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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: Shri Joginder Singh & Shri G Manjunatha
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 against order of the CIT(A)-10, Mumbai dated 24-07-2015 and it pertains to AY 2010-11.
The brief facts of the case are that the assessee, a private limited company carrying on business of hiring of lockers and 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 has been selected for scrutiny and notices u/s 143(2) and 142(1) of the Act, were issued. In response to notices, the authorized representative of the assessee appeared from time to time and furnished details, as called for. The 2 ITA 5011/Mum/2015 assessment was completed u/s 143(3) on 31-01-2013 determining total income at Rs.67,49,810 interalia making addition towards disallowance of expenditure incurred in relation to exempt income 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.
Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee submitted that the AO was incorrect in disallowing expenditure incurred in relation to exempt income of Rs.3,91,045 which consists of disallowance of direct expenses u/r 8D(2)(i) in respect of bank charges and PMS charges of Rs.47,947 and half percent of average value of investments of Rs.3,43,098 u/r 8D(2)(iii), without appreciating the fact that the total investments in asset side of the balance-sheet consisting of investments which yield dividend being exempt income and also incomes 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 the assessee has preferred appeal against disallowance of PMS charges against short term capital loss. The CIT(A), after considering relevant submissions of the assessee partly allowed appeal filed by the assessee, wherein he has upheld addition made by the AO towards disallowance of direct expenses being bank charges and Dmat charges and also PMS charges
3 ITA 5011/Mum/2015 of Rs.47,947 and Rule 8D(2)(i); however, directed the AO to re-calculate disallowance worked out u/r 8D(2)(iii) by considering investments which earned exempt income, but not on the entire investment as per balance- sheet. Similarly, the CIT(A) has upheld brought forward short term capital loss reduced by the assessee to Rs.30,80,552, 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 allow higher brought forward short term capital loss. Aggrieved by the order of CIT(A), the assessee is in appeal before us.
The first issue that came up for our consideration 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.CIT(A) erred in confirming the disallowance of Rs.43,569 being portfolio management service charges u/r 8D(2)(i) without appreciating the 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 activities. The Ld.AR further submitted that the Ld.CIT(A) erred in treating PMS fees paid as an expenditure relatable to earning dividend income and not as short term capital loss liable to be carried forward. The Ld.AR further submitted that the ITAT in assessee’s own case for the assessment year
4 ITA 5011/Mum/2015 2009-10 in has held that PMS fees is allowable deduction while computing income under the head ‘capital gain’.
We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The AO disallowed expenditure incurred in relation to exempt 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 contention of the assessee that PMS fees paid to portfolio managers is in respect of investment as well as trading activity and accordingly, the AO ought to have allocated PMS fees on the basis of income earned by way of dividends as well as short term capital loss or gain and also allowed deduction towards PMS fees paid while computing short term capital or long term capital gain.
Having heard both the sides, we find merits in the arguments of the eassessee for the reason that when the assessee is in the composite business of investments in shares as well as trading in shares, PMS fees paid to portfolio managers is attributable to both activity and accordingly, the AO ought to have apportioned PMS fees 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 dated 15-01-2016 for AY 2009-10 has 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 disallowing PMS fees u/r 8D(2)(i) without apportioning the said expenditure between exempt income and income taxable under the head capital gains. 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’.
The next issue that came up for our consideration 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 brought forward capital loss of Rs.30,82,552 on the ground that in the earlier assessment year, PMS fees claimed as expenditure in relation to transfer of shares has been disallowed. It is the contention of the assessee that it has challenged disallowance of PMS charges against capital gain and the ITAT in dated 15-01-2016 for AY 2009-10 has considered the issue of PMS charges and deductibility of such expenses against income from capital gain. The ITAT, after considering relevant facts has directed the AO to allow PMS fees while computing capital gain. We find that the ITAT in assessee’s own case for the assessment year 2009-10 has considered the issue of PMS fees while computing income under the head ‘capital gains’ and by following 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 extent of PMS charges disallowed in earlier year. Since, the ITAT has allowed PMS charges against income from capital gains, the loss claimed by the assessee including PMS charges in the earlier year is allowed to be set off against current year’s income. Therefore, we direct the AO to allow short term capital loss as claimed by the assessee after considering relevant facts. 8. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 09th March, 2018.