ACIT, Pune V. M/S SERUM INTERNATIONAL LTD, Pune

ITA 1617/PUN/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88944 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 27-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: H P MAHAJANI
• Keywords: Business income; Cost of acquisition
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.1576/PN/2012 (ASSESSMENT YEAR : 2007-08) SERUM INSTITUTE OF INDIA LTD. ( ERSTWHILE SERUM INTERNATIONAL LTD. ), SAROSH BHAVAN, 16-B/1, DR. AMBEDKAR ROAD, PUNE 411 001. PAN : AACCS3929D . APPELLANT VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE-6, PUNE. . RESPONDENT ITA NO.1617/PN/2012 (ASSESSMENT YEAR : 2007-08) ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-6, PUNE. . APPELLANT VS. M/S SERUM INTERNATIONAL LTD., SAROSH BHAVAN, 16-B/1, DR. AMBEDKAR ROAD, PUNE 411 001. PAN : AACCS3929D . RESPONDENT ASSESSEE BY : MR. H. P. MAHAJANI DEPARTMENT BY : MR. RAJESH DAMOR DATE OF HEARING : 11-02-2015 DATE OF PRONOUNCEMENT : 18-02-2015 ORDER PER G. S. PANNU, AM THE CAPTIONED ARE CROSS-APPEALS PREFERRED BY THE AS SESSEE AND THE REVENUE FOR ASSESSMENT YEAR 2007-08 WERE HEARD TOGE THER AND ARE BEING DISPOSED-OFF BY WAY OF A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. THE CAPTIONED CROSS-APPEALS ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, PUNE DATE D 29.11.2011 WHICH, IN ITA NO.1576/PN/2012 ITA NO.1617/PN/2012 TURN, HAS ARISEN FROM AN ORDER DATED 01.12.2009 PAS SED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. FIRST, WE SHALL TAKE-UP THE APPEAL OF THE ASSESS EE WHEREIN THE FOLLOWING GROUNDS OF APPEAL HAVE BEEN RAISED :- 1. CONFIRMING THE DISALLOWANCE OF THE PROVISION F OR LEAVE ENCASHMENT AMOUNTING TO RS.5,36,234/- ASCERTAINED ON THE BASIS OF ACTUARIAL VALUATION FOR THE ELIGIBLE EMPLOYEES OF THE APPELLA NT COMPANY. 2. CONFIRMING THE DISALLOWANCE OF THE EXPENSES CLA IMED ON ACCOUNT OF THE PORTFOLIO MANAGEMENT SERVICES (PMS) FEES AMOUNTING TO RS.6,65,593/-. 3. IN SO FAR AS THE FIRST GROUND OF APPEAL IS CONCE RNED, IT RELATES TO CLAIM OF THE ASSESSEE FOR DEDUCTION OF A SUM OF RS.5,36,234/ - REPRESENTING PROVISION FOR LEAVE ENCASHMENT, WHICH HAS BEEN ASCERTAINED ON THE BASIS OF ACTUARIAL VALUATION, WHICH WAS ADMITTEDLY DIFFERENT THAN THE ONE DESCRIBED IN SECTION 43B(F) OF THE ACT. 4. THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTE D THAT THE AFORESAID ISSUE IS LIABLE TO BE DECIDED AGAINST THE ASSESSEE FOLLOWING THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CA SE FOR EARLIER ASSESSMENT YEARS. IN THIS CONTEXT, A REFERENCE HAS BEEN MADE TO THE DECISION OF THE TRIBUNAL DATED 29.05.2009 IN THE CASE OF THE ASSESS EE VIDE ITA NO.83 & 1326/PN/2006 FOR ASSESSMENT YEARS 2002-03 & 2003-04 RESPECTIVELY. IT WAS ALSO CONTENDED THAT IN THE CASE OF SERUM INSTITUTE OF INDIA LTD. IN ITA NO.17/PN/2012 AND OTHERS DATED 10.04.2014 ALSO THE SAID ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE. AS THE AFORESAID PRE CEDENTS CONTINUE TO HOLD THE FIELD, WE HEREBY AFFIRM THE ACTION OF THE LOWER AUTHORITIES IN DISALLOWING ASSESSEES CLAIM FOR DEDUCTION ON ACCOUNT OF PROVIS ION FOR LEAVE ENCASHMENT AMOUNTING TO RS.5,36,234/-. THUS, ON THIS ASPECT A SSESSEE FAILS. ITA NO.1576/PN/2012 ITA NO.1617/PN/2012 5. THE NEXT GROUND OF APPEAL RELATES TO A DEDUCTION OF RS.6,65,593/- ON ACCOUNT OF PORTFOLIO MANAGEMENT SERVICES (PMS) FEE PAID BY THE ASSESSEE WITH RESPECT TO THE CAPITAL GAINS DERIVED ON SALE O F SHARES/SECURITIES. 6. ON THIS ASPECT ALSO, IT WAS A COMMON POINT BETWE EN THE PARTIES THAT THE SAID ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY WAY OF THE DECISION OF THE TRIBUNAL IN ITA NO.17/PN/2012 AND OTHERS IN THE CAS E OF SERUM INSTITUTE OF INDIA LTD. DATED 10.04.2014 (SUPRA), WHEREIN THE RE LEVANT DISCUSSION IS AS UNDER :- 11. GROUNDS OF APPEAL NO.2 BY THE ASSESSEE READS A S UNDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) ERRED IN REFUSING TO TREAT PMS FEES PAI D OF RS.34,63,969/- AS PART OF EITHER OF COST OF ACQUISITION/IMPROVEMEN T OR AS COST OF TRANSFER FOR WORKING INCOME FROM CAPITAL GAIN. IN ANY EVENT, HE OUGHT TO HAVE ACCEPTED THE ALTERNA TE CONTENTION OF THE APPELLANT THAT THERE WAS, TO THAT EXTENT, TRANSFER BY OVERRIDING TITLE OF CONSIDERATION/INCOME ARISING ON SUCH SALE. 11.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSE SSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF PORTFOLIO MAN AGEMENT SCHEME FEES AMOUNTING TO RS.32,49,729/- OUT OF THE CAPITAL GAIN S DERIVED ON SALE OF SHARES/SECURITIES. ON BEING ASKED AS TO WHY SUCH EX PENDITURE SHOULD NOT BE DISALLOWED WHILE WORKING OUT THE RESULTANT CAPITAL GAINS, THE ASSESSEE SUBMITTED THAT THE SAID EXPENDITURE HAVING BEEN INC URRED FOR MANAGING THE INVESTMENT PORTFOLIO OF THE ASSESSEE BY EXPERTS IN THE FIELD WAS NOTHING BUT COST ASSOCIATED WITH BUYING OF GOOD SCRIPS AND SELL ING THE SAME AT RIGHT TIME AND THEREFORE, IT CONSTITUTED COST OF INVESTMENT. H OWEVER, THE ASSESSING OFFICER DID NOT FIND ANY MERIT IN THE CONTENTION OF THE ASSESSEE. HE OBSERVED THAT AS PER SEC.48, ONLY SUCH EXPENSES ARE DEDUCTIB LE FROM THE SALE CONSIDERATION OF AN ASSET WHICH ARE WHOLLY AND EXCL USIVELY INCURRED IN CONNECTION WITH THE TRANSFER OF THE ASSET. ACCORDIN G TO THE ASSESSING OFFICER, PORTFOLIO MANAGEMENT CONSULTANTS ARE SERVICE INTERM EDIARIES WHO CARRY OUT THE RESEARCH AND ANALYSIS ABOUT THE PROFITABILITY OF TH E SCRIPS OF VARIOUS COMPANIES AND KEEP TRACK ON THE MARKET CONDITIONS AND THE FEE S PAID BY THE ASSESSEE TO SUCH PROFESSIONAL MANAGERS COULD NOT BE SAID TO HAV E BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF TRANSFER OF THE ASSET. HOLDING SO, THE PMS FEES CLAIMED BY THE ASSESSEE AT RS.34,63,969/- FROM THE COST OF INVESTMENT WAS DISALLOWED BY HIM WHILE COMPUTING THE CAPITAL G AINS. 11.2 IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF T HE AO BY HOLDING THAT THE EXPENDITURE ON ACCOUNT OF PMS FEES IS NEITHER COS T OF ACQUISITION OF THE SHARES IN QUESTION NOR COST OF IMPROVEMENT THERE OF NOR INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF ASSE TS AND THEREFORE THE AO IS JUSTIFIED IN REJECTING THE CLAIM OF DEDUCTION OF TH E FEES OF RS.34,63,969/- WHILE COMPUTING THE CAPITAL GAIN. ITA NO.1576/PN/2012 ITA NO.1617/PN/2012 11.3 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE AS SESSEE IS IN APPEAL BEFORE US. 12. AFTER HEARING BOTH THE SIDES WE FIND AN IDENTIC AL ISSUE HAD COME UP BEFORE THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF KRA HOLDING AND TRADING INVESTMENT PVT. LTD. VS. DCIT. WE FIND THE TRIBUNAL VIDE ITA NO.703/PN/2012 ORDER DATED 19-09-2013 FOR A.Y. 2008 -09 WHILE DECIDING AN IDENTICAL ISSUE HAS OBSERVED AS UNDER : 9. IN THE APPEAL OF THE ASSESSEE, THE SOLITARY ISS UE IS WITH REGARD TO THE ACTION OF THE CIT(A) IN CONFIRMING THE STAND OF THE ASSESSING OFFICER THAT FEES PAID TO ENAM ASSET MANAGEMENT COM PANY PVT. LTD. WAS NOT AN ALLOWABLE EXPENDITURE IN COMPUTING APPEL LANTS INCOME WHETHER UNDER THE HEAD BUSINESS OR UNDER THE HEAD CAPITAL GAINS. 10. IN THIS REGARD, THE ASSESSING OFFICER NOTICED T HAT ASSESSEE HAD INCURRED EXPENDITURE OF RS.2,79,31,009/- REPRESENTI NG PAYMENTS TO ENAM ASSET MANAGEMENT COMPANY PVT. LTD. AS PORTFOLI O MANAGEMENT FEES IN TERMS OF AN INVESTMENT MANAGEMEN T AGREEMENT DATED 01.01.2005. FOLLOWING HIS DECISION FOR THE EA RLIER ASSESSMENT YEARS I.E. ASSESSMENT YEAR 2004-05 TO 2007-08, THE ASSESSING OFFICER DISALLOWED THE EXPENSE AGAINST WHICH ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) NOTED THAT SIMILAR ISSUE FOR ASSESSMENT YEARS 2004-05 TO 2006-07 WAS ADJUDICATED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE VIDE ORDER DATED 31 ST MAY, 2011 (SUPRA). HOWEVER, THE CIT(A) NOTICED THA T SUBSEQUENTLY MUMBAI BENCH OF THE TRIBUNAL IN THE CA SE OF ONE SHRI HOMI K. BHABHA VS. ITO IN ITA NO. 3287/MUM/2009 DEC IDED A SIMILAR ISSUE AGAINST THE ASSESSEE AND THEREFORE HE HELD TH E ISSUE AGAINST THE ASSESSEE. IN VIEW OF THE AFORESAID, ASSESSEE IS IN FURTHER APPEAL BEFORE US. 11. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SIMILAR STAND OF THE CIT(A) IN THE A SSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 CAME UP BEFORE THE TRIB UNAL IN ITA NO. 356 & 240/PN/2011 DATED 25.07.2012 AND AFTER CONSID ERING THE DIVERGENT VIEW OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SHRI HOMI K. BHABHA (SUPRA) WHICH HAS BEEN RELIED UPON B Y THE CIT(A), THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. I T WAS, THEREFORE, CONTENDED THAT THE ISSUE IS ACCORDINGLY LIABLE TO B E DECIDED IN FAVOUR OF THE ASSESSEE. 12. THE LEARNED CIT(DR) APPEARING FOR THE REVENUE H AS NOT CONTROVERTED THE FACTUAL MATRIX BROUGHT OUT BY THE LEARNED COUNSEL SO HOWEVER SHE HAS RELIED UPON THE ORDER OF THE CIT(A) IN SUPPORT OF THE CASE OF THE REVENUE. 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND ALSO THE PRECEDENT IN THE ASSESSEES OWN CASE BY WAY OF THE ORDER OF THE TRIBUNAL DATED 25.07.2012 (SUPRA). IN THE SAID CASE , THE TRIBUNAL CONSIDERED THE ALLOWABILITY OF EXPENDITURE INCURRED BY WAY OF PAYMENT OF FEES OF ENAM ASSET MANAGEMENT COMPANY PVT. LTD. IN TERMS OF THE INVESTMENT AGREEMENT DATED 01.01.2005, WHICH IS PRE CISELY THE ISSUE BEFORE US ALSO. THE TRIBUNAL REFERRED TO ITS EARLIE R DECISION IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 VID E ORDER DATED 31 ST MAY, 2011 (SUPRA) AND NOTICED THAT THE ISSUE HAS B EEN DECIDED IN FAVOUR OF THE ASSESSEE. THEREAFTER, THE TRIBUNAL NO TED THAT AGAINST THE DECISION OF THE TRIBUNAL DATED 31 ST MAY, 2011 (SUPRA), REVENUE PREFERRED AN APPEAL BEFORE THE HONBLE SUPREME COUR T ONLY ON THE ITA NO.1576/PN/2012 ITA NO.1617/PN/2012 ISSUE TREATMENT OF INCOME FROM THE SALE OF SHARES A S CAPITAL GAIN OR BUSINESS INCOME AND THAT THE REVENUE HAD NOT PREF ERRED ANY APPEAL AGAINST THE ORDER OF THE TRIBUNAL ALLOWING THE CLAI M OF DEDUCTION OF EXPENDITURE BY WAY OF PORTFOLIO MANAGEMENT FEE REPR ESENTING PAYMENTS TO ENAM ASSET MANAGEMENT COMPANY PVT. LTD. WHILE COMPUTING THE INCOME UNDER THE HEAD CAPITAL GAINS . AFTER NOTICING THE AFORESAID THE TRIBUNAL CONCLUDED AS UNDER IN PA RA 11 OF ITS ORDER DATED 25.07.2012 :- 11. THE DECISION OF THE MUMBAI BENCH OF THE TRIBUN AL IN THE CASE OF HOMI K. BHABHA VS. ITO WAS BROUGHT TO OUR NOTICE BY THE LEARNED DR WHEREIN IT WAS HELD THAT PORTFOLIO MANAGEMENT SC HEME FEES IS NOT DEDUCTIBLE AGAINST CAPITAL GAINS. THE DECISION OF T HE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF KRA HOLDING & TRADING WAS N OT FOLLOWED BY THE MUMBAI BENCH IN THE ABOVE CITED DECISION. THE MUMBA I BENCH FOLLOWING OTHER DECISIONS OF THE COORDINATE BENCHES OF THE TRIBUNAL DECLINED TO FOLLOW THE DECISION IN THE CASE OF KRA HOLDING & TRADING (SUPRA). IT IS THE SETTLED PROPOSITION OF LAW THAT WHEN TWO VIEW ARE POSSIBLE ON THE SAME ISSUE THE VIEW WHICH IS FAVOUR ABLE TO THE ASSESSEE HAS TO BE FOLLOWED. [CIT VS. VEGETABLE PRO DUCTS 88 ITR 192 (SC)]. FURTHER, IN THE INSTANT CASE THE TRIBUNAL IN ASSESSEES OWN CASE HAS ALREADY TAKEN A VIEW IN FAVOUR OF THE ASSESSEE. SINCE THE AO & CIT(A) HAVE FOLLOWED THE ORDER FOR EARLIER YEAR IN THE CASE OF THE ASSESSEE AND SINCE THE ORDER OF CIT(A) FOR EARLIER YEAR HAS BEEN REVERSED BY THE TRIBUNAL, THEREFORE, UNLESS AND UNT IL THE DECISION OF THE TRIBUNAL IS REVERSED BY A HIGHER COURT, THE SAME IN OUR OPINION SHOULD BE FOLLOWED. IN THIS VIEW OF THE MATTER, WE RESPECT FULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A. Y. 2004-05 ALLOW THE CLAIM OF THE PORTFOLIO MANAGEMENT FEES AS AN AL LOWABLE EXPENDITURE. THE GROUND RAISED BY THE ASSESSEE IS A CCORDINGLY ALLOWED. 14. FOLLOWING THE AFORESAID PRECEDENT, WHICH HAS CO NSIDERED THE SIMILAR OBJECTIONS OF THE CIT(A), IN OUR CONSIDERED OPINION, THE ORDER OF THE CIT(A) IN THE PRESENT CASE IS UNTENABLE AND WE ACCORDINGLY SET- ASIDE THE SAME AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION. 12.1 RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL IN THE CASE OF KRA HOLDING AND TRADING PVT. LTD. (SUPRA) WE HOLD THAT THE PMS FEES PAID BY THE ASSESSEE IS AN ALLOWABLE DEDUCTION FROM THE CAPITAL GAINS. GROUND APPEAL NO.2 BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 7. FOLLOWING THE AFORESAID PRECEDENT, THE ORDER OF THE CIT(A) ON THIS ASPECT IS SET-ASIDE AND THE ASSESSING OFFICER IS DI RECTED TO ALLOW APPROPRIATE RELIEF TO THE ASSESSEE IN TERMS OF THE DECISION OF THE TRIBUNAL IN THE CASE OF SERUM INSTITUTE OF INDIA LTD. (SUPRA). 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ITA NO.1576/PN/2012 ITA NO.1617/PN/2012 9. IN THE CROSS-APPEAL OF THE REVENUE, THE ONLY DIS PUTE IS WITH REGARD TO THE COMPUTATION OF DEDUCTION AVAILABLE TO THE ASSES SEE U/S 80-IA OF THE ACT WITH RESPECT TO THE PROFITS AND GAINS OF THE WINDMI LL UNDERTAKING. THE ONLY POINT OF DIFFERENCE BETWEEN THE ASSESSEE AND THE RE VENUE IS WITH REGARD TO THE ADOPTION OF THE INITIAL ASSESSMENT YEAR FOR THE PURPOSES OF SECTION 80- IA(5) OF THE ACT. 10. ON THIS ASPECT, IT WAS A COMMON POINT BETWEEN T HE PARTIES THAT SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN THE ASSESSE ES OWN CASE FOR ASSESSMENT YEARS 2004-05 TO 2006-07 VIDE ITA NOS.29 0 TO 292/PN/2010 DATED 28.09.2011. THE TRIBUNAL AFTER FOLLOWING THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPI NNING MILLS (P) LTD. VS. ACIT, 38 DTR 57 (MADRAS) UPHELD THE PLEA OF THE ASS ESSEE. THE CIT(A) HAS ALSO ALLOWED THE PLEA OF THE ASSESSEE FOLLOWING THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2004-0 5 TO 2006-07 (SUPRA). 11. BEFORE US, IT WAS ALSO A COMMON POINT BETWEEN T HE PARTIES THAT THE AFORESAID PRECEDENT CONTINUES TO HOLD THE FIELD AND THEREFORE WE HEREBY AFFIRM THE ULTIMATE CONCLUSION OF THE CIT(A) HAVING REGARD TO THE DECISION OF THE TRIBUNAL DATED 28.09.2011 (SUPRA). THUS, ON THIS A SPECT, REVENUE FAILS. 12. RESULTANTLY, WHEREAS THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 18 TH FEBRUARY, 2015. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 18 TH FEBRUARY, 2015. SUJEET ITA NO.1576/PN/2012 ITA NO.1617/PN/2012 COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-III, PUNE; 4) THE CIT-III, PUNE; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE