The DCIT, Circle-1(1), Baroda V. M/s. Gujarat Urja Vikas Nigam Board., Baroda

ITA 37/AHD/2013

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4560 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2020
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 24-04-2020
• Assessment Year: 2009-2010
• Appeal Filed On: 04-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M K PATEL; M J SHAH ARS SHR
• Keywords: Capital asset; Business income; Depreciation; Earning of tax free income; Proportionate interest; Retrospective amendment; Initiation of penalty proceedings; Revenue expenditure; Capital expenditure; Rule 8D; Set aside
• Section: 271(1)(c); 14A; 115JB; 250; 10(33); 10(33); 13; 22; 147

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (THROUGH VIRTUAL COURT) BEFORESHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER SL. NO(S) ITA NO(S) ASSET. YEAR(S) APPEAL(S) BY APPELLANT VS. RESPONDENT APPELLANT RESPONDENT 1. 11/AHD/2013 2009-10 GUJARAT URJA VIKAS NIGAM LTD., SARDAR PATEL VIDYUT BHAVAN, RACE COURSE CIRCLE, BARODA-390007 PAN NO. AACCG2861L DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-1(1), BARODA 2. 37/AHD/2013 2009-10 THE DCIT, CIRCLE-1(1), BARODA GUJARAT URJA VIKAS NIGAM LTD. RACE COURSE CIRCLE, ALKAPURI, BARODA-390007 PAN NO. AACCG2861L 3. 3103/AHD/2014 2009-10 GUJARAT URJA VIKAS NIGAM LTD., SARDAR PATEL VIDYUT BHAVANK, RACE COURSE CIRCLE, BARODA-390007 PAN NO. AACCG2861L DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-1(1), BARODA ASSESSEE BY : SHRI M. K. PATEL & SHRI M. J. SHAH AR'S REVENUE BY : SHRI VIRENDRA OJHA, CIT DR / DATE OF HEARING : 03.09.2020 / DATE OF PRONOUNCEMENT : 22.10.2020 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: IN THIS BUNCH OF APPEALS TWO APPEALS HAVE BEEN FIL ED BY THE ASSESSEE AND ONE APPEAL HAS BEEN FILED BY THE REVENUE FOR A. Y. 2009-10WHICH ARE ARISING FROM THE SEPARATE ORDER OF THE LD. CIT(A)-I BARODA DATED 29.10.2012 & 19.09.2014, IN THE ASSESSMENT PROCEEDINGS UNDER S ECTION143(3) & UNDER 2 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 SECTION 250 R.W.S. 143(3)OF THE INCOME TAX ACT, 196 1FOR A.Y. 2009-10 (IN SHORT THE ACT). FIRST WE TAKE UP ITA NO. 11/AHD/2013FOR THE A.Y. 200 9-10(ASSESSEES APPEAL):- 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1.0 THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) ERRED IN LAW AND ON FACTS HAS RESTRICTED THE ADDITIONS MADE UNDER SECTION 14A OF THE I T ACT, 1961 TO 50,85,00,000/- CONSIDERING THE SAME AS ATTRIBUTABLE TO EXEMPT DIVI DEND INCOME. IT IS SUBMITTED THAT THE DISALLOWANCE IS UNCALLED FOR AND BE DIRECTED TO BE DELETED. 2.0 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND ON FACTS HAS SET ASIDE THE ADDITIONS OF RS.4,44,00,000/- BEI NG GUARANTEE FEES PAID TO THE GOVERNMENT OF GUJARAT IN CONSIDERATION OF IT ISSUIN G THE GUARANTEE FOR VARIOUS UNSECURED LOANS WITH THE DIRECTION TO RE-VERIFY THE CLAIM DES PITE THE FACT THAT THE DOCUMENTS ESTABLISHING THE FACTS WERE SUBMITTED AT THE TIME O F APPEAL HEARING. 3.0 THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED IN LAW AND ON FACTS HAS SET ASIDE THE ADDITION WITH RESPECT TO THE PRIOR PERIOD EXPENSE OF RS.21,47,000/-WITH THE DIRECTION TO RE-VERIFY THE CLAIM DESPITE THE FACT T HAT THE DOCUMENTS ESTABLISHING THE FACTS THAT THE SAME IS A CREDIT ENTRY AND ALREADY INCLUDED IN THE NET PROFITS CONSIDERED FOR COMPUTING THE TAXABLE INCOME WERE SUBMITTED AT THE TIME OF AP PEAL HEARING. 4.0 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION AMOU NTING TO RS.1,21,06,721/- ON THE BASIS THAT CERTAIN ITEMS INCLUDED UNDER THE HEAD COMPUTER S DO NOT QUALIFY FOR DEPRECIATION @ 60% UNDER THE INCOME TAX ACT, 1961. 5.0 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ENHANCEMENT OF BOOK PROFIT COMPUT ED UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961 BY RS.50,85,00,000/- ON ACCOUNT OF DI SALLOWANCE MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. 6.0 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN LAW AND ON FACTS HAS DISMISSED THE GROUND RELATING TO THE INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE I T ACT. 7.0 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE CHARGING OF INTEREST UNDER SECTIO N 234B, 234C AND 234D OF THE INCOME TAX ACT, 1961. 8.0 THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, DE LETE OR MODIFY ANY OF THE GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF T HIS APPEAL. 3 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 3. THE FIRST ISSUE RAISED BY THE ASSESSEE IS THAT T HE LEARNED CIT (A) ERRED IN RESTRICTING THE ADDITION OF RS.50,85,00,000/- OU T OF THE TOTAL ADDITION OF RS. 238,20,40,627/- MADE BY THE AO UNDER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF INCOME TAX RULE THOUGH THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE IN THE EARNING OF DIVIDEND INCOME. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF ELECTRICITY. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION DECLARED D IVIDEND INCOME OF RS.1,116.61 LAKHS ON THE INVESTMENTS WHICH WAS SHOW N AS ON 1 ST APRIL 2008 AND 31 ST MARCH 2009 AT RS.5,58,204.74 LAKHS AND RS.6,64,856 .04 LAKHS RESPECTIVELY IN ITS BALANCE SHEET. THE ASSESSEE AT THE SAME TIME HAS CLAIMED THE DEDUCTION ON ACCOUNT OF INTEREST EXPENSES AMOUNTING TO RS.13,122.56 LACS IN THE YEAR UNDER CONSIDERATION ON THE BORROWED FUND A MOUNTING TO RS.3,28,754.64 LAKHS. 4.1 HOWEVER, THE ASSESSEE DURING THE ASSESSMENT PRO CEEDINGS CLAIMED THAT IT HAS NOT INCURRED ANY EXPENDITURE IN THE EARNING OF THE DIVIDEND INCOME. BUT THE AO DISREGARDED THE CONTENTION OF THE ASSESSEE B Y OBSERVING THAT THE OWN FUND OF THE ASSESSEE IS LESS THAN THE INVESTMENT AN D THEREFORE IT CAN BE INFERRED THAT THE BORROWED FUND HAS BEEN UTILIZED IN THE INV ESTMENTS WHICH HAVE GENERATED THE DIVIDEND INCOME. ACCORDINGLY, THE AO INVOKED THE PROVISIONS OF SECTION 14A READ WITH RULE 8D AND MADE THE DISAL LOWANCE OF THE FOLLOWING EXPENSES: S.NO. PARTICULARS AMOUNT I. DIRECT EXPENSES NIL II. INTEREST EXPENSES 21,879.34432 LACS III. ADMINISTRATIVE EXPENSES 3,057.65195 LACS 24,937.01627 LACS 4 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 5. HOWEVER, THE AO FOUND THAT THE ASSESSEE HAS NOT OFFERED THE DIVIDEND INCOME IN THE PROFIT AND LOSS ACCOUNT AND NO EXEMPT ED INCOME WAS CLAIMED. ACCORDINGLY, THE AO REDUCED THE AMOUNT OF DIVIDEND INCOME OF RS.1,116.61 LAKHS FROM THE DISALLOWANCE MADE UNDER SECTION 14A READ WITH RULE 8D AND THE BALANCE AMOUNT OF RS.238,20,40,627/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 6. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LE ARNED CIT (A) WHO HAS PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE AFT ER MAKING THE REFERENCE TO THE ORDER OF HIS PREDECESSOR FOR THE ASSESSMENT YEA R 2008-09. THE RELEVANT FINDING OF THE LEARNED CIT (A) IS PLACED ON PAGES 1 2 TO 15 OF HIS ORDER. 7. BEING AGGRIEVED BY THE ORDER OF LEARNED CIT-A, B OTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL BEFORE US. THE ASSESSEE I S IN APPEAL AGAINST THE CONFIRMATION OF THE ADDITION MADE BY THE AO FOR RS. 50,85,00,000/- WHEREAS THE REVENUE IS IN APPEAL AGAINST THE DELETION OF TH E ADDITION MADE BY THE AO. 8. THE LEARNED AR BEFORE US SUBMITTED THAT THE LEAR NED CIT (A) HAS FOLLOWED THE DECISION OF HIS PREDECESSOR PERTAINING TO THE ASSESSMENT YEAR 2008-09 WHICH WAS CARRIED BEFORE THE ITAT IN ITA NO S. 837 AND 899/AHD/2012, BOTH BY THE ASSESSEE AND THE REVENUE. HOWEVER, THE ITAT WAS PLEASED VIDE ORDER DATED 22 ND JUNE 2016 TO SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION. ACCORDINGLY, THE LEA RNED AR BEFORE US PLEADED THAT THE MATTER FOR THE YEAR UNDER CONSIDERATION CA N ALSO BE SET ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICATION. 5 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 9. ON THE CONTRARY, THE LEARNED DR RAISED NO OBJECT ION IF THE MATTER IS SET ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN ACCORDANCE TO THE PROVISIONS OF LAW. 10. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE PRECEDING D ISCUSSION, THERE IS NO AMBIGUITY THAT THE LEARNED CIT (A) HAS DECIDED THE ISSUE ON HAND AFTER RELYING ON THE ORDER OF HIS PREDECESSOR FOR THE ASSESSMENT YEAR 2008-09 WHICH WAS SUBSEQUENTLY SET ASIDE BY THE ITAT FOR FRESH ADJUDI CATION. THE RELEVANT FINDING OF THE ITAT READS AS UNDER: 8. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IN THESE GROUNDS RAISED BY THE ASSESSEE AND THE REVENUE CHAL LENGE THE ACTION OF LD. CIT(A). WE OBSERVE THAT AN ADDITION OF RS.152.46 CRORES WAS SU STAINED, MADE BY LD. ASSESSING OFFICER WHICH WAS SUSTAINED TO RS.61.46 CRORES BY LD. CIT(A ) AND, THEREFORE, ASSESSEE HAS RAISED THE GROUND AGAINST THE SUSTAINED ADDITION OF RS.61. 46 CRORES WHEREAS REVENUE HAS CHALLENGED THE DELETION OF RS.91 CRORES OUT OF THE DISALLOWANCE U/S 14A OF THE ACT. 10. IN ITA NO.1874/AHD/2010 VIDE ITS ORDER DATED 20 .6.2014 THE TRIBUNAL ADJUDICATED THE ISSUE RELATING TO DISALLOWANCE U/S 14A AND HELD AS UNDER :- 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS EARNED TAX FREE DIVIDEND INCOME OF RS 1283.95 LAKHS AND THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE OF RS 18,325.41 LAKHS. THE ASSESSEE HAS NOT ATTRIBUTED ANY EXPENDITURE TOWARDS EARNING OF E XEMPT DIVIDEND INCOME. THEREFORE, BY INVOKING THE SECTION 14A READ WITH RULE 8D HE MADE DISALLOWANCE OF RS 197.80 CRORES. WE FIND THAT A SIMILAR ISSUE HAD COME UP BEFORE THIS T RIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2006-07 WHERE IN THE TRIBUNAL RESTORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR ADJUD ICATION AFRESH BY OBSERVING AS UNDER: 2. AT THE OUTSET, OUR ATTENTION HAS BEEN DRAWN ON AN ADDITIONAL GROUND OF APPEAL RAISED BY THE REVENUE DEPARTMENT READS AS UNDER: '1(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN DELETING THE ADDITION OFRS.187.97 CRORES U /S 14A OF THE ACT ON ACCOUNT OF INTEREST ATTRIBUTABLE TO INVESTMENT IN SHARES WITHO UT APPRECIATING THE FACT THAT IN VIEW OF SECTION 106 OF THE INDIAN EVIDENCE ACT, IT WAS UP TO THE ASSESSEE COMPANY TO ADDUCE EVIDENCE THAT ALL THE BORROWINGS WERE USE D FOR THE PURPOSES OF BUSINESS AND ITS IS ASSESSEE' S OWN SURPLUS FUND THAT WERE I NVESTED IN THE SHARES AND DEPOSITS 6 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 EARNING EXEMPTED INCOME, AND, EVEN IN CASE OF MIXED FUNDS, THE DISALLOWANCE OF INTEREST COULD BE MADE.' 1(B) AS AN ALTERNATE PLEA, THE ID. CIT(A) ERRED IN NOT UPHOLDING THE ADDITION U/S. 14A ON ACCOUNT OF INTEREST ATTRIBUTABLE TO INVESTME NT IN SHARES TO THE EXTENT IN VIEW OF PROVISIONS OF SECTION 14A READ WITH RULE 8D. ' 3. LEARNED DR HAS PLEADED THAT AN ADDITION OF RS. 1 87.97 CRORES WHICH WAS MADE U/S 14A WAS DELETED BY LEARNED CIT(A), HOWEVER, IT WAS NOT ADJUDICATED AS PER THE GROUNDS OF APPEAL. LEARNED DR HAS ALSO ARGUED THAT THE ASSESSEE WAS REQUIRED TO ADDUCE EVIDENCE THAT ALL THE BORROWINGS WERE USED F OR THE PURPOSE OF THE BUSINESS AND THE ASSESSEE'S OWN SURPLUS FUNDS WERE INVESTED IN THE SHARES. LEARNED DR HAS ALSO INFORMED THAT IN A.Y. 2007-08, THE ADDITION OF SIMILAR NATURE WAS UPHELD BY LEARNED CIT(A). HE HAS THUS PLEADED THAT THE ISSUE BEING LEGAL IN NATURE WHICH HAS EMERGED FROM THE FACTS ALREADY ON RECORD, THEREFORE , THE ADDITIONAL GROUND DESERVES TO BE ADMITTED FOR ADJUDICATION. 4. AFTER HEARING BOTH THE SIDES, THE ADDITIONAL GRO UND OF THE REVENUE DEPARTMENT IS HEREBY ADMITTED FOR ADJUDICATION. AT THE OUTSET, IT IS WORTH TO MENTION THAT THE IMPUGNED ADDITION OF RS.18796.82 LACS WAS MADE BY T HE AO WITHOUT HAVING ANY DISCUSSION IN RESPECT OF THE APPLICABILITY OF SECTI ON 14A OF THE IT ACT. LIKEWISE, LEARNED CIT(A) HAS ALSO NOT DISCUSSED THE APPLICABI LITY OF THE PROVISIONS OF SECTION 14A OF IT ACT, HOWEVER, AFTER CONSIDERING THE MERIT S OF THE CASE, DELETED THE ADDITION. WITH THIS CLARIFICATION, WE HAVE EXAMINED THE FACTS AND THE ISSUE AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PAS SED U/S. 143(3), DATED 26.12.2008. IT WAS NOTED BY THE AO THAT THE ASSESSE E HAD CLAIMED A HUGE AMOUNT OF INTEREST EXPENDITURE OF RS. 19360.59 LACS, AS PER T HE FOLLOWING BIFURCATION. (RS. IN LACS) PARTICULARS AMOUNT INTEREST ON TERM LOANS 8981.35 WORKING CAPITAL 8184.50 OTHERS 677.63 BANK CHARGES & GUARANTEE FEES 591.65 19435.13 LESS: INTEREST CAPITALIZED 74.54 19360.59 4.1 AT THE SAME TIME, IT WAS ALSO FOUND BY THE AO T HAT THE ASSESSEE HAD MADE THE INVESTMENT OF RS.5,47,709.74 LACS ON WHICH DIVIDEND EARNED WAS AT RS.508.18 LACS. THE AO'S OBJECTION WAS THAT ON ONE HAND THE ASSESSE E HAS DIVERTED THE HUGE FUNDS TOWARDS SUCH INVESTMENT HAVING EXEMPTED INCOME AND ON THE OTHER HAND BORROWED HUGE FUNDS OF RS.3,46,272.51 LACS ON WHICH CLAIMED INTEREST OF RS. 19360.59 LACS. THEREFORE, THE AO WAS OF THE VIEW THAT THE ASSESSEE HAD DIVERTED THE BORROWED FUNDS FOR EARNING EXEMPTED INCOME. THE ASSESSEE'S C ONTENTION WAS THAT THE INVESTMENT DURING THE YEAR WAS ONLY RS.102.32 LACS AND REST OF THE INVESTMENT WAS MADE IN THE EARLIER YEARS. ACCORDING TO THE AO, IF THE ASSESSEE HAD NOT MADE SUCH INVESTMENT EITHER IN THE YEAR UNDER CONSIDERATION O R IN EARLIER YEARS THEN THE ASSESSEE WOULD NOT HAVE BEEN REQUIRED TO BORROW INT EREST BEARING LOANS. THE AO HAS PLACED RELIANCE UPON THE CASE OF H.R SUGAR FACT ORY, 187 ITR 366 (AID) FOR THE LEGAL PROPOSITION THAT THE ASSESSEE COULD HAVE OTHE RWISE AVOIDED ITS LIABILITY OF 7 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 INTEREST BY NOT GIVING INTEREST FREE FUNDS TO ITS G ROUP CONCERNS. THE ADDITION IN THE QUESTION WAS THUS MADE BY THE AO IN THE FOLLOWING C ONCLUSION. 'IN VIEW OF THE ABOVE DISCUSSION AND PROVISION OF L AW, THE INTEREST ATTRIBUTABLE TO THE INVESTMENT IS NOT ALLOWABLE EXP ENDITURE. THE ASSESSEE WAS REQUIRED TO GIVE THE RATES OF INTEREST PAID TO VARIOUS SOURCES. THE ASSESSEE VIDE ITS REPLY DID NOT FURNISH THE RATES O F INTEREST PAID. IT SIMPLY SUBMITTED THAT LOANS FROM VARIOUS BANKS WITH VARYIN G INTEREST RATES WERE OBTAINED. DURING THE YEAR UNDER CONSIDERATION, THE MARKET RATE OF INTEREST WAS 12%. THEREFORE, INTEREST AT THE RATE OF 12% WOR KS OUT TO RS.65725.17 LACS ON INVESTMENTS OF RS.547709.74 LACS. HOWEVER, THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE OF RS.19360.59 LACS AN D HAS SHOWN INTEREST INCOME OF RS.55.59 LACS AND DIVIDEND INCOME OF RS.5 08.18 LACS. HENCE, AGAINST THE INTEREST EXPENDITURE OF RS.19360.59 LAC S ASSESSEE HAS GROWN INTEREST AND DIVIDEND INCOME OF RS.563.77 LACS. THU S, NET DISALLOWANCE IS MADE OF RS.18796.82 LACS.' 5. BEING AGGRIEVED THE MATTER WAS CARRIED BEFORE TH E FIRST APPELLATE AUTHORITY WHO HAS DECIDED THE ISSUE IN ASSESSEE'S FAVOUR IN THE F OLLOWING MANNER: 'THUS, THE ONLY TEST TO BE APPLIED IS THAT OF 'COMM ERCIAL EXPEDIENCY'. IN THE INSTANT CASE, IT IS SEEN THAT NO INVESTMENT WAS MAD E BY THE ASSESSEE COMPANY BY USING BORROWED FUNDS.THE ENTIRE INVESTME NT, EXCEPT MINOR INVESTMENT OF RS.11.25 LACS WAS INHERITED IN THE DE MERGER EXERCISE. THE INVESTMENT IN SHARES WAS DUE TO THE RESTRUCTURING C ARRIED OUT AT THE BEHEST OF GOG. THE INVESTMENTS WERE IN THE FORM OF SHARES OF SUBSIDIARY COMPANIES AS PAN OF THE FINANCIAL RESTRUCTURING PLA N APPROVED BY THE GOVERNMENT OF GUJARAT WHICH WAS INTEGRAL TO THE DEM ERGER. THIS WAS CLEARLY COMMERCIALLY EXPEDIENT FOR THE APPELLANT CO MPANY. THE BUSINESS ITSELF WAS VIABLE ONLY UNDER THE PLAN OF RESTRUCTU RING, WHICH REQUIRED THE COMPANY TO HAVE CROSS-HOLDINGS IN THE UNBUNDLED COM PANIES OF GEB. IN FACT, THE APPELLANT BECAME THE HOLDING COMPANY OF T HE GENERATING AND TRANSMISSION COMPANIES. LOOKING TO THE FACTS AND CI RCUMSTANCES OF THE CASE, I AM OF THE OPINION THAT THERE WAS NO DIVERSI ON OF BORROWED FUNDS FOR NON-BUSINESS PURPOSES. ACCORDINGLY, THE ADDITION OF RS. 18796.82 LACS IS DIRECTED TO BE DELETED.' 6. WITH THIS FACTUAL BACKGROUND, WE HAVE HEARD BOTH THE SIDES. LEARNED DR HAS PRIMARILY PLACED RELIANCE ON A DECISION OF RESPECTE D SPECIAL BENCH OF ITAT MUMBAI IN THE CASE OF ITO V/S. DAGA CAPITAL MANAGEM ENT PVT. LTD., 117 ITD 169 (MUM) (SB). LEARNED DR HAS ALSO PLEADED THAT IN ONE OF THE ASSESSMENT YEAR, I.E., IN A.Y. 2007-08 LEARNED CIT(A) HAD SUSTAINED THE SA ME NATURE OF ADDITION. FROM THE FACTS OF THE CASE, WE HAVE NOTED THAT THERE WAS RE-STRUCTURING ACCORDING TO WHICH ERSTWHILE GEB WAS DEMERGED INTO SEVEN DIFFERE NT COMPANIES. POST RESTRUCTURING; THE ASSESSMENT YEAR UNDER CONSIDERAT ION IS THE FIRST YEAR OF OPERATION OF THE ASSESSEE COMPANY. ON ONE HAND, THOSE WERE TH E FACTS WHICH WERE RELIED UPON BY THE LEARNED CIT(A). HOWEVER, ON THE OTHER HAND, THE AO HAS REPRODUCED SOME OF THE REPLIES OF THE ASSESSEE THROUGH WHICH IT WAS CL AIMED THAT THE SAID INVESTMENT WAS NOT MADE BY THE ASSESSEE COMPANY OUT OF THE BOR ROWED FUNDS BUT FROM THE CONSUMERS, CONTRIBUTION AND SUBSIDIARIES. THERE WAS A REFERENCE OF THE ANNUAL ACCOUNTS OF THE YEAR 2005-06. THE ASSESSEE HAS ALSO INFORMED THAT DURING THE YEAR 8 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 UNDER CONSIDERATION THE ASSESSEE COMPANY HAD INVEST ED ONLY A SUM OF RS.11.25 LACS. REST OF THE INVESTMENTS WERE THE SHARE CAPITA L OF THE SUBSIDIARY COMPANIES AS PER THE TERMS OF THE FINANCIAL RESTRUCTURING PLAN A PPROVED BY THE GOVERNMENT OF GUJARAT. WE HAVE NOTED THAT THE LEARNED CIT(A) HAS GRANTED RELIEF ONLY ON THE GROUND THAT THE ASSESSEE COMPANY HAD BECOME THE HOL DING COMPANY AND THE INVESTMENTS WERE IN THE FORM OF SHARES OF SUBSIDIAR Y COMPANIES WHICH WAS AN INTEGRAL PART OF THE DEMERGER ARRANGEMENT. THEREFOR E, IT WAS NOTHING BUT COMMERCIAL DECISION. 6.2 ACCORDING TO US, THE ISSUE HAS BEEN MIXED UP BY THE REVENUE DEPARTMENT. THE FIRST STEP SHOULD BE TO EXAMINE THE SCHEME OF DEMER GER AND THEREAFTER THE ISSUE COULD HAVE BEEN STREAMLINED. AS PER THE DEFINITION OF 'DEMERGER' PRESCRIBED U/S.2(19AA) MEANS; THE TRANSFER PURSUANT TO A SCHEM E OF ARRANGEMENT BY A DEMERGED COMPANY OF ITS ONE OR MORE UNDERTAKINGS TO ANY RESULTING COMPANY IN SUCH A MANNER THAT ALL THE PROPERTY OF THE UNDERTAK ING/UNIT BEING TRANSFERRED BY THE DEMERGED COMPANY IMMEDIATELY BEFORE THE DEMERGER, W HICH BECOMES THE PROPERTY OF THE RESULTING COMPANY BY VIRTUE OF THE DEMERGER. THEREFORE, IT WAS NECESSARY FOR THE AO TO EXAMINE THE BALANCE SHEET OF THE DEMERGED COMPANY AND THE POSITION OF THE ACCOUNTS OF THE UNDERTAKING WHICH IS DEMERGED W ITH THE RESULTING COMPANY. THE AO HAS TO EXAMINE THE LIABILITIES RELATED TO THE SA ID UNDERTAKING WHETHER BEING TRANSFERRED UNDER THE SCHEME OF ARRANGEMENT WHICH W ERE IN EXISTENCE IMMEDIATELY BEFORE THE DEMERGER. THE AO HAS TO EXAMINE THE VALU E OF THE PROPERTY IN THE BOOKS OF ACCOUNTS IMMEDIATELY BEFORE THE DEMERGER WHICH W AS TRANSFERRED. THE AO HAS ALSO TO EXAMINE THE FINANCIAL POSITION OF THE 'RESU LTING COMPANY', AS DEFINED U/S.2(41A) OF IT ACT. IN GENERAL, AN UNDERTAKING OF THE DEMERGED COMPANY IS TRANSFERRED IN A DEMERGER SCHEME AND AS A RESULT A RESULTING COMPANY COMES INTO EXISTENCE. THE RESULTING COMPANY IN CONSIDERATION O F SUCH TRANSFER OF AN UNDERTAKING OFTHE DEMERGERD COMPANY ISSUES SHARES T O THE SHARE HOLDERS OF THE DEMERGED COMPANY. THEREFORE, THE RESPONSIBILITY OF THE 'RESULTING COMPANY' WAS ALSO REQUIRED TO BE ASCERTAINED BY THE AO. THIS IS THE FIRST ASPECT, WHICH WAS NOT EXAMINED BY THE AO AND THE ORDER OF THE REVENUE AUT HORITIES ARE SILENT ON THIS SUBJECT. 6.3 NEXT QUESTION IS ABOUT THE HUGE AMOUNT OF INTER EST EXPENDITURE CLAIMED BY THE ASSESSEE. THE AO IS REQUIRED TO EXAMINE FIRST THE C ORRECTNESS OF THE CLAIM. WHETHER THE INTEREST ON TERM LOANS, BANK CHARGES AND GUARAN TEE FEES WERE IN RESPECT OF THE BUSINESS OF THE ASSESSEE. THEREAFTER, THE AO IS ALS O REQUIRED TO GIVE A CLEAR FINDING ABOUT THE BORROWINGS MADE BY THE ASSESSEE ON WHICH THE SAID INTEREST WAS PAID. THE NEXT STEP IS THAT THE AO HAS TO EXAMINE THE SOURCES OF THE FUNDS WHICH WERE INVESTED FOR EARNING THE DIVIDEND INCOME. IF THE SOURCE OF S UCH INVESTMENT IS OUT OF THE INTEREST BEARING BORROWINGS, THEN ONLY THE QUESTION OF DISALLOWANCE OF INTEREST WOULD ARISE, OTHERWISE NOT. ON THE OTHER HAND, THE CLAIM OF THE ASSESSEE IS THAT THERE WERE SUFFICIENT NON INTEREST BEARING RESERVES OR SURPLUS AVAILABLE. THE AO IS REQUIRED TO INVESTIGATE THE CORRECTNESS OF THE CLAI M THAT WHETHER THE ASSESSEE HAD SUFFICIENT NON INTEREST BEARING FUND AVAILABLE AND IN WHAT FORM THOSE WERE UTILIZED BY THE ASSESSEE. IF THE ASSESSEE IS IN A POSITION T O DEMONSTRATE THAT THE NON-INTEREST BEARING FUNDS HAVE ACTUALLY BEEN INVESTED TO EARN E XEMPTED INCOME THEN THE ASSESSEE'S CLAIM IS LEGALLY CORRECT. THEREAFTER, TH E QUESTION OF THE INVOCATION OF SECTION 14A COMES INTO PLAY. AS FAR AS THE APPLICAB ILITY OF THE DECISION OF SPECIAL BENCH IS CONCERNED THE SAME NOW STOOD COVERED BY TH E DECISION OF HON'BLE BOMBAY HIGH COURT PRONOUNCED IN THE CASE OF GODREJ AND BOY CE, 328 ITR 81 (BOM). FOR 9 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 THE SAKE OF COMPLETENESS HEREIN BELOW REPRODUCED A PORTION OF AN ITAT ORDER VIZ., ADITYA MIDCALS AS FOLLOWS: '5. WITH THIS BRIEF BACKGROUND, WE HAVE EXAMINED TH E FACTS OF THE CASE AS ALSO THE LAW PRONOUNCED IN THIS REGARD. 6. AS FAR AS THE ASSESSING OFFICER'S ACTION IS CONC ERNED, THE DISALLOWANCE HAS BEEN MADE ON THE BASIS OF A CALCULATION OF THE PROPORTIO NATE INTEREST ALLEGED TO BE ATTRIBUTABLE TO THE INVESTMENT EARNING EXEMPTED DIV IDEND INCOME. IT IS ALSO TO BE NOTED THAT WHILE DOING SO FOR THE YEARS UNDER CONSI DERATION THE A.O. HAS NOT FOLLOWED THE PAST METHOD OF CALCULATION OF THE DISA LLOWANCE. AS PER AO IT WAS SEEN THAT THE WORKING OF DISALLOWANCE WAS WRONG BECAUSE WHILE CALCULATING THE PROPORTIONATE INTEREST ATTRIBUTABLE TO DIVIDEND INC OME THE RATIO OF DIVIDEND INCOME AND TOTAL SALES HAVE BEEN TAKEN THOUGH THERE WAS NO DIRECT RELATION BETWEEN THE TWO. THE ASSESSING OFFICER HAD THUS MADE THE CALCUL ATION AFTER TAKING INTO ACCOUNT THE PROPORTION OF THE INTEREST ON THE RATIO BETWEEN THE INVESTMENT IN SHARES AND TOTAL ASSETS INCLUDING INVESTMENT IN SHARES. APART FROM THIS, THERE IS NOTHING IN THE ASSESSMENT ORDER WHICH CAN ESTABLISH THE NEXUS OF U TILIZATION OF BORROWED INTEREST- BEARING FUNDS DIVERTED TOWARDS INVESTMENT IN DEBENT URES. BUT THERE ARE OTHER DISCUSSIONS IN THIS VERY ASSESSMENT ORDER WHEREIN T HE PROVISIONS OF SECTION 36(L)(III) OF THE ACT HAVE ALSO BEEN TOUCHED UPON. THE ASSESSI NG OFFICER WAS EXPECTED TO CORRELATE THE SAID DISCUSSION WITH THE EXEMPTED DIV IDEND INCOME U/S. 10(33) OF THE ACT. AS FAR AS THE LAW PRONOUNCED IN THIS REGARD IS CONCERNED, FIRST OF ALL, WE HAVE TO FOLLOW A LATEST DECISION OF HON'BLE BOMBAY HIGH COURT PRONOUNCED IN THE CASE OF GODREJ & BOYCE MFG. CO.LTD. MUMBAI VS. DY.CIT IN IN COME TAX APPEAL NO.626 OF 2010 AND WRIT PETITION NO.758 OF 2010 ORDER DATED 1 2/08/2010, { NOW REPORTED AS 328 ITR 81(BOM) } WHEREIN THE HON'BLE HIGH COURT HA S UPHELD THE CONSTITUTIONAL VALIDITY OF SECTION 14A OF THE I.T. ACT, 1961 AND H ELD THAT THE ASSESSING OFFICER SHOULD DETERMINE AS TO WHETHER THE ASSESSEE HAS INC URRED ANY EXPENDITURE (DIRECT OR INDIRECT) IN RELATION TO DIVIDEND INCOME AND/OR INCOME FROM MUTUAL FUND WHICH DO NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATE D U/S.14A OF THE I.T. ACT, 1961. IT HAS ALSO BEEN DIRECTED THAT THE ASSESSING OFFICE R CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. IT HAS ALSO BEEN O BSERVED BY THE HON'BLE COURT THAT WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFI CER SHOULD PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUN TS AND MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 6.1. IN THIS JUDGEMENT AT THE END, THE HON'BLE COUR T HAS ALSO RECAPITULATED THE CONCLUSION AND PRONOUNCED THAT A FINDING IS REQUIRE D WHETHER THE INVESTMENT IN SHARES IS MADE OUT OF OWN FUNDS OR OUT OF BORROWED FUNDS. A NEXUS IS REQUIRED TO BE ESTABLISHED BETWEEN THE INVESTMENTS AND THE BORROWI NGS. IN SECTION 14A OF THE ACT EXPENDITURE INCURRED IN RELATION TO EXEMPTED INCOME IS TO BE DISALLOWED ONLY IF THE ASSESSING OFFICER IS SATISFIED WITH THE EXPENDITURE CLAIMED BY THE ASSESSEE PERTAINING TO THE SAID EXEMPT INCOME. RATHER, THE C OURT WAS VERY SPECIFIC THAT IN CASE, NO SUCH EXERCISE WAS CARRIED OUT BY THE ASSES SING OFFICER THEN THE MATTER IS TO BE REMANDED BACK FOR AFRESH INVESTIGATION. IT HAS A LSO BEEN MADE CLEAR THAT THE PROVISO TO SECTION 14A OF THE ACT WAS EFFECTIVE FRO M 2001-02. THE HON'BLE COURT HAS ALSO POINTED OUT THE IMPORTANCE OF RULE 8D OF T HE I.T.RULES, 1962. IT WAS MADE CLEAR THAT SUB-SECTION (1) TO SECTION 14A WAS INSER TED WITH RETROSPECTIVE EFFECT FROM 01/04/1962, HOWEVER, SUB-SECTIONS (2) & (3) WERE MA DE APPLICABLE WITH EFFECT FROM 01/04/2007. THE PROVISO WAS INSERTED WITH RETROSPE CTIVE EFFECT FROM 11/05/2001 , 10 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 HOWEVER RULE 8D WAS INSERTED BY THE INCOME TAX (FIF TH AMENDMENT), RULES, 2008 BY PUBLICATION IN THE GAZETTE DATED 24/03/2008; REP RODUCED BELOW:- 'A) THE ITAT HAD RECORDED A FINDING IN THE EARLIER ASSESSMENTS THAT THE INVESTMENTS IN SHARES AND MUTUAL FUNDS HAVE BEEN MADE OUT OF OW N FUNDS AND NOT OUT OF BORROWED FUNDS AND THAT THERE IS NO NEXUS BETWEEN T HE INVESTMENTS AND THE BORROWINGS. HOWEVER, IN NONE OF THOSE DECISIONS WAS THE DISALLOW ABILITY OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME EARN ED OUT OF INVESTMENTS MADE OUT OF OWN FUNDS CONSIDERED. MOREOVER, UNDER SECTION 14 A, EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME CAN BE DISALLOWED ONLY IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE EXPENDITURE C LAIMED BY THE ASSESSEE. IN THE PRESENT CASE, NO SUCH EXERCISE HAS BEEN CARRIED OUT AND, THEREFORE, THE TRIBUNAL WAS JUSTIFIED IN REMANDING THE MATTER. B) SECTION 14A WAS INTRODUCED BY THE FINANCE ACT 20 01 WITH RETROSPECTIVE EFFECT FROM 1 APRIL 1962. HOWEVER, IN VIEW OF THE PROVISO TO THAT SECTION, THE DISALLOWANCE THEREUNDER COULD BE EFFECTIVELY MADE FROM ASSESSMEN T YEAR 2001-2002 ONWARDS. THE FACT THAT THE TRIBUNAL FAILED TO CONSIDER THE A PPLICABILITY OF SECTION 14A IN ITS PROPER PERSPECTIVE, FOR ASSESSMENT YEAR 2001 -2002 WOULD NOT BAR THE TRIBUNAL FROM CONSIDERING DISALLOWANCE UNDER SECTION 14A IN ASSESSMENT YEAR 2002-2003. C) THE DECISIONS REPORTED IN SRIDEV ENTERPRISES (SU PRA), MUNJAL SALES CORPORATION (SUPRA) AND RADHASOAMI SATSANG (SUPRA) HOLDING THAT THERE MUST BE CONSISTENCY AND DEFINITENESS IN THE APPROACH OF THE REVENUE WOU LD NOT APPLY TO THE FACTS OF THE PRESENT CASE, BECAUSE OF THE MATERIAL CHANGE INTROD UCED BY SECTION 14A BY WAY OF STATUTORY DISALLOWANCE IN CERTAIN CASES. THERE, THE DECISIONS OF THE TRIBUNAL IN THE EARLIER YEARS WOULD HAVE NO RELEVANCE IN CONSIDERIN G DISALLOWANCE IN ASSESSMENT YEAR 2002-2003 IN THE LIGHT OF SECTION 14A OF THE A CT. 73. FOR THE REASONS WHICH WE HAVE INDICATED, WE HAV E COME TO THE CONCLUSION THAT UNDER SECTION 14A(1) IT IS FOR THE ASSESSING OFFICE R TO DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED ANY EXPENDITURE IN RELATION T O THE EARNING OF INCOME WHICH DOES NOT FORM PAN OF THE TOTAL INCOME UNDER THE ACT AND IF SO TO QUANTIFY THE EXTENT OF THE DISALLOWANCE. THE ASSESSING OFFICER WOULD HA VE TO ARRIVE AT HIS DETERMINATION AFTER FURNISHING AN OPPORTUNITY TO TH E ASSESSEE TO PRODUCE ITS ACCOUNTS AND TO PLACE ON THE RECORD ALL RELEVANT MA TERIAL IN SUPPORT OF THE CIRCUMSTANCES WHICH ARE CONSIDERED TO BE RELEVANT A ND GERMANE. FOR THIS PURPOSE AND IN LIGHT OF OUR OBSERVATIONS MADE EARLIER IN TH IS SECTION OF THE JUDGMENT, WE DEEM IT APPROPRIATE AND PROPER TO REMAND THE PROCEE DINGS BACK TO THE ASSESSING OFFICER FOR A FRESH DETERMINATION. CONCLUSION: 74. OUR CONCLUSIONS IN THIS JUDGMENT ARE AS FOLLOWS ; I) DIVIDEND INCOME AND INCOME FROM MUTUAL FUNDS FAL LING WITHIN THE AMBIT OF SECTION 10(33) OF THE INCOME TAX ACT 1961, AS WAS A PPLICABLE FOR ASSESSMENT YEAR 2002-03 IS NOT INCLUDIBLE IN COMPUTING THE TOTAL IN COME OF THE ASSESSEE. CONSEQUENTLY, NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, BY VIRTUE OF THE PROVISIONS OF SECTI ON 14A(1); 11 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 II) THE PAYMENT BY A DOMESTIC COMPANY UNDER SECTION 115O(1) OF ADDITIONAL INCOME TAX ON PROFITS DECLARED, DISTRIBUTED OR PAID IS A CHARGE ON A COMPONENT OF THE PROFITS OF THE COMPANY. THE COMPANY IS CHARGEAB LE TO TAX ON ITS PROFITS AS A DISTINCT TAXABLE ENTITY AND IT PAYS TAX IN DISCHARG E OF ITS OWN LIABILITY AND NOT ON BEHALF OF OR AS AN AGENT FOR ITS SHAREHOLDERS. IN T HE HANDS OF THE SHAREHOLDER AS THE RECIPIENT OF DIVIDEND, INCOME BY WAY OF DIVIDEND DO ES NOT FORM PART OF THE TOTAL INCOME BY VIRTUE OF THE PROVISIONS OF SECTION 10(33 ). INCOME FROM MUTUAL FUNDS STANDS ON THE SAME BASIS; III) THE PROVISIONS OF SUB SECTIONS (2) AND (3) OF SECTION 14A OF THE INCOME TAX ACT 1961 ARE CONSTITUTIONALLY VALID; IV) THE PROVISIONS OF RULE 8D OF THE INCOME TAX RUL ES AS INSERTED BY THE INCOME TAX (FIFTH AMENDMENT) RULES 2008 ARE NOT ULTRA VIRE S THE PROVISIONS OF SECTION 14A, MORE PARTICULARLY SUB SECTION (2) AND DO NOT O FFEND ARTICLE 14 OF THE CONSTITUTION;; V) THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULE S WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM 24TH MARCH, 2008 SHALL APPLY WITH EFFEC T FROM ASSESSMENT YEAR 2008- 09; (VI) EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RU LE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORCE THE PROVISIONS OF SUB SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DUTY BOU ND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST AD OPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND C IRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD; VII) THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 SH ALL STAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL DETE RMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) I N RELATION TO DIVIDEND INCOME / INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART O F THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFIC ER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORT UNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATE RIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE.' 6.4 DUE TO THE DECISION OF THE HON'BLE BOMBAY HIGH COURT, IT IS LEGALLY CORRECT TO REFER THIS ISSUE BACK TO THE STAGE OF THE AO TO BE DECIDED DE NOVO AS PER THE GUIDELINES OF THE HON'BLE COURT. THE OUTCOME OF THE ABOVE DISCUSSION IS THAT THE 'ADDITIONAL GROUND' RAISED BY THE REVENUE MAY BE TR EATED AS ALLOWED BUT ONLY FOR STATISTICAL PURPOSE. 8. IN THE ABSENCE OF ANY DISTINGUISHING FEATURES PO INTED OUT BY THE DEPARTMENTAL REPRESENTATIVE, FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE PRECEDENT WE RESTORE THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION AFRESH WITH THE SAME DIRECTIONS AS GIVEN BY THE TRIBUNAL IN THE ASSESSME NT YEAR 2006-07 IN THE ABOVE QUOTED ORDER. NEEDLESS TO MENTION THAT HE SHALL ALLOW REAS ONABLE AND PROPER OPPORTUNITY OF 12 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 HEARING TO THE ASSESSEE BEFORE ADJUDICATING THE ISS UE. THUS, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 11. WE FURTHER OBSERVE THAT RULE-8D OF THE IT RULES CAME INTO EFFECT FROM ASST. YEAR 2008-09 WITH RESPECT TO PROVISIONS OF SECTION 14A O F THE ACT WHICH READS AS FOLLOWS :- SEC. 14A. EXPENDITURE INCURRED IN RELATION TO INCOM E NOT INCLUDIBLE IN TOTAL INCOME. (1)FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME U NDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY TH E ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS A CT. (2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUN T OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL I NCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTN ESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES N OT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (3) THE PROVISIONS OF SUB-SECTION (2) SHALL ALSO AP PLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURR ED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS A CT: PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHALL EMPOW ER THE ASSESSING OFFICER EITHER TO REASSESS UNDER SECTION 147 OR PASS AN ORDER ENHA NCING THE ASSESSMENT OR REDUCING A REFUND ALREADY MADE OR OTHERWISE INCREASING THE LIA BILITY OF THE ASSESSEE UNDER SECTION 154, FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1ST DAY OF APRIL, 2001. 2. NEW RULE 8D : 2.1 IN EXERCISE OF THE POWERS GIVEN IN S. 14A(2) C. B.D.T. HAS ISSUED A NOTIFICATION NO. S.O. 547(E) ON 24-3-2008 (299 ITR (ST) 88). THIS NOTIFIC ATION AMENDS THE INCOME-TAX RULES BY INSERTION OF A NEW RULE 8D PROVIDING FOR A 'METHOD FOR DETERMINING AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOM E'. READING THIS RULE IT IS EVIDENT THAT THE RULE PROVIDES FOR DISALLOWANCE OF NOT ONLY DIRECT E XPENDITURE INCURRED FOR EARNING THE EXEMPT INCOME BUT ALSO FOR DISALLOWANCE OF PROPORTI ONATE INDIRECT EXPENDITURE. THIS IS CLEARLY CONTRARY TO THE MAIN OBJECTIVE WITH WHICH S . 14A WAS ENACTED. 2.2 BROADLY STATED, THE NEW RULE 8D PROVIDES AS UND ER : (I) THE METHOD PRESCRIBED IN THE RULE IS TO BE APPL IED ONLY IF THE AO IS NOT SATISFIED WITH : (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE INC URRED FOR EARNING THE EXEMPT INCOME MADE BY THE ASSESSEE OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDIT URE HAS BEEN INCURRED FOR EARNING EXEMPT INCOME. (II) THE METHOD PRESCRIBED IN THE RULE STATES THAT THE EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF THE FOLLOWING AMOUNTS : (A) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. (B) IN THE CASE OF INTEREST ON BORROWED FUNDS WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, THE AMOUNT COMPUTED I N ACCORDANCE WITH THIS FOLLOWING FORMULA : 13 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 A X B C A = AMOUNT OF INTEREST, OTHER THAN THE AMOUNT OF IN TEREST WHICH IS DIRECTLY ATTRIBUTABLE TO THE EXEMPT INCOME STATED IN (A) ABOVE. B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE S HEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE RELEVANT ACCOUNTING YEAR. C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE RELEVANT ACCOUNTI NG YEAR. THE TERM TOTAL ASSETS MEANS TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET EXCL UDING THE INCREASE ON ACCOUNT OF REVALUATION OF ASSETS BUT INCLUDING THE DECREASE ON ACCOUNT OF REVALUATION OF ASSETS. (C) AN AMOUNT EQUAL TO % OF THE AVERAGE OF THE VA LUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SH EET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE RELEVANT ACCOUNTING YEAR. 12. WE ALSO OBSERVE THAT LD. ASSESSING OFFICER APPL IED THE FACTS AND FIGURES OF THE ASSESSEE COMPANY INTO THE METHOD PROVIDED UNDER RUL E 8D OF THE IT RULES BECAUSE ASSESSEE WAS HAVING AN AVERAGE INVESTMENT OF RS.5529.57 CROR ES , INTEREST PAID DURING THE YEAR AT RS.131.22 CRORES AND EXEMPT INCOME OF RS.249 CRORES . GOING THROUGH THESE FIGURES LD. ASSESSING OFFICER FELT APPROPRIATE TO APPLYING THE METHOD OF RULE 8D BUT DID NOT LOOK INTO THE FOLLOWING FACTS :- (I) AS ON 1.7.205 WHEN THE COMPANY WAS GIVEN A BALANCE SHEET DULY NOTIFIED BY THE STATE GOVT., THE COMPANY HAD TOTAL INVESTMENT OF RS .5580.20 CRORES CONSIDERING ALL INVESTMENT IN SUBSIDIARY COMPANIES AT RS.5336.43 CR ORES, INVESTMENT IN OTHER COMPANIES AT RS.243.69 CRORES AND BALANCE IN PETTY INVESTMENT. (II) OPENING BALANCE OF INVESTMENT AS ON 1.4.2007 S TOOD AT RS.5477.16 CRORES. (III) FEW INVESTMENTS WERE MADE DURING FINANCIAL YE AR 2005-06 TO 2007-08 AND IN SUBSIDIARY COMPANIES AND FUNDS FOR THE SAME WERE PA RTLY RECEIVED FROM STATE GOVERNMENT AS EQUITY AND REMAINING FROM NET PROFIT EARNED. (IV) INTEREST EXPENDITURE OF RS.131.32 CRORES REPRE SENTS MOSTLY THE INTEREST PAID ON BILL DISCOUNTING OF IPPS AND WORKING CAPITAL LOAN FROM B ANKS WHICH ARE SPECIFICALLY MEANT FOR THE BUSINESS PURPOSE; AND (V) TOTAL EXEMPT INCOME EARNED BY ASSESSEE DURING T HE YEAR STOOD AT RS.249 CRORES. 13. WE OBSERVE THAT LD. ASSESSING OFFICER HAS MADE DISALLOWANCE U/S 14A OF THE ACT WITHOUT EXAMINING THE FACTS REFERRED ABOVE WHICH WE RE VERY CRUCIAL TO REACH AT THE FINAL DISALLOWANCE U/S 14A OF THE ACT. THERE ARE SERIES O F JUDGMENTS OF THE CO-ORDINATE BENCHES THAT THE DISALLOWANCE U/S 14A OF THE ACT SHOULD NO T EXCEED THE EXEMPT INCOME EARNED DURING THE YEAR AND ALSO DECISIONS WHEREIN THE DISA LLOWANCE U/S 14A OF THE ACT ON ACCOUNT OF INTEREST EXPENDITURE ARE HELD TO BE INCORRECT IF THE ASSESSEE HAS SUFFICIENT EQUITY AND GENERAL RESERVE TO COVER THE INVESTMENTS. 14 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 14. WE ARE, THEREFORE, OF THE VIEW THAT APPLYING TH E DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO.1874 & 1821/AHD/2010 FOR ASST. YEAR 2007-08 IS DATED 20.6.2014 THE MATTER IS SET ASIDE TO THE FILE OF AS SESSING OFFICER TO EXAMINE THE FACTS AND FIGURES OF THE CASE IN THE LIGHT OF OUR OBSERVATION S MADE ABOVE IN ORDER TO ARRIVE AT A FINAL CONCLUSION AS TO WHETHER DISALLOWANCE U/S 14A IS TO BE MADE AND IF SO, THEN THE AMOUNT THEREOF WHICH IN NO CASE SHOULD EXCEED THE EXEMPTED INCOME EARNED BY ASSESSEE DURING THE YEAR UNDER APPEAL. IT IS NEEDLESS TO MENTION THAT L D. ASSESSING OFFICER SHALL ALLOW REASONABLE AND SUFFICIENT OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE ADJUDICATING THE SAME. THESE GROUNDS OF ASSESSEE AND THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. 15. NOW WE TAKE GROUND NO.3 OF ASSESSEES APPEAL WH ICH READS AS BELOW :- 3.0 THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ENHANCEMENT OF BOOK PROFIT COMPUTED UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961 BY RS.61,45,72,000/- ON ACCOUN T OF DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. 16. AT THE OUTSET LD. AR SUBMITTED THAT THIS GROUND RELATES TO THE DISALLOWANCE UNDER SECTION 14A OF THE ACT DUE TO WHICH BOOK PROFIT U/S 115JB WAS ENHANCED BY LD. ASSESSING OFFICER AND THE FATE OF THIS GROUND DEPENDS ON THE DECISION TO BE TAKEN FOR GROUND NO.1 RAISED BY THEM. 10.1 AS THE FACTS OF THE CASE ON HAND ARE IDENTICAL TO THE FACTS OF THE CASE AS DISCUSSED ABOVE WHICH HAS BEEN SET ASIDE TO THE FIL E OF THE AO FOR FRESH ADJUDICATION AS PER THE PROVISIONS OF LAW BY THE IT AT AS DISCUSSED ABOVE. RESPECTFULLY FOLLOWING THE ORDER OF THIS COORDINATE BENCH IN THE OWN CASE OF THE ASSESSEE, WE SET ASIDE THE ISSUE ON HAND TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN TERMS OF THE FINDING OF THE ITAT IN ITS OWN CASE FOR THE ASSESSMENT YEAR 2008-09 (SUPRA) AS WELL AS IN ACCORDANCE TO THE PROVISIONS OF LAW. HENCE, THE GROUND OF APPEAL OF THE ASSESSEE AND THE REVENUE ARE ALLOWED FOR THE STATISTICAL PURPOSES. 11. THE SECOND ISSUE RAISED BY THE ASSESSEE IS THAT THE LEARNED CIT (A) ERRED IN ALLOWING THE DEDUCTION OF RS.4,44,00,000/- BEING GUARANTEE FEES PAID TO THE GOVERNMENT OF GUJARAT AFTER NECESSARY VERIFI CATION AS DIRECTED BY HIS PREDECESSOR FOR THE ASSESSMENT YEAR 2008-09. 15 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 12. THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS CONTENDED THAT IT HAS BEEN PAYING GUARANTEE COMMISSION TO THE GOVERNMENT OF GUJARAT YEAR AFTER YEAR ON THE LOAN OUTSTANDING AT THE BEGINNING OF TH E YEAR. AS SUCH, THE GOVERNMENT OF GUJARAT STANDS AS A GUARANTOR FOR SUC H LOAN RAISED BY THE ASSESSEE. , FURTHERMORE, THERE IS NO BENEFIT OF END URING NATURE ACCRUING TO IT ON THE PAYMENT OF GUARANTEE COMMISSION TO THE GOVERNME NT OF GUJARAT. 13. HOWEVER, THE AO WAS OF THE VIEW THAT THERE WAS THE RESTRUCTURING OF THE LOAN, RESCHEDULING OF REPAYMENT LOAN SCHEDULE, REDU CTION IN INTEREST OVER A LONG PERIOD OF TIME EXCEEDING 5 YEARS. THUS, THE AO CONCLUDED THAT, THE RESTRUCTURING OF LOAN, GUARANTEE BY THE GOVERNMENT OF GUJARAT, HAS RESULTED ENDURING BENEFIT TO THE ASSESSEE. ACCORDINGLY, THE AO TREATED THE GUARANTEE COMMISSION AS CAPITAL EXPENDITURE AND DISALLOWED TH E SAME. HENCE, THE AO ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 14. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE L EARNED CIT (A) WHO HAS ALLOWED THE APPEAL OF THE ASSESSEE SUBJECT TO THE D IRECTION TO VERIFY THAT SUCH GUARANTEE COMMISSION WAS NOT CONNECTED WITH THE CAP ITAL WORK IN PROGRESS WHEREIN THE IMPUGNED LOANS WERE UTILIZED AS HELD BY HIS PREDECESSOR FOR THE ASSESSMENT YEAR 2008-09. THE RELEVANT FINDING OF TH E LEARNED CIT (A) STANDS AS UNDER: 4.2. SIMILAR ISSUE WAS INVOLVED IN APPEAL NO. CAB/ 1/152/101-11 IN APPELLANTS OWN CASE FOR A.Y. 2008-09. MY PREDECESSOR HAD OBSERVED AS FOLLOWS IN HIS APPELLATE ORDER DATED 3.2.2012. I HAVE CONSIDERED FACTS OF THE CASE AND APPELLANT S SUBMISSIONS. GUARANTEE FEES WAS AN ANNUAL RECURRING EXPENDITURE INCURRED BY THE APPELL ANT (GUARANTEE FEES WAS PAYABLE TO GOVERNMENT OF GUJARAT EVERY YEAR IN RESPECT OF LOAN S TAKEN BY APPELLANT AND GUARANTEED BY GOVERNMENT OF GUJARAT. AS HELD BY HONBLE SUPREME C OURT IN THE CASE OF INDIA CEMENTS LTD. 60 ITR 52 (SC), LOAN CANNOT BE TREATED AS ASSE T OR ADVANTAGE RESULTING IN ENDURING BENEFIT. GUARANTEE FEES PAID TO GOVERNMENT OF GUJAR AT WAS IN CONNECTION WITH RAISING OF LOANS AND ENDURING BENEFIT OR ADVANTAGE COULD NOT B E SAID TO HAVE RESULTED BY TAKING SUCH LOANS. ONLY IF THE ASSETS ACQUIRED OUT OF SUCH LOAN S WERE NOT PUT TO USE TILL THE END OF 16 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 PREVIOUS YEAR, I.E. 31.3.2008, GUARANTEE FEES TO SU CH EXTENT, I.E. IN RESPECT OF SUCH LOANS ONLY NEEDS TO BE CAPITALIZED AS COST OF SUCH ASSET. APPE LLANT HAS CERTIFIED THAT GUARANTEE FEES WAS PAID IN RESPECT OF LOANS FOR ACQUISITION OF CAPITAL ASSETS WHICH WERE PUT TO USE PRIOR TO 1.4.2007. GUARANTEE FEES OF RS. 4,44,00,000/- IS DI RECTED TO BE ALLOWED AS REVENUE EXPENDITURE, SUBJECT TO VERIFICATION BY THE ASSESSI NG OFFICER OF THE CERTIFICATE FILED DURING APPELLATE PROCEEDINGS, I.E. LOANS ON WHICH GUARANTE E FEES WAS PAID WERE UTILIZED FOR CONSTRUCTION OF POWER PLANTS AT THAT TIME AND THERE WAS NO CAPITAL WORK-IN-PROGRESS IN RESPECT OF SUCH LOANS DURING F.Y.2008-09. 4.3 THE A.O. IS DIRECTED TO FOLLOW THE DIRECTIONS I SSUED BY MY PREDECESSOR FOR THE A.Y. 2008-09 IN THE YEAR UNDER CONSIDERATION TOO. 15. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), BOTH THE ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. THE ASSESSEE I S IN APPEAL AGAINST THE DIRECTION OF THE LD. CIT-A FOR ALLOWING THE GUARANT EE COMMISSION AFTER NECESSARY VERIFICATION AS DISCUSSED ABOVE WHEREAS T HE REVENUE IS IN APPEAL AGAINST THE FINDING OF THE LD. CIT-A THAT THE GUARA NTEE FEES IS NOT RESULTING ANY ENDURING BENEFIT TO THE ASSESSEE. 16. THE LEARNED AR BEFORE US SUBMITTED THAT THE ITA T IN THE OWN CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2008-09 IN ITA NOS. 837 & 899/AHD/2012 DATED 22 ND JUNE 2016 HAS DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE. 17. ON THE OTHER HAND, THE LEARNED DR CONTENDED THA T THE FACT WHETHER SUCH GUARANTEE FEES WAS PAID WITH RESPECT TO THE LOAN WH ICH WAS UTILIZED FOR THE CAPITAL WORKING PROGRESS WHICH WAS NOT PUT TO USEIN THE YEAR UNDER CONSIDERATION IS TO BE VERIFIED. ACCORDINGLY, IF TH AT BE SO, THE AMOUNT OF GUARANTEE COMMISSION NEEDS TO BE CAPITALIZED. 18. BOTH THE LEARNED AR AND DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW TO THE EXTENT FAVORABLE TO THEM. 17 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 19. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE PRECEDING D ISCUSSION, THERE IS NO AMBIGUITY THAT THE LEARNED CIT (A) HAS DECIDED THE ISSUE ON HAND AFTER RELYING ON THE ORDER OF HIS PREDECESSOR FOR THE ASSESSMENT YEARS 2008-09 WHICH WAS ALSO SUBSEQUENTLY UPHELD BY THE ITAT IN ITA NO. 899 /AHD/2012 VIDE ORDER DATED 22 ND JUNE 2016. THE RELEVANT FINDING OF THE ITAT READS AS UNDER: 38. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD AND GONE THROUGH THE DECISION REFERRED AND RELIED UPON BY BO TH THE PARTIES. THROUGH THIS GROUND REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) DEL ETING THE DISALLOWANCE OF GUARANTEE FEES AT RS.4.76 CRORES. 39. WE OBSERVE THAT LD. AR HAS REFERRED AND RELIED ON THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF GUJARAT ENERGY TRANSMISSION CO RPN. LTD. (SUPRA), WHEREIN SIMILAR ISSUE REGARDING THE CLAIM OF GUARANTEE FEES PAID TO GOVERNMENT OF GUJARAT HAS BEEN DEALT WITH BY THE TRIBUNAL AS TO WHETHER THE GUARANTEE FE ES IS AN EXPENDITURE OF CAPITAL IN NATURE OR REVENUE IN NATURE AND HAS OBSERVED AS UNDER :- 35. WE FIND THAT THE TRIBUNAL IN ITS ORDER DATED 8. 5.2015 CITED SUPRA HAS HELD AS UNDER: '6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. WE FIND THAT THE LD.CIT(A) DECIDED THESE ISSUES IN PARAS- 5.2 & 5.3 AND 6.2 RE SPECTIVELY BY OBSERVING AS UNDER:- '5.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD.A R AND THE FACTS OF THE CASE. THE ISSUE RELATING TO WHETHER AN ITEM OF EXPE NDITURE LIES IN THE CAPITAL OR THE REVENUE FIELD HAS EXERCISED THE COURTS IN NU MEROUS CASES. FROM AN ANALYSIS OF SUCH CASES A FEW GUIDING PRINCIPLES/TES TS CAN BE IDENTIFIED. ONE OF THE IMPORTANT TESTS FOR CATEGORIZING ANY EXPENDI TURE AS CAPITAL IN NATURE IS WHETHER THE LAYING OUT OF THE IMPUGNED EXPENDITU RE RESULTS IN THE ACQUISITION OF CREATION OF ANY NEW ASSET. WHERE NO SUCH ASSET IS CREATED, IT WOULD BE INDICATIVE OF AN EXPENDITURE WHICH WAS NOT CAPITAL IN NATURE. ANOTHER TEST RELATES TO THE PRINCIPLE OF 'ENDURING BENEFIT'. 'ENDURING BENEFIT' MAY BE IN THE FORM OF LONG LASTING USE OF AN ASSET OR THE ACQUISITION OF A RIGHT TO EXPLOIT CERTAIN COMMERCIAL PROCESSES, ETC. IN THE INSTANT CASE, THE ASSESSEE DID NOT ACQUIRE ANY RIGHT TO EXPLOIT A COMMERCIAL TECHNOLOGY OR PROCESS, AND NEITHER WAS THE BENEFIT 'ENDURING', SINCE THE PAYMENT OF GUARANTEE COMMISSION WAS AN ANNUAL CHARGE. THE BENE FIT DERIVED FROM PAYMENT OF SUCH COMMISSION THUS LASTED FOR EXACTLY ONE YEAR ONLY. SUCH ITA NO.704 AND 761/AHD/2012SHORTLIVED BENEFIT CANNOT BE CATEGORIZED AS 'ENDURING'. HENCE, I AM INCLINED TO THE VIEW THAT T HE PAYMENT OF GUARANTEE COMMISSION WAS A REVENUE EXPENDITURE. 5.3. FURTHER, THE JURISDICTIONAL BENCH OF ITAT HAD OCCASION TO CONSIDER THE ALLOWABI LITY OF GUARANTEE COMMISSION PAID TO A DIRECTOR OF THE COMPANY IN RES PECT OF LOANS TAKEN FROM THE BANK. IN THE CASE OF HIMALAYA MACHINERY PV T.LTD. (ITA 18 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 NO.738/AHD/2009) FOR AY 2006-07, THE TRIBUNAL HELD, VIDE ORDER DT.5.6.2009, FOLLOWING THE DECISION OF THE RAJASTHA N HIGH COURT IN CIT V. METALISING EQUIPMENT CO.PVT.LTD., 8 DTR 12, THAT TH E PAYMENT OF COMMISSION FOR GUARANTEEING REPAYMENT OF LOAN WAS A LLOWABLE AS REVENUE EXPENSE. IN THE INSTANT CASE, THE LOAN HAS BEEN GUA RANTEED BY THE GOVERNMENT OF GUJARAT. HENCE, QUITE APART FROM THE OTHER SOUND REASONS FOR TREATING THE EXPENDITURE AS REVENUE, IT WOULD B E UNREALISTIC TO SAY THAT THE APPELLANT COMPANY COULD DERIVE ANY UNDUE ADVANT AGE OR COLLATERAL BENEFIT BY MAKING SUCH PAYMENT TO THE GOG. IN VIEW OF THE TOTALITY OF THE CIRCUMSTANCES, I AM OF THE OPINION THAT THE AO WAS NOT JUSTIFIED IN TREATING THE PAYMENT OF GUARANTEE COMMISSION (RS.8,39,04,550 /-) AS CAPITAL IN NATURE. THE ADDITION IS DIRECTED TO BE DELETED. 6.2 . I HAVE CONSIDERED THE SUBMISSIONS OF THE LD.AR AND THE FACTS OF THE CASE. THE JURISDICTIONAL BENCH OF ITAT HAS HELD IN THE CASE OF SHRI RAMA MULTI TEC H VS. ACIT, 92 TTJ 568, THAT IN DETERMINING THE NATURE OF EXPENDITURE INCUR RED FOR OBTAINING LOAN, IT IS IRRELEVANT TO CONSIDER THE PURPOSE OF LOAN. THE AMOUNT SPENT ON STAMP DUTY, LAWYER FEES, ETC. FOR OBTAINING LOAN SECURED BY CHARGE ON ITS FIXED ASSETS IS A REVENUE EXPENDITURE, BECAUSE THE TRANSA CTIONS WERE ENTERED INTO DIRECTLY TO FACILITATE THE BUSINESS OF THE COMPANY AND PAYMENT OF CONSULTANCY CHARGES WAS MADE ON GROUND OF COMMERCIA L EXPEDIENCY.IN INDIA CEMENTS LTD. VS. CIT, 60 ITR 52, THE SUPREME COURT HAD ALSO HELD THAT THE EXPENDITURE INCURRED FOR SECURING THE USE OF MONEY FOR A CERTAIN PERIOD WAS REVENUE EXPENDITURE. IN THE INSTANT CASE , THE ASSESSEE HAS SECURED THE LOAN BY CREATING A CHARGE (HYPOTHECATIO N OF ITS ASSETS). HENCE THE RATIO OF THE ABOVE MENTIONED TWO CASES WOULD SQ UARELY APPLY. ACCORDINGLY, IT IS HELD THAT THE AO WAS NOT JUSTIFI ED IN MAKING THE DISALLOWANCE OF RS.45,24,582/-, WHICH IS DIRECTED T O BE DELETED.' 6.1 THE LD.CIT(A) HAS FOLLOWED THE DECISION OF THE TRIBUNAL PASSED IN ITA NO.738/AHD/2009 FOR AY 2006-07 IN THE CASE OF HIMAL AYA MACHINERY PVT.LTD., DATED 5.6.2009 AND IN THE CASE OF SHRI RAMA MULTI T ECH VS. ACIT REPORTED AT 92 TTJ 568. 6.2. THE LD.CIT-DR COULD NOT DISTINGUISH THE FACTS OF THE CASE, THEREFORE WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE L D.CIT(A), SAME IS HEREBY UPHELD. THUS, THESE TWO GROUNDS RAISED IN THE REVENUE'S APP EAL ARE REJECTED.' 36. DR COULD NOT POINT OUT ANY GOOD REASON AS TO WH Y THE ABOVE QUOTED ORDER OF THE TRIBUNAL SHOULD NOT BE FOLLOWED FOR THE YEAR UNDER CONSIDERATION. IN THE ABSENCE OF DISTINGUISHING FEATURES BEING POINTED OUT BY THE DR , AND THE FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE ABOVE QUOTED DECISION OF THE TRIBUNAL, WE CONFIRM THE ORDER OF THE CIT(A), AND DISMISS THIS GROUND OF APPEAL OF TH E REVENUE. 40. WE ARE OF THE VIEW THAT THE ISSUE RAISED IN THI S GROUND IS SQUARELY COVERED BY THE DECISION OF CO-ORDINATE BENCH REFERRED ABOVE IN THE CASE OF GUJARAT ENERGY TRANSMISSION CORPN. (SUPRA) AND RESPECTFULLY FOLLOWING THE SAME, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND UPHOLD THE SAME. THIS GROUN D OF REVENUE IS DISMISSED. 19 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 20. AS THE FACTS OF THE CASE ON HAND ARE IDENTICAL TO THE FACTS OF THE CASE AS DISCUSSED ABOVE, WE ARE INCLINE TO UPHOLD THE FINDI NG OF THE LD. CIT-A. 21. BEFORE PARTING, IT IS IMPORTANT TO NOTE THAT TH E REVENUE WAS IN APPEAL IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR I.E. 2008-0 9 BEFORE US ON THE FOLLOWING GROUNDS OF APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (APPEALS) ERRED IN DELETING THE ADDITION ON ACCOUNT OF DISALLOWANCE OF CLAIM OF GUARANTEE FEES OF RS. 4.76 CRORES WITHOUT APPRECIATING THAT THE DISALLOWANCE W AS MADE AS THE SAME ARE ENDURING NATURE IN THE ASSESSEES BUSINESS. 21.1 THE ABOVE GROUND OF APPEAL RAISED BY THE REVEN UE FOR THE ASSESSMENT YEAR 2008-09 IN ITA NO. 899/AHD/2012 WAS DISMISSED BY THE ITAT VIDE ORDER DATED 22 ND JUNE 2016 WHICH HAS BEEN ELABORATED IN THE PRECEDI NG PARAGRAPH. WHAT FLOWS FROM THE CONJOINT READING OF THE ORDER OF THE LEARNED CIT (A) AND THE ITAT FOR THE ASSESSMENT YEAR 2008-0 9 AS DISCUSSED ABOVE IS THAT THERE WAS NO ENDURING BENEFIT ACCRUED TO THE A SSESSEE OUT OF GUARANTEE FEES PAID BY IT TO THE GOVERNMENT OF GUJARAT. AS SU CH THE FINDING OF THE ITAT HAS TO BE SEEN IN THE CONTEXT OF THE RULING OF THE AO AND THE LEARNED CIT (A) FOR THE ASSESSMENT YEAR 2008-09. IN FACT, THE LEARN ED CIT(A) FOR THE ASSESSMENT YEAR 2008-09 HELD THAT THERE WAS NO BENE FIT ACCRUED TO THE ASSESSEE WHICH IS IN THE ENDURING NATURE BUT DIRECT ED THE AO TO VERIFY WHETHER SUCH GUARANTEE FEES RELATES TO THE CAPITAL WORK IN PROGRESS AND IF THAT BE SO, THE SAME NEEDS TO BE CAPITALIZED. 22. HOWEVER, THE ASSESSEE DID NOT PREFER ANY APPEAL AGAINST THE ORDER OF THE LEARNED CIT(A) FOR THE ASSESSMENT YEAR 2008-09. IN OTHER WORDS, THE ASSESSEE WAS NOT AGGRIEVED BY THE DIRECTION OF THE LEARNED CIT (A) TO VERIFY THE CLAIM OF THE ASSESSEE WHETHER SUCH GUARANTEE FE ES RELATES TO THE CAPITAL WORK IN PROGRESS FOR THE ASSESSMENT YEAR 2008-09. B UT THE ASSESSEE FOR THE 20 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 YEAR UNDER CONSIDERATION HAS CHALLENGED THE DIRECTI ON OF THE LEARNED CIT (A) TO VERIFY WHETHER SUCH GUARANTEE FEE RELATES TO THE CAPITAL WORKING PROGRESS. AS THE ASSESSEE DID NOT CHALLENGE SUCH DIRECTION OF THE LEARNED CIT(A) FOR THE ASSESSMENT YEAR 2008-09 BEFORE THE ITAT, IT IMPLIES THAT SUCH DIRECTION HAS REACHED TO ITS FINALITY FOR THAT ASSESSMENT YEAR. T HEREFORE, THERE WAS NO DISPUTE FOR THE ITAT FOR THE ASSESSMENT YEAR 2008-09 FOR TH E DIRECTION ISSUED BY THE LEARNED CIT(A). ACCORDINGLY, IT CANNOT BE INFERRED THAT THE ORDER OF THE LEARNED CIT(A) FOR THE ASSESSMENT YEAR 2008-09 HAS MERGED WITH THE ORDER OF THE LEARNED ITAT INSOFAR THE DIRECTION ISSUED BY THE LEARNED CIT(A) TO VERIFY THE CLAIM OF THE ASSESSEE FOR THE GUARANTEE FEES WHETHER SUCH FEES RELATES TO THE CAPITAL WORK IN PROGRESS. ACCORDINGLY, IT CA NNOT BE SAID THAT THE ISSUE RAISED BY THE ASSESSEE IS A COVERED ISSUE BY THE OR DER OF THE ITAT IN THE OWN CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2008-0 9 AS CONTENDED BY THE LD. AR FOR THE ASSESSEE. IN VIEW OF THE ABOVE AND AFTER CONSIDERING THE FACTS IN TOTALITY, THE GROUNDS OF APPEAL OF THE ASSESSEE AND THE REVENUE ARE DISMISSED. 23. THE NEXT ISSUE RAISED BY THE ASSESSEE IS THAT T HE LEARNED CIT-A ERRED IN ALLOWING THE DEDUCTION OF RS.21.47 LACS AFTER NECES SARY VERIFICATION DESPITE HAVING ALL THE REQUISITE DETAILS BEFORE HIM. 24. THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF THE PRIOR PERIOD EXPENSES AMOU NTING TO RS.21.40 LAKHS WHICH WERE NOT ALLOWABLE FOR DEDUCTION IN THE YEAR UNDER CONSIDERATION FOR THE SIMPLE REASON THAT THE ASSESSEE, BASED ON MERCANTIL E SYSTEM OF ACCOUNTING, SHOULD HAVE CLAIMED THE DEDUCTION OF SUCH EXPENSES IN THE YEAR TO WHICH IT RELATES. ACCORDINGLY, THE AO DISALLOWED THE SAME AN D ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 21 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 25. ON APPEAL BEFORE THE LD. CIT-A, THE ASSESSEE SU BMITTED THAT AMOUNT OF RS.21.47 LACS REPRESENTS THE CREDIT ENTRIES WHICH W ERE OFFERED TO TAX BY CREDITING THE PROFIT AND LOSS ACCOUNT. ACCORDINGLY, FURTHER ADDITION OF RS.21.47 LACS WILL LEAD TO THE DOUBLE ADDITION TO THE TOTAL INCOME OF THE ASSESSEE. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO SUBJECT TO THE VERIFICATION OF THE CLAIM MADE BY THE ASSESSEE AS DISCUSSED ABOVE. 26. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) THE ASSESSEE IS IN APPEAL BEFORE US. 27. THE LEARNED AR BEFORE US REITERATED THE CONTENT ION AS MADE BEFORE THE LEARNED CIT(A). ON THE CONTRARY, THE LEARNED DR VEH EMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 28. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. INDEED, THE ONUS LIE S ON THE ASSESSEE TO FURNISH THE REQUISITE DETAILS IN SUPPORT OF ITS CLAIM. AS S UCH, WE DO NOT FIND ANY INFIRMITY IN THE DIRECTION OF THE LEARNED CIT(A) FO R ALLOWING THE DEDUCTION FOR THE ITEM OF THE ADDITION MADE BY THE AO AFTER NECES SARY VERIFICATION. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE GROUND OF APPEAL RAISED BY THE ASSESSEE. HENCE, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 29. THE NEXT ISSUE RAISED BY THE ASSESSEE IS THAT T HE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO BY SUSTAINING THE DI SALLOWANCE OF RS.1,21,06,721/- ON ACCOUNT OF DEPRECIATION NOT ELI GIBLE AT THE RATE 60% BEING COMPUTERS. 22 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 30. THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HAS TREATED CERTAIN VALUE OF THE PLANT AND MACHINERY I. E. RS.2,69,03,826/- AS COMPUTERS AND CLAIMED DEPRECIATION AT THE RATE OF 6 0% ON SUCH PLANT AND MACHINERY. AS PER THE AO, THE ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION AT THE RATE OF 15% ON THE COMPUTERIZED PLANT AND MACHINERY AND NOT 60% ON THE SAME. ON QUESTION, THE ASSESSEE COULD NOT SUBSTANTI ATE ITS CLAIM FOR DEPRECIATION AT THE RATE OF 60% BASED ON DOCUMENTAR Y EVIDENCE. ACCORDINGLY, THE AO DISALLOWED THE EXCESS DEPRECIATION (MORE THA N 15%) AMOUNTING TO RS.1,21,06,721/- AND ADDED THE SAME TO THE TOTAL IN COME. 31. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE L EARNED CIT(A) WHO HAS CONFIRMED THE ORDER OF THE AO BY PLACING RELIANCE O N THE ORDER OF HIS PREDECESSOR FOR THE ASSESSMENT YEAR 2008-09. THE RE LEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: 6.2. SIMILAR ISSUE WAS INVOLVED IN APPEAL NO. CAB/ 1/152/10-11 IN APPELLANTS OWN CASE FOR A.Y. 2008-09. MY PREDECESSOR HAD OBSERVED AS FO LLOWS IN HIS APPELLATE ORDER DATED 3.2.2012. I HAVE CONSIDERED THE FACTS OF THE CASE AND APPELL ANTS SUBMISSIONS. ASSESSING OFFICER HAS NOT HELD THAT ENTIRE EXPENDITURE INCURRED, I.E. ADD ITION TOWARDS COMPUTER ASSETS WAS NOT OF CAPITAL NATURE. APPELLANTS SUBMISSIONS IN THIS REG ARD ARE THEREFORE NOT RELEVANT. THE DISPUTE IS REGARDING RATE OF DEPRECIATION APPLICABL E ON SUCH ASSETS. AS PER 60% RATE OF DEPRECIATION AS PRESCRIBED IN NEW APPENDIX-I OF INC OME TAX RULES. THE ASSETS ON WHICH ASSESSING OFFICER DID NOT ALLOW 60% DEPRECIATION RA TE WERE FURNITURE AND FIXTURES, I.E. PANELS, RACKS ETC. AND ASSETS SUCH AS RECORDER MACH INES, LCD PROJECTORS, ELECTRICAL WORKS, AIR CONDITIONING, PUBLIC ADDRESS SYSTEM, COST TOWAR DS AMC AND ATC ETC. ASSETS OF THESE KINDS CAN NEITHER BE SAID TO BE COMPUTERS NOR CO MPUTER SOFTWARE PER-SE. DEPRECIATION AT THE RATE OF 60% WAS NOT APPLICABLE ON SUCH ASSET S AND THE ASSESSING OFFICER RIGHTLY ALLOWED DEPRECIATION AT RATE APPLICABLE TO BLOCKS O F FURNITURE AND FIXTURES AND NORMAL PLANT AND MACHINERY. DISALLOWANCE OF EXCESS CLAIM OF DEPR ECIATION OF RS. 1,21,06,721/- IS CONFIRMED. 6.3 FOLLOWING THE DECISION IN THE PRECEDING YEAR I. E. A.Y. 2008-09, THE DISALLOWANCE OF RS. 1,21,06,721/- MADE IN THE YEAR UNDER CONSIDERAT ION IS ALSO CONFIRMED. 23 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 32. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) THE ASSESSEE IS IN APPEAL BEFORE US. 33. THE LEARNED AR BEFORE US SUBMITTED THAT THE ITA T IN THE OWN CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2008-09 IN ITA NO. 837 AND 899/AHD/2012 VIDE ORDER DATED 22 ND JUNE 2016 HAS SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION AS PER THE PR OVISIONS OF LAW. ACCORDINGLY, THE LEARNED AR BEFORE US PLEADED THAT THE MATTER FO R THE YEAR UNDER CONSIDERATION CAN ALSO BE SET ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICATION AS PER THE PROVISIONS OF LAW. 34. ON THE OTHER HAND, THE LEARNED DR RAISED NO OBJ ECTION IF THE MATTER IS SET ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICAT ION AS PER THE PROVISIONS OF LAW. 35. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE PRECEDING D ISCUSSION, THERE IS NO AMBIGUITY THAT THE LEARNED CIT (A) HAS DECIDED THE ISSUE ON HAND AFTER RELYING ON THE ORDER OF HIS PREDECESSOR FOR THE ASSESSMENT YEARS 2008-09 WHICH WAS SUBSEQUENTLY SET ASIDE TO THE AO FOR FRESH ADJUDICA TION BY THE ITAT IN ITA NO. 899/AHD/2012 VIDE ORDER DATED 22 ND JUNE 2016. THE RELEVANT FINDING OF THE ITAT READS AS UNDER: 24. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD. THROUGH THIS GROUND, ASSESSEE IS AGGRIEVED WITH THE DISALLO WANCE OF DEPRECIATION OF RS.9174986/- CLAIMED ON THE COMPUTERS. WE FIND THAT DURING THE A SSESSMENT PROCEEDINGS ASSESSEE HAS HIMSELF SUBMITTED THE REVISED COMPUTATION OF DEPREC IATION ON THE COMPUTERS AND HAS AGREED THAT DEPRECIATION HAS BEEN CLAIMED EXCESS BY RS.917 4986/-. THEREAFTER THE MATTER WHICH WAS ALMOST CLOSED DUE TO THE SUBMISSION MADE BY ASS ESSEE, WAS REVIVED BACK BY THE ASSESSEE BY RAISING GROUND AGAINST THIS ADDITION BE FORE LD. CIT(A) AND GAVE VARIOUS DETAILS AND DOCUMENTS SUPPORTING THE GROUND THAT DEPRECIATI ON DISALLOWED NEEDS TO BE RE-WORKED AS VARIOUS TYPES OF EXPENDITURE WHICH ARE FULLY ALL OWABLE DURING THE YEAR ARE INCLUDED IN ADDITION OF BLOCK OF ASSETS, COMPUTERS AND SIMILARL Y THERE ARE VARIOUS MACHINES WHICH ARE ACTUALLY ELIGIBLE FOR DEPRECIATION @ 60% HAVE BEEN SUBJECTED TO DEPRECIATION @ 15% ONLY. 24 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 WE FURTHER OBSERVE THAT LD. CIT(A) HAS LOOKED INTO THIS ASPECT AND HAS OPEN THE WAY FOR EXAMINING THE RELATES FACTS TOWARDS CALCULATION OF CORRECT DEPRECIATION IN THE BLOCK OF ASSETS RELATING TO COMPUTERS BY WAY OF OBSERVING TH E RELATED FACTS IN HIS DECISION. 25. WE ARE, THEREFORE, OF THE VIEW THAT IN THE GIVE N CIRCUMSTANCES THIS ISSUE NEEDS TO GO BACK TO THE FILE OF LD. ASSESSING OFFICER FOR RE-EX AMINATION AND CALCULATION OF DEPRECIATION ON COMPUTERS IN THE LIGHT OF SUBMISSIONS MADE BY AS SESSEE BEFORE LD. CIT(A) AFTER GIVING SUFFICIENT AND REASONABLE OPPORTUNITY TO THE ASSESS EE FOR PROVIDING NECESSARY DETAILS SO AS TO ARRIVE AT THE CORRECT AMOUNT OF DEPRECIATION ON COMPUTERS FOR WHICH THE ASSESSEE IS ELIGIBLE. ACCORDINGLY THIS GROUND IS ALLOWED FOR ST ATISTICAL PURPOSES. 36. AS THE FACTS OF THE CASE ON HAND ARE IDENTICAL TO THE FACTS OF THE CASE AS DISCUSSED ABOVE, WE ARE INCLINE TO SET ASIDE THE IS SUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION AS PER THE PROVISIONS OF LAW AND IN THE LIGHT OF THE DIRECTION ISSUED BY THE ITAT FOR THE ASSESSMENT YEAR 2008-09 WHICH IS REPRODUCED HERE IN ABOVE. HENCE, THE GROUND OF APPEAL OF THE A SSESSEE IS ALLOWED FOR THE STATISTICAL PURPOSES. 37. THE NEXT ISSUE RAISED BY THE ASSESSEE IS THAT T HE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO BY SUSTAINING THE AD DITION OF RS.50.85 CRORES DISALLOWED UNDER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D WHILE DETERMINING THE INCOME UNDER THE PROVISIONS OF MAT. 38. THE AO DURING THE ASSESSMENT PROCEEDINGS HAS MA DE THE DISALLOWANCE OF RS.50.85 CRORES IN DETERMINING THE INCOME UNDER NORMAL COMPUTATION OF INCOME UNDER THE PROVISIONS OF SECTION 14A READ WIT H RULE 8D OF INCOME TAX RULE. THE AO MADE THE ADDITION OF THE SAME DISALLOW ANCE WHILE DETERMINING THE INCOME OF THE ASSESSEE UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT. ON APPEAL BEFORE THE LEARNED CIT(A), THE ORDER OF THE AO WAS CONFIRMED BY THE LEARNED CIT (A). 25 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 39. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) THE ASSESSEE IS IN APPEAL BEFORE US. 40. THE LEARNED AR BEFORE US CONTENDED THAT DISALLO WANCE MADE UNDER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D UNDER N ORMAL COMPUTATION OF INCOME CANNOT BE ADDED TO THE INCOME DETERMINED UND ER THE PROVISIONS OF MAT. 41. ON THE OTHER HAND, THE LEARNED DR VEHEMENTLY SU PPORTED THE ORDER OF THE AUTHORITIES BELOW. 42. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE AO IN THE INSTAN T CASE HAS MADE THE DISALLOWANCE U/S 14A R.W.R. 8D OF THE INCOME TAX RU LES FOR RS.50.85 CRORES WHILE DETERMINING THE INCOME UNDER NORMAL COMPUTATI ON OF INCOME. FURTHER, THE AO WHILE DETERMINING THE INCOME UNDER MINIMUM A LTERNATE TAX (MAT) AS PER THE PROVISIONS OF SECTION 115JB OF THE ACT, HAS ADDED THE DISALLOWANCE MADE UNDER THE NORMAL COMPUTATION OF INCOME UNDER S ECTION 14A R.W.R. 8D OF INCOME TAX RULE FOR RS.50.85 CRORES IN PURSUANCE TO THE CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT. 43. HOWEVER, WE NOTE THAT IN THE RECENT JUDGMENT OF SPECIAL BENCH OF HONBLE DELHI TRIBUNAL IN THE CASE OF ACIT VS. VIRE ET INVESTMENT PVT. LTD. REPORTED IN 82 TAXMANN.COM 415 HAS HELD THAT THE DI SALLOWANCES MADE U/S 14A R.W.R. 8D CANNOT BE THE SUBJECT MATTER OF DISAL LOWANCES WHILE DETERMINING THE BOOK PROFIT U/S 115JB OF THE ACT. THE RELEVANT PORTION OF THE SAID ORDER IS REPRODUCED BELOW: 26 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 IN VIEW OF ABOVE DISCUSSION, THE COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2), IS TO BE MADE WITHOUT RESORTING TO THE CO MPUTATION AS CONTEMPLATED UNDER SECTION 14A, READ WITH RULE 8D OF THE INCOME-TAX RU LES, 1962. 44. THE RATIO LAID DOWN BY THE HONBLE TRIBUNAL IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE ON HAND. THUS, IT CAN BE CONC LUDED THAT THE DISALLOWANCE MADE UNDER SECTION 14A R.W.R. 8D CANNOT BE RESORTED WHILE DETERMINING THE EXPENSES AS MENTIONED UNDER CLAUSE (F) TO EXPLANATI ON 1 TO SECTION 115JB OF THE ACT. 45. HOWEVER, IT IS ALSO FLAWLESS THAT THE DISALLOWA NCE NEEDS TO BE MADE WITH RESPECT TO THE EXEMPTED INCOME IN TERMS OF THE PROV ISIONS OF CLAUSE (F) TO SECTION 115JB OF THE ACT WHILE DETERMINING THE BOOK PROFIT. IN HOLDING SO, WE DRAW SUPPORT FROM THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. JAYSHREE TEA INDUSTRIES LTD. IN GO NO.1501 OF 2014 (ITAT NO.47 OF 2014) DATED 19.11.14 WHEREIN IT WAS HELD THAT THE D ISALLOWANCE REGARDING THE EXEMPTED INCOME NEEDS TO BE MADE AS PER THE CLAUSE (F) TO EXPLANATION-1 OF SEC. 115JB OF THE ACT INDEPENDENTLY. THE RELEVANT E XTRACT OF THE JUDGMENT IS REPRODUCED BELOW:- WE FIND COMPUTATION OF THE AMOUNT OF EXPENDITURE R ELATABLE TO EXEMPTED INCOME OF THE ASSESSEE MUST BE MADE SINCE THE ASSESSEE HAS NOT CL AIMED SUCH EXPENDITURE TO BE NIL. SUCH COMPUTATION MUST BE MADE BY APPLYING CLAUSE (F) OF EXPLANATION 1 UNDER SECTION 115JB OF THE ACT. WE REMAND THE MATTER FOR SUCH COMPUTATION TO BE MADE BY THE LEARNED TRIBUNAL. WE ACCEPT THE SUBMISSION OF MR. KHAITAN, LEARNED SE NIOR ADVOCATE THAT THE PROVISION OF SECTION 115JB IN THE MATTER OF COMPUTATION IS A COM PLETE CODE IN ITSELF AND RESORT NEED NOT AND CANNOT BE MADE TO SECTION 14A OF THE ACT. GIVEN ABOVE, WE HOLD THAT THE DISALLOWANCES MADE U NDER THE PROVISIONS OF SEC. 14A R.W.R. 8D OF THE IT RULES, CANNOT BE AP PLIED TO THE PROVISION OF SEC. 115JB OF THE ACT AS PER THE DIRECTION OF THE H ON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. JAYSHREE TEA INDUSTRIES LTD. (SUPRA). 27 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 46. NOW THE QUESTION ARISES TO DETERMINE THE DISALL OWANCE AS PER THE CLAUSE (F) TO EXPLANATION-1 OF SEC. 115JB OF THE ACT INDEP ENDENTLY. IN THIS REGARD, WE NOTE THAT THERE IS NO MECHANISM/ MANNER GIVEN UNDER THE CLAUSE (F) TO EXPLANATION-1 OF SEC. 115JB OF THE ACT TO WORKOUT/ DETERMINE THE EXPENSES WITH RESPECT TO THE EXEMPTED INCOME. THEREFORE, IN THE GIVEN FACTS &CIRCUMSTANCES, WE FEEL THAT AD-HOC DISALLOWANCE WI LL SERVE THE JUSTICE TO THE REVENUE AND ASSESSEE TO AVOID THE MULTIPLICITY OF T HE PROCEEDINGS AND UNNECESSARY LITIGATION. THUS, WE DIRECT THE AO TO M AKE THE DISALLOWANCE OF 1% OF THE EXEMPTED INCOME AS DISCUSSED ABOVE UNDER CLAUSE (F) TO EXPLANATION-1 OF SEC. 115JB OF THE ACT. WE ALSO FEE L TO BRING THIS FACT ON RECORD THAT WE HAVE RESTORED OTHER CASES INVOLVING IDENTICAL ISSUES TO THE FILE OF AO FOR MAKING THE DISALLOWANCE AS PER THE CLAUSE (F ) TO EXPLANATION-1 OF SEC. 115JB OF THE ACT INDEPENDENTLY. BUT NOW WE NOTE THA T THERE IS NO MECHANISM PROVIDED UNDER THE CLAUSE (F) TO EXPLANATION-1 OF S EC. 115JB OF THE ACT TO MAKE THE DISALLOWANCE INDEPENDENTLY. THEREFORE, OUR ACTION FOR RESTORING BACK THE ISSUE TO THE FILE OF AO WOULD UNNECESSARILY CAU SE FURTHER LITIGATION. THUS,IN THE INTEREST OF JUSTICE AND FAIR PLAY WE LIMIT THE DISALLOWANCE ON AN AD-HOC BASIS @ 1 % OF THE EXEMPTED INCOME AS PER THE CLAUS E (F) TO EXPLANATION-1 OF SEC. 115JB OF THE ACT. THUS, THE GROUND OF APPEAL O F THE ASSESSEE IS PARTLY ALLOWED. 47. THE ISSUES RAISED BY THE ASSESSEE IN GROUND NO. 6, 7 AND 8 EITHER ARE PREMATURE TO DECIDE, CONSEQUENTIAL OR GENERAL IN NA TURE, THEREFORE, WE DISMISS THE SAME AS INFRUCTUOUS. HENCE, THE GROUNDS OF APPE AL OF THE ASSESSEE ARE DISMISSED. 28 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 48. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR THE STATISTICAL PURPOSES. COMING TO THE ITA NO. 37/AHD/2013(REVENUES APPEAL) (A.Y. 2009-10):- 49. REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE ID.CIT(APPEALS) ERRED IN DIRECTING THE ASSESSING OFFICER TO RE-WORK THE D ISALLOWANCE U/S.14A READ WITH RULE 8D AFTER VERIFYING THE WORKING CAPITAL LOANS AND INVES TMENTS IN EQUITY SHARES MADE DURING THE YEAR IN THE EQUITY SHARES OF SUBSIDIARY COMPANIES A ND INVESTMENTS MADE IN OTHER COMPANIES WITHOUT APPRECIATING THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS AS PER THE FORMULA GIVEN IN 8D FOR DERIVING PROPORTIONATE INTE REST DISALLOWANCE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE ID.CIT(APPEALS) ERRED IN DELETING THE ADDITION ON ACCOUNT OF DISALLOWANCE OF CLAIM OF GUARANTEE FEES OF 4.44 CRORES WITHOUT APPRECIATING THAT THE DISALLOWANCE W AS MADE AS THE SAME ARE ENDURING NATURE IN THE ASSESSEE'S BUSINESS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, WITHOUT FOLLOWING THE RATIO TAKEN IN THE DECISION OF ID.CIT(A) IN THE CASE OF M /S.DAKSHIN GUJRAT VIJ CO. LTD. AND OTHER SUBSIDIARY COMPANIES OF THE ASSESSEE, THE ID. CIT(A ) ERRED IN DELETING THE ADDITION OF ? 3550 LACS BEING 15% OF CAPITAL GRANT RECEIVED BY THE ASS ESSEE WHICH WAS NEITHER REDUCED FROM THE COST OF CAPITAL ASSETS NOR OFFERED PORTION OF I T AS REVENUE RECEIPTS AS TREATMENTS OF GRANTS/ SUBSIDIES GIVEN BY THE SUBSIDIARY COMPANIES IN THEIR ACCOUNTS, BUT TAKEN TO 'RESERVE AND SURPLUS' ACCOUNT AND UTILIZED IN INVESTMENT ACT IVITIES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE ID. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE INTERE ST INCOME OF ? 547.36 LACS AS BUSINESS INCOME INSTEAD OF INCOME FROM OTHER SOURCES WITHOUT APPRECIATING THAT THE NATURE OF THE INCOME IS OF PURELY INTEREST AND NOT FROM ANY ACTIV ITIES OF BUSINESS OR PROFESSION. 5. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR A LTER THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY. 50. THE FIRST ISSUE RAISED BY THE REVENUE IS THAT T HE LEARNED CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO UNDER THE PROV ISIONS OF SECTION 14A READ WITH RULE 8D OF INCOME TAX RULE. 51. AT THE OUTSET WE NOTE THAT THE ISSUE RAISED BY THE REVENUE HAS ALREADY BEEN ADJUDICATED BY US ALONG WITH THE GROUND OF APP EAL OF THE ASSESSEE IN THE PRECEDING PARAGRAPH BEARING NO. 10 OF THIS ORDER. R ESPECTFULLY, FOLLOWING THE 29 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 SAME, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION AS PER THE PROVISIONS OF LAW. THUS, THE GROUND OF APPEAL I S ALLOWED FOR STATISTICAL PURPOSES. 52. THE SECOND ISSUE RAISED BY THE REVENUE IS THAT THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR R S.4.44 CRORES ON ACCOUNT OF GUARANTEE FEES REPRESENTING THE ENDURING BENEFIT TO THE ASSESSEE. 53. AT THE OUTSET WE NOTE THAT THE ISSUE RAISED BY THE REVENUE HAS ALREADY BEEN ADJUDICATED BY US ALONG WITH THE GROUND OF APP EAL OF THE ASSESSEE IN THE PRECEDING PARAGRAPH BEARING NO.19 TO 22 OF THIS ORD ER. RESPECTFULLY, FOLLOWING THE SAME, WE UPHOLD THE FINDING OF THE LEARNED CIT( A). HENCE, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 54. THE THIRD ISSUE RAISED BY THE REVENUE IS THAT T HE LEARNED CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS.3550 LAKH BEING 15% OF THE GRANT RECEIVED BY THE ASSESSEE OF RS.25000 LAKHS. 55. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HA S RECEIVED A GRANT OF RS.25,000 LAKHS FROM THE GOVERNMENT OF GUJARAT WHIC H HAS BEEN SHOWN UNDER RESERVE AND SURPLUS IN THE BALANCE SHEET WHICH WAS UTILIZED BY ACQUIRING THE SHARES OF THE SUBSIDIARY COMPANIES. HOWEVER, THE AO WAS OF THE VIEW THAT THE GRANT RECEIVED FROM THE GOVERNMENT OF GUJARAT IS EI THER TOWARDS THE REVENUE ACCOUNT OR CAPITAL EXPENDITURE. BUT THE ASSESSEE HA S NOT FURNISHED THE NECESSARY DETAILS ABOUT THE RECEIPT OF THE GRANT BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION FROM THE GOVERNMENT OF GUJARAT. ACCORDINGLY, THE AO WAS OF THE OPINION THAT 15% OF THE GRANT AND SUBSID IES SHOULD BE OFFERED TO TAX OUT OF EVERY YEAREND BALANCE. ACCORDINGLY, THE AO W ORKED OUT SUM OF 30 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 RS.3750 LAKH BEING 15% OF 25,000 LAKHS AND ADDED TH E SAME TO THE TOTAL INCOME OF THE ASSESSEE. 56. ON APPEAL, THE ASSESSEE SUBMITTED THAT THE GRAN T RECEIVED BY IT FROM THE GOVERNMENT OF GUJARAT WAS UTILIZED FOR MAKING INVES TMENT IN OTHER DISTRIBUTION COMPANIES FOR THE IMPLEMENTATION OF JY OTI GRAM YOJNA. AS SUCH, THE GRANT RECEIVED BY IT FROM THE GOVERNMENT OF GUJ ARAT WAS CONVERTED INTO SHARE CAPITAL. ACCORDINGLY, THE ASSESSEE CONTENDED THAT THERE CANNOT BE ANY ADDITION OF RS.3750 LAKH BEING 15% OF THE GRANT CRE DITED IN THE YEAR UNDER CONSIDERATION UNDER THE HEAD RESERVE AND SURPLUS. 57. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMIS SION OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: 7.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND AP PELLANTS SUBMISSIONS. THE APPELLANT HAS RECEIVED THE CAPITAL GRANT FOR MAKING INVESTMEN TS IN EQUITY CAPITAL OF SUBSIDIARY COMPANIES. SINCE THE APPELLANT HAS NOT ACQUIRED ANY FIXED ASSETS, ON WHICH DEPRECIATION HAS BEEN CLAIMED, HENCE SUCH GRANTS CANNOT BE REDUC ED FROM THE COST OF FIXED ASSETS OF THE APPELLANT COMPANY. IN THE CIRCUMSTANCES, THE DISALL OWANCE OF RS. 37,50,000/- MADE BY THE A.O. OF THE 15% OF THE CAPITAL GRANTS IS NOT CORREC T. ACCORDINGLY, THE SAME IS DELETED. 58. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) THE REVENUE IS IN APPEAL BEFORE US. 59. BOTH THE LEARNED DR AND THE AR BEFORE US VEHEME NTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW TO THE EXTENT FAVOUR ABLE TO THEM. 60. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE NOTE THAT, THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE INVOLVING IDENTICAL FACTS AND CIRCUMSTANCE S HAS DECIDED THE ISSUE IN 31 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 FAVOUR OF THE ASSESSEE IN ITA NO. 1988/AHD/2015 FOR THE ASSESSMENT YEAR 2010-11. THE RELEVANT EXTRACT IS REPRODUCED AS UNDE R: 28. WE HAVE HEARD THE RIVAL CONTENTION AND PRODUCE D THE MATERIAL ON RECORD ON THIS ISSUE. DURING ASSESSMENT, THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE HAS NOT RECEIVED THE GRANT OR SUBSIDY DURING THE YEAR BUT WAS OF THE VIE W THAT THE SUBSIDY OR GRANT WHICH WAS RECEIVED IN EARLIER YEARS WERE TO BE TAKEN TO THE R EVENUE OR TO BE REDUCED FROM THE COST OF ASSETS. THEREFORE, THE ASSESSING OFFICER HAS ESTIMA TED 15% OF GRANT OF RS. 2500 LACS WHICH WORKED OUT AT RS. 3750 LACS AS INCOME OF THE ASSESS EE. THE ID. CIT(A) HAS DELETED THE AFORESAID ADDITION HOLDING THAT THE ASSESSEE HAS NO T ACQUIRED ANY FIXED ASSETS ON WHICH DEPRECIATION HAS BEEN CLAIMED, THEREFORE ,SUCH GRAN TS CANNOT BE REDUCED FROM COST OF FIXED ASSET OF THE ASSESSEE COMPANY. WITH THE ASSISTANCE OF ID. AUTHORIZED REPRESENTATIVES, WE HAVE GONE THROUGH THE MATERIAL ON RECORD PERTAINING TO THE SUBMISSION OF THE ASSESSEE STATING THAT THE ASSESSEE HAS NOT RECEIVED ANY GRAN T DURING THE YEAR AND THE GRANTS RECEIVED ORIGINALLY FROM THE GOVT. OF GUJARAT WERE APPORTION ED AGAINST THE SUBSIDIARY COMPANIES ON APPROPRIATE BASIS. IN F.Y. 2007-08, THE STATE GOVER NMENT VIDE VARIOUS GRS DECIDED TO CONVERT THE GRANT GIVEN DURING THE F.Y. 2005-06 TO 2007-08 FOR IMPLEMENTATION OF JYOTI GRAM YOJNA (JGY) INTO EQUITY SHARE CAPITAL. ACCORDI NGLY, THE TOTAL GRANTS RECEIVED DURING THE AFORESAID FINANCIAL YEARS WERE ALLOCATED AMONG THE FOUR DISTRIBUTION COMPANIES FOR IMPLEMENTATION OF THE AFORESAID SCHEME OF THE STATE GOVERNMENT. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY WIT H THE DECISION OF THE LD. THEREFORE, THE AFORESAID GRANTS RECEIVED CANNOT BE TREATED AS INCO ME OF THE ASSESSEE COMPANY. ACCORDINGLY , THIS GROUND OF THE APPEAL IS DISMISSE D. 60.1 AS THE FACTS OF THE CASE ARE IDENTICAL TO THE FACTS OF THE CASE AS DISCUSSED ABOVE, RESPECTFULLY FOLLOWING THE SAME, WE DO NOT F IND NO MERIT IN THE GROUNDS OF APPEAL RAISED BY THE REVENUE. HENCE, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 61. THE NEXT ISSUE RAISED BY THE REVENUE IS THAT TH E LEARNED CIT(A) ERRED IN TREATING THE INTEREST INCOME OF RS.547.36 LACS A S BUSINESS INCOME INSTEAD OF INCOME FROM OTHER SOURCES. 62. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HA S SHOWN INTEREST INCOME ON THE ADVANCES/LOANS TO THE STAFF, INTEREST ON OTH ER LOANS AND ADVANCES, INTEREST ON UNSCHEDULED INTERCHANGE POOL ACCOUNT AM OUNTING TO RS.547.36 LACS WHICH WAS TREATED AS INCOME FROM THE BUSINESS ACTIVITIES. HOWEVER, THE 32 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 AO DISREGARDED THE CONTENTION OF THE ASSESSEE BY OB SERVING THAT THE IMPUGNED INCOME DOES NOT RELATE TO THE BUSINESS ACTIVITIES O F THE ASSESSEE AND, THEREFORE, THE SAME HAS TO BE TREATED AS INCOME UNDER THE HEAD OTHER SOURCES. 63. ON APPEAL, THE LEARNED CIT (A) HELD THAT IMPUGN ED INTEREST INCOME OF RS.547.36 LACS REPRESENTS INCOME FROM THE BUSINESS BY OBSERVING AS UNDER: 8.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND AP PELLANTS SUBMISSIONS. SO FAR AS INTEREST INCOME FROM UP POOL ACCOUNT IS CONCERNED, FROM THE DETAILS SUBMITTED BY THE APPELLANT, IT IS EVIDENT THAT THIS INCOME IS BEING DERIVED FROM BUSINESS ACTIVITY OF THE APPELLANT AND NOT ON ACCOUNT OF INVESTMENT OF SURPL US FUND AVAILABLE WITH IT. HENCE, THIS INCOME IS IN THE NATURE OF INCOME FROM BUSINESS AND A.O. IS DIRECTED TO TAX IT ACCORDINGLY. SIMILARLY, THE INTEREST EARNED FROM LOANS TO STAFF AND OTHER LOANS ARE IN THE NATURE OF BUSINESS INCOME AS THEY ARE BEING DERIVED IN THE CO URSE OF CARRYING OUT OF BUSINESS ACTIVITY AND NOT ON ACCOUNT INVESTMENT OF SURPLUS FUNDS. HEN CE, THE A.O. IS DIRECTED TO TAX THIS INTEREST INCOME ALSO AS BUSINESS INCOME. 64. BEING AGGRIEVED BY THE ORDER OF LEARNED CIT (A) , THE REVENUE IS IN APPEAL BEFORE US. 65. BOTH THE LEARNED DR AND THE AR BEFORE US VEHEME NTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW TO THE EXTENT FAVOUR ABLE TO THEM. 66. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE NOT E THAT, THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE INVOLVING IDENTICAL FACTS AND CIRCUMSTANCES HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN ITA NO. 3358/AHD/2015 FOR THE ASSESSMENT YEAR 2008 -09. THE RELEVANT EXTRACT IS R EPRODUCED AS UNDER: 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD ON THIS ISSUE. THE ASSESSING OFFICER HAS TREATED THE AFORESAID INC OME UNDER THE HEAD INCOME FROM OTHER SOURCES WITHOUT CONTROVERTING THE SUBMISSION OF THE ASSESSEE ON THE BASIS OF WHICH IT WAS CLAIMED THAT THESE INCOME WERE OF THE NATURE OF BUS INESS INCOME AS ELABORATED IN PARA SEVEN OF THIS ORDER. THE LD. CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE STATING THAT THIS ISSUE WAS DECIDED IN FAVOUR OF THE ASSESS EE FOR ASSESSMENT YEAR 2009-10. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE REVENUE HA S FAILED TO CONTROVERT THE AFORESAID CONTENTION AND THE FINDINGS OF THE LD. CIT(A),THERE FORE AFTER CONSIDERING THE MATERIAL FACT 33 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 THAT INTEREST EARNED ON LOAN AND ADVANCES FROM DEPO SIT PLACED WITH MEGA POWER PROJECT TOWARDS ITS SHARING OF POWER AND INTEREST OF UL POO L ACCOUNT RECEIVED FROM M/S. POWER GRID CORPORATION INDIA LTD WERE DIRECTLY RELATED TO THE BUSINESS OF THE ASSESSEE THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE STANDS DISMISS ED. 67. AS THE FACTS OF THE CASE ARE IDENTICAL TO THE F ACTS OF THE CASE AS DISCUSSED ABOVE, RESPECTFULLY FOLLOWING THE SAME, WE DO NOT F IND ANY MERITS IN THE GROUNDS OF APPEAL RAISED BY THE REVENUE. HENCE, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 68. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. COMING TO THE ITA NO.3103/AHD/2014(ASSESSEES APPEA L) A.Y. 2009-10:- 69. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL: 1.0 THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS CONFIRMED THE EFFECT GIVEN BY THE ASSESSING OFFICER IN RESPECT OF THE DISALLO WANCE UNDER SECTION 14A OF THE I T ACT. THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE A PPRECIATED THAT AMOUNT OF INTEREST EXPENDITURE FOR THE PURPOSE OF COMPUTING THE DISALLOWANCE UNDER SECTION 14A WAS DIRECTED TO BE CONSIDERED AT RS.21,92,00,0 00/- AS AGAINST THE AMOUNT OF RS.30,82,00,000/- CONSIDERED BY THE ASSESSING OFFI CER WHILE PASSING ORDER GIVING TO THE CIT(A)S ORDER. 2.0 THE LEARNED COMMISSIONER (APPEALS) HAS ERRED IN LAW AND FACTS IN CONFIRMING THE CHARGING OF INTEREST UNDER SECTION 234B, 234C AND 234D OF THE INCOME TAX ACT, 1961 ON TAX LIABILITY COMPUTED UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961. 3.0 THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, DE LETE OR MODIFY ANY OF THE GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 70. THE FIRST ISSUE RAISED BY THE ASSESSEE IS THAT LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO BY SUSTAINING THE DI SALLOWANCE UNDER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF INCO ME TAX RULE. 34 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 71. AT THE OUTSET WE NOTE THAT THE IDENTICAL ISSUE WAS RAISED BY THE ASSESSEE AND THE REVENUE IN ITA NOS. 11 AND 37/AHD/2013 WHIC H WE HAVE SET ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICATION AS PER TH E PROVISIONS OF LAW. FOR THE DETAILED DISCUSSION PLEASE REFER THE PARAGRAPH BEAR ING NO. 10 OF THIS ORDER. RESPECTFULLY, FOLLOWING THE SAME WE SET ASIDE THE I SSUE IN HAND TO THE FILE OF THE AO FOR FRESH ADJUDICATION AS PER THE PROVISIONS OF LAW. HENCE, THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR THE STATIS TICAL PURPOSES. 72. THE OTHER ISSUE RAISED BY THE ASSESSEE ARE EITH ER CONSEQUENTIAL OR GENERAL IN NATURE. THEREFORE, WE DISMISS THE SAME A S INFRUCTUOUS. 73. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR THE STATISTICAL PURPOSES. 74. IN THE COMBINED RESULT, (I) ITA NO. 11/AHD/2013- ASSESSEES APPEAL IS ALLO WED FOR STATISTICAL PURPOSES. (II) ITA NO. 37/AHD/2013- DEPARTMENTS APPEAL IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. (III) ITA NO. 3103/AHD/2014- ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON THE 22 ND OCTOBER,2020 AT AHMEDABAD. SD/- SD/- (RAJPAL YADAV) VICE PRESIDENT ( WASEEM AHMED ) ACCOUNTANT MEMBER AHMEDABAD; DATED 22/10/2020 TANMAY, SR. PS 35 ITA NOS. 11/AHD/2013, 37/AHD/2013 & 3103/AHD/2014 AY: 2009-10 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. !! ' # / CONCERNED CIT 4. ' # ( ) / THE CIT(A)- 5. &'() **+ , , / DR, ITAT, AHMEDABAD. 6. ),- ./ / GUARD FILE. / BY ORDER, & * //TRUE COPY // / ! ( DY./ASSTT.REGISTRAR) ! '# $, &' / ITAT, AHMEDABAD 1. DATE OF DICTATION 21.10.2020 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 21.10.2020 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 22.10.2020 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 2 2.10.2020 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE OR DER