DCIT-7(2)(2), MUMBAI vs. M/S MOTILAL OSWAL SECURITIES LTD (NOW MERGED WITH MOTILAL OSWAL FINANCIAL SERVICES LTD), MUMBAI

The present appeal has been preferred by the revenue and cross objection by the assessee against the order dated 26.04.2019 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2016-17. (Revenue’s appeal)

The grounds raised by the revenue are as under: “1) On the facts and circumstances of the case and in law whether the Ld. CIT(A) erred in holding that the VSAT is a part of computer and hence eligible for depreciation @60% without appreciating the fact that VSAT is essentially a part of wireless communication system through satellite which is exclusive from the computer system^ and eligible for depreciation @ 25%. 2) On the facts and in the circumstances of the case and in law whether the Ld. CIT(A) erred in deleting the addition amounting to Rs.1,38,99,330/- without appreciating the fact that the AO has rightly treated the Vanda loss as speculation loss as per section 73 of the Act." 3) "The appellant craves leave to amend or alter any ground or add a new ground which may be necessary."

In the ground No.1, the revenue has challenged the order of Ld. CIT(A) wherein the Ld. CIT(A) has held that VSAT is part of computer and directed the AO to allow the allow depreciation @ 60%.

The facts in brief are that AO observed during the course of assessment proceedings that assessee has claimed depreciation on VSAT @ 60%. According to the AO the VSAT is not a part of computer system but a wireless communication system and as such eligible for depreciation @ 25%. The AO issued show

In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee by following the order of the Tribunal for A.Y. 2001-02 to 2011-12 in assessee’s own case wherein it has been held that VSAT is liable for a depreciation of 60%. Aggrieved by the order of Ld. CIT(A) the Revenue is in appeal before us.

After hearing both the parties and perusing the material on record, we find that Ld. CIT(A) has rightly passed the order after following the decision of the co-ordinate Bench of the Tribunal in assessee’s own case in A.Y. 2001-02 to 2011-12 and ors. allowed the appeal of the assessee. We therefore, do not find any infirmity in the order of Ld. CIT(A) and accordingly ground No.1 raised by the Revenue is dismissed.

The issue raised in ground No.2 is against the order of Ld. CIT(A) deleting the addition of Rs.1,38,99,330/- as made by the 4 & CO No.73/M/2011 M/s. Motilal Oswal Securities Ltd. (Now merged with Motilal Oswal Financial Services Ltd.) AO by treating the Vanda loss as speculation loss as per section 73 of the Act.

The facts in brief are that the assessee has incurred a net loss of Rs.1,38,99,330/- which comprised of loss in retail segment amounting to Rs.54,08,660/- and loss incurred in incidental segment amounting to Rs.84,90,670/-. Accordingly, the AO issued a show cause notice to the assessee as to why the said loss should not be disallowed which was replied by the assessee vide letter dated 05.12.2018 by submitting that the said loss was incurred in the ordinary course of business when the clients disowned the transactions undertaken by the brokers. The assessee submitted that this happens only whenever a trade error occurred in executing the orders by the brokers or the clients may fail to satisfy its contractual obligation. The assessee submitted that since the assessee is a broker and is primarily responsible for trade undertaken on behalf of its clients as it has to compulsorily meet and satisfy those obligations within the permissible time prescribed by the SEBI. The assessee submitted that obligations which are resulting from these activities are transferred to Vanda/Error trade account resulting into this type of profit/loss. It was submitted before the AO that explanation to section 73 of the Act does not apply to these losses. However, the AO was not satisfied with the reply of the assessee and invoked the explanation to section 73 of the Act by treating the same as speculation loss.

In the appellate proceedings Ld. CIT(A) allowed the appeal of the assessee by following the decision of the co-ordinate Bench of the Tribunal in assessee’s own case from A.Y. 2007-08 to 2011-12 and directed the AO to delete the disallowance made on account of vanda loss. Aggrieved, Revenue is in appeal before us.

After hearing both the parties and perusing the material on record, we find that the issue is squarely covered by the decision of the co-ordinate Bench of the Tribunal in assessee’s own case from A.Y. 2007-08 to 2011-12 which has been followed by the Ld. CIT(A) while allowing the appeal of the assessee. Consequently, we do not find any mistake or infirmity in the order of Ld. CIT(A) and therefore the ground No.2 raised by the Revenue is dismissed.

At the outset, we observe that the cross objection is filed late by 181 days and accordingly the Ld. Counsel of the assessee was put to a query to this effect to explain the said delay. The 6 & CO No.73/M/2011 M/s. Motilal Oswal Securities Ltd. (Now merged with Motilal Oswal Financial Services Ltd.) Ld. Counsel of the assessee submitted that this delay is attributed to the Covid 19 pandemic. The Ld. A.R. also referred to the Hon’ble Supreme Court decision in suo-moto writ petition Civil No.3 of 2020 wherein vide order dated 23.03.2020, the Honble Court has extended the period of limitation w.e.f. 15th March, 2020 till further order to be passed by the this Court in present proceedings. The ld Counsel of the assesse further submitted that Hon’ble Supreme Court has held that order dated 23.03.2021has served its purpose and shall be brought to an end on 14.03.2021 meaning hereby that extended period of limitation shall apply only from 15.03.2020 till 14.03.2021. the ld Counsel stated that upon steep rise in COVID cases across the country, the Hon’ble Apex Court (in Miscellaneous Application No.665/2021 in SMW(C) No.3/2020, vide order dated 27.04.2021 restored the order dated 08.03.2021 and in continuation of order 08.03.2021 the period of limitation as prescribed under any general or special laws in respect of all judicial or quasi judicial proceedings, whether condonable or not, shall stand extended till further order. The ld counsel submitted that the period from 15.03.2020 till further order is to be excluded from the period of delay. In view of this the period from 3.12.2020 which the date of receipt of revenue appeal to 02.7.2021 the date of filing cross objection has to be excluded while calculating the period of delay in filing the cross objection and hence there is no delay in filing cross objection by the 7 & CO No.73/M/2011 M/s. Motilal Oswal Securities Ltd. (Now merged with Motilal Oswal Financial Services Ltd.) assesse. The ld DR on the other hand left the issue to be decided to the wisdom of the bench.

Having heard both the sides, we find that in terms of the orders of Hon’ble Apex Court the period of 181 days from 3.12.2020 to 2.7.2021 is to be excluded in order to calculate the period of limitation under the Act. Accordingly we hold that there is no delay in filing cross objection by the assesse.

The assesse has the following ground in respect of education cess in the cross objection which is reproduced as under: “On the facts and circumstances of the case and in law , ld CIT(A) ought to have held that education cess and higher and secondary of Rs. 46,82,738 paid by the assesse is allowable as deduction while computing the business income of the assesse.”

In the cross objection, the appellant has raised an additional claim of expenditure on account of education cess, higher and secondary cess paid of Rs.46,82,738/- on the total income which was not claimed in the return of income and was being claimed for the 1st time before the Tribunal by way of this ground of cross objection. As regards admission of issue raised by way of cross objections, the ld AR submitted that the same is a purely a legal issue and all the facts are available on records and no new facts are to be brought on record for adjudicating the present issue. In view of the above, the ld AR prayed that the ground in cross may kindly be admitted. In defense of his arguments the ld AR relied on the following decisions:

Per contra the ld DR strongly opposed the additional ground on the plea that the issue was neither raised before the AO nor before the ld CIT(A) and is being raised for the first time before the tribunal. The ld DR therefore prayed that the same may kindly be dismissed. The ld DR alternative prayed that 9 & CO No.73/M/2011 M/s. Motilal Oswal Securities Ltd. (Now merged with Motilal Oswal Financial Services Ltd.) without prejudice to the first contention, the issue may be restored to the file of the AO to take a decision after verification of facts.

We have heard the ld. authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, and have also considered the judicial pronouncements that have been relied upon by them in context of the issue in hand. Undisputedly the issue of claim of education cess was claimed for the first time before us. The issue being purely legal and also covered by the jurisdictional high court in favour of the assesse. In our opinion all the facts qua this issue are available on records and no new facts or independent verification of facts are required. Moreover the assessee can raise the legal issue at any appellate stage even if not raised before the authorities below. Besides the issue is squarely covered by the decisions of the Apex Court as well as Jurisdictional High Court. Therefore we are inclined to admit the same for adjudication.

In so far the claim of the Ld. A.R that unlike “rates” and “taxes” the amount paid by an assessee towards “Education Cess” or any other “cess” viz. the Secondary and Higher Education Cess is not a disallowable expenditure u/s 40(a)(ii) of the Income-tax Act, 1961, we find, that the said issue is squarely covered by the recent order of the Hon’ble High Court of Bombay in the case of Sesa Goa Limited vs. Joint

In the result, the appeal of the Revenue is dismissed and the cross objection of the assessee is allowed for statistical purposes.