BRICS SECURTIES LTD, MUMBAI V. DCIT RG 4(1)(1), MUMBAI

ITA 4561/MUM/2016

• Counselvise Citation: [2019] 113 COUNSELVISE.COM (IT) 6375 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 01-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KAVITA P KAUSHIKLD
• Assessee Lawyers: YOGESH A THAR LD
• Keywords: Business income; Depreciation; Earning of tax free income; Cost of acquisition; Speculation loss; Rule 8D; Capital Gains
• Section: 14A

Judgement Text

1 ITA NO. 4561/MUM/2016 M/S. BRICS SECURITIES LIMITED A.Y 2012-13 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , , BEFORE HONBLE SHRI MAHAVIR SINGH, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO. 4561/MUM/2016 ( / ASSESSMENT YEAR: 2012-13) M/S. BRICS SECURITIES LIMITED SADHANA HOUSE, 1 ST FLOOR, 5702 P.B MARG, BEHIND MAHINDRA TOWERS, WORLI, MUMBAI -400 018. / VS. D CIT - RANGE 4(1)(1) R. NO. 640, 6 TH FLOOR AAYKAR BHAVAN, M.K. ROAD MUMBAI-400 020. ./ ./PAN/GIR NO. AAACB-4908-R ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI YOGESH A. THAR, LD.AR / RESPONDENT BY : MS. KAVITA P. KAUSHIK, LD.DR / DATE OF HEARING : 19/11/2019 / DATE OF PRONOUNCEMENT : 19/11/2019 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER): - 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2012-13 CONTEST THE ORDER OF LD. COMMIS SIONER OF INCOME-TAX (APPEALS)-9, MUMBAI [IN SHORT REFERRED TO AS CIT(A )], APPEAL NO.CIT(A)- 9/CIR.4/306/2014-15 DATED 18/03/2016 ON FOLLOWING GROUNDS OF APPEAL: - 2 ITA NO. 4561/MUM/2016 M/S. BRICS SECURITIES LIMITED A.Y 2012-13 GROUNDI: DISALLOWANCE OF DEPRECIATION ON BOMBAY STO CK EXCHANGE ('BSE') TRADING RIGHTS 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) ERRED IN UPHOLDING THE ACTION OF THE DEPUTY COMMISSIONER OF INCOME-TAX, RANGE 4(1)(1), MUMBAI ('THE AO') IN DISALLOWING DEPRECIATION ON BS E TRADING RIGHTS AMOUNTING TO RS. 36,00,000/-. 2. THE APPELLANT, PRAYS THAT THE DEPRECIATION OF RS . 36,00,000/- ON BSE TRADING RIGHTS AS CLAIMED BY THE APPELLANT IN ITS RETURN OF INCOME BE ALLOWED. GROUNDII: DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 ('THE RULES') 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN MAKING AN ADDITI ONAL DISALLOWANCE U/S. 14A OF THE ACT R.W.R 8D OF THE RULES, WITHOUT APPRECIATING TH AT THE APPELLANT HAD SUO-MOTO COMPUTED AND DISALLOWED EXPENDITURE U/S. 14A OF TH E ACT IN ACCORDANCE WITH RULE 8D OF THE RULES. 2. THE APPELLANT, PRAYS THAT THE DISALLOWANCE U/S. 14A OF THE ACT BE DELETED! APPROPRIATELY REDUCED. GROUND ILL: NOT ALLOWINGSET OFF OF LOSS ON DEALING ERRORS WITH THE BUSINESS INCOME 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN NOT ALLOWING LOSS ON DEALING ERRORS WITH THE OTHER BUSINESS INCOME OF THE APPELLANT BY INVOKING EXPLAN ATION TO SECTION 73 OF THE ACT AND TREATING IT AS A SPECULATION LOSS. 2. THE APPELLANT, PRAYS THAT THE SAID LOSS ON ACCOU NT OF DEALING ERRORS BE TREATED AS NORMAL BUSINESS LOSS AND ACCORDINGLY, ALLOW THE APP ELLANT TO SET-OFF THE SAME WITH ITS OTHER BUSINESS INCOME. GROUND IV: NOT ADMITTING THE ADDITIONAL GROUND OF A PPEAL FOR RE- COMPUTING CAPITAL GAINS ON SALE OF SHARES OF BO MBAY STOCK EXCHANGE LIMITED ('BSEL') 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN NOT ADMITTING THE ADDITIONAL GROUND OF APPEAL FILED BY THE APPELLANT DURING THE COURSE OF APPELLATE PROCEEDINGS AND THEREBY NOT ADJ UDICATING THE SAME ON MERITS. 2. THE APPELLANT, PRAYS THAT THE ADDITIONAL GROUND OF APPEAL BEING A LEGAL GROUND DESERVES TO BE ADMITTED AND THEREAFTER BE ADJUDICAT ED. WITHOUT PREJUDICE TO GROUND I AND IV GROUND V: RE-COMPUTING CAPITAL GAINS ON SALE OF SHA RES OF BSEL I. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO OF NOT TAKING THE IN ITIAL COST OF ACQUISITION OF THE MEMBERSHIP CARD OF THE BSE OF RS. 2,56,00,0001- AS THE COST OF ACQUISITION OF SHARES OF BSEL FOR THE PURPOSE OF COMPUTING THE AMO UNT OF CAPITAL GAINS ON SALE OF SHARES OF BSEL AS PER SECTION 55(2)(AB) OF THE ACT. 3 ITA NO. 4561/MUM/2016 M/S. BRICS SECURITIES LIMITED A.Y 2012-13 2. THE APPELLANT, PRAYS THAT THE CAPITAL GAINS BE R E-COMPUTED AFTER TAKING THE INITIAL COST OF ACQUISITION OF THE MEMBERSHIP CARD OF BSE A S THE COST OF ACQUISITION OF SHARES OF BSEL. GROUND VI: GENERAL THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER AND 1 O R AMEND ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 2. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED RELEVANT MATERIAL ON RECORD INCLUDING THE DOCUMENTS PLACED IN THE PAPER- BOOK AND THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR EARLIER YEARS. OUR ADJUDICATION TO THE GROUNDS RAISED IN THE APPEAL WO ULD BE AS GIVEN IN THE SUCCEEDING PARAGRAPHS. 3. FACTS ON RECORD WOULD REVEAL THAT THE ASSESSEE B EING RESIDENT CORPORATE ASSESSEE STATED TO BE ENGAGED IN THE BUSI NESS OF SHARE / STOCK BROKING ETC. WAS ASSESSED FOR IMPUGNED AY U/S. 143( 3) ON 06/01/2015 WHEREIN THE RETURNED LOSS OF RS.71.67 LACS E-FILED BY THE ASSESSEE ON 28/09/2012 WAS REDUCED TO RS.16.71 LACS, AFTER CERT AIN ADDITIONS/DISALLOWANCES. UPON CONFIRMATION OF CERTA IN ADDITIONS / DISALLOWANCE BY LEARNED FIRST APPELLATE AUTHORITY, THE ASSESSEE IS UNDER FURTHER APPEAL BEFORE US. 4.1 DISALLOWANCE U/S. 14A / RULE 8D FOR RS.17.50 LA CS DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED THAT T HE ASSESSEE EARNED EXEMPT DIVIDEND INCOME OF RS.29.14 LACS AND AGAINST THE SAME, OFFERED SUO-MOTO DISALLOWANCE OF RS.9.84 LACS IN ITS COMPUTATION OF INCOME STATED TO BE INCURRED TOWARDS EARNING OF SUCH EXEMPT INCOM E. THE SAID SUO-MOTO DISALLOWANCE WAS COMPUTED AS PER RULE 8D AND THE SA ME COMPRISED-OFF OF 4 ITA NO. 4561/MUM/2016 M/S. BRICS SECURITIES LIMITED A.Y 2012-13 INTEREST DISALLOWANCE U/R 8D(2)(II) FOR RS.2.50 LAC S AND EXPENSE DISALLOWANCE U/R 8D(2)(III) FOR RS.7.33 LACS, BEING 0.5% OF AVERAGE INVESTMENT HELD BY THE ASSESSEE DURING THE YEAR. TH E LD. AO, DISTURBING THE FIGURES OF INVESTMENTS (AS ADOPTED BY THE ASSES SEE) BY INCLUDING SECURITIES HELD AS STOCK-IN-TRADE, REVISED THE SAME TO RS.27.34 LACS WHICH COMPRISED-OFF OF INTEREST DISALLOWANCE FOR RS.10.85 LACS & EXPENSE DISALLOWANCE FOR RS.16.48 LACS AND ADDED THE DIFFER ENTIAL AMOUNT OF RS.17.50 LACS TO THE INCOME OF THE ASSESSEE. THE AS SESSEE, WHILE COMPUTING SUO-MOTO DISALLOWANCE HAD EXCLUDED THOSE INVESTMENTS ALSO WHICH DID NOT YIELD ANY EXEMPT INCOME DURING THE YE AR. HOWEVER, THE SAID ADJUSTMENT WAS ALSO NOT GRANTED TO THE ASSESSEE WHI LE COMPUTING THE DISALLOWANCE. THE LEARNED FIRST APPELLATE AUTHORITY, WHILE CONFIR MING EXPENSE DISALLOWANCE U/R 8D(2)(III), DIRECTED LD. AO TO EXCLUDE STOCK-IN -TRADE WHILE COMPUTING INTEREST DISALLOWANCE U/R 8D(2)(II). STILL AGGRIEVE D, THE ASSESSEE IS UNDER FURTHER APPEAL BEFORE US. 4.2 THE LD. AR HAS PLEADED FOR EXCLUSION OF BANK GU ARANTEE CHARGES INCLUDED IN INTEREST COMPONENT SINCE THE SAME WOULD NOT HAVE ANY RELATION TO EARNING-OFF OF EXEMPT INCOME. FURTHER PLEAS HAVE BEEN RAISED TO EXCLUDED GROWTH ORIENTED MUTUAL FUNDS AND EXCLUSION OF THOSE INVESTMENTS WHICH HAVE NOT YIELDED ANY EXEMPT INCOME DURING THE YEAR. CONCURRING WITH THE SAME, WE DIRECT LD. AO TO EXCLUDE ALL THESE 3 C OMPONENTS WHILE RE- COMPUTING THE DISALLOWANCE. THE GROUND STAND ALLOWE D TO THAT EXTENT. 5.1 ADJUSTMENT OF LOSS ON DEALING ERRORS WITH BUSIN ESS INCOME 5 ITA NO. 4561/MUM/2016 M/S. BRICS SECURITIES LIMITED A.Y 2012-13 THE ASSESSEE INCURRED LOSS OF RS.1.45 LACS ON ACCOU NT OF DEALING ERROR AND CLAIMED THE SAME AS DEDUCTION. HOWEVER, THE SAME WA S DISALLOWED BY LD. AO BY INVOKING EXPLANATION TO SEC.73 OF THE ACT. TH E LEARNED FIRST APPELLATE AUTHORITY CONFIRMED THE SAME SINCE THE ASSESSEE FAI LED TO FILE PRIMARY EVIDENCES CONCERNING DEALING ERRORS. 5.2 WE FIND THAT THIS ISSUE, ON PRINCIPLE, IS COVER ED IN ASSESSEES FAVOR BY THE DECISION OF THIS VERY BENCH IN ASSESSEES OWN C ASE FOR AY 2011-12, ITA NO.3682/MUM/2016 ORDER DATED 02/11/2018 WHEREIN IT HAS BEEN HELD THAT LOSSES ARISING OUT OF PUNCHING ERRORS WHILE EXECUTI NG THE TRADE COULD NOT BE SAID TO HAVE ARISEN OUT OF SPECULATION BUSINESS. TH EREFORE, WHILE HOLDING THAT THE SAID LOSS WOULD BE NON-SPECULATION IN NATU RE, WE DIRECT THE ASSESSEE TO FILE THE DETAILS OF THE SAME BEFORE LD. AO. THE LD. AO IS DIRECTED TO APPRECIATE THE SAME AND RE-ADJUDICATE T HE ISSUE IN THE LIGHT OF DETAILS FURNISHED BY THE ASSESSEE, KEEPING IN VIEW THE DECISION OF THE TRIBUNAL FOR AY 2011-12. THE GROUND STAND ALLOWED F OR STATISTICAL PURPOSES. 6.1 DEPRECIATION ON TRADING RIGHTS AND RE-COMPUTATI ON OF CAPITAL GAINS ON SALE OF SHARES OF BOMBAY STOCK EXCHANGE LIMITED GROUND NOS. 1, 4 AND 5 PERTAINS TO CAPTIONED ISSUE. UPON PERUSAL OF DEPRECIATION CHART, IT TRANSPIRED THAT THE ASSESSEE CLAIMED DEPRECIATION @ 25% ON BSE TRADING RIGHTS TREATING THE SAME AS INTANGIBLE ASSETS. THE AMOUNT OF DEPRECIATION SO CLAIMED, FOR THE YEAR UND ER CONSIDERATION, AMOUNTED TO RS.36 LACS. IT WAS NOTED THAT THE ASSES SEE OBTAINED MEMBERSHIP CARD OF BOMBAY STOCK EXCHANGE (BSE) IN T HE YEAR 1994-95 FOR RS.2.56 CRORES. AFTER THE DEMUTUALIZATION AND CORPO RATION SCHEME OF BSE 6 ITA NO. 4561/MUM/2016 M/S. BRICS SECURITIES LIMITED A.Y 2012-13 2005, THE OWNERSHIP RIGHTS & TRADING RIGHTS EMBEDDE D IN THE MEMBERSHIP CARD WERE SEGREGATED FROM EACH OTHER THROUGH CANCEL LATION OF MEMBERSHIP CARD. ACCORDINGLY, THE ASSESSEE WAS GRANTED TRADING RIGHTS OF BSEL WITHOUT ANY ADDITIONAL PAYMENT AND WAS ALLOTTED 10000 SHARE S OF BSEL OF RE.1/- EACH ON PAYMENT OF RS.10,000/-. THE ASSESSEE TREATI NG THE COST OF TRADING RIGHTS AS RS.2.56 CRORES, CLAIMED DEPRECIATION @25% WHICH WAS DENIED SINCE THE SHARES, IN THE OPINION OF LD. AO, COULD N OT BE CONSIDERED AS TANGIBLE ASSET AND THEREFORE, THE DEPRECIATION ON THE SAME COULD N OT BE ALLOWED TO THE ASSESSEE. ACCORDINGLY, THE DEPRECIAT ION SO CLAIMED BY THE ASSESSEE WAS DISALLOWED. 6.2 ALTHOUGH THE SAID ISSUE WAS AGITATED BEFORE LD. CIT(A), HOWEVER, IN CONSONANCE WITH THE FIRST APPELLATE ORDER FOR AY 20 11-12, THE CLAIM WAS REJECTED. AGGRIEVED, THE ASSESSEE IS UNDER FURTHER APPEAL BEFORE US. 6.3 SO FAR AS THE CLAIM OF DEPRECIATION IS CONCERNE D, IT IS ADMITTED POSITION THAT THE STATED ISSUE IS COVERED AGAINST THE ASSESS EE BY THE DECISION OF THIS TRIBUNAL ON ASSESSEES OWN CASE FOR AY 2011-12, ITA NO.3682/MUM/2016 ORDER DATED 02/11/2018. THEREFORE, GROUND NO.1 STAN D DISMISSED. 6.4 THE LD. AR, IN THE COURSE OF HEARING, HAS MADE ALTERNATIVE CLAIM TO SUBMIT THAT THE SHARES OF BSE HAVE BEEN SOLD BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND RESULTANT GAINS HAVE B EEN OFFERED TO TAX BY TAKING COST OF ACQUISITION OF THE SHARES AS RS.10,0 00/- ONLY. THEREFORE, IF THE DEPRECATION ON TRADING RIGHTS IS NOT ALLOWED TO THE ASSESSEE, THE COST OF STATED SHARES WOULD ALSO INCLUDE THE COST OF MEMBER SHIP CARD ACQUIRED BY THE ASSESSEE IN 1994-95. FOR THE SAID SUBMISSIONS, RELIANCE HAS BEEN 7 ITA NO. 4561/MUM/2016 M/S. BRICS SECURITIES LIMITED A.Y 2012-13 PLACED ON RECENT DECISION OF TRIBUNAL (PASSED CONSI DERING THIRD MEMBERS DECISION) TITLED AS M/S TECHNO SHARES & STOCKS LTD. V/S ADDL. CIT, ITA NO.5938/MUM/2012 CONFIRMATORY ORDER DATED 18/10/2019 . A COPY OF THE SAME HAS BEEN PLACED ON RECORD. IT HAS BEEN SUBMITT ED THAT ADDITIONAL GROUND RAISED BY THE ASSESSEE WAS NOT ADMITTED BY L EARNED FIRST APPELLATE AUTHORITY. 6.5 KEEPING IN VIEW THE STATED DECISION OF TRIBUNAL , WE FIND FORCE IN ALTERNATIVE SUBMISSIONS MADE BY LD. AR. THEREFORE, WE DIRECT LD. CIT(A) TO ADMIT THIS GROUND OF APPEAL AND RE-ADJUDICATE THE S AME ON MERITS AFTER DUE APPRECIATION OF FACTUAL MATRIX AND KEEPING IN VIEW THE CITED DECISION OF THE TRIBUNAL. THE ASSESSEE IS DIRECTED TO PROVIDE THE R EQUISITE DOCUMENTARY EVIDENCES TO SUBSTANTIATE THE SAME. GROUND NOS. 4 & 5 STANDS ALLOWED FOR STATISTICAL PURPOSES. 7. GROUND NO. 6 IS GENERAL IN NATURE. 8. IN THE RESULT, THE APPEAL STANDS PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH NOVEMBER,2019 SD/- SD/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 19/11/2019 SR.PS:-**PP,SPS 8 ITA NO. 4561/MUM/2016 M/S. BRICS SECURITIES LIMITED A.Y 2012-13 %& '& / 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 FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.