Surana Telecom & Power Ltd., Hyd, Secunderabad V. ACIT, Circle-3(1), Hyderabad, Hyderabad

ITA 208/HYD/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4401 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 22-08-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 23-02-2016
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Keywords: Earning of tax free income
• Section: 14A; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 208/HYD/2016 ASSESSMENT YEAR: 2008-09 M/S. SURANA TELECOM AND POWER LIMITED SECUNDERABAD [PAN: AADCS1823R] VS ASST. COMMISSIONER OF INCOME TAX, CIRCLE-3(1), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K.C. DEVDAS, AR FOR REVENUE : SHRI K. J. RAO, DR DATE OF HEARING : 22-08-2016 DATE OF PRONOUNCEMENT : 31-08-2016 O R D E R PER B. RAMAKOTAIAH, A.M. : IN THIS APPEAL BY ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-3, HYDERABAD D ATED 10-12-2015, THE ONLY ISSUE AGITATED BY ASSESSEE IS WIT H REFERENCE TO UPHOLDING OF DISALLOWANCE U/S. 14A R.W. RULE 8D(2)( III) OF RS. 1,82,900/-. 2. ON NOTICING THAT ASSESSEE HAS RECEIVED DIVIDEND O F RS. 6,50,492/- FROM VARIOUS MUTUAL FUND COMPANIES, THE A SSESSING OFFICER (AO) INVOKED THE PROVISIONS OF SECTION 14A AND DISALLOWED I.T.A. NO. 208/HYD/2016 M/S. SURANA TELECOM AND POWER LIMITED :- 2 -: AN AMOUNT OF RS. 5,59,638/-. ON VERIFICATION OF THE C ONTENTIONS OF ASSESSEE, LD.CIT(A), DELETED THE DISALLOWANCE MADE U NDER RULE 8D(2)(II) AND SUSTAINED THE DISALLOWANCE U/S. 8D(2)(I II) STATING AS UNDER: HOWEVER, THE HON'BLE ITAT, HYDERABAD IN CASE OF B ELL WETHER MICRO FINANCE FUND VS. ITO [165 TTJ 261] HEL D THAT THE THIRD LIMB OF RULE 8D(2) WOULD BE APPLICABLE IRRESPECTIVE OF WHETHER ANY EXPENDITURE WAS INCURRED FOR THE PURPOSE OF INVESTM ENT, IRRESPECTIVE OF WHETHER SUCH INVESTMENT RESULTED IN TAX FREE INC OME OR NOT. THEREFORE, THE DISALLOWANCE MADE BY THE A.O. UNDER RULE 8D(2)(III) OF RS. 1,82,900 IS CONFIRMED. ASSESSEE IS CONTESTING THE ABOVE. 3. LD. DR CONTENDED THAT ASSESSEE HAS RECEIVED DIVIDE ND OF RS. 5,56,784/- FROM MUTUAL FUNDS AND RS. 93,708/- FROM COMPANIES, TOTALING TO RS. 6,50,492/-. IT WAS SUBMITTED THAT FOLLOWING THE DECISION OF HONBLE HIGH COURT OF DELH I IN THE CASE OF ACB INDIA LTD., (FORMERLY M/S. ARYAN COAL BENEFICATIO NS (P) LTD., VS. ACIT IN ITA NO. 615/14, IF ONLY THE INVESTMENTS WH ICH EARNED DIVIDEND ARE CONSIDERED, THE AVERAGE VALUE OF INVESTM ENTS WOULD BE RS. 1,07,97,200/- AND CONSEQUENT DISALLOWANCE AT 0.5% WOULD BE ONLY 53,986 AS AGAINST 1,82,900 CONFIRMED BY THE LD.C IT(A). WHILE PLACING THE ABOVE SAID ORDER OF THE HONBLE DELHI HI GH COURT ON RECORD, LD. COUNSEL ALSO FAIRLY ADMITTED THAT THIS JUDGM ENT WAS CONSIDERED BUT THE DISALLOWANCE AT 0.5% ON AN AVERAGE INVESTMENT AS AVAILABLE IN THE BALANCE SHEET WAS CONSIDERED BY TH E COORDINATE BENCH AT HYDERABAD IN THE CASE OF DATTA CHANDRA HOSPITA LS PVT. LTD., (PRESENTLY KNOWN AS YASHODA HEALTH CARE SERVICES PVT. LTD.,) VS. ADDL. CIT IN ITA NO. 74/HYD/2016 DT. 27-07-2016. I.T.A. NO. 208/HYD/2016 M/S. SURANA TELECOM AND POWER LIMITED :- 3 -: 4. LD. DR, HOWEVER, RELIED ON THE ORDER OF LD, CIT( A) TO SUBMIT THAT THE DISALLOWANCE IS AS PER THE RULE. 5. AFTER CONSIDERING THE RIVAL CONTENTIONS AND PERUSIN G THE ORDERS PLACED ON RECORD, WE ARE OF THE OPINION THAT TH ERE IS NO NEED TO DIFFER FROM THE FINDINGS OF THE LD.CIT(A). IN FACT, LD.CIT(A) FOLLOWED THE DECISION OF THE CO-ORDINATE BENCH OF HY DERABAD IN THE CASE OF BELLWETHER MICRO FINANCE FUND VS. ITO [165 T TJ 261]. SIMILAR ISSUE ALSO CONSIDERED IN THE CASE OF DATTA CHA NDRA HOSPITALS PVT. LTD., (PRESENTLY KNOWN AS YASHODA HEALTH CARE SERVICES PVT. LTD.,) VS. ADDL. CIT IN ITA NO. 74/HYD/ 2016 DT. 27-07-2016 (SUPRA), WHEREIN IT WAS HELD THAT: 5.1. COMING TO THE DISALLOWANCE OF RS. 21,189/- IN VOKING SUB-RULE (2)(III) OF 0.5% OF AVERAGE VALUE OF INVESTMENT, IT WAS THE CONTENTION THAT THERE IS NO DIVIDEND EARNED FROM BILL ROTH HOSPITAL S LTD., SO THAT AMOUNT HAS TO BE EXCLUDED FOR WHICH LD. COUNSEL RELIED ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF ACB INDIA LTD., (FO RMERLY M/S. ARYAN COAL BENEFICATIONS (P) LTD., IN ITA NO. 615/2014 DT. 24 -03-2015 (SUPRA). RULE 8D(2) (III) SPECIFIES THAT AN AMOUNT EQUAL TO % OF THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEAR IN THE BALANCE SHEET OF ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR HAS TO BE ATTRIBU TED. WORKING HAS TO BE MADE ON THE INVESTMENT AS SPECIFIED, WITHOUT SEGREG ATING THEM ON INCOME YIELDING OR NON-INCOME YIELDING DURING THE YEAR. T HE INVESTMENT IN BILL ROTH HOSPITALS LTD., HAS POTENTIAL TO EARN DIVIDEND IN A LATER YEAR. THIS ISSUE WAS DISCUSSED ELABORATELY BY THE CO-ORDINATE BENCH IN THE CASE OF BELLWETHER MICROFINANCE FUND PVT. LTD., IN ITA NO. 1743/HYD/2013 DT. 27-06-2014. THE RELEVANT PORTION OF THE SAID O RDER IS AS UNDER: 7. WE HAVE HEARD PARTIES AND PERUSED MATERIALS ON RECORD AS WELL AS THE ORDERS OF THE AUTHORITIES ON THIS ISSUE. SO FAR AS THE CON TENTION OF THE LEARNED AR THAT PROVISIONS OF SECTION 14A IS NOT ATTRACTED AND IT HAS NOT INCU RRED ANY EXPENDITURE TOWARDS EARNING OF EXEMPT INCOME AND FURTHER CONTENTION THAT DIVIDEND INCOME CANNOT BE CONSIDERED AS EXEMPT INCOME AS IT IS SUBJECTED TO DIVIDEND DISTRI BUTION TAX U/S 115J AND 115-O OF THE ACT, IN OUR VIEW, IT IS NOT ACCEPTABLE SIMPLY BECA USE OF THE FACT THAT THE ASSESSEE ITSELF RECOGNIZING THE FACT THAT IT HAS INCURRED EXPENDITU RE TOWARDS EARNING OF EXEMPT INCOME HAS DISALLOWED EXPENDITURE TO THE TUNE OF RS. 35,65,860 /- U/S 14A READ WITH RULE 8D(2) OF THE I.T.A. NO. 208/HYD/2016 M/S. SURANA TELECOM AND POWER LIMITED :- 4 -: ACT. THEREFORE, ASSESSEES CHALLENGE WITH REGARD TO APPLICABILITY OF SECTION 14A READ WITH RULE 8D (2) CANNOT BE SUSTAINED. HOWEVER, SO FAR AS ASSESSEES CONTENTION WITH REGARD TO MODE OF COMPUTATION OF DISALLOWANCE UNDER RULE 8D(2 ), IN OUR VIEW, REQUIRES CONSIDERATION. AS CAN BE SEEN, AT THE STAGE OF ASSE SSMENT PROCEEDING ITSELF ASSESSEE HAS STATED THAT DISALLOWANCE UNDER RULE 8D(2)(I) SHOULD BE ONLY IN RELATION TO THE INVESTMENT, WHICH HAS YIELDED ANY EXEMPT INCOME IN THE RELEVANT FY. EXPENDITURE CANNOT BE IN RELATION TO THE TOTAL INVESTMENT IRRESPECTIVE OF TH E FACT WHETHER ANY INCOME IS EARNED OR NOT DURING THE YEAR. BEFORE GOING INTO THE MERITS OF AS SESSEES CONTENTIONS, IT IS DEEMED NECESSARY TO LOOK INTO THE PROVISIONS CONTAINED UND ER RULE 8D(2) WHICH IS RELEVANT FOR OUR PURPOSE. THE SAME IS EXTRACTED HEREUNDER FOR THE SA KE OF CONVENIENCE: 8D. (1) XXXXXXXXXXX (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOE S NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWING AMOUNTS, NAMELY : (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME; (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXP ENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FO RMULA, NAMELY : A X B/C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR ; B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHI CH DOES NOT OR SHALL NOT FOR M PART OF THE TOTAL INCOME, AS APPEARING IN THE BAL ANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR ; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BAL ANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR ; (III) AN AMOUNT EQUAL TO ONE-HALF PER CENT OF THE A VERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART O F THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. (3) XXXXXXXXXXXX 7.1 ON CAREFUL READING OF THE AFORESAID PROVISION, IT WOULD BE EVIDENT THAT IT IS IN THREE PARTS. THE FIRST PART CONTAINED IN SUB-RUL E D(2)(I), SPEAKS OF DISALLOWANCE OF THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME W HICH DOES NOT FORM PART OF THE TOTAL INCOME. SECOND PART UNDER SUB-RULE 8D(2)((II) DEAL S WITH DISALLOWANCE TO BE COMPUTED ON THE BASIS OF FORMULA GIVEN THEREIN IN A CASE WHE RE THE ASSESSEE INCURS EXPENDITURE BY WAY OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO A NY PARTICULAR INCOME OR RECEIPT. THE THIRD PART AS PROVIDED UNDER SUB-RULE 8D(2)(III) IS AN AR TIFICIAL FIGURE I.E. ONE-HALF PER CENT OF I.T.A. NO. 208/HYD/2016 M/S. SURANA TELECOM AND POWER LIMITED :- 5 -: THE AVERAGE INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE AS SESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. AGGREGATE OF THESE THREE COMPONE NTS WOULD CONSTITUTE EXPENDITURE IN RELATION TO EXEMPT INCOME AND WOULD BE DISALLOWED U /S 14A OF THE ACT. THEREFORE, IF WE EXAMINE THE FACTS OF THE PRESENT CASE IN THE CONTEX T OF THE AFORESAID STATUTORY PROVISION, IT IS QUITE CLEAR THAT AO WHILE WORKING OUT DISALLOWANCE UNDER RULE 8D(2)(I) HAS TAKEN THE TOTAL INVESTMENT IRRESPECTIVE OF THE FACT WHETHER T HEY HAVE YIELDED INCOME OR NOT DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. THE REASONING OF THE AO IN THIS REGARD IS ACTUAL EARNING OR RECEIPT OF INCOME WILL NOT BE A CONDITIO N FOR DISALLOWANCE OF SUCH EXPENDITURE UNDER THE PROVISIONS OF SECTION 14A AS IT SPEAKS AB OUT EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. HE WA S OF THE VIEW THAT EVEN IF NO INCOME WAS RECEIVED, EXPENDITURE INCURRED CAN BE DISALLOWED U/ S 14A. HOWEVER, RULE 8D(2)(I) SPEAKS OF EXPENDITURE DIRECTLY RELATING TO INCOME W HICH DOES NOT FORM PART OF TOTAL INCOME. THE TERM TOTAL INCOME HAS NOT BEEN DEFINE D EITHER U/S 14A OR UNDER RULE 8D. THEREFORE, ONE HAS TO LOOK TO THE DEFINITION OF TO TAL INCOME AS APPEARING IN SECTION 2(45) OF THE ACT, WHICH READS AS UNDER: 'TOTAL INCOME' MEANS THE TOTAL AMOUNT OF INCOME REF ERRED TO IN SECTION 5 , COMPUTED IN THE MANNER LAID DOWN IN THIS ACT ; SECTION 5 OF THE ACT READS AS UNDER:- SCOPE OF TOTAL INCOME. 5. (1) SUBJECT TO THE PROVISIONS OF THIS ACT, THE TOT AL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A RESIDENT INCLUDES ALL INCOME F ROM WHATEVER SOURCE DERIVED WHICH (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN IND IA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON ; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR AR ISE TO HIM IN INDIA DURING SUCH YEAR ; OR (C) ACCRUES OR ARISES 57 TO HIM OUTSIDE INDIA DURING SUCH YEAR : PROVIDED THAT, IN THE CASE OF A PERSON NOT ORDINARILY RESIDE NT IN INDIA WITHIN THE MEANING OF SUB-SECTION (6)* OF SECTION 6 , THE INCOME WHICH ACCRUES OR ARISES TO HIM OUTSIDE INDIA SHALL NOT BE SO INCLUDED UNLESS I T IS DERIVED FROM A BUSINESS CONTROLLED IN OR A PROFESSION SET UP IN INDIA. (2) SUBJECT TO THE PROVISIONS OF THIS ACT, THE TOTA L INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A NON-RESIDENT INCLUDES ALL INCOME FR OM WHATEVER SOURCE DERIVED WHICH (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN IND IA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON ; OR I.T.A. NO. 208/HYD/2016 M/S. SURANA TELECOM AND POWER LIMITED :- 6 -: (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR AR ISE TO HIM IN INDIA DURING SUCH YEAR. EXPLANATION 1. INCOME ACCRUING OR ARISING OUTSIDE INDIA SHALL NOT BE DEEMED TO BE RECEIVED 57 IN INDIA WITHIN THE MEANING OF THIS SECTION BY REA SON ONLY OF THE FACT THAT IT IS TAKEN INTO ACCOUNT IN A BALANCE SHE ET PREPARED IN INDIA. EXPLANATION 2. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED T HAT INCOME WHICH HAS BEEN INCLUDED IN THE TOTAL INCOME OF A PE RSON ON THE BASIS THAT IT HAS ACCRUED OR ARISEN OR IS DEEMED TO HAVE ACCRUED OR A RISEN TO HIM SHALL NOT AGAIN BE SO INCLUDED ON THE BASIS THAT IT IS RECEIVED OR DEE MED TO BE RECEIVED BY HIM IN INDIA. 7.2 AS CAN BE SEEN, DEFINITION OF TOTAL INCOME U/S 2(45) REFERS TO SECTION 5 WHICH ENVISAGES SCOPE OF TOTAL INCOME. ON A READI NG OF SECTION 5 OF THE IT ACT, IT WOULD BE EVIDENT THAT AS PER THIS SECTION TOTAL INCOME IS OF ANY PREVIOUS YEAR AND WHICH INCLUDES INCOME FROM WHATEVER SOURCE DERIVED WHICH IS RECEIV ED OR DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON OR ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISES TO HIM IN INDIA DURING SUCH YEAR OR ACCRUES OR ARIS E TO HIM OUTSIDE INDIA DURING SUCH YEAR. CONSIDERED IN AFORESAID CONTEXT, EXPRESSION TOTAL INCOME REFERRED TO IN RULE 8D(2)(I) CANNOT BE IN ABSTRACT. IT MUST RELATE TO A PREVIOUS YEAR INCOME OF WHICH IS SOUGHT TO BE ASSESSED. THEREFORE, AS A NATURAL CORO LLARY IT FOLLOWS THAT ONLY EXPENDITURE DIRECTLY RELATING TO INCOME WHICH IS EARNED EITHER ON RECEIPT BASIS OR ON ACCRUAL BASIS AND WHICH DOES NOT FORM PART OF TOTAL INCOME OF A PARTI CULAR ASSESSMENT YEAR CAN BE DISALLOWED UNDER CLAUSE (I) OF RULE 8D(2). RULE 8D(2)(I) DOES NOT REFER TO THE INVESTMENT MADE BY THE ASSESSEE. ON A CONJOINT READING OF CLAUSE (I) A ND CLAUSE (III) OF RULE 8D(2), THE DIFFERENCE BETWEEN THEM IS CLEARLY DISCERNIBLE. WH ILE CLAUSE (I) SPEAKS OF DISALLOWANCE OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, CLAUSE (III) PROVIDES FOR DISALLOWANCE OF EXPENDITURE OF T HE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON FIRST DAY AND LAST DAY OF THE PREVIOUS YEAR. THEREFORE, WHILE DISALLOWANCE OF EXPENDITURE UNDER CLAUSE (I) IS REL ATED TO INCOME EARNED WHICH DOES NOT FORM PART OF TOTAL INCOME, CLAUSE (III) RELATES TO THE AVERAGE OF THE VALUE OF INVESTMENT APPEARING IN THE BALANCE SHEET. ON A PLAIN READING OF RULE 8D(2) AS A WHOLE THE LEGISLATIVE INTENT BECOMES CLEAR THAT THE DISALLOW ANCE OF EXPENDITURE CONTEMPLATED UNDER SUB-RULE(I) MUST RELATE TO THE INCOME WHICH DOES NO T FORM PART OF THE TOTAL INCOME OF THAT YEAR. THEREFORE, INVESTMENT, WHICH HAS NOT RESULTE D IN ANY INCOME CANNOT BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE UNDER RULE 8D(2)(I). HO WEVER, WHILE COMPUTING DISALLOWANCE UNDER RULE 8D(2)(III), THE AVERAGE OF THE TOTAL INVESTMENT OF THE ASSESSEE AS APPEARING IN THE BALANCE SHEET ON THE FIRST DAY AND LAST DAY OF THE YEAR IRRESPECTIVE OF THE FACT WHETHER IT HAS YIELDED INCOME OR NOT CAN BE CO NSIDERED FOR THE PURPOSE OF DISALLOWANCE. THE USE OF THE WORDS DOES NOT OR SHALL NOT IN RULE 8D(2)(III) CONNOTES THAT INCOME NOT ONLY DOES NOT FORM PART OF TOTAL INCOME DURING THE YEAR BUT IT ALSO SHALL NOT FORM PART OF TOTAL INCOME AT ANY TIME. HAD IT BEEN THE INTENTION OF THE RULE FRAMING AUTHORITIES TO DISALLOW UNDER RULE 8D(2)(I) EXPENDITURE RELATING T O TOTAL VALUE OF INVESTMENT OR INCOME WHICH IS NOT EARNED DURING THE RELEVANT PREVIOUS YE AR, THEN, THEY WOULD HAVE USED THE EXPRESSION DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME AS APPEARING IN RULE I.T.A. NO. 208/HYD/2016 M/S. SURANA TELECOM AND POWER LIMITED :- 7 -: 8D(2)(III) INSTEAD OF WORDS DOES NOT FORM PART OF TOTAL INCOME. THAT BEING THE CASE, AO CANNOT DISALLOW EXPENDITURE RELATING TO INVESTMENT WHICH HAS NOT YIELDED ANY EXEMPT INCOME DURING THE PREVIOUS YEAR RELEVANT TO THE ASS ESSMENT YEAR UNDER DISPUTE. THEREFORE, WE DIRECT THE AO TO DISALLOW THE EXPENDITURE RELATI NG TO INVESTMENTS RESULTING IN INCOME EARNED/ACCRUED WHICH DOES NOT FORM PART OF TOTAL IN COME OF THE IMPUGNED ASSESSMENT YEAR. HOWEVER, SO FAR AS AOS COMPUTATION OF EXPENDITURE TO BE DISALLOWED UNDER RULE 8D(2)(III), THE SAME IN OUR VIEW, IS IN CONFORMITY WITH RULE 8D(2)(III), HENCE, DO NOT CALL FOR ANY INTERFERENCE. IN VIEW OF THE ABOVE, WE ARE OF THE OPINION THAT AO IS CORRECT IN DISALLOWING 0.5% OF THE AVERAGE INVESTMENTS AS AVAI LABLE IN THE BALANCE SHEET. TO THAT EXTENT, ASSESSEES CONTENTIONS ARE REJECTED. 6. RESPECTFULLY FOLLOWING THE SAME, WE ARE OF THE OPI NION THAT THE AMOUNT CONFIRMED BY THE LD. CIT(A) IS AS PER R ULE 8D(2)(III) AND ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE CONTENTIONS OF ASSESSEE. 7. IN THE RESULT, APPEAL OF ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2016 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT ME MBER HYDERABAD, DATED 31 ST AUGUST, 2016 TNMM I.T.A. NO. 208/HYD/2016 M/S. SURANA TELECOM AND POWER LIMITED :- 8 -: COPY TO : 1. M/S. SURANA TELECOM AND POWER LIMITED, SECUNDERABAD. C/O. SEKHAR & CO., 133/4, RASHTRAPAT HI ROAD, SECUNDERABAD. 2. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-3( 1), HYDERABAD. 3. CIT (APPEALS)-3, HYDERABAD. 4. THE PR.CIT-3, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.