Kamarajar Port Limited, CHENNAI V. DCIT, CHENNAI

ITA 2205/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7802 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 20-01-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 27-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: K MEENATCHI SUNDARAM
• Keywords: Depreciation; Business expenditure; Earning of tax free income; Deemed to accrue or arise in india; Wholly owned subsidiary; Unabsorbed depreciation
• Section: 143(3); 14A; 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . . . , . , % BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.2205/MDS/2015 ( / ASSESSMENT YEAR: 2012-13) M/S. KAMARAJAR PORT LTD., 23, P.T.LEE CHENGALVARAYA NAICKER MALIGAI, RAJAJI SALAI, CHENNAI-600 001. VS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1), CHENNAI. PAN:AAACE9013G ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. K.MEENATCHISUNDARAM, C.A. /RESPONDENT BY : MR. A.V.SREEKANTH, JCIT /DATE OF HEARING : 20 TH JANUARY, 2016 /DATE OF PRONOUNCEMENT : 23 RD MARCH, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE ASSESSEE AGGRIEVED BY T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- 8, CHENNAI DATED 16.09.2015 IN ITA NO.120/2014-15 P ASSED UNDER SECTION 143(3) R.W.S. 250(6) OF THE ACT. 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS AND ADDITIONAL GROUND IN ITS APPEAL AND THEY ARE CONCIS ED HEREIN BELOW FOR ADJUDICATION:- I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN SUSTAINING THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER BY INVOKING THE PROVISION S OF SECTION 14A R.W.RULE 8D OF THE ACT. 2 ITA NO.2205 /MDS/2015 II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN SUSTAINING THE ORDER OF THE LEARNED ASSESSING OFFICER WHO HAS INCREASED THE BOOK PROFIT BY ADDING THE DISALLOWANCE UNDER RULE 8D WHILE COMPUTI NG THE BOOK PROFIT IN ACCORDANCE WITH SECTION 115JB OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS A GOVERNMENT UNDERTAKING FILED ITS RETUR N OF INCOME ON 27.09.2012 FOR THE ASSESSMENT YEAR 2012-1 3 DECLARING ITS INCOME AS ` 116,18,88,268/- AND SET OFF THE SAME BY BROUGHT FORWARD UNABSORBED DEPRECIATION AND PAID MINIMUM ALTERNATIVE TAX UNDER SECTION 115JB ON BOOK PROFIT OF ` 120,46,01,185/-. THE ASSESSMENT WAS COMPLETED BY TH E LEARNED ASSESSING OFFICER UNDER SECTION 143(3) OF T HE ACT ON 30.01.2015, WHEREIN THE LEARNED ASSESSING OFFICER M ADE CERTAIN ADDITIONS AMONGST WHICH ONE OF THE ADDITION WAS WITH RESPECT TO DISALLOWANCE OF EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME UNDER SECTION 14A READ WITH RULE 8D O F THE ACT AMOUNTING TO RS.2,59,90,908/- AND COMPUTATION OF TAX UNDER THE PROVISIONS OF 115JB OF THE ACT BY ADDING THE SAME TO THE BOOK PROFIT OF THE ASSESSEE. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, THE LEARNED ASSESSING OFFIC ER 3 ITA NO.2205 /MDS/2015 OBSERVED FROM THE BALANCE SHEET OF THE ASSESSEE THA T IT HAS MADE INVESTMENT IN UNQUOTED EQUITY SHARES TO THE TU NE OF ` 43.75 CRORES AND THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF ` 32,30,213/- WHICH IS EXEMPT FROM TAX. WHEN THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE PROVISI ONS OF SECTION 14A R.W. RULE 8D WOULD NOT BE APPLICABLE IN THE CASE OF THE ASSESSEE, IT WAS SUBMITTED THAT THE INVESTME NTS WERE MADE FROM THE ASSESSEES OWN INTEREST FREE FUNDS AN D THE ACCUMULATED PROFITS. IT WAS FURTHER SUBMITTED THAT THE LOANS TAKEN BY THE ASSESSEE WAS FOR SETTING UP OF PORT FA CILITIES AND OBTAINED BEFORE MAKING SUCH INVESTMENTS. IT WAS ALS O EXPLAINED THAT THE ASSESSEE HAD NOT INCURRED ANY EX PENDITURE FOR MAKING THE INVESTMENT FOR EARNING EXEMPT DIVIDE ND INCOME OR FOR MONITORING THE INVESTMENT. HOWEVER, T HE LEARNED ASSESSING OFFICER REJECTED THE CONTENTION O F THE ASSESSEE AND INVOKED THE PROVISIONS OF SECTION 14A R.W.RULE 8D BY HOLDING AS UNDER:- AS PER THE PROVISIONS OF SECTION 14A OF THE ACT, A NY SUM INCURRED FOR EARNING AN INCOME EXEMPT FROM TAX CANN OT BE ALLOWED AS EXPENDITURE IN COMPUTING THE TAXABLE INCOME. IT ESSENTIALLY MEANS THAT THE EXPENSES DEBI TED TO PROFIT AND LOSS ACCOUNT OF THE ASSESSEE COMPANY ARE TO BE DIVIDED INTO TWO CATEGORIES VIZ. ONE RELATING TO THE EXEMPT STREAM OF INCOME AND THE OTHER RELATING TO T HE TAXABLE STREAM OF INCOME. THE EXPENSES RELATING TO THE 4 ITA NO.2205 /MDS/2015 EXEMPT STREAM OF INCOME CANNOT BE CLAIMED AGAINST T HE TAXABLE STREAM OF INCOME. IT IS NOT NECESSARY THAT THERE SHOULD BE ANY INCOME EARNED DURING THE YEAR. THE EXPENDITURE INCURRED FOR EARNING AN INCOME CAN BE L ESSER THAN THE INCOME ITSELF. ON SOME OCCASIONS, THERE CO ULD NOT EVEN BE ANY INCOME THOUGH EXPENSES ARE INCURRED TOWARDS EARNING THE SAME. EVEN IN SUCH CIRCUMSTANCE S, THE PROVISIONS OF SECTION 14A READ WITH RULE 8D WE RE HELD TO BE APPLICABLE AS HELD BY THE SPECIAL BENCH OF ITAT., DELHI IN M/S.CHEMINVEST LTD. VS. DCIT IN ITA NO.2048/DE/2005 AND BY ITAT., CHENNAI IN M/S. MGM DIAMOND BEACH RESORTS P.LTD. VS. DCIT IN ITA NO.2173/MDS/2005. 4. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) RELYING ON THE FOLLOWING THE DECISIONS CO NFIRMED THE ORDER OF THE LEARNED ASSESSING OFFICER:- I) DCIT VS.DAMINI ESTATES & FINANCE P.LTD., REPORTE D IN 25 ITR (TRIB) 683 (MUM) II)GODREJ & BOYCE MANUFACTURING CO.LD., (328 ITR 8 1) (BOM) III) CIT VS. RELIANCE UTILITIES & POWER LTD. (313 I TR 340)(BOM) WHILE DOING SO, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) MADE THE FOLLOWING OBSERVATIONS IN HIS OR DER:- I) THE SHARES PURCHASED AND HELD IN ANY MANNER WOUL D ATTRACT THE PROVISIONS OF SECTION 14A OF THE ACT. II) IN THE CASE OF THE ASSESSEE INVESTMENTS WERE MA DE IN EQUITY SHARES AND THE ASSESSEE WAS MONITORING IT S INVESTMENT BY VIRTUE OF THE POSITION IT HAD IN THE BOARD 5 ITA NO.2205 /MDS/2015 OF THOSE COMPANIES IN WHICH THE ASSESSEE HAS INVESTED. III) DISALLOWANCE IN RESPECT OF INTEREST WOULD HAV E TO BE MADE AND NO PRESUMPTION OF INVESTMENT OF OWN FUNDS AND THE GROUND OF ITS SUFFICIENCY COULD BE DRAWN. 5. BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIVE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THAT THE INVES TMENTS WERE MADE IN OTHER GOVERNMENT UNDERTAKINGS VIZ., SE THU SAMUTHRAM CORPORATION LTD. AND CHENNAI ENNORE PORT ROAD COMPANY LTD, AS PER THE DIRECTIONS OF MINISTRY OF S HIPPING, GOVERNMENT OF INDIA. BOTH THESE GOVERNMENT UNDERTAK INGS WERE CONNECTED TO THE PORT ACTIVITIES WHICH ENHANCE S THE ACTIVITY OF THE ASSESSEE. IT WAS THEREFORE ARGUED T HAT ALL THESE COMPANIES ARE SISTER COMPANIES WITH ANCILLARY SUPPO RTING OBJECTS AND INCORPORATED BY THE GOVERNMENT OF INDIA FOR THE DEVELOPMENT ACTIVITIES OF THE PORT. HENCE, IT WAS P LEADED THAT THE PROVISIONS OF SECTION 14A OF THE ACT WOULD NOT BE APPLICABLE IN THE CASE OF THE ASSESSEE. 6 ITA NO.2205 /MDS/2015 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE O THER HAND, VEHEMENTLY ARGUED IN SUPPORT OF THE ORDERS OF THE REVENUE. 7. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PE RUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS O F THE CASE, IT IS APPARENT THAT THE ASSESSEE COMPANY AND THOSE COMPANIES IN WHICH THE ASSESSEE HAS INVESTED IN SHA RES ARE ALL GOVERNMENT UNDERTAKINGS VESTED WITH INTER-RELAT ED AND ANCILLARY OBJECTIVES TO PROMOTE THE ACTIVITIES OF P ORT. IN THESE CIRCUMSTANCES, THE ASSESSEE COMPANY HAS MADE STRATE GIC INVESTMENTS IN ITS SISTER COMPANIES. THEREFORE, THE RE WOULD BE NO EXPENDITURE INCURRED FOR MONITORING THE INVES TMENT ACTIVITY OF THE ASSESSEE COMPANY IN ITS SISTER COMP ANIES OR FOR MAKING SUCH DECISION. FURTHER, IT IS EVIDENT TH AT THE ASSESSEE IS HAVING SHARE CAPITAL AND RESERVES & SUR PLUS TO THE EXTENT OF RS.5,38,04,75,152/- WHICH IS MUCH MOR E THAN THE INVESTMENT MADE BY THE ASSESSEE COMPANY IN ITS SISTER COMPANIES AMOUNTING TO RS.43.75 CRORES. HENCE, IT I S APPARENT THAT THE ASSESSEE IS HAVING INTEREST FREE FUNDS IN ORDER TO MAKE SUCH INVESTMENTS. IN SUCH SITUATION, THIS BENCH 7 ITA NO.2205 /MDS/2015 OF THE TRIBUNAL ON THE EARLIER OCCASION HAD HELD TH AT WHEN INVESTMENTS ARE MADE BY THE ASSESSEE COMPANY FROM I TS INTEREST FREE FUNDS IN ITS SISTER/SUBSIDIARY COMPAN IES, FOR STRATEGIC BUSINESS REASONS, THEN THE PROVISIONS OF SECTION 14A WILL NOT BE APPLICABLE. THE GIST OF THE RELEVAN T DECISION IN THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF M/ S.DATA SOFTWARE RESEARCH COMPANY (INTERNATIONAL) PVT. LTD., VS. ACIT IN ITA NOS 2169 TO 2172/MDS/2015, ORDER DATED 03.02.2016 IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 7. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PER USED THE MATERIALS AVAILABLE ON RECORD. IT IS A NORMAL P RACTICE TO MAKE INVESTMENT IN SISTER COMPANIES DUE TO COMMERCIAL EXIGENCIES. WHILE DOING SO, NO EXPENSE CAN BE ATTRIBUTABLE OTHER THAN INTEREST EXPENSE FOR MAK ING SUCH INVESTMENTS BECAUSE ALL MANAGEMENT COSTS WILL BE ABSORBED FOR STRATEGIC DECISION MAKING PROCESS WHIC H IS ALLOWABLE AS BUSINESS EXPENDITURE. IN THE CASE OF THE ASSESSEE IT IS SUBMITTED THAT NO INTEREST COST WAS INCURRED AS THE ENTIRE INVESTMENTS WERE MADE OUT OF OWN FUNDS. FURTHER IN THE DECISION OF THE TRIBUNAL IN I TA NO.115/MDS/2015 DATED 06.01.2016, EXTRACTED HEREIN BELOW, IT HAS BEEN HELD THAT SECTION 14A OF THE ACT WILL NOT BE APPLICABLE WHEN INVESTMENTS ARE MADE IN SIST ER COMPANIES. 5. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. ON THE IDENTICAL ISSUE AS POINTED OUT BY THE LD. A.R. THE CHENNAI BENCH OF THE TRIBUNAL IN ITA NO.156/MDS/2013 VIDE O RDER DATED 20/08/13 FOR THE ASSESSMENT YEAR 2009-10 HAS REMITTED BACK THE MATTER TO THE LD. ASSESSING OFFIC ER TO DECIDE THE MATTER ONCE AGAIN AFRESH BASED ON THE FINDINGS WHETHER THE ASSESSEE HAD ACTUALLY INCURRED ANY EXPENDITURE IN EARNING THE DIVIDEND INCOME. THE REL EVANT 8 ITA NO.2205 /MDS/2015 PORTION OF THE ORDER IS EXTRACTED HEREIN BELOW FOR REFERENCE:- FURTHER, ON THE IDENTICAL ISSUE VARIOUS BENCHES OF THE TRIBUNAL AND THE HONBLE BOMBAY HIGH COURT HAVE HEL D AS FOLLOWS:- I) GARWARE WALL ROPES LTD., VS. ACIT REPORTED IN (2014) 65 SOT 086 (MUM.) HELD AS FOLLOWS:- WHEN ASSESSEE HAS PRIMA FACIE BROUGHT OUT CASE THA T NO EXPENDITURE HAS BEEN INCURRED FOR EARNING INCOME, W HICH DOES NOT FORM PART OF TOTAL INCOME, THEN IN ABSENCE OF A NY FINDING THAT EXPENDITURE HAS BEEN INCURRED FOR EARNING EXEM PT INCOME PROVISIONS 14A CANNOT BE APPLIED.. II) INTEGLOBE ENTERPRIESES LTD., VS. DCIT REPOTED IN (2014) 40 CCH 0022(DEL. TRIB.) HELD AS FOLLOWS:- NO DISALLOWANCE OF INTEREST IS REQUIRED TO BE MADE UNDER RULE 8D(I) & 8D(II) WHERE NO DIRECT OR INDIRECT INTEREST EXPENDITURE WAS INCURRED FOR MAKING INVESTMENTS. WHERE THE ASSESSEE HAD UTILIZED INTEREST FREE FUNDS FOR MAKING FRESH INVESTMENTS AND THAT TOO INTO ITS SUBS IDIARIES, WHICH WAS NOT FOR THE PURPOSE OF EARNING EXEMPT INC OME AND WHICH WAS FOR STRATEGIC PURPOSES ONLY, NO DISALLOWA NCE OF INTEREST WAS REQUIRED TO BE MADE UNDER RULE 8D(I) & 8D(II) AND STRATEGIC INVESTMENT HAS TO BE EXCLUDED FOR PUR POSE OF ARRIVING AT DISALLOWANCE UNDER RULE 8D(III). III) M/S.JM FINANCIAL LTD., VS. ACIT REPORTED IN 2 014-TIOL- 202-ITAT-MUM HELD AS FOLLOWS: THE DEPARTMENT HAS NOT DISPUTED THIS FACT OUT OF THE TOTAL INVESTMENT ABOUT 98% OF THE INVESTMENT ARE IN SUBSI DIARY COMPANIES OF THE ASSESSEE AND, THEREFORE, THE PURPO SE OF INVESTMENT IS NOT FOR EARNING THE DIVIDEND INCOME B UT HAVING CONTROL AND BUSINESS PURPOSE AND CONSIDERATION. TH E ASSESSEE HAS BROUGHT OUT A CASE TO SHOW THAT NO EXP ENDITURE HAS BEEN INCURRED FOR MAINTAINING THE 98% OF THE IN VESTMENT MADE IN THE SUBSIDIARY COMPANIES, THEREFORE, IN THE ABSENCE OF ANY FINDING THAT ANY EXPENDITURE HAS BEEN INCURR ED FOR EARNING THE EXEMPT INCOME, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT JUSTIFIED, ACCORDINGLY THE SAME IS DELETED. (IV) CIT VS. BHARTI TELEVENTURE LTD. REPORTED IN (2 011) 331 ITR 0502. 9 ITA NO.2205 /MDS/2015 WHERE THE ASSESSEE WAS FOUND TO BE HAVING ADEQUATE NON-INTEREST BEARING FUND BY WAY OF SHARE CAPITAL A ND RESERVES AND THERE WAS NO NEXUS BETWEEN THE BORROWALS OF ASS ESSEE AND THE ADVANCES GIVEN, NO DISALLOWANCE FOR INTERES T WAS CALLED FOR . (V) CIT VS. RELIANCE UTILITIES & POWER LTD., REPOR TED IN (2009) 313 ITR 0340(BOM.) HAS HELD AS FOLLOWS:- TRIBUNAL HAVING RECORDED A CLEAR FINDING THAT THE ASSESSEE POSSESSED SUFFICIENT INTEREST-FREE FUNDS OF ITS OWN WHICH WERE GENERATED IN THE COURSE OF THE RELEVANT FINANCIAL Y EAR, APART FROM SUBSTANTIAL SHAREHOLDERS FUND, PRESUMPTION STA NDS ESTABLISHED THAT THE INVESTMENTS IN SISTER CONCERNS WERE MADE BY THE ASSESSEE OUT OF INTEREST FREE FUNDS AND THER EFORE NO PART OF INTEREST ON BORROWINGS CAN BE DISALLOWED ON THE BASIS THAT THE INVESTMENTS WERE MADE OUT OF INTEREST BEAR ING FUNDS. (VI) EIH ASSOCIATED HOTELS LTD VS. DCIT REPORTED I N 2013- TIOL-796-ITAT-MAD . THE INVESTMENTS MADE BY THE ASSESSEE IN THE SU BSIDIARY COMPANY ARE NOT ON ACCOUNT OF INVESTMENT FOR EARNIN G CAPITAL GAINS OR DIVIDEND INCOME. SUCH INVESTMENTS HAVE BEE N MADE BY THE ASSESSEE TO PROMOTE SUBSIDIARY COMPANY INTO THE HOTEL INDUSTRY. THE ASSESSEE IS NOT INTO THE BUSINESS OF INVESTMENT AND THE INVESTMENTS MADE BY THE ASSESSEE ARE ON ACC OUNT OF BUSINESS EXPEDIENCY. ANY DIVIDEND EARNED BY THE ASS ESSEE FROM INVESTMENT IN SUBSIDIARY COMPANY IS PURELY INC IDENTAL. THEREFORE THE INVESTMENT MADE BY THE ASSESSEE IN IT S SUBSIDIARY IS NOT TO BE RECKONED FOR DISALLOWANCE U /S.14A R.W.R.8D. THE ASSESSING OFFICER IS DIRECTED TO RE-C OMPUTE THE AVERAGE VALUE OF INVESTMENT UNDER THE PROVISIONS OF RULE 8D AFTER DELETING INVESTMENTS MADE BY THE ASSESSEE IN SUBSIDIARY COMPANY. TAKING NOTE OF THE ABOVE DECISIONS AND THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN IT A NO.156/MDS/13 CITED SUPRA, WE HEREBY REMIT THE MATT ER BACK TO THE FILE OF LD. ASSESSING OFFICER TO EXAMIN E THE ISSUE INVOLVED IN THIS CASE AFRESH AND PASS APPROPR IATE ORDER AS PER LAW AND MERITS AND IN THE LIGHT OF THE DECISIONS CITED HEREIN ABOVE. WHILE DOING SO, WE AL SO DIRECT THE LD. ASSESSING OFFICER TO CONSIDER THE DE CISION OF THE TRIBUNAL IN THE CASE M/S AGILE ELECTRIC SUB ASSEMBLY PVT. LTD. CITED SUPRA WHEREIN IT WAS HELD AS FOLLOWS:- 7.2 IN REGARD TO APPLICABILITY OF SECTION 14A OF THE ACT READ WITH RULE 8D ALSO; THE ABOVE VIEW WILL BE APPLICABLE. MOREOVER IN THE CASE EIH ASSOCIATED HOTELS LTD V. D CIT 10 ITA NO.2205 /MDS/2015 REPORTED IN 2013 (9) TMI 604 IN ITA NO.1503, 1624/M DS/2012 DATED 17 TH JULY, 2013, IT HAS BEEN HELD BY THE CHENNAI BENCH OF THE TRIBUNAL AS FOLLOWS:- DISALLOWANCE U/S. 14A RW RULE 8D CIT UPHELD DISALLOWANCE HELD THAT INVESTMENTS MADE BY THE ASSESSEE IN THE SUBSIDIARY COMPANY ARE NOT ON ACCOUNT OF INV ESTMENT FOR EARNING CAPITAL GAINS OR DIVIDEND INCOME. SUCH INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE TO PROMO TE SUBSIDIARY COMPANY INTO THE HOTEL INDUSTRY. A PER USAL OF THE ORDER OF THE CIT(APPEALS) SHOWS THAT OUT OF TOTAL I NVESTMENT OF RS.64,18,19,775/-, RS.63,31,25,715/- IS INVESTED IN WHOLLY OWNED SUBSIDIARY. THIS FACT SUPPORTS THE CASE OF T HE ASSESSEE THAT THE ASSESSEE IS NOT INTO THE BUSINESS OF INVESTMENT AND THE INVESTMENTS MADE BY THE ASSESSEE ARE ON ACCOUNT OF BUSINESS EXPEDIENCY. ANY DIVIDEND EARNE D BY THE ASSESSEE FROM INVESTMENT IN SUBSIDIARY COMPANY IS P URELY INCIDENTAL. THEREFORE, THE INVESTMENTS MADE BY THE ASSESSEE IN ITS SUBSIDIARY ARE NOT TO BE RECKONED FOR DISALL OWANCE U/S. 14A R.W.R. 8D. THE ASSESSING OFFICER IS DIRECTED T O RE- COMPUTE THE AVERAGE VALUE OF INVESTMENT UNDER THE P ROVISIONS OF RULE 8D AFTER DELETING INVESTMENTS MADE BY THE A SSESSEE IN SUBSIDIARY COMPANY DECIDED IN FAVOUR OF ASSESS EE. FOR THE ABOVE SAID REASONS, WE HEREBY HOLD THAT IN THE CASE OF THE ASSESSEE THE PROVISIONS OF SECTION 14A READ WIT H RULE 8D WILL NOT BE APPLICABLE IN REGARD TO INVESTMENTS MAD E FOR ACQUIRING THE SHARES OF THE ASSESSEES SISTER CONCE RNS. ACCORDINGLY WE RESTRAIN OURSELVES FROM INTERFERING WITH THE ORDER OF THE LD.CIT(A) ON THIS REGARD. 8. THEREFORE, FOLLOWING THE AFORESAID DECISION OF T HE TRIBUNAL, WE HEREBY DIRECT THE LEARNED ASSESSING OF FICER TO DELETE THE ADDITION MADE ON ACCOUNT OF SECTION 1 4A WHERE INVESTMENTS ARE MADE IN SISTER CONCERNS SUCH AS EQUITY SHARES. HOWEVER, IF THE INVESTMENTS ARE MADE FROM BORROWED FUNDS, SECTION 14A OF THE ACT WOULD BE APPLICABLE AND LEARNED ASSESSING OFFICER SHALL COMP UTE THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8 D IN ACCORDANCE WITH LAW. 8. FOLLOWING THE ABOVE SAID DECISION, WE ARE OF THE CONSIDERED VIEW THAT IN THE CASE OF THE ASSESSEE FO R THE RELEVANT ASSESSMENT YEAR, THE PROVISIONS OF SECTION 14A WILL 11 ITA NO.2205 /MDS/2015 NOT BE APPLICABLE SINCE IT HAS INVESTED ITS INTERES T FREE FUNDS IN THE SISTER COMPANIES FOR STRATEGIC BUSINESS REAS ONS. THEREFORE, WE HEREBY DIRECT THE LEARNED ASSESSING O FFICER TO DELETE THE ADDITION MADE ON ACCOUNT SECTION 14A OF THE ACT. ACCORDINGLY, THE FIRST GROUND RAISED BY THE ASSESSE E IS DECIDED IN ITS FAVOUR. 9. SINCE WE HAVE HELD THAT IN THE CASE OF THE ASSES SEE PROVISIONS OF SECTION 14A WILL NOT BE APPLICABLE, T HE QUESTION OF DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D FOR THE RELEVANT ASSESSMENT YEAR FOR THE COMPUTATION OF TAX UNDER SECTION 115JB OF THE ACT WILL NOT ARISE AND THEREFO RE, THE SECOND GROUND RAISED BY THE ASSESSEE HAS BECOME INFRUCTUOUS. HOWEVER, ON THAT ISSUE ALSO AS CITED B Y THE LEARNED AUTHORIZED REPRESENTATIVE, THE CHENNAI BENC H OF THE TRIBUNAL IN THE CASE OF BEACH MINERALS COMPANY P.LT D. VS. ACIT REPORTED IN 64 TAXMANN.COM 218, IT HAS BEEN CATEGORICALLY HELD THAT WHILE COMPUTING THE TAX UND ER THE PROVISIONS OF SECTION 115JB OF THE ACT WHICH IS A P ROVISION WITH FICTION, ANY DISALLOWANCE MADE BY VIRTUE OF AN OTHER PROVISION WITH FICTION VIZ., SECTION 14A OF THE ACT , CANNOT BE 12 ITA NO.2205 /MDS/2015 ADDED TO THE BOOK PROFIT BECAUSE A PROVISION WITH F ICTION CANNOT BE SUPERIMPOSED ON ANOTHER PROVISION WITH FI CTION. THE GIST OF THE ORDER IS REPRODUCED HEREIN BELOW FO R REFERENCE:- 8.1. GROUND NO.5.(A) COMPUTATION OF BOOK PROFIT U/S.115JB OF THE ACT BY GIVING EFFECT TO THE DISALLOWANCE OF EXP ENDITURE MADE INVOKING THE PROVISIONS OF THE SECTION-14A OF THE ACT FOR ` 3,11,34,630/- AND ALSO THE DISALLOWANCE OF EXPENDIT URE UNDER THE NORMAL PROVISIONS OF THE ACT. 8.1.1 THE LD. ASSESSING OFFICER WHILE COMPUTING T HE TAX AS PER PROVISIONS OF SECTION 115JB OF THE ACT MADE ADD ITIONS TO THE BOOK PROFIT WITH RESPECT TO THE DISALLOWANCE MADE U /S.14A OF THE ACT READ WITH RULES-8D OF THE INCOME TAX RULES. ON APPEAL, THE LD. CIT (A) CITING THE PROVISIONS OF CLAUSE (F) OF EXPLANATION-1 TO SECTION-115JB, CONFIRMED THE ORDER OF THE LD. ASSES SING OFFICER. THE RELEVANT PORTION OF THE ORDER OF THE LD. CIT (A ) IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 10.2 I HAVE GONE THROUGH THE FACTS AND CIRCUMSTAN CES OF THE CASE. THE ASSESSING OFFICER HAS TAXED THE INCOME U/S.115J B SINCE THE TAX ON BOOK PROFITS IS MORE THAN THE TAX UNDER NORM AL COMPUTATION. WHILE DOING SO, SHE MADE DISALLOWANCE OF THE AMOUNT RELATABLE TO EXEMPT INCOME ON THE BASIS OF THE AMOUNT WORKED OUT U/S.14A R.W.RULE 8D UNDER NORMAL COMPUTATION. THE PROVISION S OF CLAUSE (F) OF EXPLANATION-1 TO S.115JB MAKES IT ABUNDANTLY CLE AR THAT THE AMOUNT OF EXPENDITURE RELATABLE TO ANY EXEMPT IN COME, OTHER THAN S.10(38), IS LIABLE TO BE ADDED BACK TO THE AMOUNT OF NET PROFIT AS SHOWN IN THE P&L A/C. RELIANCE IS PLACED ON THE LA TEST DECISION OF THE ITAT MUMBAI IN THE CASE OF DABUR INDIA LTD., 37 TAXMANN.COM 289. RELIANCE IS ALSO PLACED ON THE LATEST DECISIO N OF THE ITAT MUMBAI IN THE CASE OF RBK SHARE BROKING P. LTD IN I TA NO.6678 & 7546/MUM/2011 DATED 24.7.2013 WHEREIN IT WAS HELD T HAT THE AMOUNT DISALLOWABLE U/S.14A CAN BE ADDED BACK WHILE COMPUTING BOOK PROFIT UNDER EXPLANATION-1 TO S. 115JB(PARA 6) . RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, I UPHOLD THE ADDITIO N MADE BY THE ASSESSING OFFICER. THIS GROUND IS DISMISSED. HOWEVER, ON PERUSING THE EXPLANATION-1(F) OF SECTIO N-115JB(2) OF THE ACT, WE DO NOT FIND MERIT IN THE CONTENTION OF THE LD. CIT (A). THE RELEVANT PROVISION OF THE ACT IS EXTRACTED HERE IN BELOW FOR REFERENCE:- SECTION.115JB 13 ITA NO.2205 /MDS/2015 EXPLANATION-[1] FOR THE PURPOSES OF THIS SECTION, BOOK PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOS S ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTI ON(2), AS INCREASED BY (A) TO (E) --------------------------------------- ------------- (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO A NY INCOME TO WHICH [SECTION-10 (OTHER THAN THE PROVISI ONS CONTAINED IN CLAUSE (38) THEREOF] OR SECTION 11 OR SECTION 1 2 APPLY; (G) TO (J) --------------------------------------- -------------- FROM THE ABOVE IT IS APPARENT THAT THE AFORESAID PR OVISION OF THE ACT DOES NOT REFER TO ANY DISALLOWANCE MADE U/S.14A OF THE ACT WHILE ARRIVING AT THE BOOK PROFIT FOR THE PURPOSE O F SECTION- 115JB(2) OF THE ACT. FURTHER SECTION 14A OF THE ACT IS A PROVISION WITH FICTION DISALLOWING THE DEEMED EXPENDITURE ATT RIBUTABLE TO EXEMPT INCOME VIZ., DIVIDEND INCOME U/S. 