TaxTMI 
TaxTMI 
2022 (3) TMI 1027
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 2. The Ld. CIT(A) erred in deleting the additions made in the assessment order to the extent of Rs. 12,84,12,920/- 3.1 The Ld. CIT(A) erred in his decision that cost along with the markup was recovered from the concerned companies while facts on record show that even the cost was not recovered from the parties in spite of an agreement to do so. 3.2 The Ld. CIT(A) ought to have appreciate the fact that the related entities can claim such cost allocation in their hands. Assessing Officer has not made any such disallowance in their hands. 3.3 The Ld. CIT(A) failed to appreciate that the assessee is not earning any profit/loss in the transaction and it is only providing common facilities to related parties and recouping the expenses by way of cost allocation. 4. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored. Similar are the grounds of revenue in other years. The grounds raised by the assessee read as under: - 1. The order of the Commissioner of Income Tax (Appeals) ['CIT(A)'] in so far as Segment-I activity, is contrary to law, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd, modify and/or withdraw in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal. 2. The assessee has preferred application under Rule 27 for AYs 2011-12, 2012-13 & 2014-15. However, the same has been withdrawn vide withdrawal letter dated 18.02.2021. 3. Our attention has been drawn to earlier orders of Tribunal in assessee's own case for AY 2009-2010, ITA No.1035/Mds/2013 order dated 07.07.2014, order for AY 2012-13, ITA No.962/Mds/2016 dated 16.02.2017, order for AY 2010-11, ITA No.232/Chny/2019 dated 26.08.2019. The assessee (earlier known as M/s IFMR Trust) was set up as a private trust on 19.10.2006 with an objective to finance the rural segment and to support entrepreneurs, promote innovative business opportunities in rural area and earn income from such business activities. The assessee trust is taxable at maximum marginal rate under the act. 4. The assessee is stated to have undertaken two distinct business activities i.e. (i) Incubation of new entities (referred to as Segment-1 activities) & ii) Providing Shared services & Infrastructure Services and Loans and Investments (referred to as Segment-II activities). It....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inally, the income was held to be assessable as 'income from other sources'. The assessee was allowed deduction of expenditure @2% of gross income reported by the assessee. In other words, the assessee's appeal was dismissed. 6. In AY 2012-13 (supra), the only issue in assessee's appeal was whether Ld. CIT(A) was justified in upholding the decision of Ld. AO that the income derived by the assessee was to be assessed as 'income from other sources' and allowing only 2% of expenditure on adhoc basis. In that year, the assessee earned income from shared services, income from infrastructure services, interest on loans to third parties, interest on investments, provisions written-back and other income which were offered as 'business income'. However, interest on fixed deposits out of surplus funds was offered as 'income from other sources'. Against 'business income', the assessee claimed staff cost and administration cost. The Ld. AO proposed estimated deduction of 2% as held in earlier appellate order. The assessee submitted that facts in this year were factually distinguishable and therefore, those orders would have no application to this year. The assessee also submitted that during ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....IT(A) passed order against which the assessee was again in appeal before Tribunal. The Ld. CIT(A) rendered a finding that in AY 2009-10 as well as in AY 2010-11, the assessee operated only in Segment-I activity and the decision of Tribunal for AY 2009-10 was applicable. Accordingly, the assessee's claimed was rejected by Ld. CIT(A). Since Ld. CIT(A) had followed the Tribunal order, the bench confirmed the stand of Ld. CIT(A) and dismissed assessee's appeal. 8. Thus, the position that emerges is that in AYs 2009-10 & 2010-11, the assessee operated in Segment-I activity only whereas in AY 2012- 13, the assessee operated in Segment-II activity. Noticing this vital difference, the issue in AY 2012-13 was restored back by the bench to the file of Ld. AO for de-novo assessment. Assessment Proceedings 9.1 During set-aside proceedings for AY 2012-13, the assessee submitted that it pursued business activity under Segment-II which would consist of income from providing shared services & infrastructure services and interest from loans / investments. Upon perusal of various streams of income, it was noted by Ld. AO that the assessee reflected income from Shared Services and income from infr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the allowability of various expenses would have to be considered in the light of the provisions of Sec.57(iii) of the Act. As against this, Ld. AO simple stated that the activities of providing shared services and infrastructure services was only a continuation of incubation activity carried on by the assessee for the new entities. The Assessing Officer relied upon the website of IIT Madras Incubation Cell (IIT MIC) as an assessee providing post incubation facilities. The Assessing Officer also restricted the expenses to 2% of the gross receipts. Thus, it would appear that Ld. AO merely followed the directions of the Tribunal for AY 2009-10 and not for AY 2012-13. While setting aside the case for AY 2012-13, the Tribunal had clearly held that the assessee had not carried out Segment-I activity relating to incubation of new entities during AY 2012-13. Therefore, Ld. AO could not say that Segment-II activity relating to shared services and infrastructure services were only a continuation of the incubation activity which was based upon the information as available on the website of IIT Madras Incubation Cell. The IIT Madras Incubation Cell did not specify that the assessee was provi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h the Advisory Council, to subscribe to, invest in or acquire and hold and otherwise dispose of any shares or securities or other instruments pursuant thereof, and to exercise any rights and derive any benefits as a result of subscribing to, investing in or acquiring and holding such shares or securities; d) To advise, guide, make recommendations and otherwise participate in the management of the joint ventures, companies and trusts contemplated under sub-clauses (b) and (c) of this Section 2.06, in consultation with the Advisory Council; e) Mobilizing investments in the joint ventures, companies and trusts contemplated under sub-clauses (b) and (c) of this Section 2.06 and managing and liasioning with investors on the nature and scope of such investments; f) To invest the surplus amounts of the Trust Funds, if any, in Permitted Investments, in consultation with the Advisory Council; g) To make grants or endowments out of the Trust Funds to the Beneficiary or to any other Person in consultation with the Advisory Council; and h) Such other purposes as may be decided by the Trustee in consultation with the Advisory Council (which shall include anything incidental and ancill....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or collection agent therefore and to issue certificates or other instruments in respect thereof to public or private investors and to guarantee and insure the due payment, fulfilment and performance of obligations in respect thereof or in connection therewith and to promote, establish, undertake, organise, manage, hold or dispose o.f any special purpose entity, body corporate or vehicle for carrying on all or any such activities. o) To effect, insure, guarantee, underwrite, participate in managing and carrying out of any issue, public or private, of state, municipal or other loans or of shares, stock, debentures or debenture stock of any company, corporation or association and the lending of money for the purpose of any such issue. p) To lend money, with or without interest, (with or without security} for any maturity period, in any form whatsoever including by way of loans, advances, instalment credit, trade finance, hire or otherwise to any person or persons( whether individuals, firms, companies, body corporate, government, state, sovereign, public body or authority, supreme, local or otherwise or other entities), whether in the private or public sector, for any purpose what....
X X X X Extracts X X X X
X X X X Extracts X X X X
....kup from the subsidiary companies. The payment made by subsidiary companies to the assessee trust will obviously be expenses for the subsidiary companies. This cannot be stated as double claim of expenses. No evidence is brought on record to show that the expenses incurred are not for the purpose of earning of income. In these circumstances, the expenses are allowed u/s 57(iii) of the Act. Aggrieved as aforesaid, the revenue is in further appeal before us. Our findings and Adjudication 11. After going through the orders of Tribunal in earlier years, we find that in order for AY 2012-13, it was the observation of the Tribunal that the assessee had not debited any expenditure towards 'incubation expenses'. It was also observed by the bench that the assessee had not carried out any Segment-I business activity i.e. incubation of new entities during the year under appeal and it had carried out only Segment-II business activity. This vital fact was lost sight by the lower authorities. The allowability of the expenses in the Profit & Loss account was to be adjudicated based on the findings to be given with regard to various streams of income in the form of shared services / infrastruct....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s were rendered that shared and Infrastructure activities could not be held to be in the nature of business activities and therefore, the same would be assessable under the head 'income from other sources'. As per statutory mandate, the expenditure expanded by the assessee to earn such an income would be an allowable deduction u/s 57(iii). Since the directions of Ld. CIT(A) are in accordance with law, we concur with the findings of Ld. CIT(A) in the impugned order and accordingly, dismiss the appeal of the revenue. Cross-Appeals for AY 2011-12 13. In this year, the assessee has earned total receipts of Rs. 937.97 Lacs as detailed in para-5 of assessment order dated 12.03.2014. The assessee incurred expenditure of Rs. 1284.12 Lacs. The Ld. AO, after examining the expenditure, specifically disallowed incubation expenses, capital expenditure (consultancy and legal / professional charges) and diminution in the value of investments. However, in the alternative, Ld. AO disallowed entire expenditure for various reasons as stated in para- 10 of the order. In other words, the returned loss of Rs. 1427.79 Lacs was reduced to Rs. 143.66 Lacs after disallowing entire expenditure. The interes....