DCIT, Pune V. ADURJEE & BROS P. LTD, Pune

ITA 2212/PUN/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6701 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 07-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M S VERMA
• Assessee Lawyers: R D ONKAR; ROOPAK
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.2304/PN/2012 (ASSESSMENT YEAR 2009-10) ADURJEE & BROS. PVT. LTD., SAROSH BHAVAN, 16-B/1, DR. AMBEDKAR ROAD, PUNE 411 001 PAN NO. AABCA4890J .. APPELLANT VS. DCIT, CIRCLE-1(1), PUNE .. RESPONDENT ITA NO.2212/PN/2012 (ASSESSMENT YEAR 2009-10) DCIT, CIRCLE-1(1), PUNE .. APPELLANT VS. ADURJEE & BROS. PVT. LTD., SAROSH BHAVAN, 16-B/1, DR. AMBEDKAR ROAD, PUNE 411 001 PAN NO. AABCA4890J .. RESPONDENT ASSESSEE BY : SHRI R.D. ONKAR & SHRI ROOPAK REVENUE BY : MS. M.S. VERMA DATE OF HEARING : 12-06-2014 DATE OF PRONOUNCEMENT : 13-06-2014 ORDER PER R.K. PANDA, AM : THESE ARE CROSS APPEALS. THE FIRST ONE IS FILED BY THE ASSESSEE AND THE SECOND ONE FILED BY THE REVENUE AND ARE DIRECTE D AGAINST THE ORDER DATED 19-06-2012 OF THE CIT(A)-I, PUNE RELATING TO THE ASSESSMENT YEAR 2009-10. FOR THE SAKE OF CONVENIENCE, THESE WERE H EARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2 ITA NO.2304/PN/2012 (BY ASSESSEE) : 2. IN GROUND OF APPEAL NO.1 THE ASSESSEE HAS CHALLE NGED THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.2,2 9,750/- ON ACCOUNT OF PROVISION MADE FOR LEAVE ENCASHMENT ON ACCRUAL BASI S. 2.1 THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT THE ABOVE GROUND IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SISTER CONCERN NAMELY SERUM INSTITUTE OF INDIA LTD. IN VIEW OF THE ABOVE, THE FIRST GROUND BY THE ASSESSEE IS DISMISSED. 3. IN GROUND OF APPEAL NO.2 THE ASSESSEE HAS CHALLE NGED THE DISALLOWANCE OF RS.5,74,397/- U/S.14A MADE BY THE A SSESSING OFFICER AND UPHELD BY THE CIT(A). 3.1 THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS THE ABOVE GROUND FOR WHICH THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO OB JECTION. ACCORDINGLY, THE ABOVE GROUND BY THE ASSESSEE IS DI SMISSED AS NOT PRESSED. ITA NO.2212/PN/2012 (BY REVENUE) : 4. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS ING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OBSERVED THAT THE ASSESSEE HAD INCURRED EXPENDITURE OF RS.25,97,933/- ON ACCOUNT OF PMS FEE S. HE OBSERVED THAT THE INCOME FROM PMS ACTIVITY HAS BEEN SHOWN BY THE ASSESSEE AS INCOME FROM CAPITAL GAIN AND PART OF WHICH BELONGING TO LO NG TERM CAPITAL GAIN IS TREATED AS EXEMPT AND PART OF WHICH WAS SUBJECTE D TO TAX AS SHORT TERM CAPITAL GAIN. HE OBSERVED THAT THE ASSESSEE HAS DI SALLOWED THE PAYMENT 3 OF PMS FEES UNDER THE HEAD INCOME FROM BUSINESS. HOWEVER, THE ASSESSEE HAS CLAIMED THE PMS FEES AS EXPENDITURE UN DER THE HEAD CAPITAL GAINS. THE ASSESSING OFFICER, THEREFORE, ASKED TH E ASSESSEE TO JUSTIFY ITS CLAIM UNDER THE HEAD CAPITAL GAIN. REJECTING THE EXPLANATION GIVEN BY THE ASSESSEE THE ASSESSING OFFICER DISALLOWED THE C LAIM OF DEDUCTION OF SUCH PMS FEES FROM THE CAPITAL GAIN. 5. IN APPEAL THE LD.CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER : 5. 3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE LAW AS ARE APPARENT FROM THE RECORD. THE GROUND NO. 2 RELATE S TO DISALLOWANCE OF EXPENDITURE OF RS.25,97,933 CLAIMED U/S 48 AGAINST TH E SHORT TERM CAPITAL GAINS DECLARED IN THE RETURN ON SALE OF SHARES ETC. TH E ASSESSING OFFICER HAS NOT ALLOWED THE SAME FOR THE REASONS DISCUSSED IN THE ASSE SSMENT ORDER WHICH HAS BEEN QUOTED IN PARA 5.1 ABOVE. AS AGAINST TH AT THE CLAIM HAS BEEN MADE BY THE APPELLANT THAT THESE ARE PART OF TH E ACTIVITY OF SHARE INVESTMENT AND THE PAYMENT MADE ARE REQUIRED TO BE R EDUCED FROM THE SALE CONSIDERATION OR ADDED TO THE COST, AS THE CASE MAY BE. THE APPELLANT HAS ALSO PLACED RELIANCE ON THE DECISION OF ITAT, PUNE GIVEN IN THE CASE OF KRA HOLDINGS & TRADING PVT. LTD. AND YASHMIN MODY, QU OTED SUPRA. IT IS A FACT THAT THE FINDING OF THE ASSESSING OFFICER IN THE A FORESAID CASE BY DISALLOWING THE PMS CHARGES, UNDER THE HEAD CAPITAL GAINS, THOUGH CONFIRMED BY MY PREDECESSOR IN THE CASE OF KRA HOLDING S & TRADING PVT. LTD HAS BEEN ALLOWED BY THE HON'BLE ITAT, PUNE. S INCE THIS IS A BINDING PRECEDENT AND THEREFORE, THE SAME IS FOLLOWED FOR AL LOWING THE CLAIM OF THE APPELLANT. GROUND NO. 2 THEREFORE, IS ALLOWED. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVE NUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD CIT(A) ERRED IN DECIDING APPEAL THAT PORTFOLIO MANA GEMENT SERVICES (PMS) FEES PAID AGAINST STCG IS ALLOWABLE EXPENDITURE U/S. 48 NOT FOLLOWING THE JUDGMENTS OF ITAT IN THE CASE OF SHRI HOMI BHABHA VS. ITO (ITAT MUMBAI) ITA NO. 3287/MUM/2009, SHRI PRADEEP KUMAR HARALKA V S. ACIT (ITAT MUMBAI) ITA NO. 4501/MUM/2010 AND DEVENDRA MOTILAL KOTHARI VS. DCIT (2011) 50 DTR 369 (MUM). 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD CIT(A) ERRED IN DECIDING THAT PORTFOLIO MANAGEMENT SERVICES (PMS) FEES PAID AGAINST STCG IS ALLOWABLE EXPENDITURE RELYING ON HON'BLE ITAT, PUNE, DECISION IN THE CASE OF KRS HOLDING 85 TRADING PVT. L TD., ALTHOUGH THE SAID JUDGMENT WHICH WAS BASED ON JUDGMENT OF HON'BLE BOMBA Y HIGH COURT IN THE CASE OF CIT VS. SHAKUNTLA KANTILAL (1991) 190 ITR 56 IS SUBSEQUENTLY 4 OVERRULED BY BOMBAY HIGH COURT ITSELF IN THE CASE OF CIT VS. ROSHAN BABU, 275 ITR 231 (BOM.) 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CIT(A) ERRED IN DECIDING APPEAL THAT DEMAT MAINTENA NCE CHARGES IS ALLOWABLE EXPENDITURE U/S. 48 OF THE ACT IN VIEW OF THE JUDGMENT OF ITAT IN THE CASE OF ACIT VS. SHRI RAGHUPATI SINGHANIA (ITAT K OLKATTA) ITA NO. 1761/KOL/2010. 4. THE APPELLANT PRAYS THAT THE ORDER OF THE LD CIT(A) BE VACATED AND THAT OF THE ASSESSING OFFICER'S ORDER MAY BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AME ND, MODIFY ANY OF THE ABOVE GROUNDS RAISED, ANY OTHER GROUNDS AT THE TIME OF PROCEEDINGS BEFORE THE HONBLE TRIBUNAL WHICH MAY PLEASE BE GRANTED. 7. THE LD COUNSEL FOR THE ASSESSEE AT THE OUTSET SU BMITTED THAT THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY T HE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF KRA HOLDING AN D TRADING PVT. LTD. VS. DCIT AND VICE-VERSA VIDE ITA NO.703/PN/2012 & I TA NO.665/PN/2012 ORDER DATED 19-09-2013 FOR A.Y. 2008 -09 WHEREIN IT HAS BEEN HELD THAT THE CLAIM OF PORTFOLIO MANAGEMENT FE ES IS AN ALLOWABLE EXPENDITURE FROM SUCH CAPITAL GAIN. 8. THE LD. DEPARTMENTAL REPRESENTATIVE FAIRLY CONCE DED THAT THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE DEC ISION OF THE TRIBUNAL IN THE CASE OF KRA HOLDING AND TRADING PVT. LTD. (SUPR A). 9. AFTER HEARING BOTH THE SIDES, WE FIND THE PUNE B ENCH OF THE TRIBUNAL IN THE CASE OF KRA HOLDING AND TRADING PVT . LTD. (SUPRA) 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 COMPANY PVT. LTD. WAS NOT AN ALLOWABLE EXPENDITURE IN COMPUTING APPELLANTS 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 PORTFOLIO MAN AGEMENT FEES IN TERMS OF AN INVESTMENT MANAGEMENT AGREEMENT DATED 01.01.2 005. FOLLOWING HIS 5 DECISION FOR THE EARLIER ASSESSMENT YEARS I.E. ASSE SSMENT YEAR 2004-05 TO 2007-08, THE ASSESSING OFFICER DISALLOWED THE EXPEN SE 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 A DJUDICATED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE IN FAVOUR OF TH E ASSESSEE AND AGAINST THE REVENUE VIDE ORDER DATED 31 ST MAY, 2011 (SUPRA). HOWEVER, THE CIT(A) NOTICED THAT SUBSEQUENTLY MUMBAI BENCH OF THE TRIBU NAL IN THE CASE OF ONE SHRI HOMI K. BHABHA VS. ITO IN ITA NO. 3287/MUM/200 9 DECIDED 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 ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 CAME UP BEFORE THE TRIBUNAL IN ITA NO. 356 & 240/PN/2011 DATED 25.07.2012 AND AFTER CONSIDERING THE DIVERGEN T VIEW OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SHRI HOMI K. B HABHA (SUPRA) WHICH HAS BEEN RELIED UPON BY THE CIT(A), THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. IT WAS, THEREFORE, CONTENDED THAT THE ISS UE IS ACCORDINGLY LIABLE TO BE 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 COUNS EL SO HOWEVER SHE HAS RELIED UPON THE ORDER OF THE CIT(A) IN SUPPORT OF T HE 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 TRI BUNAL CONSIDERED THE ALLOWABILITY OF EXPENDITURE INCURRED BY WAY OF PAYM ENT OF FEES OF ENAM ASSET MANAGEMENT COMPANY PVT. LTD. IN TERMS OF THE INVEST MENT AGREEMENT DATED 01.01.2005, WHICH IS PRECISELY THE ISSUE BEFORE US ALSO. THE TRIBUNAL REFERRED TO ITS EARLIER DECISION IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004- 05 VIDE ORDER DATED 31 ST MAY, 2011 (SUPRA) AND NOTICED THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. THEREAFTER, THE TRIBUNAL NOTED 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 ISSUE TREATMENT OF INCOME FROM THE SALE OF SHARES AS CAP ITAL GAIN OR BUSINESS INCOME AND THAT THE REVENUE HAD NOT PREFERRED ANY APPEAL AGAINST THE ORDER OF THE TRIBUNAL ALLOWING THE CLAIM OF DEDUCTION OF EXPENDITURE BY WAY OF PORTFOLIO MANAGEMENT FEE REPRESENTING PAYMENTS TO E NAM ASSET MANAGEMENT COMPANY PVT. LTD. WHILE COMPUTING THE IN COME UNDER THE HEAD CAPITAL GAINS. AFTER NOTICING THE AFORESAID THE T RIBUNAL CONCLUDED AS UNDER IN PARA 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 SCHEME FEES IS NOT D EDUCTIBLE AGAINST CAPITAL GAINS. THE DECISION OF THE PUNE BENCH OF THE TRIBUN AL IN THE CASE OF KRA HOLDING & TRADING WAS NOT FOLLOWED BY THE MUMBAI BE NCH IN THE ABOVE CITED DECISION. THE MUMBAI BENCH FOLLOWING OTHER DECISION S OF THE COORDINATE BENCHES OF THE TRIBUNAL DECLINED TO FOLLOW THE DECI SION IN THE CASE OF KRA HOLDING & TRADING (SUPRA). IT IS THE SETTLED PROPOS ITION OF LAW THAT WHEN TWO VIEW ARE POSSIBLE ON THE SAME ISSUE THE VIEW WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED. [CIT VS. VEGETABLE PRO DUCTS 88 ITR 192 (SC)]. FURTHER, IN THE INSTANT CASE THE TRIBUNAL IN ASSESS EES OWN CASE HAS ALREADY TAKEN A VIEW IN FAVOUR OF THE ASSESSEE. SINCE THE A O & CIT(A) HAVE FOLLOWED THE ORDER FOR EARLIER YEAR IN THE CASE OF THE ASSES SEE AND SINCE THE ORDER OF CIT(A) FOR EARLIER YEAR HAS BEEN REVERSED BY THE TR IBUNAL, THEREFORE, UNLESS AND UNTIL 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 RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES O WN CASE FOR A.Y. 2004-05 ALLOW THE CLAIM OF THE PORTFOLIO MANAGEMENT FEES AS AN ALLOWABLE EXPENDITURE. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY AL LOWED. 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 SE T-ASIDE THE SAME AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION. 6 9.1 RESPECTFULLY FOLLOWING THE ABOVE DECISION OF TH E TRIBUNAL AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOT ICE, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) ALLOWING THE C LAIM OF RS.25,97,933/- CLAIMED U/S.48 AGAINST THE SHORT TERM CAPITAL GAIN DECLARED IN THE RETURN OF INCOME ON SALE OF SHARES. GROUNDS RAISED BY THE REVENUE ARE ACCORDINGLY DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE AS WELL AS THE REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 13-06-2014. SD/- SD/ - (SHAILENDRA KUMAR YADAV) (R.K. PAN DA) JUDICIAL MEMBER ACCOUNTAN T MEMBER PUNE DATED: 13 TH JUNE, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A)-I, PUNE 4. THE CIT-I, PUNE 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE