DCIT 2(3)(1), MUMBAI V. DCB BANK LTD, MUMBAI

ITA 249/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8256 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 15-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESH
• Keywords: Depreciation; Earning of tax free income; Question of law
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE HONBLE S/SHRI JOGINDER SINGH (JM), AND RAJESH KUMAR, ( AM ) I.T.A. NO. 5706 /MUM/201 5 ( / ASSESSMENT YEA R :20 11 - 12 ) D CB BANK LIMITED ( F ORMERLY DEVP. CREDIT BANK LTD) 6 TH FLOOR, PENINSULA BUSINESS PARK, TOWER A, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI - 400013 / VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 2(3), ROOM NO.552, 5 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 I.T.A. NO. 249/MUM/2016 ( / ASSESSMENT YEA R:2011 - 12 ) DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(3)(1), ROOM NO.552, 5 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 / VS. DCB BANK LIMITED ( FORMERLY DEVP. CR. BANK LTD) 6 TH FLOOR, P ENINSULA BUSINESS PARK, TOWER A, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI - 400013 / ASSESSEE BY : SHRI SATISH MODY / REVENUE BY : SHRI SAURABH DESHPANDE PAN : AAAC D1461F / DATE OF HEARING : 31.10. 2017 / DATE OF PRONOUNCEMENT : 24. 1 1 .2017 / O R D E R PER RAJESH KUMAR, A. M: THESE CROSS - APPEALS ARE DIRECTED AGAINST THE ORDER 5.10.2015 PASSED BY THE LD.CIT(A) - 6 FOR THE ASSESSMENT YEAR 20 11 - 12 . 2 I.T.A. NO. 5706/MUM/2015 AND 249/ MUM/201 6 I.T.A. NO.249/MUM/2016 2. TH E FIRST GROUNDS OF APPEAL TAKEN BY THE REVENUE IS IN GENERAL NATURE, THEREFORE, DISMISSED AS NOT PRESSED. 3. IN THE SECOND GROUND, THE REVENUE RAISED THE ISSUE OF ALLOWING DEPRECIATION ON LEASED OUT ASSETS , WHEN THE RELATED TRANSACTIONS WERE PURELY FINANC IAL TRANSACTIONS. 4. AT THE OUTSET, THE LD.AR SUBMITTED THAT THE ISSUE RAISED BY THE REVENUE IN SECOND GROUND OF APPEAL STANDS COVERED BY THE DECISION OF THE CO - ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO.615/MUM/2014 (AY - 2010 - 11) ORDER DATED 4. 1 1.20 15 AND THEREFORE BY APPLYING THE SAME ANALOGY, THE ISSUE BE DECIDED IN FAVOUR OF THE ASSESSEE AND THE GROUND RAISED BY THE REVENUE BE REJECTED. 5. THE LD.DR FAIRLY AGREED WITH THE CONTENTIONS RAISED BY THE ASSESSEE. 6. AFTER CONSIDERING THE RIVAL SUBMISS ION AND ON PERUSAL OF MATERIAL PLACED BEFORE US INCLUDING THE ORDER OF THE TRIBUNAL (SUPRA) IN ASSESSEES OWN CASE, WE FIND THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE. FOR THE SAKE OF READY REFERENCE, WE REPRODUCE THE FINDINGS OF THE TRIBUNAL ORDER AS UNDER: 17. WE FIND THAT THE MATTER IN THE ASSESSMENT YEARS MENTIONED HEREINABOVE TRAVELLED UPTO THE TRIBUNAL AND THE TRIBUNAL BY A CONSOLIDATED ORDER MAINLY IN ITA NOS. 3006/M/01 AND 4892/M/03 AND ITA NO. 3620/M/01 ALONGWITH OTHER APPEALS ORDER DATED 20.3.2013 HAS HELD AT PARA - 34 AS UNDER: 3 I.T.A. NO. 5706/MUM/2015 AND 249/ MUM/201 6 AFTER HAVING EXAMINED ALL THE TRANSACTIONS WHICH HAVE BEEN IMPUGNED BEFORE US, WE ARE OF THE OPINION THAT THE ASSESSEE IS ENTITLED FOR THE CLAIM OF DEPRECIATION UNDER ALL THE THREE CIRCUMSTANCE I.E. SALE LEAS E BACK, GENUINENESS OF TRANSACTION AND ASSET HAVING BEING PUT TO USE. WE, THEREFORE, ALLOW GROUND NO.1 OF THE ASSESSEES APPEAL AND DISMISS BOTH THE GROUNDS OF THE DEPARTMENTS APPEALS. 11. AS THE AO HAS FOLLOWED THE FINDINGS GIVEN IN EARLIER ASSESSMENT YEAR AND AS THE DISALLOWANCE HAVE BEEN DELETED BY THE TRIBUNAL IN EARLIER ASSESSMENT YEARS VIDE ITS ORDER (SUPRA), WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 1,2 & 3 ARE ACCORDINGLY DISMISSED. WE ARE , THEREFO RE, MAINTAINING CONSISTENCY WITH THE EARLIER YEAR B Y FOLLOWING THE SAME PRECEDENT AS LAID DOWN BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE (SUPRA) BY DISMISS ING THE GROUND RAISED BY THE REVENUE. 7 . THE GROUNDS OF APPEAL NO.3 TAKEN BY THE REVENUE IS WITH REGARD TO THE HOLDING OF BROKEN PERIOD INTEREST AS NOT A PART OF THE COST OF SECURITIES AND SHOULD NOT HAVE BEEN ALLOWED AS DEDUCTION. 8 . WE ALSO FIND THAT THE ISSUE RAISED BY THE REVENUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION RENDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.820/MUM/2014 (AY - 2010 - 11) VIDE ORDER DATED 4.11.2015 AND THEREFORE THE LD.AR PRAYED THAT BY APPLYING THE SAID DECISION, THE ISSUE BE DECIDED IN FAVOUR OF THE ASSESSEE AND THE GROUND RAIS ED BY THE REVENUE BE REJECTED. 9 . THE LD.DR FAIRLY AGREED WITH THE CONTENTIONS RAISED BY THE ASSESSEE. 4 I.T.A. NO. 5706/MUM/2015 AND 249/ MUM/201 6 10 . AFTER CONSIDERING THE RIVAL SUBMISSION S AND ON PERUSAL OF MATERIAL PLACED BEFORE US INCLUDING THE ORDER OF THE TRIBUNAL (SUPRA) IN ASSESSEES OWN CA SE, WE FIND THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION IN ITA NO.820/MUM/2014, DATED 4.11.2015 BY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKING CORPORA TION REPORTED IN 258 ITR 601(BOM). THE RELEVANT PART OF THE JUDGMENT IS REPRODUCED BELOW (ITA NO.820/M/2014, PARA 9 .2 TO 12) : 9.2. AFTER CONSIDERING THE DETAILED SUBMISSIONS MADE BY THE ASSESSEE, THE AO WAS OF THE OPINION THAT ON IDENTICAL SET OF FACTS , THE DEPARTMENT HAS NOT ACCEPTED THE CLAIM IN THE CASE OF HDFC BANK , THEREFORE, THE SAME IS ALSO NOT ACCEPTED IN THE CASE OF THE ASSESSEE. BROKEN PERIOD INTEREST WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 10. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 11. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STRAIGHTAWAY DREW OUR ATTENTION TO THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF HDFC BANK LTD. 366 ITR 505 WHEREIN QUESTION NO. B READ AS UNDER: (B) WHETHER THE INCOME - TAX APPELLATE TRIBUNAL WAS CORRECT IN LAW IN HOLDING THAT THE BROKEN PERIOD INTEREST IS ALLOWABLE AS A DEDUCTION, IN SPITE OF THE HON'BLE SUPREME COURT'S DECISION IN THE CASE OF VIJAYA BANK LTD. V. ADDL. CIT [1991] 187 ITR 541(SC) AN D THE RAJASTHAN HIGH COURT'S DECISION IN THE CASE OF CIT V. BANK OF RAJASTHAN LTD. [2009] 316 ITR 391? 11.1. THE HONBLE HIGH COURT ANSWERED THE QUESTION AS UNDER: EVEN AS FAR AS QUESTION (B) IS CONCERNED, WE FIND NO INFIRMITY IN THE ORDERS PASSED BY T HE COMMISSIONER OF INCOME - TAX (APPEALS) OR THE INCOME - TAX APPELLATE TRIBUNAL. IN DECIDING THIS ISSUE, THE COMMISSIONER OF INCOME - TAX (APPEALS) AND THE INCOME - TAX APPELLATE TRIBUNAL HAVE MERELY FOLLOWED THE JUDGMENT OF THIS COURT IN THE CASE OF AMERICAN EXP RESS INTERNATIONAL BANKING CORPORATION V. CIT REPORTED IN 5 I.T.A. NO. 5706/MUM/2015 AND 249/ MUM/201 6 [2002] 258 ITR 601 (BOM). ON GOING THROUGH THE SAID JUDGMENT, WE FIND THAT QUESTION (B) REPRODUCED ABOVE AND PROJECTED AS SUBSTANTIAL BY MR. SURESH KUMAR IS SQUARELY ANSWERED BY THE JUDGMENT OF THIS COURT IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION (SUPRA). IN VIEW THEREOF, WE DO NOT FIND THAT EVEN QUESTION (B) GIVES RISE TO ANY SUBSTANTIAL QUESTION OF LAW THAT NEEDS TO BE ANSWERED BY THIS COURT. 12. AS THE ISSUE HAS BEEN DECI DED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE, WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION OF RS. 11,50,42,776/ - IN THE LIGHT OF THE DECISION IN THE CASE OF HDFC BANK (SUPRA). GROUND NO. 2 IS ACCORDINGLY ALL OWED 12. RESULTANTLY, THE APPEAL OF THE REVENUE IS DISMISSED. ITA NO.5706/MUM/2015. 1 3 . THE ONLY ISSUE RAISED BY THE ASSESSEE IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS.7,15,836/ - BY THE LD.CIT(A) AS MADE BY THE AO UNDER SECTION 14A R.W.R.8D O F THE ACT AND RULES RESPECTIVELY. 1 4 . BRIEF FACTS OF THE CASE ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OBSERVED THAT THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS.3,93,500/ - AND SUO MOTTO DISALLOWED ONLY RS.22,302/ - AS EXPENSES RELATIN G TO EARNING EXEMPT INCOME . THE AO WAS NOT CONVINCED WITH THE SAME AND ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY THE DISALLOWANCE SHOULD NOT BE WORKED OUT IN TERMS OF THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE RULES AND ACCORDINGLY D ISALLOWED AN AMOUNT OF RS.7,37,488/ - COMPRISING OF RS.6,72,098/ - UNDER RULE 8D(2)(II) OF THE RULES AND RS.65,390/ - UNDER RULE 8D2(III) OF THE RULES AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE AFTER ALLOWING THE DEDUCTION THEREFROM OF SUO - MO TU 6 I.T.A. NO. 5706/MUM/2015 AND 249/ MUM/201 6 DISALLOWANCE OF RS.22,303/ - AND ACCORDINGLY, ADDED A SUM OF RS.7,15,186/ - TO THE TOTAL INCOME OF THE ASSESSEE. IN THE A PPELLANT PROCEEDINGS, TH E LD. CIT(A) UPHELD THE DISALLOWANCE AFTER CONSIDERING THE CONTENTIONS OF THE ASSESSEE BY OBSERVING AS UND ER (5.2 OF APPELLATE ORDER): 5.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA S E AND THE SUBMISSIONS OF THE LD. AR I HAVE ALSO GONE THROUGH HE DECISION RELIED ON BY THE AO AND LD. AR. I FIND THAT THE SAME ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE LD. CIT(A) - 6 IN APPELLANTS OWN CA S E FO R THE IMMEDIATELY PRECEDING AY 2010 - 11. THE SUBMISSIONS MADE BY THE APPELLANT IS ALSO SIMILAR. AFTER DULY CONSIDERING THE SUBMISSION OF THE APPELLANT, THE LF. CIT(A) IN APPEAL NO. CIT(A) - 6/IT - 108/RG - 2(3)/12 - 13 DA TED 21.10.2013 HAS HELD AFTER DETAILED DISCUSSION IN PARA 5.3, 5.4 AND 5.5 THAT DISALLOWANCE HAS TO BE COMPUTED AS PER RULE 8D. IN DOING SO, HE HAS RELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA S E OF GODREJ AND BOYCE MFT CO.L TD (SUPRA ) THAT RULE 8D IS APPLICABLE FROM AY - 2008 - 09 ONWARDS. HOWEVER, HE ALLOWED CLAIM OF RS.5,27,908/ - DISALLOWED UNDER RULE 8D(2)(I). NO SUCH DISALLOWANCE HAS BEEN MADE BY THE AO IN THIS YEAR I.E. DISALLOWANCE UNDER RULE 8D(2)(I) IS NIL. HENCE, FOLLOWING T HE ABOVE DECISION OF THE LD. CIT(A) - 6 FOR AY 2010 - 11, THE DISALLOWANCE IS UPHELD AND THE GROUND IS DISMISSED. 1 5 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELOW. THE LD. AR SUBM ITTED THAT ON THE ISSUE OF DISALLOWANCE UNDER SECTION 14A R.W.R 8D, NO SATISFACTION HAS BEEN RECORDED BY THE AO WHICH IS MANDATORY AND ARE TO BE RECORDED WITH REFE RENCE TO THE CLAIM OF THE ASSESSEE AS TO HOW THE SAID CLAIM IS NOT CORRECT AND L IABLE TO BE REJECTED. THE LD. AR ALSO BY RELYING ON THE DECISION S OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. VS DCIT (2010) 328 ITR 81 SUBMITTED THAT PROVISION S OF SECTION 14A 7 I.T.A. NO. 5706/MUM/2015 AND 249/ MUM/201 6 R.W.R 8D CAN NOT BE INVOKED WITHOUT RECORDING T HE SATISFACTION BY THE AO AS TO HOW THE CLAIM OF THE ASSESSEE IS WRONG HAVING REGARDS TO THE ACCOUNTS OF THE ASSESSEE AND THUS THE RECORDING OF SATISFACTION BY THE AO IS A PRE - CONDITION FOR THE SAME. ALTERNATIVELY, THE LD.AR SUBMITTED THAT THE ASSESSEE S OWN INTEREST FREE FUNDS ARE FOR MORE THAN THE INVESTMENT S YIELDING THE TAX FREE INCOME AND THEREFORE THE PROVI SI ONS OF SECTION 14 AND RULES 8D 2(II) WERE WRONGLY INVOKED. THE SECOND ALTERNATIVE PLEA OF THE LD. AR WAS THAT ALL THE INVESTMENTS IN SECUR ITIES YIELDING THE TAX FREE INCOME WAS H ELD AS STOCK IN TRADE AND THEREFORE NO DISALLOWANCE WAS CALLED FOR . 1 6 . ON T HE OTHER HAND, THE LD.DR WHILE OPPOSING THE ARGUMENTS OF T HE LD. AR SUBMITTED THAT THE AO HAS DULY RECORDED DUE SATISFACTION WHILE IN VOLVING THE PROVISIONS OF SECTION 14A R.W.R.8D. THE LD DR SUBMITTED THAT IT IS MANDATORY TO APPLY THE PROVISIONS OF SECTION 14A RULE 8D FROM AY 2008 - 09 AND THE WAS CORRECTLY APPLIED BY THE AO AND AFFIRMED BY THE CIT(A). THE LD. DR FURTHER STATED THAT EVEN IF THE SHARES ARE HELD AS STOCK IN TRADE THE DIVIDEND INCOME WAS EXEMPT AND DISALLOWANCE HAS TO BE MADE. 1 7 . HAVING CONSIDERED THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE RECORD, WE FIND THAT THE AO HAS NOT RECORDED THE SATISFACTION AS TO HOW THE CLAIM OF THE ASSESSEE IS WRONG WITH REFERENCE TO THE BOOKS OF ACCOUNT OF THE ASSESSEE. WE ARE THEREFORE CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE ON THIS SCORE AND ARE IN AGREEMENT WITH THE ARGUMENT S OF THE LD.AR THAT FOR THE 8 I.T.A. NO. 5706/MUM/2015 AND 249/ MUM/201 6 INVOCATION OF PROVISIONS OF S ECTION 14A R.W. RULE 8D IS NOT MANDATORY UNLESS AND UNTIL THE AO HAS RECORDED HIS SATISFACTION. THE CA S E OF THE AS S ESS E E FINDS SUPPORT FROM THE DECISION OF THE HON B LE HIGH COURT RENDERED IN GODREJ AND BOYCE (SUPRA), WHEREIN IT HAS BEEN HELD THAT FO R INVOCATION OF PRO VISION S OF SECTION 14A, THE AO H A S TO RECORD SATISFACTION . WE, THEREFORE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE ABOVE DECISION BY THE JURISDICTION HIGH COURT , SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO D ELETE THE ADDITION. RESULTANTLY, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. 1 8 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AND THAT OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24TH NOV , 2017 . S D SD (JOGINDER SINGH ) ( RAJESH KUMAR ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 24. 11 . 2017 SR.PS:SRL: / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, T RUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI