ACIT CIR-2(2)(1), MUMBAI vs. L & T CAPITAL CO. LTD., MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA No.3787/M/2015 (AY 2010-2011) ACIT, Circle 2(2)(1), फनाभ/ M/s. L & T Capital Co. Ltd., Mumbai. L & T House, N.M. Marg, Vs. Ballard Estate, Mumbai – 400 001. स्थामी रेखा सं./ PAN : AAACL5880E (अऩीराथी /Appellant) .. (प्रत्मथी / Respondent) C.O. No.38/Mum/2017 (Arising out of ITA No.3787/M/2015 (AY 2010-2011) M/s. L & T Capital Co. Ltd., फनाभ/ ACIT, Circle 2(2)(1), L & T House, N.M. Marg, Mumbai. Vs. Ballard Estate, Mumbai – 400 001. स्थामी रेखा सं./ PAN : AAACL5880E (अऩीराथी /Appellant) .. (प्रत्मथी / Respondent) अऩीराथी की ओय से / Assessee by : Shri Vijay Mehta प्रत्मथी की ओय से/ Revenue by : Shri Saurabhkumar Rao, DR

सुनवाई की तायीख / Date of Hearing : 23.02.2017 घोषणा की तायीख /Date of Pronouncement : 28.02.2017 आदेश / O R D E R PER D. KARUNAKARA RAO, AM:

The captioned appeal is filed by the Revenue on 18.6.2015 and the Cross Objection (CO) No.38/M/2017 is filed by the assessee on 13.2.2017 for the assessment year 2010-2011. Both these appeals are filed against the order of the CIT (A)-5, Mumbai dated 16.3.2015. Since, the issues raised in these appeals are inter-connected, therefore, for the sake of convenience, they are clubbed, heard combinedly and disposed of in this consolidated order. Appeal wise adjudication is given in the following paras of this order.

ITA No.3787/M/2015 (By Revenue) 2. In this appeal, Revenue raised the following solitary ground and the same reads as under:- “On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in holding that the gains from the purchase and sale of shares are to be treated as Short Term Capital Gains, ignoring the fact that in the AY 2008-09 and 2009-10, the profit and sale of shares was treated as business income by the AO and the same had been upheld by the CIT (A).” 3. At the outset, Ld Counsel for the assessee briefly narrated the facts of the case and demonstrated that the tax effect involved in the Revenue‟s appeal is Rs. Rs. 7,40,661/- ie below Rs. 10 lakhs. This tax effect is worked out only on the differential tax rate of 15% (assessee applied tax rate of 15% whereas the Department thrust on the assessee tax rate of 30%). Ld DR for the Revenue erroneously worked out the tax effect of Rs. 14,81,321/- applying 30% tax rate applicable to the business gains. Ld DR has ignored the fact that the dispute is only with reference to the differential tax rate of 15% not the entire 30%. Therefore, this case is covered by the CBDT Circular No.21/2015, dated 10.12.2015 which is relevant for the proposition that the appeals filed by the Revenue with a tax effect of Rs. 10 lakhs and below are to be either dismissed by the Tribunal as not maintainable or not pressed by the Revenue. 4. After hearing both the parties, we are of the opinion, considering the low tax effect involved in the present case ie below Rs. 10 lakhs, the appeal filed by the Revenue is required to be dismissed since, the same is not maintainable. Accordingly we order. 5. In the result, appeal filed by the Revenue is dismissed. C.O.No.38/M/2017 (By Assessee) 6. This Cross Objection is filed by the assessee against the said order of the CIT (A)-5, Mumbai. In this appeal, assessee raised the following solitary cross objection and the same reads as under:-

“On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in confirming the disallowance made by the AO of Rs. 2,15,54,009/- u/s 14A of the Act.” 7. Before us, at the outset, Ld Counsel for the assessee submitted that this CO was filed before the Tribunal belatedly with a delay of 14 days. In this regard, Ld AR brought our attention to the affidavit dated 10.2.2017 filed by Ms. Surabhi Dujari, who is looking after the taxation matters of L & T Capital Company Ltd and submitted that the said delay is not a deliberated one. In this regard, Ld AR read out the relevant contents of the said affidavit and the same read as under:- “1.........I say that my duty includes preparation and filing of appeals and Cross Objection before the Appellate Authorities. 2. I say that on 21.1.2017 had to proceed on unscheduled leave due to some medical emergency. I say that I resumed the office on 30.01.2017. I say that post resuming, due to Union Budget, rectifications and refund follow-ups with the Department, filing Cross Objection skipped the attention. I say that due to this, the Cross Objection of the above mentioned company for AY 2010-2011 could not be filed before the Hon‟ble Tribunal in time. I say that upon realizing the same, I took up the matter and filed Cross Objection immediately on 13.02.2017 causing an unintentional marginal delay of 14 days.” 8. Further, in connection with the adjudication of the CO as an independent appeal, Ld Counsel for the assessee submitted that the provisions of section 253(4) considers Cross Objection as an independent appeal and all the Rules, applicable to any appeal, shall apply to such COs also. In support of the same, Ld AR brought our attention to the order of the Tribunal in the case of M/s. DBS Bank Ltd vs. DCIT in CO. No.189/Mum/2013 (Arising out of ITA No. 434/Mum/20110 (AY 1995-96), dated 15.06.2016. 9. On the other hand, Ld DR for the Revenue argued stating that the said appeal is filed with a delay of 14 days and therefore, the same should not be admitted. Further, he argued stating that the said appeal is not maintainable as the Revenue‟s appeal is dismissed on the ground of low tax effect. 10. After hearing Ld Representatives of both the parties and on perusal of the cited order of the Tribunal (supra) dated 15.6.2016, we find, this is also a case where the CO was filed belatedly with a delay of 285 days and the main appeal was dismissed. In the said order, the provisions of section 253(4) were discussed apart from other judicial precedents (para 3.3.2 of the said Tribunal‟s order is relevant in

this regard) and the matter was decided in favour of the assessee. For the sake of completeness of this order, we find it relevant to extract the paras 2.1 to 4.4.2 of the said Tribunal‟s order (supra) and the same read as under:-

“2.1 Alongwith the CO, the assessee has filed a petition for condonation of delay in filing the CO for A.Y. 1995-96 accompanied by an affidavit dated 22.08.2013 sworn to by the assessee‟s authorised signatory. From the petition it is seen that the assessee had admittedly received notice of the Department‟s appeal in ITA No. 434/Mum/2011 on 11.10.2012. As per section 253(4) of the Income Tax Act, 1961 (in short 'the Act') the assessee was to have filed its CO within 30 days thereof, but filed the same on 26.08.2013 thereby leading to a delay of 285 days. 2.2.1 In the petition for condonation of delay of 285 days in filing the CO for A.Y. 1995-96, the assessee has put forth the following reasons for the said delay: - “9. ...... The appellants received the Department‟s appeal (ITA No. 434/Mum/2011) on 11 October 2012. As per section 253(4) of the Act, the Cross objections should have been filed within thirty days from the date of receipt of the department‟s appeal. Thus there is a delay of 285 days (i.e. from 11 November 2012 to 23 August 2013). 10. The Department‟s Appeal (ITA No. 434/Mum/2011) was fixed for hearing before the Hon'ble Members of the „L‟ Bench on 30 July 2013. 11. During the course of the conference with the Senior Counsel on 29 July 2013 for preparing the matter, it was realized that the appellant is entitled to claim the deduction for the expenditure from the date of set up of the business which precedes the date of commencement of business. The appellants had not filed any cross objections against the department‟s appeal. On realisation of this fact, the appellants wish to file the Cross Objection without any further delay. 12. Your appellants submit that there is no malafide/deliberate intention to delay the filing of cross objection. 13. The appellants submit that this is an inadvertent delay and humbly request that the same be condoned as the same is bonafide and genuine.” 2.2.2 Before us, the learned A.R. for the assessee submitted that the assessee had no malafide/deliberate intention to delay the filing of the CO. It is submitted that when the assessee was preparing to contest Revenue‟s appeal, it realized that the learned CIT(A) only allowed the assessee‟s expenditure from the date of commencement of business, i.e. w.e.f. 15.03.1995 and not from the date of setting up of business which precedes commencement of business as per the directions in the order of the ITAT in ITA No. 5272 to 5274/Mum/2001 dated 18.04.2007. On such realization the assessee filed the CO at the earliest. It is prayed that since the delay being inadvertent, the same be condoned in accordance with the principles laid down, inter alia, by the Hon'ble Apex Court in the case of Collector, Land Acquisition vs. MST Katiji & Others (167 ITR 471) (SC), Ganga Sahai Ram Swarup vs. ITAT (2004) 271 ITR 512 (All.), etc. The learned D.R. for Revenue was also heard and opposed the assessee‟s plea for condonation of delay. 2.2.3 We have heard the rival contentions of both the parties and perused and carefully considered the material on record. Admittedly, there was a delay of 285 days in filing the CO before the Tribunal. The Hon'ble Apex Court in the case of Collector, Land Acquisition vs. MST Katiji (167 ITR 471) (SC) while laying down the principles for considering matters of condonation of delay in filing appeals has stated that substantial justice should prevail over technical considerations. The Hon'ble Court also

explained that „everyday‟s delay must of explained‟ does not mean that a pedantic approach should be taken. The doctrine must be applied in a natural, common sense and pragmatic manner. Considering the aforesaid principles, it is seen from the details submitted in the affidavit that while having a conference with the Sr. Counsel in preparation for Revenue‟s appeal, it was realized that the assessee as per the order of the ITAT in ITA No. 5272 to 5274/Mum/2001 dated 18.04.2007, the assessee was entitled to claim expenditure from the date of setting up of the business which precedes the date of commencement; whereas as per the impugned order, the learned CIT(A) allowed the assessee‟s claim for expenditure only from the date of commencement of business which is in contravention of the Tribunal‟s order (supra) and the CO was filed immediately thereafter. Considering the aforesaid principles laid down by the Hon'ble Apex Court (supra) and the facts of the case on hand we find that there has been no malafide or intentional failure on the part of the assessee, who on realization and appropriate advice by the Counsel has proceeded to file the CO. In these circumstances, we are of the considered view that if the delay of 285 days is condoned there will be no loss to Revenue as legitimate taxes payable in accordance with law alone would be collected. Further, if the delay in filing the CO is not condoned, then the assessee could be put to great hardship. 2.2.4 In view of the discussion of the facts and circumstances of the case (supra), we are of the view that in the interest of equity and justice this is a fit case for condonation of delay of 285 days in filing the CO for A.Y. 1995-96 and condone the said delay and admit the CO for hearing and adjudication. 3.1 At the outset, the learned D.R. for Revenue raised the objection that since Revenue‟s appeal in ITA No. 434/Mum/2011 had been dismissed by a Coordinate Bench vide order dated 15.02.2016 the assessee‟s CO is not maintainable as it did not survive and should be dismissed as infructuous. 3.2 The learned Senior Counsel for the assessee, referring to the provisions of section 253(4) of the Act submitted that a CO is an appeal and even where appeal of the other party is withdrawn or dismissed, CO nevertheless survives and should be adjudicated upon, as provided for under the Act and Rules, since it has an identity of its own and stands separate and distinct from the appeal. In support of this proportion, the learned A.R. for the assessee placed reliance, inter alia, on the following judicial pronouncements: - i) Superintendent Engineer vs. B. Subba Reddy AIR (1999) SCW 1479 ii) ACIT vs. Kripa Chemicals (P) Ltd. (2002) 82 ITD 449 (Pune) iii) CIT vs. Purbanchal Paribahan Gosthi (1998) 234 ITR 663 (Gauhati) iv) Income Tax Officer vs. Fagoomal Lakshmi Chand (1979) 118 ITR 766 (Mad.) 3.3.1 We have heard both parties and perused and carefully considered the judicial pronouncements referred to (supra). Section 253(4) of the Act deals with the filing of COs. Rule 22 of the IT(AT) Rules, 1963 also lays down the procedure to be adopted for treatment of COs. The provisions of section 253(4) and Rule 22 are extracted hereunder: - “Section 253(4) - The Assessing Officer or the assessee, as the case may be, on receipt of notice that an appeal against the order of the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) or the Assessing Officer in pursuance of the directions of the Dispute Resolution Panel has been preferred under sub-section (1) or sub-section (2) or sub-section (2A) by the other party, may, notwithstanding that he may not have appealed against such order or any part thereof; within thirty days of the receipt of the notice, file a memorandum of cross-objections, verified in the prescribed manner, against any part of the order of the Assessing Officer (in pursuance of the directions of the Dispute Resolution Panel) or Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals), and such memorandum shall be disposed of by

the Appellate Tribunal as if it were an appeal presented within the time specified in sub-section (3) or sub-section (3A).” “Rule 22 - A memorandum of cross-objections filed under sub-section (4) of section 253 shall be registered and numbered as an appeal and all the rules, so far as may be, shall apply to such appeal.” 3.3.2 On a perusal of the provisions of law and the cited decision we find that in the case of Kripa Chemicals (P) Ltd. (2002) 82 ITD 449 (Pune) the Pune Bench of the ITAT has observed that the Hon'ble Apex Court in the case of B. Subba Reddy AIR 1999SCW 1479 had held that even where an appeal is withdrawn or is dismissed for default, the CO was to be admitted and adjudicated. It is also seen that the Hon'ble Gauhati high Court in the case of CIT vs. Purbanchal Paribahan Gosthi (supra) on the issue of COs referring to section 253 of the Act r.w. Rule 22 of the IT(AT) Rules, 1963 has held that it can be safely held that there is absolutely no difference between an appeal and a CO, save that an appeal can be preferred within 60 days of receipt of the order whereas a CO can be filed within a period of 30 days of the date of service of appeal by the opposite party. Respectfully, following the decision of the Hon'ble Apex Court in the case of Superintendent Engineer vs. B. Subba Reddy (supra) and the decision of the Pune Bench of the ITAT in the case of Kripa Chemicals (P) Ltd. (supra), we hold that in the case on hand even though Revenue‟s appeal in ITA No. 434/Mum/2011 for A.Y. 1995-06 was dismissed on account of low tax effect (i.e. tax being below ` 10 lakhs), the assessee‟s CO is to be admitted and adjudicated. In this view of the matter, we reject the preliminary objection of the learned D.R. for Revenue in respect of the maintainability of the assessee‟s CO for A.Y. 1995-96. 4.1 In the CO the assessee has raised the following grounds of objections: - “1) The Commissioner of Income-tax (Appeals) -10 (herein after referred to as CIT(A)) ought to have held that the expenses incurred (including depreciation per section 32) of Rs. 10,990,878 be allowed as deduction, as the appellant being a non-resident bank is already engaged in banking business and opening of first branch in India is merely an extension of banking business. 2) The CIT(A) ought to have adjudicated on the date of set up of the appellants' banking business in India. 3) The CIT(A) erred in not appreciating the fact that the Assessing officer had not followed the directions of the Tribunal vide order dated 18 April 2007, thereby not determining the date of set up of the banking business in India. 4) The CIT(A) ought to have held that the expenditure incurred after date of set up of the appellants banking business should be allowed as a deduction, while computing the total taxable income. The appellants pray that the CIT(A) be directed suitably in the matter. 5) The CIT(A) ought to have held that the business of banking in India was set up on 8 November 1994, being the date of banking licence obtained from Reserve Bank of India. 6) Without prejudice to the above, the CIT(A) ought to have directed the AO to allow deduction for depreciation on fixed assets while computing the total taxable income.” 4.2 At the outset, the learned A.R. for the assessee, in support of the grounds raised (supra), submitted that the impugned orders of the authorities below were in gross violation of the directions of the Coordinate Bench of this Tribunal in the assessee‟s own case in ITA No. 5272 to 5274/Mum/2001 dated 18.04.2007 which held that the assessee is entitled to be allowed as a deduction, the expenses incurred after the dare of setting up of banking business in India while computing the assessee‟s

total taxable income. The assessee claimed that 08.11.1994 was the date of setting up of business. It is contended that even though the Coordinate Bench at para 6 of its order (supra) drew up the distinction between setting up of business and commencement of business, and directed the AO to examine the matter and allow expenditure incurred after the date of setting up of the business, the AO and the learned CIT(A), without examining the matter, held that expenses after the date of commencement, i.e. 15.03.1995, only were allowable; which is in violation of the directions of the Tribunal‟s order. It is prayed that the orders of the authorities below be suitably modified.” 11. Further, we have also perused the judgment of the Hon‟ble Kerala High Court in the case of City Centre Builders & Developers vs. Income Tax Appellate Tribunal in WP(C).No.7668 of 2016 (G), dated 2.6.2016 wherein it is held that Cross Objection should be treated as an independent appeal and it has to be decided irrespective of the fact that as to whether the appeal filed by the Department has been dismissed on whatever grounds. Para 3 of the said judgment of the Hon‟ble Kerala High Court is relevant in this regard and the same is extracted for the sake of completeness of this order. “3. Cross Objection is filed under section 253(4) of the Income Tax Act. When a cross objection is filed in an appeal, it has to be treated as an independent appeal and has to be decided irrespective of the fact as to whether the appeal filed by the Department has been dismissed on whatever grounds. There is no doubt about the above proposition. The appellate authority was therefore not justified in rejecting the cross objection as infructuous. ...........” 12. Considering the above on perusal of the above contents of the affidavit and on hearing the Ld DR on this issue, we find, there is a „reasonable cause‟ for not filing the present CO before the Tribunal within the prescribed time limit. Therefore, considering the „reasonable and sufficient cause‟ for not filing the CO before the Tribunal and considering the smallness of the delay (14 days) involved, we are of the opinion, this is a fit case to condone the delay. Further, from the above extracted portion of the judgment of the Hon‟ble Kerala High Court (supra), it is evident that the CO is an independent appeal and the same cannot be dismissed as infructuous as requested by the Ld DR for the Revenue. Accordingly, we condone the delay in filing the CO belatedly before the Tribunal and the same is admitted for adjudication. The adjudication of the CO is given in the following paras of this order. 13. Coming to the merits of the issue raised by the assessee in the CO, briefly stated relevant facts are that the Assessing Officer completed the assessment u/s 143(3) of the Act making disallowance amounting to Rs. 2,39,09,680/-. Assessee

received dividend income amounting to Rs. 2,77,42,496/- and claimed deduction u/s 10(34) of the Act. Assessee quantified an amount of Rs. 23,57,395/- as disallowable amount u/s 14A of the Act. For this, assessee adopted the „principle of proportion‟ in making such disallowance. Against the same, AO made disallowance of a sum of Rs. 2,39,11,404/- under Rule 8D of the IT Rules, 1962. 14. Before us, Ld Counsel for the assessee filed a chart showing the breakup of the expenses and mentioned that the total expenditure debited to the P & L Account amounting to Rs. 1,67,44,351/- involves 19 accounts. Considering the relatability of the earning of the dividend income, assessee arrived at the figure of Rs. 78,98,763/-, which should be the basis for quantifying the disallowable sum under Rule 8D(2)(iii) r.w.s 14A of the Act. It is the argument of the Ld Counsel for the assessee that Rs. 23,57,395/- was disavowed suo moto by the assessee out of the said sum of Rs.78,98,763/-, which should be the reasonable from every angle. In our view, this issue is required to be remanded to the file of the AO for a fresh adjudication. Accordingly we order accordingly. AO is directed to examine the figure Rs. 78,98,763/- and its correctness whether the same should be the basis for disallowance, if any. AO is also directed to consider the said argument of the Ld AR and decide the issue afresh after affording a reasonable opportunity of being heard to the assessee as per the set principles of natural justice. Thus, the issue raised in the CO is allowed for statistical purposes. 15. In the result, CO is allowed for statistical purposes. 16. Conclusively, appeal of the Revenue is dismissed and the CO raised by the assessee is allowed for statistical purposes. Order pronounced in the open court on 28th February, 2017.

Sd/- Sd/- (PAWAN SINGH) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक 28.02.2017 व.नन.स./ OKK , Sr. PS आदेश की प्रतिलऱपि अग्रेपिि/Copy of the Order forwarded to :

अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. 3. आमकय आमुक्त(अऩीर) / The CIT(A)- 4. आमकय आमुक्त / CIT ववबागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, 5. ITAT, Mumbai 6. गार्ड पाईर / Guard file. सत्मावऩत प्रनत //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीऱीय अधिकरण, भुंफई / ITAT, Mumbai