SONPHANKHI SHARES & SECURITIES P.LTD, MUMBAI V. ITO WD 4(2)(2), MUMBAI

ITA 7068/MUM/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3735 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 25-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 26-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR SUMAN RATNAM DARSI
• Keywords: Business income; Opportunity of being heard; Earning of tax free income; Retrospective amendment; Question of law; Speculation loss
• Section: 143(3); 14A; 37

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 7068 /MUM/2012 ( / ASSESSMENT YEAR : 2009-10) SONPANKHI SHARES AND SECURITIES PRIVATE LIMITED 12, REYFREDA , SIR M V MARG, CHAKALA,ANDHERI EAST MUMBAI-400 093 / V. ITO WARD 4(2)(2) MUMBAI ./ PAN : AAFCS0822E ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI NISHIT GANDHI REVENUE BY : DR. SUMAN RATNAM DARSI (D.R.) / DATE OF HEARING : 29-07-2016 / DATE OF PRONOUNCEMENT : 03-08-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE COMPANY, BEING I TA NO. 7068/MUM/2012 , IS DIRECTED AGAINST APPELLATE ORDER DATED 17-10-2012 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEA LS)- 8, MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR THE ASSESSME NT YEAR 2009-10 , THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARI SING FROM THE ASSESSMENT ORDER DATED 22-12-2011 PASSED BY THE LEARNED ASSESS ING OFFICER (HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INCOME TAX ACT,1 961 (HEREINAFTER CALLED THE ACT) FOR THE ASSESSMENT YEARS 2009-10 RESPECT IVELY.THIS MATTER WAS ITA 7068/MUM/2012 2 ARGUED AND HEARD AT LENGTH ON 10-3-2016 AND LATER K EPT FOR CLARIFICATION WHICH WAS HEARD FINALLY ON 29-07-2016. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE CO MPANY IN THE MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL , MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) IN ITA NO. 7068/MUM/2012 FOR THE ASSESSMENT YEAR 2009-10 READS AS UNDER:- (1). THE LEARNED ASSESSING OFFICER HAS NOT GIVEN R EASONABLE OPPORTUNITY OF BEING HEARD TO THE APPELLANT. THE LEAR NED AO HAS ERRED IN DISALLOWING EXPENDITURE OF RS.41,515/- ON AD-HOC BASIS ON THE GROUNDS THAT THE SAME IS RELATING TO SPECULATION BUSIN ESS. (2) THE LEARNED ASSESSING OFFICER HAS ERRED IN DISA LLOWING RS.3,38,556/- U/S 14A. (3) THE LEARNED AO HAS ERRED IN ADJUSTING THE REFUN D AGAINST PREVIOUS DUES. (4) THE LEARNED AO HAS ERRED IN GIVING CREDIT OF T. D.S. FOR LESSER AMOUNT THAN WHAT ACTUALLY IS. (5) THE APPELLANT PRAYS THAT THE PENALTY PROCEEDINGS U /S 271(1)(C) MAY BE DROPPED AND DUE JUSTICE MAY BE GIVEN TO THE APPELL ANT. (6) THE APPELLANT PRAYS THAT YOUR HONOUR TO GRANT RELI EF FROM PAYMENT OF INTEREST UNDER SECTION 234A,B,C,D AS APPLICABLE AND O BLIGE. THE ASSESSEE COMPANY HAS ALSO RAISED AN ADDITIONAL GROUNDS OF APPEAL AND PRAYED THAT THESE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE COMPANY BE ADMITTED AS THE GROUNDS RAISED ARE LEGAL AND GOES T O THE ROOT OF THE MATTER . IT WAS SUBMITTED THAT THESE ADDITIONAL GROUNDS COULD N OT BE RAISED EARLIER INADVERTENTLY AND UNINTENTIONALLY. THE ADDITIONAL G ROUNDS RAISED BY THE ASSESSEE COMPANY ARE: ITA 7068/MUM/2012 3 5.1 THE INCOME TAX OFFICER-4(2)(2) , MUMBAI [ THE AO] ERRED IN TREATING THE LOSS OF RS. 37,31,368/- AS SPECULATION LOSS UNDER EXPLANATION TO SECTION 73 OF THE INCOME TAX ACT,196 1[ THE ACT] 5.2 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCU MSTANCES OF THE CASE, AND IN LAW, SUCH ACTION OF AO WAS BAD IN LAW AND HENCE DESERVES TO BE REVERSED. THE LEARNED DR OBJECTED TO THE ADMISSION OF THE ADD ITIONAL GROUND AS THE SAME WAS NOT RAISED ORIGINALLY WHILE FILING MEMO OF APPEAL BY THE ASSESSEE COMPANY WITH THE TRIBUNAL. WE HAVE CONSIDERED RIVA L CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED V IEW, THE ADDITIONAL GROUND DESERVES TO BE ADMITTED AS IT IS PURELY AN LEGAL GR OUND AND ARE HEREBY DIRECTED TO BE ADMITTED IN ACCORDANCE WITH THE JUDG MENT OF HONBLE SUPREME COURT IN THE CASE OF NTPC V. CIT (1998) 229 ITR 383 (SC). 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS MEMBER OF BOMBAY STOCK EXCHANGE LIMITED. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR, THE ASSESSEE COMPANY CARRIED OUT T HE BUSINESS OF DEALING IN EQUITY SHARES AND SECURITIES. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) READ WITH SECTION143(2) OF THE ACT , THE ASSESSEE COMPANY SUB MITTED REVISED COMPUTATION OF INCOME SHOWING BUSINESS INCOME AT RS .11,26,763/- AND SPECULATION LOSS OF RS.37,31,368/- . IN THE ORIGINA L RETURN OF INCOME FILED WITH THE REVENUE, THE ASSESSEE COMPANY HAS NOT SHOWN THE SPECULATION LOSS OF RS.37,31,368/-. THE AO TREATED THE SPECULATION LOSS UNDER EXPLANATION TO SECTION 73 OF THE ACT AND ALLOWED IT TO BE CARRIED FORWARD AS SPECULATION LOSS , ITA 7068/MUM/2012 4 VIDE ASSESSMENT ORDER DATED 22.12.2011 PASSED BY TH E AO U/S 143(3) OF THE ACT. THE AO ALSO OBSERVED THAT THE ASSESSEE COMPANY HAS IN THE REVISED COMPUTATION OF INCOME NOT WORKED OUT EXPENSES ATTRI BUTABLE TO SPECULATION LOSS INCURRED BY THE ASSESSEE COMPANY. THE ASSESSEE COMPANY WAS ASKED BY THE AO TO GIVE THE WORKING OF THE EXPENSES FOR SPEC ULATION , THE ASSESSEE COMPANY SUBMITTED THAT THE ASSESSEE COMPANY IS ENGA GED IN BUSINESS OF BROKING ACTIVITY AS WELL SHARE TRADING IN THE NAME OF ITS CLIENTS AND ALSO IN ITS OWN NAME. THE TOTAL TURNOVER OF THE ASSESSEE COMPAN Y FOR THE YEAR ENDED 31- 03-2009 WAS RS.153 CRORES AND RS. 5.60 CRORES IS TU RNOVER PERTAINING TO ITS OWN NAME. THUS, IT WAS SUBMITTED THAT RATIO OF OWN TURNOVER TO TOTAL TURNOVER IS 3.64%. OUT OF THE TOTAL EXPENSES DEBITED TO PROF IT AND LOSS ACCOUNT , MOST OF THEM ARE FIXED IN THE NATURE AND OUT OF THAT RS. 1665/- BELONGS TO ITS OWN TURNOVER AS ONLY TRANSACTION CHARGES OF RS.45,748/- ARE VARIABLE IN NATURE. IT WAS SUBMITTED THAT IN PREVIOUS SCRUTINY ASSESSMENT PROCEEDINGS, THE AO DISALLOWED PROPORTIONATE EXPENSES RELATING TO THE A SSESSEE COMPANYS OWN TURNOVER BUT IN APPEALS IT WAS ALLOWED. THE ASSESS EE COMPANY GAVE DETAILS OF PROPORTIONATE EXPENSES AS UNDER: (I) SALARY RS. 25,000.00 (II) TELEPHONE RS. 8,720.00 (III) POSTAGE RS. 194.00 (IV) STOCK EXCHANGE EXP. RS. 1,431.00 (V) GENERAL EXPENSES RS. 1,089.00 (VI) STT PAID RS. 1,716.00 (VII) TRANSACTION CHARGES RS. 739.00 (VIII) ELECTRICITY CHARGES RS. 2,626.00 -------------------- RS. 41,515.00 -------------------- ITA 7068/MUM/2012 5 THE AO TREATED RS.41,515/- AS EXPENSES ATTRIBUTABLE TO THE SPECULATION TRANSACTIONS AND THE SAME WERE ADDED TO THE SPECULA TION LOSS AND THE SAME WAS ALLOWED TO BE CARRIED FORWARD VIDE ASSESSMENT O RDER DATED 22.12.2011 PASSED BY THE AO U/S 143(3) OF THE ACT. SIMILARLY, THE AO OBSERVED THAT DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR, THE ASSESSEE COMPANY HAS EARNED DI VIDEND INCOME FROM SHARES OF RS.2,81,541/- AND CLAIMED THE SAME AS EXE MPT U/S 10(34) OF THE ACT . HOWEVER, THE EXPENSES ATTRIBUTABLE FOR EARNIN G OF SUCH TAX-FREE INCOME IS TO BE DISALLOWED AS PER SECTION 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES, 1962. THE ASSESSEE COMPANY SUBMITTED THA T IF THE INCOME ARISES UNDER ANY HEAD OF INCOME FROM MANY ITEMS WHICH ARE EXEMPT FROM TAX , ENTIRE PERMISSIBLE EXPENDITURE IN EARNING SUCH INCO ME UNDER THIS HEAD IS DEDUCTIBLE AND IF THE TAX-PAYER CARRIES ON THE BUSI NESS INTO VARIOUS VENTURES , SOME ARE HAVING TAXABLE INCOME AND OTHER DO NOT AND IF BUSINESS IS ONE AND INDIVISIBLE , THE ENTIRE EXPENDITURE OF SUCH BUSINE SS WOULD BE ALLOWED AS DEDUCTION . IT WAS ALSO SUBMITTED BY THE ASSESSEE C OMPANY THAT IF SUBSTANTIAL INVESTMENT IS MADE IN SHARES AND SECURITIES WHICH Y IELDED DIVIDEND, DISALLOWANCE U/S 14A OF THE ACT CANNOT BE MADE IN R ESPECT OF THE FACT THAT THE BOOKS OF ACCOUNTS ARE NOT SEPARATELY MADE FOR BY BI FURCATING TAXABLE AND NON TAXABLE INCOME. THUS, IT WAS SUBMITTED THAT IN ABSE NCE OF ANY PRECISE FORMULA FOR PROPORTIONATE DISALLOWANCE , NO DISALLO WANCE CAN BE CALLED FOR IN RESPECT OF ADMINISTRATION COST ATTRIBUTABLE TO EARN ING OF SUCH TAX FREE INCOME. THE AO REJECTED THE CONTENTIONS OF THE ASSESSEE COM PANY AND HELD THAT AS PER SECTION 14A OF THE ACT NO DEDUCTION SHALL BE ALLOWE D IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE COMPANY IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE AO INVOKED PROVISIONS OF SECTION 14A(2) OF THE ACT AND HELD THAT IF THE AO I S NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE COMPANY, T HE AO MAY COMPUTE THE ITA 7068/MUM/2012 6 EXPENDITURE WITH REGARD TO THE EARNING OF EXEMPT IN COME AS PER THE METHOD PRESCRIBED. THE AO HELD THAT THE CBDT HAS PRESCRIBE D VIDE ITS NOTIFICATION DATED 24.03.2008, THE METHOD FOR CALCULATING SUCH E XPENDITURE IN RELATION TO THE EXEMPT INCOME. THE AO REFERRED TO RULE 8D OF IN COME TAX RULES, 1962 AND HELD THAT WHENEVER THERE IS A COMPOSITE USE OF FUNDS AND EXPENDITURE CANNOT BE SEPARATELY CALCULATED BUT STILL THE EXPEN DITURE NEEDS TO BE ALLOCATED FOR THE PURPOSES OF CALCULATION OF EXPENDITURE U/S 14A OF THE ACT. THE DISALLOWED RS.3,38,556/- U/S 14A READ WITH RULE 8D OF INCOME TAX RULES, 1962, WHEREBY DISALLOWANCE UNDER RULE 8D(2)(II) WAS MADE OF RS.2,28,105/- AND RS.1,10,451/- WAS MADE UNDER RULE 8D(2)(III) OF INCOME TAX RULES,1962, VIDE ASSESSMENT ORDERS DATED 22.12.2011 PASSED BY T HE AO U/S 143(3) OF THE ACT. 5. AGGRIEVED BY THE ASSESSMENT ORDERS DATED 22.12.2011 PASSED BY THE AO U/S 143(3) OF THE ACT, THE ASSESSEE COMPANY FILED A PPEAL BEFORE THE LEARNED CIT(A). 6. BEFORE THE LEARNED CIT(A), THE ASSESSEE COMPANY CON TENDED THAT THE AO HAS ERRED IN DISALLOWING THE EXPENSES OF RS.41,515/ - ON AD-HOC BASIS . IT WAS SUBMITTED THAT MOST OF THE EXPENSES ARE FIXED IN NA TURE AND RELATING TO NON- SPECULATIVE BUSINESS.IT WAS SUBMITTED THAT THERE IS HARDLY ANY EXPENDITURE WHICH RELATE TO THE SPECULATIVE BUSINESS. THE LEARN ED CIT(A) HELD THAT THE ASSESSEE COMPANY ITSELF HAS SUBMITTED THE DETAILS O F PROPORTIONATE EXPENSES ATTRIBUTABLE TO SPECULATION EXPENSES, AGGREGATING T O RS.41,515/- AND HENCE THE CONTENTIONS OF THE ASSESSEE COMPANY WERE REJECT ED BY THE LEARNED CIT(A) VIDE APPELLATE ORDERS DATED 17/10/2012 WHEREBY THE ASSESSMENT ORDERS DATED 22.12.2011 PASSED BY THE AO U/S 143(3) OF TH E ACT WAS UPHELD. ITA 7068/MUM/2012 7 THE ASSESSEE COMPANY DID NOT CONTEST BEFORE THE LEA RNED CIT(A) THE TREATMENT OF LOSS OF RS.37,31,368/- AS SPECULATION LOSS UNDER EXPLANATION TO SECTION 73 OF THE ACT. THE LEARNED CIT(A) ALSO CONFIRMED THE ASSESSMENT OR DERS U/S 143(3) OF THE ACT DATED 22.12.2011 PASSED BY THE AO WITH RESPECT TO ADDITIONS OF RS.3,38,556/- BEING MADE U/S 14A OF THE ACT READ WI TH RULE 8D OF INCOME TAX RULES,1962, VIDE APPELLATE ORDERS DATED 17/10/2 012 PASSED BY THE LEARNED CIT(A). 7.AGGRIEVED BY THE APPELLATE ORDERS DATED 17/10/201 2 PASSED BY THE LEARNED CIT(A), THE ASSESSEE COMPANY FILED SECOND APPEAL WI TH THE TRIBUNAL. 8. THE LEARNED COUNSEL FOR THE ASSESSEE COMPANY CON TENDED THAT THE ASSESSEE COMPANY DID NOT CLAIMED IN RETURN OF INCOME SPECULA TION LOSS BUT THE SAID CLAIM WAS MADE DURING THE ASSESSMENT PROCEEDINGS. T HE ASSESSEE COMPANY SUBMITTED THAT LOSS OF RS.37,31,368/- WAS TREATED A S SPECULATION LOSS IN VIEW OF EXPLANATION TO SECTION 73 OF THE ACT. THE ASSESS EE COMPANY RELIED UPON DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT V. HSBC SECURITIES AND CAPITAL MARKET INDIA PRIVATE LIMITED, (2012) 20 8 TAXMAN 439(BOMBAY) TO CONTEND THAT THE LOSS SHALL BE ALLOWED AS NORMAL BU SINESS LOSS. THE ASSESSEE COMPANY SUBMITTED THAT THE ASSESSEE COMPANY IS BROK ER IN SHARES. IT IS SUBMITTED THAT SECTION 73 OF THE ACT HAS BEEN AMEND ED BY THE FINANCE ACT, 2014 W.E.F 01-04-2015 AND THE AMENDMENT SHALL TAKE EFFECT RETROSPECTIVELY WHEN SECTION 73 OF THE ACT WAS INTRODUCED IN 1977. THERE WAS A LACUNA IN THE SECTION 73 OF THE ACT WHICH WAS REMOVED BY THE LEGI SLATURE BY THE AMENDMENT BROUGHT IN BY FINANCE ACT 2014. IT IS A DEEMING PRO VISION AND EFFECT IS TO BE GIVEN WITH RETROSPECTIVE EFFECT. THE LEARNED COUNSE L FOR THE ASSESSEE COMPANY RELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. ANSAL LAND MARK TOWNSHIP PRIVATE LIMITED (2015) 377 ITR 6 35(DEL. HC) WHEREBY ITA 7068/MUM/2012 8 HONBLE DELHI HIGH COURT HAS HELD THAT SECOND PROVI SO TO SECTION 40(A)(IA) OF THE ACT IS DECLARATORY AND CURATIVE AND HAS RETROSP ECTIVE EFFECT WITH EFFECT FROM 01-04-2005 WHEN THE SECTION 40(A)(IA) OF THE A CT WAS BROUGHT INTO THE STATUTE. THE LEARNED COUNSEL SUBMITTED THAT THERE W AS UNDUE HARDSHIP WHICH WAS REMOVED BY LEGISLATURE AND HENCE AMENDMENT TO S ECTION 73 OF THE ACT BE TREATED AS RETROSPECTIVE IN NATURE AND NOT PROSPECT IVE. WITH RESPECT TO EXPENSES OF RS.41,515/- TREATED TO HAVE BEEN INCURR ED FOR EARNING SPECULATIVE INCOME(LOSS), IT WAS SUBMITTED THAT THE SAME MAY BE DECIDED IN THE SAME MANNER AS THE TREATMENT OF SPECULATIVE LOSS SOUGHT BY THE ASSESSEE COMPANY VIDE ADDITIONAL GROUND FILED WITH THE TRIBUNAL. WITH RESPECT TO GROUND NO. 2 CONCERNING DISALLOWANC E OF RS.3,38,556/- U/S 14A OF THE ACT. IT WAS SUBMITTED THAT THE ASSESSEE COMPANY HAS RECEIVED RS.2,81,541/- AS DIVIDEND INCOME , WHILE DISALLOWAN CE OF RS.3,38,556/- HAS BEEN MADE U/S 14A OF THE ACT READ WITH RULE 8D OF I NCOME TAX RULES, 1962.IT WAS SUBMITTED THAT THE ASSESSEE COMPANY HAS SHARE C APITAL AND RESERVES OF RS.3.39 CRORES AS AT 31-03-2009 , WHILE THE INVESTM ENTS ARE TO THE TUNE OF RS.3.19 CRORES.IT WAS SUBMITTED THAT NET OWNED FUND S ARE MORE THAN THE INVESTMENTS MADE AND HENCE THERE WILL BE PRESUMPTIO N THAT THE ASSESSEE COMPANY HAS INVESTED ITS OWNED FUND IN MAKING INVES TMENTS AND HENCE INTEREST EXPENDITURE CANNOT BE DISALLOWED UNDER RUL E 8D(2)(II) OF THE INCOME TAX RULES, 1962. THE ASSESSEE COMPANY RELIED UPON T HE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LIMITED(2009) 313 ITR 340(BOM. HC) . THE LEARNED COUNSEL OF THE A SSESSEE COMPANY DREW OUR ATTENTION TO AUDITED FINANCIAL STATEMENTS OF TH E ASSESSEE COMPANY TO CONTEND THAT THE INTEREST INCOME WAS EARNED OF RS.3 6.51 LACS WHILE THE ASSESSEE PAID INTEREST OF RS.3.72 LACS TO CONTEND T HAT THE INTEREST ON NET BASIS IS INFACT EARNED BY THE ASSESSEE COMPANY AND NO DIS ALLOWANCE IS WARRANTED. THE AUDITED FINANCIAL STATEMENTS ARE PLACED IN THE PAPER BOOK FILED WITH THE TRIBUNAL. IT IS ALSO CONTENDED THAT THE DIVIDEND IN COME IS EARNED ON THE ITA 7068/MUM/2012 9 SHARES HELD AS STOCK IN TRADE AND THE INCOME ON SAL E AND PURCHASE OF SHARES HELD AS STOCK IN TRADE ARE TO BE EXCLUDED FOR THE P URPOSES OF COMPUTING DISALLOWANCE U/S 14A OF THE ACT.IT IS CONTENDED THA T THE INVESTMENT AS REFLECTED IN AUDITED FINANCIAL STATEMENT IN SCHEDUL E E COMPRISES OF SHARES HELD BY THE ASSESSEE IN BOMBAY STOCK EXCHANGE (BSE) OF RS 1.22 CRORES AND FDR HELD BY THE ASSESSEE COMPANY WAS RS.1.97 CRORES AS AT 31-03-2009. IT WAS SUBMITTED THAT THE FDR IS YIELDING TAXABLE INTE REST INCOME AND THE SAME SHALL BE EXCLUDED WHILE COMPUTING DISALLOWANCE U/S 14A OF THE ACT .IT WAS SUBMITTED THAT INVESTMENT IN BSE IS STRATEGIC INVES TMENT HELD BY THE ASSESSEE COMPANY AND THE SAME SHOULD BE EXCLUDED WH ILE COMPUTING DISALLOWANCE. THE ASSESSEE COMPANY ALSO RELIED UPON DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LIMITED( 2015) 94 CCH 0002(DEL.HC). IT WAS SUBMITTED THAT THE ASSESSEE CO MPANY RIGHTLY DID NOT OFFER ANY DISALLOWANCE AND THE ENTIRE DISALLOWANCE MADE BY THE AO NEEDS TO BE DELETED. GROUND NO 3 & 4 IT WAS SUBMITTED THAT THE ASSESSEE COMPANY DID NOT WISH TO PERSUE GROUND NO 3 AND 4 AND THE SAME MAY BE DIS MISSED AS WITHDRAWN. GROUND NO 5 AND 6-IT IS SUBMITTED THAT THESE GROUND S ARE CONSEQUENTIAL IN NATURE. THE LEARNED DR ON THE OTHER HAND SUBMITTED THAT THE AMENDMENT IN SECTION 73 OF THE ACT WAS MADE BY FINANCE ACT 2014 W.E.F. 0 1-04-2015 WHICH IS PROSPECTIVE AND CANNOT BE HELD TO BE RETROSPECTIVE . IT WAS CONTENDED BY LEARNED DR THAT THE AUTHORITIES BELOW HAVE RIGHTLY CONSIDERED SPECULATION LOSS OF RS.37,31,368/- AS IT WAS HIT BY EXPLANATION TO S ECTION 73 OF THE ACT. THE LD. DR SUBMITTED THAT MATTER WITH RESPECT TO DISALLOWAN CE OF EXPENDITURE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES, 1962 CAN BE SET ASIDE TO THE FILE OF AO FOR EXAMINATION AND VER IFICATION OF THE CLAIM OF THE ITA 7068/MUM/2012 10 ASSESSEE COMPANY. THE LEARNED DR RELIED UPON THE OR DERS OF THE LEARNED CIT(A) ON OTHER ISSUES. 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE MATERIAL ON RECORD INCLUDING THE CASE LAWS RELIED UPON BY THE R IVAL PARTIES. WE HAVE OBSERVED THAT THE ASSESSEE COMPANY IS ENGAGED IN TH E BUSINESS OF DEALING IN SHARES WHEREBY THE ASSESSEE COMPANY IS BUYING SHARE S ON ITS OWN ACCOUNT, AND ALSO ON ACCOUNT OF CLIENTS WHEREBY THE ASSESSEE COMPANY IS GETTING INCOME FROM BROKERAGE AND COMMISSION. THE ASSESSEE COMPANYS MAIN BUSINESS IS DEALING IN SHARES. WITH RESPECT TO DE LIVERY BASED TRANSACTION OF SALE AND PURCHASE OF SHARES ON ITS OWN ACCOUNT, THE ASSESSEE COMPANY HAS INCURRED LOSS OF RS.37,31,368/- WHICH WAS CLAIMED A S SPECULATIVE LOSS IN THE REVISED COMPUTATION OF INCOME FILED WITH THE AO DUR ING ASSESSMENT PROCEEDINGS U/S 143(2) READ WITH SECTION 143(3) OF THE ACT AS THE SAME WAS HIT BY EXPLANATION TO SECTION 73 OF THE ACT. THE AO TREATED THE SAID LOSS AS SPECULATION LOSS AND ALLOWED IT TO BE CARRIED FORWA RD . THE ASSESSEE COMPANY DID NOT CONTESTED THE SAME BEFORE THE LEARNED CIT(A ) . THE ASSESSEE COMPANY RELIED UPON DECISION OF CIT V. HSBC SECURITIES AND CAPITAL MARKETS PRIVATE LIMITED(SUPRA) . WE HAVE OBSERVED THAT THE ASSESSEE COMPANY CASE IS SQUARELY COVERED BY THIS DECISION OF HONBLE BOMBAY HIGH COURT. THE ASSSESSEE COMPANY HAS INCOME FROM BUSINESS OF RS.11 ,26,763/- FROM NON- SPECULATION BUSINESS , WHILE INCOME FROM TRADING FR OM SHARES ON ITS OWN ACCOUNT IS LOSS OF RS. 37,31,368/- AND HENCE ON NET BASIS THERE IS A LOSS UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION , WHILE THERE IS DIVIDEND INCOME OF RS.2,81,545/- EARNED BY THE ASSESSEE COMP ANY UNDER THE HEAD INCOME FROM OTHER SOURCES WHICH IS CLAIMED EXEMPT AND HENCE THE ASSESSEE COMPANY WILL FALL WITHIN THE PURVIEW OF EXCEPTION C ARVED OUT IN THE EXPLANATION TO SECTION 73 OF THE ACT AND CONSEQUENT LY THE ASSESSEE COMPANY WOULD NOT BE DEEMED TO BE CARRYING ON SPECULATION B USINESS FOR THE PURPOSE OF SECTION 73(1) OF THE ACT . THE RELEVANT EXTRACTS OF THE DECISION OF HONBLE ITA 7068/MUM/2012 11 BOMBAY HIGH COURT IN THE CASE OF CIT V. HSBC SECURI TIES AND CAPITAL MARKET INDIA PRIVATE LIMITED, (2012) 208 TAXMAN 439(BOM. H C.) IS REPRODUCED HEREUNDER: 8. IN THE PRESENT CASE, SECTION 73 WOULD NOT APPLY IN VIEW OF THE FACT THAT THE EXPLANATION THERETO, DOES NOT OPERATE IN R ESPECT OF A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS OF 'INTEREST ON SECURITIES', 'INCOM E FROM HOUSING PROPERTY', 'CAPITAL GAINS' AND 'INCOME FROM OTHER S OURCES'. WE HAVE SET OUT THE RELEVANT PART OF THE ASSESSMENT ORDER WHICH INDICATES THAT IN THE RELEVANT YEAR, THE INCOME FROM OTHER SOURCES WAS TH E ONLY CHARGEABLE INCOME, AS THE RESPONDENT HAD SUFFERED A BUSINESS L OSS OTHERWISE. IN THAT VIEW OF THE MATTER, THE JUDGMENT OF THE DIV ISION BENCH OF THIS COURT IN THE CASE OF DARSHAN SECURITIES (P.) LTD. ( SUPRA) SUPPORTS THE RESPONDENT'S CASE. IN THAT CASE, DURING THE RELEVAN T ASSESSMENT YEAR, THE ASSESSEE HAD A LOSS OF ABOUT RS. 2.33 CRORES IN THE SHARE TRADING AND HAD DIVIDEND INCOME OF ABOUT RS. 4.80 LACS. THE DIV ISION BENCH HELD IN PARAGRAPHS 6, 7, 8 AND 9 AS UNDER :- '6. THE EXPLANATION TO SECTION 73 INTRODUCES A DEEM ING FICTION. THE DEEMING FICTION STIPULATES THAT WHERE ANY PART OF T HE BUSINESS OF A COMPANY CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THE SECTION BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SAL ES OF SUCH SHARES. THE DEEMING FICTION APPLIES ONLY TO A COMPA NY AND THE PROVISION MAKES IT CLEAR THAT THE DEEMING FIXATION (SIC) EXTENDS ONLY FOR THE PURPOSES OF THE SECTION. THE BRACKETED PORT ION OF THE EXPLANATION, HOWEVER CARVES OUT AN EXCEPTION. THE E XCEPTION IS THAT THE PROVISION OF THE EXPLANATION SHALL NOT APPLY TO A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS ITA 7068/MUM/2012 12 CHARGEABLE UNDER THE HEADS 'INTEREST ON SECURITIES' , 'INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS' AND 'INCOME FROM O THER SOURCES' OR A COMPANY WHOSE PRINCIPAL BUSINESS IS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES. 7. THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF THE REVENUE IS THAT IN COMPUTING THE GROSS TOTAL INCOME FOR THE PURPOSE OF THE EXPLANATION TO SECTION 73, INCOME UNDER THE HEADS O F PROFITS AND GAINS OF BUSINESS OR PROFESSION MUST BE IGNORED. AL TERNATIVELY, IT HAS BEEN URGED THAT WHERE THE INCOME FROM BUSINESS INCLUDES A LOSS IN THE TRADING OF SHARES, SUCH A LOSS SHOULD N OT BE ALLOWED TO BE SET OFF AGAINST THE INCOME FROM ANY OTHER SOURCE UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. 8. IN OUR VIEW, THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF THE REVENUE CANNOT BE ACCEPTED. LEAVING ASIDE FOR A MOMENT, THE EXCEPTION, WHICH IS CARVED OUT BY THE EXPLANATION T O SECTION 73, THE EXPLANATION CREATES A DEEMING FICTION BY WHICH A CO MPANY IS DEEMED TO BE CARRYING ON A SPECULATION BUSINESS WHE RE ANY PART OF ITS BUSINESS CONSISTS IN THE PURCHASE AND SALE OF S HARES OF OTHER COMPANIES. NOW, THE EXCEPTION WHICH IS CARVED OUT A PPLIES TO A SITUATION WHERE THE GROSS TOTAL INCOME OF A COMPANY CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD S 'INTEREST ON SECURITIES', 'INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS' AND 'INCOME FROM OTHER SOURCES'. NOW, ORDINARILY INCOME WHICH ARISES FROM ONE SOURCE WHICH FALLS UNDER THE HEAD OF PROFI TS AND GAINS OF BUSINESS OR PROFESSION CAN BE SET OFF AGAINST THE L OSS WHICH ARISES FROM ANOTHER SOURCE UNDER THE SAME HEAD. SUB-SECTIO N (1) OF SECTION 73 HOWEVER SETS UP A BAR TO THE SETTING OFF OF A LOSS WHICH ARISES IN RESPECT OF SPECULATION BUSINESS AGAINST T HE PROFITS AND GAINS OF ANY OTHER BUSINESS. CONSEQUENTLY, A LOSS W HICH HAS ITA 7068/MUM/2012 13 ARISEN ON ACCOUNT OF SPECULATION BUSINESS CAN BE SE T OFF ONLY AGAINST THE PROFITS AND GAINS OF ANOTHER SPECULATIO N BUSINESS. HOWEVER, FOR SUB-SECTION (1) OF SECTION 73 TO APPLY THE LOSS MUST ARISE IN RELATION TO A SPECULATION BUSINESS. THE EX PLANATION PROVIDES A DEEMING DEFINITION OF WHEN A COMPANY IS DEEMED TO BE CARRYING ON A SPECULATION BUSINESS. IF, THE SUBMISS ION OF THE REVENUE IS ACCEPTED, IT WOULD LEAD TO AN INCONGRUOU S SITUATION, WHERE IN DETERMINING AS TO WHETHER A COMPANY IS CAR RYING ON A SPECULATION BUSINESS WITHIN THE MEANING OF THE EXPL ANATION, SUB- SECTION (1) OF SECTION 73 IS APPLIED IN THE FIRST I NSTANCE. THIS WOULD IN OUR VIEW NOT BE PERMISSIBLE AS A MATTER OF STATU TORY INTERPRETATION, BECAUSE THE EXPLANATION IS DESIGNED TO DEFINE A SITUATION WHERE A COMPANY IS DEEMED TO CARRY ON SPE CULATION BUSINESS. IT IS ONLY THEREAFTER THAT SUB-SECTION (1 ) OF SECTION 73 CAN APPLY. APPLYING THE PROVISIONS OF SECTION 73(1) TO DETERMINE WHETHER A COMPANY IS CARRYING ON SPECULATION BUSINE SS WOULD REVERSE THE ORDER OF APPLICATION. THAT WOULD BE IMP ERMISSIBLE, NOR, IS IT CONTEMPLATED BY PARLIAMENT. FOR, THE AMBIT OF SUB-SECTION (1) OF SECTION 73 IS ONLY TO PROHIBIT THE SETTING OFF O F A LOSS WHICH HAS RESULTED FROM A SPECULATION BUSINESS, SAVE AND ACCE PT AGAINST THE PROFITS AND GAINS OF ANOTHER SPECULATION BUSINESS. IN ORDER TO DETERMINE WHETHER THE EXCEPTION THAT IS CARVED OUT BY THE EXPLANATION APPLIES, THE LEGISLATURE HAS FIRST MAND ATED A COMPUTATION OF THE GROSS TOTAL INCOME OF THE COMPAN Y. THE WORDS 'CONSISTS MAINLY' ARE INDICATIVE OF THE FACT THAT T HE LEGISLATURE HAD IN ITS CONTEMPLATION THAT THE GROSS TOTAL INCOME CO NSISTS PREDOMINANTLY OF INCOME FROM THE FOUR HEADS THAT AR E REFERRED TO THEREIN. OBVIOUSLY, IN COMPUTING THE GROSS TOTAL IN COME THE NORMAL PROVISIONS OF THE ACT MUST BE APPLIED AND IT IS ONL Y THEREAFTER, THAT IT HAS TO BE DETERMINED AS TO WHETHER THE GROSS TOT AL INCOME SO ITA 7068/MUM/2012 14 COMPUTED CONSISTS MAINLY OF INCOME WHICH IS CHARGEA BLE UNDER THE HEADS REFERRED TO IN THE EXPLANATION. 9. CONSEQUENTLY, IN THE PRESENT CASE THE GROSS TOTA L INCOME OF THE ASSESSEE WAS REQUIRED TO BE COMPUTED INTER ALIA BY COMPUTING THE INCOME UNDER THE HEAD OF PROFITS AND GAINS OF BUSIN ESS OR PROFESSION AS WELL. BOTH THE INCOME FROM SERVICE CH ARGES IN THE AMOUNT OF RS. 2.25 CRORES AND THE LOSS IN SHARE TRA DING OF RS. 2.23 CRORES, WOULD HAVE TO BE TAKEN INTO ACCOUNT IN COMP UTING THE INCOME UNDER THAT HEAD, BOTH BEING SOURCES UNDER TH E SAME HEAD. THE ASSESSEE HAD A DIVIDEND INCOME OF RS. 4.7 LACS (INCOME FROM OTHER SOURCES). THE TRIBUNAL WAS JUSTIFIED, IN COMI NG TO THE CONCLUSION THAT THE ASSESSEE FELL WITHIN THE PURVIE W OF THE EXCEPTION CARVED OUT IN THE EXPLANATION TO SECTION 73 AND THAT CONSEQUENTLY THE ASSESSEE WOULD NOT BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS FOR THE PURPOSE OF SEC. 73(1 ).' 9. IN THE CIRCUMSTANCES, THE APPEAL IS DISMISSED BUT WITH NO ORDER AS TO COSTS. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE H ONBLE JURISDICTIONAL HIGH COURT , WE HOLD THAT THE LOSS OF RS.37,31,368/- INC URRED BY THE ASSESSEE COMPANY ON SHARE TRADING CARRIED ON BY IT ON ITS OW N BEHALF SHALL NOT BE HIT BY THE DEEMING FICTION OF EXPLANATION TO SECTION 73 OF THE ACT AND SHALL BE TREATED AS NORMAL BUSINESS LOSS TO BE SET ASIDE AGA INST THE OTHER NON- SPECULATIVE BUSINESS INCOME AND OTHER INCOME AS PER PROVISIONS OF THE ACT. THIS DISPOSES OF THE GROUND NO 1 RAISED BY THE ASSE SEE COMPANY AS WELL ADDITIONAL GROUND RAISED BY THE ASSESSEE COMPANY. W E WOULD LIKE TO CLARIFY THAT IN VIEW OF OUR ABOVE DECISION, WE HAVE REFRAIN ED FROM ANSWERING THE QUESTION OF LAW RAISED BY THE ASSESSEE WITH RESPECT TO RETROSPECTIVITY OF AMENDMENT BROUGHT IN BY SECTION 73 OF THE ACT WHICH WAS AMENDED BY ITA 7068/MUM/2012 15 FINANCE ACT,2014 W.E.F 01-04-2015 AND HAS LEFT THE SAID QUESTION OPEN. WE ORDER ACCORDINGLY. GROUND NO 2 PERTAINS TO THE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES, 1962 OF RS.3,38,556/-. THE ASSESSEE COMPANY HAS RECEIVED RS.2,81,541/- AS DIVIDEND INCOME. WE HAVE OBSERVED THAT THE ASSESSEE COMPANY HAS SHARE CAPITAL AND RESERVES OF RS.3.39 CRORES AS AT 31- 03-2009 , WHILE THE INVESTMENTS ARE TO THE TUNE OF RS.3.19 CRORES. IT WAS SUBMITTED BEFORE US THAT THE NET OWNED FUNDS ARE MO RE THAN THE INVESTMENTS MADE AND HENCE THERE WILL BE PRESUMPTION THAT THE A SSESSEE COMPANY HAS INVESTED ITS OWN FUND IN MAKING INVESTMENTS AND HEN CE INTEREST EXPENDITURE CANNOT BE DISALLOWED UNDER RULE 8D(2)(II) OF THE IN COME TAX RULES, 1962. THE ASSESSEE COMPANY RELIED UPON THE DECISION OF HONBL E BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LIMITED(20 09) 313 ITR 340(BOM. HC) . WE ARE AGREEABLE WITH THE CONTENTIONS OF THE ASSESS EE COMPANY IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT DECISION IN T HE CASE OF RELIANCE UTILITIES AND POWER LIMITED (SUPRA) , CIT V. HDFC B ANK LIMITED IN ITA NO 330 OF 2012 (366 ITR 505(BOM. HC) ) AND CIT V. HDFC BAN K LIMITED(WP NO. 1753 OF 2016)((2016) 67 TAXMANN.COM 42(BOM.HC), THE DISA LLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D(2)(II) OF INCOME TAX RULE S, 1962 IS NOT WARRANTED AND WE ORDER DELETION OF THE DISALLOWANCE UNDER RUL E 8D(2)(II) OF INCOME TAX RULES, 1962 TO THE TUNE OF DISALLOWANCE OF INTEREST EXPENDITURE OF RS.2,28,105/- MADE BY THE AO AND AS SUSTAINED BY TH E LEARNED CIT(A) . IT IS CONTENDED THAT THE INVESTMENT AS REFLECTED IN AUDIT ED FINANCIAL STATEMENT IN SCHEDULE E COMPRISES OF SHARES HELD IN BOMBAY STO CK EXCHANGE OF RS 1.22 CRORES AND FDR HELD BY THE ASSESSEE COMPANY WAS RS. 1.97 CRORES AS AT 31- 03-2009. IT WAS SUBMITTED THAT THE FDR IS YIELDING TAXABLE INTEREST AND THE SAME SHALL BE EXCLUDED . WE ARE AGREEABLE WITH THE CONTENTION OF THE ASSESSEE COMPANY THAT THE FIXED DEPOSIT HELD BY THE ASSESSEE COMPANY WHICH YIELDED ITA 7068/MUM/2012 16 TAXABLE INTEREST INCOME CANNOT BE INCLUDED FOR COMP UTING THE DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT READ WITH RULE 8D(2) (III) OF INCOME TAX RULES, 1962 . WE ARE ALSO AGREEABLE WITH THE PROPOSITION O F THE ASSESSEE COMPANY THAT SHARES HELD AS STOCK IN TRADE ARE NOT TO BE IN CLUDED FOR THE PURPOSES OF DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D O F INCOME TAX RULES, 1962 WHILE COMPUTING INVESTMENTS FOR COMPUTING DISALLOWA NCE U/S 14A OF THE ACT, WE HAVE OBSERVED THAT THE AO DID NOT INCLUDE THE SH ARES HELD AS STOCK IN TRADE WHILE COMPUTING DISALLOWANCE U/S 14A OF THE A CT READ WITH RULE 8D(2)(III) OF INCOME TAX RULES, 1962 AND NO PREJUDI CE IS CAUSED TO THE ASSESSEE COMPANY IT WAS SUBMITTED THAT INVESTMENT I N BSE IS STRATEGIC INVESTMENT HELD BY THE ASSESSEE COMPANY AND THE SAM E SHOULD BE EXCLUDED WHILE COMPUTING DISALLOWANCE. THE ASSESSEE COMPANY ALSO RELIED UPON DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LIMITED(2015) 94 CCH 0002(DEL.HC). IT WAS SUBMITTED THAT RIGHTLY THE ASSESSEE DID NOT OFFER ANY DISALLOWANCE AND THE ENTIRE DISALLOWANCE MADE B Y THE AO NEEDS TO BE DELETED. WE ARE NOT INCLINED TO AGREE WITH THE ASSE SSEE COMPANY THAT INVESTMENT MADE BY THE ASSESSEE COMPANY IN BSE AS S TRATEGIC INVESTMENT IS TO BE EXCLUDED WHILE COMPUTING DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D(2)(III) OF INCOME TAX RULES, 1962. WE HAVE OBSERVED THAT THERE ARE DIVERGENT VIEW OF THE TRIBUNAL ON THIS ISSUE AND MA TTER PURELY BEING FACTUAL IS TO BE DECIDED ON THE FACTS OF THE CASE KEEPING IN V IEW THE MANDATE OF SECTION 14A OF THE ACT WHEREBY THE AO SHALL DETERMINE THE A MOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT HAVING REGARDS TO THE ACCOUNTS OF THE ASSESSEE AS CONTEMPLATED U/S 14A(2) OF THE ACT AND HENCE THE MA TTER IS TO BE DECIDED ON EACH CASE BASED ON THE FACTS OF THE CASE. WE HAVE D ULY CONSIDERED THE JUDICIAL DECISIONS RELIED UPON BY THE ASSESSEE COMPANY. REFE RENCE IS DRAWN TO THE DECISION OF TRIBUNAL , MUMBAI IN THE CASE OF UMA PO LYMERS LIMITED V. ACIT IN ITA NO 5366/MUM/2013 FOR THE ASSESSMENT YEAR 2009-1 0, WHICH WAS AUTHORED BY ONE OF US(ACCOUNTANT MEMBER) WHEREBY TR IBUNAL HELD AS UNDER: ITA 7068/MUM/2012 17 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL ON RECORD AND CASE LAWS RELIED UPON BY THE ASSESEE COMPANY. WE FIND THAT SECTION 14A OF THE ACT READ WITH RULE 8D(2)(III) OF THE INCOME TAX RULES,1962 IS APPLICAB LE FROM THE ASSESSMENT YEAR 2008-09 AS HELD BY THE HON'BLE BOMB AY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. 2 34 CTR 1. THE ASSESSEE COMPANY HAS MADE AVERAGE INVESTMENTS OF RS . 14.44 CRORES COMPUTED AS PER RULE 8D(2)(III) OF INCOME T AX RULES,1962 . THE INVESTMENTS MADE BY THE ASSESSEE COMPANY INCLUD ES THE INVESTMENT OF RS.19.37 CRORES MADE IN 100% SUBSIDIA RY COMPANY. 13. COMING TO THE SUBMISSION OF ASSESSEE THAT THESE ARE STRATEGIC INVESTMENTS AND NO DISALLOWANCE MADE TOWARDS THE AD MINISTRATIVE EXPENSES. WE WOULD LIKE TO MENTION THAT UNDER NORMA L CIRCUMSTANCES STRATEGIC INVESTMENT ARE MADE FOR THE PURPOSES OF DOING BUSINESS WITH A LONG TERM HORIZON AND IN THAT CASE NO DOUBT THAT THE OBJECTIVE IS TO EARN PROFITS/RETURNS FROM THE INVESTMENT BUT NORMALLY THE SAID PROFIT / RETURNS WILL COME BY WAY OF DIVIDEND(S) WHEN THE COMPANIES COME INTO PROFIT AND DECLARE DIV IDEND TO THE SHAREHOLDERS . SUCH DIVIDENDS IN THE HANDS OF SHARE HOLDERS SHALL BE EXEMPT FROM TAX. NO DOUBT , THE RETURNS CAN ALSO COME BY WAY OF DIVESTMENTS OF THESE INVESTMENTS BUT NORMALLY ST RATEGIC INVESTMENTS ARE MADE WITH LONG TERM HORIZON WHERE O BJECTIVE IS TO SET UP BUSINESS AND GROWTH OF THESE BUSINESS OVER A LONG PERIOD OF TIME. IN THESE TYPE OF STRATEGIC INVESTMENTS, THE I NVESTOR HAS TO NORMALLY DEVOTE SIGNIFICANT TIME TO PLAN, EXECUTE A ND MONITOR THESE INVESTMENTS REGULARLY AND PERIODICALLY TO ENSURE TH AT THESE STRATEGIC INVESTMENTS ARE TURNED VIABLE AND PROFITA BLE. THESE ITA 7068/MUM/2012 18 INVESTMENT DECISIONS ARE VERY COMPLEX IN NATURE. TH EY REQUIRE SUBSTANTIAL MARKET RESEARCH, DAY-TO-DAY ANALYSIS OF MARKET TRENDS AND DECISIONS WITH REGARD TO ACQUISITION, RETENTION AND SALE OF SHARES AT THE MOST APPROPRIATE TIME. THEY REQUIRE H UGE INVESTMENT IN SHARES AND CONSEQUENTIAL BLOCKING OF FUNDS. BESI DES, INVESTMENT DECISIONS ARE GENERALLY TAKEN IN THE MEETINGS OF TH E BOARD OF DIRECTORS / SHAREHOLDERS FOR WHICH ADMINISTRATIVE A ND MANAGEMENT EXPENSES ARE INCURRED AND IN SOME BUSINE SSES REGULATORY APPROVALS ARE REQUIRED BEFORE SETTING UP THE SAME. THERE WILL BE REGULAR MONITORING OF THESE INVESTMEN TS WHICH ALSO MAY REQUIRE PARTICIPATION IN THE MEETINGS OF COMMIT TEES, BOARD OF DIRECTOR AND SHAREHOLDER MEETINGS. THERE WILL DEFIN ITELY BE AN EXPENDITURE INCURRED TOWARDS ADMINISTRATIVE AND MAN AGEMENT COST ETC. TOWARDS PLANNING, EXECUTING AND MAINTAINI NG THESE INVESTMENTS . OUR VIEW IS FORTIFIED BY THE FOLLOWIN G DECISIONS : 1. THE OBSERVATION MADE BY HON'BLE SUPREME COURT IN THE CASE OF CIT V. WALFORT SHARE & STOCK BROKERS PVT. LTD . (2010) 326 ITR 1(SC) DEFINING THE SCOPE OF SECTION 14A OF THE ACT INCORPORATED RETROSPECTIVELY WEF 1ST APRIL 1962. THE RELEVANT OB SERVATIONS ARE REPRODUCED AS UNDER: 'THE INSERTION OF SECTION 14A WITH RETROSPECTIVE EFFECT IS THE SERIOUS ATTEMPT ON THE PART OF THE PARLIAMENT NOT T O ALLOW DEDUCTION IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AGAINST THE TAXABLE INCOME (SEE CIRCULAR NO. 14 OF 2001 DATED 22-11-2001). IN OTHER ITA 7068/MUM/2012 19 WORDS, SECTION 14A CLARIFIES THAT EXPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO TH E EARNING OF TAXABLE INCOME. IN MANY CASES THE NATURE OF EXPENSE S INCURRED BY THE ASSESSEE MAY BE RELATABLE PARTLY TO THE EXEMPT INCOME AND PARTLY TO THE TAXABLE INCOME. IN THE ABSENCE OF SECTION 14A , THE EXPENDITURE INCURRED IN RESPECT OF EXEMPT INCOME WAS BEING CLAIMED AGAINST TAXABLE INCOME. THE MANDATE OF SECTION 14A IS CLEAR. IT DESIRES TO CURB THE PRACTICE TO CLAIM DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME AGAINST TAXABLE INCOME AND AT THE SAM E TIME AVAIL THE TAX INCENTIVE BY WAY OF EXEMPTION OF EXEM PT INCOME WITHOUT MAKING ANY APPORTIONMENT OF EXPENSES INCURR ED IN RELATION TO EXEMPT INCOME. THE BASIC REASON FOR INS ERTION OF SECTION 14A IS THAT CERTAIN INCOMES ARE NOT INCLUDIBLE WHILE COMPUTING TOTAL INCOME AS THESE ARE EXEMPT UN DER CERTAIN PROVISIONS OF THE ACT. IN THE PAST, THERE H AVE BEEN CASES IN WHICH DEDUCTION HAS BEEN SOUGHT IN RESPECT OF SUCH INCOMES WHICH IN EFFECT WOULD MEAN THAT TAX INCENTI VES TO CERTAIN INCOMES WAS BEING USED TO REDUCE THE TAX P AYABLE ON THE NON-EXEMPT INCOME BY DEBITING THE EXPENSES, INCURRED TO EARN THE EXEMPT INCOME, AGAINST TAXABLE INCOME. THE BASIC PRINCIPLE OF TAXATION IS TO TAX THE NET INCOM E, I.E., GROSS INCOME MINUS THE EXPENDITURE. ON THE SAME ANALOGY T HE EXEMPTION IS ALSO IN RESPECT OF NET INCOME. EXPENSE S ALLOWED CAN ONLY BE IN RESPECT OF EARNING OF TAXABLE INCOME . THIS IS THE PURPORT OF SECTION 14A . IN SECTION 14A , THE FIRST PHRASE IS 'FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UND ER THIS ITA 7068/MUM/2012 20 CHAPTER' WHICH MAKES IT CLEAR THAT VARIOUS HEADS OF INCOME AS PRESCRIBED UNDER CHAPTER IV WOULD FALL WITHIN SECTION 14A . THE NEXT PHRASE IS, 'IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT'. IT ME ANS THAT IF AN INCOME DOES NOT FORM PART OF TOTAL INCOME, THEN THE RELATED EXPENDITURE IS OUTSIDE THE AMBIT OF THE APP LICABILITY OF SECTION 14A . FURTHER, SECTION 14 SPECIFIES FIVE HEADS OF INCOME WHICH ARE CHARGEABLE TO TAX. IN ORDER TO BE CHARGEABLE, AN INCOME HAS TO BE BROUGHT UNDER ONE O F THE FIVE HEADS. SECTIONS 15 TO 59 LAY DOWN THE RULES FOR COMPUTING INCOME FOR THE PURPOSE OF CHARGEABILITY T O TAX UNDER THOSE HEADS. SECTIONS 15 TO 59 QUANTIFY THE TOTAL INCOME CHARGEABLE TO TAX. THE PERMISSIBLE DEDUCTION S ENUMERATED IN SECTIONS 15 TO 59 ARE NOW TO BE ALLOWED ONLY WITH REFERENCE TO INCOME WHICH IS BROUGHT UNDER ONE OF THE ABOVE HEADS AND IS CHARGEABLE TO TAX. IF AN INCOME LIKE DIVIDEND INCOME IS NOT A PART OF THE TOTAL INCOME, THE EXPENDITURE/DEDUCTION THOUGH OF THE NATURE SPECIFIE D IN SECTIONS 15 TO 59 BUT RELATED TO THE INCOME NOT FORMING PART OF TOTAL INCOME COULD NOT BE ALLOWED AGAINST O THER INCOME INCLUDIBLE IN THE TOTAL INCOME FOR THE PURPO SE OF CHARGEABILITY TO TAX. THE THEORY OF APPORTIONMENT O F EXPENDITURES BETWEEN TAXABLE AND NON-TAXABLE HAS, I N PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 14A . READING SECTION 14 IN JUXTAPOSITION WITH SECTIONS 15 TO 59 , IT IS CLEAR THAT THE WORDS 'EXPENDITURE INCURRED' IN SECTION 14A REFERS TO EXPENDITURE ON RENT, TAXES, SALARIES, I NTEREST, ITA 7068/MUM/2012 21 ETC. IN RESPECT OF WHICH ALLOWANCES ARE PROVIDED FO R (SEE SECTIONS 30 TO 37 ). 2. THE ITAT,MUMBAI IN THE CASE OF ACIT V. CITICORP FINANCE (INDIA ) LIMITED (2007)108 ITD 457 HAS NEGATED THE CONTENTIO N OF THE ASSESSEE THAT IT HAD INCURRED NO EXPENDITURE FOR EARNING HIG H DIVIDENDS AS UNDER: 'IT IS DIFFICULT TO ACCEPT THE HYPOTHESIS THAT ONE CAN EARN SUBSTANTIAL DIVIDEND INCOME WITHOUT INCURRING ANY E XPENSES WHATSOEVER INCLUDING MANAGEMENT OR ADMINISTRATIVE E XPENSES. BY SAME LOGIC, IT IS EQUALLY DIFFICULT TO ACCEPT THAT THE ONLY EXPENSES INVOLVED IN EARNING THE DIVIDEND INCOME ARE THOSE I NCURRED ON COLLECTION OF DIVIDEND OR ON ENCASHING A FEW DIVIDE ND WARRANTS. A COMPANY CANNOT EARN DIVIDEND WITHOUT ITS EXISTENCE AND MANAGEMENT. INVESTMENT DECISIONS ARE VERY COMPLEX I N NATURE. THEY REQUIRE SUBSTANTIAL MARKET RESEARCH, DAY-TO-DA Y ANALYSIS OF MARKET TRENDS AND DECISIONS WITH REGARD TO ACQUISIT ION, RETENTION AND SALE OF SHARES AT THE MOST APPROPRIATE TIME. TH EY REQUIRE HUGE INVESTMENT IN SHARES AND CONSEQUENTIAL BLOCKING OF FUNDS. IT IS WELL KNOWN THAT CAPITAL HAS COST AND THAT ELEMENT OF COS T IS REPRESENTED BY INTEREST. BESIDES, INVESTMENT DECISIONS ARE GENE RALLY TAKEN IN THE MEETINGS OF THE BOARD OF DIRECTORS FOR WHICH AD MINISTRATIVE EXPENSES ARE INCURRED. IT IS THEREFORE NOT CORRECT TO SAY THAT DIVIDEND INCOME CAN BE EARNED BY INCURRING NO OR NO MINAL EXPENDITURE. THIS ASPECT OF THE MATTER HAS ALSO REC EIVED CAREFUL ATTENTION OF CHENNAI BENCH OF THIS TRIBUNAL IN SOUTHERN PETRO CHEMICAL INDUSTRIES V. DY. CIT (2005) 3 SOT 157 (CHENNAI- TRIB). AFTER COMPREHENSIVE CONSIDERATION OF ALL THE RELEVA NT ASPECTS OF THE ITA 7068/MUM/2012 22 CASE INCLUDING THE PROVISIONS OF LAW, THE CHENNAI B ENCH HAS HELD THAT INVESTMENT DECISIONS ARE VERY STRATEGIC DECISI ONS IN WHICH TOP MANAGEMENT IS INVOLVED AND THEREFORE PROPORTIONATE MANAGEMENT EXPENSES ARE REQUIRED TO BE DEDUCTED WHILE COMPUTIN G THE EXEMPT INCOME FROM DIVIDEND. IN HARISH KRISHNAKANT BHATT V. INCOME TAX OFFICER (2004) 91 ITD 311 (AHD.), THE AHMEDABAD BENCH OF T HIS TRIBUNAL HAS HELD THAT, THE DIVIDEND INCOME BEING E XEMPT UNDER SECTION 10(33) , THE INTEREST ON CAPITAL BORROWED FOR ACQUISITION OF RELEVANT SHARES YIELDING SUCH DIVIDE ND CANNOT BE ALLOWED DEDUCTION BY OPERATION OF SECTION 14A . IN DY. CIT V. SG INVESTMENTS &INDUSTRIES LTD . (2004) 89 ITD 44 (CAL.), THE CALCUTTA BENCH OF THIS TRIBUNAL HAS LAID DOWN TWO PROPOSITIO NS: ONE, IN VIEW OF SECTION 14A INSERTED IN THE INCOME TAX ACT WITH RETROSPECTIVE EFFECT FROM 1-4-1962, PRO RATA EXPENSES ON ACCOUNT OF INTEREST RELATABLE TO INVESTMENT IN SHARES FOR EARNING EXEMP T INCOME FROM DIVIDEND ARE TO BE DISALLOWED AGAINST TAXABLE INCOM E AND ONLY THE NET DIVIDEND INCOME IS TO BE ALLOWED EXEMPTION AFT ER DEDUCTING THE EXPENSES; AND TWO, THE EXPRESSION 'EXPENDITURE INCU RRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME' IN SECTION 14A HAS TO BE GIVEN A WIDER MEANING AND WOULD INCLUDE BOTH DIRECT AND INDIRECT RELATIONSHIP BETWE EN EXPENDITURE AND EXEMPT INCOME. FOLLOWING THE DECISION OF THE HO N'BLE SUPREME COURT IN CIT V. UNITED GENERAL TRUST LTD . (1993) 200 ITR 488 (SC), THE CALCUTTA BENCH OF THE TRIBUNAL HAS ALSO HELD TH AT THE INTEREST PAID BY THE ASSESSEE BEING ATTRIBUTABLE TO THE MONE Y BORROWED FOR THE PURPOSE OF MAKING THE INVESTMENT WHICH YIELDED THE DIVIDEND AND OTHER EXPENSES INCURRED IN CONNECTION WITH OR F OR MAKING OR ITA 7068/MUM/2012 23 EARNING THE DIVIDEND INCOME CAN BE REGARDED AS EXPE NDITURE INCURRED IN RELATION TO DIVIDEND INCOME. IN EVERPLUS SECURITIES & FINANCE LTD. V. DY. CIT (2006) 101 ITD 151 (DEL), THE DELHI BENCH OF THIS TRIBUNAL HAS HELD THAT MERELY BECAUSE THE A SSESSEE DID NOT EARN THE DIVIDEND OUT OF INVESTMENT IN CERTAIN SHAR ES DOES NOT IMPLY THAT THE PROVISIONS OF SECTION 14A WOULD NOT APPLY TO THAT EXTENT. IN ASSTT. CIT V. PREMIER CONSOLIDATED CAPITAL TRUST (I ). LTD. (2004) 83 TTJ (MUM.) 843, THE MUMBAI BENCH OF THIS TRIBUNAL HAS HELD THAT THE ASSESSING OFFICER IS JUSTIFIED IN ATT RIBUTING A PART OF THE FINANCIAL AND ADMINISTRATIVE EXPENSES AS EXPEND ITURE INCURRED IN RELATION TO EXEMPT INCOME AND DISALLOWING THE SA ME IN VIEW OF THE PROVISIONS OF SECTION 14A .' 3. THE ITAT, CHENNAI BENCH HAS HELD IN THE CASE OF SOUTHERN PETRO CHEMICALS INDUSTRIES V. DCIT(2005) 3 SOT 157 AS UND ER: ' WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERU SED THE RECORDS OF THE CASE. ADMITTEDLY, THESE INVESTMENTS IN SHARES WERE MADE DURING THE COURSE OF THE CARRYING ON OF BUSINE SS AND AS IS EVIDENT FROM THE RECORDS, SUBSTANTIAL INVESTMENTS H AD BEEN MADE BY THE ASSESSEE IN EARLIER YEARS, AND DURING THE CU RRENT YEAR AS WELL THE ASSESSEE MADE AN INVESTMENT OF RS. 19 CROR ES. WHETHER TO INVEST OR NOT TO INVEST AND WHETHER TO RETAIN THE I NVESTMENTS OR TO LIQUIDATE THE SAME ARE VERY STRATEGIC DECISIONS WHI CH THE MANAGEMENT IS CALLED UPON TO TAKE. THESE ARE MIND-B OGGLING DECISIONS AND TOP MANAGEMENT IS INVOLVED IN TAKING THESE DECISIONS. THIS DECISION MAKING PROCESS IS VERY COM PLICATED AND REQUIRES VERY CAREFUL ANALYSIS. MOREOVER, THE ASSES SEE HAS TO KEEP ITA 7068/MUM/2012 24 TRACK OF VARIOUS DIVIDEND INCOMES DECLARED BY THE I NVESTEE COMPANIES AND ALSO TO KEEP TRACK OF THE DIVIDEND IN COME HAVING BEEN REGULARLY RECEIVED BY THE ASSESSEE. THIS ACTIV ITY ITSELF CALLS FOR CONSIDERABLE MANAGEMENT ATTENTION AND CANNOT BE LEF T TO A JUNIOR CLERK. THE HON'BLE SUPREME COURT IN THE CASE OF UNI TED GENERAL TRUST LTD. (SUPRA), APPLYING THE DECISION OI HON'BL E SUPREME COURT IN THE CASE OF DISTRIBUTORS (BARODA) (P) LTD. V. UNION OF INDIA (1985) 47 CTR (SC) 349: (1985) 155 ITR 120 (SC), REVERSED THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN CIT V. UNITED GENERAL TRUST (P) LTD . (SUPRA), WHEREIN THE QUESTION WAS AS UNDER: 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL WAS JUSTIFIED IN APPLYING THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT V. NEW GREAT INSURANCE CO. LTD . (1973) 90 ITR 348 (BOM) TO THE ASSESSMENT YEAR IN QUESTION WITHOUT CONSIDERING THE EFFECT OF THE AMENDMENT OPERATIVE FROM IST APRIL, 1968, AND I N THUS HOLDING THAT THE ASSESSEE WOULD BE ENTITLED TO THE DEDUCTION UNDER SECTION 80M ON THE GROSS DIVIDEND BEFORE DEDUCTION OF THE PROPORTIONATE MANAGEMENT EXPENSES ?' THUS, WHEN THE DECISION OF THE HONBLE BOMBAY HIGH C OURT HAS BEEN REVERSED, THE PROPORTIONATE MANAGEMENT EXPENSES ARE REQUIRED TO BE DEDUCTED WHILE COMPUTING THE DIVIDEND INCOME. IN TH E DECISION OF THE HON'BLE CALCUTTA HIGH COURT, RELIED UPON BY THE LEA RNED COUNSEL FOR THE ASSESSEE, MR. DASTUR, IN THE CASE OF CIT V. UNITED COLLIERIES LTD . (SUPRA), IT HAS BEEN HELD THAT IF THE FACTS OF A PARTICULAR CASE SO WARRANT, THE ALLOCATION CAN BE MADE TOWARDS EXPENSES. IN VIEW OF THE AFOREMENTIONED ITA 7068/MUM/2012 25 DISCUSSION AND KEEPING IN VIEW THE SUBMISSIONS OF T HE LEARNED DEPARTMENTAL REPRESENTATIVE, WE RESTORE THIS MATTER TO THE ASSESSING OFFICER TO VERIFY THE QUANTUM OF DEDUCTION CLAIMED BY THE ASSESSEE IN EARLIER YEARS UNDER SECTION 57(I) FROM THE DIVIDEND INCOME (WHEN IT WAS TAXABLE) AND MAKE A PRO RATA ADJUSTMENT ON THE BASI S OF SUBSEQUENT INVESTMENTS MADE, INFLATION, ETC. THIS GROUND IS, A CCORDINGLY, ALLOWED FOR STATISTICAL PURPOSES 4. THE ITAT, KOLKATTA BENCH IN RECENT REPORTED JUDG MENT IN COAL INDIA LIMITED V. ACIT 2015 TAX PUB(DT)2496 IN ITA NO 1032/KOL/2012 PRONOUNCED RECENTLY ON 13TH MAY 2015 HAS CATEGORICA LLY HELD THAT EVEN STRATEGIC INVESTMENT IN GROUP CONCERNS FOR THE PURP OSE OF CONTROL AND NOT FOR EARNING DIVIDEND ATTRACT DISALLOWANCE U/S 14 A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. SINCE THE ASSESSEE COMPANY HAD CLAIMED THAT NO EXPE NDITURE WAS INCURRED, THE ASSESSING AUTHORITIES WERE CORRECT TO ESTIMATE THE INCURRING OF SUCH EXPENDITURE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D(2)(III) OF INCOME TAX RULES,1962. THE ASSESSING OFFICER HAS DISALLOWED BY COMPUTING T HE INDIRECT EXPENDITURE BEING ADMINISTRATIVE AND OTHER IN-DIREC T EXPENSES AFTER INVOKING RULE 8D(2) (III) OF INCOME TAX RULES ,1962 . WE, THEREFORE, HOLD THAT THE ASSESSING OFFICER HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D(2)(III) OF INCOME TAX RULES, 1962 FOR DISALLOWING THE EXPENDITURE OF RS. 7,22,027/- TOWARDS ADMINISTRATIVE AND OTHER INDIRECT EXPENSES WHICH WA S AFFIRMED BY THE ITA 7068/MUM/2012 26 CIT(A ) AND THE SAME IS ALSO HEREBY AFFIRM BY US AS WE HAVE FOUND NO INFIRMITY IN THE ORDERS OF THE AUTHORITIES BELOW. W E ORDER ACCORDINGLY. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE CO -ORDINATE BENCHES OF MUMBAI ITAT IN THE CASE OF UMA POLYMERS LIMITED IN ITA NO.5366/MUM/2012 DATED 30-09-2015, AND ALSO OF THE DECISION OF KOLKATTA TRIBUNAL COAL INDIA LIMITED V. ACIT 2015 TAX PUB(DT)2496 IN ITA NO 1032/KOL/2012 PRONOUNCED ON 13TH MAY 2015 WHEREBY KOLKATTA TRIBUNAL HAS CATEGORICALLY HELD THAT EVEN STRATEGIC INVESTME NT IN GROUP CONCERNS FOR THE PURPOSE OF CONTROL AND NOT FOR EARNING DIVIDEND ATTRACT DISALLOWANCE U/S 14 A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962., WE HOLD THAT THE INVESTMENT MADE BY THE ASSESSEE COMPANY IN BOMB AY STOCK EXCHANGE SHALL ATTRACT DISALLOWANCE U/S 14A OF THE ACT HAVIN G REGARDS TO THE ACCOUNTS OF THE ASSESSEE COMPANY AS PROVIDED U/S 14A(2) OF T HE ACT KEEPING IN VIEW RULE 8D(2)(III) OF THE INCOME TAX RULES, 1962,.WE A RE THEREFORE INCLINED TO SET ASIDE THE MATTER TO THE FILE OF THE AO FOR DE-NOVO DETERMINATION AND QUANTIFICATION OF DISALLOWANCE U/S 14A OF THE ACT O F THE INDIRECT EXPENSES INCURRED BY THE ASSESSEE COMPANY IN RELATION TO SUC H INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME HAVING REGARDS TO THE ACCOUNTS OF THE ASSESSEE COMPANY AS PROVIDED U/S 14A(2) OF THE ACT AND ALSO KEEPING IN VIEW RULE 8D(2)(III) OF INCOME TAX RULES, 1962. THE ASSESSEE COMPANY RELIED UPON DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LIMITED(SUPRA) WHILE IN THE SAID CASE THE HONBLE DELHI HIGH COURT HAS LAID DOWN THAT THERE CAN BE NO DISALLOWANCE U/S 14A OF THE ACT IF THERE IS NO EXEMPT INCOME RECEIVED OR RECEIVABLE BY THE TAX-PAYER. IN THE INS TANT APPEAL, THE ASSESSEE COMPANY DID RECEIVED THE EXEMPT INCOME VIDE DIVIDEN D INCOME FROM SHARES OF RS. 2,81,541/- . THIS DISPOSES OFF GROUND NO 2 OF T HE ASSESSEE COMPANY. WE ORDER ACCORDINGLY. ITA 7068/MUM/2012 27 GROUND NO. 3 AND 4 THE ASSESSEE COMPANY DID NOT P RESS THESE GROUNDS AND THESE GROUNDS ARE DISMISSED AS NOT PRESSED. GROUND NO 5 & 6 ARE CONSEQUENTIAL AND DOES NOT NEED ADJUDICATION. 10. IN THE RESULT, ASSESSEE COMPANY APPEAL IN ITA NO 7068/MUM/2012 FOR ASSESSMENT YEAR 2009-10 IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD AUGUST , 2016. # $% &' 03-08-2016 ( ) SD/- SD/- (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 03-08-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI B BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI