ACIT 2(1) CITY-2, MUMBAI V. ASIA INVESTMENTS LTD, MUMBAI

ITA 1879/MUM/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7294 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 03-10-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 10-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANTOSH PARAB
• Assessee Lawyers: A K NAYAK
• Keywords: Depreciation; Earning of tax free income; Revenue expenditure; Capital expenditure
• Section: 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI J.SUDHAKAR R EDDY (A.M) ITA NO.1413/MUM/2010(A.Y. 2002-03) ASIA INVESTMENT PRIVATE LIMITED, 4 TH FLOOR, MAGNET HOUSE, DOUGALL ROAD, BALLARD ESTATE, MUMBAI 400 038. PAN:AAACA 4539K (APPELLANT) VS. INCOME TAX OFFICER 2(1)(1), MUMBAI. (RESPONDENT) ITA NO.1879/MUM/2010(A.Y.2002-03) THE ACIT 2(1), AAYKAR BHAVAN, MK ROAD, MUMBAI 20. (APPELLANT) VS. ASIA INVESTMENT PRIVATE LIMITED, 4 TH FLOOR, MAGNET HOUSE, DOUGALL ROAD, BALLARD ESTATE, MUMBAI 400 038. PAN:AAACA 4539K (RESPONDENT) ASSESSEE BY : SHRI SANTOSH PARAB RESPONDENT BY : SHRI A.K.NAYAK DATE OF HEARING : 03/10/2011 DATE OF PRONOUNCEMENT : 07/1 0/2011 ORDER PER N.V.VASUDEVAN, J.M, ITA NO.1413/M/10 IS AN APPEAL BY THE ASSESSEE WHI LE ITA NO.1879/M/10 IS AN APPEAL BY THE REVENUE. BOTH TH ESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 16/12/2009 OF CIT( A)-4, MUMBAI RELATING TO ASSESSMENT YEAR 2003-04. ITA NO.1413&1879/MUM/2010(A.Y. 2002-03) 2 ITA NO.1413/MUM/10: 2. GROUND NO.1 WAS NOT PRESSED AND THE SAME IS DISM ISSED AS NOT PRESSED. GROUND NO.2 & 3 READS AS FOLLOWS. 2. THE LEARNED CIT(A) FURTHER ERRED IN GIVING DIRE CTION TO ASSESSING OFFICER TO DISALLOW INTEREST EXPENDITURE UNDER SE CTION 14A READ WITH RULE 8 D ALLEGING THAT THE SAME WAS INCURRED FOR EA RNING EXEMPT INCOME. 3. THE LEARNED CIT(A) FURTHER ERRED IN GIVING DIRE CTION TO THE ASSESSING OFFICER TO DISALLOW ADMINISTRATIVE EXPENDITURE UNDE R SEC.14A READ WITH RULE 8D(III) ALLEGING THAT THE SAME WAS INCURRED FO R EARNING EXEMPT INCOME. THIS CAN BE CONVENIENTLY DECIDED TOGETHER WITH GROU ND NO.2 RAISED BY THE REVENUE IN ITS APPEAL WHICH READS AS FOLLOWS: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF LEGAL AND PROFESSION EXPENSES (8.42 LAKHS), ADVERTISING AND BUSINESS PROMOTION EXPENSES (1.61 LAKHS), EXPENDITURE ON OTHER FACILIT IES (4,50,000) AND TRAVELING EXPENSES (56,505/-) OVERLOOKING THE FACT THAT EVEN IN THE COURSE OF REMAND PROCEEDINGS, THE ASSESSEE HAD NOT PRODUCED PRIMARY EVIDENCE TO SUPPORT THE ABOVE EXPENDITURE CLAIMED. 3. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN TH E BUSINESS OF MANUFACTURING SHEET METAL COMPONENTS FOR THE AUTOMO BILE INDUSTRY. THE AO NOTICED THAT IN A.Y 2001-02 THE AO HAD HELD THAT THE ASSESSEE WAS NOT MAKING INVESTMENT FOR THE PURPOSE OF BUSINESS BUT F OR ONLY ACQUIRING CONTROLLING INTEREST AND ACCORDINGLY THE INTEREST P AID WAS DISALLOWED UNDER SECTION 14A OF THE ACT. FURTHER DURING THE PREVIOU S YEAR THE ASSESSEE HAD DISCONTINUED ITS BUSINESS OF MANUFACTURING SHEET ME TAL COMPONENTS. FURTHER THE AO NOTICED THAT THE ASSESSEE COMPANY HA D OBTAINED UNSECURED LOANS OF RS.6.30 CRORES DURING THE PREVIOUS YEAR IN ADDITION TO THE EARLIER ITA NO.1413&1879/MUM/2010(A.Y. 2002-03) 3 YEARS BALANCE OF RS.1,22,48,240/- AND THE INVESTMEN T HAS GONE UP FROM RS.62,43,14,700/- TO RS.77,95,31,103/- AND INCREASE D BY RS.15,52,16,403/- DURING THE PREVIOUS YEAR. THERE WAS THUS AN INCREASE IN THE OWN FUNDS OF THE ASSESSEE BY RS. 8,63,62,335/- 3.1 ACCORDING TO THE AO, THIS CLEARLY SHOWED THAT THE ASSESSEE COMPANY HAD OBTAINED LOAN FOR MAKING INVESTMENT IN SHARES O F RS.6,88,54,068/-. ON COMPARING INVESTMENT IN SHARES OF LAST YEAR, UNQUOT ED SHARES OF ANAND CORPORATE SERVICE LTD. WERE ONLY 1670 VALUING RS.3, 75,832/-. THE ASSESSEE COMPANY HAS INVESTED FURTHER AMOUNT OF RS. 324200. SIMILARLY 50000 UNQUOTED SHARES OF ANAND DESIGN AND ENGINEERING SER VICES LTD WERE BOUGHT DURING THE YEAR FOR RS.5,00,000/-. THE ASSESSEE COM PANY ALSO BOUGHT 1050000 SHARES OF ANAND AND ANAND (P) LTD FOR RS. 1 05,00,000/- WHEN THEIR HOLDING IN THAT COMPANY IN LAST YEAR WAS NIL. SIMIL ARLY ASSESSEE BOUGHT UNQUOTED SHARES OF ECHLIN LTD (12597145) NOS. FOR R S. 70,35,700/ - 4. ACCORDING TO THE AO IT WAS CLEAR THAT THE ASSES SEE HAD OBTAINED LOAN AND WAS PAYING INTEREST AND THESE LOANS WERE NOT FO R BUSINESS PURPOSE BUT TO MAKE INVESTMENTS. THE ASSESSEE WAS ISSUED A SHO W CAUSE NOTICE VIDE LETTER DT. 3/11/06 TO SHOW CAUSE AS TO WHY THE ASSE SSMENT SHOULD NOT BE COMPLETED IN THE LINES OF THE ASSESSMENT FOR A.Y. 2 00 1-02 AND THE INTEREST EXPENDITURE ON BORROWED FUNDS USED FOR INVESTMENT P URPOSE AND THE PROPORTIONATE EXPENDITURE OF INTEREST, AND ADMINIS TRATION EXPENDITURE SHOULD NOT BE DISALLOWED U/S 36(1)(II) AND U/S 14A RESPECTIVELY. 4.1 IN RESPONSE THE ASSESSEE SUBMITTED THAT IT W AS INCORPORATED IN 1966 WITH THE MAIN BUSINESS ACTIVITY OF EXERCISING CONTR OL OVER COMPANIES IN ANAND GROUP, PROVIDE LONG TERM FINANCE AND PROVIDE MANAGEMENT ITA NO.1413&1879/MUM/2010(A.Y. 2002-03) 4 CONSULTANCY. THUS, THE ASSESSEE COMPANYS MAIN ACT IVITY WAS CONTROLLING THE COMPANIES OF ANAND GROUP. WHILE CARRYING OUT TH E ACTIVITY THE COMPANY PURCHASES SHARES AND GRANTS LOANS. THE FUNDS REQUIR ED ARE GENERALLY BORROWED FORM VARIOUS COMPANIES. THE COMPANYS INFL OWS ALSO INCLUDE DIVIDEND, INTEREST INCOME, MANAGEMENT FEES AND INCO ME EARNED ON SALE OF ITS INVESTMENTS. SINCE THE COMPANY IS AN INVESTMENT AN D FINANCE COMPANY, THE INTEREST PAID BY IT ON FUNDS BORROWED FUNDS WILL BE ALLOWABLE U/S.36(1)(III) OF THE I.T.ACT, 1961. THE BORROWED FUNDS ARE UTILIZED FOR PURCHASE OF SHARES AND SECURITIES OR FOR GRANTING LOANS IN PURSUANCE TO ON E OF THE MAIN OBJECT OF THE COMPANY FOR WHICH PURPOSE IT WAS INCORPORATED, AND, IN FACT, FOR THE FULFILLMENT OF THIS OBJECTIVE THE COMPANY BORROWED FUNDS, IS DEFINITELY USER OF THE FUNDS FOR THE PURPOSE OF BUSINESS. ACCORDINGLY ALL TEST AS LAID DOWN IN SEC.36(1)(III) HAVE BEEN SQUARELY MET NAMELY, (I,) THE COMPANY HAS BORROWED CAPITAL; (II) THE BORROWED CAPITAL HAS BEEN USED FOR THE PUR POSE OF BUSINESS; (III) THE COMPANY HAS INCURRED INTEREST EXPENDITURE ON SUCH BORROWED CAPITAL SO UTILIZED. 5. THE AO HOWEVER DID NOT ACCEPT THE EXPLANATION O F THE ASSESSEE AND HE HELD THAT THE ASSESSEE WAS HOLDING SHARES AS INVEST MENT FOR EARNING DIVIDEND INCOME AND NOT FOR CARRYING ON BUSINESS AC TIVITY. HE FURTHER HELD AS FOLLOWS: 9.3 THEREFORE THE ENTIRE INVESTMENT IN SHARES BOTH QUOTED AND UNQUOTED CANNOT BE CONSIDERED AS INVESTMENT FOR THE PURPOSE OF BUSINESS AND THEREFORE THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION OF INTEREST U/S 36(1)(III) IN RESPECT OF AMOUNT OF RS. 1,27,65,044. IN MY OPINION WHETHER THE SHARES HAVE YIELDED DIVIDEND OR NOT IS NOT MATERIAL BECAUSE EVEN THE UNQUOTED SHARES ARE CAPAB LE OF YIELDING DIVIDEND INCOME. IT HAS BEEN HELD BY THE HONBLE SC IN THE CASE OF CIT ITA NO.1413&1879/MUM/2010(A.Y. 2002-03) 5 V/S. RAJENDRA PRASAD MODY 115 ITR 519 THAT INTEREST ON MONEY BORROWED FOR INVESTMENT IN SHARES WHICH HAD NOT YIE LDED ANY DIVIDEND WAS ADMISSIBLE AS DEDUCTION U/S 57(III) OF THE ACT. FURTHER IN VIEW OF THE PROVISIONS OF SECTION 14A THE EXPENDITURE (INTE REST) INCURRED IN RELATION TO EARNING OF INCOME WHICH DOES NOT FORM P ART OF THE TOTAL INCOME IS ALSO NOT ADMISSIBLE AS DEDUCTION. AS THE DIVIDEND INCOME DOES NOT FORM PART OF THE TOTAL INCOME BY VIRTUE OF PROVISIONS OF 10(33) OF THE ACT IT IS HELD THAT THE ASSESSEE IS NOT ENTI TLED FOR DEDUCTION OF INTEREST OF RS. 12765544/-. 9.4 THEREFORE THE INTEREST PAID @18.54% ON THE INVE STMENT MADE OUT OF BORROWED FUNDS OF RS.688,54,068/- WORKS OUT TO R S.127,65,544 IS DISALLOWED U/S.36(1)(III) BEING PAID FOR NON-BUSINE SS PURPOSE. FURTHER INCOME INCLUSIVE OF DIVIDEND INCOME IS RS.707,77,03 3/-. FOR EARNING THIS INCOME THE ASSESSEE COMPANY HAS INCURRED MANUF ACTURING EXPENSES AND DEPRECIATION OF RS. 19,06,775/-. THE ASSESSEE COMPANY HAS DEBITED INTEREST OF RS.272 ,56,920/- TO THE PROFIT AND LOSS ACCOUNT. AFTER DISALLOWANCE OF INTE REST EXPENSES OF RS.127,65,544/-, THERE IS A BALANCE OF RS.144,91,37 6/-. THEREFORE FOR EARNING THE DIVIDEND INCOME THE PROPO RTIONATE EXPENSES WITH RESPECT TO INTEREST, MANUFACTURING AND DEPRECI ATION ATTRIBUTABLE TO THE DIVIDEND INCOME IS WORKED OUT AS FOLLOWS DIVIDEND X EXPENSES=46062496 XL,63,98,151 (19,06,77 5 [phone]) TOTAL RECEIPTS 7,07,77,033 = R.1,O6,72,1O2.69/- 9.5 THE ASSESSEE HAS ALSO NOT PRODUCED ANY DETAILS OF THE EXPENSES CLAIMED IN THE PROFIT AND LOSS ACCOUNT WITH RESPECT TO THE LEGAL AND PROFESSIONAL EXPENSES, , OFFICE FACILITIES EXPENSES , ADVERTISING AND BUSINESS PROMOTION AMOUNTING TO RS.15,09,828/-. THE ASSESSEE HAS NOT PRODUCED ANY DOCUMENTARY EVIDENCE TO JUSTIFY TH AT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE TRUE TEST OF AN EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF TRADE OR BUSINESS IS THAT IT IS INCURRED BY THE ASSESSEE AS INCIDENTAL TO HIS TRADE FOR THE PUR POSE OF KEEPING THE ITA NO.1413&1879/MUM/2010(A.Y. 2002-03) 6 TRADE GOING AND OF MAKING IT PAY AND NOT IN OTHER CAPACITY THAN OF A TRADER. (CIT V/S DELHI SAFE DEPOSIT CO. LTD. 1982 1 33 ITR 756 (SC). THE ASSESSEE HAS FURTHER NOT BEEN ABLE TO ESTABLISH THE NEXUS BETWEEN EXPENDITURE AND BUSINESS OF THE ASSESSEE COMPANY FO R ALLOWING THE EXPENDITURE U/S 37(1) OF THE I.T. ACT. IN VIEW OF THE ABOVE THE EXPENDITURE CLAIMED BY THE ASSESSEE COMPANY FOR LEG AL AND PROFESSIONAL OF RS. 8,42,100, ADVERTISING AND BUSIN ESS AND PROMOTION OF RS. 1,61,223/-, OFFICE FACILITIES EXPENSES OF RS . 4,50,000/- AND TRAVELLING EXPENSES OF RS. 56,505/- ARE DISALLOWED AND ADDED BACK TO THE TOTAL INCOME. 4. ON APPEAL BY THE ASSESSEE THE CIT(A) DIRECTED TH AT THE DISALLOWANCE OF EXPENSES UNDER SECTION 14A OF THE INCOME TAX ACT(TH E ACT) SHOULD BE DONE IN ACCORDANCE WITH RULE 8D OF THE INCOME TAX RULES, 19 62. WITH REGARD TO THE DISALLOWANCE OF OTHER EXPENSES THE CIT(A) HELD AS F OLLOWS: 11. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT IT IS NOT CORRECT TO SAY THAT THE ASSESSEE HAS NOT FURNIS HED DOCUMENTARY EVIDENCE IN RESPECT OF THESE EXPENSES. HE FURTHER S UBMITTED THAT IT WOULD BE NOTICED FROM THE NOTICE ISSUED BY THE A.O. THAT NO SUCH INFORMATION WAS CALLED FOR. HENCE THE ALLEGATION TH AT NO BILLS/VOUCHERS IS FURNISHED IS NOT CORRECT. THE FACT IS NO DETAILS WERE CALLED FOR AT ALL. HE SUBMITTED ALL THE DETAILS OF THE EVIDENCES IN RE SPECT OF THE EXPENSES MENTIONED ABOVE WITH THE PAPER BOOK. THE A.O. WAS R EQUESTED TO COMMENT ON THIS NEW EVIDENCE ALSO DURING THE REMAND PROCEEDINGS. THE A.O. HAS COMMENTED THAT NO BILLS/INVOICES WITH REGARD TO LEGAL/PROFESSIONAL EXPENSES, TRAVELLING, ADVERTISIN G AND OFFICE FACILITIES WERE FURNISHED. 12. I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE A UTHORIZED REPRESENTATIVE AND THE REMAND REPORT SUBMITTED BY T HE A.O. I FIND THAT THE ASSESSEE IS HAVING ALL THE DETAILS OF LEGAL AND PROFESSIONAL EXPENSES, TRAVELLING, ADVERTISING AND OFFICE FACILI TIES AND IT IS NOT CORRECT TO SAY THAT THE ASSESSEE DID NOT PRODUCE EV IDENCE OF THESE EXPENSES BEFORE THE A.O. SINCE ASSESSEE HAS INCURRE D THESE EXPENSES FOR THE PURPOSE OF BUSINESS AND THE EVIDENCE WAS PR ODUCED BEFORE THE CIT(A) WHO REMANDED THE MATTER TO THE A.O., THE EXP ENSES ARE REQUIRED ITA NO.1413&1879/MUM/2010(A.Y. 2002-03) 7 TO BE ALLOWED AS IT IS NOT CORRECT TO SAY THAT THE ASSESSEE HAS NOT PRODUCED DOCUMENTARY EVIDENCES. THESE GROUNDS OF AP PEAL ARE ALLOWED. THE A.O. IS DIRECTED TO DELETE THESE ADDIT IONS 5. AGGRIEVED BY THE DIRECTION OF THE CIT(A) TO MAKE DISALLOWANCE UNDER SECTION 14A OF THE ACT BY APPLYING THE PROVISIONS OF RULE 8D OF THE IT RULES, THE ASSESSEE HAS RAISED GROUND NO.2 BEFORE THE TRIB UNAL. AGGRIEVED BY THE ORDER OF THE CIT(A) DELETING THE DISALLOWANCE OF VA RIOUS EXPENSES THE REVENUE HAS RAISED GROUND NO.2 BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE RIVAL SUBMISSION. AT THE TIME OF HEARING IT WAS BROUGHT TO OUR NOTICE THAT SIMILAR ISSUE HAD COME U P FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE ITA NOS. 4412 & 4883/M/2010 AY 04-05 AND BY ORDER DATED 30/09/2011 AND THIS TRIBU NAL ON IDENTICAL ISSUE HELD AS FOLLOWS: 3. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE REC ORDS AND CONSIDERED THE MATTER CAREFULLY. AS REGARDS THE DI SALLOWANCE OF INTEREST EXPENDITURE UNDER SECTION 14A IS CONCERNED , THE ORDER OF CIT(A) DIRECTING AO TO COMPUTE DISALLOWANCE U/R 8D CANNOT BE UPHELD IN VIEW OF THE JUDGMENT OF HONBLE HIGH COURT OF BO MBAY IN CASE OF GODREJ BOYCE MFG. COMPANY LTD. (328 ITR 81) IN WHIC H IT HAS BEEN HELD THAT RULE 8D IS NOT RETROSPECTIVE AND IS APPLI CABLE FROM 2008-09. THE HONBLE HIGH COURT ALSO HELD THAT IN CASE OF PR IOR YEARS, THE EXPENSES RELATING TO EXEMPT INCOME BOTH DIRECT AND INDIRECT HAVE TO BE COMPUTED ON A REASONABLE BASIS. WE FIND THAT IN TH IS CASE THE AO HAD NOT FOLLOWED RULE 8D AND HAD COMPUTED INTEREST EXPE NDITURE RELATING TO EXEMPT INCOME ON A PARTICULAR BASIS. THE CIT(A) HAS NOT GIVEN ANY FINDING ON THE METHOD ADOPTED BY AO AND HAS FOLLOW ED RULE 8D WHICH CANNOT BE UPHELD. IT MAY BE POINTED OUT HERE THAT THE ASSESSEE IS NOT IN APPEAL AGAINST THE DISALLOWANCE OF INTEREST BY A O TO THE EXTENT OF RS.3,72,91,530/- RELATING TO THE BORROWED FUNDS UTI LIZED WHICH HAS BEEN CONFIRMED BY CIT(A) AS CAPITAL EXPENDITURE. T HEREFORE, ATTRIBUTION TOWARDS EXEMPT INCOME IS REQUIRED TO BE MADE ONLY IN RESPECT OF BALANCE INTEREST OF RS.16,73,386/-. AS REGARDS THE OTHER ITA NO.1413&1879/MUM/2010(A.Y. 2002-03) 8 EXPENSES CONSIDERED BY AO TOWARDS THE DIVIDEND INCO ME, THE ASSESSEE IS NOT IN APPEAL AS THE GROUND RAISED IS ONLY IN RE LATION TO DISALLOWANCE OF INTEREST EXPENDITURE PERTAINING TO THE EXEMPT DI VIDEND INCOME. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND RESTOR E THE MATTER BACK TO HIM FOR PASSING A FRESH ORDER ON THIS ISSUE AFTER N ECESSARY EXAMINATION IN THE LIGHT OF OBSERVATIONS MADE ABOVE AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 3.1 THE DISPUTE RAISED IN THE APPEAL OF THE REVENUE IS REGARDING DISALLOWANCE OF THE VARIOUS EXPENSES MENTIONED IN PARA-2.3 EARLIER WHICH HAS BEEN ALLOWED BY CIT(A). AS MENTIONED EAR LIER, THE AO HAD DISALLOWED THE EXPENSES ON THE GROUND THAT THE ASSE SSEE HAD NOT FILED DETAILS OF THESE EXPENSES AND COULD NOT PROVE ANY NEXUS OF THE EXPENDITURE WITH THE BUSINESS OF THE ASSESSEE TO SH OW THAT THE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR T HE PURPOSE OF BUSINESS. THE CIT(A) ALLOWED THE EXPENSES ONLY ON THE GROUND THAT BOOKS OF ACCOUNT WERE AUDITED. HE HAS GIVEN NO FIN DING WHETHER EXPENSES HAD ANY NEXUS WITH THE BUSINESS BEING DONE BY THE ASSESSEE AND THAT THE SAME WERE BEING INCURRED WHOLLY AND EX CLUSIVE FOR THE PURPOSE OF BUSINESS. CIT(A) HAS ALREADY GIVEN A FI NDING THAT CONTROLLING STAKE WAS NOT BUSINESS OF THE ASSESSEE AGAINST WHICH ASSESSEE IS NOT IN APPEAL BEFORE THE TRIBUNAL. THE CIT(A) WAS THEREFORE, REQUIRED TO GIVE A FINDING AS TO THE BU SINESS AGAINST WHICH THE EXPENSES WERE TO BE ALLOWED. FURTHER, THE CIT( A) HAS ALREADY UPHELD THE ORDER OF AO TREATING THE INTEREST EXPEND ITURE TO THE TUNE OF RS.3,72,91,530/- AS CAPITAL EXPENDITURE RELATING TO THE INVESTMENT IN THE GROUP COMPANIES AGAINST WHICH THE ASSESSEE IS N OT IN APPEAL. THEREFORE, ONLY THE BALANCE INTEREST OF RS.16,73,38 6/- COULD BE CONSIDERED AGAINST REVENUE EXPENDITURE, IF ANY. WE , THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER BA CK TO HIM FOR PASSING A FRESH ORDER ON THE DISALLOWANCE OF EXPENS ES AFTER NECESSARY EXAMINATION AND AFTER ALLOWING OPPORTUNITY OF HEARI NG TO THE ASSESSEE. 4. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. 7. RESPECTFULLY FOLLOWING THE AFORESAID ORDER OF T HE TRIBUNAL AND IN VIEW OF THE FACT THAT THE BASIS OF DISALLOWANCE IN THE PRES ENT ASSESSMENT YEAR IN A.Y 2004-05 WAS IDENTICAL WE SET ASIDE THE ORDER OF THE CIT(A) AND REMAND THE ITA NO.1413&1879/MUM/2010(A.Y. 2002-03) 9 ISSUE OF DISALLOWANCE UNDER SECTION 14A TO THE AO F OR FRESH CONSIDERATION. SIMILARLY THE EXPENSES WHICH WERE DISALLOWED BY THE AO AND DELETED BY THE CIT(A) AS TO WHETHER THEY HAVE ANY NEXUS WITH THE B USINESS BEING CARRIED ON BY THE ASSESSEE REQUIRES TO BE EXAMINED BY THE AO A FRESH. FOR STATISTICAL PURPOSES BOTH THE APPEALS ARE TREATED AS ALLOWED. 7. IN THE RESULT, BOTH THE APPEALS ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON TH E 7 TH DAY OF OCT. 2011. SD/- SD/- (J.SUDHAKAR REDDY ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 7 TH OCT.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RD BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.1413&1879/MUM/2010(A.Y. 2002-03) 10 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 3/10/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 4/10/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. AP PROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER