ACIT, Cir-11 (1) Pune, Pune V. KRA Holding and Trading P. Ltd., Pune

ITA 665/PUN/2012

• Counselvise Citation: 66524514 RSA 2012
• Duration Of Justice: 1 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-09-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 30-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R D ONKAR
• Assessee Lawyers: M S VERMA
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.94/PN/2012 (ASSESSMENT YEAR : 2007-08) ARA TRADING & INVESTMENTS PVT. LTD., PUNE (SINCE AMALGAMATED WITH RDA HOLDING & TRADING PVT. LTD.) 12, BOAT CLUB ROAD, RIVERSIDE ESTATE, PUNE 411 001 PAN : AABCA5138R . APPELLANT VS. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 1(1), PUNE . RESPONDENT ITA NO.337/PN/2012 (ASSESSMENT YEAR : 2007-08) DY. COMMISSIONER OF INCOME TAX PUNE . APPELLANT VS. ARA TRADING & INVESTMENTS PVT. LTD., PUNE 12, BOAT CLUB ROAD, RIVERSIDE ESTATE, PUNE 411 001 PAN : AABCA5138R . RESPONDENT ITA NO.665/PN/2012 (ASSESSMENT YEAR : 2008-09) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 11(1), PUNE . APPELLANT VS. KRA HOLDING & TRADING PVT. LTD. 12, RIVERSIDE ESTATE, BOAT CLUB ROAD, PUNE 1. PAN : AAACK7301F . RESPONDENT ITA NO.703/PN/2012 (ASSESSMENT YEAR : 2008-09) KRA HOLDING & TRADING PVT. LTD., PUNE (SINCE AMALGAMATED WITH RDA HOLDING & TRADING PVT. LTD.) 12, BOAT CLUB ROAD, RIVERSIDE ESTATE, PUNE 411 001. PAN : AAACK7301F . APPELLANT VS. DY. COMMISSIONER OF INCOME TAX CIRCLE 11(1), PUNE . RESPONDENT ITA NO.94/PN/2012 ITA NO.337/PN/2012 ITA NO. 665/PN/2012 ITA NO. 703/PN/2012 ITA NO. 1857/PN/2012 ITA NO. 2035/PN/2012 ITA NO.1857/PN/2012 (ASSESSMENT YEAR : 2008-09) ARA TRADING & INVESTMENTS PVT. LTD., PUNE (SINCE AMALGAMATED WITH RDA HOLDING & TRADING PVT. LTD.) 12, BOAT CLUB ROAD, RIVERSIDE ESTATE, PUNE 411 001 PAN : AABCA5138R . APPELLANT VS. DY. COMMISSIONER OF INCOME TAX CIRCLE 1(1), PUNE . RESPONDENT ITA NO.2035/PN/2012 (ASSESSMENT YEAR : 2008-09) DY. COMMISSIONER OF INCOME TAX PUNE . APPELLANT VS. ARA TRADING & INVESTMENTS PVT. LTD., PUNE 12, BOAT CLUB ROAD, RIVERSIDE ESTATE, PUNE 411 001 PAN : AABCA5138R . RESPONDENT APPELLANT BY : MR. R. D. ONKAR RESPONDENT BY : MS. M. S. VERMA DATE OF HEARING : 12-09-2013 DATE OF PRONOUNCEMENT : 19-09-2013 ORDER PER G. S. PANNU, AM THE CAPTIONED SIX APPEALS RELATE TO TWO ASSESSEES B ELONGING TO THE SAME GROUP AND WHO ARE INVOLVED IN SIMILAR ACTIVITI ES. IT WAS ALSO A COMMON POINT BETWEEN THE RIVAL COUNSELS THAT THE ISSUES IN VOLVED AND THE FACTS AND CIRCUMSTANCES RELATING TO BOTH THE ASSESSEES STAND ON IDENTICAL FOOTING AND ARE COVERED BY THE PRECEDENTS IN THE OWN CASES OF T HE CAPTIONED TWO ASSESSEES OF EARLIER YEARS. 2. IN THIS BACKGROUND, WE MAY NOW PROCEED TO CONSID ER AND DISPOSE OF THE CAPTIONED APPEALS. ITA NO.94/PN/2012 ITA NO.337/PN/2012 ITA NO. 665/PN/2012 ITA NO. 703/PN/2012 ITA NO. 1857/PN/2012 ITA NO. 2035/PN/2012 3. FIRST, WE MAY TAKE-UP THE CROSS-APPEALS IN ITA N O. 703 & 665/PN/2012 PREFERRED BY THE ASSESSEE AND THE REVENUE RESPECTIV ELY FOR ASSESSMENT YEAR 2008-09 IN THE CASE OF KRA HOLDING & TRADING PVT. L TD., PUNE. IN THE APPEAL OF THE REVENUE DIRECTED AGAINST THE ORDER OF THE CIT(A ) DATED 20.10.2011, THE SOLITARY ISSUE RAISED BY THE REVENUE IS THAT THE CI T(A) ERRED IN TREATING THE INCOME EARNED FROM SALE AND PURCHASE OF SHARES AS A CAPITAL GAINS INSTEAD OF BUSINESS INCOME TREATED BY THE ASSESSING OFFICER. 4. THE RELEVANT FACTS ARE THAT ASSESSEE IS A COMPAN Y ENGAGED IN THE BUSINESS OF INVESTMENT IN FINANCIAL INSTRUMENTS AND IS A NON-BANKING FINANCIAL COMPANY REGISTERED WITH RESERVE BANK OF INDIA AND I S AN INVESTMENT COMPANY PROMOTED BY THE OWNERS OF THERMAX GROUP OF COMPANIE S. THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAD DECLARED SHORT TE RM CAPITAL GAIN ON SALE OF SHARES AT RS.79,28,679/- AND LONG TERM CAPITAL GAIN ON SALE OF SHARES AT RS.8,60,49,555/- DEPENDING ON THE PERIOD OF HOLDING OF SHARES. THE SHORT TERM CAPITAL GAIN WAS OFFERED TO TAX WHEREAS THE LONG TE RM CAPITAL GAIN WAS CLAIMED AS EXEMPT. THE ENTIRE ACTIVITY OF DEALING IN SHARES AND MUTUAL FUNDS WAS TREATED BY THE ASSESSEE AS AN INVESTMENT ACTIVITY A ND NOT AS A BUSINESS ACTIVITY. FOLLOWING HIS STAND FOR THE EARLIER ASSES SMENT YEARS I.E. FROM ASSESSMENT YEARS 2004-05 TO 2007-08, THE ASSESSING OFFICER TREATED THE ENTIRE CAPITAL GAINS DECLARED BY THE ASSESSEE AS B USINESS INCOME ON THE GROUND THAT SUCH ACTIVITY WAS AN ACTIVITY OF BUSINE SS. THE CIT(A) HOWEVER REVERSED THE ORDER OF THE ASSESSING OFFICER FOLLOWI NG THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE PRECEDI NG YEARS I.E. ASSESSMENT YEARS 2004-05, 2005-06 AND 2006-07 VIDE ITA NOS. 500/1320/499/1321/1322/PN/2008 AND ITA NO. 434/806/ PN/2009 DATED 31 ST MAY, 2011. AGAINST THE AFORESAID DECISION OF THE CI T(A), REVENUE IS IN APPEAL BEFORE US. ITA NO.94/PN/2012 ITA NO.337/PN/2012 ITA NO. 665/PN/2012 ITA NO. 703/PN/2012 ITA NO. 1857/PN/2012 ITA NO. 2035/PN/2012 5. BEFORE US IT WAS A COMMON POINT BETWEEN THE PART IES THAT THE ORDER OF THE TRIBUNAL DATED 31 ST MAY, 2011 (SUPRA) FOR ASSESSMENT YEARS 2004-05 TO 2006-07 CONTINUES TO HOLD THE FIELD AND HAS NOT BEI NG ALTERED BY ANY HIGHER AUTHORITY. FURTHER, IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 ALSO THE TRIBUNAL VIDE ORDER IN ITA NOS. 356 & 240/ PN/2011 DATED 25.07.2012 HAS UPHELD THE STAND OF THE ASSESSEE TO THE EFFECT THAT INCOME EARNED FROM SALE AND PURCHASE OF SHARES WAS ASSESSABLE AS CAPI TAL GAIN INSTEAD OF BUSINESS INCOME AS CONTENDED BY THE ASSESSING OFF ICER. 6. IN VIEW OF THE AFORESAID PRECEDENTS IN THE ASSES SEES OWN CASE, WE FIND NO ERROR ON THE PART OF THE CIT(A) IN DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE ORDER OF THE CIT(A) IS H EREBY AFFIRMED. 7. RESULTANTLY, APPEAL OF THE REVENUE IS IN ITA NO. 665/PN/2012 FOR ASSESSMENT YEAR 2008-09 IS DISMISSED. 8. NOW, COMING TO THE CROSS-APPEAL OF THE ASSESSEE I.E. KRA HOLDING & TRADING PVT. LTD., PUNE IN ITA NO.703/PN/2012 FOR A SSESSMENT YEAR 2008-09 WHICH IS DIRECTED AGAINST THE ORDER OF THE COMMISSI ONER OF INCOME TAX (APPEALS)-I, PUNE DATED 20.10.2011 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 30.11.2010 PASSED BY THE ASSESSING OFFICER, U NDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 9. IN THE APPEAL OF THE ASSESSEE, THE SOLITARY ISSU E 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. ITA NO.94/PN/2012 ITA NO.337/PN/2012 ITA NO. 665/PN/2012 ITA NO. 703/PN/2012 ITA NO. 1857/PN/2012 ITA NO. 2035/PN/2012 10. IN THIS REGARD, THE ASSESSING OFFICER NOTICED T HAT ASSESSEE HAD INCURRED EXPENDITURE OF RS.2,79,31,009/- REPRESENTING PAYMEN TS TO ENAM ASSET MANAGEMENT COMPANY PVT. LTD. AS PORTFOLIO MANAGEMEN T FEES IN TERMS OF AN INVESTMENT MANAGEMENT AGREEMENT DATED 01.01.2005. F OLLOWING HIS DECISION FOR THE EARLIER ASSESSMENT YEARS I.E. ASSESSMENT YE AR 2004-05 TO 2007-08, THE ASSESSING OFFICER DISALLOWED THE EXPENSE AGAINST WH ICH ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) NOTED THAT SIM ILAR ISSUE FOR ASSESSMENT YEARS 2004-05 TO 2006-07 WAS ADJUDICATED BY THE TRI BUNAL 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 THA T SUBSEQUENTLY MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ONE SHR I HOMI K. BHABHA VS. ITO IN ITA NO. 3287/MUM/2009 DECIDED A SIMILAR ISSUE AG AINST THE ASSESSEE AND THEREFORE HE HELD THE ISSUE AGAINST THE ASSESSEE. I N 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 ASSESSMENT YEAR 2007-08 CAME UP BEFORE THE TRIBUNAL IN ITA NO. 356 & 240/PN/2011 DATED 25.07.2012 AND AFTER CONSIDERING THE DIVERGEN T VIEW OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SHRI HOMI K. B HABHA (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 ISS UE IS ACCORDINGLY LIABLE TO BE DECIDED IN FAVOUR OF THE ASSESSEE. 12. THE LEARNED CIT(DR) APPEARING FOR THE REVENUE H AS NOT CONTROVERTED THE FACTUAL MATRIX BROUGHT OUT BY THE LEARNED COUNS EL SO HOWEVER SHE HAS RELIED UPON THE ORDER OF THE CIT(A) IN SUPPORT OF T HE CASE OF THE REVENUE. 