L & T Infocity Limited, Hyderabad V. Joint Commissioner of Income Tax, Range-16, Hyderabad

ITA 51/HYD/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87284 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 10-01-2014
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Keywords: Business income; Opportunity of being heard; Earning of tax free income; Proportionate interest; Question of law; Commercial expediency
• Section: 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 1515/HYD/2011 2007 - 08 L&T INFOCITY LIMITED, MADHAPUR, HYDERABAD [PAN: AAACL 5895 R] DEPUTY COMMISSIONER OF INCOME TAX, HYDERABAD 1516/HYD/2011 2008 - 09 JOINT COMMISSIONER OF INCOME TAX, HYDERABAD 50/HYD/2014 2009 - 10 JOINT COMMISSIONER OF INCOME TAX, HYDERABAD 51/HYD/2014 2010 - 11 JOINT COMMISSIONER OF INCOME TAX, HYDERABAD 256/HYD/2014 2009 - 10 DEPUTY COMMISSIONER OF INCOME TAX, HYDERABAD L&T INFOCITY LIMITED, HYDERABAD 289/HYD/2014 2010 - 11 DEPUTY COMMISSIONER OF INCOME TAX, HYDERABAD L&T INFOCITY LIMITED, HYDERABAD FOR ASSESSEE : DR. ANITA SUMANTH SHRI SUMANTH KARLAPUDI SHRI ADITYA BAJORIA FOR REVENUE : S HRI D. SUDHAKAR RAO, DR DATE OF HEARING : 05 - 12 - 201 4 DATE OF PRONOUNCEMENT : 22 - 01 - 2015 O R D E R PER B. RAMAKOTAIAH, A.M. : THESE ARE GROUP OF APPEALS FILED BY ASSE SSEE FOR ASSESSMENT YEARS 2007-08, 2008-09, 2009-10, 2010-11 AND CROSS-APPEAL S BY REVENUE FOR ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 2 -: AYS.2009-10 & 2010-11. SINCE COMMON ISSUES ARE INV OLVED IN THESE, WE HAVE HEARD THESE APPEALS TOGETHER AND DECIDED BY TH IS COMMON ORDER. 2. FOR THE SAKE OF CONVENIENCE, WE WILL DISCUSS THE FACTS OF THE APPEAL IN ITA NO.1515/HYD/2011. 3. THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-V, HYDERABAD DA TED 13-06-2011 AND ASSESSEE HAS RAISED SIX GROUNDS IN THE APPEAL. LD.CIT(A) PARTLY ALLOWED THE APPEAL AND REVENUE HAS NOT COME IN APPE AL. BRIEFLY STATED, ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF DEVE LOPMENT, MAINTENANCE AND CONSULTANCY IN RESPECT OF INFRASTRU CTURE FACILITIES FOR INFORMATION AND TECHNOLOGY AND RELATED ACTIVITIES. IT HAS FILED RETURN OF INCOME FOR AY.2007-08 DECLARING TOTAL INCOME OF RS. 13.63 CRORES WHICH WAS PROCESSED U/S.143(1) OF THE INCOME TAX ACT (ACT ). IT HAS ALSO DISCLOSED BOOK PROFITS U/S.115JB AT RS.31,47,46,170 /-. SINCE TAX PAYABLE ON BOOK PROFITS WAS MORE THAN THE TAX PAYAB LE ON NORMAL TAXABLE INCOME, TAX LIABILITY U/S.115JB WAS ADOPTED U/S.143(1). EVEN AFTER MAKING CERTAIN ADDITIONS IN THE ASSESSMENT, I NCOME WAS DETERMINED U/S.115JB ONLY. HOWEVER, ASSESSEE PREFE RRED APPEALS BEFORE THE CIT(A) ON VARIOUS ISSUES. THE ISSUES ON WHICH ASSESSEE IS AGGRIEVED ARE CONSIDERED IN THIS APPEAL. GROUND NO.1 BEING G ENERAL IN NATURE DOES NOT REQUIRE ANY ADJUDICATION. 4. GROUND NO.2 IS DISALLOWANCE OF INTEREST EXPENSES AMOUNTING TO RS.4,64,00,000/-. THE FACTS ARE THAT ASSESSEE HAS MADE INVESTMENTS OF RS.46,40,12,844/- IN THE FORM OF LONG TERM INVESTME NTS AND MUTUAL FUNDS. THE INVESTMENTS ARE PRIMARILY INTO SUBSIDIA RY SISTER-COMPANIES. ASSESSING OFFICER CONSIDERED THAT ASSESSEE HAS DIVE RTED FUNDS FOR INVESTMENTS AND THEREFORE INTEREST CLAIMED TO THE E XTENT OF RS.4.64 ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 3 -: CRORES WAS DISALLOWED OUT OF THE INTEREST OF RS.13. 69 CRORES CLAIMED IN P&L A/C. LD.CIT(A) CONSIDERING THAT SIMILAR ISSUE WAS DECIDED BY HIM IN EARLIER YEARS, AFFIRMED THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER. 4.1 AT THE OUTSET, IT WAS SUBMITTED THAT THE ORDERS OF THE CIT(A) IN AY.2003-04 AND 2004-05 WERE SUBJECT MATTER OF APPEA LS BEFORE THE HON'BLE ITAT AND THE ISSUE WAS SET ASIDE TO THE FIL E OF ASSESSING OFFICER FOR FRESH EXAMINATION. LD.COUNSEL HAS NO OBJECTION IF THE MATTER IS RESTORED TO THE FILE OF ASSESSING OFFICER WITH SIMI LAR DIRECTIONS. 5. ITAT 'B' BENCH, HYDERABAD IN ITA NO.317/HYD/2007 FOR AY.2003- 04 HAS CONSIDERED SIMILAR ISSUE AND SET ASIDE TO TH E FILE OF THE ASSESSING OFFICER FOR CONSIDERATION OF FACTS AFRESH. ORDER O F ITAT IN PARA 9 IS AS UNDER: '9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT IMPUG NED DISALLOWANCE HAS BEEN SUSTAINED BY THE CIT(A) OBS ERVING THAT DETAILED PARTICULARS OF PAYMENTS HAVE NOT BEEN FU RNISHED BY THE ASSESSEE EITHER BEFORE THE ASSESSING OFFICER OR BEFORE HIM. SINCE THE ASSESSEE BEFORE US CLAIMS TO BE NOW IN POSSESSION OF THE DETAILS OF PAYMENTS, WHICH HAVE BEEN FURNISHED AT PAGES 261 AND 264 OF THE PAPER-BOOK, WE DEEM IT FAIR AND PRO PER TO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OF FICER, FOR FRESH CONSIDERATION IN THE LIGHT OF THE RATIO OF THE DEC ISION OF THE APEX COURT IN THE CASE OF S.A.BUILDERS (SUPRA). WE AC CORDINGLY SET ASIDE THE IMPUGNED ORDER OF THE CIT(A) AND RESTOR E THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR A FRESH CONSIDERATION IN ACCORDANCE WITH LAW AND AFTER GIVING THE ASSESSEE REASONABLE OPPORTUNITY OF BEING HEARD. ASSESSEE'S GROUNDS ON THIS ISSUE ARE ALLOWED FOR STATISTICAL PURPOSES. RESPECTFULLY FOLLOWING THE SAME, WE ACCORDINGLY SET ASIDE THE IMPUGNED ORDERS OF ASSESSING OFFICER AND CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION KE EPING IN MIND THE ORDERS OF THE ASSESSING OFFICER IN EARLIER YEARS ON THE SIMILAR ISSUE. ASSESSEE SHOULD BE GIVEN REASONABLE OPPORTUNITY OF BEING HEARD. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 4 -: 6. GROUND NO.3 IS ON THE ISSUE OF SET-OFF OF CAPITA L LOSS AGAINST THE CAPITAL GAINS INCOME DURING THE YEAR. FACTS ARE THAT THE APPELLANT CLAIMED SHORT TERM CAPITAL LOSS ON THE SALE OF MUT UAL FUNDS AT RS.15,66,51,356/-. THIS SHORT TERM CAPITAL LOSS WAS SET OFF AGAINST SHORT TERM CAPITAL GAIN OF RS.52,82,951/- AND LONG TERM CAPITAL GAIN OF RS.28,33,9 4,489/-. THE APPELLANT ALSO CLAIMED EXEMPTIONS UNDE R SECTIONS 10(34) AND 10(35) WITH RESPECT TO DIVIDEND INCOME RECEIVED AMOUNTING TO 15,64,95,712/-. BY GIVING THE FOLLOWING REASONS, ASSESSING OFFICER DISALLOWED THE CLAIM OF CAPITAL L OSS: '4.1. THE ABOVE EXPLANATION OF THE ASSESS EE IS CONSIDERED. THE PROVISIONS OF SEC. 94(7) HAVE BEEN BROUGHT INTO THE STATUTE BY THE FINANCE ACT, 2001 IN ORDER TO CURB THE CREATION OF SHORT TERM LOSSES. T HE SCOPE AND EFFECT HAVE BEEN EXPLAINED BY THE DEPARTMENTAL CI RCULAR NO.14 OF 2001 AS UNDER: 'THE EXISTING PROVISIONS DID NOT COVER A CASE WHER E A PERSON BUY S ECURITIES (INCLUDING UNITS OF A MUTUAL FUND) SHORTLY BEFORE THE RECORD DATE FIXED FOR DECLARATI ON OF DIVIDENDS, AND SELLS THE SAME SHORTLY AFTER THE RECORD DATE. SINCE THE CUM-DIVIDEND PRICE AT WHICH THE SECURITIES ARE PURCHASED WOULD NORMALLY BE HIGHER THAN THE EX-DIVIDEND PRICE AT WHICH THEY ARE SOLD, SU CH TRANSACTIONS WOULD RESULT IN A LOSS WHICH COULD B E SET OFF AGAINST OTHER INCOME OF THE YEAR. AT THE SAME TIME, THE DIVIDENDS RECEIVED WOULD BE EXEMPT FROM TAX UNDER SECTION 10(33). THE NET RESULT WOULD BE THE CREATION OF A TAX LOSS, WITHOUT ANY ACTUAL OUTGOI NGS. WITH A VIEW TO CURB THE CREATION OF SUCH SHORT TE RM LOSSES, THE FINANCE ACT , 2001 HAS INSERTED A NEW SUB- SECTION (7) IN THE SECTION TO PROVIDE THAT WHERE ANY PERSONS BUYS OR ACQUIRES SECURITIES OR UNITS WITH IN A PERIOD OF THREE MONTHS PRIOR TO THE RECORD DATE F IXED FOR DECLARATION OF DIVIDEND OR DISTRIBUTION OF INCOME IN RESPECT OF THE SECURITIES OR UNITS, AND SELLS OR TRANSFER THE SAME WITHIN THE PERIOD OF 3 MONTHS AFTER RECORD DATE AND THE DIVIDEND OR INCOME RECEIVED OR RECEI VABLE IS EXEMPT, THEN THE LOSS, IF ANY, ARISING FROM SUCH PURCHASE OR SALE SHALL BE IGNORED TO THE EXTENT SUCH LOSS ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 5 -: DOES NOT EXCEED THE AMOUNT OF SUCH DIVIDEND OR INTEREST, IN THE COMPUTATION OF THE INCOME CHARGE ABLE TO TAX OR SUCH PERSON.' SIMULTANEOUSLY, SEC.14A WAS INTRODUCED BY THE FINANCE ACT, 2001 WHEREIN IT WAS SPECIFICALLY PRO VIDED THAT NO DEDUCTION SHALL BE ALLOWED IN RESPEC T OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME U NDER THE ACT. IN THE KIND OF TRANSACTIONS ENTERED INTO BY THE AS SESSEE IN RESPECT OF THE PURCHASE AND SALE OF UNITS, THE ASSE SSEE KNOWS THAT THEY ARE SHORT TERM INVESTMENTS AND TH EREFORE, THE INTENTION IS TO EARN DIVIDEND INCOME WHICH IS EXEMPT FROM TAX. THERE IS KNOWLEDGE ON THE PART OF THE A SSESSEE THAT SOON AFTER THE DIVIDENDS ARE DECLARED, THE VA LUE OF THE UNIT GOES DOWN AND IN THE PROCESS, ANY SALE WOULD RESULT IN DEFINITE LOSS TO THE ASSESSEE. THEREFORE, IT HAS TO BE TREATED THAT THE TRANSACTION HAS BEEN UNDERTAKEN WITH A VIEW TO EARN DIVIDEND AND THAT THE ASSESSEE IS PREPARED TO INCUR LOSS IN THE BARGAIN WHICH HAS TO BE TREATED A S AN 'EXPENSE' IN THE PROCESS OF EARNING NON-TAXABLE I NCOME. THE INTENTION OF THE LEGISLATURE IS VERY CLEAR AND IT SE EKS TO CURB SUCH PRACTICES. THE ASSESSEE HAS PURCHASED 1,11,5 0,211 UNITS AT A FACE VALUE OF RS.25 CRORES ON 08.12.06 AND SOLD THEM ON 26.03.07 FOR A CONSIDERATION OF RS.16,85,3 4,528/- THE RECORD DATE OF THIS TRANSACTION IS 23.03.07. S IMILARLY, THE ASSESSEE ALSO HAS PURCHASED 1,15,65,668 UNITS ON 19.12.06 FOR A CONSIDERATION OF RS.25 CRORES AND SOLD THEM ON 26.03.2007 FOR A CONSIDERATION OF RS.17,48,14,L16/-. THE RECORD DATE FOR THIS TRANS ACTION IS 23.03.07. IT CAN BE OBSERVED THAT THE ASSESSEE HA S SOLD THE UNITS JUST THREE DAYS FROM THE RECORD DA TE. THE PURCHASE OF THE UNITS ARE ON 08.12.06 AND 19.12.06 IE., JUST A FEW DAYS MORE THAN THE PERIOD OF 3 MONTHS BEFORE THE RECORD DATE. THE ASSESSEE HAS CLAIMED THE DIV IDEND AS EXEMPT AND HAS SET OFF THE LOSS AGAINST LONG TERM CAPITAL GAINS WHICH CANNOT BE PERMITTED IN THE FACE OF THE NATURE OF TRANSACTION. THE LOSS HAS TO BE RECKONED AS 'CO ST' IN THE PROCESS OF EARNING OF DIVIDEND. 4.2. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, THE SHORT TERM CAPITAL LOSS CLAIMED BY THE ASSESSEE CAN NOT BE SET OFF AGAINST LONG TERM CAPITAL GAINS. HENCE, TH E SHORT ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 6 -: TERM CAPITAL GAINS OF RS.52,82,951/- AND LONG TERM CAPITAL GAINS OF RS. 28,27,89,471 + RS.6,05,0 18 = RS.28,33,94,489/- HAVE TO BE BROUGHT TO TAX'. 6.1 LD.CIT(A) CONFIRMED THE ADJUSTMENTS MADE BY ASSESSING OFFICER BY STATING AS UNDER: 7.2 I HAVE CONSIDERED CAREFULLY THE FACTS AND EVID ENCE. THE ARGUMENTS OF THE APPELLANT ONLY RELATE TO SECTION 70(2) OF THE INCOME TAX ACT. HOWEVER, THE ASSESSING OFFICER HAS RIGHT LY POINTED OUT SECTION 94(7) OF THE INCOME TAX ACT WAS INTRODUCED WITH A SPECIFIC PURPOSE OF TAX EVASION DUE TO CERTAIN COLOURABLE T RANSACTIONS IN SECURITIES. SECTION 94(7) IS REPRODUCED BELOW: 'SECTION 94(7)- (A) ANY PERSON BUYS OR ACQUIRES ANY SECURITIES OR UNIT WITHIN A PERIOD OF THREE MONTHS PRIOR TO THE RECO RD DATE; (B) SUCH PERSON SELLS OR TRANSFERS- (I) SUCH SECURITIES WITHIN A PERIOD OF THREE MONT HS AFTER SUCH DATE, OR (II) SUCH UNIT WITHIN A PERIOD OF NINE MONTHS AFTE R SUCH DATE; (C) THE DIVIDEND OR INCOME ON SUCH SECURITIES OR UNIT RECEIVED OR RECEIVABLE BY SUCH PERSON IN EXEMPTED, THEN, THE LOSS, IF ANY, ARISING TO HIM ON ACCOUNT OF SUCH PURCHASE AND SALE OF SECURITIES OR UNIT, TO THE EXTENT SUCH LOSS DOES NOT EXCEED THE AMOUNT OF DIVIDEND OR INCOME RECEIVED OR RECEI VABLE ON SUCH SECURITIES OR UNIT, SHALL BE IGNORED FOR THE PURPO SES OF COMPUTING HIS INCOME CHARGEABLE TO TAX.' 7.2.1 A PLAIN READING OF THE ABOVE SECTION CLEARLY SHOWS THAT WHERE A PERSON BUYS ANY SECURITY 3 MONTHS PRIOR TO THE R ECORD DATE, I.E., THE 'SECURITY IS PURCHASED CUM DIVIDEND' AND IS SO LD WITHIN A SPECIFIED TIME AFTER THE RECORD DATE I.E., EX-DIVI DEND AND THE DIVIDEND ON SUCH SECURITY IS EXEMPT. THEN THE LOS S ARISING FROM SUCH TRANSACTIONS WILL NOT BE ALLOWED. 7.3 IN THE CASE OF THE APPELLANT, THE RECORD DATE IN A PARTICULAR ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 7 -: TRANSACTION WAS 23.3.2007. THE APPELLANT PURCHASED 1,11,50,211 UNITS AT FACE VALUE OF RS. 25 CRORES ON 08.12.2006 AND SOLD THEM ON 26.3.2007 WITHIN 3 DYAS OF THE RECORD DATE FOR A CONSIDERATION OF RS.16,85,34,528/- THEREBY INCURRING LOSS. SIMILARLY, 1,15,65,668 UNITS PURCHASED ON 19.12.2006 FOR A CONSIDERATION OF RS. 25 CRORES AND THE SAME WERE SOLD ON 26.3.2007 FOR RS.17,48,14,116/-. THE APPELLANT CLAIMED THE DIVIDEND RECEIVED AS EXEMPT AND SET OFF THE LOSS AGAINST LONG TERM CAPITAL GAINS. ACCORDINGLY, AS PER SECTION 9 4(7), THE LOSS ON THESE TRANSACTIONS HAS TO BE DISALLOWED AS PER SPECIFIED IN THAT SECTION. 7.4 IN FIND THAT THE ASSESSING OFFICER HAS TREATED THE LOSS AS COST OF EARNING DIVIDEND INCOME. I FIND THAT SUCH AN INTER PRETATION IS INCORRECT AS CAPITAL LOSS CANNOT BE EQUATED TO COS T OF EARNING DIVIDEND. WHEREAS, IN PRINCIPLE, I AGREE THAT SECT ION 94(7) IS APPLICABLE. HOWEVER, I DIRECT THE ASSESSING OFFICER TO APPLY THE SECTION AND DISALLOW LOSS ONLY TO THE EXTENT OF DI VIDEND OR INCOME RECEIVED ON SUCH SECURITIES AS SPECIFIED IN THE AB OVE SECTION. CAPITAL LOSS IS NOT TO BE DISALLOWED AS COST UNDER SECTION 14A. THIS GROUND IS ACCORDINGLY DECIDED PARTLY IN FAVOUR OF REVENUE . 6.2 LD.COUNSEL SUBMITTED THAT THE ACTIONS OF THE ASSESSING OFFICER AND CIT(A) ARE NOT ACCORDING TO THE LAW. IT WAS SU BMITTED THAT THE STIPULATIONS MADE OUT IN SECTION 94(7) HAVE NOT BEE N FULFILLED AS ONE OF THE CONDITIONS ARE NOT SATISFIED. IT WAS ALREADY H ELD THAT ALL THE THREE CONDITIONS AS SPECIFIED U/S.94(7)(A), 94(7)(B) & 94 (7)(C) ARE TO BE SATISFIED SO AS TO CONSIDER THE DISALLOWANCE UNDER THAT SECTI ON. HOWEVER, LD.CIT(A) DID NOT CONSIDER THAT ASSESSEE IS NOT SAT ISFYING CONDITION '(A)'. IT WAS SUBMITTED THAT THE RECORD DATE BEING 26-03-2 007 ONLY THESE SHARES OR UNITS WHICH ARE PURCHASED ON OR AFTER 26- 12-2006 WOULD COME WITHIN THE PURVIEW OF SUB-CLAUSE 'A'. ASSESSEE HAV ING PURCHASED THEM ON 08-12-2006 AND 09-12-2006 CONDITION (A) IS NOT S ATISFIED. THE LD.COUNSEL RELIED ON THE JUDGMENTS OF CIT VS. SMT. ALKA BHOSLE 325 ITR 550 (BOM) AND CIT VS. SHAMBHU MERCANTILE LIMITED 30 4 ITR (AT)36 (DEL) AS APPROVED BY HONBLE DEHI HIGH COURT IN 325 ITR 5 35. 6.3 THE LD.DR HOWEVER, RELIED ON THE AUTHORITIES. ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 8 -: 7. WE HAVE CONSIDERED THE ISSUE. THE PROVISIONS OF SECTION 94(7) ARE ALREADY EXTRACTED BY CIT(A) IN THE ORDER WHICH DOES NOT REQUIRE ANY REPETITION. AS PER SECTION 94(7), IF ANY PERSON BU YS SECURITIES OR UNITS WITHIN THREE MONTHS PRIOR TO THE RECORD DATE AND SU CH PERSON SELLS OR TRANSFERS SUCH SECURITIES WITHIN THREE MONTHS AFTER SUCH RECORD DATE, LOSS ON SUCH SALE OF SECURITIES/UNITS SHALL BE IGNO RED FOR COMPUTING INCOME CHARGEABLE TO TAX. AS VERIFIED FROM THE REC ORD, ASSESSEE PURCHASED THESE UNITS AND HELD THEM FOR MORE THAN T HREE MONTHS PERIOD AS ON RECORD DATE. THEREFORE, CONDITION '(A)' SPEC IFIED IN THE SECTION HAS NOT BEEN FULFILLED. 7.1. IN THE CASE OF CIT VS. SMT. ALKA BHOSLE (SUPRA ), THE HON'BLE BOMBAY HIGH COURT HELD AS UNDER: ' THE ASSESSEE PURCHASED CERTAIN UNITS WITHIN A PERIO D OF LESS THAN THREE MONTHS FROM THE RECORD DATE, BUT ADMITTEDLY, THE UNITS WERE SOLD BEYOND A PERIOD OF THREE MONTHS FROM THE RECO RD DATE. THE CONTENTION OF THE REVENUE WAS THAT THOUGH THE UNIT S WERE SOLD BEYOND A PERIOD OF THREE MONTHS OF THE RECORD DATE , THE PROVISIONS OF SECTION 94(7) OF THE INCOME-TAX ACT, 1961 WOULD AP PLY SINCE THEY WERE ACQUIRED WITHIN A PERIOD OF THREE MONTHS OF T HE RECORD DATE. ON APPEAL: HELD, DISMISSING THE APPEAL, THAT SUB-SECTION(7) O F SECTION 94 SPELT OUT THREE REQUIREMENTS; (I) THE PURCHASE OR ACQUIS ITION OF ANY OF THE SECURITIES OR UNITS SHOULD TAKE PLACE WITHIN A PERIOD OF THREE MONTHS PRIOR TO THE RECORD DATE; (II) THE SALE OR TRANSFER SHOULD TAKE PLACE WITHIN A PERIOD OF THREE MONTHS AFTER THE RE CORD DATE; (III) THE DIVIDEND OR INCOME RECEIVED OR RECEIVABLE SHOULD B E EXEMPT. IN THE EVENT THAT THESE THREE CONDITIONS WERE FULFILLED, THE LOSS, IF ANY, ARISING FROM THE PURCHASE OR SALE OF SECURITIES OR UNITS, HAD TO BE IGNORED FOR THE PURPOSE OF COMPUTING THE INCOME CH ARGEABLE TO TAX, TO THE EXTENT SUCH LOSS DID NOT EXCEED THE AMOUNT OF DIVIDEND OR INCOME RECEIVED OR RECEIVABLE. THE SALE OF THE UN ITS HAD TAKEN PLACE AFTER THE EXPIRY OF A PERIOD OF THREE MONTHS FROM THE RECORD DATE. HENCE, THE SECOND CONDITION SPELT OUT FOR THE APPL ICABILITY OF SUB- SECTION 7 WOULD NOT COME INTO FORCE. THE CONDITIO NS PRESCRIBED IN CLAUSES (A), (B) AND (C) OF SUB-SECTION 7 WERE CUM ULATIVE IN NATURE. THUS, SECTION 94(7) WOULD NOT BE APPLICABLE'. ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 9 -: 7.2 SIMILARLY, HONBLE HIGH COURT OF DELHI IN CIT V S. SHAMBHU MERCANTILE LIMITED (SUPRA) HAS CONSIDERED THE SIMIL AR ISSUE AND HELD AS UNDER: 'A PLAIN READING OF THE PROVISION OF S. 94(7) INDI CATES THAT THE CONDITIONS ARE CUMULATIVE. THE REASON BEING THAT C LS. (A) AND (B) OF SUB-S. (7) OF S. 94 PROVIDED FOR A STATUTORY PERIO D BOTH PRIOR TO AND AFTER THE RECORD DATE IN RESPECT OF SECURITIES OR UNITS [AS PROVIDED IN CL. (C)] THE DIVIDEND OR INCOME OF WHICH WHETHER R ECEIVED OR RECEIVABLE IS EXEMPT UNDER THE ACT. IT IS ONLY IN A CASE WHERE A TRANSACTION HAS ALL THREE COMPONENTS AS PRESCRIBE D IN CLS. (A), (B) AND (C) OF SUB-S. (7) OF S. 94 AND IF A LOSS IS OC CASIONED ON PURCHASE AND SALE OF SUCH SECURITY OR UNIT THEN TO THE EXTE NT SUCH LOSS DOES NOT EXCEED THE AMOUNT OF DIVIDEND OR INCOME RECEIV ED OR RECEIVABLE IT IS TO BE IGNORED FOR THE PURPOSES OF COMPUTING INCOME OF THE ASSESSEE CHARGEABLE TO TAX. A PERUSAL OF INFORMATI ON WITH RESPECT TO THE TRANSACTIONS WOULD SHOW THAT WHILE THE PURCHAS E WAS WITHIN THE STATUTORY PERIOD OF THREE MONTHS, THE SALE OF THE SAID UNITS WAS BEYOND THE STATUTORY PERIOD OF THREE MONTHS FROM T HE RECORD DATE. IN THE CIRCUMSTANCES IT IS CLEAR THAT THE AFORESAID T RANSACTIONS ARE OUTSIDE THE NET OF S. 94(7). THE RECORD DATE IS RE ALLY THE MEDIAN LINE FOR THE STATUTORY PERIOD PRESCRIBED BOTH FOR PURCH ASE AND SALE WHICH IS THREE MONTHS ON EITHER SIDE OF THE RECORD DATE. IT IS ONLY WHEN THE TRANSACTION IS IN RELATION TO A SECURITY OR A UNIT IN RESPECT OF WHICH THE DIVIDEND OR INCOME RECEIVED IS EXEMPT AND IT I S WITHIN STATUTORY PERIOD AS PRESCRIBED IN CLS. (A) AND (B) OF SUB-S. (7) OF S. 94 THAT THE LOSS, IF ANY, WOULD STAND DISALLOWED TO THE EXTENT OF THE DIVIDEND OR INCOME RECEIVED OR RECEIVABLE ON SUCH SECURITIES O R UNITS IN COMPUTING THE ASSESSEES INCOME CHARGEABLE TO TAX. THE REASONING OF THE AUTHORITIES BELOW CANNOT BE FAULTED. NO SUB STANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION.' IN VIEW OF THE PRINCIPLES LAID DOWN ON THIS, WE AGR EE WITH THE ASSESSEE'S CONTENTION THAT THE TRANSACTIONS DOES NOT COME WITH IN THE PURVIEW OF SECTION 94(7). THEREFORE, THE LOSS AS CLAIMED IS T O BE ALLOWED. THIS GROUND IS ALLOWED ACCORDINGLY. 8. GROUND NO.4 PERTAINS TO DISALLOWANCE OF DEDUCTIO N U/S.80IA OF THE ACT IN RESPECT OF THE PROFITS EARNED FROM ELIGIBLE AND NOTIFIED BTS PROJECT. ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 10 -: THIS ISSUE ARISES AS THE ASSESSING OFFICER DISALLOW ED CLAIM U/S.80IA ON THE INFRASTRUCTURE PROJECT OF THE ASSESSEE. FACTS O F THE CASE ARE THAT ASSESSEE-COMPANY HAS BEEN GRANTED DEDUCTION U/S 80IA IN THE EARLIER ASST YEAR FOR PHASE-I AND PHASE-II OF ITS INFRASTRUCTURE PROJECTS BASED ON THE CBDT NOTIFICATION DATED 13.02.2004. IN PHASE-III, THE ASSESSEE HAS CONSTRUCTED THREE TOWERS WITH INFRASTR UCTURE FACILITIES WHICH HAVE BEEN LET OUT TO FIVE COMPANIES VIZ, HSBC EDP INDIA PVT LTD (2,36,776 SFT), MOTOROLA INDIA PVT LTD (1,52,917 S FT), DELOITTEE CONSULTING INDIA PVT LTD(1,28,200 SFT), DELOITTE TOUCHE AUDIT SERVICES INDIA PVT LTD (47,680 SFT) AND DELOITTE SUPPORT SERVICES INDI A PVT. LTD., (10,070SFT). THE PHASE-III HAS BEEN COMPLETED IN THE PREVIOUS YE AR RELEVANT TO THE ASST. YEAR 2007-08. IN PHASE-ILL, THREE TOWERS HAVE BEEN DEVELOPED AS THREE SEPARATE, BUILT TO SUIT (BTS PROJECTS) INFRA STRUCTURE PROJECTS. HSBC OCCUPIES ONE TOWER FULLY. MOTOROLA INDIA OCCUPIES ONE TOWER OF PROJECT FULLY. THE THIRD ONE IS OCCUPIED BY THE THREE DELOI TTE GROUP OF COMPANIES. AO WAS OF THE OPINION THAT CBDT HAS I SSUED NOTIFICATION NO.246/2007 IN F.NO.178/79/2007 -ITA-I DATED 28.09 .2007 FOR THE INDUSTRIAL PARK CONSISTING OF THE ABOVE SAID THREE TOWERS AND THE NOTIFICATION APPEARS TO HAVE BEEN OBTAINED ON AN 'A UTOMATIC APPROVAL' ROUTE. AO WAS OF FURTHER OPINION THAT AS PER THE SC HEME OF 'AUTOMATIC APPROVAL' (VIDE SO354 (E) DATED 01.04.2002), EACH INDUSTRIAL PARK SHALL HAVE MINIMUM 30 NO. OF UNITS AND NO SINGLE UNIT SHALL OCCUPY MORE THAN 50% OF THE ALLOCABLE INDUSTRIAL AREA / PARK. AS COMPANY HAS DEVELOPED THREE SEPARATE TOWERS AND LEASED OUT TO T HREE SEPAR ATE UNDERTAKINGS VIZ, HSBC, MOTOROLA AND DELOITTE AND A S EACH HAS BEEN DEVELOPED AS A SEPARATE UNDERTAKING, THE NOTIFICATI ON SHOULD HAVE BEEN OBTAINED SEPARATELY FOR THE THREE UNDERTAKINGS. AO CONSIDERED THE CONDITION THAT THERE SHOULD BE A MINIMUM OF 30 UNIT S HAS NOT BEEN FULFILLED BY THE COMPANY. FURTHER CONDITION THAT EA CH UNIT SHALL NOT OCCUPY MORE THAN 50% OF THE ALLOCABLE AREA HAS ALS O NOT BEEN ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 11 -: FULFILLED. THEREFORE, AO HELD THAT THE PROFITS OF T HE BTS PROJECTS ARE NOT ELIGIBLE FOR DEDUCTION U/S 80IA. ACCORDINGLY, INCOM E FROM THE BTS PROJECTS AMOUNTING TO RS.58,57,542/- WAS TREATED AS TAXABLE. 8.1 ASSESSEE CONTENDED BEFORE THE LD.CIT(A) TH AT 'ALLOCABLE AREA' REFERRED TO IN THE ABOVE NOTIFICATION PERTAINS TO T HE ALLOCABLE AREA OF TOTAL INDUSTRIAL PARK AND NOT BUILDING-WISE OR TOWER WISE ALLOCABLE AREA. FOR PROCESSING AND APPROVING AN APPLICATION FOR DEVELOP MENT OF INDUSTRIAL PARK AS ENVISAGED U/S 80IA, THE ASSESSEE HAS COMPLI ED WITH THE CONDITIONS AS STIPULATED AND GOT THE APPROVAL FROM THE MINISTRY OF COMMERCE. THE APPROVAL BY CENTRAL GOVERNMENT (A) RE FERS TO ONLY DEVELOPMENT OF INDUSTRIAL PARK AND (B) PARA 4 OF TH E NOTIFICATION STIPULATES A CONDITION THAT NOT MORE THAN 50% OF TH E ALLOCABLE AREA OF THE INDUSTRIAL PARK SHALL BE ALLOTTED TO ONE UNIT. THEREFORE, AS PER THE TERMS OF THE APPROVAL OF THE CENTRAL GOVERNMENT THE COMPANY SHALL NOT AS A WHOLE ALLOT MORE THAN 50% OF THE ALLOCABLE ARE A OF THE INDUSTRIAL PARK, THAT IS MORE THAN 2,87,731,50 SQ FEET (50% OF 5,75,643 SQUARE FEET) TO ONE SINGLE UNIT. AS CAN BE SEEN FROM THE DETAILS, NO SINGLE UNIT HAS BEEN ALLOTTED MORE THAN 2,87,731.50 SQUARE FEET. TH EREFORE, IT WAS SUBMITTED THAT THE TOTAL ALLOCABLE AREA OF THE INDU STRIAL PARK DEVELOPED BY THE COMPANY SHALL BE CONSIDERED FOR THE PURPOSE OF VERIFYING THE COMPLIANCE TO THE CONDITION WHETHER ONE SINGLE UNIT HAS BEEN ALLOTTED MORE THAN 50% OF THE ALLOCABLE AREA AND NOT TOWER WISE OCCUPANCY IN THE LIGHT OF THE INTENT OF THE NOTIFICATION ITSELF AND NOT OTHERWISE. FURTHER, THE GOVERNMENT MACHINERY SUPERVISING THE D EVELOPMENT OF THE INDUSTRIAL PARK HAS ALSO NEVER DISPUTED THE ALL OCATION MADE BY THE COMPANY, WHICH CLEARLY SUPPORT S THE CLAIM MADE BY THE COMPANY. FURTHER IT WAS SUBMITTED THAT ASSESSEE HAS APPLIED UNDER NON-AUTOMATIC ROUTE AND ITS APPLICATION WAS PROCESS ED AND APPROVED BY MINISTRY, THEREFORE AO WRONGLY CONSIDERED THE SA ME AS UNDER AUTOMATIC ROUTE. ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 12 -: 8.2 THE LD.CIT(A), HOWEVER, WITHOUT EXAMINING ANY O F THE ISSUE REJECTED THE CONTENTION OF ASSESSEE BY BRIEFLY STAT ING AS UNDER: 8.2 WITHOUT GOING INTO OTHER DETAILS, I FIND THAT THE FUNDAMENTAL CONDITIONS THAT THERE SHOULD BE A MINIMUM OF 30 UNITS HAS NOT BEEN FULFILLED BY THE APPELLANT. THE SECOND CONDITION THAT EACH UNIT SHALL NOT OCCUPY MORE THAN 50% OF THE ALLOCABLE AREA WAS ALSO NOT BEEN FULFILLED BY THE APP ELLANT. THE ASSESSING OFFICER HAS CLEARLY WRITTEN THESE FACTS IN HIS ORDER QUOTED ABOVE. SINCE THE APPELLANT HAS NOT FULFILLED THE ESSENTIAL REQUIREM ENT, I CONFIRM THE DENIAL OF DEDUCTION UNDER SECTION 80IA. 8.3 IT WAS THE CONTENTION OF THE LD.COUNSEL THAT TH ERE ARE TWO METHODS OF GETTING APPROVAL FROM MINISTRY OF COMMERCE AND I NDUSTRY. AUTOMATIC ROUTE WHERE THE STIPULATION OF 30 UNITS IS PRESCRIB ED AND NON-AUTOMATIC ROUTE WHERE SUCH STIPULATION WAS NOT THERE. HIGH P OWER COMMITTEE IN WHICH CBDT CHAIRMAN IS ALSO A MEMBER, EXAMINED THE ISSUE AND GRANTED APPROVAL TO THE ASSESSEE. REFERRING TO THE SCHEME AND LETTER OF ALLOTMENT VIDE ORDER DT.11-04-2007 BY THE MINISTRY OF COMMERCE AND INDUSTRY, DEPARTMENT OF INDUSTRIAL POLICY AND PROMO TION, INFRASTRUCTURE DEVELOPMENT DESK, IT WAS SUBMITTED THAT GOVT. OF IN DIA HAS CONVEYED ITS APPROVAL FOR CLAIMING INCOME TAX BENEFIT UNDER THE INDUSTRIAL PARK SCHEME, 2002. LD.COUNSEL REFERRED TO THE SCHEME A ND SPECIFICALLY TO PARA 6 WHERE PROPOSED NUMBER OF INDUSTRIAL UNITS AR E SPECIFIED AS FIVE UNITS. IT WAS SUBMITTED THAT BOTH THE ASSESSING OF FICER AND CIT(A) CONSIDERED IT AS AN AUTOMATIC APPROVAL ROUTE WHER EIN UNDER THAT SCHEME, THERE SHOULD BE MINIMUM OF THIRTY UNITS AS SPECIFIED IN PARA 6 OF THE SCHEME. HOWEVER, SUCH CONDITION DOES NOT AP PLY FOR THE NON- AUTOMATIC ROUTE UNDER PARA 7 OF THE SCHEME WHEREIN EMPOWERED COMMITTEE EXAMINES THE APPLICATION ON A CASE TO CAS E BASIS AND GRANTS APPROVAL. SINCE THE APPROVAL WAS NOT WITHDRAWN, ASS ESSING OFFICER IS BOUND TO GRANT DEDUCTION U/S.80IA, WHEN CHAIRMAN OF CBDT IS A MEMBER OF THE EMPOWERED COMMITTEE WHICH GRANTED APP ROVAL. ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 13 -: LD.COUNSEL PLACED ON RECORD THE COPY OF APPLICATION FILED BEFORE THE DEPARTMENT OF INDUSTRIAL POLICY, APPROVAL RECEIVED FROM CENTRAL GOVERNMENT DT.11-04-2007, NOTIFICATION BY CBDT DT.2 8-09-2007 AND THE INDUSTRIAL POLICY SCHEME 2002 TO EXPLAIN THE FACTS PERTAINED TO ASSESSEE AND HOW THE ASSESSING OFFICER AND CIT(A) WRONGLY CO NSIDERED THEM. MOREOVER, IT IS ALSO SUBMITTED THAT DEDUCTION IN EA RLIER YEARS WAS GRANTED ON SIMILAR ISSUE ON PHASE-1 AND PHASE-2 OF THE PROJECT. 8.4 LD.DR, HOWEVER, SUBMITTED THAT ASSESSEE HAS NOT SATISFIED THE CONDITIONS AS PRESCRIBED UNDER THE INDUSTRIAL PARK SCHEME. 9. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE DO CUMENTS PLACED ON RECORD. AS FAR AS FACT OF THE APPROVAL IS CONCE RNED, ASSESSEE HAS MADE AN APPLICATION UNDER NON-AUTOMATIC ROUTE AS PR OVIDED UNDER INDUSTRIAL PARK SCHEME 2002. THE AUTOMATIC APPROVA L SCHEME AS CONTENDED BY THE ASSESSING OFFICER AND CIT(A) HAS T HESE CONDITIONS: '5. AUTOMATIC APPROVAL (1) AN UNDERTAKING SHALL M AKE AN APPLICATION IN THE FORM-IPS-1 ALONG WITH AN AFFID AVIT CERTIFYING THE DETAILS GIVEN IN SUCH APPLICATION FOR OBTAINING AP PROVAL FOR SETTING UP AN INDUSTRIAL PARK. (2) AN APPLICATION UNDER SUB-PARAGRAPH (1) SHALL B E MADE TO THE ENTREPRENEURIAL ASSISTANCE UNIT OF THE SECRETARIAT FOR INDUSTRIAL ASSISTANCE, DEPARTMENT OF INDUSTRIAL POLICY AND PR OMOTION IN THE MINISTRY OF COMMERCE & INDUSTRY, UDYHOG BHAWAN, NE W DELHI- 110011. (3) THE SECRETARIAT FOR INDUSTRIAL ASSISTANCE REFE RRED TO IN SUB- PARAGRAPH (2) SHALL, UPON RECEIPT OF APPLICATION, GIVE ACKNOWLEDGEMENT FOR RECEIPT OF SUCH APPLICATIONS A LONG WITH, REGISTRATION NUMBER ALLOTTED BY SUCH SECRETARIAT. (4) EVERY APPLICATION UNDER SUB-PARAGRAPH (1) SHAL L BE ACCOMPANIED BY A FEE OF SIX THOUSAND RUPEES PAYABLE BY A DEMAN D DRAFT DRAWN IN FAVOUR OF PAY AND ACCOUNTS OFFICER, DEPARTMENT OF INDUSTRIAL ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 14 -: DEVELOPMENT PAYABLE AT STATE BANK OF INDIA, NIRMAN BHAWAN BRANCH, NEW DELHI-110011. (5) ALL APPLICATIONS MADE UNDER SUB-PARAGRAPH (1) AND ELIGIBLE FOR AUTOMATIC APPROVAL IN ACCORDANCE WITH PARAGRAPH 6 SHALL BE DISPOSED OF WITHIN FIFTEEN DAYS OF MAKING SUCH APP LICATION AND THE DECISION FOR SUCH APPROVAL SHALL BE COMMUNICATED T O THE APPLICANT IMMEDIATELY ON DISPOSAL OF SUCH APPLICATION. 6. CRITERIA FOR AUTOMATIC APPROVAL AN UNDERTAKIN G WHICH SEEKS APPROVAL UNDER PARAGRAPH 5, SHALL FULFIL THE FOLLO WING CONDITIONS, NAMELY:- (A) THE MINIMUM AREA REQUIRED TO BE DEVELOPED FOR AN IN DUSTRIAL MODEL TOWN SHALL BE 1000 ACRES: PROVIDED THAT MINIMUM AREA FOR SPECIFIED INDUSTRIAL PARK REFERRED TO IN CLAUSE (B) AND (C) OF PARAGRAPH 4 MAY VARY DE PENDING UPON THEIR ACTIVITIES; (B) THE PROJECT REFERRED TO IN CLAUSES (A), (B) AND (C) OF PARAGRAPH 4 SHALL HAVE PROVISION FOR THE LOCATION OF MINIMUM NU MBER OF INDUSTRIAL UNITS AS FOLLOWS:- TYPE OF INDUSTRIAL PARK MINIMUM NUMBER OF UNITS TO BE PROVIDED IN THE INDUSTRIAL MODEL TOWN/INDUSTRIAL PARK/GROWTH CENTRE (1) (2) (I) INDUSTRIAL MODEL TOWN REFERRED TO IN CLAUSE (A) OF PARAGRAPH 4. 50 UNITS; (II) INDUSTRIAL PARK REFERRED TO IN CLAUSE (B) OF PARAGRAPH 4. 30 UNITS; (III) GROWTH CENTRE REFERRED TO IN CLAUSE (C) OF PARAGRAPH 4. 30 UNITS; (C) THE MINIMUM PERCENTAGE OF THE AREA TO BE ALLOCATED FOR INDUSTRIAL USE SHALL NOT BE LESS THAN SIXTY SIX PERCENT OF THE TOTAL ALLOCABLE AREA. EXPLANATION: FOR THE PURPOSE OF THIS CLAUSE, THE IN DUSTRIAL USE SHALL INCLUDE ANY ACTIVITY DEFINED IN THE NATIONAL INDUSTRIAL CLASSIFICATION 1987 CODE ISSUED BY CENTRAL STATISTI CAL ORGANISATION, DEPARTMENT OF STATISTICS, MINISTRY OF PLANNING AND PROGRAMME IMPLEMENTATION, EXCEPT THE FOLLOWING: ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 15 -: SECTION 0 SECTION 8 EXCLUDING GROUP 892, 893, 894, 895 SECTION 1 SECTION 9 SECTION 5 SECTION X SECTION 7 SECTION XI; EXCLUDING DIVISION 75 (D) THE PERCENTAGE OF LAND TO BE EARMARKED FOR COMMERCI AL USE SHALL NOT BE MORE THAN TEN PER CENT OF THE ALLOCABLE AREA ; (E) IN CASE OF AN INDUSTRIAL MODEL TOWN, INDUSTRIAL PAR K AND GROWTH CENTRE, THE MINIMUM INVESTMENT ON INFRASTRUCTURE DE VELOPMENT SHALL NOT BE LESS THAN 50% OF THE TOTAL PROJECT COS T. IN THE CASE OF AN INDUSTRIAL PARK AND GROWTH CENTRE WHICH PROVIDES BUILT UP SPACE FOR INDUSTRIAL USE, THE MINIMUM EXPENDITURE O N INFRASTRUCTURE DEVELOPMENT INCLUDING COST OF CONSTR UCTION OF INDUSTRIAL SPACE, SHALL NOT BE LESS THAN 60% OF THE TOTAL PROJECT COST; (F) NO SINGLE UNIT REFERRED TO IN COLUMN (2) OF THE TAB LE GIVEN IN THE SUB-PARAGRAPH (B) OF PARAGRAPH 6 SHALL OCCUPY MORE THAN FIFTY PER CENT OF THE ALLOCABLE INDUSTRIAL AREA OF AN IND USTRIAL MODEL TOWN OR INDUSTRIAL PARK OR GROWTH CENTRE; (G) EVERY UNDERTAKING BEING AN INDUSTRIAL PARK SHALL OB TAIN APPROVAL FOR FOREIGN DIRECT INVESTMENT OR NON RESIDENT INDIA N INVESTMENT FROM THE FOREIGN INVESTMENT PROMOTION BOARD OR RESE RVE BANK OF INDIA, OR ANY AUTHORITY SPECIFIED UNDER ANY LAW FOR THE TIME BEING IN FORCE, AS THE CASE MAY BE. HOWEVER, ASSESSEE'S APPLICATION IS NOT UNDER AUTOMA TIC APPROVAL SCHEME WHEREAS THE SAME WAS UNDER NON-AUTOMATIC APP ROVAL SCHEME UNDER PARA 7. PARA 7 IS AS UNDER: 7. NON AUTOMATIC APPROVAL: (1) ALL APPLICATIONS NO T ELIGIBLE FOR AUTOMATIC APPROVAL UNDER PARAGRAPH 6 SHALL REQUIRE THE APPROVAL OF EMPOWERED COMMITTEE, CONSTITUTE BY THE CENTRAL GOV ERNMENT AND ALL SUCH APPLICATIONS SHALL BE PLACED BEFORE THE E MPOWERED COMMITTEE WITHIN FIFTEEN DAYS OF RECEIPT OF APPLIC ATIONS. (2) THE EMPOWERED COMMITTEE SHALL CONSIST OF THE F OLLOWING, NAMELY:- (A) SECRETARY, DEPARTMENT OF INDUSTRIAL POLICY AND PROM OTION, GOVERNMENT OF INDIA CHAIRMAN ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 16 -: (B) CHAIRMAN, CENTRAL BOARD OF DIRECT TAXES, MEMBER GOVERNMENT OF INDIA, OR HIS REPRESENTATIVE (C) SECRETARY, DEPARTMENT OF URBAN DEVELOPMENT, GOVERNMENT OF INDIA, OR HIS REPRESENTATIVE MEMBER (D) A REPRESENTATIVE OF THE STATE GOVERNMENT TO WHICH THE PROJECT RELATES MEMBER (E) JOINT SECRETARY, DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION, GOVERNMENT OF INDIA MEMBER SECR ETARY PROVIDED THAT THE EMPOWERED COMMITTEE MAY CO-OPT OT HER SECRETARIES TO THE GOVERNMENT OF INDIA AND OFFICIAL S OF FINANCIAL INSTITUTIONS, BANKS AND PROFESSIONAL EXPERTS FROM I NDUSTRY AND COMMERCE AS CO-OPTED MEMBERS OF THE COMMITTEE AND S UCH CO- OPTED MEMBERS, HOWEVER, SHALL NOT HAVE ANY VOTING R IGHT. (3) THE EMPOWERED COMMITTEE SHALL CONSIDER EACH AP PLICATION ON A CASE TO CASE BASIS, SUBJECT TO ITS COMPLYING WITH THE STATUTORY REQUIREMENTS AS PRESCRIBED BY THE MINISTRY OF FINA NCE UNDER THE INCOME TAX, 1961, AND OTHER APPLICABLE STATUTORY R ULES/OBLIGATIONS. THE COMMITTEE WILL CONSIDER EACH CASE ON ITS MERIT AND GRANT APPROVAL SUBJECT TO SUCH OTHER CONDITIONS AS MAY B E DEEMED FIT BY IT. HOWEVER, IN ALL CASES OF REJECTION OF PROPOSA LS, THE APPLICANTS SHALL BE AFFORDED AN OPPORTUNITY OF BEING HEARD BY THE COMMITTEE AND THE ORDERS SHALL BE PASSED AND COMMUNICATED WI THIN TWELVE WEEKS. THE COMMITTEE MAY ALSO PERIODICALLY REVIEW IMPLEMENTATION OF THE APPROVED PROPOSALS. (4) THE EMPOWERED COMMITTEE WILL HOLD MEETINS WHEN EVER NECESSARY. ALL INDUSTRIAL MODEL TOWN/INDUSTRIAL P ARK/GROWTH CENTRE PROPOSAL RECEIVED SHALL BE PLACED BEFORE TH E COMMITTEE WITHIN 15 DAYS OF RECEIPT. THE COMMITTEE, AS