ACIT 4(3)(1), MUMBAI V. KOTAK SECURITIES LTD, MUMBAI

ITA 7005/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0389 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2012-2013
• Appeal Filed On: 01-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SRINIWAS; MANOJ KUMAR SINGH LD DRS
• Assessee Lawyers: CHETAN KAKA LD ARS
• Keywords: Depreciation; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

ITA.NOS.6666, 7005/MUM/2016 KOTAK SECURITIES LIMITED ASSESSMENT YEAR-2012-13 IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI , , BEFORE SHRI MANOJ KUMAR AGGARWAL, AM AND SHRI RAVISH SOOD, JM ./I.T.A. NO.6666/MUM/2016 ( / ASSESSMENT YEAR: 2012-13) K OTAK SECURITIES LIMITED 27, BKC, C-27 G BLOCK, BANDRA KURLA COMPLEX BANDRA (EAST) MUMBAI- 400 051 / VS. DEPUTY COMMISSIONER OF INCOME TAX RANGE 4(3)(1) ROOM NO. 649, 6 TH FLOOR AAYKAR BHAVAN, M.K. ROAD MUMBAI-400 020 ./ ./PAN/GIR NO. AAACK-3436-F ( /APPELLANT ) : ( !' / RESPONDENT ) & ./I.T.A. NO.7005/MUM/2016 ( / ASSESSMENT YEAR: 2012-13) DEPUTY COMMISSIONER OF INCOME TAX RANGE 4(3)(1) ROOM NO. 649, 6 TH FLOOR AAYKAR BHAVAN, M.K. ROAD MUMBAI-400 020 / VS. KOTAK SECURITIES LIMITED 27, BKC, C-27 G BLOCK, BANDRA KURLA COMPLEX BANDRA (EAST) MUMBAI- 400 051 ./ ./PAN/GIR NO. AAACK-3436-F ( /APPELLANT ) : ( ! ' / RESPONDENT ) ASSESSEE BY : FARROKH V.IRANI & CHETAN KAKA, LD. ARS REVENUE BY : B.SRINIWAS & MANOJ KUMAR SINGH, LD. DRS / DATE OF HEARING : 11/09/2018 / DATE OF PRONOUNCEMENT : 19/09/2018 ITA.NOS.6666, 7005/MUM/2016 KOTAK SECURITIES LIMITED ASSESSMENT YEAR-2012-13 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THESE ARE CROSS-APPEAL FOR ASSESSMENT YEAR [AY] 2012-13 WHICH CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-9 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-9/CIR.4/154/2015-16 DATED 29/09/2016 ON DIFFERENT GROUNDS OF APPEAL. THE ASSESSEE IS REP RESENTED BY LD. SR. COUNSEL, SHRI FARROKH V.IRANI [LD. AR] WHEREAS THE REVENUE IS REPRESENTED BY SHRI B.SRINIVAS, LD. CIT-DR & SHRI MANOJ KUMAR SING H, LD. SR. DR. SO FAR AS THE REVENUES APPEAL IS CONCERNED, BOTH T HE REPRESENTATIVES CONVERGE ON THE POINT THAT THE ISSU E ARISING THEREIN HAS ALREADY BEEN DEALT WITH BY THIS TRIBUNAL IN ASSESSE ES OWN CASE FOR EARLIER ASSESSMENT YEARS 2008-09 TO 2011-12, THE C OPIES OF WHICH HAS BEEN PLACED ON RECORD. IN VIEW OF THE ADMITTED POSI TION, WE FIRST TAKE UP THE ISSUES RAISED IN REVENUES APPEAL ITA NO. 7005/MUM/2016 WHICH COULD BE TABULATED AS FOLLOWS:- NO. NATURE OF ADDITIONS / DISALLOWANCES REMARKS 1. DEPRECIATION ON UPS BATTERIES RESTRICTED TO 15% AS AGAINST 80% CLAIMED BY THE ASSESSEE 2. MARK TO MARKET LOSS OF RS.7 CRORES DISALLOWED BY LD. AO TREATING THE SAME A NOTIONAL LOSS 3. EMPLOYEES STOCK OPTION PLAN [ESOP] EXPENSES OF RS.2.64 CRORES DISALLOWED BY LD. AO TREATING THE SAME AS NOT A REAL EXPENDITURE THE ASSESSEE BEING RESIDENT CORPORATE ENTITY ENGAGED IN THE BUSINESS OF SHARE BROKING, DEPOSITORS, MOBILIZATION OF DEPOSITS AND MARKETING OF PUBLIC ISSUES HAS BEEN ASSESSED UNDER SECTION 143(3) ON 23/03/20 15 WHEREIN THE INCOME OF THE ASSESSEE HAS BEEN DETERMI NED AT RS.174.38 ITA.NOS.6666, 7005/MUM/2016 KOTAK SECURITIES LIMITED ASSESSMENT YEAR-2012-13 3 LACS AFTER CERTAIN ADDITIONS/DISALLOWANCES AS AGAIN ST RETURNED INCOME OF RS. 162.87 LACS E-FILED BY THE ASSESSEE ON 29/11/2012. 2.1 DURING ASSESSMENT PROCEEDINGS, IT WAS NOTED THA T THE ASSESSEE CLAIMED HIGHER DEPRECIATION OF 80% ON UPS AND BATTERIES TREATING THE SAME UNDER THE HEAD AUTOMATIC VOLTAGE CONTROLLER. THE LD. AO HAS RESTRICTED THE SAME TO 15% BEING GENERAL RATE APPLI CABLE TO PLANT AND MACHINERY AND WORKED OUT DISALLOWANCE OF RS.66.47 LACS. 2.2 THE ASSESSEE CLAIMED A DEDUCTION OF RS.7 CRORES ON ACCOUNT OF MARK TO MARKET LOSSES ON OUTSTANDING FUTURE AND OPTION CONTRACTS AS ON 31/03/2012. HOWEVER, THE SAME HAS BEEN DISALLOWED B Y LD. AO ON THE PREMISE THAT NO DEDUCTION COULD BE ALLOWED FOR NOTI ONAL LOSSES. 2.3 THE LAST ADDITION WHICH IS THE SUBJECT MATTER O F REVENUES APPEAL IS THE PAYMENT OF RS.2.64 CRORES CLAIMED BY THE ASSESS EE UNDER THE HEAD SALARIES AS EMPLOYEE STOCK OPTION PLAN [ESOP] EXPENSES. THE FACT ON RECORD REVEAL THAT THE HOLDING COMPANY OF THE ASSES SEE NAMELY KOTAK MAHINDRA BANK LIMITED HAD FORMULATED AN ESOP SCHEME FOR GRANT OF STOCK OPTION AND AS A COROLLARY OFFERED THE STOCKS UNDER THE SCHEME TO THE EMPLOYEES OF THE ASSESSEE COMPANY ALSO. THE PAY MENT REPRESENT DIFFERENTIAL OF MARKET PRICE AND THE ISSUE PRICE AN D CLAIMED TO BE PAID BY THE ASSESSEE FOR THE PURPOSES OF RETENTION OF ITS E MPLOYEES AND A METHOD OF REMUNERATING THEM. HOWEVER, NOT CONVINCED , LD. AO DISALLOWED THE SAME AND ADDED THE SAME TO THE INCOM E OF THE ASSESSEE. 2.4 AGGRIEVED, THE ASSESSEE CONTESTED ALL THE THREE ADDITIONS / ADJUSTMENTS WITH SUCCESS BEFORE LD. CIT(A) VIDE IMP UGNED ORDER DATED 29/09/2016 WHEREIN THE DEPRECIATION AT HIGHER RATE AS CLAIMED BY THE ASSESSEE WAS ALLOWED BY FOLLOWING THE DECISION OF T HIS TRIBUNAL RENDERED ITA.NOS.6666, 7005/MUM/2016 KOTAK SECURITIES LIMITED ASSESSMENT YEAR-2012-13 4 IN ASSESSEES OWN CASE FOR AYS 2006-07, 2008-09 & 2 009-10. SIMILARLY THE ADDITION ON ACCOUNT OF MARK TO MARKET LOSSES HAS BEEN DELETED BY FOLLOWING THE DECISION OF THIS TRIBUNAL RENDERED FO R AY 2008-09 & 2009- 10. THE ADDITION OF ESOP EXPENDITURE HAS BEEN DELETED BY FOLLOWING THE DECISION OF THIS TRIBUNAL RENDERED FOR AY 2010-11. THE DETAILS OF THE DECISION HAVE ALREADY BEEN EXTRACTED IN THE IMPUGNE D ORDER. ADDITIONALLY, THE COPIES OF DECISION OF THIS TRIBUN AL FOR THE RELEVANT EARLIER YEARS HAVE ALSO BEEN PLACED ON RECORD. 2.5 THE LD. DEPARTMENTAL REPRESENTATIVE [DR] FAIRLY CONCEDED THAT THE ISSUES, AT THE MOMENT, STOOD COVERED IN ASSESSEES FAVOR BY THE CITED ORDERS OF THE TRIBUNAL. HOWEVER, IT WAS CONTENDED T HAT THE MATTERS HAVE NOT ATTAINED FINALITY YET. 2.6 WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE LOWER AUTHORITIES AND THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS. WE FIND THAT A VIEW HAS ALREADY BEEN TAKEN BY THE T RIBUNAL ON ALL THE THREE ISSUES. THE REVENUE IS NEITHER ABLE TO POINT OUT ANY MATERIAL DIFFERENCE IN THE FACTS NOR ABLE TO CONTROVERT THE SAME BY ANY BINDING CONTRARY JUDICIAL PRONOUNCEMENTS. IN VIEW OF THE ST ATED POSITION, WE FIND NO REASON TO INTERFERE WITH THE STAND OF LD. FIRST APPELLATE AUTHORITY ON ALL THE THREE ISSUES. RESULTANTLY, THE REVENUES APPEAL STAND DISMISSED. ASSESSEES APPEAL, ITA NO.6666/MUM/2016 3. THE ASSESSEE IS AGGRIEVED BY ADDITIONAL DISALLOW ANCE OF RS.327.19 LACS U/S 14A AND ANOTHER ADDITION OF RS.1.13 LACS B ASED ON ANNUAL INFORMATION RETURN [AIR]. ITA.NOS.6666, 7005/MUM/2016 KOTAK SECURITIES LIMITED ASSESSMENT YEAR-2012-13 5 4.1 FACTS QUA DISALLOWANCE U/S 14A ARE THAT THE ASSESSEE REFLECTE D EXEMPT DIVIDEND INCOME OF RS.131.46 LACS AND MADE A SUO-MOTO DISALLOWANCE OF RS.9.35 LACS AGAINST THE SAME IN TH E RETURN OF INCOME. THE SUBJECT MATTER OF THE APPEAL CONCERNS ONLY WITH QUANTUM OF ADMINISTRATIVE EXPENDITURE AS PER RULE 8D(2)(III). THE ASSESSEE DEFENDED ITS COMPUTATION VIDE REPLY DATED 18/02/201 5, THE RELEVANT PORTION OF WHICH HAS ALREADY BEEN EXTRACTED IN THE QUANTUM ASSESSMENT ORDER. AS PER THE SUBMISSIONS, THE INVESTMENTS MADE BY THE ASSESSEE WERE STRATEGIC IN NATURE AND MADE FOR LONG TERM PUR POSE AND THEREFORE, NO DAY-TO-DAY EXPENSES WERE REQUIRED TO BE INCURRED TO MANAGE THE SAME. IT WAS FURTHER POINTED OUT THAT THE INVESTMEN TS HELD AS STOCK-IN- TRADE WERE NOT REQUIRED TO BE CONSIDERED FOR THE PU RPOSE OF COMPUTATION OF THE DISALLOWANCE. AS AN ALTERNATIVE SUBMISSION, THE ASSESSEE PLEADED TO RESTRICT THE DISALLOWANCE TO RS.23.45 LACS, BEIN G 10% OF COST OF THE INVESTMENT DIVISION / SHARE TRADING DIVISION . HOWEVER, DISREGARDING THE SAME AND NOT CONVINCED WITH THE GENUINENESS OF THE CLAIM MADE BY THE ASSESSEE, LD. AO APPLYING RULE 8D(2)(III) COMPUTED DISALLOWANCE OF RS.327.19 LACS WHICH WAS NOTHING BUT 0.5% OF AVERAG E INVESTMENTS OF RS.654.38 CRORES HELD BY THE ASSESSEE. AFTER ADJUST ING THE SUO-MOTO DISALLOWANCE OF RS.9.35 LACS AS MADE BY THE ASSESSE E, THE NET ADDITION THUS MADE WORKED OUT TO RS.317.84 LACS. 4.2 AGGRIEVED, THE ASSESSEE REITERATED THE CONTENTI ONS WITHOUT ANY SUCCESS BEFORE LD.CIT(A) WHEREIN THE STAND OF LD. A O GOT CONFIRMED. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4.3 THE LD. SR. COUNSEL APPEARING FOR ASSESSEE HAS AGITATED THE ADDITIONS ON LEGAL GROUNDS AS WELL AS ON MERITS. OU R ATTENTION HAS BEEN ITA.NOS.6666, 7005/MUM/2016 KOTAK SECURITIES LIMITED ASSESSMENT YEAR-2012-13 6 DRAWN TO THE FACT THE LD. AO ERRED IN ASSUMING JURI SDICTION WITHOUT RECODING PROPER SATISFACTION AS TO APPLICABILITY OF RULE 8D WITHOUT EXAMINING THE CLAIM / COMPUTATIONS / METHODOLOGY OF THE ASSESSEE AND THEREFORE, THE ADDITIONAL DISALLOWANCE WAS NOT JUST IFIED. FOR THE MERITS, OUR ATTENTION HAS BEEN DRAWN TO THE FACT THAT AGGRE GATE DISALLOWANCE OF RS.327.19 LACS HAS BEEN MADE AGAINST EXEMPT INCOME OF RS.131.46 LACS, WHICH WAS NOT, AT ALL, JUSTIFIED AND SUSTAINA BLE. IT HAS FURTHER BEEN CONTENDED THAT THOSE INVESTMENTS WHICH HAVE NOT YIE LDED ANY EXEMPT INCOME DURING THE IMPUGNED AY WERE REQUIRED TO BE E XCLUDED FOR COMPUTATIONS IN TERMS OF THE JUDGMENT OF DELHI TRIB UNAL (SPECIAL BENCH) RENDERED IN ACIT VS. VIREET INVESTMENT (P.) LTD. [82 TAXMANN.COM 415]. PER CONTRA, LD. CIT-DR SUBMITTED THAT THE COMPUTATIONS WERE TO BE MADE ONLY AS PER THE FORMULA PRESCRIBED UNDER THE L AW. 4.4 WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS A ND PERUSED RELEVANT MATERIAL ON RECORD INCLUDING JUDICIAL PRONOUNCEMENT S AS CITED BEFORE US. SO FAR AS THE LEGAL ISSUE AS RAISED BY LD. SR. COUN SEL IS CONCERNED, WE FIND THAT THE ISSUE IN HAND INVOLVES ONLY QUANTUM O F ADMINISTRATIVE EXPENDITURE AS PER RULE 8D(2)(III). INTERESTINGLY, BOTH ASSESSEE AS WELL AS LD. AO HAS MADE COMPUTATIONS @0.5% AS PER RULE 8 D(2)(III) ONLY AND THEREFORE, THE APPLICABILITY OF THE SAME IS NOT UNDER DISPUTE. THE DIFFERENCE IN COMPUTATION ARISES OUT OF THE FACT TH AT THE ASSESSEE HAS EXCLUDED STRATEGIC INVESTMENT AS WELL AS STOCK-IN-TRADE WHILE ARRIVING AT THE DISALLOWANCE WHEREAS LD. AO HAS ADOPTED THE AGG REGATE VALUE OF INVESTMENTS IRRESPECTIVE OF THEIR NATURE. IN OUR OP INION, THERE IS NO QUARREL BETWEEN THE ASSESSEE AND THE REVENUE AS TO APPLICABILITY OF RULE 8D(2)(III) AND THEREFORE, THE LEGAL SUBMISSIONS AS MADE BY LD. SR. ITA.NOS.6666, 7005/MUM/2016 KOTAK SECURITIES LIMITED ASSESSMENT YEAR-2012-13 7 COUNSEL WERE NOT OF MUCH RELEVANCE AND THE SAME HAS TO BE DISREGARDED. 4.5 SO FAR AS THE NATURE OF INVESTMENTS VIZ. STRATE GIC INVESTMENTS / STOCK-IN-TRADE IS CONCERNED, WE FIND THAT THE CONTR OVERSY STOOD SETTLED BY THE RECENT DECISION OF HONBLE APEX COURT RENDERED IN GROUP OF CASES TITLED AS MAXOPP INVESTMENT LTD. VS CIT [12/02/2018 91 TAXMAN N.COM 154], WHEREIN HONBLE COURT HAS EXPRESSED THE VIEW THAT THE NATURE OF INVESTMENTS WOULD BE OF NO RELEVANCE WHILE COMPUTIN G DISALLOWANCE U/S 14A. THEREFORE, THE PLEA AS RAISED BY LD. SR. COUNS EL ON THESE LINES WOULD ALSO BE OF NO HELP TO THE ASSESSEE. 4.6 HOWEVER, IN TERMS OF THE DECISION OF SPECIAL BE NCH OF THE TRIBUNAL RENDERED IN ACIT VS. VIREET INVESTMENT (P.) LTD. [82 TAXMANN.COM 415], WE FIND STRENGTH IN THE PLEA OF LD. SR. COUNSEL THA T ONLY EXEMPT INCOME YIELDING INVESTMENTS WERE TO BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE U/S 14A. DRAWING ANALOG Y FROM THE DECISION OF HONBLE SUPREME COURT RENDERED IN MAXOPP INVESTMENT LTD. VS CIT [SUPRA], WE ALSO FIND STRENGTH IN THE PLEA THAT THE QUANTUM OF DISALLOWANCE COULD NOT EXCEED THE EXEMPT INCOME EAR NED BY THE ASSESSEE DURING THE IMPUGNED AY. FURTHER, THOSE INV ESTMENTS WHICH WERE NOT CAPABLE OF YIELDING ANY EXEMPT INCOME WERE ALSO TO BE EXCLUDED WHILE ARRIVING AT THE DISALLOWANCE. 4.7 KEEPING THE ABOVE PRINCIPLES IN MIND, WE HAVE PERUSED THE NATURE OF INVESTMENTS HELD BY THE ASSESSEE WHICH ARE EXTRA CTED AT PAGE-14 OF THE IMPUGNED ORDER. WE FIND THAT THE INVESTMENTS HA VE BEEN CLASSIFIED BY THE ASSESSEE AS STRATEGIC INVESTMENTS, STOCKIN-TRADE & INVESTMENT IN OTHER SHARES / VENTURE CAPITAL FUND. THE ASSESSEE HAS ALREADY ITA.NOS.6666, 7005/MUM/2016 KOTAK SECURITIES LIMITED ASSESSMENT YEAR-2012-13 8 OFFERED SUO-MOTO DISALLOWANCE @0.5% AGAINST INVESTMENT IN OTHER SHARES / VENTURE CAPITAL FUND AND THEREFORE, THERE IS NO DISPUTE AGAINST THIS CATEGORY OF INVESTMENT. THEREFORE, THE DISALLO WANCE UNDER DISPUTE IS AGAINST STRATEGIC INVESTMENTS & STOCKIN-TRADE. IN THE ABSENCE OF ADEQUATE DATA BEFORE US, WE DIRECT THE LD. AO TO CO MPUTE DISALLOWANCE @0.5% AGAINST STRATEGIC INVESTMENTS & STOCKIN-TRADE AFTER EXCLUDING THERE-FROM THOSE INVESTMENTS WHICH HAVE NOT YIELDED ANY EXEMPT INCOME DURING IMPUGNED AY OR WHICH WERE NOT, AT ALL, CAPAB LE OF YIELDING ANY EXEMPT INCOME SUBJECT TO A FURTHER CONDITION THAT O VERALL DISALLOWANCE, IN NO CASE, SHALL EXCEED EXEMPT INCOME OF RS.131.46 LA CS EARNED BY THE ASSESSEE DURING THE IMPUGNED AY. THIS GROUND STAND PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER. 5. THE ROOT OF SECOND GROUND OF ASSESSEES APPEAL L IES IN THE FACT THAT THE ASSESSEE WAS UNABLE TO RECONCILE CERTAIN ENTRIE S AMOUNTING TO RS.1.13 LACS AS APPEARING IN ANNUAL INFORMATION RETURN [AIR] AND THEREFORE, THE SAME WERE ADDED TO THE INCOME OF THE ASSESSEE. THE SAME, UPON CONFIRMATION BY LD. FIRST APPELLATE AUTH ORITY, IS UNDER APPEAL BEFORE US. THE LD. SR. COUNSEL SUBMITTED THAT KEEPI NG IN VIEW THE VOLUMINOUS NATURE OF DATA, THE SAME REMAINED UN-REC ONCILED AND A VIEW MAY BE TAKEN. IN THE ABSENCE OF COMPLETE FACTUAL MA TRIX, WE ARE UNABLE TO PROVIDE ANY RELIEF TO THE ASSESSEE, IN THIS REGA RD. THIS GROUND STAND DISMISSED. ITA.NOS.6666, 7005/MUM/2016 KOTAK SECURITIES LIMITED ASSESSMENT YEAR-2012-13 9 CONCLUSION 6. THE REVENUES APPEAL ITA NO.7005/MUM/2016 STAND DISMISSED WHEREAS ASSESSEES APPEAL ITA NO. 6666/MUM/2016 STA ND PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH SEPTEMBER, 2018. SD/- SD/- (RAVISH SOOD) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED 19.09.2018 SR.PS:-THIRUMALESH ! / 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