Dy. Commissioner of Income Tax, Circle-1(1), Hyderabad V. M/s. AP Industrial Development Corporation Ltd., Hyderabad

ITA 1475/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82375 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 08-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: A V RAGHURAM
• Keywords: Earning of tax free income; Source of fund

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SMT. P.MADHAVI DEVI, JUDICIAL MEMBER ITA NO. ASSESS - MENT YEAR APPELLANT RESPONDENT 1475/HYD/2013 1476/HYD/2013 1477/HYD/2013 2008 - 09 2009 - 10 2010 - 11 DY. COMMISSIONER OF INCOME - TAX CIRCLE 1(1), HYDERABAD M/S. AP INDUSTRIAL DEVELOPMENT CORPORATION LTD., HYDERABAD (PAN AABCA 7395 Q) 1561/HYD/2013 1562/HYD/2013 1563/HYD/2013 2008 - 09 2009 - 10 2010 - 11 M/S. AP INDUSTRIAL DEVELOPMENT CORPORATION LTD., HYDERABAD (PAN AABCA 7395 Q) DY. COMMISSIONER OF INCOME - TAX, CIRCLE - 1(1) HYDERABAD REVENUE BY : SHRI P.SOMA SEKHAR REDDY ASSESSEE BY : SHRI A.V.RAGHURAM DATE OF HEARING 25 .0 9 .2014 DATE OF PRONOUNCEMENT O R D E R PER BENCH : TH E S E SIX APPEALS THREE FILED BY THE ASSESSEE AND THE OTHER THREE FILED BY THE REVENUE - ARE CROSS APPEALS WHICH ARE DIRECTED AGAINST THREE SEPARATE ORDERS PASSED BY THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) II, HYDERABAD DATED 19.8.2013 FOR ASSESSMENT YEARS 2008 - 09, 2009 - 10 AND 2010 - 11, WHEREBY HE SUSTAINED PARTLY THE DISALLOWANCES MADE BY THE ASSESSING OFFICER UNDER S.14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D OF THE INCOME - T AX RULES, 1962. I TA NO. 1475 - 1477 & 1 561 - 1563/HYD/2013 M/S. AP INDUSTRIAL DEVELOPMENT CORPORATION LTD., HYDERABAD 2 2. THE A SSESSEE IN THE PRESENT CASE IS A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF INVESTMENT AND INDUSTRIAL FINANCE. IN THE RETURNS OF INCOME FILED FOR THE YEARS UNDER CONSIDERATION, DIVIDEND INCOME OF RS.2,17,05,447, RS.1,37,91,280 A ND RS.1,53,96,2364 WAS CLAIMED TO BE EXEMPT BY THE ASSESSEE UNDER S.10(34) OF THE ACT FOR THE ASSESSMENT YEARS 2008 - 09, 2009 - 10 AND 2010 - 11 RESPECTIVELY. IN THE COMPUTATION OF TOTAL INCOME FILED ALONGWITH THE SAID RETURNS, DISALLOWANCE OF RS.1 LAKH WAS O FFERED BY THE ASSESSEE UNDER S.14A ON ACCOUNT OF EXPENSES CLAIMED TO BE INCURRED FOR EARNING EXEMPT DIVIDEND INCOME IN EACH OF THE THREE YEARS UNDER CONSIDERATION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT T HE ASSESSEE HAS CLAIMED A DEDUCTION ON ACCOUNT OF INTEREST AMOUNTING TO RS.2,19,24,127, RS.47,79,539 AND RS.22 , 55,897 IN ASSESSMENT YEARS 2008 - 09, 2009 - 10 AND 2010 - 11 RESPECTIVELY. THE ASSESSING OFFICER, THEREFORE, REQUIRED THE ASSESSEE COMPANY TO EXPLAI N THE REASONS FOR NOT DISALLOWING ANY EXPENDITURE ON ACCOUNT OF INTEREST AS WELL AS OTHER ADMINISTRATIVE EXPENSES, WHICH MIGHT HAVE BEEN INCURRED FOR EARNING EXEMPT DIVIDEND INCOME, AS REQUIRED BY THE PROVISIONS OF S.14A READ WITH RULE 8D OF THE INCOME - TAX RULES. IN REPLY, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE COMPANY THAT NO EXPENDITURE WAS INCURRED BY IT FOR EARNING THE EXEMPT DIVIDEND INCOME. IT WAS SUBMITTED THAT THE ENTIRE AMOUNT OF TAX FREE INVESTMENT WAS MADE BY THE ASSESSEE OUT OF ITS OWN SH ARE CAPITAL AND RESERVES AND NO INTEREST BEARING BORROWED FUNDS WERE UTILISED FOR MAKING THE SAID INVESTMENTS. IT WAS POINTED OUT THAT ALL THE TAX FREE INVESTMENTS WERE MADE MANY YEARS AGO AND SINCE NO SUCH FRESH INVESTMENT WAS MADE DURING THE SUBSEQUENT YEARS WHEN THE INTEREST BEARING FUNDS WERE BORROWED, THERE WAS ACTUALLY NO EXPENDITURE INCURRED ON ACCOUNT OF INTEREST FOR EARNING THE EXEMPT INCOME. I TA NO. 1475 - 1477 & 1 561 - 1563/HYD/2013 M/S. AP INDUSTRIAL DEVELOPMENT CORPORATION LTD., HYDERABAD 3 3. THE CONTENTION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER. ACCORDING TO HI M, THE ASSESSEE WAS HAVING COMMON BANK ACCOUNT FOR ALL THE SOURCES OF FUNDS AND THEIR APPLICATION AND SINCE OWN FUNDS AND BORROWED FUNDS WERE MIXED UP, IT WAS NOT P OSSIBLE TO EXACTLY IDENTIFY THE SOURCE OF FUNDS UTILI S ED FOR MAKING THE IN VE STMENT IN TAX FREE BONDS/SHARES. HE HELD THAT THE NATURAL PRESUMPTION IN THESE CIRCUMSTANCE S WAS THAT THE BORROWED FUN D S WERE ALSO UTI LI SED PARTLY BY THE ASSESSEE FOR MAKING TAX FREE INVESTMENTS AND THE DISALLOWANCE TO BE MADE UNDER S.14A WAS REQUIRED TO B E COMPUTED AS PER CLAUSE (II) AND (III) OF RULE 8D (2) OF INCOM E - TAX RULES, 1962. ACCOR D INGLY HE COMPU T ED THE DISALLOWANCE TO BE MADE UNDER S.14A BY APPLYING RULE 8D AT RS. 1,56,07,096. RS.57,27,670 AND RS.45,28,823 FOR ASSESSMENT YEARS 2008 - 09, 2009 - 10 AND 2010 - 11 R ESPECTIVELY AS UNDER - COMPUTATION OF DISALLOWANCE MADE BY ASSESSING OFFICER FOR ASSESSMENT YEAR 2008 - 09 (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO EXEMPTED INCOME NIL (II ) INTEREST EXPE NDITURE WHICH IS NOT DIRECTLY ATTRIBUTABLE TO PARTICULAR R E CEIP T IS WORKED OUT AS BELOW: A ) I NTEREST EXPENDITURE DURING THE Y E AR R S.2,17,05,447/ - INVESTMENT AS ON 01.04 - 2008 IS RS. 79.52 CR. INVESTMENTS AS ON 31 - 03 - 2007 IS RS.112.10 CR. B)THE AVERAGE VALUE OF INVESTMENT IS RS. 95.81 CR. C) THE AVERAGE VALUE FO TOTAL ASSETS RS.192.26 CR. A X B = 21705447 X 95.81 C 192.26 RS.1,08,16,596 (III) ON E - HALF PERCENT OF AVERAGE VALUE OF IN VE STMENT IS ( RS.95.81 X 0.5%) RS. 47,90,500 TOTAL DISALLO W ANCE RS.1,56,07,096 . I TA NO. 1475 - 1477 & 1 561 - 1563/HYD/2013 M/S. AP INDUSTRIAL DEVELOPMENT CORPORATION LTD., HYDERABAD 4 COMPUTATION OF DISALLOWANCE MADE BY ASSESSING OFFICER FOR ASSESSMENT YEAR 200 9 - 1 0 (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO EXEMPTED INCOME NIL (II ) INTEREST EXPENDITURE WHICH IS NOT DIRECTLY ATTRIBUTABLE TO PARTICULAR R E CEIP T IS WORKED OUT AS BELOW: A ) I NTEREST EXPENDITURE DURING THE Y E AR R S. 47,79,539 / - B)THE AVERAGE VALUE OF INVESTMENT IS RS. 76 . 48 CR. C) THE AVERAGE VALUE FO TOTAL ASSETS RS.1 8 2. 4 6 CR. A X B = 4779539 X 76.48 C 1 8 2. 4 6 RS. 20,03,392/ - (III) ONE - HALF PERCENT OF AVERAGE VALUE OF IN VE STMENT IS ( RS. 76.48 X 0.5%) RS. 38,24,278/ - TOTAL DISALLO W ANCE RS. 58,27,670/ - LESS : DISALLOWED BY THE ASSESSEE RS. 1,00 ,000/ - NET DISALLOWANCE RS.57,27,670/ - . COMPUTATION OF DISALLOWANCE MADE BY ASSESSING OFFICER FOR ASSESSMENT YEAR 20 1 0 - 1 1 (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO EXEMPTED INCOME NIL (II ) INTEREST EXPENDITURE WHICH IS NOT DIRECTLY ATTRIBUTABLE TO PARTICULAR R E CEIP T IS WORKED OUT AS BELOW: A ) I NTEREST EXPENDITURE DURING THE Y E AR R S. 22,55,897 / - B)THE AVERAGE VALUE OF INVESTMENT IS RS. 74,40 ,33,738/ - . C) THE AVERAGE VALUE FO TOTAL ASSETS RS. 184,71,96,372/ - A X B = 22,55,897 X 74,40,33,738 C 184,71,96,372 RS. 9,08,654/ - (III) ONE - HALF PERCENT OF AVERAGE VALUE OF IN VE STMENT IS ( RS. 74,40,33,738 X 0.5%) RS. 37,20,169/ - TOTAL DISALLO W ANCE RS. 46,28,823 / - LESS : DISALLOWED BY THE ASSESSEE RS. 1,00,000/ - NET DISALLOWANCE RS. 4 5, 28 , 823 / - . I TA NO. 1475 - 1477 & 1 561 - 1563/HYD/2013 M/S. AP INDUSTRIAL DEVELOPMENT CORPORATION LTD., HYDERABAD 5 4 . THE DISALLOWANCE MADE BY THE A SSESSING OFFICER UNDER S.14A, COMPU T ED AS ABOVE IN EACH OF THE YEARS UNDER CONSIDERATION, BY APPLYING RULE 8D, WAS CHALLENGED BY THE ASSESSEE IN TH E APPEALS FILED BEFORE THE LEARNED CIT(A), AND THE FOLLOWING SUBMISSIONS WERE MADE ON BEHALF OF THE ASSESSEE BEFORE THE LEARNED CIT(A) IN SUPPORT OF THE STAND THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER S.14A IS NO T SUSTAINABLE : . ( A ) THE INVESTMENTS HAVE BEEN MADE OUT OF SHARE CAPITAL AND RESERVES AND NO BORROWINGS HAVE BEEN MADE FOR THE PURPOSE O F INVESTMENT IN SHARES. HENCE THERE IS NO INTEREST COST ATTRIBUTABLE FOR THE INVESTMENT. ( B ) DU E TO AP G O VERNMENTS DIRECTION TO WIND UP OR MERGE THE CORPORATION WITH ANOTHER SIMILAR CORPORATION, THE ASSESSEE CORPORATION HAS NOT BEEN MAKING ANY FRESH INVESTM ENTS SINCE MORE THAN 6 YEARS. THE LOANS BORROWED AND OUTSTANDING ARE USED ONLY FOR THE REGULAR BUSINESS OF THE CORPORATION. HENCE NO PART OF THE INTEREST EXPENDITURE IS ATTRIBUTABLE TO INVESTMENTS. ( C ) SINCE THE IN V ESTMEN T S HAVE BEEN MADE MANY YEARS AGO AND FURTHER SIN C E NO FRESH INVESTMENTS ARE BEIN G MADE, THE CORPO R ATION HAS NO T INCURRED ANY EXPENDITURE DURING THE Y E AR TO EARN THE DIVIDEND INCOME. NO EXPENDITURE IS ALSO INCURRED TO RECEIVE THE DIVIDEND AS I T I S ELECTRONICALLY CRE D ITED TO THE B A NK ACCOUNT O F THE CORPORATION BY TH E COMPANIES DECLARING DIVIDEND. ( D ) IN THE ASSESSMENT YEAR 2004 - 05 THE APPELL A TE T R IBUNAL VIDE I T S ORDER D A TED 09.01.2009 DISCUSSED AT L E N G TH THE ORDER OF SPECIAL BENCH IN DAGA CAPI T AL MAN A GEMENT PVT. LTD. AND HELD THAT THE SAID DECISIO N I TA NO. 1475 - 1477 & 1 561 - 1563/HYD/2013 M/S. AP INDUSTRIAL DEVELOPMENT CORPORATION LTD., HYDERABAD 6 IS NO T APPLI C ABLE TO THE FACTS OF THE ASSESSEES CASE AND UPHELD THE DISALLOWANCE AT R S .50,000 ONLY. ( E ) SECTION14A DOES NO T CONFER ANY AUTHORITY UPON THE ASSESSING OFFICER TO DEEM OR ASSUME CERTAIN EXPENDITURE TO HAVE BEEN INCURRED IN R E L A TION TO TAX - FREE IN C OM E . COMMON EXPENDITURE INCURRED AT THE H E AD OFFICE CANNO T B E BROKEN UP ARTIFICIALLY TO ATTRIBUTE OR APPORTION A PART THEREOF TO THE EARNING OF TAX - FREE INCOME ON THE ASSUMPTION THAT SUCH PART OF THE COMMON EXPENDITURE WAS INCURRED IN RELATION TO THE T AX - FREE INCOME. NOT ONLY THE INCURRING (I.E. FACTUAL SPENDING ) OF THE EXPENDITURE BUT ALSO ITS RELATIONSHIP TO THE EXEMPT INCOME MUST BE CLEAR AND MUST BE CAPA B LE OF B E IN G ASCERTAINED ON THE FACE OF IT WITHOUT INVOLVING ANY FURTHER MENTAL EXERCISE. THE B URDEN WOULD SEEM TO BE ON THE ASSESSING OFFICER TO NOT ONLY SHOW TH A T SOME EXPENDITURE WAS FACTUALLY INCURRED BUT ALSO TO SHOW ITS RELATIONSHIP WITH THE INCOME EXEMPT FROM TAX WIMCO SEEDLINGS LTD. V. DY. CIT(2007)107 ITD 267(DELHI - TRIB)(TM) ALSO SEE IMPU LSE INDIA P. LTD. V. ASSTT. CIT(2008) 22 SOT 368(DELHI - TRIB) / DLF LTD. V. CIT(2009) 27 SOT 22 (DELHI TRIB) ( F ) IN THE ASSESSMENT YEAR 2008 - 09 IT WAS ESTABLISHED BEFORE THE ASSESSING OFFICER THAT THE LOAN OF RS.23.3 CRORES FROM STATE BANK OF HYDERABAD WAS B ORROWED FOR THE PU R PO S E O F REPAYMENT OF TERM LOAN FROM PUNJAB NATIONAL BANK WHICH WAS BORROW E D FOR REGULAR BUSIN E SS OP ER ATIONS AND NO T FOR MAKING INVESTMENTS BY FILING COPY OF SANCTION LETTERS, BOARD NO T E AND BOARD RESOLUTIONS. ( G ) AS STATED EARLIER THE CORPOR ATION WAS NO T MAKING FRESH INVESTMENTS AND ON THE O T H E R HAND IT WAS REDUCING THE I TA NO. 1475 - 1477 & 1 561 - 1563/HYD/2013 M/S. AP INDUSTRIAL DEVELOPMENT CORPORATION LTD., HYDERABAD 7 IN V ESTMENTS. THE INVESTMENTS HAVE COME DOWN FROM RS.117.12 CRORES AS ON 31.03.2006 TO RS.73.45 CRORES AS ON 31.03.2009. 5 . AFTER CON S ID E RING THE SUBMI S SION S MADE BY THE AS SESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LEARNED CIT(A) HELD THAT DISSATISFACTION AS REGARDS THE CORRECTNESS O F THE CLAIM OF THE ASSESSEE OF HAVING INCURRED NO EXPENDITURE FOR EARNING EXEMPT INCOME WAS CLEARLY RECODED BY THE ASSESSING OFFI CER IN TH E ASSESSMENT ORDER AND TH E R E FORE , THE FUNDAMENTAL REQUIREMENT TO PROCEED TO APPLY RULE 8D WAS DULY SATISFIED BY THE ASSESSING OFFICER. HE , THER E FORE, OVERRULED THE PRELIMINARY OBJECTION R AISED BY TH E ASSESSEE AS REGARDS THE APPLICATION OF RUL E 8D BY TH E ASSESSING OFFICER TO COMPU T E THE DISALLOWANCE TO BE MADE UNDER S.14A. THE LEARNED CIT(A) HOWEVER FOUND MERIT IN THE CONTENTION RAISED ON BEHALF OF TH E ASSESSEE THAT NO FR E SH TAX FREE INVESTMENT HAVING BEEN MADE BY IT AFTER THE FINANCIAL Y E AR 200 5 - 06, NO IN T EREST PAID ON TH E LOANS TAKEN BY THE ASSESSEE COMPANY AF T ER THE FINANCIAL YEAR 2005 - 06 COULD BE CONSIDERED FOR THE PU R PO S E OF MAKING DISALLOWANCE UNDER S.14A. H E ALSO ACCEPTED THE CONTENTION OF THE ASSESSEE THAT IN T ER E ST PAID BY IT WHICH WAS DIRECTLY RELATABLE TO ANY OTHER TAXABLE INCOME COULD NO T BE CON S I DE RED FOR MAKING DISA L LO W ANCE UNDER S.14A READ WITH RULE 8D. ACCOR D INGLY, HE DIRECTED THE ASSESSING OFFICER NOT TO CONSIDER SUCH INTEREST WHILE MAKING DISALLOWANCE UNDER S.14A ON ACCOUNT O F INTER E ST AS P E R RUL E 8D( 2 ) . AS REGARDS THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AS P E R RUL E 8D (2)( III ) , THE LEARNED CIT(A) HELD THAT THE SAID DISALLOWANCE ON ACCOUNT O F IN T ER E ST M AD E BY THE ASSESSING OFFICER BASED ON TH E QUANTUM OF INV E STMENT WAS CORRECT AND THE SAME WAS AC C ORDINGLY CONFIRMED BY THE LEARNED CIT(A). I TA NO. 1475 - 1477 & 1 561 - 1563/HYD/2013 M/S. AP INDUSTRIAL DEVELOPMENT CORPORATION LTD., HYDERABAD 8 6. THE LEARNED CIT(A) THUS PARTLY SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER S.14A BY APPLYING RULE 8D FOR ALL TH E THREE YE A RS UNDER CONSIDERATION, AND AGGRI E VED B Y THE ORDERS OF THE LEARNED CIT(A), THE REVENUE AS WELL AS THE ASSESSEE ARE IN APPEAL B E FORE THE TRIBUNAL. REVENUES APPEALS: 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IN ITS APPEALS, THE R E VE NUE HAS RAISED THE SOLITARY COMMON ISSUE CHALLENGING THE RELI E F ALLOWED BY THE LEARNED CIT(A) TO THE ASSESSEE, IN TERMS OF DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER S.14A ON ACCOUNT O F IN T ER E ST AS COMPUTED BY APPLYING RULE 8D (2)( II). I N THIS REGAR D, I T IS OBSERVED THAT THE ENTIRE INVESTMENT FETCHING TAX FREE RETURN IN THE FORM OF DIVIDEND WAS CLAIMED TO BE MADE BY THE ASSESSEE COMPANY UPTO FINANCIAL YEAR 2005 - 06, AND AFTER VERIFYING THIS FACTUAL POSITION, THE LEARNED CIT(A) DIRECTED THE ASSESSING O FFICER NO T TO CONSIDER INTER E ST PAID BY THE ASSESSEE ON THE FUNDS BORROWED AFTER THE FINANCIAL YEAR 2005 - 06 FOR THE PURPOSE OF MAKING DISALLOWANCE UNDER S.14A OF THE ACT. SIMILARLY, HE FOUND THAT CERTAIN INTEREST EXPENDITURE WAS INCURRED BY THE ASSESSE E DIRECTLY IN RELATION TO EARNING OF TAXABLE INCOME AND THE ASSESSING OFFICER WAS ACCORDINGLY DIRECT E D BY HIM NO T TO CONSIDER SUCH INTER E ST WHIL E COMPU T IN G THE DISALLOWANCE TO BE MADE UNDER S.14A BY APPLYING RULE 8D (2) (II). AT THE TIME OF H E ARING BEFORE U S, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT BEEN ABLE TO REBUT OR CON T ROVERT THE FIN D IN G S RECORDED BY THE LEARNED CIT(A), WHICH F ORMED THE BASIS OF RELIEF ALLOWED BY HIM TO THE ASSESSEE . W E, TH E R E FORE, FIND NO JUSTIFIABLE REASON TO INTERFERE WITH TH E IMPUGNED O R DER S OF TH E LEARNED CIT(A) IN DI R ECTIN G THE ASSESSING OFFICER NOT TO CONSIDER THE INTER E ST PAID BY TH E ASSESSEE ON TH E LOANS I TA NO. 1475 - 1477 & 1 561 - 1563/HYD/2013 M/S. AP INDUSTRIAL DEVELOPMENT CORPORATION LTD., HYDERABAD 9 BORROWED AFTER THE FIN A NCIAL Y E AR 2005 - 06 AND ALSO THE IN T ER E ST DIRECTLY RELATING TO ANY OTHER TAXABLE INCOME, WHILE COMPU T IN G THE DISALLOWANCE UNDER RULE 8D(2 ) . THE SAME ARE ACCOR D IN G LY UPHELD ON THIS ISSUE AND THE APPEALS OF THE REVENUE ARE DISMISSED. ASSESSEES APPEALS: 8. IN ITS AP PE ALS, THE SOLITARY COMMON ISSUE RAISED BY THE ASSESSEE COMPANY IS REG ARD ING DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER S.14A AS PER RUL E 8D (2) (III), WHICH HAS BEEN CONF I RME D BY TH E LEARNED CIT(A) . IN THIS REGARD, I T IS OB S ERV E D THAT THE METHOD FOR DETERMINING THE A M OUN T OF EXPENDITURE IN R E L A TION TO INCOME NOT IN C LU D IBL E I N TOTAL IN C OM E FOR THE PURPOSE OF S.14A IS PR E S C RIBED IN RULE 8D, W HICH I S APPLICABLE FROM ASSESSMENT YEAR 2008 - 0 9. AS PER THE SAID RULE, THE AMO U N T OF EXPENDITURE DIRECTLY RELATABLE TO THE E ARNING OF E X EMPT INCOME IS TO B E TAKEN AS P E R CLAU S E (I) OF SUB - R UL E (2) OF RULE 8D, WHIL E EXPENDITURE IN D I RE CTLY I N C U R RED BY WAY OF I N T EREST AND OTHER HEADS IS REQUIRED TO B E WORKED OUT AS PER CLAUSE (II) AND ( III) RESPECTIVELY OF RULE 8D(2) . FINALLY , ALL THESE THREE AMOUNTS TAKEN/CALCULATED AS PER SUB - CLAUSE (I) , (I I) AND ( III) OF RUL E 8D(2) ARE TO BE AGGREGAT E D FOR COMPU T IN G THE DISALLOWANCE TO B E MADE UNDER S.14A. RUL E 8 D(2)(III) THUS DEALS WITH EXPENDITURE OTHER THAN INTER E ST INCURRED BY THE ASSESSEE, WHICH IS INDIRECTLY ATTRIBUTABLE TO THE EARNING OF EXEMPT INC OME AND A FORMULA IS GIVEN THEREIN TO CALCULATE THE SAME. IN TH E PR E SENT CASE, A STAND WAS TAKEN BY TH E ASSESSEE BEFORE THE ASSESSING OFFICER THAT NO EXPENDITURE WAS INCURRED BY IT FOR EARNING EXEMPT INCOME, WH E REAS IN THE COMPUTATION OF TOTAL INCOME ASS ESSEE COMPA N Y ITSELF HAD OFFERED A DISALLOWANCE UNDER S.14A OF RS.1 LAKH IN EACH OF THE THREE Y E ARS UNDER CONSIDERATION , THEREBY ACCEPTING THAT CERTAIN EXPENDITURE WAS INCURRED BY IT IN R E L A TION TO THE EARNING OF EX E MPT INCOME. A CONTRADICTORY STAND THUS W AS TAKEN BY TH E I TA NO. 1475 - 1477 & 1 561 - 1563/HYD/2013 M/S. AP INDUSTRIAL DEVELOPMENT CORPORATION LTD., HYDERABAD 10 ASSESSEE ON THIS I S SUE . M OREOVER, NO DETAILS WERE FILED BY IT SHOWING THE B A SIS FOR WORKING OUT THE DISALLOWANCE AT RS.1 - LAKH OFFERED UN D ER S.14A. A PERUSAL O F TH E ASSESSMENT ORDER ALSO SHOWS T H A T THE ISSUE OF OTHER EXPENSES INDIRECTLY AT TRIBUTABLE TO THE EARNING OF EXEMPT INCOME WAS NO T SEPARATELY DISCUSSED BY TH E ASSESSING OFFICER AND THERE WAS NO FINDING GIVEN BY HIM ON THIS ASPECT. ALTHOUGH THE LEARNED CIT(A) HAS OBSERVED IN HIS IMPUGNED ORDER THAT DISSATISFACTION W AS RECORDED BY T HE ASSESSING OFFICER AS R E GARDS THE CORRECTNESS OF THE CLAIM O F TH E ASSESSEE OF H A VING NOT INCURRED ANY EXPENDITURE FOR E ARNIN G THE EXEMPT INCOME, WE FIND THAT THERE IS NO SUCH FINDING SPECIFICALLY RECORDED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDE R. AS ALRE A DY NO T ED BY US, THE ASSESSEE HAS ALSO TAKEN CON T RADI C TORY STAND ON THIS ISSUE AND IN THE ABSENCE OF ANY DETAILS FILED BY IT, GIVING THE BASIS OF DISALLOWANCE OF R S .1 LAKH OFFERED IN TH E COMPUTATION OF TOTAL INC O ME , TH E RE WAS NO OCCASION FOR THE ASSESSING OFFICER TO RECORD HIS SATISFACTION OR DISSATISFACTION ABOUT THE CORRECTNESS O F TH E CL A IM OF TH E ASSESSEE ON THIS ASPECT. HA V ING REGARD TO ALL THESE FACTS OF THE CASE , CLEAR L Y BORNE OUT F R OM THE RECORD, WE ARE OF THE VIEW THAT IT WOULD BE FAIR AND PROP E R TO R E STORE THIS MATTER TO THE FILE OF TH E ASSESSING OFFICER FOR DECIDING THE SAME AFRESH IN ACCOR D ANC E WI T H LAW, AFTER GIVING THE ASSESSEE A PROPER AND SUFFICIENT OPPORTUNITY OF BEIN G HEARD. ACCOR D INGLY, THE IMPU G N E D ORDER OF THE LEARNED CIT(A) ON THIS ISSUE IS SET ASIDE AND THE M A TTER I S RESTORED TO THE FIL E O F THE ASSESSING OFFICER FOR DECIDING THE ISSUE IN R E L A TION TO THE DISALLOWANCE TO BE MADE UNDER S.14A ON ACCOUNT OF OTH E R EXPENSES AS PER RUL E 8D(2)(III) AFR E SH. THE APPEALS O F THE ASSESS EE ARE ACCOR D INGLY TR E ATED AS ALLOWED FOR STATISTIC A L PURPOSE S . 9. TO SUM UP, APPEALS OF THE REVENUE ARE DISMISSED AND THE APPEALS OF THE ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. I TA NO. 1475 - 1477 & 1 561 - 1563/HYD/2013 M/S. AP INDUSTRIAL DEVELOPMENT CORPORATION LTD., HYDERABAD 11 ORDER PRONOUNCED IN THE COURT ON 30 TH SEPTEMBER, 201 4 SD/ - SD/ - ( P.MADHAVI DEVI) ( P.M.JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/ - 30 TH SEPTEMBER , 2014 COPY FORWARDED TO: 1. M/S. AP INDUSTRIAL DEVELOPMENT CORPORATION LTD., 5 - 9 - 58B, POST BOX 25, PARISHRAM BHAVAN, FATEH MAIDAN ROAD, BASHEE RBAGH HYDERABAD 2 . DY. COMMISSIONER OF INCOME - TAX CIRCLE 1(1), HYDERABAD 3. 4. COMMISSIONER OF INCOME - TAX(APPEALS) II, HYDERABAD COMMISSIONER OF INCOME - TAX I, HYDERABAD (SIX COPIES) 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S