10 OF THE ACT AND SECTION 115JB OF THE ACT IS ALSO A PROVISION WITH F ICTION FOR PAYMENT OF TAX IN RESPECT OF DEEMED INCOME. THEREFO RE WHILE COMPUTING THE PROFIT FOR THE PURPOSE OF SECTION 115 JB OF THE ACT ANOTHER PROVISION WITH FICTION CANNOT BE SUPERIMPOS ED. HENCE THE QUESTION OF INCREASING THE BOOK PROFIT DUE TO THE DISALLOWANCE U/S.14A OF THE ACT WILL NOT ARISE. HOWEVER, IN THE INSTANT CASE OF THE ASSESSEE, SINCE WE HAVE ALREADY DELETED THE ADD ITION MADE U/S.14A, INCREASING THE BOOK PROFIT WILL NOT ARISE. FURTHER THE DECISION OF HONBLE APEX COURT CITED BY THE ASSESSE E IN THE CASE M/S.APOLLO TYRES LTD. VS. CIT REPORTED IN 255 ITR 2 73 IS ALSO SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE. TH E GIST OF THE SAME IS REPRODUCED HEREIN BELOW FOR REFERENCE:- THE ASSESSING OFFICER, WHILE COMPUTING THE BOOK PR OFITS OF A COMPANY UNDER SECTION 115J OF THE INCOME-TAX ACT, 1 961, HAS ONLY THE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING B EEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. TH E ASSESSING OFFICER, THEREAFTER, HAS THE LIMITED POWER OF MAKIN G INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO SE CTION 115J . THE ASSESSING OFFICER DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFITS SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION. THE USE OF THE WORDS IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI T O THE COMPANIES ACT IN SECTION 115J WAS MADE FOR THE LIMITED PURPOSE OF EMPOWERING THE ASSESSING OFFICER TO RELY UPON THE AUTHENTIC STATEM ENT OF ACCOUNTS OF THE COMPANY. WHILE SO LOOKING INTO THE ACCOUNTS OF THE COMPANY, THE ASSESSING OFFICER HAS TO ACCEPT THE AUTHENTICITY OF THE ACCOUNTS WITH REFERENCE TO THE PROVISIONS OF THE COMPANIES ACT, W HICH OBLIGATE THE COMPANY TO MAINTAIN ITS ACCOUNTS IN A MANNER PROVID ED BY THAT ACT 14 ITA NO.2205 /MDS/2015 AND THE SAME TO BE SCRUTINIZED AND CERTIFIED BY STA TUTORY AUDITORS AND APPROVED BY THE COMPANY IN GENERAL MEETING AND THER EAFTER TO BE FILED BEFORE THE REGISTRAR OF COMPANIES WHO HAS A S TATUTORY OBLIGATION ALSO TO EXAMINE AND BE SATISFIED THAT TH E ACCOUNTS OF THE COMPANY ARE MAINTAINED IN ACCORDANCE WITH THE REQUI REMENTS OF THE COMPANIES ACT. SUB-SECTION (1A) OF SECTION 115J DOE S NOT EMPOWER THE ASSESSING OFFICER TO EMBARK UPON A FRESH ENQUIR Y IN REGARD TO THE ENTRIES MADE IN THE BOOKS OF ACCOUNT OF THE COMPANY . FROM THE ABOVE DECISION IT IS CLEAR THAT WHILE COMP UTING THE BOOK PROFIT OF THE COMPANY UNDER THE PROVISIONS OF SECT ION 115JB OF THE ACT; ANY DISALLOWANCE MADE UNDER THE NORMAL PROVISI ONS OF THE ACT ALSO CANNOT BE GIVEN EFFECT TO FOR ARRIVING AT THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED IN ITS FAVOUR . 10. FOLLOWING THE ABOVE DECISION, THE SECOND GROUND RAISED BY THE ASSESSEE IS ALSO DECIDED IN ITS FAVOUR. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 23 RD MARCH, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 23 RD MARCH, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /