TaxTMI 
TaxTMI 
2019 (6) TMI 1642
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.... "1. Whether on the facts and in the circumstances of the case the ld. CIT(A) was justified in deleting the addition of Rs. 1,12,79,19,622/- made by the AO without considering the fact that the expenses is not related to the business activity and the assessing officer had not correctly disallowed and treating them capital in nature?" 3. Briefly stated facts are that the assessee during the year under consideration debited a sum of Rs. 112,79,19,622/- in the profit and loss account on account of contribution for scheme deficiencies under the head of administrative and other expenses. The assessee claimed the same as allowable deduction. The AO required the assessee to explain or show cause as to why this amount should not be treated as provision for future expenses/ loss and the same should not be disallowed. The assessee vide letter dated 22.01.2014 replied vide detailed query. The AO noted that the assessee's income during the year under consideration has come down to Rs. 10061.44 lakhs from Rs. 19567.68 lakhs comparing last year due to contribution towards deficiency arising out of sale of securities to meet redemption application and violation deficiency arising out of revisi....
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....reated it as capital expenditure rather than the revenue expenditure as claimed by the appellant company. The appellant company has given enough reason for claiming such mutual fund scheme expenditure and given justification that more of loss booked into scheme will adversely affect reputation of the scheme and institution and moreover the commission received from mutual fund will get affect and therefore the AR pleads that the expenditure booked of Rs. 112,79,19,622 to be allowed as revenue expenditure. The AR also has explained that following schemes can be withdrawn in the specified time - 1. LIC Mutual Fund Liquified found [can be withdrawn within 2 days] 2. LIC Mutual fund Income fund [can be withdrawn in short time] 3. LIC Mutual fund Saving Plus Fund [can be withdrawn in 72 hours] 4. LIC Mutual Fund Floating Rate Fund [can be withdrawn in short time] Further in July, 2010, schemes faced redemption pressure from the investors on account of tight liquidity condition and higher interest rates available in the market. Accordingly, securities were sold at loss which resulted in aggregate loss of Rs. 60,82,36,469.82 and fu....
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........................................................................................ Considering the above fact on records, and also consider SEBI circulars, market conditions in June and July, 2010 and various judicial citations cited above and specifically in the case of Sassoon J David & Co. Pvt. Ltd. vs. CIT (118 ITR 261), Karnataka High Court decision in CIT vs. Canara Bank Ltd. (ITA No. 1397 of 2006), Supreme Court decision in the case of CIT v. Delhi Safe Deposit Co. Ltd. (133 ITR 756) and Chandulal Keshavlal & Co. (38 ITR 601; I am of the considered opinion that expenditure was incurred by company in order to preserve the income generating machinery since about90% of income derives from mutual fund by the appellant company being the asset manager and to instill confidence among the investors of the scheme and hence, this expenditure could be allowed as revenue expenditure and not capital expenditure as held by the Learned AO. The AO is directed to delete the addition of Rs.ll2,V9.19.622/- 7Appeaon this ground is allowed." Aggrieved, now Revenue is in appeal before Tribunal. 5. Before us, the learned Sr. Departmental Representative relied on the assessment ord....
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....er acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business. ............". 7. Further, Hon'ble Supreme Court in the case of Sassoon J. David & Co. Pvt. Ltd. (supra) has laid down the following tests for treating an expenditure as wholly and exclusively for the business purposes: - "It has to be observed here that the expression "wholly and exclusively" used in section 10(2)(xv) of the Act does not mean "necessarily". Ordinarily it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under section 10(2)(xv) of the Act even though there was no compelling necessity to incur such expenditure. It is relevant to refer at this stage to the legislative hi....
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....out appreciating that the expenses are made on behalf of the mutual fund which is a distinct entity from the assessee and are penal in nature." 10. Briefly stated facts are that the AO during the course of assessment proceedings noted that the assessee company has debited an amount of Rs. 4,62,20,860/- in the P & L Account on account of scheme related expenses under the head of administrative and other expenses. The assessee was required by the AO to explain as to why the expenses are not be disallowed. The assessee vide letter dated 06.05.2014 filed particulars of expenses which reads as under: - Sr. No. Particulars Amount 1. Difference in Unit creation 2,19,305 2. Double interest on security due to improper accounting 1,64,365 3. Incorrect accounting for security 13,46,129 4. Shortfall in Systematic Withdrawal plan in bond fund 2,11,392 5. Write off of long outstanding balance appearing in ULLS as per audit observation 4,65,800 6. Write off of long outstanding balance appearing in ULIS as per audit observation 86,50,000 7. Provision made on account of fraudulent encashment of warrant 10,00,000 ....
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....fter provided and the AMC has accepted its appointment and agreed to assume the obligations contained herein. 4(ii) The Unit holders are informed about the proposed change in the controlling interest of AMC by sending individual communication and an advertisement shall be given in one English daily newspaper having nationwide circulation and in a newspaper published in the language of the region where the head office of the mutual fund has been situated. Duties of AMC (6) be solely responsible for selection of investments of the Trust fund and in the event of an investment other than in an Approved investment or in a manner that infringes any restriction or limit imposed in that behalf by the............... (10) take all necessary steps to ensure that investment of the Trust are duly protected and that all the documents and evidences of title relating to the Approved investments, shall be deposited with the Custodian to be appointed by the Trustee Company. (11) issue and administer instructions to the custodian, the Stock brokers and agents bankers, registrars and advertising and other agencies of the LCI Mutual Fund. (12) ....