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Income Tax Appellate Tribunal, “F” Bench, Mumbai
Before: Shri B.R. Baskaran (AM) & Shri Ravish Sood(JM)
O R D E R Per B.R. Baskaran (AM) :-
The appeal filed by the Revenue is directed against the order dated 29.4.2016 passed by the learned CIT(A)-16, Mumbai and it relates to A.Y. 2013-14. The Revenue aggrieved by the decision of the learned CIT(A) in holding that expenses of ` 2.21 crores incurred by the assessee towards portfolio management scheme need not be considered for computing disallowance u/s. 14A of the Act.
We have heard the parties and perused the record. The assessee is engaged in the business of shares and securities under Portfolio Management Services Scheme (PMS). Profit earned from share trading operation was offered by the assessee under the head “income from business”. During the year under consideration the assessee earned dividend income of ` 28.38 lakhs and disallowed a sum of ` 60,877/- u/s. 14A of the Act. The Assessing Officer noticed that the disallowance made by the assessee related to administrative expenses only. It did not consider professional charges of ` 1.63 lakhs, loss from the firm of ` 2.93 lakhs and PMS related to expenditure of ` 220.70 lakhs. The Assessing Officer took the view that the shares held as stock in 2 M/s. Family Investment Pvt. Limited trade should also be considered for working out the provisions of section 14A of the Act, as held by Hon'ble Kolkata High Court in the case of Dhanuka & Sons Vs. CIT (339 ITR 119). Accordingly, he rejected working of the assessee and computed disallowance u/r. 8D of the I.T. Rules at ` 90.86 lakhs.
The learned CIT(A) noticed that identical issue was considered by his predecessor in A.Y. 2011-12, wherein it was held that PMS expenses have been incurred in relation to business of dealing in shares through PMS and the same cannot be treated as expenditure incurred for earning dividend income, which is incidental to trading activity. Accordingly, the learned CIT(A) held that expenditure relating to PMS should not be considered for making disallowance u/s. 14A of the Act. However, the learned CIT(A) included professional fees of ` 1.63 lakhs for computing disallowance u/s. 14A of the Act and accordingly computed disallowance at ` 2,24,866 (` 60,877 + ` 1,63,989). The revenue is aggrieved by the decision of the learned CIT(A) in holding that expenditure relating to PMS is not required to be considered for computing disallowance u/s. 14A of the Act.
We noticed that the decision rendered by the learned CIT(A) in A.Y. 2011-12 was challenged before the Tribunal. The Coordinate Bench of the Tribunal vide its order dated 25.1.2017 passed in has upheld the decision rendered by the learned CIT(A) in that year. Since, the facts are identical in nature, we extract below the operative portion of the order passed by the Coordinate Bench in A.Y. 2011-12 :
6. We have considered the submissions of the parties and perused the material available on record. As could be seen, the Assessing Officer has disallowed a part of PMS expenditure under section 14A r/w rule SD on the reasoning that it is attributable to earning of exempt income by way of dividend. However, the learned Commissioner (Appeals) has recorded a finding of fact that the shares and securities under PNIS amounting to Z 23,97,60,480 has been held as stock-intrade by the assessee. Further, he has also recorded a finding of fact that the income on sale of securities under the PMS has been offered as income under the head "Business", though, the dividend income from share
3 M/s. Family Investment Pvt. Limited under PMS amounting to Z 20,55,636, has been claimed as exempt income. The aforesaid finding of fact recorded by the learned Commissioner (Appeals) has not been controverted by the learned Departmental Representative. That being the case, as the shares and securities under PMS have been held as stock-in- trade by the assessee and the income earned from sale of shares and securities as business income, no disallowance under section 14A r/w rule 8D can be made in view of the principle laid down by the Hon'ble Jurisdictional High Court in CIT Vs. India Advantage Securities Ltd., of 2013, order dated 13th April 2015. In view of the aforesaid, we do not find any infirmity in the order of the learned Commissioner (Appeal) in deleting the addition of ` 50,09,940. Thus, ground No. 1,2 and 3 are dismissed.
We notice that the Coordinate Bench has held that the learned CIT(A) has given a finding that the shares and securities under PMS have been held as stock in trade and hence expenses incurred under PMS are related to share trading activities and accordingly the co-ordinate Bench, by following the principles laid down by Hon'ble Jurisdictional High Court in the case of CIT Vs. India Advantage Securities Ltd. (supra) did not find any infirmity in the order passed by the learned CIT(A). Since specific finding has been given that PMS expenses are directly related to the business activities, consistent with the view taken in earlier years by the Coordinate bench, we do not find any infirmity in the order passed by the learned CIT(A) in holding that the said expenses need not be considered for the purpose of making disallowance u/s 14A of the Act. Since the assessee has disallowed entire other expenses, there was no necessity to resort to the provisions of rule 8D of the I T Rules and hence the reliance placed by the AO on the decision rendered by Hon’ble Kolkatta High Court in the case of Dhanuka & Sons (supra) does not have application to the facts of the present case. In view of the foregoing discussions, we uphold the order passed by Ld CIT(A).
4 M/s. Family Investment Pvt. Limited
In the result, appeal filed by the Revenue is dismissed. Order has been pronounced in the Court on 30.10.2017.