The DCIT, Circle-8, Ahmedabad V. Sintex Industries Ltd., Ahmedabad

ITA 701/AHD/2014

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8744 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 10-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SHARMA; L P JAIN
• Keywords: Business income; Opportunity of being heard; Earning of tax free income; Rule 8D; Set aside; Capital Gains
• Section: 143(3); 14A; 80IA; 80IC; 143(2); 80IC; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (CONDUCTED THROUGH VIRTUAL COURT) BEFORE: SHRI AMARJIT SINGH, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER DY. CIT, CIRCLE-8, AHMEDABAD (APPELLANT) VS SINTEX INDUSTRIES LTD, ABHIJIT-I, 7 TH FLOOR MITHAKALI SIX ROADS, AHMEDABAD-380009 PAN: AADCS0858E (RESPONDENT) REVENUE BY: SHRI O.P. SHARMA, CIT-D.R. & SHRI L.P. JAIN, SR. D.R . ASSESSEE BY: MS. AMRIN PATHAN, A.R. DATE OF HEARING : 27-07-2021 DATE OF PRONOUNCEMENT : 29-07-202 1 /ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- THESE TWO APPEALS FILED BY REVENUE FOR A.Y. 2007-08 & 2012-13, ARISE FROM ORDER OF THE CIT(A), AHMEDABAD, IN PROC EEDINGS UNDER SECTION 143(3) R.W.S. 254 & 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. ITA NO. 701/AHD/2014 A.Y. 2007-08 ITA NOS. 701/AHD/2014 & 1708/AHD/2016 ASSESSMENT YEAR 2007-08 & 2012-13 I.T.A NOS. 701/AHD/2014 & 1708/AHD/2016 A.Y.2007- 08 & 2012-13 PAGE NO DY. CIT VS. SINTEX INDUSTRIES LTD. 2 2. THE SOLITARY GROUND OF APPEAL OF THE REVENUE DIR ECTED AGAINST THE ORDER OF LD. CIT(A) IN DELETING THE ADDITION OF RS. 1,65, 41,164/- OUT OF TOTAL DISALLOWANCE OF RS. 1,96,29,279/- MADE U/S. 14A OF THE ACT. 3. THE FACT IN BRIEF IS THAT RETURN OF INCOME DECLA RING TOTAL INCOME AT RS. 57,22,41,874/- WAS FILED ON 29 TH OCTOBER, 2007. THE CASE WAS SUBJECT TO SCRUTINY ASSESSMENT AND NOTICE U/S. 143(2) WAS ISSU ED TO THE ASSESSEE ON 2 ND JULY, 2012. IN THIS CASE, THE ORDER U/S. 143(3) OF THE ACT WAS PASSED ON 30 TH JUNE, 2008 ASSESSING TOTAL INCOME AT RS. 73,89,94,1 20/-. ON APPEAL, THE LD. CIT(A) HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSE E. THEREAFTER, THE ITAT VIDE ORDER DATED 13 TH JAN, 2012 HAS SET ASIDE THE CERTAIN ISSUE TO THE F ILE OF ASSESSING OFFICER FOR ADJUDICATING AFRESH. ON THE ISSUE CONTESTED IN THIS APPEAL IN THE ORIGINAL ASSESSMENT ORDER THE ASSESSI NG OFFICER HAS MADE AN ADDITION OF RS. 3,08,01,115/- U/S. 14A OF THE ACT. ON APPEAL, THE LD. CIT(A) HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE ON TH IS ISSUE. SUBSEQUENTLY, VIDE ORDER ITA 4092/AHD/2008 AND ITA NO. 115/AHD/20 09 DATED 13 TH JAN, 2012 THE ITAT HAS RESTORED THIS ISSUE TO THE FILE O F ASSESSING OFFICER FOR FRESH DECISION IN PARA 19 OF THE ITAT THE OBSERVATI ON MADE IS REPRODUCED AS UNDER:- '19 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. WE HAVE ALSO GONE THROUGH THE DECISIONS REFERRED TO BY THE LEARNED REPRESENTATIVE S OF BOTH THE SIDES. BOTH THE DECISIONS CITED BY BOTH THE SIDES ARE OF NON JURISDICTIONAL HIGH COURT S AND NO DECISION OF HON'BLE JURISDICTIONS! HIGH COURT OR OF HON'BLE SUPREME COURT HAS BEEN BRO UGHT TO OUR NOTICE. UNDER THIS FACTUAL POSITION, WE REMIT THE MATTER BACK TO THE FILE OF T HE A 0 FOR FRESH DECISION AFTER CONSIDERING BOTH THE AFORESAID DECISIONS I.E. HON'BLE KERALA HIGH CO URT AND HON'BLE BOMBAY HIGH COURT. THE AO SHOULD PASS NECESSARY ORDER AS PER LAW AND AS PER T HE ABOVE DISCUSSION AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS, T HE GROUND OF APPEAL OF THE ASSESSEE AND THE GROUND RAISED BY THE REVENUE ARE ALLOWED FOR STATIS TICAL PURPOSE.' DURING THE COURSE OF SET ASIDE ASSESSMENT, THE ASSE SSING OFFICER HAS STATED THAT THE HONBLE KERALA HIGH COURT IN THE CASE OF T HE CATHOLIC SYRIAN BANK I.T.A NOS. 701/AHD/2014 & 1708/AHD/2016 A.Y.2007- 08 & 2012-13 PAGE NO DY. CIT VS. SINTEX INDUSTRIES LTD. 3 273 ITR 164 HELD THAT DISALLOWANCE U/S. 14A CAN BE MADE EVEN PRIOR TO INTRODUCTION OF SUB-SECTION (2) AND SUB-SECTION (3) U/S. 14A OF THE ACT. THE ASSESSING OFFICER HAS FURTHER STATED THAT HONBLE B OMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MANUFACTURING CO. LTD. VS. DCI T 328 ITR 81 HELD THAT THE EVEN PRIOR TO ASSESSMENT YEAR 2008-09 THE ASSESSING OFFICER HAS TO ENFORCE THE PROVISION OF SUB-SECTION (1) OF SECTION 14A. THEREFORE, THE ASSESSING OFFICER HAS COMPUTED THE DISALLOWANCE U/S . 14A TO THE AMOUNT OF RS. 1,92,13,175/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE L D. CIT(A). THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE TO THE AMOUN T OF RS. 30,88,115/- AS AGREED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT ORDER. THE RELEVANT PART OF THE DECISIO N OF LD. CIT(A) IS REPRODUCED AS UNDER:- C. I AM PARTLY INCLINED WITH THE CONTENTION OF APP ELLANT THAT IN VIEW OF RATIO OF VARIOUS CASE LAWS, IN SET-ASIDE PROCEEDINGS WITH SPECIFIC DIRECTIONS, THE A.O. CANNOT EXCEED THE DISALLOWANCES AND ADDITION MADE ORIGINALLY BY HIM AS REDUCED BY LD. C IT(A)AND SUBJECT MATTER OF APPEAL BEFORE HON'BLE ITAT. FURTHER, IT IS ALSO NOT DISPUTED THAT IN ORIGINAL ASSESSMENT PROPORTIONATE EXPENDITURE WERE DISALLOWED ON THE FINDING THAT APP ELLANT DURING THE PREVIOUS YEAR EARNED DIVIDEND OF RS. 100539061 BEING EXEMPT U/S 10(35) O F THE ACT. HON'BLE ITAT WHILE SETTING ASIDE THE ISSUE MADE CLEAR DIRECTION TO CONSIDER BOTH HON 'BLE KERALA HIGH COURT AND HON'BLE BOMBAY HIGH COURT DECISION FOR DISALLOWANCE WHI CH UNDISPUTEDLY AFFIRM THE DISALLOWANCES OF DIRECT EXPENDITURE RELATABLE TO EXEMPT INCOME. THE LD. CIT(A) WHILE GIVING RELIEF ALSO HELD SIMILARLY THAT INDIRECT EXPENSES IN THE NATURE OF TRAVELLING, MISCELLANEOUS EXPENDITURE AND GENERAL EXPENSES ARE NOT REQUIRED TO BE DISALLOWED AND ONLY DIRECTOR'S REMUNERATION HAS TO BE APPORTIONED FOR SUCH EXPENSES. THE APPELLANT ON THE BASIS OF VARIOUS CASE LAWS INCLUDING HON'BLE KERALA HIGH COURT DECISION CONTENDED THAT ONLY DIRE CT EXPENSES OR EXPENSES HAVING PROXIMATE CAUSE WITH EXEMPT INCOME BE DISALLOWED. WIT H DUE REGARDS TO VARIOUS AUTHORITIES, HON'BLE BOMBAY HIGH COURT DECISION IN THE CASE OF G ODREJ & BOYCE MFG. CO. LTD. IS A RECENT DECISION AFTER DUE CONSIDERATION OF HON'BLE SUPREME COURT DECISION IN THE CASE OF WALFORT SHARE & STOCK BROKERS (P) LTD. AS WELL AS HON'BLE ITAT MUMB AI SPECIAL BENCH DECISION IN THE CASE OF DAGA CAPITAL AND MANAGEMENT LTD. THE RATIO OF THIS DECISION IS TWOFOLD I.E. FIRSTLY THE APPLICATION OF RULE 8D IS PROSPECTIVE W.E.F. 01.04.2008 AND SEC ONDLY FOR EARLIER YEARS, THE DISAIIOWANCE HAS TO BE MADE REASONABLY ON THE FACTS OF THE CASE. IT IS IN THIS REGARD, HON'BLE ITAT MUMBAI SPECIAL BENCH ORDER IN THE CASE OF DAGA CAPITAL & MANAGEMEN T LTD. BEARS AN IMPORTANT CHANGE OVER COMPARE TO ALL EARLIER YEAR DECISION AS RELIED ON B Y APPELLANT. IN DAGA CAPITAL & MANAGEMENT LTD. , IT WAS CLEARLY BROUGHT OUT AND HELD BY HON'B LE ITAT THAT IN RESPECT OF COMPUTATION OF EXPENDITURE RELATABLE TO EXEMPT INCOME U/S 14A OF T HE ACT, BOTH DIRECT AS WELL AS INDIRECT EXPENSES HAS TO BE CONSIDERED. THIS PRINCIPLE WAS P RESCRIBED BY LEGISLATURE WHILE PROMULGATING I.T.A NOS. 701/AHD/2014 & 1708/AHD/2016 A.Y.2007- 08 & 2012-13 PAGE NO DY. CIT VS. SINTEX INDUSTRIES LTD. 4 RULE 8D IN THIS REGARD. OTHERWISE ALSO, IN A COMPOS ITE AND COMPLEX BUSINESS OF AN APPELLANT WHERE NO SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED O F VARIOUS BUSINESS CARRIED ON BY APPELLANT, IT CANNOT BE STATED THAT IT IS ONLY DIRECT EXPENSES WH ICH ARE RELATABLE TO ONE TYPE OF INCOME. THE ENTIRE WORK FORCE, MACHINERY IN THE FORM OF OFFICE BUILDING & OVER HEAD EXPENSES ARE ALSO HAVE AN ELEMENT OF EXPENDITURE IN THE FORM OF OPPORTUNITY C OST RELATABLE TO THAT INCOME. D. CONSIDERING THE ABOVE DECISION, I AM INCLINED WI TH THE CONTENTION OF APPELLANT THAT DISALLOWANCES MADE BY A.O. FOLLOWING RULE 8D ARE NE ITHER JUSTIFIED NOR SUSTAINABLE SINCE FOR THE IMPUNGED ASSESSMENT YEAR, RULE 8D IS NOT APPLICABLE AND COMPUTING DISALLOWANCES OUT OF INTEREST PAYMENT IS EXCEEDING THE JURISDICTION AS GRANTED BY HON'BLE ITAT DIRECTION. BUT, I AM INCLINED WITH THE A.O. THAT DISALLOWANCES HAS TO BE MADE BOT H FOR DIRECT AND INDIRECT EXPENSES. IT IS THEREFORE FOLLOWING THE RATIO OF HON'BLE BOMBAY HIG H COURT DECISION IN THE CASE OF GODREJ & BOYCE, A REASONABLE DISALLOWANCES HAS TO BE MADE. I T IS IN THIS REGARD IN MY VIEW THE AO IN THE ORIGINAL ASSESSMENT ADOPTED A REASONABLE VIEW THAT ON THE BASIS OF PROPORTION OF DIVIDEND INCOME TO TOTAL SALES I.E. 0.83%, DIRECTOR REMUNERATION, T RAVELLING EXPENDITURE OF RS. 501.33 LAC AND OTHER ADMINISTRATIVE AND MISCELLANEOUS EXPENDITURE OF RS 3219.29 LAC, REQUIRES DISALLOWANCE OF RS. 3088115 (0.83% OF RS. 3720.62 I.E. 501.33 + 3219.29 ). DURING THE COURSE OF HEARING IN APPEAL PROCEEDINGS ON 21/11/2013 THE AUTH. REP. WHEN CONFR ONTED AND DISCUSSED WITH REASONS & RATIO OF HON'BLE BOMBAY HIGH COURT DECISION OF GODREJ & BOYC E WITH SPECIAL BENCH ORDER OF DAGA CAPITAL & MANAGEMENT LTD., HE AGREED FOR DISALLOWANCES OF R S. 3088115/-AS MADE BY A.O. IN ORIGINAL ASSESSMENT. IT IS THEREFORE THE DISALLOWANCES AND A DDITION OF RS. 3088115/- ARE UPHELD AND CONFIRMED. THE A.O. IS DIRECTED TO DELETE THE BALAN CE ADDITION OF RS. 1,65,41,164/- (19629279 - 3088115). THE APPELLANT GETS PART RELIEF. THIS GROU ND IS PARTLY ALLOWED. 5. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFOR E US, THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF ASSESSING OFFICER. ON THE OTHER HAND, LD. COUNSEL HAS CONTENDED THAT A PPLICABILITY OF RULE 8D WAS PROSPECTIVE IN NATURE AND CANNOT BE APPLIED IN ASSESSMENT YEAR PRIOR 2008-09. THE LD. COUNSEL HAS ALSO REFERRED THE DE CISION OF HONBLE SUPREME COURT IN THE CASE OF S.R. TELE HOLDING LTD. (2018) 90 TAXMANN.COM 2 (SC) 6. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. IN THE ORIGINAL ASSESSMENT ORDER, THE ASSESSING OFFICER HA S MADE DISALLOWANCE U/S. 14A TO THE AMOUNT OF RS. 30,880,115/-. HOWEVER, TH E LD. CIT(A) HAS RESTRICTED THE SAME TO THE AMOUNT OF RS. 26,72,011/ -, THE ITAT AHMEDABAD HAS SET ASIDE THE ISSUE TO THE FILE OF ASSESSING OF FICER FOR DECIDING AFRESH AFTER CONSIDERING THE RATIO OF JUDGMENT OF HONBLE KERALA HIGH COURT IN THE CASE OF THE CATHOLIC SYRIAN BANK SUPRA AND GODREJ BOYCE MANUFACTURING COMPANY LTD. SUPRA. IN THE SET ASIDE PROCEEDINGS, THE ASSESSING OFFICER HAS I.T.A NOS. 701/AHD/2014 & 1708/AHD/2016 A.Y.2007- 08 & 2012-13 PAGE NO DY. CIT VS. SINTEX INDUSTRIES LTD. 5 COMPUTED THE DISALLOWANCE AFTER APPLYING RULE 8D TO THE AMOUNT OF RS. 1,92,13,175/- WHICH WAS CONSISTING OF DISALLOWANCE OUT OF INTEREST EXPENSES OF RS. 725.58 LACS AND OUT OF ADMINISTRATIVE EXPEND ITURE OF RS. 1817.59 LACS. DURING THE COURSE OF ASSESSMENT, THE LD. CIT(A) HAS HELD THAT IN VIEW OF THE RATIO OF VARIOUS CASE LAWS IN SET ASIDE PROCEEDINGS WITH SPECIFIC DIRECTIONS, THE ASSESSING OFFICER CANNOT EXCEED THE DISALLOWANC E AND ADDITION MADE IN THE ORIGINAL ASSESSMENT ORDER AS REDUCED BY THE LD. CIT(A) WHICH WAS SUBJECT MATTER BEFORE THE ITAT. THE LD. CIT(A) HAS ALSO REFERRED THE DECISION OF ITAT BOMBAY SPECIAL BENCH IN THE CASE O F DAGA CAPITAL AND MANAGEMENT LTD. THAT THE APPLICABILITY OF RULE 8D I S PROSPECTIVE W.E.F. 1 ST APRIL, 2008 AND FOR EARLIER YEARS THE DISALLOWANCE HAS TO BE MADE REASONABLY ON FACT OF THE CASE. TAKING INTO CONSIDERATION, TH E AFORESAID FACTS AND JUDICIAL FINDING, THE LD. CIT(A) HAS STATED THAT IN THE ORIGINAL ORDER, THE ASSESSING OFFICER HAS ADOPTED A REASONABLE VIEW ON THE BASIS OF PROPORTION OF DIVIDEND INCOME TO TOTAL SALES I.E. 0.83 LACS, D IRECTORS REMUNERATION, TRAVELLING EXPENDITURE OF RS. 501.33 LACS AND OTHER ADMINISTRATIVE AND MISCELLANEOUS EXPENDITURE OF RS. 3219.29 LACS WHICH REQUIRED DISALLOWANCE TO THE AMOUNT OF RS. 30,88,115/-. WITH THE ASSISTA NCE OF LD. REPRESENTATIVES, WE HAVE ALSO PERUSED THE DECISION OF HONBLE SUPREM E COURT IN THE CASE OF CIT AHMEDABAD VS. S. R. TELE HOLDING PVT. LTD. (20 18) 90 TAXMAN.COM 2 (SC) WHEREIN IT IS HELD THAT RULE 8D IS PROSPECTIVE IN OPERATION AND CANNOT BE APPLIED TO ANY ASSESSMENT YEAR PRIOR TO ASSESSMENT YEAR 2008-09. AFTER TAKING INTO CONSIDERATION THE DECISION OF HONBLE S UPREME COURT AS REFERRED ABOVE AND FINDINGS OF LD. CIT(A) AS ELABORATED ABOV E, WE DO NOT FIND ANY INFIRMITY IN THE FINDING OF LD. CIT(A), THEREFORE, THE APPEAL OF THE REVENUE IS DISMISSED. I.T.A NOS. 701/AHD/2014 & 1708/AHD/2016 A.Y.2007- 08 & 2012-13 PAGE NO DY. CIT VS. SINTEX INDUSTRIES LTD. 6 ITA NO. 1708/AHD/2016 A.Y. 2012-13 7. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL:- 1) 'WHETHER THE LD. CIT(A) HAS ERRED IN LAW ON THE FACTS IN DELETING THE DISALLOWANCE OF DEDUCTION U/S. 80IC OF THE ACT MADE BY THE A.O. UNDER THE HEA DS; INTEREST & FINANCE CHARGES. SALARY EXPENSES, COMMON EXPENSES AND COMMON EXPENSES OF CO RPORATE & PLASTIC DIVISION.' 2) 'WHETHER THE LD. CIT(A) HAS ERRED IN LAW O N THE FACTS IN DELETING THE DISALLOWANCE MADE BY THE A.O. U/S. 14A OF THE ACT OF RS. 24,36,72,136/-. ' 8. THE FACT IN BRIEF IS THAT RETURN OF INCOME DECLA RING INCOME OF RS. 232,33,69,640/- WAS FILED ON 27 TH SEP, 2012. THE CASE WAS SUBJECT TO SCRUTINY ASSESSMENT AND NOTICE U/S. 143(2) OF THE A CT WAS ISSUED ON 2 ND SEP, 2013. THE RELEVANT FACT PERTAINING TO THE ISSUES C ONTESTED IN THE INSTANT APPEAL ARE DISCUSSED WHILE ADJUDICATING THE TWO GRO UNDS OF APPEAL OF THE REVENUE AS UNDER:- GROUND NO. 1 (DELETING DISALLOWANCE U/S. 80IC) 9. DURING THE COURSE OF ASSESSMENT, THE ASSESSING O FFICER CLAIMED DEDUCTION AMOUNTING TO RS. 4,80,00,550/- U/S. 80IC OF THE ACT IN RESPECT OF NALAGARH UNIT (100% OF ELIGIBLE PROFIT OF RS. 4,80, 00,550/-). AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE THE ASSE SSING OFFICER STATED THAT ASSESSEE HAS CLAIMED INTEREST/FINANCIAL CHARGES OF RS. 331.92 LACS IN THE NALAGARH UNIT. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE COMPANY HAS A COMMON POOL OF FUNDS AS WELL AS COMMON BANK ACCOUNT S FOR ITS ENTIRE BUSINESS BEING CARRIED FROM HEAD OFFICE THEREFORE H E WAS OF THE VIEW THAT INTEREST EXPENDITURE CHARGED TO P & L ACCOUNT NEEDS TO BE PROPORTIONATELY ALLOCATED IN THE RATIO OF SALES ON SUCH INDUSTRIAL UNDERTAKING FOR WORKING OUT ELIGIBLE PROFIT FOR DEDUCTION U/S. 80IC OF THE ACT. THEREFORE, THE ASSESSING OFFICER HAS ALLOCATED AN AMOUNT OF RS. 265.22 LACS TO THE NALAGARH UNIT. I.T.A NOS. 701/AHD/2014 & 1708/AHD/2016 A.Y.2007- 08 & 2012-13 PAGE NO DY. CIT VS. SINTEX INDUSTRIES LTD. 7 IN RESPECT OF SALARY EXPENSES INCLUDING DIRECTORS REMUNERATION, DIRECTORS CONTRIBUTION TO P & F AND WELFARE EXPENS ES OF RS. 2883.29 LACS, THE ASSESSEE HAS ALLOCATED SALARY EXPENSES OF RS. 4 42.85 LACS TO THE ACCOUNT OF NALAGARDH UNIT. HOWEVER, THE ASSESSING OFFICER HAS MADE FURTHER ALLOCATION ON THE BASIS OF RATIO ON SALES OF SALARY EXPENSES AT RS. 178.46 LACS IN THE CASE OF NALAGARH UNIT FOR WORKING OUT ELIGIB LE INCOME REDUCTION U/S. 80IC. IN RESPECT OF COMMON HEAD EXPENSES, THE ASSESSING OFFICER STATED THAT AS PER THE DETAIL SUBMITTED BY THE ASSESSEE IT HAS ALLOCATED COMMON HEAD EXPENSES OF RS. 4.52 LACS ONLY TO THE NALAGARH UNIT . HOWEVER, THE ASSESSING OFFICER ON THE BASIS OF RATIO OF TURNOVER ALLOCATED FURTHER RS. 7.47 LACS ON COMMON HEAD OFFICE EXPENSES FOR DETERMINING CLAIM O F DEDUCTION U/S. 80IC OF THE ACT TO THE NALAGARH UNIT. THE ASSESSING OFFICER HAS FURTHER OBSERVED THAT ASS ESSEE HAS ALLOCATED PLASTIC DIVISION EXPENSES TO THE AMOUNT OF RS. 412. 24 LACS TO THE NALAGARH UNIT. HOWEVER, THE ASSESSING OFFICER HAS RECOMPUTE D SUCH EXPENSES ON THE BASIS OF RATIO OF TURNOVER TO THE AMOUNT OF RS. 5.0 843/- LACS ACCORDINGLY MADE FURTHER DISALLOWANCE OF RS. 96.11 LACS FOR COM PUTING CLAIM OF DEDUCTION U/S. 80IC OF THE ACT IN THE CASE OF NALAG ARH UNIT. 10. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE T HE LD. CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE AFTER FOLLOWING THE DECISION OF THE ITAT IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2009-10 AND 2010- 11. THE RELEVANT PART OF THE DECISION OF LD. CIT(A ) IS REPRODUCED AS UNDER:- IN VIEW OF THE FINDING OF CIT(A) AND ITS CONFIRMAT ION BY HON'BLE ITAT, AHMEDABAD, THE ADDITION MADE ON THE BASIS OF ALLOCATION OF INT EREST FINANCIAL CHARGES IN NALAGARH UNIT MADE ON THE BASIS OF SALES/TURNOVER RATIO IS UNCALLED FO R. THE APPELLANT HAS ALREADY ALLOCATED THE INTEREST AND FINANCE CHARGES OF RS.331.92 LACS BASE D ON INVESTMENT RATIO, WHICH IS TREATED AS A I.T.A NOS. 701/AHD/2014 & 1708/AHD/2016 A.Y.2007- 08 & 2012-13 PAGE NO DY. CIT VS. SINTEX INDUSTRIES LTD. 8 JUSTIFIED METHOD FOR, ALLOCATION OF THE EXPENSES BY THE CIT(A) IN EARLIER ASSESSMENT YEARS AND ALSO CONFIRMED BY THE HON'BLE ITAT AS QUOTED ABOVE. AS T HE FACTS AND CIRCUMSTANCES OF THE CASE UNDER APPEAL FOR THE A.Y.2012-13 ARE EXACTLY THE SAME. I FIND NO REASON TO DEVIATE FROM THE FINDINGS OF HON'BLE ITAT. THE AO IS DIRECTED TO DELETE THE ADDI TION OF RS.265.22 LACS MADE UNDER THE HEAD INTEREST. ACCORDINGLY, THE GROUND OF APPEAL NO.2 IS ALLOWED. IN VIEW OF THE FINDINGS OF C1T(A) AND CONFIRMATION BY HON'BLE ITAT, AHMEDABAD, THE ADDITIONS MADE ON THE BASIS OF ALLOCATION ON THE IS SUE OF SALARY EXPENSES , COMMON HEAD OFFICE EXPENSES, PLASTIC DIVISION EXPENSE'S IN NALAGARH UN IT MADE ON THE BASIS OF SALES/TURNOVER RATIO IS UNCALLED FOR. THE APPELLANT HAS ALREADY ALLOCATED T HE SALARY EXPENSES OF RS.442.85 LACS WHICH IS MUCH MORE THAN THE WORKED OUT BY THE AO, RS.4.52 LA CS IN THE HEAD OF COMMON HEAD OFFICE EXPENSES AND RS.412.24 LACS IN PLASTIC DIVISION EXP ENSES BASED ON INVESTMENT RATIO WHICH IS TREATED AS A JUSTIFIED METHOD FOR ALLOCATION OF THE EXPENSES BY THE CIT(A) IN EARLIER ASSESSMENT YEARS AND ALSO CONFIRMED BY THE HON'BLE ITAT AS QUO TED ABOVE. AS THE FACTS AND CIRCUMSTANCES OF THE CASE UNDER APPEAL FOR THE A.Y.2012-13 ARE EXACT LY THE SAME, I FIND NO REASON TO DEVIATE FROM THE FINDINGS OF HON'BLE ITAT. THE AO IS DIRECTED TO DELETE THE ADDITION OF RS. 178.48 LACS, RS.7.47 LACS AND RS.96.19 LACS MADE UNDER THE HEAD THE ISSU E OF SALARY EXPENSES , COMMON HEAD OFFICE EXPENSES AND PLASTIC DIVISION EXPENSES. ACCORDINGLY , THE GROUNDS OF APPEAL NO.3, 4 & 5 ARE ALLOWED. 11. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS CONTENDED THAT IDENTICAL ISSUE ON SIMILAR FACTS HAS BEEN ADJUDICATED BY THE ITAT AHMEDABAD ITSELF IN ASSESSMENT YEAR 2011-1 2 VIDE ITA NO. 2786/AHD/2014 ORDER DATED 08-04-2021. HE HAS SUPPO RTED THE ORDER OF LD. CIT(A). THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT CONTROVERT THIS UNDISPUTED FACT THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AS PER THE DECISION OF THE ITAT REFERRED ABOVE IN THE CASE OF THE ASSESSEE ITSELF. WITH THE ASSISTANCE OF LD. REPRESENTATIVES WE HAVE GONE THROUGH THE DECISION OF HONBLE ITAT IN THE CASE OF ASSESSEE ITSELF FOR ASS ESSMENT YEAR 2010-11 VIDE ITA NO. 1548/AHD/2012 DATED 18-03-2016 AND VIDE ITA NO. 2786/AHD/2014 DATED 08-04-2021. IT IS OBSERVED THAT SIMILAR ISSUE ON IDENTICAL FACTS HAS BEEN ADJUDICATED IN FAVOUR OF T HE ASSESSEE. THE RELEVANT PART OF THE DECISION OF THE ITAT FOR ASSESSMENT YEA R 2011-12 IS REPRODUCED AS UNDER:- 7. WITH THE ASSISTANCE OF REPRESENTATIVES, WE HAVE GONE THOUGH THE DECISION OF CO-ORDINATE BENCH OF THE ITAT VIDE ITA NO. 1548/AHD/2012 IN TH E CASE OF THE ASSESSEE ITSELF ON IDENTICAL FACTS/SIMILAR ISSUE AND NOTICED THAT ALLOCATION OF COMMON INTEREST FINANCIAL CHARGES, COMMON HEAD EXPENSES AND ALLOCATION OF PLASTIC AND CORPORATE DI VISION EXPENSES WERE ADJUDICATED IN FAVOUR OF I.T.A NOS. 701/AHD/2014 & 1708/AHD/2016 A.Y.2007- 08 & 2012-13 PAGE NO DY. CIT VS. SINTEX INDUSTRIES LTD. 9 THE ASSESSEE VIDE ORDER OF THE ITAT FOR ASSESSMENT YEAR 2010-11 VIDE ITA NO. 1548/AHD/2012. THE RELEVANT PART OF THE DECISION OF THE ITAT IS DI SCUSSED AS UNDER:- IN RESPECT OF ALLOCATION OF COMMON INTEREST AND FINANCIAL CHARGES:- 17. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD CAREFULLY. THE CASE OF THE ASSESSEE IS THAT FINANCIAL CHARGES CANNOT BE ALLOCATED IN THE RATIO OF SALES, BECAUSE, THE SALES HAVE NO DIRECT INFLUENCE ON THE INTEREST EXPE NDITURE. THE FINANCIAL CHARGES ARE RELEVANT TO THE INVESTMENT MADE BY AN ASSESSEE. IN OTHER WORDS, SUPPOSE AN ASSESSEE HAS MADE INVESTMENT AFTER BORROWING FUNDS DUE TO SOME REASON OR MARKET CONDITIONS HE COULD NOT EFFECT THE SALES, THEN, IF WE GO BY THE LOGIC OF THE AO, THERE WOULD BE A L ESSER ALLOCATION. THE ASSESSEE HAS ALLOCATED THE EXPENDITURE ON ACCOUNT OF FINANCIAL CHARGES, KEEPIN G IN VIEW THE INVESTMENT IN BHADDI UNITS. IN OTHER WORDS, THESE ARE DIRECT EXPENDITURE RELATABLE TO BHADDI UNITS. THEREFORE, THE ID.CIT(A) HAS RIGHTLY DELETED THE ALLOCATION OF INTEREST/FINANCIA L CHARGES IN THE BHADDI MADE ON THE BASIS OF SALES RATIO. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE ID.CIT(A) ON THIS ISSUE. ALLOCATION OF COMMON HEAD EXPENSES:- 25. WITH THE ASSISTANCE OF THE LD. REPRESENTATIVE S, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THERE IS NO DISPUTE WITH REGARD TO THE PROPOSITION THAT IF ANY UNIT, WHICH IS ENTITLED FOR DEDUCTION UNDER CHAPTER-VI OF THE INCOME TAX ACT VIZ. 80IA OR 80IC IN THE PRESENT CASE, IF AVAILS THE BENEFIT OF CERTAIN FACILITIES FOR WHICH THE EXPENSES ARE IN CURRED UNDER COMMON POOL, THEN A PROPORTIONATE ALLOCATION, ACCORDING TO THE SCIENTIFIC METHOD, OUG HT TO BE MADE, WHILE DEALING WITH THE ISSUE FOR THE PURPOSE OF ALLOCATION UNDER SECTION 80IA IS CON CERNED, WE HAVE UPHELD THE ALLOCATION IN THE RATIO OF TURNOVER. SIMILARLY, WE HAVE NOT UPHOLD TH E ALLOCATION OF FINANCIAL CHARGES IN THE RATIO OF SALES MADE FROM THE PRODUCTS OF 80IC UNITS VIS-A-VI S THE TOTAL SALES MADE BY THE COMPANY, BECAUSE, WE HAVE OBSERVED THAT SUCH EXPENDITURE IS TO BE WORKED OUT ON THE BASIS OF ACTUAL INVESTMENT MADE IN 80IC UNITS. WITH THIS ANALOGY, W HEN WE EXAMINE THE DETAILS, FOR THE PURPOSE OF ALLOCATION UNDER THE PRESENT HEAD, THEN IT WOULD RE VEAL THAT THE ASSESSEE HAS BEEN MAINTAINING SEPARATE ACCOUNTS FOR THESE UNITS. IT HAS DEBITED E XPENDITURE ON ACTUAL BASIS. THE AO DID NOT FIND ANY ERROR IN THAT ATTRIBUTION. HE SIMPLY JUMPED TO MAKE ALLOCATION ON THE BASIS OF SALES MADE BY THESE UNITS VIS-A-VIS THE TOTAL SALES. THAT IS NOT A SCIENTIFIC 'CRITERIA FOR MAKING DISALLOWANCE. THE ID.CIT(A) HAS ACCEPTED THE CONTENTION OF THE ASSESS EE, IT HAS CONSIDERED ALL THESE EXPENDITURE, AND WHERE THERE IS A DIRECT NEXUS WITH THE ACTIVITY OF 80IC UNITS, VIS-A-VIS THIS EXPENDITURE, IT HAS ALREADY MADE DISALLOWANCE. LET US TAKE AN EXAMPLE. AS FAR AS SECURITY CHARGES ARE CONCERNED, THE ASSESSEE ALREADY ACCOUNTED THE SECURITY CHARGES REL EVANT FOR THE PURPOSE OF 80IC UNITS. WHY ALLOCATION OUT OF THE EXPENDITURE INCURRED AT HEAD OFFICE OUGHT TO BE MADE TO THIS UNIT. SIMILARLY, IT HAS ALLOCATED OUT OF COMPUTER MAINTENANCE. THIS EXP ENDITURE WOULD RELATE TO THE COMPUTERS WHICH ARE DIRECTLY INVOLVED IN 80IC UNITS. AFTER CONSIDER ING THE ORDERS OF THE ID.CIT(A) ON THIS ISSUE, WE DO NOT FIND ANY ERROR IN THE ORDERS, AND ACCORDINGL Y, THE ORDERS OF THE-CIT(A) IN BOTH THE YEARS ARE UPHELD ON THIS ISSUE. THE ID.CIT(A) HAS RIGHTLY DEL ETED THE DISALLOWANCE MADE BY THE AO, OUT OF COMMON HEAD EXPENSES OF CORPORATE DIVISION. IN RESPECT OF PLASTIC AND CORPORATE DIVISION:- 28. WE HAVE EXAMINED THE DETAILS WITH THE ASSISTA NCE OF THE REPRESENTATIVES. IN OUR REASONING GIVEN WHILE UPHOLDING THE DELETION UT OF CERTAIN CO MMON HEAD EXPENSES, WE DO NOT FIND ANY ERROR IN DELETING THE DISALLOWANCE UNDER THESE HEAD. THE BASIC REASON IS THAT THE ASSESSEE HAS DEBITED EXPENDITURE WHICH HAS DIRECT NEXUS WITH 80IC UNITS. SUCH EXPENDITURE CANNOT BE AMPLIFIED BY CONSIDERING THE SALES RATIO. THE AO HAS NOWHERE HIG HLIGHTED, AS TO WHICH PARTICULAR FACILITY WAS USED BY THE ASSESSEE, GENERATED OUT OF COMMON HEAD EXPENSES. HE SIMPLY ADOPTED THE FIGURE OF SALES AND THEN PROCEEDED TO DISALLOW THE EXPENDITUR E. IN OUR OPINION, THE ID.AO OUGHT TO HAVE EXAMINED THIS ASPECT, AND FIND OUT THAT A PARTICULA R ITEM OF EXPENDITURE INCURRED BY E ASSESSEE AT HEAD OFFICE, WHICH HAS GIVEN BENEFIT TO 80IC UNIT, ONLY OUT OF THAT EXPENDITURE, IF HE MADE AN ALLOCATION, THEN HIS STAND COULD BE JUSTIFIED. THER EFORE, FOLLOWING OUR FINDING IN EARLIER GROUNDS, I.T.A NOS. 701/AHD/2014 & 1708/AHD/2016 A.Y.2007- 08 & 2012-13 PAGE NO DY. CIT VS. SINTEX INDUSTRIES LTD. 10 WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL O F THE REVENUE, THE ORDERS OF THE CIT(A) ON THIS ISSUE ARE UPHELD. FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THE ITAT AS SUPRA, WE DO NOT FIND ANY ERROR IN THE DECISION OF LD. CIT(A) FOR ALLOCATING COMMON INTEREST & FINANCIAL CHARGES ON THE BASIS OF INVESTMENT. SIMILAR IN RESPECT OF DELETING ADDI TION OF COMMON HEAD EXPENSES AND PLASTIC/CORPORATE DIVISION EXPENSES MADE ON SALES B ASIS, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD. CIT(A) AFTER FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH AS CITED ABOVE IN THIS ORDER. TAKING INTO CONSIDER THE FINDING OF THE CO -ORDINATE BENCH IN THE CASE OF ASSESSEE ITSELF ON THE AFORESAID ISSUES, WE DO NOT FIND ANY REASON TO INTERFERE IN THE DECISION OF LD. CIT(A), THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. AFTER CONSIDERING THE DECISION OF CO-ORDINATE BENCH OF THE ITAT AHMEDABAD IN THE CASE OF THE ASSESSEE ITSELF PERTAI NING TO THE ASSESSMENT YEAR 2010-11 AND 2011-12 ON IDENTICAL ISSUE AND FAC TS, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD. CIT(A) ON ALLOCAT ING COMMON INTEREST AND FINANCIAL CHARGES ON THE BASIS OF INVESTMENT AND DE LETING THE ADDITION OF COMMON HEAD EXPENSES AND ADMINISTRATIVE/CORPORATE D IVISION EXPENSES MADE ON SALE BASIS. THEREFORE, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE AND THE SAME STANDS DISMISSED . GROUND NO. 2 (DELETING DISALLOWANCE MADE BY ASSESSI NG OFFICER U/S. 14A OF THE ACT OF RS. 24,36,72,136/- ) 12. DURING THE COURSE OF ASSESSMENT, THE ASSES SING OFFICER NOTICED THAT ASSESSEE HAS EXEMPT INCOME BY WAY OF DIVIDEND TO TH E AMOUNT OF RS. 92.37 LACS. HOWEVER, THE ASSESSEE HAS DISALLOWED ONLY RS . 2.48 LACS FOR EARNING EXEMPT INCOME. THE ASSESSEE EXPLAINED THAT IT HAD MADE INVESTMENT IN MUTUAL FUNDS OUT OF SURPLUS INTERNAL ACCRUAL AND NO BORROWED FUNDS WERE USED, THEREFORE, NO EXPENDITURE WAS INCURRED TO EAR N EXEMPT INCOME. THE ASSESSING OFFICER HAS REJECTED THE SUBMISSION OF TH E ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING EXEMPT IN COME AND COMPUTED THE I.T.A NOS. 701/AHD/2014 & 1708/AHD/2016 A.Y.2007- 08 & 2012-13 PAGE NO DY. CIT VS. SINTEX INDUSTRIES LTD. 11 DISALLOWANCE U/S. 14A AS PER RULE 8D AT RS. 24,36, 72,137/- AND ADDED TO THE TOTAL INCOME. 13. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE T HE LD. CIT(A). THE LD. CIT(A) HAS DELETED THE ADDITION AFTER FOLLOWING THE DECISION OF ITAT AHMEDABAD IN ASSESSEES OWN CASE FOR ASSESSMENT YEA R 2009-10 AND 2011- 12 AND AFTER CONSIDERING THE FACT THAT ASSESSEE WAS HAVING SURPLUS FUND WHICH WAS INVESTED IN MUTUAL FUNDS. THE RELEVANT PA RT OF THE DECISION OF LD. CIT(A) IS REPRODUCED AS UNDER:- THE ASSESSMENT ORDER AND THE SUBMISSION OF THE APP ELLANT HAS BEEN CONSIDERED CAREFULLY. IT IS NOTICED THAT THE APPELLANT HAS ARG UED THAT THE SURPLUS 'FUND AVAILABLE WITH THE COMPANY IS INVESTED IN MUTUAL FUND. MOST OF THE INV ESTMENT IS 'GROWTH SCHEME' MUTUAL FUNDS. HE ALSO SUBMITTED THAT IN CASE OF GROWTH SCHEME NO DIV IDEND IS DECLARED BY THE MUTUAL FUNDS AND ONLY INCOME RECEIVED BY THE INVESTORS IS IN THE FORM OF CAPITAL GAIN WHICH IS TAXABLE AND NOT AN EXEMPT INCOME. DURING THE YEAR UNDER CONSIDERATION THE ASS ESSEE HAS EARNED PROFIT OF RS.18.15 CRORE ON SALE OF SUCH INVESTMENT AND SAME HAS BEEN OFFERED T O LAX. THE AR FURTHER STATED THAT, SIMILARLY, APPELLANT'S COMPANY INVESTED IN OVERSEAS SUBSIDIARY WHICH ALSO DOES NOT GENERATE ANY EXEMPT INCOME. ONL Y INCOME EARNED AS EXEMPT IS FROM THE INVESTMENT IN INDIAN COMPANIES WHICH IS TO THE TUNE OF RS.92.37 LACS. THE AR HAS REFERRED TO THE ORDER OF HON'BLE ITAT DA TED 18.03.2016 IN APPELLANT'S OWN CASE (SUPRA) FOR THE A.Y.2009-10 & 2010-11. HON'BLE ITAT HAS DECIDED THE SAME ISSUE IN DETAIL AND DECIDED AS UNDER: '37. ... ... THE INVESTMENT MADE BY THE ASSESSEE WA S NOT OUT OF INTEREST BEARING FUND. IT HAS ITS OWN SURPLUS FUND OUT OF WHICH INVESTMENT HAS BE EN MADE. THE ASSESSEE HAS DEMONSTRATED THAT IT HAD OWN FUNDS OFRS.19SL.55 CRO RES IN THE ASSTT. YEAR 2009-10 AND INVESTMENT IN THE FUND WAS ONLY RS.144.51 CRORES. T HE ASSESSEE HAS ALSO SUBMITTED THAT ITS INVESTMENT IN EARNING EXEMPT INCOME HAS BEEN REDUCE D DURING THE YEAR FROM 78.45 CRORES TO RS. 18.09 CRORES. THE ASSESSEE HAS SUBMITTED THE SE DETAILS IN ITS SUBMISSIONS REPRODUCED BY THE AO. SIMILARLY, IN THE ASSTT. YEAR 2010-11, IT HAS RESERVE FUND OFRS.2319.17 CRORES AND MADE INVESTMENT OF RS. 111. 09 CRORES. THE LD.AO HAS NOT GIVEN ANY HEED TO THESE SUBMISSIONS OR FIGURES SUBMITTED BY THE ASSESSEE. THE ASSESSEE HAS FURTHER MADE DISALLOWANCE.OF RS.5.12 LACS IN THE AS STT. YEAR 2009-10. THIS WAS MAINLY FOR MANAGEMENT OF INVESTMENT. ... ... BECAUSE, ON INTEREST EXPENSES ACCOUNT, THER E CANNOT BE ANY DISALLOWANCE AS THE ASSESSES HAS FAR MORE INTEREST FREE FUND THAN INVES TMENT. WE ARE OF THE VIEW THAT THE LD.CIT(A) HAS LOOKED INTO ALL THESE ASPECTS IN THE ASSTT. YEAR 2009-10 BEFORE DELETING THE DISALLOWANCE. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE ID.CIT(A) ON TIN'S ISSUE IN ASSIT. YEAR 2009-10. CONSEQUENTLY, WE ALLOW THE GRO UND OF APPEAL RAISED BY THE ASSESSES IN THE ASSTT. YEAR 2010-1! AND DELETE THE DISALLOWA NCE MADE BY THE AO.' HON'BLE ITAT HAS DEALT WITH THE ISSUE IN DETAIL AN D HAS DECIDED TO DELETE THE DISALLOWANCE MADE BY HIM FOR THE REASONS MENTIONED IN THE ORDER. IN VIEW OF HON'BLE ITAT'S DECISION AND OTHER JUDICIAL PRONOUNCEMENTS QUOTED B Y THE APPELLANT, THE AO IS DIRECTED TO DELETE THE DISALLOWANCE MADE U/S.L4A ON THE BASIS OF WORKI NG UNDER RULE 8D AND TO ACCEPT THE I.T.A NOS. 701/AHD/2014 & 1708/AHD/2016 A.Y.2007- 08 & 2012-13 PAGE NO DY. CIT VS. SINTEX INDUSTRIES LTD. 12 COMPUTATION AND DISALLOWANCE OF RS.2.48 LACS MADE B Y THE APPELLANT HIMSELF IN ITS COMPUTATION. ACCORDINGLY, GROUND NO.6 IS ALLOWED. 14. DURING THE COURSE OF APPELLATE PROCEEDINGS B EFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE HAS RELIED ON THE ORDER OF ASSESSING OFFICER. ON THE OTHER HAND, THE LD. COUNSEL HAS SUBMITTED TH AT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT AHME DABAD FOR ASSESSMENT YEAR 2011-12 VIDE ITA NO. 2786/AHD/2014 ORDER DATED 08-04-2021 AND FURTHER STATED THAT DECISION OF CO-ORDINATE BENCH O F THE ITAT FOR ASSESSMENT YEAR 2010-11 HAS BEEN CONFIRMED BY THE HONBLE GUJA RAT HIGH COURT VIDE TAX APPEAL OF 268 OF 2017 SLP AGAINST THE ORDER OF GUJARAT HIGH COURT SLP FILED BY THE DEPARTMENT WAS DISMISSED BY THE SUPREM E COURT (2018) 93 TAXMAN.COM 24. WITH THE ASSISTANCE OF LD. REPRESEN TATIVES, WE HAVE GONE THROUGH THE DECISION OF CO-ORDINATE BENCH OF THE IT AT FOR ASSESSMENT YEAR 2011-12 VIDE ITA NO. 2786/AHD/2014 AND NOTICED THAT AT PARA 11 OF THE ORDER THE IDENTICAL ISSUE ON SIMILAR FACT HAS BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE. THE RELEVANT PART OF THE DECISION OF THE CO-ORDINATE BENCH IS REPRODUCED AS UNDER:- 11. WITH THE ASSISTANCE OF LD. REPRESENTATIVE S, WE HAVE GONE THROUGH THE DECISION OF CO- ORDINATE BENCH OF THE ITAT FOR ASSESSMENT YEAR 2010 -11 AND NOTICED THAT AT PARA 36 AND 37 OF THE ORDER THE ISSUE HAS BEEN ADJUDICATED IN FAVOUR OF T HE ASSESSEE. THE RELEVANT PART OF THE DECISION OF THE CO-ORDINATE BENCH IS REPRODUCED AS UNDER:- 36. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS. AS FAR AS THE PROPOSITION OF THE LD.CIT- DR THAT EVEN IN THE ABSENCE OF ANY MECHANISM FOR DI SALLOWANCE, THE EXPENDITURE, WHICH IS ATTRIBUTABLE TO EARNING OF EXEMPT INCOME CAN BE WORKED OUT ON ESTIMATE BASIS OR REASONABLENESS BASIS AFTER LOOKING INTO THE FACTS A ND CIRCUMSTANCES OF A PARTICULAR CASE IS CONCERNED, WE DO NOT HAVE ANY DISPUTE. THE AMOUN TS CAN BE DISALLOWED ON ESTIMATE BASIS. IN THE PRESENT APPEALS, THE ASSESSES ITSELF HAS MADE DISALLOWANCE OF RS.5.10 LAKHS IN THE ASSTT.YEAR 2009-10 AND RS.52,000/- IN THE AS STT.YEAR 2010-11. IN THE ASSTT.YEAR 2009-10, THE EXEMPT INCOME IS OF RS.2.02 CRORES WHE REAS IN THE ASSTT.YEAR 2010-11 IT IS RS.22.50 LAKHS. BEFORE EMBARKING UPON THE FACTS OF THE PRESENT CASE, WE DEEM IT PERTINENT TO TAKE NOTE OF THE OBSERVATIONS OF THE DELHI HIGH COURT RECORDED IN PARA-29 OF THE JUDGMENT IN THE CASE OF MAXOPP INVESTMENT LTD. (SUP RA). IT READS AS UNDER: 'SCOPE OF SUB-SECTIONS (2) AND (3) OF SECTION 14A 29. SUB-SECTION (2) OF SECTION 14A OF THE SAID ACT PROVIDES THE MANNER IN WHICH THE ASSESSING OFFICER IS TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME. HOWEVER, IF WE EXAMINE THE I.T.A NOS. 701/AHD/2014 & 1708/AHD/2016 A.Y.2007- 08 & 2012-13 PAGE NO DY. CIT VS. SINTEX INDUSTRIES LTD. 13 PROVISION CAREFULLY, WE WOULD FIND THAT THE ASSESSI NG OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ONLY IF THE ASSESSIN G OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IN OTH ER WORDS, THE REQUIREMENT OF THE ASSESSING OFFICER EMBARKING UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO .EXEMPT INCOME WOULD BE TRI GGERED ONLY IF THE ASSESSING OFFICER RETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THEREF ORE, THE CONDITION 'PRECEDENT FOR THE ASSESSING OFFICER ENTERING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IS THAT THE A SSESSING OFFICER MUST RECORD THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLA IM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. SUB-SECT/ON (3) IS NOTHING BUT AN OFFS HOOT OF SUB-SECTION (2) OF SECTION 14A. SUB-SECTION (3) APPLIES TO CASES WHERE THE ASS ESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IN OTHER WORDS, SUB-SECTION (2) DEALS WITH CASES WHERE THE ASSESSEE SPECIFIES A POSITIVE AMOUNT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID AC T AND SUB-SECTION (3) APPLIES TO CASES WHERE THE ASSESSEE ASSERTS THAT NO EXPENDITUR E HAD BEEN INCURRED IN RELATION TO EXEMPT INCOME. IN BOTH CASES, THE ASSESSING OFFICER , IF SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXP ENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE IN ACCORDANCE WITH ANY PRESCRIBED METHOD, AS MENTIONED IN SUBSECTION (2) OF SECTION 14A OF THE SAID ACT. IT IS ONLY IF THE ASSESSING OF FICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, IN BOTH C ASES, THAT THE ASSESSING OFFICER GETS JURISDICTION TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT IN ACCORDANCE WITH THE PRESCRIBED METHOD. THE PRESCRIBED METHOD B EING THE METHOD STIPULATED IN RULE 8D OF THE SAID RULES. WHILE REJECTING THE CLAI M OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPT INCOME, THE ASSESSING OFFICER WOULD HAVE TO INDICATE COGENT REA SONS FOR THE SAME.' 37. ACCORDING TO THE HON'BLE DELHI HIGH COURT, WHEN AN ASSESSEE DEMONSTRATE ACTUAL INCURRENCE OF THE EXPENDITURE, THEN RULE 8D WOULD NOT BE AUTOM ATICALLY APPLIED WITHOUT LOOKING INTO THE EXPLANATIONS. IN OTHER WORDS, WHEN AN ASSESSEE HAS WORKED OUT THE EXPENDITURE RELATABLE TO EARNING OF EXEMPT INCOME ON ACTUAL, BASIS AND DEMON STRATED TO THE AO THE INCURRENCE OF SUCH EXPENDITURE, THEN AO HAS TO RECORD A FINDING THAT H E WAS NOT SATISFIED WITH THE CORRECTNESS OF THE EXPENDITURE SHOWN BY THE ASSESSEE. IN OTHER WORDS, HE HAS TO VERIFY THE ACCOUNT OF THE ASSESSEE, AND IF HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE, THEN, AFTER ASSIGNING REASONS, HE WOULD PROCEED TO COMPUTE THE EXPENSES ON THE BASIS OF THE METHOD BROUGHT IN THE RULE 8D. IN THE LIGHT OF THE ABOVE PROPOSITI ON, LET US EXAMINE THE FACTS IN BOTH THE YEARS AND FINDING RECORDED BY THE AO. THE MAIN CONTENTION OF THE ASSESSEE IN BOTH THE YEARS IS THAT IT HAS MADE INVESTMENT IN THE MUTUAL FUND WITH 'GROWTH OPT ION'. IN THE CASE OF GROWTH OPTION, NO DIVIDENDS ARE DECLARED BY THE MUTUAL FUND, AND ONLY INCOME DECLARED BY AN INVESTOR IS IN THE FORM OF CAPITAL GAINS. THE CAPITAL GAINS DERIVED BY THE ASSESSEE ON MUTUAL FUND ARE TAXABLE AND NOT AN EXEMPT INCOME DERIVED FROM SUCH INVESTMENT. IN THE ASSTT.YEAR 2009-10, THE ASSESSEE HAS OFFERED A SUM OF RS.19.22 CRORES ON SALE OF SUCH INVESTMENT F OR TAXATION AS SHORT/LONG TERM CAPITAL GAIN. SIMILARLY, IN THE ASSTT.YEAR 2010-11, A SUM OF RS.8 .23 CRORES HAS BEEN OFFERED. THE INVESTMENT MADE BY THE ASSESSEE WAS NOT OUT OF INTEREST BEARIN G FUND. IT HAS ITS OWN SURPLUS FUND OUT OF WHICH INVESTMENT HAS BEEN MADE. THE ASSESSEE HAS DEMONSTR ATED THAT IT HAD OWN FUNDS OF RS.1981.55 CRORES IN THE ASSTT.YEAR 2009-10 AND INVESTMENT IN THE MUTUAL FUND WAS ONLY RS.144.51 CRORES. THE ASSESSEE HAS ALSO SUBMITTED THAT ITS INVESTMENT IN EARNING EXEMPT INCOME HAS BEEN REDUCED DURING THE YEAR FROM 78.45 CRORES TO RS.18.09 CRORE S. THE ASSESSEE HAS SUBMITTED THESE DETAILS IN ITS SUBMISSIONS REPRODUCED BY THE AO. SIMILARLY, IN THE ASSTT.YEAR 2010-11, IT HAS RESERVE FUND OF RS.2319.17 CRORES AND MADE INVESTMENT OF RS.111.09 CRORES. THE ID.AO HAS NOT GIVEN ANY HEED TO I.T.A NOS. 701/AHD/2014 & 1708/AHD/2016 A.Y.2007- 08 & 2012-13 PAGE NO DY. CIT VS. SINTEX INDUSTRIES LTD. 14 THESE SUBMISSIONS OR FIGURES SUBMITTED BY THE ASSES SEE. THE ASSESSEE HAS FURTHER MADE DISALLOWANCE OF RS.5.12 LACS IN THE ASSTT.YEAR 2009 -10. THIS WAS MAINLY FOR MANAGEMENT OF INVESTMENT. HE SIMPLY DISCUSSED THE BACKGROUND FOR BRINGING SECTION 14A AS WELL RULE 8D ON THE STATUTE BOOK. HE HAS SPECIFICALLY NOT WORKED OUT TH E AMOUNTS EVEN ON THE BASIS OF RULE 8D. HE CALLED FOR A WORKING FROM THE ASSESSEE AND MADE A L UMPSUM ADDITION IN BOTH THE YEARS. THE ID.AO HAS NOT RECORDED ANY FINDING THAT AMOUNTS ADDED BAC K BY THE ASSESSEE ARE NOT COMMENSURATE WITH THE ADMINISTRATIVE EXPENSES WHICH MIGHT BE ATTRIBUT ABLE TO EARNING EXEMPT INCOME. BECAUSE, ON INTEREST EXPENSES ACCOUNT, THERE CANNOT BE ANY DISA LLOWANCE AS THE ASSESSEE HAS FAR MORE INTEREST FREE FUND THAN INVESTMENT. WE ARE OF THE VIEW THAT THE ID.CIT(A) HAS LOOKED INTO ALL THESE ASPECTS IN THE ASSTT.YEAR 2009-10 BEFORE DELETING THE DISAL LOWANCE. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE ID.CIT(A) ON THIS ISSUE IN ASSTT.YEAR 2009-1 0. CONSEQUENTLY, WE ALLOW THE GROUND OF APPEAL RAISED BY THE ASSESSEE IN THE ASSTT.YEAR 2010-11 AN D DELETE THE DISALLOWANCE MADE BY THE AO. RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINATE BENCH OF THE ITAT IN THE CASE OF THE ASSESSEE ITSELF FOR A.Y. 2009-10 AND A.Y. 2010- 11 THE APPEAL OF THE REVENUE IS DISMISSED. REGARDING THE APPEAL OF THE ASSESSEE, WE DIRECT THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH AFTER EXAMINATION/VERIFICATION OF THE DETAILS FILED BY THE ASSESSEE AS PER THE DIRECTION LAID DOWN IN THE DECISION OF THE CO-ORDINATE BENCH OF THE ITAT I N THE CASE OF THE ASSESSEE ITSELF AS SUPRA VIDE ITA NO. 1598/AHD/2012 AND DECISION OF HONBLE GUJAR AT HIGH COURT VIDE IT APPEAL NO. 268 OF 2017. THEREFORE, APPEAL FO THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. RESPECTFULLY FOLLOWING THE DECISION OF TH E CO-ORDINATE BENCH OF THE ITAT WHICH WAS CONFIRMED BY THE HONBLE JURISDICTIO NAL HIGH COURT OF GUJARAT AS ELABORATED SUPRA ON IDENTICAL ISSUE ON S IMILAR FACT, WE DO NOT FIND ANY ERROR IN THE DECISION OF THE LD. CIT(A), THEREF ORE, THE SAME STANDS DISMISSED. 15. IN THE RESULT, BOTH THE APPEALS FILED BY TH E REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29-07-2021 SD/- SD/- (MADHUMITA ROY) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 29/07/2021 / COPY OF ORDER FORWARDED TO:- I.T.A NOS. 701/AHD/2014 & 1708/AHD/2016 A.Y.2007- 08 & 2012-13 PAGE NO DY. CIT VS. SINTEX INDUSTRIES LTD. 15 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,