M/s.Devon Plantations & Industries Limited, Bangalore V. Deputy Commissioner of Income-Tax, Bangalore

ITA 1940/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7216 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 17-04-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 16-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: H N KHINCHA
• Keywords: Capital asset; Business income; Earning of tax free income; Additional evidence; Question of law; Fair market value; Onus to prove; Reassessment proceedings
• Section: 14A

Judgement Text

ITA.1940 TO 1943/BANG/2016 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI. LALIT KUMAR, JUDICIAL, JUDICIAL MEMBER I.T.A NOS.1940 TO 1943/BANG/2016 (ASSESSMENT YEARS : 2007-08 TO 2010-11) M/S. DEVON PLANTATIONS & INDUSTRIES LTD, NO.29, EMPIRE INFANTRY, INFANTRY ROAD, SHIVAJI NAGAR, BENGALURU 560 001 .. APPELLANT PAN : AAACD7869H V. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -11(1), BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. H. N. KHINCHA, CA REVENUE BY : SHRI. M. K. BIJU, JCIT HEARD ON : 01.11.2017 PRONOUNCED ON : 17.11.2017 O R D E R PER LALIT KUMAR, JUDICIAL MEMBER: THESE ARE APPEALS OF THE ASSESSEE AGAINST SEPARATE ORDERS OF THE CIT (A), BENGALURU -2, BENGALURU, DT.10.08.2016, FO R THE ASSESSMENT YEARS 2007-08 TO 2010-11, RAISING THE FOLLOWING GRO UNDS WHICH ARE COMMON TO ALL THE ASSESSMENT YEARS : ITA.1940 TO 1943/BANG/2016 PAGE - 2 ITA.1940 TO 1943/BANG/2016 PAGE - 3 ITA.1940 TO 1943/BANG/2016 PAGE - 4 02. THE ASSESSEE IS A COMPANY ENGAGED IN TEA / COFF EE BUSINESS AND OWNS ESTATES IN THE STATE OF KARNATAKA. FOR THE AS SESSMENT YEAR 2007- 08 THE BUSINESS INCOME OF THE ASSESSEE WAS WORKED OUT AS PER RULE 7B AND 8 OF THE IT RULES. THE ASSESSEE DECLARED TH E SHORT-TERM CAPITAL GAINS OF RS.78,412/- FROM SALE OF SHARES AND LONG T ERM CAPITAL LOSS ON COFFEE FUTURES EXCHANGE OF RS.7,200. THE ASSESSEE HAS ALSO DECLARED LOSS OF RS.60,48,245/- UNDER THE HEAD LONG-TERM CA PITAL LOSS ON SALE OF TIMBER. AFTER ADJUSTING THE LONG-TERM CAPITAL L OSS ON SALE OF TIMBER, THE NET CAPITAL LOSS OF THE ASSESSEE WAS RS.59,77,0 32/-. IT WAS FOUND DURING THE REASSESSMENT PROCEEDINGS THAT THE ASSESS EE HAS WRONGLY REPORTED THE INCOME FROM CAPITAL GAINS. THE ASSESS EE HAS ADOPTED WRONG METHOD OF INDEXATION ON SALE OF TIMBER. ACCO RDINGLY THE CASE WAS REOPENED FOR A. YS. 2009-10 AND 2010-11. THE A O HAS CONCLUDED THE PROCEEDINGS OF REASSESSMENT AND AS MA DE VARIOUS ADDITIONS AS UNDER : AY 2007-08 RS. AY 2008-09 RS. AY 2009-10 RS. AY 2010-11 RS. DISALLOWANCE