The DCIT(OSD) Circle-8, Ahmedabad V. M/s. Torrent Pvt.Ltd., Ahmedabad

ITA 1718/AHD/2014

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5150 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 04-06-2014
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NOS: 1718 & 1648/AHD/2014 (ASSESSMENT YEAR: 2010-11) DCIT(OSD), CIRCLE-8, AHMEDABAD M/S. TORRENT PVT. LTD. TORRENT HOUSE, OFF. ASHRAM ROAD, AHMEDABAD V/S V/S M/S. TORRENT PVT. LTD. TORRENT HOUSE, OFF. ASHRAM ROAD, AHMEDABAD DCIT(OSD), CIRCLE-8, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAACT5469R APPELLANT BY : SMT. APARNA AGARWAL & MUDIT NAGPAL RESPONDENT BY : SHRI S. N. SOPARKAR & PARIN SHAH, AR ( )/ ORDER DATE OF HEARING : 04 -07-201 8 DATE OF PRONOUNCEMENT : 01 -10-2018 PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. THESE CROSS APPEALS HAVE BEEN FILED BY THE ASSESSEE AND THE REVENUE FOR THE SAKE OF CONVENIENCE, WE WOULD LIKE TO DISPOSE OF BO TH THE APPEAL TOGETHER. ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 2 2. FIRST OF ALL, WE WOULD LIKE TO TAKE UP IN ITA NO. 1 648/AHD/2014 FOR ASSESSEES APPEAL. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS: 1. IN LAW AND IN FACTS AND CIRCUMSTANCES OF T HE APPELLANT'S CASE, THE LEARNED CIT (APPEALS) HAS GROSSLY ERRED IN CONFIRMING THE D ISALLOWANCE U/S 14A R.W.R 8D OF THE INCOME-TAX ACT, 1961, FOR RS. 2,10,12,615 WHILE COMPUTING INCOME UNDER THE NORMAL PROVISIONS OF THE ACT. 1.1 IN LAW AND IN FACTS AND CIRCUMSTANCES OF TH E APPELLANT'S CASE, THE LEARNED C!T (APPEALS) HAS GROSSLY ERRED IN CONFIRMING THE D ISALLOWANCE U/S 14A WITHOUT APPRECIATING THE FACT THAT ASSESSING OFFICER HAS ST RAIGHTAWAY APPLIED RULE 8D WITHOUT EXAMINING THE MERITS OF ASSESSEE'S CLAIM FO R SUO MOTU DISALLOWANCE OF EXPENDITURE IN RETURN OF INCOME FOR RS. 36,13,501 A ND WITHOUT RECORDING SATISFACTION AS TO INCORRECTNESS OF THE SAME. 1.2 IN LAW AND IN FACTS AND CIRCUMSTANCES OF TH E APPELLANT'S CASE, THE LEARNED CIT (APPEALS) HAS GROSSLY ERRED IN CONFIRMING DISAL LOWANCE UNDER SECTION 14A FOR RS. 2.10 CRORES WITHOUT APPRECIATING THE FACT THAT OUT OF TOTAL INVESTMENT AS ON 31ST MARCH, 2010 FOR RS. 698.91 CRORES, INVESTMENTS WORTH RS. 697.97 CRORES (99.86%) ARE MADE IN EARLIER ASSESSMENT YEAR WHICH DOES NOT REQUIRE HUGE ADMINISTRATIVE EXPENDITURE AS ASSUMED BY THE ASSESSING OFFICER. 2. IN LAW AND IN FACTS AND CIRCUMSTANCES OF T HE APPELLANT'S CASE, THE LEARNED CIT (APPEALS) HAS GROSSLY ERRED IN CONFIRMING ASSES SING OFFICER'S STAND FOR NOT REDUCING BOOK PROFIT COMPUTED UNDER SECTION 115JB I N RELATION TO WRITE BACK OF 'PROVISION FOR DIMINUTION IN VALUE OF INVESTMENT - NO LONGER REQUIRED' FOR RS. 10,31,50,528 AND 'PROVISION FOR DOUBTFUL LOAN - NO LONGER REQUIRED' FOR RS. 71,64,716. 2.1 IRI LAW AND IN FACTS AND CIRCUMSTANCES OF T HE APPELLANT'S CASE, THE LEARNED CIT (APPEALS) OUGHT TO HAVE APPRECIATED THAT CLAIM MADE BY APPELLANT FOR REDUCING AFORESAID INCOME WHILE COMPUTING BOOK PROF IT UNDER SECTION 115JB WAS AS PER AMENDMENT BROUGHT TO EXPLANATION 1 TO SAID S ECTION BY FINANCE (NO. 2) ACT, 2009. 2.2 IN LAW AND IN FACTS AND CIRCUMSTANCES OF TH E APPELLANT'S CASE, THE LEARNED CIT (APPEALS) HAS GROSSLY ERRED IN CONFIRMING ADDIT ION REFERRED SUPRA ON THE GROUND THAT PROVISION FOR DIMINUTION IN VALUE OF IN VESTMENT AND PROVISION FOR DOUBTFUL LOANS WAS CREATED IN A.Y. 2006-07 WHEREIN APPELLANT HAS NOT INCREASED BOOK PROFIT AS PER CLAUSE (I) OF EXPLANATION - 1 TO SECTION 115JB OF THE ACT HENCE IN THE YEAR IN WHICH PROVISION IS WRITTEN BACK CANN OT BE ALLOWED AS DEDUCTION WITHOUT APPRECIATING THE FACT THAT PROVISION MADE I N A.Y. 2006-07 WAS ALREADY DISALLOWED BY ASSESSING OFFICER WHILE COMPUTING BOO K PROFIT UNDER SECTION 115JB OF THE ACT IN ORDER UNDER SECTION 143(3) R.W.S. 147 DATED 11TH MARCH, 2014 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR WITHDRAW ANY GROUND OR GROUNDS OF ABOVE APPEAL EITHER BEFORE OR DURING THE COURSE OF HEARING OF THE APPEAL. ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 3 3. ON PERUSAL OF THE DETAILS FILED BY THE ASSESSEE COM PANY, IT WAS NOTICED THAT THE ASSESSEE HAD EARNED EXEMPT INCOME DURING THE RELEVA NT F.Y HOWEVER, THE CORRESPONDING EXPENDITURE INCURRED UPON TO EARN SUC H EXEMPT INCOME WAS NOT DISALLOWED AS PER THE PROVISIONS OF SECTION 14A R.W .R.SD. ACCORDINGLY, IN ACCORDANCE WITH THE MANDATE OF SECTION 14A, THE ASS ESSEE WAS ASKED TO SHOW CAUSE VIDE NOTICE U/S 142(1) DATED 12/01/12 AS TO W HY DISALLOWANCE U/S 14A R.W.R.SD SHOULD NOT BE MADE? THE ASSESSEE VIDE LETT ER DATED 21.05.12 FURNISHED ITS REPLY WHICH IS REPRODUCED BELOW: 'IN RELATION TO THE. ON-GOING ASSESSMENT PROCEEDINGS FOR A.Y. 2010-11 THE ASSESSEE COMPANY SUBMITS AS UNDER 1. VIDE POINT NO. 43 OF THE ABOVE REFERRED NOTICE YOUR GOOD HONOUR HAS ASKED THE ASSESSEE COMPANY TO FURNISH REASON AS TO WHY DISAL LOWANCE SHALL NOT BE MADE U/S 14A R.W.R RULE 8D. IN THIS REGARDS, THE ASSESSE E COMPANY SUBMITS THE CLASSIFICATION OF INVESTMENTS EXISTING AS ON MARCH 31, 2010, AS UNDER PARTICULARS LONG TERM INVESTMENTS CURRENT INVESTMENTS TOTAL TOTAL INVESTMENTS 5,55.29,61,336 1,84,99,73,861 7,40,29,35,197 IN SUBSIDIARY/ COS, 4,51,84,82,592 1,84,99,73,861 6,36,85,31,481 IN OTHERS COMPANIES 1,03,44,78,744 0 89, 98, 17, 107 FROM THE ABOVE CLASSIFICATION OF INVESTMENTS, IT IS EVIDENT THAT THE INVESTMENTS TO THE EXTENT OF 81.37% ARE MADE IN THE SUBSIDIARY COMPANIES OF THE ASSESSEE COMPANY. THE ASSESSEE COMPANY FURTHER SUBMITS THAT THESE ARE STRATEGIC INVESTMENT MADE IN THE GROUP COMPANIES WHICH DO NOT REQUIRE ANY MONITORING OR CONSTANT ADMINISTRATION. IN FACT THE INVESTMENT HAS BEEN MADE IN THE GROUP COMPANIES AS PART OF STRATEGIC BUSINESS MOVE AND NO T WITH A VIEW OF EARNING DIVIDEND INCOME. EXEMPT INCOME IS ANCILLARY TO THE MAIN OBJECTIVE OF THE INVESTMENTS MADE, IN THE SUBSIDIARY COMPANIES. ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 4 1.2 FURTHER YOUR HONOUR MAY OBSERVE THAT THE INTERE ST EXPENSE OF RS. 3,04,83,185 IN RESPECT O/IDFC LOAN HAS BEEN ALREADY DISALLOWED WHILE FILING THE RETURN OF INCOME. FURTHER UTILIZATION OF FUND RECEI VED FROM IDFC LOAN-II HAS ALREADY BEEN EXPLAINED TO YOUR HONOUR VIDE ITS EARL IER SUBMISSION. THEREFORE THE INTEREST EXPENSE CANNOT BE SAID TO HAVE BEEN IN CURRED TOWARDS EARNING OF EXEMPT INCOME AND THEREFORE THE SAME SHOULD NOT BE INCLUDED IN THE COMPUTATION OF DISALLOWANCE AS PER RULE 8D 1.3 IN RESPECT OF ADMINISTRATION AND OILIER, EXPENS ES, THE ASSESSES COMPANY HEREBY GIVES THE BRIEF BREAKUP AS PER THE PROFIT AN D LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION: PARTICULARS TOTAL EXPENSES EXPENSES CLAIMED REMARKS EMPLOYEE REMUNERATION AND BENEFITS 1,58,39,210 1,42,55,289 (10% OF THE TOTAL DISALLOWED IN THE RETURN DEMAT CHARGES 20,29,580 0 DISALLOWED IN THE RETURN RENT, RATES AND TAXES 2,000 2,000 INSURANCE 1,74,853 1,74,853 NO DIRECT NEXUS WITH THE EXEMPT INCOME REPAIRS AND MAINTENANCE 58,903 58,903 TRAVELLING AND CONVEYANCE 3,57,007 3,57,007 FEES AND LEGAL EXPENSES 5,12,115 5,12,115 AUDITOR'S REMUNERATION 2,46,084 2,46,084 NO DIRECT NEXUS WITH THE EXEMPT INCOME STATIONERY, PRINTING 42,792 42,792 MISCELLANEOUS EXPENSES 45,309 45,309 ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 5 TOTAL 1,93,07,853 1,56,94,352 1.3.1 WITH RESPECT TO THE EMPLOYEE REMUNERATION IT IS SUBMITTED THAI, WHILE FILING THE RETURN OF INCOME FOR THE YEAR UNDER CONS IDERATION-THE ASSESSEE COMPANY HAD ALREADY DISALLOWED I 0% OF THE TOTAL R EMUNERATION PAID TO THE EMPLOYEES AS EXPENSE DISALLOWED FOR EARNING EXEMPT INCOME, AND SO NO FURTHER DISALLOWANCE IN THIS RESPECT IS NEEDED. FUR THER IN COMPUTATION TOTAL INCOME, DEMAT CHARGES HAVE ALSO BEEN COMPLETELY DIS ALLOWED, 50 THERE IS NO NEED OF FURTHER DISALLOWANCE U/S 14A 1.3.2 IT IS WELL KNOWN FACT THAT THE PURPOSE OF DIS ALLOWANCE U/S 14A IS TO EXCLUDE THE EXPENSES WHICH HAVE BEEN INCURRED TO EA RN EXEMPT INCOME AND SO THE EXPENSES WHICH CANNOT BE SAID TO HAVE ANY DIREC T OR INDIRECT NEXUS WITH THE EXEMPT INCOME, SHOULD NOT BE DISALLOWED U/S 14A R.W.R. 8D. THEREFORE, IT IS SUBMITTED THAT INSURANCE EXPENSES AND AUDITOR'S REM UNERATION NEED NOT BE DISALLOWED U/S 14A AS THEY DO NOT BEAR ANY NEXUS WI TH THE EARNING OF THE EXEMPT INCOME. IT CANNOT BE SAID THAT INSURANCE EXP ENSE, OR AUDITOR'S REMUNERATION HELP IN THE EARNING THE EXEMPT INCOME OR HAVE IN ANY MANNER SUPPORTED THE MONITORING OF 'DIE INVESTMENTS AND TH US THEY SHOULD NOT BE INCLUDED FOR DISALLOWANCE U/S 14A R.W.R. 8D. 1.3.3 EXPENSES OF RENT, RATES AND TAXES, FEES & LEG AL EXPENSES, ETC. ARE REQUIRED TO BE INCURRED, EVEN IN ABSENCE OF ANY ACTIVE BUSIN ESS ACTIVITY, THESE EXPENSES ARE REQUIRED TO BE INCURRED, WHICH ARE NECESSARY FO R MAINTAINING THE STATUS OF THE COMPANY. THE REMAINING EXPENSES OF INSURANCE, A DVERTISEMENT, REPAIR & MAINTENANCE, TRAVELING & CONVEYANCE EXPENSES, AND O THER MISC. EXPENSES ARE OF GENERAL NATURE AND INCURRED BY TLIE ASSESSEE FOR GENERAL ADMINISTRATIVE PURPOSE. 1.4 WITHOUT PREJUDICE TO ABOVE, AS REGARD THE ADMIN ISTRATIVE EXPENDITURE, IT IS STATED THAT THE ASSESSEE COMPANY HAS AVERAGE INVEST MENT OF RS 6,87,02,38,178. THEREFORE, IF BY APPLYING RULE 8D, THE DISALLOWANCE WOULD BE 0.5% OF THE AVERAGE INVESTMENT, THE SAD DISALLOWANC E WOULD WORK OUT TO RS 3,43,51,190. HOWEVER, THE TOTAL ADMINISTRATIVE EXPE NDITURE IS ONLY RS 1,93,07,853/-, OUT OF WHICH THE ASSESSEE COMPANY HA S CLAIMED DISALLOWANCE OF ONLY RS. 1,56,94,352 (34,68,643 + 1,58,39,210 20, 29,580 15,83,921). THE DISALLOWANCE AS STATED ABOVE IF MADE WILL EXCEED TH E TOTAL AMOUNT OF ADMINISTRATIVE EXPENSES, HOWEVER, THE TOTAL DISALLO WANCE- U/S 14A R.W.R 8D CANNOT EXCEED THE TOTAL AMOUNT OF ADMINISTRATIVE EX PENDITURE. BUT IN THE PRESENT CASE, THERE IS A CONTRARY SITUATION. HENCE, RULE 8D IS INAPPLICABLE. IN VIEW OF ABOVE, THE ASSESSEE COMPANY IS OF THE BE LIEF THAT THE ABOVE SUBMISSION SUFFICES THE REQUIREMENTS OF YOUR GOOD H ONOUR. IF HOWEVER, THERE IS THERE IS ANY QUERY IN THIS REGARDS OR YOUR GOOD HON OUR ARE OF A DIFFERENT VIEW, ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 6 THEN KINDLY GRANT THE ASSESSEE COMPANY AN OPPORTUNI TY OF BEING HEARD IN THE SAID MATTER AND OBLIGE. 4. THE REPLY OF THE ASSESSEE HAS BEEN CONSIDERED. AS P ER THE PROVISIONS OF SECTION 14A, NO DEDUCTION IS TO BE ALLOWED IN RESPECT OF EX PENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FROM PART OF THE TOTAL INCOME UNDER THE I.T. ACT. AS PER SECTION 14A (2) THE ASSE SSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO S UCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACC ORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, IF THE ASSESSING OFFICER, HAV ING 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 RELATION TO INCOME W HICH DOES NOT. FORM PAN OF THE TOTAL INCOME UNDER THIS ACT. 5. THE PARLIAMENT IN ITS WISDOM HAD ENACTED SECTION 14 A WITH RETROSPECTIVE EFFECT FROM 1-4-1962 IN ORDER TO CLARIFY THE ALREADY EXIST ING POSITION THAT ONLY THOSE EXPENSES COULD BE CLAIMED WHICH WERE RELATABLE TO T HE TAXABLE INCOME. IN THE PAST, IT WAS SEEN THAT ASSESSEE'S WERE PUSHING THE EXPENSES RELATING TO EXEMPT INCOME WHICH WERE NOT TAXABLE TOWARDS TAXABLE INCOM E AND THEREBY REDUCING THE TAXABLE INCOME WRONGLY. IT WAS TO CURB THIS MIS CHIEF THAT THE PARLIAMENT ENACTED SECTION 14A AND ALSO TO OVERCOME THE DECISI ON OF HON'BLE SUPREME COURT IN THE CASE OF RAJASTHAN STATE WAREHOUSING CO RPN. V. CIT [2000] 242 ITR 450, WHEREIN IT WAS HELD THAT IF THE EXEMPTED I NCOME ARID THE TAXABLE INCOME ARE EARNED FROM ONE AND INDIVISIBLE BUSINESS THEN THE APPORTIONMENT OF EXPENDITURE COULD 'NOT BE SUSTAINED. THE , INTEN TION OF THE LEGISLATURE IS CLEARLY EVIDENT FROM THE MEMORANDUM EXPLAINING THE PROVISIONS CONTAINED IN THE FINANCE BILL WHEREIN IT WAS EXPLAINED THAT, ONL Y THOSE EXPENSES COULD BE CLAIMED AS DEDUCTION WHICH ARE INCURRED IN RELATION TO EARNING THE TAXABLE ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 7 INCOME. THE USE OF THE EXPRESSION 'ONLY TO THE EXTE NT' IN THE MEMORANDUM IS CLEAR INDICATOR THAT ONLY THAT PART OF EXPENSES CAN BE ALLOWED AS DEDUCTION WHICH IS RELATED TO THE EARNING OF TAXABLE INCOME. ACCORDINGLY, WHEN THE INCOME IS EXEMPT AND DOES NOT FORM PART OF THE TOTA L INCOME THEN, NO EXPENDITURE WHETHER DIRECT OR INDIRECT IN RELATION TO THAT INCOME COULD BE CLAIMED AS DEDUCTION. 6. WHETHER TO INVEST OR NOT TO INVEST ARID WHETHER TO RETAIN THE INVESTMENTS OR TO LIQUIDATE THE SAME ARE VERY STRATEGIC DECISIONS WHI CH THE MANAGEMENT IS CALLED UPON TO TAKE. THESE ARE MIND-BOGGLING DECISIONS AND TOP MANAGEMENT IS INVOLVED IN TAKING THESE DECISIONS. THIS DECISIONS MAKING PROCESS IS VERY COMPLICATED AND REQUIRES VERY CAREFUL ANALYSIS. MOR EOVER, THE ASSESSEE HAS TO KEEP TRACK OF THE DIVIDED INCOMES DECLARED BY THE I NVESTEE COMPANIES AND ALSO TO KEEP TRACK OF THE DIVIDEND INCOME HAVING BEEN RE GULARLY RECEIVED BY THE ASSESSEE. THIS ACTIVITY ITSELF CALLED FOR CONSIDERA BLE MANAGEMENT ATTENTION AND CANNOT BE LEFT TO A JUNIOR CLERK. 7. WHAT HAS BEEN THE NATURE OF INCOME EARNED BY THE AS SESSEE? THE ASSESSEE HAS MAINLY EARNED EXEMPT, AS PER THE P&L A/C OF THE ASS ESSEE. ALL ITS EFFORT AND ENERGIES HAVE BEEN DEVOTED TOWARDS THE EARNING OF T HE EXEMPT INCOME. THEREFORE THE CORRESPONDING EXPENDITURE IS REQUIRED TO BE DISALLOWED UNDER THE PROVISIONS OF SECTION 14A R.W.R. 8D. 8. IN VIEW OF ABOVE DISCUSSION, A DISALLOWANCE IS MADE U/S. 14A R.W.R 8D. DIRECT EXPENDITURE RS. 1,58,39,210 (EXPENDITURE ON EMPLOYEE'S REMUNERATION AND BENEFIT S) INTEREST EXPENDITURE RS. NIL ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 8 ADMINISTRATIVE EXP 0.5%OF(6,75,13,69,609+698,91,06,746)/2 RS. 3.43,5 1,190 TOTAL RS. 5,01,90,400/- THE DIRECT EXPENDITURE IS TAKEN TO BE THE TOTAL EMP LOYEES REMUNERATION AND BENEFITS, AS THE TIME AND EFFORT REQUIRED FOR ACTIV ITIES RESULTING INTO EARNING OF TAXABLE INCOME HAS BEEN NEGLIGIBLE. SINCE 0.5 % OF THE AVERAGE INVESTMENT IS MORE THAN THE TOTAL GENERAL AND ADMINISTRATION EXPE NSE, SO THE DISALLOWANCE IS RESTRICTED TO THE TOTAL GENERAL & ADMINISTRATION EX PENSE AND DEPRECIATION EXPENSE. THE TOTAL DISALLOWANCE SHOULD COME TO RS. 2,46,26/116/- (RS. 1,58,39,210/- + RS.34,68,643/--+ RS.53/18,263). HOW EVER THE ASSESSEE HAS ALREADY DISALLOWED RS 36,13,501 (DEMAT CHARGES OF R S 20,29,580 AND DISALLOWANCE U/S 14A OF RS 15,83,921) JN THE COMPUT ATION OF INCOME THEREFORE THE TOTAL DISALLOWANCE COMES TO RS 2,10/12,615. ACC ORDINGLY A DISALLOWANCE OF RS. 2,10,12,615/-IS MADE. 3.6 RELIANCE IN THIS REGA RD IS PLACED UPON THE FOLLOWING DECISIONS: . 1) ITO V/ S, DAGA CAPITAL MANAGEMENT PVT LTD 117 1T D 169 (MUM)(SB) 2) SOUTHERN PETROL CHEMICAL INDUSTRIES V/S. DCIT, 93 TTJ 161 3) CHEMINYEST LTD VS. HO (DEL) (SB) [2009] 124 TTJ (DEL)(SB) 577 [DISALLOWANCE U/S 14A : RS.2,10,12,615/-] 9. AGAINST THE SAID ADDITION, ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A). LD. CIT(A) HELD THAT IN SIMILAR ADDITION HA S BEEN MADE IN THE ASSESSMENT YEAR 2008-09 & 2009-10 AND LD. CIT(A) HA S CONFIRMED THE ADDITION AND HE CONFIRMED THE ACTION OF HIS PREDECESSOR. BUT , IN OUR CONSIDERED OPINION, NETTING OFF SHOULD BE GIVEN TO THE APPELLANT. THUS, WE REMAND THIS MATTER BACK ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 9 TO THE FILE OF THE A.O. WHO WILL EXAMINE THE MATTER AND NETTING OFF OF THE EXPENDITURE TO BE ALLOWED TO THE APPELLANT AS PER P REVAILING LAW. 10. SO FAR GROUND WITH REGARD TO CONFIRMING THE ACTION OF A.O. IN NOT REDUCING THE BOOK PROFIT IS CONCERNED, LD. A.O. HAS DISCUSSED TH IS ISSUE AS FOLLOWS: 11. ADDITION TO BOOK PROFIT IN THE COMPUTATION OF BOOK PROFIT U/S 115JB , THE A SSESSEE COMPANY HAS DEDUCTED THE PROVISION FOR DIMINUTION IN VALUE OF I NVESTMENT- NO LONGER REQUIRED TO THE EXTENT OF RS 10,31,50,528/- AND PRO VISION FOR DOUBTFUL LOANS - NO LONGER REQUIRED TO THE EXTENT OF RS 71,64,716/-. THE ASSESSEE VIDE NOTICE U/S 142(1) DATED 12.01.12 WAS ASKED TO PROVIDE JUST IFICATION WITH RESPECT TO SUCH DEDUCTION MADE IN THE BOOK PROFIT COMPUTED U/S 115JB. THE ASSESSEE VIDE LETTER DATED 14.05.12 FURNISHED ITS REPLY, WHI CH IS REPRODUCED BELOW: 'VIDE POINT NO. 52, THE ASSESSEE COMPANY HAS BEEN CA LLED UPON TO FURNISH REASONS PS TO WHY PROVISION FOR DIMINUTION IN VALUE OF INVE STMENTS AND PROVISION FOR DOUBTFUL LOANS AMOUNTING TO RS 10,31,50,528/- AND R S 71,64,716/- RESPECTIVELY, SHALL NOT BE ADDED BACK TO THE BOOK PROFIT U/S 115J B OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT'). A STATEMENT SHOWING THE RESPECTIVE YEARS WHEN THE SAID -PROVISIONS HAD BEEN CREATED (PARTY-W ISE AND AMOUNT-WISE) IS ATTACHED HEREWITH VIDE ANNEXURE 4. BESIDES, A STATE MENT SHOWING THE AMOUNT OF PROVISION DEBITED/CREDITED TO THE PROFIT AND LOSS A CCOUNT (WITH COMPLETE BREAK- UP, PARTY-WISE) FROM A.Y. 1999-2000 TO A.Y. 2010-11 IS ATTACHED HEREWITH VIDE ANNEXURE-5. IN THIS REGARDS, THE ASSESSEE COMPANY SUBMITS THAT THE FINANCE (NO. 2) ACT, 2009 HAS AMENDED EXPLANATION-1 TO SECTION 115JB(1) OF TH E ACT, WHEREBY CLAUSE (I) HAS BEEN ADDED TO EXPLANATION-1 TO THE SAID SECTION. AS PER THE SAID CLAUSE, WHILE COMPUTING THE BOOK PROFIT, THE NET PROFIT AS PER PR OFIT & LOSS ACCOUNT IS TO BE INCREASED BY THE AMOUNT OR AMOUNTS SET ASIDE AS PRO VISION FOR DIMINUTION IN THE VALUE OF ANY ASSET'. THE SAID AMENDMENT TO SECTION 115JB IS EFFECTIVE FROM THE A.Y. 2001-02. FURTHER, SIMILAR AMENDMENT IS ALSO MA DE IN PROVISIONS OF SECTION 115JA, WHICH SHALL BE APPLICABLE RETROSPECTIVELY FR OM A.Y. 1.998-99 ONWARDS, I.E. UP TO A.Y. 2000-01. IN VIEW OF ABOVE, ANY AMOUNT SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET WOULD NOT BE DEDUCTIBLE, WHILE COMPUTING THE BOOK PROFIT FOR ANY YEAR BEGINNING-FROM A.Y. 1998-99. AT THIS POINT, IT MAY BE NOTED THAT SUCH PROVISIONS ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 10 STUNNING IN THE BOOKS OF THE ASSESSEE COMPANY, AT T HE BEGINNING OF THE YEAR UNDER REVIEW, WERE-CREATED AFTER THE SAID ASSESSMEN T YEAR. THEREFORE, THEY WOULD NOT BE DEDUCTIBLE WHILE-COMPUTING THE BOOK PR OFIT, IN THE YEAR IN WHICH THEY WERE CREATED. IN THE ABOVE BACKGROUND, IT MAY BE POINTED OUT THAT THE ASSESSEE COMPANY HAS WRITTEN BACK AN AMOUNT OF RS 10,31,.50,528/-, BEING THE 'PROVISION FOR DIMINUTION IN VALUE OF INVESTMENT - NO LONGER REQUIRED' AND RS 71,64,716/-, BEING THE 'PROVISIONS FOR DOUBTFUL LOANS - NO LONGER REQUIRED '. THE SAID AMOUNTS ARE CREDITED TO .THE PROFIT AND-LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION. IN THIS CONNECTION, IT MAY BE NOTED THAT THE FIRST CLAUSE OF SECOND LIMB OF THE EXPLANATION-1 TO SECTION 115]B ALLOWS REDUCTION OF THE FOLLOWING AMOUNT FROM THE NET PROFIT AS SHOWN IN THE PROFIT & LOSS ACCOUN T: 'THE AMOUNT WITHDRAWN FROM ANY RESERVE OR PROVISION( EXCLUDING A RESERVE CREATED BEFORE THE 1ST DAY OF APRIL 1997 OTHERWISE THAN BY WAY OF DEBIT TO THE PROFIT AND LOSS ACCOUNT), IF ANY SUCH AMOUNT IS CRE DITED THE PROFIT AND LOSS ACCOUNT: PROVIDED THAT WHERE THIS SECTION IS APPLICABLE TO A N ASSESSEE IN ANY PREVIOUS YEAR, THE AMOUNT WITHDRAWN FROM RESERVES CREATED OR PROVI SIONS MADE IN A PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 1997 SH.IL; NOT BE REDUCED FROM THE BOOK PROFIT UNL ESS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOSE RESERVES OR PROVISIONS (OUT OF WHICH THE SAID AMOUNT WAS WITHDRAWN) UNDER THIS EXPLANATION OR EXPLANATIO N BELOW SECOND PROVISO TO SECTION 115]A, AS THE CASE MAY BE; OR' THE ABOVE CLAUSE ALLOWS REDUCTION OF THE AMOUNT WIT HDRAWN FROM AM/ PROVISION, WHILE COMPUTING THE BOOK PROFIT U/S. 115]B. HOWEVER , THE SAID REDUCTION IS SUBJECT TO FOLLOWING CONDITIONS: I. THE AMOUNT WITHDRAWN FROM PROVISION HAS BEEN CREDITED TO PROFIT AND LOSS ACCOUNT; .. II. (A) THE AMOUNT IS WITHDRAWN OUT OF PROVI SION MADE PRIOR TO A.Y. 1998-99; OR (B) IF THE AMOUNT IS WITHDRAWN OUT OF PROVISION MAD E IN OR AFTER A.Y. 1998-99, THE BOOK PROFIT OF-SUCH YEAR HAS BEEN INCREASED BY THOS E PROVISIONS UNDER THE EXPLANATION 1. SINCE THE AMOUNT WITHDRAWN FROM PROVISION ACCOUNT H AS BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED ON 31-03 -2010, THE FIRST CONDITION IS SATISFIED IN THE ASSESSEE COMPANY'S CASE. . ; : AS PER THE SECOND CONDITION, THE SAID AMOUNT CAN BE REDUCED, IF THE BOOK PROFIT OF THE YEAR(S) IN WHICH THE PROVISION WAS MADE, HAS BE EN INCREASED BY THOSE PROVISIONS. IN THIS CONTEXT, IT IS SUBMITTED THAT P ROVISION WHICH HAS BEEN WRITTEN BACK DURING THE YEAR UNDER CONSIDERATION WAS MADE I N THE FINANCIAL YEAR(S), WHICH-FALLS AFTER THE DATE FROM WHICH THE AMENDMENT HAS BEEN MADE EFFECTIVE. AT THIS POINT, IT MAY BE POINTED OUT THAT THE INSER TION OF CLAUSE (I) IN EXPLANATION-L TO SECTION 115 JB HAS MADE IT COMPULSORY FOR EVERY ASSESSEE TO INCREASE THE BOOK PROFIT BY 'THE AMOUNT OR AMOUNTS SET ASIDE AS PROVI SION FOR DIMINUTION IN THE ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 11 VALUE OF ANY ASSET'. FURTHER, AS STATED ABOVE, SIMI LAR AMENDMENT IS ALSO MADE IN PROVISIONS OF SECTION 115JA AND THE SAID AMENDMENT IS APPLICABLE RETROSPECTIVELY FROM THE A.Y. 1998-99 ONWARDS. IN VIEW OF THE SAID RETROSPECTIVE AMENDMENT, THE BO OK PROFIT FOR THE YEAR IN WHICH THE PROVISION WAS MADE, SHALL STAND INCREASED BY THE AMOUNT OF PROVISION MADE IN THE RESPECTIVE YEAR(S). ACCORDINGLY, THE CO NDITION STATED IN (II)(B) GETS SATISFIED. CONSIDERING TIRE ABOVE POINTS, THE ASSESSEE COMPANY REQUESTS YOUR GOODSELVES TO KINDLY ALLOW THE REDUCTION OF PROLUSION FOR DIMINUT ION IN VALUE OF INVESTMENTS AND PROVISION FOR DOUBTFUL LOANS AMOUNTING TO RS 10,31, 50,528/- AND RS 71,64,776/- RESPECTIVELY, WHILE COMPUTING THE BOOK PROFIT U/S 1 15JB OF THE ACT, FOR THE YEAR UNDER CONSIDERATION. RELIANCE IN THIS REGARDS IS ALSO PLACED OR TIRE DEC ISION OF MUMBAI TRIBUNAL IN THE CASE OF KOCHI REFINERIES LTD. V. DOT [2010] 4-1TR ( TRIB)-95 (MUMBAI), WHEREIN IT HAS BEEN HELD AS UNDER: '...... IT IS AN ADMITTED FACT THAT THE PROVISION FO R BAD AND DOUBTFUL DEBTS WAS MADE IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSME NT YEAR 1998-99 AND THE SAME AMOUNT WAS ADDED BACK IN THE REGULAR COMPUTATION. B Y VIRTUE OF LAW, IT IS THE DUTY OF THE ASSESSING OFFICER TO COMPUTE THE NORMAL TOTAL INCOME AND ALSO THE BOOK PROFIT UNDER SECTION 115]A IN THAT YEAR AND TH EN COMPARE AND DECIDE TO INVOKE THE NORMAL PROVISIONS OF THE ACT OR SPECIAL PROVISIONS OF BOOK PROFIT UNDER SECTION 115]B. ONCE THE ASSESSING OFFICER INVOKES T HE NORMAL PROVISIONS OF TAX, IT INDIRECTLY MEANS THAT HE HAS COMPARED THE COMPUTATI ON UNDER SECTION 115JA AND DECIDED THAT THE INCOME UNDER NORMAL PROVISIONS WAS MORE. IN THAT SITUATION IT IS TO BE PRESUMED THAT THE PROVISION WAS ADDED BACK TO THE BOOK PROFIT OF THAT YEAR. EVEN BY MEANS OF EXPLANATION (G) INTRODUCED TO SECT ION 115]A BY THE FINANCE (NO. 2) ACT, 2009, WITH RETROSPECTIVE EFFECT FROM APRIL I, 1998 THE PROVISION FOR BAD AND DOUBTFUL DEBTS WOULD BE DEEMED TO HAVE BEEN ADDED B ACK IN COMPUTING THE BOOK PROFIT IN THAT YEAR AND SO THE AMOUNT, NOW CREDITED TO THE PROFIT AND LOSS ACCOUNT, IS TO BE REDUCED BY VIRTUE OF THE PROVISIO N OF SECTION 115JB. IN VIEW OF THIS THERE IS JUSTIFICATION IN THE ASSESSEE'S CONTE NTION IN CLAIMING THE PROVISION AS DEDUCTION IN THE COMPUTATION OF BOOK PROFIT IN THIS YEAR. ON THE FACT THAT THE ASSESSEE HAD BEEN DISALLOWED IN THAT YEAR UNDER THE NORMAL COMPUTATION AND BY VIRTUE OF THE AMENDMENT NOW BROUGHT WITH RETROSPECT IVE EFFECT FROM APRIL I, 1998 THE PROVISION FOR BAD DEBT IS DEEMED TO HAVE BEEN A DDED BACK IN THAT YEAR - WITHDRAWAL AND CREDITING INTO THE PROFIT AND LOSS A CCOUNT NOW RESULTS IN DOUBLE TAXATION. CONSEQUENTLY, THE ASSESSEE IS CORRECT IN EXCLUDING THE AMOUNT WHILE COMPUTING THE INCOME UNDER SECTION 115JB. ACCORDING LY THE GROUND IS ALLOWED.' THUS, THE MUMBAI TRIBUNAL HAS HELD THAT THE PROVISI ONS FOR DIMINUTION IN VALUE OF ANY ASSET SHALL BE DEEMED TO HAVE BEEN DISALLOWED I N VIEW OF RETROSPECTIVE AMENDMENT OF PROVISIONS, AND HENCE, THE ASSESSEE CO MPANY REQUESTS YOUR GOOD SELVES TO KINDLY ALLOW THE DEDUCTION OF THE SAID WR ITTEN BACKS IN THE YEAR UNDER CONSIDERATION.' ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 12 12. THE REPLY OF THE ASSESSEE HAS BEEN CONSIDERED BUT T HE SAME IS NOT SUPPORTED BY ANY EVIDENCE AND IS BASED ON CONJECTURES, SURMISES AND PRESUPPOSITIONS. THE CONTENTION OF THE ASSESSEE THAT 'IN VIEW OF THE SAI D RETROSPECTIVE AMENDMENT, THE BOOK PROFIT FOR THE YEAR IN WHICH THE PROVISION WAS MADE, SHALL STAND IT] CREASED BY THE AMOUNT OF PROVISION MADE IN THE RESP ECTIVE YEAR(S). ACCORDINGLY, THE CONDITION STATED IN (II)(B) GETS SATISFIED' IS IN THE NATURE OF FICTION OR A NOTION OR A DEEMING FICTION BUT IN FACT IS NOT A RE ALITY. THE ASSESSEE HAS NOT PROVIDED ANY EVIDENCE TO PROVE THAT THE PROVISION M ADE. 13. FOR THE DIMINUTION IN VALUE OF INVESTMENT AND THAT FOR DOUBTFUL LOAN WAS ADDED TO THE BOOK PROFIT U/S. 115JB, IN THE YEAR IN WHICH THEY WERE CREATED. ANY CLAIM CAN BE MADE ONLY BY WAY OF FILING A REVISED RETURN OF INCOME AND THE ASSESSEE HAS NOT PRODUCED ANY PROOF TO SHOW THAT ASSESSEE HA S REVISED THE RETURN OF INCOME OF THE RESPECTIVE YEARS IN WHICH THE PROVISI ONS WERE CREATED. 14. THE FIRST CLAUSE OF SECOND LIMB OF THE EXPLANATION- 1 TO SECTION 115JB ALLOWS REDUCTION OF THE FOLLOWING AMOUNT FROM THE NET PROF IT AS SHOWN IN THE PROFIT & LOSS ACCOUNT: 'THE AMOUNT WITHDRAWN FROM ANY RESERVE OR PROVISION (EXCLUDING A RESERVE - CREATED BEFORE THE 1ST DAY OF APRIL 1997 OTHERWISE THAN BY WAY OF DEBIT TO THE PROFIT AND LOSS ACCOUNT), IF ANY SUCH AMOUNT IS CRE DITED THE PROFIT AND LOSS ACCOUNT: PROVIDED THAT WHERE THIS SECTION IS APPLICABLE TO A N ASSESSEE IN ANY PREVIOUS YEAR, THE AMOUNT WITHDRAWN FROM RESERVES CREATED OR PROVI SIONS MADE IN A PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 1997SHALL NOT HE REDUCED FROM THE BOOK PROFIT UNLES S THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOSE RESERVES OR PROVISIONS (OUT OF WHICH THE SAID AMOUNT WAS WITHDRAWN) UNDER THIS EXPLANATION OR EXPLANATIO N BELOW SECOND PROVISO TO SECTION T15JA, AS THE CASE MAY BE; OR' ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 13 15. HENCE, IF THE PROVISIONS WERE NOT ADDED TO THE BOOK PROFIT U/S. 115JB IN THE YEAR OF ITS CREATION, THE SAME CANNOT BE DEDUCTED F ROM THE BOOK PROFIT IN THE YEAR WHEN THESE PROVISIONS ARE WRITTEN BACK AND CRE DITED TO P & L ACCOUNT. 16. WITHOUT PREJUDICE TO THE ABOVE IT NEEDS TO BE STATE D THAT THE AMENDMENT IS WITH RESPECT TO SECTION 115 JB AND ACCORDINGLY WHAT NEEDS TO BE SEEN IS THAT WHETHER SUCH PROVISIONS WERE ADDED BACK TO THE RESP ECTIVE YEARS IN THE INCOME OF 115JB AND NOT WHETHER SUCH PROVISIONS WERE TAXED UNDER THE NORMAL INCOME. 17. FURTHER THE PROVISO OF FIRST CLAUSE OF SECOND LIMB OF THE EXPLANATION-1 TO SECTION 115JB STATES THAT: 'PROVIDED THAT WHERE THIS SECTION IS APPLICABLE TO A N ASSESSEE IN ANY PREVIOUS YEAR, THE AMOUNT WITHDRAWN FROM RESERVES CREATED OR PROVISIONS MADE IN A PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMME NCING ON OR AFTER THE 1ST DAY OF APRIL, 1997SHALL NOT BE REDUCED FROM THE BOO K PROFIT UNLESS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOSE RESERVES O R PROVISIONS (OUT OF WHICH THE SAID AMOUNT WAS WITHDRAWN) UNDER THIS EXPLANATION O R EXPLANATION BELOW SECOND PROVISO TO SECTION 115JA, AS THE CASE MAY BE; ' 18. THUS THE PROVISO MAKES IT ABUNDANTLY CLEAR THAT 'WHERE THIS SECTION IS APPLICABLE TO AN ASSESSEE IN ANY PREVIOUS YEAR' THE AMOUNTS WITHDRAWN FROM RESERVES CREATED OR PROVISIONS MADE CANNOT BE REDUCED FROM THE BOOK PRO FIT ' UNLESS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOSE RESERVES O R PROVISIONS UNDER THIS EXPLANATION OR EXPLANATION BELOW SECOND PROVISO TO SECTION 115]A, AS THE CASE MAY BE'. THUS IF THE BOOK PROFIT HAS NOT BEEN INCREASED IN EARLIER YEARS THEN DEDUCTION CANNOT BE CLAIMED IN THE YEAR IN WHICH THE PROFITS ARE TAXABLE UNDER SECTION 115JB OF THE ACT (I.E. 'WHERE THIS SECTION IS APPLICABLE TO AN ASSESSEE IN ANY PREVIOUS YEAR'). ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 14 19. ACCORDINGLY, THE CLAIM OF THE ASSESSEE FOR REDUCTIO N OF THE WRITTEN BACK PROVISIONS MADE FOR THE DIMINUTION IN VALUE OF INVE STMENT TO THE EXTENT OF RS 10,31,50,5287- AND THAT FOR DOUBTFUL LOANS TO THE E XTENT OF RS 71,64,716/-,IS DISALLOWED, IN THE COMPUTATION OF BOOK PROFIT U/S 1 15JB OF THE ACT. AS THE ASSESSEE HAS FURNISHED IN ACCURATE PARTICULARS OF I NCOME PENALTY PROCEEDING U/S. 271 (1) (C) IS BEING INITIATED SEPARATELY. [DISALLOWANCE FOR THE DIMINUTION IN VALUE OF INVEST MENT OF RS 10,31,50,528 AND FOR DOUBTFUL LOANS OF RS 71,64,716] 20. AGAINST THE DISALLOWANCE FOR THE DIMINUTION IN VALU E OF INVESTMENT OF RS. 10,31,50,528/- AND FOR DOUBTFUL LOAN OF RS. 71,64,7 16/-. APPELLANT PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO CO NFIRMED THE ACTION OF THE ASSESSING OFFICER. 21. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMPUGN ED ORDER. LD. A.R. CITED AN ORDER OF CO-ORDINATE BENCH IN ITA NOS. 737 & 167 1/AHD/2012 FOR ASSESSMENT YEAR 2007-08 & 2009-10 WHEREIN WITH FOLL OWING OBSERVATION: 13. THIS LEAVES US WITH REVENUES FIFTH SUBSTANTIVE GROUND SEEKING TO REVIVE 115JB BOOKS PROFITS ADJUSTMENT OF RS.12,60,88,128/- RELATING TO PROVISION MADE FOR DIMINUTION IN VALUE OF INVESTMENT/DOUBTFUL DEBT S; AS DELETED IN COURSE OF THE LOWER APPELLATE PROCEEDINGS AS FOLLOWS: 5. THE THIRD GROUND OF APPEAL RELATES TO NOT REDUC ING INCOME COMPUTED U/S. 115JB BY RS.L2,60,88,128/- BEING PROVISIONS FOR DIM INUTION IN VALUE OF INVESTMENTS AND PROVISIONS FOR DOUBTFUL DEBTS NO LO NGER REQUIRED OFFERED AS INCOME IN PROFIT AND LOSS ACCOUNT AS PER RETROSPECT IVE AMENDMENT BROUGHT BY FINANCE ACT, 2009 W.R.E.F. 01/04/2001. ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 15 5.1 THE APPELLANT HAS SUBMITTED THAT IT HAD CREDITE D RS. 12,60,88,128/- TO THE PROFIT & LOSS ACCOUNT ON ACCOUNT OF PROVISIONS FOR DIMINUTION IN VALUE OF INVESTMENT AND PROVISION FOR DOUBTFUL DEBTS NO LONG ER REQUIRED. THE FINANCE ACT 2009 HAS PROVIDED THAT SUCH AMOUNTS IF DEBITED TO T HE P & L ACCOUNT WOULD BE ADDED BACK PROFIT WITH EFFECT FROM 1-4-2001 IN CALC ULATING BOOK PROFIT. THEREFORE, THE A.O. OUGHT NOT TO HAVE CONSIDERED THE AMOUNTS C REDITED TO THE PROFIT & LOSS ACCOUNT ON ACCOUNT OF REVERSAL IN THE BOOKS AND CRE DITED AS PART OF PROFIT IN THE YEAR IN WHICH THE AMOUNTS ARE REVERSED AND CREDITED TO PROFIT & LOSS ACCOUNT. THE A.O. MAY, THEREFORE, BE DIRECTED TO REDUCE THE BOOK PROFIT BY THIS AMOUNT. 5.2 DECISION: I HAVE CAREFULLY PERUSED THE SUBMISSION MADE BY THE APPELLANT. IT IS OBSERVED FROM THE ASSESSMENT RECORDS THAT THE APPELLANT HAS NOT MADE ANY SUCH CLAIM IN THE RETURN OF INCOME. HOWEVER, THE AMENDMENT WHICH HAS BEEN REFERRED BY THE APPELLANT HAS COME INTO EFFECT AFTER THE RETURN WAS FILED BY THE APPELLANT AND, THEREFORE, THE APPELLANT MIGHT HAVE BEEN PREVENTED BY A GENUINE REASON FOR NOT MAKING SUCH CLAIM IN THE RETURN. THE A. O. IS, THER EFORE, DIRECTED TO EXAMINE THE MATTER IN ACCORDANCE WITH THE LAW AND RECORDS. THE GROUND OF APPEAL IS, THEREFORE, PARTLY ALLOWED. 14. IT TRANSPIRES THAT THE CIT(A) HAS ONLY DIRECTED THE ASSESSING OFFICER TO EXAMINE THE RELEVANT FACTS. THE REVENUES CASE BEF ORE US IS THAT THE ASSESSEE HAS NOWHERE RAISED SUCH A CLAIM BY WAY OF ORIGINAL OR R EVISED RETURN. THE INSTANT PLEA IS NO MORE ACCEPTABLE AS PER HONBLE JURISDICT IONAL HIGH COURTS DECISION IN CIT V. MITESH IMPEXS CASE (SUPRA). IT IS FURTHER EVIDENT THE HONBLE JURISDICTIONAL HIGH COURTS RECENT JUDGMENT HAS DECIDED THE VERY L EGAL ISSUE IN VODAFONE ESSAR GUJARAT LTD.S CASE (2017) 397 ITR 55 (GUJ) AS FOLL OWS: ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 16 23. BY WAY OF CULMINATION OF ABOVE JUDICIAL PRONOU NCEMENTS AND STATUTORY PROVISIONS, THE SITUATION THAT ARISES IS THAT PRIOR TO THE INTRODUCTION OF CLAUSE(I) TO THE EXPLANATION TO SECTION 115JB, AS HELD BY THE SU PREME COURT IN CASE OF HCL COMNET SYSTEMS AND SERVICES LTD. (SUPRA), THE THEN EXISTING CLAUSE (C) DID NOT COVER A CASE WHERE THE ASSESSEE MADE A PROVISION FO R BAD OR DOUBTFUL DEBT. WITH INSERTION OF CLAUSE (I) TO THE EXPLANATION WITH RET ROSPECTIVE EFFECT, ANY AMOUNT OR AMOUNTS SET ASIDE FOR PROVISION FOR DIMINUTION IN T HE VALUE OF THE ASSET MADE BY THE ASSESSEE, WOULD BE ADDED BACK FOR COMPUTATION O F BOOK PROFIT UNDER SECTION 115JB OF THE ACT. HOWEVER, IF THIS WAS NOT A MERE P ROVISION MADE BY THE ASSESSEE BY MERELY DEBITING THE PROFIT AND LOSS ACCOUNT AND CREDITING THE PROVISION FOR BAD AND DOUBTFUL DEBT, BUT BY SIMULTANEOUSLY OBLITERATI NG SUCH PROVISION FROM ITS ACCOUNTS BY REDUCING THE CORRESPONDING AMOUNT FROM THE LOANS AND ADVANCES ON THE ASSET SIDE OF THE BALANCE SHEET AND CONSEQUENTL Y, AT SIDE OF THE BALANCE SHEET AND CONSEQUENTLY, AT THE END OF THE YEAR SHOWING TH E LOANS AND ADVANCES ON THE ASSET ASIDE OF THE BALANCE SHEET AS NET OF THE PROV ISION FOR BAD DEBT, IT WOULD AMOUNT TO A WRITE OFF AND SUCH ACTUAL WRITE OFF WOU LD NOT BE HIT BY CLAUSE (I) OF THE EXPLANATION TO SECTION 115JB. THE JUDGMENT IN C ASE OF DEEPAK NITRITE LIMITED (SUPRA) FELL IN THE FORMER CATEGORY WHEREAS FROM TH E BRIEF DISCUSSION AVAILABLE IN THE JUDGMENT IT APPEARS THAT CASE OF INDIAN PETROCH EMICALS CORPORATION LTD. (SUPRA), FELL IN THE LATER CATEGORY. 15. LEARNED SENIOR COUNSEL INVITES OUR ATTENTION TO THE FACT THAT THE ASSESSEE HAS ALREADY COMPLIED WITH THE ABOVE PROPOUNDED NET TING CONDITION IN ITS BALANCE SHEET. WE NOTICE THAT NEITHER OF THE LOWER AUTHORITY HAS APPLIED ITS MIND TO THE SAID FACTUAL ASPECT SINCE THE ASSESSEE HAS R AISED ITS CORRESPONDING CLAIM IN LOWER APPELLATE PROCEEDINGS ONLY WHEREIN THE CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO CONSIDER ALL THE RELEVANT FACTS. WE THU S SEE NO REASON TO ACCEPT ASSESSEES ABOVE FACTUAL ASSERTIONS. WE MAKE IT CL EAR THAT THE ASSESSING OFFICER SHALL EXAMINE THE ABOVE NARRATED LEGAL AS WELL AS F ACTUAL MATRIX OF THE INSTANT ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 17 ISSUE IN CONSEQUENTIAL PROCEEDINGS. THE REVENUES INSTANT APPEAL ITA NO.737/AHD/2012 IS PARTLY ACCEPTED FOR STATISTICAL PURPOSES IN ABOVE TERMS QUA SECTION 14A ISSUE ONLY (APART FROM ADMINISTRATIVE E XPENDITURE, RULE 8D APPLICATION AND SECTION 115JB) AS CLARIFIED IN PREC EDING PARAGRAPHS. THE ASSESSEES CO NO.96/AHD/2012 IS PARTLY ACCEPTED. 22. RESPECTFULLY FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH, WE DIRECT A.O. TO EXAMINE THE LEGAL AS WELL AS FACTUAL MATRIX OF THE INSTANT ISSUE IN THIS CASE. 23. NOW WE COME TO GROUND RELATING TO DIMINUTION IN VAL UE OF INVESTMENT OF RS. 10.31 CRORES. THE ASSESSING OFFICER HAS NOT REDUCED PROVISION FOR DIMINUTION IN VALUE OF INVESTMENT AND PROVISION FOR DOUBTFUL D EBT WRITTEN BACK IN THE COMPUTATION OF BOOK PROFIT U/S. 115JB AS CONDITION LAID DOWN IN PROVISO TO CLAUSE (I) TO EXPLANATION 1 U/S. 115JB AND LD. CIT (A) HAS CONFIRMED THE ACTION OF A.O. 24. NOW APPELLANT IS BEFORE US. 25. IN SIMILAR CIRCUMSTANCES, CO-ORDINATE BENCH HAD DEC IDED THE MATTER IN ITA NO. 737/AHD/2012 IN WHICH CO-ORDINATE BENCH HAS CITED T O CIT VS. MITESH IMPEX 270 CTR 66 (GUJ) ACCEPTING THE CONCERN ASSESSEE CLA IM RAISED IN PRINCIPLE WITHOUT THE ABOVE TWO TYPES OF RETURN AND REMANDED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAM INE THIS MATTER AFRESH. IN VIEW OF THE JUDGMENT OF JURISDICTIONAL HIGH COURT I N THE MATTER OF VODAFONE ESSAR GUJARAT LTD. 397 ITR 55 (GUJ). ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 18 26. NOW WE COME TO DOUBTFUL LOAN OF RS. 71.64 LACS. LD . A.R. CITED JUDGMENT OF CO-ORDINATE BENCH IN ASSESSEES OWN CASE WHEREIN TH E RELEVANT PARA IN ITAT IS REPRODUCED: 27. RESPECTFULLY FOLLOWING THE ITAT, WE DIRECT THE A.O. TO FRAME ASSESSMENT AS PER THE ABOVE SAID ORDER. 30. WE COME TO ASSESSEES LATTER SUBSTANTIVE GROUND CHALLENGING BOTH THE LOWER AUTHORITIES ACTION REJECTING ITS DEDUCTION C LAIM OF RS.9,93,93,233/- ON ACCOUNT OF WRITE BACK OF EXCESS PROVISION FOR LOANS AND ADVANCES CREDITED TO P&L ACCOUNT IN COMPUTING BOOKS PROFITS. BOTH PARTIES A RE AD IDEM THAT THE SAME NEEDS TO BE REMITTED BACK TO THE ASSESSING OFFICER TO FRAME CONSEQUENTIAL ASSESSMENT MORE PARTICULARLY IN VIEW OF HIS FINDING S ON THE VERY ISSUE IN PRECEDING PARAGRAPHS. THE ASSESSEE INFORMS US DURING THE COU RSE OF HEARING THAT IF A PROVISION IS DISALLOWED IN EARLIER ASSESSMENT YEAR AND ADDED HEREIN AS WELL, THE SAME WOULD RESULT IN CASE OF DOUBLE DISALLOWANCE. RELEVANT REFERENCE IS ALSO DRAWN TO OUR FINDINGS RIGHT FROM THE LEAD ASSESSMEN T YEAR 2007-08. WE THEREFORE DIRECT THE ASSESSING OFFICER TO FRAME CON SEQUENTIAL ASSESSMENT AS PER LAW IN ABOVE TERMS. THE INSTANT GROUND IS TAKEN AS ACCEPTED FOR STATISTICAL PURPOSES. THE ASSESSEES CROSS APPEAL ITA NO.1163/ AHD/2014 IS PARTLY ACCEPTED IN ABOVE TERMS. 28. IN THE RESULT, THIS APPEAL IS ALLOWED. 29. NOW WE COME TO ITA NO. 1718/AHD/2014 FOR REVENUES APPEAL. THE REVENUE HAS TAKEN FOLLOWING GROUND: 1) THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XXI, A HMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 2,10,12,61 5/- MADE IN THE BOOK PROFIT FOR THE PURPOSE OF COMPUTATION OF SECTION 115JB OF THE ACT. ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 19 30. ON PERUSAL OF THE DETAILS FILED BY THE ASSESSEE COM PANY, IT WAS NOTICED THAT THE ASSESSEE HAD EARNED EXEMPT INCOME DURING THE RELEVA NT F.Y HOWEVER, THE CORRESPONDING EXPENDITURE INCURRED UPON TO EARN SUC H EXEMPT INCOME WAS NOT DISALLOWED AS PER THE PROVISIONS OF SECTION 14A R.W .R.SD. ACCORDINGLY, IN ACCORDANCE WITH THE MANDATE OF SECTION 14A, THE ASS ESSEE WAS ASKED TO SHOW CAUSE VIDE NOTICE U/S 142(1) DATED 12/01/12 AS TO W HY DISALLOWANCE U/S 14A R.W.R.SD SHOULD NOT BE MADE? THE ASSESSEE VIDE LETT ER DATED 21.05.12 FURNISHED ITS REPLY WHICH IS REPRODUCED BELOW: 'IN RELATION TO THE. ON-GOING ASSESSMENT PROCEEDINGS FOR A.Y. 2010-11 THE ASSESSEE COMPANY SUBMITS AS UNDER 2. VIDE POINT NO. 43 OF THE ABOVE REFERRED NOTICE YOUR GOOD HONOUR HAS ASKED THE ASSESSEE COMPANY TO FURNISH REASON AS TO WHY DISAL LOWANCE SHALL NOT BE MADE U/S 14A R.W.R RULE 8D. IN THIS REGARDS, THE ASSESSE E COMPANY SUBMITS THE CLASSIFICATION OF INVESTMENTS EXISTING AS ON MARCH 31, 2010, AS UNDER PARTICULARS LONG TERM INVESTMENTS CURRENT INVESTMENTS TOTAL TOTAL INVESTMENTS 5,55.29,61,336 1,84,99,73,861 7,40,29,35,197 IN SUBSIDIARY/ COS, 4,51,84,82,592 1,84,99,73,861 6,36,85,31,481 IN OTHERS COMPANIES 1,03,44,78,744 0 89, 98, 17, 10 7 FROM THE ABOVE CLASSIFICATION OF INVESTMENTS, IT IS EVIDENT THAT THE INVESTMENTS TO THE EXTENT OF 81.37% ARE MADE IN THE SUBSIDIARY COMPANIES OF THE ASSESSEE COMPANY. THE ASSESSEE COMPANY FURTHER SUBMITS THAT THESE ARE STRATEGIC INVESTMENT MADE IN THE GROUP COMPANIES WHICH DO NOT REQUIRE ANY MONITORING OR CONSTANT ADMINISTRATION. IN FACT THE INVESTMENT HAS BEEN MADE IN THE GROUP COMPANIES AS PART OF STRATEGIC BUSINESS MOVE AND NO T WITH A VIEW OF EARNING DIVIDEND INCOME. EXEMPT INCOME IS ANCILLARY TO THE MAIN OBJECTIVE OF THE INVESTMENTS MADE, IN THE SUBSIDIARY COMPANIES. ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 20 1.2 FURTHER YOUR HONOUR MAY OBSERVE THAT THE INTERE ST EXPENSE OF RS. 3,04,83,185 IN RESPECT O/IDFC LOAN HAS BEEN ALREADY DISALLOWED WHILE FILING THE RETURN OF INCOME. FURTHER UTILIZATION OF FUND RECEI VED FROM IDFC LOAN-II HAS ALREADY BEEN EXPLAINED TO YOUR HONOUR VIDE ITS EARL IER SUBMISSION. THEREFORE THE INTEREST EXPENSE CANNOT BE SAID TO HAVE BEEN INCURR ED TOWARDS EARNING OF EXEMPT INCOME AND THEREFORE THE SAME SHOULD NOT BE INCLUDED IN THE COMPUTATION OF DISALLOWANCE AS PER RULE 8D 1.3 IN RESPECT OF ADMINISTRATION AND OILIER, EXPENS ES, THE ASSESSES COMPANY HEREBY GIVES THE BRIEF BREAKUP AS PER THE PROFIT AN D LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION: PARTICULARS TOTAL EXPENSES EXPENSES CLAIMED REMARKS EMPLOYEE REMUNERATION AND BENEFITS 1,58,39,210 1,42,55,289 (10% OF THE TOTAL DISALLOWED IN THE RETURN DEMAT CHARGES 20,29,580 0 DISALLOWED IN THE RETURN RENT, RATES AND TAXES 2,000 2,000 INSURANCE 1,74,853 1,74,853 NO DIRECT NEXUS WITH THE EXEMPT INCOME REPAIRS AND MAINTENANCE 58,903 58,903 TRAVELLING AND CONVEYANCE 3,57,007 3,57,007 FEES AND LEGAL EXPENSES 5,12,115 5,12,115 AUDITOR'S REMUNERATION 2,46,084 2,46,084 NO DIRECT NEXUS WITH THE EXEMPT INCOME STATIONERY, PRINTING 42,792 42,792 MISCELLANEOUS EXPENSES 45,309 45,309 ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 21 TOTAL 1,93,07,853 1,56,94,352 1.3.1 WITH RESPECT TO THE EMPLOYEE REMUNERATION IT IS SUBMITTED THAI, WHILE FILING THE RETURN OF INCOME FOR THE YEAR UNDER CONS IDERATION-THE ASSESSEE COMPANY HAD ALREADY DISALLOWED I 0% OF THE TOTAL R EMUNERATION PAID TO THE EMPLOYEES AS EXPENSE DISALLOWED FOR EARNING EXEMPT INCOME, AND SO NO FURTHER DISALLOWANCE IN THIS RESPECT IS NEEDED. FURTHER IN COMPUTATION TOTAL INCOME, DEMAT CHARGES HAVE ALSO BEEN COMPLETELY DISALLOWED, 50 THERE IS NO NEED OF FURTHER DISALLOWANCE U/S 14A 1.3.2 IT IS WELL KNOWN FACT THAT THE PURPOSE OF DIS ALLOWANCE U/S 14A IS TO EXCLUDE THE EXPENSES WHICH HAVE BEEN INCURRED TO EA RN EXEMPT INCOME AND SO THE EXPENSES WHICH CANNOT BE SAID TO HAVE ANY DIREC T OR INDIRECT NEXUS WITH THE EXEMPT INCOME, SHOULD NOT BE DISALLOWED U/S 14A R.W .R. 8D. THEREFORE, IT IS SUBMITTED THAT INSURANCE EXPENSES AND AUDITOR'S REM UNERATION NEED NOT BE DISALLOWED U/S 14A AS THEY DO NOT BEAR ANY NEXUS WI TH THE EARNING OF THE EXEMPT INCOME. IT CANNOT BE SAID THAT INSURANCE EXP ENSE, OR AUDITOR'S REMUNERATION HELP IN THE EARNING THE EXEMPT INCOME OR HAVE IN ANY MANNER SUPPORTED THE MONITORING OF 'DIE INVESTMENTS AND TH US THEY SHOULD NOT BE INCLUDED FOR DISALLOWANCE U/S 14A R.W.R. 8D. 1.3.3 EXPENSES OF RENT, RATES AND TAXES, FEES & LEG AL EXPENSES, ETC. ARE REQUIRED TO BE INCURRED, EVEN IN ABSENCE OF ANY ACTIVE BUSIN ESS ACTIVITY, THESE EXPENSES ARE REQUIRED TO BE INCURRED, WHICH ARE NECESSARY FO R MAINTAINING THE STATUS OF THE COMPANY. THE REMAINING EXPENSES OF INSURANCE, A DVERTISEMENT, REPAIR & MAINTENANCE, TRAVELING & CONVEYANCE EXPENSES, AND O THER MISC. EXPENSES ARE OF GENERAL NATURE AND INCURRED BY TLIE ASSESSEE FOR GENERAL ADMINISTRATIVE PURPOSE. 1.4 WITHOUT PREJUDICE TO ABOVE, AS REGARD THE ADMIN ISTRATIVE EXPENDITURE, IT IS STATED THAT THE ASSESSEE COMPANY HAS AVERAGE INVEST MENT OF RS 6,87,02,38,178. THEREFORE, IF BY APPLYING RULE 8D, THE DISALLOWANCE WOULD BE 0.5% OF THE AVERAGE INVESTMENT, THE SAD DISALLOWANC E WOULD WORK OUT TO RS 3,43,51,190. HOWEVER, THE TOTAL ADMINISTRATIVE EXPE NDITURE IS ONLY RS 1,93,07,853/-, OUT OF WHICH THE ASSESSEE COMPANY HA S CLAIMED DISALLOWANCE OF ONLY RS. 1,56,94,352 (34,68,643 + 1,58,39,210 20, 29,580 15,83,921). THE DISALLOWANCE AS STATED ABOVE IF MADE WILL EXCEED TH E TOTAL AMOUNT OF ADMINISTRATIVE EXPENSES, HOWEVER, THE TOTAL DISALLO WANCE- U/S 14A R.W.R 8D CANNOT EXCEED THE TOTAL AMOUNT OF ADMINISTRATIVE EX PENDITURE. BUT IN THE PRESENT CASE, THERE IS A CONTRARY SITUATION. HENCE, RULE 8D IS INAPPLICABLE. IN VIEW OF ABOVE, THE ASSESSEE COMPANY IS OF THE BE LIEF THAT THE ABOVE SUBMISSION SUFFICES THE REQUIREMENTS OF YOUR GOOD H ONOUR. IF HOWEVER, THERE IS THERE IS ANY QUERY IN THIS REGARDS OR YOUR GOOD HON OUR ARE OF A DIFFERENT VIEW, ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 22 THEN KINDLY GRANT THE ASSESSEE COMPANY AN OPPORTUNI TY OF BEING HEARD IN THE SAID MATTER AND OBLIGE. 31. THE REPLY OF THE ASSESSEE HAS BEEN CONSIDERED. AS P ER THE PROVISIONS OF SECTION 14A, NO DEDUCTION IS TO BE ALLOWED IN RESPECT OF EX PENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FROM PART OF THE TOTAL INCOME UNDER THE I.T. ACT. AS PER SECTION 14A (2) THE ASSE SSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO S UCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACC ORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, IF THE ASSESSING OFFICER, HAV ING 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 RELATION TO INCOME W HICH DOES NOT. FORM PAN OF THE TOTAL INCOME UNDER THIS ACT. 32. THE PARLIAMENT IN ITS WISDOM HAD ENACTED SECTION 14 A WITH RETROSPECTIVE EFFECT FROM 1-4-1962 IN ORDER TO CLARIFY THE ALREADY EXIST ING POSITION THAT ONLY THOSE EXPENSES COULD BE CLAIMED WHICH WERE RELATABLE TO T HE TAXABLE INCOME. IN THE PAST, IT WAS SEEN THAT ASSESSEE'S WERE PUSHING THE EXPENSES RELATING TO EXEMPT INCOME WHICH WERE NOT TAXABLE TOWARDS TAXABLE INCOM E AND THEREBY REDUCING THE TAXABLE INCOME WRONGLY. IT WAS TO CURB THIS MIS CHIEF THAT THE PARLIAMENT ENACTED SECTION 14A AND ALSO TO OVERCOME THE DECISI ON OF HON'BLE SUPREME COURT IN THE CASE OF RAJASTHAN STATE WAREHOUSING CO RPN. V. CIT [2000] 242 ITR 450, WHEREIN IT WAS HELD THAT IF THE EXEMPTED I NCOME ARID THE TAXABLE INCOME ARE EARNED FROM ONE AND INDIVISIBLE BUSINESS THEN THE APPORTIONMENT OF EXPENDITURE COULD 'NOT BE SUSTAINED. THE , INTEN TION OF THE LEGISLATURE IS CLEARLY EVIDENT FROM THE MEMORANDUM EXPLAINING THE PROVISIONS CONTAINED IN THE FINANCE BILL WHEREIN IT WAS EXPLAINED THAT, ONL Y THOSE EXPENSES COULD BE CLAIMED AS DEDUCTION WHICH ARE INCURRED IN RELATION TO EARNING THE TAXABLE ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 23 INCOME. THE USE OF THE EXPRESSION 'ONLY TO THE EXTE NT' IN THE MEMORANDUM IS CLEAR INDICATOR THAT ONLY THAT PART OF EXPENSES CAN BE ALLOWED AS DEDUCTION WHICH IS RELATED TO THE EARNING OF TAXABLE INCOME. ACCORDINGLY, WHEN THE INCOME IS EXEMPT AND DOES NOT FORM PART OF THE TOTA L INCOME THEN, NO EXPENDITURE WHETHER DIRECT OR INDIRECT IN RELATION TO THAT INCOME COULD BE CLAIMED AS DEDUCTION. 33. WHETHER TO INVEST OR NOT TO INVEST ARID WHETHER TO RETAIN THE INVESTMENTS OR TO LIQUIDATE THE SAME ARE VERY STRATEGIC DECISIONS WHI CH THE MANAGEMENT IS CALLED UPON TO TAKE. THESE ARE MIND-BOGGLING DECISIONS AND TOP MANAGEMENT IS INVOLVED IN TAKING THESE DECISIONS. THIS DECISIONS MAKING PROCESS IS VERY COMPLICATED AND REQUIRES VERY CAREFUL ANALYSIS. MOR EOVER, THE ASSESSEE HAS TO KEEP TRACK OF THE DIVIDED INCOMES DECLARED BY THE I NVESTEE COMPANIES AND ALSO TO KEEP TRACK OF THE DIVIDEND INCOME HAVING BEEN RE GULARLY RECEIVED BY THE ASSESSEE. THIS ACTIVITY ITSELF CALLED FOR CONSIDERA BLE MANAGEMENT ATTENTION AND CANNOT BE LEFT TO A JUNIOR CLERK. 34. WHAT HAS BEEN THE NATURE OF INCOME EARNED BY THE AS SESSEE? THE ASSESSEE HAS MAINLY EARNED EXEMPT, AS PER THE P&L A/C OF THE ASS ESSEE. ALL ITS EFFORT AND ENERGIES HAVE BEEN DEVOTED TOWARDS THE EARNING OF T HE EXEMPT INCOME. THEREFORE THE CORRESPONDING EXPENDITURE IS REQUIRED TO BE DISALLOWED UNDER THE PROVISIONS OF SECTION 14A R.W.R. 8D. 35. IN VIEW OF ABOVE DISCUSSION, A DISALLOWANCE IS MADE U/S. 14A R.W.R 8D. DIRECT EXPENDITURE RS. 1,58,39,210 (EXPENDITURE ON EMPLOYEE'S REMUNERATION AND BENEFIT S) INTEREST EXPENDITURE RS. NIL ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 24 ADMINISTRATIVE EXP 0.5%OF(6,75,13,69,609+698,91,06,746)/2 RS. 3.43,5 1,190 TOTAL RS. 5,01,90,400/- THE DIRECT EXPENDITURE IS TAKEN TO BE THE TOTAL EMP LOYEES REMUNERATION AND BENEFITS, AS THE TIME AND EFFORT REQUIRED FOR ACTIV ITIES RESULTING INTO EARNING OF TAXABLE INCOME HAS BEEN NEGLIGIBLE. SINCE 0.5 % OF THE AVERAGE INVESTMENT IS MORE THAN THE TOTAL GENERAL AND ADMINISTRATION EXPE NSE, SO THE DISALLOWANCE IS RESTRICTED TO THE TOTAL GENERAL & ADMINISTRATION EX PENSE AND DEPRECIATION EXPENSE. THE TOTAL DISALLOWANCE SHOULD COME TO RS. 2,46,26/116/- (RS. 1,58,39,210/- + RS.34,68,643/--+ RS.53/18,263). HOW EVER THE ASSESSEE HAS ALREADY DISALLOWED RS 36,13,501 (DEMAT CHARGES OF R S 20,29,580 AND DISALLOWANCE U/S 14A OF RS 15,83,921) JN THE COMPUT ATION OF INCOME THEREFORE THE TOTAL DISALLOWANCE COMES TO RS 2,10/12,615. ACC ORDINGLY A DISALLOWANCE OF RS. 2,10,12,615/-IS MADE. 3.6 RELIANCE IN THIS REGA RD IS PLACED UPON THE FOLLOWING DECISIONS: . 1) ITO V/ S, DAGA CAPITAL MANAGEMENT PVT LTD 117 1T D 169 (MUM)(SB) 2) SOUTHERN PETROL CHEMICAL INDUSTRIES V/S. DCIT, 93 TTJ 161 3) CHEMINYEST LTD VS. HO (DEL) (SB) [2009] 124 TTJ (DEL)(SB) 577 [DISALLOWANCE U/S 14A : RS.2,10,12,615/-] 36. AGAINST THE ADDITION OF RS. 2,10,12,615/-, APPELLAN T PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO ALLOWED THE APPEAL OF THE APPELLANT. 37. NOW DEPARTMENT IS BEFORE US. ITA NOS. 171 8 & 1648/AHD/2014 . A.Y. 2010-11 25 38. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMPUGN ED ORDER. SIMILAR ISSUE HAS COME UP BEFORE THE ITAT IN ASSESSMENT YEAR 2007 -08 & 2008-09 AND LD. CIT(A) FOLLOWED THE ITAT ORDER IN THE CASE OF GUJAR AT STATE ENERGY GENERAL ORDER DATED 15.04.2011 IN ITA NO. 1777 & 2028/AHD/2 009 AND DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 39. APART FROM ABOVE SAID, LD. A.R. ALSO CITED A JUDGME NT OF SPECIAL BENCH IN THE MATTER OF VIREET INVESTMENT PVT. LTD. 165 ITD 27 (S B-DEL) WHEREIN IN SIMILAR CIRCUMSTANCES, MATTER WAS DECIDED IN FAVOUR OF ASSE SSEE. THEREFORE, IN OUR CONSIDERED OPINION, LD. CIT(A) HAS PASSED DETAILED AND REASONED ORDER. THEREFORE, WE ARE NOT INCLINED TO INTERFERE IN THE ORDER PASSED BY THE LD. CIT(A) AT OUT END. 40. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN OPEN COURT ON 01- 10- 2018 SD/- SD/- (PRAMOD KUMAR) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 01/10/2018 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD