NADIR A. MODI, MUMBAI V. JT.CIT-11(3), MUMBAI

ITA 2996/MUM/2010

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7829 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 17-02-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 15-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: H JA
• Keywords: Capital asset; Business income; Opportunity of being heard; Earning of tax free income; Cost of acquisition; Wrong claim
• Section: 37(1); 10

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNALB BENCH, MUMB AI . . . , , , , # BEFORE SHRI G.S.PANNU, AM AND SHRI AMARJIT SINGH, J M / I.T.A. NO.2996/MUM/2010 & 4859/MUM/2012 ( $% &% / ASSESSMENT YEAR: 2005-06) SHRI NADIR A. MODI OFFICE NO.111, PROSPECT CHAMBER, DR. D.N.ROAD, FORT, MUMBAI 400 001 / VS. JOINT COMMISSIONER OF INCOME TAX 11(3) MUMBAI ./ ./ PAN/GIR NO. : AAQPM8991C ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 17.02.2017 /DATE OF PRONOUNCEMENT: 31.03.2017 / O R D E R PER AMARJIT SINGH, JM: THE ASSESSEE HAS FILED THE ABOVE MENTIONED TWO APP EALS AGAINST THE ORDER DATED 14.01.2010 (QUANTUM APPEAL) AND 04. 05.2012 (PENALTY APPEAL) PASSED BY THE COMMISSIONER OF INCOME TAX (A PPEALS)-2, ASSESSEE BY: SHRI FIROZE B. ANDHYARUJINA, SHRI M.M.GOLVALA & SHRI H. JAMSHEDJI DEPARTMENT BY: SHRI PRADEEP KUMAR SINGH & SHRI B.S.BIST ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 2 MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RE LEVANT TO THE ASSESSMENT YEAR 2005-06. ITA NO.2996/M/2010:- 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. THE LEARNED CIT(APPEALS) ERRED IN DISALLOWING AN AMOUNT OF RS.14,851/- ON ACCOUNT OF CLUB EXPENSES. 2. THE FINDINGS OF THE LEARNED CIT(APPEALS): (A) THAT THE EXPENDITURE AMOUNTS TO ADVERTISEMENT; AND (B) IS EXPENDITURE WHICH IS PROHIBITED BY LAW, ARE ERRONEOUS, PERVERSE AND OUGHT TO BE SET ASIDE 3. THE LEARNED CIT(APPEALS) ERRED IN DISALLOWING TH E AMOUNT OF RS.25,86,320/- PAID AS PORTFOLIO MANAGEMENT FEE AND CLAIMED UNDER SECTION 4 OF THE ACT. YOUR APPELLANT PRAYS THE AMOUNT CLAIMED BE ALLOWED . 4. THE FINDINGS OF THE CIT(APPEALS); (A) THAT THE FEE IS NOT EXPENDITURE INCURRED WHOLL Y AND EXCLUSIVELY FOR THE TRANSFER OF CAPITAL ASSETS; AND (B) THAT THE REAL NATURE OF THE EXPENDITURE IS PER SONAL, ARE ERRONEOUS, CONTRARY TO THE RECORD AND OUGHT TO BE SET ASIDE. 5. WITHOUT PREJUDICE TO THE ABOVE THE LEARNED CIT(A PPEALS) OUGHT TO HAVE IN THE ALTERNATIVE EXCLUDED THE AMOUN T FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED FROM T HE PORTFOLIO MANAGER AND TAXED UNDER SECTION 45 OF THE ACT AND YOUR APPELLANT PRAYS ACCORDINGLY. 6. THE LEARNED CIT(APPEALS) ERRED IN APPLYING THE P ROVISIONS OF RULE 8D TO YOUR APPELLANTS CASE. YOUR APPELLA NT SUBMITS THAT THE RULE CANNOT BE APPLIED TO THEIR CA SE FOR THE SAID ASSESSMENT YEAR. ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 3 7. THE LEARNED CIT(APPEALS) ERRED IN INVOKING AND A PPLYING THE PROVISIONS OF SECTION 14A(2) READ WITH RULE 8D WITHOUT SPECIFYING AND SATISFYING THE PRECONDITIONS THEREIN AND YOUR APPELLANT PRAYS THAT THE APPLICATION OF RULE 8 D TO THEIR CASE BE SET ASIDE. 8. THE LEARNED CIT(APPEALS) ERRED IN APPLYING THE P ROVISIONS OF SECTION 14A(2) READ WITH RULE 8D WITHOUT IT BEIN G INVOKED BY THE LEARNED ASSESSING OFFICER AT ANY POI NT IN TIME. 9. THE LEARNED CIT(APPEALS) ERRED IN APPLYING PROVI SIONS OF 8D RETROSPECTIVELY TO THE FACTS OF YOUR APPELLANTS CASE FOR THE ASSESSMENT YEAR 2005-06. YOUR APPELLANT PRAYS THIS DIRECTION BE SET ASIDE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED THE RETURN OF INCOME ON 29.10.2005 DECLARING TOTAL INCOME TO THE TUNE OF RS.1,22,98,330/-. THE RETURN WAS ACCOMPANIED BY TH E TAX AUDIT REPORT U/S.44AB OF THE INCOME TAX ACT, 1961( IN SHORT THE ACT). THE RETURN OF INCOME WAS PROCESSED U/S.143(1) OF THE AC T ON 15.05.2006. THE CASE WAS SELECTED FOR SCRUTINY, THEREFORE, NOTI CE U/S.143(2) OF THE ACT WAS ISSUED ON 31.07.2006 WHICH WAS SERVED UPON THE ASSESSEE ON 17.08.2006. AFTER CHANGE OF INCUMBENT, NOTICES U/S .142(1) & 143(2)(II) OF THE ACT WERE ISSUED ON 22.10.2007 AND SERVED UPON THE ASSESSEE. THE ASSESSEE WAS A PRACTICING ADVOCATE A ND SOLICITOR. THE ASSESSEES SOURCE OF INCOME CONSISTS OF INCOME FROM PROFESSION, CAPITAL GAINS, HOUSE PROPERTY AND INCOME FROM OTHER SOURCES. THE ASSESSING OFFICER DISALLOWED THE CLUB EXPENSES AND PORTFOLIO MANAGEMENT FEES AND ALSO DISALLOWED AN AMOUNT OF RS .18,96,224/- ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 4 U/S.14A OF THE ACT AND ASSESSED ACCORDINGLY THE INC OME OF ASSESSEE TO THE TUNE OF RS.1,43,37,480/-. THE ASSESSEE FILED T HE APPEAL BEFORE THE SAID ADDITION AND THE APPEAL WAS DISMISSED BY THE C IT(A), THEREFORE, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US . ISSUE NO.1 & 2:- 4. ISSUE NO.1 AND 2 ARE INTERCONNECTED, THEREFORE, ARE BEING TAKEN UP TOGETHER FOR ADJUDICATION. INFACT, BOTH THE ISS UES RAISED ONLY ONE GROUND IN WHICH THE CLAIM OF ASSESSEE IS IN CONNECT ION WITH THE CLUB EXPENSES WHICH HAS BEEN DECLINED BY THE ASSESSING O FFICER AND CONFIRMED BY THE CIT(A). THE LEARNED REPRESENTATIV E OF THE ASSESSEE HAS ARGUED THAT THE ASSESSEE IS IN THE PROFESSION O F ADVOCATE AND TO ENTERTAIN THE CLIENTS HE HAS TO GO CLUB IN CONNECTI ON WITH HIS PROFESSION, THEREFORE, THE CLUB EXPENSES ARE LIABLE TO BE ALLOWED IN THE INTEREST OF JUSTICE. HOWEVER, ON THE OTHER HAND TH E LEARNED REPRESENTATIVE OF THE DEPARTMENT HAS STRONGLY RELIE D UPON THE ORDER PASSED BY THE CIT(A) IN QUESTION. BEFORE GOING FUR THER, IT IS NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RE CORD:- 3. I HAVE PERUSED THE FACTS OF THE CASE. THE KEY ASPECT OF THE ISSUE UNDER CONSIDERATION IS THAT APPELLANT IS AN ADVOCATE AND PROFESSIONAL. APPELLANT IS IN ACTIVE PRACTICE OF HIS PROFESSION. APPELLANT IS ALSO BOUND BY THE REGULATIONS OF THE BAR COUNCIL OF INDIA. EVERY ADV OCATE ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 5 PRACTICING IN INDIA IS RESTRICTED FROM ADVERTISING HIMSELF, IN THE SENSE OF ADVERTISING FOR SEEKING MORE CLIENT S OR MORE BUSINESS FOR HIMSELF. THEREFORE, BY VIRTUE OF MEMBERSHIP OF THE CLUB, BY GOING TO THE CLUBS, APPE LLANT IS TAKING STEPS FOR PROPAGATING HIS BUSINESS CANNOT BE AN ARGUMENT. FURTHER, THE PROFESSION OF AN ADVOCATE, ITS ACTUAL PRACTICE, CAN NOT BE UNDERTAKEN EVEN IN THE REMOTEST SENSE, FROM SITTING IN CLUBS. EVERY DISCU SSION AND ANALYSIS OF ANY MATER NECESSARILY TAKES PLACE I N CHAMBERS OR IN AND AROUND THE COURTROOMS. THEREFOR E, TO MY MIND, MEMBERSHIP OF CLUBS IS NOT GOING TO AUGMEN T THE BUSINESS OF APPELLANT OF THE PROFESSION OF THE APPELLANT. AND IF IT DOES, BY THE FACT OF GETTING MORE CLIENTS, MORE CASES, IT WOULD AMOUNT TO VIOLATION O F THE NORMS PRESCRIBED BY BAR COUNCIL OF INDIA AND CONSEQUENTLY SUCH EXPENDITURE WHICH IS PROHIBITED B Y LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR T HE PURPOSE OF BUSINESS OR PROFESSION. THEREFORE, IF GATHERINGS MEETINGS AND SOCIAL OBLIGATIONS UNDERTAK EN IN CLUBS IS PROPAGATING THE BUSINESS OR PROFESSION OF APPELLANT, THE EXPENDITURE IN QUESTION GETS HIT BY THE EXPLANATION AND CANNOT BE ALLOWED TO APPELLANT. TH E CONTENTION THAT THE QUANTUM IS NEGLIGIBLE IN RELATI ON TO INCOME IS OF NO SIGNIFICANCE FOR THE PURPOSE OF DEC IDING ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 6 THE ALLOWABILITY OF EXPENSES. TO MY MIND THEN, IN THE CASE OF PROFESSIONALS, DOCTORS AND ADVOCATES, EXPEN SES OF THE NATURE UNDER CONSIDERATION ARE NOT ALLOWABLE. THE ACTION OF ASSESSING OFFICER IS THEREFORE UPHELD AND THE GROUND OF APPEAL IS REJECTED. 5. ON APPRAISAL OF THE ABOVE MENTIONED ORDER WE FOU ND THAT NO DISTINGUISHABLE MATERIAL HAS BEEN PRODUCED BEFORE U S TO WHICH IT CAN BE ASSUMED THAT THE FINDING OF THE CIT(A) IS WRONG AGAINST LAW AND FACTS. THE ASSESSEE IS AN ADVOCATE AND CLAIMING TH E CLUB EXPENSES IN VIEW OF HIS PROFESSION. THE ADVOCATE IS BEING REST RICTED FOR ADVERTISING IN VIEW OF THE REGULATION OF BAR COUNCI L OF INDIA AND SUCH TYPE OF EXPENDITURE HAS BEEN HIT BY EXPLANATIO N TO SECTION 37(1) OF THE ACT. NO PLAUSIBLE EXPLANATION HAS BEEN GIVE N BEFORE US TO JUSTIFY THE CLAIM OF THE ASSESSEE. IN VIEW OF THE SAID CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT(A) HAS PASSED THE O RDER JUDICIOUSLY AND CORRECTLY ON THESE ISSUES WHICH NOWHERE REQUIRE INTERFERENCE AT THIS APPELLATE STAGE. THEREFORE, THESE ISSUES ARE D ECIDED IN FAVOUR OF THE REVENUE AGAINST THE ASSESSEE. ISSUE NO.3 TO 5:- 6. ISSUE NO.3 TO 5 ARE INTERCONNECTED BUT LEADS TO SINGLE POINT OF CONTROVERSY IN WHICH THE ASSESSEE CLAIMED THE PORTF OLIO MANAGEMENT FEES TO THE TUNE OF RS.25,86,320/-. THE ASSESSING OFFICER HAS ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 7 DISALLOWED THE PORTFOLIO MANAGEMENT FEES AND THE CI T(A) ALSO CONFIRMED THE SAME. THE ASSESSING OFFICER DISALLOW ED THE MANAGEMENT FEES IN VIEW OF PROVISION U/S.40(A)(IA) OF THE ACT TO THE TUNE OF RS.25,86,320/- ON THE GROUND THAT THE ASSES SEE WAS UNDER OBLIGATION TO DEDUCT THE TDS BUT THE TDS WAS NOT DE DUCTED, THEREFORE, THE SAID AMOUNT WAS ADDED TO THE INCOME OF THE ASSESSEE. IN APPEAL THE CIT(A) WAS OF THE VIEW THAT THE SAID AMOUNT I.E. PORTFOLIO MANAGEMENT FEES DOES NOT FALL WITHIN THE PURVIEW OF SECTION 40 OF THE ACT BUT THE SAID FEES IS TAXABLE AS INCOM E. HOWEVER, THE CIT(A) ALSO EXAMINED THE TRANSACTION IN VIEW OF THE SECTION 48 OF THE ACT AND WAS OF THE VIEW THAT NO DEDUCTION OF ANY KI ND WAS ALLOWABLE AND UPHELD THE FINDING OF THE ASSESSING OFFICER. T HE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE PORTFOLIO MANAGEMENT FEES TO THE TUNE OF RS.25,86,320/- PAID FOR PORTFOLIO MANAGEMENT SCHEME RENDERED IS ALLOWABLE AS DEDUCTIO N WHILE COMPUTING THE DEDUCTION UNDER THE HEAD CAPITAL GAIN S AND SPECIFICALLY IN VIEW OF THE LAW SETTLED IN DCIT VS. KRA HOLDING AND TRADING (P.) LTD. AND VICE VERSA 46 SOT 19 (PUNE) AND SERUM INTE RNATIONAL LTD. VS. ADDL CIT AND VICE VERSA (ITA NO.1576/PN/2012 AN D 1617/PN/2012) DATED 18 TH FEBRUARY, 2015 AND RDA HOLDING & TRADING PVT. LTD. VS. ADDL. CIT ITA NO.2166/PN/2013 DATED 29 TH OCTOBER, 2014. ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 8 7. HOWEVER IT IS ALSO ARGUED THAT THERE ARE SOME CO NTRARY DECISION OF THE TRIBUNAL SUCH AS DEVENDRA MOTIAL KOTHARI 136 TTJ 188 (MUM) AND PRADEEP KUMAR HARLALKA VS. ACIT 143 TTJ 446 (MU M.) AND HOMI K. BHABHA VS. ITO 48 SOT 102 (MUM.). IT IS ALSO ARGUED THAT WHERE TWO VIEWS ARE POSSIBLE THEN THE VIEW IN FAVOU R OF THE ASSESSEE IS LIABLE TO BE CONSIDERED IN ACCORDANCE WITH LAW. HOWEVER, ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS PLACED RELIANCE ON THE ORDER PASSED BY THE CIT(A) IN QUESTION. ON APPRAISAL OF THE ABOVE MENTIONED LAW IT IS NOT IN DISPUTE THAT THE T RIBUNAL HAS TAKEN THE TWO VIEWS TO DEALT THE MANAGEMENT FEES PAID FOR PORTFOLIO MANAGEMENT SCHEME. IT IS ALSO NOT IN DISPUTE THAT WHEN TWO VIEWS ARE POSSIBLE THEN ONE VIEW WHICH IS FAVOURABLE TO THE A SSESSEE IS LIABLE TO BE CONSIDERED. HERE IT IS NECESSARY TO RENDERED TH E FINDING OF THE CASE TITLED AS SERUM INTERNATIONAL LTD. VS. ADDL CIT AND VICE VERS A (ITA NO.1576/PN/2012 AND 1617/PN/2012) DATED 18 TH FEBRUARY, 2015, THE RELEVANT PARA IS HEREBY REPRODUCED BELOW:- 6. ON THIS ASPECT ALSO, IT WAS A COMMON POINT BETW EEN THE PARTIES THAT THE SAID ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY WAY OF DECISION OF THE TRIBUNAL IN ITA NO.17/PN/2012 AND OTHERS IN THE CASE OF SERUM INSTI TUTE OF INDIA LTD. DATED 10.04.2014 (SUPRA), WHEREIN THE RELEVANT DISCUSSION IS AS UNDER:- ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 9 11. GROUNDS OF APPEAL NO.2 BY THE ASSESSEE READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN REFUSING TO TREA T PMS FEES PAID OF RS.34,63,969/- AS PART OF EITHER OF COST OF ACQUISITION/IMPROVEMENT OR AS COST OF TRANSFER FOR WORKING INCOME FROM CAPITAL GAIN. IN ANY EVENT, HE OUGHT TO HAVE ACCEPTED THE ALTERN ATE CONTENTION OF THE APPELLANT THAT THERE WAS, TO THAT EXTENT, TRANSFER BY OVERRIDING TITLE OF CONSIDERATI ON / 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 MANAGEMENT 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 EXPENDITURE SHOULD NOT BE DISALLOWED WHILE WORKING OUT THE RESULTANT CAPITAL GAINS, THE ASSESSEE SUBMITTED THAT THE SAID EXPENDITURE HAVING BEEN INCURRED FOR MANAGING THE INVESTMENT PORTFOLIO OF THE ASSESSEE BY EXPERTS IN THE FIELD WAS NOTHING BUT COST ASSOCIATED WITH BUYING OF GOOD SCRIPTS AND SELLING THE SAME AT RIGH T TIME AND THEREFORE, IT CONSTITUTED COST OF INVESTME NT. HOWEVER, THE ASSESSING OFFICER DID NOT FIND ANY MERIT IN THE CONTENTION OF THE ASSESSEE. HE OBSERV ED ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 10 THAT AS PER SEC.48, ONLY SUCH EXPENSE ARE DEDUCTIBL E FROM THE SALE CONSIDERATION OF AN ASSET WHICH ARE WHOLLY AND EXCLUSIVELY INCURRED IN CONNECTION WITH THE TRANSFER OF THE ASSET. ACCORDING TO THE ASSESS ING OFFICER, PORTFOLIO MANAGEMENT CONSULTANTS ARE SERVICE INTERMEDIARIES WHO CARRY OUT THE RESEARCH AND ANALYSIS ABOUT THE PROFITABILITY OF THE SCRIPTS OF VARIOUS COMPANIES AND KEEP TRACK ON THE MARKET CONDITIONS AND THE FEES PAID BY THE ASSESSEE TO SUC H PROFESSIONAL MANAGERS COULD NOT BE SAID TO HAVE 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 GAINS. 11.2 IN APPEAL THE LD. CIT(A) UPHELD THE ACTION OF THE AO BY HOLDING THAT THE EXPENDITURE ON ACCOUNT OF PMS FEES IS NEITHER COST OF ACQUISITION OF THE SHARES IN QUESTION NOR COST OF IMPROVEMENT THERE OF NOR INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF ASSETS 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. 11.3 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 11 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 19-9-2013 FOR A.Y.2008-09 WHILE DECIDING AN IDENTICAL ISSUE HAS OBSERVED AS UNDER: 9. IN THE APPEAL OF THE ASSESSE, THE SOLITARY ISSUE 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 THAT ASSESSEE HAD INCURRED EXPENDITURE OF RS.2,79,31,009/- REPRESENTING PAYMENTS TO ENAM ASSET MANAGEMENT COMPANY PVT. LTD. AS PORTFOLIO MANAGEMENT FEES IN TERMS OF AN INVESTMENT MANAGEMENT AGREEMENT DATED 01.01.2005. FOLLOWING HIS DECISION FOR THE EARLIER 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 ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 12 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 THAT SUBSEQUENTLY MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SHRI HOMI K. BHABHA VS. ITO IN ITA NO.3287/MUM/2009 DECIDED A SIMILAR ISSUE AGAINST THE ASSESSEE AND THEREFORE HE HELD THE 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 THE ASSESSMENT YEAR 2007-08 CAME UP BEFORE THE TRIBUNAL IN ITA NO.356 & 240/PN/2011 DATED 25.07.2012 AND AFTER CONSIDERING THE DIVERGENT VIEW OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SHRI HOMI K. BHABHA (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 ISSUE IS ACCORDINGLY LIABLE TO BE DECIDED IN FAVOUR OF THE ASSESSEE. ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 13 12. THE LEARNED CIT(DR) APPEARING FOR THE REVENUE HAS 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 SUBMISSIONS 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 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 COURT ONLY ON THE ISSUE TREATMENT OF INCOME FROM THE SALE OF SHARES AS CAPITAL GAIN OR BUSINESS INCOME ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 14 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 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 PARA 11 OF ITS ORDER DATED 25.07.2012:- 11. THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL 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 DEDUCTIBLE AGAINST CAPITAL GAINS. THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF KRA HOLDING AND TRADING WAS NOT FOLLOWED BY THE MUMBAI BENCH IN THE ABOVE CITED DECISION. THE MUMBAI BENCH FOLLOWING OTHER DECISIONS OF THE COORDINATE BENCHES OF THE TRIBUNAL DECLINED TO FOLLOW THE DECISION IN THE CASE OF KRA HOLDING AND TRADING (SUPRA). IT IS THE SETTLED PROPOSITION OF LAW THAT WHEN TWO VIEW ARE POSSIBLE ON THE SAME ISSUE THE VIEW WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 15 FOLLOWED [CIT VS. VEGETABLE PRODUCTS 88 ITR192(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 AND 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 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, THEREFORE, UNLESS AND UNTIL THE DECISION OF THE TRIBUNAL IS REVERSED BY A HIGHER COURT, THE SAME IS OUR OPINION SHOULD BE FOLLOWED. IN THIS VIEW OF THE MATTER, WE RESPECTFULLY 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 ALLOWABLE EXPENDITURE. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 14. FOLLOWING THE AFORESAID PRECEDENT, WHICH HAS CONSIDERED 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 ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 16 SAME AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION. 12.1 RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL 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 OF APPEAL NO.2 BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 8. IT IS NOT IN DISPUTE THAT IN CONNECTION WITH THE PRESENT MATTER OF CONTROVERSY THERE ARE TWO VIEWS WHICH HAVE BEEN TAK EN BY THE HONBLE INCOME TAX APPELLATE TRIBUNAL. ONE IS IN FAVOUR OF THE ASSESSEE AND THE OTHER IS AGAINST THE ASSESSEE. IN VIEW OF THE ABOVE MENTIONED CASE I.E. SERUM INTERNATIONAL LTD. VS. ADDL CIT AND VICE VERSA (ITA NO.1576/PN/2012 AND 1617/PN/2012) DATED 18 TH FEBRUARY, 2015 THE VIEW WHICH IS IN FAVOUR OF THE ASSESSEE IS LIAB LE TO BE TAKEN. THE FINDING OF THE SAID CASE IS BASED UP ON THE FINDING OF HONBLE SUPREME COURT OF INDIA IN CASE [CIT VS. VEGETABLE PRODUCTS 88 ITR192(SC)]. IN VIEW OF THE SAID CIRCUMSTANCES WE SET ASIDE THE FINDING OF THE CIT(A) ON THIS ISSUE AND ASSESSING O FFICER IS DIRECTED TO ALLOW THE APPROPRIATE RELIEF OF THE ASSESSEE IN TERMS OF THE ABOVE SAID DECISIONS IN ACCORDANCE WITH LAW. ACCORDINGLY , THESE ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVEN UE. ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 17 ISSUE NO.6 TO 9:- 9. ISSUE NO.6 TO 9 ARE INTERCONNECTED, THEREFORE, A RE BEING TAKEN UP TOGETHER. IN FACT ALL THESE ISSUES LEAD TO THE CON TROVERSY WITH REGARD TO THE APPLICATION OF SECTION 14A(2) READ WITH RULE 8D OF THE ACT. IT IS NOT IN DOUBT THAT THE ASSESSEE RECEIVED THE DIVIDEN D TO THE TUNE OF RS.53,74,195/- AND ALSO CLAIMED AS EXEMPT U/S.10(34 ) OF THE ACT. THE ASSESSEE DISALLOWED THE EXPENDITURE INCURRED THE EX EMPT INCOME TO THE TUNE OF RS.4,56,234/-. THE ASSESSING OFFICER A PPLIED THE PROVISION U/S.14A OF THE ACT AND ASSESSED THE EXPEN DITURE TO EARN THE EXEMPT INCOME TO THE TUNE OF RS.18,96,224/-. FURTH ER, IN APPEAL THE CIT(A) WAS OF THE VIEW THAT THE PROVISION OF SECTIO N 14A(2) READ WITH RULE 8D OF THE ACT WOULD BE APPLICABLE. INFACT CAS E OF THE ASSESSEE IS FOR THE A.Y.2005-06. IN CASE TITLED AS GODREJ & BOYCE MFG. CO. 328 ITR 81, BOMBAY HIGH COURT , IT IS SPECIFICALLY HELD THAT RULE 8D IS NOT RETROSPECTIVE AND IT APPLIED FOR THE PERIOD W.E.F.2 008-09 AND DISALLOWANCE HAS TO BE WORKED OUT ON REASONABLE BAS IS U/S.14A OF THE ACT. HOWEVER, AT THE TIME OF ARGUMENT, THE LEARNED REPRESENTATIVE OF THE ASSESSEE TOOK THE PLEA THAT HE RECEIVED THE LON G TERM CAPITAL GAIN DIRECTLY THROUGH BROKER AND DID NOT EXPEND ANY THING NOR RECEIVED LONG TERM CAPITAL GAIN FROM KOTAK PMS, THE REFORE WHEN NO EXPENDITURE WAS INCURRED BY THE ASSESSEE, THEREF ORE THE SAME IS NOT LIABLE TO BE ADDED. SINCE THE MATTER IS BEING ORDE RED TO BE SET ASIDE AND REMANDED TO THE ASSESSING OFFICER, THEREFORE, W E ARE OF THE VIEW ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 18 THAT THIS ISSUE IS REQUIRED TO BE RE-EXAMINED BY TH E ASSESSING OFFICER AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE A SSESSEE IN ACCORDANCE WITH LAW AND IN VIEW OF THE LAW SETTLED IN GODREJ & BOYCE MFG. CO. 328 ITR 81, BOMBAY HIGH COURT . ACCORDINGLY, THESE ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE R EVENUE. ITA NO.4859/M/2012:- 10. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE LEVY OF PENALTY U/S.271(1)(C) AMO UNTING TO RS.7,75,896/- 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE LEVY OF PENALTY U/S.271(1)(C) FOR ALLEGEDLY FURNISHING INACCURATE PARTICULARS, WITHOUT SPECIFYI NG WHICH PARTICULARS HAD BEEN INACCURATELY FILED. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN IGNORING THE DECISION OF THE PUNE TRIBUNAL IN KR A HOLDING AND TRADING P. LTD. VS. DCIT WHICH HAS LED BEFORE HIM. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE LEVY OF PENALTY U/S.271(1)(C) ON AN ISSUE WHICH WAS HIGHLY DEBATABLE, AND ON WHICH TWO VIEWS WERE POSSIBLE. 5. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE LEVY OF PENALTY U/S.271(1)(C), WH EN THE VERY GROUND ON WHICH IT WAS INITIATED, HAD BEEN STR UCK DOWN BY THE COMMISSIONER OF INCOME TAX (APPEALS) IS QUANTUM PROCEEDINGS. ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 19 6. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE PROVISIONS OF LAW, THE APPELLANT SUBMITS TH E ASSESSING OFFICER BE DIRECTED TO DELETE THE PENALTY LEVIED. 7. THE IMPUGNED ORDER OF THE LEARNED DY. COMMISSION ER OF INCOME TAX (APPEALS) IS TECHNICALLY PERVERSE IN AS MUCH AS IT IS AN ORDER WHICH NOT REASONABLE PERSON AWARE OF THE FACTS OF THE CASE AND FAMILIAR WITH THE APPLICATION LAW COULD BE POSSIBLY ARRIVE AT. 8. IN ANY EVENT, THE PENALTY LEVIED IS HIGHLY EXCES SIVE AND ARBITRARY AND REQUIRES TO BE REDUCED SUBSTANTIALLY. 11. THE FACTS OF THE PRESENT CASE ARE THE SAME AS M ENTIONED IN THE ABOVE MENTIONED APPEAL NO 2996/M/2010, HOWEVER, THE FIGURES ARE DIFFERENT AND IN THIS APPEAL THE ASSESSEE CHALLENGE D THE CONFIRMATION OF THE PENALTY LEVIED U/S.271(1)(C) OF THE ACT TO T HE TUNE OF RS.7,75,896/-. ALL THE ISSUES RAISED BY THE ASSESS EE ARE IN CONNECTION WITH THE SET ASIDE THE PENALTY AMOUNTING TO RS.7,75 ,896/-. THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS ARGUED T HAT THE APPELLANT PAID A SUM OF RS.25,86,320/- AS PORTFOLIO MANAGEMEN T FEES ON WHICH THE ASSESSING OFFICER WAS OF THE VIEW THAT THE TDS WAS REQUIRED TO BE DEDUCTED AND THE CLAIM OF THE ASSESSEE WAS DECLINED , HENCE THE ASSESSING OFFICER LEVIED THE PENALTY WRONGLY AND IL LEGALLY WHICH IS NOT LIABLE TO BE SUSTAINABLE IN THE EYES OF LAW IN VIEW OF THE LAW SETTLED DECIDED BY HONBLE INCOME TAX APPELLATE MUMBAI BENCH IN MUKESH M. GUPTA VS. ACIT 19(3), (ITA NO.3898/M/2010 DATED 19 TH OCTOBER 2011 AND HARISH Z. BHUPTANI VS. ITO (I.T.A. ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 20 NO.5711/M/2012 DATED 28 TH FEBRUARY, 2014). IT IS ALSO ARGUED THAT IN THE PRESENT FACTS AND CIRCUMSTANCES THERE ARE TWO P OSSIBLE VIEWS, THEREFORE, NO PENALTY IS LEVIABLE IN VIEW OF THE LA W SETTLED IN DURGA KAMAL RICE MILLS VS. CIT 265 ITR 25 (CALCUTTA) AND CIT VS. RAJ OVERSEAS 336 ITR 261 (P&H). IT IS ALSO ARGUED THAT IF THE CLAIM IS NOT CORRECT THEN THE SAME CANNOT BE TREATED AS CONCEALM ENT OR FURNISHING OF INACCURATE PARTICULARS IN VIEW OF THE LAW SETTLE D IN CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD. 322 ITR 158 (SC). HOWEVER, ON THE OTHER HAND LEARNED REPRESENTATIVE OF THE DEPARTMENT HAS S TRONGLY RELIED UPON THE ORDER PASSED BY THE CIT(A) IN QUESTION. ON THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, IT IS NOT IN DIS PUTE THAT THE ASSESSEE CLAIMED THE PORTFOLIO MANAGEMENT FEES AMOUNTING TO RS.25,86,320/- WHICH WAS NOT FOUND ELIGIBLE IN VIEW OF THE REVENUE . THEREFORE, THE CLAIM OF THE ASSESSEE WAS DECLINED THE PRESENT PENA LTY ORDER HAS BEEN PASSED. THE ASSESSEE CLAIMED THE PORTFOLIO MANAGE MENT FEES AMOUNTING TO RS.25,86,320/- WHICH WAS NOT ALLOWED. IT IS NOT A CASE OF CONCEALMENT OF INCOME OR FURNISHING THE INACCURA TE PARTICULARS. NO DOUBT IN VIEW OF THE LAW SETTLED IN CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD. 322 ITR 158 (SC), IT IS NOT A CASE OF CONCEALMENT AND FURNISHING INACCURATE PARTICULARS. MOREOVER, I N THE SIMILAR CIRCUMSTANCES, THE MUMBAI TRIBUNAL HAS ALSO DELETED THE PENALTY IN VIEW OF THE LAW SETTLED DECIDED BY HONBLE INCOME TAX APPELLATE MUMBAI BENCH IN MUKESH M. GUPTA VS. ACIT 19(3), (IT A NO.3898/M/2010 DATED 19 TH OCTOBER 2011 AND HARISH Z. BHUPTANI VS. ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 21 ITO (I.T.A. NO.5711/M/2012 DATED 28 TH FEBRUARY, 2014). FURTHER, THE ASSESSING OFFICER INITIATED THE PENALTY ON ACCOUNT OF WRONG CLAIM U/S.40A(IA) OF THE ACT AND THE CIT(A) WAS OF THE VI EW THAT THE CASE DOES NOT FALL WITHIN THE SAID PROVISION BUT ALSO DO ES NOT FALL IN VIEW OF THE PROVISION U/S.40A CLAUSE 1 OF THE ACT. THEREFO RE, THE CLAIM OF THE ASSESSEE WAS DECLINED. IN BRIEF THE INITIATION OF THE PENALTY WAS U/S.40A(IA) OF THE ACT WHEREIN THE CIT(A) DECLINED THE CLAIM OF THE ASSESSEE UNDER THE PROVISION U/S.40A CLAUSE 1 OF TH E ACT. IN VIEW OF THE SAID CIRCUMSTANCES THERE IS LOT OF AMBIGUITY TO LEVY THE PENALTY AS INITIATED BY THE ASSESSING OFFICER IN HIS ORDER. TW O DIFFERENT VIEWS HAVE BEEN TAKEN BY BOTH THE AUTHORITY. MOREOVER, W HILE DECIDING THE APPEAL ON MERIT IN THE INSTANT CASE, THE CLAIM OF T HE ASSESSEE WAS ALLOWED AND IN THE SAID CIRCUMSTANCES WHEN THE QUAN TUM HAS BEEN DELETED THEN NO PENALTY IS SUSTAINABLE IN THE EYES OF LAW. THEREFORE, IN THE SAID CIRCUMSTANCES THE FINDING OF THE CIT(A) IS NOT SUSTAINABLE IN THE EYES OF LAW. THEREFORE, WE DELETE THE PENALTY. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS HEREBY ALLOWED. 12. IN THE RESULT BOTH THE APPEALS FILED BY THE ASS ESSEE ARE HEREBY ALLOWED. ITA NO.2996/M/10 & 4859.M.12 A.Y. 2005-06 22 ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MARCH, 2017 SD/- SD/- (G.S.PANNU) (AMARJIT SINGH) ! / ACCOUNTANT MEMBER ' #! /JUDICIAL MEMBER MUMBAI; DATED : 31 ST MARCH, 2017 MP MP MP MP '(!)&! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. & ( ) / THE CIT(A)- 4. & / CIT 5. #' (###) , #) , / DR, ITAT, MUMBAI 6. ( *+, / GUARD FILE. / BY ORDER, ## //TRUE COPY// / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI