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Income Tax Appellate Tribunal, MUMBAI BENCHES “J”, MUMBAI
Before: SHRI C.N. PRASAD & SHRI ASHWANI TANEJA
O R D E R
Per ASHWANI TANEJA, AM
This appeal has been filed by the assessee against the order of the Commissioner of Income-tax (Appeals)-8, Mumbai [hereinafter called the Ld.CIT(A)] dt 10-11-2014 passed against order u/s 143(3) for A.Y. 2010-11 on the following grounds:
“Disallowance of lease rentals paid on motor vehicles - Rs. 24210121- The learned Commissioner of Income Tax (Appeals) - 8, Mumbai 1) [CIT(A) erred on facts and in law in upholding the order of the Assistant Commissioner of Income Tax - 4(3), Mumbai (AO) making a disallowance of lease rentals paid on motor vehicles taken Rs. 24,21,012/- by holding that an identical issue was decided against the appellant in the earlier year by his predecessor without appreciating that the order for Assessment Year 2008 - 09 had been set aside by the Hon'ble Income Tax Appellate Tribunal to the file of the AO. The appellant prays that the disallowance of lease rentals paid on 2) motor vehicles taken of lease amounting to Rs. 24,21,012/- as made by the AO and as confirmed by the CIT(A) may be deleted. Without prejudice to the above, the learned CIT(A) erred in not 3) allowing depreciation on leased assets amounting to Rs. 13,39,344/- and finance charges amounting to Rs. 4,36,815/- included in the lease rent. The appellant prays that if lease rentals are not allowed as a 4) deduction, depreciation on leased assets and finance charges included in the lease rentals may be allowed as a deduction. B) Additional disallowance u/s. 14A - Rs. 63,16,517/-5) The learned CIT(A) erred on facts and in law in upholding the order of the AO making an additional disallowance u/s. 14A read with Rule 8D of Rs. 63,16,517/- without recording a finding as to why the appellant’s contention is to be rejected having regard to the accounts. 6) The learned CIT(A) erred in not appreciating that the disallowance u/s 14A could not be made unless a satisfaction was reached by the AO that the appellant’s claim could not be accepted having regard to the accounts. No such satisfaction having been recorded by the AO or CIT(A), the additional disallowance of Rs.63,16,517/- under section 14A read with Rule 8D is liable to be deleted.
7) The appellant prays that the additional disallowance of Rs. 63,16,517/- u/s. 14A made by the AO and as upheld by the CIT(A) may be deleted. Without prejudice to the above, the learned CIT(A) erred in not 8) deciding the alternate contention of the appellant that the value of stock could not be considered while computing the average value of investments. The appellant prays that if your honour is to confirm the 9) additional disallowance of Rs. 63,16,517/- u/s. 14A, your honour may decide the alternate contention of the appellant that the value of stock in trade should not be included while determining the average value of investments.”
Ground No.1 : In this ground, the assessee has contested the action of lower authorities in making disallowance of lease rentals paid on motor vehicles taken on lease amounting to Rs.24,21,012. The Assessing Officer did not allow the lease rentals on the ground that the same was capital expenditure. The Ld.CIT(A) confirmed the disallowance following his orders for earlier years i.e. A.Ys 2007-08 & 2008-09. It was brought to our notice that in earlier years, the issue had reached upto the Tribunal wherein the same has been sent back to the file of the Assessing Officer.
Per contra, the Ld.DR relied upon the orders of the lower authorities. 4. We have gone through the orders passed by the lower authorities as well as the orders of the Tribunal for A.Ys 2007-08 & 2008-09. It is noted that the Tribunal in A.Y. 2007-08, vide order dated 28-06-2013 in sent this issue back to the file of the Assessing Officer with the following directions: “13. We have carefully considered the rival contentions, perused the relevant findings of the Assessing Officer as well as the learned Commissioner (Appeals) and the material placed on record. From the facts discussed from Pages–8 to 11 of the learned Commissioner (Appeals)’s order, it is seen that the same has not been discussed or dealt with by the Assessing Officer. Such an appreciation of facts by the learned Commissioner (Appeals) has also been disputed before us. Further, the Hon'ble Supreme Court in IDCS Ltd. (supra) has also laid down the law relating to allowance of depreciation on leased vehicles and whether it is for the business purpose or not. Therefore, in the interest of justice, we are of the considered opinion that the entire issue should be restored back to the file of the Assessing Officer for denovo adjudication. Consequently, we set aside the impugned order Commissioner (Appeals) and restore the entire issue back to the file of the Assessing Officer for fresh adjudication in the light of the judicial pronouncements of the Hon'ble Supreme Court in IDCS Ltd. (supra).” It is further noted that similar order has been passed by the Tribunal in A.Y. 2008-09 also. During the course of hearing, no distinction has been made on facts or law by either party. Thus, we send this issue back to the file of the A.O with the same direction as has been issued for A.Y. 2007-08. The AO is directed to follow the order of the Tribunal for A.Y. 2007-08 while deciding this issue afresh. The Assessing Officer is also directed to offer adequate opportunity of hearing to the assessee before deciding this issue anew. This ground is treated as allowed for statistical purpose.
Ground 2 : In this ground, the assessee has challenged the action of lower authorities in making disallowance u/s 14A for Rs.63,16,517/-.
6. During the course of hearing it was submitted by Ld.Counsel of the assessee that assessee had made voluntary disallowance of Rs.21,47,266/- and also explained the basis of making disallowance to the lower authorities. But the AO, without rejecting the basis of making voluntary disallowance of Rs.21,47,266/- and also explained the basis of making disallowance to the lower authorities. But the AO, without rejecting the basis of making voluntary disallowance and without applying his mind and without recording any satisfaction applied Rule 8D mechanically even without pointing out the disallowance made by the assessee was incorrect, enhanced the disallowance. It was further submitted that in this case substantial part of the investment is comprised of stock-in-trade held by the assessee and the same cannot be considered for making disallowance u/s 14A. Reliance was placed on the judgement of Hon’ble Karnataka High Court in the case of CCI Ltd vs JCITY 250 CTR 291 (Kar) and judgement of Hon’ble Bombay High Court in the case of CIT vs India Advantage Securities Ltd 380 ITR 471 (Bom). Reliance was also placed on the judgment of Pune Bench of the Tribunal in the case of Shri Paresh Pritamlal Mehta vs ITO A.Y. 2012-13 order dated 18-03- 2016 wherein, after discussing the entire law and Third Member judgement of the Mumbai Bench of the Tribunal in the case of D.H. Securities Pvt Ltd vs DCIT 41 Taxman.com 352, it was held that the investment held as stock in trade should not be considered for making disallowance u/s 14A r.w.r.8D.
Per contra, the Ld.DR relied upon the order of the lower authorities. We have gone through the orders of the lower authorities and judgements placed before us. With the assistance of the parties it is noticed from the balance- sheet of the assessee that the assessee is having investments held as investments as also investments in shares and other securities, which are held as part of stock in trade. The assessee has rightly contended that it has been held in the aforesaid judgments that shares held as part of stock-in-trade cannot be considered for making disallowance u/s 14A. The Pune Bench of the Tribunal in the case of Paresh Pritamlal Mehta (supra) has analysed the law and by following the aforesaid decisions, decided the issue in favour of the assessee with following observations:
“5. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also considered the decisions on which the ld. AR has placed reliance in support of his submissions. The assessee has earned tax free dividend income of Rs.12,04,572/-. The assessee has earned aforesaid dividend income on shares held as stock-in-trade. It is not disputed by the Department that the assessee is engaged in the business of trading of shares and the assessee is not maintaining any investment portfolio. The Assessing Officer made disallowance of Rs.46,89,749/- u/s. 14A r.w. Rule 8D. It is also an admitted fact that 2010-11. The Commissioner of Income Tax (Appeals) deleted the disallowance, the Department carried the matter in appeal to the Tribunal. The Co-ordinate Bench of the Tribunal by placing reliance on the decision rendered in the case of Kunal Polymers Vs. DCIT in decided on 15-07-2015 and the decision of Hon'ble Bombay High Court in the case of CIT Vs. India Advantage Securities Ltd. in Income Tax Appeal No. 1131 of 2013 decided on 13-04-2015 dismissed the appeal of the Department. The Assessing Officer vide assessment order dated 23-01-2015 made similar disallowance on the shares held as stock-in-trade for the assessment year under appeal. In first appeal the Commissioner of Income Tax (Appeals) disregarding the order of Tribunal in assessee’s own case in the earlier assessment year decided the issue against the assessee by placing reliance on the decision of Mumbai Bench of the Tribunal in the case of HDFC Bank Ltd. Vs. DCIT (supra) and the decision of Mumbai Bench of the Tribunal (Third Member) in the case of D.H. Securities Pvt. Ltd. Vs. DCIT reported as 41 taxmann.com 352.
The Hon'ble Bombay High Court in the case of CIT Vs. India Advantage Securities Ltd. (supra) has confirmed the order of Tribunal wherein it was held that no disallowance u/s. 14A r.w. Rule 8D can be made on shares held as stock-in-trade. The Pune Bench of the Tribunal has been consistently following this view by placing reliance on the judgment rendered by the Hon'ble Karnataka High Court in the case of CCI Ltd. Vs. JCIT reported as 71 DTR 141 (Kar.). The Hon'ble Bombay High Court in the case of HDFC Bank Ltd. Vs. DCIT (supra) has reversed the order of Mumbai Bench of the Tribunal.” It was clearly stated by the Ld.Counsel that the facts may be verified by the AO in this regard and amount of disallowance could be reworked accordingly. The Ld.DR also had no objection for the same. Therefore, we send this issue back to the file of the AO with the direction to verify the facts and exclude the amount of stock-in-trade from the amount of investments to be considered for making disallowance u/s 14A. The amount of disallowance shall be worked out accordingly. In case, the disallowance comes out to be less than the voluntary disallowance made by the assessee, then the amount of voluntarily 14A. In case, the disallowance worked out by the AO after complying with the aforesaid directions comes out to be more than the amount of voluntary disallowance, then the amount worked out now by the AO shall be adopted. The AO shall give adequate opportunity of hearing to the assessee before making any disallowance afresh. Thus, with these directions, this ground is sent back to the file of the AO.
As a result, the appeal may be treated as partly allowed, for statistical purpose. Order pronounced in the court on this 21st day of September,2016.