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TMI Blog2025 (4) TMI 212X X X X Extracts X X X X X X X X Extracts X X X X ..... the reasons as cited by the Revenue as bonafide and sufficient, we condone the delay in filing the appeal and admit the same for adjudication. 03. The revenue has challenged the appellate order passed by the ld. CIT (A), wherein the ld. CIT (A) deleted the addition of Rs.5,71,09,594/- on account of disallowance of PMS fees in computing the capital gain by ignoring the Provisions of Section 48 of the Act as per which the expenses which are not wholly and exclusively incurred in connection with transfer of capital assets are not deductible in computing the capital gain and ignoring the fact that PMS fees is indirectly related to equity or derivative transactions. 04. The assessee has also filed an application under Rule 27 of ITAT Rules, challenging the dismissal of ground no.1 by ld. CIT (A) while finally the ld. CIT (A) deleted the addition made by the AO by holding, the PMS expenses to be genuine and are allowable while computing capital gain. 05. After hearing the rival contentions and perusing the materials available on record, we find that the ground no.1 raised by the assessee before the ld. CIT (A) challenging the assessing of the total income of Rs.85,90,28,764/- against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepted the findings in part of the final order, that was decided against him. Therefore, when the Revenue filed an appeal before the ITAT, the Appellant herein (Respondent before the Tribunal) was entitled under law to defend the same and support the order in appeal on any of the grounds decided against it. The Respondent-assessee had taken the ground of maintainability before Commissioner (Appeals) and, therefore, in the appeal filed by the Revenue, it could rely upon Rule 27 and advance his arguments, even though it had not filed cross objections against the findings which were against him. The ITAT, therefore, committed a mistake by not permitting the assessee to support the final order of CIT (A), by assailing the findings of the CIT(A) on the issues that had been decided against him. The Appellant - assessee, as a Respondent before the ITAT was entitled to agitate the jurisdictional issue relating to the validity of the reassessment proceedings. We are, therefore, of the considered opinion that the impugned order passed by the ITAT suffers from perversity in so far as it refused to allow the Appellant - assessee (Respondent before the Tribunal) to urge the grounds by way of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Chapter IIIB of the RBI Act, 1934 except to accept/ hold public deposits money thereby that assessee company is not allowed to accept/ hold public deposits. We also note from the registration certificate issued by the RBI dated 13th March, 2008, which is available at page no. 76 to 81 of the paper book. On page no. 78, the non-banking financial institutions and their activities have been defined under section 45-I Chapter IIIB of RBI Act, 1934. The business of non-banking company has been defined as carrying on business of financial institutions referred to in clause (c) and includes business of a non-banking financial company referred to in clause (f). We note from the clause (c), which defines the financial institution to mean any non-banking institution which carries on as its business or part of its business any of the following activities namely i) the financing, whether by way of making loans or advances or otherwise, of any activity other than its own; ii) the acquisition of shares, stock, bonds, debentures or securities issued by govt. or local authority or marketable securities of a like nature. In clause (f) a non-banking financial institution has been defined to mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Vs CIT(A) Chandigarh (2007) 288 ITR 1(SC) has held that commercial expediency is an expression of wide import and includes such expenditures as a prudent business man incur for the purpose of business though not incurred under any legal obligation yet allowable as business expenditure out of commercial expediency. 011. Even the ld. CIT (A) has treated this PMS expenses to be genuine and bonafide and noted that these fund managers are regulated authorized entities by the SEBI to render the specialized services. The case of the assessee is squarely covered by the decision of the coordinate bench in the case of Mafatlal Holdings Ltd. Vs. Additional commissioner of income tax ITA No. 2935/Mum/2002(2004) 85 TTJ 0821dated 23.04.2003, wherein the assessee company was engaged in the business of financing and investment and during the year it borrowed money for its business and claimed the deduction of interest on deposits u/s 36(1)(iii) of the Act. The ld. AO noted that the assessee has not given out any new finances during the accounting year relevant to assessment year under consideration, however the company increased its investment as compared to earlier assessment years and accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the case of the assessee-company that the company was actually dealing in the business of investment in shares. In the case of Challapalli Sugars Ltd. (supra), the Hon'ble Supreme Court laid down that, if the interest paid on the amount borrowed for acquiring and installing machinery and plant for a period prior to commencement of production, the same would actually form part of the actual cost of machinery and plant. In the present case as we have discussed above in detail, the assessee-company carried on the business as a investment company during the year under consideration. The assessee-company had carried on the activities of the nature of purchase and sale of shares, had earned dividend income and had also incurred various business expenditure like legal and professional expenses, staff expenses, stamp expenses, bank charges, etc., which have also been allowed by the AO. Therefore, the interest expenditure incurred by the assessee is also allowable under the provisions of s. 36(1)(iii) as the assessee-company was in fact carrying on the business activities during the year under consideration. In the case of Ace Investments (P) Ltd. (supra), the Madras High Court has held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d finance company. Therefore, the main business of the assessee was to deal in investments and hence, the dividend income earned by the assessee was income from the main business carried on during the relevant assessment year. The facts of the abovesaid case are not relevant to the facts of the present case because in the abovesaid case the assessee was earning the dividend income from its investment in shares, which was not the part of the business income of the assessee. In the case of Rajendra Prasad Moody (supra), the Hon'ble Supreme Court held that the interest on monies borrowed for investment in shares which had not yielded any dividend was admissible as deduction under s. 57(iii) of the IT Act, 1961 in computing its income from dividend under the head "income from other sources". We do not find any relevance of this case to the facts of the present case. In the present case, the question of deduction under s. 57(iii) of the Act does not arise because in the present case deduction has to be allowed under the provisions of s. 36(1)(iii) or under s. 37(1) of the Act. The dividend income earned by the assessee is out of its investment in shares and this is the main activity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rejected." 11. Considering the aforesaid facts and circumstances of the case when the assessee incurred expenses towards consultancy charges in order to make investment, the Assessing Officer was not justified in treating and considering the expenses incurred towards consultancy charges as capital expenditure, disallowable under Section 37 of the Act. Under the circumstances, the learned Tribunal has rightly deleted the disallowance of Rs. 24,37,500/= incurred by the assessee towards consultancy charges. We are in complete agreement with the view taken by the learned Tribunal." 013. Considering the facts of the case of the above decision, we are inclined to hold that the PMS expenses incurred by the assessee by way of fee to the portfolio managers has to be treated as expenses wholly and exclusively incurred in connection with the business of the assessee and therefore, are allowable u/s 37 of the Act. So far as the decision relied on by the ld DR in the caser of Devendra Motilal Kothari Vs Deputy Commissioner of Income Tax ITA No. 1356/Mum/2008 order dated 26.03.2010, we find the same to be rendered in the context of whether the PMS fee was deductible in computing capital gai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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