WADHAWAN HOLDINGS P.LTD, MUMBAI V. ACIT CEN CIR 5(4), MUMBAI

ITA 2662/MUM/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0500 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 12-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Earning of tax free income; Tangible material; Difference of opinion; Change of opinion
• Section: 143(3); 142(1); 14A; 115JB; 147; 148

Judgement Text

1 ITA 2662/MUM/2017 2361/MUM/2017 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G,MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.2662/MUM/2017 (ASSESSMENT YEAR: 2009-10) M/S WADHWAN HOLDINGS PVT LTD, HDIL TOWERS, 4 TH FLOOR DHEERAJ ARMA, ANANT KANEKAR MARG, BANDRA (E) MUMBAI-51 PAN : AAACW5001G VS ACIT, CENT.CIR.5(4), MUMBAI APPELLANT RESPONDEDNT I.T.A NO.2361/MUM/2017 (ASSESSMENT YEAR: 2009-10) DY.CIT, CENT.CIR.5(4), MUMBAI VS M/S WADHWAN HOLDINGS PVT LTD, HDIL TOWERS, 4 TH FLOOR DHEERAJ ARMA, ANANT KANEKAR MARG, BANDRA (E) MUMBAI-51 PAN : AAACW5001G APPELLANT RESPONDEDNT ASSESSEE BY SHRI C.S. GULATI REVNUE BY SHRI NIRAV VORA DATE OF HEARING 10-01 -2018 DATE OF PRONOUNCEMENT 31-01-2018 O R D E R PER G MANJUNATHA, AM : THESE CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A)-53, MU MBAI DATED 31-10- 2 ITA 2662/MUM/2017 2361/MUM/2017 2016 AND THEY PERTAINS TO A.Y. 2009-10. SINCE FACT S ARE IDENTICAL AND ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE, THE SE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON O RDER. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT, FILED I TS RETURN OF INCOME FOR THE AY 2009-10 ON 30-09-2009 DECLARING TOTAL INCOME AT NIL UNDER NORMAL PROVISIONS OF THE INCOME-TAX ACT, 1961 AND B OOK PROFIT AT RS.4,60,72,125 UNDER THE PROVISIONS OF SECTION 115J B OF THE ACT. THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 29-12-2011 B Y ACCEPTING INCOME DECLARED BY THE ASSESSEE UNDER NORMAL PROVIS IONS OF THE ACT AND BOOK PROFIT U/S 115JB OF THE ACT. THEREAFTER, THE CASE WAS REOPENED U/S 147 OF THE ACT, ON THE GROUND THAT INCOME CHARG EABLE TO TAX HAD BEEN ESCAPED ASSESSMENT AND HENCE, NOTICE U/S 148 O F THE ACT WAS ISSUED ON 24-12-2013. IN RESPONSE TO THE NOTICE, A SSESSEE ATTENDED AND FILED WRITTEN SUBMISSIONS ON 17-09-2014 BY STAT ING THAT THE RETURN FILED EARLIER ON 30-09-2009 U/S 139(1) MAY BE TREAT ED AS RETURN FILED IN RESPONSE TO NOTICE U/S 148. THE CASE HAS BEEN SELE CTED FOR SCRUTINY AND NOTICES U/S 143(2) AND 142(1) WERE ISSUED. IN RESP ONSE TO THE NOTICES, THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE APPEA RED FROM TIME TO TIME AND FILED THE REQUISITE DETAILS, AS CALLED FOR . THE ASSESSMENT WAS COMPLETED U/S 143(3) R.W.S. 147 BY MAKING ADDITION TOWARDS DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME NOT 3 ITA 2662/MUM/2017 2361/MUM/2017 INCLUDIBLE IN TOTAL INCOME U/S 14A @ 0.5% OF AVERAG E VALUE OF INVESTMENTS BY INVOKING RULE 8D(2)(III) OF INCOME-T AX RULES, 1962. 3. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREFERR ED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE HAS CHALLENGED REOPENING OF ASSESSMENT ON THE GROUND THAT THE AO H AS REOPENED ASSESSMENT MERELY ON THE BASIS OF CHANGE OF OPINION WITHOUT THERE BEING ANY FRESH TANGIBLE MATERIAL WHICH SUGGESTS ES CAPEMENT OF INCOME. INSOFAR AS DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME, THE ASSESSEE SUBMITTED THAT THE AO HAS DETE RMINED DISALLOWANCE OF RS.1,06,56,506 DISREGARDING ALL THE FACTS AND SUBMISSIONS THAT EXPENDITURE INCURRED BY THE ASSESS EE DOES NOT HAVE ANY NEXUS BETWEEN EXEMPT INCOME. THE AO HAS BLINDL Y APPLIED RULE 8D WITHOUT SATISFYING HIMSELF ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE AND GIVING ANY ADVERSE FINDING ABOUT THE D ISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. THE ASSESSEE FURTHER SUBMITTED THAT ITS INVESTMENTS ARE IN GROUP COMPANI ES FOR THE PURPOSE OF CONTROLLING INTEREST BUT NOT FOR THE PURPOSE OF EAR NING ANY EXEMPT INCOME. THEREFORE, THE AO WAS INCORRECT IN DISALLO WING EXPENDITURE BY INVOKING RULE 8D(2)(III) INSOFAR AS INVESTMENT IN G ROUP COMPANIES IS CONCERNED. IN THIS REGARD HE RELIED UPON PLETHORA OF JUDGMENTS. THE CIT(A), AFTER CONSIDERING RELEVANT SUBMISSIONS OF T HE ASSESSE AND ALSO RELYING UPON CERTAIN JUDICIAL PRECEDENTS INCLUDING THE DECISION OF HONBLE 4 ITA 2662/MUM/2017 2361/MUM/2017 SUPREME COURT IN THE CASE OF CIT VS KELVINATOR OF I NDIA (2010) 320 ITR 561 (SC) DISMISSED GROUND RAISED BY THE ASSESSEE CH ALLENGING REOPENING OF ASSESSMENT BY HOLDING THAT THE AO HAS RIGHTLY REOPENED THE ASSESSMENT AS THERE WAS NO NEW MATERIAL IN THE POSSESSION OF THE AO WHICH SUGGESTS ESCAPEMENT OF INCOME WITHIN THE M EANING OF SECTION 147 OF THE INCOME-TAX ACT, 1961. INSOFAR AS DISALL OWANCE OF EXPENDITURE INCURRED U/S 14A, THE CIT(A) REJECTED THE ARGUMENTS OF THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO EXE MPT INCOME BY HOLDING THAT THE ASSESSEE HAS INCURRED VARIOUS EXPE NDITURE IN THE NATURE OF ADMINISTRATIVE AND GENERAL EXPENSES AND THE POSS IBILITY OF CERTAIN PORTION OF EXPENSES ATTRIBUTABLE TO INVESTMENT ACTI VITY OF THE ASSESSE CANNOT BE RULED OUT. THE CIT(A) ALSO REJECTED THE ARGUMENTS OF THE ASSESSEE THAT ITS INVESTMENTS ARE STRATEGIC INVSTME NTS IN GROUP COMPANIES / SUBSIDIARIES FOR THE PURPOSE OF HOLDING CONTROLLING INTEREST BUT NOT FOR THE PURPOSE OF EARNING EXEMPT INCOME. HOWEVER, THE CIT(A) ACCEPTED ALTERNATIVE PLEA OF THE ASSESSEE THAT ONLY THOSE INVESTMENTS FROM WHICH EXEMPT INCOME WAS RECEIVED BY THE ASSESS EE SHOULD BE CONSIDERED FOR THE PURPOSE OF AVERAGE VALUE OF INVE STMENTS TO DETERMINE DISALLOWANCE OF EXPENDITURE U/R 8D(2)(III) BY FOLLO WING THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD VS CIT 374 ITR 272 (DEL) AND RE-WORKED DISALLOWANCE DETERMINED BY THE AO BY CONSIDERING ONLY THOSE INVESTMENTS WHICH ARE CAPABL E OF EARNING EXEMPT 5 ITA 2662/MUM/2017 2361/MUM/2017 INCOME. ACCORDINGLY, THE CIT(A) HAS DETERMINED DIS ALLOWANCE OF RS.51,47,177 AS AGAINST RS.1,06,56,506 WORKED OUT B Y THE AO BY CONSIDERING THE INVESTMENTS IN HDIL AND DHFL AND LO NG TERM CAPITAL GAIN DERIVED FROM WADHWAN FOOD RETAIL PVT LTD DURIN G THE RELEVANT PERIOD. THE RELEVANT PORTION OF THE CIT(A)S ORDER IS EXTRACTED BELOW:- 6.3.4 COMING TO THE COMPUTATION OF DISALLOWANCE U/ S.!4A, I AM INCLINED TO ACCEPT THE ALTERNATIVE PLEA OF THE APPELLANT FOR CO NSIDERING ONLY THOSE INVESTMENTS FROM WHICH EXEMPT INCOME WAS RECEIVED B Y THE APPELLANT AS PER THE RATIO OF JUDGMENT OF HON'BLE DELHI HIGH COURT I N THE CASE OF CHETNINVEST LTD, V. CIT (ITA 749/2014). ACCORDINGLY, IT IS HELD THAT W HILE CALCULATING THE DISALLOWANCE AS PER RULE 8D(2)(III), THE AVERAGE VA LUE OF INVESTMENT IS TO BE WORKED OUT BY TAKING INTO ACCOUNT NOT THE ENTIRE OP ENING AND CLOSING INVESTMENTS IN QUOTED AND UNQUOTED SHARES OF GROUP AND OTHER COMPANIES HELD BY THE APPELLANT BUT ONLY THE INVESTMENTS IN SHARES WHICH HAVE YIELDED TAX FREE INCOME TO THE APPELLANT BY WAY OF DIVIDEND (HDIL AN D DHFL) AND LTCG (WFRPL) DURING THE PERIOD. IN THIS MANNER, THE AVE RAGE VALUE OF INVESTMENT IN SHARES OF THESE THREE COMPANIES COMES TO RS.1,02,94,23,490/- AND ACCORDINGLY THE DISALLOWANC E UNDER RULE 8D(2)(III) @0.5% OF AVERAGE VALUE OF INVESTMENT COMES TO RS. 5 1,47,1177- AS AGAINST RS.1,06,56,506/-WORKED OUT BY THE A.O. THUS, THE AP PELLANT GETS RELIEF OFRS.55.09,389/- ON THIS COUNT. THE A.O. IS DIRECTE D TO CONSIDER THE QUANTUM OF DISALLOWANCE U/S.14 R.W.RUIE 8D AT RS.51,47,117/- A S COMPUTED ABOVE WHILE GIVING EFFECT TO THIS ORDER. GROUND NO,3 OF THE PRE SENT APPEAL IS ALLOWED TO THE EXTENT INDICTED ABOVE. 4. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE LD.CI TA) HAS ERRED IN LAW AND IN FACTS BY PARTLY CONFIRMING THE DISALL OWANCE OF EXPENSES U/S 14A R.W.R. 8D AMOUNTING TO RS.51,47,117 DISREGARDIN G THE FACT THAT NONE OF THE EXPENSES INCURRED BY THE ASSESSEE ARE DIRECT LY ATTRIBUTABLE TO THE EXEMPT INCOME EARNED BY THE ASSESSEE. THE LD. AR F URTHER SUBMITTED THAT THE ASSESSEE HAS INCURRED VARIOUS EXPENDITURE WHICH ARE DIRECTLY RELATED TO ITS MAIN BUSINESS ACTIVITY. THEREFORE, ATTRIBUTING PART OF 6 ITA 2662/MUM/2017 2361/MUM/2017 EXPENSES TO THE INVESTMENT ACTIVITY WITHOUT ANY NEX US BETWEEN EXPENDITURE INCURRED AND ITS INVESTMENT ACTIVITY IS TOTALLY INCORRECT. THE AO AS WELL AS CIT(A) HAS BLINDLY APPLIED RULE 8D2)( III) WITHOUT BRINGING ON RECORD ANY EVIDENCE TO ESTABLISH NEXUS BETWEEN EXPE NDITURE INCURRED BY THE ASSESSEE AND INVESTMENT ACTIVITY. THEREFORE, T HE DISALLOWANCE DETERMINED BY THE AO AND CONFIRMED BY THE CIT(A) SH OULD BE DELETED. THE LD.AR MADE AN ALTERNATIVE PLEA INASMUCH AS DETE RMINATION OF AVERAGE VALUE OF INVESTMENT BY THE CIT(A) AT RS.102 ,94,23,490 FOR THE PURPOSE OF COMPUTING THE DISALLOWANCE U/R 8D(2)(III ) OF THE INCOME-TAX RULES, 1962 IS INCORRECT AS THE CIT(A) HAS ERRONEOU SLY INCLUDED INVESTMENTS IN WADHWA FOOD RETAIL PVT LTD, AS INVE STMENTS IN WADHWA FOOD RETAIL PVT LTD IS NOT YIELDING ANY EXEMPT INC OME IN THE FORM OF DIVIDENDS AND ALSO LONG TERM CAPITAL GAIN DERIVED F ROM INVESTMENT IN THE COMPANY IS TAXABLE @ 20% WHICH IS EVIDENT FROM THE FACT THAT THE ASSESSE HAS COMPUTED LONG TERM CAPITAL GAIN ON SALE OF SHARES. 5. THE LD.D, ON THE OTHER HAND, SUBMITTED THAT THE LD. CIT(A) HAS ERRED IN ALLOWING PARTIAL RELIEF TO THE ASSESSEE IN RESPECT OF DISALLOWANCES COMPUTED BY THE AO U/S 14A IGNORING THE PROVISIONS OF SECTION 14A THAT AS PER THE SAID PROVISIONS, EVEN IF NO EXEMPT INCOM E IS ACTUALLY EARNED OR RECEIVED DURING THE YEAR THE DISALLOWANCES CONTE MPLATED U/S 14A SHOULD BE DETERMINED BY APPLYING RULE 8D(2) OF INCO ME-TAX RULES, 1962. THE LD.DR REFERRING TO THE CIRCULAR ISSUED BY THE C BDT IN CIRCULAR NO.5 OF 7 ITA 2662/MUM/2017 2361/MUM/2017 2014 DATED 11-02-2014 SUBMITTED THAT AS PER THE CIR CULAR OF CBDT, THE DISALLOWANCE PROVIDED U/S 14A HAS TO BE COMPUTED EV EN WHERE THE ASSESSEE IN A PARTICULAR YEAR HAS NOT EARNED ANY EX EMPT INCOME. THE LD.DR FURTHER SUBMITTED THAT THE LD.CIT(A) HAS ERRE D IN PARTLY DELETING THE DISALLOWANCE U/S 14A RELYING UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD VS CIT (SUPRA) OVERLOOKING THE FACT THAT THE ABOVE DECISION IS NOT ACCEPTED BY THE REVE NUE AND CIVIL APPEAL HAS BEEN PREFERRED BEFORE THE HONBLE SUPREME COURT AND THE SAME IS PENDING. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIA LS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. THE AO HAS DISALLOWED EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME U/S 14A BY INVOKING RULE 8D(2)(III) AND DETERMINED DISA LLOWANCE OF RS.1,06,56,506 @0.5% OF AVERAGE VALUE OF INVESTMENT S. THE AO HAS TAKEN TOTAL INVESTMENTS OF THE ASSESSEE TO DETERMIN E AVERAGE VALUE OF INVSTMENTS. ACCORDING TO THE AO, AS PER THE PROVIS IONS OF SECTION 14A, DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IS MANDATORY EVEN THOUGH THE ASSESSEE HAS NOT EARNED A NY EXEMPT INCOME DURING THE RELEVANT PERIOD. THE AO FURTHER WAS OF THE OPINION THAT SUCH DISALLOWANCES NEEDS TO BE QUANTIFIED AS P ER THE PRESCRIBED FORMULA PROVIDED U/R 8D(2) OF INCOME-TAX RULES, 196 2. IT IS THE CONTENTION OF THE ASSESSE THAT ITS INVESTMENTS ARE FOR THE PURPOSE OF 8 ITA 2662/MUM/2017 2361/MUM/2017 HOLDING CONTROLLING INTEREST BUT NOT FOR THE PURPO SE OF EARNING ANY EXEMPT INCOME. THEREFORE, THE QUESTION OF DISALLOW ANCES OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME BY INVOKING R ULE 8D(2) DOES NOT ARISE. THE ASSESSEE FURTHER CONTENDED THAT THE AO HAS BLINDLY APPLIED RULE 8D(2) WITHOUT SPECIFYING ANY NEXUS BETWEEN EXP ENDITURE INCURRED BY THE ASSESSEE AND INVESTMENT ACTIVITY WHICH GENER ATES EXEMPT INCOME. THE ASSESSEE ALSO QUESTIONS THE METHOD OF COMPUTATION OF AVERAGE VALUE OF INVESTMENTS BY THE AO AS WELL AS T HE CIT(A). ACCORDING TO THE ASSESSEE, THOUGH THE CIT(A) HAS AL LOWED PARTIAL RELIEF BY FOLLOWING THE JUDGMENT OF HONBLE DELHI HIGH COU RT IN THE CASE OF CHEMINVEST LTD CIT (SUPRA), THE AVERAGE VALUE OF IN VESTMENT QUANTIFIED BY THE CIT(A) IS INCORRECT AS THE CIT(A) HAS INCLUD ED INVESTMENTS IN WADHWA FOOD RETAIL PVT LTD FOR THE PURPOSE OF DETE RMINATION OF AVERAGE VALUE OF INVESTMENTS. THE ASSESSEE FURTHER CONTENDED THAT INVESTMENTS IN WADHWA FOOD RETAIL PVT LTD HAS NOT EARNED EXEMPT INCOME FOR THE RELEVANT PERIOD AND ALSO CAPITAL GAI NS FROM SUCH INVESTMENT IS TAXABLE @20% WHICH IS EVIDENT FROM TH E FACT THAT IT HAS COMPUTED LONG TERM CAPITAL GAIN FROM SALE OF INVEST MENTS IN WADHWA FOOD RETAIL PVT LTD. 7. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL ON RECORD, WE DO NOT FIND ANY MERITS IN THE ARGUMENTS OF THE ASSE SSEE INSOFAR AS EXPENDITURE INCURRED BY THE ASSESSEE THAT ITS EXPEN DITURE IS NOT HAVING 9 ITA 2662/MUM/2017 2361/MUM/2017 NEXUS WITH INVESTMENT ACTIVITY AND HENCE, NO DISALL OWANCE CAN BE COMPUTED BY INVOKING RULE 8D(2)(III) OF INCOME-TAX RULES, 1962. THE ASSESSEE HAS INCURRED VARIOUS EXPENDITURE IN THE NA TURE OF GENERAL ADMINISTRATIVE AND OTHER EXPENSES WHICH ARE IN THE NATURE OF COMMON EXPENDITURE. THEREFORE, THE POSSIBILITY OF CERTAIN PORTION OF EXPENDITURE ATTRIBUTABLE TO ITS INVESTMENT ACTIVITY CANNOT BE R ULED OUT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE AO AS WELL AS T HE CIT(A) WERE RIGHT IN COMPUTING DISALLOWANCE OF EXPENDITURE BY INVOKING R ULE 8D2)(III) OF INCOME-TAX RULES, 1962. 8. HAVING SAID SO, LET US EXAMINE DETERMINATION OF DIS ALLOWANCES BY THE CIT(A). THE CIT(A) HAS ALLOWED PARTIAL RELIEF TO THE ASSESSEE BY FOLLOWING THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD VS CIT (SUPRA) AND RECOMPUTED DISALL OWANCES BY CONSIDERING THOSE INVESTMENTS WHICH YIELD EXEMPT IN COME. THE LD.CIT(A) HAS CONSIDERED INVESTMENTS IN HDIL & DHFL AND LASO INVESTMENTS IN SHARES OF WADHWA FOOD RETAIL PVT LT D. IT IS THE CONTENTION OF THE ASSESSEE THAT INVESTMENTS IN WADH WA FOOD RETAIL PVT LTD DID NOT YIELD ANY EXEMPT INCOME FOR THE RELEVAN T PERIOD AND ALSO LONG TERM CAPITAL GAIN FROM SALE OF SHARES OF WADHWA FOO D RETAIL PVT LTD IS TAXABLE @20%, THEREFORE, FOR THE PURPOSE OF DETERMI NING AVERAGE VALUE OF INVESTMENTS, INVESTMENTS IN WADHWA FOOD RETAIL PVT LTD CANNOT BE CONSIDERED. WE FIND MERIT IN THE ARGUMENTS OF THE ASSESSEE FOR THE 10 ITA 2662/MUM/2017 2361/MUM/2017 REASON THAT INVESTMENTS IN SHARES OF WADHWA FOOD R ETAIL PVT LTD HAS NOT EARNED ANY EXEMPT INCOME DURING THE RELEVANT PE RIOD AND ALSO THE ASSESSEE HAS COMPUTED LONG TERM CAPITAL GAIN FROM S ALE OF SHARES OF WADHWA FOOD RETAIL PVT LTD WHICH IS EVIDENT FROM T HE FACT THAT DURING THE YEAR THE ASSESSEE HAS COMPUTED LONG TERM CAPITA L GAIN OF RS.5,50,503 FROM SALE OF WADHWA FOOD RETAIL PVT LT D SHARES. ONCE INVESTMENTS IN SHARES HAS NOT EARNED ANY EXEMPT INC OME AND ALSO CAPITAL GAIN FROM SUCH SHARES IS TAXABLE, THEN FOR THE PURPOSE OF DETERMINATION OF AVERAGE VALUE OF INVESTMENTS, INVE STMENT IN THOSE SHARES CANNOT BE CONSIDERED. THIS LEGAL PROPOSITIO N IS FURTHER SUPPORTED BY THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD VS CIT (SUPRA), WHEREIN IT WAS CATEGORICALLY HE LD THAT THE AVERAGE VALUE OF INVESTMENT IS TO BE WORKED OUT BY TAKING I NTO ACCOUNT THE ENTIRE OPENING AND CLOSING INVESTMENTS IN QUOTED AND UNQUO TED SHARES OF GROUP AND OTHER COMPANIES, BUT ONLY INVESTMENT IN S HARES WHICH HAVE YIELDED TAX FREE INCOME. IN THIS CASE, THE CIT(A) HAS CONSIDERED INVESTMENTS IN WADHWA FOOD RETAIL PVT LTD FOR THE PURPOSE OF AVERAGE VALUE OF INVESTMENTS EVEN THOUGH INVESTMENT IN WADH WA FOOD RETAIL PVT LTD IS NOT YIELDED ANY EXEMPT INCOME. THEREFOR E, WE ARE OF THE CONSIDERED VIEW THAT FOR THE PURPOSE OF DETERMINATI ON OF AVERAGE VALUE OF INVESTMENTS, INVESTMENTS IN WADHWA FOOD RETAIL PVT LTD HAS TO BE EXCLUDED. ACCORDINGLY, WE DIRECT THE AO TO EXCLUDE INVESTMENTS IN 11 ITA 2662/MUM/2017 2361/MUM/2017 SHARES OF WADHWA FOOD RETAIL PVT LTD FOR THE PURPO SE OF DETERMINATION OF AVERAGE VALUE OF INVESTMENT TO COMPUTE DISALLOW ANCE OF EXPENDITURE U/R 8D(2)(III) OF INCOME-TAX RULES, 1962. 9. IN THE RESULT, BOTH APPEALS FILED BY THE ASSESSEE A ND THE REVENUE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2018. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 31 ST JANUARY, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI