PRADEEP KUMAR HARLALKA, MUMBAI V. ACIT 12(3), MUMBAI

ITA 4501/MUM/2010

• Counselvise Citation: 450119914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 01-06-2010

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI C BENCH BEFORE SHRI D.MANMOHAN, VICE PRESIDENT & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.4501/MUM/2010 A.Y 2006-07 PRADEEP KUMAR HARLALKA, 14 THAKUR NIWAS, 173, J.N.TATA ROAD, CHURCHGATE, MUMBAI 400 020. PAN: AAAAH 3461 N VS. ASST. COMMISSIONER OF I.T., CIRCLE 12(3), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DIVYESH I. SHAH. RESPONDENT BY : SHRI ALEXANDER CHANDY, SR. DR DATE OF HEARING: 19/07/2011 DATE OF PRONOUNCEMENT: O R D E R PER T.R.SOOD, AM: IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED BU T AT THE TIME OF HEARING LD. COUNSEL OF THE ASSESSEE SUBMITTED TH AT THE ONLY FOLLOWING FOUR DISPUTES ARE INVOLVED: 1. THE LD. CIT(A) ERRED IN HOLDING THAT LOSS ARISING OUT OF TRANSACTION IN FUTURES AND OPTIONS BEFORE 25/01/06 WERE IN THE NAT URE OF SPECULATIVE TRANSACTIONS (ARISING OUT OF GROUND NO. 1). 2. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE O F I) PORTFOLIO ADVISORY FEE OF RS.6,01,224/- & II) 50% OF SHARE TRANSACTION CHARGES AMOUNTING TO R S.1,17,585/- (ARISING OUT OF GROUND NOS.2 & 3) 3. THE LD. CIT(A) ERRED IN NOT ALLOWING DEDUCTION U/S.8 0C AMOUNTING TO RS.30,000/-. (ARISING OUT OF GROUND NO.4) 2. ISSUE NO.1 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTED THAT ASSESSEE HAD O FFERED A SUM OF RS.3,27,687/- ARISING OUT OF F&O TRANSACTIONS UNDER THE HEAD SHORT TERM CAPITAL GAINS. AO OBSERVED THAT AS PER THE PR OVISIONS OF ITA NO.4501/M/10 2 SEC.43[5][D] PROFIT FROM TRANSACTION IN F&O WAS ASS ESSABLE UNDER THE HEAD BUSINESS AND NOT CAPITAL GAINS. HE FURTHER OBSERVED THAT A SUM OF RS.1,35,889/- ON ACCOUNT OF LOSS RELATED TO THE PERIOD BEFORE 25-01-2006 AND THE TOTAL GAIN AFTER THAT DATE WAS R S.4,63,577/-. THEREFORE, AO SUBJECTED THE AMOUNT OF RS.4,63,577/- UNDER THE HEAD BUSINESS INCOME AND THE LOSS AMOUNTING TO RS.1,35,8 89/- WAS ALLOWED TO BE CARRIED FORWARD AS SPECULATION LOSS. ON APPEA L, ACTION OF THE AO HAS BEEN CONFIRMED BY THE LD. CIT(A). 3. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIO N OF THE TRIBUNAL IN THE CASE OF GAJENDRA KUMAR T. AGARWAL VS. ITO, I.T.A.NO.1798/MUM/10 [COPY OF THE ORDER FILED] AND BY CIRCULAR NO.3/2006 DATED 20-7-2006 WHEREIN IN THE EXPLANATOR Y NOTES THIS PROVISION WAS EXPLAINED. 4. ON THE OTHER HAND, LD. DR RELIED ON THE ORDER OF THE CIT(A). 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT THE ISSUE INVOLVED IN THE CASE OF GAJENDRA KUMAR T. AGARWAL V S. ITO [SUPRA] IS TOTALLY DIFFERENT. HOWEVER, AT THE SAME TIME THIS I SSUE IS SETTLED IN FAVOUR OF THE ASSESSEE BECAUSE MOST OF THE BENCHES HAVE TAKEN A VIEW THAT THE DECISION OF THE SPECIAL BENCH OF THE TRIBU NAL IN THE CASE OF SHREE CAPITAL SERVICES LTD. [121 ITD 498] HOLDING T HAT INSERTION OF CLAUSE [D] IN SEC.43[5] IS APPLICABLE FROM A.Y 2006 -07 AND EVEN LOSS INCURRED BEFORE 25-1-06 SHOULD ALSO BE RECKONED AS ONLY BUSINESS LOSS. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO ITA NO.4501/M/10 3 ASSESS THE NET PROFIT FROM F&O AT RS.3,27,687/- UND ER THE HEAD BUSINESS. 6. ISSUE NO.2 : AFTER HEARING BOTH THE PARTIES WE FIND THAT ASSES SEE HAD CLAIMED A SUM OF RS.2,35,170/- ON ACCOUNT OF TR ANSACTION CHARGES UNDER SHARE TRADING EXPENSES. AO NOTED THAT MOST OF THE TRANSACTIONS WERE ON ACCOUNT OF F&O TRANSACTIONS AND, THEREFORE, 50% OF SUCH AMOUNT WAS DISALLOWED AND THE BALANCE OF 50% WAS DI SALLOWED. HE FURTHER FOUND THAT ASSESSEE HAD CLAIMED PORTFOLIO M ANAGEMENT FEE EXPENSES AMOUNTING TO RS.6,01,224/- UNDER THE HEAD SHORT TERM CAPITAL GAINS. THE AO WAS OF THE VIEW THAT NO SUCH EXPENDITURE IS ALLOWABLE U/S.48 AND THEREFORE DISALLOWED THE SAME. 7. ON APPEAL, LD. CIT(A) OBSERVED THAT AS PER SEC.4 8 DEDUCTION FROM CAPITAL GAINS WOULD BE ALLOWED IN A CASE WHERE THE EXPENDITURE IS INCURRED WHOLLY OR EXCLUSIVELY IN CONNECTION WITH T HE TRANSFER OR FOR THE COST OF ACQUISITION OR COST OF IMPROVEMENT THERETO. SINCE THE EXPENDITURE ON ACCOUNT OF PORTFOLIO MANAGEMENT FEE WAS IN THE NATURE OF REVENUE OUTGOING THEREFORE COULD NOT BE TREATED AS COST OF ACQUISITION OF ASSET OR IMPROVEMENT AND SINCE SAME HAD NOTHING TO DO WITH THE TRANSFER, SAME WAS NOT ALLOWABLE. 8. BEFORE US, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT SHARE TRANSACTION CHARGES ARE CHARGED BY THE BROKERS AND THEREFORE SAME SHOULD HAVE BEEN ALLOWED. HOWEVER, HE COULD NOT EVE N GIVEN BIFURCATION AS TO HOW MUCH WAS IN RESPECT OF F&O AC TIVITY AND HOW MUCH RELATED TO THE INVESTMENT. IN RESPECT OF THE I SSUE REGARDING ITA NO.4501/M/10 4 DISALLOWANCE OF PORTFOLIO MANAGEMENT EXPENSES, HE M AINLY SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF KRA HOLDING & TRADING P VT. LTD. VS. DCIT [11 TAXMAN 250]. HE ARGUED THAT THIS DECISION HAS B EEN RENDERED EVEN AFTER CONSIDERING THE DECISION OF THE MUMBAI B ENCH IN THE CASE OF DEVENDRA MOTILAL KOTHARI VS. DCIT [136 TTJ 188] WHE REIN IT WAS HELD THAT PORTFOLIO MANAGEMENT FEE IS NOT ALLOWABLE EXPE NDITURE U/S.48. THIS HAS BEEN DISTINGUISHED IN THE LIGHT OF THE DEC ISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SHAKUNTALA KANTILAL [190 ITR 56]. THEREFORE, THE ISSUE IS COVERED BY THE LATEST DECISION OF PUNE BENCH IN THE CASE OF KRA HOLDING & TRADING PVT. LTD . VS. DCIT [SUPRA]. 9. IN THE ALTERNATIVE THE CLAIM FOR ADVISORY FEE AN D SHARE TRANSACTION SHOULD BE ALLOWED U/S.37[1] WHILE COMPU TING THE PROFITS AND GAINS FROM THE BUSINESS AND PROFESSION. HE ARGU ED THAT PORTFOLIO ADVISORY FEE COULD ALSO BE APPROPRIATELY APPORTIONE D LIKE THE SHARES TRANSACTION CHARGES WHICH HAVE BEEN APPORTIONED BY THE AO @ 50% AS PERTAINING TO THE F&O TRANSACTIONS. THIS FEE SHOULD ALSO BE APPORTIONED AND ALLOWED ACCORDINGLY. 10. ON THE OTHER HAND, LD. DR SUBMITTED THAT PUNE B ENCH OF THE TRIBUNAL IN THE CASE OF KRA HOLDING & TRADING PVT. LTD. VS. DCIT [SUPRA] HAS USED THE EXPRESSION THAT EXPENDITURE I NCURRED IN CONNECTION WITH THE TRANSFER OF CAPITAL ASSETS/SECU RITIES SHOULD BE ALLOWED NOTWITHSTANDING INADEQUACY OF THE EXPRESS P ROVISION OF SLEC.48. THIS ONLY SHOWS THAT THE EXPENDITURE WAS NOT ALLOWABLE AS ITA NO.4501/M/10 5 PER THE PROVISIONS AND THE TRIBUNAL HAS TRIED TO RE WRITE THE LAW. HE FURTHER SUBMITTED THAT IN THE DETAILED DISCUSSION B Y THE PUNE BENCH, ULTIMATELY THE DECISION OF MUMBAI BENCH IN THE CASE OF DEVENDRA MOTILAL KOTHARI VS. DCIT [SUPRA] WHERE AFTER DETAIL ED DISCUSSION PORTFOLIO MANAGEMENT SERVICE FEE WAS HELD TO BE NOT ALLOWABLE UNDER THE HEAD CAPITAL GAINS, WAS DISTINGUISHED ON THE BA SIS OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SHAKUNTALA KANTILAL [SUPRA]. HOWEVER, THE DECISION OF SHAKUNTA LA KANTILAL [SUPRA] CAME UP FOR CONSIDERATION LATER ON BEFORE THE HON'B LE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ROSHANBABU MOHD. HUSSE IN MERCHANT [275 ITR 231]. HE THEN REFERRED TO THE JUDGMENT AND POIN TED OUT THAT WHILE DEALING WITH THIS DECISION AT PARA-18 THE HON'BLE H IGH COURT VERY CLEARLY HELD THAT THE SAID DECISION IS NO LONGER A GOOD LAW IN THE LIGHT OF THE SUBSEQUENT DECISION OF THE APEX COURT. HE POINT ED OUT THAT IN THE DECISION IN THE CASE OF KRA HOLDING & TRADING PVT. LTD. [SUPRA] THE TRIBUNAL HAD DECIDED THE ISSUE WITHOUT NOTICING THE LATEST DECISION OF THE HON'BLE BOMBAY HIGH COURT AND, THEREFORE, THE D ECISION OF KRA HOLDING & TRADING PVT. LTD. [SUPRA] IS ALSO NOT A G OOD LAW AND SHOULD NOT BE FOLLOWED AND RATHER THE DECISION OF CO-ORDIN ATE BENCH IN THE CASE OF DEVENDRA MOTILAL KOTHARI VS. DCIT [SUPRA] S HOULD BE FOLLOWED. 11. HE FURTHER SUBMITTED THAT PORTFOLIO ADVISORY FE E HAS NOTHING TO DO WITH EITHER COST OF ACQUISITION OR EVEN TRANSFER OF SHARES. THE FEE IS CHARGED ON PERCENTAGE BASIS AND EVEN IF SHARES ARE NOT TRANSFERRED OR NO FRESH PURCHASES ARE MADE EVEN THEN SUCH FEE IS C HARGEABLE. HE ITA NO.4501/M/10 6 SUBMITTED THAT THE ALTERNATE CONTENTION OF THE LD. COUNSEL THAT PORTFOLIO CHARGES SHOULD HAVE BEEN ALLOWED U/S.37[1 ] IS NOT MAINTAINABLE BECAUSE NO SUCH CONTENTION WAS RAISED BEFORE THE AO OR CIT(A) AND IN ANY CASE ASSESSEE HAS NOT PRODUCED AN Y MATERIAL BEFORE THE TRIBUNAL TO SHOW THAT PORTFOLIO ADVISORY FEE RE LATED TO THE TRANSACTIONS OF F&O SO AS TO BE ALLOWABLE UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. HE SUBMITTED THAT AS FAR AS THE EXPENDITURE ON SHARE TRANSACTION IS CONCERNED, AO HAS ALREADY BIFU RCATED THE SAME AT 50% RELATING TO F&O TRANSACTIONS BECAUSE THIS WAS C LAIMED UNDER THE HEAD SHARE TRADING EXPENSES WHEREAS PORTFOLIO FEE H AS BEEN CLAIMED UNDER THE HEAD CAPITAL GAINS. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY IN THE LIGHT OF THE MATERIAL ON RECORD AS WELL AS DECISIONS CITE D BY THE PARTIES. THE LD. COUNSEL OF THE ASSESSEE HAS NOT REBUTTED THE AR GUMENT OF THE LD. DR THAT PORTFOLIO ADVISORY FEE HAS BEEN CLAIMED UND ER THE HEAD CAPITAL GAINS, THEREFORE, THE ALTERNATE CONTENTION CANNOT B E ENTERTAINED AND FURTHER TO EXAMINE THE ALLOWABILITY WE NEED TO CONC ENTRATE ONLY ON SEC.48 AND THE SAME CANNOT BE ALLOWED U/S.37 BECAUS E ONLY EXPENDITURE INCURRED IN RELATION TO BUSINESS AND PR OFESSION CAN BE CONSIDERED U/S.37. SECTION 48 WHICH IS THE COMPUTIN G SECTION FOR DETERMINATION OF CAPITAL GAINS READS AS UNDER: SEC . 48. THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAI NS SHALL BE COMPUTED, BY DEDUCTING FROM THE FULL VALUE OF THE C ONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET THE FOLLOWING AMOUNTS, NAMELY : ( I ) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CO NNECTION WITH SUCH TRANSFER; ITA NO.4501/M/10 7 ( II ) THE COST OF ACQUISITION OF THE ASSET AND THE COST OF ANY IMPROVEMENT THERETO: FROM THE ABOVE IT IS CLEAR THAT WHILE COMPUTING THE CAPITAL GAINS ONLY TWO KINDS OF EXPENDITURE CAN BE DEDUCTED FROM FULL VALUE OF CONSIDERATION, VIZ., [I] EXPENDITURE INCURRED WHOLL Y AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER AND [II] THE COST OF ACQUISITION OR ANY IMPROVEMENT THERETO. THE THRUST OF THE ARGUMENT OF LD. COUNSEL OF THE ASSESSEE IS THAT PORTFOLIO ADVISORY FEE WOULD CONST ITUTE AN EXPENDITURE WHICH HAS BEEN INCURRED IN CONNECTION WITH THE TRAN SFOR, BECAUSE OBVIOUSLY IT CANNOT BE ARGUED THAT SUCH EXPENDITURE WAS IN THE NATURE OF COST OF ACQUISITION OR IMPROVEMENT OF THE ASSET. THE LD. DR HAS SPECIFICALLY CONTENDED THAT PORTFOLIO ADVISORY FEE HAS NOTHING TO DO WITH THE TRANFER AND SUCH FEE WAS PAYABLE EVEN IF NO SHA RES WERE TRANSFERRED OR ANY PURCHASE OF SHARES WERE MADE. TH E LD. COUNSEL OF THE ASSESSEE DID NOT REBUT THESE ARGUMENTS. NO DETA ILS HAVE BEEN FILED BEFORE US TO SHOW HOW THIS EXPENDITURE HAS DIRECT N EXUS WITH THE PURCHASE OF SHARES OR TRANSFER OF THE SHARES. THERE FORE, THIS EXPENDITURE CANNOT BE CALLED TO BE AN EXPENDITURE W HICH HAS BEEN INCURRED IN CONNECTION WITH SUCH TRANSACTION. WE FI ND THAT THIS ASPECT WAS HIGHLIGHTED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DEVENDRA MOTILAL KOTHARI VS. DCIT [SUPRA] WHILE DEC IDING THE IDENTICAL ISSUE AGAINST THE ASSESSEE. THE HELD COLUMN OF THE DECISION READS AS UNDER: THE DEDUCTION ON ACCOUNT OF FEES PAID FOR PMS HAS BEEN CLAIMED BY THE ASSESSEE AS DEDUCTION IN COMPUTING CAPITAL GAIN S ARISING FROM SALE OF SHARES AND SECURITIES. HE HOWEVER HAS FAILED TO EXPLAIN AS TO HOW ITA NO.4501/M/10 8 THE SAID FEES COULD BE CONSIDERED AS COST OF ACQUIS ITION OF THE SHARES AND SECURITIES OR THE COST OF ANY IMPROVEMENT THERE TO. HE HAS ALSO FAILED TO EXPLAIN AS TO HOW THE SAID FEES COULD BE TREATED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH SALE OF SHARES AND SECURITIES. ON THE OTHER HAND, THE BASIS ON WHICH THE SAID FEES WAS PAID BY THE ASSESSEE SHOWS THAT IT HAD NO DIRECT NEXUS WITH THE PURCHASE AND SALE OF SHARES AND AS RIGHTLY CONT ENDED BY THE DEPARTMENTAL REPRESENTATIVE, THE SAID FEES WAS PAYA BLE BY THE ASSESSEE GOING BY THE BASIS THEREOF EVEN WITHOUT TH ERE BEING ANY PURCHASE OR SALE OF SHARES IN A PARTICULAR PERIOD. AS A MATTER OF FACT, WHEN THE CIT(A) REQUIRED THE ASSESSEE TO ALLOCATE T HE FEES PAID FOR PMS IN RELATION TO PURCHASE AND SALE OF SHARES AS W ELL AS IN RELATION TO THE SHARES HELD AS INVESTMENT ON THE LAST DATE OF T HE PREVIOUS YEAR, THE ASSESSEE COULD NOT FURNISH SUCH DETAILS NOR COU LD HE GIVE ANY DEFINITE BASIS ON WHICH SUCH ALLOCATION WAS POSSIBL E. THE FEES PAID BY THE ASSESSEE FOR PMS WAS NOT INEXTRICABLY LINKED WI TH THE PARTICULAR INSTANCE OF PURCHASE AND SALE OF SHARES AND SECURIT IES SO AS TO TREAT THE SAME AS EXPENDITURE INCURRED WHOLLY AND EXCLUSI VELY IN CONNECTION WITH SUCH SALE OR THE COST OF ACQUISITION/IMPROVEME NT OF THE SHARES AND SECURITIES SO AS TO BE ELIGIBLE FOR DEDUCTION I N COMPUTING CAPITAL GAINS UNDER S.48. 13. COMING TO THE DECISION OF PUNE BENCH OF THE TRI BUNAL IN THE CASE OF KRA HOLDING & TRADING PVT. LTD. [SUPRA], AF TER PERUSING THE JUDGMENT VERY CAREFULLY WE FIND THAT IN THAT DECISI ON THE DECISION OF CO- ORDINATE BENCH OF MUMBAI TRIBUNAL IN THE CASE OF OF DEVENDRA MOTILAL KOTHARI VS. DCIT [SUPRA] WAS DISTINGUISHED MAINLY O N THE BASIS OF DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. SHAKUNTALA KANTILAL [SUPRA]. THE PUNE BENCH REFERRE D TO VARIOUS PARAS OF HON'BLE BOMBAY HIGH COURTS DECISION IN PARA-22 AND ULTIMATELY CONCLUDED IN PARA-23 THAT WHAT WAS REQUIRED WAS THA T THE CLAIM SHOULD BE BONA FIDE AND CLAIM FOR SUCH GENUINE EXPENDITURE HAS TO BE ALLOWED SO LONG AS INCURRING OF THE EXPENDITURE IS A MATTER OF FACT AND NECESSITY. HOWEVER, AS POINTED OUT BY THE LD. DR TH IS DECISION WAS SPECIFICALLY OVER RULED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF ITA NO.4501/M/10 9 CIT VS. ROSHANBABU MOHD. HUSSEIN MERCHANT [SUPRA] A ND AT PLACITUM 18 IT HAS BEEN OBSERVED AS UNDER: AS REGARDS THE DECISIONS OF THIS COURT IN THE CASE OF CIT VS. SHAKUNTALA KANTILAL [1991] 190 ITR 56 FOLLOWED IN T HE CASE OF ABRAR ALVI [2001] 247 ITR 312] AND THE DECISION OF THE KE RALA HIGH COURT IN THE CASE OF SMT. THRESSIAMMA ABRAHAM (NO.1) [2001] 2 27 ITR 802 WHICH ARE STRONGLY RELIED UPON BY THE COUNSEL FOR T HE ASSESSEE, WE ARE OF THE OPINION THAT THE SAID DECISIONS ARE NO LONGE R GOOD LAW IN THE LIGHT OF THE SUBSEQUENT DECISIONS OF THE APEX COURT REFERRED TO HEREINABOVE. THUS, WITHOUT GOING INTO FURTHER DETAILS WE WOULD O NLY LIKE TO OBSERVE THAT THE DECISION IN THE CASE OF CIT VS. SHAKUNTALA KANTILAL [SUPRA] IS NO MORE A GOOD LAW IN VIEW OF THE LATEST DECISION A ND THEREFORE THAT DECISION CANNOT BE RELIED FOR THE PROPOSITION THAT NECESSITY OF EXPENDITURE WOULD MAKE THE SAME ALLOWABLE. 14. WE WOULD ALSO LIKE TO OBSERVE THAT INCOME OF AN ASSESSEE HAS TO BE CHARGED IN VIEW OF THE FIVE HEADS GIVEN UNDER TH E I.T.ACT. EACH HEAD OF INCOME GIVES DETAILED PROCEDURE TO DETERMIN E THE RECEIPTS AS WELL AS OUT GOINGS AND ONLY THOSE ITEMS CAN BE DEDU CTED WHICH HAVE BEEN SPECIFICALLY PROVIDED UNDER THE RESPECTIVE HEA DS. THIS POSITION WAS MADE CLEAR BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. UDAYAN CHINUBHAI AND ORS. [222 ITR 456]. AGAIN THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. DR. V. P. GOPINATHAN [ 248 ITR 449] WHERE THE ISSUE WAS WHETHER INTEREST PAID BY THE ASSESSEE TO THE BANK AGAINST LOAN TAKEN ON FDR COULD BE ALLOWED AGAINST THE INTEREST INCOME, THE APEX COURT CLEARLY HELD THAT SUCH CLAIM WAS NOT ALLOWABLE BECAUSE INTEREST THAT ASSESSEE RECEIVED FROM THE BA NK WAS INCOME IN HIS HAND AND IT COULD BE DIMINISHED ONLY IF THERE W AS A PROVISION IN LAW ITA NO.4501/M/10 10 WHICH PERMITS SUCH DIMINUTION. IN OTHER WORDS, A DE DUCTION CAN BE ALLOWED UNDER A PARTICULAR HEAD ONLY WHEN THERE IS A PROVISION FOR THE SAME. THIS CAN BE EASILY UNDERSTOOD BY A SIMPLE EXA MPLE. LET US SAY THERE IS ONE MR. X WHO IS A SALARIED EMPLOYEE. HE M AY INCUR SOME EXPENSES IN CONNECTION WITH HIS EMPLOYMENT SAY ON P URCHASE OF BOOKS NECESSARY TO DISCHARGE HIS DUTIES AS AN EMPLOYEE. E ARLIER THERE WAS A PROVISION U/S.16[1][A] FOR STANDARD DEDUCTION AND H E COULD BE ALLOWED SUCH STANDARD DEDUCTION SUBJECT TO LIMITS PRESCRIBE D. NOW, THAT PROVISION HAS BEEN REMOVED AND THUS WHATSOEVER EXPE NDITURE IS INCURRED MAY BE HAVING CLOSE CONNECTION WITH HIS EM PLOYMENT, BUT THE SAME CANNOT BE ALLOWED IN THE ABSENCE OF ANY SUCH P ROVISION. THE SITUATION WOULD BE DIFFERENT IF THE SAME PERSON WAS RECEIVING THE INCOME AS COMMISSION BECAUSE IN THAT CASE THE INCOM E WOULD BE ASSESSABLE UNDER THE HEAD BUSINESS INCOME AND PURCH ASE OF BOOKS FOR RENDERING SUCH SERVICES WOULD CONSTITUTE BUSINESS E XPENDITURE. THIS MEANS THE ALLOWABILITY OF EXPENDITURE IS NOT DEPEND ANT ON THE NECESSITY OF THE EXPENDITURE BUT IT IS BASED ON THE PROVISION OF THE ACT UNDER A PARTICULAR HEAD UNDER WHICH INCOME HAS TO B E ASSESSED. ANOTHER EXAMPLE IS BROKERAGE INCURRED BY A PERSON W HILE GIVING HIS PROPERTY ON RENT. THOUGH THIS EXPENDITURE IS NECESS ARY FOR EARNING RENTAL INCOME BUT IN THE ABSENCE OF ANY PROVISION, THIS EXPENDITURE IS NOT ALLOWABLE. SEE THE DECISION OF HON'BLE DELHI HI GH COURT IN THE CASE OF CIT VS. S. G. GUPTA & SONS [149 ITR 253]. THEREF ORE, IN CASE BEFORE US AS OBSERVED EARLIER THE ALLOWABILITY OF PORTFOLI O ADVISORY FEE HAS TO ITA NO.4501/M/10 11 BE TESTED UNDER THE PROVISIONS OF SEC.48. AS OBSERV ED ABOVE, THE LD. COUNSEL OF THE ASSESSEE DESPITE SPECIFIC ARGUMENT O F LD. DR DID NOT SHOW US AS TO HOW THE PORTFOLIO FEE HAS ANY CONNECT ION WITH THE TRANSFER OF ASSET AND THE SAME CANNOT BE ALLOWED. T HEREFORE THE THEORY THAT A PARTICULAR EXPENDITURE IS GENUINE AND IT IS NOT DISPUTED THAT SAME HAS BEEN INCURRED AND SAME WAS NECESSARY FOR A PARTICULAR PURPOSE, THE EXPENDITURE DOES NOT BECOME ALLOWABLE IF THERE IS NO SPECIFIC PROVISION FOR THE SAME. THEREFORE, IN OUR VIEW THE EXPENDITURE INCURRED IN CONNECTION WITH FEE OF PORTFOLIO MANAGE MENT HAS NOTHING TO DO WITH THE COST OF ACQUISITION OF SHARES OR TRANSA CTION OF SHARES AND, THEREFORE, IS HELD TO BE NOT ALLOWABLE. WE FIND NO FORCE IN THE ALTERNATE SUBMISSIONS ALSO BECAUSE EXPENDITURE HAS BEEN CLAIM ED UNDER THE HEAD CAPITAL GAINS AND NOW ASSESSEE CANNOT MAKE A N EW CASE THAT SUCH EXPENDITURE MAY BE ALLOWED FULLY OR PROPORTION ATELY U/S.37 WITHOUT SHOWING US THAT HOW THIS EXPENDITURE PERTAI NED TO THE INCOME ASSESSABLE UNDER THE HEAD BUSINESS AND ACCORDINGLY WE REJECT THE ALTERNATE CLAIM. THE ABOVE VIEW IS FURTHER SUPPORTE D BY THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . RADIO TALKIES [238 ITR 872]. IN THIS CASE THE ISSUE WAS ALLOWABIL ITY OF EXPENDITURE ON PAYMENT OF RETRENCHMENT COMPENSATION TO THE EX-EMPL OYEES. IT WAS ONE OF THE CONDITIONS PRECEDENT TO THE SALE OF PROP ERTY THAT THE EX- EMPLOYEES MUST BE PAID RETRENCHMENT COMPENSATION. T HE HON'BLE HIGH COURT WHILE REVERSING THE ORDER OF THE TRIBUNA L HELD THAT SUCH ITA NO.4501/M/10 12 EXPENDITURE WAS NOT ALLOWABLE. IN FACT AFTER QUOTIN G THE PROVISION OF SEC.48 IT WAS OBSERVED AS UNDER: THIS SECTION LAYS DOWN THE MODE OF COMPUTATION OF CAPITAL GAINS. TWO ITEMS ARE ALLOWED AS DEDUCTIONS FROM THE FULL VA LUE OF THE CONSIDERATION FOR WHICH THE TRANSFER IS MADE FOR AR RIVING AT CAPITAL GAINS. THE FIRST ITEM IS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER. THE SECOND ITEM IS T HE COST OF ACQUISITION OF THE CAPITAL ASSET AND THE COST OF AN Y IMPROVEMENT THERETO. IN THIS CASE, WE ARE CONCERNED ONLY WITH T HE FIRST ITEM. THE QUESTION THAT ARISES FOR CONSIDERATION IS WHETHER THE RETRENCHMENT COMPENSATION PAID BY THE ASSESSEE TO ITS FORMER EMP LOYEES CAN BE REGARDED AS AN EXPENDITURE INCURRED WHOLLY AND EXCL USIVELY IN CONNECTION WITH THE TRANSFER OF LAND AND BUILDING B Y THE ASSESSEE TO THE PURCHASER. THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER CAN BE EXPENDITURE LIK E COMMISSION PAID TO THE BROKER AND/OR SIMILAR OTHER EXPENDITURE. THE RETRENCHMENT COMPENSATION PAID BY THE ASSESSEE TO ITS EMPLOYEES, IN OUR OPINION, HAS NO CONNECTION WHATSOEVER WITH THE TRANSACTION O F SALE OF THE LAND AND BUILDING. IT IS CONNECTED ONLY WITH THE CLOSURE OF THE BUSINESS OF THE ASSESSEE IN MARCH, 1972. SUCH EXPENDITURE BY NO STRETCH OF IMAGINATION CAN BE REGARDED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE TRANSACTION OF S ALE OF THE PROPERTY. THE RETRENCHMENT COMPENSATION HAS NO CONNECTION WHAT SOEVER WITH THE TRANSFER OF PROPERTY IN QUESTION. THE STIPULATIO N IN THE AGREEMENT MERELY REQUIRES THE OWNER TO CLEAR ALL ITS LIABILIT IES ON CERTAIN ACCOUNTS AND TO KEEP THE TRANSFEREE INDEMNIFIED. THI S STIPULATION CANNOT CHANGE THE CHARACTER OF THE RETRENCHMENT COM PENSATION FROM A LIABILITY ARISING OUT OF THE CLOSURE OF THE BUSIN ESS TO EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF THE ASSET IN QUESTION. FROM THE ABOVE IT IS CLEAR THAT DESPITE THERE BEING A CONDITION FOR PAYMENT OF RETRENCHMENT COMPENSATION BEFORE THE TRA NSFER OF THE PROPERTY I.E. THERE WAS A NECESSITY FOR SUCH EXPEND ITURE TILL THE SAME WAS HELD TO BE NOT ALLOWABLE. SIMILARLY, HON'BLE DE LHI HIGH COURT IN THE CASE OF SMT. SITA NANDA VS. CIT [251 ITR 575] WAS C ONCERNED WITH THE ISSUE REGARDING A CLAIM OF EXPENDITURE IN RESPECT O F PAYMENT OF UNEARNED INCREASE TO THE GOVERNMENT FOR EFFECTING T HE TRANSFER OF LEASE-HOLD RIGHTS. AGAIN THE HON'BLE HIGH COURT AFT ER QUOTING SEC.48 OBSERVED AS UNDER: ITA NO.4501/M/10 13 A BARE READING OF THE PROVISION MAKES IT CLEAR THA T WHAT CAN BE DEDUCTED UNDER SECTION 48(I) IS EXPENSES INCURRED W HOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER. THE AM OUNT WHICH THE ASSESSEE CLAIMED TO BE COVERED WAS NOT REALLY A PAR T OF THE UNEARNED INCREASE. ON THE CONTRARY IT WAS THE AMOUNT PAID FO R MAKING THE PAYMENT DEMANDED BY THE LDO BELATEDLY. THE INTEREST, AS WAS NOTED BY THE TRIBUNAL, HAD TO BE PAID BY THE ASSESSEE AS S HE MADE THE PAYMENT OF UNEARNED INCREASE BELATEDLY. THE CRUCIAL WORDS IN THE PROVISIONS ARE 'IN CONNECTION WITH SUCH TRANSFER'. THE EXPRESSION MEANS INTRINSICALLY LINKED WITH THE TRANSFER. SUCH EXPENDITURE HAS TO BE WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TR ANSFER. EVEN IF SUCH EXPENDITURE HAS SOME NEXUS WITH THE TRANSFER IT DOE S NOT QUALIFY FOR DEDUCTION UNLESS IT IS WHOLLY AND EXCLUSIVELY IN CO NNECTION WITH THE TRANSFER. THE TRIBUNAL WAS, THEREFORE, RIGHT IN ITS CONCLUSION THAT THE PAYMENT OF INTEREST WAS IN THE SHAPE OF DAMAGES FOR LATE PAYMENT OF UNEARNED INCREASE. THAT BEING SO, THE INTEREST PAID CANNOT BE TREATED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN C ONNECTION WITH THE TRANSFER. THE ANSWER TO THE QUESTION IS IN THE NEGA TIVE, IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. THUS IT IS CLEAR THAT UNLESS AND UNTIL EXPENDITURE IS INCURRED IN CONNECTION WITH SUCH TRANSFER THE SAME CANNOT BE A LLOWED AND AS OBSERVED BY US THE EXPENDITURE FOR PAYMENT OF PORTF OLIO MANAGEMENT FEE HAS NOTHING TO DO WITH THE TRANSFER OF SHARES A ND THIS WAS TAKEN AS A SPECIFIC ARGUMENT BY THE LD. DR AGAINST WHICH NO SUBMISSIONS WERE MADE BY THE LD. COUNSEL OF THE ASSESSEE. THEREFORE, IN OUR VIEW SUCH EXPENDITURE CANNOT BE ALLOWED. SIMILAR VIEW WAS TAK EN IN THE CASE OF DEVENDRA MOTILAL KOTHARI VS. DCIT [SUPRA]. IN VIEW OF THIS DISCUSSION, WE FIND NOTHING WRONG WITH THE ORDER OF THE LD. CIT (A) AND CONFIRM THE SAME. 15. HOWEVER, AS FAR AS SHARE TRANSACTION CHARGES AR E CONCERNED THEY WOULD BE ALLOWABLE IF THEY ARE IN THE NATURE O F SHARE BROKERAGE OR ANY OTHER CHARGES CHARGED BY THE BROKER, BUT AT THE SAME TIME LD. COUNSEL OF THE ASSESSEE COULD NOT GIVE THE EXACT NA TURE OF THE CHARGES AND ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD. C IT(A) AND REMIT THE ITA NO.4501/M/10 14 MATTER TO THE FILE OF THE AO WITH A DIRECTION TO EX AMINE THE EXACT NATURE OF THE CHARGES AND THEN ADJUDICATE THIS ISSU E. 16. ISSUE NO.3 : AFTER HEARING BOTH THE PARTIES WE FIND THAT ASSES SEE HAD INVESTED A SUM OF RS.30,000/- IN TAX SAVING SCH EME OF MUTUAL FUNDS AND DEDUCTION FOR THE SAME U/S.80C WAS NOT CL AIMED IN THE ORIGINAL RETURN. IN FACT, IT WAS SUBMITTED BEFORE U S THAT THE CLAIM WAS MADE BY WAY OF A LETTER WITHOUT REVISING THE RETURN . AO HAS NOT DEALT WITH THIS ISSUE. THE LD. CIT(A) ON APPEAL REJECTED THE CLAIM ON THE BASIS THAT THE CLAIM COULD NOT BE ALLOWED IN THE AB SENCE OF REVISED RETURN BY FOLLOWING THE DECISION OF THE HON'BLE SUP REME COURT IN THE CASE OF GOETZE [INDIA] LTD. VS. CIT [284 ITR 323]. 17. BEFORE US, LD. COUNSEL OF THE ASSESSEE ARGUED T HAT ASSESSEE HAD MADE INVESTMENT OF RS.30,000/- WHICH WAS ALLOWA BLE AS DEDUCTION U/S.80-C. THIS ISSUE WAS TAKEN UP BEFORE THE LD. CI T(A) WHO DISMISSED THE SAME IN VIEW OF THE DECISION OF THE HON'BLE SUP REME COURT IN THE CASE OF GOETZE [INDIA] LTD. VS. CIT [SUPRA]. HE SUB MITTED THAT WHEN CLAIM IS MADE FOR THE FIRST TIME BEFORE THE APPELLA TE AUTHORITIES, THEN SAME SHOULD HAVE BEEN ALLOWED. HE RELIED ON THE DEC ISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF CHICAGO PNEUMA TICS INDIA LTD. VS. DCIT [15 SOT 252]. 18. ON THE OTHER HAND, LD. DR SUBMITTED THAT AO HAS NO RIGHT TO ALLOW ANY CLAIM IN THE ABSENCE OF REVISED RETURN AN D, THEREFORE, LD. CIT(A) WAS CORRECT IN DISMISSING THE CLAIM PARTICUL ARLY IN VIEW OF THE DECISION OF HON'BLE BOMBAY HIGH COURT. ITA NO.4501/M/10 15 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT NO DOUBT THAT A CLAIM CANNOT BE ALLOWED WITHOUT REV ISED RETURN IN THE LIGHT OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF GOETZE [INDIA] LTD. VS. CIT [SUPRA]. HOWEVER, THE H ON'BLE SUPREME COURT ITSELF HAS OBSERVED IN THE CASE OF GOETZE [IN DIA] LTD. VS. CIT [SUPRA] THAT THIS RESTRICTION IS NOT APPLICABLE IF THE ISSUE IS RAISED BEFORE THE APPELLATE AUTHORITY. THEREFORE, THE POWER OF TH E APPELLATE AUTHORITY TO ENTERTAIN SUCH CLAIM IS STILL THERE. THEREFORE, IN THE INTERESTS OF JUSTICE WE SET ASIDE THE ORDER OF THE LD. CIT(A) AN D REMIT THE MATTER TO THE FILE OF THE AO WITH A DIRECTION TO CONSIDER THI S CLAIM. 20. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 10/8/2011. SD/- SD/- (D.MANMOHAN) (T.R.SOOD) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI: 10/8/2011. P/-*