SUBHKAM VENTRURES (I) PRIVATE LIMITED, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX 1(3)(1), MUMBAI

ITA 5682/MUM/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5334 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2014-2015
• Appeal Filed On: 04-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T S KHALSA
• Keywords: Business income; Business expenditure; Earning of tax free income; Rule 8D; Set aside
• Section: 14A; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO.55/M/2018 ASSESSMENT YEAR: 2013-14 DCIT 1(3)(1), R. NO.540, AAYAKAR BHAVAN, MUMBAI - 400020 VS. M/S. SUBHKAM VENTURES (I) PVT. LTD., 4 TH FLOOR, INTERNATIONAL HOUSE, NEW MARINE LINES CROSS ROAD, NO.1, M.K. ROAD, MUMBAI 400 020 PAN: AAACW1642M (APPELLANT) (R ESPONDENT) ITA NO.5682/M/2018 ASSESSMENT YEAR: 2014-15 M/S. SUBHKAM VENTURES (I) PVT. LTD., 14 TH FLOOR, MAKER CHAMBERS, IV, 222, NARIMAN POINT, MUMBAI 400 020 PAN: AAACW1642M VS. DCIT 1(3)(1), ROOM NO.540, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI SANJAY PARIKH, A.R. REVENUE BY : SHRI T.S. KHALSA, D.R. DATE OF HEARING : 12.08.2021 DATE OF PRONOUNCEMENT : 23.09.2021 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE ABOVE TITLED CROSS APPEALS HAVE BEEN PREFERRED AGAINST THE ORDER DATED 11.10.2017 & 01.08.2018 OF THE COMM ISSIONER ITA NO.55/M/2018 & ORS. M/S. SUBHKAM VENTURES (I) PVT. LTD. 2 OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT YEAR 2013-14 & 2014-15 RESPE CTIVELY. 2. WE WOULD LIKE TO FIRST ADJUDICATE ITA NO.5682/M/ 2018 A.Y. 2014-15. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. FOR THAT THE LD. CIT(A) ERRED IN LAW AND FACT S IN NOT DEVISING THE METHODOLOGY OR BASIS OF APPORTIONMENT WITH RESPECT TO AN INVEST MENT WHICH YIELD BOTH TAXABLE AS WELL AS EXEMPT INCOME, I.E. IN NOT PROVIDING THE BASIS FOR BIFURCATING THE AMOUNT OF SUCH INVESTMENT, FOR THE PURPOSE OF AVERAGING UN DER RULE 8D, PERTAINING TO TAXABLE PORTION OF INCOME AND EXEMPT PORTION OF INC OME, WHILE HOLDING THAT 'THE AO IS DIRECTED TO RE-WORK THE DISALLOWANCE UNDER RU LE 8(2)(II) AND RULE 8(2)(III) BY CONSIDERING ALL INVESTMENTS OTHER THAN THE INVESTME NTS WHICH YIELD TAXABLE INCOME WHILE WORKING OUT THE AVERAGE OF INVESTMENTS FOR TH E APPLICATION OF THE SAID RULES', AS THE HONB'LE SUPREME COURT IN MAXOPP INVESTMENT L TD., VS. CIT, NEW DELHI, 91 TAMANN.COM 154 HAS ONLY HELD THAT 'EXPENDITURE ATTR IBUTABLE TO EXEMPT INCOME HAS TO BE APPORTIONED TO BE DISALLOWED UNDER SECTIO N 14A, WITH RESPECT TO AN INVESTMENT WHICH YIELD BOTH TAXABLE AS WELL AS EXEM PT INCOME, WITHOUT SPECIFYING THE BASIS AS TO HOW SUCH APPORTIONMENT WOULD BE MAD E. 2. FOR THAT HOLDING BY CIT(A) THAT CONTENTION OF THE ASSESSEE THAT 'THE INVESTMENTS MADE IN SUBSIDIARY AND ASSOCIATED COMPANIES AND OTH ER STRATEGIC INVESTMENTS SHOULD NOT BE CONSIDERED WHILE WORKING OUT THE AVER AGE INVESTMENTS UNDER RULE 8D (2)(II) AND RULE 8D(2)(III) OF THE RULES IS NOT ACC EPTABLE' IS ARBITRARY, BAD IN LAW AND PERVERSE INASMUCH AS THE HONB'LE SUPREME COURT IN A FORESAID MAXOPP INVESTMENT LTD., VS. CIT (SUPRA) HAS NOWHERE HELD SO. MOREOVER , APEX COURT DISMISSED THE SLP IN CIT (CENTRAL) 1 V. CHETTINAD LOGISTICS (P) LTD [ 2018] 95 TAXMANN.COM 250(SC) ON THE GROUND THAT WHERE NO EXEMPT INCOME IS EARNED SE CTION 14A COULD NOT BE INVOKED. 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTE R, VARY AND / OR WITHDRAW ANY OR ALL THE ABOVE GROUNDS OF APPEAL. 3. THE COMMON ISSUE RAISED IN BOTH THE GROUNDS BY T HE ASSESSEE IS AGAINST THE CONFIRMATION OF DISALLOWANC E OF RS.1,24,67,062/- BY LD. CIT(A) AS MADE BY THE AO UN DER RULE 8D2(II) IN RESPECT OF INTEREST EXPENDITURE. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE FILED R ETURN OF INCOME ON 29.09.2014 DECLARING TOTAL INCOME AT NIL. THE CASE OF THE ASSESSEE HAS BEEN SELECTED FOR SCRUTINY UNDER C ASS AND STATUTORY NOTICES WERE DULY ISSUED AND SERVED UPON THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS THE AO ITA NO.55/M/2018 & ORS. M/S. SUBHKAM VENTURES (I) PVT. LTD. 3 NOTED THAT ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.2,82,25,712/- WHEREAS DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS MADE TO THE EXTENT OF RS.2,90,746/- AND ACC ORDINGLY ASSESSEE WAS CALLED UPON VIDE ORDER SHEET NOTING DA TED 18.12.2017 TO EXPLAIN THE DISALLOWANCE UNDER SECTIO N 14A READ WITH RULE 8D2(II). THE ASSESSEE REPLIED THE SAID S HOW CAUSE NOTICE VIDE LETTER DATED 07.12.2016. THE ASSESSEE SUBMITTED BEFORE THE AO THE WORKING OF THE DISALLOWANCE UNDE R SECTION 14A READ WITH RULE 8D WHICH WORKED OUT TO RS.15,454 ,633/- AND SUBMITTED THAT THE SAME WAS WRONGLY AND INADVERTE NTLY TAKEN AS RS.2,90,746/-. THUS THE ASSESSEE REQUESTED THE A O TO DISALLOW THE REMAINING DIFFERENCE OF RS.12,54,887/- . THE ASSESSEE SUBMITTED BEFORE THE AO THAT DURING THE IN STANT ASSESSMENT YEAR, THE ASSESSEE HAS INCURRED A SUM OF RS.6,34,34,328/- AS INTEREST WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF TRADING IN SHARES AND SECURI TIES AND NO PART OF IT CAN BE ATTRIBUTED TO ASSESSEES INVESTME NT ACTIVITIES. THE ASSESSEE FURNISHED THE DETAILS OF INVESTMENTS A T THE YEAR END OF TWO YEARS 31.3.2013 AND 31.3.2014 AND AVERAG E INVESTMENTS ALSO. THE ASSESSE SUBMITTED BEFORE THE AO THAT AVERAGE ASSESSEES OWN FUNDS WERE SUFFICIENT TO COV ER THE AVERAGE INVESTMENTS IN SHARES AND SECURITIES WHICH YIELDED EXEMPT INCOME. THE ALSO INFORMED THE AO THAT THE S IMILAR ISSUE HAS BEEN DECIDED IN A.Y. 2013-14 BY LD. CIT(A) IN F AVOUR OF THE ASSESSEE DELETING THE DISALLOWANCE UNDER SECTION 14 A READ WITH RULE 8D2(II). THE SUBMISSIONS OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE AO AND HE RECALCULATED THE DISALLOWANCE UN DER SECTION 14A READ WITH RULE 8D(2) BY COMPUTING TOTAL DISALLO WANCE AT RS.1,40,44,074/- COMPRISING DIRECT EXPENSES OF RS.3 1,379/- ITA NO.55/M/2018 & ORS. M/S. SUBHKAM VENTURES (I) PVT. LTD. 4 UNDER RULE 8D2(I), RS. 1,24,67,062/- UNDER RULE 8D 2(II) AND RS.15,45,633/- UNDER RULE 8D(2)(III) AND AFTER ALLO WING THE DEDUCTION FOR SUO-MOTO DISALLOWANCE MADE AN ADDITIO N OF RS.1,37,53,328/-. 5. SO FAR AS THE DISALLOWANCE UNDER RULE 8D2(I) AND RULE 8D2(III) IS CONCERNED, THERE IS NO DISPUTE AND THE ASSESSEE HAS DISPUTED ONLY THE DISALLOWANCE OF RS.1,24,67,062/- AS MADE BY THE AO UNDER RULE 8D2(II). 6. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) PAR TLY ALLOWED THE APPEAL OF THE ASSESSEE ON THIS ISSUE BY DIRECTI NG THE AO TO WORK OUT THE DISALLOWANCE UNDER RULE 8D2(II) AND RU LE 8D2(III) BY CONSIDERING THE INVESTMENTS OTHER THAN THOSE INVEST MENTS WHICH DID NOT YIELD ANY EXEMPT INCOME DURING THE YEAR WHI LE CALCULATING THE AVERAGE INVESTMENTS AND THUS PARTLY ALLOWED THE APPEAL FOR STATISTICAL PURPOSES BY OBSERVING AND HO LDING AS UNDER: 6.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, DISCUSSION OF THE AO IN THE IMPUGNED ORDER AS WELL AS ORAL CONTENTIONS AND WRIT TEN SUBMISSIONS OF THE APPELLANT. THE APPELLANT HAS RELIED ON THE DECISION OF MY LEARNED PREDECESSOR CIT(A) FOR A.Y.2012-13 AND ON MY DECISION IN ITS OW N CASE FOR A.Y.2013-14. THE APPELLANT HAS VOLUNTARILY DISALLOWED RS.2,90,746/- WHEREAS AO HAS FURTHER DISALLOWED RS.1,37,53,328/-. ONCE THE AO IS NOT SA TISFIED WITH THE SUO MOTO DISALLOWANCE OF THE ASSESSEE, HE CAN PROCEED WITH T HE APPLICATION OF RULE 8D. LET US NOW CONSIDER THE DISALLOWANCE NEEDED UNDER RULE 8D. APPELLANT HAS INITIALLY OFFERED TOTAL DISALLOWANCE OF RS.2,90,746/-. THIS WAS REVI SED TO RS.15,77,012/- BY ASSESSEE'S LETTER DATED 07.12.2016 TO THE AO. THE D ISALLOWANCES UNDER RULE 8D(2)(I), 8D(2)(II) AND 8D(2)(III) ARE RS.31,379/-, RS.NIL AN D RS.15,45,633/- RESPECTIVELY. ON THE OTHER HAND, AO HAS DISALLOWED RS.31,379/-, RS.1 ,24,67,062/- AND RS.15,45,633/- RESPECTIVELY. THERE IS NO DISPUTE REGARDING DISALLO WANCE UNDER RULE 8D(2)(I). AS REGARDS THE DISALLOWANCES UNDER RULE 8D(2)(II) AND 8D(2)(III), THE APPELLANT HAS TAKEN INVESTMENT IN QUOTED SHARES ONLY WHEREAS, THE AO HA S TAKEN THE TOTAL INVESTMENTS. IN THIS CONNECTION, THE APPELLANT HAS STATED THAT S TRATEGIC INVESTMENT AND INVESTMENT WHICH GIVE RISE TO TAXABLE INCOME SHOULD BE EXCLUDED FROM THE AVERAGE VALUE OF INVESTMENT. AS PER PROVISIONS OF RULE 8D(2 )(II), THE AVERAGE VALUE OF INVESTMENT IS THE INVESTMENT, THE INCOME FROM WHICH DOES NOT OR SHALL NOT FROM PART OF TOTAL INCOME. THEREFORE, THE INVESTMENTS WHICH RESULT INTO TAXABLE INCOME ITA NO.55/M/2018 & ORS. M/S. SUBHKAM VENTURES (I) PVT. LTD. 5 SUCH AS VENTURE CAPITAL FUNDS ARE TO BE EXCLUDED WH ILE DETERMINING AVERAGE VALUE OF INVESTMENTS. WHILE DECIDING THE CASE OF THE ASS ESSEE FOR A.Y.2012-13 AND 2013- 14, PLACING RELIANCE ON THE DECISIONS OF GARWARE WA LL ROPES LTD. (SUPRA), J. M. FINANCIAL LTD. (SUPRA), PIEM HOTELS LTD. (SUPRA) AN D SELVES ADVERTISING (P.) LTD. (SUPRA), IT WAS HELD THAT THE INVESTMENTS IN GROUP CONCERNS AND STRATEGIC INVESTMENTS ARE TO BE EXCLUDED AND SHOULD NOT BE TA KEN INTO ACCOUNT WHILE WORKING OUT THE DISALLOWANCE UNDER RULE 8D(2) OF THE RULES. HOWEVER, SUBSEQUENTLY, THE HON'BLE SUPREME COURT, IN THEIR DECISION IN THE CAS E OF MAXOPP INVESTMENT LTD. VS. CIT, NEW DELHI, 91 TAXMANN.COM 154, HAVE HELD THAT THE DOMINANT PURPOSE FOR WHICH THE INVESTMENTS INTO SHARES IS MADE BY AN ASS ESSEE MAY NOT BE RELEVANT AND THE SAME IS NOT A RELEVANT FACTOR IN DETERMINING TH E ISSUE OF DISALLOWANCE U/S.14A. THEIR LORDSHIPS HAVE ALSO OBSERVED THAT THE FACT RE MAINS THAT THE CONSEQUENT DIVIDEND INCOME EARNED IS NON-TAXABLE AND IN THAT S CENARIO, IF EXPENDITURE IS INCURRED ON EARNING THE DIVIDEND INCOME, THAT MUCH OF THE EXPENDITURE WHICH IS ATTRIBUTABLE TO THE DIVIDEND INCOME HAS TO BE DISAL LOWED AND CANNOT BE TREATED AS BUSINESS EXPENDITURE. THEIR LORDSHIPS HAVE FURTHER OBSERVED THAT KEEPING THIS OBJECTIVE BEHIND SECTION 14A OF THE ACT IN MIND, TH E SAID PROVISION HAS TO BE INTERPRETED PARTICULARLY THE WORD 'IN RELATION TO I NCOME' THAT DOES NOT FORM PART OF THE TOTAL INCOME. IT HAS FURTHER BEEN OBSERVED THAT CONSIDERED IN THIS HUE, THE PRINCIPLE OF APPORTIONMENT OF EXPENSES COMES INTO P LAY AS THAT IS THE PRINCIPLE WHICH IS ENGRAVED IN SECTION 14A OF THE ACT. IN VIE W OF SUCH OBSERVATIONS OF HON'BLE APEX COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. V S. CIT (SUPRA), THE CONTENTIONS AND SUBMISSIONS OF THE ASSESSEE THAT THE INVESTMENT S IN STOCK WHICH ARE HELD AS STOCK-IN-TRADE OR SUCH INVESTMENTS IN STOCK WHICH A RE MADE IN SUBSIDIARY AND ASSOCIATED COMPANIES AND OTHER STRATEGIC INVESTMENT S SHOULD BE EXCLUDED WHILE WORKING OUT THE AVERAGE INVESTMENTS UNDER RULE 8D(2 )(II) AND RULE 8D(2)(III), ARE NOT FOUND TO BE ACCEPTABLE. THE APPELLANT, IN THEIR SUBMISSION, BY REPRODUCING PARA 34, 41 AND 42 OF THE SAID DECISION OF HON'BLE SUPRE ME COURT, HAVE CONTENDED THAT ONCE THE DECISION TO APPLY THE PROVISIONS OF RULE 8 D HAS BEEN TAKEN BY THE AO, IT CANNOT BE SAID THAT THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN MAXOPP CASE (SUPRA) HAS NOT BEEN FOLLOWED. IN THIS REGARD, IT IS STATED THAT IN THE INSTANT CASE, THERE IS NO DISPUTE REGARDING APPLICA TION OF RULE 8D(2) OF THE RULES. THE ONLY DISPUTE RAISED IS IN RESPECT OF THE COMPUT ATION DONE UNDER RULE 8D(2)(II) AND RULE 8D(2)(III) OF THE RULES. THE CONTENTION OF THE ASSESSEE HAS BEEN THAT THE INVESTMENTS MADE IN SUBSIDIARY AND ASSOCIATED COMPA NIES AND OTHER STRATEGIC INVESTMENTS SHOULD NOT BE CONSIDERED WHILE WORKING OUT THE AVERAGE INVESTMENTS UNDER RULE 8D(2)(II) AND RULE 8D(2)(III) OF THE RUL ES. IN RESPECT OF THE SAME, IT IS STATED THAT IN VIEW OF THE DECISION OF HON'BLE SUPR EME COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. VS. CIT (SUPRA), SUCH CONTENTIONS AND SUBMISSIONS OF THE ASSESSEE ARE NOT FOUND TO BE ACCEPTABLE. FURTHER, THE CONTEN TION OF THE ASSESSEE REGARDING SECTION 14A BEING DEEMING PROVISION AND THEREFORE, NOTHING FURTHER COULD BE DEEMED IS FOUND TO BE IRRELEVANT AS WHAT IS THE ISS UE UNDER DISPUTE IS ONLY THE METHODOLOGY ADOPTED BY THE AO FOR COMPUTATION OF DI SALLOWANCE BY INVOKING RULE 8D(2) VIS-A-VIS WHAT ASSESSEE DEEMS FIT. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND DISCUSSION HEREINABOVE, THE AO IS DIRE CTED TO RE-WORK THE DISALLOWANCE UNDER RULE 8D(2)(II) AND RULE 8D(2)(II I) BY CONSIDERING ALL INVESTMENTS OTHER THAN THE INVESTMENTS WHICH YIELD TAXABLE INCO ME, WHILE WORKING OUT THE AVERAGE INVESTMENTS FOR THE APPLICATION OF THE SAID RULES. SUBJECT TO SUCH DIRECTIONS, ITA NO.55/M/2018 & ORS. M/S. SUBHKAM VENTURES (I) PVT. LTD. 6 THESE GROUNDS ARE DISPOSED OFF AND FOR STATISTICAL PURPOSES, THEY ARE TREATED AS PARTLY ALLOWED. 7. GROUND NO.5: THIS GROUND IS GENERAL IN NA TURE AND AS SUCH DOES NOT REQUIRE ANY SEPARATE OR SPECIFIC ADJUDICATION. ACCORDINGLY, THE SAME IS DISPOSED OFF. 8. IN THE RESULT, THE APPEAL IS PARTLY ALLOWE D. 7. THE LD. A.R. VEHEMENTLY SUBMITTED BEFORE THE BEN CH THAT THE ORDER PASSED BY LD. CIT(A) IS WRONG AND UNTENAB LE IN THE EYES OF LAW AS THE LD. CIT(A) HAS IGNORED THE SEVER AL FACTUAL ASPECTS WHICH PROVED THAT NO DISALLOWANCE UNDER RUL E 8D2(II) COULD BE MADE UNDER THE LAW. THE LD. A.R. SUBMITTE D 3-4 PROPOSITIONS BEFORE THE BENCH. THE LD. A.R. SUBMIT TED THAT ASSESSEES AVERAGE INVESTMENTS YIELDING EXEMPT INCO ME ARE LESS THAN THE AVERAGE OWN FUNDS AND THEREFORE NO DISALLO WANCE COULD BE MADE UNDER RULE 8D2(II). THE LD. A.R. SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF JURISD ICTIONAL HIGH COURT IN THE CASE OF CIT VS. HDFC BANK (2014) 366 I TR 505 (BOM.), CIT VS. SBI, DHFL LTD. (2014) 376 ITR 296 ( BOM.) AND HDFC BANK VS. CIT (2016) 383 ITR 529 (BOM.). THE L D. A.R. THEREFORE PRAYED THAT SINCE THE ASSESSEES AVERAGE INVESTMENTS IN THE SECURITIES YIELDING EXEMPT INCOME BEING LESS THAN THE AVERAGE OWN FUNDS, THEREFORE, NO DISALLOWANCE CAN B E MADE UNDER RULE 8D2(II). THE SECOND WITHOUT PREJUDICE P ROPOSITIONS MADE BY THE LD. A.R. IS THAT THESE INVESTMENTS WHIC H HELD BY THE ASSESSEE AS STOCK IN TRADE WHICH YIELDED BOTH E XEMPT AS WELL AS TAXABLE INCOME THE LD. A.R. SUBMITTED THAT THE L D. CIT(A) HAS GROSSLY ERRED IN APPLYING THE DECISION OF HONBLE S UPREME COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. VS. CIT NEW DELHI 91 TAXMANN.COM 154 AND HOLDING THAT DOMINANT PURPOSE F OR WHICH THE INVESTMENTS IN ALL THE SHARES IS MADE BY THE AS SESSEE IS NOT ITA NO.55/M/2018 & ORS. M/S. SUBHKAM VENTURES (I) PVT. LTD. 7 RELEVANT IN DETERMINING THE ISSUE OF DISALLOWANCE U NDER SECTION 14A OF THE ACT. THE LD. A.R. TOOK US THROUGH THE D ECISION OF MAXOPP INVESTMENTS LTD. VS. CIT (SUPRA) AND TRIED T O EXPLAIN THAT HONBLE SUPREME COURT HAS NEVER GIVEN ANY FIND ING THAT THE PROVISION OF SECTION 14A IS TO BE INVOKED EVEN WHER E THE INVESTMENTS ARE MADE BY WAY OF STOCK IN TRADE BY TH E ASSESSEE. THE LD. A.R. SUBMITTED THAT THE INVESTMENTS MADE BY THE ASSESSEE IN SECURITIES WHICH ARE HELD AS STOCK IN T RADE YIELDED BOTH EXEMPT AS WELL AS NON EXEMPT INCOME AND BOTH A RE TAXABLE AS BUSINESS INCOME. THE LD. A.R. SUBMITTED THAT IT IS A SEPARATE ISSUE THAT SUCH EXEMPT INCOME WHICH CONSTI TUTE PART OF THE INCOME CAN NOT BE BROUGHT TO TAX UNDER THE ACT AS THE SAME IS EXEMPT FROM TAX. THE LD. A.R. TOOK US THROUGH P ARA NOS.19, 20, 31, 37, 38, 39 & 40 AND SUBMITTED THAT THE LD. CIT(A) HAS WRONGLY INTERPRETED AND APPLIED THE DECISION OF HON BLE APEX COURT. THE LD. A.R. ALSO RELIED ON THE DECISION OF DELHI TRIBUNAL IN THE CASE OF NICE BOMBAY TRANSPORT PVT. LTD. VS. ACIT (OSD) ITA NO.1331/DEL/2001 ORDER DATED 19.11.2018 WHEREIN THE LD. COUNSEL SUBMITTED THAT IT HAS BEEN HELD THAT WHERE THE ASSESSEE IS ENGAGED IN TRADING IN SHARES AND THUS SHARES ARE HELD AS STOCK IN TRADE AND NOT AN INVESTMENT, NO DISALLOWAN CE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D CAN BE MAD E. THE LD. A.R. SUBMITTED THAT THE TRIBUNAL HAS CONSIDERED AND FOLLOWED THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F MAXOPP INVESTMENTS LTD. VS. CIT (SUPRA) AND DECIDED THE IS SUE IN FAVOUR OF THE ASSESSEE. THEREFORE, LD. A.R. SUBMITTED THA T ON THE SECOND PROPOSITION ALSO THE DISALLOWANCE UNDER RULE 8D2(II) DESERVED TO BE DELETED. ON THE THIRD PROPOSITION, THE LD. A.R. SUBMITTED THAT WHILE COMPUTING THE DISALLOWANCE UND ER RULE ITA NO.55/M/2018 & ORS. M/S. SUBHKAM VENTURES (I) PVT. LTD. 8 8D2(II) ONLY THOSE INVESTMENTS NEED TO BE TAKEN INT O ACCOUNT WHICH HAS YIELDED EXEMPT INCOME AND NOT ALL THE INV ESTMENTS. IN VIEW OF THESE PROPOSITIONS THE LD. A.R. SUBMITTE D THAT THE ORDER OF LD. CIT(A) MAY KINDLY BE REVERSED AND DISA LLOWANCE AS SUSTAINED MAY KINDLY BE DELETED. 8. THE LD. D.R., ON THE OTHER HAND, STRONGLY RELIED ON THE ORDER OF LD. CIT(A) BY SUBMITTING THAT IN A.Y. 2013 -14 IN ITA NO.55/M/2018 WHICH IS APPEAL OF THE REVENUE BEFORE THIS BENCH AND THE LD. CIT(A) HAD ALLOWED THE APPEAL OF THE ASSESSEE AS THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. VS. CIT (SUPRA) WAS NOT AVA ILABLE WHEREAS WHILE DECIDING THE ASSESSMENT YEAR 2014-15 THIS DECISION WAS VERY MUCH THERE AND THEREFORE THE LD. CIT(A) HAS CONFIRMED THE ADDITION BY GIVING CERTAIN DIRECTIONS . THE LD. D.R., THEREFORE, PRAYED THAT THE ORDER PASSED BY LD . CIT(A) IS VERY REASONED ORDER BY FOLLOWING THE DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENTS LTD . VS. CIT (SUPRA) AND THEREFORE MAY KINDLY BE AFFIRMED. 9. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE LD. A.R. HAS FI LED BEFORE US THE WORKING OF AVERAGE INVESTMENTS AND AVERAGE OWN FUNDS WHICH WERE ALSO FILED BEFORE THE AUTHORITIES BELOW, WHICH ARE EXTRACTED BELOW ARE FOR THE SAKE OF READY REFERENCE AND CONVENIENCE. PARTICULARS 31ST MARCH, 2014 31 ST MARCH, 2013 PAGE NO. OF PAPER BOOK TOTAL INVESTMENTS AS PER NOTE NO. 10 775,386,357.00 1,105,781,079.00 11, 16 & 17 LESS : INVESTMENT IN 75,085,700.00 101,800,000.00 17 ITA NO.55/M/2018 & ORS. M/S. SUBHKAM VENTURES (I) PVT. LTD. 9 GROWTH FUNDS - SUBHKAM GROWTH FUND 700,300,657.00 26,225,910.00 1,003,981,079.00 52,451,820.00 LESS : INVESTMENT IN FOREIGN COMPANIES - SUBHKAM OVERSEAS 647,848,837.00 647,848,837.00 951,529,259.00 17,000,000.00 17 LESS: INVESTMENT IN PROPERTIES - PANYAM CEMENTS & MINERAL 934,529,259.00 17 INVENTORIES AS PER NOTE NO. 13 757,488,040.00 372,915,849.00 9 TOTAL INVESTMENTS TO BE CONSIDERED FOR DISALLOWANCE U/S. 14A 1,405,336,877.00 1,307,445,108.00 AVERAGE VALUE OF INVESTMENTS 1,356,390,992.50 OWN FUNDS SHARE CAPITAL 19,910,370.00 19,710,370.00 9 RESERVES AND SURPLUS 1,277,813,184.00 1,265,316,966.00 9 TRADE PAYABLES 22,443,548.00 18,713,281.00 14 UNSECURED LOAN FROM DIRECTORS 90,600,000.00 7,500,000.00 14 ___________ ___________ AVERAGE OWN FUNDS 1,410,767,102.00 1,311,240,617.00 1,361,003,859.50 10. WE FIND FROM THE ABOVE THAT THE TOTAL INVESTMEN TS AS PER NOTE NO.9 WERE RS.77,53,86,357/- WHICH COMPRISED OF INVESTMENTS IN GROWTH FUNDS RS.7,50,85,700/-, INVES TMENTS IN FOREIGN COMPANIES RS.2,62,25,910/- AND INVESTMENT I N PROPERTIES RS.64,78,48,837/- AND REMAINING REPRESEN TED THE INVESTMENTS IN SHARE AND SECURITIES OF RS.64,78,48, 837/-. WE FURTHER NOTE THAT INVENTORIES AS PER NOTE NO.12 IS RS.75,74,88,040/-. WE FIND MERIT IN THE CONTENTION S OF THE LD. A.R. THAT INVESTMENTS IN GROWTH FUNDS ARE NOT INCLU DIBLE WHILE COMPUTING THE AVERAGE INVESTMENTS FOR CALCULATING T HE DISALLOWANCE UNDER SECTION 14A AS NO DIVIDEND IS DE CLARED IN CASE OF GROWTH FUNDS AND WHATEVER GAIN IS MADE THAT IS TAXABLE ITA NO.55/M/2018 & ORS. M/S. SUBHKAM VENTURES (I) PVT. LTD. 10 UNDER THE ACT. SIMILARLY, THE DIVIDEND RECEIVED FR OM FOREIGN COMPANIES IS LIABLE TO TAX AND CONSEQUENTLY THESE I NVESTMENTS HAVE TO BE EXCLUDED. LASTLY, THE INVESTMENTS IN PR OPERTIES ALSO DID NOT FORM PART OF THE INVESTMENTS FOR THE PURPOS E OF CALCULATION OF SECTION 14A DISALLOWANCE AS THERE IS NO DIVIDEND DECLARED ON THE INVESTMENT IN PROPERTIES BUT APPREC IATION REALIZED UPON SALE IS OFFERED TO TAX. THEREFORE, A LL THESE THREE INVESTMENTS IN GROWTH FUNDS, IN FOREIGN COMPANIES A ND IN PROPERTIES HAVE TO BE EXCLUDED WHILE CALCULATING TH E AVERAGE INVESTMENTS. SIMILAR ADJUSTMENT ARE REQUIRED TO BE MADE IN THE FIGURES OF INVESTMENTS IN THE CORRESPONDING PREVIOU S YEAR ENDED ON 31.03.02013 AS STATED HEREINABOVE. WE NOTE THAT THE AVERAGE INVESTMENTS COME TO RS.135,63,19,992.50. SIMILARLY , THE AVERAGE OWN FUNDS THE CALCULATION WHEREOF IS EXTRAC TED ABOVE ARE RS.136,10,03,859/-. IT IS APPARENT FROM THE ABOVE CALCULATION THAT ASSESSEES AVERAGE OWN FUNDS ARE MORE THAN THE AVERAGE VALUE OF INVESTMENTS AND IN OUR CONSIDERED OPINION , NO DISALLOWANCE IS CALLED FOR UNDER RULE 8D2(II) OF TH E ACT. THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION S AS REFERRED TO ABOVE BY THE LD. A.R. IN SUPPORT OF HIS ARGUMENT S. IN THE CASE OF CIT VS. HDFC BANK LTD. (SUPRA) AND IT HAS B EEN HELD THAT WHERE THE INTEREST FREE FUNDS AS WELL AS OWN F UNDS EMPLOYED IN THE BUSINESS ARE MORE THAN THE INVESTME NTS IN THE SHARES AND SECURITIES YIELDING EXEMPT INCOME, IN T HAT CASE NO DISALLOWANCE IS TO BE MADE. SIMILAR RATIO HAS BEEN LAID IN ANOTHER DECISION IN THE SUBSEQUENT DECISION IN THE CASE OF HDFC BANK VS. CIT (2016) 383 ITR 529 BY THE HONBLE JURI SDICTIONAL HIGH COURT THAT WHERE ASSESSEES OWN FUNDS ARE MORE THAN THE INVESTMENTS MADE IN SHARES AND SECURITIES NO DISALL OWANCE IS TO ITA NO.55/M/2018 & ORS. M/S. SUBHKAM VENTURES (I) PVT. LTD. 11 BE MADE UNDER SECTION 14A. IN VIEW OF THE FACTS OF THE INSTANT CASE AND THE RATIO LAID DOWN BY THE JURISDICTIONAL HIGH COURT WE ARE INCLINED TO SET ASIDE THE ORDER OF LD. CIT(A) A ND DIRECT THE AO TO DELETE THE DISALLOWANCE OF RS.1,24,67,062/- AS M ADE UNDER RULE 8D2(II). 11. SINCE WE HAVE ALLOWED THE APPEAL OF THE ASSESSE E ON THE FIRST PROPOSITION, THE OTHER TWO WITHOUT PREJUDICE PROPOSITIONS MADE BY THE ASSESSEE ARE NOT BEING ADJUDICATED. 12. THE ASSESSEES APPEAL IS ALLOWED. ITA NO.55/M/2018 (REVENUES APPEAL) 13. THE ISSUE RAISED IN THIS APPEAL BY THE REVENUE IS AGAINST THE DELETION OF DISALLOWANCE OF RS.3,89,99,890/- UN DER RULE 8D2(III) OF THE ACT BY LD CIT(A). 14. THE FACTS OF THE INSTANT APPEAL BY THE REVENUE ARE SIMILAR TO ONE AS DECIDED BY US IN ITA NO.5682/M/2018 A.Y. 2014-15. WE FIND THAT THE LD. CIT(A) ALLOWED THE APPEAL OF T HE ASSESSEE IN THIS YEAR BY DIRECTING THE AO TO EXCLUDE FROM THE A VERAGE VALUE OF THE INVESTMENTS IN SUBSIDIARY AND ASSOCIATE COMP ANIES AND OTHER STRATEGIC INVESTMENTS AS WELL AS INVESTING YI ELDING TAXABLE INCOME FOR CALCULATING THE DISALLOWANCE UNDER SECTI ON 14A OF THE ACT. THE LD. D.R. SUBMITTED BEFORE THE BENCH THAT AT THE TIME OF PASSING THE ORDER THE DECISION OF THE APEX COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. VS. CIT NEW DELHI 91 TAXMAN N.COM 154 WAS NOT AVAILABLE AND THEREFORE THE RELIEF WAS ALLOWED TO THE ASSESSEE BY LD. CIT(A). HOWEVER, IN THE SUBSEQUENT YEAR THE DECISION OF THE HONBLE SUPREME COURT AS REFERRED T O ABOVE WAS AVAILABLE AND THEREFORE LD. CIT(A) DISMISSED THE AP PEAL OF THE ITA NO.55/M/2018 & ORS. M/S. SUBHKAM VENTURES (I) PVT. LTD. 12 ASSESSE, WHILE FAIRLY CONCEDED THAT FACTS IN BOTH T HE YEARS BEING SAME. THE LD. A.R. REITERATED HIS SUBMISSIONS BEFO RE THE BENCH AS MADE IN ITA NO.5682/M/2018 A.Y. 2014-15. SINCE THE FACTS BEING SIMILAR TO ITA NO.5682/M/2018 A.Y. 2014-15, O UR DECISION IN ITA NO.5682/M/2018 A.Y. 2014-15 WOULD, MUTATIS MUTANDIS, APPLY TO THIS APPEAL AS WELL. CONSEQUENT LY, THE APPEAL OF THE REVENUE IS DISMISSED. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.09.2021. SD/- SD/- ( PAVAN KUMAR GADALE) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 23.09.2021. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.