IFCI Ltd., New Delhi V. DCIT, New Delhi

ITA 2982/DEL/2015

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5336 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 13-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Earning of tax free income; Retrospective amendment; Additional evidence; Wrong claim; TDS; Rule 8D
• Section: 143(3); 14A; 115JB; 10(33); 10(33); 13; 32; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: G, NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO.2982/DEL./2015 ASSESSMENT YEAR: 2010-11 IFCI LTD., IFCI TOWER, 61-NEHRU PLACE, NEW DELHI VS. DCIT, CIRCLE-12(1), NEW DELHI PAN :AAACT0668G (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORD ER DATED 16/02/2015 PASSED BY THE LD. CIT(APPEALS)-15, NEW D ELHI [IN SHORT THE LD. CIT(A)] FOR ASSESSMENT YEAR 2010-11 RAISING FOLLOWING GROUNDS: 1. THAT THE ORDER OF THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) - 15 [HEREINAFTER REFERRED TO AS CIT (A)] IS WRONG ON FACTS AND BAD IN LAW. 2. THAT THE LD. CIT (A) ERRED ON FACTS AND IN LAW I N GIVING THE DIRECTION TO VERIFY THAT LESSEE HAVE NOT CLAIMED TH E 'DEPRECIATION ON LEASED ASSETS'. APPELLANT BY SHRI K. SAMPATH, ADV. RESPONDENT BY SHRI H.K. CHOUDHARY, CIT(DR) DATE OF HEARING 24.09.2020 DATE OF PRONOUNCEMENT 08.10.2020 2 ITA NO.2982/DEL./2015 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) ERRED IN OVERLOOKING THE AMOUNT OF DISALLOWANCE U/S 14A MADE BY APPELLANT, DETERMINED BASED ON ITS CONSISTENT METHO D OF ACCOUNTING AND DETERMINATION OF SUCH EXPENDITURE. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN UPHOLDING THE APPLICATION OF RULE 8D ON THE SHAR ES HELD AS STOCK IN TRADE. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT (A) FAILED TO APPRECIATE THAT NO COGENT REASON WAS GIVEN BY TH E ASSESSING OFFICER FOR NOT BEING SATISFIED WITH THE DISALLOWAN CE MADE BY THE APPELLANT AND THEREBY INVOKING RULE 8D. THE CIT (A) SHOULD HAVE NOTED THAT WHILE ACTUAL EXPENDITURE BY WAY OF FEES TO CUSTODIAN FOR ENTIRE INVESTMENT PORTFOLIO OF THE APPELLANT, A MOUNTED TO ? 2,00,000 ONLY, YET APPELLANT IN OWN VOLITION MADE A DISALLOWANCE OF ? 10,00,000 AS A CONSISTENT PRACTICE. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) ERRED IN UPHOLDING THE ACTION OF ASSESSING OFFICER IN APP LYING RULE 8D WHILE COMPUTING THE BOOK-PROFITS U/S 115JB. 7. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR VARY THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSE SSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF P ROVIDING FINANCIAL ASSISTANCE TO ENTERPRISES IN THE FORM OF SHORT, MEDIUM OR LONG-TERM LOANS OR WORKING CAPITAL FACILITIES OR EQUITY PARTICIPATION SCHEMES ETC. AND ALSO THROUGH BUSINES S OF LEASING AND HIRE PURCHASE FINANCE BY ACQUIRING TO PROVIDE O N LEASE OR TO PROVIDE ON HIRE PURCHASE ALL TYPES OF INDUSTRIAL OF FICE PLANT AND OTHER ASSETS, REQUIRED BY VARIOUS BUSINESSES. 2.1 FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE FIL ED RETURN OF INCOME ON 30/09/2010, DECLARING TOTAL INCOME OF 15,52,17,798/- AND BOOK PROFIT OF 319,06,63,765/- UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 3 ITA NO.2982/DEL./2015 THE ASSESSEE ALSO REVISED THE RETURN OF INCOME CLAI MING ADDITIONAL TAX DEDUCTION AT SOURCE (TDS). THE RETURN OF INCOME FILED BY THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT. THE SCRUTINY ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS COMP LETED ON 12/03/2013, WHEREIN CERTAIN ADDITIONS/DISALLOWANCES WERE MADE TO THE RETURNED INCOME. AGAINST THE SAID ASSESSMENT ORDER, THE ASSESSEE FILED APPEAL BEFORE THE LEARNED CIT(A), WH O PARTLY ALLOWED THE APPEAL. AGGRIEVED WITH THE ADDITIONS/DI SALLOWANCES SUSTAINED BY THE LD. CIT(A), THE ASSESSEE IS IN APP EAL BEFORE THE INCOME TAX APPELLATE TRIBUNAL (IN SHORT THE TRIBUN AL) RAISING GROUNDS AS REPRODUCED ABOVE. 3. BEFORE US, THE PARTIES APPEARED THROUGH VIDEOCONFE RENCING FACILITY. THE LEARNED COUNSEL OF THE ASSESSEE FILED ELECTRONICALLY THE DOCUMENTS AND ORDERS OF THE TRIBUNAL IN EARLIER YEARS. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE REL EVANT MATERIAL ON RECORD. THE GROUND NO. 1 OF THE APPEAL IS GENERAL IN NATURE AND, THEREFORE, WE ARE NOT REQUIRED TO ADJUD ICATE UPON SPECIFICALLY. 5. THE GROUND NO. 2 IS IN RESPECT OF THE DEPRECIATION ON ASSET, WHICH HAVE BEEN LEASED TO OTHER PARTIES. THE ASSESS EE IS AGGRIEVED ONLY WITH THE DIRECTION OF THE LD. CIT(A) FOR VERIF ICATION OF THE CLAIM OF DEPRECIATION, IF ANY CLAIMED BY THE LESSEE (S). ACCORDING TO THE ASSESSING OFFICER, THE BUSINESS OF SO-CALLED LE ASING WAS IN THE NATURE OF HIRE PURCHASE-CUM-FINANCE BUSINESS AND, T HEREFORE, HE DISALLOWED THE CLAIM OF THE DEPRECIATION OF 1,55,80,993/- ON THE LEASED ASSETS. THE LD. CIT(A) FOLLOWING ORDER OF HI S PREDECESSOR IN A.Y.- 2008-09, THE DIRECTION OF THE TRIBUNAL IN ASS ESSMENT YEAR 1995-96 AND DECISION OF THE HONBLE SUPREME COURT IN THE CASE 4 ITA NO.2982/DEL./2015 OF CIT VS SHANN FINANCE PRIVATE LIMITED, 231 ITR 308 (SC) & ICDS LTD VS CIT 350 ITR 527(SC), ALLOWED THE CLAIM OF THE ASSESSEE, SUBJECT TO VERIFICATION BY THE ASSESSING OFFICER THAT LESSEE(S) HAVE NOT CLAIMED ANY DEPRECIATION ON SAME ASSETS. THE DIRECTION OF THE LEARNED CIT(A) ARE REPRODUCED AS U NDER: 8.5. IT IS OBSERVED THAT ALTHOUGH THE APPELLANT HA S MADE SUBMISSIONS BEFORE THE AO THAT LESSEES HAVE NOT CLA IMED DEPRECIATION ON LEASED ASSETS, HOWEVER, IT. APPEARS THAT THE ISSUE HAS NOT BEEN VERIFIED BY THE AO AS IT IS NOT KNOWN WHETHER THE CERTIFICATES FROM LESSEES WERE EVER PRODUCED BEFORE THE AO. THE ASSESSMENT ORDER IS SILENT ON THE ISSUE OF SUCH VER IFICATION. KEEPING IN MIND THE DECISION OF HON'BLE APEX COURT, THE ISS UE ON DEPRECIATION OF LEASED ASSET IS DECIDED IN APPELLANTS FAVOUR SU BJECT TO THE VERIFICATION TO BE MADE BY THE AO THAT IN NONE OF T HE CASES OF LESSEES, DEPRECIATION HAS BEEN CLAIMED BY THEM ON S UCH LEASED ASSETS. GROUND NO. 2 OF APPEAL IS THEREFORE, ALLOWE D WITH THESE DIRECTIONS. 5.1 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE SUB MITTED THAT THOUGH THE LESSEES HAVE NOT CLAIMED DEPRECIATI ON ON THE SAME ASSETS, STILL THE ASSESSEE CANNOT BE HELD RESP ONSIBLE FOR ANY WRONG CLAIM OF DEPRECIATION, IF ANY, BY THE LESSEES AND, THEREFORE, SUCH DIRECTION NEED TO BE STRUCK DOWN. HE RELIED ON THE ORDER OF THE TRIBUNAL IN ITA NO.1200/DEL/2011 FOR ASSESSMENT YEAR 1999- 2000 AND SUBMITTED THAT WHILE ALLOWING CLAIM OF DEP RECIATION, NO SUCH DIRECTIONS HAVE BEEN ISSUED BY THE TRIBUNAL IN THAT ASSESSMENT YEAR. 5.2 ON THE CONTRARY, THE LEARNED DR SUBMITTED THAT IN CASES RELIED UPON BY THE ASSESSEE BEFORE THE LD. CIT(A), THE LESSEES HAD NOT CLAIMED DEPRECIATION ON LEASED ASSETS. HE SUBMI TTED THAT THE TRIBUNAL IN ASSESSMENT YEAR 1999-2000 HAS ALSO MENT IONED THAT 5 ITA NO.2982/DEL./2015 THE ASSESSEE HAD PRODUCED CERTIFICATE FROM THE LESS EES THAT NO DEPRECIATION WAS CLAIMED BY THEM, AND THEREFORE TH E LEARNED CIT(A) ALLOWED THE DEPRECIATION IN THE CASE OF THE ASSESSEE SUBJECT TO SUCH VERIFICATION. ACCORDING TO HIM, THERE IS NO ERROR IN THE ORDER OF THE LEARNED CIT(A) IN ISSUING THE DIRECTIO N FOR VERIFICATION OF THE DEPRECIATION CLAIMED BY THE LESSEE(S). 5.3 WE FIND THAT THE TRIBUNAL IN ASSESSMENT YEAR 1999- 2000 IN FIRST ROUND RESTORED THE MATTER BACK TO THE AO FOR VERIFICATION, WHETHER THE ASSESSEE WAS ENGAGED IN THE BUSINESS IF LEASING OF ASSETS. IN SECOND ROUND, IN ORDER DATED 31/08/2020, THE TRIBUNAL HAS DELETED THE DISALLOWANCE OF THE DEPREC IATION ON THE LEASED ASSETS OBSERVING AS UNDER: 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS AND ALSO PERUSED THE RELEVANT ORDER IS PLACED BEFORE US. WE ALSO CONSIDERED THE PAPER BOOK FILED BY THE ASSESSEE. ON PERUSAL OF THE BALANCE SHEET FILED BY THE ASSESSEE PLACED AT PAGE NUMBER 5 1/98 OF THE PAPER BOOK IT IS APPARENT THAT ASSESSEE HAS A GROSS BLOCK OF ASSETS LEASED OF PLANT AND MACHINERY IS ON 31ST OF MARCH 1 999 AMOUNTING TO RS. 4897.27 MILLIONS. AS PER SCHEDULE XVI , NOTE NUMBER 2.4 WHILE RECOGNIZING THE REVENUE THE SIGNIFICANT ACCOUNTING POLICY FOLLOWED BY THE ASSESSEE SHOWS THAT RENTAL ON LEASED THE SAID I S ACCOUNTED FOR FROM THE COMMENCEMENT DATE, AS PRESCRIBED IN THE LE ASE AGREEMENT ENTERED WITH THE LESSEES. AS PER NOTE NUMBER, FIVE RELATED TO THE FIXED ASSETS AND DEPRECIATION IN NOTE NUMBER 5.2 IT IS STATED THAT DEPRECIATION ON ASSETS ACQUIRED IN THE COURSE OF LE ASING BUSINESS IS PROVIDED ON STRAIGHT-LINE METHOD AT THE RATES PRESC RIBE UNDER SCHEDULE XIV OF THE COMPANIES ACT, 1956 OR OVER THE PRIMARY. OF LEASE OF ASSETS, WHICHEVER IS HIGHER. IN SCHEDULE N UMBER XI OF INCOME FROM OPERATIONS, THE ASSESSEE HAS SHOWN THE LEASE RENTAL INCOME OF RS.1771.59 MILLIONS. AT PAGE NUMBER, 42 - 50 THE ASSESSEE HAS ALSO SUBMITTED TFIE COPIES OF THE CERT IFICATE FROM THIRD PARTIES WHEREIN THEY HAVE CONFIRMED THAT THEY HAVE TAKEN CERTAIN PLANT AND MACHINERY ON LEASE FROM THE ASSESSEE AND DURING THE TENDENCY OF THE LEASE. THEY HAVE NOT CLAIMED ANY DE PRECIATION U/S 32 OF THE INCOME TAX ACT AS THE OWNERSHIP OF THE AS SETS REMAINED WITH THE ASSESSEE. ASSESSEE HAS ALSO PRODUCED THE C OPY OF LEASE AGREEMENT PLACED AT PAGE NUMBER SIX - 41 OF THE PAP ER BOOK, WHICH 6 ITA NO.2982/DEL./2015 HAS CERTAIN SPECIFIC CLAUSES TABULATED BY THE ASSES SEE ALSO IN ITS RETURN SUBMISSION. 14. ACCORDING TO CLAUSE NUMBER 2.4 OF THE LEASE AGR EEMENT IT IS AGREED THAT UPON TERMINATION OF THE AGREEMENT BY A FLUX OF TIME OR OTHERWISE, THE LESSEE SHALL, AT ITS OWN COST AND EX PENSES, FORTHWITH DELIVER OR CAUSE TO BE DELIVERED TO THE LESSOR THE EQUIPMENT, SUCH TIME AND PLACE AS MAY BE DIRECTED BY THE LESSOR, IN GOOD REPAIR, ORDER AND CONDITIONS SUBJECT TO NORMAL WEAR AND TEA R. AS PER THE ARTICLE IV FOUR OF THE AGREEMENT THE LESSEE WAS TO MAINTAIN AND KEEP THE EQUIPMENT HOWEVER TO SHOW WITH MARK THAT ASSESS EE IS THE SOUL AND THE EXCLUSIVE OWNER OF THOSE ASSETS. 15. FURTHER, THE LEARNED AUTHORISED REPRESENTATIVE HAS ALSO TABULATED THE RELEVANT CONDITIONS OF THE LEASE AGRE EMENT AS UNDER:- FEATURES WORDS IN THE AGREEMENT ARTICLE/CLAUSE NO. INTENTION OF PARTIES LEASE ...HAVE THE COMMERCIAL CONNOTATIONS AND ONLY MEANS THE HIRING OR LICENSING OF PLANT... LET ON LEASE THE EQUIPMENT... ARTICLE I DEFINITIONS 14 ARTICLE I - 1.7 SCHEDULE RETURN OF EQUIPMENT/LEASE PROPERTY UPON TERMINATION OF THIS AGREEMENT BY EFFLUX OF TIME OR OTHERWISE LESSEE SHALL AT ITS OWN COST AND EXPENSE FORTHWITH DELIVER OR CAUSE TO BE DELIVERED TO THE LESSOR... ARTICLE II -2.4 PAYMENT FOR EQUIPMENT LESSEE HAS REQUESTED THE LESSOR TO MAKE ADVANCE PAYMENTS TOWARDS THE COST OF THE EQUIPMENT ARTICLE II - 2.5(A) LESSEE 'WARRANTEE INDICATING THAT THE LESSOR IS OWNER LESSEE WOULD HAVE BEEN ELIGIBLE AND COULD HAVE CLAIMED DEPRECIATION....IF IT HAD BOUGHT THE EQUIPMENT AND WAS OPERATING THE SAME AS THE OWNER THEREOF ARTICLE III- 3.4 RIGHT OF POSSESSION WITH RESTRICTION OR SUBLETTING OR ASSIGNMENT KEEP THE EQUIPMENT AT ALL TIMES IN ITS POSSESSION AND CONTROL AT THE LOCATION SHOWN HEREIN... AND SHALL NOT REMOVE THEREFROM SUBLET OR ASSIGN THE SAME WITHOUT PRIOR WRITTEN CONSENT OF LESSOR ARTICLE IV - 4.1 EXCLUSIVE OWNERSHIP OF THE LESSOR AFFIX A NAME PLATE OR OTHER DISTINGUISHING MARK IDENTIFYING THE SOK AND EXCLUSIVE OWNERSHIP THEREOF OF THE LESSOR AND NOT ALLOW OR PERMIT THE SAM TO BE REMOVED OR DEFACED NOR DO OR CAUSE TO DO ANY ACT WHEREBY IT BECOME IMPOSSIBLE FOR THE LESSOR TO TAKE POSSESSION OF THE EQUIPMENT ON TH TERMINATION OF THE AGREEMENT BY ANY NATURE WHATSOEVER. HOLD THE EQUIPMENT AS BAILEE... NOT SELL, TRANSFER, ASSIGN, LEASE, LET OUT OR OTHERWISE DISPOSE...PART WITH THE POSSESSION OR PERMIT ANY OTHER PERSON TO MAKE USE OF THE ARTICLE IV - 4.1, 4.2, 4.3, 4.11 7 ITA NO.2982/DEL./2015 EQUIPMENT OR PART THEREOF RIGHT TO INSPECTION PERMIT THE LESSOR AND ALL PERSON AUTHORISED BY THE LESSOR AT ALL REASONABLE TIMES (IMMEDIATELY IN CASE OF AN EMERGENCY) TO INSPECT, VIEW AND EXAMINE THE STATE AND CONDITION OF THE EQUIPMENT... ARTICLE IV - 4.10 PERMISSION TO ALTER OR IMPROVE EQUIPMENT AND OWNERSHIP OF THE SAME NOT TO MAKE ANY ALTERATION, ADDITION OR IMPROVEMENT WITHOUT PRIOR CONSENT OF THE LESSOR... PROVIDED, HOWEVER THAT ALL SUCH ADDITIONS, IMPROVEMENTS AND ATTACHMENTS OF ANY NATURE WHAT SO EVER, WHEN MADE TO THE EQUIPMENT BY THE LESSEE (WHETHER OR NOT AT ITS OWN COST OR NOT AND WHETHER WITH OR WITHOUT APPROVAL OF LESSOR) SHALL BELONG TO THE LESSOR ARTICLE IV 4.12 LESSEE NOT TO CLAIM DEPRECIATION WHICH IS AVAILABLE TO LESSOR BEING OWNER. NOT TO CLAIM ANY RELIEF BY WAY OF DEPRECIATION OR NAY OTHER DEDUCTION ALLOWANCE OR GRANT AVAILABLE TO THE LESSOR AS THE OWNER OF THE EQUIPMENT ARTICLE IV - 4.17 LESSEE IS AGENT OF LESSOR FOR PURPOSE OF TAKING DELIVERY. THE LESSOR HEREBY APPOINTS THE LESSEE AS ITS AGENT TO DELIVER, INSPECT, RECEIVE DELIVER/OBTAIN CLEARAN CE FROM PORT/CUSTOMS AUTHORITIES AND INSTALLATION OF THE EQUIPMENT FROM/BY THE MANUFACTURER AND /OR ITS AGENTS ARTICLE V - 5.1 EQUIPMENT IS NOT STOCK IN TRADE OF THE LESSOR THE LESSOR IS NOT THE MANUFACTURER OR DEALER OR SUPPLIER OF THE EQUIPMENT ANC HAS ONLY PURCHASED THE EQUIPMENT SELECTED BY THE LESSEE FROM THE MANUFACTURER OR DEALER OR SUPPLIER DESIGNATED BY THE LESSEE THE LESSOR HAS NOT AT ANY TIME, MADE NOR DOES IT HEREBY MAKE ANY REPRESENTATION OR WARRANTY, WHATSOEVER WITH RESPECT TO THE MERCHANTABILITY, QUALITY....OR PERFORMANCE OF THE EQUIPMENT. ARTICLE VI - 6.2, 6.3 OWNERSHIP RECOGNIZED BY SUCCESSORS IN TITLE AS BETWEEN THE LESSOR AND THE LESSEE AND THEIR RESPECTIVE SUCCESSORS IN TITLE, THE EQUIPMENT SHALL REMAIN MOVEABLE PROPERTY OF AND SHALL CONTINUE TO BE IN THE OWNERSHIP OF THE LESSOR ARTICLE VI - 6.7 F RIGHT OF LESSOR TO CREATE OTHER INTEREST, ASSIGN PROPERTY THE LESSOR SHALL BE ENTITLED TO, WITHOUT GIVING ANY NOTICE TO THE LESSEE, ASSIGN TO ANY PERSON ANY OF I TS RIGHTS TITLE OR INTEREST UNDER THIS AGREEMENT OR CR EAT ANY CHARGE, LIEN, ENCUMBRANCE OR HYPOTHECATE THE EQUIPMENT OR NAY PART THEREOF AND THE PERSON(S) TO OR ON WHO SUCH ARE ASSIGNED OR CONFERRED SHALL BE ENTITLED TO THE FULL BENEFITS OF THIS AGREEMENT ARTICLE VIII - 8.1 F F RIGHT TO REPOSSESS ON TERMINATI ON OF THIS LEASE, PURSUAN TO CLAUSE 9.1 ABOVE: - THE LESSOR SHALL, WITHOUT ANY NOTICE BE ENTITLED TO REMOV AND REPOSSESS THE EQUIPMENT... ARTICLE IX - 9.2 8 ITA NO.2982/DEL./2015 16. HONOURABLE SUPREME COURT ICDS LTD VERSUS CIT (3 50 I*TR 527) HAS ALSO HELD THAT DEFINITIONS OF OWNERSHIP ESSENTIALLY MAKE OWNERSHIP A FUNCTION OF LEGAL RIGHT OR TITLE AGAINS T THE REST OF THE WORLD. HOWEVER, IT IS NOMEN GENERALISSIMUM, AND I TS MEANING IS TO BE GATHERED FROM .THE CONNECTION IN WHICH IT IS USE D, AND FROM THE SUBJECT MATTER TO WHICH IT IS APPLIED. AS LONG AS T HE ASSESSEE HAS A RIGHT TO RETAIN THE LEGAL TITLE AGAINST THE REST OF THE WORLD, IT WOULD BE THE OWNER OF THE ASSET IN THE EYES OF LAW. 17. FURTHER IDENTICAL ISSUE AROSE BEFORE THE HONOUR ABLE CALCUTTA HIGH COURT IN CASE OF SBI HOME FINANCE LTD VERSUS C OMMISSIONER OF INCOME TAX (280 ITR 6) WHEREIN THE ASSESSEE WAS CAR RYING ON THE BUSINESS OF LEASING AND FINANCE AND CO APPROACHED THE ASSESSEE FOR RELEASE OR FINANCE FOR A PLANT WHICH WAS BEING SET UP AT THE PREMISES OF A C OMPANY. ASSESSEE ACQUIRED THE SAID PLANT AND LEASED OUT TO THE OTHER PARTY UPON MAKING A SYMBOLIC POSSESSION. AS PER THE AGREE MENT THE THIRD PARTY HAD A RIGHT TO PURCHASE THE PLANT AFTER EXPIR Y OF THE STIPULATED PERIOD OF TIME. THE ASSESSEE CLAIMED DEPRECIATION U /S 32 WHICH WAS DENIED TO THE ASSESSEE. THE HONOURABLE HIGH COURT I N PARA NUMBER SIX HELD THAT ASSESSEE WAS THE OWNER OF THE PLANT F OR THE PURPOSE OF SECTION 32 AND BY LEASING IT OUT TO THE OTHER PARTY THE ASSESSEE HAS USED THE PLANT ONLY FOR THE PURPOSES OF WITH ITS BU SINESS FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF LEASING AND AS SUCH THE INCOME EARNED THEREON BY WAY OF RENTAL OF THE PLANT WAS A BUSINESS INCOME. THEREFORE THE HONOURABLE COURT HELD THAT TH E INGREDIENTS OF OWNERSHIP AND USER OF THE PLANT IN BUSINESS AS REQU IRED UNDER THE PROVISIONS OF SECTION 32 OF THE ACT HAVE BEEN FULFI LLED BY THE ASSESSEE AND THEREFORE IT IS ENTITLED TO DEPRECIATI ON AVAILABLE TO IT U/S 32 OF THE ACT. 18. FURTHER IN COSMO FILMS PRIVATE LIMITED VERSUS C IT [2011] 12 TAXMANN.COM 217 (DELHI)/[2011] 200 TAXMAN 384 (DELHI)/[2011] 338 ITR 266 (DELHI)/[2011] 245 CTR 2 3 (DELHI), THE HONOURABLE DELHI HIGH COURT HAS DEALTYVITH A QUESTI ON THAT: 'WHETHER THE TRIBUNAL WAS JUSTIFIED IN LAW IN ALLOW ING DEPRECIATION ON THE ASSETS FOR WHICH THE ASSESSING OFFICER HAD T REATED THE TRANSACTION AS THAT OF FINANCE AND NOT OF LEASING?' 19. THE HONOURABLE HIGH COURT HELD THAT ONCE IT IS ESTABLISHED THAT THE OWNERSHIP OF THE SAID EQUIPMENT IS THAT OF THE ASSESSEE, THEN IT IS CLEAR THAT THE RESPONDENT/ASSESSEE WOULD BE ENTITLED TO CLAIM DEPRECIATION. 20. FURTHER, IN THE PRESENT CASE LEASE RENTAL IS RE CEIVED REGULARLY AND HAS BEEN SHOWN IN THE PROFIT & LOSS A/C. THE OT HER PARTIES WHO ARE PAYING LEASE RENTALS TO THE ASSESSEE HAVE SHOWN LEASE RENTAL 9 ITA NO.2982/DEL./2015 PAID TO THE ASSESSEE. THE DEPARTMENT HAS NOT BROUGH T A SINGLE CASE ON RECORD THAT THE PARTIES WHO HAD PAID LEASE RENTA L HAS NOT SHOWN/CLAIMED THE DEDUCTION ON ACCOUNT OF LEASE REN TAL BUT HAS CLAIMED DEDUCTION OF INTEREST PAID TO ASSESSEE. MOR EOVER, THE ASSESSEE HAS PRODUCED THE CERTIFICATES FROM THE LES SEE THAT THEY HAVE NOT CLAIMED ANY DEPRECIATION ON THESE ASSETS, WHICH ARE OWNED BY THE ASSESSEE. NO MATERIAL CONTRARY TO THE ABOVE FACTS WAS SHOWN BY THE REVENUE. 21. IN VIEW OF ABOVE FACTS, WE DIRECT THE LEARNED A SSESSING OFFICER TO DELETE THE DISALLOWANCE OF DEPRECIATION ON PLANT AN D MACHINERY OF 259,839,987/- AS CLAIMED BY THE APPELLANT ON PLANT AND MACHINERY GIVEN AND LEASED VARIOUS PARTIES. 22. IN THE RESULT ITA NUMBER, 1200/DEL/2011 FRIED B Y 1;HE ASSESSEE FOR ASSESSMENT YEAR 1999 - 2000 IS ALLOWED. 5.4 IN THE ABOVE APPEAL, THE ASSESSEE HAD PRODUCED CER TIFICATES FROM THE LESSEE(S) BEFORE THE TRIBUNAL STATING THAT NO DEPRECIATION WAS CLAIMED BY THEM. IN THE INSTANT CASE BEFORE US ALSO THE ASSESSEE HAS ALREADY PRODUCED SUCH CERTIFICATES BEF ORE THE LD. CIT(A). THE NAME OF SUCH PARTIES HAVE BEEN MENTIONE D BY THE LEARNED CIT(A) IN PARA 8.4 OF THE ORDER, AS UNDER: (I) THE WEST COAST PAPERT LTD. (II) JOCIL LIMITED (III) USHODAYA ENTERPRISES PVT. LTD. (IV) PRIYADARSHINI SPINNING MILLS LTD. (V) SRI CHAMUNDESWARI SUGARS LTD. (VI) BIHAR HOTELS LTD. (VII) VST TILLERS TRACTORS LTD. 5.5 IN OUR OPINION, THE FACTS AND CIRCUMSTANCES IN THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THE ASSESSMENT YEAR 1999- 10 ITA NO.2982/DEL./2015 2000 AND THERE IS NO CHANGE IN THE CIRCUMSTANCES. I N THE ASSESSMENT YEAR 1999-2000, THE ASSESSEE HAD PRODUCE D SUCH CERTIFICATES FROM THE LESSEES BEFORE THE TRIBUNAL, WHEREAS IN THE PRESENT CASE THE CERTIFICATES HAVE BEEN PRODUCED BY THE ASSESSEE BEFORE THE LEARNED CIT(A). THE LD CIT(A) HAS NOT OB SERVED ANYTHING WRONG IN THOSE CERTIFICATES. IF HE WAS HAV ING ANY DOUBT REGARDING THOSE CERTIFICATES AND IF SAME WERE PRODU CED FOR THE FIRST TIME BEFORE HIM, HE SHOULD HAVE ADMITTED THE SAME AS ADDITIONAL EVIDENCE UNDER RULE 46A OF THE INCOME-TA X RULES AND EITHER HE HIMSELF SHOULD HAVE VERIFIED OR SHOULD HA VE REFERRED THE SAME TO THE ASSESSING OFFICER FOR VERIFICATION. TH E IMPUGNED ORDER OF THE LEARNED CIT(A) WAS PASSED IN THE YEAR 2015, HOWEVER NOTHING HAS BEEN BROUGHT ON RECORD BEFORE US THAT A NYTHING WRONG HAS BEEN OBSERVED BY THE DEPARTMENTAL AUTHORI TIES IN THOSE CERTIFICATES. BEFORE US, THE LEARNED DR HAS A LSO NOT POINTED OUT ANYTHING WRONG WITH THOSE CERTIFICATES SUBMITTE D BEFORE THE LD. CIT(A). IN THE FACTS AND CIRCUMSTANCES OF THE C ASE AND FOLLOWING THE DECISION OF THE TRIBUNAL (SUPRA), WE DO NOT FIND ANY JUSTIFICATION OR CAUSE FOR ISSUING DIRECTION BY THE LEARNED CIT(A) TO THE ASSESSING OFFICER FOR VERIFICATION OF THE DE PRECIATION CLAIMED BY THE LESSEES, BEFORE ALLOWING DEPRECIATION TO THE ASSESSEE ON SUCH LEASED ASSEST. ACCORDINGLY, THIS GROUND OF TH E APPEAL OF THE ASSESSEE IS ALLOWED. 6. THE THIRD GROUND OF THE APPEAL RELATES TO DISALLOW ANCE MADE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF I NCOME-TAX RULES, 1962. 6.1 THE ASSESSEE EARNED DIVIDEND INCOME OF 63,82,22,092/- AS EXEMPT INCOME AND MADE SUO MOTU DISALLOWANCE OF 10 LAKH 11 ITA NO.2982/DEL./2015 AGAINST SUCH EXEMPTED INCOME. IT WAS CLAIMED THAT A LL THE INVESTMENT/SUBSCRIPTION IN SHARES HAD BEEN MADE OUT OF THE INTEREST-FREE FUNDS AND NO BORROWINGS WERE MADE FOR THE PURPOSE OF THE INVESTMENT/SUBSCRIPTION INTO SHARES. HOWEVER , THE ASSESSING OFFICER INVOKED RULE 8D OF INCOME-TAX RUL ES AND DETERMINED THE DISALLOWANCE AT 5,14,64,963/- AND AFTER REDUCING THE SUO MOTU DISALLOWANCE OF 10 LAKH, ADDITION FOR THE BALANCE AMOUNT OF 5,04,64,963/-WAS MADE BY THE ASSESSING OFFICER. THE ASSESSEE COULD NOT SUCCEED BEFORE THE LEARNED CIT(A). THE LD. CIT(A) UPHELD THE DISALLOWANCE OBSERVING AS UNDER: THE APPELLANT ITSELF HAS ADMITTED THAT IT WAS INCU RRING EXPENDITURE IN RESPECT OF EARNING EXEMPT DIVIDEND INCOME ALONG WITH IHE TAXABLE INCOME AND EXPENDITURE WAS CLAIMED BY THE APPELLANT IS NOT SEPARABLE. IN SUCH SITUATION, THE APPLICABILITY OF RULE 8D IS PERFECTLY JUSTIFIED. SO FAR AS THE APPELLANTS ARGUMENT THAT THE NATURE OF APPELLANTS BUSINESS IS SUCH THAT THE SHARES ARE PA RT OF STOCK-IN- TRADE IS CONCERNED, IT IS OBSERVED THAT THE APPELL ANT FAILED TO PROVIDE COMPLETE DETAILS IN RESPECT OF SUCH STOCK-IN-TRADE AND THE QUANTUM OF DIVIDEND RECEIVED FROM SUCH STOCKS. THEREFORE, T HERE REMAINS NO BASIS FOR GIVING ALLOWANCE IN RESPECT OF EQUITIES W HICH ARE NOT HELD BY THE APPELLANT AS INVESTMENTS. FROM THE ARGUMENTS OF THE APPELLANT, IT APPEARS THAT THE ENTIRE INVESTMENTS A RE BEING CATEGORIZED BY THE APPELLANT AS STOCK-IN-TRADE AN D THEREFORE, IT IS BEING ARGUED THAT DISALLOWANCE U/S 14A READ WITH RU LE 8D SHOULD NOT BE APPLICABLE IN APPELLANTS CASE. SUCH ARGUMEN T OF THE APPELLANT IS DEVOID OF MERITS AS THE APPELLANT IS G ETTING HUGE DIVIDEND INCOME OUT OF SUCH INVESTMENTS EVEN IF THE SE ARE USED IN REGULAR BUSINESS OF THE APPELLANT COMPANY. THEREFOR E, THE AOS ACTION IN MAKING DISALLOWANCE OF ?5,14,64,963/- AS AGAINST THE DISALLOWANCE OF ? 10,00,000/- MADE BY THE APPELLANT IS FULLY JUSTIFIED. THE SAME IS HEREBY UPHELD. THE GROUND OF APPEAL IS DISMISSED. 6.2 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE, HO WEVER RELIED ON THE ORDER OF THE TRIBUNAL IN ASSESSMENT Y EAR 2008-09 AND 2009-10 AND SUBMITTED THAT IDENTICAL DISALLOWAN CE MADE BY 12 ITA NO.2982/DEL./2015 THE ASSESSING OFFICER UNDER SECTION 14A READ WITH R ULE 8D HAS BEEN DELETED BY THE TRIBUNAL IN ABSENCE OF ANY DISS ATISFACTION RECORDED BY THE ASSESSING OFFICER ON THE CLAIM OF T HE ASSESSEE OF EXPENDITURE AGAINST EXEMPTED INCOME. THE LEARNED DR ON THE OTHER HAND RELIED ON THE ORDER OF THE LOWER AUTHORI TIES. 6.3 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON TH E ISSUE IN DISPUTE AND PERUSED THE RELEVANT MATERIAL ON REC ORD. THE RELEVANT FINDING OF THE TRIBUNAL IN ITA NO.2062/DEL ./2012 & 1984/DEL./2012 FOR ASSESSMENT YEAR 2008-09, IS REPR ODUCED AS UNDER: 68. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT ION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. AS THE FACTS A VAILABLE IN THE ASSESSMENT ORDER, THE ASSESSEE HAS EARNED EXEMPT DI VIDEND INCOME OF 238,145,137 AND INCOME FROM TAX-FREE BONDS OF 14,033,171. IN THE RETURN OF INCOME ASSESSEE, ITSELF HAS DISALLOWE D A SUM OF RS. 2 LAKHS U/S 14 A OF THE INCOME TAX ACT WHICH IS ALSO MENTIONED AT PARAGRAPH NUMBER 6 OF THE ASSESSMENT ORDER. ON READ ING OF THE ASSESSMENT ORDER AT PARAGRAPH NUMBER 4 WE FIND THAT THE LEARNED ASSESSING OFFICER NOTED THAT ASSESSEE HAS EARNED DI VIDEND INCOME AND TAX-FREE INCOME FROM BOARDS. LOOKING AT THESE, HE ASKED THE ASSESSEE TO JUSTIFY THE NON-DISALLOWANCE OF EXPENDI TURE U/S 14 A OF THE ACT. HE REJECTED THE CONTENTION OF THE ASSESSEE WITH SOME GENERAL STATEMENTS AND THEREAFTER REPRODUCES THE PR OVISIONS OF SECTION 14 A OF THE INCOME TAX ACT AND COMPUTED DIS ALLOWANCE AS PER RULE 8D. THEREFORE, IT IS APPARENT THAT, THE LE ARNED ASSESSING OFFICER HAS NOT RECORDED HIS OWN SATISFACTION / FIN DING THAT HOW THE DISALLOWANCE SHOWN BY THE ASSESSEE ON ITS OWN OF 2 LAKHS IS INCORRECT. THE SATISFACTION OF THE ASSESSING OFFICE R IS MANDATORY IN TERMS OF THE PROVISIONS OF SECTION 14 A (2) OF THE INCOME TAX ACT. THE SATISFACTION OF THE COMMISSIONER OF INCOME TAX APPE ALS CANNOT BE REPLACED FOR SUBSTITUTED FOR THE SATISFACTION OF TH E LEARNED ASSESSING OFFICER. THE HONOURABLE SUPREME COURT IN MAXOOP IN VESTMENTS LTD VERSUS CIT [ 2018] 91 TAXMANN.COM 154 (SC)/[2018] 2 54 TAXMAN 325 (SC)/[2018] 402 ITR 640 (SC)/[2018] 301 CTR 489 (SC) HAS HELD THAT HAVING REGARD TO THE LANGUAGE OF SECTION 14A(2), READ WITH RULE 8D OF THE RULES, IT IS ALSO MADE CLEAR THAT BE FORE APPLYING THE THEORY OF APPORTIONMENT, THE ASSESSING OFFICER NEED S TO RECORD SATISFACTION THAT HAVING REGARD TO THE KIND OF THE ASSESSEE, SUO MOTU 13 ITA NO.2982/DEL./2015 DISALLOWANCE UNDER SECTION 14A WAS NOT CORRECT. IT WILL BE IN THOSE CASES WHERE THE ASSESSEE IN HIS RETURN HAS HIMSELF APPORTIONED BUT THE ASSESSING OFFICER WAS NOT ACCEPTING THE SAID AP PORTIONMENT. IN THAT EVENTUALITY, IT WILL HAVE TO RECORD ITS SATISF ACTION TO THIS EFFECT. FURTHER, WHILE RECORDING SUCH A SATISFACTION, NATUR E OF LOAN TAKEN BY THE ASSESSEE FOR PURCHASING THE SHARES/MAKING THE I NVESTMENT IN SHARES IS TO BE EXAMINED BY THE ASSESSING OFFICER. IN THE PRESENT CASE, WE DO NOT FIND ANY SUCH SATISFACTION RECORDED BY THE ASSESSING OFFICER WITH RESPECT TO THE DISALLOWANCE MADE BY ASSESSEE ON ITS OWN. IN VIEW OF THIS, WE HOLD THAT NO DISALLOWANCE U/S 14 A CAN BE MADE IN ABSENCE OF PROPER SATSIFACT ION. ACCORDINGLY, GROUND NUMBER 2 OF THE APPEAL OF THE A SSESSING OFFICER IS DISMISSED. 6.4 THE TRIBUNAL IN THE ABOVE DECISION NOTED THAT NO P ROPER SATISFACTION FOR INVOKING RULE 8D HAS BEEN RECORDED BY THE ASSESSING OFFICER. THE TRIBUNAL HAS OBSERVED THAT R EJECTION OF THE CONTENTION OF THE ASSESSEE WITH SOME GENERAL STATEM ENT AND REPRODUCTION OF SECTION 14A OF THE ACT, DOES NOT AM OUNT TO RECORDING SATISFACTION THAT CLAIM OF THE ASSESSEE O F EXPENDITURE RELATABLE TO EXEMPTED INCOME, WAS NOT CORRECT. IN T HE YEAR UNDER CONSIDERATION BEFORE US, ALSO THE ASSESSING OFFICER HAS RECORDED FOLLOWING OBSERVATIONS AND THEREAFTER INVOKED RULE 8D OF INCOME- TAX RULES: 4.1 THE SUBMISSIONS MADE BY THE ASSESSEE HAS BEEN CONSIDERED BUT NOT ACCEPTABLE FOR THE REASONS DISCUSSED BELOW: (I) THE ASSESSEE HAS EARNED INCOME WHICH IS NOT LIA BLE TO TAX. THE PROVISIONS OF SECTION 14A CLEARLY PRESCRIBE THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY TH E ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. THE INVOCATION OF SECTION 14A IS AU TOMATIC AND COMES INTO OPERATION, WITHOUT ANY EXCEPTION, AS SOO N AS, THE DIVIDEND INCOME IS CLAIMED EXEMPT. SINCE THE ENTIRE DIVIDEND INCOME HAS BEEN CLAIMED EXEMPT AND IS NOT PART OF T HE TOTAL INCOME UNDER THIS ACT, HENCE SECTION 14A IS CLEARLY ATTRACTED IN 14 ITA NO.2982/DEL./2015 THIS CASE AND ANY EXPENDITURE RELATABLE TO EARNING OF DIVIDEND INCOME SHALL HAVE TO BE DISALLOWED. (II) NO EVIDENCE HAS BEEN FURNISHED BY THE ASSESSEE COMPANY TO ESTABLISH THAT NO EXPENSE HAS BEEN INCURRED IN EARN ING OF THE DIVIDEND INCOME. THIS IS ESPECIALLY REQUIRED IN LIG HT OF THE FACT THAT CERTAIN EXPENSES LIKE COST OF BORROWINGS, SALA RY, EMPLOYEE WELFARE EXPENSES, POSTAGE/ TELEGRAM EXPENSES, TRAVE LING AND CONVEYANCE EXPENSES, RENT ETC. ARE COMMON EXPENSES WITH REGARD TO EARNING OF DIVIDEND INCOME/ INTEREST INCO ME AND NORMAL/ REGULAR BUSINESS ACTIVITY OF THE ASSESSEE C OMPANY. (III) THE ASSESSEE COMPANY IS ALSO ENTITLED TO CLAI M LONG TERM CAPITAL LOSS ON SALE/PURCHASE OF BONDS ON WHICH DIVIDEND IN COME HAS ACCRUED TO THE ASSESSEE COMPANY. THUS, IT IS SEEN T HAT ON ONE HAND THE ASSESSEE COMPANY IS CLAIMING DIVIDEND INCO ME TOTALLY EXEMPT U/S 10(34) AND AT THE SAME TIME IT IS ALSO G ETTING BENEFITED BY THE FACT THAT DUE TO EARNING OF DIVIDE ND INCOME, THE REDEMPTION PRICE OF THE SAID BONDS HAS ALSO GONE DO WN. THE ASSESSEE IS NOT ENTITLED TO AVAIL THIS DOUBLE BENEF IT. HENCE, IT IS ALL THE MORE NECESSARY TO APPORTION THE EXPENSES U/ S 14A IN RESPECT OF DIVIDEND INCOME EARNED BY THE ASSESSEE C OMPANY. (IV) THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES AN D INTEREST EXPENSES ON EARNING OF DIVIDEND INCOME CLAIMED EXEM PT, IS ALSO HELD/ PERMITTED BY THE VERDICT OF HON'BLE SUPREME C OURT IN THE CASE OF CIT VS. UNITED GENERAL TRUST LTD. 200 ITR 4 88 (SC). V) SECTION 14A OF THE I.T. ACT WAS INSERTED BY THE FINANCE ACT, 2001 WITH RETROSPECTIVE EFFECT FROM 01.04.1962 WHICH PRO VIDES AS UNDER:- 'FOR THE PURPOSE OF COMPUTING THE TO TAL INCOME UND ER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT O F EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT.' PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHA LL EMPOWER THE ASSESSING OFFICER EITHER TO REASSESS UNDER SECTION 147 OR PASS AN ORDER ENHANCING THE ASSESSMENT OR REDUCING A REFUND ALREADY MADE OR OTHERWISE INCREASING THE LIABILITY OF THE ASSESS EE U/S 154 FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1ST DAY OF APRIL, 2001. SUBSECTIONS (2) AND (3) OF THE SECTION 14A WERE INS ERTED BY FINANCE ACT 2006 AND WITH EFFECT FROM 1 ST APRIL 2007. SUBSECTION (2) OF SUBSECTION 14A PROVIDED FOR PRESCRIBED METHOD FOR D ETERMINING THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T. SECTION 2(24) DEFINES INCOME WHICH IN ADDITION TO A LL THE OTHER INCOME ALSO INCLUDES DIVIDEND AS PER CLAUSE (II) TO SECTION 2(24) OF 15 ITA NO.2982/DEL./2015 THE I. T. ACT. SECTION 2(45) DEFINES TOTAL INCOME A S TOTAL AMOUNT OF INCOME REFERRED TO IN SECTION 5 AND COMPUTED IN THE MANNER IN THIS ACT. SECTION 10 OF THE I.T. ACT SPECIFIES THE INCOM ES WHICH SHALL NOT BE INCLUDED IN TOTAL INCOME. SECTION 10(33) PROVIDE S THAT INCOME RECEIVED BY WAY OF DIVIDEND AS REFERRED TO IN SECTI ON 1150 OF THE I.T. ACT ARE EXEMPT FROM TAX. SECTION 1150 OF THE I.T. A CT TALKS ABOUT TAX ON DISTRIBUTED PROFITS OF THE DOMESTIC COMPANY. IN OTHER WORDS, THE DIVIDEND DISTRIBUTED BY THE DOMESTIC COMPANY IS NOT TAXABLE IN THE HANDS OF THE RECIPIENT. RULE 8D OF THE INCOME TAX RULES WAS INSERTED BY THE IT (FIFTH AMENDMENT) RULES, 2008, W.E.F24-03-08 PRESCRIBING T HE 'METHOD FOR DETERMINING AMOUNT OF EXPENDITURE IN RELATION TO IN COME NOT INCLUDABLE IN TOTAL INCOME'. FURTHER, THE EARNING OF EXEMPT INCOME IS NOT IN NAT URE OF PASSIVE ACTIVITY HAVING NO INPUT. IN FACT IN PRESENT SITUAT ION MAKING OF INVESTMENT, MAINTAINING OR CONTINUING INVESTMENT AN D TIME OF EXIT FROM INVESTMENT ARE WELL INFORMED AND WELL COORDINA TED MANAGEMENT DECISIONS INVOLVING NOT ONLY INPUTS FROM VARIOUS SOURCE BUT ALSO ACUMEN OF SENIOR MANAGEMENT FUNCTIONARIES. THEREFORE COST IS INBUILT INTO EVEN SO CALLED 'PASSIVE' INVESTMENT . THERE ARE INCIDENTAL EXPENDITURES OF COLLECTION, TELEPHONE, F OLLOW UP ETC. THEREFORE, EXPENSES IN RELATION TO EARNING OF INCOM E ARE EMBEDDED IN INDIRECT EXPENSES. THE INVESTMENT MADE, BEING A CONSCIOUS DECISION AND HAVING DEPLOYMENT OF FUNDS CLEARLY BRINGS INTO PICTURE EXP ENDITURE BY WAY OF COST OF FUNDS, 'INVESTED* COMPOSITE FUND HAVING COST NEEDS TO BE SPREAD SO AS TO APPORTION APPROPRIATE COST OF FUNDS INVESTED IN THE ACTIVITY LENDING TO CARRYING OF EXEMPT INCOME. IN VIEW OF ABOVE, THE PROVISIONS OF SUB SECTIONS (2 ) OF SECTION 14 A AND RULE 8D OF IT RULES ARE IN OPERATION AND THEREF ORE WILL STRICTLY BE ADHERED TO BY THE ASSESSEE. 6.5 WE FIND THAT THE ASSESSING OFFICER IS UNDER THE IM PRESSION THAT NO EXPENSES HAVE BEEN INCURRED FOR EARNING THE DIVIDEND INCOME, WHEREAS THE ASSESSEE HAS MADE SUO MOTU DISALLOWANCE OF 10 LAKH. THE ASSESSING OFFICER HAS NOT POINTED OU T HOW THE SAID CLAIM OF 10 LAKH, IS NOT CORRECT. THE ASSESSING OFFICER HAS JUMPED TO THE CONCLUSION WITHOUT EXAMINING THE CLAI M OF THE ASSESSEE. IN OUR OPINION, THE FACTS AND CIRCUMSTANC ES OF THE YEAR UNDER CONSIDERATION BEING IDENTICAL TO THE FACTS AN D 16 ITA NO.2982/DEL./2015 CIRCUMSTANCES OF ASSESSMENT YEAR 2008-09, RESPECTFU LLY FOLLOWING THE FINDING OF THE TRIBUNAL (SUPRA), WE HOLD THAT N O DISALLOWANCE U/S 14A CAN BE MADE WITHOUT RECORDING PROPER SATISF ACTION AS REQUIRED UNDER THE LAW. ACCORDINGLY, THE DISALLOWAN CE IN DISPUTE IS DELETED. THE GROUND OF APPEAL IS ALLOWED. 7. THE GROUND NO. 4 OF THE APPEAL RELATES TO DISALLOW ANCE UNDER SECTION 14A OF THE ACT WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT. THE LD. CIT(A) UPHELD THE DISALLO WANCE OBSERVING AS UNDER: 9.4. THE SECOND PART OF GROUND OF APPEAL IS REGARD ING THE ADJUSTMENT MADE BY THE AO IN BOOK PROFIT U/S 115JB OF THE ACT IN RESPECT OF DISALLOWANCE MADE BY HIM U/S 14A OF THE ACT. IT HAS BEEN ARGUED THAT AS PER EXPLANATION 1 TO SECTION 115JB(2 ) OF THE ACT, THERE IS NO SUCH DISALLOWANCE CONTEMPLATED WHEREIN BOOK PROFIT IS TO BE ADJUSTED. THE APPELLANT HAS RELIED UPON THE DECI SION OF HORIBLE SUPREME COURT IN THE CASE OF APPOLLO TYRES LTD. VS. CIT (2002) 255 ITR 273 (SC) IN THIS REGARD. A RECENT JUDGMENT OF H ON'BLE ITAT, DELHI IN THE CASE OF GOETZ (INDIA) LIMITED VS. CIT-IV 200 9 (32) SOT 101 HAS BEEN RELIED UPON BY THE APPELLANT. 9.5. ON CONSIDERING THE FACTS OF THE CASE AS WELL A S THE SUBMISSIONS MADE BY THE APPELLANT IT IS OBSERVED THAT THE APPEL LANTS CASE IS COVERED BY ITEM (F) UNDER EXPLANATION 1 TO SECTION 115 JB OF THE ACT. THE PROVISION CLEARLY SPELLS OUT THAT ANY AMOUNT OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH SECTION 10 [OTHER THAN SECTION 10(38)] APPLIES, SHALL BE DISALLOWED AND ADDED IN T HE BOOK PROFIT COMPUTED U/S 115JB OF THE ACT. DIVIDEND INCOME EARN ED BY THE APPELLANT COMES U/S 10(34) OF THE ACT AND THEREFORE , THE AOS ACTION IN INCREASING THE BOOK PROFIT BY ADDING BACK THE EX PENDITURE RELATABLE TO EXEMPT INCOME (DIVIDEND) IS FULLY JUST IFIED. SO FAR AS THE APPELLANTS RELIANCE ON CITED CASES IS CONCERNED, T HE SAME PROVIDE FOR THE ADJUSTMENTS TO BE MADE IN THE BOOK PROFIT C OMPUTED U/S 115JB OF THE ACT, STRICTLY AS PER EXPLANATION 1 TO THE SECTION. IN VIEW OF ITEM (F) TO EXPLANATION 1, THE DECISIONS RELIED UPON BY THE APPELLANT DO NOT APPLY. THEREFORE, THIS LIMB OF GRO UND OF APPEAL IS HEREBY DISMISSED. 17 ITA NO.2982/DEL./2015 7.1 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE SUB MITTED THAT ISSUE IN DISPUTE IS COVERED BY THE DIRECTION O F THE TRIBUNAL IN ASSESSMENT YEAR 2008-09 AND 2009-10. THE LEARNED DR ALSO COULD NOT CONTROVERT THE POSITION AND RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 7.2 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. IN ASSESSMENT YEAR 2008-09, THE TRIBUNAL HAS ADJUDICATED THE ISSUE AS UNDER: 69. WITH RESPECT TO GROUND NUMBER 3 OF THE APPEAL OF THE ASSESSING OFFICER WHICH IS AGAINST THE ORDER OF THE LEARNED C IT A DELETING THE DISALLOWANCE ARE WHILE COMPUTING THE BOOK PROFIT OF THE ASSESSEE WITH RESPECT TO THE DISALLOWANCE MADE IN THE ORIGIN AL COMPUTATION OF THE INCOME U/S 14 A OF THE ACT. THE FIND THAT THE I SSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE SPECIAL BENCH OF THE ITAT IN THE ASST COMMISSIONER OF INCOM E TAX VERSUS VIREET INVESTMENTS PRIVATE LIMITED [2017] 82 TAXMAN N.COM 415 (DELHI - TRIB.) (SB)/[2017] 58 ITR(T) 313 (DELHI - TRIB.) (SB)/[2017] 165 ITD 27 (DELHI - TRIB.) (SB)/[2017] 188 TTJ 1 (DELHI - T RIB.) (SB) WHEREIN IT HAS BEEN HELD THAT HOLDING THAT THE COMPUTATION UND ER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2). IS TO BE MADE WI THOUT RESORTING TO THE COMPUTATION AS CONTEMPLATED U/S 14A READ WITH R ULE 8D OF THE INCOME-TAX RULES, 1962.. ACCORDINGLY WE RESTORE THI S GROUND OF APPEAL BACK TO THE FILE OF THE LEARNED ASSESSING OF FICER TO DECIDE THE ISSUE WITHOUT RESORTING TO THE RULE 8D OF THE INCOM E TAX RULES FOR DISALLOWING EXPENDITURE IN RELATION TO THE EXEMPT I NCOME BY WORKING OUT THE BOOK PROFIT. THUS, GROUND NUMBER 3 OF THE A PPEAL IS ALLOWED WITH ABOVE DIRECTION. 7.3 THE ISSUE IN DISPUTE IN THE YEAR UNDER CONSIDERATI ON BEING IDENTICAL TO THE ISSUE IN DISPUTE BEFORE THE TRIBUN AL IN THE ASSESSMENT YEAR 2008-09 AND THEREFORE RESPECTFULLY FOLLOWING THE SAME, WE RESTORE THE GROUND OF THE APPEAL BACK TO T HE FILE OF THE ASSESSING OFFICER TO DECIDE IN VIEW OF THE DIRECTIO N OF THE TRIBUNAL 18 ITA NO.2982/DEL./2015 IN ASSESSMENT YEAR 2008-09. THE GROUND OF THE APPEA L IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D PARTLY FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH OCTOBER, 2020. SD/- SD/- (BHAVNESH SAINI) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 8 TH OCTOBER, 2020. RK/- (D.T.D.S.) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI