M/S AMRIT DIAMOND TRADE CENTRE PVT. LTD., MUMBAI V. ACIT - 5(1), MUMBAI

ITA 2642/MUM/2013

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3664 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 05-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Cost of acquisition
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BE NCH A MUMBAI. BEFORE SHRI, SHAILENDRA KUMAR YADAV, JUDICIAL MEMBE R AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO 2642/MUM/2013 ASSESSMENT YEAR: - 2009-10 M/S. AMRIT DIAMOND TRADE CENTRE PVT. LTD. GROUND FLOOR, COOPER BLDG., TATA ROAD NO.1 GIRGAUM, MUMBAI-400 004. VS.` ASST. COMMISSIONER OF INCOME TAX-5(1), MUMBAI. PAN/GIR NO. AAECA 8104E APPELLANT RESPONDENT ORDER PER RAJESH KUMAR, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 27.02.2013 OF COMMISSIONER OF INCOME TAX (APPEALS)-9 {(HEREINAFTE R REFERRED TO AS CIT(A)} FOR A.Y. 2009-10. THE ONLY GROUND RAISED IN THE APPEAL READS AS UNDER:- ASSESSED BY SHRI. S.C. TIWARI REVENUE BY SHRI . DR. DARSI SUMAN RATNAM DATE OF HEARING 17/11/2015 DATE OF PRONOUNCEMENT 15/ 01/2016 2 ITA NO 2642/MUM/2014 ASSESSMENT YEAR: - 2009-10 PAGE 2 OF 9 I. EXPENSES DISALLOWED U/S.14A R.W.R. 8-0 - RS.6,20,67 11- (NET DISALLOWANCE RS.3, 19 ,081/-) 1. SINCE THE DIVIDEND TAX IS PAID BY THE COMPANY, THE SAID DIVIDEND INCOME HAS SUFFERED THE TAX AND UNLIKE OTHER EXEMPTIONS, D IVIDEND INCOME IS NOT EXEMPT BUT ITS THERE TO AVOID DOUBLE TAXATION AND H ENCE SEC.14A IS NOT APPLICABLE AND NO DISALLOWANCE IS CALLED FOR, THERE FORE, RS.3, 19,081/- (PROPOSED RS.6,20,6711- ) BE DELETED IN FULL. 2. WITHOUT PREJUDICE TO ABOVE, YOUR APPELLANT SUBM ITS AS UNDER: A) THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE FACTS AND THE LAW ON THE SUBJECT AND CONFIRMING THE ADDITIONAL EXPENSES DISA LLOWED U/S.14-A R.W.R. 8-0 - RS.3, 19,081/-. B) THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT YOUR APPELL ANT HAS ALREADY DISALLOWED THE ACTUAL EXPENSES OF RS.9, 434/- AND THERE ARE NO OTHER EXPENSES AND HENCE NO OTHER DISALLOWANCE (RS. 3, 19,081/-) CAN BE MADE. C) THE LEARNED CIT(A) ALSO ERRED IN NOT APPRECIATING THE FACT THAT NO INT EREST HAS BEEN PAID AND THERE ARE NO LOANS AND HENCE THER E CAN BE NO DISALLOWANCE U/S.14-A AT ALL. D) THE LEARNED CIT(A) ERRED IN FOLLOWING CERTAIN DECISIONS WHICH ARE NOT RELEVANT AND CONFIRMING THE DISALLOWANCE INSPITE OF THE FACT THAT THERE IS NO LOAN AT THE BEGINNING AND AT THE END OF THE YEAR AN D NO INTEREST PAID OR PAYABLE. E) WITHOUT PREJUDICE TO ABOVE, %% OF THE AVERAGE I NVESTMENTS SHOULD BE WORKED OUT ON ONLY THOSE INVESTMENTS WHICH HAVE EAR NED DIVIDEND. THIS WILL WORK OUT TO RS.71,668/- ( IN PLACE OF RS.3,19, 081/- AS PER ASSESSMENT ORDER). F) WITHOUT PREJUDICE TO ABOVE, YOUR APPELLANT SUBM ITS THAT THE GROSS DISALLOWANCE OF RS.6,20,671/- (THOUGH NET DISALLOWA NCE IS RS.3,19,081/-) IS FAR IN EXCESS OF THE TOTAL DIVIDEND INCOME OF RS.4, 20,734/- (NET AS PER RETURN OF INCOME - RS.4, 11,310/-) AND HENCE THE EX CESS SHOULD NOT BE CONSIDERED FOR DISALLOWANCE. 3 ITA NO 2642/MUM/2014 ASSESSMENT YEAR: - 2009-10 PAGE 3 OF 9 PMS FEES RS.1 ,54,806/- NOT ADDED TO SHORT TERM LOS S TO BE CARRIED FORWARD. A) THE LEARNED CIT(A) THOUGH APPRECIATED THAT THE PMS FEES IS IN RESPECT OF SHARE TRANSACTIONS, HE ERRED IN NOT ACCEPTING THE C ONSEQUENT FACT OF THE ALLOCATION OF THE PMS FEES BETWEEN LONG TERM CAPITA L GAIN (LOSS) AND SHORT TERM CAPITAL GAIN (LOSS). HE ERRED IN CONFIRM ING THE ASSESSMENT ORDER TREATING THE ENTIRE SAID EXPENSES OF RS.2,92, 156/- AGAINST THE DIVIDEND INCOME AND NOT ALLOWING THE ALLOCATION THE REOF TO THE LONG TERM CAPITAL GAIN (LOSS) AND SHORT TERM CAPITAL GAIN (LO SS). B) YOUR APPELLANT SUBMITS THAT THE PMS FEES IS TO BE HELD AS AGAINST THE LONG TERM CAPITAL GAIN (LOSS) AND SHORT TERM CAPITAL GAI N (LOSS) AND ACCORDINGLY THE SHORT TERM CAPITAL LOSS BE ALLOWED TO BE CARRIED FORWARD SHOULD BE INCLUSIVE OF THE RELEVANT PMS FEES OF RS. 1,54,806/- AND THE TOTAL AMOUNT OF SHORT TERM CAPITAL LOSS OF RS.32,35,358/- BE ALLOWED TO BE CARRIED FORWARD. C) YOUR APPELLANT, THEREFORE, SUBMITS THAT THE SHO RT TERM CAPITAL LOSS SHOULD BE INCLUSIVE OF THE RELEVANT PMS FEES OF RS.1,54,80 6/- AND THE TOTAL AMOUNT OF RS.32,35,358/- BE ALLOWED TO BE CARRIED FORWARD. 2. THE ISSUED RAISED IN THE FIRST GROUND OF APPEAL IS AGAINST THE CONFIRMATION OF ADDITIONS OF RS. 3,19,081/- BY THE CIT(A) ON ACCOU NT OF DISALLOWANCE U/S 14A R.W.R. 80D OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY WAS ENGAGED IN THE BUSINESS OF PROVIDING SERVICES LIKE HIRING OF LOCK ER AND CABINS AND HAD FILED ITS RETURN OF INCOME ON 08.09.2009 DECLARING AN INCOME OF RS. 36,31,590/-.THE ASSESSEE HAD EARNED TAX FREE DIVIDEND OF RS. 4,20, 734/- DURING THE YEAR AND HAD SHOWN INVESTMENTS TO THE TUNE OF RS. 6,14,52,076/- AS AT THE YEAR END. THE ASSESSEE SUO MOTTO DEDUCTED BANK CHARGES OF RS. 9,434/- FROM THE SAID EXEMPT INCOME THEREBY SHOWING NET INCOME OF RS. 4,11,310/- AS EXE MPT INCOME. 4 ITA NO 2642/MUM/2014 ASSESSMENT YEAR: - 2009-10 PAGE 4 OF 9 4. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDIN GS ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY THE PROVISIONS OF SECTION 14A R.W.R. 8D OF THE ACT SHOULD NOT BE APPLIED IN VIEW OF THE ASSESSEE NOT D ISALLOWING ANY EXPENSES IN RELATION TO THE EXEMPT INCOME. THE AO THEREAFTER FR AMED THE ASSESSMENT AT RS. 39,50,670/- VIDE ORDER DATED 7.12.2011 BY MAKING A DISALLOWANCE OF RS. 6,20,671/- CONSISTING OF RS. 301590 AS DIRECT EXPENSES (BANK C HARGES RS. 9,434/- AND PORTFOLIO MANAGEMENT FEE RS. 2,92,156/- AND RS. 3,1 9,081/- @ % OF THE AVERAGE INVESTMENTS. 5. THE AGGRIEVED BY THE ORDER OF AO , THE ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO ALSO DISMISSED THE APPEAL OF THE ASSESSE E BY CONFIRMING THE ORDER OF AO BY HOLDING THAT THE PURPOSE OF THE PROVISIONS O F SECTION 14A R.W.R. 8D IS TO PREVENT THE CLAIM OF EXPENSES WHICH RELATES EXEMPT INCOME AND AO HAD RIGHTLY APPLIED THE PROVISIONS OF SECTION 14A R.W.R. 80D OF THE ACT. 6. THE LD AR SUBMITTED BEFORE US THAT THE DISALLOWA NCE OF RS. 3,19,081/- MADE BY THE AO AND CONFIRMED BY CIT(A) WAS TOTALLY WRONG AND EXCESSIVE. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSE E SUO MOTTO DISALLOWED RS. 9,434/- ON ACCOUNT OF BANK CHARGES WHICH WERE ONLY INCURRED IN RELATION TO THE EXEMPT INCOME WHILE CALCULATING THE TOTAL INCOME. T HIS BEING THE EXPENSE ONLY QUA EXEMPT INCOME AND THEREFORE NO DISALLOWANCE WAS WAR RANTED U/S 14A R.W.R 8D OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE MADE ALT ERNATIVE SUBMISSIONS THAT IF AT ALL THE DISALLOWANCE UNDER RULE 8D(2)(III) WAS TO BE M ADE, IT COULD NOT BE MADE ON THE BASIS OF AVERAGE INVESTMENTS BY TAKING INTO ACCOUNT ENTIRE INVESTMENTS AT THE BEGINNING AND THE END OF THE YEAR BUT SHOULD BE WOR KED OUT BY CONSIDERING ONLY THOSE INVESTMENTS WHICH YIELDED DIVIDEND DURING TH E YEAR. THE ASSESSEE PLACED 5 ITA NO 2642/MUM/2014 ASSESSMENT YEAR: - 2009-10 PAGE 5 OF 9 RELIANCE ON THE DECISION OF DELHI HIGH COURT IN THE CASE OF ACB INDIA LTD VS ACIT (2015)62 TAXMANN.COM 71 (DELHI) 7. THE LD. DR ON THE OTHER HAND RELIED ON THE AUTHO RITIES BELOW. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORDS. WE FIND THAT THE AO MADE THE DISALLOWANCE U/S 14A R .W.R. 8D(2)(III) @1/2% OF THE AVERAGE INVESTMENTS TAKING INTO ACCOUNT ALL THE INVESTMENTS AT THE BEGINNING AND AT CLOSE OF THE YEAR WHICH WAS ALSO UPHELD BY T HE CIT(A). IN THE CASE OF ACB INDIA LTD VS ACIT (SUPRA)THE HONBLE DELHI HIGH COU RT HAS HELD THAT THE DISALLOWANCE U/S RULE 8D(2)(III) CAN NOT BE MADE O N THE BASIS OF ENTIRE INVESTMENTS BUT SHOULD BE WORKED OUT BY TAKING ONLY THOSE INVE STMENTS WHICH YIELDED DIVIDEND DURING THE YEAR. THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE ABOVE DECISION AND WE RESPECTFULLY FOLLOWING THE SAME DE LETE THE DISALLOWANCE TO THE EXTENT OF RS. 2,47,413/- OUT OF RS. 3,19,081/- WHI CH IS CALCULATED BY TAKING INTO ACCOUNT THOSE INVESTMENTS WHICH YIELDED TAX FREE DI VIDEND AND ONLY DISALLOWANCE TO THE EXTENT OF RS. 71,668/- IS SUSTAINED. THE AO IS DIRECTED ACCORDINGLY. 9. THE ISSUE RAISED IN THE SECOND GROUND IS AGAINST NOT ALLOWING RS. 1,54,806/- BEING PMS FEE PAID TO ENAM SECURITIES DIRECT PVT LT D FOR SALE AND PURCHASE OF SHARES AS PART OF SHORT TERM CAPITAL LOSS AND ALLOW CARRY FORWARD OF THE SAME. 10. THE FACTS IN BRIEFS ARE THAT THE ASSESSEE PAID PMS FEE OF RS. 2,92,156/- TO ENAM SECURITIES DIRECT PVT LTD FOR PORT FOLIO MANA GEMENT AND APPORTIONED THE SAID FEE BETWEEN LONG TERM AND SHORT TERM LOSS IN T HE PROPORTION OF THE SAID LOSSES. RS. 1,54,806/- PERTAINED THE SHORT TERM LOSS FROM SHARES AND WAS CLAIMED AS PART OF THE SAID LOSS FOR THE PURPOSES OF CARRY FORWARD. 6 ITA NO 2642/MUM/2014 ASSESSMENT YEAR: - 2009-10 PAGE 6 OF 9 11. THE LD. AO REJECTED THE CONTENTION OF THE ASSES SEE BY HOLDING THAT THE WHOLE AMOUNT OF PMS FEE RS. 2,92,156/-RELATED TO EXEMPT I NCOME AND DENIED THE BENEFIT OF CARRY FORWARD. THE ACTION OF THE AO WAS ALSO CON FIRMED BY THE CIT(A) WHO DISMISSED THE APPEAL BY HOLDING THAT PMS FEE ARE LE VIED BY THE PORTFOLIO MANAGERS IRRESPECTIVE OF THE FACT WHETHER THERE WAS A LOSS OR PROFIT AND THE SAID FEE WAS DIRECTLY RELATABLE TO THE DIVIDEND INCOME EARNED. 12. THE LD AR SUBMITTED THAT THE PMS FEE WAS PAID T O ENAM SECURITIES DIRECT PVT LTD FOR MANAGING THE PORTFOLIO OF THE ASSESSEE I.E SALE AND PURCHASE OF SHARES AND WAS A DIRECT EXPENDITURE INCURRED IN CONNECTION WITH THE SALE AND PURCHASE OF SHARES AND HAD NOTHING TO DO WITH THE EXEMPT INCOME EARNED BY THE ASSESSEE BY WAY OF DIVIDED. THE LD. COUNSEL FURTHER REFERRED TO THE PROVISIONS OF SECTION 48(I) OF THE ACT WHICH WHICH PROVIDES FOR DEDUCTION OF EX PENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER. THE L D COUNSEL RELIED ON THE DECISION OF KRA HOLDINGS & TRADINGS (P) LTD VS DCIT(2011)46S OT)19 PUNE AND PRAYED THAT THE PMS FEE BE ALLOWED TO BE CARRIED FORWARD A S PART OF SHORT TERM CAPITAL LOSS. PER CONTRA DR RELIED ON THE ORDERS OF AUTHORITIES B ELOW. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIALS ON RECORDS. WE FIND THAT THE ASSESSEE HAD INCURRED RS . 2,92,156/- AS PMS FEE TO ENAM SECURITIES DIRECT PVT LTD FOR PORTFOLIO MANAGEMENT OF THE ASSESSEE AND THE ASSESSEE ALLOCATED AND APPORTIONED THE SAID FEE BET WEEN LONG TERM CAPITAL LOSS AND SHORT TERM CAPITAL LOSS IN PROPORTION TO THE AMOUNT OF LOSSES. RS.1,37,350/- WAS ALLOCATED TO LTCL AND RS. 1,54,806/- WAS APPORTIONE D TO STCL. THE AO DISALLOWED RS. 1,54,806/- THE PART OF THE PMS FEE A TTRIBUTED TO STCL AND DID NOT ALLOW THE CARRIED FORWARD OF STCL TO THE TUNE OF RS . 1,54,806/-.NOW THE ISSUE 7 ITA NO 2642/MUM/2014 ASSESSMENT YEAR: - 2009-10 PAGE 7 OF 9 BEFORE US WHETHER THE EXPENSES INCURRED IN CONNECTI ON WITH PMS FEE TO PORTFOLIO MANAGER IS AN EXPENSE WHICH IS INCURRED IN CONNECTI ON WITH THE SHARE TRANSFER OR RELATES TO DIVIDEND INCOME WHICH IS EXEMPT. THE PRO VISIONS OF SECTION 48(I) OF THE ACT PROVIDES THAT THE EXPENDITURE INCURRED WHOLLY A ND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER SHALL BE DEDUCTED FROM THE FULL VALUE OF THE CONSIDERATION FOR CALCULATING CAPITAL GAIN/LOSS. CONVERSELY SAME ANAL OGY APPLIES TO THE PURCHASE ALSO I.E AT THE TIME OF PURCHASE ALSO THE EXPENSES WHICH ARE WHOLLY AND EXCLUSIVELY INCURRED FOR THE SAID TRANSACTION IS ALSO PART OF T HE PURCHASE COST. WE ARE, THEREFORE, OF THE OPINION THAT THE RS. 1,54,904/- IS PART OF S HORT TERM CAPITAL LOSS AND THE ASSESSEE SHOULD BE ALLOWED TO CARRY FORWARD THE SAM E. THE CASE OF ASSESSEE ALSO FIND SUPPORT FROM THE DECISION REFERRED TO ABOVE NA MELY KRA HOLDINGS & TRADINGS (P) LTD VS DCIT(2011)46SOT)19 PUNE IN WHIC H THE SAME ISSUE CAME UP FOR ADJUDICATION OF THE TRIBUNAL AND THE TRIBUNAL A LSO HELD THAT THE PMS FEE IS DEDUCTIBLE WHILE COMPUTING THE CAPITAL GAIN. WE, TH EREFORE, RESPECTFULLY FOLLOWING THE ABOVE DECISION AND IN VIEW OF THE PROVISIONS OF THE ACT, ALLOW THE APPEAL OF THE ASSESSEE. THE AO IS DIRECTED ACCORDINGLY. 14. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF 2016. SD/- SD/- (SHAILENDRA KUMAR YADAV) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMB ER) MUMBAI DATED 15-01-2016 SKS SR. P.S 8 ITA NO 2642/MUM/2014 ASSESSMENT YEAR: - 2009-10 PAGE 8 OF 9 COPY TO: THE APPELLANT THE RESPONDENT THE CONCERNED CIT(A) THE CONCERNED CIT THE DR, G BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI