Income Tax Appellate Tribunal - Mumbai
Motilal Oswal Securities Ltd, Mumbai vs Acit Cc 3(3), Mumbai on 28 December, 2018
IN THE INCOME-TAX APPELLATE TRIBUNAL "D" BENCH MUMBAI
BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND
SHRI G. MANJUNATHA, ACCOUNTANT MEMBER
ITA No. 2820/Mum/2017 (Assessment Year 2012-13)
M/s Motilal Oswal Securities ACIT CC-3(3),
Ltd., Motilal Oswal Tower, Room No. 1923, 19th Floor,
Gokhale Road North, Vs. Air India Building,
Prabhadevi, Mumbai-400025. Nariman Point,
PAN: AAACD3654Q Mumbai-400021.
Appellant Respondent
ITA No. 2841/Mum/2017 (Assessment Year 2012-13)
ACIT CC-3(3), M/s Motilal Oswal Securities Ltd.,
Room No. 1923, 19th Floor, Motilal Oswal Tower, Gokhale
Air India Building, Vs. Road North, Prabhadevi,
Nariman Point, Mumbai-400025.
Mumbai-400021. PAN: AAACD3654Q
Appellant Respondent
Revenue by : Shri Vijay Mehta with Shri Anuj
Kisnadwala (AR)
Assessee by : Shri Chaudhary Arun Kumar Singh
(DR)
Date of Hearing : 28.12.2018
Date of Pronouncement : 2812.2018
ORDER UNDER SECTION 254(1)OF INCOME TAX ACT
PER PAWAN SINGH, JUDICIAL MEMBER;
1. These cross-appeal are directed against the order of ld. Commissioner of Income-tax(Appeals)-51, [for short the ld. CIT(A)], Mumbai dated 30th January 2017, which in turn arises from assessment order dated 27th March 2015 passed under section 143(3) for Assessment Year 2012-13. The assessee in its appeal has raised following ground of appeal:
ITA No. 2820 & 2841 Mum 2017-M/s Motilal Oswal Securities Ltd.
1. On the facts and in the circumstances of the case and in law, learned Commissioner appeal erred in upholding the disallowance under section 14 A read with rule 8D made by assessing officer amounting to Rs.
1,62,45,627/-.
2. In ITA No. 2841/Mum/2017, the Revenue has raised the following grounds of appeal:
1. "On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the addition on account of bad debts and failed to appreciate that the assessee has not fulfilled the conditions stipulated u/s 36(1)(vii) read with section 36(2) of the IT Act."
2. "On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the addition on account of bad debts and failed to appreciate that the assessee being a share broker will adjust the deposit amount received from the client against the dues from the clients and hence the bad debt claimed by assessee was not allowable in view of provisions of section 36(1)(vii) r.w sc. 360 of the IT Act."
3. "On the facts and circumstances of the case and in law, the CIT(A) erred in allowing the depreciation @ 60% instead of 25% allowed by the Assessing Officer on VSAT and erred in holding that the VSAT is a part of computer and hence eligible for depreciation @ 60% without appreciating the fact that VSAT is essentially a part of wireless communication system through satellite which is exclusive from the computer system and eligible for depreciation @ 25%."
4. "On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the addition without appreciating the fact that the AO has rightly treated the Vanda loss as speculation loss as pr section 73 of the IT Act."
5. "On the facts and circumstances of the case and in law, the CIT(A) erred in directing the Assessing Officer to delete the disallowance made by the Assessing Officer on account of customer rights without appreciating that the fact that it comes within the purview of business or commercial rights of similar nature thereby making it eligible for deprecation u/s 32."
6. "On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the addition on account of disallowance of depreciation of Rs.6,72,919/- claimed on fixed assets acquired from M/s PCML."
7. The appellant craves to leave, to add, to amend and / or to alter any of the ground of appeal, if need be.
8. The appellant, therefore, prays that on the grounds state above, the additional grounds of appeal of the assessee may be set aside and that of the Assessing Officer restored.2
ITA No. 2820 & 2841 Mum 2017-M/s Motilal Oswal Securities Ltd.
3. Brief facts of the case are that assessee is a company engaged in the business of stock broking and member of Bombay Stock Exchange (BSE) and National Stock Exchange (NSC). The assessee also provides service of portfolio management and a depository participant is a part of its business. The assessee filed its return of income for relevant assessment year on 29th of November 2012 declaring total income of Rs. 98,24,37,170/-. The assessment was completed on 27th March 2015 under section 143(3). The Assessing Officer while passing the assessment order made various additions and disallowances consisting of disallowance under section 14A of Rs. 1,62,45,627/-. Disallowed bad debts claim of Rs. 57,28,517/-, allowed depreciation only @ 25% in place of 60% on VSAT and disallowed depreciation of Rs. 6,72,919/- on fixed asset acquired from Penisular Capital Market Ltd. (PCML). On appeal before the ld. CIT(A), all addition/disallowance was deleted except confirming the disallowance under section 14A. Thus, further aggrieved by the order of ld. CIT(A), both the parties have filed their respective appeal raising the grounds of appeal as mentioned above.
4. We have heard the submission of ld. AR of the assessee and ld. DR for the Revenue and perused the material available on record. ITA No. 2841/Mum/2017 by Revenue
5. At the outset of hearing, the ld. AR of the assessee submits that all the ground no. 1 to 5 of the appeal raised by revenue in their appeal in ITA 3 ITA No. 2820 & 2841 Mum 2017-M/s Motilal Oswal Securities Ltd. No. 2841/Mum/2017 are covered by various decision of Tribunal in assessee's own case. The ld. AR of the assessee further furnished a tabulated chart showing the various grounds of appeal covered by the decision of order of Tribunal for A.Y. 2007-08 to A.Y. 2011-12. The ld. AR of the assessee also furnished the copy of decision of Tribunal.
6. On going through the details provided in the tabulated chart and the decision of Tribunal in assessee's own case for A.Y. 2007-08 and A.Y. 2008-09, 2009-10 & 2010-11, the ld. DR agreed that similar issues were decided by Tribunal. The ld. DR submits that he relied on the order of Assessing Officer on all grounds of appeal raised by revenue.
7. We have considered the submission of parties and perused the various grounds of appeal and the orders of lower authorities. Ground No. 1 & 2 relates to bad debt. We have noted that the ld. CIT(A) deleted the addition by relying upon the decision of Tribunal in assessee's own case for A.Y. 2007-08. We have noted that in appeal for A.Y. 2007-08, the revenue has raised identical grounds of appeal and the Tribunal by following the decision of Hon'ble Jurisdictional High Court in CIT vs. Shreyas Morakhia (342 ITR 285) and CIT vs. Bonanza Portfolio (322 ITR 178 (Del.) dismissed the ground of appeal raised by revenue. We have further noted that the similar ground of appeal was considered by Tribunal in assessee's own case for A.Y. 2009-10 in ITA No. 7328/Mum/2011 and by following the order of Tribunal in assessee's 4 ITA No. 2820 & 2841 Mum 2017-M/s Motilal Oswal Securities Ltd. own case for A.Y. 2007-08, the assessee was granted the relief with the following order:
"7. In the assessment year 2009-2010, the revenue is aggrieved for disallowance of claim of bad debts. From the record we found that the assessee claimed bad debts of Rs.3,02,30,904/- which is also written off to P/L account. The brokerage earned in respect of the said parties in last 3 years amounted to Rs.1,36,63,844/-. By the impugned order after giving detailed finding the CIT(A) has deleted disallowance. 7.1 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 ITA No.168/Mum/2011, dated 21-1-2015. The issue is also squarely covered by the decision of the special bench in the case of CIT Vs. Shreyas S. Morakhia. Further, the decision of Special Bench has been upheld by the Hon'ble Bombay High Court in the case of CIT Vs. Shreyas S. Morakhia, 342 ITR 285. Respectfully following the judicial pronouncements in assessee's own case, we uphold the action of CIT(A) for deleting disallowance of bad debts."
8. Considering the decision of co-ordinate bench of Tribunal and respectfully following the same, we uphold the order of ld. CIT(A) for deleting the disallowance of bad debt. In the result, ground no.1 & 2 of the appeal are dismissed.
9. 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: 5
ITA No. 2820 & 2841 Mum 2017-M/s Motilal Oswal Securities Ltd.
"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 ITA No.6738 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.168/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 ld. CIT(A) for deleting the disallowance of bad debt. In the result, ground no.3 of the appeal is dismissed.
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:
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ITA No. 2820 & 2841 Mum 2017-M/s Motilal Oswal Securities Ltd.
"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(1) of the Act. The AO was of the view that 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 ITA No.168/Mum/2011 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 TTJ 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 ld. CIT(A) for deleting the disallowance of Vanda Loss. In the result, ground no.4 of the appeal is dismissed.
13. Ground No.5 relates to deleting the depreciation on customer right. 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 to A.Y. 2010-11 and for A.Y. 2011-12. We have noted that the Tribunal in assessee's own case for A.Y. 2011-12 by following the decision of Tribunal for earlier years has passed the following order in ITA No. 378/Mum/2012 dated 31.03.2017.
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ITA No. 2820 & 2841 Mum 2017-M/s Motilal Oswal Securities Ltd.
"16. With regard to claim of depreciation on Customer Rights, we found that in A.Y.2007-08, the assessee had acquired customer rights aggregating to Rs.6,83,52,328/- from the following concerns in the course of its business acquisitions:-
Name of the concern Cost of acquisition
of customer rights
acquired (Rs.)
Peninsular Capital Markets Ltd., 5,18,82,328
Mr. M.K.Varghese (Prop. Of Capital Deal 60,00,000
& Share Broker)
Mani Stock Brokers Ltd., 1,04,70,000
Total 6,83,52,328
17. The A.O. disallowed depreciation following the reasons mentioned in A.Y.2007-08 to A.Y.2010-11 wherein similar disallowance was confirmed.
15. By the impugned order CIT(A) observed that the facts in the case of assessee are similar to the facts in the case of Capital Markets (P) Ltd., DCIT 56 SOT, 32 and directed the AO to allow depreciation claim of Rs.54,06,776/-. The observation of CIT(A) is as under:-
I have very carefully considered the matter. I find in the case of India Capital Markets (P) Ltd. vs. DCIT 56 SOT 32, the Hon'ble Mumbai ITAT had considered a similar matter. In the said case, the assessee, a share broker had purchased entire retail clientele business of a company for a certain consideration. The assessee therein booked these expenses as purchase of goodwill and claimed depreciation therein under. s. 32(1)(ii). It was held that the purchase of clientele business was a right which could be used as a tool to carry on business and therefore eligible for depreciation on the payments made, since it falls within the expression "any other business or commercial rights of similar matter"
used in section 32(1)(ii) of the Income Tax Act, 1961. The facts in the case of the appellant being similar to the facts of the above cited case, the A.O. is directed to allow depreciation on the acquisition of customer rights. The depreciation claim of Rs. 54,06,776/- is accordingly allowed.
18. We have considered rival contentions. AO relied on his order for A.Y.2007-08. The issue is covered in favour of assessee vide orders of the Hon'ble Tribunal in assessee's own case for A.Y.2007-08 in ITA No.168/Mum/2011 dated 21/01/2015 and A.Y.2008-09 to 2010-11 in ITA 8 ITA No. 2820 & 2841 Mum 2017-M/s Motilal Oswal Securities Ltd. No.4581/Mum/2012, 7328/Mum/2011 and 6204/Mum/2013 dated 19/02/2016. Respectfully following the order of the Tribunal, we do not find any reason to interfere in the order of CIT(A) for allowing claim of depreciation on customer's right.
14. Considering the decision of co-ordinate bench of Tribunal and respectfully following the same, we uphold the order of ld. CIT(A) for deleting the disallowance of depreciation on customer rights. In the result, ground no.5 of the appeal is dismissed.
15. Ground No. 6 relates to depreciation on fixed assets acquired from PCML. The ld. AR of the assessee submits that the ld. CIT(A) while deciding this issue relied upon order of his predecessor in A.Y. 2007-08 & A.Y. 2011-12. The ld AR submits that the revenue has not challenged the finding of ld CIT(A) before Tribunal in all years. The ld. AR of the assessee submits that the Assessing Officer in order giving effect on the direction of ld CIT(A), has allowed the relief to the assessee and allowed the depreciation to the assessee in all years. Therefore, the assessee is also entitled for the relief of depreciation on fixed asset acquired from PCML for the year under consideration.
16. On the other hand, the ld. DR submits that this ground may be restored to the file of Assessing Officer for verification of fact and to pass the order in accordance with law.
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ITA No. 2820 & 2841 Mum 2017-M/s Motilal Oswal Securities Ltd.
17. We have considered the submission of both the parties and deem it appropriate to restore this ground to the file of Assessing Officer for verification of fact and to allow the relief to the assessee in accordance with law. In the result, this ground of appeal is allowed for statistical purpose.
ITA No. 2820/Mum/2017 by assessee
18. The ld. AR of the assessee submits that the sole ground of appeal raised by the assessee relates to the disallowance under section 14A. The ld. AR of the assessee further submits that on similar disallowance for A.Y. 2008-09 & A.Y. 2009-10, the issue was restored to the file of Assessing Officer to re-compute the disallowance under section 14A. The Assessing Officer in the set-aside proceeding accepted the working of assessee for calculating disallowance under section 14A. The ld. AR of the assessee placed on record the copy of order giving effect of the Assessing Officer for A.Y. 2008-09 and A.Y. 2009-10 dated 02.04.2018 and 01.06.2018 respectively (page no. 52 to 56 of the PB). The ld. AR further submits that the assessee's own funds are sufficient to meet out the investment made for earning the exempt income. Therefore, no interest disallowance under Rule 8D(2)(ii) is warranted. The ld. AR further submits that this fact was duly accepted by the Tribunal in assessee's own case for A.Y. 2011-12. The Tribunal on the basis of observation that the assessee has sufficient interest free fund available to 10 ITA No. 2820 & 2841 Mum 2017-M/s Motilal Oswal Securities Ltd. cover the value of investment deleted the disallowance made by Assessing Officer. The ld. AR submits that the assessee has suo moto made disallowance of Rs. 27,64,666/-. The Assessing Officer by invoking the provision of Rule 8D made further disallowance of Rs. 1,62,45,627/-. The ld. AR submits that entire disallowance made by Assessing Officer and confirmed by ld. CIT(A) is liable to be deleted on the basis of decision of Tribunal in assessee's own case for earlier years.
19. On the other hand, the ld. DR for the Revenue relied upon the order of Assessing Officer and ld. CIT(A).
20. We have considered the rival submission of the parties and perused the order of authorities below. We have also gone through the order giving effect passed by Assessing Officer for A.Y. 2008-09 dated 02.04.2018 passed under section 143(3) r.w.s 250/254 accepting the suo moto disallowance under section 14A of Rs. 4,89,788/-. The order of Assessing Officer dated 01.06.2018 for A.Y. 2009-10 under section 143(3) r.w.s 250/254 in accepting the suo moto disallowance under section 14A for Rs. 9,82,352/-. And order giving effect for A.Y. 2010- 11 dated 02.05.2018 in accepting disallowance under section 14A of Rs. 12,60,096/-. The Tribunal in assessee's own case for A.Y. 2011-12 deleted the disallowance under section 14A in excess of Rs. 11.84 Lakhs (suo moto disallowance) vide order dated 31.03.2007 by making following order:
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ITA No. 2820 & 2841 Mum 2017-M/s Motilal Oswal Securities Ltd.
"19. In the appeal filed by assessee, the assessee is aggrieved for disallowance u/s.14A.
20. We have considered rival contentions and found that the own funds of assessee (Rs. 555.45 crores) are sufficient to cover up the value of investment (Rs. 41.07 crores) so no interest disallowing is required to be made u/ s 14A of the Act. With regard to administrative expenses, the issue is covered vide order of the Hon'ble Tribunal in assessee's own case A.Y.s 2008-09 to 2010-11 in ITA No. 4581/Mum/2012, 7328/Mum/2011 and 6204/Mum/2013 dated 19.02.2016. The matter has been sent back to the file of Assessing Officer for deciding the issue in accordance with the direction given by the Hon'ble Tribunal in case of sister concern of the assessee wherein a similar working given by the assessee has been accepted by the Assessing Officer for A.Y.2009-10 to 2011-12. After going through the order of the Tribunal as well as consequential orders passed by the AO, in the case of sister concern for the A.Y.2009-10 to 2011-12, we do not find any justification for disallowance so made by the AO and confirmed by CIT(A). Accordingly AO is directed to delete the disallowance made in excess of Rs.11.84 lakhs. We direct accordingly."
21. Considering the decision of co-ordinate bench of Tribunal in A.Y. 2011- 12 and acceptance of consistent disallowance for A.Y. 2008-09, 2009- 10 & 2010-11 by Assessing Officer in order giving effect under section 143(3)/250/254, we direct the Assessing Officer to accept the suo moto disallowance under section 14A of Rs. 27,64,666/-. We direct accordingly.
22. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 28/12/2018.
Sd/- Sd/-
G. MANJUNATHA PAWAN SINGH
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Date: 28.12.2018
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ITA No. 2820 & 2841 Mum 2017-M/s Motilal Oswal Securities Ltd. SK Copy of the Order forwarded to :
1. Assessee 2. Respondent
3. The concerned CIT(A) 4.The concerned CIT
5. DR "D" Bench, ITAT, Mumbai
6. Guard File BY ORDER, Dy./Asst. Registrar ITAT, Mumbai 13