JSW HOLDINGS LTD, MUMBAI V. DCIT 5(2), MUMBAI

ITA 714/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0075 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 29-09-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 02-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARJU GARODIA
• Keywords: Capital asset; Business income; Earning of tax free income; Question of law; Bad and doubtful debts; Right to appeal; Revised return; Bonafide mistake
• Section: 143(3); 14A; 32; 147; 145; 263; 132; 12

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER & SH RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO. 714/MUM/2015 ASSESSMENT YEAR: 2011-12 M/S JSW HOLDINGS LTD., VS. THE DCIT 5(2), FORMERLY JINDAL SOUTH WEST MUMBAI HOLDING LTD., MUMBAI PAN NO. AABCJ1531F (APPELLANT) (RESPONDENT) APPELLANT BY : SH. HIRO RAI RESPONDENT BY : SMT. ARJU GARODIA DATE OF HEARING : 06.06.2017 DATE OF PRONOUNCEMENT : 31.08.2017 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-10[HE REINAFTER REFERRED TO AS CIT(A)],MUMBAI DATED 26.11.2014. THE ASSESSEE O RIGINALLY HAD TAKEN THE FOLLOWING GROUNDS:- 1. THE LEARNED COMMISSIONER OF INCOME TAX-(APPEALS) [HEREINAFTER THE CIT (A)'] ERRED IN LAW AND ON THE FACTS IN UPHOLDING THE ADDITION OF RS. 50,99,328 RESULTING F ROM THE DISALLOWANCE OF RS.1,58,46,667 AS AGAINST RS.1,07,4 7,339 2 DISALLOWED BY THE APPELLANT UNDER SECTION 14A READ WITH RULE 8D AS PER ITS COMPUTATION. 2. THE LEARNED CIT (A) ERRED BY NOT ESTABLISHING ANY D IRECT NEXUS BETWEEN THE EXPENDITURE DISALLOWED FOR EARNIN G THE EXEMPT DIVIDEND INCOME OF RS. 16,88,14,470/- AND TH E TOTAL INCOME OF RS. 24,06,62,745/-. AS PER THE LAW, ONLY THE EXPENDITURE ATTRIBUTABLE TO THE EXEMPT INCOME HAVIN G A DIRECT NEXUS FOR EARNING SUCH INCOME CAN BE DISALLO WED U/S 14A. THUS, THE ADDITION MADE BY THE LEARNED ASSESSI NG OFFICER ARE UPHELD ON ASSUMPTIONS, WITHOUT ASSIGNIN G ANY LOGICAL REASON FOR REJECTING THE CLAIM OF THE APPEL LANT AND WITHOUT CONSIDERING THE FACTS AND THE APPLICABLE PR OVISIONS OF THE LAW. 2. HOWEVER, SUBSEQUENTLY, THE ASSESSEE VIDE APPLIC ATION DATED 9.1.2017 HAS SOUGHT TO TAKE CERTAIN ADDITIONAL GROUNDS OF AP PEAL AND, ACCORDINGLY, FILED REVISED THE GROUNDS OF APPEAL, WHICH READS AS UNDER:- 1. THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX WAS N OT JUSTIFIED IN DISALLOWING AN AMOUNT OF RS.1,97,70,00 0/- UNDER SECTION 14A OF THE INCOME TAX ACT 1961. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT JUSTIF IED IN CONFIRMING THE SAME, IN PRINCIPLE. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN LAW AND ON THE FACTS IN DIRECTING THE AO TO ALLO W THE CLAIM OF THE APPELLANT OF THE BAD-DEBT WRITTEN-OFF AMOUNT TO RS.2,50,00,000 ON ACCOUNT OF IRRECOVERABLE OVERDUE MATURED DEBENTURES ONLY IF THE APPELLANT WAS AN NBFC AT THE TIME OF ACQUISITION OF THE SAID DEBENTURES. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN NOT APPRECIATING THE FACT THAT 3 THE APPELLANT WAS A FINANCE / INVESTMENT COMPANY SI NCE ITS INCEPTION AND THAT THE INTEREST ON THE SAID OVERDUE MATURED DEBENTURES WAS INCLUDED IN TAXABLE INCOME FOR A.Y. 2004- 05 AND A.Y. 2005-06 UNDER THE HEAD 'INCOME FROM BUS INESS / PROFESSION' IN RETURNS OF INCOME FILED BY TH E APPELLANT FOR THE RESPECTIVE YEARS. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ALSO ERRED IN NOT APPRECIATING TH E FACT THAT THE DEDUCTION FOR IRRECOVERABLE INTEREST ON THE SA ID OVERDUE MATURED DEBENTURES HAS ALREADY BEEN ALLOWED AS BAD- DEBT WRITTEN-OFF BY THE ITAT WHILE COMPUTING 'INCOME FRO M BUSINESS/PROFESSION' IN A.Y. 2007-08. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN NOT APPRECIATING THE FACT THAT THE WRITE OFF OF IRRECOVERABLE PRINCIPAL AMOUNT OF OVERDUE MATURED DEBENTURES WAS ALLOWABLE AS DEDUCTION TO THE APPELL ANT IN ITS NORMAL COURSE OF BUSINESS AS FINANCE / INVESTME NT COMPANY. 3. THE DEPARTMENT HAS STRONGLY OBJECTED TO THE ADMI SSION OF ADDITIONAL GROUNDS AT THIS STAGE. IN THEIR LETTER DATED 28.4.2 017, IT HAS BEEN PLEADED THAT THE GROUND NO.1 OF THE REVISED GROUNDS RAISED BY THE ASSESSEE RELATES TO DISALLOWANCE U/S 14A THE INCOME-TAX ACT, 1961 (IN S HORT 'THE ACT'). THAT THE SAID GROUND DOES NOT ARISE AT ALL FROM THE ORDE R OF THE CIT(A) AND IS NOT MAINTAINABLE. IT HAS BEEN PLEADED THAT THE LD. CIT(A) HAS NOT CONFIRMED THE DISALLOWANCE OF RS. 1,97,70,000/- AS PLEADED BY THE ASSESSEE RATHER THE CIT(A) IN PARA 5.1 OF HIS ORDER HAS DIRE CTED THE ASSESSING OFFICER TO VERIFY THE CONTENTION OF THE ASSESSEE TH AT THE ENTIRE EXPENDITURE CLAIMED IN PROFIT AND LOSS ACCOUNT WAS NOT RELATABL E TO THE EXEMPT INCOME 4 EARNED BY THE ASSESSEE AND TO RESTRICT THE DISALLOW ANCE TO THE NET EXPENDITURE OVER AND ABOVE THE SUO MOTO DISALLOWANC E BY THE ASSESSEE. IT HAS BEEN FURTHER PLEADED THAT WHILE GIVING EFFECT T O THE CIT(A)S ORDER, THE ASSESSING OFFICER HAS GIVEN A RELIEF OF RS. 44,48,3 55/- TO THE ASSESSEE REGARDING THE EXPENDITURE WHICH WAS FOUND NOT RELAT ABLE TO THE EARNING OF EXEMPT INCOME. IT HAS, THEREFORE, BEEN PLEADED THAT PRIMA FACIE THE REVISED GROUND NO.1 RAISED BY THE ASSESSEE IS INCORRECT. AS REGARDS GROUND NOS. 2,3,4 & 5 OF THE REVISED GRO UNDS, IT HAS BEEN PLEADED ON BEHALF OF THE DEPARTMENT THAT THESE GROU NDS WERE NOT TAKEN AT ALL BY THE ASSESSEE IN THE ORIGINALLY FILED APPEAL. FURTHER, THAT THE CLAIM OF THE ASSESSEE BEFORE THE CIT(A) WAS THAT THE ASSESSE E WAS A NON BANKING FINANCIAL COMPANY (NBFC). THE LD. CIT(A) HAS DIRECT ED THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE AFTER VE RIFYING THE ASSESSEES CLAIM THAT IT WAS A NBFC. HOWEVER, WHILE GIVING E FFECT TO THE ORDER OF THE CIT(A), THE ASSESSING OFFICER OBSERVED THAT THE CLAIM OF THE ASSESSEE OF AN AMOUNT OF RS. 2.50 CRORES CLAIMED AS BAD DEBT W RITTEN OFF WAS VERIFIED AND IT WAS FOUND THAT THE DEBENTURES WERE INHERITED BY THE ASSESSEE ON ACCOUNT OF MERGER OF COMPANIES AS PER THE ORDER NO . 563 OF 2003 DATED SEPTEMBER 3, 2004 OF THE HONBLE HIGH COURT, THE PE RIOD DURING WHICH THE ASSESSEE WAS NOT A NBFC. THE NBFC CERTIFICATE OF R EGISTRATION WAS ISSUED TO THE ASSESSEE COMPANY BY THE RESERVE BANK OF INDI A ON 18.9.2005, HENCE, THE CLAIM OF THE ASSESSEE WAS NOT ACCEPTED. IT HAS, THEREFORE, BEEN PLEADED THAT THE REVISED GROUNDS TAKEN BY THE ASSES SEE ARE NOT ADMISSIBLE AT THIS STAGE. 5 4. BEFORE ADJUDICATING ON THE ADMISSIBILITY OR NON- ADMISSIBILITY OF THE ADDITIONAL GROUNDS, WE DEEM IT FIT TO FIRST GO THRO UGH THE RELEVANT FACTS RELATING TO THE ISSUES RAISED BEFORE US. ON PERUSA L OF THE ORIGINAL GROUNDS OF APPEAL AS WELL THE REVISED GROUNDS OF APPEAL, TW O EFFECTIVE ISSUES EMERGE OUT OF THIS, THE FIRST IS RELATING TO THE DI SALLOWANCE MADE U/S 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULE, 1 962. THE SECOND ISSUE IS RELATING TO THE DISALLOWANCE OF BAD DEBTS WRITTE N OFF AMOUNTING TO RS. 2.50 CRORES. 5. AS REGARDS THE ISSUE RELATING TO DISALLOWANCE U/ S 14A OF THE ACT, THE BRIEF FACTS RELATING TO THIS ISSUE AS CULLED OUT FR OM THE ORDER OF THE ASSESSING OFFICER ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF ADVANCEMENT OF LOAN AND INVESTING IN SHARES AND SECURITIES. DURING THE ASSESSMENT PROCEEDINGS, ON PERUSAL OF THE PROFIT AN D LOSS ACCOUNT, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE COMPANY HAD EARNED DIVIDEND INCOME OF RS. 16,88,14,470/-. THE ASSESSEE HAD SUO MOTO DISALLOWED A SUM OF RS. 1,07,47,339/- AS EXPENDITURE RELATABLE T O THE EARNING OF THE AFORESAID TAX EXEMPT DIVIDEND INCOME AS PER THE PRO VISIONS OF SECTION 14A OF THE ACT. THE ASSESSING OFFICER, HOWEVER, SHOW CA USED THE ASSESSEE AS TO WHY THE DISALLOWANCE SHOULD NOT BE WORKED OUT AS PE R THE WORKING PRESCRIBED UNDER RULE 8D OF THE I.T. RULES. THE ASS ESSEE IN THIS RESPECT GAVE THE FOLLOWING EXPLANATION:- EXPLANATION AS TO WHY THE DISALLOWANCE U/S 14A SHO ULD NOT BE MADE AS PER RULE 8D 6 1.1 KINDLY NOTE THAT THE ASSESSEE HAS TAXABLE BUSINESS INCOME OF RS. 4,09,60,958/- AND LONG TERM CAPITAL GAIN OF RS. 182,397 PART FROM EXEMPT DIVIDEND INCOME OF RS. 16,88,14,7 70/- 1.2 FOR EARNING THE TAXABLE BUSINESS INCOME, THE ASSESS EE HAS INCURRED THE EMPLOYEE EXPENSES AND ADMINISTRATIVE A ND OTHER EXPENSES WHICH ARE IN THE NATURE OF COMPLIANCE WITH THE PROVISIONS OF COMPANIES ACT, 1956. THERE IS NO NEXU S OF THESE EXPENDITURE WITH THE EARNING OF EXEMPT DIVIDE ND INCOME. MOREOVER THE INVESTMENTS MADE BY THE ASSESS EE ARE STRATEGIC INVESTMENT. 1.3 THUS THE DISALLOWANCE TO BE MADE U/S 14A OF THE AC T, IS TO BE BASED ON THE FACTS OF THE EXPENDITURE ACTUALLY INCU RRED OF EARNING OF EXEMPT INCOME. 1.4 THE ASSESSEE SUBMITS THAT A REVIEW OF THE EXPENDITU RE DEBITED TO THE PROFIT AND LOSS ACCOUNT DETAILED HEREUNDER R EVEAL THAT NONE OF THE EXPENDITURE CAN BE ATTRIBUTABLE TO THE EARNING OF EXEMPT DIVIDEND INCOME EXCEPT THE DEMAT EXPENSES. EXPENDITURE RUPEES IN THOUSANDS RUPEES IN THOUSANDS (I) EMPLOYEE COSTS 138,65 (II) OFFICE ADMINISTRATIVE AND OTHER EXPENSES REPAIR AND MAINTENANCE (OTHER THAN BUILDING AND PLANT AND MACHINERY) 1 ADVERTISEMENT EXPENSES 188 TELEPHONE EXPENSES 60 TRAVELLING AND CONVEYANCE 253 VEHICLE EXPENSES 119 PRINTING & STATIONERY EXPENSES 248 POSTAGE AND TELEGRAMS 487 PROFESSION FEE 49 AUDITORS REMUNERATION 301 DEMAT AND CUSTODIAN CHARGES 203 LISTING FEE 105 AMOUNT WRITTEN OFF 525 7 SHARE TRANSFER AGENT EXPENSES 383 DIRECTORS SITTING FEE 250 AGM CHARGES 20 MISCELLANEOUS CHARGES 77 32.69 TOTAL EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT 171,34 LESS: AMOUNT WRITTEN OFF (DIRECT NEXUS TO THE BUSINESS INCOME) 166,09 LESS: EXPENSES DISALLOWED AS PER THE COMPUTATION OF INCOME PROVISION FOR GRATUITY 230 PROVISION FOR LEAVE ENCASHMENT 133 ESOP 924 1287 EXPENDITURE TO BE ALLOCATED IN TO TAXABLE AND EXEMPT DIVIDEND INCOME FOR COMPUTATION OF DISALLOWANCE U/S 14A 15,322 1.5 OUT OF THE ABOVE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT, THE DISALLOWANCE U/S 14A IS TO BE MADE ON SOME LOGI CAL AND RATIONAL BASIS. CONSIDERING THE RATIO OF DIVIDEND I NCOME TO THE TOTAL INCOME, THE PROPORTIONATE DISALLOWANCE CAN BE COMPUTED AS UNDER:- TOTAL INCOME (IN RS. 000) RS. 240, 663 100% PROPORTIONATE DISALLOWANCE (IN RS. 000) RS. 1,68,614/- 70% @ 70% ( (IN RS. 000) RS. 10, 747 1.6 SECTION 14A (2) PROVIDES FOR THE ASSESSING OFFI CER TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO S UCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, I F THE ASSESSING 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 W HICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT, SECT ION 14A(2) (EMPHASIS SUPPLIED). 8 6. THE ASSESSEE ALSO PLACED RELIANCE ON VARIOUS CAS E LAWS. THE ASSESSING OFFICER, HOWEVER, DID NOT ACCEPT THE ABOV E REPLY OF THE ASSESSEE AND COMPUTED THE DISALLOWANCE U/S 14A OF THE ACT AS PER THE PROVISIONS OF RULE 8-D OF THE I.T. RULES, OBSERVING AS UNDER:- 5.3 THE REPLY OF THE ASSESSEE WAS DULY CONSIDERED BUT FOUND NOT ACCEPTABLE BECAUSE IN THE INCOME TA X ACT THE PRINCIPLES OF RES JUDICATA DID NOT APPLY. T HE INCOME TAX AUTHORITY CAN TAKE DIFFERENT VIEW IN THE DIFFERENT YEAR BASED ON THE FACTS. 5.4 AS PER CLAUSE (III) OF SUB RULE (2) OF RULE 3D, AN AMOUNT EQUAL TO 0.5% OF AVERAGE INVESTMENT RELATING TO TAX FREE INCOME SHALL BE DISALLOWED UNDER SECTIO N 14A. IN THIS CASE, (THE AVERAGE INVESTMENT IS WORKE D OUT AT RS. 5,373,690,000/-. DISALLOWANCE U/S. RUL E 8D(III) WORKED OUT AT 2,68,68,000/-. HOWEVER, ON GOING THROUGH THE EXPENSES INCURRED BY THE ASSESSEE IN THE P&L ACCOUNT AT RS.1,97,70,000/- ONLY. EXPENSES ON THIS ACCOUNT ARE RESTRICTED UP TO RS.1.97.70,000/- ONLY BECAUSE ASSESSEE HAS INCURRED THIS MUCH EXPENSES ONLY IN P&L ACCOUNT. SINCE ASSESSEE ALREADY DISALLOWED HIMSELF AT RS.1,07,47,339/-, HENCE RS.90,22,661/-IS ADDED TO THE INCOME OF THE ASSESSEE. 7. BEING AGGRIEVED BY THE ABOVE DISALLOWANCE MADE B Y THE ASSESSING OFFICER, THE ASSESSEE PREFERRED AN APPEAL BEFORE TH E CIT(A). BEFORE THE LD. CIT(A), THE ASSESSEE PLEADED THAT THE TOTAL EXPENDI TURE DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE WAS RS. 1,97,70,00 0/-. IN THE RETURN OF INCOME, THE ASSESSEE ITSELF HAD DISALLOWED A SUM OF RS. 1,07,47,339/- U/S 14A OF THE ACT BEING PROPORTIONATE ADMINISTRATIVE A ND OTHER EXPENSES ATTRIBUTABLE TO THE EXEMPT INCOME. THE ASSESSING OF FICER WAS NOT JUSTIFIED IN MAKING FURTHER ADDITIONAL DISALLOWANCE WHICH WAS EQUAL TO THE DIFFERENCE OF AMOUNT OF TOTAL EXPENDITURE BOOKED IN PROFIT AND LOSS ACCOUNT 9 AND THE SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE U/S 14A OF THE ACT. THAT THE SAID DISALLOWANCE WAS MADE BY THE ASSESSIN G OFFICER WITHOUT PROPER APPLICATION OF SECTION 14A OF THE ACT. THAT EVEN THE AMOUNT OF RS. 39,23,333/- WAS ON ACCOUNT OF EXPENDITURE INCURRED IN RESPECT OF CERTAIN SPECIFIC ITEMS SUCH AS DEATH GRATUITY, LEAVE ENCASH MENT, STANDARD ASSETS ETC. WAS NOT AT ALL RELATABLE TO THE EARNING OF THE EXEMPT INCOME. IT WAS ALSO PLEADED THAT THE ASSESSEE HAD EARNED A TAXABLE INCOME OF RS. 4,11,43,355/- FROM BUSINESS, FOR EARNING OF WHICH T HE ASSESSEE MUST HAVE INCURRED EXPENDITURE. THE ASSESSEE THEREAFTER SUBMI TTED THE DETAILS OF VARIOUS EXPENDITURE AND PLEADED THAT NONE OF THE EX PENDITURE WAS DIRECTLY RELATABLE TO THE EARNING OF THE EXEMPT INCOME ACCEP T THE D-MAT EXPENSES AND FURTHER THAT THE DISALLOWANCE U/S 14A OF THE AC T UNDER THE CIRCUMSTANCES WAS REQUIRED TO BE MADE ON SOME LOGIC AL AND RATIONAL BASIS. CONSIDERING THE RATIO OF DIVIDEND INCOME (EXEMPT IN COME) OF THE TOTAL INCOME, THE PROPORTIONATE DISALLOWANCE U/S 14A OF T HE ACT WAS CALCULATED AT RS. 1,07,47,339/- AND THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING THE WORKING OF THE ASSESSEE. IT WAS ALSO PLEADED THAT THE ASSESSEE HAD EARNED SINGLE HUGE DIVIDEND INCOME FROM ONE COM PANY AND, THEREFORE, ENTIRE EXPENDITURE COULD NOT BE SAID TO BE RELATABL E TO THE INVESTMENT MADE IN THAT COMPANY ONLY. FURTHER, THAT THERE WAS NO IM PROVEMENT IN THE INVESTMENTS AS THE ASSESSEE HAS NOT ACQUIRED ANY NE W EQUITY SHARES. THE INVESTMENTS WERE OLD INVESTMENTS. IT WAS, THEREFORE , CLAIMED BY THE ASSESSEE BEFORE THE CIT(A) THAT THE ADDITION OF RS. 90,22,661/- MADE BY THE ASSESSING OFFICER U/S 14A OF THE ACT, BE DELETE D. 10 8. THE LD. CIT(A) AFTER CONSIDERING THE ABOVE SUBMI SSIONS OF THE ASSESSEE HELD THAT THE PROVISIONS OF RULE 8-D WERE APPLICABLE FROM ASSESSMENT YEAR 2008-09, AS HAS BEEN HELD BY THE H ON'BLE BOMBAY HIGH COURT IN THE CASE OF M/S GODREJ & BOYCE MANUFACTURING. CO. LTD [2010] 328 ITR 81 (BOM). HE THEREFORE, HELD THAT IN PRINC IPLE THE INVOKING OF PROVISIONS OF RULE 8D IN THE INSTANT CASE WAS JUSTI FIED. HOWEVER, AS REGARDING THE CLAIM OF THE ASSESSEE THAT AFTER MAKI NG SUO MOTO DISALLOWANCE U/S 14A OF THE ACT AND UNDER OTHER PRO VISIONS OF THE ACT, BALANCE NET EXPENDITURE WAS LESS THAN THE DISALLOWA NCE MADE BY THE AO, HE HELD THAT THE DISALLOWANCE U/S 14A OF THE ACT CANNO T EXCEED THE TOTAL EXPENDITURE. HE DIRECTED THE ASSESSING OFFICER TO V ERIFY THE ABOVE CONTENTION AND RESTRICT THE DISALLOWANCE TO THE NET EXPENDITURE OVER AND ABOVE THE SUO MOTO MADE BY THE ASSESSEE. 9. AGGRIEVED BY THE ABOVE ORDER OF THE CIT(A) ON TH IS ISSUE, THE ASSESSEE AS DISCUSSED ABOVE, HAS COME IN APPEAL BE FORE US WITH THE ORIGINAL GROUND CHALLENGING THE ADDITION OF RS. 50, 99,328/- WHICH HAS RESULTED ON ACCOUNT OF DISALLOWANCE OF NET EXPENDIT URE AFTER EXCLUDING THE SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE AND OTHE R EXPENDITURE WHICH WAS NOT AT ALL RELATING TO THE INVESTMENT ACTIVITY OF THE ASSESSEE. HOWEVER, IN THE REVISED/ADDITIONAL GROUND NO.1 OF THE APPEAL , THE ASSESSEE HAS AGITATED THE ACTION OF THE DCIT (AO) IN DISALLOWING THE AMOUNT OF RS. 1,97,70,000/- U/S 14A OF THE ACT. THOUGH, THE ASSES SEE, IN THE ORIGINAL GROUNDS OF APPEAL AGITATED THE CONFIRMATION OF ADDI TION OF RS. 50,99,328/-, THAT IS OF THE AMOUNT WHICH WAS OVER AND ABOVE THE SUO MOTO DISALLOWANCE OF RS.1,07,47,339/- OFFERED BY THE ASSESSEE IN ITS RETURN OF INCOME, 11 HOWEVER, AT THIS STAGE, THE LD. COUNSEL FOR THE ASS ESSEE HAS CONTENDED THAT NO DISALLOWANCE U/S 14A WAS ATTRACTED IN THIS CASE. HE HAS PLEADED THAT THE ASSESSEE COMPANY IS AN INVESTMENT COMPANY AND THAT IT HAD MADE STRATEGIC INVESTMENT IN ITS ASSOCIATE / SUBSIDIARY COMPANIES AS PART OF ITS BUSINESS ACTIVITY AND TO HAVE CONTROL OVER THEM. THE INVESTM ENTS WERE NOT MADE FOR THE PURPOSE OF EARNING OF DIVIDEND OR TAX EXEMPT IN COME, RATHER, THE DIVIDEND INCOME EARNED BY THE ASSESSEE WAS INCIDENT AL TO THE ABOVE BUSINESS STRATEGY OF THE ASSESSEE, THEREFORE, THE A DDITION MADE BY THE LOWER AUTHORITIES U/S 14A WAS NOT JUSTIFIED. HE, TO STRES S UPON THE POINT THAT IN CASE OF STRATEGIC INVESTMENT MADE BY A COMPANY IN I TS SUBSIDIARY COMPANY, OUT OF ITS BUSINESS ACTIVITY OR OUT OF THE BUSINESS EXIGENCIES SUCH AS TO HAVE CONTROL OVER THAT COMPANY, THE ASSESSEE IS ENT ITLED TO DEDUCTION OF INTEREST PAID ON THE BORROWED AMOUNT FOR MAKING SUC H INVESTMENT U/S 36(I)(III) OF THE ACT AND THAT THE DISALLOWANCE U/S 14 A IN RELATION TO SUCH STRATEGIC INVESTMENTS IS NOT ATTRACTED, HAS RELIED UPON THE FOLLOWING CASE LAWS:- 1. 202 TAXMAN 368 (BOM) CIT VS. PHIL CORPORATION LTD. 2. ITA NO. 6173/MUM/2012 M/S SHREE SHYAMKAMAL FINANC E AND LEASING CO LTD V ITO 3. ITAT NO. 4366//MUM/2014 JIGAR P SHAH V ACIT. 4. ITA NO. 6236 & 182/MUMBAI/2013 M/S CREATIVE GLOBA L STOCK BROKING PVT LTD VS. DCIT. HE HAS ALSO RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF NTPC VS CIT 229 ITR 383 TO STRESS THAT TH E ADDITIONAL GROUNDS CAN BE RAISED BEFORE THE APPELLATE AUTHORITIES. THE LD. COUNSEL FOR THE ASSESSEE HAS EXPLAINED THAT THE ASSESSEE HAD OFFERE D THE DISALLOWANCE U/S 12 14A IN THE RETURN OF INCOME UNDER A MISTAKEN BELIE F THAT DISALLOWANCE U/S 14 A WAS ATTRACTED ON ALL TYPE OF INVESTMENTS YIELD ING TAX EXEMPT INCOME, WHETHER OR NOT THE SAME WERE MADE OUT OF BUSINESS A CTIVITY. HE HAS FURTHER EXPLAINED THAT THE BENEFIT OF THE LEGAL PROPOSITION S LAID DOWN IN THE ABOVE REFERRED TO CASE LAWS WAS NOT AVAILABLE TO THE ASSE SSEE AT THAT TIME. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER SUBMITTED THAT THE SAID GROUND BY THE ASSESSEE HAS BEEN TAKEN AT THIS STAGE, BECAUSE OF T HE SUBSEQUENT EVOLUTION OF LAW THROUGH JUDICIAL INTERPRETATION OF THE RELEV ANT PROVISIONS OF SECTION 14A. 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. THE QUESTION AS TO WHETHER THE ASSESSEE CAN TAKE AN ADDITIONAL GROUND AT APPELLATE STAGE EVEN WHEN THE SAME HAS NOT BEEN RAISED BEFORE THE LOWER AUTHORITIES HAS BEEN THOROUGHLY DISCUSSED BY CO-ORDINATE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF PANDOO P. NAIG IN ITA NO.7089/MUM/2011 DE CIDED ON 24.06.2016 [2016 (9) TMI 1062]. THE TRIBUNAL, WHI LE RELYING UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F NATIONAL THERMAL POWER COMPANY LTD. VS. CIT 229 ITR 383, FULL BENCH OF THE HONBLE HIGH COURT IN THE CASE OF AHMEDABAD ELECTRICITY CO . LTD. VS. CIT (1993) 199 ITR 351, ANOTHER DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. CIT VS. PRUTHVI BROKERS AND SHARE HOLDERS PVT. LTD. (2012) 349 ITR 336 (BOM.) HAS HELD THAT THE APPELLA TE AUTHORITIES HAVE JURISDICTION TO DEAL NOT MERELY WITH ADDITIONAL GRO UND WHICH BECAME AVAILABLE ON ACCOUNT OF CHANGE OF CIRCUMSTANCES OR LAW, BUT WITH ADDITIONAL GROUNDS WHICH WERE AVAILABLE WHEN THE RETURN WAS FI LED. THE RELEVANT PART OF THE ORDER OF THE TRIBUNAL IN THE CASE OF PANDOO P. NAIG FOR THE PURPOSE OF REFERENCE IS REPRODUCED AS UNDER: 13 19. NOW COMING TO THE POINT, WHETHER, THE CLAIM PU T BY THE ASSESSEE SHRI PANDOO P. NAIG BY WAY OF ADDITIONAL GROUND BEFORE T HE LD. CIT(A) REGARDING THE DELETION OF ADDITION OF RS.4 CRORE OF FERED DURING THE SURVEY ACTION AND THEREBY OFFERED IN THE RETURN OF INCOME CAN BE ALLOWED AT THIS STAGE? THE LD. COUNSEL FOR THE ASSESSEE IN THIS RESPECT HA S PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F NATIONAL THERMAL POWER CO. LTD. VS. CIT 229 ITR 383. THE FACTS BE FORE THE HONBLE SUPREME COURT WERE THAT THE ASSESSEE IN THAT CASE O FFERED THE INTEREST AMOUNT FOR TAXATION AND THE ASSESSMENT WAS COMPLETE D ON THAT BASIS. BEFORE THE LD. CIT(A), THE ASSESSEE THOUGH HAD TAKEN A NUM BER OF GROUNDS OF APPEAL, HOWEVER, THE INCLUSION OF THE SAID AMOUNT O F INTEREST WAS NOT CHALLENGED. THE INCLUSION OF THE SAID AMOUNT OF IN TEREST WAS NOT OBJECTED TO EVEN IN THE GROUNDS OF APPEAL AS ORIGINALLY FILED B EFORE THE TRIBUNAL. HOWEVER, THE ASSESSEE BY WAY OF SUBSEQUENT LETTER R AISED THE ADDITIONAL GROUND IN RELATION TO THE SAID INCLUSION OF INTERES T INTO THE INCOME OF THE ASSESSEE. IN THE ABOVE CIRCUMSTANCES, THE QUESTION BEFORE THE HONBLE SUPREME COURT WAS WHERE ON THE FACTS FOUND BY THE AUTHORITIES BELOW A QUESTION OF LAW ARISES (THOUGH NOT RAISED BEFORE TH E AUTHORITIES) WHICH BEARS ON THE TAX LIABILITY OF THE ASSESSEE, WHETHER THE T RIBUNAL HAS JURISDICTION TO EXAMINE THE SAME? THE HONBLE SUPREME COURT WHILE ANSWERING THE SAID QUESTION OBSERVED THAT UNDER SECTION 254 OF THE INC OME TAX ACT, THE POWER OF THE TRIBUNAL IN DEALING WITH THE APPEALS IS EXPR ESSED IN THE WIDEST POSSIBLE TERMS; THE POWER OF THE TRIBUNAL UNDER SEC TION 254 IS NOT RESTRICTED ONLY TO DECIDE THE GROUNDS WHICH ARISE FROM THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS); THAT BOTH THE ASSESSEE AS WELL AS THE DEPARTMENT HAVE A RIGHT TO FILE AN APPEAL/CROSS OBJECTION BEFO RE THE TRIBUNAL AND THE TRIBUNAL IS NOT PREVENTED FROM CONSIDERING QUESTION S OF LAW ARISING IN ASSESSMENT PROCEEDINGS ALTHOUGH NOT RAISED EARLIER. WHILE ANSWERING THE QUESTION IN AFFIRMATIVE, THE HONBLE SUPREME COURT CONCLUDED THAT THE TRIBUNAL HAS JURISDICTION TO EXAMINE A QUESTION OF LAW WHICH ARISES FROM THE FACTS AS FOUND BY THE AUTHORITIES BELOW AND HAVING A BEARING ON THE TAX LIABILITY OF THE ASSESSEE. 20. THE FACTS OF THE CASE IN HAND ARE ON BETTER FOO TING. IN THE CASE IN HAND, THOUGH UNDER CONSISTENT PRESSURE, THE ASSESSE E OFFERED THE ADDITIONAL INCOME FOR TAXATION IN THE ASSESSMENT PROCEEDINGS B UT WHEN HE WAS BURDENED WITH MANY MORE ADDITIONS, HE AT THE FIRST INSTANCE DURING THE APPEAL BEFORE THE LD. CIT(A), CHALLENGED THE OFFER OF ADDITIONAL INCOME ON THE BASIS OF STATEMENT RECORDED UNDER SECTION 133A. EVEN THE SAID GROUND WAS ALSO ADMITTED BY THE LD. CIT(A) FOR ADJUDICATIO N THOUGH FINALLY DECIDED AGAINST THE ASSESSEE. THE FULL BENCH OF THE HONBL E BOMBAY HIGH COURT IN THE CASES OF AHMEDABAD ELECTRICITY COMPANY LTD. VS . CIT AND GODAVARI SUGAR MILLS LTD. VS. CIT BY WAY OF A COMMON ORDER DATED 30.04.1992 14 (1993) 199 ITR 351 HAS OBSERVED THAT THE BASIC PURP OSE OF AN APPEAL PROCEDURE IN AN INCOME TAX MATTER IS TO ASCERTAIN T HE CORRECT TAX LIABILITY OF THE ASSESSEE IN ACCORDANCE WITH LAW. THEREFORE, AT BOTH THE STAGES, EITHER BY THE APPELLATE ASSISTANT COMMISSIONER OR BEFORE THE APPELLATE TRIBUNAL, THE APPELLATE AUTHORITY CAN CONSIDER THE PROCEEDINGS BE FORE IT AND THE MATERIAL ON RECORD BEFORE IT FOR THE PURPOSE OF DETERMINING THE CORRECT TAX LIABILITY OF THE ASSESSEE. THE APPELLATE AUTHORITIES, OF COURSE , CANNOT TRAVEL BEYOND THE PROCEEDINGS AND EXAMINE NEW SOURCE OF INCOME, FOR T HAT PURPOSE OTHER SEPARATE REMEDIES ARE PROVIDED TO THE DEPARTMENT UN DER THE INCOME TAX ACT. THE HONBLE FULL BENCH OF THE BOMBAY HIGH COURT OBS ERVED THAT APART FROM THE ABOVE, THERE WAS NOTHING IN SECTION 254 OR SECT ION 251 WHICH WOULD INDICATE THAT THE APPELLATE AUTHORITIES ARE CONFINE D TO CONSIDERING ONLY THE OBJECTIONS RAISED BEFORE THEM OR ALLOWED TO BE RAIS ED BEFORE THEM EITHER BY THE ASSESSEE OR BY THE DEPARTMENT, AS THE CASE MAY BE. THEY CAN CONSIDER THE ENTIRE PROCEEDINGS TO DETERMINE THE TAX LIABILI TY OF THE ASSESSEE. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V S. PRUTHVI BROKERS AND SHAREHOLDERS PVT. LTD. (2012) 349 ITR 336 (BOM .) HAS OBSERVED THAT THE ASSESSEE IS ENTITLED TO RAISE NOT MERELY ADDITI ONAL LEGAL SUBMISSIONS BEFORE THE APPELLATE AUTHORITIES, BUT IS ALSO ENTIT LED TO RAISE ADDITIONAL CLAMS BEFORE THEM. THE APPELLATE AUTHORITIES HAVE JURISD ICTION TO DEAL NOT MERELY WITH ADDITIONAL GROUNDS, WHICH BECAME AVAILABLE ON ACCOUNT OF CHANGE OF CIRCUMSTANCES OR LAW, BUT WITH ADDITIONAL GROUNDS W HICH WERE AVAILABLE WHEN THE RETURN WAS FILED. THE WORDS COULD NOT HA VE BEEN RAISED MUST BE CONSTRUED LIBERALLY AND NOT STRICTLY. THERE MAY BE SEVERAL FACTORS JUSTIFYING THE RAISING OF A NEW PLEA IN AN APPEAL AND EACH CAS E MUST BE CONSIDERED ON ITS OWN FACTS. THE CO-ORDINATE BENCH OF THE TRIBUN AL IN THE CASE OF SHRI CHANDRASHEKHAR BAHIRWANI ITA NO.7810/M/2010 AND 65 99/M/2011 VIDE ORDER DATED 17.06.2015 WHILE DECIDING THE QUESTION AS TO WHETHER THE INCOME CANNOT BE ASSESSED LESS THAN THE RETURNED INCOME HA S OBSERVED AS UNDER: 5. NOW COMING TO THE FINDING OF THE LD. CIT(A), TH AT INCOME CANNOT BE ASSESSED LESS THAN THE RETURNED INCOME, T HE LD. A.R. OF THE ASSESSEE HAS SUBMITTED BEFORE US THAT THE ACTION OF THE LD. CIT(A) IN REJECTING THE CLAIM OF THE ASSESSEE ON THIS GROUND WAS NOT JUSTIFIED. HE HAS FURTHER RELIED UPON THE DECISION OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT GAS LTD. VS. JCIT (2 000) 245 ITR 84. IN THE SAID CASE, THE WORDS OF THE CIRCULAR NO.549, PARA 5.12, DT. 31 ST OCTOBER, 1989, PROVIDING THAT THE ASSESSED INCOME U NDER SECTION 143(3) SHALL NOT BE LESS THAN THE RETURNED INCOME W AS CONSIDERED BY THE HONBLE HIGH COURT AND IT WAS HELD THAT AS PER PROVISO TO SECTION 119 OF THE ACT, THE BOARD CANNOT ISSUE INSTRUCTIONS TO THE INCOME TAX AUTHORITY TO MAKE A PARTICULAR ASSESSMENT OR TO DIS POSE OF A PARTICULAR 15 CASE IN A PARTICULAR MANNER AS WELL AS NOT TO INTER FERE WITH THE DISCRETION OF THE COMMISSIONER IN EXERCISE OF HIS A PPELLATE FUNCTIONS. IT WAS FURTHER HELD THAT THE AO, WHILE EXERCISING H IS QUASI JUDICIAL POWERS, WAS NOT BOUND BY THE SAID CIRCULAR AND SHOU LD HAVE EXERCISED HIS POWERS INDEPENDENTLY. THE HONBLE HIGH COURT, THEREFORE, DIRECTED THE AO TO MAKE THE ASSESSMENT WITHOUT KEEP ING IN MIND THE SAID CIRCULAR. IT MAY BE FURTHER OBSERVED THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PRUTHVI BROKERS & SHAREH OLDERS PVT. LTD. ITA NO.3908 OF 2010 DECIDED ON 21.06.12, WHILE RELY ING UPON THE VARIOUS DECISIONS OF THE HONBLE SUPREME COURT AND OTHER HONBLE HIGH COURTS HAS HELD THAT EVEN IF A CLAIM IS NOT MA DE BEFORE THE AO, IT CAN BE MADE BEFORE THE APPELLATE AUTHORITIES. TH E JURISDICTION OF THE APPELLATE AUTHORITIES TO ENTERTAIN SUCH A CLAIM IS NOT BARRED. THE HONBLE HIGH COURT HAS FURTHER OBSERVED THAT THE DE CISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA ) LIMITED V. CIT (2006) 157 TAXMAN 1, RELATING TO THE RESTRICTI ON OF MAKING THE CLAIM THROUGH A REVISED RETURN WAS LIMITED TO THE P OWERS OF THE ASSESSING AUTHORITY AND THE SAID JUDGMENT DOES NOT IMPINGE ON THE POWER OR NEGATE THE POWERS OF THE APPELLATE AUTHORI TIES TO ENTERTAIN SUCH CLAIM BY WAY OF ADDITIONAL GROUND. EVEN OTHERW ISE, THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE CLAIM OF THE AS SESSEE IN EXERCISE OF HIS APPELLATE JURISDICTION UNDER SECTION 250 OF THE ACT. MOREOVER, IF THE ASSESSEE IS, OTHERWISE, ENTITLED TO A CLAIM OF DEDUCTION BUT DUE TO HIS IGNORANCE OR FOR SOME OTHER REASON COULD NOT CLAIM THE SAME IN THE RETURN OF INCOME, BUT HAS RAISED HIS CLAIM BEFO RE THE APPELLATE AUTHORITY, THE APPELLATE AUTHORITY SHOULD HAVE LOOK ED INTO THE SAME. THE ASSESSEE CANNOT BE BURDENED WITH THE TAXES WHIC H HE OTHERWISE IS NOT LIABLE TO PAY UNDER THE LAW. EVEN A DUTY HAS AL SO BEEN CAST UPON THE INCOME TAX AUTHORITIES TO CHARGE THE LEGITIMATE TAX FROM THE TAX PAYERS. THEY ARE NOT THERE TO PUNISH THE TAX PAYERS FOR THEIR BONAFIDE MISTAKES. IN VIEW OF OUR ABOVE OBSERVATIONS, IT IS HELD THAT THE ASSESSEE IS NOT LIABLE TO PAY CAPITAL GAINS TAX, TH OUGH ORIGINALLY HE HAD SUBJECTED HIMSELF TO THE SAID TAX AS PER HIS RE TURN OF INCOME. THE AO IS DIRECTED TO PROCESS THE CLAIM OF REFUND IN TH IS RESPECT AS PER PROVISIONS OF THE LAW. 21. IN VIEW OF THE ABOVE OBSERVATION, WE HOLD THAT THE LD. CIT(A) THOUGH, RIGHTLY ADMITTED THE QUESTION OF LAW AS TO WHETHER THE INCOME OFFERED BY THE ASSESSEE IN THE RETURN OF INCOME CON SEQUENT TO OFFER MADE IN HIS STATEMENT RECORDED DURING THE SURVEY ACTION CAN BE CHALLENGED BEFORE THE APPELLATE AUTHORITY, BUT WRONGLY DECIDED THE SAME IN FAVOUR OF REVENUE. IN VIEW OF OUR FINDINGS GIVEN ABOVE AND IN VIEW OF THE VARIOUS CASE LAWS AS DISCUSSED ABOVE, WE HAVE NO HESITATION TO HOLD THAT THE ADDITIONAL INCOME WAS RETURNED BY THE ASSESSEE PERHAPS UNDER FORCE, P RESSURE, THREAT OR 16 COERCION AND UNDER THE MISTAKEN BELIEF. THE ASSESSE E, IN OUR VIEW, WAS NOT LIABLE TO PAY TAX ON THE SAID ADDITIONAL INCOME RET URNED. WE ACCORDINGLY DIRECT THE DEPARTMENT TO REFUND THE TAXES, IF ANY, PAID BY THE ASSESSEE IN RESPECT OF ADDITIONAL INCOME OFFERED DURING THE SUR VEY ACTION. 11. ADMITTEDLY, THE ASSESSEE ITSELF HAS OFFERED THE DISALLOWANCE U/S 14 A IN ITS RETURN OF INCOME. HOWEVER, THE LD. COUNSEL H AS EXPLAINED THAT WAS DONE UNDER A MISTAKEN BELIEF THAT DISALLOWANCE U/S 14 A WAS ATTRACTED ON ALL TYPE OF INVESTMENTS YIELDING EXEMPT INCOME, WHE THER OR NOT THE SAME WERE MADE OUT OF BUSINESS ACTIVITY. HE HAS FURTHER EXPLAINED THAT THE BENEFIT OF THE LEGAL PROPOSITIONS LAID DOWN IN THE ABOVE REFERRED TO CASE LAWS WAS NOT AVAILABLE TO THE ASSESSEE AT THAT TIME . THE ASSESSEE HAS RAISED THE ABOVE STATED LEGAL PLEA THAT THE DISALLOWANCE U /S 14A IS NOT ATTRACTED IN CASE OF STRATEGIC INVESTMENTS MADE OUT OF BUSINE SS EXIGENCY DURING THE COURSE OF ARGUMENTS BEFORE US ON THE BASIS OF SUBS EQUENT EVOLUTION OF LAW THROUGH JUDICIAL INTERPRETATIONS OF THE RELEVANT PR OVISIONS BY THE HIGHER COURTS. WE ARE OF THE VIEW THAT THE PROPOSITION OF LAW ON THE ISSUE UNDER CONSIDERATION AS HAS BEEN EVOLVED AS ON TODAY THROU GH VARIOUS JUDICIAL DECISIONS SHOULD ALSO BE APPLIED TO THE CASE OF THE ASSESSEE AS THE RELEVANT ISSUE OF DISALLOWANCE U/S 14A IS THE SUBJECT MATTER OF ADJUDICATION BEFORE THIS TRIBUNAL AND THE SAME HAS NOT ATTAINED FINALIT Y. EVEN OTHERWISE, THE DEPARTMENT HAS BEEN GIVEN WIDE POWERS UNDER THE ACT NOT ONLY AT THE AO LEVEL UNDER SECTION 147 OF THE A CT BUT ALSO AT COMMISSIONER LEVEL UNDER SECTION 263 OF THE ACT TO REASSESS THE INCOME, IN CASE OF UNDER ASSESSMENT OF INCOME OF THE ASSESS EE IN ASSESSMENT PROCEEDINGS CARRIED OUT U/S 143 OF THE ACT. SUCH PO WERS OF REASSESSMENT ARE ALSO AVAILABLE TO INCOME TAX AUTHORITIES U/S 15 3A AND 153C IN CASE OF 17 DETECTION OF UNDISCLOSED INCOME IN SEARCH PROCEEDIN GS CARRIED OUT U/S 132 OF THE ACT. EVEN THE ASSESSEE CAN BE BURDENED WITH HARSH PENALTY, IN CASE HE IS FOUND TO HAVE FURNISHED INACCURATE PARTICULAR S OF INCOME OR CONCEALED HIS INCOME. IN SUCH A SITUATION, IF THE A SSESSEE HAS MISTAKENLY OFFERED CERTAIN AMOUNT FOR TAXATION, WHICH HE IS LE GALLY NOT SUPPOSED TO OFFER, IN OUR VIEW, HE CAN ALSO RAISE SUCH AN ADDIT IONAL CLAIM BEFORE THE APPELLATE AUTHORITIES. THE ASSESSEE CANNOT BE PUT T O A DISADVANTAGEOUS POSITION BECAUSE OF MERE TECHNICALITIES. THE ASSESS EE CANNOT BE BURDENED WITH THE TAXES WHICH HE OTHERWISE IS NOT LIABLE TO PAY UNDER THE LAW. EVEN A DUTY HAS ALSO BEEN CAST UPON THE INCOME TAX AUTHO RITIES TO CHARGE THE LEGITIMATE TAX FROM THE TAX PAYERS. THEY ARE NOT TH ERE TO PUNISH THE TAX PAYERS FOR THEIR BONAFIDE MISTAKES. IN VIEW OF OUR ABOVE OBSERVATIONS AND IN THE LIGHT OF THE PROPOSITION OF LAW LAID DOWN IN THE DECISIONS OF HONBLE SUPREM E COURT IN THE CASE OF NATIONAL THERMAL POWER COMPANY LTD. VS. CIT (SUPR A), FULL BENCH OF THE HONBLE HIGH COURT IN THE CASE OF AHMEDABAD EL ECTRICITY CO. LTD. VS. CIT (SUPRA) AND ANOTHER DECISION OF THE HONBLE BO MBAY HIGH COURT IN THE CASE OF CIT VS. CIT VS. PRUTHVI BROKERS AND S HAREHOLDERS PVT. LTD. (SUPRA) AND OF THE COORDINATE BENCH DECISION IN THE CASE OF PANDOO P. NAIG (SUPRA), THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ADMITTED AND THE ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY THE CLAIM OF THE ASSESSEE REGARDING STRATEGI C INVESTMENTS AS TO WHETHER THE SAME WERE RELATED TO THE BUSINESS ACTIV ITY OF THE ASSESSEE OR AS PART OF ITS BUSINESS STRATEGY TO INVEST IN THE S HARES OF ITS SISTER/SUBSIDIARY COMPANIES TO HAVE CONTROL OVER TH EM AND NOT FOR THE PURPOSE OF DERIVING TAX EXEMPT INCOME AND WHETHER T HE DIVIDEND/ TAX 18 EXEMPT INCOME WAS INCIDENTAL TO THE ABOVE BUSINESS ACTIVITY OF THE ASSESSEE AND DECIDE THE ISSUE A FRESH IN ACCORDANCE WITH LAW IN THE LIGHT OF THE AVAILABLE DECISIONS OF THE HIGHER/HIGHEST COURT S/COURT. IT IS ALSO HELD THAT IT WILL NOT BE AN IMPEDIMENT OR REASON TO DENY THE CLAIM TO THE ASSESSEE THAT THE ASSESSEE ITSELF OFFERED THE DISAL LOWANCE IN ITS RETURN OF INCOME, IF THE ASSESSEE OTHERWISE IS FOUND LEGALLY ENTITLED TO SUCH A CLAIM. 12. NOW COMING TO GROUND NO.1 OF THE APPEAL, IT IS APPARENT THAT NEITHER THE ASSESSING OFFICER NOR THE LD. CIT(A) HAD APPLIE D THEIR MIND TO THE WORKING GIVEN BY THE ASSESSEE. THE HON'BLE BOMBAY H IGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. 328 ITR 81 HA S HELD THAT UNDER SECTION 14A OF THE ACT, RESORT CAN BE MADE TO RULE 8D OF THE INCOME TAX RULES FOR DETERMINING THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME, IF, THE AO IS NOT SATISFIED WITH THE CORREC TNESS OF THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THE SATISFACTION OF THE ASSESSING OFFICER HAS TO BE ARRIVED AT, HAVING REGA RD TO THE ACCOUNTS OF THE ASSESSEE. SUB SECTION (2) DOES NOT IPSO FACTO ENABL E THE ASSESSING OFFICER TO APPLY THE METHOD PRESCRIBED BY THE RULES STRAIGH TAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IS CORRECT. THE SATISFACTION OF THE ASS ESSING OFFICER MUST BE ARRIVED AT ON AN OBJECTIVE BASIS. IN A SITUATION WH ERE THE ACCOUNTS OF THE ASSESSEE FURNISH AN OBJECTIVE BASIS FOR THE ASSESSI NG OFFICER TO ARRIVE AT A SATISFACTION IN REGARD TO THE CORRECTNESS OF THE CL AIM OF THE ASSESSEE, THERE WOULD BE NO WARRANT FOR TAKING RECOURSE TO THE METH OD PRESCRIBED BY THE RULES. AN OBJECTIVE SATISFACTION CONTEMPLATES A NOT ICE TO THE ASSESSEE, AN OPPORTUNITY TO THE ASSESSEE TO PLACE ON RECORD ALL THE RELEVANT FACTS 19 INCLUDING HIS ACCOUNTS AND IN THE EVENT THAT HE COM ES TO THE CONCLUSION THAT HE IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. HOWEVER, AS OBSERVED ABOVE, IN THE CASE IN HAND, THE ASSESSING OFFICER H AS NOT FOLLOWED THE GUIDELINES OF OBJECTIVE SATISFACTION AS LAID DOWN B Y THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE (SUPRA) WHILE MAKING THE DISALLOWANCE. HE WITHOUT RECORDING ANY REASONING FO R HIS DISSATISFACTION WITH REGARD TO THE WORKING/CLAIM OF THE ASSESSEE, S TRAIGHTWAY APPLIED RULE 8D AGAINST THE MANDATE OF THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT. THE ID. CIT(A) ALSO IGNORED THE MANDATE OF THE PROVISIONS OF SECTION 14A, WHILE GIVING PART RELIEF TO THE ASSESSEE ON A DIFFERENT FOOTING. SINCE WE HAVE ALREADY RESTORED THE MATTER TO THE AO ON TH IS ISSUE, WE DIRECT THAT THE AO WILL ALSO LOOK INTO AND CONSIDER THE ABOVE A SPECTS AND ADJUDICATE ON ALL ALTERNATE CONTENTIONS ALSO OF THE ASSESSEE O N THIS ISSUE AND WILL COMPLY WITH THE REQUIREMENTS OF LAW, AS DISCUSSED A BOVE, WHILE DECIDING THIS ISSUE A FRESH. 13. IN RESPECT OF THE ISSUE RELATING TO THE BAD D EBTS WRITTEN OFF, NO GROUND HAS BEEN ORIGINALLY TAKEN BY THE ASSESSEE IN THIS APPEAL, HOWEVER, IN THE REVISED GROUND OF APPEAL, GROUND NOS. 2 TO 4 ARE RELATABLE TO THIS ISSUE. AS DISCUSSED ABOVE IN THE INITIAL PARAS OF T HE ORDER, THE DEPARTMENT HAS STRONGLY OBJECTED TO THE ADMISSION OF THIS GROU ND OF APPEAL AT THIS STAGE. HOWEVER, IT IS AN ADMITTED FACT THAT THIS IS SUE WAS ALREADY THERE BEFORE THE ASSESSING OFFICER AND EVEN THE ASSESSEE HAD ALSO PREFERRED AN APPEAL ON THIS ISSUE BEFORE THE LD. CIT(A). AS NO N EW FACTS HAVE TO BE EXAMINED ON THIS ISSUE, HENCE, THIS GROUND IS ADMIT TED FOR ADJUDICATION. 20 14. THE BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT ASSE SSEE COMPANY HAD CLAIMED RS. 2.50 CRORES AS WRITTEN OFF AS IRRECOV ERABLE BAD DEBTS. WHEN BEING ASKED TO EXPLAIN IN THIS RESPECT, THE ASSESSE E IN ITS REPLY EXPLAINED AS UNDER:- 1. THE INVESTMENT IN OPTIONAL CONVERTIBLE DEBENTUR ES (OCD'S) OF REFERRED SIX COMPANIES IS VERY OLD AND THEY HAVE BE EN APPEARING AS SUNDRY LOANS, MATURED DEBENTURES INCLUDING INTEREST DUE WIDER LOANS AND ADVANCES IN THE BALANCE SHEET OF ASSESSEE . A COPY OF AUDITED BALANCE SHEET AS AN 31-3-2005 ALONGWITH BRE AKUP OF SUNDRY LOANS, MATURED DEBENTURES INCLUDING INTEREST AMOUNT ING TO RS 97,56,28,933/- IS ENCLOSED HEREWITH. YOUR HONOUR WOULD NOTICE THAT THE REFERRED OUTSTANDING AMOUNT AGAINST THE UNDERLY ING COMPANIES IS APPEARING IN THE BALANCE SHEET. THE DETAILS AND DOC UMENTS PERTAINING TO ISSUE AND COURT CASES FILED AGAINST THESE COMPAN IES HAVE A/READY BEEN FURNISHED. 2. THE REFERRED COMPANIES BELONG TO LEXICON GROUP, AN NBFC. THE DETAILS OF COMPANIES ARE AS FOLLOWS: S.NO. NAME OF THE COMPANY ADDRESS PAN 1 KARVIRVASINIINV ESTMENT AND FINANCE LTD. 21, SETHI MANSION, KUMTHA STREET, BAKLLARD ESTATE, MUMBAI 400038 AMCK2140G 2 KAUNDIMJA INVESTMENTS &FINANCE PVT. LTD. 124, ANDHERI UNIVESAL INDUSTRIAL ESTATE, J.P. ROAD, ANDHERI (W), MUMBAI- 400058 AAACK200IN 3 MORTA FINLEASE & INVESTMENTS PUT. 124, ANDHERI UNIVERSAL INDUSTRIAL ESTATE, J.P. ROAD, ANDHERI (W), MUMBAI 400038 AAACM6864B 4 ATIIUPA INVESTMENT PVT. LID. 124, ANDHERI UNIVERSAL INDUSTRIAL INSTATE, J.P. ROAD, ANDHERI (W) F\V), MIUNBAI - 400 058 AAACA8328C 21 5 ZAFONIC FINLEASE & INVESTMENTS PVT. LTD. 1 24, ANDHERI UNIVERSAL INDUSTRIAL ESTATE, J.P. ROOD, ANDHERI {W}, MUMBAI-400058 AAACZ0310K 6 OTTOMAN FIN!EASE & INVESTMENTS PVT. LID. 21, SETHI MANSION, KUINTHA STREET, BOLLARD ESTATE, MUMBAI 400 038 AAAC01161F 3. AS PER THE PROVISIONS OF THE COMPANIES ACT 1956 , A PRIVATE LIMITED COMPANY IS NOT ALLOWED TO ISSUE A PROSPECTUS AS IT CANNOT INVITE THE PUBLIC FOR SUBSCRIPTION. IN VIEW OF THE FACT THAT ALL THE OCDS WERE ISSUED BY PRIVATE LIMITED COMPANIES THERE WOULD BE NO REQUIREMENT OF A PROSPECTUS IN SUCH CASES. THE OCD S ARE ISSUED BY PRIVATE LIMITED COMPANIES USUALLY ON A PRIVATE PLAC EMENT BASIS. 4. AS THE OCDS WERE ISSUED LONG BACK AND SINCE MAT URED BECAME A NON PERFORMING DEBT, PROVIDED FOR AND WRITTEN OFF , THE COPIES OF CERTIFICATES ARE NOT READILY TRACEABLE. HOWEVER, TH E MATURED DEBENTURES REGULARLY APPEARED IN BALANCE SHEET OF THE COMPANY AND DETAILS ATE ENCLOSED HEREWITH. 5. AS THE ASSESSEE COMPANY HAS BEEN UNDER LITIGATION WITH THE AFORESAID COMPANIES, IT DOES NOT HAVE ACCESS TO DET AILS OF OCDS ISSUED BY THESE COMPANIES TO OTHER PERSONS. 6. THE ASSESSEE COMPANY HAS ACCOUNTED FOR INTEREST INCOME DURING THE ASSESSMENT YEARS 2004-05 AND 2005-06 IN RESPECT OF THESE DEBENTURES BEFORE THEY BECAME NON-PERFORMING ASSETS. THE PARTY WISE DETAILS OF THE INTEREST INCOME ACCRUED TO ASSESSEE AND OFFERED TO TAX ON THESE OCDS IS AS FOLLOWS:- S.NO. NAME OF THE COMPANY INTEREST OFFERED FOR TAX IN ASSESSMENT YEAR 2004-05 INTEREST OFFERED FOR TAX IN ASSESSMENT YEAR 2005- 06 1 AFIRUPA INVESTMENT PVT LTD 480,000 480,000 2 MORTA FINLEASE & INVESTMENT PVT LTD 480,000 480,000 3 OTTOMON FINLEASE & INVESTMENTS PVT LTD 480,000 480,000 22 4 ZAFFONIC FINLEASE & INVESTMENTS AT LTD 480,000 480,000 5 KARVINVASINI INVESTMENTS & FINLEASE P. LTD 540,000 540,000 6 KAUNDILYA INVESTMENTS & FINLEASE P. LTD 540,000 540,000 TOTAL 3,000,000 3,000,000 7. THE ASSESSEE COMPANY IS A NON BANKING FINA NCE COMPANY AND ITS REGULAR BUSINESS IS TO ADVANC E LOAN, INVESTMENT IN VARIOUS INCOME EARNING INSTRUMENTS. H ENCE, THE SAID INVESTMENT IS IN NORMAL COURSE OF BUSINESS OF THE A SSESSEE COMPANY TO EARN INTEREST INCOME. 8. WITH REGARDS TO COMPARISON WITH DECISION IN THE CASE OF TRF LTD, IT IS SUBMITTED THAT AS PER THE DECISION IN TH E ABOVE CASE, THE APEX COURT HELD AS UNDER; 'THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1-4-19 89, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD D EBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE.' (PARA 4) (EMPHASIS SUPPLIED) THUS, IT IS SUFFICIENT COMPLIANCE BY THE ASSESSEE FOR ALLOWANCE OF THE BAD DEBTS UNDER SECTION 36(L)(VII) OF THE IN COME TAX ACT, 1961 (THE ACT), IF THE BAD DEBTS OR ANY PART THEREOF HAV E, BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE IN THE PREVIOUS YEAR AS PER THE AMENDMENTS MADE W.E.F. APRIL I, 1989 THE FACTS OF THE CASE OF THE ASSESSEE ARE SIMILAR. THE DEBTS DUE TO THE ASSESSEE IN ITS NORMAL COURSE OF BUSINESS AS NO N BANKING FINANCE COMPANY HAVE BEEN WRITTEN OFF BY THE ASSESS EE IN ITS ACCOUNTS AS THESE HAVE BECOME IRRECOVERABLE. FOLLOW ING THE ABOVE JUDGEMENT, THE CLAIM OF THE ASSESSEE IS ALLOWABLE U NDER SECTION 36(L)(VII) OF THE ACT. FOR YOUR READY REFERENCE AND RECORDS, WE ENCLOSE (H E COPY OF THE DECISION OF THE APEX COURT IN THE CASE OF TRF. LTD AS CJT (2O10] 333 JTR 397 (SC) FOR YOUR READY REFERENCE AND RECOR DS. 9. THE MATURED OCDS WERE THE RECOVERABLE DEBTS OF T HE ASSESSEE COMPANY IN ITS REGULAR COURSE OF BUSINESS AS NON BA NKING FINANCE COMPANY. THE INCOME ON THESE DEBTS HAS BEEN OFFERED FOR TAXATION AS STALED ABOVE. AS PER THE PROVISIONS OF THE ACT, IF ANY DEBTS OR PART OF 23 DEBT IS NOT RECOVERABLE, THEN THE ASSESSEE IS ENTIT LED TO CLAIM THE SAME, AS BAD DEBTS UNDER SECTION 36(1)(VII) OF THE ACT. SINCE THE OCDS ARE NOT CAPITAL ASSETS OF THE ASSESSEE, BUT IT S BUSINESS DEBTS IN THE COURSE OF ITS BUSINESS AS NON BANKING FINANCE C OMPANY, THE QUESTION OF TREATING THE BAD DEBTS AS CAPITAL LOSS DOES NOT ARISE. 10. COPY OF THE NBFC REGISTRATION CERTIFICATE ISSU ED BY RBI TO THE ASSESSEE COMPANY IS ENCLOSED HEREWITH ,. 15. THE LD. ASSESSING OFFICER, HOWEVER, DID NOT ACC EPT THE ABOVE EXPLANATION GIVEN BY THE ASSESSEE OBSERVING AS UNDE R :- 6.3 THE REPLY OF THE ASSESSEE HAS BEEN CONSIDERED BUT FOUND NOT ACCEPTABLE. THE ASSESSEE DID NOT FILE COP Y OF PROSPECTUS ISSUED BY THE AFORESAID COMPANIES. HE AL SO NOT FURNISHED THE COPY OF DEBENTURE CERTIFICATE. ALTHOUGH ASSESSEE FILED REPLY, BUT DETAILS OF OCDS ISSUED BY THE COMPANIES TO OTHER PERSONS WERE ALSO NOT FILED. THE ASSESSEE COMPANY HAS SLATED THAT DURING A.Y. 2004-05 AND 2005-06, INTEREST INCOME WAS OFFERED ON NON-PERFORMINGASSETS, BUT EVIDENCE IN THIS RESPECT WAS NOT SUBMITTED THE ASSESSEE. ASSESSEE SUBMITTED THAT AS A NON BANKING FINANCE COMPANY, IT WAS A REGULAR BUSINESS TO ADVANCE LOANS AND INVESTMENT IN VARIOUS COMPANIES. IT CLAIMED AT SAID INVESTMENT WAS IN NOR MAL COURSE OF BUSINESS, TO EARN INTEREST INCOME. REPLY IN RESPECT OF NON BANKING FINANCIAL COMPANY IS FACTUAL LY INCORRECT BECAUSE ASSESSEE HAS OBTAINED NBFC CERTIFICATE ON 11/6/2007 AND CONVERTIBLE DEBENTURES WERE ISSUED MUCH PRIOR TO F.Y. 2006-07. AT THE TIME OF ADVANCING LOANS TO THE VARIOUS COMPANIES AT THAT TI ME, COMPANY WAS NOT AN NBFC COMPANY, IN MY CONSIDERED VIEW, LOANS AND ADVANCES GIVEN BY (LIE ASSESSES WER E INVESTMENT BECAUSE AT THAT TIME COMPANY WAS NOT A NBFC. NBFC CERTIFICATE WAS OBTAINED IN JUNE 2007. THEREFORE LOANS AND ADVANCES GIVEN BY THE ASSESSES IS TREATED AS CAPITAL ASSET IN THE HANDS OF THE ASSESS EE COMPANY AND LOSS INCURRED ON THIS ACCOUNT IS ALSO TREATED AS CAPITAL LOSS. ASSESSEE COMPANY IS ENTITL ED TO CARRY FORWARD THE CAPITAL LOSS AS PER THE I,T. ACT PROVISIONS, BUT CLAIM AS BAD DEBT WRITE OFF AMOUNTI NG TO RS.2.50 CRORES IS HEREBY DISALLOWED AND ADDED TO TH E TOTAL INCOME OF THE ASSESSEE COMPANY. 24 16. BEING AGGRIEVED BY THE ABOVE ADDITION MADE BY T HE ASSESSING OFFICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE L D. CIT(A). THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE REFERRED BACK THE MATTER TO THE ASSESSING OFFICER DIRECTING HIM OF AL LOW THE CLAIM OF THE ASSESSEE BUT ONLY AFTER VERIFYING THE CONTENTION OF THE ASSESSEE THAT IT WAS A NBFC AT THE TIME OF ACQUISITION OF THE DEBENTURES BY IT. THE RELEVANT PART OF THE ORDER OF CIT(A) ON THIS ISSUE IS REPRODUCED AS UNDER:- GROUND NO.2 I S REGARDING DISALLOWANCE OF CLAIM OF AMOUNT WRITTEN OFF OF RS.2.50 CRORES. THE DISPUTE O N THIS ISSUE IS THAT THE AO HAS NOT ALLOWED THE CLAIM OF WRITE OFF OF AN AMOUNT OF RS.2.50 CRORES IN RESPECT OF THE DEBENTURE ON THE GROUND THAT IT IS A CAPITAL LO SS WHICH CAN ONLY BE CARRIED FORWARD. ON THE OTHER HAN D, IT WAS THE CLAIM OF THE APPELLANT BEFORE THE AO AS WELL AS DURING APPEAL PROCEEDINGS THAT THE APPELLANT WAS A NBFC COMPANY AT THE TIME OF INVESTMENT IN THE DEBENTURES IN QUESTION. THE AO HAS MAINLY MADE THIS ADDITION ON THE GROUND THAT THE NBFC CERTIFICATE OF THE APPELLANT COMPANY WAS ISSUED TO THE APPELLANT I N JUNE 2007, WHEREAS THE CONVERTIBLE DEBENTURES WHICH HAVE BEEN WRITTEN OFF DURING THE YEAR UNDER CONSIDERATION WERE ISSUED PRIOR TO F.Y.2006-07. THE APPELLANT ON THE OTHER HAND HAS REFUTED THIS OBSERVATION OF THE AO AND CLAIMED THAT THE AO HAS MISUNDERSTOOD THE NBFC CERTIFICATE OF JUNE 2007 BECAUSE IT WAS ONLY A RENEWAL OF OLD CERTIFICATE AN D THE APPELLANT IS AN OLD NBFC COMPANY FROM THE TIME WHEN THIS INVESTMENT IN DEBENTURE WAS MADE. AFTER CONSIDERING THE RIVAL SUBMISSION, I AGREE WITH THE CONTENTION OF THE APPELLANT IN PRINCIPLE TO THE EXT ENT THAT SINCE THE BUSINESS OF THE APPELLANT COMPANY IS FINANCING, IT BEING A NBFC COMPANY, IT IS ENTITLED TO 25 CLAIM THE WRITE OFF OF BAD DEBT OF INVESTMENT SUCH AS CONVERTIBLE DEBENTURES AFTER THE SAME HAVE BECOME A NONPERFORMING ASSET (NPA). ACCORDINGLY, THE AO IS DIRECTED TO ALLOW THE CLAIM OF THE APPELLANT, BUT ONLY AFTER VERIFYING CONTENTION OF THE APPELLANT THAT IT WAS NBFC AT THE TIME OF ACQUISITION OF THE DEBENTURES B Y THE APPELLANT. AS DISCUSSED ABOVE, THE ASSESSEE COULD NOT GET RELI EF ON THIS ISSUE FROM THE ASSESSING OFFICER IN THE ORDER GIVING EFFECT TO THE CIT(A) ORDER AS THE ASSESSEE COULD NOT ESTABLISH THAT NBFC CERTIFICATE WAS GRANTED PRIOR TO THE ISSUE OF DEBENTURES. NOW THE ASSESSEE BY WAY OF THE SE ADDITIONAL GROUNDS OF APPEAL HAS PLEADED THAT THE ASSESSEE WAS A FINAN CE / INVESTMENT COMPANY SINCE ITS INCEPTION. THAT EVEN THE INTEREST ON THE OVERDUE MATURED DEBENTURES WAS INCLUDED IN THE TAXABLE INCOME FOR T HE ASSESSMENT YEAR 2004-05 AND ASSESSMENT YEAR 2005-06 AS ITS BUSINES S INCOME. FURTHER, THAT EVEN THE DEDUCTION OF IRRECOVERABLE INTEREST ON THE OLD OVERDUE MATURED DEBENTURE HAS ALREADY BEEN ALLOWED AS BAD DEBT WRIT TEN OFF BY THIS TRIBUNAL WHILE COMPUTING THE INCOME FROM BUSINESS / PROFESSI ON IN ASSESSMENT YEAR 2007-08. THE LD. COUNSEL FOR THE ASSESSEE HAS RELIE D UPON THE FOLLOWING CASE LAWS IN THIS RESPECT: 1. 323 ITR 397 (SC) T.R.F. LTD V CIT. 2. 155 ITR 152 (SC) CIT VS. T. VEERABHADRA RAO, K. KOT ESWARA RAO & CO. 3. ITA NO. 3191/MUM/2010 JINDAL SOUTH WEST HOLDING L TD V DCIT ASSESSEE OWN CASE FOR ASSESSMENT YEAR 2007-0 8 17. WE HAVE GONE THROUGH THE ORDER OF THE TRIBUNAL DATED 21.11.2012 PASSED IN ITA NO. 3191/MUM/2010 VIDE WHICH THE TRIB UNAL HAS ALLOWED 26 THE CLAIM OF THE ASSESSEE FOR WRITE OFF OF THE INTE REST ON THE AFORESAID ORIGINALLY CONVERTIBLE DEBENTURES (OCDS). THE RELEV ANT PART OF THE ORDER DATED 21.11.2012 OF THE TRIBUNAL (SUPRA) IS REPRODU CED S UNDER:- 6. THE NEXT GROUND OF APPEAL IS ABOUT DISALLOWANCE OF BAD DEBTS OF AMOUNTING TO RS.44.57 LAKHS OUT OF RS.55.0 5 LAKHS. WHILE FRAMING THE ASSESSMENT THE AO FOUND THAT THE ASSESSEE HAD DEBITED EXPENSES ON ACCOUNT OF REVERSAL OF INCO ME ON NON- PERFORMING THE ASSETS (NPA) OF RS.55.05 LAKHS IN TH E PROFIT AND LOSS ACCOUNT. HE DIRECTED THE ASSESSEE TO JUSTIFY T HE SAID CLAIM. AFTER CONSIDERING THE SUBMISSIONS MADE BY TH E ASSESSEE, HE HELD THAT THE APPELLANT-COMPANY HAD NOT WRITTEN OFF PRINCIPAL AMOUNT OUTSTANDING OF SUCH OCDS IN THE BO OKS OF ACCOUNTS, THAT THE ASSESSEE HAD MADE A PROVISION OF DOUBTFUL DEBTS, THAT THE ASSESSEE HAD WRITTEN OFF ONLY THE I NTEREST OF THE DEBT. HE FURTHER HELD THAT AS PER THE PROVISION OF SECTION 36(1)(VII) OF THE ACT, BAD DEBTS COULD BE ALLOWED O NLY WHEN THE DEBTS HAD BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. RELYING UPON THE ORDER DELIVERED BY T HE HONBLE MADRAS HIGH COURT IN THE CASE OF MICROMAX SYSTEMS P VT. LTD. (277 ITR 409), HE HELD THAT THE ASSESSEE HAD NOT WR ITTEN OFF THE DEBTS IN HIS BOOKS OF ACCOUNTS. FINALLY, HE DISALLO WED THE ENTIRE AMOUNT OF REVERSED INTEREST (RS.55.05 LAKHS) AND AD DED IT TO THE TOTAL INCOME OF THE ASSESSEE. 7. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA. AFT ER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ARGUMENTS OF THE AO, HE HELD THAT THE ASSESSEE HAD NOT STATED CERTAIN FACTS CORRECTLY IN THE ASSESSMENT PROCEEDINGS, THAT OCDS WERE PURCHASED BY JINDAL VIJAYNAGAR STEEL LIMITED IN THE YEAR 1994, THAT OCDS WERE TO BE CONVERTED INTO SHARES OR TO BE REDEEMED AFTER THE EXPIRY OF 7 YEARS FROM THE DATE OF ALLOTM ENT, THAT THESE OCDS WERE ALLOTTED TO THE APPELLANT ON THE MERGER O F M/S JINDAL VIJAYNAGAR STEEL LIMITED IN FINANCIAL YEAR 2 004-05, THAT THESE OCDS WERE MATURED IN THE YEAR 2001, THAT THES E ASSETS 27 WERE CLASSIFIED AS MATURE DEBENTURES BY THE JINDAL VIJAYNAGAR STEEL LIMITED, THAT THE CLAIM OF THE ASSESSEE ABOUT ACQUIRING THE OCDS IN THE YEAR 2003-04, 2004-05 & 2005-06 WAS NOT CORRECT. HE HELD THAT THE CLAIM OF THE ASSESSEE ABO UT REVERSAL OF INTEREST INCOME OF NON-PERFORMING ASSETS COULD N OT BE ACCEPTED, THAT THE GUIDELINES ISSUED BY THE RBI TO NFBC WERE ONLY DISCLOSURE GUIDELINES, THAT THE SAID GUIDELINE S DID NOT OVERRIDE THE PROVISIONS OF THE ACT. RELYING UPON TH E ORDER OF THE HONBLE SUPREME COURT DELIVERED IN THE CASE OF M/S SOUTHERN TECHNOLOGIES LIMITED, IN ITA 1337/2003, HE HELD THAT THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION ON ACCOU NT OF PROVISIONS OF NPA, EVEN THOUGH THE PROVISIONS WAS M ADE AS PER THE RBI GUIDELINES. HE FURTHER HELD THAT THERE WAS NO PROVISIONS UNDER THE ACT TO ALLOW DEDUCTION ON ACCO UNT OF REVERSAL OF INCOME SHOWN IN THE EARLIER YEARS UNLES S THERE WAS CRYSTALLIZATION OF LIABILITY TO RETURN INCOME. HE H ELD THAT AS FAR AS INTEREST AMOUNTING TO RS.7.47 LAKHS WAS CONCERNE D, IT WAS ALLOWABLE EXPENDITURE FOR THE YEAR UNDER CONSIDERAT ION. HE REDUCED THE DISALLOWANCE BY RS.7.47 LAKHS. ASSESSEE -COMPANY HAS FILED THE APPEAL AGAINST THE DISALLOWANCE MADE BY THE FAA, WHEREAS AO HAS CHALLENGED THE RELIEF GIVEN BY HIM I .E. RS.7.47 LAKHS. 8. BEFORE US, AR SUBMITTED THAT INCOME FROM THE OCD S WERE SHOWN IN EARLIER YEARS, THAT DEPARTMENT HAD ACCEPTE D THE ENTRIES ABOUT THE INTEREST INCOME WHILE PASSING THE ASSESSMENT ORDERS FOR THOSE YEARS, THAT AS PER THE GUIDELINES OF THE RBI, INTEREST AMOUNTING TO RS.55.05 LAKHS WAS REVERSED I N THE YEAR UNDER CONSIDERATION, THAT AS PER THE PROVISIONS OF SECTION 36 (1) (VII) DEBT OR PART OF IT WRITTEN OFF IN THE BOO KS OF ACCOUNT WAS ALLOWABLE. HE RELIED UPON THE CASES OF INDUSTRI AL FINANCIAL CORPORATION OF INDIA LIMITED (201 TAXMAN 75) AND TE D CO. INVESTMENT AND FINANCIAL SERVICES (P) LTD. (330ITR4 40) DELIVERED BY HONBLE DELHI HIGH COURT. HE ALSO REFE RRED TO THE PAGE NOS. 31 TO 38 AND 39 TO 41 OF THE PAPER BOOK. DR 28 SUBMITTED THAT REVERSAL OF INTEREST WAS NOT ALLOWAB LE AS PER THE PROVISIONS OF THE ACT. HE RELIED UPON THE ORDER OF THE FAA. IN HIS REJOINDER AR SUBMITTED THAT THE COMPANY WAS DEC LARED NBFC ONLY IN SEPTEMBER, 2005, THAT INTEREST ON NPA WAS WRITTEN OFF IN THE BOOKS OF ACCOUNTS, THAT CONDITIO NS FOR WRITING OFF THE INTEREST WERE FULFILLED, THAT ALL THE NECES SARY FACTS OF THE CASE WERE SUBMITTED BEFORE AO DURING THE ASSESSMENT PROCEEDINGS. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. THE UNDISPUTED FACTS OF THE CAS E EMERGING FROM THE FILE CAN BE SUMMARISED AS UNDER :- I).PURSUANT TO A SCHEME OF ARRANGEMENT AND AMALGAMATION BETWEEN JINDAL IRON & STEEL LTD (JISL) AND JINDAL VIJAYANAGAR STEEL LTD (JVSL) INVESTMENT PORT FOLIO CONSISTING OF INVESTMENTS AND LOANS & ADVANCES HAD BEEN TRANSFERRED TO THE COMPANY AND THE STEEL BUSIN ESS WAS MERGED IN JINDAL VIJAYANAGAR STEEL LTD WITH EFF ECT FROM 1 ST APRIL, 2003. II).TRANSFERRED INVESTMENTS INCLUDED 16% OPTIONALLY CONVERTIBLE DEBENTURES (OCD) AMOUNTING TO RS,2,50,00,000/- THE SAID OCDS HAD MATURED IN 2001 AND WERE CLASSIFIED AS MATURED DEBENTURES UNDER THE HEA D LOANS AND ADVANCES. III).INTEREST ON THE AFORESAID OCDS FOR FY 2003-04 AND FOR FY 2004-05AMOUNTING TO RS.23, 85,000/- AND RS.23,72,700/- RESPECTIVELY WAS DULY PROVIDED FOR B Y THE APPELLANT COMPANY AND THE SAME WAS OFFERED FOR TAXA TION IN RELEVANT AYS. IV).ON 30-06-2005, AN AMOUNT OF RS.7,47,944/-, ACCR UED AS INTEREST ON THE SAID OCDS FOR THE PERIOD FROM 01 -04- 2005 TO 30-06-2005, WAS PROVIDED IN THE BOOKS OF 29 ACCOUNTS-THEREBY TAKING THE TOTAL INTEREST ACCRUED TO RS.55,05,644/-. V).ASSESSEE COMPANY WAS DECLARED A NON-BANKING FINANCIAL INSTITUTE IN THE YEAR UNDER CONSIDERATION ; VI).DURING AY 2005-06,THE APPELLANT HAD WRITTEN OFF THE AFORESAID INTEREST DUES, AGGREGATING TO RS.55,05,64 4/- ,AND DEBITED THE SAME TO THE PROFIT AND LOSS ACCOUN T. VII).AO DISALLOWED THE SAID AMOUNT AS HE WAS OF THE OPINION THAT THE ASSESSEE HAS NOT WRITTEN OFF THE E NTIRE DEBT OUTSTANDING AND ONLY PART OF THE DEBT WAS WRIT TEN OFF. IF THE ABOVE MENTIONED FACTS ARE CONSIDERED ALONG W ITH THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT, TH EN IN OUR OPINION, DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE FAA CANNOT BE UPHELD. 9.1. THERE IS NO DOUBT THAT ABOVE-REFERRED AMOUNT H AS ACTUALLY BEEN WRITTEN OFF AS IRRECOVERABLE IN THE A CCOUNTS OF THE APPELLANT COMPANY FOR THE RELEVANT ASSESSMENT YEAR AND AMOUNTS WERE OFFERED AS INTEREST INCOME FOR TAX DUR ING F.Y. 2003-04 TO 2005-06 ON ACCRUAL BASIS. IN THESE CIRCU MSTANCES, IN OUR OPINION, THE APPELLANT HAS FULFILLED ALL THE REQUIREMENTS OF CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 36 OF THE ACT. IN A RECENT JUDGMENT OF T.R.F. LIMITED (323 ITR 397), TH E HONBLE SUPREME COURT HAS HELD THAT FOR BAD DEBTS TO BE CLA IMED U/S 36(1)(VII), IT IS NOT NECESSARY FOR THE ASSESSEE SH OULD ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. I T IS ENOUGH IF THE BAD DEBT WERE WRITTEN OFF AS IRRECOVERABLE IN T HE ACCOUNTS OF THE ASSESSEE (323ITR397). WE FIND THAT ASSESSEE HAS WRITTEN OF THE ACCRUED INTEREST AMOUNTS IN HIS BOOK OF ACCO UNTS AND HIS ACTION WAS IN ACCORDANCE WITH THE GUIDELINES ISSUED BY THE RBI WITH REGARD TO NPAS. HENCE, REVERSING THE ORDER OF THE FAA, WE DECIDE GROUND NO.2 IN FAVOUR OF THE ASSESSEE. 30 18. A PERUSAL OF THE ABOVE ORDER WHICH SUMS UP THE FACTS RELEVANT TO THE AFORESAID ISSUE REVEALED THAT OCDS WERE PURCHASED B Y JINDAL VIJAYNAGAR STEEL LTD (JVSL). THESE OCDS MATURED IN THE YEAR 20 01 AND THESE ASSETS WERE CLASSIFIED AS MATURED DEBENTURES BY JVSL AND I T WAS PART OF ITS OCDS. PURSUANT TO THE SCHEME OF ARRANGEMENT AND AM ALGAMATION BETWEEN JINDAL IRON & STEEL LTD (JIST) AND JVSL, TH E INVESTMENT DIVISION CONSISTING OF INVESTMENTS AND LOANS & ADVANCES WAS TRANSFERRED TO THE ASSESSEE COMPANY W.E.F. 1.4.2003, WHICH INCLUDED TH E OCDS IN QUESTION AMOUNTING TO RS. 2.50 CORES. IN VIEW OF THE LONG OV ERDUE STATUS OF THESE OCDS, THE ASSESSEE COMPANY MADE PROVISIONS FOR THES E OCDS IN FINANCIAL YEAR 2005-06 AND FINANCIAL YEAR 2006-07 BEING NON-P ERFORMING ASSETS (NPA). DURING THE YEAR UNDER CONSIDERATION, THE ASS ESSEE COMPANY HAS WRITTEN OF THESE NPAS IN THE BOOKS AND CLAIMED AS B AD DEBTS WRITTEN OFF IN THE RETURN OF INCOME. THE INTEREST ON THE AFORESAID OCDS FOR FINANCIAL YEAR 2003-04 AND FINANCIAL YEAR 2004-05 WAS PROVIDED FOR ON ACCRUAL BASIS AND THE SAME WERE OFFERED FOR TAXATION DURING THE RELEV ANT ASSESSMENT YEAR. THE ASSESSEE COMPANY WAS DECLARED NON-BANKING FINAN CIAL INSTITUTION IN THE ASSESSMENT YEAR 2006-07. THE ASSESSEE COMPANY H AD WRITTEN OFF ALL THE AFORESAID INTEREST DUES AS IRRECOVERABLE AND DEBITE D THE SAME TO THE PROFIT AND LOSS ACCOUNT DURING THE ASSESSMENT YEAR 2006-0 7. THE TRIBUNAL OBSERVED THAT THE ASSESSEE HAD FULFILLED ALL THE RE QUIREMENTS OF CLAUSE (VII) OF SUB CLAUSE (1) OF SECTION 36 OF THE ACT. THE TRI BUNAL OBSERVED THAT SINCE THE ASSESSEE HAD OFFERED THE SAID AMOUNT OF INTERES T AS INCOME WHICH WAS SUBSEQUENTLY WRITTEN OFF, BECAUSE OF ITS NON-RECOVE RY AND THAT THE SAME WAS IN ACCORDANCE WITH THE PRESCRIBED GUIDELINES. N OW THE QUESTION BEFORE 31 US IS THAT, EVEN IF, THE SAID INTEREST HAS BEEN ALL OWED TO BE WRITTEN OFF, WHETHER THE SAID OCDS ARE ALLOWABLE FOR DEDUCTION A S BAD DEBTS WRITTEN OFF. THE RELEVANT CLAUSE (VII) OF SECTION 36(1) OF THE ACT WHICH DEALS WITH THE BAD DEBTS IS REPRODUCED AS UNDER:- 36 (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUS ES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THE REIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28- (I) .. (VII) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), THE A MOUNT OF ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF A S IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YE AR : PROVIDED THAT WHERE THE AMOUNT OF SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF BECOMES IRRECOVERABLE OR OF AN EARLIER PREVIOUS YEA R ON THE BASIS OF INCOME COMPUTATION AND DISCLOSURE STANDARDS NOTI FIED UNDER SUB-SECTION (2) OF SECTION 145 WITHOUT RECORDING TH E SAME IN THE ACCOUNTS, THEN, SUCH DEBT OR PART THEREOF SHALL BE ALLOWED IN THE PREVIOUS YEAR IN WHICH SUCH DEBT OR PART THEREOF BE COMES IRRECOVERABLE AND IT SHALL BE DEEMED THAT SUCH DEBT OR PART THEREOF HAS BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUN TS FOR THE PURPOSES OF THIS CLAUSE. PROVIDED .. .. (2) IN MAKING ANY DEDUCTION FOR A BAD DEBT OR PART THEREOF, THE FOLLOWING PROVISIONS SHALL APPLY- (I) NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING TH E INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT O F SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIO US YEAR, OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OF BANKING OR MONEY-LENDING WHICH IS CARRIED ON BY THE ASSESSEE ; (II) .. 19. IN OUR VIEW, THE CLAIM OF THE ASSESSEE REGARDIN G THE AFORESAID OCDS CLAIMED AS BAD DEBTS WRITTEN OFF IS HIT BY CLAUSE (I) OF SUB SECTION (2) OF 32 SECTION 36 OF THE ACT. THE AFORESAID OCDS HAVE NOT BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE IN ANY PREVIOUS YEAR. THE SAID OCDS WERE PART OF INVESTMENT PORTFOLIO OF JVSL , THE STATUS ON MERGER OF THE SAID OCDS IS REQUIRED TO BE GIVEN THE SAME T REATMENT IN THE HANDS OF THE SUCCESSOR. SINCE THE AFORESAID OCDS WERE PART O F THE INVESTMENTS OF THE PREDECESSOR HOLDER AND, HENCE, IT CANNOT BE SAI D THAT THE SAME WERE BUSINESS ASSETS OF THE PREDECESSOR HOLDER OR THAT THE SAID OCDS HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE PREDECESSOR HOLDER OF ANY PREVIOUS YEAR. HENCE, IT CANNOT BE SAID THAT T HE ASSESSEE HAS ACQUIRED ANY RIGHT OF THE PREDECESSOR COMPANY TO CLAIM DEDUC TION ON ACCOUNT OF BAD DEBTS WRITTEN OFF IN RESPECT OF SUCH WRITE OFF OF O CDS, BECAUSE SUCH RIGHTS WERE NOT AVAILABLE EVEN TO PREDECESSOR HOLDER OF TH ESE OCDS. NOR THE SAID OCDS REPRESENTS MONEY LENT IN THE ORDINARY COURSE O F BUSINESS OF MONEY LENDING CARRIED ON BY THE ASSESSEE. ADMITTEDLY, THE ASSESSEE WAS NOT A NBFC AT THE TIME OF ACQUIRING THE SAID OCDS, HENCE, IT CANNOT BE SAID THAT THE OCDS WERE PART OF THE MONEY LENT IN THE ORDINAR Y COURSE OF BUSINESS, THOUGH LATER ON THE ASSESSEE COMPANY HAD OFFERED IN TEREST ON SUCH OCDS AS ITS BUSINESS INCOME. THE SAID OCDS NEITHER REPRESEN T THE DEBT OR PART THEREOF WHICH HAS BEEN TAKEN INTO ACCOUNT IN COMPUT ING THE INCOME OF THE ASSESSEE IN ANY EARLIER PREVIOUS YEAR NOR THE SAME REPRESENTS THE MONEY LENT IN THE ORDINARY COURSE OF BUSINESS OF MONEY LE NDING CARRIED ON BY THE ASSESSEE. NOW COMING TO THE OTHER CASE LAWS RELIED UPON BY TH E LD. COUNSEL FOR THE ASSESSEE ON THIS ISSUE, THERE IS NO QUESTION OF ANY DEBATE ON THE PROPOSITION OF LAW LAID DOWN BY THE HONBLE SUPREME COURT IN TH E CASE T.R.F. LTD.(SUPRA) THAT ASSESSEE HAS TO ESTABLISH THAT DEB T WAS WRITTEN OFF AND IT IS 33 NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT TH E DEBT IN FACT HAS BECOME IRRECOVERABLE. HOWEVER, THE QUESTION BEFORE US AS T O THE ABOVE CLAIM OF WRITE OFF OF OCDS QUALIFY TO BE BAD DEBTS WRITTEN OFF TO GET RELIEF U/S SECTION 36 OF THE ACT, WHICH, IN VIEW OF DISCUSSIO N MADE ABOVE, IS ANSWERED IN NEGATIVE. IN THE CASE OF CIT VS. T. VE ERABHADRA RAO, K. KOTESWARA RAO & CO. THE BUSINESS WAS SUCCEEDED AS A WHOLE ALONG WITH ASSETS AND LIABILITIES OF THE PREDECESSOR FIRM BY T HE SUCCESSOR ASSESSEE INCLUDING THE DEBTS DUE. IT WAS UNDER THESE FACTS T HAT THE SUCH DEBTS WRITTEN OFF BY THE SUCCESSOR COMPANY WERE HELD ALLOWABLE BY THE HONBLE SUPREME COURT. HOWEVER IN THE CASE IN HAND THE OCDS WERE PA RT OF THE INVESTMENT PORTFOLIO OF THE PREDECESSOR COMPANY AND NOT BUSINE SS DEBT. THE SAME, THEREFORE, CANNOT BE HELD TO BE DEBTS DUE IN THE HA NDS OF THE SUCCESSOR / ASSESSEE. THIS ISSUE IS ACCORDINGLY DECIDED AGAIN ST THE ASSESSEE. 20. GROUND NO.5- THIS IS ALTOGETHER A NEW GROUND TAKEN BY THE ASSESSEE. THE ASSESSEE THOUGH THIS GROUND HAS PLEAD ED THAT EVEN OTHERWISE THE WRITE OFF OF IRRECOVERABLE PRINCIPLE AMOUNT OF OVERDUE DEBENTURES WAS ALLOWABLE AS DEDUCTION TO THE ASSESSEE IN NORMAL CO URSE OF BUSINESS OF FINANCE / INVESTMENT ACTIVITY. THOUGH IT HAS COME O UT FROM THE FACTS ON THE FILE THAT ORIGINALLY THE OCDS WERE HELD BY THE JVSL , A PART OF ITS INVESTMENT PORTFOLIO, THOUGH BEING A CAPITAL ASSET, HOWEVER, THE CONTENTION OF THE ASSESSEE IS THAT IT IS FROM THE BEGINNING FR OM AN INVESTMENT COMPANY AND THE SAID ASSET WAS TREATED AS A BUSINESS ASSET BY THE COMPANY. THIS ISSUE, IN OUR VIEW, REQUIRES REEXAMINATION AT THE H ANDS OF THE ASSESSING OFFICER. 34 21. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE O F THE ASSESSING OFFICER TO CONSIDER THIS CONTENTION OF THE ASSESSEE AS TO WHET HER THE AMOUNT OF SAID OCDS CAN BE TREATED AS BUSINESS LOSS TO THE ASSESSE E BEING LOSS OF BUSINESS ASSET. THE ASSESSING OFFICER IS DIRECTED TO RE-ADJU DICATE THIS ISSUE AFTER GIVING PROPER OPPORTUNITY TO THE ASSESSEE OF HEARIN G AND FURNISH NECESSARY EVIDENCE IN THIS REGARD AND THEN DECIDE THE SAME IN ACCORDANCE WITH LAW. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TR EATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.08.2017 SD/- SD/- ( RAJESH KUMAR) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 31 ST AUGUST, 2017 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 35