Dy.CIT., Circle-1(1), Hyderabad V. M/s A.P Industrial Infrastructure Corporation Limited, Hyderabad

ITA 1520/HYD/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6114 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 07-01-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 25-09-2014
• Court: TRIBUNAL
• Department Lawyers: B SATYANARAYANA MURTHY
• Assessee Lawyers: KONDA RAMESH
• Keywords: Earning of tax free income; Revised return
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH ES A , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 1419/HYD/2014 2011 - 12 M/S. ANDHRA PRADESH INDUSTRIA L INFRASTRUCTURE CORPORATION LTD., HYDERABAD [PAN: AABCA9029K] THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 1(1), HYDERABAD 1520/HYD/2014 2011 - 12 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 1(1), HYDERABAD M/S. ANDHRA PRADESH INDUSTRIAL INFRASTRUCTURE CORPORATION LTD., HYDERABAD [PAN: AABCA9029K] FOR REVENUE : S HRI B. SATYANARAYANA MURTHY , DR FOR ASSESSEE : SHRI K ONDA RAMESH, AR DATE OF HEARING : 07 - 0 1 - 201 6 DATE OF PRONOUNCEMENT : 20 - 0 1 - 201 6 O R D E R PER B. RAMAKOTAIAH, A.M. : THESE ARE CROSS APPEALS BY ASSESSEE AND REVENUE AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME TAX(APPEALS) - II, HYDERABAD DT. 15 - 07 - 2014 ON THE ISSUE OF DISALLOWANCE MADE U/S. 14A R.W. I.T.A. NO S . 1 4 1 9 / HYD / 201 4 1520/HYD/2014 M/S. ANDHRA PRADESH INDUSTRIAL INFRASTRUCTURE CO RPORATION LTD., : - 2 - : RULE 8D OF THE INCOME TAX ACT [ACT]. ASSESSEE IN ITS APPEAL HAS R AISED THE FOLLOWING FOUR GROUNDS: 2. THE HON'BLE COMMISSIONER OF INCOME TAX IS NOT JUSTIFIED IN SUSTAINING AN AMOUNT OF RS.1,55,50,703/ - OUT OF THE DISALLOWANCE UNDER RULE - 8 D OF THE INCOME TAX ACT. 3. THE HON'BLE COMMISSIONER OF INCOME TAX SHOULD HAVE APPRECIATED THAT THE CASH INVESTED FOR ACQUIRING THE INVESTMENTS ONLY SHOULD BE TAKEN INTO ACCOUNT FOR PURPOSE OF RULE - 8 D AND NOT THE VALUE OF LAND ALLOTTED IN CONSIDERATION OF WHICH SHARES WERE ALLOTTED BY THE COMPANIES. HE SHOULD HAVE APPRECIATED THAT RU LE - 8 D WHICH DEALS WITH DISALLOWANCE MOSTLY OF INTEREST SHOULD BE BASED ONLY FUNDS INVESTED WHICH BEAR INTEREST. 4. THE HON'BLE COMMISSIONER OF INCOME TAX IS NOT JUSTIFIED IN TAKING INTO ACCOUNT THE COST OF ALL INVESTMENTS IN DETERMINING THE AVERAGE VALUE OF INVESTMENTS FOR PURPOSE OF COMPUTING DISALLOWANCE UNDER RULE - 8 D OF THE INCOME TAX ACT. THE HON'BLE COMMISSIONER OF INCOME TAX SHOULD HAVE APPRECIATED THAT DIVIDENDS RECEIVED ARE ONLY FROM 3 COMPANIES AND THEREFORE, THE DISALLOWANCE SHOULD BE RELATED TO THE INVESTMENT IN THOSE 3 COMPANIES. THE HON'BLE COMMISSIONER OF INCOME TAX SHOULD NOT HAVE TAKEN INTO ACCOUNT THE INVESTMENTS FROM WHICH NO DIVIDEND IS RECEIVED. 5. THE HON'BLE COMMISSIONER OF INCOME TAX SHOULD HAVE APPRECIATED THAT THE APPELLANT - CORPO RATION DID NOT INCUR ANY INTEREST DURING THE YEAR UNDER CONSIDERATION AND THEREFORE, NO DISALLOWANCE IS CALLED FOR UNDER RULE - 8D. REVENUE IN ITS APPEAL HAS RAISED THIS MATERIAL GROUND: 2. THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE U/S. 14A BY IGNORING THE FACT THAT THE BOARDS CIRCULAR 5/2014 DATED: 11.02.2014 IS APPLICABLE IN ASSESSEE CASE. 2. BRIEFLY STATED, ASSESSEE IS A STATE GOVERNMENT UNDERTAKING ENGAGED IN THE BUSINESS OF DEVELOPING INDUSTRIAL INFRASTRUCTURE IN THE STATE OF ANDHRA PRADESH AND TELANGANA. AT THE RELEVANT POINT OF TIME, IT FILED ORIGINAL RETURN OF INCOME ADMITTING TAXABLE INCOME OF RS. 9,70,86,580/ - AND FILED A REVISED RETURN ADMITTING A LESSER INCOME LATER ON. IN THE SCRUTINY ASSESSMENT COMPLETED BY THE I.T.A. NO S . 1 4 1 9 / HYD / 201 4 1520/HYD/2014 M/S. ANDHRA PRADESH INDUSTRIAL INFRASTRUCTURE CO RPORATION LTD., : - 3 - : ASSESSING O FFICE R (AO), ONE OF THE DISALLOWANCE IS ON SECTION 14A AS ASSESSEE HAS CLAIMED EXEMPTION OF DIVIDEND OF RS. 3,67,99,560/ - . AO NOTICED THAT ASSESSEE HAS NOT DISALLOWED ANY EXPENDITURE UNDER THE RULES. CONSEQUENTIALLY, HE DISALLOWED THE AMOUNT AFTER INVOKI NG RULE 8D (2) AS UNDER: I. EXPENDITURE DIRECTLY RELATED TO EXEMPT INCOME NIL; II. INTEREST EXPENDITURE WHICH IS NOT DIRECTLY ATTRIBUTABLE - PROPORTION ATELY 24,14,99,089 III. 0.5% OF AVERAGE VAL UE OF INVESTMENT 1,55,50,70 3 . THUS, AO DISALLOWED TOTAL AMOUNT OF RS. 25,70,49,792/ - TOWARDS THE EXEMPT INCOME. 3. BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT ASSESSEES BUSINESS INVOLVE DEVELOPING INFRASTRUCTURE FACILITIES AND THESE INVESTMENTS ARE MADE BY ASSESSEE AS A N ODAL A G ENCY ON BEHALF OF THE GOVERNMENT OF ANDHRA PRADESH. IT WAS SUBMITTED THAT GOVERNMENT OF ANDHRA PRADESH PROVIDE LAND AS WELL AS FUNDS FOR INVESTING IN THE DEVELOPMENT OF INFRASTRUCTURE. ACCORDINGLY, OUT OF THE TOTAL INVESTMENT OF RS. 321.42 CRORES, AN AMO UNT OF RS. 292.44 CRORES IS ON BEHALF OF THE ALLOTMENT OF LAND AND ONLY CASH FUNDS WERE SPENT TO AN EXTENT OF RS. 28.98 CRORES. IT WAS SUBMITTED THAT THE EXEMPT INCOME WAS EARNED ON INVESTMENT OF RS. 2.13 CRORES OUT OF WHICH CASH FUNDS WAS ONLY RS. 4,40, 000/ - . IT WAS SUBMITTED THAT THE ENTIRE AVERAGE INVESTMENT SHOULD NOT BE CONSIDERED FOR DISALLOWANCES U/S. 8D (2) (III) OF THE ACT. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAS NOT INCURRED ANY INTEREST EXPENDITURE. THEREFORE, DISALLOWANCE U/S. 8D (2) (II) DOE S NOT ARISE. I.T.A. NO S . 1 4 1 9 / HYD / 201 4 1520/HYD/2014 M/S. ANDHRA PRADESH INDUSTRIAL INFRASTRUCTURE CO RPORATION LTD., : - 4 - : 4. LD. CIT(A) AFTER EXAMINING THE CONTENTIONS ACCEPTED THAT ASSESSEE HAS NOT INCURRED ANY INTEREST EXPENDITURE IN ITS BUSINESS OPERATIONS AND AO HAS WRONGLY CONSIDERED THAT AMOUNT OF RS. 28 CRORES WAS INCURRED AS AN INTEREST EXPENDITURE WHICH WAS RECEIVED FROM V I WSCO AND WAS IN TURN PAID TO CONSORTIUM AND THIS IS NOT ASSESSEES EXPENDITURE. THEREFORE, LD. CIT(A) DELETED THE ADDITION MADE UNDER 8D (2) (II). THEREAFTER, LD. CIT(A) CONFIRMED THE DISALLOWANCE OF RS. 1,55,50,703/ - MADE U/S. 8D (2) (II I) 0.5% OF AVERAGE INVESTMENTS AS PER RULE. ASSESSEE IS AGGRIEVED ON THE CONFIRMED AMOUNT WHEREAS REVENUE ON THE DELETED AMOUNT UNDER RULE U/S. 8D (2) (II). 5. LD. COUNSEL SUBMITTED THAT CONSIDERING THE ENTIRE AVERAGE VALUE OF INVESTMENT FOR DISALLOWANCE U/S. 8D(2) (III) IS NOT WARRANTED AS ASSESSEE EARNED INCOME ONLY ON THREE INVESTMENTS AND FURNISH ED THE LIST OF INVESTMENTS MADE BY THE COMPANY. IT IS FURTHER SUBMITTED THAT HON'BLE DELHI HIGH COURT IN THE CASE OF ACB INDIA LTD., VS. ACIT [374 ITR 108] HAS CONSIDERED SIMILAR ISSUE AND HELD THAT 0.5% DISALLOWANCE SHOULD BE CONSIDERED ON THE INVESTMENTS WHICH EARNED EXEMPT INCOME AND NOT THE ENTIRE INVESTMENT WHICH DID NOT YIELD ANY TAXABLE INCOME/EXEMPT INCOME. HOWEVER, HE FAIRLY ADMITTED THAT CO - ORDINATE B ENCH AT HYDERABAD IN THE CASE OF BEL LWETHER MICROFINANCE FUND PVT. LTD., VS. ITO IN ITA NO. 1743/HYD/13 DT. 27 - 06 - 2014 HAS HELD AGAINST THE ASSESSEE WHEREAS THE KOLKATA BENCH IN REI AGRO LTD., VS. DCIT IN ITA NO. 1331/KOL/2011 DT. 19 - 06 - 201 3 HAS DIRECTED T HE AO TO CONSIDER ONLY INVESTMENT WHICH YIELDED THE INCOMES. LD. DR HOWEVER, SUPPORTED THE ORDERS OF THE CIT(A) EXPLAINED THE RULE POSITION AND SUPPORTED THE ORDERS OF THE CO - ORDINATE BENCH AT HYDERABAD. I.T.A. NO S . 1 4 1 9 / HYD / 201 4 1520/HYD/2014 M/S. ANDHRA PRADESH INDUSTRIAL INFRASTRUCTURE CO RPORATION LTD., : - 5 - : 6. WE HAVE CONSIDERED THE ISSUE AND PERUSED THE RIV AL CONTENTIONS. AS FAR AS REVENUE APPEAL IS CONCERNED, AS RIGHTLY NOTED BY THE CIT(A), THERE IS NO EXPENDITURE INCURRED BY THE ASSESSEE ON INTE REST PAYMENTS. THEREFORE, AS THERE IS NO INTEREST PAYMENT BY THE ASSESSEE IN ITS BUSINESS , INVOKING DISALLOWANC E UNDER RULE 8D(2) (II) DOES NOT ARISE. THE AMOUNT WHICH W AS CONSIDERED BY THE AO IS PASS - THROUGH AMOUNT AS ASSESSEE HAS RECEIVED INTEREST OF RS. 28 CRORES AND IN TUR N, PASSED ON TO CONSORTIUM AND IS NOT AN INTEREST LIABILITY OF THE ASSESSEE. EVEN IF IT IS TO BE CONSIDERED AS INTEREST LIABILITY OF THE ASSESSEE, THE SAME DOES NOT PERTAIN TO THE EXEMPT INCOME AT ALL , AS IT PERTAINS TO TIED - UP FUNDS IN ANOTHER PROJECT. THEREFORE, AO WAS WRONG IN CONSI DERING THE AMOUNT AS INTEREST NOT DIRECTLY ATTRIBUTABLE T O A PARTICULAR RECEIPT. IN VIEW OF THAT , THERE IS NO MERIT IN REVENUES APPEAL AND ACCORDINGLY, REVENUES APPEAL IS DISMISSED. 7. COMING TO THE ASSESSEES CONTENTION THAT ONLY THE AVERAGE VALUE OF TOTAL ASSETS ON WHICH EXEMPT INCOME IS EARNED SHOULD BE C ONSIDERED AS AGAINST THE PRESCRIBED PROVISION OF AVERAGE VALUE OF INVESTMENT AS I N THE BALANCE SHEET CANNOT BE CONSIDERED. COMING TO THE FACTS OF THE CASE, ASSESSEE HAS INVESTED - AS PER ITS STATEMENT - ONLY AN AMOUNT OF RS. 2.13 CRORES OUT OF WHICH , IN K. RAHEJA I.T. PARK LT D. THE INVESTMENT OF RS. 11 LAKHS YIELDED DIVIDE ND OF RS. 4,95,000/ - , INVESTMENT IN VIZAG IT PARK LTD., O N RS. 4,40,000/ - HAS YIELDED A DIVIDEND OF RS. 70,560/ - . THE THIRD INVESTMENT OF RS. 1,98,00,000/ - IN L&T INFOCITY LTD., HAS HOWEVE R, YIELDED DIVIDEN D OF RS. 3,62,34,000/ - IE. MORE THAN THE INVESTMENT. THERE WE RE ALLOTMENT OF BONUS SHARES ALSO TO THE ASSESSEE ON 12 - 05 - 2003. THEREFORE, THE DIVIDEND YIELD IS MORE THAN THE INVESTMENT. ON FACTUAL BASIS ITSELF, 0.5% OF THE ACTUAL INVEST MENT I.T.A. NO S . 1 4 1 9 / HYD / 201 4 1520/HYD/2014 M/S. ANDHRA PRADESH INDUSTRIAL INFRASTRUCTURE CO RPORATION LTD., : - 6 - : DOES NOT GIVE RISE TO THE CORR ECT PICTURE. THIS ISSUE, AS ALREADY STATED EARLIER , HAS BEEN ELABORATELY DISCUSSED IN THE DECISION OF THE CO - ORDINATE BENCH (ONE OF US , AM WAS ALSO MEMBER) IN THE CASE OF BELLWETHER MICROFINANCE FUND PVT. LTD., VS. ITO I N ITA NO. 1743/HYD/13 DT. 27 - 06 - 2014 (SUPRA ), WHEREIN THE ENTIRE PROVISION OF SECTION 14A WAS ANALYSED COMPLETELY AND HELD AS UNDER: 7. WE HAVE HEARD PARTIES AND PERUSED MATERIALS ON RECORD AS WELL AS THE ORDERS OF THE AUTHORITIES ON THIS ISSUE. SO FAR A S THE CONTENTION OF THE LEARNED AR THAT PROVISIONS OF SECTION 14A IS NOT ATTRACTED AND IT HAS NOT INCURRED ANY EXPENDITURE TOWARDS EARNING OF EXEMPT INCOME AND FURTHER CONTENTION THAT DIVIDEND INCOME CANNOT BE CONSIDERED AS EXEMPT INCOME AS IT IS SUBJECTED TO DIVIDEND DISTRIBUTION TAX U/S 115J AND 115 - O OF THE ACT, IN OUR VIEW, IT IS NOT ACCEPTABLE SIMPLY BECAUSE OF THE FACT THAT THE ASSESSEE ITSELF RECOGNIZING THE FACT THAT IT HAS INCURRED EXPENDITURE TOWARDS EARNING OF EXEMPT INCOME HAS DISALLOWED EXPEND ITURE TO THE TUNE OF RS. 35,65,860/ - U/S 14A READ WITH RULE 8D(2) OF THE ACT. THEREFORE, ASSESSEES CHALLENGE WITH REGARD TO APPLICABILITY OF SECTION 14A READ WITH RULE 8D (2) CANNOT BE SUSTAINED. HOWEVER, SO FAR AS ASSESSEES CONTENTION WITH REGARD TO MOD E OF COMPUTATION OF DISALLOWANCE UNDER RULE 8D(2), IN OUR VIEW, REQUIRES CONSIDERATION. AS CAN BE SEEN, AT THE STAGE OF ASSESSMENT PROCEEDING ITSELF ASSESSEE HAS STATED THAT DISALLOWANCE UNDER RULE 8D(2)(I) SHOULD BE ONLY IN RELATION TO THE INVESTMENT, WHI CH HAS YIELDED ANY EXEMPT INCOME IN THE RELEVANT FY. EXPENDITURE CANNOT BE IN RELATION TO THE TOTAL INVESTMENT IRRESPECTIVE OF THE FACT WHETHER ANY INCOME IS EARNED OR NOT DURING THE YEAR. BEFORE GOING INTO THE MERITS OF ASSESSEES CONTENTIONS, IT IS DEEME D NECESSARY TO LOOK INTO THE PROVISIONS CONTAINED UNDER RULE 8D(2) WHICH IS RELEVANT FOR OUR PURPOSE. THE SAME IS EXTRACTED HEREUNDER FOR THE SAKE OF CONVENIENCE: 8D. (1) XXXXXXXXXXX (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWING AMOUNTS, NAMELY : ( I ) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME; ( II ) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURI NG THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY : I.T.A. NO S . 1 4 1 9 / HYD / 201 4 1520/HYD/2014 M/S. ANDHRA PRADESH INDUSTRIAL INFRASTRUCTURE CO RPORATION LTD., : - 7 - : A X B/C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AM OUNT OF INTEREST INCLUDED IN CLAUSE ( I ) INCURRED DURING THE PREVIOUS YEAR ; B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DA Y AND THE LAST DAY OF THE PREVIOUS YEAR ; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR ; ( III ) AN AMOUNT EQUAL TO ONE - HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. (3) XXXXXXXXXXXX 7.1 ON CAREFUL READING OF THE AFORESAID PROVI SION, IT WOULD BE EVIDENT THAT IT IS IN THREE PARTS. THE FIRST PART CONTAINED IN SUB - RULE D(2)(I), SPEAKS OF DISALLOWANCE OF THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. SECOND PART UNDER SUB - RULE 8D( 2)((II) DEALS WITH DISALLOWANCE TO BE COMPUTED ON THE BASIS OF FORMULA GIVEN THEREIN IN A CASE WHERE THE ASSESSEE INCURS EXPENDITURE BY WAY OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. THE THIRD PART AS PROVIDED UNDE R SUB - RULE 8D(2)(III) IS AN ARTIFICIAL FIGURE I.E. ONE - HALF PER CENT OF THE AVERAGE INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF TH E PREVIOUS YEAR. AGGREGATE OF THESE THREE COMPONENTS WOULD CONSTITUTE EXPENDITURE IN RELATION TO EXEMPT INCOME AND WOULD BE DISALLOWED U/S 14A OF THE ACT. THEREFORE, IF WE EXAMINE THE FACTS OF THE PRESENT CASE IN THE CONTEXT OF THE AFORESAID STATUTORY PRO VISION, IT IS QUITE CLEAR THAT AO WHILE WORKING OUT DISALLOWANCE UNDER RULE 8D(2)(I) HAS TAKEN THE TOTAL INVESTMENT IRRESPECTIVE OF THE FACT WHETHER THEY HAVE YIELDED INCOME OR NOT DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. THE REASONING OF THE AO IN THIS REGARD IS ACTUAL EARNING OR RECEIPT OF INCOME WILL NOT BE A CONDITION FOR DISALLOWANCE OF SUCH EXPENDITURE UNDER THE PROVISIONS OF SECTION 14A AS IT SPEAKS ABOUT EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. HE WAS OF THE VIEW THAT EVEN IF NO INCOME WAS RECEIVED, EXPENDITURE INCURRED CAN BE DISALLOWED U/S 14A. HOWEVER, RULE 8D(2)(I) SPEAKS OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. THE TERM TOTAL INCOME HAS NOT BEEN DEFINED EITHER U/S 14A OR UNDER RULE 8D. THEREFORE, ONE HAS TO LOOK TO THE DEFINITION OF TOTAL INCOME AS APPEARING IN SECTION 2(45) OF THE ACT, WHICH READS AS UNDER: I.T.A. NO S . 1 4 1 9 / HYD / 201 4 1520/HYD/2014 M/S. ANDHRA PRADESH INDUSTRIAL INFRASTRUCTURE CO RPORATION LTD., : - 8 - : 'TOTAL INCOME' MEANS THE TOTAL AMOUNT OF INCOME REFERRED TO IN SECTION 5 , COMPUTED IN THE MANNER LAID DOWN IN THIS ACT ; SECTION 5 OF THE ACT READS AS UNDER: - SCOPE OF TOTAL INCOME. 5. (1) SUBJECT TO THE PROVISIONS OF THIS ACT, THE TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH ( A ) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON ; OR ( B ) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR ; OR ( C ) ACCRUES OR ARISES 57 TO HIM OUTSIDE INDIA DURING SUCH YEAR : PROVIDED THAT, IN THE CASE OF A PERSON NOT ORDINARILY RESIDENT IN INDIA WITHIN THE MEANING OF SUB - SECTION (6) * OF SECTION 6 , THE INCOME WHICH ACCRUES OR ARISES TO HIM OUTSIDE INDIA SHALL NOT B E SO INCLUDED UNLESS IT IS DERIVED FROM A BUSINESS CONTROLLED IN OR A PROFESSION SET UP IN INDIA. (2) SUBJECT TO THE PROVISIONS OF THIS ACT, THE TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A NON - RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DE RIVED WHICH ( A ) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON ; OR ( B ) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR. EXPLANATION 1. INCOME ACCRUING OR ARISING OUTSIDE I NDIA SHALL NOT BE DEEMED TO BE RECEIVED 57 IN INDIA WITHIN THE MEANING OF THIS SECTION BY REASON ONLY OF THE FACT THAT IT IS TAKEN INTO ACCOUNT IN A BALANCE SHEET PREPARED IN INDIA. EXPLANATION 2. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT INCOME WHICH HAS BEEN INCLUDED IN THE TOTAL INCO ME OF A PERSON ON THE BASIS THAT IT HAS ACCRUED OR ARISEN OR IS DEEMED TO HAVE ACCRUED OR ARISEN TO HIM SHALL NOT AGAIN BE SO INCLUDED ON THE BASIS THAT IT IS RECEIVED OR DEEMED TO BE RECEIVED BY HIM IN INDIA. 7.2 AS CAN BE SEEN, DEFINITION OF TOTAL INCOM E U/S 2(45) REFERS TO SECTION 5 WHICH ENVISAGES SCOPE OF TOTAL INCOME. ON A READING OF SECTION 5 OF THE IT ACT, IT WOULD BE EVIDENT THAT AS PER THIS SECTION TOTAL INCOME IS OF ANY PREVIOUS YEAR AND WHICH INCLUDES INCOME FROM WHATEVER SOURCE DERIVED W HICH IS RECEIVED OR DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON OR ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISES I.T.A. NO S . 1 4 1 9 / HYD / 201 4 1520/HYD/2014 M/S. ANDHRA PRADESH INDUSTRIAL INFRASTRUCTURE CO RPORATION LTD., : - 9 - : TO HIM IN INDIA DURING SUCH YEAR OR ACCRUES OR ARISE TO HIM OUTSIDE INDIA DURING SUCH YEAR. CONSIDERED IN A FORESAID CONTEXT, EXPRESSION TOTAL INCOME REFERRED TO IN RULE 8D(2)(I) CANNOT BE IN ABSTRACT. IT MUST RELATE TO A PREVIOUS YEAR INCOME OF WHICH IS SOUGHT TO BE ASSESSED. THEREFORE, AS A NATURAL COROLLARY IT FOLLOWS THAT ONLY EXPENDITURE DIRECTLY RELATI NG TO INCOME WHICH IS EARNED EITHER ON RECEIPT BASIS OR ON ACCRUAL BASIS AND WHICH DOES NOT FORM PART OF TOTAL INCOME OF A PARTICULAR ASSESSMENT YEAR CAN BE DISALLOWED UNDER CLAUSE (I) OF RULE 8D(2). RULE 8D(2)(I) DOES NOT REFER TO THE INVESTMENT MADE BY T HE ASSESSEE. ON A CONJOINT READING OF CLAUSE (I) AND CLAUSE (III) OF RULE 8D(2), THE DIFFERENCE BETWEEN THEM IS CLEARLY DISCERNIBLE. WHILE CLAUSE (I) SPEAKS OF DISALLOWANCE OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOM E, CLAUSE (III) PROVIDES FOR DISALLOWANCE OF EXPENDITURE OF THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON FIRST DAY AND LAST DAY OF THE PREVIOUS YEAR. THEREFORE, WHILE DISALLOWANCE OF EXPENDITURE UNDER CLAUSE (I) IS RELATED TO INCOME EARNED WHICH DOES NOT FORM PART OF TOTAL INCOME, CLAUSE (III) RELATES TO THE AVERAGE OF THE VALUE OF INVESTMENT APPEARING IN THE BALANCE SHEET. ON A PLAIN READING OF RULE 8D(2) AS A WHOLE THE LEGISLATIVE INTENT BECOMES CLEAR THAT THE DISALLOWANCE OF EXPENDITURE CONTEMPLATED UNDER SUB - RULE(I) MUST RELATE TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THAT YEAR. THEREFORE, INVESTMENT, WHICH HAS NOT RESU LTED IN ANY INCOME CANNOT BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE UNDER RULE 8D(2)(I). HOWEVER, WHILE COMPUTING DISALLOWANCE UNDER RULE 8D(2)(III), THE AVERAGE OF THE TOTAL INVESTMENT OF THE ASSESSEE AS APPEARING IN THE BALANCE SHEET ON THE FIRST DA Y AND LAST DAY OF THE YEAR IRRESPECTIVE OF THE FACT WHETHER IT HAS YIELDED INCOME OR NOT CAN BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE. THE USE OF THE WORDS DOES NOT OR SHALL NOT IN RULE 8D(2)(III) CONNOTES THAT INCOME NOT ONLY DOES NOT FORM PART OF TO TAL INCOME DURING THE YEAR BUT IT ALSO SHALL NOT FORM PART OF TOTAL INCOME AT ANY TIME. HAD IT BEEN THE INTENTION OF THE RULE FRAMING AUTHORITIES TO DISALLOW UNDER RULE 8D(2)(I) EXPENDITURE RELATING TO TOTAL VALUE OF INVESTMENT OR INCOME WHICH IS NOT EARNE D DURING THE RELEVANT PREVIOUS YEAR, THEN, THEY WOULD HAVE USED THE EXPRESSION DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME AS APPEARING IN RULE 8D(2)(III) INSTEAD OF WORDS DOES NOT FORM PART OF TOTAL INCOME. THAT BEING THE CASE, AO CANNOT DISALLOW EXPENDITURE RELATING TO INVESTMENT WHICH HAS NOT YIELDED ANY EXEMPT INCOME DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER DISPUTE. THEREFORE, WE DIRECT THE AO TO DISALLOW THE EXPENDITURE RELATING TO INVESTMENTS RESULTING IN INCOME EARNED/A CCRUED WHICH DOES NOT FORM PART OF TOTAL INCOME OF THE IMPUGNED ASSESSMENT YEAR. HOWEVER, SO FAR AS AOS COMPUTATION OF EXPENDITURE TO BE DISALLOWED UNDER RULE 8D(2)(III), THE SAME IN OUR VIEW, IS IN CONFORMITY WITH RULE 8D(2)(III), HENCE, DO NOT CALL FOR ANY INTERFERENCE . I.T.A. NO S . 1 4 1 9 / HYD / 201 4 1520/HYD/2014 M/S. ANDHRA PRADESH INDUSTRIAL INFRASTRUCTURE CO RPORATION LTD., : - 10 - : IN VIEW OF THE ABOVE, SINCE THE LD. CIT(A) HAS FOLLOWED THE RULE , WE DO NOT SEE ANY REASON TO DIFFER . WE HAVE NO OPTION THAN TO CONFIRM THE SAME AS IT IS ACCORDING TO THE RULE . 8. LD. COUNSEL PLACED ON RECORD THE DECISION OF THE CO - O RDINATE BENCH OF KOLKA TA, IN WHICH THIS ISSUE WAS DISCUSSED AS UNDER: IN RESPECT O F PROVISIONS OF RULE 8D(2)(III), WHICH IS THE SUBJECT - MATTER OF THE APPEAL IN THE ASSESSEES HAND, A PERUSAL OF THE SAID PROVISION SHOWS THAT WHAT IS DISALLOWABLE UNDER R ULE 8D(2)(III) IS THE AMOUNT EQUAL TO PERCENTAGE OF THE AVERAGE VALUE OF INVESTMENT THE INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME. THUS, UNDER SUB - CLAUSE (III), WHAT IS DISALLOWED IS PERCENTAGE OF THE NUMERATOR B IN RULE 8D (2)(II) . AGAIN THIS IS TO BE CALCULATED IN THE SAME LINE AS MENTIONED EARLIER IN RESPECT OF NUMERATOR B IN RULE 8D(2)(II) OF THE ACT. AS CAN BE SEEN FROM THE ABOVE , THERE IS NO DETAILED DISCUSSION ABOUT THE RULE 8D AND THE BENCH HAS DIRECTED THE DISALL OWANCE IS TO BE IN THE SAME MANNER AS WAS DONE IN RULE 8D(2) (II). THE CO - ORDINATE BENCH AT HYDERABAD, HOWEVER HAS ANALYSED RULE 8D(2)(I) , (II) , (III) ELABORATELY AND THEREFORE, WE ARE OF THE OPINION THAT THIS DECISION NEED NOT BE FOLLOWED. LD. COUNSEL ALSO RELIED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF ACB INDIA LTD., VS. ACIT [374 ITR 108] (SUPRA) FOR THE PROPOSITION THAT ONLY THE INVESTMENTS IN WHICH INCOME WAS EARNED SHOULD BE CONSIDERED. FIRST OF ALL, WE WERE NOT SURE ABOUT THE F ACTUAL POSITION OF THE BALANCE SHEET ON WHICH THE FIGURES WERE ARRIVED AT. LD. COUNSEL PLACED ON RECORD SOME INFORMATION FROM THE BALANCE SHEET AS ON 31 - 03 - 2008 TO EXPLAIN THE PROVISIONS, BUT WE ARE OF THE OPINION THAT THIS ISSUE REQUIRE S A DEEPER ANALYSI S ON FACTS . THEREFORE, WE AR E UNABLE TO FOLLOW THE SAME ON FACTS AND FOR REASONS ON LAW AS DISCUSSED ABOVE. SINCE THE CO - ORDINATE BENCH AT HYDERABAD HAS ANALYSIED THE PROVISIONS IN ITS CORRECT PERSPECTIVE, WE ARE OF THE I.T.A. NO S . 1 4 1 9 / HYD / 201 4 1520/HYD/2014 M/S. ANDHRA PRADESH INDUSTRIAL INFRASTRUCTURE CO RPORATION LTD., : - 11 - : OPINION THAT THAT THE ACTION OF TH E CIT(A) IN CONSIDERING THE AVERAGE VALUE OF INVESTMENTS AVAILABLE IN THE BALANCE SHEET IS CORRECT AND ACCORDINGLY, ASS ESSEES GROUNDS ARE REJECTED. A SSESSEES APPEAL IS DISMISSED. 9. IN THE RESULT, BOTH APPEALS OF REVENUE AND A SS ESSEE ARE DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON 20 TH JANUARY, 2016 SD/ - SD/ - (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 20 TH JANUARY, 2016 TNMM COPY TO : 1. M/S. ANDHRA PRADESH I NDUSTRIAL INFRASTRUCTURE CORPORATION LTD., 5 - 9 - 58/B, 6 TH FLOOR, PARISRAMA BHAWAN, BASHEERBAGH, HYDERABAD. C/O. VENUGOPAL & CHENOY, CHARTERED ACCOUNTANTS, 4 - 1 - 889/16/2, TILAK ROAD, HYDERABAD. 2 . THE DEPUTY COMMISSIONER OF INCOME TAX , CIRCLE - 1( 1 ) , AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 3 . CIT (APPEALS) - II , HYDERABAD. 4. CIT - I , HYDERABAD. 5 . D.R. ITAT, HYDERABAD. 6 . GUARD FILE.