SBI CAPITAL MARKETS LTD, MUMBAI V. DCIT LTU-1, MUMBAI

ITA 2098/MUM/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1753 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 24-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K CHATURVEDI LD
• Assessee Lawyers: RAJNIKANT CHANIYARI LD
• Keywords: Opportunity of being heard; Earning of tax free income; Assessment record
• Section: 143(3); 14A; 115JB

Judgement Text

ITA.NO.2098/MUM/2017 SBI CAPITAL MARKETS LIMITED ASSESSMENT YEAR-2012-13 IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI , , BEFORE SHRI JOGINDER SINGH, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.2098/MUM/2017 ( / ASSESSMENT YEAR: 2012-13) SBI CAPITAL MARKETS LIMITED 202, MAKER TOWER E CUFFE PARADE MUMBAI 400 005 / VS. DEPUTY COMMISSIONER OF INCOME TAX RANGE-LTU (1) 29 TH FLOOR, CENTRE-1 WORLD TRADE CENTER CUFFE PARADE MUMBAI 400 005 ./ ./PAN/GIR NO. AAACS-7914-E ( /APPELLANT ) : ( !' / RESPONDENT ) ASSESSEE BY : RAJNIKANT CHANIYARI , LD. AR REVENUE BY : V.K.CHATURVEDI, LD. SR. DR / DATE OF HEARING : 13/08/2018 / DATE OF PRONOUNCEMENT : 07/09/2018 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2012-13 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-1 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-I/DCIT-LTU-1/4/2015-16 DATED 06/01/2017 QUA CONFIRMATION OF DISALLOWANCE U/S 14A. THE ASSESSMEN T ITA.NO.2098/MUM/2017 SBI CAPITAL MARKETS LIMITED ASSESSMENT YEAR-2012-13 2 FOR IMPUGNED AY WAS FRAMED BY LD. DEPUTY COMMISSIONER OF INCOME TAX-LTU-1, MUMBAI [AO] U/S 143(3) OF THE INCOME TAX ACT, 1961 ON 10/03/2015 WHEREIN THE INCOME OF THE ASSESSEE HAS B EEN ASSESSED AT RS.347.72 CRORES UNDER NORMAL PROVISIONS AFTER CERT AIN ADJUSTMENTS / DISALLOWANCES AS AGAINST RETURNED INCOME OF RS.346. 70 CRORES E-FILED BY THE ASSESSEE ON 28/11/2012. THE INCOME FOR THE PURP OSE OF MINIMUM ALTERNATIVE TAX [MAT] U/S 115JB WAS COMPUTED AT RS.344.94 CRORES AS AGAINST RETURNED INCOME OF RS.343.92 CRORES U/S 115 JB. THE ONLY ISSUE UNDER APPEAL IS DISALLOWANCE U/S 14A. DURING IMPUGN ED AY, THE ASSESSEE, BEING RESIDENT CORPORATE ASSESSEE, WAS ENGAGED IN THE BUSINESS OF MERCHANT BANKING. 2. DURING ASSESSMENT PROCEEDINGS, IT WAS NOTED THAT THE ASSESSEE REFLECTED EXEMPT INTEREST / DIVIDEND INCOME OF RS.2 4.04 CRORES, WHICH CALLED FOR DISALLOWANCE U/S 14A. THE ASSESSEE MADE A SUO-MOTO DISALLOWANCE OF RS.18.07 LACS AGAINST THE SAME AND DEFENDED ITS STAND VIDE SUBMISSIONS DATED 16/01/2015. HOWEVER, NOT CON VINCED, LD. AO, APPLYING RULE 8D, WORKED OUT AGGREGATE DISALLOWANCE OF RS.119.78 LACS WHICH COMPRISED-OFF OF DIRECT EXPENSE DISALLOWANCE U/R 8D(2)(I) FOR RS.18.07 LACS AND INDIRECT EXPENSE DISALLOWANCE U/R 8D(2)(III) FOR RS.101.71 LACS. AFTER ADJUSTING SUO-MOTO DISALLOWANCE, THE NET ADJUSTMENT THUS MADE TO THE RETURNED INCOME WORKED OUT TO BE RS.101.71 LACS, WHICH IS THE SOLE SUBJECT MATTER OF DISPUTE BEFORE US. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITHO UT ANY SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 06/01/2 017 WHEREIN THE LD. AO WAS DIRECTED TO FOLLOW THE DIRECTIONS AS GIVEN B Y LD. FIRST APPELLATE AUTHORITY IN ITS ORDER DATED 23/07/2014 FOR IMMEDIA TELY PRECEDING AY ITA.NO.2098/MUM/2017 SBI CAPITAL MARKETS LIMITED ASSESSMENT YEAR-2012-13 3 2011-12. THE STATED ORDER FOR AY 2011-12, WHILE CON FIRMING THE DISALLOWANCE U/S 14A AS WORKED OUT BY LD. AO, DIREC TED THE LD. AO TO COMPUTE THE CORRECT FIGURES OF AVERAGE INVESTMENTS TO ARRIVE AT DISALLOWANCE U/S 14A. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. THE LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE [ AR], SHRI RAJNIKANT CHANIYARI, AT THE OUTSET, DREW OUR ATTENTION TO THE FACT THAT SIMILAR ISSUE IN ASSESSEES OWN CASE FOR AYS 2008-0 9 & 2009-10 HAS BEEN ADJUDICATED BY THIS TRIBUNAL VIDE ITA NO. 2483 /MUM/2012 & ITA NO. 4064/MUM/2013 DATED 09/02/2018, A COPY OF WHICH HAS BEEN PLACED ON RECORD. THE LD. AR, BY WAY OF WRITTEN SUBMISSION S, HAS PLEADED FOR EXCLUSION OF THOSE INVESTMENTS WHICH HAVE NOT YIELD ED ANY EXEMPT INCOME DURING THE IMPUGNED AY ON THE STRENGTH OF DE CISION OF DELHI TRIBUNAL (SPECIAL BENCH) RENDERED IN ACIT VS. VIREET INVESTMENT (P.) LTD. [82 TAXMANN.COM 415]. RELIANCE HAS ALSO BEEN PLACED ON THE JUDGMENT OF CHETTINAD LOGISTICS (P) LTD. VS. CIT [2017 80 TAXMA NN.COM 221 MADRAS]. IT HAS ALSO BEEN SUBMITTED THAT CERTAIN INVESTMENTS WHICH DO NOT HAVE ANY POTENTIAL TO YIELD ANY EXEMPT INCOM E, SHOULD BE EXCLUDED WHILE ARRIVING AT THE IMPUGNED DISALLOWANC E. THE LD. DR HAS SUBMITTED THAT THE DISALLOWANCE MAY BE RE-WORKED AF TER VERIFICATION OF THESE FACTS IN THE LIGHT OF JUDICIAL PRONOUNCEMENTS . 5. WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSION AND PERUSED RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE FIND IT CONVE NIENT TO EXTRACT THE OPERATIVE PORTION OF THE JUDGMENT OF THIS TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR AYS 2008-09 & 2009-10 AS FOLLOWS:- ITA.NO.2098/MUM/2017 SBI CAPITAL MARKETS LIMITED ASSESSMENT YEAR-2012-13 4 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISION ARE GIVEN BELO W. WE BEGIN WITH THE CONTENTIONS OF THE LD. COUNSEL TH AT THE AO HAS NOT RECORDED THE REASONS FOR DISSATISFACTION OF THE CORRECTNESS OF T HE CLAIM OF THE APPELLANT. IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD . (SUPRA), THE HONBLE SUPREME COURT HELD AT PARA 37 : WE DO NOT SEE HOW IN THE AFORESAID FACT SITUATION A DI FFERENT VIEW COULD HAVE BEEN TAKEN FOR THE ASSESSMENT YEAR 2002-2003. SUB-SECTIONS (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES MERELY PRESCRIBE A FORMULA F OR DETERMINATION OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PA RT OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WHERE THE ASSESSING OFFICER IS NOT SATISFIED WI TH THE CLAIM OF THE ASSESSEE. WHETHER SUCH DETERMINATION IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT TH E LAW POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONLY THEREA FTER THAT THE PROVISIONS OF SECTION 14A(2) AND (3) READ WITH RULE 8D OF THE RULES OR A BEST JUDGMENT DETERMINATION, AS EARLIER PREVAILING, WOULD BECOME APPLICABLE LET US GO THROUGH THE ASSESSMENT RECORD TO SEE THE SITUATION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED AT PARA 3 ( PAGE 2) OF THE ASSESSMENT ORDER DATED 30.12.2010 THAT THE APPELLANT IS ENGAGE D IN VARIOUS ACTIVITIES LIKE (I) BROKING I.E. BUYING AND SELLING SHARE ON BEHALF OF CLIENTS, (II) MANAGEMENT CONSULTANCY & FINANCING I.E. UNDERTAKING VARIOUS PR OJECT STUDIES AND PURCHASE AND ARRANGING THE FINANCE IN RESPECT OF THE SAME, (III) TRADING IN SHARES VIZ., REGULAR PURCHASE AND SALE OF SHARES AS STOCK-IN-TRADE FOR T HE PURPOSE OF EARNING PROFITS AND (IV) INVESTING IN SHARES WITH A LONGER PERSPECTIVE WITH A VIEW OF EARNING BY WAY OF DIVIDENDS AND CAPITAL APPRECIATION. THE AO FURTHER OBSERVED THAT WHILE THE INCOME UNDER (I), (II) AND (III) CATEGORIES WILL BE TAXABLE UNDER THE HEAD PROFITS AND GAINS FROM B USINESS OF PROFESSION, THE INCOME FALLING UNDER (IV) CATEGORY WILL BE TAXABLE UNDER THE HEAD CAPITAL GAINS AND INCOME FROM OTHER SOURCES. THE AO HAS MENTIONED AT PARA 3 (PAGE 2) OF HIS ASSE SSMENT ORDER THAT ON THE ISSUE OF ALLOWABILITY OF EXPENSES ON EXEMPT INCOME, THE A SSESSEE, VIDE LETTER DATED 15.10.2010 RELIED UPON NOTES TO COMPUTATION OF INCO ME WHEREIN IT IS STATED THAT IT HAD MADE INVESTMENT OUT OF ITS OWN FUNDS, THAT NO S PECIFIC BORROWINGS HAVE BEEN MADE FOR SUCH PURPOSE AND THAT NO SUBSTANTIAL EXPEN SES HAVE BEEN INCURRED FOR SUCH ACTIVITIES. HAVING EXAMINED THE SUBMISSION OF THE ASSESSEE, THE AO NOTED THAT IN THE RETURN OF INCOME, WHILE COMPUTING THE TAXABLE INCOME, THE ASS ESSEE HAS REDUCED THE INCOME ARISING ON ACCOUNT OF CAPITAL GAINS AND DIVIDENDS F ROM THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION, AS REFLECTED IN THE P &L ACCOUNT AND OFFERED THEM FOR TAX SEPARATELY AT THE REQUIRED RATES. FOR THIS PURP OSE, THE LONG TERM CAPITAL GAINS AND DIVIDENDS HAVE BEEN CLAIMED AS EXEMPT AND CONCE SSIONAL RATE OF THE TAXES HAS BEEN APPLIED IN RESPECT OF SHORT TERM CAPITAL GAINS . THE ASSESSEE HAS CLAIMED ENTIRE EXPENDITURE INCURRED FROM THE COMPANY AS A WHOLE AG AINST THE REMAINING FIRST THREE HEADS OF INCOME AS MENTIONED ABOVE. THEN THE AO OBSERVED AN IMPORTANT ISSUE WHICH ARIS ES IS THAT WHERE FOUR ACTIVITIES ARE BEING CARRIED OUT BY THE ASSESSEE AND EXPENSES ARE INCURRED IN RESPECT OF ALL ITA.NO.2098/MUM/2017 SBI CAPITAL MARKETS LIMITED ASSESSMENT YEAR-2012-13 5 ACTIVITIES TOGETHER, WHETHER THE EXPENSES RELATING TO EACH ACTIVITY SHOULD NOT BE MATCHED WITH THE INCOME EARNED FROM THAT ACTIVITY A S PER THE MATCHING PRINCIPLE OF ACCOUNTING AND FURTHER WHERE ANY PART OF THE INCOME IS EXEMPT THEN WHETHER THE CORRESPONDING MATCHING EXPENSES SHOULD NOT BE DISAL LOWED U/S 14A OR OTHERWISE, IF THEY ARE NOT ALLOWABLE UNDER THE HEAD OF THE INCOME IN WHICH THE INCOME IS BEING ASSESSED. THE ACCOUNTING CONVENTIONS AND STANDARDS POSTULATE THAT ONLY THE EXPENSES RELATABLE TO THE EARNING OF INCOME SHOULD BE MATCHED WITH IT. WE FIND IN THE INSTANT CASE THAT THE AO, HAVING REG ARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, HAS COME TO A FINDI NG THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE APPELLANTS CLAIM OF EXPENDI TURE. THEREAFTER, HE HAS INVOKED RULE 8D. THIS IS EVIDENT FROM THE RELEVANT PARAS OF THE ASSESSMENT ORDER WE HAVE MENTIONED HEREINBEFORE. WE ALSO FIND THAT THE SAME IS IN CONFORMITY WITH PARA 37 OF THE DECISION IN GODREJ & BOYCE MANUFACTURING CO. LT D. (SUPRA). AS IT CONFORMS TO THE ABOVE DECISION BY THE HONBLE SUPREME COURT, WE ARE NOT ADVERTING TO THE OTHER DECISIONS RELIED ON BY THE LD. COUNSEL. IN VIEW OF THE ABOVE, WE DISMISS THE GROUND RAISED BY THE APPELLANT IN THIS APPEAL THAT NO REASON WAS RECORDED FOR DISSATISFACTION BY THE AO OF THE CORRECTNESS OF THE CLAIM OF THE APPELLANT. 7.1 WE NOW TURN TO THE DISALLOWANCES MADE BY THE AO . WE FIND THAT THE APPELLANT HAD SUFFICIENT OWN FUNDS AND NON-INTEREST BEARING F UNDS TO MAKE THE SAID INVESTMENT IN TAX-FREE BONDS, SHARE OF DOMESTIC COMPANIES AND THE SAME HAVE BEEN USED FOR INVESTING PURPOSE. THIS IS EVIDENT FROM THE BALANCE SHEET OF THE APPELLANT COMPANY AS AT MARCH 31, 2008. IN HDFC BANK LTD (SUPRA), THE HON'BLE BOMBAY HIGH COURT REFERRING TO THE DECISION IN CIT VS. HDFC BANK LTD. [2014] 366 ITR 505 (BOM) AND RELIANCE UTILITIES & POWER LTD. (SUPRA)HELD AS UNDE R : 15. IT IS CLEAR THAT FOR THE FIRST TIME IN THE CASE O F HDFC BANK LTD. (SUPRA) THAT THIS COURT TOOK A VIEW THAT THE PRESUMPTION WHICH HAS BEEN LAID DOWN IN RELIANCE UTILITIES & POWER LTD. (SUPRA) WITH REGARD TO INVESTMENT IN TAX FREE SECURITIE S COMING OUT OF ASSESSEE'S OWN FUNDS IN CASE THE SAME ARE IN EXCESS OF THE INVESTMENTS MADE IN TH E SECURITIES (NOTWITHSTANDING THE FACT THAT THE ASSESSEE CONCERNED MAY ALSO HAVE TAKEN SOME F UNDS ON INTEREST) APPLIES, WHEN APPLYING SECTION 14A OF THE ACT. THUS, THE DECISION OF THIS COURT IN HDFC BANK LTD. (SUPRA) FOR THE FIRST TIME ON 23RD JULY, 2014 HAS SETTLED THE ISS UE BY HOLDING THAT THE TEST OF PRESUMPTION AS HELD BY THIS COURT IN RELIANCE UTILITIE S AND POWER LTD. (SUPRA) WHILE CONSIDERING SECTION 36(1)(III) OF THE ACT WOULD APPLY W HILE CONSIDERING THE APPLICATION OF SECTION 14A OF THE ACT. THE AFORESAID DECISION OF TH IS COURT IN HDFC BANK LTD. (SUPRA) ON THE ABOVE ISSUE HAS ALSO BEEN ACCEPTED BY THE REVENUE IN AS MUCH AS EVEN THOUGH THEY HAVE FILED AN APPEAL TO THE SUPREME COURT AGAINST TH AT ORDER ON THE OTHER ISSUE THEREIN VIZ. BROKEN PERIOD INTEREST, NO APPEAL HAS BEEN PREFERRED BY THE REVENUE ON THE ISSUE OF INVOKING THE PRINCIPLES LAID DOWN IN RELIANCE UTILITIE S & POWER LTD. (SUPRA) IN ITS APPLICATION TO SECTION 14A OF THE ACT. IN VIEW OF THE ABOVE POSITION OF LAW, WE DELETE THE DISALLOWANCE OF RS.1,02,810/- MADE BY THE AO UNDER RULE 8D(2)(II). 7.2 WE NOW TURN TO THE DISALLOWANCE OF RS.48,97,979 /- MADE BY THE AO UNDER RULE 8D(2)(I) AND RS.73,36,360/- MADE UNDER RULE 8D(2)(I II). WE FIND MERIT IN THE SUBMISSIONS OF THE LD. COUNSEL THAT THE EXPENSES ALLOCABLE TO TIG DEPARTMENT ARE CONSIDERED BY THE AO AS DIRECT E XPENDITURE UNDER RULE 8D(2)(I), WHEREAS THE SAME SHOULD HAVE BEEN CONSIDE RED AS INDIRECT EXPENDITURE UNDER RULE 8D(2)(III). WE ARE OF THE CONSIDERED VIE W THAT RULE 8D(2)(III) GIVES A FORMULA TO ARRIVE AT THE INDIRECT EXPENDITURE EARNE D FOR EARNING THE EXEMPT INCOME. ITA.NO.2098/MUM/2017 SBI CAPITAL MARKETS LIMITED ASSESSMENT YEAR-2012-13 6 THUS WE DELETE THE DISALLOWANCE OF RS.48,97,979/- M ADE BY THE AO UNDER RULE 8D(2)(I). 7.3 FINALLY WE COME TO THE DISALLOWANCE OF RS.73,36 ,360/- MADE BY AO UNDER RULE 8D(2)(III). WE ARE ALSO OF THE CONSIDERED VIEW THAT STRATEGIC I NVESTMENTS MADE BY THE APPELLANT IN ITS SUBSIDIARIES WHICH ARE CAPABLE OF YIELDING E XEMPT INCOME I.E. BY WAY OF DIVIDEND ETC. SHALL BE INCLUDED WHILE COMPUTING DIS ALLOWANCE U/S 14A OF THE ACT. THE RATIONALE FOR ENACTMENT OF SECTION 14A WAS EXPLAINE D BY THE HONBLE BOMBAY HIGH COURT IN GODREJ AND BOYCE MFG. CO. LTD (SUPRA) AS U NDER: SECTION 14A WAS ENACTED BY THE PARLIAMENT IN ORDER TO OVERCOME THE JUDGMENTS OF THE SUPREME COURT IN THE CASES OF CIT V. INDIAN BANK LTD. A IR 1965 SC 1473, CIT V. MAHARASHTRA SUGAR MILLS LTD. [1971] 82 ITR 452 AND RAJASTHAN STATE WAREHOUSING CORPN. V. CIT [2000] 242 ITR 450/109 TAXMAN 145, IN WHICH IT WAS HELD THAT IN THE CASE OF A COMPOSITE AND INDIVISIBLE BUSINESS, WHICH RESULTS IN EARNING OF TA XABLE AND NON-TAXABLE INCOME, IT IS IMPERMISSIBLE TO APPORTION THE EXPENDITURE BETWEEN WHAT WAS LAID OUT FOR THE EARNING OF TAXABLE INCOME AS OPPOSED TO NON-TAXABLE INCOME. THE EFFECT OF SECTION 14A IS TO WIDEN THE THEORY OF THE APPORTIONMENT OF EXPENDITURE. PRIOR TO THE ENACTMENT OF SECTION 14A, WHERE THE BUSINESS OF AN ASSESSEE WAS NOT A COMPOSITE AND INDIVI SIBLE BUSINESS AND THE ASSESSEE EARNED BOTH TAXABLE AND NON-TAXABLE INCOME, THE EXPEN DITURE INCURRED ON EARNING NON- TAXABLE INCOME COULD NOT BE ALLOWED AS A DEDUCTION AS AGAINST THE TAXABLE INCOME. AS A RESULT OF THE ENACTMENT OF SECTION 14A, NO EXPENDITURE C AN BE ALLOWED AS A DEDUCTION IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HENCE, EVEN IN THE CASE OF A COMPOSITE AND INDIVISIBLE BUSINESS, WHICH RESULTS IN THE EARNING OF TAXABLE AND NON-TAXABLE INCOME, IT WOULD BE NECESSARY TO APPORTIO N THE EXPENDITURE INCURRED BY THE ASSESSEE. ONLY THAT PART OF THE EXPENDITURE, WHICH IS INC URRED IN RELATION TO INCOME WHICH FORMS PART OF THE TOTAL INCOME, CAN BE ALLOWED. THE E XPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME HAS TO B E DISALLOWED. FROM THIS, IT WOULD FOLLOW THAT SECTION 14A HAS WITHIN IT IMPLICIT NOTION OF APPOR TIONMENT. THE PRINCIPLE OF APPORTIONMENT WHICH PRIOR TO THE AMENDMENT OF SECTION 14A WOULD NOT HAVE APPLIED TO EXPENDITURE INCURRED IN A COMPOSITE AND INDIVISIBLE BUSINESS WHICH RESULTS I N TAXABLE AND NON-TAXABLE INCOME, MUST, AFTER THE ENACTMENT OF THE PROVISIONS, APPLY EVEN TO SUCH A SITUATION. THE EXPRESSION 'EXPENDITURE INCURRED' IN SECTION 14A REFERS TO EXPENDI TURE ON RENT, TAXES, SALARIES, INTEREST, ETC., IN RESPECT OF WHICH ALLOWANCES ARE PROVIDED FOR. ALSO IN THE SAME JUDGMENT THEIR LORDSHIPS EXPLAINED RULE 8D AS UNDER: IN THE AFFIDAVIT-IN-REPLY THAT HAD BEEN FILED ON BE HALF OF THE REVENUE, AN EXPLANATION HAS BEEN PROVIDED OF THE RATIONALE UNDERLYING RULE 8D. I T HAD BEEN STATED WITH REFERENCE TO RULE 8D(2)(II) THAT IT WOULD BE DIFFICULT TO ALLOCATE THE ACTUAL QUANTUM OF BORROWED FUNDS THAT HAVE BEEN USED FOR MAKING TAX-FREE INVESTMENTS. IT IS ONLY T HE INTEREST ON BORROWED FUNDS THAT WOULD BE APPORTIONED AND THE AMOUNT OF EXPENDITURE BY WAY OF INTEREST THAT WILL BE TAKEN EXCLUDING ANY EXPENDITURE BY WAY OF INTEREST WHICH IS DI RECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT (FOR EXAMPLE - ANY ASPECT OF THE ASS ESSEE'S BUSINESS SUCH AS PLANT/MACHINERY, ETC.). AS REGARDS RULE 8D(2)(III), IT HAD BEEN SUBMITTED THAT SOME MECHANISM OR FORMULA HAD TO BE ADOPTED FOR ATTRIBUTING PART O F THE ADMINISTRATIVE/MANAGERIAL EXPENSES TO TAX-EXEMPT INVESTMENT INCOME. THE ADMINISTRATIVE EXPENSE S ATTRIBUTABLE TO TAX-FREE INVESTMENT INCOME HAVE A FIXED COMPONENT AND A VARIAB LE COMPONENT. A VIEW WAS TAKEN THAT THE DISALLOWANCE SHOULD ALSO BE LINKED TO THE VALUE OF THE INVESTMENT RATHER THAN THE AMOUNT OF EXEMPT INCOME. UNDER PORTFOLIO MANAGEMENT SCHEMES (PMS), THE FEE CHARGED RANGES BETWEEN 2 AND 2.5 PER CENT OF THE PORTFOLIO VALUE WHI CH WOULD BE INCLUSIVE OF A PROFIT ELEMENT FOR THE PORTFOLIO MANAGER. WHILE THE FIXED ADMINIST RATIVE EXPENSES WERE EXCLUDED ON THE GROUND THAT IN THE CASE OF A LARGE CORPORATE TAXPAYER T HEY WOULD BE SPREAD OVER A LARGE NUMBER OF VOLUMINOUS ACTIVITIES, THE VARIABLE EXPENSES WERE COMPUTED AT ONE-HALF PER CENT OF THE VALUE OF THE INVESTMENT. THE JUSTIFICATION THAT HAS BEEN OFFERED IN SUPPORT OF THE RATIONALE FOR RULE 8D CANNOT BE REGARDED AS BEING CAPR ICIOUS, PERVERSE OR ARBITRARY. 7.3.1 IN GODREJ & BOYCE MANUFACTURING COMPANY LTD. (SUPRA), THE HONBLE SUPREME COURT HAS HELD THAT THE LITERAL MEANING OF SECTION 14A, FAR FROM GIVING RISE TO ANY ITA.NO.2098/MUM/2017 SBI CAPITAL MARKETS LIMITED ASSESSMENT YEAR-2012-13 7 ABSURDITY, APPEARS TO BE WHOLLY CONSISTENT WITH THE SCHEME OF THE ACT AND THE OBJECT/PURPOSE OF LEVY OF TAX ON INCOME. 7.3.2 THE STATUTE DOES NOT GRANT ANY EXEMPTION TO T HE STRATEGIC INVESTMENTS WHICH ARE CAPABLE OF YIELDING EXEMPT INCOME TO BE EXCLUDE D WHILE COMPUTING DISALLOWANCE U/S 14A. OUR DECISION IS FORTIFIED BY THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF UNITED BREWERIES VS. DCIT IN I TA NO. 419/2009 VIDE ORDER DATED 31.09.2016. AS WE HAVE RELIED ON THE DECISION OF THE HONBLE HI GH COURT, WE ARE NOT ADVERTING TO THE ORDER OF THE TRIBUNAL ON THE SAME ISSUE. IN VIEW OF THE ABOVE, WE HOLD THAT STRATEGIC INVEST MENT MADE BY THE APPELLANT ARE NOT BE EXCLUDED WHILE CALCULATING AVERAGE VALUE OF INVESTMENT. WE ORDER ACCORDINGLY. 7.3.3 THEN WE TURN TO THE CLAIM OF THE LD. COUNSEL THAT SHARES OF FOREIGN COMPANY I.E. ONGC MITTAL ENERGY LTD. BE EXCLUDED WHILE CALC ULATING THE AVERAGE VALUE OF INVESTMENT AS THE DIVIDEND ARISING OUT OF IT IS TAX ABLE. IN ITO V. STRIDES ARCOLAB LTD. (2012) 24 TAXMANN.CO M 89 (MUM-TRIB.), IT IS HELD THAT DISALLOWANCE U/S 14A IS CONCEIVABLE IN RESPECT OF I NVESTMENT MADE IN THE SHARES OF DOMESTIC COMPANIES AND NOT FOREIGN COMPANIES. AS THE ABOVE DETAILS WERE NOT EXAMINED EITHER BY TH E AO OR THE LD. CIT(A), WE RESTORE THE MATTER TO THE FILE OF THE AO TO MAKE A FRESH ORDER ON DISALLOWANCE UNDER RULE 8D(2)(III) ONLY, AFTER EXAMINING THE SHARES OF THE APPELLANT IN THE FOREIGN COMPANY VIS-A-VIS ITS TAXABILITY AND ALLOWING THE S AME FOR THE PURPOSE OF WORKING OUT THE AVERAGE INVESTMENT. WE DIRECT THE APPELLANT TO FILE THE DETAILS OF SHARES IN FOREIGN COMPANY BEFORE THE AO. NEEDLESS TO SAY, THE AO WOULD GIVE A REASONABLE OPPORTUNITY OF BEING HEARD TO THE APPELLANT BEFORE FINALIZING THE ORDER. ALSO THE AO IS DIRECTED TO ALLOW THE BENEFIT OF RS.28,19,646/- SUO MOTU DISALLOWED BY THE APPELLANT. 7.4 IN VIEW OF THE ABOVE, THE GROUNDS OF APPEAL IN RESPECT OF DISALLOWANCE UNDER RULE 8D(2)(I) AND RULE 8D(2)(III) ARE ALLOWED, WHER EAS, THE APPEAL UNDER RULE 8D(2)(III) IS ALLOWED FOR STATISTICAL PURPOSES. WE FIND THAT SIMILAR FACTS AND CIRCUMSTANCES EXIST IN THE IMPUGNED AY EXCEPT FOR THE FACT THE NO DISALLOWANCE U/R 8D(2)(I I) HAS BEEN MADE BY THE LOWER AUTHORITIES. IT IS FURTHER NOTED THAT HON BLE SUPREME COURT IN A RECENT JUDGMENT, IN GROUP OF CASES TITLED AS MAXOPP INVESTMENT LTD. VS CIT [12/02/2018 91 TAXMANN.COM 154], HAS DECIDED VITAL ISSUES CONCERNING DISALLOWANCE U/S 14A, THE BENEFIT OF WHI CH WAS NOT AVAILABLE TO THE LOWER AUTHORITIES AT THE TIME OF ADJUDICATIN G THIS ISSUE. THEREFORE, RESPECTFULLY FOLLOWING THE JUDGMENT OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN EARLIER YEARS AND IN THE LIGHT OF RECENT JUDGMEN T BY HONBLE SUPREME ITA.NO.2098/MUM/2017 SBI CAPITAL MARKETS LIMITED ASSESSMENT YEAR-2012-13 8 COURT, THE MATTER STAND REMITTED BACK TO THE FILE O F LD. AO ON SIMILAR LINES WITH SIMILAR CONLCUSION. NEEDLESS TO ADD THAT ADEQU ATE OPPORTUNITY OF BEING HEARD SHALL BE PROVIDED TO THE ASSESSEE, WHO, IN TURN, IS DIRECTED TO SUBSTANTIATE HIS CLAIM, IN THIS REGARD, WITH DOC UMENTARY EVIDENCES / SUITABLE EXPLANATIONS ETC. 6. RESULTANTLY, THE APPEAL STAND ALLOWED FOR STATIS TICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 07 TH SEPTEMBER, 2018 SD/- SD/ - (JOGINDER SINGH) ( MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 07.09.2018 SR.PS:-THIRUMALESH ! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT 3. ) ( ) / THE CIT(A) 4. ) / CIT CONCERNED 5. * !$+ , + , / DR, ITAT, MUMBAI 6. ,-. / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI