Rattha Holding Company Pvt Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2051/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9660 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 29-03-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 13-10-2015
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: B RAMAKRISHNANC A
• Keywords: Reopening of assessment; Business income; Earning of tax free income; Retrospective amendment; Reason to believe; Reassessment proceedings
• Section: 143(3); 14A; 147; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ! ' #! ' $ . %& ' () BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NOS.2220 & 2221 /MDS./2015 ( / ASSESSMENT YEARS :2010-11 & 2011-12) DY. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-5(1), 121,UTHAMAR GANDHI SALAI, CHENNAI 600 034. VS. M/S. RATTHA HOLDINGS COMPANY PVT LTD ., 37, TTK ROAD, ALWARPET, CHENNAI 600 018. PAN AACCR 8160 K ( *+ / APPELLANT ) ( ,-*+ / RESPONDENT ) ./ I.T.A.NOS.2055,2051,2052,2056 /MDS./2015 ( / ASSESSMENT YEARS :2008-09, 2009-10, 2010-11 & 2011-12) M/S. RATTHA HOLDINGS COMPANY PVT LTD ., 37, TTK ROAD, ALWARPET, CHENNAI 600 018. VS. DY. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-5(1), 121,UTHAMAR GANDHI SALAI, CHENNAI 600 034. PAN AACCR 8160 K ( *+ / APPELLANT ) ( ,-*+ / RESPONDENT ) ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 2 REVENUE BY : MR.PATHLAVATH PEERYA, CIT, D.R ASSESSEE BY : MR.B.RAMAKRISHNAN,C.A / DATE OF HEARING : 29.03.2016 /DATE OF PRONOUNCEMENT : 13.04.2016 . / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THESE TWO APPEALS I.E. ITA NOS.2220 & 2221/MDS./1 5 FILED BY THE REVENUE ARE DIRECTED AGAINST THE DIFFERENT ORD ERS OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-3, CHENNAI, BOTH THE ORDERS DATED 09.09.1015 PERTAINING TO THE ASSESSMENT YEARS 2010 -11 & 2011-12. ANOTHER FIVE APPEALS I.E. ITA NOS.2051,2052,2055 & 2056/MDS./15 FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE DIFF ERENT ORDERS OF LD.CIT(A)-3, CHENNAI PERTAINING TO THE ASSESSMENT Y EARS 2008-09, 2009-10, 2010-11 & 2011-12. SINCE ALL THE APPEALS RELATE TO THE CERTAIN COMMON ISSUE, FOR THE SAKE OF CONVENIENCE T HE ALL THE APPEALS ARE HEARD TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER. ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 3 2.1 FIRST WE TAKE ITA NO.2055/MDS./2015 (A.Y.2008-0 9) THE FIRST GROUND IN THIS APPEAL IS WITH REGARD TO REOPENING OF ASSESSMENT. 2.2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE I S A DOMESTIC COMPANY ENGAGED IN THE BUSINESS OF BUILDING PROMOTI ON. THE ASSESSEE FILED ITS RETURN OF INCOME ON 31.10.2008 A ND THE ASSESSMENT U/S.143(3) OF THE ACT WAS COMPLETED ON 30.12.2010 BY DISALLOWING THE ENTIRE EXPENSES CLAIMED AGAINST THE RENTAL INCOME OF THE ASSESSEE COMPANY. AGAINST THIS, THE ASSESSEE WA S IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, WHO HAD DECID ED THE CASE IN FAVOUR OF THE ASSESSEE. ON FURTHER APPEAL BY THE D EPARTMENT, THE TRIBUNAL HAD UPHELD THE DECISION OF THE CIT(A). AG GRIEVED WITH THE DECISION OF THE TRIBUNAL, THE DEPARTMENT IS ON FURT HER APPEAL BEFORE THE JURISDICTIONAL HIGH COURT. MEANWHILE, THE ASSES SMENT THUS COMPLETED WAS REOPENED BY THE AO BY ISSUE OF NOTICE U/S.148 DATED 20.03.2013 ON THE GROUND THAT THE TDS ON THE SELLIN G EXPENSES DEBITED IN P&L NEEDS TO BE VERIFIED. THE AO RELYIN G UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF M/ S.GKN ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 4 DRIVESHAFTS (INDIA) LTD. REPORTED IN 259 ITR 019 CO MPLETED THE ASSESSMENT U/S.143(3) R.W.S.147 ON 25.03.2014 BY D ISALLOWING THE CERTAIN EXPENDITURES U/S.40(A)(IA) OF THE ACT. AG GRIEVED BY THE REOPENING OF THE ASSESSMENT, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A). ON APPEAL, LD.CIT(A) OBSERVED THAT THE ASSESSMENT WAS REOPENED ON THE REASON THAT THE ASS ESSEE IS NOT DEDUCTED TDS IN RESPECT OF CERTAIN EXPENSES. FURTHE R HE OBSERVED THAT THE AO IN THE SUBSEQUENT REOPENING WITHIN THE TIME LIMIT OF FOUR YEARS FROM THE END OF ASSESSMENT YEAR AND ASSESSMEN T FINALIZED HAD FOR REASONS MENTIONED IN THE ORDER CAME TO THE CONCLUSION THAT CERTAIN ALLOWANCES AND DEDUCTIONS WERE WRONGLY CLAI MED. THE LD.CIT(A) OBSERVED THAT THOUGH ASSESSEE PRODUCED BO OKS OF ACCOUNT BEFORE THE AO, IT WOULD NOT HELD ITS CASE ON THE IS SUE OF JURISDICTION. HENCE, LD.CIT(A) CONFIRMED THE ACTION OF AO. AGAIN ST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 3.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, SECTION 147 AUTHORISES AN D PERMITS THE ASSESSING OFFICER TO ASSESS OR REASSESS INCOME CHAR GEABLE TO TAX IF ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 5 HE HAS REASON TO BELIEVE THAT INCOME FOR ANY ASSESS MENT YEAR HAS ESCAPED ASSESSMENT. THE WORD 'REASON' IN THE PHRASE 'REASON TO BELIEVE' WOULD MEAN CAUSE OR JUSTIFICATION. IF THE ASSESSING OFFICER HAS CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE THAT INCOME HAD ESCAPED ASSESSMENT, IT CAN BE SAID TO HAVE REASON T O BELIEVE THAT AN INCOME HAD ESCAPED ASSESSMENT. THE EXPRESSION CANNO T BE READ TO MEAN THAT THE ASSESSING OFFICER SHOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL EVIDENCE OR CONCLUSION. THE FUNCTION OF THE ASSESSING OFFICER IS TO ADMINISTER THE STATUTE WITH SOLICITUD E FOR THE PUBLIC EXCHEQUER WITH AN INBUILT IDEA OF FAIRNESS TO TAXPA YERS. AS OBSERVED BY THE SUPREME COURT IN CENTRAL PROVINCES MANGANESE ORE CO. LTD. V. ITO [1991] 191 ITR 662, FOR INITIATION OF ACTION UNDER SECTION 147(A) (AS THE PROVISION STOOD AT THE RELEVANT TIME) FULFI LMENT OF THE TWO REQUISITE CONDITIONS IN THAT REGARD IS ESSENTIAL. A T THAT STAGE, THE FINAL OUTCOME OF THE PROCEEDING IS NOT RELEVANT. IN OTHER WORDS, AT THE INITIATION STAGE, WHAT IS REQUIRED IS 'REASON TO BE LIEVE', BUT NOT THE ESTABLISHED FACT OF ESCAPEMENT OF INCOME. AT THE ST AGE OF ISSUE OF NOTICE, THE ONLY QUESTION IS WHETHER THERE WAS RELE VANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED A REQUI SITE BELIEF. ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 6 WHETHER THE MATERIALS WOULD CONCLUSIVELY PROVE THE ESCAPEMENT IS NOT THE CONCERN AT THAT STAGE. THIS IS SO BECAUSE T HE FORMATION OF BELIEF BY THE ASSESSING OFFICER IS WITHIN THE REALM OF SUBJECTIVE SATISFACTION (SEE ITO V. SELECTED DALURBAND COAL CO . P. LTD. [1996] 217 ITR 597 (SC) ; RAYMOND WOOLLEN MILLS LTD. V. IT O [1999] 236 ITR 34 (SC). 3.2. THE SCOPE AND EFFECT OF SECTION 147 AS SUBSTI TUTED WITH EFFECT FROM APRIL 1, 1989, AS ALSO SECTIONS 148 TO 152 ARE SUBSTANTIALLY DIFFERENT FROM THE PROVISIONS AS THEY STOOD PRIOR T O SUCH SUBSTITUTION. UNDER THE OLD PROVISIONS OF SECTION 147, SEPARATE C LAUSES (A) AND (B) LAID DOWN THE CIRCUMSTANCES UNDER WHICH INCOME ESCA PING ASSESSMENT FOR THE PAST ASSESSMENT YEARS COULD BE A SSESSED OR REASSESSED. TO CONFER JURISDICTION UNDER SECTION 14 7(A) TWO CONDITIONS WERE REQUIRED TO BE SATISFIED : FIRSTLY THE ASSESSING OFFICER MUST HAVE REASON TO BELIEVE THAT INCOME, PROFITS OR GAINS CHARGEABLE TO INCOME TAX HAVE ESCAPED ASSESSMENT, AND SECONDLY HE MUST ALSO HAVE REASON TO BELIEVE THAT SUCH ESCAPEMENT HAS OCC URRED BY REASON OF EITHER OMISSION OR FAILURE ON THE PART OF THE AS SESSEE TO DISCLOSE ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 7 FULLY OR TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT OF THAT YEAR. BOTH THESE CONDITIONS WERE CONDITIONS PRECEDE NT TO BE SATISFIED BEFORE THE ASSESSING OFFICER COULD HAVE JURISDICTIO N TO ISSUE NOTICE UNDER SECTION 148 READ WITH SECTION 147(A). BUT UND ER THE SUBSTITUTED SECTION 147 EXISTENCE OF ONLY THE FIRST CONDITION S UFFICES. IN OTHER WORDS IF THE ASSESSING OFFICER FOR WHATEVER REASON HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT IT CONFE RS JURISDICTION TO REOPEN THE ASSESSMENT. IT IS, HOWEVER, TO BE NOTED THAT BOTH THE CONDITIONS MUST BE FULFILLED IF THE CASE FALLS WITH IN THE AMBIT OF THE PROVISO TO SECTION 147. THE CASE AT HAND IS COVERED BY THE MAIN PROVISION AND NOT THE PROVISO. SO LONG AS THE INGR EDIENTS OF SECTION 147 ARE FULFILLED, THE ASSESSING OFFICER IS FREE TO INITIATE PROCEEDING UNDER SECTION 147 AND FAILURE TO TAKE STEPS UNDER S ECTION 143(3) WILL NOT RENDER THE ASSESSING OFFICER POWERLESS TO INITI ATE REASSESSMENT PROCEEDINGS EVEN WHEN INTIMATION UNDER SECTION 143( 1) HAD BEEN ISSUED. 3.3. IN OUR OPINION, THE ASSESSMENT WAS RE-OPENED TO CONSIDER THE ISSUE OF NON-DEDUCTION OF TDS AND WE DO NOT FIND AN Y INFIRMITY IN ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 8 REOPENING ASSESSMENT , WHICH WAS DULY RE-OPENED AF TER RECORDING THE REASONS, S SUCH WE CONFIRM THE SAME. THIS GROU ND IS REJECTED. 4. THE NEXT GROUND IS WITH REGARD TO CONFIRM THE D ISALLOWANCE U/S.40(A)(IA) OF THE ACT. 5. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS NOT DEDUCTED TDS WITH FOLLOWING PAYMENTS. COMMISSION & BROKERAGE 24,13,459 ADVERTISEMENT EXPENSES 1,89,461 PROFESSIONAL CHARGES 19,78,881 OTHER CHARGES 1,45,73,086 TOTAL 1,91,54,887 AT THE TIME OF HEARING, LD.A.R SUBMITTED THAT THIS AMOUNT WAS NOT OUTSTANDING AT THE END OF THE CLOSE OF THE YEAR, AS SUCH IN VIEW OF THE JUDGEMENT OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILY N SHIPPING AND TRANSPORTS V. ADDL. CIT [2012] 16 ITR (TRIB) 1 (VISAKHAPATNAM) [SB] THAT EXPENSES CANNOT BE ANY DI SALLOWANCE. ON THE OTHER HAND, LD.D.R RELIED ON THE ORDER OF TR IBUNAL IN THE CASE OF ITO VS. SHRI D.UMAPATHY IN ITA NO.2345/MDS./2014 VIDE ORDER DATED 14.08.2015. ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 9 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, THE ISSUE IN DISPUTE IS S QUARELY COVERED BY THE DECISION OF CO-ORDINATE BENCH OF TRIBUNAL IN TH E CASE OF SHRI N.PALANIVELU VS. ITO REPORTED IN [2015] 40 ITR (TRI B) 325 (ITAT[CHEN]) VIDE ORDER DATED 29.04.2015 WHEREIN HE LD THAT:- 4. WE HAVE HEARD BOTH SIDES AND PERUSED THE MATERIA L ON RECORD. WE FIND THAT THE SPECIAL BENCH OF THE TRIBU NAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS V. ADDL. CI T [2012] 16 ITR (TRIB) 1 (VISAKHAPATNAM) [SB] AND JUDGMENT O F THE GUJARAT HIGH COURT IN THE CASE OF CIT V. VECTOR SHI PPING SERVICES (P.) LTD. IN I. T. A. NOS. 122 OF 2013 DAT ED JULY 9, 2013 [2013] 357 ITR 642 (ALL) HELD THAT SECTION 40( A)(IA) IS NOT APPLICABLE WHEN THERE IS NO OUTSTANDING BALANCE AT THE END OF THE CLOSE OF THE YEAR RELEVANT TO THE ASSESS MENT YEAR IN RESPECT OF THESE PAYMENTS. HOWEVER, THE ASSESSEE HAS NOT BROUGHT ON RECORD, THE DETAILS OF OUTSTANDING E XPENSES OR SCHEDULE OF SUNDRY CREDITORS SHOWING WHETHER THE IM PUGNED AMOUNT IS OUTSTANDING AT THE END OF THE CLOSE OF TH E PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR EITHER IN THE NAME OF ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 10 THE PARTY OR OUTSTANDING EXPENSES. HENCE, IN THE IN TEREST OF JUSTICE, WE ARE REMITTING THE ISSUE BACK TO THE FIL E OF THE ASSESSING OFFICER WITH DIRECTION TO VERIFY THE CLAI M OF THE ASSESSEE AND THE ASSESSEE SHALL PLACE NECESSARY EVI DENCE IN SUPPORT OF HIS CLAIM. 5. FURTHER, WE MAKE IT CLEAR THAT IF THE IMPUGNED A MOUNT IS NOT OUTSTANDING AT THE END OF THE CLOSE OF THE ASSE SSMENT YEAR IN RESPECT OF THE EXPENSES EITHER AS OUTSTANDI NG EXPENSES OR AS SUNDRY CREDITORS, THIS AMOUNT CANNOT BE DISALLOWED. THIS GROUND IS REMITTED BACK TO THE ASS ESSING OFFICER FOR FRESH CONSIDERATION. IN VIEW OF THE ORDER OF THE TRIBUNAL, WE ARE INCLIN ED TO REMIT THIS ISSUE TO THE FILE OF THE LD. ASSESSING OFFICER WITH SIMIL AR DIRECTION. THESE GROUNDS RAISED BY THE ASSESSEE U/S.40(A)(IA) OF THE ACT IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 11 NOW WE TAKE ITA NO.2052 & 2056/MDS./2015 (A.Y.2008-09) 7. THE FIRST COMMON GROUND IN THESE APPEALS IS WIT H REGARD TO DISALLOWANCE U/S.14A OF THE ACT. 7.1. THE FACTS OF THE CASE ARE THAT THE LD. ASSESS ING OFFICER HAD WORKED OUT THE DISALLOWANCE BASED ON AN FORMULA MAN DATED BY THE ACT AND PROVIDED FOR DISALLOWANCE @ 0.5% OF THE AVE RAGE OF THE VALUE OF THE INVESTMENT AS IN RULE 8D(III). AGAIN ST THIS THE ASSESSEE WAS IN APPEAL BEFORE THE LD.CIT(A). ON APPEAL, LD.C IT(A) OBSERVED THAT SIMILAR ISSUE WAS ALSO ADJUDCIATED BY ITAT CHE NNAI IN THE CASE OF SOUTHERN PETROCHEMICAL INDUSTRIES IN 93 TTJ 161 AS UNDER:- WHETHER TO INVEST OR NOT TO INVEST AND WHETHER TO R ETAIN THE INVESTMENTS OR TO LIQUIDATE THE SAME ARE VERY S TRATEGIC DECISIONS WHICH THE MANAGEMENT IS CALLED UPON TO TA KE. THESE ARE MIND-BOGGLING DECISIONS AND TOP MANAGEMEN T IS INVOLVED IN TAKING THESE DECISIONS. THIS DECISIO N MAKING PROCESS IS VERY COMPLICATED AND REQUIRES VER Y CAREFUL ANALYSIS. MOREOVER, THE ASSESSEE HAS TO KEE P TRACK OF VARIOUS DIVIDEND INCOMES DECLARED BY THE INVESTEE COMPANIES AND ALSO TO KEEP TRACK OF THE DI VIDEND INCOME HAVING BEEN REGULARLY RECEIVED BY THE ASSESS EE. ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 12 THIS ACTIVITY ITSELF CALLS FOR CONSIDERABLE MANAGEM ENT ATTENTION AND CANNOT BE LEFT TO A JUNIOR CLERK. ACCORDINGLY, THE LD.CIT(A) OBSERVED THAT THE AO HA S CORRECTLY APPLIED THE PROVISIONS OF THE SECTION 14A READ WITH RULE 8D AS MANDATED BY THE ACT AS AGAINST THE CLAIM OF NIL EXP ENDITURE BY THE ASSESSEE. HENCE, THE LD.CIT(A) DISMISSED THIS GROU ND. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 8.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. LD.A.R PLACED RELIANCE ON THE JUDGEMENT OF DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. REPORTED IN 378 ITR 33(DEL.). ADMITTEDLY, THE ASSESSEE HAS CONSIDERABLE INVESTMEN TS AT THE OPENING AS WELL THE CLOSE OF THE YEAR UNDER CONSIDE RATION. THEREFORE, THE PORTION OF EXPENDITURE ATTRIBUTABLE TO THE INVE STMENTS MADE BY THE ASSESSEE HAS TO BE COMPUTED AS PER RULE 8D OF THE I .T RULES. THEREFORE, THE ASSESSING OFFICER WAS OF THE OPINION THAT IT IS A CLEAR DIVERSION OF INTEREST BEARING FUNDS TO OTHER PURPOS ES. THE ASSESSEE WOULD BE ENTITLED TO CLAIM DEDUCTION OF INTEREST UN DER SECTION 36(1)(III) OF THE ACT ON THE BORROWED FUNDS UTILIZED FOR BUSIN ESS PURPOSE. THE ONLY BENEFIT THE ASSESSEE DERIVED WAS THE DIVIDEND INCOME WHICH ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 13 WAS NOT ASSESSABLE UNDER THE ACT, WE ARE OF THE OPI NION THAT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS SQUAR ELY ATTRACTED AND THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE CL AIM. OUR VIEWS ARE FORTIFIED BY THE DECISION IN THE CASE OF PRADEEP KA R V. ACIT 319 ITR 416 [KAR], WHEREIN THE HONBLE KARNATAKA HIGH COURT HAS OBSERVED AND HELD AS UNDER: THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF INTERES T ON THE AMOUNTS BORROWED BY HIM FOR PURCHASE OF SHARES IS DISALLOWE D BY THE ASSESSING OFFICER. IN THE APPEAL FILED BY HIM AGAIN ST THE ASSESSMENT ORDER, THE FIRST APPELLATE AUTHORITY REVERSED THE O RDER OF THE ASSESSING AUTHORITY BY APPLYING THE DECISION OF THE SUPREME C OURT REPORTED IN CIT VS. RAJENDRA PRASAD MOODY [1978] 115 ITR 519. T HE REVENUE TOOK UP THE MATTER IN SECOND APPEAL BEFORE THE INCO ME-TAX APPELLATE TRIBUNAL, HEREINAFTER CALLED AS 'THE TRIBUNAL' IN S HORT. THE TRIBUNAL REVERSED THE DECISION OF THE FIRST APPELLATE AUTHOR ITY AND RESTORED THE ORDER OF THE ASSESSING AUTHORITY. BEING AGGRIEVED B Y THE SAME, THE ASSESSEE IS BEFORE US BY FILING THIS APPEAL FRAMING SUBSTANTIAL QUESTIONS OF LAW AND URGED THE GROUNDS IN SUPPORT O F THE SAME. SMT. ANURADHA, LEARNED COUNSEL FOR THE APPELLANT RE LIED UPON THE DECISION REPORTED IN CIT VS. RAJENDRA PRASAD MOODY [1978] 115 ITR 519 WHEREIN, IT IS HELD THAT INTEREST PAID ON MONEY BORROWED FOR INVESTMENT IN SHARES IS DEDUCTIBLE UNDER SECTION 57 (III) OF THE INCOME- TAX ACT, WHICH REQUIRES THAT THE EXPENDITURE MUST B E LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR MAKING OR EARNI NG INCOME. SHE ALSO RELIED UPON ANOTHER DECISION IN THE CASE OF CI T VS. SMT. SUSHILA DEVI KHADARIA [2009] 319 ITR 413 (BOM); [2009] TIOL 171 HC (MUM-IT) AND SUBMITS THAT THE ORDERS PASSED BY THE ASSESSING AUTHORITY AND THE TRIBUNAL ARE ERRONEOUS AND CONTRA RY TO THE AFOREMENTIONED DECISIONS. THEREFORE, SHE SUBMITS TH AT SUBSTANTIAL QUESTIONS (I) AND (II) FRAMED IN THE APPEAL MEMORAN DUM ARISE FOR CONSIDERATION OF THIS COURT AND REQUESTED TO SET AS IDE THE ORDER PASSED BY THE TRIBUNAL. THE SUBSTANTIAL QUESTIONS O F LAW FRAMED IN THE APPEAL ARE EXTRACTED AS HEREUNDER. ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 14 '(I) WHETHER OR NOT THE TRIBUNAL WAS RIGHT IN NOT ALLOWING THE INTEREST INCURRED BY THE ASSESSEE AS EXPENDITURE IN COMPUTING INCOME OF THE ASSESSEE? (II) WHETHER OR NOT THE TRIBUNAL WAS RIGHT IN REVE RSING THE FINDINGS OF THE COMMISSIONER OF INCOME-TAX (APPEALS), WHICH WAS BASED ON A SUPREME COURT'S DECISION BY RELYING ON T HE DECISION OF OTHER TRIBUNALS? (III) WHETHER OR NOT THE TRIBUNAL WAS JUSTIFIED IN NOT AFFORDING AN OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE DECID ING THE ISSUE ON HAND BY PLACING RELIANCE ON JUDGMENTS, WHI CH WERE NOT CITED BY EITHER SIDE? (IV) WHETHER OR NOT THE TRIBUNAL WAS RIGHT IN RELY ING ON THE DECISIONS INAPPLICABLE TO THE FACTS ON HAND BY DIST INGUISHING THE DECISION OF THE HON'BLE SUPREME COURT, WHICH IS SQUARELY APPLICABLE?' WITH REFERENCE TO THE CONTENTIONS URGED, WE HAVE PE RUSED THE ORDERS PASSED BY THE ASSESSING AUTHORITY, THE FIRST APPELL ATE AUTHORITY AND THE TRIBUNAL WITH A VIEW TO FIND OUT AS TO WHETHER THE SUBSTANTIAL QUESTIONS OF LAW FRAMED IN THIS APPEAL WOULD ARISE FOR CONSIDERATION OF THIS COURT. IT IS NOT IN DISPUTE THAT THE ASSESS EE HAD BORROWED LOANS AND INVESTED THE SAME IN SHARES. DEDUCTION IS CLAIM ED BY HIM OF THE INTEREST AMOUNT PAID ON THE BORROWED LOANS. THE AMO UNTS BORROWED BY THE APPELLANT WERE INVESTED IN SHARES AND DIVIDE ND IS EARNED. WHEN DEDUCTION FOR THE INTEREST PAID IS CLAIMED, TH E DIVIDEND EARNED CANNOT BE EXCLUDED FROM INCOME. COMPUTATION OF INCO ME HAS TO BE MADE TAKING THE AMOUNT OF DIVIDEND INCOME EARNED BY THE APPELLANT. THE ASSESSING AUTHORITY CONSIDERED THE DECISION IN RAJENDRA PRASAD MOODY'S CASE [1978] 115 ITR 519 (SC) RELIED UPON BY THE LEARNED COUNSEL AND HELD THAT IT IS NOT APPLICABLE TO THE F ACT SITUATION. THE REASONS ASSIGNED FOR SUCH A CONCLUSION IN THE ASSES SMENT ORDER ARE EXTRACTED HEREUNDER: 'THE DECISION IS WITH REFERENCE TO DEDUCTION ALLOWA BLE UNDER SECTION 57(III) OF THE INCOME-TAX ACT. THE DE CISION RELATES TO AN ASSESSMENT YEAR WHERE DIVIDEND INCOME WAS ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 15 TAXABLE IN THE HANDS OF THE ASSESSEE. WITH THE INTRODUCTION OF SECTION 10(33) OF THE INCOME-TAX AC T FROM THE ASSESSMENT YEAR 1998-99 THE POSITION OF LAW IN REGARD TO TAXABILITY OF DIVIDENDS HAS BEEN CHANGED SINCE SUCH INCOME BECOMES A PART OF INCOME WHICH DO NOT F ORM A PART OF TOTAL INCOME OF THE ASSESSEE. THE PROVISI ONS OF SECTION 14A INTRODUCED BY THE FINANCE ACT, 2001, WI TH EFFECT FROM APRIL 1, 1962, RETROSPECTIVELY BARS ALL OWING ANY EXPENDITURE IN RESPECT OF INCOME WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME. CONSIDERING THIS CH ANGE IN THE POSITION OF LAW THE DECISION OF THE SUPREME COU RT RELIED UPON BY THE ASSESSEE DOES NOT APPLY TO THE ASSESSEE'S CASE.' THEREFORE, THE DIVIDEND INCOME IS EXEMPTED FROM THE TAX LIABILITY UNDER SECTION 10(33) OF THE ACT. UNDER SECTION 14A OF THE ACT, EXPENDITURE RELATING TO EXEMPTED INCOME IS NOT ALLO WABLE. THE ASSESSING AUTHORITY HAS CONSIDERED THE ABOVE RELEVA NT FACTOR AND DISALLOWED THE CLAIM OF THE ASSESSEE. THE FIRST APPELLATE AUTHORITY REVERSED THE ORDER OF THE ASSESSING AUTHORITY BY APPLYING THE DECISION IN RAJENDRA PRAS AD MOODY'S CASE [1978] 115 ITR 519 (SC), REFERRED TO SUPRA, WHICH W AS RENDERED PRIOR TO INTRODUCTION OF SECTION 14A OF THE ACT AND WHICH HAS NO APPLICATION TO THE FACT SITUATION. THE TRIBUNAL HAS RIGHTLY SET ASIDE THE ORDER OF THE FIRST APPELLATE AUTHORITY. IT CANNOT B E DISPUTED THAT DIVIDEND INCOME IS EXEMPTED UNDER SECTION 10(33) OF THE ACT FROM THE TAX LIABILITY AND THE SAME CANNOT BE COMPUTED FOR I NCOME UNDER THE HEAD 'OTHER SOURCES'. EXEMPTED INCOME IS NOT ALLOWA BLE FOR DEDUCTION IN VIEW OF SECTION 14A OF THE ACT. IN VIE W OF THESE TWO PROVISIONS, THE CLAIM OF THE ASSESSEE IS WHOLLY UNT ENABLE AND THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL ON BEH ALF OF THE APPELLANT ARE NOT APPLICABLE TO THE FACT SITUATION. WE ARE IN AGREEMENT WITH THE ORDERS PASSED BY THE A SSESSING AUTHORITY AND THE TRIBUNAL AND DIFFER FROM THE VIEW TAKEN BY THE FIRST APPELLATE AUTHORITY. FOR THE REASONS STATED SUPRA, INTERFERENCE WITH THE IMPUGNED ORDER OF THE TRIBUNAL IS NOT WARRANTED IN THIS CASE. NO SUBSTANTIAL QUESTIONS OF LAW MUCH LESS THE QUESTION S OF LAW FRAMED BY ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 16 THE APPELLANT WILL ARISE FOR CONSIDERATION OF THIS COURT. THE APPEAL IS DEVOID OF MERIT AND LIABLE TO BE DISMISSED. ACCORDINGLY, THE APPEAL IS DISMISSED. 8.2. SIMILARLY, IN THE CASE OF CIT V. SMT. LEENA R AMACHANDRAN 339 ITR 296, THE HONBLE KERALA HIGH COURT HAS HELD AS UNDER: DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMEN T YEAR 2001-02, THE ASSESSEE PAID INTEREST AT 24 PER CENT. PER ANNUM ON FUNDS BORROWED FOR PURCHASE OF SHARES IN A COMPANY. HER CLAIM WAS THAT THE ACQUISITION OF SHARES WITH THE BORROWED FU NDS WAS FOR THE PURPOSE OF CONTROLLING THE COMPANY AND SINCE THE BO RROWED FUNDS WERE UTILISED FOR THE ACQUISITION OF SHARES OF THE COMPANY UNDER THE CONTROL OF THE ASSESSEE, THE UTILISATION OF THE BOR ROWED FUNDS WAS FOR BUSINESS PURPOSE ENTITLING THE ASSESSEE TO DEDUCTIO N OF INTEREST UNDER SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961. THE ASSESSING OFFICER HELD THAT THE ASSESSEE MADE INVESTMENTS BY UTILISIN G THE BORROWED FUNDS ILL THE FORM OF ACQUISITION OF SHARES IN THE COMPANY AND THE ONLY BENEFIT THE ASSESSEE GOT WAS DIVIDEND INCOME OF RS. 3 LAKHS. SINCE SECTION 14A OF THE ACT BARS ANY DEDUCTION PERTAININ G TO ANY EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING AN Y INCOME WHICH DID NOT FORM PART OF THE TOTAL INCOME, THE ASSESSIN G OFFICER DISALLOWED THE CLAIM TO DEDUCTION OF INTEREST. THE COMMISSIONER (APPEALS) CONFIRMED THE ASSESSMENT. THE TRIBUNAL AL LOWED THE CLAIM BUT MADE A DISALLOWANCE OF RS. 2 LAKHS BEING THE IN TEREST STATED TO BE ATTRIBUTABLE TO THE DIVIDEND INCOME OF RS. 3 LAKHS EARNED BY THE ASSESSEE FROM THE LEASING COMPANY DURING THE PREVIO US YEAR. ON APPEAL: HELD, ALLOWING THE APPEAL, THAT ANY EXPENDITURE INC URRED FOR EARNING ANY INCOME WHICH WAS NOT TAXABLE UNDER THE ACT WAS NOT AN ALLOWABLE EXPENDITURE. DIVIDEND INCOME WAS EXEMPT U NDER SECTION 10(33) OF THE ACT AND THE DIVIDEND EARNED BY THE AS SESSEE ON THE SHARES ACQUIRED BY HER WITH THE BORROWED FUNDS DID NOT CONSTITUTE PART OF THE TOTAL INCOME IN THE HANDS OF THE ASSESS EE. THE REASONING GIVEN BY THE TRIBUNAL FOR DISALLOWANCE OF RS. 2 LAK HS, I.E., BY APPLYING SECTION 14A, SQUARELY APPLIED TO THE INTEREST PAID ON THE BORROWED FUNDS BECAUSE IT WAS ON RECORD THAT THE ENTIRE FUND S BORROWED WERE ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 17 UTILISED FOR THE ACQUISITION OF SHARES BY THE ASSES SEE IN THE COMPANY. THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION OF INTE REST UNDER SECTION 36(1)(III) OF THE ACT ON THE BORROWED FUNDS UTILISE D FOR THE ACQUISITION OF SHARES ONLY IF SHARES WERE HELD AS STOCK-IN-TRAD E AND THAT WOULD ARISE ONLY IF THE ASSESSEE WAS ENGAGED IN TRADING I N SHARES. SO FAR AS THE ACQUISITION OF SHARES WAS IN THE FORM OF INVEST MENT AND THE ONLY BENEFIT THE ASSESSEE DERIVED WAS THE DIVIDEND INCOM E WHICH WAS NOT ASSESSABLE UNDER THE ACT, THE DISALLOWANCE UNDER SE CTION 14A WAS SQUARELY ATTRACTED AND THE ASSESSING OFFICER RIGHTL Y DISALLOWED THE CLAIM. 8.3 FURTHER, IN THE CASE OF LAKSHMI RING TRAVELLER S V. ACIT IN I.T.A. NO. 2083/MDS/2011 VIDE ORDER DATED 02.03.2012 FOR T HE ASSESSMENT YEAR 2008-09, THE COORDINATE BENCH OF THE TRIBUNAL HAS HELD AS UNDER: 6. WE CONSIDERED THE ARGUMENTS OF BOTH THE SIDES IN DETAIL. SEC.14A(1) DECLARES THE LAW THAT THE EXPENDITURE INCURRED BY T HE ASSESSEE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL IN COME UNDER THE ACT SHALL NOT BE ALLOWED AS A DEDUCTION IN COMPUTING THE TAXA BLE INCOME OF THE ASSESSEE. SEC.14A(2) PROVIDES FOR DETERMINING THE Q UANTUM OF SUCH EXPENDITURE WHICH SHALL NOT BE ALLOWED AS A DEDUCTI ON. THAT IS THE MACHINERY PROVISION AS FAR AS SEC.14A IS CONCERNED. IN THAT PROVISION, IT HAS BEEN PROVIDED THAT IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE COMPUTATIONS MADE BY AN ASSESSEE , HE SHALL COMPUTE THE QUANTUM IN ACCORDANCE WITH THE METHOD THAT MAY BE P RESCRIBED. FOR THIS MATTER, RULE 8D HAS ALREADY BEEN PRESCRIBED. SUB-SE C.(3) FURTHER PROVIDES THAT EVEN IN A CASE WHERE AN ASSESSEE CLAIMS THAT N O EXPENDITURE WAS INCURRED, THE ASSESSING AUTHORITY HAS TO PRESUME TH E INCURRING OF SUCH EXPENDITURE AS PROVIDED UNDER SUB-SEC.(2) READ WITH RULE PRESCRIBED. THEREFORE, IT BECOMES CLEAR THAT EVEN IN A CASE WHE RE THE ASSESSEE CLAIMS THAT NO EXPENDITURE WAS SO INCURRED, THE STATUTE HA S PROVIDED FOR A PRESUMPTIVE EXPENDITURE WHICH HAS TO BE DISALLOWED BY FORCE OF THE STATUTE. IN A DISTANT MANNER, LITERALLY SPEAKING, IT MAY EVE N BE CONSIDERED FOR THE PURPOSE OF CONVENIENCE AS A DEEMING PROVISION. WHEN SUCH DEEMING PROVISION IS MADE ON THE BASIS OF STATUTORY PRESUMP TION, THE REQUIREMENT OF FACTUAL EVIDENCE IS REPLACED BY STATUTORY PRESUMPTI ON AND THE ASSESSING OFFICER HAS TO FOLLOW THE CONSEQUENCES STATED IN TH E STATUTE. IT MEANS THAT EVEN IN A CASE WHERE NO EXPENDITURE IS STATED TO HA VE BEEN INCURRED, THE ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 18 ASSESSING AUTHORITY HAS TO APPLY RULE 8D. AS THE ST ATUTORY PRESUMPTION SUBSTITUTES THE REQUIREMENT OF FACTUAL EVIDENCE, TH E QUESTION OF ENQUIRY DOES NOT ARISE. THEREFORE, WE ARE UNABLE TO AGREE WITH T HE ARGUMENT OF THE LEARNED CA. 7. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE IS DISMISSED. 8.4 IN THE CASE OF COAL INDIA LTD. V. ADDL. CIT IN I.T.A. NO. 1032/KOL/2012 & 1238/KOL/2012 FOR THE ASSESSMENT YE AR 2008-09 VIDE ORDER DATED 13.05.2015, THE KOLKATA BENCH OF T HE TRIBUNAL HAS HELD AS UNDER: 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE FACTS OF THE CASE. THE LD. AR HAS STRONGLY ARGUED THAT NO SATISF ACTION AS TO THE CORRECTNESS OF THE CLAIM MADE U/S 14A READ WITH 8D( III) HAS BEEN RECORDED BY THE AO AS WELL AS THE LD. CIT(A). THE AFORESAID CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE FOR THE REASONS HEREINAF TER. THE ORDER PASSED BY THE AO GOES TO SHOW THAT AO HAS COMPLIED WITH THE R EQUIREMENT OF SECTION 14A OF THE ACT BY OBSERVING THAT AS TO WHY HE IS NO T SATISFIED WITH THE CORRECTNESS OF CLAIM OF THE ASSESSEE THAT NO EXPEND ITURE WAS INCURRED. THE AO HAS RECORDED THE FINDINGS THAT EARNING OF DIVIDE ND WAS NOT AN AUTOMATIC PROCESS AND THE ASSESSEE WAS REQUIRED TO KEEP REGULAR CONTROL OVER THE INVESTMENTS MADE. 5.1. THE CONTENTION PUT FORTH BY THE LD. AR THAT I T HAD EARNED DIVIDEND INCOME OF RS.262907.86 LAKHS WITHOUT INCURRING ANY EXPENSES DOES NOT CONVINCE US AT ALL. THE TERM EXPENDITURE AS PER S ECTION 14A WOULD INCLUDE THE EXPENDITURES THAT ARE RELATED TO INVESTMENTS MA DE I.E. EXPENDITURES ON ADMINISTRATION, CAPITAL EXPENSES, TRAVELLING EXPENS ES, OPERATING EXPENSES ETC. IT IS DIFFICULT TO ACCEPT THAT THE ASSESSEE CO MPANY WAS MAKING INVESTMENTS DECISIONS TO THE TUNE OF RS.6,31,637 LA KHS OF PUBLIC MONEY WITHOUT INCURRING A SINGLE PENNY OUT OF ITS POCKET. SUCH DECISIONS ARE HIGHLY STRATEGIC IN NATURE AND ARE REQUIRED TO BE MADE BY HIGHLY QUALIFIED AND EXPERIENCED PROFESSIONALS. THE SAME WOULD ALSO REQU IRE MARKET RESEARCH AND ANALYSIS. THE ASSESSEE COMPANY BY ACQUIRING CON TROLLING INTEREST IN THE SUBSIDIARY COMPANIES WOULD ALSO BE REQUIRED TO ATTE ND BOARD MEETINGS AND MAKE POLICY DECISIONS WITH REGARD TO THE AFORESAID HUGE AMOUNT OF INVESTMENTS MADE. BY NO STRETCH OF IMAGINATION, IT CAN BE ASSUMED THAT SUCH ACTIVITIES WERE DONE WITHOUT INCURRING ANY EXP ENDITURE. IT IS PERTINENT ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 19 TO MENTION HERE THAT EVEN THE ASSESSEE DID NOT REBU T THE FINDINGS OF AO THAT THE ASSESSEE WAS REQUIRED TO SUPERVISE AND ADMINIST ER ALL THE INVESTMENTS MADE. 5.2. IT IS PERTINENT TO REFER TO THE OBSERVATIONS MADE BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS WALFORT SHARE & STOCK BROKERS (P) LTD. (2010) 326 ITR 1 (SC) DEFINING THE SCOPE OF SECTION 14A OF THE ACT INCORPORATED RETROSPECTIVELY FROM 1ST APRIL, 1962. RELEVANT PORTION IS REPRODUCED HEREIN BELOW : 17. THE INSERTION OF S. 14A WITH RETROSPECTIVE EFF ECT IS THE SERIOUS ATTEMPT ON THE PART OF THE PARLIAMENT NOT TO ALLOW DEDUCTION IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOM E UNDER THE ACT AGAINST THE TAXABLE INCOME (SEE CIRCULAR NO. 14 OF 2001 DT. 22ND NOV., 2001). IN OTHER WORDS, S. 14A CLARIFIES THAT EXPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABL E TO THE EARNING OF TAXABLE INCOME. IN MANY CASES THE NATURE OF EXPENSE S INCURRED BY THE ASSESSEE MAY BE RELATABLE PARTLY TO THE EXEMPT INCOME AND PARTLY TO THE TAXABLE INCOME. IN THE ABSENCE OF S. 14A, THE EXPENDITURE INCURRED IN RESPECT OF EXEMPT INCOME WA S BEING CLAIMED AGAINST TAXABLE INCOME. THE MANDATE OF S. 1 4A IS CLEAR. IT DESIRES TO CURB THE PRACTICE TO CLAIM DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME AGAINST TAXABLE INCOME AND AT THE SAME TIME AVAIL THE TAX INCENTIVE BY WAY OF EXEMPTI ON OF EXEMPT INCOME WITHOUT MAKING ANY APPORTIONMENT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. THE BASIC REASON FOR INS ERTION OF S. 14A IS THAT CERTAIN INCOMES ARE NOT INCLUDIBLE WHILE CO MPUTING TOTAL INCOME AS THESE ARE EXEMPT UNDER CERTAIN PROVISIONS OF THE ACT. IN THE PAST, THERE HAVE BEEN CASES IN WHICH DEDUCTION HAS BEEN SOUGHT IN RESPECT OF SUCH INCOMES WHICH IN EFFECT WOULD ME AN THAT TAX INCENTIVES TO CERTAIN INCOMES WAS BEING USED TO RED UCE THE TAX PAYABLE ON THE NON-EXEMPT INCOME BY DEBITING THE EX PENSES, INCURRED TO EARN THE EXEMPT INCOME, AGAINST TAXABLE INCOME. THE BASIC PRINCIPLE OF TAXATION IS TO TAX THE NET INCOM E, I.E., GROSS INCOME MINUS THE EXPENDITURE. ON THE SAME ANALOGY T HE EXEMPTION IS ALSO IN RESPECT OF NET INCOME. EXPENSES ALLOWED CAN ONLY BE IN RESPECT OF EARNING OF TAXABLE INCOME. THIS IS THE P URPORT OF S. 14A. IN S. 14A, THE FIRST PHRASE IS 'FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER' WHICH MAKES IT CLEAR THA T VARIOUS HEADS OF INCOME AS PRESCRIBED UNDER CHAPTER IV WOULD FALL WITHIN S. 14A. THE NEXT PHRASE IS, 'IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF TOTAL INCOME UNDER THE ACT'. IT MEANS THAT IF AN INCOME DOES NOT FORM PART OF TOTAL INCOME, THEN THE RELATED EXPENDI TURE IS OUTSIDE THE ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 20 AMBIT OF THE APPLICABILITY OF S. 14A. FURTHER, S. 1 4 SPECIFIES FIVE HEADS OF INCOME WHICH ARE CHARGEABLE TO TAX. IN ORD ER TO BE CHARGEABLE, AN INCOME HAS TO BE BROUGHT UNDER ONE O F THE FIVE HEADS. SECS. 15 TO 59 LAY DOWN THE RULES FOR COMPUT ING INCOME FOR THE PURPOSE OF CHARGEABILITY TO TAX UNDER THOSE HEA DS. SECS. 15 TO 59 QUANTIFY THE TOTAL INCOME CHARGEABLE TO TAX. THE PE RMISSIBLE DEDUCTIONS ENUMERATED IN SS. 15 TO 59 ARE NOW TO BE ALLOWED ONLY WITH REFERENCE TO INCOME WHICH IS BROUGHT UNDER ONE OF THE ABOVE HEADS AND IS CHARGEABLE TO TAX. IF AN INCOME LIKE D IVIDEND INCOME IS NOT A PART OF THE TOTAL INCOME, THE EXPENDITURE/DED UCTION THOUGH OF THE NATURE SPECIFIED IN SS. 15 TO 59 BUT RELATED TO THE INCOME NOT FORMING PART OF TOTAL INCOME COULD NOT BE ALLOWED A GAINST OTHER INCOME INCLUDIBLE IN THE TOTAL INCOME FOR THE PURPO SE OF CHARGEABILITY TO TAX. THE THEORY OF APPORTIONMENT O F EXPENDITURES BETWEEN TAXABLE AND NON-TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER S. 14A. READING S. 14 IN JUXTAPOSITIO N WITH SS. 15 TO 59, IT IS CLEAR THAT THE WORDS 'EXPENDITURE INCURRE D' IN S. 14A REFERS TO EXPENDITURE ON RENT TAXES, SALARIES, INTEREST, E TC. IN RESPECT OF WHICH ALLOWANCES ARE PROVIDED FOR(SEE SS.30TO37). 5.3. IT IS FURTHER APPOSITE TO REFER TO THE DECISI ON OF THE ITAT MUMBAI BENCH IN THE CASE OF ACIT VS CITICORP FINANCE (INDI A) LTD. (2007) 108 ITD 457 DATED 21ST NOVEMBER, 2006 WHEREIN ON SIMILAR FA CTS, THE CONTENTION OF THE ASSESSEE THAT IT HAD INCURRED NO EXPENDITURE FO R EARNING HIGH DIVIDENDS WAS NEGATED. THE RELEVANT PORTION OF THE DECISION I S REPRODUCED HEREIN BELOW:- BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT TH E ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF PROVIDING FINANCIAL SERVICES LIKE COMMERCIAL VEHICLE FINANCING, EQUIPMENT FINANCE, AD VANCES AGAINST FINANCIAL ASSETS AND INTER-CORPORATE LOANS AND DEPO SITS. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE AO NOTICE D THAT THE ASSESSEE HAD EARNED DIVIDEND OF RS. 4,85,24,362 WHI CH WAS EXEMPT FROM TAX. TAKING NOTE OF S. 14A OF THE IT ACT, HE C ALLED UPON THE ASSESSEE TO FURNISH THE DETAILS OF EXPENDITURE INCU RRED IN EARNING THE AFORESAID DIVIDEND AND ALSO TO EXPLAIN AS TO WH Y EXPENDITURE ON PRO RATA BASIS SHOULD NOT BE APPORTIONED TO THE EAR NING OF THE AFORESAID DIVIDEND. IN REPLY, THE ASSESSEE SUBMITTE D BEFORE THE AO THAT IT HAD NOT INCURRED ANY EXPENDITURE IN EARNING THE AFORESAID DIVIDEND AND HENCE THE PRORATE BASIS COULD NOT BE A PPLIED TO ALLOCATE THE EXPENDITURE FOR EARNING THE SAID DIVID END. IN THE ABSENCE OF DETAILS, THE AO APPLIED PRO RATA BASIS F OR ALLOCATING THE TOTAL EXPENDITURE OF RS.90,64,63,336 BETWEEN EXEMPT INCOME (I E., DIVIDEND) AND NON-EXEMPT INCOME IN THE RATIO OF THE RECEIPTS (TOTAL RECEIPTS BEING RS. 119,48,19,592 INCLUDING DIVIDEND RECEIPTS OF RS. ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 21 4,85,24,362). IN THIS MANNER, HE QUANTIFIED THE EXP ENDITURE AT RS. 3,68,02,411 BEING 4.06 PER CENT OF TOTAL EXPENDITUR E AS HAVING BEEN INCURRED IN RELATION TO EARNING THE DIVIDEND AND TH EREFORE DISALLOWED THE SAME WHILE COMPUTING NON-EXEMPT INCO ME. ON APPEAL, THE LEARNED CIT(A),BY HIS ORDER DT. 16TH JU NE, 2003, DIRECTED THE AO TO ALLOW DEDUCTION ON THE GROSS AMO UNT OF DIVIDEND WITHOUT ALLOCATING ANY EXPENDITURE. DEPARTMENT IS A GGRIEVED BY THE AFORESAID ORDER AND IS NOW IN APPEAL BEFORE THIS TR IBUNAL. 13. IT IS DIFFICULT TO ACCEPT THE HYPOTHESIS THAT ONE CAN EARN SUBSTANTIAL DIVIDEND INCOME WITHOUT INCURRING ANY E XPENSES WHATSOEVER INCLUDING MANAGEMENT OR ADMINISTRATIVE E XPENSES. BY SAME LOGIC, IT IS EQUALLY DIFFICULT TO ACCEPT THAT THE ONLY EXPENSES INVOLVED IN EARNING THE DIVIDEND INCOME ARE THOSE I NCURRED ON COLLECTION OF DIVIDEND OR ON ENCASHING A FEW DIVIDE ND WARRANTS. A COMPANY CANNOT EARN DIVIDEND WITHOUT ITS EXISTENCE AND MANAGEMENT. INVESTMENT DECISIONS ARE VERY COMPLEX I N NATURE. THEY REQUIRE SUBSTANTIAL MARKET RESEARCH, DAY-TO-DAY ANA LYSIS OF MARKET TRENDS AND DECISIONS WITH REGARD TO ACQUISITION, RE TENTION AND SALE OF SHARES AT THE MOST APPROPRIATE TIME. THEY REQUIR E HUGE INVESTMENT IN SHARES AND CONSEQUENTIAL BLOCKING OF FUNDS. IT IS WELL KNOWN THAT CAPITAL HAS COST AND THAT ELEMENT OF COS T IS REPRESENTED BY INTEREST. BESIDES, INVESTMENT DECISIONS ARE GENE RALLY TAKEN IN THE MEETINGS OF THE BOARD OF DIRECTORS FOR WHICH ADMINI STRATIVE EXPENSES ARE INCURRED. IT IS THEREFORE NOT CORRECT TO SAY THAT DIVIDEND INCOME CAN BE EARNED BY INCURRING NO OR NO MINAL EXPENDITURE. THIS ASPECT OF THE MATTER HAS ALSO REC EIVED CAREFUL ATTENTION OF CHENNAI BENCH OF THIS TRIBUNAL IN SOUT HERN PETRO CHEMICAL INDUSTRIES VS. DY. CIT (2005) 93 TT] (CHEN NAI) 161. AFTER COMPREHENSIVE CONSIDERATION OF ALL THE RELEVANT ASP ECTS OF THE CASE INCLUDING THE PROVISIONS OF LAW, THE CHENNAI BENCH HAS HELD THAT 8 ITA NOS.1032&1238/KOL/2012 M/S.COAL INDIA LTD. A.YR .2008-09 INVESTMENT DECISIONS ARE VERY STRATEGIC DECISIONS I N WHICH TOP MANAGEMENT IS INVOLVED AND THEREFORE PROPORTIONATE MANAGEMENT EXPENSES ARE REQUIRED TO BE DEDUCTED WHILE COMPUTIN G THE EXEMPT INCOME FROM DIVIDEND. IN HARISH KRISHNAKANT BHATT V S. ITO (2004)85TT](AHD) 872 : (2004) 91 ITD 311 (AHD), THE AHMEDABAD BENCH OF THIS TRIBUNAL HAS HELD THAT, THE DIVIDEND INCOME BEING EXEMPT UNDER S. 10(33), THE INTEREST ON CAPITAL BOR ROWED FOR ACQUISITION OF RELEVANT SHARES YIELDING SUCH DIVIDE ND CANNOT BE ALLOWED DEDUCTION BY OPERATION OF S.14A.IN DY. CIT VS. S.G. INVESTMENTS & INDUSTRIES LTD. (2004) 84 TT] (KOL) 1 43 : (2004) 89 ITD 44 (KOL), THE CALCUTTA BENCH OF THIS TRIBUNAL H AS LAID DOWN TWO PROPOSITIONS: ONE, IN VIEW OF S. 14A INSERTED IN TH E IT ACT WITH ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 22 RETROSPECTIVE EFFECT FROM 1ST APRIL, 1962, PRO RATA EXPENSES ON ACCOUNT OF INTEREST RELATABLE TO INVESTMENT IN SHAR ES FOR EARNING EXEMPT INCOME FROM DIVIDEND ARE TO BE DISALLOWED AG AINST TAXABLE INCOME AND ONLY THE NET DIVIDEND INCOME IS TO BE AL LOWED EXEMPTION AFTER DEDUCTING THE EXPENSES; AND TWO, THE EXPRESSI ON 'EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME' IN S. 14A HAS TO BE GIVEN A WIDER MEANING AND WOULD INCLUDE BOTH DIRECT AND INDIRECT RELATION SHIP BETWEEN EXPENDITURE AND EXEMPT INCOME. FOLLOWING THE DECISI ON OF THE HON'BLE SUPREME COURT IN CI TVS. UNITED GENERAL TRU ST LTD. (1994) 116 CTR (SC) 194 : (1993) 200 ITR 488 (SC), THE CAL CUTTA BENCH OF THE TRIBUNAL HAS ALSO HELD THAT THE INTEREST PAI D BY THE ASSESSEE BEING ATTRIBUTABLE TO THE MONEY BORROWED FOR THE PU RPOSE OF MAKING THE INVESTMENT WHICH YIELDED THE DIVIDEND AND OTHER EXPENSES INCURRED IN CONNECTION WITH OR FOR MAKING OR EARNIN G THE DIVIDEND INCOME CAN BE REGARDED AS EXPENDITURE INCURRED IN R ELATION TO DIVIDEND INCOME. IN EVERPLUS SECURITIES& FINANCE LT D. VS. DY. CIT (2006) 102 TTJ (DEL) 120, THE DELHI BENCH OF THIS T RIBUNAL HAS HELD THAT MERELY BECAUSE THE ASSESSEE DID NOT EARN THE D IVIDEND OUT OF INVESTMENT IN CERTAIN SHARES DOES NOT IMPLY THAT TH E PROVISIONS OF S. 14A WOULD NOT APPLY TO THAT EXTENT. IN ASSTT.CIT VS . PREMIER CONSOLIDATED CAPITAL TRUST (I) LTD. (2004) 83 TTJ ( MUMBAI)843,THE MUMBAI BENCH OF THIS TRIBUNAL HAS HELD THAT THE AO IS JUSTIFIED IN ATTRIBUTING A PART OF THE FINANCIAL AND ADMINISTRAT IVE EXPENSES AS EXPENDITURE IN RELATION TO EXEMPT INCOME AND DISALL OWING THE SAME IN VIEW OF THE PROVISIONS OF S.14A. WE FIND THAT THE AFORESAID JUDGEMENT IS SQUARELY AP PLICABLE TO THE PRESENT CASE OF THE ASSESSEE. 5.4. THE FINDINGS RECORDED BY US AS REGARDS THE EX PENDITURE REQUIRED TO BE INCURRED BY THE ASSESSEE COMPANY FOR CARRYING OU T THE INVESTMENTS AND EARNING DIVIDENDS INCOME ALSO FINDS FORCE FROM THE DECISION RENDERED BY ITAT, CHENNAI BENCH IN THE CASE OF SOUTHERN PETRO C HEMICAL INDUSTRIES VS DCIT (2005) 3 SOT 157 DATED 20TH OCTOBER, 2004 RELE VANT PART OF WHICH IS REPRODUCED AS UNDER :- 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE RECORDS OF THE CASE. ADMITTEDLY, THESE INVESTMENTS IN SHARES WERE MADE DURING THE COURSE OF THE CARRYING ON OF BUSINE SS AND AS IS EVIDENT FROM THE 9 ITA NOS.1032&1238/KOL/2012 M/S.C OAL INDIA LTD. A.YR.2008-09 RECORDS, SUBSTANTIAL INVESTMENTS HAD BEEN MADE BY THE ASSESSEE IN EARLIER YEARS, AND DURING THE CU RRENT YEAR AS WELL THE ASSESSEE MADE AN INVESTMENT OF RS. 19 CRORES. W HETHER TO INVEST ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 23 OR NOT TO INVEST AND WHETHER TO RETAIN THE INVESTME NTS OR TO LIQUIDATE THE SAME ARE VERY STRATEGIC DECISIONS WHICH THE MAN AGEMENT IS CALLED UPON TO TAKE. THESE ARE MIND-BOGGLING DECISI ONS AND TOP MANAGEMENT IS INVOLVED IN TAKING THESE DECISIONS. T HIS DECISION MAKING PROCESS IS VERY COMPLICATED AND REQUIRES VER Y CAREFUL ANALYSIS. MOREOVER, THE ASSESSEE HAS TO KEEP TRACK OF VARIOUS DIVIDEND INCOMES DECLARED BY THE INVESTEE COMPANIES AND ALSO TO KEEP TRACK OF THE DIVIDEND INCOME HAVING BEEN REGUL ARLY RECEIVED BY THE ASSESSEE. THIS ACTIVITY ITSELF CALLS FOR CONSID ERABLE MANAGEMENT ATTENTION AND CANNOT BE LEFT TO A JUNIOR CLERK. THE HON'BLE SUPREME COURT IN THE CASE OF UNITED GENERAL TRUST LTD. (SUP RA), APPLYING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF DI STRIBUTORS (BARODA) (P) LTD. VS. UNION OF INDIA (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC), REVERSED THE DECISION OF T HE HON'BLE BOMBAY HIGH COURT IN CIT VS. UNITED GENERAL TRUST ( P) LTD. (SUPRA), WHEREIN THE QUESTION WAS AS UNDER: 'WHETHE R, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, TH E TRIBUNAL WAS JUSTIFIED IN APPLYING THE DECISION OF THE BOMBAY HI GH COURT IN THE CASE OF CIT VS. NEW GREAT INSURANCE CO. LTD. (1973) 90 ITR 348 (BORN) TO THE ASSESSMENT YEAR IN QUESTION WITHOUT C ONSIDERING THE EFFECT OF THE AMENDMENT OPERATIVE FROM 1STAPRIL, 19 68, AND IN THUS HOLDING THAT THE ASSESSEE WOULD BE ENTITLED TO THE DEDUCTION UNDER S. 80M ON THE GROSS DIVIDEND BEFORE DEDUCTION OF THE P ROPORTIONATE MANAGEMENT EXPENSES ?' THUS, WHEN THE DECISION OF T HE HON'BLE BOMBAY HIGH COURT HAS BEEN REVERSED, THE PROPORTION ATE MANAGEMENT EXPENSES ARE REQUIRED TO BE DEDUCTED WHI LE COMPUTING THE DIVIDEND INCOME. IN THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT, RELIED UPON BY THE LEARNED COUNSEL FOR THE A SSESSEE, MR. DASTUR, IN THE CASE OF CIT VS. UNITED COLLIERIES LT D. (SUPRA), IT HAS BEEN HELD THAT IF THE FACTS OF A PARTICULAR CASE SO WARRANT, THE ALLOCATION CAN BE MADE TOWARDS EXPENSES. IN VIEW OF THE AFOREMENTIONED DISCUSSION AND KEEPING IN VIEW THE S UBMISSIONS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE, WE RESTORE THIS MATTER TO THE AO TO VERIFY THE QUANTUM OF DEDUCTION CLAIMED B Y THE ASSESSEE IN EARLIER YEARS UNDER S. 57(I) FROM THE DIVIDEND I NCOME (WHEN IT WAS TAXABLE) AND MAKE A PRO RATA ADJUSTMENT ON THE BASIS OF SUBSEQUENT INVESTMENTS MADE, INFLATION, ETC. THIS G ROUND IS, ACCORDINGLY, ALLOWED FOR STATISTICAL PURPOSES. 5.5. SINCE THE ASSESSEE HAD CLAIMED THAT NO EXPEND ITURE WAS INCURRED, THE ASSESSING AUTHORITIES WERE CORRECT TO ESTIMATE THE INCURRING OF SUCH EXPENDITURE U/S 14A READ WITH RULE 8D. IT IS PERTIN ENT TO REFER TO THE OBSERVATIONS MADE BY ITAT CHENNAI BENCH IN THE CASE OF LAKSHMI RING ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 24 TRAVELLERS VS ACIT IN ITA NO.2083/MADS/2011 DATED 2 ND MARCH,2012 WHEREIN IT WAS HELD AS UNDER (RELEVANT PORTION REPR ODUCED) :- THEREFORE, IT BECOMES CLEAR THAT EVEN IN A CASE WH ERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE WAS SO INCURRED, THE STA TUTE HAS PROVIDED FOR A PRESUMPTIVE EXPENDITURE WHICH HAS TO BE DISAL LOWED BY FORCE OF THE STATUTE. IN A DISTANT MANNER, LITERALLY SPEA KING, IT MAY EVEN BE CONSIDERED FOR THE PURPOSE OF CONVENIENCE AS A DEEM ING PROVISION. WHEN SUCH DEEMING PROVISION IS MADE ON THE BASIS OF STATUTORY PRESUMPTION, THE REQUIREMENT OF FACTUAL EVIDENCE IS REPLACED BY STATUTORY PRESUMPTION AND THE ASSESSING OFFICER HAS TO FOLLOW THE CONSEQUENCES STATED IN THE STATUTE. 5.6. THE DECISIONS RELIED UPON BY THE ASSESSEE TO SUPPORT THE AFORESAID GROUNDS OF APPEAL ARE DISTINGUISHABLE ON FACTS AND LAW AND DOES NOT HELP THE CAUSE OF ASSESSEE. THE ASSESSEE RELIED UPON THE DECISION OF VARIOUS COURTS OF LAW LISTED AS UNDER : (I) MAXOPP INVESTMENTS LTD. VS CIT 347 ITR 272 (DEL ) (II) GODREJ & BOYCE MFG.CO.LTD. VS DCIT 328 ITR 81 (BOM) (III) RELAXO FOOTWEARS LTD. VS ADDL.CIT (2012) 50 S OT 102 (IV) REI AGRO LTD. KOLKATA VS D CIT ITA NO.1331/KOL /2011 (V) DCIT VS ASHISH JHUNJHUNWALA IN ALL OF THE AFORESAID JUDGEMENTS, THE RATIO WAS T HAT THE AO FAILED TO RECORD ANY SATISFACTION U/S 14A READ WITH RULE 8D W HEREAS IN THE PRESENT CASE PROPER SATISFACTION WAS RECORDED BY THE AO U/S 14A OF THE ACT. RELIANCE WAS PLACED ON THE JUDGMENTS RENDERED IN TH E CASE OF REI LTD., KOLKATA (SUPRA) IN THE AFORESAID DECISION, THE ISSU E WITH RESPECT TO THE DISALLOWANCE MADE UNDER SECTION 14A READ WITH RULE 8D(2)(III) WAS RESTORED TO THE FILE OF AO AND NO JUDGMENT WAS REND ERED ON MERITS OF THE CONTENTIONS OF ASSESSEE. THE ASSESSEE HAS SUBMITTED THAT FOR DISALLOWING THE EXPENDITURE INCURRED FOR EARNING THE EXEMPT INCOME THERE MUST BE A NEXUS BETWEEN THE TWO. TO SUBSTANTIATE THE SAME, THE ASSE SSEE HAS RELIED UPON THE DECISIONS OF VARIOUS COURTS LISTED AS UNDER: (I) BALRAM CHINNI MILLS LTD. VS DCIT IN ITA NO.504/ KOL/2011 (II) CIT VS HERO CYCCLES LTD. 323 ITR 518 (PUN&HAR) (III) SAURABH AGROTECH (P) LTD VS DCIT IN ITA NO.78 6/JP/2011 (IV) HINDUSTHAN PAPER CORPORATION LTD. IN ITA NO.47 /KOL/2012. THE AFORESAID JUDGEMENTS WILL NOT SUPPORT THE CASE OF THE ASSESSEE AS THE SAME ARE RENDERED IN THE DIFFERENT FACTS ALTOGETHER . IN THE AFORESAID DECISIONS, THE RATIO WAS THAT ONLY THOSE EXPENDITUR ES WHICH HAS NEXUS TO THE ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 25 EXEMPT INCOME ARE TO BE DISALLOWED. HOWEVER IN THE PRESENT CASE THE NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE DIVIDEND I NCOME WAS ESTABLISHED BY THE REVENUE AUTHORITIES. 5.7. THE LD. AR SUBMITTED THAT IN SUBSEQUENT YEARS I.E. A.YRS. 2009- 10 AND 2010-11, THE AFORESAID ISSUE HAS BEEN DECIDED I N FAVOUR OF THE ASSESSEE. THE AFORESAID ORDERS OF THE LD. CIT(A) WI LL NOT HELP THE ASSESSEE AS THE SAME HAS NO BEARING ON THE PRESENT CASE. 5.8. THE LD. AR SUBMITTED WITHOUT PREJUDICE TO THE AFORESAID GROUNDS THAT THERE IS A COMPUTATIONAL ERROR IN CALCULATION UNDER RULE 8D(III) AND THE AO HAS INCLUDED THE INVESTMENTS OF THE SUBSIDIARIES , WHICH HAVE NOT PAID DIVIDENDS TO THE ASSESSEE. IN VIEW OF SUBMISSION MA DE, THE SAID ISSUE IS REMANDED TO THE FILE OF AO TO MAKE A CORRECT COMPUT ATION WITHOUT INCLUDING THE INVESTMENTS OF COMPANIES WHICH HAVE N OT PAID ANY DIVIDEND TO THE ASSESSEE COMPANY. THE AFORESAID GROUNDS ARE, THEREFORE, HELD TO BE AGAINST THE ASSESSEE ON MERITS AND ON THE ISSUE OF COMPUTATION UNDER RULE 8D(III), THE MATTER IS REMANDED BACK TO THE FILE OF AO. ACCORDINGLY GROUNDS 1(A), 1(B), 1(C), 2(B) AND 2(C) OF THE ASSESSEE ARE DISMISSED. 8.5. IN VIEW OF THE ABOVE JUDICIAL PRONOUNCEMENTS OF THE TRIBUNAL AS WELL AS THE DECISIONS OF THE KERALA HIGH COURT IN T HE CASE OF SMT. LEENA RAMACHANDRAN (SUPRA) AND KARNATAKA HIGH COUR T IN THE CASE OF PRADEEP KAR V. ACIT (SUPRA), WE REVERSE THE FIND INGS OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE ORDER PASSED B Y THE ASSESSING OFFICER. ACCORDINGLY, THE COMMON GROUND RAISED IN B OTH THE APPEALS IS DISMISSED. ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 26 9.1 THE NEXT COMMON GROUND IN ITA NO.2052/MDS/15 & 2056/MDS./2015 IS WITH REGARD TO DISALLOWANCE OF IN TEREST PAID ON LOANS TAKEN. 9.2. AT THE TIME OF HEARING THE APPEALS, THIS COMMO N IS NOT PRESSED BY THE LD.A.R. ACCORDINGLY THIS GROUND IS DISMISSE D AS NOT PRESSED. BOTH THE APPEALS IN ITA NOS2052 & 2053/MDS./2015 AR E DISMISSED. ITA NO.2051/MDS/15 (A.Y.2009-10) 10.1 THERE WAS A DELAY OF 914 DAYS IN FILING THE APPEAL BEFORE THE TRIBUNAL. THE ASSESSEE FILED THE CONDONATION PETIT ION STATING THAT ORIGINALLY THE ORDER OF THE LD.CIT(A) WAS RECEIVED BY THE ASSESSEES AUTHORISED REPRESENTATIVE OF ASSESSEE, ONE MR. MOHA N AND THE SAME WAS COMMUNICATED TO THE ASSESSEE ON 11.02.2013 . FURTHER, ON RECEIPT OF CIT(A)S ORDER FOR ASSESSMENT YEARS 2 010-11 & 2011-12 ON 09.10.2015, THE ASSESSEE MET ONE NEW C.A SHRI B. RAMAKRISHNAN TO FILE AND REQUESTED TO FILE AGAINST THESE TWO ASS ESSMENT YEARS. AT THAT TIME, SHRI B.RAMAKRISHNAN C.A ASKED THE DETAIL S OF THE APPEAL AND IT WAS STATED TO HIM BY THE ASSESSEE NO APPEAL WAS FILED AGAINST THE ORDER OF LD.CIT(A) FOR ASSESSMENT YEAR 2009-10. AT THAT TIME, ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 27 LD.A.R ADVISED THE ASSESSEE TO FILE APPEAL AGAINST THE ORDER OF THE LD.CIT(A) FOR ASSESSMENT YEAR 2009-10. HENCE, THER E WAS A DELAY OF FILING THE APPEAL BEFORE THE TRIBUNAL. WE HAVE ACT UALLY GONE THROUGH THE REASONS ADVANCED BY THE ASSESSEE. THE REASONS ADVANCED BY THE ASSESSEE FOR DELAY IN FILING THE APPEAL IS TOO GENERAL AND IS NOT CONVINCING. THE DELAY CANNOT BE CONDONED SIMPLY BE CAUSE THE ASSESSEES CASE IS HARD AND CALLS FOR SYMPATHY OR M ERELY OUT OF BENEVOLENCE TO THE PARTY SEEKING RELIEF. IN GRANTIN G THE INDULGENCE AND CONDONING THE DELAY IT MUST BE PROVED BEYOND TH E SHADOW OF DOUBT THAT THE ASSESSEE WAS DILIGENT AND WAS NOT GU ILTY OF NEGLIGENCE WHATSOEVER. THE SUFFICIENT CAUSE WITHIN THE CONTEMP LATION OF THE LIMITATION PROVISION MUST BE A CAUSE WHICH IS BEYON D THE CONTROL OF THE PARTY INVOKING THE AID OF THE PROVISIONS. WHERE NO NEGLIGENCE, NOR INACTION, OR WANT OF BONA FIDES CAN BE IMPUTED TO T HE ASSESSEE A LIBERAL CONSTRUCTION OF THE PROVISIONS HAS TO BE MA DE IN ORDER TO ADVANCE SUBSTANTIAL JUSTICE. SEEKERS OF JUSTICE MUS T COME WITH CLEAN HANDS. THE REASONS ADVANCED BY THE ASSESSEE CLEAR LY SHOW THAT THE DELAY WAS DUE TO THE NEGLIGENCE AND INACTION ON THE PART OF THE ASSESSEE. THE DELAY COULD HAVE BEEN AVOIDED BY THE ASSESSEE BY ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 28 THE EXERCISE OF DUE CARE AND ATTENTION. THERE EXIST S NO SUFFICIENT AND GOOD REASON TO CONDONE THE DELAY OF 914 DAYS. ACCOR DINGLY, WE ARE DECLINED TO CONDONE THE DELAY AND THE APPEALS FOR A SSESSMENT YEAR 2009-10 STANDS DISMISSED AND UN-ADMITTED. REVENUES APPEAL ITA NO.2220 & 2221/MDS/15 (A.Y.201 0-11 & 2011-12) 11.1 THE COMMON GROUND IN BOTH THE APPEALS OF REV ENUE IS WITH REGARD TO NOT TREATING THE RENT RECEIVED FROM TWO PROPERTIES I.E., TEK MEDOWS AND TEK TOWERS AS INCOME FROM HOUSE PROPERTY , BUT LD.CIT(A) TREATED IT AS BUSINESS INCOME AS CLAIMED BY THE ASSESSEE. THE LD.CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE BY PLACING RELIANCE WITH THE ORDER OF THE TRIBUNAL IN ITA NO.995 TO 997 /MDS./2011 DATED 28.08.2013 FOR ASSESSMENT YEAR 2005-06 TO 2008-09 W HEREIN HELD THAT INCOME FROM THE ABOVE PROPERTIES TO BE ASSESSE D AS BUSINESS INCOME AND NOT AS INCOME FROM HOUSE PROPERTY. AGAIN ST THIS REVENUE IS IN APPEAL BEFORE US. ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 29 11.2 WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL ON RECORD. ADMITTEDLY, SIMILAR ISSUE WAS CONSIDERED B Y THIS TRIBUNAL IN ITA NO.995 TO 997/MDS/2011(SUPRA) WHEREIN HELD THAT :- 7. FIRST WE COME TO THE GROUND OF THE REVENUE THAT THE INCOME IS NOT LIABLE TO BE TREATED UNDER THE HEAD BUSINESS INCOME AS HELD BY THE COMMISSIONER OF INCOME TAX (APPEALS), BEING RECEIPT FROM HOUSE PROPERTY. THE FACTUAL POSITION ALREADY STAN DS NARRATED HEREIN ABOVE. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF IT DEVELOPMENT AND CONSTRUCTION OF MULT I-STOREY INFOTECH. THE IMPUGNED RECEIPT HAS BEEN RAISED BY T HE ASSESSEE AFTER PROVIDING INCUBATION PROJECT FACILITY TO IT S LESSEE WHO IS ALSO A SOFTWARE COMPANY AFTER FURNISHING THE BUILDING ETC IN THE NATURE OF MOVABLE ASSETS. IN THIS BACKDROP, WE NOTICE THAT TH E HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. ELNET TECHNOLOGIES LTD (SUPRA) HAS SQUARELY DECIDED THE ISSUE IN FAVOIR OF THE ASSESSEE WHEREIN IT HAS BEEN HELD THAT IN CASE OF A COMPANY PROVIDING SOFTWARE INFRASTRUCTURAL FACILITIES ON LEASE IN LIE U OF RENT PAYMENT, THE RECEIPT IS BUSINESS INCOME INSTEAD OF THAT FR OM HOUSE PROPERTY. IN THE COURSE OF ARGUMENTS, THE REVENUE H AS NOT BEEN ABLE TO CITE ANY DISTINGUISHING FEATURES. ACCORDING LY, WE1 RELY UPON THE SAID DECISION AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. IN THE LIGHT OF THESE FINDINGS, THE RELEVANT GROUND S IN ALL THE APPEALS RAISED BY THE REVENUE ARE REJECTED.. ITA NO.2051,2052,2055,2056, /MDS/2015 ITA NO. 2220,2221/MDS./2015 M/S.RATTHAHOLDING CO. P LTD. 30 ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IN B OTH ITS APPEALS REGARDING TREATMENT OF RENTAL INCOME AS INCOME FROM HOUSE PROPERTY INSTEAD OF BUSINESS INCOME STANDS DISMISSED. 12. IN THE RESULT, THE APPEAL OF ASSESSEE IN ITA N O.2055/MDS./15 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES, AND IN ITA NOS.2051,2052 & 2056/MDS./15 ARE DISMISSED AND BOTH THE APPEAL S OF REVENUE ARE DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 13 TH OF APRIL, 2016 AT CHENNAI. SD/- SD/- ( ' #! ' $ . %& ) ( DUVVURU RL REDDY ) ) ( ( ) ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 13 TH APRIL,2016. K S SUNDARAM. '#$ % &' (#' /COPY TO: 1. )* /APPELLANT 2. %+)* /RESPONDENT 3. , () /CIT(A) 4. , /CIT 5. '-. % / /DR 6. .0 1 /GF