Raji Raju, CHENNAI V. ACIT, CHENNAI

ITA 1171/CHNY/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4752 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 05-05-2014
• Court: TRIBUNAL
• Department Lawyers: S BARATH
• Assessee Lawyers: S SRIDHAR
• Keywords: Capital asset; Principle of natural justice; Diversion of income; Cost of acquisition
• Section: 143(3); 27; 63; 12

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , ! ' . #$ , % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER . / ITA NO. 1171/MDS/2014 / ASSESSMENT YEAR : 2009-10 MRS. RAJI RAJU , NEW NO.9, OLD NO.4/9, CASUARINE DRIVE, KAPALEESWAR NAGAR, NEELANKARAI, CHENNAI 600 041. PAN AEMPR9399M ( /APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME-TAX, BUSINESS CIRCLE-IV, CHENNAI. RESPONDENT) / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE / RESPONDENT BY : SHRI S. BARATH, CIT ! / DATE OF HEARING : 06.02.2017 '# ! / DATE OF PRONOUNCEMENT: 26.04.2017 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX DATED 27.2.2014 P ASSED UNDER SEC.263 OF THE ACT. - - ITA 1171/MDS/14 2 2. THE ASSESSEE, HEREIN, IS CHALLENGING THE ORDER PASSED BY THE CIT U/S.263 OF THE ACT, WHEREIN, HE HAS SET ASI DE THE ASSESSMENT ORDER DATED 29.11.2011 ASKING THE AO TO REDO THE SAME. 3. THE CIT ON EXAMINATION OF ASSESSMENT ORDER CITED ABOVE, OBSERVED THAT THE ASSESSEE HAS OFFERED INCOM E/LOSSES UNDER THE HEAD CAPITAL GAINS. EXAMINATION OF VAR IOUS TRANSACTIONS UNDER THE HEAD CAPITAL GAINS SHOW TH AT THE ASSESSEE HAS CLAIMED AS AN EXPENSE IN RESPECT OF TH E PAYMENTS MADE BY HER TO PORTFOLIO MANAGEMENT SERVICES(PMS). HOWEVER, ACCORDING TO THE CIT, IT IS CLEARLY PROVIDED IN SEC .48 OF THE ACT THAT THE COST OF ACQUISITION OF ASSET AND COST OF I MPROVEMENT THERETO AND THE EXPENDITURE INCURRED WHOLLY AND EXC LUSIVELY IN CONNECTION WITH TRANSFER ALONE ARE TO BE DEDUCTED F ROM THE FULL VALUE OF CONSIDERATION RECEIVED AS A RESULT OF THE TRANSFER OF CAPITAL ASSETS. THE CIT OBSERVED THAT THE FEES PAI D UNDER THE HEAD PMS IS ONLY FOR THE ADVICE GIVEN BY THE INVE STMENT MANAGEMENT CONSULTANT FOR PURCHASE/SALE OF VARIOUS EQUITIES/SHARES. IT CANNOT BE BY ANY STRETCH OF IM AGINATION BE TAKEN AS EITHER COST OF ACQUISITION OR EXPENDITURE ON SALE OF SUCH - - ITA 1171/MDS/14 3 AN ASSET. ACCORDING TO THE CIT, THEY ARE NOT INEX TRICABLY LINKED WITH THE PURCHASE/SALE OF EQUITY OR SHARE SO AS TO TREAT THE SAME AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN C ONNECTION WITH SUCH SALE. IN SHORT, THE EXPENSES OF PORTFOLI O MANAGEMENT SERVICES ARE NOT ENVISAGED IN THE PROVISIONS OF SEC .48 OF THE ACT AND, THEREFORE, CANNOT BE ALLOWED AS A DEDUCTION IN THE COMPUTATION OF CAPITAL GAIN. THE IMPROPER ALLOWANC E OF THIS CLAIM OF EXPENDITURE TOWARDS PORTFOLIO MANAGEMENT S ERVICES BY THE AO HAS RESULTED IN AN ERRONEOUS ASSESSMENT, WHI CH IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 3.1 FURTHERMORE, THE CIT OBSERVED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S.80G OF THE ACT TO THE EXTENT OF 15 LAKHS. THE CIT FURTHER OBSERVED THAT OUT OF THE AMOUNT OF CLAIM OF 15 LAKHS, AN AMOUNT OF 10 LAKHS APPEARS TO BELONG TO THE ASSESSEES HUSBAND, SHRI RAJU VENKATRAMAN AS SHE SU BMITTED A RECEIPT IN HIS NAME. THE PROVISIONS OF SEC.80G OF THE ACT ALLOW AN EXEMPTION ON THE SUM PAID BY THE ASSESSEE AND NO T BY ANYONE ELSE. THE AO HAD CLEARLY MISSED THIS CRITIC AL FACTOR WHILE FINALIZING THE ASSESSMENT. THEREFORE, ACCORDING T O THE CIT, THE WRONG APPLICATION OF THE PROVISIONS OF LAW HAS GIVE N AN UNDUE - - ITA 1171/MDS/14 4 BENEFIT TO THE ASSESSEE RESULTING IN AN ERRONEOUS A SSESSMENT. 3.2 FURTHER, THE CIT OBSERVED THAT THE ASSESSEE HAS OFFERED 47,777/- TOWARDS INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. SHE HAS HOWEVER, CLAIMED 17,135/-, 3,254/- AND 1,39,018/- AS PROFESSIONAL CHARGES, FINANCE CHARGES AND MANAGEMENT CHARGES RESPECTIVELY, TOTALL ING TO 1,59,407/- AGAINST THE ABOVE INCOME AND HAS SHOWN L OSS OF 1,11,630/-. ACCORDING TO THE CIT, THESE ARE NOT EX PENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING SUCH INTEREST INCOME AND HENCE, ARE NOT ALLOWABLE AND TH E SAME HAS NOT BEEN CONSIDERED BY THE AO RESULTING IN AN ERRON EOUS ORDER WHICH IS ALSO PREJUDICIAL TO THE INTERESTS OF REVEN UE. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 4. BEFORE US, THE MAIN CONTENTION OF THE LD.A.R IS THAT THE ASSUMPTION OF JURISDICTION BY CIT U/S.263 OF THE AC T IS BAD IN LAW. ACCORDING TO LD.A.R, THE COMMISSIONER HAS TO B E SATISFIED OF TWIN CONDITIONS NAMELY (I) THE ORDER OF THE AO SOUG HT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. HE SUBMITTED THAT BOTH THE ABOVE CONDI TIONS ARE - - ITA 1171/MDS/14 5 SATISFIED CUMULATIVELY TO INITIATE THE ACTION U/S.2 63 OF THE ACT. THE PROVISIONS CANNOT BE INVOKED TO CORRECT EACH AND EV ERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE AO, IT IS ONLY WH EN AN ASSESSMENT ORDER IS ERRONEOUS, THEN THAT SECTION WI LL BE ATTRACTED AND IT SHOULD BE PREJUDICIAL TO THE INTER ESTS OF THE REVENUE. EVERY LOSS OF REVENUE AS A CONSEQUENCE O F ORDER OF THE AO CANNOT BE TREATED AS PREJUDICIAL TO THE INTE RESTS OF THE REVENUE, FOR EXAMPLE, WHEN THE AO ADOPTED ONE OF TH E COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF R EVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND AO HAS TAKEN ONE V IEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE IN LAW. THE AO HAS FULLY APPLIED HIS MIND DURING THE COURSE OF ASS ESSMENT PROCEEDINGS AND ALLOWED THE CLAIM OF THE ASSESSEE A ND THEREBY THE ASPECT OF NEITHER NON-APPLICATION NOR INCORRECT APPLICATION OF LAW WILL NOT SATISFY THE REQUIREMENT OF THE ORDER B EING ERRONEOUS. THE ORDER OF THE AO CLEARLY TRANSPIRES THE APPLICAT ION OF HIS MIND FOR ALLOWING THE CLAIM OF THE ASSESSEE AND THUS THE ORDER OF THE AO WAS NOT ERRONEOUS BY INCORRECT APPLICATION OF LA W. IN AS - - ITA 1171/MDS/14 6 MUCH AS OF THE FACT THAT ONE OF THE ESSENTIAL CONDI TIONS WAS NOT MET, THE LD. CIT CANNOT ASSUME JURISDICTION TO INVO KE THE PROVISIONS 263 OF THE ACT. 4.1 FURTHER, ON MERIT LD.A.R SUBMITTED THAT THE AO DURING THE YEAR UNDER ASSESSMENT HAS SOLD HER SHARES IN M/S.M ARKETICS TECHNOLOLGIES (INDIA) PVT. LTD., FOR THE CONSIDERAT ION OF ` 65,783,856/-. THE ENTIRE SALE TRANSACTION WAS GUIDE D BY ONE OF THE INVESTMENT ADVISORS VIZ,, M/S. SPARK CAPITAL AD VISORS (INDIA) PRIVATE LIMITED, WHO HAS SPECIFICALLY BEEN MANDATED IN THIS REGARD BY THE ASSESSEE. THE SAID ADVISOR HAS ACTED ON BEHALF OF THE ASSESSEE AND HAS COMPLETED THE TASK BY SETTLING THE SHARE PRICE AT ` 2,751 AS AGAINST THE FACE VALUE OF ` 10. THE SAID ADVISOR HAS BEEN EXCLUSIVELY APPOINTED FOR THE PURP OSE OF TRANSFER OF THESE SHARES AND HENCE THE EXPENSE INCU RRED IN CONNECTION THEREWITH IS EXCLUSIVELY FOR THE PURPOSE OF ENABLING THE TRANSACTION AND THUS THE SAME IS FULLY IN ADHER ENCE TO SECTION 48(I) OF THE ACT. THE SAID FACTS WERE DULY DISCLOSED BY WAY OF OUR SUBMISSION DATED 15.3.2011 DURING THE CO URSE OF ASSESSMENT PROCEEDINGS AND THE AO HAS FULLY VERIFIE D THE GENUINENESS OF THE CLAIM AND ITS ALLOWABILITY THER EOF. THE COPY - - ITA 1171/MDS/14 7 OF THE SAID SUBMISSION IS FURNISHED HERWITH IN EXHI BIT -1 FOR READY REFERENCE. FURHTER RELEVANT PAGES OF THE BANK STATE MENT REFLECTING THE PAYMENTS MADE TO THE ADVISOR, THOUGH FURNISHED DURING THE COURSE OF ASSESSMENT, ARE ONCE AGAIN ENC LOSED HEREWITH IN EXHIBIT-2. HENCE IT IS PROVED BEYOND DO UBT AND DEMONSTRATED BEFORE THE ASSESSING OFFICER THAT THES E PAYMENTS ARE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER OF SUCH SALE OF SHARES. IN AS MUCH AS OF THE SAID FACT THERE IS NO ERROR ON THE PART OF THE ASSESSING OFFICER TO ARRIVE AT HIS CONCLUSION ON ALLOWABILITY OF THE CLAIM IN T HIS REGARD. THE CLAIM IS FULLY IN AGREEMENT WITH SECTION 46(1) OF T HE ACT AND DOESNT CALL FOR ANY INTERFERENCE AND AS SUCH SHOUL D BE ALLOWED. 4.2 REGARDING CLAIM OF DONATION, DURING THE YEAR U NDER ASSESSMENT THE ASSESSEE HAS PAID A SUM OF ` 15,00,000 TO THE DEPARTMENT OF MANAGEMENT STUDIES, INDIAN INSTITUTE OF TECHNOLOGY MADRAS TOWARDS CONTRIBUTION FOR LIT MADR AS GROWTH FUND. THE SAID PAYMENT BEING ELIGIBLE FOR CLAIM OF DEDUCTION U/S 80G, THE ASSESSEE HAS CLAIMED THE SAME AS DEDUCTION WHILE FILING HER RETURN OF INCOME. THE SAID ASPECT OF PAY MENT WAS - - ITA 1171/MDS/14 8 THOROUGHLY VERIFIED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT WHEREIN THE ASSESSEE HAS FURNISHED THE C OPY OF DONATION PAYMENT RECEIPT ALONG WITH EXPLANATION ON SUCH CLAIM.. THE QUERY RAISED BY YOUR GOOD SELF WAS VERY WELL RA ISED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT I TSELF AND THE SAME IS EVIDENT FROM THE OUTCOME OF THE ASSESSMENT ORDER AS WELL, WHICH AMONG OTHER THINGS, READS AS UNDER: THERE WAS AN ANOMALY IN THE DEDUCTION CLAIMED U/S 80G(2) OF CHAPTER VIA. THERE WAS A CONTRIBUTION OF RS.10 LACS TO INDIAN INSTITUTE OF TECHNOLOGY (MADRAS) IN THE NAME OF SUN RAJU VENKATRAMAN, HUSBAND OF THE ASSESSEE. IT WAS POINTE D OUT THAT THE DEDUCTION UNDER THE ABOVE MENTIONED SECTION IS ALLOWABLE ONLY FOR PAYMENT BY THE ASSESSEE. HOWEVER, THE ASSE SSEES AUTHORISED REPRESENTATIVE PRODUCED EVIDENCE THAT TH E PAYMENT WAS DONE BY THE ASSESSEE AND THAT THE ASSESSEES HU SBAND DID NOT CLAIM THE SAME DEDUCTION IN HIS RETURN OF I NCOME. THE CLAIM WAS VERIFIED AND FOUND TO BE CORRECT. IN ORDER TO CLAIM THE DEDUCTION VIA CHAPTER VIA, TH E REAL TEST IS TO BE APPLIED IS WHETHER THE PAYMENT HAS BEEN MADE OUT OF THE INCOME EARNED BY THE ASSESSEE AND PAYMENTS WERE MADE OUT O F THE SAID INCOME. THE SAID PAYMENT WAS MADE OUT OF THE BANK A CCOUNT OF THE ASSESSEE AND THE DETAILS OF THE SAME IS FURNISHED H EREIN UNDER: - - ITA 1171/MDS/14 9 IT IS BROUGHT TO THE KIND ATTENTION OF THE ASSESSIN G AUTHORITY THAT THE ASSESSEES HUSBAND MR RAJU VENKATRAMAN WAS A STUDEN T OF LIT (MADRAS) OF 1981 BATCH AND HAD BEEN ASSOCIATED WITH ALUMINI ASSOCIATION ON A REGULAR BASIS. HENCE THE RECEIPT W AS PRESUMABLY MADE IN HIS NAME. THIS FACT WAS DULY BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT PROCEED INGS. FURTHER, HE HAS BEEN ADJUDGED AS THE DISTINGUISHED ALUMINI BY T HE LIT (MADRAS) RECENTLY AS WELL. MERE CHANGE OF NAME IN THE RECEIP T CANNOT BE A SOLE FACTOR TO DISLODGE THE CLAIM OF THE ASSESSEE, IN LI NE WITH THE CONCEPT OF SUBSTANCE OVER FORM IN AS MUCH AS OF THE SAID FACT THAT THE PAYMENT HAS BEEN MADE OUT OF THE INCOME GENERATED B Y THE ASSESSEE CONCERNED AND THE SAME HAS BEEN MADE OUT O F THE BANK ACCOUNT OF THE ASSESSEE, THE CLAIM OF THE ASSESSES IS WELL WITHIN THE AMBIT OF THE ACT. THE SAID FACTS WERE REVEALED DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE ASSESSING OFFICER HA S FULLY SATISFIED WITH THE CLAIM AND THUS THE ORDER OF THE ASSESSING OFFICER AT NO STRETCH OF IMAGINATION CAN BE CONSIDERED AS ERRONE OUS AND DATE BANK CHEQUE NO. RS. 12.3.2009 ICICI 174755 10,00,000 16.03.2009 ICICI 174756 5,00,000 - - ITA 1171/MDS/14 10 PREJUDICIAL TO THE INTEREST OF THE REVENUE IN ORDER TO INVOKE SECTION 263 OF THE INCOME TAX ACT. 4.3 REGARDING CLAIM OF EXPENSES AGAINST INCOME FRO M OTHER SOURCES, THE ASSESSEE DURING THE YEAR UNDER ASSESSM ENT HAS RECEIVED INTEREST INCOME FROM BANKS AND COMPANIES A ND DIVIDEND INCOME. THE ASSESSEE HAS CLAIMED THE EXPENSES INCUR RED IN CONNECTION WITH EARNING SUCH INCOME VIZ., BANK CHEQ UES, CONSULTANCY CHARGES FROM THE SAID INCOME IN AS MUCH AS OF THE FACT THE CONDITIONS OF SEC 57(I) ARE DULY MET. THE SAME IS REPRODUCED BELOW FOR READY REFERENCE: THE INCOME CHARGEABLE UNDER THE HEAD INCOME FROM O THER SOURCES SHALL BE COMPUTED AFTER MAKING THE FOLLOWING DEDUCTIONS, NAM ELY : IN THE CASE OF DIVIDENDS, [OTHER THAN DIVIDENDS REFERRED TO IN SECTION 115-O,J FOR INTEREST ON SECURI TIES, SAY REASONABLE SUM PAID BY WAY OF COMMISSION OR REMUNERATION TO A BANKER OR ANY OTHER PERSON FOR THE PURPOSE OF REALIZING SUCH DIVIDEND (OR INTEREST) ON BEHALF OF THE ASSESSEE THE ASSESSEE HAVING SATISFIED THE CONDITIONALITY OF SEC 57(1) REPRODUCED ABOVE, HAS CLAIMED THE SAID EXPENSES AND THE SAME WAS ALSO VERIFIED DURING THE COURSE OF ASSESSMENT PROCE EDINGS AND WAS ALLOWED BY THE ASSESSING OFFICER. IN AS MUCH AS OF THE FACT THAT THE - - ITA 1171/MDS/14 11 ALLOWABILITY OF THE SAID CLAIM HAS BEEN VERIFIED DU RING THE COURSE OF ASSESSMENT AND THE VIEW OF THE ASSESSING OFFICER WA S NOT AT ALL ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE AND AS SUCH DOESNT CALL FOR ANY INTERFERENCE. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS IN THE LIGHT OF MATERIAL PLACED BEFORE US AND ALSO GONE THROUGH ALL THE JUDGEMENTS CITED BY THE PARTIES BEFORE US. FIRST WE TAKE UP THE LEGAL ISSUE WITH REFERENCE TO THE JURISDICTION OF INVOKIN G THE PROVISIONS OF SECTION 263 OF THE ACT BY THE LEARNED CIT. THE SCHE ME OF THE IT ACT IS TO LEVY AND COLLECT TAX IN ACCORDANCE WITH THE P ROVISIONS OF THE ACT AND THIS TASK IS ENTRUSTED TO THE REVENUE. IF DUE T O ERRONEOUS ORDER OF THE ASSESSING OFFICER, THE REVENUE IS LOSING TAX LAWFULLY PAYABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICIAL TO THE I NTEREST OF THE REVENUE. AS HELD IN THE CASE OF MALABAR INDUSTRIES CO. LTD., (243 ITR 83(SC) ), THE COMMISSIONER CAN EXERCISE REVISION JURISDICTION AL U/S 263 IF HE IS SATISFIED THAT THE ORDER OF THE ASSESSING OFFICER S OUGHT TO BE REVISED IS (I) ERRONEOUS; AND ALSO (II) PREJUDICIAL TO THE INT ERESTS OF THE REVENUE. - - ITA 1171/MDS/14 12 6. SECTION 263 OF THE INCOME-TAX ACT SEEKS TO REMO VE THE PREJUDICE CAUSED TO THE REVENUE BY THE ERRONEOUS OR DER PASSED BY THE ASSESSING OFFICER. IT EMPOWERS THE COMMISSIONER TO INITIATE SUO MOTO PROCEEDINGS EITHER WHERE THE ASSESSING OFFICER TAKES A WRONG DECISION WITHOUT CONSIDERING THE MATERIALS AVAILABL E ON RECORD OR HE TAKES A DECISION WITHOUT MAKING AN ENQUIRY INTO THE MATTERS, WHERE SUCH INQUIRY WAS PRIMA FACIE WARRANTED. THE COMMISS IONER WILL BE WELL WITHIN HIS POWERS TO REGARD AN ORDER AS ERRONE OUS ON THE GROUND THAT IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSIN G OFFICER SHOULD HAVE MADE FURTHER INQUIRIES BEFORE ACCEPTING THE CL AIM MADE BY THE