M/s. Sri Vishnu Shankar Mills Ltd., Rajapalayam V. ITO, CORP WARD 1, MADURAI

ITA 577/CHNY/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4393 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 06-03-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: J PRABHAKAR
• Keywords: Earning of tax free income; Source of fund; Proportionate interest; TDS; Rule 8D
• Section: 143(3); 14A; 115JB; 13

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: CHENNAI . . . , ! , & BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ITA NO.577/CHNY/2019 ' ' /ASSESSMENT YEAR: 2014-15 M/S. SRI VISHNU SHANKAR MILL LTD., SRI VISHNU SHANKAR MILL PREMISES, P.A.C.RAMASAMY RAJA SALAI, POST BOX NO.109, RAJAPALAYAM-626 117, TAMIL NADU V . THE INCOME TAX OFFICER, CORPORATE WARD-1, CR BUILDING, 2 V P RATHINASAMY NADAR ROAD, BIBIKULAM, MADURAI-625 002, TAMIL NADU [PAN: AACCS 0536 Q ] ( * /APPELLANT) ( +,* /RESPONDENT) * - / APPELLANT BY : MR. J.PRABHAKAR, FCA +,* - /RESPONDENT BY : MR. A.R.V.SREENIVASAN, JCIT - /DATE OF HEARING : 30.01.2020 - /DATE OF PRONOUNCEMENT : 27.02.2020 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER : THIS APPEAL FILED BY ASSESSEE IS DIRECTED AGAINST APPELLATE ORDER DATED 28.01.2019 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-1, MADURAI (HEREINAFTER CALLED THE CIT(A )), IN ITA NO.0200A/2016-17 FOR ASSESSMENT YEAR (AY) 2014-15, THE APPELLATE PROCEEDINGS BEFORE LEARNED CIT(A) HAD ARISEN FROM A SSESSMENT ORDER DATED 29.12.2016 PASSED BY LEARNED ASSESSING OFFI CER (HEREINAFTER CALLED ITA NO.577/CHNY/2019 :- 2 -: THE AO) U/S.143(3) OF THE INCOME-TAX ACT, 1961 ( HEREINAFTER CALLED THE ACT). 2. THE GROUNDS OF APPEAL RAISED BY ASSESSEE IN MEM O OF APPEAL FILED WITH THE INCOME-TAX APPELLATE TRIBUNAL, CHENNAI (HE REINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- THE UNDER MENTIONED GROUNDS OF APPEAL ARE INDEP ENDENT OF AND WITHOUT PREJUDICE TO ONE ANOTHER. 1. THE ORDER OF THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS! IS CONTRARY TO LAW AND FACTS. 2. THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING THE ADDITION OF RS. 36,38,000/- UNDER SECTION 14A (IN RELATION TO T HE DIVIDEND AMOUNT OF RS. 40,62,190/-) SINCE ALL THE INVESTMENTS HELD BY THE APPELLANT WER E FUNDED ENTIRELY BY COMPANY'S OWN FUNDS AND NO BORROWED FUNDS WERE USED FOR MAKING TH E INVESTMENTS, AS IS EVIDENT FROM THE FACTS ALREADY SUBMITTED TO THE ASSESSING OFFICER AND THE COMMISSIONER OF INCOME TAX (APPEALS) WITH RESPECT TO SOURCE AND DEPLOYMENT OF F UNDS. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT APPRECIATING THAT ONCE NO BORROWALS WERE USED TO MAKE THE INVESTMENTS, THE QUESTION OF DISALLOWANCE UNDER SECTION 14A WILL NOT ARISE AND HENCE ANY SUCH DISAL LOWANCE WILL BE CONTRARY TO FACTS AND WILL BE BASED PURELY ON ERRONEOUS PRESUMPTION. 4. THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE DESPITE THE FACT THAT THE FINANCIAL ST ATEMENTS AND THE DETAILS OF THE SOURCE OF FUNDING THE INVESTMENTS FURNISHED BY THE APPELLANT PROVE THAT NO BORROWING WAS USED THEREFOR. 5. THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS) OMITTED TO NOTICE THAT FACTUALLY NO EXPENDITURE WAS INCURRED FOR EARNING THE EXEMPT DIV IDEND INCOME AND THE RECEIPT OF THE DIVIDEND INCOME WAS MADE BY CREDITING IT DIRECTLY B Y THE INVESTEE COMPANIES TO THE BANK ACCOUNT OF THE APPELLANT AND AS SUCH THE DISALLOWAN CE IS NOT WARRANTED AND AVERMENTS TO THE CONTRARY IS SPECULATIVE AND NOT MANDATED BY SEC TION 14A. 6. THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING THE SAID ADDITION OF RS. 36,38,000/- MADE TO THE BOOK PROFITS COMPUTE D UNDER THE PROVISIONS OF SECTION 115JB SINCE THE SAME IS CONTRARY TO THE SPECIFIC PR OVISIONS CONTAINED IN SECTION 115JB IN THIS REGARD AND LINKING IT TO SECTION 14A IS AN UNA UTHORIZED ADJUSTMENT FOR COMPUTING THE BOOK PROFITS UNDER SECTION 115JB WHICH IS A SELF- C ONTAINED COMPLETE CODE FOR COMPUTING BOOK PROFITS. THE APPELLANT SUBMITS THAT THE SAME I S CONTRARY TO THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN VIREETH INVESTMENT (P) LIMI TED (2017) 82 TAXMANN.COM 415 (DEL- TRI.)(SB) 7. THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN RELYING UPON THE DECISION OF THE HON'BLE ITAT IN LALLY MOTORS INDIA (P) LTD. (2018) 93 TAXMANN.COM 39(AMRITSAR-TRIB.), WHICH IS NOT IN PARI MATERIA WI TH FACTS ON RECORD IN AS MUCH AS IN THAT CASE THE ASSESSEE HAD A NEGATIVE NET WORTH OF RS. 7 .70 CRORES, WHEREAS THE APPELLANT HAD OWN FUNDS DUE TO A HUGE POSITIVE NET WORTH RS. 19.7 5 CRORES (MUCH IN EXCESS OF ITS INVESTMENTS OF RS. 8.35 CRORES) AND THUS NO PART OF THE SOURCES OF INVESTMENTS MADE BY THE APPELLANT IS RELATABLE TO ANY BORROWED FUNDS. ITA NO.577/CHNY/2019 :- 3 -: 8. THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING THE DISALLOWANCE BASED ON A PRESUMPTION THAT EXPENSES HAVE BEEN INCU RRED AND ON AN ERRONEOUS INTERPRETATION THAT THE DISALLOWANCE UNDER SECTION 14A IS TO BE MADE AUTOMATICALLY REGARDLESS OF WHETHER OR NOT ANY EXPENSES WERE IN CURRED. THE DECISION OF THE LEARNED COMMISSIONER OF INCOME TAX APPEALS) IS CONTRARY TO T HE JUDICIAL PRECEDENTS THAT APPLY IN THIS REGARD, INCLUDING THE DECISIONS OF THE APEX CO URT AND VARIOUS HIGH COURTS. 