U/S.14A 3,12,835 4,84,380 1,52,402 1,22,144 SHORT-TERM CAPITAL GAINS 78,412 NIL NIL NIL LONG-TERM CAPITAL GAINS 6,89,128 14,33,648 9,47,671 5,55,870 03. SINCE THE FACTS ARE COMMON FOR ALL THE ASSESSME NT YEARS, THE FACTS FOR THE ASSESSMENT YEAR 2007-08 IS TAKEN UP B Y US FOR ADJUDICATION. FOR THE AY 2007-08, IT IS THE CASE O F THE ASSESSEE THAT DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR THE ASSESSEE ITA.1940 TO 1943/BANG/2016 PAGE - 5 HAD UPROOTED TREES FOR A SALE CONSIDERATION OF RS.2 2,97,093/- AND OFFERED LONG-TERM CAPITAL GAINS FOR TAXATION. HOWE VER WHILE COMPUTING THE LONG-TERM CAPITAL GAINS THE ASSESSEE HAS CLAIMED 70% OF THE SALE CONSIDERATION AS COST, AS ON 01.04.1981 AND APPLIED INDEXATION AND HAS ARRIVED AT A LOSS OF RS.60,48,24 5/-. THE AO HAD NOT AGREED TO THE METHOD OF COMPUTATION FOLLOWED BY THE ASSESSEE. HOWEVER THE AO HAD AGREED TO THE METHOD OF COMPUTAT ION OF COST AT 70% OF THE SALE PROCEEDS AND INDEXATION AS ON 01.04 .1981 WAS DISALLOWED AND FOR THE AY 2007-08, TAXABLE CAPITAL GAINS INCOME WAS ARRIVED AT RS.6,89,128/- AS AGAINST THE LOSS COMPUT ED BY THE ASSESSEE. 04. FEELING AGGRIEVED BY THE ORDER OF THE AO, ASSES SEE FILED APPEALS BY THE CIT (A). HOWEVER, NO RELIEF WAS GRANTED BY THE CIT (A) AND THEREFORE THE ASSESSEE IS IN APPEAL BEFORE US IN RE SPECT OF ALL THE FOUR ASSESSMENT YEARS. 05. BEFORE US, THE LD. AR HAS SUBMITTED THAT THE IS SUE OF COMPUTATION AT 70% OF THE SALE PROCEEDS HAS BEEN AL LOWED BY THE ITAT, BENGALURU AND LATER ON BY THE HONBLE JURISDI CTIONAL HIGH COURT. HOWEVER, IT WAS CONTENDED THAT IN THE MATTE R OF BALANOOR PLANTATIONS AND INDUSTRIES LTD V. DCIT [ITA NOS.475 TO 478/BANG/2003, DT.22.03.2004] AND BHADRA ESTATE & I NDUSTRIES LTD, [ITA NOS.270, 271, 355 & 356/BANG/2003, DT.16.12.20 03, BANGALORE TRIBUNAL HAS DETERMINED THE FAIR MARKET VALUE AS ON 01.04.1981 AND HAS ADOPTED RS.35/- PER SQ. FT ON THE BASIS OF THE CERTIFICATE ISSUED BY THE DEPUTY CONSERVATOR OF FORESTS. THE LD. AR FURT HER RELIED UPON ITA.1940 TO 1943/BANG/2016 PAGE - 6 THE HONBLE JURISDICTIONAL HIGH COURTS JUDGMENT IN THE MATTER OF TATA COFFEE LTD, V. JCIT, IN ITA NOS.57 & 1092 OF 2006 A ND 296 OF 2007, DT.24.09.2012, FOR THE PURPOSE OF CANVASSING HIS AR GUMENT THAT THE FMV OF THE TIMBER SHOULD BE TAKEN AS ON 01.04.1981. 06. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THA T THE SHADE TREES THAT ARE GROWN IN THE ESTATE OF THE ASSESSEE HAD GR OWS WITHOUT ANY EFFORTS OF THE ASSESSEE AND THE ISSUE WHETHER THE S HADE TREES FALL WITHIN THE DEFINITION OF CAPITAL ASSETS UNDER THE IT ACT, IS UNDER SHADOW OF DOUBT AND ONLY ON ACCOUNT OF THE FOLLOWING JUDGMENT S OF THE TRIBUNAL AND HONBLE JURISDICTIONAL HIGH COURT, THE BENEFIT OF 70% OF THE SALE PROCEEDS WERE CONSIDERED AS COST AND THE REMAINING 30% WAS CONSIDERED TO BE THE LONG-TERM CAPITAL GAINS . 07. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE RECORD. IN OUR CONSIDERED OPINION THE ISSUE OF LONG-TERM CAPIT AL GAINS PURSUANT TO SALE OF TIMBER IS NO MORE RES INTEGRA AND IS SETTLE D BY THE FOLLOWING DECISIONS : I) CIT V. SANGAMESHWARA COFFEE ESTATES AND INDUSTRI ES P. LTD, VIDE ORDER DT.30.09.1986 IN ITA NO.193/BANG/2012 (A Y 2008-09 BANG TRIB) II) ITA NO.1925/MDS/1972-73, DT.13.03.1975 IN ASSES SEES OWN CASE; AND III) ITA.824/BANG/2012 IN M/S. SANGAMESHWARA COFFEE ESTATE, DT.28.02.2013 IN ALL THE ABOVE DECISIONS, A CONSISTENT VIEW WAS T AKEN TO THE EFFECT THAT 30% OF SALE PROCEEDS SHALL BE TAKEN AS LONG-TE RM CAPITAL GAINS IN RESPECT OF SALE OF SHADE TREES AS AGAINST THE PROPO SAL OF THE AO TO TREAT ITA.1940 TO 1943/BANG/2016 PAGE - 7 THE SAME AS BUSINESS INCOME. FURTHER THE ARGUMENT OF THE LD. AR THAT THE TRIBUNAL SHOULD ADOPT RS 35 SQ.FT ON THE BASI S OF THE CERTIFICATE ISSUED BY THE DEPUTY CONSERVATOR OF FORESTS, AS FMV AS ON 01.04.1981 IS DEVOID OF ANY MERIT. THE ORDER OF TH E TRIBUNAL REFERRED BEFORE US WAS IN PECULIAR FACTS AND CIRCUMSTANCES O F THE CASE AND WAS NOT A BINDING DECISION AS THE SAID ORDER WAS PASSED ON THE CONSENT GIVEN BY THE LD. DR. IN ANY CASE, FOR THE PURPOSE OF CLAIMING THE BENEFIT OF FMV AS ON 01.04.1981, IT WAS INCUMBENT U PON THE ASSESSEE TO ALLEGE DURING THE ASSESSMENT PROCEEDINGS THAT TH ESE TREES WHICH WERE NOW SOLD BY THE ASSESSEE WERE IN EXISTENCE PRI OR TO 01.04.1981. NO SUCH MATERIAL / EVIDENCE WAS BROUGHT ON RECORD BY THE ASSESSEE IN THE PRESENT PROCEEDINGS BEFORE THE TRIBUNAL OR BEFO RE THE LOWER AUTHORITIES. THEREFORE THIS OBJECTION OF THE ASSES SEE AND THE APPLICATION FOR ACCEPTING THE ADDITIONAL EVIDENCE R EMITTING THE MATTER BACK TO THE FILE OF THE AO FOR SEEKING REPORT FROM THE DCF IS WITHOUT ANY MERIT AND IS THEREFORE LIABLE TO BE DISMISSED. ACCORDINGLY, THE ASSESSEE IS NOT LIABLE TO ANY RELIEF ON THIS COUNT. THEREFORE THE GROUND NOS 1-5 ARE DISMISSED. 08. THE OTHER GROUND NO.6 RAISED BEFORE US IS WITH RESPECT TO DISALLOWANCE U/S.14A R.W. RULE 8D, MADE BY THE AO A ND CONFIRMED BY THE CIT (A). IN THIS REGARD THE AO HAD MADE DIS ALLOWANCE ON TWO COUNTS NAMELY, UNDER RULE 8D(II) AND UNDER RULE 8D( III). IT WAS THE CASE OF THE AO THAT THE ASSESSEE HAS UTILISED THE B ORROWED FUNDS FOR THE PURPOSE OF EARNING TAX-FREE INCOME. BEFORE THE AO, THE ASSESSEE WAS UNABLE TO SUBSTANTIATE WHY RULE 8D IS NOT APPLI CABLE. IT WAS THE ITA.1940 TO 1943/BANG/2016 PAGE - 8 CASE OF THE AO THAT THERE WAS NO NEXUS BETWEEN THE LOAN TAKEN AND THE INVESTMENT MADE. FURTHER THE AO HELD THAT AS PER S CHEDULE VIII, THE ASSESSEE HAS MADE INVESTMENT IN QUOTED AND UNQUOTED SHARES, MUTUAL FUNDS ETC., HENCE THE CASE OF THE ASSESSEE FELL WI THIN THE FOUR CORNERS OF SECTION 14A R.W. RULE 8D. 09. ON THE OTHER HAND, THE LD. AR HAS SUBMITTED THA T THE ASSESSEE HAS UTILISED THE RESERVES AND SURPLUS FOR THE PURPO SE OF MAKING THE INVESTMENT AND THERE WAS A COMMON KITTY OF PROFIT E ARNED DURING THE YEAR AND THERE WAS NO EVIDENCE AVAILABLE WITH THE A O TO ESTABLISH THE DIRECT NEXUS BETWEEN THE FUNDS INVESTED AND THE BOR ROWED FUND. 10. THE LD. DR RELIED UPON THE FOLLOWING JUDGMENTS : MAXOPP. INVESTMENTS LTD V. CIT [TS-668-HC-2011 (HC) ] CHEMINVEST LTD V. ITO [121 ITD 318] PRADEEP KAR V. ACIT [(KAR) 319 ITR 416] 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. AS PER THE BALANCE SHEET AS ON 31.03.2007, THE SECURED LOANS FOR THE PREVIOUS YEAR WAS RS.1,22,71,656/-, AND THE INVESTM ENT SOWN IN THE PREVIOUS YEAR WAS RS.1,14,52,283/-, WHEREAS THE INV ESTMENT SHOWN IN THE CURRENT YEAR IS RS.1,31,78,770/-. THUS IT IS C LEAR THAT THE INITIAL INVESTMENT AT THE BEGINNING OF THE RELEVANT FINANCI AL YEAR WAS RS.1,14,22,283/- AND AT THE CLOSING OF THE FINANCIA L YEAR WAS ONLY RS.1,31,78,770/-. THUS THE DIFFERENCE OF RS.17,56, 487/-, WAS MADE DURING THE FINANCIAL YEAR RELEVANT TO AY 2007-08. SIMILARLY, THE TABLE ITA.1940 TO 1943/BANG/2016 PAGE - 9 SHOWING THE SHARE CAPITAL, RESERVE AND SURPLUS, SEC URED LOANS, UNSECURED LOANS, CURRENT LIABILITY, INVESTMENT IN S HARES AND MUTUAL FUNDS AND DISALLOWANCE MADE UNDER SECTION 14A R.W. RULE 8D, IS GIVEN BELOW : AY 2007-08 AY 2008-09 AY 2009-10 AY 2010-11 SHARE CAPITAL 29,75,290 29,75,290 29,75,290 29,75,290 RESERVE AND SURPLUS 5,14,87,589 5,73,29,398 6,66,76,749 8,28,24,073 SECURED LOANS 1,22,71,656 88,66,973 58,32,880 UNSECURED LOANS 21,12,296 13,48,247 12,26,671 13,59,789 CURRENT LIABILITY 1,39,94,220 1,54,29,329 1,72,26,269 2,90,80,114 INVESTMENT IN SHARES AND MUTUAL FUNDS 2.24.52,283 1,24,50,052 1,28,54,879 1,47,15,169 DISALLOWANCE U/S.14A R.W. RULE 8D 3,12,835 (RULE 8D(II) -2,51,258 RULE 8D(III) 61,578) 484,390 (RULE 8D(II) -4,20,308 RULE 8D(III) 64,072) 1,52,402 (RULE 8D(II) - 89,139 RULE 8D(III) 63,252) 1,22,144 (RULE 8D(II) -53,219 RULE 8D(III) 68,925) FROM A PERUSAL OF THE ABOVE, IT IS CRYSTAL CLEAR TH AT THE ASSESSEE WAS HAVING SUFFICIENT RESERVE AND SURPLUS FUND AND PROF ITS IN ALL THE YEARS WHICH WERE MORE THAN THE INVESTMENTS MADE DURING TH E YEAR. THE SHARE CAPITAL IN ALL THESE FOUR YEARS ALONG WITH SU RPLUS RESERVE WERE SUFFICIENT FOR THE ASSESSEE TO MAKE THE INVESTMENT IN THE LISTED AND ITA.1940 TO 1943/BANG/2016 PAGE - 10 UNLISTED SHARES. THEREFORE IN OUR VIEW, THE ADDITI ON MADE BY THE AO BY INVOKING RULE 8D(II) WAS WITHOUT ANY BASIS AS TH E ASSESSEE WAS HAVING SURPLUS AND RESERVE FUND, WHICH WAS SUFFICIE NT TO MAKE THE INVESTMENT IN THE SISTER CONCERN. OUR ABOVE SAID I NFERENCE IS SUPPORTED BY THE FOLLOWING JUDGMENT : MICROLABS LTD. * [2017] 79 TAXMANN.COM 365 (KARNATAKA) 5. FOR THE SECOND QUESTION, THE OBSERVATIONS MADE BY THE TRIBUNAL IN THE IMPUGNED ORDER READS AS UNDER: '32. GROUND NO.2 RAISED BY THE ASSESSEE READS AS FO LLOWS:- '2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN SUSTAINING THE ADDITIONS MADE BY THE ASSESSING OFFICER U/S. 14 A READ WITH RULE 8D ON THE GROUND THAT THE APPELLANT HAS NOT PRODUCED THE EVID ENTIARY SUPPORT IN RELATION TO DISPERSAL OF LOAN AND UTILIZATION OF LOAN. WHEREAS THE APPELLANT HAS PRODUCED THE EVIDENCE THAT THE AMOUNT INVESTED WAS OUT OF PO SITIVE BANK BALANCE AND NO BORROWINGS WERE UTILIZED FOR THE PURPOSE OF INVESTM ENT.' 33. THE ASSESSEE EARNED DIVIDEND INCOME OF RS.38,75 ,857. IT QUANTIFIED A SUM OF RS.3,22,426 AS EXPENDITURE INCURRED IN EARNING TAX FREE INCOME DIVIDEND INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND WH ICH IS TO BE DISALLOWED U/S. 14A OF THE ACT. 34. THE BREAK-UP OF THE SUM OF RS.3,22,426 IS NOT S PECIFICALLY GIVEN, BUT IS STATED TO BE RELATING TO MANAGEMENT FEE, LEGAL & PROFESSIO NAL CHARGES, SECURITY TRANSACTION CHARGES AND NSDL CHARGES. IT IS THUS CL EAR THAT THE ASSESSEE BY IMPLICATION HAD CLAIMED THAT THERE WAS NO EXPENDITU RE INCURRED BY WAY OF INTEREST, EITHER DIRECTLY OR INDIRECTLY, WHICH IS A TTRIBUTABLE TO THE BORROWED FUNDS WHICH WERE USED FOR THE PURPOSE OF INVESTMENT WHICH YIELDED TAX FREE INCOME. 35. THE AO OBSERVED THAT SCHEDULE G TO THE FINANCIA L STATEMENTS OF THE ASSESSEE HAD SHOWN INVESTMENT TO THE TUNE OF RS.28, 45,29,937 IN SHARES MUTUAL FUNDS OF VARIOUS COMPANIES. HE WAS OF THE VIEW THAT SUCH INVESTMENTS CANNOT BE MADE ROUTINELY. NO PRUDENT BUSINESSMAN WOULD MAKE A NY INVESTMENT WITHOUT APPLYING THE RESOURCES WISELY. OBVIOUSLY THIS ENTAI LS EXPENDITURE, DIRECT AS WELL AS INDIRECT. HE THEREAFTER PROCEEDED TO MAKE DISALL OWANCE U/S. 14A OF THE ACT, WHICH IS GIVEN AS ANNEXURE TO THE ASSESSMENT ORDER AND ENCLOSED AS ANNEXURE-II TO THIS ORDER. 36. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(APPEALS). ITA.1940 TO 1943/BANG/2016 PAGE - 11 37. BEFORE CIT(A), THE ASSESSEE SUBMITTED THAT INTE REST BEARING LOANS WERE BORROWED FOR SPECIFIC PURPOSES AND NOT FOR INVESTME NT PURPOSES AND IN SUPPORT OF THE ABOVE CONTENTION, THE ASSESSEE FILED COPIES OF BALANCE SHEETS AS ON 31.03.2003 UPTO 31.03.2009 TO SHOW THAT THE VARIOUS LOANS AVAILED FROM BANKS WERE ALL TAKEN FOR SPECIFIC PURPOSES AND COULD NOT HAVE BEEN UTILIZED FOR MAKING ANY INVESTMENTS OUT OF WHICH EXEMPT INCOME WAS EARN ED. THESE LOANS INCLUDE SHORT TERM LOANS FROM IDBI BANK, EXIM BANK, BARCLAY S BANK AND STANDARD CHARTERED BANK IN RESPECT OF WHICH IT WAS EXPLAINED THAT THE LOANS COULD NOT HAVE BEEN USED FOR MAKING ANY LONG TERM INVESTMENT. COPIES OF SOME COMMUNICATIONS FROM BANKS REGARDING SANCTION OF THE LOANS WERE ALSO FILED BEFORE ME TO SUBSTANTIATE THE NATURE OF THE LOAN. I N RESPECT OF IDBI LOAN, IT WAS SUBMITTED THAT THE SAME HAD BEEN RETURNED BACK BEFO RE THE YEAR END, THUS BRINGING THE BALANCE TO NIL. 38. ON CONSIDERATION OF THE ABOVE SUBMISSIONS AND O N PERUSAL OF THE RELEVANT DOCUMENTS, THE CIT(A) WAS OF THE VIEW THAT THE CLAI M OF THE ASSESSEE WAS NOT EVIDENCED FROM THE DOCUMENTS SUBMITTED IN VIEW OF T HE LOANS AND OTHER SOURCES OF FUNDS BEING MIXED UP IN THE COMMON POOL OF FUNDS . THE CIT(A) FURTHER HELD THAT THE BURDEN OF PROOF IN THIS MATTER CLEARLY CON TINUES TO REST WITH THE ASSESSEE AND THAT IT WAS NOT ENOUGH TO MERELY SHOW THAT SURP LUS FUNDS WERE AVAILABLE OR THAT BANK LOANS HAD BEEN AVAILED FOR SPECIFIC PURPO SES INCLUDING SHORT TERM REASONS. A ONE-TO-ONE CORRELATION MUST ALSO BE ESTA BLISHED TO PROVE THAT THE LOANS WERE ABSOLUTELY UTILIZED FOR THE PURPOSE FOR WHICH THEY WERE CLAIMED. THE CIT(A) ALSO HELD THAT THERE WAS NO UTILIZATION CERT IFICATE FROM THE BANK FILED BEFORE THE AO NOR WAS SUCH EVIDENCE FURNISHED BEFOR E THE CIT(A). THE CIT(A) ALSO HELD THAT THE DOCUMENTS SUBMITTED FROM THE BAN K DURING THE COURSE OF APPEAL ONLY REFER TO THE DISBURSAL OF THE LOAN AND EVEN THESE SPECIFY CERTAIN CONDITIONS REQUIRED TO BE MET. THE DATE-WISE ACTUAL DISBURSAL AND UTILIZATION IS NOT PROVED FROM THE LEDGER COPIES AS SUBMITTED. THE CIT(A) ALSO REFERRED TO THE DECISION OF MUMBAI ITAT IN THE CASE OF HERCULES HOI STS LTD. (ITA NO.7944, 7946, 2255 & 7943/MUM/2011), WHEREIN IT WAS HELD TH AT WITH THE INTRODUCTION OF RULE 8D THE BURDEN OF PROOF ON THE ASSESSEE HAS BEC OME 'MORE STRINGENT, SO THAT RATHER THAN SHOWING EXISTENCE OF SUFFICIENT CAPITAL , THE MATTER WOULD BE REQUIRED TO BE EXAMINED FROM THE STAND POINT OF UTILIZATION OF THE BORROWED INTEREST BEARING FUNDS.' IN THE ABSENCE OF CATEGORICAL UTILI ZATION CERTIFICATE FROM THE BANK, THE CIT(A) WAS OF THE VIEW THAT THERE WAS NO EVIDENTIARY SUPPORT OF THE ASSESSEE'S CLAIM. HENCE, THE DISALLOWANCE U/S.14A O F THE ACT AS MADE BY THE AO WAS UPHELD BY THE CIT(A). 39. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE HAS RAISED GROUND NO.2. 40. WE HAVE HEARD THE RIVAL SUBMISSIONS. A COPY OF THE AVAILABILITY OF FUNDS AND INVESTMENTS MADE WAS FILED BEFORE US WHICH IS AT PA GES 38 TO 42 OF THE ASSESSEE'S PAPER BOOK AND THE SAME IS ENCLOSED AS ANNEXURE-III TO THIS ORDER. IT IS CLEAR FROM THE SAID STATEMENT THAT THE AVAILABILITY OF PR OFIT, SHARE CAPITAL AND RESERVES & SURPLUS WAS MUCH MORE THAN INVESTMENTS MADE BY TH E ASSESSEE WHICH COULD YIELD TAX FREE INCOME. ITA.1940 TO 1943/BANG/2016 PAGE - 12 41. THE HON'BLE BOMBAY HIGH COURT IN RELIANCE UTILI TIES & POWER LTD. 313 ITR 340 (BOM) HAS HELD THAT WHERE THE INTEREST FREE FUN DS FAR EXCEED THE VALUE OF INVESTMENTS, IT SHOULD BE CONSIDERED THAT INVESTMEN TS HAVE BEEN MADE OUT OF INTEREST FREE FUNDS AND NO DISALLOWANCE U/S. 14A TO WARDS ANY INTEREST EXPENDITURE CAN BE MADE. THIS VIEW WAS AGAIN CONFIR MED BY THE HON'BLE BOMBAY HIGH COURT IN CIT V. HDFC BANK LTD., ITA NO. 330 OF 2012, JUDGMENT DATED 23.7.14, WHEREIN IT WAS HELD THAT WHEN INVEST MENTS ARE MADE OUT OF COMMON POOL OF FUNDS AND NON-INTEREST BEARING FUNDS WERE MORE THAN THE INVESTMENTS IN TAX FREE SECURITIES, NO DISALLOWANCE OF INTEREST EXPENDITURE U/S. 14A CAN BE MADE. 42. IN THE LIGHT OF ABOVE SAID DECISIONS, WE ARE OF THE VIEW THAT DISALLOWANCE OF INTEREST EXPENSES IN THE PRESENT CASE OF RS.49,42,4 73 MADE UNDER RULE 8D(2)(II) OF THE I.T. RULES SHOULD BE DELETED. WE ORDER ACCOR DINGLY.' THE AFORESAID SHOWS THAT THE TRIBUNAL HAS FOLLOWED A DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT V. HDFC BANK LTD. [2014] 366 ITR 505/226 TAXMAN 132 (MAG.)/49 TAXMANN.COM 335 . WHEN THE ISSUE IS ALREADY COVERED BY A DECISION OF THE HIGH COURT OF BOMBAY WITH WHICH W E CONCUR, WE DO NOT FIND ANY SUBSTANTIAL QUESTION OF LAW WOULD ARISE FOR CON SIDERATION AS CANVASSED. THEREFORE THE ADDITIONS MADE BY THE AO BY INVOKING RULE 8D (II) IS WITHOUT ANY MERIT AND THEREFORE, WE HAVE NO HESITAT ION TO DELETE THE ADDITIONS FOR ALL THE ASSESSMENT YEARS IMPUGNED BEF ORE US. AS A RESULT THEREOF, THE ASSESSEE GETS RELIEF OF RS.2,51,252/-, RS.4,20,308/-, RS.89,139/- AND RS.53,219/- FOR THE AYS. 2007-08 TO 2010-11 RESPECTIVELY. 12. NOW WE PROCEED TO DEAL WITH THE DISALLOWANCE U/ S.14A R.W. RULE 8D(III), MADE BY THE AO. IN THIS REGARD IT WA S THE CASE OF THE AO THAT THE ASSESSEE HAS MADE THE INVESTMENT IN QUOTED AND UNQUOTED SHARES AND MUTUAL FUNDS. IT IS CLEAR THAT THE ASSE SSEE WAS ACTIVELY MAKING THE INVESTMENT AND FREQUENTLY TRADING IN THE SHARES. THIS IS CLEAR FROM A PERUSAL OF THE LIST OF QUOTED AND UNQU OTED SHARES IN THE ITA.1940 TO 1943/BANG/2016 PAGE - 13 BALANCE-SHEET. IT IS THE CASE OF THE AO THAT WITHO UT THE EFFORTS OF MANAGERIAL STAFF AND DIRECTORS OF THE COMPANY, IT I S NOT POSSIBLE TO MANAGE THE INVESTMENT PORTFOLIO OF THE ASSESSEE AND HENCE THE ASSESSEE MUST HAVE INCURRED SOME EXPENSES TOWARDS T HE SAID INVESTMENT FOR EARNING THE TAX-FREE INCOME. 13. THE LD. AR BEFORE US HAS REFUTED THE CASE OF TH E AO AND HAS SUBMITTED THAT NO EXPENDITURE WAS INCURRED AS THE I NVESTMENT PORTFOLIO IS TAKEN CARE OFF ON AN AUTOMATIC BASIS. 14. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ERS OF THE LOWER AUTHORITIES. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE REASONING GIVEN BY THE LD. AR FOR NOT INCURRING ANY EXPENDITURE THE INTEREST-FREE INCOME IS BEREFT OF ANY PLAUSIBLE EXPLANATION. IN OUR VIEW, THE ACTIVE INVOLVEMENT OF THE MANAGERIAL STAF F AND DIRECTORS OF THE COMPANY IS REQUIRED TO MANAGE SUCH A HUGE INVES TMENT PORTFOLIO. THE OFFICERS OF THE ASSESSEE ARE BOUND TO CONSTANTL Y MANAGE THE AFFAIRS PERTAINING TO INVESTMENT OTHERWISE THE INVESTMENTS MADE FOR THE PURPOSES OF EARNING THE EXEMPT INCOME OR SHORT-TERM / LONG-TERM CAPITAL GAINS WILL BE OF NO CONSEQUENCE. THEREFORE IN OUR VIEW, THE AO WAS RIGHT IN INVOKING THE PROVISION OF RULE 8D(I II) AND ARRIVE AT THE APPROXIMATE EXPENDITURE UNDER VARIOUS HEADS LIK E MANAGEMENT OF INVESTMENT, REMUNERATION OF THE MANAGERIAL STAFF ET C., THEREFORE, THIS GROUND OF THE ASSESSEE IS BOUND TO BE DISMISSED AND THE ORDER PASSED BY THE LOWER AUTHORITIES IN THIS REGARD ARE UPHELD. THUS THE ADDITION ITA.1940 TO 1943/BANG/2016 PAGE - 14 MADE BY THE AO TO THE TUNE OF RS.61,578/-, RS.64,07 2/-, RS.63,252/- AND RS.68,928/-, FOR THE AYS 2007-08 TO 2010-11 RES PECTIVELY ARE UPHELD. 16. IN THE RESULT, ALL THE FOUR APPEALS OF THE ASSE SSEE ARE PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 17TH DAY OF N OVEMBER, 2017. SD/- SD/- (INTURI RAMA RAO) (LALIT KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER BENGALURU DATED : 17 TH NOVEMBER, 2017 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER SENIOR PRIVATE SECRETARY