Shri Dinesh Mills Ltd., Baroda V. The ACIT, Circle -2(1)(1), Baroda

ITA 781/AHD/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9395 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 30-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Opportunity of being heard; Earning of tax free income; Question of law; Notional interest; TDS; Rule 8D; Set aside
• Section: 143(3); 14A; 115JB; 40(a)(ia); 195; 201; 12; 10; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNT AN T MEMBER AND M S . MADHUMITA ROY, JUDICIAL MEMBER SL. NOS. ITA NO(S) ASSESSMENT YEAR (S) APPEAL(S) BY APPELLANT VS. RESPONDENT APPELLANT RESPONDENT 1. 781/AHD/2016 2012 - 13 SHRI DINESH MILLS LTD. PB NO.2501 PADRA ROAD BARODA 390 020 PAN: AADCS 3115 Q ASST.CIT CIRCLE - 2(1)(1) BARODA 390 020 2. 1191/AHD/2013 2012 - 13 DCIT CIR 2(1) BARODA A SSESSEE 3. 3369/AHD/2016 2013 - 14 - DO - REVENUE A SSESSEE 4. 3180/AHD/2016 2013 - 14 A SSESSEE ACIT CIR. 2(1) BARODA ASSESSEE BY : SHRI BANDISH SOPARKAR, AR REVENUE BY : SHRI N.R. SONI, CIT - DR & S.K. DEV, SR.DR / DATE OF HEARING 17/07/2019 / DATE OF PRONOUNCEMENT 25 /0 9 /201 9 / O R D E R PER BENCH : THE CAPTIONED APPEAL S HA VE BEEN FILED AT THE INSTANCE OF THE ASSESSEE AND REVENUE AGAINST THE SEPARATE ORDER S OF THE COMMIS SIONER OF INCOME TAX (APPEALS) 2 , VADODARA [CIT (A) IN SHORT] VIDE APPEAL NO. CAB/ (A) - 2 / 468/14 - 15 AND CAB/(A) - 2 / 276/15 - 16 DATED 25/02/2016 AND 02/09/201 6 ARISING IN THE A SSESSMENT ORDER S PASSED UNDER S. 143(3) OF THE INCOME TAX ACT, 1961( HEREINAFTER REFERRED TO AS 'THE ACT') DATED 22/01/2015 & 22/03/2016 RELEVANT TO ASSESSMENT YEAR S (AY S ) 2012 - 13 AND 2013 - 14 RESPECTIVELY. ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 2 - SINCE THE ISSUES ARE INTER - CONNECTED, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. FIRST, WE TAKE UP THE REVENUE S APPEAL IN ITA NO. 1191 /AHD/2016 FOR AY 2012 - 13 AS L EAD CASE . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) ERRED IN DELETING THE ADDITION OF 46,44,832/ - OUT OF DISALLOWANCE OF RS.79,09,770/ - MADE U/S.14A R.W. RULE 8D WITHOUT CONSIDERING THE FACT THAT IN A MIXED SYSTEM OF ACCOUNTING THE IDENTIF ICATION OF MONEY EMPLOYED TOWARDS EXEMPTED AND NON - EXEMPTED INCOME CANNOT BE MADE. 2 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) ERRED IN DELETING THE ADDITION OF 46,44,832/ - OUT OF DISALLOWANCE OF RS.79,09,770/ - MADE U/S.14A R. W.RULE 8D WITHOUT COMMENTING ON THE JUDICIAL DECISIONS RELIED UPON BY THE A.O. IN THE ASSESSMENT ORDER. 3 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, LEARNED CIT(A) ERRED IN DIRECTING NOT TO CONSIDER THE INVESTMENT MADE IN HDFC FIXED MUTUA L FUND AND HDFC CASH MANAGEMENT FUND FOR COMPUTATION OF DISALLOWANCE OUT OF INTEREST PAID AS PER SUB CLAUSE (II) TO CLAUSE 2 OF RULE 8D, BUT TO CONSIDER THESE INVESTMENTS FOR MAKING DISALLO W ANCES AS PER CLAUSE (III) TO CLAUSE 2 OF RULE 8D WITHOUT APPRECIAT ING THE FACT THAT AS PER RULE 8D(II)B THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEA R HAS TO BE TAKEN FOR COMPUTING THE DISALLOWANCE UNDER SUB CLAUSE (II) OF CLAUSE (2) OF RULE 8D. 4 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, LEARNED CIT(A) ERRED IN DIRECTING FOR NOT CONSIDERING THE INTEREST PAID ON TERM LOAN FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE AS PER RULE 8D WITHOUT APPRECIATING THE FACT THAT AS PER RULE 8D(II)A AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR IS TO BE TAKEN FOR WORKIN G OUT DISALLOWANCE UNDER SUB - CLAUSE (II) OF CLAUSE (2) OF RULE 8D. CLAUSE (I) PERTAINS TO THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 3 - DOES NOT FORM PART OF TOTAL INCOME. THERE IS NO PROVISION IN RULE 8D TO EXCLUDE PART OF THE INTEREST FOR WORKING OUT THE DISALLOWANCE U/S.14A. 5 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.2,01,87,000/ - MADE BY THE AO BY INVOKING PROVISIONS OF SECTION 40(1)(IA) OF THE ACT WITHOUT APPRECIATING TH E FACT THAT THE ASSESSEE WAS PAYING COMMISSION TO DEALERS WITHIN THE MEANING OF SECTION 194H ATTRACTING THE PROVISIONS OF SECTION 40(1)(IA) OF THE ACT. 6 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD.CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER NOT TO INCLUDE THE DISALLOWANCE MADE U/S.14A OF THE ACT IN THE BOOK PROFIT, WITHOUT APPRECIATING THAT AS PER PROVISION OF EXPLANATION 1(F) BELO W SECTION 115JB OF THE ACT, THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF, SECTION 11 OR SECTION 12 APPLY IS TO BE ADDED TO THE NET PROFIT AS PER PROFIT & LOSS A /C FOR COMPUTING BOOK PROFIT, AND THAT DISALLOWANCE U/S.154A RELATES TO AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME THAT DO NOT PART OF INCOME, AND SECTION 10 OF THE ACT DEALS WITH INCOME WHICH DO NOT PART OF TOTAL INCOME. T HE 1 ST ISSUE RAISED BY THE R EVENUE IN GROUND NO S . 1 TO 4 IS THAT THE LEARNED CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 4 6 , 44 , 83 2 .00 OUT OF THE TOTAL AD DITION OF 79 , 09 , 770 .00 UNDER THE PROVISIONS OF SECTION 14 A READ WITH RULE 8D OF INCOME TAX R ULE. 2 . BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURING AND OTHERWISE DEALING IN WORSTED (WOVEN BLENDED) MADE PRIMARILY FROM WOO L , ALSO MANUFACTURING AND OTHERWISE DEALI NG IN FELT, BLANKET AND FILTER FABRIC. T HE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS CLAIMED EXEMPTED INCOME AMOUNTING TO 86 , 36 , 479 .00 ONLY UNDER SECTION 10 ( 34 ) OF THE ACT. THE ASSESSEE AGAINST SUCH INCOME HAS NOT MADE ANY DISALLOWANCE OF ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 4 - THE EXPENSES AS PER THE PROVISIONS OF SECTION 14 A READ WITH RULE 8 D OF I NCOME T AX R ULE. THEREFORE THE AO AFTER GIVING THE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE MADE THE DISALLOWANCE UNDER RULE 8 D OF I NCOME TAX R ULE AS DETAILED UNDER: I . DIRECT EXPENSES NIL II . INTEREST EXPENSES 64, 69, 918.00 III . ADMINISTRATIVE EXPENSES 14, 39, 852.00 T OTAL 79, 09, 770.00 IN VIEW OF THE ABOVE, THE AO ADDED THE SUM OF 79 , 09 , 770 .00 TO THE TOTAL INCOME OF THE ASSESSEE. 3. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A) WHO HAS PARTY CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER: 4.1. SINCE THE FACTS ARE IDENTICAL IN THIS YEAR ALSO, I RESPECTFULLY FOLLOWING THE ORDER OF MY PREDECESSOR HOLD THAT THE P ROVISIONS OF SECTION 14A R.W. RULE 8D ARE CLEARLY ATTRACTED IN THE CASE OF APPELLANT AND HENCE DISALLOWANCE IS CERTAINLY CALLED FOR . FURTHER, IT HAS BEEN DECIDED THAT THE INVESTMENT MADE IN A.Y. 2010 - 11 IN HDFC CASH MANAGEMENT FUND AND HDFC FIXED MUTUAL F UNDS WERE MADE OUT OF THE OWN CAPITAL AND NOT FROM THE BORROWED CAPITAL FUND. HENCE, THE BROUGHT FORWARD BALANCES IN THESE FUNDS ALONG WITH DIVIDEND REINVESTED SHOULD NOT BE CONSIDERED FOR THE PURPOSES OF COMPUTATION OF DISALLOWANCE OUT OF INTEREST PAID. HOWEVER, THE SAME WILL CONSIDERED FOR THE PURPOSES OF COMPUTATION OF DISALLOWANCE FOR ADMINISTRATIVE COST BEING 0.5% OF THE VALUE OF INVESTMENT. 4.1.1. THE INVESTMENTS MADE DURING THE A.Y. 2011 - 12 WERE ALSO HELD TO BE MADE OUT OF OWN FUNDS AND IF SUCH INVESTMENTS ARE BROUGHT FORWARD DURING THE YEAR UNDER CONSIDERATION, THEN NO DISALLOWANCE OUT OF INTEREST SHOULD BE MADE. HOWEVER, THE DISALLOWANCE UNDER SUB CLAUSE (III) OF SUB CLAUSE (2) OF RULE 8 D WILL HAVE TO BE MADE. 4.1.2. THE INVESTMENTS MADE IN GO VERNMENT SECURITY IS NOT TO BE CONSIDERED FOR THE PURPOSE OF MAKING DISALLOWANCE UNDER RULE 8D AS THE SAME DOES NOT YIELD ANY EXEMPTED INCOME. SIMILARLY INTEREST ON TERM LOAN SHOULD NOT BE CONSIDERED FOR DISALLOWANCE. ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 5 - 4.1.3. THE INVESTMENT MADE BY TRANSFE RRING INVESTMENT FROM OTHER SCHEME CANNOT BE CONSIDERED FOR MAKING DISALLOWANCE OUT OF INTEREST ONLY IF THE APPELLANT IS IN POSITION OF SHOW THAT THE EARLIER INVESTMENTS WERE MADE OUT OF OWN FUNDS. HOWEVER, ALL SUCH INVESTMENTS WILL BE CONSIDERED FOR DISAL LOWANCE AT 0.5% ON ACCOUNT OF ADMINISTRATIVE COST. 4.1.4. DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT HAS CLAIMED TO HAVE MADE FOLLOWING INVESTMENTS IN MUTUAL FUND: - SR. NO. DATE AMOUNT (RS.) NAME OF BANK (SOURCE) 1 08.04.2011 2,00,00,000/ - HDFC BANK 2 14.06.2011 2,00,00,000/ - HDFC BANK 3 23.12.2011 1,00,00,000 / - HDFC BANK 4 13.02.2012 1,42,50,000/ - SOUTH INDIAN BANK 5 27.02.2012 99,99,999 / - KOTAK MAHINDRA BANK 6 27.02.2012 1,00,00,000/ - HDFC BANK 7 06.03.2012 1,00,00,000 / - HDFC BANK 8 11.04.2011 2,00,00,000 / - INDIAN OVERSEAS BANK THE APPELLANT HAS FILED COPY OF BANK STATEMENT WHICH CLEARLY REFLECTED THAT ON THE DATES OF INVESTMENT IN THE MUTUAL FUND, THERE WAS SUFFICIENT BALANCE IN THE BANK ACCOUNTS. ACCORDINGLY, IT HAS BEEN PROVED THAT OWN FUNDS GENERATED BY THE APPELLANT EITHER FROM THE SALES PROCEEDS OR FROM THE MATURITY OF EARLIER INVESTMENTS, HAVE BEEN UTILIZED FOR MAKING THE FRESH INVESTMENT IN THE MUTUAL FUND RESULT ING INTO EXEMPT INCOME. THEREFORE, IN MY CONSIDERED VIEW, VALUE OF CURRENT INVESTMENTS IS REQUIRED TO BE EXCLUDED FOR THE PURPOSES OF COMPUTATION OF DISALLOWANCE OF INTEREST U/S. 14A R.W. RULE 8D. HOWEVER, WITH THE ABUNDANT PRECAUTION, THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE ABOVE INVESTMENTS AND THEN ALLOW CONSEQUENTIAL RELIEF. NEEDLESS TO MENTION, THE APPELLANT SHALL PROVIDE DOCUMENTARY EVIDENCE TO THE ASSESSING OFFICER IN THIS REGARD. IT IS WORTHWHILE TO MENTION HERE THAT ALTHOUGH THE OWN F UNDS HAVE BEEN UTILIZED FOR MAKING THE CURRENT YEAR INVESTMENT, BUT THE TIME AND ENERGY OF THE MANAGEMENT AND RESOURCES OF THE COMPANY HAVE BEEN UTILIZED FOR TAKING THE DECISION AND CARRYING OUT THE ACTUAL TRANSACTIONS AND ACCORDINGLY DISALLOWANCE AT 0.5% OF THE VALUE OF SAID INVESTMENT IS REQUIRED TO BE MADE. THE ASSESSING OFFICER IS, THEREFORE, DIRECTED TO COMPUTE THE DISALLOWANCE ACCORDINGLY. ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 6 - 4.1.5. IT IS A WELL SETTLED LEGAL POSITION THAT THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES HAS TO BE MADE U/S. 14A R.W. RULE 8D EVEN IF NO BORROWED FUNDS WERE USED FOR MAKING INVESTMENTS RESULTING INTO EXEMPTED INCOME. TO SUPPORT THIS PROPOSITION, I RELY UPON THE DECISION OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF DHAMPUR SUGAR MILLS LTD. VS CIT ( 2014) 51 TAXMANN.COM 508 AND HON'BLE MUMBAI TRIBUNAL IN THE CASE OF ITO VS RBK SHARE BROKING PVT. LTD. (2013) 37 TAXMANN.COM 128. 4.1.6. IN VIEW OF THE ABOVE DISCUSSION AND THE DIRECTIONS, THE ASSESSING OFFICER D IRECTED TO RE - COMPUTE THE DISALLOWANCE UNDER RULE 8D. THUS, PARTLY SUCCEEDS IN RESPECT OF GROUND NO. 1. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) BOTH THE R EVENUE AN D THE ASSESSEE ARE IN APPEAL BEFORE US. THE R EVENUE IS IN APPEAL FOR THE DELETION OF THE ADDITION MADE BY THE AO FOR INTEREST EXPENSES WHEREAS THE ASSESSEE IS IN APPEAL FOR THE CONFIRMATION OF THE ADDITION FOR THE ADMINISTRATIVE EXPENSES. 4. THE LEARN ED DR BEFORE US SUBMITTED THAT THE ASSESSEE HAS NOT GIVEN ANY DOCUMENTARY EVIDENCE SUGGESTING THAT THE INVESTMENT WAS NOT MADE OUT OF THE BORROWED FUND. 5. ON THE OTHER HAND , THE LEARNED AR BEFORE US SUBMITTED THAT THE ISSUE IS COVERED IN ITS FAVOUR I N ITS OWN CASE PERTAINING TO THE EARLIER ASSESSMENT YEARS. THE LD. AR BEFORE US ALSO FILED A BRIEF NOTE AS DETAILED UNDER: - DURING THE COURSE OF HEARING, HON'BLE BENCH HAS ASKED TO SUBMIT THE BRIEF NOTE ON DISALLOWANCE OF 14A OF THE ACT. RELEVANT POINTS ARE AS UNDER IN EARLIER ASSESSMENT YEARS I.E. FROM A.Y. 2007 - 08 TO A.Y. 2011 - 12, HON'BLE TRIBUNAL ADJUDICATED DISALLOWANCE UNDER SECTION 14A OF THE ACT. ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 7 - IN ALL ABOVE YEARS, INTEREST DISALLOWANCE AS PER RULE 8D(II) WERE DELETED BY HON'BLE ITAT AS APPELLANT HAS HUGE INTEREST FREE FUNDS IN FORM OF SHARE CAPITAL AND RESERVE & SURPLUS. WITH REGARD TO ADMINISTRATIVE EXPENSES WHILE WORKING DISALLOWANCE U/S 14A OF THE ACT, HON'BLE TRIBUNAL HAS RESTRICTED THE SAME TO RS. 20.000/ - . COPIES OF ORDERS OF HON'BLE TRIBUNAL WERE ALREADY SUBMITTED IN PAPER BOOK OF DOCUMENTS (PAGE 1 TO 66) IN PRESENT YEARS BEFORE YOUR HONOURS I.E. A.Y. 2012 - 13 & A.Y. 2013 - 14, THERE IS REDUCTION IN THE INVESTMENTS AS COMPARED TO A.Y. 2008 - 09 TO A.Y. 2011 - 12. APPELLANT IS ATTAC HING HEREWITH CHART SHOWING DETAILS OF INVESTMENT FROM A.Y. 2007 - 08 TO A.Y. 2013 - 14 AS PER EXHIBIT - I. APPELLANT IS ALSO ATTACHING HEREWITH ANNUAL ACCOUNTS FROM F.Y. 2006 - 07 TO F.Y. 2010 - 11 RELEVANT TO A.Y. 2007 - 08 TO A.Y. 2011 - 12 AS PER EXHIBIT II RESPECTIVELY. ANNUAL ACCOUNTS PAGES RELEVANT PAGES F.Y. 2006 - 07 1 TO 76 20,28 F.Y. 2007 - 08 79 TO 157 99, 105 F.Y. 2008 - 09 158 TO 238 182, 188 FY 2009 - 10 239 TO 317 259,265 2010 - 11 318 TO 407 344,350 HENCE, APPELLANT PRAYS THAT THERE IS NEGLIGIBLE CHANGE IN THE YEAR TO YEAR INVESTMENT HOLDINGS OF THE APPELLANT. THEREFORE THE APPELLANT HAS NOT DIVERTED ANY ADMINISTRATIVE RESOURCES TO MANAGE THE SAME AND THEREFORE NO ADMINISTRATIVE EXPENSES ARE INCURRED BY THE APPELLANT. IT IS THEREFORE PRAYED THAT IN LINE WITH EARLIER YEARS' ITAT ORDERS FOR AY 2007 - 08, 2008 - 09, 2009 - 10, 2010 - 11 AND 2011 - 12 DISALLOWANCE OF ADMINISTRATIVE EXPENSES WHILE DETERMINING DISALLOWANCE U/S 14A BE RESTRICTED TO RS.20,000/ - AND THE REMAINING BE DELETED. BOTH THE LEARNED DR AND THE AR BEFORE US RELIED ON THE ORDER OF THE AUTHORITIES BELOW TO THE EXTENT FAVOURABLE TO THEM. ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 8 - 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE PRESENT CASE RELATES TO THE DISALLOWANCE MADE BY THE AO BY INVOKING THE PROVISIONS OF SECTION 14 A READ WITH RULE 8D OF I NCOME TAX R ULE TOWARDS THE INTEREST AND ADMINISTRATIVE EXPENSES. THE LEARNED CIT (A) DELETED THE INTEREST EXPENSES BY OBSERVING THAT THE OWN FUND OF THE ASSESSEE EX CEEDS THE INVESTMENT. HOWEVER, THE LEARNED CIT (A) CONFIRMED THE ADDITION OF THE ADMINISTRATIVE EXPENSES CALCULATED IN THE MANNER AS PROVIDED UNDER RULE 8D OF I NCOME T AX R ULE AGAINST THE EXEMPTED /DIVIDEND INCOME. 6.1 REGARDING THE ISSUE OF INTEREST EXPE NSES, WE NOTE THAT THE OWN FUND OF THE ASSESSEE EXCEEDS THE AMOUNT OF INVESTMENT AS EVIDENT FROM THE ANNUAL ACCOUNTS OF THE ASSESSEE PLACED ON PAGES 1 TO 60 OF THE PAPER BOOK. THE OWN FUND OF THE ASSESSEE A S ON 31 ST MARCH 2012 STANDS AT 9 603.39 L A C S WHERE AS THE INVESTMENT IS OF 2159.53 LACS AS ON THAT DATE . THIS FACT CAN BE VERIFIED FROM THE EXTRACT OF THE BALANCE SHEET AVAILABLE ON PAGE 20 OF THE PAPER BOOK. THUS , THERE IS NO AMBIGUITY THAT THE OWN FUND OF THE ASSESSEE EXCEEDS THE AMOUNT OF INVESTMENT. THEREFORE, WE ARE OF THE VIEW THAT THERE CANNOT BE ANY DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSES UNDER SECTION 14 A READ WITH RULE 8D OF I NCOME T AX R ULE. IN THIS REGARD WE FIND SUP PORT AND GUIDANCE FROM THE JUDG MENT OF HON BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340 WH ERE IN IT WAS HELD AS UNDER: - THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST - FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 9 - ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST - FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FIND ING OF FACT BOTH BY THE CIT(A) AND TRIBUNAL . 6.2 SIMILARLY, WE ALSO RELY ON THE JUDGMENT OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . HDFC BANK LTD REPORTED IN 366 ITR 505 (BOM). THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW: - WHERE ASSESSEE'S CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN TAX - FREE SECURITIES, IT WOULD HAVE TO BE PRESUMED THAT INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST - FREE FUNDS AVAILABLE WIT H ASSESSEE AND NO DISALLOWANCE WAS WARRANTED U/S 14A. 6.3 SIMILARLY, WE ALSO FIND SUPPORT FROM THE JUDGMENT OF HON BLE GUJARAT HIGH COURT IN THE CASE OF UTI BANK LTD. REPORTED IN 32 TAXMANN.COM 370 WHERE THE HEADNOTE READS AS UNDER : IF THERE ARE SUFFI CIENT INTEREST FREE FUNDS TO MEET TAX FREE INVESTMENTS, THEY ARE PRESUMED TO BE MADE FROM INTEREST FREE FUNDS AND NOT LOANED FUNDS AND NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A . 6.4 IN VIEW OF THE ABOVE PROPOSITION, WE HOLD THAT NO DISALLOWANCE OF INTEREST EXPENSE CLAIMED BY THE ASSESSEE CAN BE MADE ON ACCOUNT OF INVESTMENTS AS DISCUSSED ABOVE. 6.5 WE ALSO NOTE THAT THERE WAS ALSO THE ADDITION ON ACCOUNT OF INTEREST EXPENSES UNDER SECTION 14 A READ WITH RULE 8 D OF I NCOME T AX R ULE IN THE OWN CASE OF THE ASSESSEE PERTAINING TO THE ASSESSMENT YEAR 20 10 - 11 IN ITA NO. 77/ AHD /2014, WHEREIN IT WAS HELD AS UNDER: ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 10 - 14. SO FAR GROUND WITH REGARD TO DELETING THE ADDITION OF RS.21,301/ - MADE U/S.14A READ WITH RULE 8D IS CONCERNED, THE ASSESSEE HAS CLAIMED EXEMPT DIVIDEND INCOME OF RS.13038588/ - AND THAT WAS EARNED FROM NON INTEREST BEARING FUNDS AND ASSESSEE HAS NOT MADE ANY EXPENDITURE IN ORDER TO EARN ABOVE SAID INCOME. ON SIMILAR FACTS, ITAT DECIDED MATTER IN FAVOUR OF ASSESSEE IN ITA NO.2313 & 2504/AHD/2011 AND A LUMP SUM DISALLOWANCE OF RS.20,000/ - WAS MADE. THEREFORE WITH CONSONANCE TO THE AFORESAID ITAT ORDER, WE DISMISS THIS GROUND OF APPEAL OF THE DEPARTMENT. 