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND ALSO THE PRECEDENT IN THE ASSESSEES OWN CASE BY WAY OF THE ORDER OF THE TRIBUNAL ITA NO.94/PN/2012 ITA NO.337/PN/2012 ITA NO. 665/PN/2012 ITA NO. 703/PN/2012 ITA NO. 1857/PN/2012 ITA NO. 2035/PN/2012 DATED 25.07.2012 (SUPRA). IN THE SAID CASE, THE TRI BUNAL CONSIDERED THE ALLOWABILITY OF EXPENDITURE INCURRED BY WAY OF PAYM ENT OF FEES OF ENAM ASSET MANAGEMENT COMPANY PVT. LTD. IN TERMS OF THE INVEST MENT 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 B EEN 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 AND THAT THE REVENUE HAD NOT PREFERRED ANY APPEAL AGAINST TH E ORDER OF THE TRIBUNAL ALLOWING THE CLAIM OF DEDUCTION OF EXPENDITURE BY W AY 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 1 1 OF ITS ORDER DATED 25.07.2012 :- 11. THE DECISION OF THE MUMBAI BENCH OF THE TRIBUN AL 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 SCHEM E FEES IS NOT DEDUCTIBLE AGAINST CAPITAL GAINS. THE DECISION OF THE PUNE BEN CH OF THE TRIBUNAL IN THE CASE OF KRA HOLDING & TRADING WAS NOT FOLLOWED BY T HE MUMBAI BENCH IN THE ABOVE CITED DECISION. THE MUMBAI BENCH FOLLOWING OT HER DECISIONS OF THE COORDINATE BENCHES OF THE TRIBUNAL DECLINED TO FOLL OW THE DECISION IN THE CASE OF KRA HOLDING & TRADING (SUPRA). IT IS THE SETTLED PROPOSITION OF LAW THAT WHEN TWO VIEW ARE POSSIBLE ON THE SAME ISSUE THE VIEW WH ICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED. [CIT VS. VEGETABLE PRO DUCTS 88 ITR 192 (SC)]. FURTHER, IN THE INSTANT CASE THE TRIBUNAL IN ASSESS EES OWN CASE HAS ALREADY TAKEN A VIEW IN FAVOUR OF THE ASSESSEE. SINCE THE A O & CIT(A) HAVE FOLLOWED THE ORDER FOR EARLIER YEAR IN THE CASE OF THE ASSES SEE AND SINCE THE ORDER OF CIT(A) FOR EARLIER YEAR HAS BEEN REVERSED BY THE TR IBUNAL, THEREFORE, UNLESS AND UNTIL THE DECISION OF 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 IN ASSESSEES O WN 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 AL LOWED. ITA NO.94/PN/2012 ITA NO.337/PN/2012 ITA NO. 665/PN/2012 ITA NO. 703/PN/2012 ITA NO. 1857/PN/2012 ITA NO. 2035/PN/2012 14. FOLLOWING THE AFORESAID PRECEDENT, WHICH HAS CO NSIDERED 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 SE T-ASIDE THE SAME AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AC CORDINGLY ALLOWED. 16. IT WAS A COMMON GROUND BETWEEN THE PARTIES THAT THE FACTUAL MATRIX AND THE ISSUES INVOLVED IN THE BALANCE OF THE CAPTIONED APPEALS STAND ON IDENTICAL FOOTING AND THEREFORE OUR DECISION IN THE CROSS-APP EALS OF KRA HOLDING & TRADING PVT. LTD. FOR ASSESSMENT YEAR 2008-09, AS R ENDERED ABOVE, WOULD APPLY MUTATIS-MUTANDIS IN THE OTHER RESPECTIVE APPEALS ALSO. 17. RESULTANTLY, WHEREAS THE APPEALS OF THE REVENUE ARE DISMISSED THOSE OF THE RESPECTIVE ASSESSEES ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH SEPTEMBER, 2013. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 19 TH SEPTEMBER, 2013 SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-I, PUNE; 4) THE CIT-I, PUNE; 5) THE DR, A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE