ALLIED DIGITAL SERVICES LTD., MUMBAI V. DCIT, CC- 1(3), MUMBAI

ITA 4232/MUM/2017

• Counselvise Citation: [2019] 114 COUNSELVISE.COM (IT) 6120 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 08-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATISH CHANDRA RAJORE
• Assessee Lawyers: RISHABH S HAH
• Keywords: Bogus purchase; Capital asset; Depreciation; Rule of consistency; Earning of tax free income; Accommodation entries; Rule 8D; Set aside
• Section: 133A; 14A; 115JB; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A, MUMBAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.4232/M/2017 ASSESSMENT YEAR: 2012-13 M/S. ALLIED DIGITAL SERVICES LTD., 13-A, 13 TH FLOOR, EARNEST HOUSE, BACKBAY RECLAMATION, NARIMAN POINT, MUMBAI 400 021 PAN: AAACA5509K VS. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(3), AAYAKAR BHAVAN, MUMBAI - 400020 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI RISHABH SHAH, A.R. REVENUE BY : SHRI SATISHCHANDRA RAJORE, D.R. DATE OF HEARING : 15.07.2019 DATE OF PRONOUNCEMENT : 11.10.2019 O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-47, MUM BAI DATED 28.02.2017 AND IT PERTAINS TO ASSESSMENT YEAR 2012- 13. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LEARNED ASSESSING OFFICER IN MAKING AN ADDITION ON ACCOUNT OF DISALLOWANCE OF CLAIM OF DEPRECIATION AM OUNTING TO RS.2,13,83,915/- TO THE BOOK PROFITS U/S 115JB OF THE INCOME TAX ACT, 1 961, WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LEARNED ASSES SING OFFICER IN MAKING DISALLOWANCE U/S 14A OF THE INCOME TAX ACT,1961 AS PER RULE 8D, WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CAS E. 2 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS W ELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED A SSESSING OFFICER IN MAKING AN ADDITION OF THE DISALLOWANCE MADE U/S 14A AS PER RU LE 8D, TO THE BOOK PROFITS U/S 115JB OF THE INCOME TAX ACT, WITHOUT APPRECIATING T HE FACTS ST CIRCUMSTANCES OF THE CASE. 4) THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE THE SAID GROUND OF APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF INFORMATION TECHNOLOGY SOLUTIONS AND INFORMATION TECHNOLOGY INFRASTRUCTURE MANAGEMENT SE RVICES, PROVIDING WIDE SPECTRUM OF TECHNOLOGY SOLUTIONS AND SERVICES TO A DIVERSE CUSTOMER BASE, FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2012-13 ON 26.09.2012 DECLARING TOT AL LOSS OF RS.4,51,73,600/- UNDER NORMAL PROVISIONS OF THE ACT , 1961 AND BOOK PROFIT OF RS.13,82,07,587/- UNDER SECTION 115J B OF THE INCOME TAX ACT, 1961. THE CASE WAS SELECTED FOR SC RUTINY AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT A SURVEY ACTION UNDER SECTION 133A OF T HE INCOME TAX ACT, 1961 WAS CONDUCTED ON 24.02.2012 ON THE BA SIS OF INFORMATION RECEIVED FROM SALES TAX DEPARTMENT THAT THE ASSESSEE IS ONE OF THE BENEFICIARY OF ACCOMMODATION ENTRIES OF BOGUS PURCHASE BILLS AGGREGATING TO RS.96,93,87,572 /- FROM 10 PARTIES LISTED IN PARA 5(I) OF IMPUGNED ASSESSMENT ORDER. IT WAS FURTHER NOTICED THAT DURING THE COURSE OF SURVEY, I T WAS FOUND THAT PURCHASES TOTALING TO RS.9,39,60,854/- FROM OT HER THREE CONCERNS LISTED IN PARA 5(II) OF IMPUGNED ASSESSMEN T ORDER DID NOT HAVE SUPPORTING DOCUMENTS. THUS, TOTAL PURCHASE OF RS.106,33,48,426/- WERE DETECTED. DURING THE COURS E OF SURVEY, STATEMENT OF SHRI PRAKASH DHANJI SHAH, MD OF THE CO MPANY WAS RECORDED UNDER SECTION 131 OF THE ACT, AND IN REPLY TO THE DISCREPANCIES FOUND DURING THE COURSE OF SEARCH AND SURVEY, HE 3 STATED THAT OUT OF TOTAL PURCHASES OF RS.106.33 CRO RES, AS AGAINST THE PURCHASE OF RS.95,92,57,266/- THE COMPANY HAD S HOWN SALES OF RS.99,97,98,004/- AND OFFERED GROSS PROFIT OF RS.4,05,40,738/- FOR F.Y. 2009-10 TO 2011-12. IN R ESPECT OF BALANCE PURCHASE AGGREGATING TO RS.10,41,15,160/-, IT WAS STATED THAT SAME HAS BEEN DEBITED TO THE CAPITAL AC COUNT ON WHICH DEPRECIATION CLAIM OF RS.8.8 CRORES WAS MADE FOR A.Y. 2007-08 TO 2012-13. CONSEQUENT TO SURVEY, THE ASSE SSEE HAD FURNISHED REVISED STATEMENT OF TOTAL INCOME VIDE LE TTER DATED NIL FILED ON 10.01.2013 AND WITHDRAWN THE CLAIM OF DEPR ECIATION ON BOGUS CAPITAL ACCOUNT PURCHASES. HOWEVER, ON PERUSA L OF RECORDS IT IS REVEALED THAT THE ASSESSEE HAD NOT RE VERSED THE CLAIM OF DEPRECIATION IN THE FINANCIAL STATEMENTS. THEREFORE, THE AO HAS DISALLOWED THE SUM OF RS.2,13,83,915/- TOWAR DS DEPRECIATION CLAIMED FOR THE YEAR ON PURCHASE OF CO MPUTERS AS PER THE WORKING TABULATED ON PAGE 5 OF ASSESSMENT O RDER AND WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE UNDER NORMAL PROVISIONS OF THE ACT AS WELL AS BOOK PROFIT S UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961. SIMILAR LY, THE AO HAS MADE ADDITIONS TOWARDS DISALLOWANCE OF EXPENDIT URE INCURRED IN RELATION TO EXEMPT INCOME UNDER SECTION 14A BY INVOKING PROVISIONS OF RULE 8D AND DETERMINED TOTAL DISALLOWANCE OF RS.77,41,478/- AND SIMILAR ADJUSTMENT HAS BEEN M ADE TO BOOK PROFIT COMPUTED UNDER SECTION 115JB OF THE INC OME TAX ACT, 1961. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A). BEFORE THE LD. CIT(A ), THE ASSESSEE CONTENDED THAT AS PER PROVISIONS OF SECTION 115JB, ONLY SUCH ITEMS WHICH ARE SPECIFICALLY MENTIONED IN THE EXPLA NATION (1) TO 4 SECTION 115JB CAN BE ADDED BACK TO THE BOOK PROFITS AND NO OTHER ADDITIONS CAN BE MADE BY THE AO, ONCE BOOK OF ACCOUNTS ARE AUDITED AND APPROVED BY THE SHAREHOLDERS IN THE ANNUAL GENERAL MEETING. IN THIS REGARD, THE ASSESSEE RELI ED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF AP OLLO TYRES LTD. VS. CIT 255 ITR 273. AS REGARDS, DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME I T WAS SUBMITTED THAT ITS OWN FUNDS IN FORM OF SHARE CAPIT AL AS WELL AS RESERVES ARE IN EXCESS OF INVESTMENTS MADE IN SHARE S, WHICH YIELD EXEMPT INCOME AND ACCORDINGLY, NO DISALLOWANC E CAN BE MADE IN RESPECT OF INTEREST DISALLOWANCES. IN THIS REGARD, THE ASSESSEE HAS RELIED UPON THE DECISION OF HONBLE BO MBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM). THE ASSESSEE HAS ALSO CHA LLENGED ADDITIONS MADE BY THE AO TO BOOK PROFIT COMPUTED UN DER SECTION 115JB IN RESPECT OF AMOUNT DISALLOWED UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. 5. THE LD. CIT(A) AFTER CONSIDERING THE RELEVANT SU BMISSIONS OF THE ASSESSEE AND ALSO BY RELYING UPON CERTAIN JU DICIAL PROCEEDINGS INCLUDING THE DECISION OF ITAT SPECIAL BENCH, IN THE CASE OF RAIN COMMODITIES LTD. VS. DCIT 40 SOT 265 HE LD THAT IT IS A SETTLED POSITION OF LAW THAT THE AO HAS THE PO WER TO ALTER OR REWRITE THE NET PROFIT AS PER PROFIT & LOSS ACCOUNT , IN CASE IT IS FOUND THAT PROFIT & LOSS ACCOUNT IS NOT PREPARED IN ACCORDANCE WITH PARTS II & III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 AND IF ACCOUNTING POLICIES AND ACCOUNTING STANDARDS ARE NOT ADOPTED FOR PREPARING SUCH ACCOUNTS AND METHOD OR RATE OF D EPRECIATION HAVE BEEN INCORRECTLY ADOPTED FOR PREPARATION OF PR OFIT & LOSS ACCOUNT LAID BEFORE THE AGM. THEREFORE, HE OPINED THAT MERELY 5 FOR THE REASON THAT ACCOUNTS HAVE BEEN AUDITED AND APPROVED BY THE AGM, FALSIFICATION ACCOUNT IN FROM OF BOGUS CLA IM OF DEPRECIATION CANNOT BE ACCEPTED. HE, FURTHER, OBSE RVED THAT IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS ACCEPTED CAP ITALIZATION OF BOGUS PURCHASE OF ASSETS/COMPUTERS AND RAISING FITI CIOUS CLAIM OF DEPRECIATION AND HENCE, BY NO STRETCH OF IMAGINA TION IT CAN BE SAID THAT ACCOUNTS PREPARED AND APPROVED IN THE AGM ARE IN CONSONANCE WITH THE ACCOUNTING POLICIES AND IN CONF ORMITY WITH APPLICABLE MANDATORY ACCOUNTING STANDARDS. SINCE, T HE ASSESSEES ACCOUNTS ARE NOT IN ACCORDANCE WITH PART II & III OF SCHEDULE VI TO THE COMPANIES ACT, 1956, THE AO HAS EVERY RIGHT TO RECOMPUTE BOOK PROFIT UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961, ACCORDINGLY, REJECTED THE GROUND TAKEN B Y THE ASSESSEE. IN SO FAR AS ADDITIONS MADE BY THE AO TOW ARDS DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME, THE LD. CIT(A) REJECTED THE ARGUMENTS OF TH E ASSESSEE IN RESPECT OF EXCLUSION OF INVESTMENT IN SUBSIDIARY CO MPANIES FOR STRATEGIC PURPOSE IN LIGHT OF THE DECISION OF HONB LE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT VS. CIT 347 ITR 372. HOWEVER, HE FOUND MERIT IN THE PLEA TAKEN BY THE AS SESSEE THAT INVESTMENT MADE IN FOREIGN SUBSIDIARIES IS TO BE EX CLUDED WHILE COMPUTING DISALLOWANCE UNDER SECTION 14A OF THE ACT , BECAUSE THE DIVIDEND INCOME FROM THE FOREIGN COMPANIES IS T AXABLE, ACCORDINGLY, SET ASIDE THE ISSUE TO THE FILE OF THE AO AND DIRECTED HIM TO VERIFY WORKING OF DISALLOWANCES UNDER SECTIO N 14A READ WITH RULE 8D FURNISHED BY THE ASSESSEE AND MAKE SUI TABLE ADJUSTMENTS. AS REGARDS RE-COMPUTATION OF BOOK PRO FIT UNDER SECTION 115JB BY ADDING THE AMOUNT OF DISALLOWANCE MADE UNDER SECTION 14A READ WITH RULE 8D, THE LD. CIT(A) HAS DIRECTED 6 THE AO TO ASCERTAIN QUANTUM DISALLOWANCES UNDER SEC TION 14A AND ALSO MAKE RECOMPUTATION OF BOOK PROFIT BY ADDIN G REVISED AMOUNT OF DISALLOWANCES UNDER SECTION 14A READ WITH RULE 8D IN ACCORDANCE WITH CLAUSE (F) OF EXPLANATION (1) TO SE CTION 115JB OF THE INCOME TAX ACT, 1961. 6. AGGRIEVED BY THE LD. CIT(A)S ORDER, THE ASSESSE E IS IN APPEAL BEFORE US. 7. THE FIRST ISSUE THAT CAME UP FOR RECONSIDERATION FROM GROUND NO.1 OF ASSESSEES APPEAL IS ADDITIONS MADE TOWARDS DISALLOWANCE OF DEPRECIATION ON FIXED ASSETS TO THE BOOK PROFITS COMPUTED UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961. THE LD. A.R. SUBMITTED THAT THE LD. CIT(A) CONFIRME D ADDITIONS MADE BY THE AO, WITHOUT APPRECIATING THE FACT THAT ONCE BOOKS OF ACCOUNTS ARE AUDITED AND APPROVED BY THE SHAREHO LDERS IN THE AGM, THE AO DOES NOT HAVE POWER TO ALTER OR RECOMPU TE BOOK PROFIT AS PER PROFIT & LOSS ACCOUNT, UNLESS OTHERWI SE ADDITIONS/DELETIONS AS PROVIDED UNDER EXPLANATION ( 1) OF SECTION 115JB OF THE INCOME TAX ACT, 1961. THE LD. A.R. FU RTHER SUBMITTED THAT IT IS A FACT THAT THE ASSESSEE HAS F ILED REVISED STATEMENT OF TOTAL INCOME WITHDRAWING ITS CLAIM OF DEPRECIATION ON FIXED ASSETS DURING THE COURSE OF SURVEY, HOWEVE R, NOT REVISED ITS PROFIT & LOSS ACCOUNT WITHDRAWING SAID CLAIM, B ECAUSE THE BOOKS OF ACCOUNTS OF THE ASSESSEE HAVE BEEN AUDITED AND APPROVED BY THE SHAREHOLDERS IN THE AGM WITHOUT ANY ADVERSE COMMENTS ON PREPARATION OF FINANCIAL STATEMENTS, TH EREFORE, UNLESS IT IS EXPRESSLY PROVIDED UNDER EXPLANATION ( 1) OF SECTION 115JB, NO OTHER ADDITIONS CAN BE MADE BY THE AO UND ER SECTION 115JB OF THE INCOME TAX ACT, 1961. IN THIS REGARD, RE RELIED 7 UPON THE DECISION OF HONBLE SUPREME COURT IN THE C ASE OF APOLLO TYRES LTD. VS. CIT 255 ITR 273. 8. THE LD. D.R., ON THE OTHER HAND, STRONGLY SUPPOR TED THE ORDER OF THE LD. CIT(A). THE LD. D.R. FURTHER SUBM ITTED THAT WHEN ASSESSEE ITSELF ADMITTED THE FACT OF BOGUS CLA IM OF DEPRECIATION ON CAPITAL ASSETS IT OUGHT TO HAVE REV ISED ITS PROFIT & LOSS ACCOUNT TO REVERSE SAID DEPRECIATION. SINCE THE ASSESSEE HAS NOT REVISED BOGUS DEPRECIATION ON FIXED ASSETS, THE AO IS HAVING EVERY RIGHT TO REVISE SAID PROFIT & LOSS ACC OUNT, BECAUSE PROFIT & LOSS ACCOUNT PREPARED BY THE ASSESSEE IS N OT IN ACCORDANCE WITH PART II & III OF SCHEDULE VI TO THE COMPANIES ACT, 1956. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND AL SO GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS AN ADMITTED FACT THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE HAV E BEEN AUDITED AND APPROVED BY THE SHAREHOLDERS IN THE AGM WITHOUT ANY ADVERSE COMMENTS ON PREPARATION OF FINANCIAL ST ATEMENTS INCLUDING PROFIT & LOSS ACCOUNT IN LIGHT OF PART II & III OF SCHEDULE VI TO THE COMPANIES ACT, 1956. IT IS ALSO AN ADMIT TED FACT THAT AS PER THE RATIO LAID DOWN BY HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT (SUPRA) THE POWER OF T HE AO WHILE COMPUTING THE INCOME UNDER SECTION 115JB IS LIMITED TO THE EXTENT OF MAKING ADJUSTMENTS AS PROVIDED UNDER EXPL ANATION (1) TO SECTION 115JB OF THE INCOME TAX ACT, 1961. IN, T HIS LEGAL BACKGROUND, IF WE EXAMINE THE CASE OF THE ASSESSEE WHETHER THE AO IS RIGHT IN RECOMPUTATION OF BOOK PROFIT UNDER S ECTION 115JB BY ADDING DEPRECIATION CLAIMED ON ALLEGED BOGUS FIX ED ASSETS, WE 8 FIND THAT THE AO HAS MADE ADJUSTMENT TOWARDS DEPREC IATION ON ALLEGED BOGUS FIXED ASSETS WITHOUT MAKING ANY OBSER VATIONS AS TO INCORRECTNESS IN BOOKS OF ACCOUNTS PREPARED BY T HE ASSESSEE AS PER PART II & III OF SCHEDULE VI TO THE COMPANIE S ACT, 1956. UNLESS OTHERWISE, THE AO MAKES OUT A CASE OF INCONS ISTENCY IN FINANCIAL STATEMENT PREPARED BY THE ASSESSEE IN LIG HT OF PART II & III OF SCHEDULE VI TO THE COMPANIES ACT, 1956, HE C ANNOT MAKE ANY ADDITIONS TO THE BOOK PROFIT COMPUTED UNDER SEC TION 115JB OF THE INCOME TAX ACT, 1961, OTHER THAN AS PROVIDED UNDER EXPLANATION (1) TO SECTION 115JB OF THE INCOME TAX ACT, 1961. THIS LEGAL PROPOSITION IS SUPPORTED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT (SUPRA) WHEREIN IT WAS CATEGORICALLY HELD THAT THE AO HAS O NLY THE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNTS ARE CERT IFIED BY THE AUTHORITIES UNDER THE COMPANIES ACT, AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. O NCE BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED IN ACCORDANCE WITH COMPANIES ACT, 1956, THEN THE POWER OF THE AO IS LI MITED TO THE EXTENT OF MAKING ADDITIONS/DELETIONS AS PROVIDED IN EXPLANATION (1) TO SECTION 115JB OF THE INCOME TAX ACT, 1961. SINCE, THE BOOKS OF ACCOUNTS OF THE ASSESSEE HAVE BEEN AUDITED AND ALSO HAVE BEEN APPROVED IN AGM, THE AO CANNOT ALTER BOOK PROFIT FOR ANY ITEMS OTHER THAN AS PROVIDED AS IN EXPLANATION (1) TO SECTION 115JB OF THE INCOME TAX ACT, 1961. FURTHER, THE AO HAS ACCEPTED THE CLAIM OF THE ASSESSEE IN PRECEDING FIN ANCIAL YEARS WHEN THE ASSESSEE HAS CLAIMED DEPRECIATION ON ALLEG ED BOGUS FIXED ASSETS WITHOUT ANY ADJUSTMENT TO BOOK PROFIT. ONCE THE CLAIM OF THE ASSESSEE HAS BEEN ACCEPTED IN EARLIER FINANCIAL YEARS, THEN THERE IS NO REASON FOR THE AO TO DISTUR B THE SETTLED 9 POSITION UNLESS OTHERWISE THERE IS A COMPLETE CHANG E IN FACTS FOR THE YEAR UNDER CONSIDERATION. ALTHOUGH, RESADJUDIC ATA IS NOT STRICTLY APPLICABLE TO INCOME TAX PROCEEDINGS, BUT RULE OF CONSISTENCY IS TO BE FOLLOWED AS HELD BY THE HONBL E SUPREME COURT IN THE CASE OF CIT VS. RADHASOAMI SATHSUNG VS CIT (1992) 193 ITR 321(SC), WHEREIN IT WAS HELD THAT RULE OF C ONSISTENCY HAS TO BE FOLLOWED IN INCOME TAX PROCEEDINGS EVEN T HOUGH RES- ADJUDICATA IS NOT STRICTLY APPLICABLE. THEREFORE, W E ARE OF THE CONSIDERED VIEW THAT THE AO AS WELL AS LD. CIT(A) W ERE ERRED IN MAKING ADDITIONS TOWARDS DEPRECIATION ON ALLEGED FI XED ASSETS TO BOOK PROFIT COMPUTED UNDER SECTION 115JB OF THE INC OME TAX ACT, 1961. ACCORDINGLY, WE DIRECT THE AO TO DELETE ADDITIONS MADE TO BOOK PROFIT UNDER SECTION 115JB TOWARDS DEP RECIATION CLAIM ON FIXED ASSETS. 10. THE NEXT ISSUE THAT CAME UP FOR CONSIDERATION F ROM GROUND NO.2 AND 3 OF ASSESSEES APPEAL IS ADDITIONS MADE T OWARDS DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME UNDER SECTION 14A READ WITH RULE 8D OF INCOM E TAX RULES, 1962 AND CONSEQUENT ADDITIONS MADE TO BOOK P ROFIT COMPUTED UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961. THE FACTS WITH REGARD TO IMPUGNED DISPUTE ARE THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.92,29,697/-, BUT N OT MADE DISALLOWANCES OF EXPENDITURE INCURRED IN RELATION T O SAID EXEMPT INCOME UNDER SECTION 14A OF THE INCOME TAX ACT, 196 1. THEREFORE, THE AO HAD DETERMINED DISALLOWANCES CONT EMPLATED UNDER SECTION 14A BY INVOKING RULE 8D AND DETERMINE D TOTAL DISALLOWANCE OF RS.77,41,478/- UNDER RULE 8D(2)(I), (II) & (III) OF IT RULES, 1962. IT WAS THE CONTENTION OF THE ASSES SEE BEFORE THE AO THAT IT HAS NOT INCURRED ANY EXPENDITURE IN RELA TION TO 10 EXEMPT INCOME AND HENCE, NO DISALLOWANCE CAN BE MAD E UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. THE ASSES SEE HAD ALSO TAKEN ANOTHER ARGUMENT IN LIGHT OF CERTAIN JUDICIAL PRECEDENTS AND ARGUED THAT OWN FUNDS IN FORM OF SHARE CAPITAL AND RESERVES IS IN EXCESS OF INVESTMENTS IN SHARES AND SECURITIE S WHICH YIELD EXEMPT INCOME AND HENCE NO DISALLOWANCE CAN BE MADE TOWARDS INTEREST EXPENDITURE UNDER RULE 8D(II) OF IT RULES, 1962. SIMILARLY, THE ASSESSEE HAD ALSO CHALLENGED THE ACT ION OF THE AO IN DISALLOWANCE OF OTHER EXPENSES UNDER RULE 8D2(II I) ON THE GROUND THAT INVESTMENTS MADE IN SUBSIDIARY COMPANIE S FOR STRATEGIC CONTROL AND INVESTMENTS MADE IN FOREIGN S UBSIDIARIES HAS TO BE EXCLUDED TO DETERMINE AVERAGE VALUE OF IN VESTMENTS. THE LD. CIT(A) AFTER CONSIDERING RELEVANT SUBMISSIO NS OF THE ASSESSEE REJECTED THE CLAIM OF THE ASSESSEE REGARDI NG INVESTMENT IN SUBSIDIARY FOR STRATEGIC CONTROL IN LIGHT OF THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVE STMENT VS. CIT 347 ITR 372. HOWEVER, HE HAD ACCEPTED THE CLAI M OF THE ASSESSEE IN SO FAR AS INVESTMENTS MADE IN FOREIGN S UBSIDIARIES, BECAUSE DIVIDEND INCOME FROM FOREIGN COMPANIES IS T AXABLE UNDER THE INCOME TAX ACT, 1961. ACCORDINGLY, SET AS IDE THE ISSUE TO THE FILE OF THE AO AND DIRECTED HIM TO CONSIDER WORKING OF DISALLOWANCES FURNISHED BY THE ASSESSEE AND RECOMPU TE THE DISALLOWANCES UNDER SECTION 14A OF THE INCOME TAX A CT, 1961. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND GO NE THROUGH THE ORDER OF AUTHORITIES BELOW. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME AND CLAIMED EXE MPT UNDER SECTION 10(38) OF THE INCOME TAX ACT, 1961. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE HAS NOT MADE SUO-MO TO 11 DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. THE AO HAS DETERMINED DISALLOWANCE OF EXPE NDITURE BY INVOKING RULE 8D(2) OF IT RULES, 1962 ON THE GROUND THAT DISALLOWANCES CONTEMPLATED UNDER SECTION 14A SHALL BE DETERMINED IN ACCORDANCE WITH RULE 8D OF IT RULES, 1962 W.E.F. ASSESSMENT YEAR 2008-09. WE FIND THAT AS PER PROVIS IONS OF SECTION 14A OF THE ACT, DISALLOWANCE HAS TO BE DETE RMINED IN ACCORDANCE WITH RULE 8D FROM ASSESSMENT YEAR 2008-0 9 ONWARDS. THIS POSITION HAS BEEN APPROVED BY THE HO NBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT [(2010) 328 ITR 81 (BOM)] WHEREIN IT HAS BEEN CATEGORICALLY HELD THAT SECTION 14A AND RULE 8D ARE APPLICABLE IN CASE OF A COMPOSITE BUSINESS A ND ALSO THAT THE NUMBER OF APPORTIONMENTS OF EXPENSES IS VERY MU CH INBUILT IN THE PROVISIONS OF RULE 8D OF IT RULES, 1962. TH E HONBLE SUPREME COURT HAS APPROVED THE ABOVE LEGAL POSITION IN THE CASE OF MAXOPP INVESTMENT VS. CIT 347 ITR 372. THEREFOR E, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERROR IN THE F INDING OF THE AO IN APPLYING RULE 8D FOR DETERMINATION OF DISALLO WANCES OF EXPENDITURE UNDER SECTION 14A OF THE INCOME TAX ACT , 1961. 12. HAVING SAID SO, LET US EXAMINE THE CLAIM OF THE ASSESSEE IN LIGHT OF CERTAIN JUDICIAL PRECEDENTS INCLUDING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT OF BOMBAY. THE HO NBLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM), HAD CONSIDERED THE ISSUE AND HELD THAT WHEN MIXED FUNDS INCLUDING OWN AND BO RROWED FUNDS ARE IN EXCESS OF AMOUNT OF INVESTMENTS IN SHA RES AND SECURITIES WHICH YIELD EXEMPT INCOME, THEN A GENERA L 12 PRESUMPTION GOES IN FAVOUR OF THE ASSESSEE THAT INV ESTMENTS IN SHARES AND SECURITIES WHICH YIELDED EXEMPT INCOME I S OUT OF OWN FUNDS. THE ASSESSEE CLAIMS THAT IT HAS OWN FUNDS IN FORM OF SHARE CAPITAL AND RESERVES TO THE EXTENT OF 664.29 CRORES, WHEREAS ITS INVESTMENTS IN SHARES AND SECURITIES IS AT RS.144.96 CRORES. THEREFORE, NO DISALLOWANCE COULD BE MADE I N RESPECT OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II) OF IT RUL ES, 1962. THIS POINT NEEDS VERIFICATION FROM THE AO, BECAUSE THE A SSESSEE HAS TAKEN THIS PLEA FOR FIRST TIME BEFORE THE TRIBUNAL. IN SO FAR AS INVESTMENTS IN SUBSIDIARIES FOR STRATEGIC CONTROL, WE FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTM ENT VS. CIT 347 ITR 372 HAD REJECTED THE ARGUMENTS OF THE A SSESSEE FOR INVESTMENTS IN SUBSIDIARIES/GROUP COMPANIES FOR STR ATEGIC PURPOSE AND HELD THAT THE MOMENT EXEMPT INCOME IS R ECEIVED PROVISIONS OF SECTION 14A ARE APPLICABLE. THEREFORE , EVEN IF INVESTMENTS ARE MADE IN SUBSIDIARY COMPANIES FOR ST RATEGIC CONTROL, THE PROVISIONS OF SECTION 14A ARE APPLICAB LE AND CONSEQUENT DISALLOWANCES OF EXPENSES SHALL BE DETER MINED IN ACCORDANCE WITH RULE 8D OF IT RULES, 1962. THEREFO RE, WE REJECT THE ARGUMENTS OF THE ASSESSEE. IN SO FAR AS INVEST MENTS IN FOREIGN SUBSIDIARIES, WE FIND THAT THE LD. CIT(A) H AS RECORDED CATEGORICAL FINDING THAT INVESTMENTS IN FOREIGN SUB SIDIARIES NEEDS TO BE EXCLUDED, BECAUSE DIVIDEND FROM FOREIGN COMPANIES IS TAXABLE UNDER INCOME TAX ACT, 1961. SIMILARLY, THE LD. CIT(A) HAS DIRECTED THE AO TO EXCLUDE INVESTMENTS IN MUTUA L FUNDS, BECAUSE DIVIDEND FROM MUTUAL FUNDS AND LONG TERM CA PITAL GAINS ON REDEMPTION OF UNITS IN RESPECT OF DEBT ORIENTED FUNDS IS CHARGEABLE TO TAX. FURTHER, THE CIT(A) HAS SET ASI DE THE ISSUE TO THE FILE OF THE AO AND DIRECTED HIM TO CONSIDER WOR KING 13 FURNISHED BY THE ASSESSEE DETERMINING THE DISALLOWA NCES UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. THEREFORE , WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE NEEDS TO GO BACK TO THE FILE OF THE AO TO DECIDE AFRESH IN LIGHT OF OUR DISCUSSIONS GIVEN HEREINABOVE. HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO AND DIRECT HIM TO RECOMPUTE DISALLOWANCES CONTEMPLA TED UNDER SECTION 14A IN ACCORDANCE WITH LAW IN TERMS OF OUR OBSERVATIONS GIVEN HEREINABOVE. 13. COMING TO THE RECOMPUTATION OF BOOK PROFIT UNDE R SECTION 115JB IN RESPECT OF DISALLOWANCE OF EXPENDITURE UND ER SECTION 14A OF THE INCOME TAX ACT, 1961. WE FIND THAT THIS ISSUE HAS BEEN COVERED IN FAVOUR OF THE ASSESSEE BY THE DECIS ION OF THE ITAT SPECIAL BENCH DELHI IN THE CASE OF ACIT VS. VIR EET INVESTMENTS PVT. LTD. (2017) 82 TAXMANN.COM 450 (DE LHI-TRIB.) WHEREIN IT WAS HELD THAT COMPUTATION UNDER CLAUSE ( F) OF EXPLANATION (1) TO SECTION 115JB(2) IS TO BE MADE W ITHOUT RESORTING TO COMPUTATION AS CONTEMPLATED UNDER SECT ION 14A READ WITH RULE 8D OF IT RULES, 1962. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS ERRED IN MAKING ADD ITIONS TOWARDS BOOK PROFIT UNDER SECTION 115JB IN RESPECT OF DISALLOWANCES OF EXPENDITURE UNDER SECTION 14A BY I NVOKING RULE 8D OF IT RULES, 1962. HENCE, WE DIRECT THE AO TO D ELETE THE ADDITIONS MADE TOWARDS BOOK PROFIT COMPUTED UNDER S ECTION 115JB IN RESPECT OF DISALLOWANCE OF EXPENDITURE UND ER SECTION 14A OF THE INCOME TAX ACT, 1961. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 14 ORDER PRONOUNCED IN THE OPEN COURT ON 11.10.2019. SD/- SD/- (RAM LAL NEGI) (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 11 .10.2019. * KISHORE, SR. P.S . COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDE R DY/ASSTT. REGISTRAR, ITAT, MUMBAI.