Dharampal Premchand Ltd., Delhi V. ACIT, Central Circle-29, New Delhi

ITA 4460/DEL/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7062 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 05-07-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAGDISH SINGH
• Keywords: Depreciation; Transactions in derivatives; Earning of tax free income; Speculation loss; Rule 8D; Set aside
• Section: 143(3); 10AA; 14A; 73; 13; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI FRIDAY BENCH B: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE SHRI G.S. PANNU, VICE PRESIDENT AND SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER ITA NO. 4460 /DEL/ 2017 ASSESSMENT YEAR :2014-15 M/S DHARAM PAL PREMCHAND LTD, 4873, CHANDANI CHOWK, DELHI-110006 VS. ACIT, CENTRAL CIRCLE-29, NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : SH. GN GUPTA, ADV. SH. PRASHANT KUMAR SWAN, AR RESPONDENT BY : SH. JAGDISH SINGH, SR. DR. DATE OF HEARING :28.08.2020 DATE OF PRONOUNCEMENT :07.09.2020 ORDER PER K.NARASIMHA CHARY, JM : AGGRIEVED BY THE ORDER DATED 26/4/2017 IN APPEAL N O. 146/2016-17/2580 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-30, NEW DELHI (LD. CIT(A)), FOR THE ASS ESSMENT YEAR 2014-15, M/S DHARAM PAL PREMCHAND LTD (THE ASSESSE E) PREFERRED THIS APPEAL, ON THREE COUNTS, NAMELY, THE TREATMENT OF THE LOSS OF RS. 96,51,151/- INCURRED IN FUTURE TRADING AS SPECULATI ON LOSS, SUSTAINING THE DISALLOWANCE OF EXPENDITURE TO THE TUNE OF RS. 38, 53, 244/- UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) READ 2 WITH RULE 8D OF THE INCOME TAX RULES1962 (THE RULE S) AND WHITTLING DOWN THE CLAIM OF THE ASSESSEE FOR A DIRE CTION TO THE TUNE OF RS. 2,95,16,153/- UNDER SECTION 10A OF THE ACT TO R S. 2,49,32,429/- . THOUGH ORIGINALLY THE ASSESSEE CHALLENGED VIDE GROU ND NO. 1.2, THE ADDITION OF RS. 5,87,09,737/- ON ACCOUNT OF DEALING S IN SHARES BASED ON ACTUAL DELIVERY AS SPECULATION LOSS, DURING THE COU RSE OF ARGUMENTS SUCH A CHALLENGE WAS NOT PRESSED. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY IS IN THE BUSINESS OF MANUFACTURE OF FLAVOURED CHEWING TOBACC O AND KIWAM UNDER THE BRAND NAME BABA AND THE MAIN INGREDIENT S FOR PRODUCTION OF CHEWING TOBACCO ARE TOBACCO, PERFUMERY COMPOUNDS, SANDAL, SAFFRON, MENTHOL ETC. AND SILVER IN FLAKE FORMS. FO R THE ASSESSMENT YEAR 2014-15 IT HAS FILED ITS RETURN OF INCOME ON 21/11/ 2014 DECLARING AN INCOME OF RS. 36,96,45,100/-, WHILE DECLARING PROFI T OF RS. 46,17,19,442/- AND ADJUSTING IT AGAINST THE BROUGHT FORWARD DEPRECIATION RESULTING IN THE CURRENT YEARS BUSINES S INCOME OF RS. 37,12,47,070/-. THE ASSESSEE DECLARED SPECULATIVE L OSS OF RS. 2,22,46,177/- IN THE COMMODITIES WHICH IS CARRIED F ORWARD; THAT THE TAX ON THE TAXABLE INCOME OF RS. 36,96,45,093/- WAS DEC LARED ON WHICH THE TAX AND INTEREST OF RS. 13,23,84,690/- WAS DETERMIN ED WHEREAS THE MAT CREDIT AVAILABLE UNDER SECTION 115 JA OF THE AC T OF RS. 3,09,73,335/- WAS ADJUSTED IN CALCULATION OF TAX PA YABLE. 3. ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS C OMPLETE BY ORDER DATED 23/12/2016 AT A TOTAL INCOME OF RS. 47, 73,75,770/- AFTER MAKING THE FOLLOWING ADDITIONS/DISALLOWANCES ON ACC OUNT OF:- 3 1. SPECULATIVE LOSS ON SHARES, F & O RS. 9,86,42, 179/- AND COMMODITY TRADING 2. DISALLOWANCE UNDER SECTION RS. 45,04,777/- 14 A OF THE ACT 3. REDUCTION OF EXEMPTION UNDER RS. 45,83,724/- SECTION 10 AA OF THE ACT 4. AGGRIEVED BY SUCH AN ACTION OF THE LEARNED ASSES SING OFFICER, ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A). LD . CIT(A), BY WAY OF THE IMPUGNED ORDER REJECTED THE CONTENTIONS OF T HE ASSESSEE IN RESPECT OF THE SPECULATION LOSS AND THE CLAIM OF DE DUCTION UNDER SECTION 10 A OF THE ACT, BUT ACCEPTED THE ALTERNATIVE PLEA OF THE ASSESSEE IN RESPECT OF THE ADDITION MADE ON ACCOUNT OF 14A OF T HE ACT READ WITH RULE 8D OF THE RULES AND THE DEDUCTION TO THE QUANT UM OF THE DIVIDEND THAT WAS EARNED. THE ASSESSEE IS, THEREFORE, BEFORE US IN THIS APPEAL CHALLENGING THESE ADDITIONS TO THE EXTENT THEY ARE SUSTAINED BY THE LD. CIT(A). 5. INSOFAR AS THE GROUND NO. 1.1, RELATING TO THE F INDING OF THE LEARNED ASSESSING OFFICER THAT THE LOSS OF RS. 96,5 1,151/- INCURRED IN FUTURE TRADING AS A SPECULATION LOSS, IT IS ARGUED ON BEHALF OF THE ASSESSEE THAT DEALING IN DERIVATIVES CANNOT BE SAID TO BE PURCHASE AND SALE OF SHARES; THAT THE DERIVATIVES ARE NEITHER SH ARES NOT SCRIPTS NOR STOCK; THAT THE SHARES ARE CAPABLE OF BEING HELD AN D DELIVERED, WHEREAS IT IS NOT SO IN THE CASE OF DERIVATIVES; AND THAT T HE TRANSACTIONS IN DERIVATIVES ARE NOT IN RESPECT OF SHARE SCRIPTS, TH EREFORE, NOT COVERED BY THE EXPRESSION PURCHASE AND SALE OF SHARES AS USE D IN ISOLATION TO SECTION 73 OF THE ACT. 4 6. LD. CIT(A), HOWEVER, OBSERVED THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDI CTIONAL HIGH COURT IN THE CASE OF CIT VS. DLF COMMERCIAL DEVELOPERS LTD I N ITA NO. 94/2014 AND THEREFORE, DECLINED TO ENTERTAIN THE PL EA TAKEN BY THE ASSESSEE. LD. CIT(A) ACCORDINGLY DISMISSED THIS GRO UND OF APPEAL.IT IS SUBMITTED BY THE LD. AR BEFORE US THAT THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DLF DEVELO PERS (SUPRA) RELIED UPON BY THE AUTHORITIES BELOW IS UNDER APPEAL BEFOR E THE HONBLE SUPREME COURT AND THEREFORE TO KEEP THE ISSUE ALIVE , THIS GROUND IS MAINTAINED. 7. BE THAT AS IT MAY, AS OF NOW THE ISSUE IS SQUARE LY COVERED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT A ND IT WAS RIGHTLY FOLLOWED BY THE AUTHORITIES BELOW. IN THESE CIRCUMS TANCES, UNLESS AND UNTIL THERE IS CHANGE IN THE FACTS AND CIRCUMSTANCE S OR IN THE LAW HOLDING THE FIELD, WE FIND IT DIFFICULT NOT TO FOLL OW THE DECISION OF THE JURISDICTIONAL HIGH COURT. WHILE RESPECTFULLY FOLLO WING THE SAME WE DISMISS THIS GROUND OF APPEAL. 8. NOW COMING TO GROUND NO. 2, THE CHALLENGE IS IN RESPECT OF THE SUSTAINING THE DISALLOWANCE UNDER 14A OF THE ACT RE AD WITH RULE 8D OF THE RULES TO THE TUNE OF RS. 38,53,244/- AGAINST TH E SIMILAR DIVIDEND INCOME.ARGUMENT OF THE LD. AR IS THREEFOLD ON THIS ASPECT. FIRSTLY HE SUBMITS THAT NO PROPER SATISFACTION WAS RECORDED BY THE LEARNED ASSESSING OFFICER FOR NOT ACCEPTING THE CONTENTION OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED FOR EARNING THE EXEMPT INCOME, AND 5 THEREFORE ANY CONSEQUENT ASSESSMENT IS BAD. SECONDL Y, HIS CONTENTION IS THAT A BARE PERUSAL OF THE BALANCE SHEET WOULD S HOW THAT THE SHARE CAPITAL AND RESERVES AND SURPLUS OF THE ASSESSEE AG GREGATE TO RS. 1,83,83,78,025 /- WHEREAS NON-CURRENT INVESTMENT OF RS. 3,27,11,623/- AND CURRENT INVESTMENT WAS RS. 10,07,09,739/-, WHIC H COMES TO RS. 13,34,21,362/-WHICH IS FAR FAR LESS THAN THE OWN FU NDS OF THE ASSESSEE IN THE SHAPE OF SHARE CAPITAL AND RESERVES & SURPLU S PUT TOGETHER. BASING ON THIS, HE SUBMITS THAT WHEN THE ASSESSEE H AD KEPT ALL FUNDS IN ONE COMMON POOL AND IT CLAIMED THAT THE INTEREST-BE ARING BORROWED FUNDS WERE UTILISED ENTIRELY FOR THE PURPOSE OF BUS INESS AND INVESTMENT IN TAX FREE BONDS WAS MADE OUT OF THEIR OWN FUNDS, NO DISALLOWANCE OF INTEREST PAID ON BORROWED FUNDS COULD BE MADE UNDER SECTION 14 A OF THE ACT. LASTLY, IT IS CONTENDED THAT THAT THE AUTH ORITIES BELOW FAILED TO CONSIDER THE FACT THAT FOR THE PURPOSE OF COMPUTATI ON OF THE DISALLOWANCE UNDER 14A OF THE ACT READ WITH RULE 8D OF THE RULES, THE ENTIRE INVESTMENT AMOUNT SHALL NOT BE TAKEN INTO CO NSIDERATION, BUT ONLY SUCH INVESTMENT AMOUNT WHICH YIELDED EXEMPT IN COME HAS TO BE TAKEN INTO CONSIDERATION, AND THE DISALLOWANCE U/S 14A OF THE ACT SHOULD HAVE BEEN COMPUTED ONLY QUA THE INVESTMENT W HICH YIELDED EXEMPT INCOME DURING THE RELEVANT PREVIOUS YEAR.IT IS ALSO ARGUED BEFORE US BY THE LD. AR THAT IN RESPECT OF THE ASSE SSMENT YEARS 2008- 09 ENDED 2012-13 A COORDINATE BENCH OF THIS TRIBUNA L DELETED THE ADDITION MADE ON THIS COUNT AND THEREFORE THE SAME MAY BE FOLLOWED. 9. PER CONTRA, IT IS THE SUBMISSION OF THE LD. DR T HAT THE LEARNED ASSESSING OFFICER VIDE PARAGRAPH NO. 6 OF THE ASSES SMENT ORDER RECORDED THE SATISFACTION IN RESPECT OF THE CORRECT NESS OF THE CLAIM OF 6 THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT F ORM PART OF THE TOTAL INCOME. HE FURTHER SUBMITTED THAT THE LD. CIT(A) AL READY GRANTED RELIEF TO THE ASSESSEE BY LIMITING THE DISALLOWANCE TO THE EXEMPT INCOME, AND THEREFORE, THE ASSESSEE CANNOT HAVE ANY GRIEVANCE IN RESPECT OF THE DISALLOWANCE OF EXPENDITURE BY INVOK ING SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES. IN RESPECT OF THE AVERAGE INVESTMENT UNDER RULE 8D(2)(III) OF THE RULES, IT I S SUBMITTED THAT THE LEARNED ASSESSING OFFICER IS JUSTIFIED IN TAKING TH E AVERAGE INVESTMENT FOR CALCULATING THE DISALLOWANCE UNDER RULE 8D(2)(I II) OF THE RULES. 10. WE HAVE GONE THROUGH THE RECORD IN THE LIGHT OF THE SUBMISSIONS MADE ON EITHER SIDE ON THIS ASPECT. VIDE PARAGRAPH NO. 6 OF THE ASSESSMENT ORDER, LEARNED ASSESSING OFFICER RECORDE D THAT THE ASSESSEE WAS SHOWING SUBSTANTIAL INVESTMENTS IN SHARES OF OT HER COMPANIES; THAT THE EXPENSES ARE REQUIRED TO BE INCURRED ON MANPOWE R, OFFICE EXPENSES ETC. FOR THE PURPOSE OF MAINTAINING AND KEEPING TRA CK OF THE FUND; THAT THE ASSESSEE ALSO COULD NOT ATTRIBUTE THE INTEREST EXPENSES TO ANY PARTICULAR INCOME; THAT IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, SECTION 14A OF THE ACT COMES INTO FORCE; AND, THERE FORE, LEARNED ASSESSING OFFICER WAS NOT IN AGREEMENT WITH THE CLA IM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED BY IT IN RELATION TO THE INVESTMENTS FROM WHICH EXEMPT INCOME WAS LIKELY TO BE RECEIVED BY IT. 11. IT IS, THEREFORE, CLEAR THAT THE LEARNED ASSESS ING OFFICER NOT SATISFIED WITH THE PLEA OF THE ASSESSEE THAT IT IS DID NOT INCUR ANY 7 EXPENDITURE IN RELATION TO THE INVESTMENT FROM WHIC H EXEMPT INCOME WAS DERIVED BY IT, BECAUSE ACCORDING TO THE LEARNED ASSESSING OFFICER, THE ASSESSEE MUST HAVE INCURRED SOME EXPENDITURE ON MANPOWER, OFFICE EXPENSES ETC. FOR THE PURPOSE OF MAINTAINING AND KE EPING TRACK OF THE FUNDS. LEARNED ASSESSING OFFICER FURTHER NOTED THAT SECTION 14A OF THE ACT APPLIES WHEN THE LEARNED ASSESSING OFFICER IS N OT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN THAT RE SPECT. HAVING NOTED ALL THESE THINGS, LEARNED ASSESSING OFFICER PROCEED ED TO CALCULATE THE DISALLOWANCE IN THE LIGHT OF THE PROVISIONS IN SECT ION 14A OF THE ACT READ WITH RULE 8D OF THE RULES. WE, THEREFORE, ARE OF THE OPINION THAT THERE IS PROPER SATISFACTION RECORDED BY THE LEARNE D ASSESSING OFFICER IN THIS MATTER AND THE LEARNED ASSESSING OFFICER RE CORDED HIS DISSATISFACTION AS TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE HAVING GONE THROUGH THE AMOUNTS IN INVESTMENT IN SHARES OF OTHER COMPANIES. 12. NOW COMING TO THE CONTENTION OF THE LD. AR ABOU T THE UTILISATION OF THE OWN FUNDS OF THE ASSESSEE FOR IN VESTMENT IN SHARES, IT COULD BE SEEN FROM THE ASSESSMENT ORDER VIDE PARAGR APH NO. 5.2 THAT THE ASSESSEE CONTENDED BEFORE THE LEARNED ASSESSING OFFICER THAT THE INVESTMENT IN SHARES WAS MADE OUT OF SUBSTANTIAL RE SERVE AND SURPLUS IS OF THE ASSESSEE COMPANY AND NO EXPENDITURE WAS INCU RRED TO EARN THE DIVIDEND INCOME AND THEREFORE, NO DISALLOWANCE UNDE R SECTION 14 A OF THE ACT COULD BE MADE. LEARNED ASSESSING OFFICER HA D NOT CONSIDERED THIS ASPECT AS TO THE AVAILABILITY OF THE FUNDS WIT H THE ASSESSEE IN THE SHAPE OF SHARE CAPITAL AND RESERVES & SURPLUS. SO A LSO, THE LD. CIT(A). IN THE CIRCUMSTANCES, WE ARE OF THE CONSIDE RED OPINION THAT THE 8 CONTENTION OF THE ASSESSEE MERITS CONSIDERATION BY THE LEARNED ASSESSING OFFICER. 13. LD. CIT(A) HAD GRANTED RELIEF TO THE ASSESSEE B Y LIMITING THE DISALLOWANCE TO THE EXEMPT INCOME IN THE LIGHT OF T HE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OFJOI NT INVESTMENTS P. LTD. VS. CIT (2015) 372 ITR 694. HOWEVER, FURTHER GRIEVANCE OF THE ASSESSEE IS THAT FOR THE PURPOSE OF DISALLOWANCE U/ S 14A OF THE ACT READ WITH RULE 8D(2)(III) OF THE RULES, SUCH AN AMOUNT S HOULD HAVE BEEN COMPUTED ONLY QUA THE INVESTMENT WHICH YIELDED EXEM PT INCOME DURING THE RELEVANT PREVIOUS YEAR. RELIANCE IS PLA CED ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF ACB INDIA LTD. VS ACIT, 374 ITR 108 (DEL) AND THE DECISION OF THE KOLKATA BENCH OF THE TRIBUNAL IN REI AGRO LTD. VS DCIT, 144 ITD 141N (KOL-TRIB). 14. COMING TO THIS SUBMISSION OF THE LEARNED AR,IN VIEW OF THE DECISION IN THE CASE OF ACB INDIA LTD. VS ACIT, 374 ITR 108 (DEL) AND REI AGRO LTD. VS DCIT, 144 ITD 141N (KOL-TRIB), THE APPEAL AGAINST WHICH WAS DISMISSED BY THE HONBLE CALCUTTA HIGH COURT IN ITA NO.220 OF 2013, WHILE CALCULATING THE AVERAGE I NVESTMENT UNDER RULE 8D(2)(II)(III), ONLY THOSE INVESTMENTS WHICH H AVE ACTUALLY YIELDED DIVIDEND INCOME DURING THE RELEVANT YEAR SHOULD BE CONSIDERED.WE ARE, THEREFORE, CONVINCED WITH THIS ARGUMENT OF THE LD. AR. IN FACT, THE HONBLE JURISDICTIONAL HIGH COURT IN ACB INDIA LTD. (SUPRA) HELD THAT THE LEARNED AO IS REQUIRED BY THE MANDATE OF RULE 8 D(2)(I) TO (III) DETAILED IN THE METHODOLOGY TO BE ADOPTED; AND THE LEARNED AO CANNOT ADOPT THE AVERAGE VALUE OF THE TOTAL INVESTMENT INS TEAD OF THE AVERAGE 9 VALUE OF INVESTMENT OF WHICH INCOME IS NOT PART OF A TOTAL INCOME I.E. VALUE OF TAX-EXEMPT INVESTMENT. IN VIEW OF THIS BI NDING PRECEDENT, WE FIND THAT THE LEARNED AO HAD TO CONSIDER ONLY THOSE INVESTMENTS WHICH HAVE ACTUALLY YIELDED THE TAX-EXEMPT INCOME DURING THE RELEVANT YEAR AND NOT THE TOTAL INVESTMENT.ASSESSEE FURNISHED THE DETAILS OF THE INVESTMENTS WHICH YIELDED THE EXEMPT INCOME, VIDE P AGE NO. 9 OF THE PAPER BOOK. 15. IN VIEW OF OUR ABOVE FINDING, WE SET ASIDE THE FINDINGS OF THE AUTHORITIES BELOW ON THIS ISSUE AND REMAND THE ISSU E BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR CONSIDERING THE E XTENT OF OWN FUNDS OF THE ASSESSEE FOR INVESTMENT IN THE SHARES AND IN CASE THE WHOLE FUNDS OF THE ASSESSEE IN THE SHAPE OF SHARE CAPITAL AND R ESERVES & SURPLUS EXCEEDS THE INVESTMENT IN THE CURRENT YEAR, THE QUE STION OF INTEREST COMPONENT UNDER RULE 8D(2)(II) OF THE RULES DOES NO T ARISE. FURTHER WE DIRECT THE LEARNED ASSESSING OFFICER TO VERIFY THE INVESTMENTS YIELDING EXEMPT INCOME AND TO REACH THE CORRECT AMOUNT OF DI SALLOWANCE KEEPING IN VIEW THE DECISION OF THE HONBLE JURISDI CTIONAL HIGH COURT IN THE CASE OF ACB INDIA LTD (SUPRA). GROUND NO. 2 IS THEREFORE, ALLOWED FOR STATISTICAL PURPOSE 16. GROUND NO. 3 IS CONCERNED WITH THE DISALLOWANCE OF RS.45,83,724/- UNDER SECTION 10AA OF THE ACT. ASSES SEE CLAIMED THE PROFIT OF THE UNIT EXEMPT UNDER SECTION 10AA OF THE ACT TO THE TUNE OF RS. 2,95,16,153/- AND SUBMITTED THAT THE UNIT SITUA TED AT NOIDA, SEZ IS ENGAGED IN THE MANUFACTURE AND EXPORT OF ARTICLES A ND THINGS; THAT SUCH UNIT COMMENCED PRODUCTION FROM THE FINANCIAL YEAR 2 008-09 AND HAS 10 BEEN 100% EXPORT ORIENTED UNIT; AND THAT, THEREFORE , THE PROFIT OF THE UNIT IS ELIGIBLE FOR EXEMPTION UNDER SECTION 10AA O F THE ACT. 17. ON EXAMINATION OF THE BALANCE SHEET IN THE PROF IT AND LOSS ACCOUNT OF THE NSEZ UNIT, LEARNED ASSESSING OFFICER FOUND THAT THE FUNDS OF THE COMPANY WERE PROVIDED BY HEAD OFFICE A ND AT THE END OF THE YEAR THE PROFIT OF THE UNIT WAS ALSO TRANSFERRE D TO THE HEAD OFFICE AND IN THE P&L ACCOUNT ALSO THE OPERATIONAL FIGURES OF SALE, PURCHASE AND OTHER EXPENSES WHICH WERE DIRECTLY INCURRED IN THE UNIT WERE ALSO SHOWN. LEARNED ASSESSING OFFICER FURTHER FOUND THAT THE ASSESSEE COMPANY WAS PROVIDED VARIOUS SERVICES BY THE HEAD O FFICE BUT THE VALUE OF WHICH WAS NOT TRANSFERRED TO THE ELIGIBLE UNIT FOR THE PURPOSE OF COMPUTING THE PROFIT OF THE UNIT, AND THEREBY TH OUGH THE NON- ALLOCATION OF EXPENSES HAS NOT RESULTED INTO SUPPRE SSION OF CONSOLIDATED PROFITS OF THE ASSESSEE COMPANY, SUCH NON-ALLOCATIO N OF EXPENSES HAS RESULTED INTO OVERSTATEMENT OF PROFITS OF THE ELIGI BLE UNDERTAKING WHICH ARE EXEMPT FROM THE TAX. ON THIS PREMISE, TAKING TH E TURNOVER AS THE BASIS FOR APPORTIONMENT OF CERTAIN EXPENSES AT 2.64 %, THE LEARNED ASSESSING OFFICER ALLOCATED A SUM OF RS. 6,50,923/- TO NSEZ OUT OF THE TOTAL EXPENSES OF RS. 2,46,56,200/- INCURREDBY THE HEAD OFFICE IN RESPECT OF KEY MAN INSURANCE, BASIC SALARY OF DIREC TOR, TRANSIT GOODS INSURANCE, CASH TRANSIT INSURANCE, MOTOR CAR INSURA NCE SO ON AND SO FORTH AND REDUCES THE SAME FROM THE PROFIT OF THE E LIGIBLE UNIT. 18. LEARNED ASSESSING OFFICER, ON EXAMINATION OF TH E BALANCE SHEET OF THE ELIGIBLE UNIT, FURTHER FOUND THAT THE LIABIL ITY TOWARDS HEAD OFFICE AS ON 31/3/2013 WAS RS. 3,03,77,120/- AND AS ON 31/ 3/2014 WAS 11 3,51,69,570/-, THE AVERAGE OF WHICH COMES TO RS. 3, 27,73,345/- AND THEREFORE, CONSIDERING THE INTEREST AT 12% PER ANNU M REDUCED THE PROFIT OF THE ELIGIBLE UNIT BY RS. 39,32,81/- AND THEREFOR E HE TOTALLY DISALLOWED A SUM OF RS. 45,83,724/- FROM OUT OF RS. 2,95,16,153/- CLAIMED BY THE ASSESSEE UNDER SECTION 10AA OF THE A CT AND LIMITED IT TO RS. 2,49,32,429/-. 19. IN THE APPEAL BEFORE THE LD. CIT(A), IT WAS ARG UED ON BEHALF OF THE ASSESSEE THAT THE DUTIES OF THE DIRECTORS OF A COMPANY ARE NOT CONFINED TO JUST TOWARDS SEEING THE TURNOVER OF THE COMPANY, THAT IT IS COMMON KNOWLEDGE THAT A MAJOR PART OF THE DUTIES OF THE DIRECTORS IS TO ADMINISTER THE AFFAIRS OF THE COMPANY WITH EMPHA SIS ON THE COMPLIANCE OF THE COMPANIES ACT AND A HOST OF OTHER ACTS AGGREGATING TO 3 DOZEN AND ODD; THAT EXPENSES ON KEY-MAN INSURANCE , BASIC SALARY OF DIRECTOR, AUDIT FEES, TAX AUDIT FEES AND CERTIFICAT ION, TAXATION MATTER AND DIRECTORS MEETING FEES SHOULD NOT BE ALLOCATED TO N SEZ. IT WAS FURTHER PLEADED THAT THE EXPENSES RELATING TO TRANSIT GOOD INCIDENCE AND DIWALI EXPENSES IN RESPECT OF NSEZ HAVE BEEN SEPARATELY CL AIMED IN THE BOOKS OF NSEZ AND THEREFORE THE QUESTION OF ALLOCAT ION OF SUCH EXPENSES TO NSEZ DOES NOT ARISE. ACCORDING TO THE A SSESSEE THE TOTAL EXPENDITURE WHICH HAS TO BE APPORTIONED BETWEEN THE HEAD OFFICE AND THE NSEZ IS ONLY RS. 72,13,329/- AND THE DISALLOWAN CE ON THIS COUNT SHALL BE CONFINED ONLY TO RS. 1,90,432/-. 20. IN RESPECT OF THE ALLOCATION OF INTEREST COMPON ENT IS CONCERNED, IT WAS ARGUED THAT A PERUSAL OF SECTION 8 IA (8) OF TH E ACT WOULD SHOW THAT IT TAKES INTO ITS AMBIT ONLY GOODS OR SERVICES WHICH STAND 12 TRANSFERRED TO THE ELIGIBLE BUSINESS AND SINCE THER E IS NO DEFINITION OF SERVICES IN THE INCOME TAX ACT, 1961, THE DEFINIT ION OF SERVICES AS PER SECTION 659 OF THE FINANCE ACT, 1994 HAS TO BE TAKEN WHICH SHOWS THAT A TRANSACTION IN MONEY OR ACTIONABLE CLAIM IS NOT CONSIDERED AS A SERVICE BY THE LEGISLATURE. 21. LD. CIT(A) ON CONSIDERATION OF THESE CONTENTION S RAISED BEFORE HIM, OBSERVED THAT THE EXPENSES INCURRED ON KEY MAN INSURANCE, BASIC SALARY OF DIRECTORS, AUDIT FEES, TAX AUDIT FEES AND CERTIFICATION, TAX MATTERS AND DIRECTORS MEETING FEES WERE INCURRED FO R THE WHOLE OF THE BUSINESS OF THE ASSESSEE, INCLUDING THE NSEZ UNIT A ND NOT ONLY FOR THE HEAD OFFICE, AS CLAIMED BY THE ASSESSEE AND THEREFO RE, IN VIEW OF THE FACT THAT THE ASSESSEE HAS NOT ALLOCATED SUCH COMMO N EXPENSES TO THE NSEZ UNIT, THERE WAS ARTIFICIAL INCREASE IN THE EXE MPTED PROFITS CLAIMED UNDER SECTION 10AA OF THE ACT. HE, THEREFOR E, HELD THAT THERE IS NO INFIRMITY IN THE ALLOCATION OF EXPENSES BY TH E LEARNED ASSESSING OFFICER, AND ACCORDINGLY CONFIRMED THE DISALLOWANCE TO THE TUNE OF RS. 6,50,923/- . 22. IN RESPECT OF THE DISALLOWANCE OF INTEREST ALLO CABLE TO THE NSEZ, LD. CIT(A) HELD THAT SINCE THE EXPENSES INCURRED ON INTEREST TOWARDS FINANCE TO NSEZ UNIT WAS NOT ALLOCATED AND ALL THE EXPENDITURE TOWARDS FINANCE COST WAS DEBITED IN THE HEAD OFFICE ACCOUNT AND OTHER TAXABLE UNITS, IT ALSO RESULTED IN ARTIFICIAL INCREASE IN T HE EXEMPTED PROFITS CLAIMED UNDER SECTION 10 AA OF THE ACT. HE THEREFOR E CONFIRMED THIS DISALLOWANCE ALSO. 13 23. SIMILAR ARGUMENTS ARE ADVANCED BEFORE US BY THE LD. AR. THERE DOES NOT SEEM TO BE ANYTHING ILLEGALITY OR IRREGULA RITY IN THE OBSERVATIONS OF THE AUTHORITIES BELOW AS TO CERTAIN EXPENSES RELATING TO THE KEY MAN INSURANCE, BASIC SALARY OF DIRECTORS, A UDIT FEES, TAX AUDIT FEES AND CERTIFICATION, TAXATION MATTERS AND DIRECT ORS MEETING FEE ETC. NO DOUBT THE DIRECTORS DO NOT WORK FOR HEAD OFFICE ALONE. THE FACT THAT THEY ALSO OVERSEE THE WORK OF THE EXEMPT UNIT, MAKE S IT OBLIGATION ON THE PART OF THE EXEMPT UNIT TO CONTRIBUTE TO SUCH E XPENDITURE. SO ALSO, IN RESPECT OF THE OTHER EXPENDITURE, OTHER THAN THE ONE WHICH WAS SEPARATELY ACCOUNTED FOR IN THE BOOKS OF NSEZ. HOWE VER, IT SEEMS THE AUTHORITIES BELOW MISSED TO NOTICE THE CONTENTION O F THE ASSESSEE THAT THE EXPENSES RELATING TO TRANSIT GOODS INSURANCE AN D DIWALI EXPENSES IN RESPECT OF NSEZ WERE SEPARATELY CLAIMED IN THE BOOK S OF NSEZ AND THEREFORE, THE QUESTION OF ALLOCATION OF SUCH EXPEN SES DOES NOT ARISE. THIS FACT NEEDS TO BE VERIFIED. 24. IT IS FURTHER SUBMITTED BEFORE US IN RESPECT OF THE INTEREST COMPONENT THAT AT THE END OF THE EVERY YEAR, AS OBS ERVED BY THE AUTHORITIES BELOW, THE PROFIT OF THE EXEMPT UNIT AL SO IS TRANSFERRED TO THE HEAD OFFICE AND HEAD OFFICE HOLDS IT ON BEHALF OF T HE EXEMPT UNIT OUT OF WHICH THE EXEMPT UNIT DRAWS THE AMOUNTS FOR ITS OPE RATIONS AND THEREFORE, THE EXEMPT UNIT OWING ANY AMOUNT TO THE HEAD OFFICE SO AS TO NECESSITATE THE CONTRIBUTION IN THE INTEREST EXPENS ES INCURRED BY THE HEAD OFFICE. AS A MATTER OF FACT, THE AUTHORITIES B ELOW NOTED THAT AT THE END OF THE YEAR THE PROFIT OF THE UNIT IS ALSO TRAN SFERRED TO THE HEAD OFFICE. IN SUCH CASE, THE FUNDING OF THE EXEMPT UNI T BY THE HEAD OFFICE BY INCURRING INTEREST EXPENSE DOES NOT ARISE. SINCE THE LEARNED 14 ASSESSING OFFICER DID NOT CONSIDER THIS ASPECT, IT IS NOW NECESSARY FOR US TO DIRECT HIM TO DO SO. 25. ON GROUND NO. 3, WE ACCORDINGLY HOLD THAT NO PO RTION OF COMMON EXPENDITURE IS ALLOCABLE TO THE NSEZ IN RESP ECT OF SUCH EXPENDITURE AS WAS ENTERED BY THE NSEZ IN ITS OWN B OOKS OF ACCOUNTS. FURTHER, THE LEARNED ASSESSING OFFICER SHALL VERIFY WHETHER THE HEAD OFFICE IS HOLDING THE PROFIT OF THE NSEZ WHICH IS T RANSFERRED TO IT AT THE END OF EVERY YEAR OUT OF WHICH CERTAIN FUNDS ARE PR OVIDED TO THE NSEZ FOR ITS OPERATIONS. IF IT BE SO, NO PORTION OF INTE REST EXPENSE INCURRED BY THE HEAD OFFICE IS ALLOCABLE TO THE NSEZ TO THE EXT ENT OF THE FUNDS WHICH ARE NOT PROVIDED TO THE NSEZ BY THE HEAD OFFI CE BY INCURRING INTEREST EXPENDITURE. FOR THIS PURPOSE AND TO THIS EXTENT, WE SET ASIDE THE IMPUGNED ORDER AND REMAND ISSUE TO THE FILE OF THE LEARNED ASSESSING OFFICER. 26. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D IN PART AND FOR STATISTICAL PURPOSE. PRONOUNCED ON THIS THE 7 TH DAY OF SEPTEMBER, 2020. SD/- (G.S. PANNU) SD/- (K.NARASIMHA CHARY) VICE PRESIDENT JUDICIAL MEMBER 07.09.2020.