Holcim (India) Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 2628/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65458 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 04-07-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 02-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J S AHLAWAT
• Assessee Lawyers: AJAY VOHRA ROHIT JAIN; UPVAN GUPTA ARS
• Keywords: Depreciation; Business expenditure; Earning of tax free income; Retrospective amendment; Question of law
• Section: 14A; 147; 28; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI C BENC H BEFORE SHRI RAJPAL YADAV, JM & SHRI A.N. PAHUJA, AM ITA NO.2628 /DEL/2010 ASSESSMENT YEAR: 2006-07 HOLCIM (INDIA) PVT. LTD., 5 TH FLOOR, 210, RAJINDER BHAWAN, DEEN DAYAL UPADHYAYA MARG, NEW DELHI. V/S . INCOME-TAX OFFICER, WARD-12(4), NEW DELHI [PAN : AABCH 3635 C ] (APPELLANT) (RESPONDENT) ASSESSEE BY S/SHRI AJAY VOHRA, ROHIT JAIN & UPVAN GUPTA, ARS REVENUE BY SHRI J.S. AHLAWAT, DR DATE OF HEARING 04-07-2012 DATE OF PRONOUNCEMENT 14-09-2012 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 02.06.2010 BY THE ASSESSEE AGA INST AN ORDER DATED 11.03.2010 OF THE LD. CIT(A)-XV, NEW DELHI, R AISES THE FOLLOWING GROUNDS:- 1. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF ` ` 8,52,43,836/- MADE BY THE ASSESSING OFFICER U/S 14A OF THE INCOME-TAX ACT, 1961 (THE AC T). 1.1 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CON FIRMING THE FINDING OF THE ASSESSING OFFICER THAT NO BUSINESS A CTIVITY WAS CARRIED OUT BY THE APPELLANT AND CONSEQUENTLY THE A PPELLANT WAS NOT ELIGIBLE FOR DEDUCTION OF VARIOUS BUSINESS EXPENSES. 1.2 THAT THE CIT(A) FAILED TO APPRECIATE THAT THE PROV ISIONS OF SECTION 14A OF THE ACT WERE NOT APPLICABLE INASMUCH AS THE APPELLANT HAD MADE INVESTMENT FOR ACQUIRING AND RET AINING CONTROLLING INTEREST AND NOT FOR EARNING ANY EXEMPT INCOME. 1.3 THAT THE CIT(A) FURTHER FAILED TO APPRECIATE THAT THE PROVISIONS OF SECTION 14A WERE, EVEN OTHERWISE, NOT I.T.A. NO.2628/DEL./2010 2 APPLICABLE SINCE NO EXEMPT INCOME (DIVIDEND INCOME) WAS ACTUALLY EARNED BY THE APPELLANT DURING THE YEAR UN DER CONSIDERATION. 2. WITHOUT PREJUDICE, THAT ON FACTS AND CIRCUMSTANC ES OF THE CASE, THE CIT(A) ERRED IN CONFIRMING THE ENTIRE DIS ALLOWANCE OF `8,52,43,836/- MADE BY THE ASSESSING OFFICER U/S 14A OF THE ACT. 2.1 THAT THE CIT(A) FAILED TO APPRECIATE THAT EXPEN SES INCURRED FOR EARNING INTEREST INCOME ASSESSED AS BUSINESS IN COME AND ALSO FOR MAINTAINING THE CORPORATE IDENTITY OF THE APPELLANT WERE, EVEN OTHERWISE, ALLOWABLE UNDER THE PROVISIONS OF THE ACT. 2.2 WITHOUT PREJUDICE, THAT THE CIT(A) FURTHER FAIL ED TO APPRECIATE THAT DISALLOWANCE, IF AT ALL, SHOULD HAVE BEEN COMP UTED AS PER THE FORMULAE PRESCRIBED IN RULE 8D(2)(III) OF T HE INCOME TAX RULES. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR VARY FROM THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TIME O F HEARING. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THA T E-RETURN DECLARING NIL INCOME FILED ON 30.11.2006 BY THE ASSESSEE, WAS SE LECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE INCOME-TAX A CT, 1961 (HEREINAFTER REFERRED TO AS THE ACT), ISSUED ON 07.09.2007. DURING THE COURS E OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (A.O. IN SHORT) OBSERVED THAT THE ASSESSEE COMPANY WAS ESTABLISHED PURSUANT TO CERTAIN APPROVA LS RECEIVED FROM THE FOREIGN INVESTMENT PROMOTION BOARD[FIPB], FOR MAKIN G DOWNSTREAM INVESTMENTS INTO OTHER COMPANIES, ENGAGED IN CEMENT AND RELATED INDUSTRY. THE ASSESSEE COMPANY WAS ACCORDED APPROVAL ON 18.12.2002 BY FIPB FOR NON RESIDENT INVESTMENT IN M/S AMBUJA CEMENT EASTERN INDIA LTD., FOR FURTHER DOWNSTREAM INVESTMENT IN THE ASSOCIATED COMPANIES LTD. AND M/S AMBUJA CEMENT INDIA LTD.. THE AFORESAID APPROVAL WAS ACCORDED FOR THREE YEARS , AND WAS RENEWED ON 30.05.2005. IN PURSUANT TO THE APPROVAL GRANTED BY FIPB , THE ASSESSEE COMPANY MADE AN INVESTMENT OF ` `18,509,150,756/- IN PURCHASE OF 390,163,637 EQUITY SHARES OF `10/- EACH FULLY PAID UP AT A PRIC E OF ` ` 47.44 PER SHARE IN M/S I.T.A. NO.2628/DEL./2010 3 AMBUJA CEMENT INDIA LTD.. TO A QUERY BY THE AO, TH E ASSESSEE SUBMITTED THAT THE ASSESSEE MADE INVESTMENT IN ORDER TO OBTAIN CON TROLLING INTEREST, MANAGEMENT ETC. AND THE EXPENDITURE INCURRED THEREI N WAS REVENUE IN NATURE. SINCE THE INVESTMENT WAS MADE ONLY IN APRIL, 2005, NO INCOME HAD BEEN DECLARED. FOR THE YEAR UNDER CONSIDERATION, THE ASS ESSEE DECLARED ONLY INTEREST OF ` ` 1,94,055/- ON FDRS AND CLAIMED EXPENDITURE OF ` ` 10,38,27,023/-. TO A FURTHER QUERY BY THE AO AS TO WHY THE AFORESAID EXP ENDITURE BE NOT DISALLOWED, THE ASSESSEE REPLIED AS UNDER:- FOR THE ASSESSEE COMPANY TO EXIST AND ENGAGE IN TH E BUSINESS ACTIVITIES UNDER THE LAWS OF INDIA, IT IS REQUIRED TO CONDUCT ITS OPERATIONS INTER ALIA BY SETTING UP OFFICE PREMISES FOR ITS REGISTERED OFFICE, EMPLOY INDIVIDUALS, OBTAIN REQUIRED APPROVA LS FOR CARRYING ON ITS BUSINESS ETC. THESE ACTIVITIES IN THE ASSESSEE COMPANY ARE NECESSARY SO THAT THE ASSESSEE COMPANY IS IN COMPLI ANT TO WITH THE LAWS OF INDIA. EVEN THE ACTIVITIES OF MAKING INVES TMENTS REQUIRES THE ASSESSEE COMPANY TO ENSURE THAT ITS EXISTENCE I S IN A COMPLIANT MANNER ALL OF WHICH REQUIRED THE ASSESSEE COMPANY TO UNDERTAKE SEVERAL ACTIONS IN KEEPING IN VIEW THE LAWS OF THE COUNTRY. IN ORDER FOR THE ASSESSEE COMPANY TO CONSIDER MAKIN G OF INVESTMENTS IT WOULD INTER ALIA REQUIRE THAT THE AS SESSEE COMPANY UNDERTAKES STUDIES TO ASCERTAIN POTENTIAL OPPORTUNI TIES OF INVESTMENTS ANALYSES DATA FINANCIAL AND OTHERWISE , MEET WITH PERSONS IN THE CEMENT AND OTHER RELATED INDUSTRY TO ASCERTAIN OPPORTUNITIES, PREPARE REPORTS FOR REVIEW, ETC. TH ESE ACTIVITIES ARE NORMAL BUSINESS ACTIVITIES IN CONNECTION WITH ANY I NVESTMENT TO BE UNDERTAKEN WHETHER BY AN ASSESSEE COMPANY SUCH AS O URS OR EVEN IF IT WAS BY ANY OTHER ASSESSEE COMPANY ENGAGED IN THE MANUFACTURING OR SERVICES ACTIVITY. ALL SUCH ACTIV ITIES WOULD REQUIRE THE ASSESSEE COMPANY TO INCUR EXPENSES WHICH ARE IN CONNECTION WITH ITS BUSINESS ACTIVITIES. THE ASSESSEE COMPANY HAS ALSO INCURRED THE EXPENSES IN THE COURSE OF ITS NORMAL BUSINESS ACTIVITIES. NEEDLESS TO MENTION, THE INVESTMENTS AS MADE BY THE ASSESSEE COMPANY ARE SUB STANTIAL INVESTMENTS AND IN COMMON PARLANCE WOULD BE REGARDE D AS BIG- TICKET INVESTMENTS. IT IS NATURAL THAT MAKING OF SUCH SUBSTANTIAL INVESTMENTS ARE PRECEDED BY APPROPRIATE DATA GATHER ING, DATA ANALYSIS,, ASCERTAINMENT OF RISKS AND OTHER RELATED MATTERS, DISCUSSIONS TO UNDERSTAND THE ENVIRONMENT RELATING TO POTENTIAL I.T.A. NO.2628/DEL./2010 4 OPPORTUNITIES AND MANY OTHER SIMILAR MATTERS. POST MAKING OF THE INVESTMENT IT IS ALSO NECESSARY FOR THE COMPANY TO FOLLOW UP ITS INVESTMENT PORTFOLIO. ALL SUCH ACTIVITY SHALL REQUI RE THE INVOLVEMENT OF HUMAN EFFORT WHICH REQUIRES TO BE COMPENSATED FO R THEIR EFFORTS, AND AS SUCH THE ASSESSEE COMPANY HAS INCURRED SUCH EXPENSES AND HAS RIGHTLY BOOKED THEM AS RISING OUT OF AND IN CONNECTION WITH UNDERTAKING OF BUSINESS ACTIVITIES UNDER THE LAWS O F INDIA. 2.1 HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSION S OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE ITSELF CONCEDED THAT MAIN ACTIVITIES OF THE COMPANY FOR MAKING INVESTMENT IN SHARES OF ACEL WAS TO ACQUIRE AND RETAIN CONTROL OF THE SAID COMPANY AND, THUS, THE ASSESSEE DID NOT CARRY ON ANY BUSINESS ACTIVITY. IN ORDER TO CONSTITUTE A BUSINESS ACTIVITY, IT MUST B E WITH A MOTIVE OF EARNING PROFIT . WHILE REFERRING TO DECISION OF HONBLE DELHI HIGH C OURT IN THE CASE OF BHARAT DEVELOPMENT PVT. LTD. VS. CIT,133 ITR 470/4 TAXMAN 58(DEL.), THE AO OBSERVED THAT THE ACTION OF THE ASSESSEE COMPANY WAS NOT ACT UATED BY THE PROFIT MOTIVE BUT TO EARN DIVIDEND INCOME ONLY. ONLY ONE TRANSACT ION OF BUYING SHARES, ALTHOUGH FOR TAKING CONTROLLING INTEREST IN THE MAN AGEMENT OF THE COMPANY, DID NOT CONSTITUTE BUSINESS FOR EARNING PROFIT. ACCORDI NGLY, THE AO CONCLUDED THAT THE SAID TRANSACTION OF INVESTMENT COULD NOT BE REGARDE D AS CARRYING ON THE BUSINESS FOR THE PURPOSE OF SECTION 28 OF THE ACT. THE AO F URTHER OBSERVED THAT THE EXPENDITURE INCURRED FOR EARNING EXEMPT DIVIDEND IN COME IS NOT ALLOWABLE. ACCORDINGLY, WHILE RELYING UPON DECISIONS IN EVERPL US SECURITY FINANCE LTD. VS. DCIT,101 ITD 151(DEL.);KANU METALS (P) LTD. IN ITA NO. 7211/MUM./2003 DATED 30.5.2008;MOHAN T ADVANI FINANCE (P) LTD. VS. ITO I N ITA NO. 1060/MUM./2003,108 TTJ(MUM.) 170;MACINTOSH FINANCE ESTATES LTD. VS. ADDL. CIT IN ITA NO. 5615/MUM./2002 & DCIT VS. SG INVESTM ENTS INDUSTRIES LTD.,89 ITD 44(CAL.), THE AO DISALLOWED THE ENTIRE EXPENDIT URE OF ` ` 10,38,27,023/-. SUBSEQUENTLY, THE AO RECTIFIED THE ASSESSMENT ORDER AND RESTRICTED THE DISALLOWANCE TO ` `8,52,43,836/-, THE ASSESSEE HAVING ALREADY OFFERED DISALLOWANCE OF EXPENDITURE ON ACCOUNT OF STAMP DUT Y AND PROVISION FOR GRATUITY. 3. ON APPEAL, THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO AS UNDER:- I.T.A. NO.2628/DEL./2010 5 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLA NT, THE FINDINGS OF THE AO AND THE FACTS ON RECORD. THE APPELLANT COMPANY H AD MADE AN INVESTMENT OF RS.1850.91 CRORES IN .PURCHASE OF SHA RES OF M/S AMUBJA CEMENT INDIA LTD. AS PER THE P & L A/C THE COMPANY HAD INCURRED AN EXPENDITURE OF RS.103827023/- DURING THE YEAR. OUT OF THE ABOVE EXPENDITURE IN THE COMPUTATION OF INCOME THE APPELL ANT HAD HIMSELF DISALLOWED EXPENDITURE RELATING TO STAMP DUTY EXPEN SES, PROVISIONS FOR GRATUITY AND DEPRECIATION AS PER THE COMPANY'S ACT, AND SHOWED GROSS TOTAL LOSS OF RS.85049781/- WHICH IS REFLECTED IN T HE ORDER U/S 154 OF THE ACT, DATED 05.01.2009 COPY OF WHICH WAS FILED DURIN G THE APPELLATE PROCEEDINGS. THE AO HAS DISALLOWED THE EXPENDITURE OF RS.103827023/- UNDER THE PROVISIONS OF SECTION 14A OF THE ACT, AND THE ASSESSABLE INCOME WAS COMPUTED AT 194055/- IN THE ORDER U/S 154 THE MAIN CONTENTION OF THE APPELLANT IS THAT SINCE NO DIVIDEND INCOME/ EXEMPT INCOME WAS RECEIVED DURING THE YEAR, THEREFO RE, THE DISALLOWANCE MADE BY THE AO WAS NOT AS PER LAW. IT HAS BEEN SUBM ITTED THAT THE PROVISIONS OF SECTION 14A WOULD APPLY ONLY IF ANY E XEMPT INCOME WAS RECEIVED BY THE APPELLANT DURING THE RELEVANT PREVI OUS YEAR WHICH IS NOT INCLUDABLE IN THE TOTAL TAXABLE INCOME, AND SINCE N O SUCH INCOME WAS RECEIVED DURING THE YEAR, THEREFORE, NO DISALLOWANC E OF EXPENDITURE COULD BE MADE BY THE AO. SECTION 14A OF THE 1.1. ACT READS AS UNDER: '14A. EXPENDITURE INCURRED IN RELATION TO INCOME NO T INCLUDIBLE IN TOTAL INCOME. (1) FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITUR E INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. 2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCR IBED, IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSES SEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME UNDER THIS ACT. (3). THE PROVISIONS OF SUB-SECTION (2) SHALL ALSO A PPLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INC URRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT: I.T.A. NO.2628/DEL./2010 6 PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHA LL EMPOWER THE ASSESSING OFFICER EITHER TO REASSESS UNDER SECTION 147 OR PAS S AN ORDER ENHANCING THE ASSESSMENT OR REDUCING A REFUND ALREADY MADE OR OTH ERWISE INCREASING THE LIABILITY OF THE ASSESSEE UNDER SECTION 154, FOR AN Y ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1ST DAY OF APRIL, 2001.' IN VIEW OF THE ABOVE PROVISIONS THE ALLOWANCE OF EX PENDITURE IN RELATION TO DIVIDEND INCOME WOULD THUS BE NOT ADMIS SIBLE IN COMPUTING THE INCOME OF AN ASSESSEE UNDER THIS ACT. IT WOULD BE S O IN BOTH THE SITUATIONS I.E., WHETHER THE SHARES ARE HELD AS INVESTMENT AS THEY ARE HELD ON TRADING ACCOUNT AS STOCK IN TRADE. THE ISSUE RAISED IN THIS CASE IS THAT THE APPELLANT HAD NOT EARNED OR RECEIVED ANY DIVIDEND IN THE YEAR UNDER CONSIDERATI ON AND, THEREFORE, NO DISALLOWANCE CAN BE MADE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. THERE IS NO FORCE IN THIS ARGUMENT. WHEN THE E XPENDITURE IS INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T OTAL INCOME, IT HAS TO SUFFER THE DISALLOWANCE IRRESPECTIVE OF THE FACT WH ETHER ANY INCOME IS EARNED BY THE ASSESSEE OR NOT. SECTION 14A DOES NOT ENVISAGE ANY SUCH EXCEPTION. THIS IS WHAT IS HELD BY THE AHMEDABAD BE NCH OF THE TRIBUNAL IN THE CASE OF HARISH KRISHNAKANT BHAT (SUPRA) WHEN IT OBSERVED THAT INTEREST ON MONIES BORROWED FOR PURCHASE OF SHARES HELD AS I NVESTMENT IS NOT ALLOWABLE WHETHER OR NOT THERE IS ANY YIELD OF DIVI DEND. THE TERM 'EXPENDITURE INCURRED IN RELATION TO INCOM E' USED IN SECTION 14A IS STILL WIDER THAN THE 'EXPENDITURE INCURRED F OR THE PURPOSES OF BUSINESS'. THE LEGISLATURE, USING THE EXPRESSION 'E XPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME ' IN SECTION 14A OF THE ACT, IN NO WAY INDICATES THAT IT DOES NOT ENCOMPASS THE DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO THE INCOME IN A BSENCE OF ACTUAL RECEIPT OF INCOME DURING THE RELEVANT PREVIOUS YEAR. ON THE CONTRARY, AS STATED ABOVE, THE TERM 'IN RELATION TO IS WIDE ENOUGH TO INCLUDE IN ITS SWEEP THE EXPENDITURE BOTH 'FOR MAKING OR EARNING INCOME' AND 'INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS CARRIED ON BY THE ASSESSEE'. THE OBJECT OF INTRODUCING THE PROVISION OF THIS INS ERTED SECTION 14A BY THE FINANCE ACT, 2001, WITH RETROSPECTIVE EFFECT FROM 1-4-1962 WAS CLARIFIED IN THE PROVISIONS AS WELL AS IN THE MEMOR ANDUM EXPLAINING THE PROVISIONS, NOTES ON CLAUSES RELATING TO THE FINANC E BILL, 2001 AND IN THE BOARD'S CIRCULAR NO. 14 OF 2001, DATED 22-11-2001 A ND CIRCULAR NO.8 OF 2002, DATED 27-8-2002 IN THE FOLLOWING WAY: 'CERTAIN INCOMES ARE NOT INCLUDIBLE WHILE COMPUTING THE TOTAL INCOME AS THESE ARE EXEMPT UNDER VARIOUS PROVISIONS OF THE ACT. THE RE HAVE BEEN CASES WHERE I.T.A. NO.2628/DEL./2010 7 DEDUCTIONS HAVE BEEN CLAIMED IN RESPECT OF SUCH EXE MPT, INCOME. THIS IN EFFECT MEANS THAT THE TAX INCENTIVE GIVEN BY WAY OF EXEMPT IONS TO CERTAIN CATEGORIES OF INCOME IS BEING USED TO REDUCE ALSO THE TAX PAYABLE ON THE NON-EXEMPT INCOME BY DEBITING THE EXPENSES INCURRED TO EARN THE EXEMP T INCOME AGAINST TAXABLE INCOME. THIS IS AGAINST THE BASIC PRINCIPLES OF TAX ATION WHEREBY ONLY THE NET INCOME, I.E. GROSS INCOME MINUS THE EXPENDITURE, IS TAXED. ON THE SAME ANALOGY, THE EXEMPTION IS ALSO IN RESPECT OF THE NET INCOME. EXPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO TH E EARNING OF TAXABLE INCOME. IT IS PROPOSED TO INSERT A NEW SECTION 14A SO AS TO CLARIFY THE INTENTION OF THE LEGISLATURE SINCE THE INCEPTION OF THE INCOME-T AX ACT, 1961 THAT NO DEDUCTION SHALL BE MADE IN RESPECT OF ANY EXPENDITURE INCURRE D BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME THE INCOME-TAX ACT.' IT IS THUS CLEAR THAT PROVISIONS OF SECTION 14A WIL L APPLY EVEN WHEN NO EXEMPT INCOME HAS BEEN EARNED. THE HON'BLE SPECIAL BENCH OF ITAT NEW DELHI VIDE IT A NO. 87/DELL2008 IN THE CASE OF M/S CHEMINVEST LTD. VS I TO 2009 - TIOL - 515 -ITAT - DEL - SB HAS OBSERVED AS UNDER: THE LANGUAGE OF SUBSECTION (1) OF SECTION 14A CLEA RLY PROVIDES THAT NO DEDUCTION SHALL BE ALLOWED 'IN RESPECT OF EXPENDITU RE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FROM PART OF THE TOTAL INCOME UNDER THIS ACT'. ON GOING THROUGH THE SIMPLE AND PLAIN LANGUAGE, IT IS ABUNDANTLY CLEAR THAT THE RELATION HAS TO BE SEEN BETWEEN THE EXEMPT INCOME A ND THE EXPENDITURE INCURRED IN RELATION TO IT AND NOT VICE VERSA. WHAT IS RELE VANT IS TO WORK OUT THE EXPENDITURE IN RELATION TO THE EXEMPT INCOME AND NO T TO EXAMINE WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE HAS RESULTED I NTO EXEMPT INCOME OR TAXABLE INCOME. IF THE VIEW POINT OF THE LEARNED AR. IS ACC EPTED THEN IT WOULD MEAN PUTTING THE CART IN FRONT OF THE HORSE AND REDRAFTI NG SUB-SECTION (1) OF SECTION 14A ON GOING THROUGH SUB-SECTION (1), IT CAN BE CLEARLY NOTICED THAT THE EXERCISE OF MAKING DISALLOWANCE STARTS WITH FIRSTLY TRACING OUT THE EXEMPT INCOME AND THEN INITIATING THE PROCESS OF WORKING OUT THE EXPENDITU RE INCURRED IN RELATION TO SUCH EXEMPT INCOME. IT IS CLEARLY BORNE OUT FROM RULE 8D AS HAS BEEN DISCUSSED INFRA THAT IT HAS THREE CLAUSES OF SUB-RULE (2), BEING TH E EXPENDITURE DIRECTLY RELATING TO THE EXEMPT INCOME AS PER CLAUSE (I); EXPENDITURE BY WAY OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO PARTICULAR INCOME AS PER C LAUSE (II) AND; AN AMOUNT EQUAL TO ONE HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT AS PER CLAUSE (III). THE SUM TOTAL OF THESE THREE AMOUNTS IS THE AMOUNT DISALLOWABLE UNDER SECTION 14A. FROM HERE IT CLEARLY EMERGES THAT STIPULATION OF SECTION IS TO COMPUTE THE AMOUNT OF EXPENDITURE WHICH IS NOT ALLOWABLE U/S 14 A AS IS RELATABLE TO THE EXEMPT INCOME AND NOT IN CONSIDERING ALL THE EXPENS ES ONE BY ONE FOR I.T.A. NO.2628/DEL./2010 8 ASCERTAINING IF EITHER OF THEM HAVE RESULTED INTO E XEMPT INCOME AND THEREAFTER CONSIDERING SUCH AMOUNT AS DLSALLOWABLE U/S 14A IF THIS WAY OF INTERPRETATION OF SECTION 14A AS SUGGESTED BY THE ID. AR IS ACCEPTED, THEN THE METHOD OF COMPUTING THE EXPENDITURE AS RELATABLE TO THE EXEMP T INCOME AS PROVIDED IN RULE 80, WOULD BECOME MEANINGLESS AND THE WORDS 'IN ACCO RDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED' IN SUB-SECTION (2) FOR DETERM INING THE AMOUNT DISALLOWABLE WOULD REQUIRE OBLITERATION, WHICH IN OUR CONSIDERED OPINION IS NOT POSSIBLE' .WE HAVE ALREADY REPELLED THE CONTENTION RAISED ON BEHALF OF THE ASSESSEE THAT THE OBJECT OF THE EXPENDITURE IS TO BE VIEWED AS A DETERMINATIVE FACTOR FOR MAKING ANY DISALLOWANCE UNDER THIS SECTION. IT IS S IMPLE AND PLAIN MAT THE DISALLOWABLE EXPENDITURE IS TO BE WORKED OUT WHICH HAS RELATION WITH THE EXEMPT INCOME AND NOT OTHERWISE. WE ARE, THEREFORE, NOT IN CLINED TO ACCEPT THE ASSESSEE'S VERSION THAT IF THE EXEMPT INCOME IS INC IDENTAL TO THE MAIN BUSINESS WHOSE INCOME IS TAXABLE, THEN THE PROVISIONS OF SEC TION 14A WILL BE DEFEATED. ' 46. IN THE RESULT, THE QUESTION, WHETHER DISALL OWANCE U/S. 14A OF THE I. T. ACT CAN BE MADE IN A YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE, IS ANSWERED AFFIRMATIVELY AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE'. IN THE INSTANT CASE THE APPELLANT HAS MADE ONLY ONE INVESTMENT DURING THE YEAR. THERE ARE NO OTHER TRANSACTIONS FO R PURCHASE OR SALE OF SHARES WITH THE OBJECTS OF BUSINESS DURING THE YEAR . FOR INVESTMENT TO BE A BUSINESS PROPOSITION, THE INVESTMENT SHOULD BE FOR THE PURPOSE OF BUSINESS CARRIED ON BY THE APPELLANT DURING THE YEA R. NO SUCH BUSINESS HAS BEEN CARRIED OUT BY THE APPELLANT EXCEPT THE SI NGLE INVESTMENT MADE BY THE APPELLANT DURING THE PREVIOUS YEAR. THE APPE LLANT HAS ALSO ACCEPTED THAT THE INVESTMENT WAS MADE IN SHARES OF ACEL TO ACQUIRE AND RETAIN CONTROL OF THE SAID COMPANY. THIS IN ITSELF DOES NOT CONSTITUTE A BUSINESS. THE ONLY PURPOSE IN MAKING THE INVESTMENT IT TO EARN DIVIDEND INCOME WHICH IS EXEMPT. THE ENTIRE EXPENDITURE IN CURRED IS FULLY RELATED TO THE INVESTMENT MADE BY THE APPELLANT TO EARN EXE MPT INCOME. SINCE NO OTHER INCOME HAS BEEN SHOWN BY THE APPELLANT IT ST RENGTHENS THE FINDING OF THE AD THAT THE EXPENDITURE WAS RELATABLE ONLY T O THE EARNING OF EXEMPT INCOME. IN VIEW OF THE DISCUSSIONS ABOVE AND THE DE CISION OF THE HON'BLE SPECIAL BENCH OF ITAT IN THE CASE OF CHEMINVEST LTD . CITED ABOVE, I AM OF THE CONSIDERED OPINION THAT PROVISIONS OF SECTION 1 4A WILL APPLY IN THE INSTANT CASE EVEN THOUGH NO EXEMPT INCOME HAS BEEN EARNED DURING THE YEAR. IT IS A FACT THAT THE APPELLANT COMPANY'S MANAGERIA L AND ADMINISTRATIVE MAN POWER HAS BEEN UTILIZED IN TAKIN G THE COMPLICATED DECISIONS REGARDING THE INVESTMENTS WHICH WOULD YIE LD EXEMPT INCOME, ACCORDINGLY DISALLOWANCE U/S 14A IS NECESSARY IN IN STANT CASE. SINCE THE I.T.A. NO.2628/DEL./2010 9 ENTIRE EXPENDITURE IS ATTRIBUTABLE TO THE EARNING O F EXEMPT INCOME ONLY THEREFORE THE ACTION OF THE ASSESSING OFFICER IN DI SALLOWING THE ENTIRE EXPENDITURE IS IN ORDER. THIS GROUND OF APPEAL IS DISMISSED. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. AR ON BEHALF OF THE ASSESSEE WHILE CARRYING US THROUGH THE IMPUGNED ORDER CONTENDED THAT THE ASSES SEE WAS ENGAGED IN THE BUSINESS OF INVESTMENT OF THEIR FUNDS AND ACQUIRING CONTROLLING INTEREST IN THE COMPANY. AFTER OBTAINING THE APPROVAL OF FIPB AND RBI , THE ASSESSEE MADE INVESTMENT OF ` `1850.19 CRORES IN THE YEAR UNDER CONSIDERATION. TH E ONLY SOURCE OF INCOME OF THE ASSESSEE WAS INTEREST FROM FDRS AN D NO DIVIDEND WAS RECEIVED DURING THE YEAR. THE LD. AR VEHEMENTLY ARGUED THAT THE EXPENDITURE INCURRED BY THE COMPANY COULD NOT BE ATTRIBUTED TO EARNING OF D IVIDEND INCOME. WHILE REFERRING TO DECISION OF HONBLE SUPREME COURT IN C IT VS. DISTRIBUTOR BARODA (P) LTD., 83 ITR 377(SC), THE LD. AR ARGUED THAT THE EX PRESSION BUSINESS HAS TO BE UNDERSTOOD IN THE COMMERCIAL SENSE AS INVOLVING ANY ACTIVITY DESIGNED TO EARN PROFIT. INTER ALIA, THE LD. AR RELIED UPON DECISI ONS IN CIT VS. RAJEEV LOCHAN KANORIA (CALCUTTA) 208 ITR 616; CIT VS. INDIAN BANK LTD. (1965) 56 ITR 77 (SC); CIT VS. MODEL MFG. CO. (P) LTD. (1980) 122 ITR 767 (CAL.); HUGHES VS. BANK OF NEW ZEALAND (1938) 6 ITR 636: (1938) 21 TC 472 (HL) ; INDIA CEMENTS LTD. VS. CIT (1966) 60 ITR 52 (SC); P KRISHNA MENON VS. CI T (1959) 35 ITR 48 (SC); NABADWIP CHANDRA ROY VS. CIT (1962) 44 ITR 591 (ASS AM); & STATE OF MADRAS VS. COELHO (G.J.) (1964) 53 ITR 186 (SC).THE LD. AR ADDED THAT THE EXPENDITURE INCURRED AS A CORPORATE ENTITY TO SUSTAIN ITSELF, C ANNOT BE DISALLOWED IN TERMS OF PROVISION OF SECTION 14A OF THE ACT AND REFERRED TO DECISIONS IN CIT VS. SRISHTI SECURITIES (P) LTD.,320 ITR 498(BOM.);ADDL. CIT VS. LAXMI AGENTS (P) LTD.,125 ITR 227(GUJ);CIT VS. AMRITBEN R SHAH,238 ITR 777(B OM.),CIT VS. PHIL CORPORATION LTD/ & ANOTHER,244 CTR 226(BOM.),CIT V S. JARDINE HENDERSON LTD.,210 ITR 981(CAL.) AND DECISION OF HONBLE KARN ATAKA HIGH COURT IN CCI LTD. VS. JCIT IN ITA NO. 359 OF 2011. TO A QUERY BY THE BENCH, THE LD. AR ADMITTED THAT BESIDES THE AFORESAID INVESTMENT IN THE COMPA NY, NO OTHER INVESTMENT WAS I.T.A. NO.2628/DEL./2010 10 MADE IN ANY OTHER COMPANY IN THE YEAR UNDER CONSIDE RATION OR IN SUBSEQUENT YEARS. 5. ON THE OTHER HAND, THE LD. DR SUPPORTED THE FIN DINGS OF LD. CIT(A) WHILE CONTENDING THAT ENTIRE EXPENDITURE HAVING BEE N INCURRED FOR EARNING DIVIDEND INCOME FROM INVESTMENTS IN ORDER TO GAIN C ONTROL IN VARIOUS COMPANIES IS DISALLOWABLE U/S 14A OF THE ACT. INTER ALIA, THE LD. DR RELIED UPON THE DECISION IN CHEMINVEST LTD. V. INCOME-TAX OFFICER,317ITR(AT)86( DELHI)(SB). 6. WE HAVE HEARD THE LD. DR AND GONE THROUGH THE F ACTS OF THE CASE AS ALSO THE AFORESAID DECISIONS RELIED UPON BY BOT H THE SIDES. FIRST CONTENTION RAISED BY THE LD. AR AS PER GROUND NO.1.1 IS AS TO WHETHER OR NOT THE ASSESSEE CARRIED ON ANY BUSINESS ACTIVITY IN THE YEAR UNDER CONSIDERATION. THE AO AND THE LD. CIT(A) FOUND THAT THE ASSESSEE MADE ONLY ONE INVESTMENT DURING THE YE AR AND THERE WERE NO OTHER TRANSACTIONS OF PURCHASE OR SALE OF SHARES WITH THE OBJECT OF CARRYING ON OF BUSINESS DURING THE YEAR. EVEN BEFORE US NO SUCH MATERIAL OR EVIDENCE HAS BEEN PLACED ,WHICH COULD ESTABLISH THAT THE ASSESSEE CARRIED ON ANY SUCH BUSINESS OF MAKING INVESTMENTS IN VARIOUS COMPANIES IN THE YEAR UNDER CONSIDERATION OR IN SUBSEQUENT YEARS; R ATHER THE LD. AR ADMITTED THAT THE ASSESSEE DID NOT UNDERTAKE ANY SUCH ACTIVITY IN SUBSEQUENT YEARS. THE LD. AR ARGUED THAT EVEN WITH THE SOLE TRANSACTION, THE ASSESSEE CARRIED ON THE BUSINESS. NOW WHICH ACTIVITIES CONSTITUTED BUSINESS , HAS NOT BEEN EXPLAINED BEFORE US NOR ANY MATERIAL WAS REFERRED TO IN SUPPO RT.. THE THREE WORDS 'TRADE', 'COMMERCE' OR 'BUSINESS' HAVE BEEN INTERPRETED BY T HE HONBLE SUPREME COURT AND OTHER COURTS IN THEIR VARIOUS DECISIONS. THE WO RD 'TRADE' WAS ELUCIDATED IN THE CASE OF STATE OF PUNJAB V. BAJAJ ELECTRICALS LT D., [1968] 2 SCR 536. IT HAS BEEN OPINED:- '3. THE EXPRESSION 'TRADE' IS NOT DEFINED IN THE AC T. 'TRADE' IN ITS PRIMARY MEANING IS THE EXCHANGING OF GOODS FOR GOODS OR GOO DS FOR MONEY; IN ITS SECONDARY MEANING IT IS REPEATED ACTIVITY IN THE NA TURE OF BUSINESS CARRIED ON WITH A PROFIT MOTIVE, THE ACTIVITY BEING MANUAL OR MERCANTILE, AS DISTINGUISHED FROM THE LIBERAL ARTS OR LEARNED PROFESSIONS OR AGR ICULTURE. THE QUESTION WHETHER TRADE IS CARRIED ON BY A PERSON AT A GIVEN PLACE MUST BE DETERMINED I.T.A. NO.2628/DEL./2010 11 ON A CONSIDERATION OF ALL THE CIRCUMSTANCES. NO TES T OR SET OF TESTS WHICH IS OR ARE DECISIVE FOR ALL CASES CAN BE EVOLVED FOR DETER MINING WHETHER A PERSON CARRIES ON TRADE AT A PARTICULAR PLACE. THE QUESTIO N, THOUGH ONE OF MIXED LAW AND FACT, MUST IN EACH CASE BE DETERMINED ON A CONS IDERATION OF THE NATURE OF THE TRADE, THE VARIOUS STEPS TAKEN FOR CARRYING ON THE TRADE AND OTHER RELEVANT FACTS. 6.1. THE HONBLE SUPREME COURT IN KHODAY DIS TILLERIES LTD. V. STATE OF KARNATAKA [1995] 1 SCC 574 WHILE REFERRING TO WORDS AND PHRASES LEGALLY DEFINED, 3RD EDN., (VOL. 4; R-Z) BY JOHN B. SAUNDER S, AND DECISIONS IN SKINNER V. JACK BREACH LTD., ;NATIONAL ASSN. OF LOCAL GOVERNME NT OFFICERS V. BOLTON CORPN. AND AVIATION AND SHIPPING CO. LTD. V. MURRAY (INSPE CTOR OF TAXES), CONCLUDED THAT THE WORD 'TRADE' MAY INCLUDE ALL THE CONNOTAT IONS OF THE WORD 'BUSINESS'. 'TRADE', AS PER THE WEBSTER'S NEW TWENTIETH CENTURY DICTIONARY (2ND EDITION), MEANS AMONGST OTHERS, 'A MEANS OF EARNING ONE'S LIV ING, OCCUPATION OR WORK. IN BLACK'S, LAW DICTIONARY, TRADE MEANS A BUSINESS WHI CH A PERSON HAS LEARNT OR HE CARRIES ON FOR PROCURING SUBSISTENCE OR PROFIT; OCC UPATION OR EMPLOYMENT, ETC. THE MEANING OF 'COMMERCE' AS GIVEN BY THE CONCISE OXFOR D DICTIONARY IS 'EXCHANGE OF MERCHANDISE, SPECIALLY ON LARGE SCALE'. IN ORDIN ARY PARLANCE, TRADE, AND COMMERCE CARRY WITH THEM THE IDEA OF PURCHASE AND S ALE WITH A VIEW TO MAKE PROFIT. IF A PERSON BUYS GOODS WITH A VIEW TO SELL THEM FOR PROFIT, IT IS AN ORDINARY CASE OF TRADE. IF THE TRANSACTIONS ARE ON A LARGE S CALE IT IS CALLED COMMERCE. NOBODY CAN DEFINE THE VOLUME, WHICH WOULD CONVERT A TRADE INTO COMMERCE. THE WORD 'BUSINESS' IS THE BROADEST TERM AND IS ENCOMPA SSES TRADE, COMMERCE AND OTHER ACTIVITIES. SECTION 2(13) OF THE ACT DEFINES THE TERM 'BUSINESS' AS UNDER: (13) 'BUSINESS' INCLUDES ANY TRADE, COMMERCE OR MAN UFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMER CE OR MANUFACTURE' 6.2 THE WORD 'BUSINESS' IS A WORD OF LARGE AND INDEFIN ITE IMPORT. ACCORDING TO SAMPATH IYENGAR'S LAW OF INCOME-TAX (9TH EDITION), A BUSINESS ACTIVITY HAS FOUR ESSENTIAL CHARACTERISTICS. FIRSTLY, A BUSINESS MUST BE A CONTINUOUS AND SYSTEMATIC EXERCISE OF ACTIVITY. BUSINESS IS DEFINED AS AN ACT IVE OCCUPATION CONTINUOUSLY CARRIED ON. BUSINESS VOCATION CONNOTES SOME REAL, S UBSTANTIVE AND SYSTEMATIC I.T.A. NO.2628/DEL./2010 12 COURSE OF ACTIVITY OR CONDUCT WITH A SET PURPOSE. S ECOND ESSENTIAL CHARACTERISTIC IS PROFIT MOTIVE OR CAPABLE OF PRODUCING PROFIT. TO REGARD AN ACTIVITY AS BUSINESS, THERE MUST BE A COURSE OF DEALINGS CONTINUED, OR CO NTEMPLATED TO BE CONTINUED, NORMALLY WITH AN OBJECT OF MAKING PROFIT AND NOT FO R SPORT OR PLEASURE [BHARAT DEVELOPMENT (P.) LTD V. CIT [1980] 4 TAXMAN 58/133 ITR 470 (DELHI)]. THE THIRD ESSENTIAL CHARACTERISTIC IS THAT A BUSINESS TRANSAC TION MUST BE BETWEEN TWO PERSONS. BUSINESS IS NOT A UNILATERAL ACT. IT IS BR OUGHT ABOUT BY A TRANSACTION BETWEEN TWO OR MORE PERSONS. AND LASTLY, THE BUSINE SS ACTIVITY USUALLY INVOLVES A TWIN ACTIVITY. THERE IS USUALLY AN ELEMENT OF RECIP ROCITY INVOLVED IN A BUSINESS TRANSACTION. . IN BARENDRA PROSAD RAY V. ITO [1981] 129 ITR 295/6 TAXMAN 19, THE HONBLE SUPREME COURT HAS EXAMINED THE SCOPE O F THE TERM 'BUSINESS' IN THE GENERAL LAW OR IN COMMON PARLANCE AS WELL AS IN DIAN PARTNERSHIP ACT, 1932 AND HELD AS UNDER:- 'THE EXPRESSION 'BUSINESS' DOES NOT NECESSARILY MEA N TRADE OR MANUFACTURE ONLY. IT IS BEING USED AS INCLUDING WITHIN ITS SCOP E PROFESSIONS, VOCATIONS AND CALLINGS FROM A FAIRLY LONG TIME. THE SHORTER OXFOR D ENGLISH DICTIONARY DEFINES 'BUSINESS' AS 'STATED OCCUPATION, PROFESSION OR TRA DE' AND 'A MAN OF BUSINESS' IS DEFINED AS MEANING 'AN ATTORNEY' ALSO. IN VIEW OF THE ABOVE DICTIONARY MEANING OF THE WORD ' BUSINESS ', IT CAN NOT BE SAID THAT THE DEFINITION OF BUSINESS GIVEN IN S. 45 OF THE PARTNE RSHIP ACT, 1890 (53 & 54 VIC. C. 39), WAS AN EXTENDED DEFINITION INTENDED FOR THE PURPOSE OF THAT ACT ONLY. SECTION 45 OF THAT ACT SAYS : ' . . . . . . . THE EXPRESSION 'BUSINESS' INCLUDES EVERY TRADE, OCCUPATION, OR PROFESSION.' SECTION 2(B) OF THE INDIAN PARTNERSHIP ACT, 1932, A LSO DEFINES 'BUSINESS' THUS: ''BUSINESS ' INCLUDES EVERY TRADE, OCCUPATION AND P ROFESSION.' THE OBSERVATION OF ROWLATT J. IN CHRISTOPHER BARKER & S ONS V. IRC [1919] 2 KB 222, 228 (KB), 'ALL PROFESSIONS ARE BUSINESSES, BUT ALL BUSINESSES ARE NOT PROFESSIONS . . . . . . 'ALSO SUPPORTS THE VIEW THA T PROFESSIONS ARE GENERALLY REGARDED AS BUSINESSES. THE SAME LEARNED JUDGE IN A NOTHER CASE, IRC V. MARINE STEAM TURBINE CO. LTD. [1920] 1 KB 193, 203 (KB) HELD: THE WORD 'BUSINESS', HOWEVER, IS ALSO USED IN ANOTH ER AND A VERY DIFFERENT SENSE, AS MEANING AN ACTIVE OCCUPATION OR PROFESSIO N CONTINUOUSLY CARRIED ON AND IT IS IN THIS SENSE THAT THE WORD IS USED IN TH E ACT WITH WHICH WE ARE HERE CONCERNED.' THE WORD 'BUSINESS ' IS ONE OF WIDE IMPORT AND IT M EANS AN ACTIVITY CARRIED ON CONTINUOUSLY AND SYSTEMATICALLY BY A PERSON BY THE APPLICATION OF HIS LABOUR OR SKILL WITH A VIEW TO EARNING AN INCOME. WE ARE OF T HE VIEW THAT IN THE CONTEXT IN I.T.A. NO.2628/DEL./2010 13 WHICH THE EXPRESSION 'BUSINESS CONNECTION' IS USED IN S. 9(1) OF THE ACT, THERE IS NO WARRANT FOR GIVING A RESTRICTED MEANING TO IT EXCLUDING 'PROFESSIONAL CONNECTIONS' FROM ITS SCOPE.' 6.3 IN STATE OF ANDHRA PRADESH V. H. ABDUL BAKHI & BROS . [1964] 15 STC 664, THE HONBLE SUPREME COURT ELUCIDATED THAT THE EXPR ESSION 'BUSINESS' IS AN EXTENSIVELY USED WORD OF INDEFINITE IMPORT. IN THE TAXING STATUTES IT IS USED IN THE SENSE OF AN OCCUPATION OR PROFESSION WHICH OCCUPIES TIME, ATTENTION OR LABOUR OF A PERSON AND NORMALLY ASSOCIATED WITH THE OBJECT OF MAKING PROFIT. IT WAS HELD AS UNDER: '4 ..TO REGARD AN ACTIVITY AS BUSINESS THERE MUST BE A COURSE OF DEALINGS, EITHER ACTUALLY CONTINUED OR CONTEMPLATED TO BE CON TINUED WITH A PROFIT MOTIVE, AND NOT FOR SPORT OR PLEASURE. BUT TO BE A DEALER A PERSON NEED NOT FOLLOW THE ACTIVITY OF BUYING SELLING AND SUPPLYING THE SAME C OMMODITY. MERE BUYING FOR PERSONAL CONSUMPTION I.E. WITHOUT A PROFIT MOTIVE W ILL NOT MAKE A PERSON, DEALER WITHIN THE MEANING OF THE ACT, BUT A PERSON WHO CONSUMES A COMMODITY BOUGHT BY HIM IN THE COURSE OF HIS TRADE, OR USE IN MANUFACTURING ANOTHER COMMODITY FOR SALE, WOULD BE REGARDED AS A DEALER....' 6.4 IN THE STATE OF GUJARAT V. RAIPUR MFG. CO. [1967] 1 9 STC 1 (SC) IT WAS STATED THAT BUSINESS IS NORMALLY WITH THE OBJECT OF MAKING PROFIT. TO REGARD AN ACTIVITY AS BUSINESS, THERE MUST BE A COURSE OF DEA LINGS EITHER ACTUALLY CONTINUED OR CONTEMPLATED TO BE CONTINUED WITH PROFIT MOTIVE AND NOT FOR SPORT OR PLEASURE. THE EXPRESSION 'PROFIT MOTIVE' DOES NOT POSTULATE O R INTENDS THAT PROFIT MUST, IN FACT, BE EARNED. NOR DOES THE EXPRESSION COVER A ME RE DESIRE TO MAKE SOME MONETARY GAIN OUT OF A TRANSACTION OR A SERIES OF T RANSACTIONS. IT PREDICATES A MOTIVE WHICH PERVADES THE TRANSACTION(S) EFFECTED B Y THE PERSON IN THE COURSE OF HIS ACTIVITY. THEREAFTER, IT WAS OBSERVED AS UNDER: 'IN ACTUAL PRACTICE, THE PROFIT MOTIVE MAY BE EASIL Y DISCERNIBLE IN SOME TRANSACTIONS: IN OTHERS IT WOULD HAVE TO BE INFERRE D FROM A REVIEW OF THE CIRCUMSTANCES ATTENDANT UPON THE TRANSACTION. FOR I NSTANCE, WHERE A PERSON WHO PURCHASES A COMMODITY IN BULK AND SELLS IT IN R ETAIL IT MAY BE READILY INFERRED THAT HE HAS A PROFIT MOTIVE IN ENTERING IN TO THE SERIES OF TRANSACTIONS OF PURCHASE AND SALE. A SIMILAR INFERENCE MAY BE RAISE D WHERE A PERSON MANUFACTURES FINISHED GOODS FROM RAW MATERIALS BELO NGING TO HIM OR PURCHASED BY HIM, AND SELLS THEM. BUT THERE A PERSO N COMES TO OWN IN THE I.T.A. NO.2628/DEL./2010 14 COURSE OF HIS BUSINESS OF MANUFACTURING OR SELLING A COMMODITY, SOME OTHER COMMODITY WHICH IS NOT A BYE-PRODUCT OR A SUBSIDIAR Y PRODUCT OF THAT BUSINESS AND HE SELLS THAT COMMODITY, COGENT EVIDENCE THAT H E HAS INTENTION TO CARRY ON BUSINESS OF SELLING THAT COMMODITY WOULD BE REQUIRE D. WHERE A PERSON IN THE COURSE OF CARRYING ON A BUSINESS IS REQUIRED TO DIS POSE OF WHAT MAY BE CALLED HIS FIXED ASSETS OR HIS DISCARDED GOODS ACQUIRED IN THE COURSE OF THE BUSINESS, AN INFERENCE THAT HE DESIRED TO CARRY ON THE BUSINE SS OF SELLING HIS FIXED ASSETS OR DISCARDED GOODS WOULD NOT ORDINARILY ARIS E. TO INFER FROM A COURSE OF TRANSACTIONS THAT IT IS INTENDED THEREBY TO CARR Y ON BUSINESS ORDINARILY THE CHARACTERISTICS OF VOLUME, FREQUENCY, CONTINUIT Y AND REGULARITY INDICATING AN INTENTION TO CONTINUE THE ACTIVITY OF CARRYING ON THE TRANSACTIONS MUST EXIST . BUT NO TEST IS DECISIVE OF THE INTENTION TO CARRY ON THE BUSINESS: IN THE LIGHT OF ALL THE CIRCUMSTANCES AN INFERENCE THAT A PERSON DESIRES TO CARRY ON THE BUSINESS OF SELLING GOODS M AY BE RAISED.' 6.5. A SIMILAR VIEW HAS BEEN EXPRESSED IN THE DIRECTOR OF SUPPLIES & DISPOSAL V. MEMBER, BOARD OF REVENUE [1967] 20 STC 398 (SC) WHEREIN IT HAS BEEN HELD:- '14. ...THE EXPRESSION 'BUSINESS' THOUGH EXTENSIVEL Y USED IN TAXING STATUTES, IS A WORD OF INDEFINITE IMPORT. IN TAXING STATUTES, IT IS USED IN THE SENSE OF AN OCCUPATION, OR PROFESSION WHICH OCCUPIES THE TIME, ATTENTION AND LABOUR OF A PERSON, NORMALLY WITH THE OBJECT OF MAKING PROFIT. TO REGARD AN ACTIVITY AS BUSINESS THERE MUST BE A COURSE OF DEALINGS, EITHER ACTUALLY CONTINUED OR CONTEMPLATED TO BE CONTINUED WITH A PROFIT-MOTIVE; THERE MUST BE SOME REAL AND SYSTEMATIC OR ORGANISED COURSE OF ACTIVITY OR C ONDUCT WITH A SET PURPOSE OF MAKING PROFIT. TO INFER FROM A COURSE OF TRANSACTIONS THAT IT IS I NTENDED THEREBY TO CARRY ON BUSINESS ORDINARILY THERE MUST EXIST THE CHARACTERISTICS OF VOLUME, FREQUENCY, CONTINUITY AN D SYSTEM INDICATING AN INTENTION TO CONTINUE THE ACTIVITY OF CARRYING O N THE TRANSACTIONS FOR A PROFIT . BUT NO SINGLE TEST OR GROUP OF TESTS IS DECISIVE OF THE INTENTION TO CARRY ON THE BUSINESS. IT MUST BE DECIDED IN CIRCUMSTANCE S OF THE EACH PARTICULAR CASE WHETHER AN INFERENCE COULD BE RAISED THAT THE IS CARRYING ON THE BUSINESS OF PURCHASING OR SELLING OF GOODS WITHIN THE MEANIN G OF THE STATUTE.' 6.6 . LIKEWISE IN MRS. SAROJINI RAJAH V. CIT [1969] 71 ITR 504 (MAD.) IN THE CONTEXT OF DIFFERENCE BETWEEN INVESTMENT AND BUSINE SS, THE FOLLOWING OBSERVATIONS, ARE RELEVANT:- 'WE THINK THAT THE PRESENCE OF COMMERCIAL MOTIVE IS A PRIMARY LEGAL REQUISITE OF TRADE. PURCHASE AND SALE AS A BUSINESS DEAL IN T HE PRESENT CONTEXT MAY BE ANOTHER REQUISITE. INTENTION TO MAKE A PROFIT NORMA LLY INSPIRES TRADE AND COMMERCE, BUT IT SEEMS IT MAY NOT BE THE ESSENCE OF TRADE. LIKEWISE, HABITUAL DEALING IS ORDINARILY INDICATIVE OF TRADE OR COMMER CE, BUT IS NOT NECESSARILY SO, I.T.A. NO.2628/DEL./2010 15 AS POINTED OUT BY ROWLATT K. IN GRAHAM V. GREEN. TH ERE MAY BE OTHER LEGAL REQUISITES WHICH MAY HAVE TO BE SATISFIED WITH REFE RENCE TO THE CHARACTER OF PARTICULAR TRANSACTIONS IN DIFFERENT KINDS OF TRADE OR BUSINESSES. BUT WHETHER THESE LEGAL REQUISITES ARE SATISFIED OR ARE PRESENT WILL THEMSELVES, IN THEIR TURN, BE A MIXED QUESTION OF LAW AND FACT. THE CHARACTER OF THE MOTIVE OR INTENTION WITH REFERENCE TO A TRANSACTION IS A MATTER OF INFE RENCE FROM THE OTHER FACTS. IT IS HERE THE BADGES OF TRADE INDICATED BY THE ROYAL COMMISSION EARLIER REFERRED TO ARE OF ASSISTANCE. THE SUBJECT-MATTER O F A TRANSACTION MAY BY SUCH AS IS COMMONLY OR USUALLY DEALT WITH IN TRADE OR CO MMERCE.' 6.7 . ALMOST IDENTICAL VIEW HAS BEEN EXPRESSED BY THE PA TNA HIGH COURT, ORISSA HIGH COURT AND MADRAS HIGH COURT IN ECLAT CONSTRUCT ION (P.) LTD. V. CIT [1988] 172 ITR 84, CIT V. M.P. BAZAZ [1992] 65 TAXMAN 91 /[1993] 200 ITR 131 AND CIT V. (R.M.) MEENAKSHISUNDARAM [1995] 212 ITR 220 (MAD) & HONBLE DELHI HIGH COURT IN BHARAT DEVELOPMENT (P.) LTD.,(SUPRA) ,WHER EIN HONBLE HIGH COURTS EXPRESSED THE VIEW THAT THE TERM 'BUSINESS' MEANS SOME REAL, SUBSTANTIVE, SYSTEMATIC OR ORGANIZED COURSE OF ACTIVITY OR CONDU CT CAPABLE OF PRODUCING PROFIT.; THE TERM 'PROFIT MOTIVE' IS NOT ONLY THE SOLE OR RE LEVANT CONSIDERATION THAT HAS TO BE KEPT IN MIND. IT IS ONE OF THE ASPECTS. NORMALLY INTENTION TO EARN PROFIT IS REQUIRED. THE DEFINITION OF THE TERM 'BUSINESS' MAY ALSO VARY DEPENDING UPON TAXABILITY UNDER SALES TAX, EXCISE DUTY, VALUE ADDE D TAX, ETC. BECAUSE THESE ARE NOT TAXES ON INCOME BUT THE TAXABLE EVENT OCCUR S BECAUSE OF THE 'ECONOMIC ACTIVITY' INVOLVED. EVEN IF A PERSON IS CARRYING ON TRADING ON THE PRINCIPLE OF 'NO LOSS NO PROFIT', IT MAY BE LIABLE TO PAY TAXES OR C OMPLY WITH THE STATUTE WHEN THE CHARGE, OR INCIDENCE OF TAX, IS ON THE 'ECONOMIC AC TIVITY' AS RECOGNIZED IN RIVERSIDE HOUSING ASSOCIATION LTD. V. REVENUE & CUS TOMS COMMISSIONER, (2006) EWHC 2383 (CH) AND THE CASE LAW CITED THEREI N). IN TOWN INVESTMENTS LTD. V. DEPARTMENT OF THE ENVIRONMENT [1977] 1 ALL ER 813, A GOVERNMENT DEPARTMENT WAS CLAIMING BENEFIT UNDER A LEGISLATION THAT PROTECTED 'BUSINESS TENANCIES' FROM INCREASE IN RENT. THE TERM 'BUSINES S' IN THE SAID CASE BY A MAJORITY DECISION WAS HELD TO INCLUDE GOVERNMENT AC TIVITIES. IT WAS HELD THAT THE WORD 'BUSINESS' IS A ETYMOLOGICAL CHAMELEON; IT SUI TS ITS MEANING TO THE CONTEXT IN WHICH IT IS FOUND. IT IS NOT THE TERM OF LEGAL A RT BUT IN ITS DICTIONARY MEANING IT INCLUDES ANYTHING WHICH IS AN OCCUPATION, AS DISTIN GUISHED FROM PLEASURE- I.T.A. NO.2628/DEL./2010 16 ANYTHING WHICH IS AN OCCUPATION OR A DUTY WHICH REQ UIRES ATTENTION IS BUSINESS. IT WAS ALSO OBSERVED THAT BUSINESS CONVEYS IN ORDINARY MEANING THE NOTION OF A DISTINCT ENTERPRISE (NOT NECESSARILY FOR PROFIT) HA VING ITS DISTINCT OBJECT, DISTINCT MANAGEMENT AND DISTINCT ASSETS AND LIABILITIES. IN THE SAID DECISION REFERENCE WAS MADE TO AN EARLIER DECISION IN THE CASE CUSTOMS AND EXCISE COMMISSIONER V. LORD FISHER [1981] S.T.C. 238, AND IT WAS OBSERVED AS UNDER: 'IN REGARD TO 'BUSINESS' FOR THE PURPOSE OF THE ACT . RALPH GIBSON J. HELD IN CUSTOMS AND EXCISE COMMISSIONERS V. LORD FISHER ON EARLIER AUTHORITY 'THAT 'BUSINESS' IS OR MAY BE IN PARTICULAR CONTEXTS A WO RD OF VERY WIDE MEANING,' BUT THAT 'THE ORDINARY MEANING OF THE WORD 'BUSINES S' IN THE CONTEXT OF THIS ACT EXCLUDES, IN MY JUDGMENT, ANY ACTIVITY WHICH IS NO MORE THAN AN ACTIVITY FOR PLEASURE AND SOCIAL ENJOYMENT', THOUGH THE FACT THA T THE PURSUIT OF PROFIT OR EARNINGS WAS NOT THE MOTIVE DID NOT PREVENT AN ACTI VITY FROM BEING A BUSINESS IF IN ANY OTHER RESPECT IT PLAINLY WAS. HE REFERRED , AT P. 245, TO SIX INDICIA LISTED BY THE COUNSEL FOR THE COMMISSIONERS AS THE TEST AS TO WEATHER AN ACTIVITY WAS A BUSINESS- WAS IT- (A) A 'SERIOUS UNDERTAKING EARN ESTLY PURSUED;' (B) PURSUED WITH REASONABLE CONTINUITY; (C) SUBSTANTIAL IN AMOU NT; (D) CONDUCTED REGULARLY ON SOUND AND RECOGNIZED BUSINESS PRINCIPLES; (E) PR EDOMINANTLY CONCERNED WITH THE MAKING OF TAXABLE SUPPLIES TO CONSUMERS FO R A CONSIDERATION; (F) SUCH AS CONSISTED OF TAXABLE SUPPLIES OF A KIND COMMONLY MADE BY THOSE WHO SEEK TO MAKE PROFIT FROM THEM.' 6.8 NOW ADVERTING TO DECISIONS RELIED UPON BY TH E LD. AR. FIRST SUCH DECISION IS DISTRIBUTOR BARODA (P) LTD.(SUPRA),WHERE IN THE ISS UE WAS AS TO WHETHER THE ASSESSEE COMPANY ,INCORPORATED WITH THE OBJECT TO ACQUIRE AND HOLD SHARES, STOCKS, DEBENTURES, DEBENTURE STOCKS, BONDS, OBLIGA TIONS AND SECURITIES ISSUED OR GUARANTEED BY ANY COMPANY CONSTITUTED OR CARRYING O N BUSINESS IN BRITISH INDIA AND TO TAKE PART IN THE FORMATION, MANAGEMENT, SUP ERVISION OR CONTROL OF THE BUSINESS OR OPERATION OF ANY COMPANY OR UNDERTAKING AND FOR THAT PURPOSE TO APPOINT AND REMUNERATE ANY DIRECTORS, ACCOUNTANTS O R OTHER EXPERTS OR AGENTS, FELL WITHIN THE SCOPE OF SECTION 23A OF THE INDIAN INCOME-TAX ACT, 1922.HONBLE APEX COURT HELD THAT ON THE BASIS OF THE ASSETS USE D, IT COULD NOT BE CONCLUDED THAT THE ASSESSEE'S BUSINESS CONSISTED ' WHOLLY OR MAINLY ' IN THE DEALING IN INVESTMENTS. IT WAS OBSERVED THAT SECTION 23A SPEAK S OF THE BUSINESS OF ' HOLDING OF INVESTMENTS ' AND WHEN A PERSON INVESTS IN THE SHARES OF SOME OF THE COMPANIES, IT IS DIFFICULT TO SAY THAT HIS BUSINESS IS ONE OF INVESTING. IN I.T.A. NO.2628/DEL./2010 17 COMMERCIAL CIRCLES INVESTING IS NOT CONSIDERED AS B USINESS. AN INVESTOR MAY FEEL PERPLEXED IF HE IS CALLED A BUSINESSMAN. APPARENTLY , THIS DECISION WAS RENDERED IN DIFFERENT CONTEXTS AND SETTINGS AND IS ,THUS NOT RELEVANT. 6.81 IN CIT VS. RAJEEV LOCHAN KANORIA (SUPRA) RELI ED UPON BY THE LD. AR, THE REVENUE DID NOT CHALLENGE AS PERVERSE THE FINDING O F THE TRIBUNAL THAT THE ASSESSEE'S BUSINESS ACTIVITY CONSISTED OF ACQUIRING SHARES FOR MANAGING, CONTROLLING AND REHABILITATING DIFFERENT COMPANIES LISTED BY THE AO. ACCORDINGLY, IT WAS CONCLUDED THAT INTEREST ON THE BORROWED CAPITAL IS DEDUCTIBLE UNDER S. 36(1)(III) OF THE ACT. IN INDI AN BANK LTD. (SUPRA), IT WAS CONCLUDED THAT INTEREST PAID BY THE BANK ON MONEY BORROWED FROM IT S VARIOUS DEPOSITORS HAD TO BE ALLOWED IN ITS ENTIRETY UNDER S. 10(2)(III) OF T HE IT ACT, 1922 AND THERE WAS NO WARRANT FOR DISALLOWING A PROPORTIONATE PART OF THE INTEREST REFERABLE TO MONEYS BORROWED FOR THE PURCHASE OF SECURITIES WHOSE INTER EST WAS TAX FREE. SIMILARLY, IN MODEL MFG. CO. (P) LTD. (SUPRA) INTEREST PAID ON MO NEY BORROWED FOR THE PURCHASE OF THE SHARES FOR THE PURPOSE OF INVESTME NT, BUT WITH THE MOTIVE OF ACQUIRING CONTROLLING INTEREST IN A COMPANY, WAS HE LD TO DEDUCTIBLE UNDER S. 57 OF THE ACT. SIMILAR FINDINGS WERE ARRIVED AT IN INDIA CEMENTS LTD.(SUPRA) & COELHO (G.J.) (SUPRA) .IN P KRISHNA MENON(SUPRA) PAYMENTS MADE BY A DISCIPLE WERE HELD TO BE INCOME ARISING FROM THE VOCATION OF THE ASSESSEE AS A TEACHER OF VEDANTA AND THEREFORE IT WAS CONCLUDED THAT NO QUES TION OF EXEMPTION UNDER SECTION 4(3)(VII) OF THE 1922 ACT AROSE. IN NABADWI P CHANDRA ROY (SUPRA) THE ASSESSEE CARRIED ON TEXTILE BUSINESS AND IN THAT C APACITY WAS NOMINATED AS DIRECTOR AND CHAIRMAN OF THE MEMBER SOCIETY VIZ. AS SAM PROVINCIAL TEXTILE CO- OPERATIVE SOCIETY AS HE WAS THE CHAIRMAN OF THE MEM BER SOCIETY OF THE SILCHAR SUB-DIVISIONAL CO-OPERATIVE SOCIETY. ACCORDINGLY, I T WAS CONCLUDED THAT THE REMUNERATION THEREFORE WHICH THE ASSESSEE GOT FOR T HE SERVICES RENDERED AS DIRECTOR WAS NOTHING BUT A RECEIPT ARISING FROM THE EXERCISE OF THE TEXTILE BUSINESS, VOCATION OR OCCUPATION CARRIED ON BY HIM. AFTER PERUSAL OF ALL THE DECISIONS RELIED UPON BY THE LD. AR, ESPECIALLY WH EN THE SAID DECISIONS WERE RENDERED IN ALTOGETHER DIFFERENT CONTEXTS AND SETTI NGS AND THE LD. AR DID NOT I.T.A. NO.2628/DEL./2010 18 ELABORATE BEFORE US AS TO HOW THESE DECISIONS IMPRO VE THE CASE OF THE ASSESSEE, WE ARE OF THE OPINION THAT RELIANCE ON THESE DECISI ONS IS TOTALLY MISPLACED. IN THE INSTANT CASE , THE ASSESSEE DID NOT PLACE BEFORE U S EVEN A COPY OF MEMORANDUM OF ASSOCIATION OF THE COMPANY OR OBJECTS OF THE COM PANY, DESPITE SPECIFIC REQUEST DURING THE COURSE OF HEARING OF THE APPEAL. THERE IS NO MATERIAL BEFORE US TO INFER AS TO WHETHER OR NOT THESE OBJECTS WERE PL ACED BEFORE THE LOWER AUTHORITIES NOR THERE IS ANYTHING TO SUGGEST THAT THE ASSESSEE INTENDED TO UNDERTAKE SOME REAL, SUBSTANTIVE, SYSTEMATIC OR ORG ANIZED COURSE OF ACTIVITY OR CONDUCT ;RATHER THE ASSESSEE MADE SOLE INVESTMENT O F ` 1850.91 CRORES IN .PURCHASE OF SHARES OF M/S AMUBJA CEMENT INDIA LTD. & AS CONCLUDED BY THE LD. CIT(A) NO OTHER TRANSACTIONS FOR PURCHASE OR SALE O F SHARES WITH THE OBJECTS OF BUSINESS DURING THE YEAR WERE MADE NOR THE LD. AR R EFERRED US TO ANY SUCH TRANSACTIONS AND INSTEAD THE LD. AR ADMITTED THAT T HE INVESTMENT WAS MADE IN SHARES OF ACEL TO ACQUIRE AND RETAIN CONTROL OF THE SAID COMPANY AND NO OTHER TRANSACTION EITHER IN THE PRECEDING OR SUCCEEDING Y EARS WAS MADE . WHETHER THE SOLE TRANSACTION OF INVESTMENT WAS WITH THE OBJECT OF CARRYING ON OF BUSINESS, NO SUCH MATERIAL HAS BEEN PLACED BEFORE US SO AS TO E NABLE US TO INFER SO. IN VIEW OF THE FOREGOING, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). .CONSEQUENTLY, GROUND NO.1.1 IN THE APPEAL IS DISM ISSED. 7. AS REGARDS GROUNDS RELATING TO DISALLOWANCE U/ S 14A OF THE ACT, THE AO DISALLOWED THE ENTIRE EXPENSES ` 10,38,27,023/-, INVOKING PROVISIONS OF SECTION 14A(2) OF THE ACT READ WITH RULE 8D OF I.T. RULES, 1962,WITHOUT EVEN ANALYZING THE NATURE OF EACH OF THE ITEM OF EXPENDITURE, COM PRISING THE AFORESAID AMOUNT . THE ASSESSEE MERELY SUBMITTED THAT EXPENSES WERE I NCURRED IN THE COURSE OF ITS NORMAL BUSINESS ACTIVITIES AND THAT SUBSTANTIAL INV ESTMENTS WERE PRECEDED BY APPROPRIATE DATA GATHERING, DATA ANALYSIS, ASCERTAI NMENT OF RISKS AND OTHER RELATED MATTERS, DISCUSSIONS TO UNDERSTAND THE ENVI RONMENT RELATING TO POTENTIAL OPPORTUNITIES AND MANY OTHER SIMILAR MATTERS. POST MAKING OF THE INVESTMENT IT IS ALSO NECESSARY FOR THE COMPANY TO FOLLOW UP ITS INV ESTMENT PORTFOLIO..ALL SUCH ACTIVITY REQUIRED THE INVESTMENT OF HUMAN EFFORT, R EQUIRING COMPENSATION FOR THEIR I.T.A. NO.2628/DEL./2010 19 EFFORTS. APPARENTLY, THE ASSESSEE DID NOT FURNISH I DENTIFY SEPARATE DETAILS OF EXPENDITURE WHICH HAD BEEN INCURRED FOR EARNING I NCOME WHICH DID NOT FORM PART OF TOTAL INCOME EVEN WHEN HUGE INVESTMENTS BY WAY O F SHARE HOLDERS FUNDS WERE MADE TO THE EXTENT OF` ` 18,64,54,46,839/-UNTIL 31.3.2006 AND DID NOT EVEN O FFER FOR DISALLOWANCE ANY EXPENDITURE FOR EARNING INCOME WHICH DID NOT FORM PART OF TOTAL INCOME. THE ASSESSEE IN ITS BALANCESHEET AS O N 31.3.2006 REFLECTED UNDER SCHEDULE IV THE AMOUNT OF ` 18,509,150,756/- AS LONG TERM INVESTMENTS IN UNQUOTED SHARES. AS ALREADY OBSERVED, THE ASSESSEE DID NOT FURNISH ANY SPECIFIC DETAILS OF EXPENDITURE INCURRED FOR MANAGEMENT AND SUPERVISION OF AFORESAID HUGE INVESTMENTS EITHER BEFORE THE AO OR THE LD. C IT(A) IN ORDER TO ENABLE THEM TO RECORD THEIR SATISFACTION ON THE CLAIM OF THE AS SESSEE . NOW FOR INSTANCE WHAT IS THE NATURE OF AN AMOUNT OF ` 30 LACS TOWARDS AGREEMENT TERMINATION CHARGES DEBITED IN P/L ACCOUNT HAS NOT BEEN EXPLAINED EITHE R BEFORE THE LOWER AUTHORITIES OR EVEN BEFORE US. OF COURSE, AS PER SECTION 14A(2) OF THE ACT, EVEN WHERE THE ASSESSEE CLAIMS THAT THERE IS NO EXPENDITURE WHICH HAD BEEN INCURRED RELATING TO INCOME WHICH DOES NOT FORM PART OF HIS TOTAL INCOME , IF THE AO, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THE PR OVISIONS CLEARLY STATE THAT WHEN THE AO EMBARKS UPON SUCH EXERCISE, HE MUST HAV E REGARD TO THE ACCOUNTS OF THE ASSESSEE; HE CANNOT SHOW A BLIND EYE TO THE PICTURE REVEALED BY THE ACCOUNTS. HONBLE APEX COURT IN KANTAMANI VENKATA N ARAYANA AND SONS V. FIRST ADDL. ITO [1967] 63 ITR 638 AND AGAIN IN MALEGAON ELECTRICITY CO. P. LTD. V. CIT [1970] 78 ITR 466 (SC) OBSERVED THAT IT IS THE DUTY OF THE ASSESSEE TO BRING TO THE NOTICE OF THE INCOME TAX OFFICER PARTICULAR ITEMS I N THE BOOKS OF ACCOUNT OR PORTIONS OF DOCUMENTS WHICH ARE RELEVANT. THE LAW CASTS A DUTY ON THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY FOR HIS ASSESSMENT FOR THAT YEAR. NOT EVEN A WHISPER HAS BE EN MADE BEFORE US AS TO WHETHER OR NOT RELEVANT ACCOUNTS WERE PLACED BEFORE THE AO OR THE LD. CIT(A) IN ORDER TO ENABLE THEM TO EXAMINE THE CLAIM OF THE A SSESSEE. THE LD. CIT(A) MERELY REFERRED TO DECISION IN CHEMINVEST LTD.(SU PRA) WITHOUT EVEN EXAMINING THE RELEVANT ACCOUNTS OR ASCERTAINING THE RELEVANT FACTS AND CIRCUMSTANCES .HERE I.T.A. NO.2628/DEL./2010 20 WE MAY POINT OUT THAT HONBLE JURISDICTIONAL HIGH COURT IN MAXOPP INVESTMENT LTD. VS. CIT,[2011] 15 TAXMANN.COM 390 (DELHI) HELD THAT EXPENDITURE (INCLUDING INTEREST PAID ON FUNDS BORROWED) IN RESPECT OF INVE STMENT IN SHARES OF OPERATING COMPANIES FOR ACQUIRING AND RETAINING A CONTROLLING INTEREST THEREIN IS HIT BY SECTION 14A INASMUCH AS THE DIVIDEND RECEIVED ON SU CH SHARES DOES NOT FORM PART OF THE TOTAL INCOME . 7.1. HONBLE BOMBAY HIGH COURT IN THE CASE OF GOD REJ & BOYCE MANUFACTURING COMPANY LTD. (SUPRA) WHILE ADJUDICATING A SIMILAR ISSUE IN THE CONTEXT OF PROVISIONS OF SEC. 14A OF THE ACT AND RULE 8D OF THE IT RULES,1962 CONCLUDED THAT RULE 8D, INSERTED W.E.F 24.3.2008 CANNOT BE REGARDED AS RETROSPECTIVE BECAUSE IT ENAC TS AN ARTIFICIAL METHOD OF ESTIMATING EXPENDITURE RELATABLE TO TAX-F REE INCOME. IT APPLIES ONLY W.E.F AY 2008-09. FOR THE ASSESSMENT Y EARS WHERE RULE 8D DOES NOT APPLY, THE AO WILL HAVE TO DETERMI NE THE QUANTUM OF DISALLOWABLE EXPENDITURE BY A REASONABLE METHOD HAVING REGARD TO ALL THE FACTS AND CIRCUMSTANCES, THE HONBLE HIG H COURT CONCLUDED. 7.2 HONBLE SUPREME COURT IN THEIR DECISION DATED 6.7.2010 IN CIT V. WALFORT SHARE & STOCK BROKERS (P.) LTD.,326 ITR 1, INTER ALIA, OBSERVED THAT FOR ATTRACTING SECTION 14A OF THE ACT THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE, WHICH IS ITS RE LATIONSHIP WITH THE TAX EXEMPT INCOME. THE THEORY OF APPORTIONMENT OF E XPENDITURE BETWEEN TAXABLE AND NON-TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 14A, HONBLE APEX COURT CONCLUDED. IN THE WORDS OF HONB LE APEX COURT: 17. THE INSERTION OF SECTION 14A WITH RETROSPECTIV E EFFECT IS THE SERIOUS ATTEMPT ON THE PART OF THE PARLIAMENT NOT TO ALLOW DEDUCTION IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSES SEE IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOM E UNDER THE ACT AGAINST THE TAXABLE INCOME (SEE CIRCULAR NO. 14 OF 2001, DATED 22- 11-2001). IN OTHER WORDS, SECTION 14A CLARIFIES THA T EXPENSES I.T.A. NO.2628/DEL./2010 21 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 INCOME. IN THE ABS ENCE OF SECTION 14A, THE EXPENDITURE INCURRED IN RESPECT OF EXEMPT INCOME WAS BEING CLAIMED AGAINST TAXABLE INCOME. THE MANDATE O F SECTION 14A IS CLEAR. IT DESIRES TO CURB THE PRACTICE TO CLAIM DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME AGAI NST TAXABLE INCOME AND AT THE SAME TIME AVAIL THE TAX INCENTIVE BY WAY OF EXEMPTION OF EXEMPT INCOME WITHOUT MAKING ANY APPOR TIONMENT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. THE BASIC REASON FOR INSERTION OF SECTION 14A IS THAT CERTAIN INCOME S ARE NOT INCLUDIBLE WHILE COMPUTING TOTAL INCOME AS THESE ARE EXEMPT UN DER CERTAIN PROVISIONS OF THE ACT. IN THE PAST, THERE HAVE BEEN CASES IN WHICH DEDUCTION HAS BEEN SOUGHT IN RESPECT OF SUCH INCOME S WHICH IN EFFECT WOULD MEAN THAT TAX INCENTIVES TO CERTAIN IN COMES WAS BEING USED TO REDUCE THE TAX PAYABLE ON THE NON-EXEMPT IN COME 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 EXPENDITURE. O N THE SAME ANALOGY THE EXEMPTION IS ALSO IN RESPECT OF NET INC OME. EXPENSES ALLOWED CAN ONLY BE IN RESPECT OF EARNING OF TAXABL E INCOME. THIS IS THE PURPORT OF SECTION 14A. IN SECTION 14A, THE FIR ST PHRASE IS 'FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS C HAPTER' WHICH MAKES IT CLEAR THAT VARIOUS HEADS OF INCOME AS PRES CRIBED UNDER CHAPTER IV WOULD FALL WITHIN SECTION 14A. THE NEXT PHRASE IS, 'IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTA L INCOME UNDER THE ACT'. IT MEANS THAT IF AN INCOME DOES NOT FORM PART OF TOTAL INCOME, THEN THE RELATED EXPENDITURE IS OUTSIDE THE AMBIT OF THE APPLICABILITY OF SECTION 14A. FURTHER, SECTION 14 S PECIFIES 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 HEAD S. SECTIONS 15 TO 59 LAY DOWN THE RULES FOR COMPUTING INCOME FOR T HE PURPOSE OF CHARGEABILITY TO TAX UNDER THOSE HEADS. SECTIONS 15 TO 59 QUANTIFY THE TOTAL INCOME CHARGEABLE TO TAX. THE PERMISSIBLE DEDUCTIONS ENUMERATED IN SECTIONS 15 TO 59 ARE NOW TO BE ALLOW ED ONLY WITH, REFERENCE TO INCOME WHICH IS BROUGHT UNDER ONE OF T HE ABOVE HEADS AND IS CHARGEABLE TO TAX. IF AN INCOME LIKE DIVIDEN D INCOME IS NOT A PART OF THE TOTAL INCOME, THE EXPENDITURE/DEDUCTION THOUGH OF THE NATURE SPECIFIED IN SECTIONS 15 TO 59 BUT RELATED T O THE INCOME NOT FORMING PART OF TOTAL INCOME COULD NOT BE ALLOWED A GAINST OTHER INCOME INCLUDIBLE IN THE TOTAL INCOME FOR THE PURPO SE OF CHARGEABILITY TO TAX. THE THEORY OF APPORTIONMENT OF EXPENDITURES BETWEEN TAXABLE AND NON-TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 14A. READING SECTION 14 IN JUXTAPOSITION WITH SECT IONS 15 TO 59, IT IS CLEAR THAT THE WORDS 'EXPENDITURE INCURRED' IN SECT ION 14A REFERS TO I.T.A. NO.2628/DEL./2010 22 EXPENDITURE ON RENT, TAXES, SALARIES, INTEREST, ETC . IN RESPECT OF WHICH ALLOWANCES ARE PROVIDED FOR (SEE SECTIONS 30 TO 37) 7.3 HONBLE PUNJAB & HARYANA HIGH COURT IN THE IR DECISION IN CIT VS. HERO CYCLES LTD.,323 ITR 518 HAVE OBSERVED THAT DISALLOWANCE UNDER SECTION 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE AND WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAS BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A C ANNOT STAND. 7.4 IN CHEMINVEST LTD. V. INCOME-TAX OFFICER,317I TR(AT)86,SPECIAL BENCH HELD THAT WHEN THE EXPENDITURE IS INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, IT HAS TO SUFFER THE DISALLOW ANCE IRRESPECTIVE OF THE FACT WHETHER ANY INCOME IS EARNED BY THE ASSESSEE OR NOT AND THE PROVISIONS OF SEC. 14A OF THE ACT DO NOT ENVISAGE ANY SUCH EXCEPTION. 7.5 HONBLE JURISDICTIONAL HIGH COURT IN A RECEN T DECISION DATED 18.11.2011 IN MAXOPP INVESTMENT LTD.(SUPRA) HELD AS UNDER: '41. SUB-SECTION (2) OF SECTION 14A, AS WE HAVE SEE N, STIPULATES THAT THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXP ENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME 'IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED'. OF COURSE, THIS DETERMINATION CAN ONLY BE UNDERTAKEN IF THE ASSESSI NG OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE I N RESPECT OF SUCH EXPENDITURE. THIS PART OF SECTION 14A(2) WHICH EXPL ICITLY REQUIRES THE FULFILLMENT OF A CONDITION PRECEDENT IS ALSO IMPLIC IT IN SECTION 14A(1) [AS IT NOW STANDS] AS ALSO IN ITS INITIAL AVATAR AS SECTION 14 A. IT IS ONLY THE PRESCRIPTION WITH REGARD TO THE METHOD OF DETERMINING SUCH EXPEN DITURE WHICH IS NEW AND WHICH WILL OPERATE PROSPECTIVELY. IN OTHER WORDS, S ECTION 14A, EVEN PRIOR TO THE INTRODUCTION OF SUB-SECTIONS (2) & (3) WOULD RE QUIRE THE ASSESSING OFFICER TO FIRST REJECT THE CLAIM OF THE ASSESSEE WITH REGA RD TO THE EXTENT OF SUCH EXPENDITURE AND SUCH REJECTION MUST BE FOR DISCLOSE D COGENT REASONS. IT IS THEN THAT THE QUESTION OF DETERMINATION OF SUCH EXP ENDITURE BY THE ASSESSING OFFICER WOULD ARISE. THE REQUIREMENT OF ADOPTING A SPECIFIC METHOD OF DETERMINING SUCH EXPENDITURE HAS BEEN INTRODUCED BY VIRTUE OF SUB-SECTION (2) OF SECTION 14A. PRIOR TO THAT, THE ASSESSING OF FICER WAS FREE TO ADOPT ANY REASONABLE AND ACCEPTABLE METHOD. 42. THUS, THE FACT THAT WE HAVE HELD THAT SUB-SECTI ONS (2) & (3) OF SECTION 14A AND RULE 8D WOULD OPERATE PROSPECTIVELY (AND, N OT RETROSPECTIVELY) DOES I.T.A. NO.2628/DEL./2010 23 NOT MEAN THAT THE ASSESSING OFFICER IS NOT TO SATIS FY HIMSELF WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WITH REGAR D TO SUCH EXPENDITURE. IF HE IS SATISFIED THAT THE ASSESSEE HAS CORRECTLY REF LECTED THE AMOUNT OF SUCH EXPENDITURE, HE HAS TO DO NOTHING FURTHER. ON THE O THER HAND, IF HE IS SATISFIED ON AN OBJECTIVE ANALYSIS AND FOR COGENT REASONS THA T THE AMOUNT OF SUCH EXPENDITURE AS CLAIMED BY THE ASSESSEE IS NOT CORRE CT, HE IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ON THE BAS IS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. IT WOULD BE APP ROPRIATE TO RECALL THE WORDS OF THE SUPREME COURT IN WALFORT (SUPRA) TO TH E FOLLOWING EFFECT:- ' THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 14A .' SO, EVEN FOR THE PRE-RULE 8D PERIOD, WHENEVER THE I SSUE OF SECTION 14A ARISES BEFORE AN ASSESSING OFFICER, HE HAS, FIRST O F ALL, TO ASCERTAIN THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, THE ASSESSING OFFICER WILL HAVE TO VERIFY THE CORRE CTNESS OF SUCH CLAIM. IN CASE, THE ASSESSING OFFICER IS SATISFIED WITH THE C LAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, THE ASSESSING OFFICER IS TO ACCEPT THE CLAIM OF THE ASS ESSEE INSOFAR AS THE QUANTUM OF DISALLOWANCE UNDER SECTION 14A IS CONCER NED. IN SUCH EVENTUALITY, THE ASSESSING OFFICER CANNOT EMBARK UP ON A DETERMINATION OF THE AMOUNT OF EXPENDITURE FOR THE PURPOSES OF SECTION 1 4A(1). IN CASE, THE ASSESSING OFFICER IS NOT, ON THE BASIS OF OBJECTIVE CRITERIA AND AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, SATISFIED WITH T HE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASONS FOR DOING SO. HAVING DONE SO, THE ASSESSING OFFICER WILL HAVE TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. HE IS REQUIRED TO DO SO ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPO RTIONMENT.' . 7.6. HONBLE CALCUTTA HIGH COURT IN DHANUKA & SONS VS. CIT,12 TAXMANN.COM 227(CAL.) HELD THAT AFTER HEARING THE LEARNED COUNSEL APPEARIN G FOR THE PARTIES AND AFTER GOING THROUGH THE MATERIALS ON RECORD AND THE DECISIONS C ITED BY MR. KHAITAN, WE FIND THAT THE SUPREME COURT IN THE CASES OF CIT V. MAHAR ASTRA SUGAR MILLS LTD. [1971] 82 ITR 452 AND RAJASTHAN STATE WAREHOUSING CORPN. V. CIT [200 0] 242 ITR 450 / 109 TAXMAN 145 HAVING HELD THAT WHERE THERE IS ONE INDIVISIBLE BU SINESS GIVING RISE TO TAXABLE INCOME AS WELL AS EXEMPT INC OME, THE ENTIRE EXPENDITURE INCURRED IN RELATION TO THAT BUSINESS WOULD HAVE TO BE ALLOWED EVEN IF A PART OF THE INCOME EARNED FROM THE BUSINESS IS EXEMPT FROM TAX, SECTION 14A OF THE ACT WAS ENACTED TO OVERCOME THOSE JUDICIAL PRONOUNCEMENTS. THE OBJECT OF SECTION14A OF I.T.A. NO.2628/DEL./2010 24 THE ACT IS TO DISALLOW THE DIRECT AND INDIRECT EXPE NDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME . 8. IN THE CASE BEFORE US, THERE IS NO DISPUTE THAT PA RT OF THE INCOME OF THE ASSESSEE FROM ITS BUSINESS IS FROM DIVIDEND WHICH I S EXEMPT FROM TAX WHEREAS THE ASSESSEE WAS UNABLE TO PRODUCE ANY MATERIAL BEF ORE THE AUTHORITIES BELOW SHOWING THE SOURCE FROM WHICH SUCH SHARES WERE ACQU IRED. MR. KHAITAN STRENUOUSLY CONTENDED BEFORE US THAT FOR THE LAST F EW YEARS BEFORE THE RELEVANT PREVIOUS YEAR, NO NEW SHARE HAS BEEN ACQUIRED AND T HUS, THE LOAN THAT WAS TAKEN AND FOR WHICH THE INTEREST IS PAYABLE BY THE ASSESSEE WAS NOT FOR ACQUISITION OF THOSE OLD SHARES AND, THEREFORE, THE AUTHORITIES BELOW ERRED IN LAW IN GIVING BENEFIT OF PROPORTIONATE DEDUCTION. 9. IN OUR OPINION, THE MERE FACT THAT THOSE SHARES WE RE OLD ONES AND NOT ACQUIRED RECENTLY IS IMMATERIAL. IT IS FOR THE ASSESSEE TO S HOW THE SOURCE OF ACQUISITION OF THOSE SHARES BY PRODUCTION OF MATERIALS THAT THOSE WERE ACQUIRED FROM THE FUNDS AVAILABLE IN THE HANDS OF THE ASSESSEE AT THE RELEV ANT POINT OF TIME WITHOUT TAKING BENEFIT OF ANY LOAN. IF THOSE SHARES WERE PURCHASED FROM THE AMOUNT TAKEN IN LOAN, EVEN FOR INSTANCE, FIVE OR TEN YEARS AGO, IT IS FOR THE ASSESSEE TO SHOW BY THE PRODUCTION OF DOCUMENTARY EVIDENCE THAT SUCH LO ANED AMOUNT HAD ALREADY BEEN PAID BACK AND FOR THE RELEVANT ASSESSMENT YEAR , NO INTEREST IS PAYABLE BY THE ASSESSEE FOR ACQUIRING THOSE OLD SHARES. IN THE ABSENCE OF ANY SUCH MATERIALS PLACED BY THE ASSESSEE, IN OUR OPINION, T HE AUTHORITIES BELOW RIGHTLY HELD THAT PROPORTIONATE AMOUNT SHOULD BE DISALLOWED HAVING REGARD TO THE TOTAL INCOME AND THE INCOME FROM THE EXEMPT SOURCE. IN TH E ABSENCE OF ANY MATERIAL DISCLOSING THE SOURCE OF ACQUISITION OF SHARES WHIC H IS WITHIN THE SPECIAL KNOWLEDGE OF THE ASSESSEE, THE ASSESSING AUTHORITY TOOK A MOST REASONABLE APPROACH IN ASSESSMENT. 7.7 AS ALREADY OBSERVED, IN THE INSTANT CASE, T HE ASSESSEE DENIED INCURRING ANY EXPENDITURE FOR EARNING INCOME, WHICH DID NOT FORM PART OF TOTAL INCOME DURING THE COURSE OF ASSESSMENT PROCEEDINGS EVEN WHEN HUGE INVESTMENTS WERE MADE BY THE ASSESSEE IN THE SHARE S FOR HAVING CONTROLLING INTEREST . IN TERMS OF THE AFORESAID DECISION OF TH E HONBLE JURISDICTIONAL HIGH COURT IN MAXOPP INVESTMENT LTD.(SUPRA), EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, THE AO IS REQUIRED TO VERIFY THE CORR ECTNESS OF SUCH CLAIM. IN CASE , THE AO IS NOT, ON THE BASIS OF OBJECTIVE CRITERIA A ND AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, SATISFIED WITH THE CORRECTN ESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STA TE THE REASONS FOR DOING SO. HAVING DONE SO, THE AO HAS TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID I.T.A. NO.2628/DEL./2010 25 ACT, HONBLE HIGH COURT CONCLUDED . FOLLOWING THE VIEW TAKEN IN THIS DECISION, HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. MACHIN O PLASTIC LTD IN THEIR DECISION DATED 28.2.2012 IN ITA NO. 92 OF 2011, RESTORED THE MATTER TO THE FILE OF THE AO, BEING HANDICAPPED BECAUSE OF FAILURE OF THE ASSESSE E TO FURNISH RELEVANT DETAILS AND PARTICULARS .IN THE INSTANT CASE ALSO, THE AO WAS HANDICAPPED, BECAUSE OF FAILURE OF THE ASSESSEE TO FURNISH RELEVANT DETAILS /PARTICULARS AND ACCOUNTS WHILE MAKING THE DISALLOWANCE IN TERMS OF PROVISIONS OF S EC. 14A OF THE ACT. THERE IS NOTHING IN THE ASSESSMENT ORDER OR IMPUGNED ORDER A S TO WHETHER THE ASSESSEE PLACED THE RELEVANT DETAILS & ACCOUNTS BEFORE THE AO NOR THE LD. CIT(A) SEEMS TO HAVE UNDERTAKEN ANY EXERCISE TO ASCERTAIN THE DE TAILS OF EXPENDITURE OBJECTIVELY IN MANAGING AND SUPERVISING THE AFORESA ID HUGE INVESTMENTS .IN VIEW OF THE FOREGOING, WE CONSIDER IT FAIR AND APPR OPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE M ATTER TO THE FILE OF THE AO FOR DECIDING THE ISSUE, AFRESH IN ACCORDANC E WITH LAW IN THE LIGHT OF OUR AFORESAID OBSERVATIONS AND VARIOUS JUD ICIAL PRONOUNCEMENTS, INCLUDING THOSE REFERRED TO ABOVE, AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE NEEDLESS TO SAY THAT WHILE REDECIDING THE ISSUE, THE AO SHALL PASS A SPEAKING ORDER, GIVING REASONS FOR HIS SATISFACTION OR OTHERWISE, AS POIN TED OUT BY THE HONBLE JURISDICTIONAL HIGH COURT IN THEIR DECISION IN MAXOPP INVESTMENT LTD (SUPRA),BRINGING OUT CLEARLY EXPENDI TURE INCURRED IN MANAGING AND SUPERVISING THE AFORESAID HUGE INVESTM ENTS. THE ASSESSEE IS ALSO DIRECTED TO FURNISH ALL THE RELEVANT DETAILS O F EXPENDITURE ACTUALLY INCURRED IN MANAGING AND SUPERVISING THE AFORESAID HUGE INVESTMENTS ALONG WITH RELEVANT ACCOUNTS. WITH THES E OBSERVATIONS, GROUND NOS 1,2 TO 2.1 IN THE APPEAL ARE DISPOSED OF WHILE GROUND NOS. 1.2, 1.3 & 2.2 ARE DISMISSED.. 8. NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE U S IN TERMS OF RESIDUARY GROUND IN THE APPEAL, ACCORDINGLY, THIS GROUND I S DISMISSED. I.T.A. NO.2628/DEL./2010 26 9.. NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE U S. 10. IN THE RESULT, APPEAL IS PARTLY ALLOWED BUT FOR STATISTICAL PURPOSES SD/- SD/- (RAJPAL. YADAV) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NS COPY OF THE ORDER FORWARDED TO :- 1. ASSESSEE 2. INCOME-TAX OFFICER, WARD-12(4), NEW DELHI 3. CIT CONCERNED 4. CIT (A)-XV, NEW DELHI 5. DR, ITAT,C BENCH, NEW DELHI 6. GUARD FILE. BY O RDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI ORDER PRONOUNCED IN OPEN COURT