YASMIN PHEROZE MODY, MUMBAI v. JCIT 12(2), MUMBAI

1 IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH MUMBAI BEFORE SHRI RAJENDRA SINGH(AM) AND SHRI V.D.RAO (JM) ITA NO.6596/M/2009 ASSESSMENT YEAR 2006-07 MRS. YASMIN PHEROZE MODY THE JCIT CIR.12(2) C/O. S.F.ENGINEER NOSHIWAR MANSION AAYAKAR BHAVAN HENRY ROAD COLABA MUMBAI 400 039. M.K.ROAD MUMB AI 400 020. PAN : AAHPM 4800 F APPELLANT RESPONDENT ASSESSEE BY : MR. DEEPAK TRALSHAWALA REVENUE BY : MS MALATHI SHRIDHARAN O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 4.11.2009 OF CIT(A) FOR THE ASSESSMENT YEAR 2006-07 . THE ONLY DISPUTE RAISED IS REGARDING DEDUCTION ON ACCOUNT OF ASSET MANAGEME NT FEES WHILE COMPUTING INCOME FROM INVESTMENT IN SHARES. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE DURING THE RELEVANT YEAR HAD RECEIVED INCOME FROM RBI BONDS OF RS.1 70 000/- LONG TERM CAPITAL GAIN FROM SALE OF SHARES OF RS.93 16 193/- AND DIVIDEND INCOME OF RS.3 18 52 450/- TOTALING RS.4 13 38 648/- WHICH WA S EXEMPT FROM TAX. THE ASSESSEE HAD ALSO RECEIVED SHORT TERM CAPITAL GAIN OF RS.2 02 56 577/-. THE ASSESSEE HAD PAID PORTFOLIO MANAGEMENT FEES OF RS.2 5 74 232/- TO THE PORTFOLIO MANAGER. SINCE THE ASSESSEE HAD RECEIVED TAX FREE I NCOME OF RS.4 13 38 648/- 2 THE AO DISALLOWED THE PORTFOLIO MANAGEMENT FEES PRO PORTIONATE TO TAX FREE INCOME WHICH CAME TO RS.17 27 654/-. THE AO ALSO DI SALLOWED 0.5% AVERAGE VALUE OF INVESTMENT AS PER RULE 8D UNDER THE PROVIS IONS OF SECTION 14A WHICH CAME TO RS.8 13 081/-. THE TOTAL DISALLOWANCE MADE UNDER SECTION 14A WAS THUS RS.25 40 735/-. IN APPEAL THE ASSESSEE SUBMITT ED THAT FEES PAID TO PORTFOLIO MANAGER CONSTITUTED EITHER COST OF ACQUIS ITION OR COST OF IMPROVEMENT OR EXPENSES IN CONNECTION WITH TRANSFER. THE CLAIM WAS THEREFORE ALLOWABLE UNDER SECTION 48 OF THE INCOME-TAX ACT AS COST OF T HE SHARES. CIT(A) HOWEVER DID NOT ACCEPT THE CONTENTIONS RAISED. IT WAS OBSER VED BY HIM THAT DEDUCTION UNDER SECTION 48 CAN BE ALLOWED WHERE EXPENDITURE W AS INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER WHICH WAS NOT SO IN THIS CASE. THE EXPENDITURE WAS REVENUE OUTGOING FOR THE ASSESSEE W HICH WAS COVERED UNDER SECTION 14A. HE THEREFORE CONFIRMED THE ORDER OF AO AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL. 3. BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBMIT TED THAT THE SAME ISSUE HAD ARISEN IN ASSESSEES OWN CASE IN A.Y.2005-06 AN D THE TRIBUNAL VIDE ORDER DATED 30.7.2010 IN ITA NO.2549/M/2009 IN WHICH IT W AS OBSERVED THAT IN CASE IT WAS ESTABLISHED THAT THE PAYMENT TO PORTFOLIO MA NAGER WAS RELATABLE TO SALE OR PURCHASE OF A PARTICULAR SCRIP THE PAYMENTS SO MADE HAS TO BE TAKEN INTO ACCOUNT FOR COMPUTING THE COST OF ACQUISITION OR EX PENSES FOR TRANSFER OF SHARES. THE TRIBUNAL THEREFORE SET ASIDE THE ORDER OF CIT(A) AND RESTORED THE MATTER TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE AS SESSEE. THE LEARNED DR ON THE OTHER HAND PLACED RELIANCE ON THE ORDERS OF AUT HORITIES BELOW. 3 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE M ATTER CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE OF EXPENSES BEING THE PORTFOLIO MANAGEMENT FEES AND OTHER EXPENSES UNDER SECTION 14A OF THE IN COME-TAX ACT. THE CLAIM OF THE ASSESSEE IS THAT THE PORTFOLIO MANAGEMENT FEES WAS PART OF COST OF ACQUISITION OF SHARES OR THE EXPENDITURE INCURRED F OR SALE OF SHARES WHICH SHOULD BE ALLOWED UNDER SECTION 48. THE SAME ISSUE HAD ARISEN IN ASSESSMENT YEAR 2005-06 WHICH HAD BEEN RESTORED TO THE AO BY T HE TRIBUNAL FOR FURTHER EXAMINATION. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL WE RESTORE THE ISSUE TO THE FILE OF AO THIS YEAR ALSO FOR FRESH EX AMINATION AND ORDER IN THE LIGHT OF DECISION OF TRIBUNAL IN A.Y.2005-06 (SUPRA). THE ISSUE ALSO INVOLVES DISALLOWANCE OF EXPENSES UNDER SECTION 14A. THE AO WILL EXAMINE THIS ISSUE IN THE LIGHT OF LATEST JUDGMENT OF HONBLE HIGH COURT OF MUMBAI IN CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (328 ITR 81) AFTER A LLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. WE ORDER ACCORDINGLY. 5. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 6. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 28.02.2011. SD/- SD/- ( V.D. RAO ) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 28.02.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) MUMBAI CONCERNED 4. THE CIT MUMBAI CITY CONCERNED 5. THE DR G BENCH ITAT MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI ALK 4