JM FINANCIAL SERVICES LTD, MUMBAI V. ASST CIT 4(3), MUMBAI

ITA 441/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3031 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Assessee
• Bench Allotted: J
• Assessment Year: 2010-2011
• Appeal Filed On: 19-01-2015
• Court: TRIBUNAL
• Department Lawyers: ARJU GARODIA
• Assessee Lawyers: K SHIVRAM SHRI SANJAY PAREKH
• Keywords: Depreciation; Capital expenditure
• Section: 14A

Judgement Text

1 I.T.A. NO.441/MUM/2015 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J, MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A. NO.441/MUM/2015 (ASSESSMENT YEAR : 2010-11) JM FINANCIAL SERVICES LTD 7 TH FLOOR, CNERGY, APPASAHEB MARATHE MARG, PRABHADEVI, MUMBAI-25 VS THE ACIT 4(3), MUMBAI PAN : AAACJ5977A (APPELLANT) (RESPONDENT) APPELLANT BY SHRI K SHIVRAM / SHRI SANJAY PAREKH RESPONDENT BY ARJU GARODIA DATE OF HEARING : 15-09-2016 DATE OF PRONOUNCEMENT :21 -09-2016 O R D E R PER ASHWANI TANEJA, AM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-8, MUMBAI [HER EINAFTER CALLED THE LD.CIT(A)] DT 10-11-2014 PASSED AGAINST ORDER U/S 1 43(3) FOR A.Y. 2010-11 ON THE FOLLOWING GROUNDS: DISALLOWANCE OF LEASE RENTALS PAID ON MOTOR VEHICL ES - RS. 24210121- 1) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 8, MUMBAI [CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE ORDER OF THE ASSISTANT COMMISSIONER OF INCOME TAX - 4(3), MU MBAI (AO) MAKING A DISALLOWANCE OF LEASE RENTALS PAID ON MOTO R VEHICLES TAKEN 2 I.T.A. NO.441/MUM/2015 ON LEASE, AMOUNTING TO RS. 24,21,012/- BY HOLDING T HAT AN IDENTICAL ISSUE WAS DECIDED AGAINST THE APPELLANT I N THE EARLIER YEAR BY HIS PREDECESSOR WITHOUT APPRECIATING THAT T HE ORDER FOR ASSESSMENT YEAR 2008 - 09 HAD BEEN SET ASIDE BY THE HON'BLE INCOME TAX APPELLATE TRIBUNAL TO THE FILE OF THE AO . 2) THE APPELLANT PRAYS THAT THE DISALLOWANCE OF LEASE RENTALS PAID ON MOTOR VEHICLES TAKEN OF LEASE AMOUNTING TO RS. 24,2 1,012/- AS MADE BY THE AO AND AS CONFIRMED BY THE CIT(A) MAY B E DELETED. 3) WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) ERRED IN NOT ALLOWING DEPRECIATION ON LEASED ASSETS AMOUNTING TO RS. 13,39,344/- AND FINANCE CHARGES AMOUNTING TO RS. 4, 36,815/- INCLUDED IN THE LEASE RENT. 4) THE APPELLANT PRAYS THAT IF LEASE RENTALS ARE NOT A LLOWED AS A DEDUCTION, DEPRECIATION ON LEASED ASSETS AND FINANC E CHARGES INCLUDED IN THE LEASE RENTALS MAY BE ALLOWED AS A D EDUCTION. B) ADDITIONAL DISALLOWANCE U/S. 14A - RS. 63,16,517 /- 5) THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDI NG THE ORDER OF THE AO MAKING AN ADDITIONAL DISALLOWANCE U/S. 14A READ WITH RULE 8D OF RS. 63,16,517/- WITHOUT RECORDING A FINDING AS T O WHY THE APPELLANTS CONTENTION IS TO BE REJECTED HAVING REG ARD TO THE ACCOUNTS. 6) THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THA T THE DISALLOWANCE U/S 14A COULD NOT BE MADE UNLESS A SA TISFACTION WAS REACHED BY THE AO THAT THE APPELLANTS CLAIM CO ULD NOT BE ACCEPTED HAVING REGARD TO THE ACCOUNTS. NO SUCH SA TISFACTION HAVING BEEN RECORDED BY THE AO OR CIT(A), THE ADDITIONAL DISALLOWANCE OF RS.63,16,517/- UNDER SECTION 14A READ WITH RULE 8D IS LIABLE TO BE DELETED. 7) THE APPELLANT PRAYS THAT THE ADDITIONAL DISALLOWANC E OF RS. 63,16,517/- U/S. 14A MADE BY THE AO AND AS UPHELD B Y THE CIT(A) MAY BE DELETED. 8) WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) ERRED IN NOT DECIDING THE ALTERNATE CONTENTION OF THE APPELLANT THAT THE VALUE OF STOCK COULD NOT BE CONSIDERED WHILE COMPUTING THE A VERAGE VALUE OF INVESTMENTS. 9) THE APPELLANT PRAYS THAT IF YOUR HONOUR IS TO CONFI RM THE ADDITIONAL DISALLOWANCE OF RS. 63,16,517/- U/S. 14A , YOUR HONOUR MAY DECIDE THE ALTERNATE CONTENTION OF THE APPELLAN T THAT THE VALUE OF STOCK IN TRADE SHOULD NOT BE INCLUDED WHILE DETE RMINING THE AVERAGE VALUE OF INVESTMENTS. 3 I.T.A. NO.441/MUM/2015 2. GROUND NO.1 : IN THIS GROUND, THE ASSESSEE HAS CONTESTED THE ACTION OF LOWER AUTHORITIES IN MAKING DISALLOWANCE OF LEASE RENTALS PAID ON MOTOR VEHICLES TAKEN ON LEASE AMOUNTING TO RS.24 ,21,012. THE ASSESSING OFFICER DID NOT ALLOW THE LEASE RENTALS O N THE GROUND THAT THE SAME WAS CAPITAL EXPENDITURE. THE LD.CIT(A) CONFIR MED THE DISALLOWANCE FOLLOWING HIS ORDERS FOR EARLIER YEARS I.E. A.YS 2007-08 & 2008-09. IT WAS BROUGHT TO OUR NOTICE THAT IN EARL IER YEARS, THE ISSUE HAD REACHED UPTO THE TRIBUNAL WHEREIN THE SAME HAS BEEN SENT BACK TO THE FILE OF THE ASSESSING OFFICER. 3. PER CONTRA, THE LD.DR RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 4. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWER AUTHORITIES AS WELL AS THE ORDERS OF THE TRIBUNAL FOR A.YS 2007 -08 & 2008-09. IT IS NOTED THAT THE TRIBUNAL IN A.Y. 2007-08, VIDE ORDER DATED 28-06-2013 IN ITA NO.3112/MUM/2011 SENT THIS ISSUE BACK TO THE FI LE OF THE ASSESSING OFFICER WITH THE FOLLOWING DIRECTIONS: 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS, PERUSED THE RELEVANT FINDINGS OF THE ASSESSING OFFI CER AS WELL AS THE LEARNED COMMISSIONER (APPEALS) AND THE MATER IAL PLACED ON RECORD. FROM THE FACTS DISCUSSED FROM PAG ES8 TO 11 OF THE LEARNED COMMISSIONER (APPEALS)S ORDER, IT I S SEEN THAT THE SAME HAS NOT BEEN DISCUSSED OR DEALT WITH BY TH E ASSESSING OFFICER. SUCH AN APPRECIATION OF FACTS BY THE LEARN ED COMMISSIONER (APPEALS) HAS ALSO BEEN DISPUTED BEFOR E US. FURTHER, THE HON'BLE SUPREME COURT IN IDCS LTD. (SU PRA) HAS ALSO LAID DOWN THE LAW RELATING TO ALLOWANCE OF DEP RECIATION ON LEASED VEHICLES AND WHETHER IT IS FOR THE BUSINE SS PURPOSE OR NOT. THEREFORE, IN THE INTEREST OF JUSTICE, WE A RE OF THE CONSIDERED OPINION THAT THE ENTIRE ISSUE SHOULD BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR DENOV O ADJUDICATION. CONSEQUENTLY, WE SET ASIDE THE IMPUGN ED ORDER 4 I.T.A. NO.441/MUM/2015 PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND RE STORE THE ENTIRE ISSUE BACK TO THE FILE OF THE ASSESSING OFFI CER FOR FRESH ADJUDICATION IN THE LIGHT OF THE JUDICIAL PRONOUNCE MENTS OF THE HON'BLE SUPREME COURT IN IDCS LTD. (SUPRA). IT IS FURTHER NOTED THAT SIMILAR ORDER HAS BEEN PAS SED BY THE TRIBUNAL IN A.Y. 2008-09 ALSO. DURING THE COURSE OF HEARING, NO DIS TINCTION HAS BEEN MADE ON FACTS OR LAW BY EITHER PARTY. THUS, WE SEND THIS I SSUE BACK TO THE FILE OF THE A.O WITH THE SAME DIRECTION AS HAS BEEN ISSUED FOR A.Y. 2007-08. THE AO IS DIRECTED TO FOLLOW THE ORDER OF THE TRIBUNAL FOR A. Y. 2007-08 WHILE DECIDING THIS ISSUE AFRESH. THE ASSESSING OFFICER IS ALSO DIRECT ED TO OFFER ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE DECID ING THIS ISSUE ANEW. THIS GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOS E. 5. GROUND 2 : IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACT ION OF LOWER AUTHORITIES IN MAKING DISALLOWANCE U/S 14A FOR RS.6 3,16,517/-. 6. DURING THE COURSE OF HEARING IT WAS SUBMITTED BY L D.COUNSEL OF THE ASSESSEE THAT ASSESSEE HAD MADE VOLUNTARY DISALLOWA NCE OF RS.21,47,266/- AND ALSO EXPLAINED THE BASIS OF MAKING DISALLOWANCE TO THE LOWER AUTHORITIES. BUT THE AO, WITHOUT REJECTING THE BASIS OF MAKING VOLUN TARY DISALLOWANCE OF RS.21,47,266/- AND ALSO EXPLAINED THE BASIS OF MAKI NG DISALLOWANCE TO THE LOWER AUTHORITIES. BUT THE AO, WITHOUT REJECTING T HE BASIS OF MAKING VOLUNTARY DISALLOWANCE AND WITHOUT APPLYING HIS MIND AND WITH OUT RECORDING ANY SATISFACTION APPLIED RULE 8D MECHANICALLY EVEN WITH OUT POINTING OUT THE DISALLOWANCE MADE BY THE ASSESSEE WAS INCORRECT, EN HANCED THE DISALLOWANCE. IT WAS FURTHER SUBMITTED THAT IN THIS CASE SUBSTANT IAL PART OF THE INVESTMENT IS COMPRISED OF STOCK-IN-TRADE HELD BY THE ASSESSEE AN D THE SAME CANNOT BE CONSIDERED FOR MAKING DISALLOWANCE U/S 14A. RELIAN CE WAS PLACED ON THE JUDGEMENT OF HONBLE KARNATAKA HIGH COURT IN THE CA SE OF CCI LTD VS JCITY 250 5 I.T.A. NO.441/MUM/2015 CTR 291 (KAR) AND JUDGEMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS INDIA ADVANTAGE SECURITIES LTD 380 ITR 471 (BOM) . RELIANCE WAS ALSO PLACED ON THE JUDGMENT OF PUNE BENCH OF THE TRIBUNAL IN TH E CASE OF SHRI PARESH PRITAMLAL MEHTA VS ITO ITA NO.1715/PN/2015 A.Y. 201 2-13 ORDER DATED 18-03- 2016 WHEREIN, AFTER DISCUSSING THE ENTIRE LAW AND T HIRD MEMBER JUDGEMENT OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF D.H . SECURITIES PVT LTD VS DCIT 41 TAXMAN.COM 352, IT WAS HELD THAT THE INVESTMENT HELD AS STOCK IN TRADE SHOULD NOT BE CONSIDERED FOR MAKING DISALLOWANCE U/ S 14A R.W.R.8D. 7. PER CONTRA, THE LD.DR RELIED UPON THE ORDER OF THE LOWER AUTHORITIES. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITI ES AND JUDGEMENTS PLACED BEFORE US. WITH THE ASSISTANCE OF THE PARTIES IT I S NOTICED FROM THE BALANCE- SHEET OF THE ASSESSEE THAT THE ASSESSEE IS HAVING I NVESTMENTS HELD AS INVESTMENTS AS ALSO INVESTMENTS IN SHARES AND OTHER SECURITIES, WHICH ARE HELD AS PART OF STOCK IN TRADE. THE ASSESSEE HAS RIGHTL Y CONTENDED THAT IT HAS BEEN HELD IN THE AFORESAID JUDGMENTS THAT SHARES HELD AS PART OF STOCK-IN-TRADE CANNOT BE CONSIDERED FOR MAKING DISALLOWANCE U/S 14 A. THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF PARESH PRITAMLAL MEHTA (SUP RA) HAS ANALYSED THE LAW AND BY FOLLOWING THE AFORESAID DECISIONS, DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE WITH FOLLOWING OBSERVATIONS: 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRE SENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTH ORITIES BELOW. WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH THE LD. AR HAS PLACED RELIANCE IN SUPPORT OF HIS SUBMISSIONS. THE ASSESSE E HAS EARNED TAX FREE DIVIDEND INCOME OF RS.12,04,572/-. THE ASSESSE E HAS EARNED AFORESAID DIVIDEND INCOME ON SHARES HELD AS STOCK-I N-TRADE. IT IS NOT DISPUTED BY THE DEPARTMENT THAT THE ASSESSEE IS ENG AGED IN THE BUSINESS OF TRADING OF SHARES AND THE ASSESSEE IS N OT MAINTAINING ANY INVESTMENT PORTFOLIO. THE ASSESSING OFFICER MADE DI SALLOWANCE OF RS.46,89,749/- U/S. 14A R.W. RULE 8D. IT IS ALSO AN ADMITTED FACT THAT 6 I.T.A. NO.441/MUM/2015 SIMILAR DISALLOWANCE WAS MADE IN THE CASE OF ASSESS EE IN THE ASSESSMENT YEAR 2010-11. THE COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE, THE DEPARTMENT CARRIED TH E MATTER IN APPEAL TO THE TRIBUNAL. THE CO-ORDINATE BENCH OF TH E TRIBUNAL BY PLACING RELIANCE ON THE DECISION RENDERED IN THE CA SE OF KUNAL POLYMERS VS. DCIT IN ITA NO. 1859/PN/2012 DECIDED O N 15-07-2015 AND THE DECISION OF HON'BLE BOMBAY HIGH COURT IN TH E CASE OF CIT VS. INDIA ADVANTAGE SECURITIES LTD. IN INCOME TAX APPEA L NO. 1131 OF 2013 DECIDED ON 13-04-2015 DISMISSED THE APPEAL OF THE DEPARTMENT. THE ASSESSING OFFICER VIDE ASSESSMENT ORDER DATED 2 3-01-2015 MADE SIMILAR DISALLOWANCE ON THE SHARES HELD AS STOCK-IN -TRADE FOR THE ASSESSMENT YEAR UNDER APPEAL. IN FIRST APPEAL THE C OMMISSIONER OF INCOME TAX (APPEALS) DISREGARDING THE ORDER OF TRIB UNAL IN ASSESSEES OWN CASE IN THE EARLIER ASSESSMENT YEAR DECIDED THE ISSUE AGAINST THE ASSESSEE BY PLACING RELIANCE ON THE DECISION OF MUM BAI BENCH OF THE TRIBUNAL IN THE CASE OF HDFC BANK LTD. VS. DCIT (SU PRA) AND THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL (THIRD MEM BER) IN THE CASE OF D.H. SECURITIES PVT. LTD. VS. DCIT REPORTED AS 4 1 TAXMANN.COM 352. 6. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDIA ADVANTAGE SECURITIES LTD. (SUPRA) HAS CONFIRMED THE ORDER OF TRIBUNAL WHEREIN IT WAS HELD THAT NO DISALLOWANCE U/S. 14A R .W. RULE 8D CAN BE MADE ON SHARES HELD AS STOCK-IN-TRADE. THE PUNE BEN CH OF THE TRIBUNAL HAS BEEN CONSISTENTLY FOLLOWING THIS VIEW BY PLACING RELIANCE ON THE JUDGMENT RENDERED BY THE HON'BLE KARNATAKA H IGH COURT IN THE CASE OF CCI LTD. VS. JCIT REPORTED AS 71 DTR 141 (K AR.). THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD. VS. DCIT (SUPRA) HAS REVERSED THE ORDER OF MUMBAI BENCH OF THE TRIBUNAL. IT WAS CLEARLY STATED BY THE LD.COUNSEL THAT THE FA CTS MAY BE VERIFIED BY THE AO IN THIS REGARD AND AMOUNT OF DISALLOWANCE COULD BE REWORKED ACCORDINGLY. THE LD.DR ALSO HAD NO OBJECTION FOR THE SAME. THEREFOR E, WE SEND THIS ISSUE BACK TO THE FILE OF THE AO WITH THE DIRECTION TO VERIFY THE FACTS AND EXCLUDE THE AMOUNT OF STOCK-IN-TRADE FROM THE AMOUNT OF INVESTM ENTS TO BE CONSIDERED FOR MAKING DISALLOWANCE U/S 14A. THE AMOUNT OF DISALLO WANCE SHALL BE WORKED OUT ACCORDINGLY. IN CASE, THE DISALLOWANCE COMES O UT TO BE LESS THAN THE VOLUNTARY DISALLOWANCE MADE BY THE ASSESSEE, THEN T HE AMOUNT OF VOLUNTARILY 7 I.T.A. NO.441/MUM/2015 DISALLOWED BY THE ASSESSEE SHALL BE ACCEPTED AS DIS ALLOWANCE U/S 14A. IN CASE, THE DISALLOWANCE WORKED OUT BY THE AO AFTER COMPLYI NG WITH THE AFORESAID DIRECTIONS COMES OUT TO BE MORE THAN THE AMOUNT OF VOLUNTARY DISALLOWANCE, THEN THE AMOUNT WORKED OUT NOW BY THE AO SHALL BE A DOPTED. THE AO SHALL GIVE ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSE E BEFORE MAKING ANY DISALLOWANCE AFRESH. THUS, WITH THESE DIRECTIONS, THIS GROUND IS SENT BACK TO THE FILE OF THE AO. 8. AS A RESULT, THE APPEAL MAY BE TREATED AS PARTLY AL LOWED, FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON THIS 21 ST DAY OF SEPTEMBER,2016. SD/- SD/- (C.N. PRASAD) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 21 ST SEPTEMBER, 2016 PK/- COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ,J -BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES