MIRAE ASSET CAPITAL MARKETS (INDIA) PRIVATE LIMITED,MUMBAI V. INCOME TAX OFFICER, WARD 4(3)(1), MUMBAI, MUMBAI

ITA 2099/MUM/2025

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Mirae Asset Capital Markets (India) Private Limited appealed against the order of the Commissioner of Income Tax (Appeals) which confirmed the adjustments made by the Centralized Processing Centre, Bangalore, to the assessee's income for the Assessment Year 2020-21. The primary issues revolved around the adjustments related to Income Computation and Disclosure Standards (ICDS) and disallowances under section 14A of the Income Tax Act. The Tribunal found merit in the assessee's arguments regarding the misreporting of mark-to-market losses under ICDS and the inapplicability of section 14A to assets held as stock-in-trade, leading to the allowance of the appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 783755 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2020-2021
• Appeal Filed On: 27-03-2025
• Other Referred Cases: PCIT vs M/s. PNB Housing Finance Limited, MUFG Bank Limited vs ACIT (IT)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LEYAQAT ALI AAFAQUI
• Assessee Lawyers: PRATIK PODDAR; SHREYAS SARDESAI
• Keywords: Set aside; Business income; Opportunity of being heard; Revised return; Corroborative evidences; Depreciation; Earning of tax free income
• Section: 144; 143(3); 14A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JM& MS PADMAVATHY S, AM I.T.A. No. 2099/Mum/2025 (Assessment Year: 2020-21) Mirae Asset Capital Markets (India) Private Limited 1st Floor, Tower 4, Equinox business Park, LBS Marg, Off BKC, Kurla (W), Mumbai 400070 PAN: AALCM3742K Vs. Income Tax Officer, Ward 4(3)(1), Mumbai Room No. 648, 6th Floor, Aayakar Bhavan, Maharshi Karve Road, New Marine Lines, Churchgate, Mumbai 400020 Appellant) : Respondent) Assessee by : Shri Pratik Poddar, & Shreyas Sardesai Revenue by : Shri. Leyaqat Ali Aafaqui, Sr. AR Date of Hearing : 14.10.2025 Date of Pronouncement : 04.11.2025 O R D E R Per Padmavathy S, AM: This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals)/ADDL/JCIT (A)-2, Vadodara [In short 'FAA'] passed under section 250 of the Income Tax Act, 1961 (the Act) dated 06.01.2025 for Assessment Year (AY) 2020-21. The assessee has raised the following grounds of appeal: Printed from counselvise.com 2 ITA No. 2099/Mum/2025 Mirae Asset Capital Markets (India) Pvt Ltd “Based on facts and circumstances of the case and in law, Mirae Asset Capital Markets (India) Private Limited ('Appellant') respectfully craves leave to prefer an appeal against the order dated 6 January 2025 passed by the learned Additional / Joint Commissioner of Income-tax (Appeals) ['CIT(A)'] under section 250 of the Income-tax Act, 1961 ('the Act') on following grounds, each of which are without prejudice to one another: General: 1. On facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming the action of the Centralized Processing Centre, Bangalore ('CPC') of making an addition of Rs 5,36,34,431 to the returned income of the Appellant. Addition on account of adjustment in relation to Income Computation and Disclosure Standards ('ICDS') (Rs 5,21,93,081): 2. On facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming the action of the CPC of adding Rs 5,21,93,081 to the returned income of the Appellant on account of ICDS adjustment. 3. On facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming the action of the CPC of adding Rs 5,21,93,081 without appreciating that the scope of adjustment as per clause (iv) of section 143(1)(a) of the Act to include 'increase in income' as per tax audit report was expanded with effect from 1 April 2021, ie AY 2021- 22 onwards. 4. On facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming the action of the CPC of adding Rs 5,21,93,081 without appreciating that no intimation of such adjustment was given to the Appellant as per proviso to section 143(1)(a) of the Act and hence, the same is bad in law. 5. On facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming the action of the CPC of adding Rs 5,21,93,081 without appreciating that the said amount represented fair value loss (ie mark-to-market loss) on securities held as stock-in-trade which is an allowable loss as per the provisions of ICDS VIII. Disallowance under section 14A of the Act (Rs 14,41,350): 6. On facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming the action of the CPC of disallowing Rs 14,41,350 under section 14A of the Act by not appreciating that the said amount represented dividend income earned on shares held as stock-in-trade and therefore, disallowance under section 14A of the Act was unwarranted. 7. On facts and circumstances of the case and in law, the learned CIT(A) has erred by not adjudicating on the ground of appeal raised in relation to the aforesaid disallowance. Printed from counselvise.com 3 ITA No. 2099/Mum/2025 Mirae Asset Capital Markets (India) Pvt Ltd Interest under section 234C of the Act (Rs 40,221): 8. On facts and circumstances of the case and in law, the learned CPC / CIT(A) has erred in levying interest amounting to Rs 1,48,626 instead of Rs 1,08,425 under section 234C of the Act. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal, so as to enable the Hon'ble Income-tax Appellate Tribunal to decide this appeal according to law.” 2. The assessee is a company engaged in the business of investment banking, institutional broking and trading in the Indian securities market. The assessee is registered with the Securities Exchange Board of India (SEBI) as a stock broker and merchant banker. The assessee filed return of income for AY 2020-21 on 15.02.2021 declaring a total income of Rs. 1,30,88,02,420/-. The assessee also files revised return of income on 31.03.2021. The revised return filed by the assessee was processed by Central Processing Centre (CPC) u/s. 143(1) of the Act, wherein the following adjustments were made – i. An upward adjustment of Rs. 5,21,93,081/- on account of inconsistency observed in Income Computation and Disclosure Standards (ICDS) adjustment ii. Disallowance of Rs.14,41,350/- on account of inconsistency observed in expenditure disallowed u/s. 14A as reported in the return and the Tax Audit Report (TAR). 3. Aggrieved the assessee file an appeal before the FAA. The assessee made various submissions with regard to the adjustment made by the CPC before the FAA. However, the FAA dismissed the appeal by holding that: Printed from counselvise.com 4 ITA No. 2099/Mum/2025 Mirae Asset Capital Markets (India) Pvt Ltd “7.Decision: I have carefully considered the facts on record, the assessment order, grounds of appeal, and written submissions of the appellant made during appellate proceeding. 7.1 Ground No. 1 to 3 The appellant submits that the CPC has erred in increasing the total income of the appellant to Rs.1,36,24,36,850/- and making an addition of Rs.5,21,93,081/- on account of ICDS. The appellant claims that the difference of Rs.5,21,93,081/- added to the declared income of the appellant represents the fair value loss i.e. market loss on securities held as stock in trade. The appellant further submits that the tax auditor has inadvertently reported this as disallowable loss as part of adjustment as per ICDS 1 and that the said loss is an allowable loss as per the provisions of ICDS VIII. In this regard, it is observed that the appellant has declared only Rs. 30,24,69,554/-under ICDS I in its ITR while the appellant has declared Rs. 35,46,62,635/- under ICDS I in the Tax audit report which is an apparent discrepancy and therefore the CPC is justified in making an addition of Rs. 5,21,93,081/- on account of ICDS. The appellant further claims that the difference of Rs.5.21,93,081/- added to the declared income of the appellant represents the fair value loss i.e market loss on securities held as stock in trade. However, the appellant has not declared the said loss in the ITR. Moreover, the appellant has also not placed anything on record to prove that the said amount is an allowable loss and allowable to the appellant. Therefore, in the absence of any supporting evidence to prove its point it cannot be presumed that the amount of Rs. 5,21,93,081/- is on account of market loss on securities and even if it is presumed that the difference of Rs. 5,21,93,081/- added to the declared income of the appellant represents the fair value loss i.e. market loss on securities held as stock in trade as claimed by the appellant, the same ought to have been declared by the appellant in its ITR. The appellant claimed that the Tax auditor has inadvertently reported this loss as disallowable loss as per the ICDS 1, however the appellant did not make any attempt to either revise the Tax audit report and bring on record some clarification from the Tax auditor to support its claim. Therefore, in view of the above discussions it is clear that this grounds of appeal does not hold ground and therefore the appeal on this ground is dismissed. 7.2 Ground No. 4 the appellant under this ground submits that the CPC has erred in disallowing Rs. 14,41,350/- under section 14A of the act while processing the ROI basis the reporting under clause 21h of TAR. Printed from counselvise.com 5 ITA No. 2099/Mum/2025 Mirae Asset Capital Markets (India) Pvt Ltd However, it is observed that the issue has been dealt with in the scrutiny assessment order u/s 143(3) dated 10.09.2022 wherein the AO has sustained the said disallowance of Rs. 14,41,350/- u/s 14A of the act r.w.r. 8D of the income tax rules, 1962. Since the issue under this ground of appeal is decided by way of order u/s 143(3) of the act dated 10.09.2022, this ground of appeal needs no further adjudication. The appeal is dismissed on this ground.” 4. The Ld. AR at the outset drew our attention to the breakup of the ICDS related adjustment as tabulated below: 5. The Ld. AR submitted that the difference of Rs. 5,21,93,081/- is arising out of the difference in the marked to market loss on securities held as stock in trade which is allowable under ICDS VIII whereas the tax auditor has inadvertently reported under ICDS I. The Ld. AR submitted that marked to market loss however, is an allowable loss and therefore, the addition arising out of inadvertent reporting is not sustainable. The Ld. AR also drew our attentions the gain of Rs. 6,22,34,815/- is arising out of marked to market gain on securities during the previous AY i.e. AY 2019-20 which is not reported in TAR since the same pertains to AY 2019-20 but the assessee still declared the said amount as taxable income in the ITR. Accordingly, the Ld. AR argued that, the adjustment made by the CPC has already been considered by the assessee in the return of income and the said Printed from counselvise.com 6 ITA No. 2099/Mum/2025 Mirae Asset Capital Markets (India) Pvt Ltd adjustment is resulting in excess income being brought to tax. The ld AR raised the legal contention that upward adjustment made without providing an opportunity of being heard as per first proviso to section 143(1)(a) of the Act is not sustainable. The ld AR further raised the legal contention that amendment to clause (iv) of section 143(1)(a) inserting the words \"increase in income\" introduced by Finance Act 2021 is prospective in nature and therefore the adjustment done in assessee's case by CPC for AY 2020-21 increasing the income based on TAR is not sustainable. On merits the ld AR submitted that the auditor has erroneously reported the loss as part of ICDS-I whereas the said loss is allowable as per ICDS- VIII. 6. With regard to the disallowance made u/s. 14A the Ld. AR submitted that the assessee is engaged in the business of investment banking and the securities are accordingly held as stock in trade. The Ld. AR further submitted that Section 14A is not applicable to when the investments are held as stock in trade by the assessee as has been held by the Hon'ble Delhi High Court in the case of PCIT vs M/s. PNB Housing FinanceLimited (2023) 146 taxmann.com 445 (Delhi) and in the case of MUFG Bank Limited vs ACIT (IT) (2021) 126 taxmann.com 304 (Delhi-Trib.) 7. The Ld. DR on the other hand, submitted that the adjustment made by the CPC is well within the purview of Section 143(1)(a) and accordingly supported the order of the lower authorities. 8. We heard the parties and perused the material on record. We notice from the perusal of TAR, that the tax auditor has reported increase in profit towards MTM loss & Depreciation at Rs.35,46,62,635/- (page 93 of paper book) since according Printed from counselvise.com 7 ITA No. 2099/Mum/2025 Mirae Asset Capital Markets (India) Pvt Ltd to the auditors the same is not an allowable deduction. We also notice from the perusal of Schedule ICDS in ROI (Page 60 of paper book) that the assessee has reported the adjustment against accounting policies i.e. MTM loss & Depreciation at Rs.30,24,69,554/- against which the CPC has made the impugned adjustment. The assessee in the said schedule has reported the MTM gain from securities other than those held as stock in trade separately at Rs.6,22,34,815/-. Schedule ICDS as per the ROI is extracted as under – 9. The above enumerated facts makes it clear that the addition made by the CPC is arising out of the difference between the disallowance as reported in the TAR and the actual amount of disallowance made by the assessee in the ROI. Though the difference is resulting in the increase in the income, the fact that is emanating from the records is that the same is arising out of the \"disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return\" as per clause (iv) of section 143(1)(a) of the Act. Printed from counselvise.com 8 ITA No. 2099/Mum/2025 Mirae Asset Capital Markets (India) Pvt Ltd Accordingly we are unable to agree with the contention of the assessee that adjustment made is an \"increase in income\" which could not have been made in the year under consideration since the insertion of the said words in clause (iv) to section 143(1)(a) is effective from AY 2021-22. 10. On merits with regard to the adjustment made towards ICDS the ld AR during the course hearing submitted the following table – 11. It is submitted that the MTM loss arising from the above two securities is an allowable deduction since the same is arising from the securities held for Trading. However from the perusal of the financial statements, we notice that the above two securities viz., Equity and ETF Securities and Debt Securities are classified under the head \"Investments held for Trading\" in the financial statements (page 156&157 of paper book). We further notice that in the ICDS schedule of ROI (as extracted herein above) the assessee has adjusted the loss against Accounting Policies while Printed from counselvise.com 9 ITA No. 2099/Mum/2025 Mirae Asset Capital Markets (India) Pvt Ltd disclosing the MTM gain from Securities held as other than stock in trade is disclosed separately. Accordingly in our view, the real nature of the MTM loss of the above two securities which as per the claim of the assessee is an allowable deduction needs to be factually examined. Therefore we are remitting the issue back to the AO with a direction to examine the facts by calling for relevant details from the assessee and allow the deduction in accordance with law. The assessee is directed to submit the details as may be called for and cooperate with assessment proceedings. It is ordered accordingly. 12. The assessee through Ground No.4 has raised the contention that the adjustment is made without providing opportunity of being heard. Considering that both the parties did not present any arguments in this regard during the course of hearing and in the light of our decision on the merits of the impugned issue, we are leaving the said ground open. 13. With regard to the disallowance under section 14A, we notice that the assessee is primarily engaged in the business of trading in listed securities and the income from trading is offered to tax. The breakup of dividend income earned by the assessee during the year under consideration is as listed below: Printed from counselvise.com 10 ITA No. 2099/Mum/2025 Mirae Asset Capital Markets (India) Pvt Ltd 14. The argument of the assessee is that the shares & securities from which the dividend income is earned are held by the assessee is stock in trade and therefore the provisions of section 14A are not applicable. Further it is brought to our attention that the shares & securities which yielded the dividend income for the year are sold during the year and are not part of the stock held as of 31.03,2020. Hence there is merit in the submission that the dividend income earned is from the shares and securities held as stock in trade. We in this regard notice that the issue of whether section 14A is applicable for the exempt income earned from assets held as stock in trade has been considered by the Hon'ble Delhi High Court in the case of PCIT vs PNB Housing Finance Ltd [(2023) 157 taxmann.com 465 (Delhi)] where it has been held as: “6. With respect to the challenge of the deletion of the disallowance made under section 144 of the Act this issue is no longer res integra, It is an admitted fact then the exempt income was earned try the assesses from the investment held by it as stock-in-trade. This issue has been conclusively determined by the Supreme Court in Maxopp Investment Lid v. CIT [2018] 91 taxmann com 154/254 Tam 325-482 ITR 640/2018) 15 SCC 523. In this matter, the Supreme Court was concerned with a batch of appeals which also included a challenge to the judgment of the Punjab and Haryana High Court P. CIT. Stan Bank of Patiala [2017] 78 taxmann.com 3/245 Taxman 273/391 ITR 218 and the facts of the said case are para materia to the cast in hand. In the case of State Bank of Patiala, (supra) the AO restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in rule -D and holding that section 14A of the Act would be applicable. The CIT(A) issued a notice of enhancement under section 251 of the Act and disallowed the entire expenditure claimed by the assessee therein instead of restricting the disallowance to the amount which was claimed as exempt income. The ITAT set aside the order of the AD as well as CITIA). The High Court upheld the order of the ITAT and dismissed the appeal filed by the Revenue. The Supreme Court after Printed from counselvise.com 11 ITA No. 2099/Mum/2025 Mirae Asset Capital Markets (India) Pvt Ltd deliberating on the object and purpose of section 144, conclusively held that in cases where shares are held by assessee as stock-in-trade, the dividend earned on the said shares is incidental and would not attract the provisions of section 144 of the Act. In this regard, the following paragraphs of the judgment are apposite:- \"49. We note from the facts in State Bank of Patiala case that the AO, while passing the assessment order. had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in rule 8-D of the Rules and holding that section 14-A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AD, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. 50. It is to be kept in mind that in those cases where shares are held as \"stock-in- trade\", in becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quick of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove.” 15. Ld. AR further relied on the decision of the coordinate bench in the case of MUFG Bank Limited vs ACIT (IT) (2021) 126 taxmann.com 304 (Delhi- Trib.)where it has been held as: “19. We have carefully considered the rival contention and perused the orders of the lower authorities. In the present case the assessee has earned and tax free income of interest of Rs. 1 37,002,619/- which is claimed is an exempt income u/s 10 [35A] of the Act. The assessee has not disallowed any sum u/s 14 A of the act. The learned assessing officer has computed the disallowance of Rs. 22,521,366/ The learned AO did not Printed from counselvise.com 12 ITA No. 2099/Mum/2025 Mirae Asset Capital Markets (India) Pvt Ltd disallow any interest expenditure income which is directly relating to the investment in the passthrough certificates. However, he imputed the proposed disallowance of indirect interest expenditure of Rs. 197,40,048/-, He further disallowed 0.5% of the average value of investment as administrative expenditure. Thus the total disallowance was computed at Rs. 22,521,366/-. The assessee has raised the first issue that it is treated the passthrough certificates as its stock in trade in case of a bank, provisions of section 14 a cannot be applied and no disallowance of expenditure can be made. The Hon’ble Supreme Court in Maxopp Investment Lid v. CIT [2018] 91 taxmann.com 154/254 Taxman 325/402 ITR 640 in paragraph number 40 has held that when a bank is holding securities as stock in trade it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is on door not becomes immaterial. In fact, it would be at work of fate that when the investee company declared dividend, though shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to on profits. In the present case the assessee is holding this pass through is certificates which are exempt under the provisions of Section 10 (35A) of the act. The distribution of income by the trust which is claimed as exempt by the assessee is also a quirk of the fact. The assessee has constantly arguing that it is holding those pass through certificates as its stock in trade and profit on and from them are offered as a business income. In view of this we do not find any difference if the income is received as a dividend u/s 10 (34) or is distributed by a securitization trust which is also exempt u/s 10 (35A) of the act. In view of this, we are of the view that if these pass through certificates are held as stock in trade by the assessee and distribution of income is also exempt in the hands of the assessee, it is also on the same footing as in case of other banks which are receiving the dividend from securities held as stock in trade. Therefore, we hold that in this case, provisions of section 14A does not apply. Hence no disallowance is called for under that Section Accordingly, made by the learned assessing officer u/s 14A of the income tax act of Rs. 22,521,366/- is unwarranted. Further, as the assessee is granted relief on the first argument that section 14A is not applicable in case of bank when the investments are held as stock in trade, other arguments raised are merely academic. Accordingly ground number [3] of the appeal of the assessee is allowed.” 16. As already stated, the facts in the present case supports the claim that the exempt earning assets in assessee's case are held as stock in trade and therefore in our considered view the ratio laid down in the above judicial precedence is applicable to assessee's case. Further the fact that the assessee suo-motu has made disallowance under section 14A cannot be a hindrance to the allowing the claim of the assessee since the legal position as held in the above decisions support the claim of the assessee that the provisions of section 14A is not applicable to its case. Printed from counselvise.com 13 ITA No. 2099/Mum/2025 Mirae Asset Capital Markets (India) Pvt Ltd Accordingly we direct the AO to delete the disallowance made under section 14A of the Act. 17. Ground No.1 is general and Ground No.8 is consequential. Hence these grounds do not warrant any separate adjudication. 18. In result the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 04-11-2025. Sd/- Sd/- (AMIT SHUKLA) (PADMAVATHY S) Judicial Member Accountant Member Divya R. Nandgaonkar Stenographer Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "