Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: Shri G Manjunatha & Shri Ravish Sood
O R D E R Per G Manjunatha, AM : These cross appeals filed by the assessee as well as the revenue are directed against the order of the CIT(A)-51, Mumbai dated 08-09-2017 for the 2 Motilal Oswal Securities Pvt Ltd assessment year 2013-14. Since facts are identical and issues are common, for the sake of convenience, both the appeals were heard together and are disposed of by this consolidated order.
The assessee has raised the following grounds f appeal
“Being aggrieved by the order of the Hon'ble Commissioner of Income Tax (Appeals) - 51, Mumbai, this appeal petition is submitted on the following grounds which it is prayed may be considered independently without prejudice to one another:
1. Disallowance under section 14A 1.01) On the facts and circumstances of the case and in law, the learned CIT(A) erred in not perusing the submissions of the Appellant made before him proving that the facts of the AY 2012-13 were similar to the AY 2008-09 to AY 2011-12 and therefore, erred in not following the Hon'ble Mumbai ITATs ruling in case of the Appellant for the AY 2008- 09 to AY 2010-11 (ITA No.7463/Mum/2011 & and for AY 2011-12 (ITA No.633/Mum/2015) wherein it is held that the computation of disallowance suo motu made by the Appellant under section 14A is to be accepted subject to verification by the learned Assessing Officer. Thus, disallowance under section 14A read with Rule 8D without having regard to the Hon'ble Mumbai ITAT in Appellant's own case is bad in law and needs to be deleted. 1.02) Without prejudice to the above, on the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the resort made by the learned Assessing Officer to Rule 8D(l)(b) without providing any cogent reasons for not accepting the disallowance of Rs 27,64,666 already made by the appellant as reasonable. Thus enhancing disallowance under section 14A by resorting to the computational machinery of Rule 8D(2) is bad-in-law and needs to be deleted. 1.03) Without prejudice to the above, on the facts and circumstances of the case and in law, the learned CIT(A) erred in not appreciating that investments made in subsidiaries / group companies ought to be excluded for working out any disallowance u/ 14A as these investments are not made for the purpose of earning any dividend income but for obtaining controlling stake. Thus, disallowance under section 14A read with Rule 8D made by considering investments in subsidiaries and group
3 Motilal Oswal Securities Pvt Ltd companies which are acquired / disposed during the year, being bad in law, needs to be deleted.”
The brief facts of the case are that the assessee company is a member of both, NSE & BSE. Its main business is of stock broking. It also provides portfolio management service and acts as depository participant as part of its business. The assessee has filed its return of income for AY 2013-14 on 29-11- 2013 declaring total income at Rs.78,63,80,470. The case was selected for scrutiny and the assessment has been completed u/s 143(3) of the I.T. Act, 1961 on 23-03-2016 determining the total income at Rs.87,60,38,530 by making various additions / disallowance including disallowance of depreciation on VSAT, disallowance of expenditure incurred in relation to exempt income u/s 14A r.w.r.8D, disallowance of vanda loss u/s 73 of the I.T. Act, 1961 and addition towards mark to market loss.
The assessee carried the matter in appeal before the first appellate authority against the order of the AO. The Ld.CIT(A), for the detailed reasons recorded in his appellate order, partly allowed appeal filed by the assessee wherein he has deleted additions made by the AO towards excess depreciation on VSAT, addition made by the AO towards vanda loss, addition made by the AO towards mark to market loss by relying upon decision of Supreme Court in the case of CIT vs Woodward Governor India Ltd 312 ITR 254 (SC). But, allowed
4 Motilal Oswal Securities Pvt Ltd partial relief in respect of disallowance of expenditure incurred in relation to exempt income determined by the AO by applying the principles provided u/r 8D of I.T. Rules, 1962. Aggrieved by the order of Ld.CIT(A), the assessee as well as the revenue are in appeal before us.
The first issue that came up for our consideration from assessee’s appeal is disallowance of expenditure incurred in relation to exempt income. The AO has determined disallowance of expenditure incurred in relation to exempt income on the ground that suo moto disallowance made by the assessee towards expenditure was not commensurate with the amount of dividend income earned for the year. Therefore, he applied provisions provided u/r 8D and determined disallowance of Rs.1,53,89,405. Further, after reducing the amount of suo moto disallowance made by the assessee determined additional disallowance of Rs.1,21,36,397.
The Ld.AR for the assessee submitted that the issue is squarely covered in favour of the assessee by the decision of ITAT, Mumbai Bench “D” in assessee’s own case for AY 2012-13 order dated 28-12-2017, where under identical set of facts, the issue has been set aside to the file of the AO for determining the amount of disallowance in light of decision of ITAT, in assessee’s group case, viz. M/s Stock Holding Corporation of India Ltd in ITA No.5348/Mum/2012. On the other hand, the Ld.DR fairly accepted that the 5 Motilal Oswal Securities Pvt Ltd issue is covered in favour of the assessee by the decision of ITAT, Mumbai Bench “D” in assessee’s own case for earlier assessment year; but, fact remains that the department has not accepted the decision of ITAT and preferred further appeal before the Hon’ble Bombay High Court. Therefore, the issue may be decided in accordance with the provisions of section 14A r.w.r.8D of I.T. Rules, 1962.
We have heard both the parties, perused the materials available on record and gone through the orders of authorities below. The issue of disallowance contemplated u/s 14A r.w.r.8D was subject matter of deliberation by the ITAT in assessee’s own case for earlier assessment year.
We find that the ITAT has restored the issue back to the file of the AO to recompute disallowance contemplated u/s 14A of the Act, by considering the suo moto disallowance made by the assessee in its return of income in light of the decision in assessee’s group concern, M/s Stock Holding Corporation of India Ltd in ITA No.5348/Mum/2012. The relevant observations of the Tribunal are as under:-
“5.1 We have considered rival contentions and found that assessee is in the business of stock broking having taxable brokerage of income. Most of the expenses were incurred for the purpose of business and the expenditure incurred for investment in shares was suo motu offered for disallowance. So far as disallowance of interest is concerned, we found that interest income earned by the assessee was more than the interest expenditure and since the interest income is positive no interest disallowance can be made. For this purpose reliance can be placed on the decision in the case of Trade Apartments, ITA) No.1277/Kol/2011, order dated 30-3-2012 and Morgan Stanley India Securities^ dated 13-4-2011. Respectfully following the propositior
6 Motilal Oswal Securities Pvt Ltd of law laid down in these cases, we direct the AO to delete the disallowance of interest.
6. With regard to disallowance of other expenditure Id. AR placed on record an order of Tribunal in the case of group concern i.e. M/s Stock Holding Corporation of India Ltd., for assessment year 2009-2010. , wherein it has been held that before applying provisions of Rule 8D, the AO was duty bound to record his dissatisfaction that the working of disallowance made by the assessee u/s.14A of the Act was incorrect. It was also brought to our notice that in the case of sister concern of the assessee similar working was accepted by the AO for A.Y.2009-10 to 2011-12. It was submitted by Id. AR that for A.Y,2008-09, in the case of sister concern of the assessee, the AO had calculated disallowance u/s.14A of the Act in accordance with Rule 8D which was challenged before the Tribunal. The Tribunal accepted the contention of assessee and sent the matter back to the file of AO to recompute the disallowance u/s.14A of the Act in accordance with the method adopted by the assessee. The AO in the set aside proceedings accepted the working of the assessee for calculating disallowance U/S.14A of the Act. In view of the same, it was submitted that the similar working of the assessee for calculating disallowance u/s.14A of the Act may kindly be accepted. 6.1 We have considered rival contentions and gone through the order of the Tribunal as discussed above. In the interest of justice, with regard to disallowance of other expenses, matter is restored to the file of AO for deciding afresh in terms of direction given by the Tribunal in the above case. We direct accordingly.”
Facts remain unchanged. The revenue fails to bring on record further evidence to controvert the finding of facts recorded by the Tribunal for the earlier assessment year. Therefore, considering the facts and circumstances of this case and also being consistent with the view taken by the co-ordinate bench in assessee’s own case, we restore the issue back to the file of the AO to decide the issue in accordance with the findings of the Tribunal in the case of M/s Stock Holding Corporation of India Ltd in for AY 2009-10. Accordingly, ground raised by the assessee is treated as partly allowed.
7 Motilal Oswal Securities Pvt Ltd
9. As a result, appeal filed by the assessee is allowed, for statistical purpose.
ITA No.7038/Mum/2017 (Revenue’s appeal)
The revenue, in its appeal, has raised the following grounds of appeal:-
“1. "Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) was justified in holding that VSAT is a part of computer and eligible for depreciation @ 60% without appreciating the fact that VSAT is essentially a part of wireless communication system through satellite which is distinct from the computer systems and therefore eligible for depreciation @ 25% only?" 2. "Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) was justified in directing the AO to allow Vanda Loss, without appreciating the fact that the said loss is speculative in nature as per section 73 of the Income Tax Act, 1961 ?" 3. "On the facts and in the circumstances of the case and in Law, whether the Ld, CIT(A) was justified in holding that disallowance u/s 8D(2)(iii) is to be determined by the AO only for the other indirect administrative expenses other than interest and by only including those investments where there are acquisitions/ disposal during the year and those investments which have yielded dividend income?" 4. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was correct in giving relief to the assessee on point of Mark to Market loss relying on decision of Supreme Court in the case of CIT vs Woodward Governor India Ltd. 312 ITR 254 without appreciating that facts of the case is different and the issue in present case is of future contract and loss arisen is of nature of notional loss on account of fluctuation in foreign exchange, hence not allowed".”
The first issue that came up for our consideration from revenue’s appeal is disallowance of depreciation on VSAT charges. The AO has disallowed excess depreciation on VSAT charges on the ground that the assessee has claimed excess depreciation @60% as against 25% allowable under the Act in respect of VSAT charges on the ground that VSAT is essentially a part of wireless communication system through satellite which is distinct from the computer system and, therefore, eligible for depreciation @25% only.
8 Motilal Oswal Securities Pvt Ltd
We have heard both the parties and perused the materials available on record. We find that this issue is covered in favour of the assessee by the decision of ITAT, Mumbai Bench “D” in assessee’s own case for AY 2012-13 in that depreciation @60% is allowable on VSAT charges. The relevant observations of the Tribunal are as under:-
Ground No. 3 relates to allowing 60% depreciation instead of 25% allowed by Assessing Officer. We have noted that this ground of appeal
also covered by the decision of Tribunal in assessee's own case for A.Y. 2007-08 and the decision of Tribunal in A.Y. 2009-10. We have noted that the Tribunal in assessee's own case for A.Y. 2009-10 by following the decision of Tribunal for A.Y. 2007-08 passed the following order:
8. With regard to deleting disallowance of depreciation on VSAT, we found that the assessee company had claimed depreciation of Rs.1,04,41,922/- on VSAT(Very Small Aperture Terminal) @ 60% of WDV considering the same as part computer. By following earlier assessment order, the AO declined assessee's claim of depreciation. The CIT(A) also following his earlier order for assessment year 2007- 08, deleted the disallowance, against which the revenue is in appeal before us. 8.1 We have considered rival contentions and found that the issue is covered in favour of the assessee by the order of Tribunal in assessee's own case for: i) A.Ys.2001-02 to 2004-05 being to 6741/Mum/2001; ii) AY.2005-06 being ITA No.4606/Mum/2008; iii) A.Y.2006-07 being ITA No.6371/Mum/2008; and iv)A.Y.2007-08 being ITA No.l68/Mum/2011. As the facts and circumstances during the year under consideration are same, respectfully following the order of the Tribunal, as stated above, we confirm the action of CIT(A) for deleting the disallowance of depreciation on VSAT." 10.Considering the decision of co-ordinate bench of Tribunal and respectfully following the same, we uphold the order of Id. CIT(A) for deleting the disallowance of bad debt. In the result, ground no.3 of the appeal is dismissed.”
13. In this view of the matter and consistent with view taken by the co- ordinate bench, we are of the considered view that there is no error in the findings recorded by the Ld.CIT(A) in deleting disallowance of depreciation on 9 Motilal Oswal Securities Pvt Ltd VSAT by the AO; hence, we are inclined to uphold the findings of Ld.CIT(A) and reject ground taken by the revenue.
14. The next issue that came up for our consideration is disallowance of vanda loss. The AO has disallowed vanda loss on the ground that it is in the nature of speculative loss, therefore, cannot be allowed as business loss.
According to the AO, section 73 does not make any distinction between losses incurred in purchase and sale in own account or any other type of transaction.
Explanation to section 73 specifically exclude certain types of companies from its ambit and assessee does not belong to the category of such exceptions.
The loss has arisen out of transaction of shares of a company, i.e. the assessee.
Whether it is of error or not; whether it is in the name of the assessee or not, for the technical reasons, the undisputable fact is that the loss claimed by the assessee is on account of share transaction. Therefore, such loss is coming within the provisions of Explanation to section 73 of Income-tax Act, 1961.
We have heard both the parties and perused material available on record. The Ld.AR for the assessee submitted that this issue is also covered in favour of the assessee by the decision of ITAT, Mumbai Bench “D” in assessee’s own case for AY 2012-13. We find that the co-ordinate bench has considered similar issue for AY 2012-13 and by following its earlier order for AY 2009-10
10 Motilal Oswal Securities Pvt Ltd deleted addition made by the AO towards disallowance of vanda loss. The relevant observations of the Tribunal are as under:-
“11. Ground No.4 relates to deleting the addition on account of Vanda. We have noted that this ground of appeal is also covered by the decision of Tribunal in assessee's own case for A.Y. 2007-08 and the decision of Tribunal in A.Y. 2009-10. We have noted that the Tribunal in assessee's own case for A.Y. 2009-10 by following the decision of Tribunal for A.Y. 2007-08 passed the following order: "9. The revenue is also aggrieved for deleting disallowance of Vanda loss. The assessee incurred net loss on account of Vanda transactions of Rs.82,68,912/-. The assessee claimed the said loss as normal business loss u/s.28/37(l) of the I.T.Act. The AO was uf the view llml the said loss is speculative in nature as per Explanation to Section 73 of the Act as the loss arising from the transactions were carried on by assessee himself for its own purpose, 9.1 We have considered rival contentions and found that the issue is covered in favour of assessee vide order of the Tribunal in assessee's own case for A.Y.2007- 08 in dated 21.1.2015. The issue is also covered in favour of the assessee vide order of the Tribunal in the following cases :- i) Parkar Securities Ltd., 102 TTI 235 (Ahd); and ii) Rajvi Securities (P) Ltd., 50 SOT 592. As the facts and circumstances during the year under consideration are same, respectfully following the order of the Tribunal, we confirm the order of CIT(A) for deleting disallowance on Vanda loss."
12. Considering the decision of co-ordinate bench of Tribunal and respectfully following the same, we uphold the order of Id. CIT(A) for deleting the disallowance of Vanda Loss. In the result, ground no.4 of the appeal is dismissed.”
16. In this view of the matter and being consistent with the view taken by the co-ordinate bench, we are of the considered view that there is no error in the findings of Ld.CIT(A) in deleting disallowance of vanda loss. Therefore, we are inclined to uphold the findings of Ld.CIT(A) and reject ground taken by the revenue.
17. The next issue that came up for our consideration from revenue’s appeal is disallowance of expenditure incurred in relation to exempt income. The 11 Motilal Oswal Securities Pvt Ltd revenue has challenged the findings of Ld.CIT(A) in excluding those investments where there are acquisitions / disposals during the year and those investments which have yielded dividend income. A similar issue has been considered by us while deciding assessee’s appeal in where the issue has been set aside to the file of the AO to decide the disallowance contemplated u/s 14A in light of directions of the Tribunal in assessee’s group concern, M/s Stock Holding Corporation of India Ltd in ITA No.5348/Mum/2012. Therefore, the ground taken by revenue is covered by our finding in assessee’s appeal for the same assessment year and hence, the issue is remitted back to the file of the AO with similar directions to determine the disallowance in accordance with our findings given in assessee’s appeal, hereinabove.
18. The next issue that came up for our consideration is disallowance of mark to market loss. The AO has disallowed mark to market loss on the ground that said loss is a notional loss which cannot be allowed. The Ld.AR for the assessee submitted that this issue is also covered in favour of the assessee by the decision of ITAT, Mumbai Bench “J” in assessee’s own case for AY 2011- 12 in where under identical set of facts, the Tribunal, by following its earlier order and also the decision of Hon’ble Supreme Court in 12 Motilal Oswal Securities Pvt Ltd the case of CIT vs Woodward Governor India Pvt Ltd (supra) held that mark to market loss is allowable deduction.
Having heard both the sides and considered material on record, we find that this issue was also subject matter of deliberation by the ITAT, Mumbai Bench “J” in assessee’s own case for AY 2011-12 in ITA No.378/Mum/2015.
The Tribunal, after considering relevant facts and also by following decision of Hon’ble Supreme Court in the case of CIT vs Woodward Governor India Pvt Ltd (supra) deleted addition made by the AO towards disallowance of mark to market loss. The relevant observations of the Tribunal are as under:-
15. We have considered rival contentions. From the order of the lower authorities we found that CIT(A) has relied upon his order for A.Y.2009- 10 to A.Y.2010-11. The issue is covered in favour of assessee vide orders of the Hon'ble Tribunal in assessee's own case for A.Y.2009-10 and 2010-11 as well as the decision of the Hon'ble Supreme Court in the case of CIT v. Woodward Governor 312 ITR 254. Respectfully following the order of the Hon’ble Supreme Court in case of Woodward Governor, we do not find any reason to interfere in the order of CIT(A) for deleting the loss claimed under the head ‘Mark to Market loss’. 20. In this view of the matter and consistent with the view taken by the co- ordinate bench, we are of the considered view that there is no error in the findings of the Ld.CIT(A) in deleting addition made by the AO towards mark to market loss; hence, we are inclined to uphold the findings of Ld.CIT(A) and reject ground taken by the revenue.
In the result, the appeal filed by the revenue is partly allowed, for statistical purpose.
13 Motilal Oswal Securities Pvt Ltd
As a result, both the appeals filed by the assessee and revenue are partly allowed for statistical purpose.
Order pronounced in the open court on 27-03-2019.