TATA CAPITAL LTD, MUMBAI V. ASST CIT 2(3), MUMBAI

ITA 1175/MUM/2013

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6068 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 09-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 11-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R MANJUNATHA SWAMY; RITESH MISRA D RS
• Assessee Lawyers: NIRAJ SHETH MR JAYESH DESAI; MILIND THAKARE A RS
• Keywords: Business income; Earning of tax free income; Question of law; Capital expenditure; Rule 8D; Set aside
• Section: 143(3); 14A; 115JB; 143(1); 251; 143(2); 154

Judgement Text

P A G E | 1 ITA NOS. 1175 & 1098/MUM/2013 AY. 2009 - 10 TATA CAPITAL LIMITED VS. ASST. COMMISSIONER OF INCOME TAX - 2(3) IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE MR. M. BALAGANESH, ACCOUNTANT MEMBER AND MR. RAVISH SOOD, JUDICIAL MEMBER ITA NO. 1175/MUM/2013 (ASSESSMENT YEAR: 2009 - 10 ) TATA CAPITAL LIMITED ONE FORBES, DR. V.B. GANDHI MARG, FORT, MUMBAI 1 VS. ASST. COMMISSIONER OF INCOME TAX - 2(3), 552, 5 TH FLOOR, AAYAKAR BHAVAN, MUMBAI 400 020 PAN AADCP9147P (APPELLANT) (RESPONDENT) ITA NO.1098 /MUM/2013 (ASSESSMENT YEAR: 2009 - 10 ) DCIT - 2(3)(1), R. NO. 552, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 VS. M/S TATA CAPITAL LTD. 11 TH FLOOR, TOWER A, PENINSULA BUSINESS PARK, GANPATRAO KADAM MARG, LOWER PAREL, MUMBAI 400 013 PAN AADCP9147B (APPELLANT) (RESPONDENT) APPELLANT BY: MR. NIRAJ SHETH, MR. JAYESH DESAI & MR. MILIND THAKARE, A.RS RESPONDENT BY: MR. R. MANJUNATHA SWAMY & MR. RITESH MISRA, D.RS DATE OF HEARING: 1 2 . 09.2019 DATE OF PRONOUNCEMENT: 2 0 .09.2019 P A G E | 2 ITA NOS. 1175 & 1098/MUM/2013 AY. 2009 - 10 TATA CAPITAL LIMITED VS. ASST. COMMISSIONER OF INCOME TAX - 2(3) O R D E R PER RAVISH SOOD, JM THE PRESENT CROSS - APPEAL S FILED BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 6, MUMBAI, DATED 29.11.2012, WHICH IN TURN ARISES FROM THE ORDER PASSED BY THE A.O UNDER SEC. 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT ACT), DATED 27.12.2011 FOR A.Y. 2009 - 10. WE SH ALL FIRST ADVERT TO THE APPEAL FILED BY THE ASSESSEE. T HE ASSESSEE HAS ASSAILED THE IMPUGNED ORDER BY RAISING THE F OLLOWING GROUNDS OF APPEAL: 1. DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D (A) THE COMMISSIONER OF INCOME - TAX (APPEALS) [HER EINAFTER REFERRED TO AS THE CIT (A)] ERRED IN CONFIRMING THE ADDITION MADE BY LEARNED ASSISTANT COMMISSIONER OF INCOME TAX [HEREINAFTER REFERRED TO AS THE LD. ACIT] UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 ('THE ACT') CALCULATED BY APPLYING RULE 8D OF INCOME TA X RULES, 1962. (B) THE CIT(A) ERRED IN DISREGARDING THE FOLLOWING FACTS IGNORED BY ACIT AS WELL WHILE REACHING TO THE CONCLUSION THAT THE LOANS TAKEN BY THE APPELLANT ARE FOR THE PURPOSE OF MAKING INVESTMENTS YIELDING TAX FREE INCOME: THE INVESTMENTS GENERAT ING TAX FREE INCOME WERE FUNDED OUT OF THE COMPANY'S OWN FUNDS. TERM LOANS HAVE BEEN UTILIZED FOR SPECIFIC BUSINESS PURPOSES WHICH GENERATED TAXABLE INCOME. FURTHER, THE RBI GUIDELINES RESTRICTS BANKS TO FINANCE NBFC FOR MAKING INVESTMENTS IN SHARES/DEBEN TURES ETC. AND ALSO THE TERM LOAN AGREEMENTS HAVE RESTRICTIVE CLAUSES PROHIBITING THE COMPANY FROM INVESTING IN CAPITAL MARKETS. AS PER THE RBI GUIDELINES ON ASSET LIABILITY MISMATCH, SHORT TERM LOANS CANNOT BE USED FOR MAKING LONG TERM INVESTMENTS INCLUDING SHARES AND SECURITIES. (C) WITHOUT PREJUDICE TO THE ABOVE, THE CIT (A) ERRED IN IGNORING APPELLANT'S SUBMISSIONS THAT ATL EAST OPENING INVESTMENTS OF RS. 734.06 CRORES AND INCREMENTAL TAX FREE INVESTMENTS OF RS. 100 CRORES DURING THE YEAR SHOULD NOT BE CONSIDERED WHILE COMPUTING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. (D) WITHOUT PREJUDICE TO THE ABOVE, CIT(A) ERRED IN NOT FOLLOWING THE RATIO LAID DOWN BY KOLKATA TRIBUNAL IN THE CASE OF ACIT VS. CHAMPION COMMERCIAL C O . LTD . 139 LTD 108 [2012] AND THEREBY IGNORING APPELLANT'S SUBMISSIONS THAT THE INTEREST COST ON ENTIRE BORROWINGS CANNOT BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. (E) WITHOUT PREJUDICE TO THE ABOVE, THE CIT(A) ERRED IN NOT CONSIDERING THE APPELLANTS SUBMISSION THAT THE INVESTMENTS WHICH HAVE NOT YIELDED ANY EXEMPT INCOME DURING THE RELEVANT ASSESSMENT YEAR SHOULD NOT BE CONSIDERED. 2. THE CIT(A) ERRED IN REFERRING THE MATTER BACK TO THE ACIT FOR VERIFICATION OF PROOFS SUBMITTED DURING THE APPELLATE PROCEEDINGS IN SUPPORT OF THE CLAIM THAT THE COMMISSION WAS ACTUALLY PAID TO AUTOMOBILES P . LTD . AND IKON SOLUTIONS FOR SERVICES RENDERED. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, MODIFY OR DELETE ANY OF TH E GROUNDS TAKEN IN APPEAL. 2. BRIEFLY STATED, THE ASSESSEE COMPANY WHICH IS ENGAGED IN THE BUSINESS OF PROVIDING NON - BANKING FINANCIAL SERVICES HAD E - FILED ITS RETURN OF INCOME ON 25.09.2009 , DECLARING A TOTA L P A G E | 3 ITA NOS. 1175 & 1098/MUM/2013 AY. 2009 - 10 TATA CAPITAL LIMITED VS. ASST. COMMISSIONER OF INCOME TAX - 2(3) LOSS OF RS.33,33,52,057/ - UNDER THE NORMAL PROVISION S OF THE ACT. FURTHER, THE ASSESSEE HAD WORKED OUT ITS BOOK PROFIT AT RS.1,67,59,165/ - UNDER SEC. 115JB OF THE ACT. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED AS SUCH UNDER SEC. 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE OF THE ASSE SSEE WAS SELECTED FOR SCRUTINY ASSESSMENT UNDER SEC. 143(2) OF THE ACT. 3. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE A.O THAT THE ASSESSEE COMPANY HAD EARNED A DIVIDEND INCOME OF RS.14,49,99,258/ - , AGAINST WHICH IT HAD OFFERED A DISALLOWANCE UNDER SEC.14A OF RS. 54 ,86,307/ - . IT WAS THE CLAIM OF THE ASSESSEE THAT AS THE INVESTMENT IN THE EXEMPT INCOME YIELDING ASSETS WAS MADE OUT OF THE COMPANIES OWN FUNDS, THEREFORE, NO PART OF THE INTEREST EXPENDITURE WAS LIABLE TO BE DISALLOWED UNDER SEC.14A OF THE ACT. IN SUPPORT OF ITS AFORESAID CONTENTION, THE ASSESSEE HAD PLACED ON RECORD A FUND FLOW STATEMENT. APART THERE FROM, IT WAS THE CLAIM OF THE ASSESSEE THAT THE BORROWINGS WERE USED FOR ADVANCING LOANS AND EARNING INTEREST THERE FROM . ACCORDINGLY, IT WAS SUBMITTED BY THE ASSESSEE THAT A REASONABLE AMOUNT OF SALARY AND OTHER OVER HEADS WERE ATTRIBUTED FOR EARNING OF THE EXEMPT DIVIDEND INCOME A N D RESULTANTLY DISALLOWED UNDER SEC. 14A. HOWEVER, THE A.O AFTER DELIBERATING ON THE CONTENTIO NS ADVANCED BY THE ASSESSEE WAS NOT PERSUADED TO SUBSCRIBE TO THE SAME. IT WAS OBSERVED BY THE A.O , THAT THOUGH THE INCREASE IN THE SHARE CAPITAL AND RESERVES WAS ONLY RS. 103.56 CRORES, HOWEVER, THE INCREASE IN THE INVESTMENTS AMOUNTED TO RS.2,224.60 CROR ES. ACCORDINGLY, THE A.O WAS OF THE VIEW THAT THE INVESTMENTS MADE BY THE ASSESSEE WERE FUNDED FROM THE INTEREST BEARING FUNDS RAISED BY WAY OF LOANS. ON THE BASIS OF HIS AFORESAID OBSERVATIONS, THE A.O HELD A CONVICTION THAT THERE WAS A DIRECT CORRELATION BETWEEN THE INVESTMENTS AND THE LOAN FUNDS. IT WAS OBSERVED BY HIM THAT OUT OF THE TOTAL INCREASE IN THE INVESTMENT S , THE INCREASE IN THE INVESTMENT S MADE IN MUTUAL FUNDS AMOUNTED TO RS.1544.63 CRORES , WHILE FOR THE BALANCE INCREASE WAS IN RESPECT OF QUOT ED AND UNQUOTED SHARES. ON THE BASIS OF HIS AFORESAID DELIBERATIONS, THE A.O CALLED UPON THE ASSESSEE TO CORRELATE THE INVESTMENTS WITH THE BANK STATEMENTS SO THAT IT COULD BE ASCERTAINED AS TO WHETHER THE INTEREST BEARING LOANS WERE USED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE FOR WHICH THEY WERE RAISED OR THEY HAD BEEN DIVERTED FOR MAKING INVESTMENTS YIELDING TAX FREE INCOME. IN REPLY, THE ASSESSEE FILED A FUND FLOW STATEMENT. HOWEVER, THE A.O OBSERVING THAT WHILE THERE WAS ONLY AN INCREASE OF RS.103.56 CR ORES OF THE SHARE CAPITAL FUNDS, THE INCREASE IN THE INTEREST P A G E | 4 ITA NOS. 1175 & 1098/MUM/2013 AY. 2009 - 10 TATA CAPITAL LIMITED VS. ASST. COMMISSIONER OF INCOME TAX - 2(3) BEARING LOANS TAKEN AND THE INVESTMENTS MADE WAS MANIFOLD. APART THERE FROM, IT WAS NOTICED BY HIM , THAT AS THE ASSESSEE HAD MIXED FUNDS, THEREFORE, T HE POSSIBILITY OF UTILISATION OF INTEREST BEARING FUNDS FOR MAKING OF EXEMPT INCOME YIELDING INVESTMENTS COULD NOT BE RULE D OUT. ACCORDINGLY, THE A.O WAS OF THE VIEW THAT THE ASSESSEE HAD FAILED TO ESTABLISH THAT THE INTEREST BEARING LOANS WERE NOT UTILISE D FOR MAKING INVESTMENTS IN EXEMPT INCOME YIELDING ASSETS . AS SUCH, THE A.O INVOKE D THE PROVISIONS OF SEC.14A R.W.RULE 8D AND WORKED OUT THE DISALLOWANCE AT RS.146,82,00,000/ - , AS AGAINST THE DISALLOWANCE OF RS.45,86,307/ - OFFERED BY THE ASSESSEE IN ITS RE TURN OF INCOME. RESULTANTLY, AN AMOUNT OF RS.146,27,13,693/ - WAS ADDED FOR WORKING OUT THE TOTAL INCOME OF THE ASSESSEE AS PER THE NORMAL PROVISIONS. ALSO, THE DISALLOWANCE WORKED OUT UNDER SEC. 14A R.W. RULE 8D WAS ADDED FOR COMPUT ING THE BOOK PROFIT OF THE ASSESSEE COMPANY UNDER SEC. 115JB OF THE ACT. HOWEVER, THE A.O VIDE HIS ORDER PASSED U/S 154 OF THE ACT, DATED 11.01.2012, REVISED THE DISALLOWANCE U/S 14A AT RS. 71,37,00,000/ - . ALSO, THE BOOK PROFIT U/S 155JB WAS REVISED AT RS. 73,04,59,165/ - . 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). OBSERVING, THAT THE ASSESSEE EVEN IN THE COURSE OF THE APPELLATE PROCEEDINGS COULD NOT ESTABLISH THAT THE INVESTMENTS YIELDING EXEMPT INCOME WERE MADE OUT OF ITS OWN FUNDS, THEREFORE, THE CIT(A) WAS OF THE VIEW THAT THE ASSESSES FUNDS WERE FUNGIBLE. ACCORDINGLY, THE CIT(A) FOUND FAVOUR WITH THE DISALLOWANCE MADE BY THE A.O UNDER SEC. 14A R.W. RULE 8D (AS RECTIFIED UNDER SEC.154). HOWEVER, THE CIT(A) DIRECTED THE A.O TO EXCLUDE THE AMOUN T OF THE INVESTMENTS MADE BY THE ASSESSEE IN ITS SUBSIDIARY COMPANY AT SINGAPORE, FOR THE REASON , THAT THE SAME HAD YIELDED TAXABLE INCOME. 5. THE ASSESSEE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. THE LD. AU THORIZED REPRESENTATIVE (FOR SHORT A.R) FOR THE ASSESSEE TOOK US THROUGH THE ORDERS OF THE LOWER AUTHORITIES IN CONTEXT OF THE ISSUE UNDER CONSIDERATION . IT WAS SUBMITTED BY THE LD. A.R, THAT THE ASSESSEE HAD EARNED A DIVIDEND INCOME OF RS.14,49,99,258/ - , AGAINST WHICH IT HA D OFFERED A SUO MOT T O DISALLOWANCE U/S 14A OF RS.54,86,307/ - IN ITS RETURN OF INCOME. IT WAS SUBMITTED BY THE LD. A.R THAT BOTH THE LOWER AUTHORITIES HAD ERRED IN FAILING TO APPRECIATE THAT FOR THE PURPOSE OF COMPUTING THE DISALLOWANCE UNDER SEC. 14A ONLY THE INVESTMENTS YIELDING TAX FREE INCOME WERE TO BE CONSIDERED. IT WAS FURTHER SUBMITTED BY THE LD. A.R , THAT THE DISALLOWANCE OF RS.146,82,00,000/ - MADE BY THE A.O UNDER SEC.14A WAS P A G E | 5 ITA NOS. 1175 & 1098/MUM/2013 AY. 2009 - 10 TATA CAPITAL LIMITED VS. ASST. COMMISSIONER OF INCOME TAX - 2(3) THEREAFTER REDUCED BY HIM TO AN AMOUNT OF RS. 71,37, 00,000/ - , VIDE HIS ORDER PASSED UNDER SEC. 154 OF THE ACT. IT WAS SUBMITTED BY THE LD. A.R , THAT AS THE ASSESSEE HAD SUFFICIENT OWN FUNDS TO JUSTIFY THE INVESTMENTS MADE IN THE EXEMPT INCOME YIELDING ASSETS, THEREFORE , NO DISALLOWANCE OF ANY PART OF THE IN TEREST EXPENDITURE WAS CALLED FOR IN ITS HANDS. IN SUPPORT OF HIS AFORESAID CONTENTION THE LD. A.R HAD RELIED ON THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF THE CIT - 2, MUMBAI, VS. HDFC BANK LTD. (2014) 360 ITR 505 (BOM). INSOFAR, THE DISALLOWANCE OF THE ADMINISTRATIVE EXPENSES MADE BY A.O BY ATTRIBUTING THE SAME FOR EARNING OF EXEMPT DIVIDEND INCOME BY THE ASSESSEE WAS CONCERNED , IT WAS SUBMITTED BY THE LD. A.R THAT THE A.O HAD DISLODGED THE DISALLOWANCE THAT WAS VOLUNTARILY OFFERED BY THE ASSESSEE U/S 14A IN ITS RETURN OF INCOME, WITHOUT RECORDING ANY DIS SATISFACTION AS REGARDS THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE . IT WAS AVERRED BY THE LD. A.R , THAT THE DISALLOWANCE MADE BY THE A.O UNDER SEC. 14A WITHOUT ARRIVING AT A DIS SATIS FACTION AS REGARDS THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE ON THE BASIS OF ITS ACCOUNTS , AS WERE PLACED BEFORE HIM , WAS NOT SUSTAINABLE IN THE EYES OF LAW. IN SUPPORT OF HIS AFORESAID CONTENTION, THE LD. A.R HAD RELIED ON THE JUDGMENT OF THE HONBLE S UPREME COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING LTD. VS. DCIT & ANR. (2017) 394 ITR 449 (SC) . IT WAS SUBMITTED BY THE LD. A.R , THAT THE HONBLE APEX COURT HAD OBSERVED THAT WHERE THE DETERMINATION OF THE DISALLOWANCE UNDER SEC. 14A IS TO BE MADE BY APPLYING THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT THE LAW POSTULATE S IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE , AS PLACED BEFORE HI M, IT WAS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT WAS SUBMITTED BY THE LD. A.R , THAT THE HONBLE APEX COURT HAD OBSERVED THAT IT IS ONLY AFTER RECORDING OF A SATISFACTION BY THE A. O THAT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE COULD NOT BE ACCEPTED , THAT THE PROVISION S OF SEC. 14A(2) AND (3) R .W. RULE 8D OR A BEST JUDGMENT DETERMINATION AS WAS EARLIER PREVAILING, WOULD BECOME APPLICABLE. THE LD. A.R IN SUPPORT OF HIS AFORESAID CONTENTION ALSO RELIED ON THE ORDERS OF THE COORDINATE BENCHES OF THE TRIBUNAL VIZ. (I) M/S TAURIAN ENGINEERING PVT. LTD. VS. ITO - 17(1)(1), MUMBAI (ITA NO. 7239/MUM/2016, DATED 25.04.2018); (II) ANSHUL L SPECIALITY MOLECULES LTD. VS. DCIT, CENTRAL CIRCLE - 6( 3) (ITA NO. 4436/MUM/2016, DATED 13.06.2018); AND (III) ACIT - 2(3), MUMBAI VS. M/S TATA CAPITAL LTD. (ITA NO. 1688/MUM/2012, DATED 09.05.2017). ON THE BASIS OF HIS AFORESAID CONTENTIONS , IT WAS P A G E | 6 ITA NOS. 1175 & 1098/MUM/2013 AY. 2009 - 10 TATA CAPITAL LIMITED VS. ASST. COMMISSIONER OF INCOME TAX - 2(3) AVERRED BY THE LD. A.R , THAT THE DISALLOWANCE UNDER SEC.14A MAY BE RESTRICTED TO THE EXTENT THE SAME WAS OFFERED BY THE ASSESSEE IN ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. IT WAS SUBMITTED BY THE LD. D.R , THAT AS THE ASSESSEE HAD FAILED TO ESTABLISH A NEXUS BETWEEN THE INVESTMENTS MADE IN THE EXEMPT INCOME YIELDING ASSETS AND ITS SELF OWN ED FUNDS, THEREFORE, THE A.O HAD RIGHTLY WORKED OUT THE DISALLOWANCE OF THE CORRELATING INTEREST EXPENDI TURE UNDER SEC. 14A OF THE ACT. APART THERE FROM, IT WAS SUBMITTED BY THE LD. D .R , THAT THE A.O AFTER DULY RECORDING HIS DISSATISFACTION AS REGARDS THE CORRECTNESS OF THE DISALLOWANCE UNDER SEC.14A , AS CLAIMED BY THE ASSESSEE , HAD RIGHTLY WORKED OUT THE SA ME AS PER THE MA NDATE OF LAW. 7. WE HAVE HEARD THE LD. AUTHORISED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD, AS WELL AS THE JUDICIAL PRONOUNCEMENT S RELIED UPON BY THEM. ADMITTEDLY , THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD EARNED EXEMPT DIVIDEND INCOME OF RS.14,49,99,258/ - . ALSO, IT IS A FACT BORNE FROM THE RECORDS THAT THE ASSESSEE HAD OFFERED A DISALLOWANCE UNDER SEC.14A OF RS.54,86,307/ - . A PERUSAL OF THE ASSESSMENT O RDER REVEALS, THAT THE A.O HAD WORKED OUT THE DISALLOWANCE UNDER SEC. 14A R.W. RULE 8D, AS UNDER : OPENING BALANCE CLOSING BALANCE (IN LACS) (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME 0 (II) IN CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA A AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR 60,675 B THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR 295866 73406 184,636 C THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR 1194828 433665 814,2 47 A X B/C 13,758 (III) 0.5% OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY 923 P A G E | 7 ITA NOS. 1175 & 1098/MUM/2013 AY. 2009 - 10 TATA CAPITAL LIMITED VS. ASST. COMMISSIONER OF INCOME TAX - 2(3) AND THE LAST DAY OF THE PREVIOUS YEAR DISALLOWANCE U/S. 14A (I) + (II) + (III) 14,682 AS SUCH, THE A.O HAD WORKED OUT A DISALLOWANCE UNDER RULE 8D(2)(II) OF RS.13,758 LACS AND UNDER RULE 8D(2)(III) OF RS.923 LACS. A PERUSAL OF THE ORDER PASSED BY THE A.O REVEALS , THAT HE HAD WORKED OUT THE DISALLOWANCE OF THE INTEREST EXPENDITURE UNDER RULE 8D(2)(II) , FOR THE REASON , THAT THE ASSESSEE IN THE COURSE OF THE ASSESSMENT PROCEEDINGS HAD FAILED TO CORRELATE ITS BANK STATEMENT S WITH THE INVESTMENTS, AS A RESULT WHEREOF , THE FACT THAT THE LOAN FUNDS WERE USED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE FOR WHICH THE SAME WERE TAKEN AND HAD NOT BEEN DIVERTED FOR MAKING INVESTMENT S IN TAX FREE INCOME YIELDING ASSET S COULD NOT BE ASCERTAINED. IN FACT, THE A.O WAS OF THE VIEW THAT THE ONUS CAST UPON THE ASSESSEE TO PRODUCE THE BANK STATEMENT S /BANK BOOK S TO ESTABLISH THAT INTEREST BEARING LOANS WERE NOT UTILISED FOR MAKING OF INVESTMENTS YIELDING EXEMPT INCOME , WAS NOT DISCHARGED . WE FIND THAT THE LD. A.R HAD FILED BEFORE US A CHA RT IN SUPPORT OF HIS CLAIM THAT IT HAD SUFFICIENT OWN FUNDS FOR MAKING OF INVESTMENTS IN EXEMPT INCOME YIELDING ASSETS , AND NO PART OF THE INTEREST BEARING FUNDS WERE UTILISED FOR THE SAID PURPOSE . A PERUSAL OF T HE CHART REVEALS AS UNDER: PARTICULARS AMT. (RS. IN LACS) AMT. (RS. IN LACS) TOTAL INVESTMENTS AS AT 31.03.2009 (REFER PAGE 22 OF THE PAPER - BOOK - FINANCIALS) LESS: INVESTMENTS YIELDING TAXABLE INCOME: 1. INVESTMENT IN SHARES OF FOREIGN SUBSIDIARY TATA CAPITAL PTE LTD. 2. INVESTMENT IN BONDS AND DEBENTURES 12.5% STEEL STRIPS WHEELS LTD. INDIAN HOTELS COMPANY LTD. 3. INVESTMENT IN PASS THROUGH CERTIFICATES AUTO SECURITIES 4. INVESTMENT IN QUOTED GOVT. SECURITIES 5. INVESTMENT IN UNITS OF MUTUAL FUNDS (GROWTH SCHEME) TOTAL INVESTMENTS GENERATING EXEMPT INCOME AS AT 31.03.2009 [REFER PAGE 5 OF THE PAPER - BOOK - SUBMISSIONS BEFORE CIT(A)] OWNED FUNDS AS AT 31.03.20009 [REFER PAGE 22 OF THE PAPER - BOOK - FINANCIALS] SHARE CAPITAL RESERVES AND SURPLUS (5,644) (1,000) ( 1) (7,293) (962) (1,77,500) 208,762 2,288 295,866 (1,92,400) (1,03,466) 2,11,050 P A G E | 8 ITA NOS. 1175 & 1098/MUM/2013 AY. 2009 - 10 TATA CAPITAL LIMITED VS. ASST. COMMISSIONER OF INCOME TAX - 2(3) ON THE BASIS OF THE AFOR ESAID FACTS CANVASSED BY THE LD. A.R BEFORE US , WE FIND , THAT IT IS THE CASE OF THE ASSESSEE THAT THE SELF OWN ED FUNDS AVAILABLE WITH IT WERE SUFFICIENT ENOUGH TO JUSTIFY THE INVESTMENTS MADE IN THE EXEMPT INCOME YIELDING ASSETS. WE FIND SUBSTANTIAL FORCE IN THE CONTENTION OF THE LD. A.R , THAT WHERE THE ASSESSEE HAS OWN F UNDS AND OTHER NON - INTEREST BEARING FUNDS , WHICH WERE MORE THAN INVESTMENT S MADE IN THE TAX FREE SECURITIES, THEN NO DISALLOWANCE OF ANY PART OF THE INTEREST EXPENDITURE UNDER SEC. 14A R.W. RULE 8D(2)(II) WAS LIABLE TO BE MADE IN ITS HANDS. OUR AFORESAID VIEW IS FORTIFIED BY THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT - 2 LTD. VS.HDFC BANK LTD. (2014) 366 ITR 505 (BOM) . THE HONBLE HIGH COURT IN ITS AFORESAID ORDER WHILE CONCLUDING AS HEREINABOVE, HAD OBSERVED AS UNDER: 3. WITH REFE RENCE TO QUESTION (A), MR SURESH KUMAR SUBMITTED THAT THE ITAT ERRED IN HOLDING THAT THE INVESTMENTS OF THE ASSESSEE IN TAX FREE SECURITIES / INVESTMENTS WERE FROM THE ASSESSEE'S OWN FUNDS. SINCE THE ASSESSEE HAD PAID INTEREST ON BORROWED FUNDS AND AND THE ASSESSEE'S OWN FUNDS WERE NOT SEPARATELY IDENTIFIED, THE INVESTMENT IN GOVERNMENT SECURITIES HAD BEEN MADE BY THE ASSESSEE BANK FROM COMMON POOL OF FUNDS AVAILABLE WITH IT. ACCORDING TO MR SURESH KUMAR, AS PER THE PROVISIONS OF SECTION 14A, NO DEDUCTION C OULD BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE AGAINST THE INCOME CLAIMED AS EXEMPT FROM TAX, AS APPORTIONMENT OF EXPENDITURE WAS AN INHERENT PART OF SECTION 14A. HE SUBMITTED THAT IN THE ABSENCE OF A DIRECT NEXUS BETWEEN ASSESSEE'S OWN FUNDS AND THE INVESTMENT MADE BY IT, THE INVESTMENT OUGHT TO BE TREATED FROM THE COMMON POOL HAVING BOTH BORROWED AS WELL AS OWN FUNDS OF THE ASSESSEE AND THEREFORE, PROPORTIONATE DISALLOWANCE OF INTEREST BY THE ASSESSING OFFICER WAS FULLY JUSTIFIED. HE T HEREFORE SUBMITTED THAT THE CIT (APPEALS) & THE ITAT HAD GONE WRONG ON THIS COUNT THAT REQUIRED INTERFERENCE BY THIS COURT. 4. WE DO NOT AGREE. IN THE CASE AT HAND, AS RECORDED BY THE ITAT, UNDISPUTEDLY THE ASSESSEE'S OWN FUNDS AND OTHER NON - INTEREST BEARI NG FUNDS WERE MORE THAN THE INVESTMENT IN THE TAX FREE SECURITIES. THE ITAT THEREFORE HELD THAT THERE WAS NO BASIS FOR DEEMING THAT THE ASSESSEE HAD USED THE BORROWED FUNDS FOR INVESTMENT IN TAX FREE SECURITIES. ON THIS FACTUAL ASPECT, THE ITAT DID NOT FIN D ANY MERIT IN THE CONTENTION RAISED BY THE REVENUE AND THEREFORE, ACCORDINGLY ANSWERED THE QUESTION IN FAVOUR OF THE ASSESSEE. ON GOING THROUGH THE ORDER OF THE CIT (APPEALS) DATED 28TH MARCH 2005 AS WELL AS THE IMPUGNED ORDER, WE DO NOT FIND THAT THE CIT (APPEALS) OR THE ITAT ERRED IN HOLDING IN FAVOUR OF THE ASSESSEE. IN THIS REGARD, THE SUBMISSION OF MR MISTRY, THE LEARNED SENIOR COUNSEL APPEARING ON BEHALF OF THE ASSESSEE, THAT THIS ISSUE IS SQUARELY COVERED BY A JUDGMENT OF THIS COURT IN THE CASE OF C OMMISSIONER OF INCOME TAX V/S RELIANCE UTILITIES AND POWER LTD., REPORTED IN (2009) 313 ITR 340 (BOM) IS WELL FOUNDED. THE FACTS OF THAT CASE WERE THAT THE ASSESSEE VIZ. M/S RELIANCE UTILITIES AND POWER LTD. HAD INVESTED CERTAIN AMOUNTS IN RELIANCE GAS LTD. AND RELIANCE STRATEGIC INVESTMENTS LTD. IT WAS THE CASE OF THE ASSESSEE THAT THEY THEMSELVES WERE IN THE BUSINESS OF GENERATION OF POWER AND THEY HAD EARNED REGULAR BUSINESS INCOME THEREFROM. THE INVESTMENTS MADE BY THE ASSESSEE IN M/S RELIANCE GAS LTD. AND M/S RELIANCE STRATEGIC INVESTMENTS LTD. WERE DONE OUT OF THEIR OWN FUNDS AND WERE IN THE REGULAR C OURSE OF BUSINESS AND THEREFORE NO PART OF THE INTEREST COULD BE DISALLOWED. IT WAS ALSO POINTED OUT THAT THE ASSESSEE HAD BORROWED RS.43.62 CRORES BY WAY OF ISSUE OF P A G E | 9 ITA NOS. 1175 & 1098/MUM/2013 AY. 2009 - 10 TATA CAPITAL LIMITED VS. ASST. COMMISSIONER OF INCOME TAX - 2(3) DEBENTURES AND THE SAID AMOUNT WAS UTILISED AS CAPITAL EXPENDITURE AND INTER - CORPORATE DE POSIT. IT WAS THE ASSESSEE'S SUBMISSION THAT NO PART OF THE INTEREST BEARING FUNDS (VIZ. ISSUE OF DEBENTURES) HAD GONE INTO MAKING INVESTMENTS IN THE SAID TWO COMPANIES. IT WAS POINTED OUT THAT THE INCOME FROM THE OPERATIONS OF THE ASSESSEE WAS RS.313.53 C RORES AND WITH THE AVAILABILITY OF OTHER INTEREST FREE FUNDS WITH THE ASSESSEE THE AMOUNT AVAILABLE FOR INVESTMENTS OUT OF ITS OWN FUNDS WERE TO THE TUNE OF RS.398.19 CRORES. IN VIEW THEREOF, IT WAS SUBMITTED THAT FROM THE ANALYSIS OF THE BALANCE - SHEET, TH E ASSESSEE HAD ENOUGH INTEREST FREE FUNDS AT ITS DISPOSAL FOR MAKING THE INVESTMENTS. THE CIT (APPEALS) ON EXAMINING THE SAID MATERIAL, AGREED WITH THE CONTENTION OF THE ASSESSEE AND ACCORDINGLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER AND DIRECT ED HIM TO ALLOW THE SAME UNDER THE PROVISIONS OF THE INCOME TAX ACT, 1961. THE REVENUE BEING AGGRIEVED BY THE ORDER PREFERRED AN APPEAL BEFORE THE ITAT WHO UPHELD THE ORDER OF THE CIT (APPEALS) AND DISMISSED THE APPEAL OF THE REVENUE. FROM THE ORDER OF THE ITAT, THE REVENUE APPROACHED THIS COURT BY WAY OF AN APPEAL. AFTER EXAMINING THE ENTIRE FACTUAL MATRIX OF THE MATTER AND THE LAW ON THE SUBJECT, THIS COURT HELD AS UNDER : - IF THERE BE INTEREST - FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST - FREE FUNDS AVAILABLE . IN OUR OPINION, THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. V. CIT (1997) 224 ITR 627 HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. (1982) 134 ITR 219 WHERE A SIMILAR ISSUE HAD ARISEN. BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSID ERABLE FORCE, BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOOLCOMBERS OF INDIA LTD.'S CASE (1982) 134 ITR 219 THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT TH E PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE OVER DRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED THAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRA FT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH COURT. THE PRINCIPLE, THEREFORE, WOULD BE THAT IF THERE WERE FUNDS AVAILABLE BOTH IN TEREST - FREE AND OVER DRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST - FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT . IN THIS CASE T HIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER OF INCOME - TAX (APPEALS) AND THE INCOME - TAX APPELLATE TRIBUNAL. (EMPHASIS SUPPLIED) 5. WE FIND THAT THE FACTS OF THE PRESENT CASE ARE SQUARELY COVERED BY THE JUDGMENT I N THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA) . THE FINDING OF FACT GIVEN BY THE ITAT IN THE PRESENT CASE IS THAT THE ASSESSEE'S OWN FUNDS AND OTHER NON - INTEREST BEARING FUNDS WERE MORE THAN THE INVESTMENT IN THE TAX - FREE SECURITIES. THIS FACTUAL POSITION IS NOT ONE THAT IS DISPUTED. IN THE PRESENT CASE, UNDISPUTEDLY THE ASSESSEE'S CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN THE TAX - FREE SECURITIES. IN VIEW OF THIS FACTUAL POSITION, AS PER THE J UDGMENT OF THIS COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA) , IT WOULD HAVE TO BE PRESUMED THAT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST - FREE FUNDS AVAILABLE WITH THE ASSESSEE. WE P A G E | 10 ITA NOS. 1175 & 1098/MUM/2013 AY. 2009 - 10 TATA CAPITAL LIMITED VS. ASST. COMMISSIONER OF INCOME TAX - 2(3) THEREFORE, ARE UNABLE TO AGREE WIT H THE SUBMISSION OF MR SURESH KUMAR THAT THE TRIBUNAL HAD ERRED IN DISMISSING THE APPEAL OF THE REVENUE ON THIS GROUND. WE DO NOT FIND THAT QUESTION (A) GIVES RISE TO ANY SUBSTANTIAL QUESTION OF LAW AND IS THEREFORE REJECTED. WE THUS , ARE OF THE CONSIDER ED VIEW , THAT THE CONTENTION OF THE ASSESSEE THAT AS ITS OWN FUNDS WERE SUFFICIENT TO JUSTIFY THE INVESTMENTS MADE IN THE EXEMPT INCOME YIELDING ASSETS, THEREFORE, NO DISALLOWANCE UNDER SEC. 14A IN RESPECT OF ANY PART OF THE INTEREST EXPENDITURE WAS CALLED FOR IN THE HANDS OF THE ASSESSEE , MERITS ACCEPTANCE . AT THE SAME TIME, THE AFORESAID CLAIM OF THE ASSESSEE CANNOT BE SUMMARILY ACCEPTED ON THE VERY FACE IT , AND WOULD REQUIRE VERIFICATION ON THE PART OF REVENUE. ACCORDINGLY, IN ALL FAIRNESS, WE RESTORE THE MATTER TO THE FILE OF THE A.O WITH A DIRECTION TO VERIFY THE VERACITY OF THE AFORESAID CLAIM OF THE ASSESSEE. IN CASE, THE AFORESAID FACTS AS HAD BEEN SO STATED BY THE LD. A.R BEFORE US ARE FOUND TO BE CORRECT AND IN ORDER, THEN THE DISALLOWANCE MADE BY THE A.O IN RESPECT OF THE INTEREST EXPENDITURE UNDER SEC.14A R.W. RULE 8D(2)(II) SHALL STAND VACATED. 8. WE SHALL NOW ADVERT TO THE CONTENTION ADVANCED BY THE LD. A.R , THAT AS THE A.O HAD FAILED TO RECORD ANY DISSATISFACTION AS REGARDS THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE INSOFAR THE DISALLOWANCE OF ANY PART OF THE ADMINISTRATIVE EXPENSES FOR EARNING OF THE EXEMPT DIVIDEND INCOME IS CONCERNED, THEREFORE, THE DISALLOWANCE MADE BY HIM UNDER SEC. 14A R.W.RULE 8D(2)(III) CANNOT BE SUSTAINED AND IS LIABLE TO BE VACATED. WE FIND THAT THE LD. A.R IN ORDER TO DRIVE HOME HIS AFORESAID CLAIM HAD PLACED HEAVY RELIANCE ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN CASE OF GODREJ & BOYCE MANUFACTURING LTD. VS . DCIT & ANR. (2017) 394 ITR 449 (SC) . WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE CONTENTION S ADVANCED BY THE AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES IN CONTEXT OF THE ISSUE UNDER CONSIDERATION . AS IS DISCERNIBLE FROM THE ASSESSMENT ORDER, THE A.O HAD FAILED TO RECORD ANY DISSATISFACTION AS REGARDS THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE INSOFAR DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES OFFERED BY HIM UNDER SEC. 14A IS CONCERNED . IN FACT, THERE IS NOT EVEN ANY WHISPER ON THE PART OF THE A.O AS TO WHY THE DISALLOWANCE OF THE AMOUNT OF SALARY AND OTHER OVERHEADS AS HAD BEEN OFFERED BY THE ASSESSEE IN ITS RETURN OF INCOME WAS NOT BE ACCEPTED. IN OUR CONSIDERED VIEW , THE VERY PROCESS OF DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURR ED IN RELATION TO EXEMPT INCOME WOULD BE TRIGGERED ONLY IF THE A.O RETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE ASSESSE S CLAIM IN RESPECT OF SUCH EXPENDITURE. WE ARE OF THE CONSIDERED VIEW , THAT THE A.O BEFORE DISCARDING THE CLAIM OF THE P A G E | 11 ITA NOS. 1175 & 1098/MUM/2013 AY. 2009 - 10 TATA CAPITAL LIMITED VS. ASST. COMMISSIONER OF INCOME TAX - 2(3) ASSESSEE AS REGARDS THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCOME , REMAINS UNDER A STATUTORY OBLIGATION TO RECORD COGENT REASONS AS REGARDS HIS DISSATISFACTION IN RESPECT OF SUCH CLAIM OF THE ASSESSEE, BEF ORE ADVERTING TO AND QUANTIFYING THE AMOUNT OF DISALLOWANCE IN ACCORDANCE WITH METHOD PRESCRIBED IN SEC.14A R.W RULE 8D. OUR AFORESAID VIEW STANDS FORTIFIED BY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING LTD. VS. D CIT & ANR. (2017) 394 ITR 449 (SC) . THE HONBLE SUPREME COURT IN THE SAID JUDGME NT HAD OBSERVED AS UNDER: WHETHER SUCH DETERMINATION IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT THE LAW POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO T HE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONLY THEREAFTER THAT THE PROVISIONS OF SECTION 14A(2) AND (3) READ WITH RULE 8D OF THE RULES OR A BEST JUDGMENT DETERMINATION, AS EARLIER PREVAILING, WOULD BECOME APPLICABLE. WE ARE OF THE CONSIDERED VIEW THAT IN THE CASE BEFORE US, THE A.O HAD FAILED TO SATISFY THE STATUTORY REQUIREMENT OF ARRIVING AT A SATISFACTION, THAT HAVING RE GARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT WAS NOT POSSIBLE FOR HIM GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF DISALLOWANCE MADE BY THE ASSESSEE UNDER SEC. 14A. WE ARE ALSO NOT PERSUADED TO SUBSC RIBE TO THE CLAIM OF THE LD. D.R , THAT AS THE DISALLOWANCE BY THE ASSESSEE UNDER SEC. 14A WAS ON AN ESTIMATE BASIS AND NOT BY WAY OF A DEBIT TO ANY EXPENDITURE ACCOUNT, THEREFORE, THERE WAS NO OBLIGATION ON THE A.O TO HAVE RECORDED HIS SATISFACTION AS TO W HY THE CLAIM OF THE ASSESSEE WAS NOT TO BE ACCEPTED. WE ARE OF THE CONSIDERED VIEW THAT THE A.O REMAINED UNDER AN OBLIGATION TO HAVE RECORDED THE REASON AS TO WHY HE WAS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE, AND HE OUGHT TO HAVE MADE A MENTION OF T HE REASONS LEADING TO HIS DISSATISFACTION. IN FACT, WE ARE OF A STRONG CONVICTION , THAT IN CASE THE A.O WAS NOT SATISFIED WITH THE CLAIM OF DISALLOWANCE OF THE ASSESSEE UNDER SEC. 14A, THEN IT WAS OBLIGATORY FOR HIM TO HAVE RECORDED COGENT REASONS WHICH HA D LED TO SUCH DISSATISFACTION ON HIS PART. WE ARE OF THE VIEW THAT AS THE A.O HAD FAILED TO RECORD THE REQUISITE SATISFACTION, THEREFORE, THE VERY ASSUMPTION OF JURISDICTION BY HIM FOR DISLODGING THE CLAIM OF DISALLOWANCE MADE BY THE ASSESSEE AND SUBSTITUT ING THE SAME BY THE AMOUNT WORKED OUT AS PER THE METHOD PRESCRIBED IN SEC. 14A R.W RULE 8D CANNOT BE SUSTAINED AND IS LIABLE TO BE VACATED. WE THUS SET ASIDE THE DISALLOWANCE OF RS. 923 LACS MADE UNDER SEC. 14A R.W. RULE 8D(2)(III) BY THE A.O AND SUSTAINED BY THE CIT(A). ACCORDINGLY, IN TERMS OF OUR AFORESAID OBSERVATIONS, THE DISALLOWANCE MADE BY THE A.O UNDER SEC. 14A R.W. RULE 8D(2)(II) IN RESPECT OF THE INTEREST EXPENDITURE IS RESTORED TO HIS FILE FOR FRESH ADJUDICATION , IN TERMS OF OUR AFORESAID OBSERV ATIONS. AS FOR THE DISALLOWANCE MADE BY THE A.O UNDER SEC. 14A R.W. RULE 8D(2)(III), THE SAME IN THE ABSENCE OF ANY DISSATISFACTION RECORDED BY THE A.O AS P A G E | 12 ITA NOS. 1175 & 1098/MUM/2013 AY. 2009 - 10 TATA CAPITAL LIMITED VS. ASST. COMMISSIONER OF INCOME TAX - 2(3) REGARDS THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE AS REGARDS ATTRIBUTION OF A PART OF THE ADMINIST RATIVE EXPENSES FOR THE PURPOSE OF EARNING OF THE EXEMPT DIVIDEND INCOME, THE ADDITION THEREIN MADE BY THE A.O STANDS VACATED. THE GROUND OF APPEAL NO. 1 RAISED BY THE ASSESSEE IS ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS. 9. IT WAS SUBMITTED BY THE LD. A.R THAT AS THE DISALLOWANCE MADE BY THE A.O OF THE COMMISSION PAID TO M/S GALAXY AUTOMOBILES PVT. LTD. & M/S IKON SOLUTIONS HAD BEEN DELETED BY THE A.O WHILE GIVING EFFECT TO THE ORDER PASSED BY THE CIT(A), VIDE HIS ORDER DATED 03.03.2014, THEREFORE, THE GROUND OF APPEAL NO.2 IS NOT BEING PRESSED. 10. THE GROUND OF APPEAL NO. 3 BEING GENERAL IS DISMISSED AS NOT PRESSED. 11. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS. ITA NO. 1098/MUM/2013 A.Y. 2009 - 10 12. WE SHALL NOW ADVERT TO THE APPEAL OF THE REVENUE. THE REVENUE HAS ASSAILED THE ORDER PASSED BY THE CIT(A) ON THE FOLLOWING GROUNDS OF APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN A LLOWING RELIEF TO THE ASSESSEE TO THE EXTENT IMPUGNED IN THE GROUNDS ENUMERATED BELOW: 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING TH E PROFESSIONAL FEES PAID TO MR. ARATA NAMBU WITHOUT ANY SUBSTANTIAL PROOF WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE COULD NOT FURNISH PROOF IN SUPPORT OF ITS CLAIM. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN SET TI NG ASIDE THE ISSUE IN GROUND NO. 4 OF APPEAL THEREBY IGNORING THE AMENDED PROVISIONS OF SECTION 251 AS SETTING ASIDE IS NOT ALLOWED WITH EFFECT FROM 01.06.2001. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF CIT(A) MAY BE SET ASIDE AND THAT OF THE A . O RESTORED. 13. THE LD. D.R AT THE VERY OUTSET HAD ASSAILED THE DELETION OF THE DISALLOWANCE OF THE PROFESSIONAL FEES OF RS.43 LACS THAT WAS CLAIMED BY THE ASSESSEE TO HAVE BEEN PAID TO MR. ARATA NAMBU . THE LD. D.R DRAWING OUR ATTENTION TO THE ASSESSMENT ORDER IN CONTEXT OF THE AFORESAID ISSUE , SUBMITTED , THAT THE ASSESSEE HAD CLAIMED THAT THE AFORESAID AMOUNT WAS PAID TO MR. ARATA NAMBU FOR THE CONSULTANCY SERVICES WHICH WERE RENDERED BY HIM TO THE ASSESSEE COMPANY IN JAPAN. IT WAS SUBMITTED BY THE LD. D.R , THAT AS THE ASSESSEE HAD FAILED TO PLACE ON RECORD ANY EVIDENCE OF SERVICES RENDERED BY MR. ARATA NAMBU, THEREFORE, THE AFORESAID P A G E | 13 ITA NOS. 1175 & 1098/MUM/2013 AY. 2009 - 10 TATA CAPITAL LIMITED VS. ASST. COMMISSIONER OF INCOME TAX - 2(3) EXPENDITURE OF RS.4 3 LACS WHICH WAS DEBITED IN THE PROFIT AND LOSS ACCOUNT WAS DISA LLOWED. IT WAS AVERRED BY THE LD. D.R , THAT THE CIT(A) HAD GROSSLY ERRED IN SUMMARILY VACATING THE AFORESAID DISALLOWANCE WITHOUT APPRECIATING THE FACTS IN THE RIGHT PERSPECTIVE. APART THERE FROM, IT WAS SUBMITTED BY THE LD. D.R , THAT THE CIT(A) WAS ALSO I N ERROR IN SETTING ASIDE THE ISSUE AS REGARDS THE DISALLOWANCE OF COMMISSION THAT WAS CLAIMED BY THE ASSESSEE TO HAVE BEEN PAID TO M/S GALAXY AUTOMOBILES PVT. LTD. AND IKON SOLUTIONS, TO THE FILE OF THE A.O. IT WAS THE CLAIM OF THE LD. D.R , THAT AS THE CIT (A) SUBSEQUENT TO 01.06.2001 WAS NOT VESTED WITH ANY POWER TO SET ASIDE AN ISSUE TO THE FILE OF THE A.O, THEREFORE, HE HAD CLEARLY ERRED IN TRAVERSING BEYOND THE LIMITED SCOPE OF HIS JURISDICTION AS WAS VESTED WITH HIM UNDER SEC.251 OF THE ACT 14. PER CO NTRA, THE LD. A.R SUBMITTED , THAT THE PROFESSIONAL FEE OF RS. 43 LACS WAS PAID BY THE ASSESSEE COMPANY TO MR ARATA NAMBU FOR THE SERVICE S WHICH WERE PROVIDED BY HIM AS AN OVERSEAS ADVISOR IN JAPAN FOR EXPLOR ING OPPORTUNITIES FOR THE ASSESSEE IN THE OVERSEAS MARKET. IT WAS SUBMITTED BY THE LD. A.R , THAT THE SAID PERSON HAD CREATED THE AWARENESS ABOUT THE ASSESSEE COMPANY AND ITS PRODUCTS, AND ALSO COORDINATED ON BEHALF OF THE ASSESSEE WITH THE JAPANESE BUSINESS CONTACTS. IN ORDER TO FORTIFY HI S AFORESAID CLAIM THAT THE ABOVEMENTIONED PERSON VIZ. MR. ARATA NAMBU HAD RENDERED SERVICES TO THE ASSESSEE, THE LD. A.R TOOK US THROUGH THE RELEVANT PAGES OF THE ASSESSES PAPER BOOK (FOR SHORT APB) VIZ. PAGE 104 110 , WHICH CLEARLY REVEALED THE CORRES PONDENCES OF THE AFORESAID PERSON VIZ. MR. ARATA NAMBU WITH THE ASSESSEE COMPANY, NATURE OF PAYMENTS REMITTED TO HIM, DECLARATIONS MADE BY THE ASSESSEE UNDER THE FEMA ACT, 1999 ETC. AS REGARDS THE GRIEVANCE OF THE REVENUE , THAT THE CIT(A) HAD EXCEEDED HIS POWERS IN RESTORING THE ISSUE AS REGARDS THE COMMISSION CLAIMED BY THE ASSESSEE TO HAVE BEEN PAID TO M/S GALAXY AUTOMOBILE PVT. LTD. & M/S IKON SOLUTIONS, IT WAS SUBMITTED BY THE LD. A.R , THAT THE ASSESSEE HAD FURNISHED THE COMPLETE SUPPORTING DOCUMENTARY EVIDENCE , AND THE CIT(A) AFTER PERUSING THE SAME HAD ONLY FORWARDED IT TO THE A.O FOR MAKING NECESSARY VERIFICATIONS. ACCORDINGLY, IT WAS SUBMITTED BY THE LD. A.R THAT NO INFIRMITY DID EMERGE FROM THE ORDER OF THE CIT(A), WHO REMAINING WELL WITHIN THE REAL M OF HIS JURISDICTION, HAD MERELY RESTORED THE MATTER WITH A SPECIFIC DIRECTION TO THE A.O TO ALLOW THE ASSESSES CLAIM OF DEDUCTION AFTER MAKING NECESSARY VERIFICATIONS OF THE DOCUMENTS WHICH WERE FURNISHED BY THE ASSESSEE BEFORE HIM. P A G E | 14 ITA NOS. 1175 & 1098/MUM/2013 AY. 2009 - 10 TATA CAPITAL LIMITED VS. ASST. COMMISSIONER OF INCOME TAX - 2(3) 15. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ISSUE BEFORE US IN THE BACKDROP OF THE CONTENTION S ADVANCED BY THE AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES. AS REGARDS THE DISALLOWANCE OF THE PROFESSIONAL FEES OF RS.43 LACS CLAIMED BY THE ASSESSEE TO HAVE PAID MR. ARATA NAMBU, AN UNRELATED JAPANESE CITIZEN , IS CONCERNED, WE FIND SUBSTANTIAL FORCE IN THE CLAIM OF THE LD. A.R THAT THE SAID PAYMENT S WERE MADE TO HIM FOR THE SERVICES WHICH WERE RENDERED BY HIM AS A BUSINESS ADVISOR. AS IS DISCERNIBLE FROM THE DOCUMENTA RY EVIDENCE TO WHICH OUR ATTENTION WAS DRAWN BY THE LD. A.R, IT CAN SAFELY BE GATHERED , THAT THE AFORESAID PERSON HAD RENDERED HIS SERVICES AS AN OVERSEAS ADVISOR IN JAPAN , AND HAD EXPLORE D OPPORTUNITIES IN THE OVERSEAS MARKET FOR THE ASSESSEE . WE FIND SUB STANTIAL FORCE IN THE CLAIM OF THE LD. A.R THAT THE PAYMENTS MADE TO THE SAID PERSON WERE FOR THE SERVICES WHICH WERE RENDERED BY HIM VIZ. CREATING AWARENESS ABOUT THE ASSESSEE COMPAN Y AND ITS PRODUCT S AMONGST THE FOREIGN PARTIES , SUPPORTING IT IN ITS MARKETING EFFORTS, ARRANGING MEETINGS WITH JAPANESE BUSINESS CONTACTS, AND ALSO ASSIST ING IN TRANSLATION AND SUPPLYING OF INFORMATION. WE FIND THAT THE AFORESAID DOCUMENTARY EVIDENCE WHICH HAD BEEN RELIED UPON BY THE LD. A.R TO SUPPORT THE AFORESAID CLAIM OF EXPENSES DEBITED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION , HAD NEITHER BEEN DISLODGED BY THE LOWER AUTHORITIES, NOR ANYTHING PROVING TO THE CONTRARY HAD BEEN PLACED ON OUR RECORD BY THE LD. D.R IN THE COURSE OF TH E HEARING OF THE APPEAL. ACCORDINGLY, FINDING NO FORCE IN THE CLAIM OF THE REVENUE THAT THE CIT(A) WAS IN ERROR IN DELETING THE DISALLOWANCE OF THE CONSULTANCY CHARGES OF RS.43 LACS THAT WAS PAID BY THE ASSESSEE COMPANY TO MR. ARATA NAMBU, WE UPHOLD HIS OR DER TO THE SAID EXTENT. 16. WE SHALL NOW ADVERT TO THE CONTENTION ADVANCED BY THE LD. A.R , THAT THE CIT(A) WAS IN ERROR IN SETTING ASIDE THE ISSUE PERTAINING TO THE DISALLOWANCE OF COMMISSION TO GALAXY AUTOMOBILE PVT. LTD. AND IKON SOLUTIONS TO THE FILE OF THE A.O, FAILING TO APPRECIATE THAT THE POWER TO SET ASIDE A MATTER AS WAS VESTED WITH HIM UNDER SEC.251 OF THE ACT , WERE NO MORE AVAILABLE W.E.F 01.06.2001. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE AFORESAID CONTENTION ADVANCED BY THE LD. D .R , AND ARE UNABLE TO PERSUADE OURSELVES TO SUBSCRIBE TO HIS AFORESAID CLAIM IN THE BACKDROP OF THE FACTS INVOLVED IN THE CASE BEFORE US. ADMITTEDLY, THE CIT(A) UP TO 31.05.2001 WAS INTER ALIA VESTED WITH THE POWER TO SET ASIDE THE MATTER TO THE FILE OF THE A.O. HOWEVER, THE LEGISLATURE IN ALL ITS WISDOM , IN ORDER TO AVOID PROLONGED LITIGATION S, HAD VIDE THE FINANCE ACT, 2001, W.E.F 01.06.2001 WITHDRAWN THE POWER OF THE CIT(A) TO SET ASIDE P A G E | 15 ITA NOS. 1175 & 1098/MUM/2013 AY. 2009 - 10 TATA CAPITAL LIMITED VS. ASST. COMMISSIONER OF INCOME TAX - 2(3) THE MATTER TO THE FILE OF THE A.O FOR THE PURPOSE OF FRAMING OF A F RESH ASSESSMENT. AS IS DISCERNIBLE FROM THE FACTS INVOLVED IN THE CASE BEFORE US, WE FIND , THAT THE CIT(A) HAD AFTER PERUSING THE DOCUMENTARY EVIDENCE WHICH WERE PLACED ON HIS RECORD BY THE ASSESSEE IN THE COURSE OF THE APPELLATE PROCEEDINGS VIZ. COPY OF A GREEMENT, FORM 16A, COPY OF LEDGER ACCOUNT OF THE AFORESAID PARTIES, COPY OF LETTER RECEIVED FROM M/S GALAXY TOYOTA, N EW DELHI DATED 26.10.2011 IN RESPONSE TO NOTICE THAT WAS ISSUED BY THE A.O UNDER SEC.133(6) OF THE ACT, ALONG WITH THE COPY OF THE CERTIF ICATE INCORPORATION OF THE SAID COMPANY VIZ. GALAXY TOYOTA, AND ALSO THE COPY OF PASSPORT, DRIVING LICENCE , PAN CARD, ETC . OF ITS DIRECTORS, HAD AFTER CONSIDERING THE CONTENTION OF THE ASSESSEE THAT SUFFICIENT OPPORTUNITY WAS NOT PROVIDED BY THE A.O TO FUR NISH THE AFORESAID DOCUMENTS, HAD THUS , FOR THE LIMITED PURPOSE FOR VERIFYING THE SAID DOCUMENTS RESTORED THE MATTER TO THE FILE OF THE A.O , WITH A SPECIFIC DIRECTION THAT THE CLAIM OF THE ASSESSEE BE ALLOWED IN CASE THE SAME WAS FOUND TO BE IN ORDER. IN O UR CONSIDERED VIEW, THE AFORESAID RESTORING OF THE MATTER BY THE CIT(A) TO THE FILE OF THE A.O FOR A LIMITED PURPOSE OF ALLOWING THE CLAIM OF DEDUCTION RAISED BY THE ASSESSEE AFTER VERIFYING THE DOCUMENTS, CANNOT BE PLACED AT PAR WITH SETTING ASIDE OF TH E MATTER FOR FRAMING A FRESH ASSESSMENT TO THE FILE OF THE A.O. ACCORDINGLY, WE ARE UNABLE TO PERSUADE OURSELVES TO SUBSCRIBE TO THE AFORESAID CLAIM OF THE REVENUE, WHICH IS THUS REJECTED. THE GROUND OF APPEAL NO. 3 IS DISMISSED. 17. THE GROUND OF APPEAL N O. 4 BEING GENERAL IS DISMISSED AS NOT PRESSED. 18. THE APPEAL OF THE REVENUE IS DISMISSED. 19. THE APPEAL OF THE ASSESSEE I.E ITA NO. 1175/MUM/2013 IS PARTLY ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS, WHILE FOR THE APPEAL OF THE REVENUE I.E ITA NO. 1 098/MUM/2013 IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN COURT ON 2 0 .09.2019 S D / - S D / - (M.BALAGANESH) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 20 .09.2019 PS. ROHIT P A G E | 16 ITA NOS. 1175 & 1098/MUM/2013 AY. 2009 - 10 TATA CAPITAL LIMITED VS. ASST. COMMISSIONER OF INCOME TAX - 2(3) / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI