INDUSTRIAL DEVELOPMENT BANK OF INDIA , MUMBAI V. JT. CIT- 19 , MUMBA

ITA 3626/MUM/2001

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2524 (ITAT-MUMBAI)
• Duration Of Justice: 18 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 1997-1998
• Appeal Filed On: 30-05-2001
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AWUNGSHI GINSON
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Capital Gains
• Section: 250; 32; 10

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL C BENCH MUMB AI BEFORE SHRI G.S. PANNU, VICE PRESIDENT AND SHRI PAWAN SINGH JUDICIAL MEMBER ITA NO. 3626/MUM/2001 (ASSESSMENT YEAR 1997-98 ) INDUSTRIAL DEVELOPMENT BANK OF INDIA, TAXATION CELL, ICBI TOWER, 4 TH FLOOR, WTC COMPLEX, CUFF PRADE, MUMBAI-400005 PAN: AACI 1105 R VS JOINT COMMISSIONER OF INCOME TAX, RANGE -19, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI-400020 APPELLANT RESPONDENT APPELLANT BY : SH. SATISH MODY AR RESPONDENT BY : SH. AWUNGSHI GINSON ( SR. DR) DATE OF HEARING : 23.04.2019 DATE OF PRONOUNCEMEN T : 21.06.2019 ORDERUNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER ; 1. THIS APPEAL BY ASSESSEE UNDER SECTION 253 OF INCOME TAX ACT IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME (APPEALS) -XXVI, MUMBAI DATED 30.03.2011, WHICH IN TURN ARISES FROM THE ASSESSMENT ORDER PASSED UNDER SECTION 143 (3) OF THE INCOME TAX ACT (ACT) DATED 25.02.2000 FOR ASSESSMEN T YEAR 1997- 98.THE ASSESSEE HAS RAISED FOLLOWING GROUND OF APPE AL ; AGGRIEVED BY THE APPELLATE ORDER DATED 30TL1 MARCH, 2001 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) XXVI [C IT (A)], MUMBAI FOR THE ASSESSMENT YEAR 1997-98 U/S 250 OF T HE I.T. ACT, THE APPELLANT BEGS TO FILE THIS APPEAL AND RAISE THE FO LLOWING GROUNDS OF APPEAL, WHICH ARE INDEPENDENT OF AND WITHOUT PREJUD ICE TO EACH OTHER. 2 IDBI (ITA NO. 3626/M/2001) AY 1997-98 1. CLAIM OF DEPRECIATION ON ASSETS GIVEN ON LEASE: 1.1 THE LEARNED CIT(A) OUGHT TO HAVE ALLOWED THE DE PRECIATION CLAIM MADE BY THE APPELLANT IN RESPECT OF ALL THE L EASE TRANSACTIONS ENTERED INTO BY THE APPELLANT IN ACCORDANCE WITH TH E LAW AND CIRCULARS ISSUED BY THE CBDT, HAVING ACCEPTED THAT THE APPELLANT IS THE OWNER OF THE ASSET IN LEASE TRANSACTIONS. IN AC CORDANCE WITH THE PROVISIONS OF SECTION 32 OF THE IT ACT, DEPRECIATIO N ON ASSETS GIVEN ON LEASE SHOULD HAVE BEEN ALLOWED TO THE APPELLANT, BEING THE OWNER OF THE ASSETS IN THE SAID LEASE TRANSACTIONS. 1.2 WITHOUT PREJUDICE TO THE ABOVE, HAVING ACCEPTED THAT THE APPELLANT IS THE OWNER OF THE ASSET, THE LEARNED CI T(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO VERIFY AND DISAL LOW DEPRECIATION IN LEASE TRANSACTIONS WHERE EITHER THE DATE OF PURCHAS E INVOICE IS SUBSEQUENT TO THE DATE OF LEASE AGREEMENT OR IN WHI CH THE PURCHASE INVOICES WERE ISSUED IN THE NAMES OF THE CONCERNED LESSEES. THE GENUINENESS OF THE TRANSACTION WAS NOT IN DISPUTE A ND THEREFORE HE HAS NO JURISDICTION TO GIVE THESE DIRECTIONS. 1.3 THE LEARNED CIT(A) COMMITTED A GROSS ERROR OF L AW AND FACTS IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION IN RESP ECT OF ASSETS GIVEN ON LEASE IN THE EARLIER YEARS. 2. DISALLOWANCE OF EXPENDITURE CLAIMED U/S 36(1)(III) 2.1 HAVING HELD THAT MONIES WERE IN FACT BORROWED F OR BUSINESS PURPOSES IN PARA 65 OF THE ORDER, THE LEARNED CIT(A ) COMMITTED A GROSS ERROR OF LAW IN DRAWING A DISTINCTION BETWEEN SHARES HELD AS INVESTMENT AND AS STOCK-IN-TRADE. HE FAILED TO APPR ECIATE THAT SUCH DISTINCTION WAS TOTALLY IRRELEVANT FOR PURPOSES OF SECTION 36(1)(III). 2.2 THE CIT(A) FAILED TO APPRECIATE THAT SECTION 9 OF THE IDBI ACT, WHICH GOVERNS THE BUSINESS ACTIVITIES OF THE APPELL ANT, PROVIDES FOR INVESTMENT IN SUCH FINANCIAL INSTITUTIONS AND CORPO RATIONS AND THUS MAKING SUCH INVESTMENTS IS A PART OF IDBI'S BUSINES S ACTIVITIES. THE HONORABLE TRIBUNAL MAY HOLD THAT THE INTEREST EXPEN DITURE IN RESPECT OF THE AMOUNTS INVESTED IN FINANCIAL INSTITUTIONS A ND CORPORATIONS IS THEREFORE ALLOWABLE U/S 36(1)(III) OF THE IT ACT BE ING INTEREST PAYABLE ON CAPITAL BORROWED FOR THE PURPOSES OF THE APPELLA NTS BUSINESS. 2.3 THE LEARNED CIT(A) ERRED IN HOLDING THAT INTERE ST ATTRIBUTABLE TO BORROWED CAPITAL INVESTED IN VARIOUS FINANCIAL INST ITUTIONS, CORPORATIONS, ETC. IS NOT A DEDUCTION ADMISSIBLE U/ S 36(1)(III) OF THE INCOME TAX ACT. HE ERRED IN HOLDING THAT: 3 IDBI (ITA NO. 3626/M/2001) AY 1997-98 (A) SINCE THE FUNDS HAVE BEEN UTILISED FOR THE PURP OSES OF THE BUSINESS OF THE RESPECTIVE FINANCIAL INSTITUTIONS, CORPORATIONS, IT IS NOT USED FOR THE APPELLANT'S BUSINESS. (B) THE FUNDS INVESTED IN THESE SHARES HAVE GONE OU T OF CIRCULATING CAPITAL OF THE APPELLANT AND THEREFORE INTEREST EXP ENDITURE IN RESPECT OF THOSE FUNDS COULD NOT BE SAID TO HAVE BEEN INCUR RED FOR APPELLANT'S BUSINESS. (C) THE PROPORTIONATE EXPENSES SHOULD BE ALLOCATED UNDER THE HEAD INCOME FROM OTHER SOURCES AND CONSIDER FOR DEDUCT ION UNDER THE SAID HEAD. THE FACTUM, THE METHOD, TILE MANNER AND THE CONCLUSION WITH REGARD TO THE APPORTIONMENT OF EXPENSES IS TOT ALLY CONTRARY TO LAW AND IS WHOLLY UNJUSTIFIED. 3. DEDUCTION U/S 80M : THE LEARNED CIT(A) COMMITTED A GROSS ERROR OF LAW A ND FACTS IN NOT ACCEPTING THE CLAIM OF APPELLANT U/S 80M IN THE MAN NER IN WHICH IT WAS CLAIMED. THE APPELLANT SUBMITS THAT ITS CLAIM U /S 80M SHOULD BE ACCEPTED IN TOTALITY. THE LEARNED CIT(A) COMMITTED A GROSS ERROR OF LAW A ND FACT IN DIRECTING THE ASSESSING OFFICER TO GIVE EFFECT TO T HE DIRECTIONS RELATING TO THE APPELLANT'S CLAIM OF DEDUCTION U/S 36(I)(III) WHILE CONSIDERING THE CLAIM U/S 80M. MOREOVER, THE LEARNE D CIT(A)'S DIRECTIONS RELATING TO SECTION 36 (1)(III) ARE THEM SELVES CONTRARY TO LAW AND UNWARRANTED. 4. INVESTMENT IN SHARES: 4.1 THE LEARNED CIT(A) HAS NO JURISDICTION TO HOLD THAT PROFIT ON SALE OF SHARES OF JOINT STOCK COMPANIES SHOULD BE TAXED AS BUSINESS PROFIT. MOREOVER, THIS ISSUE DID NOT ARISE OUT OF GROUNDS O F APPEAL BEFORE THE LEARNED CIT(A) AND HE ERRONEOUSLY ASSUMED JURISDICT ION TO DEAL WITH THIS ISSUE WITHOUT ANY AUTHORITY OF LAW 4.2 THE LEARNED CIT(A) ERRED IN HOLDING THAT THE AP PELLANT'S INVESTMENTS IN SHARES OF JOINT STOCK COMPANIES SHOU LD BE TREATED AS BUSINESS ASSETS AND NOT CAPITAL ASSETS. HE HAS ERRE D IN HOLDING THAT INCOME ARISING OUT OF SALE OF THESE INVESTMENTS SHO ULD BE TREATED AS BUSINESS PROFITS WITHOUT GIVING ADEQUATE OPPORTUNIT Y TO THE APPELLANT TO EXPLAIN ITS CASE AND WITHOUT CONSIDERING THE WRI TTEN SUBMISSIONS FILED BY THE APPELLANT. 4 IDBI (ITA NO. 3626/M/2001) AY 1997-98 5. DEPRECIATION ON GUEST HOUSE: THE LEARNED CIT(A) ERRED IN HOLDING THAT DEPRECIATI ON CLAIMED BY THE APPELLANT IN RESPECT OF GUEST HOUSE IS NOT ALLO WABLE UNDER THE IT ACT. GUEST-HOUSE BEING PART OF THE BUSINESS ASSETS OF THE APPELLANT, THE CIT (APPEALS) OUGHT TO HAVE ALLOWED DEPRECIATIO N U/S 32 OF THE ACT. 6. EXEMPTION U/S 10(23G) OF THE INCOME TAX ACT: THE LEARNED CIT(A) COMMITTED AN ERROR OF FACT IN OB SERVING THAT 'THE GROUND WAS NOT PRESSED. '. HE OUGHT TO HAVE DECI DED THE ISSUE ON MERITS. THE LEARNED CIT(A) ERRED IN NOT PA SSING AN ORDER IN RESPECT OF THE APPELLANT'S CLAIM FOR EXEMPTION U/S 10(23G) IN RESPECT OF INFRASTRUCTURE BUSINESS AMOUNTING TO RS. 8,36,34 ,794/= AS AGAINST RS. 1,86,27,921/- ALLOWED BY THE AO. THE LEARNED CI T(A) OUGHT TO HAVE ALLOWED THE CLAIM U/S 10(23G) ON GROSS BASIS A S CLAIMED IN THE GROUNDS OF APPEAL. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND, ALTER, MODIFY, DELETE AND/OR SUBSTITUTE ALL OR ANY OF THE ABOVE GROUNDS O F APPEAL TILL THE FINAL DISPOSAL OF THE APPEAL. 2. BEFORE WE PROCEED TO ADJUDICATE THE AFORESTATED GRO UNDS OF APPEAL, A BRIEF BACKGROUND OF THE CASE CAN BE SUMMARISED AS FOLLOWS. THE APPELLANT BEFORE US IS A PUBLIC FINANCIAL INSTITUTI ON WHICH HAS BEEN CONSTITUTED UNDER THE ACT OF PARLIAMENT BY WAY OF I DBI ACT, 1964 WITH THE OBJECT OF FINANCING, PROMOTING AND DEVELOP ING INDUSTRIES AS WELL AS ASSISTING THE DEVELOPMENT OF INSTITUTIONS E NGAGED IN SUCH ACTIVITY. FOR THE ASSESSMENT YEAR UNDER CONSIDERAT ION, THE ASSESSEE FILED RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.118,92,18,700/- WHICH WAS SUBJECT TO A SCRUTINY ASSESSMENT WHEREBY THE TOTAL INCOME HAS BEEN ASSESSED AT 1326,62,24,540/- AFTER MAKING CERTAIN ADDITIONS/DISALLOWANCES. THE A DDITIONS SO MADE 5 IDBI (ITA NO. 3626/M/2001) AY 1997-98 WERE CARRIED IN APPEAL BEFORE THE CIT(A), WHO HAS A LLOWED PARTIAL RELIEF. NOT BEING SATISFIED WITH THE ORDER OF CIT( A), ASSESSEE IS IN FURTHER APPEAL BEFORE US BY WAY OF THE AFORESTATED GROUNDS OF APPEAL. AT THE TIME OF HEARING, IT WAS POINTED OUT THAT SO FAR AS THE APPEAL PREFERRED BY THE REVENUE WITH REGARD TO THE RELIEF ALLOWED BY THE CIT(A) WAS CONCERNED, THE SAME WAS DISMISSED BY THE TRIBUNAL IN THE ABSENCE OF REQUISITE PERMISSION FROM THE COM MITTEE OF DISPUTES (COD), VIDE ORDER DATED 29 TH SEPTEMBER 2004 IN ITA NO.3921/M/2001, AND THAT ASPECT HAS BECOME FINAL. THEREFORE, IN THIS BACKGROUND, THE RIVAL COUNSELS HAVE MADE THEIR SUBMISSIONS. ACCORDINGLY, WE PROCEED TO ADJUDICATE THE VARIOUS G ROUNDS OF APPEAL RAISED BY THE ASSESSEE IN SERIATIM. 3. INSOFAR AS GROUND OF APPEAL NOS. 1.1 TO 1.3 IS CONC ERNED, THE SAME RELATES TO ASSESSEES CLAIM FOR DEPRECIATION ON THE FIXED ASSETS WHICH HAVE BEEN LEASED OUT. THE TOTAL CLAIM OF DEPRECIAT ION WAS TO THE EXTENT OF RS.157,78,82,261/- OUT OF WHICH AN AMOUNT OF RS.91,88,25,669/- PERTAINED TO ASSETS WHICH WERE LE ASED OUT IN EARLIER PERIOD AND SUCH ASSETS WERE PART OF THE OPE NING WRITTEN DOWN VALUE (WDV). THE ASSESSING OFFICER HAS DISALLOWED THE ENTIRE CLAIM OF DEPRECIATION PRIMARILY ON THE GROUND THAT IT WAS A CASE OF FINANCIAL LEASE OF ASSETS AND THAT IT WAS NOT A C ASE OF AN OPERATING 6 IDBI (ITA NO. 3626/M/2001) AY 1997-98 LEASE. THIS STAND OF THE ASSESSING OFFICER WAS CO NSISTENT WITH THE STAND OF THE ASSESSING AUTHORITIES IN THE PAST YEAR S. IT HAS BEEN EXPLAINED BEFORE US THAT THE SAID DISPUTE IS NOT UN IQUE TO THE INSTANT ASSESSMENT YEAR, BUT AROSE FOR THE FIRST TIME IN TH E COURSE OF ASSESSMENT FOR ASSESSMENT YEAR 1994-95. IT HAS ALS O BEEN POINTED OUT THAT THE MATTER TRAVELLED UP TO THE TRIBUNAL AN D VIDE ORDER DATED 29.10.2014 IN ITA NOS. 1839/M/2004, 3369/M/2004, 33 70/M/2004, 1951,3922,39923/M/2006 PERTAINING TO ASSESSMENT YEA RS 1994-95, 1995-96 AND 1996-97, RELIEF HAS BEEN ALLOWED TO THE ASSESSEE. IT WAS, THEREFORE, CONTENDED THAT THE DISPUTE IN THE I NSTANT YEAR BE DECIDED IN THAT LIGHT. THE LD. CIT-DR APPEARING FO R THE REVENUE HAS NOT CONTESTED THE FACTUAL MATRIX BROUGHT OUT BY THE LEARNED REPRESENTATIVE FOR THE ASSESSEE, BUT SUPPORTED THE STAND OF THE LOWER AUTHORITIES IN DENYING THE CLAIM OF DEPRECIATION. 4. IN ORDER TO IMPART COMPLETENESS TO THE ORDER ON THI S GROUND, WE MAY FURTHER NOTICE THAT THE CIT(A) HAS AFFIRMED THE ACTION OF THE ASSESSING OFFICER IN DENYING THE CLAIM OF DEPRECIAT ION ON BOTH ASPECTS, I.E. ON FIXED ASSETS LEASED OUT DURING THE YEAR UNDER CONSIDERATION AS WELL AS THE OPENING WDV OF FIXED A SSETS, WHICH WERE HITHERTO LEASED OUT IN THE EARLIER ASSESSMENT YEARS. 7 IDBI (ITA NO. 3626/M/2001) AY 1997-98 5. IN THIS BACKGROUND, WE HAVE HEARD THE RIVAL STANDS, PERUSED THE RELEVANT MATERIAL AND PROCEED TO DISPOSE OF THE ISS UE IN THE FOLLOWING MANNER. AS BRIEFLY NOTED BY US EARLIER, THE APPELLANT IS A PUBLIC FINANCIAL INSTITUTION WHICH IS, INTER-ALIA , ENGAGED IN THE ACTIVITY OF PROVIDING FINANCE INCLUDING LEASING ALS O. IN PURSUANCE TO SUCH OBJECTS, THE ASSESSEE HAD LEASED OUT ASSETS TO VARIOUS ENTITIES AND CLAIMED DEPRECIATION ON THE VALUE OF SUCH ASSET S LEASED OUT. SO FAR AS THE TERMS AND CONDITIONS OF THE LEASE ARE CO NCERNED, BOTH THE LOWER AUTHORITIES HAVE CONVERGED THAT THE SAME ARE ON SIMILAR TERMS AND CONDITIONS AS WAS IN THE PAST YEARS. IN FACT, THERE IS A CONVERGENCE BETWEEN THE TWO SIDES TO THE EFFECT THA T THE FACTS AND CIRCUMSTANCES OF THE DISPUTE STAND ON AN IDENTICAL FOOTING AS WAS CONSIDERED BY THE TRIBUNAL IN THE EARLIER YEARS, NO TABLY IN ASSESSMENT YEARS 1994-95 TO 1996-97 BY WAY OF A COM BINED ORDER DATED 29.10.2014 (SUPRA). WE HAVE PERUSED THE SAID DECISION AND FIND THAT THE TRIBUNAL REFERRED TO VARIOUS DECISION S, INTER-ALIA , THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE O F I.C.D.S. LTD. VS CIT [2013] 350 ITR 527 (SC), WHEREIN HONBLE COU RT HELD THAT EVEN IN CASES OF FINANCIAL LEASES, THE DEPRECIATI ON ALLOWANCE CONTEMPLATED UNDER SECTION 32(1) OF THE ACT IS ALLO WABLE TO THE LESSOR. IT HAS NOT BEEN SHOWN BY THE LD. CIT-DR TH AT ANY OF SUCH 8 IDBI (ITA NO. 3626/M/2001) AY 1997-98 PRECEDENTS IN ASSESSEES OWN CASE HAS BEEN ALTERED BY ANY HIGHER AUTHORITY. THEREFORE, SO FAR AS THIS ASPECT OF THE MATTER IS CONCERNED, WE DO NOT FIND ANY HESITATION IN DIRECTI NG THE ASSESSING OFFICER TO ALLOW THE CLAIM OF DEPRECIATION ON LEASE OF ASSETS WHERE IT INVOLVES FINANCIAL LEASE. 6. FURTHER, A PERUSAL OF THE ORDER OF TRIBUNAL DATED 2 9.10.2014 (SUPRA) SHOWS THAT CERTAIN TRANSACTIONS OF LEASE THOUGH NOT CLASSIFIED BY THE ASSESSING OFFICER AS FINANCIAL LEASE, YET THE DEP RECIATION WAS DENIED ON SOME OTHER GROUND, NAMELY, LACK OF APPROP RIATE EVIDENCE, ETC. ON THIS ASPECT, WHEREIN LEASE WITH FOUR PARTI CULAR LESSEES WERE IDENTIFIED, NAMELY, KEDIA GROUP, REPL ENGINEERING, PATHEJA BROTHERS FORGING & STAMPING LTD AND AND PADMA ALLO YS CASTING LTD, THE MATTER WAS SET-ASIDE BY THE TRIBUNAL TO TH E FILE OF THE ASSESSING OFFICER FOR AFRESH ADJUDICATION AS PER LA W. IT HAS BEEN FURTHER EXPLAINED THAT IN ASSESSMENT YEAR 1995-96 A S WELL AS 1996- 97 CERTAIN LEASE TRANSACTIONS WERE IDENTIFIED WHERE IN DEPRECIATION WAS DENIED FOR SIMILAR REASONS, SUCH PARTIES BEING TRUDENT STEELS, NATHAN STEELS, PATHREJA BROTHERS AND KEDIA DISTILAR IES FOR ASSESSMENT YEARS 1995-96 AND SUMAN METALS, KEDIA GA LLEON LTD AND TRIDENT STEELS FOR ASSESSMENT YEARS 1996-97. AT THE TIME OF HEARING, THE LEARNED REPRESENTATIVE FOR THE ASSESSE E POINTED OUT THAT 9 IDBI (ITA NO. 3626/M/2001) AY 1997-98 SO FAR AS DEPRECIATION CLAIM IN THE INSTANT YEAR PE RTAINING TO SAID SEVEN LEASE TRANSACTIONS IS CONCERNED, THE SAME AMO UNTED TO RS. 2,09,04,638/-. 7. IT HAS ALSO BEEN EXPLAINED THAT SUBSEQUENT TO THE S ETTING ASIDE OF THE MATTER BY THE TRIBUNAL ON THIS ASPECT FOR ASSESSMEN T YEARS 1994-95 TO 1996-97, NO FURTHER ORDER HAS BEEN PASSED BY THE ASSESSING OFFICER TILL DATE. CONSIDERING THE AFORESAID, WE D EEM IT FIT AND PROPER TO DIRECT THE ASSESSING OFFICER TO DECIDE AB OUT THE ADMISSIBILITY OF DEPRECIATION OF RS. 2,09,04,638/- PERTAINING TO THE AFORESAID SEVEN LEASE ARRANGEMENTS IN THE LIGHT OF DECISION IN THE EARLIER YEARS FOLLOWING THE ORDER OF TRIBUNAL DATED 29.10.2014 (SUPRA). NEEDLESS TO MENTION, ON THIS ASPECT THE A SSESSING OFFICER SHALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY O F BEING HEARD AND THEREAFTER RECOMPUTE THE DEPRECIATION ALLOWABLE TO THE ASSESSEE KEEPING IN MIND THE DIRECTIONS OF THE TRIBUNAL IN T HE EARLIER YEARS, AND AS PER LAW. 8. ACCORDINGLY, INSOFAR AS GROUND OF APPEAL NOS. 1.1 T O 1.3 ARE CONCERNED, THE SAME ARE ALLOWED TO THE ABOVE EXTENT . 9. NOW, WE MAY TAKE-UP GROUND OF APPEAL NOS. 2.1 TO 2. 3 WHICH, INTER- ALIA , ARISE OUT OF THE ACTION OF ASSESSING OFFICER IN D ISALLOWING INTEREST EXPENDITURE AMOUNTING TO RS.455,70,63,150/ - BY INVOKING 10 IDBI (ITA NO. 3626/M/2001) AY 1997-98 SEC. 36(1)(III) OF THE ACT. IT HAS BEEN EXPLAINED BEFORE US THAT THE ASSESSING OFFICER WAS OF THE OPINION THAT THREE CAT EGORIES OF INVESTMENTS MADE BY THE ASSESSEE COULD NOT BE TREAT ED AS RELATING TO BUSINESS AND, THEREFORE, INTEREST ATTRIBUTABLE TO T HE BORROWING USED FOR MAKING SUCH INVESTMENTS COULD NOT BE ALLOWED UN DER SECTION 36(1)(III) OF THE ACT. THE INVESTMENTS SO NOTED BY THE ASSESSING OFFICER TOTALED TO RS. 4945 CRORES, WHOSE BREAK-UP HAS BEEN NOTED BY THE CIT(A) IN PARA 44 OF HIS ORDER, WHICH READS AS UNDER :- THE BREAK-UP OF THIS INVESTMENT WAS AS FOLLOWS: (RS. IN CRORES) (I) IN SECURITIES OF CENTRAL & STATE GOVERNMENTS 170 (II) IN STOCKS, SHARES, BONDS & DEBENTURES OF FINANCIAL INSTITUTIONS 1,23 0 (III) IN STOCKS, SHARES, BONDS & DEBENTURES OF VARIOUS INDUSTRIAL CONCERNS 3,545 TOTAL : 4,945 10. ACCORDINGLY, THE ASSESSING OFFICER CALCULATED INTER EST EXPENDITURE PROPORTIONATE TO THE AMOUNT OF SUCH INVESTMENTS AT RS. 455.70 CRORE, WHICH WAS DISALLOWED UNDER SECTION 36(1)(III ) OF THE ACT. WHEN THE MATTER TRAVELLED BEFORE THE CIT(A), ASSESS EE SUCCEEDED IN CONVINCING THE CIT(A) THAT SO FAR AS THE INVESTMENT S MADE IN STOCKS, SHARES, BONDS, DEBENTURES OF VARIOUS INDUSTRIAL CON CERNS AMOUNTING TO RS. 10545 CRORES IS CONCERNED, INTEREST CORRESPO NDING TO SUCH INVESTMENTS WOULD NOT FALL FOR DISALLOWANCE IN TERM S OF SEC. 36(1)(III) OF THE ACT. THE CIT(A) HAS ALLOWED RELI EF ON THIS ASPECT, 11 IDBI (ITA NO. 3626/M/2001) AY 1997-98 WHEREAS HE HAS SUSTAINED THE INTEREST DISALLOWANCE PROPORTIONATE TO THE INVESTMENTS MADE IN SECURITIES OF CENTRAL AND S TATE GOVERNMENTS AS WELL AS STOCKS, SHARES, BONDS AND DE BENTURES OF OTHER FINANCIAL INSTITUTIONS, WHICH TOTALED UPTO RS . 1400 CRORES, AND THE CORRESPONDING INTEREST THEREON WHICH IS DISALLO WED IS RS. 113,38,12,959/-. 11. IN THIS BACKGROUND, WE HAVE HEARD THE RIVAL SUBMISS IONS. AT THE TIME OF HEARING, APART FROM CANVASSING THAT THE UTI LISATION OF FUNDS BY THE ASSESSEE FOR ACQUIRING THE SECURITIES OF CEN TRAL AND STATE GOVERNMENT AS WELL AS SHARES AND SECURITIES OF OTHE R FINANCIAL INSTITUTIONS IS AN ACTIVITY UNDERTAKEN IN THE COURS E OF BUSINESS, THE LEARNED REPRESENTATIVE POINTED TO THE POSITION TAKE N BY THE ASSESSING OFFICER IN DIFFERENT ASSESSMENT YEARS ON THIS VERY ASPECT. IT IS POINTED OUT BY THE LEARNED REPRESENTATIVE THA T SO FAR AS PAST ASSESSMENTS ARE CONCERNED, SIMILAR INVESTMENTS WERE MADE BY THE ASSESSEE AND THERE HAS BEEN NO DISALLOWANCE UNDER S ECTION 36(1)(III) OF THE ACT. FURTHER, IT IS POINTED OUT THAT SO FAR AS INTEREST RELATABLE TO THE INVESTMENTS IN STATE FINANCIAL CORPORATION I S CONCERNED, FROM ASSESSMENT YEAR 2003-04 UPTO ASSESSMENT YEAR 2008-0 9, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS DELE TED BY THE CIT(A) AND THE DEPARTMENT HAS NOT CONTESTED THE SAM E IN FURTHER 12 IDBI (ITA NO. 3626/M/2001) AY 1997-98 APPEAL BEFORE THE TRIBUNAL EXCEPT FOR ASSESSMENT YE AR 2007-08. IT IS FURTHER POINTED OUT THAT FROM ASSESSMENT YEAR 20 09-10 ONWARDS TO ASSESSMENT YEAR 2012-13, THERE HAS BEEN NO DISAL LOWANCE UNDER SECTION 36(1)(III) OF THE ACT MEANING THEREBY THAT EVEN WITH REGARD TO INVESTMENTS MADE IN STATE FINANCIAL CORPORATIONS , CORRESPONDING INTEREST HAS NOT BEEN DISALLOWED UNDER SECTION 36(1 )(III) OF THE ACT. 12. THE AFORESAID HAS BEEN MENTIONED BEFORE US TO EMPHA SISE THE INCONSISTENCY IN THE APPROACH OF THE REVENUE SO FAR AS ASSESSMENT YEAR 1997-98 AND UPTO ASSESSMENT YEAR 2002-03 IS CO NCERNED. UNDOUBTEDLY, THE AFORESAID FACTUAL POSITION RELATI NG TO THE INVESTMENTS MADE IN STATE FINANCIAL CORPORATIONS, B EARS OUT THAT THERE IS LACK OF UNIFORMITY IN THE APPROACH OF THE ASSESSING AUTHORITY ON A SIMILAR ISSUE. BE THAT AS IT MAY, EVEN OTHERW ISE ON MERIT, WE DO NOT FIND POTENCY IN THE STAND OF THE ASSESSING O FFICER THAT INVESTMENTS MADE IN OTHER STATE FINANCIAL CORPORATI ONS ARE NOT IN THE LINE OF ASSESSEES BUSINESS ACTIVITY. IN THIS CONTEXT, WE MAY QUOTE SEC. 9(1) OF IDBI ACT, 1964 UNDER WHICH ASSES SEE OPERATES, WHICH READS AS UNDER :- 9. BUSINESS OF DEVELOPMENT BANK . (1) THE DEVELOPMENT BANK SHALL FUNCTION AS THE PRINCIP AL FINANCIAL INSTITUTION FOR CO-ORDINATING THE WORKING OF INSTIT UTIONS ENGAGED IN FINANCING, PROMOTING OR DEVELOPING INDUSTRY AND FOR ASSISTING THE DEVELOPMENT OF SUCH INSTITUTIONS IN SUCH MANNER AS IT MAY DEEM APPROPRIATE AND MAY] CARRY ON AND TRANSACT ANY OF T HE FOLLOWING KINDS OF BUSINESS, NAMELY: 13 IDBI (ITA NO. 3626/M/2001) AY 1997-98 (A) GRANTING LOANS AND ADVANCES TO (I) THE INDUSTRIAL FINANCE CORPORATION, ANY STATE FINA NCIAL CORPORATION OR ANY OTHER FINANCIAL INSTITUTION WHICH MAY BE APPROV ED BY THE BOARD IN THIS BEHALF BY WAY OF REFINANCE OF ANY LOANS OR ADVANCES GRANTED TO INDUSTRIAL CONCERNS BY SUCH CORPORATION OR INSTI TUTION WHICH ARE REPAYABLE WITHIN A PERIOD NOT EXCEEDING TWENTY-FIVE YEARS; 1[WHICH MAY BE APPROVED BY THE BOARD IN THIS BEHALF] BY WAY OF REFINANCE OF ANY LOANS OR ADVANCES GRANTED TO INDUSTRIAL CONCERN S BY SUCH CORPORATION OR INSTITUTION WHICH ARE REPAYABLE WITH IN A PERIOD NOT EXCEEDING TWENTY-FIVE YEARS, (II) ANY SCHEDULED BANK OR STATE CO-OPERATIVE BANK, BY WAY OF REFINANCE OF ANY LOANS OR ADVANCES GRANTED TO INDUSTRIAL CONC ERNS BY SUCH BANK WHICH ARE REPAYABLE WITHIN A PERIOD NOT EXCEEDING F IFTEEN YEARS; BY SUCH BANK WHICH ARE REPAYABLE 4[WITHIN A PERIOD NOT EXCEEDING FIFTEEN YEARS; (III) ANY SCHEDULED BANK OR STATE CO-OPERATIVE BANK OR T HE INDUSTRIAL FINANCE CORPORATION OR ANY STATE FINANCIAL CORPORAT ION OR ANY OTHER FINANCIAL INSTITUTION WHICH MAY BE NOTIFIED BY THE CENTRAL GOVERNMENT IN THIS BEHALF, BY WAY OF REFINANCE OF A NY LOANS OR ADVANCES GRANTED TO INDUSTRIAL CONCERNS OR GROUP OF INDUSTRIAL CONCERNS BY SUCH BANK OR INSTITUTION WHICH ARE FOR THE PURPOSE OF, OR IN CONNECTION WITH, THE EXPORT OF CAPITAL GOODS, CO MMODITIES OR MERCHANDISE FROM INDIA OR THE EXECUTION OF ANY TURN KEY PROJECT OUTSIDE INDIA BY ANY INDUSTRIAL CONCERN AS AFORESAI D OR BY ANY PERSON IN INDIA, AND, IN ANY CASE, ARE REPAYABLE (I) WITHIN A PERIOD NOT EXCEEDING TWELVE YEARS IN THE CASE OF PERSONS OUTSIDE INDIA, AND (II) WITHIN A PERIOD NOT EXCEEDING FIFTEEN YEARS IN THE OTHER CASES; (B) SUBJECT TO SUCH CONDITIONS AS MAY BE PRESCRIBED, A CCEPTING, DISCOUNTING, OR RE-DISCOUNTING BILLS OF EXCHANGE AN D 7[PROMISSORY NOTES MADE, DRAWN, ACCEPTED OR ENDORSED BY INDUSTRI AL CONCERNS OR BY ANY PERSON SELLING CAPITALS GOODS MANUFACTURED B Y ONE INDUSTRIAL CONCERN]; 6[PROMISSORY NOTES MADE, DRAWN, ACCEPTED OR ENDORSED BY INDUSTRIAL CONCERNS OR BY ANY PERSON SELLING CAPITA LS GOODS MANUFACTURED BY ONE INDUSTRIAL CONCERN;' (C) SUBSCRIBING TO OR PURCHASING STOCKS, SHARES, BONDS OR DEBENTURES OF THE INDUSTRIAL FINANCE CORPORATION, ANY STATE FINAN CIAL CORPORATION OR ANY OTHER FINANCIAL INSTITUTION WHETHER WITHIN O R OUTSIDE INDIA WHICH MAY BE APPROVED BY THE BOARD IN THIS BEHALF. (CA) GRANTING LETTERS OF CREDIT OR LOANS AND ADVANC ES TO THE INDUSTRIAL FINANCE CORPORATION, ANY STATE FINANCIAL CORPORATIO N OR ANY OTHER FINANCIAL INSTITUTION WHICH MAY BE APPROVED BY THE BOARD IN THIS BEHALF, FOR THE PURPOSE OF ANY BUSINESS OF SUCH COR PORATION OR INSTITUTION; (D) GRANTING LOANS AND ADVANCES TO ANY INDUSTRIAL CONC ERN OR SUBSCRIBING TO, OR PURCHASING, OR UNDERWRITING THE ISSUE OF, ST OCKS, SHARES, BONDS OR DEBENTURES OF ANY INDUSTRIAL CONCERN: 14 IDBI (ITA NO. 3626/M/2001) AY 1997-98 PROVIDED THAT NOTHING CONTAINED IN THIS CLAUS E SHALL BE DEEMED TO PRECLUDE THE DEVELOPMENT BANK FROM GRANTING LOANS O R ADVANCES TO, OR SUBSCRIBING TO DEBENTURES OF, INDUSTRIAL CONCERN , THE AMOUNTS OUTSTANDING THEREON MAY BE CONVERTIBLE AT THE OPTIO N OF THE DEVELOPMENT BANK INTO STOCKS OR SHARES OF THAT CONC ERN WITHIN THE PERIOD THE LOAN, ADVANCE OR DEBENTURE IS REPAYABLE; THE AMOUNTS OUTSTANDING THEREON MAY BE CONVERTIBLE AT THE OPTIO N OF THE DEVELOPMENT BANK] INTO STOCKS OR SHARES OF THAT CON CERN WITHIN THE PERIOD THE LOAN, ADVANCE OR DEBENTURE IS REPAYABLE; ' EXPLANATION.IN THIS CLAUSE, THE EXPRESSION ' THE AMOUNTS OUTSTANDING THEREON' USED IN RELATION TO ANY LOAN O R ADVANCE, SHALL MEAN THE PRINCIPAL, INTEREST AND OTHER CHARGES PAYA BLE ON SUCH LOAN OR ADVANCE AS AT THE TIME WHEN THE AMOUNTS ARE SOUG HT TO BE CONVERTED INTO STOCKS OR SHARES. (DA) GRANTING LOAN AND ADVANCES- (I) TO ANY PERSON EXPORTING PRODUCTS OF INDUSTRIAL CON CERNS; OR (II) TO ANY PERSON OUTSIDE INDIA, IN CONNECTION WITH TH E EXPORT OF CAPITAL GOODS FROM INDIA; OR (III) FOR THE EXECUTION OF TURN-KEY PROJECTS OUTSIDE IND IA BY ANY INDUSTRIAL CONCERN OR BY ANY PERSON IN INDIA; (DB) TRANSFERRING FOR CONSIDERATION ANY INSTRUMENT RELA TING TO LOANS AND ADVANCES GRANTED BY IT TO INDUSTRIAL CONCERNS; (DC) GRANTING LOANS AND ADVANCES TO ANY PERSON FOR PURPOSES OF INVESTMENT IN ANY INDUSTRIAL CONCERN;] (E) GUARANTEEING DEFERRED PAYMENTS DUE FROM ANY INDUST RIAL CONCERN; (F) GUARANTEEING (I) LOANS RAISED BY INDUSTRIAL CONCERNS WHICH ARE FLOA TED IN THE PUBLIC MARKET; AND (II) LOANS RAISED BY INDUSTRIAL CONCERNS FROM ANY SCHED ULED BANK OR STATE CO-OPERATIVE BANK OR THE INDUSTRIAL FINANCE CORPORA TION OR ANY STATE FINANCIAL CORPORATION OR ANY OTHER FINANCIAL INSTIT UTION WHICH MAY BE APPROVED BY THE BOARD IN THIS BEHALF; WHICH MAY BE APPROVED BY THE BOARD IN THIS BEHALF; (G) GUARANTEEING THE OBLIGATIONS OF ANY SCHEDULED BANK OR STATE CO- OPERATIVE BANK OR THE INDUSTRIAL FINANCE CORPORATIO N OR ANY STATE FINANCIAL CORPORATION OR ANY OTHER FINANCIAL INSTIT UTION WHICH MAY BE APPROVED BY THE BOARD IN THIS BEHALF ARISING OU T OF, OR IN CONNECTION WITH, UNDERWRITING THE ISSUE OF STOCKS, SHARES, BONDS OR DEBENTURES OF ANY INDUSTRIAL CONCERN; (GA) GRANTING, OPENING, ISSUING, CONFIRMING OR ENDO RSING LETTERS OF CREDIT AND NEGOTIATING OR COLLECTING BILLS AND OTHER DOCUM ENTS DRAWN THEREUNDER; (GB) PROVIDING CONSULTANCY AND MERCHANT BANKING SERVICE S IN OR OUTSIDE INDIA; (GC) ACTING AS THE TRUSTEE FOR THE HOLDERS OF DEBENTURE S OR OTHER SECURITIES; (GD) ACQUIRING, WITH THE APPROVAL OF THE CENTRAL GOVERN MENT, THE UNDERTAKING, INCLUDING THE BUSINESS, ASSETS AND LIA BILITIES OF ANY INSTITUTION THE PRINCIPAL OBJECT OF WHICH IS THE PR OMOTION OR 15 IDBI (ITA NO. 3626/M/2001) AY 1997-98 DEVELOPMENT OF INDUSTRY IN INDIA, OR THE GRANT OF F INANCIAL ASSISTANCE FOR SUCH PROMOTION OR DEVELOPMENT;] (H) UNDERTAKING RESEARCH AND SURVEYS FOR EVALUATING OR DEALING WITH MARKETING OR INVESTMENTS AND UNDERTAKING AND CARRYI NG ON TECHNO- ECONOMIC STUDIES IN CONNECTION WITH THE DEVELOPMENT OF INDUSTRY; (I) PROVIDING TECHNICAL, LEGAL, MARKETING] AND ADMINIS TRATIVE ASSISTANCE TO ANY INDUSTRIAL CONCERN OR ANY PERSON FOR PROMOTION, MANAGEMENT OR EXPANSION OF ANY INDUSTRY; LEGAL, MARKETING] AND A DMINISTRATIVE ASSISTANCE TO ANY INDUSTRIAL CONCERN OR ANY PERSON FOR PROMOTION, MANAGEMENT OR EXPANSION OF ANY INDUSTRY;' (J) PLANNING, PROMOTING AND DEVELOPING INDUSTRIES TO F ILL UP GAPS IN THE INDUSTRIAL STRUCTURE IN INDIA; (K) PROMOTING, FORMING OR CONDUCTING OR ASSOCIATING IN THE PROMOTION, FORMATION OR CONDUCT OF COMPANIES, SUBSIDIARIES, SO CIETIES, TRUSTS OR SUCH OTHER ASSOCIATIONS OF PERSONS AS IT MAY DEEM F IT;] (KA) ACTING AS AGENT OF (I) THE CENTRAL GOVERNMENT OR OF THE RESERVE BANK, OR (II) SUCH OTHER GOVERNMENT OR PERSON AS THE CENTRAL GOV ERNMENT IN CONSULTATION WITH] THE RESERVE BANK, MAY AUTHORISE; IN CONSULTATION WITH THE RESERVE BANK, MAY AUTHORISE; (L) PERFORMING FUNCTIONS ENTRUSTED TO, OR REQUIRED OF, THE DEVELOPMENT BANK BY THIS ACT OR BY ANY OTHER LAW FOR THE TIME B EING IN FORCE; (M) DOING ANY OTHER KIND OF BUSINESS WHICH THE CENTRAL GOVERNMENT, MAY AUTHORISE; MAY AUTHORISE;' (N) GENERALLY DOING SUCH OTHER ACTS AND THINGS AS MAY BE INCIDENTAL TO, OR CONSEQUENTIAL UPON, THE EXERCISE OF ITS POWERS OR T HE DISCHARGE OF ITS DUTIES UNDER THIS ACT OR ANY OTHER LAW FOR THE TIME BEING IN FORCE INCLUDING SALE OR TRANSFER OF ANY OF ITS ASSETS. (2) THE DEVELOPMENT BANK MAY RECEIVE IN CONSIDERATION OF ANY OF THE SERVICES MENTIONED IN SUB-SECTION (1) SUCH COMMISSI ON, BROKERAGE, INTEREST, REMUNERATION OR FEES AS MAY BE AGREED UPO N. (3) THE DEVELOPMENT BANK SHALL NOT GRANT ANY LOAN OR A DVANCE OR OTHER FINANCIAL ACCOMMODATION ON THE SECURITY OF ITS OWN BONDS OR DEBENTURES. 13. SHORN OF OTHER DETAILS, SO FAR AS IS RELEVANT FOR O UR PURPOSE, A PERUSAL OF THE AFORESAID SUB SECTION (1) OF SECTION 9 OF T HE IDBI ACT, 1964 SHOWS THAT GRANTING OF LOANS AND ADVANCES, FINANCIN G OF OR REFINANCING OF STATE FINANCIAL CORPORATIONS IS ONE OF THE PRIMARY OBJECTS OF THE ASSESSEE, AS MANDATED BY THE PARLIAM ENT. THEREFORE, ON THIS VERY COUNT ITSELF, WE ARE UNABLE TO SUBSCRI BE TO THE STAND OF 16 IDBI (ITA NO. 3626/M/2001) AY 1997-98 THE INCOME-TAX AUTHORITIES THAT THE INVESTMENTS MAD E FOR FINANCING OR REFINANCING OF STATE FINANCIAL CORPORATIONS IS N OT AN ACTIVITY UNDERTAKEN IN THE COURSE OF ASSESSEES BUSINESS; IN OUR VIEW THE INTEREST EXPENDITURE RELATABLE TO SUCH INVESTMENTS CANNOT BE DISALLOWED IN TERMS OF SEC. 36(1)(III) OF THE ACT H AVING REGARD TO THE FACT THAT SUCH ACTIVITY IS IN THE TUNE OF ASSESSEE S BUSINESS OBJECTS. 14. THE ONLY OTHER ASPECT WHICH IS LEFT FOR DETERMINATI ON IS INTEREST RELATABLE TO INVESTMENTS MADE IN SECURITIES OF CENT RAL AND STATE GOVERNMENTS AMOUNTING TO RS.170 CRORES. ON THIS AS PECT, IT HAS BEEN EMPHASISED THAT IN THE EARLIER YEARS, NO SUCH DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER. THE RIVAL STANDS ON THIS ASPECT REMAIN THE SAME AS IT PERTAINED TO THE INTEREST REL ATABLE TO INVESTMENTS MADE IN STATE FINANCIAL CORPORATIONS. IT WAS A COMMON POINT BETWEEN THE PARTIES THAT THE ASSESSING AUTHORITY HAS NOT DIFFERENTIATED BETWEEN THE TWO ITEMS AND THE DI SALLOWANCE HAS BEEN MADE ON A CONSOLIDATED BASIS IN ALL THE YEARS, THEREFORE, THE ASSESSING AUTHORITY HAS DISALLOWED THE EXPENDITURE FOR SIMILAR REASONING AS ADVANCED FOR DISALLOWING INTEREST PERT AINING TO INVESTMENTS IN STATE FINANCIAL CORPORATIONS. 15. ON THIS ASPECT, A PERTINENT POINT WHICH HAS BEEN BR OUGHT OUT BY THE LEARNED REPRESENTATIVE IS THAT THE INTEREST INCOME EARNED BY THE 17 IDBI (ITA NO. 3626/M/2001) AY 1997-98 ASSESSEE ON SUCH CENTRAL AND STATE GOVERNMENT SECUR ITIES HAVE ALL ALONG BEEN ASSESSED AS BUSINESS INCOME AND, THERE FORE, THERE WAS NO JUSTIFICATION FOR DISALLOWING THE CORRESPONDING INTEREST EXPENDITURE ON THE PLEA THAT THAT THE INVESTMENTS A RE FOR NON- BUSINESS PURPOSE. EVEN IN THE INSTANT ASSESSMENT Y EAR, A REFERENCE HAS BEEN MADE TO THE ASSESSMENT ORDER TO POINT OUT THAT THE INTEREST INCOME FROM SUCH SECURITIES IS LYING ASSESSED AS B USINESS INCOME. 16. CONSIDERING THE AFORESAID ASPECT, AS ALSO THE FACT THAT IDBI GENERAL REGULATIONS, 1994 PRESCRIBE FOR MAKING INVESTMENTS IN SECURITIES OF CENTRAL AND STATE GOVERNMENTS, WE DO NOT FIND ANY R EASON TO UPHOLD THE STAND OF THE INCOME-TAX AUTHORITIES THAT SUCH I NVESTMENTS ARE NOT IN THE COURSE OF ASSESSEES BUSINESS. IN FACT, TH ERE IS AN APPARENT CONTRADICTION IN THE STAND OF THE ASSESSING AUTHORI TY INASMUCH AS THE INTEREST YIELDED BY SUCH INVESTMENTS IS ASSESSED AS BUSINESS INCOME WHEREAS THE INTEREST EXPENDITURE ATTRIBUTAB LE TO SUCH INVESTMENTS HAS BEEN SOUGHT TO BE TREATED AS A NON- BUSINESS EXPENDITURE. CONSIDERING THE AFORESAID, WE DEEM IT FIT AND PROPER TO SET-ASIDE THE ORDER OF CIT(A) ON THIS ASPECT AND DI RECT THE ASSESSING OFFICER TO ALLOW THE CLAIM MADE BY THE ASSESSEE. T HUS, ON THIS ASPECT, ASSESSEE SUCCEEDS. IN THE RESULT THIS GROUN D OF APPEAL IS ALLOWED. 18 IDBI (ITA NO. 3626/M/2001) AY 1997-98 17. GROUND NO. 3 RELATES TO DISALLOWANCE OF DEDUCTION UNDER SECTION 80M. THE LD. AR OF THE ASSESSEE SUBMITS THAT THIS G ROUND OF APPEAL IS COVERED BY THE DECISION OF TRIBUNAL IN ASSESSEE OWN CASE FOR A.Y. 1994-95, 1995-96 & 1996-97, WHEREIN THE SIMILAR DIS ALLOWANCE WAS RESTRICTED TO 1% OF DIVIDEND INCOME. 18. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE RELIE D UPON THE ORDER OF LOWER AUTHORITIES. 19. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PAR TIES AND GONE THROUGH THE ORDERS OF TRIBUNAL FOR EARLIER YEARS. D URING THE ASSESSMENT, THE ASSESSING OFFICER ASKED TO FURNISH THE DETAILS OF DEDUCTION UNDER SECTION 80M AND ISSUED SHOW-CAUSE N OTICE AS TO WHY THE DEDUCTION UNDER THIS SECTION SHOULD NOT BE RECALCULATED AFTER DEDUCTING INTEREST ON MONEY BORROWED FOR INVE STMENT IN SHARES AND AFTER DEDUCTING OTHER EXPENSES WHOLLY AND EXCLU SIVELY FOR EARNING DIVIDEND. THE ASSESSING OFFICER RECORDED TH AT THE ASSESSEE FILED VARIOUS SUBMISSION AND STATED THAT AS A PART OF THEIR BUSINESS THE ASSESSEE ADVANCE LOAN AND PROVIDES OTHER FINANC IAL FACILITIES TO VARIOUS PERSONS ENGAGED IN BUSINESS. FOR THIS PURPO SE, THE ASSESSEE RAISED FUNDS AND LOANS BY ISSUING BONDS, DEBENTURES ETC. ON THE BORROWINGS, THE ASSESSEE HAS PAID INTEREST AND DEBI TED IN PROFIT & LOSS ACCOUNT. INVESTMENTS IN SHARES ARE PRIMARILY D ONE AS PART OF 19 IDBI (ITA NO. 3626/M/2001) AY 1997-98 ASSESSEES LENDING ACTIVITIES. THE ASSESSING OFFICE R HAS NOT GIVEN ANY CLEAR FINDING. HOWEVER, THE LD. CIT(A) RECORDED THAT PERUSAL OF ASSESSMENT ORDER REVEALS THAT DECISION ON COMPUTATI ON UNDER SECTION 80M IS NOT CLEAR. THE LD. CIT(A) CONCLUDED HIS FIND ING IN THE FOLLOWING MANNER: 109. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE A.O.S DECISION AND COMPUTATION OF DEDUCTION U/S. 80M IS NOT CLEAR. IN THE COMPUTATION OF INCOME, ON P.77, HE HAS SHOWN THE DE DUCTION U/S. 80M TO BE RS. 79,84,44,45/-, AS PER ANNEXURE A. IN TH E ANNEXURE A, HE HAS COMPUTED THE DEDUCTION U/S.80M AT RS. 79,84,44, 450/-. ON THE OTHER HAND, AT PAGE 75 OF THE ASSESSMENT ORDER, HE STATES THAT THE CLAIM OF DEDUCTION U/S. 80M OF RS. 82,73,23,090/- I S WITHDRAWN. IN VIEW OF THIS, THE A.O. IS DIRECTED TO PASS A CLEAR, SPEAKING ORDER ON THE APPELLANTS CLAIM OF DEDUCTION U/S. 80M. WHILE DOIN G SO, HE SHOULD KEEP NOTE OF, AND GIVE EFFECT TO, MY DIRECTIONS REL ATING TO THE APPELLANTS CLAIM OF DEDUCTION U/S. 36(1)(III). 20. WE HAVE NOTED THAT ON SIMILAR DISALLOWANCES IN APPE AL FOR A.Y. 1995-96 IN ITA NO. 3369/M/2004, THE CO-ORDINATE BEN CH OF TRIBUNAL BY FOLLOWING THE DECISION IN ASSESSEES OW N CASE FOR A.Y. 1992-93 IN ITA NO. 3249/BOM/1995 DATED 24.12.2002, RESTRICTED THE DISALLOWANCES TO 1% OF DIVIDEND INCOME. THEREFO RE, RESPECTFULLY FOLLOWING THE DECISION OF TRIBUNAL, WE DIRECT THE A SSESSING OFFICER TO RESTRICT THE DISALLOWANCE UNDER SECTION 80M TO 1 % OF THE DIVIDEND INCOME. IN THE RESULT, THE ASSESSEE SUCCEEDED ON TH IS GROUND OF APPEAL. 20 IDBI (ITA NO. 3626/M/2001) AY 1997-98 21. GROUND NO. 4 RELATES TO PROFIT ON SALE OF INVESTMEN T TREATED AS BUSINESS INCOME. THE LD. AR OF THE ASSESSEE SUBMITS THAT THE A.O. HAS ASSESSED THE INCOME FROM SALE OF SHARES OF JOIN T STOCK COMPANY AS CAPITAL GAINS FOR ALL THE YEARS I.E. AY 1997-98 TO AY 2012-13. HOWEVER, FOR AYS 1997-98 TO 2001-02, CIT(A) ASSESSE D PROFITS FROM SALE OF SHARES OF JOINT STOCK COMPANIES (JSCS) AS BUSINESS INCOME. FROM AY 2002-03 ONWARDS, THE PROFIT ON SALE OF SHARES OF JSCS HAS BEEN ACCEPTED AS CAPITAL GAINS BY AO AS WE LL AS CIT(A). THE LD. AR FURTHER SUBMITS THAT THE ASSESSEE HAS SH OWN THE SAID SHARE AS INVESTMENT. IN EARLIER, THE SAID SHARES HA VE BEEN ACCEPTED BY REVENUE AS INVESTMENT. EVEN IN SUBSEQUENT YEAR, THE AO HAS TAKEN A VIEW THAT INVESTMENT IN JOINT STOCK COMPANY IS CAPITAL GAIN AND NOT BUSINESS INCOME. THE LD. CIT(A) DURING THE HEARING, SUO MOTO HELD THAT SHARE OF JOINT STOCK COMPANY CON STITUTE ASSESSEES STOCK IN TRADE AND THE PROFIT ON THE SAL E OF THESE SHARES CONSTITUTE BUSINESS PROFIT. IT WAS FURTHER SUBMITTE D THAT FROM A.Y. 2002-03 TO 2012-13, THE LD. CIT(A) HAS NOT DIRECTED THE A.O. TO ASSESSEE INCOME FROM SALE OF JOINT STOCK COMPANY AS BUSINESS INCOME. THE LD. AR OF THE ASSESSEE SUBMITS THAT A C HART SHOWING THAT PROFIT FROM SALE OF SHARE OF JOINT STOCK COMPA NYS OFFERED BY ASSESSEE UNDER CAPITAL GAIN HAS BEEN ACCEPTED IS FI LED AT PAGE NO. 21 IDBI (ITA NO. 3626/M/2001) AY 1997-98 282 OF THE PAPER BOOK. THE LD. AR SUBMITS THAT THE THE REVENUE HAS ACCEPTED THE ORDER OF LD. CIT(A) AND HAS NOT CHALLE NGED THE SAME BEFORE TRIBUNAL. THE LD. AR ALSO RELIED UPON THE CB DT CIRCULAR NO. 6 OF 2016 DATED 29 TH FEBRUARY 2016. 22. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE RELIE D UPON THE ORDER OF LOWER AUTHORITIES. 23. WE HAVE CONSIDERED THE SUBMISSION OF THE PARTIES AN D PERUSED THE RECORDS. WE HAVE NOTED THAT THE LD. AR OF THE ASSES SEE VEHEMENTLY SUBMITTED THAT THE A.O. TAXED THE INCOME FROM SALE OF JOINT STOCK COMPANY UNDER THE HEAD CAPITAL GAIN. HOWEVER, THE L D. CIT(A) HAS TREATED THE PROFIT ON SALE OF JOINT STOCK COMPANY A S BUSINESS PROFIT. WE HAVE FURTHER NOTED THAT THE DEPARTMENT HAS ACCEP TED THE SIMILAR PROFIT ON SALE OF INVESTMENT AS A CAPITAL GAIN FROM A.Y. 2002-03 TO 2012-13 AS THE SAME HAS NOT BEEN DISPUTED BY LD. DR WHILE MAKING HIS SUBMISSION. CONSIDERING THE FACT THAT SIMILAR P ROFIT IS ACCEPTED AS CAPITAL GAIN FROM THE YEAR 2002-03 TILL 2012-13, THEREFORE, THE REVENUE SHOULD FOLLOW THE CONSISTENCY WHEN THERE IS NO VARIANCE IN THE FACTS. HENCE, WE DIRECT THE A.O. TO TREAT THE P ROFIT ON SALE ON INVESTMENT AS CAPITAL GAIN AS HAS BEEN ACCEPTED FRO M A.Y. 2002-03 ONWARDS. THEREFORE, THE ASSESSEE ALSO SUCCEEDED ON THIS GROUND. 22 IDBI (ITA NO. 3626/M/2001) AY 1997-98 24. GROUND NO.5 RELATES TO DISALLOWANCE OF GUEST HOUSE EXPENSES. WE HAVE NOTED THAT THE LD. AR OF THE ASSESSEE HAS NOT ARGUED ANYTHING AGAINST THE DISALLOWANCE OF GUEST HOUSE EXPENSES. T HEREFORE, THIS GROUND IS TREATED AS NOT PRESSED. EVEN OTHERWISE WE HAVE NOTED THAT THE LD. CIT(A) HAS ALREADY HELD THAT EXCEPT DEPRECI ATION OTHER EXPENSES ARE ALLOWABLE. 25. GROUND NO.6 RELATES TO EXEMPTION U/S 10(23G). THE LD. AR OF THE ASSESSEE SUBMITS THAT ASSESSEE CLAIMED INCOME EXEMP T UNDER SECTION 10(23G) OF RS. 8,36,34,794/-. THE ASSESSEE HAS CLAI MED INCOME EXEMPT ON GROSS BASIS IN THE RETURN OF INCOME FURNI SHED BY ASSESSEE. DURING THE COURSE OF ASSESSMENT, ON THE DIRECTION O F A.O., THE ASSESSEE REWORK THE CLAIM ON NET BASIS AFTER DISALL OWING PROPORTIONATE EXPENDITURE, THEREBY REDUCED THE CLAI M UNDER SECTION 10(23G) TO RS. 1,86,27,921/-. BEFORE THE LD. CIT(A) , THE ASSESSEE RAISED ADDITIONAL GROUND OF APPEAL FOR REVISING THE CLAIM UNDER SECTION 10(23G) ON GROSS BASIS I.E. RS. 8,63,34,794 /-. HOWEVER, THE LD. CIT(A) WHILE PASSING THE ORDER UPHELD THE ACTIO N OF A.O. HOLDING THAT EXEMPTION UNDER SECTION 10(23G) OUGHT TO BE ALLOWED ON NET BASIS AFTER DEDUCTING PROPORTIONATE EXPENSES . THE LD. CIT(A) ALSO HELD THAT THE ASSESSEE DID NOT PRESS THE SAID GROUND OF APPEAL WHICH IS FACTUALLY INCORRECT. THE LD. AR FOR ASSESS EE SUBMITS THAT 23 IDBI (ITA NO. 3626/M/2001) AY 1997-98 THE ASSESSEE HAS RAISED GROUND BEFORE THE TRIBUNAL THAT EXEMPTION OUGHT TO BE ALLOWED ON GROSS BASIS. IN SUPPORT OF H IS SUBMISSION, THE LD. AR OF THE ASSESSEE RELIED UPON THE DECISION OF TRIBUNAL IN RELIANCE INDUSTRIES LTD. IN ITA NO. 4475/MUM/2007, THE LD AR FOR THE ASSESSEE FURTHER RELY ON THE ORDER OF TRIBUNAL IN ADIT VS. CREDIT AGRICOLE INDOSUEZ FOR AY. 1997-98 IN ITA NO. 6615/M UM/2003, ABU DHABI COMMERCIAL BANK LTD. VS. DDIT IN ITA NO. 6530/MUM/2006, DRESDNER BANK AG VS. ACIT (2007) 108 ITD 375(BOM) AND DRESDNER BANK AG VS. ADIT (ITA NO. 2962/MUM/2004). IT WAS CANVASSED BY LD AR FOR THE A SSESSEE THAT CREDIT AGRICOLE INDOSUEZ (SUPRA) THE TRIBUNAL DISCU SSED THE LANGUAGE OF SECTION 10(15) WHICH IS SIMILAR TO SECT ION 10(23G) OF THE ACT. 26. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF LD. CIT(A). 27. WE HAVE CONSIDERED THE SUBMISSION OF THE PARTIES A ND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE NOTED THAT IN THE RETURN OF INCOME, THE ASSESSEE CLAIMED INCOME EXEMPT UNDER SE CTION 10(23G) OF RS. 8,36,34,794/-. THE ASSESSEE CLAIMED EXEMPTIO N UNDER SECTION 10(23G) ON GROSS BASIS. DURING THE COURSE OF ASSESS MENT, THE ASSESSEE FURNISHED REVISED WORKING, THEREBY REDUCED THE CLAIM 24 IDBI (ITA NO. 3626/M/2001) AY 1997-98 UNDER SECTION 10(23G) TO RS. 1,86,27,921/-. BEFORE THE LD. CIT(A), THE ASSESSEE RAISED ADDITIONAL GROUND OF APPEAL REG ARDING RESTRUCTURING THE ASSESSEES CLAIM UNDER SECTION 10 (23G) IN RESPECT OF INFRASTRUCTURE BUSINESS TO RS. 1,86,27,921/- AS AGAINST RS. 8,36,34,794/- CLAIMED IN THE RETURN OF INCOME. THE LD. CIT(A) IN PARA-114 OF HIS ORDER RECORDED THAT THIS GROUND WAS NOT PRESSED BY ASSESSEE. BEFORE US, LD. AR OF THE ASSESSEE VEHEMEN TLY SUBMITTED THAT THE ASSESSEE HAS RAISED SPECIFIC AS WELL AS AD DITIONAL GROUND OF APPEAL AND THAT THE FINDING OF LD. CIT(A) THAT THE ASSESSEE HAS NOT PRESSED THIS GROUND, IS FACTUALLY INCORRECT. BEFORE US, THE LD. AR OF THE ASSESSEE SUBMITS THAT EXEMPTION UNDER SECTION 1 0(23G) IS TO BE ALLOWED ON GROSS BASIS. THE LD. AR STRONGLY MAKES R ELIANCE ON THE DECISION OF TRIBUNAL IN RELIANCE INDUSTRIES VS. ACI T (SUPRA). THE CO-ORDINATE BENCH OF TRIBUNAL IN RELIANCE INDUSTRIE S VS. ACIT (SUPRA) HELD AS UNDER: 9.6 WE HAVE CAREFULLY CONSIDERED THE ORDERS OF AUT HORITIES BELOW AND THE SUBMISSIONS OF LD. REPRESENTATIVES OF THE PARTI ES. WE HAVE ALSO CONSIDERED THE EARLIER ORDER OF THE TRIBUNAL DATED 28.5.2012 IN THE ASSESSEE'S OWN CASE FOR PRECEDING ASSESSMENT YEAR 2 002-03. WE OBSERVE THAT AO DISALLOWED AN ESTIMATED PROPORTIONA TE INTEREST ON BORROWED FUNDS IN RESPECT OF INVESTMENT MADE BY ASS ESSEE AS INCOME WAS EXEMPT U/S 10(33) AND 10(23G) OF THE ACT. HOWEV ER, LD. CIT(A) DELETED THE SAID DISALLOWANCE AFTER STATING THAT IT HAD NOT BEEN SHOWN BY THE AO THAT BORROWED FUNDS WERE EMPLOYED FOR MAK ING INVESTMENT WHICH YIELDED EXEMPT INTEREST INCOME AND IN THE ABS ENCE OF ANY 25 IDBI (ITA NO. 3626/M/2001) AY 1997-98 NEXUS, DISALLOWANCE MADE OUT OF THE INTEREST EXPENS ES COULD NOT BE SUSTAINED, PARTICULARLY WHEN OWN FUNDS OF THE ASSES SEE COMPANY WERE FAR IN EXCESS OF THE TOTAL AMOUNT OF INVESTMENT MAD E. WE ARE OF THE CONSIDERED VIEW THAT SIMILAR FACTS ARE APPLICABLE I N THE ASSESSMENT YEAR UNDER CONSIDERATION AND ALSO FOR THE REASONS S TATED HEREINABOVE IN PARAS 7.2 AND 7.3, WE HOLD THAT PROPORTIONATE DISAL LOWANCE OF INTEREST OF RS.22.25 CRORES MADE BY LD. CIT(A) IS NOT JUSTIF IED AS THE ASSESSEE'S OWN I.T.A. NO.4475/MUM/2007 12 AND 7 OTHER APPEALS FUNDS ARE FAR IN EXCESS THAN THE INTEREST FREE ADVANCE GIVEN BY A SSESSEE AND THE INVESTMENT MADE, WHICH IS GIVING EXEMPT INTEREST IN COME TO THE ASSESSEE. 28. THE CO-ORDINATE BENCH OF TRIBUNAL IN ADIT VS. CREDI T AGRICOLE INDOSUEZ (SUPRA) ALSO HELD THAT IT IS AN UNDISPUTED PROPOSITION THAT EXEMPTION UNDER SECTION 10(15) ON THE GROSS INTERES T AND NOT ON NET INTEREST. THE CO-ORDINATE BENCH FOLLOWED THE DECISI ON DRESDNER BANK AG (SUPRA) AND JCIT VS. AMERICAN EXPRESS BANK LTD. (24 TAXMANN.COM 50 (MUM. TRIB.). CONSIDERING THE DE CISION OF CO- ORDINATE BENCH OF TRIBUNAL, WE DIRECT THE A.O. TO A LLOW THE DEDUCTION ON GROSS BASIS, OFCOURCE AFTER DEDUCTING THE DIRECT EXPENSES ATTRIBUTABLE TO EARNING SUCH INCOME. IN TH E RESULT, THE ASSESSEE ALSO SUCCEEDED ON THIS GROUND. 29. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 21/06/2019 . SD/- S D/- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUDIC IAL MEMBER MUMBAI, DATE: 21.06.2019 SK 26 IDBI (ITA NO. 3626/M/2001) AY 1997-98 COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR C BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI