KIRAN OMPRAKASH GONEKA, MUMBAI V. ACIT CEN CIR 14, MUMBAI

ITA 5565/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2276 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-11-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 03-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Search and seizure; Earning of tax free income; Wholly owned subsidiary; Deemed dividend
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI A BENCH, MUMBAI BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER. ITA. NOS. 5565 TO 5568/MUM/2012 (ASSESSMENT YEARS:2005-06, 08-09, 09-10 & 2010-11) MRS. KIRAN OMPRAKASH GOENKA 317/318, PARVATI INDUSTRIAL ESTATE, SUNMILL COMPOUND, LOWER PAREL (W), MUMBAI 13 APPELLANT VS. ACIT, CENTRAL CIRCLE-14, MUMBAI -2 RESPONDENT PAN: ABIPG3140L /BY APPELLANT : SHRI HERO RAI, A.R. /BY RESPONDENT : SHRI ANAND MOHAN, CIT D.R. /DATE OF HEARING :19.11.2015 /DATE OF PRONOUNCEMENT :07.12.2015 ORDER PER RAJESH KUMAR, A.M: THESE APPEALS FILED BY THE ASSESSEE ARE AGAINST THE CONSOLIDATED ORDER OF CIT(A)-37, MUMBAI, DATED 11.06.2012 FOR ALL THE ABO VE ASSESSMENT YEARS. SINCE ALL THESE APPEALS RELATE TO THE SAME ASSESSEE AND THE ISSUE INVOLVED IN SOME APPEALS IS OF COMMON NATURE AND THEREFORE THES E APPEALS ARE HEARD ITA NOS.5565, 5566, 5567 & 5568/MUM/2012 (05-06,08- 09, 09-10 & 10-11) PAGE 2 TOGETHER AND ARE BEING DISPOSED OF BY THE CONSOLIDA TED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. WE SHALL TAKE UP THE ITA N O.5565/MUM/2012 FOR A.Y. 2005-06. ASSESSEE HAS RAISED FOLLOWING GROUND S: 1. THE LD. CIT (APPEALS) ERRED IN CONFIRMING THE ADDITION MADE BY LD.A.C.I.T. ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22) (E) OF RS.46,67,500/-. 2. THE LD. CIT (APPEALS) ERRED IN TREATING THE SHAR E PREMIUM ACCOUNT AS PART OF ACCUMULATED PROFIT AND FURTHER E RRED IN TREATING THE ADVANCES RECEIVED BY THE APPELLANT AS DEEMED DIVIDEND. 3. THE LD. CIT(APPEALS) ERRED IN CONFIRMING THE ADD ITION MADE BY LD. A.C.I.T. ON ACCOUNT OF DEEMED DIVIDEND EVEN WHE N THE COMPANY ADVANCING LOAN HAD ACCUMULATED LOSS AND NOT ACCUMULATED PROFIT. ADDITIONAL GROUND OF APPEAL THE LEARNED ASST. CIT WAS NOT JUSTIFIED IN MAKING AND THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN CONFIRMIN G, THE ADDITION OF RS.46,67,500/- AS DEEMED DIVIDEND U/S.222(E) MAD E IN THE ASSESSMENT COMPLETED U/S153A SINCE THE SAME IS NOT BASED ON ANY INCRIMINATING MATERIAL FOUND IN THE COURSE OF T HE SEARCH. 2. THE ISSUE RAISED IN THE FIRST THREE GROUNDS OF A PPEAL RELATE TO CONFIRMING THE ADDITION BY CIT(A) AMOUNTING TO RS.4 6,67,500/- ON ACCOUNT OF DEEMED DIVIDEND AS MADE BY A.O. BY TR EATING SHARE PREMIUM ACCOUNT AS PART OF THE ACCUMULATED PROFIT W HEREAS AS A MATTER OF FACT THERE WAS ACCUMULATED LOSS IN THE BA LANCE SHEET OF THE ASSESSEE. THE ASSESSEE ALSO RAISED AN ADDITION AL GROUND RAISING THE ISSUE THEREIN THAT THE CIT(A) WAS NOT J USTIFIED IN CONFIRMING THE ADDITION OF RS.46,67,500/- AS DEEMED DIVIDEND U/S.2(22)(E) MADE IN THE ASSESSMENT COMPLETED U/S.1 53A AS THE SAME WAS NOT BASED ON ANY INCRIMINATING MATERIAL FO UND DURING THE COURSE OF SEARCH. ITA NOS.5565, 5566, 5567 & 5568/MUM/2012 (05-06,08- 09, 09-10 & 10-11) PAGE 3 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED HER RETURN OF INCOME ON 26.09.2006 DECLARING AN INCOME OF RS.8,41,254/-. A SEARCH AND SEIZURE ACTION U/S.132 OF THE ACT WAS CARRIED OUT ON THE ASSESSEE ALONG WITH OTHER AS SOCIATED PERSONS AND COMPANIES, NAMELY, TWINKLE HOSPITALITY PVT. LTD. (HEREINAFTER REFERRED AS THPL) AND M/S. ENCORE HO TELS PVT. LTD. (HEREINAFTER REFERRED AS EHPL). THE ASSESSEE WA S HOLDING 25% SHARES OF EHPL AND 18.20% SHARES IN THPL. THE ASSE SSEE WAS SERVED NOTICE U/S.153A ON 13.06.2011 REQUIRING THE ASSESSEE TO FILE RETURN WITHIN 30 DAYS. THE ASSESSEE FILED RET URN ON 06.07.2011 DECLARING THE TOTAL INCOME OF RS.8,41,25 4/-. 3.1 THE LD. A.O. DURING THE COURSE OF ASSESSMENT PR OCEEDING FOUND THAT EHPL BORROWED A LOAN OF RS.1,69,41,107/- FROM ITS GROUP COMPANIES THPL BETWEEN NOV. 2004 TO MARCH 200 5. THE A.O. CAME TO THE CONCLUSION THAT SINCE THE ASSESSEE WAS HOLDING 25% SHARE OF EHPL AND 18.20% SHARE OF THPL. THE PR OVISION U/S.2(22)(E) OF THE ACT IN RESPECT OF DEEMED DIVIDE ND WERE CLEARLY APPLICABLE AS THE THPL HAD ACCUMULATED PROFITS AS S HOWN UNDER THE HEAD RESERVE AND SURPLUS AS ON 31.03.2005 OF RS.93,35,000/-. ACCORDINGLY, THE A.O. ADDED 50% OF THE AMOUNT OF RESERVE AND SURPLUS RS.46,67,500/- AS DEEMED DIV IDEND TO THE INCOME OF ASSESSEE. 4. THE LD. CIT(A) CONFIRMED THE ADDITION BY HOLDING AS UNDER: 4.4.9 I HAD CALLED FOR THE DETAILS OF PAYMENT MAD E BY THPL TO ENCORE AND FIND THAT THE SAME WAS GIVEN IN PIECE M EAL FROM 1.11.2004 TO 31.3.2005 OF A SUM AMOUNTING TO RS.1,69,41,108/- . I HAD ALSO CALLED FOR THE DETAILS OF ALLOTMENT OF SHARES AND FIND THA T THE SAME WAS ALLOTTED AS ON 27.11.2004 AS PER FORM NO.2 FILED UN DER THE COMPANIES ITA NOS.5565, 5566, 5567 & 5568/MUM/2012 (05-06,08- 09, 09-10 & 10-11) PAGE 4 ACT, 1956 DT.29.11.2004 BUT REGISTERED IN ROC ON 13 .12.2004. AS HELD EARLIER, THE PROFITS OF THE COMPANY ACCRUE ON A DAY TO DAY BASIS AND ONUS WAS ON THE APPELLANT TO ADDUCE EVIDENCE THAT I T HAD NO OTHER DAY TO DAY PROFITS DURING THE YEAR AND HENCE CUMULATIVE LOSS AT THE END OF THE YEAR CANNOT JUSTIFY THE CLAIM THAT THE APPELLAN T DID NOT HAVE ANY PROFITS WHEN THE LOANS WERE BEING ADVANCED BY THPL TO EHPL. 4.4.10 IN VIEW OF THE ABOVE FACTS AND JUDICIAL ANAL YSIS, I AM OF THE CONSIDERED OPINION THAT PROVISIONS OF SEC.2(22)(E) APPLY ON ALL FOURS TO THE CASE OF THE APPELLANT AND HENCE, NO FAULT CAN B E FOUND WITH THE ACTION OF THE LD. A.O. ACCORDINGLY, THIS GROUND IS DISMISSED. 5. LD. A.R. SUBMITTED BEFORE US THAT THE BASIS ON W HICH THE ADDITION OF RS.46,67,500/- ON ACCOUNT OF DEEMED DIV IDEND U/S.2(22)(E) WAS WRONG AS THE COMPANY THPL HAD NO ACCUMULATED PROFITS RATHER THE SAID COMPANY HAD ACC UMULATED LOSS TO THE TUNE OF RS.14,27,174/-. THE COMPANY HA D SHARE PREMIUM ACCOUNT AMOUNTING THE RS.93,35,000/- WHICH WAS SHOWN UNDER THE HEAD RESERVE AND SURPLUS. THE LD . A.O. TREATED THE SAME AS ACCUMULATED PROFIT FOR THE PURPOSE OF D EEMED DIVIDEND AND THUS ADDED RS.46,67,500/- AS DEEMED DI VIDEND U/S.2(22)(E) OF THE ACT. LD. COUNSEL FURTHER SUBMIT TED THAT THE CASE OF ASSESSEE IS FULLY COVERED IN FAVOUR OF THE ASSESSEE IN HER SONS CASE IN ITA NO.5561/MUM/2012, A.Y. 2005-06, O RDER DATED 11.04.2014, WHEREIN SIMILAR ADDITION MADE BY THE A. O. WAS DELETED. THE LD. COUNSEL ALSO CITED A NUMBER OF OT HER JUDGMENTS IN SUPPORT OF THE ASSESSEES STAND. THE LD. COUNSE L ALSO SUBMITTED THAT THE RETURN FOR THE INSTANT YEAR WAS PROCESSED U/S.143(1) OF THE ACT, WHEREAS THE SEARCH WAS CONDU CTED ON 21.08.2009 AND THEREFORE, THE ASSESSMENT HAD ATTAIN ED FINALITY AND THE SAME HAD NOT ABATED AS NOTHING WAS PENDING ON THE DATE OF SEARCH AND THUS, THE ADDITION MADE IN THE ASSESS MENT U/S.153A R.W.S. 143(3) WAS NOT BASED ON THE INCRIMI NATING MATERIAL AS FOUND DURING THE SEARCH OPERATION AND T HEREFORE, THE ITA NOS.5565, 5566, 5567 & 5568/MUM/2012 (05-06,08- 09, 09-10 & 10-11) PAGE 5 SAME WERE BAD IN LAW. THE LD. COUNSEL RELIED ON SOM E DECISIONS, NAMELY, 374 ITR 645 (BOM) CIT VS. (1) CONTINENTAL W AREHOUSING CORPORATION (NHAVA SHEVA) LTD. AND (2) ALL CARGO GL OBAL LOGISTICS LTD., BOMBAY HIGH COURT (NAGPUR) CIT VS. MURLI AGRO PRODUCTS LTD. (ITA NO.36 OF 2009), 137 ITD 287 (MUM_TRIB) (S B) ALL CARGO GLOBAL LOGISTICS LTD. VS. DCIT, 259 CTR 281 (RAJ) J AI STEEL (INDIA) VS. ASST. CIT , 234 TAXMAN 300 (DEL) CIT VS. KABUL CHAWLA AND MUMBAI BENCH IN ITA NO.2075/MUM/2010 SHRI GURINDER SINGH BAWA VS. DCIT THE LD. D.R., ON THE OTHER HAND, RELI ED HEAVILY ON THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND MATERIAL ON RECORD, WE FIND THAT THE CO-ORDINATE BENCH IN ITA NO.5561/M UM/2012, A.Y. 2005-06 VIDE ORDER DATED 11.04.2014 DECIDED TH E ISSUE ON THE SAME FACTS IN FAVOUR OF THE ASSESSEE WHO HAPPEN ED TO BE SON OF THE ASSESSEE. THE RELEVANT PARA 8 & 9 ARE REPRO DUCED BELOW: 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOW ER AUTHORITIES AND THE MATERIAL PLACED BEFORE US. A PERUSAL OF THE ST ATEMENT OF ACCOUNTS OF THE ASSESSEE FOR THE YEAR ENDING 31.3.2005 SHOWS TH AT THE ASSESSEE IS SHOWING PROFIT AND LOSS ACCOUNT WITH A DEBIT BALANC E OF RS.14,27,174/- IN THE BALANCE SHEET. UNDER THE HEAD RESERVES AND S URPLUS, THE ASSESSEE IS SHOWING SHARE APPLICATION MONEY AT RS.9 3,35,000/-. AMOUNT REPRESENTING SHARE PREMIUM CANNOT FORM PART OF ACCUMULATED PROFIT. IT IS AN UNDISPUTED FACT THAT THE RESERVE A ND SURPLUS CONSISTS OF ONLY SHARE PREMIUM. IT IS A TRITE THAT SHARE PREMIU M AMOUNT CANNOT BE USED FOR DISTRIBUTION OF DIVIDEND AS PER THE INTERP RETATION OF SEC. 78 OF COMPANIES ACT. WHEN THERE IS A STATUTORY BAR ON THE SHARE PREMIUM ACCOUNT BEING DISTRIBUTED AS DIVIDEND, THE DEEMING PROVISION OF SEC. 2(22)(E) CANNOT APPLY. IT WOULD BE PERTINENT TO NOT E HERE THAT NOT ONLY THERE IS A PROHIBITION ON THE DISTRIBUTION OF THE S HARE PREMIUM ACCOUNT AS DIVIDEND UNDER THE COMPANIES ACT, THE SAME IS OB LIGED TO BE TREATED AS PART OF THE SHARE CAPITAL OF THE COMPANY IN THE LIGHT OF THE PROVISIONS OF SEC. 78(1) OF THE COMPANIES ACT. A PERUSAL OF TH E PROVISIONS OF SEC. 2(22)(E) WOULD SUGGEST THAT IT REFERS TO 'ACCUMULAT ED PROFIT WHETHER CAPITALIZED OR NOT'. THEREFORE IT IS ONLY THE DISTR IBUTION OF THE ACCUMULATED PROFITS WHICH ARE DEEMED TO BE DIVIDEND IN THE HANDS OF THE SHAREHOLDER. THUS, THE SHARE PREMIUM ACCOUNT CANNOT BE STATED TO ITA NOS.5565, 5566, 5567 & 5568/MUM/2012 (05-06,08- 09, 09-10 & 10-11) PAGE 6 BE COMMERCIAL PROFITS IN THE TRUE SENSE OF THE TERM HAVING REGARD TO THE PROVISIONS OF THE COMPANIES ACT. 8.1. AS MENTIONED ELSEWHERE, IF THE SHARE PREMIUM A MOUNT IS TAKEN OUT OF RESERVES AND SURPLUS, THE ASSESSEE IS HAVING NEG ATIVE BALANCE UNDER THE HEAD PROFIT AND LOSS ACCOUNT WHICH MEANS THAT IT HAS ACCUMULATED LOSSES FOR THE YEAR ENDING 31.3.2005, W HICH LEAD TO ONLY LOGICAL CONCLUSION THAT THERE CANNOT BE ANY QUESTIO N OF DEEMED DIVIDEND. THE FINDINGS OF THE LD. CIT(A) ARE ACCORD INGLY REVERSED. THE AC) IS DIRECTED TO DELETE THE ADDITION MADE ON ACCO UNT OF DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. 9. AS WE HAVE DIRECTED THE AO TO DELETE THE ADDITIO N ON THE FACTS OF THE CASE, WE DO NOT FIND IT NECESSARY TO DECIDE THE ADDITIONAL GROUND RAISED BY THE ASSESSEE. SINCE, THE FACTS OF THE ASSESSEE ARE IDENTICAL TO T HE ISSUE INVOLVED IN THE ABOVE ITA AND WE, THEREFORE, RESPECTFULLY FO LLOWING THE DECISION OF CO-ORDINATE BENCH DECIDE THE GROUND NOS . 1 TO 3 IN FAVOUR OF ASSESSEE. 6.1 IN THE ADDITIONAL GROUND RAISED BY THE ASSESSEE , THE ISSUE IS WHETHER AN ADDITION WHICH IS NOT ON THE BASIS OF IN CRIMINATING MATERIAL AS FOUND DURING THE SEARCH OPERATION CAN B E MADE WHERE THE ASSESSMENT HAS ATTAINED FINALITY. IN THI S CASE, THE ASSESSMENT WAS COMPLETED U/S.143(1), WHEREAS THE SE ARCH WAS CONDUCTED ON 21.08.2009. IN OUR OPINION, THE PROVI SIONS OF SECTION153A OF THE ACT DO NOT DISTURB THE ALREADY C OMPLETED ASSESSMENT WHETHER U/S.143(1) OR 143(3) UNLESS SOME INCRIMINATING MATERIAL IS FOUND DURING THE COURSE O F SEARCH. IN THE CASE OF 374 ITR 645 (BOM) CIT VS. (1) CONTINENT AL WAREHOUSING CORPORATION (NHAVA SHEVA) LTD. AND (2) ALL CARGO GLOBAL LOGISTICS LTD., HONBLE BOMBAY HIGH COURT HE LD THAT IF THERE WAS NO INCRIMINATING MATERIAL FOUND DURING TH E SEARCH THEN THE TRIBUNAL WAS RIGHT IN HOLDING THAT POWER U/S.15 3A BEING NOT EXPECTED TO BE EXERCISED ROUTINELY AND SHOULD BE EX ERCISED IF ITA NOS.5565, 5566, 5567 & 5568/MUM/2012 (05-06,08- 09, 09-10 & 10-11) PAGE 7 SEARCH REVEALED ANY INCRIMINATING MATERIAL. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE BOMBAY HIGH COURT, NAGPUR BENCH IN CIT VS. MURLI AGRO PRODUCTS LTD. (ITA NO.36 OF 2009 ), 259 CTR 281 (RAJ) JAI STEEL (INDIA) VS. ASST. CIT AND VARIO US TRIBUNALS DECISIONS AS REPORTED IN 137 ITD 287 (MUM-TRIB) (SB ) ALL CARGO GLOBAL LOGISTICS LTD. VS. DCIT, 234 TAXMAN 300 (DEL ) CIT VS. KABUL CHAWLA AND MUMBAI BENCH IN ITA NO.2075/MUM/20 10 SHRI GURINDER SINGH BAWA VS. DCIT. IN VIEW OF THE RATIO LAID DOWN IN THE ABOVE DECISIONS, WE ARE OF THE CONSIDER ED VIEW THAT THE ADDITION MADE IS NOT BASED ON THE INCRIMINATING MATERIAL DURING THE SEARCH AND THE ASSESSMENT WHICH IS ALREA DY ATTAINED FINALITY CANNOT BE DISTURBED. THE ADDITIONAL GROUN D ALSO DECIDED IN FAVOUR OF ASSESSEE. ITA NO.5566/MUM/2012 FOR A.Y. 2008-09 7. IN A.Y. 2008-09 ASSESSEE HAS RAISED FOLLOWING GR OUNDS: 1. THE LD. CIT (APPEALS) ERRED IN CONFIRMING THE A DDITION MADE BY LD. A.C.I.T. ON ACCOUNT OF DISALLOWANCE OF RS.13,97 ,843/- U/S.14A R.W.RULE 8D. 2. THE LD. CIT (APPEALS) ERRED IN HOLDING THAT EXPE NSES ATTRIBUTED TOWARDS EARNING EXEMPT INCOME EVEN WHEN THERE WERE NO NEXUS. 3. THE LD. CIT(APPEALS) ERRED IN CONSIDERING THE FA CTS THAT THE MAJOR INVESTMENTS WERE MADE FOR ACQUIRING STRATEGIC BUSIN ESS STAKE. 7.1 THE COMMON ISSUE RAISED IN ALL THE GROUNDS OF A PPEAL IS WITH REGARD TO CONFIRMING THE ADDITION BY CIT(A) OF RS.13,97,843/- U/S.14A R.W.RULE 8D BY HOLDING THAT THE ITA NOS.5565, 5566, 5567 & 5568/MUM/2012 (05-06,08- 09, 09-10 & 10-11) PAGE 8 EXPENSES RELATED TO EXEMPT INCOME BY IGNORING THE F ACT THAT THE MAJOR INVESTMENT WERE OF STRATEGIC NATURE. 8. THE FACTS OF THE CASE ARE THAT THE ASSESSEES PR INCIPAL BUSINESS WAS TO MAKE INVESTMENT IN SHARE AND SECURI TIES BY BUYING AND SELLING OF SHARES AND TO EARN PROFIT. D URING THE YEAR, ASSESSEE RECEIVED RS.3,86,424/- AS DIVIDEND WHICH W AS CLAIMED EXEMPT. THE LD. A.O. DURING THE COURSE OF ASSESSME NT PROCEEDINGS FOUND THAT THE ASSESSEE HAD NOT MADE AN Y DISALLOWANCE AND THEREFORE, THE PROVISIONS OF SECTI ON 14A WERE ATTRACTED. THE ASSESSEE SUBMITTED BEFORE THE A.O. THAT PROVISION OF SECTION 14A R.W.RULE 8D WERE APPLICABLE FROM 08- 09 ONWARDS, HOWEVER, THE SAME WERE NOT APPLICABLE IN CASE OF ST RATEGIC INVESTMENTS AS MADE BY THE ASSESSEE IN THE GROUP CO MPANIES. HOWEVER, WITHOUT PREJUDICE, THIS CLAIM OF THE ASSES SEE, THE ASSESSEE FILED A WORKING OF DISALLOWANCE U/S.14A R. W.RULE 8D. THE LD. A.O. OBSERVED THAT THE ASSESSEE, WITHOUT PR EJUDICE TO CLAIM, HAS COMPUTED THE DISALLOWANCE U/S.14A R.W.RU LE8D AT RS.13,97,843/- WHICH IS FOUND IN ACCORDANCE WITH TH E ACT U/S.14A R.W.RULE8D AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 9. LD. CIT(A) ALSO DISMISSED THE APPEAL OF THE ASSE SSEE ON THE GROUND THAT SHE HAS RECEIVED DIVIDEND INCOME OF RS. 3,86,424/- DURING THE YEAR AND ALSO INVESTMENT IN SOME COMPANI ES MUTUAL FUND AND THEREFORE, BY FOLLOWING THE DECISION IN TH E CASE OF DAGA CAPITAL MANAGEMENT LTD. ITA NO. 8057/MUM/2003 (SB). 10. THE LD. A.R. SUBMITTED BEFORE US THAT DISALLOWA NCE U/S.14A WAS NOT APPLICABLE AS ASSESSEE INVESTED IN THE GROU P COMPANIES ITA NOS.5565, 5566, 5567 & 5568/MUM/2012 (05-06,08- 09, 09-10 & 10-11) PAGE 9 FROM STRATEGIC POINT OF VIEW AND DREW OUR ATTENTION TO THE DECISION PASSED IN ITA NO.1752 TO 1754/MUM/2013 A.Y . 08-09 TO 10-11 IN THE CASE OF GROUP COMPANY OF THE ASSESS EE WHEREIN THE SAME HAS BEEN DECIDED THAT NO DISALLOWANCE IS R EQUIRED TO BE MADE IN CASE OF STRATEGIC INVESTMENT MADE IN GROUP CONCERN. THE LD. COUNSEL ALSO CITED A NUMBER OF OTHER DECISIONS IN THE CASE OF ASST. CIT VS. M/S. SMART CHIP LTD. IN ITA NO.1923/M UM/2012, 65 SOT 86, GARWARE WALL ROPES LTD. VS. ACIT & M/S. J. M. FINANCIAL LTD. VS. ACIT IN ITA NO. 4521/MUM/2012. LD. D.R. RELIED ON THE ORDERS OF AUTHORITIES BELOW. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND FROM THE BALANCE SHEET FILED BY THE A.R. FOR THE INSTANT FINANCIAL YEAR AT PAGE NO.4 TO 10 THAT ASSESSEE HAS MADE HUGE INVESTMENT IN ITS GROUP COMP ANIES WHICH ARE STRATEGIC IN NATURE. WE ALSO FIND THAT A SIMILAR ISSUE HAS BEEN DECIDED IN ITA NO.1752 TO 1754/MUM/2013 A. Y. 08-09 TO 10-11 IN THE CASE OF M/S. TWINKLE ENVIRO TECH LT D. VS. DCIT, WHEREIN IT HAS BEEN HELD THAT NO DISALLOWANCE IS RE QUIRED TO BE MADE IN THE CASE OF INVESTMENT WHICH ARE OF STRATEG IC NATURE. THE PARA 10 & 11 OF THE SAID ORDER IS REPRODUCED BE LOW: 10. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT THE AO HAS COMPUTED DISALLOWANCE AS PER RULE 8D BY TREATING EN TIRE INVESTMENT MADE BY THE ASSESSEE WITHOUT EXCLUDING STRATEGIC IN VESTMENT MADE IN THE GROUP COMPANIES, IT WAS CONTENDED BY ID. AR THA T THE INVESTMENT WAS MADE AS STRATEGIC INVESTMENT FOR THE PURPOSE OF BUSINESS ONLY, THEREFORE, THE INVESTMENT MADE IN THE GROUP CONCERN S WHICH IS RS.11.30 CRORES IN THE A.Y.2009-10, RS.26.44 CRORES FOR A.Y. 2008-09 AND RS.11.30 CRORES IN A.Y.2010-11, RESPECTIVELY, MAY B E EXCLUDED. LD AR ALSO SUBMITTED THAT THE TRIBUNAL IS TAKING CONSISTE NT VIEW TO THE EFFECT THAT INVESTMENT MADE FOR STRATEGIC PURPOSE IN THE G ROUP CONCERNS ARE NOT MEANT FOR EARNING DIVIDEND INCOME, THEREFORE, T HE SAME ARE REQUIRED ITA NOS.5565, 5566, 5567 & 5568/MUM/2012 (05-06,08- 09, 09-10 & 10-11) PAGE 10 TO EXCLUDED FROM TOTAL INVESTMENT WHILE COMPUTING D ISALLOWANCE U/S.14A. RELIANCE WAS ALSO PLACED ON THE FOLLOWING DECISIONS:- I) M/S SMART CHIP LTD. (ITA NOS.1923, 5196, 5367/MUM/2012, ORDER DATED 28-11-2014); II) GARWARE WALL ROPES LTD., ITA NOS.5408,4957 /MUM/2012, 65 SOT 86); III) M/S JM FINANCIAL LIMITED (ITA NO.4521/MUM/2012 , ORDER DATED 26-3-2014); 11. WE HAVE GONE THROUGH THE ORDERS OF THE -AUTH ORITIES BELOW AND FOUND THAT AS PER THE AUDITED BALANCESHEET, THE ASS ESSEE HAS MADE SUBSTANTIAL INVESTMENT IN GROUP CONCERN AS A STRATE GIC INVESTMENT. AS PER THE DECISION OF COORDINATE BENCH, STRATEGIC INV ESTMENT ARE REQUIRED TO BE EXCLUDED FROM TOTAL INVESTMENT WHILE WORKING OUT DISALLOWANCE UNDER RULE 8D. THE PRECISE OBSERVATION OF THE TRIBU NAL IN CASE OF M/S SMART CHIP LTD. (SUPRA) WAS AS UNDER:- '6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREF ULLY PERUSED THE RECORD, GONE THROUGH THE ORDERS OF AUTHORITIES BELOW AND THE JUDICIAL PRONOUNCEMENT REFERRED BY THE LOWER AUTHOR ITIES AS WELL AS ID. REPRESENTATIVES OF BOTH THE PARTIES DURING T HE COURSE OF HEARING BEFORE US. FROM THE RECORD WE FOUND THAT TH E ASSESSEE HAS MADE INVESTMENT IN GROUP COMPANY WHICH WAS 100% SUBSIDIARY OF THE ASSESSEE. THE INVESTMENT WAS MADE AS STRATEGIC INVESTMENT FOR THE PURPOSE OF BUSINESS WH EREIN THE SOLE INTENTION WAS TO CARRYOUT THE BUSINESS PURPOSE OF T HE ASSESSEE- COMPANY. WITH REGARD TO THE DISALLOWANCE OF INTERES T, THE ID. CIT(A) HAS RECORDED THE CATEGORICAL FINDINGS TO THE EFFECT THAT THE INVESTMENT WAS MADE BY THE ASSESSEE FROM ITS OWN FU ND AND NOT FROM ANY BORROWED FUNDS. BY REFEREEING ANNEXURE 'A FILED BY THE ASSESSEE, THE ID. CIT(A), OBSERVED THAT AFTER VERIF YING THE BANK STATEMENT AS PLACED ON RECORD, THE ENTIRE FUND WAS SO INVESTED WAS OUT OF THE ASSESSEE'S OWN FUND. THE RELIANCE WA S PLACED ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CA SE OF COMMISSIONER OF INCOME-TAX V. RELIANCE UTILITIES AN D POWER LTD:. [2009] 178 TAXMAN 135 (BOM.) TO THE EFFECT THAT THE PRESUMPTION FOR INVESTMENT WILL BE THAT THE ASSESSEE COMPANY HA S MADE THE INVESTMENT OUT OF ITS OWN FUND RATHER THAN BORROWED FUND. FINDINGS SO RECORDED BY THE ID. CIT(A) WAS NOT CONT ROVERTED BY THE REVENUE BY PLACING ANY SUBSTANTIAL EVIDENCE. HE NCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF ID. CIT(A) I N DELETING THE DISALLOWANCE OF RS.33,90,461/-MADE BY THE AO ON ACC OUNT OF INTEREST EXPENDITURE BY APPLYING THE PROVISIONS OF SECTION 14A OF THE ACT R.W.R.SD OF THE RULES.' ITA NOS.5565, 5566, 5567 & 5568/MUM/2012 (05-06,08- 09, 09-10 & 10-11) PAGE 11 IN VIEW OF THE ABOVE, GROUND TAKEN BY THE ASSESSEE IN ALL THE YEARS FOR COMPUTING DISALLOWANCE UNDER RULE 3D IS RESTORED BA CK TO THE FILE OF AO WITH A DIRECTION TO RECOMPUTE THE SAME BY EXCLUDING STRATEGIC INVESTMENT MADE .IN THE GROUP CONCERNS WHICH IS RS. 11.30 CRORES IN THE A.Y.2009-10, RS.26.44 CRORES FOR A.Y.2008-09 AND RS .11.30 CRORES IN A.Y.2010-11, RESPECTIVELY. WE DIRECT ACCORDINGLY. THE CASE OF THE ASSESSEE IS FULLY COVERED BY THE AB OVE DECISION AND WE THEREFORE RESPECTFULLY FOLLOWING THE ORDER P ASSED BY THE CO-ORDINATE BENCH IN THE SAID ITA, RESTORE BACK TO THE FILE OF A.O. THE ISSUE OF DISALLOWANCE U/S.14A R.W.RULE8D OF THE ACT WITH THE DIRECTION TO RE-COMPUTE THE SAME BY EXCLUDING STRAT EGIC INVESTMENT MADE IN THE GROUP CONCERN AFTER ALLOWING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE A.O. IS DIRECTED ACCORDINGLY. THE APPEAL OF THE ASSESSEE I S PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.5567 & 5568/MUM/2012 FOR A.Y. 2009-10 & 2010 -11 12. THE ISSUE INVOLVED IN THESE APPEALS IS IDENTICA L TO ONE AS DECIDED BY US IN ITA NO.5566/MUM/2012 FOR A.Y. 2008 -09 AND THEREFORE, FACTS BEING SAME, OUR DECISION IN THE IT A NO.5566/MUM/2012 SHALL APPLY TO THESE APPEALS, AS W ELL. ACCORDINGLY, THE ISSUE IS RESTORED BACK TO THE FILE OF A.O. WITH THE DIRECTION TO RE-COMPUTE THE DISALLOWANCE U/S.14A R. W.RULE8D OF THE ACT WITH THE DIRECTION TO RE-COMPUTE THE SAME B Y EXCLUDING STRATEGIC INVESTMENT MADE IN THE GROUP CONCERN AFTE R ALLOWING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE A.O. IS DIRECTED ACCORDINGLY. THESE APPEALS OF THE ASSESSE E ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NOS.5565, 5566, 5567 & 5568/MUM/2012 (05-06,08- 09, 09-10 & 10-11) PAGE 12 13. AS A RESULT, APPEALS FILED BY ASSESSEE IN ITA NO.5565/AHD/12 FOR A.Y. 2005-06 IS ALLOWED AND REST THREE APPEALS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES . PRONOUNCED IN THE OPEN COURT ON THIS THE 07 TH DAY OF DECEMBER, 2015. SD/- SD/- (SHAILENDRA KUMAR YADAV) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: DATED 07/12/2015 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE $ %&%'( ) / CONCERNED CIT 4 )- / CIT (A) ,-./00'(1 '( 1 %& / DR, ITAT, MUMBAI 3/4567 / GUARD FILE. BY ORDER / 1 / % 1 '( 1 %&