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Income Tax Appellate Tribunal, “F”, BENCH
Before: SHRI MAHAVIR SINGH, JM & SHRI M.BALAGANESH, AM
आदेश / O R D E R PER M. BALAGANESH (A.M): (A.Y.2013-14)
This appeal in A.Y.2013-14 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-8, Mumbai in appeal No.CIT(A)-8/IT-170/16-17 dated 04/09/2017 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 18/03/2016 by the ld. DCIT Circle 3(2)(1), Mumbai (hereinafter referred to as ld. AO).
The ground No.1 raised by the revenue is with regard to the action of the ld. CIT(A) deleting the disallowance of Rs.58,62,087/- made u/s.14A of the Act read with rule 8D of the rules.
The brief facts of this issue are that the assessee is engaged in the business of investment banking and financial advisory services. The ld. AO from the perusal of the computation of the income of the assessee observed that it had claimed exempt income in the form of dividend of Rs.10,69,40,939/- and long term capital gains duly suffered with security transaction tax to the tune of Rs.6,40,32,042/-. The ld. AO further observed that assessee had shown investment in equity shares and mutual funds in its balance sheet to the tune of Rs.208,00,50,000/-. The assessee made suomoto disallowance u/s.14A of the Act in the return of income in the sum of Rs.29,72,128/-. The said disallowance was worked out by the assessee by considering the total compensation cost of CO No.04/Mum/2019 M/s. J.M. Financial Institutional Securities Ltd.
Rs.17,91,760/- and overall cost of Rs.11,80,367/-. The ld. AO resorted to make disallowance u/s.14A of the Act read with Rule 8D of the rules by applying the second and third limb thereon and worked out the disallowance figure of Rs.58,62,087/- after reducing the disallowance already made by the assessee in the return of income. The ld. CIT(A) by placing reliance on the Co-ordinate Bench decision of this Tribunal in assessee’s own case for A.Yrs. 2008-09, 2009-10, 2010-11 and 2011-12 in 1863/Mum/2013, 7073 & 7074/Mum/2014 respectively, deleted the disallowance made u/s.14A of the Act.
Aggrieved, the revenue is in appeal before us.
We have heard rival submissions. We find that the issue in dispute has already been decided in favour of the assessee by the order of this Tribunal stated supra and also by the decision of Hon’ble Jurisdictional High Court in assessee’s own case in dated 29/01/2019. We find that the ld CITA had also relied on the said order of this tribunal in assessee’s own case, one of which had also been approved by the Hon’ble High Court. Hence we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee. Accordingly, ground No.1 raised by the revenue is dismissed.
Ground No.2 raised by the revenue is with regard to the action of the ld. CIT(A) directing the ld. AO to delete the disallowance of Rs.56,48,000/- made on account of mark to market losses.
6.1. We have heard rival submissions and perused the material available on record. We find that the brief facts of this issue are that the assessee
CO No.04/Mum/2019 M/s. J.M. Financial Institutional Securities Ltd. had acted as a Lead Manager to the public issue of certain listed companies. One of the activities of the assessee company is to act as underwriter for the public issue wherein the assessee had undertaken to subscribe to the unsubscribed shares in the public issue, the consideration for which was derived by the assessee in the form of underwriting commission. Pursuant to such underwriting contract, the assessee had acquired 693700 shares of Axis IT & T Ltd. during the F.Y.2003-04 relevant to the A.Y.2004-05. These shares were held by the assessee as stock in trade in its books of accounts and have been shown consistently as such from A.Y.2004-05 onwards till A.Y.2015-16 which is evident from the tabulation filed by the ld. Counsel for the assessee before us. The assessee has been valuing these shares at the lower cost or market price every year and had earned notional gain or incurred notional loss, as the case may be, thereon. The details of gains or losses arising on account of restatement of value of shares as at the end of each year commencing from A.Y.2004-05 are tabulated as under:-
CO No.04/Mum/2019 M/s. J.M. Financial Institutional Securities Ltd.
6.2. We find that the ld. AO had observed that since these shares were acquired by the assessee only pursuant to underwriting to the public issue which is fulfilment of its commercial or legal obligation, the shares so purchased cannot partake the character of stock in trade and accordingly any valuation difference at the end of each year cannot be allowed as a deduction. This was further reiterated by the ld DR before us. We are unable to persuade ourselves to accept these arguments of the ld. DR. It is not relevant as to whether the assessee had made investment in shares pursuant to underwriting contract or otherwise. The circumstances under which the shares were purchased are not relevant to decide the character of the transaction. We find from the treatment given by the assessee in its books of accounts with regard to the said acquisition of shares of Axis
CO No.04/Mum/2019 M/s. J.M. Financial Institutional Securities Ltd.
IT&T Ltd., right from the time of purchase i.e., in A.Y.2004-05, the same was held as stock in trade by the assessee. This fact has been accepted by the revenue in the past. Once the shares are held as stock in trade, obviously the shares at the end of each year had to be valued at lower cost or market price as on 31st March. From the aforesaid table, it could be seen that assessee had also made gains pursuant to such revaluation in certain years which had been offered to tax by the assessee and which had also been taxed by the revenue. There is no dispute in this regard. We find that the ld. AO had tried to dispute the behaviour of the assessee only in the year in which the assessee had incurred losses and claimed as deduction, which in our considered view, is not sustainable in the eyes of law. These facts had been rightly appreciated by the ld. CIT(A) and accordingly, we hold that the ld. CIT(A) was correct in deleting the disallowance of Rs.56,48,000/- made on account of mark to market loss in the facts and circumstances of the case. Accordingly, ground No.2 raised by the revenue is dismissed.
The Ground No.3 raised by the revenue is with regard to the action of the ld. CIT(A) deleting the disallowance made u/s.14A while computing the book profit u/s.115JB of the Act.
7.1. We have heard rival submissions. We find that we have already held in ground No.1 hereinabove that no disallowance u/s.14A of the Act read with rule 8D of the rules in the sum of Rs.58,62,087/- need to be made in the facts and circumstances of the case under normal provisions of the Act. Accordingly, no disallowance could be made while computing book profits u/s.115JB of the Act also in the light of the Special Bench decision of Delhi Tribunal in the case of ACIT vs. Vireet Investments
CO No.04/Mum/2019 M/s. J.M. Financial Institutional Securities Ltd. reported in 165 ITD 27. Accordingly, the ground No.3 raised by the revenue is dismissed. 8. The ground No.4 & 5 raised by the revenue are general in nature and does not require any specific adjudication.
CO No.04/Mum/2019 (A.Y.2013-14)
The Cross objection preferred by the assessee is with regard to consideration of net interest paid (i.e. after reducing the interest income earned) for the purpose of computing disallowance under second limb of rule 8D(2) of the rules. In view of our decision rendered in ground No.1 of revenue hereinabove, the adjudication of this ground in cross objections of the assessee becomes academic in nature. Accordingly, the cross objections of the assessee are allowed.
In the result, appeal of the revenue is dismissed and cross objection is allowed.
Order pronounced in the open court on this 26/07/2019