ADDL CIT RG 10(1), MUMBAI V. INFRASTRUCTURE LEASING & FINANCIAL SERVICES LTD, MUMBAI

ITA 2841/MUM/2011

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3456 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 23-01-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 11-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AWUNSHI GIMSAN
• Assessee Lawyers: FINANCIAL SER
• Keywords: Business income; Depreciation; Maximum Marginal Rate; Earning of tax free income; Retrospective amendment; Question of law; Bad and doubtful debts; Benefit of exemption; Commercial expediency; Revenue expenditure; TDS; Rule 8D; Set aside
• Section: 143(3); 234B; 14A; 115JB; 37(1); 195; 80IA; 32; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C , MUMBAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER, ITA NO.2841/MUM/2011 ASSESSMENT YEARS: 2005-06 ADDL. COMMISSIONER OF INCOME TAX-RANGE 10(1) MUMBAI / VS. INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED THE IL&FS FINANCIAL CENTER PLOT NO. C-22, G BLOCK BANDRA KURLA COMPLEX BANDRA (E) MUMBAI 400051 ( / REVENUE) ( /ASSESSEE) P.A. NO. AAACI-0989-F ITA NO.3339/MUM/2011 ASSESSMENT YEARS: 2005-06 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED THE IL&FS FINANCIAL CENTER PLOT NO. C-22, G BLOCK BANDRA KURLA COMPLEX BANDRA (E) MUMBAI 400051 / VS. ADDL. COMMISSIONER OF INCOME TAX-RANGE 10(1) MUMBAI ( / REVENUE) ( /ASSESSEE) P.A. NO. AAACI-0989-F ITA NO.2860/MUM/2011 ASSESSMENT YEARS: 2006-07 ADDL. COMMISSIONER OF INCOME TAX-RANGE 10(1) MUMBAI / VS. INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED THE IL&FS FINANCIAL CENTER PLOT NO. C-22, G BLOCK BANDRA KURLA COMPLEX BANDRA (E) MUMBAI 400051 ( / REVENUE) ( /ASSESSEE) P.A. NO. AAACI-0989-F 2 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED ITA NO.3340/MUM/2011 ASSESSMENT YEARS: 2006-07 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED THE IL&FS FINANCIAL CENTER PLOT NO. C-22, G BLOCK BANDRA KURLA COMPLEX BANDRA (E) MUMBAI 400051 / VS. ADDL. COMMISSIONER OF INCOME TAX-RANGE 10(1) MUMBAI ( / REVENUE) ( /ASSESSEE) P.A. NO. AAACI-0989-F ITA NO.3165/MUM/2011 ASSESSMENT YEARS: 2007-08 ADDL. COMMISSIONER OF INCOME TAX-RANGE 10(1) MUMBAI / VS. INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED THE IL&FS FINANCIAL CENTER PLOT NO. C-22, G BLOCK BANDRA KURLA COMPLEX BANDRA (E) MUMBAI 400051 ( / REVENUE) ( /ASSESSEE) P.A. NO. AAACI-0989-F ITA NO.3341/MUM/2011 ASSESSMENT YEARS: 207-08 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED THE IL&FS FINANCIAL CENTER PLOT NO. C-22, G BLOCK BANDRA KURLA COMPLEX BANDRA (E) MUMBAI 400051 / VS. ADDL. COMMISSIONER OF INCOME TAX-RANGE 10(1) MUMBAI ( / REVENUE) ( /ASSESSEE) P.A. NO. AAACI-0989-F / REVENUE BY SHRI AWUNSHI GIMSAN CIT- DR / ASSESSEE BY SHRI GIRISH DAVE 3 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED / DATE OF HEARING : 12/02/2019 / DATE OF ORDER: 30/04/2019 / O R D E R PER G. MANJUNATHA, (ACCOUNTANT MEMBER) THIS BUNCH OF SIX CROSS APPEALS FILED BY THE ASSESS EE AS WELL AS THE REVENUE ARE DIRECTED AGAINST SEPARATE, BUT IDENTICAL ORDERS OF THE LD. CIT(A)-21, MUMBAI, ALL DATED 31/01/2011 AND 03/02/2011 AND THEY PERTAINS TO AYS 2005-06, 2006-07 AND 2007-08. SINCE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, FO R THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS CONSOLIDATED ORDER. 2. THE ASSESSEE, HAS MORE OR LESS FILED COMMON GROU NDS OF APPEAL FOR ALL ASSESSMENT YEARS. FOR THE SAKE OF BREVITY, GROUNDS OF APPEAL TAKEN FOR ASSESSMENT YEAR 2005-06 IN ITA NO.3339/MUM/2011 ARE REPRODUCED HERE UNDER:- 1. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LEA RNED CORNMR. OF INCOME TAX (A) HAS ERRED IN CONFIRMING THE DISALLOW ANCE OF THE CLAIM OF THE DEPRECIATION OF RS.56,40, 180/- IN RESPECT O F RESIDENTIAL PROPERTIES WHICH ARE LET OUT. ON THE FACTS AND CIRC UMSTANCES OF THE CASE THE APPELLANT SUBMITS THAT THE DISALLOWANCE OF DEPRECIATION OF RS.56,40, 1 80/- IS NOT JUSTIFIED AND THE SAID DISA LLOWANCE MAY BE DELETED. 2. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LEA RNED COMMR. OF INCOME TAX (A) HAS ERRED IN CONFIRMING THE DISALLOW ANCE OF DEPRECIATION OF RS.28,28,330/- IN RESPECT OF RESIDE NTIAL PROPERTIES WHICH WERE VACANT. ON THE FACTS AND CIRCUMSTANCES O F THE CASE THE APPELLANT SUBMITS THAT THE DISALLOWANCE OF DEPRECIA TION OF RS.28,28,330/- IS NOT JUSTIFIED AND THE SAID DISALL OWANCE MAY BE DELETED. 3. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LEA RNED COMMR. OF INCOME TAX (A) HAS ERRED IN CONFIRMING THE DISALLOW ANCE OF THE AMORTIZATION OF THE PREMIUM PAID ON LEASEHOLD LAND ON WHICH THE COMMERCIAL COMPLEX HAS BEEN CONSTRUCTED BY THE APPE LLANT AMOUNTING TO RS.22,32,084/-. ON THE FACTS & CIRCUMS TANCES OF THE CASE THE APPELLANT SUBMIT THAT THE DISALLOWANCE OF THE CLAIM OF AMORTISATION OF LAND PREMIUM AMOUNTING TO RS.22,32, 084/- IS NOT JUSTIFIED AND THE SAID DISALLOWANCE MAY BE DELETED. 4. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LEA RNED COMMR. OF INCOME TAX (A) HAS ERRED IN CONFIRMING THE DISALLOW ANCE U/S 14A 4 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED AMOUNTING TO RS.28,76,00,000/ATTRIBUTING THE INTERE ST RELATING TO THE INCOME EARNED BY APPELLANT U/S 10(230), 10(34) AND 10(35). ON THE FACTS & CIRCUMSTANCES OF THE CASE THE APPELLANT SUB MIT THAT THE DETERMINATION OF INTEREST ATTRIBUTABLE TO EARNING I NTEREST INCOME WHICH IS EXEMPT U/S 10(230), 10(34) AND 10(35) IS NOT JUS TIFIED AND THE SAID DISALLOWANCE MAY BE DELETED. 5. THE LEARNED A.O. HAS ERRED IN DISALLOWING THE SU M OF RS.1,20,00,000/- BEING THE ADMINISTRATIVE / ESTABLI SHMENT EXPENSES ATTRIBUTABLE TO EARNING EXEMPT INCOME U/S 10(230), 10(34) AND 10(35) OF INCOME TAX ACT, 1961. ON THE FACTS & CIRCUMSTANC ES OF THE CASE THE APPELLANT SUBMIT THAT THE DISALLOWANCE OF RS. 1 ,20,00,000/- BEING THE ADMINISTRATIVE / ESTABLISHMENT EXPENSES IS NOT JUSTIFIED AND THE SAID DISALLOWANCE MAY BE DELETED. 6. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LEA RNED COMMR. OF INCOME TAX (A) HAS ERRED IN CONFIRMING THE DISALLOW ANCE OF RS.30,07,25,8241- BEING THE LEASE EQUALISATION CHAR GE DEBITED TO PROFIT AND LOSS ACCOUNT. THE APPELLANT SUBMITS THAT THE SAID AMOUNT IS ALLOWABLE DEDUCTION U/S 37(1) OF THE INCOME TAX ACT, 1961. THE DISALLOWANCE CONFIRMED BY THE LEARNED COMMR. OF INCOME TAX (A) IS NOT JUSTIFIED AND BE DELETED. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L EARNED CDMMR. OF INCOME TAX (APPEALS) HAS ERRED IN REJECTING THE CLA IM OF THE APPELLANT THAT THEY HAVE SUFFERED A LOSS OF RS.9,85,91,516/- UNDER THE HEAD INCOME FROM OTHER SOURCES BEING THE SHARE OF LOSSES ALLOCATED TO THE APPELLANT AS BENEFICIARY OF CERTAIN VENTURE CAPITAL TRUSTS. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE APPELLANT SUBMIT TH AT THE DISALLOWANCE OF THE LOSS UNDER THE HEAD INCOME FROM OTHER SOURCES IS NOT JUSTIFIED AND THE SAID DISALLOWANCE MAY BE DELE TED. 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE APP ELLANT PRAYS THAT NO DIRECT OR INDIRECT EXPENSES INCURRED BY THE VENT URE CAPITAL TRUST CAN BE ALLOCATED TO THE DIVIDEND INCOME AND THE LOSS CL AIMED BY THE APPELLANT FROM THE VENTURE FUNDS WHERE APPELLANT IS A BENEFICIARY MAY BE ALLOWED. 9. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEA RNED COMMR. OF INCOME TAX (APPEALS) HAS ERRED IN CONCLUDING THAT T HE MANAGEMENT FEES IS DIRECT EXPENSE ATTRIBUTABLE TO EARNING DIVI DEND INCOME. THE LEARNED COMMR. OF INCOME TAX (APPEALS) IS ERRONEOUS AND THE DISALLOWANCE CONFIRMED BY THE LEARNED COMMR. OF INC OME TAX (APPEALS) MAY BE DELETED. 10. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEA RNED COMMR. OF INCOME TAX (APPEALS) HAS ERRED IN DIRECTING THE LEA RNED ASSESSING OFFICER TO REWORK OUT THE TOTAL DISALLOWANCE IN TER MS OF THE DIRECTION GIVEN BY THE LEARNED COMMR. OF INCOME TAX (A) FOR A .Y. 2004-05. THE APPELLANT PRAYS THAT THE CLAIM OF THE APPELLANT BE ALLOWED AND THE DIRECTION OF THE LEARNED COMMR. OF INCOME TAX (A) M AY BE SET ASIDE. 11. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEA RNED COMMR. OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE DI SALLOWANCE OF 5 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED DEPRECIATION ON THE TOLL ROAD AMOUNTING TO RS.9,74, 103/-. 12. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE APP ELLANT SUBMITS THAT THEY HAVE NOT RECEIVED ANY INCOME IN RESPECT OF THE TOLL ROAD AND THE MATTER IS IN DISPUTE. THE LEARNED COMMR. OF INC OME TAX (APPEALS) HAS ERRED IN DIRECTING THE LEARNED ASSESS ING OFFICER TO ESTIMATE THE INTEREST INCOME DUE FROM MPSIDC. THE A PPELLANT PRAYS THAT THEY ARE NOT ENTITLED TO AND HAVE NOT RECEIVED ANY INTEREST INCOME FROM MPSIDC AND HENCE THE DIRECTION OF THE LEARNED CONIMR. OF INCOME TAX (A) TO TAX THE ESTIMATED INTEREST INCOME MAY BE SET ASIDE. 13. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED COMMR. OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING DISALL OWANCE OF THE CLAIM OF THE APPELLANT IN RESPECT OF INCOME EARNED FROM THE LOANS GIVEN TO TAMILNADU ROAD DEVELOPMENT CO. LTD. AND MA HENDRA INDUSTRIAL PARK AMOUNTING TO RS.2,08,09,576/-. ON T HE FACTS & CIRCUMSTANCES OF THE CASE THE APPELLANT SUBMIT THAT THEY ARE ENTITLED TO DEDUCTION OF RS.2,08,09,576/- BEING THE INCOME E XEMPT FROM TAX U/S 10(23G) OF INCOME TAX ACT. 14. OIL FACTS AND CIRCUMSTANCES OF THE CASE THE LEA RNED COMMR. OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE DI SALLOWANCE OF RS.2,42,900/- U/S. 35D. THE APPELLANT PRAYS THAT TH EY ARE ENTITLED TO DEDUCTION U/S. 35D OF INCOME TAX ACT, 1961 AND THE DISALLOWANCE OF RS.2,42,900/- IS NOT JUSTIFIED AND BE DELETED. 15. THE LEARNED COMMR. OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE LEVY OF INTEREST U/S 234B. ON THE FA CTS & CIRCUMSTANCES OF THE CASE THE APPELLANT DENIES THE LIABILITY FOR PAYMENT OF INTEREST U/S 234B. THE APPELLANT PRAYS THAT THEY ARE NOT LIABLE TO PAY ANY INTEREST U/S 234B AND THE LEVY OF INTEREST U/S 23413 MAY BE DELETED. 16. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LE ARNED COMMR. OF INCOME TAX (A) HAS ERRED IN CONFIRMING THE DISALLOW ANCE OF RS.9,52,33,952/- BEING THE PROVISION FOR NON-PERFOR MING ASSET WHILE COMPUTING BOOK PROFIT U/S. 115.113. ON THE FACTS AN D CIRCUMSTANCES OF THE CASE THE APPELLANT SUBMITS THAT THE DISALLOW ANCE OF RS.9,52,33,952/- IS NOT JUSTIFIED AND BE DELETED. 17. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LE ARNED COMMR. OF INCOME TAX (A) HAS ERRED IN CONFIRMING THE DISALLOW ANCE OF RS.18,33,846/- BEING THE DIMINUTION IN THE VALUE OF SECURITIES WHILE COMPUTING BOOK PROFIT U/S. I 15JB. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE APPELLANT SUBMITS THAT THE DISALLOWANC E OF RS. 18,333,846/- IS NOT JUSTIFIED AND BE DELETED. 18. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LE ARNED COMMR. OF INCOME TAX (A) HAS ERRED IN CONFIRMING THE DISALLOW ANCE OF RS.1,77,11,030/- BEING THE DIMINUTION IN THE VALUE OF STRATEGIC INVESTMENTS WHILE COMPUTING BOOK PROFIT U/S. 11 5JB . ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE APPELLANT SUBMITS THA T THE DISALLOWANCE OF RS. L,77,1 1,030/- IS NOT JUSTIFIED AND BE DELET ED. 19. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LE ARNED COMMR. OF 6 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED INCOME TAX (A) HAS ERRED IN CONFIRMING THE DISALLOW ANCE OF RS.29,96,00,000/- BEING THE EXPENDITURE RELATING TO EXEMPT INCOME WHILE COMPUTING HOOK PROFIT U/S. 1 15JB. ON THE FAC TS AND CIRCUMSTANCES OF THE CASE THE APPELLANT SUBMITS THA T THE DISALLOWANCE OF RS.29,96,00,000/- IS NOT JUSTIFIED AND BE DELETE D. 3. THE REVENUE, HAS MORE OR LESS TAKEN COMMON GROUN DS OF APPEAL FOR ALL ASSESSMENT YEARS. FOR THE SAKE OF BREVITY, GROUNDS OF APPEAL TAKEN FOR ASSESSMENT YEAR 2005-06 IN ITA NO.2841/MUM/2011 ARE REPRODUCED HERE UNDER:- 1(I). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE DISALL OWANCE OF INTEREST ATTRIBUTABLE TO THE EARNING OF EXEMPT INCO ME TO RS. 28.76 CRORES AS AGAINST THE DISALLOWANCE OF RS. 63. 23 CRORES COMPUTED BY THE ASSESSING OFFICER U/S 14A OF THE IN COME TAX ACT, 1961. 1(II). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE DISALL OWANCE OF MANAGERIAL AND ADMINISTRATIVE EXPENSES ATTRIBUTABLE TO THE EARNING OF EXEMPT INCOME TO RS. 1.20 CRORES AS AGAI NST THE DISALLOWANCE OF RS.11.45 CRORES COMPUTED BY THE ASS ESSING OFFICER U/S 14A OF THE INCOME TAX ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE O F BAD DEBTS RELATING TO SPIC LTD AND FIDELITY INDUSTRIES LTD WI THOUT APPRECIATING THAT THE ASSESSEE DID NOT FILE ANY DET AILS RELATING TO THE DEBTS WRITTEN OFF IN RESPECT OF THE SAID PARTIE S AND THE ASSESSING OFFICER SHOULD HAVE BEEN GIVEN AN OPPORTU NITY TO EXAMINE THE CLAIM OF THE ASSESSEE THAT THE WRITE OF F OF THE DEBTS RELATING TO THE SAID PARTIES FULFILLED THE CONDITIO NS LAID DOWN IN 36(1)(VII) READ WITH SECTION 36(2) OF THE INCOME TA X ACT, 1961. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE EXPENDITURE OF RS. 84,47,787/- INCURRED BY THE ASSESSEE TOWARDS THE DE VELOPMENT OF SOFTWARE WAS ALLOWABLE AS REVENUE EXPENDITURE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ACTION OF T HE ASSESSING OFFICER IN REJECTING THE CLAIM OF THE ASSESSEE THAT THEY HAD SUFFERED A LOSS OF RS. 9,85,91,516/- UNDER THE HEAD 'INCOME FROM OTHER SOURCES' BEING THE SHARE OF LOSSES ALLOC ATED TO THE ASSESSEE AS BENEFICIARY OF 10 VENTURE CAPITAL TRUST S. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ACTION OF T HE ASSESSING OFFICER IN ESTIMATING THE INCOME FROM THE TOLL ROAD AT RS. 7 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED 1,50,00,0001- AS THE ASSESSEE HAS THE RIGHT TO RECE IVE SUCH INCOME FROM THE MADHYA PRADESH GOVERNMENT. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ACTION OF T HE ASSESSING OFFICER IN DISALLOWING THE DEPRECIATION C LAIM OF RS. 2,27,22,353/- IN RESPECT OF THE ASSETS GIVEN ON LEA SE AS THE LEASE TRANSACTIONS WERE ACTUALLY FINANCE TRANSACTIONS AND THE ASSESSEE WAS, THEREFORE, NOT ENTITLED TO DEPRECIATION ON THE SAID LEASED ASSETS. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFF ICER TO ALLOW DEPRECIATION AT 40% ON THE LEASED VEHICLES WITHOUT APPRECIATING THAT THE LEASE TRANSACTION OF VEHICLES WERE ACTUALL Y FINANCE TRANSACTIONS AND THE ASSESSEE WAS, THEREFORE, NOT E NTITLED TO DEPRECIATION ON THE SAID LEASED VEHICLES. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE O F THE PAYMENT OF RS. 9,33,982/- MADE TO CLUBS. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE O F RS. 39,83,335/- MADE BY THE ASSESSING OFFICER OUT OF TH E CLAIM OF DEDUCTION MADE BY THE ASSESSEE U/S 36(1)(VIII) OF T HE INCOME TAX ACT, 1961. 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE DISALL OWANCE OF RS. 39,54,481/- MADE BY THE ASSESSING OFFICER OUT OF TH E EXPENDITURE INCURRED BY THE ASSESSEE UNDER THE HEAD 'TRAVELLING & CONVEYANCE, REPAIRS & MAINTENANCE, ST AFF TRAINING & WELFARE & LEGAL & CONSULTATION' WITHOUT APPRECIATING THAT THE ASSESSEE DID NOT FURNISH SPECIFIC DETAILS OF THE EXPENSES FOR TEST VERIFICATION BY THE ASSESSING OFFICER. 11. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADJUSTMEN T OF RS. 30,07,25,824/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF LEASE EQUALIZATION RESERVE WHILE COMPUTING THE BOOK PROFI T U/S 115JB(2). IN THESE APPEALS, FILED BY THE ASSESSEE AS WELL AS THE REVENUE FOR AY 2005-06 TO 2007-08, COMMON ISSUES ARE INVOLVED, THEREFORE, WE DEEM IT APPROPRIATE TO DECIDE THE ISSUES INVOLVED IN THESE APPEALS INSTEAD OF DECIDIN G THE APPEALS YEAR-WISE. 4. THE BRIEF, FACTS OF THE CASE ARE THAT THE ASSESS EE COMPANY IS ENGAGED IN THE BUSINESS OF LEASING AND INVESTMENT BANKING SERVICES FILED ITS RETURN OF INCOME FOR THE 8 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED IMPUGNED ASSESSMENT YEARS U/S 139(1) OF THE INCOME TAX ACT, 1961(HEREINAFTER THE ACT). THE ASSESSMENT FOR AY 2005-06 TO 2007-08 HAVE BEEN COMPLETED U/S 143(3) OF THE ACT, WHERE THE AO HAS MADE VARIOUS ADDITIONS/DISALLOWANC ES. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. THE LD. CIT(A), FOR THE DETAILED REASONS RECORDED IN HIS APPELLATE ORDER DATED 31/01/2011 AN D 03/02/2011, PARTLY ALLOWED THE APPEALS FILED BY THE ASSESSEE, WHERE HE HAS DELETED CERTAIN ADDITIONS MADE BY THE AO. 5. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE AS SESSEE AS WELL AS REVENUE IS IN APPEAL BEFORE US. 6. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO. 1 AND 2 OF ASSESSEES APPEAL IS DISALLOWANCE OF DEPRECIATION O N RESIDENTIAL PROPERTY. THE FACTS WITH REGARD TO THE IMPUGNED DISPUTE ARE THAT THE ASSESSE E OWNED CERTAIN RESIDENTIAL PREMISES OUT OF WHICH FEW RESIDENTIAL UNITS WERE GIVEN TO EM PLOYEES AS RENT FREE ACCOMMODATION. THE BALANCE PREMISES WERE LEASED OUT TO OUTSIDERS. THE ASSESSEE HAS CLAIMED DEPRECIATION @ 5% ON RESIDENTIAL PROPERTIES BUT THE INCOME OF WHICH WAS OFFERED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE AO HAS B IFURCATED OPENING WDV OF BLOCK OF RESIDENTIAL PROPERTY AND DISALLOWED DEPRECIATION CL AIMED ON UNITS WHICH ARE LEASED OUT TO OUTSIDERS ON THE GROUND THAT THE ASSESSEE HAS OFFER ED INCOME FROM SUCH UNITS UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THEREFORE, ONCE INCOME IS ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY NO FURTHER DEDUCTION E XCEPT DEDUCTION AS PROVIDED U/S 24(A) OF THE ACT IS ALLOWED. 9 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED 7. THE LD. AR FOR THE ASSESSEE, SUBMITTED THAT THI S ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI, I BENCH IN ASSESSEES OWN CASE FOR AY 2004-05 IN ITA NO.3203/MUM/2008, WHERE UNDER IDENTI CAL SET OF FACTS, THE TRIBUNAL ALLOWED DEPRECIATION CLAIMED BY ON RESIDENTIAL PREM ISES. 8. THE LD. DR, ON THE OTHER HAND, FAIRLY AGREED THA T THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT, MUMBAI, I BENCH IN ASSESSEES OWN CASE. 9. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIALS A VAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FIND T HAT THE CO-ORDINATE BENCH OF ITAT, I BENCH IN ASSESSEES OWN CASE FOR AY 2004-05 HAD CON SIDERED AN IDENTICAL ISSUE AND AFTER CONSIDERING THE RELEVANT FACTS, HELD THAT WITH INTR ODUCTION OF CONCEPT OF BLOCK OF ASSETS, AN INDIVIDUAL ASSETS LOSSES ITS IDENTITY, THEREFORE, N O SEGREGATION THEREOF COULD BE DONE NOTWITHSTANDING THE FACT THAT THE INCOME FROM CERTA IN PROPERTY WAS OFFERED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. HOWEVER, WHEN THE BE NCH HAS POSED SPECIFIC QUESTION TO THE LD. AR FOR THE ASSESSEE TO THE EFFECT THAT WHET HER THE ASSESSEE HAS CLAIMED STANDARD DEDUCTION AS PROVIDED U/S 24(A) OF THE ACT OR NOT I N RESPECT OF INCOME FROM HOUSE PROPERTY IN ADDITION TO DEPRECIATION AND OTHER MAI NTENANCE EXPENSES CLAIMED, THE LD. AR FOR THE ASSESSEE, FAIRLY ACCEPTED THAT THIS ASPECT HAS NOT BEEN EXAMINED BY THE AUTHORITIES BELOW AND ALSO THERE IS NO FINDING FROM THE TRIBUNA L IN THE EARLIER YEARS. THEREFORE, THE ISSUE MAY BE SET-ASIDE TO THE FILE OF THE AO FOR VE RIFICATION OF FACTS WITH REGARD TO STANDARD DEDUCTION CLAIMED U/S 24(A) OF THE ACT AND FURTHER IF AT ALL THE ASSESSEE HAS CLAIMED DEDUCTION U/S 24(A) OF THE ACT, IT AMOUNTS TO DOUBL E DEDUCTION AND THE SAME MAY BE DIRECTED TO BE DISALLOWED. THEREFORE, CONSISTENT WI TH VIEW TAKEN BY THE CO-ORDINATE BENCH 10 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED FOR EARLIER YEARS, WE DIRECT THE AO TO ALLOW DEPREC IATION AS CLAIMED BY THE ASSESSEE ON RESIDENTIAL PREMISES, BUT VERIFY THE FACT WITH REGA RD TO DEDUCTION CLAIMED U/S 24(A) IN THE LIGHT OF OUR DISCUSSIONS GIVEN HEREINABOVE. IN CAS E, THE ASSESSEE CLAIMED DEDUCTION U/S 24(A), THEN THE SAME NEEDS TO BE DISALLOWED. 10. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERAT ION IS DISALLOWANCE OF THE AMORTIZATION OF PREMIUM PAID ON LEASEHOLD LAND. THE ASSESSEE TOOK CERTAIN LEASEHOLD LAND FROM MMRDA FOR EIGHTY YEARS AND CONSTRUCTED BUILDIN G THEREUPON, WHICH WAS USED FOR THE BUSINESS PURPOSES. THE ASSESSEE HAS PAID ONE TIME LEASE RENT OF RS.42 CRORES IN FY 1994 FOR USE OF LEASEHOLD LAND. FURTHER, IT IS PAY ING ADDITIONAL LEASE RENT EVERY YEAR BASED ON SOME PERCENTAGE OF INITIAL LEASE AMOUNT PAID TO MMRDA. THE ASSESSEE HAS AMORTIZED ONE TIME LEASE RENT PAID OVER THE PERIOD OF LEASE A ND ACCORDINGLY CLAIMED DEDUCTION OF THIS AMORTIZATION AS DEFERRED REVENUE EXPENSES. 11. THE LD. AR FOR THE ASSESSEE, SUBMITTED THAT TH IS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI, I B ENCH IN ASSESSEES OWN CASE FOR AY 2004-05 IN ITA NO.3203/MUM/2008, WHERE UNDER IDENTICAL SET OF FACTS, THE TRIBUNAL HELD THAT LUMP SUM PAYMENT MADE BY THE ASSESSEE WAS NOT IN THE NATURE OF ADVANCE BUT THE SAME WAS CAPITAL IN NATURE AND HENCE NOT ALLOWABLE AS DEDUCTION. 12. THE LD. DR, ON THE OTHER HAND, FAIRLY ACCEPTED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI, I BENCH FOR AY 2004-05. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ITAT HAD CONSIDERED IDENTICAL ISSUE AND BY FOLLOWIN G CERTAIN JUDICIAL PRECEDENCE INCLUDING 11 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED THE DECISION OF THE HONBLE DELHI HIGH COURT IN CAS E OF RAJESH PROJECTS (INDIA) PVT. LTD. VS CIT(TDS) WP(C) NO.8085 OF 2014, DATED 16/02/2017 HE LD THAT THE AMORTIZATION OF LEASE PREMIUM OVER THE LEASE PERIOD WAS CAPITAL IN NATURE AND HENCE NOT ALLOWABLE AS DEDUCTION. THE RELEVANT OBSERVATIONS OF THE TRIBUNA L ARE AS UNDER:- 4.2 WE HAVE HEARD RIVAL CONTENTIONS INCLUDING CITE D CASE LAWS. UPON PERUSAL OF THE APEX COURT JUDGMENT IN MADRAS AUTO S ERVICES P. LTD (SUPRA), WE FIND THE SAME DISTINGUISHABLE ON THE GROUND THAT IN THAT CASE THE DISPUTE WAS WITH RESPECT TO CLAIM OF CONSTRUCTION EXPENSES ONLY AND HENCE THE SAME COULD NOT HELP THE ASSESSEE IN ANY WAY. SIMILA RLY, THE RATIO OF APEX COURT JUDGMENT RELIED UPON BY REVENUE IN ENTERPRISI NG ENTERPRISES VS. DCIT [SUPRA] COULD ALSO NOT BE APPLIED AS THE DISPUTE IN THAT CASE WAS WITH RESPECT TO CLAIM OF LEASE RENTALS TOWARDS EXTRACTIO N OF CERTAIN MINERALS AS OBSERVED BY COORDINATE BENCH OF AHMEDABAD TRIBUNAL IN DHARA VEGETABLES OIL & FOOD CO. LTD. [SUPRA]. 