Transactions in cash and future segment cannot be segregated for the purpose of Income Tax

The Income Tax Appellate Tribunal at Mumbai in the case of ITA No.3654/M/2014 Assessment Year 2009-10 filed by M/s. J.M. Financial Services Ltd., (Formerly J.M. Financial Services Pvt. Ltd.) (Appellant), having its office at 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai – 400 025 bearing PAN: AAACJ5977A against the Joint Commissioner of Income Tax (OSD)-4(3), Room No.635, Aayakar Bhavan, M.K. Road, Mumbai – 400020 (Respondent) and in the case of ITA No.3660/M/2014 in connection with the Assessment Year 2009-10 filed by Dy. Commissioner of Income Tax-4(3), 6th Fl., R. No.649, Aayakar Bhavan, Mumbai – 20 (Appellant) against M/s. J.M. Financial Services Ltd.,(Formerly JM Financial Services Pvt. Ltd.), 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai – 400 025 bearing PAN: AAACJ5977A (Respondent), has held that transactions in cash and future segment cannot be segregated as per provisions of the Income Tax Act.

Transactions in cash and future segment cannot be segregated-Case Details

Pleaders engaged for the Case- Transactions in Cash and Future Segment:

The Assessee was represented by Shri K. Shivaram, A.R. and the Revenue was represented by Shri Alok Johri, D.R.

Date of Hearing- Case No ITA No.3660/M/2014

The hearing was concluded on 13.06.2016

Date of order: Dy Commissioner of Income Tax vs M/s. J.M. Financial Services Ltd

The order was pronounced in the open court on 28.12.2016 by Sri Sanjay Garg, Judicial Member.

Grounds of the appeals: Case No ITA No.3660/M/2014

The appeals were preferred one by the assessee and the other by the Revenue, against the order passed on 27.03.2014 by the Ld. Commissioner of Income Tax (Appeals) in connection with the assessment year 2009-10.

The assessee agitated the following grounds of appeal:

1. The learned Commissioner of Income Tax (Appeals ) Mumbai erred in directing the Joint Commissioner of Income Tax at Mumbai in allowing the claim of depreciation on intangible assets and simultaneously in disallowing the depreciation on other intangible assets without appreciating the fact that there was a specific direction to allow depreciation on intangible assets on Rs.4.25 crores and disallow the claim of depreciation on Rs.1.75 crores of the value of other assets during the relevant period.
2. The learned CIT (A) was wrong in upholding the order of the Assessing Officer in making a dis allowance of lease rentals amounting to Rs.32, 54,995/- paid on motor vehicles which were taken on lease by considering that the lease rentals paid by the assessee were not their liability but that of their employees as well as in holding that there was no genuine lease between the parties.
3. The appellant prayed for deleting the dis allowance of lease rentals paid towards motor vehicles taken of lease amounting to Rs.32, 54,995/- as made by the Assessing Officer which was confirmed by the CIT (A).
4. the learned CIT(A) was not justified in disallowing the depreciation on leased assets amounting to Rs.12,61,373/- and finance charges amounting to Rs.9,14,252/- that were included in the lease rent.
5. The appellant prayed that if lease rentals were not allowed as a deduction, depreciation on leased assets may be allowed as a deduction.
6. The learned CIT(A) erred in upholding the order of the Assessing Officer in making an additional dis allowance under the provisions of section 14A read with Rule 8D of Rs.2 1,48,9 28/ – without recording the reasons as to why the appellant’s stand point should be rejected relating to the accounts.
7. The learned CIT(A) was wrong in not appreciating that the dis allowance under the provisions of section 14A could not be made unless a satisfaction was reached by the Assessing Officer that the appellant’s claim could not he accepted having regard to the accounts. No such satisfaction was recorded by the Assessing Officer or CIT(A), the additional dis allowance of Rs.21,48,928/- under section 14A read with Rule 8D should be deleted.
8. The appellant prayed for deleting the additional dis allowance of Rs.21, 48,928/- 14A made by the Assessing Officer under section 14A and as upheld by the CIT(A) may be deleted.
9. The appellant also craved leave to add amends, change, delete or modify any of the above grounds of appeal.

The background of the appeals: Case No ITA No.3660/M/2014

The Tribunal went through the order 28.2.2014 passed in the own case of the assessee in connection with the Assessment Year 2008-09.

It was noted that the Tribunal allowed the similar claim of the assessee for depreciation following the judgment of the Hon’ble Supreme Court in Tecno Shares and Stock Ltd. as reported in 327 ITR 323(SC) .

Following the decision of the Tribunal in the own case of the assessee, the first issued was ordered in favour of the assessee.

Regarding the dis allowance of lease rentals paid on motor vehicles during the year, the assessee had paid lease rentals to M/s. Orix Infrastructure Services Private Limited for cars taken on lease and had capitalized the value of vehicles in the books of accounts as per the requirements of Accounting Standards issued by the Institute of Chartered Accountants of India.

Accordingly, the finance charges on the leased vehicles and depreciation were disallowed by the assessee.

The assessee reduced the lease rentals from the income for income tax purposes. The assessee claimed that the entire expenses incurred were revenue expenditure and were incurred in the normal course of business of the assessee as such, the same should be allowed.

The assessee also submitted that if the Assessing Officer disallowed the lease rentals, then the assessee should be allowed depreciation for the leased vehicles.

The Assessing Officer disallowed the claims made by the assessee following the order for Assessment Year 2008 – 09 and did not accept the alternate claim of the assessee for depreciation and finance charges.

The Assessing Officer relied on the judgment of the Hon’ble Supreme Court in Goetze (India) (2006) 284 ITR 323 (SC).

The ld. CIT (A) following his own earlier decision, confirmed the dis allowance made by the Assessing Officer. Aggrieved by the said order, the assessee filed the appeal before the ITAT.

Arguments of the parties:

The Assessee had claimed depreciation of Rs. 16, 76,266/- towards intangible assets comprising of Goodwill and other assets.

The Assessing Officer disallowed the claim based on previous financial years.

Before the ld. CIT (A), it was contended that depreciation was allowed in earlier years. However, depreciation was allowed on Rs.4.25 crores out of the total intangible assets of Rs.6 crores regarding other intangible assets.

The ld.  CIT (A) directed the Assessing Officer to allow depreciation made earlier on Rs.4.25 crores.  Aggrieved by the order of the CIT (A), assessee filed the appeal.

The Ld. AR of the assessee submitted that as the ld. CIT(A) directed the Assessing Officer to allow depreciation on other intangible assets amounting to Rs.4.25 crores, which the Assessing Officer had  allowed in complying the order of CIT(A), as such no directions were required with respect to Rs.7,97,774/-.

It was submitted that depreciation was allowed by the tribunal in the Assessment Year 2007-08 and 2008-09.

Hence it was requested that depreciation of Rs. 2, 68, 428/- to be allowed.

The judgment: Case No ITA No.3660/M/2014

The rival contentions were heard and the Tribunal went through record. The judgment delivered in the case of Godrej & Boyce Manufacturing Co. Ltd. 328 ITR 81 by the Hon’ble Bombay High Court was observed.

Therein it was held that under section 14A of the Act, Rule 8D of the Income Tax Rules may be applied for determining the amount of expense relating to exempt income, if the Assessing Officer is not satisfied with the genuineness of the claim regarding transactions made by the assessee for such expenditure.

The satisfaction of the Assessing Officer is an essence regarding the accounts of the assessee.

The tribunal perused the assessment order in the case. It was observed that the guidelines of objective satisfaction as have been laid down by the Hon’ble Bombay high Court were not followed by the Assessing Officer.

The Tribunal held that the transactions carried out by the assessee in cash segment and in future segment cannot be segregated. It cannot be said that the transactions in each segment are independent of each other.

In view of the above, the appeal of the Revenue was accordingly dismissed. However, the appeal of the assessee was partly allowed.

also read:

F&O transactions are non-speculative business transactions