GAUTAM RASIKLAL ASHRA, MUMBAI V. ADDL CIT RG 12(3), MUMBAI

ITA 3955/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56155 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 20-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 14-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Keywords: Diversion of income; Cost of acquisition; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, G, MUMBAI BEFORE SHRI R.S. SYAL (A.M.) AND SHRI D.K.AGARWAL ( JM) ITA NO.3955/MUM/2010 (ASSESSMENT YEAR: 2006-2007) MR.GAUTAM RASIKLAL ASHRA 40, HASHIM BUILDING, 4 TH FLOOR, VEER NARIMAN ROAD, MUMBAI-400001 PAN: AABPA0457E ADDL. COMMISSIONER OF INCOME TAX, RANGE 12(3), MUMBAI. APPELLANT V/S RESPONDENT DATE OF HEARING : 20.12.2011 DATE OF PRONOUNCEMENT : 23.12.2011 APPELLANT BY : NONE (WRITTEN SUBMI SSIONS) RESPONDENT BY : SHRI V.V.SHASTRI O R D E R PER D.K.AGARWAL (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 16.2.2010 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2006-07. 2. AT THE TIME OF HEARING, NONE ATTENDED ON BEHALF OF THE ASSESSEE NOR FILE ANY APPLICATION FOR ADJOURNMENT OF THE CASE, HOWEVER, IT WAS FOUND THAT THE ASSESSEE HAS FILED WRITTEN SUBMISSION DATED 22.7.2011 WHEREIN IT WAS SUBMITTED THAT THE APPEAL ITA NO.3955/MUM/2010 (ASSESSMENT YEAR: 2006-2007) 2 MAY BE DECIDED AFTER CONSIDERING THE WRITTEN SUBMISSION FILED BY THE ASSESSEE. THEREFORE, WE HAV E DECIDED TO DISPOSE OF THE APPEAL AFTER CONSIDERING THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE AND AFTER HEARING THE LD.DR. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE AN INDIVIDUAL DERIVES INCOME FROM HOUSE PROPERTY, CAPITAL GAIN FROM SHARE TRANSACTION AND INTEREST INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED EXPENSES OF PMS FEES RS.35,79,290/-, PERFORMANCE BASED FEES RS.7,70,564/-, SERVICE TAX & STAMP DUTY ETC. RS.1,43,692, DEMAT CHARGES RS.81,175/- AND CUSTODIAN FEES RS.35,813/- AGGREGATING TO RS.46,10,536/- AGAINST THE INCOME EARNED ON ACCOUNT OF CAPITAL GAIN ON SHARE TRANSACTIONS. THE ASSESSEE WAS ASKED TO GIVE JUSTIFICATION OF THE ALLOWABILITY OF THE EXPENSES. THE ASSESSEE VIDE ITS REPLY DATED 10.11.2008 INTERALIA STATED THAT THE DEDUCTIONS CLAIMED BY THE ASSESSEE FOR PORTFOLIO MANAGEMENT FEES (PMO) AND OTHER RELEVANT CHARGES ARE FROM THE SALE VALUE I.E. CAP ITAL GAIN AND THE SAME IS ENTIRELY IN ACCORDANCE WITH THE ITA NO.3955/MUM/2010 (ASSESSMENT YEAR: 2006-2007) 3 PROVISIONS OF THE ACT. HOWEVER, THE AO DID NOT ACCEPT THE ASSESSEES CLAIM AND DISALLOWED THE ENTI RE CLAIM OF THE ASSESSEE AMOUNTING TO RS.46,10,534/ - AND ADDED SAME TO THE TOTAL INCOME OF THE ASSESSEE. APART FROM THIS, THE AO HAS ALSO NOTED THAT THE ASSESSEE HAS CLAIMED INTEREST PAYMENT OF RS.4,61,871/- AGAINST THE INCOME FROM OTHER SOURCES. ON BEING ASKED, IT WAS INTERALIA EXPLAINED BY THE ASSESSEE THAT THE ASSESSEE HAS BORROWED MONEY FOR COMMERCIAL EXPEDIENCY AND HAS PAID INTEREST OF RS.4,61,871/- AND THE SAME IS ALLOWABLE IN VIEW OF THE PROVISIONS OF SECTION 57(III) OF THE ACT. HOWEVER, THE AO WHILE OBSERVING THAT THE ASSESSEE HAS FAILED T O ESTABLISH THAT THE CLAIM OF EXPENDITURE OF RS.4,61,871/- WAS EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING OF THE INCOME, DISALLOWE D THE CLAIM OF THE ASSESSEE AND ACCORDINGLY COMPLETED THE ASSESSMENT AT AN INCOME OF RS.5,80,75,120/- VID E ASSESSMENT ORDER DATED 26.12.2008 PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961(IN SHORT THE ACT). 4. ON APPEAL, THE LD.CIT(A), WHILE PARTLY ALLOWING THE APPEAL CONFIRMED THE ABOVE DISALLOWANCES MADE B Y THE AO. ITA NO.3955/MUM/2010 (ASSESSMENT YEAR: 2006-2007) 4 5. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE. 6. GROUND NOS.1,2 AND 3 ARE AGAINST THE SUSTENANCE OF DISALLOWANCE OF PMS FEES RS.35,79,290/-, PERFORMANCE BASED FEES PAID RS.7,70,564/- AND CUSTODIAN FEES PAID RS.35,813/-. 7. IN THE WRITTEN SUBMISSIONS, THE ASSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFO RE THE AO AND THE LD.CIT(A) ALSO RELIED ON THE DECISI ON OF THE PUNE BENCH OF THIS TRIBUNAL IN KRA HOLDING & TRADING P.LTD V/S DCIT IN ITA NO.500/PN/2008 (AY- 2004-05), ITA NO.1320/PN/2008 (AY-2005-06) AND ITA NO.434/PN/2009 (AY-2006-07) DATED 31.5.2011. THE COPY OF THE SAID DECISION WAS ALSO ENCLOSED. 8. ON THE OTHER HAND, THE LD.DR SUBMITS THAT THIS ISSUE IS COVERED IN FAVOUR OF THE REVENUE AND AGAI NST THE ASSESSEE BY THE SUBSEQUENT DECISION OF THE TRIBUNAL IN SHRI HOMI K. BHABHA V/S THE INCOME TAX OFFICER IN ITA NO.3287/MUM/2009(AY 2006-07) DATED 28.9.2011. HE, THEREFORE, SUBMITS THAT THE ITA NO.3955/MUM/2010 (ASSESSMENT YEAR: 2006-2007) 5 DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) BE UPHELD. 9. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABL E ON RECORD. WE FIND MERIT IN THE PLEA OF THE LD. DR TH AT THE ISSUE IS FULLY COVERED IN FAVOUR OF THE REVENUE , WHEREIN THE TRIBUNAL AFTER CONSIDERING THE DECISI ON OF THE CO-ORDINATE BENCH OF TRIBUNAL IN KRA HOLDING & TRADING P.LTD (SUPRA) AND THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN CIT V/S ROSHANBABU MOHAMMED HUSSEIN MERCHANT (2005) 275 ITR 231(BOM) HAS OBSERVED AND HELD VIDE PARAGRAPHS 6 AND 7 AS UNDER: 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. BOTH THE SIDES HAVE PLACED ON RECORD COPIES OF THE ORDERS PASSED BY THE TRIBUNAL IN SUPPORT OF THEIR RESPECTIVE STANDS. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DEVENDRA MOTILAL KOTHARI VS. DCIT [(2011) 50 DTR 369 (MUM.)] [TO WHICH ONE OF US, NAMELY, THE LD. JM IS PARTY] DECIDED THE ISSUE AGAINST THE ASSESSEE BY HOLDING THAT THE PAYMENT OF FEES BY THAT ASSESSEE FOR PORTFOLIO MANAGEMENT SERVICES WAS NEITHER DIVERSION OF INCOME BY OVERRIDING TITLE NOR COST OF ACQUISITION NOR COST OF IMPROVEMENT AND WAS CONSEQUENTLY NOT ELIGIBLE FOR DEDUCTION IN COMPUTING CAPITAL GAIN. THEREAFTER, SIMILAR ISSUE CAME UP BEFORE THE PUNE BENCH OF THE TRIBUNAL IN KRA HOLDING & TRADING P. ITA NO.3955/MUM/2010 (ASSESSMENT YEAR: 2006-2007) 6 LTD. IN ITA NO.500/PN/08 ETC., IN WHICH THE REVENUE RELIED ON THE MUMBAI BENCH ORDER IN DEVENDRA MOTILAL KOTHARI (SUPRA). VIDE ITS ORDER DATED MAY 2011 AND AFTER CONSIDERING THE CASE OF DEVENDRA MOTILAL KOTHARI (SUPRA), THE PUNE BENCH RECORDED A CONTRARY VIEW IN ASSESSEES FAVOUR. IN SO DECIDING, THE PUNE BENCH, INTER ALIA, RELIED ON THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN CIT VS. SHAKUNTALA KANTILAL [(1991) 190 ITR 56 (BOM.)]. ONCE AGAIN SIMILAR ISSUE CAME UP BEFORE THE MUMBAI BENCH OF THE TRIBUNAL IN PRADEEP KUMAR HARLALKA VS. ACIT IN ITA NO.4501/MUM/2010. VIDE ITS ORDER DATED 10.08.2011, THE MUMBAI BENCH CONSIDERED BOTH THE EARLIER DECISIONS ON THE POINT, VIZ., DEVENDRA MOTILAL KOTHARI (SUPRA) AND KRA HOLDING & TRADING P. LTD. (SUPRA). THROUGH AN ELABORATE ORDER, THE MUMBAI BENCH IN LATTER CASE FOLLOWED THE DECISION IN THE CASE OF DEVENDRA MOTILAL KOTHARI (SUPRA) IN PRIORITY OVER THAT OF KRA HOLDING & TRADING P. LTD. (SUPRA). IN DECIDING SO, THE LATTER BENCH OBSERVED THAT THE DECISION OF THE PUNE BENCH IN KRA HOLDING & TRADING P. LTD. IS PRIMARILY BASED ON THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SHAKUNTALA KANTILAL (SUPRA), WHICH HAS BEEN SUBSEQUENTLY HELD TO BE NOT A GOOD LAW BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. ROSHANBABU MOHAMMED HUSSEIN MERCHANT [(2005) 275 ITR 231 (BOM.)]. AS THE LATER JUDGEMENT OVERRULING THE EARLIER JUDGEMENT WAS NOT BROUGHT TO THE NOTICE OF THE PUNE BENCH, THE MUMBAI BENCH OF THE TRIBUNAL IN PRADEEP KUMAR HARLALKA (SUPRA) CHOSE TO FOLLOW THE DECISION IN THE CASE OF DEVENDRA MOTILAL KOTHARI (SUPRA), THEREBY DECIDING THE ISSUE AGAINST THE ASSESSEE. THE POSITION DISCUSSED ABOVE HAS BEEN FAIRLY ADMITTED BY BOTH THE SIDES. 7. FROM THE ABOVE DISCUSSION IT IS SEEN THAT THE FIRST ORDER ON THIS ISSUE WAS PASSED AGAINST THE ASSESSEE IN DEVENDRA MOTILAL KOTHARI (SUPRA). THE SECOND ORDER, IN THE POINT OF TIME BY THE PUNE BENCH IN KRA HOLDINGS (SUPRA), DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AFTER CONSIDERING THE FIRST ORDER. THIRD ORDER, BEING THE LATEST IN THE POINT OF TIME IN PRADEEP KUMAR HARLALKA (SUPRA), ITA NO.3955/MUM/2010 (ASSESSMENT YEAR: 2006-2007) 7 DECIDED THE ISSUE AGAINST THE ASSESSEE AFTER CONSIDERING BOTH THE EARLIER ORDERS. NOT ONLY THAT, THE THIRD ORDER ALSO TOOK NOTE OF THE FACT THE BASI S OF THE PUNE BENCH ORDER, BEING THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN SHAKUNTALA KANTILAL (SUPRA), ALREADY STOOD OVERRULED BY A SUBSEQUENT JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN CIT VS. ROSHANBABU MOHAMMED HUSSEIN MERCHANT (SUPRA), WHICH FACT WAS NOT BROUGHT TO THE NOTICE OF THE BENCH. NO OTHER ORDER, IN FAVOUR OF THE ASSESSEE, HAS BEEN BROUGHT TO OUR NOTICE BY THE LD. AR. ACCORDINGLY IT IS VIVID THAT THE MAJORI TY OPINION (IN TERMS OF THE NUMBER OF ORDERS) ON THE ISSUE AND ALSO THE LATEST ORDER (IN THE POINT OF TIME) TOGETHER WITH THE SPECIAL CIRCUMSTANCES OF THE PUNE BENCH CASE (IN CONSIDERING AN OVERRULED JUDGMENT), BRING US TO A STAGE WHERE THE CURRENT AND THE MAJORITY VIEW TAKEN BY THE TRIBUNAL SO FAR ON THE POINT, IS AGAINST THE ASSESSEE. IN THE ABSENCE OF ANY OTHER CONTRARY MATERIAL OR DISTINGUISHING FEATURE BROUGHT ON RECORD BY THE ASSESSEE, WE RESPECTFULLY FOLLOWING THE ABOVE DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT AND THE TRIBUNAL DATED 28.9.2011 (SUPRA) HOLD THAT THE CLAIM OF THE ASSESSEE IN RESPECT PMS FEES, PERFORMANCE FEES AND CUSTODIAN FEES IS NOT ALLOWABL E AND ACCORDINGLY WE DECLINE TO INTERFERE WITH THE O RDER PASSED BY THE LD. CIT(A) ON THIS ACCOUNT. GROUNDS NO.1 TO 3 TAKEN BY THE ASSESSEE ARE, THEREFORE, REJECTED. ITA NO.3955/MUM/2010 (ASSESSMENT YEAR: 2006-2007) 8 10. GROUND NO.4 IS AGAINST THE SUSTENANCE OF DISALLOWANCE OF INTEREST OF RS.4,61,871/-. 11. IN HIS WRITTEN SUBMISSION, THE ASSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFOR E THE AO AND THE LD. CIT(A) SUBMITS THAT THE PAYMENT OF INTEREST BE ALLOWED. 12. ON THE OTHER HAND, THE LD.DR SUPPORTS THE ORDER OF THE AO AND LD. CIT(A). 13. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABL E ON RECORD. WE FIND THAT THE AO WHILE DISALLOWING THE CLAIM OF THE ASSESSEE HAS OBSERVED THAT THE ASSESS EE HAS FAILED TO ESTABLISH THAT THE CLAIM OF EXPENDITU RE OF RS.4,61,871/- WAS EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING THE INCOME DISCLOSED BY HIM AS INCOME FROM OTHER SOURCES. WE FURTHER FIND THAT ON APPEAL, THE LD. CIT(A) OBSERVED THAT IN THE APPEAL PROCEEDINGS IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05, IT WAS DISALLOWED BY THE L D. CIT(A). SINCE FACTS AND CIRCUMSTANCES OF THE CASE ARE THE SAME AND THE APPELLANT HAS NOT ESTABLISHED NEXU S ITA NO.3955/MUM/2010 (ASSESSMENT YEAR: 2006-2007) 9 BETWEEN THE FUND BORROWED AND INVESTMENT MADE, HE CONFIRMED THE DISALLOWANCE MADE BY THE AO. 14. IN CIT V/S DR. V. P. GOPINATHAN (2001) 248 ITR 449 (SC), IT HAS BEEN HELD (PAGE 449, HEADNOTE): THE ASSESSEE HAD PUT MONEYS IN FIXED DEPOSIT WITH A BANK AND HAD EARNED INTEREST OF RS. 1,17,444. ON THE SECURITY OF THE AMOUNT SO DEPOSITED, THE ASSESSEE TOOK A LOAN FROM THE BANK AND PAID IN RESPECT OF THE LOAN INTEREST OF RS. 90,410. THE QUESTION WAS WHETHER THE ASSESSEE COULD BE TAXED ONLY ON THE DIFFERENCE OF RS. 27,034 : HELD, THAT THE INTEREST THAT THE ASSESSEE RECEIVED FROM THE BANK ON THE FIXED DEPOSIT WAS INCOME IN HIS HANDS AND IT COULD STAND DIMINISHED ONLY IF THERE WAS A PROVISION IN LAW PERMITTING SUCH DIMINUTION. THERE WAS NO SUCH PROVISION OF LAW AND THE INTEREST ON THE LOAN TAKEN FROM THE BANK DID NOT REDUCE HIS INCOME BY WAY OF INTEREST ON THE FIXED DEPOSIT. RESPECTFULLY FOLLOWING THE RATIO OF THE ABOVE DECIS ION AND KEEPING IN VIEW THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE NEXUS BETWEEN THE FUNDS BORROWED AND INVESTMENT MADE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE LD. CIT(A) IN SUSTAINING THE DISALLOWANCE MADE BY THE AO. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, REJECTED. ITA NO.3955/MUM/2010 (ASSESSMENT YEAR: 2006-2007) 10 15. IN THE RESULT, THE ASSESSEES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23RD DEC.2011 . SD SD (R.S. SYAL) (D.K.AGA RWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, 23RD DECEMBER, 2011 SRL: COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI