DCIT 10(2), MUMBAI V. GODREJ AGROVET LTD, MUMBAI

ITA 152/MUM/2012

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3587 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2016
• Appeal Filed By: Department
• Bench Allotted: G
• Next Hearing Date: 10-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 06-01-2012
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Proportionate interest; Retrospective amendment; Commercial expediency; Revised return; Reason to believe
• Section: 14A; 115JB; 147; 154

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO.8489/MUM/2011 ASSESSMENT YEARS:2008-09 M/S GODREJ AGROVET LTD., C/O- KALYANIWALLA & MISTRY ARMY & NAVY BUILDING, 3 RD FLOOR, 148. M.G. ROAD, MUMBAI-400001 VS DCIT-10(2), AAYAKAR BHAVAN M.K.ROAD, MUMBAI-400020 ( /ASSESSEE) ( ! / REVENUE) PAN. NO. AAACG0617Q ITA NO.152/MUM/2012 ASSESSMENT YEAR: 2008-09 DCIT-10(2), AAYAKAR BHAVAN M.K.ROAD, MUMBAI-400020 VS M/S GODREJ AGROVET LTD., C/O- KALYANIWALLA & MISTRY ARMY & NAVY BUILDING, 3 RD FLOOR, 148. M.G. ROAD, MUMBAI-400001 ( ! / REVENUE) ( /ASSESSEE) PAN. NO.AAACG0617Q ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 2 ITA NO.1278/MUM/2013 ASSESSMENT YEARS:2009-10 DCIT-10(2), AAYAKAR BHAVAN M.K.ROAD, MUMBAI-400020 VS M/S GODREJ AGROVET LTD., C/O- KALYANIWALLA & MISTRY ARMY & NAVY BUILDING, 3 RD FLOOR, 148. M.G. ROAD, MUMBAI-400001 ( ! / REVENUE) ( /ASSESSEE) PAN. NO.AAACG0617Q !$ % & / DATE OF HEARING : 10/05/2016 % & / DATE OF ORDER: 05/07/2016 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE AS WELL AS THE REVENUE IS IN CROSS FOR ASSESSMENT YEAR 2008-09, WHEREAS, THE REVENUE HAS PREFERRED APPEAL FOR ASSESSMENT YEAR 2009-10 AGAINS T THE RESPECTIVE ORDERS OF THE LD. FIRST APPELLATE AUTHOR ITY, MUMBAI. 2. FIRST, WE SHALL TAKE UP THE APPEAL OF THE ASSE SSEE FOR ASSESSMENT YEAR 2008-09 (ITA NO.8489/MUM/2011), / ASSESSEE BY SHRI AKRAM KHAN, JITENDRA JAIN & SHRI RAUNAK VARDHAN ! / REVENUE BY SHRI S.K. BEPARI-DR ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 3 WHEREIN, GROUND NUMBERS 1 TO 8, RAISED IN THE GROUN DS OF APPEAL, ARE WITH RESPECT TO DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT), AMOUNTI NG TO RS.13,66,300/- AND FURTHER IN UPHOLDING DISALLOWANC E OF RS.24,41,598/- UNDER RULE-8D(2)(III) OF THE RULES. THE CRUX OF ARGUMENT ADVANCED ON BEHALF OF THE ASSESSEE BY S HRI AKRAM KHAN & RAUNAK VARDHAN, IS THAT INVESTMENT WAS MADE OUT OF OWN FUNDS AND NOT FROM THE BORROWED FUN DS. OUR ATTENTION WAS INVITED TO PAGE-12 OF THE ASSESSM ENT ORDER, WHEREIN, WORKING OF AVERAGE VALUE OF INVESTMENT HAS BEEN PROVIDED. IT WAS POINTED OUT THAT FOR ASSESSMENT Y EAR 2005- 06 (VIDE ORDER IN ITA NO.1629/MUM/2009), THE ISSUE OF DISALLOWANCE MADE OUT OF INTEREST EXPENDITURE (PAGE -3, PARA- 5 ONWARDS OF THE ORDER) WAS DISCUSSED AND DECIDED I N FAVOUR OF THE ASSESSEE, BY FURTHER EXPLAINING THAT ITEM NO . 2 & 3 WERE CONFIRMED BY HONBLE BOMBAY HIGH COURT. PLEA WAS ALSO RAISED THAT THERE WAS STRATEGIC INVESTMENT BY THE ASSESSEE FOR WHICH CERTAIN CASE LAWS (AVAILABLE AT PAGES 59 TO 130 OF THE PAPER BOOK) WERE RELIED UPON. IT WAS ALS O PLEADED THAT THERE ARE ONLY THREE TRANSACTIONS DURING THE Y EAR AND ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 4 OWN BUSINESS WAS DEMERGED, WHERE ASSESSEE GOT THE S HARES OUT OF NON-CASH TRANSACTIONS. THE LD. COUNSEL EXPLA INED THAT WITH RESPECT TO ONE COMPANY, THE ASSESSING OFFICER ACCEPTED THE VERSION OF THE ASSESSEE(ASSESSMENT YEAR 2008-09 ) AND IN ASSESSMENT YEAR 2007-08, THE LD. COMMISSIONER OF IN COME TAX (APPEAL) HIMSELF ALLOWED THE CLAIM OF THE ASSES SEE, AGAINST WHICH NO APPEAL WAS FILED BY THE DEPARTMENT . THIS FACTUAL MATRIX WAS CONSENTED TO BE CORRECT BY THE L D. DR, SHRI S.K. BEPARI. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT FOR ASSESSMENT YEAR 2005-06 (ITA NO.1629/MUM/2009), THE TRIBUNAL VIDE ORDER DATED 17/09/2010, WHILE ADJUDIC ATING GROUNDS NUMBER 5 TO 7, RELATING THE DISALLOWANCE MA DE OUT OF INTEREST EXPENDITURE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT DECIDED IN FAVOUR OF THE ASSESSEE. THE R ELEVANT PORTION FROM THE AFORESAID ORDER IS REPRODUCED HERE UNDER FOR READY REFERENCE AND ANALYSIS:- 3. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SI DES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBS ERVED THAT SIMILAR ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 5 ISSUES INVOLVED IN ASSESSEES OWN CASE FOR THE EARL IER YEARS I.E. A.Y. 2003-04 & 2004-05 HAVE BEEN DECIDED BY THE TRI BUNAL IN ASSESSEES OWN CASE VIDE ITS COMMON ORDER DATED 10. 9.2009 PASSED IN ITA NO. 6807/M/06 AND 6233/M/07. A COPY O F THE SAID ORDER IS PLACED ON RECORD AND A PERUSAL OF THE SAME SHOWS THAT SIMILAR ISSUES HAVE BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE FOR THE FOLLOWING REASONS GIVEN IN PARA NO . 18 OF THE SAID ORDER: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. READING OF PROVISIONS OF SECTION 43(6) CLAUSE (C)(B) SHOWS THA T WDV OF BLOCK ASSET CAN BE REDUCED ONLY IN THE CASE OF SALE, DISCARDING OR DEMOLITION OR DESTRUCTION OF AN ASSET FORMING PART OF BLOCK ASSET S. IT IS NOT IN DISPUTE THAT GOODWILL AND NON-COMPETE FEES ALREADY FORMED P ART OF BLOCK OF ASSETS AND DEPRECIATION HAD BEEN ALLOWED ON THE SAM E IN THE PAST. DURING THE PREVIOUS YEAR, THERE WAS NO SALE, DISCAR DING, DEMOLITION OR DESTRUCTION OF THE SAME. IN SUCH CIRCUMSTANCES, IT WAS NOT WITHIN THE POWER OF THE ASSESSING OFFICER TO MAKE ADJUSTMENT T O THE WDV OF THE BLOCK OF ASSETS. EVEN ON THE PRINCIPLE OF CONSISTE NCY CLAIM ALLOWED TO THE ASSESSEE IN THE PAST SHOULD NOT BE DENIED IN TH E LATER YEAR WHEN THE FACTS AND CIRCUMSTANCES OR THE LAW HAS NOT CHANGED. DECISIONS IN THE CASE OF YAMAHA MOTORS INDIA P. LTD. (SUPRA) AND SRF LTD. (SUPRA) SUPPORT THE PLEA OF THE ASSESSEE IN THIS REGARD. W E, THEREFORE, HOLD THAT THE ACTION OF THE REVENUE AUTHORITIES IN DISALLOWIN G DEPRECIATION IN RESPECT OF GOODWILL AND NON-COMPETE FEE WAS NOT PRO PER. 4. AT THE TIME OF HEARING BEFORE US, THE LD. D.R. HAS SOUGHT TO SUPPORT THE REVENUES CASE ON THESE ISSUES BY CONTE NDING THAT THE CLAIM OF THE ASSESSEE FOR DEPRECIATION ON GOODWILL AND NON- COMPETE FEES IS NOT ALLOWABLE ON MERIT. HOWEVER, AS IT IS CLEARLY EVIDENT FROM THE RELEVANT PORTION OF THE TRIBUNALS ORDER DTD. 10.9.09(SUPRA) REPRODUCED HEREINABOVE, THE CLAIM OF THE ASSESSEE FOR DEPRECIATION ON GOODWILL AND NON-COMPETE FEES H AS BEEN ALLOWED BY THE TRIBUNAL BY APPLYING THE RULE OF CON SISTENCY AS WELL AS RELYING ON THE CONCEPT OF BLOCK OF ASSETS . AS THE ISSUES INVOLVED IN THE YEAR UNDER CONSIDERATION AS WELL AS ALL THE MATERIAL ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 6 FACTS RELEVANT THERETO ARE ADMITTEDLY SIMILAR IN A. Y. 2003-04 AND 2004-05, WE RESPECTFULLY FOLLOW THE ORDER OF THE TR IBUNAL DTD. 10.9.09 (SUPRA) AND DELETE THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF ASSESSEE S CLAIM FOR DEPRECIATION ON GOODWILL AND NON-COMPETE FEES. GRO UND NO. 1 TO 3 OF THE ASSESSEES APPEAL ARE ACCORDINGLY ALLOWED. 5. THE ISSUES RELATING TO THE DISALLOWANCE MAD E BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) OUT OF INTEREST EXP ENSES AND OTHER EXPENSES BY INVOKING THE PROVISIONS OF SECTION 14A ARE RAISED BY THE ASSESSEE IN GROUND NO. 4 TO 8 OF THIS APPEAL WH ICH READ AS UNDER:- 4) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT DISALLOWANCE UNDER SECTION 14A WAS REQ UIRED TO THE COMPUTED AS PER RULE 8D. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT RULE 8D WAS RETROSP ECTIVE IN NATURE AND APPLICABLE TO THE ASSESSMENT YEAR UNDER CONSIDERATI ON. 5) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING THE DISALLOWANCE OFRS.33,20,000/- UNDER SECTION 14A READ WITH RULE 8D(II). 6) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO CONSIDER THAT THE APPELLANT HAD PROVED THAT INVESTM ENTS HAD BEEN MADE FROM ITS OWN FUNDS AND THAT NO BORROWINGS WERE UTIL IZED. 7) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO CONSIDER THAT DISALLOWANCE CAN BE MADE ONLY OF EXPE NDITURE WHICH IS INCURRED IN RELATION TO EXEMPT INCOME. HAVING RE GARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE PROVISIONS OF LAW , THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO D ELETE THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2) (II) AMOUNTING TORS.33,20,000/-. 8) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN HOLDING THATRS.13,77,000/- WAS REQUIRED TO BE DISAL LOWED UNDER SECTION 14A READ WITH RULE 8D(20(II). THE APPELLANT SUBMIT S THAT THE DISALLOWANCE IS UNJUSTIFIED AND IS REQUIRED TO BE D ELETED. 6. DURING THE YEAR UNDER CONSIDERATION, THE AS SESSEE COMPANY HAD EARNED THE DIVIDEND INCOME OFRS. 3 CRORES WHICH WAS CLAIMED AS EXEMPT INCOME U/S 10(34). ACCORDING TO THE A.O. , INTEREST AS ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 7 WELL AS ADMINISTRATIVE EXPENSES INCURRED BY THE ASS ESSEE TO THE EXTENT ATTRIBUTABLE TO EARNING OF THE SAID EXEMPT I NCOME WERE LIABLE TO BE DISALLOWED AS PER THE PROVISIONS OF SE CTION 14A. HE, THEREFORE, REQUIRED THE ASSESSEE TO EXPLAIN WHY SUC H DISALLOWANCE ON ACCOUNT OF THE SAID EXPENSES SHOULD NOT BE MADE AS PER THE PROVISIONS OF SECTION 14A. IN REPLY, IT WAS SUBMIT TED ON BEHALF OF THE ASSESSEE COMPANY THAT OUT OF THE TOTAL FUNDS OF RS.96.18 CRORES, OWN FUNDS WERE TO THE EXTENT OFRS.64.20 CRORES WHIC H WERE UTILIZED FOR MAKING INVESTMENT IN SHARES OFRS.30.42 CRORES WHICH FETCHED THE DIVIDEND INCOME. IT WAS SUBMITTED THAT THE BORROWED FUNDS OFRS.31.98 THUS WERE NOT UTILIZED FOR MAKING INVESTMENT IN SHARES AND THERE WAS THUS NO QUESTION OF MAKING DIS ALLOWANCE U/S 14A ON ACCOUNT OF INTEREST EXPENSES INCURRED IN RES PECT OF THE SAID BORROWED FUNDS. IT WAS SUBMITTED THAT OUT OF THE B ORROWED FUNDS OFRS.31.98 CRORES, A SUM OFRS.21.59 CRORES WAS AVAI LED IN THE EARLIER YEARS AND AFTER VERIFICATION OF THE RELEVAN T RECORD, IT WAS ACCEPTED BY THE A.O. HIMSELF WHILE COMPLETING THE A SSESSMENT FOR THE EARLIER YEARS THAT THE SAID AMOUNT WAS ENTIRELY UTILISED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS AND THE SA ME WAS NOT UTLISED FOR MAKING ANY INVESTMENT WHICH FETCHED THE DIVIDEND INCOME. IT WAS SUBMITTED THAT EVEN THE SUM OFRS.10 .39 CRORES BORROWED BY THE ASSESSEE IN THE YEAR UNDER CONSIDER ATION WAS ENTIRELY UTILIZED FOR THE PURPOSE OF ITS BUSINESS A ND ONLY THE OWN FUNDS GENERATED IN THAT YEAR WERE UTILIZED FOR THE PURPOSE OF MAKING INVESTMENT IN SHARES. IT WAS POINTED OUT TH AT A SEPARATE CURRENT ACCOUNT WAS OPENED AND OPERATED WITH IDBI B ANK WHEREIN SURPLUS FUNDS WERE DEPOSITED FOR MAKING THE INVESTM ENT IN SHARES. IT WAS CONTENDED THAT INTEREST EXPENDITURE INCURRED BY THE ASSESSEE COMPANY THUS WAS NOT AT ALL ATTRIBUTABLE TO EARNING OF DIVIDEND ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 8 INCOME AND NO DISALLOWANCE OUT OF THE SAID EXPENDIT URE U/S 14A WAS CALLED FOR. 7. THE A.O. DID NOT FIND THE SUBMISSION OF THE ASSE SSEE TO BE ACCEPTABLE. ACCORDING TO HIM, ALTHOUGH THE ASSESSE E HAD ENOUGH SURPLUS FUNDS TO MAKE INVESTMENT IN SHARES, HE COUL D HAVE UTILIZED THE SAID FUNDS FOR REPAYING THE BORROWINGS INSTEAD OF MAKING THE INVESTMENT IN SHARES. HE HELD THAT IT WAS THUS AN INDIRECT CASE OF DIVERSION OF BORROWED FUNDS BY THE ASSESSEE FOR MAK ING INVESTMENT IN SHARES SO AS TO EARN DIVIDEND INCOME AND SINCE SUCH DIVIDEND INCOME WAS EXEMPT FROM TAX, INTEREST ATTRI BUTABLE TO THE BORROWED FUNDS UTILIZED FOR MAKING INVESTMENT IN SH ARES WAS LIABLE TO BE DISALLOWED U/S 14A. SINCE THE INVESTM ENT IN SHARES OFRS.30.42 CRORES MADE BY THE ASSESSEE WAS TO THE E XTENT OF 31.61% OF THE TOTAL FUNDS OFRS.96.18 CRORES, HE TRE ATED THE BORROWED FUNDS OFRS.31.98 CRORES TO THE EXTENT OFRS .10.10 CRORES AS UTILIZED FOR MAKING INVESTMENT IN SHARES ON PRO- RATA BASIS AND PROPORTIONATE INTEREST ATTRIBUTABLE TO THE SAID AMO UNT WORKED OUT ATRS.1,02,21,276/- WAS DISALLOWED BY HIM U/S 14A. HE ALSO IDENTIFIED THE COMMON ADMINISTRATIVE EXPENSES INCUR RED BY THE ASSESSEE COMPANY AT RS.1,63,05,007/- AND APPLYING T HE RATIO OF 17.39% BETWEEN THE DIVIDEND INCOME AND TOTAL INCOME , HE WORKED OUT THE DISALLOWANCE U/S 14A ON ACCOUNT OF THE SAID EXPENSES AT RS.28,35,404/-. THUS, A TOTAL DISALLOWANCE OFRS.1, 30,56,716/- WAS MADE BY THE A.O. ON ACCOUNT OF EXPENSES ATTRIBUTABL E TO THE EXEMPT INCOME EARNED BY THE ASSESSEE COMPANY IN THE FORM OF DIVIDEND ON SHARES. ON APPEAL, THE LD. CIT(A) UPHE LD THE ACTION OF THE A.O. IN INVOKING THE PROVISIONS OF SECTION 1 4A TO MAKE A DISALLOWANCE OUT OF INTEREST AND OTHER ADMINISTRATI VE EXPENSES. ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 9 HE, HOWEVER, RESTRICTED THE QUANTUM OF SUCH DISALLO WANCE MADE BY THE A.O. TO RS.46,97,000/- BY APPLYING RULE 8D O F THE INCOME TAX RULES 1962 INSERTED W.E.F. 1.4.08. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SI DES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS HELD B Y THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. (ITA NO. 626 OF 2010 DTD. 12.08.2010), RULE 8D OF THE INCOME TAX RULES 1962 IS APPLICABLE ONLY PROSPECTIVELY I.E . FROM A.Y. 2008-09. SINCE THE ASSESSMENT YEAR INVOLVED IN THE PRESENT CASE IS 2005-06, RESPECTFULLY FOLLOWING THE SAID JUDGMENT O F THE HONBLE BOMBAY HIGH COURT, WE HOLD THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN APPLYING THE SAID RULE TO QUANTIFY THE DISALLOWANCE U/S 14A. GROUND NO. 4 OF THE ASSESSEES APPEAL IS ACCO RDINGLY ALLOWED. 9. AS REGARDS THE ISSUE RAISED IN GROUND NO. 5 TO 7 OF THE ASSESSEES APPEAL RELATING TO THE DISALLOWANCE MADE OUT OF INTEREST EXPENDITURE BY INVOKING THE PROVISIONS OF SECTION 1 4A, IT IS OBSERVED THAT ELABORATE SUBMISSIONS WERE MADE ON BE HALF OF THE ASSESSEE BEFORE THE A.O. AS WELL AS BEFORE THE LD. CIT(A) TO ESTABLISH THAT THE INVESTMENT IN SHARES WAS MADE OU T OF ITS OWN FUNDS AND THE BORROWED FUNDS OFRS.31.98 CRORES WERE ENTIRELY UTILIZED FOR THE PURPOSE OF ITS BUSINESS. AT THE T IME OF HEARING BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS TAK EN US THROUGH THE COPIES OF SUCH SUBMISSIONS PLACED IN HIS PAPER BOOK TO DEMONSTRATE THAT THE ENTIRE AMOUNT OF BORROWED FUND S WAS UTILIZED FOR THE PURPOSE OF ITS BUSINESS BY THE ASSESSEE COM PANY AND THE INVESTMENT IN SHARES WAS MADE BY IT OUT OF ITS OWN FUNDS. AS POINTED OUT BY HIM, THE SAID BORROWED FUNDS TO THE EXTENT ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 10 OFRS.21.59 CRORES WERE AVAILED BY THE ASSESSEE IN T HE EARLIER YEAR AND IN THE ASSESSMENT COMPLETED FOR A.Y. 2004-05, T HE A.O. HAD ACCEPTED AFTER VERIFICATION OF THE RELEVANT RECORD THAT THE BORROWED FUNDS TO THAT EXTENT WERE UTILIZED BY THE ASSESSEE COMPANY FOR THE PURPOSE OF ITS BUSINESS AND THE INVESTMENT IN SHARE S WAS MADE BY IT OUT OF ITS OWN FUNDS. AS FURTHER POINTED OUT BY HIM, EVEN THE INVESTMENT IN SHARES IN THE YEAR UNDER CONSIDERATIO N WAS MADE BY THE ASSESSEE COMPANY FROM A SEPARATE CURRENT ACCOUN T MAINTAINED IN IDBI WHERE THE SURPLUS FUNDS GENERATED IN THAT YEAR WERE DEPOSITED. SUFFICIENT EVIDENCE THUS WAS BROUGHT ON RECORD BY THE ASSESSEE COMPANY TO ESTABLISH THAT INVESTMENT IN SH ARES WAS MADE BY IT OUT OF ITS OWN FUNDS AND THE BORROWED FUNDS W ERE ENTIRELY UTLISED FOR THE PURPOSE OF ITS BUSINESS. AS A MATT ER OF FACT, EVEN THE AUTHORITIES BELOW HAVE NOT DISPUTED THIS POSITI ON. ACCORDING TO THEM, THE ASSESSEE, HOWEVER, COULD HAVE UTILIZED ITS SURPLUS FUNDS IN REPAYING THE BORROWINGS INSTEAD OF INVESTI NG IN SHARES AND BY NOT DOING SO, THERE WAS DIVERSION OF BORROWE D FUNDS TOWARDS INVESTMENT IN SHARES TO EARN DIVIDEND INCOM E. IN THE CASE OF CIT VS. HERO CYCLES LTD. 323 ITR 518 CITED BY TH E LD. COUNSEL FOR THE ASSESSEE, A SIMILAR CONTENTION WAS RAISED I N THE CONTEXT OF DISALLOWANCE OF INTEREST EXPENDITURE U/S 14A AND RE LIANCE IN SUPPORT OF THIS CONTENTION WAS PLACED ON BEHALF OF THE REVENUE ON THE DECISION IN THE CASE OF CIT VS. ABHISHEK INDUST RIES LTD. 286 ITR 1. THE HONBLE PUNJAB & HARYANA HIGH COURT, HO WEVER, DID NOT ACCEPT THIS CONTENTION RAISED ON BEHALF OF THE REVENUE OBSERVING THAT THE JUDGMENT OF ABHISHEK INDIUSTRIES LTD. (SUPRA) WAS ON THE ISSUE OF ALLOWABILITY OF INTEREST PAID O N LOANS GIVEN TO SISTER CONCERNS WITHOUT INTEREST. IT WAS HELD THAT THE RELEVANT OBSERVATIONS RECORDED IN THE SAID JUDGMENT THEREFOR E HAVE TO BE ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 11 READ IN THAT CONTEXT. IN THE CASE OF HERO CYCLES L TD. (SUPRA), A FINDING WAS RECORDED BY THE TRIBUNAL THAT THE INVES TMENT IN SHARES AND FUNDS WAS MADE BY THE ASSESSEE OUT OF THE DIVID END PROCEEDS AND NOT OUT OF BORROWED FUNDS AND IN VIEW OF THIS F INDING OF FACT, IT WAS HELD BY THE HONBLE PUNJAB & HARYANA HIGH CO URT THAT THE DISALLOWANCE U/S 14A WAS NOT SUSTAINABLE. KEEPING IN VIEW THE SAID DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF HERO CYCLES LTD. (SUPRA) AND HAVING REGARD TO THE FACTS OF THE CASE, WE HOLD THAT THE DISALLOWANCE MADE BY THE A.O. OUT OF INTEREST EXPENSES U/S 14A AND CONFIRMED BY THE LD. CIT(A) IS NOT SUSTAINABLE. THE SAME IS THEREFORE DELETED ALLOWIN G GROUND NO. 5 TO 7 OF THE ASSESSEES APPEAL. 3. SO FAR AS COMMON ADMINISTRATIVE EXPENSES U/S 14A OF THE ACT ARE CONCERNED, THE TRIBUNAL DIRECTED THE ASSESSING OFFICER TO VERIFY THIS ASPECT FROM THE AS SESSMENT RECORD OF EARLIER ASSESSMENT YEARS AND RESTRICTED T HE DISALLOWANCE, OUT OF COMMON ADMINISTRATIVE EXPENSES TO 2% OF THE TOTAL EXEMPT INCOME AND THE GROUND WAS PARTL Y ALLOWED. THE RELEVANT PORTION FROM THE AFORESAID OR DER IS REPRODUCED HEREUNDER:- 10. AS REGARDS THE ISSUE RELATING TO THE DISALLOWA NCE OUT OF COMMON ADMINISTRATIVE EXPENSES U/S 14A RAISED IN GR OUND NO. 8, IT IS OBSERVED THAT THIS DISALLOWANCE MADE BY THE A.O. ATRS. 28,35,440/- ON PRO-RATA BASIS WAS RESTRICTED BY THE LD. CIT(A) TO ` 13,77,000/- BY ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 12 APPLYING RULE 8D OF INCOME TAX RULES, 1962. AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BO YCE MFG. CO. LTD. (ITA NO. 626 OF 2010 DTD. 12.08.2010), RULE 8D OF THE INCOME TAX RULES 1962 IS APPLICABLE ONLY PROSPECTIVELY I.E . FROM A.Y. 2008- 09. AS FURTHER HELD BY THE HONBLE BOMBAY HIGH COU RT IN THE SAID CASE, THE QUANTUM OF DISALLOWANCE U/S 14A FOR THE Y EARS EARLIER TO A.Y. 2008-09 HAS TO BE WORKED OUT BY ADOPTING SOME REASONABLE METHOD. IN THIS CONTEXT, THE LD. COUNSEL FOR THE AS SESSEE HAS SUBMITTED THAT IN THE EARLIER YEARS, A SIMILAR DISA LLOWANCE MADE BY THE A.O. HAS BEEN SUSTAINED BY THE LD. CIT(A) TO TH E EXTENT OF 2% OF THE TOTAL EXEMPT INCOME EARNED BY THE ASSESSEE AND THE SAME BEING REASONABLE, THE ASSESSEE HAS ACCEPTED IT. WE, THERE FORE, DIRECT THE A.O. TO VERIFY THIS ASPECT FROM THE ASSESSMENT RECO RDS OF THE EARLIER YEARS AND ACCORDINGLY RESTRICT THE DISALLOWANCE OUT OF COMMON ADMINISTRATIVE EXPENSES TO 2% OF THE TOTAL EXEMPT I NCOME. GROUND NO. 8 OF THE ASSESSEES APPEAL IS THUS PARTLY ALLOW ED. 3.1. THUS, SO FAR AS, DISALLOWANCE OUT OF COMMON ADMINISTRATIVE EXPENSES U/S 14A OF THE ACT IS CONCE RNED, THE LD. ASSESSING OFFICER IS DIRECTED TO FOLLOW THE DIR ECTIONS OF THE TRIBUNAL AS CONTAINED IN THE ORDER FOR ASSESSMENT Y EAR 2005- 06 (ITA NO.1629/MUM/2009) ORDER DATED 17/09/2010. 3.2. SO FAR AS, INVESTMENT OUT OF OWN FUNDS IS CONCERNED, THE ISSUE HAS BEEN DEALT WITH BY THE TRI BUNAL IN ITA NO.4897/MUM/2012 (ASSESSMENT YEAR 2006-07), WHEREIN, THE DISALLOWANCE OF INTEREST CLAIMED U/S 3 6(1)(III) ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 13 WAS DISCUSSED AND AFFIRMED THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL), WHO DELETED TH E DISALLOWANCE OF INTEREST MADE BY THE ASSESSING OFFI CER. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREUND ER:- 8. IN THIS APPEAL, THE REVENUE IS AGGRIEVED FOR DE LETING DISALLOWANCE OF INTEREST OF RS.41,34,375/- CLAIMED BY THE ASSESSEE U/S.36(1)(III) OF THE ACT. 9. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. THE FACTS OF THE CASE WERE THAT THE ASSESSEE HAD AD VANCED AN AMOUNT OF RS.3,30,75,000/-TO AL RAHBA INTERNATIONAL TRADING LLC, ABU DHABI AS INTEREST FREE LOAN. M/S. AL RAHBA INTERNATIONAL WAS A COMPANY IN WHICH THE ASSESSEE H AD ACQUIRED 675 EQUITY SHARES FOR AN AMOUNT OF RS.8,10 ,000/-. THE AO NOTICED THAT APPELLANT HAD PAID INTEREST ON ITS BORROWED FUNDS BUT DID NOT CHARGE INTEREST ON ITS A DVANCES OF RS.3.31 CRORE MADE TO M/S. AI RAHBA INTERNATIONAL T RADING LLC, ABU DHABI. THE AO HELD THAT THE ASSESSEE HAS T AKEN FRESH LOAN OF RS.129. 96 CRORE DURING THE YEAR WHIC H WERE OUTSTANDING AS ON LAST DAY OF THE YEAR. THEREFORE, THE AO HELD THAT THE AMOUNT OF RS.3.31 CRORE OUT OF THE BORROWE D FUNDS HAD NOT BEEN USED FOR THE PURPOSE OF BUSINESS AND T HE INTEREST AT THE RATE OF 12.5% RELATABLE TO SUCH INTEREST FRE E LOAN WAS DISALLOWED AT RS.41,34,375/-. 10. BY THE IMPUGNED O RDER, CIT(A) DELETED THE DISALLOWANCE AFTER HAVING FOLLOW ING OBSERVATION :- ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 14 2.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE. DURING THE YEAR, THE APPELLANT HAS GIVEN INTEREST FREE LOANS/ADVANCE OF RS.3.30 CRORE TO M/S. AL RAHBA INTERNATIONAL TRADING LLC, UAE. THE A PPELLANT HAS PURCHASED 675 EQUITY SHARE OF M/S. AL RABHA INTERNA TIONAL FOR AN AMOUNT OF RS.8,10,000/-. THE APPELLANT'S SHARE HOLD ING IN THE SAID COMPANY IS 45% ONLY. THEREFORE, THE APPELLANT'S SHA RE OF PROFIT AND LOSS IN THE SAID COMPANY SHOULD HAVE BEEN ONLY 45%. HOWE VER, THE APPELLANT'S SHARE OF PROFIT/LOSS IN THE SAID COMPAN Y IS 70%. THE APPELLANT HAS EXPLAINED THAT AS PER LAWS/RULES OF A BU DHABI, NONRESIDENT CANNOT HAVE SHARE CAPITAL OF MORE THAN 45%. HOWEVER, THIS RESTRICTION IS NOT APPLICABLE IN CASE OF PROFI T/LOSS SHARING RATIO. THE APPELLANT HAS EXPLAINED THAT FOR GETTING MORE SHARE OF PROFIT/LOSS I.E. 70%, IT HAD INVESTED / GIVEN AN AMOUNT OF RS.3.30 C RORE TO THAT COMPANY AS INTEREST FREE LOAN/ADVANCE. THUS, THE AP PELLANT HAS SATISFACTORILY EXPLAINED THAT THE INTEREST FREE LOA N OF RS.3.30 CRORE HAS BEEN GIVEN TO THE SAID COMPANY FOR THE PURPOSE OF B USINESS ONLY I.E. FOR GETTING MORE SHARE OF PROFIT IN THAT COMPANY. IN TH E FACTS AND CIRCUMSTANCES, THEDECISION OF SUPREME COURT IN THE CASE OF S.A. BUILDERS (SUPRA) IS APPLICABLE IN APPELLANT'S CASE THAT THE APPELLANT HAS GIVEN INTEREST FREE LOAN OF RS.3.30 CRORE TO THE SA ID COMPANY CONSIDERING THE COMMERCIAL EXPEDIENCY. IN OTHER WOR DS, THE APPELLANT HAS GIVEN INTEREST FREE LOANS TO THE SAID COMPANY W HOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS I.E. FOR SHARING PROFI T IN THE SAID COMPANY IN THE RATIO MORE THAN THE PERCENTAGE OF SHARE CAPI TAL. THE INTEREST EXPENDITURE INCURRED ON THE SAID INTEREST FREE LOAN GIVEN OF RS.3.30 CRORE WAS THEREFORE, INCURRED FOR THE PURPOSE OF BU SINESS AND MORE SPECIFICALLY FOR EARNING MORE SHARE OF PROFIT FROM THE SAID COMPANY. THE DISALLOWANCE OF INTEREST MADE BY AO AT RS.41,34 ,375/- IS THEREFORE, DELETED. 11. AGAINST THE ABOVE ORDER OF CIT(A), REVENUE IS I N FURTHER APPEAL BEFORE US. 12. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT ADVANCE OF RS.3.30 CRORES WAS MADE BY T HE ASSESSEE TO M/S AL RAHBA INTERNATIONAL TRADING LLC, ABU DHABI, WHICH IS AN ENTITY OPERATING IN BREEDING AND PROCESSING OF POULTRY BASED IN ABU DHABI. UNDER ABU DHABI LAW, ANY ENTITY OPERATING IN ABU DHABI NEEDS TO NEC ESSARILY HAVE A MAJORITY SHAREHOLDING BY A RESIDENT DOMICILE D IN ABU ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 15 DHABI. THIS, HOWEVER, DOES NOT PROHIBIT THE PROFIT SHARING RATIO AND FUNDING RATIO TO BE DIFFERENT. HOWEVER, S HARE OF THE ASSESSEE COMPANY IN THE CAPITAL OF M/S AL RAHBA INTERNATIONAL TRADING LLC WAS RESTRICTED TO 45% BEC AUSE OF THE SHAREHOLDING RESTRICTION IN ABU DHABI. IN RESPE CT OF PROFIT AND LOSS, IT WAS DECIDED BY THE PARTNERS THAT SHARE OF ASSESSEE WOULD BE 70%. ACCORDINGLY, PART OF THE FUNDING WAS REQUIRED TO BE ATTRIBUTED TOWARDS SHARE CAPITAL IN THE RATIO OF SHAREHOLDING WHILE THE BALANCE FUNDING WAS REQUIRED TO BE STRUCTURED AS LOAN. THUS, THE ASSESSEE HAD SATISFAC TORILY EXPLAINED THE BUSINESS EXPEDIENCY OF INVESTMENT OF RS.3.30 CRORES IN THE SAID COMPANY FOR THE PURPOSE OF BUSIN ESS ONLY I.E. FOR GETTING MORE SHARE OF PROFIT IN THAT COMPA NY. THE DETAILED FINDING RECORDED BY THE CIT(A) AT PARA 2.3 WITH REGARD TO APPLICATION OF FUNDS FOR THE PURPOSE OF B USINESS HAS NOT BEEN CONTROVERTED BY THE DEPARTMENT BY BRINGING ANY POSITIVE MATERIAL ON RECORD. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDINGS OF THE CIT(A) F OR DELETING THE DISALLOWANCE OF INTEREST MADE BY THE AO AT RS.4 1.34 LAKHS 13. IN THE RESULT, BOTH APPEALS OF THE REVENUE ARE DISMISSED. 3.3. SO FAR AS, THE STRATEGIC INVESTMENT IS CONCER NED, THE ISSUE IS COVERED BY THE DECISION OF THE TRIBUNA L IN THE CASE OF M/S J. M. FINANCIAL LTD. VS ADDL. CIT (ITA NO.4521/MUM/2012) FOR ASSESSMENT YEAR 2009-10, ORDE R ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 16 DATED 26/03/2014. THE RELEVANT PORTION OF THE SAME IS REPRODUCED HEREUNDER FOR READY REFERENCE:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 11.04.2012 OF CIT(A) FOR A.Y. 2009-10. THE AS SESSEE HAS RAISED FOLLOWING GROUNDS IN THIS APPEAL:- 2. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE EARNED DIVIDEND INCOME OF RS. 14,14,000/- WHICH IS EXEMPT U/S 10 (34). THE ASSESSEE HAS DISALLOWED A SUM OF RS. 1,40 ,000/- U/S 14A. HOWEVER THE AO DID NOTACCEPT THE DISALLOWANCE MADE BY THE ASSESSEE AND PROCEEDED TO MAKE THE DISALLOWA NCE U/S 14A BY APPLYING RULE 8D. ACCORDINGLY, THE AO MADE T HE DISALLOWANCE OF RS. 7,61,37,727/- AS PER RULE 8D OF INCOME TAX RULES. 3. ASSESSEE CHALLENGED THE ACTION OF AO BEFORE CIT( A) AND CONTENDED THAT RULE 8D CANNOT BE APPLIED WITHOUT RE CORDING THE SATISFACTION THAT THE CLAIM OF THE ASSESSEE WAS NOT PROPER. IT WAS FURTHER CONTENDED THAT THE INVESTMENT MADE B Y THE ASSESSEE WAS STRATEGIC INVESTMENT AND IN THE SUBSID IARY COMPANIES. ACCORDINGLY NO EXPENDITURE WAS REQUIRED TO BE INCURRED FOR MAINTAINING THE PORTFOLIO. CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE MADE BY AO. 4. BEFORE US, THE LD. AR OF THE ASSESSEE HAS POINT ED OUT THAT THOUGH AN IDENTICAL ISSUE WAS CONSIDERED BY THE TRI BUNAL FOR ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 17 THE A.Y. 2008-09 AND IT WAS HELD THAT RULE 8D IS AP PLICABLE FOR DISALLOWANCE U/S 14A IN RESPECT OF EXEMPT INCOM E, HOWEVER FOR THE A.Y. 2008-09, THE ASSESSEE WAS ASKE D TO FURNISH THE COMPUTATION OF EXPENDITURE DISALLOWED B Y HIM WHICH WAS NOT EXPLAINED AND, THEREFORE, THE DISALLO WANCE MADE BY AO WAS CONFIRMED. THE LD. AR HAS SUBMITTED THAT THE AO WAS REQUIRED TO RECORD THE SATISFACTION THAT THE CLAIM OF THE ASSESSEE IS NOT CORRECT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AND ONLY IF THE AO IS NOT SATISFIED WI TH THE EXPLANATION OFFERED BY THE ASSESSEE WITH REGARD TO THE ACCOUNTS, HE COULD APPLY RULE 8D. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISIONS OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & B OYCE MANUFACTURING CO. LTD. VS. DCIT (328 ITR 81) AND SUBMITTED THAT THE MAJOR INVESTMENT OF THE ASSESSEE COMPANY I.E. RS. 1490.86 CRORES OUT OF RS. 1524.08 CRORES W HICH COMES TO 97.82% IS STRATEGIC INVESTMENT IN UNLISTED SUBSI DIARY COMPANIES AND JOINT VENTURE COMPANIES AND ARE LONG TERM INVESTMENTS. NO EXPENSES ARE INCURRED FOR MAINTAINI NG THE PORTFOLIO OF THESE INVESTMENTS OR FOR HOLDING THE S AME. HENCE, NO DISALLOWANCE U/S 14A CAN BE MADE WITH RESPECT TO THESE INVESTMENTS. THE LD. AR HAS RELIED UPON THE DECISIO N OF THIS TRIBUNAL IN THE CASE OF GARWARE WALL ROPES LIMITED VS. ADDL. CIT, DATED 15/01/2014 IN ITA NO. 5408/MUM/201 2. HE HAS ALSO RELIED UPON THE DECISION DATED 02/12/2011 OF DELHI BENCH OF THIS TRIBUNAL IN THE CASE OF ORIENTAL STRU CTURAL ENGINEERS (P) LTD., VS. ACIT, AS WELL AS THE DECISI ON OF PUNE ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 18 BENCH OF THIS TRIBUNAL IN THE CASE OF KALYANI STEEL S LTD. VS. ACIT DATED 30.01.2014 AND SUBMITTED THAT THE TRIBUN AL HAS DEALT WITH AN IDENTICAL ISSUE IN THESE DECISIONS AN D HELD THAT WHEN THE ASSESSEE HAS BROUGHT ON RECORD THE FACT TO SHOW THAT NO EXPENDITURE HAS BEEN INCURRED ON THE INVESTMENT MADE IN THE SUBSIDIARY COMPANIES THEN THE AO HAS TO RECORD ITS SATISFACTION FOR NOT ACCEPTING THE CLAIM OF THE ASS ESSEE AND ALSO GIVE THE FINDING THAT EXPENDITURE HAS BEEN INC URRED BY THE ASSESSEE FOR EARNING THE EXEMPT INCOME. THE LD. AR HAS ALSO RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT, DATED 15.01.2013 IN THE CASE OF CIT VS. ORIENTAL ST RUCTURAL ENGINEERS PVT. LTD, WHEREBY THE DECISION OF DELHI B ENCH OF THIS TRIBUNAL HAS BEEN CONFIRMED BY THE HONBLE HIG H COURT. 5. ON THE OTHER HAND, THE LD. CIT(DR) HAS VEHEMENTL Y CONTENDED THAT IT IS IMMATERIAL WHETHER THE INVESTM ENT IS IN SUBSIDIARY COMPANIES OR IN UNRELATED COMPANIES. THE DISALLOWANCE OF EXPENDITURE U/S 14A HAS TO BE COMPU TED AS PER RULE 8D OF THE INCOME TAX RULES. THE AO HAS CALCULATEDTHE AMOUNT OF DISALLOWANCE AS PER RULE 8D AND, THEREFORE, THERE IS NO QUESTION OF ACCEPTING THE DI SALLOWANCE MADE BY THE ASSESSEE WHICH IS NOT IN ACCORDANCE WIT H THE FORMULA GIVEN IN RULE 8D. THE LD. DR HAS SUBMITTED THAT FOR THE PURPOSE OF DISALLOWANCE UNDER RULE 8D, THE ENTI RE INVESTMENT AS WELL AS THE ENTIRE EXPENDITURE WHICH IS BOOKED TO THE PROFIT & LOSS ACCOUNT HAS TO BE TAKEN INTO A CCOUNT. HE HAS REFERRED PARA 51 OF THE DECISION OF HONBLE JUR ISDICTIONAL ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 19 HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTUR ING CO. LTD (SUPRA) AND SUBMITTED THAT ONCE THE PROXIMA TE RELATIONSHIP BETWEEN THE EXPENDITURE AND THE EXEMPT INCOME IS ESTABLISHED THE DISALLOWANCE HAS TO BE MADE AS P ER RULE 8D. HE HAS RELIED UPON THE ORDERS OF AUTHORITIES BE LOW. 6. IN REBUTTAL, THE LD. AR HAS SUBMITTED THAT HONB LE HIGH COURT IN PARA 32 AND 33 HAS CLEARLY LAID DOWN THE P RINCIPLES FOR DISALLOWANCE U/S 14A AND HELD THAT SUB SECTION 2 DOES NOT IFSO FACTO ENABLE THE AO TO APPLY THE METHOD PRESCR IBED BY THE RULE STRAIGHTAWAY WITHOUT CONSIDERING WHETHER T HE CLAIM MADE BY THE ASSESSEE IN RESPECT OF EXPENDITURE INCU RRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IS CORRECT. THUS THE HONBLE HIGH COURT HAS HELD THAT WHERE THE ACCOUNTS OF THE ASSESSEE FURNISH AN OBJEC TIVE BASIS FOR THE AO TO ARRIVE AT A SATISFACTION IN REGARD TO CORRECTNESS OF THE CLAIM OF THE ASSESSEE OF THE EXPENDITURE, TH ERE WOULD BE NO WARRANT FOR TAKING RECOURSE TO THE METHOD PRESCR IBED BY THE RULES. 7. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD, WE NOTE THAT SO FAR AS APPLICABILITY OF RULE 8D IS CONCERNED, THERE IS NO QUARREL ON THIS POINT THAT FOR THE A.Y. UNDER CONSIDERATION RU LE 8D IS APPLICABLE. FURTHER FOR THE A.Y. 2008-09, THE TRIBU NAL HELD IN PARA 15 AS UNDER:- WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAP ER BOOK FILED ON ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 20 BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. IN THE INSTANT CASE, THE ONLY DISP UTE IS REGARDING DETERMINATION OF DISALLOWANCE OF EXPENDITURE FOR EA RNING TAX FREE DIVIDEND INCOME OF RS. 18,17,68,458/- THE ASSESSEE DISALLOWED ON ITS OWN RS. 16.50 LAKHS U/S 14A. DESPITE BEING ASKED BY THE AO TO FURNISH THE DISALLOWANCE UNDER RULE 8D, THE ASSESSEE DID NO T FURNISH THE DETAILS. THE PROVISIONS OF RULE 8D INSERTED BY THE IT (FIFTH AMENDMENT) RULES 2008 WITH EFFECT FROM 24.3.2008 ARE APPLICABLE FOR A.Y. 2008-09 AND ONWARDS. THEREFORE, THE REVENUE AUTHORITIES ARE BOU ND TO FOLLOW THE MANDATORY PROVISIONS FOR CALCULATION OF DISALLOWANC E U/S 14A. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE CIT(A) UPHOLDING THE ACTION OF THE AO FOR DISALLOWING THE DEDUCTION U/S 14A READ WITH RULE 8D. THE CONTENTION OF THE ASSESSEE T HAT THE AO WITHOUT SATISFACTION BEING REACHED INVOKED THE PROVISIONS O F RULE 8D, IN OUR OPINION, DOES NOT HOLD GOOD ESPECIALLY IN ABSENCE O F NON-FURNISHING OF DETAILS FOR THE PURPOSES OF CALCULATION OF DISALLOW ANCE AT RS. 16.50 LAKHS BY THE ASSESSEE ON ITS OWN. IN THIS VIEW OF T HE MATTER AND IN ABSENCE OF ANY DISTINGUISHABLE FEATURE BROUGHT TO O UR NOTICE BY THE LEARNED COUNSEL FOR THE ASSESSEE AGAINST THE ORDER OF THE CIT(A), WE DO NOT FIND ANY INFIRMITY IN THE SAME. ACCORDINGLY THE SAME IS UPHELD AND THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 8. AS IT IS CLEAR FROM THE FINDING OF TRIBUNAL THAT THE ASSESSEE FAILED TO FURNISH THE DETAILS OF DISALLOWANCE UNDER SECTION 14A AND, THEREFORE, THE DISALLOWANCE MADE BY THE AO WAS FOUND BY THE TRIBUNAL WITHOUT ANY INFIRMITY. FOR TH E YEAR UNDER CONSIDERATION THE ASSESSEE HAS SPECIFICALLY R AISED A POINT BEFORE THE AO THAT 97.82% OF THE INVESTMENT I S IN THE SUBSIDIARY COMPANIES AND JOINT VENTURE COMPANIES AN D, THEREFORE, NO EXPENDITURE WAS INCURRED FOR MAINTAIN ING THE PORTFOLIO ON THESE INVESTMENTS OR FOR HOLDING THE S AME. THE ASSESSEE HAS ALSO POINTED OUT THAT THESE INVESTMENT S ARE LONG TERM INVESTMENT AND NO DECISION IS REQUIRED IN MAKI NG THE INVESTMENT OR DISINVESTMENT ON REGULAR BASISBECAUSE THESE INVESTMENTS ARE STRATEGIC IN NATURE IN THE SUBSIDIA RY COMPANIES ON LONG TERM BASIS AND, THEREFORE, NO DIR ECT OR ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 21 INDIRECT EXPENDITURE IS INCURRED. WE FIND THAT THE DEPARTMENT HAS NOT DISPUTED THIS FACT THAT OUT OF THE TOTAL IN VESTMENT ABOUT 98% OF THE INVESTMENT ARE IN SUBSIDIARY COMPA NIES OF THE ASSESSEE AND, THEREFORE, THE PURPOSE OF INVESTM ENT IS NOT FOR EARNING THE DIVIDEND INCOME BUT HAVING CONTROL AND BUSINESS PURPOSE AND CONSIDERATION. THEREFORE, PRIM A FACIE THE ASSESSEE HAS MADE OUT A CASE TO SHOW THAT NO EX PENDITURE HAS BEEN INCURRED FOR MAINTAINING THESE LONG TERM I NVESTMENT IN SUBSIDIARY COMPANIES. THE AO HAS NOT BROUGHT OUT ANY CONTRARY FACT OR MATERIAL TO SHOW THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE FOR MAINTAINING THESE INVE STMENTS OR PORTFOLIO OF THESE INVESTMENTS. IN THE CASE OF G ODREJ & BOYCE MFG. CO. LTD. (SUPRA) HONBLE JURISDICTIONAL HIGH COURT WHILE DEALING WITH THE ISSUE OF DISALLOWANCE U/S 14A AND APPLICATION OF RULE 8D HAS RECORDED THE PRINCIP LES AS LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF WALFORT SHARE AND STOCK BROKERS P. LTD. [2010] (326 ITR 1,) IN PARA 31 AS UNDER:- (A) THE MANDATE OF SECTION 14A IS TO PREVENT CLAIM S FOR DEDUCTION OF EXPENDITURE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME. (B) SECTION 14A(1) IS ENACTED TO ENSURE THAT ONLY E XPENSES INCURRED IN RESPECT OF EARNING TAXABLE INCOME ARE A LLOWED; (C) THE PRINCIPLE OF APPORTIONMENT OF EXPENSES IS W IDENED BY SECTION 14A TO INCLUDE EVEN THE APPORTIONMENT OF EX PENDITURE BETWEEN TAXABLE AND NONTAXABLE INCOME OF AN INDIVIS IBLE BUSINESS; ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 22 (D) THE BASIC PRINCIPLE OF TAXATION IS TO TAX NET I NCOME. THIS PRINCIPLE APPLIES EVEN FOR THE PURPOSE OF SECTION 1 4A AND EXPENSES TOWARDS NON-TAXABLE INCOME MUST BE EXCLUDE D; (E) ONCE A PROXIMATE CAUSE FOR DISALLOWANCE IS ESTA BLISHED WHICH IS THE RELATIONSHIP OF THE EXPENDITURE WITH I NCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME A DI SALLOWANCE HAS TO BE EFFECTED. ALL EXPENDITURE UNDER THE PROVI SIONS OF THE ACT HAS TO BE DISALLOWED UNDER SECTION 14AINCOME WH ICH DOES NOT FORM PART OF THE TOTAL INCOME IS BROADLY A DVERTED TO AS EXEMPT INCOME AS AN ABBREVIATED APPELLATION. 9. AFTER CONSIDERING THESE PRINCIPLES AS EMERGED FR OM THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF WA LFORT SHARE AND STOCK BROKERS P. LTD. (SUPRA), HONBLE JURISDICTIONAL HIGH COURT HAS HELD IN PARA 32 AND 3 3 AS UNDER:- 32. SUB-SECTION (2) AND (3) TO SECTION 14A WERE IN SERTED BY AN AMENDMENT BROUGHT ABOUT B Y THE FINANCE A C T O F 2006 WITH EFFECT FROM APRIL 1, 2007. SUB SECTIONS (2) AN D (3) PROVIDE AS FOLLOWS. '14A.(2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHI CH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, I F THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELA TION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (3) THE PROVISIONS OF SUB-SECTION (2) SHA LL ALSO APPLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT : ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 23 PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHA LL EMPOWER THE ASSESSING OFFICER EITHER TO REASSESS UN DER SECTION 147 OR PASS AN ORDER ENHANCING THE ASSESSME NT OR REDUCING A REFUND ALREADY MADE OR OTHERWISE INCREAS ING THE LIABILITY OF THE ASSESSEE UNDER SECTION 154 FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1ST DAY OF APRIL, 2 001.' (THE PROVISO WAS INSERTED EARLIER BY THE FINANCE AC T OF 2002 WITH RETROSPECTIVE EFFECT FROM MAY 11, 2001) 33. UNDER SUB-SECTION (2), THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED BY AN ASSESSEE IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN ACCORDANCE WIT H SUCH METHOD AS MAY BE PRESCRIBED. THE METHOD, HAVING REG ARD TO THE MEANING OF THE EXPRESSION 'PRESCRIBED' IN SECTI ON 2(33), MUST BE PRESCRIBED BY RULES MADE UNDER THE ACT. WHA T MERITS EMPHASIS IS THAT THE JURISDICTION OF THE ASSESSING OFFICER TO DETERMINE THE EXPENDITURE INCURRED IN RELATION TO S UCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME , IN ACCORDANCE WITH THE PRESCRIBED METHOD, ARISES IF TH E ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECT NESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE WHICH THE ASSESSEE CLAIMS TO HAVE INCURRED IN RELATION TO INC OME WHICH DOES NOT PART OF THE TOTAL INCOME. MOREOVER, THE SA TISFACTION OF THE ASSESSING OFFICER HAS TO BE ARRIVED AT, HAVI NG REGARD TO THE ACCOUNTS OF THE ASSESSEE. HENCE, SUB-SECTION (2 ) DOES NOT IPSO FACTO ENABLE THE ASSESSING OFFICER TO APPLY TH E METHOD PRESCRIBED BY THE RULES STRAIGHTAWAY WITHOUT CONSID ERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT O F THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME IS CORRECT. THE ASSES SING OFFICER MUST, IN THE FIRST INSTANCE, DETERMINE WHETHER THE CLAIM OF THE ASSESSEE IN THAT REGARD IS CORRECT AND THE DETERMIN ATION MUST BE MADE HAVING REGARD TO THE ACCOUNTS OF THE ASSESS EE. THE SATISFACTION OF THE ASSESSING OFFICER MUST-BE ARRIV ED AT ON AN OBJECTIVE BASIS. IT IS ONLY WHEN THE ASSESSING OFFI CER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE, THAT THE LEGISLATURE DIRECTS HIM TO FOLLOW THE METHOD THAT MAY BE PRESCR IBED. IN A SITUATION WHERE THE ACCOUNTS OF THE ASSESSEE FURN ISH AN OBJECTIVE BASIS FOR THE ASSESSING OFFICER TO ARRIVE AT A ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 24 SATISFACTION IN REGARD TO THE CORRECTNESS OF THE CL AIM OF THE ASSESSEE OF THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THERE WOULD BE NO WARRANT FOR TAKING RECOUR SE TO THE METHOD PRESCRIBED BY THE RULES. FOR, IT IS ONLY IN THE EVENT OF THE ASSESSING OFFICER NOT BEING SO SATISFIED THAT R ECOURSE TO THE PRESCRIBED METHOD IS MANDATED BY LAW. SUB-SECTI ON (3) OF SECTION 14A PROVIDES FOR THE APPLICATION OF SUB-SEC TION (2) ALSO TO A SITUATION WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. UNDER THE PROVISO, IT HAS BEEN STIPULATED THAT NOTH ING IN THE SECTION WILL EMPOWER THE ASSESSING OFFICER, FOR AN ASSESSMENT YEAR BEGINNING ON OR BEFORE APRIL 1,2001, EITHER TO REASSESS UNDER SECTION 147 OR PASS AN ORDER ENHANCING THE AS SESSMENT OR REDUCING THE REFUND ALREADY MADE OR OTHERWISE IN CREASING THE LIABILITY OF THE ASSESSEE UNDER SECTION 154. 10. IT HAS BEEN MADE CLEAR BY THE HONBLE HIGH COUR T THAT SUB-SECTION (2) DOES NOT IFSO FACTO EMPOWER THE AO TO APPLY THE METHOD PRESCRIBED BY RULES STRAIGHTAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IS CORRECT. 11. THE ASSESSEE HAS RELIED UPON VARIOUS DECISIONS OF THIS TRIBUNAL WHEREIN AN IDENTICAL ISSUE HAS BEEN CONSID ERED. IN THE CASE OF GARWARE WALL ROPES LIMITED VS. ADDL. CI T (SUPRA), THE TRIBUNAL WHILE DECIDING AN IDENTICAL I SSUE HAS HELD IN PARA 2.4 AS UNDER:- ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 25 WE HAVE CONSIDERED THE RIVAL SUBMISSION AND CAREFU LLY PERUSED THE RELEVANT RECORDS. SO FAR AS THE ISSUE R EGARDING DISALLOWANCE U/S 14A IN THE CASE WHERE NO DIVIDEND HAS BEEN RECEIVED, THE SAME IS COVERED AGAINST THE ASSESSEE BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE AS SESSMENT YEAR 2008-09, WHEREIN THE TRIBUNAL HAS FOLLOWED THE DECISION OF SPECIAL BENCH OF TRIBUNAL WHILE DECIDING THE ISS UE. THEREFORE, WE DO AGREE WITH THE FINDING OF THE TRIB UNAL ON THIS POINT. FURTHER SINCE THE ASSESSEE HAS RAISED T HE NEW PLEA IN THE YEAR UNDER CONSIDERATION THAT NO EXPENDITURE HAD BEEN INCURRED BY THE ASSESSEE FOR EARNING THE EXEMPT INC OME OR FOR THE INVESTMENT IN QUESTION. WE FIND MERIT AND SUBST ANCE IN THE CONTENTION OF THE ASSESSEE ON THIS POINT BECAUSE TH E INVESTMENT HAS BEEN MADE BY THE ASSESSEE IN THE GRO UP CONCERN AND NOT IN THE SHARES OF ANY UN-RELATED PAR TY. THEREFORE, THE PRIMARY OBJECT OF INVESTMENT IS HOLD ING CONTROLLING STAKE IN THE GROUP CONCERN AND NOT EARN ING ANY INCOME OUT OF INVESTMENT. FURTHER THE INVESTMENT WE RE MADE LONG BACK AND NOT IN THE YEAR UNDER CONSIDERATION. THEREFORE, IN VIEW OF THE FACT THAT THE INVESTMENT ARE IN THE GROUP CONCERN WE DO NOT FIND ANY REASON TO BELIEVE THAT T HE ASSESSEE WOULD HAVE INCURRED ANY ADMINISTRATIVE EXP ENSES IN HOLDING THESE INVESTMENTS. THE AO HAS NOT BROUGHT O N RECORD ANY MATERIAL TO SHOW THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE IN RELATION TO THE INCOME WHICH DOES NO T FORM PART OF THE TOTAL INCOME. SECTION 14A HAS WITHIN IT IMPLICIT THE NOTION OF APPORTIONMENT IN THE CASES WHERE THE EXPE NDITURE IS INCURRED FOR COMPOSITE/INDIVISIBLE ACTIVITIES IN WH ICH TAXABLE AND NON TAXABLE INCOME IS RECEIVED BUT WHEN NO EXPE NDITURE HAS BEEN INCURRED IN RELATION TO THE EXEMPT INCOME THEN PRINCIPLE OF APPORTIONMENT EMBEDDED IN SECTION 14A HAS NO APPLICATION. THE OBJECT OF SECTION 14A IS NOT ALLOW ING TO REDUCE TAX PAYABLE ON THE NON EXEMPT INCOME BY DEDU CTING THE EXPENDITURE INCURRED TO EARN THE EXEMPT INCOME. IN THE CASE IN HAND IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS INCURRED ANY DIRECT EXPENDITURE OR ANY INTEREST EXPENDITURE FOR EARNING THE EXEMPT INCOME OR KEEPIN G THE INVESTMENT IN QUESTION. IF THERE IS EXPENDITURE DIR ECTLY OR INDIRECTLY INCURRED IN RELATION TO EXEMPT INCOME TH E SAME CANNOT BE CLAIMED AGAINST THE INCOME WHICH IS TAXAB LE. FOR ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 26 ATTRACTING THE PROVISIONS OF SECTION 14A- THERE SH OULD BE PROXIMATE CAUSE FOR DISALLOWANCE WHICH HAS RELATION SHIP WITH THE TAX EXEMPT INCOME AS HELD BY THE HONBLE S UPREME COURT IN CASE OF CIT VS. WALFORT SHARE AND STOCK BR OKERS P. LTD. ( 326 ITR 1). THEREFORE, THERE SHOULD BE A PRO XIMATE RELATIONSHIP BETWEEN THE EXPENDITURE AND THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. IN THE CASE IN HAND THE ASSESSEE HAS CLAIMED THAT NO EXPENDITURE HAS BEEN I NCURRED FOR EARNING THE EXEMPT INCOME, THEREFORE, IT WAS IN CUMBENT ON THE AO TO FIND OUT AS TO WHETHER THE ASSESSEE HA S INCURRED ANY EXPENDITURE IN RELATION TO INCOME WHICH DOES NO T FORM PART OF THE TOTAL INCOME AND IF SO TO QUANTIFY THE EXPENDITURE OF DISALLOWANCE. THE AO HAS NOT BROUGHT ON RECORD A NY FACT OR MATERIAL TO SHOW THAT ANY EXPENDITURE HAS BEEN I NCURRED ON THE ACTIVITY WHICH HAS RESULTED INTO BOTH TAXABL E AND NON TAXABLE INCOME. THEREFORE, IN OUR VIEW WHEN THE ASS ESSEE HAS PRIMA FACIE BROUGHT OUT A CASE THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME THEN IN THE ABSENCE OF ANY FINDING THAT EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMP T INCOME THE PROVISIONS OF SECTION 14A CANNOT BE APPLIED. AC CORDINGLY WE DELETE THE ADDITION/DISALLOWANCE MADE BY AO U/S 14A R.W. RULE 8D. 12. A SIMILAR VIEW WAS TAKEN BY THE DELHI BENCH OF THIS TRIBUNAL IN THE CASE OF M/S ORIENTAL STRUCTURAL ENG INEERS (P) LTD (SUPRA) WHICH HAS BEEN CONFIRMED BY THE HONBLE DELHI HIGH COURT VIDE DECISION DATED 15.01.2013 IN PARA 6 .3 AS UNDER:- '6.3 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN A FINDING THAT ONLY INTEREST OF RS 2,96,731/- WAS PAID ON FUNDS UTILIZED FOR MAKING INVESTMENTS ON WHICH EXEMPTED INCOME WAS RECEIVABLE . FURTHER, LD. COMMISSIONER OF INCOME TAX (APPEALS) H AS OBSERVED THAT IN RESPECT OF INVESTMENT OF RS 6,07,7 75,000/- MADE IN SUBSIDIARY COMPANIES AS PER DOCUMENTS PRODU CED ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 27 BEFORE HIM, THEY ARE ATTRIBUTABLE TO COMMERCIAL EXP EDIENCY, BECAUSE AS PER SUBMISSION MADE BY THE ASSESSEE, IT HAD TO FORM SPECIAL PURPOSE VEHICLES (SPY) IN ORDER TO OBT AIN CONTRACTS FROM THE NHAI AND THE SPVS SO FORMED ENGA GED THE ASSESSEE COMPANY AS CONTRACT TO EXECUTE THE WOR KS AWARDED TO THEM (I.E. SPVS) BY THE NHAI. IN ITS PRO FIT AND LOSS ACCOUNT FOR THE YEAR, THE ASSESSEE HAS SHOWN T HE TURNOVER FROM EXECUTION OF THESE CONTRACTS AND THER EFORE NO EXPENSE AND INTEREST ATTRIBUTABLE TO THE INVESTMENT S MADE BY THE APPELLANT IN THE PSVS CAN BE DISALLOWED U/S 14A LW. RULE 8D BECAUSE IT CANNOT BE TERMED AS EXPENSE/ INT EREST INCURRED FOR EARNING EXEMPTED INCOME. UNDER THE CIRCUMSTANCES, LD. COMMISSIONER OF INCOME TAX (APPE ALS) IS CORRECT IN HOLDING THAT DISALLOWANCE OF A FURTHER S UM RS 40,556/- CALCULATED@2%OFTHEDIVIDEND EARNED IS SUFFI CIENT. UNDER THE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMI TY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL S), HENCE WE UPHOLD THE SAME. 13. IN VIEW OF THE ABOVE DISCUSSION AND FACTS AND CIRCUMSTANCES OF THE CASE WE AGREE WITH THE VIEW TA KEN BY THIS TRIBUNAL IN THE ABOVE STATED CASES AND ACCORDI NGLY HOLD THAT THE ASSESSEE HAS BROUGHT OUT A CASE TO SHOW TH AT NO EXPENDITURE HAS BEEN INCURRED FOR MAINTAINING THE 9 8% OF THE INVESTMENT MADE IN THE SUBSIDIARY COMPANIES, THEREF ORE, IN THE ABSENCE OF ANY FINDING THAT ANY EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMPT INCOME, THE DISALLO WANCE MADE BY THE AO IS NOT JUSTIFIED, ACCORDINGLY THE SA ME IS DELETED. 14. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED . THUS, CONSIDERING THE ISSUE OF STRATEGIC INVESTMENT , WE FIND MERIT IN THE CONTENTION OF THE ASSESSEE AND TH E LD. ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 28 ASSESSING OFFICER IS DIRECTED TO FOLLOW THE RATIO L AID DOWN IN THE AFORESAID ORDER. THE CASE LAWS RELIED UPON BY T HE ASSESSEE FURTHER SUPPORTS THE CASE OF THE ASSESSEE. 3.4. SO FAR AS, THE ISSUE OF TRANSACTIONS WITH RES PECT TO OWN BUSINESS DEMERGER AND CONSEQUENT RECEIPT OF SHA RES OUT OF NON-CASH TRANSACTIONS IS CONCERNED, IT WAS EXPLA INED BY THE LD. COUNSEL FOR THE ASSESSEE THAT IN RESPECT OF ONE COMPANY FOR ASSESSMENT YEAR 2008-09, THE ASSESSING OFFICER HIMSELF ACCEPTED THE CLAIM AND IN ASSESSMENT YEAR 2 007-08, THE LD. COMMISSIONER OF INCOME TAX (APPEAL) ALLOWED THE CLAIM OF THE ASSESSEE AGAINST WHICH NO APPEAL WAS F ILED BY THE DEPARTMENT. THE LD. COUNSEL INVITED OUR ATTENTI ON TO PAGES 131 TO 134 OF THE PAPER BOOK. THIS FACTUAL MATRIX WAS NOT CONTROVERTED BY THE REVENUE. IN THE ABSENCE OF ANY CONTRARY FACTS/CASE LAWS, WE FIND MERIT IN THE CLAI M OF THE ASSESSEE. IT WAS ALSO EXPLAINED THAT FOR ASSESSMENT YEAR 2008-09 IN COMPUTATION OF INCOME (PAGE-44 OF THE PA PER BOOK), THE ASSESSEE DISALLOWED 24.60 LAKHS AND IN T HE REVISED RETURN (PAGE-53 OF THE PAPER BOOK) IN THE CALCULATI ON RS.13.66 WAS REDUCED AND NOTHING WAS ON ACCOUNT OF ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 29 INTEREST. THUS, IT WAS PLEADED THAT THE SAME MAY BE RESTRICTED TO RS.13.66 LAKHS. TO SUM UP GROUNDS NO. 1 TO 8 WITH RESPECT TO U/S 14A OF THE ACT READ WITH RULE 8 D(2)(III), WE FIND THAT SO FAR AS GOLDEN FEEDS PRODUCTS LTD. IS C ONCERNED, THE VALUE OF INVESTMENT AS ON 01/04/2007 IS RS.5 LA KH AND AS ON 31/03/2008 IS ALSO RS.5 LAKH. THE INVESTMENT MADE PRIOR TO AY 2008-09 IS RS.5 LAKH AND NO INVESTMENT WAS MADE DURING THE PRESENT ASSESSMENT YEAR, WHICH IS V ERIFIED FROM THE NOTE GIVEN BY THE ASSESSEE. EVEN, IN THE C ASE OF THE ASSESSEE, THE TRIBUNAL VIDE ORDER DATED 05/10/2012 FOR AY 2007-08, ORDER DATED 22/08/2014 FOR AY 2006-07 AND ORDER DATED 17-09/2010 FOR AY 2005-06 FOUND THAT SUFFICIE NT EVIDENCE WAS BROUGHT ON RECORD BY THE ASSESSEE TO E STABLISH THAT INVESTMENT IN SHARES WAS OUT OF OWN FUNDS AND THE BORROWED FUNDS WERE ENTIRELY UTILIZED FOR BUSINESS PURPOSES, THUS, NO INTEREST CAN BE DISALLOWED U/S 14A OF THE ACT. THE RATIO LAID DOWN IN ESCORTS LTD. VS ACIT 104 ITD 427 (DEL.) AND MALWA COTTON SPINING MILLS VS ACIT 89 ITD 65 (C HD.) SUPPORTS THE CASE OF THE ASSESSEE. LIKEWISE WITH RE SPECT TO PLCHEM HYGIENE LABORATORIES PVT. LTD. IS CONCERNED, FOR THE ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 30 IMPUGNED ASSESSMENT YEAR, NO ADDITIONAL INVESTMENT WAS MADE. SO FAR AS, GODREJ OIL PLANTATION LTD. (FORME RLY KNOWN AS GODREJ AQUA FEEDS LTD.) (SUBSEQUENTLY KNOWS AS G ODREJ OIL PALM LTD.), DURING THE YEAR, THE ASSESSEE WITH THE APPROVAL OF THE SHAREHOLDERS, U/S 391 & 394 OF THE COMPANIES ACT, 1956 AND WITH THE SANCTION FROM HON BLE JURISDICTIONAL HIGH COURT TRANSFERRED ITS OIL PALM BUSINESS IN THE STATE OF ANDHRA PRADESH, GUJARAT, MIJORAM AND O RISSA ON SLUMP SALE BASIS TO THIS COMPANY FOR CONSIDERATION OF RS.49.75 CRORES, WHICH WAS PAID TO THE ASSESSEE COM PANY BY WAY OF ALLOTMENT OF EQUITY SHARES OF GODREJ OIL PLA NTATION LTD. (REFER NOTE NO.10)(A) OF NOTES TO ACCOUNTS AT PAGE 24 OF THE COMPILATION AND THE SCHEME OF ARRANGEMENTS, HONBLE HIGH COURT ORDER, ETC. ARE AVAILABLE AT PAGES 57 TO 77 O F THE PAPER BOOK. THUS, THE SHARES WERE ACQUIRED BY VIRTUE OF T RANSFER OF BUSINESS, WHICH DOES NOT INVOLVE CASH OUT FLOW. IDE NTICAL IS THE SITUATION WITH RESPECT TO GODREJ GOKARNA OIL PA LM LTD., WHEREIN, THE SHARES WERE ACQUIRED BY VIRTUE OF TRAN SFER OF BUSINESS AND DOES NOT INVOLVE CASH OUT FLOW. IN TH E CASE OF AADHAR RETAILING LTD., THE ASSESSEE COMPANY TRANSFE RRED ITS ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 31 RETAIL BUSINESS TO THIS COMPANY FOR A CONSIDERATION OF RS.80 CRORES WHICH WAS PAID TO THE ASSESSEE COMPANY INTER -ALIA BY WAY OF ALLOTMENT OF EQUITY SHARES OF AADHAR RETAILI NG LTD (COPY OF BUSINESS TRANSFER AGREEMENT DATED 10/03/20 08 IS AVAILABLE AT PAGE 94 TO 177 OF THE PAPER BOOK), MEA NING THEREBY, THE SHARES WERE ACQUIRED BY VIRTUE OF TRAN SFER OF BUSINESS WHICH DOES NOT INVOLVE CASH OUT FLOW. SO F AR AS, CASTROL INDIA LTD. IS CONCERNE, INITIALLY SHARE WER E GIVEN TO THE ASSESSEE AS A SECURITY AGAINST OUTSTANDING PAYM ENTS, DUE FROM ONE PARTY, JAY TRADERS, WHICH PURCHASE POULTRY FEED PRODUCTS FROM THE ASSESSEE. SIMILAR IS THE SITUATIO N FOR COLGATE PALMOLIVE INDIA LTD. SO FAR AS CAUVERI OIL PLANTATION IS CONCERNED, THE INVESTMENT WAS MADE OUT OF OWN FU NDS AND THE OIL PALM PLANTATION BUSINESS WAS STARTED BY THE ASSESSEE COMPANY IN EARLY 90S, THUS, IT IS A STRATEGIC INVES TMENT. CONSIDERING THE TOTALITY OF FACTS AND IN THE ABSENC E OF ANY CONTRARY MATERIAL FROM THE REVENUE SIDE, WE FIND ME RIT IN THE EXPLANATION OF THE ASSESSEE AND ACCORDINGLY DIRECT THE ASSESSING OFFICER TO EXAMINE THE CLAIM OF THE ASSES SEE AND ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 32 DECIDE AFRESH IN THE LIGHT OF OUR AFORESAID OBSERVA TION. THE ASSESSEE BE GIVEN OPPORTUNITY. 4. THE NEXT GROUND I.E. GROUND NO.9 IS WITH RESPEC T TO MAKING DISALLOWANCE U/S 14A WHILE COMPUTING MINIMUM ALTERNATE TAX U/S 115JB OF THE ACT. THE ARGUMENT ON BEHALF OF THE ASSESSEE IS THAT THE AMOUNT SHOULD BE RESTRI CTED TO 13.66 LAKHS OR 2% OF THE DIVIDEND INCOME FOR CALCUL ATING INCOME FOR THE PURPOSES OF SECTION 115 JB OF THE AC T. THE LD. ASSESSING OFFICER IS DIRECTED TO EXAMINE THE CLAIM OF THE ASSESSEE. THUS, THIS GROUND IS ALLOWED FOR STATISTI CAL PURPOSES. 5. NOW, WE SHALL TAKE UP THE APPEAL OF THE REVENUE (ITA NO.152/MUM/2012) ASSESSMENT YEAR 2008-09, WHER EIN, THE ONLY GROUND RAISED PERTAINS TO DIRECTION TO THE ASSESSING OFFICER TO COMPUTE THE DISALLOWANCE U/S 14A READ WI TH RULE- 8D TO REWORK THE INDIRECT INTEREST EXPENDITURE AS P ER CLAUSE (II) OF RULE-8D BY CONSIDERING THE AVERAGE OF ONLY NEW INVESTMENT MADE DURING THE YEAR. THE LD. DR ADVANC ED IDENTICAL PLEA AS HAS BEEN RAISED IN THE GROUNDS OF APPEAL, ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 33 WHEREAS, THE LD. COUNSEL FOR THE ASSESSEE DEFENDED THE CONCLUSION/DIRECTION CONTAINED IN THE IMPUGNED ORDE R. CONSIDERING THE TOTALITY OF FACTS AND THE DISCUSSIO N MADE IN EARLIER PARAS OF THIS ORDER, WE FIND NO INFIRMITY I N THE DIRECTION OF THE LD. COMMISSIONER OF INCOME TAX (AP PEAL), THEREFORE, THE APPEAL OF THE REVENUE IS DISMISSED. 6. NOW, WE SHALL TAKE UP THE APPEAL OF THE REVENUE (ITA NO.1278/MUM/2013) ASSESSMENT YEAR 2009-10, WHEREIN, THE FIRST GROUND PERTAINS TO DELETING THE DISALLOWANCE OF RS.2,56,26,588/-. THE LD. DR ADVANC ED ARGUMENTS, WHICH IS IDENTICAL TO THE GROUND RAISED. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE EXPLAI NED THAT DIVIDEND RECEIVED DURING THE YEAR WAS RS.69.53 LAKH S FOR WHICH OUR ATTENTION WAS INVITED TO PAGE-20 OF THE P APER BOOK AND SUO-MOTO DISALLOWANCE WAS MADE TO THE TUNE OF RS.6,00,375/-, WHEREAS, THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.2,56,26,588/-. THE LD. COUNSEL F OR THE ASSESSEE DEFENDED THE IMPUGNED ORDER. ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 34 6.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE CLAIMED EXEMPTION U/S 10(34) OF THE ACT FOR DIVIDEND OF RS.69,52,983/-. IT IS NOTICED T HAT THE AMOUNT OF RS.6,00,375/- WAS SUO-MOTO DISALLOWED BY THE ASSESSEE UNDER SECTION 14A OF THE ACT, WHEREAS, THE LD. ASSESSING OFFICER COMPUTED THE DISALLOWANCE AT RS.2,88,78,311/- U/S 14A R.W.R 8D COMPRISING INTERE ST DISALLOWANCE UNDER RULE 8D(2)(II) OF RS.2,56,26,588 /- AND INTEREST EXPENSES OF RS.32,51,732/-. THE LD. COMMI SSIONER OF INCOME TAX (APPEAL) WITH RESPECT TO INTEREST DIS ALLOWANCE FOLLOWED THE DECISION OF THE TRIBUNAL FOR ASSESSMEN T YEAR 2007-08 (ITA NO.5464/MUM/2011) (PARA-7) ORDER DATED 05/10/2012 BY HOLDING THAT THE OWN FUND OF THE ASSE SSEE WERE MORE THAN INVESTMENT SO NO INTEREST IS DISALLO WABLE IN THE YEAR. NO CONTRARY FACTS/DECISION WERE BROUGHT T O OUR NOTICE, THUS, WE FIND NO INFIRMITY IN THE CONCLUSIO N OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL), CONSEQUENTLY, THE IMPUGNED GROUND IS DISMISSED. ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 35 7. THE NEXT GROUND PERTAINS TO DELETING THE ADDITI ON OF RS.2,56,26,588/- WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. THE CRUX OF THE ARGUMENT IS IDENTICAL T O THE GROUND RAISES, WHEREAS, THE ASSESSEE CONTENDED THAT ASSESSEE WAS ASSESSED AT REGULAR RATE. CONSIDERING THE TOTALITY OF FACTS, WE FIND NO INFIRMITY IN THE CONC LUSION OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL). THE APPEAL OF THE REVENUE IS, THEREFORE, DISMISSED. FINALLY, THE APPEAL OF THE ASSESSEE (ITA NO.8489/MU M/2011) IS ALLOWED FOR STASTICAL PURPOSES AND THE APPEALS O F THE REVENUE (ITA NO.152/MUM/2012 AND 1278/MUM/2013) ARE DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 05/07/2016. SD/- SD/- ( RAJENDRA ) (JOGINDER SINGH) ! ' / ACCOUNTANT MEMBER # ' /JUDICIAL MEMBER $ MUMBAI; ( DATED : 05/07/2016 F{X~{T? P.S/. . . ITA NO.8489/MUM/2011, ITA NO.152/MUM/2012 & ITA NO. 1278/MUM/2013 M/S GODREJ AGROVET LTD . 36 $#%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. *+,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 1 ( *+ ) / THE CIT, MUMBAI. 4. 0 0 1 / CIT(A)- , MUMBAI 5. 3!4 . , 0 *+& *5 , $ / DR, ITAT, MUMBAI 6. 6 7$ / GUARD FILE. / BY ORDER, /3+ . //TRUE COPY// / (DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI