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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI MANOJ KUMAR AGGARWAL, AM & SHRI RAVISH SOOD, JM
Per Manoj Kumar Aggarwal (Accountant Member) 1. These are cross-appeal for Assessment Year [AY] 2012-13 which contest the order of Ld. Commissioner of Income-Tax (Appeals)-9 [CIT(A)], Mumbai, Appeal No.CIT(A)-9/Cir.4/154/2015-16 dated 29/09/2016 on different grounds of appeal. The assessee is represented by Ld. Sr. Counsel, Shri Farrokh V.Irani [Ld. AR] whereas the revenue is represented by Shri B.Srinivas, Ld. CIT-DR & Shri Manoj Kumar Singh, Ld. Sr. DR. So far as the revenue’s appeal is concerned, both the representatives converge on the point that the issue arising therein has already been dealt with by this Tribunal in assessee’s own case for earlier assessment years 2008-09 to 2011-12, the copies of which has been placed on record. In view of the admitted position, we first take up the issues raised in revenue’s appeal which could be tabulated as follows:-
No. Nature of Additions / Remarks disallowances 1. Depreciation on UPS Batteries Restricted to 15% as against 80% claimed by the assessee 2. Mark to Market Loss of Rs.7 Crores Disallowed by Ld. AO treating the same a notional loss 3. Employees Stock Option Plan Disallowed by Ld. AO treating the same [ESOP] expenses of Rs.2.64 Crores as not a real expenditure The assessee being resident corporate entity engaged in the business of share broking, depositors, mobilization of deposits and marketing of public issues has been assessed under section 143(3) on 23/03/2015 wherein the income of the assessee has been determined at Rs.174.38 ITA.Nos.6666, 7005/Mum/2016 Kotak Securities Limited Assessment Year-2012-13 Lacs after certain additions/disallowances as against returned income of Rs. 162.87 Lacs e-filed by the assessee on 29/11/2012. 2.1 During assessment proceedings, it was noted that the assessee claimed higher depreciation of 80% on UPS and batteries treating the same under the head Automatic Voltage Controller. The Ld. AO has restricted the same to 15% being general rate applicable to plant and machinery and worked out disallowance of Rs.66.47 Lacs. 2.2 The assessee claimed a deduction of Rs.7 Crores on account of mark to market losses on outstanding future and option contracts as on 31/03/2012. However, the same has been disallowed by Ld. AO on the premise that no deduction could be allowed for notional losses. 2.3 The last addition which is the subject matter of revenue’s appeal is the payment of Rs.2.64 Crores claimed by the assessee under the head salaries as Employee Stock Option Plan [ESOP] expenses. The fact on record reveal that the holding company of the assessee namely Kotak Mahindra Bank Limited had formulated an ESOP scheme for grant of stock option and as a corollary offered the stocks under the scheme to the employees of the assessee company also. The payment represent differential of market price and the issue price and claimed to be paid by the assessee for the purposes of retention of its employees and a method of remunerating them. However, not convinced, Ld. AO disallowed the same and added the same to the income of the assessee. 2.4 Aggrieved, the assessee contested all the three additions / adjustments with success before Ld. CIT(A) vide impugned order dated 29/09/2016 wherein the depreciation at higher rate as claimed by the assessee was allowed by following the decision of this Tribunal rendered ITA.Nos.6666, 7005/Mum/2016 Kotak Securities Limited Assessment Year-2012-13 in assessee’s own case for AYs 2006-07, 2008-09 & 2009-10. Similarly the addition on account of Mark to Market Losses has been deleted by following the decision of this Tribunal rendered for AY 2008-09 & 2009- 10. The addition of ESOP expenditure has been deleted by following the decision of this Tribunal rendered for AY 2010-11. The details of the decision have already been extracted in the impugned order. Additionally, the copies of decision of this Tribunal for the relevant earlier years have also been placed on record. 2.5 The Ld. Departmental Representative [DR] fairly conceded that the issues, at the moment, stood covered in assessee’s favor by the cited orders of the Tribunal. However, it was contended that the matters have not attained finality yet. 2.6 We have carefully considered the orders of the lower authorities and the decision of the Tribunal in assessee’s own case for earlier years. We find that a view has already been taken by the Tribunal on all the three issues. The revenue is neither able to point out any material difference in the facts nor able to controvert the same by any binding contrary judicial pronouncements. In view of the stated position, we find no reason to interfere with the stand of Ld. first appellate authority on all the three issues. Resultantly, the revenue’s appeal stand dismissed.
The assessee is aggrieved by additional disallowance of Rs.327.19 Lacs u/s 14A and another addition of Rs.1.13 Lacs based on Annual Information Return [AIR].
ITA.Nos.6666, 7005/Mum/2016 Kotak Securities Limited Assessment Year-2012-13 4.1 Facts qua disallowance u/s 14A are that the assessee reflected exempt dividend income of Rs.131.46 Lacs and made a suo-moto disallowance of Rs.9.35 Lacs against the same in the return of income. The subject matter of the appeal concerns only with quantum of administrative expenditure as per Rule 8D(2)(iii). The assessee defended its computation vide reply dated 18/02/2015, the relevant portion of which has already been extracted in the quantum assessment order. As per the submissions, the investments made by the assessee were strategic in nature and made for long term purpose and therefore, no day-to-day expenses were required to be incurred to manage the same. It was further pointed out that the investments held as stock-in- trade were not required to be considered for the purpose of computation of the disallowance. As an alternative submission, the assessee pleaded to restrict the disallowance to Rs.23.45 Lacs, being 10% of cost of the investment division / share trading division. However, disregarding the same and not convinced with the genuineness of the claim made by the assessee, Ld. AO applying Rule 8D(2)(iii) computed disallowance of Rs.327.19 Lacs which was nothing but 0.5% of average investments of Rs.654.38 Crores held by the assessee. After adjusting the suo-moto disallowance of Rs.9.35 Lacs as made by the assessee, the net addition thus made worked out to Rs.317.84 Lacs. 4.2 Aggrieved, the assessee reiterated the contentions without any success before Ld.CIT(A) wherein the stand of Ld. AO got confirmed. Aggrieved, the assessee is in further appeal before us. 4.3 The Ld. Sr. Counsel appearing for assessee has agitated the additions on legal grounds as well as on merits. Our attention has been ITA.Nos.6666, 7005/Mum/2016 Kotak Securities Limited Assessment Year-2012-13 drawn to the fact the Ld. AO erred in assuming jurisdiction without recoding proper satisfaction as to applicability of Rule 8D without examining the claim / computations / methodology of the assessee and therefore, the additional disallowance was not justified. For the merits, our attention has been drawn to the fact that aggregate disallowance of Rs.327.19 Lacs has been made against exempt income of Rs.131.46 Lacs, which was not, at all, justified and sustainable. It has further been contended that those investments which have not yielded any exempt income during the impugned AY were required to be excluded for computations in terms of the judgment of Delhi Tribunal (Special Bench) rendered in ACIT Vs. Vireet Investment (P.) Ltd. [82 Taxmann.com 415]. Per Contra, Ld. CIT-DR submitted that the computations were to be made only as per the formula prescribed under the law. 4.4 We have carefully heard the rival contentions and perused relevant material on record including judicial pronouncements as cited before us. So far as the legal issue as raised by Ld. Sr. Counsel is concerned, we find that the issue in hand involves only quantum of administrative expenditure as per Rule 8D(2)(iii). Interestingly, both assessee as well as Ld. AO has made computations @0.5% as per Rule 8D(2)(iii) only and therefore, the applicability of the same is not under dispute. The difference in computation arises out of the fact that the assessee has excluded strategic investment as well as stock-in-trade while arriving at the disallowance whereas Ld. AO has adopted the aggregate value of investments irrespective of their nature. In our opinion, there is no quarrel between the assessee and the revenue as to applicability of Rule 8D(2)(iii) and therefore, the legal submissions as made by Ld. Sr.
ITA.Nos.6666, 7005/Mum/2016 Kotak Securities Limited Assessment Year-2012-13 Counsel were not of much relevance and the same has to be disregarded. 4.5 So far as the nature of investments viz. strategic investments / stock-in-trade is concerned, we find that the controversy stood settled by the recent decision of Hon’ble Apex Court rendered in group of cases titled as Maxopp Investment Ltd. Vs CIT [12/02/2018 91 Taxmann.com 154], wherein Hon’ble court has expressed the view that the nature of investments would be of no relevance while computing disallowance u/s 14A. Therefore, the plea as raised by Ld. Sr. Counsel on these lines would also be of no help to the assessee. 4.6 However, in terms of the decision of Special Bench of the Tribunal rendered in ACIT Vs. Vireet Investment (P.) Ltd. [82 Taxmann.com 415], we find strength in the plea of Ld. Sr. Counsel that only exempt income yielding investments were to be considered for the purpose of computation of disallowance u/s 14A. Drawing analogy from the decision of Hon’ble Supreme Court rendered in Maxopp Investment Ltd. Vs CIT [supra], we also find strength in the plea that the quantum of disallowance could not exceed the exempt income earned by the assessee during the impugned AY. Further, those investments which were not capable of yielding any exempt income were also to be excluded while arriving at the disallowance. 4.7 Keeping the above principles in mind, we have perused the nature of investments held by the assessee which are extracted at Page-14 of the impugned order. We find that the investments have been classified by the assessee as Strategic investments, Stock–in-trade & investment in other Shares / Venture Capital Fund. The assessee has already ITA.Nos.6666, 7005/Mum/2016 Kotak Securities Limited Assessment Year-2012-13 offered suo-moto disallowance @0.5% against investment in other Shares / Venture Capital Fund and therefore, there is no dispute against this category of investment. Therefore, the disallowance under dispute is against Strategic investments & Stock–in-trade. In the absence of adequate data before us, we direct the Ld. AO to compute disallowance @0.5% against Strategic investments & Stock–in-trade after excluding there-from those investments which have not yielded any exempt income during impugned AY or which were not, at all, capable of yielding any exempt income subject to a further condition that overall disallowance, in no case, shall exceed exempt income of Rs.131.46 Lacs earned by the assessee during the impugned AY. This ground stand partly allowed in terms of our above order.
The root of second ground of assessee’s appeal lies in the fact that the assessee was unable to reconcile certain entries amounting to Rs.1.13 Lacs as appearing in Annual Information Return [AIR] and therefore, the same were added to the income of the assessee. The same, upon confirmation by Ld. first appellate authority, is under appeal before us. The Ld. Sr. Counsel submitted that keeping in view the voluminous nature of data, the same remained un-reconciled and a view may be taken. In the absence of complete factual matrix, we are unable to provide any relief to the assessee, in this regard. This ground stand dismissed.