TaxTMI 
TaxTMI 
2016 (5) TMI 1310
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....ance of compensation paid to investors of Rs. 50,86,434/- by the following three grounds: (i) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax(Appeals) (hereinafter referred as CIT(A)) erred in confirming the action of Additional Commissioner of Income Tax (hereinafter referred as Assessing Officer) of disallowing compensation paid to investors of Rs. 50,86,434/- in the course of business. ii. The learned CIT(A) & Assessing Officer failed to appreciate and ought to have held that: The compensation paid to investors as per the statutory regulation of SEBI and Mutual Fund guidelines prescribed by them, which has to be borne by asset Management Company. The Appellant's claim that compensation paid to investors are business loss and allowable under section. 37 of the Income Tax Act; (iii)The Appellant prays the disallowance of compensation paid to investors of Rs. 50,86,434/- be allowed as deduction under section.37(1). Revenue has raised the following ground against the order of CIT(A) deleting disallowance claimed by the assessee on account of embezzlement:- "1. On the facts and circumstances o....
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.... he disallowed the claim made in respect to the amount of Rs. 50,57,940/- in respect to Torquoise Investments Finance Private Limited('TIFPL') For redemption of units of forged redemption requested for the balance sum of Rs. 50,86,434/-, the Assessing Officer noted that the assessee is only a fund manager of Birla Mutual Fund and, if any, unit is not allotted to any investor, that cannot be the liability of the assessee and, therefore, he disallowed the claim of compensation in respect to Smt. Ramadevi Sood amounting to Rs. 15,98,083/-, Smt. V. Meenakshi amounting to Rs. 6,96,257/-, Smt. V. Meenakshi amounting to Rs. 6,54,959/- and Naresh Kumar Trehas amounting to Rs. 8,83,000/- and authorized other small investors mounting to Rs. 12,54,135/-. Aggrieved, assessee preferred appeal before CIT(A) against the disallowance. 4. The CIT(A) after considering the submissions of the assessee in respect to payments made to certain investors aggregating to Rs. 50.86 lacs, pertaining to legacy of the earlier period, the CIT(A) noted that this amount is in the nature of compensation and the claim was verified and approved for payments. According to him, this is evident from the statement docu....
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....ement fee from the various schemes as per SEBI regulations. In this process the assessee company has settled claim towards compensation to various investors on account of business expediency and as per regulations of SEBI amounting to Rs. 50,86,431/-( the details are given above, which are reproduced from the assessment order). The assessee has claimed these expenses as deduction, which was incurred, according to the Ld. Counsel for the assessee in the course of business on account of business expediency. The Ld. Counsel for the assessee explained that the assessee has to incur such expenses to safeguard its business interest against complaint made by investors on SEBI, which may lead to violation of SEBI regulations and also it is duty bound to make the loss good of the investors. He explained that the assessee and Trustees of the mutual fund entered into an investment management agreement, which was guiding factor for rights and obligation of Asset Management Company. Ld. Counsel for the assessee also explained that this issue of reconciliation came up during the assessment year 2002- 03, wherein the reconciliation difference amounting to Rs. 16.00 crores was deficit against the ....
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.... accounting of redemption proceeds, issuing and accounting dividend warrants, etc. We find from the facts of the case that that the assessee does necessary activity for the beneficial owners and for the same charging asset management fee from the various schemes as per SEBI regulations. We also find that in this process the assessee company has settled claim towards compensation to various investors on account of business expediency and as per regulations of SEBI amounting to Rs. 50,86,431/-. The complete details are given in the assessment order. The assessee has claimed these expenses as deduction, which was incurred, in the course of business on account of business expediency. As claimed by the assessee, we are of the opinion that in such nature of business, the assessee has to incur such expenses to safeguard its business interest against complaint made by investors on SEBI, which may lead to violation of SEBI regulations and also it is duty bound to make the loss good of the investors. We also find from the facts of the case that the assessee and Trustees of the mutual fund entered into an investment management agreement, which was guiding factor for rights and obligation o....
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....strar and Transfer Agent of the issue. We are of the view that this expenditure is incidental to trade itself and Assessing Officer cannot ignore the same. We are of the view that even this comes within the ambit of commercial expediency for the reason that this is indirectly for facilitation of carrying on of the business of the assessee. In view of this reasoning, we allow the claim of the assessee and the orders of the lower authorities on this issue are reversed. This issue of assessee's appeal is allowed. 8. The issue in Revenue's appeal as regards to disallowance of claim of assessee in respect to redemption of units on forced redemption request in the case of TIFPL. Briefly stated, the facts are that TIFPL made an investment on 30/07/2002 by appointing an investment portfolio. There were four transactions of subscriptions and redemptions for all units in its investment account from August 2002 to February, 2003. TIFPL applied for redemption of all outstanding investments as on 28/03/2003 and Rs. 4.85 crores being value of outstanding units to the credit of TIFPL were paid on 31/03/2003. TIFPL informed the assessee that total amount expected from final redemption is Rs. 7.....
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....able fact of the appellant's case is that the TIFPL made an investment with the appellant on July 30, 2002. The redemption was due on February 5, 2003. The appellant on receipt of request for redemption by TIFPL found that the request received on February 2003 was fraudulent and the appellant's agent processed such request and a redemption cheque of 3.65 crores was handed over to a person on March 3,2003. The appellant lodged a FIR on April 7, 2003 in MRA Marg Police Station. The appellant created a provision for embezzlement in the FY 2003-04 amounting to Rs. 3.92 crores and accordingly vide a letter dated October 31st 2006 and claimed the provision as a loss in the AY 2004-05 which was denied. The matter travelled to the Hon'ble ITAT and vide order ITA No.4990/Mum/2007 dated 11/8/2009, the Hon'ble Tribunal decided the allowability of embezzlement of loss. However, it observed that since the appellant had only created a provision in its, books of accounts, the contingent liability to fulfil in future cannot be allowed to the appellant in the year of creation of the provision and will thus, be allowed in the year of actual payment. 2.3.2 The appellant kept the deman....
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....ores was handed over to a person on 03/03/2003. The assesssee lodged a FIR on 07/04/2003 in MRA Marg Police Station and also created a provision for embezzlement in the FY 2003-04 amounting to Rs. 3.92 crores and accordingly claimed the provision as a loss in the AY 2004-05 which was denied. The matter travelled to the ITAT and vide order ITA No.4990/Mum/2007 dated 11/8/2009, the Tribunal decided the claim of embezzlement of loss against assessee by observing that the assessee had only created a provision in its, books of accounts, the contingent liability to fulfil in future cannot be allowed in the year of creation of the provision and will thus, be allowed in the year of actual payment. We find that the assessee kept the demand alive for the claim of the provision on account of this embezzlement in the AY 2005-06 also. The assessee in the financial year relevant to this assessment year paid to TIFPL an amount of Rs. 4,42,73,539 vide cheque No.112500 dated 28/7/2006 as full and final settlement for the pending dispute. This payment was made against the opening provision of Rs. 3.92 corers provided in the FY 2004-05. The assessee accordingly claimed Rs. 3,92,15,599 on payment basi....