PIRAMAL CORPORATE SERVICES LTD, MUMBAI V. DCIT CIR 7(1), MUMBAI

ITA 1284/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2477 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 26-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY BAREDR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL CBENCH M UMBAI , , BEFORE S/SH.JOGINDER SINGH,JUDICIAL MEMBER & RAJ ENDRA,ACCOUNTANT MEMBER ./I.T.A./1284/MUM/2014, /ASSESSMENT YEAR: 2010-11 M/S. PIRAMAL ENTERPRISES LTD. (NOW KNOWN AS PIRAMAL CORPORATE SERVICES LTD.) PIRAMAL TOWER, PENINSULA CORPORATE PARK, GANPATRAO KADAM MARG, LOWER PAREL(W) MUMBAI-400013. PAN:AAACJ 5669 H VS. DCIT-CIRCLE-7(1), AAYAKAR BHAVAN, M.K. ROAD,NEW MARINE LINES, MUMBAI-400020. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI SANJAY BARE-DR ASSESSEE BY: S/SHRI YOGESH THAR AND MANTHAN SHAH AR.S / DATE OF HEARING: 19.05.2016 / DATE OF PRONOUNCEMENT: 20.07.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DT.30.12.2013 OF CIT(A)-13,MU MBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL. ASSESSEE COMPANY, ENGAG ED IN THE BUSINESS OF PROVIDING VARIOUS CONSULTANCY SERVICES LIKE MANAGEM ENT CONSULTANCY SERVICES, CORPORATE STRATEGY SERVICES TO ITS GROUP AND IS ALS O MAKING INVESTMENT IN OTHER COMPANIES. IT FILED ITS RETURN OF INCOME 13.10.2010 , DECLARING TOTAL INCOME AT RS.15.29CRORES .THE ASSESSMENT ORDER U/S.143(3) OF THE ACT, WAS PASSED ON 31.12.2012, DETERMINING THE TOTAL INCOME OF THE ASS ESSEE AT RS. 19.67 CRORES. 2. FIRST GROUND OF APPEAL IS ABOUT DISALLOWANCE OF INT EREST EXPENDITURE OF RS.4.37 CRORES U/S.36(1)(III)/ SEC.14A OF THE ACT.D URING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THERE WAS AN INCONSIS TENCY IN THE BUSINESS RESULTS AS COMPARED TO THE EARLIER YEARS. IN ORDER TO VERIFY THE FLUCTUATION OF INCOME HE DIRECTED THE ASSESSEE TO FILE THE DETAILS OF VARIOUS EXPENSES. ON PERUSAL OF THE DETAILS HE FOUND THAT THE ASSESSEE W AS CARRYING OUT INVESTMENT ACTIVITIES, THAT IT HAD BORROWED A SUM OF RS.52.07 CRORES AS LOAN FROM NOZAKI 1284/M/14-PIRAMAL 2 FINANCE AND INVESTMENTS LTD. (NFIL), THAT THE LOAN WAS BORROWED AT AN AVERAGE INTEREST OF RS.12% , THAT THE ENTIRE INTEREST EXPEN DITURE OF RS.4.37 CRORES WAS DEBITED TO P&L ACCOUNT, THAT THE ENTIRE BORROWED FU ND HAD BEEN INVESTED IN VENTURE CAPITAL FUND (VCF) OF THE PIRAMAL GROUP BY THE NAME INDIA REIT FUND (IRF). HE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY T HE INTEREST EXPENDITURE SHOULD NOT BE DISALLOWED U/S.14A OF THE ACT. VIDE I TS LETTER DT.19.12.12, THE ASSESSEE ARGUED THAT IT HAD INVESTED THE BORROWED F UND IN THE SCHEME-I AND SCHEME-III OF IRF, THAT IRF HAD USED THOSE FUNDS FO R MAKING INVESTMENT IN VCU/SHARE/MUTUAL FUNDS ETC. ON BEHALF OF THE VARIOU S INVESTORS, THAT THE ASSESSEE WAS ONE OF THE INVESTOR/BENEFICIARY OF IRF , IRF WAS A CONTRIBUTORY AND DETERMINATE TRUST, THE BENEFICIARIES WERE IDENTIFIA BLE AND THEIR SHARES WERE DEFINITE, THAT IRF ENJOYED A PASS THROUGH STATUS (P TS) , THAT THE TAXES WERE PAID AT THE BENEFICIARY LEVEL, THAT THE INCOME WOULD BE TAXABLE IN THE HANDS OF THE BENEFICIARY IN THE SAME CHARACTER AND IN THE SAME M ANNER AS IF IT WERE THE INCOME OF THE BENEFICIARY HAD IT DIRECTLY MADE THE INVESTMENTS, DURING THE YEAR IRF HAD INVESTED CERTAIN PORTION OF ITS TOTAL ASSET S IN THE SHARES AND MUTUAL FUNDS WHOSE INCOME WAS EXEMPT UNDER SECTION 10(34) OF THE ACT, THAT THE ASSESSEE HAD ON ITS OWN MADE A DISALLOWANCE OF RS.2 .23 CRORES U/S. 14A OF THE ACT UNDER THE HEAD INTEREST EXPENDITURE, THAT IRF H AD ALSO MADE CERTAIN INVESTMENTS IN DEBENTURES AND SUBSCRIPTION MONEY PE NDING ALLOTMENT AND BANK FIXED DEPOSITS, THAT THE INCOME FROM THE SAID INVES TMENT WAS TAXABLE, THAT PROPORTIONATE INVESTMENT IN THE SAME HAD NOT BEEN T AKEN INTO CONSIDERATION WHILE CALCULATING THE DISALLOWANCE U/S. 14A, THAT T HE INVESTMENT MADE BY THE IRF IN DEBENTURES, SUBSCRIPTION MONEY PENDING ALLOT MENT AND BANK FDR.S WERE TAXABLE, THAT IT PAID BY THE ASSESSEE ON THE BORROW ED FUNDS AND INVESTED IN IRF WHO IN TURN USE THE ABOVE INVESTMENT DID NOT QUALIF Y FOR DISALLOWANCE, THAT THE ASSESSEE HAD INVESTED RS.5.00 CRORES, IN SEPT, 2009 , IN INDIA VENTURE FUND (IVF-I), THAT OUT OF THE SAID AMOUNT A SUM OF RS.4. 16 CRORES WAS FUNDED OUT OF THE SALE PROCEEDS OF UNITS OF IRF , THAT DISALLOWA NCE U/S. 14A WAS CALCULATED ON 1284/M/14-PIRAMAL 3 THE BALANCE AMOUNT OF RS.84.40 LAKHS UTILIZED OUT O F BORROWED FUNDS. THE AO FOUND THAT THE ASSESSEE HAD SUBMITTED ITS OWN WORKI NG OF DISALLOWANCE U/S. 14A.HE HELD THAT CONTENTION OF THE ASSESSEE THAT I NDIA REIT HAD INVESTED CERTAIN PORTION OF ITS TOTAL ASSETS IN THE SHARES AND MUTUA L FUND WHOSE INCOME WAS EXEMPT U/S.10(34) OF THE ACT AND THEREFORE ONLY PRO PORTIONATE INTEREST SHOULD BE DISALLOWED WAS NOT ACCEPTABLE, THAT ONCE THE ASSES SEE HAD MADE THE INVESTMENT IN FUNDS IT WOULD LOOSE ITS CONTROL ON THE FUND, TH AT IT HAD NOT DISPUTED THE APPLICABILITY OF SECTION 14A OF THE ACT. 2.1 THE AO REFERRED TO THE CASES OF DAGA MANAGEMENT (P ) LTD. (117ITD169); CHEM INVEST LTD.(124TTJ577), LEENA RAMCHANDRAN (ITA /1784 OF 2009, 14.6.2010) AND OBSERVED THAT THE INTEREST PORTION IN QUESTION WAS NOT INCURRED FOR THE BUSINESS PURPOSES , THAT SAME WAS TO BE DIS ALLOWED AS PER THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT, THAT THE FUND BOR ROWED, INTEREST EXPENSES INCURRED AND INVESTMENTS MADE WERE DIRECTLY RELATED , THAT THE ENTIRE EXPENSE HAD TO BE DISALLOWED U/S.14A OF THE ACT. FINALLY, T HE INTEREST AMOUNT OF RS.4,37,29,913/- WAS DISALLOWED AS NOT BEING INCURR ED FOR THE PURPOSE OF BUSINESS (U/S.36(1) AND 14A) AND WAS ADDED TO THE R ETUNED INCOME OF THE ASSESSEE. 2.2 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). BEFORE HIM, I T WAS ARGUED THAT THE ASSESSEE HAD BORROWED FUNDS FROM NOZAKI FINANCE AND INVESTMENT LTD. AND HAD PAID INTEREST OF RS.4.37 CRORES, THAT IT HAD PAID INVESTMENT IN A SCHEME-I AND III OF IRF , THAT IRF HAD INVESTED A CERTAIN PORTION OF THE TOTAL ASSET IN SHARES AND MUTUAL FUNDS, INCOME FROM WHICH WAS EXEMPT FROM TAX U/S.10(34), THAT AS A BENEFICIARY, THE ASSESSEE WAS LIABLE TO TAX FOR ITS SHARE IN ITS INCOME FROM IRF IN THE SAME CHARACTER AND IN THE SAME MANNER AS IN THE CASE OF A TRUST, THAT IT HAD CALCULATED DISALLOWANCE U/S. 14A IN THE SAME MANNER AND THE SAME EXTENT BY 1284/M/14-PIRAMAL 4 APPLYING PERCENTAGE OF INVESTMENT MADE BY IRF TO IT S TOTAL ASSETS DURING THE YEAR AND HAD SUO MOTO DISALLOWED INTEREST OF RS.2. 35 CRORES, THAT DURING THE YEAR UNDER CONSIDERATION THERE WAS BOTH TAX FREE AN D TAXABLE INCOME THAT WAS EARNED BY THE ASSESSEE FROM THE INVESTMENTS MADE IN IRF, THAT INTEREST ATTRIBUTABLE TO TAX FREE INVESTMENTS WAS DISALLOWED BY ITSELF, THAT NO FURTHER DISALLOWANCE (RS.2.01 CRORES) WAS REQUIRED FOR BALA NCE INTEREST, THAT THE BORROWINGS WERE ATTRIBUTABLE TO TAXABLE INCOME, THA T THE INTEREST PORTION WAS ALLOWABLE AS DEN U/S. 36(1)(III) OF THE ACT. ALTERN ATIVELY, IT WAS ARGUED THAT INTEREST WAS ALLOWABLE U/S.57(III) OF THE ACT. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER, THE FAA HELD THAT THE ASSESSEE HAD UTILIZED BORROWED F UNDS OF RS.52.07 CRORES IN VENTURE CAPITAL FUNDS I.E. , IRF, THAT THE AO HAD R IGHTLY DISALLOWED EXPENDITURE U/S. 36(1)(III) AND 14A OF THE ACT.THE FAA ALSO HEL D THAT INTEREST EXPENDITURE COULD NOT BE ALLOWED U/S. 57 OF THE ACT. 2.3 DURING THE COURSE OF HEARING BEFORE US THE AR STATE D THAT ASSESSEE HIMSELF HAD MADE DISALLOWANCE FOR THE INTEREST PAID FOR EAR NING EXEMPT INCOME, THAT THERE WAS NO JUSTIFICATION IN ALLOWING INTEREST EX PENDITURE OF RS.2.01 CRORES. HE REFERRED TO THE ORDER OF THE TRIBUNAL DELIVERED IN ASSESSEES OWN CASE (ITA/4137 & 6645/MUM/2012 AY.S 2008-09 AND 2009-10 DT.9.12.15 ). THE DR SUPPORTED THE ORDER OF THE FAA. 2.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE AVAILABLE MATERIAL WE FIND THAT THE ASSESSEE HAD INCURRED BUSINESS EXPEN DITURE OF RS.4.36 CRORES DURING THE YEAR UNDER APPEAL, THAT IT HAD ON ITS OW N DISALLOWED A SUM OF RS.2.35 CRORES FOR EARNING DIVIDEND INCOME APPLYING THE MAN DATORY SECTION 14A OF THE ACT, THAT IT CLAIMED THAT THE BALANCE INTEREST EXP ENDITURE (RS.2.01 CRORES)INCURRED FOR TAXABLE INCOME SHOULD BE ALLOWE D U/S. 36(1)(III)/57(III), THAT 1284/M/14-PIRAMAL 5 THE AO AND THE FAA DID NOT ALLOW ANY EXPENDITURE IN VOKING THE PROVISIONS OF SECTION 14 OF THE ACT. 2.5 IN OUR OPINION,THERE WAS NO JUSTIFICATION IN DISALL OWING ENTIRE INTEREST EXPENDITURE.AS PER THE ESTABLISHED PRINCIPLES OF TA X JURISPRUDENCE,NO EXPENDITURE CAN BE ALLOWED FOR EARNING TAXFREE INCO ME.THE ASSESSEE HAD ON ITS OWN MADE A DISALLOWANCE OF RS.2.37 CRORES AS IT WAS RELATABLE TO EXEMPT INCOME.THERE WAS NO JUSTIFICATION FOR DISALLOWING I T AGAIN. THE ASSESSEE HAD OFFERED TAXABLE INCOME AND HAD CLAIMED INTEREST EX PENDITURE AGAINST IT. THE SAID FACT IS NOT DENIED BY EITHER OF THE REVENUE AU THORITIES. THEREFORE THE ASSESSEE HAD TO BE ALLOWED EXPENDITURE INCURRED FOR EARNING SUCH TAXABLE INCOME. THE GENUINENESS OF INCURRING OF THE EXPENDI TURE IS NOT IN DOUBT. THEREFORE, IN OUR OPINION THE FAA WAS NOT JUSTIFIED IN DISALLOWING INTEREST EXPENDITURE OF RS.2.01 CRORES. REVERSING HIS ORDER WE HOLD THAT DISALLOWANCE OF INTEREST EXPENDITURE SHOULD BE RESTRICTED TO 2.35 CROES ONLY I.E. INTEREST PAID OF EARNING EXEMPT INCOME. WE FIND THAT WHILE DECIDING THE APPEAL FOR EARLIER YEAR THE TRIBUNAL HAS DEALT WITH THE SAME ISSUE. WE WOU LD LIKE TO REPRODUCE PARA NO.3.3 TO 3.9 OF THE SAID ORDER AND SAME READS AS U NDER 3.3. WE HAVE GONE THROUGH THE ORDERS OF LOWER AUTHO RITIES AND SUBMISSIONS MADE BY BOTH THE SIDES. THE BRIEF FACTS ARE THAT IN THE RETURN FILED BY THE ASSESSEE, THE ASSESSEE HAS DISALLOWED THE INTEREST AMOUNT TO RS.1,01,00,417/-, SUO-MOTO. THE BACKGROUND OF THE FACT IS THAT THE ASSESSEE HAD MADE INVESTMENTS IN SCHEME I AND SCHEME III OF INDIA REIT FUND ('IRF'). IRF IS A VENTURE CAPITAL FUND REGISTERED WITH SEBI. IRF IS ALSO A CO NTRIBUTORY TRUST WHO RECEIVES CONTRIBUTIONS FROM VARIOUS CONTRIBUTORS/INVESTORS. IRF HAS IN TUR N, USED THESE FUNDS FOR MAKING INVESTMENT IN VCU'S SHARES, MUTUAL FUNDS, DEBENTURES AND 4 PIRAMA L ENTERPRISES LTD. SUBSCRIPTION MONEY PENDING ALLOTMENT ETC ON BEHALF OF THE VARIOUS I N V E S TO RS / B E N E F I C I A RI E S A N D TH E A S S E S S E E C O M P A N Y I S O N E O F TH E INVESTOR S/ BENEFICIARIES. IRF IS A CONTRIBUTORY AND DETERMINATE TRUST. IRF DOES NOT PAY TAX ON THE INCO ME EARNED AS IT ENJOYS A PASS THROUGH STATUS AND TAXES ARE PAID AT THE BENEFICIARY LEVEL. THE IN COME OF IRF WILL BE TAXABLE IN THE HANDS OF BENEFICIARY IN THE SAME CHARACTER AND SAME MANNER A S IF IT WERE THE INCOME OF THE BENEFICIARY HAD IT DIRECTLY MADE THE INVESTMENTS IN VCUS. 3.4. THE ASSESSEE, BEING BENEFICIARY, IS LIABLE TO TAX FOR ITS SHARE IN THE INCOME EARNED BY IRF IN THE SAME CHARACTER AND SAME MANNER AS IN THE CASE O F A TRUST AND HENCE IT HAD CALCULATED DISALLOWANCE U/S 14A IN THE SAME MANNER AND THE SAM E EXTENT BY APPLYING PERCENTAGE OF INVESTMENTS MADE BY IRF IN THE SHARES/MUTUAL FUNDS TO ITS TOTAL ASSETS AS AT THE YEAR END AND HAS SUO-MOTO DISALLOWED INTEREST OF RS.1,01,00,417/- WH ILE COMPUTING TOTAL INCOME. 1284/M/14-PIRAMAL 6 3.5. FROM THE INVESTMENTS MADE IN IRF, THE ASSESSE E DERIVES TAXABLE AS WELL NON-TAXABLE INCOME AND OFFERS TAXABLE INCOME UNDER THE HEAD 'IN COME FROM BUSINESS AND PROFESSION'. DURING THE YEAR UNDER CONSIDERATION, IRF HAD INVEST ED CERTAIN PORTION OF ITS TOTAL ASSETS IN DEBENTURE AND SUBSCRIPTION MONEY PENDING ALLOTMENT MAINLY OF DEBENTURE/SECURITIES AND HANK FIXED DEPOSIT. INCOME FROM 5 PIRAMAL ENTERPRISES LT D. THESE, PORTION OF INVESTMENTS MADE BY IRF WILL GENERATE TAXABLE INTEREST INCOME. HENCE IN TEREST OF RS.1,27,70,4L7/- INCURRED ON THESE PORTION OF INVESTMENT WAS CLAIMED AS ALLOWABLE. 3.6. APART FROM THIS, IRF HAD ALSO INVESTED CERTAIN PORTION OF ITS TOTAL INVESTMENTS IN SHARES AND MUTUAL FUNDS, INCOME FROM WHICH IS EXEMPT U/S. 10(3 4) OF THE ACT. FURTHER, CONSIDERING THE PROVISION OF SECTION 14A OF THE ACT, SUOMOTO DISALL OWANCE OF INTEREST EXPENDITURE RS.1,01,00,417/- WAS MADE BY THE ASSESSEE AS IT WAS RELATABLE TO EARN EXEMPT INCOME AND THE BALANCE INTEREST OF RS.1,27,70,417 /- INCURRED FOR THE PURPOSE OF BUSINESS WAS CLAIMED AS ALLOWABLE U/S 36(1)(III) OF THE ACT ON THE GROUND T HAT INTEREST PAID WAS INEXTRICABLY RELATED TO THE EARNING OF INCOME. 3.7. DURING THE COURSE OF HEARING, IT WAS ARGUED O N BEHALF OF THE ASSESSEE THAT NO FURTHER DISALLOWANCE U/S 14A WAS WARRANTED AS INTEREST EXPE NDITURE WAS CLAIMED ONLY FOR THAT PORTION OF INVESTMENT MADE BY THE ASSESSEE IN IRF, WHICH IN TURN INVESTED THE SAME IN THOSE ITEMS WHICH GENERATE TAXABLE INCOME. AFTER CONSIDERING DE TAILED SUBMISSION OF THE ASSESSEE, LD. CIT(A) REWORKED THE DISALLOWANCE AFTER RECORDING DE TAILED FINDINGS AS UNDER: AS REGARDS SUO-MOTO CALCULATION OF DISALLOWANCE O F INTEREST OF RS 1.01 CRORES BY THE APPELLANT U/S14A, 6 PIRAMAL ENTERPRIS ES LTD. I FIND THAT THE SAID DISALLOWANCE WAS MADE ON THE BASIS OF INVESTME NTS BALANCE AS ON 31.03.2008 AS APPEARING THE AUDITED BALANCE SHEET O F THE IRF SCHEME I AND SCHEME III. AS THE APPELLANT HAS INVESTED IN IRF DU RING THE YEAR AND THE IRF HAS IN TURN INVESTED IN SHARES, MUTUAL FUND, DE BENTURES, APPLICATION MONEY ETC., I FIND THAT THE DISALLOWANCE OF INTERES T SHOULD BE MADE BASED ON THE MONTHLY BALANCE IN INVESTMENTS IN SHARES, MU TUAL FUNDS, DEBENTURES, APPLICATION MONEY AS APPEARING IN THE B OOKS OF IRF SCHEME I AND SCHEME III. THE APPELLANT WAS ASKED TO RECALCUL ATE THE DISALLOWANCE OF INTEREST BASED ON THE MONTHLY BALANCE IN INVESTMENT WHICH GENERATE TAX FREE INCOME AND INVESTMENTS WHICH GENERATE TAXABLE INVESTMENTS AS PER THE BOOKS OF IRF SCHEME I AND SCHEME I. THE APPELLANT H AS SUBMITTED THE INTEREST CALCULATION AS PER MONTHLY BALANCE IN INVE STMENTS A PER THE BOOKS AS CERTIFIED BY CFO OF IRF SCHEME I AND III WHICH W ORKS OUT TO RS.1.07 CRORES. THE DISALLOWANCE U/S.14A IS RS. 1,07,16,861 /- CRORES AS AGAINST RS.1,01,00,417/- CRORES OFFERED BY APPELLANT. THE A O SHALL THEREFORE REVISE THE INTEREST DISALLOWABLE U/S.14A AT RS.1,07,16,861 /. DISALLOWANCE U/S.14A WORKS OUT TO RS.1,07,16,861 C ORES. THE BALANCE INTEREST IN ANY CASE IS ALLOWABLE EITHER U/S.36(1)( III) OR U/S. 57(III) DEPENDING UPON WHETHER THE INVESTMENTS ARE BY WAY O F STOCK-IN-TRADE OR INVESTMENT (THOUGH FOR WHICH NO WORKING/FINDINGS HA S BEEN GIVEN BY THE AO.) ACCORDINGLY, THERE IS NO REASON FOR DISALLOWANCE OF BALANCE INTEREST WITHOUT ANY ADVERSE MATERIAL ON RECORD. 2.3 THIS GROUND OF APPEAL IS THEREFORE, PARTLY ALLO WED AS PER AFORESAID DIRECTIONS. 3.8. WE HAVE GONE THROUGH THE DETAILED FINDINGS OF LD. CIT(A) AND ALSO GONE THROUGH THE JUDGMENT RELIED UPON BY THE LD. COUNSEL IN THE CASE OF RAINY INVESTMENT PVT. LTD.,(SUPRA), THE RELEVANT PORTION OF THE SAME IS REPRODUCED BELOW: WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIA L ON RECORD. SECTION 14A R/W R. 8D IS MANDATORY IN ITS APPLICATION WHERE THE ASSESSEE EARNS INCOME WHICH IS CLAIMED TAX-EXEMPT, AS DIVIDEND INC OME IN THE INSTANT CASE. IN FACT, THERE IS NO DOUBT WITH REGARD TO THI S; THE ASSESSE ITSELF CONCEDING TO THE SAME BEFORE US AND, BESIDES, BEING ENGAGED IN THE 1284/M/14-PIRAMAL 7 BUSINESS OF MAKING INVESTMENTS AND EARNING DIVIDEND INCOME AS AN INTEGRAL PART THEREOF. THE ONLY OPTION, THEREFORE, IF IT CONSIDERS THE APPLICATION OF THE PROVISION AS OPERATING TO ITS DE TRIMENT, IS TO FORFEIT ITS RIGHT TO EXEMPTION FROM TAX IN ITS RESPECT. QUA MER ITS, WE FIND MUCH FORCE IN THE ASSESSEES ARGUMENT THAT SHARE APPLICATION MONEY, TO THE EXTENT IT IS ACTUALLY SO, SO THAT IT ONLY REPRESENTS AMOUNT/S PAID BY WAY OF APPLICATION FOR ALLOTMENT OF SHARES, THE SAME CANNO T BE REGARDED AS AN INVESTMENT IN SHARES, OR AN ASSET (OR ASSET 8 PIRAM AL ENTERPRISES LTD. CLASS) YIELDING TAX-FREE INCOME, AND NEITHER IS IT CAPABLE OF YIELDING ANY TAX-FREE INCOME. THE SAME WOULD, THEREFORE, IN OUR CLEAR VIE W, HAVE TO BE EXCLUDED IN WORKING OUT THE DISALLOWANCE U/R. 8D. FURTHER, T HOUGH THE REVENUE HAS NOT DISPUTED THE SUMS REFLECTED AS SHARE APPLICATI ON MONEY IN THE ASSESSEES BALANCE-SHEET, THE AO, TO WHOM THE MATTE R IS TO BE IN ANY CASE RESTORED FOR WORKING OUT THE DISALLOWANCE BY EXCLUD ING THE SAME, SHALL, IN THE SET ASIDE PROCEEDINGS, ALSO EXAMINE THE VERACIT Y OF THE ASSESSEES CLAIM WITH REGARD TO THE SAME BEING SHARE APPLICATION MO NEY. THIS IS IN VIEW OF THE PERTINENT QUESTIONS RAISED BY THE BENCH IN ITS RESPECT, TO WHICH NO SATISFACTORY ANSWER WAS FORTHCOMING DURING HEARING, NOR TO BE FAIR TO THE LD. AR, COULD POSSIBLY BE IN THE ABSENCE OF ANY DET AILS ON RECORD. WE STATE SO AS THE SHARE APPLICATION MONEY WOULD ORDINARIL Y ONLY BE PUBLIC MONEY AND, THUS, EXCEPT PERHAPS WHERE TOWARD SHARES OF PR IVATE LIMITED COMPANIES, SUBJECT TO STRINGENT PROCEDURE, AS IS GE NERALLY IN PLACE FOR SUCH FUNDS. WE MAY FURTHER CLARIFY THAT THE EXCLUSION OF SHARE APPLICATION MONEY, AS OPINED BY US, IS NOT IN THE LEAST FOR TH E REASON THAT IT DID NOT YIELD ANY TAX-FREE INCOME FOR THE RELEVANT YEAR, BU T FOR THE REASON THAT IT IS INCAPABLE OF ANY SUCH INCOME. THE SAME IS ONLY IN T HE NATURE OF APPLICATION (OFFER) MONEY, WHICH WOULD THOUGH, ON ALLOTMENT, GE T ADJUSTED AGAINST THE COST OF THE SAID SHARES, AND ONLY WHEREUPON ANY RIG HTS IN THE INVESTEE COMPANY INURE TO THE ALLOTTEE. NO RIGHTS, NOT EVEN INCHOATE, IN THE SHARE CAPITAL OF THE ISSUING COMPANY ARISE ON THE PAYMENT OF THE SHARE APPLICATION MONEY, IRRESPECTIVE OF THE TIME PERIOD FOR WHICH IT MAY OUTSTAND. THE SAME MAY AT BEST YIELD INTEREST INCOM E (FOR WHICH A SPECIAL PROCEDURE THOUGH HAS TO BE FOLLOWED BY THE COMPANY CONCERNED), WHICH IS IN ANY CASE TAXABLE, SO THAT THERE IS NO SCOPE FOR APPLICATION OF SEC. 14A THEREON. AS SUCH, UPON VERIFICATION OF THE ASSESSEE S CLAIM WITH REGARD TO THE SHARE APPLICATION MONEY AS ON 31.03.2007 AND 31 .03.2008, AS APPEARING IN ITS BALANCE-SHEET/BOOKS OF ACCOUNT, SO THAT NO SHARES HAD ACTUALLY BEEN ALLOTTED IN ITS RESPECT AS AT THE REL EVANT DATES, THE SAME SHALL BE EXCLUDED BY THE AO FROM THE QUALIFYING AMOUNT IN RECKONING THE AVERAGE INVESTMENT IN WORKING OUT THE DISALLOWANCE UNDER RU LES 8D (II) AND 8D(III). THE A.O. WILL DECIDE THE MATTER PER A SPEAKING ORDE R, ALLOWING THE ASSESSEE A REASONABLE OPPORTUNITY TO PRESENT ITS CASE BEFORE HIM. 3.9. IN OUR CONSIDERED OPINION, THE LD. CIT(A) HAS FOLLOWED CORRECT APPROACH, BOTH ON LAW AND FACTS. THE DISALLOWANCE HAS BEEN SUSTAINED TO THE E XTENT IT PERTAINS TO INVESTMENT IN SECURITIES ENJOYING TAX-FREE INCOME AND THE DISALLOWANCE HAS B EEN DELETED VIS--VIS INVESTMENT IN THE SECURITIES ENJOYING TAXABLE INCOME. NOTHING WRONG C OULD BE POINTED IN THE FINDINGS OF THE LD. CIT(A), AND THEREFORE ORDER OF LD. CIT(A) IS UPHELD . THUS, GROUND RAISED BY THE REVENUE IS DISMISSED RESPECTFULLY FOLLOWING THE ABOVE ORDER WE DECIDE GR .NO.1 IN FAVOUR OF THE ASSESSEE IN PART. 1284/M/14-PIRAMAL 8 3. GROUND NO.2 IS ABOUT GRANTING CREDIT OF ADVANCE TAX . DURING THE APPELLATE PROCEEDINGS THE ASSESSEE CONTE NDED BEFORE THE FAA THAT CREDIT FOR ADVANCE TAX PAID BY IRF WAS NOT GIVEN .T HE FAA DIRECTED THE AO TO ASCERTAIN THE FACTS AND TO GIVE CREDIT IF ADV TAX W AS PAID. IN OUR OPINION NO INTERFERENCE IS CALLED FOR IN THAT REGARD AS THE F AA HAD PASSED A SUITABLE DIRECTION FOR VERIFICATION.GROUND NO.2 IS DECIDED A GAINST THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS PA RTLY ALLOWED. . ORDER PRONOUNCED I N THE OPEN COURT ON 20 TH JULY,2016. 20 , 2016 SD/- SD/- /JOGINDER SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 20.07.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.