AMRIT DIAMOND TRADE CENTRE P.LTD, MUMBAI V. DCIT 5(1), MUMBAI

ITA 5011/MUM/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0129 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 09-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V VIDYADHAR
• Assessee Lawyers: SANJAY PAREKH
• Keywords: Earning of tax free income
• Section: 143(3); 142(1); 14A

Judgement Text

1 ITA 5011/MUM/2015 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI JOGINDER SINGH(JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.5011/MUM/2015 (ASSESSMENT YEAR: 2010-11) M/S AMRIT DIAMOND TRADE CENTRE PVT LTD, GROUND FLOOR COOPER BLDG, TATA ROAD NO.1 GIRGAUM, MUMBAI 400 004 PAN : AAECA8104E VS DCIT, CIRCLE 5(1), MUMBAI APPELLANT BY SHRI SANJAY PAREKH REVENUE BY SHRI V VIDYADHAR DATE OF HEARING 07-02-2018 DATE OF PRONOUNCEMENT 09-03-2018 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE CIT(A)-10, MUMBAI DATED 24-07-2015 AND IT PERTAINS TO AY 2010-11. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E, A PRIVATE LIMITED COMPANY CARRYING ON BUSINESS OF HIRING OF LOCKERS A ND CABINS, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 28-07-2010 DECLARING TOTAL INCOME AT RS.62,03,957. THE CASE H AS BEEN SELECTED FOR SCRUTINY AND NOTICES U/S 143(2) AND 142(1) OF THE A CT, WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FURNISHED DETAILS, A S CALLED FOR. THE 2 ITA 5011/MUM/2015 ASSESSMENT WAS COMPLETED U/S 143(3) ON 31-01-2013 D ETERMINING TOTAL INCOME AT RS.67,49,810 INTERALIA MAKING ADDITION TO WARDS DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOM E U/S 14A FOR RS.3,91,045 AND REDUCED BROUGHT FORWARD SHORT TERM CAPITAL LOSS TO RS.30,82,552 AS AGAINST CLAIM OF THE ASSESSEE AT RS .32,35,358. 3. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE AO WAS INCORRECT IN DISALLOWING EXPENDITURE INCURRE D IN RELATION TO EXEMPT INCOME OF RS.3,91,045 WHICH CONSISTS OF DISA LLOWANCE OF DIRECT EXPENSES U/R 8D(2)(I) IN RESPECT OF BANK CHARGES AN D PMS CHARGES OF RS.47,947 AND HALF PERCENT OF AVERAGE VALUE OF INVE STMENTS OF RS.3,43,098 U/R 8D(2)(III), WITHOUT APPRECIATING TH E FACT THAT THE TOTAL INVESTMENTS IN ASSET SIDE OF THE BALANCE-SHEET CONS ISTING OF INVESTMENTS WHICH YIELD DIVIDEND BEING EXEMPT INCOME AND ALSO I NCOMES WHICH DID NOT YIELD EXEMPT INCOME. INSOFAR AS REDUCING SHORT TERM CAPITAL LOSS OF RS.1,54,806, THE AO WAS ERRED IN EXCLUDING PMS FEES FROM LOSS BROUGHT FORWARD FROM EARLIER YEARS IGNORING THE FACT THAT T HE ASSESSEE HAS PREFERRED APPEAL AGAINST DISALLOWANCE OF PMS CHARGE S AGAINST SHORT TERM CAPITAL LOSS. THE CIT(A), AFTER CONSIDERING R ELEVANT SUBMISSIONS OF THE ASSESSEE PARTLY ALLOWED APPEAL FILED BY THE ASS ESSEE, WHEREIN HE HAS UPHELD ADDITION MADE BY THE AO TOWARDS DISALLOW ANCE OF DIRECT EXPENSES BEING BANK CHARGES AND DMAT CHARGES AND AL SO PMS CHARGES 3 ITA 5011/MUM/2015 OF RS.47,947 AND RULE 8D(2)(I); HOWEVER, DIRECTED T HE AO TO RE-CALCULATE DISALLOWANCE WORKED OUT U/R 8D(2)(III) BY CONSIDERI NG INVESTMENTS WHICH EARNED EXEMPT INCOME, BUT NOT ON THE ENTIRE INVESTM ENT AS PER BALANCE- SHEET. SIMILARLY, THE CIT(A) HAS UPHELD BROUGHT FO RWARD SHORT TERM CAPITAL LOSS REDUCED BY THE ASSESSEE TO RS.30,80,55 2, AS AGAINST CLAIM OF THE ASSESSEE OF RS.32,35,358 BY HOLDING THAT THE ASSESSEE FAILED TO FILE ANY WORKING SHOWING AS TO HOW THE AO SHOULD AL LOW HIGHER BROUGHT FORWARD SHORT TERM CAPITAL LOSS. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF PMS CHARGES OF RS.43,569 U/S 14A R.W.R. 8D(2)(I) OF I.T. RULES, 1962. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE LD.CI T(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.43,569 BEING PORT FOLIO MANAGEMENT SERVICE CHARGES U/R 8D(2)(I) WITHOUT APPRECIATING T HE FACT THAT THE ASSESSEE IS IN THE BUSINESS OF INVESTMENTS AS WELL AS TRADING IN SHARES AND SECURITIES AND HENCE, PMS CHARGES PAID PERTAINS TO BOTH ACTIVITY OF INVESTMENT AS WELL AS SHARE TRADING AND ACCORDINGLY , THE AO OUGHT TO HAVE APPORTIONED PMS CHARGES IN RESPECT OF BOTH ACT IVITIES. THE LD.AR FURTHER SUBMITTED THAT THE LD.CIT(A) ERRED IN TREAT ING PMS FEES PAID AS AN EXPENDITURE RELATABLE TO EARNING DIVIDEND INCOME AND NOT AS SHORT TERM CAPITAL LOSS LIABLE TO BE CARRIED FORWARD. TH E LD.AR FURTHER SUBMITTED THAT THE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 4 ITA 5011/MUM/2015 2009-10 IN ITA NO.2642/MUM/2013 HAS HELD THAT PMS F EES IS ALLOWABLE DEDUCTION WHILE COMPUTING INCOME UNDER THE HEAD CA PITAL GAIN. 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. THE AO DISALLOWED EXPENDITURE INCURRED IN RELATION TO EXEM PT INCOME IN RESPECT OF PMS CHARGES U/R 8D(2)(I) ON THE GROUND THAT PMS FEES PAID IS DIRECTLY RELATABLE TO EARNING EXEMPT INCOME. IT IS THE CONT ENTION OF THE ASSESSEE THAT PMS FEES PAID TO PORTFOLIO MANAGERS IS IN RESP ECT OF INVESTMENT AS WELL AS TRADING ACTIVITY AND ACCORDINGLY, THE AO OU GHT TO HAVE ALLOCATED PMS FEES ON THE BASIS OF INCOME EARNED BY WAY OF DI VIDENDS AS WELL AS SHORT TERM CAPITAL LOSS OR GAIN AND ALSO ALLOWED DE DUCTION TOWARDS PMS FEES PAID WHILE COMPUTING SHORT TERM CAPITAL OR LON G TERM CAPITAL GAIN. 6. HAVING HEARD BOTH THE SIDES, WE FIND MERITS IN T HE ARGUMENTS OF THE EASSESSEE FOR THE REASON THAT WHEN THE ASSESSEE IS IN THE COMPOSITE BUSINESS OF INVESTMENTS IN SHARES AS WELL AS TRADIN G IN SHARES, PMS FEES PAID TO PORTFOLIO MANAGERS IS ATTRIBUTABLE TO BOTH ACTIVITY AND ACCORDINGLY, THE AO OUGHT TO HAVE APPORTIONED PMS F EES ON THE BASIS OF EXEMPT INCOME AND INCOME WHICH IS TAXABLE UNDER THE HEAD CAPITAL GAIN. WE FURTHER NOTICE THAT THE ITAT IN ASSESSEE S OWN CASE IN ITA NO.2642/MUM/2013 DATED 15-01-2016 FOR AY 2009-10 HA S CONSIDERED IDENTICAL ISSUE AND AFTER CONSIDERING THE FACTS HAS HELD THAT PMS FEES IS AN ALLOWABLE DEDUCTION WHILE COMPUTING CAPITAL GAIN . THEREFORE, WE ARE 5 ITA 5011/MUM/2015 OF THE CONSIDERED VIEW THAT THE AO WAS ERRED IN DIS ALLOWING PMS FEES U/R 8D(2)(I) WITHOUT APPORTIONING THE SAID EXPENDIT URE BETWEEN EXEMPT INCOME AND INCOME TAXABLE UNDER THE HEAD CAPITAL GA INS. HENCE, WE DIRECT THE AO TO APPORTION THE PMS CHARGES BETWEEN EXEMPT INCOME AND TAXABLE INCOME AND ALSO DIRECT HIM TO ALLOW PMS CHARGES TO SHORT TERM CAPITAL GAIN TO BE ALLOWED AS DEDUCTION WHILE COMPUTING INCOME UNDER THE HEAD CAPITAL GAINS. 7. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N IS SET OFF OF BROUGHT FORWARD CAPITAL LOSS. THE ASSESSEE HAS SET OFF BROUGHT FORWARD CAPITAL LOSS OF RS.32,35,358. THE AO HAS REDUCED B ROUGHT FORWARD CAPITAL LOSS OF RS.30,82,552 ON THE GROUND THAT IN THE EARLIER ASSESSMENT YEAR, PMS FEES CLAIMED AS EXPENDITURE IN RELATION T O TRANSFER OF SHARES HAS BEEN DISALLOWED. IT IS THE CONTENTION OF THE A SSESSEE THAT IT HAS CHALLENGED DISALLOWANCE OF PMS CHARGES AGAINST CAPI TAL GAIN AND THE ITAT IN ITA NO.2642/MUM/2013 DATED 15-01-2016 FOR A Y 2009-10 HAS CONSIDERED THE ISSUE OF PMS CHARGES AND DEDUCTIBILI TY OF SUCH EXPENSES AGAINST INCOME FROM CAPITAL GAIN. THE ITAT, AFTER CONSIDERING RELEVANT FACTS HAS DIRECTED THE AO TO ALLOW PMS FEES WHILE C OMPUTING CAPITAL GAIN. WE FIND THAT THE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 HAS CONSIDERED THE ISSUE OF PMS FEES W HILE COMPUTING INCOME UNDER THE HEAD CAPITAL GAINS AND BY FOLLOW ING THE ORDER OF THE CO-ORDINATE BENCH OF ITAT, PUNE IN KRA HOLDINGS AND TRADINGS PVT LTD 6 ITA 5011/MUM/2015 VS DCIT (2011) 46 SOT 19 (PUNE) HELD THAT PMS FEES IS DEDUCTIBLE EXPENDITURE WHILE COMPUTING INCOME UNDER THE HEAD CAPITAL GAINS. THE AO HAS DISALLOWED BROUGHT FORWARD LOSS TO THE EXTEN T OF PMS CHARGES DISALLOWED IN EARLIER YEAR. SINCE, THE ITAT HAS AL LOWED PMS CHARGES AGAINST INCOME FROM CAPITAL GAINS, THE LOSS CLAIMED BY THE ASSESSEE INCLUDING PMS CHARGES IN THE EARLIER YEAR IS ALLOWE D TO BE SET OFF AGAINST CURRENT YEARS INCOME. THEREFORE, WE DIRECT THE AO TO ALLOW SHORT TERM CAPITAL LOSS AS CLAIMED BY THE ASSESSEE AFTER CONSI DERING RELEVANT FACTS. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH MARCH, 2018. SD/- SD/- (JOGINDER SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 09 TH MARCH, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER SR.PS, ITAT, MUMBAI