JM FINANCIAL CONSULTANTS P.LTD ( NOW KNWON AS JM FINANCIAL INSTITUTIONAL SECURITIES P.LTD), MUMBAI V. DCIT CIR 3(2), MUMBAI

ITA 1863/MUM/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 2129 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: J
• Next Hearing Date: 11-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 07-03-2013
• Court: TRIBUNAL
• Department Lawyers: S S KUMARAN
• Assessee Lawyers: VIPSI T PATEL
• Keywords: Depreciation; Earning of tax free income; Bad and doubtful debts
• Section: 143(3); 14A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J, MUMBAI , , , BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.1863/MUM/2013 ASSESSMENT YEAR: 2009-10 JM FINANCIAL CONSULTANTS P. LTD.( NOW KNOWN AS JM FINANCIAL INSTITUTIONAL SECURITIES P. LTD),141, MAKER CHAMBERS, III, NARIMAN POINT, MUMBAI -400021 / VS. DCIT CIR 3(2) MUMBAI- ( ASSESSEE ) ( REVENUE ) P.A. NO. AAACM0779C / ASSESSEE BY SHRI VIPSI T.PATEL (AR) / REVENUE BY SHRI S. S. KUMARAN ( D R) ! ' # / DATE OF HEARING : 8/09/2015 ' # / DATE OF ORDER: 07/10/2015 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS) - 4, MUMBAI JM FINANCIAL CONSULTANTS P. LTD. 2 {(IN SHORT LD. CIT(A)}, DATED 11.12.2012 FOR THE AS SESSMENT YEAR 2009-10, DECIDED AGAINST THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (IN SHORT AO) U/S 143(3) OF THE ACT. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: I. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) - 4, MUMBAI [HEREINAFTER REFERRED TO AS 'THE CIT(A)'] ER RED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, IN UPHOLDING THE ASSESSMENT ORDER DATED 29 TH NOVEMBER, 2011 ISSUED BY THE LEARNED DEPUTY COMMISSIONER OF INCOME-TAX, MUMBAI [HEREINAFTER REFERRED TO AS 'THE AO']. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) ERRED ON IN CONFIRMING THE DISAL LOWANCE OF EXPENDITURE OF RS.1,79,85,122/- UNDER SECTION 14 A OF THE INCOME-TAX ACT, 1961 ('THE ACT') R.W. RULE 8D O F THE INCOME-TAX RULES AS AGAINST RS.1,42,040/- WORKED OU T BY THE ASSESSEE IN ITS RETURN OF INCOME. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) FURTHER ERRED IN CONFIRMING THE APPLICATION OF RULE 8D WHILE COMPUTING DISALLOWANCE U/S 14A. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) FURTHER ERRED IN NOT ADJUDICATIN G 2ND GROUND OF APPEAL FILED BY THE APPELLANT I.E. THE LE ARNED AO HAS ERRED IN ADDING RS. 1,79,85,122/- INSTEAD OF AD DING RS.L,78,43,082/- I.E. AFTER REDUCING SELF-DISALLOWA NCE MADE BY THE ASSESSEE OF RS.1,42,040/- IN THE RETURN OF I NCOME. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) ALSO ERRED IN NOT ACCEPTING THE SUBMISSION AND WORKING GIVEN BY THE ASSESSEE THAT MAXIMUM DISALLOWANCE UNDER SECTION 14A WOULD BE RS. 7,64,949/-. 6. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, DELETE OR MODIFY ANY OF THE ABOVE GROUNDS OF APPEAL.. JM FINANCIAL CONSULTANTS P. LTD. 3 2 . THE SOLITARY ISSUE INVOLVED HERE IS WITH REGARD T O THE DISALLOWANCE MADE BY THE AO FOR RS.1,79,85,122/- U/ S 14A. THE FACTS OF THE CASE ARE THAT DURING THE YEAR UNDE R CONSIDERATION, THE ASSESSEE WAS ENGAGED IN THE BUSI NESS OF INVESTMENT FINANCIAL ADVISORY SERVICE. THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS. 3.70 CRORES WHICH WAS CLAIME D AS EXEMPT FROM THE INCOME TAX. THE ASSESSEE MADE A SUO MOTU DISALLOWANCE U/S 14A FOR RS.1,42,040/- IN THE COMPU TATION SHEET FILED ALONG WITH RETURN OF INCOME. 3. DURING THE ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE INVESTMENTS MAY REQUIRE MONITORING BY SENIOR PR OFESSIONAL IN THE COMPANY. THE QUANTUM INVOLVED IN THESE INVES TMENTS IS HIGH AND SO IS THE AMOUNT OF RETURNS IN THE FORM OF DIVIDENDS. IT WAS SUGGESTED BY THE AO THAT HIGHER AMOUNT OF DISALLOWANCE WAS CALLED FOR AS PER RULE 8D OF SECTI ON 14A. IN RESPONSE, THE ASSESSEE SUBMITTED A WORKING SHEET SH OWING THAT A MAXIMUM AMOUNT OF RS.7.64 LAKHS CAN BE CONSI DERED FOR MAKING DISALLOWANCE U/S.14A. BUT, THE SUBMISSIO NS OF THE ASSESSEE WERE NOT ACCEPTED BY THE AO, AND INVOKING THE PROVISIONS OF RULE 8D OF SECTION 14A, THE DISALLOWA NCE OF RS.1,79,85,122/- WAS MADE BY THE AO AS EXPENDITURE INCURRED FOR EARNING OF EXEMPT INCOME. 4. BEING AGGRIEVED, THE ASSESSE FILED AN APPEAL BEFOR E THE LD. CIT(A), WHEREIN IT WAS SUBMITTED BY THE ASSESSEE TH AT THE AO DID NOT CONSIDER SUBMISSIONS OF THE ASSESSEE PROPER LY, AND DISALLOWANCE MADE U/S 14A WAS CONTRARY TO LAW AND F ACTS. BUT LD. CIT(A) WAS NOT CONVINCED WITH THE ARGUMENTS OF THE JM FINANCIAL CONSULTANTS P. LTD. 4 ASSESSEE AND CONFIRMING AND ENDORSING THE OBSERVATI ONS OF THE AO, DISALLOWANCE MADE U/S 14A R.W. RULE 8D WAS CONFIRMED BY THE LD. CIT(A). 5. BEFORE US, THE LD. COUNSEL HAS SUBMITTED THAT THE A SSESSEE HAD MADE DISALLOWANCE IN THE RETURN FOR AN APPROPRI ATE AMOUNT, AS IS EVIDENT FROM THE COMPUTATION SHEET EN CLOSED AT PAGE NO.1 OF THE PAPER BOOK. IT WAS FURTHER SUBMITT ED THAT THE WORKING SHEET WAS GIVEN BY THE ASSESSEE TO THE AO D URING THE COURSE OF ASSESSMENT PROCEEDINGS IN WHICH DETAILED REASONING AND BREAK UP OF EXPENSES AND OTHER DETAILS HAVE BEE N GIVEN SHOWING THAT AS PER THE ASSESSEE, MAXIMUM AMOUNT OF DISALLOWANCE COULD HAVE BEEN MADE FOR ONLY AN AGGRE GATE AMOUNT OF RS.7,64,949/-, KEEPING IN VIEW NATURE OF BUSINESS AND FACTS AND CIRCUMSTANCES OF THE CASE. OUR ATTENT ION HAS BEEN DRAWN ON THIS WORKING SHEET AVAILABLE AT PAGE NO. 54 -55 OF THE PAPER BOOK. IT WAS FURTHER SUBMITTED BY HIM THAT NO SATISFACTION HAS BEEN RECORDED BY THE AO BEFORE REJ ECTING CLAIM OF THE ASSESSEE AND INCREASING AMOUNT OF DISA LLOWANCE TO EXORBITANT FIGURE, FROM THE AMOUNT OF DISALLOWAN CE MADE BY THE ASSESSEE IN ITS RETURN OF INCOME. IN SUPPORT OF HIS ARGUMENTS, HE PLACED RELIANCE UPON JUDGMENT OF HON BLE BOMBAY BENCH OF ITAT IN THE CASE OF GRAVIS HOSPITAL ITY LTD. VS. DCIT 67 SOT 0184 (MUMBAI). ON THE OTHER HAND LD DR HAS SUPPORTED THE ORDERS OF LOWER AUTHORITIES. IT W AS SUBMITTED THAT DISALLOWANCE WAS MADE BY THE AO AS P ER LAW, AND NEEDS TO BE UPHELD. JM FINANCIAL CONSULTANTS P. LTD. 5 6. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BOTH SIDES. IT IS SEEN THAT THE ASSESSEE HAD MADE VOLUNTARY DIS ALLOWANCE IN THE COMPUTATION SHEET. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED A NOTE SHEET WH EREIN, JUSTIFICATION WAS GIVEN FOR THE AMOUNT THAT COULD B E DISALLOWED U/S 14A, KEEPING IN VIEW NATURE OF BUSINESS OF THE ASSESSEE AND FACTS AND CIRCUMSTANCES OF THE CASE. FOR THE SA KE OF READY REFERENCE, THIS WORKING SHEET IS REPRODUCED BELOW: NOTE ON 14A DISALLOWANCE: AS REGARDS DISALLOWANCE U/S 14A, WE WOULD LIKE TO SUBMIT THAT ONLY EXEMPT INCOME EARNED BY THE COMPAN Y DURING THE YEAR IS DIVIDEND ON ITS INVESTMENT IN MU TUAL FUNDS, EQUITY SHARES AND ON PREFERENCE SHARES OF SUBSIDIARY COMPANY. THE DETAILS ARE AS UNDER:- BREAK UP OF DIVIDEND ON MUTUAL FUND INVESTMENT 3,00,71,654 ON EQUITY SHARES 19,90,000 ON PREFERENCE SHARES OF SUBSIDIARY CO. 50,00,000 3,70,61,654 AS REGARDS DIVIDEND EARNED ON INVESTMENT IN PREFERE NCE SHARES, THERE IS NO OTHER EXPENSE INCURRED FOR EARN ING THIS INCOME. WE GET ONE CHEQUE OF DIVIDEND FROM OUR SUBSIDIARY COMPANY WHICH IS DEPOSITED INTO BANK A/C . AS REGARDS DIVIDEND EARNED ON EQUITY SHARES THE SAME A RE DIRECTLY DEPOSITED TO OUR BANK A/C BY THE RESPECTIV E COMPANIES WITHOUT REQUIRING ANYTHING TO BE DONE BY US. JM FINANCIAL CONSULTANTS P. LTD. 6 AS REGARDS EXPENSES FOR EARNING DIVIDEND ON MUTUAL FUND INVESTMENT, WE SUBMIT AS UNDER: THE SURPLUS FUNDS OF THE COMPANY ARE INVESTED IN UN ITS OF HIGH LIQUID DIVIDEND SCHEME OF IDENTIFIED MUTUAL FU ND SCHEME OF THE JM FINANCIAL MUTUAL FUND PROMOTED BY JM FINANCIAL GROUP, SO- THAT THE FUNDS ARE AVAILABLE A T ANY POINT OF TIME FOR ANY BUSINESS REQUIREMENTS. THE INVESTMENTS ARE MADE BY ISSUING CHEQUES IN FAVOUR O F THE FUNDS AND REDEMPTION IS DONE BY ISSUING A REDEMPTIO N SLIP. REDEMPTION PROCEEDS DIRECTLY CREDITED TO OUR BANK ACCOUNT WITHOUT DEDUCTION OF ANY CHARGES. MONITORIN G THIS ACTIVITY IS RELATING TO ISSUING CHEQUES AND CHECKIN G OF BANK BALANCES WHICH IS VERY IN SIGNIFICANT. IN THE COMPANY, THIS FUNCTION IS HANDLED BY CFO, ALONG WIT H ONE JUNIOR ASSISSTANT, FOR ESTIMATE THE EXPENSES WHICH CAN BE ATTRIBUTED TO EARN DIVIDEND INCOME ON MUTUAL FUND W E HAVE ASSUMED THAT ON AN AVERAGE 10% OF CFO TIME AND 20% THIS JUNIOR ASSISTANTS TIME IS INVOLVED. ACCORD INGLY THE COST ATTRIBUTABLE TO THIS FUNCTION HAS BEEN CALCULA TED AS UNDER: RS. COST ATTRIBUTABLE TO MONITORING INVESTMENT: TOTAL COMPENSATION COST* 6,40,581 OVERHEADS ESTIMATED * 1,24,368 --------------------- TOTAL DISALLOWANCE U/S 14A 7,64,949 ----------------------------------- JM FINANCIAL CONSULTANTS P. LTD. 7 *DETAILED WORKING IS ATTACHED. IN VIEW OF THE ABOVE, WE FEEL THAT THE MAXIMUM EXPE NSE THAT CAN BE ATTRIBUTED TO EARN THE DIVIDEND INCOME CANNOT BE MORE THAN RS.7,64,949/- CALCULATION OF DISALLOWANCE UNDER SECTION 14A OF TH E INCOME TAX ACT, 1961 (AMOUNT IN RS.) COMPENSATION % OF TIME A MOUNT OF DISALLOWANCE CFO 49,85,410 10% 4 ,98,541 JUNIOR ASSISTANT 7,10,200 20% 1,42,040 ------------------------- TOTAL COMPENSATION COST 6,40,581 ADD: OVERHEAD COST (19.41%) 1,24,368 ------------------------- DISALLOWANCE U/S 14A 7,64,949 ------------------------- STATEMENT SHOWING CALCULATION OF % OF OVERHEAD COST TO COMPENSATION TOTAL EXPENSES AS PER PROFIT & LOSS ACCOUNT 5 16,088,370 ADD: DEPRECIATION 25,680,928 ----------------- 541,769,298 LESS: COMPENSATION 439,443,069 BAD DEBTS WRITTEN OFF 11,064,393 DONATION 500,000 PROVISION FOR DOUBTFUL DEBTS 3,313,38 3 LOSS ON SCRAP/SALE OF FIXED ASSET (NET) 98,22 4 NET LOSS ON FOREIGN CURRENCY TRANSACTIONS 2,032,833 456,451,902 ---------------- NET OVERHEAD COST 85,317,396 =========== % OF OVERHEAD COST TO COMPENSATION 19.41 JM FINANCIAL CONSULTANTS P. LTD. 8 --------------- 6.1. THE PERUSAL OF THE ABOVE SAID DETAILS WOULD SHOW TH AT THE ASSESSEE HAS GIVEN AN ITEM WISE, AND DETAILED JUSTI FICATION FOR THE AMOUNT, LIABLE TO BE DISALLOWED, AS PER FACTS. ON THE OTHER HAND, LD. AO IN THE ASSESSMENT ORDER HAS NOT GIVEN ANY REASONING OR JUSTIFICATION AS TO HOW AND IN WHAT MA NNER, KEEPING IN VIEW AND HAVING REGARD TO THE ACCOUNTS O F THE ASSESSEE, VOLUNTARY DISALLOWANCE OFFERED BY THE ASS ESSEE WAS INCORRECT. NO JUSTIFICATION HAS BEEN RECORDED BY TH E AO IN THE ASSESSMENT ORDER, ON THE BASIS OF FACTS AND FIGURES , THAT SOME MORE EXPENSES HAVE TO BE DISALLOWED, WHICH HAVE BEE N INCURRED BY THE ASSESSEE FOR THE PURPOSE OF EARNING EXEMPT INCOME. THE AO HAS MADE MERELY GENERAL OBSERVATIONS IN THE ASSESSMENT ORDER. LD. COUNSEL HAS RELIED UPON THE J UDGMENT OF HONBLE MUMBAI BENCH IN THE CASE OF GRAVIS HOSPI TALITY LTD.,SUPRA, ON THIS ISSUE. WE FIND IT APPROPRIATE T O REPRODUCE SOME RELEVANT PARAS FROM THIS JUDGMENT: 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE IMPUGNED ORDERS OF AUTHORITIES BELOW AN D ALSO THE MATERIAL PLACED ON RECORD. THE ASSESSEE IS MAINLY ENGAGED IN THE HOTEL BUSINESS. IT HAS MADE INVESTME NT IN THE SHARES AND MUTUAL FUNDS ON WHICH IT HAS EARNED DIVIDEND INCOME OF RS. 4,21,34,042/-. IN RESPONSE T O THE SHOW CAUSE NOTICE FOR DISALLOWANCE U/S 14A, IT HAS SUBMITTED THAT THE INVESTMENTS HAVE BEEN MADE OUT O F HUGE SURPLUS FUNDS WHICH WERE INTEREST FREE IN THE FORM OF RESERVES AND SURPLUS AND SHARE CAPITAL, WHICH AGGRE GATED TO RS. 2,73,47,09,183/-. AS AGAINST THIS, THE TOTAL INVESTMENT STOOD AT RS. 54,42,06,259/-. THUS SURPLU S FUNDS WERE SUFFICIENT TO COVER THE INVESTMENTS. NOT ONLY THAT, THE ASSESSEE HAS ALSO GIVEN THE NATURE OF UTI LIZATION OF LOAN AND DETAILS OF INTEREST PAID WHICH HAS BEEN JM FINANCIAL CONSULTANTS P. LTD. 9 INCORPORATED AS ABOVE. FOR THE PURPOSE OF INDIRECT EXPENSES, THE ASSESSEE HAS GIVEN THE CALCULATION OF EXPENDITURE FROM ITS ACCOUNT WHICH CAN BE SAID TO B E ATTRIBUTABLE FOR THE PURPOSE OF EARNING OF THE EXEM PT INCOME. THESE DETAILS WERE AS FOLLOWS:- ACTUAL ALLOCABLE EXPENSES: ACCOUNTANT SALARY (NITIN MORE) 60,000 CONVEYANCE (500PM) 3,600 TELEPHONE EXP (600PM) 4,800 PEON SALARY (BALARAM CHOUDHARI 4000 PM) 36,000 PROFESSIONAL FEES 84,000 OTHER MISC 5,000 TOTAL B 193,400 ROUNDED OFF TO 200,000 11. ONCE ALL THESE DETAILS WERE MADE AVAILABLE ALON G WITH THE ENTIRE ACCOUNTS OF THE ASSESSEE, THE A.O. WAS R EQUIRED TO RECORD HIS SATISFACTION OR SATISFIED HIMSELF T HAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, THE CLAIM O F THE ASSESSEE IN RESPECT OF EXPENDITURE DEBITED IS NOT C ORRECT AND THERE COULD HAVE BEEN CERTAIN OTHER EXPENDITURE S WHICH CAN BE SAID TO HAVE BEEN INCURRED IN RELATION TO THE EARNING OF EXEMPT INCOME. THE DISALLOWANCE U/S 14A (1) CAN ONLY BE TRIGGERED, ONCE THE CONDITIONS UNDER SU B SECTION (2) ARE SATISFIED. TO WORK OUT THE DISALLOW ANCE U/R 8-D, THE A.O. HAS TO FIRST EXAMINE THE ACCOUNTS OF THE ASSESSEE AND THE CORRECTNESS OF THE CLAIM AND THEN, IF HAVING REGARD TO SUCH ACCOUNTS AND THE CLAIM HE IS NOT SATISFIED WITH EITHER THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE OR MADE A CLAIM THAT NO EXPENDITURE AT ALL HAS BEEN INCURRED FOR THE PURPOSE OF EARNING THE EX EMPT JM FINANCIAL CONSULTANTS P. LTD. 10 INCOME, THEN ONLY HE CAN RESORT TO RULE 8-D. IN THE PRESENT CASE, WE FIND THAT THE A.O. HAS STRAIGHT-AWAY PROCE EDED TO APPLY RULE 8-D FOR THE PURPOSE OF DISALLOWANCE U/S 14A WITHOUT SATISFYING OR COMPLYING WITH THE MANDATORY REQUIREMENT OF SECTION 14A(2) OR RULE 8-D(1). ONCE THE A.O. HAS FAILED TO COMPLY THE STATUTORY REQUIREMENT, THE N HE CANNOT PROCEED TO MAKE THE DISALLOWANCE U/S 14A(1) AND ACCORDINGLY, THE DISALLOWANCE MADE BY THE A.O. AND PARTLY SUSTAINED BY THE LD. CIT(A) OVER AND ABOVE THE DISALLOWANCE MADE BY THE ASSESSEE IS DELETED. IN TH E RESULT, GROUND NO. 1 OF THE DEPARTMENTS APPEAL IS DISMISSED, WHEREAS THE ASSESSEES GROUND NO.1 IS TR EATED AS ALLOWED. 6.2. HONBLE MUMBAI BENCH HAS HELD THAT ONCE ALL THE DET AILS WERE MADE AVAILABLE ALONG WITH ENTIRE ACCOUNTS OF T HE ASSESSEE, THE AO WAS REQUIRED TO SATISFY HIMSELF TH AT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, CLAIM OF TH E ASSESSEE IN RESPECT OF EXPENDITURE DEBITED IS NOT CORRECT, A ND THAT THERE COULD HAVE BEEN CERTAIN OTHER EXPENDITURES WHICH CA N BE SAID TO HAVE BEEN INCURRED IN RELATION TO THE EARNING OF EXEMPT INCOME. AS PER MANDATE OF THE LAW, THE AO IS OBLIGE D TO RECORD SUCH SATISFACTION, WITH REASONING. 6.3. IN THE PRESENT CASE, IT IS SEEN THAT CONDITIONS OF SUB- SECTION 2 OF SECTION 14A ARE NOT SATISFIED. THE AO HAS NOT CARED TO EXAMINE THE ACCOUNTS OF THE ASSESSEE AND C ORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE. LD. AO IN THE PR ESENT CASE HAS STRAIGHT AWAY PROCEEDED TO APPLY RULE 8D FOR TH E PURPOSE OF DISALLOWANCE U/S 14A, WITHOUT SATISFYING OR APPL YING WITH THE MANDATORY REQUIREMENT OF SECTION 14A(2) R.W. RU LE 8D. IT IS SEEN THAT THE ASSESSEE HAS GIVEN ITEM WISE JUSTI FICATION FOR DETERMINATION OF THE PROPORTIONATE EXPENSE INCURRED ON JM FINANCIAL CONSULTANTS P. LTD. 11 MAKING INVESTMENTS EARNING TAX-FREE INCOME. NO DISC REPANCIES HAVE BEEN POINTED OUT BY THE AO BEFORE REJECTING TH E CLAIM OF THE ASSESSEE. SINCE THE AO HAS FAILED TO COMPLY WIT H THE STATUTORY REQUIREMENT, HE COULD NOT HAVE PROCEEDED TO MAKE DISALLOWANCE U/S 14A. IT IS FURTHER NOTED THAT OUT OF TOTAL DIVIDEND INCOME OF RS 3,70,61,654/- RECEIVED BY THE ASSESSEE COMPANY DURING THE YEAR, AN AMOUNT OF RS 3,00,71,6 54/- WAS ON THE INVESTMENTS IN MUTUAL FUNDS OF GROUP COM PANIES FOR STRATEGIC REASONS AND RS. 50,00,000/- ON THE PR EFERENCE SHARES OF SUBSIDIARY COMPANY. BOTH OF THESE AMOUNTS HAVE BEEN RECEIVED ON THE INVESTMENTS MADE OSTENSIBLY FO R STRATEGIC REASONS. IN OUR CONSIDERED VIEW, STRATEGIC INVESTME NTS ARE NOT MADE FOR THE PURPOSE OF EARNING TAX-FREE INCOME. TH ESE SHOULD NOT BE CONSIDERED FOR MAKING DISALLOWANCE U/S 14A/. RECENTLY, HONBLE DELHI HIGH COURT HAS TAKEN SAME V IEW IN THE CASE OF CHEMINVEST LTD VS CIT , ITA NO.749/2014, ORDER DT 9- 9-2015. THE RELEVANT OBSERVATIONS ARE REPRODUCED HE REUNDER: 18. IN THE PRESENT CASE, THE FACTUAL POSITION THAT HAS NOT BEEN DISPUTED IS THAT THE INVESTMENT BY THE ASSESSE E IN THE SHARES OF MAX INDIA LTD. IS IN THE FORM OF A ST RATEGIC INVESTMENT. SINCE THE BUSINESS OF THE ASSESSEE IS O F HOLDING INVESTMENTS, THE INTEREST EXPENDITURE MUST BE HELD TO HAVE BEEN INCURRED FOR HOLDING AND MAINTAINING S UCH INVESTMENT. THE INTEREST EXPENDITURE INCURRED BY TH E ASSESSEE IS IN RELATION TO SUCH INVESTMENTS WHICH G IVES RISE TO INCOME WHICH DOES NOT FORM PART OF TOTAL IN COME. 19. IN LIGHT OF THE CLEAR EXPOSITION OF THE LAW IN HOLCIM INDIA (P) LTD. ( SUPRA ) AND IN VIEW OF THE ADMITTED FACTUAL POSITION IN THIS CASE THAT THE ASSESSEE HAS MADE ST RATEGIC INVESTMENT IN SHARES OF MAX INDIA LTD.; THAT NO EXE MPTED INCOME WAS EARNED BY THE ASSESSEE IN THE RELEVANT A Y AND SINCE THE GENUINENESS OF THE EXPENDITURE INCURR ED BY THE ASSESSEE IS NOT IN DOUBT, THE QUESTION FRAMED I S JM FINANCIAL CONSULTANTS P. LTD. 12 REQUIRED TO BE ANSWERED IN FAVOUR OF THE ASSESSEE A ND AGAINST THE REVENUE. 6.4 THE REMAINING AMOUNT OF DIVIDEND WAS RECEIVED ON T HE INVESTMENT IN EQUITY SHARES, ONLY FOR AN AMOUNT OF RS19,90,000/-. THUS, VIEWED FROM THIS ANGLE ALSO, T HE DISALLOWANCE MADE BY THE AO IS NOT JUSTIFIED. IN VI EW OF THE AFORESAID DISCUSSION AND KEEPING IN MIND THE FACTS AND CIRCUMSTANCES OF THE CASE, DISALLOWANCE MADE BY THE AO IS REDUCED TO THE AMOUNT OF RS.7,64,949/-, AS WAS VOLU NTARILY OFFERED BY THE ASSESSEE. 7 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 07 TH OCTOBER, 2015. SD/- (AMIT SHUKLA ) SD/- (ASHWANI TANEJA) '# / JUDICIAL MEMBER $# / ACCOUNTANT MEMBER ! MUMBAI; & DATED : 07/10/2015 CTX? P.S/. .. %'&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. ( )* / THE APPELLANT 2. +,)* / THE RESPONDENT. 3. - - ( ( ) / THE CIT, MUMBAI. 4. - - / CIT(A)- , MUMBAI 5. 012 +3 , - ( # 3 4 , ! / DR, ITAT, MUMBAI 6. 25 6! / GUARD FILE. / BY ORDER, ,0( + //TRUE COPY// / (DY./ASSTT. REGISTRAR) , ! / ITAT, MUMBAI