DDB MUDRA P.LTD, MUMBAI V. DCIT CIR 6(3), MUMBAI

ITA 5656/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8632 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 19-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTALDR
• Assessee Lawyers: RISHABH S HAH
• Keywords: Transfer pricing; Earning of tax free income; Date of conversion; Notional interest
• Section: 143(3); 153A; 14A; 132

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, C MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.5656/MUM/2016 ASSESSMENT YEAR: 2011-12 M/S DDB MUDRA PVT. LTD. OPP. GRAND HYATT, SANTACRUZ (E) MUMBAI-400055 / VS. DCIT, CIRCLE-6(3), MUMBAI ( ! ' /ASSESSEE) ( # / REVENUE) PAN. NO. AAACM5763H #$ % ' & / DATE OF HEARING : 02/11/2017 % ' & / DATE OF ORDER: 02/11/2017 ! ' ! / ASSESSEE BY SHRI RISHABH SHAH # ! / REVENUE BY SHRI RAJAT MITTAL-DR ITA NO. 5656/MUM/2016 M/S DDB MUDRA PVT LTD. 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE IS IN APPEAL, CHALLENGING THE IMPUGNED ORDER DATED 16/06/2016 OF THE LD. FIRST APPELLATE A UTHORITY, MUMBAI, IN NOT ACCEPTING THE DISALLOWANCE OF EXPENS ES MADE BY THE ASSESSEE AMOUNTING TO RS.2,11,650/- U/S 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) AND FURT HER ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSES AMOUNTING T O RS.23,80,844/- U/S 14A OF THE ACT BY INVOKING RULE- 8D OF THE RULES ON THE PLEA THAT SAID EXPENSES HAVE BEEN INCU RRED FOR EARNING EXEMPT INCOME. 2. DURING HEARING, THE LD. COUNSEL FOR THE ASSESSE E, SHRI RISHABH SHAH, EXPLAINED THAT THE ASSESSEE MADE SUO- MOTO DISALLOWANCE OF RS.2,07,650/- AGAINST THE TOTA L INVESTMENT OF RS.38.79 CRORES AND THE EXEMPT INCOME WAS RS.16.29 LAKHS AGAINST WHICH THE LD. ASSESSING OFFI CER MADE DISALLOWANCE OF RS.25.92 LAKHS. IT WAS PLEADED THA T THE DISALLOWANCE CANNOT BE MORE THAN EXEMPT INCOME. ON THE OTHER HAND, THE LD. DR, SHRI RAJAT MITTAL, DEFENDED THE ADDITION/DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. COMMISSIONER OF INCOME TAX (AP PEAL). ITA NO. 5656/MUM/2016 M/S DDB MUDRA PVT LTD. 3 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT THE CASE OF THE ASSESSEE IS COVERED BY THE DECISION OF THE T RIBUNAL IN THE CASE OF METROPOLITAN EXIM CHEM LTD. (ITA NO.5749/MUM/2014) ORDER DATED 01/08/2017, WHICH IS REPRODUCED HEREUNDER:- 1. THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DATED 13/06/2014 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI. THE ONLY GROUND RAISED BY THE ASSESSEE PERTAINS TO ADDI NG THE AMOUNT OF RS.13,46,717/- U/S 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). 2. DURING HEARING, THE CRUX OF ARGUMENTS ADVANCED BY SHRI SATISH R. MODY IS THAT THE ASSESSEE IS IN T HE BUSINESS OF MANUFACTURING OF CHEMICAL AND EXPORTS BY CLAIMIN G THAT THE DIVIDEND INCOME EARNED BY THE ASSESSEE IS RS.3,93,1 61/-, THEREFORE, THE DISALLOWANCE CANNOT BE MORE THAN THE DIVIDEND INCOME. IT WAS ALSO CLAIMED THAT THERE IS NO DIRECT INVESTMENT AND NO DISALLOWANCE WAS MADE IN EARLIER AND LATER Y EARS. PLEA WAS ALSO RAISED THAT IN SUBSEQUENT YEAR I.E. 2011-1 2, THE LD. COMMISSIONER OF INCOME TAX (APPEAL) DELETED THE ADD ITION AGAINST WHICH NO APPEAL WAS FILED BY THE ASSESSEE. IT WAS ALSO CLAIMED THAT THE ISSUE UNDER HAND IS COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF ZOOM ENTERTAINMENT N ETWORK LTD. (ITA NO.3453/MUM/2016) ORDER DATED 21/04/2017. ON THE OTHER HAND, SHRI T.A. KHAN, LD. DR, THOUGH DEFE NDED THE ADDITION BUT DID NOT CONTROVERT THE ASSERTION MADE BY THE ASSESSEE. ITA NO. 5656/MUM/2016 M/S DDB MUDRA PVT LTD. 4 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE LI GHT OF THE ABOVE, BEFORE ADVERTING FURTHER, WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION FROM THE AFORESAID ORDER OF TH E TRIBUNAL DATED 21/04/2017 FOR READY REFERENCE AND ANALYSIS:- THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DA TED 29/02/2016 OF THE FIRST APPELLATE AUTHORITY, MUMBAI, CONFIRMING THE D ISALLOWANCE OF RS.27,19,404/- MADE U/S 14A(2) OF THE INCOME TAX AC T, 1961 (HEREINAFTER THE ACT) READ WITH RULE-8D OF THE RULES. 2. DURING HEARING, SHRI S. VENKATARAMAN, LD. COUNS EL FOR THE ASSESSEE, ADVANCED ARGUMENTS, WHICH ARE IDENTICAL T O THE GROUND RAISED. THE LD. COUNSEL ALSO RELIED UPON THE DECISION IN TH E CASE OF M/S DAGA GLOBAL CHEMICALS VS ACIT (ITA NO.5592/MUM/2012), ORDER DAT ED 01/01/2015, NIMBUS COMMUNICATION LTD. VS ACIT (ITA NO.1424/MUM/ 2014), ORDER DATED 09/02/2016 AND TATA INDUSTRIES LTD. VS ITO (ITA NO. 4894/MUM/2008), ORDER DATED 20/07/2016. 2.1. ON THE OTHER HAND, THE LD. DR, SHRI RAJESH KU MAR YADAV, DEFENDED THE ADDITION AND PLACED RELIANCE UPON THE DECISION FROM DELHI BENCH OF THE TRIBUNAL IN THE CASE OF BABA GLOBAL LT D. VS DCIT (ITA NO.1086 TO 1091/DEL./2015) ORDER DATED 05/05/2016. 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. DR MAINLY REL IED UPON THE DECISION FROM DELHI BENCH OF THE TRIBUNAL IN THE CASE OF BAB A GLOBAL LTD. (SUPRA), THEREFORE, BEFORE COMING TO ANY CONCLUSION, WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION OF THIS ORDER FOR READY REFERE NCE AND ANALYSIS:- THESE ARE SIX APPEALS FILED BY THE ASSESSEE AGAINS T THE ACTION OF THE LEARNED DRP UPHOLDING THE ORDER PASSED BY THE AO UN DER SECTION 153A READ WITH SECTION 144C OF THE ACT FOR ASSESSME NT YEARS 2006- 07 TO 2010-11 AND UNDER SECTION 143(3) FOR ASSESSME NT YEAR 2011- 12 CONSEQUENT TO THE DIRECTION ISSUED BY THE LEARNE D DISPUTE RESOLUTION PANEL. 2. IN THE APPEAL FILED FOR ASSESSMENT YEARS, 2006-0 7, 2007-08 AND 2008-09, BESIDES QUESTIONING THE VALIDITY OF ASSESS MENT FRAMED UNDER SECTION 153A OF THE INCOME-TAX ACT, 1961, THE ONLY ISSUE IS THE ITA NO. 5656/MUM/2016 M/S DDB MUDRA PVT LTD. 5 ADDITION OF AMOUNT OF THE NOTIONAL INTEREST ON FORE IGN CURRENCY LOAN ADVANCED BY THE ASSESSEE COMPANY TO ITS WHOLLY OWNE D FOREIGN SUBSIDIARIES. WHEREAS FOR ASSESSMENT YEARS 2009-10 TO 2011-12, BESIDES THE ABOVE ADJUSTMENT ON ACCOUNT OF THE NOTI ONAL INTEREST, THE ISSUE ALSO IS THAT OF ADDITION UNDER SECTION 14A OF THE INCOME TAX ACT. 3. THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING OF FLAVOURED CHEWING TOBACCO, KIWAM, SCENTED ELAICHI, ETC. UNDER THE BRAND NAME BABA AND TULSI AND EXPORTED ITS 100% OF PRODUCT ION DURING THE YEARS UNDER CONSIDERATION. 4. THE ORIGINAL ASSESSMENTS UNDER SECTION 143(3) WE RE COMPLETED IN RESPECT OF ASSESSMENT YEARS 2006-07, 2007-08 AND 20 08-09. THEREAFTER A SEARCH TOOK PLACE ON 21ST JANUARY, 201 1. 5. THE AO THEREAFTER TOOK UP THE ASSESSMENT BY ISSU ING NOTICE UNDER SECTION 153A. DURING THE COURSE OF THE ASSESSMENT T HE AO REFERRED THE MATTER TO THE TRANSFER PRICING OFFICER. THE LEA RNED TPO NOTED THAT THE ASSESSEE COMPANY HAS EXTENDED LOANS TO ITS SUBSIDIARY COMPANIES AND HELD THAT THE ASSESSEE OUGHT TO HAVE CHARGED INTEREST IN RESPECT OF SUCH LOANS AND ACCORDINGLY T HE TPO RECOMMEND THAT INTEREST AS PER THE PRIME LENDING RA TE OF STATE BANK OF INDIA BE ADDED AS INCOME ON ACCOUNT OF ADJU STMENT OF ARMS LENGTH PRICE. THEREAFTER THE AO PASSED THE DRAFT AS SESSMENT ORDER MAKING ADDITIONS AS RECOMMENDED BY THE TPO. 6. AGGRIEVED BY THE ORDER OF THE TPO, THE ASSESSEE FILED OBJECTION BEFORE THE DISPUTE RESOLUTION PANEL. IT WAS CONTEND ED BY THE ASSESSEE THAT SINCE THE MONEY GIVEN AS LOAN TO ITS SUBSIDIARY COMPANIES WAS OWN MONEY AND HENCE NO ADJUSTMENT IS REQUIRED TO BE MADE. IT WAS FURTHER SUBMITTED THAT THE RATE OF INTEREST CHARGED CANNOT BE THE PRIME LENDING RATE OF STATE BANK OF I NDIA. THIS MONEY HAS BEEN ADVANCED IN FOREIGN CURRENCY AND AS SUCH INTEREST ITA NO. 5656/MUM/2016 M/S DDB MUDRA PVT LTD. 6 IS TO BE CHARGED AS PER THE INTEREST RATE IN FOREIG N CURRENCY I.E. LIBOR. 7. THE LEARNED DRP DID NOT AGREE WITH THE CONTENTIO N OF THE ASSESSEE. HOWEVER, IT GAVE A PART RELIEF BY HOLDING THAT THE INTEREST RATE BE CHARGED BE ONLY BASE RATE AND FURTHER ADJUS TED BY 150 BASIS POINT IN TERMS OF SAFE HARBOUR RULES. ON THE ISSUE OF ADDITION UNDER SECTION 14A, THE LEARNED DRP CONFIRMED THE ACTION O F THE AO. 8. AGGRIEVED BY THE ORDER OF THE LEARNED DRP AND TH E FINAL ASSESSMENT ORDER PASSED BY THE AO THE ASSESSEE IS I N APPEAL BEFORE US. 9. IT WAS CONTENDED BY THE LEARNED AR THAT THE AO WAS NOT JUSTIFIED IN TINKERING WITH THE ASSESSMENT FOR ASSESSMENT YEA RS 2006-07 TO 2008-09 AS THESE ASSESSMENTS HAVE NOT ABATED CONSEQ UENT TO THE SEARCH. THE SEARCH HAS TAKEN PLACE ON 21ST JANUARY, 2011. NO INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE OF THE SEARCH AS IS EVIDENT FROM THE ASSESSMENT ORDER. IT WAS CONTENDED THAT IN THE ABSENCE OF ANY INCRIMINATING MATERIAL, THE AO SHOUL D NOT HAVE MADE AN ADDITION. IN SUPPORT THEREOF THE LEARNED AR RELI ED UPON THE ORDER OF THE JURISDICTIONAL DELHI HIGH COURT IN THE CASE CIT (CENTRAL) III VERSUS KABUL CHAWLA [2016] 380 ITR 573 (DEL). 10. ON THE ISSUE OF THE MERIT, IT WAS CONTENDED BY THE LEARNED AR THAT THE ADDITIONS ARE UNTENABLE AS THE ASSESSEE HA S PAID THE ADVANCES TO ITS SUBSIDIARY COMPANIES OUT OF EEFC AC COUNTS. THE EEFC ACCOUNT EVEN OTHERWISE DOES NOT EARN ANY INTER EST. THE ADVANCES GIVEN TO THE SUBSIDIARY COMPANIES WERE IN THE NATURE OF QUASI CAPITAL AND WERE FOR BUSINESS CONSIDERATION. THE MAIN PURPOSE OF GIVING ADVANCES TO ITS SUBSIDIARY COMPANIES WAS TO PROMOTE ITS EXPORT BUSINESS AND TO HAVE FOOTHOLD IN THESE FOREI GN COUNTRIES. 11. IN THE ALTERNATIVE, IT WAS CONTENDED BY THE LEA RNED AR THAT THE RATE OF INTEREST CANNOT BE THAT OF THE INDIAN RUPEE S. THE MONEY HAS BEEN ADVANCED IN FOREIGN CURRENCY AND INTEREST RATE TO BE CHARGED ITA NO. 5656/MUM/2016 M/S DDB MUDRA PVT LTD. 7 HAS TO BE THE INTEREST RATE OF SUCH FOREIGN CURRENC Y. IF THE MONEY HAS BEEN ADVANCED IN US DOLLAR IT HAS TO BE LIBOR. IN R ESPECT OF ADVANCES IN EURO THE INTEREST RATE HAS TO BE EUR (L IBOR) AND IN RESPECT OF ADVANCES GIVEN IN SWISS FRANC THE INTERE ST RATE HAS TO BE THAT OF CHF (LIBOR). IN SUPPORT OF ITS CONTENTION T HE LEARNED AR RELIED UPON THE JUDGMENT OF THE COORDINATE BENCH OF THE ITAT IN THE CASE OF COTTON NATURAL INDIA PVT. LTD. VS. DCIT, CI RCLE 3(1), NEW DELHI 142 ITD (DEL) 662 WHICH HAS ALSO BEEN CONFIRM ED BY THE JURISDICTIONAL DELHI HIGH COURT. THE LEARNED AR ALS O RELIED UPON THE FOLLOWING JUDGMENTS OF THE ITAT:- (I) SIVA INDUSTRIES & HOLDINGS LIMITED VS ACIT (20 11) 59 DTR 0182 (II) TATA AUTOCOMP SYSTEMS LIMITED VS ACIT (2012) 7 3 DTR 0220 (III) FOUR SOFT LTD. VS DCIT (2014) 106 DTR 0137(HY D) (IV) AURIONPRO SOLUTIONS LIMITED 12. IT WAS FURTHER CONTENDED THAT THE AMOUNT OF LOA N OUTSTANDING TO ITS SUBSIDIARY COMPANIES HAS BEEN CONVERTED INTO SH ARE APPLICATION MONEY IN THE ASSESSMENT YEAR 2011-12. THE SAID LOAN HAVING BECOME SHARE APPLICATION MONEY, THE TPO CANNOT CHAN GE THE CHARACTERISTIC OF THE TRANSACTION SO AS TO TREAT TH E SHARE APPLICATION AS LOAN MONEY SO AS TO CHARGE INTEREST THEREON. IN SUPPORT THEREOF, THE LEARNED AR PLACED RELIANCE ON THE JUDGMENT OF T HE COORDINATE BENCH OF THE ITAT IN THE CASE OF BHARTI AIRTEL LIMI TED VS ACIT, ITA NO. 5816/D/2012 DATED 11.03.2014. THE LEARNED AR AL SO RELIED UPON THE FOLLOWING JUDGMENTS:- (I) PAN INDIA NETWORK INFRAVEST PRIVATE LIMITED VS ACIT (ITA NO. 7026 & 7025 /MUMBAI/2013 DATED 04.12.2015 (II) CIT VS EKL APPLIANCES, ITA NO. 1068/2011 AND 1 070/2011 (III) PARLE BUISCUITS P LTD VS DCIT (ITA NO. 9010/M UM/2010) DATED 11.4.2014 ITAT MUMBAI ITA NO. 5656/MUM/2016 M/S DDB MUDRA PVT LTD. 8 (IV) ALL CARGO LOGISTICS LTD VS ACIT (2014) 150 IT D 0651 DATED. 10.6.2014 13. ON THE ISSUE OF DISALLOWANCE UNDER SECTION 14A MADE BY THE AO IN ASSESSMENT YEAR 2009-10 TO 2011-12, IT WAS SUBMI TTED BY THE LEARNED AR THAT THE DISALLOWANCE HAS BEEN MADE BY T HE AO WITHOUT RECORDING ANY SATISFACTION. THE AO HAS STRAIGHTAWAY INVOKED THE PROVISIONS OF RULE 8D. IN SUPPORT THERE OF THE LEAR NED AR HAS PLACED RELIANCE ON THE JUDGMENT OF THE JURISDICTIONAL DELH I HIGH COURT IN THE CASE OF CIT VS. TAIKISHA ENGINEERING INDIA LTD., (2 015) 370 ITR 0338 (DEL). 14. IT WAS FURTHER SUBMITTED THAT IN ANY CASE THE D ISALLOWANCE UNDER SECTION 14A CANNOT EXCEED THE DIVIDEND INCOME EARNE D BY THE ASSESSEE COMPANY. 15. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED TH E ORDER PASSED BY THE TPO AS MODIFIED BY THE LEARNED DRP. IT WAS C ONTENDED THAT THE ORDER PASSED BY THE TPO AS WELL AS THE LEARNED DRP ON THE ISSUE OF ADJUSTMENT OF INTEREST IS A SPEAKING ORDER . IT WAS FURTHER CONTENDED THAT ONCE THE SEARCH HAS BEEN INITIATED A LL THE ASSESSMENTS GET REOPENED CONSEQUENT TO THE ISSUE OF NOTICE UNDER SECTION 153A AND AS SUCH THE AO IS ENTITLED TO MAKE ADJUSTMENT TO THE INCOME AS PERMISSIBLE UNDER THE LAW. 16. ON THE ISSUE OF RATE OF INTEREST IT WAS CONTEND ED THAT THE RATE OF INTEREST HAS TO BE THAT OF INDIAN RUPEES AS ASSESSE E WOULD HAVE EARNED THE INTEREST IN INDIAN RUPEES HAD IT NOT ADV ANCED THE MONEY TO ITS FOREIGN SUBSIDIARY. 17. AS REGARDS CONVERSION OF THE LOAN INTO SHARE AP PLICATION MONEY IN ASSESSMENT YEAR 2011-12 IT WAS CONTENDED THAT THERE IS NO DIFFERENCE BETWEEN THE LOAN AND THE SHARE APPLICATI ON MONEY AND HENCE INTEREST HAS TO BE CHARGED FOR THAT YEAR ALSO . ITA NO. 5656/MUM/2016 M/S DDB MUDRA PVT LTD. 9 18. ON THE ISSUE OF DISALLOWANCE UNDER SECTION 14A IT WAS CONTENDED THAT THE AO HAS INVOKED THE PROVISIONS OF RULE 8D A ND MERE NOT RECORDING OF SATISFACTION WILL NOT MAKE SUCH DISALL OWANCE UNTENABLE IN THE EYE OF LAW. 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE ORDER PASSED BY THE AUTHORITIES BELOW. THE FIRST ISSUE IS ADDITION MADE BY THE AO IN THE ASSESSMENT YEARS WHICH HAVE NOT ABATE D CONSEQUENT TO THE SEARCH I.E. ASSESSMENT YEARS 2006-07, 2007-0 8 AND 2008-09. AS PER THE FACTS ON RECORD, THE SEARCH TOOK PLACE O N 21.1.2011. ASSESSMENTS FOR ALL THESE THREE YEARS HAVE BEEN COM PLETED UNDER SECTION 143(3) OF THE ACT. NO INCRIMINATING MATERIA L WAS FOUND DURING THE COURSE OF THE SEARCH. AS IS EVIDENT FROM THE AS SESSMENT ORDER THE ADDITION HAS BEEN MADE CONSEQUENT TO THE REFERE NCE MADE BY THE AO TO TPO. THE ISSUE WHICH ARISES FOR CONSIDERA TION IS WHETHER THE AO COULD HAVE MADE ADDITION IN THESE ASSESSMENT YEARS WITHOUT THERE BEING ANY INCRIMINATING MATERIAL AND IN ABSEN CE OF THE ABATEMENT OF ASSESSMENT ORDERS ALREADY FRAMED. THIS ISSUE IS NOW SQUARELY COVERED BY THE JUDGMENT OF THE JURISDICTIO NAL DELHI HIGH COURT IN THE CASE OF CIT (CENTRAL) III VS. KABUL CHAWLA (SUPRA) WHEREIN THE HONBLE HIGH COURT HAS BEEN PLEASED TO HOLD AS UNDER:- 37. ON A CONSPECTUS OF SECTION 153A(1) OF THE ACT, READ WITH THE PROVISOS THERETO, AND IN THE LIGHT OF THE LAW EXPLA INED IN THE AFOREMENTIONED DECISIONS, THE LEGAL POSITION THAT E MERGES IS AS UNDER: I. ONCE A SEARCH TAKES PLACE UNDER SECTION 132 OF T HE ACT, NOTICE UNDER SECTION 153 A(1) WILL HAVE TO BE MANDATORILY ISSUED TO THE PERSON SEARCHED REQUIRING HIM TO FILE RETURNS FOR S IX AYS IMMEDIATELY PRECEDING THE PREVIOUS YEAR RELEVANT TO THE AY IN W HICH THE SEARCH TAKES PLACE. II. ASSESSMENTS AND REASSESSMENTS PENDING ON THE DA TE OF THE SEARCH SHALL ABATE. THE TOTAL INCOME FOR SUCH AYS W ILL HAVE TO BE COMPUTED BY THE AOS AS A FRESH EXERCISE. III. THE AO WILL EXERCISE NORMAL ASSESSMENT POWERS IN RESPECT OF THE SIX YEARS PREVIOUS TO THE RELEVANT AY IN WHICH THE SEARCH TAKES PLACE. THE AO HAS THE POWER TO ASSESS AND REASSESS THE 'TO TAL INCOME' OF THE AFOREMENTIONED SIX YEARS IN SEPARATE ASSESSMENT ORDERS FOR EACH ITA NO. 5656/MUM/2016 M/S DDB MUDRA PVT LTD. 10 OF THE SIX YEARS. IN OTHER WORDS THERE WILL BE ONLY ONE ASSESSMENT ORDER IN RESPECT OF EACH OF THE SIX AYS 'IN WHICH B OTH THE DISCLOSED AND THE UNDISCLOSED INCOME WOULD BE BROUGHT TO TAX' . IV. ALTHOUGH SECTION 153 A DOES NOT SAY THAT ADDITI ONS SHOULD BE STRICTLY MADE ON THE BASIS OF EVIDENCE FOUND IN THE COURSE OF THE SEARCH, OR OTHER POST-SEARCH MATERIAL OR INFORMATIO N AVAILABLE WITH THE AO WHICH CAN BE RELATED TO THE EVIDENCE FOUND, IT D OES NOT MEAN THAT THE ASSESSMENT 'CAN BE ARBITRARY OR MADE WITHOUT AN Y RELEVANCE OR NEXUS WITH THE SEIZED MATERIAL. OBVIOUSLY AN ASSESS MENT HAS TO BE MADE UNDER THIS SECTION ONLY ON THE BASIS OF SEIZED MATERIAL.' V. IN ABSENCE OF ANY INCRIMINATING MATERIAL, THE CO MPLETED ASSESSMENT CAN BE REITERATED AND THE ABATED ASSESSM ENT OR REASSESSMENT CAN BE MADE. THE WORD 'ASSESS' IN SECT ION 153 A IS RELATABLE TO ABATED PROCEEDINGS (I.E. THOSE PENDING ON THE DATE OF SEARCH) AND THE WORD 'REASSESS' TO COMPLETED ASSESS MENT PROCEEDINGS. VI. INSOFAR AS PENDING ASSESSMENTS ARE CONCERNED, T HE JURISDICTION TO MAKE THE ORIGINAL ASSESSMENT AND THE ASSESSMENT UND ER SECTION 153A MERGES INTO ONE. ONLY ONE ASSESSMENT SHALL BE MADE SEPARATELY FOR EACH AY ON THE BASIS OF THE FINDINGS OF THE SEARCH AND ANY OTHER MATERIAL EXISTING OR BROUGHT ON THE RECOR D OF THE AO. VII. COMPLETED ASSESSMENTS CAN BE INTERFERED WITH B Y THE AO WHILE MAKING THE ASSESSMENT UNDER SECTION 153 A ONLY ON T HE BASIS OF SOME INCRIMINATING MATERIAL UNEARTHED DURING THE CO URSE OF SEARCH OR REQUISITION OF DOCUMENTS OR UNDISCLOSED INCOME OR P ROPERTY DISCOVERED IN THE COURSE OF SEARCH WHICH WERE NOT P RODUCED OR NOT ALREADY DISCLOSED OR MADE KNOWN IN THE COURSE OF OR IGINAL ASSESSMENT. CONCLUSION 38. THE PRESENT APPEALS CONCERN AYS, 2002-03, 2005- 06 AND 2006- 07.ON THE DATE OF THE SEARCH THE SAID ASSESSMENTS A LREADY STOOD COMPLETED. SINCE NO INCRIMINATING MATERIAL WAS UNEA RTHED DURING THE SEARCH, NO ADDITIONS COULD HAVE BEEN MADE TO THE IN COME ALREADY ASSESSED. 39. THE QUESTION FRAMED BY THE COURT IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE ABOVE VIEW HAS BEEN REITERATED BY THE HONBLE D ELHI HIGH COURT IN THE CASE OF CIT-7 VS. RRJ SECURITIES LTD. IN [20 16] 380 ITR 612 (DEL) WHERE THE HONBLE COURT HAS BEEN PLEASED TO H OLD AS UNDER:- IN RESPECT OF SUCH ASSESSMENTS WHICH HAVE ABATED, THE AO WOULD HAVE THE JURISDICTION TO PROCEED AND MAKE AN ASSESS MENT. HOWEVER, IN RESPECT OF CONCLUDED ASSESSMENTS, THE AO WOULD A SSUME ITA NO. 5656/MUM/2016 M/S DDB MUDRA PVT LTD. 11 JURISDICTION TOREASSESS PROVIDED THAT THE ASSETS/DO CUMENTS RECEIVED BY THE AO REPRESENTOR INDICATE ANY UNDISCLOSED INCO ME OR POSSIBILITY OF ANY INCOME THAT MAY HAVE REMAINED UNDISCLOSED IN THE RELEVANT ASSESSMENT YEARS. THIS COURT IN COMMISSIONER OF INC OME TAX (CENTRAL)-III V. KABUL CHAWLA: ITA707/2014, DECIDED ON 28TH AUGUST, 2015 HAS HELD THAT COMPLETED ASSESSMENTS COULD ONLY BE INTERFERED WITH BY THE AO ON THE BASIS OF AN INCRIMINATING MAT ERIAL UNEARTHED DURING THE COURSE OF THE SEARCH OR REQUISITION OF T HE DOCUMENTS. IN ABSENCE OF ANY INCRIMINATING MATERIAL, THE AO DOES NOT HAVE ANY JURISDICTION TO INTERFERE IN CONCLUDED ASSESSMENTS. IN THE PRESENT CASE, AS STATED HEREINABOVE, THE ADD ITION HAS BEEN MADE WITHOUT THERE BEING ANY INCRIMINATING MATERIAL AND IN ABSENCE OF PENDENCY OF ASSESSMENT. IN THE ABSENCE OF ANY IN CRIMINATING MATERIAL, AS HELD BY THE HONBLE HIGH COURT, THE AD DITION CANNOT BE MADE IN AN ASSESSMENT UNDER SECTION 153A. RESPECTFU LLY FOLLOWING THE JUDGMENT OF THE JURISDICTIONAL DELHI HIGH COURT , WE HOLD THAT THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITION AND ACC ORDINGLY THE ADDITION MADE BY THE AO IN THE ASSESSMENT YEARS 200 6-07, 2007-08 AND 2008-09 ARE DIRECTED TO BE DELETED. CONSEQUENTL Y THE APPEALS FILED FOR THESE ASSESSMENT YEARS ARE ALLOWED. 20. AS REGARDS ASSESSMENT YEARS 2009-10 AND 2010-11 ARE CONCERNED THE LEARNED DRP HAS CONFIRMED THE ADDITIO N APPLYING THE BASE RATE OF STATE BANK OFINDIA PLUS 150 BASIS POIN TS. IT WAS THE CONTENTION OF THE LEARNED AR THAT NO ADDITION CAN B E MADE AS THE ADVANCE MADE WAS OUT OF THE EEFC ACCOUNT WHICH CARR IES NO INTEREST. FURTHER AMOUNT ADVANCED WAS FOR PROMOTING ITS BUSINESS. ON THIS ISSUE WE ARE NOT IN AGREEMENT WITH THE CONT ENTION OF THE LEARNED AR. THE AMOUNT HAVING BEEN ADVANCED TO AN A SSOCIATED ENTERPRISES, THE SAME HAS TO BE EVALUATED BY APPLYI NG ARMS LENGTH PRICE. SINCE IT WAS A LOAN DURING THE ASSESSMENT YE ARS 2009-10 AND 2010-11, THE ASSESSEE COMPANY OUGHT TO HAVE COMPUTE D THE ARMS LENGTH PRICE IN RESPECT OF SUCH LOAN ADVANCED TO IT S SUBSIDIARY COMPANIES. HOWEVER, AS REGARDS THE INTEREST RATE WE ARE IN AGREEMENT WITH THE CONTENTION OF THE LEARNED AR THA T THIS CANNOT BE THE INTEREST RATE APPLICABLE TO INDIAN RUPEES. THES E ADVANCES HAVING BEEN MADE IN THE FOREIGN CURRENCY, THE RATE OF INTE REST HAS TO BE WITH REFERENCE TO THE INTEREST RATE ON LOANS AND ADVANCE S IN RESPECT OF FOREIGN CURRENCY. THIS ISSUE IS COVERED BY THE JUDG MENT OF THE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF CIT VS. COTTON NATURALS ITA NO. 5656/MUM/2016 M/S DDB MUDRA PVT LTD. 12 (P) P LTD. (2015) 276 CTR 0445 (DEL) WHEREIN THE HO NBLE HIGH COURT HAS BEEN PLEASED TO HOLD AS UNDER:- 39. THE QUESTION WHETHER THE INTEREST RATE PREVAIL ING IN INDIA SHOULD BE APPLIED, FOR THE LENDER WAS AN INDIAN COMPANY/AS SESSEE, OR THE LENDING RATE PREVALENT IN THE UNITED STATES SHOULD BE APPLIED, FOR THE BORROWER WAS A RESIDENT AND AN ASSESSEE OF THE SAID COUNTRY, IN OUR CONSIDERED OPINION, MUST BE ANSWERED BY ADOPTING AN D APPLYING A COMMONSENSICAL AND PRAGMATIC REASONING. WE HAVE NO HESITATION IN HOLDING THAT THE INTEREST RATE SHOULD BE THE MARKET DETERMINED INTEREST RATE APPLICABLE TO THE CURRENCY CONCERNED IN WHICH THE LOAN HAS TO BE REPAID. INTEREST RATES SHOULD NOT BE COMP UTED ON THE BASIS OF INTEREST PAYABLE ON THE CURRENCY OR LEGAL TENDER OF THE PLACE OR THE COUNTRY OF RESIDENCE OF EITHER PARTY. INTEREST RATE S APPLICABLE TO LOANS AND DEPOSITS IN THE NATIONAL CURRENCY OF THE BORROW ER OR THE LENDER WOULD VARY AND ARE DEPENDENT UPON THE FISCAL POLICY OF THE CENTRAL BANK, MANDATE OF THE GOVERNMENT AND SEVERAL OTHER P ARAMETERS. INTEREST RATES PAYABLE ON CURRENCY SPECIFIC LOANS/ DEPOSITS ARE SIGNIFICANTLY UNIVERSAL AND GLOBALLY APPLICABLE. TH E CURRENCY IN WHICH THE LOAN IS TO BE RE-PAID NORMALLY DETERMINES THE R ATE OF RETURN ON THE MONEY LENT, I.E. THE RATE OF INTEREST. KLAUS VOGEL ON DOUBLE TAXATION CONVENTIONS (THIRD EDITION) UNDER ARTICLE 11 IN PAR AGRAPH 115 STATES AS UNDER:- THE EXISTING DIFFERENCES IN THE LEVELS OF INTEREST RATES DO NOT DEPEND ON ANY PLACE BUT RATHER ON THE CURRENCY CONCERNED. THE RATE OF INTEREST ON A US $ LOAN IS THE SAME IN NEW YORK AS IN FRANKFURT-AT LEAST WITHIN THE FRAMEWORK OF FREE CAPITAL MARKETS (SUBJECT TO THE ARBITRAGE). IN REGARD TO THE QUESTION AS TO WHETHER THE LEVEL OF INTEREST RATES IN THE LENDERS STATE OR THAT IN THE BORROWER S IS DECISIVE, THEREFORE, PRIMARILY DEPENDS ON THE CURRENCY AGREED UPON (BFH BST.B1. II 725 (1994), RE. 1 ASTG). A DIFFERENTIA TION BETWEEN DEBT- CLAIMS OR DEBTS IN NATIONAL CURRENCY AND THOSE IN F OREIGN CURRENCY IS NORMALLY NO USE, BECAUSE, FOR INSTANCE, A US $ LOAN ADVANCED BY A US LENDER IS TO HIM A DEBT-CLAIM IN NATIONAL CURREN CY WHEREAS TO A GERMAN BORROWER IT IS A FOREIGN CURRENCY DEBT (THE SITUATION BEING DIFFERENT, HOWEVER, WHEN AN AGREEMENT IN A THIRD CU RRENCY IS INVOLVED). MOREOVER, A DIFFERENCE IN INTEREST LEVEL S FREQUENTLY REFLECTS NO MORE THAN DIFFERENT EXPECTATIONS IN REGARD TO RA TES OF EXCHANGE, RATES OF INFLATION AND OTHER ASPECTS. HENCE, THE CH OICE OF ONE PARTICULAR CURRENCY CAN BE JUST AS REASONABLE AS TH AT OF ANOTHER, DESPITE DIFFERENT LEVELS OF INTEREST RATES. AN ECON OMIC CRITERION FOR ONE PARTY MAY BE THAT IT WANTS, IF POSSIBLE, TO AVOID E XCHANGE RISKS (FOR EXAMPLE, BY MATCHING THE CURRENCY OF THE LOAN WITH THAT OF THE FUNDS ANTICIPATED TO BE AVAILABLE FOR DEBT SERVICE), SUCH AS TAKING OUT A US $ LOAN IF THE PROCEEDS IN US $ ARE EXPECTED TO BECO ME AVAILABLE (SAY FROM EXPORTS). IF AN EXCHANGE RISK WERE TO PROVE IN CAPABLE OF BEING AVOIDED (SAY, BY FORWARD RATE FIXING), THE APPROPRI ATE COURSE WOULD BE TO ATTRIBUTE IT TO THE ECONOMICALLY MORE POWERFUL P ARTY. BUT, EXACTLY ITA NO. 5656/MUM/2016 M/S DDB MUDRA PVT LTD. 13 WHERE THERE IS NO SPECIAL RELATIONSHIP, THIS WILL FREQUENTLY NOT BE POSSIBLE IN DEALINGS WITH SUCH PARTY. CONSEQUENTLY, IT WILL NORMALLY NOT BE POSSIBLE TO REVIEW AND ADJUST THE INTEREST R ATE TO THE EXTENT THAT SUCH RATE DEPENDS ON THE CURRENCY INVOLVED. MO REOVER, IT IS QUESTIONABLE WHETHER SUCH AN ADJUSTMENT COULD BE BA SED ON ART. 11 (6).FOR ART. 11(6), AT LEAST ITS WORDING, ALLOWS TH E AUTHORITIES TO ELIMINATE HYPOTHETICALLY THE SPECIAL RELATIONSHIPS ONLY IN REGARD TO THE LEVEL OF INTEREST RATES AND NOT IN REGARD TO OT HER CIRCUMSTANCES, SUCH AS THE CHOICE OF CURRENCY. IF SUCH OTHER CIRCU MSTANCES WERE TO BE INCLUDED IN THE REVIEW, THERE WOULD BE DOUBTS AS TO WHERE THE LINE SHOULD BE DRAWN, I.E., WHETHER AN EXAMINATION SHOUL D BE ALLOWED OF THE QUESTION OF WHETHER IN THE ABSENCE OF A SPECIAL RELATIONSHIP (I.E., FINANCIAL POWER, STRONG POSITION IN THE MARKET, ETC ., OF THE FOREIGN CORPORATE GROUP MEMBER) THE BORROWING COMPANY MIGHT NOT HAVE COMPLETELY REFRAINED FROM MAKING INVESTMENT FOR WHI CH IT BORROWED THE MONEY. THE AFORESAID METHODOLOGY RECOMMENDED BY KLAUS VOGEL APPEALS TO US AND APPEARS TO BE THE REASONABL E AND PROPER PARAMETER TO DECIDE UPON THE QUESTION OF APPLICABIL ITY OF INTEREST RATE. THE LOAN IN QUESTION WAS GIVEN IN FOREIGN CURRENCY I.E. US $ AND WAS ALSO TO BE REPAID IN THE SAME CURRENCY I.E. US $. I NTEREST RATE APPLICABLE TO LOANS GRANTED AND TO BE RETURNED IN I NDIAN RUPEES WOULD NOT BE THE RELEVANT COMPARABLE. EVEN IN INDIA , INTEREST RATES ON FCNR ACCOUNTS MAINTAINED IN FOREIGN CURRENCY ARE DIFFERENT AND DEPENDENT UPON THE CURRENCY IN QUESTION. THEY ARE N OT DEPENDENT UPON THE PLR RATE, WHICH IS APPLICABLE TO LOANS IN INDIAN RUPEE. THE PLR RATE, THEREFORE, WOULD NOT BE APPLICABLE AND SH OULD NOT BE APPLIED FOR DETERMINING THE INTEREST RATE IN THE EX TANT CASE. PLR RATES ARE NOT APPLICABLE TO LOANS TO BE RE-PAID IN FOREIG N CURRENCY. THE INTEREST RATES VARY AND ARE THUS DEPENDENT ON THE F OREIGN CURRENCY IN WHICH THE REPAYMENT IS TO BE MADE. THE SAME PRINCIP LE SHOULD APPLY. 21. ACCORDINGLY THE APPLICABLE RATE OF INTEREST SHA LL BE THE RATE OF INTEREST IN RESPECT OF SUCH FOREIGN CURRENCY IN WHI CH THE LOANS HAVE BEEN ADVANCE. AS PER THE DETAILS AVAILABLE ON RECOR D DURING THE ASSESSMENT YEARS 2009-10 AND 2010- 11 ASSESSEE HAS ADVANCED TO ITS SUBSIDIARY COMPANIES AS DETAILED BELOW:- XXXXXXXXXXXXXXXX TAKING INTO CONSIDERATION OF THE ABOVE FACTS, THE L EARNED AO IS DIRECTED TO VERIFY THE ABOVE INTEREST RATE AND RECOMPUTE THE AD JUSTMENT ON ACCOUNT OF INTEREST BY APPLYING THE RATE OF INTEREST OF THE RE LEVANT CURRENCY IN THE AY 2009-10 & 2010-11. ACCORDINGLY THIS GROUND OF THE A SSESSEE IS PARTLY ALLOWED FOR AY 2009-10 & 2010-11. ITA NO. 5656/MUM/2016 M/S DDB MUDRA PVT LTD. 14 XXXXXXXXXXXXXXXXX 22. AS REGARDS THE ADDITION ON THIS ACCOUNT IN ASSE SSMENT YEAR 2011- 12, THE ADVANCE GIVEN TO ITS SUBSIDIARY COMPANIES S TAND CONVERTED INTO SHARE APPLICATION MONEY. ONCE THE LOAN HAS BEE N CONVERTED INTO SHARE APPLICATION MONEY, FOR THE ISSUE OF THE SHARE CAPITAL, THEN SUCH AMOUNT CANNOT BE CONSIDERED AS LOAN. THE TPO IS NOT PERMITTED UNDER THE LAW TO RE-CHARACTERIZE THE TRANSACTION AN D ACCORDINGLY WE ARE OF THE VIEW THAT NO INTEREST ON SUCH SHARE APPL ICATION MONEY CAN BE CHARGED. THE ABOVE VIEW IS SUPPORTED BY THE JUDG MENT OF THE COORDINATE BENCH OF THE ITAT IN THE CASE OF BHARTI AIRTEL LTD. VS. ACIT, [2014] 161 TTJ 0283 (DEL) WHEREIN THE ITAT HA S HELD AS UNDER:- 47. WE FIND THAT IN THE PRESENT CASE THE TPO HAS NOT DISPUTED THAT THE IMPUGNED TRANSACTIONS WERE IN THE NATURE OF PAY MENTS FOR SHARE APPLICATION MONEY, AND THUS, OF CAPITAL CONTRIBUTIO NS. THE TPO HAS NOT MADE ANY ADJUSTMENT WITH REGARD TO THE ALP OF T HE CAPITAL CONTRIBUTION. HE HAS, HOWEVER, TREATED THESE TRANSA CTIONS PARTLY AS OF AN INTEREST FREE LOAN, FOR THE PERIOD BETWEEN THE D ATES OF PAYMENT TILL THE DATE ON WHICH SHARES WERE ACTUALLY ALLOTTED, AN D PARTLY AS CAPITAL CONTRIBUTION, I.E. AFTER THE SUBSCRIBED SHARES WERE ALLOTTED BY THE SUBSIDIARIES IN WHICH CAPITAL CONTRIBUTIONS WERE MA DE. NO DOUBT, IF THESE TRANSACTIONS ARE TREATED AS IN THE NATURE OF LENDING OR BORROWING, THE TRANSACTIONS CAN BE SUBJECTED TO ALP ADJUSTMENTS, AND THE ALP SO COMPUTED CAN BE THE BASIS OF COMPUTI NG TAXABLE BUSINESS PROFITS OF THE ASSESSEE, BUT THE CORE ISSU E BEFORE US IS WHETHER SUCH A DEEMING FICTION IS ENVISAGED UNDER T HE SCHEME OF THE TRANSFER PRICING LEGISLATION OR ON THE FACTS OF THI S CASE. WE DONOT FIND SO. WE DONOT FIND ANY PROVISION IN LAW ENABLING SUC H DEEMING FICTION. IN VIEW OF THE ABOVE FACTS AND THE JUDGMENT OF COOR DINATE BENCH, THE AO IS DIRECTED TO VERIFY THE DATE OF CONVERSION OF LOAN TO SHARE APPLICATION MONEY AND NOT TO MAKE ANY ADJUSTMENT ON ACCOUNT OF INTEREST POST CONVERSION OF LOAN TO SHARE APPLICATI ON MONEY AND ACCORDINGLY THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 23. AS REGARDS THE DISALLOWANCE UNDER SECTION 14A I N RESPECT OF THE EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME IS C ONCERNED, WE NOTE THAT THE ASSESSEE HAS EARNED THE FOLLOWING INC OME IN THE ASSESSMENT YEARS 2009-10 TO 2011-12:- ITA NO. 5656/MUM/2016 M/S DDB MUDRA PVT LTD. 15 XXXXXXXXXXXXXXXX 25. THE CONTENTION OF THE ASSESSEE IS THAT IN THE A BSENCE OF ANY SATISFACTION BEING RECODED DISALLOWANCE UNDER SECTI ON 14A CANNOT BE SUSTAINED. THE ALTERNATIVE CONTENTION OF THE LEARNE D AR HAS BEEN THAT THE ADDITION IN ANY CASE CANNOT EXCEED THE EXE MPT INCOME. AS REGARDS FIRST CONTENTION THAT NO SATISFACTION HAS B EEN RECORDED WE NOTE FROM THE ASSESSMENT ORDER THAT THE AO HAS CONS IDERED THE EXPLANATION OF THE ASSESSEE AND AFTER TAKING INTO C ONSIDERATION THE EXPLANATION HE HAS INVOKED RULE 8D. HAVING DONE SO, IT CANNOT BE SAID THAT THE AO HAS NOT TAKEN INTO CONSIDERATION T HE EXPLANATION OF THE ASSESSEE. 26. HOWEVER, AS REGARDS THE SECOND CONTENTION OF TH E LEARNED AR THAT THE DISALLOWANCE CANNOT EXCEED THE EXEMPT INCO ME, WE ARE IN AGREEMENT WITH THIS CONTENTION. THIS VIEW IS SUPPOR TED BY THE JUDGMENT OF THE HONBLE JURISDICTIONAL DELHI HIGH C OURT IN THE CASE OF JOINT INVESTMENTS PVT. LTD. VERSUS COMMISSIONER OF INCOME TAX [2015] 372 ITR 694 (DEL). ACCORDINGLY WE DIRECT THE AO TO RESTRICT THE ADDITION TO THE EXEMPT INCOME. ACCORDINGLY THIS GRO UND IS PARTLY ALLOWED IN FAVOUR OF THE ASSESSEE. 27. IN VIEW OF THE ABOVE FINDINGS THE ASSESSEES AP PEALS FOR THE A.Y. 2006-07 BEING ITA NO. 1086/DEL/2015, A.Y. 2007-08 B EING ITA NO. 1087/DEL/2015, A.Y. 2008-09 BEING ITA NO. 1088/DEL/ 2015 ARE ALLOWED, APPEAL FOR A.Y. 2009-10 BEING ITA NO. 1089 /DEL/2015, A.Y. 2010-11 BEING ITA NO. 1090/DEL/2015 AND A.Y. 2011-1 2 BEING ITA NO. 1091/DEL/2015 ARE PARTLY ALLOWED. 2.3. WE FIND THAT IN THE PRESENT APPEAL, THE ISSUE RELATES TO DISALLOWANCE OF RS.27,19,404/- MADE U/S 14A(2) OF T HE ACT READ WITH RULE- 8D OF THE RULES. CONSIDERING THE TOTALITY OF FACTS, WE ARE OF THE VIEW THAT AT BEST, IF ANY DISALLOWANCE COULD BE MADE THAT CANNOT EXCEED THE EXEMPT INCOME. THE TRIBUNAL IN THE CASE OF NIMBUS COMMUNI CATION LTD. (SUPRA) HAS MADE AN ELABORATE DISCUSSION AND THEREAFTER REA CHED TO A PARTICULAR CONCLUSION, THUS, THE RATIO LAID DOWN IN THE CASES MENTIONED BY THE LD. COUNSEL FOR THE ASSESSEE, CLEARLY SUPPORTS THE CASE OF THE ASSESSEE. SO FAR ITA NO. 5656/MUM/2016 M/S DDB MUDRA PVT LTD. 16 AS, THE CASE OF BABA GLOBAL LTD. VS DCIT (SUPRA), R ELIED UPON BY LD. DR IS CONCERNED, EVEN IN THAT CASE IN PARA-26, THERE IS C ATEGORICAL FINDING THAT THE DISALLOWANCE CANNOT EXCEED THE EXEMPT INCOME. THE R ATIO LAID DOWN IN JOINT INVESTMENT PVT. LTD. VS CIT (2015) 372 ITR 694 (DEL .) CLEARLY SUPPORTS THE CASE OF THE ASSESSEE, THUS THE CASE RELIED UPON BY LD. DR IS OF NOT MUCH HELP TO THE REVENUE. THUS, THE APPEAL OF THE ASSESSEE IS ALLOWED. FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. 2.2. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, CONCLUSION DRAWN IN TH E AFORESAID ORDER OF THE TRIBUNAL DATED 21/04/2017, M ATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RES PECTIVE COUNSEL, IF KEPT IN JUXTAPOSITION AND ANALYZED, WE NOTE THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F GODREJ & BOYCE MFG. CO. LTD. 194 TAXMAN 203 HAS CLEARLY HELD THAT RULE -8D OF THE RULES IS APPLICABLE FROM ASSESSMENT YEAR 2008-09. IN THE PRESENT APPEAL, THE TOTAL DIVIDEND INCOME EARNED BY THE ASSESSEE IS RS.3,93,161/-. THEREFORE, IF ANY DISALLOWANCE COULD BE MADE THAT CANNOT EXCEED THE E XEMPT INCOME. THE TRIBUNAL CONSIDERING THE DECISION OF NI MBUS COMMUNICATION LTD. HAS MADE AN ELABORATE DISCUSSION IN THE AFORESAID ORDER DATED 21/04/2017. THE RATIO LAID D OWN IN JOINT INVESTMENT PVT. LTD. VS CIT (2015) 372 ITR 69 4 (DEL.) ALSO SUPPORTS THE CASE OF THE ASSESSEE. AS AGREED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE DISALLOWANCE CANN OT BE MORE THAN THE DIVIDEND INCOME OF RS.3,93,161/-, WE DIREC T THE LD. ASSESSING OFFICER THAT AT BEST THE DISALLOWANCE MAY BE RESTRICTED TO THE DIVIDEND INCOME EARNED BY THE ASS ESSEE. THE APPEAL OF THE ASSESSEE IS ACCORDINGLY DISPOSED OF I N TERMS INDICATED HEREINABOVE. FINALLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED. ITA NO. 5656/MUM/2016 M/S DDB MUDRA PVT LTD. 17 2.2. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A DOMESTIC PRIVATE LTD. COMPANY, ENGAGED IN THE BUSIN ESS OF ADVERTISEMENT AND MARKETING COMMUNICATION, DECLARED TOTAL INCOME OF RS.5,84,12,890/- IN ITS RETURN FILED ON 2 1/09/2011. THE ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT, VI DE ASSESSMENT ORDER DATED 04/03/2014. THE ASSESSEE CL AIM TO HAVE EARNED TAX FREE DIVIDEND INCOME OF RS.16,29,15 4/- AND THE ASSESSEE MADE DISALLOWANCE OF RS.2,11,650/- U/S 14A OF THE ACT. THE LD. ASSESSING OFFICER ASKED THE ASSES SEE TO FURNISH THE WORKING OF SUCH CLAIM. IT IS OBSERVED IN THE ASSESSMENT ORDER (PARA-2) THE AUDITOR SIMPLY STATED THAT HE EXAMINED THE RECORD AND HAS NOT MENTIONED THE DETAI LS ON RECORDS EXAMINED BY HIM. THE AUDIT REPORT WAS TOTAL LY SILENT ON THE NATURE OF INTERNAL REPORTS. THE ASSESSEE MA DE INVESTMENT OF RS.38.79 CRORES AND EARNED EXEMPT INC OME OF RS.16.29 LAKHS. THE SHARE CAPITAL AND RESERVES OF T HE ASSESSEE ARE 159.22 CRORES AND THE ASSESSEE MADE INVESTMENT IN SUBSIDIARIES/OVERSEAS COMPANY OF RS.18.25 CRORES. T HE MAIN SOURCE OF INVESTMENT IS FROM SHARE CAPITAL, RESERVE S AND SURPLUS. THE INVESTMENT MADE IN SISTER CONCERN/GRO UP CONCERN AND SUBSIDIARIES ARE MADE WITH THE INTENTIO N TO ITA NO. 5656/MUM/2016 M/S DDB MUDRA PVT LTD. 18 FACILITATE AND TO PROMOTE THE BUSINESS INTEREST OF THE COMPANY. THE ASSESSEE CLAIMED THAT THE ASSESSING OFFICER CAL CULATED THE AVERAGE VALUE OF INVESTMENT BY TAKING INTO ACCOUNT THE WHOLE INVESTMENT, WHICH INCLUDES INVESTMENT FROM WHICH NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE. CONSIDERING THE TOTALITY OF FACTS AND THE AFORESAID DECISION OF THE TRIBUNAL, W E ARE OF THE VIEW THAT THE DISALLOWANCE CANNOT BE MORE THAN THE EXEMPT INCOME, AS CANVASSED BY THE LD. COUNSEL FOR THE ASS ESSEE ALSO, THEREFORE, WE DIRECT THE LD. ASSESSING OFFICER TO R ESTRICT THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME. THUS, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. FINALLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF THE LD. REPRESENTATIVE FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 02/11/2017. SD/- SD/- ( RAJESH KUMAR ) (JOGINDER SINGH) '!# / ACCOUNTANT MEMBER $!# /JUDICIAL MEMBER $ MUMBAI; ( DATED : 02/11/2017 F{X~{T? P.S / /. .. %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. *+,- / THE APPELLANT (RESPECTIVE ASSESSEE) ITA NO. 5656/MUM/2016 M/S DDB MUDRA PVT LTD. 19 2. ./ ,- / THE ASSESSEE. 3. 0 0 1' ( *+ ) / THE CIT, MUMBAI. 4. 0 0 1' / CIT(A)- , MUMBAI, 5. 3#4.' , 0 *+&* 5 , / DR, ITAT, MUMBAI 6. 6 7 / GUARD FILE. / BY ORDER, /3+'.' //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI