DCIT, New Delhi V. M/s. Ranbaxy Holding Co., New Delhi

ITA 4287/DEL/2010

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7118 (ITAT-DELHI)
• Duration Of Justice: 9 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 16-05-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 17-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Earning of tax free income; Capital expenditure; Rule 8D
• Section: 271(1)(c); 143(3); 14A; 192; 13; 263; 154

Judgement Text

1 ITA NOS. 3965/DEL/2010, 4287/DEL/2010 & 495/DEL/2013 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SH. ANIL CHATURVEDI, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JU DICIAL MEMBER ITA NO. 3965/DEL/2010 ( A.Y 2007-08) AND ITA NO. 495/DEL/2013 ( A.Y 2007-08) RANBAXY HOLDING COMPANY 55, HANUMAN ROAD CONNAUGHT PLACE NEW DELHI AAKCS7686P (APPELLANT) VS DCIT CIRCLE-15(1) NEW DELHI (RESPONDENT) AND ITA NO. 4287/DEL/2010 (A.Y 2007-08) DCIT CIRCLE-15(1) NEW DELHI (APPELLANT) VS RANBAXY HOLDING COMPANY 55, HANUMAN ROAD CONNAUGHT PLACE NEW DELHI AAKCS7686P (RESPONDENT) APPELLANT BY SH. TARANDEEP SINGH, RESPONDENT BY SMT. SUSHMA SINGH, CIT(A), DR, SH. MRITUNJAY BARNWAL, SR DR ORDER PER SUCHITRA KAMBLE, JM THESE THREE APPEALS ARE FILED BY THE ASSESSEE AND T HE REVENUE AGAINST THE ORDER DATED 28/06/2010 AND ORDER DATED 06.11.20 12 PASSED BY CIT(A)- XVIII, NEW DELHI FOR ASSESSMENT YEAR 2007-08. DATE OF HEARING 24.06.2020 DATE OF PRONOUNCEMENT 07.09.2020 2 ITA NOS. 3965/DEL/2010, 4287/DEL/2010 & 495/DEL/2013 2. THE GROUNDS OF APPEAL ARE AS UNDER:- ITA NO. 3965/DEL/2010 (ASSESSEES APPEAL) (A.Y 2007 -08) 1.1 THAT THE LD.CIT(A) HAS ERRED IN UPHOLDING DISALLOWA NCE AMOUNTING TO RS.3,36,37,563 MADE BY THE ASSESSING OFFICER (AO) O N ACCOUNT OF ADMINISTRATIVE, PERSONNEL AND FINANCIAL EXPENSES AS PER RULE 8D OF THE INCOME TAX RULES (CALCULATED @ 0.5% OF AVERAGE VALU E OF INVESTMENTS) OVER AND ABOVE THE TOTAL DISALLOWANCE OF RS.2,31,16,023 (OUT OF FINANCIAL EXPENSES - RS.1,95,26,109 AND OUT OF ADMINISTRATIVE & PERSONNEL EXPENSES - RS.35,89,914) SUO MOTO MADE BY THE APPELLANT COMPAN Y IN ITS RETURN OF INCOME WITHOUT CONSIDERING THE REASONABILITY AND BA SIS OF ADDITION MADE BY THE APPELLANT COMPANY. 1.2 THAT THE LD.CIT(A) HAS ERRED IN NOT CONSIDERING TH E CONTENTION OF THE APPELLANT COMPANY THAT ADDITION IN TERMS OF RULE 8D CAN BE MADE ONLY IF THE AO WAS NOT SATISFIED AS REGARDS THE AMOUNT SUO MOTO ADDED BY THE APPELLANT COMPANY ON ACCOUNT OF EXPENDITURE RELATABLE TO THE EXEMPT INCOME. 1.3 THAT THE LD.CIT(A) HAS ERRED IN UPHOLDING THE AFORE SAID DISALLOWANCE BY NOT CONSIDERING THAT SOME PORTION OUT OF THE TOTAL ADMINISTRATIVE, PERSONNEL AND FINANCIAL EXPENSES WOULD ALSO HAVE BEEN INCURRE D FOR OTHER ACTIVITIES VIZ. FINANCING ON WHICH THE APPELLANT HAS EARNED AN INTE REST INCOME OF RS.53.09 CRS. 2. THAT ON FACTS AND IN LAW THE LD.CIT(A) HAS ERRED IN UPHOLDING THE APPLICATION OF THE PROVISIONS OF RULE 8D(2) OF THE INCOME TAX RULES, 1962 BY THE ASSESSING OFFICER, INSERTED BY IT (FIFTH AMDT.) RULES 2008, W.E.F. 24.03.2008 IN THE CASE OF THE APPELLANT FOR THE ASS ESSMENT YEAR 2007-08. ITA NO. 4287/DEL/2010 (REVENUES APPEAL) (A.Y 2007- 08) 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITIONAL DISALLOWANCE O F RS.23,08,14,127/- MADE BY THE AO U/S 14A OF THE ACT. 3 ITA NOS. 3965/DEL/2010, 4287/DEL/2010 & 495/DEL/2013 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT SUB-SECTION (2) & (3) OF SECTION 14A WERE INSERTED BY THE FINANCE ACT, 2006, W.E.F. 1.4.2007 AND PROVIDE FOR THE DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, BY THE AO AND HE HAS FURTHER FAILED TO APPRECIATE THE FACT THAT THE AO HAS RIGHTLY APPLIED RULE 8D(2)(II) AS ENVISAGED U/S 14A(2) OF T HE ACT FOR COMPUTING THE AMOUNT OF EXPENDITURE INCURRED BY THE ASSESSEE IN R ELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME INSTEA D OF RULE 8D(2)(I) AS APPLIED BY THE ASSESSEE. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.4,80,25,00 6/- U/S 43A OF THE ACT DESPITE THE FACT THAT THE FOREIGN CURRENCY LOANS IN RESPECT OF WHICH FOREIGN EXCHANGE GAINS OR LOSSES WERE CLAIMED, WERE RAISED BY THE ASSESSEE, FOR THE PURPOSE OF INVESTING IN SHARES WHICH WERE CAPITAL A SSETS IN THE HAND OF THE COMPANY IN THE RELEVANT YEARS, WHEN THE LOAN WERE R AISED. ITA NO. 495/DEL/2013 (ASSESSEES APPEAL) A.Y 2007-0 8 1. THAT ON TAW, FADS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT{A) HAS ERRED IN UPHOLDING THE PENALTY OF RS,1,13,02,230 U/ S 271{1)(C) OF THE INCOME TAX ACT, 1961 LEVIED BY THE AO WITHOUT APPRECIATING THAT THE APPELLANT HAD NEITHER CONCEALED THE PARTICULARS ASSESSEE PARTICUL ARS OF ITS INCOME NOR HAD FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. 1.1 THAT ON FADS AND IN LAW, THE LD.CIT{A)ERRED IN NOT PROPERLY CONSIDERING THE FACTS AND THE EXPLANATION SUBMITTED BY THE APPE LLANT DURING THE COURSE OF HEARING AS WELL AS DETAILED SUBMISSIONS FURNISHED B EFORE HER AND HAS UPHELD THE PENALTY OF RS.1, 13,02,230 BY MAKING INCORRECT AND IRRELEVANT OBSERVATIONS. THE CIT(A) HAS ALSO ERRED IN IGNORING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS (P) LTD. {2010) 322 ITR 158 {SC) WHICH IS DIRECTLY APPLICABLE AND T HEREFORE NO PENALTY AT ALL IS LEVIABLE IN THE CASE OF THE APPELLANT. 4 ITA NOS. 3965/DEL/2010, 4287/DEL/2010 & 495/DEL/2013 1.2 THAT ON FACTS AND IN LAW, THE LD.CIT(A) ERRED I N UPHOLDING THE LEVY OF PENALTY U/S 271(1)(C) OF RS.1, 13,02,230 WITHOUT AP PRECIATING THE FAD THAT THE APPELLANT HAD DULY MADE DISALLOWANCE ON THE BASIS O F REASONABLE ESTIMATE WHICH STANDS ACCEPTED IN THE EARLIER YEARS AND THER E WAS NO BASIS FOR THE AO AND THE LD.CIT(A) TO DISREGARD THE SAID BASIS ADOPT ED BY THE APPELLANT AND UPHOLD AN AD HOC DISALLOWANCE MADE BY THE AO ON THE BASIS OF CLAUSE {III) OF SUB-RULE (2) OF RULE 80, WHICH WAS NOTIFIED ON 24 TH MARCH, 2008 AND WAS NOT APPLICABLE TO THE ASSESSMENT YEAR UNDER REFERENCE A S PER THE HOLDING OF THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF MAXOPP I NVESTMENT LTD. VS. CIT, NEW DELHI - ITA NO.687/2009 {DATED 18.11.11) AND GO DREJ & BOYCE MFG. CO. LTD. VS. DCIT & ANR (2010) 328 ITR 81. 1.3 THAT ON FACTS AND IN LAW, THE LD.CIT{A) HAS ERR ED IN NOT APPRECIATING THAT THE APPELLANT HAD SUO MOTO MADE DISALLOWANCE OF EXP ENSES U/S 14A ON THE SAME BASIS WHICH STOOD ACCEPTED IN THE EARLIER YEAR S ASSESSMENTS U/S 143(3) HENCE LEVY OF PENALTY ON THIS ACCOUNT IS NOT JUSTIF IABLE. 1.4 THAT ON FACTS AND IN LAW, THE LD.CIT(A) HAS ERR ED IN NOT APPRECIATING THAT UNDER SIMILAR SET OF FACTS AND CIRCUMSTANCES, IN TH E ASSESSMENT YEAR 2006- 07, THE LD.AO DID NOT EVEN INITIATE THE PENALTY PRO CEEDINGS U/S 271(1)(C) DESPITE THE FACT THAT RULE 80 WAS APPLIED FOR THE P URPOSE OF DETERMINATION OF DISALLOWANCE U/S 14A IN THE ASSESSMENT ORDER FOR TH E ASSESSMENT YEAR 2006-07. 1.5. THAT ON FACTS AND IN .JAW, THE LD.CIT(A) ERRE D IN HOLDING ASSUMING THAT THE APPELLANT HAS ACCEPTED THE DISALLOWANCE @ 0.5% OF THE AVERAGE VALUE OF INVESTMENTS IN THE ASSESSMENT YEAR 2006-07, WHEREAS THE APPELLANT HAS FILED AN APPEAL BEFORE THE HONBLE ITAT, DELHI WHIC H IS SUBJECTMATTER OF RECORD AVAILABLE WITH THE DEPARTMENT. THUS, THE OBS ERVAT1ON CT THE LD.CIT(A) THAT THE APPELLANT COULD EASILY HAVE REVISED ITS RE TURN OF INCOME FILED. BEFORE 31ST OCTOBER, 2007 AND COMPUTED THE DISALLOWANCE A S PER PROVISIONS OF RULE 80 WITHIN THE ADMISSIBLE TIME UNDER SECTION 139(5)' IS ON WRONG 5 ITA NOS. 3965/DEL/2010, 4287/DEL/2010 & 495/DEL/2013 UNDERSTANDING CONTRARY TO THE FACTUAL-POSIT-ION. TH E ORDER PASSED BY THE LD.CIT(A) UPHOLDING THE PENALTY LEVIED BY THE AO, I S THUS, ON WRONG UNDERSTANDING AND AGAINST THE FACTS OF THE CASE OF THE APPELLANT. 3. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E COMPANY WAS MAINLY INVOLVED IN THE BUSINESS OF NON BANKING FINANCE. D URING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAS SHOWN INCOME FROM DIVIDENDS AND INTEREST BESIDES MINOR OTHER INCOME. THE ASSESSEE HAD SHOWN INCOME FROM DIVIDENDS OF RS.86,88,24,733/- AND CLAIMED IT TO BE EXEMPT U/S 1 0(34) OF THE INCOME TAX ACT, 1961. OUT OF THE DIVIDEND INCOME OF RS.86,88,2 4,733/-, THE ASSESSEE ALLOCATED EXPENSES FOR EARNING THIS DIVIDEND INCOME AND SUO MOTO DISALLOWED RS.67,48,50,222/- U/S 14A AT THE TIME OF ASSESSMEN T PROCEEDING. AS PER THE WORKING, THE ASSESSEE ALLOCATED RS.67,12,60,308/- O N ACCOUNT OF INTEREST EXPENSES AND RS.35,89,914/- ON ACCOUNT OF ADMINISTR ATIVE EXPENSES ON ESTIMATED BASIS TO EARN THE DIVIDEND INCOME. THE A SSESSING OFFICER AFTER GOING THROUGH THE WORKING OF INTEREST EXPENSES ALLOCATION , OBSERVED THAT THE ASSESSEE HAS NOT ALLOCATED THE EXPENSES PROPERLY IN ITS WORK ING FOR DISALLOWANCE, (SUO MOTO BY THE ASSESSEE) U/S 14A. THE ASSESSING OFFIC ER BY APPLYING RULE 8D MADE DISALLOWANCE OF RS.93,93,01,912/-. THE ASSESSI NG OFFICER FURTHER MADE DISALLOWANCE U/S 43A IN RESPECT OF FOREIGN EXCHANGE LOSS OF RS.4,80,25,006/-. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE APPEAL O F THE ASSESSEE. 5. THE LD. AR SUBMITTED THAT FOR THE ASSESSMENT YEA R UNDER CONSIDERATION A RETURN DECLARING A LOSS OF RS. 15,70,81,547/- WAS F ILED BY THE ASSESSEE ON 22.10.2007. SUBSEQUENTLY, THE RETURN WAS REVISED ON 20.01.2009 DECLARING A LOSS OF RS. 11,52,84,272/-. THE ASSESSEE IS AN INVE STMENT COMPANY AND IS ENGAGED IN THE BUSINESS OF INVESTMENT AND TRADING I N SHARES/SECURITIES AS WELL AS IN THE BUSINESS OF GRANTING LOANS AND ADVANCES. 6 ITA NOS. 3965/DEL/2010, 4287/DEL/2010 & 495/DEL/2013 ASSESSEE IN ITS RETURN OF INCOME SUO MOTO MADE A DI SALLOWANCE U/S 14A AS UNDER: - OUT OF INTEREST COST - RS.65,17,34,199 - OUT OF FINANCIAL EXPENSES - RS. 1,95,26,109 - OUT OF PERSONNEL & ADMINISTRATIVE EXPENSES - RS. 35,89,914 TOTAL - RS.67,48,50,222 FOR EXPLAINING THE BASIS AND MANNER OF COMPUTATION OF THE ABOVE DISALLOWANCE OF INTEREST BEFORE THE ASSESSING OFFICER, THE SAME WAS SUBMITTED BY THE ASSESSEE (ALONG WITH RELEVANT WORKINGS) THAT AT THE BEGINNING OF THE PREVIOUS YEAR RELEVANT TO ASSTT. YEAR 2005-06 I.E. ON 01.04. 2004, THE ASSESSEE HELD SHARES OF THE AGGREGATE VALUE OF RS. 3,81,94,91,358 /-. THE CORRESPONDING POSITION OF SHARE CAPITAL AND RESERVES AND SURPLUS ON THE SAID DATE WAS AS UNDER: - SHARE CAPITAL - RS. 54,75,50,000 - RESERVES AND SURPLUS - RS. 2,93,52,91,325 TOTAL - RS. 3,48,28,41,325 THE LD. AR FURTHER SUBMITTED THAT INVESTMENTS IN YE ARS EARLIER TO A.Y. 2005-06 WERE INITIALLY FINANCED OUT OF SHARE CAPITAL AND RE SERVES AND SURPLUS AND THE BALANCE INVESTMENTS WERE TAKEN TO HAVE BEEN FINANCE D OUT OF BORROWED FUNDS. THE DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS, ACCORDINGLY, CALCULATED IDENTIFYING THE VALUE OF INVESTMENTS WHICH WERE FIN ANCED OUT OF BORROWED FUNDS. ASSESSMENTS FOR YEARS PRIOR TO A.Y. 2005-06 WERE COMPLETED BY THE ASSESSING OFFICER ACCEPTING THE BASIS OF DISALLOWAN CE UNDER SECTION 14A ADOPTED BY THE ASSESSEE. THE LD. AR FURTHER STATED THAT THE RESERVES AND SURPLUSES OF THE ASSESSEE COMPRISE MAINLY OF PROFIT S ON SALE OF INVESTMENTS AND DIVIDENDS EARNED BY THE ASSESSEE OVER THE YEARS, WH ICH WERE UTILIZED BY THE 7 ITA NOS. 3965/DEL/2010, 4287/DEL/2010 & 495/DEL/2013 ASSESSEE EITHER TO MAKE FRESH INVESTMENTS OR TO REP AY THE LOANS TAKEN EARLIER. THE ASSESSING OFFICER ERRED IN NOT APPRECIATING THA T THE NOMENCLATURE OR NAME GIVEN TO A PARTICULAR RESERVE IS NOT DETERMINATIVE OF THE SOURCE OF CREATION OF THE RESERVE. NOMENCLATURE OR NAME IS ONLY AN IDENTIFICA TION GIVEN TO MEET STATUTORY COMPULSIONS/RESTRICTIONS. AS REGARDS A.Y. 2004-05 T HE ACCEPTED POSITION WAS THAT AS ON 31.03.2004 THERE WERE NO BORROWINGS ATTR IBUTABLE TO INVESTMENTS CONSIDERING THAT ASSESSEES OWN FUNDS BY WAY OF CAP ITAL, RESERVES AND SURPLUS ON ACCOUNT OF DIVIDEND/PROFIT ON SALE OF INVESTMENT S EXCEEDED THE AMOUNT OF INVESTMENTS. IN A.Y. 2005-06 ASSESSEE HAD MADE FRES H INVESTMENTS IN SHARES TO THE TUNE OF RS. 609.92 CRS., OUT OF WHICH RS. 59 7.34 CRS. WAS INVESTMENTS IN SHARES TO THE TUNE OF RS. 609.92 CRS., OUT OF WHICH RS. 597.34 CRS. WAS INVESTED IN SHARES OF RANBAXY. SINCE ALMOST THE ENT IRE SHARE CAPITAL AND RESERVES HAD BEEN EXHAUSTED IN ACQUISITION OF INVES TMENTS APPEARING IN THE OPENING BALANCE AS ON 1 ST APRIL, 2004, FRESH INVESTMENTS MADE DURING THE COURSE OF PREVIOUS YEAR 2004-05 CAME OUT OF BORROWE D FUNDS AND DIVIDEND INCOME. THE ASSESSEE COMPUTED THE DISALLOWANCE UNDE R SECTION 14A OF THE ACT WITH RESPECT TO THE INTEREST PAID ON BORROWED FUNDS ON PRODUCT BASIS, TAKING INTO ACCOUNT THE DATE ON WHICH THE INVESTMENT WAS M ADE, THE AMOUNT INVESTED AND THE PERIOD FOR WHICH BORROWED FUNDS WERE UTILIZ ED. IN A.Y. 2005-06, THE METHOD ADOPTED BY ASSESSEE FOR IDENTIFYING INTEREST COST ATTRIBUTABLE TO INVESTMENTS, OWN FUNDS VIZ. SHARE CAPITAL, RESERVES AND SURPLUS AND DIVIDEND/ PROFIT ON SALE OF INVESTMENTS EARNED FROM YEAR AFTE R YEAR, IT WAS HELD THAT IN RESPECT OF THE INVESTMENTS MADE IN SHARES AS ON 31. 03.2004/01.04.2004 I.E., AT THE BEGINNING OF THE PREVIOUS YEAR RELEVANT TO A .Y. 2005-06, VIRTUALLY, NO BORROWED FUNDS WERE USED FOR INVESTMENT IN SHARES. THE CIT(A) HELD THAT IN RESPECT OF BORROWINGS MADE DURING A.Y. 2005-06 FOR INVESTMENTS IN SHARES, THE ASSESSEE HAS CORRECTLY COMPUTED THE DISALLOWANCE ON ACCOUNT OF INTEREST IN RELATION TO EARNING DIVIDEND INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. IN A.Y. 2006-07 ADOPTING SIMILAR METHODOLOGY, THE D ISALLOWANCE U/S 14A FOR INTEREST COST WAS COMPUTED BY THE ASSESSEE AND WAS SUO MOTO ADDED BACK IN 8 ITA NOS. 3965/DEL/2010, 4287/DEL/2010 & 495/DEL/2013 THE RETURN OF INCOME. THIS WAS ALSO ACCEPTED BY THE ASSESSING OFFICER, HOWEVER IT WAS ALLEGED BY HIM THAT THE CAPITAL AND RESERVES OF ASSESSEE CANNOT BE HELD ATTRIBUTABLE ONLY TO INVESTMENTS MADE IN SHARE. ATT RIBUTING (ON PROPORTIONATE BASIS) PART OF CAPITAL AND RESERVES TO OTHER BUSINE SS ASSETS I.E. STOCK IN TRADE, FIXED ASSETS, CASH AND BANK, LOANS AND ADVANCES, BA LANCE WAS HELD ATTRIBUTABLE TO INVESTMENTS IN SHARES. THE LD. AR POINTED OUT TH AT EVEN AFTER ALLEGING AS SUCH THE ASSESSING OFFICER COMPUTED DISALLOWANCE OF INTEREST COST U/S 14A ON PRODUCT BASIS, TAKING INTO CONSIDERATION THE DATE O N WHICH INVESTMENT WAS MADE, THE AMOUNT INVESTED AND THE PERIOD FOR WHICH BORROWED FUNDS WERE UTILIZED (I.E. BY IDENTIFYING THE INTEREST EXPENDIT URE WHICH IS DIRECTLY RELATABLE/ATTRIBUTABLE TO INVESTMENT MADE IN SHARES ). THE LD. AR FURTHER SUBMITTED THAT IN APPEAL, THE CIT(A) HELD THAT CLEA R NEXUS WAS DEMONSTRATED BY THE ASSESSEE BETWEEN THE INTEREST FREE FUNDS (I. E. SHARE CAPITAL AND RESERVES) AND THE INVESTMENTS MADE BY IT IN SHARES WHICH WAS ALSO ACCEPTED BY THE DEPARTMENT IN PAST. SIMILARLY DURING THE ASSESS MENT YEAR UNDER CONSIDERATION I.E. A.Y. 2007-08 INTEREST COST OF RS . 65,17,34,199/- WAS COMPUTED BY THE ASSESSEE IN CONSONANCE WITH PAST PR ACTICE. HOWEVER, COMPLETELY IGNORING THE ACCEPTED POSITION AS MENTIO NED ABOVE, THIS YEAR DISALLOWANCE U/S 14A WAS COMPUTED BY THE ASSESSING OFFICER BLINDLY RELYING UPON RULE 8D OF INCOME TAX RULES, 1962. WHILE COMPU TING THE DISALLOWANCE OF RS. 93,93,01,912/- U/S 14A BY APPLYING RULE 8D, UND ER SUB RULE (2) CLAUSE (II) A DISALLOWANCE OF INTEREST COST FOR RS. 88,25,48,32 6/- WAS COMPUTED BY THE ASSESSING OFFICER. THIS WAS DONE BY COMPLETELY DISR EGARDING THE FACT THAT IN EARLIER YEARS (I.E. A.Y. 2005-06 AND A.Y. 2006-07) THE DISALLOWANCE OF INTEREST COST WAS MADE BY IDENTIFYING THE INTEREST EXPENDITU RE WHICH IS DIRECTLY RELATABLE/ATTRIBUTABLE TO INVESTMENT MADE IN SHARES . THE LD. AR SUBMITTED THAT FOR COMPUTING THE SAID DISALLOWANCE U/S 14A TH E ASSESSING OFFICER ERRED IN RELYING UPON THE METHOD PRESCRIBED BY RULE 8D OF IN COME TAX RULES, 1962. THE LD. AR SUBMITTED THAT DISALLOWANCE AS PER RULE 8D I S REQUIRED TO BE MADE ONLY IF THE CONDITIONS OF SECTION 14A(2) OF THE ACT ARE SATISFIED. A DISALLOWANCE AS PER 9 ITA NOS. 3965/DEL/2010, 4287/DEL/2010 & 495/DEL/2013 RULE 8D COULD HAVE BEEN MADE PROVIDED THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, WAS NOT SATISFIED WIT H THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE. THE LD. AR FURTHER SUBM ITTED THAT THE CORRECTNESS OF ASSESSEES METHOD OR CLAIM HAVING REGARD TO ITS ACCOUNTS HAS BEEN ACCEPTED BY CIT UNDER SECTION 263 IN A.Y. 2005-06 AND BY THE ASSESSING OFFICER HIMSELF IN A.Y. 2006-07. THE LD. AR SUBMITTED THAT EVEN DIS ALLOWANCE UNDER RULE 8D HAS BEEN WRONGLY COMPUTED BY THE ASSESSING OFFICER. WHILE COMPUTING DISALLOWANCE UNDER RULE 8D SUB RULE (2) CLAUSE (II) THE ASSESSING OFFICER DID NOT EXCLUDE THE INTEREST COST AMOUNTING TO RS. 46,16,82 ,089/- ATTRIBUTABLE TO THE BUSINESS OF GRANTING LOANS AND ADVANCES, DESPITE CL EAR NEXUS BEING DEMONSTRATED TO THIS EFFECT BEFORE HIM VIDE SUBMISS IONS DATED 29.12.2009 AND 30.12.2009. THESE SUBMISSIONS WERE FILED BEFORE THE ASSESSING OFFICER AGAINST A SPECIFIC QUERY RAISED BY HIM VIDE ORDER SHEET ENT RY DATED 24.12.2009 DURING THE COURSE OF ASSESSMENT. WHILE COMPUTING DISALLOWA NCE UNDER RULE 8D SUB RULE (2) CLAUSE (II) THE ASSESSING OFFICER INCORREC TLY COMPUTED TOTAL INTEREST COST, AVERAGE VALUE OF INVESTMENTS AND AVERAGE VALUE OF TOTAL ASSETS. A PETITION U/S 154 DATED 05.01.2010 WAS ALSO FILED IN THIS REGARD BEFORE ASSESSING OFFICER . 6. AS REGARDS BASIS OF DISALLOWANCE OF EXPENSES, TH E LD. AR SUBMITTED THAT THE BASIS AND MANNER OF COMPUTATION (ALONG WITH WOR KING) WAS SUBMITTED BY THE ASSESSEE ALONG WITH SUBMISSIONS DATED 27.11.200 9. THE LD. AR SUBMITTED THAT THE ASSESSEE HAD TO INCUR SUBSTANTIAL ADMINIST RATIVE AND PERSONNEL COST IN THE ACTIVITY OF GRANTING LOANS AND ADVANCES ETC. DU E TO THE ADMINISTRATIVE WORK/EFFORTS REQUIRED AS STATED IN THE SUBMISSIONS DATED 27.11.2009. THE LD. AR ALSO SUBMITTED THAT THE SAID COST WAS MARGINAL I N RESPECT OF ITS INVESTMENT ACTIVITY AS THE ASSESSEE DID NOT HAVE TO INCUR ANY COST ON REALIZATION OF DIVIDEND INCOME. 7. THE LD. DR SUBMITTED THAT SECTION 14A OF INCOME TAX ACT, 1961 WAS INSERTED INTO INCOME TAX ACT, 1961 VIDE FINANCE ACT , 2001, WITH RETROSPECTIVE 10 ITA NOS. 3965/DEL/2010, 4287/DEL/2010 & 495/DEL/2013 APPLICATION FROM 01/04/1962. IT PROVIDES FOR DISALL OWANCE OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME . THE HONBLE SUPREME COURT IN THE JUDGMENT IN THE CASE OF MAXOPP INVESTMENT LT D. REPORTED IN [2018]91 TAXMANN.COM 154 HELD AS FOLLOWS: (I) ONLY THAT EXPENDITURE WHICH IS IN RELATION TO EARNING DIVIDENDS CAN BE DISALLOWED U/SECTION 14A AND RULE 8D. (II) THE DOMINANT PURPOSE FOR WHICH INVESTMENT INTO SHA RES IS MADE BY MAY NOT BE RELEVANT AS SECTION 14A APPLIES IRRESPECTIVE OF WHETHER SHARES ARE HELD TO GAIN CONTROL OR AS STOCK-IN-TRADE. HOWEVER, WHERE SHARES ARE HELD AS STOCK-IN-TRADE MAIN PURPOSE IS TO TRADE IN THOSE SH ARES AND EARN PROFITS THERE FROM AND, IN PROCESS, CERTAIN DIVIDEND IS ALS O EARNED WHICH IS TAX EXEMPT U/SEC 10(34); EXPENDITURE ATTRIBUTABLE TO EX EMPT DIVIDEND INCOME WILL HAVE TO BE APPORTIONED TO BE DISALLOWED U/S 14 A. (III) RULE 8D IS PROSPECTIVE IN NATURE AND COULD NOT HAV E BEEN MADE APPLICABLE IN RESPECT OF ASSESSMENT YEARS PRIOR TO 2007 WHEN THIS RULE WAS INSERTED. THE LD. DR FURTHER SUBMITTED THAT SECTION 14A(L)SAY S THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED IN RE LATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. THE ISSUE THEREFORE IS IF SECTION 14A(1) WOULD STAND ATTRACTED EVEN IF SUCH INCOME, I.E., INCOME N OT INCLUDIBLE IN THE TOTAL INCOME, IS NOT ACTUALLY EARNED, SUBJECT TO EXPENDIT URE RELATABLE TO SUCH INCOME HAVING BEEN INCURRED. THE CBDT CIRCULAR 5/2014, AFT ER EXPLAINING THE RATIONALE OF THE PROVISION OF SECTION 14A (WITH REFERENCE TO CIRCULAR 14 OF 2001), I.E. TO CURB THE PRACTICE OF REDUCING THE TAX LIABILITY ON TAXABLE INCOME (I.E., INCOME FORMING PART OF THE TOTAL INCOME) BY CLAIMING EXPEN DITURE INCURRED IN EARNING TAX-EXEMPT INCOME AGAINST TAXABLE INCOME, GOES ON T O STATE THAT THE LEGISLATIVE INTENT IS THAT THE EXPENDITURE RELATABLE TO EARNING INCOME SHALL HAVE TO BE CONSIDERED FOR DISALLOWANCE. IN THAT EVENT I.E. EXP ENDITURE RELATING TO EARNING 11 ITA NOS. 3965/DEL/2010, 4287/DEL/2010 & 495/DEL/2013 TAX-EXEMPT INCOME-HAVING BEEN INCURRED, IT WOULD BE COME IRRELEVANT IF THE EXEMPT INCOME HAS ACTUALLY MATERIALIZED OR NOT, SO THAT THE DISALLOWANCE OF THE SAID EXPENDITURE U/S 14A WOULD FOLLOW. THE SAME THE REFORE IS ONLY A CONTINUATION OF CIRCULAR 14 OF 2001, TAKING THE PRE MISE OF SECTION 14A TO ITS LOGICAL CONCLUSION. THE PURPOSE OF THESE CIRCULARS AND THE LEGISLATIVE INTENT IS TO APPLY THE BASIC PRINCIPLE OF TAXATION, I.E. THAT IT IS ONLY THE NET INCOME- TAXABLE OR NON-TAXABLE, I.E. NET OF ALL EXPENDITURE INCURRE D FOR EARNING THE SAME, THAT COULD BE SUBJECT TO TAX OR, AS THE CASE MAY BE, EXE MPT FROM TAX. THE LATER CIRCULAR, WHICH IS IN CONSONANCE WITH MEMORANDUM EX PLAINING THE PROVISIONS OF FINANCE BILL, 2001 (INTRODUCING SECTION 14A) AS WELL AS THE NOTES TO THE CLAUSES PRESENTED ALONG WITH THE SAID BILL, HAS BEE N NOTED WITH APPROVAL BY THE HON'BLE SUPREME COURT IN CIT(A) VS. WALFORT SHARE & STOCK BROKERS (P) LTD.[2010] 192 TAXMAN 211/326 ITR (S.C). THE ISSUE CONSIDERED IN PERSPECTIVE, IS NOT IF THE INCOME NOT FORMING THE PART OF THE TO TAL INCOME (THE TAX-EXEMPT INCOME) IS EARNED OR NOT BUT IF EXPENDITURE RELATAB LE TO SUCH INCOME HAS BEEN INCURRED. IF SUCH EXPENDITURE STANDS INCURRED, SECT ION 14 A (1) BECOMES APPLICABLE. THE DECISION BY THE APEX COURT IN THE CASE OF CIT(A) VS. WALFORT SHARE 86 STOCK BROKERS (P) LTD (SUPRA) STANDS FOLLO WED IN GODREJ 8& BOYCE MFG. CO. LTD VS. DY. CIT(A) [2017] 81 TAXMANN. COM 111 ( S.C) WHERE THE HON'BLE SUPREME COURT WHILE CONSIDERING WHETHER DEDUCTION O F EXPENDITURE INCURRED IN EARNING DIVIDEND INCOME WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME OF THE ASSESSEE BY VIRTUE OF THE PROVISIONS OF SECTION 10( 33) OF INCOME TAX ACT, 1961 AS IN FORCE DURING A.Y 2002-03 WAS ADMISSIBLE OR OT HERWISE. THE EXPENDITURE IS INCURRED TO PRODUCE OR GENERATE OR IN ANTICIPATION OF, INCOME, WHETHER TAXABLE OR NON- TAXABLE. IN FACT, THE CLASSIFICATION AS TO TAX STATUS (I.E, TAXABLE OR NON- TAXABLE) HAS NOTHING TO DO WITH THE INCOME GENERATI NG PROCESS; AN INCOME BEING, AS A MATTER OF FISCAL INCENTIVE, BEING GRANT ED TAX EXEMPT STATUS UNDER THE ACT, FOR THE TIME BEING. THE FACT OF HAVING INCURRE D EXPENDITURE FOR EARNING INCOME- TAX-EXEMPT (OR NON-EXEMPT), WHICH IS LARGEL Y A QUESTION OF FACT, WOULD THUS REMAIN AND NOT UNDERGO ANY CHANGE, IRRESPECTIV E OF WHETHER IT HAS 12 ITA NOS. 3965/DEL/2010, 4287/DEL/2010 & 495/DEL/2013 RESULTED IN ANY INCOME (WHETHER TAX-EXEMPT OR NON-E XEMPT). THE PRINCIPLE IS WELL-SETTLED, REPRESENTING A FUNDAMENTAL CONCEPT OF TAXATION, I.E. THE ALLOWABILITY (OR OTHERWISE) OF AN EXPENDITURE WOULD NOT DEPEND UPON WHETHER IT HAS IN-FACT RESULTED IN AN INCOME, I.E. POSITIVE IN COME, WHICH IS IN ANY CASE A MATTER SUBSEQUENT, AND THAT THE MERE FACT THAT EXPE NDITURE STANDS INCURRED FOR THE PURPOSE IS SUFFICIENT FOR ITS ADMISSIBILITY, AS EXPLAINED BY THE APEX COURT IN CIT(A) VS. RAJENDRA PRASAD MOODY [1978] 115 ITR 519 (S.C) THE APEX COURT WAS IN THAT CASE EXAMINING THE TRUE INTERPRETATION OF SECTION 57(III) WHICH EMPLOYED THE WORDS ANY EXPENDITURE (NOT BEING IN TH E NATURE OF CAPITAL EXPENDITURE)/LAID OUT OR EXPENDED FOR THE PURPOSE O F MAKING OR EARNING SUCH INCOME. 8. AS REGARDS REVENUES APPEAL IS CONCERNED GROUND NO. 1 IS IN RELATION WITH DISALLOWANCE U/S 14A ONLY WHICH IS DISCUSSED H EREINABOVE. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT AS REGARDING THE DISALLOWANCE U/S 14A READ WITH RULE 8D, THE CIT(A) HAS GIVEN A F INDING THAT THE ASSESSING OFFICER HAS CORRECTLY APPLIED CLAUSE 3 OF SUB-RULE 2 OF RULE 8D TO COMPUTE THE DISALLOWANCE OF EXPENSES BUT FROM THE PERUSAL O F RECORD IT CAN BE SEEN THAT THE ASSESSEE HAS MADE SUO MOTO DISALLOWANCE OF RS.6 7,48,50,222/- U/S 14A IN RESPECT OF EARNING DIVIDEND INCOME. THE ASSESSE E HAS GIVEN A WORKING BEFORE THE ASSESSING OFFICER ON ACCOUNT OF INTEREST EXPENSES AND ON ACCOUNT OF ADMINISTRATIVE EXPENSES ON ESTIMATE BASIS. THE SAM E HAS NOT BEEN PROPERLY ADJUDICATED BY THE ASSESSING OFFICER AS WELL BY THE CIT(A). THE ASSESSEE HAS GIVEN IN ITS REPLY DATED 23/12/2009, THE DETAILS AS TO WHY THE DISALLOWANCE U/S 14A SHALL NOT BE COMPUTED UNDER RULE 8D OF INCO ME TAX RULES. THUS, THE EXTRACT OF THE SAME ARE AS FOLLOWS:- I) THE RESERVES AND SURPLUS OF THE ASSESSEE HAVE B EEN ON ACCOUNT OF DIVIDEND INCOME AS WELL AS PROFIT ON SALE OF SHARES HELD AS INVESTMENTS. THE POSITION OF INVESTMENTS/RESERVES/CAPITAL ETC. AS ON 1 ST APRIL, 2004 WAS AS 13 ITA NOS. 3965/DEL/2010, 4287/DEL/2010 & 495/DEL/2013 UNDER: INVESTMENTS AS ON 1/4/2004 CAPITAL AS ON 1/4/2004 RESERVES AS ON 1/4/2004 DIVIDEND RECD FROM 1/4/99 TO 31/3/2004 PROFIT ON SALE OF INVESTMENTS FROM 1/4/99 TO 31/3/2004 TOTAL OF DIVIDEND AND PROFIT ON SALE OF INVESTMENTS 381.95 54.76 293.35 172.73 258.45 431.18 IN VIEW OF THE FACT THAT DIVIDEND INCOME AND PROFIT ON SALE OF INVESTMENTS AGGREGATING TO RS 431.18 CRS. WERE MORE THAN INVEST MENTS I.E. RS. 381.95 CRS., THE INVESTMENTS WERE NOT MADE OUT OF BORROWIN GS AND HENCE THERE WAS NO BORROWING COST. YEAR-WISE DETAIL OF DIVIDEND AND PROFIT ON SALE OF INVESTMENTS (ANNEXURE-II) IS ENCLOSED. HOWEVER AS PER PAST PRACTICE, THE ASSESSEE HAD CONS IDERED DISALLOWANCE BY CONSIDERING RESERVE / CAPITAL AS ON 1 ST APRIL 2004 INSTEAD OF TOTAL OF DIVIDEND AND PROFIT ON SALE OF INVESTMENTS. II) INVESTMENTS AMOUNTING TO RS 609.92 C/S. WERE MA DE IN ASSESSMENT YEAR 2005-06 (MAINLY IN RANBAXY SHARES). SINCE, ALMOST T HE ENTIRE CAPITAL AND RESERVES ETC. HAD BEEN EXHAUSTED IN ACQUISITION OF INVESTMENTS AS ON 1 ST APRIL, 2004, THE FRESH INVESTMENTS WERE MADE OUT OF BORROW INGS AND DISALLOWANCE U/S 14A IN ASSESSMENT YEAR 2005-06 AND IN SUBSEQUEN T YEARS WAS MADE ON PRODUCT BASIS, TAKING INTO ACCOUNT WE DATE ON WHICH INVESTMENT WAS MADE OUT OF BORROWED FUNDS. III) IN THE YEAR UNDER REFERENCE ALSO, THE ASSESSEE HAS COMPUTED DISALLOWANCE U/S 14A ON WE SAME BASIS BY CONSIDERING THE FOLLOWI NG: INVESTMENTS AS ON 1/4/06 CAPITAL AS ON 1/4/06 RESERVES/INT EREST FREE FUNDS AS ON 1/4/06 NET INVESTMENT S AS ON 1/4/06 TOTAL DIVIDEN D RECD. UPTO 31/3/0 6 PROFIT ON SALE OF INVESTMENT S UPTO 31/3/06 TOTAL DIVIDEND & PROFIT ON SALE OF INVESTMENTS (I) (II) (III) (I) - {(II)+(III)} =(IV) (V) (VI) (VI)+(VII) =(VIII) TOTAL AS PER BALANCE 12.2 5 390.40 704.60 334. 86 258.70 593.56 14 ITA NOS. 3965/DEL/2010, 4287/DEL/2010 & 495/DEL/2013 SHEET 1128.13 LESS: INVESTME NTS 20.88 (INCOME OF WHICH IS TAXABLE)_ NET INVESTME NTS 1107.25 IN VIEW OF THE FACT THAT DIVIDEND INCOME AND PROFIT ON SALE OF INVESTMENTS AGGREGATING TO RS.59S.56 CRS UPTO 31 ST MARCH., 2006 WERE MORE THAN THAT THE RESERVES AND CAPITAL REDUCED I.E. RS.402.65 CRS FRO M INVESTMENTS WE ASSESSEE HAS ALREADY CONSIDERED LESS REDUCTION OF C APITAL AND FREE RESERVES IN ITS COMPUTATION OF DISALLOWANCE OF INTEREST. ACC ORDINGLY, WE NET INVESTMENTS AS ON F* APRIL, 2006, AMOUNTING TO RS.7 04.60 CRS. ALONG WITH INVESTMENTS (NET) MADE DURING WE YEAR WERE CONSIDER ED FOR DISALLOWANCE U/S 14A ON PRODUCT BASIS TAKING INTO ACCOUNT WE DAT E ON WHICH INVESTMENTS WERE MADE /DISPOSED-OFF (AS PER ANNEXURE-III) THERE FORE, IT IS HUMBLY REQUESTED THAT NO FURTHER DISALLOWANCE OF INTEREST IS CALLED FOR ON THIS ACCOUNT. THUS, THE DISALLOWANCE WAS COMPUTED AT RS.67,48,50 ,222/-. THE ASSESSING OFFICER HAS COMPUTED THE DISALLOWANCE AS PER RULE 8D OF THE INCOME TAX RULES WHICH IS NOT APPLICABLE FOR THE YEAR UNDE R CONSIDERATION AS THE PRESENT ASSESSMENT YEAR IS 2007-08. IT IS PERTINE NT TO NOTE THAT THE ASSESSING OFFICER HAS ALSO NOT GIVEN THE SATISFACTION AS TO H OW THE WORKING GIVEN BY THE ASSESSEE IS NOT PLAUSIBLE. THE ASSESSEE HAS MADE DI SALLOWANCE AT 10% WHICH WAS IN SUPPORT FOR THE EARLIER ASSESSMENT YEAR 2006 -07 WHICH WAS CONFIRMED BY THE TRIBUNAL IN ASSESSEES OWN CASE BEING ITA NO . 1805/DEL/2009 ORDER DATED 3/4/2019. THEREFORE, THE SUO MOTU DISALLOWAN CE AT 10% IS REASONABLE AND CANNOT BE FAULTED WITH. WE, THEREFORE, SET ASI DE THE FINDINGS OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO ACCEPT THE SUO MOTU DISALLOWANCE OF RS. 15 ITA NOS. 3965/DEL/2010, 4287/DEL/2010 & 495/DEL/2013 67,48,50,222/-. HENCE, THE APPEAL FILED BY THE ASS ESSEE IS ALLOWED. 10. IN RESULT, THE APPEAL OF THE ASSESSEE BEING ITA NO. 3965/DEL/2010 IS ALLOWED. 11. AS REGARDS THE PENALTY APPEAL FILED BY THE ASSE SSEE, SINCE THE SAME IS BASED ON THE QUANTUM APPEAL AND THERE IS NO FINDING GIVEN BY THE ASSESSING OFFICER THAT THE ASSESSEE FURNISHED INACCURATE PART ICULARS OF INCOME OR CONCEALED THE PARTICULARS OF INCOME, THE PENALTY DO ES NOT SURVIVE AS PER THE PROVISIONS OF SECTION 271(1)(C) OF THE INCOME TAX A CT, 1961. HENCE, APPEAL FILED BY THE ASSESSEE IS ALLOWED. 12. IN RESULT, THE APPEAL OF THE ASSESSEE BEING ITA NO. 495/DEL/2013 IS ALLOWED. 13. AS REGARDS TO REVENUES APPEAL IS CONCERNED, SI NCE GROUND NO. 1 AND 2 CONTESTED BY THE REVENUE IS INTER-RELATED TO THE AS SESSEES APPEAL WHICH IS ALREADY DECIDED BY US IN FAVOUR OF THE ASSESSEE WIT H A DETAILED FINDING HEREINABOVE PARAS. HENCE, GROUND NO. 1 AND 2 OF REV ENUES APPEAL ARE DISMISSED. 14. AS REGARDS TO GROUND NO. 3 OF REVENUES APPEAL, THE LD. DR SUBMITTED THAT THE CIT(A) ERRED IN DELETING THE ADDITION OF RS.4,80,25,006/- U/S 43A OF THE ACT IGNORING THE FACT THAT THE FOREIGN CURRENCY LOANS IN RESPECT OF WHICH FOREIGN EXCHANGE GAINS OR LOSSES WERE CLAIMED, WERE RAISED BY THE ASSESSEE, FOR THE PURPOSE OF INVESTING IN SHARES WHICH WERE CAPIT AL ASSETS IN THE HAND OF THE COMPANY IN THE RELEVANT YEARS, WHEN THE LOAN WERE R AISED. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS NOT ACQUIRED ANY AS SET FROM A COUNTRY OUTSIDE INDIA DURING THE YEARS ENDED ON 31.03.2005, 31.03.2 006 AND 31.03.2007. THE ASSESSING OFFICER WRONGLY INVOKED THE PROVISIONS OF SECTION 43A OF THE INCOME TAX ACT, 1961 AS THE SAME CAN BE APPLIED IN A CASE WHERE AN ASSESSEE HAS ACQUIRED ANY ASSET FROM A COUNTRY OUTSIDE INDIA WHI CH IS NOT THE CASE OF THE 16 ITA NOS. 3965/DEL/2010, 4287/DEL/2010 & 495/DEL/2013 ASSESSEE. 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT T HE REVENUE HAS NOT BROUGHT ON RECORD THAT ANY CAPITAL ASSETS WERE ACQUIRED FROM A COUNTRY OUTSIDE INDIA DURING THE RELEVANT ASSESSMENT YEAR. THE APPLICABIL ITY OF SECTION 43A WILL NOT BE ATTRACTED WHEN THERE IS NO ACQUISITION OF ANY CA PITAL ASSETS IN THE RELEVANT ASSESSMENT YEAR. THUS, THE CIT(A) RIGHTLY HELD THAT THE ASSESSEE CORRECTLY OFFERED NET EXCHANGE GAIN EARNED BY IT ON ACCOUNT O F CURRENCY FLUCTUATION COMPUTED BY CONSIDERING THE RATE OF USD AS ON THE D ATE OF LOAN TAKEN IN THE EARLIER YEARS AND FINAL SETTLEMENT THEREOF IN THE Y EAR UNDER REFERENCE. SINCE, THE ASSESSEE ALREADY DISALLOWED IN ITS STATEMENT OF TAXABLE INCOME FOR THE A.YS 2005-06 AND 2006-07 NOTIONAL LOSSES ACCOUNTED FOR B Y IT TO COMPLY WITH AS- 11, NO FURTHER DISALLOWANCE OF SUCH LOSSES WAS CALL ED FOR AND THE SAME AMOUNT TO DOUBLE DISALLOWANCE. THUS, THE CIT(A) RIGHTLY DE LETED THE SAID ADDITION. HENCE, GROUND NO. 3 IS DISMISSED. IN RESULT, THE AP PEAL FILED BY THE REVENUE BEING ITA NO. 4287/DEL/2010 IS DISMISSED. 16. IN RESULT, APPEALS FILED BY THE ASSESSEE BEING ITA NO. 3965/DEL/2010 & 495/DEL/2013 ARE ALLOWED AND THE APPEAL FILED BY TH E REVENUE BEING ITA NO. 4287/DEL/2010 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 07 TH DAY OF SEPTEMBER, 2020 SD/- SD/- (ANIL CHATURVEDI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 07/09/2020 R. NAHEED 17 ITA NOS. 3965/DEL/2010, 4287/DEL/2010 & 495/DEL/2013 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT 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