DCIT, CHENNAI V. M/s. SVL Ltd., CHENNAI

ITA 3007/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4640 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2017
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 13-04-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 24-10-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: R SIVARAMAN
• Keywords: Business expenditure; Earning of tax free income; Wholly owned subsidiary
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! ' . #$ , % & BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NO.2746/MDS/2016 ( / ASSESSMENT YEAR: 2013-14) M/S. SVL LIMITED, (FORMERLY SHRIRAM INDUSTRIAL HOLDINGS PVT. LTD.,) MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. VS THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI. PAN: AAACS7696D ( /APPELLANT) ( /RESPONDENT) & ./ I.T.A.NO.3007/MDS/2016 ( / ASSESSMENT YEAR: 2013-14) THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(2), CHENNAI. VS M/S. SVL LIMITED, (FORMERLY SHRIRAM INDUSTRIAL HOLDINGS PVT. LTD.,) MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. PAN: AAACS7696D ( /APPELLANT) ( /RESPONDENT) ASSESSEE BY : SHRI R. SIVARAMAN, ADVOCATE REVENUE BY : SHRI A.V. SREEKANTH, JCIT /DATE OF HEARING : 13.04.2017 /DATE OF PRONOUNCEMENT : 09.05.2017 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL BY THE ASSESSEE AND THE REVENUE ARE DIR ECTED AGAINST THE ORDER PASSED BY THE LEARNED COMMISSIONE R OF INCOME TAX (APPEALS)-15, CHENNAI DATED 19.07.2016 IN ITA N O.351/CIT(A)- 2 ITA NO.2746 & 3007/M DS/2016 15/15-16 FOR THE ASSESSMENT YEAR 2013-14 PASSED U/S .250(6) R.W.S. 143(3) OF THE ACT. 2. THE APPEAL IN ITA NO.3007/MDS/2016 IS FILED BY THE REVENUE WITH A DELAY OF 15 DAYS. THE LD. DR SUBMITT ED THAT THE DELAY HAD OCCURRED DUE TO THE MISPLACEMENT OF THE F ILES. THE LD. DR FURTHER PLEADED THAT AFTER STRENUOUS SEARCH THE REC ORDS COULD BE TRACED ONLY DURING THE SECOND WEEK OF OCTOBER AND T HEREAFTER INSTANTLY THE APPEAL WAS FILED BY OBTAINING SANCTIO NS FROM THE REQUISITE AUTHORITIES. IT WAS THEREFORE PLEADED TH AT THE DELAY OF 15 DAYS IN FILING THE APPEAL MAY BE CONDONED. AFTER HE ARING THE LD.D.R, THOUGH WE DO NOT APPRECIATE THE REASON FOR DELAY IN FILING THE APPEAL CITED BY THE REVENUE, IN THE INTEREST OF JUSTICE, W E HEREBY CONDONE THE SHORT DELAY OF 15 DAYS IN FILING THE APPEAL. 3. ITA NO.2746 OF 2016 : THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS APPEAL, HOWEVER THE CRUX OF THE LONE ISSUE IS THAT THE LD.CIT(A) HAS ERRED FOR GRANTING RELIEF ONLY PARTLY BY DIRECTING THE LD.AO TO EXCLUDE THE INVESTMENTS MADE IN, SUBSIDIAR Y COMPANIES, JOINT VENTURE COMPANIES AND COMPANIES FROM WHOM NO DIVIDEND IS RECEIVED, WHILE CALCULATING THE DISALLOWANCE U/S.14 A OF THE ACT, 3 ITA NO.2746 & 3007/M DS/2016 INSTEAD OF GRANTING RELIEF FULLY BY RESTRICTING THE DISALLOWANCE TO RS.21.92 LAKHS COMPUTED BY THE ASSESSEE U/S.14A OF THE ACT. 4. ITA NO.3307 OF 2016: THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS APPEAL, HOWEVER THE CRUX OF THE ISSU E IS THAT THE LD.CIT(A) HAS ERRED IN DIRECTING THE LD.AO TO EXCLU DE THE INVESTMENTS MADE IN, SUBSIDIARY COMPANIES, JOINT VE NTURE COMPANIES AND COMPANIES FROM WHOM NO DIVIDEND IS RE CEIVED, WHILE CALCULATING THE DISALLOWANCE U/S.14A READ WIT H RULE 8D. 5. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF INVESTME NT SERVICES, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2013-14 ON 30.11.2013. THE CASE WAS SELECTED UP FOR SCRUTINY UNDER CASS AND FINALLY ORDER U/S. 143(3) WAS PASSED ON 28.03.2016 WHEREIN THE LD.AO DISALLOWED RS.4,27,43,253/- TAKING INTO ACCOU NT OF RS.21,92,239/- ALREADY DISALLOWED BY THE ASSESSEE B Y INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE RULES. THUS THE LD.AO DISALLOWED IN ALL RS.4,49,35,492/- INVOKING T HE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE RULES. ON APP EAL THE LD.CIT(A) AFTER TAKING INTO CONSIDERATION OF THE VA RIOUS CASE LAWS 4 ITA NO.2746 & 3007/M DS/2016 CITED IN HIS ORDER DIRECTED THE LD.AO TO EXCLUDE TH E INVESTMENTS IN SUBSIDIARY COMPANIES, JOINT VENTURE COMPANIES AND T HOSE COMPANIES FROM WHOM NO DIVIDEND IS RECEIVED WHILE C ALCULATING DISALLOWANCE U/S.14A OF THE ACT. THE LD.CIT(A) ALS O DIRECTED THE LD.AO THAT THE DISALLOWANCE U/S.14A READ WITH RULE 8D SHOULD NOT BE LESS THAN THE DISALLOWANCE MADE BY THE APPELLANT SUO-MOTO. AGGRIEVED BY THE ORDER OF THE LD.CIT(A) BOTH THE AS SESSEE AND THE REVENUE ARE ON APPEAL BEFORE US. 6. AT THE OUTSET ON THE ISSUE WITH RESPECT TO AP PLICABILITY OF SECTION 14A AND RULE 8D OF THE RULES, WE ARE REMIND ED OF THE DECISION RECENTLY PASSED BY THE TRIBUNAL WHICH IS E XTRACTED HEREIN BELOW FOR REFERENCE: ITA NO.3044 OF 2016 OF M/S. SIDD LIFE SCIENCES, ORD ER DATED 07.04.2017 BY CHENNAI C BENCH: 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS AVAILABLE ON RECORD. RELYING ON VARIOUS D ECISIONS OF THE HIGHER JUDICIARY THIS BENCH OF THE TRIBUNAL ON THE EARLIER OCCASION IN THE CASE OF LAKSHMI ELECTRICAL DRIVES LTD IN ITA NO.3114/MDS/20 16 VIDE ORDER DATED 23.03.2017 HAS HELD AS FOLLOWS:- THE ASSESSEE HAD INVESTED RS.18.01 CRORES WHICH WO ULD YIELD EXEMPT INCOME. THEREFORE THE LD. AO INVOKED THE PR OVISIONS OF SECTION 14A AND RULE 8D OF THE RULES AND MADE ADDIT ION WHICH WAS SUBSEQUENTLY CONFIRMED BY THE LD. CIT(A). AT THE O UTSET, THE LD. AR SUBMITTED BEFORE US THAT, THE ENTIRE INVESTMENTS, F OR STRATEGICALLY REASONS, WAS MADE IN SUBSIDIARY COMPANIES AND IT WA S SOURCED FROM 5 ITA NO.2746 & 3007/M DS/2016 INTEREST FREE FUNDS. THE LD. AR FURTHER ARGUED THA T ON SEVERAL OCCASIONS, THE CHENNAI BENCH OF THE TRIBUNAL HAS HE LD THAT IF SUCH INVESTMENTS ARE MADE IN SISTER /SUBSIDIARY COMPANIE S, THE PROVISIONS OF SECTION 14A CANNOT BE INVOKED. HE THEREFORE PLE ADED THAT THE ADDITION MADE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT, MAY BE DELETED. THE LD. DR THOUGH OPPOSED TO THE S UBMISSION OF THE LD. AR COULD NOT SUCCESSFULLY CONTROVERT TO THE SUB MISSIONS. AFTER HEARING BOTH SIDES, WE FIND MERIT IN THE ARGUMENTS OF THE LD. AR. ON SEVERAL INSTANCE THIS BENCH OF THE TRIBUNAL HAS HEL D AS WHAT WAS ARGUED BY THE LD. AR. FOR INSTANCE IN THE CASE OF M/S. DATA SOFTWARE RESEARCH COMPANY (INTERNATIONAL) PVT. LTD. V. ACIT, ITA NOS.2169 & 2170/MDS/2015 AND ACIT V. M/S. DATA SOFT WARE RESEARCH COMPANY (INTERNATIONAL) PVT. LTD., ITA NOS . 2171& 2172/MDS/2015 VIDE ORDER DATED 03.02.2016, THIS BEN CH OF THE TRIBUNAL HAS HELD AS FOLLOWS: 7. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS A NORMAL PRACTICE TO MAKE INVESTMENT IN SISTER COMPANIES DUE TO COMMERCIAL EXIGENCIES. WHILE DOING SO, NO EXPENSE CAN BE ATTRIBUTABLE OTHER THAN INTEREST EXPENSE FOR MAKING SUCH INVESTMENTS BECAUSE ALL MANAGEMENT COSTS WILL BE ABSORBED FOR STRATEGIC DECISION MAKING PROCESS WHICH IS ALLOWABLE AS BUSINESS EXPENDITURE. IN THE CASE OF THE ASSESSEE IT IS SUBMITTED THAT NO INTEREST COST WAS INCURRED AS THE ENTIRE INVESTMENTS WERE MADE OUT OF OWN FUNDS. FURTHER IN THE DECISION OF THE TRIBUNAL IN ITA NO.115/MDS/2015 DATED 06.01.2016, EXTRACTED HEREIN BELOW, IT HAS BEEN HELD THAT SECTI ON 14A OF THE ACT WILL NOT BE APPLICABLE WHEN INVESTMENTS ARE MADE IN SISTER COMPANIES. 5. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. ON THE IDENTICA L ISSUE AS POINTED OUT BY THE LD. A.R. THE CHENNAI BENCH OF TH E TRIBUNAL IN ITA NO.156/MDS/2013 VIDE ORDER DATED 20/08/13 FO R THE ASSESSMENT YEAR 2009-10 HAS REMITTED BACK THE MATTE R TO THE LD. ASSESSING OFFICER TO DECIDE THE MATTER ONCE AGA IN AFRESH BASED ON THE FINDINGS WHETHER THE ASSESSEE HAD ACTU ALLY INCURRED ANY EXPENDITURE IN EARNING THE DIVIDEND IN COME. THE 6 ITA NO.2746 & 3007/M DS/2016 RELEVANT PORTION OF THE ORDER IS EXTRACTED HEREIN B ELOW FOR REFERENCE:- FURTHER, ON THE IDENTICAL ISSUE VARIOUS BENCHES OF THE TRIBUNAL AND THE HONBLE BOMBAY HIGH COURT HAVE HELD AS FOLL OWS:- I) GARWARE WALL ROPES LTD., VS. ACIT REPORTED