TaxTMI 
TaxTMI 
2024 (9) TMI 277
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....e assessment having been framed in the name of a non-existent LLP was illegal, bad in law and deserved to be quashed. Without Prejudice 3. That on the facts and circumstances of the case and in law, the CIT(A) erred in confirming the disallowance of Rs. 1,26,31,525/- being expenditure incurred towards professional charges paid to M/s. Graymatter Solutions LLC, USA, by treating the same as capital expenditure. 3.1 That the CIT(A) erred in holding that the professional charges paid for consultancy services provided by M/s Graymatter Solutions LLC, USA was towards acquisition of capital asset and hence capital in nature. 3.2 That the CIT(A) erred in not appreciating that the appellant was engaged in the business of acquiring stakes/ownership of entities and thereby the professional charges paid for facilitating business operations was wholly and exclusively for the purpose of business and hence allowable as deduction under section 37(1) of the Act. 3.3 That the CIT(A) erred in holding that the business of the appellant had not commenced in the relevant assessment year 2017-18 and as a consequence, conditions of section 37(1) of the Act remained unsatisfied. 3.4 Without pre....
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....The Appellant craves leave to add, alter, amend, substitute, change and delete any of the grounds of appeal. 5. For the above and other grounds that may be urged at the time of hearing of the appeal, the Appellant prays that the appeal may be allowed and justice rendered." 3. We note from the above additional grounds the assessee has raised legal issue challenging the validity of the assessment and therefore, following the Hon'ble Supreme Court judgment in the case of M/s National Thermal Power Co. Ltd. Vs. CIT, 229 ITR 383 (SC), the additional grounds are admitted for adjudication. 4. Briefly stated the facts of the case are that the assessee is a Limited Liability Partnership (LLP) firm formed with the purpose of acquisition of stakes, ownership interests/rights in securities of entities mainly in the business of technology products & solutions. It filed return of income on 30.08.2017 declaring total income of Rs.2,52,16,460. The return was processed & later it was selected for scrutiny and statutory notices issued to the assessee. In response the assessee filed reply. It was seen from the details furnished by the assessee that it had made payments to Graymatter Solutions LLC....
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....healthcare companies was categorized as capital expenditure and added back to total income of assessee and disallowed u/s. 37 of the Act. The AO further noted in his order that these expenses were allowed in the earlier assessment year without questioning the nature of income and expenses. In this year the nature of expenses has been verified and found the same not to be allowable. He further mentioned at para 4.11(ii) in the AY 2016-17 the issue of foreign remittances was not there and therefore there was no occasion to verify the same during the assessment proceedings and from the financials for AY 2016-17 in the return of income there is no such expenditure towards professional fees. Hence it is noted that the submission of the assessee is not correct that the same expenditure have been examined in the previous AY. 5. Further the AO noted that in the financial statement there is investment in equities and mutual funds to the tune of Rs.21,63,68,840 and loan funds (unsecured loans from others) to the tune of Rs.30 crores. The assessee was asked to furnish details of expenses incurred towards earning from investments and why section 14A should not be applied. In this regard....
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....ncorporation of LLC and during the AY 2017-18 the appellant had offered taxable income of Rs.9.33 crores on such investments, hence the question of exempt income does not arise. The company had not invested in securities which was tax free, but invested only in debt oriented mutual funds (without dividend) model and always offered tax on gain on such securities. Therefore, both the revenue authorities are not justified in making disallowance u/s. 14A. In support of his arguments he relied on various judgments relied before the ld. CIT(Appeals). 11. The ld. AR has filed compilation of case laws containing pages 1 to 68 which is placed on record. 12. The ld. DR relied on the order of the lower authorities and submitted that assessee incurred expenses towards acquisition/ establishment of medical healthcare companies cannot be considered as revenue expenditure, being capital in nature. The business of assessee had not commenced and hence the conditions laid down as per section 37(1) of the Act are not satisfied. He further submitted that the agreement made by the assessee was terminated on 16.5.2017 and the assessee has not declared any business income, therefore, it should not be t....
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....s of Rs.1,34,16,232 and it was placed before the AO too and no disallowance was made in the 143(3) assessment. There is no dispute regarding genuineness of transactions for services rendered. The issue has been settled by the Hon'ble jurisdictional High Court in the case of CIT v. On mobile Global Ltd. (supra) in para 12 which is as under:- 12. The assessee has claimed an amount of Rs. 6,68,98,726/- as expenditure incurred as legal and professional charges in its profit and loss account. Out of the aforesaid amount, the Assessing Officer has disallowed an amount of Rs. 2,20,40,131/- that is the amount incurred on account of legal and professional charges incurred in connection with acquisition of the Company in France and legal and professional charges to file patent application for a sum of Rs. 24,08,000/-. The Assessing Officer has held the same to be in the nature of capital expenditure. The Tribunal, by following the decision of its co-ordinate Benches, has held that expenditure incurred by the assessee for conducting due diligence in report of a company which was to be acquired by the assessee is revenue in nature and has treated the same to be deductible expenditure under s....
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....isallowance could be made. This view is supported by the judgment of jurisdictional High Court in the case of PCIT v. Delhi International Airport P. Ltd. [2022] 138 taxmann.com 112 (Kar) dated 25.05.2021 in which it is held as under:- "6. The order dated 15-2-2021 passed in ITA No.133/2015, in paragraphs 11 to 14 reads as under; "11. We have considered the submissions made on both sides and have perused the record. Substantial questions of law Nos. 1 and 3 are interlinked, therefore, we proceed to deal with the same together. Before proceeding further it is apposite to take note of the relevant statutory provisions which are reproduced below for the facility of reference: "Section 14A: Expenditure incurred in relation to income not includible in total income For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.". (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such me....
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.... section 14A of the Act do not apply to the fact situation of the case. Therefore, it has become necessary for us to clarify the view taken in the two decisions viz., Kingfisher Finvest India Ltd. and Novel Software India (P) Ltd. supra. At this stage, we may refer to Paragraph 40 of the decision of the Supreme Court in Maxopp supra, the relevant extract of which reads as under: It is to be kept in mind that in those cases where shares are held as 'stock-in-trade', it becomes a business activity of the assessee to the deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore,....