sheet placed at page
5 of the paper book also shows that the assessee has used own funds and
also interest free funds borrowed from the directors only for making
investments, meaning thereby, no interest bearing funds have been
borrowed for the purpose. The assessee has taken delivery of shares. In
the books, it has treated the same as its investment.


8.   We notice that the AO has considered all the shares together to take
the view that the assessee has indulged in trading in shares. However,
the fact remains that the assessee itself has offered gains arising on
shares held as trading stock as its business income. The assessee has
claimed the gains arising on sale of Adani Enterprises Limited only as Short
term Capital gain with the claim that it has held the same as its
investment.   It is now well settled proposition that a person is entitled to
maintain two separate portfolios, one for its investment and another one
for its trading assets. For this proposition, one may gainfully refer to the
Circular No.4/2007 dated 15-06-2007 issued by the CBDT and also the
decision rendered by Hon'ble Bombay High Court in the case of Gopal
Purohit (2010)(228 CTR 582). In the instant case, the assessing officer
has not disproved the claim of the assessee that it has maintained two
different portfolios as discussed above. Even though the Ld CIT(A) has
observed that the question whether transactions were in the nature of
trade or otherwise is largely dependent upon the facts of each case, yet
we are of the view that the Ld CIT(A) has not properly appreciated the
                                     5               I . T . A . N o s . 7 2 6 7 / Mu m / 2 0 1 0
                                                                          & 8 0 7 6 / M/ 2 0 1 1


facts prevailing in the instant case. In our view, the discussions made by
us in the preceding paragraphs clearly show that the intention of the
assessee at the time of purchase of shares of M/s Adani Enterprises
Limited was to hold it as its investments. We notice that the assessing
officer has not brought any material on record to show the contrary, which
means that the AO has arrived at the adverse conclusion only on surmises.
Accordingly, we are of the view that the gains arising on its sale should be
assessed as Short term capital gains only. Accordingly, we set aside the
order of Ld CIT(A) on this issue and direct the assessing officer to assess
the gains arising on sale of shares of M/s Adani Enterprises Limited under
the head "Income from Capital gains".


9.     The next issue contested in AY 2007-08 relates to the disallowance
of foreign travel expenses. We have noticed earlier that the tax authorities
have taken the view that the foreign travel expenses have been incurred
on exploring new business opportunities and hence it is capital in nature
and/or in the nature of pre-operative expenses. There is no dispute with
regard to the fact that the assessee is engaged in the business of
providing consultancy services in private placement of shares with Foreign
Institutional Investors, financial institutes and is also providing advice on
strategic investments and insurance sector.     Besides the above, it also
helps in arranging finance. Now the submission of the assessee is that it
has incurred foreign travel expenses to expand its operations in various
other places.   Mere expansion of existing business activities, under no
circumstances, would fall under the category of "New business venture".
It is not the case of the AO that the assessee has incurred the foreign
travel expenses in connection with any activity, which is altogether new
one and unconnected with the existing business activities.                    From the
explanation furnished by the assessee, we notice that the travelling
expenses have been incurred to increase the customer base in different
                                      6               I . T . A . N o s . 7 2 6 7 / Mu m / 2 0 1 0
                                                                           & 8 0 7 6 / M/ 2 0 1 1


countries and also to identify new avenues in the existing business of
providing financial consultancy services. It is a settled proposition that the
expenditure incurred for expansion of the existing business activities is
revenue in nature. It is also well settled that the expenditure need not
produce revenue immediately, since it is usual that these expenditure may
bear fruits in future. The assessee has also submitted that these expenses
have not been incurred by the directors, but the representatives of the
assessee company who hold high educational qualification, meaning
thereby the element of personal expenditure is also ruled out.               Hence, we
are of the view that the tax authorities are not right in law in holding that
the travelling expenses are capital/pre-operative in nature. Accordingly we
set aside the order of Ld CIT(A) on this issue and direct the AO to allow
the deduction towards foreign travel expenses.


10.     Now, we shall take up the appeal filed for AY 2008-09. The first
issue relates to the assessment of Short term capital gain arising on sale of
shares as business income. As in last year, the assessee has maintained
two separate portfolios, viz., one for share investment activity and another
one for share trading activity. In the investment category, the assessee
has dealt with only one share viz., M/s Balaji Telefilms Ltd. The various
criteria discussed in the immediately preceding year with regard to the
investment made in M/s Adani Enterprises Ltd are equally applicable to the
investment made in M/s Balaji Telefilms Ltd, i.e., except one case of
repetition of small magnitude, there is no repetition of purchase and sale.
The assessee has accumulated the shares initially in instalments and later
sold them in instalments. As in last year, no interest bearing funds have
been used and average holding period is about 180 days. The assessee
has held the same as its investment. The assessee has declared the gains
under the head business in respect of shares held as trading asset. All
these factors support the contention of the assessee that the shares of M/s
                                       7              I . T . A . N o s . 7 2 6 7 / Mu m / 2 0 1 0
                                                                           & 8 0 7 6 / M/ 2 0 1 1


Balaji Telefilm Ltd were held as investment. Accordingly, we hold that the
tax authorities are not justified in assessing the profit generated on sale of
shares of M/s Balaji Telefilm Ltd as business income, that too, without
bringing any other material on record. Accordingly, we set aside the order
of Ld CIT(A) on this issue and direct the AO to assess the same under the
head "Short term Capital Gain".


11.       The next issue contested in AY 2008-09 relates to the disallowance
made u/s 14A of the Act.            The assessee made a disallowance of
Rs.2,07,022/- u/s 14A of the Act.          However the AO computed the
disallowance in terms of Rule 8D of the I.T rules at Rs.13,57,011/- and
disallowed the same. Before the Ld CIT(A), the assessee submitted that
the total administrative expenses incurred by it was Rs.19,11,754/-, out of
which it has suo-motu disallowed a sum of Rs.8,20,901/-, meaning thereby
the assessee has claimed about Rs.11.00 lakhs only as administrative
expenses.      It was further contended that the above said amount of
Rs.11.00 lakhs was also incurred in connection with the regular business
activities. In view of the above said submissions, the Ld CIT(A) set aside
the matter of computation of disallowance to the file of the AO.                          The
assessee is contesting the said decision by submitting that no disallowance
is called for u/s 14A of the Act.





12.         We heard the rival contentions on this issue and perused the
record.     The major expenses incurred by the assessee under the head
"Administrative expenses" are as given below:-
      Brokerage paid on sale of painting           2,02,000
      Donation                                     5,00,000
      Legal & Professional fee                     7,50,562
      Maintenance expenses                         1,13,879
      Travelling expenses                          2,36,402
                                                ---------------
                                                   18,02,843
                                                ========
                                     8              I . T . A . N o s . 7 2 6 7 / Mu m / 2 0 1 0
                                                                         & 8 0 7 6 / M/ 2 0 1 1


The assessee has disallowed donation expenses of Rs.5,00,000/- and
maintenance expenses of Rs.1,13,879/- on its own while computing the
total income. The brokerage of Rs.2,02,000/- paid on sale of painting is a
direct expenditure incurred in connection with some other activity. It is
submitted that the profit earned on sale of painting was offered to tax.
The legal and professional fee was paid to Vatsala K towards advising for
real estate deal with M/s K.V. Property ventures Pvt Ltd and hence it is
also a direct expenditure. The travelling expenses were claimed to have
been incurred in connection with the regular business activities only.
Accordingly, if we exclude the above said expenditure, the remaining
indirect expenses works out to Rs.1,08,911/- only, where as the assessee
itself has disallowed a sum of Rs.2,07,022/- u/s 14A of the Act while
computing the total income. Under these set of facts, in our view, the
provisions of Rule 8D should not applied in the instant case, since the
disallowance computed under Rule 8D works out to disproportionately
higher figure of Rs.13,57,011/-. Hence, considering the facts discussed
above, we are of the view that the disallowance of Rs.2,07,022/- made by
the assessee does not call for any interference. In view of the above, we
set aside the order of Ld CIT(A) on this issue and direct the AO to restrict
the disallowance u/s 14A of the Act to the amount disallowed by the
assessee.


13.   In the result, both the appeals filed by the assessee are allowed.
            Pronounced accordingly on 19th August, 2015.
                                          19th August, 2015    

       Sd                                           sd


(   /JOGINDER SINGH)                     (..  ,/ B.R. BASKARAN)
     / Judicial Member                     /Accountant Member
 Mumbai: 19th      August, 2015.

. ../ SRL , Sr. PS
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                                                           & 8 0 7 6 / M/ 2 0 1 1



        /Copy of the Order forwarded to :
1.  / The Appellant
2.      / The Respondent.
3.     () / The CIT(A)- concerned
4.      / CIT concerned
5.      ,     ,                  /
     DR, ITAT, Mumbai concerned
6.     / Guard file.

                                              / BY ORDER,
True copy
                                       (Asstt. Registrar)
                                    ,  /ITAT, Mumbai

 
 
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