ASSESSEE IN HIS RETURN. THE REASON IS OBVIOUS. UNLI KE THE CIVIL COURT WHICH IS NEUTRAL IN GIVING A DECISION ON THE BASIS OF EVIDENCE PRODUCED BEFORE IT, THE ROLE OF AN ASSESSING OFFICE R UNDER THE INCOME-TAX ACT IS NOT ONLY THAT OF AN ADJUDICATOR B UT ALSO OF AN INVESTIGATOR. HE CANNOT REMAIN PASSIVE IN THE FACE OF A RETURN, WHICH IS APPARENTLY IN ORDER BUT CALLS FOR FURTHER ENQUIR Y. HE MUST DISCHARGE BOTH THE ROLES EFFECTIVELY. IN OTHER WORDS, HE MUST CARRY OUT INVESTIGATION WHERE THE FACTS OF THE CASE SO REQUIR E AND ALSO DECIDE THE MATTER JUDICIOUSLY ON THE BASIS OF MATERIALS CO LLECTED BY HIM AS - - ITA 1171/MDS/14 13 ALSO THOSE PRODUCED BY THE ASSESSEE BEFORE HIM. THE SCHEME OF ASSESSMENT HAS UNDERGONE RADICAL CHANGES IN RECENT YEARS. IT DESERVES TO BE NOTED THAT THE PRESENT ASSESSMENT WA S MADE UNDER SECTION 143(3) OF THE INCOME-TAX ACT. IN OTHER WORD S, THE ASSESSING OFFICER WAS STATUTORILY REQUIRED TO MAKE THE ASSESS MENT UNDER SECTION 143(3) AFTER SCRUTINY AND NOT IN A SUMMARY MANNER AS CONTEMPLATED BY SUB-SECTION (1) OF SECTION 143. BUL K OF THE RETURNS FILED BY THE ASSESSEES ACROSS THE COUNTRY IS ACCEPT ED BY THE DEPARTMENT UNDER SECTION 143(1) WITHOUT ANY SCRUTIN Y. ONLY A FEW CASES ARE PICKED UP FOR SCRUTINY. THE ASSESSING OFF ICER IS THEREFORE, REQUIRED TO ACT FAIRLY WHILE ACCEPTING OR REJECTING THE CLAIM OF THE ASSESSEE IN CASES OF SCRUTINY ASSESSMENTS. HE SHOUL D BE FAIR NOT ONLY TO THE ASSESSEE BUT ALSO TO THE PUBLIC EXCHEQUER. T HE ASSESSING OFFICER HAS GOT TO PROTECT, ON ONE HAND, THE INTERE ST OF THE ASSESSEE IN THE SENSE THAT HE IS NOT SUBJECTED TO ANY AMOUNT OF TAX IN EXCESS OF WHAT IS LEGITIMATELY DUE FROM HIM, AND ON THE OT HER HAND, HE HAS A DUTY TO PROTECT THE INTERESTS OF THE REVENUE AND TO SEE THAT NO ONE DODGED THE REVENUE AND ESCAPED WITHOUT PAYING THE L EGITIMATE TAX. THE ASSESSING OFFICER IS NOT EXPECTED TO PUT BLINKE RS ON HIS EYES AND - - ITA 1171/MDS/14 14 MECHANICALLY ACCEPT WHAT THE ASSESSEE CLAIMS BEFORE HIM. IT IS HIS DUTY TO ASCERTAIN THE TRUTH OF THE FACTS STATED AND THE GENUINENESS OF THE CLAIMS MADE IN THE RETURN WHEN THE CIRCUMSTANCE S OF THE CASE ARE SUCH AS TO PROVOKE INQUIRY. ARBITRARINESS IN EI THER ACCEPTING OR REJECTING THE CLAIM HAS NO PLACE. THE ORDER PASSED BY THE ASSESSING OFFICER BECOMES ERRONEOUS BECAUSE AN ENQUIRY HAS NO T BEEN MADE OR GENUINENESS OF THE CLAIM HAS NOT BEEN EXAMINED WHER E THE INQUIRIES OUGHT TO HAVE BEEN MADE AND THE GENUINENESS OF THE CLAIM OUGHT TO HAVE BEEN EXAMINED AND NOT BECAUSE THERE IS ANYTHIN G WRONG WITH HIS ORDER IF ALL THE FACTS STATED OR CLAIM MADE THE REIN ARE ASSUMED TO BE CORRECT. THE COMMISSIONER MAY CONSIDER AN ORDER OF THE ASSESSING OFFICER TO BE ERRONEOUS NOT ONLY WHEN IT CONTAINS SOME APPARENT ERROR OF REASONING OR OF LAW OR OF FACT ON THE FACE OF IT BUT ALSO WHEN IT IS A STEREO-TYPED ORDER WHICH SIMPLY A CCEPTS WHAT THE ASSESSEE HAS STATED IN HIS RETURN AND FAILS TO MAKE ENQUIRIES OR EXAMINE THE GENUINENESS OF THE CLAIM WHICH ARE CALL ED FOR IN THE CIRCUMSTANCES OF THE CASE. IN TAKING THE AFORESAID VIEW, WE ARE SUPPORTED BY THE DECISIONS OF THE HON'BLE SUPREME C OURT IN RAMPYARI - - ITA 1171/MDS/14 15 DEVI SARAOGI (SUPRA), SMT. TARA DEVI AGGARWAL V. CI T [1973] 88 ITR 323 (SC), AND MALABAR INDUSTRIAL CO. LTD'S (SUPRA). 7. IN MALABAR INDUSTRIAL CO. LTD. CASE (SUPRA) THE HON'BLE COURT HAS HELD AS UNDER: 'THERE CAN BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER, IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT AS SUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATIS FY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. IN THE SA ME CATEGORY FALL THE ORDERS PASSED WITHOUT APPLYING TH E PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. IN OUR HUMBLE VIEW, ARBITRARINESS IN DECISION-MAKIN G WOULD ALWAYS NEED CORRECTION REGARDLESS OF WHETHER IT CAU SES PREJUDICE TO AN ASSESSEE OR TO THE STATE EXCHEQUER. THE LEGISLATURE HAS TAKEN AMPLE CARE TO PROVIDE FOR THE MECHANISM TO HAVE SUCH PREJUDICE REMOVED. WHILE AN ASSESSEE C AN HAVE IT CORRECTED THROUGH REVISIONAL JURISDICTION OF THE CO MMISSIONER UNDER SECTION 264 OR THROUGH APPEALS AND OTHER MEAN S OF JUDICIAL REVIEW, THE PREJUDICE CAUSED TO THE STATE EXCHEQUER CAN ALSO BE CORRECTED BY INVOKING REVISIONAL JURISD ICTION OF THE COMMISSIONER UNDER SECTION 263. ARBITRARINESS IN DE CISION- MAKING CAUSING PREJUDICE TO EITHER PARTY CANNOT THE REFORE BE ALLOWED TO STAND AND STARE AT THE LEGAL SYSTEM. IT IS DIFFICULT TO COUNTENANCE SUCH ARBITRARINESS IN THE ACTIONS OF TH E ASSESSING OFFICER. IT IS THE DUTY OF THE ASSESSING OFFICER TO ADEQUATELY - - ITA 1171/MDS/14 16 PROTECT THE INTEREST OF BOTH THE PARTIES, NAMELY, T HE ASSESSEE AS WELL AS THE STATE. IF HE FAILS TO DISCHARGE HIS DUTIES FAIRLY, HIS ARBITRARY ACTIONS CULMINATING IN ERRONEOUS ORDERS C AN ALWAYS BE CORRECTED EITHER AT THE INSTANCE OF THE ASSESSEE, I F THE ASSESSEE IS PREJUDICED OR AT THE INSTANCE OF THE COMMISSIONE R, IF THE REVENUE IS PREJUDICED. WHILE MAKING AN ASSESSMENT, THE ITO HAS A VARIED ROLE TO PLAY. HE IS THE INVESTIGATOR, PROSECUTOR AS WELL AS ADJUDICATOR. AS AN ADJUDICATOR HE IS AN ARB ITRATOR BETWEEN THE REVENUE AND THE TAXPAYER AND HE HAS TO BE FAIR TO BOTH. HIS DUTY TO ACT FAIRLY REQUIRES THAT WHEN HE ENQUIRES INTO A SUBSTANTIAL MATTER LIKE THE PRESENT ONE, HE MUST RECORD A FINDING ON THE RELEVANT ISSUE GIVING, HOWSOEVER BRI EFLY, HIS REASONS THEREFOR. IN S.N. MUKHERJEE V. UNION OF IND IA AIR 1990 SC 1984, IT HAS BEEN OBSERVED BY THE HON'BLE SUPREM E COURT AS FOLLOWS: 'REASONS, WHEN RECORDED BY AN ADMINISTRATIVE AUTHOR ITY IN AN ORDER PASSED BY IT WHILE EXERCISING QUASI-JUDICIAL FUNCTIONS, WOULD NO DOUBT FACILITATE THE EXERCISE OF ITS JURIS DICTION BY THE APPELLATE OR SUPERVISORY AUTHORITY. BUT THE OTHER CONSIDERATIONS, REFERRED TO ABOVE, WHICH HAVE ALSO WEIGHED WITH THIS COURT IN HOLDING THAT AN ADMINISTRATIVE A UTHORITY MUST RECORD REASONS FOR ITS DECISION ARE OF NO LESS SIGN IFICANCE. THESE CONSIDERATIONS SHOW THAT THE RECORDING OF REA SONS BY AN ADMINISTRATIVE AUTHORITY SERVES A SALUTARY PURPOSE, NAMELY, IT EXCLUDES CHANCES OR ARBITRARINESS AND ENSURES A DEG REE OF FAIRNESS IN THE PROCESS OF DECISION-MAKING. THE SAI D PURPOSE WOULD APPLY EQUALLY TO ALL DECISIONS AND ITS APPLIC ATION CANNOT BE CONFINED TO DECISIONS WHICH ARE SUBJECT TO APPEA L, REVISION OR JUDICIAL REVIEW. IN OUR OPINION, THEREFORE, THE REQUIREMENT THAT REASONS BE RECORDED SHOULD GOVERN THE DECISION S OF AN - - ITA 1171/MDS/14 17 ADMINISTRATIVE AUTHORITY EXERCISING QUASI-JUDICIAL FUNCTIONS IRRESPECTIVE OF THE FACT MAY, HOWEVER, BE ADDED THA T IT IS NOT REQUIRED THAT THE REASONS SHOULD BE AS ELABORATE AS IN THE DECISION OF A COURT OF LAW. THE EXTENT AND NATURE O F THE REASONS WOULD DEPEND ON PARTICULAR FACTS AND CIRCUM STANCES. WHAT IS NECESSARY IS THAT THE REASONS ARE CLEAR AND EXPLICIT SO AS TO INDICATE THAT THE AUTHORITY HAS GIVEN DUE CON SIDERATION TO THE POINTS IN CONTROVERSY. THE NEED FOR RECORDING O F REASONS IS GREATER IN A CASE WHERE THE ORDER IS PASSED AT THE ORIGINAL STAGE. THE APPELLATE OR REVISIONAL AUTHORITY, IF IT AFFIRMS SUCH AN ORDER, NEED NOT GIVE SEPARATE REASONS IF THE APPELL ATE OR REVISIONAL AUTHORITY AGREES WITH THE REASONS CONTAI NED IN THE ORDER UNDER CHALLENGE.' 8. IN VIEW OF THE FOREGOING, IT CAN SAFELY BE SAID THAT AN ORDER PASSED BY THE ASSESSING OFFICER BECOMES ERRONEOUS A ND PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNDER SECTION 263 IN T HE FOLLOWING CASES: (I) THE ORDER SOUGHT TO BE REVISED CONTAINS ERROR O F REASONING OR OF LAW OR OF FACT ON THE FACE OF IT. (II) THE ORDER SOUGHT TO BE REVISED PROCEEDS ON INC ORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW . IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING T HE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATIO N OF MIND. - - ITA 1171/MDS/14 18 (III) THE ORDER PASSED BY THE ASSESSING OFFICER IS A STEREOTYPE ORDER WHICH SIMPLY ACCEPTS WHAT THE ASSESSEE HAS ST ATED IN HIS RETURN OR WHERE HE FAILS TO MAKE THE REQUISITE ENQUIRIES OR EXAMINE THE GENUINENESS OF THE CLAIM WHICH IS CALLE D FOR IN THE CIRCUMSTANCES OF THE CASE. 9. ADVERTING TO THE PRESENT CASE, THE AO HAS TAKEN A DECISION WITHOUT MAKING AN ENQUIRY IN RESPECT OF EXPENDITURE CLAIMED BY THE ASSESSEE AMOUNTING TO ` 1,59,407/-. HENCE, THE CIT HAS EMPOWERED TO INITIATE THE SUO MOTO PROCEEDINGS SINCE THE AO H AS NOT MADE ANY ENQUIRY INTO THIS MATTER. HENCE, THE LD. CIT WAS OF THE OPINION THAT THERE WAS NO PROPER ENQUIRY BY THE AO AND THE LD.AO ACCEPTED THE ABOVE CLAIM WITHOUT CONDUCTING THE ENQUIRY WITH REG ARD TO THIS PAYMENT. IT IS INCUMBENT UPON AO TO COME TO INDEPE NDENT CONCLUSION THAT THE CLAIM OF ASSESSEE IS GENUINE. A O ON THIS ISSUE CLOSED HIS EYES AND ACCEPTED THE CLAIM OF ASSESSEE. THEREFORE, THE CIT JUSTIFIED INVOKING THE JURISDICTION U/S.263 OF THE ACT ON THIS ISSUE AND THERE CANNOT BE ANY GRIEVANCE OF ASSESSEE ON IN VOKING THE PROVISIONS OF THE SECTION 263 OF THE ACT AS THE CIT DIRECTED THE AO TO CONDUCT NECESSARY ENQUIRY ON THIS ASPECT. - - ITA 1171/MDS/14 19 9.1 FURTHER, THE ABOVE OUR FINDINGS CANNOT BE APP LIED TO THE ISSUE RELATING TO PAYMENT OF PORTFOLIO MANAGEMENT SERVICE S AND DEDUCTION U/S.80G. THERE WAS A QUESTIONNAIRE ISSUED BY THE A O ON 23.08.2010 VIDE NOTICE U/S.143(2) OF THE ACT. AGAINST WHICH TH E ASSESSEE FILED A REPLY DATED 15.03.2011 WHEREIN THE ASSESSEE GAVE T HE DETAILS OF SALE OF UNLISTED SHARES OF M/S.MARKETICS TECHNOLOLG IES (INDIA) PVT. LTD. AT ` 65,783,856/-, HOLDING AND SALES OF MARKETING SHARES , NATURE OF ADVISORY SERVICES BY M/S. SPARK CAPITAL ADVISORS (INDIA) PRIVATE LIMITED, DETAILS OF CONTRACT NOTES AND BANK STATEME NTS. AFTER GOING THROUGH THE REPLY, AO OPTED NOT TO MAKE ADDITION IN RESPECT OF PAYMENT OF PORTFOLIO MANAGEMENT SERVICES EXPENDITUR E AND HE HAS ALSO DISCUSSED ABOUT THE DEDUCTION CLAIMED U/S.80G OF THE ACT IN THE ASSESSMENT ORDER. WITH REGARD TO THIS DEDUCTION U/S .80G, HE MENTIONED IN PARA-3 OF THE ASSESSMENT ORDER THAT AU THORISED REPRESENTATIVE OF ASSESSEE PRODUCED THE EVIDENCE TH AT PAYMENT WAS DONE BY THE ASSESSEE AND THAT THE ASSESSEES HUSBAN D DID NOT CLAIM THE SAME DEDUCTION IN HIS RETURN OF INCOME. THE CLA IM WAS VERIFIED AND FOUND TO BE CORRECT AND DEDUCTION WAS GRANTED U /S.80G OF THE ACT. - - ITA 1171/MDS/14 20 9.2 REGARDING PAYMENT OF PORTFOLIO MANAGEMENT SER VICES, AS THE COST OF ACQUISITION U/S 48(I) OF THE ACT, THERE AR E TWO VIEWS POSSIBLE. THE TRIBUNAL IN THE CASE OF DEVENDRA MOTILAL KOTHAR I VS. DCIT IN 132 ITD 173 [ITAT (MUM.)] HELD AS UNDER:- 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND A LSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THA T THE PROFIT ARISING TO THE ASSESSEE ON SALE OF SHARES AND SECUR ITIES CHARGEABLE TO TAX UNDER THE HEAD 'CAPITAL GAINS' AN D THIS POSITION IS NOT IN DISPUTE. THE ONLY DISPUTE IS WHETHER THE FEES PAID BY THE ASSESSEE FOR PMS CAN BE ALLOWED AS DEDUCTION IN COM PUTING SUCH INCOME OR NOT. IN THIS REGARD, IT IS OBSERVED THAT THE CHARGE OF INCOME-TAX IS CREATED BY VIRTUE OF THE PROVISIONS C ONTAINED IN SECTION 4 ACCORDING TO WHICH THE INCOME-TAX IS CHAR GED FOR THE RELEVANT ASSESSMENT YEAR IN ACCORDANCE WITH AND SUB JECT TO THE PROVISIONS OF INCOME-TAX ACT IN RESPECT OF THE TOTA L INCOME OF THE RELEVANT PREVIOUS YEAR OF EVERY PERSON. AS PER THE SCHEME OF THE ACT, INCOME IS BROADLY CLASSIFIED UNDER FIVE DIFFER ENT HEADS AND THE INCOME CHARGEABLE TO TAX UNDER THESE HEADS HAS TO BE COMPUTED AS PER THE RELEVANT PROVISIONS APPLICABLE TO RESPECTIVE HEADS OF INCOME SECTION 45 TO SECTION 55A FALLING U NDER CHAPTER IV-E DEAL WITH ASSESSMENT OF INCOME UNDER THE HEAD ' CAPITAL GAINS' AND SECTION 48 IN PARTICULAR PRESCRIBES THE MODE OF COMPUTATION OF CAPITAL GAINS. AS PROVIDED IN SECTIO N 48, EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH TRANSFER AND THE COST OF ACQUISITION OF THE ASSET A ND COST OF ANY IMPROVEMENT THERETO ARE DEDUCTIBLE FROM THE FULL VA LUE OF THE CONSIDERATION RECEIVED OR ACCRUING TO THE ASSESSEE AS A RESULT OF TRANSFER OF THE CAPITAL ASSETS. - - ITA 1171/MDS/14 21 13. IN THE PRESENT CASE, THE DEDUCTION ON ACCOUNT O F FEES PAID FOR PMS HAS BEEN CLAIMED BY THE ASSESSEE AS DEDUCTION I N COMPUTING CAPITAL GAINS ARISING FROM SALE OF SHARES AND SECUR ITIES. HE HOWEVER HAS FAILED TO EXPLAIN AS TO HOW THE SAID FE ES COULD BE CONSIDERED AS COST OF ACQUISITION OF THE SHARES AND SECURITIES OR THE COST OF ANY IMPROVEMENT THERETO. HE HAS ALSO FA ILED TO EXPLAIN AS TO HOW THE SAID FEES COULD BE TREATED AS EXPENDI TURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SALE OF S HARES AND SECURITIES. ON THE OTHER HAND, THE BASIS ON WHICH T HE SAID FEES WAS PAID BY THE ASSESSEE SHOW THAT IT HAD NO DIRECT NEXUS WITH THE PURCHASE AND SALE OF SHARES AND AS RIGHTLY CONT ENDED BY THE LD. DR, THE SAID FEES WAS PAYABLE BY THE ASSESSEE G OING BY THE BASIS THEREOF EVEN WITHOUT THERE BEING ANY PURCHASE OR SALE OF SHARES IN A PARTICULAR PERIOD. AS A MATTER OF FACT, WHEN THE LD. CIT(A) REQUIRED THE ASSESSEE TO ALLOCATE THE FEES P AID FOR PMS IN RELATION TO PURCHASE AND SALE OF SHARES AS WELL AS IN RELATION TO THE SHARES HELD AS INVESTMENT ON THE LAST DATE OF T HE PREVIOUS YEAR, THE ASSESSEE COULD NOT FURNISH SUCH DETAILS N OR COULD HE GIVE ANY DEFINITE BASIS ON WHICH SUCH ALLOCATION WA S POSSIBLE. HAVING REGARD TO ALL THESE FACTS OF THE CASE, WE AR E OF THE VIEW THAT THE FEES PAID BY THE ASSESSEE FOR PMS WAS NOT INEXTRICABLY LINKED WITH THE PARTICULAR INSTANCE OF PURCHASE AND SALE OF SHARES AND SECURITIES SO AS TO TREAT THE SAME AS EXPENDITU RE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH SALE OR THE COST OF ACQUISITION/IMPROVEMENT OF THE SHARES AND SECURITIE S SO AS TO BE ELIGIBLE FOR DEDUCTION IN COMPUTING CAPITAL GAINS U NDER SECTION 48. 