4.3 AT THE OUTSET, WE ARE OF THE CONSIDERED OPINION THAT HAD THE IMPUGNED PAYMENTS WERE TOWARDS ACQUISITION OF LAND ON WHICH NO DEPRECIATION WAS ALLOWABLE, THE SAID EXPENDITURE, BEING CAPITAL EXPE NDITURE WAS CLEARLY DISALLOWABLE IN THE HANDS OF THE ASSESSEE. HOWEVER, HERE IS THE CASE OF LEASE PREMIUM PAID TOWARDS ACQUISITION OF CERTAIN L EASEHOLD RIGHTS IN THE LAND WHICH UPON EXPIRY OF LEASE PERIOD, WAS TO REVE RT BACK TO THE AUTHORITY. WE FIND THAT THE ASSESSEE ENTERED INTO AGREEMENT TO LEASE DATED 15/03/1994 WITH THE AUTHORITY AND EXECUTED A LEASE DEED DATED 28/03/2003 TO ACQUIRE CERTAIN LEASEHOLD RIGHTS IN THE LAND. A CONJOINT READING OF VARIOUS CLAUSES OF THE LEASE DEED DATED 28/03/2003 ENTERED INTO BETWEEN THE ASSESSEE AND MUMBAI METROPOLITAN REGION DEVELOPMENT AUTHORITY (MMRDA) REVEALS THAT AGAINST CONSIDERATION OF RS.42 CRORES, THE ASSESSEE ACQUIRED CERTAIN RIGHTS IN LAND SITUATED AT C-22, G -BLOCK, CTS NO. 4207, VILLAGE KOLEKALYAN, TALUKA ANDHERI MUMBAI SUBURBAN DISTRICT APPROX. AREA 12652 SQUARE METERS ON LEASE BASIS FOR 80 YEARS STA RTING FROM 15/03/1994. THE ASSESSEE WAS REQUIRED TO PAY THE GROUND RENT FR OM TIME TO TIME AT THE PRESCRIBED RATES WHICH RANGED FROM NIL TO 3% OF T HE LEASE PREMIUM OVER THE LEASE PERIOD. THE ASSESSEE WAS ALSO REQUIRED TO OBSERVE VARIOUS OTHER STIPULATIONS AS TO USE OF THE LAND AND CONSTRUCTION THEREUPON. AFTER THE EXPIRY OF THE LEASED PERIOD THE ASSESSEE WAS REQUIR ED TO HAND OVER THE POSSESSION BACK TO THE AUTHORITY. THEREFORE, WE FIN D THE AS PER THE TERMS OF THE LEASE AGREEMENT, THE ASSESSEE ACQUIRED ONLY A L IMITED RIGHT TO USE THE LAND AS PER THE STIPULATIONS OF THE MMRDA AND DID N OT ACQUIRE THE LAND ITSELF. 4.4 HOWEVER, IT IS ALSO PERTINENT TO NOTE THAT THE SAID RIGHT WAS TRANSFERABLE FOR VALUABLE CONSIDERATION AFTER COMPLYING WITH CER TAIN FORMALITIES LIKE PERMISSION OF THE AUTHORITY ETC. FURTHER, BESIDES, LUMP-SUM PAYMENT, THE ASSESSEE WAS SEPARATELY REQUIRED TO PAY THE GROUND RENT. HENCE, THE LUMP- SUM PAYMENT DO NOT PARTAKE THE CHARACTER OF ADVANCE RENT AND HENCE CAPITAL IN NATURE. IT IS WELL SETTLED POSITION OF L AW BY VARIOUS JUDICIAL PRONOUNCEMENTS THAT IF THE ASSESSEE HAS PAID CERTAI N LUMP SUM PAYMENT TOWARDS ACQUISITION OF LEASE WHICH ARE NOT IN THE N ATURE OF ADVANCE RENT, NO TDS WAS REQUIRED ON THE SAID PAYMENT, BEING CAPITAL IN NATURE. HOWEVER, 12 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED WHEN THE SAME WAS FOUND TO BE IN THE NATURE OF ADVA NCE RENT, TDS WAS REQUIRED TO BE DEDUCTED FROM THESE PAYMENTS, BEING REVENUE IN NATURE. THEREFORE, IN VIEW OF OUR FINDING THAT THE LUMP SUM PAYMENT MADE BY ASSESSEE WERE NOT IN THE NATURE OF ADVANCE RENT AND THERE WAS SEPARATE CLAUSE WHICH DEALT WITH PAYMENT OF GROUND RENT TOWA RDS USAGE OF LAND, THE SAME WAS CAPITAL IN NATURE AND HENCE NOT ALLOWABLE TO THE ASSESSEE. 4.5 OUR VIEW IS SUPPORTED BY A RECENT DECISION OF H ONBLE DELHI HIGH COURT RENDERED IN RAJESH PROJECTS (INDIA) P. LTD. & OTHER S VS CIT (TDS) [WP(C)NO. 8085/2014 CM.APPL. 18876/2014 DATED 16/02 /2017] WHEREIN THE HONBLE COURT HAS SUCCINCTLY SUMMARIZED ITS DECISIO N IN THE FOLLOWING MANNER:- 20. IN VIEW OF THE ABOVE ANALYSIS, THE COURT HEREB Y CONCLUDES AS FOLLOWS: (1) AMOUNTS PAID AS PART OF THE LEASE PREMIUM IN TE RMS OF THE TIME-SCHEDULE(S) TO THE LEASE DEEDS EXECUTED BETWEEN THE PETITIONERS AN D GNOIDA, OR BI-ANNUAL OR ANNUAL PAYMENTS FOR A LIMITED/SPECIFIC PERIOD TOWAR DS ACQUISITION OF LEASE HOLD RIGHTS ARE NOT SUBJECT TO TDS, BEING CAPITAL PAYMEN TS; (2) AMOUNTS CONSTITUTING ANNUAL LEASE RENT, EXPRESSE D IN TERMS OF PERCENTAGE (E.G. 1%) OF THE TOTAL PREMIUM FOR THE DURATION OF THE LEASE, AR E RENT, AND THEREFORE SUBJECT TO TDS. SINCE THE PETITIONERS COULD NOT MAKE THE DEDUCTIONS DUE T O THE INSISTENCE OF GNOIDA, A DIRECTION IS ISSUED TO THE SAID AUTHORITY (GNOIDA) TO COMPLY WITH THE PROVISIONS OF LAW AND MAKE ALL PAYMENTS, WHICH WOULD HAVE BEEN OTHERWISE PART OF T HE DEDUCTIONS, FOR THE PERIODS, IN QUESTION, TILL END OF THE DATE OF THIS JUDGMENT. ALL PAYMENTS TO BE MADE TO IT, HENCEFORTH, SHALL BE SUBJECT TO TDS. 4.6 THE LD. AR CONTENDED THAT THE SAME WAS REVENUE IN NATURE AND NO TDS WAS DEDUCTED THERE-FROM SINCE THE LAND WAS ACQU IRED LONG AGO WHEN THERE WAS NO REQUIREMENT TO DEDUCT THE TDS AGAINST THE SAID PAYMENT. HOWEVER, WE FIND THAT THE ISSUE BEFORE US IS REGARD ING THE NATURE OF THE IMPUGNED EXPENDITURE AND SINCE WE HAVE ALREADY NOTE D THAT THE SAID EXPENDITURE WAS CAPITAL IN NATURE, THE SAME WAS NOT ALLOWABLE TO THE ASSESSEE. THEREFORE, AFTER CONSIDERING THE FACTUAL POSITION AND VARIOUS JUDICIAL PRONOUNCEMENTS, WE ARE OF THE CONSIDERED O PINION THAT THE AMORTIZATION OF LEASE PREMIUM OVER THE LEASE PERIOD WAS CAPITAL IN NATURE AND HENCE, NOT ALLOWABLE TO THE ASSESSEE. THE GROUN D OF ASSESSEES APPEAL STANDS DISMISSED. 14. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERRO R IN THE ORDERS OF AUTHORITIES BELOW IN DISALLOWING AMORTIZATION OF PREMIUM PAID ON LEASEHO LD LAND AND HENCE, WE ARE INCLINED TO UPHELD THE FINDINGS OF THE LD. CIT(A) AND REJECT GR OUND TAKEN BY THE ASSESSEE. 15. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.4 AND 5 OF ASSESSEES APPEAL IS DISALLOWANCE OF EXPENDITURE IN CURRED IN RELATION TO EXEMPT INCOME U/S 14A OF THE ACT. THE FACTUAL MATRIX OF THE IMPUG NED DISPUTE ARE THAT THE ASSESSEE HAS CLAIMED VARIOUS EXEMPT INCOME IN ITS STATEMENT OF T OTAL INCOME INCLUDING DIVIDEND INCOME 13 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED U/S 10(34) OF THE ACT AND INCOME FROM VENTURE CAPIT AL FUND U/S 10(23G) TO THE EXTENT OF RS.1,87,20,28,090/-. THE AO, DURING THE COURSE OF A SSESSMENT PROCEEDINGS, HAD DETERMINED AVERAGE VALUE OF INVESTMENTS WHICH YIELD EXEMPT INCOME AT RS.1,052.97 CRORES. THEREAFTER, IN PARA 4.5.5, HE HAD APPLIED T HE DEBT EQUITY RATIO OF RS.1052.97 CRORES AND DETERMINED FIGURE OF RS.910.819 CRORES, THEN AP PLIED THE AVERAGE RATE OF INTEREST TO QUANTIFY INTEREST DISALLOWANCE OF RS.63.23 CRORES U NDER RULE 8D(2) OF THE RULES, 1962. SIMILARLY, THE AO HAS DETERMINED DISALLOWANCE OF IN DIRECT EXPENSES OF RS.11.45 CRORES. 16. ON APPEAL BEFORE THE LD. CIT(A), THE LD. CIT(A ) HAS ALLOWED PARTIAL RELIEF TO THE ASSESSEE AND REDUCED DISALLOWANCE QUANTIFIED BY THE AO TO RS.29.96 CRORES ON THE GROUND THAT THE ASSESSEE HAS WORKED OUT ACTUAL INTE REST ATTRIBUTABLE TO FUNDS USED FOR INVESTMENTS WHICH YIELD EXEMPT INCOME. SIMILARLY, I N RESPECT OF DISALLOWANCE OF INDIRECT EXPENSES, THE LD. CIT(A) HAS SCALED DOWN DISALLOWAN CE TO RS.1.2 CRORES ON THE GROUND THAT THE AO HAS WORKED OUT SUCH EXPENSES ON PRO-RAT A BASIS BUT ON THE OTHER HAND, THE ASSESSEE HAS WORKED MANAGERIAL AND ADMINISTRATIVE E XPENSES CONSIDERING THE EXPENSES INCURRED ON PROJECT FINANCE DEPARTMENT, WHICH IS ME RELY LOOKING AFTER THE INVESTMENT AND INFRASTRUCTURE FINANCING ACTIVITIES OF THE ASSESSEE . 17. THE LD. AR FOR THE ASSESSEE, SUBMITTED THAT THE ISSUE NEEDS TO BE GO BACK TO THE AO TO DETERMINE CORRECT AMOUNT OF DISALLOWANCE OF E XPENSES INCURRED IN RELATION TO EXEMPT INCOME U/S 14A OF THE ACT, CONSIDERING THE D ECISION OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS CIT (2018) 91 TAXMANN.COM 154(SC), WHERE THE HONBLE COURT HAS SETTLED CERTAIN DISPUTES WITH REG ARD TO STRATEGIC AND LONG TERM INVESTMENTS EARNING EXEMPT INCOME IRRESPECTIVE OF D OMINANT PURPOSE OF MAKING 14 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED INVESTMENT. HOWEVER, THE HONBLE SUPREME COURT HAS NOT ACCEPTED THE CONCEPT OF COMMERCIAL EXPEDIENCY AND CONSIDERATION OF DISALL OWANCE ON ACTUAL DIVIDEND YIELDING INVESTMENTS ONLY. THE LD. AR FURTHER SUBMITTED THAT THE HONBLE SUPREME COURT IN THE CASE OF PR. CIT VS SINTEX INDUSTRIES LTD. (2017) 82 TAXMANN.COM 171(GUJARAT) HELD THAT IF ASSESSEE HAD ITS SURPLUS FUND AGAINST WHICH MINOR I NVESTMENT WAS MADE, NO QUESTION OF MAKING ANY DISALLOWANCE OF EXPENDITURE IN RESPECT O F INTEREST AND ADMINISTRATIVE EXPENSES U/S 14A OF THE ACT, THEREFORE, IN ORDER TO ASCERTAI N CORRECT AMOUNT OF INVESTMENT WHICH YIELDED EXEMPT INCOME, THE ISSUE NEEDS TO BE SET-AS IDE TO THE FILE OF THE AO AND HENCE A DIRECTION MAY BE GIVEN TO THE AO TO DETERMINE DISAL LOWANCE IN LIGHT OF DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTM ENTS LTD. VS CIT (SUPRA) . 18. THE LD. DR, ON THE OTHER HAND, FAIRLY ACCEPTED THAT THE ISSUE MAY BE SET-ASIDE TO THE FILE OF THE AO TO DETERMINE CORRECT AMOUNT OF D ISALLOWANCES KEEPING IN MIND THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS CIT (SUPRA) . 19. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIA LS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE FACTS WITH REGARD TO APPLICABILITY OF PROVISIONS OF SECTION 14A WAS NOT DISPUTED BY THE ASSESSEE. TH E ONLY DISPUTE IS WITH REGARD TO QUANTIFICATION OF AVERAGE VALUE OF INVESTMENT CONSI DERING THE INVESTMENT MADE IN GROUP/ASSOCIATE CONCERNS FOR STRATEGIC INVESTMENT P URPOSE AND ALSO THE ELEMENT OF COMMERCIAL EXPEDIENCY IN MAKING INVESTMENT. WE FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS CIT (SUPRA) H AD CONSIDERED THE ISSUE OF DISALLOWANCE OF EXPENSES INCURRED IN RELATION TO EX EMPT INCOME INCLUDING INTEREST IN LIGHT 15 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED OF ARGUMENTS OF THE ASSESSEES THAT STRATEGIC INVEST MENTS MADE IN GROUP/ASSOCIATE CONCERNS FOR THE PURPOSE OF HOLDING CONTROLLING INT EREST CANNOT BE CONSIDERED FOR DETERMINATION OF AVERAGE VALUE OF INVESTMENTS AND HELD THAT EVEN THOUGH INVESTMENT ARE MADE IN GROUP/ASSOCIATE CONCERNS FOR THE PURPOSE OF HOLDING STRATEGIC INVESTMENT DISALLOWANCES CONTEMPLATED U/S 14A OF THE ACT TRIGG ERS THE MOMENT THE ASSESSEE EARNED EXEMPT INCOME. HOWEVER, THE HONBLE COURT HAS NOT T OUCHED THE CONCEPT OF COMMERCIAL EXPEDIENCY AND CONSIDERATION OF DISALLOWANCE ON ACT UAL DIVIDEND YIELDING INVESTMENT. FURTHER, VARIOUS HONBLE COURT INCLUDING THE HIGH COURT OF BOMBAY IN NUMBER OF CAS ES HAD HELD THAT ONLY INVESTMENT WHICH YIELD EXEMPT IN COME NEEDS TO BE INCLUDED IN AVERAGE VALUE OF INVESTMENT FOR THE PURPOSE OF DETERMINATI ON OF INTEREST EXPENDITURE AND OTHER EXPENDITURE. THEREFORE, WE ARE OF THE CONSIDERED VI EW THAT THE ISSUE NEEDS TO BE GO BACK TO THE FILE OF THE AO FOR THE PURPOSE OF DETERMINAT ION OF AVERAGE VALUE OF INVESTMENT AND ALSO QUANTUM OF DISALLOWANCE OF INTEREST EXPENDITUR E AND OTHER EXPENDITURE KEEPING IN VIEW THAT OF THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF MAXOPP INVESTMENT LTD. VS CIT (SUPRA), HENCE, WE SET-ASIDE THE ISSUE TO THE FILE OF THE AO AND DIRECT HIM TO RECONSIDER THE ISSUE IN LIGHT OF OUR DISCUSSION HER EINABOVE. 20. THE ASSESSEE IS ALSO DIRECTED TO SUBSTANTIATE I TS CLAIM FORTHWITH IN LIGHT OF OUR OBSERVATION BEFORE THE LOWER AUTHORITIES, FAILURE W HICH THE AUTHORITIES SHALL BE AT LIBERTY TO DECIDE THE SAME ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. 21. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.6 OF ASSESSEES APPEAL IS DISALLOWANCE OF LEASE EQUALISATION RESERV E. THE FACTS WITH REGARD TO THE IMPUGNED DISPUTE ARE THAT THE ASSESSEE IS GIVING AS SETS ON LEASE AND COLLECTS LEASE 16 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED RENTALS FROM THE CLIENTS, WHICH COMPRISES RECOVERY OF COST OF ASSET AND FINANCE CHARGES. RECOVERY OF COST WAS FURTHER BIFURCATED INTO DEPREC IATION AS PER THE COMPANIES ACT AND LEASE EQUALISATION RESERVE (LER) AS PRESCRIBED IN THE GUIDANCE NOTE ON ACCOUNTING FOR LEASES ISSUED BY ICAI. GROSS RENTAL WAS CREDITED TO P & L ACCOUNT AND LER WAS DEBITED TO PROFIT & LOSS ACCOUNT TO DERIVE AT REAL INCOME. THE AO DISALLOWED LEASE EQUALISATION DEBITED INTO PROFIT & LOSS ACCOUNT ON THE GROUND TH AT THE STATUTORY PROVISIONS DID NOT PROVIDE FOR ANY SUCH DEDUCTION AND BY MIXING THE AC COUNTING STANDARD AND INCOME TAX DEPRECIATION, THE ASSESSEE HAS CLAIMED HIGHER DEDUC TION. 22. AT THE TIME OF HEARING, THE LD. AR FOR THE ASSE SSEE SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE ITAT, MUMBAI, BENCH IS IN ASSESSEES OWN CASE FOR AY 2004-05 IN ITA NO.3203/MUM/2008, WHERE UNDER IDENTICAL SET OF FACTS, THE TRIBUNAL HELD THAT LEASE EQUALISA TION RESERVE IS AN ALLOWABLE DEDUCTION BUT FOR THE PURPOSE OF COMPUTATION OF QUANTUM OF ALLOWA NCE, LEASE EQUALISATION RESERVE SHOULD BE COMPUTED ON THE BASIS OF DEPRECIATION AS PER INCOME TAX ACT INSTEAD OF DEPRECIATION AS PER COMPANIES ACT. THE LD. AR FURTH ER SUBMITTED THAT THIS ISSUE IS FURTHER CONSIDERED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS VIRTUAL SOFT SYSTEMS LTD. [2018] 92 TAXMANN.COM 370 (SC), WHERE THE COURT HAS ALLOWED THE CLAIM OF LEASE EQUALISATION RESERVE COMPUTED AS PER ACCOUNTING STA NDARD PRESCRIBED BY ICAI FOR THE REASON THAT THERE IS NO EXPRESS BAR IN THE INCOME A CT, 1961, REGARDING APPLICATION OF SUCH ACCOUNTING STANDARDS. 23. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT T HE TRIBUNAL HAS CONSIDERED THIS ISSUE FOR EARLIER YEARS, BUT SET-ASIDE THE ISSUE TO THE FILE OF THE AO TO RE-COMPUTE LEASE 17 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED EQUALISATION RESERVE ON THE BASIS OF DEPRECIATION A S PER ICAI INSTEAD OF DEPRECIATION AS PER COMPANIES ACT, THEREFORE, THE SAME DIRECTION MA Y BE GIVEN FOR THIS YEAR ALSO. 24. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIALS A VAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. AN IDENTIC AL ISSUE HAS BEEN CONSIDERED BY THE CO- ORDINATE BENCH OF THE TRIBUNAL IN ASESSEES OWN CAS E FOR AY 2004-05. THE TRIBUNAL, AFTER CONSIDERING RELEVANT FACTS HELD THAT LEASE EQUALISA TION RESERVE IS AN ALLOWABLE DEDUCTION, HOWEVER, FOR THE PURPOSE OF COMPUTATION OF QUANTUM OF ALLOWANCES, LEASE EQUALISATION RESERVE SHOULD BE COMPUTED ON THE BASIS OF TAX DEP RECIATION INSTEAD OF BOOK DEPRECIATION. THE RELEVANT OBSERVATIONS OF THE TR IBUNAL ARE AS UNDER:- 7.2 WE HAVE APPRECIATED THE RIVAL CONTENTIONS AND P ERUSED THE TRIBUNALS DECISIONS CITED BY THE REPRESENTATIVES. UPON APPREC IATION OF GUIDANCE NOTE ON LEASES ISSUED BY ICAI AND THE ABOVE CITED JUDGME NTS, WE NOTE THAT THE FOUR ELEMENTS HAVE TO BE CONSIDERED FOR PROPER TREA TMENT OF LEASE RENTALS VIZ. LEASE RENTALS, IMPLICIT RATE OF RETURN [IRR], DEPRE CIATION AND LEASE EQUALIZATION CHARGE. LEASE RENTAL IN MONETARY TERMS IS A SUM TOTAL OF THE FINANCING CHARGE AND THE AMOUNT EMBEDDED IN IT IN T HE FORM OF A CAPITAL SUM. THE SAID FINANCING CHARGE CONSTITUTES THE REAL INCO ME, WHICH IS TO BE OFFERED FOR TAX, WHICH IS DETERMINED BY APPLYING THE IRR TO THE NET INVESTMENT MADE IN THE ASSET. THE LEASE EQUALIZATION CHARGE IS THE RESULT OF THE ADJUSTMENT, WHICH THE ASSESSEE HAS TO MAKE WHENEVER THE AMOUNT PUT ASIDE TOWARDS CAPITAL RECOVERY IS NOT EQUIVALENT TO THE D EPRECIATION CLAIMED BY THE ASSESSEE. LEASE EQUALIZATION CHARGES IS A METHOD OF RECALIBRATING THE DEPRECIATION CLAIMED BY THE ASSESSEE IN A GIVEN ACC OUNTING PERIOD. IF THE DEPRECIATION CLAIMED IS LESS THAN THE CAPITAL RECOV ERY, THE DIFFERENCE IS DEBITED IN THE PROFIT & LOSS ACCOUNT IN THE FORM OF LEASE EQUALIZATION CHARGE AND SIMILARLY IF, FOR ANY REASON THE DEPRECIATION C LAIMED IS MORE THAN THE CAPITAL RECOVERY, THEN THE DIFFERENCE IS CREDITED, ONCE AGAIN, IN THE FORM OF LEASE EQUALIZATION CHARGE TO THE PROFIT & LOSS ACCO UNT. THEREFORE, THE ASSESSEE IN EFFECT DEBITS ARE CREDITS ITS PROFIT & LOSS ACCOUNT WITH A LEASE EQUALIZATION CHARGE DEPENDING ON WHETHER OR NOT THE DEPRECIATION CLAIMED IS LESS OR MORE THAN THE CAPITAL RECOVERY. THE METHOD EMPLOYED BY THE ASSESSEE, THEREFORE, OVER THE FULL TERM OF THE LEAS E PERIOD WOULD RESULT IN THE LEASE EQUALIZATION AMOUNT BEING REDUCED TO NAUGHT, AS THE CREDITS AND DEBITS IN THE PROFIT & LOSS ACCOUNT WOULD SQUARE OFF WITH EACH OTHER. 7.3 FURTHER A PERUSAL OF EARLIER ORDERS OF TRIBUNAL , WE FIND THAT WHILE PRIMA FACIE ALLOWING THE CLAIM OF LEASE EQUALIZATION CHAR GES, IT HAS BEEN HELD THAT DEPRECATION WHICH IS TO BE TAKEN FOR THIS PURPOSE S HOULD BE THE DEPRECIATION ALLOWABLE AS PER THE INCOME TAX ACT ONLY AND NOT TH E BOOK DEPRECATION. THEREFORE, IN THE LIGHT OF THESE OBSERVATIONS AND F OLLOWING THE JUDICIAL PRECEDENCE, THE MATTER IS RESTORE BACK TO THE FILE OF AO WITH THE DIRECTION TO 18 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED DECIDE THE ISSUE AFRESH AFTER GIVING ADEQUATE OPPOR TUNITY TO THE ASSESSEE TO SUBSTANTIATE HIS CLAIM IN THIS REGARD. IT IS CLARIF IED THAT TO MAINTAIN CONSISTENCY, THE DEPRECIATION WHICH IS TO BE CONSID ERED FOR THE PURPOSE OF CALCULATING LEASE EQUALIZATION CHARGES WOULD BE THE INCOME TAX DEPRECIATION AND NOT THE BOOK DEPRECIATION AS HELD BY THE TRIBUN AL IN EARLIER YEARS. THE GROUNDS STANDS ALLOWED FOR STATISTICAL PURPOSES. 25. WE FURTHER NOTED THAT THE HONBLE SUPREME COURT HAS CONSIDERED AN IDENTICAL ISSUE IN LIGHT OF ACCOUNTING STANDARD PRESCRIBED BY ICAI AND HELD THAT LEASE EQUALISATION RESERVE COMPUTED AS PER ACCOUNTING STANDARDS PRESCRIBED BY ICAI IS AN ALLOWABLE DEDUCTION BECAUSE THERE IS NO EXPRESS BAR IN THE IT ACT, 1961 REGARDING APPLICATION OF SU CH ACCOUNTING STANDARDS. THE HONBLE COURT FURTHER HEL D THAT ONLY REAL INCOME I.E. FINANCE INCOME SHOULD BE TAXED FOR THE PURPOSE OF INCOME TA X WHICH CAN BE ARRIVE ONLY AFTER APPLYING SUCH METHOD WHICH IS PRESCRIBED IN THE GUI DANCE NOTE. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT PRIMA-FACIE, THE ISSUE IS SETT LED BY THE DECISION OF THE HONBLE SUPREME COURT, HOWEVER, CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH FOR EARLIER YEARS, WE RESTORE THIS ISSUE TO THE FILE OF THE AO AND DIRECT HIM TO DECIDE COMPUTATION OF LEASE EQUALISATION RESERVE IN ACCORDANCE WITH THE D IRECTION OF HONBLE SUPREME COURT IN THE CASE OF VIRTUAL SOFT SYSTEMS LTD. (SUPRA). 26. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.7 TO 10 OF ASSESSEES APPEAL IS DISALLOWANCE OF DIVIDEND INCOM E EARNED FROM VENTURE CAPITAL TRUST U/S 14A OF THE ACT. THE ASSESSEE HAS INVESTED IN SE VERAL FUNDS/TRUST AND OFFERING INCOME FROM SUCH FUNDS/TRUST IN SAME HEAD AS BEING CONSIDE RED BY THE TRUST. THE TRUST HAS EARNED EXEMPT INCOME HAS SHOWN INCOME/LOSS FROM OTH ER SOURCES AND ISSUED FORM 64 ALSO FOR VENTURE CAPITAL FUNDS COVERED U/S 115U AND EXEMPT U/S 10(23FB). THE AO DISALLOWED THE LOSS FROM OTHER SOURCES ON THE GROUN D THAT THIS EXPENSES WERE INCURRED FOR 19 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED EARNING DIVIDEND/EXEMPT INCOME REJECTING THE INCOME BIFURCATION GIVEN BY VENTURE CAPITAL FUNDER UNDER FORM 64. IN OTHER WORDS, THE ASSESSEE REFLECTED GROSS DIVIDEND INCOME FROM TRUST IN THE PROFIT & LOSS ACCOUNT AND CLAIMED THE SAME AS EXEMPTED, WHEREAS, THE SET OFF OF SHARE OF LOSS FROM THE SAID FUNDS/TRUST WERE CLAIMED UNDER THE HEAD INCOME FROM THE OTHER SOURCES WHICH LED THE AO TO MAKE THE IMP UGNED ADDITIONS. 27. THE LD. AR FOR THE ASSESSEE, AT THE TIME OF HEA RING, SUBMITTED THAT THIS ISSUE COVERED BY THE DECISION OF ITAT, MUMBAI BENCH FOR AY 2004-05 IN ITA NO.3203/MUM/2008, WHERE UNDER IDENTICAL SET OF FACT S, THE TRIBUNAL HAS RESTORED THIS ISSUE TO THE FILE OF LD. AO TO RE-EXAMINE THE CLAI M OF THE ASSESSEE THAT SINCE THE ASSESSEE IS EARNING INCOME FROM TWO TYPES OF TRUSTS -ONE EXEMPT U/S 10(23FB) AND THE OTHER NOT EXEMPT U/S 10(23FB) AND THEREFORE, THE PR OVISIONS OF SECTION 115U AND 161 ARE APPLICABLE TO THEM. THE RELEVANT OBSERVATIONS OF TH E TRIBUNAL ARE AS UNDER:- 10. GROUND NUMBERS 17 TO 20 ARE RELATED WITH INCOM E FROM VENTURE CAPITAL TRUSTS. IT WAS NOTED THAT THE ASSESSEE EARNED DIVID END AND UNITS INCOME OF RS.43.31 CRORES CLAIMED EXEMPTED U/S 10(34) & 10(35 ) WHICH INCLUDED DIVIDEND OF RS.48.38 LACS RECEIVED FROM EIGHT PASS THROUGH ENTITIES / VENTURE CAPITAL FUNDS / TRUSTS AS PER LIST GIVEN ON PAGE-16 OF THE ASSESSMENT ORDER. IT WAS NOTED THAT THE ASSESSEE EARNED CAPITAL GAINS (N ET) FROM SALE OF THESE UNITS AMOUNTING TO RS.4.12 CRORES AND ALSO EARNED D IVIDEND INCOME OF RS.48.38 LACS FROM THE SAID FUNDS. HOWEVER, THE ASS ESSEES SHARE OF LOSSES AMOUNTING TO RS.1.61 CRORES IN 8 PASS THOUGH ENTITI ES WAS NOT NETTED OFF FROM THE DIVIDEND INCOME BUT THE SET-OFF OF THE SAME WAS CLAIMED UNDER THE HEAD INCOME FROM OTHER SOURCES. IN OTHER WORDS, THE AS SESSEE REFLECTED GROSS DIVIDEND INCOME FROM THE TRUSTS IN THE PROFIT & LOS S ACCOUNT AND CLAIMED THE SAME AS EXEMPTED WHEREAS THE SET OFF OF ASSESSEES SHARE OF LOSS FROM THE SAID FUNDS WERE CLAIMED UNDER THE HEAD INCOME FROM OTHER SOURCES WHICH LED THE AO TO MAKE THE IMPUGNED ADDITIONS. 10.1 AGGRIEVED THE ASSESSEE ASSAILED THE SAME BEFOR E LD. CIT(A) AND EXPLAINED THAT THE ASSESSEE WAS BENEFICIARY IN FOUR TRUST WHICH ARE NOT REGISTERED U/S 10(23FB) AND THEREFORE, THE INCOME O F THE TRUST IS TAXABLE IN THE HANDS OF THE BENEFICIARY U/S 161 OF THE INCOME TAX ACT ON THE PRINCIPAL OF PASS THROUGH. THEREFORE, THE BENEFICIARIES ARE TO BE TAXED ON THE INCOME OF THE TRUST AND THE CHARACTER OF THE INCOME IN THE HA NDS OF THE BENEFICIARY IS THE SAME AS THE CHARACTER IN THE HANDS OF THE TRUST. FU RTHER, THE REMAINING FOUR 20 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED TRUST WERE SEBI REGISTERED TRUST AND ALSO REGISTERE D U/S 10(23FB) AND THEREFORE, THE INCOME OF THOSE TRUST WAS EXEMPT U/S 10(23FB) AND ACCORDINGLY, THE INCOME OF THE TRUST WAS TAXABLE IN THE HANDS OF THE BENEFICIARIES IN ACCORDANCE OF THE PROVISIONS OF SE CTION 115U. AS PER THE MANDATE OF THIS SECTION, THE TRUST HAS ISSUED A CER TIFICATE UNDER RULE 12C IN FORM 64 GIVING DETAILS OF INCOME AND CHARACTER OF I NCOME. AS PER SECTION 115U(3) THE INCOME OF THE VENTURE CAPITAL FUND SHAL L BE DEEMED TO BE OF THE SAME NATURE AND IN THE SAME PROPORTION IN THE HANDS OF THE PERSONS RECEIVING THE INCOME. THE PROVISIONS BEING STATUTOR Y PROVISION HAS TO BE FOLLOWED STRICTLY. THEREFORE, THE ACTION OF LD. AO IN ATTRIBUTING THE LOSS UNDER THE HEAD INCOME FROM OTHER SOURCES TO DIVIDEND INCO ME WAS NOT JUSTIFIED. FURTHER, U/S 14A, THE LOSS UNDER THE HEAD INCOME FR OM OTHER SOURCES COULD NOT BE ALLOCATED TO EXEMPT DIVIDEND INCOME. MOREOVE R, THE REVENUE HAS NOT ESTABLISHED THAT THE ASSESSEE HAS INCURRED ANY EXPE NDITURE TO EARN THE SAME AND THEREFORE, NO DISALLOWANCE THEREOF COULD BE MAD E BY THE LD. AO. 10.2 THE LD. CIT(A) AFTER EXAMINATION, FOUND THE PR OPORTION OF TOTAL EXPENSES TO THE INTEREST INCOME OF THE FUND TO BE LOPSIDED A ND DIRECTED THE ASSESSEE TO JUSTIFY THE ADMISSIBILITY OF EXPENSES U/S 57(III) A GAINST INTEREST INCOME. NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE, THE LD. CIT(A) CAME TO CONCLUSION THAT MAJORITY OF THE EXPENSES OF THESE F UNDS WERE INCURRED TO EARN THE EXEMPT DIVIDEND INCOME AND THEREFORE, THE SAME COULD NOT BE ALLOWED TO THE ASSESSEE. FINALLY, THE MATTER WAS RESTORED TO T HE FILE OF LD. AO FOR RE- DETERMINATION OF TOTAL DISALLOWANCE AFTER SEGREGATI NG THE INDIRECT EXPENSES ON PROPORTIONATE BASIS. 10.3 THE ASSESSEE ALSO POINTED OUT MISTAKE IN CALCU LATIONS MADE BY LD. AO IN ARRIVING AT DISALLOWANCE OF RS.1.61 CRORES AND E XPLAINED THAT THE CORRECT FIGURES OF DISALLOWANCE, EVEN AS PER THE AOS PROPO SITION, WOULD BE WORKED OUT TO RS.79.28 LACS WHICH WAS AGREED IN PRINCIPLE BY THE LD. CIT(A). AGGRIEVED, THE ASSESSEE HAS RAISED GROUND NOS. 17 T O 20 AGAINST THE SAME. 10.4 THE LD. AR DREW OUR ATTENTION TO THE RECONCILI ATION STATEMENT OF INCOME / (LOSS) FROM PASS THROUGH ENTITIES AND STATED THAT T HE AMOUNT IN DISPUTE HAS NOW BEEN REDUCED TO RS.79.28 LACS SINCE THE LD. AO HAS ACCEPTED THE CALCULATIONS ERRORS AND RECTIFIED THE SAME VIDE ORD ER U/S 154. 10.5 FURTHER, OUR ATTENTION HAS BEEN DRAWN TO THE D ETAILS OF SHARE OF INCOME FROM BENEFICIARY TRUST PLACED AT PAGE NO. 277 OF TH E PAPER BOOK WHERE THE ASSESSEES SHARE OF INCOME / LOSS UNDER VARIOUS HEA DS HAVE BEEN SUMMARIZED. THE PRIME CONTENTION OF THE LD. AR IS T HAT THE ASSESSEE IS BENEFICIARY OF FOUR TRUSTS WHOSE INCOME IS EXEMPTED U/S 10(23FB) AND ACCORDINGLY, THE SHARE OF ASSESSEES INCOME IS TO B E TAXED IN ACCORDANCE WITH PROVISIONS OF SECTION 115U. FURTHER, THE BALAN CE FOUR TRUSTS ARE NOT ENTITLED FOR THE SAID EXEMPTION AND THEREFORE, THE INCOME OF THE SAME IS TO BE TAXED IN THE HANDS OF THE ASSESSEE IN TERMS OF SECT ION 161 OF THE INCOME TAX ACT. THE FINANCIAL STATEMENTS / COMPUTATIONS / FORM NO. 64 ETC. OF FEW TRUSTS HAVE BEEN PLACED IN THE PAPER BOOK. 10.6 PER CONTRA, LD. DR CONTENDED THAT THE ASSESSEE WAS ASKED TO FILE EVIDENCES TO SUBSTANTIATE ADMISSIBILITY OF EXPENSES U/S 57(III) BUT IT FAILED TO DO SO. FURTHER, THE PROVISIONS OF SECTION 14A WERE APPLICABLE SINCE MAJORITY OF EXPENSES WERE INCURRED ON ACCOUNT OF MANAGEMENT FEES MAINLY TOWARDS EARNING OF EXEMPT DIVIDEND INCOME AND THEREFORE, TH E ASSESSEE HAS BEEN RIGHTLY BEEN SADDLED WITH IMPUGNED ADDITIONS. 21 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED 10.7 AFTER HEARING RIVAL CONTENTIONS AND RELEVANT M ATERIAL ON RECORD, WE FIND THAT ISSUE REQUIRES RE-EXAMINATION / RE-ADJUDICATIO N AT THE LEVEL OF LD. AO SINCE THE ASSESSEE IS EARNING INCOME FROM TWO TYPES OF TRUSTS-ONE EXEMPT U/S 10(23FB) AND THE OTHER NOT EXEMPT U/S 10(23FB) AND THEREFORE, THE PROVISIONS OF SECTION 115U AND 161 ARE APPLICABLE T O THEM. THE ASSESSEE IS DIRECTED TO SUBSTANTIATE ITS CLAIM IN THIS REGARD I NCLUDING JUSTIFICATION OF MANAGEMENT FEES AND INDIRECT EXPENSES INCURRED BY T HE TRUST TOWARDS EARNING OF THE INCOME, WHICH AS PER REVENUE ARE MAI NLY INCURRED TOWARDS EARNING OF DIVIDEND INCOME. THEREFORE, THE MATTER I S SET ASIDE FOR FRESH ADJUDICATION KEEPING ALL THE ISSUES ALIVE WHICH RES ULTS INTO ASSESSEES GROUNDS OF APPEAL BEING ALLOWED FOR STATISTICAL PUR POSES. 28. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER PERIOD, WE RESTORE THIS ISSUE TO THE FILE OF THE AO AND DIRECT HIM TO DECIDE IN ACCORDANCE WITH DIRECTION GIVEN BY THE TRIBUNAL FOR AY 2004-05. 29. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.11 AND ADDITIONAL GROUND NO 1 AND 12 IS DISALLOWANCE OF DE PRECIATION ON TOLL ROAD. THE BRIEF, FACTS OF THE IMPUGNED DISPUTE ARE THAT THE ASSESSEE HAD C ONSTRUCTED TOLL ROAD IN RAU-PITHAMPUR IN JOINT VENTURE WITH MADHYA PRADESH [MP] STATE GOV ERNMENT IN THE YEAR 1995. THE ASSESSEE WAS GIVEN A RIGHT TO COLLECT THE TOLLS FOR A SPECIFIED PERIOD TO RECOVER THE COST OF INVESTMENT AND DESIRED YIELD AS PER AGREEMENT BETWE EN THE PARTIES. THE ASSESSEE HAS COLLECTED TOLL FOR INITIAL YEAR BUT LATER ON GOVERN MENT HAS STOPPED COLLECTION OF TOLL. THE ASSESSEE HAS CAPITALISED EXPENDITURE INCURRED FOR C ONSTRUCTION OF ROAD UNDER THE HEAD PLANT & MACHINERY. THE ASSESSEE HAS CLAIMED DEPRE CIATION @ 25% ON TOLL ROADS. THE AO DISALLOWED DEPRECIATION CLAIMED ON TOLL ROAD ON THE GROUND THAT THE ASSESSEE IS NEITHER OWNER OF THE ASSET NOR SAID ASSET IS IN THE NATURE OF PLANT AND MACHINERY, THEREFORE, DEPRECIATION ON SAID ASSET IS NOT ALLOWABLE AS PER PROVISIONS OF ACT. SIMILARLY, IN RESPECT OF REVENUE FROM ROADS, THE ASSESSEE HAS INITIALLY COLL ECTED TOLL FROM THE ROAD BUT LATER ON THE 22 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED GOVERNMENT HAS STOPPED THE ASSESSEE FROM COLLECTING TOLL. THE ASSESSEE LEFT WITH NO OPTION INVOKED ARBITRATION PROCEEDINGS WHICH IS NOT YET REACHED FINALITY. 30. SINCE, THE MATTER IS PENDING BEFORE THE ARBITRA TION; THE ASSESSEE HAS NOT RECOGNISED ANY REVENUE FROM TOLL ROAD. THE AO HAS MADE AD-HOC ADDITION OF RS.1.5 CRORES AS INCOME FROM TOLL COLLECTION ON THE BASIS OF LAST INCOME SHOWN IN AY 2001-02. THE LD. CIT(A) HAS DELETED THIS ADDITIONS AND DIREC TED AO TO RE-COMPUTE ADDITIONS BASED ON INTEREST CLAIM MADE BY THE ASSESSEE IN ARBITRATI ON PROCEEDINGS. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE ISSUE OF DEPRECIATION O N TOLL ROAD AS PLANT & MACHINERY WAS DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL, BUT D EPRECIATION WAS ALLOWED AS INTANGIBLE BEING RIGHT TO COLLECT THE TOLL FOR AY 2004-05. SIM ILARLY, AS REGARD ESTIMATION OF INCOME FROM TOLL ROAD, THE TRIBUNAL HAS SET-ASIDE THE ISSUE TO THE FILE OF THE AO TO DECIDE ESTIMATION OF INCOME ON THE BASIS OF LATEST DECISION OF THE ARBIT RATION TRIBUNAL OR ANY HIGHER AUTHORITY AS THE CASE MAY BE. 31. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIA LS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ISSUE OF DEPRECIATION ON TOLL ROAD AS WELL AS ESTIMATION OF INCOME FROM SUCH ROAD IS SUBJECT MATT ER OF CONSIDERATION BY THE TRIBUNAL FOR AY 2004-05. THE TRIBUNAL AFTER CONSIDERING RIVAL SU BMISSIONS OF THE ASSESSEE AND ALSO RELIED UPON CERTAIN JUDICIAL PRECEDENCE HELD THAT T HE DEPRECIATION ON TOLL ROAD IS NOT ALLOWED AS PLANT AND MACHINERY BECAUSE THE ASSESSEE IS NEITHER OWNER OF THE ASSET NOR SAID ASSET IS IN THE NATURE OF PLANT AND MACHINERY. HOWEVER, THE TRIBUNAL ALLOWED DEPRECIATION AS INTANGIBLE ASSET BEING RIGHT TO COL LECT THE TOLL. SIMILARLY, IN RESPECT OF 23 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED ESTIMATION OF INCOME FROM TOLL ROAD, DIRECT THE AO TO ASCERTAIN CORRECT FACTS WITH REGARD TO ATTAINMENT OF ARBITRATION PROCEEDINGS BEFORE ESTIMA TION OF INCOME. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- 11.10 WE HAVE HEARD THE RIVAL CONTENTIONS. SO FAR AS THE ESTIMATION OF INCOME FROM THE TOLL ROAD IS CONCERNE D, WE FIND THAT THE ISSUE IN HAND IS RELATED WITH ESTIMATION OF INCOME ONLY AND NOT WITH NOTIONAL INCOME SINCE THE CLAIM OF THE ASSESSEE HAS ALREADY BEEN CRYSTALLIZED BY THE APPELLATE TRIBUNAL AND THE ASSE SSEE HAS CERTAIN RIGHT TO CLAIM THE SAME PARTICULARLY WHEN THE PAYMENT IS BACKED BY THE GUARANTEE OF THE STATE GOVERNMENT. THERE IS NO DISP UTE AS TO THE FACT THAT THE ASSESSEE HAS UNFETTERED RIGHT TO CLAIM THE SAME FROM THE GOVERNMENT AGENCY AND ONLY THE QUANTIFICATION THERE OF IS IN DISPUTE. THE CONTENTION OF THE LD. AR IS THAT SINCE THE GOVERNME NT AGENCY HAS AGITATED THE SAME BEFORE HIGHER AUTHORITIES, THE SA ME HAS NOT YET ATTAINED FINALITY. HOWEVER, WHATEVER THE CASE MAY B E, THE ASSESSEE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING IS OBLIGE D TO OFFER THE SAME TO TAX IN VIEW OF CRYSTALLIZATION THEREOF BY APPELLATE TRIBUNAL. 11.11 THEREFORE, ON THE FACTS AND CIRCUMSTANCES, W E RESTORE THE MATTER BACK TO THE FILE OF LD. AO WITH A DIRECTION TO ESTIMATE THE INCOME ON THE BASIS OF LATEST DECISION OF THE APPELLATE TR IBUNAL OR ANY HIGHER AUTHORITY, AS THE CASE MAY BE. THE ASSESSEE IS DIRE CTED TO SUBSTANTIATE HIS CLAIM IN THIS REGARD FORTHWITH FAILING WHICH TH E LD. AO SHALL BE AT LIBERTY TO DECIDE THE SAME ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. 11.12 SINCE, WE HAVE ALREADY DIRECTED THE LD. AO TO TAX THE ESTIMATED INCOME FROM THE TOLL ROAD, AS A LOGICAL C ONSEQUENCE, THE ASSESSEE BECOMES ENTITLED TO CLAIM THE DEPRECIATION ON THE TOLL ROAD. AFTER CONSIDERING THE CITED DECISIONS RELIED UPON B Y RESPECTIVE REPRESENTATIVE, WE FIND THAT SINCE THE ASSESSEE IS NOT THE OWNER OF THE TOLL ROAD, DEPRECIATION THEREUPON COULD NOT BE ALLO WED TO HIM IN TERMS OF DECISION OF HONBLE BOMBAY HIGH COURT IN NORTH KARN ATAKA EXPRESSWAY LTD. VS. CIT [SUPRA]. HOWEVER, DEPRECIATION ON THE SAME AS INTANGIBLE ASSETS BEING ANY OTHER BUSINESS OR COMMERCIAL RIGH TS OF SIMILAR NATURE AS PER SECTION 32 WOULD BE AVAILABLE TO THE ASSESSE E IN TERMS OF DECISION OF SPECIAL BENCH OF THE TRIBUNAL, HYDERABA D RENDERED IN PROGRESSIVE CONSTRUCTIONS LTD. VS. ACIT [ITA NO. 18 45/HYD/2014 ORDER DATED 14/02/2017]. RESPECTFULLY FOLLOWING THE CITED DECISION, WE DIRECT SO. THE LD. AO IS DIRECTED TO RE-COMPUTE THE SAME A ND GRANT DEPRECIATION THEREUPON AS INTANGIBLE ASSETS. THE AS SESSEE IS ALSO DIRECTED TO SUBSTANTIATE HIS CLAIM IN THIS REGARD. THE GROUNDS OF ASSESSEES APPEAL STANDS ALLOWED FOR STATISTICAL PU RPOSES. 32. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER PERIOD, WE RESTORE THIS ISSUE TO THE FILE OF 24 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED THE AO AND DIRECT HIM TO DECIDE IN ACCORDANCE WITH DIRECTION GIVEN BY THE TRIBUNAL FOR AY 2004-05. 33. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.14 IS DISALLOWANCE OF EXPENSES INCURRED FOR INCREASE IN A UTHORIZED SHARE CAPITAL U/S 35D OF THE ACT. THE AO HAS DISALLOWED EXPENDITURE ON THE GROUN D THAT CONDITIONS AS PRESCRIBED IN SECTION 35D(1)(II) WAS NOT FULFILLED, THE SAME WAS CONFIRMED BY THE LD. CIT(A). 34. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI BENCH FOR AY 2004-05 BY EARLIER ORDERS , WHERE THE TRIBUNAL HAS RESTORED THE ISSUE BACK TO THE FIL E OF AO TO RE-EXAMINE WHETHER THE ASSESSEE IS AN INDUSTRIAL UNDERTAKING WITHIN THE ME ANING OF SECTION 35D OF THE ACT, WHICH MAKES IT ELIGIBLE TO CLAIM EXPENDITURE. 35. THE LD. DR, ON THE OTHER HAND, FAIRLY ACCEPTED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI. 36. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIA LS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THIS ISSUE IS COVERED BY THE DECISION OF ITAT, MUMBAI I BENCH IN ASSESSEES OWN CASE FOR AY -200 4-05 IN ITA NO.3203/MUM/2008, WHERE THE ISSUE HAS BEEN RESTORED BACK TO THE FILE OF THE AO. FOR THE YEAR UNDER CONSIDERATION, FACTS BEING IDENTICAL, BY FOLLOWING THE DECISION OF ITAT FOR EARLIER YEAR, WE RESTORE THIS ISSUE BACK TO THE FILE OF AO WITH A DI RECTION TO EXAMINE WHETHER THE ASSESSEE IS AN INDUSTRIAL UNDERTAKING WITHIN THE MEANING OF SECTION 35D OF THE ACT, WHICH MAKES IT 25 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED ELIGIBLE TO CLAIM EXPENDITURE. THE AO IS ALSO DIREC TED TO CONSIDER THE ISSUE IN LIGHT OF FINDINGS RECORDED BY THE TRIBUNAL FOR AY 2004-05. 37. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.15 IS LEVY OF INTEREST U/S 234B OF THE ACT. THIS ISSUE IS CONSEQU ENTIAL AND MANDATORY IN NATURE. THE AO SHALL COMPUTE INTEREST AS APPLICABLE FOR THE RELEVA NT PERIOD AS PER PROVISIONS OF SECTION 234B OF THE ACT AFTER DETERMINING TOTAL INCOME OF T HE ASSESSEE. ACCORDINGLY, THE GROUND TAKEN BY THE ASSESSEE IS DISMISSED. 38. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.16 IS ADDITION MADE ON ACCOUNT OF PROVISION FOR NON-PERFORMING ASS ETS WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. THE ASSESSEE HAS CLAIMED DEDUCTIO N ON ACCOUNT OF PROVISIONS FOR NON- PERFORMING ASSET WHILE COMPUTING BOOK PROFIT. THE A O HAS DENIED THE DEDUCTION AND ADDED BACK THE SAME WHILE COMPUTING BOOK PROFIT ON THE GROUND THAT IT IS MERE PROVISION, THEREFORE, THE SAME SHOULD BE ADDED BACK TO BOOK PR OFIT. 39. THE LD. AR FOR THE ASSESSEE, SUBMITTED THAT THI S ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI, I BENCH FOR AY 2004-05, WHERE UNDER IDENTICAL SET OF FACTS, THE TRIBUNAL HAS UPHELD THE ADDITIONS MADE TOWARDS DISALLOWANCE OF PROVISION MADE FOR NON-PERFORMING ASSETS WHILE COMP UTING BOOK PROFIT U/S 115JB OF THE ACT. 40. HAVING HEARD BOTH THE SIDES AND CONSIDERING THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THIS IS A RECURRING ISSUE WHICH IS SUBJEC T MATTER OF DISCUSSIONS BY THE TRIBUNAL RIGHT FROM AY 2002-03. THE TRIBUNAL HAD CONSIDERED AN IDENTICAL ISSUE IN THE LIGHT OF 26 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED PROVISIONS OF SECTION 115JB OF THE ACT, AND HELD TH AT PROVISIONS MADE FOR NON-PERFORMING ASSETS NEEDS TO BE ADDED BACK WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. THEREFORE, CONSISTENT WITH VIEW TAKEN BY THE TRIBUN AL FOR EARLIER YEARS, WE DISMISSED GROUND TAKEN BY THE ASSESSEE. 41. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.17 IS DISALLOWANCE OF PROVISION FOR DIMINUTION IN THE VAL UE OF SECURITIES WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. THE ASSESSEE HAS CLAIM ED DEDUCTION OF PROVISION FOR DIMINUTION IN VALUE OF SECURITIES HELD AS STOCK-IN- TRADE. FURTHER, IT IS OFFERING INCOME FROM SUCH SECURITIES AS BUSINESS INCOME. THE PROVISIONS WAS MADE YEAR ON YEAR AS CONSISTENT POLICY OF STOCK VALUATION. THE AO HAS DISALLOWED S AID DEDUCTION WHILE COMPUTING BOOK PROFIT. ON APPEAL, BEFORE THE FIRST APPELLATE AUTHO RITY, THE LD. CIT(A) HAS CONFIRMED THE ADDITIONS BASED ON RETROSPECTIVE AMENDMENT BY THE F INANCE ACT, 2009. 42. THE LD. AR FOR THE ASSESSEE, SUBMITTED THAT THI S ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI, FOR AY 20 04-05, WHERE UNDER IDENTICAL SET OF FACTS, THE TRIBUNAL HAS RESTORED THE ISSUE BACK TO THE FILE OF THE AO TO APPRECIATE THE SCRIP WISE DETAILS PROVIDED BY THE ASSESSEE TO ARRIVE AT PROVISIONS FOR DIMINUTION IN VALUE OF SECURITIES AND PROVIDE THE BENEFIT OF THE SAME WITH RESPECT TO THOSE SCRIPS WHICH ARE HELD AS STOCK IN TRADE AND ALSO THE INCOME OF WHICH HAS BEEN OFFERED UNDER THE HEAD BUSINESS INCOME. 43. HAVING HEARD BOTH THE SIDES AND CONSIDERING THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE TRIBUNAL HAS CONSIDERED SIMILAR ISSUE FOR AY 2004-05 IN ITA 27 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED NO.3203/MUM/2008, WHERE UNDER IDENTICAL SET OF FACT S HAS RESTORED ISSUE BACK TO THE FILE OF THE AO WITH FOLLOWING OBSERVATIONS:- 5.2 WE HAVE HEARD THE RIVAL CONTENTIONS. WE NOTE T HAT THE ASSESSEE HAS MADE PROVISION OF RS.1,70,58,371/- IN THE PROFI T & LOSS ACCOUNT TOWARDS INVESTMENT VALUATION AND CUMULATIVE FIGURES OF THESE PROVISIONS IN BALANCE SHEET SCHEDULE F STOOD AT R S.2,53,91,613/-. FURTHER AS PER NOTE NO. 34 IN SCHEDULE N-NOTES FORM ING PART OF THE ACCOUNTS, IT HAS BEEN STATED THAT INCOME FROM INVES TMENTS INCLUDED IN INCOME FROM OPERATIONS UNDER SCHEDULE I INCLUDES NET PROFIT ON SALE OF SECURITIES RS.86,82,62,292/-. FURTHER, THE ASSESSEE IN COMPUTATION OF INCOME MADE SUO-MOTO DISALLOWANCE OF RS.31,77,056/- TOWARDS PROVISION FOR DIMINUTION IN VALUE OF INVESTMENTS AND SHOWN CERTAIN PROFIT ON SALE OF STR ATEGIC / LONG TERM INVESTMENTS. ALL THESE FACTS AND FIGURES LEND STREN GTH TO THE ARGUMENT OF LD. AR. IT IS WELL SETTLED THAT CLOSING STOCK HA S TO BE VALUED AT COST OR MARKET PRICE WHICHEVER IS LESS AND PRIMA FACIE, IT APPEARS THAT THE ASSESSEE IS FOLLOWING CONSISTENT POLICY OF STOCK VA LUATION. THEREFORE, ON THE FACTS AND CIRCUMSTANCES, WE DEEM IT FIT TO R ESTORE THE MATTER BACK TO THE FILE OF AO TO APPRECIATE THE SCRIP WISE DETAILS PROVIDED BY ASSESSEE TO ARRIVE AT THE PROVISIONS FOR DIMINUTION IN VALUE MADE BY THE ASSESSEE AND PROVIDE THE BENEFIT OF THE SAME WI TH RESPECT TO THOSE SCRIPS WHICH ARE HELD AS STOCK IN TRADE AND T HE INCOME OF WHICH HAS BEEN OFFERED UNDER THE HEAD BUSINESS INCOME. THE GROUNDS OF ASSESSEES APPEAL STAND ALLOWED FOR STATISTICAL PUR POSES. 44. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH OF THE TRIBUNAL, WE RESTORED THIS ISSUE BACK TO THE FILE OF THE LD. AO AND DIRECT HIM TO CONSIDER THE ISSUE IN LIGHT OF FINDINGS RECORDED BY THE TRIBUNAL FOR AY 2004-05. 45. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.18 IS WITH REGARD TO DISALLOWANCE OF PROVISION FOR DIMINUTION IN THE VALUE STRATEGIC INVESTMENT WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. 46. THE LD. AR FOR THE ASSESSEE, AT THE TIME OF HEA RING, SUBMITTED THAT HE DOES NOT WANT TO PRESS THIS GROUND, THEREFORE, THIS GROUND O F THE ASSESSEE IS DISMISSED AS NOT PRESSED. 28 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED 47. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO. 19 IS ADDITION OF THE AMOUNT DISALLOWED U/S 14A WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. THE AO HAS MADE ADDITION U/S 14A OF THE ACT TOWARDS EXPEND ITURE INCURRED IN RELATION TO EXEMPT INCOME. FURTHER, A SIMILAR ADJUSTMENT HAS BEEN MADE TOWARDS AMOUNT DISALLOWED U/S 14A OF THE ACT, WHILE COMPUTING BOOK PROFIT U/S115JB OF THE ACT. 48. THE LD. AR FOR THE ASSESSEE, SUBMITTED THAT TH IS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, DELHI, SPE CIAL BENCH IN THE CASE OF ACIT VS VIREET INVESTMENT PVT LTD. (2017) 82 TAXMANN.COM 41 5 (DEL. ITAT), WHEREIN, THE TRIBUNAL HELD THAT DISALLOWANCE CONTEMPLATED U/S 14A SHALL N OT BE ADDED BACK WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. 49. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERI ALS AVAILABLE ON RECORD. WE FIND THAT BOTH ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E BY THE DECISION OF ITAT DELHI SPECIAL BENCH IN THE CASE OF ACIT VS VIREET INVESTMENT PVT LTD.(SUPRA). BUT, FACT REMAINS THAT THE ISSUE OF DISALLOWANCE CONTEMPLATED U/S 14A OF THE A C READ WITH RULE-8D HAS ALREADY BEEN DISCUSSED BY US IN PRECEDING PARAS IN GROUND NO. 4, 5, 7 AND 10 OF ASSESSEES APPEAL, WHERE THE MATTER HAS BEEN RESTORED BACK TO THE FILE OF THE AO TO RECOMPUTE DISALLOWANCE OF EXPENDITURE BY EXCLUDING INVESTMENT WHICH DO NOT YIELD EXEMPT INCOME. THE ISSUE OF COMPUTATION OF BOOK PROFIT WITH REFERENCE TO 14A DI SALLOWANCE IS BEARING ON THE OUTCOME OF COMPUTATION OF DISALLOWANCE U/S 14A OF THE ACT I N LIGHT OF OUR DISCUSSIONS GIVEN IN THE GROUNDS OF APPEAL TAKEN FOR THE ASSESSEES IN ITS A PPEAL. THEREFORE, WE RESTORE THIS ISSUE BACK TO THE FILE OF THE AO AND DIRECT HIM TO FIRST RE-COMPUTE DISALLOWANCE CONTEMPLATED U/S 29 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED 14A AND THEN DECIDE THIS ISSUE IN ACCORDANCE WITH F INDINGS OF THE SPECIAL BENCH OF ITAT, DELHI IN THE CASE OF ACIT VS VIREET INFEST PVT. LTD . (SUPRA) AND ALSO THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS MS/ BENGAL FINANCE INVESTMENT PVT. LTD. IN INCOME TAX APPEAL NO.337 OF 2013. 50. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.13 OF ASSESSEES APPEAL IS ADDITION TOWARDS INCOME EARNED FROM LOAN GIVEN TO TAMILNADU ROAD DEVELOPMENT CO. LTD. AND MAHENDRA INDUSTRIAL PARK U /S 10(23G) OF THE ACT. THE ASSESSEE HAVE GIVEN LONG TERM LOAN TO TAMILNADU ROA D DEVELOPMENT CO. LTD. AND MAHENDRA INDUSTRIAL PARK. THE ASSESSEE HAS CLAIMED EXEMPTION TOWARDS INTEREST EARNED FROM LOAN TO ABOVE TWO COMPANIES U/S 10(23G) OF THE ACT. THE AO HAS DISALLOWED EXEMPTION TOWARDS INTEREST INCOME U/S 10(23G) ON TH E GROUND THAT REQUIRED RECOGNITION FOR EXEMPTION HAS NOT BEEN ISSUED BY THE CBDT IN RESPEC T OF ABOVE TWO COMPANIES WHICH IS MANDATORILY REQUIRED FOR CLAIMING EXEMPTION U/S 10( 23G) OF THE ACT. 51. THE LD. AR FOR THE ASSESSEE, SUBMITTED THAT ALT HOUGH THIS ISSUE HAS BEEN CONTESTED FOR THE AY 2004-05, BUT CONSIDERING THE S MALLNESS OF AMOUNT, THE GROUND HAS NOT BEEN PRESSED, THEREFORE, THE TRIBUNAL DO NOT AD JUDICATE THE ISSUE ON MERIT FOR AY 2004-05. THEREFORE, THIS NEW ISSUE HAS TO BE DECIDE D ON THE BASIS OF MATERIAL AVAILABLE ON RECORD IN LIGHT OF PROVISION OF SECTION 10(23G) OF THE ACT. THE LD. AR FOR THE ASSESSEE REFERRING TO PROVISIONS OF SECTION 10(23G) OF THE A CT, SUBMITTED THAT AS PER SAID PROVISIONS, ANY INCOME BY WAY OF DIVIDENDS, OTHER THAN DIVIDEND S REFERRED TO IN SECTION 115(O) OF THE ACT, INTEREST OR LONG TERM CAPITAL GAINS OF INFRAST RUCTURE CAPITAL FUND OR INFRASTRUCTURE CAPITAL 30 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED COMPANY OR COOPERATIVE BANK FROM INVESTMENTS MADE O N OR AFTER 1 ST DAY OF JUNE 1998 BY WAY OF SHARES OR LONG TERM FINANCE IN ANY ENTERPRIS ES OR UNDERTAKING WHOLLY ENGAGED IN THE BUSINESS REFERRED TO IN SUB-SECTION OF (4) OF 8 0IA AND WHICH HAS BEEN APPROVED BY THE CENTRAL GOVERNMENT ON AN APPLICATION MADE BY IT IN ACCORDANCE WITH RULES MADE IN THIS BEHALF, WHICH SATISFY PRESCRIBED CONDITIONS IS EXEM PTED FROM TAX. THEREFORE, THE ASSESSEE BEING INFRASTRUCTURE CAPITAL COMPANY ADVANCED LONG TERM LOANS TO TWO COMPANIES INVOLVED IN DEVELOPING INFRASTRUCTURE PROJECT, THEREFORE, AN Y INCOME INCLUDING INTEREST INCOME EARNED FROM SUCH COMPANY IS EXEMPT FROM TAX, EVEN T HOUGH, THE APPROVAL FOR SUCH COMPANY IS OBTAINED AT LATER DATE. THE AR FURTHER S UBMITTED THAT WHAT IS REQUIRED TO BE SEEN IS WHETHER THE ASSESSEE HAS GRANTED LONG TERM LOANS FOR A COMPANY, WHICH IS DEVELOPING INFRASTRUCTURE OR NOT AND FURTHER, SUCH COMPANY HAS BEEN APPROVED U/S 10(23G) OF THE ACT. THE AR FURTHER SUBMITTED THAT EVEN EXPLANATION-2 INSERTED BY THE FINANCE ACT, 1998 HAS ALSO CONSIDERED TO BE RETROSP ECTIVE IN NATURE BECAUSE THE SAID EXPLANATION IS DECLARATORY STATUTE INSERTED TO SUPP LY AN OBVIOUS OMISSION AND TO CUT AND CLEAR DOUBTS, THEREFORE, ANY COMPANY WHICH IS FULFI LLED THE CONDITION U/S 10(23G) AND THE INVESTMENTS ARE MADE BEFORE 01/06/1998, THEN ANY IN COME RECEIVED FROM SUCH INVESTMENT IS EXEMPTED U/S 10(23G) OF THE ACT. IN THIS REGARD, HE RELIED UPON THE DECISION OF ITAT, HYDERABAD IN THE CASE OF VBC FERRO ALLOYS LTD. VS ACIT (2007) 107 TTJ 925. THE ASSESSEE ALSO RELIED UPON THE DECISION OF ITAT AHME DABAD BENCH IN THE CASE OF GUJARAT POWER CORPORATION LTD. VS ACIT IN ITA NO.1663/AHD/2 008. 52. THE LD. DR ON THE OTHER HAND, SUBMITTED THAT UN LESS THE ASSESSEE TO WHOM LOANS HAVE BEEN GIVEN IS APPROVED U/S 10(23G) BY THE CBDT AS PER PRESCRIBED PROCEDURE, THE 31 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED ASSESSEE WOULD NOT GET THE BENEFIT OF EXEMPTION U/S 10(23G) OF THE ACT, TOWARDS ANY INCOME RECEIVED FROM SUCH INVESTMENTS/LOANS, THEREF ORE, THE AO WAS RIGHT IN MAKING ADDITION TOWARDS INTEREST INCOME EARNED FROM LONG T ERM FINANCE GIVEN TO TAMILNADU ROAD DEVELOPMENT CO. LTD. AND MAHENDRA INDUSTRIAL PARK B ECAUSE THE REQUIRED APPROVAL U/S 10(23G) HAS NOT BEEN OBTAINED BY THOSE COMPANIES FO R THE RELEVANT FINANCIAL YEAR. 53. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS AN A DMITTED FACT THAT THE ASSESSEE IS A INFRASTRUCTURE CAPITAL COMPANY, WHICH IS ELIGIBLE F OR EXEMPTION IN RESPECT OF ANY INCOME BY WAY OF DIVIDENDS, INTEREST OR LONG TERM CAPITAL GAI NS OF AN INFRASTRUCTURE CAPITAL FUND FROM INVESTMENT MADE, BY WAY OF SHARES OR LONG TERM FINA NCE IN ANY ENTERPRISE UNDERTAKING WHOLLY ENGAGED IN THE BUSINESS OF INFRASTRUCTURE DE VELOPMENT. IT IS ALSO AN ADMITTED FACT THAT TAMILNADU ROAD DEVELOPMENT CO. LTD. HAS BEEN A PPROVED BY THE CBDT, U/S 10(23G) OF THE ACT, READ WITH RULE 2(E) OF INCOME TAX RULES , 1962, BUT SUCH PROVISION HAS BEEN GRANTED FROM AY 2006-07 ONWARDS. THE DISPUTE IS WIT H REGARD TO DEDUCTION CLAIMED TOWARDS INTEREST INCOME EARNED FROM TAMILNADU ROAD DEVELOPMENT CO. LTD. ON LONG TERM LOANS. THE CLAIM OF THE ASSESSEE IS THAT EXEMPTION IS GRANTED U/S 10(23G) OF THE ACT, TO A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF PROVIDI NG LONG TERM FINANCE TO COMPANIES OR UNDERTAKINGS DEVELOPING INFRASTRUCTURE FACILITIES. THEREFORE, THE APPROVAL IF ANY REQUIRED U/S 10(23G) IN RESPECT OF THOSE COMPANIES IS ONLY A FOR MALITY. THE ASSESSEE HAS FURTHER CLAIMED THAT ONCE AN APPROVAL HAS BEEN GRANTED U/S 10(23G), TO COMPANY, THEN ANY INCOME RECEIVED FROM SUCH COMPANY IS ELIGIBLE FOR E XEMPTION U/S 10(23G), BECAUSE THE SECTION CLEARLY STATES THAT EXEMPTION IS ALLOWABLE IN RESPECT OF INVESTMENT MADE BEFORE THE 32 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED 1 ST DAY OF JUNE 1998. WE FIND THAT THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE IS AN INFRASTRUCTURE CAPITAL COMPANY. IT I S ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS GIVEN LONG TERM FINANCE TO A COMPANY WHICH IS E NGAGED IN THE BUSINESS OF DEVELOPMENT OF INFRASTRUCTURE FACILITIES. THE DISPU TE IS WITH REGARD TO THE CUT OF DATE FOR MAKING INVESTMENT. ACCORDING TO THE AO, EXEMPTION I S AVAILABLE ONLY IN RESPECT OF INVESTMENT MADE BETWEEN 01/04/1998 AND 01/06/1998. FURTHER, THE AO OPINED THAT EXEMPTION IS AVAILABLE ONLY IF THE COMPANY WHICH IS DEVELOPING INFRASTRUCTURE FACILITIES IS APPROVED U/S 10(23G) OF THE ACT. WE, FIND THAT A SI MILAR ISSUE HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH OF ITAT, HYDERABAD, IN THE CASE O F VBC FERRO ALLOYS LTD. VS ACIT (2007) 107 TTJ 925, WHERE UNDER IDENTICAL SET OF FA CTS, THE TRIBUNAL HELD THAT AS PER SECTION 10(23G) AS IT EXISTED IMMEDIATELY BEFORE AM ENDMENT BY FINANCE ACT, 1998 CLEARLY STATES THAT ANY INCOME BY WAY OF LONG TERM CAPITAL GAIN OF AN INFRASTRUCTURE CAPITAL FUND IS EXEMPTED U/S 10(23G) OF THE ACT, BECAUSE AS PER PRO VISIONS OF STATUTE EXISTING IN 1997 READ WITH EXPLANATION 2 INTRODUCED BY THE FINANCE A CT 1997 MANDATES THAT INCOME BY WAY OF LONG TERM CAPITAL GAIN OF AN INFRASTRUCTURE CAPI TAL COMPANY FROM INVESTMENT MADE BEFORE 01/04/1998 BY WAY OF ANY SHARES, ANY ENTERPRISE WHI CH IS INFRASTRUCTURE FACILITIES SHALL NOT BE INCLUDED IN THE TOTAL INCOME. SIMILARLY, THE CO- ORDINATE BENCH OF ITAT, AHMEDABAD IN THE CASE OF GUJARAT POWER CORPORATION LTD. (SUPRA) HAS CONSIDERED AN IDENTICAL ISSUE AND BY FOLLOWING THE DECISION OF ITAT, HYDERABAD IN THE CASE OF VBC FERRO ALLOYS LTD. VS ACIT (SUPRA) HELD THAT ASSESSEE IS ENTITLED TO EXEMPTION U/S 10(23G) OF THE ACT, EVEN THOUGH, INVESTMENTS IN THOSE COMPANIES ARE MADE PRIOR TO 01 /04/1998. IN THIS CASE, ON PERUSAL OF FACTS AVAILABLE ON RECORD, THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE IS AN 33 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED INFRASTRUCTURE CAPITAL COMPANY, IT IS ALSO NOT DISP UTE THAT THE ASSESSEE HAD GIVEN LONG TERM FINANCE GIVEN TO A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF INFRASTRUCTURE FACILITIES AS DEFINED U/S 80IA OF TH E ACT. THE SAID COMPANY HAS BEEN APPROVED BY THE CBDT U/S 10(23G) OF THE ACT, BUT SU CH APPROVAL HAS BEEN GRANTED FOR AY 2006-07. THEREFORE, WE ARE OF THE CONSIDERED VIEW T HAT ONCE, IT WAS AN ADMITTED FACT THAT THE ASSESSEE IS AN INFRASTRUCTURE CAPITAL COMPANY A ND THE LONG TERM FINANCE GIVEN TO A COMPANY WHICH IS ALSO ENGAGED IN THE BUSINESS OF IN FRASTRUCTURE DEVELOPMENT , THEN WHATEVER INCOME EARNED FROM SUCH COMPANY INCLUDING INTEREST INCOME IS EXEMPT U/S 10(23G) OF THE ACT, BECAUSE THE APPROVAL IF ANY REQ UIRED U/S 10(23G) IS FOR THE COMPANY WHICH IS DEVELOPING INFRASTRUCTURE FACILITIES, BUT NOT TO A COMPANY WHICH IS PROVIDING LONG TERM LOAN OR INVESTMENT TO AN INFRASTRUCTURE DEVELO PMENT COMPANY. SINCE, TAMILNADU ROAD DEVELOPMENT CO. LTD. HAS BEEN APPROVED U/S 10( 23G) OF THE ACT, THE ASSESSEE IS ELIGIBLE FOR EXEMPTION IN RESPECT OF INTEREST INCOM E FROM THAT COMPANY U/S 10(23G) OF THE ACT EVEN THOUGH SUCH APPROVAL WAS GRANTED SUBSEQUEN TLY. THEREFORE, WE DIRECT THE AO TO DELETE THE ADDITION MADE TOWARDS DISALLOWANCE OF IN TEREST INCOME FROM TAMILNADU ROAD DEVELOPMENT CO. LTD. U/S 10(23G) OF THE ACT. 54. IN SO FAR AS, DEDUCTION TOWARDS INTEREST INCOME EARNED FROM MAHENDRA INDUSTRIAL PARK, AT THE TIME OF HEARING, THE LD. AR FOR THE AS SESSEE SUBMITTED THAT HE DO NOT WANT TO PRESS THIS ISSUE IN RESPECT OF INTEREST INCOME RECE IVED FROM MAHENDRA INDUSTRIAL PARK, THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE A O WAS RIGHT IN MAKING ADDITION TOWARDS INTEREST INCOME FROM LONG TERM FINANCE GIVEN TO MAH ENDRA INDUSTRIAL PARK. ACCORDINGLY, WE UPHOLD THE ADDITIONS MADE BY THE AO. 34 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED REVENUES APPEAL (ITA NO.3165/MUM/2007) 55. THE FIRST ISSUE CAME UP FOR CONSIDERATION FROM GROUND NUMBER 1 OF REVENUES APPEAL IS DISALLOWANCE OF EXPENDITURE INCURRED IN R ELATION TO EXEMPT INCOME U/S 14A UNDER NORMAL PROVISIONS OF THE ACT. THE REVENUE HAS CHALL ENGED PARTIAL RELIEF ALLOWED BY THE LD. CIT(A). THE REVENUE HAS CHALLENGED RELIEF ALLOWED T O THE ASSESSEE IN LIGHT OF RECENT DECISION OF HONBLE SUPREME COURT IN THE CASE OF MA XOPP INVESTMENT LTD. VS CIT, WHERE THE ISSUE OF STRATEGIC INVESTMENT AND STOCK-IN-TRAD E HAS BEEN CONSIDERED BY THE HONBLE SUPREME COURT. FURTHER, THE HONBLE COURT HAS NOT T OUCHED THE CONCEPT OF COMMERCIAL EXPEDIENCY AND CONSIDERATION OF DISALLOWANCE ON ACT UAL DIVIDEND YIELDING INVESTMENT. 56. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THI S GROUND TAKEN BY THE REVENUE IS ALREADY COVERED IN GROUND TAKEN BY THE A SSESSEE IN RESPECT OF DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT, WHERE APPLICABILITY OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS CIT HAS BEEN CONSIDERED, THEREFORE, THIS GROUND MAY ALSO BE SENT BACK TO THE FILE OF THE AO WITH SIMILAR DIRECTIONS TO RE-COMPUTE DISALLOWANCES CONTEMPLATED U/S 14A OF THE ACT. 57. HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL AVAILABLE ON RECORD. WE FIND THAT WE HAVE ALREADY DISCUSSED THIS ISSUE IN ASSESS EES APPEAL WHERE THE APPLICABILITY OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTM ENT LTD. VS CIT (SUPRA) HAS BEEN THOROUGHLY DISCUSSED. FURTHER, IN ASSESSEES APPEAL GROUND RELATING DISALLOWANCE OF EXPENDITURE U/S 14A HAS BEEN RESTORED BACK TO THE F ILE OF THE AO. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THIS GROUND TAKEN BY THE REVEN UE ALSO NEEDS TO GO BACK TO THE FILE OF 35 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED THE AO TO DECIDE THE ISSUE IN ACCORDANCE WITH OUR F INDINGS GIVEN IN ASSESSEES APPEAL AND ALSO THE DECISION OF HONBLE SUPREME COURT IN THE C ASE OF MAXOPP INVESTMENT LTD. VS CIT (SUPRA) HENCE, WE SET-ASIDE THE ISSUE TO THE FILE O F THE AO. 58. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.2 OF REVENUES APPEAL IS DISALLOWANCE OF SOFTWARE DEVELOPMENT EXPE NSES. THE AO HAS DISALLOWED SOFTWARE DEVELOPMENT EXPENSES OF RS.84,47,787/- ON THE GROUND THAT NO DETAILS HAS BEEN FURNISHED TO JUSTIFY DEDUCTION CLAIMED TOWARDS SOFTWARE DEVELOPMENT EXPENSES. THE LD. CIT(A) HAS ALLOWED THE DEDUCTION ON THE BASIS O F INFORMATION FURNISHED BY THE ASSESSEE AS PER WHICH EXPENDITURE DEBITED UNDER THE HEAD MISCELLANEOUS (SOFTWARE DEVELOPMENT EXPENSES) ARE IN THE NATURE OF AMC CHAR GES, INTERNET ACCESS CHARGES, LEASE LINE EXPENSES, ANTI-VIRUS EXPENSES AND OTHER SOFTWARE EXPENSES FOR ACCOUNTING PACKAGE. 59. THE LD. AR FOR THE ASSESSEE, SUBMITTED THAT THI S ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT, MUMBAI, I B ENCH IN ASSESSEES OWN CASE FOR AY 2004-05 IN ITA NO.3203/MUM/2008., WHERE UNDER IDENT ICAL SET OF FACTS, THE TRIBUNAL HAS UPHELD THE FINDINGS OF THE LD. CIT(A) IN DELETING T HE ADDITIONS MADE TOWARDS SOFTWARE DEVELOPMENT EXPENSES. 60. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE FOR AY 2 004-05 WHERE IT WAS HELD THAT SOFTWARE DEVELOPMENT EXPENSES IS DEBITED UNDER THE HEAD MISC ELLANEOUS EXPENSES ARE IN THE NATURE OF AMC CHARGES, INTERNET ACCESS CHARGES, LEA SE LINE EXPENSES, ANTI-VIRUS 36 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED EXPENSES AND OTHER SOFTWARE EXPENSES FOR ACCOUNTING PACKAGE, THEREFORE, BEING REVENUE IN NATURE AND ALLOWABLE AS DEDUCTION. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- 20. FACTS QUA GROUND NO. 1 ARE THAT THE ASSESSEE C LAIMED CERTAIN SOFTWARE DEVELOPMENT EXPENSES OF RS.1.16 CRORES, TH E DETAILS OF WHICH WERE NOT FILED BEFORE THE AO WHICH LED THE AO TO BE LIEVE THAT THE SAME EXPENDITURE, BEING CAPITAL IN NATURE, WAS NOT ALLOW ABLE TO THE ASSESSEE. THE ASSESSEE PROVIDED THE DETAILS THEREOF BEFORE LD . CIT(A) WHO NOTED THAT THE IMPUGNED EXPENSES WERE IN THE NATURE OF AM C CHARGES, INTERNET ACCESS CHARGES, LEASE LINE EXPENSES, ANTI-VIRUS EXP ENSES, CHARGES FOR LINK FACILITY, SOFTWARE CHARGES FOR ACCOUNTING PACK AGE AND THEREFORE, BEING REVENUE IN NATURE AND HENCE ALLOWABLE TO THE ASSESS EE. 20.1 THE LD. DR HAS CONTENDED THAT NO DETAILS WERE FILED BY THE ASSESSEE BEFORE LD. AO AND THEREFORE, THE ASSESSEE HAS RIGHTLY BEEN SADDLED WITH IMPUGNED ADDITIONS AND LD. CIT(A) ERRE D IN PROVIDING RELIEF TO THE ASSESSEE. THE LD. AR PLACED RELIANCE ON THE FINDINGS OF LD. CIT(A) AND DREW OUR ATTENTION TO DETAILS OF EXPENSES AS PL ACED IN PAGE NO. 543 OF THE PAPER-BOOK TO SUPPORT THE CONTENTION THAT IM PUGNED EXPENSE, BEING REVENUE IN NATURE, WERE ALLOWABLE TO THE ASSE SSEE AND THE LD. CIT(A) PROVIDED RELIEF TO THE ASSESSEE AFTER DUE AP PRECIATION OF THE MATERIAL FACTS. 20.2 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND I NCLINED TO AGREE WITH THE FINDINGS OF LD. CIT(A) WHO AFTER APPRECIAT ING THE RELEVANT MATERIAL CAME TO THE RIGHT CONCLUSION THAT THE IMPU GNED EXPENDITURE BEING REVENUE IN NATURE, WERE ALLOWABLE TO THE ASSE SSEE. A BARE PERUSAL OF THE SAID EXPENSES REVEALS THAT THE SAID EXPENDIT URE ARE PRIMARILY REVENUE IN NATURE AND THE LD. AO DISALLOWED THE SAM E ON MERE PRESUMPTION. HOWEVER, LD. CIT(A) EXAMINED THE SAME AND PROVIDED RELIEF TO THE ASSESSEE AFTER APPRECIATING THE MATER IAL AND THEREFORE, WE FIND NO REASON TO INTERFERE WITH THE SAME. THE REVE NUES GROUND OF APPEAL STANDS DISMISSED. 61. IN VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LD . CIT(A) AND HENCE, WE ARE INCLINED TO UPHELD THE FINDINGS OF THE LD. CIT(A) AND REJECT TH E GROUND TAKEN BY THE REVENUE. 62. THE NEXT ISSUE THAT CAME UP FOR CONSIDERATION F ROM GROUND NO.3 IS DISALLOWANCE OF DIVIDEND INCOME EARNED FROM VENTURE CAPITAL TRUST U /S 14A OF THE ACT. THIS ISSUE HAS BEEN ALREADY DISCUSSED IN ASSESSEES APPEAL IN GROUND NO . 7 TO 10, WHERE THE ISSUE HAS BEEN 37 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED SET-ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICAT ION IN LIGHT OF OBSERVATIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2004-05. THE REVENUE CHALLENGED THE FINDINGS OF THE LD. CIT(A) IN RESPECT OF ALLOCATION OF PROPORTIONATE EX PENSES ON THE BASIS OF TAXABLE AS WELL AS EXEMPT INCOME EARNED BY SUCH FUND/TRUST. SINCE, WE HAVE ALREADY RESTORED BACK THIS ISSUE TO THE FILE OF THE AO IN ASSESSEES APPEAL IN GROUN D NO. 7 TO 10, WE ARE OF THE CONSIDERED VIEW THAT THIS GROUND TAKEN BY THE REVENUE IS ALSO NEEDS TO GO BACK TO THE FILE OF THE AO TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH OUR F INDINGS GIVEN IN GROUND NOS. 7 TO 10 OF ASSESSEES APPEAL, WHERE WE HAVE FOLLOWED THE FINDI NGS OF THE TRIBUNAL FOR AY 2004-05. THEREFORE, WE DIRECT THE AO TO RECONSIDER THE ISSUE IN LIGHT OF OUR FINDINGS GIVEN IN THE ORDER OF THE TRIBUNAL FOR AY 2004-05. 63. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.4 OF REVENUES APPEAL IS ADDITION OF NOTIONAL UNREALISED HYPOTHETI CAL INCOME FROM TOLL ROAD. THE AO HAS ESTIMATED INCOME FROM TOLL ROAD ON AD-HOC BASIS. TH E LD. CIT(A) HAS DELETED THE ADDITION MADE BY THE AO OF AD-HOC ESTIMATION HOWEVER, DIREC T THE AO TO ASSESS THE ACCRUED INCOME DUE FROM MPSIDC. 64. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE TRIBUNAL HAS CONSIDERED IDENTICAL ISS UE FOR AY 2004-05, WHEREIN, IT WAS HELD THAT ESTIMATION OF INCOME ON TOLL ROAD IS NOT NOTIO NAL OR HYPOTHETICAL, BUT IT IS BASED ON FACT THAT THE DISPUTE BETWEEN THE PARTIES HAS BEEN REACH ED FINALITY BEFORE APPROPRIATE ARBITRATION AUTHORITY AND CONSIDERING THIS FACT, TH E INCOME FROM TOLL ROAD NEED TO BE ESTIMATED. WE FIND THAT WE HAVE ALREADY CONSIDERED SIMILAR ISSUE WHILE CONSIDERING THE 38 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED ISSUE OF DISALLOWANCE OF DEPRECIATION ON TOLL ROAD IN ASSESSEES APPEAL VIDE GROUND NO.11 AND ADDITIONAL GROUND NO. 1 AND BY FOLLOWING THE FI NDINGS OF THE TRIBUNAL FOR AY 2004-05, WE RESTORE THIS ISSUE BACK TO THE FILE OF THE AO TO DETERMINE THE AMOUNT OF INCOME FROM TOLL ROAD. SINCE, THIS ISSUE RELATES TO ESTIMATION OF IN COME, THE SAME IS ALSO RESTORED BACK TO THE FILE OF THE AO TO DECIDE IN ACCORDANCE WITH OUR FINDINGS GIVEN IN ASSESSEES APPEAL FOR GROUND NO.11 AND ADDITIONAL GROUND. 1. 65. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.5 OF REVENUES APPEAL IS DEPRECIATION ON LEASED ASSETS. THE ASSESS EE HAS CLAIMED A SUM OF RS.6,42,53,527/- DEPRECIATION ON LEASED ASSETS. THE AO HAS DISALLOWED DEPRECIATION ON LEASED ASSETS ON THE GROUND THAT LEASES TRANSACTION OF THE ASSESSEE ARE IN THE NATURE OF FINANCE TRANSACTION, THEREFORE, DEPRECIATION CLAIME D ON THOSE LEASED ASSETS IS NOT ALLOWABLE. 66. THE LD. AR FOR THE ASSESSEE, AT THE TIME OF HEA RING, SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE ITAT FOR AY 2004-05, WHERE, THE TRIBUNAL, BY FOLLOWING ITS EARLIER ORDER FOR AYS 19 96-97 TO 2003-04, ALLOWED THE CLAIM OF THE ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT NOW THI S ISSUE HAS BEEN SETTLED BY HONBLE SUPREME COURT IN THE CASE OF ICDS LTD. 350 ITR 527( SC), WHERE THE HONBLE SUPREME COURT HELD THAT DEPRECIATION ON LEASED ASSETS IS AL LOWABLE IRRESPECTIVE OF FACT THAT SUCH LEASED TRANSACTIONS ARE IN THE NATURE OF FINANCE LE ASE OR OPERATING LEASE. 67. HAVING HEARD BOTH SIDES AND CONSIDERED THE MATE RIAL AVAILABLE ON RECORD, WE FIND THAT THIS ISSUE HAS BEEN CONSIDERED BY THE CO-ORDIN ATE BENCH FOR AY 2004-05 AND BY 39 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED FOLLOWING ITS EARLIER ORDER FOR AY 1996-97 TO 2003- 04 DELETED ADDITIONS MADE BY THE AO TOWARDS DEPRECIATION ON LEASED ASSETS. RELEVANT FIN DINGS OF THE TRIBUNAL ARE AS UNDER:- 21. IN GROUND NO. 2, THE REVENUE IS AGGRIEVED BY AL LOWANCE OF DEPRECIATION OF RS.6.13 CRORES ON LEASED ASSETS WHI CH WERE DISALLOWED BY THE AO ON THE PREMISES THAT THE LEASE TRANSACTIO NS MERE ONLY LOAN TRANSACTIONS AND THE ASSESSEE WAS NOT THE OWNER OF THE LEASED ASSETS. THE LD. AR CONTENDED THAT THE MATTER IS ALREADY COV ERED IN ASSESSEES OWN CASE BY TRIBUNAL WHERE THE ASSESSEE HAS BEEN FO UND TO BE ELIGIBLE TO CLAIM THE SAID DEPRECIATION BEGINNING FROM AY 19 96-07 TO 2003-04. THE COPIES OF TRIBUNAL ORDER HAS BEEN PLACED IN THE PAPER-BOOK. 21.1 WE FIND THAT THE LD. CIT(A) HAS ALLOWED THE RE LIEF TO THE ASSESSEE IN THE IMPUGNED AY BY OBSERVING THAT THE DEPRECIATION HAS BEEN ALLOWED BY AO FROM AY 1989-90 TO AY 1995-96 AND PREDECESSOR CI T(A) HAS DECIDED THE ISSUE IN FAVOR OF ASSESSEE FROM AY 1996-97 TO 2 003-04. FURTHER, WE FIND THAT THE REVENUE AGITATED THE MATTER FROM 1996 -97 TO 2003-04 BEFORE TRIBUNAL IN DIFFERENT APPEALS, THE COPIES OF WHICH HAVE BEEN PLACED IN THE PAPER-BOOK. A PERUSAL OF THE SAME REVEALS THAT THE ISSUE STAND SQUARELY COVERED IN ASSESSEES FAVOR FOR ALL THESE YEAR AND THEREFORE, FOLLOWING THE SAME, WE ARE INCLINED TO HOLD THAT THE ASSESSEE WAS ELIGIBLE TO CLAIM DEPRECIATION ON LEASED ASSETS AND CONSEQUENTLY THE REVENUES GROUND OF APPEAL STANDS DISMISSED. 68. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERRO R IN THE FINDINGS OF THE LD. CIT(A) WHILE DELETING ADDITIONS MADE TOWARDS DEPRECIATION ON LEA SED ASSETS, HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE LD. CIT(A) AND REJECT TH E GROUND TAKEN BY THE REVENUE. 69. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND. 6 OF REVENUES APPEAL IS EXPENDITURE ON CLUB FACILITIES. THE LD. A R FOR THE ASSESSEE, AT THE TIME OF HEARING, SUBMITTED THAT THIS ISSUE IS COVERED IN FA VOUR OF THE ASSESSEE BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN ASESSEES OWN CASE FOR AY 1997-98 IN INCOME TAX APPEAL NO.2402 OF 2013 WHERE UNDER IDENTICAL SET OF FACTS, THE HONBLE HIGH COURT BY FOLLOWING ITS EARLIER DECISION IN THE CASE OF OTIS ELEVATOR CO. ( INDIA) LTD. VS CIT (1992) 195 ITR 682 40 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED (BOM.) HELD THAT CLUB MEMBERSHIP FEE PAID TO THE CL UB IS IN THE NATURE OF REVENUE EXPENDITURE, WHICH IS ALLOWABLE AS DEDUCTION. 70. HAVING HEARD BOTH SIDES AND CONSIDERED TH E MATERIAL AVAILABLE ON RECORD, WE FIND THAT HONBLE BOMBAY HIGH COURT HAS CONSIDERED AN IDENTICAL QUESTION OF LAW IN ASSESSEES OWN CASE FOR AY 1997-98 AND BY FOLLOWING ITS EARLIER ORDER IN CASE OF OF OTIS ELEVATOR CO. (INDIA) LTD. VS CIT (1992) 195 ITR 682 (BOM.) HELD THAT EXPENDITURE INCURRED ON CLUB FACILITIES IS REVENUE IN NATURE, WHICH IS A LLOWABLE DEDUCTION. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH C OURT IN ASSESSEEES OWN CASE, WE DIRECT THE AO TO DELETE THE ADDITIONS MADE TOWARDS DISALLOWANCE OF PAYMENTS TO CLUBS. 71. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.7 OF REVENUES APPEAL IS DELETION OF DISALLOWANCE MADE ON ACCOUNT OF LEASE EQUALISATION RESERVE ON OF BOOK PROFIT U/S 115JB OF THE ACT. 72. THE LD. AR FOR THE ASSESSEE, AT THE TIME OF HEA RING, SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F ITAT, MUMBAI, FOR AY 2004-05, HOWEVER, THE TRIBUNAL HAS RESTORED BACK THE ISSUE T O THE FILE OF THE AO TO COMPUTE ALLOWANCE CONSIDERING TAX DEPRECIATION INSTEAD OF B OOK DEPRECIATION. THE LD. AR FURTHER SUBMITTED THAT ONCE IT IS HELD THAT LEASE EQUALISAT ION RESERVE IS ALLOWABLE DEDUCTION, THEN AMOUNT CONSIDERED IN AUDITED STATEMENTS HAS TO BE C ONSIDERED FOR DEDUCTION AND VALUE CANNOT BE REPLACED ON THE BASIS OF TAX DEPRECIATION . 73. WE HAVE HEARD BOTH SIDES AND PERUSED THE MATERI AL AVAILABLE ON RECORD. THIS ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL FOR AY 2004-05, WHERE, IN RESPECT OF NORMAL 41 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED PROVISIONS OF LEASE EQUALISATION RESERVE, THE ISSUE HAS BEEN RESTORED BACK TO THE FILE OF THE AO TO RE-COMPUTE LEASE EQUALISATION RESERVE, CONSID ERING TAX DEPRECIATION INSTEAD OF BOOK DEPRECIATION. HOWEVER, IN RESPECT OF DETERMINATION OF BOOK PROFIT AND THE RELEVANCY OF COMPUTATION OF LEASE EQUALISATION RESERVE BY TAKING NOTE OF DEPRECIATION AS PER INCOME TAX MAY NOT BE APPROPRIATE. BUT FACT REMAINS THAT S INCE THE TRIBUNAL HAS ALREADY CONSIDERED THIS ISSUE, WE DO NOT WANT TO DEVIATE FR OM THE FINDINGS RECORDED BY THE TRIBUNAL FOR AY 2004-05. HENCE, WE RESTORE THIS ISSUE ALSO T O THE FILE OF THE AO AND DIRECT HIM TO RE- COMPUTE BOOK PROFIT BY TAKING NOTE OF FINDINGS OF T HE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2004-05 AND ALSO CONSIDERING THE LATEST JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS VIRTUAL SOFT SYSTEMS LTD. IN CIVIL APPEAL NO .4358 TO 4376 OF 2018. 74. IN THE RESULT, APPEALS FILED BY THE REVENUE FOR ALL ASSESSMENT YEARS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 75. AS A RESULT, APPEALS FILED BY ASSESSEE AND APPE ALS FILED BY THE REVENUE ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 30/04/2019. SD/- SD/- ( RAVISH S OOD ) (G. MANJUNATHA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 30/04/2019 F{X~{T? P.S / /. . . / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT (RESPECTIVE ASSESSEE) 2. '#$ ! / THE RESPONDENT. 3. %$%$ & ( ) / THE CIT, MUMBAI. 4. %$%$ & / CIT(A)- , MUMBAI, 42 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED 5. ()*$'+ , %$$+ - , / DR, ITAT, MUMBAI 6. *. / / GUARD FILE. / BY ORDER, / (DY./ASSTT. REGISTRAR) %&'(, / ITAT, MUMBAI