Assessee's appeal partially allowed, disallowance under Section 14A deleted, Revenue's appeal dismissed.

The Tribunal partially allowed the assessee's appeal by deleting the disallowance under Section 14A and remanding the depreciation issue for verification. The Revenue's appeal was dismissed, upholding the deletion of the addition of Rs. 1,20,40,838 to the returned income.

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Issues Involved:
1. Disallowance of fees paid under Portfolio Management Scheme (PMS).
2. Disallowance under Section 14A of the I.T. Act read with Rule 8D.
3. Ad hoc disallowance of 5% of various expenses.
4. Disallowance of depreciation on residential premises used by staff.
5. Deletion of addition of Rs. 1,20,40,838 to the returned income.

Issue-wise Detailed Analysis:

1. Disallowance of Fees Paid under Portfolio Management Scheme (PMS):
The assessee contested the disallowance of Rs. 26,01,054/- paid as PMS fees, arguing it was directly related to the purchase and sale of shares and should be deductible while computing Short Term Capital Gains (STCG). The Tribunal referenced its previous decision in the assessee's own case for the Assessment Year 2006-07, where it was held that PMS fees could not be considered as the cost of acquisition or improvement of shares and securities, nor as expenditure incurred wholly and exclusively in connection with their sale. The Tribunal upheld the disallowance, dismissing the assessee's appeal on this ground.

2. Disallowance under Section 14A of the I.T. Act read with Rule 8D:
The assessee had claimed dividend income of Rs. 43,19,310/- as exempt and self-disallowed Rs. 98,945/- under Section 14A. The AO, however, computed the disallowance at Rs. 11,23,626/- under Rule 8D, which the CIT(A) reduced to Rs. 10,24,681/-. The Tribunal found that the AO did not record any dissatisfaction with the assessee's disallowance before applying Rule 8D, as required by the Hon'ble Bombay High Court in Godrej & Boyce Manufacturing Ltd. v. CIT. Consequently, the Tribunal ruled that the AO's application of Rule 8D without recording dissatisfaction was incorrect and deleted the disallowance of Rs. 10,24,681/-, allowing the assessee's appeal on this ground.

3. Ad Hoc Disallowance of 5% of Various Expenses:
The AO disallowed 5% of various expenses totaling Rs. 22,29,005/- due to the majority being claimed in cash and the potential for personal use. The CIT(A) upheld this disallowance, and the Tribunal found no evidence from the assessee to counter the findings of the AO and CIT(A). Thus, the Tribunal upheld the disallowance of Rs. 1,11,450/-, dismissing the assessee's appeal on this ground.

4. Disallowance of Depreciation on Residential Premises Used by Staff:
The assessee claimed depreciation of Rs. 7,91,136/- on residential premises used by staff, which was disallowed by the AO due to lack of evidence. The CIT(A) upheld this disallowance. The Tribunal, noting the absence of evidence, remanded the matter back to the AO to verify the usage of the premises by the employees and the corresponding perks offered. This ground was allowed for statistical purposes.

5. Deletion of Addition of Rs. 1,20,40,838 to the Returned Income:
The AO added Rs. 1,20,40,838/- as short-term capital gains based on AIR information about two property sales, which the assessee denied. The CIT(A) admitted additional evidence showing the transactions were purchases, not sales, and deleted the addition. The Tribunal upheld the CIT(A)'s decision, noting that the agreements and balance sheet entries corroborated the assessee's claim and that the CIT(A)'s admission of evidence was not in violation of Rule 46A. The Revenue's appeal on this ground was dismissed.

Conclusion:
The Tribunal partially allowed the assessee's appeal by deleting the disallowance under Section 14A and remanding the depreciation issue for verification. The Revenue's appeal was dismissed, upholding the deletion of the addition of Rs. 1,20,40,838/-.

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