DCIT 8(1)(OSD), MUMBAI V. OVIRA LOGISTICS P. LTD, MUMBAI

ITA 3230/MUM/2012

• Counselvise Citation: 323019914 RSA 2012
• Duration Of Justice: 1 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 26-06-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 09-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D V LAKHANI IZRFKHZ DH LS
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 115JB; 10

Judgement Text

OVIRA LOGISTICS LTD ( NOW MERGED WITH IL&FS MARITIME INFRASTRUCTURE COMPANY LTD - 1 - VK;DJ VIHYH; VF/KDJ.K LH U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI JH ,P- ,Y- DKJOK] V/;{K ,OA JH JKTSUNZ FLAG YS[KK L NL; DS LE{K BEFORE HONBLE PRESIDENT SHRI H.L. KARWA AND SHRI R AJENDRA SINGH ACCOUNTANT MEMBER VK;DJ VIHY LA[;K /ITA NO.3230MUM/2012 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2008-09 DEPUTY COMMISSIONER OF INCOME TAX, RANGE -8(1) (OSD), MUMBAI CUKE@ VS. OVIRA LOGISTICS LTD ( NOW MERGED WITH IL&FS MARITIME INFRASTRUCTURE COMPANY LTD) PLOT NO. 14, RAJEHA VIHAR, IL&FS HOUSE, CHANDIVALI, ANDHERI (E), MUMBAI 400 072 PAN:- AAACO18822F VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT VK;DJ VIHY LA[;K /ITA NO.2439/MUM/2012 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2008-09 OVIRA LOGISTICS LTD ( NOW MERGED WITH IL&FS MARITIME INFRASTRUCTURE COMPANY LTD) PLOT NO. 14, RAJEHA VIHAR, IL&FS HOUSE, CHANDIVALI, ANDHERI (E), MUMBAI 400 072 CUKE@ VS. DEPUTY COMMISSIONER OF INCOME TAX, RANGE -8(1) (OSD), MUMBAI PAN:- AAACO18822F VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT VIHYKFKHZ DH VKSJ LS @ APPELLANT BY SHRI D.V. LAKHANI IZR;FKHZ DH VKSJ LS @ RESPONDENT BY SHRI DEEPAK SUTARIYA VKNS'K@ VKNS'K@ VKNS'K@ VKNS'K@ ORDER PER RAJENDRA SINGH THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 23.2.2012 OF CIT(A) FOR THE ASSESSMENT YEARS 2008-09. THE DIS PUTE RAISED IN THESE LQUOKBZ DH RKJH[K @ DATE OF HEARING 27-08-2013 ?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT 30-08-2013 OVIRA LOGISTICS LTD ( NOW MERGED WITH IL&FS MARITIME INFRASTRUCTURE COMPANY LTD - 2 - APPEALS RELATE TO DISALLOWANCE OF INTEREST AND OTHE R EXPENSES AND ADJUSTMENT MADE BY AO WHILE COMPUTING THE BOOK PROF IT U/S 115JB OF THE INCOME TAX ACT. 2. WE FIRST TAKE UP THE APPEAL OF THE REVENUE IN IT A NO. 3230/MUM/2012 . IN THIS APPEAL THE REVENUE HAS RAISED DISPUTES RE LATING TO DISALLOWANCE OF INTEREST AND OTHER EXPENSES. 2.1 FACTS CONFIRMING THE DISALLOWANCE OF INTEREST A RE THAT THE AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD CLAIMED FINANCIAL CHARGES OF RS. 4,93,27,754/-. AO, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN THE JUSTIFICATION OF SUCH INTEREST EXPENSES FOR THE PURPOSE OF BUSINESS. THE ASSESSEE SUBMITTED THAT IT HAD BORROWED MONEY IN TH E EARLIER YEARS FOR THE PURPOSE OF BUSINESS AND OUTSTANDING BORROWINGS WERE TO THE TUNE OF RS.52.78 CRORE AS ON 31.3.2003. THE ASSESSEE HAD A SMALL CAPITAL BASE AND SINCE IT WAS INCURRING LOSSES, THE LOSSES WERE FUND ED BY THE BORROWINGS. IT WAS THUS CLEAR THAT THE BORROWINGS HAD BEEN USED FO R THE PURPOSE OF BUSINESS. THE BORROWINGS HAD BEEN MADE AT VERY HIGH ER INTEREST RATE AND, THEREFORE, TO REDUCE THE COST OF BORROWINGS THE ASS ESSEE HAD ISSUED BONDS WORTH RS. 55 CRORE IN ASSESSMENT YEAR 2007-08 ON 27 -9-2006. MONEY RAISED THROUGH BONDS WERE USED TO REPAY THE LOANS T O THE EXTENT OF RS. 54.99 LAKH ON THE SAME DATE I.E. 27.9.2006. THUS TH E INTEREST EXPENDITURE HAD BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF BUSINESS. THE AO HOWEVER DID NOT ACCEPT THE EXPLANATION GIVEN. IT WAS OBSERVED BY HIM THAT PRIOR TO ASSESSMENT YEAR 2005-06 THE ASSESSEE WAS ONLY HAVING CAR RENTAL AND OTHER INCOME. IN ASSESSMENT YEAR 2005-06 , THE ASSESSEE STARTED PROFESSIONAL WORK OF BROKERAGE/ COMMISSION AND ALSO BUSINESS OF BPO. THE BPO BUSINESS AND CAR RENTAL BUSINESS HAD BEEN SOLD IN ASSESSMENT YEAR 2007-08. IT WAS ALSO OBSERVED BY HIM THAT THE LOANS TAKEN BY THE ASSESSEE IN THE EARLIER YEARS HAD BEEN MAINLY USED TOWARDS T HE INVESTMENT CURRENT LOANS AND ADVANCES. DURING THE CURRENT YEAR I.E. AS SESSMENT YEAR 2008-09 THE ASSESSEE HAD EARNED ONLY INTEREST INCOME AND BR OKERAGE INCOME FOR WHICH NO BORROWINGS HAD BEEN UTILIZED. HE, THEREFOR E, DISALLOWED THE OVIRA LOGISTICS LTD ( NOW MERGED WITH IL&FS MARITIME INFRASTRUCTURE COMPANY LTD - 3 - INTEREST EXPENDITURE OF RS. 4,92,87,061/-. HE ALSO COMPUTED DISALLOWANCE OF INTEREST U/S 14A OF RS. 1,48,32,122/-. SINCE ENT IRE INTEREST WAS ALREADY DISALLOWED, NO FURTHER DISALLOWANCE WAS MADE U/S 14 A. 2.2 THE ASSESSEE DISPUTED THE DECISION OF AO AND SU BMITTED BEFORE CIT(A) THAT THE ASSESSEE HAD BEEN CARRYING ON DIFFE RENT BUSINESS ACTIVITIES AND ALL THE ACTIVITIES WERE UNDER COMMON ADMINISTR ATION AND MANAGEMENT OF THE BOARD OF DIRECTORS WITH COMMON SOURCE OF FUN DS. THERE WAS UNIT OF CONTROL WHICH WAS INDICATED BY INTERLACING, INTERDE PENDENCE AND INTERCONNECTION BETWEEN THE BUSINESSES. THE INTERES T EXPENDITURE INCURRED ON BORROWINGS IN EARLIER YEARS INCLUDING THE ASSESS MENT YEAR 2007-08IN WHICH THE BONDS WERE ISSUED HAD BEEN ALLOWED BY THE AO. THE ASSESSMENT IN ASSESSMENT YEAR 2007-08 WAS COMPLETED U/S 143(3) . THE INTEREST CLAIMED IN ASSESSMENT YEAR 2008-09 WAS IN RESPECT O F THE SAME BOND ON WHICH THE INTEREST HAD BEEN ALLOWED BY AO IN ASSESS MENT YEAR 2007-08. THERE WAS NO FURTHER BORROWINGS, MADE IN THE ASSESS MENT YEAR 2008-09. THE AO HIMSELF HAS TAXED THE INCOME OF THE ASSESSEE UNDER THE HEAD BUSINESS AND, THEREFORE, THE EXPENSES INCURRED IN CLUDING INTEREST HAVE TO BE ALLOWED. IT WAS ALSO SUBMITTED THAT THERE WAS NO REQUIREMENT U/S 36(1(III) THAT THE INTEREST PAYMENT SHOULD BE RELA TING ON THE SAME BUSINESS HAVE FALLEN ALLOWING THE INTEREST EXPENDITURE. THE ONLY REQUIREMENT WAS THAT THE FUNDS SHOULD HAVE BEEN BORROWED FOR THE PU RPOSE OF BUSINESS. EVEN IF THE ASSESSEE HAD DISCONTINUED PART OF THE B USINESS, THE LOSS INCURRED IN RESPECT OF SAID BUSINESS HAS TO BE ALLO WED AGAINST THE INCOME FROM THE REMAINING BUSINESS. THE ASSESSEE PLACED RE LIANCE ON THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF VEECUM SEES VS. CIT (220 ITR 185). IT WAS ALSO SUBMITTED THAT DURING TH E YEAR THE ASSESSEE HAD NOT TRADED IN ANY SHARES AND SECURITIES. THE ASSESS EE CONTINUED TO CARRY ON BUSINESS ACTIVITIES. THERE WERE NO FACTUAL CHANG ES SINCE ASSESSMENT YEAR 2007-08 IN WHICH YEAR THE CLAIM HAS BEEN ALLOW ED. IT WAS, THEREFORE, URGED THAT THE CLAIM SHOULD BE ALLOWED THIS YEAR AL SO. OVIRA LOGISTICS LTD ( NOW MERGED WITH IL&FS MARITIME INFRASTRUCTURE COMPANY LTD - 4 - 2.3 CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT INTEREST ON BORROWINGS MADE IN THE EARLIER YEA RS HAD BEEN ALLOWED AND THE SAME BORROWINGS WERE REPLACED BY THE BONDS IN A SSESSMENT YEAR 2007- 08 AND INTEREST ON THE BONDS WERE ALSO ALLOWED AND, THEREFORE, IT WAS ACCEPTED BY THE DEPARTMENT THAT THE BORROWINGS OR B ONDS HAD BEEN ISSUED FOR THE PURPOSE OF BUSINESS. EVEN IF THE CAR RENTAL BUSINESS AND BPO BUSINESS HAD BEEN TRANSFERRED IN ASSESSMENT YEAR 20 07-08, THE LOANS TAKEN EARLIER CONTINUED TO BE USED FOR THE PURPOSE OF BUSINESS. THERE WAS NO DISPUTE THAT LOANS HAD BEEN TAKEN IN THE EARLIER YEAR FOR THE PURPOSE OF BUSINESS AND, THEREFORE, INTEREST HAD TO BE ALLOWED . CIT(A) ACCORDINGLY, DIRECTED THE AO TO DELETE THE ADDITION MADE ON ACCO UNT OF DISALLOWANCE OF INTEREST, AGGRIEVED BY WHICH THE REVENUE IS IN APPE AL BEFORE TRIBUNAL. 2.4 BEFORE US LEARNED AR FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES WHEREAS THE LEARNED D R PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICER. 2.5 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF INTEREST I N RESPECT OF BONDS ISSUED BY THE ASSESSEE. THESE BONDS WERE ISSUED IN ASSESSM ENT YEAR 2007-08 TO REPAY THE LOANS TAKEN IN THE EARLIER YEARS. IN THE EARLIER YEARS WHEN THE LOANS WERE TAKEN, INTEREST HAD BEEN ALLOWED AS DEDU CTION WHICH MEANS THE DEPARTMENT ACCEPTED THE CLAIM THAT THE BORROWINGS W ERE FOR THE PURPOSE OF BUSINESS. IN ASSESSMENT YEAR 2007-08, THE SAME BORR OWINGS WERE REPLACED BY BONDS, THEREFORE, THE NATURE OF BORROWINGS REMAI NED THE SAME IN ASSESSMENT YEAR 2007-08. THOUGHT THE CAR RENTAL BUS INESS AND BPO BUSINESS HAS BEEN TRANSFERRED, ASSESSEE CONTINUED T O DO THE BUSINESS AND THE INCOME HAS BEEN ASSESSED BY AO UNDER THE HEAD BUSINESS. THEREFORE, EVEN IF PART OF THE BUSINESS HAS BEEN TR ANSFERRED, BORROWINGS MADE EARLIER FOR THE PURPOSE OF BUSINESS CONTINUED TO REMAIN FOR THE PURPOSE OF BUSINESS AND THE CLAIM OF DEDUCTION HAS TO BE ALLOWED. IN FACT IN ASSESSMENT YEAR 2007-08 THE AO HAS HIMSELF HAVE ALLOWED INTEREST ON ACCOUNT OF BONDS ISSUED AND, THEREFORE, THE FACTS R EMAINING THE SAME THIS OVIRA LOGISTICS LTD ( NOW MERGED WITH IL&FS MARITIME INFRASTRUCTURE COMPANY LTD - 5 - YEAR, THE DISALLOWANCE CANNOT BE JUSTIFIED. HOWEVE R THE ASSESSEE HAS MADE SUBSTANTIAL INVESTMENTS IN SHARES INCOME FROM WHICH IS EXEMPT. THEREFORE THE DISALLOWANCE OF INTEREST U/S 14A IS UPHELD. SUB JECT TO ABOVE THE ORDER OF CIT(A) ON THIS ISSUE IS CONFIRMED. 3. THE FACTS REGARDING THE DISALLOWANCE OF OTHER EX PENSES ARE THAT THE AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD CLAIMED EXPENDITURE OF RS. 18,62,253/- TOWARDS SALA RY TO EMPLOYEES DEPUTED FROM IL&FS, RS. 9,50,407/- ON ACCOUNT OF R ENT TO IL&FS, AND OTHER EXPENSES AGGREGATING TO RS. 30,33,044/-. THE AO OBSERVED THAT THE COST OF EMPLOYEES TAKEN ON DEPUTATION, THE RENTAL C HARGES AND OTHER EXPENSES CLAIMED BY THE ASSESSEE WERE NOT COMMENSUR ATE WITH THE BUSINESS OF THE ASSESSEE AS THERE WAS ONLY ONE TRAN SACTION DURING THE YEAR. HE, THEREFORE, RESTRICTED THE SALARY EXPENSES TO RS . 12,00,000/- AND OTHER EXPENSES WERE TOTALLY DISALLOWED AS PER DETAILS GIV EN BELOW;- CLAIMED TREATMENT ALLOWED/DISALLOWED ALLOWED AMOUNT DISALLOWED AMOUNT SALARIIES AND STAFF BENEFIT 18,62,253/- PARTIALLY A LLOWED 12,00,000/- 6,62,253/- RENT 9,50,407/- DISALLOWED - 9,50,407/- SUBSCRIPTION TO INTERNET FESS OTHER MISCELLANEOUS EXPENSES 90,845/- DISALLOWED - 90,845/- ROC EXPENSES 1,020/- DISALLOWED - 1,020/- OTHERS LEGAL FEES 1,23,929/- DISALLOWED - 1,23,929/- ROC FILLING EXPENSES 4,590/- DISALLOWED - 4,590/- TOTAL 30,33,044/- 12,00,000/- 18,33,044/- 3.1 THE AO ALSO NOTED THAT THE ASSESSEE HAD CLAIMED AUDIT EXPENSES AT RS. 8, 25,000/- ON ACCOUNT OF STATUTORY AUDIT AND I NTERNAL AUDIT WHICH WAS ON THE HIGHER SIDE AS AUDITORS OF THE ASSESSEE COMP ANY WERE ALSO AUDITORS OF IF&LS AND MANY OTHER RELATED COMPANIES OF IL&FS. IT WAS OBSERVED BY OVIRA LOGISTICS LTD ( NOW MERGED WITH IL&FS MARITIME INFRASTRUCTURE COMPANY LTD - 6 - HIM THAT THE ASSESSEE HAD MADE A HIGHER CLAIM ONLY TO REDUCE THE INCOME TO AVOID TAXATION. HE, THEREFORE, ALLOWED THE AUDIT EXPENSES ONLY AT RS. 5,00,000/- AND THE BALANCE AMOUNT OF RS. 3,25,000/- WAS DISALLOWED. REGARDING S.T.T, 6,02,322/-. AO OBSERVED THAT THE S AME PERTAINED TO ASSESSMENT YEAR 2007-08 AND WAS NOT ALLOWABLE THIS YEAR AND ACCORDINGLY DISALLOWED THE SAME. SIMILARLY THE CLAIM OF RS. 5,0 6,789/- BEING THE MARGIN FUNDING INTEREST PAID TO IL&FS WAS ALSO DISA LLOWED. THE AO ALSO NOTED THAT THE ASSESSEE HAD CLAIMED TOTAL EXPENDITU RE OF RS. 30,14,745/- RELATING TO VARIOUS HEADS WHICH INCLUDED A SUM OF R S. 24,16,600/- ON ACCOUNT OF STAMP DUTY PAID IN RELATION TO ISSUE OF BONDS AND RS. 5,81,055/- PAID TO VARIOUS PROFESSIONALS. THE AO DI SALLOWED THE STAMP DUTY IN RELATION TO BONDS ON THE GROUND THAT THE SA ME WAS NOT FOR THE PURPOSE OF BUSINESS. SIMILARLY THE PROFESSIONAL EXP ENDITURE OF RS. 5,81,055/- WAS ALSO DISALLOWED ON THE GROUND THAT T HE ASSESSEE HAD ALREADY PAID INTERNAL AUDIT FEES AND SUCH EXPENDITU RE HAD NO NEXUS WITH EARNING OF INCOME. THE TOTAL DISALLOWANCE MADE BY A O WAS THUS AT RS. 62,64,810/-. 3.2 THE ASSESSEE DISPUTED THE DECISION OF AO AND SU BMITTED BEFORE CIT(A) THAT THE EMPLOYEES TAKEN ON DEPUTATION HAD W ORKED FULL TIME IN THE COMPANY AND COMPLETE DETAILS ALONG WITH NAMES AND S ALARY PAID HAD BEEN SUBMITTED BEFORE THE AO. THE RENT HAD BEEN PAID FOR USE OF OFFICE PREMISES AND THE TAX HAD BEEN DEDUCTED AT SOURCE. THE OTHER EXPENSES SUCH AS ROC EXPENSES AND INTERNET EXPENSES ETC. WERE FOR THE PU RPOSE OF BUSINESS. IT WAS ALSO POINTED OUT THAT AUDIT EXPENSES HAD BEEN I NCURRED FOR INTERNAL AUDIT, STATUTORY AUDIT AND TAX AUDIT WHICH WAS ALLO WABLE AS DEDUCTION. THE ASSESSEE WAS INCURRING LOSSES AND, THEREFORE, THERE WAS NO ADVANTAGE IN INFLATING THE EXPENSES. THE S.T.T. EXPENSES WERE AL LOWABLE AS EXPENDITURE IN ASSESSMENT YEAR 2008-09. THE SUM OF RS. 5,06,789 /- RELATED TO THE INTEREST PAID TO IL&FS. THE INTEREST HAD BEEN PAID BUT NOT CLAIMED IN EARLIER YEARS PENDING RECONCILIATION WHICH WAS DON E IN THIS YEAR AND, THEREFORE, THE CLAIM WAS MADE. IT WAS ALSO POINTED OUT THAT THE STAMP DUTY PAID ON ISSUE OF BONDS WAS ALLOWABLE AS DEDUCTION A S BONDS WERE ISSUED OVIRA LOGISTICS LTD ( NOW MERGED WITH IL&FS MARITIME INFRASTRUCTURE COMPANY LTD - 7 - FOR THE PURPOSE OF BUSINESS. SIMILARLY THE PROFESSI ONAL EXPENSES WERE ALSO INCURRED FOR THE PURPOSE OF BUSINESS AND HAD NOTHIN G TO DO WITH THE AUDIT AND, THEREFORE, ALLOWABLE AS EXPENDITURE. IN RELATI ON TO S.T.T, PAYMENT IT WAS SUBMITTED THAT THE PAYMENT HAD BEEN MADE IN THE EARLIER ASSESSMENT YEARS AND WAS SHOWN AS AMOUNT RECOVERABLE FROM THE BROKER BECAUSE OF DISPUTES WHICH WAS SETTLED IN THIS YEAR AND, THEREF ORE, THE CLAIM WAS MADE IN THIS YEAR. CIT(A) AFTER CONSIDERING THE SUBMISSI ON OF THE ASSESSEE OBSERVED THAT THE VARIOUS EXPENSES CLAIMED BY THE A SSESSEE HAD BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND, THEREFORE COULD NOT BE DISALLOWED ONLY ON THE GROUND THAT THE SAME WERE NOT COMMENSUR ATE WITH THE INCOME EARNED. THE WRITE OFF OF THE SUM OF RS. 5,06,789/- WAS ALLOWABLE IN THIS YEAR AS THE DISPUTE WAS SETTLED IN THIS YEAR. THE S TAMP DUTY HAD BEEN PAID IN RELATION TO BONDS ISSUED IN ASSESSMENT YEAR 2007 -08 BUT PROCESS FOR CREATING THE CHARGE IN FAVOUR OF THE BOND HOLDERS W AS COMPLETED THIS YEAR. THESE EXPENSES WERE ALLOWABLE AS THE SAME WERE INCU RRED IN CONNECTION WITH RAISING THE FUNDS FOR THE PURPOSE OF BUSINESS IN VIEW OF THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF INDIA CEMENTS L TD. (60 ITR 52). THE PROFESSIONAL FEES OF RS. 5,81,055/- HAD BEEN PAID F OR THE PURPOSE OF ACCOUNTING WORK, PREPARATION TO CASH FLOW, COMPILAT ION OF FINANCIAL STATEMENTS, LEGAL WORK ETC AND, THEREFORE, THESE EX PENSES COULD NOT BE DISALLOWED. CIT (A), THEREFORE, DIRECTED THE AO TO DELETE THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF THESE EXPENSES. HE HO WEVER CONFIRMED THE DISALLOWANCE OF S.T.T. EXPENSES. AGGRIEVED BY THE D ECISION OF CIT(A) THE REVENUE IS IN APPEAL BEFORE TRIBUNAL. 3.3 BEFORE US THE LEARNED AR FOR THE ASSESSEE REITE RATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES WHEREAS THE LEARNED D R PLACED RELIANCE ON THE FINDINGS GIVEN IN THE ASSESSMENT ORDER. 3.4 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE OF VARIOUS EX PENSES. THE MAJOR DISALLOWANCE WAS ON ACCOUNT OF DISALLOWANCE OF SALA RIES OF RS. 6,62,253/- OUT OF TOTAL CLAIM OF RS. 18,62,253/-, ON ACCOUNT OF RENT OF RS. 9,50,407/- OVIRA LOGISTICS LTD ( NOW MERGED WITH IL&FS MARITIME INFRASTRUCTURE COMPANY LTD - 8 - STAMP DUTY ON BONDS OF RS. 24,16,600/-, AUDIT EXPEN SES OF RS. 3,25,000/-, BALANCE WRITTEN OFF OF RS. 5,06,789/- AND PROFESSIO NAL EXPENSES OF RS. 5,81,055/-. THE ASSESSEE HAD PAID SALARY TO EMPLOYE ES TAKEN ON DEPUTATION FROM IL&FS COMPLETE DETAILS OF WHICH HAD BEEN GIVEN BEFORE THE AO. THE RENT HAD BEEN PAID FOR OFFICE PREMISES. THE SE EXPENSES HAVE BEEN MAINLY DISALLOWED ON THE GROUND THAT THESE WERE NOT COMMENSURATE WITH THE INCOME EARNED. THIS APPROACH IS HOWEVER NOT LEG ALLY TENABLE. EXPENSES INCURRED FOR THE PURPOSE OF BUSINESS HAVE TO BE ALL OWED EVEN IF THERE IS NO INCOME EARNED OR THERE IS LOSS IN THE BUSINESS. THE DISALLOWANCE IS, THEREFORE, NOT JUSTIFIED. THE STAMP DUTY OF RS. 24, 16,600/-, PAID IN RELATION TO BONDS ISSUED IN ASSESSMENT YEAR 2007-08 AND THE PROCESS OF CREATING CHARGE IN FAVOUR OF THE BOND HOLDERS WAS COMPLETED IN THE ASSESSMENT YEAR 2008-09. THE EXPENDITURE HAD BEEN INCURRED IN CONNE CTION THE BORROWINGS WHICH ALLOWABLE AS DEDUCTION IN VIEW OF THE JUDGMEN T OF HONBLE SUPREME COURT IN CASE OF INDIA CEMENTS LTD (SUPRA). THE AUD IT EXPENSES HAD BEEN INCURRED ON INTERNAL AUDIT, STATUTORY AUDIT AND TAX AUDIT WHICH ARE REQUIRED TO BE ALLOWED FOR THE PURPOSE OF BUSINESS. THE AMOUNT WRITTEN OFF OF RS. 5,06,789/- WAS ON ACCOUNT OF INTEREST PAYABL E TO IL&FS, THE INTEREST HAD BEEN PAID BY THE ASSESSEE IN THE EARLIER YEARS BUT WAS NOT CLAIMED AS DEDUCTION DUE TO DISPUTE WITH IL&FS. CIT(A) HAS GIV EN A CLEAR FINDING THAT THE DISPUTE HAS BEEN SETTLED IN ASSESSMENT YEAR 200 8-09 AND, THEREFORE, THE CLAIM WAS ALLOWABLE IN THIS YEAR. THE PROFESSIO NAL EXPENSES OF RS. 5,81,055/- HAVE BEEN INCURRED FOR THE PURPOSE OF AC COUNTING WORK PREPARATION OF CASH FLOW AND COMPILATION OF FINANCI AL STATEMENTS AS PER THE FINDING GIVEN BY CIT(A) AND, THEREFORE, SUCH EXPENS ES HAVE TO BE ALLOWED FOR THE PURPOSE OF BUSINESS. WE, THEREFORE, SEE NO INFI RMITY IN THE ORDER OF CIT(A) IN ALLOWING THESE EXPENSES. THE ORDER OF CIT (A) IS, THEREFORE UPHELD. 4. WE NOW TAKE UP THE APPEAL OF THE ASSESSEE IN ITA NO. 2439/MUM/2012. THE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDIN G ADJUSTMENT OF RS. 1,48,32,122/- MADE U/S 115JB ON A CCOUNT OF DISALLOWANCE MADE U/S 14A OF THE INCOME TAX. THE AD DITION HAD BEEN MADE WHILE COMPUTING THE BOOK PROFIT U/S 115JB IN T ERMS OF THE PROVISIONS OVIRA LOGISTICS LTD ( NOW MERGED WITH IL&FS MARITIME INFRASTRUCTURE COMPANY LTD - 9 - TO CLAUSE (F) TO THE EXPLANATION 1 OF SECTION 115JB AS PER WHICH EXPENSES RELATABLE TO ANY INCOME WHICH IS EXEMPT U/S 10 IS R EQUIRED TO BE ADDED TO THE BOOK PROFIT. THE ASSESSEE SUBMITTED BEFORE THE AO THAT IT HAD NOT INCURRED ANY DIRECT EXPENSES FOR MAKING OF INVESTME NTS AND, THEREFORE, NO DISALLOWANCE OF INTEREST WAS REQUIRED TO BE MADE. A O HOWEVER COMPUTED THE DISALLOWANCE OF INTEREST AND OTHER EXPENSES AS PER RULE 8D AT RS. 1,48,32,122/- AND THIS AMOUNT WAS ADDED TO THE BOOK PROFIT U/S 115JB. IN APPEAL CIT(A) CONFIRMED THE ADDITION MADE BY AO, AG GRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. 4.1 BEFORE US, LEARNED AR FOR THE ASSESSEE SUBMITTE D THAT ONLY THE EXPENDITURE ACTUALLY INCURRED IN RELATION TO THE EX EMPT INCOME AND DEBITED TO THE P&L ACCOUNT COULD BE ADDED UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB. IT WAS ALSO SUBMITTED THAT NO ADJUST MENT ON THIS ACCOUNT COULD BE MADE AS PER THE DISALLOWANCE MADE UNDER RU LE 8D. RELIANCE WAS PLACED ON THE DECISION OF DELHI BENCH OF TRIBUNAL I N CASE OF GOETZE (INDIA) LTD. V. COMMISSIONER OF INCOME-TAX (32 SOT 101) WHI CH WAS FOLLOWED BY ANOTHER BENCH OF DELHI TRIBUNAL IN CASE OF QUIPPO T ELECOM INFRASTRUCTURE LTD. V/S ACIT IN ITA NO. 4931/DEL/2010 AND BY THE MUMBAI BENCH OF TRIBUNAL IN CASE OF M/S ESSAR TELEHONDINGS LTD. IN ITA NO. 3850/MUM/2010. IT WAS, THEREFORE, REQUESTED THAT TH E ADDITION MAY BE DELETED. THE LEARNED DR ON THE OTHER HAND STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW AND PLACED RELIANCE ON THE FINDIN G GIVEN IN THE RESPECTIVE ORDERS. 4.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ADJUSTMENT TO B E MADE TO THE BOOK PROFIT IN TERMS OF EXPLANATION 1(F) OF SECTION 115J B. AS PER THE SAID CLAUSE EXPENDITURE RELATABLE TO INCOME EXEMPT U/S 10 IS RE QUIRED TO BE ADDED TO THE BOOK PROFIT. THE ISSUE IS WHETHER THE STATUTORY DISALLOWANCE MADE AS PER RULE 8D OF SECTION 14A IN RELATION TO EXEMPT I NCOME CAN BE ADDED WHILE COMPUTING THE BOOK PROFIT. THIS ISSUE HAD BEE N CONSIDERED BY THE DELHI BENCH OF TRIBUNAL IN CASE OF GOETZE (INDIA) L TD. V. COMMISSIONER OF OVIRA LOGISTICS LTD ( NOW MERGED WITH IL&FS MARITIME INFRASTRUCTURE COMPANY LTD - 10 - INCOME-TAX (SUPRA) IN WHICH IT HAS BEEN HELD THAT P ROVISIONS OF SECTION 14A COULD NOT BE IMPORTED INTO CLAUSE (F) TO EXPLANATIO N 1 TO THE SECTION 115JB WHILE COMPUTING BOOK PROFIT. IT WAS ALSO HELD THAT ONLY THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME AND DEBITED T O P&L ACCOUNT CAN BE ADDED WHILE COMPUTING THE BOOK PROFIT. THE SAID DEC ISION OF TRIBUNAL WAS FOLLOWED BY ANOTHER BENCH OF DELHI TRIBUNAL IN CASE OF QUIPPO TELECOM INFRASTRUCTURE LTD. V/S ACIT (SUPRA) AND ALSO BY TH E MUMBAI BENCH OF TRIBUNAL IN CASE OF M/S ESSAR TELEHONDINGS LTD (SUP RA). NO CONTRARY JUDGMENT OF JURISDICTIONAL HIGH COURT OR THE APEX C OURT ON THIS ISSUE HAS BEEN BROUGHT TO THE NOTICE BY THE LD. DR. THEREFORE , RESPECTFULLY FOLLOWING THE DECISIONS OF COORDINATE BENCHES OF TRIBUNAL, WE SET ASIDE THE ORDER OF CIT(A) ON THIS POINT AND DELETE THE ADDITION MADE. 5. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED WHE REAS THAT OF THE REVENUE IS PARTLY ALLOWED. 6. ORDER PRONOUNCED ON 30 -8-2013 SD/- SD/- (H.L. KARWA) (RAJENDRA SINGH) HONBLE PRESIDENT ACCOUNTANT MEMBER SKS SR. P.S, MUMBAI DATED 30.8.2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI