Shriram Capital Limited, CHENNAI V. DCIT, CHENNAI

ITA 513/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90521 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 12-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N RENGARAJ I R S
• Assessee Lawyers: R SIVARAMAN
• Keywords: Capital asset; Depreciation; Business expenditure; Rule of consistency; Earning of tax free income; Retrospective amendment; Question of law; Difference of opinion; Commercial expediency; Reason to believe; Revenue expenditure; Capital expenditure
• Section: 14A; 194C; 147; 37; 263; 154

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ! , ' #$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A. NOS.512 &513 /MDS/2015 ( / ASSESSMENT YEAR : 2010-2011 & 2011- 2012) SHRIRAM CAPITAL LIMITED, MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. [PAN:AABCS 2726B] ( %& /APPELLANT) VS THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6 (1), CHENNAI. ( !'%& /RESPONDENT) / APPELLANT BY : SHRI. R. SIVARAMAN, ADVOCATE / RESPONDENT BY : SHRI. N. RENGARAJ, IRS, CIT. /DATE OF HEARING : 13.04.2015 /DATE OF PRONOUNCEMENT : 26. 06.2015 . ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE TWO APPEALS BY ASSESSEE ARE DIRE CTED AGAINST DIFFERENT ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI FOR THE ASSESSMENT YEARS 2010-2011 AND 2011-2012. SINCE CER TAIN ISSUES IN THESE 2 ITA NOS.5 12 & 513/MDS/2015 TWO APPEALS ARE COMMON IN NATURE, THESE APPEALS AR E COMBINED, HEARD TOGETHER, AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE FIRST COMMON GROUNDS IS WITH REGARD TO CONFI RMING THE ADDITION BY THE COMMISSIONER OF INCOME TAX (APPEALS) WHICH WAS MADE BY THE ASSESSING OFFICER U/S.14A R.W. RULE 8D. THE FACTS NARRATED I N ITA NO.512/MDS/2015 FOR THE ASSESSMENT YEAR 2010-11 ARE CONSIDERED FOR ADJU DICATION AS THE FACTS ARE SIMILAR IN BOTH YEARS. 3. THE ASSESSING OFFICER MADE A DISALLOWANCE OF C9, 53,58,713/- U/S. 14A R.W. RULE 8D FOR THE ASSESSMENT YEAR 2010-2011. TH E ASSESSEE EARNED EXEMPT INCOME OF C23,82,25,782. THE ASSESSEE INCUR RED TOTAL EXPENDITURE IN THE YEAR OF C46,37,20,957/-. THE EXEMPT INCOME FORM ED PART OF 27.75% OF TOTAL RECEIPTS OF THE ASSESSEE. ACCORDING TO THE A SSESSING OFFICER, THE EXPENDITURE RELATING TO EXEMPT INCOME HAS TO BE CON SIDERED FOR DISALLOWANCE IN VIEW OF PROVISION 14A R.W. RULE 8D OF THE ACT. ACCORDINGLY, THE ASSESSING OFFICER COMPUTED DISALLOWANCE U/S14A AS PER METHO D PRESCRIBED IN RULE 8D WHICH IS AS UNDER:- ACCORDING TO CLAUSE (I) OF RULE 8D NO DIRECT EXPENDITURE ACCORDING TO CLAUSE (II) OF RULE 8D 8,63,34,000 X 670,98,30,500 937,21,17,974 C6,18,09561/ - ACCORDING TO CLAUSE (I) OF RULE 8D 0.5% OF 670,98,30,500 C3,35,49,152/ - TOTAL C9,53,58,713/ - AVERAGE ASSETS = (827,38,22,646 + 1047,04,13,303)/2 = 937,21,17,974/- 3 ITA NOS.5 12 & 513/MDS/2015 AVERAGE INVESTMENTS = (789,89,19,000 + 552,07,42,00 0)/2 = 670,98,30,500/-. 3.1 ACCORDING TO AO THE DISALLOWANCE OF THE EXPENDI TURE TO BE MADE ACCORDING TO THE PROVISIONS OF THE RULE 8D REA D WITH SECTION 14A WORKS OUT AT RS.9,53,58,713. THIS AMOUNT CONSTI TUTES 20.56% OF THE TOTAL EXPENDITURE CLAIM OF RS. 46,37,20,957 (AS PER RETURN OF INCOME). ON THE OTHER HAND, THE INCOME CLAIMED AS EX EMPT OF C 23,82,25,782 CONSTITUTED 27.75% (23,82,25,000X100 /85,81,74,000) OF THE TOTAL RECEIPTS OF THE ASSESSE E. HENCE, DISALLOWANCE ACCORDING TO THE PROVISIONS OF SECTION 14A, IS AT 20.56% OF THE TOTAL EXPENDITURE AS AGAINST PROPORTI ONATE EXPENDITURE OF 27.75% IN RELATION TO TOTAL RECEIPTS TO BE CONSIDERED IN THE NORMAL COURSE. 3.2 ACCORDING TO ASSESSING OFFICER, THERE IS AN EX CESS CLAIM FOR DEDUCTION OF EXPENDITURE OF RS. 9,53,58,713 AND THE SAME NEEDS TO BE DISALLOWED. IT WAS NOTED BY THE AO THAT THE D ETERMINATION OF THE EXPENDITURE IN RELATION TO THE EXEMPTED INCOME I S TO BE WORKED OUT ACCORDING TO RULE 8D READ WITH SECTION 14A, IN ACC ORDANCE WITH DECISION OF THE TRIBUNAL THE CASE OF INCOME TAX OFFICER VS DAGA CAPITAL MANAGEMENT (P) LIMITED (117 ITD 169 ) (MUMBAI), WHERE IN IT WAS HELD THAT THE PROVISIONS OF SECTION 14A OF THE ACT ARE APPLICABLE WITH RESPECT OF THE DIVIDEND INCOME EARN ED BY THE 4 ITA NOS.5 12 & 513/MDS/2015 ASSESSEE ENGAGED IN THE BUSINESS OF DEALING WITH SHA RES AND SECURITIES, AND THE DISALLOWANCE UNDER SEC. 14A IS REQUIRED TO BE COMPUTED WITH REFERENCE TO THE MANDATE OF SECTION 1 4A READ WITH RULE 8D. FURTHER, HE RELIED ON THE ORDER OF THE TRI BUNAL, DELHI, 'F' BENCH, IN THE CASE OF RENAISSANCE ASSET MANAGEMENT CO. PVT.LTD VS. ASSISTANT COMMISSIONER OF INCOME TAX, IN ITA NO.181/DEL/2012, WAS HELD THAT ANY EXPENDITURE RELA TABLE TO INVESTMENT ACTIVITY HAS TO BE CONSTRUED AS EXPENSES INCURRED FOR EARNING DIVIDEND INCOME AND THE SAME CANNOT BE ALLO WED AS PER SECTION 14A, SUPPORTS THIS VIEW. 3.3 THEREFORE, THE EXPENDITURE CLAIM OF THE ASSESS EE TO AN EXTENT OF C.9,53,58,713 WAS DISALLOWED BY ASSESSING OFFICE R AND ADDED BACK TO THE INCOME RETURNED HOLDING THE SAME AS THE EXPENDITURE INCURRED IN RELATION TO THE EXEMPTED INCOME AS PER T HE PROVISIONS OF RULE 8D RED WITH SECTION 14A. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (AP PEALS). 4. ON APPEAL , THE COMMISSIONER OF INCOME TAX (APPEALS ) OBSERVED THAT THE ASSESSEE WAS NOT ABLE TO CONTROVERT THE FINDI NGS OF THE ASSESSING OFFICER WITH SUFFICIENT EVIDENCE GIVING THE REASONS FOR NOT MAKING DISALLOWANCE. THE LD. AUTHORISED REPRESEN TATIVE FOR ASSESSEE COULD NOT DISPUTE THE FACT OF INCURRING EXPE NDITURE 5 ITA NOS.5 12 & 513/MDS/2015 TOWARDS ESTABLISHMENT AND ADMINISTRATION, WHICH WAS ALSO CONSCIOUSLY INVOLVED IN MAKING INVESTMENTS. THE ASSES SEE WAS EARNING INCOME FROM BOTH EXEMPTED CATEGORY OF INCOME A ND NON EXEMPTED CATEGORY OF INCOME. THE EXEMPTED CATEGORY O F INCOME CONSISTS OF 27.75% OF THE TOTAL RECEIPTS OF THE ASSES SEE. THE GROSS RECEIPTS ACCOUNTED BY THE ASSESSEE DURING THE PERIOD U NDER CONSIDERATION WAS C85,81,74,000/- WHICH CONSISTS OF DIVIDEND ON SHARES OF C23,93,40,000/- OTHER INCOME C42,96,02,000 /-, ARTISTIC COPY AND FEES RECEIVED C1,89,232/- . OUT OF THE GROS S INCOME, DIVIDEND RECEIVED WAS C23,93,40,000/- ON THE OTHER H AND THE EXPENSES CLAIMED IN THE ACCOUNTS WAS C46,37,22,000/- WHICH CONSISTS OF INTEREST AND FINANCE CHARGES OF C.8,63,34 ,000/-, PERSONAL EXPENSES C1,80,60,000/- OTHER EXPENSES C35 ,30,95,000/- AND DEPRECIATION WAS C62,33,000/-. NO BOOKS OF ACCOU NTS WERE SEPARATELY MAINTAINED FOR EARNING DIVIDEND INCOME AN D OTHER INCOMES WHICH ARE CHARGEABLE TO TAX. LARGE PART OF T HE EXPENSES INCURRED WERE COMMON. THE ENTIRE TOP MANAGEMENT OF THE COMPANY WAS FULLY INVOLVED IN MAKING STRATEGIC DECISI ONS AND IMPROVING THE PROFITABILITY OF THE COMPANY. ACCORDI NG TO COMMISSIONER OF INCOME TAX (APPEALS), THEREFORE, IT CANNOT BE SAID THAT ONLY FEW EMPLOYEES WERE INVOLVED IN EARNI NG THE EXEMPT INCOME. HAD IT BEEN SO, THE ASSESSEE COULD H AVE 6 ITA NOS.5 12 & 513/MDS/2015 SEPARATELY FORMED A NEW ENTITY AND EARNED EXEMPT IN COME TO CLAIM BENEFIT FROM THE TAXATION. THEREFORE, HE AGRE ED WITH THE VIEW OF THE AO THAT LARGE PORTION OF THE EXPENDITUR E INCURRED COULD BE ATTRIBUTABLE TOWARDS EARNING OF DIVIDEND I NCOME. IT IS ALSO NOT DISPUTED THAT THE ASSESSEE INCURRED HUGE E XPENDITURE OF C8,63,34,000/- AS FINANCE CHARGES ON ITS BORROWED C APITAL WHICH WAS ALSO CLAIMED AS DEDUCTION IN THE P&L ACCOUNT. T HE P&L ACCOUNT CONSISTS OF DIVIDEND INCOME AS WELL AS OTHER INCOMES WHICH ARE CHARGEABLE TO TAX. THE QUANTUM OF THE EXP ENDITURE ON THE BASIS OF THE PROPORTIONATE EXEMPTED INCOME AT T HE RATE OF 27% ALSO WORKS OUT TO MORE THAN C12.52 CRORES WHICH IS MORE THAN THE AMOUNT DISALLOWED BY THE ASSESSING OFFICER . ACCORDING TO CIT(A), THE ASSESSEE COULD NOT FURNISH WITH AN E VIDENCE LIKE CASH FLOW TO PROVE ITS CLAIM THAT NO PART- OF THE I NTEREST BORROWED FUND WAS UTILIZED FOR INVESTING IN SUBSIDIARIES WHI CH ARE SOURCE OF EARNING EXEMPT INCOME. ACCORDING TO CIT(A), MERE CLA IM MADE IN THE SUBMISSIONS WITHOUT FURNISHING SUFFICIENT EVIDEN CE WOULD NOT ENTITLE THE ASSESSEE FOR THE CLAIM OF EXEMPTION FOR COMPUTATION OF THE EXPENSE FOR DISALLOWANCE FOR THE PURPOSE OF SEC .14A OF THE IT ACT. REGARDING THE LEGAL POSITION FOR COMPUTATION O F DISALLOWABLE EXPENDITURE U/S 14A R.W.RULE 8D UNDER SUB CLAUSE (II ) WITH RESPECT TO CLAIM OF INTEREST EXPENDITURE, THE CIT(A) RELIED ON 7 ITA NOS.5 12 & 513/MDS/2015 JUDGMENT OF JURISDICTIONAL HIGH COURT IN TAX CASE(A PPEAL) NO.681 OF 2013 DATED 02.12.2013 IN THE CASE OF BENCH MINERALS CO. PVT. LTD. HELD AT PARA 11 AS UNDER:- '11 - WE DO NOT AGREE WITH THE SAID SUBMISSION. THE MERE FACT OF AVAILABILITY OF 46 CRORES AND ODD BY ITSELF CANNOT BE TAKEN AS FURNISHING OF GOOD EXPLANATION AS REGARDS THE INVESTMENTS. EVEN WITH THE RESERVE IN SURPLUS FIGUR E QUOTED IN BALANCE SHEET, WE FEEL THAT THE ASSESSEE HAS THE RESPONSIBILITY OF EXPLAINING THE INTEREST EXPENDITURE OF 4,09,99,104/- 4.1 THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT IN THE INSTANT CASE, THE ASSESSEE COULD NOT FURNISH SATISF ACTORY EXPLANATION WITH RESPECT TO CLAIM OF EXPENDITURE OF C8,63,34,00 0/- IN THE P&L ACCOUNT PARTICULARLY WHEN THE QUANTUM OF THE EXEMPT ED INCOME I.E. DIVIDEND INCOME DECLARED WAS C23,82,25,000/-. THE RA TIO OF THE EXEMPT INCOME I.E. DIVIDEND INCOME. TO THE GROSS RE CEIPTS OF THE ASSESSEE WAS 27.75%. NON EARNING OF EXEMPT INCOME F OR THE PARTICULAR INVESTMENT GIVING RISE TO EXEMPT INCOME IN FUTURE YEARS IS ALSO NOT RELEVANT FOR MAKING COMPUTATION OF EXPENSE UNDER THE PROVISIONS OF SEC. 14A OF THE IT ACT. IN THE INSTAN T CASE, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE CLAIM OF THE ASSE SSEE THAT NO EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME. REGARDING LEGAL POSITION, THE CIT(A) RELIED ON THE ORDER OF THE TRI BUNAL, CHENNAI BENCH IN THE CASE OF SIVA INDUSTRIES & HOLDING, LTD. VS. ACIT REPORTED IN 54 SOT 49 CHENNAI(2012) , HELD THAT EVEN IN A YEAR, WHERE NO EXEMPT 8 ITA NOS.5 12 & 513/MDS/2015 INCOME WAS EARNED OR RECEIVED BY THE ASSESSEE, THE DI SALLOWANCE U/S 14A CAN BE MADE. THE TRIBUNAL WHILE DELIVERING THE ORDER HAS FOLLOWED THE ORDER, OF THE DELHI SPECIAL BENCH REPORTED IN 121 ITD 318 IN THE CASE OF CHEM INVEST LTD. VS. ITO WHEREIN IT WAS HELD THAT DISALLOWANCE U/S.14A CAN BE MADE EVEN IN THE YEAR WHERE NO EXEMP T INCOME HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE. THE HIGH COURT OF BOMBAY IN THE CASE OF M/S. GODREJ & BOYCE. MFG. CO. LTD. VS CIT REPORTED IN 328 ITR 81 HELD THAT THE AO IS DUTY BOUND TO DETERMINE THE EXP ENDITURE WHICH HAD BEEN INCURRED IN RELATION TO INCOME WHICH D ID NOT FORM PART OF THE TOTAL INCOME. IT IS FURTHER HELD BY THE HIGH COURT OF BOMBAY THAT THE AO HAD TO ENFORCE THE PROVISIONS OF SUB SECTION(1) OF SEC.14A EVEN PRIOR TO A.Y. 2008-09. THIS SAME ISSUE ALSO CAME UP BEFORE THE TRIBUNAL, CHENNAI BENCH IN THE CASE OF M/S. LAKSHMI RING TRAVELLERS VS. ACIT, COMPANY CIRCLE I (1), COIMBATOR E [ITA NO.2083(MDS)/ DT. 02.11.2012] FOR THE A.Y. 2008-09 AND HON'BLE ITAT AT PAGE 4 OF THE SAID ORDER HAS HELD THAT - 'RULE 8D HAS ALREADY BEEN PRESCRIBED. SUB-SECTION 3 FURTHER PROVIDES THAT EVEN IN A CASE WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE WAS INCURRED, THE ASSESS ING AUTHORITY HAS TO PRESUME THE INCURRING OF SUCH EXPENDITURE AS PROVIDED IN SUB-SECTION 2 READ WITH THE RULE PRESCRIBED. THEREFORE, IT BECOMES CLEAR THAT E VEN IN A CASE WHERE THE ASSESSEE CLAIMS THAT NO SUCH EXPENDITURE WAS SO INCURRED, THE STATUTE HAS PROVIDED FOR PRESUMPTIVE EXPENDITURE WHICH HAS TO BE DISALLOWED BY FORCE OF THE STATUTE. IN A DISTANT MANNER, LITERALLY SPEAKING, IT MAY EVEN BE CONSIDERED FOR THE PURPOSE OF CONVENIENCE AS A DEEMING PROVISION. WHEN SUCH DEEMING PROVISION IS MADE ON THE BASIS OF STATUTORY PRESUMPTION, THE REQUIREMENT OF FACTUAL EVIDENCE IS 9 ITA NOS.5 12 & 513/MDS/2015 REPLACED BY STATUTORY PRESUMPTION AND THE ASSESSING OFFICER HAS TO FOLLOW THE CONSEQUENCE STATED IN THE STATUTE. IT MEANS THAT EVEN IN A CASE WHERE NO EXPENDITURE 'IS STATED TO HAVE BEEN INCURRED, THE ASSESSING OFFICER HAS TO APPLY RULE 8D. 4.2 REGARDING THE RECORDING OF THE SATISFACTION NOTE FOR INVOKING RULE 8D, THE COMMISSIONER OF INCOME TAX (APPEALS) PLACED R ELIANCE ON THE ORDER OF TRIBUNAL, CALCUTTA BENCH IN THE CASE OF ACIT, CIRCLE-10 VS. CHAMPION COMMERCIAL CO. LTD. REPORTED IN [2012] 26 T AXMANN.COM 342(KOL) HELD AS UNDER: 'THEREFORE, A PLAIN READING OF THE STATUTORY PROVISIONS OF SECTION 14A(2) AND (3) SHOWS THAT WHEN ASSESSEE OFFERS A DISALLOWANCE UNDER SECTION 14A, THE PROVISIONS OF S ECTION 14A(2), READ WITH RULE BD CANNOT BE INVOKED UNLESS THE ASSESSING OFFICER IS SATISFIED ABOUT INCORRECTNESS OF THE DISALLOWANCE SO OFFERED, BUT WHEN ASSESSEE DOES NOT OFFER ANY DISALLOWANCE UNDER SECTION 14 A ON HIS OWN, THE PROVISIONS OF SECTION 14A(2) READ WITH RULE 8D CAN BE INVOKED WITHOUT THERE BEING ANY NEED TO EXPRESS SAT ISFACTION ABOUT INCORRECTNESS OF SUCH A CLAIM. THE FACTS OF THE PRESENT CASE ARE STRONGER AND LOADED IN FAVOUR OF REVENUE. THE HON'BLE ITAT,: MUMBAI BENCH (SPECIAL BENCH) IN THE CASE OF ITO V. DAGA MANAGEMENT (P) LTD. [117 ITD 169] HELD THAT WHAT IS RELEVANT IS TO WORK OUT EXPENDITURE IN RELA TION TO EXEMPT INCOME AND NOT TO EXAMINE THE EXPENDITURE INCURRED BY THE ASSESSEE WHICH HAS RESULTED IN EXEMPT INCOME OR TAXABLE INCOME. 4.3 REGARDING THE LEGISLATIVE INTENT WITH RESPECT O F DISALLOWANCE OF EXPENDITURE U/S 14A, THE COMMISSIONER OF INCOME TAX (APPEALS) PLACED RELIANCE ON THE JUDGEMENT OF SUPREME COURT IN C.I.T. VS. WALFORT SHARE AND STOCK PRIVATE LIMITED, REPORTED IN 41 DTR 233 , WHEREIN SUPREME COURT EXPLAINED THE REASON FOR THE INSERTION OF SEC TION 14A AS FOLLOWS: 10 ITA NOS. 512 & 513/MDS/2015 THE INSERTION OF SECTION 14A WITH RETROSPECTIVE EF FECT IS THE SERIOUS ATTEMPT ON THE PART OF THE PARLIAMENT NOT TO ALLOW DEDUCTIO N IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AGAINST THE TAXABLE INCOME (SEE CIRCULAR NO.14 OF 2001 DATED 22.11.2001). IN OTHER WORDS, SECTION 14A CLARIFIES THAT EXPENSES INCURRED CAN BE ALLOWED ONL Y TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME. IN MANY CASES THE NATURE OF EXPENSES INCURRED BY THE ASSESSEE MAY BE RELATABLE PARTLY TO THE EXEMPT INCOME AND PARTLY TO THE TAXABLE INCOME. IN THE ABS ENCE OF SECTION 14A, THE EXPENDITURE INCURRED IN RESPECT OF EXEMPT INCOME WAS BEING CLAIMED AGAINST TAXABLE INCOME. THE MANDATE OF SECTION 14A IS CLEAR . IT DESIRES TO CURB THE PRACTICE TO CLAIM DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME AGAINST TAXABLE INCOME AND AT THE SAME TIME AVAIL T HE TAX INCENTIVE BY WAY OF EXEMPTION OF EXEMPT INCOME WITHOUT MAKING ANY APPOR TIONMENT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. THE BASIC RE ASON FOR INSERTION OF SECTION 14A IS THAT CERTAIN INCOMES ARE NOT INCLUDI BLE WHILE COMPUTING TOTAL INCOME AS THESE ARE EXEMPT UNDER CERTAIN PROVISIONS OF THE ACT. IN THE PAST, THERE HAVE BEEN CASES IN WHICH DEDUCTION HAS BEEN SOUGHT IN RESPECT OF SUCH INCOMES WHICH IN EFFECT WOULD MEAN THAT TAX INCENTI VES TO CERTAIN INCOMES WAS BEING USED TO REDUCE THE TAX PAYABLE ON THE NON EXE MPT INCOME BY DEBITING THE EXPENSES, INCURRED TO EARN THE EXEMPT INCOME, AGAIN ST TAXABLE INCOME. THE BASIC PRINCIPLE OF TAXATION IS .TO TAX THE NET INCOME, I.E. GROSS INCOME MINUS THE EXPENDITURE. ON THE SAME ANALOGY, THE EXEMPTION IS ALSO IN RESPECT OF NET INCOME. EXPENSES ALLOWED CAN ONLY BE IN RESPECT OF EARNING OF TAXABLE INCOME. THIS IS THE PURPORT OF SECTION 14A '', . FURTHER, THE COMMISSIONER OF INCOME TAX (APPEALS) O BSERVED THAT IT WAS EVIDENT FROM THE DECISION OF THE SUPREME COURT OF INDIA CITED (SUPRA) THAT ONLY NET INCOME IS TAXABLE AND CONSEQU ENTLY, THE DISALLOWANCE OF EXPENSES INCURRED U/S 14A WITH RESP ECT TO RULE 8D IS REQUIRED TO BE DONE WITH RESPECT TO DIVIDEND INCOME RECEIVED OR RECEIVABLE IN ALL THE CASES IRRESPECTIVE OF THE NATU RE OF BUSINESS CARRIED ON BY THE ASSESSEE. 4.4. THE COMMISSIONER OF INCOME TAX (APPEALS) OBSER VED THAT NO EVIDENCE WAS ALSO FURNISHED BEFORE HIM TO PROVE ITS CLAIM THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF INVESTMENTS AND THE E NTIRE INVESTMENTS 11 ITA NOS. 512 & 513/MDS/2015 WERE HELD AS STOCK IN TRADE IN THE BOOKS OF ACCOUNT S. THE INCOME ON SALE OF EQUITY, IF ANY, IN FUTURE YEARS WOULD BE TA XABLE UNDER THE HEAD CAPITAL GAINS AND NOT UNDER THE HEAD BUSINESS INCOM E. NO CONSOLIDATED ACCOUNTS OF THE GROUP COMPANYIES WERE MAINTAINED TO PROVE THAT BUSINESS OF THE ASSESSEE IS ONLY BUSINESS OF PROMOT ION OF INVESTMENT. EVEN OTHERWISE, THE CLAIM OF THE ASSESSEE THAT PROV ISIONS OF SEC.14A WOULD NOT BE APPLICABLE IN THE CASE OF THE ASSESSEE CARRYING THE BUSINESS OF, INVESTMENTS IS NOT LEGALLY TENABLE. TH E RATIO OF THE DECISION RENDERED BY TRIBUNAL (SPECIAL BENCH) IN THE CASE OF ITO V. DAGA MANAGEMENT (P) LTD. [117 ITO 169 ] (MUMBAI) FURTHER HELD THAT THE PROVISIONS OF SECTION 14A WOULD BE APPLICABLE WITH RESPECT TO DI VIDEND INCOME EARNED BY THE ASSESSEE ENGAGED IN BUSINESS OF DEALING IN SHARES AND SECURITIES, ON SHARES HELD AS STOCK-IN-TR ADE WHEN EARNING OF THE SUCH DIVIDEND INCOME WAS INCIDENTAL TO TRADING IN SHARES. THE RATIO OF THE DECISION RENDERED BY TRIBUNAL MUMBAI SPECIAL B ENCH IN THE CASE OF ITO V. DAGA MANAGEMENT (P) LTD. [117 ITD 169] SQUARELY APPLIES TO THE FACTS OF THE CASE. THEREFORE, CONTENTION OF THE A SSESSEE THAT PROVISIONS OF SEC.14A ARE NOT ATTRACTED IN THE CASE OF THE ASSESSEES CARRYING ON THE BUSINESS OF INVESTMENT PROMOTION WAS NOT ACCEPTED BY COMMISSIONER OF INCOME TAX (APPEALS). IT WAS THE STA ND OF THE ASSESSEE THAT THE TRIBUNAL IN THE ASSESSEE'S OWN C ASE HAS HELD THAT PROVISIONS OF THE SECTION 14A ARE NOT ATTRACTED. ACCO RDING TO 12 ITA NOS. 512 & 513/MDS/2015 COMMISSIONER OF INCOME TAX (APPEALS) THE STAND TAKEN BY THE ASSESSEE ON THIS ISSUE IS NOT FACTUALLY CORRECT. IN FACT, THE ASSESSING OFFICER DURING THE ASSESSMENT YEAR 2005-06 HAS COMPU TED 2% AS THE EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME AND D ISALLOWED THE SAME U/S.14A OF THE I.T. ACT. ON APPEAL, THE TRIBUNA L IN APPEAL IN ITA NO.638/MDS/2012 DATED 04.02.2013 IN THE ASSESSEE'S OWN CASE HAS CONFIRMED THE STAND OF THE REVENUE AND MODIFIED THE QUANTUM OF THE DISALLOWANCE TO C10,00,000/-. THE RELEVANT PARAS ARE MENTIONED BELOW: '2.8 WE CONSIDERED THIS ISSUE. WE, ARE NOT ON THE Q UESTION WHETHER THE INCOME WAS EARNED WITHOUT INCURRING ANY , MECHANICAL EXPENDITURE LIKE CLEARANCE CHARGES, COLL ECTION CHARGES ETC. OR NOT. WE ARE CONCERNED ABOUT THE EXP ENDITURE BY WAY OF REMUNERATION PAID TO TOP MANAGEMENT AND EXECUTIVES. THE TOP MANAGEMENT AND EXECUTIVES OF TH E ASSESSEE COMPANY WOULD BE REQUIRED TO DECIDE ABOUT THE INVESTMENTS, WHETHER TO CONTINUE OR LIQUIDATE ETC. INVESTMENT IS A VERY IMPORTANT PART OF THE ASSETS OF THE ASSESSEE COMPANY. THEREFORE, EVEN THOUGH THERE IS NO DIRECT MECHANICA L EXPENDITURE IN REALIZING THE DIVIDEND INCOME, DEFIN ITELY SOME MANAGEMENT EXPENDITURE HAS TO BE ATTRIBUTED TOWARDS EARNING OF TAX-FREE DIVIDEND INCOME . . 2.9 BUT IN THE PRESENT CASE, THE INVESTMENTS WERE SO 'OLD AND THOSE INVESTMENTS HAVE BEEN HELD BY THE ASSESSEE CO MPANY IN A CONSISTENT MANNER AND AS SUCH, THE SCOPE OF INDIREC T EXPENDITURE ALSO WOULD BE LITTLE LESSOR. TAKING INT O CONSIDERATION ALL THE ASPECTS OF THE CASE, WE MODIFY THE DISALLOWANCE TO LUMPSUM AMOUNT OF 10 LAKHS. THIS GROUND IS PARTLY ALLOWED. 4.5 THE SIMILAR DISALLOWANCE MADE BY THE ASSESSING OFFICER FOR A.Y. 2008-09 WAS ALSO CONFIRMED IN TRIBUNAL NO.640/MDS/2 012 IS AS UNDER:- 6.2THE NEXT ISSUE RAISED BY THE ASSESSEE IS REGAR DING DISALLOWANCE OF RS.50,000/- WHICH RELATES TO GENERA L AND ADMINISTRATIVE EXPENSES, PERTAINING TO DIVIDEND INCOME AND INVESTMENTS IN THE PAST YEAR. FOR THE REASONS STATE D IN OUR ORDER FOR A. Y. 2005-06 IN ITA NO. 638/MDS/2012, WE UPHOLD THE DISALLOWANCE AND IT IS CONFIRMED 13 ITA NOS. 512 & 513/MDS/2015 4.6 ACCORDING TO COMMISSIONER OF INCOME TAX (AP PEALS) FROM THE ABOVE LEGAL PROPOSITION LAID BY THE TRIBUNAL IN THE ASSES SEES OWN CASE IN THE EARLIER YEARS, IT IS CLEAR THAT TRIBUNAL HAD IN PRINCIPLE UPHELD THE DISALLOWANCE OF EXPENDITURE U/S.14A OF THE I.T. ACT. REGARDING THE A PPLICABILITY OF THE PROVISION OF SEC.14A WITH RESPECT TO CLAIM OF MANAGEM ENT EXPENSES FOR THE ASSESSMENT YEAR 2001-02, THE JURISDICTIONAL HIG H COURT IN TAX CASE(APPEAL) NO.2621 OF 2006 DATED 15.10.2012 IN THE CASE OF M/S SIMPSON AND CO. LTD. UPHELD THAT DISALLOWANCE OF EXP ENDITURE ON ESTIMATION BASIS AT 2% OF THE GROSS TOTAL INCOME. PR IOR TO A.Y. 2008-09, THE DISALLOWANCE U/S.14A WAS NOT REQUIRED TO BE COMPUT ED UNDER RULE 8D OF THE I.T. RULES BUT REASONABLE ESTIMATION OF EXP ENSE FOR THE PURPOSE OF DISALLOWANCE WAS REQUIRED TO BE DONE. HOWE VER, FROM THE A.Y. 2008-09 AND ONWARDS, THE COMPUTATION OF DISALL OWANCE UNDER RULE 8D IS MANDATORY AS THE SAID RULE 8D WAS NOTIFIED IN T HE MONTH OF MARCH 2008. THIS VIEW WAS TAKEN BY BOMBAY HIGH COURT IN THE C ASE OF OF M/S GODREJ & BOYCE. MFG. CO. LTD. VS CIT REPORTED IN 328 ITR 81 . THE PURPOSE OF INVESTMENT IS NOT RELEVANT FOR DETERMINATION OF THE QUANTUM OF DISALLOWANCE U/S.14A OF THE I.T. ACT. ACCORDING TO THE CIT(A), THE PROVISIONS OF SECTION 14A ARE APPLICABLE TO ALL THE CLASSES OF THE ASSESSEES WHO HOLD INVESTMENTS, GIVING RISE TO EXEM PT INCOME. THE PROVISIONS OF SECTION 14A ARE VERY CLEAR AND UNAMBIGU OUS TO THAT EFFECT. 14 ITA NOS. 512 & 513/MDS/2015 THEREFORE, THE STAND OF THE AR OF THE ASSESSEE THAT PROVISIONS OF SECTION 14A ARE NOT APPLICABLE TO-THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS REJECTED BY CIT(A). 4.7 REGARDING EXCLUSION OF INTEREST PAID ON TDS, FBT,ST AND IT OF C 1,40,95,404/- FOR THE PURPOSE OF DISALLOWANCE UNDER RULE 8D (II) OF THE I.T. RULES, THE ASSESSEE STATED BEFORE CIT(A) THA T IF THIS IS TAKEN INTO ACCOUNT THE AMOUNT OF DISALLOWANCE WORKS OUT TO C. 517,80,237/- AS AGAINST THE AMOUNT COMPUTED BY THE AO AT C. 618,09,561/-. THE CLAIM OF THE ASSESSEE IS NOT ACCEPTED BY COMMISSIONER OF INC OME TAX (APPEALS) AS THE RULE 8D(II) DOES NOT PRESCRIBE FOR EXCLUSION OF SUCH EXPENDITURE. THE RULE 8D(II) PRESCRIBES THE QUANTUM OF THE INTERE ST EXPENDITURE TO BE DISALLOWED I.E. AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) OF RULE 8D(II) DURING THE PREVIOUS YEAR IN PROPORTION OF THE AVERAGE VALUE OF INVESTMENT TO THE AVERAGE VALUE OF TOTAL ASSETS BUT DOES NOT EXCLUDE INTEREST EXPENDITURE OF THE TYPE REFERRED IN. THEREFORE, THE PLEA OF THE ASSESSEE TO EXCLUDE AN INTEREST OF C 1,40,90,404 FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE UNDER RULE 8D(II) IS REJECTED BY CIT(A ). THE CLAIM OF THE ASSESSEE THAT THE INVESTMENTS MADE WITH SHRIRAM HOLDINGS (MADRAS) (P) LTD ALONE IS REQUIRED TO BE CONSIDERED FOR THE PURP OSE OF COMPUTATION OF QUANTUM OF DISALLOWANCE UNDER RULE 8D, IS ALSO REJE CTED BY CIT(A) ON 15 ITA NOS. 512 & 513/MDS/2015 THE REASON THAT THE PROVISIONS OF SECTION 14A ARE AP PLICABLE EVEN IN CASE NO DIVIDEND INCOME WAS EARNED IN RESPECT OF THE PAR TICULAR INVESTMENT WHICH GIVE RISE TO DIVIDEND INCOME. 4.8 ACCORDING TO COMMISSIONER OF INCOME TAX (APP EALS) THE QUANTUM OF THE DISALLOWANCE U/S. 14A WORKED OUT BY THE ASSESSING OFFICER IS CORRECT. THEREFORE, PLACING RELIANCE ON THE ORDER OF SPECIAL BENCH OF TRIBUNAL, DELHI, IN THE CASE OF M/S. CHEM INVEST LTD.(SUPRA) AND CHENNAI BENCH IN THE CASE OF M/S. SIVA INDUSTRIES & HOLDING LTD (SUPRA), M/S. LAKSHMI RING TRAVELLERS, COIMBATORE CITED (SUPRA), CALCUTTA BENCH IN THE CASE OF CHAMPION COMMERCIAL CO. LTD , HIGH COURT OF BOMBAY IN THE CASE OF M/S. GODREJ & BOYCE. MFG. CO. LTD. VS CIT REPORTED IN 32 8 ITR 81, TRIBUNAL MUMBAI (SPECIAL BENCH) IN THE CASE OF IN TH E CASE OF ITO V. DAGA MANAGEMENT (P) LTD. [117 ITD 169 ], SUPREME COURT IN THE CASE OF C.I.T. VS. WALFORT SHARE AND STOCK PRIVATE LIMIT ED, REPORTED IN 41 DTR 233, MADRAS HIGH COURT IN THE CASES OF M/S. SIMPSON & CO. LTD ., (SUPRA) M/S. BEACH MINERALS COMPANY LTD. CITED (SUPRA), HE CONFI RMED THE ORDER OF THE ASSESSING OFFICER IN MAKING THE DIS ALLOWANCE OF C9,53,58,713/- U/S. 14A OF THE IT ACT. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES. THE LD. AUTH ORISED REPRESENTATIVE FOR ASSESSEE SUBMITTED THAT A SIMILAR ISSUE WAS CONSID ERED BY THIS TRIBUNAL IN THE 16 ITA NOS. 512 & 513/MDS/2015 CASE OF SHRIRAM CAPITAL LIMITED IN ITA NOS. 638 TO 640/MDS/2012 FOR THE ASSESSMENT YEARS 2005-06 TO 2008-09 VIDE ORDER DATE D 4 TH FEBRUARY, 2013 HELD AS UNDER:- 2.4. WE FIND THAT THIS ISSUE OF DISALLOWANCE OF I NTEREST TO THE EXTENT OF 1,72,02,624/- IS COVERED BY THE ABOVE SAID ORDER OF THE TRIBUNAL PASSED IN ASSESSEES OWN CASE. IT IS T O BE SEEN THAT THE BUSINESS OF THE ASSESSEE IS INVESTMENT IN SHARE S. IT IS IN THE COURSE OF CARRYING ON OF THE SAID BUSINESS THAT THE ASSESSEE HAS INVESTED IN SHARES OF SHRIRAM INVESTMENTS LIMITED A ND SHRIRAM TRANSPORT FINANCE COMPANY LIMITED. WHETHER THE DIVI DENDS ARISING OUT OF THOSE SHARES WILL BE EXEMPTED FROM T AXATION OR NOT, IS ENTIRELY A DIFFERENT QUESTION. THE FIRST TH ING TO BE EXAMINED IS THE PURPOSE OF INVESTMENTS MADE BY THE ASSESSEE IN SHARES ON THE TESTING GROUND OF COMMERCIAL EXPEDIE NCY. IN THE PRESENT CASE, THE ASSESSEE ENGAGED IN THE BUSIN ESS OF INVESTING IN SHARES, HAS MADE INVESTMENTS IN SHARES OF GROUP COMPANIES VIZ., SHRIRAM INVESTMENTS LIMITED AND SHR IRAM TRANSPORT FINANCE COMPANY LIMITED. IN THAT WAY, THE ASSESSEE COMPANY IS STRENGTHENING THE CAPITAL AND LIQUIDITY BASE OF THOSE TWO COMPANIES VIZ., SHRIRAM INVESTMENTS LIMITED AND SHRIRAM TRANSPORT FINANCE COMPANY LIMITED. THE STRENGTHENIN G OF THE CAPITAL BASE AND LIQUIDITY OF THOSE ASSOCIATE CONCE RNS WILL DEFINITELY ENHANCE THE TURNOVER AND THE PROFIT OF T HE GROUP CONCERNS. IT IS A FACT THAT IN GROUP CONCERNS SOME COMPANIES ARE CARRYING ON OPERATIONAL ACTIVITIES AND OTHER COMPAN IES ARE ACTING AS CATALYSTS TO BOOST THE PERFORMANCE OF THO SE OPERATING COMPANIES. 2.5. VIEWED IN THE ABOVE PERSPECTIVE, WE CANNOT SAY THAT THE ASSESSEE COMPANY HAS MADE INVESTMENTS IN SHARES OF SHRIRAM INVESTMENTS LIMITED AND SHRIRAM TRANSPORT F INANCE COMPANY LIMITED JUST FOR THE SIMPLE PURPOSE OF EARN ING TAX-FREE DIVIDEND INCOME. AS RIGHTLY POINTED BY THE ASSESSEE , WHEN THOSE INVESTMENTS IN SHARES ARE LIQUIDATED BY THE ASSESSE E COMPANY, IT IS ACCOUNTABLE FOR CAPITAL GAINS TAXATION. THEREFOR E, THERE IS NO CASE OF UNCONDITIONAL EXEMPTION FROM TAXATION AS FA R AS THE INVESTMENTS MADE BY THE ASSESSEE ARE CONCERNED. 2.6. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E INVESTMENTS BEING MADE AS A BUSINESS PROPOSITION AND IN THE LIG HT OF THE DECISION OF THE TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEAR 2002-03, WE HOLD THAT THE L OWER AUTHORITIES HAVE ERRED IN DISALLOWING 1,72,02,624/- AGAINST THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE UNDER THE HEAD INTEREST. THIS DISALLOWANCE IS ACCORDINGLY DELETED. 17 ITA NOS. 512 & 513/MDS/2015 2.7. THE SECOND ISSUE RAISED IN THE APPEAL IS REGA RDING DISALLOWANCE OF 22,98,746/- BEING 2% OF THE DIVIDEND INCOME EARNED BY THE ASSESSEE. THE ASSESSING AUTHORITY HAS DISALLOWED AN AMOUNT OF 22,98,746/- AS EXPENDITURE ATTRIBUTABLE TO DIVIDEND INCOME EARNED BY THE ASSESSEE. IT IS THE C ASE OF THE ASSESSEE THAT THE DISALLOWANCE MADE BY THE ASSESSIN G AUTHORITY WORKS OUT TO 2 LAKHS PER DIVIDEND WARRANT RECEIVED BY THE ASSESSEE COMPANY. IT IS ALSO THE CASE OF THE ASSESS EE THAT THE DISALLOWANCE WORKS OUT TO 2% OF THE TOTAL DIVIDEND OF 11,49,37,339/- EARNED BY THE ASSESSEE. IT IS THE CA SE OF THE ASSESSEE THAT IT HAS NOT INCURRED ANY EXPENDITURE O N THIS INCOME, AS IT WAS RECEIVED BY CHEQUES AND NO OTHER WORK WAS NECESSARY FOR OBTAINING THE SAID INCOME. 2.8. WE CONSIDERED THIS ISSUE. WE ARE NOT ON THE QU ESTION WHETHER THE INCOME WAS EARNED WITHOUT INCURRING ANY MECHANICAL EXPENDITURE LIKE CLEARANCE CHARGES, COLL ECTION CHARGES ETC. OR NOT. WE ARE CONCERNED ABOUT THE EXP ENDITURE BY WAY OF REMUNERATION PAID TO TOP MANAGEMENT AND EXEC UTIVES. THE TOP MANAGEMENT AND EXECUTIVES OF THE ASSESSEE C OMPANY WOULD BE REQUIRED TO DECIDE ABOUT THE INVESTMENTS, WHETHER TO CONTINUE OR LIQUIDATE ETC. INVESTMENT IS A VERY IMP ORTANT PART OF THE ASSETS OF THE ASSESSEE COMPANY. THEREFORE, EVEN THOUGH THERE IS NO DIRECT MECHANICAL EXPENDITURE IN REALIZ ING THE DIVIDEND INCOME, DEFINITELY SOME MANAGEMENT EXPENDI TURE HAS TO BE ATTRIBUTED TOWARDS EARNING OF TAX-FREE DIVIDE ND INCOME. 2.9. BUT IN THE PRESENT CASE, THE INVESTMENTS WERE SO OLD AND THOSE INVESTMENTS HAVE BEEN HELD BY THE ASSESSEE CO MPANY IN A CONSISTENT MANNER AND AS SUCH, THE SCOPE OF INDIREC T EXPENDITURE ALSO WOULD BE LITTLE LESSOR. TAKING INTO CONSIDERAT ION ALL THE ASPECTS OF THE CASE, WE MODIFY THE DISALLOWANCE TO A LUMPSUM AMOUNT OF 10 LAKHS. THIS GROUND IS PARTLY ALLOWED. 6. ACCORDING TO LD. AUTHORISED REPRESENTATIVE FOR ASSE SSEE, INVESTMENT MADE BY ASSESSEE IS STRATEGIC INVESTMENT AND THERE IS NO QUESTION OF DISALLOWANCE U/S. 14A OF THE ACT. IN THE PRESENT C ASE, THE ASSESSEE MADE INVESTMENT IN SHRIRAM RETAIL HOLDINGS PVT. LTD ALON GWITH ANOTHER GROUP COMPANY SHRIRAM ENTERPRISE HOLDINGS PVT. LTD HAVIN G CONTROLLING INTEREST IN 18 ITA NOS. 512 & 513/MDS/2015 SHRIRAM CITY UNION FINANCE LTD., A PUBLIC LIMITED COMPANY, WHOSE EQUITY SHARES ARE LISTED IN STOCK EXCHANGES. SIMILARLY SHR IRAM CREDIT COMPANY LTD., HAS CONTROLLING INTEREST IN M/S. SHRIRAM INSIGHT SH ARE BROKERS LTD. THE INVESTMENTS ARE MADE TO ACQUIRE CONTROLLING INTERES T. THE FACTS OF THE INVESTMENT MADE BY THE ASSESSEE IN ACQUIRING CONTRO LLING INTEREST WAS NOT DISPUTED BY THE REVENUE. IN SUCH CIRCUMSTANCES, WE ARE NOT IN A POSITION TO APPRECIATE THE ARGUMENTS OF THE LD. DEPARTMENTAL RE PRESENTATIVE THAT ASSESSEE RECEIVED DIVIDEND EXEMPTED FROM TAX FOR W HICH ASSESSEE INCURRED EXPENDITURE ALSO SO THAT SECTION 14A R.W. RULE 8D I S APPLICABLE. IN OUR OPINION, THE ISSUE CONSIDERED BY THE TRIBUNAL IN T HE CASE OF SHRIRAM CAPITAL LTD (CITED SUPRA) IS SQUARELY APPLICABLE TO THE FAC TS OF CASE WHEREIN THE TRIBUNAL OBSERVED THAT WHEN THE ASSESSEE MADE AN IN VESTMENT IN COMPANIES ON THE GROUND OF COMMERCIAL EXPEDIENCY WHICH ARE ASSESSEES SISTER/GROUP COMPANIES WITH THE A VIEW TO STRENGTHEN THE CAPITAL BASE AND THAT INVESTMENT IN THAT COMPANY CANNOT BE CONSTRUED AS MADE FOR THE PURPOSE OF EARNING DIVIDEND U/S.14A R.W. RULE 8D. FURTHER, IN THE CA SE OF M/S. J.M. FINANCIAL LIMITED FOR THE ASSESSMENT YEAR 2009-2010 IN ITA NO .4521/MUM/2012 VIDE ORDER DATED 26.03.2014, THE TRIBUNAL CONSIDERED SIM ILAR ISSUE AND HELD AS UNDER:- 7. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD, WE NOTE THAT SO FAR AS APPLICAB ILITY OF RULE 8D IS CONCERNED, THERE IS NO QUARREL ON THIS POINT THA T FOR THE A.Y. UNDER CONSIDERATION RULE 8D IS APPLICABLE. FURTHER FOR THE A.Y. 2008-09, THE TRIBUNAL HELD IN PARA 15 AS UNDER:- 19 ITA NOS. 512 & 513/MDS/2015 WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. IN THE INSTANT CASE, THE ONLY DISPUTE IS REGARDING DETERMINATION OF DISALLOWANCE OF EXPENDITURE FOR EARNING TAX FREE DIVIDEND INCOME OF RS. 18,17,68,458/- THE ASSESSEE DISALLOWED ON ITS OWN RS. 16.50 LAKHS U/S 14A. DESPITE BEING ASKED BY THE AO TO FURNISH THE DISALLOWANCE UNDER RULE 8D, THE ASSESSEE DID NOT FURNISH THE DETAILS. THE PROVISIONS OF RULE 8D INSERTED BY THE IT (FIFTH AMENDMENT) RULES 2008 WITH EFFECT FROM 24.3.2008 ARE APPLICABLE FOR A.Y. 2008-09 AND ONWARDS. THEREFORE, THE REVENUE AUTHORITIES ARE BOUND TO FOLLOW THE MANDATORY PROVISIONS FOR CALCULATION OF DISALLOWANCE U/S 14A. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE CIT(A) UPHOLDING THE ACTION OF THE AO FOR DISALLOWING THE DEDUCTION U/S 14A READ WITH RULE 8D. THE CONTENTION OF THE ASSESSEE THAT THE AO WITHOUT SATISFACTION BEING REACHED INVOKED THE PROVISIONS OF RULE 8D, IN OUR OPINION, DOES NOT HOLD GOOD ESPECIALLY IN ABSENCE OF NON-FURNISHING OF DETAILS FOR THE PURPOSES OF CALCULATION OF DISALLOWANCE AT RS. 16.50 LAKHS BY THE ASSESSEE ON ITS OWN. IN THIS VIEW OF THE MATTER AND IN ABSENCE OF ANY DISTINGUISHABLE FEATURE BROUGHT TO OUR NOTICE BY THE LEARNED COUNSEL FOR THE ASSESSEE AGAINST THE ORDER OF THE CIT(A), WE DO NOT FIND ANY INFIRMITY IN THE SAME. ACCORDINGLY THE SAME IS UPHELD AND THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 8. AS IT IS CLEAR FROM THE FINDING OF TRIBUNAL THAT THE ASSESSEE FAILED TO FURNISH THE DETAILS OF DISALLOWANCE UNDER SECTIO N 14A AND, THEREFORE, THE DISALLOWANCE MADE BY THE AO WAS FOUN D BY THE TRIBUNAL WITHOUT ANY INFIRMITY. FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS SPECIFICALLY RAISED A POINT BEFORE THE AO THAT 97.82% OF THE INVESTMENT IS IN THE SUBSIDIARY COMPA NIES AND JOINT VENTURE COMPANIES AND, THEREFORE, NO EXPENDITURE WA S INCURRED FOR MAINTAINING THE PORTFOLIO ON THESE INVESTMENTS OR F OR HOLDING THE SAME. THE ASSESSEE HAS ALSO POINTED OUT THAT THESE INVESTMENTS ARE LONG TERM INVESTMENT AND NO DECISION IS REQUIRED IN MAKING THE INVESTMENT OR DISINVESTMENT ON REGULAR BASIS BECAUS E THESE INVESTMENTS ARE STRATEGIC IN NATURE IN THE SUBSIDIA RY COMPANIES ON LONG TERM BASIS AND, THEREFORE, NO DIRECT OR INDIRE CT EXPENDITURE IS INCURRED. WE FIND THAT THE DEPARTMENT HAS NOT DISPU TED THIS FACT THAT 20 ITA NOS. 512 & 513/MDS/2015 OUT OF THE TOTAL INVESTMENT ABOUT 98% OF THE INVEST MENT ARE IN SUBSIDIARY COMPANIES OF THE ASSESSEE AND, THEREFORE , THE PURPOSE OF INVESTMENT IS NOT FOR EARNING THE DIVIDEND INCOME B UT HAVING CONTROL AND BUSINESS PURPOSE AND CONSIDERATION. THE REFORE, PRIMA FACIE THE ASSESSEE HAS MADE OUT A CASE TO SHOW THAT NO EXPENDITURE HAS BEEN INCURRED FOR MAINTAINING THESE LONG TERM I NVESTMENT IN SUBSIDIARY COMPANIES. THE AO HAS NOT BROUGHT OUT AN Y CONTRARY FACT OR MATERIAL TO SHOW THAT THE ASSESSEE HAS INCU RRED ANY EXPENDITURE FOR MAINTAINING THESE INVESTMENTS OR PO RTFOLIO OF THESE INVESTMENTS. IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA) HONBLE JURISDICTIONAL HIGH COURT WHILE DEALING WIT H THE ISSUE OF DISALLOWANCE U/S 14A AND APPLICATION OF RULE 8D HAS RECORDED THE PRINCIPLES AS LAID DOWN BY THE HONBLE SUPREME COUR T IN THE CASE OF WALFORT SHARE AND STOCK BROKERS P. LTD. [2010] ( 326 ITR 1,) IN PARA 31 AS UNDER:- (A) THE MANDATE OF SECTION 14A IS TO PREVENT CLAIMS FOR DEDUCTION OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. (B) SECTION 14A(1) IS ENACTED TO ENSURE THAT ONLY EXPENSES INCURRED IN RESPECT OF EARNING TAXABLE INCOME ARE ALLOWED; (C) THE PRINCIPLE OF APPORTIONMENT OF EXPENSES IS WIDENED BY SECTION 14A TO INCLUDE EVEN THE APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON TAXABLE INCOME OF AN INDIVISIBLE BUSINESS; (D) THE BASIC PRINCIPLE OF TAXATION IS TO TAX NET INCOME. THIS PRINCIPLE APPLIES EVEN FOR THE PURPOSE OF SECTION 14A AND EXPENSES TOWARDS NON-TAXABLE INCOME MUST BE EXCLUDED; (E) ONCE A PROXIMATE CAUSE FOR DISALLOWANCE IS ESTABLISHED WHICH IS THE RELATIONSHIP OF THE EXPENDITURE WITH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME A DISALLOWANCE HAS TO BE EFFECTED. ALL EXPENDITURE UNDER THE PROVISIONS OF THE ACT HAS TO BE DISALLOWED UNDER SECTION 14A INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IS BROADLY ADVERTED TO AS EXEMPT INCOME AS AN ABBREVIATED APPELLATION. 21 ITA NOS. 512 & 513/MDS/2015 9. AFTER CONSIDERING THESE PRINCIPLES AS EMERGED FR OM THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF WALFORT SHA RE AND STOCK BROKERS P. LTD. (SUPRA), HONBLE JURISDICTIONAL HIG H COURT HAS HELD IN PARA 32 AND 33 AS UNDER:- 32. SUB-SECTION (2) AND (3) TO SECTION 14A WERE INSERTED BY AN AMENDMENT BROUGHT ABOUT BY THE FINANCE ACT OF 2006 WITH EFFECT FROM APRIL 1, 2007. SUB-SECTIONS(2) AND (3) PROVIDE AS FOLLOWS:- ' 14A.(2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (3) THE PROVISIONS OF SUB-SECTION (2) SHALL ALSO APPLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT : PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHALL EMPOWER THE ASSESSING OFFICER EITHER TO REASSESS UNDER SECTION 147 OR PASS AN ORDER ENHANCING THE ASSESSMENT OR REDUCING A REFUND ALREADY MADE OR OTHERWISE INCREASING THE LIABILITY OF THE ASSESSEE UNDER SECTION 154 FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1ST DAY OF APRIL, 2001.' (THE PROVISO WAS INSERTED EARLIER BY THE FINANCE ACT OF 2002 WITH RETROSPECTIVE EFFECT FROM MAY 11, 2001) 33. UNDER SUB-SECTION (2), THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED BY AN ASSESSEE IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED. THE METHOD, HAVING REGARD TO THE MEANING OF THE EXPRESSION 'PRESCRIBED' IN SECTION 2(33), MUST BE PRESCRIBED BY RULES MADE UNDER THE 22 ITA NOS. 512 & 513/MDS/2015 ACT. WHAT MERITS EMPHASIS IS THAT THE JURISDICTION OF THE ASSESSING OFFICER TO DETERMINE THE EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, IN ACCORDANCE WITH THE PRESCRIBED METHOD, ARISES IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE WHICH THE ASSESSEE CLAIMS TO HAVE INCURRED IN RELATION TO INCOME WHICH DOES NOT PART OF THE TOTAL INCOME. MOREOVER, THE SATISFACTIO N OF THE ASSESSING OFFICER HAS TO BE ARRIVED AT, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. HENCE, SUB-SECTION (2) DOES NOT IPSO FACTO ENABLE THE ASSESSING OFFICER TO APPLY THE METHOD PRESCRIBED BY THE RULES STRAIGHTAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IS CORRECT. THE ASSESSING OFFICER MUST, IN THE FIRST INSTANCE, DETERMINE WHETHER THE CLAIM OF THE ASSESSEE IN THAT REGARD IS CORRECT AND THE DETERMINATION MUST BE MADE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE SATISFACTION OF T HE ASSESSING OFFICER MUST-BE ARRIVED AT ON AN OBJECTIVE BASIS. IT IS ONLY WHEN THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE, THAT THE LEGISLATURE DIRECTS HIM TO FOLLO W THE METHOD THAT MAY BE PRESCRIBED. IN A SITUATION WHERE THE ACCOUNTS OF THE ASSESSEE FURNISH AN OBJECTIVE BASIS FOR THE ASSESSING OFFICER TO ARRIVE AT A SATISFACTION IN REGARD TO THE CORRECTNESS OF T HE CLAIM OF THE ASSESSEE OF THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THERE WOULD BE NO WARRANT FOR TAKING RECOURSE TO THE METHOD PRESCRIBED BY THE RULES. FOR, IT IS ONLY IN THE EVE NT OF THE ASSESSING OFFICER NOT BEING SO SATISFIED THA T RECOURSE TO THE PRESCRIBED METHOD IS MANDATED BY LAW. SUB-SECTION (3) OF SECTION 14A PROVIDES FOR THE APPLICATION OF SUB-SECTION (2) ALSO TO A SITUATION WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. UNDER THE PROVISO, IT HAS BEEN STIPULATED THAT NOTHING IN THE SECTION WILL EMPOWER THE ASSESSING OFFICER, FOR AN ASSESSMENT YEAR BEGINNING ON OR BEFORE APRIL 1,2001, EITHER TO REASSESS UNDER SECTION 147 OR PASS AN ORDER ENHANCING THE ASSESSMENT OR REDUCING THE REFUND 23 ITA NOS. 512 & 513/MDS/2015 ALREADY MADE OR OTHERWISE INCREASING THE LIABILITY OF THE ASSESSEE UNDER SECTION 154. 10. IT HAS BEEN MADE CLEAR BY THE HONBLE HIGH COUR T THAT SUB -SECTION (2) DOES NOT IFSO FACTO EMPOWER THE AO TO APPLY THE METHOD PRESCRIBED BY RULES STRAIGHTAWAY WITHOUT CON SIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IS CORRECT. 11. THE ASSESSEE HAS RELIED UPON VARIOUS DECISIONS OF THIS TRIBUNAL WHEREIN AN IDENTICAL ISSUE HAS BEEN CONSIDERED. IN THE CASE OF GARWARE WALL ROPES LIMITED VS. ADDL. CIT (SUPRA), T HE TRIBUNAL WHILE DECIDING AN IDENTICAL ISSUE HAS HELD IN PARA 2.4 AS UNDER:- WE HAVE CONSIDERED THE RIVAL SUBMISSION AND CAREFULLY PERUSED THE RELEVANT RECORDS. SO FAR AS THE ISSUE REGARDING DISALLOWANCE U/S 14A IN THE CASE WHERE NO DIVIDEND HAS BEEN RECEIVED, THE SAME IS COVERED AGAINST THE ASSESSEE BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09, WHEREIN THE TRIBUNAL HAS FOLLOWED THE DECISION OF SPECIAL BENCH OF TRIBUNAL WHILE DECIDING THE ISSUE. THEREFORE, WE DO AGREE WITH THE FINDING OF THE TRIBUNAL ON THIS POINT. FURTHER SINCE THE ASSESSEE HAS RAISED THE NEW PLEA IN THE YEAR UNDER CONSIDERATION THAT NO EXPENDITURE HAD BEEN INCURRED BY THE ASSESSEE FOR EARNING THE EXEMPT INCOME OR FOR THE INVESTMENT IN QUESTION. WE FIND MERIT AND SUBSTANCE IN THE CONTENTION OF THE ASSESSEE ON THIS POINT BECAUSE THE INVESTMENT HAS BEEN MADE BY THE ASSESSEE IN THE GROUP CONCERN AND NOT IN THE SHARES OF ANY UN- RELATED PARTY. THEREFORE, THE PRIMARY OBJECT OF INVESTMENT IS HOLDING CONTROLLING STAKE IN THE GROUP CONCERN AND NOT EARNING ANY INCOME OUT OF INVESTMENT. FURTHER THE INVESTMENT WERE MADE LONG BACK AND NOT IN THE YEAR UNDER CONSIDERATION. THEREFORE, IN VIEW OF THE FACT THAT THE INVESTMENT ARE IN THE GROUP CONCERN WE DO NOT FIND ANY REASON TO BELIEVE THAT THE ASSESSEE WOULD HAVE INCURRED ANY ADMINISTRATIVE EXPENSES IN HOLDING THESE INVESTMENTS. THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. SECTION 14A HAS WITHIN IT IMPLICIT THE NOTION OF APPORTIONMENT IN THE CASES WHERE THE EXPENDITURE IS INCURRED FOR COMPOSITE/INDIVISIBLE ACTIVITIES IN WHICH TAXABLE AND NON TAXABLE INCOME IS RECEIVED 24 ITA NOS. 512 & 513/MDS/2015 BUT WHEN NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO THE EXEMPT INCOME THEN PRINCIPLE OF APPORTIONMENT EMBEDDED IN SECTION 14A HAS NO APPLICATION. THE OBJECT OF SECTION 14A IS NOT ALLOWING TO REDUCE TAX PAYABLE ON THE NON EXEMPT INCOME BY DEDUCTING THE EXPENDITURE INCURRED TO EARN THE EXEMPT INCOME. IN THE CASE IN HAND IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS INCURRED ANY DIRECT EXPENDITURE OR ANY INTEREST EXPENDITURE FOR EARNING THE EXEMPT INCOME OR KEEPING THE INVESTMENT IN QUESTION. IF THERE IS EXPENDITURE DIRECTLY OR INDIRECTLY INCURRED IN RELATION TO EXEMPT INCOME THE SAME CANNOT BE CLAIMED AGAINST THE INCOME WHICH IS TAXABLE. FOR ATTRACTING THE PROVISIONS OF SECTION 14A- THERE SHOULD BE PROXIMATE CAUSE FOR DISALLOWANCE WHICH HAS RELATIONSHIP WITH THE TAX EXEMPT INCOME AS HELD BY THE HONBLE SUPREME COURT IN CASE OF CIT VS. WALFORT SHARE AND STOCK BROKERS P. LTD. ( 326 ITR 1). THEREFORE, THERE SHOULD BE A PROXIMATE RELATIONSHIP BETWEEN THE EXPENDITURE AND THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. IN THE CASE IN HAND THE ASSESSEE HAS CLAIMED THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMPT INCOME, THEREFORE, IT WAS INCUMBENT ON THE AO TO FIND OUT AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND IF SO TO QUANTIFY THE EXPENDITURE OF DISALLOWANCE. THE AO HAS NOT BROUGHT ON RECORD ANY FACT OR MATERIAL TO SHOW THAT ANY EXPENDITURE HAS BEEN INCURRED ON THE ACTIVITY WHICH HAS RESULTED INTO BOTH TAXABLE AND NON TAXABLE INCOME. THEREFORE, IN OUR VIEW WHEN THE ASSESSEE HAS PRIMA FACIE BROUGHT OUT A CASE THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME THEN IN THE ABSENCE OF ANY FINDING THAT EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMPT INCOME THE PROVISIONS OF SECTION 14A CANNOT BE APPLIED. ACCORDINGLY WE DELETE THE ADDITION/DISALLOWANCE MADE BY AO U/S 14A R.W. RULE 8D. 12. A SIMILAR VIEW WAS TAKEN BY THE DELHI BENCH OF THIS TRIBUNAL IN THE CASE OF M/S ORIENTAL STRUCTURAL ENGINEERS (P) L TD (SUPRA) WHICH HAS BEEN CONFIRMED BY THE HONBLE DELHI HIGH COURT VIDE DECISION DATED 15.01.2013 IN PARA 6.3 AS UNDER:- 25 ITA NOS. 512 & 513/MDS/2015 '6.3 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN A FINDING THAT ONLY INTEREST OF RS 2,96,731/- WAS PAID ON FUNDS UTILIZED FOR MAKING INVESTMENTS ON WHICH EXEMPTED INCOME WAS RECEIVABLE. FURTHER, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS OBSERVED THAT IN RESPECT OF INVESTMENT OF RS 6,07,775,000/- MADE IN SUBSIDIARY COMPANIES AS PER DOCUMENTS PRODUCED BEFORE HIM, THEY ARE ATTRIBUTABLE TO COMMERCIAL EXPEDIENCY, BECAUSE AS PER SUBMISSION MADE BY THE ASSESSEE, IT HAD TO FORM SPECIAL PURPOSE VEHICLES (SPY) IN ORDER TO OBTAIN CONTRACTS FROM THE NHAI AND THE SPVS SO FORMED ENGAGED THE ASSESSEE COMPANY AS CONTRACT TO EXECUTE THE WORKS AWARDED TO THEM (I.E. SPVS) BY THE NHAI. IN ITS PROFIT AND LOSS ACCOUNT FOR THE YEAR, THE ASSESSEE HAS SHOWN THE TURNOVER FROM EXECUTION OF THESE CONTRACTS AND THEREFORE NO EXPENSE AND INTEREST ATTRIBUTABLE TO THE INVESTMENT S MADE BY THE APPELLANT IN THE PSVS CAN BE DISALLOWED U/S 14A LW. RULE 8D BECAUSE IT CANNOT BE TERMED AS EXPENSE/ INTEREST INCURRED FOR EARNING EXEMPTED INCOME. UNDER THE CIRCUMSTANCES, LD. COMMISSIONER OF INCOME TAX (APPEALS) IS CORRECT IN HOLDING THAT DISALLOWANCE OF A FURTHER SUM RS 40,556/- CALCULATED@2%OFTHEDIVIDEND EARNED IS SUFFICIENT. UNDER THE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), HENCE WE UPHOLD THE SAME. 13. IN VIEW OF THE ABOVE DISCUSSION AND FACTS AND C IRCUMSTANCES OF THE CASE WE AGREE WITH THE VIEW TAKEN BY THIS TRIBU NAL IN THE ABOVE STATED CASES AND ACCORDINGLY HOLD THAT THE ASSESSEE HAS BROUGHT OUT A CASE TO SHOW THAT NO EXPENDITURE HAS BEEN INCURRE D FOR MAINTAINING THE 98% OF THE INVESTMENT MADE IN THE S UBSIDIARY COMPANIES, THEREFORE, IN THE ABSENCE OF ANY FINDING THAT ANY EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMP T INCOME, THE DISALLOWANCE MADE BY THE AO IS NOT JUSTIFIED, ACCOR DINGLY THE SAME IS DELETED. 7. IN THE CASE OF INTERGLOBE ENTERPRISES LTD FOR THE ASSESSMENT YEAR 2008-09 & 2009-10 IN ITA NO.1362 & 1032/DEL/2013, THE TRIBUNAL VIDE ORDER DATED 04.04.2014 HELD AS UNDER:- 26 ITA NOS. 512 & 513/MDS/2015 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. FIRS T, WE TAKE UP THE APPEAL FOR ASSESSMENT YEAR 2008-09. IN THIS YEAR, T HE ASSESSEE HAD THREE TYPE OF INVESTMENTS ONE RELATING TO INVESTMEN T IN SUBSIDIARY COMPANIES THE AMOUNT OF WHICH IS 101.74 CRORES. THE SECOND CATEGORY RELATES TO LONG TERM UNQUOTED SHARES THE A MOUNT OF WHICH IS 31.53 CRORES. THE THIRD CATEGORY IS OF EQUITY SHARE S THE VALUE OF WHICH IS 14.88 LAKHS AND THE LAST CATEGORY IS INVESTMENT IN UNITS OF MUTUAL FUNDS AMOUNTING TO 10.15 CRORES. THESE FACTS AND FIGURES ARE VERIFIABLE FROM PAPER BOOK PAGE 204A. A S REGARDS THE FIRST CATEGORY OF SHARES IN THE FORM OF INVESTMENT INTO SUBSIDIARY COMPANIES WE FIND THAT INVESTMENT INTO THIS CATEGOR Y OF SHARES HAD INCREASED FROM 78.17 LAKHS TO 101.74 CRORES WHICH IS DUE TO INCREASE IN INVESTMENT IN PREFERENCE SHARES AND OTH ER EQUITY SHARES. DURING THIS PERIOD, THE INTEREST BEARING FUNDS HAD DECREASED FROM 1.49 CRORES TO 87,30 LAKHS AS IS APPARENT FROM PAPER BOOK PAGE 203 AND FURTHER MOST OF THE INTEREST BEARING LOANS ARE FOR VEHICLE LOANS AS MENTIONED IN PAPER BOOK PAGE 203. DURING T HIS YEAR UNDER CONSIDERATION, THE ASSESSEE HAS EARNED A CASH PROFI T OF 11 CRORES. THE CASH FLOW STATEMENT AT PAPER BOOK PAGE 200 REFL ECTS CASH FROM OPERATING ACTIVITIES INCLUDING CASH PROFITS OF 49.28 CRORES. THE ASSESSEE HAS ALSO RAISED AN AMOUNT OF 50.80 CRORES BY ISSUE OF FRESH PREFERENCE SHARES AS IS APPARENT FROM PAPER B OOK PAGE 200. IN VIEW OF THE ABOVE FACTS AND FIGURES IT IS APPARENT THAT ASSESSEE HAD UTILIZED INTEREST FREE FUNDS FOR MAKING FRESH INVES TMENTS AND THAT TOO INTO ITS SUBSIDIARIES WHICH IS NOT FOR THE PURP OSE OF EARNING EXEMPT INCOME AND WHICH ARE FOR STRATEGIC PURPOSES ONLY. 8. IN VIEW OF THE ABOVE FACTS, WE HOLD THAT NO DISA LLOWANCE OF INTEREST IS REQUIRED TO BE MADE UNDER RULE 8D(I) & 8D (II) AS NO DIRECT OR INDIRECT INTEREST EXPENDITURE HAS INCURRE D FOR MAKING INVESTMENTS. 9. AS REGARDS DISALLOWANCE UNDER RULE 8D(III) WE FI ND THAT ASSESSEE HAD INVESTED IN FOUR DEBT ORIENTED SCHEMES OF DSP M ERILE LYNCH, RELIANCE LIQUID PLUS, RELIANCE MONTHLY INTERVAL MUT UAL FUNDS AND SBI LIQUID PLUS FUNDS. WE FIND THAT THESE ARE NOT R EALLY INVESTMENTS AND THESE ARE IN FACT PARKING OF SURPLU S FUNDS IN A MORE TAX EFFICIENT MANNER. HOWEVER, SINCE THESE GIVES RI SE TO EXEMPT INCOME IN THE FORM OF DIVIDEND SECTION 14A READ WIT H RULE 8D IS APPLICABLE AS HELD BY HON'BLE DELHI HIGH COURT IN T HE CASE OF MAXOPP IN VESTMENTS. THE HON'BLE DELHI HIGH COURT H AD HELD AS UNDER:- 24. WE DO NOT AGREE WITH THE SUBMISSION OF THE LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEES THAT A NARROW MEANING OUGHT TO BE ASCRIBED TO THE EXPRESSION 'IN 27 ITA NOS. 512 & 513/MDS/2015 RELATION TO' APPEARING IN SECTION 14A OF THE SAID ACT. THE CONTEXT DOES NOT SUGGEST THAT A NARROW MEANING OUGHT TO BE GIVEN TO THE SAID EXPRESSION. IT IS PERTINENT TO NOTE THAT THE PROVISION WAS INSERTED BY VIRTUE OF THE FINANCE ACT, 2001 WITH RETROSPECTIVE EFFECT FROM 01/04/1962. IN OTHER WORDS, IT WAS THE INTENTION OF PARLIAMENT THAT IT SHOULD APPEAR IN THE STATUTE BOOK, FROM ITS INCEPTION, THAT EXPENDITURE INCURRED IN CONNECTION WITH INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME OUGHT NOT TO BE ALLOWED AS A DEDUCTION. THE FACTUM OF MAKING THE SAID PROVISION RETROSPECTIVE MAKES IT CLEAR THAT PARLIAMENT WANTED THAT IT SHOULD BE UNDERSTOOD BY ALL THAT FROM THE VERY BEGINNING, SUCH EXPENDITURE WAS NOT ALLOWABLE AS A DEDUCTION. OF COURSE, BY INTRODUCING THE PROVISO IT MADE IT CLEAR THAT THERE WAS NO INTENTION TO REOPEN FINALIZED ASSESSMENTS PRIOR TO THE ASSESSMENT YEAR BEGINNING ON 01/04/2001. FURTHERMORE, AS OBSERVED BY THE SUPREME COURT IN WALFORT (SUPRA), THE BASIC PRINCIPLE OF TAXATION IS TO TAX THE NET INCOME, I.E., GROSS INCOME MINUS THE EXPENDITURE AND ON THE SAME ANALOGY THE EXEMPTION IS ALSO IN RESPECT OF NET INCOME. IN OTHER WORDS, WHERE THE GROSS INCOME WOULD NOT FORM PART OF TOTAL INCOME, IT'S ASSOCIATED OR RELATED EXPENDITURE WOULD ALSO NOT BE PERMITTED TO BE DEBITED AGAINST OTHER TAXABLE INCOME. 25. WE ARE OF THE VIEW THAT THE EXPRESSION 'IN RELATION TO' APPEARING IN SECTION 14 A OF THE SAID ACT CANNOT BE ASCRIBED A NARROW OR CONSTRICTED MEANING. IF WE WERE TO ACCEPT THE SUBMISSION MADE ON BEHALF OF THE ASSESSEES THEN SUB-SECTION (1) WOULD HAVE TO BE READ AS FOLLOWS:- 'FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE WITH THE MAIN OBJECT OF EARNING INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. 28 ITA NOS. 512 & 513/MDS/2015 THAT IS CERTAINLY NOT THE PURPORT OF THE SAID PROVI SION. THE EXPRESSION IN RELATION TO DOES NOT HAVE ANY EMBED DED OBJECT. IT SIMPLY MEANS IN CONNECTION WITH OR PERTAINING TO . IF THE EXPENDITURE IN QUESTION HAS A RELATION OR CONNECTIO N WITH OR PERTAINS TO EXEMPT INCOME, IT CANNOT BE ALLOWED AS A DEDUCTION EVEN IF IT OTHERWISE QUALIFIES UNDER THE OTHER PROV ISIONS OF THE SAID ACT. IN WALFORT (SUPRA), THE SUPREME COURT MADE IT VERY CLEAR THAT THE PERMISSIBLE DEDUCTIONS ENUMERATED IN SECTIONS 1 5 TO 59 ARE NOW TO BE ALLOWED ONLY WITH REFERENCE TO INCOME WHICH I S BROUGHT UNDER ONE OF THE HEADS OF INCOME AND IS CHARGEABLE TO TAX. THE SUPREME COURT FURTHER CLARIFIED THAT IF AN INCOME L IKE DIVIDEND INCOME IS NOT PART OF THE TOTAL INCOME, THE EXPENDI TURE/DEDUCTION RELATED TO SUCH INCOME, THOUGH OF THE NATURE SPECIF IED IN SECTIONS 15 TO 59, CANNOT BE ALLOWED AGAINST OTHER INCOME WH ICH IS INCLUDABLE IN THE TOTAL INCOME FOR THE PURPOSE OF C HARGEABILITY TO TAX. SIMILARLY THE HON'BLE BOMBAY HIGH COURT IN THE CAS E OF GODREJ & BOYCE MANUFACTURING CO. LTD. OBSERVED AS UNDER:- IN ORDER TO DETERMINE THE QUANTUM OF THE DISALLOWANCE THERE MUST BE A PROXIMATE RELATIONSHIP BETWEEN THE EXPENDITURE AND THE INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. ONCE SUCH A PROXIMATE RELATIONSHIP EXISTS THE DISALLOWANCE HAS TO BE AFFECTED., ALL EXPENDITURE INCURRED IN THE EARNING OF INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME HAS TO BE DISALLOWANCE SUBJECT TO COMPLIANCE WITH THE TEST ADOPTED BY SUPREME COURT IN WALFORT AND IT WOULD NOT BE PERMISSIBLE TO RESTRICT THE PROVISION OF SECTION 14A BY AN ARTIFICIAL METHOD OF INTERPRETATION. HOWEVER, WE FIND THAT THE CALCULATION OF DISALLOWAN CE UNDER RULE 8D(III) MADE BY THE ASSESSING OFFICER AND UPHELD BY LD CIT(A) IS NOT CORRECT IN VIEW OF THE FACT THAT ASSESSING OFFI CER HAD INCLUDED THE VALUE OF TOTAL INVESTMENTS FOR CALCULATION OF D ISALLOWANCE WHEREAS IN OUR OPINION THE VALUE OF THOSE INVESTMEN TS SHOULD HAVE BEEN INCLUDED WHICH WERE MADE FOR THE PURPOSE OF EA RNING EXEMPT INCOME. THE ASSESSEE HAD MADE SIGNIFICANT INVESTMEN TS IN THE SHARES OF SUBSIDIARY COMPANIES WHICH ARE DEFINITELY NOT FOR THE PURPOSE OF EARNING EXEMPT INCOME. THE HON'BLE TRIBU NAL IN I.T.A. NO.3349/DEL/2011 IN THE CASE OF PROMAIN LTD., AFTER RELYING UPON A KOLKATTA JUDGMENT OF TRIBUNAL IN I.T.A. NO.1331 HAS HELD THAT STRATEGIC INVESTMENT HAS TO BE EXCLUDED FOR THE PUR POSE OF ARRIVING AT DISALLOWANCE UNDER RULE 8D(III). THE TRIBUNAL HA D RELIED UPON THE FINDINGS OF KOLKATTA TRIBUNAL IN THE CASE OF RE I AGRO LTD. V. 29 ITA NOS. 512 & 513/MDS/2015 DCIT IN I.T.A. NO./ 1331/DEL/2011 DATED 29.7.2011. THE RELEVANT PORTION OF TRIBUNAL FINDINGS AS CONTAINED IN THE KO LKATTA TRIBUNAL ARE REPRODUCED BELOW:- (III) FURTHER IN RULE 8D(2)(II), THE WORDS USED IN NUMERATOR B ARE THE AVERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT FORM OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE SHEET AS ON THE FIRST DAY AND IN THE LAST DAY OF THE PREVIOUS YEAR. THE ASSESSING OFFICER WAS WRONG IN TAKING INTO CONSIDERATION THE INVESTMENT OF ` 103 CRORES MADE DURING THE YEAR WHICH HAS NOT EARNED ANY DIVIDEND OR EXEMPT INCOME. IT IS ONLY THE AVERAGE OF THE VALUE OF THE INVESTMENT FROM WHICH THE INCOME HAS BEEN EARNED WHICH IS NOT FALLING WITHIN THE PART OF THE TOTAL INCOME THAT IS TO BE CONSIDERED. THUS,. IT IS NOT THE TOTAL INVESTMENT AT ALL BEGINNING OF THE YEAR AND AT THE END OF THE YEAR, WHICH IS TO BE CONSIDERED BUT IT IS THE AVERAGE OF THE VALUE OF INVESTMENTS WHICH HAS GIVEN RISE TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME WHICH IS TO BE CONSIDERED. THE TERM AVERAGE OF THE VALUE OF INVESTMENT IS USED TO TAKE CARE OF CASES WHERE THERE IS THE ISSUE OF DIVIDEND STRIPING. IV) UNDER RULE 8D(2)(III), WHAT IS DISALLOWABLE IS AN AMOUNT EQUAL TO PERCENTAGE OF THE AVERAGE VALUE OF INVESTMENT THE INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME/. THUS, UNDER SUB CLAUSE (III), WHAT IS DISALLOWED IS PERCENTAGE OF THE NUMERATOR B IN RULE 8D(2)III). THIS HAS TO BE CALCULATED ON THE SAME LINES AS MENTIONED EARLIER IN RESPECT OF NUMERATOR B IN THE RULE 8D(2)(II). THUS, NOT ALL INVESTMENTS BECOME THE SUBJECT MATTER OF CONSIDERATION WHEN COMPUTING DISALLOWANCE U/S 14A READ WITH RULE 8D. THE DISALLOWANCE U/S 14A READ WITH RULE 8D IS TO BE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND THIS CAN BE DONE ONLY BY TAKING INTO CONSIDERATION THE INVESTMENT WHICH HAS GIVEN RISE TO THIS INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. (A.Y.) (I.T.A. NO.1331/KOL/2011 DATED 29.7.2011. FOLLOWING THE ABOVE JUDICIAL PRECEDENTS, WE HELD TH AT VALUE OF STRATEGIC INVESTMENTS SHOULD BE EXCLUDED FOR THE PU RPOSE OF 30 ITA NOS. 512 & 513/MDS/2015 DISALLOWANCE UNDER RULE 8D)III) FACTS, WE DIRECT TH E ASSESSING OFFICER TO CALCULATE THE DISALLOWANCE UNDER RULE8D( III) BY EXCLUDING THE VALUE OF STRATEGIC INVESTMENTS IN THE CALCULATION OF DISALLOWANCE. AS REGARDS DISALLOWANCE UNDER RULE 8D (I) AND 8D(II) WE HAVE ALREADY HELD THAT NO DISALLOWANCE IS WARRAN TED. 8. IN THE CASE OF M/S. PIONEER RADIO TRAINING SERVICES PVT. LTD FOR T HE ASSESSMENT YEAR 2009-2010 IN ITA NO. 4448/DEL/2013 AND C.O.NO.11/DEL/2014, THE TRIBUNAL VIDE ORDER DATED 19.01.2015 OBSERVED AS UNDER:- 9. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. WE HAVE ALSO GONE THROUGH THE ORDERS OF THE LOWER AUTH ORITIES, SYNOPSIS, PAPER BOOK FILED BY THE ASSESSEE AND THE CASE LAWS RELIED UPON BY THE ASSESSEE. WE FIND THAT LD. CIT(A) HAS A DJUDICATED THE ISSUE AS UNDER:- 3. GROUND NO. 1 & 2 ARE AGAINST THE DISALLOWANCE O F RS.17,77,733/- U/S 14A AND GROUND NO. 2 SPECIFICALL Y STATES THAT THE DISALLOWANCE MADE IS EXCESSIVE. AS PER ASSESSMENT ORDER, THE AO HAD MADE THIS DISALLOWANCE ON THE PRESUMPTION THAT THE APPELLANT HAD INCURRED EXPENSES ON MANAGEMENT AND ON MEETING OF THE BOARD OF DIRECTORS ETC. WHICH CAN BE ATTRIBUTED TO THE APPELLANT'S EXEMPT INCOME. THE APPELLANT'S AR'S SUBMISSION DURING THE APPELLATE PROCEEDINGS IS THAT NO EXPENSES WAS INCURRED AS REMUNERATION TO THE DIRECTORS OR AS MEETING FEE PAID TO THE DIRECTORS. AS PER THE P&L A/C, THE EXPENDITURE INCURRED IS BASICA LLY UNDER FOUR HEADS OF EXPENSES ONLY. THE PRELIMINARY EXPENSE WRITTEN OFF WAS ALREADY ADDED BACK BY THE APPELLANT IN THE COMPUTATION STATEMENT AND THE OTHE R HEAD WAS DEPRECIATION. THE MAJOR EXPENSES INCURRED ARE UNDER TWO HEADS NAMELY PERSONAL EXPENSES AND ADMINISTRATIVE EXPENSES. AS PER THE APPELLANT'S AR, THE ENTIRE PERSONAL EXPENSE OF RS.51,12,123/- WAS INCURRED FOR THE SALARY OF TWO EMPLOYEES WHO ARE NO T DIRECTORS OF THE COMPANY. THE DETAILS OF ADMINISTRATIVE EXPENSES WERE ALSO FURNISHED AND THE SAME IS AS FOLLOWS: HEAD OF EXPENSES AMOUNT (RS.) BANK CHARGES 3070 31 ITA NOS. 512 & 513/MDS/2015 COMMUNICATION EXPENSES 88223 SERVICES TAX 2387 AUDITORS REMUNERATION 25000 LEGAL & PROFESSIONAL CHARGES 184400 CONSULTANCY CHARGES 3912217 MAINTENANCE EXPENSES 4368 ENTERTAINMENT/BUSINESS PROMOTION 226304 NEWSPAPERS, BOOKS & PERIODICALS 54988 RENT 24000 TRAVELING/CONVEYANCE EXPENSES 553923 ROC FILING FEE 7500 TOTAL EXPENSES 5086380 3.1. AS PER THE APPELLANT'S AR, THE ABOVE. EXPENSES ARE DIRECTLY ATTRIBUTABLE TO THE APPELLANT'S INCOME EARNED FROM TRAINING AS EXPENSES LIKE CONSULTANCY CHARGES, ENTERTAIN/BUSINESS PROMOTION, TRAVELING/CONVEYANCE ETC. HAVE NOTHING TO DO WITH T HE INVESTMENTS MADE BY THE COMPANY. AS PER THE BALANCE SHEET, THERE ARE NO FRESH INVESTMENTS DURING THE RELEVANT ASSESSMENT YEAR AND AS PER THE APPELLANT'S AR, THE SOURCE OF THESE INVESTMENTS IS OUT OF INTER EST FREE UNSECURED LOANS. FURTHER, NO INTEREST EXPENSES ARE DEBITED IN THE P&L A/C. THE ONLY EXPENSES WHICH CAN BE ATTRIBUTED TO EXEMPT INCOME LIKELY TO BE EARNED IN FUTURE ARE THE AUDITOR'S REMUNERATION AND LEGAL & PROFESSIONAL CHARGES. CONSIDERING THIS ASPE CT AND THE PECULIAR FACTS OF THE CASE, I AM OF THE VIE W THAT A DISALLOWANCE OF RS.50,OOO/- WOULD SERVE THE INTEREST OF JUSTICE AND THEREFORE THE APPELLANT GET S RS. 17,27,733/- FROM THE DISALLOWANCE MADE BY THE AO UNDER RULE 8O(2)(III). THUS, GROUNDS NOS. 1 & 2 ARE PARTLY ALLOWED AS THE DISALLOWANCE OF RS. 50,000/- IS SUSTAINED. 9.1 IN VIEW OF THE ABOVE, WE FIND THAT LD. CIT(A) W AS RIGHT TO SOME EXTENT IN DELETING THE DISALLOWANCE OF RS. 17, 27,733/-, BUT ON THE OTHER HAND WE FIND NO BASIS ON WHICH HE HAS SUS TAIN THE ADHOC DISALLOWANCE OF RS. 50,000/-. IN THIS REGARD, WE FI ND CONSIDERABLE COGENCY AND FORCE IN THE SUBMISSIONS OF THE ASSESSE ES COUNSEL AS DISCUSSED ABOVE THAT THERE WAS NO BASIS FOR THE LD. CIT(A) TO SUSTAIN AD-HOC DISALLOWANCE OF RS.50,OOO/- BY HOLDI NG THAT 'THE ONLY EXPENSES WHICH CAN BE ATTRIBUTED TO EXEMPT INC OME LIKELY TO BEEARNED IN FUTURE ARE THE AUDITOR'S REMUNERATION A ND LEGAL & PROFESSIONAL CHARGES'. THE AUDITOR'S REMUNERATION A ND LEGAL & PROFESSIONAL CHARGES INCURRED FOR MAINTENANCE OF ST ATUTORY BOOKS AND ITS AUDIT ETC. WERE REQUIRED TO BE INCURRED IRR ESPECTIVE OF WHETHER THE COMPANY HAD ANY INCOME OR NOT AND HENCE , THERE WAS 32 ITA NOS. 512 & 513/MDS/2015 ABSOLUTELY NO BASIS FOR CONSIDERING A PART OF SUCH EXPENDITURE TOWARDS EARNING OF EXEMPT INCOME. IN THIS CONNECTIO N, RELIANCE IS PLACED ON GUJARAT HIGH COURT JUDGMENT IN THE CASE O F CIT VS. SUZION ENERGY LTD. 354 ITR 630, IN WHICH THE COURT CONFIRMED THE DELETING OF DISALLOWANCE U/S 14A IN RESPECT OF INTE REST EXPENSES INCURRED FOR INVESTMENTS IN SUBSIDIARIES AND ADMINI STRATIVE EXPENSE SUCH AS STAFF SALARY OF CORPORATE OFFICE, AUDIT FEE S, BUILDING RENT AND COMMUNICATION EXPENSES. IN VIEW OF THE ABOVE, THE C ROSS OBJECTION FILED BY THE ASSESSEE DESERVE TO BE ALLOWED. 9.2 WE ALSO FIND THAT THE CASE LAW CITED BY THE LD. COUNSEL OF THE ASSESSEE I.E. HONBLE JURISDICTIONAL DELHI HIGH COU RT JUDGMENT DATED 5.9.2014 IN THE CASE OF COMMISSIONER OF INCOM E TAX-IV VS. HOLCIM INDIA P. LTD. IN ITA NO. 486/2014 & ITA NO. 299/2014 HAS DEALT THE SIMILAR ISSUE AND DECIDE THE ISSUE AG AINST THE REVENUE BY ADJUDICATING AS UNDER 3. THE RESPONDENT-ASSESSEE, A SUBSIDIARY OF HOLDERIND INVESTMENTS LTD., MAURITIUS, WAS FORMED AS A HOLDING COMPANY FOR MAKING DOWNSTREAM INVESTMENTS IN CEMENT MANUFACTURING VENTURES IN INDIA. IN HE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR 2007-08, THERESPONDENTASSESSEE DECLARED LOSS OF RS. 8.56 CRORES APPROXIMATELY. THE RESPONDENT-ASSESSEE HAD DECLARED REVENUE RECEIPTS OF RS. 18,02,274/- WHICH INCLUDED INTEREST OF RS. 726/- FROM FIXED DEPOSIT RECEIPTS AND PROFIT ON SALE OF FIXED ASSETS OF RS. 16,52,225/-. AS AGAINST THIS, THE RESPONDENT ASSESSEE HAD CLAIMED ADMINISTRATIVE AND MISCELLANEOUS EXPENSES EXPENDITURE WRITTEN OFF AMOUNTING TO RS. 8.75 CRORES. FOR THE ASSESSMENT YEAR 2008-09, THE ASSESSEE HAD FILED RETURN DECLARING LOSS OF RS. 6.6 0 CRORES APPROXIMATELY. THE ASSESSEE HAD DECLARED REVENUE RECEIPTS IN THE FORM OF FOREIGN CURRENCY FLUCTUATION DIFFERENCE GAIN OF RS. 12,46,595/-. IT HAD CLAIMED EXPENSES AMOUNTING TO RS. 7.02 CRORES AS PERSONAL EXPENSES, OPERATING AND OTHER EXPENSES, DEPRECIATION AND FINANCIAL EXPENSES. 4. IN THE TWO ASSESSMENT ORDERS, THE ASSESSING OFFICER HELD THAT THE RESPONDENT-ASSESSEE HAD NOT COMMENCED BUSINESS ACTIVITIES AS THEY HAD NOT UNDERTAKEN ANY MANUFACTURING ACTIVITY OR MADE DOWNSTREAM INVESTMENTS. THE RESPONDENT-ASSESSEE, AFTER RECEIVING APPROVAL OF FOREIGN INVESTMENT PROMOTION BOARD (FIPB) DATED 20.12.2000 ACQUIRED SHARES CAPITAL OF AMBUJA CEMENT INDIA LTD. THIS, THE ASSESSING OFFICER FELT, WAS NOT SUFFICIENT TO INDICATE OR HOLD THAT THE RESPONDENT 33 ITA NOS. 512 & 513/MDS/2015 ASSESSEE HAD STARTED THEIR BUSINESS. HE ACCORDINGLY DISALLOWED THE ENTIRE EXPENDITURE OF RS. 8.75 CRORES FOR THE ASSESSMENT YEAR 2007-08 AND RS.7.02 CRORES FOR THE ASSESSMENT YEAR 2008- 09. 5. THE CIT(A), BY TWO SEPARATE ORDERS DID NOT AGREE WITH THE FINDINGS RECORDED BY THE ASSESSING OFFICER THAT THE BUSINESS OF THE RESPONDENT- ASSESSEE HAD NOT BEEN SET UP OR COMMENCED. THE CIT(A) OBSERVED THAT THE RESPONDENT-ASSESSEE HAD BEEN SET UP WITH THE BUSINESS OBJECTIVE OF MAKING INVESTMENT IN CEMENT INDUSTRY AFTER DUE APPROVAL GIVEN BY THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY VIDE LETTER DATED 18.12.2002 AND 20.12.2012. IN FACT, THE RESPONDENT-ASSESSEE WAS NOT TO UNDERTAKE ANY MANUFACTURING ACTIVITY THEMSELVES. HE REFERRED TO THE FIPB APPROVAL VIDE LETTER DATED 30.03.2005 GRANTED BY GOVERNMENT OF INDIA, MINISTRY OF FINANCE PERMITTING THEM TO MAKE INVESTMENT IN AMBUJA CEMENT LTD. BY ACQUIRING MAJORITY STAKE FROM THE EARLIER SHAREHOLDERS. THEREUPON, THE RESPONDENT-ASSESSEE HAD PURCHASED SHARES IN THE SAID COMPANY OF RS. 1850.91 CRORES. REFERENCE WAS THEN MADE TO THE EXPENDITURE AS PER THE FINANCIAL STATEMENT. SECTION 3 OF THE ACT WAS ELUCIDATED UPON TO OBSERVE THAT BUSINESS WOULD BE ESTABLISHED WHEN THE ASSESSEE WAS READY TO COMMENCE. REVENUE EXPENDITURE INCURRED AFTER SETTING UP BUSINESS SHOULD BE ALLOWED UNDER SECTION 37 OF THE ACT BUT EXPENDITURE INCURRED PRIOR TO SETTING UP OF BUSINESS CANNOT BE ALLOWED. THE CIT (A) ACCORDINGLY HELD:- 5.6 IN VIEW OF THE ABOVE DISCUSSIONS, I HOLD THAT THE APPELLANT IS ENGAGED IN THE BUSINESS OF HOLDING OF INVESTMENT IS ENTITLED TO CLAIM EXPENDITURE PROVIDED THERE IS A DIRECT CONNECTION BETWEEN EXPENDITURE INCURRED AND BUSINESS OF THE ASSESSEE COMPANY. IN THE INSTANT CASE. THE EXPENDITURE INCURRED IS ON SALARIES OF EMPLOYEES OF THE ASSESSEE COMPANY AND OTHER OPERATING EXPENSES OF THE COMPANY. THE APPELLANT HAS ALSO ADMITTED THAT THE SAID EXPENDITURE HAVE BEEN INCURRED IN ORDER TO PROTECT THEIR 34 ITA NOS. 512 & 513/MDS/2015 INVESTMENT AS WELL AS EXPLORATION OF NEW INVESTMENTS. 6. FOR THE ASSESSMENT YEAR 2008-09, THE SAME REASO NING WAS ADOPTED AND FOLLOWED. 7. HOWEVER, THE CIT(A) ISSUED NOTICE AND CALLED UP ON ASSESSEE, WHY SECTION 14A SHOULD NOT BE INVOKED? THE SECTION POST ULATES THAT FOR THE PURPOSE OF COMPUTING TOTAL INCOME UNDER CHAPTER IV, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF THE EXPEND ITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. SINCE THE BUSINESS OF THE RESPONDENT-ASSESSEE WAS T O ACT AS A HOLDING COMPANY FOR DOWNSTREAM INVESTMENTS AND AS IT WAS AN ACCEPTED FACT THAT THEY HAD INCURRED EXPENSES TO PROTECT THEIR IN VESTMENTS AND EXPLORE NEW AVENUES OF INVESTMENTS, THE PROVISIONS OF SECTION 14A WERE APPLICABLE. THE EXACT REASONING GIVEN BY THE C IT(A) IN THIS REGARD IN RESPECT OF THE ASSESSMENT YEAR 2007-08 IS AS UNDER:- 5.8....THUS, AS ADMITTED BY THE APPELLANT; SINCE BUSINESS OF THE APPELLANT EXCLUSIVELY IS TO ACT AS A HOLDING COMPANY FOR DOWNSTREAM INVESTMENT IN ORDER (SIC) COMPANIES AND THE ADMITTED FACT THAT THEY INCURRED THE EXPENSES TO PROTECT THEIR INVESTMENTS AND TO EXPLORE NEW AVENUES OF INVESTMENTS CLEARLY SHOW, THAT IN THE FACTS OF THE APPELLANT'S CASE THE PROVISION OF SECTION 14A OF TH E ACT ARE CLEARLY APPLICABLE. [UNDERLINING IS AS PER THE ORIGINAL ORDER OF CIT(A)] 8. THE AFORESAID REASONING GIVEN BY CIT(A) WAS AMBI GUOUS AND UNCLEAR, HENCE, CLARITY WAS SOUGHT FROM THE COUNSEL FOR THE APPELLANT REVENUE ON THEIR STAND AND STANCE. LEARNED SENIOR S TANDING COUNSEL FOR THE APPELLANT REVENUE WAS ASKED TO ELUCIDATE AND HA S STATED THAT THE STAND OF THE ASSESSEE CONTAINED A CONTRADICTION TO THE EXTENT THAT ON THE ISSUE OF SETTING UP OF BUSINESS, IT WAS STATED THAT THE ASSESSEE HAD INCURRED EXPENDITURE ON ACQUIRING THE SHARES, THERE FORE, THE ASSESSEE COULD NOT NOW TAKE A DIFFERENT STAND THAN THE ONE T AKEN IN THE FIRST ISSUE. (THE AFORESAID SUBMISSION HAS BEEN RECORDED VERBAT IM). 9. THE SAID STATEMENT HAS LEFT US EQUALLY CONFUSED AND PERPLEXED. IS IT THE REVENUE S CONTENTION THAT EXPENDITURE MADE BY INVESTMENT COMPANIES SHOULD BE DISALLOWED UNDER SECTION 14A OF THE ACT AS INCOME OR INVESTMENT IS NOT TAXABLE? THIS IS NOT CL EARLY STATED. WE PROCEEDED TO READ AND EXAMINE THE SUBSEQUENT OBSERV ATIONS AND FINDINGS OF THE CIT(A). 35 ITA NOS. 512 & 513/MDS/2015 10. THEREAFTER, THE CIT(A) HAS REFERRED TO THE CONT ENTIONS OF THE ASSESSEE THAT THEY HAD NOT EARNED DIVIDEND INCOME A ND THEREFORE, SECTION 14A OF THE ACT WAS NOT APPLICABLE. THE CIT( A) DID NOT AGREE THAT AS NO EXEMPT INCOME WAS CLAIMED, NO DISALLOW ANCE UNDER SECTION 14A WAS WARRANTED. THE CIT(A) RELIED ON THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL (DELHI) IN THE CASE O F CHEMINVEST LTD. VS. ITO., [2009] 317 ITR (A.T.) 86. REFERENCE WAS M ADE TO MAXOPP INVESTMENT LTD. VS. CIT, [2012] 347 ITR 272 TO OBSE RVE THAT RULE 8D OF THE INCOME TAX RULES, 1962 WAS NOT APPLICABLE IN THE ASSESSMENT YEAR 2007-08. JUDGMENT OF THE BOMBAY HIGH COURT IN GODREJ AND BOYCE MANUFACTURING CO. LTD.VS. DCIT, [2010] 328 IT R 81 WAS ALSO QUOTED. AS PER MAXOPP INVESTMENT LTD. (SUPRA), THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE INC URRED IN RELATION TO THE INCOME WHICH DID NOT FORM PART OF TOTAL INCOME HAD TO BE FIRST ASCERTAINED AND IN CASE, THE ASSESSEE CLAIMED THAT NO EXPENDITURE WAS INCURRED, THE ASSESSING OFFICER SHOULD VERIFY THE C ORRECTNESS OF THE CLAIM. WHERE THE ASSESSING OFFICER WAS SATISFIED TH AT NO EXPENDITURE WAS INCURRED, NO DISALLOWANCE SHOULD BE MADE UNDER SECTION 14A. IN OTHER CASES, THE ASSESSING OFFICER WOULD HAVE TO DE TERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO THE INCOME W HICH DID NOT FORM PART OF THE TOTAL INCOME AND THE SAID BASIS HAD TO BE REASONABLE AND BASED ON THE ACCEPTABLE METHOD OF APPORTIONMENT. EX POUNDING THE EXPRESSION IN RELATION TO APPEARING IN SECTION 14 A AS INTERPRETED IN MAXOPP INVESTMENT LTD. (SUPRA), THE CIT(A) HELD THA T THE SAID EXPRESSION COULD NOT BE GIVEN A NARROW MEANING. THE EXPRESSION IN RELATION TO WOULD INCLUDE IN CONNECTION WITH OR PERTAINING TO. NO DEDUCTION SHOULD BE ALLOWED IN RESPECT OF THE EXPEN DITURE INCURRED BY THE ASSESSEE WITH THE MAIN OBJECT OF EARNING INCOME WHICH DID NOT FORM PART OF THE TOTAL INCOME. HE ACCORDINGLY HELD THAT DISALLOWANCE UNDER SECTION 14A HAD NO RELATION WITH THE DOMINANT AND IMMEDIATE CONNECTION BETWEEN THE EXPENDITURE AND EXEMPT INCO ME. THEREAFTER, IN PARAGRAPHS 5.13 TO 5.15, THE CIT(A) HELD AS UNDER:- 5.13 WITH REGARDS TO INAPPLICABILITY OF SECTION 14A OF THE ACT THE APPELLANT STATED THAT THEY HAD NOT UTILIZED ANY BORROWED FUNDS FOR MAKING SUCH INVESTMENT AND HENCE, NO EXPENSES ON ACCOUNT OF INTEREST HAD BEEN DEBITED AND CLAIMED. IT HAS BEEN ALSO CONTENDED THAT IN ABSENCE OF ANY CLEAR FINDING OR NEXUS BETWEEN EXPENSES INCURRED AND EXEMPT INCOME OR WITHOUT BRINGING ON RECORD, SPECIFIC MATERIAL, NO ADHOC DISALLOWANCE UNDER SECTION 14A OF THE ACT IS WARRANTED. THIS CONTENTION RAISED BY THE APPELLANT IS UNFOUND FOR THE REASON THAT THEY ARE BASED ON CONTRADICTION. WHEN IT COMES TO THE CLAIM OF EXPENDITURE, IT IS STATED THAT, SUCH EXPENDITURE HAS BEEN INCURRED IN THE COURSE OF BUSINESS OF HOLDING INVESTMENTS AND IN ORDER TO PROTECT THEIR INVESTMENTS AND TO 36 ITA NOS. 512 & 513/MDS/2015 EXPLORE NEW AVENUES OF INVESTMENTS AND, WHEN IT COMES TO APPLICABILITY TO SECTION 14A, IT IS ARGUED TO THE CONTRARY. THIS CONTRADICTION BELIES THE CLAIM MADE BY THE APPELLANT. THERE IS NO ADHOC DISALLOWANCE. AS REGARDS, FINDINGS OR NEXUS, SPECIFIC OPPORTUNITY HAS BEEN GRANTED TO THE APPELLANT BASED ON THE FACTS AND SUBMISSIONS MADE BY THE APPELLANT, I AM SATISFIED THAT THE EXPENDITURE HAS BEEN INCURRED BY THE APPELLANT COMPANY IN RELATION TO INVESTMENTS WHICH GIVES RISE TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. 5.14 THUS FROM THE ABOVE DISCUSSIONS, I AM OF THE CONSIDERED VIEW THAT ONCE THE BUSINESS OF THE APPELLANT IS OF HOLDING INVESTMENT THEN IT HAS TO BE HELD THAT IN VIEW OF SPECIFIC PROVISIONS CONTAINED IN SECTION 14A AND DESPITE THE FACT THAT THERE IS NO EXEMPT INCOME THAT EXPENDITURE INCURRED WAS FOR HOLDING AND MAINTAINING INVESTMENT. 5.15 THEREFORE, BY APPLYING THE ABOVE JUDICIAL DECISION TO THE FACTS OF THE INSTANT CASE, I FIND ADMITTEDLY AND INDISPUTABLE, ENTIRE EXPENDITURE INCURRED TO THE TUNE OF RS. 8,75,35,452/- HAS BEEN INCURRED FOR INVESTMENT AND HENCE IN THE LIGHT OF THE ABOVE FACTUAL POSITION, THE ENTIRE EXPENDITURE IS NOT ALLOWABLE IN VIEW OF SECTION 14A OF THE ACT. THUS, DISALLOWANCE MADE BY THE ASSESSING OFFICER IS CONFIRMED THOUGH ON A DIFFERENT GROUND AND AS SUCH, THE APPEAL PREFERRED BY THE APPELLANT IS DISMISSED. 11. THE CIT(A) DID NOT REFER TO THE FACTUAL MATRIX IN HIS ORDER FOR THE ASSESSMENT YEAR 2008-09 BUT APPLIED HIS EARLIER ORD ER DATED 02.08.2012 FOR THE ASSESSMENT YEAR 2007-08. WE MAY NOTE THAT FOR THE ASSESSMENT YEAR 2008-09, RULE 8D AS PER THE DEC ISION IN THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA) IS APPLICABLE. TH E SAID RULE WAS NOT INVOKED. THE REASONING GIVEN BY THE CIT(A) READ S THUS: '4....WHILE DECIDING THE APPEAL FOR A.Y. 2007-08, VIDE MY ORDER DATED 01.08.2012, I HAVE GIVEN THE FINDING THAT AO WAS NOT CORRECT IN DISALLOWING THE EXPENSES ON THE GROUND OF NONCOMMENCEMENT BUSINESS. IN THE SAID ORDER HOWEVER I HAVE UPHELD THE DISALLOWANCE U/S 14A BY GIVING A DETAILED FINDING THEREIN. 37 ITA NOS. 512 & 513/MDS/2015 SINCE IN THE YEAR UNDERCONSIDERATION THE SAME FACTS EXISTS AS WERE EXISTING IN ASSESSMENT YEAR 2007- 08 AND THE APPELLANT HAS ALSO MADE THE SAME SUBMISSIONS AS WERE GIVEN DURING THE APPELLATE PROCEEDINGS FOR ASSESSMENT YEAR 2007- 08, THEREFORE RELYING ON MY ORDER DATED 01.08.2012 VIDE WHICH I HAVE ADJUDICATED THE APPELLANT'S APPEAL FOR ASSESSMENT YEAR 2007-08, I HOLD THAT IN THE YEAR UNDER CONSIDERATION ALSO THAT NO DISALLOWANCE CAN BE MADE ON ACCOUNT OF NONCOMMENCEMENT OF BUSINESS. HOWEVER THE ADDITION OF RS. 7,02,54,564/- IS TO BE MADE ON ACCOUNT OF DISALLOWANCE U/S 14A BECAUSE THE APPELLANT HAS ADMITTED TIME AND AGAIN THAT THEIR MAIN BUSINESS ACTIVITY IS TO ACT AS A HOLDING COMPANY FOR DOWNSTREAM INVESTMENT IN OTHER COMPANIES WHICH ARE ENGAGED IN MANUFACTURING CEMENT AND THAT THE EXPENSES OF RS. 7,02,54,564/- HAVE BEEN INCURRED BY THEM UNDER TO PROTECT THEIR INVESTMENTS AND TO EXPLORE NEW AVENUES OF INVESTMENTS. THUS IN VIEW OF THE FINDINGS GIVEN IN ASSESSMENT YEAR 2007-08, THE ADDITION OF RS. 7,02,54,564/- STANDS CONFIRMED ON ACCOUNT OF DISALLOWANCE UNDER SECTION 14A. 5. IN THE RESULT, THE APPEAL IS DISMISSED. 12. AS NOTICED ABOVE, THE TRIBUNAL HAS REVERSED THE SAID FINDING BY THEIR COMMON ORDER DATED 27.09.2013. IT WAS SPECIFI CALLY RECORDED THAT THE BUSINESS HAD BEEN SET UP. WE NOTE THAT THE REVENUE DID NOT PREFER ANY APPEAL OR FILE CROSS-OBJECTION AGAINST T HE FINDING ON THE QUESTION WHETHER THE BUSINESS HAD BEEN SET UP. THE TRIBUNAL SPECIFICALLY NOTICED THAT THE CIT(A) DID NOT MAKE D ISALLOWANCE ON THE GROUND THAT THE RESPONDENT-ASSESSEE HAD INVESTED IN THE SHARES FOR EARNING OF THE DIVIDENDS BUT, ON THE GROUND THAT TH E RESPONDENT- ASSESSEE HAD ACQUIRED CONTROLLING INTEREST IN THE R ESPECTIVE COMPANIES AND THIS WAS THEIR LINE OF BUSINESS. THEREFORE, THE TRIBUNAL OBSERVED THAT THERE WAS A CONTRADICTION IN THE SUBMISSIONS M ADE BY THE DEPARTMENTAL REPRESENTATIVE THAT THE ASSESSEE HAD A CQUIRED SHARES FOR EARNING OF DIVIDENDS. AFTER REFERRING TO A DECISION OF CHANDIGARH BENCH OF THE TRIBUNAL IN M/S SPRAY ENGINEERING DEVI CES LTD., ITA NO. 701/CHD./2009 DATED 22.06.2012, THE APPEAL OF T HE RESPONDENT ASSESSEE WAS ALLOWED. 13. WE ARE CONFUSED ABOUT THE STAND TAKEN BY THE AP PELLANT-REVENUE. THUS, WE HAD ASKED SR.STANDING COUNSEL FOR THE REVE NUE, TO STATE IN 38 ITA NOS. 512 & 513/MDS/2015 HIS OWN WORDS, THEIR STAND BEFORE US. DURING THE CO URSE OF HEARING, THE SUBMISSION RAISED WAS THAT THE SHARES WOULD HAVE YI ELDED DIVIDEND, WHICH WOULD BE EXEMPT INCOME AND THEREFORE, THE CIT (A) HAD INVOKED SECTION 14A TO DISALLOW THE ENTIRE EXPENDIT URE. THE AFORESAID SUBMISSION DOES NOT FIND ANY SPECIFIC AND CLEAR NAR RATION IN THE REASONS OR THE GROUNDS GIVEN BY THE CIT(A) TO MAKE THE SAID ADDITION. POSSIBLY, THE CIT(A), THOUGH IT IS NOT ARGUED BEFOR E US, HAD TAKEN THE STAND THAT THE RESPONDENTASSESSEE HAD MADE INVESTME NT AND EXPENDITURE WAS INCURRED TO PROTECT THOSE INVESTMEN TS AND THIS EXPENDITURE CANNOT BE ALLOWED UNDER SECTION 14A. 14. ON THE ISSUE WHETHER THE RESPONDENT-ASSESSEE CO ULD HAVE EARNED DIVIDEND INCOME AND EVEN IF NO DIVIDEND INCOME WAS EARNED, YET SECTION 14A CAN BE INVOKED AND DISALLOWANCE OF EXPE NDITURE CAN BE MADE, THERE ARE THREE DECISIONS OF THE DIFFERENT HI GH COURTS DIRECTLY ON THE ISSUE ITA AND AGAINST THE APPELLANT-REVENUE. NO CONTRARY DECISION OF A HIGH COURT HAS BEEN SHOWN TO US. THE PUNJAB AN D HARYANA HIGH COURT IN COMMISSIONER OF INCOME TAX, FARIDABAD VS. M/S. LAKHANI MARKETING INCL., ITA NO. 970/2008, DECIDED ON 02.04 .2014, MADE REFERENCE TO TWO EARLIER DECISIONS OF THE SAME COUR T IN CIT VS. HERO CYCLES LIMITED, [2010] 323 ITR 518 AND CIT VS. WINS OME TEXTILE INDUSTRIES LIMITED, [2009] 319 ITR 204 TO HOLD THAT SECTION 14A CANNOT BE INVOKED WHEN NO EXEMPT INCOME WAS EARNED. THE SECOND DECISION IS OF THE GUJARAT HIGH COURT IN COMMISSION ER OF INCOME TAX-I VS. CORRTECH ENERGY (P.) LTD. [2014] 223 TAXM ANN 130 (GUJ.). THE THIRD DECISION IS OF THE ALLAHABAD HIGH COURT I N INCOME TAX APPEAL NO. 88 OF 2014, COMMISSIONER OF INCOME TAX ( II) KANPUR, VS. M/S. SHIVAM MOTORS (P) LTD. DECIDED ON 05.05.2014. IN THE SAID DECISION IT HAS BEEN HELD: AS REGARDS THE SECOND QUESTION, SECTION 14A OF THE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THE CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY TH E ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HENCE, WHAT SECTION 14A PROVIDES IS THAT IF THERE IS ANY INCOME WHICH DOES NOT FORM PART OF THE INCOME UNDER THE ACT, THE EXPENDITURE WHICH IS INCURRED FOR EARNING THE INCOME IS NOT AN ALLOWABLE DEDUCTION. FOR THE YEAR IN QUESTION, THE FINDING OF FACT IS THAT THE ASSESSEE HAD NOT EARNED ANY TAX FREE INCOME. HENCE, IN THE ABSENCE OF ANY TAX FREE INCOME, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE. THE VIEW OF THE CIT(A), WHICH HAS BEEN AFFIRMED BY THE TRIBUNAL, HENCE DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. HENCE, THE DELETION OF THE DISALLOWANCE OF RS.2,03,752/- MADE BY THE ASSESSING OFFICER WAS IN ORDER . 39 ITA NOS. 512 & 513/MDS/2015 15. INCOME EXEMPT UNDER SECTION 10 IN A PARTICULAR ASSESSMENT YEAR, MAY NOT HAVE BEEN EXEMPT EARLIER AND CAN BECOME TAX ABLE IN FUTURE YEARS. FURTHER, WHETHER INCOME EARNED IN A SUBSEQUE NT YEAR WOULD OR WOULD NOT BE TAXABLE, MAY DEPEND UPON THE NATURE OF TRANSACTION ENTERED INTO IN THE SUBSEQUENT ASSESSMENT YEAR. FOR EXAMPLE, LONG TERM CAPITAL GAIN ON SALE OF SHARES IS PRESENTLY NO T TAXABLE WHERE SECURITY TRANSACTION TAX HAS BEEN PAID, BUT A PRIVA TE SALE OF SHARES IN AN OFF MARKET TRANSACTION ATTRACTS CAPITAL GAINS TAX. IT IS AN UNDISPUTED POSITION THAT RESPONDENT ASSESSEE IS AN INVESTMENT COMPANY AND HAD INVESTED BY PURCHASING A SUBSTANTIAL NUMBER OF SHAR ES AND THEREBY SECURING RIGHT TO MANAGEMENT. POSSIBILITY OF SALE O F SHARES BY PRIVATE PLACEMENT ETC. CANNOT BE RULED OUT AND IS NOT AN IM PROBABILITY. DIVIDEND MAY OR MAY NOT BE DECLARED. DIVIDEND IS DE CLARED BY THE COMPANY AND STRICTLY IN LEGAL SENSE, A SHAREHOLDER HAS NO CONTROL AND CANNOT INSIST ON PAYMENT OF DIVIDEND. WHEN DECLARED , IT IS SUBJECTED TO DIVIDEND DISTRIBUTION TAX. 16. WHAT IS ALSO NOTICEABLE IS THAT THE ENTIRE OR W HOLE EXPENDITURE HAS BEEN DISALLOWED AS IF THERE WAS NO EXPENDITURE INCU RRED BY THE RESPONDENT-ASSESSEE FOR CONDUCTING BUSINESS. THE CI T(A) HAS POSITIVELY HELD THAT THE BUSINESS WAS SET UP AND HA D COMMENCED. THE SAID FINDING IS ACCEPTED. THE RESPONDENT-ASSESSEE, THEREFORE, HAD TO INCUR EXPENDITURE FOR THE BUSINESS IN THE FORM OF I NVESTMENT IN SHARES OF CEMENT COMPANIES AND TO FURTHER EXPAND AND CONSO LIDATE THEIR BUSINESS. EXPENDITURE HAD TO BE ALSO INCURRED TO PR OTECT THE INVESTMENT MADE. THE GENUINENESS OF THE SAID EXPENDITURE AND T HE FACT THAT IT WAS INCURRED FOR BUSINESS ACTIVITIES WAS NOT DOUBTED BY THE ASSESSING OFFICER AND HAS ALSO NOT BEEN DOUBTED BY THE CIT(A) . 17. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY MERI T IN THE PRESENT APPEALS. THE SAME ARE DISMISSED IN LIMINE. 10. IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND PRECEDENTS, WE FIND THAT THE PRESENT ISSUE IS SQUARELY COVERED BY THE AFORESAID JUDGMENT DATED 5.9.2014 OF THE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF COMM ISSIONER OF INCOME TAX-IV VS. HOLCIM INDIA P. LTD. IN ITA NO. 486/2014 & ITA NO. 299/2014 IN FAVOR OF THE ASSESSEE AND AGAINST THE REVENUE. RESPECTFULLY FOLL OWING THE ABOVE PRECEDENT, WE DISMISS THE APPEAL OF THE REVENUE AND ALLOW THE CRO SS OBJECTION FILED BY THE ASSESSEE. 9. FURTHER, IN THE CASE OF PIEM HOTELS LIMITED FOR THE ASSESSMENT YEARS 2006-07, 2007- 2008 & 2008-09 IN ITA NOS. 240 , 241 & 850/MUM/2012 , THE TRIBUNAL VIDE ORDER DATED 20.03.2015 OBSERVED AS UNDER:- 40 ITA NOS. 512 & 513/MDS/2015 5.WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT WHILE DECIDING THE APPEAL F OR THE AY.2005- 06 THE FAA HAD DELETED THE ADDITION MADE BY THE AO FOLLOWING HIS ORDER FOR THE AY.2004-05,THAT THE THEN FAA HAD HELD THAT ASSESSEE WAS HOLDING STRATEGIC INVESTMENT, THAT SAME WAS INH ERENT PART OF OVERALL PLANNING, THAT THERE WAS NO CHANGE IN FACTS OF THE CASE THAT YEAR AS COMPARED TO THE FACTS OF AY.2004-05. IT IS FOUND THAT ASSESSEE HAD MADE INVESTMENT IN TA J GROUP OF COMPANIES ONLY AND IT IS PART OF TAJ GROUP, THAT EX CEPT FOR ONE OR TWO COMPANIES MOST OF THE COMPANIES WHEREIN IT HAD MADE INVESTMENT ARE IN THE SAME BUSINESS OR IN THE BUSIN ESS RELATED WITH THE HOTEL INDUSTRIES. IT IS A FACT THE AO HAS NOT P INPOINTED AS TO WHAT WAS THE EXPENDITURE THAT WAS INCURRED BY THE A SSESSEE FOR EARNING TAX FREE INCOME. INCURRING OF EXPENDITURE B Y AN ASSESSEE, IS THE PRECONDITION FOR MAKING DISALLOWANCE U/S.14A OF THE ACT. THE LOGIC BEHIND INTRODUCING THE SECTION WAS THAT THE A SSESSEE SHOULD NOT CLAIM OR GET TWO DEDUCTIONS-.I.E. OFFERING NO T AX EXEMPT INCOME ON ONE HAND AND CLAIMING EXPENDITURE ON OTHER HAND. INCURRING OF EXPENDITURE FOR EARNING EXEMPT INCOME HAS TO BE PRO VED AS A MATTER OF FACT. THERE CANNOT BE ANY GUESS WORK OR P RESUMPTION ABOUT INCURRING OF EXPENDITURE. IF THE ASSESSEE CLA IMS INTEREST EXPENDITURE OR OTHER EXPENDITURE (ADMINISTRATIVE)FO R EARNING EXEMPT INCOME, DEFINITELY A DISALLOWANCE CAN BE MAD E. BUT,IF NO CLAIM IS MADE THEN THE AO SHOULD NOT INVOKE THE PRO VISIONS OF SECTION 14A.THE ASSESSEE MUST HAVE INCURRED SOME EX PENSE IS A VERY GENERAL AND VAGUE PHRASE AND DOES NOT INDICATE THE INCURRING OF EXPENDITURE. THE WORD MAY LEAVE THE DOOR OPEN. I N THE CASE OF J.M. FINANCE (SUPRA),TO WHICH ONE OF US WAS THE PAR TY, IT HAS BEEN HELD THAT IF NO EXPENDITURE WAS INCURRED FOR EARNIN G TAX FREE INCOME NO DISALLOWANCE SHOULD BE MADE. IT IS SAID THAT FACT OF EACH CASE ARE DIFFERENT SO, WITHOUT HIGHLIGHTING THE FACTS OF THAT CASE NO ADDITION SHOULD BE MADE O N THE BASIS OF GENERAL PRESUMPTION. THE FAA IN THE PRESENT CASE, H AD HELD THAT THE EVERY ASSESSEE WOULD KEEP WATCH OVER THE MARKET TO MAXIMISE ITS PROFIT BUT HE HAD MISSED ONE IMPORTANT ASPECT T HAT THE ASSESSEE WAS HOLDING THE SHARES OF GROUP CONCERNS FOR STRATE GIC PURPOSES AND FOR SELLING AND BUYING AND SELLING THEM FREQUEN TLY. IN ABSENCE OF THE FINDING AS TO HOW MUCH WAS THE SUM INCURRED BY THE ASSESSEE UNDER THE HEAD ADMINISTRATIVE EXPENSES ,IT IS NOT POSSIBLE FOR US TO UPHOLD THE ORDER OF THE FAA FOR THE YEAR UNDER CONSIDERATION. WE FURTHER FIND THAT THE FAA HAD NOT BROUGHT ON RECORD AS TO HOW THE FACTS OF EARLIER TWO AY.S. WER E DIFFERENT FROM THE FACTS OF THE YEAR CONSIDERATION. IN THE CASE OF ARONI COMMERCI - ALS LTD.(362ITR403)THE HONBLE BOMBAY HIGH COURT HA S HELD AS UNDER: 41 ITA NOS. 512 & 513/MDS/2015 THOUGH THE PRINCIPLE OF RES JUDICATA IS NOT APPLICA BLE TO TAX MATTERS AS EACH YEAR IS SEPARATE AND DISTINC T ,NEVERTHELESS WHERE FACTS ARE IDENTICAL FROM YEAR T O YEAR, THERE HAS TO BE UNIFORMITY AND IN TREATMENT. HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GO PAL PUROHIT (336ITR287)HAS HELD THAT THAT THERE SHOULD BE UNIFO RMITY IN TREATMENT AND WHEN FACTS AND CIRCUMSTANCES FOR DIFF ERENT YEARS WERE IDENTICAL PARTICULARLY IN THE CASE OF THE SAME ASSESSEE ANALYSIS OF THE ABOVE TWO JUDGMENTS LAY DOWN THAT T HE PRINCIPLE OF CONSISTENCY CAN BE IGNORED ONLY IN CERTAIN CONDITIO NS AND WITHOUT PINPOINTING THE DIFFERENCE OF FACTS FOR A PARTICULA R YEAR WITH THE FACTS OF EARLIER YEAR/S CONSISTENCY SHOULD BE MAINT AINED. CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE REVERSING THE ORDER OF THE FAA. EFFECTIVE GROUN D OF APPEAL RAISED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERA TION, IS ALLOWED IN ITS FAVOUR. ITA/850/MUM/2012-AY.2008-09. 6.THE FACTS OF THE CASE UNDER CONSIDERATION ARE SIM ILAR TO THE FACTS OF EARLIER YEAR-THE ONLY DIFFERENCE IS OF DISALLOWA NCE MADE. THE AO HAD MADE DISALLOWANCE OF RS.6.19 LAKHS FOR THE Y EAR UNDER APPEAL AS AGAINST THE DISALLOWANCE OF RS.6.55 LAKHS MADE FOR THE EARLIER YEAR. FOLLOWING OUR ORDER FOR THE EARLIER Y EAR, WE DECIDE THE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSE E. 7.THE EFFECTIVE GROUND FOR THE YEAR UNDER APPEAL IS IDENTICAL TO THE GROUNDS RAISED IN THE TWO EARLIER ASSESSMENT YEARS I.E. DISALLOWANCE U/S. 14A OF THE ACT. DURING THE YEAR THE ASSESSEE H AD RECEIVED DIVIDEND INCOME OF RS. 1.07 CRORES AND IT WAS CLAIM ED EXEMPT U/S. 10(34) OF THE ACT. THE ASSESSEE ITSELF OFFERED DISA LLOWANCE OF RS. 1.18 LAKHS U/S. 14A OF THE ACT. THE DISALLOWANCE CO NSISTED OF ENTIRE INTEREST EXPENDITURE AND A PORTION OF ADMINI STRATIVE EXPENSES. APPLYING THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RULES, 1962 THE AO MADE A DISALLOWANCE OF RS. 7.16 LAKHS. DURING THE APPELLATE PROCEEDINGS, THE FAA AFTER CON SIDERING THE SUBMISSION OF THE ASSESSEE UPHELD THE ORDER OF THE AO. WE FIND THAT THE ASSESSEE ITSELF HAD MADE DISALLOWANCE OF I NTEREST EXPENDITURE AND PART OF ADMINISTRATIVE EXPENSES FOR THE YEAR UNDER CONSIDERATION. AS THE FACTS AND CIRCUMSTANCES OF TH E MATTER ARE ALMOST SIMILAR TO THE FACTS OF EARLIER TWO ASSESSME NT YEARS, THEREFORE, FOLLOWING THE SAME WE DECIDE THE EFFECTI VE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. 42 ITA NOS. 512 & 513/MDS/2015 10. CONSIDERING TOTALITY OF THE FACTS OF THE PRESEN T CASE, IN OUR OPINION IT CANNOT BE SAID THAT THE ASSESSEE MADE INVESTMENT IN THE SHARES OF SHRIRAM RETAIL HOLDINGS PVT. LTD, SHRIRAM CREDIT COMPANY LIMITED, SHRIRAM HOLDINGS (MADRAS) PVT. LTD AND SHRIRAM LIFE INSURANCE COMPAN Y LIMITED, FOR THE PURPOSE OF EARNING TAX FREE DIVIDEND INCOME. ON TH E OTHER HAND, THE ASSESSEE INVESTED TO HAVE A CONTROLLING INTERNAL I N THESE COMPANIES AND STRENGTHEN THE CAPITAL BASE AND LIQUIDITY BASE OF THESE COMPANIES. THUS IN THE GROUP COMPANIES, THE ASSESSEE COMPANY HAVE CON TROLLING INTEREST IN SHRIRAM CITY UNION FINANCE LTD, A PUBLIC LIMITED CO MPANY WHOSE EQUITY SHARES ARE LISTED IN STOCK EXCHANGE. SHRIRAM CREDIT COMPA NY LTD HAS CONTROLLING INTEREST IN M/S.SHRIRAM INSIGHT SHARE BROKERS LTD. THESE FACTS WERE NOT CONTRADICTED BY THE DEPARTMENT AND FINALLY THESE F ACTS WILL DEFINITELY ENHANCE THE PROFITABILITY OF THE ASSESSEE COMPANY AS WELL A S MARKET SHARE OF THE ASSESSEES BUSINESS BY THIS INVESTMENT. BEING SO, I N OUR OPINION DISALLOWANCE MADE BY THE ASSESSING OFFICER AT C9,53,58,713/- FOR THE ASSESSMENT YEAR 2010-2011 AND 11,56,55,300/- FOR THE ASSESSMENT YEA R 2011-12 IS AT VERY HIGH SIDE. THUS CONSIDERING THE EARLIER ORDER OF THE TRIBUNAL ON THIS ISSUE FOR THE ASSESSMENT YEAR 2008-09 IN ASSESSEE OWN CASE, W E ARE OF THE OPINION THAT THE ABOVE ENTIRE EXPENDITURE CANNOT BE DISALLO WED. HOWEVER, WE CANNOT RULE OUT THE INCURRING OF MANAGEMENT EXPENSES BY THE ASSESSEE TO EARN EXEMPT INCOME AND CONSIDERING THIS ASPECT, WE ARE I NCLINED TO DIRECT THE 43 ITA NOS. 512 & 513/MDS/2015 ASSESSING OFFICER TO DISALLOW ` 15 LAKHS FOR EACH ASSESSMENT YEAR. IN THE RESULT, THIS GROUND OF THE ASSESSEE IS PARTLY ALLOW ED IN BOTH APPEALS. 11. THE NEXT GROUND IN ITA NO.512/MDS/2015 IS WITH REGARD TO CONFIRMING THE ADDITION BY COMMISSIONER OF INCOME TAX (APPEALS ) MADE BY THE ASSESSING OFFICER UNDER THE HEAD PROVIDING ACCESS TO BRANCH NETWORK OF C25,00,00,000/-. 12. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE M ADE A CLAIM FOR DEDUCTION OF C25 CRORES TOWARDS PROVIDING ACCESS TO BRANCH NET WORK. THE ASSESSING OFFICER ASKED THE ASSESSEE COMPANY TO EXP LAIN THE NATURE OF EXPENDITURE, NAMES AND ADDRESS OF THE PERSONS TO WH OM THESE AMOUNTS WERE PAID AND DETAILS OF TDS MADE. THE ASSESSEE TOOK A PLEA BEFORE THE ASSESSING OFFICER THAT THE EXPENDITURE WAS INCURRED TO BIND OR COMMIT THE CHIT FUND COMPANIES FOR A PERIOD OF 10 YEARS TO AGREE TO PROVIDE ACCESS TO THEIR BRANCH NETWORK AND AGENCY FORCE. IT WAS THE PLEA O F THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT THESE PAYMENTS BY THEMSELVES DO NOT ENTITLE ASSESSEE OR ITS NOMINEES TO GET ANY SERVICE FREE OF COST. THE CHIT COMPANIES ARE NOT OBLIGED TO PROVIDE ANY SERVICE FREE OF COST TO ASSESSEE OR ITS NOMINEES. IT HAS TO PAY FOR SERVICES IF TH EY AVAIL OF ANY SERVICES. THE PAYMENTS MADE BY ASSESSEE WAS ONLY FOR ENSURING THAT THE CHIT COMPANIES SHALL PROVIDE SERVICES AND THE DETAILS FOR PAYMENT OF 25.00 CRORES ARE AS FOLLOWS:- 44 ITA NOS. 512 & 513/MDS/2015 SHRIRAM CHITS TAMIL NADU PVT LTD C. 8,00,00,000 SHRIRAM CHITS PVT LTD C. 7,00,00,000 SHRIRAM CHITS (KARNATAKA) PVT LTD C10,00,00,000 ---------------------------- TOTAL ` 25,00,00,000/- --------------------------- IT WAS PLEADED BY THE ASSESSEE BEFORE AO THAT THE PAYMENT BEING MADE BY ASSESSEE TO ACCESS THE BRANCH NETWORK AND AGENCY FORCE OF SHRIRAM CHITS. SHRIRAM CHITS IS NOT REQUIRE D TO PROVIDE OR RENDER ANY SERVICES OR TO DO ANY OTHER ACT FREE OF CO ST FOR THE CONSIDERATION RECEIVED, OTHER THAN TO KEEP ITS BRANCH NETWORK IN ACT AND READY FOR USE, WHENEVER REQUESTED FOR BY AS SESSEE OR ITS NOMINEES . 12.1 FURTHER, IT WAS SUBMITTED BY THE ASSESSEE BE FORE AO THAT THE ASSESSEE HOLDS 74% OF SHARES SHRIRAM LIFE INSURANCE COMPANY (SLIC) AND SHRIRAM GENERAL INSURANCE COMPANY (SGIC) AND THE THREE CHIT FUND COMPANIES TO WHOM AMOUNTS WERE PAID, HAS VAST NETWORK OF BRANCHES, AGENCY FORCE AND INFORMATION, WHICH ARE BENEFICIAL FOR SLIC AND SGIC, AND ON ACCOUNT OF THESE PAYMENTS, THE THREE CHIT FUND COMPANIES ARE UNDER OBLIGATION TO KEEP THE BRANCH NETWORK INTACT AND READY TO USE WHENEVER REQUESTED FOR BY THE ASSESSEE OR ITS NOMIN EES. IT IS ALSO 45 ITA NOS. 512 & 513/MDS/2015 STATED THAT THE DATAS WOULD ENABLE THE INSURANCE CO MPANIES TO DO INSURANCE BUSINESS. 12.2 THE ASSESSEE ALSO SUBMITTED BEFORE AO THAT IT HAD HOLD 74% OF SHARES IN SHRIRAM GENERAL INSURANCE COMPANY LIMITED & SHRIRAM LIFE INSURANCE COMPANY LIMITED AND ALSO STATED THAT SHRIRA M CHITS TAMILNADU PRIVATE LIMITED, SHRIRAM CHITS (KARNATAKA) PRIVATE LIMITED, BANGALORE AND SHRIRAM CHITS PRIVATE LIMITED, HYDERABA D ARE ENGAGED IN THE BUSINESS OF CHIT FUNDS AND HAS A VAST NET WORK OF BRANCHES AND AGENCY FORCE. 12.3 IT WAS SUBMISSION OF THE ASSESSEE BEFORE THE AO THAT THE ABOVE AMOUNT WAS PAID TO THE 3 CHIT COMPANIES VIZ SHRIRAM CHITS TAMILNADU PRIVATE LIMITED, SHRIRAM CHITS (KARNATAKA) PRIVATE LIMITED, BANGALORE AND SHRIRAM CHITS PRIVATE LIMITED, HYDERABAD TO KEEP TH E BRANCH NETWORK OF THE THREE CHIT COMPANIES INTACT AND READY TO USE WHE NEVER REQUESTED FOR BY ASSESSEE OR ITS NOMINEE. IT IS NOT PAID TO CREA TE NEW NETWORK. IT IS PAID' FOR KEEPING THE INFRASTRUCTURE AND HUMAN RESO URCE INTACT I.E. READY TO USE CONDITION SO AS TO ENABLE SCL OR ITS NOMINEES TO USE ANY TIME. 12.4 ACCORDING TO THE ASSESSEE THESE DATAS WOULD ENA BLE THE INSURANCE COMPANIES TO DO INSURANCE BUSINESS. AS THE ASSESSEE I S HAVING INTEREST IN THE BUSINESS OF THESE COMPANIES, ASSESSEES BUSIN ESS INTEREST IS 46 ITA NOS. 512 & 513/MDS/2015 INVOLVED. THE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF ASSESSEES BUSINESS. ACCORDING TO ASSESSEE IN THE EAR LIER YEAR, A SIMILAR CLAIM MADE HAS BEEN ALLOWED BY THE ASSESSING OFFICER ONLY AFTER CONSIDERATION OF ALL THESE FACTS AND CIRCUMSTANCES. THE THREE CHIT COMPANIES HAVE ACCOUNTED FOR THE AMOUNT PAID BY THE A SSESSEE COMPANY AS REVENUE RECEIPT ONLY IN THEIR BOOKS OF ACCO UNTS AND OFFERED FOR TAXATION. 12.5 IN VIEW OF THE ABOVE, THE ASSESSEE TOOK A PLE A BEFORE THE AO THAT THE ABOVE EXPENDITURE INCURRED BY THE ASSESSEE IS NO T CAPITAL EXPENDITURE. BY THIS PAYMENT, NO ASSET HAS BEEN CRE ATED. PAYMENT MADE IN THE COURSE OF AND FOR THE PURPOSE OF CARRYIN G ON BUSINESS OR IN THE FIELD OF TRADING ACTIVITY IT IS TO BE TREATED AS REVENUE EX PENDITURE EVEN THOUGH THE PAYMENT IS OF A LARGE AMOUNT AND MA Y NOT HAVE TO BE MADE PERIODICALLY. FOR THE ABOVE REASONS, IT WAS SU BMITTED BY THE ASSESSEE THAT THE EXPENDITURE IS ALLOWABLE AS BUSI NESS EXPENDITURE AND IT CANNOT BE CAPITAL EXPENDITURE. 12.6 HOWEVER, THE ABOVE ARGUMENTS OF THE ASSESSEE WAS REJECTED BY THE AO AND TREATED IT AS CAPITAL EXPENDITURE AND DI SALLOWED THE SAME. 12.7 AGAINST THIS, THE ASSESSEE CARRIED THE APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). 47 ITA NOS. 512 & 513/MDS/2015 13. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE ASSESSEE COMPANY ENTERED INTO AN AGREEMENTS WIT H SHRIRAM CHITS PRIVATE LTD, HYDERABAD, SHRIRAM CHITS (KARNATAKA) P RIVATE LIMITED, BANGALORE AND SHRIRAM CHITS TAMIL NADU PRIVATE LIMI TED, CHENNAI ON 01.12.2008 FOR DOING THE LIFE INSURANCE BUSINESS IN INDIA ON THE REPRESENTATION OF THE ASSESSEE. THE TERMS OF THE AG REEMENTS ENTERED BY THE ASSESSEE WITH THREE COMPANIES WERE IDENTICAL AND DISCUSSED IN THE ASSESSMENT ORDER. BY VIRTUE OF THE ENTERING OF THREE AGREEMENTS ON 01.12.2008 WITH THREE CHIT FUND COMPANIES, THE AS SESSEE WAS REQUIRED TO PAY A TOTAL CONSIDERATION OF C.58 CRORE S AND PAYMENT WAS MADE IN TWO INSTALMENTS I.E. C.33 CRORES DURING THE A.Y. 2009-10 AND C.25 CRORES DURING THE A.Y. 2010-11. IT IS SEEN FRO M THE TERMS OF AGREEMENTS THAT THE CONSIDERATION WAS PAID FOR THE RIGHT OF ACCESS TO ENTIRE BRANCH NETWORK OF THE CHIT FUND, COMPANIES FOR A PERIOD OF 10 YEARS. THE CHIT FUND COMPANIES HAVE A WIDE NETWORK I N THE STATE OF TAMILNADU, KARNATAKA AND ANDHRA PRADESH AS STATED B Y THE ASSESSEE, THE NATURE OF ASSETS SUCH AS OBTAINING OF RIGHT TO ACCESS THE BRANCH NETWORK OF CHIT FUND COMPANIES IS AN INTANGIBLE ASSE T. THE RIGHT OF ACCESS TO THE ENTIRE NETWORK BRANCH AND AGENCY FORCE BOTH PRESENT AND FUTURE OWNED BY CHIT FUND COMPANIES WAS MADE AVA ILABLE TO THE ASSESSEE COMPANY I.E. SCL FOR A PERIOD OF 10 YEARS A ND CONSIDERATION 48 ITA NOS. 512 & 513/MDS/2015 WAS PAID TOWARDS ACQUIRING RIGHT TO ACCESS TO THE NET WORK. THIS PARTICULAR RIGHT WAS ACQUIRED BY THE ASSESSEE COMPANY VIDE AGREEMENTS DATED 01.12.2008. THE NATURE OF THE RIGH TS ACQUIRED BY THE ASSESSEE COMPANY WAS AKIN TO BUSINESS OR COMMERCIA L RIGHTS OF SIMILAR NATURE BEING INTANGIBLE ASSETS AS DEFINED U NDER EXPLANATION 3 TO SEC.32(1) OF THE IT ACT. THE BENEFIT FOR THE USE O F THE RIGHT EXTENDS OVER A PERIOD OF 10 YEARS. THE NETWORK WAS ALREADY OWNED BY CHIT FUND COMPANIES. THE ASSESSEE COMPANY ACQUIRED THE RIGHT TO ACCESS THE NETWORK OF THE SUBSIDIARY COMPANIES FOR A PERIOD OF 10 YEARS BY WAY OF AGREEMENTS EXECUTED ON 01.12.2008. T HE SUNLAN LIFE INSURANCE LTD. AND SUNLAN LTD. HAVE RECOGNIZED T HAT THE ASSESSEE COMPANY POSSESSED THE ESTABLISHED BRAND BUT THE ASSESSEE COMPANY DID NOT HAVE BRANCH NETWORK TO DISTRIBUTE IT S VARIOUS FINANCIAL PRODUCTS. THEREFORE, THE ASSESSEE COMPANY AC QUIRED THE RIGHT OF ACCESS TO THE ENTIRE BRANCH NETWORK OF SUBS IDIARIES FOR A SPECIFIED CONSIDERATION. THE 3 CHIT COMPANIES WERE NOT SUPPOSED TO DO ANY WORK FOR 'ASSESSEE COMPANY. THE RIGHT OF ACCES S TO NETWORK OF THE CHIT FUND COMPANIES FOR A PERIOD OF 10 YEARS WAS GRANTED TO THE ASSESSEE FOR A SPECIFIED CONSIDERATION. THE CONSID ERATION WAS REQUIRED TO BE PAID IN 2 INSTALMENTS IN THE FINANCIA L YEAR 2008-09 AND ALSO FINANCIAL YEAR 2009-10. THE CIT(A) OBSERVED THA T THE MANNER OF PAYMENT IS NOT RELEVANT FOR DECIDING WHETHER THE EXP ENDITURE 49 ITA NOS. 512 & 513/MDS/2015 INCURRED FOR ACQUIRING INTANGIBLE ASSET WAS A CAPIT AL OR A REVENUE EXPENDITURE. THEREFORE, COMMISSIONER OF INCOME TAX ( APPEALS) OF THE CONSIDERED VIEW THAT THE NATURE OF THE CLAIM OF EXPENDITURE INCURRED BY THE ASSESSEE IS NOT A REVENUE EXPENDITURE BUT A CAPITAL EXPENDITURE FOR ACQUIRING AN INTANGIBLE ASSET LIKE BUSI NESS OR COMMERCIAL RIGHT TO ACCESS THE NETWORK OF ITS SUBSI DIARIES AND ASSOCIATES. ACCORDING TO THE COMMISSIONER OF INCOME TAX (APPEALS) THIS INTANGIBLE RIGHT WAS ACQUIRED BY THE ASSESSEE DURI NG THE FY 2008- 09 RELEVANT TO AY 2009-10 AND THEREFORE SAME IS NOT ALLOWABLE AS REVENUE EXPENDITURE DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. THE STAND TAKEN BY THE ASSESSEE THAT THE IMPUGNED EX PENDITURE IS REVENUE EXPENDITURE PLACING RELIANCE ON HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF CIT VS. GROZ ASIA LTD. REPORTED IN 214 TAXMAN 205 IS NOT ACCEPTABLE TO THE CIT(A) AS THE DECISION RE NDERED BY THE PUNJAB & HARYANA HIGH COURT WAS ON THE DIFFERENT SET OF FACTS AND THE ISSUE WAS NOT UNDER CONSIDERATION OF SEC.32(1)(II) AN D EXPLANATION 3 OF THE IT ACT. THE ISSUE UNDER CONSIDERATION IS WHETHER RIGHT OF ACCESS IS A INTANGIBLE ASSET AND WHETHER SUCH RIGHT WAS ACQUIR ED BY THE ASSESSEE FOR USE OF 10 YEARS FOR A SPECIFIED CONSID ERATION IN VIEW OF THE SPECIFIC PROVISION IN THE LAW U/S 32(1)(II) AND E XPLANATION 3 OF THE IT ACT. IN VIEW OF THE SPECIFIC FACTS THE CASE, THE CIT(A) OBSERVED THAT THE NATURE OF EXPENDITURE OF C. 58 CRORES INCURRED BY THE ASSESSEE IS A 50 ITA NOS. 512 & 513/MDS/2015 CAPITAL EXPENDITURE. SINCE THE ENTIRE CLAIM OF EXPE NDITURE IS TREATED AS INCURRED TOWARDS ACQUIRING INTANGIBLE ASSET AND NATUR E OF EXPENDITURE IS TREATED AS CAPITAL EXPENDITURE, HE OBSERVED THAT THE QUESTION OF DISALLOWING THE SAME U/S 40(A)(IA) DOES NOT ARISE I N THIS CASE. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 14. WE HAVE HEARD BOTH THE PARTIES. IN THIS CASE, THE ASSESSEE ENTERED INTO AN AGREEMENTS WITH THREE COMPANIES VIZ. S HRIRAM CHITS PRIVATE LIMITED, HYDERABAD, SHRIRAM CHITS (KARNATAK A) PRIVATE LIMITED, BANGALORE AND SHRIRAM CHITS TAMIL NADU PRI VATE LIMITED CHENNAI ON 01.12.2008 FOR DOING THE LIFE INSURANCE BUS INESS IN INDIA ON THE REPRESENTATION OF THE ASSESSEE COMPANY. THE TERMS OF THE AGREEMENTS ENTERED BY THE ASSESSEE WITH THREE COMPANIE S WERE IDENTICAL. BY VIRTUE OF ENTERING OF THREE AGREEMENT S THE ASSESSEE COMPANY WAS REQUIRED TO PAY A TOTAL CONSIDERATION OF C58 CRORES AND PAYMENT WAS MADE IN TWO INSTALMENTS I.E C33 CRORES DURING THE A.Y. 2009-2010 AND C25 CRORES DURING THE ASSESSMENT YEAR 2010-2011. IT WAS SEEN FROM THE TERMS OF AGREEMENTS THAT THE CONSIDE RATION WAS PAID FOR THE RIGHT OF ACCESS TO ENTIRE BRANCH NETWO RK OF THE CHIT FUND COMPANIES FOR A PERIOD OF TEN YEARS. THE CHIT FUND COMPANIES HAVE A WIDE NETWORK IN THE STATE OF TAMILNADU, KARNATAKA A ND ANDHRA PRADESH AS STATED BY THE ASSESSEE. THE RIGHT OF ACCE SS TO THE ENTIRE 51 ITA NOS. 512 & 513/MDS/2015 NETWORK BRANCH AND AGENCY FORCE BOTH PRESENT AND FUT URE OWNED BY CHIT FUND COMPANIES WAS MADE AVAILABLE TO THE ASSESSE E COMPANY I.E. SCL FOR A PERIOD OF 10 YEARS AND CONSIDERATION WAS PAID TOWARDS ACQUIRING RIGHT TO ACCESS TO THE NETWORK. THIS PARTI CULAR RIGHT WAS ACQUIRED BY THE ASSESSEE COMPANY VIDE AGREEMENTS DAT ED 01.12.2008. THE BENEFIT FOR THE USE OF THE RIGHT E XTENDS OVER A PERIOD OF 10 YEARS. THE ISSUE HERE IS NOT ABOUT CRE ATION OF NETWORK. THE NETWORK WAS ALREADY OWNED BY CHIT FUND COMPANIES. THE ASSESSEE COMPANY ACQUIRED THE RIGHT TO ACCESS THE NETW ORK OF THE SUBSIDIARY COMPANIES FOR A PERIOD OF 10 YEARS BY WAY OF AGREEMENTS EXECUTED ON 01.12.2008. THE SUNLAN LIFE INSURANCE L TD. AND SUNLAN LTD. HAVE RECOGNIZED THAT THE ASSESSEE COMPANY POSSESS ED THE ESTABLISHED BRAND BUT THE ASSESSEE COMPANY DID NOT H AVE BRANCH NETWORK TO DISTRIBUTE ITS VARIOUS FINANCIAL PRODUCTS. THEREFORE, THE ASSESSEE COMPANY ACQUIRED THE RIGHT OF ACCESS TO THE EN TIRE BRANCH NETWORK OF SUBSIDIARIES FOR A SPECIFIED CONSIDERATION . THE 3 CHIT COMPANIES WERE NOT SUPPOSED TO DO ANY WORK FOR 'ASSE SSEE COMPANY. THE RIGHT OF ACCESS TO NETWORK OF THE CHIT FU ND COMPANIES FOR A PERIOD OF 10 YEARS WAS GRANTED TO THE ASSESSE E FOR A SPECIFIED CONSIDERATION. THE CONSIDERATION WAS REQUIRED TO BE P AID IN 2 INSTALMENTS IN THE FINANCIAL YEAR 2008-09 AND ALSO F INANCIAL YEAR 2009-10. THE MANNER OF PAYMENT IS NOT RELEVANT FOR DECIDING 52 ITA NOS. 512 & 513/MDS/2015 WHETHER THE EXPENDITURE INCURRED FOR ACQUIRING INTA NGIBLE ASSET WAS A CAPITAL OR A REVENUE EXPENDITURE. THEREFORE, COMMISS IONER OF INCOME TAX (APPEALS) OF THE CONSIDERED VIEW THAT THE NATURE OF THE CLAIM OF EXPENDITURE INCURRED BY THE ASSESSEE IS NOT A REVENUE EXPENDITURE BUT A CAPITAL EXPENDITURE FOR ACQUIRING AN INTANGIBLE ASSET LIKE BUSINESS OR COMMERCIAL RIGHT TO ACCESS THE NETWORK OF ITS SUBSI DIARIES AND ASSOCIATES. THE STAND TAKEN BY THE ASSESSEE IS THAT THE IMPUGNED EXPENDITURE IS REVENUE EXPENDITURE PLACING RELIANCE ON H IGH COURT OF PUNJAB & HARYANA IN THE CASE OF CIT VS. GROZ ASIA LTD. REPORTED IN 214 TAXMAN 205. 15. IN THE PRESENT CASE OPINION EXPRESSED BY THE COMM ISSIONER OF INCOME TAX (APPEALS) THAT THE EXPENDITURE INCURRED T OWARDS RIGHT OF ACCESS TO DATA AS CAPITAL EXPENDITURE ON THE REASON TH AT CONSIDERATION WAS PAID FOR THE PURPOSE OF ACQUIRING OF RIGHT OF ACC ESS TO ENTIRE BRANCH NETWORK OF THE CHIT FUND COMPANIES FOR THE PERI OD OF TEN YEARS. IN OUR OPINION, THE PAYMENT IN A LUMP SUM WHICH IS FOR A PERIOD OF TEN YEARS DOES NOT NECESSARILY MAKE THE PAYMENT A CA PITAL ONE. IT MAY STILL POSSESS REVENUE CHARACTER IN THE SAME WAY AS A SERIES OF PAYMENTS. IF THERE IS A LUMP SUM PAYMENT BUT THERE IS NO POSSIBILITY OF A RECURRENCE, IT IS PROBABLY OF A CAPITAL NATURE, THO UGH THIS IS BY NO MEANS A DECISIVE TEST. IF THE PAYMENT OF A LUMP SUM CLOSES THE LIABILITY 53 ITA NOS. 512 & 513/MDS/2015 TO MAKE REPEATED AND PERIODIC PAYMENTS IN THE FUTURE, IT MAY GENERALLY BE REGARDED AS A PAYMENT OF A REVENUE CHARA CTER AND ALSO IF THE OWNERSHIP OF THE MONEY WHETHER IN POINT OF FACT OR BY A RESULTING TRUST BE STILL IN THE TAXPAYER, THEN THERE IS ACQUISIT ION OF A CAPITAL ASSET AND NOT AN EXPENDITURE OF A REVENUE CHARACTER. FURTH ER, INCOME TAX LAW DOES NOT ALLOW ALL THE DEDUCTION AS EXPENSES, WHIC H A PRUDENT TRADER WOULD MAKE IN COMPUTING ITS PROFITS. THE MONEY MAY EXPEND ON GROUNDS OF COMMERCIAL EXPEDIENCY BUT NOT OF NECESSI TY. THE TEST OF NECESSITY IS WHETHER THE INTENTION WAS TO EARN TRA DING RECEIPTS OR TO AVOID FUTURE RECURRING PAYMENTS OF A REVENUE CHARACT ER. EXPENDITURE IN THIS SENSE IS EQUAL TO DISBURSEMENT WHICH, TO USE A H OMELY PHRASE, MEANS SOMETHING WHICH COMES OUT OF THE TRADERS POCKET. THUS, IN FINDING OUT WHAT PROFITS THERE BE, THE NORMAL ACCOU NTANCY PRACTICE MAY BE TO ALLOW AS EXPENSE ANY SUM IN RESPECT OF LIAB ILITY WHICH HAVE ACCRUED OVER THE ACCOUNTING PERIOD AND TO DEDUCT SUC H SUMS FROM PROFITS. BUT THE INCOME TAX LAWS DO NOT TAKE EVERY SUCH ALLOWANCE AS LEGITIMATE FOR PURPOSE OF TAX. A DISTINCTION IS MADE BETWEEN AN ACTUAL LIABILITY IN PRAESENTI AND A LIABILITY DE FUTURE WHIC H, FOR THE TIME BEING, IS ONLY CONTINGENT. THE FORMER IS DEDUCTIBLE BUT NOT THE LATTER. THUS IN OUR OPINION PAYMENT IN LUMP SUM CANNOT BE A REASON TO TREAT AS CAPITAL EXPENDITURE AND DISALLOWED THE SAME. IF THE EXPENDITURE IS INCURRED FOR THE PURPOSE OF BUSINESS, IS MADE POSSIB LE AS OBLIGATION 54 ITA NOS. 512 & 513/MDS/2015 AND THERE IS POSSIBILITY THAT SUCH MADE NECESSARY IN VIEW THAT EXPENDITURE CANNOT BE HELD AS ENDURING BENEFIT. 16. WE HAVE TO SEE THE NATURE OF LIABILITY OF NE T VALUE OF THE PAYMENT AND WHETHER THE EXPENDITURE IS CAPITAL OR REVENUE WHICH IS WHOLLY AND EXCLUSIVELY USED FOR THE PURPOSE OF BUSIN ESS CARRIED ON BY THE ASSESSEE. 17. IF THE ASSESSEE INCURRED EXPENDITURE AS COMM ERCIAL EXPEDIENCY, IT IS TO BE ALLOWED. WHEN IT IS INCURRE D WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THEN REASONA BLENESS OF THE EXPENDITURE IS TO BE JUDGED FROM THE POINT OF VIEW O F THE BUSINESSMEN AND THE COMMERCIAL EXPEDIENCY IS A MATTER ENTIRELY LEFT TO THE JUDGMENT OF THE ASSESSEE AS HELD BY MADRAS H IGH COURT IN THE CASE OF AMARJOTHI PICTURES VS. CIT 69 ITR 755 AND ALUMINIUM CORPORATION OF INDIA LTD VS. CIT 86 ITR 11(SC). IN OUR OPINION, THE BUSINESSMAN IS ONLY THE BEST JUDGE TO DETERMINE THE B USINESS EXPEDIENCY AND THEREFORE WHEN HE CLAIMS THAT HE HAS INCURRED CERTAIN EXPENDITURE FOR THE BUSINESS EXPEDIENCY, HIS V ERSION IS ORDINARILY BE ACCEPTED. FURTHER, IT DOES NOT MEAN TH AT THE ASSESSING OFFICER CANNOT BE ENTITLED TO ENQUIRE OR INVESTIGATE A S TO WHETHER THE SAID EXPENDITURE WAS ACTUALLY INCURRED BY THE BUSINE SSMAN. IF IT IS INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS CONSIDER ATION, A 55 ITA NOS. 512 & 513/MDS/2015 BUSINESSMAN IS THE BEST JUDGE OF HIS BUSINESS EXPEDIEN CY BUT IT DOES NOT AFFECT, RIGHT AND DUTY OF THE ASSESSING AUTHORIT IES TO KNOW WHETHER IT WAS INCURRED FOR THE BUSINESS PURPOSE AND FOR ANY OTHER PURPOSE. 17.1 IN THE CASE OF CIT VS. IBM GLOBAL SERVICES INDIA P. LTD, 366 ITR 293 , THE KARNATAKA HIGH COURT HELD AS UNDER:- AS PER THE AGREEMENT ENTERED INTO BETWEEN THE PAR TIES, THE ASSESSEE HAD PAID CONSIDERATION TO THE TRANSFEROR C OMPANY. WHILE FILING THE RETURNS, THE SAID TRANSACTION HAS BEEN DISCLOSED BY THE ASSESSEE AND CLAIMED IT AS REVENUE EXPENDITURE. IN THE INSTANT CASE, INSOFAR AS PAYME NT FOR GETTING DOMESTIC CUSTOMER DATABASE IS CONCERNED, IT WAS CLEAR THAT, ASSESSEE HAD ONLY GOT RIGHT TO USE THAT DATABASE; THE COMPANY WHICH HAS PROVIDED SUCH DATABASE WAS NO T PRECLUDED FROM USING SUCH DATABASE. HENCE, THE EXPENDITURE INCURRED WAS FOR THE USE OF DATABASE AN D NOT FOR ACQUISITIONS OF SUCH DATABASE. 17.2 IN THE CASE OF WIPRO GE MEDICAL SYSTEMS LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX 81 TTJ (BANG) 455 , THE TRIBUNAL HELD AS UNDER:- THE PAYMENTS IN QUESTION ARE MADE UNDER A TRIPARTIT E AGREEMENT AND SUCH AGREEMENT WAS ENTERED INTO THE N ORMAL COURSE OF BUSINESS. THE ENTIRE PAYMENT WAS FOR THE BENEFIT OF THE ASSESSEES BUSINESS BOTH IN THE SHORT RUN AN D IN THE LONG RUN. AS REGARDS THE COMPENSATION PAID TO RETR ENCHED EMPLOYEES, THE PAYMENT IS FOR BUSINESS CONSIDERATIO N AND IT IS A PART OF RECRUITMENT EXPENSES. THE ASSESSEE, B Y VIRTUE OF THE AGREEMENT WITH IGE, GOT A COMPOSITE PACKAGE COV ERING EVEN THE EMPLOYEES WHO WERE MANNING THE MEDICAL DIAGNOSTIC EQUIPMENT DIVISION AND APPROXIMATELY 2/3 RD OF THE TOTAL STRENGTH OF THAT DIVISION AGGREGATING TO 150 IN NUMBER WERE TAKEN OVER BY THE ASSESSEE AND TO THE EXTENT REMAINING 69 EMPLOYEES THE ASSESSEE AND GE TOGETHER CONTRIBUTED C45 LAKHS AS SUBSIDY FOR THE EMPLOYEES WHO WERE TO BE ALLOWED TO VOLUNTARILY RETIRE FROM SERVI CE. BY 56 ITA NOS. 512 & 513/MDS/2015 TERMINATING THE EMPLOYEES OF THE ERSTWHILE COMPANY AND PAYING COMPENSATION THEREOF, THE ASSESSEE DID NOT G ET ANY BENEFIT OF AN ENDURING NATURE AND DID NOT ACQUIRE A NY CAPITAL ASSET AT ALL. THEREFORE, THIS PAYMENT IF PART OF RE GULAR BUSINESS EXPENDITURE INCURRED BY THE ASSESSEE FOR T HE PURPOSE OF ITS BUSINESS. THE PAYMENT OF C22,50,000 PAID BY THE ASSESSEE IS JUST LIKE RECRUITMENT COST. THE CO ST OF RECRUITING THE REST OF THE EMPLOYEES WERE NECESSARY FOR THE PURPOSE OF BUSINESS.. THEREFORE, THE COMPENSATION PAYMENT OF C22,50,000 IS REVENUE EXPENDITURE. AS REGARDS T HE PAYMENT MADE TOWARDS ACCESS TO INFORMATION BASE AND FOR TRANSITION OF CUSTOMER ORDER FILING THIS PAYMENT AG AIN, IS FOR BUSINESS CONSIDERATION AND IT CANNOT BE ACCEPTED TH AT THE AMOUNT WAS PAID FOR OBTAINING INFORMATION USEFUL FO R A LONG PERIOD AND THAT THE SAME COULD BE TREATED AS PLANT. THERE IS NO QUESTION OF ACQUISITION OF ANY ASSET WHEN THE AS SESSEE MADE THE PAYMENTS AND ACQUIRED THE INFORMATION ABOU T THE CUSTOMER BASE. THAT WILL HELP THE ASSESSEE TO CARR Y ON ITS BUSINESS VERY EFFICIENTLY AND IN A MORE PROFITABLE MANNER. THE PAYMENT OF C28.80 LAKHS, IS, THEREFORE, A PROPE R BUSINESS EXPENDITURE ALLOWABLE AS DEDUCTION. 18. IN THE PRESENT CASE, THE ASSESSING OFFICER WAS OF THE OPINION THAT EXPENDITURE RESULTED IN ENDURING BENEFIT. THUS, HE DISALLOWED THE CLAIM OF THE ASSESSEE BY TREATING IT AS CAPITAL EXPENDITURE. ACCORDING TO LD. AR THE EXPENDITURE INCURRED HAS NOT RESULTED IN ACQUIRING ANY TANGIBLE OR INTANGIBLE PROPERTY OR ACQUIRING ANY ASSET OF ENDUR ING BENEFIT SO AS TO TREAT IT AS CAPITAL EXPENDITURE. BASICALLY, THE EXPENDITU RE WOULD BE CAPITAL IN NATURE IF IT IS MADE WITH A VIEW TO BRING INTO A PR OFIT MAKING ASSET OR BUSINESS ADVANTAGE WHICH RESULTED IN BRINGING ENDUR ING BENEFIT. THE PURPOSE OF INCURRING THE EXPENDITURE IS TO BE SEEN IF THE EXPENDITURE IS INCURRED WITH A VIEW TO BRING INTO EXISTENCE AN ASS ET OR ADVANTAGE FOR ENDURING BENEFIT OF THE BUSINESS IT WOULD, UNLESS T HE CIRCUMSTANCES SHOW OTHERWISE, BE IN THE NATURE OF A CAPITAL EXPENDITUR E. THE QUANTUM OF THE 57 ITA NOS. 512 & 513/MDS/2015 EXPENDITURE CANNOT BE REASON TO DECIDE NATURE OF EX PENDITURE. THE AMOUNT SPENT NO MATTER, THE NATURE OF THE EXPENDITU RE DEPEND UPON THE ACQUISITION OF ASSETS IN PERMANENT NATURE AND IF TH E AIM AND OBJECT OF EXPENDITURE IS TO BRING NEW ASSET INTO EXISTENCE OR ON THE OTHER HAND IF IT IS INCURRED FOR RUNNING A BUSINESS OR WORKING IT WITH A VIEW TO PRODUCE PROFIT IT WOULD BE REVENUE EXPENDITURE. USUALLY, WHILE DEC IDING THE NATURE OF EXPENDITURE ONE HAS TO SEE THE FOLLOWING POINTS:- I) IF THE EXPENDITURE IS WITH THE INTENTION OR FOR ACQ UIRING OR BRINGING INTO EXISTENCE AN ASSET OR ADVANTAGE OF AN ENDURING BENEFIT TO THE BUSINESS I.E. BEING CARRIED ON, OR F OR EXISTENCE OF THE BUSINESS I.E. GOING ON, OR FOR A SUBSTANTIAL REPLACEMENT OF AN EXISTING BUSINESS ASSET IT WOULD BE CAPITAL EXPENDITURE. II) IF ON THE OTHER HAND, THE EXPENDITURE, ALTHOUGH FO R THE PURPOSE OF ACQUIRING AN ASSET OR ADVANTAGE IS FOR R UNNING OF THE BUSINESS OR FOR WORKING OUT THAT ASSET WITH A V IEW TO PRODUCE PROFIT, IT WOULD BE REVENUE EXPENDITURE. III) IF THE OUTGOING IS SO RELATED TO THE CARRYING ON O R THE CONDUCT OF THE BUSINESS THAT MAY BE REGARDED AS AN INTEGRAL PART OF THE PROFIT EARNING PROCESS OR OPERATIONS AN D NOT FOR ACQUISITION OF ASSET OF A PERMANENT NATURE THE COND ITION OF WHICH IS THE PRECEDENT FOR THE RUNNING OF THE BUSIN ESS THEN IT WOULD BE EXPENDITURE OF A REVENUE NATURE. IV) SPECIAL KNOWLEDGE OR TECHNICAL KNOWLEDGE, OR PATENT OR A TRADE MARK, IS AN ASSET IF IT IS ACQUIRED FOR PAYME NT FOR USE AND EXPLOITATION FOR A LIMITED PERIOD AND WHAT IS A CQUIRED IS NOT AN ASSET OR ADVANTAGE OF AN ENDURING NATURE AND AT THE END OF THE AGREED PERIOD THAT ADVANTAGE OR ASSET RE VERTS BACK TO THE GIVER OF THAT SPECIAL KNOWLEDGE OR OWNE R OR PATENT OR TRADE MARK IT WOULD BE EXPENDITURE OF REV ENUE NATURE. V) IF IT IS INTRINSICALLY A CAPITAL ASSET, IT IS IMMAT ERIAL WHETHER THE PRICE FOR IT IS PAID ONCE AND FOR ALL OR PERIOD ICAL OR WHETHER IT IS PAID OUT OF CAPITAL OR INCOME OR LINK ED UP WITH 58 ITA NOS. 512 & 513/MDS/2015 THE NET SALES. THE OUT GOING IN SUCH A CASE WOULD B E OF THE NATURE OF CAPITAL EXPENDITURE. VI) IF THE AMOUNT IS INCURRED FOR ACQUISITION OF AN ASS ET OF AN ENDURING NATURE IS IN THE CAPITAL FIELD THOUGH PAYM ENT HAS BEEN MADE IN SMALL AMOUNTS OR PERIODICAL INSTALMENT S. VII) A LUMPSUM AMOUNT INCURRED WOULD NOT CEASE TO BE REV ENUE EXPENDITURE OR GET INTO OR CONVERTED INTO CAPITAL E XPENDITURE MERELY BECAUSE IT IS PAYMENT MADE IN LUMPSUM. IT IS THE INTENTION AND OBJECT WITH WHICH EXPENDITURE INCURRE D AND NOT THE METHOD OR THE MANNER IN WHICH THE PAYMENT I S MADE OR THE SOURCES OF SUCH PAYMENT. VIII) IF THE EXPENDITURE IS RECURRING AND INCURRED DURIN G THE COURSE OF BUSINESS OR MANUFACTURING IT WOULD BE REV ENUE EXPENDITURE. IX) AN ASSET OR ADVANTAGE OF AN ENDURING NATURE DOES N OT MEAN THAT IT MAY LAST FOR EVER. IF THE CAPITAL ASSET, IN ITS NATURE, A SHORT LIVED ONE, THE EXPENDITURE INCURRED OVER IT D OES NOT, FOR THAT REASON, CEASE TO BE A CAPITAL EXPENDITURE. X) IT IS NOT THE LAW THAT IF AN ENDURING ADVANTAGE IS OBTAINED THE EXPENDITURE FOR SECURING IT MUST BE TREATED AS CAPITAL EXPENDITURE IF ADVANTAGE ACQUIRED IS TO CARRY ON TH E BUSINESS THEN IT WOULD BE REVENUE EXPENDITURE. 18.1 ON THE ABOVE PROPOSITION, WE FIND THAT THOUGH THE E XPENDITURE INCURRED BY THE ASSESSEE GOT THE BENEFIT TO THE ASS ESSEE FOR MORE THAN ONE YEAR THAT EXPENDITURE ITSELF CANNOT BE CALLED/T REATED AS CAPITAL EXPENDITURE ON THE SIMPLE REASON THAT IT DOES NOT B RING INTO EXISTENCE ANY NEW ASSET IN THE FIELD OF CAPITAL OR IN OTHER W ORDS NO NEW ASSET WAS DEVELOPED BY INCURRING THAT EXPENDITURE AND EVEN TH E ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE CANNOT BE CONCLUSIV E TO TREAT EXPENDITURE AS CAPITAL. IN THIS CASE, EXPENDITURE FOR THE PURPOSES OF 59 ITA NOS. 512 & 513/MDS/2015 ACCESS TO DATA RELATING TO BUSINESS OF THE ASSESSEE SO AS TO INCREASE THE BUSINESS OF THE ASSESSEE. THIS EXPENDITURE STANDS INCURRED FOR THE PURPOSE OF RUNNING THE BUSINESS. IT IS NOT PER SE C APITAL IN NATURE. BY INCURRING THIS EXPENDITURE, IT CANNOT BE SAID THAT ANY CAPITAL ASSET STANDS ACQUIRED BY THE ASSESSEE AND IT WAS INCURRED FOR TH E PURPOSE OF RUNNING THE BUSINESS AND SUCH NATURE OF EXPENDITURE CANNOT BE SAID THAT RESULTED IN ENDURING BENEFIT. THE LD. DR ARGUED THA T THE ASSESSEE HAVING ADMITTEDLY INCURRED THE EXPENDITURE IN CAPITAL FIEL D, IT CANNOT BE RETRACTED FROM THE SAME; ITS BOOKS OF ACCOUNTS REFL ECTING ITS UNDERSTANDING REPRESENTS ITS CURRENT STATE OF AFFAI RS. HOWEVER, IT IS TO BE NOTED THAT THE ASSESSEE HAS NOT CONSIDERED THE EXPE NDITURE IN THE FIELD OF CAPITAL ACCOUNT. THE ASSESSEE HAS TREATED IT AS REVENUE EXPENDITURE ONLY. AS SUCH, THERE IS NO FORCE IN THE ARGUMENT OF THE LD. DR THAT THE EXPENDITURE SHALL BE ALWAYS TREATED AS CAPITAL EXPE NDITURE. AS THE EXPENDITURE HAS NOT RESULTED IN CAPITAL ASSET, SO H AS TO BE RECORDED AS EXPENDITURE IN CAPITAL FIELD. IT SHOULD BE NOTED TH AT THE ASSESSEE HAD TO INCUR THIS KIND OF EXPENDITURE YEAR AFTER YEAR SO A S TO BE IN BUSINESS SUBSEQUENTLY EVEN THE ADVANTAGE SECURED FROM EARLIE R EXPENDITURE WOULD GET DISSIPATED. FURTHER, WE PLACE RELIANCE ON THE JUDGMENT OF SUPREME COURT IN THE CASE OF ALEMBIC CHEMICAL WORKS VS. CIT (177 ITR 377) WHEREIN HELD THAT JUST BECAUSE AN EXPENDITURE IS DEBITED IN BOOKS TOWARDS THE BUSINESS BEING COMPETITIVE AND PRUDENCE AND CONSERVATISM 60 ITA NOS. 512 & 513/MDS/2015 BEING FUNDAMENTAL ACCOUNTING ASSUMPTIONS, CAPITALIZ ATION OF SUCH EXPENSES OR ASCRIBING LASTING ABIDING VALUE TO SUCH EXPENSES, COULD ONLY BE DONE ON SOUND FOOTING AND COGENT BASIS. THUS, IN OUR OPINION THE EXPENDITURE CANNOT BE ATTRIBUTED TO CAPITAL EXPENDI TURE. 19. FURTHER TOTAL PAYMENT MADE BY ASSESSEE IS C58 CRORES, C33 CRORES FOR ASSESSMENT YEAR 2009-10 AND C25 CRORES FO R ASSESSMENT YEAR 2010-2011 AND PAYMENT OF C33 CRORES IS SUBJECT MATTER OF DISPUTE. IN THE ASSESSMENT YEAR 2009-2010, THE ASSE SSING OFFICER ALLOWED THE CLAIM OF C33 CORES AS REVENUE EXPENDITUR E. THIS WAS A SUBJECT MATTER OF PROCEEDING U/S.263 OF THE INCOME BY THE COMMISSIONER OF INCOME TAX AND THE COMMISSIONER OF INCOME TAX VIDE ORDER DATED 18.02.2014 OBSERVED AS UNDER:- (1) THE ASSESSEE COMPANY HAD CLAIMED AN EXPENDIT URE OF 33 CRORES TOWARDS PROVING ACCESS TO BRANCH NETWORK. (2) THE ASSESSEE COMPANY HAD MADE THE AFORESAID PAYMENT TO M/S. SHRIRAM CHITS KARNATAKA PVT. LTD FOR OBTAINING INF ORMATION AND SERVICES FOR THE PURPOSE OF BUSINESS REQUIREMENTS OF SHRIRAM LIFE INSURANCE CO.LTD AND M/S. SHRIRAM GENERAL LI FE INSURANCE LTD, WHEREIN THE ASSESSEE COMPANY HAD 7 4% STAKE. (3) THE ASSESSING OFFICER HAD ACCEPTED THE ASSESSEE COMPANYS AGREEMENT AND ALLOWED THE ABOVE EXPENDITURE AS REVE NUE WITHOUT VERIFICATION . 3.2 THE LD. CIT FURTHER OPINED THAT :- (I) THE ASSESSEE COMPANY HAD SUBSTANTIAL INTEREST I N M/S. SHRIRAM LIFE INSURANCE CO. LTD AND M/S. SHRIRAM GENERAL LIF E INSURANCE LTD. AND THE EXPENDITURE INCURRED TOWARDS THE SAME IS NOT THE BUSINESS EXPENDITURE OF THE ASSESSEE COMPAN Y. (II) THE AMOUNT PAID TO THE THREE CHIT COMPANIES ME NTIONED HEREIN 61 ITA NOS. 512 & 513/MDS/2015 ABOVE WAS IN LIEU OF THE RIGHTS FOR OBTAINING SERVI CES OVER A PERIOD OF TEN YEARS. (III) THE ASSESSEE COMPANY HAD ENTERED INTO AGREEME NT WITH THE ABOVE SAID THREE COMPANIES GIVING ARISE TO CONTRACT UAL OBLIGATIONS HOWEVER TAX WAS NOT DEDUCTED AT SOURCE FOR THE PAYMENTS MADE IN ACCORDANCE WITH SECTION 194C OF TH E ACT, THEREBY ATTRACTING THE PROVISIONS OF SECTION 40(A)( IA) OF THE ACT. 3.3 BASED ON THE ABOVE FINDINGS, THE LD. CIT HELD A S FOLLOWS:- I HAVE GONE THROUGH CAREFULLY THE FACTS AVAILABL E ON THE RECORD AND THE ARGUMENTS PUT FORTH BY THE EXECUTIVE DIRECTOR. FROM THE NATURE OF TRANSACTION, IT IS CL EAR THAT THE TRANSACTION IS NOTHING BUT CONTRACTUAL IN NATURE. THE ASSESSEE COMPANY HAS NOT DEDUCTED THE TAX DEDUCTIBL E AT SOURCE AS PER THE PROVISIONS OF SECTION 194C OF THE ACT. AS PER THE PROVISIONS OF 40(A)(IA), IF THE TDS LIAB LE TO BE DEDUCTIBLE IS NOT DEDUCTED BY THE ASSESSEE, THEN TH E EXPENDITURE HAS TO BE DISALLOWED AND THE SAME CAN B E ALLOWED AS EXPENDITURE ONLY IN THE YEAR IN WHICH, T HE ASSESSEE DEDUCTS TAX AT SOURCE AS PER THE PROVISION S OF INCOME TAX ACT. ACCORDINGLY, THE EXPENDITURE OF 33 CRORES CLAIMED BY THE ASSESSEE CANNOT BE ALLOWED FO R THE ASSESSMENT YEAR 2009-2010. IT CAN BE ALLOWED IN TH E YEAR IN WHICH, THE ASSESSEE DEDUCTS THE TAX AND REMITS T HE SAME TO THE GOVERNMENT OF INDIA ACCOUNT. 8. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER IS H EREBY DIRECTED TO RE-DO THE ASSESSMENT OF THE ASSESSEE FOR THE ASSESS MENT YEAR 2009-2010 ACCORDINGLY. 19.1 THE ASSESSEE CARRIED THE APPEAL BEFORE THE TR IBUNAL. THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSE SSEE IN ITA NO.724/MDS/2014, DATED 02.1.2015 BY OBSERVING THAT 5.1. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY P ERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE ABOVE FACTS , WE FIND THAT THE LD.CIT HAD MADE SEVERAL OBSERVATIONS BASED ON THE M ATERIALS WHICH HAVE ALREADY BEEN EXAMINED BY THE LD. ASSESSING OFF ICER WHILE PASSING THE ASSESSMENT ORDER. HAVING MADE SUCH OBSE RVATIONS THE LD.CIT HAD FINALLY CONCLUDED AS FOLLOWS:- (I) THE NATURE OF TRANSACTIONS AMOUNTS TO CONTRACTUAL OBLIGATIONS (II) THE ASSESSEE COMPANY DID NOT DEDUCT AT SOURCE FOR THE PAYMENTS MADE. 62 ITA NOS. 512 & 513/MDS/2015 (III) PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WILL BE ATTRACTED IN THIS CASE. (IV) ACCORDINGLY THE EXPENDITURE OF `33 CRORES CLAIMED BY THE ASSESSEE CANNOT BE ALLOWED FOR ASSESSMENT YEAR 2009-10 HOWEVER, IT CAN BE ALLOWED IN THE YEAR IN WHICH THE ASSESSEE DEDUCTS THE TAX AND REMITS TH E SAME TO THE GOVERNMENT OF INDIA ACCOUNT. 5.2. FROM THE ABOVE IT IS APPARENT THAT THE LD.CIT HAS ONLY EXAMINED THE AGREEMENT WHICH HAVE BEEN ALREADY CONSIDERED BY THE LD. ASSESSING OFFICER. THOUGH HE HAS MADE SEVERAL OBSER VATIONS, THERE WERE NO OTHER FINDINGS OTHER THAN, NON DEDUCTION OF TAX AT SOURCE AND APPLICABILITY OF SECTION 40(A)(IA) OF THE ACT. THE LD. A.R. DURING THE COURSE OF PROCEEDINGS BEFORE THE LD.CIT HAD SUBMITT ED THE LETTERS FROM THE RECIPIENTS OF THE PAYMENTS FROM THE ASSESS EE COMPANY WHEREIN THEY HAVE STATED THAT THEY HAD DECLARED THE AMOUNT RECEIVED FROM THE ASSESSEE AS THEIR INCOME AND PAID THE TAX DULY. THE AMENDED SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT WAS ALSO REFERRED. THE TRIBUNAL IN THE CASE OF RAJEEV KUMAR AGARWAL VS. AD DITIONAL COMMISSIONER OF INCOME TAX IN ITA NO.337/AGRA/2013 VIDE ORDER DATED 29TH MAY, 2013 HAS HELD THAT THE INSERTION O F SECOND PROVISO TO SECTION 40(A)(IA) IS DECLARATORY AND CURATIVE IN NA TURE AND IT HAS RETROSPECTIVE EFFECT FROM 1ST APRIL, 2005, BEING TH E DATE FROM WHICH SUB CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY TH E FINANCE (NO.2) ACT, 2004. IN SUCH CIRCUMSTANCES, IT CANNOT BE CON STRUED THAT THE LD. ASSESSING OFFICER HAD PASSED THE ORDER WITHOUT APPL ICATION OF MIND. HE HAS CONSIDERED ALL THESE FACTS AND HAD CONSCIOUS LY DECIDED THE MATTER. FROM THE ABOVE FACTS, IT APPEARS THAT THE L D.CIT HAS PASSED THE ORDER U/S.263 BASED ON DIFFERENCE OF OPINION AND BY REVIEWING THE ISSUE WHICH WAS ALREADY DECIDED BY THE LD. ASSESSIN G OFFICER. MOREOVER, IT IS PERTINENT TO MENTION AT THIS JUNCTU RE THAT THE DECISION RENDERED IN THE CASE OF MERILYN SHIPPING AND TRANSP ORTS VS. ADDITIONAL CIT IN 16 ITR (TRIB) 1 IS ALSO IN FAVOUR OF THE CASE OF THE ASSESSEE. IN THE AFORESAID CASE THE ORDER OF THE LE ARNED JUDICIAL MEMBER WAS UPHELD BY THE HONBLE VICE PRESIDENT SIT TING AS THE THIRD MEMBER WHEREIN IT WAS HELD THAT:- THE PROVIS IONS OF SECTION 40(A)(IA) ARE APPLICABLE ONLY TO THE AMOUNTS OF EXP ENDITURE WHICH ARE PAYABLE AS ON THE DATED 31ST MARCH OF EVERY YEAR AN D IT CANNOT BE INVOKED TO DISALLOW WHICH HAD BEEN ACTUALLY PAID DU RING THE PREVIOUS YEAR, WITHOUT DEDUCTION OF TDS. CONSIDERING ALL TH ESE FACTS AND THE DISCUSSIONS MENTIONED HEREIN ABOVE, WE ARE OF THE C ONSIDERED VIEW THAT THE LD.CIT HAS ERRED IN SETTING ASIDE THE ORDE R OF THE LD. ASSESSING OFFICER BY INVOKING SECTION 263 OF THE AC T AND DIRECTING THE LD.A.O TO RE-DO THE ASSESSMENT OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2009-10. THEREFORE, WE HEREBY QUASH THE ORDER PASSED BY THE LD.CIT U/S.263 OF THE ACT. 63 ITA NOS. 512 & 513/MDS/2015 6. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED . 19.2 THUS, IT MEANS FOR THE ASSESSMENT YEAR 2009-2010 , THE SAME ISSUE WAS CONSIDERED BY THE TRIBUNAL AND DECIDED IN FAVOUR OF THE ASSESSEE BY ANNULLING THE ORDER OF CIT PASSED UNDER SECTION 263 OF THE INCOME TAX ACT BY OBSERVING THAT THE PROVISIONS OF SEC.40(A)(IA) CANNOT BE APPLIED, SO AS TO DISALLOW THE EXPENDITURE BY PLACING RELIANCE ON THE ORDER OF THE SPECIAL BENC H MERILYN SHIPPING AND TRANSP ORTS CITED SUPRA AS THE AMOUNT IS NOT OUTSTANDING AT THE END OF THE CLOSE OF THE FINANCIA L YEAR AND IT WAS ALREADY PAID BY THE ASSESSEE. IN OTHER WORDS, THE T RIBUNAL ACCEPTED THE IMPUGNED EXPENDITURE AS REVENUE EXPENDITURE AND IT HAS TO BE ALLOWED THOUGH IT WAS NOT SUBJECT TO TDS. 19.3 FURTHER, IT IS ALSO BROUGHT TO OUR NOTICE THA T THE COMMISSIONER OF INCOME TAX (APPEALS), WHILE DISPOSI NG THE APPEAL FOR THE ASSESSMENT YEAR 2010-2011, MADE AN OBSERVATI ON THAT THE ASSESSING OFFICER IS AT LIBERTY TO TAKE REMEDIAL ME ASURES AFTER FOLLOWING THE DUE PROCESS OF LAW FOR CLAIM OF C33 C RORES AS DEDUCTION FOR THE ASSESSMENT YEAR 2009-2010. IT IS TO BE HERE NOTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) IS CONCERNED WITH THE ADJUDICATION OF ISSUES RAISED BEFORE HIM FOR THE ASSESSMENT YEAR 2010-2011. IN OUR OPINION, THE COMMISSIONER OF IN COME TAX 64 ITA NOS. 512 & 513/MDS/2015 (APPEALS) CANNOT TRAVEL BEYOND THE ASSESSMENT YEAR IN APPEAL BEFORE HIM. HE HAS EXCEEDED HIS JURISDICTION IN MAKING SUCH OBSERVATION FOR ASSESSMENT YEAR 2010-2011 AS THERE IS NO DISPUTE BEFORE HIM FOR THE ASSESSMENT YEAR 2009-2010. MORE SO, WHEN THIS ISSUE WAS DECIDED BY TRIBUNAL IN FAVOUR OF THE ASSESSE E VIDE ORDER DATED 02.01.2015, THE COMMISSIONER OF INCOME TAX (AP PEALS) NOT JUSTIFIED IN GIVING SUCH DIRECTION. ACCORDINGLY, WE EXPUNGE THE ABOVE OBSERVATIONS BY PLACING RELIANCE ON THE ORDER O F THE CO- ORDINATE BENCH IN THE CASE OF SUN METAL FACTORY (I) (P) LTD VS. ACIT, 124 ITD 14 , WHEREIN HELD THAT THE APPELLANT AUTHORITY CAN GIVE FINDINGS AND DIRECTIONS ONLY IN RESPECT OF YEAR/PERIOD WHICH IS BEFORE THAT AUTHORITY AND NO DIRECTION OR FINDING CAN BE G IVEN IN RESPECT OF OTHER YEARS. THE COMMISSIONER OF INCOME TAX (APPEALS) AFTER HOLDING THAT THE ADDITION MADE BY THE ASSESSING OFFICER ARE NOT BASED ON THE EVIDENCE FOUND DURING THE SEARCH, THE SAME CANNOT ENLARGE TH E SCOPE OF APPEAL FOR GIVING THE DIRECTION TO THE ASS ESSING OFFICER FOR REOPENING OF THE ASSESSMENT FOR THE ASSESSMENT YEAR 1999-2000. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO RECORD A CATEGOR ICAL FINDING JUSTIFYING THE DIRECTION GIVEN TO THE ASSES SING OFFICER WHEN THE ASSESSING OFFICER HIMSELF HAD NOT CHOSEN FOR REOPENING THE ASSESSMENT. ASST. CIT VS. RAJARAM & BROTHERS (2005) 193 CTR (MP) 248; (2005) 274 ITR 122 (MP) FOLLOWED; CIT & ANR. VS. FORAMER FRANCE (2003) 185 CTR (SC) 512; (2003) 264 ITR 566 (SC), CIT VS, BANWARILAL & SONS (P) LTD, ( 2002) 17 5 CTR (DEL) 124; (2002) 257 ITR 518 (DEL), ITO VS. MURLID HAR BHAGWAN DAS (1964) 52 ITR 335 (SC), PT. HAZARI LAL V S. ITO (1960) 39 ITR 265 ( ALL),RAJ KISHORE PRASAD VS. ITO (1990) 88 CTR (ALL) 152; (1992) 195 ITR 438 (ALL) A ND ABDUL WAHID GEHLOT VS. ITO (2005) 93 TTH (JD) 232 RELIED ON. 19.4 BEING SO, TAKING CONSISTENT VIEW, WE ARE OF T HE OPINION 65 ITA NOS. 512 & 513/MDS/2015 THAT EXPENDITURE IS TO BE ALLOWED AS REVENUE EXPENDI TURE ONLY. THUS, THIS GROUND IS ALLOWED 20. THE SECOND COMMON GROUND IN BOTH APPEALS IS W ITH REGARD TO CONFIRMING THE ADDITION RELATING TO EXPENDITURE INC URRED FOR EXEMPT INCOME WHILE COMPUTING THE BOOK PROFIT U/S.115JB. 21. THE FACTS OF THE CASE IN ITA NO.512/MDS/2 015 FOR THE ASSESSMENT YEAR 2010-2011 ARE THAT THE ASSESSEE WAS AGAINST TH E ACTION OF THE ASSESSING OFFICER IN DISALLOWING AN INTEREST OF C9, 53,58,713/- U/S.14A OF THE INCOME TAX ACT WHILE COMPUTING THE BOOK PROFIT U/S.115JB TOWARDS EXPENSES RELATING TO EXEMPT INCOME. THE LD. AUTHOR ISED REPRESENTATIVE FOR ASSESSEE REITERATED THE SUBMISSIONS REGARDING T HE COMPUTATION OF THE BOOK PROFIT U/S.115JB OF THE I.T. ACT. THE COMMISS IONER OF INCOME TAX (APPEALS) HAS ALREADY CONFIRMED THE FINDING OF THE ASSESSING OFFICER FOR DETERMINING THE DISALLOWANCE OF C9,53,58,713/- U/S .14A R.W.R 8D OF I.T. RULES FOR THE SAME REASONS, THE CIT(A) CONFIRMED TH E DISALLOWANCE MADE BY THE ASSESSING OFFICER FOR THE PURPOSE OF COMPUTA TION OF BOOK PROFIT U/S.115JB. 22. WE HAVE HEARD BOTH THE PARTIES. THI S ISSUE OF DISALLOWANCE MADE BY THE ASSESSING OFFICER FOR THESE TWO ASSESSMENT Y EARS BY INVOKING PROVISION U/S.14A R.W. RULE 8D, WAS ALREADY ADJUDIC ATED BY US IN OUR 66 ITA NOS. 512 & 513/MDS/2015 EARLIER PARA OF THIS ORDER. IN OUR OPINION, DISALLOWANCE MADE U/S.14A R.W. RULE 8D CANNOT BE ADDED WHILE COMPUTING BOOK PROFI T U/S.115JB OF THE ACT THAT THE DISALLOWANCE IS ONLY DISALLOWANCE FOR THE PURPOSE OF COMPUTING TAXABLE INCOME OF THE ASSESSEE IN THE NOR MAL COURSE. THERE IS NO PROVISION IN THE ACT TO ADD THESE KIND OF DISALLOWANCE WHILE COMPUTING BOOK PROFIT U/S.115JB AND IT CANNOT CHANGE THE BOO K PROFIT ON THIS COUNT. THEREFORE EVEN IF THERE IS AN ADDITION IN VIEW OF P ROVISION U/S.14A R.W.RULE 8D, THAT CANNOT BE ADDED BACK TO COMPUTE THE BOOK P ROFIT U/S.115JB. THIS GROUND IS ALLOWED. 23. IN THE RESULT, THE APPEALS FILED BY THE ASSES SEE IN ITA NOS.512 & 513/MDS/2015 ARE PARTLY ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 26TH DA Y OF JUNE, 2015, AT CHENNAI. SD/- SD/- ( ! ) (CHALLA NAGENDRA PRASAD) ' / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER !' /CHENNAI. #$ /DATED:26.06.2015. KV $% &' (' /COPY TO: 1. ) APPELLANT 2. / RESPONDENT 3. * ( )/CIT(A) 4. * /CIT 5. '+, - /DR 6. ,. / /GF.