HORIZON COUNTRY WIDE LOGISTICS LTD(NOW SUCCEEDED ON AMALGAMATION BY SKIL INFRASTRUCTURE LIMITED ), MUMBAI V. DCIT 1(2)(PRESENTLY ACIT--6(3)), MUMBAI

ITA 5817/MUM/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5884 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2010-2011
• Appeal Filed On: 12-09-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: MIHIR C NANIWADEKAR; RUTURAJ H GURJAR MANO
• Keywords: Depreciation; Business expenditure; Earning of tax free income; Revenue expenditure; Rule 8D; Set aside
• Section: 142(1); 14A; 115JB; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H, BENCH MU MBAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAVISH SOOD, JU DICIAL MEMBER ITA NO.2470/MUM/2018 ITA NO.2471/MUM/2018 ( ASSESSMENT YEAR: 2013-14 ) ( ASSESSMENT YEAR: 2014-15 ) ITA NO.5813/MUM/2017 ( ASSESSMENT YEAR: 2012-13 ) HORIZON INFRASTRUCTURE LTD. (NOW KNOWN AS SKIL INFRASTRUCTURE LTD.) SKIL HOUSE, 209 BANK STREET CROSS LANE, FORT MUMBAI-400 023 VS. DCIT,CC-6(3) AIR INDIA BUILDING NARIMAN POINT MUMBAI-400 021 PAN/GIR NO.AAACH9240E (APPELLANT ) .. RESPONDENT ) & ITA NO.5817/MUM/2017 ITA NO.5818/MUM/2017 ( ASSESSMENT YEAR: 2010-11 ) ( ASSESSMENT YEAR: 2011-12 ) M/S. HORIZON COUNTRY WIDE LOGISTICS LTD. (NOW SUCCEEDED ON AMALGAMATION BY SKIL INFRASTRUCTURE LTD.) SKIL HOUSE, 209 BANK STREET CROSS LANE, FORT MUMBAI-400 023 VS. DCIT,CC-6(3) AIR INDIA BUILDING,19 TH FLOOR,NARIMAN POINT MUMBAI-400 021 PAN/GIR NO.AA CCN5412E (APPELLANT ) .. RESPONDENT ) & HORIZON INFRASTRUCTURE LTD. 2 ITA NO.844/MUM/2018 ITA NO.845/MUM/2018 ( ASSESSMENT YEAR: 2013-14 ) ( ASSESSMENT YEAR: 2014-15 ) JOINT COMMISSIONER OF INCOME TAX (OSD), CENTRAL CIRCLE-6(3) AIR INDIA BUILDING ROOM NO. 1926 19 TH FLOOR, NARIMAN POINT MUMBAI-400 021 VS . M/S.HORIZON INFRASTRUCTURE LTD. SKIL HOUSE, 209 BANK STREET CROSS LANE, FORT MUMBAI-400 023 PAN/GIR NO.AAACH9240E (APPELLANT ) .. ( RESPONDENT ) & ITA.NO.5779/MUM/2017 ASSESSMENT YEAR: 2012-13 DCIT,CC-6(3) AIR INDIA BUILDING ROOM NO. 1926 19 TH FLOOR, NARIMAN POINT MUMBAI-400 021 VS. M/S.HORIZON INFRASTRUCTURE LTD. SKIL HOUSE, 209 BANK STREET CROSS LANE, FORT MUMBAI-400 023 PAN/GIR NO.AAACH9240E (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY MIHIR C NANIWADEKAR & RUTURAJ H. GURJAR REVENUE BY MANOJ KUMAR SINGH DATE OF HEARING 12/06/2019 DATE OF PRONOUNCEMENT 09 / 0 8 /201 9 HORIZON INFRASTRUCTURE LTD. 3 / O R D E R PER G. MANJUNATHA (A.M) : THIS BUNCH OF FIVE APPEALS FILED BY THE ASSESSEE AND THREE APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST SEPARATE, BUT IDENTICAL ORDERS PASSED BY THE COMMISSIONER OF INCO ME TAX (APPEAL)54, MUMBAI, ALL DATED 12/06/2017 AND 22/11 /2017 AND THEY PERTAINS TO ASSESSMENT YEARS (AY) 2010-11,20 11-12, 2012- 13, 2013-14 AND 2014-15. SINCE, FACTS ARE IDENTICAL AND ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED-OFF, BY THIS CONSOLIDATED ORDER. 2. THE ASSESSEE HAS, MORE OR LESS RAISED COMMON GRO UNDS OF APPEAL FOR ALL ASSESSMENT YEARS. THEREFORE, FOR T HE SAKE OF BREVITY, GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN ITA NO. 5813/MUM/2017 FOR AY 2012-13 ARE REPRODUCED AS UNDE R:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) HAS ERRED IN UPHOLDING THE VIEWS OF THE ASSE SSING OFFICER (AO) BY CONFIRMING THE DISALLOWANCE IN RESPECT OF THE ENTIR E EXPENDITURE OF RS.5,64,80,818/-, WHICH STOOD DEBITED TO THE PROFIT & LOSS ACCOUNT INCLUDING DEPRECIATION CLAIMED U/S.32 THE INCOME TA X ACT, IN RESPECT OF THE DIVISION HORIZON COUNTRY WIDE LOGISTICS AS CAPI TAL EXPENDITURE ON THE GROUNDS THAT BUSINESS HAD NOT COMMENCED/SET UP. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) HAS ERRED IN DIRECTING THE AO TO COMPUTE THE DISALLOWANCE U/S,14A R.W.R.8D OF THE INCOME TAX ACT, IN RESPECT OF SHARE S/INVESTMENT IN MUTUAL FUNDS, WHICH HAVE YIELDED DIVIDENDS. HORIZON INFRASTRUCTURE LTD. 4 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) HAS ERRED IN REJECTING THE APPELLANT'S PROPO SITION THAT THE DISALLOWANCE U/S.14A R.W.R.8D IS NOT TRIGGERED IN R ESPECT OF STRATEGIC INVESTMENT. 4. THE GROUNDS TAKEN ABOVE ARE WITHOUT PREJUDICE TO EACH OTHER AND THE APPELLANT RESERVES ITS RIGHT TO ADD TO, ALTER, AMEN D, MODIFY OR DELETE ANY OF THE GROUNDS TAKEN IN THIS APPEAL 3. THE REVENUE HAS MORE OR LESS RAISED COMMON GROUN DS OF APPEAL FOR ALL AYS. THEREFORE, FOR THE SAKE OF B REVITY , GROUNDS OF APPEAL RAISED BY THE REVENUE IN ITA NO. 5779/MUM/2 017 FOR AY 2012-13 ARE REPRODUCED AS UNDER:- I. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. C1T(A) HAS ERRED IN DELETING THE ADDITION U/S 14A O F THE INCOME TAX ACT, 1961 IGNORING THAT THE PROVISIONS OF SECTION 14A APPLY EVEN IF NO EXEMPT INCOME IS ACTUALLY EARNED OR RECEIVED DU RING THE YEAR IN ANY FORM WHATSOEVER II. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.. CIT(A) HAS ERRED IN DELETING THE ADDITION U/S 14A OF THE INCOME TAX ACT, 1961 BY IGNORING THE PROVISIONS OF CBDT CIRC ULAR NO, 5/2014 DATED 11.02.2014 WHEREIN, IT HAS BEEN CLARIFIED T HAT THE RULE 8D R.W.S.14A PROVIDES FOR THE DISALLOWANCE OF EXPENDIT URE EVEN WHERE THE ASSESSES IN PARTICULAR HAS NOT EARNED EXEMPT INCOME ' III 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION U/S 14A O F THE INCOME TAX ACT, 1961 RELYING UPON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. OVERLOOKING THE FACT TH AT THE ABOVE DECISION IS NOT ACCEPTED BY THE REVENUE AND CIVIL A PPEAL HAS BEEN PREFERRED BEFORE THE HONBLE SUPREME COURT AND SAME IS PENDING?' THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AND THE DC BE RESTORED. THE APPELLANT CRAVES TO AMEND OR ALTER ANY GROUND OR ADD NEW GROUND WHICH MAY BE NECESSARY , 4. THE BRIEF FACTS OF THE CASE EXTRACTED FROM ITA N O. 5813/ MUM/2017 FOR AY 2012-13 ARE THAT THE ASSESSEE COMPA NY, WHICH IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF INFRASTRU CTURE PROJECTS HORIZON INFRASTRUCTURE LTD. 5 AND PLANS TO UNDERTAKE DEVELOPMENT OF HEALTH AND WELLNESS, TOURISM PROJECTS, SPECIAL ECONOMIC ZONE, KNOWLEDGE PARK ECT. THE ASSESSEE COMPANY HAS ALSO INVOLVED IN FINANCIAL ACT IVITIES AND INVESTMENT IN SUBSIDIARIES. THE ASSESSEE COMPANY HA S FILED RETURN OF INCOME FOR AY 2012-13 ON 29/09/2012, DECLARING T OTAL INCOME OF RS. 10,69,09,957/-. MEAN TIME, THE HONBLE BOMBAY HIGH COURT, VIDE ORDER DATED 30/09/2013 HAS APPROVED AMALGAMATI ON OF SKIL INFRASTRUCTURE LTD., HORIZON COUNTRY WIDE LOGISTICS LTD AND FASTLANE DISTRIPARK & LOGISTICS LTD., WITH ASSESSEE COMPANY WITH EFFECT FROM 01/04/2011. THEREAFTER, ON RECEIPT OF THE AMALGAMAT ION ORDER IN THE MONTH OF SEPTEMBER, 2013, THE ASSESEE HAS FILED A R EVISED CONSOLIDATED RETURN OF INCOME ON 20/11/2013, DECLAR ING A LOSS OF RS. 1,41,43,903/-. THEREAFTER, THE CASE HAS BEEN SELECT ED FOR SCRUTINY AND NOTICES U/S 143(2) AND 142(1) OF THE I.T.ACT, 1 961, WERE ISSUED ON VARIOUS DATES. IN RESPONSE TO THE NOTICE, THE LD . AR OF THE ASSESEE APPEARED FROM TIME TO TIME AND FILED VARIOU S DETAILS AS CALLED FOR. THE ASSESSMENT HAS BEEN COMPLETED U/S 1 43(3) OF THE I.T.ACT, 1961 ON 28/03/2014 DETERMINING THE TOTAL I NCOME AT RS. 13,57,68,286/- UNDER NORMAL PROVISION OF I.T.ACT, 1961, BY MAKING ADDITIONS TOWARDS DISALLOWANCE OF EXPENDITURE OF C APITAL NATURE, IN THE CASE OF HORIZON COUNTRY WIDE LOGISTICS LTD., AM OUNTING TO RS. 5,64,80,818/- AND ALSO DISALLOWANCES OF EXPENDITURE INCURRED IN HORIZON INFRASTRUCTURE LTD. 6 RELATION TO THE EXEMPT INCOME U/S 14A OF THE I.T.AC T, 1961. THE AO HAS ALSO RECOMPUTED BOOK PROFIT U/S 115JB OF THE I. T.ACT, 1961, BY MAKING ADDITIONS TOWARDS DISALLOWANCES OF EXPENDITU RE INCURRED IN RELATION TO EXEMPT INCOME U/S 14A OF THE I.T.ACT, 1 961. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESEE CARRIED THE MA TTER IN APPEAL BEFORE THE LD. CIT(A). THE LD.CIT(A), FOR THE DETAI LED REASONS RECORDED IN HIS APPELLATE ORDER DATED 12/06/2017 PA RTLY ALLOWED APPEAL FILED BY THE ASSESEE, WHERE HE HAD CONFIRMED ADDITIONS MADE BY THE AO TOWARDS DISALLOWANCES OF CAPITAL EXPENDIT URE INCURRED IN THE CASE OF HORIZON LOGISTICS LTD. HOWEVER, ALLOWE D PARTIAL RELIEF, IN RESPECT OF DISALLOWANCES OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME, WHERE HE HAD SET ASIDE THE ISSUE TO THE FILE OF THE AO TO RECOMPUTE DISALLOWANCE OF EXPENDITURE AND ALS O TO RESTRICT SUCH DISALLOWANCES TO THE EXTENT OF INVESTMENTS, WH ICH YIELD EXEMPT INCOME, FOR THE YEAR UNDER CONSIDERATION. AGGRIEVED BY THE ORDER OF THE LD.CIT (A), THE ASSESSEE, AS WELL AS THE REVENU E IS IN APPEAL BEFORE US. 5. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM ASSESEE APPEAL FOR AYS 2010-11, 2011-12 AND 2012-1 3 IS DISALLOWANCES OF TOTAL EXPENDITURE, ON THE GROUND T HAT SAID EXPENDITURE ARE IN THE NATURE OF CAPITAL EXPENDITUR E AND ALSO IN THE HORIZON INFRASTRUCTURE LTD. 7 NATURE OF PRE-OPERATIVE EXPENSES, WHICH CANNOT BE A LLOWED AS DEDUCTION, WHILE COMPUTING INCOME UNDER THE HEAD IN COME FROM BUSINESS OR PROFESSION. THE FACTS BORNE OUT FROM TH E RECORDS ARE THAT HORIZON COUNTRY WIDE LOGISTICS LTD., HAS AMALGAMATE D WITH HORIZON INFRASTRUCTURES LTD WITH EFFECT FROM 01/04/2011 (AY 2012-13), AS PER THE AMALGAMATION ORDER DATED 27/09/2013 OF THE HON BLE BOMBAY HIGH COURT. THEREAFTER, WITH EFFECT FROM 22/01/201 4, THE NAME OF THE COMPANY HAS BEEN CHANGED TO SKIL INFRASTRUCTURES LT D. THE ASSESSEE COMPANY IS IN THE PROCESS OF SETTING UP A MULTIMODAL LOGISTICS PARK/INLAND CLEARANCE DEPOT (ICD) AT JH ANSI IN U.P AND WAREHOUSING COMPLEX AT VILLAGE GOVIRLE AT NAVI MUMB AI IN APRIL, 2008. THE ASSESSEE COMPANY, THROUGH ITS SUBSIDIARY FASTLANE DISTRIPARK & LOGISTICS PRIVATE LTD., STARTED SETTIN G UP A CONTAINER FREIGHT STATION (CFS), NEAR JNPT AT DIGHODE VILLAGE , PANVEL TALUK, RAIGAD DISTRICT, MAHARASHTRA STATE AND ALSO THROUGH ITS ANTHER SUBSIDIARY CHIPLUN FTWZ PRIVATE LTD., INITIATED PLA NS TO SET UP FTWZ AS A CO DEVELOPER AT CHANGE VILLAGE, IN RAIGAD DIST RICT. FURTHER, THE ASSESSEE COMPANY WAS ALSO IN PROCESS OF ACQUISITION LAND AT VARIOUS PLACES, INCLUDING UMBERGAON AND PIPAVAV IN GUJARAT, CHENNAI AND NATIONAL CAPITAL REGION TO SET UP CFS/ICD/MULTIMODA L LOGISTIC PARK. ALL THESE PROJECTS WERE SIMULTANEOUSLY UNDERTAKEN AND ARE STILL UNDER CONSTRUCTION STAGE UP TO THE END OF AY 2012-1 3. THE HORIZON INFRASTRUCTURE LTD. 8 ASSESSEE HAS CAPITALIZED ALL EXPENSES, INCLUDING FI NANCIAL COST INCURRED FOR DEVELOPMENT OF PROJECTS, TILL COMMENCE MENT OPERATIONS, HOWEVER INDIRECT EXPENDITURE INCURRED, DURING CONST RUCTION PERIOD IS CAPITALIZED, TO THE EXTENT TO WHICH THE EXPENDITURE IS DIRECTLY RELATED TO THE CONSTRUCTION OR IS INCIDENTALLY THERETO. THE EXPENDITURE INCURRED DIRECTLY OR INDIRECTLY RELATED TO CONSTRUC TION OF THE PROJECT WAS CLASSIFIED AS PRE-OPERATIVE EXPENDITURE PENDING CAPITALIZATION AND THIS REGARD NECESSARY DISCLOSURE HAD BEEN MADE IN FINANCIAL STATEMENTS. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE COMPANY HAS OFFERED GROSS RECEIPT OF RS. 2,17,99,214/- FROM LOGISTIC CONTRACT, IN RESPECT OF SEA FREIGHT FROM PIPAVAV SHIPYARD LTD, WHICH IS A GROUP ENTITY OF TH E ASSESSEE. THE AO, FURTHER OBSERVED THAT THE ASSESSEE HAS DEBITED VARIOUS BUSINESS EXPENDITURE OF RS. 5,17,53,584/-. THE LD. AO FURTHER OBSERVED THAT IN THE IMMEDIATELY PRECEDING YEARS, T HE ASSESSEE HAS DERIVED INCOME FROM ROAD TRANSPORTATION FROM PIPAVA V SHIPYARD LIMITED, WHICH IS THE GROUP COMPANY OF THE ASSESSEE AND PAID AMOUNT TO DECENT CARGO MOVERS, IN THE NAME OF PIPAV AV SHIPYARD LTD. THE AO FURTHER OBSERVED THAT ALTHOUGH PROJECT UNDERTAKEN BY THE ASSESEE COMPANY IS AT CONSTRUCTION STAGE, BUT I N ORDER TO CLAIM HORIZON INFRASTRUCTURE LTD. 9 CERTAIN EXPENDITURE, THE ASSESEE HAS SHOWN INCOME F ROM OPERATIONS IN THE FORM OF ROAD TRANSPORT AND SEA TRANSPORT FRO M PIPAVAV SHIPYARD LTD, WHICH IS GROUP COMPANY OF THE ASSESEE , THEREFORE, HE OPINED THAT INCOME EARNED FROM ROAD TRANSPORT/SEA T RANSPORT SHOULD BE ASSESSABLE AS INCOME FROM OTHER SOURCES, BECAUSE THE MAIN BUSINESS ACTIVITY OF THE ASSESEE IS TO DEVELOP ICD/ CFS AND EXPENDITURE DEBITED INTO THE PROFIT AND LOSS ACCOUN T UNDER VARIOUS HEAD HAS TO BE TREATED AS PRE-OPERATIVE EXPENDITURE , PENDING CAPITALIZATION FOR AY 2010-11, 2011-12 AND 2012-13. AN APPEAL BEFORE THE LD. CIT(A), THE LD. CIT(A) AFFIRMED THE FINDINGS OF THE AO IN LIGHT OF FACTS BROUGHT OUT DURING ASSESSMENT PRO CEEDINGS, HOWEVER DIRECTED THE AO TO ALLOW DIRECT EXPENSES INCURRED IN RELATION TO TRANSPORT INCOME/SEAPORT INCOME, EVEN THOUGH THE SA ME HAS BEEN ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES, BECAUSE CONSEQUENT DIRECT EXPENDITURE INCURRED IN RELATION TO SUCH INCOME HAS TO BE ALLOWED AS DEDUCTION U/S 57 (III) OF THE I.T.ACT, 1961. 7. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE L D. AO, AS WELL AS THE LD. CIT(A) WERE ERRED IN DISALLOWANCE OF TOT AL EXPENDITURE DEBITED INTO THE PROFIT AND LOSS ACCOUNT IGNORING T HE FACT THAT THE BUSINESS OF THE ASSESEE HAS BEEN SETUP FOR THE YEAR UNDER CONSIDERATION, EVEN THOUGH THE BUSINESS WAS NOT COM MENCED, FOR HORIZON INFRASTRUCTURE LTD. 10 THE YEAR UNDER CONSIDERATION. THE LD. AR FURTHER SU BMITTED THAT THERE IS A DISTINCTION BETWEEN SETUP OF BUSINESS AN D COMMENCEMENT OF BUSINESS, AND WHEN A BUSINESS IS ESTABLISHED AND IS READY TO COMMENCE BUSINESS, THEN IT CAN BE SAID THAT BUSINES S IS SETUP. FURTHER, THIS CONCEPT IS COVERED BY SECTION 3 OF TH E I.T.ACT, 1961. SINCE, THE FACTS ARE NOT CONTROVERTED BY ANY OF THE AUTHORITIES BELOW, THE BUSINESS EXPENSES OUGHT TO HAVE BEEN ALLOWED AS EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE LD. AR FURTHER SUBMITTED THAT WITHOUT PREJUDICED TO THE ABOVE, IT IS ALSO PERTAIN TO KNOW THAT ACTIVITIES CARRIED OUT GENERAT ING REVENUE, WERE WITHIN THE OVERALL GAMUT OF OBJECTS OF THE COMPANY. THEREFORE, ONE OF TRANSACTIONS OF INCOME FROM OPERATIONS CANNOT BE DO UBTED, MERELY FOR THE REASONS THAT THE SAME HAS BEEN RECEIVED FRO M A GROUP COMPANY. THE LD. AR FURTHER REFERRING TO OBJECTS OF THE COMPANY ARGUED THAT IF, YOU GO THROUGH OBJECTS OF THE COMPA NY, THE ASSESEE IS INTO MULTIPLE BUSINESSES INCLUDING INLAND CONTAI NER DEPOT, CONTAINER FREIGHT STATION (CFS), FREE TRADE WAREHOU SE ZONE AND OTHER ACTIVITIES AND ALSO TO CARRY ON ALL ARE ANY OF THE BUSINESS OF TRANSPORT, CARTAGE AND HAULAGE CONTRACTORS. ALTHOUG H, THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE GROUP FOR CONSTRUCTION O F ICD/CFS IS NOT READY FOR COMMENCEMENT OF BUSINESS, BUT OTHER BUSINESS ACTIVITIES, INCLUDING TRANSPORTATION HAS BEEN COMME NCED, WHICH IS HORIZON INFRASTRUCTURE LTD. 11 EVIDENT FROM THE FACT THAT, IT HAS START EARNING FR OM REVENUE FROM ROAD TRANSPORT/SEA TRANSPORT FOR DIFFERENT YEARS AN D HENCE, ONCE BUSINESS OPERATIONS HAS BEEN COMMENCED, NECESSARY E XPENDITURE INCURRED IN CONNECTION WITH SUCH BUSINESS, INCLUDIN G DAY TO DAY EXPENDITURE INCURRED FOR MAINTAINING CORPORATE STAT US OF THE ASSESSEE NEEDS TO BE ALLOWED AS DEDUCTION. 8. THE LD. AR, FURTHER SUBMITTED THAT VARIOUS COURT S HAVE CONSIDERED THE QUESTION OF SETUP OF BUSINESS AND CO MMENCEMENT OF BUSINESS AND HELD THAT WHEN, BUSINESS IS SETUP AND IS READY FOR COMMENCEMENT OF BUSINESS, EVEN THOUGH THE BUSINESS WAS NOT COMMENCED, EXPENDITURE INCURRED TOWARDS SUCH BUSINE SS NEEDS TO BE ALLOWED AS REVENUE EXPENDITURE. THE LD. AR FURTH ER REFERRING TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CA SE OF WESTERN INDIA VEGETABLE PRODUCTS VS CIT, 26 ITR 151 SUBMITT ED THAT THE COURT HAS CLEARLY HELD THAT WHEN, A BUSINESS IS ESTABLISH ED AND IS READY TO COMMENCE BUSINESS, THEN IT CAN BE SAID THAT IT HAS BEEN SETUP, BUT BEFORE IT IS READY TO COMMENCE BUSINESS IS NOT SETU P. THE LD. AR REFERRING TO THE DECISION OF ITAT, DELHI BENCH IN T HE CASE OF WIRLPOOL INDIA LIMITED REPORTED IN 19 SOT 593 (DELHI) SUBMIT TED THAT THE TRIBUNAL HAS EXPLAINED THE CONCEPT OF DIFFERENCE BE TWEEN BUSINESS SETUP AND COMMENCEMENT OF BUSINESS IN LIGHT OF THE DECISION OF HORIZON INFRASTRUCTURE LTD. 12 HONBLE BOMBAY HIGH COURT IN THE CASE OF WESTERN IN DIA VEGETABLE PRODUCTS LTD. VS CIT(SUPRA) AND HELD THAT ONCE, THE BUSINESS IS SETUP, EVEN THOUGH THERE IS NO COMMENCEMENT OF BUSI NESS, THEN IT CANNOT BE SAID THAT BUSINESS IS NOT SETUP, CONSEQ UENTLY ALL REVENUE EXPENDITURE NEEDS TO BE ALLOWED AS DEDUCTION. THE L D. AR FOR THE ASSESSEE, HAS ALSO RELIED UPON PLETHORA OF JUDICIAL PRECEDENTS, INCLUDING THE DECISION OF ITAT, MUMBAI IN THE CASE OF SAMSARA HOSPITALITY PVT.LTD. REPORTED IN [(2017 59 ITR (TRI ) 155 (MUMBAI)]. THE LD. AR FOR THE ASSESEE HAS ALSO RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS TAT A CHEMICALS LTD. 256 ITR 395 AND HONBLE KOLKATA HIGH COURT IN THE CASE OF KESHORAM INDUSTRIES AND COTTON MILLS LTD. VS CIT 19 1 ITR 845. 9. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPORTI NG ORDER OF THE LD. CIT(A) SUBMITTED THAT THE ASSESSEE ITSELF HAD A DMITTED BEFORE THE LOWER AUTHORITIES THAT ITS PROJECTS WERE UNDER CONSTRUCTION UP TO THE END OF AY 2012-13, BECAUSE OF VARIOUS REGULATOR PERMISSIONS AND ALSO IT HAS CAPITALIZED ALL EXPENDITURE INCURRE D IN RELATION TO SUCH PROJECTS TO WORK IN PROGRESS ACCOUNT. THE LD. DR, F URTHER, SUBMITTED THAT WHEN, THE BUSINESS IS NOT SETUP AND IS NOT REA DY FOR COMMENCEMENT OF BUSINESS, IT CAN BE SAID THAT BUSIN ESS IS NOT SETUP. MERELY, FOR THE REASON THAT THE ASSESSEE C OMPANY HAS BEEN HORIZON INFRASTRUCTURE LTD. 13 INCORPORATED, IT CANNOT BE SAID THAT IT HAS SETUP I TS BUSINESS. THE LD. AO, AS WELL AS THE LD. CIT(A) HAVE BROUGHT OUT CLE AR FACTS TO THE EFFECT THAT THE BUSINESS HAS NOT SETUP, FOR THE YEA R UNDER CONSIDERATION, CONSEQUENTLY EXPENDITURE INCURRED UN DER VARIOUS HEADS NEEDS TO BE TREATED AS PRE-OPERATIVE EXPENSES PENDING CAPITALIZATION TILL SUCH TIME THE BUSINESS HAS SETU P AND READY FOR COMMENCEMENT OF BUSINESS. 10. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. THE FACTS WITH REGARD TO THE PROJECTS UNDERTAKEN BY THE ASSESSEE ARE AT CONSTRUCTION STAGE IS NOT DISPUTED BY EITHER PARTIE S. IN FACT, THE ASSESSEE ITSELF HAD ADMITTED THE FACT THAT PROJECTS UNDERTAKEN BY THE COMPANY AT VARIOUS PLACES FOR DEVELOPMENTAL MULTIMO DAL LOGISTIC PARKS, FREE TRADE WAREHOUSING ZONE, INLAND CONTAINE R DEPOT AND CONTAINER FREIGHT STATIONS/WAREHOUSING ARE UNDER C ONSTRUCTION STAGE UP TO THE END OF AY 2012-13 FOR VARIOUS REGU LATORY PERMISSIONS. IT IS ALSO NOT IN DISPUTE THAT THE ASS ESSEE HAS CAPITALIZED ALL DIRECT EXPENSES AND INDIRECT EXPENS ES INCURRED DURING CONSTRUCTION PERIOD, INCLUDING FINANCE COST. FURTHE R, ALL EXPENDITURE INCURRED DIRECTLY OR INDIRECTLY RELATED TO CONSTRUC TION OF THE PROJECT WAS CLASSIFIED AS PRE-OPERATIVE EXPENDITURE PENDING CAPITALIZATION. HORIZON INFRASTRUCTURE LTD. 14 THE ONLY DISPUTE IS WITH REGARD TO EXPENDITURE DEBI TED INTO THE PROFIT AND LOSS ACCOUNT UNDER VARIOUS HEADS, INCLUDING SAL ARY, ADMINISTRATIVE AND OTHER EXPENSES, OPERATING EXPENS ES AND DEPRECIATION. ACCORDING TO THE ASSESSEE, IT HAS COM MENCED ITS BUSINESS AND IT HAS BEEN SETUP, EVEN THOUGH THE SAM E HAS BEEN NOT COMMENCED DURING THE YEAR UNDER CONSIDERATION. THER EFORE, CONSEQUENT EXPENDITURE INCURRED DIRECTLY AND INDIRE CTLY IN CONNECTION WITH SAID BUSINESS IS ALLOWABLE AS DEDUCTION. ALTER NATIVELY, THE ASSESSEE FURTHER CONTENDED THAT ASSUMING FOR A MOVE MENT, ITS BUSINESS HAS NOT BEEN SETUP, IN RESPECT OF ICD/CFS, BUT OTHER STREAM OF BUSINESS, INCLUDING TRANSPORTATION HAS BE EN COMMENCED, WHICH IS EVIDENT FROM THE FACT THAT IT HAS DERIVED REVENUE FROM ROAD TRANSPORT AND SEA TRANSPORT FROM PIPAVAV SHIPYARD L TD. THE ASSESSEE, FURTHER CONTENDED THAT WHEN THE BUSINESS OPERATIONS HAS BEEN COMMENCED AND ALSO DERIVED REVENUE FOR THE YEA R UNDER CONSIDERATION, MERELY FOR THE REASON THAT SAID REVE NUE HAS BEEN GENERATED FROM GROUP COMPANY CANNOT BE A REASON FOR DOUBTED BONAFIDE TRANSACTIONS ENTERED INTO BY THE ASSESSEE, IN ORDER TO DISALLOW EXPENDITURE DEBITED INTO THE PROFIT AND LO SS ACCOUNT. 11. THE FACT WITH REGARD TO SETTING UP OF ICD/CFS A T DIFFERENCE LOCATIONS, INCLUDING AT JHANSI IN U.P AND WAREHOUSI NG COMPLEX AT HORIZON INFRASTRUCTURE LTD. 15 NAVI MUMBAI IS NOT DISPUTED BY THE ASSESSEE. AS PER THE ASSESSEE ADMISSION ITSELF, ITS PROJECT ARE STILL AT DEVELOPI NG STAGE AT VARIOUS PLACES, INCLUDING CONTAINER FREIGHT STATION (CFS), NEAR JNPT AT DIGHODE VILLAGE, PANVEL TALUK, RAIGAD DISTRICT, MAH ARASHTRA. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE IS STILL IN T HE PROCESS OF ACQUISITION OF LAND AND GETTING CLEARANSES FROM VAR IOUS AUTHORITIES. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS CAPITA LIZED ALL DIRECT AND INDIRECT EXPENDITURE INCLUDING FINANCE COST INCURRE D FOR CONSTRUCTION OF THE PROJECT TILL COMMENCEMENT OF OPERATIONS. IN THIS FACTUAL BACKGOROUND, IF YOU EXAMINE THE CLAIM OF THE ASSESE E THAT ITS BUSINESS HAS BEEN SETUP, EVEN THOUGH, THE BUSINESS WAS NOT COMMENCED AND EXPENDITURE INCURRED UNDER VARIOUS HE ADS, INCLUDING EXPENDITURE INCURRED FOR MAINTAINING THE CORPORATE STATUS OF THE ASSESEE HAS TO BE ALLOWED AS DEDUCTION NEEDS TO BE EXAMINED IN LIGHT OF FACTS BROUGHT OUT BY THE AUTHORITIES. T HERE IS NO DOUBT, WITH REGARD TO THE FACT THAT ONCE BUSINESS HAS BEEN SETU P, EVEN THOUGH THE SAID BUSINESS WAS NOT COMMENCED FOR THE RELEVAN T PERIOD, THEN NECESSARY REVENUE EXPENDITURE INCURRED IN CONNECTIO N WITH SAID BUSINESS NEEDS TO BE ALLOWED AS DEDUCTION. BUT, THE QUESTION THAT NEEDS TO BE FIRST ASCERTAINED IS WHEN A BUSINESS CA N BE SAID TO HAVE BEEN SETUP AND IS READY TO COMMENCE BUSINESS. ANY B USINESS IS SET UP AND IS REDAY TO COMMECE BUSINESS IS DEPENDS UPON FACTS OF EACH HORIZON INFRASTRUCTURE LTD. 16 CASE AND THE NATURE OF BUSINESS UNDERTAKEN BY THE A SSESSEE. THERE CAN BE NO HARD AND FAST RULE BY WHICH, IT CAN BE DE TERMINED AS TO WHEN THE BUSINESS WAS SETUP. WHETHER A PARTICULAR B USINESS HAS BEEN SETUP OR NOT IS DEPENDS UPON THE FACTS OF EACH CASE AND NATURE OF ITS BUSINESS ACTIVITY. VARIOUS COURTS AND TRIBUN ALS HAVE ANALYSED THE TERMS AND CONCEPT OF BUSINESS SETUP AND COMMENC EMENT OF BUSINESS. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF WESTERN INDIA VEGETABLES PRODUCT LTD. VS CIT HAD HELD THAT WHEN THE BUSINESS IS ESTABLISHED AND IS READY TO COMMENCE BU SINESS, THEN IT CAN BE SAID THAT IT HAS BEEN SETUP, BUT BEFORE IT I S READY TO COMMENCE, IT IS NOT SET UP. THE COURT FURTHER OBSER VED THAT THERE MAY BE INTERREGNUM BETWEEN THE DATE OF SETTING UP O F THE BUSINESS AND THE DATE OF ACTUAL COMMENCEMENT OF BUSINESS, BU T UNDER THE ACT, ALL EXPENSES INCURRED AFTER THE DATE OF SETTIN G UP OF BUSINESS ARE ALLOWED AS DEDUCTION U/S 28 OF THE I.T.ACT, 1961. T HE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS HUGHES ESCORT COM MUNICATION LTD. (SUPRA) HAD CONSIDERED AN IDENTICAL ISSUE AND HELD THAT WHERE, THE BUSINESS HAS BEEN SETUP, THOUGH THE SAME HAS BEEN N OT BEEN COMMENCED, THE EXPENDITURE INCURRED AFTER THE DATE OF SETTING UP HAS TO BE ALLOWED AS DEDUCTION, BUT THE QUESTION HA S TO WHEN IT CAN BE SAID THAT A BUSINESS IS SETUP MUST LARGERLY DEP END ON THE FACTS OF EACH CASE AND THE NATURE OF BUSINESS. THE COURT FU RTHER HELD THAT IN HORIZON INFRASTRUCTURE LTD. 17 A CASE OF MANUFACTURING CONCERN, IT CAN BE SAID THA T THE BUSINESS WAS SETUP, WHEN THE FIRST ORDER OF PURCHASE OF RAW MATERIAL WAS PLACED AND NOT WHEN THE FACTORY WAS STARTED. THE HO NBLE GUJARAT HIGH COURT, IN THE CASE OF CIT VS SARABHAI SONS PVT .LTD.(973 90 ITR 318) WAS DEALING WITH A COMPANY ESTABLISHED FOR A M ANUFACTURING OF SCIENTIFIC INSTRUMENTS HELD THAT PURCHASE OF LAND, PLACING OF ORDERS FOR MACHINERY AND RAW MATERIALS WERE MERELY OPERATIONS, FOR THE SETTING UP OF THE BUSINESS AND THE BUSINESS WAS ACTUAL SETU P ONLY, WHEN THE MACHINERY WAS INSTALLED AND THE FACTORY WAS READY T O COMMENCE BUSINESS . THE HONBLE SUPREME COURT, WHILE AFFIRME D THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V S SARABHAI MANAGEMENT CORPORATION LTD.(1991 192 ITR 151) HELD THAT IN THE CASE OF A COMPANY FORMED FOR LEASING OF THE PROPERT Y, IT COULD NOT BE SAID THAT THE BUSINESS WAS NOT SETUP TILL THE FIRST LEASE TOOK PLACE, THE EARLIER PART OF THE ACTIVITIES, NAMELY ENGAG ED STAFF, BUYING THE EQUIPMENT AND MAKING THE STAFF FAMILIAR WITH THE S AME ARE ALL PART OF THE BUSINESS AND THE BUSINESS CAN BE SAID TO BE SETUP, EVEN EARLIER. THE HONBLE MADRAS HIGH COURT WAS DEALING WITH THE CASE OF A COMPANY FORMED FOR SELLING PROPERTY TIME SHARE I N CIT VS CLUB RESORTS PVT. LTD. (2016) 287 ITR 552 HELD THAT THE ACTS OF APPOINTING STAFF FOR CANVASSING SALES OF THE PROPERTY TIME SHA RE, RENTING OF OFFICE PREMISES ETC., AMOUNTED TO SETTING UP OF THE BUSIN ESS, EVEN THOUGH HORIZON INFRASTRUCTURE LTD. 18 THE CONSTRUCTION OF THE PROPERTY WAS YET TO BEGIN. SIMILARLY, THE HONBLE GUJARAT HIGH COURT IN THE CASE OF A HOTEL A ND HOSPITABILITY INDUSTRY IN CASE OF HOTEL ALANKAR VS CIT (1982) 133 ITR 866, WHILE RECOGNIZING, THE QUESTION, WHETHER A BUSINESS IS SE TUP OR NOT WAS ESSENTIAL QUESTION OF FACT AND THAT IT WOULD LARGEL Y DEPEND UPON THE FACTS OF EACH CASE AND THE NATURE OF BUSINESS HELD THAT IN THE CASE OF A HOTEL, DUE WAIGHTAGE MUST GIVEN TO THE FACT THAT IT CANNOT COMMENCED ITS ACTIVITY OVERNIGHT. THE SUM AND SUBST ANCES OF THE RATIO LAID DOWN BY VARIOUS COURTS AND TRIBUNALS ARE THAT THE TERM BUSINESS SETUP AND COMMENCEMENT OF THE BUSINESS IS LARGLY DEPEND UPON THE FACTS OF EACH CASE AND NATURE OF BUSINESS CARRIED OUT BY THE UNDERTAKINGS. IN A CASE, WHERE THE COMPANY WAS INCORPORATED FOR MANUFACTURING OF ARTICLE OR GOODS, THEN IT CAN BE SAID THAT BUSINESS HAVE BEEN SETUP AND READ FOR COMMENCEMENT OF THE BUSINESS ONLY, WHEN THE PLANT AND MACHINERY IS INST ALLED AND IT IS READY FOR MANUFACTURING GOODS. SIMILARLY, IN A CASE WHERE A COMPANY WAS FORMED FOR ENGAGED IN THE ACTIVITY OF S ERVICE INDUSTRY, THEN IT CAN BE SAID TO HAVE SETUP AND READY FOR COM MENCEMENT OF THE BUSINESS, WHEN IT HAS TAKEN UP A PREMISES ON RE NT AND APPOINTED A STAFF AND BUYING THE EQUIPMENT RELEVANT FOR ITS BUSINESS. HORIZON INFRASTRUCTURE LTD. 19 12. IN THIS CASE, ON PERUSAL OF FACTS AVAILABLE ON RECORD, WE FIND THAT THE ASSESSEES MAIN BUSINESS ACTIVITY, AS PER MEMORANDUM AND ARTICLES OF ASSOCIATIONS IS TO BUILD, CONSTRUCT, AN D MAINTAIN AND RUN ALL INFRASTRUCTURE PROJECTS OR WORKS FOR LOGISTICS, INC LUDING INLAND CONTAINER DEPOT, CONTAINER FREIGHT STATION AND FREE TRADE WAREHOUSING ZONE AS ADMITTED BY THE LD. AR FOR THE ASSESSEE. THE ASSESSEE COMPANY HAS STARTED DEVELOPING MULTIMODAL LOGISTIC PARK/INLAND CLEARANCE DEPT (ICD) AT JHANSI IN UP AN D WAREHOUSING COMPLEX AT VILLAGE GOVIRLE AT NAVI MUMBAI. THE ASSE SEE ALSO THROUGH ITS SUBSIDIARY FASTLANE DISTRIPARK & LOGIST ICS PRIVATE LIMITED IS SETTING UP A CONTAINER FREIGHT STATION NEAR JNPT AT DIGHODE VILLAGE, PANVEL TALUK, RAIGAD DISTRICT, MAHARASHTRA . THE ASSESSEE THOUGH ITS ANOTHER SUBSIDIARY, CHIPLUN FTWZ PRIVAT E LTD, HAS INITIATED PLANS TO SET UP FTWZ AS CO DEVELOPER AT C HANGE VILLAGE, IN RAIGAD DISTRICT. THE ASSESEE IS ALSO IN PROCESS OF ACQUISITION OF LAND AT VARIOUS PLACES, INCLUDING AMBERGOAN AND PIP AVAV IN GUJARAT, CHENNAI AND NATIONAL CAPITAL REGION TO SETUP CFS/IC D/MULTIMODAL LOGISTIC PARKS. THESE ACTIVITIES HAVE NOT YET SETUP AND ALL ARE IN THE STAGE OF CONSTRUCTION. FURTHER, AS ADMITTED BY THE ASSESSEE IT HAS CAPITALIZED ALL DIRECT AND INDIRECT EXPENSES, INCLU DING FINANCE COST INCURRED FOR DEVELOPMENT OF THE PROJECT. WHEN, THE ASSESSEE ITSELF HAD ADMITTED THE FACT THAT ITS PROJECT ARE UNDER CO NSTRUCTION UP TO AY HORIZON INFRASTRUCTURE LTD. 20 2012-13, THEN IT CANNOT BE SAID THAT ITS BUSINESS H AS BEEN SETUP MERELY, FOR THE REASON THAT IT HAS SHOWN SOME REVEN UE FROM ROAD TRANSPORT/SEA TRANSPORT, THAT TOO FROM ITS GROUP CO MPANY. WE FURTHER NOTED THAT THE REVENUE GENERATED FROM OTHER STREAM OF BUSINESS IS NOT REGULAR, WHICH IS EVIDENT FROM THE FACT THAT FO R SOME YEARS, THE ASSESEE SHOWN REVENUE FROM ROAD TRANSPORT AND FOR S OME YEARS, IT HAS SHOWN REVENUE FROM SEA TRANSPORT, BUT BOTH REVE NUES ARE CLAIMS TO HAVE BEEN RECEIVED FROM PIPAVAV SHIPYARD LTD., A GROUP COMPANY OF THE ASSESSEE. THE LD. AO, AS WELL AS THE LD. CI T(A) AFTER CONSIDERING RELEVANT FACTS HAS RIGHTLY HELD THAT T HE BUSINESS OF THE ASSESSEE HAS NOT BEEN SETUP AND READY FOR COMMENCEM ENT OF BUSINESS, CONSEQUENTLY EXPENDITURE DEBITED INTO PRO FIT AND LOSS ACCOUNT CANNOT BE ALLOWED AS DEDUCTION U/S 28 OF TH E I.T.ACT, 1961. IN SO FAR AS, CASE LAWS RELIED UPON BY THE ASSESSEE , WE FIND THAT NONE OF THE CASE LAWS ARE COMES TO RESCUE THE ASSES SEE, BECAUSE ALL JUDGMENTS CITED BY THE ASSESSEE HAVE CLEARLY HE LD THAT THE TERM SETUP OF BUSINESS AND COMMENCEMENT OF BUSINESS LARG ELY DEPEND UPON FACTS OF EACH CASE AND NATURE OF BUSINESS UND ERTAKEN BY THE ASSESSEE. FURTHER, IN ALL THE CASES, IT HAS BEEN CA TEGORICALLY HELD THAT IN CASE OF MANUFACTURING COMPANY THAT BUSINESS SAID TO HAVE BEEN SETUP, WHEN THE PLANT IS READY FOR USE. IN CAS ES, WHERE THE COMPANY INVOLVED IN SERVICES SECTOR, THE BUSINESS S AID TO HAVE BEEN HORIZON INFRASTRUCTURE LTD. 21 SETUP ONLY, WHEN THE PRIMARY CONDITIONS FOR COMMENC EMENT OF BUSINESS IS PUT IN PLACE. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE CASES LAWS RELIED UPON BY THE ASSESSEE ARE NOT APPLICABLE TO THE FACTS OF ASSESSE CASE. THE LD. CIT(A) AFTER CONSIDERING RELEVANT FACTS HAS RIGHTLY AFFIRMED FINDINGS OF THE AO AND HENCE, WE ARE INCLINED TO UPHOLD, THE FINDINGS OF LD. CIT(A) AND REJECT GROUND TAKEN BY THE ASSESSEE FOR AY 2010-11,2011-12 AND 20 12-13. 13. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM ASSESSEE, AS WELL AS REVENUE APPEALS FOR AY 2012-13 ,2013-14 AND 2014-15 IS DISALLOWANCES OF EXPENDITURE INCURRED, I N RELATION TO EXEMPT INCOME U/S 14A R.W.S.RULE 8D(2)(II) & (III) OF I.T.RULES, 1962. THE AO HAS DETERMINED DISALLOWANCES OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME BY INVOKING PRESCRIBED P ROCEDURE PROVIDED UNDER RULE 8D(2) AND DETERMINED INTEREST D ISALLOWANCE AND OTHER EXPENSES, ON THE GROUND THAT THE DISALLOW ANCES CONTEMPLATED U/S 14A SHALL BE DETERMINED, IN ACCORD ANCE WITH RULE 8D OF I.T.RULES, 1962, WHETHER OR NOT, ANY DIVIDEND INCOME IS RECEIVED FOR THE YEAR. ALTHOUGH, THE LD. AR FOR THE ASSESSEE HAS TAKEN VARIOUS ARGUMENTS BEFORE THE LD.CIT(A), IN RE SPECT OF INVESTMENTS IN GROUP COMPANIES, FOR CONTROLLING INT EREST AND ALSO FOR STRATEGIC PURPOSE, INVESTMENTS IN SHARES AND SECUR ITIES OUT OF OWN HORIZON INFRASTRUCTURE LTD. 22 FUNDS IN LIGHT OF DECISION OF HONBLE BOMBAY HIGH C OURT IN THE CASE OF HDFC BANK LTD. VS DCIT (2016) 383 ITR 529 AND CI T VS. RELIANCE UTILITIES AND POWER LIMITED (2009) 313 ITR 340 THAT NO DISALLOWANCE COULD BE MADE, IN RESPECT OF INTEREST EXPENDITURE, WHERE OWN FUNDS IN FORM OF SHARE CAPITAL AND RESERV ES IS IN EXCESS OF INVESTMENT IN SHARES. THE ASSESEE HAD ALSO TAKEN ONE MORE ARGUMENT, IN RESPECT OF DISALLOWANCES OF EXPENDITU RE UNDER RULE 8D(2)(III) OF I.T.RULES, 1962, @ 0.5% OF AVERAGE VA LUE OF INVESTMENT, ON THE GROUND THAT ONLY THOSE INVESTMENTS, WHICH YI ELD EXEMPT INCOME SHALL BE CONSIDERED FOR THE PURPOSE OF DETER MINATION OF AVERAGE VALUE OF INVESTMENTS. FURTHER, ALTHOUGH TH E LD. AR FOR THE ASSESEE HAD TAKEN ABOVE ARGUMENTS, BUT AT TIME OF H EARING SUBMITTED THAT THE DISALLOWANCES CONTEMPLATED U/S 1 4A SHALL NOT EXCEED EXEMPT INCOME, THEREFORE, DISALLOWANCES COMP UTED BY THE AO SHOULD BE RESTRICTED TO THE EXTENT OF EXEMPT INC OME EARNED FOR THE YEAR. 14. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT L D. CIT(A) WAS ERRED IN RESTRICTING DISALLOWANCES TO THE EXTENT OF INTEREST EXPENDITURE DETERMINED BY THE AO, IGNORING THE FACT THAT PROVIS ION OF SECTION 14A SHALL APPLIES, EVEN IF NO EXEMPT INCOME HAS ACTUALL Y BEEN EARNED OR RECEIVED DURING THE YEAR. THE LD. DR FURTHER SUBMIT TED THAT THE HORIZON INFRASTRUCTURE LTD. 23 BOARD HAS ISSUED A CIRCULAR NO. 05/14 DATED 11/02/2 014, WHEREIN IT HAS BEEN CLARIFIED THAT RULE 8D R.W.S. 14A OF THE I .T.RULES 1961, PROVIDES FOR DISALLOWANCES OF EXPENDITURE EVEN, WHE RE THE ASSESSEE IN PARTICULARS YEAR HAS NOT EARNED EXEMPT INCOME. T HE LD. DR FURTHER SUBMITTED THAT ALTHOUGH, THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS CHEMINVEST LIMITED 378 ITR 33 HAD HE LD THAT WHERE, THERE IS NO EXEMPT INCOME THERE SHOULD NOT BE ANY D ISALLOWANCE, BUT FACT REMAINS THAT THE SAID DECISION HAS NOT BEEN AC CEPTED BY THE DEPARTMENT AND SLP HAS BEEN FILED BEFORE THE HONBL E SUPREME COURT AND SAME IS PENDING, THEREFORE DISALLOWANCES MADE BY THE AO SHOULD BE UPHELD. 15. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. ALTHOUGH, THE LD.AR FOR THE ASSESSEE HAD TAKEN THE ARGUMENT OF STRATEGIC INSTRUMENT FOR CONTROLLING PURPOSE IN SUB SIDIARY/GROUP COMPANIES, THE SAID ARGUMENT HAS BEEN CONSIDERED BY THE HONBLE SUPREME COURT. IN THE CASE OF MAX OPP INVESTMENTS LTD VS CIT(, WHERE THE HONBLE SUPREME COURT CLEARLY REJECTED AR GUMENTS IN LIGHT OF INVESTMENT IN GROUP COMPANY FOR STRATEGIC PURPOS E AND HELD THAT EVEN THOUGH, INVESTMENTS MADE IN GROUP/SISTERS CONC ERN FOR THE PURPOSE OF CONTROLLING INTEREST AND STRATEGIC PURPO SE, DISALLOWANCES HORIZON INFRASTRUCTURE LTD. 24 CONTEMPLATED U/S 14A IS APPLICABLE. THEREFORE, THER E IS NO MERIT IN THE ARGUMENTS OF THE ASSESSEE AND HENCE THE SAME IS REJECTED. IN SO FAR AS, ARGUMENTS OF THE ASSESSEE THAT WHEN, OWN FUNDS ARE IN EXCESS OF INVESTMENTS IN SHARES, WHICH YIELD EXEMPT INCOME QUESTION OF DISALLOWANCES OF INTEREST EXPENDITURE D OES NOT ARISE, WE FIND THAT ALTHOUGH, THE HONBLE BOMBAY HIGH COURT I N THE CASE OF CIT VS HDFC BANK LTD.(SUPRA) AND CIT VS RELIANCE UTILIT IES AND POWER LTD.,(SUPRA) HAD CONSIDERED AN IDENTICAL ISSUE AND HELD THAT IF, OWN FUNDS ARE IN EXCESS OF INVESTMENTS IN SHARES, THEN GENERAL PRESUMPTION IS THAT INVESTMENTS IN SHARES IS OUT OF OWN FUNDS, CONSEQUENTLY NO DISALLOWANCES COULD BE MADE, IN RES PECT OF INTEREST EXPENSES. NO DOUBT, THE RATIO LAID DOWN BY THE HON BLE BOMBAY HIGH COURT IN THE ABOVE CASES IS APPLICABLE TO THE EFFECT THAT WHERE, OWN FUNDS ARE IN EXCESS OF INVESTMENTS, THEN NO INT EREST EXPENSES COULD BE ALLOWED, BUT FACT REMAINS THAT IN THIS CAS E, THE LD. CIT(A) HAD BROUGHT OUT CLEAR FACT TO THE EFFECT THAT INVE STMENTS IN SHARES AND SECURITIES ARE IN EXCESS OF SHARE CAPITAL AND R ESERVES PUT TOGETHER, THEREFORE PROVISION OF RULE 8D(2)(II) R.W .RULE 14A OF THE I.T.RULES,1962,IS APPLICABLE AND HENCE, NO ERROR I N THE FINDINGS OF THE AO. AS REGARDS, DISALLOWANCES OF OTHER EXPENSE S U/S 14A RULE 8D(2)((III), THE LD. CIT(A) HAS SET ASIDE THE ISSUE TO FILE OF THE AO TO RECOMPUTE DISALLOWANCE IN LIGHT OF THE DECISION OF HONBLE DELHI HIGH HORIZON INFRASTRUCTURE LTD. 25 COURT IN THE CASE OF CHEMINVEST LTD. VS CIT (SUPRA) AND ALSO, IN THE LIGHT OF SPECIAL BENCH DECISION OF ITAT, DELHI IN T HE CASE OF VIREET INVESTMENTS PVT LTD. VS DCIT, WHERE THE TRIBUNAL HE LD THAT ONLY THOSE INVESTMENTS WHICH YIELD EXEMPT INCOME NEEDS T O BE CONSIDERED, FOR THE PURPOSE OF DETERMINATION OF AVE RAGE VALUE OF INVESTMENTS. WE FIND THAT HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS CIT(SUPRA) HAD CLEARLY HELD THAT WHERE, THERE IS NO EXEMPT INCOME, NO DISALLOWANCES COULD BE MADE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. A SIMILAR VIEW HAS BEEN CONSIDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S NIRVED TRADERS PVT.LTD VS DCIT IN ITA NO. 149 O F 2017, WHERE BY FOLLOWING THE DECISION OF HONBLE DELHI HIGH COU RT IN THE CASE OF CHEMINVEST LTD VS CIT HELD THAT WHERE, THERE IS NO EXEMPT INCOME NO DISALLOWANCES OF EXPENDITURE, IN RELATION TO EXE MPT INCOME U/S 14A OF THE I.T.ACT, 1961. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS CHETTINAD LOGISTICS PVT.LTD. (2018) 257 TAX MANN.COM 2 (SC) HAD CONSIDERED SIMILAR ISSUE AND WHILE, DISMISSING SLP FILED BY THE REVENUE HELD THAT SECTION 14A CANNOT BE INVOKED, WH ERE NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR. HORIZON INFRASTRUCTURE LTD. 26 16. IN THIS CASE, THE FACT WITH REGARD TO DETAILS O F EXEMPT INCOME WAS NOT COMING FORWARD FROM THE ORDERS OF THE LOWER AUTHORITIES. AT THE SAME TIME, THE LD.AR FOR THE ASSESEE PLEADED FO R RESTRICTING DISALLOWANCES CONTEMPLATED U/S 14A R.W.RULE 8D(2) O F THE I.T.RULES 1962, TO THE EXTENT OF EXEMPT INCOME, THEREFORE KEE PING IN VIEW OF FACTS AND CIRCUMSTANCES OF THIS CASE AND ALSO BY FO LLOWING THE RATIO LAID DOWN BY HONBLE SUPREME COURT AND HONBLE BOMB AY HIGH COURT AND ALSO HONBLE DELHI HIGH COURT IN THE CASE S DISCUSSED HEREINABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE NEEDS TO BE SET ASIDE TO THE FILE OF THE AO WITH A DIRECTION TO RECOMPUTE EXPENSES INCURRED IN RELATION TO EXEMPT INCOME U/S 14A R.W.RULE 8D OF THE I.T.RULES, 1962,IN LIGHT OF OUR DISCUSSION H EREINABOVE, BUT RESTRICT SUCH DISALLOWANCES TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEARS. FURTHER, IN CASE, IF THERE IS NO EXEMPT INCOME FOR THE RELEVANT ASSES SMENT YEAR, THEN THERE SHALL BE NO DISALLOWANCES OF EXPENDITURE IN R ELATION TO EXEMPT INCOME U/S 14A OF THE I.T.ACT, 1961. 17. COMING BACK TO THE ADDITIONAL GROUNDS RAISED BY THE ASSESEE DURING THE COURSE OF HEARING. THE AR FOR THE ASSESE E HAS RAISED ADDITIONAL GROUNDS OF APPEAL IN LIGHT OF CERTAIN JU DICIAL PRECEDENTS, INCLUDING THE DECISION OF ITAT SPECIAL BENCH, IN T HE CASE OF VIREET HORIZON INFRASTRUCTURE LTD. 27 INVESTMENTS PVT.LTD. VS DCIT AND ARGUED THAT COMPUT ATION UNDER CLAUSE (F) OF THE EXPLANATION 1 TO SECTION 115JB ( 2) IS TO BE MADE WITHOUT RESORTING TO COMPUTATION AS CONTEMPLATED U/ S 14A R.W.RULE 8D OF THE I.T. RULES, 1962. WE FIND THAT THE ITAT SPECIAL BENCH, DELHI, IN THE CASE OF ACIT VS VIREET INVESTMENTS PV T.LTD. (2017) 165 ITD 27 HAD CONSIDERED AN IDENTICAL ISSUE AND HELD THAT COMPUTATION UNDER CLAUSE(F) OF EXPLANATION 1 TO SECTION 115JB (2) IS TO BE MADE WITHOUT RESORTING TO COMPUTATION AS CONTEMPLATED U /S 14A R.W.RULE 8D OF I.T.RULES, 1962. THEREFORE, WE ARE OF THE CON SIDERED VIEW THAT THE AO WAS ERRED IN RECOMPUTED BOOK PROFIT U/S 115J B BY ADDING DISALLOWANCES COMPUTED U/S 14A R.W.RULE 8D OF I.T.R ULES 1962. BUT, WE FURTHER NOTED THAT SINCE, THE ISSUE OF DISALLOWA NCE OF EXPENDITURE U/S 14A R.W.RULE 8D HAS BEEN SET ASIDE TO THE FILE OF THE AO TO DETERMINE DISALLOWANCES IN LIGHT OF OUR DISCUSSIONS IN THE PROCEEDING PARAGRAPHS, WE SET ASIDE THIS ISSUE ALSO TO THE FI LE OF THE AO AND DIRECT HIM TO FIRST DETERMINE DISALLOWANCES OF EXPE NDITURE IN RELATION TO EXEMPT INCOME IN LIGHT OF OUR DISCUSSIONS IN PRO CEEDINGS PARAGRAPHS AND THEN, FIND OUT AMOUNT OF DISALLOWANC ES AND THEREAFTER, RECOMPUTE BOOK PROFIT U/S 115JB IN LIGH T OF DECISION OF ITAT SPECIAL BENCH IN THE CASE OF VIREET INVESTMENT S PVT.LTD. VS ACIT (SUPRA). HORIZON INFRASTRUCTURE LTD. 28 18. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IT A NO.S 5813, 5817, 5818/MUM/2017 AND 2470, 2471/MUM/2018 ARE PAR TLY ALLOWED FOR STATISTICAL PURPOSE AND APPEAL FILED BY THE REV ENUE IN ITA. NO. 844,845/MUM/2018 AND 5779/MUM/2017 ARE ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 09 /08 /2019 SD/ - (RAVISH SOOD) SD/ - (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED 09 /08//2019 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//