DCIT 8(2)( OSD), MUMBAI V. KABRA EXTRUSIONTECHNIK LTD, MUMBAI

ITA 5868/MUM/2013

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8089 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-01-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 03-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Keywords: Depreciation; Earning of tax free income
• Section: 14A; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A , MUMBAI BEFORE SHRI G.S. PANNU (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 4078/MUM/2012 ASSESSMENT YEAR: 2008 - 09 ITA NO. 4079/MUM/2012 ASSESSMENT YEAR: 2009 - 10 & ITA NO. 6009/MUM/2013 ASSESSMENT YEAR: 2010 - 11 M/S KABRA EXTRUSIONTECHNIK LTD., 31, SHAH INDUSTRIAL ESTATE, VEERA DESAI RAOD, ANDHERI (W), MUMBAI - 400053 PAN: AAACK4289L VS. THE DEPUTY COMMISSIONER OF INCOME TAX, RANGE 8(2), MUMBAI (APPELLANT) (RESPONDENT) ITA NO. 5868/MUM/2013 ASSESSMENT YEAR: 2010 - 11 & ITA NO. 4358/MUM/2014 ASSESSMENT YEAR: 2011 - 12 THE DEPUTY COMMISSIONER OF INCOME TAX 8(2) (OSD), ROOM NO. 218, 2 ND FLOOR, AAYAKAR BHAVA, M.K. ROAD, MUMBAI - 400020 VS. M/S KABRA EXTRUSIONTECHNIK LTD., 31, SHAH INDUSTRIA L ESTATE, VEERA DESAI RAOD, ANDHERI (W), MUMBAI - 400058 PAN: AAACK4289L (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NITESH JOSHI (A R) REVENUE BY : SHRI RAJESH KUMAR YADAV ( D R) DATE OF HEARING: 01 /11 /201 7 DATE OF PRONOUNCEMENT: 15 / 1 2 /2017 2 ITA NO S . 4078 , 4079/MUM/2012,6009, 5868/MUM/2013 AND 4358/MUM/2014 ASSESSMENT YEAR S : 2008 - 09, 2009 - 10, 2010 - 11 & 2011 - 12 O R D E R PER RAM LAL NEGI, JM THESE ARE THE APPEALS AND CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AGAINST FIVE SEPARATE ORDER S PASSED BY THE LD. COMMISS IONER OF INCOME TAX (A PPEALS) - 17 , MUMBAI PERTAI NING TO THE ASSESSMENT YEAR S 2008 - 09, 2009 - 10, 2010 - 11 & 2011 - 12 . THE ASSESSEE HAS FILED ITA N O. 4078/MUM/2012 AND ITA NO. 4079/MUM/2012 AGAINST THE TWO ORDER S DATED 30/04/2012 PERTAINING TO THE ASSESSMENT YEAR 2008 - 09 AND 2009 - 1 0 RESPECTIVELY , WHEREBY THE LD. CIT (A) HAS PARTLY ALLOWED THE APPEAL S FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER S PASSED U/S 143 (3) OF THE INCOME TAX ACT (FOR SHORT THE ACT). ITA NO. 6009/MUM/2013 AND ITA NO. 5868/MUM/2013 ARE THE CROSS APPEALS FI LED BY THE ASSESSEE AND THE REVENUE RESPECTIVELY , WHICH PERTAIN TO A.Y. 2010 - 11, WHEREBY THE LD. CIT (A) HAS PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER PASSED BY THE AO U/S 143 (3) OF THE ACT. VIDE ITA NO. 4358/MUM/2014 THE AS SESSEE HAS CHALLENGED THE IMPUGNED ORDER DATED 21/04/2014 PASSED BY THE LD. CIT (A), WHEREBY THE LD. CIT (A) HAS PARTLY ALLOWED THE APPEAL AGAINST THE ASSESSMENT ORDER PASSED BY THE AO U/S 143 (3) PERTAINING TO THE A.Y. 2011 - 12. 2. SINCE, ALL THE FIVE APPEALS PERTAIN TO THE SAME ASSESSEE FOR THE DIFFERENT ASSESSMENT YEARS, ALL THE APPEALS WERE CLUBBED, HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON AND CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 4078 / MUM/2012 ( ASSESSMENT YEAR: 200 8 - 09 ) BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF PLASTIC, EXTRUSION , MACHINERY WITH COLLABORATION OF BATTENFELD EXTRUSION TECHNIK LTD., GERMANY, FILED ITS RETURN OF INCOM E FOR THE A.Y. 2008 - 09 DECLARING THE TOTAL INCOME OF RS. 3 ITA NO S . 4078 , 4079/MUM/2012,6009, 5868/MUM/2013 AND 4358/MUM/2014 ASSESSMENT YEAR S : 2008 - 09, 2009 - 10, 2010 - 11 & 2011 - 12 12,00,32,777/ - . SINCE, T HE CASE WAS SELECTED FOR SCRUTINY AO ISSUED NOTICES U/S 143 (2) AND 142 (1) AND IN RESPONSE THEREOF THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED BEFORE THE AO AND FI LED SUBMISSIONS AND DETAILS. 2. IT WAS NOTICED THAT THE ASSESSEE HAD CREDITED RS. 96,12,339/ - AS DIVIDEND INCOME IN THE PROFIT AND LOSS ACCOUNT AND CLAIMED THE SAME AS EXEMPT U/S 10 (34) IN THE COMPUTATION OF INCOME. THE ASSESSEE HAD ALSO CLAIMED EXEMPTI ON OF LONG TERM CAPITAL GAIN (LT CG ) OF RS. 2,74,26,135/ - ON SALE OF SHARES/MUTUAL FUNDS U/S 10 (38) OF THE ACT. HOWEVER, THE ASSESSEE HAD NOT OFFERED DISALLOWANCE OF EXPENDITURE INCURRED FOR EARNING THE EXEMPT INCOME U/S 14A OF THE ACT. ACCORDINGLY, THE AS SESSEE WAS ASKED TO FURNISH COMPLETE DETAILS OF INVESTMENTS ON WHICH IT HAS DERIVED THE EXEMPT DIVIDEND INCOME AND LONG TERM CAPITAL GAIN AND TO EXPLAIN AS TO WHY DISALLOWANCE OF EXPENDITURE SHOULD NOT BE MADE U/S 14A READ WITH RULE 8D OF THE INCOME TAX RU LES (RULES) . IN RESPONSE THEREOF THE ASSESSEE CONTENDED THAT IT HAD SUBSTANTIAL RESERVES /FUNDS WHICH WERE UTILIZED FOR MAKING INVESTMENT S IN SHARES MUTUAL FUNDS . SINCE NO INTEREST EXPENDITURE WAS INCURRED , NO DISALLOWANCE WAS REQUIRED TO BE MADE. THE AO RE JECTING THE CONTENTION OF THE ASSESSEE WORKED OUT THE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D AT RS. 2,05,956/ - AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 3. IT WAS FURTHER NOTICED THAT ASSESSEE HAD CLAIMED DEPRECIATION ON FIXED ASSET S A T RS. 5,19,83,560/ - IN RESPECT OF FACTORY - 1 INCLUDING THE DEPRECIATION TO THE EXTENT OF RS. 4,97,54,139/ - ON THE ASSETS OF DIVISION - III/DAMAN UNIT OF THE ASSESSEE. SINCE, THE ASSESSEE HAD NOT CLAIMED DEPRECIATION ON ASSETS OF ITS DIVISION - III FOR THE FIRST FIVE YEARS AND SUBSEQUENTLY IN A.Y. 2000 - 01 , T HE CLAIM OF DEPRECIATION WAS MADE FOR THE FIRST TIME ON THE WRITTEN DOWN VALUE (WDV) OF THE ASSETS OF DIVISION - III AS IT EXISTED FIVE YEARS PRIOR TO 2000 - 01. THE ASSESSING OFFICER WHILE COMPUTING THE ASSESSMEN T FOR THE A.Y. 1995 - 96 AND SUBSEQUENT 4 ITA NO S . 4078 , 4079/MUM/2012,6009, 5868/MUM/2013 AND 4358/MUM/2014 ASSESSMENT YEAR S : 2008 - 09, 2009 - 10, 2010 - 11 & 2011 - 12 YEARS HAD THRASHED DEPRECIATION ON THE ASSESSEE. THE EFFECT OF THIS HAD BEEN IGNORED BY THE ASSESSEE WHILE MAKING CLAIM FOR DEPRECIATION ON FIXED ASSETS OF DIVISION - III. ACCORDINGLY, THE ASSESSEE WAS ASKED TO EXPLAIN A S TO WHY THE DEPRECIATION SHOULD NOT BE RECOMPUTED. IN RESPONSE THEREOF THE ASSESSEE SUBMITTED THE REVISED WORKING OF DEPRECIATION OF DIVISION - III CONSIDERING THE THRUSTING OF DEPRECIATION WORKING OUT AT RS. 4,90,27,053/ - . THE AO REJECTING THE CONTENTION O F THE ASSESSEE HELD THAT THE ASSESSEE HAS CLAIMED DEPRECIATION TO THE EXTENT OF RS. 7,27,086/ - AND DISALLOWED THE SAME. 4. IN THE FIRST APPEAL THE LD. CIT (A) CONFIRMED THE AMOUNT OF EXCESS DEPRECIATION CLAIMED BY THE ASSESSEE AND DISMISSED THIS GROUND O F APPEAL. SO FAR AS THE ADDITION U/S 14A OF THE ACT IS CONCERNED, THE LD. CIT (A) CONFIRMED THE DISALLOWANCE MADE UNDER RULE 8(2)(III) AND DIRECTED THE AO TO ENQUIRE INTO THE GENUINENESS OF APPLICANT S CLAIM REGARDING DISALLOWANCE U/S 14A READ WITH RULE 8( 2)(II) WHETHER THE ASSESSEE HAS USED INTEREST BEARING FUNDS IN EARNING EXEMPT INCOME OR THE ASSESSEE HAD UTILIZED THE INTEREST FREE FUNDS TO DECIDE WHETHER DISALLOWANCE IS TO BE MADE UNDER RULE 8D(2) (II) OR NOT. SO FAR AS THE SECOND ISSUE RELATING TO THE E XCESS CLAIM OF DEPRECIATION BY THE ASSESSEE IS CONCERNED, THE LD. CIT(A) AFFIRMED THE FINDINGS OF THE AO AND DISMISSED THE SAID GROUND OF APPEAL OF THE ASSESSEE. AGAINST THE SAID FINDINGS, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. THE ASSESSEE HA S RAISED THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL AGAINST THE IMPUGNED ORDER PASSED BY THE LD. CIT (A): - 1. THE CIT (A) OUGHT TO HAVE HELD THAT THE APPELLANT HAD DISCLAIMED DEDUCTION BY WAY OF DEPRECIATION UNDER SECTION 32(1) OF THE ACT IN THE EARLIER YEAR S AND, THEREFORE, THE WRITTEN DOWN VALUE ON WHICH DEPRECIATION WAS TO BE ALLOWED FOR THE YEAR UNDER CONSIDERATION SHOULD HAVE BEEN HIGHER TO THAT EXTENT. 5 ITA NO S . 4078 , 4079/MUM/2012,6009, 5868/MUM/2013 AND 4358/MUM/2014 ASSESSMENT YEAR S : 2008 - 09, 2009 - 10, 2010 - 11 & 2011 - 12 2. THE CIT (A) OUGHT TO HAVE HELD THAT NO PART OF EXPENDITURE BY WAY OF ADMINISTRATIVE COST HAD BEEN INC URRED IN RELATION TO EARNING OF EXEMPT INCOME AND, HENCE SUCH EXPENDITURE COULD NOT BE THE SUBJECT MATTER OF DISALLOWANCE UNDER SECTION 14A OF THE ACT. 3. THE CIT (A) OUGHT TO HAVE HELD THAT THE DISALLOWANCE, IF ANY, UNDER SECTION 14A OF THE ACT COULD NOT EXC EED THE AMOUNT OF RS. 22,878. THE CIT (A) ERRED IN UPHOLDING AN ADHOC DISALLOWANCE UNDER SECTION 14A @ 0.5% OF AVERAGE VALUE OF INVESTMENT ON THE FIRST DAY AND LAST DAY OF PREVIOUS YEAR. 6. THE ASSESSEE HAS ALSO RAISED THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL AGAINST THE IMPUGNED ORDER PASSED BY THE LD. CIT (A): - 4. THE CIT (A) OUGHT TO HAVE HELD THAT THE AO ERRED IN INVOKING THE PROVISION OF RULE 8D OF THE INCOME - TAX RULES, 1962 (THE RULES) WITHOUT FULFILLING THE PRE - CONDITIONS AS NECESSARY TO BE FULFILLE D AS PER SUB - SECTION (2) OF SECTION 14A OF THE ACT. 5. THE CIT (A) ERRED IN DIRECTING THE A.O. TO ASCERTAIN WHETHER THERE IS A DIRECT OR INDIRECT NEXUS BETWEEN THE BORROWED FUNDS AND THE INVESTMENTS IN EQUITY/MUTUAL FUNDS FOR THE PURPOSES OF MAKING A DISALLO WANCE OF INTEREST EXPENDITURE UNDER SECTION 14A OF THE ACT . 7. GROUND NO. 1 OF THE APPEAL PERTAINS TO EXCESS CLAIM OF DEPRECIATION TO THE EXTENT OF RS. 7,27,086/ - . WE NOTICE THAT THE AUTHORIZED REPRESENTATIVE HAD ADMITTED BEFORE THE LD. CIT (A) THAT THI S ISSUE HAS BEEN DECIDED AGAINST THE APPELLANT BY THE BOMBAY HIGH COURT AND THE ASSESSEE HAS FILED APPEAL AGAINST THE SAID ORDER BEFORE THE HONBLE SUPREME COURT. BEFORE US, T HE LD. COUNSEL FAIRLY SUBMITTED THAT THE HONBLE SUPREME COURT HAS DECIDED THE SA ID ISSUE AGAINST THE ASSESSEE BY CONFIRMING THE ORDER OF THE HONBLE HIGH COURT. IN VIEW OF THE SAID FACTS, WE DISMISS THIS GROUND OF APPEAL OF THE ASSESSEE AS DEVOID OF MERIT . 6 ITA NO S . 4078 , 4079/MUM/2012,6009, 5868/MUM/2013 AND 4358/MUM/2014 ASSESSMENT YEAR S : 2008 - 09, 2009 - 10, 2010 - 11 & 2011 - 12 8. GROUND NOS. 2, 3 AND ADDITIONAL GROUNDS 4 AND 5 PERTAIN TO DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (THE RULES). THE LD. COUNSEL SUBMITTED BEFORE US THAT THE ITAT HAS SET ASIDE THE IDENTICAL GROUND AND RESTORE THE MATTER TO THE FILE OF AO FOR PASSING FRESH ORDER AFTER NECESSARY VER IFICAT ION IN ASSESSEES OWN CASE ITA NO 3088/MUM/2011 FOR THE ASSESS MENT YEAR 2007 - 08 FOR THE REASON THAT THE AO HAD NOT GIVEN ANY BASIS FOR MAKING ADDITION @ . 5% OF THE AVERAGE VALUE OF THE INVESTMENT. THE LD. COUNSEL FURTHER SUBMITTED THAT T HE LD. CIT(A) HAS W RONGLY AFFIRM THE ACTION OF AO IN DISALLOWING RS. 89,904/ - ON ACCOUNT OF ADMINISTRATIVE EXPENSES UNDER RULE 8D (2)(III) AND DIRECTED TO CONDUCT FURTHER VERIFICATION WITH REGARD TO THE DISALLOWANCE OF RS. 1,16,052/ - 8D (2) (II). THE LD. COUNSEL FURTHER SUBM ITTED THAT THE ASSESSEE HAD NOT BORROWED ANY FUNDS FOR MAKING INVESTMENTS AS IT WAS HAVING SUFFICIENT CAPITAL RESERVES. THE ENTIRE BORROWINGS WERE BY WAY OF CASH CREDIT FACILITIES WHICH WERE AVAILED TO MEET THE WORKING CAPITAL REQUIREMENTS. THEREFORE, NO I NTEREST EXPENDITURE IS ATTRIBUTABLE TO THE EARNING OF DIVIDEND INCOME. WITHOUT PREJUDICE, T HE LD. COUNSEL FURTHER SUBMITTED THAT IN ANY CASE DISALLOWANCE COULD NOT EXCEED THE AMOUNT OF RS. 22,878/ - BEING THE AMOUNT EQUIVALENT TO 12 DAYS SALARY OF AN ACCOUNT ANT IN VIEW OF THE ORDER GIVING EFFECT TO THE ITATS DECISION DATED 16.05.2012 WHERE IN THE AO HAS MADE DISALLOWANCE OF THE AMOUNT EQUIVALENT TO 10 DAYS SALARY INSTEAD OF 3 DAYS SALARY DISALLOWED BY THE ASSESSEE. T HEREFORE, SUSTAINING OF AD - HOC DISALLOWANC E U/S 14A @ 0.5% OF AVERAGE VALUE OF INVESTMENT IS ERRONEOUS. THE LD. COUNSEL FURTHER SUBMITTED THAT THE LD. CIT (A) OUGHT TO HAVE HELD THAT THE AO HAS ERRED IN INVOKING PROVISIONS OF RULE 8D OF THE RULES IN THE ABSENCE OF PRE - CONDITIONS ENVISAGED UNDER S UB - SECTION 2 OF SECTION 14A OF THE ACT. THE LD. COUNSEL RELYING UPON THE JUDGMENT OF BOMBAY HIGH COURT DELIVERED IN RELIANCE UTILITY AND POWER LTD 313 ITR 304 (BOM) AND CIT VS. HDFC BANK LTD. [366 ITR 505 (BO M) SUBMITTED THAT SINCE THE IMPUGNED 7 ITA NO S . 4078 , 4079/MUM/2012,6009, 5868/MUM/2013 AND 4358/MUM/2014 ASSESSMENT YEAR S : 2008 - 09, 2009 - 10, 2010 - 11 & 2011 - 12 ORDER IS CO NTRARY TO THE LAW LAID DOWN BY THE HONBLE HIGH COURT, THE SAME IS LIABLE TO BE SET ASIDE. 9. ON THE OTHER HAND, THE LD. DR RELYING ON THE FINDINGS OF THE LD. CIT (A) SUBMITTED THAT THE LD. CIT(A) HAS RIGHTLY SUSTAINED THE DISALLOWANCE MADE BY THE AO U/S 14A READ WITH RULE 8(2)(III) SO FAR AS THE DISALLOWANCE UNDER RULE 8(2)(II) IS CONCERNED, SINCE THE LD. CIT (A) HAS DIRECTED THE AO TO ENQUIRE INTO THE GENUINENESS OF THE APPLICANTS CLAIM IN ORDER TO ASCERTAIN THE DISALLOWANCE IN QUESTION , THERE IS NO INFI RMITY IN THE FINDINGS TO INTERFERE WITH THE SAME. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT (A) HAS WRONGLY UPHELD THE AD - HOC DISALLOWANCE MADE U/S 14A @ 0.5% OF THE AVE RAGE VALUE OF INVESTMENT ON THE FIRST DAY AND THE LAST DAY OF PREVIOUS YEAR AND FURTHER DIRECTED THE AO TO VERIFY THE CONTENTION OF THE ASSESSEE TO ASCERTAIN THE DISALLOWANCE UNDER RUL E 8(2)(II) . DISALLOWANCE U NDER SECTION14A CAN BE MADE, WHEN THE AO HAVIN G REGARD TO THE ACCOUNTS OF THE ASSESSEE AND OF THE PREVIOUS YEAR IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. HOWEVER, IN THE PRESENT CASE, WE NOTICE THAT THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE AO UNDER RULE 6(2)(III) WITHOUT ASSIGNING ANY REASON. WE NOTICE THAT THE ASSESSEE HAD DISALLOWED THREE DAYS SALARY IN ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007 - 08 AND TH E AO MADE DISALLOWANCE OF 10 DAYS SALARY IN ITS ORDER GIVING EFFECT TO THE ITAT ORDER. BUT IN THE PRESENT CASE THE ASSESSEE HAS MADE SUO MOTU DISALLOWANCE OF 12 DAYS SALARY. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO JUSTIFICATION IN MAKING AD - H OC DISALLOWANCE OF .5% IN THE ASSESSMENT YEAR UNDER CONSIDERATION. WE THEREFORE, ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE AND SUSTAIN THE DISALLOWANCE CONFIRMED BY THE LD. CIT(A) UNDER RULE 8(2)(III). 8 ITA NO S . 4078 , 4079/MUM/2012,6009, 5868/MUM/2013 AND 4358/MUM/2014 ASSESSMENT YEAR S : 2008 - 09, 2009 - 10, 2010 - 11 & 2011 - 12 11. SO FAR AS DISALLOWANCE UNDER RULE 8(2)(II) IS C ONCERNED WE NOTICE THAT THE ASSESSEE HAD SHARE CAPITAL RESERVES AND SURPLUS OF RS. 6 8 , 77 , 71 , 832 / - AS ON 31.03.2007 AND THE TOTAL INVESTMENT AS ON 31.03.2008 WAS RS.10,98, 81,226/. THE TOTAL INVESTMENT AS ON 31.03.2007 WAS RS. 10,14,83,726/ - . AS PER THE P ROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING 31.03.2008, TOTAL PROFIT EARNED BY THE ASSESSEE DURING THE PREVIOUS YEAR WAS RS. 14,51,22,372/ - . THE AFORESAID FACTS CORROBORATE THE CONTENTION OF THE ASSESSEE THAT IT HAD SUFFICIENT FUNDS AND RESERVES OR THE PROF IT FROM BUSINESS IN THE PREVIOUS YEAR TO MAKE INVESTMENTS IN QUESTION. THE LD. CIT(A) HAS IGNORED THE AFORESAID MATERIAL FACTS AND HAS PASSED THE ORDER DIRECTING THE AO TO EXAMINE AND VERIFY THE NEXUS BETWEEN THE BORROWED FUNDS AND THE INVESTMENT IN QUESTI ON. FROM THE PERUSAL OF FINANCIAL STATEMENT, WE HAVE NOTED THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WERE MORE THAN THE INVESTMENT S MADE DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION . THE HON'BLE BOMBAY HIGH COURT CIT VS. HDFC BANK LTD. [366 ITR 505 (BOM) AND IN RELIANCE UTILITY AND POWER LTD 313 ITR 304 (BOM), HAS HELD THAT W HERE THE ASSESSEE'S CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN TAX - FREE SECURITIES, IT WOULD HAVE TO BE PRESUMED THAT INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST - FREE FU NDS AVAILABLE WITH THE A SSESSEE AND NO DISALLOWANCE WAS WARRANTED U/S 14A. CONSIDERING THE FACT THAT NO INTEREST BEARING FUNDS WERE UTILIZED IN EARNING THE EXEMPT INCOME , WE SET ASIDE THE FINDINGS OF THE LD CIT(A) AND ALLOW THIS GROUND OF APPEAL OF THE ASS ESSEE . ITA NO. 4079/MUM/2012 (ASSESSMENT YEAR: 2009 - 10 ) THE FACTS AND THE ISSUE INVOLVED IN THIS APPEAL ARE IDENTICAL TO THE FACTS AND THE ISSUES INVOLVED IN THE ASSESSEES OWN CASE FOR THE A.Y. 2008 - 09 DISCUSSED ABOVE EXCEPT THE AMOUNT OF EXCESS D EPRECIATION CLAIMED AND THE 9 ITA NO S . 4078 , 4079/MUM/2012,6009, 5868/MUM/2013 AND 4358/MUM/2014 ASSESSMENT YEAR S : 2008 - 09, 2009 - 10, 2010 - 11 & 2011 - 12 AMOUNT OF DISALLOWANCE INVOLVED. THE LD. CIT (A) HAS PASSED THE IMPUGNED ORDER IN CONSISTENT WITH THE ORDER PERTAINING TO THE A.Y. 2008 - 09 PASSED BY HIM . ACCORDINGLY THE ASSESSEE CHALLENGED THE IMPUGNED ORDER PASSED BY THE LD. C IT (A) BY RAISING THE FOLLOWING IDENTICAL GROUNDS: - 1. THE CIT (A) OUGHT TO HAVE HELD THAT THE APPELLANT HAD DISCLAIMED DEDUCTION BY WAY OF DEPRECIATION UNDER SECTION 32(1) OF THE ACT IN THE EARLIER YEARS AND, THEREFORE, THE WRITTEN DOWN VALUE ON WHICH DEPR ECIATION WAS TO BE ALLOWED FOR THE YEAR UNDER CONSIDERATION SHOULD HAVE BEEN HIGHER TO THAT EXTENT. 2. THE CIT (A) OUGHT TO HAVE HELD THAT THE APPELLANT HAD ALREADY DISALLOWED RS. 65,465 AS BEING ALLOCABLE UNDER SECTION 14A AND NO FURTHER EXPENDITURE BY WAY OF ADMINISTRATIVE COST HAD BEEN INCURRED IN RELATION TO EARNING OF EXEMPT INCOME AND, HENCE NO SUCH ADDITIONAL EXPENDITURE COULD NOT BE THE SUBJECT MATTER OF DISALLOWANCE UNDER SECTION 14A OF THE ACT. 3. THE CIT (A) OUGHT TO HAVE HELD THAT THE DISALLOWANCE, IF ANY, UNDER SECTION 14A OF THE ACT COULD NOT EXCEED THE AMOUNT OF RS. 65,465. THE CIT (A) ERRED IN UPHOLDING AN ADHOC DISALLOWANCE UNDER SECTION 14A @ 0.5% OF AVERAGE VALUE OF INVESTMENT ON THE FIRST DAY AND LAST DAY OF PREVIOUS YEAR. 2. THE ASSESSEE HA S ALSO RAISED THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL AGAINST THE IMPUGNED ORDER PASSED BY THE LD. CIT (A): - 4. THE CIT (A) OUGHT TO HAVE HELD THAT THE AO ERRED IN INVOKING THE PROVISION OF RULE 8D OF THE INCOME - TAX RULES, 1962 (THE RULES) WITHOUT FULFILL ING THE PRE - CONDITIONS AS NECESSARY TO BE FULFILLED AS PER SUB - SECTION (2) OF SECTION 14A OF THE ACT. 5. THE CIT (A) ERRED IN DIRECTING THE A.O. TO ASCERTAIN WHETHER THERE IS A DIRECT OR INDIRECT NEXUS BETWEEN THE BORROWED FUNDS AND THE INVESTMENTS IN EQUITY /MUTUAL FUNDS FOR THE PURPOSES OF MAKING A DISALLOWANCE OF INTEREST EXPENDITURE UNDER SECTION 14A OF THE ACT . 10 ITA NO S . 4078 , 4079/MUM/2012,6009, 5868/MUM/2013 AND 4358/MUM/2014 ASSESSMENT YEAR S : 2008 - 09, 2009 - 10, 2010 - 11 & 2011 - 12 3. SINCE, WE HAVE DISMISSED GROUND NO. 1 OF THE ASSESSEES APPEAL AND DECIDED GROUND NO. 2 TO 3, INITIALLY RAISED AND ADDITIONAL GROUNDS 1 TO 3 IN FAVOUR OF THE ASSESSEE, CONSISTENT WITH OUR FINDINGS IN ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2008 - 09, WE, DISMISS GROUND NO 1 OF THE APPEAL AGAINST THE ASSESSEE AND ALLOW 2 TO 3, INITIALLY RAISED AND ADDITIONAL GROUNDS 1 TO 3 IN FAVOUR OF THE ASS ESSEE FOR THE REASONS RECORDED IN OUR ORDER PERTAINING TO THE ASSESSMENT YEAR 2008 - 09. ITA NO. 6009/MUM/2013 (ASSESSMENT YEAR: 2010 - 11 ) THE GROUNDS RAISED BY THE ASSESSEE AND THE ISSUES INVOLVED IN THE PRESENT APPEAL ARE IDENTICAL TO THE GROUNDS RAISED I N BY ASSESSEE AND ISSUES INVOLVED IN ASSESSEES OWN APPEAL PERTAINING TO THE ASSESSMENT YEAR 2008 - 09 AND 2009 - 10 DECIDED ABOVE . 2. THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL AGAINST THE IMPUGNED ORDER PASSED BY THE LD. CIT (A): - 1. THE CIT (A) OUGHT TO HAVE HELD THAT THE APPELLANT HAD ALREADY DISALLOWED RS. 17,001 AS BEING ALLOCABLE UNDER SECTION 14A AND NO FURTHER EXPENDITURE BY WAY OF ADMINISTRATIVE COST HAD BEEN INCURRED IN RELATION TO EARNING OF EXEMPT INCOME AND, HENCE NO SUCH ADDITIONAL EXPENDITURE COULD NOT BE THE SUBJECT MATTER OF DISALLOWANCE UNDER SECTION 14A OF THE ACT. 2. THE CIT (A) OUGHT TO HAVE HELD THAT THE DISALLOWANCE, IF ANY, UNDER SECTION 14A OF THE ACT COULD NOT EXCEED THE AMOUNT OF RS. 17,001 . THE CIT (A) ERRED I N UPHOLDING AN ADHOC DISALLOWANCE UNDER SECTION 14A @ 0.5% OF AVERAGE VALUE OF INVESTMENT ON THE FIRST DAY AND LAST DAY OF PREVIOUS YEAR. 11 ITA NO S . 4078 , 4079/MUM/2012,6009, 5868/MUM/2013 AND 4358/MUM/2014 ASSESSMENT YEAR S : 2008 - 09, 2009 - 10, 2010 - 11 & 2011 - 12 3. THE CIT (A) OUGHT TO HAVE HELD THAT THE APPELLANT HAD DISCLAIMED DEDUCTION BY WAY OF DEPRECIATION UNDER SECTION 32(1 ) OF THE ACT IN THE EARLIER YEARS AND, THEREFORE, THE WRITTEN DOWN VALUE ON WHICH DEPRECIATION WAS TO BE ALLOWED FOR THE YEAR UNDER CONSIDERATION SHOULD HAVE BEEN HIGHER TO THAT EXTENT. 3. THE ASSESSEE HAS ALSO RAISED THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL AGAINST THE IMPUGNED ORDER PASSED BY THE LD. CIT (A): - 4. THE CIT (A) OUGHT TO HAVE HELD THAT THE AO ERRED IN INVOKING THE PROVISION OF RULE 8D OF THE INCOME - TAX RULES, 1962 (THE RULES) WITHOUT FULFILLING THE PRE - CONDITIONS AS NECESSARY TO BE FULFILLE D AS PER SUB - SECTION (2) OF SECTION 14A OF THE ACT. 5. THE CIT (A) ERRED IN DIRECTING THE A.O. TO ASCERTAIN WHETHER THERE IS A DIRECT OR INDIRECT NEXUS BETWEEN THE BORROWED FUNDS AND THE INVESTMENTS IN EQUITY/MUTUAL FUNDS FOR THE PURPOSES OF MAKING A DISALLO WANCE OF INTEREST EXPENDITURE UNDER SECTION 14A OF THE ACT . 4. WE HAVE DECIDED THE IDENTICAL ISSUES IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2008 - 09 AND 2009 - 10. CONSISTENT WITH OUR OWN FINDINGS IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEA R S 2008 - 09 AND 2009 - 10 AFORESAID, WE DISMISS GROUND NO 3, I.E., ISSUE RELATING TO EXCESS DEPRECIATION CLAIMED BY THE ASSESSEE AGAINST THE ASSESSEE AND ALLOW GROUND NO 1,2 & 3, INITIALLY RAISED AND ADDITIONAL GROUNDS 4 AND 5 IN FAVOUR OF THE ASSESSEE FOR TH E REASONS RECORDED IN OUR ORDER PERTAINING TO THE ASSESSMENT YEARS 2008 - 09 AND 2009 - 10. ITA NO. 5868/MUM/2013 (ASSESSMENT YEAR: 2010 - 11 ) THIS IS THE CROSS APPEAL FILED BY THE REVENUE AGAINST THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) PERTAINING TO THE ASSESSMENT YEAR 2010 - 11 12 ITA NO S . 4078 , 4079/MUM/2012,6009, 5868/MUM/2013 AND 4358/MUM/2014 ASSESSMENT YEAR S : 2008 - 09, 2009 - 10, 2010 - 11 & 2011 - 12 2. THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL AGAINST THE IMPUGNED ORDER PASSED BY THE LD. CIT (A): - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN DIRECTING THE A SSESSING OFFICER TO RECOMPUTE THE DISALLOWANCE U/S 14A READ WITH RULE 8D BY TAKING INTO CONSIDERATION THE NEXUS BETWEEN THE BORROWED FUNDS AND THE INVESTMENTS EARN EXEMPT INCOME, WITHOUT APPRECIATING THE FACT THAT THE AO HAS PROPERLY RECORDED HIS SATISFACT ION FOR INVOKING THE PROVISIONS OF RULE 8D AND THEREFORE SINCE RULE 8D AND THEREFORE SINCE RULE 8D IS INVOKED, THE DISALLOWANCE HAS TO BE WORKED OUT AS PER THE FORMULA PRESCRIBED THEREIN AND THERE IS NO S COPE FOR ANY DEVIATION THEREFROM 3. W E HAVE DECIDE D THE IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008 - 09, 2009 - 10 AND 2010 - 11. HENCE, C ONSISTENT WITH OUR OWN FINDINGS IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2008 - 09 AND 2009 - 10 AND 2010 - 11, AFORESAID, WE DISMISS THE SOLE GROUN D OF APPEAL FOR THE REASONS RECORDED IN OUR FINDINGS IN THE ASSESSEES OWN CASES AFORESAID. ITA NO. 4358/MUM/2014 (ASSESSMENT YEAR: 2011 - 12 ) THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL AGAINST THE IMPUGNED ORDER PASSED BY THE LD. C IT (A): - THE CIT (A) OUGHT TO HAVE HELD THAT THE APPELLANT HAD DISCLAIMED DEDUCTION BY WAY OF DEPRECIATION UNDER SECTION 32(1) OF THE ACT IN THE EARLIER YEARS AND, THEREFORE, THE WRITTEN DOWN VALUE ON WHICH DEPRECIATION WAS TO BE ALLOWED FOR THE YEAR UND ER CONSIDERATION SHOULD HAVE BEEN HIGHER TO THAT EXTENT. 2. THE SOLE GROUND OF THE ASSESSEE IN THIS CASE IS IDENTICAL TO GROUND NO. 1 OF THE ASSESSEES OWN APPEAL FOR THE A.Y. 2008 - 09 AND 2009 - 10 GROUND NO. 3 OF THE ASSESSEES OWN APPEAL FOR THE A.Y. 201 0 - 11. SINCE, WE HAVE DISMISSED THE 13 ITA NO S . 4078 , 4079/MUM/2012,6009, 5868/MUM/2013 AND 4358/MUM/2014 ASSESSMENT YEAR S : 2008 - 09, 2009 - 10, 2010 - 11 & 2011 - 12 IDENTICAL GROUND OF APPEAL IN ALL THE THREE APPEALS, WE DISMISS THIS GROUND OF APPEAL IN THE PRESENT CASE FOR THE REASONS MENTIONED IN OUR ORDER S PERTAINING TO THE SAID ASSESSMENT YEAR S. IN THE RESULT, APPEALS FILED BY THE ASSESSEE FOR THE A.Y. 2008 - 09 AND 2009 - 10 ARE PARTLY ALLOWED, APPEAL FILED BY THE ASSESSEE FOR THE A.Y. 2010 - 11 IS PARTLY ALLOWED, C ROSS APPEAL FILED BY THE REVENUE FOR THE A.Y. 2010 - 11 IS DISMISSED AND APPEAL FILED BY THE ASSESSE E FOR THE A.Y. 2011 - 12 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH . DECEMBER , 2017 . SD/ - SD/ - ( G.S. PANNU ) ( RAM LAL N EGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 15 / 12 / 2017 ALINDRA, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MU MBAI