Deputy Commissioner of Income TAx Circle-6(1)(2), Bangalore V. M/s Sterling Developers Pvt Ltd , Bangalore

ITA 1361/BANG/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1314 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 27-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V SRINIVASAN
• Keywords: Earning of tax free income
• Section: 14A; 80IB; 10

Judgement Text

ITA.1361 TO 1363/BANG/2018 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. JASON P BOAZ, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.T.A NOS.1361 TO 1363/BANG/2018 (ASSESSMENT YEAR : 2010-11, 2011-12 & 2014-15) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -6(1)(2), BENGALURU .. APPELLANT V. M/S. STERLING DEVELOPERS P. LTD, 8, PRESTIGE NEBULA, LEVEL -5, CUBBON ROAD, BENGALURU 560 001 .. RESPONDENT PAN : AACCS0304G ASSESSEE BY : SHRI. V. SRINIVASAN, ADVOCATE REVENUE BY : DR. P. V. PRADEEP KUMAR, ADDL. CIT HEARD ON : 27.08.2018 PRONOUNCED ON : 31.08.2018 O R D E R PER BENCH : THESE ARE APPEALS FILED BY THE REVENUE AGAINST THE SEPARATE ORDERS OF THE CIT (A), BENGALURU-6, DT.30. 11.2017, FOR THE ASSESSMENT YEAR 2010-11, 2011-12 AND 2014-15, O N THE FOLLOWING COMMON EFFECTIVE GROUND OF APPEAL : ITA.1361 TO 1363/BANG/2018 PAGE - 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION SINCE THE ASSESSEE SHOULD HAVE MADE DISALLOWANCES EVEN IF THE COMPANY DID NOT EARN ANY TAX EXEMPT INCOME IN A PARTICULAR YEAR. THE BOARD VICE CIRCULAR NO. 5/201 5 HAS CLARIFIED THAT DISALLOWANCE HAVE TO BE MADE U/S .14 R.W. RULE 8D EVEN WHEN THE ASSESSEE IN A PARTICULAR YEAR DID NOT EARN ANY EXEMPT INCOME. 02. IN THIS REGARD, THE CIT (A) IN PARA 4, 4.1 AND 4.2 HAS NOTED THE SUBMISSIONS OF THE ASSESSEE TO THE FOLLOWING EF FECT : 4. THE NEXT ISSUE IN APPEAL RELATES TO THE DISALLOW ANCE MADE BY THE LEARNED A. 0. BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. THE TOTAL DISALLOWANCE MADE BY THE LEARNED A.O. IS RS. 3,81,32,243/-. INITIALLY, WHILE FILING THE RETURN O F INCOME, THE APPELLANT COMPUTED THE AFORESAID DISALLOWANCE AT RS . 88,97,809/- AND HAS REVISED THE SAME TO RS. 1,06,18,0881- IN TH E REVISED COMPUTATION OF INCOME FILED IN COURSE OF ASSESSMENT PROCEEDINGS. IT IS RELEVANT AT THIS STAGE TO POINT OUT THAT THE APPELLANT HAD MADE THE FOLLOWING INVESTMENTS IN SHARES OF OTHER COMPAN IES OR CAPITAL IN PARTNERSHIP FIRMS, INCOME WHEREOF IS EXEMPT FROM TAX. APART FROM THE FOLLOWING THERE ARE NO OTHER INVESTMENTS M ADE IN TAX EXEMPT INCOME. THE RELEVANT PARTICULARS ARE GIVEN A S UNDER: SI. NO NAME OF THE COMPANY / CONCERN INVESTMENT AS ON 31 ST MARCH 2009 INVESTMENT AS ON 31 ST MARCH 2010 1 SHARES OF STERLING URBAN DEVELOPMENTS PRIVATE LIMITED 85,00,000 85,00,000 2 SHARES IN STERLING GERA RESIDENCE PRIVATE LIMITED 44,00,000 44,00,000 3 SHARES IN STERLING URBAN INFRAPROJECTS PRIVATE LIMITED 29,99,00,000 29,99,00,000 4 SHARES IN JANADHAR CONSTRUCTION PRIVATE LIMITED 1,00,000 1,00,000 5 CAPITAL OF M/S. PADMAVATHI ASSOCIATES 4,24,05,832 1,99,05,832 6 M/S. STERLING CENTURY ASSOCIATION OF PERSONS [AOP] [ - ]5,13,13,599 [ - ] 6,22,72,089 TOTAL 30,39,92,233 27,05,33,743 4.1 AS CAN BE SEEN FROM THE ABOVE, THE ENTIRE INVESTMEN T MADE IN EARNING TAX EXEMPT INCOME PRIMARILY COMPRISES OF IN VESTMENTS IN ITA.1361 TO 1363/BANG/2018 PAGE - 3 SHARES OF CERTAIN GROUP COMPANIES AND THE INVESTMEN T IN THE CAPITAL OF A PARTNERSHIP FIRM. INFACT, THERE IS ONLY A REDUCTION IN THE EXTENT OF INVESTMENT MADE DURING THE YEAR UNDER CONSIDERATION AND THERE IS NO FRESH INVESTMENT MADE DURING THE YEAR UNDER CONS IDERATION. IT IS RELEVANT TO HIGHLIGHT HERE THAT, IN RESPECT OF THE INVESTMENT MADE IN CAPITAL OF THE PARTNERSHIP FIRM M/S. PADMAVATHY ASS OCIATES, THERE IS A MAJOR REDUCTION IN THE EXTENT OF INVESTMENT MADE AS COMPARED TO THE EARLIER FINANCIAL YEAR. THIS IS THE FACTUAL POS ITION RELATING TO THE INVESTMENTS MADE BY THE APPELLANT IN EARNING TAX FR EE INCOME. 4.2 IN COURSE OF ASSESSMENT PROCEEDINGS FOR THE EA RLIER ASSESSMENT YEARS STARTING WITH ASSESSMENT YEAR 2006 -07, THE ISSUE RELATING TO THE DEPLOYMENT OF BORROWED FUNDS FOR MA KING THE INVESTMENT IN BOTH, EARNING TAX EXEMPT INCOME AS WE LL AS FOR NON- BUSINESS PURPOSES WAS CONSIDERED IN EX-TENSO. ULTIM ATELY, WHILE CONCLUDING THE ASSESSMENT PROCEEDINGS FOR THE ASSES SMENT YEAR 2008-09, THE FOLLOWING DISALLOWANCES OUT OF THE INT EREST CLAIMED BY THE APPELLANT UNDER THE HEAD 'BUSINESS' WERE MADE: INTEREST PAID PERTAINING TO INVESTMENT IN CAPITAL A CCOUNT OF M/S. PADMAVATHI ASSOCIATES 86,12,500/- INTEREST PAID PERTAINING TO THE AMOUNT ADVANCED TO M/S. SASTRI FAMILY BENEFIT TRUST 67,40,024/ - INTEREST PAID PERTAINING TO THE INVESTMENT MADE IN SHARE OF STERLING URBAN DEVELOPMENT PVT. LTD. 11,26,250/ - INTEREST PAID PERTAINING TO THE INVESTMENT MADE IN THE DEBENTURE OF STERLING URBAN DEVELOPMENT 2,52,41,251/ - TOTAL INTEREST DISALLOWED UNDER THE HEAD 'BUSINESS' FOR THE ASSESSMENT YEAR 2008 - 09 4,17,20,025/ - TOTAL INTEREST ALLOWED AS A DEDUCTION UNDER THE HEA D 'BUSINESS' FOR THE ASSESSMENT YEAR 2008-09 2,69,01,799/ - 03. THEREAFTER IN PARA 12, HAD ADJUDICATED THE ISSU E IN THE FOLLOWING MANNER : 12. DISALLOWANCE U/S.14A AMOUNTING TO RS.2,75,14,15 5/- : IT HAS BEEN HELD BY THE HONBLE ITAT BANGALORE IN APPE LLANTS OWN CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO.1417/BANG/2012 DATED 23.06.2015 THAT IN THE ABSE NCE OF EXEMPT INCOME, NO DISALLOWANCE MADE U/S.14A OF THE ACT CAN BE MADE. IN THE LIGHT OF THE ABOVE JUDICIAL DECISI ON OF HONBLE JURISDICTIONAL ITAT WHICH IS SQUARELY APPLI CABLE IN THE INSTANT APPEAL, AND IN VIEW OF THE FACT THAT TH E DECISION IS ITA.1361 TO 1363/BANG/2018 PAGE - 4 BINDING, AND SINCE JUDICIAL DISCIPLINE REQUIRES THA T WISDOM OF HIGHER AUTHORITIES PREVAIL, THE AO IS DIRECTED TO R ECOMPUTED DEDUCTION ALLOWABLE TO APPELLANT BY FOLLOWING ABOVE JUDICIAL DECISION. 04. AT THE OUTSET, THE LD AR FOR THE REVENUE HAS SU BMITTED THAT THIS ISSUE HAS BEEN ADJUDICATED BY THE TRIBUNA L IN FAVOUR OF THE ASSESSEE, BY DECISION DT.23.06.2015, WHEREIN AT PARA 15, IT WAS HELD AS UNDER : 15. WE HAVE HEARD THE CONTENTIONS AND PERUSED THE O RDERS. CIT (A) RELIED ON HIS OWN ORDER FOR A. Y. 2008-09 IN DI RECTING THE AO TO SET OFF THE LOSS FROM 80IB UNIT WITH THE PROFITS OF NON-80IB PROJECTS. THIS TRIBUNAL ON APPEAL FILED BY THE REVE NUE, IN ITS ORDER DT 31.01.2013, HELD AS UNDER : 5.3.1 WE HAVE HEARD BOTH PARTIES AND HAVE CAREFULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. AT THE OUTSET IT MUST BE MENTIONED HERE THAT THE HON'BLE APEX COURT IN THE C ASE OF SYNCO INDUSTRIES LTD (SUPRA) WAS CONCERNED WITH TOT WITHS TANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF SECTI ON 80 I(6) OF THE ACT, AS IT EXISTED AT THAT RELEVANT POINT OF TI ME AND THE SAME IS EXTRACTED HEREUNDER FOR CLARITY : SECTION 80 I (6) NOTWITHSTANDING ANYTHING CONTA INED IN ANY OTHER PROVISIONS OF THIS ACT, THE PROFITS AND GAINS OF AN INDUSTRIAL UNDERTAKING ON A SHIP OR THE BUSINESS OF A HOTEL (O R THE BUSINESS OF REPAIRS TO OCEAN GOING VESSELS OR OTHER POWERED CRA FT) TO WHICH THE PROVISIONS OF SUB-SECTION (1) APPLY SHALL, FOR THE PURPOSES OF DETERMINING THE QUANTUM OF DEDUCTION UNDER SUB-SECT ION (1) FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INIT IAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YEAR, BE COMPUTED AS IF SUCH INDUSTRIAL UNDERTAKING OR SHIP OR BUSINESS OF THE H OTEL (OR THE BUSINESS OF REPAIRS TO OCEAN GOING VESSELS OR OTHER POWERED CRAFT) WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURI NG THE PREVIOUS YEARS RELEVANT TO THE INITIAL ASSESSMENT YEAR AND T O EVERY SUBSEQUENT ASSESSMENT YEAR UPTO AND INCLUDING THE A SSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO BE MADE. ITA.1361 TO 1363/BANG/2018 PAGE - 5 LET US ALSO PERUSE AND CONSIDER THE PROVISIONS OF S ECTION 80 IA(5) OF THE ACT WHICH IS RELIED ON BY THE ASSESSING OFFI CER WHICH IS ALSO EXTRACTED HEREUNDER : SECTION 80-IA(5) - NOTWITHSTANDING ANYTHING CONTAI NED IN ANY OTHER PROVISION OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WHICH THE PROVISIONS OF SUB-SECTION (1) APPLY SHALL, FOR THE PURPOSES OF DETERMINING THE QUANTUM OF DEDUCTIO N UNDER THAT SUB-SECTION FOR THE ASSESSMENT YEAR IMMEDIATELY SUC CEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMEN T YEAR, BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR REL EVANT TO THE INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASS ESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH T HE DETERMINATION IS TO BE MADE. 5.3.2 FROM A PERUSAL AND COMPARISON OF BOTH THESE PROVISIONS, NAMELY SECTIONS 80 I(6) AND 80 IA(5) OF THE ACT, IT IS SEEN THAT THE PROVISIONS OF SECTION 80 IA(5) OF THE ACT, IT IS SEEN THAT THE PROVISIONS OF SECTION 80 IA(5) OF THE ACT ARE COUCHED IN SIMILAR LANGUAGE TO THE ERSTWHILE PROVIS IONS OF SECTION 80 I(6) OF THE ACT. IN OTHER WORDS, THE RES TRICTION CONTEMPLATED UNDER SECTION 80 I (6) OF THE ACT, IS THE SAME AS THE RESTRICTION CONTEMPLATED UNDER SECTION 80 IA(5) OF THE ACT. IT IS IN THIS CONTEXT THAT THE HON'BLE APEX COURT I N THE CASE OF SYNCO INDUSTRIES LTD (SUPRA) HELD AFTER AN ELABORAT E ANALYSIS OF THE PROVISIONS AT PARAS 12 AND 13 OF ITS ORDER W HICH ARE EXTRACTED AND REPRODUCED HEREUNDER : 12. THE CONTENTION THAT UNDER SECTION 80-I(6) THE PROFITS DERIVED FROM ONE INDUSTRIAL UNDERTAKING CANNOT BE S ET OFF AGAINST LOSS SUFFERED FROM ANOTHER AND THE PROFIT I S REQUIRED TO BE COMPUTED AS IF PROFIT MAKING INDUSTRIAL UNDER TAKING WAS THE ONLY SOURCE OF INCOME, HAS NO MERITS. SECTION 8 0-I(1) LAYS DOWN THAT WHERE THE GROSS TOTAL INCOME OF THE ASSES SEE INCLUDES ANY PROFITS DERIVED FROM THE PRIORITY UNDE RTAKING / UNIT / DIVISION, THEN IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFITS OF AN AMOUN T EQUAL TO 20 PER CENT HAS TO BE MADE. SECTION 80-I(1) LAYS DO WN THE BROAD PARAMETERS INDICATING CIRCUMSTANCES UNDER WHI CH AN ASSESSEE WOULD BE ENTITLED TO CLAIM DEDUCTION. ON T HE OTHER ITA.1361 TO 1363/BANG/2018 PAGE - 6 HAND SECTION 80-I(6) DEALS WITH DETERMINATION OF TH E QUANTUM OF DEDUCTION SECTION 80- I(6) LAYS DOWN THE MANNE R IN WHICH THE QUANTUM OF DEDUCTION HAS TO BE WORKED OUT. AFTE R SUCH COMPUTATION OF THE QUANTUM OF DEDUCTION, ONE HAS TO GO BACK TO SECTION 80-I(1) WHICH CATEGORICALLY STATES THAT WHERE THE GROSS TOTAL INCOME INCLUDES ANY PROFITS AND GAINS D ERIVED FROM AN INDUSTRIAL UNDERTAKING TO WHICH SECTION 80- I APPLIES THEN THERE SHALL BE A DEDUCTION FROM SUCH PROFITS A ND GAINS OF AN AMOUNT EQUAL TO 20 PER CENT. THE WORDS INCLUDES ANY PROFITS USED BY THE LEGISLATURE IN SECTION 80-I(1) ARE VERY IMPORTANT WHICH INDICATE THAT THE GROSS TOTAL INCOM E OF AN ASSESSEE SHALL INCLUDE PROFITS FROM A PRIORITY UNDE RTAKING. WHILE COMPUTING THE QUANTUM OF DEDUCTION UNDER SECT ION 80- I(6) THE ASSESSING OFFICER, NO DOUBT, HAS TO TREAT THE PROFITS DERIVED FROM AN INDUSTRIAL UNDERTAKING AS THE ONLY SOURCE OF INCOME IN ORDER TO ARRIVE AT THE DEDUCTION UNDER CH APTER VI- A. HOWEVER, THIS COURT FINDS THAT THE NON OBSTANTE CLAUSE APPEARING IN SECTION 80-I(6) OF THE ACT, IS APPLICA BLE ONLY TO THE QUANTUM OF DEDUCTION, WHEREAS, THE GROSS TOTAL INCOME UNDER SECTION 80B(5) WHICH IS ALSO REFERRED TO IN S ECTION 80- I(1) IS REQUIRED TO BE COMPUTED IN THE MANNER PROVI DED UNDER THE ACT WHICH PRESUPPOSES THAT THE GROSS TOTAL INCO ME SHALL BE ARRIVED AT AFTER ADJUSTING THE LOSSES OF THE OTHER DIVISION AGAINST THE PROFITS DERIVED FROM AN INDUSTRIAL UNDE RTAKING. IF THE INTERPRETATION AS SUGGESTED BY THE APPELLANT IS ACCEPTED IT WOULD ALMOST RENDER THE PROVISIONS OF SECTION 80A(2 ) OF THE ACT NUGATORY AND THEREFORE THE INTERPRETATION CANVA SSED ON BEHALF OF THE APPELLANT CANNOT BE ACCEPTED. IT IS T RUE THAT UNDER SECTION 80-I(6) FOR THE PURPOSE OF CALCULATIN G THE DEDUCTION, THE LOSS SUSTAINED IN ONE OF THE UNITS, CANNOT BE TAKEN INTO ACCOUNT BECAUSE SUB-SECTION (6) CONTEMPL ATES THAT ONLY THE PROFITS SHALL BE TAKEN INTO ACCOUNT AS IF IT WAS THE ONLY SOURCE OF INCOME. HOWEVER, SECTION 80A(2) AND SECTION 80B(5) ARE DECLARATORY IN NATURE. THEY APPLY TO ALL THE SECTIONS FALLING IN CHAPTER VI-A. THEY IMPOSE A CEI LING ON THE TOTAL AMOUNT OF DEDUCTION AND THEREFORE THE NON OBS TANTE CLAUSE IN SECTION 80-I(6) CANNOT RESTRICT THE OPERA TION OF SECTIONS 80A(2) AND 80B(5) WHICH OPERATE IN DIFFERE NT SPHERES. AS OBSERVED EARLIER SECTION 80-I(6) DEALS WITH ACTUAL COMPUTATION OF DEDUCTION WHEREAS SECTION 80-I(1) DE ALS WITH ITA.1361 TO 1363/BANG/2018 PAGE - 7 THE TREATMENT TO BE GIVEN TO SUCH DEDUCTIONS IN ORD ER TO ARRIVE AT THE TOTAL INCOME OF THE ASSESSEE AND THEREFORE W HILE INTERPRETING SECTION 80-I(1), WHICH ALSO REFERS TO GROSS TOTAL INCOME ONE HAS TO READ THE EXPRESSION GROSS TOTAL INCOME AS DEFINED IN SECTION 80B(5). THEREFORE, THIS COURT IS OF THE OPINION THAT THE HIGH COURT WAS JUSTIFIED IN HOLDIN G THAT THE LOSS FROM THE OIL DIVISION WAS REQUIRED TO BE ADJUS TED BEFORE DETERMINING THE GROSS TOTAL INCOME AND AS THE GROSS TOTAL INCOME WAS NIL THE ASSESSEE WAS NOT ENTITLED TO C LAIM DEDUCTION UNDER CHAPTER VI-A WHICH INCLUDES SECTION 80-I ALSO. 13. THE PROPOSITION OF LAW, EMERGING FROM THE ABOVE DISCUSSION IS THAT THE GROSS TOTAL INCOME OF THE AS SESSEE HAS FIRST GOT TO BE DETERMINED AFTER ADJUSTING LOSSES, ETC., AND IF THE GROSS TOTAL INCOME OF THE ASSESSEE IS NIL THE ASSESSEE WOULD NOT BE ENTITLED TO DEDUCTIONS UNDER CHAPTER V I-A OF THE ACT. 5.3.3 THE ABOVE DECISION OF THE HON'BLE APEX COURT SQUARELY SUPPORTS THE CASE OF THE ASSESSEE THAT THE PROVISIO NS OF SECTION 80 IA(5) OF THE ACT WOULD NOT RESTRICT THE OPERATION O F THE PROVISIONS OF SECTION 70(1) OF THE ACT WITH RESPECT TO THE SET OFF OF THE LOSS. THE OPERATION OF THE PROVISION OF SECTION 80 IA(5) OF THE ACT IS RESTRICTED TO THE COMPUTATION OF THE QUANTUM OF DED UCTION FOR WHICH IT HAS TO BE CONSIDERED THAT THE ELIGIBLE BUS INESS IS THE ONLY SOURCE OF INCOME. THAT RESTRICTION, HOWEVER, CANNOT BE APPLIED TO ITA.1417/BANG/2012 & ITA.168/BANG/2013 PAGE - 11 RE NDER THE CONCEPT OF GROSS TOTAL INCOME IN TERMS OF SECTION 8 0 B(5) TO BE DETERMINED BEFORE THE SET OFF OF THE LOSSES UNDER S ECTION 70(1) OF THE ACT. WE ARE, THEREFORE, OF THE VIEW THAT THE LE ARNED CIT(APPEALS) HAS RIGHTLY APPLIED THE DECISION OF TH E HON'BLE APEX COURT IN THE CASE OF SYNCO INDUSTRIES LTD (SUPRA) A ND THAT THERE IS NO MERIT IN THE PLEA OF REVENUE THAT THE SAID JUDGM ENT IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE OF THE ASSESSEE. 5.3.4 THAT APART, THE LEARNED COUNSEL FOR THE ASSESSEE HA S RIGHTLY CONTENDED THAT THE PROVISIONS OF SECTION 80 IA (5) OF THE ACT APPLIES IN COMPUTING THE PROFITS OF AN ELIGIBLE BUS INESS FOR THE PURPOSES OF WORKING OUT THE QUANTUM OF DEDUCTION FO R THE INITIAL ASSESSMENT YEAR AND FOR EVERY SUBSEQUENT YEAR THERE AFTER. THE INCENTIVE DEDUCTIONS BOTH UNDER SECTION 80 IA AND 8 0 IB OF THE ACT HAVE THE CONCEPT OF INITIAL ASSESSMENT YEAR IN RESP ECT OF ALMOST ALL ITA.1361 TO 1363/BANG/2018 PAGE - 8 ELIGIBLE BUSINESS. HOWEVER, WITH RESPECT TO THE ELI GIBLE BUSINESS TO WHICH THE PROVISIONS OF SECTION 80 IB(10) OF THE AC T APPLY, THERE IS NO CONCEPT OF INITIAL ASSESSMENT YEAR. THE DEDUCT ION IS GRANTED TO UNDERTAKINGS ENGAGED IN THE BUSINESS OF DEVELOPI NG AND BUILDING HOUSING PROJECTS ON CERTAIN CONDITIONS BEI NG FULFILLED. THE PROVISIONS OF SECTION 80 IB (13) OF THE ACT, THAT M AKES THE PROVISIONS OF SECTION 80 IA(5) APPLICABLE TO SECTIO N 80 IB ALSO, APPLIES ONLY SO FAR AS MAY BE. THUS, BY VIRTUE OF THE FACT THAT THERE IS NO CONCEPT OF INITIAL ASSESSMENT YEAR UNDE R SECTION 80IB(10) OF THE ACT, WE ARE ALSO OF THE VIEW THAT T HE PROVISIONS OF SECTION 80 IA(5) OF THE ACT WOULD NOT BE APPLICABLE TO THE DEDUCTION CLAIMED UNDER SECTION 80 IB(10) OF THE AC T. FROM THIS ANGLE OF THE MATTER ALSO, WE FIND NO MERIT IN THE V IEW TAKEN BY REVENUE. FOLLOWING THE ABOVE VIEW, WE DISMISS THE A PPEAL FILED BY REVENUE. 05. ON THE OTHER HAND THE LD. DR SUPPORTED THE ORDE R PASSED LOWER AUTHORITIES . 06. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. IN THE PRESENT CASE, THERE IS NO CHANGE IN FACTS AS FACTS ARE SIMILAR TO THE FACTS OF THE EARLIER DECISION RE NDERED BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR AY 2009-10 , WHERE THE TRIBUNAL HAS DELETED THE DISALLOWANCE ON THE PREMIS E THAT NO EXEMPT INCOME HAS ACCRUED TO THE ASSESSEE FROM THE INVESTMENT MADE IN THE SISTER CONCERNS. THEREFORE, FOLLOWING THE DECISION OF THE COORDINATE BENCH IN THE CASE OF THE ASSESSEE , FOR EARLIER YEAR AND ALSO FOLLOWING THE JUDGMENT OF THE HONBLE DELHI HIGH COURT, IN THE MATTER OF CHEM CHEM INVESTMENT [2015] 61 TAXMANN.COM 118 (DELHI) WE DISMISS THE APPEALS OF THE REVENUE. CHEM INVESTMENT(SUPRA) IT WAS HELD AS UND ER : ITA.1361 TO 1363/BANG/2018 PAGE - 9 15. TURNING TO THE CENTRAL QUESTION THAT ARISES FOR CONSIDERATION, THE COURT FINDS THAT THE COMPLETE AN SWER IS PROVIDED BY THE DECISION OF THIS COURT IN CIT V. HO LCIM INDIA (P.) LTD. [2015] 57 TAXMANN.COM 28 . IN THAT CASE A SIMILAR QUESTION AROSE, VIZ., WHETHER THE ITAT WAS JUSTIFIE D IN DELETING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT WHEN NO DIVIDEND INCOME HAD BEEN EARNED BY THE ASSESSEE IN THE RELEVANT AY? THE COURT REFERRED TO THE DECISION OF THIS COURT IN MAXOPP INVESTMENT LTD'S. CASE (SUPRA) AND TO THE DECISION OF THE SPECIAL BENCH OF THE ITAT IN THIS VERY CASE I.E. CHEMINVEST LTD. V. ITO [2009] 121 ITD 318 . THE COURT ALSO REFERRED TO THREE DECISIONS OF DIFFERENT HIGH COURTS WHICH HAVE DECIDED THE ISSUE AGAINST REVENUE. THE FIRST W AS THE DECISION IN CIT V. LAKHANI MARKETING INC . [2014] 226 TAXMAN 45/49 TAXMANN.COM 257 OF THE HIGH COURT OF PUNJAB AND HARYANA WHICH IN TURN REFERRED TO TWO EARLIER D ECISIONS OF THE SAME COURT IN CIT V. HERO CYCLES LTD. [2010] 323 ITR 518/189 TAXMAN 50 AND CIT V. WINSOME TEXTILE INDUSTRIES LTD . [2009] 319 ITR 204 . THE SECOND WAS OF THE GUJARAT HIGH COURT IN CIT V. CORRTECH ENERGY (P.) LTD. [2014] 223 TAXMAN 130/45 TAXMANN.COM 116 AND THE THIRD OF THE ALLAHABAD HIGH COURT IN CIT V. SHIVAM MOTORS (P.) LTD . [2015] 230 TAXMAN 63/55 TAXMANN.COM 262 . THESE THREE DECISIONS REITERATED THE POSITION THAT WHEN AN ASSESSEE HAD NOT EARNED ANY TAXABLE INCOME IN THE RELEVANT AY IN QUESTION 'CORR ESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANC E.' 16. IN HOLCIM INDIA (P.) LTD'S. CASE (SUPRA), THE COUR T FURTHER EXPLAINED AS UNDER: '15. INCOME EXEMPT UNDER SECTION 10 IN A PARTICULAR ASSESSMENT YEAR, MAY NOT HAVE BEEN EXEMPTEARLIER AN D CAN BECOME TAXABLE IN FUTURE YEARS. FURTHER, WHETHER INCOME EARNED IN A SUBSEQUENT YEAR WOULD OR WOULD NOT BE TAXABLE, MAY DEPEND UPON THE NATURE OF TRANS ACTION ENTERED INTO IN THE SUBSEQUENT ASSESSMENT YEAR. FOR EXAMPLE, LONG TERM CAPITAL GAIN ON SALE OF SHARES IS PRESENT LY NOT TAXABLE WHERE SECURITY TRANSACTION TAX HAS BEEN PAI D, BUT A PRIVATE SALE OF SHARES IN AN OFF MARKET TRANSACTION ATTRACTS CAPITAL GAINS TAX. IT IS AN UNDISPUTED POSITION THA T RESPONDENT ASSESSEE IS AN INVESTMENT COMPANY AND HAD INVESTED BY PURCHASING A SUBSTANTIAL NUMBER OF SHARES AND THERE BY SECURING RIGHT TO MANAGEMENT. POSSIBILITY OF SALE O F SHARES BY PRIVATE PLACEMENT ETC. CANNOT BE RULED OUT AND IS N OT AN ITA.1361 TO 1363/BANG/2018 PAGE - 10 IMPROBABILITY. DIVIDEND MAY OR MAY NOT BE DECLARED. DIVIDEND IS DECLARED BY THE COMPANY AND STRICTLY IN LEGAL SE NSE, A SHAREHOLDER HAS NO CONTROL AND CANNOT INSIST ON PAY MENT OF DIVIDEND. WHEN DECLARED, IT IS SUBJECTED TO DIVIDEN D DISTRIBUTION TAX.' 17. ON FACTS, IT WAS NOTICED IN HOLCIM INDIA (P.) LTD' S. CASE (SUPRA) THAT THE REVENUE HAD ACCEPTED THE GENUINENE SS OF THE EXPENDITURE INCURRED BY THE ASSESSEE IN THAT CASE A ND THAT EXPENDITURE HAD BEEN INCURRED TO PROTECT INVESTMENT MADE. 18. IN THE PRESENT CASE, THE FACTUAL POSITION THAT HAS NOT BEEN DISPUTED IS THAT THE INVESTMENT BY THE ASSESSEE IN THE SHARES OF MAX INDIA LTD. IS IN THE FORM OF A STRATEGIC INVEST MENT. SINCE THE BUSINESS OF THE ASSESSEE IS OF HOLDING INVESTME NTS, THE INTEREST EXPENDITURE MUST BE HELD TO HAVE BEEN INCU RRED FOR HOLDING AND MAINTAINING SUCH INVESTMENT. THE INTERE ST EXPENDITURE INCURRED BY THE ASSESSEE IS IN RELATION TO SUCH INVESTMENTS WHICH GIVES RISE TO INCOME WHICH DOES N OT FORM PART OF TOTAL INCOME. 19. IN LIGHT OF THE CLEAR EXPOSITION OF THE LAW IN HOL CIM INDIA (P.) LTD'S. CASE (SUPRA) AND IN VIEW OF THE ADMITTE D FACTUAL POSITION IN THIS CASE THAT THE ASSESSEE HAS MADE ST RATEGIC INVESTMENT IN SHARES OF MAX INDIA LTD.; THAT NO EXEMPTED INCOME WAS EARNED BY THE ASSESSEE IN TH E RELEVANT AY AND SINCE THE GENUINENESS OF THE EXPEND ITURE INCURRED BY THE ASSESSEE IS NOT IN DOUBT, THE QUEST ION FRAMED IS REQUIRED TO BE ANSWERED IN FAVOUR OF THE ASSESSEE A ND AGAINST THE REVENUE. 20. SINCE THE SPECIAL BENCH HAS RELIED UPON THE DECISI ON OF THE SUPREME COURT IN RAJENDRA PRASAD MOODY'S CASE (SUPR A), IT IS CONSIDERED NECESSARY TO DISCUSS THE TRUE PURPORT OF THE SAID DECISION. IT IS NOTICED TO BEGIN WITH THAT THE ISSU E BEFORE THE SUPREME COURT IN THE SAID CASE WAS WHETHER THE EXPE NDITURE UNDER SECTION 57(III) OF THE ACT COULD BE ALLOWED A S A DEDUCTION AGAINST DIVIDEND INCOMEASSESSABLE UNDER T HE HEAD 'INCOME FROM OTHER SOURCES'. UNDER SECTION 57(III) OF THE ACT DEDUCTION IS ALLOWED IN RESPECT OF ANY EXPENDITURE LAID OUT OR EXPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF M AKING OR EARNING SUCH INCOME. THE SUPREME COURT EXPLAINED TH AT THE EXPRESSION 'INCURRED FOR MAKING OR EARNING SUCH INC OME', DID NOT MEAN THAT ANY INCOME SHOULD IN FACT HAVE BEEN E ARNED AS A ITA.1361 TO 1363/BANG/2018 PAGE - 11 CONDITION PRECEDENT FOR CLAIMING THE EXPENDITURE. T HE COURT EXPLAINED: 'WHAT S. 57(III) REQUIRES IS THAT THE EXPENDITURE M UST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF MAKING OR EARNING INCOME. IT IS THE PURPOSE OF THE EXPENDITURE THAT IS RELEVANT IN DETERMINING THE APPLICABILITY O F S. 57(III) AND THAT PURPOSE MUST BE MAKING OR EARNING OF INCOME. S . 57(III) DOES NOT REQUIRE THAT THIS PURPOSE MUST BE FULFILLE D IN ORDER TO QUALIFY THE EXPENDITURE FOR DEDUCTION. IT DOES NOT SAY THAT THE EXPENDITURE SHALL BE DEDUCTIBLE ONLY IF ANY INCOME IS MADE OR EARNED. THERE IS IN FACT NOTHING IN THE LANGUAGE OF S. 57(III) TO SUGGEST THAT THE PURPOSE FOR WHICH THE EXPENDITURE IS MADE SHOULD FRUCTIFY INTO ANY BENEFIT BY WAY OF RETURN I N THE SHAPE OF INCOME. THE PLAIN NATURAL CONSTRUCTION OF THE LA NGUAGE OF S. 57(III) IRRESISTIBLY LEADS TO THE CONCLUSION THAT T O BRING A CASE WITHIN THE SECTION, IT IS NOT NECESSARY THAT ANY IN COME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF THE EXPENDI TURE.' 21. THERE IS MERIT IN THE CONTENTION OF MR. VOHRA THAT THE DECISION OF THE SUPREME COURT IN RAJENDRA PRASAD MOODY'S CASE (SUPRA) WAS RENDERED IN THE CONTEXT OF ALLOWABILITY OF DEDUCTION UNDER SECTION 57(III) OF THE ACT, WHERE THE EXPRESSION USED IS 'FOR THE PURPOSE OF MA KING OR EARNING SUCH INCOME'. SECTION 14A OF THE ACT ON THE OTHER HAND CONTAINS THE EXPRESSION 'IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME.' THE DECISION IN RAJ ENDRA PRASAD MOODY'S CASE (SUPRA) CANNOT BE USED IN THE R EVERSE TO CONTEND THAT EVEN IF NO INCOME HAS BEEN RECEIVED, T HE EXPENDITURE INCURRED CAN BE DISALLOWED UNDER SECTIO N 14A OF THE ACT. 22. IN THE IMPUGNED ORDER, THE ITAT HAS REFERRED TO TH E DECISION IN MAXOPP INVESTMENT LTD'S. CASE (SUPRA) A ND REMANDED THE MATTER TO THE AO FOR RECONSIDERATION O F THE ISSUE AFRESH. THE ISSUE IN MAXOPP INVESTMENT LTD'S. CASE (SUPRA) WAS WHETHER THE EXPENDITURE (INCLUDING INTEREST ON BORROWED FUNDS) IN RESPECT OF INVESTMENT IN SHARES OF OPERAT ING COMPANIES FOR ACQUIRING AND RETAINING A CONTROLLING INTEREST THEREIN WAS DISALLOWABLE UNDER SECTION 14A OF THE A CT. IN THE SAID CASE ADMITTEDLY THERE WAS DIVIDEND EARNED ON S UCH INVESTMENT. IN OTHER WORDS, IT WAS NOT A CASE, AS T HE PRESENT, WHERE NO EXEMPT INCOME WAS EARNED IN THE YEAR IN QU ESTION. ITA.1361 TO 1363/BANG/2018 PAGE - 12 CONSEQUENTLY, THE SAID DECISION WAS NOT RELEVANT AN D DID NOT APPLY IN THE CONTEXT OF THE ISSUE PROJECTED IN THE PRESENT CASE. 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREINBEFOR E THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT T HE EXPRESSION 'DOES NOT FORM PART OF THE TOTAL INCOME' IN SECTION 14A OF THE ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INC OME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISAL LOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME . IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCO ME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. 07. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DAY OF AUGUST, 2018. SD/- SD/- (JASON P BOAZ) (LALI ET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER BENGALURU DATED : 31.08.2018 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.