Shreno Limited, Baroda V. The ACIT.,Circle-4, Baroda

ITA 1452/AHD/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9717 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 31-08-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 02-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Capital expenditure
• Section: 143(3); 14A; 115JB; 15

Judgement Text

I.T.A. NO.: 1452/AHD/2012 ASSESSMENT YEAR: 2008 - 09 PAGE 1 OF 17 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD C BENCH, AHMEDABAD [CORAM : PRAMOD KUMAR AM AND S S GODARA JM ] I.T.A. NO. : 1452/AHD/2012 ASSE SSMENT YEAR: 2008 - 09 SHRENO LIMITED . ...... APPELLANT ALEMBIC ROAD, BARODA 390 016. [PAN: AABCA795 3Q ] VS ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 4 , AHMEDABAD ......RESPONDENT APPEARANCES BY : S N SOPARKAR FOR THE APPELLANT PRASOON KABRA FOR THE RESPONDENT ORDER RESERVED ON : OCTOBER 04 , 2016 ORDER PRONOUNCED ON : DECEM BER 27 , 2016 O R D E R 1. THIS APPEAL, FILED BY THE ASSESSEE, IS DIRECTED AGAINST THE ORDER DATED 25 TH APRIL 2012, PASSED BY THE CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2008 - 09. 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: 1. DISALLOWANCE U/S 14A READ WITH RULE 8D: 1 .1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [ HEREINAFTER REFERRED TO AS THE LEARNED C I T(A)] ERRED IN CONFIRMING THE ACTION OF TH E ASSESSING O FFICER BY DISALLOWING RS.79.30 LACS U/S 14A READ WITH RULE 8D WITHOUT CONSIDERING THAT THE ASSESSING O FFICER HAD NOT RECORDED SATISFACTION AS TO HOW THE AMOUNT OF CLAIM IN RESPECT OF DISALLOWANCE IS INCORRECT. 1 .2 O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CA S E AND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING O FFICER BY DISALLOWING R S .79.30 LACS U/S 14A READ WITH RULE 8D WITHOUT I.T.A. NO.: 1452/AHD/2012 ASSESSMENT YEAR: 2008 - 09 PAGE 2 OF 17 APPRECIATING THAT THE APPELLANT HAD SUFFICIENT OWN FUNDS F OR MAKING THE INVESTMENTS AND MOST OF THE BORROWINGS WERE TAKEN F OR THE PURPOSE OF BUSINESS AND NOT FOR MAKING INVESTMENTS. 3. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSE SSEE BEFORE US IS ENGAGED IN THE BUSINESS OF MANUFACTURING GLASSWARE ITEMS, MACHINERY REQUIRED FOR GLASS AND OTHER INDUSTRIES. DURING THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.1,84 ,59,071/ - WHICH H A S BEEN CLAIMED AS EXEMPT UNDER SECTION 10(34) OF THE ACT AND THAT THE AESSEE, ON HIS OWN, OFFERED EXPENSES OF RS.1,00,000/ - AS DISALLOWANCE UNDER SECTION 14A TOWARDS ADMINISTRATIVE EXPENSES. WHEN THE ASSESSING O FFICER PROB ED THE MATTER F URTHER, IT WAS EXPLAINED BY THE ASSESSEE THAT THE INTEREST BEARING FUNDS HAVE NOT BEEN USED IN MAKING THE INVESTMENTS FROM WHICH THE DIVIDEND INCOME IS EARNED. IT WAS ALSO EXPLAINED THAT THE BORROWINGS FROM THE BANK ARE USED F OR THE PURPOSE OF WHICH BORROW INGS WERE MADE I.E. FOR FINANCING ONGC LIABILITY, FOR USE AS CAPITAL EXPENDITURE AND FOR WORKING CAPITAL REQUIREMENTS. IT WAS ALSO EXPLAINED BY THE ASSESSEE THAT WHILE TERM LOAN OF RS.45.43 CRORES WHICH WAS TAKEN FROM B ANK OF BARODA FOR FINANCING ONGC LI ABILITY COULD CLEARLY BE LINKED TO THE END USE, THE OTHER BORROWINGS FOR WORKING CAPITAL ETC. COULD NOT BE CORRELATED ONE TO ONE RECEIPT OF LOAN FUND AND ITS UTILISATION DUE TO VOLUMINOUS TRANSACTIONS. THE SANCTION LETTERS FROM THE BANKS SHOWING END USE O F THE LOAN WAS NEVERTHELESS FILED BY THE ASSESSEE . IT WAS ALSO POINTED OUT BY THE ASSESSEE THAT THE INTEREST - FREE FUNDS AVAILABLE TO THE ASSESSEE ARE IN ANY EV ENT CANNOT BE MORE THAN THE INV ESTMENT IN THIS TAX EXE MPT INCOME YIELDING INVESTMENT, AND THE AS SESSEE ALSO FILED STATEMENT SHOWING UTILIZATION OF INTEREST BEARING FUNDS. THESE EXPLANATIONS HOWEVER DID NOT SATISFY THE A SSESSING OFFICER WHO PROCEEDED TO INVOKE SECTION RULE 8D BY OBSERVING THAT ASSESSEE COULD NOT JUSTIFY THAT NO INTEREST BEARING FUNDS HAVE BEEN DIVERTED FOR MAKING INVESTMENT FROM WHERE IT HAS EARNED THE EXEMPTED INCOME . THE ASSESSING OFFICER ALSO OBSERVED THAT ASSESSEE MUST HAVE INCURRED SOME EXPENDITURE LIKE TELEPHONE, STATIONERY , PERSONNEL COST, ETC . , THEN WITHOUT GIVING ANY CAT EGORICAL FINDING THAT THE SAID EXPENSES IS IN EXCESS OF THE SUO MOT O U DISALLOWANCE OFFERED BY THE ASSESSEE , THE ASSESSING OFFICER PROCEEDED TO INVOKE RULE 8D. ACCORDINGLY , THE DISALLOWANCE OF RS.80.30 LAKHS WAS FOUND TO BE ADMISSIBLE UNDER SECTION 14A REA D WITH RULE 8D. ON THESE FACTS THE ASSESSING OFFICER MADE I.T.A. NO.: 1452/AHD/2012 ASSESSMENT YEAR: 2008 - 09 PAGE 3 OF 17 FURTHER DISALLOWANCE , IN ADDITION TO SUO MOT U DISALLOWANCE OF RS 1 LAKH, OFFERED BY THE ASSESSEE OF RS.79.30 LAKHS . 4. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A). ONCE AGAIN IT WAS , INTER ALIA, EMPHASISED BY THE ASSESSEE THAT INTEREST - FREE FUNDS I.E. S HARE CAPITAL AND RESERVES AND SURPLUS ARE SUFFICIENTLY TO COV ER THE COST PRICE OF THE SHARES (AND) T HUS THERE COULD NOT BE ANY DISALLOWANCE OF INTEREST BECAUSE NO NE OF THE INTEREST BEARING FUNDS IS USED FOR THE PURPOSE OF INVESTMENT . THE ASSESSEE FURTHER INVITED ATTENTION OF THE CIT(A) ON THE JUDGEMENT OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANCE UTILITIES & POWER LTD. [(2009) 313 ITR 340 (BOM) ] WHICH LAYS DOWN THE PROPOSITION THAT IF INTEREST - FREE FUNDS OF THE ASSESSEE ARE SUFFICIENT TO COVER INTEREST FREE ADVANCE THE PRESUMPTION HAS TO BE TAKEN THAT INTEREST FREE ADVANCES ARE FROM ASSESSEE S OWN FUNDS, AND, ACCORDINGLY, WHEN THE ASSESSEE HAS SUFFICIENT INTEREST F REE FUND OF HIS OWN MUCH IN EXCESS OF THE INVESTMENT S IN T AX EXEMPT YIELDING ASSETS, PRESUMPTION IS TO BE TAKEN THAT INVESTMENT ARE OUT OF INTEREST FREE FUNDS. IT WAS ALSO EMPHASISED THAT IT CANNOT BE OPEN TO THE ASSESSING OFFICER TO APPLY RULE 8D WITHOUT POINTING AS HOW THE DISALLOWANCE OFFERED BY THE ASSESSEE O N ITS OWN IS INADEQUATE . NONE OF THE SE SUBMISSIONS IMPRESSED THE LEARNED C IT (A). HE WAS OF TH E CONSIDERED VIEW THAT THE ASSESSING O FFICER HAS PROPERLY RECORDED HIS DISSATISF ACTIONS BEFORE INVOKING RULE 8D AND THAT WHERE TAX EXEMPT INVESTMENT ARE MADE OUT BY COMMON POOL OF FUNDS, WHICH HAS INTEREST FREE AS ALSO INTEREST BEARING FUNDS, IT IS REASONABLE TO APPORTION SUCH INTEREST TO TAX EXEMPT INCOME YIELDING INVESTMENT ON A PRO PORTIONATE BASIS. THE CONTENTIONS OF THE ASSESSEE WERE THUS REJECTED. WHILE SO REJECTING THE CONTENTIONS OF THE ASSESSEE, THE LEARNED C I T(A ) OBSERVED AS UNDER : - 5.3 I HAVE CONSIDERED THE CONTENTIONS OF THE A O AND T HE SUBMISSIONS OF THE APPELLANT. SO FAR A S THE APPELLANT S FIRST CONTENTION THAT NO SATISFACTION HAS BEEN RAISED BY THE A O AS TO HOW CLAIM OF THE APPELLANT IN RESPECT OF DISALLOWANCE UNDER SECTION 14A IS INCORRECT IS CONCERNED, IT IS SEEN FROM THE ASSESSMENT ORDER THAT THE A O HAS STATED AS FOLL OWS : THE ASSESSEE CONTENTION THAT ONLY DISALLOWANCE U/S 14A POSSIBLE IN THIS CASE IS ONLY RS.1 LAKH, WHICH WAS DISALLOWED BY THE ASSESSEE IN ITS COMPUTATION. THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE. THE ASSESSEE COULD NOT JUSTIFY THAT NO INTER EST BEARING FUND HAS BEEN I.T.A. NO.: 1452/AHD/2012 ASSESSMENT YEAR: 2008 - 09 PAGE 4 OF 17 DIVERTED FOR MAKING INVESTMENT FROM WHERE IT HAS GOT EXEMPTED INCOME. FURTHER, THE ASSESSEE MUST HAVE INCURRED SOME EXPENDITURE LIKE TELEPHONE, STATIONERY , PERSONNEL COST, ETC. FOR INV ESTMENT IN MUTUAL FUNDS ETC. IN THESE CIRCUM STANCES, I AM SATISFIED THAT THIS IS A FIT CASE TO INVOKE THE PROVISIONS OF SECTION 14A OF THE INCOME TAX AT, 1961. FURTHER, RULE 8D WAS COME INTO EFFECT FROM 24.3.2008 I.E. FOR ASSESSMENT YEAR 2008 - 2009. THEREFORE, IT WAS MANDATORY FOR THE ASSESSEE TO W ORK OUT THE DISALLOWANCE AS PER THE METHOD GIVEN IN RULE 8D AD DISALLOW THE SAME WHILE FILING ITS RETURN OF INCOME. HOWEVER, THE ASSESSEE HAS DISALLOWED ONLY RS.1 LAKH ON LUMP SUM BASIS. ACCORDINGLY, THE DISALLOWANCE WORKED OUT UNDER RULE 8D AT RS.80,30, 000 RS.1,00,000 = RS.79,30,000 IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. THE BOOK PROFIT U/S 115JB IS ALSO INCREASED BY THIS AMOUNT. PENALTY PROCEEDINGS U/S 271(10(C) OF THE INCOME TAX ACT, 1961. THUS, IT IS SEEN THAT THE AO H AS RECORDED A SATISFACTION THAT THE COMPUTATION MADE BY THE APPELLANT IS NOT CORRECT IN HIS OPINION. UNDER SUCH CIRCUMSTANCES, THE INVOCATION OF RULE 8D BY THE AO IS CORRECT. HENCE, THESE CONTENTIONS OF THE APPELLANT ARE REJECTED. 5.4 SO FAR AS OTHER CO NTENTIONS OF THE APPELLANT RELATING TO ITS CLAIM THAT IT HAD SUFFICIENT INTEREST FREE FUNDS TO CARRY OUT THE INVESTMENT AND HENCE NO BORROWED FUNDS WERE UTILISED, I HAVE CONSIDERED THE MATTER. AS REGARDS APPELLANT S CONTENTION ABOUT INVESTMENT IN TAX FREE INCOME YIELDING ASSETS BEING EXCLUSIVELY OUT OF SURPLUS/OWN FUNDS, APPELLANT HAS NOT ADDUCED ANY EVIDENCE IN SUPPORT OF SUCH CONTENTION EXCEPT PROVIDING AGGREGATE FIGURES OF SHARE CAPITAL, RESERVES AND SURPLUS, TOTAL LOANS, OPERATING PR OFITS FOR THE YEAR AND INVESTMENTS IN TAX FREE SECURITIES ON THE BALANCE SHEET DATE. BUSINESS FUNDS ARE MIXED UP AND IT CANNOT BE ASSUMED THAT FUNDS DEPLOYED FOR EARNING TAX FREE INCOME WERE ENTIRELY OUT OF INTEREST FREE FUNDS AND THE ENTIRE INTEREST COST IS TO BE LOADED ON TO ACTIVITIES RESULTING IN TAXABLE INCOME. MERELY BECAUSE APPELLANT HAD POSITIVE NET WORTH OR DURING THE YEAR, BORROWINGS INCREASED BY A FIGURE LOWER THAN INVESTMENTS MADE DOES NOT MEAN THAT ENTIRE TAX FREE INCOME YIELDING ACTIVITIES WERE CARRIED OUT BY DEPLOYING OWN OR SURPLUS FUNDS. WHERE TAX FREE INCOME EARNING ACTIVITIES AND TAXABLE INCOME EARNING ACTIVITIES ARE BOTH CARRIED OUT SUING THE COMMON KITTY OF FUNDS, IT WOULD BE REASONABLE TO APPORTION THE INTEREST BURDEN BETWEEN THE TWO ACTIVITIES. 5 . T HE LEARNED C IT(A) FU R THER NOTED T HAT THE ASSESSEE HAS MADE DISALLOWANCE OF RS.1,00,000/ - WITHOUT THERE BEING ANY BASIS. A REFERENCE WAS MADE TO THE JUDGEMENT OF HON BLE KERALA HIGH COURT IN THE CASE OF CIT VS. DHANALAKSHMI B ANK LIMITED [(2011) 10 TAXMANN. COM 213 (KER)] AND THE JUDGEMENT OF HON BLE CALCUTTA HIGH CO URT IN THE CASE OF DHANUKA & SONS VS CIT [(2011) 12 TAXMANN.COM 227 (CAL)] . THE PROPOSITION SUPPORTED BY THESE JUDICIAL PRECEDENTS WERE STATED TO BE (A) I.T.A. NO.: 1452/AHD/2012 ASSESSMENT YEAR: 2008 - 09 PAGE 5 OF 17 THAT WHEN NO SEPARATE BOOKS OF ACCOUNTS A RE MAINTAINED, THE DISALLOWANCE BY REFERENCE TO RULE 8D WILL BE JUSTIFIED; AND (B) THAT ONUS IS ON THE ASSESSEE TO SHOW THAT NO INTEREST BEARING FUNDS WERE USED IN MAKING INVESTMENTS ON WHICH TAX EXEMPT INCOME IS EARNED. A REFERENCE WAS ALSO MADE TO HON B LE SUPREME COURT S JUDGMENT CIT VS WALFORT SHARES & STOCK BROKERS PVT LTD [(2010) 192 TAXMAN 211 (SC)] BUT THEN THIS JUDGEMENT ONLY TO SUPPORT PROPOSITION THAT EXPENDITURE RELATING TO INCOME NOT FORMING PART OF DIVIDEND INCOME HAS TO BE TAKEN INTO ACCOUNT IN COMPUTATION OF INCOME FROM HEADS WHICH ARE TAXABLE AND THIS PROPOSITION IS NOT REALLY RELEVANT TO THE ISSUE IN APPEAL BEFORE US NOR IS IT IN DISPUTE . THE CIT(A) THUS CONCLUDED THAT THE CONTENTIONS OF THE ASSESSEE ARE REQUIRED TO BE DISMISSED AS ADHO C DISALLOWANCE COMPUTED BY THE APPELLANT IS NOT ACCEPTABLE AND HENCE IS REJECTED . IT WAS IN THIS BACKDROP THAT THE LEARNED CIT(A) ALSO REJECTED THE CLAIM OF THE ASSESSEE. THE ASSESSEE IS AGGRIEVED AND IS IN FURTHER APPEAL BEFORE US. 6 . WE HAVE HEARD TH E RIVAL CONTENTIONS , PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 7 . WE HAVE NOTED THAT IT IS NOW SETTLED POSITION THAT THE ASSESSING OFFICER HAS TO RECORD A SPECIFIC SATISFACTION, BEFO RE RESORTING TO DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D, TO THE EFFECT THAT THE DISALLOWANCE OFFERED BY THE ASSESSEE IS INADEQUATE, COVER THE EXPENSES INCURRED IN EARNING TAX EXEMPT INCOME. IT IS ALSO ELEMENTARY THAT RESORTING TO METHOD PRESCRIBE D UNDER RULE 8D IS NOT AUTOMATIC. IT IS ONLY AFTER THE ASSESSING OFFICER, BASED ON OBJECTIVE ANALYSIS OF THE FACT SO THE CASE IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE THAT THE REFERENCE CAN BE MADE TO RULE 8D . IN THE CASE BEFORE US THE ASSESSING OF FICER HAS NOTED THAT THE DISALLOWANCE IS ON ADHOC BASIS BUT THEN JUST BECAUSE THE DISALLOWANCE OFFERED BY THE ASSESSEE IS ON ADHOC BASIS, IT DOES NOT IMPLY THAT THE DISALLOWANCE IS INCORRECT INASMUCH AS IT IS INADEQUATE. A DISALLOWANCE ON ADHOC BASIS MAY N OT BE ON A SCIENTIFIC BASIS BUT UNLESS IT IS NOTED THAT IT IS SHORT OF WHAT IS REQUIRED, IT CANNOT BE TREATED AS INCORRECT FROM THE PERSPECTIVE OF THE ASSESSING OFFICER. THE INCORRECTNESS POINTED OUT BY THE ASSESSING OFFICER, HOWEVER, IS THAT THAT THE ASS ESSEE COULD NOT, ACCORDING TO THE ASSESSING OFFICER, DEMONSTRATE THAT THE NO INTEREST BEARING FUNDS ARE USED IN MAKING THE INVESTMENTS IN QUESTION. WE WILL COME TO THE CORRECTNESS AND LEGAL SUSTAINABILITY I.T.A. NO.: 1452/AHD/2012 ASSESSMENT YEAR: 2008 - 09 PAGE 6 OF 17 OF THIS PROPOSITION A LITTLE LATER, BUT, WHILE ON T HIS ISSUE, I T IS ALSO IMPORTANT TO BEAR IN MIND THE FACT THAT IN THE PRESENT CASE, THE ASSESSING OFFICER HAS INVOKED RULE 8D BY OBSERVING THAT ASSESSEE COULD NOT JUSTIFY HAT NO INTEREST BEARING FUNDS HAVE BEEN DIVERTED FOR MAKING INV ESTMENT FROM WHERE IT HAS EARNED EXEMPT INCOME . THIS OBSERVATION OF THE ASSESSING OFFICER, IN THE LIGHT OF THE DECISIONS OF THE HON BLE JURISDICTIONAL HIGH COURT, IS UNSUSTAINABLE IN LAW, AND, AS THERE IS DIRECT GUIDANCE OF HON BLE JURISDICTIONAL HIGH COURT ON THIS ISSUE, WE SEE NO NEED TO BE GUIDED BY OTHER HON BLE HIGH COURTS, SUCH AS HON BLE KERALA HIGH COURT AND HON BLE CALCUTTA HIGH COURT, RELIED UPON BY THE CIT (A). THE INCORRECTNESS OF THE ASSESSING OFFICER IS EVIDENT FROM THE FACT THAT UNDISPUTEDLY THE INTEREST FREE FUNDS OF THE ASSESSEE ARE FAR IN EXCESS OF THE INVESTMENTS YIELDING TAX EXEMPT INCOME , AND IN SUCH A SITUATION, AS HELD BY HON BLE J URISDICTIONAL HIGH COURT, IN THE CASE OF C IT VS. UTI BANK LIMITED [(2013) 32 TAXMANN.COM 370 (GUJ)] , H AS APPROVED THE S TA ND OF THIS T RIBUNAL IN FOLLOWING THE PRINCIPLE , LAID DOWN BY HON'BLE BOMBAY HIGH COURT IN CASE OF CIT V. RELIANCE UTILITIES & POWER LTD. ( SUPRA ) , WHICH STATES THAT IF THERE ARE INTEREST FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENT S AND AT THE SAME TIME THE ASSESSEE HAS RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FRO M INTEREST FREE FUNDS AVAILABLE, AND, ACCORDINGLY, NO DISALLOWANCE UNDER SECTION 14A IN RESPECT OF INTEREST PAYMENT CAN BE MADE IN SUCH A SITUATION. O NCE THE HON BLE JURISDICTIONAL H IGH COURT HOLDS THIS APPROACH , IT CANNOT BE OPEN US TO HOLD THAT EVEN WHERE INVESTMENT IN TAX EXEMPT INCOME ARE MUCH LESS THAN INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE ANY PART OF THE INTER ES T EXPENDITURE CAN BE ATTRIBUTED TO THE INVESTMENTS IN SUCH INVESTMENTS. IT IS IN SUCH A SITUATION WHOLLY IRRELEVANT WHETHER THE INVESTMENTS ARE MADE FROM COMMON POOL OF FUNDS, CONSISTING OF INTEREST FREE AND INTEREST BEARING FUNDS, OR OTHERWISE. THE APPROACH OF THE CIT(A), IN SPECIFICALL Y HOLDING THAT A PART OF INTEREST IS TO BE ATTRIBUTED TO INVESTMENTS YIELDING TAX EXEMPT INCOME BECAUSE THE INVESTMENTS ARE MADE FROM COMMON POOL OF FUNDS, IS THUS INCORRECT. WHEN INVESTMENTS ARE FROM COMMON POOL OF FUNDS BUT AS LONG AS INVESTMENTS ARE LES S THAN THE INTEREST FREE FUNDS, PRESUMPTION IS REQUIRED TO BE TAKEN THAT THE INVESTMENTS ARE FROM INTEREST FREE FUNDS. THIS APPROACH HAS THE APPROVAL OF HON BLE JURISDICTIONAL HIGH COURT. IN THIS VIEW OF THE MATTER, THE REASON RECORDED BY THE ASSESSING OFF ICER FOR REJECTING THE DISALLOWANCE OFFERED BY THE ASSESSEE SUO MOTU IS CLEARLY INCORRECT AND UNSUSTAINABLE IN LAW. THERE IS NO I.T.A. NO.: 1452/AHD/2012 ASSESSMENT YEAR: 2008 - 09 PAGE 7 OF 17 FINDING WHATSOEVER BY THE ASSESSING OFFICER TO THE EFFECT THAT THE DISALLOWANCE OFFERED BY THE ASSESSEE WAS INADEQUATE TO MEET THE EXPENSES LIKE TEL EPHONE, STATIONERY, PERSONNEL COSTS ETC. IT WAS NEVER HIS CASE THAT THESE COSTS ARE SO HIGH THAT THE DISALLOWANCE WAS INCORRECT. QUITE CONTRARY TO THIS, THE