Kumar Urban Development Pvt. Ltd., Pune V. Joint Commissioner of Income-tax,

ITA 46/PUN/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7227 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 12-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income; Capital expenditure
• Section: 14A; 37(1); 6; 12; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 39 /P U N/201 5 / ASSESSMENT YEAR : 20 10 - 11 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 14, PUNE ....... / APPELLANT / V/S. KUMAR URBAN DEVELOPMENT LIMITED, 2413, KUMAR CAPITAL, 2 ND FLOOR, EAST STREET, CAMP, PUNE - 411001 PAN : AAACK7659N / RESPONDENT . / ITA NO . 46/PUN/2015 / ASSESSMENT YEAR : 2010 - 11 KUMAR URBAN DEVELOPMENT PVT. LIMITED, 10 TH FLOOR, KUMAR BUSINESS CENTER (KBC), OPP. BUND GARDEN ROAD, PUNE 411001 PAN : AAACK7659N ....... / APPELLANT / V/S. JOINT COMMISSIONER OF INCOME TAX, RANGE 11, PUNE / RESPONDENT ASSESSEE BY : S HRI NIKHIL PATHAK REVENUE BY : SHRI AJAY MODI / DATE OF HEARING : 06 - 09 - 2017 / DATE OF PRONOUNCEMENT : 31 - 10 - 2017 2 ITA NO S. 39 & 46/PUN/2015, A.Y. 2010 - 11 / ORDER PER VIKAS AWASTHY, JM : TH ESE CROSS APPEALS BY THE REVENUE AND THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - I, PUNE DATED 28 - 03 - 2014 FOR THE ASSESSMENT YEAR 2010 - 11. 2. THE REVENUE HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) BY RAISING FOLLOWING GROUNDS : 01. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) - 1, PUNE CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 02. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN DELETING THE ADDITION ON ACCOUNT OF EXPENSES NOT RELATED TO THE BUSINESS OF THE ASSESSEE OF RS . 2,18,39,912/ - INSTEAD OF CONFIRMING THE SAME. 03. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN APPRECIATING THE DECISION OF SUPREME COURT IN THE CASE OF SUPREME COURT IN THE CASE OF LASHMIRATAN COTTON MILLS CO LTD VS. CIT (1969) 73 ITR 634 (SC) WHEREIN IT WAS HELD THAT IN ORDER TO CLAIM THAT AN EXPENDITURE FALLS UNDER SECTION 37(1) THE ONUS IS ON THE ASSESSEE TO PROVE THE NEXUS OF THAT EXPE NDITURE TO ITS BUSINESS WHAT THE ASSESSEE HAS FAILED TO DISPOSE OFF. 04. FOR THE FACTS AND SUCH OTHER REASONS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) - I, PUNE MAY BE VACATED AND THAT OF THE ASSESSIN G OFFICER BE RESTORED. 05. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE HON BLE TRIBUNAL. 3. SHRI AJAY MODI REPRESENTING THE DEPARTMENT SUBMITTED THAT THE ASSESSEE HAS INCURRED EXPENDITURE TO THE TUNE OF RS.2,18,39,912/ - UN - RELATED TO THE BUSINESS . THE EXPENDITURE INCURRED BY THE ASSESSEE UNDER VARIOUS HEADS INTER ALIA INCLUDE : I . SALARIES WAGES AND BONUS RS.3,07,85,760/ - II . OPERATING AND OTHER EXPENSES RS.3,16,38,764/ - III . FINANCIAL EXPENSES RS.29,36,57,269/ - ---------------------- TOTAL RS.35,60,81,793/ - 3 ITA NO S. 39 & 46/PUN/2015, A.Y. 2010 - 11 3.1 AS A GAINST EXPENDITURE OF RS.35.60 CRORES , THE ASSESSEE HAS RETURNED INCOME FROM BUSINESS RS.57.6 LAKHS ONLY . THE LD. DR CONTENDED THAT NO PRUDENT BUSINESSMAN WILL INCUR EXPENDITURE OF RS.35.60 CRORES TO EARN A PROFIT OF RS.57.60 LAKHS. THE LD. DR SUBMITTED THAT THE ASSESSEE HAS FAILED TO GIVE ANY PLAUSIBLE REASON FOR INCURRING SUCH A HUGE EXPENDITURE. IT IS A WELL SETTLED LAW THAT BURDEN O F PROVING EXPENDITURE AND THAT THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS IS ON THE ASSESSEE. IN THE INSTANT CASE THE ASSESSEE HAS FAILED TO ESTABLISH NEXUS BETWEEN THE EXPENDITURE AND ITS BUSINESS. THE LD. DR VEHEMENTLY DEFENDED THE ORDER OF ASSESSING OFFICER IN COMPUTING AND DISALLOWING RS.2,18,39,912/ - AS EXPENDITURE UN RELATED TO THE BUSINESS. 4. ON THE OTHER HAND SHRI NIKHIL PATHAK APPEARING ON BEHALF OF THE ASSESSEE STRONGLY SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEA LS) IN DELETING THE ADDITION OF RS.2,18,39,912/ - . THE LD. AR SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT. THE ASSESSEE IS ELIGIBLE TO CLAIM EXPENDITURE ON ACCOUNT OF SALARIES, WAGES, BONUS AND OTHER OPERATING EXPENSE S AGAINST HIS BUSINESS INCOME. THE LD. AR REITERATING SUBMISSIONS MADE BEFORE COMMISSIONER OF INCOME TAX (APPEALS) CONTENDED THAT THE ASSESSING OFFICER HAS FAILED TO CONSIDER THE FACT THAT WHILE EARNING INCOME OF RS.57.6 LAKHS THE ASSESSEE HAS INCURRED EX PENDITURE IN RESPECT OF ITS ONGOING REAL ESTATE PROJECTS . 4.1 THE LD. AR FURTHER SUBMITTED THAT SALARY AND WAGES AND INTEREST EXPENDITURE ARE THE TIME COST AND THEY ARE NOT DIRECTLY VARIABLE AND DIRECTLY UN RELATED TO THE INCOME OF THE ASSESSEE. THE LD. A R CONTROVERTING THE SUBMISSIONS MADE BY LD. DR SUBMITTED THAT SOMETIMES EVEN AFTER HEAVY EXPENDITURE THE BUSINESS MAY INCUR LOSS , T HEREFORE, THE OBSERVATIONS OF THE 4 ITA NO S. 39 & 46/PUN/2015, A.Y. 2010 - 11 LD. DR THAT NO PRUDENT BUSINESSMAN WOULD INCUR EXPENDITURE OF RS.35.60 CRORES TO EARN PROFI T OF R S .57.60 LAKHS IS NOT TENABLE AND THUS LIABLE TO BE REJECTED. THE LD. AR POINTED THAT THE ASSESSEE BEING A BUILDER AND DEVELOPER UNDERTAKES THE DEVELOPMENT OF RESIDENTIAL AND COMMERCIAL PROPERTIES. THE ACTIVITIES CARRIED OUT FOR THE PROJECTS ARE CONTINUOUS . THE ASSESSEE IS CONSISTENTLY FOLLOWING A PARTICULAR METHOD OF RECOGNIZING PROFITS , AS PER ACCOUNTING POLICY . THE REVENUE HAS NOT REJECTED THE METHOD FOLLOWED BY ASSESSEE IN RECOGNIZING PROFITS EITHER IN THE PAST OR IN THE SUBSEQUENT ASSESSMEN T YEARS. THEREFORE, THE EXPENDITURE CLAIMED BY THE ASSESSEE CANNOT BE DISALLOWED MERELY FOR THE REASON THAT THE ASSESSEE HAS EARNED MEAGER PROFITS IN THE ASSESSMENT YEAR UNDER APPEAL. 5. W E HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF RI VAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW . THE COMMISSIONER OF INCOME TAX (APPEALS) HAS DELETED THE ADDITION IN RESPECT OF EXPENDITURE ALLEGED TO BE FOR NON - BUSINESS PURPOSE BY OBSERVING AS UNDER : 6.3.1 IN ORDER TO CLAIM EXPENDITUR E AS DEDUCTION UNDER SECTION 37(1) IN COMPUTING THE INCOME FROM BUSINESS, THE FOLLOWING CONDITIONS SHOULD BE SATISFIED THE EXPENDITURE SHOULD NOT BE IN THE NATURE DESCRIBED UNDER SECTION 30 TO 36. IT SHOULD NOT BE IN THE NATURE OF CAPITAL EXPENDITURE. IT SHOULD NOT BE PERSONAL EXPENDITURE OF THE ASSESSEE. IT SHOULD HAVE BEEN INCURRED IN THE PREVIOUS YEAR. IT SHOULD BE IN RESPECT OF BUSINESS CARRIED ON BY THE ASSESSEE. IT SHOULD BE EXPENDED WHOLLY & EXCLU SIVELY FOR THE PURPOSE OF SUCH B USINESS. IT SHOULD NOT HAVE BEEN INCURRED FOR ANY PURPOSE WHICH IS AN OFFENCE OR IS PROHIBITED BY ANY LAW. 6:3.2 IN THE PRESENT CASE, THE ASSESSING OFFICER, EXCEPT HOLDING THAT THE QUANTUM OF THE EXPENDITURE DID NOT COMMENSURATE WITH THE INCOME DISCLOSED FROM BUSINESS AND THEREFORE, THE EXPENDITURE COU LD NOT BE SAID TO BE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS, HAS NOT BROUGHT OUT ANY 5 ITA NO S. 39 & 46/PUN/2015, A.Y. 2010 - 11 INFRINGEMENT OF THE CONDITIONS LAID DOWN IN SEC.37(1). A PERUSAL OF THE ASSESSMENT ORDER INDICATES THAT THE ASSESS ING OFFICER HAS NOT QUESTIONED THE GENUINENESS OF THE EXPENDITURE INCURRED BY THE APPELLANT. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE EXPENDITURE WAS NOT INCURRED IN THE COURSE OF THE BUSINESS ACTIVITIES OF THE APPELLANT. APPARENTLY, THE ASSE SSING OFFICER ALSO DOES NOT SEEM TO HAVE EVEN VERIFIED NATURE OF THE EXPENDITURE CLAIMED BEFORE DRAWING THE INFERENCE THAT IT WAS NOT INCURRED FOR THE PURPOSE OF BUSINESS BEING CARRIED ON BY THE APPELLANT OR THAT THE EXPENSES CLAIMED ACTUALLY BELONGED TO ANY OTHER GROUP CONCERN WHICH APPELLANT CHOSE TO CLAIM IN ORDER TO SET OFF THE SAME AGAINST ITS INCOME. THE ONLY REASON ADDUCED BY THE ASSESSING OFFICER FOR MAKING THE DISALLOWANCE IS THAT THE EXPENDITURE INCURRED IS NOT COMMENSURATE WITH BUSINESS INCOME D ECLARED BY THE APPELLANT. BUT, THE ADEQUACY OF THE CORRESPONDING INCOME GENERATED CANNOT BE THE SOLE CRITERION FOR DECIDING THE ADMISSIBILITY OF EXPENDITURE OR OTHERWISE. PERUSAL OF THE RELEVANT SCHEDULES OF THE SALARY & WAGES EXPENSES AND OPERATING EXPENS ES WHICH HAVE BEEN SUBJECTED TO DISALLOWANCE BY THE ASSESSING OFFICER CLEARLY SHOWS THAT THEY ARE IN THE NATURE OF RECURRING ADMINISTRATIVE EXPENSES AND PERSONNEL EXPENSES. THERE IS CONSIDERABLE FORCE IN THE ARGUMENT OF THE APPELLANT THAT THE APPELLANT IS ON - GOING CONCERN AND ITS BUSINESS IS A CONTINUOUS ONE AND THE EXPENDITURE ON ACCOUNT OF SALARY AND WAGES BEING TIME COST, CANNOT BE DIRECTLY ADJUDGED IN TERMS OF QUANTUM OF INCOME GENERATED IN A PARTICULAR YEAR. APART FROM THIS , THE EXPENDITURE IN RELATION TO INCOME WHICH IS EXEMPT FROM TAX STOOD ALREADY CONSIDERED BY THE DISALLOWANCE MADE UNDER THE PROVISIONS OF SEC.14A. SIMILARLY, THE EXTENT OF FINANCIAL EXPENSES NOT INCURRED FOR THE PURPOSE OF BUSINESS ALSO STANDS CONSIDERED BY WAY OF DISALLOWANCE MADE U /S.36(1)(III) OF THE I.T. ACT. IN SUCH CIRCUMSTANCES, THERE IS NO JUSTIFICATION ON THE PART OF THE ASSESSING OFFICER IN MAKING ANY FURTHER DISALLOWANCE WITHOUT BRINGING ON RECORD ANY COGENT MATERIAL TO SHOW THAT WHAT HAS BEEN CLAIMED BY THE APPELLANT IS EX CESSIVE OR NOT GENUINE. THEREFORE, IN MY CONSIDERED OPINION, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT SUSTAINABLE ON FACTS AND IN LAW AND THE ADDITION OF RS. 2,18,39,912/ - MADE ON THIS GROUND IS DELETED. GROUND OF APPEAL NO.3 SUCCEEDS. AFTER EXAMINING THE IMPUGNED ORDER WE ARE OF VIEW THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN VALID AND COGENT REASONS FOR DELETING THE ADDITION MADE BY ASSESSING OFFICER. WE CONCUR WITH THE SAME. THE ASSESSING OFFICER CANNOT STEP INTO THE SHOES OF ASSESSEE AND DICTATE HOW MUCH EXPENDITURE IS REASONABLE FOR EARNING PARTICULAR 6 ITA NO S. 39 & 46/PUN/2015, A.Y. 2010 - 11 QUANTUM OF INCOME. AS HAS BEEN RIGHTLY POINTED BY THE FIRST APPELLATE AUTHORITY THE ASSESSING OFFICER HAS NOT RAISED ANY DOUBT OVER THE GENUINENESS OF THE EXPENDITURE. THUS, IN THE ABSENCE OF ANY MATERIAL ON RE CORD INDICATING THAT THE EXPENDITURE HAS BEEN MADE FOR NON - BUSINESS PURPOSE, NO DISALLOWANCE IS WARRANTED. ACCORDINGLY, GROUNDS RAISED BY THE REVENUE IN APPEAL ARE REJECTED AND APPEAL OF THE REVENUE IS DISMISSED. 6 . TH E ASSESSEE HAS ASSAILED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) BY RAISING FOLLOWING GROUNDS : ON FACTS AND IN LAW, 1] THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF 14A AMOUNTING TO RS .2,19,04,784/ - MADE BY THE LEARNED A.O. WITHO UT APPRECIATING THAT THE DISALLOWANCE MADE BY THE LEARNED A.O. WAS NOT JUSTIFIED AT ALL. 1.1] THE LEARNED CIT(A) ERRED IN HOLDING THAT THE SHARE APPLICATION MONEY AMOUNTING TO RS . 35,65,22,930 / - PAID BY THE APPELLANT COMPANY WAS TO BE CONSIDERED AS PART OF TAX FREE INVESTMENTS FOR DETERMINING THE DISALLOWANCE U/S. 14A R.W.R. 8D. 1.2] WITHOUT PREJUDICE, THE APPELLANT COMPANY SUBMITS THAT IF AT ALL, THE SHARE APPLICATION MONEY PAID BY THE APPELLANT COMPANY IS TO BE CONSIDERED AS PART OF THE TAX FREE INVEST MENTS, IN THAT CASE, ONLY THE AMOUNT IN RESPECT OF WHICH SHARES ARE FINALLY ALLOTTED TO THE APPELLANT COMPANY SHOULD BE CONSIDERED AND THOSE AMOUNTS WHICH ARE ULTIMATELY REFUNDED BACK TO THE APPELLANT COMPANY SHOULD NOT BE CONSIDERED AS PART OF TAX FREE IN VESTMENTS. 1.3] WITHOUT PREJUDICE, THE APPELLANT COMPANY FURTHER SUBMITS THAT THE SHARE APPLICATION MONEY WHICH IS PAID OUT OF INTEREST BEARING FUNDS SHOULD ONLY BE CON SIDERED FOR THE PURPOSES OF MAKING THE DISALLOWANCE U/S . 14A AND NOT THE ENTIRE SHARE A PPLICATION MONEY PAID BY THE APPELLANT COMPANY. 2] THE LEARNED CIT(A) FURTHER ERRED IN HOLDING THAT THE LEARNED A.O. WAS JUSTIFIED IN MAKING DISALLOWANCE U/S. 14A IN RESPECT OF THE SHARE OF PROFIT EARNED BY THE APPELLANT COMPANY FROM PARTNERSHIP FIRMS WIT HOUT APPRECIATING THAT THE PROVISIONS OF SECTION 14A WERE NOT APPLICABLE TO THE SHARE OF PROFIT EARNED FROM PARTNERSHIP FIRMS. 2.1] THE LEARNED CIT(A) ERRED IN HOLDING THAT THE LEARNED A.O. WAS JUSTIFIED IN NOT CONSIDERING THE DEBIT BALANCES OF APPELLANT COMPANY IN THE FIRMS IN WHICH THE APPELLANT IS A PARTNER WHILE DETERMINING THE AVERAGE INVESTMENTS FOR THE PURPOSES OF DETERMINING THE DISALLOWANCE U/S. 14A R.W.R 8D. 7 ITA NO S. 39 & 46/PUN/2015, A.Y. 2010 - 11 3] THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.10,13,878/ - BEING INTEREST RECEIVED ON DEPOSITS BELONGING TO THE SOCIETY WITHOUT APPRECIATING THAT THE SAID INTEREST WAS NOT INCOME OF THE APPELLANT COMPANY. 3.1] THE LEARNED CIT ( A) FAILED TO APPRECIATE THAT THE ABOVE INTEREST WAS RECEIVED ON DEPOSITS MADE WHICH WERE TO BE ULTIMAT ELY TRANSFERRED TO THE FLAT OWNERS' SOCIETY AND HENCE, THE INTEREST RECEIVED ON SUCH DEPOSITS COULD NOT BE TAXED AS AN INCOME OF THE APPELLANT COMPANY. 3.2 THE LEARNED CIT(A) ERRED IN HOLDING THAT THE APPELLANT COMPANY HAS CLAIMED CREDIT OF THE TDS DEDUCT ED ON SUCH INTEREST AND HENCE, THE INTEREST INCOME SHOULD BE TAXED IN THE HANDS OF THE APPELLANT COMPANY WITHOUT APPRECIATING THAT NO SUCH CREDIT WAS CLAIMED BY THE APPELLANT IN ITS RETURN AND THEREFORE, THE QUESTION OF TAXING SUCH INTEREST INCOME SIMPLY D ID NOT ARISE. 4] THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENDITURE U/S . 36(1)(III) OF RS.3,34,62,116/ - MADE BY THE LEARNED A.O. AND FURTHER ERRED IN ENHANCING THE DISALLOWANCE OF INTEREST BY AN AMOUNT OF RS .1,99,39,085/ - AND THEREBY MAKING TOTAL DISALLOWANCE OF RS .5,34,01,201/ - U/S. 36(1)(III). 4.1] THE LEARNED CIT(A) ERRED IN HOLDING THAT THE APPELLANT COMPANY HAD DIVERTED INTEREST BEARING FUNDS TO KUMAR HOUSING CORPORATION LTD. AND KUMAR SINEW DEVELOPERS PVT. LTD. AND ON THE AMOUNTS ADVANCED TO THEM, THE APPELLANT HAD NOT ANY INTEREST AND THEREFORE, THE DISALLOWANCE OF INTEREST WAS REQUIRED TO BE MADE. 4.2] THE LEARNED CIT(A) FURTHER ERRED IN HOLDING THAT THE AMOUNTS ADVANCED BY THE APPELLANT COMPANY TO THE ABOVE TWO CON CERNS WERE NOT A BUSINESS ADVANCES AND THEREFORE, THE DISALLOWANCE OF INTEREST WAS WARRANTED. 4.3] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE AMOUNTS ADVANCED TO THE ABOVE TWO SISTER CONCERNS WERE BUSINESS ADVANCES AND NOT LOANS AND HENCE, THERE WAS NO QUESTION OF CHARGING ANY INTEREST ON THE AMOUNTS ADVANCED AND ACCORDINGLY, THE DISALLOWANCE OF INTEREST WAS NOT WARRANTED AT ALL. 4.4] THE LEARNED CIT(A) FURTHER ERRED IN NOT APPRECIATING THAT THE ASSESSEE COMPANY HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH IT FOR ADVANCING THE AMOUNTS TO THE SISTER CONCERNS AND IN THE ABSENCE OF ANY NEXUS THAT THE INTEREST BEARING FUNDS WERE UTILIZED FOR ADVANCING THE FUNDS TO THE SISTER CONCERNS, THE DISALLOWANCE OF INTEREST WAS NOT JUSTIFIED. 5] THE APPELLA NT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 8 ITA NO S. 39 & 46/PUN/2015, A.Y. 2010 - 11 7 . THE ASSESSEE HAS RAISED ADDITIONAL GROUNDS TO SUPPLEMENT GROUND NOS. 1 AND 2 RAISED IN GROUNDS OF APPEAL. THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER : 1 ] THE ASSESSEE SUBMITS THAT THE DISALLOWANCE OFFERED BY IT OF INTEREST EXPENDITURE OF RS.6,58,31,444/ - U/S. 14A R.W.R. 8D IN THE RETURN OF INCOME IS NOT WARRANTED AND THE SAME SHOULD BE DELETED WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE. 2] THE ASSESSEE SUBMITS THAT THE DISALLOWANCE OFFERED BY IT ON ACCOUNT OF INDIRECT EXPENDITURE OF RS.58,36,259/ - U/S. 14A R.W.R. 8D IN THE RETURN OF INCOME IS NOT WARRANTED AND THE SAME SHOULD BE DELETED WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSED. 3] THE ASSESSEE SUBMITS THAT THE INVESTMENTS ON WHICH NO TAX FREE INCOME HAS BEEN EARNED DURING THE YEAR SHOULD BE EXCLUDED FOR THE PURPOSES OF COMPUTING THE DISALLOWANCE U/S. 14A R.W.R 8D. 4] THE ASSESSEE FURTHER SUBMITS THAT THE INVESTMENTS MADE B Y IT IN SISTER CONCERNS ARE STRATEGIC INVESTMENTS AND HENCE, SHOULD BE EXCLUDED FOR THE PURPOSES OF COMPUTING THE DISALLOWANCE U/S. 14A R.W.R. 8D. 8 . THE LD. AR SUBMITTED THAT THE ASSESSEE HAS SUO - MOTU MADE DISALLOWANCE OF RS.7.16 CRORES U/S. 14A R.W.R . 8D FOR THE ASSESSMENT YEAR 2010 - 11. DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE HAS EARNED EXEMPT INCOME IN THE FORM OF DIVIDEND RS.1,44,394/ - AND SHARE OF PROFIT FROM PARTNERSHIP FIRMS RS.22.19 CRORES. THE ASSESSEE HAS MADE INVESTMENTS IN GROUP CONCERNS PRIMARILY AS STRATEGIC REASONS. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER INCREASED DISALLOWANCE U/S. 14A R.W.R. 8D FROM RS.7.6 CRORES TO RS.9.35 CRORES. IN FIRST APPEAL THE COMMISSIONE R OF INCOME TAX (APPEALS) CONFIRMED THE FINDINGS OF ASSESSING OFFICER. THE LD. AR ASSAILING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) MADE T WO FOLD SUBMISSIONS. 8.1 THE FIRST CONTENTION OF THE LD. AR IS THAT THE ASSESSING OFFICER WHILE MAKING DISALLOWANCE U/S. 14A R.W.R. 8D HAS INCLUDED THE AMOUNT OF SHARE 9 ITA NO S. 39 & 46/PUN/2015, A.Y. 2010 - 11 APPLICATION MONEY AGAINST WHICH SHARES ARE YET TO BE ALLOTTED. THE LD. AR POINTED THAT THE CO - ORDINATE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 1628/PUN/2013 FOR ASSESSMENT YEAR 2009 - 10 DECIDED ON 02 - 02 - 2017 HAS HELD THAT SHARE APPLICATION MONEY PENDING ALLOTMENT DOES NOT CONSTITUTE PART OF INVESTMENT FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/S. 14A. 8. 2 THE SECOND CONTENTION OF LD. AR IS THAT THE ASSESSEE IN THE RETURN OF I NCOME HAS MADE SUO - MOTO DISALLOWANCE U/S. 14A TO THE TUNE OF RS.7,16,67,703/ - . THE ASSESSING OFFICER ENHANCED DISALLOWANCE TO RS.9.35 CRORES. THE LD. AR SUBMITTED THAT THE ASSESSEE MADE VOLUNTARY DISALLOWANCE IN RESPECT OF INVESTMENTS IN GROUP CONCERNS F ROM WHICH NO TAX FREE INCOME WAS EARNED DURING THE YEAR. THOUGH, THE ASSESSEE MADE VOLUNTARY DISALLOWANCE U/S. 14A, IN FACT NO DISALLOWANCE U/S. 14A WAS WARRANTED IN RESPECT OF STRATEGIC INVESTMENT IN SISTER CONCERNS. THE LD. AR IN SUPPORT OF HIS SUBMISS IONS PLACED RELIANCE ON THE DECISION OF CO - ORDINATE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009 - 10 (SUPRA). THE LD. AR POINTED THAT THE CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2008 - 09 (SUPRA) TAKING A SIMILAR VIEW HAS DELETED DISALLOWANCE U/S. 14A. 8. 3 IN RESPECT OF GROUND NO. 3 RELATING TO ADDITION OF RS.10,13,878/ - ON ACCOUNT OF INTEREST RECEIVED ON DEPOSITS BELONGING TO THE SOCIETY, THE LD. AR FAIRLY ADMITTED THAT THE ISSUE HAS BEEN DECIDED AGAI NST THE ASSESSEE BY TRIBUNAL IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2009 - 10 (SUPRA). 10 ITA NO S. 39 & 46/PUN/2015, A.Y. 2010 - 11 8. 4 IN RESPECT OF GROUND NO. 4 RELATING TO DISALLOWANCE OF INTEREST EXPENDITURE U/S. 36(1)(III) , THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF INTEREST RS.3,34,62,116/ - . THIS DISALLOWANCE WAS MADE BY ASSESSING OFFICER IN RESPECT OF INTEREST PAID BY THE ASSESSEE TO ITS SISTER CONCERNS. IN FIRST APPEAL THE COMMISSIONER OF I NCOME TAX (APPEALS) HELD THAT ADVANCES GIVEN TO TWO CONCERNS VIZ. KUMAR HOUSING CORPORATION LTD. AND KUMAR SINEW DEVELOPERS PVT. LTD. ARE FOR NON BUSINESS PURPOSES. THE COMMISSIONER OF INCOME TAX (APPEALS) IN PARA 4.3.15 OF THE IMPUGNED ORDER HAS COMPUTED TOTAL INTEREST DISALLOWANCE AT RS.5,34,01,201/ - . IN RESPECT OF AMOUNTS ADVANCED TO THE ABOVE TWO CONCERNS , THE LD. AR SUBMITTED THAT AFTER REDUCING INTEREST DISALLOWANCE MADE BY ASSESSING OFFICER , THE COMMISSIONER OF INCOME TAX (APPEALS) ENHANCED THE INC OME OF THE ASSESSEE BY RS.1,99,39,084/ - . THE COMMISSIONER OF INCOME TAX (APPEALS) HAS WORKED DISALLOWANCE ON DAILY BASIS . THE MAXIMUM AMOUNT OUTSTANDING IN RESPECT OF AMOUNTS ADVANCED TO THE AFORESAID TWO CONCERNS IS TO THE TUNE OF RS.108.82 CRORES. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS ITS OWN INTEREST FREE FUNDS AVAILABLE IN EXCESS OF PEAK AMOUNT ADVANCED. THE LD. AR REFERRED TO THE BALANCE SHEET OF THE ASSESSEE COMPANY AT PAGE 13 OF THE PAPER BOOK. THE LD. AR CONTENDED THAT SINCE THE ASSESSEE H AS OWN FUNDS MUCH MORE THAN THE AMOUNT ADVANCED , NO DISALLOWANCE OF INTEREST IS WARRANTED. TO FURTHER BUTTRESS HIS SUBMISSIONS THE LD. AR SUBMITTED THAT IN ASSESSMENT YEAR 2009 - 10 THE ASSESSEE DEMONSTRATED BEFORE THE TRIBUNAL THAT OWN FUNDS OF THE ASSESSEE W ERE MUCH MORE THAN THE AMOUNT ADVANCED. THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE HOLDING NO DISALLOWANCE OF INTEREST IS WARRANTED. 11 ITA NO S. 39 & 46/PUN/2015, A.Y. 2010 - 11 9. ON THE OTHER HAND LD. DR VEHEMENTLY DEFENDED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEA LS) WITH RESPECT TO CONFIRMING OF DISALLOWANCE MADE U/S. 14A AND DISALLOWANCE OF INTEREST U/S. 36(1)(III). THE LD. DR SUBMITTED THAT THE ASSESSEE HAS MADE SUO - MOT U DISALLOWANCE U/S. 14A. NOW, THE ASSESSEE CANNOT CHANGE ITS STANCE AND SEEK REVERSAL OF THE DISALLOWANCE MADE VOLUNTARILY. THE LD. DR PRAYED FOR DISMISSING THE APPEAL OF ASSESSEE AND CONFIRMING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS). 10. W E HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED TH E ORDERS OF THE AUTHORITIES BELOW . IN GROUND NO. 1 THE ASSESSEE HAS ASSAILED DISALLOWANCE U/S. 14A ON SHARE APPLICATION MONEY. THE ISSUE, WHETHER SHARE APPLICATION MONEY IS TO BE CONSIDERED AS PART OF INVESTMENT FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/S. 14A WAS CONSIDERED BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN APPEAL IN ITA NO. 1628/PUN/2013 FOR ASSESSMENT YEAR 2009 - 10. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS SHOW N SHARE APPLICATION MONEY RS.35,65,22,930/ - AND RS.29,81,16,675/ - IN FINANCIAL YEAR 2009 - 10 AND 2008 - 09, RESPECTIVELY UNDER THE HEAD L OAN AND A DVANCES . UNDISPUTEDLY, AGAINST SHARE APPLICATION MONEY, NO SHARES WERE ALLOTTED. THE ASSESSING OFFICER WHILE COMPUTING INVESTMENTS UNDER RULE 8D(2)(III) FOR MAKING DISALLOWANCE U/S. 14A INCLUDED THE AMOUNTS SHOWN AGAINST SHARE APPLICATION MONEY PENDING ALLOTMENT. WE FIND THAT IDENTICAL DISALLOWANCE WAS MADE IN RESPECT OF SHARE APPLICATION MONEY U/S. 14A IN ASSES SMENT YEAR 2009 - 10. THE MATTER TRAVELLED UP TO THE TRIBUNAL. THE CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSESSMENT YEAR 2009 - 10 (SUPRA) VIDE ORDER DATED 02 - 02 - 2017 HELD THAT THE SHARE APPLICATION MONEY PENDING ALLOTMENT DOES 12 ITA NO S. 39 & 46/PUN/2015, A.Y. 2010 - 11 NOT FORM PART OF INVESTMENT FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/S. 14A. THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL IN THIS REGARD ARE AS UNDER : 30. SO FAR AS INCLUSION OF SHARE APPLICATION MONEY IS CONCERNED, IT IS AN ADMITTED FACT THAT NO SHARES ARE ALLOTTED AS ON 31 - 0 3 - 2009. WE FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE QUESTION OF EARNING ANY EXEMPT INCOME SIMPLY DOES NOT ARISE ON SUCH SHARE APPLICATION MONEY PENDING ALLOTMENT. WE FIND THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF RAIN Y INVESTMENTS PVT. LTD. (SUPRA) HAS HELD THAT SHARE APPLICATION MONEY CANNOT BE REGARDED AS AN INVESTMENT IN SHARES OR AN ASSET YIELDING TAX FREE INCOME AND NEITHER IS IT CAPABLE OF YIELDING ANY TAX FREE INCOME. THE RELEVANT OBSERVATION OF THE TRIBUNAL FRO M PARA 4 READS AS UNDER : 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. SECTION 14A R/W R. 8D IS MANDATORY IN ITS APPLICATION WHERE THE ASSESSEE EARNS INCOME WHICH IS CLAIMED TAX - EXEMPT, AS DIVIDEND INCOME IN THE INSTANT CASE. IN FA CT, THERE IS NO DOUBT WITH REGARD TO THIS; THE ASSESSE ITSELF CONCEDING TO THE SAME BEFORE US AND, BESIDES, BEING ENGAGED IN THE BUSINESS OF MAKING INVESTMENTS AND EARNING DIVIDEND INCOME AS AN INTEGRAL PART THEREOF. THE ONLY OPTION, THEREFORE, IF IT CONSI DERS THE APPLICATION OF THE PROVISION AS OPERATING TO ITS DETRIMENT, IS TO FORFEIT ITS RIGHT TO EXEMPTION FROM TAX IN ITS RESPECT. QUA MERITS, WE FIND MUCH FORCE IN THE ASSESSEE'S ARGUMENT THAT 'SHARE APPLICATION MONEY', TO THE EXTENT IT IS ACTUALLY SO, S O THAT IT ONLY REPRESENTS AMOUNT/S PAID BY WAY OF APPLICATION FOR ALLOTMENT OF SHARES, THE SAME CANNOT BE REGARDED AS AN INVESTMENT IN SHARES, OR AN ASSET (OR ASSET CLASS) YIELDING TAX - FREE INCOME, AND NEITHER IS IT CAPABLE OF YIELDING ANY TAX - FREE INCOME. THE SAME WOULD, THEREFORE, IN OUR CLEAR VIEW, HAVE TO BE EXCLUDED IN WORKING OUT THE DISALLOWANCE U/R. 8D. FURTHER, THOUGH THE REVENUE HAS NOT DISPUTED THE SUMS REFLECTED AS 'SHARE APPLICATION MONEY' IN THE ASSESSEE'S BALANCE - SHEET, THE AO, TO WHOM THE MA TTER IS TO BE IN ANY CASE RESTORED FOR WORKING OUT THE DISALLOWANCE BY EXCLUDING THE SAME, SHALL, IN THE SET ASIDE PROCEEDINGS, ALSO EXAMINE THE VERACITY OF THE ASSESSEE'S CLAIM WITH REGARD TO THE SAME BEING 'SHARE APPLICATION MONEY'. THIS IS IN VIEW OF TH E PERTINENT QUESTIONS RAISED BY THE BENCH IN ITS RESPECT, TO WHICH NO SATISFACTORY ANSWER WAS FORTHCOMING DURING HEARING, NOR - TO BE FAIR TO THE LD. AR, COULD POSSIBLY BE IN THE ABSENCE OF ANY DETAILS ON RECORD. WE STATE SO AS THE 'SHARE APPLICATION MONEY ' WOULD ORDINARILY ONLY BE 'PUBLIC MONEY' AND, THUS, EXCEPT PERHAPS WHERE TOWARD SHARES OF PRIVATE LIMITED COMPANIES, SUBJECT TO STRINGENT PROCEDURE, AS IS GENERALLY IN PLACE FOR SUCH FUNDS. WE MAY FURTHER CLARIFY THAT THE EXCLUSION OF 'SHARE APPLICATION M ONEY', AS OPINED BY US, IS NOT IN THE LEAST FOR THE REASON THAT IT DID NOT YIELD ANY TAX - FREE INCOME FOR THE 13 ITA NO S. 39 & 46/PUN/2015, A.Y. 2010 - 11 RELEVANT YEAR, BUT FOR THE REASON THAT IT IS INCAPABLE OF ANY SUCH INCOME. THE SAME IS ONLY IN THE NATURE OF APPLICATION (OFFER) MONEY, WHICH WOULD THOUGH, ON ALLOTMENT, GET ADJUSTED AGAINST THE COST OF THE SAID SHARES, AND ONLY WHEREUPON ANY RIGHTS IN THE INVESTEE COMPANY INURE TO THE ALLOTTEE. NO RIGHTS, NOT EVEN INCHOATE, IN THE SHARE CAPITAL OF THE ISSUING COMPANY ARISE ON THE PAYMENT OF THE SHAR E APPLICATION MONEY, IRRESPECTIVE OF THE TIME PERIOD FOR WHICH IT MAY OUTSTAND. THE SAME MAY AT BEST YIELD INTEREST INCOME (FOR WHICH A SPECIAL PROCEDURE THOUGH HAS TO BE FOLLOWED BY THE COMPANY CONCERNED), WHICH IS IN ANY CASE TAXABLE, SO THAT THERE IS NO SCOPE FOR APPLICATION OF SEC. 14A THEREON. 31. WE FIND THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF LGW LTD. (SUPRA) HAS OBSERVED AS UNDER : 6. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, WHO RELIED ON THE ORDER OF AO. THE LD. COUNSEL FOR THE ASS ESSEE BROUGHT TO OUR NOTICE THE DECISION OF ITAT, CHENNAI BENCH IN THE CASE OF MSA SECURITIES SERVICES PVT. LTD. VS ACIT IN ITA NOS.1523 - 1524/MDS/2012 DATED 17.10.2012 AND IN THE CASE OF RAINY INVESTMENTS P.LTD VS ACIT IN ITA NO.5491/MUM/2011 DATED 16.01. 2013. THE HONOURABLE BENCHES HAVE TAKEN THE VIEW THAT THE SHARE APPLICATION MONEY GETS CONVERTED INTO SHARES ONLY ON ALLOTMENT BY THE COMPANY. TILL SUCH TIME THE SHARE APPLICATION MONEY IS CONVERTED INTO SHARES, THE APPLICANT DOES NOT HAVE ANY RIGHTS OF A SHAREHOLDER/MEMBER. THE SHARE APPLICANT SEE WAS NOT ENTITLED TO ANY DIVIDEND. THEREFORE SHARE APPLICATION MONEY CANNOT BE CONSIDERED AS INVESTMENT WHICH IS LIKELY TO EARN TAX FREE DIVIDEND INCOME. HENCE, THERE CAN BE NO DISALLOWANCE U/S 14A OF THE ACT. 7 . WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. WE ARE OF THE VIEW THAT ORDER OF CIT(A) ON THIS ISSUE HAS TO BE UPHELD. AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE, SHARE APPLICATION MONEY IS ONLY IN THE NATURE OF AN OFFER TO BUY SHARES MADE BY THE ASSESSEE. IT IS ONLY AFTER THE OFFER IS ACCEPTED BY THE COMPANY RESULTING IN A CONCLUDED CONTRACT, THE ASSESSEE BECOMES THE SHAREHOLDER IN A COMPANY. TILL THIS TIME THE ASSESSEE BECOMES A SHAREHOLDER, THE ASSESSEE CANNOT HAVE ANY RI GHTS TO CLAIM ANY DIVIDEND THAT MAY BE DECLARED BY THE COMPANY. IN SUCH CIRCUMSTANCES WE ARE OF THE VIEW THAT WHILE WORKING OUT THE AVERAGE VALUE OF THE INVESTMENTS U/R 8D(2)(III) OF THE RULES THE SHARE APPLICATION MONEY SHOULD NOT BE INCLUDED. WE HOLD ACC ORDINGLY AND DISMISS GROUND NO.(I) RAISED BY THE REVENUE. 32. RESPECTFULLY FOLLOWING THE DECISIONS OF COORDINATE BENCHES OF THE TRIBUNAL CITED (SUPRA) WE HOLD THAT SHARE APPLICATION MONEY PENDING ALLOTMENT SHOULD BE EXCLUDED FROM THE INVESTMENTS FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/S.14A. 14 ITA NO S. 39 & 46/PUN/2015, A.Y. 2010 - 11 SINCE, THE FACTS IN THE PRESENT APPEAL ARE IDENTICAL, FOLLOWING THE ORDER OF CO - ORDINATE BENCH , WE HOLD THAT SHARE APPLICATION MONEY PENDING ALLOTMENT DOES NOT CONSTITUTE PART OF INVESTMENT FOR THE PURPOSE OF MAKING DISALLOWANCE U/S. 14A. ACCORDINGLY, GROUND NO. 1 R.W. SUB - GROUNDS I.E. 1.1, 1.2 AND 1.3 ARE ALLOWED. 11. IN GROUND NO. 2, THE ASSES SEE HAS ASSAILED DISALLOWANCE U/S. 14A IN RESPECT OF SHARE OF PROFITS EARNED FROM PARTNERSHIP FIRMS. THE ASSESSEE HAS GIVEN THE DETAILS OF INVESTMENTS MADE IN GROUP CONCERNS AT PAGE 83 OF THE PAPER BOOK. THE SAME SHOWS THAT THE ASSESSEE HAS EARNED TAX FR EE INCOME IN THE FORM OF SHARE IN PROFITS FROM PARTNERSHIP FIRMS. THE STAND OF THE ASSESSEE IS THAT THE INVESTMENTS HAVE BEEN MADE IN THE PARTNERSHIP FIRMS FROM OWN FUNDS. IT IS A TRITE LAW THAT NO DISALLOWANCE IS TO BE MADE WHERE INVESTMENTS ARE MADE FO R STRATEGIC PURPOSE AND NO TAX FREE INCOME HAS BEEN EARNED FROM SUCH INVESTMENTS. IN THE INSTANT CASE, THE ASSESSEE HAS RECEIVED INCOME EXEMPT FROM TAX U/S. 10(2 A) OF THE ACT. THEREFORE, ON SUCH TAX FREE INCOME DISALLOWANCE U/S. 14A R.W. RULE 8D(2)(III) CAN BE MADE. HOWEVER, IT IS MADE CLEAR THAT FOR COMPUTING DISALLOWANCE ONLY THOSE INVESTMENTS ON WHICH EXEMPT INCOME HAS BEEN EARNED SHALL BE TAKEN INTO CONSIDERATION AND THE AMOUNT OF DISALLOWANCE IN ANY CASE SHOULD NOT EXCEED THE AMOUNT OF EXEMPT INCOME . THUS, GROUND NO. 2 RAISED IN THE APPEAL IS PARTLY ALLOWED IN THE AFORESAID TERMS. 12. IN ADDITIONAL GROUNDS OF APPEAL THE ASSESSEE HAS SOUGHT DELETION OF SUO - MOTO DISALLOWANCE U/S. 14A MADE BY THE ASSESSEE. THE ASSESSEE HAS GIVEN LIST OF GROUP COMPANIES/PARTNERSHIP FIRMS (AT PAGE 83 OF THE PAPER BOOK) WHEREIN THE ASSESSEE HAS MADE STRATEGIC INVESTMENTS. UNDISPUTEDLY, THE ASSESSEE HAS NOT RECEIVED ANY INCOME IN THE FORM OF DIVIDEND FROM 15 ITA NO S. 39 & 46/PUN/2015, A.Y. 2010 - 11 INVESTMENTS MADE IN GROUP CONCERNS. HOWEVER, THE ASSESSEE HAS RECEIVED TAX FREE INCOME IN THE FORM OF SHARE IN PROFITS FROM PARTNERSHIP FIRMS. THE ASSESSEE HAS MADE SUO MOTO DISALLOWANCE OF RS.7,16,67,703/ - . THE LD. AR POINTED THAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009 - 10 (SUPRA) , THE TRIBUNAL HAS HEL D THAT THE INVESTMENTS ON WHICH NO TAX FREE INCOME HAS BEEN EARNED SHOULD BE EXCLUDED WHILE COMPUTING DISALLOWANCE U/S. 14A. AS STATED EARLIER THERE IS NO DISPUTE AS REGARDS THE PRINCIPLE THAT NO DISALLOWANCE IS TO BE MADE U/S. 14A WHERE NO TAX FREE INCOM E HAS BEEN EARNED FROM STRATEGIC INVESTMENTS. IT IS ALSO A WELL SETTLED PRINCIPLE THAT NO DISALLOWANCE CAN BE MADE U/S. 14A WHERE OWN INTEREST FREE FUNDS ARE MUCH MORE THAN THE INVESTMENTS. HOWEVER, IN THE PRESENT CASE AS WE HAVE POINTED EARLIER , THE ASSESSEE HAS EARNED TAX FREE INCOME FROM PARTNERSHIP FIRMS . IT IS NO ONES CASE THAT INVESTMENT HAS BEEN MADE BY UTILIZ ING BORROWED FUNDS. THEREFORE, PROVISIONS OF RULE 8D(2)(II) ARE NOT ATTRACTED. HOWEVER, THE PROVISIONS OF RULE 8D(2)(III) WOULD APPLY IN RESPECT OF TAX FREE INCOME EARNED FROM PARTNERSHIP FIRMS. THE FACTS IN THE PRESENT CASE ARE DISTINGUISHABLE FROM THE FACTS IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS. WHILE DECIDING GROUND NO. 2 WE HAVE UPHELD DISALLOWANCE U/S. 14A IN RESPECT OF IN VESTMENTS MADE IN PARTNERSHIP FIRMS ON WHICH TAX FREE INCOME HAS BEEN EARNED. THE ASSESSING OFFICER IS DIRECTED THAT AFTER GIVING EFFECT TO GROUND NO. 2, THE BALANCE DISALLOWANCE, IF ANY FROM SUO - MOTO DISALLOWANCE MADE BY THE ASSESSEE U/S. 14A BE DELETED . ACCORDINGLY, ADDITIONAL GROUND NO. 1 RAISED IN THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 13. IN GROUND NO. 3 THE ASSESSEE HAS ASSAILED CONFIRMING THE ADDITION OF RS.10,13,878/ - INTEREST RECEIVED ON DEPOSITS BELONGING TO THE SOCIETY. THE LD . DR FAIRLY ADMITTED THAT THIS ISSUE WAS DECIDED BY THE TRIBUNAL AGAINST THE ASSESSEE IN ASSESSMENT YEAR 2009 - 10. WE OBSERVE THAT IN ASSESSMENT 16 ITA NO S. 39 & 46/PUN/2015, A.Y. 2010 - 11 YEAR 2009 - 10 THE CO - ORDINATE BENCH OF THE TRIBUNAL DISMISSED THIS GROUND OF APPEAL RAISED BY THE ASSESSEE BY OB SERVING AS UNDER : 40. THE LD. COUNSEL FOR THE ASSESSEE COULD NOT BRING ANY MATERIAL BEFORE US TO SHOW THAT ASSESSEE HAS INFACT HANDED OVER THE MONEY TO THE SOCIETY. SINCE THERE IS NO EVIDENCE ON RECORD THAT ANY SOCIETY HAS BEEN FORMED AND THE ASSESSEE H AS TRANSFERRED THE MONEY TO THE SOCIETY OR HAS SHOWN ANY LIABILITY IN ITS BOOKS AND CONSIDERING THE FACT THAT THE ASSESSEE HAS CLAIMED TAX CREDIT ON SUCH INTEREST INCOME, THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) ON THIS ISSUE. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE ARE DISMISSED. THUS, IN VIEW OF STATEMENT MADE BY LD. AR AND THE DECISION OF CO - ORDINATE BENCH , GROUND NO. 3 RAISED IN THE APPEAL BY ASSESSEE IS DISMISSED. 14. IN GROUND NO. 4 THE ASSESSEE HAS ASSAILED CONFIRMING OF DISALLOWANCE OF INTEREST EXPENDITURE U/S. 36(1)(III). THE STAND OF THE ASSESSEE IS THAT OWN FUNDS OF THE ASSESSEE ARE MUCH MORE THAN THE FUNDS ADVANCED TO THE SISTER CONCERNS. THE LD. AR REFERRED TO THE BALANCE SHEET AT PAGE 13 OF THE PAPER BOOK. THE LD. AR POINTED THAT PEAK AMOUNT ADVANCED BY THE ASSESSEE TO TWO GROUP CONCERNS KUMAR HOUSING CORPORATION LTD. AND KUMAR SINEW DEVELOPERS PVT. LTD. IS RS.108.82 CRORES. AS AGAINST THIS THE ASSESSEE HAS OWN INTEREST FREE FUNDS INCLU DING SHARE CAPITAL AND RESERVES OF RS.217.93 CRORES. WE FIND THAT IN ASSESSMENT YEAR 2009 - 10 THE CO - ORDINATE BENCH OF THE TRIBUNAL BY PLACING RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. RELIANCE UTIL ITIES & POWER LTD. REPORTED AS 313 ITR 340 AND THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF TRINITY INDIA LTD. VS. DCIT IN ITA NO. 666/PN/2012 DECIDED ON 28 - 08 - 2013 DELETED THE ADDITIONS. THE LD. DR HAS FAILED TO CONTROVERT THE FINDINGS OF CO - ORDINATE BENCH IN ASSESSEES OWN CASE IN IMMEDIATELY PRECEDING ASSESSMENT YEARS ON THE SAME SET OF 17 ITA NO S. 39 & 46/PUN/2015, A.Y. 2010 - 11 FACTS . WE FIND NO REASON TO TAKE A CONTRARY VIEW WHEN THE FACTS ARE IDENTICAL AND ARE NOT DISPUTED. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DELE TE DISALLOWANCE MADE U/S. 36(1)(III) OF THE ACT. ACCORDINGLY, GROUND NO. 4 RAISED IN THE APPEAL BY ASSESSEE IS ALLOWED. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN THE AFORESAID TERMS. ORDER PRONOUNCED ON TUESDAY, THE 31 ST DAY OF OCTOBER, 2017 . SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 31 ST OCTOBER, 2017 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - I, PUNE 4. / THE CIT - I, PUNE 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / / // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE