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2015 (9) TMI 1104 - ITAT MUMBAI

2015 (9) TMI 1104 - ITAT MUMBAI - TMI - Disallowance being fees paid under Portfolio Management Scheme(PMS) - treated as not deductible expenditure u/s 48(1) of the I.T. Act against Short Term Capital Gain (STCG) computed by the Appellant - Held that:- The issue arising before us is identical to the issue before the Tribunal in assessee's own case and following the same parity of reasoning, we uphold the order of CIT(A) in disallowing the expenditure of PMS, while computing the income from short .....

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nder section 14A of the Act, was incorrect. In view thereof the provision of section 14A(2) of the Act have not been correctly applied by the AO and accordingly we find no merit in the order of the authorities below in this regard.AO at the first instance must examine the disallowance made by the assessee or the claim of the assessee that no expenditure was incurred to earn the exempt income. If the Assessing Officer is not satisfied on this count after making reference to the account, then he i .....

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this regard. Accordingly, we uphold the disallowance of 5% of expenditure out of balance expenses of ₹ 22,29,005/- as expenditure having been incurred in cash and not being supported by proper vouchers and also being incurred for non business purpose. - Decided against assessee.

Disallowance of depreciation on residential premises - Held that:- The claim of the assessee was denied by the authorities below in the absence of the particulars of the person having not been provided b .....

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purposes.

Unaccounted investments - Held that:- The said investments are disclosed by the assessee in its balance sheet which was filed along with the return of income. In the totality of the above said facts and circumstances where the assesee had gathered the information from the Sub-registrar office, which in turn related to the purchase of two different properties by the assessee which was reflected/disclosed in its balance sheet, we find no merit in the addition made in the hands .....

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to be in violation of Rule 46A of I.T. Rules.- Decided in favour of assessee - ITA No. 7282/Mum/2011, ITA No. 6576/Mum/2011 - Dated:- 17-6-2015 - R. C. Sharma, AM And Sushma Chowla, JM, JJ. For the Petitioner : Shri Jitendra Jain, Shri Mahesh O Rajora For the Respondent : Shri Neil Philip ORDER Per Sushma chowla, JM These cross appeals filed by the Assessee as well as Revenue are against the order of the CIT(A)-29, Mumbai dated 29.07.2011 relating to Assessment Year 2008-09 against order passed .....

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fees of ₹ 26,01,054/- is directly related to purchase and sale of shares and securities and hence the same ought to have been allowed as deductible expenditure while computing STCG. 2. a) The CIT(A) erred in confirming the disallowance of Rs.ll,23,6261- under section 14A of the I.T. Act r.w.r. 8D of the I.T. Rule being the expenses attributable to investment activity giving rise to the exempted income. The Appellant submits that the Appellant has not incurred the expenditure exceeding  .....

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owance of ₹ 1,11,450/- being 5% of various expenses aggregating to ₹ 22,29,005/- debited to the Profit & Loss Ale as incurred for non business purpose. The Appellant submits that the expenses incurred are for business purpose and the hence the full amount shall be allowed as deductible business expenditure. 4. The CIT(A) erred in confirming the disallowance of depreciation of ₹ 7,91,136/- claimed by the Appellant on residential premises used by the staff members of the Appe .....

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,20,40,838/- to the returned income. 2. On the facts and circumstances of the case and in law, the learned CIT(A) erred in aadmitting additional evidences in contravention of the provisions of Rule 46A of the I.T. Rules, 1962. 3. For these and other reasons it is submitted that the order of the CIT(A) may be set aside and that of the AO restored. 4. Both the appeals relating to the assessee were heard together and are being disposed off by this consolidated order for the sake of conveyance. ITA .....

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raised in ground of appeal no. 1 is against the allowance of fees paid under PMS. While computing the income from short term capital gain, assessee had claimed expenditure of ₹ 26,01,054/- as deductable. Similar issue arose before the Tribunal in assessee's own case in ITA No. 3341/Mum/2009 relating to Assessment Year 2006-07 and vide order dated 03.06.2011, the Tribunal held that the issues stands decided against the assessee by the decision of Mumbai Bench of Tribunal in Devendra Mot .....

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mbai) 188 and the same has been decided against the assessee for the elaborate reasons which, as summarized in. the held portion, are extracted below: "The deduction on account of fees paid for PMS has been Claimed by the assessee as deduction In computing capital gains arising from sale of shares and securities. He/ however has failed to explain as to how the said fees could be considered as cost of acquisition of the shares and securities or the cost of any improvement thereto. He has als .....

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rticular period As a matter of teet; when the CIT(A) required the assessee to allocate the fees paid for PMS in relation to purchase and sale of shares as well as in relation to the shares held as investment on the last date of the previous year; the assessee could hot furnish such details nor could he give any definite basis on which such allocation was possible. The fees paid by the assessee for PMS was not inextricably linked with the particular instance of purchase and sale of shares and sec .....

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t by the learned counsel for the assessee and respectfully following said decision, we uphold the impugned order of the learned CIT(A) confirming the disallowance made by the Assessing Officer on account of fees paid PMS while computing the short term capital gains. Ground No. 1 of the assessee's appeal is accordingly dismissed." 8. The issue arising before us is identical to the issue before the Tribunal in assessee's own case and following the same parity of reasoning, we uphold t .....

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under section 10(35) and 10(34) of the Act. The explanation of the assessee before the AO was that it had utilized its own funds for investment in mutual funds and also through PMS in shares and securities. Further the assessee had computed the disallowance under section 14A of the Act at ₹ 98,945/- being 50% of the employees cost. The AO rejecting the claim of the assesssee computed the disallowance under section 14A read with rule 8D at ₹ 11,23,626/-. The CIT(A) upheld the order o .....

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ion of Rule 8D could not be applied. Reliance in this regard was placed upon the ratio laid down by the Hon'ble Bombay High Court in Godrej & Boyce Manufacturing Ltd. Vs. CIT 328 ITR 81 (Bom). Another contention raised by the assessee was that it had utilized the Portfolio Management Scheme Services for making the aforesaid investments and such expenses of ₹ 26,01,054/- stands disallowed in the hands of the assessee. Hence there was no merit in any further disallowance to be made u .....

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tax free income on account of dividend from mutual funds and shares, and the question was whether provisions of section 14A of the Act could be invoked to work out the expenditure relatable to such exempt income. The assessee on its own motion had disallowed sum of ₹ 98,945/- on account of 50% of salary of one person, whose services were utilized for making the aforesaid investments. Further claim of he assessee was that the investments were made through Portfolio Management Services to wh .....

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ose before the Tribunal in Stock Holding Corporation of India Pvt. Ltd. Vs. ACIT in ITA No. 5348/Mum/2013 relating to Assessment Year 2009-10. The Tribunal vide order dated 10.06.2015 held as under:- "8. We have heard the rival contentions and perused the record. The issue arising before us is in relation to application of the provisions of section 14A of the I.T. Act and Rule 8D of the I.T. Rules. Section 14A lays down that while computing the total income in the hands of the assessee, no .....

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rdance with such method as may be prescribed. It is further provided that if the AO having regard to the facts of the assessee, is not satisfied with the correctness of the claim of the assessee, in respect of such expenditure, in relation to income which do not form part of the total income, then such disallowance has to be worked out. In other words, before relying to the provisions of Rule 8D provided under the Income Tax Rules, which prescribes the method of calculating the expenditure relat .....

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fulfillment of recording satisfaction in turn is held to vitiate the order of the AO in disallowing expenditure under the provisions of section 14A of the Act. 9. The Hon'ble Supreme Court in the case of Godrej & Boyce Mfg. Co. Ltd. (supra) had laid down the following proposition vis-a-vis subsection 2 to section 14A of the Act: - "Hence, sub-s. (2) does not ipso facto enable the AO to apply the method prescribed by the rules straightaway without considering whether the claim made b .....

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llow the method that may be prescribed. In a situation where the accounts of the assessee furnish an objective basis for the AO to arrive at a satisfaction in regard to the correctness of the claim of the assessee of the expenditure which has been incurred in relation to income which does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the rules. (underline provided by us). 10. The Hon'ble Bombay High Court in the case Godrej & .....

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of the claim of the assessee in respect of expenditure incurred in relation to income which does not form part of the total income under the Act, that he can proceed to make a determination under the rules; (ix) The satisfaction envisaged by sub-s. (2) of s. 14A is an objective satisfaction that has to be arrived at by the AO having regard to the accounts of the assessee. The safeguard introduced by sub-s. (2) of s. 14A for a fair and reasonable exercise of power by the AO, conditioned as it is .....

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. (supra) held as under: - "Section 14A of the Act postulates and states that no deduction shall be allowed in respect of expenditure incurred by an assessee in relation to income which does not form part of the total income under the Act. Under sub Section (2) to Section 14A of the Act, the Assessing Officer is required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to exempt .....

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s, that he is entitled to adopt the method as prescribed i.e. Rule 8D of the Rules. Thus, Rule 8D is not attracted and applicable to all assessee who have exempt income and it is not compulsory and necessary that an assessee must voluntarily compute disallowance as per Rule 8D of the Rules. Where the disallowance or 'nil' disallowance made by the assessee is found to be unsatisfactory on examination of accounts, the assessing officer is entitled and authorised to compute the deduction un .....

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ccounts of assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure, in relation to such income which does not form part of the taxable income. 13. Now coming to the facts of the present case assessee, during the year under consideration, had received dividend income of ₹ 81,80,792/- which was 28% of its total income of ₹ 27,48,09,826/-. Assessee was maintaining separate treasury and STT department for looking after its investments a .....

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ase Taikisha Engineering India Ltd. and Maxopp Investment Ltd. before applying the provisions of Rule 8D of the I.T. Rules, the AO was duty bound to record his dissatisfaction that the working of the disallowance made by the assessee under section 14A of the Act was incorrect. A perusal of the assessment order reflects that no such dissatisfaction was recorded by the AO and in view thereof the provisions of section 14A(2) of the Act had not been applied and accordingly we find no merit in the di .....

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rect, cannot be appreciated. However, the issue was set aside to the file of the AO as the assessee had deviated from the formula consistently adopted in earlier years and it adopted a new formula for working out the disallowance. The assessee in the earlier year had disallowed the expenditure to the extent of 40%. However, in the preceding year the disallowance was made at 32% and in the year in appeal before us the disallowance has been computed @ 28% of the related expenditure. The explanatio .....

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ed his satisfaction with the working of the assessee vis-à-vis the expenditure relatable to earning exempt income, being not correct, then the disallowance worked out by the AO under the provisions of section 14A read with Rule 8D cannot be upheld. Accordingly the grounds raised by the assessee are allowed. 15. The issue arising before us is identical to the issue before the Tribunal in Stock Holding Corporation of India Pvt. Ltd Vs. ACIT (supra). In the facts of the present case also the .....

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case relating to Assessment Year 2006-07, wherein the matter was restored to the file of the AO to make suitable disallowances. It may be pointed that the said decision was rendered by the Tribunal in view of the ratio laid down by the Hon'ble Bombay High Court in Godrej & Boyce Manufacturing Company Ltd. Vs. ACIT (supra), since, the original provision of Rule 8D were not applicable prior to Assessment Year 2008-09. However, the Hon'ble Bombay High Court as referred to by us in the .....

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wance made by the assessee or the claim of the assessee that no expenditure was incurred to earn the exempt income. If the Assessing Officer is not satisfied on this count after making reference to the account, then he is entitle to adopt the method as prescribed i.e. Rule 8D of the Rules. In the absence of said satisfaction being referred by the AO in the present case, we find no merit in the disallowance made by the AO under section 14A of the Act. Accordingly, we delete the disallowance of &# .....

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s had been claimed by the assessee in cash and personal element was very much existent. It was further held by the AO that the claims do not appear to be wholly and exclusively for the purpose of business. The AO further stated that the disallowance was over and above fringe benefit computed separately. The AO thereafter disallowed 5% out of various expenditure as detailed under para 6.1 at page 9 of the appellate order, which is being referred to, but not being reproduced for the sake of brevit .....

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7; 22,29,005/- which was not covered by FBT, 5% of the same was disallowed at ₹ 1,11,450/-. 20. The Assessee is appeal against the aforesaid disallowance. The perusal of the details reflect that the said disallowance of 5% has been made out of corporate incentive of ₹ 1,79,490/- entertainment expenses of ₹ 5,719/-, Food & Beverage at office of ₹ 3,57,091/-, miscellaneous expenses of ₹ 3,29,614/-, motor vehicle expenses ₹ 1,39,190/- and repair and maintenan .....

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ssed. 22. The issue in ground of appeal no. 4 is against the disallowance of depreciation on residential premises of ₹ 7,91,136/- the claim of the assessee before the authorities below was that it had provided the said residential premises but its employees who were working with the assessee for the past several years. The AO further, denied the said claim of the assessee as no evidence was produced by the assessee in support thereof. The CIT(A) also upheld the order of CIT(A) for the abse .....

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ployee of the assessee firm and depreciation on the said asset was allowed by the AO vide order passed under section 143(3) of the Act, dated 19.02.2004, the said residential flat is as per assessee, still being used by the employees and the per quest on account of the said residential accommodation is added in the hands of the employees. The claim of the assessee was denied by the authorities below in the absence of the particulars of the person having not been provided by the assessee. In all .....

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statistical purposes. ITA No. 6576/Mum/2011 23. The only issue raised in the present appeal is against the deletion of addition of ₹ 1,20,40,838/-. 24. Briefly in the facts relating to the issue, the AO received certain AIR information as per which two properties worth ₹ 60,20,400/- and ₹ 60,20,438/- were sold by the assessee. However, the assessee had not disclosed the said transaction in its return of income, hence the assessee was show caused to explain said transaction. The .....

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the absence of any details. 25. Before the CIT(A) the assessee furnished written submissions which are incorporated under para 5.2 in which the assessee explained that it had not sold any property but in turn had purchased two flats from two different persons and the advance made to said persons were declared in the balance sheet at the close of the year. However, the said flats were capitalized in the year when full installments were paid and were put to use i.e. in Financial Year 2010-11. The .....

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nce has to be admitted. Both the properties are disclosed under the head advances to Finestone Reators Pvt. Ltd. (Rs.38,29,568/- and to Richa Realtors Pvt. Ltd. (Rs.77,78,996/-) being the actual amount paid to the builders on the last date of financial year. Although the properties were registered during the year they were capitalized as assets in later years. The agreement value and AIR data tally. Therefore the purchases are not unexplained. The addition of ₹ 1,20,40,838/- relating to un .....

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rused the record. The AO pursuant to the AIR information received show caused the assessee to explain the sale of two properties worth ₹ 60,20,400/- and 60,20,438/- The assessee denied to have sold any property. But the AO did not accept the denial made by the assessee and made the said addition in the hands of the assessee as income from short term capital gains. On the other hand, the assessee sought information from the office of Sub-registrar and after receiving the said information, t .....

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s under:- "In this connection the Appellant submit that it has not sold any immovable property as specified in the AIR. The Appellant has now obtained the details from the sub registrar Mumbai. On getting the details it was found that the transactions referred in AIR relates to purchase of properties from M/s Finetone Realtors Pvt. Ltd and M/s. Richa Real ors Pvt. Ltd The Appellant submits that it has purchased the Flat NO.1601 in building Garden Court from M/s. Finetone Realtors Pvt. Ltd. .....

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istrar in Annual Information Report filed by them with IT Authorities. The Appellant submit that it has purchased above flat from Finetone Realtors Pvt. Ltd for total consideration of ₹ 45,05,6001-. Till the Financial Year ended 31st March, 2008 e Appellant has paid 38,29,568/- for purchase of above property. The Appellant enclose herewith ledger account of M/s. Finetone Realtors Pvt. Ltd for F.Y.2005-06 to 2010-11 in the books of Appellant. This payment was shown as 'Other Advances .....

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nt has purchased the Flat No. 4 in building Gandhar from M/s. Richa Realtors Pvt. Ltd vide agreement dt.16th April,2007. The Appellant has registered the above agreement with Joint Sub Registrar, Mumbai on 16.04.2007. The Stamp duty value of above flat was ₹ 49,94,082/- whereas the purchase value as per Agreement was ₹ 60,20,4001-. The Appellant paid the stamp duty of ₹ 2,83,7001- on agreed purchase value of flat. As the purchase value of flat is more than the stamp duty value, .....

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