DEPUTY COMMISSIONER OF INCOME TAX 8(1)(2), MUMBAI V. SAJJAN INDIA LTD, MUMBAI

ITA 4729/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3795 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 04-07-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Keywords: Earning of tax free income; Revised return; Reassessment proceedings
• Section: 143(3); 14A; 115JB; 147

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL G BENC H MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NO. 4729/MUM/2017 (ASSESSMENT YEAR 2012-13) DCIT- 8(1)(2) ROOM NO. 651, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-20. VS. M/S SAJJAN INDIA LTD., MATULYA CENTRE, A NO.2, GROUND FLOOR, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI-400013. P AN: AAACS6498M APPELLANT RESPONDENT APPELLANT BY : SHRI CHAUDHARY ARUN KUMAR SINGH (DR) RESPONDENT BY : SHRI S.L. JAIN (CA) DATE OF HEARING : 29.01.2019 DATE OF PRONOUNCEMEN T : 29.01.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-14, MUMBAI (THE LD. CIT(A) DATED 29.09.2016 FOR ASSESSMENT YEAR 2012-13. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: (I) THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW BY DELETING THE DISALLOWANCE MADE U/S. 14A R.W RULE 8D(2)(II) AND U NDER RULE 8D(2)(III) OF RS. 95,81,260/- WITHOUT PROPERLY APPRECIATING TH E FACTUAL AND LEGAL MATRIX OF THE CASE AS CLEARLY BROUGHT OUT BY THE AS SESSING OFFICER IN THE ASSESSMENT ORDER. (II) THE LD. CIT(A)S ORDER IS CONTRARY TO LAW AND ON FA CTS AND DESERVES TO BE SET ASIDE. ITA NO. 47 29 MUM 2017-M/S SAJJAN INDIA LTD. 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPA NY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF DYES & CHEMICALS FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2012-13 ON 26.09.2012 DECLARING INCOME AT RS. 40.83 CRORE. THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY. THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDE R NOTED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 75,38,37 5/- WHICH IS CLAIMED EXEMPTED. THE ASSESSEE SUO MOTU DISALLOWED RS. 26,9 3,941/- IN THE COMPUTATION OF RULE 8D(2)(III). DURING THE ASSESSME NT THE ASSESSEE WAS ASKED TO JUSTIFY THE SUO MOTU DISALLOWANCE. THE ASS ESSEE FILED ITS REPLY DATED 03.02.2015. IN THE REPLY, THE ASSESSEE CONTEN DED THAT WHILE CALCULATING THE DISALLOWANCE, THE ASSESSEE-COMPANY CONSIDERED AVERAGE INVESTMENT ON WHICH DIVIDEND HAS BEEN RECEIVED DURI NG THE YEAR. THE ASSESSEE HAS NOT CONSIDERED THOSE INVESTMENTS ON WH ICH NO DIVIDEND IS RECEIVED DURING THE RELEVANT PERIOD. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY ASSESSING OFFICER. THE ASSESSING OFFICE R MADE DISALLOWANCE OF RS. 95,81,260/- WHICH CONSIST OF RS. 13,65,343/- UNDER RULE 8D(2)(II) AND RS. 82,15,917/- UNDER RULE 8D(2)(III). THE ASSE SSEE WAS GRANTED SET OFF OF SUO MOTU DISALLOWANCE OF RS. 26,93,941/- AND THEREBY MAKING ADDITION OF RS. 68,87,319/-. AGGRIEVED BY THE ORDER OF LD. CIT(A), BOTH THE PARTIES HAVE FILED THEIR RESPECTIVE APPEAL. ITA NO. 47 29 MUM 2017-M/S SAJJAN INDIA LTD. 3 3. THE APPEAL OF ASSESSEE HAS BEEN DECIDED VIDE ITA NO . 6865/MUM/2016 DATED 28.11.2017 WHEREIN THE DISALLOWANCE UNDER SEC TION 8D(2)(II) HAS BEEN DELETED. 4. NOW WE ARE CONCERNED WITH THE GROUND OF APPEAL RELA TED WITH DISALLOWANCE UNDER RULE 8D(2)(III). 5. AT THE OUTSET OF HEARING, THE LD. AUTHORIZED REPRES ENTATIVE (AR) OF THE ASSESSEE SUBMITS THAT THE GROUND OF APPEAL RAISED B Y REVENUE IS COVERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE BY THE D ECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12. TH E LD. AR OF THE ASSESSEE SUBMITS THAT SIMILAR GROUND OF APPEAL WAS RESTORED TO THE FILE OF ASSESSING OFFICER FOR ASSESSMENT YEAR 2011-12 VIDE ORDER DATED 28.11.2017. THE FACTS FOR THE YEAR UNDER CONSIDERAT ION IS ALMOST SIMILAR, THEREFORE, THE ISSUE RELATED TO THE DISALLOWANCE UN DER RULE 8D(2)(III) MAY BE RESTORED TO THE FILE OF ASSESSING OFFICER TO PAS S THE ORDER IN ACCORDANCE WITH THE DIRECTION IN ORDER DATED 28.11.2017 FOR AS SESSMENT YEAR 2011- 12. 6. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTAT IVE (DR) FOR THE REVENUE SUBMITS THAT THE ISSUE FOR DISALLOWANCE UND ER RULE 8D(2)(III) MAY BE RESTORED TO THE FILE OF ASSESSING OFFICER FOR VE RIFICATION OF FACTS AND TO PASS THE ORDER FOR VERIFICATION OF FACTS AS PER THE DIRECTION IN ORDER DATED 28.11.2017 AND COMPUTE THE FRESH DISALLOWANCE UNDER RULE 8D(2)(III). ITA NO. 47 29 MUM 2017-M/S SAJJAN INDIA LTD. 4 7. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND HAVE GONE THROUGH THE ORDER OF LOWER AUTHORITIES. WE FIND THA T THE GROUND OF APPEAL RAISED BY REVENUE IS COVERED IN FAVOUR OF ASSESSEE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12. THE TRIBUNAL WHILE CON SIDERING THE IDENTICAL GROUND OF APPEAL FOR ASSESSMENT YEAR 2011 -12 AND IN APPEAL FOR ASSESSMENT YEAR 2012-13 BY ASSESSEE PASSED THE FOLL OWING ORDER: ITA NO. 5550/MUM/2015 AND 5751/MUM/2015-AY 2011-12 2. THE ASSESSEE IS AGGRIEVED BY THE DISALLOWANCE MA DE BY THE LEARNED ASSESSING OFFICER( HEREINAFTER CALLED AS 'THE AO') U/S 14A OF THE INCOME-TAX ACT, 1961(HEREINAFTER CALLED 'THE ACT') R.W.R. 8D(2 )(II) AND (III) OF THE 1962 RULES, VIDE ASSESSMENT ORDER DATED 29-01-2014 U/S 1 43(3), WHICH WAS LATER CONFIRMED BY LEARNED COMMISSIONER OF INCOME-TAX(APP EALS) (HEREINAFTER CALLED 'THE CIT(A)) VIDE APPELLATE ORDERS DATED 30- 10-2015 BOTH UNDER THE NORMAL PROVISIONS AS WELL UNDER THE PROVISIONS OF S ECTION 115JB CONCERNING COMPUTATION OF BOOK PROFITS FOR DETERMINING MINIMUM ALTERNATE TAX (MAT). THE ASSESSEE HAS RAISED GROUNDS OF APPEAL IN MEMO O F APPEAL CHALLENGING DISALLOWANCE U/S 14A AS WELL ADDITIONAL GROUNDS OF APPEAL ARE RAISED BEFORE THE INCOME TAX APPELLATE TRIBUNAL(HEREINAFTER CALLE D AS 'THE TRIBUNAL') CHALLENGING COMPUTATION OF BOOK PROFITS U/S 115JB F OR COMPUTING DISALLOWANCE UNDER MAT PROVISIONS, THE REVENUE IS A GGRIEVED BY THE RELIEF GRANTED BY LEARNED CIT(A) VIDE HIS APPELLATE ORDER IN DELETING DISALLOWANCE TO THE TUNE OF RS. 46,92,218/- U/R 8D(2)(II) AND 8D(2) (III) OF INCOME-TAX RULES, 1962 R.W.S. 14A. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUF ACTURING AND EXPORT OF DYES AND DYE INTERMEDIATES AND OTHER CHEMICALS. THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS. 1,60,62,485/- WHICH WAS CLAI MED EXEMPT. THE ASSESSEE HAS VOLUNTARILY DISALLOWED RS. 37,55,126/- U/R 8D(2)(III) R.W.S. 14A. THE ASSESSEE CLAIMED THAT NO DISALLOWANCE U/R 8D(2) (II) R.W.S. 14A IS WARRANTED AS THE ASSESSEE HAS BORROWED FUNDS FOR EX PORT BUSINESS VIDE BANK LOAN OF RS. 4.64 CRORES FOR EXPORT CREDIT FACILITY ON WHICH INTEREST WAS PAID WHICH WAS DEBITED TO PROFIT AND LOSS ACCOUNT. THE A SSESSEE SUBMITTED THAT IT PAID INTEREST OF RS. 22.18 LACS TO BANK ON EXPORT C REDIT FACILITIES AND HAD RECEIVED INTEREST OF RS. 9.11 LACS FROM BANK AND HE NCE NO INTEREST IS DISALLOWABLE. THE ASSESSEE SUBMITTED THAT IT IS , I NTER-ALIA, ALSO HAVING INVESTMENT IN MUTUAL FUNDS ON WHICH NO DIVIDEND IS RECEIVABLE AND ON WHICH ONLY CAPITAL GAIN WILL BE RECEIVABLE WHICH IS TAXAB LE AND HENCE THE SAME SHOULD BE EXCLUDED. IT WAS ALSO CLAIMED THAT THERE ARE INVESTMENTS IN SUBSIDIARIES COMPANIES WHICH SHOULD ALSO BE EXCLUDE D. THE AO MADE DISALLOWANCE U/R 8D(2)(II) AND 8D(2)(III) R.W.S. 14 A OF RS.84,47,344/- AND ITA NO. 47 29 MUM 2017-M/S SAJJAN INDIA LTD. 5 SINCE THE ASSESSEE HAS MADE DISALLOWANCE OF RS. 37, 55,126/- , THE ADDITIONS TO THE TUNE OF RS. 46,92,218/- WAS SUSTAINED BY THE AO VIDE ASSESSMENT ORDER DATED 29-01-2014 PASSED U/S 143(3). THE SIMILAR ADD ITIONS BEING DISALLOWANCE U/S 14A WAS ALSO MADE TO BOOK PROFIT BY THE AO U/S 115JB TO COMPUTE MAT LIABILITY OF THE ASSESSEE. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE LEARNED CIT(A). THE LEARNED CIT(A) FOLLOWED THE ITAT ORDER IN ASSES SEES OWN CASE IN ITA NO, 449/MUM/2011 FOR AY 2007-08, ITA NO. 7532/MUM/2 01 FOR AY 2008-09 AND ITA NO 5856/MUM/2012 FOR AY 2009-10 WHEREIN THE TRIBUNAL HELD THAT IF INVESTMENTS ARE MADE OUT OF SURPLUS FUNDS AND BORRO WED FUNDS ARE USED THE DISALLOWANCE U/R 8D(2)(II) IS TO DELETED. THE LEARN ED CIT(A) ALSO FOLLOWED DECISION OF HIS PREDECESSOR FOR AY 2010-11 TO COME TO CONCLUSION THAT INTEREST PAID ON BANK LOANS FOR EXPORT CREDIT IS TO BE EXCLU DED WHILE COMPUTING DISALLOWANCE U/R 8D(2)(II) R.W.S. 14A AND HENCE CON SEQUENTLY THE ADDITION OF RS.5,64,004/- MADE BY THE AO U/R 8D(2)(II) WAS DELE TED BY THE LEARNED CIT(A). WHILE FOR DISALLOWANCE U/R 8D(2)(III) R.W.S . 14A , THE ASSESSEE RAISED ADDITIONAL GROUND OF APPEAL THAT DISALLOWANCE SHOUL D BE RS. 32.33 LACS INSTEAD OF RS. 37.55 LACS AS EXPENSES OF HO AND REMUNERATIO N IS TO BE CONSIDERED FOR DISALLOWANCE ON PROPORTIONATE BASIS, WHICH WAS REJE CTED BY LEARNED CIT(A) AS THE ASSESSEE DID NOT FILED REVISED RETURN OF INCOME . THE REVISED GROUND OF APPEAL RAISED BY THE ASSESSEE TO THAT EFFECT WAS RE JECTED BY THE LEARNED CIT(A) RELYING ON HON BLE SUPREME COURT DECISION IN THE CASE OF GOETZE IN DIA LIMITED V. CIT 284 ITR 323(SC). THE LEARNED CIT(A) ORDERED DELETION OF MUTUAL FUNDS, QUOTED AND UNQUOTED INVESTMENTS AND I NVESTMENT IN SUBSIDIARY COMPANIES FOR THE PURPOSES OF COMPUTING AVERAGE INV ESTMENT FOR COMPUTING DISALLOWANCE U/R 8D(2)(III) R.W.S. 14A , AS THE SAM E WERE SUBJECT TO TAX U/S 45 ON CAPITAL GAINS. THE LEARNED CIT(A) ORDERED THAT I NVESTMENT IN PARTNERSHIP FIRM AMOUNTING TO RS. 3,08,53,421/- SUBJECT TO VERI FICATION SHALL BE INCLUDED FOR THE PURPOSES OF COMPUTING AVERAGE INVESTMENT FO R COMPUTING DISALLOWANCE U/S 14A R.W.S. 8D(2)(III) AND DIRECTIONS WERE ISSUE D TO THE AO TO COMPUTE DISALLOWANCE , VIDE APPELLATE ORDERS DATED 30-10-20 15 PASSED BY LEARNED CIT(A). 5. AGGRIEVED, BOTH ASSESSEE AND REVENUE HAVE COME I N APPEAL BEFORE THE TRIBUNAL. HEARD BOTH THE RIVAL PARTIES, PERUSED THE ORDERS OF AUTHORITIES BELOW, ORDER OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR PRECEDING YEAR AND OTHER MATERIAL ON RECORD. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACT URING AND EXPORT OF DYES AND DYE INTERMEDIATES AND OTHER CHEMICALS. THE WHOL E CONTROVERSY REVOLVES AROUND COMPUTATION OF DISALLOWANCE U/S 14A OF THE 1 961 ACT. THE ASSESSEE HAVING EARNED DIVIDEND INCOME OF RS. 1,60,62,485/- HAD CLAIMED THE SAME TO BE AN EXEMPT INCOME . THE ASSESSEE HAS SUO MOTU OFF ERED DISALLOWANCE U/S 14A OF RS. 37,55,126/- U/R 8D(2)(III). THE AO HAS M ADE DISALLOWANCE U/S 14A R.W.R 8D OF RS. 84,47,344/- , WHILE LEARNED CIT(A) DELETED DISALLOWANCE U/R 8D(2)(II) AS IT IS BROUGHT ON RECORD THAT THE ASSES SEE HAS AVAILED BANK LOANS OF RS. 4.64 CRORES TOWARDS EXPORT CREDITS AND PAID INT EREST OF RS.22.18 LACS TOWARDS LOANS TOWARDS EXPORT LIMITS. THE ASSESSEE S OWN FUNDS ARE TO THE TUNE OF RS. 377.55 CRORES BEING SHARE CAPITAL OF RS. 3.8 1 CRORES AND RESERVES AND ITA NO. 47 29 MUM 2017-M/S SAJJAN INDIA LTD. 6 SURPLUS OF RS. 373.74 CRORES. THE INVESTMENTS ARE T O THE TUNE OF RS. 150.65 CRORES AS AT 31-03-2011 WHILE THE SAME WAS RS. 164. 69 CRORES AS AT 31-03- 2010. THE AUDITED FINANCIAL STATEMENTS ARE PLACED I N PAPER BOOK, WHICH SUPPORTS THIS CONTENTION OF THE ASSESSEE. THE PRESU MPTION SHALL APPLY AS IS HELD BY HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANC E UTILITIES AND POWER LIMITED (2009) 313 ITR 0340(BOM HC) AND A LSO HDFC BANK LIMITED (2016) 67 TAXMANN.COM 42(BOM. HC)) THAT THE ASSESSEE HAS INVESTED ITS OWN INTEREST FREE FUNDS FOR MAKING INVESTMENTS. THERE IS NO INFIRMITY IN THE APPELLATE ORDER OF LEARNED CIT(A) DELETING THE ADDI TION U/R 8D(2)(II) R.W.S. 14A, KEEPING IN VIEW FACTUAL MATRIX OF THE CASE AS FIRSTLY THE FUNDS WERE BORROWED FROM BANK BY THE ASSESSEE FOR EXPORT CREDI T LIMITS ON WHICH INTEREST WAS PAID AND HENCE INTEREST ON BORROWINGS HAVE DIRE CT NEXUS WITH EXPORT CREDIT FACILITIES GRANTED BY THE BANK, SECONDLY OWN INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE MUCH HIGHER THAN INVESTMENTS AND HENCE PRESUMPTION WILL APPLY. THE REVENUE FAILS ON THIS GROUND. WE OR DER ACCORDINGLY. THE SECOND CONTROVERSY IS W.R.T. THE DISALLOWANCE O F ADMINISTRATIVE AND OTHER EXPENSES U/R 8D(2)(III) R.W.S. 14A. THE LEARNED COU NSEL FOR THE ASSESSEE HAS CLAIMED THAT THE ASSESSEES HAS DIFFERENT DIVISIONS SUCH AS HEAD OFFICE AND FACTORIES ETC. . IT IS CLAIMED THAT THE ASSESSEE HA S MAINTAINED SEPARATE BOOKS OF ACCOUNTS FOR EACH DIVISION. IT IS CLAIMED THAT THE INVESTMENTS ARE ONLY MONITORED , CONTROLLED , MAINTAINED AND MANAGED FRO M HO AND OTHER DIVISIONS HAVE NO ROLE TO PLAY IN DEALING WITH THE INVESTMENT S, WHICH CAN BE VERIFIED BY REVENUE .IT IS CLAIMED THAT THE AO CAN LOOK INTO BO OKS OF ACCOUNTS AND AFTER VERIFICATIONS CAN BE CONDUCTED BY THE AO AND THE AO SHOULD CONSIDER HO EXPENSES ONLY FOR DISALLOWANCE U/R 8D(2)(III) R.W.S . 14A. IT IS CLAIMED THAT THIS GROUND WAS RAISED BEFORE THE LEARNED CIT(A) BUT DOO RS OF JUSTICE WAS SHUT BY LEARNED CIT(A) AS NO REVISED RETURN WAS FILED BY TH E ASSESSEE. IT IS CLAIMED THAT SINCE THE ASSESSEE NEVER RAISED THIS ISSUE IN PRECEDING YEAR I.E. 2010-11 , THE ITAT HAD NO OCCASION TO DEAL WITH THE SAME BUT THE ASSESSEE DID RAISE THIS ISSUE IN EARLIER YEARS I.E. 2007-08 TO 2009-10 , WH EREIN ITAT HAD SET ASIDE THE MATTER TO THE AO FOR NECESSARY VERIFICATIONS. THE L EARNED COUNSEL FOR ASSESSEE WILL RELY ON JUDGMENT OF HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. PRUTHVI BROKERS AND SHAREHOLDERS PRIVATE LIMITED (2 012) 349 ITR 0336(BOM HC) AND CIT V. B G SHIRKE CONSTRUCTION TECHNOLOGY P RIVATE LIMITED (2017) 395 ITR 0371(BOM HC) TO CONTEND THAT EVEN IF REVISE D RETURN OF INCOME WAS NOT FILED BUT THE APPELLATE AUTHORITIES CAN ALWAYS LOOK INTO THESE GROUNDS AGITATED BEFORE THEM. WE FIND MERIT IN THE CONTENTI ON OF THE ASSESSEE BUT THE CLAIM RAISED BY THE ASSESSEE NEED VERIFICATION AND THE MATTER IS RESTORED TO THE FILE OF THE AO TO VERIFY THE HO EXPENSES INCURRED W HICH ARE TO BE TAKEN COGNIZANCE FOR MAKING DISALLOWANCE U/R 8D(2)(III). THE AO SHALL ALSO VERIFY THE CONTENTION OF THE ASSESSEE THAT ONLY HO IS INVO LVED IN MAKING INVESTMENTS AND OTHER DIVISIONS/FACTORIES HAVE NO ROLE TO PLAY IN MAKING, CONTROLLING, MANAGING AND/OR MONITORING INVESTMENTS. THE ONUS IS ON THE ASSESSEE TO PROVE ITS CONTENTIONS TO GET RELIEF. WE ORDER ACCORDINGLY . THE NEXT CONTENTION OF THE ASSESSEE IS THAT THERE A RE CERTAIN MUTUAL FUNDS HELD BY THE ASSESSEE WHICH DID NOT DECLARE DIVIDEND AS P ER THEIR ORIGINAL SCHEME OF INVESTMENT. THESE MF WILL DISBURSE CAPITAL AT THE T ERMINATION OF SCHEME WHICH IS CHARGED TO CAPITAL GAIN TAX AS PER SCHEME OF THE 1961 ACT IS THE ITA NO. 47 29 MUM 2017-M/S SAJJAN INDIA LTD. 7 CONTENTION OF THE ASSESSEE. IT IS CLAIMED THAT SINC E NO EXEMPT INCOME WILL EVER ARISE ON THESE MF, THEY SHALL BE EXCLUDED FROM THE COMPUTING AVERAGE INVESTMENTS FOR COMPUTING DISALLOWANCE U/R 8D(2)(II I) R.W.S. 14A. WE AGAIN FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE AS IF THERE IS NO EXEMPT INCOME LIKELY TO ARISE FROM INVESTMENT INSTRUMENTS KEEPING IN VIEW THEIR SCHEME OF SUBSCRIPTION , ITS INCLUSION FOR PURPOSES OF DISALL OWANCE U/S 14A R.W.R. 8D(2)(III) IS NOT WARRANTED. THE AO SHALL VERIFY AL L SUCH INSTRUMENTS AND ITS SCHEME OF SUBSCRIPTION AND REMOVE THEM FOR COMPUTIN G DISALLOWANCE U/S 14A R.W.R. 8D(2)(III) IF IT IS FOUND THAT THESE MF WILL NEVER DIVIDEND WHICH IS GOING TO BE EXEMPT AND ONLY DISBURSEMENT IS AT THE TERMIN ATION OF SCHEME WHEREIN THE CAPITAL GAINS ARISING THERE FROM SHALL BE CHARG EABLE TO TAX . WE ORDER ACCORDINGLY. THE NEXT CONTENTION OF THE ASSESSEE IS THAT ONLY TH OSE INVESTMENTS SHOULD BE CONSIDERED FOR INCLUSION FOR COMPUTING AVERAGE INVE STMENTS FOR COMPUTING DISALLOWANCE U/S 14A R.W.R. 8D(2)(III) WHICH HAVE A CTUALLY YIELDED EXEMPT INCOME DURING YEAR UNDER CONSIDERATION AND IT IS CL AIMED THAT THE SAID ISSUE IS COVERED BY DECISION OF SPECIAL BENCH OF THE DELHI-T RIBUNAL IN THE CASE OF VIREET INVESTMENT PRIVATE LIMITED V. ACIT ( 2017 ) 82 TAXMANN.COM 415(DEL SB). THE LEARNED DR FAIRLY AGREED THAT THIS ISSUE IS COVERED BY DECISION OF SPECIAL BENCH , DELHI ITAT IN THE CASE OF VIREET INVESTMENT PRIVATE LIMITED (SUPRA). WE DIRECT THE AO TO DECIDE THIS ISSUE IN THE LIGHT OF DECISION OF SPECIAL BENCH IN THE CASE OF VIREET INV ESTMENT PRIVATE LIMITED(SUPRA), WHEREIN ONLY THOSE INSTRUMENTS/SECU RITIES WHICH YIELDED EXEMPT INCOME DURING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR SHALL BE CONSIDERED FOR COMPUTING DISALLOWANCE U/S 14A R.W.R. 8D. THE SPECIAL BENCH IN PARA 11.16 HELD THAT ONLY THOSE IN VESTMENTS ARE TO BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMEN T WHICH YIELDED EXEMPT INCOME DURING THE YEAR. WE ARE BOUND BY DECISION OF SPECIAL BENCH AND RESPECTFULLY FOLLOWING THE SAME , WE DIRECT THE AO TO COMPUTE DISALLOWANCE U/S 14A R.W.R. 8D(2)(III) IN ACCORDANCE WITH THE RA TIO OF LAW LAID DOWN BY SPECIAL BENCH - ITAT, DELHI IN THE CASE OF VIREET I NVESTMENT PRIVATE LIMITED(SUPRA). WE ORDER ACCORDINGLY. THE NEXT CONTENTION IS W.R.T. COMPUTATION OF BOOK P ROFITS U/S 115JB VIS-A- VIS DISALLOWANCE U/S 14A . THE ISSUE IS NOW DECIDED BY SPECIAL BENCH, DELHI ITAT IN THE CASE OF VIREET INVESTMENT PRIVATE LIMIT ED (SUPRA) . BOTH THE PARTIES FAIRLY AGREED THAT ISSUE IS COVERED BY DECI SION OF SPECIAL BENCH OF ITAT, DELHI IN THE CASE OF VIREET INVESTMENT PRIVAT E LIMITED(SUPRA). THE AO IS DIRECTED TO DECIDE THE ISSUE IN THE LIGHT OF RAT IO OF DECISION OF SPECIAL BENCH IN THE CASE OF VIREET INVESTMENT PRIVATE LIMITED(SU PRA). WE ORDER ACCORDINGLY. THE LAST GRIEVANCE UNDER THESE APPEAL IS OF THE ASS ESSEE AS TO WHETHER THE DISALLOWANCE U/S 14A CAN FALL BELOW DISALLOWANCE SU O MOTU VOLUNTARILY MADE BY THE ASSESSEE IN THE RETURN OF INCOME FILED WITH THE REVENUE. THE ASSESSEE HAS CLAIMED THAT IF HIS SEVERAL CONTENTIONS ARE FAV OURABLY CONSIDERED BY TRIBUNAL KEEPING IN VIEW LEGAL POSITION, THE DISALL OWANCE U/S 14A CAN FALL BELOW THE VOLUNTARY DISALLOWANCE MADE BY THE ASSESS EE SUO MOTU IN RETURN OF INCOME FILED WITH THE REVENUE. THE ASSESSEE HAS REL IED ON DECISION OF ITA NO. 47 29 MUM 2017-M/S SAJJAN INDIA LTD. 8 HON BLE GUJARAT HIGH COURT IN THE CASE OF PRINCIPAL CIT V. UTI BANK LIMITED (2017) 398 ITR 514(GUJ) AND DECISION OF ITA T, MUMBAI IN THE CASE OF RUPEE FINANCE AND MANAGEMENT PRIVATE LIMITED V. DCIT (2017) 57 ITR(TRIB.) 205(MUMBAI) . WE FIND MERIT IN THE CONTE NTION OF THE ASSESSEE THAT ONCE TRIBUNAL HAS ADJUDICATED MATTER IN ASSESSEES FAVOUR THEN MERELY BECAUSE DISALLOWANCE WAS MADE IN RETURN OF INCOME VOLUNTARI LY UNDER A WRONG BELIEF , THE ASSESSEE CANNOT RESILE FROM ITS POSITION IS NOT ACCEPTABLE . THE MANDATE OF THE 1961 ACT IS TO TAX REAL INCOME AND NOT AN INCOM E WHICH WAS NEVER THE INCOME CHARGEABLE TO TAX IN THE HANDS OF THE ASSESS EE BUT WAS DECLARED UNDER A WRONG BELIEF OR NOTION. THE MANDATE OF THE 1961 ACT IS TO TAX REAL INCOME AND TAX CAN ONLY BE LEVIED UNDER THE AUTHORITY OF LAW. THUS, IF AFTER VERIFICATIONS AND FOLLOWING THE RATIO OF LAW DECIDED BY THE TRIBU NAL IN THE INSTANT CASE, IF THE DISALLOWANCE FALLS BELOW THE DISALLOWANCE U/S 14A O FFERED BY THE ASSESSEE IN RETURN OF INCOME, BE IT MAY THE REVENUE CANNOT CHAR GE TAX ON INCOME WHICH NEVER WAS THE INCOME OF THE ASSESSEE CHARGEABLE TO TAX WITHIN THE MANDATE AND PROVISIONS OF THE 1961 ACT AS THE TAX CAN ONLY BE LEVIED BY THE AUTHORITY OF LAW. THE HON BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT V. BAKELITE HYLAM LIMITED (1999) 237 ITR 392(AP) AS WE LL HON;BLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT GAS COMPANY LIMIT ED V. JCIT REPORTED IN (2000) 245 ITR 84(GUJ) HAS TAKEN A SIMILAR VIEW. HO N BLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT GAS COMPANY LIMITED(SU PRA) HAS ARRIVED AT THE SAID DECISION AFTER CONSIDERING CBDT CIRCULAR NO. 5 49 DATED 31-10-1989 (1990) 182 ITR (ST) 1 WHILE ARRIVING AT THE SAID DE CISION THAT ASSESSED INCOME CAN FALL BELOW RETURNED INCOME IN PROCEEDINGS U/S 1 43(3) R.W.S. 143(2). THE HON BLE SUPREME COURT DECISION IN THE CASE OF CIT V. SUN ENGINEERING WORK PRIVATE LIMITED (1992) 198 ITR 297(SC) WAS IN CONTEXT OF RE-ASSESS MENT PROCEEDINGS INITIATED U/S 147 WHEREIN HON BLE SUPREME COURT HELD THAT REASSESSMENT PROCEEDINGS INITIATED U/S 147 ARE FOR THE BENEFIT OF REVENUE AND NOT THE ASSESSEE, WHEREIN THE MANDATE IS TO BRING T O TAX INCOME WHICH HAS ESCAPED ASSESSMENT WHILE PRESENTLY WE ARE CONCERNED WITH PROCEEDINGS INITIATED U/S 143(3) R.W.S. 143(2). WE ORDER ACCORD INGLY. 6. IN THE RESULT THE APPEAL OF THE ASSESSEE AND REV ENUE FOR AY 2011-12 ARE PARTLY ALLOWED AS INDICATED ABOVE. 7. THE ASSESSEE IS IN APPEAL FOR AY 2012-13 WHEREIN SIMILAR ISSUES ARE INVOLVED AS WERE IN AY 2011-12, OUR DECISION IN AY 2011-12 SHALL APPLY MUTATIS MUTANDIS TO THE DECISION IN AY 2012-13. WE ORDER ACCORDINGLY. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE FOR AY 2012-13 IS PARTLY ALLOWED AS INDICATED ABOVE. 8. CONSIDERING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12, ON DISALLOWANCE UNDER RULE 8D(2)(III), THE ASSESSING OFFICER IS DIRECTED TO FOLLOW THE DIRECTI ON OF TRIBUNAL FOR ASSESSMENT YEAR 2011-12 AND PASSED THE ORDER AFRESH IN ACCORDANCE WITH ITA NO. 47 29 MUM 2017-M/S SAJJAN INDIA LTD. 9 LAW. NEEDLESS TO ORDER THAT BEFORE DECIDING THE ISS UE THE ASSESSING OFFICER SHALL GRANT SUFFICIENT OPPORTUNITY TO THE A SSESSEE. 9. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 29/ 01/2019. SD/ SD/- MANOJ KUMAR AGGARWAL PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEM BER MUMBAI, DATE: 29.01.2019 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR G BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI