EDELWEISS SECURITIES LTD, MUMBAI V. ADDL CIT 4(1), MUMBAI

ITA 7199/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93195 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 09-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C W ANGOLKAN
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . . , , , BEFORE SHRI A.D. JAIN , JUDICIAL MEMBER AND SHRI N.K . BILLAIYA, A CCOUNTANT M EMBER / I .T.A. NO. 6943/MUM/2013 ( / ASSESSMENT YEAR : 2010 - 11 THE DCIT - 4(1), AAYAKAR BHAVAN, MUMBAI - 400 020 / VS. M/S. EDELWEISS SECURITIES PVT. LTD., 14 TH FLOOR, EXPRESS T OWERS NARIMAN POINT, MUMBAI - 400 021 / I .T.A. NO . 7199/MUM/2013 ( / ASSESSMENT YEAR : 2010 - 11 M/S. EDELWEISS SECURITIES PVT. LTD.,14 TH FLOOR, EXPRESS TOWERS, NARIMAN POINT, MUMBAI - 400 021 / VS. THE DCIT - 4(1), AAYAKAR BHAVAN, MUMBAI - 400 020 ./ ./ PAN/GIR NO. : AAACK 3792N ( / APPELLANT ) .. ( / RESPONDENT ) / DEPARTMENT BY: SHRI C.W. ANGOLKAN / ASSESSEE BY : SHRI VIJAY MEHTA / DATE OF HEARING : 15 . 0 7 .2015 / DATE OF PRONOUNCEMENT : 15 .0 7 .2015 / O R D E R PER N.K. BILLAIYA, AM: THESE ARE CROSS APPEALS BY THE REVENUE AND THE ASSESSEE AGAINST THE VERY SAME ORDER OF THE LD. CIT(A) - 8, MUMBAI DT. 17.9.2013 ITA. NO S . 6943 & 7199/M/2013 2 PERTAINING TO ASSESSMENT YEAR 2010 - 11. BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SA KE OF CONVENIENCE. ITA NO. 6943/M/2013 - REVENUES APPEAL 2. THE SOLE GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF PROVISION FOR MARK TO MARKET LOSS OF THE DERIVATE TRANSACTIONS AMOUNTING TO RS. 10,88,712/ - . 2.1. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE IN PLETHORA OF DECISION S . HOWEVER, AT PARA - 3.3, WE FIND THAT THE LD. CIT(A) HAS FOLLOWED THE DECISION OF THE TRIBUNAL IN THE CASE OF ASSESSES GROUP COMPANY M/S. EDELWEISS CAPITAL LTD. IN ITA NO. 5324/M/07 FOR A. Y. 2004 - 05. THE FINDINGS OF THE LD. CIT(A) READ AS UNDER: I HAVE CONSIDERED THE FACTS OF THE CASE AND THE ARGUMENT OF THE APPELLANT. I FIND THAT AN IDENTICAL ISSUE WAS THERE IN A.Y. 2009 - 10 WHERE I HAD ALLOWED THE APPEAL AS UNDER: THE APPELLANT ALSO SUBMITTED THAT THE HONBLE ITAT MUMBAI IN THE CASE OF APPELLANTS GROUP COMPANY, I.E. M/S. EDELWEISS CAPITAL LTD. (ITA NO. 5324/M/07 FOR A.Y. 2004 - 05) HAD ALLOWED THE PROVISIONS FOR LOSS ON MARK TO MARKET AS DEDUCTIBLE EXPENDITURE. THE APPELLANTS SUBMISSION HAS BEEN CONSIDERED. THE APPELLANT HAS PLACED RELIANCE UPON THE DECISION IN THE CASE OF M/S. EDELWEISS CAPITAL LTD (SUPRA) FOR A.Y. 2004 - 05, ENCLOSING A COPY OF THE ORDER. FROM THIS DECISION, I FIND THAT THE HONBLE ITAT HAD B EEN PLEASED TO ALLOW THE APPEAL AGAINST DISALLOWANCE OF PROVISIONS FOR LOSS ON MARK TO MARKET BASIS IN RESPECT OF TRADING IN DERIVATIVES WHICH INCLUDED EQUITY INDEX AND STOCK FUTURES OBSERVING THAT THE PROVISIONS REFLECTED IN SUBSTANCE IS THE LOSS ARISING ON ACCOUNT OF VALUATION OF CLOSING STOCK. EVEN IN APPEAL OF ASSESSMENT YEAR 2008 - 09, MY PREDECESSOR VIDE APPELLATE ITA. NO S . 6943 & 7199/M/2013 3 ORDER NO. CIT(A) - 8/CIR.4/240/10 - 11 DT. 21.6.2011 HAS FOLLOWED THE JUDGMENT OF HONBLE ITAT AND ALLOWED THE CLAIM OF ASSESSEE. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE ITAT IN THE CASE OF EDELWEISS CAPITAL LTD (SUPRA), I ALLOW THE APPELLANTS APPEAL IN THIS REGARD. THE ADDITION OF RS. 96,00,244/ - IS THEREFORE DELETED. THE APPEAL ON THIS GROUND IS ALLOWED. IT IS FURTHER SEEN THAT TH E HONBLE TRIBUNAL IN THE APPELLANTS OWN CASE FOR A.Y. 2005 - 06 IN ITA NO. 2194/M/09 DT. 28 TH MARCH 2012 HAS HELD AS UNDER: WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE HAS A STRONG CASE TO MAKE PROVISION FOR LOSS ON MARK TO MARKET BASIS. WE, THEREFO RE, DELETE THE DISALLOWANCE MADE BY THE REVENUE AUTHORITIES. FOLLOWING THE ABOVE DECISIONS OF MY PREDCESSORS AND HONBLE ITAT, THE AO IS DIRECTED TO DELETE THE ADDITION OF RS. 10,88,712/ - . THIS GROUND OF APPEAL IS THUS, ALLOWED. AS NO DISTINGUISHING DECISION HAS BEEN BROUGHT BEFORE US, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). APPEAL FILED BY THE REVENUE IS ACCORDINGLY DISMISSED. ITA NO. 7199/M/13 ASSESSEES APPEAL 3. THE ONLY GRIEVANCE OF THE ASSESSEE RELATES TO THE DISALLOWANCE MADE U/S. 14A R.W. RULE 8D OF THE ACT. 3.1. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS EARNED DIVIDEND OF RS. 2,26,29,866/ - AND CLAIMED THE SAME AS EXEMPT U/S. 10(34)/10(35) OF THE AC T. THE AO FOUND THAT THE ASSESSEE HAS ALLOCATED RS. 9,49,475/ - TOWARDS EXPENSES INCURRED TO EARN EXEMPT INCOME. THE AO OBSERVED THAT THE ALLOCATION IS MAINLY AN ADHOC MEASURES RATHER THAN THROUGH MAINTAINING SEPARATE HEADS OF INCOME FOR THIS PURPOSE. TH E AO DID NOT ACCEPT THE ALLOCATION OF THE ASSESSEE AND ITA. NO S . 6943 & 7199/M/2013 4 PROCEEDED TO COMPUTE THE DISALLOWANCE U/S. 14A R.W. RULE 8D AND THE TOTAL DISALLOWANCE WAS COMPUTED AT RS. 3,87,51,542/ - . 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCE SS. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008 - 09 IN ITA NO. 7235/M/2011 BY ITS ORDER DT. 13.8.2014. IT IS THE SAY OF THE LD. COUNSEL THAT IN THAT Y EAR, THE ASSESSEE HAS DISALLOWED 5% OF DIVIDEND INCOME. THE TRIBUNAL HAS ACCEPTED THE SUO MOTO DISALLOWANCES MADE BY THE ASSESSEE. THE LD. COUNSEL ALSO POINTED OUT THAT WHILE DECIDING SO, THE TRIBUNAL HAS CONSIDERED THE DECISION OF THE HONBLE BOMBAY HIG H COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. 313 ITR 340 WHICH WAS FOLLOWED BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS HDFC BANK LTD. IN INCOME TAX APPEAL NO. 330 OF 2012. 6. THE LD. DR COULD NOT BRING ANY DISTINGUISHING DECISION/FACT BEFORE US. 7. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE RELEVANT DOCUMENTARY EVIDENCES BROUGHT BEFORE US. IT IS AN UNDISPUTED FACT THAT ASSESSEES OWN FUNDS ARE MORE THAN THE INVESTMENT. THEREFORE, THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF RELIANCE UTILITIES & POWER LTD., AND HDFC BANK (SUPRA) SQUARELY APPLY. TO THIS EXTENT, NO DISALLOWANCE CAN BE MADE. 7.1. IN A.Y. 2008 - 09, THE TRIBUNAL HAS ACCEPTED THE SUO MOTO DISALLOWANCE @ 5% OF DIVIDEND INCOME. WE FIND THAT IN THIS YEAR, THE ASSESSEE HAS GIVEN A COMPLETE BREAK - UP OF PROPORTIONATE EXPENSES ITA. NO S . 6943 & 7199/M/2013 5 ALLOCATED BY IT WHICH IS EXHIBITED AT PAGE - 71 OF THE PAPER BOOK. EXCEPT FOR THIS, ALL OTHER FACTS ARE IDENTICAL TO THE FACTS OF ASSESSMENT YEAR 2008 - 09. SINCE ASSESSEE HAS GIVEN A DETAILED BREAK - UP AS MENTIONED HEREINABOVE, WE DIRECT THE AO TO RESTRICT T HE DISALLOWANCE TO RS. 9,49,475/ - AS MADE BY THE ASSESSEE. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CROSS APPEAL FILED BY THE ASSESSEE IS ALLOWED. OR DER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON 15TH JU LY , 20 15 SD/ - SD/ - ( A.D. JAIN ) (N.K. BILLAIYA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 15 TH JU LY , 2015 . . ./ RJ , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI