DCIT, CHENNAI V. Shriram Investments, CHENNAI

ITA 2112/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7791 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 20-01-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 02-11-2015
• Court: TRIBUNAL
• Department Lawyers: K PARASHIVAIAH
• Keywords: Depreciation; Additional depreciation; Earning of tax free income; Retrospective amendment
• Section: 142(1); 14A

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO. 2112 /MDS/2015 / ASSESSMENT YEAR :20 1 0 - 1 1 THE DEPUTY COMMISSIONER OF INCOME TAX, NON - CORPORATE CIRCLE 2 , CHENNAI 600 034 . VS. M/S. SHRIRAM INVESTMENTS, MOOKAMBIKA COMPLEX, NO. 4, LADY DESIKA ROAD, M YLAPORE, CHENNAI 600 004. [PAN: A AAFS2590M ] ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI K. PARASHIVAIAH, CIT / RESPONDENT BY : SHRI RAGHAV RAJEEV MENON , ADVOCATE / DATE OF HEARING : 2 0 . 0 1 .201 6 / DATE OF P RONOUNCEMENT : 10 .0 3 .201 6 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : TH I S APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. C OMMISSIONER OF I NCOME T AX (APPEALS) - 2 , CHENNAI , DATED 3 1 . 08 . 20 1 5 RELEVANT TO THE ASSESSMENT YEAR 20 1 0 - 11 . THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE REVENUE RELATES TO DELETION OF DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] READ WI TH RULE 8D OF THE INCOME TAX RULES . I.T.A. NO . 2112 /M/15 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF FINANCE AND INVESTMENTS. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL LOSS OF .2,36,20,732/ - . THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT AND SELECTED FOR SCRUTINY. NOTICE UNDER SECTION 143(2) OF THE ACT WAS SERVED ON THE ASSESSEE AND NOTICE UNDER SECTION 142(1) OF THE ACT WAS ALSO ISSUED. AFTER PERUSING THE DETAILS FU RNISHED BY THE ASSESSEE, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS BORROWED MONEY FROM ITS GROUP COMPANIES AND FIRMS AND GIVEN LOANS TO ITS OWN GROUP COMPANIES AND FIRMS AND THE INVESTMENTS ALSO IN ITS GROUP COMPANIES ONLY. IN THE BALANCE SH EET, THE FIRM SHOWN .69,39,16,000/ - AS SHARE APPLICATION MONEY. TILL 31.03.2010 NO SHARES WERE ALLOTTED TO THE FIRM. IN THE PROFIT AND LOSS ACCOUNT, THE FIRM HAS SHOWN .95,41,875/ - AS INTEREST PAID TO OTHERS. SIMILAR PATTERN OF INVESTMENT IN SHARE APPLICATION MONEY AND INCU RRED HUGE EXPENDITURE ON INTEREST, BUT NO SHARES WERE ALLOTTED AND THE FIRM HAD NOT TAKEN ANY EFFORT TO GET THE SHARES OR TO TAKE BACK THE MONEY GIVEN AS SHARE APPLICATION MONEY. THEREFORE, THE ASSESSING OFFICER WAS OF THE OPINION THAT IT IS A CLEAR DIVERS ION OF INTEREST BEARING FUNDS TO OTHER GROUP COMPANIES. ACCORDINGLY, THE ASSESSEE WAS SHOW - CAUSED AS TO WHY THE SHARE APPLICATION MONEY SHOULD NOT BE TAKEN INTO ACCOUNT FOR CALCULATION OF DISALLOWANCE UNDER SECTION 14A R.W.R. 8D. AFTER CONSIDERING THE DETA ILED SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER DID NOT ACCEPT THE REPLY FILED BY THE ASSESSEE, BECAUSE THE TRUE POSITION OF A SHAREHOLDER IN A I.T.A. NO . 2112 /M/15 3 COMPANY IS THAT ON BUYING SHARES HE BECOMES ENTITLED TO PARTICIPATE IN THE PROFITS OF THE COMPANY AS AND WHEN THE DIVIDEND IS DECLARED. HENCE, IF THE TAXPAYER INVESTS IN SHARES BY USING BORROWED FUNDS, THE INTEREST EXPENDITURE SHOULD BE DISALLOWED UNDER SECTION 14A OF THE ACT, AS THE INVESTMENT WOULD RESULT IN DIVIDEND INCOME, WHICH WOULD NOT BE INCLUDED IN THE TOTAL INCOME OF THE TAXPAYER. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE OF INTEREST EXPENDITURE WITH REGARD TO SHARE APPLICATION MONEY UNDER SECTION 14A OF THE ACT AT .12,03,43,298/ - AND AFTER DEDUCTING THE DISALLOWANCE U NDER SECTION 14A MADE BY THE ASSESSEE OF .4,24,91,896/ - , THE REMAINING DISALLOWANCE OF .7,78,51,402/ - WAS DISALLOWED. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWIN G THE DECISION OF THE TRIBUNAL IN I.T.A. NO. 1690/MDS/2013 DATED 27.11.2013 FOR THE ASSESSMENT YEAR 2009 - 10 IN ASSESSEE S OWN CASE , DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND S UPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER. THE LD. DR HAS SUBMITTED THAT THE LD. CIT(A) FOLLOWED THE DECISION OF THE TRIBUNAL IN I.T.A. NO. 1690/MDS/2013 DATED 27.11.2013 FOR THE ASSESSMENT YEAR 2009 - 10 IN ASSESSEE S OWN CASE, WHEREIN, THE TRIBUNA L HAS FOLLOWED ITS OWN ORDER IN I.T.A. NO. 1523/MDS/2012 IN THE CASE OF MSA SECURITY SERVICES & I.T.A. I.T.A. NO . 2112 /M/15 4 NO.1524/MDS/2012 IN NMS CONSULTANCY VIDE ORDER DATED 17.12.2012, AGAINST WHICH THE DEPARTMENT HAS PREFERRED FURTHER APPEAL BEFORE THE HON BLE HIGH COURT AND PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE REVERSED. 5. ON THE OTHER HAND, THE LD. COUNSEL FOR ASSESSEE HAS SUBMITTED THAT T HE ISSUE INVOLVED IN THIS APPEAL IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL AND SUPPORTED THE ORDE R PASSED BY THE LD. CIT(A). 6. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE BORROWED MONEY FROM ITS GROUP COMPANIES AND FIRMS AND GIVEN LOANS TO ITS OWN GROUP COMPANIES AND FIRM S AND THE INVESTMENTS ALSO IN ITS GROUP COMPANIES ONLY. IN THE BALANCE SHEET, THE FIRM SHOWN .69,39,16,000/ - AS SHARE APPLICATION MONEY. TILL 31.03.2010 NO SHARES WERE ALLOTTED TO THE FIRM. IN THE PROFIT AND LOSS ACCOUNT, THE FIRM HAS SHOWN .95,41,875/ - AS INTEREST PAID TO OTHERS. SIMILAR PATTERN OF INVESTMENT IN SHARE APPLICATION MONEY AND INCU RRED HUGE EXPENDITURE ON INTEREST, BUT NO SHARES WERE ALLOTTED AND THE FIRM HAD NOT TAKEN ANY EFFORT TO GET THE SHARES OR TO TAKE BACK THE MONEY GIVEN AS SHARE APPLICATION MONEY. THEREFORE, THE ASSESSING OFFICER WAS OF THE OPINION THAT IT IS A CLEAR DIVERS ION OF INTEREST BEARING FUNDS TO OTHER GROUP COMPANIES. THE ASSESSEE WOULD BE ENTITLED TO CLAIM DEDUCTION OF INTEREST UNDER SECTION 36(1)(III) OF THE ACT ON THE BORROWED FUNDS UTILIZED FOR THE ACQUISITION OF I.T.A. NO . 2112 /M/15 5 SHARES ONLY IF SHARES WERE HELD AS STOCK - IN - TRAD E AND THAT WOULD ARISE ONLY IF THE ASSESSEE WAS ENGAGED IN TRADING IN SHARES. SO FAR AS THE ACQUISITION OF SHARES WAS IN THE FORM OF INVESTMENT AND THE ONLY BENEFIT THE ASSESSEE DERIVED WAS THE DIVIDEND INCOME WHICH WAS NOT ASSESSABLE UNDER THE ACT, WE ARE OF THE OPINION THAT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS SQUARELY ATTRACTED AND THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE CLAIM. OUR VIEWS ARE FORTIFIED BY THE DECISION IN THE CASE OF PRADEEP KAR V. ACIT 319 ITR 4 16 [KAR], WHEREIN THE HON BLE KARNATAKA HIGH COURT HAS OBSERVED AND HELD AS UNDER: THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF INTEREST ON THE AMOUNTS BORROWED BY HIM FOR PURCHASE OF SHARES IS DISALLOWED BY THE ASSESSING OFFICER. IN THE APPEAL FILED BY HIM AGAINST THE ASSESSMEN T ORDER, THE FIRST APPELLATE AUTHORITY REVERSED THE ORDER OF THE ASSESSING AUTHORITY BY APPLYING THE DECISION OF THE SUPREME COURT REPORTED IN CIT VS. RAJENDRA PRASAD MOODY [1978] 115 ITR 519. THE REVENUE TOOK UP THE MATTER IN SECOND APPEAL BEFORE THE INCO ME - TAX APPELLATE TRIBUNAL, HEREINAFTER CALLED AS 'THE TRIBUNAL' IN SHORT. THE TRIBUNAL REVERSED THE DECISION OF THE FIRST APPELLATE AUTHORITY AND RESTORED THE ORDER OF THE ASSESSING AUTHORITY. BEING AGGRIEVED BY THE SAME, THE ASSESSEE IS BEFORE US BY FILIN G THIS APPEAL FRAMING SUBSTANTIAL QUESTIONS OF LAW AND URGED THE GROUNDS IN SUPPORT OF THE SAME. SMT. ANURADHA, LEARNED COUNSEL FOR THE APPELLANT RELIED UPON THE DECISION REPORTED IN CIT VS. RAJENDRA PRASAD MOODY [1978] 115 ITR 519 WHEREIN, IT IS HELD THA T 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 BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR MAKING OR EARNING INCOME. SHE ALSO RELIED UPON ANOTHER DECISION IN THE CASE OF CIT 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 CONTRARY TO THE AFOREMENTIONED DECISI ONS. THEREFORE, SHE SUBMITS THAT SUBSTANTIAL QUESTIONS (I) AND (II) FRAMED IN THE APPEAL MEMORANDUM ARISE FOR CONSIDERATION OF THIS COURT I.T.A. NO . 2112 /M/15 6 AND REQUESTED TO SET ASIDE THE ORDER PASSED BY THE TRIBUNAL. THE SUBSTANTIAL QUESTIONS OF LAW FRAMED IN THE APPEAL ARE EXTRACTED AS HEREUNDER. '(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 REVERSING THE FINDINGS OF THE CO MMISSIONER OF INCOME - TAX (APPEALS), WHICH WAS BASED ON A SUPREME COURT'S DECISION BY RELYING ON THE DECISION OF OTHER TRIBUNALS? (III) WHETHER OR NOT THE TRIBUNAL WAS JUSTIFIED IN NOT AFFORDING AN OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE DECIDING TH E ISSUE ON HAND BY PLACING RELIANCE ON JUDGMENTS, WHICH WERE NOT CITED BY EITHER SIDE? (IV) WHETHER OR NOT THE TRIBUNAL WAS RIGHT IN RELYING ON THE DECISIONS INAPPLICABLE TO THE FACTS ON HAND BY DISTINGUISHING THE DECISION OF THE HON'BLE SUPREME COURT, W HICH IS SQUARELY APPLICABLE?' WITH REFERENCE TO THE CONTENTIONS URGED, WE HAVE PERUSED THE ORDERS PASSED BY THE ASSESSING AUTHORITY, THE FIRST APPELLATE AUTHORITY AND THE TRIBUNAL WITH A VIEW TO FIND OUT AS TO WHETHER THE SUBSTANTIAL QUESTIONS OF LAW FRAM ED IN THIS APPEAL WOULD ARISE FOR CONSIDERATION OF THIS COURT. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD BORROWED LOANS AND INVESTED THE SAME IN SHARES. DEDUCTION IS CLAIMED BY HIM OF THE INTEREST AMOUNT PAID ON THE BORROWED LOANS. THE AMOUNTS BORROWED BY THE APPELLANT WERE INVESTED IN SHARES AND DIVIDEND IS EARNED. WHEN DEDUCTION FOR THE INTEREST PAID IS CLAIMED, THE DIVIDEND EARNED CANNOT BE EXCLUDED FROM INCOME. COMPUTATION OF INCOME HAS TO BE MADE TAKING THE AMOUNT OF DIVIDEND INCOME EARNED BY THE APPE LLANT. 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 FACT SITUATION. THE REASONS ASSIGNED FOR SUCH A CONCLUSION IN THE A SSESSMENT ORDER ARE EXTRACTED HEREUNDER: 'THE DECISION IS WITH REFERENCE TO DEDUCTION ALLOWABLE UNDER SECTION 57(III) OF THE INCOME - TAX ACT. THE DECISION RELATES TO AN ASSESSMENT YEAR WHERE DIVIDEND INCOME WAS I.T.A. NO . 2112 /M/15 7 TAXABLE IN THE HANDS OF THE ASSESSEE. WITH TH E INTRODUCTION OF SECTION 10(33) OF THE INCOME - TAX ACT 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 FORM A PART OF TOTAL INCOME OF THE ASS ESSEE. THE PROVISIONS OF SECTION 14A INTRODUCED BY THE FINANCE ACT, 2001, WITH EFFECT FROM APRIL 1, 1962, RETROSPECTIVELY BARS ALLOWING ANY EXPENDITURE IN RESPECT OF INCOME WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME. CONSIDERING THIS CHANGE IN THE POSITIO N OF LAW THE DECISION OF THE SUPREME COURT 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 REL ATING TO EXEMPTED INCOME IS NOT ALLOWABLE. THE ASSESSING AUTHORITY HAS CONSIDERED THE ABOVE RELEVANT FACTOR AND DISALLOWED THE CLAIM OF THE ASSESSEE. THE FIRST APPELLATE AUTHORITY REVERSED THE ORDER OF THE ASSESSING AUTHORITY BY APPLYING THE DECISION IN R AJENDRA PRASAD MOODY'S CASE [1978] 115 ITR 519 (SC), REFERRED TO SUPRA, WHICH WAS 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 APPELLA TE AUTHORITY. IT CANNOT BE DISPUTED THAT DIVIDEND INCOME IS EXEMPTED UNDER SECTION 10(33) OF THE ACT FROM THE TAX LIABILITY AND THE SAME CANNOT BE COMPUTED FOR INCOME UNDER THE HEAD 'OTHER SOURCES'. EXEMPTED INCOME IS NOT ALLOWABLE FOR DEDUCTION IN VIEW OF SECTION 14A OF THE ACT. IN VIEW OF THESE TWO PROVISIONS, THE CLAIM OF THE ASSESSEE IS WHOLLY UNTENABLE AND THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL ON BEHALF OF THE APPELLANT ARE NOT APPLICABLE TO THE FACT SITUATION. WE ARE IN AGREEMENT WITH THE ORDERS PASSED BY THE ASSESSING 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 QUES TIONS OF LAW MUCH LESS THE QUESTIONS OF LAW FRAMED BY 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. I.T.A. NO . 2112 /M/15 8 7. SIMILARLY, IN THE CASE OF CIT V. SMT. LEEN A RAMACHANDRAN 339 ITR 296, THE HON BLE KERALA HIGH COURT HAS HELD AS UNDER: DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT 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 FUNDS WAS FOR THE PURPOSE OF CONTROLLING THE COMPANY AND SINCE THE BORROWED FUNDS WERE UTILISED FOR THE ACQUISITION OF SHARES OF THE COMPANY UNDER THE CONTROL OF THE ASSESSEE, THE UTILISATION OF TH E BORROWED FUNDS WAS FOR BUSINESS PURPOSE ENTITLING THE ASSESSEE TO DEDUCTION OF INTEREST UNDER SECTION 36(1)(III) OF THE INCOME - TAX ACT, 1961. THE ASSESSING OFFICER HELD THAT THE ASSESSEE MADE INVESTMENTS BY UTILISING THE BORROWED FUNDS ILL THE FORM OF AC QUISITION 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 PERTAINING TO ANY EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING ANY INCOME WHICH DID NOT FORM PA RT OF THE TOTAL INCOME, THE ASSESSING OFFICER DISALLOWED THE CLAIM TO DEDUCTION OF INTEREST. THE COMMISSIONER (APPEALS) CONFIRMED THE ASSESSMENT. THE TRIBUNAL ALLOWED THE CLAIM BUT MADE A DISALLOWANCE OF RS. 2 LAKHS BEING THE INTEREST STATED TO BE ATTRIBUT ABLE TO THE DIVIDEND INCOME OF RS. 3 LAKHS EARNED BY THE ASSESSEE FROM THE LEASING COMPANY DURING THE PREVIOUS YEAR. ON APPEAL: HELD, ALLOWING THE APPEAL, THAT ANY EXPENDITURE INCURRED FOR EARNING ANY INCOME WHICH WAS NOT TAXABLE UNDER THE ACT WAS NOT AN ALLOWABLE EXPENDITURE. DIVIDEND INCOME WAS EXEMPT UNDER SECTION 10(33) OF THE ACT AND THE DIVIDEND EARNED BY THE ASSESSEE ON THE SHARES ACQUIRED BY HER WITH THE BORROWED FUNDS DID NOT CONSTITUTE PART OF THE TOTAL INCOME IN THE HANDS OF THE ASSESSEE. THE RE ASONING GIVEN BY THE TRIBUNAL FOR DISALLOWANCE OF RS. 2 LAKHS, I.E., BY APPLYING SECTION 14A, SQUARELY APPLIED TO THE INTEREST PAID ON THE BORROWED FUNDS BECAUSE IT WAS ON RECORD THAT THE ENTIRE FUNDS BORROWED WERE UTILISED FOR THE ACQUISITION OF SHARES BY THE ASSESSEE IN THE COMPANY. THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION OF INTEREST UNDER SECTION 36(1)(III) OF THE ACT ON THE BORROWED FUNDS UTILISED FOR THE ACQUISITION OF SHARES ONLY IF SHARES WERE HELD AS STOCK - IN - TRADE AND THAT WOULD ARISE ONLY IF T HE ASSESSEE WAS ENGAGED IN TRADING IN SHARES. SO FAR AS THE ACQUISITION OF SHARES WAS IN THE FORM OF INVESTMENT AND THE ONLY BENEFIT THE ASSESSEE DERIVED WAS THE DIVIDEND INCOME WHICH WAS NOT ASSESSABLE UNDER THE ACT, THE DISALLOWANCE UNDER SECTION 14A WAS SQUARELY ATTRACTED AND THE ASSESSING OFFICER RIGHTLY DISALLOWED THE CLAIM. I.T.A. NO . 2112 /M/15 9 8. FURTHER, IN THE CASE OF LAKSHMI RING TRAVELLERS V. ACIT IN I.T.A. NO. 2083/MDS/2011 VIDE ORDER DATED 02.03.2012 FOR THE ASSESSMENT YEAR 2008 - 09 , THE COORDINATE BENCH OF THE TR IBUNAL 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 THE ASSESSEE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT SHALL NOT BE ALLOWED AS A DEDUCTION IN COMPUTING THE TAXABLE INCOME OF THE ASSESSEE. SEC.14A(2) PROVIDES FOR DETERMINING THE QUANTUM OF SUCH EXPENDITURE WHICH SHALL NOT BE ALLOWED AS A DEDUCTION. THAT IS THE MACHINERY PROVISION AS FAR AS SEC.14A IS CONCERNED. IN TH AT 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 PRESCRIBED. FOR THIS MATTER, RULE 8D HAS ALREADY BEEN PRESCRIBED. SUB - SEC.(3) FURTHER PROVIDES THAT EVEN IN A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE WAS INCURRED, THE ASSESSING AUTHORITY HAS TO PRESUME THE INCURRING OF SUCH EXPENDITURE AS PROVIDED UNDER SUB - SEC.(2) READ WITH RULE PRESC RIBED. THEREFORE, IT BECOMES CLEAR THAT EVEN IN A CASE WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE WAS SO INCURRED, THE STATUTE HAS PROVIDED FOR A PRESUMPTIVE EXPENDITURE WHICH HAS TO BE DISALLOWED BY FORCE OF THE STATUTE. IN A DISTANT MANNER, LITERALLY SPEAKING, IT MAY EVEN BE CONSIDERED FOR THE PURPOSE OF CONVENIENCE AS A DEEMING 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. IT MEANS THAT EVEN IN A CASE WHERE NO EXPENDITURE IS STATED TO HAVE BEEN INCURRED, THE ASSESSING AUTHORITY HAS TO APPLY RULE 8D. AS THE STATUTORY PRESUMPTION SUBSTITUTES THE REQUIREMENT OF FACT UAL EVIDENCE, THE QUESTION OF ENQUIRY DOES NOT ARISE. THEREFORE, WE ARE UNABLE TO AGREE WITH THE ARGUMENT OF THE LEARNED CA. 7. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE IS DISMISSED. 9. IN THE CASE OF COAL INDIA LTD. V. ADDL. CIT IN I.T.A. NO. 10 32/KOL/2012 & 1238/KOL/2012 FOR THE ASSESSMENT YEAR 2008 - 09 VIDE ORDER DATED 13.05.2015, THE KOLKATA BENCH OF THE TRIBUNAL HAS HELD AS UNDER: 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE LD. AR HAS STRONGLY ARGUED THAT NO SATISFACTION 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 I.T.A. NO . 2112 /M/15 10 ACCEPTABLE FOR THE REASONS HEREINAFTER. THE ORDER PASSED BY THE AO GOES T O SHOW THAT AO HAS COMPLIED WITH THE REQUIREMENT OF SECTION 14A OF THE ACT BY OBSERVING THAT AS TO WHY HE IS NOT SATISFIED WITH THE CORRECTNESS OF CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED. THE AO HAS RECORDED THE FINDINGS THAT EARNING OF DIVI DEND 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 IT HAD EARNED DIVIDEND INCOME OF RS.262907.86 LAKHS WITHOUT INCURRING ANY EXPENSES DOES N OT CONVINCE US AT ALL. THE TERM EXPENDITURE AS PER SECTION 14A WOULD INCLUDE THE EXPENDITURES THAT ARE RELATED TO INVESTMENTS MADE I.E. EXPENDITURES ON ADMINISTRATION, CAPITAL EXPENSES, TRAVELLING EXPENSES, OPERATING EXPENSES ETC. IT IS DIFFICULT TO ACCE PT THAT THE ASSESSEE COMPANY WAS MAKING INVESTMENTS DECISIONS TO THE TUNE OF RS.6,31,637 LAKHS 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 REQUIRE MARKET RESEARCH AND ANALYSIS. THE ASSESSEE COMPANY BY ACQUIRING CONTROLLING INTEREST IN THE SUBSIDIARY COMPANIES WOULD ALSO BE REQUIRED TO ATTEND BOARD MEETINGS AND MAKE POLICY DECISIONS WITH REGA RD 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 EXPENDITURE. IT IS PERTINENT TO MENTION HERE THAT EVEN THE ASSESSEE DID NOT REBUT THE FINDINGS OF AO T HAT THE ASSESSEE WAS REQUIRED TO SUPERVISE AND ADMINISTER ALL THE INVESTMENTS MADE. 5.2. IT IS PERTINENT TO REFER TO THE OBSERVATIONS MADE BY THE HON BLE SUPREME COURT IN THE CASE OF CIT VS WALFORT SHARE & STOCK BROKERS (P) LTD. (2010) 326 ITR 1 (SC) DE FINING 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 EFFECT 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 INCOME UNDER THE ACT AGAINST THE TAXABLE INCOME (SEE CIRCULAR NO. 14 OF 2001 DT. 22ND NOV., 2001). IN OTHER WORDS, S. 14A C LARIFIES THAT EXPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME. IN MANY CASES THE NATURE OF EXPENSES INCURRED BY THE ASSESSEE MAY BE RELATABLE PARTLY TO THE EXEMPT INCOME AND PARTLY TO THE TAXABLE INCO ME. IN THE ABSENCE OF S. 14A, THE EXPENDITURE INCURRED IN RESPECT OF EXEMPT INCOME WAS BEING CLAIMED AGAINST TAXABLE INCOME. THE MANDATE OF S. 14A IS CLEAR. IT DESIRES TO CURB THE PRACTICE TO CLAIM DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOM E AGAINST TAXABLE INCOME AND AT THE SAME TIME AVAIL THE TAX INCENTIVE BY WAY OF EXEMPTION OF EXEMPT INCOME WITHOUT MAKING ANY I.T.A. NO . 2112 /M/15 11 APPORTIONMENT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. THE BASIC REASON FOR INSERTION OF S. 14A IS THAT CERTAIN INCOMES ARE NOT INCLUDIBLE WHILE COMPUTING 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 MEAN THAT TAX INCENTIVES TO CERT AIN INCOMES WAS BEING USED TO REDUCE THE TAX PAYABLE ON THE NON - EXEMPT INCOME BY DEBITING THE EXPENSES, INCURRED TO EARN THE EXEMPT INCOME, AGAINST TAXABLE INCOME. THE BASIC PRINCIPLE OF TAXATION IS TO TAX THE NET INCOME, I.E., GROSS INCOME MINUS THE EXPEN DITURE. ON THE SAME ANALOGY THE EXEMPTION IS ALSO IN RESPECT OF NET INCOME. EXPENSES ALLOWED CAN ONLY BE IN RESPECT OF EARNING OF TAXABLE INCOME. THIS IS THE PURPORT 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 THAT VARIOUS HEADS OF INCOME AS PRESCRIBED UNDER CHAPTER IV WOULD FALL WITHIN S. 14A. THE NEXT PHRASE IS, 'IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT'. IT MEANS THAT IF AN INCOME DO ES NOT FORM PART OF TOTAL INCOME, THEN THE RELATED EXPENDITURE IS OUTSIDE THE AMBIT OF THE APPLICABILITY OF S. 14A. FURTHER, S. 14 SPECIFIES FIVE HEADS OF INCOME WHICH ARE CHARGEABLE TO TAX. IN ORDER TO BE CHARGEABLE, AN INCOME HAS TO BE BROUGHT UNDER ONE OF THE FIVE HEADS. SECS. 15 TO 59 LAY DOWN THE RULES FOR COMPUTING INCOME FOR THE PURPOSE OF CHARGEABILITY TO TAX UNDER THOSE HEADS. SECS. 15 TO 59 QUANTIFY THE TOTAL INCOME CHARGEABLE TO TAX. THE PERMISSIBLE DEDUCTIONS ENUMERATED IN SS. 15 TO 59 ARE NOW T O 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 DIVIDEND INCOME IS NOT A PART OF THE TOTAL INCOME, THE EXPENDITURE/DEDUCTION 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 AGAINST OTHER INCOME INCLUDIBLE IN THE TOTAL INCOME FOR THE PURPOSE OF CHARGEABILITY TO TAX. THE THEORY OF APPORTIONMENT OF EXPENDITURES BETWEEN TAXABLE AND NON - TAXABLE HAS, I N PRINCIPLE, BEEN NOW WIDENED UNDER S. 14A. READING S. 14 IN JUXTAPOSITION WITH SS. 15 TO 59, IT IS CLEAR THAT THE WORDS 'EXPENDITURE INCURRED' IN S. 14A REFERS TO EXPENDITURE ON RENT TAXES, SALARIES, INTEREST, ETC. IN RESPECT OF WHICH ALLOWANCES ARE PROVI DED FOR(SEE SS.30TO37). 5.3. IT IS FURTHER APPOSITE TO REFER TO THE DECISION OF THE ITAT MUMBAI BENCH IN THE CASE OF ACIT VS CITICORP FINANCE (INDIA) LTD. (2007) 108 ITD 457 DATED 21ST NOVEMBER, 2006 WHEREIN ON SIMILAR FACTS, THE CONTENTION OF THE ASSE SSEE THAT IT HAD INCURRED NO EXPENDITURE FOR EARNING HIGH DIVIDENDS WAS NEGATED. THE RELEVANT PORTION OF THE DECISION IS REPRODUCED HEREIN BELOW: - BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF PROVIDI NG FINANCIAL SERVICES LIKE I.T.A. NO . 2112 /M/15 12 COMMERCIAL VEHICLE FINANCING, EQUIPMENT FINANCE, ADVANCES AGAINST FINANCIAL ASSETS AND INTER - CORPORATE LOANS AND DEPOSITS. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD EARNED DIVIDEND OF R S. 4,85,24,362 WHICH WAS EXEMPT FROM TAX. TAKING NOTE OF S. 14A OF THE IT ACT, HE CALLED UPON THE ASSESSEE TO FURNISH THE DETAILS OF EXPENDITURE INCURRED IN EARNING THE AFORESAID DIVIDEND AND ALSO TO EXPLAIN AS TO WHY EXPENDITURE ON PRO RATA BASIS SHOULD N OT BE APPORTIONED TO THE EARNING OF THE AFORESAID DIVIDEND. IN REPLY, THE ASSESSEE SUBMITTED BEFORE THE AO THAT IT HAD NOT INCURRED ANY EXPENDITURE IN EARNING THE AFORESAID DIVIDEND AND HENCE THE PRORATE BASIS COULD NOT BE APPLIED TO ALLOCATE THE EXPENDITU RE FOR EARNING THE SAID DIVIDEND. IN THE ABSENCE OF DETAILS, THE AO APPLIED PRO RATA BASIS FOR 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 BEI NG RS. 119,48,19,592 INCLUDING DIVIDEND RECEIPTS OF RS. 4,85,24,362). IN THIS MANNER, HE QUANTIFIED THE EXPENDITURE AT RS. 3,68,02,411 BEING 4.06 PER CENT OF TOTAL EXPENDITURE AS HAVING BEEN INCURRED IN RELATION TO EARNING THE DIVIDEND AND THEREFORE DISALL OWED THE SAME WHILE COMPUTING NON - EXEMPT INCOME. ON APPEAL, THE LEARNED CIT(A),BY HIS ORDER DT. 16TH JUNE, 2003, DIRECTED THE AO TO ALLOW DEDUCTION ON THE GROSS AMOUNT OF DIVIDEND WITHOUT ALLOCATING ANY EXPENDITURE. DEPARTMENT IS AGGRIEVED BY THE AFORESAID ORDER AND IS NOW IN APPEAL BEFORE THIS TRIBUNAL. 13. IT IS DIFFICULT TO ACCEPT THE HYPOTHESIS THAT ONE CAN EARN SUBSTANTIAL DIVIDEND INCOME WITHOUT INCURRING ANY EXPENSES WHATSOEVER INCLUDING MANAGEMENT OR ADMINISTRATIVE EXPENSES. BY SAME LOGIC, IT I S EQUALLY DIFFICULT TO ACCEPT THAT THE ONLY EXPENSES INVOLVED IN EARNING THE DIVIDEND INCOME ARE THOSE INCURRED ON COLLECTION OF DIVIDEND OR ON ENCASHING A FEW DIVIDEND WARRANTS. A COMPANY CANNOT EARN DIVIDEND WITHOUT ITS EXISTENCE AND MANAGEMENT. INVESTME NT DECISIONS ARE VERY COMPLEX IN NATURE. THEY REQUIRE SUBSTANTIAL MARKET RESEARCH, DAY - TO - DAY ANALYSIS OF MARKET TRENDS AND DECISIONS WITH REGARD TO ACQUISITION, RETENTION AND SALE OF SHARES AT THE MOST APPROPRIATE TIME. THEY REQUIRE HUGE INVESTMENT IN SHA RES AND CONSEQUENTIAL BLOCKING OF FUNDS. IT IS WELL KNOWN THAT CAPITAL HAS COST AND THAT ELEMENT OF COST IS REPRESENTED BY INTEREST. BESIDES, INVESTMENT DECISIONS ARE GENERALLY TAKEN IN THE MEETINGS OF THE BOARD OF DIRECTORS FOR WHICH ADMINISTRATIVE EXPENS ES ARE INCURRED. IT IS THEREFORE NOT CORRECT TO SAY THAT DIVIDEND INCOME CAN BE EARNED BY INCURRING NO OR NOMINAL EXPENDITURE. THIS ASPECT OF THE MATTER HAS ALSO RECEIVED CAREFUL ATTENTION OF CHENNAI BENCH OF THIS TRIBUNAL IN SOUTHERN PETRO CHEMICAL INDUST RIES VS. DY. CIT (2005) 93 TT] (CHENNAI) 161. AFTER COMPREHENSIVE CONSIDERATION OF ALL THE RELEVANT ASPECTS OF THE CASE INCLUDING THE PROVISIONS OF LAW, THE CHENNAI BENCH I.T.A. NO . 2112 /M/15 13 HAS HELD THAT 8 ITA NOS.1032&1238/KOL/2012 M/S.COAL INDIA LTD. A.YR.2008 - 09 INVESTMEN T DECISIONS ARE VERY STRATEGIC DECISIONS IN WHICH TOP MANAGEMENT IS INVOLVED AND THEREFORE PROPORTIONATE MANAGEMENT EXPENSES ARE REQUIRED TO BE DEDUCTED WHILE COMPUTING THE EXEMPT INCOME FROM DIVIDEND. IN HARISH KRISHNAKANT BHATT VS. ITO (2004)85TT](AHD) 8 72 : (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 BORROWED FOR ACQUISITION OF RELEVANT SHARES YIELDING SUCH DIVIDEND CANNOT BE ALLOWED DEDUCTION BY OP ERATION OF S.14A.IN DY. CIT VS. S.G. INVESTMENTS & INDUSTRIES LTD. (2004) 84 TT] (KOL) 143 : (2004) 89 ITD 44 (KOL), THE CALCUTTA BENCH OF THIS TRIBUNAL HAS LAID DOWN TWO PROPOSITIONS: ONE, IN VIEW OF S. 14A INSERTED IN THE IT ACT WITH RETROSPECTIVE EFFECT FROM 1ST APRIL, 1962, PRO RATA EXPENSES ON ACCOUNT OF INTEREST RELATABLE TO INVESTMENT IN SHARES FOR EARNING EXEMPT INCOME FROM DIVIDEND ARE TO BE DISALLOWED AGAINST TAXABLE INCOME AND ONLY THE NET DIVIDEND INCOME IS TO BE ALLOWED EXEMPTION AFTER DEDUCTIN G THE EXPENSES; AND TWO, THE EXPRESSION 'EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH 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 RELATIONSHIP BETWEEN EXPE NDITURE AND EXEMPT INCOME. FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN CI TVS. UNITED GENERAL TRUST LTD. (1994) 116 CTR (SC) 194 : (1993) 200 ITR 488 (SC), THE CALCUTTA BENCH OF THE TRIBUNAL HAS ALSO HELD THAT THE INTEREST PAID BY THE ASSESSEE B EING ATTRIBUTABLE TO THE MONEY BORROWED FOR THE PURPOSE OF MAKING THE INVESTMENT WHICH YIELDED THE DIVIDEND AND OTHER EXPENSES INCURRED IN CONNECTION WITH OR FOR MAKING OR EARNING THE DIVIDEND INCOME CAN BE REGARDED AS EXPENDITURE INCURRED IN RELATION TO D IVIDEND INCOME. IN EVERPLUS SECURITIES& FINANCE LTD. VS. DY. CIT (2006) 102 TTJ (DEL) 120, THE DELHI BENCH OF THIS TRIBUNAL HAS HELD THAT MERELY BECAUSE THE ASSESSEE DID NOT EARN THE DIVIDEND OUT OF INVESTMENT IN CERTAIN SHARES DOES NOT IMPLY THAT THE PROV ISIONS 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 ADMINISTR ATIVE EXPENSES AS EXPENDITURE IN RELATION TO EXEMPT INCOME AND DISALLOWING THE SAME IN VIEW OF THE PROVISIONS OF S.14A. WE FIND THAT THE AFORESAID JUDGEMENT IS SQUARELY APPLICABLE TO THE PRESENT CASE OF THE ASSESSEE. 5.4. THE FINDINGS RECORDED BY US AS REGARDS THE EXPENDITURE REQUIRED TO BE INCURRED BY THE ASSESSEE COMPANY FOR CARRYING OUT THE INVESTMENTS AND EARNING DIVIDENDS INCOME ALSO FINDS FORCE FROM THE DECISION RENDERED BY ITAT, CHENNAI BENCH IN THE CASE OF SOUTHERN PETRO CHEMICAL INDUSTRIES VS I.T.A. NO . 2112 /M/15 14 DCIT (2005) 3 SOT 157 DATED 20TH OCTOBER, 2004 RELEVANT PART OF WHICH IS REPRODUCED AS UNDER : - 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORDS OF THE CASE. ADMITTEDLY, THESE INVESTMENTS IN SHARES WERE MADE DURING THE COURSE OF THE CARRYING ON OF BUSINESS AND AS IS EVIDENT FROM THE 9 ITA NOS.1032&1238/KOL/2012 M/S.COAL INDIA LTD. A.YR.2008 - 09 RECORDS, SUBSTANTIAL INVESTMENTS HAD BEEN MADE BY THE ASSESSEE IN EARLIER YEARS, AND DURING THE CURRENT YEAR AS WELL THE ASSESSEE MADE AN INVE STMENT OF RS. 19 CRORES. WHETHER TO INVEST OR NOT TO INVEST AND WHETHER TO RETAIN THE INVESTMENTS OR TO LIQUIDATE THE SAME ARE VERY STRATEGIC DECISIONS WHICH THE MANAGEMENT IS CALLED UPON TO TAKE. THESE ARE MIND - BOGGLING DECISIONS AND TOP MANAGEMENT IS INV OLVED IN TAKING THESE DECISIONS. THIS DECISION MAKING PROCESS IS VERY COMPLICATED AND REQUIRES VERY 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 DIVI DEND INCOME HAVING BEEN REGULARLY RECEIVED BY THE ASSESSEE. THIS ACTIVITY ITSELF CALLS FOR CONSIDERABLE MANAGEMENT ATTENTION AND CANNOT BE LEFT TO A JUNIOR CLERK. THE HON'BLE SUPREME COURT IN THE CASE OF UNITED GENERAL TRUST LTD. (SUPRA), APPLYING THE DECI SION OF HON'BLE SUPREME COURT IN THE CASE OF DISTRIBUTORS (BARODA) (P) LTD. VS. UNION OF INDIA (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC), REVERSED THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN CIT VS. UNITED GENERAL TRUST (P) LTD. (SUPRA), WHEREI N THE QUESTION WAS AS UNDER: 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL WAS JUSTIFIED IN APPLYING THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. NEW GREAT INSURANCE CO. LTD. (1973) 90 ITR 348 (BORN) T O THE ASSESSMENT YEAR IN QUESTION WITHOUT CONSIDERING THE EFFECT OF THE AMENDMENT OPERATIVE FROM 1STAPRIL, 1968, AND IN THUS HOLDING THAT THE ASSESSEE WOULD BE ENTITLED TO THE DEDUCTION UNDER S. 80M ON THE GROSS DIVIDEND BEFORE DEDUCTION OF THE PROPORTIONA TE MANAGEMENT EXPENSES ?' THUS, WHEN THE DECISION OF THE HON'BLE BOMBAY HIGH COURT HAS BEEN REVERSED, THE PROPORTIONATE MANAGEMENT EXPENSES ARE REQUIRED TO BE DEDUCTED WHILE COMPUTING THE DIVIDEND INCOME. IN THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT, RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE, MR. DASTUR, IN THE CASE OF CIT VS. UNITED COLLIERIES LTD. (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 AFOREME NTIONED DISCUSSION AND KEEPING IN VIEW THE SUBMISSIONS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE, WE RESTORE THIS MATTER TO THE AO TO VERIFY THE QUANTUM OF DEDUCTION CLAIMED BY THE ASSESSEE IN EARLIER YEARS UNDER S. 57(I) FROM THE DIVIDEND INCOME (WHEN IT WAS TAXABLE) AND MAKE A PRO RATA ADJUSTMENT ON THE BASIS OF SUBSEQUENT I.T.A. NO . 2112 /M/15 15 INVESTMENTS MADE, INFLATION, ETC. THIS GROUND IS, ACCORDINGLY, ALLOWED FOR STATISTICAL PURPOSES. 5.5. SINCE THE ASSESSEE HAD CLAIMED THAT NO EXPENDITURE WAS INCURRED, THE ASSESSING AUTHORITIES WERE CORRECT TO ESTIMATE THE INCURRING OF SUCH EXPENDITURE U/S 14A READ WITH RULE 8D. IT IS PERTINENT TO REFER TO THE OBSERVATIONS MADE BY ITAT CHENNAI BENCH IN THE CASE OF LAKSHMI RING TRAVELLERS VS ACIT IN ITA NO.2083/MADS/2011 DATED 2ND MAR CH,2012 WHEREIN IT WAS HELD AS UNDER (RELEVANT PORTION REPRODUCED) : - THEREFORE, IT BECOMES CLEAR THAT EVEN IN A CASE WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE WAS SO INCURRED, THE STATUTE HAS PROVIDED FOR A PRESUMPTIVE EXPENDITURE WHICH HAS TO BE D ISALLOWED BY FORCE OF THE STATUTE. IN A DISTANT MANNER, LITERALLY SPEAKING, IT MAY EVEN BE CONSIDERED FOR THE PURPOSE OF CONVENIENCE AS A DEEMING PROVISION. WHEN SUCH DEEMING PROVISION IS MADE ON THE BASIS OF STATUTORY PRESUMPTION, THE REQUIREMENT OF FACTU AL 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 FOO TWEARS LTD. VS ADDL.CIT (2012) 50 SOT 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 THAT THE AO FAILED TO RECORD ANY SATISFACTION U/S 14A READ WITH RULE 8D WHEREAS 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 THE CASE OF REI LTD., KOLKATA (SUPRA) IN THE AFORESAID DECISION, THE ISSUE WITH RESPECT TO THE DISALLOWANCE MADE UN DER SECTION 14A READ WITH RULE 8D(2)(III) WAS RESTORED TO THE FILE OF AO AND NO JUDGMENT WAS RENDERED ON MERITS OF THE CONTENTIONS OF ASSESSEE. THE ASSESSEE HAS SUBMITTED THAT FOR DISALLOWING THE EXPENDITURE INCURRED FOR EARNING THE EXEMPT INCOME THERE MUS T BE A NEXUS BETWEEN THE TWO. TO SUBSTANTIATE THE SAME, THE ASSESSEE 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.786/JP/2011 I.T.A. NO . 2112 /M/15 16 (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 AF ORESAID DECISIONS, THE RATIO WAS THAT ONLY THOSE EXPENDITURES WHICH HAS NEXUS TO THE EXEMPT INCOME ARE TO BE DISALLOWED. HOWEVER IN THE PRESENT CASE THE NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE DIVIDEND INCOME WAS ESTABLISHED BY THE REVENUE AUTHORITI ES. 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 IN FAVOUR OF THE ASSESSEE. THE AFORESAID ORDERS OF THE LD. CIT(A) WILL 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 T HE SUBSIDIARIES, WHICH HAVE NOT PAID DIVIDENDS TO THE ASSESSEE. IN VIEW OF SUBMISSION MADE, THE SAID ISSUE IS REMANDED TO THE FILE OF AO TO MAKE A CORRECT COMPUTATION WITHOUT INCLUDING THE INVESTMENTS OF COMPANIES WHICH HAVE NOT PAID ANY DIVIDEND TO THE AS SESSEE 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 AS SESSEE ARE DISMISSED. 10. THE CASE LAW RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2009 - 10 IN I.T.A. NO. 1690/MDS/2013 IS NOT REFLECTING CORRECT POSITION OF LAW AND THEREFORE, THIS BENCH CANNOT BLINDLY FO LLOW THE EARLIER DECISION OF THE TRIBUNAL IN VIEW OF THE RULINGS OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. HI TECH ARAI LTD. [2010] 321 ITR 477, WHEREIN THE HON BLE HIGH COURT HAS HELD AS UNDER: WE ARE NOT IN A POSITION TO APPRECIATE EITHER OF THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE PETITIONER. AS FAR AS THE FIRST CONTENTION IS CONCERNED, WHEN THE TRIBUNAL BY THE IMPUGNED ORDER HAS APPLIED SECTION 32(1)(IIA) OF THE ACT, TO THE FACTS INVOLVED IN THE CASE OF THE ASSESSEE AND HAS FOUND THAT THE ASSESSEE IS ENTITLED FOR THE ADDITIONAL DEPRECIATION CLAIMED UNDER THE SAID PROVISION, IT CANNOT BE I.T.A. NO . 2112 /M/15 17 HELD THAT SIMPLY BECAUSE A CO - ORDINATE BENCH OF THE TRIBUNAL HAD EARLIER TAKEN A DIFFEREN T VIEW, THE TRIBUNAL ON THIS OCCASION ALSO OUGHT TO HAVE FOLLOWED THE SAME. WHEN WE FIND THAT THE TRIBUNAL HAS APPLIED THE LAW CORRECTLY IN THE IMPUGNED ORDER, THERE IS NO GAIN SAYING THAT THERE WAS AN EARLIER ORDER BY THE CO - ORDINATE BENCH AND THEREFORE, FOR THAT REASON, THIS TIME ALSO THE TRIBUNAL SHOULD HAVE BLINDLY FOLLOWED ITS OWN EARLIER DECISION EVEN IF SUCH EARLIER DECISION DID NOT REFLECT THE CORRECT POSITION OF THE LAW . 11. IN VIEW OF THE ABOVE JUDICIAL PRONOUNCEMENTS OF THE TRIBUNAL AS WELL AS THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. HI TECH ARAI LTD. (SUPRA) , WE REVERSE THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE ORDER PASSED BY THE ASSESSING OFFICER. ACCORDINGLY, THE APPEAL FILED BY THE REVE NUE IS ALLOWED. 12 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED . ORDER PRONOUNCED ON THE 10 TH MARCH , 201 6 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 10 . 0 3 .201 6 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.