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The appeal concerns the disallowance of Rs. 26,04,585/- paid as PMS fees by the assessee, which was claimed against capital gains of Rs. 97,87,309/- on the sale of shares. The Assessing Officer (AO) disallowed this claim, holding that under section 48 of the Income Tax Act, 1961, the PMS fees do not qualify as expenditure incurred wholly and exclusively in connection with such transfer, nor as the cost of acquisition or improvement of the asset.
The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], citing the decision in DCIT v. KRA Holding & Trading Pvt. Ltd. However, the CIT(A) upheld the AO's decision, relying on the judgments in Homi K. Bhabha v. ITO and Devendra Kothari, which clarified that PMS fees are not directly related to the acquisition or transfer of shares.
Before the ITAT, the assessee's counsel referenced the Gujarat High Court's decision in Principle CIT v. Sintex Industries Ltd., which allowed consultancy charges as revenue expenditure. However, the Tribunal noted that the context in Sintex Industries was different, as it concerned the disallowance of consultancy charges as capital expenditure under section 37, not PMS fees against capital gains.
The Tribunal also reviewed the decision in KRA Holding & Trading (P.) Ltd., which was distinguished by the Mumbai Bench in Pradeep Kumar Harlalka. The Tribunal emphasized that the Bombay High Court in CIT v. Roshanbabu Mohammed Hussein Merchant had overruled the basis for the Pune Bench's decision in KRA Holding.
The Tribunal further referenced the decisions in Devendra Motilal Kothari and Homi K. Bhabha, which held that PMS fees do not qualify as deductible expenses under section 48. The fees were not considered directly linked to the purchase or sale of shares and were payable regardless of any transactions. The Tribunal also dismissed the assessee's alternative arguments based on the theory of real income and diversion of income by overriding title, as these did not align with the statutory provisions.
In conclusion, the Tribunal upheld the CIT(A)'s order, disallowing the claim of Rs. 26,04,585/- on account of PMS fees against capital gains, following the precedent set by Devendra Kothari, Homi K. Bhabha, Pradeep Kumar Harlalka, and Capt. Avinash Chander Batra. The appeal was dismissed.
Order pronounced in the open Court on 30/05/2018.
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