IN (2014) 65 SOT 086 (MUM.) HELD AS FOLLOWS:- WHEN ASSESSEE HAS PRIMA FACIE BROUGHT OUT CASE THA T NO EXPENDITURE HAS BEEN INCURRED FOR EARNING INCOME, W HICH DOES NOT FORM PART OF TOTAL INCOME, THEN IN ABSENCE OF ANY F INDING THAT EXPENDITURE HAS BEEN INCURRED FOR EARNING EXEMPT IN COME PROVISIONS 14A CANNOT BE APPLIED.. II) INTEGLOBE ENTERPRISES LTD., VS. DCIT REPORTED IN (2014) 40 CCH 0022(DEL. TRIB.) HELD AS FOLLOWS:- NO DISALLOWANCE OF INTEREST IS REQUIRED TO BE MADE UNDER RULE 8D(I) & 8D(II) WHERE NO DIRECT OR INDIRECT INTEREST EXPEN DITURE WAS INCURRED FOR MAKING INVESTMENTS. WHERE THE ASSESSEE HAD UTILIZED INTEREST FREE FUNDS FOR MAKING FRESH INVESTMENTS AND THAT TOO INTO ITS SUBSIDIARIES, WHI CH WAS NOT FOR THE PURPOSE OF EARNING EXEMPT INCOME AND WHICH WAS FOR STRATEGIC PURPOSES ONLY, NO DISALLOWANCE OF INTEREST WAS REQU IRED TO BE MADE UNDER RULE 8D(I) & 8D(II) AND STRATEGIC INVESTMENT HAS TO BE EXCLUDED FOR PURPOSE OF ARRIVING AT DISALLOWANCE UN DER RULE 8D(III). III) M/S.JM FINANCIAL LTD., VS. ACIT REPORTED IN 2 014-TIOL-202- ITAT-MUM HELD AS FOLLOWS: THE DEPARTMENT HAS NOT DISPUTED THIS FACT OUT OF THE TOTAL INVESTMENT ABOUT 98% OF THE INVESTMENT ARE IN SUBSI DIARY COMPANIES OF THE ASSESSEE AND, THEREFORE, THE PURPO SE OF INVESTMENT IS NOT FOR EARNING THE DIVIDEND INCOME B UT HAVING CONTROL AND BUSINESS PURPOSE AND CONSIDERATION. THE ASSESS EE HAS BROUGHT OUT A CASE TO SHOW THAT NO EXPENDITURE HAS BEEN INCURRED FOR MAINTAINING THE 98% OF THE INVESTMENT MADE IN T HE SUBSIDIARY COMPANIES, THEREFORE, IN THE ABSENCE OF ANY FINDING THAT ANY EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMP T INCOME, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT J USTIFIED, ACCORDINGLY THE SAME IS DELETED. (IV) CIT VS. BHARTI TELEVENTURE LTD. REPORTED IN (2 011) 331 ITR 0502. WHERE THE ASSESSEE WAS FOUND TO BE HAVING ADEQUATE NON- INTEREST BEARING FUND BY WAY OF SHARE CAPITAL AND R ESERVES AND THERE WAS NO NEXUS BETWEEN THE BORROWALS OF ASSESSEE AND THE ADVANCES GIVEN, NO DISALLOWANCE FOR INTEREST WAS CALLED FOR . 7 ITA NO.2746 & 3007/M DS/2016 (V) CIT VS. RELIANCE UTILITIES & POWER LTD., REPOR TED IN (2009) 313 ITR 0340(BOM.) HAS HELD AS FOLLOWS:- TRIBUNAL HAVING RECORDED A CLEAR FINDING THAT THE ASSESSEE POSSESSED SUFFICIENT INTEREST-FREE FUNDS OF ITS OWN WHICH WERE GENERATED IN THE COURSE OF THE RELEVANT FINANCIAL Y EAR, APART FROM SUBSTANTIAL SHAREHOLDERS FUND, PRESUMPTION STANDS E STABLISHED THAT THE INVESTMENTS IN SISTER CONCERNS WERE MADE BY THE ASSESSEE OUT OF INTEREST FREE FUNDS AND THEREFORE NO PART OF INT EREST ON BORROWINGS CAN BE DISALLOWED ON THE BASIS THAT THE INVESTMENTS WERE MADE OUT OF INTEREST BEARING FUNDS. (VI) EIH ASSOCIATED HOTELS LTD VS. DCIT REPORTED I N 2013-TIOL- 796-ITAT-MAD . THE INVESTMENTS MADE BY THE ASSESSEE IN THE SU BSIDIARY COMPANY ARE NOT ON ACCOUNT OF INVESTMENT FOR EARNIN G CAPITAL GAINS OR DIVIDEND INCOME. SUCH INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE TO PROMOTE SUBSIDIARY COMPANY INTO THE HOT EL INDUSTRY. THE ASSESSEE IS NOT INTO THE BUSINESS OF INVESTMENT AND THE INVESTMENTS MADE BY THE ASSESSEE ARE ON ACCOUNT OF BUSINESS EXPEDIENCY. ANY DIVIDEND EARNED BY THE ASSESSEE FRO M INVESTMENT IN SUBSIDIARY COMPANY IS PURELY INCIDENTAL. THEREFO RE THE INVESTMENT MADE BY THE ASSESSEE IN ITS SUBSIDIARY IS NOT TO BE RECKONED FOR DISALLOWANCE U/S.14A R.W.R.8D. THE ASSESSING OFFICE R IS DIRECTED TO RE-COMPUTE THE AVERAGE VALUE OF INVESTMENT UNDER TH E PROVISIONS OF RULE 8D AFTER DELETING INVESTMENTS MADE BY THE ASSE SSEE IN SUBSIDIARY COMPANY. TAKING NOTE OF THE ABOVE DECISIONS AND THE DECISI ON OF THE CHENNAI BENCH OF THE TRIBUNAL IN ITA NO.156/MDS /13 CITED SUPRA, WE HEREBY REMIT THE MATTER BACK TO THE FILE OF LD. ASSESSING OFFICER TO EXAMINE THE ISSUE INVOLVED IN THIS CASE AFRESH AND PASS APPROPRIATE ORDER AS PER LAW AND ME RITS AND IN THE LIGHT OF THE DECISIONS CITED HEREIN ABOVE. W HILE DOING SO, WE ALSO DIRECT THE LD. ASSESSING OFFICER TO CONSIDE R THE DECISION OF THE TRIBUNAL IN THE CASE M/S AGILE ELEC TRIC SUB ASSEMBLY PVT. LTD. CITED SUPRA WHEREIN IT WAS HELD AS FOLLOWS:- 7.2 IN REGARD TO APPLICABILITY OF SECTION 14A OF THE ACT READ WITH RULE 8D ALSO; THE ABOVE VIEW WILL BE APPLICABLE. M OREOVER IN THE CASE EIH ASSOCIATED HOTELS LTD V. DCIT REPORTED IN 2013 (9) TMI 604 IN ITA NO.1503, 1624/MDS/2012 DATED 17 TH JULY, 2013, IT HAS BEEN HELD BY THE CHENNAI BENCH OF THE TRIBUNAL AS F OLLOWS:- DISALLOWANCE U/S. 14A RW RULE 8D CIT UPHELD DISAL LOWANCE HELD THAT INVESTMENTS MADE BY THE ASSESSEE IN THE SUBSIDIARY COMPANY ARE NOT ON ACCOUNT OF INVESTMENT FOR EARNIN G CAPITAL GAINS OR DIVIDEND INCOME. SUCH INVESTMENTS HAVE BEEN MAD E BY THE ASSESSEE TO PROMOTE SUBSIDIARY COMPANY INTO THE HOT EL INDUSTRY. A PERUSAL OF THE ORDER OF THE CIT(APPEALS) SHOWS THAT OUT OF TOTAL INVESTMENT OF RS.64,18,19,775/-, RS.63,31,25,715/- IS INVESTED IN WHOLLY OWNED SUBSIDIARY. THIS FACT SUPPORTS THE CA SE OF THE 8 ITA NO.2746 & 3007/M DS/2016 ASSESSEE THAT THE ASSESSEE IS NOT INTO THE BUSINESS OF INVESTMENT AND THE INVESTMENTS MADE BY THE ASSESSEE ARE ON ACC OUNT OF BUSINESS EXPEDIENCY. ANY DIVIDEND EARNED BY THE AS SESSEE FROM INVESTMENT IN SUBSIDIARY COMPANY IS PURELY INCIDENT AL. THEREFORE, THE INVESTMENTS MADE BY THE ASSESSEE IN ITS SUBSIDI ARY ARE NOT TO BE RECKONED FOR DISALLOWANCE U/S. 14A R.W.R. 8D. THE ASSESSING OFFICER IS DIRECTED TO RE-COMPUTE THE AVERAGE VALUE OF INVESTMENT UNDER THE PROVISIONS OF RULE 8D AFTER DELETING INVE STMENTS MADE BY THE ASSESSEE IN SUBSIDIARY COMPANY DECIDED IN FAV OUR OF ASSESSEE. FOR THE ABOVE SAID REASONS, WE HEREBY HOLD THAT IN THE CASE OF THE ASSESSEE THE PROVISIONS OF SECTION 14A READ WITH RU LE 8D WILL NOT BE APPLICABLE IN REGARD TO INVESTMENTS MADE FOR ACQ UIRING THE SHARES OF THE ASSESSEES SISTER CONCERNS. ACCORDING LY WE RESTRAIN OURSELVES FROM INTERFERING WITH THE ORDER OF THE LD .CIT(A) ON THIS REGARD. 8. THEREFORE, FOLLOWING THE AFORESAID DECISION OF T HE TRIBUNAL, WE HEREBY DIRECT THE LEARNED ASSESSING OFFICER TO DELETE THE ADDITION MADE ON ACCOUNT OF SECTION 14A WHERE INVESTMENTS ARE MADE IN SISTER CONCERNS SUCH AS EQUITY SHARES AND SHARE APPLICATIO N MONEY. HOWEVER, IF THE INVESTMENTS ARE MADE FROM BORROWED FUNDS, SECTION 14A OF THE ACT WOULD BE APPLICABLE AND LEARNED ASSESSING OFFICER SHALL COMP UTE THE DISALLOWANCE UNDER SECTION 14A READ WITH RULES 8D IN ACCORDANCE WITH LAW. 6.1 ACCORDINGLY WE HEREBY REMIT BACK THE MATTER TO THE FILE OF THE LD. AO TO CONSIDER THE ISSUE AFRESH IN THE LIGHT OF THE ABOVE ORDER OF THE TRIBUNAL AND PASS APPROPRIATE ORDER IN ACCORDAN CE WITH MERITS AND LAW. WE ALSO MAKE IT CLEAR THAT FOR THE INVEST MENTS MADE IN MUTUAL FUNDS, PROVISIONS OF SECTION 14A READ WITH R ULE 8D WILL BE APPLICABLE SINCE THE ASSESSEE WOULD INCUR SOME EXPE NDITURE AT LEAST FOR THE DECISION MAKING PROCESS AS TO IN WHICH MUTU AL FUND THE INVESTMENT HAS TO BE MADE AND AT WHAT POINT OF TIME EXIT FROM SUCH FUNDS. IT IS ORDERED ACCORDINGLY. ACCORDINGLY IN THIS CASE OF THE ASSESSEE ALSO, WE H EREBY REMIT THE MATTER BACK TO THE FILE OF THE LD. AO FOR FRESH CONSIDERAT ION SO AS TO PASS 9 ITA NO.2746 & 3007/M DS/2016 APPROPRIATE ORDER AS PER MERIT AND LAW AND IN THE L IGHT OF THE ABOVE ORDER OF THE TRIBUNAL. 7.1 FROM THE ABOVE IT IS CRYSTAL CLEAR THAT THE TRIBUNAL AFTER CONSIDERING THE ISSUE HAS ARRIVED AT THE FOLLOWING DECISION:- DISALLOWANCE OF EXPENDITURE INCURRED BY THE ASSESSE E COMPANY WHICH IS ATTRIBUTABLE FOR EARNING EXEMPT IN COME U/S.14A READ WITH 8D OF THE RULES, WILL NOT BE APPL ICABLE, WHERE INVESTMENTS IN EQUITY SHARES / SHARE APPLICAT ION MONEY / PREFERENCE SHARES ETC., ARE MADE OUT OF ASSESSEE S OWN INTEREST FREE FUNDS IN SISTER CONCERNS FOR STRATEGI CAL REASONS, THOUGH THE ASSESSEE EARNS DIVIDEND INCOME OUT OF SU CH INVESTMENTS WHICH IS EXEMPT FROM TAX. THIS DECISIO N IS ARRIVED AT BECAUSE OF THE FOLLOWING PREMISES:- A) WHEN THE ASSESSEE INVESTS IN ITS SISTER CONCERN FOR STRATEGICAL REASONS THERE CANNOT BE ANY PRESUMPTION WITH RESPECT TO ANY EXPENSES AT ALL OTHER THAN INTE REST EXPENSES ON THE FUND DEPLOYED BY BORROWING IF ANY. B) THERE CANNOT BE ANY EXPENSE WITH RESPECT TO THE DECISION MAKING PROCESS OF MAKING INVESTMENT IN ONE S OWN COMPANY FOR STRATEGICAL REASONS. 10 ITA NO.2746 & 3007/ MDS/2016 C) THERE CANNOT BE ANY COST INVOLVED FOR MAKING INVESTMENT IN ONES OWN SISTER COMPANY WHEN THE SOURCE FOR SUCH INVESTMENT ARE MET FROM OWN FUNDS SUCH AS EQUITY/PREFERENCE SHARE CAPITAL AND GENERAL RESERVES. D) THE ASSESSEE IS AT LIBERTY TO PULL OUT ITS OWN I NTEREST FREE FUNDS AND DEPLOY THE SAME FOR ANY OTHER PURPOS E AND UTILIZE THE INTEREST BEARING FUND IN THE BUSINE SS. THERE IS LEGALLY NO BAR FOR DOING SO. 7.2 FURTHER ON THE ISSUE OF EXCLUDING THE COMPAN IES FROM WHOM DIVIDEND IS NOT RECEIVED WHILE COMPUTING DISALLOWAN CE UNDER RULE 8D OF THE RULES, WE DONT FIND MERIT IN THE SAME BE CAUSE, THE EXPENSES INCURRED FOR MAKING SUCH INVESTMENT HAS NO PROPORTIONATE BEARING ON THE QUANTUM OF EXEMPT INCO ME EARNED. MOREOVER IT IS OBVIOUS THAT EXPENSES INCURRED FOR E ARNING EXEMPT INCOME CANNOT BE ALLOWED AS DEDUCTION FROM THE OTHE R BUSINESS ACTIVITY OF THE ASSESSEE WHERE THE INCOME IS TAXABL E. FOR THE ABOVE REASONS WE ARE OF THE CONSIDERED VIEW THAT TH E DECISION OF THE LD.CIT(A) FOR EXCLUDING THE COMPANIES FROM WHOM DIVIDEND IS NOT RECEIVED WHILE COMPUTING DISALLOWANCE UNDER RUL E 8D OF THE RULES IS ERRONEOUS. 11 ITA NO.2746 & 3007/ MDS/2016 8. FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL AND THE REASONING, IN THE CASE OF THE ASSESSEE, WE HEREBY DIRECT THE L D.A.O TO COMPUTE THE DISALLOWANCE U/S.14A OF THE ACT APPLYING RULE 8 D OF THE RULES BY EXCLUDING THE INVESTMENTS MADE OUT OF NON-INTERE ST BEARING FUNDS (OWN FUNDS SUCH AS EQUITY/PREFERENCE SHARES, GENERA L RESERVES ETC.,) IN SISTER/JOINT VENTURE, COMPANIES FOR STRAT EGICAL REASONS FROM THE TOTAL INVESTMENT MADE, THE INCOME DERIVED FROM WHICH IS NOT TAXABLE. THE GROUND RAISED BY THE ASSESSEE AND THE REVENUE IN THEIR RESPECTIVE APPEALS ARE ACCORDINGLY DISPOSED O FF. 9. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DI SMISSED AND THE APPEAL OF THE REVENUE IS PARTLY ALLOWED AS INDICATE D HEREIN ABOVE. ORDER PRONOUNCED IN THE COURT ON THE 09 TH MAY, 2017. SD/- SD/- ( ! ' . #$ ) ( . ) ( DUVVURU RL REDDY ) ( A. MOHAN ALANKAMONY ) !' /JUDICIAL MEMBER !' / ACCOUNTANT MEMBER $ /CHENNAI, %! /DATED 09 TH MAY, 2017 JR ! '( )( /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. , ( )/CIT(A) 4. , /CIT 5. (-. / /DR 6. .0 /GF