ATC GLOBAL LOGISTICS PRIVATE LIMITED, Mumbai V. Assistant Commissioner of Income Tax, Circle2(1)(1), Mumbai

ITA 2595/MUM/2023

• Counselvise Citation: [2023] 101 COUNSELVISE.COM (IT) 9469 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 12-12-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 23-07-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PARVEEN LOKWANI
• Keywords: Depreciation; Additional depreciation; Earning of tax free income; Rule 8D
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI VIKAS AWASTHY, JM & MS PADMAVATHY S, AM I.T.A. No. 2595/Mum/2023 (Assessment Year: 2016-17) ATC Global Logistics Pvt. Ltd. 901, Peninsula Towers, Peninsula Corporate park, Ganpatrao Kadam Marg, Lower Parel, Mumbai-400013. PAN : AAACA3307K Vs. ACIT, Circle-2 (1)(1 5 th Floor, Aayakar Bhavan, K.K. Road, Mumbai-400020 Appellant) : Respondent) Appellant/Assessee by : Shri Parveen Lokwani, AR Revenue/Respondent by : Shri Manoj Kumar Sinha, Sr. DR Date of Hearing : 13.12.2023 Date of Pronouncement : 19.12.2023 O R D E R Per Padmavathy S, AM: This appeal is against the order of Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC) dated 25.05.2023 for Assessment Year (AY) 2016-17. 2 ITA No. 2595/Mum/2023 ATC Global Logistics Pvt. Ltd. 2. The issues contended by the assessee to various grounds of appeal pertain to disallowance made under section 14A of the Income Tax Act (the Act) r.w.r. 8D and disallowance of depreciation as per the Act being added to book profit under section 115JB of the Act. 3. The assessee is a company engaged as an International Freight Forwarder, IATA Air Cargo Agent dealing with all transport, logistics and cargo requirements by Ocean Air and Road. The assessee filed a return of income for AY 2016-17 on 23.11.2016 declaring a total income of Rs. 1,43,67,990/- under normal provisions of the Act and Rs. 5,96,12,251/- under section 115JB of the Act. The case was selected for scrutiny under CASS and the statutory notices were duly served on the assessee. The Assessing Officer (AO) completed the assessment by making an addition of Rs. 6,21,921/- as disallowance under section 14A r.w.r. 8D (2)(iii), and Rs. 4,00,000/- towards depreciation on assets sold claimed by the assessee as a deduction. The AO also made the above two additions to the book profit computed under section 115JB of the Act. Aggrieved the assessee filed the appeal before the Ld. CIT(A) who confirmed the order of the AO. Aggrieved, the assessee is in appeal before the Tribunal. Disallowance under section 14A 4. During the year under consideration, the assessee has earned a dividend income of Rs. 28,32,555/-. The AO during the course of assessment noticed that the assessee has not made any disallowance under section 14A of the Act and called on the assessee to furnish details in this regard. The assessee submitted before the AO that the investments are made out of assessee's own funds and the dividend income is incidental to the purchase of shares. Accordingly, the assessee 3 ITA No. 2595/Mum/2023 ATC Global Logistics Pvt. Ltd. submitted that no disallowance under section 14A is called for. The AO after perusing the details submitted by the assessee computed a disallowance of Rs. 6,21,921/- under section 14A r.w.r. 8D(2)(iii) by applying 0.5% on the average investments held by the assessee. The CIT(A) upheld the disallowance. 5. The ld. AR submitted that the assessee has made the entire investments out of its own funds and therefore, no direct expenses are incurred towards earning such income. The ld. AR further submitted that the investments are done by the assessee in the capacity of investor and not as a day to day trader and therefore, the expenses incurred towards such investments are adjusted in the cost of investment directly. The ld. AR also submitted that the AO is not correct in invoking section 14A for the reason that separate set of books are not maintained by the assessee and that there is no requirement to maintain separate books since the transactions of purchase and sale of shares have been made through Demat A/c digitally. It is also submitted by the ld AR that the dividend income has been recorded net of taxes, brokerage and other expenses on receipt basis and therefore, no disallowance is warranted under Rule 8D(2)(iii). The ld. AR during the course of hearing drew our attention to the financial statements to submit that the expenses incurred by the assessee are towards the normal main stream business activity of the assessee and not towards investments activities. Accordingly the AR submitted that on this count also no disallowance should be made under section Rule 8D(2)(iii) 6. The ld. AR made a without prejudice submission that the assessee has paid tax on book profits on which the AO has made an addition towards disallowance under section 14A which is not correct in view of the decision in the case of ACIT Vs. Vireet Investments Pvt. Ltd. (2017) 165 ITD 27 (Del. 4 ITA No. 2595/Mum/2023 ATC Global Logistics Pvt. Ltd. Trib.(SB). The ld AR prayed that though the assessee did not raise the ground contending this, the alternate contention may be considered for adjudication. 7. The ld. DR on the other hand, submitted that the assessee is having substantial amount of investment in equity shares and mutual funds from which the dividend income has derived. The ld. DR submitted that the assessee has not made any suo-moto disallowance towards indirect expense incurred towards the investments. Therefore, the ld DR submitted that the AO has correctly applied Rule 8D(2)(iii) and made the disallowance. With regard to the alternate submission of the ld. AR on the addition made towards books profits on account of disallowance under section 14A, the ld. DR fairly conceded that the issues covered by the decision in the case of Vireet Investments Pvt. Ltd. (supra). 8. We have heard the parties and perused the material on record. The assessee during the year has earned exempt income of Rs.28,32,555/-. The AO invoked the provisions of section 14A r.w.r.8D. The AO did not make any disallowance towards interest under rule 8D(2)(i) and direct expenses under rule 8D(2)(ii). The AO however applied rule 8D(2)(iii) towards indirect expenses which resulted in the disallowance of Rs. 6,21,921/-. In this regard we notice that the assessee is having substantial amount of investment i.e. Rs.14,34,23,340 as at 31.03.2016 and that that there is significant movement in the investments during the year as compared to the opening balance of investment which stood at Rs,10,53,45,185 as at 31.03.2015. We also notice that the assessee has not made any suo moto disallowance against the exempt income earned from these investments. Therefore, we see merit in the contention of the ld DR that the disallowance under rule 8D(2)(iii) towards indirect expenses is warranted in assessee's case. We are unable to appreciate the submission that the dividend 5 ITA No. 2595/Mum/2023 ATC Global Logistics Pvt. Ltd. income is net of indirect expenses since the same is not substantiated by any documents and nothing is brought on record by the assessee. Having held so, we will now consider the alternate plea orally submitted by the ld AR during the course of hearing with regard to disallowance under section 14A being adjusted against the book profit. The Special Bench of the Delhi Tribunal in the case of Vireet Investments (supra) has considered the similar issue and held that disallowance made under section 14A cannot be considered while computing the book profits under section 115JB. Accordingly we direct the AO to delete the addition made to the book profits under section 115JB towards disallowance made under section 14A. To this extend the alternate plea of the ld AR is allowed in favour of the assessee. Disallowance of depreciation 9. During the course of assessment proceeding the AO noticed that the assessee has sold an asset for a consideration of Rs. 40,00,000/- and that the same has not been reduced from the depreciable block of assets on which the depreciation was claimed at 10%. The assessee submitted before the AO that the deletion of asset has been omitted to be considered inadvertently by the officials of the assessee in the computation of income. The AO therefore, made an addition of Rs. 4,00,000/- towards excess depreciation claimed by not removing the assets sold from the block of asset. 10. The Ld. AR submitted that the AO besides adding the depreciation amount to the income computed under the normal provisions of the Act has also made the addition to the book profits computed under section 115JB of the Act. The ld. AR further submitted that depreciation as per the Income Tax Act cannot be adjusted against the book profits since the book profits 6 ITA No. 2595/Mum/2023 ATC Global Logistics Pvt. Ltd. has already taken into consideration the depreciation as per books which is arrived at after taking into consideration the asset sold. It is therefore, submitted that the addition made towards depreciation to the book profits under section 115JB is not tenable. The ld. DR relied on the orders of the lower authorities. 11. We have heard the parties and perused the material on record. On the issue of disallowance of depreciation the contention of the assessee is limited to adding the amount disallowed towards depreciation to the book profits computed under section 115JB of the Act. From the perusal of the fixed assets schedule which is part of the financial statements submitted, we noticed that the a sum of Rs.4,30,063/- is removed from the Gross Block of Building and a sum of Rs.2,82,151 is removed from the depreciation block of Building. Therefore, we see merit in the contention of the ld. AR that the depreciation as per the books of accounts already considers the deletion of the Building sold. The addition made by the AO towards depreciation is made for the reason that the asset sold is not removed from the block of assets while computing the depreciation under the Income Tax Act. In view of these facts, we are of the considered view that the AO is not correct in adding the additional depreciation as per the Income Tax Act to the book profits computed under section 115JB of the Act. This contention of the assessee is allowed and the AO is directed to delete the addition made to the book profit computed under section 115JB of the Act. 12. In the result, appeal filed by assessee is partly allowed. Order pronounced in the open court on 19-12-2023. Sd/- Sd/- (VIKAS AWASTHY) (MS. PADMAVATHY S) Judicial Member Accountant Member 7 ITA No. 2595/Mum/2023 ATC Global Logistics Pvt. Ltd. *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai