Karvy Stock Broking Limited, Hyderabad, Hyderabad V. DCIT, Circle-2(1), Hyderabad, Hyderabad

ITA 1397/HYD/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2525 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 20-04-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 17-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Assessee Lawyers: P MURALIKRISHNA
• Keywords: Business income; Business expenditure; Earning of tax free income; Question of law; Commercial expediency
• Section: 143(3); 14A; 37(1); 10

Judgement Text

ITA NOS 1397 AND 1398 OF 2016 KARVY STOCK BROKING & KARVY REALTY (INDIA) LTD HYDERABAD PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.1397/HYD/2016 (ASSESSMENT YEAR: 2011-12) M/S. KARVY STOCK BROKING LIMITED, HYDERABAD PAN:AABCK 5190 K VS DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1) HYDERABAD ITA NO.1398/HYD/2016 (ASSESSMENT YEAR: 2009-10) M/S. KARVY REALITY (INDIA)LIMITED, HYDERABAD PAN:AAECM 0358 C VS DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1) HYDERABAD FOR ASSESSEE : SHRI P. MURALIKRISHNA FOR REVENUE : SMT. SUMAN MALIK, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. BOTH ARE ASSESSEES APPEALS FOR THE A.Y 2011-12 AND 2009-10. ITA NO.1397/HYD/2016 A.Y 2011-12 1. IN THIS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE CIT (A)-9 HYDERABAD DATED 30.06.2016 CONFIRMING THE DISALLOWANCE MADE BY THE AO U/S 14A OF THE ACT. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER: 1. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-9, HYDERABAD [HEREINAFTER REFERRED TO DATE OF HEARING : 20.04.2017 DATE OF PRONOUNCEMENT : 09.05.2017 ITA NOS 1397 AND 1398 OF 2016 KARVY STOCK BROKING & KARVY REALTY (INDIA) LTD HYDERABAD PAGE 2 OF 11 AS 'CIT(A)'] ERRED IN CONFIRMING THE ACTION OF THE LD. A.O. IN MAKING ADDITION OF RS.84,18,282/- UNDER SECTION 14A OF THE ACT READ WITH RULE 80(2)(III) WITHOUT APPRECIATING THE FACT AND CIRCUMSTANCES OF THE CASE. THE APPELLANT, THEREFORE, SUBMITS THAT THE ADDITION MADE UNDER SECTION 14A READ WITH RULE 80(2)(III) MAY BE DELETED. 2. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE A.O. ERRED IN INVOKING PROVISIONS OF SECTION 14A, SINCE THE PROVISIONS OF SECTION 14A ARE NOT AUTOMATIC AND THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE AS LAID DOWN BY THE APEX COURT IN THE CASE OF CIT VS. WALFORT SHARE AND STOCK BROKERS PVT. LTD. 3. THE LD. CIT (A) FAILED TO APPRECIATE THAT THE A.O. FAILED TO OBSERVE THAT THE MAJORITY OF THE INVESTMENTS WERE MADE FOR FURTHERANCE OF THE BUSINESS AND HENCE SECTION 14A HAS GOT NO APPLICATION. 4. THE LD. CIT (A) FAILED TO APPRECIATE THAT THE A.O. FAILED TO OBSERVE THAT THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE WHEN NO EXEMPTED INCOME IS EARNED. 5. WITHOUT PREJUDICE TO THE ABOVE, IF THE RULE IS SUPPOSED TO BE APPLIED CORRECTLY, THE LD. CIT(A)) FAILED TO APPRECIATE THAT THE INVESTMENTS MADE IN THE SUBSIDIARY/ASSOCIATE COMPANIES ARE ON ACCOUNT OF BUSINESS EXPEDIENCY AND HENCE INVESTMENT MADE IN ITS SUBSIDIARY/ASSOCIATE COMPANIES ARE NOT TO BE RECKONED FOR DISALLOWANCE U/S. 14A R.W.R 8D. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY WHICH IS INTO THE BUSINESS OF STOCK BROKING FILED I TS RETURN OF INCOME FOR THE A.Y 2011-12 ON 30.09.2011 ADMITTING T OTAL INCOME OF RS.17,48,02,133. SUBSEQUENTLY, THE ASSESSEE FILE D A REVISED ITA NOS 1397 AND 1398 OF 2016 KARVY STOCK BROKING & KARVY REALTY (INDIA) LTD HYDERABAD PAGE 3 OF 11 RETURN OF INCOME ON 25.03.2013 ADMITTING INCOME OF RS.17,48,02,136. THE RETURN WAS INITIALLY PROCESSED U/S 143(1) AND SUBSEQUENTLY SELECTED FOR SCRUTINY THROUGH CASS . DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE A O OBSERVED THAT THE ASSESSEE HAD MADE INVESTMENTS IN EQUITY SH ARES OF SUBSIDIARY AND ASSOCIATED COMPANIES DURING THE RELE VANT PREVIOUS YEAR AND NO DIVIDEND INCOME WAS EARNED FOR THIS YEA R. HE OBSERVED THAT AS PER THE CBDT CIRCULAR NO.5 OF 2014 DATED 11.02.2014, EVEN IF THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE FINANCIAL YEAR UNDER CONSIDERATIO N, THE DISALLOWANCE UNDER RULE 8D(2) IS TO BE MADE. HE THE REFORE, MADE THE DISALLOWANCE OF AN AMOUNT EQUAL TO 0.5% OF THE A VERAGE VALUE OF THE INVESTMENT, INCOME IN RESPECT OF WHICH IS EX EMPT FROM TAX. THUS, HE MADE AN ADDITION OF RS.84,18,282. AGGRIEVE D, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND APPEA L BEFORE US. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE INVESTMENTS MADE BY THE ASSESSEE IN ITS SUBSIDI ARIES AND ASSOCIATED COMPANIES WAS FOR THE BUSINESS PURPOSES AS A COMMERCIAL EXPEDIENCY AND NOT FOR THE PURPOSE OF EA RNING DIVIDEND INCOME. HE SUBMITTED THAT WHEN THE INVESTM ENTS ARE MADE FOR COMMERCIAL EXPEDIENCY, THE EXPENDITURE INC URRED CANNOT BE DISALLOWED U/S 37(1) OF THE ACT, AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF SA BUILDERS LTD REPORT ED IN 288 ITR 1(S.C). HE SUBMITTED THAT WHERE IT IS CLEAR THAT TH E INVESTMENTS MADE ARE FOR THE BUSINESS PURPOSES AND NOT FOR EARN ING OF EXEMPT INCOME, THE PROVISIONS OF SECTION 14A ARE NOT APPLI CABLE. ITA NOS 1397 AND 1398 OF 2016 KARVY STOCK BROKING & KARVY REALTY (INDIA) LTD HYDERABAD PAGE 4 OF 11 4. FURTHER, HE ALSO SUBMITTED THAT THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME WHICH IS EXEMPT FROM TAX DURING THE RELEVANT PREVIOUS YEAR AND THEREFORE, NO DISALLOWAN CE U/S 14A R.W.R 8D CAN BE MADE. IN SUPPORT OF HIS CONTENTION, HE PLACED RELIANCE UPON THE DECISION OF THE HON'BLE MADRAS HI GH COURT IN THE CASE OF REDINGTON (INDIA) LTD VS. ACIT REPORTED IN (2017) 77 TAXMANN.COM 257 (MAD.) AND ALSO THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF VBC INDUSTRIE S LTD VS. DCIT IN ITA NOS.143 & 144/HYD/2013 & OTHERS DATED 8.5.20 15. 5. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THA T THE INVESTMENTS MADE BY THE ASSESSEE IN THE SHARES OF T HE SUBSIDIARY COMPANY IS NOT IN DISPUTE AND MERELY BECAUSE THE AS SESSEE HAS NOT EARNED THE EXEMPT INCOME, THE ASSESSEE CANNOT E SCAPE THE PROVISIONS OF SECTION 14A R.W.R 8D OF THE ACT. SHE PLACED RELIANCE UPON THE CIRCULAR OF THE CBDT NO.5/2014 DATED 11.02 .2014. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE PROVISIONS OF SECTION 1 4A ARE APPLICABLE TO EXPENDITURE WHICH HAS BEEN INCURRED F OR EARNING OF EXEMPT INCOME IRRESPECTIVE OF WHETHER THE INVESTMEN T IS FOR BUSINESS OR NON BUSINESS PURPOSES. BUSINESS INCOME OF CERTAIN BUSINESS ENTITIES SUCH AS 10% EOUS OR INDUSTRIES SE T UP IN FREE TRADE ZONES ETC., ARE FULLY EXEMPT FROM TAX AND ANY EXPENDITURE INCURRED FOR EARNING OF SUCH INCOME IS TO BE DISALL OWED U/S 14A OF THE ACT. THEREFORE, THE ASSESSEES CONTENTION THAT SINCE THE ASSESSEE HAS MADE THE INVESTMENT IN THE SUBSIDIARIE S FOR GENERATING REVENUE AND NOT FOR EARNING OF DIVIDEND INCOME, THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE IS NOT ACCEPTABLE. ITA NOS 1397 AND 1398 OF 2016 KARVY STOCK BROKING & KARVY REALTY (INDIA) LTD HYDERABAD PAGE 5 OF 11 BUT, HOWEVER, IT IS SUBJECT TO THE ASSESSEE EARNING EXEMPT INCOME DURING THE RELEVANT PREVIOUS YEAR. IT IS SEEN THAT THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME DURING THE RELEVANT F.Y. THE AO HAS RELIED UPON THE CIRCULAR OF CBDT TO MAKE THE DI SALLOWANCE EVEN THOUGH, THE ASSESSEE HAS NOT EARNED ANY INCOME WHICH IS EXEMPT FROM TAX, BUT WE FIND THAT THE HON'BLE MADRA S HIGH COURT HAS CONSIDERED THE SAID CBDT CIRCULAR AND HAS HELD AS UNDER: THE ASSESSEE HAD INVESTMENTS IN COMPANIES TO THE T UNE OF RS. 177.56 CRORES THAT HAD NOT YIELDED ANY RETURNS IN T HE PREVIOUS YEAR RELEVANT TO THE PRESENT ASSESSMENT YEAR. THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE UN DER SECTION 14A, READ WITH RULE 8D DESPITE OBJECTIONS T HAT THE PROVISIONS OF THE ABOVE SAID SECTION WOULD NOT BE A TTRACTED IN A CASE WHERE NO ACTUAL EXEMPT INCOME HAD BEEN EARNED. ON FURTHER APPEAL, THE TRIBUNAL ALSO CONFIRMED THE DISALLOWANCE. ON APPEAL TO THE HIGH COURT: SECTION 14A WAS INSERTED PROVIDING THAT NO DEDUCTIO N SHALL BE ALLOWABLE IN RESPECT OF EXPENDITURE INCURRED IN REL ATION TO THE EARNING OF INCOME EXEMPT FROM TAXATION. THE SUPREME COURT IN THE JUDGMENT IN THE CASE OF CIT V. WALFORT SHARE & STOCK BROKERS (P.) LTD. [2010] 326 ITR 1/192 TAXMAN 211 HAS OBSERVED THAT SECTION 14A DESIRES TO CURB THE PRACT ICE TO CLAIM DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMP T INCOME AGAINST TAXABLE INCOME AND AT THE SAME TIME AVAIL O F THE TAX INCENTIVE BY WAY OF AN EXEMPTION OF EXEMPT INCOME W ITHOUT MAKING ANY APPORTIONMENT OF EXPENSES INCURRED IN RE LATION TO EXEMPT INCOME. THE PROVISION THUS IS CLEARLY RELATABLE TO THE EARN ING OF ACTUAL INCOME AND NOT NOTIONAL OR ANTICIPATED INCOME. THE COMPUTATION OF TOTAL INCOME IN TERMS OF SECTION 5 I S ON REAL INCOME AND THERE IS NO SANCTION IN LAW FOR THE ASSE SSMENT OF ADMITTEDLY NOTIONAL INCOME, PARTICULARLY IN THE CON TEXT OF EFFECTING A DISALLOWANCE IN CONNECTION THEREWITH. [ PARA 10] THE COMPUTATION OF DISALLOWANCE IN TERMS OF RULE 8D IS BY WAY OF A DETERMINATION INVOLVING DIRECT AS WELL AS INDI RECT ATTRIBUTION. THUS, ACCEPTING THE SUBMISSION OF THE REVENUE ITA NOS 1397 AND 1398 OF 2016 KARVY STOCK BROKING & KARVY REALTY (INDIA) LTD HYDERABAD PAGE 6 OF 11 WOULD RESULT IN THE IMPOSITION OF AN ARTIFICIAL MET HOD OF COMPUTATION ON NOTIONAL AND ASSUMED INCOME. [PARA 1 1] NOTHING MUCH TURNS ON THE USE OF THE WORD 'INCLUDAB LE' AND THE PHRASE 'UNDER THE ACT' IN SECTION 14A AND THE EMPHA SIS LAID OR THE INTERPRETATION OF THE SAME BY THE REVENUE CANNO T BE ACCEPTED. AN ASSESSMENT IN TERMS OF THE INCOME-TAX ACT IS SPECIFIC TO AN ASSESSMENT YEAR AND THE RELATED PREV IOUS YEAR. [PARA 14] THE PROVISIONS OF SECTION 10 IN CHAPTER III DEALING WITH 'INCOMES NOT INCLUDED IN TOTAL INCOME' COMMENCES WI TH THE PHRASE 'IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YEAR, ANY INCOME FALLING WITHIN ANY OF THE FOLLOWING CLAUSES SHALL NOT BE INCLUDED..' [PARA 14] THE EXEMPTION EXTENDED TO DIVIDEND INCOME WOULD REL ATE ONLY TO THE PREVIOUS YEAR WHEN THE INCOME WAS EARNED AND NONE OTHER AND CONSEQUENTLY THE EXPENDITURE INCURRED IN CONNECTION THEREWITH SHOULD ALSO BE DEALT WITH IN THE SAME PRE VIOUS YEAR. THUS, BY APPLICATION OF THE MATCHING CONCEPT, IN A YEAR WHERE THERE IS NO EXEMPT INCOME, THERE CANNOT BE A DISALL OWANCE OF EXPENDITURE IN RELATION TO SUCH ASSUMED INCOME. THE LANGUAGE OF SECTION 14A(1) SHOULD BE READ IN THAT CONTEXT AN D SUCH THAT IT ADVANCES THE SCHEME OF THE ACT RATHER THAN DISTORT IT. [PARA 15] IN CONCLUSION, THE PROVISIONS OF SECTION 14A, READ WITH RULE 8D OF THE RULES CANNOT BE MADE APPLICABLE IN A VACUUM I.E. IN THE ABSENCE OF EXEMPT INCOME. THE QUESTION OF LAW ARE A NSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMEN T AND THE APPEAL ALLOWED. [PARA 16] WE FIND THAT THE FACTS OF THE CASE BEFORE US ARE SI MILAR TO THE FACTS BEFORE THE HON'BLE MADRAS HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD (CITED SUPRA) AND RESPECTFULLY FOLLOWIN G THE SAID DECISION, WE ALLOW THE ASSESSEES APPEAL AND DIRECT THE AO TO DELETE THE DISALLOWANCE MADE U/S 14A. THUS, ASSESSE ES GROUNDS OF APPEAL NOS. 2, 3 & 5 ARE REJECTED AND GROUND OF APPEAL NO.4 IS ALLOWED. 7. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED. ITA NOS 1397 AND 1398 OF 2016 KARVY STOCK BROKING & KARVY REALTY (INDIA) LTD HYDERABAD PAGE 7 OF 11 ITA NO.1398/HYD/2016 A.Y 2009-10 8. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)- 2, HYDERABAD [HEREINAFTER REFERRED TO AS 'CIT(A)'] ERRED IN CONFIRMING THE ACTION OF THE LD. A.O. IN MAKING ADDITION OF RS.84,66,354/ - UNDER SECTION 14A OF THE ACT READ WITH RULE 8D(2)(III) WITHOUT APPRECIATING THE FACT AND CIRCUMSTANCES OF THE CASE. THE APPELLANT, THEREFORE, SUBMITS THAT THE ADDITION MADE UNDER SECTION 14A READ WITH RULE 8D(2)(III) MAY BE DELETED. 2. THE LD. CIT (A) FAILED TO APPRECIATE THAT THE A.O. ERRED IN INVOKING PROVISIONS OF SECTION 14A, EVEN THOUGH THE SAID SECTION HAS GOT NO APPLICATION WHEN THE INVESTMENT IS MADE FOR FURTHERANCE OF BUSINESS. 3. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE A.O. FAILED TO OBSERVE THAT THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE WHEN NO EXEMPTED INCOME IS EARNED. 9. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY WHICH IS IN THE BUSINESS OF REALTY SERVICES, FILED ITS RETURN OF INCOME FOR THE A.Y 2009-10 ON 29.09.2009 DECLARING T OTAL INCOME OF RS.98,04,249. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE AO OBSERVED THAT THE ASSESSEE HAS M ADE HUGE INVESTMENTS IN SHARE CAPITAL OF M/S. SRI SAI RAM PR OJECTS LTD TO THE TUNE OF RS.12,50,00,000 AS A RESULT OF WHICH TH E ASSESSEE IS HOLDING 31% OF THE SHARE IN THE SAID COMPANY. WHEN T HE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF THE FUNDS UTILI ZED FOR THE PURPOSE OF THE ABOVE INVESTMENTS AND RELATED EXPEND ITURE, IT WAS STATED THAT IT HAS OBTAINED INTEREST BEARING FUNDS FROM ITS PARENT ITA NOS 1397 AND 1398 OF 2016 KARVY STOCK BROKING & KARVY REALTY (INDIA) LTD HYDERABAD PAGE 8 OF 11 COMPANY AS WELL AS FROM THE BANKS. THEREFORE, THE A SSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE PROPORTIONATE EXP ENDITURE SHOULD NOT BE DISALLOWED U/S 14A OF THE I.T. ACT. 10. IN RESPONSE TO THE ABOVE, THE ASSESSEE VIDE LET TER DATED 25.10.2011, SUBMITTED THAT BY MAKING THE INVESTMENT IN THE ABOVE CONCERN, THE ASSESSEE COMPANY HAS GOT A COMME RCIAL BENEFIT OF PURCHASING THE PLOTS ETC., AT A CONCESSI ONAL RATE OF 2300/- PER SFT AGAINST THE MARKET PRICE OF RS.3,500 TO RS.4,000 PER SFT. IT WAS SUBMITTED THAT SINCE IT DERIVED THE COMMERCIAL BENEFIT IN THE FORM OF CONCESSIONAL PLOTS BY INVEST ING IN THE SHARES. IT IS SUBMITTED THAT SUCH PLOTS IN TURN CAN BE SOLD AT MARKET PRICE ALONG WITH OTHER PLOTS AND THE ASSESSE E IS THUS BENEFITTED BY VIRTUE OF SHARE HOLDING IN M/S. SRI S AI RAM PROJECTS LTD. THEREFORE, ACCORDING TO HIM, THE ANGLE OF THE COMMERCIAL EXPEDIENCY HAS TO BE CONSIDERED AND THE DISALLOWANC E U/S 14A CANNOT BE MADE. 11. IN SUPPORT OF THIS CONTENTION, THE ASSESSEE REL IED UPON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF S.A. BUILDERS VS. CIT (288 ITR 1 (S.C). THE AO HOWEVER, WAS NOT C ONVINCED WITH THE ASSESSEES CONTENTIONS. HE OBSERVED THAT IN THE CASE OF S.A. BUILDERS (SUPRA), INTEREST BEARING FUNDS OF THE PAR ENT COMPANY WERE GIVEN AS INTEREST FREE LOANS TO ITS SUBSIDIARI ES FOR SPECIFIC BUSINESS PURPOSES AS AGAINST THE FACTS OF THE CASE OF THE ASSESSEE WHERE THE INTEREST BEARING FUNDS WERE UTILIZED FOR THE PURPOSE OF ACQUIRING THE SHARES OF DIFFERENT BUSINESS ENTITY A ND THE INCOME ON THE SHARES ONLY IN THE FORM OF DIVIDENDS WHICH I S EXEMPT FROM TAX U/S 10(38) OF THE ACT. HE, FURTHER OBSERVED THA T EVEN IF THE ITA NOS 1397 AND 1398 OF 2016 KARVY STOCK BROKING & KARVY REALTY (INDIA) LTD HYDERABAD PAGE 9 OF 11 BENEFIT OF CONCESSION OR DISCOUNT HAS BEEN GIVEN TO THE ASSESSEE, IT IS ONLY IN THE FORM OF COMMISSION ON SALE AND IS SEPARATELY TAXABLE UNDER THE HEAD BUSINESS INCOME AND THAT I T DOES NOT PRECLUDE THE EXPENDITURE FROM DISALLOWANCE UNDER SE CTION 14A OF THE ACT. HE, THEREFORE, COMPUTED THE DISALLOWANCE U /S 14A R.W.R 8D OF THE ACT AND BROUGHT IT TO TAX. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) REITERATING ITS SUBMISSIONS MADE BEFORE THE AO AND ALSO SUBMITTED THAT THERE WA S NO EXEMPT INCOME EARNED DURING THE YEAR. THE CIT (A) HOWEVER, CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND A PPEAL BEFORE US. 12. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED ITS SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT THE INVESTMENT MADE BY THE ASSESSEE IN M/S. SR I SAI RAM PROJECTS LTD IS IN THE SHARES OF THE COMPANY AND TH E MEMORANDUM OF UNDERSTANDING CLEARLY ESTABLISHES THA T IT IS MORE IN THE NATURE OF THE UNDER WRITING CONTRACT THAN IN VESTMENT IN SHARES. HE HAS DRAWN OUR ATTENTION TO VARIOUS CLAUS ES OF THE MOU TO DRIVE HIS POINT. HE PLACED RELIANCE UPON THE JUD GMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD (SUPRA) TO SUBMIT THAT WHERE AN INVESTMENT IS MADE FOR COMMERC IAL EXPEDIENCY, IT HAS TO BE TREATED AS BUSINESS EXPEND ITURE. HE SUBMITTED THAT THE PROVISIONS OF SECTION 14A CANNOT BE INVOKED IN THE CASE OF BUSINESS EXPENDITURE. 13. THE LEARNED DR HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. ITA NOS 1397 AND 1398 OF 2016 KARVY STOCK BROKING & KARVY REALTY (INDIA) LTD HYDERABAD PAGE 10 OF 11 14. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE MOU ENTERED INTO BY THE ASSESSEE WITH M/S. SRI SAI RAM PROJECTS LTD IS PLACED ON RECORD. ON PERUSAL THEREOF, IT IS SEEN THAT BY VIRTUE OF THE INVESTMEN T IN SHARES, THE ASSESSEE HAS ACQUIRED INTEREST IN THE COMPANY FOR G ETTING A RIGHT OVER THE PROPERTY AT CONCESSIONAL RATES. THEREFORE, IT IS MORE OF BUSINESS INVESTMENT AND NOT AN INVESTMENT PER SE FO R EARNING OF DIVIDEND INCOME. IT IS ALSO SUBMITTED BY THE LEARNE D COUNSEL FOR THE ASSESSEE THAT IN THE SUBSEQUENT YEAR, THE PROPE RTY ACQUIRED UNDER THE MOU HAS BEEN SOLD AND THE INCOME THEREFRO M HAS BEEN OFFERED AS BUSINESS INCOME. HOWEVER, THE RELEVANT D OCUMENTS IN SUPPORT OF THESE CONTENTIONS ARE NOT FILED BEFORE U S. EVEN OTHERWISE, THE ASSESSEE HAS NOT EARNED DIVIDEND INC OME UNDER THE RELEVANT A.Y AND RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD VS. ACIT (SUPRA), WE HOLD THAT THE EXPENDITURE IS NOT D ISALLOWABLE U/S 14A R.W.R 8D OF THE ACT IN SUCH CIRCUMSTANCES. 15. IN THE RESULT, ASSESSEES APPEAL FOR THE A.Y 200 9-10 IS ALLOWED. 16. TO SUM UP ASSESSEES APPEAL FOR THE A.Y 2011-12 IS PARTLY ALLOWED WHILE APPEAL FOR THE A.Y 2009-10 IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH MAY, 2017. SD/- SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 9 TH MAY, 2017. VINODAN/SPS ITA NOS 1397 AND 1398 OF 2016 KARVY STOCK BROKING & KARVY REALTY (INDIA) LTD HYDERABAD PAGE 11 OF 11 COPY TO: 1 KARVI STOCK BROKING LTD, KARVY HOUSE, 46 AVENUE-4 , STREET NO.1, BANJARA HILLS, HYDERABAD 500034 2 KARVY REALTY (INDIA) LTD, KARVY HOUSE, 46 AVENUE- 4, STREET NO.1, BANJARA HILLS, HYDERABAD 500034 3 DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1) ROOM NO.514, 5 TH FLOOR, SIGNATURE TOWERS, KONDAPUR, HYDERABAD 4 CIT (A)-9 HYDERABAD 5 PR. CIT 2 HYDERABAD 6 THE DR, ITAT HYDERABAD 7 GUARD FILE BY ORDER