STAND OF THE ASSESSING OFFICER WAS THAT A PART OF INTEREST EXPENDITURE WAS TO BE ATTRIBUTED TO THE INVESTMENTS YIELDING TAX EXEMPT INCOME, BUT THIS STAND, FOR THE DETAILED REASONS SET OUT ABOVE, WAS INCORRECT AND UNSUSTAINABLE IN LAW. 8 . WE FIND THAT IN MATERIALLY SIMILAR CIRCUMSTANCES, HON BLE JURISDICTIONAL H IGH COURT IN THE CASE OF PCIT VS INDIA GELATINE & CHEMICALS LIMITED [(2016) 66 TAXMANN.COM 356 (GUJ)] HAS , INTER ALIA , OBSERVED AS FOLLOWS : - 5.1 NOW, SO FAR AS THE DELETION OF DISALLOWANCE OF INTEREST EXPENSES UNDER SECTION 14A OF THE ACT BY THE LEARNED TRIBUNAL/CIT(A) IS CONCERNED, IT IS REQUIRED TO BE NOTED THAT THE AO MADE THE DISALLOWANCE UNDER SECTION 14A OF THE ACT ON THE GROUND THAT THE ASSESSEE WAS NOT ABLE TO JUSTIFY THAT THE INVESTMENTS MADE IN THE SHARES AND MUTUAL FUNDS AMOUNTING TO RS. 21,14,07,850/ - WAS MA DE OUT OF THE INTEREST - FREE FUNDS. HOWEVER, IT IS REQUIRED TO BE NOTED THAT BOTH, THE LEARNED CIT(A) AS WELL AS THE LEARNED TRIBUNAL HAVE CATEGORICALLY FOUND ON THE BASIS OF THE MATERIAL ON RECORD THAT AS SUCH THE ASSESSEE WAS HAVING INTEREST - FREE FUNDS OU T OF WHICH THE INVESTMENT WAS MADE . THEREFORE, BY OBSERVING IN PARAS 6 TO 9 EXTRACTED HEREINBELOW, THE LEARNED TRIBUNAL HAS DELETED THE ENTIRE DISALLOWANCE OF RS. 12,06,934/ - MADE BY THE AO UNDER SECTION 14A OF THE ACT. '6. WE HAVE HEARD THE RIVAL SUBMISS IONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS MADE INVESTMENT OF RS. 21,14,07,850/ - AND THE ASSESSEE HAS PAID INTEREST ON BO RROWED FUNDS OF RS. 40,10,861/ - . HE ALSO OBSERVED THAT THE ASSESSEE HAS NOT MADE DISALLOWANCE OF INTEREST EXPENDITURE ACCORDING TO SECTION 14A READ WITH RULE 8D OF THE ACT. HE THEREFORE COMPUTED THE PROPORTIONATE DISALLOWANCE OF INTEREST EXPENDITURE AT RS. 5,84,706/ - AND DISALLOWED THE SAME. BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD BORROWED FUNDS FOR THE PURPOSES OF VEHICLE AND OLD LOAN OF RS. 2005/ - FOR CAPTIVE POWER PLANT, AND THEREFORE NO BORROWED FUND S WERE USED FOR NON - BUSINESS PURPOSES. FURTHER, THE ASSESSEE RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF S A BUILDERS (SUPRA) AND MUNJAL SALES CORPORATION (SUPRA) AND THE DECISION OF HON'BLE MUMBAI HIGH COURT IN THE CASE OF RELIANC E UTILITY & POWER LTD. (SUPRA) WHERE IT WAS HELD THAT IF THE INTEREST FREE FUNDS OF THE ASSESSEE WERE SUFFICIENT FOR MAKING INVESTMENTS, NO DISALLOWANCE I.T.A. NO.: 1452/AHD/2012 ASSESSMENT YEAR: 2008 - 09 PAGE 8 OF 17 OF INTEREST EXPENDITURE WAS CALLED FOR . THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE FINDING OF THE ASSESSING OFFICER WAS NOT CORRECT THAT THE ASSESSEE HAS NOT CHARGED ANY INTEREST FREE LOAN TO ASSOCIATE CONCERNS. HE HELD THAT THE ASSESSEE IN FACT EARNED INTEREST INCOME AT THE RATE VARYING FROM 9% TO 12.5% FROM THE ASSOCIATED CONCERNS DEPENDING UP ON THE AVAILABILITY OF SURPLUS FUNDS AND THEREBY EARNED INTEREST INCOME OF APPROXIMATELY RS. 50.74 LAKHS DURING THE YEAR. HE, THEREFORE, HELD THAT DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S. 36(I)(III) WAS OF RS. 40,10,861/ - WAS NOT JUSTIFIED. 7. THE DEPARTMENTAL REPRESENTATIVE HAS MERELY RELIED UPON THE ORDER OF THE ASSESSING OFFICER. HE HAS NOT POINTED OUT ANY SPECIFIC ERROR IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). HE COULD NOT BRING ANY MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE C OULD NOT HAVE ADVANCED INTEREST FREE LOANS OR LOANS AT LOWER RATE OF INTEREST TO THE SISTER CONCERNS OUT OF ITS INTEREST FREE FUNDS AVAILABLE WITH IT. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) WHICH IS CONFIRM ED AND THE GROUND NO.1 OF APPEAL OF THE REVENUE IS DISMISSED. 8. FURTHER, THE ASSESSING OFFICER ALSO MADE DISALLOWANCE OF RS. 8,22,228/ - OUT OF ADMINISTRATIVE EXPENSES, BUT HAD RESTRICTED THE DISALLOWANCE MADE TO RS. 6,22,228/ - AS THE ASSESSEE HIMSELF HAD MADE DISALLOWANCE OF RS. 2,00,000/ - AS EXPENSES INCURRED FOR EARNING TAX FREE DIVIDED INCOME. THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE SAID EXPENSES MUST HAVE BEEN INCURRED BY THE ASSESSEE IN MAKING THE INVESTMENTS AND THEREFORE CONFIRME D THE DISALLOWANCE OF RS. 6,22,228/ - MADE BY THE ASSESSING OFFICER. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS EARNED DIVIDED INCOME OF RS. 12,200/ - AS WILL BE EVIDENCED FROM THE STATEMENT OF ACCOUNTS OF THE ASSESSEE AT P AGE 26 OF THE PAPER BOOK FOR WHICH DISALLOWANCE OF RS. 6,22,228/ - CANNOT BE MADE. 9. WE FIND THAT THE ASSESSING OFFICER AS WELL AS THE COMMISSIONER OF INCOME TAX (APPEALS) COULD NOT PINPOINT ANY ERROR IN THE COMPUTATION OF DISALLOWANCE MADE BY THE ASSESSE E OF RS. 2,00,000/ - IN EARNING TAX FREE DIVIDED INCOME. IN THE CIRCUMSTANCES, IN OUR CONSIDERED OPINION, DISALLOWANCE OF RS. 6,22,228/ - COULD NOT HAVE BEEN MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE COMMISSIONER OF INCOME TAX (APPEALS). OUR ABOVE V IEW FINDS SUPPORT FROM THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. CONSOLIDATED PHOTO & FINVEST LTD. (2012) 211 TAXMAN 184 (DEL.). THEREFORE, WE SET ASIDE THE ORDERS OF LOWER AUTHORITIES AND DELETE THE DISALLOWANCE OF RS. 6,22,228/ - . THUS, GROUND NO.1 OF APPEAL OF THE ASSESSEE IS ALLOWED.' I.T.A. NO.: 1452/AHD/2012 ASSESSMENT YEAR: 2008 - 09 PAGE 9 OF 17 WE ARE IN COMPLETE AGREEMENT WITH THE VIEW TAKEN BY THE LEARNED TRIBUNAL AND THE REASONS GIVEN BY THE LEARNED TRIBUNAL WHILE DELETING THE DISALLOWANCE OF INTEREST EXPENSES UNDER SECTION 14A OF THE ACT . 5.2 NOW, SO FAR AS THE CONTENTION ON BEHALF OF THE APPELLANT WITH RESPECT TO APPLICABILITY OF RULE 8D OF THE RULES WITH EFFECT FROM 31.03.2006 IS CONCERNED, THERE CANNOT BE ANY DISPUTE ABOUT THE SAME. HOWEVER, IT IS REQUIRED TO BE NOTED THAT THE AO M ADE THE DISALLOWANCE UNDER SECTION 14A OF THE ACT SOLELY ON THE GROUND THAT THE ASSESSEE FAILED TO JUSTIFY THAT THE INVESTMENT WAS MADE OUT OF THE INTEREST FREE FUNDS. HOWEVER, BOTH THE LEARNED CIT(A) AS WELL AS THE LEARNED TRIBUNAL HAVE FOUND OTHERWISE. U NDER THE CIRCUMSTANCES, THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. (SUPRA) WHICH HAS BEEN RELIED UPON BY THE LEARNED COUNSEL APPEARING ON BEHALF OF THE REVENUE WOULD NOT BE OF ANY ASSISTANCE TO THE FACTS OF THE CASE ON HAND. THEREFORE, WE CONFIRM THE IMPUGNED JUDGMENT AND ORDER PASSED BY THE LEARNED TRIBUNAL INSOFAR AS DELETING THE DISALLOWANCE OF INTEREST EXPENSES UNDER SECTION 14A OF THE ACT IN ITS ENTIRETY. [EMPHASIS, BY UNDERLINING, SUPPLIED BY US] 9 . THE ABOVE DECISION SQUARELY COVERS THE ISSUE IN APPEAL BEFORE US INASMUCH S IN THE PRESENT CASE NEITHER THE ASSESSING OFFICER AGREED THAT THE AMOUNT OFFERED FOR DISALLOWANCE SUO MOTU WAS INADEQUATE NOR IS IT IN DISPUTE THA T INTEREST FREE FUND AVAILABLE TO THE ASSES SEE WAS FAR MORE THAN INVESTMENT YIELDING TAX DIVIDEND. THE DECISIONS OF THE HON BLE JURISDICTIONAL HIGH COURT, AND THE COORDINATE BENCHES, CONSISTENTLY HOLD THAT THE AS LONG AS INTEREST FREE FUNDS ARE AVAILABLE, THE PRESUMPTION IS REQUIRED TO BE TAKEN THA T THESE FUNDS HAVE BEEN USED FOR THE PURPOSE OF MAKING INVESTMENTS YIELDING TAX EXEMPT INCOME. IN VIEW OF THIS POSITION, IT IS NOT REALLY NECESSARY TO DEAL WITH THE DECISIONS OF NON JURISDICTIONAL HIGH COURTS AND OTHER BENCHES, WHICH TOUCH A DIFFERENT CHOR D. 10. IN THE PRESENT CASE, THE ASSESSEE HAS GIVEN EVIDENCES OF THE PURPOSES FOR WHICH THE LOANS WERE OBTAINED, SHOW THE ONE TO ONE LINKAGE WHEREVER POSSIBLE AND A DETAILED STATEMENT ABOUT THESE ADVANCES AND THE END USE. THE ASSESSEE HAS NOT BEEN ABLE T O SHOW ONE TO ONE LINKAGE ONLY IN THE SITUATIONS IN WHICH THERE ARE TO NUMEROUS TRANSACTIONS TO IDENTIFY AND DEAL WITH THE SAME, AND IN SUCH A SITUATION A REASONABLE PRESUMPTION, EVEN DE HORS THE PRINCIPLE LAID DOWN BY RELIANCE UTILITIES I.T.A. NO.: 1452/AHD/2012 ASSESSMENT YEAR: 2008 - 09 PAGE 10 OF 17 DECISION (SUPRA), IS REQUIRED TO BE TAKEN. IN OUR CONSIDERED VIEW AND GIVEN THE FACT THAT THE LENDERS TAKE ALL THEIR PRECAUTIONS TO ENSURE THE END USE, WHICH IS ON RECORD, IT IS REASONABLE TO ASSUME THAT THESE BORROWINGS HAVE BEEN USED FOR THE STATED PURPOSES. THE ASSESSEE HAS GIVEN REASONABLE EVIDENCE, AS WOULD BE NORMALLY POSSIBLE IN SUCH A SITUATION, AND, IN THE LIGHT OF SUCH EVIDENCE, THERE IS NO REASON TO RESORT TO THE PRESUMPTION, LEAVE ASIDE REACHING THE CONCLUSION, THAT THESE BORROWINGS FOR SPECIFIC PURPOSES HAVE BEE N USED IN MAKING INVESTMENTS IN QUESTION. AS REGARDS INADEQUACY OF DISALLOWANCE, EVEN DURING THE COURSE OF PROCEEDINGS BEFORE US, LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT DEMONSTRATE THAT THE DISALLOWANCE OFFERED BY THE ASSESSEE SUO MOTU IS INADEQUATE . IN VIEW OF THESE DISCUSSIONS AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT AUTHORITIES BELOW WERE INDEED IN ERROR IN SUSTAINING THE IMPUGNED DISALLOWANCE OF RS.79.30 LAKHS. WE THEREFORE DELETE THE SAME. 11. IN THE RES ULT, GROUND NO.1 IS ALLOWED. 12. IN GROUND NO.2, THE ASSESSEE HAS RAISED THE FOLLOWING GR IEVANCE: 2. ADDITION OF EXPENSES DISALLOWED U/S 14A WHILE COMPUTING BOOK PROFITS U/S . 115JB: 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LE ARNED C I T(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER BY MAKING ADDITION OF THE EXPENSE OF RS.79.30 LACS DISALLOWED U/S 14A READ WITH RULE 8D WHILE COMPUTING BOOK PROFITS U/S . 115JB WITHOUT CONSIDERING THAT THE ASSESSING OFFICER HAD NOT REC ORDED SATISFACTION AS TO HOW THE AMOUNT OF CLAIM IN RESPECT OF DISALLOWANCE IS INCORRECT. 2.2 O N THE FACTS AND IN THE CIRCUMSTANCES OF THE C A SE AND IN LAW, THE LEARNED C I T(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING O FFICER BY MAKING ADDITION OF TH E EXPENSE OF RS.79.30 LACS DISALLOWED U/S 14A READ WITH RULE 8D WHILE COMPUTING BOOK PROFITS U/S 115JB WITHOUT APPRECIATING THAT THE APPELLANT HAD SUFFICIENT OWN FUNDS FOR MAKING THE INVESTMENTS AND MOST OF THE BORROWINGS WERE TAKEN FOR THE PURPOSE OF BUSI NESS AND NOT OR MAKING INVESTMENTS. 13. THIS ISSUE, AS LEARNED REPRESENTATIVES FAIRLY AGREE, IS COVERED BY DECISION OF A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF DCIT VS SOBHA DEVELOPERS [(2015) 58 TAXMANN.COM 107 (GUJ)] , EVEN AS LEARNED DEPAR TMENTAL REPRESENTATIVE I.T.A. NO.: 1452/AHD/2012 ASSESSMENT YEAR: 2008 - 09 PAGE 11 OF 17 RELIED UPON AND JUSTIFIED THE STAND OF THE AUTHORITIES BELOW. IN THE CASE OF SOBHA DEVELOPERS (SUPRA), THE COORDINATE BENCH HAS, INTER ALIA, OBSERVED AS FOLLOWS: 29. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSION S. THE RELEVANT PROVISIONS OF SEC.115JB(2) AND EXPLANATION THERETO NEED TO BE SEEN. THE SAID PROVISIONS READ THUS: 'SEC.115JB: SPECIAL PROVISION FOR PAYMENT OF TAX BY CERTAIN COMPANIES. 115JB. (1) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION O F THIS ACT, WHERE IN THE CASE OF AN ASSESSEE, BEING A COMPANY, THE INCOME - TAX, PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THIS ACT IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2012, IS LESS THAN EIGHTEEN AND ONE - HALF PER CENT OF ITS BOOK PROFIT, SUCH BOOK PROFIT SHALL BE DEEMED TO BE THE TOTAL INCOME OF THE ASSESSEE AND THE TAX PAYABLE BY THE ASSESSEE ON SUCH TOTAL INCOME SHALL BE THE AMOUNT OF INCOME - TAX AT THE RATE OF EIGHTEEN AND ONE - HALF PER CENT. (2) EVERY ASSESSEE, - ( A ) BEING A COMPANY, OTHER THAN A COMPANY REFERRED TO IN CLAUSE ( B ), SHALL, FOR THE PURPOSES OF THIS SECTION, PREPARE ITS PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF PART II OF SCHEDULE VI TO THE COMPANIES ACT, 1956 (1 OF 1956); OR ( B ) BEING A COMPANY, TO WHICH THE PROVISO TO SUB - SECTION (2) OF SECTION 211 OF THE COMPANIES ACT, 1956 (1 OF 1956) IS APPLICABLE, SHALL, FOR THE PURPOSES OF THIS SECTION, PREPARE ITS PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF THE ACT GOVERNING SUCH COMPANY: PROVIDED THAT WHILE PREPARING THE ANNUAL ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT, - ( I ) THE ACCOUNTING POLICIES; ( II ) THE ACCOUNTING S TANDARDS ADOPTED FOR PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT; ( III ) THE METHOD AND RATES ADOPTED FOR CALCULATING THE DEPRECIATION, SHALL BE THE SAME AS HAVE BEEN ADOPTED FOR THE PURPOSE OF PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT AND LAID BEFORE THE COMPANY AT ITS ANNUAL GENERAL MEETING IN ACCORDANCE WITH THE PROVISIONS OF SECTION 210 OF THE COMPANIES ACT, 1956 (1 OF 1956) : PROVIDED FURTHER THAT WHERE THE COMPANY HAS ADOPTED OR ADOPTS THE FINANCIAL YEAR UNDER THE COMP ANIES ACT, 1956 (1 OF 1956)97B, WHICH IS DIFFERENT FROM THE PREVIOUS YEAR UNDER THIS ACT, - ( I ) THE ACCOUNTING POLICIES; ( II ) THE ACCOUNTING STANDARDS ADOPTED FOR PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT; ( III ) THE METHOD AND RATES ADOPTED FOR CALCULATING THE DEPRECIATION, SHALL CORRESPOND TO THE ACCOUNTING POLICIES, ACCOUNTING STANDARDS AND THE METHOD AND RATES FOR CALCULATING THE DEPRECIATION WHICH HAVE BEEN ADOPTED FOR PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT FO R SUCH I.T.A. NO.: 1452/AHD/2012 ASSESSMENT YEAR: 2008 - 09 PAGE 12 OF 17 FINANCIAL YEAR OR PART OF SUCH FINANCIAL YEAR FALLING WITHIN THE RELEVANT PREVIOUS YEAR. EXPLANATION [ 1 ]. - FOR THE PURPOSES OF THIS SECTION, 'BOOK PROFIT' MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR P REPARED UNDER SUB - SECTION (2), AS INCREASED BY - ( A ) THE AMOUNT OF INCOME - TAX PAID OR PAYABLE, AND THE PROVISION THEREFOR; OR ( B ) THE AMOUNTS CARRIED TO ANY RESERVES, BY WHATEVER NAME CALLED [, OTHER THAN A RESERVE SPECIFIED UNDER SECTION 33AC]; OR ( C ) THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES; OR ( D ) THE AMOUNT BY WAY OF PROVISION FOR LOSSES OF SUBSIDIARY COMPANIES; OR ( E ) THE AMOUNT OR AMOUNTS OF DIVIDENDS PAID OR PROPOSED ; OR ( F ) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE ( 38 ) THEREOF) OR SECTION 11 OR SECTION 12 APPLY; OR ( G ) THE AMOUNT OF DEPRECIATION, ( H ) THE AMOUNT OF DEFERRED TAX AND THE PROVISION THEREFOR, ( I ) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET, ( J ) THE AMOUNT STANDING IN REVALUATION RESERVE RELATING TO REVALUED ASSET ON THE RETIREMENT OR DISPOSAL OF SUCH ASSET, IF ANY AMOUNT REFERRED TO IN CLAUSES (A) TO (I) IS DEBITED TO THE PROFIT AND LOSS ACCOUNT OR IF ANY AMOUNT REFERRED TO IN CLAUSE (J) IS NOT CREDITED TO THE PROFIT AND LOSS ACCOUNT, AND AS REDUCED BY, - ( I ) OR ( II ) THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISI ONS OF SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE ( 38 ) THEREOF)] OR SECTION 11 OR SECTION 12 APPLY, IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT; OR ( IIA ) .. ' [OTHER PORTIONS OF THE SECTION ARE NOT RELEVANT FOR THE PRESENT CASE]. 30. A READING OF THE PROVISIONS OF SEC.115JB(1) SHOWS THAT WHEN AN ASSESSEE IS A COMPANY AND THE INCOME - TAX, PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THIS ACT (UNDER THE NORMAL PROVISIONS OF THE ACT) IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IS LESS THAN PRESCRIBED PERCENTAGE (THIS PERCENTAGE KEEPS CHANGING FOR VARIOUS AYS) OF ITS BOOK PROFIT, SUCH BOOK PROFIT SHALL BE DEEMED TO BE THE TOTAL INCOME OF THE ASSESSEE AND THE TAX PAYABLE BY THE ASSESSEE ON SUCH TOTAL INCOME SH ALL BE THE AMOUNT OF INCOME - TAX AT THE RATE OF EIGHTEEN AND ONE - HALF PER CENT. BOOK PROFIT FOR THE PURPOSE OF SEC.115JB OF THE ACT HAS BEEN DEFINED BY EXPLN. - 1 BELOW SEC.115JB(2) AS NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIO US YEAR PREPARED IN ACCORDANCE WITH THE PROVISIONS OF PART II OF SCHEDULE VI TO THE COMPANIES ACT, 1956 (1 OF 1956). EXPLN.1 BELOW SEC.115JB(2) ALSO PROVIDES FOR CERTAIN ADDITIONS AND DEDUCTIONS FROM THE SAID PROFIT WHERE SUCH SUMS HAVE EITHER BEEN ADDED O R I.T.A. NO.: 1452/AHD/2012 ASSESSMENT YEAR: 2008 - 09 PAGE 13 OF 17 REDUCED WHILE ARRIVING AT THE PROFIT AS PER PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED IN ACCORDANCE WITH THE PROVISIONS OF PART II OF SCHEDULE VI TO THE COMPANIES ACT, 1956 (1 OF 1956). 31. IN THE PRESENT CASE WE ARE CONCERNED WITH ONE ITEM WHICH NEEDS TO BE ADDED TO THE TOTAL INCOME LAID DOWN IN THE FIRST PART OF EXPLN.1 CLAUSE (F) VIZ., THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF) OR SE CTION 11 OR SECTION 12 APPLY. ANOTHER ITEM WHICH NEEDS TO BE EXCLUDED TO THE TOTAL INCOME LAID DOWN IN THE SECOND PART OF EXPLN.1 CLAUSE (II) VIZ., THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISIONS OF SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CL AUSE (38) THEREOF) OR SECTION 11 OR SECTION 12 APPLY, IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT. 32. ON THE ISSUE OF REDUCING/EXCLUDING THE SHARE OF PROFITS FROM THE PROFIT AS PER THE P&L ACCOUNT, IN VIEW OF CLAUSE (II) TO EXPLANATION ( 1) TO SECTION 115JB(2) OF THE ACT, VIZ., THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISIONS OF SECTION 10, WE ARE OF THE OPINION THAT THE CONTENTIONS PUT FORTH BY THE ASSESSEE ARE ACCEPTABLE. IN THIS REGARD, WE ARE ALSO OF THE VIEW THAT DECISION RENDERED BY THE BANGALORE BENCH OF THE TRIBUNAL REFERRED TO BY THE LD. COUNSEL FOR THE ASSESSEE CLEARLY SUPPORTS THE STAND TAKEN BY THE ASSESSEE. WE, THEREFORE, CONCUR WITH THE VIEW OF THE CIT(APPEALS) ON THIS ISSUE AND FIND NO MERIT IN GROUND NO.4 RAISED BY THE RE VENUE. 33. AS FAR AS GROUND NO.3 IS CONCERNED, VIZ., THE ADDITION TO THE NET PROFIT AS PER PROFIT AND LOSS ACCOUNT EXPENDITURE INCURRED IN EARNING INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, U/S.10 OF THE ACT, IT IS SEEN THAT THE QUA NTUM OF EXPENDITURE DISALLOWED BY THE AO BY INVOKING THE PROVISIONS OF SEC.14A OF THE ACT WHILE COMPUTING TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT HAS NOT BEEN CHALLENGED BY THE ASSESSEE AND THE SAID DISALLOWANCE HAS BEEN ACCEPTED BY THE ASSESSE E. THE PROVISIONS OF SECTION 115JB EXPLANATION 1(F) LAY DOWN THAT THE AMOUNT OF EXPENDITURE RELATABLE TO INCOME TO WHICH SECTION 10 APPLIES, SHOULD BE ADDED TO THE PROFIT AS PER THE P&L ACCOUNT. SECTION 14A OF THE ACT R.W. RULE 8D OF THE RULES IS A REASONA BLE METHOD OF CALCULATING THE AMOUNT OF EXPENDITURE, IN A CASE WHERE THE ASSESSEE HAS NOT BEEN ABLE TO SATISFY THE AO REGARDING THE QUANTUM OF EXPENDITURE INCURRED IN EARNING INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IF THE ASSESSE E SATISFIES THE AO REGARDING THE QUANTUM OF EXPENDITURE INCURRED IN EARNING INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT THAN THAT CAN BE ADOPTED FOR THE PURPOSE OF ADDITION UNDER CLAUSE (F) OF EXPLN.1 BELOW SEC.115JB(2) OF THE ACT. RU LE 8D OF THE RULES COME INTO PLAY ONLY WHEN THERE IS NO OTHER BASIS FOR ARRIVING AT THE QUANTUM OF EXPENDITURE INCURRED IN EARNING INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. 34. IN OUR OPINION, THE QUESTION FORMULATED BY THE CIT(A) WHETHER SEC. 14A OF THE ACT READ WITH RULE 8D OF THE RULES CAN BE IMPORTED INTO THE PROVISIONS OF CLAUSE (F) TO EXPLANATION (1) TO SECTION 115JB OF THE ACT, IS ITSELF ERRONEOUS. THE QUESTION TO BE ASKED IS AS TO HOW TO GIVE EFFECT TO THE PROVISIONS OF CLAU SE (F) TO EXPLANATION (1) TO SECTION 115JB OF THE ACT. WE DO NOT THINK THAT THERE IS ANY PROHIBITION TO ADOPT THE DISALLOWANCE MADE BY THE AO U/S.14A OF THE ACT READ WITH RULE 8D OF THE RULES, WHILE COMPUTING TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT. THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT SECTION 14A OF THE ACT IS VERY SPECIFIC AND IS APPLICABLE ONLY FOR THE PURPOSE OF COMPUTING TOTAL INCOME UNDER CHAPTER IV OF THE ACT AND THAT SECTION 115JB APPEARS IN CHAPTER XII - B OF THE ACT DEALING WITH SPECIFIC PROVISIONS RELATING TO I.T.A. NO.: 1452/AHD/2012 ASSESSMENT YEAR: 2008 - 09 PAGE 14 OF 17 CERTAIN COMPANIES AND THEREFORE THE PROVISIONS OF SEC.14A READ WITH RULE 8D OF THE RULES CANNOT BE APPLIED WHILE MAKING ADDITION TO NET PROFIT AS PER PROFIT AND LOSS ACCOUNT U/S.115JB EXPLN.1 CLAUSE (F) OF THE A CT, BECAUSE THE EXPRESSION 'EXPENDITURE RELATABLE' IS USED IN SUB - CLAUSE (F) OF EXPLANATION (1) TO SECTION 115JB OF THE ACT WHEREAS EXPRESSION WITH THE EXPRESSION USED IN 14A OF THE ACT IS 'EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO' AND THEREFORE ONLY DIRECT EXPENDITURE ATTRIBUTABLE TO EARNING OF INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT CAN BE ADDED UNDER CLAUSE(F) OF EXPLN.1 BELOW SEC.115JB(2) OF THE ACT, CANNOT BE ACCEPTED. IN OUR VIEW, THERE IS NO DIFFERENCE BETWEEN THE EXPRESSION 'EXPENDITURE RELATABLE' AND THE EXPRESSION 'EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO'. BOTH THE EXPRESSIONS MEAN THAT WHATEVER EXPENDITURE ARE INCURRED TO EARN INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, BOTH D IRECT AND INDIRECT EXPENDITURE, HAVE TO BE DISALLOWED. THERE IS NO BASIS FOR THE ARGUMENT U/S. 115JB OF THE ACT, IT IS ONLY DIRECT EXPENSES THAT ARE CONTEMPLATED AS CAPABLE OF BEING ADDED TO THE PROFITS AS PER P&L ACCOUNT UNDER CLAUSE (F) TO EXPLN.1 BELOW SEC.115JB(2) OF THE ACT. 35. AS WE HAVE ALREADY SEEN, THE QUANTUM OF EXPENDITURE DISALLOWED BY THE AO BY INVOKING THE PROVISIONS OF SEC.14A OF THE ACT WHILE COMPUTING TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT HAS NOT BEEN CHALLENGED BY THE ASSESS EE AND THE SAID DISALLOWANCE HAS BEEN ACCEPTED BY THE ASSESSEE. IN SUCH CIRCUMSTANCES, WE DO NOT SEE ANY REASON WHY THE SAME DISALLOWANCE CANNOT BE ADOPTED WHILE ARRIVING AT THE BOOK PROFITS U/S.115JB (2) OF THE ACT READ WITH EXPLANATION 1(F) THERETO. IN O UR VIEW THE CIT(A) HAS FALLEN INTO AN ERROR IN COMING TO A CONCLUSION CONTRARY. WE THEREFORE REVERSE THE ORDER THE CIT(A) AND RESTORE THE ORDER OF THE AO IN THIS REGARD . 14. WE ARE IN CONSIDERED AGREEMENT WITH THE VIEWS SO EXPRESSED BY THE COORDINATE BENC H. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER NOT TO MAKE ANY DISALLOWANCE UNDER SECTION 14A WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB. 15. GROUND NO. 2 IS THUS ALSO ALLOWED. 1 6 . IN GRO UND NO.3, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE : - 3 . DISALLOWANCE OF FOREIGN TRAVEL EXPENDITURE RS.9,74,612/ - : 3 .1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED C I T(A) ERRED IN CONFIRMING 75% OF THE DISALLOWANCE M ADE BY THE ASSESSING OFFICER OF EXPENDITURE ON FOREIGN TRAVEL INCURRED BY THE APPELLANT PRESUMING IT TO BE FOR NON BUSINESS PURPOSES. I.T.A. NO.: 1452/AHD/2012 ASSESSMENT YEAR: 2008 - 09 PAGE 15 OF 17 17. SO FAR AS THIS DISALLOWANCE IS CONCERNED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF THE ASSES SMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS INCURRED EXPENDITURE OF RS 12,99,483 ON UK AND USA VISIT UNDERTAKEN BY MS Y R AMIN. IT WAS STATED BY THE ASSESSEE THAT THIS VISIT WAS UNDERTAKEN TO UNDERSTAND OPPORTUNITIES AVAILABLE IN E XPANDING AND DIVERSIFYING IN THE MARKETS. IT WAS ALSO STATED THAT MS AMIN HAD VISITED VARIOUS MANUFACTURING PLANTS AND INTERACTED WITH KEY PERSONNEL, TECHNOLOGY PROFESSIONALS AND CONSULTANTS ET. THE ASSESSING OFFICER WAS, HOWEVER, NOT CONVINCED WITH THESE EXPLANATIONS. HE WAS OF THE VIEW THAT NO TANGIBLE AD RELIABLE EVIDENCE WAS FILED TO PROVE THAT THE FOREIGN VISIT OF MS Y R AMIN WAS FOR ANY BUSINESS PURPOSE . THE EXPENSE WAS THUS DISALLOWED. IN APPEAL, LEARNED CIT(A) HELD THAT IN THE PRESENT CASE, TH E DETAILS OF VISIT WERE FURNISHED BUT THE SAME ARE NOT SUPPORTED BY THE VOUCHERS AND OTHER DOCUMENTARY EVIDENCES WHICH COULD SHOW THAT ASSESSEE ACTUALLY CARRIED OUT CERTAIN BUSINESS ACTIVITY DURING THE COURSE OF VISIT BUT CONSIDERING THE SUBMISSIONS MADE , THE ENTIRE VISIT CANNOT BE TERMED AS PERSONAL . HE ALSO NOTED THAT AS PER DECISIONS OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS SHAHIBAG ENTREPRENEURS [(1995) 215 ITR 810 (GUJ)] , A VISIT WHICH IS WHOLLY PERSONAL AND GRATUITOUS CAN BE DISAL LOWED. BASED ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF PARKAR SECURITIES LTD VS DCIT [(2006) 8 SOT 257 (AHD)] , WHICH WAS ON ITS OWN FACTS, DISALLOWED 75% OF THE EXPENSES AND ALLOWED THE DEDUCTION FOR 25% OF THE EXPENSES. THE ASSESSEE IS AGGRIEVED AN D IS IN APPEAL BEFORE US. 18. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITON. 19. WE HAVE NOTED THAT THERE IS NO DISPUTE, AS THE ASSESSING OFFICER IS NOT IN APPEAL AGAINST THE ORDER OF THE CIT(A), THAT THE VISIT IS UNDERTAKEN FOR SOME BUSINESS PURPOSE EVEN THOUGH THE DIRECTOR OF THE ASSESSEE HAS USED FOR PERSONAL PURPOSES AS WELL. IT IS NOT THUS EVEN THE CASE OF THE REVENUE AUTHORITIES THAT THE VISIT IS WHOLLY PERSONAL AND GRATUITOUS, AND IS DISALLOWABLE FOR THIS REASON - AS WAS THE CASE BEFORE HON BLE JURISDICTIONAL HI GH COURT IN THE CASE OF SHAHIBAG ENTREPRENEURS (SUPRA). IN THIS CASE AT BEST THERE IS AN ELEMENT OF PERSONAL EXPENSE BUT THEN, AS IS THE S ETTLED LEGAL POSITION IN THE LIGHT OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SAYAJI I.T.A. NO.: 1452/AHD/2012 ASSESSMENT YEAR: 2008 - 09 PAGE 16 OF 17 IRON & ENGINEERING CO LTD VS CIT [(2002) 253 ITR 749 (GUJ)] , NO DISALLOWANCE CAN BE MADE FOR THE REASON THAT THE EXPENSES ARE PERSONAL IN NATURE. EVEN IF AN EXPE NSE INCURRED IN THE COURSE OF BUSINESS GIVES PERSONAL BENEFIT TO A DIRECTOR, IT IS INCURRED IN THE COURSE OF BUSINESS AND IS ALLOWABLE AS SUCH AND CANNOT BE VIEWED AS A PERSONAL EXPENSE. IN THE LIGHT OF THE FINDINGS OF THE CIT(A), WHICH HAVE NOT BEEN CHALL ENGED BY THE ASSESSING OFFICER, THE FOREIGN VISIT WAS AT LEAST PARTLY FOR BUSINESS PURPOSES AND, THEREFORE, JUST BECAUSE THIS VISIT RESULTED IN, ASSUMING IT IS CORRECT, PERSONAL BENEFIT TO THE DIRECTOR, THE EXPENSES INCURRED ON THE VISIT CANNOT BE DISALLOW ED AS PERSONAL EXPENSES. THIS IS AT BEST EXPENSE OF THE ASSESSEE COMPANY WHICH RESULTED IN BENEFIT TO THE DIRECTOR. IN ANY EVENT, THERE IS NO MATERIAL WHATSOEVER TO COME TO THE CONCLUSION THAT 75% TIME ON THIS TRIP WAS USED FOR PERSONA L PURPOSES OF THE DI RECTOR. THE CASE RELIED UPON BY THE CIT(A) WAS A CASE IN WHICH A DETAILED ANALYSIS OF THE ACTIVITIES OF THE DIRECTOR WAS CARRIED OUT AND THEN THIS CONCLUSION WAS DRAWN. THERE IS NO SUCH MATERIAL ON RECORD IN THIS CASE. ONCE THE CIT(A) CAME TO THE CONCLUSIO N THAT THE TRIP WAS FOR SOME BUSINESS PURPOSES, IT WAS NOT OPEN TO HIM TO DENY ANY PART OF DEDUCTION FOR THESE EXPENSES - PARTICULARLY WHEN THERE IS NO MATERIAL TO HOLD THAT THE VISIT WAS FOR PERSONAL PURPOSES. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE OF RS 9,74, 612. 20. GROUND NO. 3 IS THUS ALSO ALLOWED 21. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT TODAY ON 27 TH DAY OF DECEMBER , 2016. SD/ - SD/ - S S GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, 27 TH DAY OF DECEMBER , 2016 . I.T.A. NO.: 1452/AHD/2012 ASSESSMENT YEAR: 2008 - 09 PAGE 17 OF 17 COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD