DCIT-7(2)(2), Mumbai V. M/S MOTILAL OSWAL SECURITIES LTD (NOW MERGED WITH MOTILAL OSWAL FINANCIAL SERVICES LTD), Mumbai

ITA 4711/MUM/2019

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 9309 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2016-2017
• Appeal Filed On: 11-07-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Period of limitation; Speculation loss
• Section: 73

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “D”, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA No.4711/M/2019 Assessment Year: 2016-17 DCIT-7(2)(2), Room No.126B, First Floor, Aayakar Bhavan, M.K. Road, Mumbai - 400020 Vs. M/s. Motilal Oswal Securities Ltd. (Now merged with Motilal Oswal Financial Services Ltd.), Motilal Oswal Tower, Rahimtullah Sayani Road, Opp. ST depot, Prabhadevi, Mumbai-400 064 PAN: AAECM2876P (Appellant) (Respondent) CO No.73/M/2011 (Arising out of ITA No.4711/M/2019) Assessment Year: 2016-17 M/s. Motilal Oswal Securities Ltd. (Now merged with Motilal Oswal Financial Services Ltd.), Motilal Oswal Tower, Rahimtullah Sayani Road, Opp. ST depot, Prabhadevi, Mumbai-400 064 PAN: AAECM2876P Vs. DCIT-7(2)(2), Room No.126B, First Floor, Aayakar Bhavan, M.K. Road, Mumbai - 400020 (Appellant) (Respondent) Present for: Revenue by : Shri Bharat Andhle, D.R. Assessee by : Shri Vijay Mehta, A.R. Date of Hearing : 20.09.2021 Date of Pronouncement : 26.10.2021 ITA No.4711/M/2019 & CO No.73/M/2011 M/s. Motilal Oswal Securities Ltd. (Now merged with Motilal Oswal Financial Services Ltd.) 2 O R D E R Per Rajesh Kumar, Accountant Member: The present appeal has been preferred by the revenue and cross objection by the assessee against the order dated 26.04.2019 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2016-17. ITA No.4711/M/2019 (Revenue’s appeal) 2. The grounds raised by the revenue are as under: “1) On the facts and circumstances of the case and in law whether the Ld. CIT(A) erred in holding that the VSAT is a part of computer and hence eligible for depreciation @60% without appreciating the fact that VSAT is essentially a part of wireless communication system through satellite which is exclusive from the computer system^ and eligible for depreciation @ 25%. 2) On the facts and in the circumstances of the case and in law whether the Ld. CIT(A) erred in deleting the addition amounting to Rs.1,38,99,330/- without appreciating the fact that the AO has rightly treated the Vanda loss as speculation loss as per section 73 of the Act." 3) "The appellant craves leave to amend or alter any ground or add a new ground which may be necessary." 3. In the ground No.1, the revenue has challenged the order of Ld. CIT(A) wherein the Ld. CIT(A) has held that VSAT is part of computer and directed the AO to allow the allow depreciation @ 60%. 4. The facts in brief are that AO observed during the course of assessment proceedings that assessee has claimed depreciation on VSAT @ 60%. According to the AO the VSAT is not a part of computer system but a wireless communication system and as such eligible for depreciation @ 25%. The AO issued show ITA No.4711/M/2019 & CO No.73/M/2011 M/s. Motilal Oswal Securities Ltd. (Now merged with Motilal Oswal Financial Services Ltd.) 3 cause notice to the assesse as to why the depreciation on VSAT should not be restricted to 25% which was replied by the assesse by submitting that the VSAT is part of the computer system. After rejecting the submissions of the assessee dated 05.12.2018 filed in response to the show cause notice , the AO restricted the claim of the assesse by applying a rate of 25% on VSAT as against 60% claimed by the assesse resulting into disallowance of depreciation of Rs. 19,961/-. 5. In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee by following the order of the Tribunal for A.Y. 2001-02 to 2011-12 in assessee’s own case wherein it has been held that VSAT is liable for a depreciation of 60%. Aggrieved by the order of Ld. CIT(A) the Revenue is in appeal before us. 6. After hearing both the parties and perusing the material on record, we find that Ld. CIT(A) has rightly passed the order after following the decision of the co-ordinate Bench of the Tribunal in assessee’s own case in A.Y. 2001-02 to 2011-12 and ors. allowed the appeal of the assessee. We therefore, do not find any infirmity in the order of Ld. CIT(A) and accordingly ground No.1 raised by the Revenue is dismissed. 7. The issue raised in ground No.2 is against the order of Ld. CIT(A) deleting the addition of Rs.1,38,99,330/- as made by the ITA No.4711/M/2019 & CO No.73/M/2011 M/s. Motilal Oswal Securities Ltd. (Now merged with Motilal Oswal Financial Services Ltd.) 4 AO by treating the Vanda loss as speculation loss as per section 73 of the Act. 8. The facts in brief are that the assessee has incurred a net loss of Rs.1,38,99,330/- which comprised of loss in retail segment amounting to Rs.54,08,660/- and loss incurred in incidental segment amounting to Rs.84,90,670/-. Accordingly, the AO issued a show cause notice to the assessee as to why the said loss should not be disallowed which was replied by the assessee vide letter dated 05.12.2018 by submitting that the said loss was incurred in the ordinary course of business when the clients disowned the transactions undertaken by the brokers. The assessee submitted that this happens only whenever a trade error occurred in executing the orders by the brokers or the clients may fail to satisfy its contractual obligation. The assessee submitted that since the assessee is a broker and is primarily responsible for trade undertaken on behalf of its clients as it has to compulsorily meet and satisfy those obligations within the permissible time prescribed by the SEBI. The assessee submitted that obligations which are resulting from these activities are transferred to Vanda/Error trade account resulting into this type of profit/loss. It was submitted before the AO that explanation to section 73 of the Act does not apply to these losses. However, the AO was not satisfied with the reply of the assessee and invoked the explanation to section 73 of the Act by treating the same as speculation loss. ITA No.4711/M/2019 & CO No.73/M/2011 M/s. Motilal Oswal Securities Ltd. (Now merged with Motilal Oswal Financial Services Ltd.) 5 9. In the appellate proceedings Ld. CIT(A) allowed the appeal of the assessee by following the decision of the co-ordinate Bench of the Tribunal in assessee’s own case from A.Y. 2007-08 to 2011-12 and directed the AO to delete the disallowance made on account of vanda loss. Aggrieved, Revenue is in appeal before us. 10. After hearing both the parties and perusing the material on record, we find that the issue is squarely covered by the decision of the co-ordinate Bench of the Tribunal in assessee’s own case from A.Y. 2007-08 to 2011-12 which has been followed by the Ld. CIT(A) while allowing the appeal of the assessee. Consequently, we do not find any mistake or infirmity in the order of Ld. CIT(A) and therefore the ground No.2 raised by the Revenue is dismissed. CO No.73/M/2011 (Assessee’s CO) 11. The issue raised in the cross objection is as under: “On the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have held that the Education Cess and Higher and Secondary Education Cess of Rs.46,82,738/- paid by the assessee is allowable as deduction while computing business income of the assessee. The respondent craves leave to add, amend, delete, alter and/or modify any of the above grounds of cross objections on or before final hearing of this appeal petition.” 12. At the outset, we observe that the cross objection is filed late by 181 days and accordingly the Ld. Counsel of the assessee was put to a query to this effect to explain the said delay. The ITA No.4711/M/2019 & CO No.73/M/2011 M/s. Motilal Oswal Securities Ltd. (Now merged with Motilal Oswal Financial Services Ltd.) 6 Ld. Counsel of the assessee submitted that this delay is attributed to the Covid 19 pandemic. The Ld. A.R. also referred to the Hon’ble Supreme Court decision in suo-moto writ petition Civil No.3 of 2020 wherein vide order dated 23.03.2020, the Honble Court has extended the period of limitation w.e.f. 15 th March, 2020 till further order to be passed by the this Court in present proceedings. The ld Counsel of the assesse further submitted that Hon’ble Supreme Court has held that order dated 23.03.2021has served its purpose and shall be brought to an end on 14.03.2021 meaning hereby that extended period of limitation shall apply only from 15.03.2020 till 14.03.2021. the ld Counsel stated that upon steep rise in COVID cases across the country, the Hon’ble Apex Court (in Miscellaneous Application No.665/2021 in SMW(C) No.3/2020, vide order dated 27.04.2021 restored the order dated 08.03.2021 and in continuation of order 08.03.2021 the period of limitation as prescribed under any general or special laws in respect of all judicial or quasi judicial proceedings, whether condonable or not, shall stand extended till further order. The ld counsel submitted that the period from 15.03.2020 till further order is to be excluded from the period of delay. In view of this the period from 3.12.2020 which the date of receipt of revenue appeal to 02.7.2021 the date of filing cross objection has to be excluded while calculating the period of delay in filing the cross objection and hence there is no delay in filing cross objection by the ITA No.4711/M/2019 & CO No.73/M/2011 M/s. Motilal Oswal Securities Ltd. (Now merged with Motilal Oswal Financial Services Ltd.) 7 assesse. The ld DR on the other hand left the issue to be decided to the wisdom of the bench. 13. Having heard both the sides, we find that in terms of the orders of Hon’ble Apex Court the period of 181 days from 3.12.2020 to 2.7.2021 is to be excluded in order to calculate the period of limitation under the Act. Accordingly we hold that there is no delay in filing cross objection by the assesse. 14. The assesse has the following ground in respect of education cess in the cross objection which is reproduced as under: “On the facts and circumstances of the case and in law , ld CIT(A) ought to have held that education cess and higher and secondary of Rs. 46,82,738 paid by the assesse is allowable as deduction while computing the business income of the assesse.” 15. In the cross objection, the appellant has raised an additional claim of expenditure on account of education cess, higher and secondary cess paid of Rs.46,82,738/- on the total income which was not claimed in the return of income and was being claimed for the 1st time before the Tribunal by way of this ground of cross objection. As regards admission of issue raised by way of cross objections, the ld AR submitted that the same is a purely a legal issue and all the facts are available on records and no new facts are to be brought on record for adjudicating the present issue. In view of the above, the ld AR prayed that the ground in cross may kindly be admitted. In defense of his arguments the ld AR relied on the following decisions: ITA No.4711/M/2019 & CO No.73/M/2011 M/s. Motilal Oswal Securities Ltd. (Now merged with Motilal Oswal Financial Services Ltd.) 8 i)National Thermal Power Corporation Ltd. Vs. CIT {229 ITR 383(SC)} ii)Jute Corporation of India Ltd. Vs CIT {187 ITR 688 (SC)} iii)Ahmedabad Electricity Co Ltd Vs CIT {199 ITR 351(Bom)} iv) CIT Vs Pruthvi Brokers & shareholders {349 ITR 336(Bom)} 16. As regards merits of the case, it is submitted that the education cess paid/ payable on tax on total income is a deductible expenditure under the head ‘income from business and profession’ as the same is not disallowable u/s 40(a)(ii) of the Act. This view is fortified by the decision of Hon’ble Bombay High Court in the case of Sesa Goa Ltd. v. JCIT [423 ITR 426(Bom)]. The ld AR submitted that the Hon’ble Mumbai Tribunal in the case of Hind Musafir Agency Ltd. v. ACIT [ITA No. 247/Mum/2019] dated 15.09.2020 in similar facts of the case has admitted the ground relating to claim of education cess raised for the 1 st time before Hon’ble Tribunal and directed to allow the claim of deduction as per the decision of Hon’ble Bombay High Court. In view of the above, it is prayed that the claim of deduction of education cess payable on tax on total income be kindly allowed as expenditure to the appellant. 17. Per contra the ld DR strongly opposed the additional ground on the plea that the issue was neither raised before the AO nor before the ld CIT(A) and is being raised for the first time before the tribunal. The ld DR therefore prayed that the same may kindly be dismissed. The ld DR alternative prayed that ITA No.4711/M/2019 & CO No.73/M/2011 M/s. Motilal Oswal Securities Ltd. (Now merged with Motilal Oswal Financial Services Ltd.) 9 without prejudice to the first contention, the issue may be restored to the file of the AO to take a decision after verification of facts. 18. We have heard the ld. authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, and have also considered the judicial pronouncements that have been relied upon by them in context of the issue in hand. Undisputedly the issue of claim of education cess was claimed for the first time before us. The issue being purely legal and also covered by the jurisdictional high court in favour of the assesse. In our opinion all the facts qua this issue are available on records and no new facts or independent verification of facts are required. Moreover the assessee can raise the legal issue at any appellate stage even if not raised before the authorities below. Besides the issue is squarely covered by the decisions of the Apex Court as well as Jurisdictional High Court. Therefore we are inclined to admit the same for adjudication. 19. In so far the claim of the Ld. A.R that unlike “rates” and “taxes” the amount paid by an assessee towards “Education Cess” or any other “cess” viz. the Secondary and Higher Education Cess is not a disallowable expenditure u/s 40(a)(ii) of the Income-tax Act, 1961, we find, that the said issue is squarely covered by the recent order of the Hon’ble High Court of Bombay in the case of Sesa Goa Limited vs. Joint ITA No.4711/M/2019 & CO No.73/M/2011 M/s. Motilal Oswal Securities Ltd. (Now merged with Motilal Oswal Financial Services Ltd.) 10 Commissioner of Income-tax (2020) 107 CCH 375 (Bom). The Hon’ble High Court had observed that the legislature in Sec. 40(a)(ii) had though provided that “any rate or tax levied” on “profits and gains of business or profession” shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”, but then, there was no reference to any “cess”. Also, the High Court observed that there was no scope to accept that “cess” being in the nature of a “tax” was equally not deductible in computing the income chargeable under the head “Profits and gains of business or profession”. It was further observed that if the legislature would had intended to prohibit the deduction of amounts paid by an assessee towards say, “education cess” or any other “cess”, then, it could have easily included a reference to “cess” in clause (ii) of Section 40(a). On the basis of its aforesaid observations the Hon’ble High Court had concluded that now when the legislature had not provided for any prohibition on the deduction of any amount paid towards “cess” in clause (ii) of Sec. 40(a), therefore, holding to the contrary would amount to reading something which is not to be found in the text of the provision of Sec. 40(a)(ii). Accordingly, the Hon’ble High Court had concluded that there was no prohibition on the deduction of any amount paid towards “cess” in Sec. 40(a)(ii) while computing the income chargeable under the head “Profits and gains of business or profession”. Accordingly, respectfully following the aforesaid judgment of the Hon’ble High Court of Bombay in the case of ITA No.4711/M/2019 & CO No.73/M/2011 M/s. Motilal Oswal Securities Ltd. (Now merged with Motilal Oswal Financial Services Ltd.) 11 Sesa Gold Limited (supra), we are principally in agreement with the assessee’s claim that “Education Cess” and the “Secondary and Higher Education Cess” are allowable as a deduction u/s 40(a)(ii) of the Act. However, as the aforementioned claim had been raised by the assessee for the very first time before us, we, therefore, in all fairness restore the matter to the file of the A.O for considering the said claim of the assessee in the backdrop of our observations recorded hereinabove, though, subject to verification of the factual position as had been claimed by the assessee before us. The additional Ground is allowed for statistical purposes in terms of our observations recorded hereinabove. 20. In the result, the appeal of the Revenue is dismissed and the cross objection of the assessee is allowed for statistical purposes. Order pronounced in the open court on 26.10.2021. Sd/- Sd/- (Saktijit Dey) (Rajesh Kumar) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 26.10.2021. * Kishore, Sr. P.S. Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench ITA No.4711/M/2019 & CO No.73/M/2011 M/s. Motilal Oswal Securities Ltd. (Now merged with Motilal Oswal Financial Services Ltd.) 12 //True Copy// [ By Order Dy/Asstt. Registrar, ITAT, Mumbai.