14. AS REGARDS THE CASE LAWS CITED BY THE LD. COUNS EL FOR THE ASSESSEE IN SUPPORT OF THE ASSESSEE'S CASE ON THE P OINT UNDER CONSIDERATION, IT IS OBSERVED THAT THE FACTS INVOLV ED THEREIN WERE ALTOGETHER DIFFERENT IN AS MUCH AS THE RELEVANT AMO UNTS CLAIMED - - ITA 1171/MDS/14 22 BY THE ASSESSEE AS DEDUCTION IN COMPUTING CAPITAL G AINS WERE FOUND TO BE IN THE NATURE OF EXPENDITURE/COST COVER ED BY SECTION 48. FOR INSTANCE, IN THE CASE OF MATHURADAS MANGALD AS PAREKH (SUPRA), PAYMENT OF BETTERMENT CHARGES MADE UNDER T OWN PLANNING SCHEME HAD RESULTED IN INCREASE IN POTENTI AL VALUE OF LAND AND THE SAME THEREFORE WERE HELD TO BE COST OF IMPROVEMENT OF THE SAID LAND. SIMILARLY, IN THE CASE OF CHEMMAN CHERRY ESTATES CO. (SUPRA), FUNDS BORROWED BY THE ASSESSEE WERE UT ILIZED FOR ACQUISITION OF LAND AND THE INTEREST PAID THEREON T HUS WAS HELD TO THE FORMING PART OF THE COST OF ACQUISITION OF THE LAND. IN OTHER CASES ALSO, THE BROKERAGE EXPENSES INCURRED BY THE ASSESSEE WERE IN RESPECT OF PARTICULAR SALE OF CAPITAL ASSET S AND THE SAME THEREFORE WERE HELD TO BE DEDUCTABLE WHILE COMPUTIN G CAPITAL GAIN BEING EXPENDITURE INCURRED WHOLLY AND EXCLUSIV ELY IN CONNECTION WITH SUCH TRANSFER/SALE. 15. AT THE TIME OF HEARING BEFORE US, THE LD, COUNS EL FOR THE ASSESSEE HAS RAISED AN ALTERNATIVE CONTENTION IN SU PPORT OF THE ASSESSEE'S CLAIM FOR DEDUCTION ON ACCOUNT OF FEES P AID FOR PMS IN COMPUTING THE CAPITAL GAINS RELYING ON THE THEORY O F REAL INCOME AND THE RULE OF DIVERSION OF INCOME BY AN OVERRIDIN G TITLE. HE HAS CONTENDED THAT THE FEES FOR PMS BEING CONTRACTUAL L IABILITY DIRECTLY RELATABLE TO THE CAPITAL GAINS, THERE WAS A DIVERSI ON OF INCOME FROM CAPITAL GAIN BY AN OVERRIDING TITLE TO THE EXT ENT OF THE AMOUNT OF SUCH FEES AND THE SAME THEREFORE WAS NOT THE INCOME BELONGING TO THE ASSESSEE WHICH WAS CHARGEABLE TO T AX UNDER THE HEAD 'CAPITAL GAINS'. IN THIS REGARD, WE MAY OBSERV E THAT EVEN THOUGH THE ASSESSEE WAS UNDER AN OBLIGATION TO PAY THE FEES FOR PMS, THE MERE EXISTENCE OF SUCH OBLIGATION TO PAY T HE SAID AMOUNT WAS NOT ENOUGH FOR THE APPLICATION OF THE RU LE OF DIVERSION OF INCOME BY AN OVERRIDING TITLE. THE TRU E TEST FOR - - ITA 1171/MDS/14 23 APPLICABILITY OF THE SAID RULE IS WHETHER SUCH OBLI GATION IS IN THE NATURE OF A CHARGE ON SOURCE I.E. THE PROFIT EARNIN G APPARATUS ITSELF AND ONLY IN SUCH CASES WHERE THE SOURCE OF E ARNING INCOME IS CHARGED BY AN OVERRIDING TITLE, THE SAME CAN BE CONSIDERED AS DIVERSION OF INCOME BY AN OVERRIDING TITLE. 16. IN THE CASE OF SITALDAS TIRATHDAS (SUPRA), IT W AS HELD BY THE HON'BLE SUPREME COURT THAT THE TRUE TEST FOR THE AP PLICATION OF THE RULE OF DIVERSION OF INCOME BY AN OVERRIDING TI TLE IS WHETHER THE AMOUNT SOUGHT TO BE DEDUCTED, IN TRUTH, NEVER R EACHED THE ASSESSEE AS HIS INCOME. OBLIGATIONS, NO DOUBT, ARE THERE IN EVERY CASE, BUT IT IS THE NATURE OF THE OBLIGATION WHICH IS THE DECISIVE FACT. EXPLAINING, FURTHER, IT WAS OBSERVED BY THE HO N'BLE SUPREME COURT THAT THERE IS A DIFFERENCE BETWEEN AN AMOUNT WHICH A PERSON IS OBLIGED TO APPLY OUT OF HIS INCOME AND AN AMOUNT WHICH BY THE NATURE OF THE OBLIGATION CANNOT BE SAID TO B E A PART OF THE INCOME OF THE ASSESSEE. WHERE BY THE OBLIGATION, IN COME IS DIVERTED BEFORE IT REACHES TO THE ASSESSEE, IT IS D EDUCTIBLE, BUT WHERE THE INCOME IS REQUIRED TO BE APPLIED TO DISCH ARGE AN OBLIGATION AFTER SUCH INCOME REACHES THE ASSESSEE, THE SAME CONSEQUENCE, IN LAW, DOES NOT FOLLOW. IT WAS HELD B Y THE HON'BLE SUPREME COURT THAT IT IS THE FIRST KIND OF PAYMENT WHICH CAN TRULY BE EXCLUDED AND NOT THE SECOND. THE SECOND PAYMENT IS MERELY AN OBLIGATION TO PAY ANOTHER A PORTION OF ONE'S OWN INCOME WHICH HAS BEEN RECEIVED AND IS SINCE APPLIED. 17. IN THE PRESENT CASE, THE PROFIT ARISING FROM TH E SALE OF SHARES WAS RECEIVED BY THE ASSESSEE DIRECTLY WHICH CONSTIT UTED ITS INCOME AT THE POINT WHEN IT REACHED OR ACCRUED TO T HE ASSESSEE. THE FEE FOR PMS ON THE OTHER HAND WAS PAID SEPARATE LY BY THE ASSESSEE TO DISCHARGE HIS CONTRACTUAL LIABILITY. IT WAS THUS A CASE OF AN OBLIGATION TO APPLY INCOME WHICH HAD ACCRUED OR ARISEN TO - - ITA 1171/MDS/14 24 THE ASSESSEE AND THE SAME AMOUNTED TO A MERE APPLIC ATION OF INCOME. WE, THEREFORE, HAVE NOT HESITATION TO HOLD THAT THE PAYMENT OF FEES BY THE ASSESSEE FOR PMS DID NOT AMO UNT TO DIVERSION OF INCOME BY OVERRIDING TITLE AND THE CON TENTIONS RAISED BY THE ASSESSEE IN THIS REGARD CANNOT BE ACCEPTED B EING DEVOID OF ANY MERIT. 18. AS REGARDS THE CONTENTION OF THE LD. COUNSEL FO R THE ASSESSEE IN SUPPORT OF ASSESSEE'S CLAIM FOR DEDUCTION ON ACC OUNT OF FEES PAID FOR PMS BASED ON REAL INCOME THEORY, WE AGREE WITH THE LD. DR THAT THE THEORY OF REAL INCOME CANNOT BE APPLIED TO ALLOW DEDUCTION TO THE ASSESSEE WHICH IS OTHERWISE NOT PE RMISSIBLE UNDER THE INCOME-TAX ACT. IN THE CASE OF CIT V. UDA YAN CHINUBHAI [1996] 222 ITR 456 / 88 TAXMAN 114 (SC) I T WAS HELD BY THE HON'BLE SUPREME COURT IN THE SIMILAR CONTEXT THAT WHAT IS NOT PERMISSIBLE IN LAW AS DEDUCTION UNDER ANY OF TH E HEADS CANNOT BE ALLOWED AS A DEDUCTION ON THE PRINCIPLE O F REAL INCOME THEORY. 19. FOR THE REASONS GIVEN ABOVE, WE FIND NO MERIT I N THE ARGUMENTS RAISED BY THE LD. COUNSEL FOR THE ASSESSE E IN SUPPORT OF THE ASSESSEE'S CASE ON THE ISSUE UNDER CONSIDERA TION AND REJECTING THE SAME, WE HOLD THAT THE FEES PAID BY T HE ASSESSEE FOR PMS WAS NOT DEDUCTIBLE IN COMPUTING THE CAPITAL GAI NS AS RIGHTLY HELD BY THE ASSESSING OFFICER THE IMPUGNED ORDER OF THE LD. CIT(A) CONFIRMING THE DISALLOWANCE MADE BY THE ASSE SSING OFFICER ON THIS ISSUE IS THEREFORE UPHELD DISMISSING THIS A PPEAL FILED BY THE ASSESSEE. - - ITA 1171/MDS/14 25 9.3 FURTHER, THE CO-ORDINATE BENCH OF MUMBAI TRIBU NAL HAD TAKEN THE SIMILAR VIEW IN CAPT. AVINASH CHANDER BATRA VS. DCIT IN [2016] 158 ITD 604 (ITAT [MUM] ) WHEREIN HELD THAT:- WE HAVE TO SEE WHETHER THE PORTFOLIO MANAGEMENT CH ARGES OF RS. 22,64,272/- PAID BY THE ASSESSEE CAN BE ALLOWED AS DEDUCTION FROM THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUIN G TO THE ASSESSE AS A RESULT OF TRANSFER OF THE CAPITAL ASSET BEING SHA RES, PROVIDED THE SAID PMS CHARGES ARE EITHER EXPENDITURE INCURRED WH OLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF SHAR ES OR PMS CHARGES IS A COST OF ACQUISITION OR THE COST OF ANY IMPROVE MENT THERETO OF THE CAPITAL ASSET BEING SHARES AS PER MANDATE OF SE CTION 48 OF THE ACT. THE ASSESSEE TO SUPPORT HIS CONTENTIONS HAS RE LIED ON THE SECURITIES AND EXCHANGE BOARD OF INDIA (PORTFOLIO MA NAGERS) (AMENDMENT) RULES, 2002 TO CONTEND THAT THESE PMS C HARGES ARE ALLOWABLE EXPENDITURE AS THE PORTFOLIO MANAGERS ARE ALLOWED TO BE PAID FEE ON 'RETURN BASED FEE' MEANING THEREBY THAT IT IS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH THE TRANSFER OF SHARES AS THESE PMS CHARGES ARE CONNECT ED WITH SALE AND PURCHASE OF SHARES. BEFORE WE PROCEED FURTHER TO DECIDE WHETHER PMS CHA RGES PAID BY THE ASSESSEE IS ALLOWABLE AS DEDUCTION AS PER PROVI SIONS OF SECTION 48 OF THE ACT, WE MUST ANALYZE THE STATUTORY AND LE GAL FRAMEWORK WITHIN WHICH PORTFOLIO MANAGERS CARRY ON THEIR ACTI VITIES IN INDIA AND THEIR ROLES AND RESPONSIBILITIES IN DISCHARGING THE IR DUTIES. THE BUSINESS ACTIVITIES OF PORTFOLIO MANAGERS IN IN DIA ARE REGULATED BY SECURITIES AND EXCHANGE BOARD OF INDIA ACT,1992(1 5 OF 1992) (IN SHORT 'SEBI ACT,1992') . THE SEBI ACT,1992 PROVIDE'S FOR AN ESTABLISHMENT OF THE BOARD (HEREINAFTER CALLED 'THE SEBI') TO PROTECT THE INTERESTS OF INVESTORS IN SECURITIES AND TO PRO MOTE THE DEVELOPMENT OF, AND REGULATE, THE SECURITIES MARKET AND FOR MATTERS CONNECTED THEREWITH OR INCIDENTAL THERETO. IT IS PR OVIDED IN CHAPTER IV OF THE SEBI ACT,1992 WHICH DEALS WITH POWER AND F UNCTIONS OF THE BOARD U/S.11(1) OF SEBI ACT,1992 THAT IT SHALL BE DU TY OF THE SEBI TO PROTECT THE INTERESTS OF INVESTORS IN SECURITIES AN D TO PROMOTE THE DEVELOPMENT OF, AND REGULATE, THE SECURITIES MARKET , BY SUCH MEASURES AS IT THINKS FIT. SECTION 11(2)(B) OF SEBI ACT,1992 PROVIDES, INTER-ALIA, THAT SUCH MEASURES TO ACHIEVE THE OBJECTS OF SEBI ACT,1992, THE BOARD MAY REQUIRE REGISTERING AND REGULATING THE WORKING OF PORTFOLIO MANAGERS. IT IS PROVIDED, INTE R-ALIA, IN CHAPTER V U/S 12(1) OF SEBI ACT,1992 THAT NO PORTFOLIO MANAGER WHO MAY BE ASSOCIATED WITH SECURITIES MARKET SHALL BUY, SELL O R DEAL IN SECURITIES - - ITA 1171/MDS/14 26 EXCEPT UNDER, AND IN ACCORDANCE WITH, THE CONDITION S OF CERTIFICATE OF REGISTRATION OBTAINED FROM THE SEBI IN ACCORDANCE WI TH THE REGULATIONS MADE UNDER THE SEBI ACT,1992. THE SEBI AC T,1992 BY VIRTUE OF PROVISIONS OF SECTION 30 GRANTS THE POWER TO SEBI TO MAKE REGULATIONS BY NOTIFICATION CONSISTENT WITH THE SEBI ACT,1992 AND THE RULES MADE THERE-UNDER TO CARRY OUT PURPOSES OF THE ACT WHICH IS PRIMARILY INVESTOR PROTECTION AND TO PROMOTE THE DE VELOPMENT OF, AND TO REGULATE THE SECURITIES MARKET. IN EXERCISE OF POWERS U/S. 30 OF SEBI ACT,1992, SEBI CAME OUT WITH REGULATIONS TO REGULATE THE BUSINESS OF PORTFOLIO MANAGERS IN INDIA BY PROMULGA TING 'SECURITIES AND EXCHANGE BOARD OF INDIA (PORTFOLIO MANAGERS) REG ULATION,1993' WHICH WERE AMENDED FROM TIME TO TIME . UNDER CLAUSE 2(CB) OF SECURITIES AND EXCHANGE BOARD OF INDIA (PORTFOLIO MA NAGERS) REGULATION,1993, THE PORTFOLIO MANAGER IS DEFINED A S UNDER: XXXXX XXXXXX THE PERUSAL OF SEBI ACT,1992 AND REGULATIONS MADE TH ERE-TO CLEARLY REVEALS THAT BUSINESS OF PORTFOLIO MANAGERS IN INDI A IS A REGULATED AND CONTROLLED BUSINESS WHICH REQUIRES MANDATORY RE GISTRATION WITH SEBI TO CARRY ON ACTIVITIES OF PORTFOLIO MANAGEMENT IN INDIA AND IS SUBJECT TO CONTINUOUS CONTROL, REGULATION AND MONIT ORING BY SEBI WITH AN OBJECTIVE OF INVESTOR PROTECTION AND PROMOT E AND REGULATE SECURITIES MARKET. THE QUALIFICATION AND EXPERIENCE OF THE PORTFOLIO MANAGER IS ALSO SPECIFIED IN THE AFORE-STATED REGUL ATIONS SO THAT ONLY PROFESSIONAL, SKILLED, SPECIALIZED AND EXPERIENCED PERSONS ARE ENGAGED IN THE ACTIVITIES OF PORTFOLIO MANAGEMENT . THE ROLES AND RESPONSIBILITIES OF PORTFOLIO MANAGERS COVERS A VAS T SPECTRUM OF ACTIVITIES PROVIDED TO CLIENTS FOR FEE RANGING FROM PROVIDING ADVISES, OR DIRECT OR UNDERTAKE ON BEHALF OF CLIENT THE MANA GEMENT OR ADMINISTRATION OF A PORTFOLIO OF SECURITIES OR FUND S OF THE CLIENT MEANING THEREBY THAT THE PORTFOLIO MANAGERS DOES NO T ACT MERELY AS A STOCK-BROKER TO BUY AND SELL SHARES OF THE CLIENT S IN EXECUTION OF THE INSTRUCTIONS OF THE CLIENT'S FOR A BROKERAGE/CO MMISSION, BUT PORTFOLIO MANAGER RENDERS A VAST SPECTRUM OF ACTIVI TIES WHICH INVOLVES GIVING ADVISES TO CLIENTS AND/OR MANAGEMEN T AND ADMINISTRATION OF SECURITIES OR FUND PORTFOLIO'S OF THE CLIENT WHICH IS MANAGED BY EXPERIENCED, SPECIALIZED, SKILLED AND QU ALIFIED PROFESSIONALS WHO ACT AS PORTFOLIO MANAGERS TO REND ER THEIR EXPERTISE, SKILL AND SPECIALIZED KNOWLEDGE TO THE I NVESTOR'S CLIENT FOR A FEE WITH AN OBJECTIVE TO CREATE WEALTH FOR THE IN VESTOR CLIENT'S AND MAXIMIZING GAINS FOR THESE INVESTORS CLIENT. THE HI GHLY SPECIALIZED AND SKILL SERVICES ARE RENDERED BY THESE QUALIFIED AND EXPERIENCED PORTFOLIO MANAGERS ON CONTINUOUS BASIS TO CLIENTS I N A HIGHLY VOLATILE - - ITA 1171/MDS/14 27 AND COMPLEX SECURITIES MARKET WITH AN OBJECTIVE OF WEALTH CREATION AND MAXIMIZING GAINS FOR THE INVESTOR'S CLIENTS AND ARE NOT RENDERING MERELY SERVICES CONNECTED WITH THE TRANSFER OF SHAR ES NOR ARE THEY CONNECTED WITH COST OF ACQUISITION OR SALE OF SHARE S EVEN IF THESE PMS CHARGES ARE PAID BASED AND CALCULATED ON PURCHA SES AND SALES OF SHARES OR EVEN IF THESE PMS CHARGES ARE RETURN B ASED FEES. THESE FEES HAVE A MAJOR COMPONENT TOWARDS ADVISORY CHARGE S BEING HIGHLY SKILLED AND SPECIALIZED KNOWLEDGE AND EXPERTISE BAS ED SERVICES BEING MANAGERIAL AND CONSULTANCY SERVICES OF EXPERI ENCED AND QUALIFIED PROFESSIONALS ACTING AS PORTFOLIO MANAGER S WHO RENDER THESE SPECIALIZED AND SKILLED SERVICES ON A CONTINU OUS BASIS TO INVESTOR CLIENT FOR FEE IN A HIGHLY VOLATILE AND CO MPLEX SECURITIES MARKET TO MAXIMIZE GAINS AND TO CREATE WEALTH FOR T HE INVESTORS, WHETHER THESE FEE PAID TO PORTFOLIO MANAGERS ARE CA LCULATED BASED ON PURCHASES OR SALES OF SECURITIES, OR A RETURN BA SED FEE ETC. IS NOT RELEVANT AND MATERIAL BUT THE FACT OF THE MATTER IS THAT THESE PMS CHARGES ARE NOT PAID TOWARDS COST OF ACQUISITION OF THE CAPITAL ASSETS OR FOR IMPROVEMENT OF THE CAPITAL ASSET NOR ARE THE SE FEES BEING EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH TRANSFER OF THE CAPITAL ASSET AND HENCE THE SAME CA NNOT BE ALLOWED AS DEDUCTION U/S. 48 OF THE ACT FROM THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING TO THE ASSESSEE AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET BEING SHARES. OUR ABOVE VIEW IS FORTIFIED BY THE DECISION OF JURI SDICTIONAL MUMBAI- TRIBUNAL IN THE CASE OF DEVENDRA MOTILAL KOTHARI V. DY. CIT [2011] 13 TAXMANN.COM 15 / 132 ITD 173 (MUM.), HOMI K BHABHA V. ITO (INTERNATIONAL TAXATION) [2011] 14 TAXMANN.COM 165/ 48 SOT 102 (MUM.) AND PRADEEP KUMAR HARLALKA V. ASSTT. CIT [20 11] 14 TAXMANN.COM 42/ 47 SOT 204 (URO)(MUM.). THE FINDING S OF THE MUMBAI-TRIBUNAL IN THE CASE OF DEVENDRA MOTILAL KOT HARI (SUPRA) ON IDENTICAL ISSUE ARE AS UNDER: XXXX XXXXX XXXXXXX THUS, RESPECTFULLY FOLLOWING THE AFORE-STATED DECIS ION'S OF THE CO- ORDINATE JURISDICTIONAL BENCHES OF THE MUMBAI TRIBU NAL AND OUR DETAILED DISCUSSIONS AND REASONING IN THIS ORDER, W E HOLD THAT THESE PMS EXPENSES OF RS.20,04,393/- PAID TO PORTFOLIO MA NAGERS BEING MANAGEMENT EXPENSES INCURRED WITH RESPECT TO SECURI TIES / FUNDS OF THE ASSESSEE BEING MANAGED BY PORTFOLIO MANAGERS, B EING DISALLOWED BY THE AO AND CONFIRMED BY THE CIT(A), A RE NOT ALLOWABLE AS DEDUCTION U/S 48 OF THE ACT FROM THE F ULL VALUE OF CONSIDERATION ON SALE OF SECURITIES RECEIVED OR ACC RUING TO THE - - ITA 1171/MDS/14 28 ASSESSEE . ACCORDINGLY, WE DISMISS THIS APPEAL FILE D BY THE ASSESSEE. WE ORDER ACCORDINGLY. 9.4 FURTHER, SIMILAR ISSUE CAME FOR CONSIDERATION BEFORE THE PUNE TRIBUNAL IN KRA HOLDING & TRADING (P.) LTD. VS. DCI T IN [2011] 46 SOT 19 (ITAT[PUNE]) WHEREIN HELD THAT:- 36. NON-ALLOCABILITY OF THE EXPENDITURE: IT IS AN A GREED POSITION BETWEEN THE PARTIES THE PAYMENT OF THE PORTFOLIO MA NAGEMENT FEE WAS PAID TO M/S. ENAM AND OTHERS AND THE SAME IS IN ACCORDANCE WITH THE CONTENTS OF THE BILATERAL AGREEMENT. THE S ERVICES RENDERED BY M/S. ENAM ARE ALSO UNDOUBTED. THE TWIN SERVICES R ELATING TO THE SAID PORTFOLIO MANAGEMENT INCLUDE (I) ACQUISITION O F SECURITIES FOR THE ASSESSEE-CLIENT AND (II) SALE OF THE SAID SECUR ITIES FOR THE ASSESSEE-CLIENT. THE PAYMENT OF FEE IS UNDISPUTEDLY UNSPECIFIC TO THE INDIVIDUAL SHARES/SECURITIES. IN FACT, THE REVE NUE TAKES AN ARGUMENT BEFORE US THAT TO BECOME THE PART OF THE C OST OF THE ACQUISITION OF THE ASSET, THE EXPENDITURE I.E. FEE PAID THE ENAM, HAS TO BE ASSET-SPECIFIC OR SHARE-SPECIFIC PER THE PROVISIONS OF SECTION 48 OF THE ACT. IN OUR OPINION, THE SAME IS ABSURD GIVEN THE FACTS OF THE CASE WHERE THE PORTFOLIO INVESTMENT AT TRACTS THE PROVISIONS OF SECTION 48 OF THE ACT AND THE ASSET I NVOLVED IS NOT LAND OR BUILDING AND IN FACT THE ASSETS INVOLVED AR E THE SECURITIES/SHARES/MUTUAL FUNDS ETC. IN MATTERS OF T RANSACTIONS INVOLVING SECURITIES/SHARES/MUTUAL FUNDS ETC, EXPEN DITURE/FEE PAID TO PORTFOLIO MANAGER IS NEVER EACH SHARE SPECIFIC A ND IN FACT THEY ARE PAID ON VOLUME BASED. THEREFORE, THE REVENUE'S ARGUMENT HAS TO BE REJECTED ON THE GROUND OF IMPRACTICABILITY OR NON-EXISTENT IN THIS LINE OF INVESTMENT ACTIVITY ALONE. CONSIDERING THE GENUINENESS - - ITA 1171/MDS/14 29 AND ESSENTIALITY OF THE PAYMENT OF FEE TO THE PORTF OLIO MANAGER I.E. ENAM AND UNDISPUTEDLY FOR THE PREDOMINANTLY FOR THE SAID TWIN PURPOSES OF ACQUISITION AND SALE OF THE SECURITIES, THE CLAIM HAS TO BE ALLOWED. FURTHER, IT IS AN ADMITTED FACT THAT TH E BIFURCATION OF EXPENDITURE IS NOT POSSIBLE IN THE GIVEN FACTS OF T HE CASE AND THE PAYMENT IS FOR COMPOSITE SERVICES, WHOLLY AND EXCLU SIVELY IN CONNECTION WITH TRANSFER OF THE TRANSFER OF THE SEC URITIES. THE EXPENDITURE IS UNDISPUTEDLY FOR THE TWIN PURPOS ES OF ACQUISITION OF THE SECURITIES AND THE SALES OF THE SAME. THE EX PENDITURE IS ARRIVED AT ON PROFITS SHARING BASIS, WHICH IS NOW A LLOWABLE BASIS BY THE SEBI. THE EXPENDITURE IS COMPOSITE ONE AS IT IS FOR THE BOTH THE PURPOSES. THERE IS NO BIFURCATION EITHER BY THE ASS ESSEE OR BY THE REVENUE. IN OUR OPINION, THERE IS NO REQUIREMENT OF BIFURCATION OF THE EXPENDITURE I.E. A SEGMENT TO FORM PART OF THE COST OF ACQUISITION AND OTHER SEGMENT RELATING TO TRANSFER OF SECURITIES TO REDUCE THE PROFITS AS IT IS NOT THE CASE OF THE REV ENUE THAT IT SHALL MAKE SOME DIFFERENCE FROM THE TAX POINT OF VIEW. TH EREFORE, WE RESIST FROM ENTERING INTO THAT CONTROVERSY. 37. NEXT, WE PROCEED TO EXPLAIN THE EXPRESSION 'SUC H TRANSFER' USED IN SECTION 48 OF THE ACT. THE EXPRESSION 'TRANSFER IS DEFINED SECTION 2(47) OF THE ACT AND IT IS AN INCLUSIVE ONE. HOWEVE R, THERE IS NO EXPLANATION AS TO FROM WHICH POINT THE CONCEPT OF ' TRANSFER' BEGINS. DOES IT START FROM THE POINT OF ACQUISITION OF THE ASSET/SHARE? THUS, IN OUR OPINION, THE EXPRESSION 'TRANSFER' INVOLVES VARIOUS SUB- COMPONENTS AND THE FIRST SUB-COMPONENT MUST OF PURC HASE AND POSSESSION OF THE IMPUGNED SECURITIES. UNLESS THE A SSESSEE IS IN POSSESSION OF THE ASSET, HE CANNOT TRANSFER THE SAM E. THEREFORE, THE EXPRESSION 'EXPENDITURE INCURRED WHOLLY AND EXC LUSIVELY IN CONNECTION WITH 'SUCH TRANSFER' READ WITH 'AS A RES ULT OF THE TRANSFER OF THE CAPITAL ASSET' MENTIONED IN SECTION 48 AND 4 8(I) OF THE ACT - - ITA 1171/MDS/14 30 MUST NECESSARILY ENCOMPASSES THE TRANSFER INVOLVED IN THE STAGE OF ACQUISITION OF THE SECURITIES TILL THE STAGE OF TRA NSFER INVOLVED IN THE STEP OF SALE OF THE IMPUGNED SECURITIES. SUCH AN IN TERPRETATION OF SECTION 48 OF THE ACT IS THE NECESSITY HERE TO AVOI D THE LIKELY ABSURDITY. 38. IN THE PECULIAR CIRCUMSTANCES OF THE PRESENT CA SE, IN OUR CONSIDERED OPINION THE CLAIM OF THE MUST NOT BE REJ ECTED FOR WANT OF THE EXPRESS PROVISIONS IN SECTION 48 OF THE ACT AND SUCH AN INTERPRETATION GOES WITH THE SPIRIT OF THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF SMT. SHANK UNTALA KANTILAL (SUPRA). FURTHER, AS PER THE PRINCIPLES OF ACCOUNTI NG I.E. AS-13, AS DISCUSSED ABOVE, THE EXPENDITURE OF THIS KIND IS AL LOWED TO BE LOADED TO THE COST OF ACQUISITION OF THE SECURITIES . THEREFORE, IN PRINCIPLE, THE CLAIM OF THE ASSESSEE IS ALLOWABLE U NDER THE PROVISIONS OF SECTION 48 OF THE ACT. HON'BLE SUPREM E COURT IN THE CASE OF CIT V. UP STATE INDUSTRIAL DEVELOPMENT CORP N. [1997] 225 ITR 703/ 92 TAXMAN 45WAS DEALING WITH THE ISSUE OF LOADING OF AN UNDERWRITER COMMISSION TO THE COST OF SHARES, HELD THAT THE GENERAL PRINCIPLES OF ACCOUNTING HAVE TO BE OBSERVED. REGAR DING THE OBJECTIONS OF THE REVENUE REGARDING THE QUANTIFICAT ION OF THE CLAIMS OF EXPENDITURE, IN OUR OPINION, THE JUDGMENTS OF TH E SUPREME COURT IN THE CASES OF BHARAT EARTH MOVERS LTD. (SUPRA) AND THE CALCUTTA CO LTD. V. CIT [1959] 37 ITR 1HELPS THE ASSESSEE AN D THEREFORE, THE CLAIM OF THE ASSESSEE IS ALLOWABLE. ACCORDINGLY , RELEVANT GROUND RELATING TO THE SECOND ISSUE OF THE RECALLED APPEAL S HAS TO BE ALLOWED IN FAVOUR OF THE ASSESSEE. 9.5 BEING SO, THE TWO VIEWS ARE POSSIBLE ON THIS I SSUE AND THERE IS NO CONCLUSIVE DECISION FROM TRIBUNAL ON THE ISSUE O F TREATMENT OF - - ITA 1171/MDS/14 31 PAYMENT OF PORTFOLIO MANAGEMENT SERVICES. HENCE, IT CANNOT BE SAID THAT THERE IS AN ERROR IN THE ORDER OF THE AO WITH REGARD TO TREATMENT OF PORTFOLIO MANAGEMENT SERVICES. 9.6 IT WAS HELD BY THE SUPREME COURT IN THE CASE O F MALABAR INDUSTRIAL CO. LTD. IN [2000] 243 ITR 83 (SC) WHERE IN HELD THAT:- A BARE READING OF SECTION 263 OF THE INCOME-TAX AC T, 1961, MAKES IT CLEAR THAT THE PREREQUISITE FOR THE EXERCI SE OF JURISDICTION BY THE COMMISSIONER SUO MOTU UNDER IT, IS THAT THE ORDER OF THE INCOME-TAX OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE CO MMISSIONER HAS TO BE SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS ; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENTIF THE ORDER OF THE INCOME-TAX OFFICER IS ER RONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRO NEOUS BUT IS PREJUDICIAL TO THE REVENUERECOURSE CANNOT BE HAD T O SECTION 263(1) OF THE ACT. THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED B Y THE ASSESSING OFFICER, IT IS ONLY WHEN AN ORDER IS ERRO NEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUI REMENT OF THE ORDER BEING ERRONEOUS. IN THE SAME CATEGORY FALL OR DERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. THE PHRASE PREJUDICIAL TO TH E INTERESTS OF THE REVENUE IS NOT AN EXPRESSION OF ART AND IS NO T DEFINED IN THE ACT. UNDERSTOOD IN ITS ORDINARY MEANING IT IS O F WIDE IMPORT AND IS NOT CONFINED TO LOSS OF TAX. THE SCHEME OF T HE ACT IS TO LEVY AND COLLECT TAX IN ACCORDANCE WITH THE PROVISI ONS OF THE ACT - - ITA 1171/MDS/14 32 AND THIS TASK IS ENTRUSTED TO THE REVENUE. IF DUE T O AN ERRONEOUS ORDER OF THE INCOME-TAX OFFICER, THE REVENUE IS LOS ING TAX LAWFULLY PAYABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REVENUE HAS TO BE READ IN CONJUN CTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EV ERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSI NG OFFICER, CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS O F THE REVENUE, FOR EXAMPLE, WHEN AN INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN L OSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE IN COME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIO NER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORD ER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAK EN BY THE INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. 9.6 FURTHER, HONBLE SUPREME COURT IN THE CASE OF CIT VS. MAX INDIA LTD.IN [2007] 295 ITR 282 (SC) WHEREIN HELD T HAT:- THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE IN SECTION 263 OF THE INCOME-TAX ACT, 1961,HAS TO BE R EAD IN CONJUNCTION WITH THE EXPRESSION ERRONEOUS ORDER P ASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A C ONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREA TED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FOR EX AMPLE, WHEN THE ASSESSING OFFICER ADOPTS ONE OF TWO COURSES PER MISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE, OR WHER E TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ON E VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED - - ITA 1171/MDS/14 33 AS AN ERRONEOUS ORDER PREJUDICIAL TO THE REVENUE, U NLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABL E IN LAW. 9.7 FURTHER, THE BOMBAY HIGH COURT IN THE CASE OF GABRIEL INDIA LTD. IN [1993] 203 ITR 108 (BOM) WHEREIN HELD THAT: - THE POWER OF SUO MOTU REVISION UNDER SUB-S. (1) OF S. 263 IS IN THE NATURE OF SUPERVISORY JURISDICTION AND THE SAME CAN BE EXERCISED ONLY IF THE CIRCUMSTANCES SPECIFIED THERE IN EXIST. TWO CIRCUMSTANCES MUST EXIST TO ENABLE THE COMMISSIONER TO EXERCISE POWER OF REVISION UNDER THIS SUB-SECTION, VIZ., (I) THE ORDER IS ERRONEOUS; (II) BY VIRTUE OF THE ORDER BEI NG ERRONEOUS PREJUDICE HAS BEEN CAUSED TO THE INTEREST OF THE RE VENUE. IT HAS, THEREFORE, TO BE CONSIDERED FIRSTLY AS TO WHEN AN ORDER CAN BE SAID TO BE ERRONEOUS. AN ORDER CANNOT BE TERMED AS ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. IF AN ITO ACTING IN ACCORDANCE WITH LAW MAKES CERTAIN ASSESSM ENT, THE SAME CANNOT BE BRANDED AS ERRONEOUS BY THE COMMISSI ONER SIMPLY BECAUSE ACCORDING TO HIM THE ORDER SHOULD HA VE BEEN WRITTEN MORE ELABORATELY. THIS SECTION DOES NOT VIS UALISE A CASE OF SUBSTITUTION OF JUDGMENT OF THE COMMISSIONER FOR THAT OF THE ITO, WHO PASSED THE ORDER, UNLESS THE DECISION IS H ELD TO BE ERRONEOUS. CASES MAY BE VISUALISED WHERE ITO WHILE MAKING AN ASSESSMENT EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME EITHER BY ACCEPTING THE ACCOU NTS OR BY MAKING SOME ESTIMATES HIMSELF. THE COMMISSIONER, ON PERUSAL OF THE RECORDS, MAY BE OF THE OPINION THAT THE ESTI MATE MADE BY THE OFFICER CONCERNED WAS ON THE LOWER SIDE AND, LE FT TO THE - - ITA 1171/MDS/14 34 COMMISSIONER, HE WOULD HAVE ESTIMATED THE INCOME AT A HIGHER FIGURE THAN THE ONE DETERMINED BY THE ITO. THAT WOU LD NOT VEST THE COMMISSIONER WITH POWER TO RE-EXAMINE THE ACCOU NTS AND DETERMINE THE INCOME HIMSELF AT A HIGHER FIGURE. IT IS BECAUSE THE ITO HAS EXERCISED THE QUASI-JUDICIAL POWER VEST ED IN HIM IN ACCORDANCE WITH LAW AND ARRIVED AT A CONCLUSION AND SUCH A CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE COMMISSIONER DOES NOT FEEL SATISFIED WITH THE C ONCLUSION. IT MAY BE SAID IN SUCH A CASE THAT IN THE OPINION OF T HE COMMISSIONER THE ORDER IN QUESTION IS PREJUDICIAL T O THE INTEREST OF THE REVENUE. BUT THAT BY ITSELF WILL NOT BE ENOU GH TO VEST THE COMMISSIONER WITH THE POWER OF SUO MOTU REVISION BE CAUSE THE FIRST REQUIREMENT, NAMELY, THE ORDER IS ERRONEOUS, IS ABSENT. SIMILARLY IF AN ORDER IS ERRONEOUS BUT NOT PREJUDIC IAL TO THE INTEREST OF THE REVENUE, THEN ALSO THE POWER OF SUO MOTU REVISION CANNOT BE EXERCISED. ANY AND EVERY ERRONEO US ORDER CANNOT BE SUBJECT-MATTER OF REVISION BECAUSE THE SE COND REQUIREMENT ALSO MUST BE FULFILLED. THERE MUST BE S OME PRIMA FACIE MATERIAL ON RECORD TO SHOW THAT TAX WHICH WAS LAWFULLY EXIGIBLE HAS NOT BEEN IMPOSED OR THAT BY THE APPLIC ATION OF THE RELEVANT STATUTE ON AN INCORRECT OR INCOMPLETE INTE RPRETATION A LESSER TAX THAN WHAT WAS JUST HAS BEEN IMPOSED. THE RE MUST BE MATERIAL AVAILABLE ON RECORD CALLED FOR BY THE COMM ISSIONER TO SATISFY HIM, PRIMA FADE, THAT THE AFORESAID TWO REQ UISITES ARE PRESENT. IF NOT, HE HAS NO AUTHORITY TO INITIATE PR OCEEDINGS FOR REVISION. EXERCISE OF POWER OF SUO MOTU REVISION UND ER SUCH CIRCUMSTANCES WILL AMOUNT TO ARBITRARY EXERCISE OF POWER. IT IS WELL-SETTLED THAT WHEN EXERCISE OF STATUTORY POWER IS DEPENDENT UPON THE EXISTENCE OF CERTAIN OBJECTIVE FACTS, THE AUTHORITY BEFORE EXERCISING SUCH POWER MUST HAVE MATERIALS ON RECORDS TO - - ITA 1171/MDS/14 35 SATISFY IT IN THAT REGARD. IF THE ACTION OF THE AUT HORITY IS CHALLENGED BEFORE THE COURT, IT WOULD BE OPEN TO TH E COURTS TO EXAMINE WHETHER THE RELEVANT OBJECTIVE FACTORS WERE AVAILABLE FROM THE RECORDS CALLED FOR AND EXAMINED BY SUCH AU THORITY. ANY OTHER VIEW IN THE MATTER WILL AMOUNT TO GIVING UNBR IDLED AND ARBITRARY POWER TO REVISING AUTHORITY TO INITIATE P ROCEEDINGS FOR REVISION IN EVERY CASE AND START RE-EXAMINATION AND FRESH ENQUIRIES IN MATTERS WHICH HAVE ALREADY BEEN CONCLU DED UNDER THE LAW. IT IS QUASI-JUDICIAL POWER HEDGED WITH LIM ITATION AND HAS TO BE EXERCISED SUBJECT TO THE SAME AND WITHIN ITS SCOPE AND AMBIT. SO FAR AS CALLING FOR THE RECORDS AND EX AMINING THE SAME IS CONCERNED, UNDOUBTEDLY IT IS AN ADMINISTRAT IVE ACT, BUT ON EXAMINATION, TO CONSIDER, OR IN OTHER WORDS, T O FORM AN OPINION THAT THE PARTICULAR ORDER IS ERRONEOUS IN S O FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, IS A QU ASI-JUDICIAL ACT BECAUSE ON THIS CONSIDERATION OR OPINION THE WHOLE MACHINERY OF REEXAMINATION AND RECONSIDERATION OF AN ORDER OF AS SESSMENT, WHICH HAS ALREADY BEEN CONCLUDED AND CONTROVERSY AB OUT WHICH HAS BEEN SET AT REST, IS AGAIN SET IN MOTION. IT IS AN IMPORTANT DECISION AND THE SAME CANNOT BE BASED ON THE WHIMS OR CAPRICE OF THE REVISING AUTHORITY. THERE MUST BE MATERIALS AVAILABLE FROM RECORDS CALLED FOR BY THE COMMISSIONER. PARASHURAM POTTERY WORKS CO. LTD. VS. ITO 1977 CTR (SC) 32 : (1977) 10 6 ITR 1 (SC), SIRPUR PAPER MILLS LTD. VS. ITO 1977 CTR (AP) 138 : (1978) 114 ITR 404 (AP), DAWLEE DADABHOY & CO. VS. S.P. JA M & ANR. (1957) 31 ITR 872 (CAL) AND RUSSELL PROPERTIES PVT. LTD. VS. A. CHOWDHURY, ADDL. CIT (1977) 109 ITR 229 (CAL) RELIE D ON. - - ITA 1171/MDS/14 36 9.8 IN THIS VIEW, WE ARE OF THE OPINION THAT THERE IS A DIVERGENT VIEW ON THE ISSUE OF TREATMENT OF PAYMENT OF PORTFOLIO M ANAGEMENT SERVICES WHILE COMPUTING THE COST OF ACQUISITION OF THE CAPITAL ASSET U/S.48 OF THE ACT, THIS VIEW CANNOT BE CONSIDERED U /S.263 OF THE ACT. 10. IN THE RESULT, THE APPEAL OF ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED ON 26 TH APRIL, 2017 AT CHENNAI. SD/- SD/- ( $ % . & '( ) ( ) * + , ) DUVVURU RL REDDY - ./012304556037- 8 9: /JUDICIAL MEMBER ! 9:;<<5=1>01>?@AB@3 )8 /CHENNAI, C9 /DATED, THE 26 TH APRIL , 2017. K S SUNDARAM 9D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H- /CIT(A) 4. H /CIT 5. FIJ K /DR 6. J(L /GF.