WADHAWAN HOLDING P.LTD, MUMBAI V. ACIT CEN CIR 37, MUMBAI

ITA 3169/MUM/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1105 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 05-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NIRAV VORA
• Keywords: Earning of tax free income
• Section: 14A; 115JB

Judgement Text

P A G E | 1 ITA NO. 3169/MUM/2016 A.Y. 2010 - 11 M/S WADHAWAN HOLDINGS PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX IN THE INCOME TAX APPELLATE TRIBUNAL ' J ' BENCH, MUMBAI BEFORE SHRI G.S. PANN U , VICE PRESIDENT AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO. 3169/MUM/2016 (ASSESSMENT YEAR: 2010 - 11 ) M/S WADHAWAN HOLDINGS PVT. LTD., 4 TH FLOOR, DHEERAJ ARMA, ARG, ANANT KANEKAR MARG, BANDRA (EAST), MUMBAI - 400 051. VS. ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 37 MUMBAI. PAN AAACW5001G ( APPELLANT ) ( RESPONDENT ) APPELLANT BY: SHRI NIRAV VORA, A.R RESPONDENT BY: SHRI NILU JAGGI , D.R DATE OF HEARING: 14 .11.2018 DATE OF PRONOUNCEMENT: 3 0 . 11.2018 O R D E R PER RAVISH SOOD, JM THE PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 53, MUMBAI, DATED 26 .11.2015, WHICH IN TURN ARISES FROM THE ORDER PASSED BY THE A.O UNDER SEC.143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT ACT) , DATED 31.12.2012. THE ASSESSEE ASSAILING THE ORDER OF THE CIT(A) HAS RAISED BEFORE US THE FOLLOWING GROUNDS OF APPEAL : 1. THE HON BLE COMMISSIONER OF INCOME TAX, APPEAL - (53), MUMBAI HAS ERRED IN LAW AND IN FACTS IN ASSESSING THE INCOME AT RS.59,65,850/ - AS AGAINST THE RETURNED LOSS OF RS. 35,93,90,734/ - RESULTING IN NET ADDITION/ DISALLOWANCES OF RS.1,39,89,537/ - BY CONFIRMING THE FOLLOWING ACTIONS OF THE ASSESSING OFFICER. 2. THE A.O. HAS ERRED IN LAW AND IN FACTS BY MAKING AN EXORBITANT DISALLOWANCE OF RS. 1,39,89,537/ - U/S. 14A R.W. RULE 8D OF THE ACT ON THE ALLEGED GROUND THAT THE APPELLANT COMPANY HAD INCURRED EXPENSES IN RELATION TO EARNING EXEMPT INCOME. P A G E | 2 ITA NO. 3169/MUM/2016 A.Y. 2010 - 11 M/S WADHAWAN HOLDINGS PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX 3. YOUR APPELLANT CRAVES TO ADD, ALTER, AMEND OR DELETE ANY GROUNDS OF APPEAL. 2. BRIEFLY STATED, THE ASSESSEE COMPANY WHICH IS ENGAGED IN THE BUSINESS OF A PROPERTY DEVELOPER HAD E - FILED ITS RETURN OF INCOME FOR A.Y. 2010 - 11 ON 15.10.2010, DECLARING CURRENT YEAR LOSS OF ( RS.35,94,45,304/ - ) . THE SAID RETURN OF INCOME WAS THEREAFTER REVISED ON 30.09.2011 DECLARING CURRENT LOSS OF ( RS.35,93,90,734/ - ) . THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESS ED AS SUCH UNDER SEC. 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT UNDER SEC. 143(2). 3. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS , IT WAS INTER ALIA OBSERVED BY THE A.O THAT THE ASSESSEE COMPANY HAD EARNE D DIVIDEND INCOME OF RS.1,69,98,197/ - AND L ONG TERM CAPITAL GAIN (FOR SHORT LTCG) OF RS.36,57,71,185/ - WHICH WERE CLAIMED AS EXEMPT FROM TAX. HOWEVER, AS STATED BY THE A.O IN THE ASSESSMENT ORDER, THE ASSESSEE COMPANY HAD FAILED TO DISALLOW THE EXPENDIT URE INCURRED FOR EARNING OF THE EXEMPT INCOME IN TERMS OF SEC. 14A OF THE ACT. THE E XPLANATION OF THE ASSESSEE THAT IT HAD NOT INCURRED ANY INTEREST OR OTHER EXPENDITURE FOR EARNING THE EXEMPT INCOME DID NOT FIND FAVOUR WITH THE A.O. THE A.O HOLDING A CONV ICTION THAT THE RESOURCES AND INFRASTRUCTURE OF THE ASSESSEE WOULD HAVE BEEN UTILIZED F OR EACH AND EVERY ACTIVITY UNDER TAKEN BY IT , INCLUDING MAKING OF INVESTMENTS FOR EARNING OF EXEMPT INCOME, THUS WORKED OUT THE DISALLOWANCE UNDER SEC. 14A R.W. RULE 8D(2 )(III) AT RS.1,39,89,537/ - . THE A.O AFT ER MAKING CERTAIN OTHER ADDITIONS/DISALLOWANCE S WORKED OUT THE NET TAXABLE INCOME OF THE ASSESSEE UNDER THE NORMAL PROVISIONS AT NIL AND COMPUTED THE BOOK PROFIT UNDER SEC. 115JB AT RS.3,97,72,325/ - . 4. AGGRIEVED, T HE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). IT WAS OBSERVED BY THE CIT(A) THAT THE ASSESSEE DURING THE YEAR P A G E | 3 ITA NO. 3169/MUM/2016 A.Y. 2010 - 11 M/S WADHAWAN HOLDINGS PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX UNDER CONSIDERATION WAS IN RECEIPT OF TAX FREE DIVIDEND INCOME OF RS.1,69,98,197/ - AND LTCG OF RS.36,57,71,785/ - . FURTHER, IT WAS NOTICED BY THE CIT(A) THAT THE ASSESSEE DURING THE YEAR HAD SUBSTANTIAL INVESTMENTS OF RS.323.70 CRORES AS ON 31.03.2010 IN SHARES OF ITS GROUP AND OTHER COMPANIES. ON A PERUSAL OF THE RECORDS , IT WAS OBSERVED BY THE CIT(A) THAT THE ASSESSEE WAS NOT MAINTAINING ANY SEPARATE ACCOUNTS AS REGARDS ITS EXEMPT INCOME. THE CIT(A) OBSERVED THAT THE ASSESSEE HAD VOLUNTARILY MADE A DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS.37,27,246/ - UNDER SEC. 14A R.W RULE 8D(2)(III) BY CONSIDERING ONLY THE INVESTMENTS IN HOUSING DEVELOPMENT AND INFRASTRUCTURE LTD. (FOR SHORT HDIL ) AND DEWAN HOUSING LIMITED (FOR SHORT DHFL ) WHICH HAD YIELDED EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION. HOWEVER, THE CIT(A) WAS NOT PERSUADED TO SUBSCRIBE TO THE AFORESAID DISALLOWANCE SO OFFERED BY THE ASSESSEE UNDER SEC. 14A R.W. RULE 8D(2)(III). THE CIT(A) WAS OF THE VIEW THAT AS PER THE PROVISIONS OF RULE 8D(2)(III) AN AMOUNT EQUAL TO 0.5% OF THE AVERAGE OF THE VALUE OF INV ESTMENT S , INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME , AS APPEARING IN THE BALANCE SHEET , OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR WAS TO BE TREATED AS THE EXPENDITURE IN RELATION TO EARNING OF TAX FR EE INCOME. THE CIT(A) HELD A STRONG CONVICTION THAT THERE WAS NOTHING PROVIDED IN RULE 8D WHICH WOULD INDICATE THAT WHILE COMPUTING THE AFORESAID VALUE OF INVESTMENTS ONLY THOSE INVESTMENTS YIELDING TAX FREE INCOME WERE TO BE TAKEN INTO ACCOUNT. ON THE BAS IS OF HIS AFORESAID DELIBERATIONS , IT WAS CONCLUDED BY THE CIT(A) THAT THE WORKING OF DISALLOWANCE BY THE ASSESSEE UNDER SEC. 14A R.W RULE 8D(2)(III) AT RS.37,27,246/ - WAS NOT AT ALL IN CONSONANCE WITH THE MANDATE OF LAW. THE CIT(A) ALSO TOOK COGNIZANCE OF THE FACT THAT THE A.O WHILE DISLODGING THE DISALLOWANCE OFFERED BY THE ASSESSEE UNDER SEC. 14A R.W RULE 8D(2)(III) HAD FAILED IN HIS STATUTORY OBLIGATION OF P A G E | 4 ITA NO. 3169/MUM/2016 A.Y. 2010 - 11 M/S WADHAWAN HOLDINGS PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX RECORDING HIS SATISFACTION AS TO WHY THE SAID CLAIM OF THE ASSESSEE WAS NOT T O BE ACCEPTED. THE CIT(A) BEING OF THE VIEW THAT THE POWERS VESTED WITH HIM WERE CO - TERMINUS WITH THOSE OF THE ASSESSING OFFICER AND THAT HE COULD DO WHAT THE LATTER HAD FAILED TO DO, THUS PROCEEDED WITH AND DELIBERATED AT LENGTH ON THE WORKING OF THE DISALLOWANCE OF RS. 37,27,246/ - OFFERED BY THE ASSESSEE UNDER SEC. 14A R.W. RULE 8D. ON THE BASIS OF HIS AFORESAID DELIBERATIONS THE CIT(A) WAS NOT IMPRESSED WITH THE DISALLOWANCE OF RS.37,27,246/ - THAT WAS OFFERED BY THE ASSESSEE UNDER SEC. 14A R.W. RULE 8D(2)(III). IT WAS O BSERVED BY HIM THAT THE ASSESSEE HAD ATTRIBUTED ONLY A MINUSCULE PART OF THE TOTAL ADMINISTRATIVE EXPENSES (RS.12.65 CRORE) AND STAFF COST (RS.9.33 CR ORE) TOWARDS EARNING OF EXEMPT INCOME. FURTHER, IT WAS NOTICED BY THE CIT(A) THAT HAVING REGARD TO THE ACC OUNT S OF THE ASSESSEE, THE A.O WOULD HAD NO VALID REASONS TO BE SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE FOR DISALLOWANCE OF ONLY RS.37,27,246/ - UNDER SEC. 14A , AND WAS THUS JUSTIFIED IN DETERMINING THE AMOUNT OF EXPENSES ATTRIBUTABLE TO EARNING OF EXEMPT INCOME IN ACCORDANCE WITH THE METHOD PRESCRIBED IN RULE 8D. IT WAS OBSERVED BY THE CIT(A) THAT THE A.O WAS JUSTIFIED IN REJECTING THE QUANTUM OF DISALLOWANCE WORKED OUT BY THE ASSESSEE BY INVOKING THE PROVISIONS OF SEC. 14A(2) R.W. RULE 8D IN RELATION TO THE EARNING OF THE EXEMPT INCOME. ON THE BASIS OF HIS AFORESAID DELIBERATIONS THE CIT(A) NOT FINDING ANY MERIT IN THE APPEAL OF THE ASSESSEE , DISMISS ED THE SAME. 5. AGGRIEVED, THE ASSESSEE HAS CARRIED THE MATTER IN APPEAL BEFORE US. THE L D. AUTHORIZED REPRESENTATIVE (FOR SHORT A.R) FOR THE ASSESSEE AT THE VERY OUTSET OF THE HEARING OF THE APPEAL SUBMITTED THAT THE PRESENT APPEAL INVOLVES A DELAY OF 48 DAYS. IT WAS SUBMITTED BY THE LD. A.R THAT THE ASSESSEE COMPANY HAD RECEIV ED THE ORDER OF THE CIT(A) - 53, MUMBAI, ON 18.01.2016 , AND THE SAME WAS DELIVERED TO ITS AUDITORS VIZ. M/S THAR & COMPANY, C HARTERED ACCOUNTANTS FOR FILING OF P A G E | 5 ITA NO. 3169/MUM/2016 A.Y. 2010 - 11 M/S WADHAWAN HOLDINGS PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX AN APPEAL WITH THE TRIBUNAL. IT WAS AVERRED BY THE LD. A.R THAT THOUGH THE CHARTERED ACCOUNTANT HAD ASSURED TH AT THE APPEAL WOULD BE FILED WITHIN THE STIPULATED TIME PERIOD, HOWEVER AS HE REMAINED ENGROSSED IN THE TIME BARRING ASSESSMENTS AT THE RELEVANT POINT OF TIME, THEREFORE, THE FILING OF THE APPEAL INADVERTENTLY REMAINED OMITTED TO BE DONE WI THIN THE STIPULA TED TIME PERIOD AND COULD ONLY BE FILED ON 04.05.2016. THE LD. A.R IN ORDER TO SUBSTANTIATE THE AFORESAID REASON LEADING TO DELAY IN FILING OF THE APPEAL BY THE ASSESSEE TOOK US THROUGH THE AFFIDAVIT OF SHRI . B.S. SHARMA , D IRECTOR OF THE ASSESSEE COMPANY , WHEREIN THE AFORESAID FACTS LEADING TO DELAY IN FILING OF THE APPEAL WERE DEPOSED BY HIM. IT WAS SUBMITTED BY THE LD. A.R THAT AS THE DELAY IN FILING OF THE APPEAL HAD OCCASIONED ON ACCOUNT OF FAILURE ON THE PART OF THE C HARTERED ACCOUNTANT OF THE ASSESS EE COMPANY TO FILE THE APPEAL WITHIN THE STIPULATED TIME PERIOD AND NOT ON ACCOUNT OF ANY LAPSE OR MALAFIDE CONDUCT OF THE ASSESSEE, THEREFORE, IN ALL FAIRNESS THE SAME MAY BE CONDONE D . PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) OBJE CTED TO THE REQUEST OF THE ASSESSEE FOR CONDONATION OF THE DELAY INVOLVED IN FILING OF THE PRESENT APPEAL. 6 . WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS LEADING TO THE DELAY OF 48 DAYS IN FILING OF THE APPEAL BY THE ASSESSEE BEFORE US. IN OUR C ONSIDERED VIEW THE ASSESSEE HAD FAIRLY STATED THE REASON LEADING TO THE DELAY IN FILING OF THE APPEAL , AND HAD NOT CO ME FORTH WITH ANY FRIVOLOUS GROUND FOR EXPLAINING THE SAME. ADMITTEDLY, THOUGH AN APPELLANT IS EXPECTED TO BE VIGILANT AS REGARDS FILING OF AN APPEAL WITHIN THE STIPULATED TIME PERIOD, BUT THEN WE ALSO CANNOT REMAIN OBLIVIOUS OF THE FACT THAT UNDER CERTAIN CIRCUMSTANCES SAN ANY MALAFIDE OR LAPSE ON THE PART OF AN ASSESSEE , INADVERTENT DELAY IN FILING OF THE APPEAL MAY OCCASION . IN THE CASE BE FORE US , IT IS THE CLAIM OF THE ASSESSEE THAT THE DELAY HAD OCCURRED FOR THE REASON THAT THE APPEAL COULD NOT BE FILED BY ITS AUDITORS VIZ. M/S THAR & COMPANY, C HARTERED P A G E | 6 ITA NO. 3169/MUM/2016 A.Y. 2010 - 11 M/S WADHAWAN HOLDINGS PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX ACCOUNTANTS TO WHOM THE ORDER OF THE CIT(A) - 53, MUMBAI WAS DELIVERED BY THE ASSESSEE W ELL WITHIN TIME . FURTHER, THE REASON LEADING TO THE DELAY ON THE PART OF THE C HARTERED ACCOUNTAN TS VIZ. M/S THAR & COMPANY IN FILING OF THE APPEAL , HAD BEEN STATED TO HAVE OCCASIONED FOR THE REASON THAT THE CHARTERED ACCOUNTANT HAD REMAINED ENGROSSED IN THE TIME BARRING ASSESSMENTS AT THE RELEVANT POINT OF TIME, AND THE FILING OF THE APPEAL HAD INADVERTENTLY REMAINED OMITTED TO BE DONE WITHIN THE STIPULATED TIME PERIOD . BE THAT AT IT MAY, ON THE BASIS OF THE AFORESAID FACTS WHICH AR E DULY SUBSTANTIATED ON THE BASIS OF AN AFFIDAVIT, IT CAN SAFELY BE CONCLUDED THAT THE DELAY IN FILING OF THE APPEAL HAD OCCURRED NOT FOR ANY LAPSE OR MALAFIDE CONDUCT ON THE PART OF THE ASSESSEE , BUT ON ACCOUNT OF AN INADVERTENT LAPSE ON THE PART OF ITS A UDITORS VIZ. M/S THAR & COMPANY, C HARTERED ACCOUNTANTS. WE ARE OF THE CONSIDERED VIEW THAT AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF COLLECTOR LAND ACQUISITION VS. MS T . KATIJI & OTHERS (1987) 167 ITR 471 (SC), T HE LEGISLATURE HAS CONFERRED T HE PO WER TO CONDONE DELAY BY ENACTING SEC. 5 OF THE LIMITATION ACT , 1963 IN ORDER TO ENABLE THE COURTS TO DO SUBSTANTIAL JUSTICE TO PARTIES BY DISPOSI NG OFF MATTERS ON MERITS. IT IS FURTHER OBSERVED BY THE HONBLE APEX COURT THAT THE SUFFICIENT CAUSE FOR CONDON ATION OF DELAY INVOLVED IN FILING OF THE APPEAL SHOULD BE INTERPRETED WITH A VIEW TO DO EVEN - HANDED JUSTICE ON MERITS IN PREFERENCE TO AN APPROACH WHICH SCUTTLES A DECISION ON MERITS. WE THUS IN THE BACKDROP OF THE AFORESAID FACTS AND THE SETTLED POSITION OF LAW , ARE OF THE CONSIDERED VIEW THAT THE DELAY OF 48 DAYS IN FILING OF THE PRESENT APPEAL DESERVES TO BE CONDONED. IN TERMS OF OUR AFORESAID OBSERVATIONS WE CONDONE THE DELAY OF 48 DAYS INVOLVED IN FILING OF THE APPEAL BY THE ASSESSEE. 7. WE SHALL NOW ADVERT TO THE MERITS OF THE CASE. IN THE PRESENT APPEAL THE ASSESSEE HAS SOUGHT OUR INDULGENCE TO ADJUDICATE AS TO WHETHER THE CIT(A) IS RIGHT IN LAW AND FACTS OF THE CASE IN SUSTAINING P A G E | 7 ITA NO. 3169/MUM/2016 A.Y. 2010 - 11 M/S WADHAWAN HOLDINGS PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX THE DISALLOWANCE OF RS.1,39,89,537/ - MADE BY THE A.O UNDER S EC. 14A R.W. RULE 8D. THE LD. A.R AT THE VERY OUTSET OF THE HEARING OF THE APPEAL SUBMITTED , THAT THE LOWER AUTHORITIES WHILE COMPUTING THE DISALLOWANCE OF THE EXPENDITURE INCURRED FOR EARNING OF THE EXEMPT DIVIDEND INCOME UNDER SEC.14A R.W RULE 8D(2)(III) , HAD ERRED IN NOT RESTRICTING THE SCOPE OF THE DISALLOWANCE ONLY IN RESPECT OF THE INVESTMENTS YIELDING EXEMPT INCOME. IT WAS SUBMITTED BY THE LD. D.R , THAT THE A.O WHILE WORKING OUT THE DISALLOWANCE AS PER RULE 8D(2)(III) HAD WORKED OUT THE AFORESAID VA LUE OF INVESTMENTS BY NOT ONLY CONSIDERING SUCH INVESTMENTS INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE COMPANY ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR, BUT HAD ALS O CONSIDERED SUCH INVESTMENT S FROM WHICH WAS NO EXEMPT INCOME WAS EITHER RECEIVED OR RECEIVABLE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. IN SUPPORT OF HIS CONTENTION THAT NO DISALLOWANCE UNDER SEC.14A CAN BE MADE IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR , RELIANCE WAS PLACED BY THE LD. A.R ON THE ORDER OF THE TRIBUNAL IN THE ASSESSES OWN CASE FOR A.Y 2009 - 10 VIZ. M/S WADHAWAN HOLDINGS PVT. LTD. VS. ACIT, CENTRAL CIRCLE 5(4) , MUMBAI (ITA NO. 2662/MUM/2017; DATED 31.01.2018). THE LD. A.R TAKING US THROUGH THE FACTS INVOLVED IN ITS CASE FOR THE PRECEDING YEAR I.E A.Y 2009 - 10 SUBMITTED , THAT THE CIT(A) HAD IN THE SAID CASE CONSIDERED THE INVESTMENTS IN SHARES OF HDIL AND DHFL, AND ALSO INVESTMEN TS IN SHARES OF WADHWA FOOD RETAIL PVT. LTD. FOR THE PURPOSE OF WORKING OUT THE DISALLOWANCE UNDER SEC. 14A R.W RULE 8D(20(III). THE LD. A.R SUBMITTED THAT THE TRIBUNAL TAKING COGNIZANCE OF THE FACT THAT INVESTMENT IN SHARES OF WADHWA FOOD RETAIL PVT. LTD. DID NOT YIELD ANY EXEMPT INCOME FOR THE RELEVANT PERIOD, AND ALSO LTCG FROM SALE OF SHARES OF WADHWA FOOD RETAIL PVT. LTD WAS TAXABLE @ 20%, THEREFORE, P A G E | 8 ITA NO. 3169/MUM/2016 A.Y. 2010 - 11 M/S WADHAWAN HOLDINGS PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX DIRECTED THE A.O TO EXCLUDE THE INVESTMENTS IN SHARES OF WADHWA FOOD RETAIL PVT. LTD FOR THE PURPOSE OF DETERMINATION OF AVERAGE VALUE OF INVESTMENT WHILE COMPUTING THE DISALLOWANCE OF EXPENDITURE UNDER RULE 8D(2)(III) OF THE INCOME - TAX RULES, 1962. THE LD. A.R TAKING SUPPORT OF THE AFORESAID ORDER PASSED BY THE T RIBUNAL IN THE ASSESSES OWN CASE FOR A.Y 200 9 - 10 SUBMITTED, THAT ON A SIMILAR FOOTING IN THE PRESENT CASE THE DISALLOWANCE UNDER SEC. 14A R.W RULE 8D(2)(III) WAS LIABLE TO BE WORKED OUT BY TAKING INTO ACCOUNT ONLY THE INVESTMENTS MADE BY THE ASSESSEE IN SHARES WHICH HAD ACTUALLY YIELDED TAX FREE INC OME. IN SUPPORT OF HIS AFORESAID CONTENTION THE LD. A.R RELIED ON THE JUDGMENT OF THE HONBLE HIGH COURT OF DELHI IN CHEM I NVEST LTD. VS. CIT - IV (2015) 61 TAXMANN.COM 118 ( DELHI ) . THE LD. A.R TAKING SUPPORT OF THE AFORESAID JUDICIAL PRONOUNCEMENT SUBMITTED , THAT NOW WHEN THE VERY SINE QUA NON FOR WORKING OUT THE DISALLOWANCE UNDER SEC.14A WAS EARNING OF EXEMPT INCOME BY THE ASSESSEE, THEREFORE, IT COULD SAFELY BE CONCLUDED THAT FOR THE PURPOSE OF COMPUTING THE DISALLOWANCE AS PER RULE 8D ( 2)(III) ONLY THE AVERAGE OF EXEMPT INCOME YIELDING INVESTMENTS COULD ONLY BE CONSIDERED. ON THE BASIS OF HIS AFORESAID CONTENTION IT WAS SUBMITTED BY THE LD. A.R THAT THE DISALLOWANCE UNDER SEC. 14A R.W. R ULE 8D(2)(III) MAY BE RESTRICTED ONLY IN RESPECT OF THE INVESTMENT S FROM WHICH EXEMPT DIVIDEND INCOME WAS EITHER RECEIVED OR RECEIVABLE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. IT WAS FURTHER AVERRED BY THE LD. A.R THAT THE DISALLOWANCE UNDER SEC.14A WAS NOT TO BE CONSIDERED FOR WORKING OUT THE BOOK PROFIT UNDER SEC.115JB. 8. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. IT WAS SUBMITTED BY THE LD. D.R THAT NO INFIRMITY DID EMERGE FROM THE ORDER OF THE A.O WHO HAD RIGHTLY COMPU TED THE DISALLOWANCE UNDER SEC. 14A R.W. RULE 8D. IT WAS SUBMITTED BY THE LD. D.R THAT AS THE APPEAL OF THE ASSESSEE DID NOT MERIT ACCEPTANCE , HENCE THE SAME MAY BE DISMISSED. P A G E | 9 ITA NO. 3169/MUM/2016 A.Y. 2010 - 11 M/S WADHAWAN HOLDINGS PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX 9. WE HAVE HEARD THE AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED TH E ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. INSOFAR THE CONTENTION OF THE LD. A.R , THAT FOR THE PURPOSE OF COMPUTING THE DISALLOWANCE AS PER THE MACHINERY PROVISIONS CONTEMPLATED UNDER RULE 8D(2)(III) ONLY THE INVESTMENTS FROM W HICH EXEMPT DIVIDEND INCOME WAS EITHER RECEIVED OR RECEIVABLE BY THE ASSESSEE WERE TO BE CONSIDERED, WE FIND SUBSTANTIAL FORCE IN THE SAME. RULE 8D(2)(III) CONTEMPLATING THE DETERMINING OF THE ADMINISTRATIVE EXPENSES INVOLVED IN EARNING OF THE EXEMPT INCOM E BY T HE ASSESSEE, READS AS UNDER: III. AN AMOUNT OF EQUAL TO ONE - HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. ON A PERUSAL OF THE AFORESAID CLAUSE (III) OF SUB - RULE (2) OF RULE 8D, IT CAN SAFELY BE GATHERED THAT THE SAME CONTEMPLATES DISALLOWANCE OF ONE - HALF PERCENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOM E FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. WE ARE OF THE CONSIDERED VIEW THAT THE INCLUSION OF THE VALUE OF ANY NON - EXEMPT INCOME YIELDING INVESTMENT IS NOT CONTEMPLATED AS HEREINABOVE. WE FIND THAT THE TRIBUNAL IN THE ASSESSE S OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR VIZ. A.Y 2009 - 10 IN M/S WADHAWAN HOLDINGS PVT. LTD. VS. ACIT, CENTRAL CIRCLE 5(4), MUMBAI (ITA NO. 2662/MUM/201 7; DATED 31.01.2018), HAD CONCLUDED THAT THE DISALLOWANCE UNDER SEC. 14A R.W.RULE 8D(2)(III) IS TO BE WORKED OUT BY TAKING INTO ACCOUNT ONLY THE INVESTMENTS MADE BY THE ASSESSEE IN SHARES FROM WHICH EXEMPT DIVIDEND INCOME IS RECEIVED OR RECEIVABLE BY THE A SSESSEE DURING THE YEAR . THE TRIBUNAL TAKING COGNIZANCE OF THE FACT THAT INVESTMENT MADE BY THE ASSESSEE IN SHARES OF WADHWA FOOD RETAIL PVT. LTD. DID NOT P A G E | 10 ITA NO. 3169/MUM/2016 A.Y. 2010 - 11 M/S WADHAWAN HOLDINGS PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX YIELD ANY EXEMPT INCOME, HAD DIRECTED THE A.O TO EXCLUDE THE SAME FOR THE PURPOSE OF WORKING OUT THE DISALLOWANCE UNDER SEC. 14A R.W RULE 8D(2)(III). OUR AFORESAID VIEW THAT INVESTMENTS NOT YIELDING ANY EXEMPT INCOME ARE TO BE EXCLUDED FOR WORKING OUT THE DIS ALLOWANCE UNDER RULE 8D(2)(III) IS ALSO FORTIFIED BY THE ORDER OF THE ITAT KOLKATA, B ENCH A IN D CIT, CIRCLE - 1, KOLKATA VS. TEENLOK ADVISORY SERVICES (PVT. LTD.) (2016) 71 TAXMANN.COM 269 (KOLKATA). THE TRIBUNAL IN ITS AFORESAID ORDER HAD OBSERVED THAT DISALLOWANCE UNDER RULE 8D WITH RESPECT TO INCOME NOT INCLUD I BLE IN TOTAL INCOME HAS TO BE COMPUTED BY TAKING INTO CONSIDERATION ONLY THOSE SHARES WHICH HAS YIELDED DIVIDEND INCOME IN THE YEAR UNDER CONSIDERATION. FURTHER, A SIMILAR VIEW WAS ALSO TAKEN BY THE ITAT, KOLKATA BENCH A IN REI AGRO LIMITED VS. DCIT , CENTRAL CIRCLE XXVII, KOLKATA (2013) 35 T AXMAN.COM 494 (KOL). IT WAS OBSERVED BY THE TRIBUNAL THAT THE DISALLOWANCE UNDER RULE 8D WITH RESPECT TO INCOME NOT INCLUD I BLE IN TOTAL INCOME CANNOT BE COMPUTED BY TAKING INTO CONSIDERATION ENTIRE VALUE OF INVESTMENT S MADE BY THE ASSESSEE. STILL F URTHER, A SIMILAR VIEW HAD ALSO BEEN TAKEN BY THE ITAT , DELHI BENCH H (SPECIAL BENCH) IN THE CASE OF ACIT, CIRCLE 17(1), NEW DELHI VS. VIREET INVESTMENT (P) LTD. (2017) 82 TAXMAN.COM 415 (DEL)(SB). IN THE AFOREMENTIONED CASE , IT WAS OBSERVED BY THE TRIBUNAL THAT ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMENTS WHICH YIELDED EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION. 10. INSOFAR THE ISSUE AS TO WHETHER THE DISALLOWANCE COMPUTED UNDER SEC.14A IS TO BE CONSIDERED FOR THE PURPOSE OF COMPUTING THE BOOK PROFIT UNDER SEC.115JB OF THE ACT, WE FIND THAT THE SAID ISSUE HAD BEEN DELIBERATED UPON BY A COORDINATE BENCH OF THE TRIBUN AL I.E ITAT MUMBAI , L BENCH IN DCIT - 7(2), MUMBAI VS. RELIANCE NATURAL RESOURCES LTD. (2017) 166 ITD 385 (MUM) . I N THE AFORESAID CASE , IT WAS OBSERVED BY THE TRIBUNAL THAT WHERE THE ASSESSEE HAD EARNED P A G E | 11 ITA NO. 3169/MUM/2016 A.Y. 2010 - 11 M/S WADHAWAN HOLDINGS PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX EXEMPT DIVIDEND INCOME AND HAD COMPUTED DISALLOWANCE UNDER SEC. 14A AT CERTAIN AMOUNT, DISALLOWANCE COMPUTED UNDER SEC. 14A CANNOT BE IMPORTED INTO CLAUSE ( F ) OF EXPLANATION 1 TO SEC. 115 JB FOR THE PURPOSE OF COMPUTING BOOK PROFIT UNDER SEC.115JB. ON A SIMILAR FOOTING THE ITAT, KOLKATA BENCH C IN I NTEGR ATED COAL MINING LTD. VS. DCIT, C I RCLE 6, KOLKATA (2016) 66 TAXMAN.COM 260 (KOLKATA) HAD OBSERVED THAT COMPUTATION OF DISALLOWANCE UNDER RULE 8D CAN BE USED FOR COMPUTATION OF INCOME UNDER THE NORMAL PROVISIONS OF THE ACT , AND CANNOT BE CONSIDERED FOR COMP UTING THE BOOK PROFIT UNDER SEC.115JB OF THE ACT. 11 . IN THE BACKDROP OF THE AFORESAID FACTS, WE ARE OF THE CONSIDERED VIEW THAT THE DISALLOWANCE UNDER SEC.14A R.W RULE 8 D IS TO BE WORKED OUT BY TAKING INTO CONSIDERATION ONLY THOSE SHARES WHICH HAD YIEL DED EXEMPT DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERATION. FURTHER, IN TERMS OF OUR AFORESAID OBSERVATIONS , WE ARE ALSO PERSUADED TO SUBSCRIBE TO THE CLAIM OF THE LD. A.R THAT THE DISALLOWANCE WORKED OUT UNDER SEC. 14A R.W. RULE 8D CAN ONLY BE USED FO R COMPUTATION OF INCOME UNDER THE NORMAL PROVISIONS OF THE ACT , AND THE SAME CANNOT BE TRANSPOSED FOR WORKING OUT THE BOOK PROFIT UNDER SEC. 115JB OF THE ACT. IN THE BACKDROP OF OUR AFORESAID OBSERVATIONS, WE DIRECT THE A.O TO RE - WORK THE DISALLOWANCE UN DER SEC.14A R.W RULE 8D BY TAKING THE AVERAGE VALUE OF SUCH INVESTMENTS WHICH HAD ACTUALLY YIELDED TAX FREE INCOME TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. IN TERM S OF OUR AFORESAID OBSERVATIONS THE ORDER OF THE CIT(A) THEREIN CONCLUDING THAT T HE A.O WAS JUSTIFIED IN WORKING OUT THE AVERAGE VALUE OF INVESTMENT FOR THE PURPOSE OF COMPUTING THE DISALLOWANCE UNDER RULE 8D(2)(III) BY CONSIDERING THE INVESTMENTS IN SHARES , IRRESPECTIVE OF WHETHER SUCH INVESTMENT HAD YIELDED ANY EXEMPT INCOME DURING THE RELEVANT PERIOD , IS SET ASIDE . THE MATTER IS RESTORED TO THE FILE OF THE P A G E | 12 ITA NO. 3169/MUM/2016 A.Y. 2010 - 11 M/S WADHAWAN HOLDINGS PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX A.O WITH A DIRECTION TO RE - WORK THE DISALLOWANCE UNDER SEC. 14A R.W RULE 8D(2)(III) IN TERMS OF OUR F ORESAID OBSERVATIONS. 1 2 . THE APPEAL OF THE ASSESSEE IS ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS. ORDER PR ONOUNCED IN THE OPEN COURT ON 3 0 .11.2018 S D / - S D / - ( G.S.PANNU ) (RAVISH SOOD) VICE PRESIDENT JUDICIAL MEMBER MUMBAI ; 30 .11.2018 PS. ROHIT / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI P A G E | 13 ITA NO. 3169/MUM/2016 A.Y. 2010 - 11 M/S WADHAWAN HOLDINGS PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX