TGS INVESTMENT & TRADE P. LTD, MUMBAI V. ITO WD 3(3)(3), MUMBAI

ITA 2233/MUM/2009

• Counselvise Citation: 223319914 RSA 2009
• Duration Of Justice: 2 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 05-01-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 09-04-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VANDANA SAGAR
• Keywords: Business expenditure; Earning of tax free income; Valuation report; Revenue expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'I' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 2233/MUM/2009 (ASSESSMENT YEAR: 2004-05) TGS INVESTMENT & TRADE PVT. LTD. INCOME TAX OFFICER - 3(3)(3) 212, T.V. INDUSRIAL ESTATE MUMBAI 52, S.K. AHIRE MARG, WORLI VS. MUMBAI 400030 PAN - AABCT 6593 K APPELLANT RESPONDENT APPELLANT BY: SHRI YOGESH THAR RESPONDENT BY: SMT. VANDANA SAGAR O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- XXXII, MUMBAI DATED 03.03.2009 2. ASSESSEE HAS RAISED SIX GROUNDS ON VARIOUS ISSUES. GROUND NO. 1 PERTAINS TO DISALLOWANCE OF AN AMOUNT OF ` 63,29,217/-, EXPENDITURE INCURRED ON MAKING OPEN OFFER FOR ACQUIRING SHARES IN ANOTHER COMPANY DISALLOWED UNDER SECTION 14A AND GROUND NOS. 2, 3 & 4 PERTAIN TO FURTHER DISALLOWANCE UNDER SECTION 14A OF ` 68,50,301/- INVOKING RULE 8D BY THE CIT(A) AND GROUND NO. 5 PERTAINS TO CAPITALIZATION OF THE AMOUNT SPENT FOR ACQUISITION OF SHARES OF ANOTHER COMPANY. GROUND NO . 6 PERTAINS TO NOT GIVING CREDIT OF TDS OF ` 18,48,486/-. IN THE COURSE OF ARGUMENT ASSESSEE WITHDREW GROUND NO. 2 PERTAINING TO THE ISSUE OF NA TURAL JUSTICE OF NOT GIVING OPPORTUNITY BEFORE ENHANCEMENT BY THE CIT(A). THERE FORE, GROUND NO. 2 IS TREATED AS WITHDRAWN. 3. THE ISSUES CONTESTED IN GROUND NOS. 1,2 &3 IS WITH REFERENCE TO DISALLOWANCE OF EXPENDITURE OF ` 63,29,217/- UNDER SECTION 14A BY THE AO BEING EXPENDITURE INCURRED FOR CONSIDERING THE VALI DITY AND POSSIBILITY OF ACQUIRING SHARE CAPITAL OF INDO GULF FERTILISERS LT D AND ENHANCEMENT BY ITA NO. 2233/MUM/2009 TGS INVESTMENT & TRADE PVT. LTD. 2 CIT(A). THE FACTS PERTAINING TO THIS DISALLOWANCE A RE THAT DURING THE YEAR RELEVANT FOR A.Y. 2004-05 ASSESSEE HAD ACQUIRED 51% STAKE IN INDO GULF FERTILISERS LTD. THE STAKE WAS ACQUIRED BY PURCHASE OF SHARES FROM THE MARKET AND BY MAKING AN OPEN OFFER. FOR THE ABOVE O FFER ASSESSEE INCURRED EXPENDITURE AMOUNTING TO ` 92,71,202/- OUT OF THIS, ASSESSEE CAPITALIZED AN AMOUNT OF ` 16,57,235/- AND THE REMAINING AMOUNT OF ` 76,13,867/- WAS TREATED AS REVENUE IN NATURE. FURTHER, OUT OF THE S AID AMOUNT ASSESSEE ITSELF DISALLOWED ` 12,25,000/- SPENT ON ACCOUNT OF STAMP DUTY EXPENSES WHILE FILING THE RETURN. THE REMAINING EXPENDITURE OF ` 63,88,867/- WAS CLAIMED AS DEDUCTION IN FULL AS REVENUE EXPENDITURE. OUT OF TH E SAID EXPENDITURE THE A.O. DISALLOWED AN AMOUNT OF RS,.63,29,217/- UNDER SECTION 14A ON THE FOLLOWING GROUNDS: - I. THE EXPENSES INCURRED FOR OPEN OFFER WERE FOR I NVESTMENT PURPOSE. II. THAT INVESTMENT IS A LONG-TERM INVESTMENT AND THIS WOULD EARN DIVIDEND, WHICH WOULD BE EXEMPT FROM TAX. III. THAT THE INTENTION OF THE COMPANY (THE APPELLANT) W AS TO TAKE OVER INDO GULF FERTILISERS LIMITED, TAKING OVER OF COMPANY CANNOT BE SAID TO BE BUSINESS OF THE COMPANY. IV. THAT DIVIDEND INCOME IS EXEMPT FOR TAX, HENCE, EXPE NDITURE INCURRED IN THIS CONNECTION BE DISALLOWED UNDER 14A OF THE ACT. 4. IT WAS ASSESSEES SUBMISSION THAT IT IS A NON-BANK ING FINANCIAL COMPANY REGISTERED WITH RBI AND ONE OF THE MAIN OBJ ECTIVES IS MAKING INVESTMENT FOR WHICH IT MAY BE REQUIRED TO INCUR EX PENDITURE AND HENCE THE CLAIM OF THE A.O. THAT THE EXPENDITURE INCURRED WAS NOT FOR THE PURPOSE OF BUSINESS IS NOT CORRECT. FURTHER IT IS ALSO EXPLAIN ED THAT IN OPEN OFFER PROCEDURE THE COMPANY FIRST CONSIDERED THE VALIDITY OF OPEN OFFER FOR PURCHASE OF SHARES. IN THIS RESPECT THE COMPANY CON SIDERED VARIOUS FACTORS AND VALUATION REPORTS AND DECIDED UPON THE PRICE AT WHICH OPEN OFFER CAN BE MADE TO THE SHAREHOLDERS. THEREFORE, PUBLIC OFFER W AS MADE TO ACQUIRE SHARES OF THE SHARES OF THE TARGET COMPANY (IN THIS CASE INDO GULF FERTILISERS LTD.) FROM THE SHAREHOLDERS THROUGH A LETTER OF OFF ER MADE TO THE SHAREHOLDERS. AFTER RECEIPT OF APPLICATION FROM INT ERESTED PARTIES THE COMPANY MANAGEMENT DECIDES THE INVESTMENT TO BE MAD E AND THIS IS WHEN ITA NO. 2233/MUM/2009 TGS INVESTMENT & TRADE PVT. LTD. 3 THE INVESTMENT HAS TRIGGERED. IT WAS THE CONTENTION THAT ANY EXPENDITURE WHICH WAS INCURRED BEFORE THE DECISION OF THE MANAG EMENT TO MAKE THE INVESTMENT WOULD BE FOR OPEN OFFER AND WOULD NOT RE SULT IN INVESTMENT SO THIS IS REVENUE IN NATURE. IT WAS FURTHER SUBMITTED , RELYING ON THE PRINCIPLES ESTABLISHED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF BRALCO METAL INDUSTRIES PVT. LTD. VS. CIT 206 ITR 477 (BOM), THE ASSESSEES BUSINESS IS JUST MAKE INVESTMENT AND THE EXPENDITURE INCURRED F OR ARRIVING AT A DECISION TO INVEST IS BUSINESS DECISION AND THE EXPENDITURE IS NOT CAPITAL IN NATURE BUT REVENUE. FURTHER, RELYING OF THE PRINCIPLES EST ABLISHED BY THE HON'BLE P&H HIGH COURT IN THE CASE OF CIT VS. OSWAL WOOLLEN MILLS LTD. 289 ITR 270 WHEREIN THE TOUR EXPENSES WERE HELD AS REVENUE EXPE NDITURE EVEN IF NO MACHINERY WAS PURCHASED ASSESSEE SUBMITTED THAT IT HAS INCURRED EXPENSES TO DECIDE THE VALIDITY OF THE OPEN OFFER, THEREFORE , THE BASIS OF THE SAID DECISION WOULD RESULT IN REVENUE EXPENDITURE. NOT O NLY ON THE ABOVE PRINCIPLES, THE ASSESSEE ALSO SUBMITTED THAT THE AS SESSEE EARNED ONLY DIVIDEND INCOME OF ` 22,28,572/- AND AN AMOUNT OF ` 1,09,470/- WAS ALSO DISALLOWED BY THE ASSESSEE AND FURTHER SHARES ACQU IRED THROUGH OPEN OFFER HAVE NOT YIELDED ANY INCOME IN THE FORM OF DIVIDEND TO THE ASSESSEE, THEREFORE, DISALLOWANCE UNDER SECTION 14A DOES NOT ARISE. ASSESSEE RELIED ON THE DECISION OF THE ITAT IN THE CASE OF ACIT VS. LA FARGE INDIA HOLDING P. LTD. 19 SOT 121 (MUM) AND SHREE SHYAMKAMAL FINANCE & LEA SING CO. P. LTD. 21 SOT 42 (MUM). WITHOUT PREJUDICE TO THE ABOVE ASS ESSEE ALSO MADE AN ALTERNATE CONTENTION THAT ANY AMOUNT IF DISALLOWED SHOULD BE CAPITALISED TO COST OF INVESTMENT AND SHOULD BE ALLOWED AS DEDUCTI ON IN THE YEAR OF SALE OF SUCH INVESTMENT. IT WAS FURTHER SUBMITTED THAT THIS ALTERNATE CLAIM IS JUSTIFIED BECAUSE THE DISALLOWANCE CAN BE CONFIRMED ONLY IF THE EXPENSES ARE IN RELATION TO SUCH INVESTMENT AND IF IT IS HELD TH AT SUCH EXPENSES ARE IN RELATION TO THE INVESTMENTS, THEN SUCH EXPENSES ARE TO BE ALLOWED TO BE CAPITALIZED. ASSESSEE RELIED ON VARIOUS CASE LAWS O N THE ALTERNATE SUBMISSIONS. 5. THE CIT(A), HOWEVER DID NOT AGREE WITH ANY OF THE C ONTENTIONS OF THE ASSESSEE AND INVOKED RULE 8D AND DISALLOWED 5% OF T HE AVERAGE VALUE OF INVESTMENT AND ACCORDINGLY HE COMPUTED DISALLOWANCE AT ` 1,32,8,988/- AS ITA NO. 2233/MUM/2009 TGS INVESTMENT & TRADE PVT. LTD. 4 EXPENDITURE RELATING TO EXEMPT INCOME. HE DISALLOWE D FURTHER AMOUNT OF ` 68,50,301/- CONTESTED IN GROUND NOS. 3 & 4 BY THE A SSESSEE. 6. DRAWING OUR ATTENTION TO THE ISSUE AND VARIOUS DETA ILS FILED IN THE PAPER BOOK, IT WAS ASSESSEES CONTENTION THAT INVOK ING RULE 8D APPLICABLE FOR A.Y. 2008-09 WAS NOT CORRECT. THEREFORE, THE EN HANCEMENT MADE BY THE CIT(A) AND COVERED BY GROUND NOS. 3 & 4 ARE TO BE A LLOWED AS RULE 8D WAS HELD TO BE APPLICABLE ONLY PROSPECTIVELY AND THE DE CISION OF THE ITAT SPECIAL BENCH IN THE CASE OF DAGA CAPITAL MANAGEMENT P. LTD 26 ASOT 603, RELIED UPON BY THE CIT(A) WAS REVERSED BY THE HON'BLE BOMB AY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT 328 I TR 81. WITH REFERENCE TO DISALLOWANCE OF ` 63,29,217/- THE LEARNED COUNSEL SUBMITTED THAT IT I S THE BUSINESS EXPENDITURE AND SIMILAR ISSUE WAS CONSIDER ED BY THE ITAT IN THE CASE OF I-VEN INTERACTIVE LTD. ITA NO. 3256/MUM/200 9 DATED 27.10.2010 WHEREIN THE NATURE OF THE ACTIVITY OF ASSESSEE OF I NVESTMENT IN SHARES IS CONSIDERED AS BUSINESS ACTIVITY, THEREFORE, THE CLA IM OF EXPENDITURE IS ALLOWABLE IN ACCORDANCE WITH THE LAW. FURTHER, THE LEARNED COUNSEL RELIED ON THE DECISION OF IN THE CASE OF CIT VS. SRISHTI SECU RITIES P. LTD. 183 TAXMAN 159 (BOM) TO SUBMIT THAT WHETHER FUNDS WERE BORROWE D BY AN INVESTMENT COMPANY FOR MAKING INVESTMENT IN SHARES WHICH MAY B E HELD AS INVESTMENT OR AS STOCK-IN-TRADE OR FOR THE PURPOSE OF CONTROLL ING INTEREST IN OTHER COMPANIES, INTEREST PAID ON SUCH BORROWED FUNDS WOU LD BE DEDUCTIBLE UNDER SECTION 36(1)(III). IT WAS SUBMITTED THAT THIS DECI SION WILL APPLY TO ASSESSEES CASE AS THE ASSESSEE IS INVESTING IN OTHER COMPANIE S AND THIS IS TO BE CONSIDERED AS BUSINESS EXPENDITURE. THEREFORE, THE AMOUNT SPENT FOR BUYING THE SHARES OF THE COMPANY IS TO BE CONSIDERED AS BU SINESS EXPENDITURE. 7. THE LEARNED COUNSEL FURTHER REFERRED TO THE JUDGEME NT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . CO. LTD. VS. DCIT 328 ITR 81 TO SUBMIT THAT THE PROXIMATE CAUSE FOR INCURRING THE EXPENDITURE IS THE TAKEOVER REGULATION OF SEBI WHIC H HAS TRIGGERED WHEN ASSESSEE HAS INVESTED MORE THAN 20% OF THE SHARE CA PITAL OF A COMPANY AND THEREFORE RELYING OF THE PRINCIPLES ESTABLISHED BY THE JUDGEMENT OF THE HON'BLE BOMBAY HIGH COURT(SUPRA), SINCE THE PROXIMA TE CAUSE FOR INCURRING ITA NO. 2233/MUM/2009 TGS INVESTMENT & TRADE PVT. LTD. 5 EXPENDITURE BEFORE MAKING THE INVESTMENT IS THE TAK EOVER REGULATIONS OF SEBI AND SO, THE EXPENDITURE CANNOT BE CONSIDERED A S EXPENDITURE OF INVESTMENT IN NATURE AND THEREFORE HAS TO BE ALLOWE D AS REVENUE EXPENDITURE. FURTHER RELYING ON THE PRINCIPLES ESTA BLISHED BY THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTYINDIA VS. CIT 1 83 TAXMAN 349 IT WAS SUBMITTED THAT THE FIRST DEGREE SOURCE PRINCIPLE FO R THIS EXPENDITURE WAS TAKE-OVER REGULATIONS OF SEBI AND NOT THE DECISION TO INVEST IN INDO GULF FERTILISERS LTD., THEREFORE, FOLLOWING THE PRINCIPL ES ESTABLISHED BY THE HON'BLE SUPREME COURT THE EXPENDITURE CAN ONLY BE RELATED T O THE SEBI REGULATIONS AND THEREFORE CANNOT BE RELATED TO THE INVESTMENT I N SHARES. THEREFORE, EVEN ON THE ABOVE PRINCIPLES SINCE THE FIRST DEGREE SOUR CE FOR EXPENDITURE IS NOT THE DECISION OF THE INVESTMENT, THE EXPENDITURE HAS TO BE CONSIDERED AS REVENUE EXPENDITURE. THE LEARNED COUNSEL FURTHER EX PLAINED THE PROPOSITION TO SUBMIT THAT IF THE TAKE-OVER CODE OF SEBI HAS NO T TRIGGERED, THERE IS NO NEED TO SPENT THE AMOUNT AS THERE IS NO NEED FOR OP EN OFFER TO SHAREHOLDERS AND TILL AN OFFER WAS MADE AND WAS ACCEPTED BY THE SHAREHOLDERS AND A DECISION WAS TAKEN, THE EXPENDITURE PERTAINS TO COM PLIANCE TO SEBI TAKE OVER CODE AND THEREFORE CANNOT BE RELATE TO THE INV ESTMENT DECISION TAKEN SUBSEQUENTLY. IT WAS FURTHER SUBMITTED THAT IN THE ABSENCE OF PROXIMATE CAUSE IN EARNING INCOME, THE DISALLOWANCE UNDER SEC TION 14A CANNOT BE MADE AND THE EXPENDITURE INCURRED BY MAKING THE OPE N OFFER CANNOT BE CONSIDERED AS EXPENDITURE FOR EARNING EXEMPT INCOME . FURTHER RELYING ON THE PRINCIPLES ESTABLISHED BY THE HON'BLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. ELPHINSTONE SPINNING AND WEAVING MILLS CO. LTD. 100 ITR 139 AND THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CA SE OF CIT VS. INVESTMENT TRUST OF INDIA LTD. 127 TAXMAN 168 AND CIT VS. MODI SPINNING AND WEAVING MILLS CO. LTD. 89 ITR 304 (ALL) IT WAS THE SUBMISSI ON OF THE LEARNED COUNSEL THAT THE EXPENDITURE IS WHOLLY AND NECESSARILY FOR THE PURPOSE OF BUSINESS, THEREFORE, THE SAME WAS ALLOWABLE UNDER SECTION 37( 1). THE LEARNED COUNSEL IN THE ALTERNATE REFERRED TO THE SUBMISSION MADE BE FORE THE CIT(A) THAT IN THE CASE THIS EXPENDITURE WAS CONSIDERED TO BE THAT OF INVESTMENT IN SHARES THE ALTERNATE SUBMISSION MADE BEFORE THE CIT(A) THA T IT SHOULD BE ALLOWED TO BE CAPITALISED, CONTESTED IN GROUND NO. 5 SHOULD BE CONSIDERED. ITA NO. 2233/MUM/2009 TGS INVESTMENT & TRADE PVT. LTD. 6 8. THE LEARNED D.R. IN REPLY REFERRED TO THE FACTS OF THE CASE AND SUBMITTED THAT THE ENTIRE EXPENDITURE WAS INCURRED FOR ACQUIRING THE SHARES OF ANOTHER COMPANY INDO GULF FERTILISERS LTD. TO AN EXTENT OF 51%. IT WAS HIS SUBMISSION, REFERRING TO THE MEMORANDUM AND ARTICLE S PLACED ON RECORD, THAT THE ASSESSEE COMPANY DOES NOT HAVE ANY POWER T O SELL THE SHARES AS CAN BE SEEN FROM THE MAIN OBJECTIVE OF THE COMPANY AND THEREFORE IT IS ONLY FOR THE PURPOSE OF INVESTMENT AND EARNING DIVIDEND THEREON THE EXPENDITURE WAS SPENT. THEREFORE, PROVISIONS OF SECTION 14A ARE APPLICABLE. FURTHER IT WAS THE CONTENTION THAT EVENTHOUGH THE DIVIDEND WAS NOT EARNED DURING THE YEAR ASSESSEE WAS IN RECEIPT OF DIVIDEND IN LATER Y EARS FROM THE INVESTMENT MADE IN INDO GULF FERTILISERS LTD. THEREFORE, THE C ASE LAWS RELIED UPON BY THE LEARNED COUNSEL THAT SECTION 14A DOES NOT APPLY HAS NO BASIS AS THE MAIN PURPOSE OF THE INVESTMENT IS WITH REFERENCE TO INVE STMENT IN A COMPANY, THE SHARES OF WHICH ONCE ACQUIRED CANNOT BE SOLD. IT WA S FURTHER SUBMITTED THAT ASSESSEE ITSELF HAS DISALLOWED PART OF THE EXPENDIT URE AS CAPITAL IN NATURE AND CAPITALISED AND SO THE BALANCE OF THE EXPENDITU RE INCURRED FOR THE SAME PURPOSE SHOULD BE DISALLOWED EVEN ON THAT GROUND. C ONTESTING THE ARGUMENT OF THE LEARNED COUNSEL THAT THE PROXIMATE CAUSE OF THE FIRST DEGREE OF EXPENDITURE IS TAKE-OVER CODE OF THE SEBI, IT WAS S UBMITTED THAT THE NECESSITY FOR ACQUIRING THE SHARES WAS FELT FIRST B Y THE COMPANY AND THEN ONLY THE SEBI TAKE-OVER GUIDELINES CAME TO BE APPLI ED. UNLESS ASSESSEE DECIDES TO ACQUIRE MORE THAN THE REQUIRED MINIMUM, NATURALLY SEBI GUIDELINES DOES NOT APPLY. SINCE IT WAS ASSESSEE CO MPANYS DECISION TO ACQUIRE MORE THAN THE MINIMUM PRESCRIBED UNDER THE PRESCRIBED GUIDELINES THE SAID GUIDELINES ARE APPLICABLE. THEREFORE, THE EXPENDITURE WAS INCURRED IN RELATION TO ACQUISITION OF SHARES. THE LEARNED D .R. REFERRED TO THE DECISION OF THE ITAT KOLKATA C BENCH IN THE CASE OF DCIT V S. S.G. INVESTMENT AND INDUSTRIES LTD. 89 ITD 44 TO SUBMIT THAT THE HON'BL E ITAT DISCUSSED THE ISSUE WITH REFERENCE TO THE WORD IN RELATION TO IN COME WHICH HAS WIDER MEANING THAN THE WORD FOR THE PURPOSE OF MAKING OR EARNING INCOME USED IN SECTION 53 OF THE ACT. RELYING ON PARA 18 OF THE ABOVE DECISION IT WAS THE SUBMISSION OF THE LEARNED D.R. THAT EXPRESSION IN RELATION TO USED IN SECTION 14A HAS BOTH DIRECT SIGNIFICANCE AS WELL AS INDIRECT SIGNIFICANCE ITA NO. 2233/MUM/2009 TGS INVESTMENT & TRADE PVT. LTD. 7 HAVING REGARD TO THE CONTEXT IN WHICH IT IS USED. I F SUCH A WIDER MEANING IS GIVEN, SAID EXPRESSION WOULD ENCOMPASS NOT ONLY THE DIRECT OR PROXIMATE EXPENDITURE INCURRED FOR THE PURPOSE OF MAKING OR E ARNING EXEMPT INCOME, BUT IT WOULD INCLUDE ALL OTHER EXPENSES ATTRIBUTABL E OR IN RELATION TO EXEMPT INCOME. THE LEARNED D.R. FURTHER SUBMITTED THAT THE DECISION RELIED UPON BY THE LEARNED COUNSEL WITH REFERENCE TO THE PROXIMATE CAUSE OR FIRST DEGREE SOURCE ARE NOT APPLICABLE AS SECTION 14A USES THE W ORD IN RELATION TO. IT WAS FURTHER SUBMITTED THAT THE EXPRESSED INTENTION MUST GUIDE THE COURT. ANOTHER RULE OF CONSTRUCTION WHICH IS RELEVANT TO T HE PRESENT IS EXPRESSED IN THE MAXIM, GENERALIA SPECIALIBUS NON DEROGENT , WHICH MEANS THAT WHEN THERE IS A CONFLICT BETWEEN A GENERAL AND A SPECIAL PROVISION, THE LATTER SHALL PREVAIL [QUOTED FROM SHAHZADA NAND AND SONS 60 ITR 392 (SC)]. 9. THE LEARNED D.R. FURTHER SUBMITTED THAT RELIANCE ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD. VS. DCIT 328 ITR 81 BY THE LEARNED A.R. AND SOME PORTIO NS OF THE ORDER IS NOT CORRECT AND REFERRED TO THE FINDING IN PAGE 120 AND 121 OF THE ORDER TO SUBMIT THAT THE ACTION OF THE A.O. IN DISALLOWING U NDER SECTION 14A IS CORRECT. WHILE ADMITTING THAT THE HON'BLE BOMBAY HI GH COURT HAS HELD THAT RULE 8D WAS NOT APPLICABLE PRIOR TO A.Y. 2008-09, T HE A.O. HAS TO ENFORCE THE PROVISIONS OF SUB-SECTION 1 OF SECTION 14A FOR THAT PURPOSE THE A.O. IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS B EEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. FURTHER REFERRING TO SUB-PARA(VII) OF PARA 74 IN THE ABOVE SAID ORDER THE LEARNED D.R. SUBMITTED THAT THE A.O. SHALL DETERMI NE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE, DIRECT OR IN DIRECT, IN RELATION TO DIVIDEND INCOME/INCOME FROM CAPITAL FUNDS WHICH DOE S NOT FORM PART OF THE TOTAL INCOME AS ADMISSIBLE UNDER SECTION 14A. THE L EARNED D.R. ALSO RELIED ON THE DECISION OF THE P&H HIGH COURT IN THE CASE O F HARYANA LAND RECLAMATION AND DEVELOPMENT CORPORATION LTD. VS. CI T 302 ITR 28 TO SUBMIT THAT THE PROVISIONS OF SECTION 14A WILL COME INTO FORCE WHERE NO EXPENDITURE CAN BE ALLOWED IN CASE CORRESPONDING IN COME IS EXEMPT. THEREFORE, SINCE THE DIVIDEND INCOME IS EXEMPT IT W AS SUBMITTED THAT THE EXPENDITURE CANNOT BE ALLOWED AS CLAIMED BY THE ASS ESSEE. THE LEARNED D.R. ITA NO. 2233/MUM/2009 TGS INVESTMENT & TRADE PVT. LTD. 8 ALSO RELIED ON THE PRINCIPLES ESTABLISHED BY THE HO N'BLE SUPREME COURT IN THE CASE OF HEMALATA GARGYA VS. CIT 259 ITR 1 TO SU BMIT THAT REVENUE CAN QUESTION THE ISSUE EVEN IF IT IS ACCEPTED IN ANOTHE R DECISION AND RELIED ON THE PRINCIPLES OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SUN ENGINEERING WORKS P. LTD. 198 ITR 297 TO SUBMIT THAT IT IS NOT PROPER TO RECORD A WORD, CLAUSE OR SENTENCE GIVEN IN THE JUDGEMENT OF THE HO N'BLE SUPREME COURT DIVERSE FROM ITS CONTEXT, AS CONTAINING FULL EXPRES SION OF LAW ON A QUESTION WHICH DO NOT EVEN FALL IN THE SCOPE OF JUDGEMENT. R ELYING ON THE ABOVE PRINCIPLES, IT WAS THE SUBMISSION OF THE LEARNED D. R. THAT THE DECISION GIVEN IN THE CASE OF LIBERTY INDIA (SUPRA) WAS IN THE CON TEXT OF INCOME DERIVED UNDER SECTION 80IA/IB. THEREFORE, RELIANCE ON THE A BOVE JUDGEMENT BY THE LEARNED COUNSEL IS NOT CORRECT. SHE THEN SUBMITTED A COPY OF THE SUBMISSION MADE FOR A.Y. 2005-06 BY THE ASSESSEE COMPANY AND A NNEXURE C TO THE ANNUAL REPORT TO SUBMIT THAT ASSESSEE ADMITTED THE MAIN ACTIVITY COMPRISES OF MAKING LONG TERM INVESTMENT IN SHARES, SECURITIE S, ETC. WITH A VIEW TO EARN DIVIDEND ON UNITS OF MUTUAL FUNDS AND GIVING L OANS, ETC. THEN SHE REFERRED TO THE AMOUNTS INVESTED IN VARIOUS COMPANI ES AND DIVIDEND EARNED OF ` 6.43 CRORES ON THE SHARES OF INDO GULF FERTILISERS LTD., WHICH HAS BEEN CLAIMED AS EXEMPT INCOME UNDER SECTION 10(34) OF TH E I.T. ACT. IT WAS SUBMITTED THAT THE ENTIRE EXPENDITURE WAS INCURRED FOR ACQUIRING THE SHARES, WHICH ARE TREATED AS INVESTMENT, THEREFORE, THE EXP ENDITURE SHOULD NOT BE ALLOWED AS REVENUE EXPENDITURE. 10. THE LEARNED COUNSEL IN REPLY, HOWEVER, RELIED ON VA RIOUS PRINCIPLES. WHILE ADMITTING THAT ASSESSEE COMPANYS MEMORANDUM AND ARTICLES DOES NOT PERMIT SALE OF SHARES IT WAS SUBMITTED THAT ASS ESSEE IS IN THE BUSINESS OF INVESTING, THEREFORE THE EXPENDITURE IS ALLOWABLE A S REVENUE EXPENDITURE. 11. WE HAVE CONSIDERED THE ISSUE AND RIVAL ARGUMENTS. A S SEEN FROM THE FACTS ASSESSEE DECIDED TO ACQUIRE 51% SHARE CAPITAL IN INDO GULF FERTILISERS LTD., WHICH IS A GROUP COMPANY. FIRST IT WAS THE DE CISION TO ACQUIRE THE SHARES MORE THAN THE MINIMUM REQUIRED UNDER THE SEB I GUIDELINES.AS PER THE GUIDELINES ASSESSEE HAS TO MAKE AN OPEN OFFER F OR ACQUIRING SHARES FROM THE PUBLIC. IT IS ON RECORD THAT THE TOTAL EXPENDIT URE INCURRED EXCEPT THE ITA NO. 2233/MUM/2009 TGS INVESTMENT & TRADE PVT. LTD. 9 ABOVE SAID EXPENDITURE WAS TREATED AS CAPITAL EXPEN DITURE AND WAS CAPITALISED TO THE SHARE ACQUISITION ACCOUNT AND TR EATED AS INVESTMENT MADE IN ACQUIRING SHARES. THE REASON WHY THIS EXPENDITUR E WAS CLAIMED AS REVENUE EXPENDITURE IS THAT THE EXPENDITURE WAS NOT IN RELATION TO INVESTMENT IN SHARES BUT IN RELATION TO SEBI TAKE-O VER CODE. VARIOUS PRINCIPLES OF LAW WERE RELIED UPON BY THE ASSESSEE BEFORE THE CIT(A) AS WELL AS BEFORE US TO SUBMIT THAT THE EXPENDITURE IS REVE NUE IN NATURE. BEFORE ADVERTING TO THE LEGAL PRINCIPLES OF THE ISSUE IT I S NECESSARY TO EXTRACT THE NATURE OF EXPENDITURE CLAIMED BY THE ASSESSEE AS RE VENUE EXPENDITURE. SR. NO. PARTICULARS AMOUNT ( ` ) 1 LEGAL & PROFESSIONAL CHARGES PAID TO HARIBHAKTI & CO. FOR VALUATION 2,70,000 PAID TO AMARCHAND & MANGALDAS FOR LEGAL OPINION ON PROVISIONS OF TAKEVOER CODE 75,000 PAID TO GULAM VAHANVATI FOR LEGAL OPINION ON ACQUISITION OF SHARES 1,00,000 PAID TO DSP MERRILL LYNCH FOR ADVISORY FEES 19,47 ,789 PAID TO AMARCHAND & MANGALDAS FOR LEGAL OPINION ON MRTP APPLICABILITY PROVISIONS 50,000 PAID TO AMARCHAND MANGALDAS FOR LEGAL OPINION ON ACQUISITION OF SHARES 1,00,000 2 ADVERTISEMENT EXPENSES PAID TO CONCEPT COMMUNICATION FOR ADVERTISEMENT 4,53,928 3 OPEN OFFER EXPENSES (DIRECT EXPENSES) 28,12,261 4 PRINTING & STATIONERY PAID TO ORIENT PRINTERS FOR PRINTING 5,20,239 TOTAL EXPENSES ON ACCOUNT OF OPEN OFFER 63,29,217 12. IT IS ALSO A FACT THAT THE ASSESSEE COMPANY PURCHAS ED 8,57,143 SHARES OF M/S. INDO GULF FERTILISERS LTD. FROM THE MARKET ON WHICH IT HAS RECEIVED DIVIDEND OF ` 22,28,572/- PURCHASED DURING THE PERIOD 20.05.2003 TO 05.06.2003. THE EXPENDITURE ON THE ABOVE PURCHASE O F SHARES WAS TREATED AS CAPITAL IN NATURE INCLUDING THE STAMP FEES PAID. ASSESSEE FURTHER ACQUIRED TOTAL 51% SHARES OF INDO GULF FERTILISERS LTD. AT A TOTAL COST OF ` 17.96 CRORES AND FOR THIS PURPOSE THEY ACQUIRED SHARES BY MAKING AN OPEN OFFER TO THE GENERAL PUBLIC TO ACQUIRE EQUITY SHARES REPRESENTIN G 20% OF THE VOTING SHARE CAPITAL OF INDO GULF FERTILISERS LTD. IT IS ALSO A FACT THAT THE COMPANY WAS ITA NO. 2233/MUM/2009 TGS INVESTMENT & TRADE PVT. LTD. 10 INCORPORATED ON 09.05.2002 AND AS ON 01.04.2003 THE COMPANY DID NOT MAKE ANY INVESTMENT IN SHARES OF ANY COMPANY. AS ON 31.03.2004 THE COMPANY OWNS 51% SHARE OF INDO GULF FERTILISERS LTD . THIS EXPENDITURE IS NOT IN THE NATURE OF EXPENDITURE DESCRIBED IN SECTI ON 30 TO 36 OF THE ACT. ASSESSEE, EVENTHOUGH CONTESTED THAT IT WAS IN THE B USINESS OF INVESTMENT AS SEEN FROM THE MEMORANDUM AND ARTICLES THE ASSESSEE CAN INVEST BY WAY OF INVESTMENT IN SHARES, STOCK AND DEBENTURES AND THE MAIN OBJECT OF THE COMPANY AS PER THE MEMORANDUM AND ARTICLE PLACED ON RECORD AT PAGE 43 OF THE PAPER BOOK IS AS UNDER: - 1. TO CARRY ON BUSINESS OF AN INVESTMENT COMPANY A ND TO BUY, UNDERWRITE, INVEST IN, ACQUIRE, HOLD SHARES, DEBENT URE STOCK, BONDS, OBLIGATIONS AND SECURITIES OR ANY KIND ISSUE D OR GUARANTEED BY ANY COMPANY CONSTITUTED OR CARRYING O N BUSINESS IN INDIA AND ABROAD AND DEBENTURE, DEBENTURE-STOCK, BONDS, OBLIGATIONS AND SECURITIES, ISSUED OR GUARANTEED BY ANY GOVERNMENT, STATE, DOMINIONS, SOVEREIGN, RULE COMMI SSIONERS, PUBLIC BODY OR AUTHORITY, SUPREME, MUNICIPAL, LOCAL OR OTHERWISE, FIRM OR PERSON WHETHER IN INDIA AND ABOARD. 2. TO HOLD BY WAY OF INVESTMENT, SHARES, STOCKS, DEBEN TURES, DEBENTURE-STOCKS, BONDS, OBLIGATIONS, UNITS, SECURI TIES AND OTHER INVESTMENTS. 3. TO CARRY ON BUSINESS AS GENERAL MERCHANTS AND TRADE RS IN COAL ON READY OR FORWARD BASIS, COMMISSION AGENTS, BUYIN G AND SELLING AGENTS, BROKERS, IMPORTERS, EXPORTERS AND T O ACT AS REPRESENTATIVES. 13. INTERESTINGLY THE ASSESSEE DOES NOT HAVE ANY OBJECT TO SELL THE SHARES AND CAN ONLY BUY OR ACQUIRE AND HOLD SHARES. THIS I NDICATES THAT ASSESSEE CANNOT DO ANY TRADING BUSINESS IN BUYING AND SELLIN G OF SHARES BUT CAN ONLY INVEST IN OTHER COMPANIES. NOT ONLY THAT THE LEARNE D D.R. PLACED ON RECORD ANNEXURE C TO THE NOTES TO THE ACCOUNT IN WHICH THE ASSESSEE COMPANY FOR F.Y. 2004-05 ADMITTED THAT ITS MAIN ACTIVITY COMPRI SES MAKING LONG TERM INVESTMENT IN SHARES AND SECURITIES WITH A VIEW TO EARN DIVIDEND. THEREFORE, THIS CANNOT BE CONSIDERED AS ASSESSEES BUSINESS AS ASSESSEE IS IN THE NATURE OF INVESTMENT COMPANY ONLY. THEREFORE, THE RELIANCE ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF I-VEN INTERACTIVE L TD. ITA NO. 3256/MUM/2009 DATED 27.10.2010 IS NOT APPLICABLE. I N THAT CASE ASSESSEE HAS IN THE OBJECT CLAUSE OF ENGAGING ITSELF TO CAR RY ON BUSINESS BUYING AND ITA NO. 2233/MUM/2009 TGS INVESTMENT & TRADE PVT. LTD. 11 SELLING OF SHARES AND HOLDING SHARES, WHICH WAS ANA LYSED BY THE ITAT AND HELD THAT ASSESSEE IS IN THE BUSINESS WHEREAS IN TH E PRESENT CASE THE FACTS INDICATE THAT ASSESSEE IS ONLY ACQUIRING AND HOLDIN G BY WAY OF INVESTMENT IN SHARES, STOCKS, DEBENTURES, ETC. AND HAS NO RIGHT T O SELL. THEREFORE, IT CANNOT BE CONSIDERED AS ASSESSEE IS IN THE BUSINESS OF ACQ UIRING SHARES FOR THE PURPOSE OF BUSINESS. OBJECT CLAUSE A (3) DO INDICAT E THAT ASSESSEE CAN CARRY ON BUSINESS AS GENERAL MERCHANT AND TRADER IN COAL BUT NOT IN SHARES OR STOCK OR DEBENTURES OF OTHER COMPANIES COVERED BY ITEM NO . 1 & 2. IN VIEW OF THIS WE ARE OF THE OPINION THAT THE DECISION OF THE COOR DINATE BENCH (SUPRA) DOES NOT APPLY TO THE FACTS OF THE CASE. THEREFORE, SINC E THE INVESTMENT IN GROUP COMPANIES IS NOT THE BUSINESS OF ASSESSEE MANY OF T HE DECISIONS RELIED UPON BY THE ASSESSEE, PARTICULARLY THE DECISION OF THE H ON'BLE BOMBAY HIGH COURT IN THE CASE OF SRISHTI SECURITIES P. LTD. (SUPRA) D OES NOT APPLY. IN THE ABOVE SAID CASE THERE WAS A FINDING THAT THE ASSESSEE COM PANY BORROWED FUNDS, WHICH WERE UTILISED IN ITS BUSINESS OF ACQUIRING SH ARES BY WAY OF INVESTMENT AS WELL AS BY WAY OF STOCK IN TRADE. IN THAT CONTEX T THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF SRISHTI SECURITIES P. LTD. 183 TAXMAN 159 HELD THAT WHETHER THE FUNDS ARE BORROWED BY THE INVESTMENT CO MPANY FOR MAKING INVESTMENT IN SHARES OR AS STOCK IN TRADE OR FOR TH E PURPOSE OF CONTROLLING INTEREST IN OTHER COMPANIES THE INTEREST PAID ON SU CH BORROWED FUNDS WOULD BE DEDUCTIBLE UNDER SECTION 36(1)(III). IT IS ALSO NOTICED THAT THE SAID JUDGEMENT WAS DELIVERED IN THE CONTEXT RELEVANT TO INTEREST ON BORROWED CAPITAL UNDER SECTION 36(1)(III) AND NOT IN RELATIO N TO SECTION 14A, THE PROVISIONS OF WHICH ARE ALL TOGETHER DIFFERENT. LIK EWISE THE RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE LIBER TY INDIA (SUPRA) IS ALSO NOT CORRECT AS THE EXPRESSION DERIVED FROM INDUSTRIAL UNDERTAKING WAS CONSIDERED BY THE HON'BLE SUPREME COURT IN THE ABOV E JUDGEMENT TO REACH THAT FIRST DEGREE SOURCE FOR DERIVING INCOME WAS NO T THE INDUSTRIAL UNDERTAKING BUT THE GOVERNMENT SCHEME. IN THAT CASE THE ISSUE WAS WITH REFERENCE TO ALLOWABILITY OF PROFITS AND GAINS FROM INDUSTRIAL UNDERTAKING FOR DEDUCTION UNDER SECTION 80IA AND 80-IB. IN THAT CON TEXT THE HON'BLE SUPREME COURT HELD THAT DEPB BENEFITS DO NOT FORM PART OF A NY PROFIT OR THE ELIGIBLE UNDERTAKING AND WOULD NOT CONSTITUTE INDEPENDENT SO URCE OF INCOME BEYOND ITA NO. 2233/MUM/2009 TGS INVESTMENT & TRADE PVT. LTD. 12 THE FIRST DEGREE NEXUS BETWEEN THE PROFITS AND THE INDUSTRIAL UNDERTAKING. THIS JUDGEMENT GIVEN IN THE CONTEXT OF ANALYSING TH E EXPRESSION DERIVED FROM CANNOT BE CONSIDERED WHILE CONSIDERING THE EX PENDITURE IN RELATION TO USED IN SECTION 14A. EVENTHOUGH THE HON'BLE SUPREME COURT ESTABLISHED THE TEST WHICH HAS BEEN ENUNCIATED IN WALFORT SHARES AN D STOCK BROKERS P. LTD. 321 ITR 421 THAT THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE WHICH IS IN RELATIONSHIP WITH THE TAX EXEMPT INCOME, ONCE TH E TEST OF PROXIMATE CAUSE IS ESTABLISHED WITH TAX EXEMPT INCOME THE DISALLOWA NCE WOULD HAVE TO BE EFFECTED UNDER SECTION 14A (GODREJ & BOYCE MFG. CO. LTD. SUPRA) 14. ANALYSING FURTHER ON THE BASIS OF THE PRINCIPLES ES TABLISHED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD. (SUPRA) THE PROXIMATE CAUSE FOR THE ABOVE EXPENDITU RE IS CERTAINLY THE DECISION TO INVEST IN GROUP COMPANY OF INDO GULF FE RTILISERS LTD. UNLESS THE ASSESSEE DECIDED TO ACQUIRES MORE THAN THE MINIMUM REQUIRED WITHOUT ATTRACTING SEBI CODE THERE IS NO NEED FOR GOING FOR THE REGULATIONS OF THE SEBI WITH REFERENCE TO TAKE OVER CODE. EVENTHOUGH T HE ASSESSEE TRIED TO ANALYSE THAT THE EXPENDITURE IS INCURRED WITH REFER ENCE TO THE TAKE OVER CODE THE PROXIMATE CAUSE FOR THE TAKE OVER CODE IS THE D ECISION TO INVEST IN INDO GULF FERTILISERS LTD MORE THAN THE MINIMUM REQUIRED .IT CANNOT BE STATED THAT SEBI TAKE OVER CODE GUIDELINES ARE APPLICABLE BEFORE THE ASSESSEE TOOK THE DECISION TO ACQUIRE THE SHARES. IT IS THE DECIS ION WHICH WAS TAKEN FIRST TO ACQUIRE AT 51% OF THE SHARE CAPITAL OF THE INDO GUL F FERTILISERS LTD. AND ACCORDINGLY UPTO THE LIMITS PRESCRIBED BY MINIMUM I .E. UPTO 20%, THE ASSESSEE CAN ACQUIRE FROM OPEN MARKET. THE BALANCE CAN ONLY BE ACQUIRED UNDER THE SEBI GUIDELINES BY GIVING AN OPEN OFFER T O THE EXISTING SHAREHOLDERS AND GOING THROUGH THE FORMALITIES. THE REFORE, IN OUR VIEW THE EXPENDITURE INCURRED ENTIRELY NOT ONLY FOR ACQUIRIN G THE SHARES FROM THE MARKET BUT ALSO ACQUIRING THROUGH OPEN OFFER IS WIT H REFERENCE TO THE DECISION TO INVEST IN INDO GULF FERTILISERS LTD. AT 51% OF SHARE CAPITAL. SINCE THE PROXIMATE CAUSE FOR DISALLOWANCE IS IN RELATION TO INVESTMENT IN SHARES OF GROUP COMPANIES AT 51%, WE ARE OF THE OPINION THAT THE ENTIRE EXPENDITURE INCURRED IS CAPITAL IN NATURE AND THE A.O. IS RIGHT IN DISALLOWING THE SAME UNDER SECTION 14A. EVENTHOUGH INCOME WAS NOT EARNED FULLY ON THE ENTIRE ITA NO. 2233/MUM/2009 TGS INVESTMENT & TRADE PVT. LTD. 13 SHARES ACQUIRED DURING THE YEAR, THERE WAS A DIVIDE ND INCOME FROM INDO GULF FERTILISERS LTD. TO THE EXTENT OF ` 22,28,578/- AND TO THE EXTENT OF ` 6.53 CRORES IN LATER YEAR. SINCE THE ENTIRE DECISION TO ACQUIRE THE SHARES IS FOR THE PURPOSE OF INVESTMENT, THE EXPENDITURE CANNOT BE AL LOWED AS REVENUE EXPENDITURE AND HAS TO BE CERTAINLY DISALLOWED UNDE R SECTION 14A. TO THAT EXTENT GROUND NO. 1 RAISED BY THE ASSESSEE IS REJEC TED. 15. GROUND NOS. 3 & 4 PERTAINS TO RULE 8D AND ENHANCEME NT IS TO BE ALLOWED AS THE HON'BLE BOMBAY HIGH COURT HELD THAT APPLICATION OF RULE 8D IS FROM A.Y. 2008-09. THE A.O. ALREADY DISALLOWED THE AMOUNTS INVOKING SECTION 14A ON REASONABLE BASIS, THEREFORE, THERE I S NO NEED FOR ENHANCEMENT OF THE AMOUNT AS WAS DONE BY THE CIT(A) INVOKING RULE 8D. THEREFORE GROUND NOS. 3 & 4 PERTAINING TO ENHANCEME NT ARE ALLOWED. 16. GROUND NO. 5 PERTAIN TO THE ALTERNATE CONTENTION TH AT THE EXPENDITURE SHOULD BE CAPITALISED IS A VALID CONTENTION. ASSESS EE ITSELF HAS CAPITALISED PART OF THE EXPENDITURE AND ADDED TO THE INVESTMENT , THEREFORE, THE EXPENDITURE TO THE EXTENT OF ` 63,21,217/- INCURREDFOR THE PURPOSE OF ACQUIRING SHARE CAPITAL IN INDO GULF FERTILISERS LT D. IS ALSO TO BE TREATED AS EXPENDITURE TO BE CAPITALISED TO THE INVESTMENT ACC OUNT. RELIANCE IS PLACED ON THE PRINCIPLES ESTABLISHED IN THE CASE OF BHARAT NIDHI LTD. VS. UNION OF INDIA 92 ITR 1. THEREFORE ASSESSEES GROUND NO. 5 I S ALLOWED. 17. GROUND NO. 6 PERTAINS TO THE ISSUE OF EXCESS TDS ON SHARES ACQUIRED. DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2004-05 T HE ASSESSEE HAD DEDUCTED TAX ON CONSIDERATIONS PAYABLE TO NON-RESID ENTS SHAREHOLDERS IN RELATION TO THE OPEN OFFER FOR ACQUISITION OF STAKE IN INDO GULF FERTILISERS LTD. HOWEVER, AFTER REMITTANCES WERE MADE, FEW SHAREHOLD ERS PROTESTED ON TAX DEDUCTION AND PROVIDED CERTIFICATES FOR DEDUCTION A T LOWER RATES UNDER SECTION 195/197 OF THE ACT. ASSESSEE REMITTED THE E XCESS TAX DEDUCTED AT SOURCE OF ` 18,48,486/- TO SUCH NON-RESIDENT SHAREHOLDERS AND C LAIMED CREDIT OF EXCESS TAX PAID WHICH WAS BORNE BY THE A PPELLANT. 18. THE CIT(A) WITHOUT EXAMINING THE SUBMISSION ON MERI TS DIRECTED THE A.O. TO COMPUTE AFTER VERIFYING THE CLAIM OF CREDIT OF ADDITIONAL TDS OF ` 18,48,486/-. IT WAS ASSESSEES SUBMISSION THAT THE A.O. HAS NOT GIVEN ITA NO. 2233/MUM/2009 TGS INVESTMENT & TRADE PVT. LTD. 14 CREDIT FOR THIS AMOUNT AND ACCORDINGLY THE GROUND W AS RAISED. THE LEARNED COUNSEL ALSO RELIED ON THE DECISIONS OF THE ITAT IN THE CASE OF ACIT VS. M/S. KEC INTERNATIONAL. LTD. ITA NO. 1990/MUM/2998 DATED 09.10.2003 TO SUBMIT THAT THE CLAIM WAS ALLOWABLE. 19. AFTER HEARING THE LEARNED COUNSEL AND THE LEARNED D .R. WE ARE OF THE OPINION THAT THIS MATER SHOULD BE RESTORED TO THE F ILE OF THE A.O. AS THE FACTS INDICATE THAT THE ASSESSEE DEDUCTED TAX AS UNDER: - SL. NO. NAME OF THE PAYEE (SELLER OF SHARES) GROSS AMOUNT TDS PAID ON 16.12.03 NET AMOUNT PAID ON 18.12.03 TDS THAT SHOULD HAVE BEEN DEDUCTED AS PER CERTIFICATES EXCESS TDS 1 KANTILAL CHANDULAL KOTHARI 3570000 1178100 239100 199749 978351 2 HARSHILKANTILAL KOTHARI 3000000 990000 2010000 167865 822135 3 MALKABHAVESH SHAH 45000 13500 31500 4500 9000 4 BHAVESH LAXMICHAND SHAH 90000 27000 63000 9000 18000 5 MALKABHAVESH SHAH 54000 13500 31500 4500 9000 6 DIANNBILLIMORIA 60000 18000 42000 6000 12000 TOTAL 6810000 2240100 4569900 391614 1848486 20. THE TAX ORIGINALLY DEDUCTED AND PAID WAS WITHOUT CO NSIDERING THE NON- DEDUCTION OR LESS DEDUCTION CERTIFICATE SUBMITTED B Y THE RESPECTIVE PERSONS. THEREFORE, THERE WAS EXCESS TDS DEDUCTED IN THE CAS E OF ABOVE PERSONS TO THE EXTENT OF RS.18,48,486/-. ASSESSEE BROUGHT THIS TO THE NOTICE OF THE ADDL. CIT VIDE LETTER DATED 16.08.2004 WITH A PRAYE R TO GRANT REFUND OF EXCESS TAX DEDUCTED AT SOURCE. SUBSEQUENTLY ASSESSE E WHILE FILING THE RETURN TREATED THE AMOUNT AS PREPAID TAX AND WHILE COMPUTI NG THE TAX TOOK CREDIT FOR THE AMOUNT OF ` 18,48,486/- IN ITS COMPUTATION AS ADVANCE TAX PAID. THE TOTAL PRE-PAID TAX WERE ARRIVED AT BY THE ASSESSEE AT ` 79,05,671/- (INCLUDING THE ABOVE AMOUNT OF ` 18,48,486/-). THE A.O. WHILE ISSUING THE DEMAND NOTICE UNDER SECTION 156, HOWEVER, HAS NOT CONSIDER ED THE CLAIM OF EXCESS TDS. THIS WS BROUGHT TO CIT(A) VIDE GROUND NO. 4 RA ISED BEFORE HIM BUT THE CIT(A) INSTEAD OF ANALYZING THE NATURE OF CLAIM DIR ECTED THE A.O. TO GIVE CREDIT. CONSIDERING THE SUBMISSIONS OF THE ASSESSEE , WE RESTORE THE ISSUE ITA NO. 2233/MUM/2009 TGS INVESTMENT & TRADE PVT. LTD. 15 BACK TO THE FILE OF THE A.O. TO CONSIDER THE CLAIM AND PASS NECESSARY ORDERS IN THIS REGARD. GROUND IS RESTORED TO THE FILE OF T HE A.O. 21. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MAY 2011. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 31 ST MAY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXXII, MUMBAI 4. THE CIT III, MUMBAICITY 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.