RUNWAL DEVELOPERS P.LTD, MUMBAI V. DCIT CEN CIR 23, MUMBAI

ITA 5937/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4149 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 18-01-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 28-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Keywords: Business income; Business expenditure; Earning of tax free income; Onus to prove
• Section: 143(3); 14A; 37(1)

Judgement Text

RUNWAL DEVELOPERS P LTD ITA NO. 4777 /M UM /201 3 ITA NO. 59 3 7 /MUM/201 2 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D , MUMBAI , , BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI RAMIT KOCHAR , ACCOUNTA NT MEMBER ITA NO. : 4777 /MUM/20 1 3 (ASSESSMENT YEAR: 20 1 0 - 11 ) ITA NO. : 59 3 7/MUM/2012 (ASSESSMENT YEAR: 200 9 - 1 0 ) RUNWAL DEVELOPERS P LTD , RUNWAL & OMKAR SQUARE, 5 TH FLOOR, OFF EASTERN EXPRESS HIGHWAY, SION CHUNABHAT TI SIGNAL, SION (EAST), MUMBAI - 400 022 .: PAN: AA ACR 0395 J VS ASST. CIT CENTRAL CIRCLE 23, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAKESH JOSHI RESPO NDENT BY : SHRI B S BIST /DATE OF HEARING : 18 - 0 1 - 201 6 / DATE OF PRONOUNCEMENT : 12 - 0 4 - 201 6 ORDER : . . : PER AMIT SHUKLA , JM : THE AFORESAID APPEAL S HAVE BEEN F ILED BY THE ASSESSEE AGAINST SEPARATE IMPUGNED ORDER S DATE D 16.07 .201 2 AND 31.05.2013 PASSED BY CIT(A) - 40 MUMBAI , FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) , FOR THE ASSESSMENT YEAR S 200 9 - 1 0 AND 20 1 0 - 1 1 . WE WILL FIRST TAKE - UP APPEAL FOR THE ASSESSMENT YEAR 2010 - 11 IN ITA NO.4777/MUM/2013, VIDE WHICH FOLLOWING GROUND S HA VE BEEN RAISED: - RUNWAL DEVELOPERS P LTD ITA NO. 4777 /M UM /201 3 ITA NO. 59 3 7 /MUM/201 2 2 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN DISALLOWING THE CLAIM OF EXPENSES OF RS.1,60,77,911/ - FROM THE BUSINESS INCOME ON THE ALLEGED PLEA THAT THE SAID EXPENSES WAS CLAIMED BY THE APPELLANT AGAINST THE INCOME FROM HOUSE PROPERTY, WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. ON THE FACTS AN D CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN NOT APPRECIATING THE FACT THAT WHILE COMPUTING THE INCOME, THE APPELLANT HAS ALREADY DISALLOWED THE EXPENSES, WHICH WAS RELATED TO THE RENTAL INCOME. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT IN EARLIER YEARS NO SUCH DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER PASSED U/S 1 43(3) OF THE INCOME TAX ACT, 1961. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LEARNED ASSESSING OFFICER IN DISALLOWING THE CLAIM OF EXPENSES AMOUNTING TO RS.8,44,630/ - BY INVOK ING THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961 WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE BRIEF FACTS QUA FIRST ISSUE ARE THAT, ASSESSEE IS IN THE BUSINESS OF BUILDERS AND DEVELOPERS, GENERATION AND SALE OF ELECTRI CITY AND HAS ALSO RENTED OUT PROPERTIES DURING THE YEAR. THE AO NOTED THAT, ASSESSEE HAS LEASED OUT IMMOVABLE PROPERTY OWNED BY IT IN THE FORM OF R MALL, LBS MAR G , MULUND (WEST), MUMBAI. FROM LEASING OF SUCH PROPERTY, THE ASSESSEE HAS EARNED LEAVE AND LIC ENSE FEES OF RS.5,36,46,388/ - . BESIDES THIS, THE ASSESSEE HAS ALSO EARNED OTHER RENTAL INCOME OF RS.3,82,456/ - AND RS.19,58,050/ - . ALL THESE RECEIPTS HAVE BEEN SHOWN RENTAL RECEIPTS CHARGEABLE UNDER THE HEAD INCOME FROM HOUSE RUNWAL DEVELOPERS P LTD ITA NO. 4777 /M UM /201 3 ITA NO. 59 3 7 /MUM/201 2 3 PROPERTY. WHILE COMPUTING THE INCOME FROM HOUSE PROPERTY, THE ASSESSEE HAS REDUCED PROPERTY TAX OF RS.23,92,857/ - AND ALSO THE STANDARD DEDUCTION @ 30% UNDER SECTION 24(1) ON ACCOUNT OF REPAIRS AND ACCORDINGLY , SUM OF RS.3,75,15,126/ - WAS OFFERED AS TAXABLE INCOME. THE AO OBSERVED THAT THE ASSESSEE , WHILE COMPUTING ITS INCOME FROM BUSINESS HAS FAILED TO APPORTION AND DISALLOW EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH CAN BE ATTRIBUTABLE TO RENTAL INCOME EARNED BY IT. SINCE THE ASSESSEE HAD TAKEN THE ADVANTAGE OF 30% REPA IR ALLOW ABLE BY THE STATUTE AS A S TANDARD DEDUCTION , THEREFORE, I T SHOULD HAVE SUO MOTO APPORTIONED CERTAIN EXPENSES TO THE RENTAL INCOME AND DISALLOW THE SAME IN ITS COMPUTATION OF INCOME WHILE FILING ITS RETURN. IN RESPONSE TO THE SHOW CAUSE NOTICE BY TH E AO, THE ASSESSEE SUBMITTED DETAILS OF DIRECT EXPENSES INCURRED FOR THE BUSINESS CARRIED OUT BY IT. IT WAS ALSO POINTED OUT THAT EXPENSES TO THE TUNE OF RS.13,11,036/ - ON ACCOUNT OF ELECTRICITY CHARGES FOR PERTAINING TO MALL WAS SUO - MOTTO DISALLOWED BY TH E ASSESSEE. AS REGARDS ADMINISTRATIVE AND OTHER EXPENSES THEY WE RE UNIVERSAL EXPENSES WHICH WERE INCURRED FOR THE RUNNING OF THE BUSINESS , IRRESPECTIVE OF WHETHER OR NOT PROJECTS WERE BEING EXECUTED OR RENTAL ACTIVITY WAS THERE OR NOT. THESE EXPENSES HAVE BEEN INCURRED TO CONTINUE THE CORPORATE SET UP OF THE COMPANY AND FOR MAINTAINING ITS CORPORATE IDENTITY. THERE WOULD NOT HAVE BEEN ANY CHANGE IN THE CLAIM OF EXPENSES EVEN IF ASSESSEE WOULD NOT HAVE LEASED OUT ANY OF ITS PROPERTIES. FURTHER, T HIS ISSUE OF ALLOCATION OF EXPENSES HA D NEVER ARISEN IN THE PAST ASSESSMENT YEARS. 3. HOWEVER, THE LD. AO REJECTED THE ASSESSEES CONTENTION AND O B SERV ED THAT, EXCEPT FOR PROPERTY TAX, NO OTHER IMPLICIT DISALLOWANCE HAVE BEEN MADE BY THE ASSESSEE TOWARDS RENTAL RECEI PTS. THE ASSESSEE HAS NOT APPORTIONE D ANY OF THE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH HAS BEEN CLAIMED AS BUSINESS EXPENDITURE TOWARD S THE RENTAL RECEIPTS. H E HELD THAT THE ASSESSEES CONTENTION THAT AS ON GOING CONCERN AND BUSINESS RUNWAL DEVELOPERS P LTD ITA NO. 4777 /M UM /201 3 ITA NO. 59 3 7 /MUM/201 2 4 ENTERP RISE IT HAS TO INCUR CERTAIN EXPENDITURE S EVEN IF NO RENTAL INCOME WOULD HAVE ARISEN , IS NOT TENABLE, BECAUSE EARNING OF INCOME FROM LEASING OUT OF PREMISES OF R. MALL IS INCIDENTAL TO ITS BUSINESS ACTIVITIES. THE EXPENSES STATED TO HAVE BEEN INCURRED IN THE COURSE OF OTHER BUSINESS ACTIVITY M A Y HAVE BEEN USED FOR EARNING OF RENTAL INCOME ALSO, FOR EXAMPLE, SALARY PAID TO THE EMPLOYEES, ELECTRICITY CHARGES PAID FOR THE OFFICE AND OTHER SUCH EXPENSES MAY HAVE A COMPONENT TOWARDS EARNING OF RENTAL INCOME. T HUS, THERE HAS TO BE SOME ALLOCATION OF THE EXPENSES AND ACCORDINGLY, DISALLOWANCE SHOULD BE WORKED OUT. THE ASSESSEE HAS CLAIMED HUGE STANDARD DEDUCTION OF 30% AND MUNICIPAL TAX AS DEDUCTION FROM RENTAL INCOME, BUT WHILE CALCULATING THE BUSINESS INCOME, T HE ASSESSEE HAS NOT APPORTIONED ANY OF THE EXPENSES TOWARDS ITS RENTAL RECEIPTS. LASTLY , IN THE EARLIER YEARS, THE ASSESSING OFFICERS AND DEPARTMENTAL AUTHORITIES HAD NOT EXAMINED THIS ASPECT OF THE MATTER, THEREFORE, THIS IS THE NEW ISSUE WHICH HAS BEEN R AISED IN THIS YEAR. SO ACCORDINGLY, HE MADE A DISALLOWANCE OF RS.1,60,77,911/ - IN THE FOLLOWING MANNER: - 6.5 IT IS VERY DIFFICULT TO PIN POINT AT THE EXPENSES THAT HAVE BEEN DIRECTLY INCURRED FOR THE SAKE OF EARNING RENTAL INCOME BY THE ASSESSEE. EVEN THE ASSESSEE HAS NOT GIVEN ANY SUCH WORKING, EVEN THOUGH IT WAS ASKED TO DO SO, WITHOUT PREJUDICE, IN THE NOTICE DATED 02.01.2013. THEREFORE SUCH EXPENSE HAS TO BE ESTIMATED ON THE BASIS OF THE AVAILABLE FACTS AND INFORMATION. NOW IN ORDER TO COMPUTE THE DISA LLOWANCE OF EXPENSES TO BE MADE ON ACCOUNT OF THE ABOVE DISCUSSION, THERE ARE TWO CHOICES AVAILABLE WITH THE UNDERSIGNED: 1 . TO DISALLOW THE SAME AMOUNT OF DEDUCTION FROM THE BUSINESS EXPENSES, AS THE AMOUNT OF DEDUCTION CLAIMED RS.1,60,77,911/ - AS 30% REPAIR S AS PER THE LAW. THE SAME CAN BE DISALLOWED AT FIRST CHOICE. RUNWAL DEVELOPERS P LTD ITA NO. 4777 /M UM /201 3 ITA NO. 59 3 7 /MUM/201 2 5 2 . TO DISALLOW THE FRACTION OF TOTAL EXPENSES CLAIMED BY THE ASSESSEE, AS IS THE PROPORTION OF INCOME FROM RENT TO THE GROSS INCOME OF THE ASSESSEE AS PER THE P&L ACCOUNT, I.E. IN THE PROPORTION OF 5,59,85,895 X 7,20,08,371 =16,60,380 242,80,30,091 6.6 KEEPING IN MIND THE ABOVE COMPUTATION THE FIRST CHOICE IS EXERCISED IN THE INTERESTS OF THE REVENUE. THEREFORE A DISALLOWANCE OF RS.1,60,77,911/ - IS MADE OUT OF THE BUSINESS EXPENSES CL AIMED BY THE ASSESSEE IN ITS RETURN. THIS AMOUNT OF DISALLOWANCE IS ADDED TO THE BUSINESS INCOME OF THE ASSESSEE. 4. BEFORE THE CIT(A), ASSESSEE SUBMITTED THAT, EXPENSES DIRECT LY RELATED TO THE RENTAL INCOME BEING MUNICIPAL TAXES OF RS.23,92,887/ - AND EL ECTRICITY CHARGES OF RS.13,11,036/ - HAD ALREADY BEEN DISALLOWED BY THE ASSESSEE . THE OTHER EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT MAINLY RELATED TO OTHER BUSINESS SEGMENT CARRIED OUT BY THE ASSESSEE AND OR FOR GENERAL & ADMINISTRATIVE EXPENSES INC URRED WERE PURELY FOR RUNNING OF THE BUSINESS, IRRESPECTIVE OF WHETHER OR NOT PROJECTS BEING EXECUTED OR RENTAL ACTIVITY WAS THERE OR NOT . THESE EXPENSES ARE ESSENTIALLY FOR RUNNING OF COMPAN Y AND MAINTAINING ITS CORPORATE IDENTITY. ONE VERY IMPORTANT FACT WHICH WAS BROUGHT TO THE NOTICE OF AND IN THE RECORD OF THE CIT(A) WAS THAT, ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH M/S VEER PROPERTY PVT. LTD. , FOR RUNNING AND MANAGING THE MALLS AND THE SAID COMPANY HANDLED ALL THE WORK RELATED TO THE MALL AND, TH EREFORE, ASSESSEE DID NOT HAD TO INCUR ANY EXPENDITURE FOR THE MAINTENANCE OF THE MALLS. FURTHER, IT W AS THE ONUS OF THE AO TO PROVE THAT THE EXPENSES DEBITED BY THE ASSESSEE HAS NOT BEEN INCURRED FOR THE OTHER BUSINESS INCOME. ALTERNATIVELY, IT WAS SUBMIT TED THAT, IF ANY AMOUNT IS DISALLOWABLE THEN SAME SHOULD BE RESTRICTED TO 2%. RUNWAL DEVELOPERS P LTD ITA NO. 4777 /M UM /201 3 ITA NO. 59 3 7 /MUM/201 2 6 5. THE LD. CIT(A) AFTER CONSIDERING THE ASSESSEES SUBMISSIONS AND ALSO THE FINDING OF THE AO, OBSERVED THAT, DESPITE OP P O R TUNITY GIVEN BY THE AO AS WELL AS IN THE COURSE OF TH E APPELLATE PROCEEDINGS, THE ASSESSEE COULD NOT ESTABLISH DIRECT CORRELATION WITH THE EXPENSES WHICH WERE DIRECTLY RELATED TO THE BUSINESS INCOME OTHER THAN RENTAL INCOME. U NDER THE HEAD ADMINISTRATION AND S ELLING E XPENSES ASSESSEE HAS DEBITED SALARY AMO UNT OF RS.292.85 LAKHS ; DIRECTORS REMUNERATION OF RS.21 LAKHS ; CONVEYANCE EXPENSES OF RS.24.60 LAKHS ; ELECTRICITY EXPENSES OF RS.28.95 LAKHS ; OFFICE REPAIRS AND MAINTENANCE EXPENSES OF RS.11.5 LAKHS ; PROFESSIONAL FEES OF RS.47.28 LAKHS ; SOCIETY CHARGES OF RS.12.06 LAKHS ; STAFF WELFARE EXPENSES OF RS.13.06 LAKHS ; AND TRAVELLING EXPENSES OF RS.14.44 LAKHS, WHICH ASSESSEE COULD NOT PROVE THAT SAME WAS EXCLUSIVELY FOR THE PURPOSE OF OTHER BUSINESS INCOME AND DID NOT RELATE TO EARNING OF RENTAL INCOME. THE ONUS IS ON THE ASSESSEE TO SHOW THAT THE EXPENDITURE HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. HE ALSO REFERRED TO CERTAIN DECISIONS FOR THE PROPOSITION THAT, THE BURDEN TO PROVE THAT EXPENDITURE HAVE BEEN INCURRED FOR THE BUSI NESS IS ON THE ASSESSEE. THESE DECISIONS HAVE BEEN REFERRED IN PAGES 5 & 6 OF THE APPELLATE ORDER. AS REGARDS THE AGREEMENT WITH M/S VEER PROPERT IES P. LTD. FOR THE MAINTENANCE OF THE MALL, THE ASSESSEE COULD NOT PRODUCE ANY DETAILS AND BREAK - UP OF EXPENS ES INCURRED BY THE SAID COMPANY FOR MAINTENANCE OF THE MALL AND HENCE THIS ARGUMENT OF THE ASSESSEE IS NOT SUBSTANTIATED. LASTLY , THE ASSESSEES CONTENTION THAT IT HAS SUO MOTO DISALLOWED PROPERTY TAX PAYMENT AND ELECTRICITY PAYMENT IS NOT RELEVANT, BECAUS E THE AO HAS DISALLOWED THE EXPENDITURE FROM THE ADMINISTRATION AND SELLING EXPENSES WHICH IS THERE IN SCHEDULE E. ACCORDINGLY, HE CONFIRMED THE ENTIRE DISALLOWANCE MADE BY THE AO OF RS.1 , 60,77,991/ - . 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE MR. R AKESH JOSHI, AFTER EXPLAINING THE ENTIRE FACTS SUBMITTED THAT, THE ASSESSEE IS HAVING HUGE BUSINESS INCOME FROM CONSTRUCTION ACTIVITIES AND RUNWAL DEVELOPERS P LTD ITA NO. 4777 /M UM /201 3 ITA NO. 59 3 7 /MUM/201 2 7 OTHER RECEIPTS. THE RECEIPTS FROM THE CONSTRUCTION ACTIVITY ITSELF WAS MORE THAN RS. 235 CRORES. THAT APART, THE ASSE SSEE HAD OTHER RECEIPTS WHICH WERE ALSO TAXABLE UNDER HEAD BUSINESS INCOME, WHICH IS EVIDENT FROM PROFIT AND LOSS ACCOUNT APPEARING AT PAGE 6 OF THE PAPER - BOOK. THE TOTAL INCOME SHOWN BY THE ASSESSEE IS MORE THAN RS. 244 CRORES . U NDER THE H E AD ADMINISTRA TION AND SELLING EXPENSES THE AMOUNT DEBITED IS APPROXIMATELY RS.7 .20 CRORES. NOW, ON THESE FACTS, WHETHER THERE CAN BE ANY OCCASION FOR APPORTIONMENT OF EXPENSES FOR EARNING OF A RENTAL INCOME OF RS.5.59 CRORES. AS THERE IS NO DISPUTE THAT THESE LEASE AND RENTAL INCOME ARE ASSESSED AS INCOME FROM HOUSE PROPERTY . ONCE AN INCOME HAS BEEN ASSESSED UNDER A PARTICULAR HEAD THEN SAME HAS TO BE COMPUTED IN THE MANNER PROVIDED UNDER TH AT SPECIFIC HEAD ONLY . ACCORDINGLY , THERE WAS NO REQUIREMENT F OR ANY APPORTIONM ENT OF EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT FOR OTHER BUSINESS ACTIVITIES TOWARDS EARNING OF RENTAL INCOME. HE FURTHER SUBMITTED THAT, ONE VERY IMPORTANT FACT WHICH HAS NOT BEEN PROPERLY APPRECIATED BY THE LD. CIT(A) IS THAT , THE ASSESSEE HAD AN AGREEMENT WITH M/S VEEAR PROPERTY PVT LTD. WHEREBY THE ASSESSEE HAS GIVEN THE ENTIRE MANAGEMENT, RUNNING AND MAINTENANCE OF THE MALL TO TH IS PARTY , VIDE AGREEMENT DATED 29 TH MARCH, 2009 . FOR C ARRYING ON THE MAINTENANCE BY THE SAID COMPANY, THE ASSESSEE DO ES NOT HAVE TO MAKE ANY PAYMENT , AS THE SAID COMPANY COLLECTS THE MAINTENANCE CHARGES FROM THE TENANTS, OWNERS AND OCCUPIERS OF THE COMPLEXES OF SHOPS IN THE MALL DIRECTLY AND USES IT FOR THE MAINTENANCE. THE ENTIRE ELECTRICITY, AIR - CONDITIONER CHARGES FOR THE COMMON AREAS ARE ALL RUN AND MAINTAINED BY THIS COMPANY, THEREFORE, IN VIEW OF THIS AGREEMENT, THE ASSESSEE DOES NOT HAVE TO INCUR ANY EXPENDITURE AT ALL. HOW, THIS COMPANY RUNS ITS MAINTENANCE BUSINESS OR INCURS ANY EXPENDITURE, THE SAME IS NOT THE C ONCERN OF THE ASSESSEE AT ALL THEREFORE, THE LD. CIT(A) HAS COMPLETELY MISDIRECTED HIMSELF IN HOLDING THAT, THE ASSESSEE HAS FAILED TO ESTABLISH THE EXPENSES INCURRED BY M/S VEEAR PROPERTY PVT RUNWAL DEVELOPERS P LTD ITA NO. 4777 /M UM /201 3 ITA NO. 59 3 7 /MUM/201 2 8 LTD. THUS, ON THESE FACTS, NO APPORTIONMENT OF EXPENSES SHOULD BE MADE. 7. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE ORDER OF THE OF THE CIT(A) AND SUBMITTED THAT THE ASSESSEE IS RUNNING COMPOSITE ACTIVITIES, THAT IS, CONSTRUCTION BUSINESS AND ALSO RENTING OUT OF THE PROPERT IES . IF A COMPOSITE ACTIVITY IS BE ING CARRIED OUT THEN, POSSIBILITY OF COMMON EXPENDITURE CANNOT BE RULED OUT. THUS, SOME ALLOCATION OF EXPENSES TOWARDS THE EARNING OF RENTAL INCOME HAS TO BE MADE FROM ADMINISTRATION AND SELLING EXPENSES . IN ANY CASE BEFORE THE CIT(A), THE ASSESSEE ITSEL F HAS OFFERED THAT 2% OF THE EXPENDITURE SHOULD BE DISALLOWED ON PROPORTIONATE BASIS. THUS, THE ALTERNATE CONTENTION OF THE ASSESSEE ITSELF GOES TO SHOW THAT SOME, EXPENSES NEEDS TO BE ALLOCATED. 8. WE HAVE HEARD RIVAL SUBMISSIONS, PERUSED THE RELEVANT FI NDING GIVEN IN THE IMPUGNED ORDERS AND ALSO MATERIAL REFERRED BEFORE US. THE ASSESSEE IS IN THE BUSINESS OF BUILDERS AND DEVELOPERS ; GENERATION AND SALE OF ELECTRICITY ; AND IS ALSO EARNING INCOME FROM LEAVE AND LICENSE OF A MALL FROM WHICH THE INCOME HAS BEEN SHOWN ASSESS ABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. FROM THE PERUSAL OF THE P&L ACCOUNT AS APPEARING AT PAGE 6 OF THE PAPER BOOK, IT IS SEEN THAT, ASSESSEES RECEIPTS FROM CONSTRUCTION ACTIVITY IS AT RS.235,35,40,254/ - . BESIDES THIS, THERE A RE OTHER HUGE RECEIPTS FROM OTHER ACTIVITIES ALSO. THE DETAILS OF THE INCOME SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING 31 ST MARCH, 2010 ARE AS UNDER: - PARTICULARS SCH. NO. OF THE YEAR 31.3.2010 PREVIOUS YEAR INCOME: CONSTRUCTION ACTIVITY R ECEIPTS A 2,3 5 3,540,254 6,584,000 BUSINESS FACILITIES RECEIPTS B 55,985,895 56,277,22 2 OTHER RECEIPTS C 6,252,523 6,710,720 PROMOTIONAL R ECEIPTS D 12,2 51,419 3 7,901,560 ELECTRICITY GENERATION 14,919,121 1 6,7 99 , 949 STOCK OF SHOPS AT R.MALL MULUND 191,249,041 190,209,429 INCREASE /(DECREASE ) IN S TOCKS 10 (218,72 9 ,175) 274,555,611 C L OS I N G W ORK IN P ROGRESS RUNWAL PRIDE MULUND 280,615,633 270,651,123 RUNWAL SYMPHONY - SANTACRUZ 356,049,199 - GABRIEL PROPERTY MULUND 1,071,378,683 859,137,846 TOTAL RS. 4,123,562,393 1,718,827,459 RUNWAL DEVELOPERS P LTD ITA NO. 4777 /M UM /201 3 ITA NO. 59 3 7 /MUM/201 2 9 UNDER THE HEAD MALL UPKEEP AND P ROMOTIONAL EXPENSES , THE ASSESSEE HAS DEBITED RS.11,67,480/ - , BREAK - UP OF WHICH IS AS UNDER: SCHEDULE - G : MALL UPKEEP AND PROMOTIONAL EXPENSES ELECTRICITY CHARGE S 1,311,036 (41,018) INSURANCE CHARGES - 254,330 REPAIRS & MAINTENANCE EXPENSES - 38,005 LICENCE FEES 137,584 172,633 LEGAL & PROFESSIONAL FEES - 1,500 WATER CHARGES (281,140) 593,333 1,167,480 1,018,783 OUT OF THIS AMOUNT, THE ASSESSEE HAD ALREADY DISALLOWED EXPENDITURE OF RS.13,11,036/ - ON ACCOUNT OF ELECTRICITY CHARGES, AS STATED BY THE ASSESSEE AND ALSO ADMITTED BY THE DEPARTMENT. UN DER THE HEAD ADMINISTRATION & SELLING EXPENSES , THE ASSESSEE HAD DEBITED RS.72 ,0 0 8 , 37 1 / - . THE DETAILS OF THESE EXPENSES ARE APPEARING IN SCHEDULE E WHICH FOR THE SAKE OF READY REFERENCE, SAME IS REPRODUCED HEREINBELOW: SCHEDULE E ADMINISTRATION & SEL LING EXPENSES AUDIT FEES 110,300 110,300 ADVERTISEMENT 2,866,136 329,526 BOOKS & PERIODICALS 88,680 18,688 BUSINESS PROMOTION EXPENSES 4,914,399 1,256,890 BROKERAGE 2,500,000 - COMPUTER EXPENSES 333,474 534,751 CONVEYANCE EXPENSES 2,460,762 1,882,279 ELECTRICITY CHARGES 2,895,436 535,350 DIRECTORS REMUNERATION 2,100,000 2,100,000 FEES & FORM 105,513 126, 976 HOUSEKEEPING EXPENSES 108,730 - INSURANCE PREMIUM 312,035 - MEMBERSHIP & SUBSCRIPTION 324,300 48,540 MISC. EXPENSES 49,549 56,778 MOR. CAR EXPENSES 975,632 1,045, 939 OFFICE REPAIRS & MAINTENANCE 1,159,892 391,043 POSTAGE & TELEGRAM 39,837 33,713 PRINTING & STATIONERY 723,837 696,109 PROFESSIONAL FEES 4,728,139 2,224,312 PROFESSION TAX 2, 500 2,500 RATES & TAXES 30,450 - RENT 2,148,925 4,648,660 SALARY 29,285,555 22,846,216 SALES TAX PAID - 98,465 SALES PROMOTION EXPENSES (R. MALL) - 294,420 RUNWAL DEVELOPERS P LTD ITA NO. 4777 /M UM /201 3 ITA NO. 59 3 7 /MUM/201 2 10 SCHEDULE E AD MINISTRATION & SELLING EXPENSES SECURITY EXPENSES 344,189 CAR PARKING REFUND 3 ,00,000 - SUNDRY BALANCES W/OFF 56,293 - SOCIETY CHARGE FOR FLATS - 228,089 SOCIETY CHARGES FOR SION OFFICE 1,206,952 - STAFF WELFARE EXPENSES 1,360,764 1,594,243 TELEPHONE EXPENSES 1,787,842 1,479,259 TRVELLING EXPENSES 1,444,932 759,405 TRAINING EXPENSES - 84,270 WEB DESIGNING 28,930 100,722 DONATIONS 6,00,000 8,225,000 (SUBLETTING CHARGES PAYABLE) 1,214,388 1,243,764 72,008,371 52,996,206 9. THE REVENUES CASE IS THA T, FOR EARNING OF RENTAL INCOME, AMOUNT OF RS.1,60,77,911/ - SHOULD BE DISALL OWED ON THE GROUND THAT, THIS MUCH AMOUNT SHOULD BE ALLOCATED FOR THE EARNING OF THE RENTAL INCOME FROM THE AMOUNT OF EXPENSES DEBITED UNDER THE HEAD ADMINISTRATION & S ELLING E XPENSES AS APPEARING IN SCHEDULE E ABOVE. INCOME EARNED FROM LEASING OUT OF MALL PREMISES IS INCIDENTAL TO ITS BUSINESS ACTIVITIES AND THE EXPENSE INCURRED IN THE DUE COURSE OF ITS BUSINESS ACTIVITIES MUST HAVE ALSO BEEN USED FOR THE PURPOSE OF EARNING OF RENTAL INCOME. T HEREFORE, SOME AMOUNT OF SALARY, ELECTRICITY AND OTHER SUC H EXPENSES SHOULD BE ATTRIBUTABLE FOR THE EARNING OF THE RENTAL INCOME. WE ARE UNABLE TO APPRECIATE OR UPHELD SUCH A REASONING; FIRSTLY , THE ASSESSEE IS HAVING HUGE BUSINESS RECEIPTS FROM CONSTRUCTION ACTIVITY AND OTHER BUSINESS ACTIVITIES WHICH IS MUCH FA R MORE THAN RS.250 CRORES AND ONCE ASSESSEE IS CLAIMING THAT EXPENDITURE S DEBITED UNDER THE HEAD ADMINISTRATIVE & SELLING EXPENSES HAVE BEEN INCURRED DIRECTLY FOR ITS BUSINESS ACTIVITY , THEN WITHOUT EXAMINING THE ACCOUNTS RELATING TO BUSINESS ACTIVITY AN D THE NATURE OF EXPENSES DEBITED, THE AO AND THE LD. CIT(A) CANNOT SHIFT THE ONUS TO THE ASSESSEE TO PROVE , WHETHER ANY SUCH EXPENDITURE IS ATTRIBUTABLE FOR THE EARNING OF RENTAL INCOME. BECAUSE IT IS THE REVENUE WHICH IS CARVING OUT A PREMISE FOR ALLOCATI ON OF EXPENDITURE FOR THE PURPOSE OF EARNING OF RENTAL INCOME, AND FOR THAT, IT HAS TO DEMONSTRATE HAVING REGARD TO THE ACCOUNTS MAINTAINED BY THE ASSESSEE AND RUNWAL DEVELOPERS P LTD ITA NO. 4777 /M UM /201 3 ITA NO. 59 3 7 /MUM/201 2 11 NATURE OF EXPENDITURE DEBITED ARE ALSO APPLICABLE FOR THE EARNING OF THE RENTAL INCOME . ONLY IF SUCH PREMISE IS ESTABLISHED THEN ONUS SHIFTS UPON THE ASSESSEE TO SHOW THAT, HOW MUCH AMOUNT OF EXPENSES DEBITED IS ATTRIBUTABLE FOR SUCH INCOME . BUT, IF REVENUE FAILS IN THE FIRST INSTANCE THEN WITHOUT ANY MATERIAL AND BASIS ON RECORD , NO SUCH ALLOCATION CAN BE MADE , UNLESS THE NATURE OF EXPENSES DEBITED IS DIRECTLY ATTRIBUTABLE TO THE EARNING OF LEASE RENTAL INCOME AND NOT THE BUSINESS INCOME. S ECONDLY , ONCE A PARTICULAR RECEIPTS IS ASSESSED UNDER A PARTICULAR HEAD, THEN THE COMPUTATION OF INCOME HAS TO BE MADE STRICTLY MADE IN ACCORDANCE WITH THE PROVISIONS DEALING WITH THE ASSESSABILITY OF THE INCOME UNDER THAT HEAD . IN OTHER WORDS, IF INCOME IS BEING ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY THEN COMPUTATION HAS TO BE MADE ACCORDINGLY THE PR OVISIONS LAID DOWN THEREIN. THUS, ON THESE COUNTS, THE REASONING GIVEN BY THE AO AS WELL AS BY THE CIT(A) FOR MAKING THE DISALLOWANCE FOR ADMINISTRATIVE EXPENSES IN THE AFORESAID MANNER CANNOT BE SUSTAINED. 10. MOREOVER, IT HAS BEEN BROUGHT ON RECORD THA T, ASSESSEE HAD ENTERED INTO AN AGREEMENT FOR RENTING, MANAGING AND MAINTENANCE OF R. MALL WITH M/S VEEAR PROPERTY PVT LTD. VIDE AGREEMENT DATED 20.03.2009, THE RECITAL ITSELF CLEARLY ENVISAGES THAT, THE ASSESSEE IS NOT IN A POSITION TO MANAGE THE MALL, SI NCE THEY DO NOT HAVE ANY EXPERTISE AND EQUIPMENTS FOR RUNNING AND MANAGING THE MALL, THEREFORE, THEY HAVE REQUESTED THE SAID COMPANY TO RUN AND MANAGE THE MALL. FURTHER THE SAME VERY COMPANY HAS BEEN MANAGING THE MALL SINCE 27 TH APRIL, 2004. TILL DATE THE SAID COMPANY HAS A N EXP E RT TEAM , EXPERIENCE, EQUIPMENTS AND OTHER NECESSARY INFRASTRUCTURE REQUIRED FOR RUNNING AND MANAGING THE MALLS. IN THE SAID AGREEMENT, IT HAS BEEN CLEARLY MENTIONED THAT THE PARTIES HAVE ENTERED INTO THE AGREEMENT ON PRINCIPAL TO P RINCIPAL BASIS . CLAUSE 2 CLEARLY PROVIDES THAT, THERE WILL NOT BE ANY CHARGE OR FEES PAYABLE BY THE COMPANY. THE RELEVANT CLAUSES 2 TO 5 READS AS UNDER: - RUNWAL DEVELOPERS P LTD ITA NO. 4777 /M UM /201 3 ITA NO. 59 3 7 /MUM/201 2 12 2. IT IS HEREWITH CLARIFIED THAT THERE WILL NOT BE ANY CHARGES OR FEES PAYABLE BY THE COMPANY, OTHER THAN COMMON AREA MAINTENANCE CHARGES BEING COLLECTED DIRECTLY BY THE COMPANY FROM THE MALL TENANTS, OWNERS AND OCCUPIERS OF THE SAID COMPLEX. 3 . IT IS FURTHER AGREED BETWEEN THAT THE COMPANY SHALL BEAR AND PAY ALL THE RUNNING, MAINTENANCE COST AS APPLICABLE DURING THE TENURE OF THIS AGREEMENT FOR ALL THE COMMON AREAS. IN ADDITION TO THE ABOVE THE COMPANY SHALL ALSO BEAR AND PAY THE WATER, ELECTRICITY, AIR - CONDITIONING CHARGES OF THE COMMON AREAS FOR RUNNING AND MANAGING THE MALL. 4 . THE OWNER UNDERTAKES TO TAK E OUT ADEQUATE INSURANCE FOR THE COMMON AREA IN THE SAID MALL AND ALSO UNDERTAKES TO KEEP THE EQUIPMENT, MACHINERY, FURNITURE AND FIXTURES IN THE SAID PLACE SUFFICIENTLY INSURED AGAINST LOSS, DEMAND, CLAIM OR DAMAGE BY FIRE WITH AN INSURANCE COMPANY OF REP UTE AND TO MAKE ALL PAYMENTS NECESSARY FOR THE ABOVE PURPOSE. THE OWNER ALSO UNDERTAKES TO TAKE PUBLIC LIABILITY INSURANCE OR THE COMMON AREA IN THE SAID MALL. 5 . THE PARTIES HEREBY EXPRESSLY AGREES AND UNDERTAKES THAT THE COMPANY SHALL HAVE FULL RIGHT TO AS SIGN OR PERMIT AND THIRD PARTY TO CONDUCT OR MANAGE THE MALL SUBJECT TO THE COMPANY AGREEING TO REIMBURSE OR BEAR ALL THE COST ETC. ON THAT BEHALF AND ALSO INDEMNIFY THE OWNER AGAINST THE LOSS, COSTS, PENALTIES, DAMAGES CAUSED ON ACCOUNT OF THE COMPANY PER MITTING ANY THIRD PARTY TO MANAGE THE MALL . THE ENTIRE RESPONSIBILITY IS ON THE SAID COMPANY AND ANNEXURE - A OF THE AGREEMENT DEALS WITH THE SCOPE OF WORK OF THE COMPANY WHICH IS AS UNDER: SUPERVISION / MAINTENANCE OF THE FOLLOWING : A . GENERAL SECURITY OF MALL B . HOUSEKEEPING C . COMMON LIGHTS IN PASSAGES AND COMPOUND LIGHTS D . REPAIR AND MAINTENANCE OF ELECTRICAL FITTING AND FIXTURE E . MAINTENANCE OF ELECTRICAL METERS F . MAINTENANCE OF ELEVATORS, ESCALATORS G . AIR CONDITIONING OF COMMON PASSAGES H . AMC FOR AIR - CONDITIONING I . MA NAGING PARKING FACILITIES RUNWAL DEVELOPERS P LTD ITA NO. 4777 /M UM /201 3 ITA NO. 59 3 7 /MUM/201 2 13 J . MUSIC IN COMMON AREA K . LOOKING AFTER THE MAINTENANCE OF BUILDING, NORMAL WEAR AND TEAR L . FIRE FIGHTING EQUIPMENT MAINTENANCE M . OVERALL MAINTENANCE OF COMMON AREA. FROM THE CLEAR CUT COVENANTS AND TERMS OF THE AGREEMENT , IT IS ABUNDAN TLY CLEAR THAT THE ASSESSEE DOES NOT HAVE TO INCUR ANY ADMINISTRATIVE EXPENDITURE FOR RUNNING AND MAINTENANCE OF THE MALL AND, THEREFORE, IN THE LIGHT OF THESE FACTS AND BACKGROUND, IT CANNOT BE HELD THAT ANY ADMINISTRATIVE EXPENDITURE SHOULD BE ALLOCAT ED FOR RUNNING OF THE MALL . 11. HOWEVER, ON A PERUSAL OF EXPENDITURE DEBITED UNDER SCHEDULE E, AS INCORPORATED ABOVE, IT IS SEEN THAT THE ASSESSEE HAS DEBITED SUM OFRS.28,66,136/ - UNDER THE HEAD ADVERTISEMENT AND SUM OF RS. 49,14,399/ - UNDER THE HEAD BUS INESS PROMOTION EXPENSES. FURTHER, FROM A PERUSAL OF BREAK - UP OF THESE EXPENSES AS GIVEN IN PAGE 26 OF THE PAPER BOOK WHICH WAS FILED BEFORE THE CIT(A), WE FIND THAT CERTAIN AMOUNTS HAVE BEEN DEBITED FOR MALL UPKEEP & PROMOTIONAL RECEIPT. IF THESE EXPEN DITURES ARE RELATED FOR EARNING OF INCOME FROM MALL THEN , DEFINITELY IT CANNOT BE ALLOWED AS AN EXPENDITURE UNDER SECTION 37(1) I.E. WHILE COMPUTING THE BUSINESS INCOME OF THE ASSESSEE, BECAUSE ADMITTEDLY, RECEIPTS FROM THE MALL IS IN THE FORM OF LEASE REN TAL WHICH HAS BEEN ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY LIKE IN T H E EARLIER AND SUBSEQUENT YEARS. THIS FACT NEEDS PROPER VERIFICATION AND EXAMINATION BY THE AO WHICH HAS NOT BEEN DONE IN THE PROPER PROSPECTIVE. ACCORDINGLY, WE ARE OF THE OP INION THAT, THIS MATTER SHOULD BE RESTORED BACK ONLY FOR THE LIMITED PURPOSE OF EXAMINING THE NATURE OF ADVERTISEMENT EXPENSES AND BUSINESS PROMOTION EXPENSES DEBITED UNDER THE HEAD ADMINISTRATIVE AND SELLING EXPENSES AS ENUMERATED IN SCHEDULE E OF THE P ROFIT & LOSS ACCOUNT. IF THESE EXPENDITURES DIRECTLY ATTRIBUTABLE TO EARNING OF LEASE RENTAL INCOME THEN, APPROPRIATE DISALLOWANCE CAN BE MADE , IF RUNWAL DEVELOPERS P LTD ITA NO. 4777 /M UM /201 3 ITA NO. 59 3 7 /MUM/201 2 14 AT ALL REQUIRED. WITH THIS DIRECTION THIS ISSUE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 1 2 . I N GROUND NO. 3 AND 4, THE ASSESSEE HAS RAISED A ISSUE OF DISALLOWANCE MADE UNDER SECTION 14A OF RS.8,44,630/ - . 1 3 . BRIEF FACTS QUA THE ISSUE ARE THAT, THE ASSESSEE HAS EARNED SHARE OF PROFIT FROM PARTNERSHIP FIRM OF RS.3,42,506/ - WHICH WAS CLAIMED AS EXE MPT. IN RESPONSE TO THE SHOW CAUSE NOTICE TO FILE DETAILS OF EXPENSES ATTRIBUTABLE TO THE EARNING OF THE EXEMPT INCOME, THE ASSESSEE FURNISHED THE WORKING OF DISALLOWANCE OF RS.8,44,630/ - . LATER ON, THE ASSESSEE HOWEVER OBJECTED TO ANY DISALLOWANCE UNDER S ECTION 14A AND NOT EVEN RS.8,44,630/ - ON THE GROUND THAT, NO EXPENDITURE CAN BE SAID TO BE INCURRED IN RESPECT OF EARNING OF THE SAID EXEMPT INCOME. THE AO AFTER FOLLOWING THE DECISION OF THE SPECIAL BENCH IN THE CASE OF ITO VS. DA G A CAPITAL MANAGEMENT (P) LTD., REPORTED IN 117 ITD 169 (SB) HELD THAT, DISALLOWANCE HAS TO BE MADE IN ACCORDANCE WITH THE RULE 8D AND ACCORDINGLY, THE DISALLOWANCE WHICH WAS WORKED OUT BY THE ASSESSEE AS PER RULE 8D AT RS.8,44,630/ - WAS DISALLOWED BY THE AO. 1 4 . BEFORE THE CIT( A), THE ASSESSEE SUBMITTED THAT, IT HAS SUFFICIENT INTEREST FREE FUNDS TO MAKE THE INVESTMENTS AND, THEREFORE, NO DISALLOWANCE SHOULD BE MADE. HOWEVER, THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO AFTER REFERRING TO THE DECISION OF HONBLE BOMBAY HIGH COU RT IN THE CASE OF G ODREJ & BOYCE MFG. CO. LTD., REPORTED IN [2010] 328 ITR 081 (BOM). 1 5 . BEFORE US, THE LD. COUNSEL SUBMITTED THAT, FIRSTLY , THERE IS NO DIVIDEND INCOME AND ONLY EXEMPT INCOME IS FROM PROFIT EARNED FROM THE PARTNERSHIP FIRM WHICH HAS ACC RUED TO THE ASSESSEE. FOR THIS, NO EXPENDITURE CAN BE SAID TO BE ATTRIBUTABLE FOR THE EARNING OF THE SAID INCOME, BECAUSE THE CAPITAL CONTRIBUTION IN THE SAID RUNWAL DEVELOPERS P LTD ITA NO. 4777 /M UM /201 3 ITA NO. 59 3 7 /MUM/201 2 15 FIRM WAS PURELY OUT OF INTEREST FREE FUNDS. IN SUPPORT OF THIS CONTENTION, HE RELIED UPON THE DEC ISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS HDFC BANK, REPORTED IN [2014] 49 TAXMANN.COM 335 ; SECONDLY , HE SUBMITTED THAT NOW IN THE WAKE OF DELHI HIGH COURT DECISION IN THE CASE OF CHEMINVEST LTD. VS CIT, REPORTED IN [2012] 347 ITR 272, NO DI SALLOWANCE CAN BE MADE IF THERE IS NO EXEMPT INCOME AND HERE IN THIS CASE IF THE EXEMPT INCOME IS RS. 3,42,000/ - AND THAT TO BE FROM THE PARTNERSHIP FIRM , THEN DISALLOWANCE CANNOT BE MADE BEYOND THIS INCOME. 1 6 . ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE ORDER OF THE CIT(A) AND SUBMITTED THAT, THE DISALLOWANCE HAS TO BE MADE STRICTLY, IN ACCORDANCE WITH RULE 8D. 1 7 . AFTER CONSIDERING THE RIVAL SUBMISSION S AND ON PERUSAL OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS, WE FIND THAT, ONLY EXE MPT INCOME WHICH HAS BEEN EARNED IS ON ACCOUNT OF SHARE PROFIT FROM A PARTNERSHIP FIRM AMOUNTING TO RS.3,42,506/ - . I NITIALLY, IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE HAS WORKED OUT DISALLOWANCE AT RS.8,44,630/ - , H OWEVER, LATER ON, THE ASSESSEE C LAIMED THAT, NO EXPENDITURE HAS BEEN INCURRED IN RESPECT OF EARNING OF THE EXEMPT INCOME. SUCH A CLAIM OF THE ASSESSEE BEFORE THE AO HAS NOT BEEN EXAMINED HAVING REGARD TO THE ACCOUNTS MAINTAINED BY THE ASSESSEE, WHICH IS A MANDATORY CONDITION PROVIDED UND ER SUB - SECTION (2) AND (3) OF SECTION 14A. BEFORE US, LD. COUNSEL HAD SUBMITTED THAT, THE INVESTMENT IN THE FORM OF CAPITAL CONTRIBUTION IN THE FIRM, WHICH HAS YIELDED THE EXEMPT INCOME WAS MADE OUT OF SURPLUS FUNDS AND ALSO THE DISALLOWANCE CANNOT EXCEED THE EXEMPT INCOME. HOWEVER, SO FAR AS FIRST CONTENTION OF THE ASSESSEE IS CONCERNED , THE SAME NEEDS VERIFICATION BY THE AO BECAUSE, NOTHING IS BORNE OUT FROM RECORDS AS TO WHETHER THE CAPITAL INVESTMENT IN THE PARTNERSHIP FIRM IS OUT OF INTEREST - FREE FUNDS OR NOT. THEREFORE, IN THE INTEREST OF JUSTICE, THIS MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO TO EXAMINE RUNWAL DEVELOPERS P LTD ITA NO. 4777 /M UM /201 3 ITA NO. 59 3 7 /MUM/201 2 16 THE CONTENTION OF THE ASSESSEE RELATING TO A VAI LABILITY OF INTEREST FREE FUNDS FOR MAKING THE INVESTMENT , IN ACCORDANCE WITH PRINCIPLE AND RATIO LAID DOWN BY THE BOMBAY HIGH COURT DECISION IN THE CASE OF HDFC ( SUPRA ) . R EGARDING, S ECOND CONTE NTION OF THE LD. COUNSEL WHICH IS BASED ON RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST ( SUPRA ), WE DIRECT THE AO THAT WHILE DECIDING WITH THE ISSUE OF 14A, HE WILL KEEP IN MIND THE RATIO AND PRINCIPLE LAID DOWN BY THE HONBLE DELHI HIGH COURT , AS TO WHETHER THE DISALLOWANCE CAN EXCEED THE EXEMPT INCOME OR NOT . WITH THIS DIRECTION GROUND NO. 3 & 4 ARE TREATED AS PARTLY ALLOWED F OR STATISTICAL PURPOSES. 1 8 . IN AY 2009 - 10, THE ONLY ISSUE INVOLVED IS DISALLOWANCE UNDER SECTION 14A ON SUM OF RS.15,56,000/ - . 19 . HERE IN THIS CASE , THE EXEMPT INCOME RELATES TO EARNING OF DIVIDEND INCOME OF RS.25,82,722/ - WHICH WAS CLAIMED FULLY EX EMPT. THE ASSESSEE HAD FURNISHED THE WORKING OF DISALLOWANCE UNDER RULE 8D IN RESPONSE TO THE QUERY RAISED BY THE AO FOR A SUM OF RS.15,56,020/ - . H OWEVER, LATER ON THE ASSESSEE DENIED INCURRING OF ANY EXPENDITURE IN RESPECT OF EARNING OF THE EXEMPT INCOME . T HE AO ON THE SAME REASONING DISALLOWED R S .15,56,000/ - . THIS DISALLOWANCE HAS BEEN CONFIRMED BY THE CIT(A) ALSO. 20 . BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT, ALL THE INVESTMENTS HAVE BEEN MADE IN THE SUBSIDIARY COMPANY WHICH ARE IN TH E NATURE OF STRATEGIC INVESTMENT AND DIVIDEND INCOME IS MERE INCIDENTAL. MOREOVER, IN THIS YEAR ALSO, THE ASSESSEE HAD HUGE SURPLUS FUNDS, THEREFORE, NO DISALLOWANCE OF INTEREST SHOULD BE MADE. 21 . ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE ORDER OF THE AO. RUNWAL DEVELOPERS P LTD ITA NO. 4777 /M UM /201 3 ITA NO. 59 3 7 /MUM/201 2 17 22 . AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT, THE LD. CIT(A) HAS REFERRED TO THE EARLIER ORDER OF THE CIT(A) AND TRIBUNAL FOR THE ASSESSMENT YEAR 2008 - 09, HOWEVER BEFORE US, NOTHING RELATING TO A.Y. 2008 - 09 HAS BEEN FILED BEFORE US . IN ANY CASE, WE FIND THAT, ASSESSEES CLAIM WITH REGARD TO NON - INCURRING OF ANY EXPENDITURE FOR EARNING OF EXEMPT INCOME HAS NOT BEEN EXAMINED BY THE AO, AS PER THE REQUIREMENT OF SECTION 14A(2) AND (3). THE AO HAS BLINDLY FOLLOWED RULE 8D WITHOUT COMPLY ING WITH THE MANDATORY REQUIREMENT OF SECTION 14A(2) AND (3). THEREFORE, I N THE INTEREST OF JUSTICE, WE ARE RESTOR ING THIS ISSUE TO THE FILE OF THE AO TO EXAMINE THE NATURE OF ACCOUNTS OF THE ASSESSEE AND ALSO THE CONTENTIONS RAISED BEFORE US THAT ALL THES E INVESTMENTS ARE STRATEGIC INVESTMENT MADE IN THE SUBSIDIARY COMPANY AND DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH THE LAW. ACCORDINGLY , GROUND AS RAISED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 23. IN THE RESULT, BOTH THE APP EALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH A PRIL , 2016 . SD/ - SD/ - ( ) ( ) ( RAMIT KOCHAR ) ( AMIT SHUKLA ) ACCO UNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 12 TH APRIL , 2016. / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 40 , MUMBAI . 4 ) THE COMMISSIONER OF INCOME TAX - CENTRAL - II , MUMBAI . 5 ) , , / THE D.R. D BENCH, MUMBAI. RUNWAL DEVELOPERS P LTD ITA NO. 4777 /M UM /201 3 ITA NO. 59 3 7 /MUM/201 2 18 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.P S