MOTILAL OSWAL FINANCIAL SERVICES LTD, MUMBAI V. DCIT 3(2), MUMBAI

ITA 64/MUM/2011

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6735 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 05-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Keywords: Capital asset; Business expenditure; Earning of tax free income; Capital expenditure
• Section: 14A

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -BBENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A./64/MUM/2011, / ASSESSMENT YEAR: 2007-08 ./I.T.A./7045/MUM/2011, / ASSESSMENT YEAR: 2008-09 ./I.T.A./5609/MUM/2013, / ASSESSMENT YEAR: 2010-11 M/S.MOTILAL OSWAL FINANCIAL SERVICES LTD. 2 ND FLOOR, PALM SPRING CENTRE NEW LINK ROAD, MALAD (W) MUMBAI-400 064. PAN:AAECM 2876 P VS. ADDL. CIT-RANGE-3(2) AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT) / REVENUE BY: SHRI SUMAN KUMAR -DR /ASSESSEE BY: SHRI VIJAY MEHTA / DATE OF HEARING: 28/03/2018 / DATE OF PRONOUNCEMENT: 27/06/2018 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT ) , - PER RAJENDRA, AM - CHALLENGING THE ORDERS OF THE CIT (A)-7,MUMBAI, THE ASSESSEE HAS FILED APPEALS FOR THE ABOVE- MENTIONED ASSESSMENT YEARS(AY.S).ASSESSEE-COMPANY I S ENGAGED IN THE BUSINESS OF INVESTMENT AND FINANCIAL ACTIVITIES.THE DETAILS OF DATES OF FI LING OF RETURNS,RETURNED INCOMES, ASSESSMENT DATES,ASSESSED INCOMES ETC. CAN BE SUMMARISED AS UN DER: A.Y. ROI FILED ON RETURNED INCOME ASSESSMENT DT. AS SESSED INCOME CIT(A) ORDER DT. 2007-08 29/10/2007 RS.8,22,02,780/- 30/11/2009 RS.8 ,89,50,250/- 02/11/2010 2008-09 29/09/2008 RS.21,43,00,338/- 15/12/2010 RS. 21,85,33,142/- 08/07/2011 2010-11 28/09/2010 RS.40,37,58,494/- NIL RS.42,28,1 6,254/- 19/07/2013 ITA/64/MUM/2011,AY.2007-08: 2. FIRST GROUND OF APPEAL IS ABOUT CONFIRMING DISALLOW ANCE OF LEGAL FEES OF RS. 55.10 LAKHS PAID TO M/S. AVENDUS ADVISERS PRIVATE LTD. (AAPL).DURING TH E ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD PAID RS. 55,10,000/-FOR RAISI NG PRIVATE EQUITY.HE DIRECTED IT TO FILE EXPLANATION IN THAT REGARD.AFTER CONSIDERING THE SU BMISSION OF THE ASSESSEE,DATED 26/11/2009,THE 2183/M/11;7045/M/11 &5609/M/13- M/S.MOTILAL OSWAL FINANCIAL SERVICES LTD. 2 AO HELD THAT THE PAYMENT WAS MADE FOR RAISING EQUIT Y OF THE COMPANY WHICH WAS A CAPITAL ASSET. HOLDING THE EXPENDITURE AS CAPITAL EXPENDITURE,HE A DDED THE DISPUTED AMOUNT TO THE TOTAL INCOME OF THE ASSESSEE. 2.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA)AND MADE SUBMISSIONS. IT WAS ARGUED T HAT THE CASE OF BROKE BOND INDIA LTD. WAS NOT APPLICABLE, THAT THE ASSESSEE WAS A FINANCE COM PANY, THAT THE EXPANSION OF CAPITAL WAS UNDERTAKEN BY THE ASSESSEE IN ORDER TO MEET THE NEE D FOR MORE WORKING FUNDS, THAT THE DISPUTED AMOUNT WAS A BUSINESS EXPENDITURE. AFTER CONSIDERIN G THE AVAILABLE MATERIAL,HE HELD THAT THE ISSUE STANDS DECIDED BY THE JUDGEMENT OF THE HONOR ABLE SUPREME COURT DELIVERED IN THE CASE OF BROKE BOND INDIA LTD.(225ITR798), THAT MINOR VARIA TION OF FACTS WOULD NOT AFFECT THE BINDING NATURE OF THE DECISION. HE FINALLY CONFIRMED THE OR DER OF THE AO. 2.2. BEFORE US,THE AUTHORISED REPRESENTATIVE(AR)STATED T HAT THE FAA HAD NOT CONSIDERED THE SUBMISSION MADE BY THE ASSESSEE ON 26.09.2016,THAT FACTS OF BROOK BOND INDIA WERE NOT APPLICABLE TO THE CASE UNDER CONSIDERATIN.THE DEPAR TMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE FAA HAS NOT CONSIDERED THE FACTS SUBMITTED BY THE A SSESSEE VIDE ITS LETTER DATED, 26. 10. 2010 (PG.18-23 OF THE PB.).THE ASSESSEE HAD MADE SPECIFI C SUBMISSION ABOUT ITS WORKPROFILE AND JUSTIFICATION FOR INCURRING OF THE EXPENDITURE FOR BUSINESS PURPOSES.BUT,THE FAA HAD NOT AT ALL DEALT WITH ITS ARGUMENTS.HE HAS SIMPLY STATED THAT MATTERS DECIDED BY THE HONBLE APEX COURT WERE APPLICABLE TO THE CASE UNDER APPEAL-THOUGH THE RE WAS MINOR VARIATION IN THE FACTS.HE DID DISCUSS THE ALLEGED MINOR VARIATION.IT WAS HIS DUTY TO PASS A SPEAKING AND REASONED ORDER DEALING WITH ALL THE ARGUMENTS RAISED BY THE ASSESSEE.BUT,H E FAILED TO DO SO. THEREFORE, IN OUR OPINION,THE MATTER NEEDS FUTHER VERIFICATION.IN THE INTEREST OF JUSTICE FIRST GROUND OF APPEAL IS RESTORED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION.WHO WILL DECIDE THE ISSUE AFTER AFFORDING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE.FIRST GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE, IN PART. 3. SECOND GROUND OF APPEAL DEALS WITH DISALLOWANCE OF RS.12.37 LAKHS MADE U/S.14A OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD CLAIMED EXEMPT INCOME 2183/M/11;7045/M/11 &5609/M/13- M/S.MOTILAL OSWAL FINANCIAL SERVICES LTD. 3 OF RS.22.59 LAKHS,THAT IT DID NOT MAKE ANY DISALLOW ANCE WHILE COMPUTING THE TAXABLE INCOME.IT WAS CLAIMED THAT NO EXPENDITURE WAS CLAIMED BY THE ASSESSEE AGAINST THE INCOME.HOWEVER,THE AO,INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D OF THE RULES,MADE A DISALLOWANCE OF RS.12.37 LAKHS. 3.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE FILED AN APPEAL BEFORE THE FAA AND MADE SUBMISSION.AFTER CONSIDERING THE AVAILABLE MATERIAL ,HE HELD THAT RULE 8 D WAS NO APPLICABLE FOR THE YEAR UNDER APPEAL, THAT DISALLOWANCE HAD TO MAD E ON A REASONABLE BASIS, THAT THE AO HAD NOT MADE ANY DISALLOWANCE OUT OF INTEREST EXPENDITURE, THAT METHOD ADOPTED BY THE AO, I.E. AVERAGE CAPITAL USED WAS REASONABLE . 3.2. BEFORE US,THE AR ARGUED THAT ,THAT IN THE CASE OF MOTILAL OSWAL INVESTMENT ADVISORS (ITA/3010/MUM/2012,DTD.12/8/14 )IN THE SIMILAR CIRC UMSTANCES MATTER WAS RESTORED BACK TO THE FILE OF THE AO, THAT IN THE CASE OF MOTILAL OSWAL SECURITIES LTD. AND ORS.(ITA/7328/MUM/2011 DTD.19/2/2016), THE MATTER WAS RESTORED BACK TO THE FILE OF THE AO.THE DR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS.WE FIND THAT TH E ASSESSEE HAD MADE SUO MOTU DISALLOWANCE OF RS.1.39 LAKHS U/S.14A OF THE ACT,TH AT PROPORTIONATE SALARY WAS DISALLOWED BY IT,THAT ADMINISTRATIVE EXPENSES WERE ALSO DISALLOWE D IN THE SAME PROPORTION.WE AGREE WITH THE ARGUMENT OF THE AR THAT PROVISIONS OF RULE 8D R.W.S 14 A WERE NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION.AS THE AO AND THE FAA HAS NOT CONSIDE RED THIS ASPECT AND IN ONE OF THE GROUP CASES (SUPRA)THE TRIBUNAL HAS SENT BACK THE MATTER TO THE FILE OF THE AO,SO,WE ARE OF THE OPINION THAT MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION.HE IS DIRECTED TO DECIDE THE ISSUE AFTER AFFORDING AN EFFECTIVE OPPOR TUNITY TO THE ASSESSEE.SECOND GROUND STANDS PARTLY ALLOWED. ITA/7045/MUM/2011(AY2008-09). 4. THE SOLITARY GROUND OF APPEAL IS ABOUT DISALLOWANCE OF RS.45.73 LAKHS MADE U/S.14A R.W. RULE 8D (2)(III). FOLLOWING OUR ORDER FOR THE EARLIER YE AR WE RESTORE BACK THE ISSUE TO THE FILE OF AO FOR FRESH ADJUDICATION TO PROVIDE AN EFFECTIVE OPPORTUN ITY OF HEARING TO THE ASSESSEE. EFFECTIVE GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE IN PART . 2183/M/11;7045/M/11 &5609/M/13- M/S.MOTILAL OSWAL FINANCIAL SERVICES LTD. 4 ITA/5609/MUM/2013(AY2010-11). 4.1. GROUND NO.1.01 IS ABOUT DISALLOWANCE OF RS.1.90 CRO RES, U/S.14A OF THE ACT R.W. RULE 8D (1)(B). GROUND NO.1.02 IS ABOUT CONFERRING DISALLOW ANCE OF INTEREST EXPENDITURE OF RS.1.34 CRORES AS PER RULE 8D (2)(II). GROUND NO.1.03 IS ABOUT DIS ALLOWANCE OF RS.56.08 LAKHS AS PER PROVISIONS OF SECTION 14A R.W.R. 8D(2)(III).IN SHOR T, THE EFFECTIVE GROUND OF APPEAL IS ABOUT DISALLOWANCE CONFIRMED BY THE FAA. 4.2. DURING THE ASSESSMENT PROCEEDINGS THE AO OBSERVED T HAT THE ASSESSEE HAD INVESTED HUGE SUM IN SHARES AND SECURITIES, THAT IT HAD INCURRED INTE REST EXPENSE OF RS.6.37 CRORES FOR THE YEAR UNDER CONSIDERATION, THAT IT HAD ADMITTED EXPENDITURE OF RS.6.73 LAKHS ONLY AS PER THE PROVISIONS OF SECTION 14A R.W.R. 8D.HE COMPUTED DISALLOWANCE AT R S.1.97 CRORES AND AFTER CONSIDERING THE DISALLOWANCE MADE BY THE ASSESSEE (6.73 LAKHS) HE M ADE A DISALLOWANCE OF RS.1.90 CRORES. 4.3. IN THE APPELLATE PROCEEDINGS THE ASSESSEE MADE DETA ILED SUBMISSIONS AND FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEM ENT (26SOT603) UPHELD THE ORDER OF THE AO. 4.4. THE AR ARGUED THAT WHILE DECIDING THE APPEAL OF ONE OF THE GROUP CONCERN FOR THE AY.2007- 08,THE TRIBUNAL HAD APPROVED THE METHOD OF 14A DISA LLOWANCE,THAT PARAGRAPH 24 OF THE JUDGMENT OF THE HONBLE SUPREME COURT DELIVERED IN THE CASE OF MAXOPP INVESTMENT LTD.WAS IN FAVOUR OF THE ASSESSEE,THAT THE AO HAD NOT RECORDED DISSATISF ACTION ABOUT THE DISALLOWANCE. HE REFERRED TO THE CASE OF MAXOPP INVESTMENT LTD.(347 ITR 272) OF THE HONBLE DELHI HIGH COURT.THE DR ARGUED THAT INVESTMENT WAS MADE FROM THE COMMON FUN D,THAT THERE WAS NO CO-RELATION BETWEEN THE INTEREST EXPENDITURE AND INVESTMENT MADE,THAT T HE ASSESSEE HAD NOT MAINTAINED SEPARATE BOOKS OF ACCOUNTS.HE RELIED UPON THE CASE OF MAXOPP INDIA DELIVERED BY THE HONBLE APEX COURT. 4.5. WE HAVE HEARD 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 2183/M/11;7045/M/11 &5609/M/13- M/S.MOTILAL OSWAL FINANCIAL SERVICES LTD. 5 SPEAKING. IN THE INTEREST OF JUSTICE WE ARE RESTORI NG BACK THE MATTER TO THE FILE OF AO FOR FRESH ADJUDICATION. AS A RESULT, ALL THE AP PEALS FILED BY THE ASSESSEE STAND PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH JUNE, 2018. 27 , 2018 SD/- S D/- ( / AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 27.06.2018. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR B BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.