MOTILAL OSWAL FINANCIAL SERVICES LTD, MUMBAI V. ADDL CIT RG 3(2), MUMBAI

ITA 5840/MUM/2014

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4561 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 18-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MISHRA
• Keywords: Business income; Earning of tax free income; Rule 8D; Set aside
• Section: 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B , MUMBAI BEFORE S HRI G.S. PANNU (VP ) AND SHRI RAM LAL NEGI (JM) ITA NO. 5840 /MUM/20 1 4 ASSESSMENT YEAR: 2011 - 12 M/S MOTILAL OSWAL FINANCIAL - SERVICES LIMITED, MOTILAL OSWAL TOWER, 10 TH FLOOR, RAHIMTU LLAH SAYANI ROAD, OPPOSITE PAREL ST DEPOT, PRABHADEVI, MUMBAI - 400025 PAN: AAECM2876P VS. THE ADDL. CIT, RANGE 3(2), AAYKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ANUJ KIS NADWALA (AR) REVENUE BY : SH RI S.K. MISHRA (DR) DATE OF HEARING: 21/12 /201 8 DATE OF PRONOUNCEMENT: 18 / 03 /201 9 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 08/07/ 20 14 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 4 , MUMBAI , FOR THE A S S ESSMENT YEAR 2011 - 12 , WHEREBY THE LD. CIT (A) HAS DISMISSED THE APPEAL FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER PASSED U/S 1 43 (3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE A CT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE A NON - BANKING COMPANY , ENGAGED I N LENDING AND RELAT ED ACTIVITIES AND TRADING IN SHARES AND SECURITIES, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL I NCOME OF RS. 37,72,81,020/ - . T HE CASE WAS SELECTED FOR SCRUTINY AND AO AFTER HEARING THE ASSESSEE COMPLETED THE ASSESSMENT U/S 143 (3) OF THE ACT AND AFTER MAKING INTER ALIA DISALLOWANCE OF RS. 1,71,53,249/ - U/S 14A OF THE 2 ITA NO. 5840/MUM/2014 ASSESSMENT YEAR: 2011 - 12 ACT DETERMINED THE TOTAL INCOME O F THE ASSESSEE AT RS. 39,56,73,435/ - , UNDER THE NORMAL PROVISIONS OF THE ACT . THE ASSESSEE CHALLENGED THE ACTION OF AO IN MAKING DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES. THE LD. CIT (A) AFTER HEARING THE ASSESSEE DISMISSED THE APPEAL AND CONFIRMED THE ADDITION MADE BY THE AO. THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST THE FINDINGS OF THE LD. CIT (A). 3 . T HE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING EFFECTIVE GROUNDS: - 1. DISA LLOWANCE OF INTEREST EXPENSE U/S 14A BY APPLYING COMPUTATIONAL MACHINERY LAID DOWN IN RULE 8D(2)(III) 1.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF INTEREST EXPENSE OF 1,14,20,853/ - MADE U/S 14A BY RESORTING TO THE COMPUTATIONAL MACHINERY UNDER TULE 8D (2)(II) WITHOUT APPRECIATING THAT THE APPELLANT HAD SUFFICIENT OWN FUNDS IN THE FORM OF SHARE CAPITAL, SECURITIES PRE MIUM AND RESERVES AMOUNTING TO RS. 512,50,03,498/ - [EXCEPT CAPITAL REDEMPTION RESERVE] TO COVER THE INVESTMENTS OF RS. 83,26,26,069/ - AS ON 31.3.2011. THUS THE DISALLOWANCE OF INTEREST EXPENSE BEING BAD - IN - LAW NEEDS TO BE DELETED. 1.2 WITHOUT PREJUDICE TO THE ABOVE AND WITHOUT ADMITTING, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN NOT RESTRICTING DISALLOWANCE OF INTEREST EXPENSE TO THE EXTENT OF RS. 4,60,312/ - OFFERED BY THE APPELLANT ON THE BASIS OF THE ACTUAL APPLICATION OF THE BORROWED FUNDS. 2. DISALLOWANCE U/S 14A IN RESPECT OF STOCK - IN - TRADE: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN NOT APPRECIATING THAT THE STOCK - IN - TRADE YIELDING TAXABLE BUSINESS INCOME CANNOT BE CONSIDERED FOR COMPUTING DISALLOWANCE U/S 14A. ACCORDINGLY THE DISALLOWANCE U/S 14A C OMPUTED UNDER RULE 8D(2)(III) BY 3 ITA NO. 5840/MUM/2014 ASSESSMENT YEAR: 2011 - 12 CONSIDERING THE STOCK IN TRADE IS BAD IN - LAW AND MUST BE DELETED. 3. DISALLOWANCE OF COMMON EXPENSE U/S 14A BY APPLYING COMPUTATIONAL MACHINERY LAID DOWN IN RULE 8D (2)(III) 3.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING DISALLOWANCE U/S 14A OF RS. 61,66,142 / - COMPUTED UNDER RULE 8D(2)(III) [CALCULATED @ 0.5% OF AVERAGE INVESTMENTS] WITHOUT APPRECIATING THAT ALL THE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT ARE INCURRED FOR THE PURPOSE OF THE BUSINESS INCOME AND ALLOWABLE AS BUSINESS EXPENSE. THUS THE DISALLOWANCE BEING BAD - IN - LAW NEEDS TO BE DELETED. 3.2 WITHOUT PREJUDICE TO THE ABOVE AND WITHOUT ADMITTING, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN NOT RESTRICTING THE DISALLOWANCE U/S 14A TO RS. 4,33,746/ - ALREADY MADE IN THE RETURN OF INCOME ON THE BASIS OF PERSONNEL AND RELATED ADMINISTRATIVE COST WHICH CAN BE SAID TO BE ALLOCABLE TO EARNING EXEMPT INCOME. THE LEARNED CIT (A) ERRE D IN NOT APPRECIATING THAT THE LEARNED AO NEEDED TO PROVIDE COGENT REASONS FOR NON - ACCEPTANCE OF THE DISALLOWANCE WORKED OUT BY THE APPELLANT. 4. BEFORE US , THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENSES OF RS. 1,14,20,853/ - MADE U/S 14A UNDER RULE 8D(2)(II) WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HAD SUFFICIENT OWN FUNDS IN THE FORM OF SHARE CAPITAL SECURITIES PREMIUM AND RESERVES AMOUNTING TO RS. 512,50,03,498/ - TO COVER THE INVESTMENTS OF RS. 83,26,26,069/ - AS ON 31.03.2011. W ITHOUT PREJUDICE TO THE SAID GROUND THE LD. COUNSEL FURTHER SUBMITTED THAT THE LD. CIT (A) ERRED IN NOT RESTRICTING THE DISALLOWANCE OF INTEREST EXPENSES TO THE EXTENT OF RS. 4,60,312/ - OFF ERED BY THE APPELLANT ON THE BASIS OF THE ACTUAL APPLICATION OF BORROWED FUNDS. THE LD. COUNSEL FURTHER POINTED OUT THAT THIS ISSUE IS COVERED 4 ITA NO. 5840/MUM/2014 ASSESSMENT YEAR: 2011 - 12 IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT IN THE CASE OF ASSESSEES SISTER CONCERN M/S MOTILAL OSWAL SEC URITIES VS. ACIT, ITA NO. 633/MUM/2015, A.Y. 2011 - 12. IN THE SAID CASE, THE TRIBUNAL HELD THAT NO INTEREST DISALLOWANCE IS REQUIRED TO BE MADE IN VIEW OF THE FACT THAT THE ASSESSEES HAD SUFFICIENT OWN FUNDS TO COVER UP THE VALUE OF INVESTMENT S IN QUESTIO N. SO FAR AS THE ADMINISTRATIVE EXPENSE IS CONCERNED, THE LD. COUNSEL SUBMITTED THAT THE ITAT HAS DIRECTED THE AO TO RE - WORK THE PROPORTIONATE DISALLOWANCE IN THE APPEAL OF ASSESSEES SISTER CONCERN ITA NO. 3010/MUM/2012, A.Y. 2008 - 09 . THE LD. COUNSEL FURT HER PLACED ON RECORD THE ORDER PASSED BY THE MUMBAI BENCH IN THE ASSESSEES OWN APPEALS PERTAINING TO THE A.Y. 2007 - 08, 2008 - 09 AND 2010 - 11 AND SUBMITTED THAT THE TRIBUNAL HAS RESTORED THE ISSUE PERTAINING TO DISALLOWANCE U/S 8D(2)(III) FOR THE A.Y. 2008 - 0 9 TO THE FILE OF AO FOR FRESH ADJUDICATION AND FOR THE A.Y. 2010 - 11, THE TRIBUNAL HAS SEN T THE ISSUE BACK TO THE FILE OF AO ON THE GROUND THAT THE MATTER NEEDS FURTHER VERIFICATION AS THE ORDER OF THE FIRST APPELLATE AUTHORITY IS NON - SPEAKING. 5. ON TH E OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) DID NOT CONTROVERT THE FACTS STATED BY THE LD. COUNSEL, HOWEVER RELIED ON THE ORDER PASSED BY THE LD. CIT (A ). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE MATERIAL ON RECORD IN THE LIGHT OF THE CONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE. THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT (A) HAS WRONGLY CONFIRMED THE DISALLOWANCE MADE BY THE AO U/S 14A READ WITH RULE 8D (2)(II) AND (III). AS POINTED OUT BY THE LD. COUNSEL FOR TH E ASSESSEE THE ITAT HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN THE CASE OF ITS SISTER CONCERN M/S MOTILAL OSWAL SECURITIES VS. ACIT (SUPRA) AND DIRECTED THE AO TO DELETE ADDITION MADE UNDER RULE 8D(II) OF THE INCOME TAX RULES. THE RELEVAN T PARA OF THE ORDER PASSED BY THE TRIBUNAL READS AS UNDER: - 20. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT THE OWN FUNDS OF ASSESSEE (RS. 555.45 CRORES) ARE SUFFICIENT TO 5 ITA NO. 5840/MUM/2014 ASSESSMENT YEAR: 2011 - 12 COVER UP THE VALUE OF INVESTMENT (RS. 41.07 CRORES) SO NO INTEREST DIS ALLOWING IS REQUIRED TO BE MADE U/S 14A OF THE ACT. WITH REGARD TO ADMINISTRATIVE EXPENSES, THE ISSUE IS COVERED VIDE ORDER OF THE HONBLE TRIBUNAL IN ASSESSEES OWN CASE A.Y.S 2008 - 09 TO 2010 - 11 IN ITA NO. 4581/MUM/2012, 7328/MUM/2011 AND 6204/MUM/2013 D ATED 19.02.2016. THE MATTER HAS BEEN SENT BACK TO THE FILE OF ASSESSING OFFICER FOR DECIDING THE ISSUE IN ACCORDANCE WITH THE DIRECTION GIVEN BY THE HONBLE TRIBUNAL IN CASE OF SISTER CONCERN OF THE ASSESSEE WHEREIN A SIMILAR WORKING GIVEN BY THE ASSESSEE HAS BEEN ACCEPTED BY THE ASSESSING OFFICER FOR A.Y. 2009 - 10 TO 2011 - 12. AFTER GOING THROUGH THE ORDER OF THE TRIBUNAL AS WELL AS CONSEQUENTIAL ORDERS PASSED BY THE AO, IN THE CASE OF SISTER CONCERN FOR THE A.Y. 2009 - 10 TO 2011 - 12, WE DO NOT FIND ANY JUSTIF ICATION FOR DISALLOWANCE SO MADE BY THE AO AND CONFIRMED BY THE CIT (A). ACCORDINGLY AO IS DIRECTED TO DELETE THE DISALLOWANCE MADE IN EXCESS OF RS. 11.84 LAKHS. WE DIRECT ACCORDINGLY. 7. IN THE PRESENT CASE ALSO, THE ASSESSEE HAD SUFFICIENT FUNDS TO JUSTIFY THE INVESTMENTS IN QUESTION. ADMITTEDLY, THE ASSESSEE HAD OWN FUNDS IN THE FORM OF SHARE CAPITAL SECURITIES PREMIUM AND RESERVES AMOUNTING TO RS. 512,50,03,998/ - AS AGAINST THE INVESTMENT OF RS. 83,26,26,069/ - . HENCE, RESPECTFULLY FOLLOWING THE DE CISION OF THE COORDINATE BENCH IN THE CASE OF THE SISTER CONCERN OF THE ASSESSEE DISCUSSED ABOVE, WE DIRECT THE AO TO DELETE THE ADDITION MADE UNDER SECTION 14A READ WITH RULE 8D(2(II). 8. SO FAR AS THE ADDITION MADE U/S 8D(2)(III) OF THE INCOME TAX R ULES IS CONCERNED. WE NOTICE THAT THE LD. CIT (A) HAS CONFIRMED THE DISALLOWANCE U/S 14A READ WITH RULE 8D, BY FOLLOWING THE DECISION OF HIS PREDECESSOR IN ASSESSEES OWN CASE FOR THE A.Y. 2010 - 11. WE FURTHER NOTICE THAT T HE COORDINATE BENCH HAS SET ASIDE THE FINDINGS OF THE LD. CIT (A) ON THE IDENTICAL ISSUE RECORDED IN THE ASSESSES APPEAL FOR THE A.Y. 2010 - 11. THE RELEVANT PARA OF THE ORDER OF THE COORDINATE BENCH RENDERED IN THE ASSESSEES OWN CASE FOR THE A.Y. 2010 - 11 READS AS UNDER: - 6 ITA NO. 5840/MUM/2014 ASSESSMENT YEAR: 2011 - 12 4.5 WE HAVE HE ARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. IN OUR OPINION THE MATTER NEEDS FURTHER VERIFICATION AND INVESTIGATION BY THE AO. THE ORDER OF THE FAA IS NON SPEAKING. IN THE INTEREST OF JUSTICE WE ARE RESTORING BACK THE MATTERS TO THE FILE O F AO FOR FRESH ADJUDICATION. 9. SINCE, THE COORDINATE BENCH HAS SET ASIDE THE IDENTICAL FINDINGS OF THE LD. CIT (A) AND SENT THE ISSUE BACK TO THE FILE OF AO FOR FURTHER VERIFICATION AND INVESTIGATION FOR THE REASON THAT THE ORDER OF THE FIRST APPEL LANT AUTHORITY (FAA) IS NON - SPEAKING , THE FINDINGS BASED ON THE ORDER PERTAINING TO THE A.Y. 2010 - 11 CANNOT BE UPHELD. SINCE, THE ORDER OF THE LD. CIT (A) ON THE BASIS OF WHICH THE ORDER HAS BEEN PASSED IN THE PRESENT CASE BY THE AO HAS BEEN SET ASIDE BY THE COORDINATE BENCH, WE CONSIDER IT NECESSARY TO SENT THIS ISSUE BACK TO THE FILE OF AO FOR DETERMINING THE ISSUE AFRESH AS PER THE LAW. HENCE, AO IS DIRECTED TO DECIDE THIS ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER AFFORDING THE ASSESSEE A REASONABLE OPP ORTUNITY OF BEING HEARD. IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR A SSESSMENT YEAR 2011 - 2012 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH . MARCH, 2019 . SD/ - SD/ - ( G.S. PANNU ) ( RAM LAL NEGI ) VICE PRESIDENT JUDICIAL MEMBER MUMBAI ; DATED: 18 / 03/2019 ALINDRA, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 7 ITA NO. 5840/MUM/2014 ASSESSMENT YEAR: 2011 - 12 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASS TT. REGISTRAR) , / ITAT, MUMBAI