ACIT, Circle- 4(1), New Delhi V. Bajaj Resource Ltd., Jaipur

ITA 4018/DEL/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5275 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 25-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Proportionate interest; Rule 8D
• Section: 143(3); 14A; 115JB; 250; 13; 22; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI A BEN CH, NEW DELHI (THROUGH VIDEO CONFERENCING] BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI SUDHANSHU SRIVASTAVA, JUDI CIAL MEMBER ITA NO. 4018/DEL/2018 [A.Y 2014-15] THE A.C.I.T. VS. M/S BAJAJ RESOURCES LTD CIRCLE -4 (1) 33, 2 ND FLOOR, PRATAP NAGAR NEW DELHI MAYUR VIHAR, NEW DELHI PAN : AAACD 8001 D [APPELLANT] [RESPONDENT] DATE OF HEARING : 22.09.2021 DATE OF PRONOUNCEMENT : 24.09.2021 ASSESSEE BY : SHRI SANDEEP JHANWAR, C.A. REVENUE BY : SHRI BHOPAL SINGH, SR. DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST ORD ER OF THE COMMISSIONER OF INCOME TAX [APPEALS] 1, HYDERABAD DATED 18.12.2017 PERTAINING TO ASSESSMENT YEAR 2014-15. 5 2. THE GRIEVANCES OF THE REVENUE READ AS UNDER: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADD ITION MADE ON ACCOUNT OF DISALLOWANCE U/S 14A IN ACCORDANCE WITH RULE 8D OF THE I.T. RULES AMOUNTING TO RS. 6,85,74,900/-. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN ACCEPTING TH E ASSESSEES SUBMISSION THAT NO EXEMPT INCOME HAS BEEN EARNED. 3. THE REPRESENTATIVES OF BOTH THE SIDES WERE HEARD AT LENGTH, THE CASE RECORDS CAREFULLY PERUSED AND WITH THE ASSISTA NCE OF THE LD. COUNSEL, WE HAVE CONSIDERED THE DOCUMENTARY EVIDENC ES BROUGHT ON RECORD IN THE FORM OF PAPER BOOK IN LIGHT OF RULE 1 8(6) OF ITAT RULES. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF OWNERSHIP OF FMCG PRODUCT BRANDS ACTIVITIES FOR DEVELOPMENT OF BRANDS AND INT ER-CORPORATE DEPOSITS. RETURN OF INCOME FOR THE YEAR UNDER CONSI DERATION WAS FILED ON 29.09.2014 ADMITTING A TOTAL INCOME OF RS 5,34,9 0,940/- UNDER NORMAL PROVISIONS AND RS 2,97,66,150/- UNDER THE PR OVISIONS OF SEC 115JB OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFE RRED TO AS 'THE 6 ACT']. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSM ENT AND ACCORDINGLY, NOTICES WERE ISSUED AND DULY SERVED ON THE ASSESSEE. 5. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEE DINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLA IMED EXEMPTION IN RESPECT OF DIVIDEND INCOME OF RS. 62,07,50,000/- AN D PROFIT IN LLP OF RS. 198 CRORES. THE ASSESSING OFFICER FOUND THAT NO EXPENDITURE IN RELATION TO EXEMPT INCOME WAS DISALLOWED BY THE ASS ESSEE U/S 14A OF THE ACT. 6. ON PERUSAL OF THE FINANCIAL STATEMENTS OF THE AS SESSEE, THE ASSESSING OFFICER NOTICED THAT TOTAL NON-CURRENT IN VESTMENTS WAS RS. 55,147.09 LAKHS AS ON 31.03.2013 AND RS. 39,396.25 LAKHS AS ON 31.03.2014 WHEREAS RESERVES AND SURPLUS WERE TO THE EXTENT OF RS. 27,923.94 LAKHS AS ON 31.03.2013. THE ASSESSING OFF ICER ALSO NOTICED THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE OF RS. 797.31 LAKHS AND ADMINISTRATIVE EXPENSES IN ITS P & L A/C. 7. SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE ASK ING IT TO EXPLAIN AS TO WHY NO DISALLOWANCE OF EXPENDITURE WA S MADE IN RELATION TO EXEMPT INCOME. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE 7 ASSESSEE FILED DETAILED REPLY CONTENDING THAT IT HA S INCURRED NO EXPENDITURE FOR EARNING EXEMPT INCOME CLAIMING THAT THE INVESTMENTS HAVE BEEN MADE IN GROUP COMPANIES AS STRATEGIC INVE STMENT. 8. IT WAS STRONGLY CONTENDED THAT THE ASSESSEE HAS SUFFICIENT OWN INTEREST FREE FUNDS TO MAKE INVESTMENTS AND, THEREF ORE, THERE IS NO QUESTION OF INVESTMENT MADE OUT OF BORROWED FUNDS. IT WAS FURTHER POINTED OUT THAT THOUGH THE ASSESSEE HAS INCURRED I NTEREST COST OF RS. 797.31 LAKHS BUT HAS ALSO EARNED INTEREST INCOME OF RS. 589.63 LAKHS AND FURTHER EARNED INCOME OF RS. 136.09 LAKHS AS SH ORT TERM CAPITAL GAIN. 9. AFTER CONSIDERING THE DETAILED SUBMISSIONS MADE BY THE ASSESSEE AND AFTER ANALYSING THE FINANCIAL STATEMENTS, THE A SSESSING OFFICER, IN HIS WISDOM, OBSERVED AS UNDER: THE MAIN PLANK OF THE ARGUMENT OF THE ASSESSEE IN THIS REGARD IS THAT NONE OF THE INVESTMENTS WAS MADE OUT OF INTERE ST-BEARING BORROWED FUNDS BUT FROM THE CAPITAL, RESERVES/SURPL US AND INTEREST FREE BORROWINGS AND THEREFORE, PROVISIONS OF SEC.L4A DO NOT APPLY TO THE EXEMPT INCOME CLAIMED BY THE ASSES SEE IN THE RETURN OF INCOME. IN SUPPORT OF ITS CLAIM, THE ASSE SSEE HAS ALSO SUBMITTED YEAR-WISE INVESTMENTS AND THE FLOW OF THE FUNDS RIGHT 8 FROM F.Y.2007-08 ALONG WITH THE FINANCIALS FOR THE RESPECTIVE YEARS. FOR INSTANCE, DURING THE F.Y.2009-10, THE AS SESSEE HAS MADE INVESTMENT IN GOLDEN SHORE INVESTING LTD., AND THE SOURCE OF THE INVESTMENT WAS CLAIMED TO BE AVAILABLE CAPITAL AND RESERVES /SURPLUS. IT WAS ALSO CLAIMED THAT THE AMOUNT OF RS .50.8 CRORES BORROWED FROM PNB DURING THAT YEAR WAS SPECIFICALLY UTILIZED FOR THE PURPOSE OF DISTRIBUTION OF DIVIDEND AND NOT FOR MAKING INVESTMENT IN GOLDEN SHORE INVESTING LTD, THIS CONT ENTION OF THE ASSESSEE IS NOT WELL FOUNDED. ON PERUSAL OF THE LED GER ACCOUNT OF THE LOAN AND THE DIVIDEND ACCOUNT, THE DIVIDEND PAY OUT WAS ON 02- 01-2010 WHEREAS THE LOAN AMOUNT WAS TRANSFERRED FRO M PNB LOAN ACCOUNT ON 13-01-2010. SIMILARLY, DURING THE F.Y.20 12-13, THE ASSESSEE HAS MADE SIZEABLE INVESTMENTS AND ALSO BOR ROWED FUNDS IN THAT YEAR. THE CLAIM OF THE ASSESSEE IN THIS YEA R IS ALSO THAT THE BORROWED FUNDS WERE UTILIZED FOR MAKING ADVANCE S TO THE ASSOCIATE CONCERN FOR WHICH INTEREST INCOME HAS BEE N EARNED. IN THIS YEAR ALSO, THE INVESTMENTS ADVANCES WERE MADE OUT OF COMMON POOL OF FUNDS AND THEREFORE, IT IS NOT CORRE CT TO SAY INVESTMENTS YIELDING EXEMPT INCOME WERE MADE ONLY O UT OF INTEREST FREE FUNDS. 10. AFTER REFERRING TO SOME JUDICIAL DECISIONS, THE ASSESSING OFFICER CONCLUDED AS UNDER: I N VIEW OF THE ABOVE, VARIOUS CONTENTIONS RAISED BY THE ASSESSEE ARE NOT LEGALLY TEN..' AND PROPORTIONATE INTEREST E XPENDITURE IN RELATION TO EXEMPT INCOME IS WORKED OUT AS PER THE FORMULA PROVIDED IN CLAUSE (II) OF RULE 8D AS UNDER: 9 A) THE EXPENDITURE IN RELATION TO INCOME WHICH DOES NO T FORM PART OF THE TOTAL INCOME AS PER RULE 8D(2)(II) SHALL BE THE AGGREGATE OF FOLLOWING AMOUNTS, NAMELY- A*B/C WHERE; (I) A AMOUNT OF EXPENDITURE BY WAY OF INTEREST: RS. 7,97,31.000 (II) B THE AVERAGE VALUE OF INVESTMENT (EXCL UDING INVESTMENT IN FOREIGN COMPANIES), INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR : RS. 4423 4.455 LAKHS III) C THE AVERAGE OF TOTAL ASSETS AS APPEAR ING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR : RS. 58171.195 LAKHS DISALLOWANCE U/S 14A R.W.R. 8D (II) : A*B/C = RS. 6,06,28.900 11. IN ADDITION TO THE ABOVE, THE ASSESSING OFFICER PROCEEDED TO MAKE FURTHER ADDITION U/R 8D(III) OF THE RULES AMOU NTING TO RS. 79.46 LAKHS AND MADE TOTAL DISALLOWANCE U/S 14A R.W.R 8D AMOUNTING TO RS. 6,85,74,900/-. 10 12. ASSESSMENT WAS STRONGLY AGITATED BEFORE THE LD. CIT(A). THE CONTENTION MADE BEFORE THE ASSESSING OFFICER WERE R EITERATED 13. THE ASSESSEE ONCE AGAIN EXPLAINED THE FINANCIAL STATEMENTS POINTING OUT THAT THE INVESTMENTS HAVE BEEN MADE OU T OF SUFFICIENT OWN INTEREST FREE FUNDS AND FURTHER, THE EXEMPT INC OME HAS BEEN EARNED ONLY FROM INVESTMENTS MADE IN BAJAJ HINDUSTA N LTD AND BAJAJ CORP LTD. AND SKB ROOP COMMERCIALS LLP AND NO EXEMP T INCOME HAS BEEN EARNED FROM ANY OTHER INVESTMENT. IT WAS BROUG HT TO THE NOTICE OF THE LD. CIT(A) THAT ALL THESE INVESTMENTS HAVE B EEN MADE IN EARLIER ASSESSMENT YEARS AND NO BORROWED FUNDS WERE UTILISE D FOR MAKING THESE INVESTMENTS. 14. AFTER CONSIDERING THE FACTS AND SUBMISSIONS, AN D AFTER GOING THROUGH THE FINANCIAL STATEMENTS OF THE ASSESSEE, T HE LD. CIT(A) HELD AS UNDER: 5.5 THE SUBMISSIONS OF THE APPELLANT HAVE BEEN CAREFULLY CONSIDERED. THERE IS A STRENGTH IN THE ARGUMENT OF THE APPELLANT. THE APPELLANT HAS MADE INVESTMENT IN ITS OWN SUBSID IARY COMPANIES. AS SUBMITTED BY THE APPELLANT, THE INVES TMENT IS FOR EXPANSION OF THE CORPORATE GROUP AND COMES UNDER BU SINESS EXPEDIENCY. HENCE IT IS CLEAR THAT THE INVESTMENTS HAS BEEN MADE 11 NOT TO EARN INTEREST FREE INCOME BUT FOR EXPANSION OF THE BUSINESS. IN REGARD TO THE FOREIGN INVESTMENT, I.E. , M/S. GOLDEN SHORE INVESTING LIMITED, THE DIVIDEND INCOME IS TAX ABLE. HENCE THIS IS NOT COME UNDER PURVIEW OF SECTION 14A. THE LOAN TAKEN BY THE APPELLANT HAS BEEN INVESTED IN THE M/S. GOLDEN SHORE INVESTING LIMITED WHICH IS EVIDENT FROM THE BANK AC COUNT OF THE APPELLANT COMPANY. INVESTMENT HAS BEEN MADE ON THE SAME DAY. COMING TO THE ISSUE OF APPLICABILITY OF SECTION 14A , IN THIS CASE DOES NOT ARISE AS INVESTMENT IS FOR BUSINESS E XPANSION. THERE HAS NOT BEEN ANY DIRECT LINKAGES BETWEEN THE LOAN TAKEN AND INVESTMENTS, EXCEPTION IN CASE OF M/S. GOLDEN S HORE INVESTING LIMITED. SINCE THIS INCOME FROM M/S. GOLD EN SHORE INVESTING LIMITED IS TAXABLE, HENCE LOAN TAKEN FOR INVESTMENT IN THE REFERRED COMPANY CANNOT BE GENERALISED AS 'EXPE NDITURE' FOR CALCULATION OF SECTION 14A. THE SUBMISSIONS OF THE APPELLANT IS COMPREHENSIVE REGARDING WHY SECTION 14A SHOULD NOT BE APPLICABLE. THERE IS NO DOUBT THAT INVESTMENT HAS BEEN MADE TO ENHANCE THE BUSINESS OF THE GROUP COMPANY AND LESSER INTENTION OF GETTING I NTEREST FREE INCOME. THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF PR.CIT VS. IL & FS ENERGY DEVELOPMENT COMPANY LTD., 250 TAXMAN N 174, HELD THAT NO DISALLOWANCE U / S .14A TO BE MADE IN THE AY UNDER QUESTION, BECAUSE NO EXEMPT INCOME IS EARNED. IN VI EW OF THIS, THE SUBMISSIONS OF THE APPELLANT IS ACCEPTED AND THE AD DITION MADE BY THE ASSESSING OFFICER IS DELETED. 12 15. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. THE CONTENTION OF THE ASSESSEE T HAT THE INVESTMENTS HAVE BEEN MADE OUT OF OWN INTEREST FREE FUNDS CAN BE UNDERSTOOD FROM THE FOLLOWING CHARTS: DETAILS OF LONG TERM INVESTMENTS MADE IN SISTER CON CERNS FOR THE YEAR ENDED (RS. IN LACS) PARTICULARS 31 - 03 - 2010 | 31 - 03 - 2011 31 - 03 - 2012 ! 31 - 03 - 2013 31 - 03 - 2014 NON . CURRENT INVESTMENT INVESTMENT IN EQUITY INSTRUMENTS I ------- BAIAI CAPITAL VENTURE PVT LTD - - 0.01 0.01 0.01 BAJAJ CORP LTD 500.00 500.00 500.00 382.00 382.00 BAIAI HINDUSTAN LTD - - 29,500.00 29,500.00 29,500.00 BAJAJ INTERNATIONAL REALTY PVT LTD 5,012.50 5,012.5 5,012.5 GLOBAL WORLD POWER PROJECT PVT LTD 500.00 500.00 500.00 500.00 BAJAJ INFRASTRUCTURE DEVELOPMENT COMPANY LTD - 750.2 BAJAJ POWER VENTURES PVT LTD - - 499.88 8499.83 - V OPUL CONSTRUCTION PVT LTD - - 8419.94 - KARTIKEYA PROPERTIES PVT LTD 2.00 - - - - KASHYAP PROPERTIES PVT LTD 2.00 - - - - ADVANCE TOWARDS SHARE APPLICATION MONEY -BAJAJ POWER VENTURES LTD. 5,500 SKB ROOP COMMERCIAL LLP - - - 4.96 4.96 TOTAL (A) 504 6,500 36,012.39 52,319.24 36,149.6 7 INVESTMENT IN FOREIGN SUBSIDIARIES GLOBAL POWER PROJECTS SINGAPORE PVT LTD - - 505.34 505.34 505.34 GOLDEN SHORE INVESTING LTD 2,322.51 2,322.51 2,322.51 2,322.51 2 , 741.24 TOTAL (B) 2,322.51 2,322.51 2 , 827.85 2 , 827.85 3 , 246.58 TOTAL (A+B) 2,826.51 8,822.51 38,840,24 55,147.09 39,390.25 13 DETAILS OF NON INTEREST BEARING FUNDS FOR THE YEAR ENDED (RS. IN LAES) PARTICULARS 31 - 03 - 2010 31 - 03 - 2011 31 - 03 - 2012 31 - 03 - 2013 31 - 03 - 2014 NET OWNED FUNDS EQUITY SHARE CAPITAL 99.31 99.31 99.31 99.31 99.31 PREFERENCE SHARE CAPITAL 0.02 0.02 0.02 0.02 0.02 99.33 99.33 99.33 99.33 99.33 RESERVE AND SURPLUS SECURITIES PREMIUM RESERVES 1,574.37 1,574.37 1,574.37 1,574.37 1,574.37 GENERAL RESERVES 1,187.80 1,193.63 1,213.63 1,213.63 3,826.58 SURPLUS IN STATEMENT OF P&L 8,344.81 8,559.59 16,667.41 25,135.94 42,445.28 INDUSTRIAL SUBSIDY 20.00 20.00 - - TOTAL (I ) 11,126.98 11,347.59 19,455.41 27,923.94 47,846.23 OTHER NON INTEREST BEARING FUNDS ZERO PERCENT OPTIONALLY CONVERTIBLE DEBENTURES ( DIRECTLY INVESTED INTO EQUITY SHARES OF BAIAI HINDUSTAN 29,500 29,500 TOTAL (II) - - 29,500 29,500 - TOTAL (I + II) 11,226.31 11,446.92 49,054.74 57,523.27 47,945.56 16. A PERUSAL OF THE AFOREMENTIONED CHARTS WOULD SH OW THAT AS ON 31.03.2014, THE TOTAL INVESTMENTS WHICH EARNED EXEM PT DIVIDEND INCOME WAS RS. 36,149.67 LAKHS AND TOTAL INVESTMENT IN FOREIGN SUBSIDIARIES AS ON 31.03.2014 WAS RS. 3,246.58 LAKH S. THERE IS NO 14 DISPUTE IN SO FAR AS DIVIDEND EARNED FROM FOREIGN S UBSIDIARIES IS CONCERNED. SUCH DIVIDEND INCOME IS TAXABLE, THEREFO RE PROVISIONS OF SECTION 14A DO NOT APPLY ON SUCH DIVIDEND INCOME. A PERUSAL OF THE DETAILS OF NON-INTEREST BEARING FUNDS EXHIBITED HER EINABOVE WOULD SHOW THAT THE ASSESSEE HAD TOTAL NON-INTEREST-BEARI NG FUNDS OF RS. 47,945.56 LAKHS WHICH IS MUCH HIGHER THAN THE TOTAL INVESTMENT OF RS. 36, 149.67 LAKHS. 17. FURTHER, INVESTMENTS MADE IN THE COMPANY GENERA TING EXEMPT DIVIDEND INCOME CAN BE UNDERSTOOD FROM THE FOLLOWIN G CHARTS: INVESTEE COMPANY F.Y. OF INVESTMENT SOURCE & REMARKS (BALANCE SHEET AND RELEVANT SCHEDULES ARE ENCLOSED AS ANNEXURE - 2 M/S. BAJAJ CORP LTD 2007 - 08 BALANCE SHEET AS ON 31.03.2008 SHOWS: 1. THE ASSESSEE HAS CAPITAL & RESERVES /SURPLUS OF RS. 7228.85 LACS. 2. NO BORROWINGS ARE THERE IN THE BALANCE SHEET. THE AMOUNT OF RS.22.78 LACS IN UNSECURED LOANS REPRESENT SALES TAX DEFERMENT WHICH CANNOT HAVE ANY RELEVANCE WITH THE INVESTMENT MADE. THUS THE AMOUNT OF RS.500 LACS WAS INVESTED OUT FROM CAPITAL AND INTERNAL ACCRUAL. M/S. GOLDEN SHORE INVESTING LTD (FOREIGN COMPANY) 2009 - 10 BALANCE SHEET AS ON 31.03.2010 SHOWS: 1. THE INVESTMENT OF RS.2322.51 LACS HAS BEEN MADE OUT OF THE OPENING & CLOSING CAPITAL & RESERVES/SURPLUS OF RS. 7866.09 LACS & RS.11226.30 LACS RESPECTIVELY. 2. THE COMPANY BORROWED RS.50.38 CRORES FROM PNB DURING THE YEAR. HOWEVER, THE SAID LOAN WAS SPECIFICALLY UTILISED FOR THE PURPOSE OF DISTRIBUTI ON OF DIVIDEND AS SHOWN IN THE PAPERS ENCLOSED. 3. FURTHER, IN SUBSEQUENT YEARS, THE LOAN WAS REPAID BUT THE INVESTMENT SUBSISTED. 4. IT IS ALSO WORTH POINTING OUT HERE THAT INVESTMENT IN GOLDEN SHORE LTD IS A FOREIGN INVESTMENT AND SINCE THE INCOME THEREFROM IS TAXABLE, THE QUESTION OF APPLICATION OF PROVISIONS OF SECTION 14A DOES NOT APPLY. M/S. GLOBAL WORLD POWER PROJECTS PVT LTD 2010 - 11 BALANCE SHEET AS ON 31.03.2011 SHOWS: 1. THE CAPITAL & RESERVES AND SURPLUS AT THE OPENING & CLOSING OF THE YEAR CONSISTED OF RS.11226.31 LACS & RS.11446.92 LACS RESPECTIVELY AND INVESTMENT OF RS.500 LACS HAS BEEN MADE BY UTILISING OWNED FUNDS. 2. THE ASSESSEE HAD OPENING UNSECURED LOAN FROM PUNJAB NATIONAL BANK OF RS.50.38 CRORES WHICH WAS SPECIFICALLY UTILISED FOR THE PURPOSE OF PAYMENT OF DIVIDEND. EVIDENCES ARE ENCLOSED TO EXPLAIN THE SAME. MOREOVER, THE LOAN HAS BEEN REPAID DURING THE YEAR OF 2010- 11 WHILE THE INVESTMENTS WERE MADE DURING THE YEAR AND WAS EXISTING AT YEAR END. THIS ALSO SHOWS THAT BORROWINGS WERE NOT UTILISED FOR THE PURPOSE OF MAKING INVESTMENTS. 3. NO BORROWINGS ARE THERE IN THE BALANCE SHEET AS ON 31.03.2011 AND THE AMOUNT OF RS.24.34 LACS IN UNSECURED LOANS REPRESENT SALES TAX DEFERMENT. THIS CANNOT BE CONSIDERED TO HAVE BEEN INVESTMENT IN THE EQUITIES OF SISTER CONCERNS. THUS, INVESTMENTS OF RS.500 LACS WERE MADE OUT OF CAPITAL & INTERNAL ACCRUALS. M/S. BAJAJ HINDUSTAN LTD BALANCE SHEET AS ON 31.03.2012 SHOWS: 1. INVESTMENT OF RS.29500 LACS IN BAJAJ HINDUSTAN LTD. WAS MADE OUT OF THE ISSUE OF ZERO % OPTIONALLY CONVERTIBLE DEBENTURES ISSUED FOR THE SAID PURPOSE. THIS DOES NOT BEAR ANY INTEREST COST. A CHART, LEDGER ACCOUNT & BANK STATEMENT ARE ALSO ATTACHED TO SHOW ONE TO ONE NEXUS IN THIS REGARD. 2. FOR MAKING OTHER INVESTMENTS OF RS.0.01 LACS. RS.5012.50 LACS, RS.499.88 LACS & RS.5.5.34 LACS RESPECTIVELY IN THE OTHER COMPANIES, THE ASSESSEE HAD SUFFICIENT OPENING & CLOSING CAPITAL AND RESERVES/ SURPLUSES OF RS.11446.92 LACS & RS.19455.41 LACS RESPECTIVELY. 3. AT THE OTHER END, NO BORROWING ARE THERE IN THE BALANCE SHEET. THE AMOUNT OF RS.24.34 LACS IN UNSECURED LOANS REPRESENT SALES TAX DEFERMENT. THIS CANNOT BE CONSIDERED TO HAVE BEEN INVESTED IN THE EQUITIES OF SISTER CONCERNS. 1. IT IS ALSO WORTH POINTING OUT HERE THAT INVESTMENT IN GOLDEN SHOE LTD IS A FOREIGN INVESTMENT AND SINCE THE INCOME THEREFROM IS TAXABLE, THE QUESTION OF APPLICATION OF PROVISIONS OF SECTION 14A DOES NOT APPLY. THUS, ALL THE ABOVE INVESTMENTS, OTHER THAN INVESTMENT INTO M/S. BAJAJ HINDUSTAN LIMITED WERE MADE OUT FROM CAPITAL & INTERNAL ACCRUALS. INVESTMENT IN M/S.BAJAJ HINDUSTAN LTD., AS STATED ABOVE ARE MADE OUT OF SPECIFIC PROCEED OF NON- INTEREST BEARING DEBT. ___________________ BALANCE SHEET AS ON 31.03.2013 SHOWS: 1. THE ASSESSEE HAD OPENING INVESTMENTS OF RS.38,840.24 LACS AND MADE AND MADE FURTHER INVESTMENTS OF RS.16419.89 LACS AND ALSO DISPOSED INVESTMENTS TO THE EXTENT OF RS.118 LACS MAKING THE TOTAL INVESTMENT AS AT 31.03.2013 AT RS.55147.09 LACS. AGAIN THIS, THE ASSESSEE WAS INTO POSSESSION OF NON INTEREST RS.57523.27 LACS RESTIVELY INCLUDING THE NON INTEREST BEARING DEBTS WHICH ARE SUFFICIENT TO MAKE THESE INVESTMENTS. 2. THE BORROWED FUNDS OF RS.10499.32 LACS WERE UTILISED FOR THE PURPOSE OF MAKING ADVANCES TO THE ASSOCIATE CONCERN FROM WHICH INTEREST INCOME OF RS.399.21LACS HAS BEEN EARNED AS PER THE DETAILS ENCLOSED. FURTHER, MORE TAXABLE INCOME OF RS.80.40 LACS IS EARNED FROM SALE OF CURRENT INVESTMENTS MADE BY USING THESE FUNDS. A DETAILED SUBMISSION AND STATEMENT SHOWING FLOW OF FUNDS IN THIS REGARD WAS SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS OF A.Y. 2013-14 VIDE LETTER DATE 14.03.2016. THE SUBMISSIONS OF THE ASSESSEE WERE ACCEPTED AND IN THE ASSESSMENT PROCEEDINGS M/S. BAJAJ CAPITAL VENTURES PVT. LTD 2011 - 12 M/S. BAJAJ INTERNATIONAL REALTY PVT.LTD 2011 - 12 M/S. BAJAJ POWER VENTURES PVT.LTD 2011 - 12 M/S. GLOBAL POWER PROJECTS SINGAPORE PVT. LTD 2011 - 12 M/S. BAJAJ POWER VENTURES PVT. LTD 2012 - 13 M/S. SKB ROOP COMMERCIALS LLP 2012 - 13 M/S. OPUL PVT. LTD CONSTRUCTION S 2012 - 13 7 18. THE HON'BLE SUPREME COURT IN THE CASE OF SOUTH INDIAN BANK LTD VS CIT IN CIVIL APPEAL NO. 9606 OF 2011 AT PARA 15 OF ITS ORDER HAS OBSERVED AS UNDER: 15. THE APPELLANTS ARGUE THAT THE INVESTMENTS MADE IN BONDS AND SHARES SHOULD BE CONSIDERED TO HAVE BEEN MADE OUT O F INTEREST FREE FUNDS WHICH WERE SUBSTANTIALLY MORE THAN THE P AGE 8 OF 22 AND NO DISALLOWANCE U / S 14A CHART IS ENCLOSED HEREWITH FOR READY REFERENCE. THUS, ALL THESE INVESTMENTS WERE MADE OUT OF INTEREST FREE FUNDS OF THE ASSESSEE M/S. BAJAJ INFRASTRUCTURE DEVELOPMENT COMPANY LTD 2013 - 14 BALANCE SHEET AS ON 31.03.2014 SHOWS: 1. THE COMPANY HAS OPENING & CLOSING CAPITAL, RESERVES AD SURPLUS & INTEREST FREE BORROWING OF RS.57523.47 LACS & RS.47945.56 LACS RESPECTIVELY WHICH ARE SUFFICIENT TO MAKE INVESTMENTS (ACCUMULATED) OF RS.55147.09 LACS & RS.39396.25 LACS RESPECTIVELY. 2. ,4S STATED ABOVE, ALL THE INTERES T BEARING FUNDS WERE BORROWED FOR THE PURPOSE OF ADVANCING TO SISTER CONCERNS FROM WHICH THE ASSESSEE HAS EARNED INTEREST INCOME AS DETAILED IN THE STATEMENT ENCLOSED. FURTHER, THE COMPANY HAS ALSO EARNED OTHER TAXABLE INCOME BY TEMPORARILY INVESTING OUT O F SUCH BORROWED FUNDS. THE ASSESSEE HAS REPAID ALL INTEREST BEARING FUNDS DURING THE YEAR UNDER CONSIDERATION BUT THIS INVESTMENT WAS MADE DURING THE YEAR AND IS PERSISTING AS ON 31.03.2014 CLEARLY SHOWING THAT IT WAS MADE OUT OF ON INTEREST BEARING FUNDS OF THE ASSESSEE. 3. IT IS ALSO WORTH POINTING OUT HERE THAT INVESTMENT IN GOLDEN SHORE LTD IS A FOREIGN INVESTMENT AND SINCE THE INCOME THEREFROM IS TAXABLE, THE QUESTION OF APPLICATION OF PROVISIONS OF SECTION 14A DOES NO T APPLY. THUS, ALL THESE INVESTMENTS WERE MADE OUT OF INTEREST FREE FUNDS OF THE ASSESSEE. M/S. GOLDEN SHORE INVESTING LTD. (FOREIGN COMPANY) 2013 - 14 8 INVESTMENT MADE AND THEREFORE THE INTEREST PAID BY THE ASSESSEE ON ITS DEPOSITS AND OTHER BORROWINGS, SHOULD NOT BE CONSIDERED TO BE EXPENDITURE INCURRED IN RELATION TO TAX FREE INC OME ON BONDS AND SHARES AND AS A COROLLARY, THERE SHOULD BE NO D ISALLOWANCE UNDER SECTION 14A OF THE ACT. ON THE OTHER HAND, TH E COUNSEL FOR THE REVENUE REFERS TO THE REASONING OF THE CIT(A) A ND OF THE HIGH COURT TO PROJECT THEIR CASE. 19. AT PARA 20, THE HON'BLE SUPREME COURT OBSERVED AS UNDER: 20. APPLYING THE SAME LOGIC, THE DISALLOWANCE WOUL D BE LEGALLY IMPERMISSIBLE FOR THE INVESTMENT MADE BY THE ASSESS EES IN BONDS/SHARES USING INTEREST FREE FUNDS, UNDER SECTI ON 14A OF THE ACT. IN OTHER WORDS, IF INVESTMENTS IN SECURITIES I S MADE OUT OF COMMON FUNDS AND THE ASSESSEE HAS AVAILABLE, NON-IN TEREST-BEARING FUNDS LARGER THAN THE INVESTMENTS MADE IN TAX- FREE SECURITIES THEN IN SUCH CASES, DISALLOWANCE UNDER SECTION 14A CANNOT BE MADE . 20. AND AT PARA 28 OF THE SAME ORDER, THE HON'BLE A PEX COURT OBSERVED AS UNDER: 28. THE ABOVE CONCLUSION IS REACHED BECAUSE NEXUS HAS NOT BEEN ESTABLISHED BETWEEN EXPENDITURE DISALLOWED AND EARN ING OF EXEMPT INCOME. THE RESPONDENTS AS EARLIER NOTED, HAVE FAIL ED TO SUBSTANTIATE THEIR ARGUMENT THAT ASSESSEE WAS REQUI RED TO 9 MAINTAIN SEPARATE ACCOUNTS. THEIR RELIANCE ON HONDA SIEL (SUPRA) TO PROJECT SUCH AN OBLIGATION ON THE ASSESSEE, IS ALRE ADY NEGATED. THE LEARNED COUNSEL FOR THE REVENUE HAS FAILED TO REFER TO ANY STATUTORY PROVISION WHICH OBLIGATE THE ASSESSEE TO MAINTAIN SEPARATE ACCOUNTS WHICH MIGHT JUSTIFY PROPORTIONATE DISALLOWANCE. 21. THE HON'BLE SUPREME COURT ANSWERED THE QUESTION S FRAMED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 22. AS MENTIONED ELSEWHERE, THE INVESTMENTS GENERAT ING EXEMPT DIVIDEND INCOME WERE MADE IN EARLIER A.YS AND WE HA VE THE BENEFIT OF ASSESSMENT ORDER DATED 14.03.2016 FRAMED U/S 143(3) OF THE ACT FOR A.Y 201314. WE FIND THAT NO DISALLOWANCES WERE MAD E BY THE ASSESSING OFFICER IN HIS SCRUTINY ASSESSMENT CASE. 23. WE FURTHER FIND THAT THE SAID ASSESSMENT ORDER WAS CONSIDERED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE BY THE PCIT WHO, INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT, FRAMED AN ORDER DATED 30.03.2018. THE SAID ORDER WAS QUASHED BY THI S TRIBUNAL VIDE ORDER DATED 29.0 8.2018 IN ITA NO. 2838/DEL/2018. 10 24. CONSIDERING THE FACTS OF THE CASE IN TOTALITY I N LIGHT OF THE FINANCIAL STATEMENTS EXHIBITED ELSEWHERE, AND IN LI GHT OF THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF SO UTH INDIAN BANK LTD [SUPRA], IN OUR CONSIDERED OPINION, THERE CANNO T BE ANY DISALLOWANCE OF INTEREST FOR EARNING EXEMPT INCOME AND THERE IS NO REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CI T(A). 25. IN SO FAR AS THE DISALLOWANCE ON ACCOUNT OF ADM INISTRATIVE EXPENSES IS CONCERNED, WE FIND THAT THERE IS NO DIS PUTE THAT ALL THE INVESTMENTS ARE MADE IN THE SISTER CONCERN IN WHICH THE ASSESSEE HAS DEEP BUSINESS INTERESTS AND UNDER BUSINESS EXPEDIEN CY, IT HAS INVESTED VARIOUS AMOUNTS IN SHARES OF GROUP COMPANIES. IN OU R CONSIDERED OPINION, THESE INVESTMENTS ARE STRATEGIC INVESTMENT S MADE FOR FURTHERANCE OF BUSINESS OF ITS SISTER CONCERN. 26. AS MENTIONED ELSEWHERE, APART FROM THE INVESTME NTS IN BAJAJ CORP LTD AND BAJAJ HINDUSTAN, ALL OTHER INVESTMENTS ARE UNQUOTED INVESTMENTS AND ANY APPRECIATION IN THE VALUE OF SH ARES AT THE TIME OF SALE WOULD BE TAXABLE. 11 27. WE FIND THAT THE ASSESSEE HAS SUBMITTED DETAILS OF EACH AND EVERY ITEM OF EXPENDITURE AND HAS SPECIFICALLY POIN TED OUT THAT NONE OF THE SAME IS INCURRED FOR THE PURPOSE OF EARNING EXE MPT INCOME. IT WAS BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER THAT THE DIRECTORS OF THE COMPANY ARE ALSO EMPLOYEES OF THE SISTER CONCERN, W HO DO NOT DRAW ANY REMUNERATION FROM THE COMPANY AND TAKE CARE OF ENTIRE INVESTMENT WORK. NO ERROR OR INFIRMITY HAS BEEN POI NTED OUT BY THE ASSESSING OFFICER WHO HAS SIMPLY COMPUTED THE DISAL LOWANCES AS PER FORMULA GIVEN IN RULE 8D. IN OUR CONSIDERED VIEW, S UCH MECHANICAL APPROACH OF THE ASSESSING OFFICER HAS NO LEGS TO ST AND ON. WE, THEREFORE, DECLINE TO INTERFERE WITH THE FINDINGS O F THE LD. CITA. 28. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO. 4018/DEL/2018 IS DISMISSED. 12. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 24.09 .2021. SD/- SD/- [SUDHANSHU SRIVASTAVA ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 24 TH SEPTEMBER, 2021 VL/ 12 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER