Deccan Mining Syndicate Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 1261/BANG/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3610 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 24-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: H N KHINCHA
• Keywords: Principle of natural justice; Question of law; Speculation loss; Notional interest; Commercial expediency
• Section: 14A; 10B; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA NO.1261 (BANG) 2016 (ASSESSMENT YEAR : 2011 12) M/S. DECCAN MINING SYNDICATE PVT. LTD., APPELLANT S 7, 2 ND FLOOR, ESTEEM ARCADE, NO. 26, RACE COURSE ROAD, BANGALORE 560001. PAN. AAACD7081R VS THE DCIT, CENTRAL CIRCLE 11 (1), RESPOND ENT BANGALORE. ASSESSEE BY : SHRI H. N. KHINCHA, C. A. REVENUE BY : MS NEERA MALHOTRA, CIT DR DATE OF HEARING : 01 06 2018 DATE OF PRONOUNCEMENT : 21 08 2018 O R D E R PER A. K. GARODIA, A.M.: THIS APPEAL IS FILED BY THE ASSESSEE WHICH IS DIREC TED AGAINST THE ORDER OF CIT (A) 2 BANGALORE DATED 26.05.2016 FOR A. Y. 20 11 12. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: - 1. THE LEARNED ASSESSING OFFICER HAS ERRED IN PASSI NG THE ORDER IN THE MANNER PASSED BY HIM AND THE LEARNED COMMISSIONER O F INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE SAME. 2. IN ANY CASE, THE LEARNED ASSESSING OFFICER HAS E RRED IN MAKING VARIOUS ADDITIONS TO THE INCOME RETURNED BY THE APP ELLANT AND THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED IN PARTIALLY CONFIRMING THE SAME. ON PROPER APPRECIATION OF THE FACTS OF THE CASE AND THE LAW APPLICABLE THE ADDITIONS AS MADE/ SUSTA INED ARE TO BE DELETED. 3.1 THE ASSESSING OFFICER HAD ERRED IN HOLDING BY R ELYING ON EXTRANEOUS MATTERS THAT THE APPELLANT IS NOT ENTITL ED TO ANY DEDUCTION U/S. 10B OF I.T. ACT, 1961 AND THE LEARNED COMMISSI ONER OF INCOME ITA NO. 1261(BANG)2016 2 TAX (APPEALS) HAS ERRED IN CONFIRMING THE SAME. ON PROPER APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE LAW APPLICABLE, IT WOULD BE CLEAR THAT THE APPELLANT BE ING AN ELIGIBLE 100% EOU AND HAVING COMPLIED WITH ALL THE CONDITIONS REQ UIRED FOR CLAIMING DEDUCTION U/S. 10B OF THE ACT, IS ENTITLED TO CLAIM DEDUCTION U/S. 10B OF THE ACT AND DEDUCTION AS CLAIMED IS TO BE ALLOWED TO THE APPELLANT. 3.2 IN ANY CASE, AND WITHOUT PREJUDICE, THE DISALLO WANCE AS MADE/SUSTAINED IS EXCESSIVE. 4.1 THE LEARNED ASSESSING OFFICER HAS ERRED IN CALC ULATING NOTIONAL INTEREST AND IN MAKING ADDITION OF RS. 97,50,069/- AND THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN C ONFIRMING THE SAME ON THE GROUND THAT COMMERCIAL EXPEDIENCY AND B USINESS PURPOSE OF ADVANCING LOANS TO SISTER CONCERNS HAS NOT BEEN PROVED BY THE APPELLANT. THE ADDITION AS MADE/ SUSTAINED IS TOTAL LY ON ERRONEOUS PREMISE IS TO BE DELETED. 4.2 IN ANY CASE AND WITHOUT PREJUDICE, THE OWN FUND S OF THE APPELLANT BEING SUFFICIENT TO COVER INTEREST FREE ADVANCES GI VEN, THE ADDITION AS MADE/ SUSTAINED BEING TOTALLY ERRONEOUS BOTH ON FAC TS AND LAW ARE TO BE DELETED. 5. THE LEARNED ASSESSING OFFICER HAD ERRED IN FURTH ER DISALLOWING A SUM OF RS. 57,93,432/-U/S. 14A OF THE I.T. ACT, 196 1 AND THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN C ONFIRMING THE SAME. ON THE FACTS OF THE CASE, THE FURTHER DISALLO WANCE U/S. 14A OF THE ACT IS BAD IN LAW AND IS LIABLE TO BE DELETED. 6.1 THE LOWER AUTHORITIES HAVE ERRED IN NOT PROPERL Y APPRECIATING THE FACTS OF THE CASE AND LAW APPLICABLE WHILE DISALLOW ING THE FOREIGN EXCHANGE LOSS OF RS.6,03,770/-. THE LOSS HAVING COR RECTLY BEEN CLAIMED AS DEDUCTION IS TO BE ALLOWED AS SUCH. 6.2 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF FOREIGN EXCHANGE LOS S HOLDING THAT THE LOSS INCURRED ON ACCOUNT OF FORWARD CONTRACT CONSTI TUTES SPECULATION LOSS AND SAME IS NOT ALLOWABLE U/S 37 OF THE ACT. T HE CONCLUSION DRAWN BY THE COMMISSIONER OF INCOME TAX (APPEALS) B EING TOTALLY ERRONEOUS BOTH ON FACTS AND LAW ARE TO BE DISREGARD ED. 7. THE LEARNED AUTHORITIES HAVE ERRED IN DISALLOWIN G A SUM OF RS. 392,867/- HOLDING THAT SAME IS NOT ALLOWABLE EI THER U/S 36(1)(VII) OR U/S 37 OF THE ACT ON THE GROUNDS THAT: I) THE APPELLANT HAS NOT EXPLAINED THE NATURE OF TH E TRANSACTION. II) THE APPELLANT HAS WRITTEN OFF THE TRADE DEBTS W ITHOUT SUBSTANTIATING THE ALLOWABILITY THEREOF. ITA NO. 1261(BANG)2016 3 THE ACTION OF AUTHORITIES BELOW BEING CONTRARY TO A VAILABLE FACTS AND THE LAW APPLICABLE IS TO BE IGNORED AND THE SUI TABLE RELIEF IN ACCORDANCE WITH LAW IS TO BE GIVEN. 9. THE APPELLANT DENIES THE LIABILITY TO PAY INTERE ST. THE INTEREST HAVING BEEN LEVIED ERRONEOUSLY IS TO BE DELETED. 10. IN VIEW OF THE ABOVE AND ON OTHER GROUNDS TO BE ADDUCED AT THE TIME OF HEARING IT IS REQUESTED THAT THE IMPUGNED O RDER BE QUASHED AND ALLOW THE APPELLANT REQUEST. 3. LEARNED AR OF THE ASSESSEE SUBMITTED THAT GROUND S NO. 1, 2 & 10 ARE GENERAL AND GROUNDS NO. 9 ABOUT INTEREST IS CONSEQUENTIAL. REGARDING GROUND NOS. 6.1,6.2 & 7, HE SUBMITTED THAT THESE GROUNDS ARE NO T PRESSED. ACCORDINGLY, THESE GROUNDS ARE REJECTED AS NOT PRESSED. 4. REGARDING GROUND NO. 3.1 & 3.2, HE SUBMITTED THA T THE ASSESSEE COMPANY IS FULFILLING ALL THE REQUIREMENTS OF SECTION 10B AND THEREFORE, THE ASSESSEE IS ELIGIBLE FOR FULL DEDUCTION AS CLAIMED BY THE ASSES SEE U/S 10B. THEREAFTER HE SUBMITTED THAT IT IS NOTED BY LEARNED CIT (A) IN PA RA 2.2 OF HIS ORDER THAT IN EARLIER YEARS BEING A. YS. 2007 08 TO 2010 11 A LSO, THE ASSESSEE CLAIMED DEDUCTION U/S 10B AND THE SAME WAS PARTLY ALLOWED B Y THE AO. HE POINTED OUT THAT THE EXTENT OF DISALLOWANCE IN THESE YEARS IS M AXIMUM 28.71 % BECAUSE IN A. Y. 2007 08, DISALLOWANCE IS OF RS. 936.96 LACS OUT OF CLAIM OF RS. 3408.70 LACS BEING 27.09%. SIMILARLY IN A. Y. 2008 09, DI SALLOWANCE IS OF RS. 5132.77 LACS OUT OF CLAIM OF RS. 19145.97 LACS BEING 26.81% , IN A. Y. 2009 10, DISALLOWANCE IS OF RS. 2967.07 LACS OUT OF CLAIM OF RS. 10336.23 LACS BEING 28.71% AND IN A. Y. 2010 11, DISALLOWANCE IS OF R S. 2125.93 LACS OUT OF CLAIM OF RS. 8258.72 LACS BEING 25.74%. HE SUBMITTE D THAT SINCE IN THE IMMEDIATE PRECEDING YEAR I.E. A. Y. 2010 11 WHICH IS THE YEAR OF SEARCH ALSO AS THE SEARCH WAS CONDUCTED ON 03.03.2010, THE DISA LLOWANCE MADE BY THE A. O. IS ONLY 25.74%, IN THE PRESENT YEAR ALSO, MAXIMU M 25% DISALLOWANCE MAY BE MADE IF IT IS HELD THAT SOME DISALLOWANCE HAS TO BE MADE BUT THE CLAIM OF THE ASSESSEE IS THIS THAT AFTER THE SEARCH WAS CONDUCT ED ON 03.03.2010, IT CAME TO THE KNOWLEDGE OF THE ASSESSEE THAT THERE ARE SOME O BJECTIONS OF THE DEPARTMENT IN RESPECT OF ALLOWING OF THE ASSESSEES CLAIM IN FULL FOR DEDUCTION U/S 10B BEING ABSENCE OF BOUNDARY DEMARCATING EOU A ND NON EOU UNITS, ITA NO. 1261(BANG)2016 4 EXISTENCE OF A COMMON CONTROL ROOM FOR OPERATION OF CSP, VSP1 AND VSP2, SIMULTANEOUS OPERATION OF PLANT & MACHINERY IN EOU AND NON EOU AREA AND NON SEGREGATION OF CAPITAL GOODS BETWEEN THE TWO UN ITS AND THEREFORE, THE ASSESSEE HAS TAKEN CORRECTIVE MEASURES IN THE PRESE NT YEAR STARTING FROM 01.04.2010 AND HENCE, IN THE PRESENT YEAR, FULL DED UCTION SHOULD BE ALLOWED. HE SUBMITTED THAT THE COPY OF ASSESSMENT ORDERS FOR EARLIER YEARS IS AVAILABLE IN PAPER BOOK ON PAGES 100 TO 185 OF THE PAPER BOOK. A S AGAINST THIS, LEARNED DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORIT IES BELOW. SHE ALSO SUBMITTED THAT AS PER CLAUSE (I) OF SUB SECTION (2) OF SECTION 10B, THE ASSESSEE IS REQUIRED TO MANUFACTURE OR PRODUCE AN ARTICLE OR THING BUT THE PRESENT ASSESSEE IS NOT SATISFYING THIS REQUIREMENT AND HEN CE, NOT ELIGIBLE FOR DEDUCTION U/S 10B. SHE ALSO DRAWN OUR ATTENTION TO PAGES 5 AN D 6 OF THE ASSESSMENT ORDER AND POINTED OUT THAT THE A. O. HAS REPRODUCED THE AUDITORS REPORT IN FORM 56G AND NOTED THAT AS PER THIS REPORT, THE ASSESSEE IS MAINTAINING ACCOUNTS AND RECORDS RELATING TO EOU UNIT AND IN COURSE OF A SSESSMENT PROCEEDINGS, THE A.O. ASKED THE ASSESSEE TO PRODUCE THE ACCOUNTS/REC ORDS PERTAINING TO 10A UNIT BUT THE ASSESSEE DID NOT PRODUCE THE SAME AND THE A.O. HELD THAT IN ABSENCE OF THE SAME, THE ASSESSEES CLAIM CANNOT BE ENTERTAINED. SHE ALSO POINTED OUT THAT IT IS ALSO SEEN FROM THIS REPORT OF AUDITORS IN FORM 56G THAT THE AUDITORS HAS CERTIFIED THAT THE FINDINGS OF THE SEA RCH AND THE EFFECT THEREOF HAVE NOT BEEN CONSIDERED WHILE ISSUING THIS CERTIFICATE AND FOR THIS REASON ALSO, THE CLAIM OF THE ASSESSEE WAS NOT ACCEPTED BY THE A.O. 5. IN THE REJOINDER, LEARNED AR OF THE ASSESSEE SUB MITTED THAT NEITHER AS PER PROVISIONS OF I. T. ACT AND NOR AS PER THE CERTIFIC ATE OF THE AUDITORS IN FORM 56G, IT IS STATED THAT SEPARATE RECORDS AND ACCOUNTS FOR EOU AND NON EOU UNITS ARE MAINTAINED OR REQUIRED TO BE MAINTAINED. HE ALS O SUBMITTED THAT ON PAGE 1 OF THE ASSESSMENT ORDER IN PARA 2, THE A.O. HAS STA TED THAT THE ASSESSMENT IS COMPLETED AFTER CAREFULLY EXAMINING THE BOOKS OF AC COUNTS AND OTHER DETAILS AND THEREFORE, IT IS NOT PROPER TO SAY THAT BOOKS O F ACCOUNTS WERE NOT PRODUCED BEFORE THE A.O. HE ALSO SUBMITTED THAT ALL THE ASSE SSMENT ORDERS FOR A. Y. 2007 08 TO 2010 11 ARE DATED 30.09.2011 I.E. AFTER T HE SEARCH AND IN ALL THESE YEARS, ONLY PART CLAIM IS DISALLOWED AND THE DISALL OWANCE IN A. Y. 2010 11 ITA NO. 1261(BANG)2016 5 WAS ONLY 25.74% AND HENCE, EVEN IF SOME DISALLOWANC E IS TO BE MADE IN THE PRESENT YEAR, IT MAY BE 25% MAXIMUM. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIN D THAT A SEARCH WAS CARRIED OUT IN THE CASE OF THE ASSESSEE ON 03.03.2010 AND T HE ASSESSMENT FOR A. YS. 2007 08 TO 2009 10 WERE COMPLETED U/S 143 (3) R .W.S.153A ON 30.09.2011 AND THE ASSESSMENT FOR THE SEARCH YEAR I.E. A. Y. 2 010 11 WAS COMPLETED U/S 143 (3) ALSO ON THE SAME DATE I.E. 30.09.2011 AND I N THESE YEARS, THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 10B WAS ALLOWED BY T HE A.O. IN PART AND THE ASSESSEE ACCEPTED SUCH PART DISALLOWANCE AND NO APP EAL WAS FILED AGAINST SUCH PART DISALLOWANCE. THEREFORE, IN OUR CONSIDERE D OPINION, NEITHER THE CASE OF THE A.O. FOR 100% DISALLOWANCE NOR THE CASE OF T HE ASSESSEE FOR ALLOWING THE CLAIM U/S 10B IN FULL GETS SUPPORTED BY THE ORDERS OF EARLIER YEARS WHICH HAVE ATTAINED FINALITY. IN THIS VIEW OF THE MATTER, THIS OBJECTION OF THE A.O. IS NOT VALID THAT IN THE PRESENT YEAR, 100% DISALLOWANCE IS TO B E MADE FOR THIS REASON THAT THE AUDITORS HAS CERTIFIED THAT THE FINDINGS OF THE SEARCH AND THE EFFECT THEREOF HAVE NOT BEEN CONSIDERED WHILE ISSUING THIS CERTIFI CATE. THIS OBJECTION IS REJECTED. 7. THE SECOND OBJECTION OF THE A.O. IS ALSO NOT VAL ID THAT IN THE PRESENT YEAR, THE ASSESSEE IS MAINTAINING ACCOUNTS AND RECORDS RELATI NG TO EOU UNIT AND IN COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. ASKED TH E ASSESSEE TO PRODUCE THE ACCOUNTS/RECORDS PERTAINING TO 10A UNIT BUT THE ASSESSEE DID NOT PRODUCE THE SAME AND THE A.O. HELD THAT IN ABSENCE OF THE S AME, THE ASSESSEES CLAIM CANNOT BE ENTERTAINED. THIS OBJECTION IS NOT VALID BECAUSE IN OUR UNDERSTANDING, WHEN THE STATUTE DOES NOT REQUIRE MAINTAINING OF SE PARATE RECORDS FOR 10A UNITS AND NON 10A UNITS AND THE AUDITORS ALSO DOES NOT SAY SO SPECIFICALLY THAT THE ASSESSEE IS MAINTAINING SEPARATE RECORDS FOR 10A UN ITS AND NON 10A UNITS, IT CANNOT BE SO INFERRED FROM THIS OBSERVATION OF THE AUDITORS IN FORM 56G THAT THEY HAVE EXAMINED THE ACCOUNTS AND RECORDS OF THE ASSE SSEE RELATING TO THE BUSINESS OF THEIR UNDERTAKING NAMED DECCAN MINI NG SYNDICATE (P) LTD. EOU UNIT ENGAGED IN THE EXPORTS OF ARTICLE O R THINGS ______. IN OUR CONSIDERED OPINION, FROM THESE OBSERVATIONS OF THE AUDITORS IN FORM 56G, ONLY THIS MUCH EMERGES THAT THE AUDITORS HAVE EXAMI NED THE RECORDS AND ITA NO. 1261(BANG)2016 6 ACCOUNTS OF THE ASSESSEE AND SINCE, THE CERTIFICATE ISSUED BY THE AUDITORS IN THE PRESENT CASE IS IN PRESCRIBED FORM NO. 56G AND ADMI TTEDLY THERE IS NO REQUIREMENT OF THE STATUTE THAT SEPARATE BOOKS ARE TO BE MAINTAINED, SUCH INFERENCE DRAWN BY THE AO IS NOT PROPER. IN FACT, I N PARA 3.4 OF THE ASSESSMENT ORDER, THE A.O. SAYS THAT THE ASSESSEE WAS NOWHERE ASKED TO PRODUCE THE SEPARATE BOOKS PERTAINING TO THE 10A UNIT AND NON 10A UNITS. THE A.O. HAS ALSO NOTED ABOUT VARIOUS JUDICIAL PRONOUNCEMENTS CI TED BY THE ASSESSEE BEFORE HIM IN SUPPORT OF THIS CONTENTION THAT THE ASSESSEE IS NOT REQUIRED TO MAINTAIN SEPARATE BOOKS. THESE JUDGMENTS ARE 109 TTJ 440, 89 TTJ 439, 191 ITR 70 (PAT), 241 ITR 262 (AP) AND 177 ITR 111 (BOM) AND T HE AO SAYS THAT THESE JUDGMENTS ARE NOT RELEVANT BECAUSE HE HAS NOT ASKED THE ASSESSEE TO PRODUCE SEPARATE BOOKS. HAVING SAID SO, THE A.O. MAKES A U TURN ON THIS BASIS THAT AS PER THE AUDITORS REPORT IN FORM 56G, THE ASSESSEE H AS MAINTAINED SEPARATE BOOKS BUT DID NOT PRODUCE IT EVEN AFTER ASKING BY T HE A.O. BUT WE FIND THAT THE REPORT OF AUDITORS IS IN THE PRESCRIBED FORM 56G AN D HENCE, FROM THAT REPORT, IT CANNOT BE INFERRED THAT THE ASSESSEE IS MAINTAINING SEPARATE BOOKS FOR 10A UNITS AND NON 10A UNITS. THEREFORE, THIS OBJECTIO N OF THE A.O. IS ALSO REJECTED. 8. AS PER ABOVE DISCUSSION, WE HAVE REJECTED BOTH T HE OBJECTIONS OF THE A.O. FOR MAKING 100% DISALLOWANCE OF THE CLAIM OF THE ASSESS EE U/S 10B. NOW WE EXAMINE THE MAIN CLAIM OF THE ASSESSEE THAT THE CLA IM OF THE ASSESSEE FOR DEDUCTION U/S 10B SHOULD BE ALLOWED IN FULL. WE FIN D THAT SIMILAR CLAIM WAS PARTLY DISALLOWED BY THE A.O. IN EARLIER YEARS AND THE ASSESSEE HAS ACCEPTED SUCH DISALLOWANCE AND NO APPEAL WAS FILED BY THE AS SESSEE. IN THE PRESENT YEAR WHICH STARTED ON 01.04.2010 AFTER SEARCH ON 03 .03.2010, IT IS A SUBMISSION OF THE LEARNED AR OF THE ASSESSEE THAT IN THE PRESE NT YEAR, AFTER SEARCH, THE ASSESSEE REMOVED ALL DEFECTS FOR WHICH PART DISALLO WANCE WAS MADE IN EARLIER YEARS AND THE ASSESSEE ACCEPTED THE SAME IN THOSE Y EARS BUT NO EVIDENCE IS BROUGHT ON RECORD IN THIS REGARD. IN A. Y. 2010 1 1, ON PAGE NO. 9 OF THE ASSESSMENT ORDER AVAILABLE ON PAGE 109 TO 113 OF TH E PAPER BOOK, THE A.O. HAS STATED AS UNDER:- ANALYSIS OF THE SUBMISSION MADE BY THE ASSESSEE: FROM THE ABOVE SUBMISSIONS, IT IS OBSERVED THAT THE ASSESSEE, THOUGH, NOT ACCEPTED THE EVIDENCES, HAS STATED THAT WITH A VIEW TO HAVE THE ITA NO. 1261(BANG)2016 7 MATTER CLOSED, AVOID THE HASSLES AND TO BUY PEACE F ROM THE DEPARTMENT, AND TO COVER ALL PLAUSIBLE ACTS OF OMIS SIONS OR COMMISSIONS FROM ALL ANGLES IN COMPUTING THE INCOME OF THE EOU HAS ACCEPTED THE PROPOSED DISALLOWANCES IN THE SHOW CAU SE NOTICE. BASICALLY, ON BEING POINTED OUT, THE ASSESSEE DOES NOT WANT TO ADMIT ITS DEFAULTS IN CONNECTION TO THE VIOLATIONS REGARD ING THE CLAIM OF DEDUCTION U/S1OB OF THE I.T.ACT. BUT, THE ASSESSEE' S CLAIM CAN NOT BE ADMITTED FOR THE FOLLOWING REASONS: A. THE ASSESSEE CLAIMS THAT THE RETURNS FOR ASSESSM ENT YEAR 2007-2008 WAS TAKEN UP FOR SCRUTINY IN THE REGULAR COURSE OF ASSESSMENT AND AFTER DETAILED EXAMINATION AND INVESTIGATION, THE D EDUCTION / EXEMPTION WAS ALLOWED AS CLAIMED. JUST BECAUSE OF T HE REASON THAT THIS HAS BEEN ALLOWED DURING THE COURSE OF SCRUTINY PROCEEDINGS, THERE IS NO REASON TO ALLOW THE CLAIM ENTIRELY IN THE SEA RCH ASSESSMENT PROCEEDINGS WHERE THERE ARE LOT MANY EVIDENCES COLL ECTED AGAINST THE ASSESSEE IN CONNECTION TO THE VIOLATIONS. B. THE ASSESSEE FURTHER HAS STATED THAT THE DEPARTM ENT, AFTER DETAILED ENQUIRY, HAS ACCEPTED ELIGIBILITY FOR THE DEDUCTION / EXEMPTION U/S 10B OF THE ACT. ACCEPTING THE ELIGIBILITY DURING THE CO URSE OF REGULAR ASSESSMENT PROCEEDINGS IS NOT THE REASON/GROUND FOR ALLOWING THE CLAIM OF THE ASSESSES WHERE THERE ARE CERTAIN VALID EVIDENCES AGAINST THE ASSESSEE IN CONNECTION TO THE VIOLATION OF CERT AIN CONDITIONS REGARDING THE CLAIM OF DEDUCTION U/S10B OF THE I.T. ACT. C. THE ASSESSEE HAS STRONGLY RELIED ON THE FACT THA T MR. SUDDHODAN WHOSE STATEMENT IS SOUGHT TO BE STRONGLY RELIED UPO N WAS ONLY THE MANAGER FOR MINES OPERATION WHOSE MAIN RESPONSIBILI TY WAS TO OVERSEE THE EXTRACTION AND PRODUCTION OF ORE AT THE PIT HEAD LEVEL AND TO SEE THAT THE WORK IS CARRIED ON AT THE PIT LEVEL . THE ASSESSEE MAINLY PLACE EMPHASIS ON THE FACT THAT THE STATEMENT RELIE D ON HAS BEEN. 12. THE STATEMENTS ON WHICH RELIANCE IS SOUGHT TO B E PLACED BY THE DEPARTMENT ARE NOT RELEVANT AT ALL, NOT GERMANE TO THE ISSUE ARE IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND ARE TAKEN FROM PERSONS, WHO HAD NO ROLE TO PLAY ON THE MATTER AT HAND. ACCO RDINGLY, THE OBSERVATIONS AT PAGE 12 OF THE SHOW CAUSE NOTICE RE GARDING SO CALLED DEFECTS OF NON MAINTENANCE OF SEPARATE INVENTORY AN D RECORDS ETC., DO NOT HAVE ANY VALUE AND ARE TO BE DISCARDED. AFTER T HE SETTING UP OF THE EOU UNIT, WE HAVE ONLY RUN AND EXPORTED ORES FROM E OU UNIT ONLY AND NO OTHER UNIT WAS OPERATIONAL. THE OBSERVATIONS WHICH IN ANY CASE ARE NOT RELEVANT FOR DEDUCTION U/S. 10B OF I.T . ACT, ARE ONLY ON ASSUMPTIONS AND NOT BASED ON EVIDENCE. 13. IN FACT, SINCE THE TIME WE ARE CLAIMING 100% DE DUCTION U/S. 10B, WE NEVER USED ANY MACHINERY WHICH WAS NOT RELATED T O EOU. WE OURSELVES HAD, IN THE INITIAL YEARS OF DEDUCTION CL AIMED ONLY PROPORTIONATE DEDUCTION U/S. 10B. THE INTERPRETATIO N THAT THE VSP PLANT IS AN OLD PLANT HAS NO BASIS AND REASONING. E VEN THE SO CALLED ITA NO. 1261(BANG)2016 8 STATEMENT BY CHARTERED ENGINEER MR. VASUDEV RAO DOE S NOT JUSTIFY SUCH A CONCLUSION. HE HAS GIVEN ONLY HIS TECHNICAL KNOWLEDGE ON MACHINERY. HE IS NOT AWARE OF NOR IN THE EXPORT IN 100% EOU MATTER. CORRESPONDINGLY THE PRODUCTION DATA OF VSP AND NON VSP MACHINES DOES NOT GIVE ANY CONCLUSIVE EVIDENCE REGARDING THE OPERATION OF SO CALLED NON-EOU UNIT. 14. MR. RAJESH OF HIREGANGE ASSOCIATES, WHO IS SUPP OSED TO HAVE GIVEN A CONFIDENTIAL REPORT, DID NOT EVEN ONCE HAVE ANY INTERACTION WITH TOP MANAGEMENT PEOPLE OF THE APPELLANT BEFORE FRAMING THE REPORT. MR. RAJESH DID NOT HAVE ANY BRIEFING FROM E ITHER THE MANAGEMENT OR START OF THE APPELLANT. HE WAS NOT AW ARE OF THE TYPE AND LOCATION OF PLANT. INFECT, HE ADMITS IN THE STA TEMENT RECORDED IN APRIL 2010 THAT HE HAD PREPARED A REPORT, NOT ON PE RSONAL INSPECTION BUT ON THE FEEDBACK GIVEN TO HIM BY HIS STAFF. THE ITSELF SHOWS THE QUALITY OF THE REPORT. FURTHER, THE CONTENTS OF THE SO CALLED REPORT DO NOT IN ANY WAY GO AGAINST THE STATUS OF CLAIM OF EO U AND OF THE CLAIM U/S. 10B. 15. WE HAVE CORRECTLY CLAIMED THE DEDUCTION U/S. 10 B OF THE ACT BY COMPLYING WITH THE PROVISIONS OF LAW. THERE IS NO VIOLATION OF ANY OF THE CONDITION LAID DOWN UNDER INCOME TAX ACT, 1961. THE UNDERTAKING HAS BEEN APPROVED BY ANOTHER CENTRAL GOVERNMENT AUT HORITY I.E., CSEZ, AS 100% EOU AND THIS RECOGNITION CONTINUES EV EN TILL TODAY. RECORDED FROM THE PERSON WHO WAS EVEN AUTHORIZED TO GIVE ANY STATEMENT REGARDING THE WORKING AND OPERATION OF TH E PLANT. ELIGIBILITY OF THE PERSON TO GIVE A STATEMENT SHOULD NOT BE DEC IDED BY THE ASSESSEE. BASICALLY, STATEMENT HAS BEEN RECORDED FR OM A PERSON WHO IS AN EMPLOYEE AND WHO CAN PROVIDE COMPLETE DETAILS RE GARDING THE GROUND REALITIES OF THE ASSESSEE COMPANY. FROM THE STATEMENT RECORDED, IT IS OBSERVED THAT FACTS COLLECTED FROM THE PERSON CLEARLY PROVIDES A COMPLETE PICTURE REGARDING THE VIOLATION S MADE BY THE ASSESSEE IN CONNECTION TO THE CLAIM MADE U/S10B OF THE I.T.ACT. D. THE ASSESSEE HAS FURTHER STATED THAT M/S. HIREGA NGE AND ASSOCIATES WERE NEVER APPOINTED OR GIVEN ANY ASSIGNMENT BY THE M AND IN FACT IT MAY BE STATED HERE THAT THE COPY OF THE SO CALLED CORRESPONDENCE/REPORT WHICH IS SOUGHT TO BE RELIED UPON WAS GIVEN BY MR. RAJESH TO CA MR. RAVINDRANATH. BUT, THE ASSESSE E HAS COMPLETELY IGNORED THE FACT THAT FACTS FOUND IN SERVICE TAX MA TTERS HAVE IMPLICATION ON INCOME TAX MATTERS ALSO AND THERE AR E CERTAIN OBSERVATIONS MADE AFTER DETAILED ANALYSIS REGARDING THE VIOLATIONS WHICH CANNOT BE IGNORED. WHOEVER HAS GIVEN THE SAME , THE CONTENT OF THE CORRESPONDENCES ARE FORMING PART OF THE SEIZED MATERIALS AND THEY HAVE IMPLICATION ON THE ISSUE OF DEDUCTION U/S 10B OF THE I.T.ACT. EVIDENTIARY VALUE OF THE SAME CANNOT BE IGNORED. ITA NO. 1261(BANG)2016 9 E. FACTS AND CIRCUMSTANCES BEFORE SEARCH CANNOT BE CONSIDERED AS A BASIS WHEN PROPER EVIDENCES WERE COLLECTED AFTER CO NDUCTING THE PHYSICAL SEARCH IN THE PREMISES OF THE ASSESSEE. EV IDENCES COLLECTED DURING THE COURSE OF SEARCH AND THEIR RAMIFICATION, THE EVIDENTIARY VALUE OF THE SAME NEEDS TO BE APPRECIATED RATHER TH AN PONDERING ON THE SITUATION AND CERTIFICATION FROM THE GOVERNMENT AL ORGANIZATION AND AGENCIES BEFORE THE SEARCH ACTION. CRITICAL APPRAIS AL OF THE SEARCH MATERIALS AND THE EVIDENTIARY VALUE NEEDS TO BE CON SIDERED AND THE SAME NEEDS TO BE RELIED ON FOR FINALIZING THE ASSES SMENTS DONE IN THE CASE OF THE ASSESSEE. F. THE ASSESSEE FURTHER STATES THAT THERE ARE CERTA IN FACTUALLY A WRONG ANSWERS. MINOR FACTUAL ERROR DOES NOT DILUTE THE EN TIRE CONTENTS OF THE STATEMENTS RECORDED.. THE INFORMATION COLLECTED FRO M SRI SUDHODHAN IN CONNECTION TO THE EXISTENCE OF EOU AND NON-EOU A ND IN CONNECTION TO THE TRANSFER OF GOODS FROM NON EOU TO EOU HAS BEEN UTILIZED FOR MAKING ASSESSMENT IN THE CASE OF THE A SSESSEE COMPANY. THE ASSESSEE SHOULD NOT RELY ON THE EXPORTS AND THE RELATED FACTUAL DETAILS PREVAILING BEFORE THE SEARCH.. FACTS EMANAT ED AFTER CONDUCTING THE SEARCH AND AFTER CRITICAL APPRAISAL OF THE FACT S COLLECTED FROM IN THE COURSE OF SEARCH ONLY NEED TO BE RELIED ON FOR MAKING ASSESSMENT U/S.153A IN ADDITION TO THE AVAILABLE FACTS. TAKING SHELTER OF THE FACTS BEFORE THE SEARCH IS NOT APPROPRIATE AND THE ASSESS EE SHOULD APPRECIATE THE EVIDENCES COLLECTED DURING THE SEARC H AND THE CONTENTS THEREIN. G. THE ASSESSEE HAS FURTHER STATED THAT THE STATEME NT AS RECORDED FROM MR. SUDDHODAN WAS NOT CORRECT TO HIS OWN KNOWLEDGE, IMMEDIATELY ON THE NEXT DAY HE HAVING DECIDED TO RETRACT THE STATE MENT, MADE AN AFFIDAVIT ON OATH IN THIS REGARD AND THIS AFFIDAVIT WHICH WAS SOUGHT TO BE FILED IN THE DEPARTMENT WAS NOT ACCEPTED. BY LEV ELING SUCH CLAIM, THE ASSESSEE IS TRYING TO JUSTIFY ITS ACTION AND IT S CLAIM BY ADDUCING SOME IMPROPER EVIDENCES AND BY ALLEGING THAT THE AF FIDAVIT WHICH WAS SOUGHT TO BE FILED IN THE DEPARTMENT WAS NOT ACCEPT ED. THE ASSESSEE HAS NOT SHOWN THE PROOF THAT THE AFFIDAVIT WAS FILE D BEFORE THE DEPARTMENT AND THE SAME VIES NOT ACCEPTED. SUCH FRI VOLOUS, BASELESS AND FAKE CLAIMS DOES NOT SUPPORT THE ASSESSEE AND I T DOES NOT HELP THE ASSESSEE TO GET COMPLETE RELIEF IN THE MATTER OF CL AIM OF DEDUCTION U/S.10B, H. ONCE AGAIN THE ASSESSEE HAS CONTENDED THE QUALIF ICATION OF MR. SUDHODHAN FOR GIVING STATEMENT UNDER OATH. IT IS ON CE AGAIN EXPLAINED THAT THE DEPARTMENT IS FREE TO COLLECT EVIDENCES FROM ANY SOURCE, IT DEEMS FIT. IN THIS CO NNECTION, A STATEMENT WAS RECORDED FROM MR. SUDHODHAN TO ASCERTAIN THE GR OUND REALITIES REGARDING THE DAY TO DAY ACTIVITIES OF THE ASSESSEE AND FACTS EMANATED FROM THE STATEMENT ARE STRONGLY RELIED ON FOR MAKIN G THE ASSESSMENT. QUALIFICATION OF THE PERSON FROM WHOM THE STATEMENT IS RECORDED IS DECIDED BY THE DEPARTMENT AND NO AUTHORIZATION IS R EQUIRED FROM THE ASSESSEE. ITA NO. 1261(BANG)2016 10 I. THE ASSESSEE HAS RAISED QUESTIONS REGARDING THE STATEMENTS RECORDED FROM THE LOGISTICS PERSON SHRI .RITESH JAI N ALSO. MR. RITESH JAIN, BEING THE LOGISTICS PERSON, IS EXPETED TO RAI SE THE BILLS FOR TRANSPORTATION AND IS EXPECTED TO MAKE NECESSARY EN TRIES REGARDING THE DAY TO DAY OPERATIONS AND SOURCE AND DESTINATIO NS OF IRON ORE TRANSPORTED. BEING A PERSON OF SOME VITAL ROLE, MOR E FACTS WERE COLLECTED FROM HIM IN CONNECTION TO THE ACTIVITIES OF THE EOU AND NON EOU. THOUGH HE WAS NOT AWARE OF THE FACTS REGARDING THE PRODUCTION, SALES, PURCHASES ETC. HE WAS HAVING THE KNOWLEDGE A BOUT THE EXISTENCE OF EOU AND NON EOU. FROM THE STATEMENTS RECORDED FR OM HIM, THE FACTS COLLECTED WERE AGAINST THE INTEREST OF THE AS SESSEE BECAUSE OF WHICH THE ASSESSEE IS ALLEGING THAT HE IS NOT ELIGI BLE TO GIVE ANY STATEMENTS REGARDING THE EOU AND NON EOU. FROM THE EVIDENCES COLLECTED, IT HAS BEEN OBSERVED CLEARLY THAT THERE ARE CERTAIN VIOLATIONS REGARDING THE CLAIM OF DEDUCTION U/S. 10B OF THE I. T.ACT. J. THE ASSESSEE HAS QUESTIONED THE RELEVANCY OF THE STATEMENTS RECORDED FROM THE EMPLOYEES IN THE MAINTENANCE AND REPAIRS OF MACHINERY. JUST BECAUSE OF THE REASON THAT SOMEBOD Y IS LOOKING AFTER ONLY THE MAINTENANCE AND REPAIRS OF THE MACHINES, T HERE IS NO BAR FROM COLLECTING INFORMATION FROM THEM AND ALSO UTIL IZING THE FACTS EMERGED FROM SUCH STATEMENTS FOR THE ASSESSMENTS. T O TELL THE FACTS PREVAILING IN THIS CASE, THERE IS NO TECHNICAL COMP ETENCY REQUIRED AS LONG AS THE DEPOSER GIVES CLEAR FACTS ABOUT THE BUS INESS OF THE ASSESSEE. RECORDING A STATEMENTS FROM SUCH PERSONS IS FOR THE PURPOSE OF FINDING THE PREVAILING FACTS AT THE GRASS ROOT L EVEL AND THE MAIN PURPOSE OF THIS EXERCISE IS TO FIND OUT WHETHER THE RE ARE ANY VIOLATIONS IN CONNECTION TO THE CLAIM OF DEDUCTIONS U/S 10B OF THE I.T.ACT. K. FURTHER THE ASSESSEE CLAIMS THAT THE STATEMENTS ON WHICH RELIANCE IS SOUGHT TO BE PLACED BY THE DEPARTMENT ARE NOT RELEV ANT AT ALL, NOT GERMANE TO THE ISSUE ARE IN VIOLATION OF PRINCIPLES OF NATURAL. JUSTICE AND ARE TAKEN FROM PERSONS, WHO HAD NO ROLE TO PLAY ON THE MATTER AT HAND. BUT THE ASSESSES HAS CONVENIENTLY OMITTED THE FACT THAT THOUGH THE PERSONS ARE NOT HAVING ANY ROLE IN DECIDING THE MATTER OF ALLOWANCE OF CLAIM OF DEDUCTION U/S1OB OF THE I.T.A CT, FACTS COLLECTED FROM THEM HAS ADEQUATE AND IMPORTANT RELEVANCY TO T HE FACTS OF THE CASE TO DECIDE ON THE MATTER OF ALLOWABILITY OF CLA IM OF DEDUCTION U/S1OB OF THE I.T.ACT. L. IN VIEW OF THE ABOVE FACTS, THE DECLARATION MADE BY THE ASSESSEE IS NOT CONSIDERED A VOLUNTARY DECLARATION AND THE ASSE SSES HAS DISCLOSED THE EXCESSIVE AND UNREASONABLE CLAIM OF DEDUCTION U NDER SECTION 10 B OF THE INCOME TAX ACT ONLY BECAUSE OF THE REASON TH AT SO MANY IRREGULARITIES HAVE BEEN OBSERVED AND EVIDENCES WER E COLLECTED IN CONNECTION TO SUCH IRREGULARITIES. THE ASSESSES HAS DECLARED THIS INCOME ONLY CONSEQUENT TO THE STRONG EVIDENCES FOUN D BY THE DEPARTMENT AND THIS CANNOT BE TREATED AS VOLUNTARY DISCLOSURE MADE BY THE ASSESSEE. ITA NO. 1261(BANG)2016 11 9. FROM THIS, IT COMES OUT THAT IN EARLIER YEARS, T HE PROPOSED PART DISALLOWANCE AS PER SHOW CAUSE NOTICE OF THE A.O. WAS ACCEPTED BY T HE ASSESSEE TO BUY PEACE AND TO COVER ALL PLAUSIBLE ACTS OF OMISSIONS AND CO MMISSIONS FROM ALL ANGLES IN COMPUTING THE INCOME OF EOU. IN THE PRESENT YEAR, T HE FACTS ARE SIMILAR AND IT IS NOT ESTABLISHED BY BRINGING EVIDENCE ON RECORD THAT THE REASONS FOR WHICH PART DISALLOWANCE WAS ACCEPTED IN EARLIER YEARS ARE NOT PRESENT IN THE PRESENT YEAR. HENCE, IN OUR CONSIDERED OPINION, IN THE PRESENT YE AR ALSO, PART DISALLOWANCE IS TO BE MADE AS WAS MADE IN A. Y. 2010 11. IN THAT YEAR, OUT OF INITIAL CLAIM OF DEDUCTION U/S 10B OF RS. 82,58,71,855/-, A DISALLOW ANCE OF RS. 635,13,588/- WAS MADE BECAUSE IT WAS FOUND THAT ACTUAL ELIGIBLE DEDUCTION WAS ONLY RS. 76,23,58,267/- AFTER CONSIDERING CORRECT AMOUNT OF EXPORT TURNOVER AND TOTAL TURNOVER AFTER EXCLUDING SHORTAGE & LOSS ON FOREIGN EXCHANGE FLUCTUATION AND OCEAN FREIGHT IN CASE OF CIF EXPORT SALES. SUCH REDUCTION WAS MADE FROM EXPORT TURNOVER ONLY BUT NOT FROM TOTAL TURNOVER BU T IN VIEW OF THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE O F TATA ELXSI LTD. AS REPORTED IN 349 ITR 98, THE AMOUNTS REDUCED FROM EX PORT TURNOVER SHALL BE REDUCED FROM TOTAL TURNOVER ALSO BECAUSE TOTAL TURN OVER IS SUM TOTAL OF EXPORT TURNOVER AND DOMESTIC TURNOVER AS PER THIS JUDGMENT AND THEREFORE, IF AN AMOUNT IS REDUCED FROM EXPORT TURNOVER, THEN TOTAL TURNOVER ALSO GETS REDUCED BY THE SAME AMOUNT AUTOMATICALLY. HENCE, IN THE PRE SENT YEAR, THE ACTUAL ELIGIBLE DEDUCTION U/S 10B SHALL BE WORKED OUT IN T HIS MANNER I.E. AFTER REDUCING THE EXPORT TURNOVER AND TOTAL TURNOVER BOTH BY THE AMOUNTS OF SHORTAGE & LOSS ON FOREIGN EXCHANGE FLUCTUATION AND OCEAN FREIGHT I N CASE OF CIF EXPORT SALES. 10. FROM SUCH AMOUNT OF THE ACTUAL ELIGIBLE DEDUCTI ON U/S 10B AS WILL BE WORKED OUT IN THIS MANNER, DISALLOWANCE SHOULD BE MADE OF 27% IN THE PRESENT YEAR ALSO AS WAS MADE IN THE EARLIER YEARS. ACCORDINGLY, GROUND NO. 3.1 IS PARTLY ALLOWED. 11. REGARDING GROUND NO. 4.1 & 4.2 IN RESPECT OF AD DITION OF RS. 97,50,069/- AS NOTIONAL INTEREST ON INTEREST FREE ADVANCES OF RS. 35,13,85,068/- TO SISTER CONCERNS, IT WAS SUBMITTED BY THE LEARNED AR OF THE ASSESSEE THAT THE BALANCE ITA NO. 1261(BANG)2016 12 SHEET FOR THE PRESENT YEAR IS AVAILABLE ON PAGE 51 OF THE PAPER BOOK AND HE POINTED OUT THAT AS PER THE SAME, THE ASSESSEE HAS INTEREST FREE OWN FUNS MUCH IN EXCESS OF THE INTEREST FREE ADVANCES GIVEN BY TH E ASSESSEE TO SISTER CONCERNS. HE POINTED OUT THAT SHARE CAPITAL IS OF R S. 40 LACS AND RESERVE & SURPLUS IS OF RS. 72,993 LACS TOTAL RS. 73,033 LACS . HE PLACED RELIANCE ON THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT RENDERED I N THE CASE OF CIT VS. BRINDAVAN BEVERAGES (P) LTD. AS REPORTED IN 393 ITR 261. LEARNED DR OF THE REVENUE SUPPORTED THE ORDER OF CIT (A). 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT AS PER THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE O F CIT VS. BRINDAVAN BEVERAGES (P) LTD. (SUPRA), IF THE ASSESSEE HAS SUF FICIENT OWN FUNDS COVERING INTEREST FREE ADVANCES TO SISTER CONCERNS, DISALLOW ANCE OUT OF INTEREST EXPENDITURE IS NOT JUSTIFIED. WE ALSO FIND THAT IT IS NOTED BY HONBLE KARNATAKA HIGH COURT THAT THE JUDGMENT OF HONBLE P & H HIGH COURT RENDERED IN THE CASE OF ABHISHEK INDUSTRIES LTD. VS. CIT AS REPORTED IN 152 ITR 512 IS ALREADY REVERSED BY HONBLE APEX COURT IN THE CASE OF MUNJA L SALES CORPN. VS. CIT AS REPORTED IN 298 ITR 298. HONBLE KARNATAKA HIGH COU RT ALSO NOTED THE JUDGMENT OF HONBLE BOMBAY HIGH COURT RENDERED IN T HE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. AS REPORTED IN 313 ITR 340 AS PER WHICH, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND IN T HIS VIEW OF THE MATTER, IT WAS HELD THAT THERE IS NO SUBSTANTIAL QUESTION OF LAW A RISES AND THE TRIBUNAL ORDER WAS APPROVED. IN THE PRESENT CASE ALSO, OWN FUNDS O F RS. 73,033 LACS IS MUCH IN EXCESS OF INTEREST FREE ADVANCES TO SISTER CONCE RNS OF RS. 3513.85 LACS AND THEREFORE, RESPECTFULLY FOLLOWING THE JUDGMENT OF H ONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CIT VS. BRINDAVAN BEVERAG ES (P) LTD. (SUPRA), WE DELETE THE ADDITION OF RS. 97,50,069/- MADE BY THE AO AS NOTIONAL INTEREST ON INTEREST FREE ADVANCES OF RS. 35,13,85,068/- TO SIS TER CONCERNS. THESE GROUNDS ARE ALLOWED. 13. REGARDING GROUND NO. 5 IN RESPECT OF DISALLOWAN CE OF RS. 57,93,432/- U/S 14A, IT WAS SUBMITTED BY THE LEARNED AR OF THE ASSESSEE THAT AS PER PARA 41 OF THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT AS REPORTED IN 91 TAXMAN.COM 154, COPY ON PAGES 279 TO 299 OF THE COMPILATION OF CASE LAWS, IT WAS HELD THAT BEFO RE APPLYING THE THEORY OF ITA NO. 1261(BANG)2016 13 APPORTIONMENT, THE AO NEEDS TO RECORD SATISFACTION THAT HAVING REGARD TO THE KIND OF THE ASSESSEE, SUO MOTO DISALLOWANCE U/S 14A WAS NOT CORRECT IF THE ASSESSEE IN THE RETURN HAS HIMSELF APPORTIONED BUT THE AO WAS NOT ACCEPTING THE SAID APPORTIONMENT. HE SUBMITTED THAT IN THE PR ESENT CASE, NO SUCH SATISFACTION WAS RECORDED BY THE AO AND HENCE, THE DISALLOWANCE MADE BY HIM IS NOT AS PER LAW AND IT SHOULD BE DELETED. LEARNED DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. REGA RDING THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF MAXOPP I NVESTMENT LTD. VS. CIT (SUPRA), SHE SUBMITTED THAT IN THE PRESENT CASE, IT IS NOTED BY THE AO ON PAGE 9 OF THE ASSESSMENT ORDER THAT THE ASSESSEE HAS NOT M ADE ANY SUO MOTO DISALLOWANCE U/S 14A. SHE FURTHER POINTED OUT THAT THIS WAS THE CLAIM OF THE ASSESSEE BEFORE THE AO THAT THE ASSESSEE HAS NOT IN CURRED ANY EXPENDITURE TO EARN EXEMPT DIVIDEND INCOME AND THE AO HAS SPECIFIC ALLY REJECTED THIS CLAIM BY GIVING REASONS THAT AS PER THE BALANCE SHEET OF THE ASSESSEE, THE ASSESSEE HAD ACTIVELY MADE CERTAIN INVESTMENT DECISIONS AND THIS WAS NOT POSSIBLE WITHOUT THE EFFORTS OF MANAGERIAL STAFF AND DIRECTO RS. SHE SUBMITTED THAT IN FACT, THIS JUDGMENT SUPPORTS THE CASE OF THE REVENUE IN T HE FACTS OF THE PRESENT CASE. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND FORCE IN THE SUBMISSIONS OF THE LEARNED DR OF THE REVENUE THAT IN THE FACTS OF THE PRESENT CASE, THIS JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT (SUPRA) SUPPORTS THE CASE OF THE REVEN UE BECAUSE WE FIND THAT A CATEGORICAL FINDING IS GIVEN BY THE AO THAT THE ASS ESSEE HAD ACTIVELY MADE CERTAIN INVESTMENT DECISIONS AND THIS WAS NOT POSSI BLE WITHOUT THE EFFORTS OF MANAGERIAL STAFF AND DIRECTORS AND THE ASSESSEE HAS NOT MADE ANY SUO MOTO DISALLOWANCE U/S 14A R.W.R. 8D. THIS IS ALSO NOTED BY THE AO THAT THE ASSESSEE IS HAVING MIXED FUNDS AND IN SPITE OF QUERY, THE AS SESSEE COULD NOT ESTABLISH DIRECT NEXUS OF BORROWED FUNDS WITH TAXABLE INCOME OR INTEREST FREE FUNDS WITH DIVIDEND INCOME. HENCE, ON THIS ISSUE, WE FIND NO R EASON TO INTERFERE IN THE ORDER OF CIT (A). THIS GROUND IS REJECTED. 15. GROUND NO. 6.1, 6.2 AND 7 ARE REJECTED AS NOT P RESSED. ITA NO. 1261(BANG)2016 14 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED IN THE TERMS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE DA TE MENTIONED ON THE CAPTION PAGE. SD/- SD/- (LALIET KUMAR) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 21 ST AUGUST, 2018. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.