M/s. T & T Motors Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 6499/DEL/2014

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5085 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2010-2011
• Appeal Filed On: 28-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NAIN SOIN KAPIL
• Assessee Lawyers: V K AGGARWAL
• Keywords: Business income; Business expenditure; Earning of tax free income
• Section: 6; 14A

Judgement Text

M/S. T& T MOTORS LTD. V. ADDL. CIT RANGE- 16, NEW D ELHI /I.T.A. NO.6499/DEL/2014/A.Y.10-11 PAGE 1 OF 14 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRIK. NARASIMHA CHARY, JUDICIAL MEMBER AND SHRI O. P. MEENA, ACCOUNTANT MEMBER I.T.A. NO. 6499/DEL/2014: ASSESSMENT YEAR: 2010-11 M/S. T & T MOTORS LTD. , 4A-2, B-1, EXTENSION, MOHAN INDUSTRIAL ESTATE, MATHURA ROAD, NEW DELHI 110044. PAN: AAACT5980 F VS. ADDL. CIT RANGE - 16, NEW DELHI APPELLANT RESPONDENT ASSESSEE BY SHRI V. K. AGGARWAL, A.R. AND MS. SWETA BANSAL, CA REVENUE BY SMT. NAIN SOIN KAPIL, SR. D.R. DATE OF HEARING 04.02.2019 DATE OF PRONOUNCEMENT 07. 02.2019 ORDER PER O. P. MEENA, AM 1. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-19,NEW DELHI (I N SHORT THE CIT (A)) DATED 22.10.2014PERTAINING TO ASSESSMENT YEAR 2010-11, WH ICH IN TURN HAS ARISEN FROM THE ASSESSMENT ORDER PASSED UNDER SECTION 143 (3) DTD. 23.12.20111 OF INCOME TAX ACT,1961 (IN SHORT THE ACT) BY THE ADDL. CIT RANG E-16, NEW DELHI (IN SHORT THE AO). 2. GROUND NO. 1 IS GENERAL IN NATURE AND DO NOT REQUIR E ANY SPECIFIC ADJUDICATION. 3. GROUND NO. 2 STATES THAT THE LD. CIT (A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS. 24,97,826 MADE O N ACCOUNT OF LEASEHOLD REPAIRS AND MAINTENANCE EXPENSES CAPITALIZED BY THE AO. 4. BRIEF FACTS AS CULLED OUT FROM THE ORDERS OF LOWER AUTHORITIES ARE THAT THE ASSESSEE HAS DEBITED A SUM OF RS.2,86,15,199 AS PER POINT 11(A) OF AUDIT REPORT TOWARDS LEASEHOLDIMPROVEMENT, REPAIRS AND MAINTENAN CE AND RENOVATION EXPENSES. ON VERIFICATION OF INVOICES, THE AO HAS NOTICED THA T EXPENSES INCURRED THROUGH 5 INVOICES AMOUNTING TO RS. 27,97,826 [ I.E. TWO INVO ICE BOTH DTD. 18.12.2009 FOR RS. M/S. T& T MOTORS LTD. V. ADDL. CIT RANGE- 16, NEW D ELHI /I.T.A. NO.6499/DEL/2014/A.Y.10-11 PAGE 2 OF 14 6,77,327 ARE FOR ELECTRICAL LIGHTS AND FOR RS. 7,04 ,492 FOR LUMINAIRE FRAME FROM M/S. ARTLITE ILLUMINATION PVT. LTD.,INVOICE FROM IQBAL K HAN DTD. 3.11.2009 FOR DISMANTLING WORK ETC., INVOICE DTD. 10.09.2009 FROM ARTI INTERI ORS FOR RS. 2,72,048 AND INVOICE DTD. 25.06.2009 OF RS. 5,24,056 FROM TAJ HI TECH A RE FOR EPOXY FLOORING (COATING) ARE CAPITAL IN NATURE] AS THESE GIVES ENDURING BENEFIT TO THE ASSESSEE. HENCE, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THESE SHOULD NOT BE C APITALIZED. IT WAS EXPLAINED THAT THE EXPENSES WERE INCURRED FOR DISMANTLING AND COLOU R WORK AND TO MAKE THE SHOWROOM AND WORKSHOP MORE ATTRACTIVE. THE ASSESSEE BEING TENANT OF PREMISES DOES NOT BECOME OWNER OF MODIFICATION CARRIED OUT. HENCE , THESE EXPENSES ARE REVENUE IN NATURE BEING CURRENT REPAIRS AND THEREFORE, ALLOWAB LE AS BUSINESS EXPENSE. HOWEVER, THE AO WAS OF THE VIEW THAT THESE EXPENSES ARE CAPIT AL IN NATURE. ACCORDINGLY, THE AO HAS CAPITALIZED THESE EXPENSES AND AFTER ALLOWING DE PRECIATION @10% MADE THE DISALLOWANCE OF BALANCE EXPENSES OF RS. 24,97,826. 5. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE LD. CIT (A). HOWEVER, THE LD. CIT (A) AFTER GOING THROUGH THE INVOICES OB SERVED THAT EXPENSES HAVE BEEN INCURRED TOWARDS SUSPENDED LIGHTS, OUTDOOR FLOORING RECESSED LUMINAIRE FRAMEMADE OF BRUSHED METAL AND INSTALLATION OF EPOXY FLOORING, HE NCE, CAPITAL IN NATURE. LD. CIT (A) ALSO OBSERVED THAT THE ASSESSEE HAS FAILED TO DEMON STRATE THAT THE FACTS OF THE CASE ARE SAME AS HELD BY TRIBUNAL IN ITS ORDER FOR ASSES SMENT YEAR 2001-02. IN VIEW OF THIS, THE DISALLOWANCE SO MADE WERE CONFIRMED. 6. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEF ORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE BUSINESS OF THE ASSESSEE IS BEING DEALER OF MOTOR VEHICLES IN PARTICULAR HIGH END MOD EL CARS OF MERCEDES BENZ HAS TO EXHIBIT THE SAID VEHICLE FOR ATTRACTING CUSTOMERS TH EREBY IMPROVING THE BUSINESS OF THE ASSESSEE. APART FROM THIS, THE ASSESSEE ALSO UNDER TAKES SERVICING OF VEHICLES. THE PRINCIPAL, MERCEDES BENZ INDIA PVT. LTD. HAS SPECIF IC NORMS AND REQUIREMENT WITH REGARD TO APPEARANCE OF SHOWROOMS/WORKSHOPS WORLDWI DEAND DEALERSTO FOLLOW THE NORMS AND KEEPS CHANGING YEAR TO YEAR. THE INVOICE PLACED AT PAPER BOOK PAGE NO. 95 TO 99 SHOWS THAT EXPENDITURE INCURRED IS TO MAKE WOR KSHOPS AND SHOWROOMS ATTRACTIVE. THE FIRST TWO INVOICES ARE FOR FANCY LA MPS ALONG WITH THEIR ACCESSORIES, WHICH WERE INSTALLED IN THE GURGAON SHOWROOMS,AND O THER THREE INVOICES GIVE DETAILS M/S. T& T MOTORS LTD. V. ADDL. CIT RANGE- 16, NEW D ELHI /I.T.A. NO.6499/DEL/2014/A.Y.10-11 PAGE 3 OF 14 REGARDING CIVIL WORK DONE FORFLOORING ETC. AT THE W ORKSHOPS IN OKHLA INDUSTRIAL AREA. THE EXPENDITURE DID NOT RESULT BRINGING INTO EXISTENC E OF NEITHER ANY NEW ASSET NOR THE EXPENSES HAS ENDURING BENEFIT TO THE BUSINESS. T HE ASSESSEE BEING A TENANT DOES NOT BECOME OWNER OF THE MODIFICATION CARRIED OUT IN THE RENTED OUT PREMISES AS THE ARE EITHER HELD OR FASTENED TO THE GROUND AND THESE COULD NOT BE REMOVED AND CARRIED IN THE PRESENT STATE AFTER MODIFICATION. THE EXPEND ITURE HAS BEEN INCURRED WITH THE OBJECT TO IMPROVE SALES AND CREATING IMAGE OF THE A SSESSEE COMPANY. THUS, EXPENDITURE IS REVENUE IN NATURE. THE LEARNED COUNSE L FURTHER, SUBMITTED THAT SIMILAR EXPENSES WERE ALLOWED BY THE ITAT IN ASSESSEE`S OWN CASE IN ASSESSMENT YEAR 2001-02 VIDE ORDER DATED 23.03.2007 IN I.T.A.NO. 430/DEL/20 05 (COPY FILED PB-55, PARA 9). FURTHER, THE CIT (A) HAS ALLOWED SIMILAR EXPENSES IN A.Y. 2007-08 VIDE ORDER DATED 15.04.2010 IN APPEAL NO. 132/2009-10 (PB-69-70) AND THE DEPARTMENT HAS ACCEPTED THE SAME. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUPPORTED HIS VIEW BY PLACING RELIANCE IN THE CASE OF CIT V. MADRAS AUTO SERVICE (P) LTD. [1998] 233 ITR 468 (SC) WHEREIN THE ASSESSEE ACTING UNDER LEASE AGREEMENT D EMOLISHED THE OLD PREMISES AND CONSTRUCTED NEW PREMISES WHICH WAS BELONGING TO LE SSER AND NOT TO LESSEE, THE EXPENDITURE WAS HELD TO BE REVENUE IN NATURE. THE LE ARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED EXPENDITURE INCURRED ON NETWORKIN G,FIREFIGHTING CABLING, TILING, SANITARY AND PARTITION WAS HELD TO BE REVENUE IN NA TURE BY THE ITAT DELHI IN ITO V. ACL WIRELESS LTD. 2012-TIOL-768-ITAT-DEL AND HCL CO MNET LTD. V. DCIT 2012-TIOL- 649-ITAT-DEL 7. PER CONTRA, THE LD. SR. D.R. VEHEMENTLY CONTEND THAT EXPENDITURE INCURRED FOR EPOXY TILES GIVES ENDURING BENEFIT. SHE ALSO TOOK US THROUGH INVOICES PLACED IN PAPER BOOK AND ARGUED THAT THE EXPENSE INCURRED FOR INSTA LLATION OF LIGHTING, FLOORING ARE IN THE CAPITAL IN NATURE. FURTHER, IT IS NOT KNOWN WHE THER PREMISES HAS BEEN TAKEN ON LEASE MAY BE MORE THAN 99 YEARS OF LEASE HENCE, EXPE NDITURE SO INCURRED IS CAPITAL IN NATURE. HENCE, CIT (A) HAS RIGHTLY UPHELD THE DISAL LOWANCE MADE BY THE AO. 8. REPLAYING TO ABOVE, THE LEARNED COUNSEL FOR THE ASS ESSEE FILED COPIES OF LEASE AGREEMENT IN RESPECT OF GURGAON AND OKHLA INDUSTRIA L AREA PREMISES INDICATING THAT LEASE WAS FOR THREE YEARS AND ONE YEARSRESPECTIVEL Y ON RENEWAL BASIS,HENCE, IT IS ASSERTED THAT THE EXPENDITURE S IS NOT THE PROPERTY OF THE ASSESSEE AND O INCURRED ON M/S. T& T MOTORS LTD. V. ADDL. CIT RANGE- 16, NEW D ELHI /I.T.A. NO.6499/DEL/2014/A.Y.10-11 PAGE 4 OF 14 RENTED PREMISES DOES NOT BRING ANY NEW ASSET TO THE ASSESSEE AS THE SAME CANNOT BE REMOVED. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD.WE FIND THAT THE ASSESSEE IS A DEALER IN HIG H-END VEHICLES OF MERCEDES BENZ, WHICHHAS TO EXHIBIT THE SAID VEHICLE FOR ATTRACTING CUSTOMERS THEREBY IMPROVING THE BUSINESS OF THE ASSESSEE. APART FROM THIS, THE ASSE SSEE ALSO UNDER TAKES SERVICING OF VEHICLES.FURTHER, THE PRINCIPAL, MERCEDES BENZ INDI A PVT. LTD. HAS ALSO SPECIFIC NORMS AND REQUIREMENT WITH REGARD TO APPEARANCE OF SHOWRO OMS/WORKSHOPS WORLDWIDE AND DEALERS TO FOLLOW THE NORMS AND KEEPS CHANGING YEAR TO YEAR. THE PERUSAL OF INVOICES PLACED AT PAPER BOOK PAGE NO.95 TO 99 DEMONSTRATE T HAT THESE ARE FOR FANCY LAMPS ALONG WITH THEIR ACCESSORIES WHICH WERE INSTALLED IN THE GURGAON SHOWROOMS AND OTHER THREE INVOICES GIVES DETAILS REGARDING CIVIL WORK DONE FOR FLOORING ETC. AT THE WORKSHOPS IN OKHLA INDUSTRIAL AREA. THEREFORE, WE A RE OF THE VIEW THAT THE EXPENDITURE HAS BEEN INCURRED ON RENTED PREMISES LEA SED FOR TWO /THREE YEARS AS COULD BE SEEN FROM LEASE AGREEMENT WITH THE OBJECT TO IMPROVE SALES AND CREATING IMAGE OF THE ASSESSEE COMPANY WHICH DOES NOT RESULT BRINGING INTO EXISTENCE OF NEITHER ANY NEW ASSET NOR THE EXPENSES HAS ENDURING BENEFIT TO THE BUSINESS. THE ASSESSEE DOES NOT BECOME OWNER OF THE MODIFICATION CARRIED OUT IN THE RENTED OUT PREMISES AS THE ARE EITHER HELD OR FASTENED TO THE GROUND AND THESE COULD NOT BE REMOVED AND CARRIED IN THE PRESENT STATE AFTER MODI FICATION.THUS, THE EXPENDITURE ARE REVENUE IN NATURE. IT HAS BEEN POINTED OUT THAT SIMILAR EXPENSES WERE ALLOWED BY THE ITAT IN ASSESSEE`S OWN CASE IN ASSESSMENT YEAR 2001-02 VIDE ORDER DATED 23.03.2007 IN I.T.A.NO. 430/DEL/2005 (PB-55). FURTH ER, THE CIT (A) HAS ALLOWED SIMILAR EXPENSES IN A.Y. 2007-08 VIDE ORDER DATED 15.04.2010 IN APPEAL NO. 132/2009-10 (PB- 69-70) AND THE DEPARTMENT HAS ACCEPTED THE SAME. TH E LEARNED COUNSEL FOR THE ASSESSEE ALSO SUPPORTED HIS VIEW BY PLACING RELIANC E IN THE CASE OF CIT V. MADRAS AUTO SERVICE (P) LTD. [1998] 233 ITR 468 (SC) WHEREIN THE ASSESSEE ACTING UNDER LEASE AGREEMENT DEMOLISHED THE OLD PREMISES AND CONSTRUCT ED NEW PREMISES WAS BELONGED TO LESSER AND NOT TO LESSEE, THE EXPENDITURE WAS HE LD TO BE REVENUE IN NATURE. WE FIND THAT EXPENDITURE INCURRED ON NETWORKING,FIREFIG HTINGCABLING,TILING, SANITARY AND PARTITION WAS HELD TO BE REVENUE IN NATURE BY THE C O-ORDINATE BENCH OF ITAT, DELHI IN M/S. T& T MOTORS LTD. V. ADDL. CIT RANGE- 16, NEW D ELHI /I.T.A. NO.6499/DEL/2014/A.Y.10-11 PAGE 5 OF 14 ITO V. ACL WIRELESS LTD. 2012-TIOL-768-ITAT-DEL. IN HCL COMNET LTD. V. DCIT 2012- TIOL-649-ITAT-DEL, IT WAS HELD THAT THE EXPENSES WE RE INCURRED FOR DISMANTLING AND COLOUR WORK AND TO MAKE THE SHOWROOM AND WORKSHOP M ORE ATTRACTIVE. ON CAREFUL CONSIDERATION OF ABOVE FACTS AND CASE LAWS, WE ARE OF THE OPINION THAT EXPENDITURE INCURRED BY THE ASSESSEE ON SUSPENDED LIGHTS, OUTDO OR FLOORING RECESSED LUMINAIRE FRAME MADE OF BRUSHED METAL AND INSTALLATION OF EPO XY FLOORING, TILES IS FOR MAKING THE RENTED PREMISES MORE ATTRACTIVE AND PRESENTABLE WITH COMMENSURATE AS DEALER OF HIGH END VEHICLES AS TENANT OF PREMISESBEING IN THE NATURE OF CURRENT REPAIRS AND THEREFORE, REVENUE IN NATURE AND ALLOWABLE AS BUSIN ESS EXPENSES. HENCE, THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN TREATING THE SAME AS CAPITAL IN NATURE AND CONSEQUENTLY, CAPITALIZING IT. IN VIEW OF THIS MATT ER, THE DISALLOWANCE OF RS. 24, 97,826 IS THEREFOREDELETED. EX-CONSEQUENTI , THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 10. GROUND NO. 3 STATES THAT THE LD. CIT (A) HAS ERRED ON FACTS AND AS WELL AS IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.1,00,443 MADE ON ACCOUNT OF INTEREST PAID TO M/S. TALBROS AUTOMOTIVE COMPONENTS LTD. (HEREIN AF TER REFERRED AS TACL) ON INTER CORPORATE DEPOSIT (ICD)BY REDUCING THE RATE OF INTE REST FROM 12% TO 11%. 11. FACTS APROPOS OF THIS GROUND ARE THAT THE ASSESSEE HAS PAID INTEREST @ 12% ON LOAN TAKEN FROM RELATED CONCERN I.E. M/S. TACL,WHER EAS IT HAS PAID INTEREST @ 11% TO OTHER THREE RELATED CONCERNS. IT WAS NOTICED THAT T HE LOAN WAS TAKEN IN EARLIER YEAR ON WHICH INTEREST @10% WAS BEING PAID. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS INCREASED INTEREST RATE TO 12% DUE TO MARKET CONDITIONS. THE AO OBSERVED THAT THE ASSESSEE HAS NOT JUSTIFIED THE BU RDEN OF PROOF TO ESTABLISH REASONABLENESS OF EXPENSES PAYMENT MADE TO PERSON SP ECIFIED UNDER SECTION 40A(2)(B). THEREFORE, THE AO NOTED THAT INTEREST P AID IS FOUND TO BE EXCESSIVE HENCE, HENCE, THE AO HAS RESTRICTED THE INTEREST PAYMENT T O 11% WHICH HAS RESULTED IN DISALLOWANCE OF INTEREST OF RS.1,00,443 AND CONSEQU ENT ADDITION TO INCOME. 12. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE LD. CIT (A). THE CIT (A) OBSERVED THAT THE ASSESSEE HAS FAILED TO ESTABL ISH AS TO HOW IT HAS PAID INTEREST @ 12% TO RELATED PARTY EVEN THOUGH HE HAS HIMSELF TAK EN LOAN @10% OF INTEREST AND PAID INTEREST @ 11% TO RELATED CONCERNS. EVEN OTHERWISE DISALLOWANCE CAN BE MADE UNDER M/S. T& T MOTORS LTD. V. ADDL. CIT RANGE- 16, NEW D ELHI /I.T.A. NO.6499/DEL/2014/A.Y.10-11 PAGE 6 OF 14 SECTION 36(1) (III) BECAUSE THE EXCESS INTEREST PAID NOT FOR THE PURPOSE OF BUSINESS AND PROFESSION, BUT FOR THE PERSONAL BENEFIT. IT WAS FO R THE APPELLANT TO FURNISH COMPLETE DETAILS OF SHAREHOLDING IN SUPPORT OF HIS CLAIM THA T SECTION 40A(2)(B) IS NOT APPLICABLE. THE CIT (A) OBSERVED THAT THE ASSESSEE HAS GIVEN A VAGUE REPLY THAT INTEREST RATE WAS INCREASED DURING TO MARKET CONDITION BUT DID NOT SU BSTANTIATE THE SAME. ACCORDINGLY, THE DISALLOWANCE SO MADE BY THE AO WERE CONFIRMED. 13. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEF ORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT NEI THER M/S. TACL NOR ITS DIRECTORS/MEMBERS HAVE ANY SUBSTANTIAL INTEREST IN THE ASSESSEE COMPANY BECAUSE ALL THE SHAREHOLDERS ARE HAVING LESS THAN 20% OF S HAREHOLDING(PB-80-90) WITH THE ASSESSEE COMPANY, HENCE, PROVISIONS OF SECTION 40A( 2)(B) ARE NOT ATTRACTED. FURTHER,WITHOUT PREJUDICE, THE ASSESSEE HAS TAKEN I CD IN F.Y. 2006-07 AND DETAILS OF WHICH WERE FILED VIDE LETTER DATED 18.03.2013. SUBS EQUENTLY ON REPRESENTATIONFROM THE PARTY, THE INTEREST RATE WAS REVISED TO 12% TO MAINTAIN LIQUIDITY.THE ASSESSEE HAS ALREADY GIVEN ICD TO TWO COMPANIES @11% (PB90-93). THEREFORE, THE AO HAS DISALLOWED THE INTEREST ON THE GROUND THAT PAYMENT MADE IS EXCESSIVE UNDER SECTION 40A(2)(B) OF THE ACT. HE COMPLETELY IGNORED THE FAC TS THAT RATE OF INTEREST OF 11% FROM THREE COMPANIES ARE CONTINUING FROM EARLIER YEAR`S WHEN THE ASSESSEE WAS PAYING INTEREST @10% THEREFORE, INCREASE OF INTEREST RATE @12% DUE TO MARKET CONDITIONS IS JUSTIFIED. HENCE, INTEREST PAID @12% WAS REASONABLE AND NOT EXCESSIVE. 14. AU CONTRAIRE , THE LD. SR. D.R. SUPPORTED THE ORDERS OF LOWER AUT HORITIES AND CONTENDED THAT THE ASSESSEE COMPANY HAS FAILED TO S UBSTANTIATE WITH EVIDENCE ITS CLAIM THAT INTEREST RATE WAS INCREASED DUE TO MARKE T CONDITIONS. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS TAKEN ICD IN ASSESSMENT YEAR 2006-07 FROM M/S. TACL AND HAS BEEN PAYING INTEREST @10% SINCE THEN. IT IS TRUE THAT PROVISIONS OF SECTION 40A (2)(B) ARE NOT ATTRACTED AS SHAREHOLDIN G OF LENDER COMPANY/ DIRECTORS/ MEMBERS IS LESS THAN 20% . HOWEVER, IT IS ALSO FA CT THAT M/S. TACL IS RELATED PERSON WITHIN THE MEANING OF SECTION 40A(2)(B) OF THE ACT. WE FIND THAT THE LD. CIT (A) HAS UPHELD THE DISALLOWANCE ON THE GROUND THAT THE ASSE SSEE HAS MADE VAGUE REFERENCE OF MARKET CONDITIONS BUT HAS FAILED TO ADDUCE ANY DOCU MENTARY EVIDENCE AND M/S. T& T MOTORS LTD. V. ADDL. CIT RANGE- 16, NEW D ELHI /I.T.A. NO.6499/DEL/2014/A.Y.10-11 PAGE 7 OF 14 SUBSTANTIATE THE CLAIM OF INCREASE IN INTEREST RATE TO 12%. THE LD. CIT (A) HAS ALSO OBSERVED THAT THE ASSESSEE HAS NOT FILED COMPLETE D ETAILS OF SHAREHOLDING BEFORE THE AO IN SUPPORT OF ITS CLAIM THAT PROVISIONS OF SECTI ON 40A(2)(B) ARE NOT ATTRACTED. WE FURTHER NOTICE THAT THE ASSESSEE HAS BEEN PAYING IN TEREST @10% TO OTHER RELATED CONCERNS/PERSONS I.E. M/S. GYAN ENTERPRISE PVT. LTD . AS REFLECTED IN THE TABLE GIVEN AT PAGE NO. 9 OF ASSESSMENT ORDER AND INTEREST @11% TO M/S. AAB ENTERPRISE AND M/S. BEACON SALES PVT. LTD. AS REFLECTED AT PAGE NO. 10 O F ASSESSMENT ORDER. IN SUCH CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THA T THE INCREASE IN INTEREST RATE FROM 10% TO 12% WITHOUT BRINGING AND SUBSTANTIATED AND BRINGING ANY EVIDENCE ON RECORD IS NOT JUSTIFIED, NOTWITHSTANDING THE FACT T HAT THE ASSESSEE HAS TAKEN ICD LOAN ON INTEREST RATE OF 10% FROM M/S. TACL. FURTHER NO EVIDENCE HAS BEEN ADDUCED TO SUBSTANTIATE THE EXCESSIVENESS OF INTEREST RATE @12% ASPER PROVISIONS OF SECTION 36(1) (III) OF THE ACT AS INTEREST PAID IS FOR PERSONAL BENEFIT AND NOT FOR BUSINESS PURPOSE, WHEN THE ASSESSEE HAS BEEN PAYING INTEREST @11% FOR OTHER PERSONS. THEREFORE, THE AO WAS QUITE JUSTIFIED IN RESTRICTING THE INCREASE IN INTEREST RATE TO 11% WITH COMMENSURATE WITH OTHER PARTIES. IN VIEW OF THIS MA TTER, WE FIND DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT (A), ACCORDINGLY, SAM E IS UPHELD. THIS GROUND OF APPEAL IS THEREFORE, DISMISSED. 16. GROUND NO. 4 STATES THAT THE LD. CIT (A) HAS ERRED ON FACTS AND AS WELL AS IN LAW IN CONFIRMING THE DISALLOWANCE OF PRIOR PERIOD EXPEN SES AMOUNTING TO RS.2,45,794 ON ACCOUNT OF RATE AND TAXES. 17. BRIEF FACTS ARE THAT THE ASSESSEE HAS DISALLOWED T HE PRIOR PERIOD EXPENSES OF RS. 2,45,794 BEING RATE AND TAXES RAISED AS DEMAND B Y THE OKHLA INDUSTRIAL AREA CETP SOCIETY VIDE LETTER DATED 30.07.2009 ON THE GROUND T HAT THE DEMAND NOTICE MENTIONED THE APPORTIONMENT OF ARREARS FOR WHICH NO PROVISION WAS MADE BY THE ASSESSEE IN EARLIER YEARS. 18. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE LD. CIT (A). BEFORE CIT (A), IT WAS CONTENDED THAT THE THESE EXPENSES HAVE BEEN CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION DUE TO THE FACT THAT BILLS WERE RAISED DURING F.Y. 2009-10 RELEVANT TO ASSESSMENT YEAR 2010-11 AND CAME TO KNOWLEDGE OF THE ASSESSEE DURING THE YEAR M/S. T& T MOTORS LTD. V. ADDL. CIT RANGE- 16, NEW D ELHI /I.T.A. NO.6499/DEL/2014/A.Y.10-11 PAGE 8 OF 14 UNDER CONSIDERATION. RELIANCE WAS ALSO PLACED ON TH E DECISION IN THE CASE OF CIT V. EXXON MOBILE LUBRICANTS PVT. LTD. [2010] 328 ITR 17 ( DELHI) WHEREIN IT WAS HELD THAT WHERE THE LIABILITY FOR PAYMENT WAS DETERMINED AND CRYSTALLIZED IN THE YEAR UNDER QUESTION AND THEREFORE, ALLOWABLE AND IT CANNOT BE HELD TO BE PRIOR PERIOD MERELY BECAUSE THE EXPENSES RELATED TO A TRANSACTION OF EAR LIER YEARS. HOWEVER, THE CIT (A) UPHELD THAT DISALLOWANCE BY HOLDING THAT THE ASSESS EE HAS NOT FOLLOWED THE STANDARD OF ACCOUNTING PRINCIPLE BY NOT MAKING PROVISIONS OF PRIOR PERIOD EXPENSES. 19. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEF ORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE TOOK US THROUGH TH E DEMAND LETTER DTD. 30.07.2009 PLACED AT PAPER BOOK PAGE NO. 130 WHICH CLEARLY EXPL AINED THAT M/S. OKHLA INDUSTRIAL AREA SOCIETY HAS RAISED A DEMAND NOTE FOR THE FIRST TIME FOR THIS DEMAND ON ACCOUNT OF CONTRIBUTION TOWARDS ASSESSEE`S SHARE FOR OPERAT ING AND MAINTENANCE COST OF CETP. THE DEMAND LETTER CLEARLY STATES THAT DEMAND WAS NO T NOTIFIED EARLIER AS THERE WAS NO SUCH REFERENCE IN THEIR LETTER. THE CHARGES ARE KEE P CHANGING EVERY YEAR AS INDICATED IN THE SAID LETTER. THEREFORE, THE LIABILITY WAS CR YSTALLIZED AND DETERMINED DURING THE YEAR UNDER CONSIDERATION, HENCE, THE EXPENSES INCURR ED AND PAID DURING THE YEAR UNDER CONSIDERATION IS ALLOWABLE AS BUSINESS EXPENSE S FOR YEAR UNDER CONSIDERATION. 20. ON THE OTHER HAND, THE LD. SR. D.R. RELIED ON THE OR DERS OF LOWER AUTHORITIES. 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. ON CAREFUL CONSIDERATION OF FACTS AND PERUS AL OF DEMAND LETTER DTD. 30.07.2009, (PB-130) IT IS DISCERNIBLE THAT M/S. OK HLA INDUSTRIAL AREA CETP SOCIETY HAS DETERMINED THE AMOUNT OF ASSESSEE`S CONTRIBUTION AF TER REDUCING THE CHARGES FOR OPERATION AND MAINTENANCE COST OF CETP DURING THE Y EAR UNDER CONSIDERATION. THOUGH THE LIABILITY PERTAINED TO ARREARS INCLUDING THE PE RIOD UP TO 31.03.2009, BUT IT HAS BEEN CRYSTALLIZED AND DETERMINED VIDE LETTER DATED 30.07.2009.THUS, THE LIABILITY HAS BEEN DETERMINED AND CRYSTALLIZED DURING THE YEAR UN DER CONSIDERATION AND ALSO PAID DURING THE YEAR UNDER CONSIDERATION, HENCE, SAME IS BEING BUSINESS EXPENDITURE IS ALLOWABLE AS EXPENSES. SINCE THE LIABILITY WAS NOT AS CERTAINABLE AND QUANTIFIED HENCE, PROVISION COULD NOT BE MADE IN EARLIER YEARS.OUR VI EW IS ALSO SUPPORTED FROM THE JUDGEMENT OF HON`BLE JURISDICTIONAL HIGH COURT OF D ELHI IN THE CASE OF CIT V. EXXON MOBILE LUBRICANTS PVT. LTD. (SUPRA) WHEREIN IT WAS HELD THAT WHERE THE LIABILITY FOR M/S. T& T MOTORS LTD. V. ADDL. CIT RANGE- 16, NEW D ELHI /I.T.A. NO.6499/DEL/2014/A.Y.10-11 PAGE 9 OF 14 PAYMENT WAS DETERMINED AND CRYSTALLIZED IN THE YEAR UNDER QUESTION AND THEREFORE, ALLOWABLE AND IT CANNOT BE HELD TO BE PRIOR PERIOD MERELY BECAUSE THE EXPENSES RELATED TO A TRANSACTION OF EARLIER YEARS.IN VIEW O F THESE FACTS AND CIRCUMSTANCES AND FOLLOWING THE DECISION OF HON`BLE HIGH COURT, WE HO LD THAT THE LIABILITY OF PRIOR PERIOD EXPENSES HAS BEEN DETERMINED AND CRYSTALLIZED VIDE L ETTER DATED 30.07.2009, HENCE, THESE EXPENSES ON ACCOUNT OF RATE AND TAXES ARE ALL OWABLE AS BUSINESS EXPENSES. IN VIEW OF THIS MATTER, THE DISALLOWANCE OF RS.2,45,79 4 SUSTAINED BY THE LD. CIT (A) ARE THEREFORE, DELETED. THIS GROUND OF APPEAL IS ALLOWE D. 22. GROUND NO. 5 STATES THAT THE LD. CIT (A) HAS ERRED ON FACTS AND AS WELL AS IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.22,21,381 MADE U/S. 14A READ WITH RULE 8D ESPECIALLY WITHOUT RECORDING SATISFACTION, EXCLUDING SHARE APPLICATION MONEY, ESTABLISHING LINK OF INVESTMENT AND EXPENDITURE AND BY NOT CONSIDERING THE AVERAGE OF TOTAL ASSETS AND NOT THE NET ASSETS. 23. FACTS APROPOS OF THIS GROUND ARE THAT THE AO NOTICE D THAT THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS.73,639 DURING THE YE AR UNDER CONSIDERATION OUT OF WHICH RS.516 WAS RECEIVED THROUGH ECS FROM M/S. TACL , A GROUP COMPANY AND BALANCE AMOUNT OF RS. 73,123 WAS DIVIDEND FROM SBI MUTUAL FU ND, WHICH WAS REINVESTED ITSELF. HOWEVER, NO EXPENSES WERE DISALLOWED U/S.14A OF THE ACT. THE ASSESSEE HAS CLAIMED THAT THE AMOUNT OF DIVIDEND OF RS.516 WAS RECEIVED THROUGH ECS FROM M/S. TACL AND RS. 73,123 AS DIVIDEND RECEIVED FROM SBI MUTUAL FUND , WHICH WERE, REINVESTED THERE ITSELF, HENCE, NO EXPENDITURE WAS INCURRED FOR EARN ING EXEMPT INCOME NOR ANY INVESTMENT WAS MADE DURING THE YEAR UNDER CONSIDERA TION. HOWEVER, THE AO WAS OF THE VIEW THAT THE PRINCIPLE OF APPORTIONMENT OF EXPE NDITURE ATTRIBUTABLE TO EXEMPT INCOME IS APPLICABLE HENCE, DISALLOWANCE OF RS.21,2 1,381 WERE WORKED OUT BY APPLYING RULE 8D AND SAME WERE DISALLOWED. 24. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE LD. CIT (A). THE LD. CIT (A) FOLLOWING THE ORDER AND REASONING GIVEN IN APPE LLATE ORDER OF HIS PREDECESSOR CIT (A) FOR THE ASSESSMENT YEAR 2009-10 HAS CONFIRMED T HE SAID DISALLOWED MADE U/S. 14A OF THE ACT. M/S. T& T MOTORS LTD. V. ADDL. CIT RANGE- 16, NEW D ELHI /I.T.A. NO.6499/DEL/2014/A.Y.10-11 PAGE 10 OF 14 25. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEF ORE THE TRIBUNAL. THE LEARNED COUNSEL SUBMITTED THAT DISALLOWANCE OF RS.2 1,21,381 INCLUDED DISALLOWANCE OF RS. 20,12,865 IN RESPECT OF INTEREST UNDER RULE 8D( 2)(II) IMPLIES THAT THE INTEREST IS DIRECTLY RELATABLE TO BUSINESS INCOME. THERE IS NO INTEREST EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR MAKING INVESTMENT AS T HE INVESTMENT ARE COMING FROM EARLIER YEARS WHICH WERE ALSO MADE OUT OF INTEREST- FREE FUNDS. NO INVESTMENT HAS BEEN MADE DURING THE YEAR UNDER CONSIDERATION EXCEPT DIVIDEND INCOME OF RS.73,133 FROM MUTUAL FUND, WHICH HAS BEEN REINVESTED AUTOMAT ICALLY. THE ASSESSEE WAS HAVING PROFIT OF RS. 5.04 CRORES AFTER TAX AND BEFORE DEPRE CIATION DURING LAST YEAR, WHICH WAS MORE THAN ENOUGH TO COVER THE INVESTMENT.THEREFORE, THE FUNDS GENERATED IN EARLIER YEARS HAS BEEN SPENT TO FINANCE THE INVESTMENT. FUR THER, THE ASSESSEE WAS HAVING SHARE CAPITAL & RESERVES OF RS. 20.84 CRORES WHICH ARE INTEREST-FREE FUNDS. THE AO HAS ALSO NOT POINTED OUT ANY LOAN WHICH WAS UTILIZED FO R INVESTMENT. THE AUDITORS IN TAX AUDIT REPORT AT COLUMN NO. 17(L) (PB-31) HAVE CLARI FIEDTHE DEDUCTION INADMISSIBLE U/S. 14A AS NIL. THE LEARNED COUNSEL FOR THE ASSESSEE FU RTHER SUBMITTED THAT CIT (A) HAS CONFIRMED THE DISALLOWANCE BY FOLLOWING APPELLATE O RDER OF ASSESSMENT YEAR 2009-10. HOWEVER, THE ITAT VIDE ORDER DATED 07.01.2015 IN I. T.A.NO. 6490/DEL/2012 HAS DELETED THE DISALLOWANCE OF INTEREST OF RS. 8,22,72 5. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER PLACED RELIANCE IN THE CASE OF DEL AIR INDIA PVT. LTD. V. DCIT 2013- TIOL-791-ITAT-DEL, CIT V. WINSOME TEXTILES IND LTD. [2009] 319 ITR 204 (P&H). THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHI LE CONSIDERING THE INTEREST UNDER RULE 8D(2)(II) INTEREST ON TERM LOAN PERTAINING TO FIXED ASSETS CAN BE CONSIDERED. WITH REGARD TO DISALLOWANCE UNDER RULE 8D(2)(III) OF RS. 1,08,516 INCLUDED IN DISALLOWANCE OF RS. 21,21,381 U/S. 14A, IT HAS BEEN CONTENDED BE FORE US BY REFERRING BALANCE SHEET(PB-11) THAT NO INVESTMENT HAS BEEN MADE DURIN G THE YEAR UNDER CONSIDERATION. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT FOR THE PURPOSE OF COMPUTING DISALLOWANCE UNDER RULE 8D, THE SHARE APPLICATION M ONEY OF RS. 2 CRORES HAS TO BE EXCLUDED AS THE SAME CAN BE REGARDED AS INVESTMENT Y IELDING TAX FREE INCOME. IN SUPPORT OF THIS CONTENTION, THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISION OF CO-ORDINATE BENCH OF TRIBUNAL DTD. 20.1 1.20013 IN I.T.A.NO. 5096/DEL/2011 IN THE ASSESSEE`S OWN CASE FOR ASSESSMENT YEAR 2008 -09 IN WHICH ASSESSMENT WAS SET- M/S. T& T MOTORS LTD. V. ADDL. CIT RANGE- 16, NEW D ELHI /I.T.A. NO.6499/DEL/2014/A.Y.10-11 PAGE 11 OF 14 ASIDE TO THE FILE OF THE AO TO EXCLUDE THE SHARE AP PLICATION MONEY. THE AO HAS WORKED OUT DISALLOWANCE U/S. 14A BY EXCLUDING THE SH ARE APPLICATION MONEY AS NOT A PART OF INVESTMENT IN SHARES FOR THE PURPOSE OF RUL E 8D (PB-153) THE REVENUE HAS ACCEPTED THIS DECISION AS NO APPEAL HAS BEEN FILED; HENCE, DISALLOWANCE MADE ON THIS ACCOUNT MAY PLEASE BE DELETED. IT WAS FURTHER SUBMI TTED THAT THE AO HAS NOT ESTABLISHED ANY LINK BETWEEN EXPENDITURE AND EXEMPT INCOME. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO CONTENDED BY RELYING ON T HE DECISION IN THE CASE OF A C B INDIA LTD. V. ACIT TIOL-176-HC-2015-DEL THAT ONLY T HOSE INVESTMENT HAS TO BE CONSIDERED WHICH YIELDED TAX EXEMPT INCOME. THE LEA RNED COUNSEL FOR THE ASSESSEE FURTHER PLACED RELIANCE IN THE CASE OF ACIT VS. VIR EET INVESTMENT (P.) LTD (2017) 82 TAXMANN.COM 415 (DELHI-TRIB.)(SB). AT LAST THE LEARNE D COUNSEL FOR THE ASSESSEE SUBMITTED THAT AT MOST WORST SCENARIO THE AVERAGE V ALUE OF INVESTMENT UNDER RULE 8D(2)(III) WOULD BE RS. 17,03,220 I.E. [ 1,05,264+ 1,05,264+ 31,95,911/2]. THEREFORE, 0.05% OF THE AVERAGE VALUE OF INVESTMENT WOULD BE R S. 8,516 , HENCE, DISALLOWANCE U/S. 14A SHOULD BE RESTRICTED TO RS. 8,516. IT WAS ALSO CONTENDED BY RELYING IN THE CASE OF JOINT INVESTMENT PVT. LTD. V. CIT [2015] 59 TAXMANN.COM 295 (DELHI) THAT DISALLOWANCE U/S. 14A CANNOT BE SWALLOWED THE WHOLE EXEMPT INCOME. 26. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GONE T HROUGH THE ORDERS OF THE LOWER AUTHORITIES, AND PERUSED THE MATERIAL AVAILAB LE ON RECORD. IT IS NOTICED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.73,639. HOWEVER, THE EXPENDITURE INCURRED IN RELATION TO EARNING SUCH EXEMPT INCOME I S NOT QUANTIFIED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. WE FIND THAT THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAS BEEN CLAIMED HAS NOT BEEN EXAMINED BY THE AO AS HE HAD MADE DISALLOWANCE MERELY BY APPLYING RULE 8D OF INCOME T AX RULES, 1962. WE FIND THAT THE ASSESSEE HAD ITS SUFFICIENT OWN FUNDS IN THE FORM O F SHARE CAPITAL AND RESERVES OF RS. 20.84 CRORES AS AGAINST INVESTMENT INEXEMPT INCOME Y IELDING INVESTMENT. FURTHER, THE ASSESSEE HAS EARNED PROFIT AT RS. 5.04 CRORES IN PR ECEDING ASSESSMENT YEAR, WHICH IS ENOUGH TO COVER THE INVESTMENT. THEREFORE, THE PRES UMPTION WOULD BE THAT THE INVESTMENT IN EXEMPT INCOME YIELDING INVESTMENT IS M ADE OUT OF INTEREST-FREE FUNDS AS HELD BY THE HON`BLE BOMBAY HIGH COURT IN THE CAS E OF CIT VS. RELIANCE UTILITIES & POWER LTD. (2009)313 ITR 340 (BOM)/ 178 TAXMAN 135 (BOM) WHEREIN IT HAS BEEN LAID M/S. T& T MOTORS LTD. V. ADDL. CIT RANGE- 16, NEW D ELHI /I.T.A. NO.6499/DEL/2014/A.Y.10-11 PAGE 12 OF 14 DOWN THAT WHERE THE ASSESSEE HAD BOTH INTEREST BEAR ING BORROWED FUNDS AND INTEREST- FREE OWN FUNDS AND IF OWN FUNDS WERE SUFFICIENT TO MEET INVESTMENT YIELDING TAX FREE INCOME, THEN IT CAN BE PRESUMED THAT SUCH INVESTMEN TS WERE FROM INTEREST-FREE FUNDS AND NOT FROM BORROWED FUNDS. THEREFORE, WE ARE OF T HE CONSIDERED OPINION THAT NO DISALLOWANCE ON ACCOUNT OF INTEREST IS CALLED FOR U NDER RULE 8D (II) OF INCOME-TAX RULES, 1962. WE FURTHER FIND THAT THE AUDITORS IN T AX AUDIT REPORT HAS POINTED OUT DISALLOWANCE U/S. 14A AS NIL. WE FURTHER OBSERVE TH AT THE TRIBUNAL IN ASSESSEE`S OWN CASE IN ASSESSMENT YEAR 2009-10, IN I.T.A.NO. 6490/ DEL/2012 DTD. 07.01.2015 HAS HELD THAT SHARE CAPITAL AND RESERVE AND SURPLUS HAS HELD THAT THESE ARE FAR EXCEEDED THE AMOUNT INVESTED IN SECURITIES; THEREFORE, DISALLOWA NCE OF INTEREST WAS DELETED. THEREFORE, FOLLOWING THE SAID REASONING AND ORDER O F TRIBUNAL , THE DISALLOWANCE OF INTEREST OF RS.20,12, 865 IN RESPECT OF INTEREST UN DER RULE 8D(2)(II) ARE NOT TO BE CONSIDERED AS SAME ARE DIRECTLY RELATED TO BUSINESS INCOME. THEREFORE, DISALLOWANCE OF INTEREST OF RS. 20,12,865 IS THEREFORE, DELETED. WE ALSO OBSERVE THAT TRIBUNAL IN ASSESSMENT YEAR 2008-09 HAS DIRECTED THE AO TO EXCLU DE THE SHARE APPLICATION MONEY VIDE ORDER DATED DTD. 20.11.2013 IN I.T.A.NO. 5096/ DEL/2011 AND THE AO HAS ACCORDINGLY, EXCLUDED THE SAME THEREFORE, NO DISALLO WANCE UNDER RULE 8D(2)(II) IS REQUIRED. IT IS SEEN THAT THAT THE AO HAS NOT ESTAB LISHED ANY LINK BETWEEN EXPENDITURE AND EXEMPT INCOME WHEREAS ONUS LIES ON HIM AS HELD B Y TRIBUNAL IN THE CASE OF ACIT V. S I L INVESTMENT LTD. 2012-TIOL-334-ITAT-DEL-AS REL IED BY THE LEARNED COUNSEL FOR THE ASSESSEE. THE INVESTMENT IN DIVIDEND YIELDING INVES TMENT MADE IN WITH TACL IN WHICH INVESTMENT IS MADE IN EARLIER YEAR OUT OF INTEREST- FREE FUNDS OR OWN FUNDS AND SECOND INVESTMENT HAS BEEN MADE IN SBI MUTUAL FUND WERE ALS O MADE IN EARLIER YEAR`S. WE MAY OBSERVE THAT SECTION 14A OF THE ACT POSTULATES AND STATES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY AN ASSESSEE IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. UNDER SUB SECTION (2) TO SECTION 14A OF THE ACT, THE ASSESSING OFFICER IS REQ UIRED TO EXAMINE THE ACCOUNTS OF THE ASSESSEE AND ONLY WHEN HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE IN RELATION TO EXE MPT INCOME, HE CAN DETERMINE THE AMOUNT OF EXPENDITURE WHICH SHOULD BE DISALLOWED IN ACCORDANCE WITH SUCH METHOD AS PRESCRIBED, I.E. RULE 8D OF THE RULES (QU OTED AND ELUCIDATED BELOW). M/S. T& T MOTORS LTD. V. ADDL. CIT RANGE- 16, NEW D ELHI /I.T.A. NO.6499/DEL/2014/A.Y.10-11 PAGE 13 OF 14 THEREFORE, THE AO AT THE FIRST INSTANCE MUST EXAMINE THE DISALLOWANCE MADE BY THE ASSESSEE OR THE CLAIM OF THE ASSESSEE THAT NO EXPEN DITURE WAS INCURRED TO EARN THE EXEMPT INCOME. IF AND ONLY IF THE AO IS NOT SATISFIE D ON THIS COUNT AFTER MAKING REFERENCE TO THE ACCOUNTS, THAT HE IS ENTITLED TO A DOPT THE METHOD AS PRESCRIBED I.E. RULE 8D OF THE RULES. THUS, RULE 8D IS NOT ATTRACTE D AND APPLICABLE TO ASSESSEE WHO HAVE EXEMPT INCOME AND IT IS NOT COMPULSORY AND NECE SSARY THAT AN ASSESSEE MUST VOLUNTARILY COMPUTE DISALLOWANCE AS PER RULE 8D OF THE RULES. WHERE THE DISALLOWANCE OR NIL DISALLOWANCE MADE BY THE ASSESSEE IS FOUND TO BE UNSATISFACTORY ON EXAMINATION OF ACCOUNTS, THE ASSESSING OFFICER IS EN TITLED AND AUTHORISED TO COMPUTE THE DEDUCTION UNDER RULE 8D OF THE RULES. 27. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AT MOST THE DISALLOWANCE CAN BE RESTRICTED TO RS.8,516 BEING 0.05% OF VALUE OF INVESTMENT OF RS. 17,03,220 [ 1,05,264+ 1,05,264+ 31,95,911/2]. HOWEVER, THIS WOR KING HAS NOT BEEN VERIFIED BY THE AO. THEREFORE, DISALLOWANCE U/S. 14A ARE RESTRICTED TO RS.8,516 AND BALANCE DISALLOWANCE IS DELETED SUBJECT TO VERIFICATION BY THE AO THAT THE ASSESSEE HAS CORRECTLY TAKEN THE AVERAGE VALUE OF INVESTMENT AFT ER EXCLUDING OF SHARE CAPITAL AND RESERVE& SURPLUS, AND ONLY CONSIDERING EXEMPT INCOME YIELDING INVESTMENT AND EXCLUDING INTEREST OF RS.20,12,865, WHICH IS DIRECT LY ATTRIBUTABLE TO BUSINESS INCOME. SUBJECT TO TERMS AS INDICATED ABOVE, THIS GROUNDS OF APPEAL IS PARTLY ALLOWED. 28. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. 29. THE ORDER PRONOUNCED IN THE OPEN COURT ON 07.02.201 9 SD/- SD/- (K.NARSIMHA CHARAY) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER NEW DELHI:DATED:07 FEBRUARY 2019/OPM COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A) / ITAT (DR)/GUARD FILE OF ITAT. BY ORDER ASSISTANT REGISTRAR, NEW DELHI STANDARD PREPARATION & DELIVERY OF ORDERS IN THE IT AT 1 DATE OF DICTATION 04.02.2019 2 DRAFT PLACED BEFORE THE AUTHOR 07.02.2019 M/S. T& T MOTORS LTD. V. ADDL. CIT RANGE- 16, NEW D ELHI /I.T.A. NO.6499/DEL/2014/A.Y.10-11 PAGE 14 OF 14 3 DRAFT PROPOSED & PLACED BEFORE SECOND MEMBER 07.02.2019 4 D RAFT DISCUSSED/ APPROVED BY SECOND MEMBER 07.02.2019 5 APPROVED DRAFT COMES TO SR. PS /PS 07.02.2019 6 KEPT FOR PRONOUNCEMENT ON 07.02.2019 7 DATE O F UPLOADING ORDER O N THE WEB SITE 07.02.2019 8 FILE SENT TO BENCH CLERK 9 DATE ON WHICH THE FILE GOES TO THE A .R. FOR SIGNATURE ON THE ORDER 10 DATE O N WHICH FILE GOES TO HEAD CLERK 11 DATE OF DISPATCH OF ORDER