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Income Tax Appellate Tribunal, MUMBAI BENCH ‘A’ MUMBAI.
Before: SHRI, SHAILENDRA KUMAR YADAV & SHRI RAJESH KUMAR
This appeal by the assessee is directed against the order dated 27.02.2013 of Commissioner of Income Tax (Appeals)-9 {(hereinafter referred to as CIT(A)} for A.Y. 2009-10. The only ground raised in the appeal reads as under:-
Since the Dividend Tax is paid by the Company, the said Dividend Income has suffered the tax and unlike other Exemptions, Dividend Income is not exempt but its there to avoid double taxation and hence sec.14A is not applicable and no disallowance is called for, therefore, Rs.3, 19,081/- (proposed Rs.6,20,6711- ) be deleted in full.
2. Without prejudice to above, your appellant submits as under: The learned CIT(A) erred in not appreciating the facts and the law on the a) subject and confirming the additional expenses disallowed u/s.14-A r.w.r. 8-0 - Rs.3, 19,081/-. b) The learned CIT(A) erred in not appreciating the fact that your appellant has already disallowed the actual expenses of Rs.9,434/- and there are no other expenses and hence no other disallowance (Rs.3, 19,081/-) can be made. c) The learned CIT(A) also erred in not appreciating the fact that no interest has been paid and there are no loans and hence there can be no disallowance u/s.14-A at all. The learned CIT(A) erred in following certain decisions which are not d) relevant and confirming the disallowance inspite of the fact that there is no loan at the beginning and at the end of the year and no interest paid or payable. e) Without prejudice to above, %% of the average investments should be worked out on only those investments which have earned dividend. This will work out to Rs.71,668/- ( in place of Rs.3,19,081/- as per Assessment Order). f) Without prejudice to above, your appellant submits that the gross disallowance of Rs.6,20,671/- (though net disallowance is RS.3,19,081/-) is far in excess of the total dividend income of Rs.4,20,734/- (net as per Return of Income - Rs.4, 11,310/-) and hence the excess should not be considered for disallowance.
3 Assessment year: - 2009-10 PMs Fees RS.1 ,54,806/- not added to Short Term loss to be carried forward. a) The learned CIT(A) though appreciated that the PMS fees is in respect of share transactions, he erred in not accepting the consequent fact of the allocation of the PMS fees between Long Term Capital Gain (Loss) and Short Term Capital Gain (Loss). He erred in confirming the Assessment Order treating the entire said expenses of Rs.2,92,156/- against the Dividend Income and not allowing the allocation thereof to the Long Term Capital Gain (Loss) and Short Term Capital Gain (Loss). b) Your appellant submits that the PMS Fees is to be held as against the Long Term Capital Gain (Loss) and Short Term Capital Gain (Loss) and accordingly the Short Term Capital Loss be allowed to be carried forward should be inclusive of the relevant PMS fees of Rs.1,54,806/- and the total amount of Short Term Capital Loss of Rs.32,35,358/- be allowed to be carried forward. c) Your appellant, therefore, submits that the Short Term Capital Loss should be inclusive of the relevant PMS fees of Rs.1,54,806/- and the total amount of Rs.32,35,358/- be allowed to be carried forward.”
The issued raised in the first ground of appeal is against the confirmation of additions of Rs. 3,19,081/- by the CIT(A) on account of disallowance u/s 14A r.w.r. 80D of the Act.
The brief facts of the case are that the assessee company was engaged in the business of providing services like hiring of locker and cabins and had filed its return of income on 08.09.2009 declaring an income of Rs. 36,31,590/-.The assessee had earned tax free dividend of Rs. 4,20,734/- during the year and had shown investments to the tune of Rs. 6,14,52,076/- as at the year end. The assessee suo motto deducted bank charges of Rs. 9,434/- from the said exempt income thereby showing net income of Rs. 4,11,310/- as exempt income.
4 Assessment year: - 2009-10 4. The AO during the course of assessment proceedings issued show cause notice to the assessee as to why the provisions of section 14A r.w.r. 8D of the Act should not be applied in view of the assessee not disallowing any expenses in relation to the exempt income. The AO thereafter framed the assessment at Rs. 39,50,670/- vide order dated 7.12.2011 by making a disallowance of Rs. 6,20,671/- consisting of Rs. 301590 as direct expenses (bank charges Rs. 9,434/- and portfolio management fee Rs. 2,92,156/- and Rs. 3,19,081/- @ ½% of the average investments.
The aggrieved by the order of AO , the assessee carried the matter before CIT(A) who also dismissed the appeal of the assessee by confirming the order of AO by holding that the purpose of the provisions of section 14A r.w.r. 8D is to prevent the claim of expenses which relates exempt income and AO had rightly applied the provisions of section 14A r.w.r. 80D of the Act.
The ld AR submitted before us that the disallowance of Rs. 3,19,081/- made by the AO and confirmed by CIT(A) was totally wrong and excessive. The ld counsel for the assessee submitted that the assessee suo motto disallowed Rs. 9,434/- on account of bank charges which were only incurred in relation to the exempt income while calculating the total income. This being the expense only qua exempt income and therefore no disallowance was warranted u/s 14A r.w.r 8D of the Act. The ld. Counsel for the assessee made alternative submissions that if at all the disallowance under rule 8D(2)(iii) was to be made, it could not be made on the basis of average investments by taking into account entire investments at the beginning and the end of the year but should be worked out by considering only those investments which yielded dividend during the year. The assessee placed
The ld. DR on the other hand relied on the authorities below.
We have heard the rival submissions and perused the materials on records. We find that the AO made the disallowance u/s 14A r.w.r. 8D(2)(iii) @1/2% of the average investments taking into account all the investments at the beginning and at close of the year which was also upheld by the CIT(A). In the case of ACB India Ltd Vs ACIT (supra)the hon’ble Delhi High Court has held that the disallowance u/s rule 8D(2)(iii) can not be made on the basis of entire investments but should be worked out by taking only those investments which yielded dividend during the year. The case of the assessee is squarely covered by the above decision and we respectfully following the same delete the disallowance to the extent of Rs. 2,47,413/- out of Rs. 3,19,081/- which is calculated by taking into account those investments which yielded tax free dividend and only disallowance to the extent of Rs. 71,668/- is sustained. The AO is directed accordingly.
The issue raised in the second ground is against not allowing Rs. 1,54,806/- being PMS fee paid to Enam Securities Direct Pvt Ltd for sale and purchase of shares as part of short term capital loss and allow carry forward of the same.
The facts in briefs are that the assessee paid PMS fee of Rs. 2,92,156/- to Enam Securities Direct Pvt Ltd for port folio management and apportioned the said fee between long term and short term loss in the proportion of the said losses. Rs. 1,54,806/- pertained the short term loss from shares and was claimed as part of the said loss for the purposes of carry forward.
6 Assessment year: - 2009-10 11. The ld. AO rejected the contention of the assessee by holding that the whole amount of PMS fee Rs. 2,92,156/-related to exempt income and denied the benefit of carry forward. The action of the AO was also confirmed by the CIT(A) who dismissed the appeal by holding that PMS fee are levied by the portfolio managers irrespective of the fact whether there was a loss or profit and the said fee was directly relatable to the dividend income earned.
The ld AR submitted that the PMS fee was paid to Enam Securities Direct Pvt Ltd for managing the portfolio of the assessee i.e sale and purchase of shares and was a direct expenditure incurred in connection with the sale and purchase of shares and had nothing to do with the exempt income earned by the assessee by way of divided. The ld. Counsel further referred to the provisions of section 48(i) of the Act which which provides for deduction of expenditure incurred wholly and exclusively in connection with such transfer. The ld counsel relied on the decision of KRA holdings & Tradings (P) Ltd Vs DCIT(2011)46SOT)19 Pune and prayed that the PMS fee be allowed to be carried forward as part of short term capital loss. Per contra DR relied on the orders of authorities below.
We have considered the rival submissions and perused the materials on records. We find that the assessee had incurred Rs. 2,92,156/- as PMS fee to Enam Securities Direct Pvt Ltd for portfolio management of the assessee and the assessee allocated and apportioned the said fee between long term capital loss and short term capital loss in proportion to the amount of losses. Rs.1,37,350/- was allocated to LTCL and Rs. 1,54,806/- was apportioned to STCL. The AO disallowed Rs. 1,54,806/- the part of the PMS Fee attributed to STCL and did not allow the carried forward of STCL to the tune of Rs. 1,54,806/-.Now the issue
7 Assessment year: - 2009-10 before us whether the expenses incurred in connection with PMS fee to portfolio manager is an expense which is incurred in connection with the share transfer or relates to dividend income which is exempt. The provisions of section 48(i) of the Act provides that the expenditure incurred wholly and exclusively in connection with such transfer shall be deducted from the full value of the consideration for calculating capital gain/loss. Conversely same analogy applies to the purchase also i.e at the time of purchase also the expenses which are wholly and exclusively incurred for the said transaction is also part of the purchase cost. We are, therefore, of the opinion that the Rs. 1,54,904/- is part of short term capital loss and the assessee should be allowed to carry forward the same. The case of assessee also find support from the decision referred to above namely KRA holdings & Tradings (P) Ltd Vs DCIT(2011)46SOT)19 Pune in which the same issue came up for adjudication of the tribunal and the tribunal also held that the PMS fee is deductible while computing the capital gain. We, therefore, respectfully following the above decision and in view of the provisions of the Act, allow the appeal of the assessee. The AO is directed accordingly.
In the result appeal of the assessee is partly allowed.