9. WITHOUT PREJUDICE TO THE ABOVE, IT IS SUBMITTED THAT THE INVESTMENTS WHICH GENERATED EXEMPT INCOME ALONE SHOULD HAVE BEEN CONSIDERED FOR THE PURPOSES OF SECTION 14A. 10.FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS RESPECTFULLY PRAYED THAT THE ADDITION OF RS.36,38,000/- MADE BY THE ASSESSING OFFICER UNDER SECTION 14A IN THE REGULAR COMPUTATION AS .WELL AS FOR BOOK PROFITS PURPOSES BE DELETED. 11.THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELETE OR WITHDRAW ANY OF THE GROUNDS OF APPEAL. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE IS ENGAGED IN BUSINESS OF MANUFACTURE AND SALE OF COTTON YARN. T HE ONLY ISSUE AGITATED IN THIS APPEAL IS WITH RESPECT TO DISALLOWANCE OF E XPENSES INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME, U/S.14A OF THE ACT READ WITH RULE 8D(2) OF THE INCOME-TAX RULES, 1962 UNDER THE NORMAL PROVISIONS AND ALSO CORRESPONDING ADDITIONS MADE TO BOOK PROF IT BY INVOKING PROVISIONS OF SEC.115JB OF THE ACT FOR COMPUTING BO OK PROFIT FOR LEVYING MINIMUM ALTERNATE TAX. THE AO HAD INVOKED PROVISIO NS OF SEC.14A R.W.R. 8D(2)(II) & (III) OF THE INCOME-TAX RULES, 1962 TO MAKE DISALLOWANCE OF EXPENSES TO THE TUNE OF RS. 36.38 LAKHS BOTH UNDER NORMAL PROVISIONS AS WELL WHILE COMPUTING BOOK PROFITS FOR COMPUTING MAT PAYABLE U/S 115JB OF THE 1961 ACT, VIDE ASSESSMENT ORDER DATED 29.12.201 6 PASSED BY AO U/S 143(3) OF THE 1961 ACT, WHICH IS REPRODUCED HEREUND ER: 3.6 ACCORDINGLY, THE RULE 8D IS APPLIED TO WORK O UT EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME, AS UNDER: RULE 8D(2): I) EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME = NIL II) IN RESPECT OF INTEREST INCURRED DURING THE PREV IOUS ITA NO.577/CHNY/2019 :- 4 -: YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PART ICULAR INCOME OR RECEIPT AVERAGE VALUE OF INVESTMENTS INTEREST X ---------------------------------- = R S.34.21 LAKHS AVERAGE VALUE OF ASSETS = RS.1933.251 LAKHS X 434.57 LAKHS ---------------------------------------- 24556.96 LAKHS III) AN AMOUNT EQUAL TO ONE-HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT % X 434.57 LAKHS (AVERAGE VALUE OF INVESTMENT) = RS.2.17 LAKHS ------------------- TOTAL = RS.36.38 LAKHS -------------------- THE ABOVE SUM OF RS.36,38,000/- IS DISALLOWED U/S.14 A OF THE SAID ACT READ WITH RULE 8D OF THE SAID RULES AS RELATABLE TO INVESTMENT IN SHARES INCOMES FROM WHICH IS EXEMPT FROM TAXATION AND ADDED BACK TO THE INCOME RETURNED, IN VIEW OF THE DETAILED DISCUSSIONS MADE IN THE EARLIER PART OF THIS ORDER. [DISALLOWANCE: RS.36,38,000/-] *** *** BOOK PROFIT U/S 115JB ADMITTED -RS. 13,07,55,958/- ADD: DISALLOWANCE U/S 14A -RS. 36,38,000/- --------------------- BOOK PROFIT ASSESSED - RS.13,43,93,958/ - ---------------------- 4. THE ASSESSEE BEING AGGRIEVED BY AN ASSESSMENT FR AMED BY AO FILED FIRST APPEAL WITH LD.CIT(A) WHICH STOOD DISMISSED B Y LD.CIT(A) , VIDE APPELLATE ORDER DATED 28.01.2019 PASSED BY LEARNED CIT(A) . 5. AS COULD BE SEEN THAT THERE ARE BROADLY TWO HEAD S WHICH ARE REFERRED TO BY REVENUE FOR MAKING DISALLOWANCE OF EXPENSES TO T HE TUNE OF RS. 36.38 LAKHS PURPORTED TO BE INCURRED IN RELATION TO EARNI NG OF AN EXEMPT INCOME, NAMELY THERE IS A DISALLOWANCE U/S 14A OF THE 1961 ACT READ WITH RULE 8D(2)(II) OF THE 1962 RULES OF RS. 34.21 LAKHS TOWARDS PROPORTIONATE INTEREST INCURRED DURING THE PREVIOUS YEAR ON THE G ROUNDS OF MIXED FUND USE AND WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR PURPOSES OF ITA NO.577/CHNY/2019 :- 5 -: BORROWINGS AND SECONDLY THERE WAS AN DISALLOWANCE O F EXPENSES U/S 14A OF THE 1961 ACT READ WITH RULE 8D(2)(III) OF THE 19 62 RULES BY DISALLOWANCE OF 0.50% OF THE AVERAGE VALUE OF INVES TMENTS, WHICH LED TO DISALLOWANCE TO THE TUNE OF RS. 2.17 LACS. THE MAI N BONE OF THE CONTENTION OF THE REVENUE WHILE MAKING DISALLOWANCE U/S 14A OF THE 1961 ACT READ WITH RULE 8D(2)(II) OF THE 1962 RULES IS THAT MIXED USED INTEREST BEARING FUNDS/BORROWINGS WERE DEPLOYED BY THE ASSES SEE AND NO SEPARATE ACCOUNTS WERE BEING MAINTAINED BY THE ASSESSEE. BE FORE US, LD.COUNSEL FOR ASSESSEE HAS STRENUOUSLY ARGUED THAT ASSESSEE H AS USED ITS OWN FUNDS WHICH ARE MORE THAN INVESTMENTS MADE BY ASSESSEE AN D INTEREST BEARING FUNDS BEING MIXED USED FUNDS , PRESUMPTION WILL APP LY THAT INVESTMENTS WERE MADE OUT OF ASSESSEES OWN INTEREST FREE FUNDS AVAILABLE WITH IT. OUR ATTENTION WAS DRAWN TO THE AUDITED ACCOUNTS OF THE ASSESSEE FOR THE FY: 2013-14 (AY: 2014-15) , WHICH ARE PLACED IN PAPER B OOK AT PAGE NO.188 ONWARDS AND IT WAS SUBMITTED THAT ASSESSEES OWNED FUNDS WERE TO THE TUNE OF RS. 19.75 CRS. , OUT OF WHICH SHARE CAPITAL WAS TO THE TUNE OF RS. 1.75 CRS. AND RESERVE AND SURPLUS WERE TO THE TUNE OF RS. 18.25 CRS. AS ON 31.03.2014, WHILE THE OWN FUNDS WERE TO THE TUNE OF RS. 11.71 CRS. AS ON 31.03.2013. THE INVESTMENTS WERE TO THE TUNE OF RS.8 34.19 LACS AS ON 31.03.2014 WHICH WERE TO THE TUNE OF RS. 34.19 LACS AS ON 31.03.2013. IT WAS SUBMITTED THAT THE PRESUMPTIONS WILL APPLY THAT ASSESSEE HAD INVESTED ITS OWN INTEREST FREE FUNDS. IT W AS FURTHER SUBMITTED THAT ITA NO.577/CHNY/2019 :- 6 -: ASSESSEE HAD SOLD LAND FOR RS. 9.35 CRS. DURING THE YEAR ON 07.11.2013, COPY OF SALE DEED ALONG WITH BANK STATEMENTS IS PLA CED ON RECORD AT PAGE 32-68 OF PAPER BOOK AND IT