FRIGORIFICO ALLANA PRIVATE LIMITED, MUMBAI V. ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 1(1), MUMBAI

ITA 6600/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2950 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2010-2011
• Appeal Filed On: 14-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Opportunity of being heard; Principle of natural justice; Earning of tax free income
• Section: 27; 10; 143(3); 14A

Judgement Text

F IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.6600/ MUM/2017 ( / ASSESSMENT YEAR : 2010 - 11) M/S. FRIG ORIFICO ALLANA PRIVATE LTD., ALLANA HOUSE, ALLANA ROAD, COLABA, MUMBAI 400001 / V. A DDL. CIT RANGE 1(1) AAYKAR BHAWAN M K ROAD MUMBAI - 400020 ./ PAN : AAACF0861F ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY: SHRI. APURVA SHAH REVENUE BY: MISS. DEEPIKA ARORA (DR) / DATE OF HEARING : 09.01.2019 / DATE OF PRONOUNCEMENT : 01.03 .2019 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER: THIS APPEAL, FILED BY ASSESSEE, BEING ITA NO. 6600/MUM/2017, IS DIRECTED AGAINST APPELLATE ORDER DATED 22.09.2017 IN APPEAL NO. CIT(A) - 6/IT/8/2016 - 17, PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 6, MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR A SSESSMENT YEAR 2010 - 11 , THE APPELLATE PROCEEDINGS HAD ARISEN BEFORE LEARNED CIT(A) FROM THE ASSESSMENT ORDER DATED 05.03.2013 PASSED BY LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) FOR AY 2010 - 11 . 2. THE GROUNDS OF APPEAL RAISED BY ASSESSEE IN THE MEMO OF APPEAL FILED WITH TH E INCOME - TAX APPELLATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER: - I.T.A. NO.6600/ MUM/2017 2 THE COMMISSIONER OF INCOME TAX (APPEALS) - 6, MUMBAI ERRED: - 1.1 IN CONFIRMING AN ADDITION U/S 14A OF RS. 34,93,693/ - . 1.1.1 IN HOLDING THAT THE METHOD ADOPTED BY THE APPELLANT TO ESTIMATE EXPENSES INCURRED, DEFIED LOGIC AND IN THEREFORE CONFIRMING THE APPLICABILITY OF RULE 8D. 1.1.2 IN HOLDING THAT THERE WERE NO DETAILS AVAILABLE WITH HIM AS TO WHETHER OR NOT INVESTMENTS WERE STRATEGIC IN NATURE, AN D MERELY ON THAT REASON NOT ALLOWING THE CLAIM OF THE APPELLANT, INSTEAD OF CONFRONTING THE APPELLANT TO FILE EVIDENCE RELATED TO THE SAME. 1.1.3 IN NOT HOLDING THAT EVERY SUCH INVESTMENT ON WHICH NO INCOME IS EARNED MUST BE EXCLUDED WHILE APPLYING RU LE 8D SINCE NO INCOME HAS BEEN EARNED ON THE SAID INVESTMENTS (EXCEPT ON ONE INVESTMENT). THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND THE GROUNDS AS MAY BE ADVISED FROM TIME TO TIME. 3. THE B RIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING AND SALE OF FROZEN FOODSTUFFS PRODUCTS , PR OVISION OF COLD STORAGE FACILITIES FOR FROZEN FOOD STUFFS AND PROCESSING OF POLYMER GRANULES . THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS. 4,01,399/ - WHICH WAS CLAIMED AS AN EXEMPT INCOME U/S 10 OF THE 1961 ACT. THE ASSESSEE HAD INVESTED IN SHARES, BONDS ETC. OF RS. 69,69,33,223/ - WHICH IS REFLECTED IN ITS BALANCE SHEET . T HE AO INVOKED PROVISION S OF S ECTION 14A OF THE ACT R.W.R . 8D OF THE 1962 RULES AND THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY DISALLOWANCES OF EXPENDITURE INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME BE NOT MADE. THE ASSESSEE SUBMITTED BEFORE THE AO AS UNDER: - 'THE COMPANY EARNED DIVIDEND INCOME OF RS. 401 399/ - WHICH IS EXEMPT U/S 10. IN THIS RESPECT WE SUBMIT THAT THE RECEIPT OF DIVIDEND IS REPRESENTED BY ONE DIVIDEND WARRANT. DIRECT AND INDIRECT EXPENSES INCURRED IN RELATION TO EARNINGS OF THIS EXEMPT DIVIDEND INCOME OF RS. 3,717/ - HAVE BEEN OFFERED FOR D ISALLOWANCE. THE INVESTMENTS IN SHARES OF COMPANIES WERE MADE IN THE PAST AND OUT OF OWN FUNDS. FURTHER, ALL THE EXPENSES DEBITED IN PROFIT & LOSS ACCOUNT (BROADLY CLASSIFIES IN THE SCHEDULES THERETO) RELATE TO THE BUSINESS ACTIVITIES OF THE COMPANY. THER E ARE I.T.A. NO.6600/ MUM/2017 3 NEITHER INTEREST COSTS NOR ANY OTHER DIRECT/INDIRECT COSTS ASSOCIATED WITH THE INVESTMENTS MADE BY THE COMPANY. THE HONOURABLE BOMBAY HIGH COURT, IN A JUDGEMENT IN CASE OF GODREJ & BOYCE MFG. CO. LTD., HAS HELD THAT DISALLOWANCE U/S 14A SHOULD BE M ADE BY APPLYING THE PRINCIPLES OF APPORTIONMENT OF EXPENSES (THOSE INCURRED TO EARN EXEMPT INCOME AND NON EXEMPT INCOME) AND BASED ON PROXIMATE RELATIONSHIP BETWEEN EXPENDITURE INCURRED AND THE INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. WITHOUT PREJUDICE, WE RESPECTFULLY SUBMIT THAT A REASONABLE ESTIMATION OF SUCH EXPENSES, AT BEST, COULD BE AS FOLLOWS; WE SUBMIT THAT UNDER THE CIRCUMSTANCES AND FACTS, THE QUESTION OF APPLYING RULE 8D DOES NOT ARISE..' WE SUBMIT THAT UNDER THE CIRCUMSTANCES AND FACTS, THE QUESTION OF APPLYING RULE 8D DOES NOT ARISE..' THUS, THE ASSESSEE HAD OFFERED DISALLOWANCE OF RS. 3,7 17/ - BOTH TOWARDS DIRECT AND IN DIRECT EXPENSES PURPORTED TO BE INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME BY INVOKING PROVISIONS OF SECTION 14A OF THE 1961 ACT . THE AO REJECTED THE CONTENTION S OF THE ASSESSEE AND OBSERVED THAT THE ASSESSEE HAD MADE HUGE INVESTMENTS TO THE TUNE OF RS. 69.69 CR ORE S AS ARE REFLECTED IN THE FINANCIAL STATEMENTS , OUT OF WHICH MORE THAN OF RS. 68.10 CRORE HAVE BEEN INVESTED IN UNIT S AND SHARES WHICH GENERATE TAX FREE INCOME . THE AO OBSERVED THAT THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS. 4,01,399/ - DURING TH E YEAR WHICH WAS CLAIMED AS AN EXEMPT INCOME , WHILE THE ASSESSEE HAD ADMITTED THAT THE DIRECT EXPENSES BEING DEMAT CHARGES OF RS.1,324/ - RELATABLE TO THE EARNING OF THE DIVIDEND INCOME HEAD OFFICE ADMINISTRATIVE EXPENSES 'A' RS. 7,28,59,665/ - DIVIDEND INCOME 'B' RS. 4,01,399/ - SALES AND OTHER INCOME 'C' RS. 12,21, 90,39, 009/ - PROPORTIONATE DISALLOWANCE OF INDIRECT EXPENSES U/S 14A 'A'X A B'/'C' RS. 2,393/ - DIRECT EXPENSES (DEMAT CHARGES) RS. 1.324/ - TOTAL RS.3,717/ - I.T.A. NO.6600/ MUM/2017 4 WERE INCURRED AND ALSO FURTHER EXPENSES OF RS. 2393 WERE INCURRED BAS ED ON THE RATIO OF DIVIDEND INCOME TO SALES AND OTHER INCOME MULTIPLIED BY HEAD OFFICE ADMINISTRATIVE EXPENSES . T HUS AS PER AO, R ULE 8D (2) OF THE INCOME - TAX RULES, 1962 WAS APPLICABLE AND EXPENDITURE INCURRED RELATABLE TO EARNING OF AN EXEMPT INCOME IS TO BE DISALLOWED U/S 14A OF THE 1961 ACT . THE AO INVOKED PROVISIONS OF SECTION 14A OF THE 1961 ACT READ WITH RULE 8D(2) OF THE 1962 RULES AND DISALLOWANCE WERE MADE BY THE AO TO THE TUNE OF RS. 34,93,693/ - , VIDE ASSESSMENT ORDER DATED 05.03.2013 PASSED BY TH E AO U/S 143(3) OF THE 1961 ACT, BY MAKING DISALLOWANCE AS DETAILED UNDER: - 4 . AGGRIEVED BY THE ASSESSMENT ORDER DATED 05.03.2013 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT, THE ASSESSEE FILED FIRST APPEAL WITH LEARNED CIT(A) WHO WAS PLEASED TO DISMISS THE APPEAL OF THE ASSESSEE VIDE APPELLATE ORDER DATED 22.09.2017 , BY HOLDING AS UNDER: - 6.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, DISCUSSION OF THE AO IN THE IMPUGNED ASSESSMENT ORDER AS WELL AS ORAL CONTENTIONS AND WRITTEN SUBMISSIONS OF THE APPELLANT. THE APPELLANT IN THEIR RETURN OF INCOME HAVE MADE DISALLOWANCE OF RS.3,717/ - . THIS AMOUNT OF RS.3,717/ - COMPRISES OF RS.1,324/ - WHICH ARE DIRECT EXPENSES TOWARDS DEMAT CHARGES AND RS.2,393/ - HAVE BEEN COMPUTED BASED O N THE RATIO TAKEN OF THE DIVIDEND INCOME OVER THE SALES AND OTHER INCOME MULTIPLIED BY HEAD OFFICE ADMINISTRATIVE EXPENSES. THE AO, IN THE ASSESSMENT ORDER, HAS CLEARLY OBSERVED I.T.A. NO.6600/ MUM/2017 5 THAT THE ESTIMATION OF EXPENSES RELATED TO ITS EXEMPTED INCOME WAS NOT BASED O N ANY LOGIC OR SOUND FOOTINGS. THEREFORE, HE WAS NOT SATISFIED WITH THE CLAIM MADE BY THE ASSESSEE IN THIS REGARD. IT IS SEEN THAT THE ASSESSEE HAS APPLIED THE RATIO OF DIVIDEND INCOME OVER TOTAL SALES AND OTHER INCOME FOR ALLOWING SUCH PORTION OF HEAD OFF ICE OR ADMINISTRATIVE EXPENSES WHICH WOULD BE ATTRIBUTABLE TO THE EARNING OF THE DIVIDEND INCOME BY THE ASSESSEE. CONSIDERING THE SALES AND OTHER INCOME TOTALLING TO RS.12,21,90,39,009/ - AS A DENOMINATOR DEFIES ANY LOGIC. IF AT ALL THERE WAS A RATIO TO BE TAKEN OF DIVIDEND INCOME, IT SHOULD HAVE BEEN TAKEN OVER THE NET PROFIT OF THE ASSESSEE AS PER THE BOOKS 'MAINTAINED BY IT. THERE IS NO LOGIC TO CONSIDER THE TOP LINE I.E. SALES AND OTHER INCOME AS DENOMINATOR FOR COMPUTING RATIO OF EXEMPT INCOME TO THE TO TAL INCOME OF THE ASSESSEE. UNDER SUCH FACTS AND CIRCUMSTANCES, THE ACTION OF THE AO I N INVOKING RULE 8D IS FOUND TO BE JUSTIFIED. THE ASSESSEE, IN ITS SUBMISSION, HAS RELIED UPON THE DECISION OF HON'BLE ITAT IN THEIR OWN CASE FOR A.Y.2009 - 10 WHEREIN AT PARA 7, HON'BLE ITAT HAS HELD THE EXPENSES AT RS.917/ - TO BE REASONABLE. HOWEVER, THEY HAVE OBSERVED THEREIN THAT THE AO HAS SIMPLY RUBBISHED THE COMPUTATION MADE BY THE ASSESSEE WITHOUT ASSIGNING ANY SPECIFIC REASON OR FALLACY IN THE COMPUTATION AND THAT IN SUCH PECULIAR FACTS OF THE CASE, THE ADDITION MADE BY THE AO WAS UNWARRANTED. HOWEVER, IN THE FACTS OF THE INSTANT CASE, IT IS NOT SO. THE AO HAS EXAMINED THE METHODOLOGY OF COMPUTATION OF EXPENSES BY THE ASSESSEE, HAS RECORDED HIS DISSATISFACTION ON TH E SAME AND HAS THEREAFTER GONE ON TO APPLY RULE 8D(2). ACCORDINGLY, THE DECISION OF HON'BLE ITAT IN THE ASSESSEE'S OWN CASE FOR A.Y.2009 - 10 WOULD NOT HAVE, BINDING PRECEDENCE FOR THE YEAR UNDER CONSIDERATION. 6.4 THE ASSESSEE, ON A WITHOUT PREJUDICE BA SIS, HAS CONTENDED THAT FOLLOWING THE RATIO OF HON'BLE ITAT, MUMBAI IN GARWARE WALLROPES LTD. (65 SOT 86), STRATEGIC INVESTMENTS OR THE INVESTMENTS MADE IN THE ASSOCIATE CONCERNS FOR LONG TERM INVESTMENT SHOULD BE EXCLUDED TOGETHER WITH INVESTMENTS WHERE N O DIVIDENDS HAVE BEEN EARNED FOLLOWING THE RATIO OF THE DECISION IN THE CASE OF SHIVAM MOTORS (SUPRA). IN RESPECT OF THE STRATEGIC INVESTMENTS, IT IS MENTIONED THAT THE ASSESSEE ALONGWITH ITS SUBMISSION HAS FILED SCHEDULE - 4 WHICH INDICATES THE INVESTMENTS IN QUOTED AND UNQUOTED SHARES, PREFERENCE SHARES AND INVESTMENTS IN THE CAPITAL/CURRENT ACCOUNT OF PARTNERSHIP FIRM. NOWHERE IN THE SUBMISSION, THE ASSESSEE HAS DETAILED AS TO WHICH OF THESE INVESTMENTS ARE STRATEGIC IN NATURE AND WHY ARE THEY SO. THE ONL Y THING SEEN IN THE SCHEDULE IS THAT THESE INVESTMENTS ARE CONTINUING FROM THE PREVIOUS YEAR I.E.F.Y.2008 - 09 WITH SOME VARIATIONS IN THE INVESTMENT IN THE CAPITAL/CURRENT ACCOUNT OF PARTNERSHIP FIRM. THE REMAINING INVESTMENTS HAVE BEEN REFLECTED AT COST BU T THIS PER SE DOES NOT PROVE THAT THESE INVESTMENTS ARE STRATEGIC IN NATURE WARRANTING THEM TO BE TAKEN OUT FROM THE COMPUTATION OF DISALLOWANCE UNDER RULE 8D(2). IN THE ABSENCE OF ANY SUCH DETAILS FILED BY THE ASSESSEE AS TO WHICH OF THESE INVESTMENTS ARE STRATEGIC AND FOR WHAT REASON, DESPITE ON LEGAL PRINCIPLES, THEIR EXCLUSIONS FOR THE PURPOSES OF COMPUTATION OF DISALLOWANCE BEING CONSIDERED CORRECT, BENEFIT OF THE SAME CANNOT BE GIVEN TO THE ASSESSEE FOR WANT OF DETAILS OR THEIR JUSTIFICATIONS. THE ASS ESSEE HAS FURTHER CONTENDED THAT FOLLOWING THE RATIO OF ALLAHABAD HIGH COURT IN I.T.A. NO.6600/ MUM/2017 6 THE CASE OF SHIVAM MOTORS, THE INVESTMENTS WHERE NO DIVIDENDS HAVE BEEN RECEIVED DURING THE YEAR SHOULD BE EXCLUDED AND THEY HAVE FURTHER MENTIONED THAT SINCE THERE WAS NO DIVI DEND EARNED THIS YEAR, THERE SHOULD BE NO DISALLOWANCE. IN THIS RESPECT, IT IS STATED THAT THE ASSESSEE HAS .EARNED DIVIDEND OF RS.4,01,399/ - WHICH HAS BEEN CLAIMED EXEMPT U/S.10. THIS FINDS PLACE EVEN IN THE SUBMISSION FILED BEFORE THE AO DURING THE COURS E OF ASSESSMENT PROCEEDINGS VIDE THEIR LETTER DATED 02.01.2013 WHICH HAS BEEN REPRODUCED BY THE AO AT PARA 4.1 OF HIS ORDER AND FURTHER THE FACT OF HAVING EARNED DIVIDEND INCOME OF RS.4,01,399/ - HAS ALSO BEEN MENTIONED IN THEIR STATEMENT OF FACTS FILED WIT H THE INSTANT APPEAL. ACCORDINGLY, SUCH AN ASSERTION THAT THEY HAVE NOT EARNED ANY DIVIDEND INCOME DURING THE YEAR AND THEREFORE THERE SHOULD BE NO DISALLOWANCE IS NOT FOUND TO BE CORRECT. 6.5 IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND DISCUSSION HEREINABOVE, THE CONTENTIONS AND SUBMISSIONS OF THE ASSESSEE ARE NOT FOUND TO BE ACCEPTABLE AND ARE THEREFORE, REJECTED. ACCORDINGLY, THE ONLY GROUND RAISED IN RESPECT OF DISALLOWANCE MADE BY THE AO U/S.14A R.W.R.8D IS DISMISSED. 5 . AGGRIEVED BY THE APPELLATE ORDER DATED 22.09.2017 PASSED BY LEARNED CIT(A) , THE ASSESSEE HAS FILED AN APPEAL BEFORE THE TRIBUNAL. I T WAS SUBMITTED BY LD. COUNSEL FOR THE ASSESSEE THAT THE DISALLOWANCE WAS MADE BY AO BY INVOKING PROVISIONS OF SECTION 14A OF THE 19 61 ACT R.W.R. 8D2(III) OF THE 1962 RULES, WHICH DISALLOWANCE WAS LATER CONFIRMED BY LD. CIT(A). I T WAS SUBMITTE D THAT DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME OF RS. 3,717 / - WAS MADE VOLUNTARILY BY THE ASSESSEE U/S. 14A OF THE ACT . IT WAS SUBMITTED THAT DIVIDEND INCOME OF RS. 4,01,399/ - WAS RECEIVED BY THE ASSESSEE WHICH WAS CLAIMED AS AN EXEMPT INCOME U/S. 10 OF THE ACT. THE ASSESSEE RELIED UPON THE DELHI ITAT SPECIAL BENCH , DECISION IN THE CASE OF ACIT V. VI R EET INVESTMENTS PRIVATE LIMITED ( (2017) 165 ITD 27 (DEL. SB - TRIB.) ) , AND DECISION OF MUMBAI - TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2009 - 10 IN ITA NO. 1441/MUM/2013 , ORDERS DATED 16.12.2015 , DECISION OF MUMBAI - TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 520/MUM /2017 VIDE ORDERS DATED 29.06.2018 FOR AY 2012 - 13 AND DECISION OF MUMBAI - TRIBUNAL IN THE CASE OF ALLANA COLD STORAGE PRIVATE LIMITED V. ADDL. CIT IN ITA 2366 & 2367/MUM/2015 FOR AY 2011 - 12 AND 2010 - 11 RESPECTIVELY VIDE COMMON ORDERS DATED 20.12.2017 . THE L D. DR ON THE OTHER HAND RELIED ON THE APPELLATE ORDER PASSED BY LD. CIT(A) . I.T.A. NO.6600/ MUM/2017 7 6 . WE HAVE CONSIDERED RIVAL CONTENTION S AND PERUSED THE MATERIAL ON RECORD INCLUDING CITED CASE LAWS. W E HAVE OBSERVED THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING AND SALE OF F ROZEN FOODSTUFFS PRODUCTS, PROVISION OF COLD STORAGE FACILITIES FOR FROZEN FOODSTUFFS AND PROCESSING OF POLYMER GRANULES. THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS. 4,01,399/ - WHICH WAS CLAIMED AS AN EXEMPT INCOME U/S 10 OF THE 1961 ACT. THE ASSESSEE HAD INVESTED IN SHARES, BONDS ETC. TO THE TUNE OF RS. 69,69,33,223/ - , OUT OF WHICH INVESTMENTS OF RS. 68.10 CRORES WAS MADE IN INVESTMENTS WHICH YIELD ED EXEMPT INCOME . THE ASSESSEE HAS MADE VOLUNTARILY DISALLOWANCE OF EXPENDITURE PURPORTED TO BE INCURRE D FOR EARNING OF AN EXEMPT INCOME TO THE TUNE OF RS. 1,324/ - TOWARDS DIRECT EXPENSES BEING DEMAT CHARGES AND FURTHER DISALLOWANCE OF EXPENDITURE OF RS. 2,393/ - WAS MADE BY TAKING RATIO OF DIVIDEND INCOME TO SALE S AND OTHER INCOME , THEN MULTIPLYING THE S AME BY H EAD O FFICE ADMINISTRATIVE EXPENSES. THE AO INVOKED PROVISIONS OF S ECTION 14A OF THE 1961 ACT R.W.R . 8D2(III) OF THE 1962 RULES TO MADE DISALLOWANCE OF RS. 34,93,693/ - BY TAKING FORMULA OF 0.5% OF AVERAGE INVESTMENTS HELD BY THE ASSESSEE. THE SAID DISALLOWANCE WAS LATER CONFIRMED BY LD. CIT(A) AFTER CONSIDERING THE ENTIRE MATERIAL ON RECORD INCLUDING CASE LAWS CITED BY THE ASSESSEE. WE HAVE GONE THROUGH THE ENTIRE FACTUA L MATRIX OF THE CASE AND W E ARE OF THE CONSIDER ED VIEW THAT THE PROVISION OF SECTION 14A ARE CLEARLY APPLICABLE TO THE ASSESSEE AS THE ASSESSEE HAD MADE INVESTMENTS TO THE TUNE OF RS. 69.69 CRORE S OUT OF WHICH INVESTMENT OF RS. 68.10 CRORES WAS MADE IN INV ESTMENTS IN UNITS AND SHARES WHICH GENERATE S TAX - FREE INCOME. THE ASSESSEE HAD MADE DISALLOWANCE OF EXPENDITURE OF RS. 1,324/ - TOWARD DIRECT EXPENSES BEING DEMAT CHARGES WHILE DISALLOWANCE OF EXPENDITURE WAS MADE OF AN AMOUNT OF RS. 2,393/ - BASED ON RATIO OF DIVIDEND INCOME OVER SALE S AND OTHER INCOME, THEN MULTIPLY ING THE SAME WITH HEAD OFFICE ADMINISTRATIVE EXPENSES , CLAIMED BY THE ASSESSEE TO BE PURPORTED TO BE INCURRED FOR EARNING OF AN EXEMPT INCOME . THE ASSESSEE HAD RECEIVED AN EXEMPT INCOME BY WAY OF DIVIDEND INCOME TO THE TUNE OF RS. 4,01,399/ - WHICH WAS I.T.A. NO.6600/ MUM/2017 8 CLAIMED AS AN EXEMPT INCOME. IT IS EQUALLY TRUE THAT S AT ISFACTION WAS RECORDED BY THE AO BEFORE INVOKING RULE 8D OF THE 1962 RULES READ WITH SECTION 14A OF THE 1961 ACT . SO FAR AS DISALLOWANCE U/ S. 14A OF THE 1961 ACT R.W.R 8D2(III) OF THE 1962 RULES ARE CONCERN ED, WE OF THE CONSIDER ED VIEW THAT IT IS ONLY THOSE INVESTMENTS WHICH ACTUALLY YIELDED DIVIDEND INCOME WHICH CAN ONLY B E CONSIDER ED F OR MAKING DISALLOWANCE U/S. 14A OF THE 1961 ACT READ W ITH RULE 8D OF THE 1962 RULES , K EEPING IN VIEW DECISION OF DELHI SPECIAL B ENCH DECISION OF ITAT IN THE CASE OF VIR EET INVESTMENTS PRIVATE LIMITED (SUPRA). W E ARE ALSO OF THE CONSIDERED VIEW THAT THE CONTENTION OF THE ASSESSEE THAT IT HAS MADE INVESTMENTS IN SUBSIDIARY COMPANIES/STRATEGIC INVESTMENTS AND HENCE SECTION 14A OF THE 1961 ACT WILL NOT BE APPLICABLE , LACKS MERIT KEEPING IN VIEW DECISION OF HONBLE SU PREME COURT IN THE CASE OF MAXOPP INVESTMENTS LIMITED V. CIT (2018) 402 ITR 640(SC) AND HENCE THIS CONTENTION OF THE ASSESSEE STOOD REJECTED. WE HAVE ALSO OBSERVED THAT IN THE CASE OF ALLANA COLD STORAGE PRIVATE LIMITED V. ADDL. CIT IN ITA NO. 2366 & 2367/MUM/2015 FOR AY 2011 - 12 AN D AY 2010 - 11 , TRIBUNAL VIDE COMMON ORDER DATED 20.12.2017 HAS HELD THAT DISALLOWANCE OF EXPENDITURE BE MADE U/S 14A READ WITH RULE 8D OF THE 1962 RULES, AFTER KEEPING IN VIEW DECISION OF SPECIAL BENCH OF ITAT, DELHI IN THE CASE OF VIREET INVESTMENT(SUPRA) , BY HOLDING AS UNDER: 4.WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE DECISION OF THE DELHI SPECIAL BENCH IN THE CASE OF ACIT V. VIREET INVESTMENTS PRIVATE LIMITED (SUPRA). WE OBSERVE THAT THE SPECIAL BENCH OF T HE DELHI TRIBUNAL HELD THAT ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMENTS WHICH YIELDED EXEMPT INCOME DURING THE YEAR. THEREFORE, RESPECTFULLY FOLLOWING THE SAID DECISION, WE DIRECT THE ASSESSING OFFICER TO COMPUTE THE DISALLOWANCE UNDER RULE 8D(2)(III) BY CONSIDERING ONLY THOSE INVESTMENTS WHICH YIELDED EXEMPT INCOME DURING THE YEAR AND RECOMPUTE THE INCOME ACCORDINGLY. NEEDLESS TO SAY THAT THE ASSESSING OFFICER SHALL GIVE ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. SINCE WE FOLLOWED THE ORDER OF THE SPECIAL BENCH TRIBUNAL AND HELD THAT THE ONLY THE INVESTMENTS YIELDING DIVIDEND INCOME SHOULD BE CONSIDERED FOR DISALLOWANCE UNDER RULE 8D(2)(III) THE OTHER CONTENTIONS RAISED BY THE ASSESSEE NEED NOT GONE IN TO S THEY ARE NOT RELEVANT AS SUBMITTED BY LD.A.R. I.T.A. NO.6600/ MUM/2017 9 THUS, WE HOLD THAT ONLY THOSE INVESTMENTS WHICH ACTUALLY YIELDED TAX - FREE INCOME SHALL BE CONSIDERED FOR COMPUTING DISALLOWANCE U/S 14A READ WITH RULE 8D(2)(III) OF THE 1962 RULES , KEEPING IN VIEW DECISION OF SPECIAL BENCH OF ITAT , DELHI IN THE CASE OF VIREET INVESTMENTS PRIVATE LIMITED(SUPRA), AND AO IS ACCORDINGLY DIRECTED IN ABOVE LINES TO RECOMPUTED DISALLOWANCE U/S 14A OF THE 1961 ACT READ WITH RULE 8D(2)(III) OF THE 1962 RULES . NEEDLESS TO SAY THAT TH E AO SHALL GIVE ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LAW. WE ORDER ACCORDINGLY. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONO UNCED IN THE OPEN COURT ON 0 1 .03 .2019. 0 1 .03 .2019 S D / - S D / - (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMB ER MUMBAI, DATED: 0 1 .0 3 .2019 NISHANT VERMA SR. PRIVATE SECRETARY COPY TO 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE CIT(A) CONCERNED, MUMBAI 4 . THE CIT - CONCERNED, MUMBAI 5 . THE DR BENCH, 6 . MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI