ACIT, CHENNAI V. Thiru Arooran Sugars Pvt. Ltd., CHENNAI

ITA 673/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6096 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 08-08-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 20-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHISH TRIPATHIJCIT
• Keywords: Earning of tax free income; Commercial expediency
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI , ! ' . #$ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.673/MDS./2017 / ASSESSMENT YEAR :2012-13 THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(1), NEW BLOCK,4 TH FLOOR, CHENNAI.600 034. VS. M/S.THIRU AROORAN SUGARS LTD ., ELDORADO,VTH FLOOR, 112,UTTAMAR GANDHI ROAD, CHENNAI 600 034. [PAN AAACT 2382 B ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : MR.ASHISH TRIPATHI,JCIT, DR /RESPONDENT BY : MR.VIKRAM VIJAYARAGHAVAN, ADVOCATE / DATE OF HEARING : 21 - 09 - 2017 / DATE OF PRONOUNCEMENT : 27 - 09 - 2017 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-13, CHENNA I DATED 19.12.2016 PERTAINING TO ASSESSMENT YEAR 2012-13. ITA NO.673/2017 :- 2 -: 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS FO R OUR ADJUDICATION. 1. THE ORDER. OF THE LEARNED CIT(A) IS CONTRARY TO LAW AND FACTS AND CIRCUMSTANCES OF THE CASE. 2.1 THE LD.CIT(A) ERRED IN DIRECTING THE AO TO RE-C OMPUTE THE DISALLOWANCE UNDER RULE 8D AFTER EXCLUDING THE APPE LLANT INVESTMENT IN SUBSIDIARY/ASSOCIATED COMPANIES THOUGH THE ASSESSEE IS IN RECEIPT OF DIVIDEND INCOME FROM THE INVESTMENT IN SUBSIDIARY C OMPANIES AND CLAIMED THE SAME AS EXEMPTED INCOME. 2.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT RU LE 8D(2) DOES NOT DIFFERENTIATE BETWEEN STRATEGIC INVESTMENTS AND INV ESTMENTS IN SUBSIDIARY/ASSOCIATE COMPANIES WITH OTHER INVESTMEN TS AND THE WORD USED IN THE RULE IS ONLY UVALUE OF INVESTMENT AND HENCE THE INVESTMENT IN SUBSIDIARY COMPANY SHALL BE INCLUDED FOR CALCULATION OF DISALLOWANCE UNDER RULE 8D(2). 2.3 THE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO CONSIDER THE ASSESSEES OWN FUNDS I.E. CAPITAL RESERVES AVAILABL E ON THE DATE OF INVESTMENT WHICH YIELDS EXEMPTED INCOME WITHOUT GIV ING ANY CLEAR FINDING THAT THE ASSESSEE HAS INVESTED ITS OWN FUND . 2.4 THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT THE ASSESSEE COMPANY HAS NEVER GIVEN CLEAR BREAK UP OF INVESTMENTS ALONG WITH THE STATISTICS OF OWN FUNDS AND OF BORROWED FUNDS DURING THE ASSES SMENT PROCEEDINGS. 2.5 THE LEARNED CIT(A) OUGHT TO HAVE TAKEN INTO CON SIDERATION THAT THE DECISION OF THE HONBLE TRIBUNAL RELIED ON BY THE C IT(A) HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND APPEAL FILED BEFORE HONBLE MADRAS HIGH COURT IS PENDING AS ON DATE. ITA NO.673/2017 :- 3 -: 3. AFTER HEARING BOTH THE PARTIES, IT IS NOTICED T HAT SIMILAR ISSUE CAME FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSE SSEE'S OWN CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO.1231/MDS./2013 FO R ASSESSMENT YEAR 2009-10 WHEREIN THE TRIBUNAL HELD AS FOLLOWS: 9.3. THE MAIN PLEA OF THE LD.A.R IS THAT INVES TMENT IS A SISTER CONCERN AND ASSOCIATED COMPANIES AND INTEREST PERTA INED TO BORROWINGS USED FOR EARNING EXEMPT INCOME FROM THE INVESTMENTS TO BE CONSIDERED AND HE DREW OUR ATTENTION TO THE P APER BOOK AT PAGE 21 TO 22 TO SHOW THAT MOST OF THE INVESTMENTS ARE IN EQUITY SHARES OF SISTER CONCERNS AND THESE INVESTMENTS ARE MADE ON ACCOUNT OF COMMERCIAL EXPEDIENCY. HE PLACED RELIAN CE ON THE JUDGMENT OF DELHI HIGH COURT IN THE CASE OF CIT VS. BHARTI OVERSAS PVT. LTD., REPORTED IN 17 TH DECEMBER, 2015 WHEREIN HELD THAT EXPENDITURE IN RELATION TO INCOME WHICH IS EXEMPT S HALL BE AGGREGATE OF EXPENDITURE ATTRIBUTABLE TO TAX EXEMP TED INCOME, AND WHERE THERE IS COMMON EXPENDITURE, THAT CANNOT BE A TTRIBUTABLE TO EITHER TAX EXEMPT INCOME OR TAXABLE INCOME. HE ALSO SUBMITTED THAT INTEREST ON BORROWINGS WHICH IS AVAILABLE FOR SPECI FIC PURPOSE CANNOT BE CONSIDERED FOR DISALLOWANCE U/S.14A R.W.RULE 8D. IN OUR OPINION, THE TRIBUNAL CONSIDERED THIS ISSUE IN THE CASE OF F ARIDA SHOES PVT. LTD. IN ITA NOS.2102 & 2103/MDS./15 FOR ASSESSMENT YEARS 2011-12 & 2012-12 VIDE ORDER DATED 08.01.16 WHEREIN HELD T HAT:- 5.1 COMING TO THE MERITS OF THE ISSUE REGARDING DISALLOWANCE U/S.14A R.W. RULE 8D OF THE I.T.RULES, IN OUR OPINION, SIMILAR ISSUE WAS CONSIDERED BY THIS TRIBU NAL IN THE CASE OF ACIT V. M/S. BEST & CROMPTON ENGINEERING LT D. IN ITA NO.1603/MDS/2012 DATED 16.7.2013, WHEREIN IT WA S OBSERVED THAT INTEREST ON BORROWINGS USED FOR THE B USINESS PURPOSE CANNOT BE CONSIDERED FOR THE PURPOSE OF COM PUTING DISALLOWANCE U/S.14A R.W. RULE 8D(2)(II) OF THE IT RULES AND THE RELEVANT PORTION IS REPRODUCED AS BELOW: ITA NO.673/2017 :- 4 -: 10. HEARD BOTH SIDES. PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE DECISION OF CALCUTTA BENCH OF T HIS TRIBUNAL RELIED ON BY THE ASSESSEES COUNSEL. THIS ISSUE HAS BEEN CONSIDERED ELABORATELY BY THE COMMISSIONER OF INCOME TAX(APPEALS) AND DELETED THE INTEREST ON BAN K LOAN AND TERM LOANS WHICH WERE NOT UTILIZED FOR MAK ING ANY INVESTMENTS HAVING TAX FREE INCOME. WHILE HOLDI NG SO, THE COMMISSIONER OF INCOME TAX (APPEALS) HELD A S UNDER:- 5.2.1 HAVING HELD THAT PROVISIONS OF RULE 0D ARE A PPLICABLE, LET US NOW EXAMINE WHETHER THE AMOUNT HAS BEEN CORR ECTLY QUANTIFIED. THE AO HAD CALCULATED THE DISALLOWANCE AT ` NIL, ` 1,04,38,000/- AND ` 26,87,000/- UNDER (I), (II) & ( III) OF RULE 80 (2)RESPECTIVELY. THERE IS NO DISPUTE REGARDING THE FIRST COMPONENT, BECAUSE IT IS NIL. WITH REGARD TO THE SE COND COMPONENT BEING THE EXPENDITURE BY WAY OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, THE AO HAS DETERMINED THE AMOUNT AT ` 1,04,38,000/. THE AO HAS TAKEN INTO ACCOUNT THE ENTIRE INTEREST EXPENDIT URE OF `.5,79,46,000/- FOR COMPUTING THE ABOVE DISALLOWANC E. THE ID.AR, IN HIS SUBMISSION, HAS GIVEN THE BREAK-UP OF INTEREST WHICH INCLUDES (1) INTEREST ON BANK LOANS: ` 67,92 ,000/- (2) INTEREST ON TERM LOANS ` 3,82,11,000/- AND (3) INT EREST ON OTHER ACCOUNTS: ` 1,29,43,000/-. IF LOANS HAVE BEEN SANCTIONED FOR SPECIFIC PROJECTS/EXPANSION AND HAVE BEEN UTILIZED TOWARDS THE SAME, THEN OBVIOUSLY THEY COUL D NOT HAVE BEEN UTILIZED FOR MAKING ANY INVESTMENTS HAVING TAX -FREE INCOMES. FROM THE COPY OF THE SANCTION LETTERS FROM STATE BANK OF BIKANER & JAIPUR IT CAN BE SEEN THAT THE LO AN WAS GRANTED WITH A SPECIFIC REQUIREMENT THAT THE LOAN S HALL BE UTILIZED FOR PURCHASE OF IMPORTED MACHINERY WHILE I N THE CASE OF LOAN FROM FEDERAL BANK, IT IS SEEN THAT THE LOAN WAS TO BE UTILIZED FOR EXPANSION OF PROJECTS. SANCTION OF BOT H THESE LOANS PROHIBIT UTILIZATION OF FUNDS FOR PURPOSES OTHER TH AN FOR THE UTILIZATION FOR WHICH THEY ARE SANCTIONED. FROM THE LEDGER EXTRACT FOR THE YEAR ENDED 31.03.2008 FOR BOTH LOAN ACCOUNTS, IT IS SEEN THAT NO AMOUNT HAS BEEN UTILIZED FOR INV ESTMENT IN SUBSIDIARIES WHICH EARNS TAX-FREE INCOME. THE LOAN AMOUNTS WERE FULLY DISBURSED AND UTILIZED IN THE YEAR ENDED 31.03.2008 (A.Y. 2008-09) ITSELF. TAKING INTO ALL THE FACTS AS STATED ABOVE, I AM OF THE CONSIDERED OPINION THAT IF LOANS/BORROW ED ITA NO.673/2017 :- 5 -: AMOUNTS ARE GRANTED FOR SPECIFIC PROJECTS/EXPANSION AND NO AMOUNT FROM THE SAME HAS BEEN DIRECTLY UTILIZED FOR INVESTMENTS, THEN THE FIRST AND SECOND LIMB OF RULE 80 ATTRIBUTING THE INTEREST PAYMENTS TO THE INVESTMENT S WILL NOT BE APPLICABLE. ACCORDINGLY, INTEREST ON BANK LOAN A ND TERM LOAN AMOUNTING TO ` 67,92,000/- AND `3,82,11,000/- RESPECTIVELY ARE TO BE EXCLUDED FROM THE CALCULATIO N TO DETERMINE THE DISALLOWANCE UNDER RULE 8D(2)(II). TH E AO IS, THEREFORE, DIRECTED TO TAKE INTO ACCOUNT ONLY THE R EMAINING INTEREST ON OTHER ACCOUNTS AMOUNTING TO ` 1,29,43,0 00/- FOR COMPUTING THE PROPORTIONATE DISALLOWANCE UNDER RULE 80(2)(II). 11. ON GOING THROUGH THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), WE FIND THAT THE COMMISSIONER OF INCOME TAX (APPEALS) EXCLUDED THE INTEREST ON BANK LOAN AND TERM LOANS FROM THE CALCULATION OF DISALLOWANCE UND ER RULE 8D(2)(II) AS THE ASSESSEE HAS UTILIZED THE BANK LOA N AND TERM LOAN FOR THE PURPOSE OF PURCHASE OF MACHINERIES AND FOR EXPANSION OF PROJECTS AND THESE LOANS WERE SPECIFIC ALLY SANCTIONED FOR SPECIFIC PROJECT AND SUCH LOANS WERE ALSO USED FOR THE PURPOSE FOR WHICH THEY WERE SANCTIONED. IN THE CIRCUMSTANCES, WE FIND THAT THE COMMISSIONER OF INC OME TAX (APPEALS) HAS RIGHTLY EXCLUDED SUCH INTEREST FROM T HE PURVIEW OF COMPUTATION OF DISALLOWANCE UNDER RULE 8D(2)(II) . 12. THE DECISION OF CALCUTTA BENCH OF THIS TRIBUNAL IN THE CASE OF CHAMPION COMMERCIAL CO.LTD. (SUPRA) ALSO SU PPORTS THE VIEW OF THE COMMISSIONER OF INCOME TAX (APPEALS ). THE TRIBUNAL HAD CONSIDERED A SITUATION WHEN THE LOANS WERE UTILIZED FOR THE PURCHASE OF MACHINERIES, INTEREST ARISING OUT OF SUCH LOANS, WHETHER SUCH INTEREST IS TO BE EXCLUDED FOR THE PURPOSE OF COMPUTING DISALLOWANCE UNDER RULE 8D(2)( II), THE TRIBUNAL HELD THAT SUCH INTEREST HAS TO BE EXCLUDED . WHILE HOLDING SO, IT HAS HELD AS UNDER:- 11. THERE IS NO DISPUTE ABOUT WORKING OF THIS METHOD SO FAR AS RULE 8D(2)(I) AND (III) IS CONCERN ED. IT IS ONLY WITH REGARD TO THE COMPUTATION UNDER RUL E 8D(2)(II) THAT THE ASSESSING OFFICER AND THE CIT(A) HAVE DIFFERENT APPROACHES. THIS PROVISION ADMITTEDL Y DEALS WITH A SITUATION IN WHICH THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT . CLEARLY, THEREFORE, THIS SUB CLAUSE SEEKS TO ALLOCATE COMMO N INTEREST EXPENSES TO TAXABLE INCOME AND TAX ITA NO.673/2017 :- 6 -: EXEMPT INCOME. IN OTHER WORDS, GOING BY THE PLAIN WORDINGS OF RULE 8D(2)(II) WHAT IS SOUGHT TO BE ALLOCATED IS EXPENDITURE BY WAY OF INTEREST..WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT AND THE ONLY CATEGORIES OF INCOME AND RECEIPT, SO FAR AS SCHEME OF RULE 8 D IS CONCERNED, ARE MUTUALLY EXCLUSIVE CATEGORIES OF TAX EXEMPT INCOME AND RECEIPT AND TAXABLE INCOME AND RECEIPT. NO OTHER CLASSIFICATI ON IS GERMANE TO THE CONTEXT IN WHICH RULE 8 D IS SET OUT, NOR DOES THE SCHEME OF SECTION 14 A LEAVE ANY AMBIGUITY ABOUT IT. 12. IRONICALLY, HOWEVER, THE DEFINITION OF VARIABLE A EMBEDDED IN FORMULA UNDER RULE 8D(2)(II) IS CLEARLY INCONGRUOUS INASMUCH WHILE IT SPECIFICALLY EXCLUDES INTEREST EXPENDITURE DIRECTLY RELATED TO TAX EXEMPT INCOME, IT DOES NOT EXCLUDE INTEREST EXPENDITURE DIRECTLY RELATED TO TAXABLE INCOME. RESULTANTLY, WH ILE RULE 8D(2)(II) ADMITTEDLY SEEKS TO ALLOCATE EXPENDITURE BY WAY OF INTEREST, WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT IT ENDS UP ALLOCATING EXPENDITURE BY WAY OF INTEREST, WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, PLUS INTEREST WHICH IS DIRECTLY ATTRIBUTABLE TO TAXABLE INCOME (EMPHASIS BY UNDERLINING SUPPLIED BY US). THIS INCONGRUITY WILL BE MORE GLARING WITH THE HELP OF FOLLOWING SIMPLE EXAMPLE: IN THE CASE OF A & CO LTD, TOTAL INTEREST EXPENDITURE IS ` 1,00,000, OUT OF WHICH INTEREST EXPENDITURE IN RESPECT OF ACQUIRING SHARES FROM WHICH TAX FREE DIVIDEND EARNED IS ` 10,000. OUT OF THE BALANCE ` 90,000, THE ASSESSEE HAS PAID INTEREST OF ` 80,000 FOR FACTORY BUILDING CONSTRUCTION WHICH CLEARLY RELATES TO THE TAXABLE INCOME. THE INTEREST EXPENDITURE WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR RECEIPT OR INCOME IS THUS ONLY ` 10,000. HOWEVER, IN TERMS OF THE FORMULA IN RULE 8D (2)(II), ALLOCATION OF INTER EST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULA R INCOME OR RECEIPT WILL BE FOR ` 90,000 BECAUSE, AS PER FORMULA THE VALUE OF A (I.E. SUCH INTEREST EXPENSES TO BE ALLOCATED BETWEEN TAX EXEMPT AND TAXABLE INCOME) WILL BE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE ITA NO.673/2017 :- 7 -: AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) [ I.E. DI RECT INTEREST EXPENSES FOR TAX EXEMPT INCOME] INCURRED DURING THE PREVIOUS YEAR. LET US SAY THE ASSETS RELATING TO TAXABLE INCOME AND TAX EXEMPT INCOME ARE IN THE RATIO OF 4:1. IN SUCH A CASE, THE INTERE ST DISALLOWABLE UNDER RULE 8 D(2)(II) WILL BE ` 18,000 WHEREAS ENTIRE COMMON INTEREST EXPENDITURE WILL ONLY BE ` 10,000/-. 13. THE INCONGRUITY ARISES BECAUSE, AS THE WORDINGS OF RULE 8D(2)(II) EXIST, OUT OF TOTAL INTEREST EXPE NSES, INTEREST EXPENSES DIRECTLY RELATABLE TO TAX EXEMPT INCOME ARE EXCLUDED, INTEREST EXPENSES DIRECTLY RELATABLE TO TAXABLE INCOME, EVEN IF ANY, ARE NOT EXCLUDED. 14. THE QUESTION THEN ARISES WHETHER WE CAN TINKER WITH THE FORMULA PRESCRIBED UNDER RULE 8D(2)(II) OF THE INCOME TAX RULES, OR CONSTRUE IT ANY OTHER MANNER OTHER THAN WHAT IS SUPPORTED BY PLAIN WORDS OF THE RULE 8 D (2)(II). 15. WE FIND THAT NOTWITHSTANDING THE RIGID WORDS OF RULE 8D(2)(II), THE STAND TAKEN BY THE REVENUE AUTHORITIES ABOUT ITS APPLICATION, AS WAS BEFORE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO LTD VS DCIT (328 ITR 81) WHEN CONSTITUTIONAL VALIDITY OF RULE 8 D WAS IN CHALLENG E, IS THAT IT IS ONLY THE INTEREST ON BORROWED FUNDS THAT WOULD BE APPORTIONED AND THE AMOUNT OF EXPENDITURE BY WAY OF INTEREST THAT WILL BE TAKEN (AS 'A' IN THE FORMULA) WILL EXCLUDE ANY EXPENDITURE BY WAY OF INTEREST WHICH IS DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT (FOR EXAMPLEANY ASPECT OF THE ASSESSEE'S BUSINESS SUCH AS PLANT/MACHINERY ETC.). THEREFORE, IT IS NOT ONLY THE INTEREST DIRECTLY ATTRIBUTABLE TO TAX EXEMPT INCOME, I.E. UNDER RULE 6D(2)(I), BUT ALSO INTEREST DIRECTLY RELATABLE TO TAXABLE INCOME, WHICH IS TO B E EXCLUDED FROM THE DEFINITION OF VARIABLE A IN FORMULA AS PER RULE 6D(2)(II), AND RIGHTLY SO, BECAUSE IT IS ONLY THEN THAT COMMON INTEREST EXPENSES, WHICH ARE TO BE ALLOCATED AS INDIRECTLY RELATABLE TO TAXABLE INCOME AND TAX EXEMPT INCOME, ITA NO.673/2017 :- 8 -: CAN BE COMPUTED. THIS IS CLEAR FROM THE FOLLOWING OBSERVATIONS MADE BY THEIR LORDSHIPS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE (SUPRA): 60. IN THE AFFIDAVIT-IN-REPLY THAT HAS BEEN FILED O N BEHALF OF THE REVENUE AN EXPLANATION HAS BEEN PROVIDED OF THE RATIONALE UNDERLYING R. 8D. IN THE WRITTEN SUBMISSIONS WHICH HAVE BEEN FILED BY THE ADDL. SOLICITOR GENERAL IT HAS BEEN STATED, WITH REFERENCE TO R. 8D(2)(II) THAT SINCE FUNDS ARE FUNGIBLE, IT WOULD BE DIFFICULT TO ALLOCATE THE ACT UAL QUANTUM OF BORROWED FUNDS THAT HAVE BEEN USED FOR MAKING TAX-FREE INVESTMENTS. IT IS ONLY THE INTERES T ON BORROWED FUNDS THAT WOULD BE APPORTIONED AND THE AMOUNT OF EXPENDITURE BY WAY OF INTEREST THAT WILL BE TAKEN (AS 'A' IN THE FORMULA) WILL EXCLUDE ANY EXPENDITURE BY WAY OF INTEREST WHICH IS DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT (F OR EXAMPLEANY ASPECT OF THE ASSESSEE'S BUSINESS SUCH AS PLANT/MACHINERY ETC.) THE JUSTIFICATION THAT HAS BEEN OFFERED IN SUPPORT OF T HE RATIONALE FOR R. 8D CANNOT BE REGARDED AS BEING CAPRICIOUS, PERVERSE OR ARBITRARY. APPLYING THE TESTS FORMULATED BY THE SUPREME COURT IT IS NOT POSSIBLE FOR THIS COURT TO HOLD THAT THER E IS WRIT ON THE STATUTE OR ON THE SUBORDINATE LEGISLATI ON PERVERSITY, CAPRICE OR IRRATIONALITY. THERE IS CERT AINLY NO 'MADNESS IN THE METHOD'. 16. ONCE THE REVENUE AUTHORITIES HAVE TAKEN A PARTICULAR STAND ABOUT THE APPLICABILITY OF FORMULA SET OUT IN RULE 8 D(2)(II), AND BASED ON SUCH A STA ND CONSTITUTIONAL VALIDITY IS UPHELD BY HONBLE HIGH COURT, IT CANNOT BE OPEN TO REVENUE AUTHORITIES TO TAKE ANY OTHER STAND ON THE ISSUE WITH REGARD TO TH E ACTUAL IMPLEMENTATION OF THE FORMULA IN THE CASE OF ANY ASSESSEE. VIEWED THUS, THE CORRECT APPLICATION OF THE FORMULA SET OUT IN RULE 8D(2)(II) IS THAT, A S HAS BEEN NOTED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE (SUPRA), AMOUNT OF EXPENDITURE BY WAY OF INTEREST THAT WILL BE TAKEN (AS 'A' IN THE FORMULA) WILL EXCLUDE ANY EXPENDITURE BY WAY OF INTEREST WHICH IS ITA NO.673/2017 :- 9 -: DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT (FOR EXAMPLEANY ASPECT OF THE ASSESSEE'S BUSINESS SUCH AS PLANT/MACHINERY ETC.) . ACCORDINGLY, EVEN BY REVENUES OWN ADMISSION, INTEREST EXPENSES DIRECTLY ATTRIBUTABLE TO TAX EXEMPT INCOME AS ALSO DIRECTLY ATTRIBUTABLE TO TAXABLE INCOME, ARE REQUIRED TO BE EXCLUDED FROM COMPUTATION OF COMMON INTEREST EXPENSES TO BE ALLOCATED UNDER RULE 8D(2)(II). 17. TO THE ABOVE EXTENT, THEREFORE, WE HAVE TO PROCEED ON THE BASIS THAT RIGOUR OF RULE 8 D (2)(II ) IS RELAXED IN ACTUAL IMPLEMENTATION, AND REVENUE AUTHORITIES, HAVING TAKEN THAT STAND WHEN CONSTITUTIONAL VALIDITY OF RULE 8 D WAS IN CHALLENG E BEFORE HONBLE HIGH COURT, CANNOT NOW DECLINE THE SAME. IDEALLY, IT IS FOR THE CENTRAL BOARD OF DIREC T TAXES TO MAKE THE POSITION CLEAR ONE WAY OR THE OTHER EITHER BY INITIATING SUITABLE AMENDMENT TO RU LE 8D(2)(II) OR BY ADOPTING AN INTERPRETATION AS PER PLAIN WORDS OF THE SAID RULE, BUT EVEN ON THE FACE OF THINGS AS THEY ARE AT PRESENT , IN OUR HUMBLE UNDERSTANDING, REVENUE AUTHORITIES CANNOT TAKE ONE STAND WHEN DEMONSTRATING LACK OF PERVERSITY, CAPRICE OR IRRATIONALITY IN RULE 8D BEFORE HONBLE HIGH COURT, AND TAKE ANOTHER STAND WHEN IT COMES TO ACTUAL IMPLEMENTATION OF THE RULE IN REAL LIFE SITUATIONS. THEREFORE, EVEN AS WE ARE ALIVE TO THE FACT THAT THE STAND OF THE LEARNED DEPARTMENTAL REPRESENTATIVE IS IN ACCORDANCE WITH THE STRICT WORDING OF RULE 8D(2)(II), WE HAVE TO HOLD THAT, FO R THE REASONS SET OUT ABOVE, THIS RIGID STAND CANNOT BE APPLIED IN PRACTICE. 13. IN VIEW OF THE DECISION OF THE CALCUTTA BENCH O F THIS TRIBUNAL CITED ABOVE, WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN EXCLUDING T HE INTEREST ON BANK LOAN AND TERM LOANS FOR THE PURPOS E OF COMPUTING DISALLOWANCE UNDER RULE 8D(2)(II). THE GR OUNDS RAISED BY THE REVENUE ARE REJECTED ON THIS ISSUE. 10. IN VIEW OF THE ABOVE DECISION, WE ARE OF THE O PINION THAT THE INTEREST ON BORROWING WHICH ARE MADE FOR SPECIF IC PURPOSE OF BUSINESS CANNOT BE CONSIDERED FOR THE PURPOSE OF RU LE 8D OF THE ITA NO.673/2017 :- 10 - : INCOME TAX RULES. FURTHER, INVESTMENTS IN SISTER CO NCERNS OR SUBSIDIARIES WITH WHICH THE ASSESSEE IS HAVING BUSI NESS TRANSACTIONS, THAT INVESTMENTS CANNOT BE CONSIDERED FOR THE PURPOSE OF APPLICABILITY OF RULE-8D. FOR THIS PROP OSITION WE RELY ON THE JUDGMENTS OF TRIBUNAL IN THE CASE OF SUN TV NE TWORKS IN ITA NO.1340 & 1341/MDS./15 & 1578 TO 1579/MDS,/15 WHERE IN HELD THAT:- 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EI THER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE MAIN CONTENTION OF THE ASSESSEE IS THAT THE AVA ILABLE SHARE CAPITAL INCLUDING RESERVES AND SURPLUS WAS `2 385.7 CRORES AS ON 31.03.2010. THE AVAILABLE SHARE CAPITA L IS `1970.4 CRORES AND RESERVES AND SURPLUS IS ` 21,886 .7 CRORES. THE INVESTMENTS MADE IN MUTUAL FUNDS INCLUD ING SUBSIDIARY COMPANIES ARE ONLY `541.11 CRORES. THERE FORE, IT CANNOT BE SAID THAT THE ASSESSEE HAS DIVERTED THE B ORROWED FUNDS FOR MAKING ANY INVESTMENT EITHER IN THE SISTE R CONCERNS OR IN THE MUTUAL FUNDS. WHEN THE ASSESSEE HAS SUFFICIENT SHARE CAPITAL, RESERVES AND SURPLUS, THI S TRIBUNAL IS OF THE CONSIDERED OPINION THAT THERE CANNOT BE A NY DISALLOWANCE TOWARDS THE INTEREST PAID ON THE BORRO WED FUNDS UNDER SECTION 14A OF THE ACT. FOR THE PURPOSE OF DISALLOWING INTEREST INCOME UNDER SECTION 14A READ WITH RULE 8D, THERE SHOULD BE NEXUS BETWEEN THE BORROWED FUNDS AND INVESTMENT MADE BY THE ASSESSEE IN THE SH ARE CAPITAL AND MUTUAL FUNDS. IN THE ABSENCE OF ANY NEX US, THE PRESUMPTION IS THAT THE ASSESSEE HAS INVESTED THE A VAILABLE INTEREST-FREE FUNDS IN SHARE CAPITAL AND MUTUAL FUN DS. FURTHERMORE, MAKING INVESTMENT IN SISTER CONCERNS I S FOR COMMERCIAL EXPEDIENCY IN VIEW OF THE JUDGMENT OF AP EX COURT IN S.A. BUILDERS LTD. V. CIT (2007) 288 ITR 1 . IT IS NOT THE CASE OF THE REVENUE THAT THE SISTER CONCERN OR ANY OF THE DIRECTORS HAS MISUSED THE FUNDS INVESTED BY THE ASSESSEE. WHEN THE SISTER CONCERN USES THE FUNDS ON LY FOR BUSINESS PURPOSE, THERE WAS COMMERCIAL EXPEDIENCY F OR MAKING INVESTMENT. THEREFORE, THIS TRIBUNAL IS OF T HE CONSIDERED OPINION THAT THERE CANNOT BE ANY DISALLO WANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF T HE INCOME-TAX RULES, 1962. 13. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS UNABLE T O UPHOLD THE ORDERS OF THE LOWER AUTHORITIES. ACCORDINGLY, T HE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE. THE ENTIRE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. ITA NO.673/2017 :- 11 - : 10.1 WE ALSO RELY IN THE CASE OF BEACH MINERS CO. PVT LTD. VS. ACIT IN ITA NO.2110/MDS./14 DATED 06.08.15 WHEREIN HELD THAT: 6.1. GROUND NO.3 DISALLOWANCE OF EXPENDITURE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT FOR `3,11,34,6 30/- SINCE THE ASSESSEE HAD MADE INVESTMENTS OF `71,55,33,570/- FO R EARNING EXEMPT INCOME. AT THE OUTSET, WE FIND THAT THERE IS NO MERIT FOR THE REVENUE TO MAKE ADDITION OF `3,11,34,630/- INVOKING THE PROVIS IONS OF SECTION 14A OF THE ACT BECAUSE THE INVESTMENT MADE OF `71, 55,33,570/-, BEARS NO COST IN THE FORM OF INTEREST OR WHATSOEVER , SINCE THE FUNDS BY WHICH THE INVESTMENT IS MADE IS ASSESSEES OWN F UNDS. FURTHER, THESE INVESTMENTS ARE MADE ONLY WITH SISTER COMPANI ES OF THE ASSESSEE AND NO COST CAN BE ATTRIBUTED FOR THE MANA GEMENT OF SUCH FUNDS. THEREFORE, WE HEREBY DELETE THE ADDITION OF RS. `3,11,34,630/- MADE BY THE LD. ASSESSING OFFICER IN VOKING THE PROVISIONS OF SECTION 14A OF THE ACT. THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED IN ITS FAVOUR . 11. IN VIEW OF THE ABOVE JUDGMENTS, THE AO HAS TO CONSIDER THE ASSESSEES OWN FUND I.E. CAPITAL AND RESERVES AS AV AILABLE FOR INVESTMENT WHICH YIELDS EXEMPTED INCOME AND THEREAF TER HE SHALL APPLY THE FORMULA IN RULE 8D AND ALSO EXCLUDE INVESTMENTS IN SUBSIDIARIES AS HELD BY THE ABOVE ORDER OF CO-ORDINATE BENCH. WITH THIS OBSERVATION, WE REMIT THE ISSUE TO THE FILE OF AO FOR FRESH CONS IDERATION. HENCE, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.673/2017 :- 12 - : 4. IN VIEW OF ABOVE ORDER OF TRIBUNAL IN ASSESSEE 'S OWN CASE, WE REMIT THE ISSUE TO THE FILE OF LD. ASSESSING OFF ICER ON SIMILAR DIRECTION FOR FRESH CONSIDERATION. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 27 TH SEPTEMBER, 2017, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 27 TH SEPTEMBER, 2017. K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 3. - 1-!' / CIT(A) 5. /23- 4 / DR 2. / RESPONDENT 4. - 1 / CIT 6. 3&-5 / GF