I.T.A. No.441/Mum/2015 IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J , MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A. No.441/Mum/2015 (Assessment Year : 2010-11) JM Financial Services Ltd vs ACIT 4(3), Mumbai 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai-25 PAN : AAACJ5977A (Appellant) (Respondent) Appellant by Shri K Shivram / Shri Sanjay Parekh Respondent by Arju Garodia Date of hearing : 15-09-2016 Date of pronouncement :21 -09-2016 ORDER Per ASHWANI TANEJA, AM This appeal has been filed by assessee against order of Commissioner of Income-tax (Appeals)-8, Mumbai [hereinafter called Ld.CIT(A)] dt 10-11-2014 passed against order u/s 143(3) for A.Y. 2010-11 on following grounds: Disallowance of lease rentals paid on motor vehicles - Rs. 24210121- 1) learned Commissioner of Income Tax (Appeals) - 8, Mumbai [CIT(A) erred on facts and in law in upholding order of Assistant Commissioner of Income Tax - 4(3), Mumbai (AO) making disallowance of lease rentals paid on motor vehicles taken 2 I.T.A. No.441/Mum/2015 on lease, amounting to Rs. 24,21,012/- by holding that identical issue was decided against appellant in earlier year by his predecessor without appreciating that order for Assessment Year 2008 - 09 had been set aside by Hon'ble Income Tax Appellate Tribunal to file of AO. 2) appellant prays that disallowance of lease rentals paid on motor vehicles taken of lease amounting to Rs. 24,21,012/- as made by AO and as confirmed by CIT(A) may be deleted. 3) Without prejudice to above, learned CIT(A) erred in not allowing depreciation on leased assets amounting to Rs. 13,39,344/- and finance charges amounting to Rs. 4,36,815/- included in lease rent. 4) appellant prays that if lease rentals are not allowed as deduction, depreciation on leased assets and finance charges included in lease rentals may be allowed as deduction. B) Additional disallowance u/s. 14A - Rs. 63,16,517/-5) learned CIT(A) erred on facts and in law in upholding order of AO making additional disallowance u/s. 14A read with Rule 8D of Rs. 63,16,517/- without recording finding as to why appellant s contention is to be rejected having regard to accounts. 6) learned CIT(A) erred in not appreciating that disallowance u/s 14A could not be made unless satisfaction was reached by AO that appellant s claim could not be accepted having regard to accounts. No such satisfaction having been recorded by AO or CIT(A), additional disallowance of Rs.63,16,517/- under section 14A read with Rule 8D is liable to be deleted. 7) appellant prays that additional disallowance of Rs. 63,16,517/- u/s. 14A made by AO and as upheld by CIT(A) may be deleted. 8) Without prejudice to above, learned CIT(A) erred in not deciding alternate contention of appellant that value of stock could not be considered while computing average value of investments. 9) appellant prays that if your honour is to confirm additional disallowance of Rs. 63,16,517/- u/s. 14A, your honour may decide alternate contention of appellant that value of stock in trade should not be included while determining average value of investments. 3 I.T.A. No.441/Mum/2015 2. Ground No.1 : In this ground, assessee has contested action of lower authorities in making disallowance of lease rentals paid on motor vehicles taken on lease amounting to Rs.24,21,012. Assessing Officer did not allow lease rentals on ground that same was capital expenditure. Ld.CIT(A) confirmed 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, issue had reached upto Tribunal wherein same has been sent back to file of Assessing Officer. 3. Per contra, Ld.DR relied upon orders of lower authorities. 4. We have gone through orders passed by lower authorities as well as orders of Tribunal for A.Ys 2007-08 & 2008-09. It is noted that Tribunal in A.Y. 2007-08, vide order dated 28-06-2013 in ITA No.3112/Mum/2011 sent this issue back to file of Assessing Officer with following directions: 13. We have carefully considered rival contentions, perused relevant findings of Assessing Officer as well as learned Commissioner (Appeals) and material placed on record. From facts discussed from Pages 8 to 11 of learned Commissioner (Appeals) s order, it is seen that same has not been discussed or dealt with by Assessing Officer. Such appreciation of facts by learned Commissioner (Appeals) has also been disputed before us. Further, Hon'ble Supreme Court in IDCS Ltd. (supra) has also laid down law relating to allowance of depreciation on leased vehicles and whether it is for business purpose or not. Therefore, in interest of justice, we are of considered opinion that entire issue should be restored back to file of Assessing Officer for denovo adjudication. Consequently, we set aside impugned order 4 I.T.A. No.441/Mum/2015 passed by learned Commissioner (Appeals) and restore entire issue back to file of Assessing Officer for fresh adjudication in light of judicial pronouncements of Hon'ble Supreme Court in IDCS Ltd. (supra). It is further noted that similar order has been passed by Tribunal in A.Y. 2008-09 also. During course of hearing, no distinction has been made on facts or law by either party. Thus, we send this issue back to file of A.O with same direction as has been issued for A.Y. 2007-08. AO is directed to follow order of Tribunal for A.Y. 2007-08 while deciding this issue afresh. Assessing Officer is also directed to offer adequate opportunity of hearing to assessee before deciding this issue anew. This ground is treated as allowed for statistical purpose. 5. Ground 2 : In this ground, assessee has challenged action of lower authorities in making disallowance u/s 14A for Rs.63,16,517/-. 6. During course of hearing it was submitted by Ld.Counsel of assessee that assessee had made voluntary disallowance of Rs.21,47,266/- and also explained basis of making disallowance to lower authorities. But AO, without rejecting basis of making voluntary disallowance of Rs.21,47,266/- and also explained basis of making disallowance to lower authorities. But AO, without rejecting basis of making voluntary disallowance and without applying his mind and without recording any satisfaction applied Rule 8D mechanically even without pointing out disallowance made by assessee was incorrect, enhanced disallowance. It was further submitted that in this case substantial part of investment is comprised of stock-in-trade held by assessee and same cannot be considered for making disallowance u/s 14A. Reliance was placed on judgement of Hon ble Karnataka High Court in case of CCI Ltd vs JCITY 250 5 I.T.A. No.441/Mum/2015 CTR 291 (Kar) and judgement of Hon ble Bombay High Court in case of CIT vs India Advantage Securities Ltd 380 ITR 471 (Bom). Reliance was also placed on judgment of Pune Bench of Tribunal in case of Shri Paresh Pritamlal Mehta vs ITO ITA No.1715/PN/2015 A.Y. 2012-13 order dated 18-03- 2016 wherein, after discussing entire law and Third Member judgement of Mumbai Bench of Tribunal in case of D.H. Securities Pvt Ltd vs DCIT 41 Taxman.com 352, it was held that investment held as stock in trade should not be considered for making disallowance u/s 14A r.w.r.8D. 7. Per contra, Ld.DR relied upon order of lower authorities. We have gone through orders of lower authorities and judgements placed before us. With assistance of parties it is noticed from balance- sheet of assessee that assessee is having investments held as investments as also investments in shares and other securities, which are held as part of stock in trade. assessee has rightly contended that it has been held in aforesaid judgments that shares held as part of stock-in-trade cannot be considered for making disallowance u/s 14A. Pune Bench of Tribunal in case of Paresh Pritamlal Mehta (supra) has analysed law and by following aforesaid decisions, decided issue in favour of assessee with following observations: 5. We have heard submissions made by representatives of rival sides and have perused orders of authorities below. We have also considered decisions on which ld. AR has placed reliance in support of his submissions. assessee has earned tax free dividend income of Rs.12,04,572/-. assessee has earned aforesaid dividend income on shares held as stock-in-trade. It is not disputed by Department that assessee is engaged in business of trading of shares and assessee is not maintaining any investment portfolio. Assessing Officer made disallowance of Rs.46,89,749/- u/s. 14A r.w. Rule 8D. It is also admitted fact that 6 I.T.A. No.441/Mum/2015 similar disallowance was made in case of assessee in assessment year 2010-11. Commissioner of Income Tax (Appeals) deleted disallowance, Department carried matter in appeal to Tribunal. Co-ordinate Bench of Tribunal by placing reliance on decision rendered in case of Kunal Polymers Vs. DCIT in ITA No. 1859/PN/2012 decided on 15-07-2015 and decision of Hon'ble Bombay High Court in case of CIT Vs. India Advantage Securities Ltd. in Income Tax Appeal No. 1131 of 2013 decided on 13-04-2015 dismissed appeal of Department. Assessing Officer vide assessment order dated 23-01-2015 made similar disallowance on shares held as stock-in-trade for assessment year under appeal. In first appeal Commissioner of Income Tax (Appeals) disregarding order of Tribunal in assessee s own case in earlier assessment year decided issue against assessee by placing reliance on decision of Mumbai Bench of Tribunal in case of HDFC Bank Ltd. Vs. DCIT (supra) and decision of Mumbai Bench of Tribunal (Third Member) in case of D.H. Securities Pvt. Ltd. Vs. DCIT reported as 41 taxmann.com 352. 6. Hon'ble Bombay High Court in case of CIT Vs. India Advantage Securities Ltd. (supra) has confirmed 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. Pune Bench of Tribunal has been consistently following this view by placing reliance on judgment rendered by Hon'ble Karnataka High Court in case of CCI Ltd. Vs. JCIT reported as 71 DTR 141 (Kar.). Hon'ble Bombay High Court in case of HDFC Bank Ltd. Vs. DCIT (supra) has reversed order of Mumbai Bench of Tribunal. It was clearly stated by Ld.Counsel that facts may be verified by AO in this regard and amount of disallowance could be reworked accordingly. Ld.DR also had no objection for same. Therefore, we send this issue back to file of AO with direction to verify facts and exclude amount of stock-in-trade from amount of investments to be considered for making disallowance u/s 14A. amount of disallowance shall be worked out accordingly. In case, disallowance comes out to be less than voluntary disallowance made by assessee, then amount of voluntarily 7 I.T.A. No.441/Mum/2015 disallowed by assessee shall be accepted as disallowance u/s 14A. In case, disallowance worked out by AO after complying with aforesaid directions comes out to be more than amount of voluntary disallowance, then amount worked out now by AO shall be adopted. AO shall give adequate opportunity of hearing to assessee before making any disallowance afresh. Thus, with these directions, this ground is sent back to file of AO. 8. As result, appeal may be treated as partly allowed, for statistical purpose. Order pronounced in court on this 21st day of September,2016. Sd/- sd/- (C.N. PRASAD) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER st Mumbai, Dt : 21 September, 2016 Pk/- Copy to : 1. appellant 2. respondent 3. CIT(A) 4. CIT 5. Ld. Departmental Representative for Revenue,J -Bench (True copy) By order ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES JM Financial Services Ltd. v. ACIT 4(3), Mumbai