FAR AS POSSIBLE, WOULD ENSURE THAT THE GOVERNMENT DECISION ON EACH PROPOS AL IS COMMUNICATED TO THE APPLICANT WITHIN SIX WEEKS. T HE COMMITTEE WILL ADOPT ITS OWN MODE AND WORKING PROCEDURE, KEE PING IN VIEW THE REQUIREMENT OF EACH PROPOSAL. THUS, AS CAN BE SEEN, THE CONDITIONS AS SPECIFIED U NDER AUTOMATIC APPROVAL SCHEME ARE NOT SPECIFIED UNDER NON-AUTOMAT IC SCHEME AND ASSESSEE HAVING APPLIED SEPARATELY AND EMPOWERED C OMMITTEE HAVING ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 17 -: EXAMINED THE PROPOSAL CASE BY CASE HAS GRANTED T HE SANCTION VIDE LETTER DT.11-04-2007 IN WHICH IT WAS CLEARLY SPECIF IED AS UNDER: THIS IS TO CONVEY THE APPROVAL OF THE GOVERNMENT OF INDIA TO YOUR PROPOSAL FOR CLAIMING INCOME TAX BENEFIT OF YOUR I NDUSTRIAL PARK, IN TERMS OF THE INDUSTRIAL PARK SCHEME, 2002, NOTIFIE D BY THIS DEPARTMENT IN EXERCISE OF POWER UNDER SECTION 80 I A, SUB SECTION 4(III) OF THE INCOME TAX ACT, 1961, SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS: I) NAME OF THE INDUSTRIAL UNDERTAKING M/S. L&T INFO CITY LTD., HYDERABAD II) ADDRESS OF THE PROPOSED LOCATION OF THE INDUSTRIAL PARK MADHAPUR VILLAGE, SERILINGAMPALLI MUNICIPALITY, DISTRICT RANGA REDDY, AP - 500 033. III) PROPOSED ARAS OF THE INDUSTRIAL PARK 9.16 ACRE S IV) PROPOSED ACTIVITIES SECTION DIVISION GROUP CLASS A 8 89 892 - DATA PROCESSING, SOFTWARE DEVELOPMENT AND COMPUTER CONSULTANCY B 8 89 893 - BUSINESS AND MANAGEMENT CONSULTANCY ACTIVITIES C 8 89 894 - ARCHITECTURAL AND ENGINEERING AND OTHER TECHNICAL CONSULTANCY ACTIVITIES. V) PERCENTAGE OF ALLOCABLE AREA EARMARKED FOR INDUSTRIAL USE 100% VI) PERCENTAGE OF ALLOCABLE AREA EARMARKED FOR COMMERCIAL USE NIL VII) PROPOSED NUMBER OF INDUSTRIAL UNITS 5 UNITS VIII) TOTAL INVESTMENT PROPOSED RS.1,69,00,19,108/- IX) INVESTMENT ON BUILT UP SPACE FOR INDUSTRIAL USE RS.1,55,29,28,658/- X) INVESTMENT ON INFRASTRUCTURE DEVELOPMENT INCLUDING INVESTMENT ON BUILT UP SPACE FOR INDUSTRIAL USE RS.1,60,79,28,658/- XI) EXPECTED DATE OF COMMENCEMENT OF THE INDUSTRIAL PARK 31-03-2006 NOT ONLY THAT, THE CBDT HAS ALSO NOTIFIED VIDE NOTI FICATION DT.28 TH SEPTEMBER, 2007, EXTRACTING THE SAME TABLE, WHICH W AS IN THE APPROVAL LETTER, WITH A FURTHER CONDITION AS UNDER: ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 18 -: '4. NO SINGLE UNIT REFERRED TO IN COLUMN (2) OF THE TABLE GIVEN IN SUB- PARAGRAPH (B) OF PARAGRAPH 6 OF S.O.354(E) DATED T HE 1 ST APRIL, 2002, SHALL OCCUPY MORE THAN FIFTY PERCENT OF THE ALLOCABLE INDUSTRIAL AREA OF AN INDUSTRIAL PARK. FOR THIS PURPOSE A UN IT MEANS ANY SEPARATE AND DISTINCT ENTY FOR THE PURPOSE OF ONE AND MORE STATE OR CENTRAL TAX LAWS'. SINCE BOTH THE ASSESSING OFFICER AND THE LD.CIT(A) CONSIDERED THE APPLICATION UNDER AUTOMATIC RULE, THEY HAVE RAISED OBJECTION WHEREAS ASSESSEE'S APPLICATION DOES NOT FALL UNDER AUTOMATI C APPROVAL SCHEME, BUT UNDER NON-AUTOMATIC APPROVAL SCHEME. IN VIEW O F THIS, SINCE THERE IS ALREADY APPROVAL FROM THE RELEVANT AUTHORITIES A ND ALSO FROM THE CBDT, WE DIRECT THE ASSESSING OFFICER TO GRANT THE DEDUCTION U/S.80IA SUBJECT TO VERIFICATION OF COMPUTATION. ASSESSEE'S GROUND ON THIS ISSUE IS ALLOWED. 10. GROUND NO.5 IS PERTAINING TO NON-GRANT OF TDS C REDIT AMOUNTING TO RS.6,57,179/- WITHOUT ASSIGNING ANY REASON. ASSESSE E HAS RAISED THIS CONTENTION BEFORE THE CIT(A), THE CIT(A) NOTED THAT AN AMOUNT OF RS.8,02,73,441/- WAS BEING GRANTED AS TDS CREDIT AN D DIRECTED THE ASSESSING OFFICER TO LOOK INTO THE TDS CLAIM AND GR ANT PROPER CLAIM AS PER LAW. EVEN THOUGH THERE IS DIRECTION FROM THE C IT(A), IT IS ASSESSEE'S CONTENTION THAT CREDIT HAS NOT BEEN GIVEN. ASSESSI NG OFFICER IS DIRECTED TO EXAMINE THE CLAIMS OF ASSESSEE AND ALLOW THE CRE DIT AFTER DUE VERIFICATION. THIS GROUND IS CONSIDERED AS 'ALLOWE D'. 11. GR.NO.6 PERTAINS TO LEVY OF INTEREST U/S.234B A ND 234D. EVEN THOUGH, THESE ARE CONSEQUENTIAL IN NATURE, AS SEEN FROM THE ASSESSMENT ORDER, NO WORKING OF INTEREST HAS BEEN PROVIDED. A SSESSING OFFICER IS DIRECTED TO PROVIDE WORKING TO ASSESSEE WHILE GIVIN G EFFECT TO THE CONSEQUENTIAL ORDER, IF ANY INTEREST IS TO BE LEVIE D. WITH THREES DIRECTIONS, APPEAL IS CONSIDERED 'ALLOWED FOR STATI STICAL PURPOSES'. ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 19 -: ITA NO.1516/HYD/2011 (AY.2008-09): 12. ASSESSEE HAS RAISED FOUR GROUNDS. OUT OF WHICH GROUND NO.1 IS GENERAL IN NATURE AND GROUND NO.4 PERTAINING TO INT EREST WHICH IS CONSEQUENTIAL IN NATURE. 13. GROUND NO.2 IS ON THE ISSUE OF DISALLOWANCE OF INTEREST EXPENSES AMOUNTING TO RS.4,45,87,382/-. THIS ISSUE IS SIMIL AR TO THE ISSUE CONSIDERED HEREIN ABOVE IN ITA NO.1515/HYD/2011 (AY .2007-08) AT GROUND NO.2. FOR THE REASONS STATED THEREIN, THIS ISSUE IS SET ASIDE TO THE FILE OF ASSESSING OFFICER TO DETERMINE ACCORDIN GLY AS PER THE INFORMATION PROVIDED FOR ASSESSEE AND FINDINGS OF A SSESSING OFFICER IN EARLIER ASSESSMENT YEARS. ACCORDINGLY, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 14. GROUND NO.3 PERTAINS TO ISSUE OF DEDUCTION U/S. 80IA OF THE ACT FOR AN AMOUNT OF RS.4,67,83,783/-. THIS ISSUE IS ALSO SIMILAR TO GROUND NO.4 CONSIDERED HEREIN ABOVE IN ITA NO.1515/HYD/201 1 (AY.2007-08). FOR THE REASONS STATED THEREIN, THE ASSESSING OFFIC ER IS DIRECTED TO ALLOW THE DEDUCTION U/S.80IA SUBJECT TO VERIFICATION OF C OMPUTATION OF INCOME AND ELIGIBLE AMOUNT. 14.1 WITH THESE DIRECTIONS, APPEAL IS ALLOWED FOR S TATISTICAL PURPOSES. ITA NO.50/HYD/2014 (AY.2009-10): 15. IN THIS APPEAL, ASSESSEE HAS RAISED THREE GROUN DS. OUT OF WHICH GROUND NO.1 IS GENERAL IN NATURE. GROUND NO.3 IS C ONSEQUENTIAL IN NATURE FOR LEVY OF INTEREST. ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 20 -: 16. THE ONLY MATERIAL GROUND IS WITH REFERENCE TO T HE DISALLOWANCE OF DEDUCTION U/S.80IA. FACTS ARE SIMILAR TO THE ISSUE CONSIDERED HEREIN ABOVE IN ITA NO.1515/HYD/2011 (AY.2007-08). FOR TH E REASONS DISCUSSED THEREIN AGAINST GROUND NO.4 IN THAT ORDER , WE DIRECT THE ASSESSING OFFICER TO GRANT DEDUCTION U/S.80IA SUBJE CT TO VERIFICATION OF COMPUTATION OF INCOME AND DEDUCTION U/S.80IA. HENC E, THIS GROUND IS CONSIDERED AS 'ALLOWED. 16.1 WITH THESE DIRECTIONS, APPEAL IS ALLOWED. ITA NO.51/HYD/2014 (AY.2010-11): 17. IN THIS APPEAL, ASSESSEE HAS RAISED THREE GROUN DS. OUT OF WHICH GROUND NO.1 IS GENERAL IN NATURE. GROUND NO.3 IS C ONSEQUENTIAL IN NATURE FOR LEVY OF INTEREST. 18. THE ONLY MATERIAL GROUND IS WITH REFERENCE TO T HE DISALLOWANCE OF DEDUCTION U/S.80IA. FACTS ARE SIMILAR TO THE ISSUE CONSIDERED HEREIN ABOVE IN ITA NO.1515/HYD/2011 (AY.2007-08). FOR TH E REASONS DISCUSSED THEREIN AGAINST GROUND NO.4 IN THAT ORDER , WE DIRECT THE ASSESSING OFFICER TO GRANT DEDUCTION U/S.80IA SUBJE CT TO VERIFICATION OF COMPUTATION OF INCOME AND DEDUCTION U/S.80IA. HENC E, THIS GROUND IS CONSIDERED AS 'ALLOWED. 18.1 WITH THESE DIRECTIONS, APPEAL IS ALLOWED. REVENUE'S APPEALS ITA NO.256/HYD/2014 (AY.2009-10) ITA NO.289/HYD/2014 (AY.2010-11): 19. BOTH THE ABOVE APPEALS ARE FILED BY REVENUE ON THE FOLLOWING COMMON GROUNDS: ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 21 -: 1. THE CIT(A) ERRED BOTH IN LAW AND ON FACTS AND CIRCU MSTANCES OF THE CASE IN GRANTING RELIEF TO THE ASSESSEE BY DELE TING THE ADDITION MADE TOWARDS DISALLOWANCE OF CLAIM OF INTE REST EXPENDITURE; 2. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE NEXUS BETWEEN THE SURPLUS FUNDS AND THE INVESTMENTS WAS NOT ESTABLISH ED BY THE ASSESSEE COMPANY AND THAT THE COMMERCIAL EXPEDIENCY IN RESPECT OF INVESTMENTS BY THE ASSESSEE WITH ITS SIS TER CONCERNS WAS ALSO FAILED TO BE ESTABLISHED; 3. THE CIT(A) OUGHT TO HAVE UPHELD THE DECISION OF ASS ESSING OFFICER IN MAKING DISALLOWANCE OF INTEREST EXPENDITURE ON T HE GROUND THAT WHEN THE ASSESSEE ITSELF HAS SURPLUS FUNDS, TH ERE IS NO NECESSITY FOR THE ASSESSEE TO AVAIL LOANS AND INCUR HUGE INTEREST; 4. THE CIT(A) OUGHT TO HAVE UPHELD THE DECISION OF ASS ESSING OFFICER IN MAKING DISALLOWANCE OF INTEREST EXPENDITURE INVO KING THE PROVISIONS OF SEC.14A OF THE IT ACT, 1961 SINCE ASS ESSEE FAILED TO PROVE THE NEXUS BETWEEN ITS INVESTMENTS FROM OUT OF SURPLUS FUNDS FOR EARNING THE EXEMPT INCOME WITH THAT OF TH E CLAIM OF INTEREST EXPENDITURE AND THAT THE CLAIM OF INTEREST IS NOT ATTRIBUTABLE TO THE EARNING OF EXEMPT INCOME; 5. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF A PPEAL HEARING. 20. REVENUE HAS RAISED THE ISSUE OF DISALLOWANC E MADE OUT OF INTEREST EXPENDITURE ON THE REASON THAT FUNDS HAVE BEEN DIVE RTED AND INVESTED IN SISTER-CONCERNS. THIS ISSUE IS SIMILAR TO THE ISSU E CONSIDERED HEREIN ABOVE IN ITA NO.1515/HYD/2011 (AY.2007-08) WHEREIN THIS ISSUE WAS SET ASIDE TO THE FILE OF ASSESSING OFFICER. HOWEVE R, AS NOTICED FROM THE ORDER OF THE CIT(A), CIT(A) HAS CONSIDERED THE FACT S. BASED ON THE ORDER OF ITAT FOR AY.2003-04 AND THE ORDER OF ASSESSING O FFICER GIVING EFFECT TO THE ORDER DT.30-08-2010, HE ANALYSED THE FACTS AND CONSIDERED THE WHOLE ISSUE AS UNDER: 5.2 I HAVE CONSIDERED THE FACTS AND EVIDENCES CARE FULLY. AS EVIDENCED FROM THE SUBMISSIONS OF THE APPELLANT, T HE INTEREST EXPENDITURE INCURRED BY THE APPELLANT IS RS.13,73, 99,903. THE ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 22 -: INVESTMENTS AS ON 31-3-2009 REL EVANT TO THE A.Y.2009-10 IS RS.30,68,12,863. THE TOTAL AMOUNT OF TERM LOAN AS ON 31-3-2009 OBTAINED VARIOUS BANKS IS RS.136,60,15,135. FROM T HE SUBMISSIONS, IT IS CLEARLY EVIDENT THAT THE APPELL ANT IS HAVING SHARE CAPITAL RESERVES AND SURPLUS AS ON 31-3-2009 I.E. RELEVANT TO A.Y.2009-10 OF RS.227,15,41,289, WHICH WERE IN EXC ESS OF INVESTMENTS MADE OF RS.30, 68,12,863. THE BORROWED FUNDS FROM THE BANK AND FINANCIAL INSTITUTIONS A LSO COULD BE UTILIZED ONLY FOR THE EARMARKED PURPOSE FOR WHICH THEY WERE BORROWED I.E . FOR BUSINESS PURPOSE, AS PER THE TERM LOAN AGREEMENTS BETWEEN T HE COMPANY AND THE BANKS. IT IS ALSO A COMMON PRACTICE THAT, WHEN A BANK GIVES LOAN TO ANY COMPANY FOR A SPECIFIC PURPOSE, PERIOD IC AUDIT OF THE UTILIZATION OF FUNDS WOULD BE CARRIED OUT BY THE B ANKS/FINANCIAL INSTITUTIONS. THE APPELLANT SUBMITTED THE SANCTION L ETTERS FROM VARIOUS BANKS FOR ADVANCE TERM LOANS WHEREIN IT IS CLEARLY E VIDENT THAT REGULAR MONITORING OF THE PROJECT / WORK FOR W HICH THE LOAN IS SANCTIONED, WOULD BE UNDERTAKEN BY THE BANKS. THUS, THE APPELLANTCONTENDED THAT THE BORROWED CAP ITAL IS UTILIZED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THERE IS NO NEXUS BETWEEN THE INTEREST EXPENDITURE ON BORROWED FUNDS AND THE INVESTMENTS IN MUTUAL FUNDS AND SUBSI DIARIES. AS STATE HE ABOVE, THE APPELLANT MADE THE INVESTMENTS OF RS.30.68 CRORES OUT OF T SHARE CAPITAL, RESERVES AND SURPLU S AVAILABLE OF RS.227.15 CRORES AND STILL THE APPELLANT WOULD BE HA VING RS.196.47 CRORES OF EXCESS FUNDS. THE APPELLANT AL SO SUBMITTED THE DETAILS OF ITS INVESTMENTS IN THE FOLLOWING SI STER CONCERNS, AMOUNTING TO RS.30.68 CRORES AS UNDER: I) HYDERABAD INTERNATION TRADE EXPOSITIONS LIMITED :RS.9,88,50,000 II)VIZAG IT PARK :RS.2,34,00,000 III) L&T INFOCITY LANKA (P) LIMITED :RS.4,22,55,22 3 IV)L&T HITECH CITY LIMITED :RS.14,23,07,700 TOTAL :RS.30,68,12,863 UNDER POWERS VESTED IN ME AS PER SECTION 250 (4) O F THE ACT, I HAD CALLED FOR THE EVIDENCES IN SUPPORT OF THE DET AILS OF SOURCES OF THESE INVESTMENTS. IN SUPPORT OF THE SOURCES O F INVESTMENTS, THE APPELLANT EXPLAINED THE SOURCES IN ALL THESE F IVE SISTER CONCERNS TO BE FROM BUSINESS RECEIPTS, ADVANCE FRO M CUSTOMERS, OUT OF MUTUAL FUNDS REINVESTED, FIXED DEPOSITS REIN VESTED ETC. AND SUBMITTED BANK STATEMENTS, TALLY ACCOUNT STATE MENTS, ETC. WHICH ARE FOUND TO BE IN ORDER. ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 23 -: 5.2.1 THE APPELLANT IN ITS OWN CASE, AGGRIEVED BY THE ORDER OF THE CIT (APPEALS)-V, HYDERABAD DATED 14-12-2006 FO R A.Y.2003- 04 AND DATED 31-10-2007 FOR THE A.Y.2004-05, PREFE RRED AN APPEAL BEFORE THE ITAT, HYDERABAD, WHEREIN THE LEA RNED COUNSEL FOR THE APPELLANT HAS ARGUED AS UNDER: 'PARA 7.....THE INVESTMENT MADE BY THE ASSESSEE IS IN ITS SUBSIDIARY COMPANY WAS OUT OF THE HUGE AMOUNT OF R ESERVES AND SURPLUS OF OVER RS.21 CROES AS ON 31 -3-2002. HE ALSO SUBMITTED THAT THE ASSESSEE MADE A PROFIT OF RS.8. 52 CRORES DURING THE YEAR. HENCE, THE INVESTMENT MADE BY THE SUBSIDIARY COMPANY IS OUT OF ITS OWN FUNDS AND NOT FROM OUT OF THE INTEREST BEARING FUNDS AND AS SUCH THE LOWER AUTHORITIES WERE NOT JUSTIFIED MAKING ANY DISALLOW ANCE OUT OF THE INTEREST EXPENDITURE CLAIMED BY THE ASS ESSEE. IT WAS ALSO SUBMITTED THAT THE SECURED LOANS HAVE BE EN USED MAINLY FOR THE PURPOSE OF PURCHASE OF FIXED ASSETS AND NOT FOR THE PURPOSE OF INVESTMENT IN THE SUBSIDIARY COMPANY. IN THIS REGARD, HE RELIED ON T HE CA SE OF SA BUILDERS VS C/T (288 ITR 1), WHEREIN IT WAS HELD THAT WHAT WAS RELEVANT WAS WHETHER THE AMOUNT WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER THE AMOUNT AS ADVAN CED FOR EARNING PROFIT. IT WAS ALSO HELD THAT IN THAT CASE, THAT ON CE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND PURPOSE OF THE BUSINESS, THE INTER EST EXPENDITURE CANNOT BE DISALLOWED.................. ' 5.2.2 THE HON' E TRIBUNAL, VIDE PARA.9 OBSERVED TH AT THE CLT (APPEALS) HAD DISALLOWED HE INTEREST EXPENDITURE I N ABSENCE OF DETAILS OF PAYMENT BEFORE THE A.O. AND HIMSELF AND SINCE THE APPELLANT CLAIMS BEFORE US THAT THE DETAILS OF PAY MENT WERE IN THE APPELLANT'S POSSESSION, IT RESTORED THE MATTER TO THE E OF THE A.O. TO REDO THE SAME IN THE LIGHT OF THE RATIO OF THE DEC ISION OF THE APEX COURT IN THE CASE OF SA BUILDERS .. ' 5.2.3 THE A.O WHILE GIVING EFFECT TO THE ORDER OF THE TRIBUNAL CITED ABOVE, IN HIS ORDER U/S.143 (3) RWS 250 OF THE ACT DATED 30-08- 2010, FOR THE A.Y.2003-04, AFT ER VERIFYING THE EVIDENCES TO SHOW THAT THE BORROWED FUNDS HAVE NOT BEEN UTILIZED FOR INVESTING IN A SISTER COMPANY, HELD THAT SINCE THERE WAS NO NEXUS BETWEEN THE USE OF BORROWED FUNDS TO THE INVESTMENTS, IT CANNOT BE CONCLUDED THAT THE INTEREST BEARING FUNDS WERE UTILIZED FOR NON-B USINESS PURPOSE AND ALLOWED PROPORTIONATE INTEREST ACCORDINGLY. ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 24 -: 5.2.4 IN THIS CASE ALSO, THE APPELLANT FURNISHED A LL THE EVIDENCES TO SHOW THAT THERE WAS NO NEXUS BETWEEN THE INTEREST PAID ON BORROWED FUNDS TO MAKING OF THE INVESTMENTS. 5.3 THE APPELLANT CITED VARIOUS CASE-LAWS AS MENTI ONED IN PARA.5.1 AND ITEM 3.0 OF THE SUBMISSIONS IN SUPPORT OF ITS CONTENTION THAT IF OWN FUNDS ARE UTILIZED NO DISALLOWANCE OF INTEREST EXPENDITURE IS WARRANTED. I HAVE PERUSED THE CASE-LAWS CITED BY T HE APPELLANT AND HOLD THAT WHEN THE APPELLANT MADE INVESTMENTS OUT OF OWN FUNDS /SURPLUS FUNDS AVAILABLE AND WHEN THERE IS NO NEXU S BETWEEN THE INTEREST PAID ON BORROWED FUNDS AND IN MAKING OF T HE INVESTMENTS, DISALLOWANCE OF INTEREST EXPENDITURE IS NOT WARRAN TED. 5.4 THE APPELLANT CONTENDED THAT THE INVESTMENTS W ERE MADE OUT OF 'COMMERCIAL EXPEDIENCY' TO FACILITATE THE COMPANY' S BUSINESS. IN THIS CONNECTION, THE APPELLANT PLACED RELIANCE OF VARIO US CASE LAWS MENTIONED AT PARA.5.1. ITEM NO.1.9 AND 2.0 ABOVE. IN THE CASE OF SA BUILDERS LIMITED VS CIT (APPEALS) 288 ITR 1, THE S UPREME COURT HELD AS UNDER: '...INTEREST EXPENDITURE IS ALLOWABLE IF THE SAME IS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. THE EXPRESSI ON 'COMMERCIAL EXPEDIENCY' IS ONE OF WIDE IMPORT AN D INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. IN THE FACTS OF THE C URRENT CASE, HAVING SATISFIED THE ABOVE CONDITION OF COMMERCIA L EXPEDIENCY, THE COMPANY SHOULD BE ELIGIBLE FOR DE DUCTION UNDER SECTION 36(1)(III) OF THE ACT. WITHOUT PRE JUDICE TO THE ABOVE, EVEN ASSUMING THAT THE APPELLANT HAD UTILI ZED BORROWED FUNDS, IT IS CLEAR THAT THE TEST OF 'CO MMERCIAL EXPEDIENCY' AS LAID DOWN IN SA BUILDERS ABOVE, W AS SATISFIED IN THE PRESENT CASE. THE APEX COURT H AS HELD THAT WHERE THE HOLDING COMPANY HAS A DEEP INTERE ST IN ITS SUBSIDIARY FOR BUSINESS PURPOSE, THE TAXPAYER HOL DING COMPANY IS ORDINARILY ENTITLED TO DEDUCTION OF I NTEREST ON BORROWED FUNDS.' 5.4.1 IN THE CASE OF CIT VS RELIANCE COMMUNICATION S & INFRASTRUCTURE LTD 71 DTR 237 (BOM), IT WAS HELD A S UNDER: '... IT WAS HELD THAT INVESTMENTS MADE IN THE WHO LLY OWNED SUBSIDIARIES AND MONEY ADVANCED WERE FOR FURTHERI NG THE BUSINESS OF THE ASSESSEE AND ARE CONSISTENT WITH THE JUDGMENT OF SUPREME COURT IN THE CASE OF SA BUIL DERS. THERE IS EVIDENTLY A SIGNIFICANT INTEREST OF THE ASSESSEE IN THE ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 25 -: BUSINESS OF ITS SUBSIDIARIES SINCE BOTH THE ASSE SSEE AND THE SUBSIDIARIES ARE INTO THE SAME LINE OF BUSINE SS. THEREFORE, THERE CAN BE NO REASON OR JUSTIFICATIO N OF DISALLOWANCE. 5.4.2 IN THE CA SE OF J K INDUSTRIES LIMITED-VS-CIT (2011) 61 DTR 153 ( KOL) , IT WAS HELD THAT: '.... INTEREST EXPENDITURE OF THE ASSESSEE COULD NOT BE DISALLOWED ON THE PRESUMPTION THAT INTEREST FREE LOANS GIVEN TO THE SUBSIDIARIES WERE MA DE OUT OF THE BORROWED FUNDS SINCE THE SUBSIDIARIES WERE PAID OUT OF THE PROFIT OF THE ASSESSEE WHICH IS FAR IN EXCESS OF THE AMOUNT OF LOAN GIVEN TO THE SUBSIDIARIES.' 5.5 IN THIS CASE, THE APPELLANT PAID INTEREST OF RS.13,73,99,903 ON BANK LOANS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE APPELLANT AND CLEARLY THERE IS AN ELEMENT OF COMME RCIAL EXPEDIENCY. OUT OF THIS, THE A.O. ALLOWED ONLY INTEREST OF RS. 10,67,18,617/- AND DISALLOWED RS.3,06,81,286 TOWARDS NOTIONAL INTERES T ATTRIBUTABLE TO THE INVESTMENTS OF RS.30.68 CRORES @ 10%. SINCE T HE APPELLANT PROVED THAT IT HAD SURPLUS FUNDS EVEN AFTER INVEST MENT OF RS.30.68 CRORES, THE A.O. IS NOT JUSTIFIED TO DISALLOW A PA RT OF INTEREST I.E. 3.06 CRORES ATTRIBUTABLE TO THE INVESTMENTS OF RS.30.68 CRORES, OUT OF THE TOTAL INTEREST PAID OF RS.13.73 TO THE BANKS ON TE RM LOANS. 5.6 THEREFORE, RESPECTFULLY FOLLOWING THE CASE-LA W CITED BY THE SUPREME COURT ABOVE, TRIBUNAL'S ORDER CITED ABOVE AND OTHER CASE- LAWS, I HOLD THAT THE INTEREST EXPENDITURE OF RS.1 3.73 CRORES IS INCURRED TOWARDS BANK TERM LOANS AND NOT ATTRIBUTA BLE TO MAKING OF INVESTMENTS AND WHICH IS INCURRED WHOLLY AND EXLUC SIVELY FOR THE BUSINESS PURPOSE AND ALLOWABLE U/S.37(1) / 36(1)(I II) OF THE ACT. HENCE, I DELETE THE ADDITION OF RS.3.06 CROES MADE TOWARDS DISALLOWANCE OF PART INTEREST. SINCE THE LD.CIT(A) NOT ONLY CONSIDERED THE FACTS O F THE CASE BUT ALSO THE CONSEQUENTIAL ORDER PASSED BY ASSESSING OFFICER HOL DING THAT ASSESSEE HAS NOT DIVERTED FUNDS, WE DO NOT SEE ANY MERIT IN THESE GROUNDS. ACCORDINGLY, THE SAME ARE DISMISSED. 20.1. IN THE RESULT, BOTH THE APPEALS OF REVENUE AR E DISMISSED. ITA NOS.1515 & 1516/HYD/11 50, 51, 256 & 289/HYD/14 L&T INFOCITY LTD., :- 26 -: 21. IN THE RESULT, ASSESSEE'S APPEALS IN ITA NO.151 5/HYD/2011 (AY.2007-08) AND 1516/HYD/2011 (AY.2008-09) ARE ALL OWED FOR STATISTICAL PURPOSES, APPEALS IN ITA NO.50/HYD/2014 (AY.2009-10) AND 51/HYD/2014 (AY.2010-11) ARE ALLOWED AND REVENUE'S APPEALS IN ITA NO.256/HYD/2014 (AY.2009-10) AND 289/HYD/2014 (AY.2 010-11) ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 22-01-2015. SD/- SD/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUN TANT MEMBER HYDERABAD, DATED 22 ND JANUARY, 2015. TNMM COPY TO : 1. L&T INFOCITY LIMITED , 1Q4 - A1, 1 ST FLOOR, CYBER TOWERS, HITECH CITY, MADHAPUR, HYDERABAD-500 082 2. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-16(1), 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 3. JOINT COMMISSIONER OF INCOME TAX, RANGE-16, 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 4. CIT(A)-V, HYDERABAD 5. CIT-IV, HYDERABAD 6. D.R. ITAT, HYDERABAD.