IS CLAIMED THAT THE AFOR ESAID FUNDS WERE USED FOR MAKING INVESTMENTS DURING THE YEAR TO THE TUNE OF APPROX.. RS. 8 CRS. THE ASSESSEE HAS FILED WRITTEN SUBMISSIONS BEFORE T HE BENCH AND THE RELIANCE IS PLACED ON THE AFORESAID CONTENTIONS, WH ICH IS EXTRACTED HEREUNDER: TABLE D- DETAILS OF PROCEEDS FROM SALE OF LAND DURI NG THE YEAR PARTICULARS AMOUNT SALE VALUE OF LAND AS PER SALE DEED DATED 07-1 1-20 13 9,35,19,500 LESS:-TDS@ 1% (9,35,195) NET SALE CONSIDERATION FROM SALE OF LAND CREDITED T O BANK ACCOUNT ON 09-11-2013- SALE PROCEEDS 9,25,84,305 DATE OF CREDIT OF THE ABOVE SALE PROCEEDS IN BANK A CCOUNT 09-11-2013 TABLE E-DATES ON WHICH FRESH INVESTMENTS MADE DURIN G THE YEAR OUT OF PROCEEDS FROM SALE OF LAND NAME OF COMPANY IN WHICH INVESTMENT IS MADE AMOUNT (IN RS.) SUB-TOTAL (IN RS.) DATE ON WHICH FRESH INVESTMENT MADE DURING THE YEAR RAMCO WINDFARMS LTD. 5,75,000 5,75,000 30/12/2013 JRK ENTERPRISES LIMITED-EQUITY SHARES 100 100 28/01/2014 JRK ENTERPRISES LIMITED-PREFERENCE SHARES 1,20,00,000 7,95,00,000 11/01/2014 25,00,000 05/02/2014 25,00,000 18/02/2014 30,00,000 22/03/2014 5,95,00,000 27/03/2014 TOTAL OF FRESH INVESTMENT MADE DURING THE YEAR 8,00,75,100 8,00,75,100 THE ASSESSEE HAS ALSO RELIED UPON FOLLOWING DECISI ONS , AS UNDER: A) CIT VS RELIANCE INDUSTRIES LTD (2019) 10 2 TAXMANN.COM 52(SC) B) CIT VS. RELIANCE UTILITIES AND POWER LTD (2009) 3 13 ITR 340 (BOM) C) ACIT V. APOLLO HOSPITALS ENTERPRISES LIMITED (2012) 139 ITD 594 (CHENNAI) D) CIT VS. BHARTI TELEVENTURE LTD (2011) 331 ITR 502 (DEL.) ITA NO.577/CHNY/2019 :- 7 -: IT WAS SUBMITTED THAT THE ASSESSEE HAS RECEIVED DIV IDEND INCOME OF RS. 40.62 LAKHS WHICH WAS CLAIMED AS AN EXEMPT INCOME , DURING THE YEAR UNDER CONSIDERATION. THE PRAYERS WERE MADE BY LEAR NED COUNSEL FOR THE ASSESSEE TO DELETE DISALLOWANCE OF INTEREST EXPENSE S WHICH WAS DISALLOWED BY REVENUE BY INVOKING PROVISIONS OF SECTION 14A OF THE 1961 ACT READ WITH RULE 8D(2)(II) OF THE 1962 RULES AND ALSO TO D ELETE DISALLOWANCE OF EXPENSES U/S.14A R.W.R.8D(2)(III) OF THE 1961 ACT W HICH WERE TO THE TUNE OF 0.5% OF THE AVERAGE INVESTMENT. RELIANCE IS ALS O PLACED BY THE ASSESSEE ON THE DECISION OF SPECIAL BENCH OF ITAT D ELHI IN THE CASE OF ACIT V. VIREET INVESTMENT (P) LIMITED (2017) 82 TAX MANN.COM 415 (DEL- TRI.)(SB) TO CONTEND THAT DISALLOWANCE OF EXPENSES INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME, U/S 115JB BE MADE IN A CCORDANCE WITH RATIO OF AFORESAID DECISION OF SPECIAL BENCH. THE LD.DR, ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND PRAYED FOR SETTING ASIDE AND RESTORING THE MATTER BACK TO THE FILE OF AO FOR FRESH ADJUDICATION. 6. WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD INCLUDING CITED CASE LAWS. WE HAVE OBSERVED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF COTTON YARN. WE HAVE OBSERVED THAT ASSESSEE HAS RECEIVED DIVIDEND INCOME TO THE TUNE OF RS. 40.62 LAKHS WHICH WAS CLAIMED AS AN EXEMPT INCOME. THE ASSESSEE HAS PAID INTEREST ON BORROWINGS DURING THE YEAR UNDER C ONSIDERATION AND DISALLOWANCE OF INTEREST EXPENSES WAS MADE TO THE T UNE OF RS. 34.21 LAKHS ITA NO.577/CHNY/2019 :- 8 -: BY INVOKING PROVISIONS OF SEC.14A R.W.R. 8D(2)(II) OF THE 1962 RULES. WE HAVE OBSERVED THAT ASSESSEE HAS BROUGHT ON RECORD C OGENT MATERIAL TO EVIDENCE THAT ASSESSEE HAS OWN INTEREST FREE FUNDS AVAILABLE TO THE TUNE OF RS. 19.75 AS ON 31.03.2014 CONSISTING OF SHARE CAPITAL ALONG WITH RESERVES AND SURPLUSES ( PRECEDING YEAR 11.71 CRORE S) AND THE ASSESSEE HAD INVESTMENTS OF RS. 8.34 CRS. AS ON 31.03.2014 WHILE INVESTMENTS WERE TO THE TUNE OF RS.34.19 LAKHS AS ON 31.03.2013 . FURTHER, WE HAVE OBSERVED THAT ASSESSEE HAS SOLD AN PROPERTY FOR RS. 9.35 CRORES DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS FILED BA NK STATEMENTS AND SALE DEED TO EVIDENCE SALE OF PROPERTY AND INVESTMENTS M ADE DURING THE YEAR UNDER CONSIDERATION. WE HAVE OBSERVED THAT ALLEGAT IONS MADE BY REVENUE ARE THAT THE ASSESSEE HAS USED MIXED FUNDS FOR THE PURPOSE OF MAKING INVESTMENTS IN THE SECURITIES WHICH ARE CAPA BLE OF YIELDING EXEMPT INCOME. THE REVENUE COULD NOT DEMONSTRATE CO-RELAT ION BETWEEN THE UTILIZATION OF INTEREST BEARING BORROWED FUNDS WIT H THE INVESTMENTS MADE. WE HAVE OBSERVED THAT THE MAJOR INVESTMENTS WERE MA DE DURING THE YEAR UNDER CONSIDERATION AND ASSESSEE HAD ALSO SOLD ITS PROPERTY FOR CONSIDERATION OF RS. 9.35 CRORES DURING THE YEAR UNDER CONSIDERATION. W E ARE OF THE CONSIDERED VIEW THAT ASSESSEE HAS DEMONS TRATED WITH COGENT EVIDENCES THAT THE ASSESSEE HAS ITS OWN INTEREST FR EE FUNDS WHICH ARE HIGHER THAN INVESTMENTS AND PRESUMPTION WILL APPLY THAT ASSESSEE HAS INVESTED ITS OWN INTEREST FREE FUNDS FOR M AKING INVESTMENTS IN THE ITA NO.577/CHNY/2019 :- 9 -: SECURITIES CAPABLE OF YIELDING EXEMPT INCOME. THE R EVENUE IS NOT ABLE TO DEMOLISH/REBUT THE AFORESAID PRESUMPTION. THE RELI ANCE IS PLACED ON DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F RELIANCE UTILITIES AND POWER LIMITED(SUPRA). THUS, WE HAVE NO HESITATION IN ORDERING DELETION OF ADDITIONS AS WERE MADE BY REVENUE U/S 14A READ WITH RULE 8D(2)(II) OF THE 1962 RULES. SO FAR AS ADDITIONS AS WERE MADE BY REVENUE U/S 14A OF THE 1961 ACT READ WITH RULE 8D(2)(III) OF THE 1962 RULES WHICH ARE VEHEMENTLY CHALLENGED BY ASSESSEE , WE ARE OF THE C ONSIDERED VIEW THAT THE ASSESSEE HAS TO BRING ON RECORD COGENT EVIDENCE S AND EXPLANATIONS TO SUBSTANTIATE THE COMPLETE MODUS OPERANDI ADOPTED BY THE ASSESSEE FOR MAKING INVESTMENTS SUCH AS INVOLVEMENT OF BOARD OF DIRECTORS, COMMITTEE OF INVESTMENTS /PERSONNEL APPOINTED TO LOOK AFTER D ECISION MAKING PROCESS FOR INVESTMENTS, TIME SPENT BY BOARD OF DIRECTORS/ COMMITTEE MEMBERS OR OTHER PERSONNEL AND COST ATTRIBUTABLE THEREOF , OTHER COST INCURRED SUCH AS ADMINISTRATIVE COSTS AND OTHER COSTS IN REL ATION TO THESE INVESTMENTS, ETC., TO EXPLAIN AND DEMONSTRATE ENTIR E CYCLE OF INVESTMENT MAKING PROCESS TO DISCHARGE PRIMARY ONUS, THEN TH E AO HAS TO LOOK INTO BOOKS OF ACCOUNTS TO COMPUTE THE DISALLOWANCE OF E XPENDITURE INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME AND TO R ECORD SATISFACTION. IN THE ABSENCE THEREOF OF THE DISCHARGE OF PRIMARY ONU S BY THE ASSESSEE AS AFORESAID, THE AO WILL HAVE RIGHT TO INVOKE RULE 8D (2)(III) OF THE 1962 RULES AFTER RECORDING SATISFACTION AS MANDATED U/S 14A OF THE 1961 ACT. THUS, THE MATTER IS REMITTED BACK TO THE FILE OF TH E AO FOR FRESH ADJUDICATION AND THE ASSESSEE IS DIRECTED TO PRODUC E RELEVANT DETAILS ITA NO.577/CHNY/2019 :- 10 -: /EXPLANATION AND MODUS OPERANDI OF MANAGING ITS INV ESTMENT PORTFOLIO AS DETAILED ABOVE BY US IN THIS ORDER. WE AGREE WITH T HE CONTENTIONS OF THE ASSESSEE THAT SECTION 14A READ WITH RULE 8D(2) OF T HE 1962 RULES CANNOT BE INVOKED FOR MAKING DISALLOWANCE U/S 115JB OF THE 1961 ACT BUT DISALLOWANCE OF EXPENSES INCURRED RELATABLE TO EARN ING OF AN EXEMPT INCOME IS TO BE COMPUTED IN ACCORDANCE WITH EXPLANA TION 1(F) TO SECTION 115JB OF THE 1961 ACT, IN ACCORDANCE WITH RATIO OF DECISION OF SPECIAL BENCH IN THE CASE OF VIREET INVESTMENT(SUPRA). WE ALSO REMIT THIS MATTER BACK TO THE FILE OF THE AO FOR MAKING ADDITIONS TO THE BOOK PROFIT U/S.115JB IN ACCORDANCE WITH DECISION OF THE HONBL E SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF VIREET INVESTMENT (P) LIMIT ED (SUPRA) READ WITH EXPLANATION 1(F) TO SECTION 115JB OF THE 1961 ACT. WE ORDER ACCORDINGLY. 7.IN THE RESULT, THE APPEAL FILED BY ASSESSEE IN IT A NO.577/CHNY/2019 FOR AY: 2014-15 IS PARTLY ALLOWED FOR STATISTICAL PURP OSES AS INDICATED ABOVE. ORDER PRONOUNCED ON THE 27 TH DAY OF FEBRUARY, 2020 IN CHENNAI. SD/- SD/- ( . . . ) ( N.R.S. GANESAN ) /JUDICIAL MEMBER ( ! ) ( RAMIT KOCHAR ) /ACCOUNTANT MEMBER /CHENNAI, 1 /DATED: 27 TH FEBRUARY, 2020. TLN - +!2 32 /COPY TO: ITA NO.577/CHNY/2019 :- 11 -: 1. * /APPELLANT 4. 4 /CIT 2. +,* /RESPONDENT 5. 2 + /DR 3. 4 ( ) /CIT(A) 6. ' /GF