JM FINANCIAL SERVICES LTD,MUMBAI vs. ASST CIT 4(3), MUMBAI

O R D E R

Per ASHWANI TANEJA, AM

“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.”

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.

“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.