6.6 IN VIEW OF THE ABOVE, WE DRAW A PRE SUMPTION THAT THE INVESTMENT HAS BEEN MADE BY THE ASSESSEE OUT OF ITS OWN. THEREFORE THERE CANNOT BE ANY DISALLOWANCE OF INTEREST EXPENSES. 6.7 REGARDING THE ADMINISTRAT IVE EXPENSES, WE ALSO NOTE THAT THE H ON BLE ITAT IN THE OWN CASE OF THE ASSESSEE (SUPRA) HAS DIRECTED TO RESTRICT THE DISALLOWANCE TO THE TUNE OF 20,000 ONLY. THE RELEVANT FINDING OF THE ITAT ORDER HAS BEEN REPRODUCED IN THE PRECEDING PARAGRAPH. 6.8 THERE IS NO MATERIAL CHANGE IN THE FACTS & CIRCUMSTANCES IN THE YEAR UNDER CONSIDERA TION. THEREFORE, RESPECTFULLY FOLLOWING THE SAME WE RESTRICT THE DISALLOWANCE OF THE ADMINISTRATIVE EXPENSES TO THE EXTENT OF RS. 20000.00 ONLY. HENCE THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED AND THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED. ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 11 - THE NEXT ISSUE RAISED BY THE R EVENUE IN GROUND NO. 5 IS THAT THE LEARNED CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR 2 , 01 , 87 , 000 .00 ON ACCOUNT OF NON - DEDUCTION OF TDS UNDER SECTION 194H R.W.S. 40 ( A)(IA ) OF THE ACT. 7. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS GIVEN DISCOUNT TO VARIOUS PARTIES AMOUNTING TO RS. 2, 01 , 87 , 000 .00 WITHOUT DEDUCTING THE TDS UNDER SECTION 194H OF THE ACT. ACCORDINGLY, THE AO DISALLOWED THE SAME AND ADDED TO THE TOTAL IN COME OF THE ASSESSEE DUE TO NON - DEDUCTION OF TDS. 8. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A) WHO DELETED THE ADDITION MADE BY THE AO. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE REVENUE IS IN APPEAL BEFORE US. 9 . BOTH THE LEARNED DR AND THE A R BEFORE US RELIED ON THE ORDER OF THE AUTHORITIES BELOW AS FAVOURABLE TO THEM. 10 . WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE NOTE THAT THE I DENTICAL ISSUE PERTAINING TO THE ASSESSMENT YEAR 20 11 - 1 2 IN ITA NO. 3318/AHD/2014 V IDE ORDER DATED 28/06/2018 HAS BEEN DECIDED IN FAVOUR ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 12 - OF THE ASSESSEE BY THE ITAT. THE RELEVANT EXTRACT OF THE ORDER IS EX TRACTED BELOW: SO FAR GROUND RELATED TO DELETING ADDITION OF RS.3,821,04,858/ - BY INVOKING PROVISIONS OF SECTION 40(A) ( I A ) OF THE ACT IS CONCERNED, LD. A.O. DISCUSSED THE ISSUE AT PAGE NOS.8 TO 11 AND LD. CIT(A) HAS DISCUSSED THE ISSUE AT PAGE NOS.24 TO 28. IN THIS C ASE, LD. CIT(A) FOLLOWS ASSESSMENT YEARS 2008 - 09 & 2009 - 10 AND CO - ORDINATE BENCH DECIDED THE ISSUE IN FAVOUR OF ASSESSEE IN ITA NO.2313 & 2504/AHD/2011 FOR ASSESSMENT YEAR 2008 - 09. THEREFORE WE DISMISS THIS GROUND OF APPEAL. R ESPECTFULLY FOLLOWING THE FINDING OF THE ITAT AS DISCUSSED ABOVE, WE UPHOLD THE ORDE R OF THE LEARNED C IT - A. HEN CE THE GROUND OF APPEAL OF THE R EVENUE IS DISMISSED. THE NEXT ISSUE RAISED BY THE R EVENUE IN GROUND NO. 6 IS THAT THE LEARNED CIT (A) ERRED IN MAKING THE ADDITION OF THE AMOUNT DISALLOWED UNDER SECTION 14 A READ WITH RULE 8D AS PER CLAUSE(F) OF EXPLANATION 1 TO SECTION 115 JB OF THE ACT. 11. AT THE OUTSET, WE NOTE THAT THE IDENTICAL ISSUE HAS BEEN DECIDED BY US IN ITA NO. 688/AHD/2015 FOR THE AY 2011 - 12 VIDE ORDER DATED 25 - 02 - 2019 . T HE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS SETTLED LAW THAT THE AMOUNT OF DISALLOWAN CE MADE BY THE AO U/S 14A OF THE ACT CANNOT BE IMPORTED WHILE DETERMINING THE PROFIT U/S 115JB OF THE ACT. IN THIS REGARD, WE RELY ON THE JUDGMENT CITED BY THE LD. AR FOR THE ASSESSEE IN THE CASE OF ALEMBIC LTD. IN TAX APPEAL NO.1249/2014. 33.1 WE ALSO N OTE THAT IN THE RECENT JUDGMENT OF SPECIAL BENCH OF HON BLE DELHI TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENT PVT. LTD. REPORTED IN 82 TAXMANN.COM 415 HAS HELD THAT THE DISALLOWANCES MADE U/S 14A R.W.R. 8D ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 13 - CANNOT BE THE SUBJECT MATTER OF DISALLOWANC ES WHILE DETERMINING THE BOOK PROFIT U/S 115JB OF THE ACT. THE RELEVANT PORTION OF THE SAID ORDER IS REPRODUCED BELOW: IN VIEW OF ABOVE DISCUSSION, THE COMPUTATION UNDER CLAUSE ( F ) OF EXPLANATION 1 TO SECTION 115JB(2), IS TO BE MADE WITHOUT RESORTING TO THE COMPUTATION AS CONTEMPLATED UNDER SECTION 14A, READ WITH RULE 8D OF THE INCOME - TAX RULES, 1962. 33.2 THE RATIO LAID DOWN BY THE HON BLE TRIBUNAL IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE. THUS IT CAN BE CONCLUDED THAT THE DISALLOWANCE MADE UN DER SECTION 14A R.W.R. 8D CANNOT USED WHILE DETERMINING THE EXPENSES AS MENTIONED UNDER CLAUSE (F) TO EXPLANATION 1 TO SECTION 115JB OF THE ACT. 33.3 HOWEVER, IN OUR CONSIDERED VIEW THE DISALLOWANCE NEEDS TO BE MADE AS PER CLAUSE (F) TO SECTION 115JB OF THE ACT INDEPENDENTLY. THE JUDGMENT OF HON BLE GUJARAT HIGH COURT RELIED ON BY THE LD AR IN THE CASE OF ALEMBIC LTD . (SUPRA), DOES NOT DENY TO MAKE THE DISALLOWANCE AS PER CLAUSE (F) U/S 115JB OF THE ACT. 33.4 THUS IT IS CLEAR THAT THE DISALLOWANCE NEEDS TO BE MADE IN TERMS OF THE PROVISIONS OF CLAUSE (F) TO SECTION 115JB OF THE ACT WHILE DETERMINING THE BOOK PROFIT. IN HOLDING SO, WE DRAW OUR SUPPORT FROM THE JUDGMENT OF HON BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. JAYSHREE TEA INDUSTRIES LTD. IN GO NO.1501 OF 2014 (ITAT NO.47 OF 2014) DATED 19.11.14 WHEREIN IT WAS HELD THAT THE DISALLOWANCE ABOUT EXEMPTED INCOME NEEDS TO BE MADE AS PER THE CLAUSE (F) TO EXPLANATION - 1 OF SEC. 115JB OF THE ACT INDEPENDENTLY. THE RELEVANT EXTRACT OF THE JUDGMENT IS REP RODUCED BELOW: - WE FIND COMPUTATION OF THE AMOUNT OF EXPENDITURE RELATABLE TO EXEMPTED INCOME OF THE ASSESSEE MUST BE MADE SINCE THE ASSESSEE HAS NOT CLAIMED SUCH EXPENDITURE TO BE NIL. SUCH COMPUTATION MUST BE MADE BY APPLYING CLAUSE (F) OF EXPLANATION 1 UNDER SECTION 115JB OF THE ACT. WE REMAND THE MATTER FOR SUCH COMPUTATION TO BE MADE BY THE LEARNED TRIBUNAL. WE ACCEPT THE SUBMISSIO N O F MR. KHA ITAN, LEARNED SENIOR ADVOCATE THAT THE PROVISION OF SECTION 115JB IN THE MATTER OF COMPUTATION IS A COMPLETE CODE IN ITSELF AND RESORT NEED NOT AND CANNOT BE MADE TO SECTION 14A OF THE ACT. GIVEN ABOVE, WE HOLD THAT THE DISALLOWANCES MADE UNDER THE PROVISIONS OF SEC. 14A R.W.R. 8D OF THE IT RULES, CANNOT BE APPLIED TO THE ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 14 - PROVISION OF SEC. 115JB OF THE ACT AS PER THE DIRECTION OF TH E HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. JAYSHREE TEA INDUSTRIE S LTD. ( SUPRA). 33.5 NOW THE QUESTION ARISES TO DETER MINE THE DISALLOWANCE AS PER THE CLAUSE (F) TO EXPLANATION - 1 OF SEC. 115JB OF THE ACT INDEPENDENTLY. IN THIS REGARD , WE ALSO NOTE THAT THERE IS NO MECHANISM GIVEN UNDER THE CLAUSE (F) TO EXPLANATION - 1 OF SEC. 115JB OF THE ACT TO WORKOUT/ DETERMINE THE DISA LLOWANCE. THEREFORE IN THE GIVEN FACTS & CIRCUMSTANCES, WE FEEL THAT AD - HOC DISALLOWANCE WILL SERV E THE JUSTICE TO THE REVENUE AND ASSESSEE. WE, THEREFORE, ARE DIRECTING FOR THE AD - HOC DISALLOWANCE TO AVOID THE MULTIPLICITY OF THE PROCEEDINGS AND UNNECESSA RY LITIGATION. THUS WE DIRECT THE AO TO MAKE THE DISALLOWANCE OF 1% OF THE EXEMPTED INCOME AS DISCUSSED ABOVE UNDER CLAUSE (F) TO EXPLANATION - 1 OF SEC. 115JB OF THE ACT. WE ALSO FEEL TO BRING THIS FACT ON RECORD THAT WE HAVE RESTORED OTHER CASES INVOLVING IDENTICAL ISSUES TO THE FILE OF AO FOR MAKING THE DISALLOWANCE AS PER THE CLAUSE (F) TO EXPLANATION - 1 OF SEC. 115JB OF THE ACT INDEPENDENTLY. BUT NOW WE NOTE THAT THERE IS NO MECHANISM PROVIDED UNDER THE CLAUSE (F) TO EXPLANATION - 1 OF SEC. 115JB OF THE ACT TO MAKE THE DISALLOWANCE INDEPENDENTLY. THEREFORE OUR ACTION FOR RESTORING BACK THE ISSUE TO THE FILE OF AO WOULD UNNECESSARILY CAUSE FURTHER LITIGATION. THUS WE LIMIT THE DISALLOWANCE ON AN AD - HOC BASIS @ 1 % OF THE EXEMPTED INCOME AS PER THE CLAUSE (F) TO EXPLANATION - 1 OF SEC. 115JB OF THE ACT. THUS THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. R ESPECTFULLY FOLLOWING THE ABOVE FINDING OF THE ITAT, WE DIRECT THE AO TO MAKE THE AD HOC DISALLOWANCE AT THE RATE OF 1% OF THE DIVIDEND/EXEMPT INCOME EARNED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS PART LY ALLOWED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. NOW, WE TAKE UP ASSESSEE S APPEAL BEARING ITA NO. 781/AHD/2016 FOR AY 2012 - 13 13. THE ASSESSEE HAS RAISED THE FOLLOWING CONCISE GROUNDS OF APPEAL: ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 15 - 1. LD.CIT( A) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE U/S.14A IGNORING FACT THAT INVESTMENT HAS BEEN MADE OUT OF SURPLUS INTEREST FREE FUNDS AND NOT BY UTILIZING BORROWED FUNDS. LD.CIT(A) OUGHT TO HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND DELE TE THE DISALLOWANCE. IT BE SO HELD NOW. 2. LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF NOTIONAL INTEREST OF RS.1,24,43,195/ - FOR INVESTMENT MADE IN SUBSIDIARY COMPANY DINESH REMEDIES LTD. U/S.36(1)(III) OF THE ACT. LD. CIT(A) OUG HT TO HAVE CONSIDERED THE SUBMISSION REGARDING AVAILABILITY OF INTEREST FREE FUNDS AND DELETE THE DISALLOWANCE. IT BE SO HELD NOW. 3. LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF INTEREST OF RS.18,86,101/ - FOR INTEREST PAID ON TERM LOAN FOR PURCHASE OF CAPITAL ASSETS TILL DATE OF ASSETS PUT TO USE U/S.36(1)(III) OF THE ACT. LD. CIT(A) OUGHT TO HAVE CONSIDERED T HE SUBMISSION OF THE APPELLANT AND DELETE THE DISALLOWANCE. IT BE SO HELD NOW. 4. THE ORDER PASSED BY CIT(A) IS BAD IN LAW AND CONTRARY TO THE PROVISIONS OF THE LAW AND FACTS. 5. APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OF THE ABOVE G ROUNDS AT THE TIME OF HEARING OF THIS APPEAL. 14. THE 1 ST ISSUE RAISED BY THE ASSESSEE IS THAT THE LEARNED CIT (A) ERRED IN PARTLY CONFIRMING THE ORDER OF THE AO BY SUSTAINING THE DISALLOWANCE OF THE EXPENSES AS PER THE PROVISIONS OF SECTION 14 A READ W ITH RULE 8 D OF I NCOME T AX R ULE. ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 16 - 1 5 . AT THE OUTSET , WE NOTE THAT, THE ISSUE RAISED BY THE ASSESSEE HAS ALREADY BEEN ADJUDICATE D ALONG WITH THE APPEAL OF THE R EVENUE BEARING ITA NO. 1191/AHD/2016 FOR THE ASSESSMENT YEAR 2012 - 13 VIDE PARAGRAPH NUMBER 6 OF THIS ORDER. FOR DETAILED DISCUSSION, PLEASE REFER THE RELEVANT PARAGRAPH. RESPECTFULLY FOLLOWING THE SAME, THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 16. THE 2 ND ISSUE RAISED BY THE ASSESSEE IS THAT THE LEARNED CIT (A) ERRED IN MAKING THE DISALLOWANCE OF 1 , 24 , 43 , 195 .00 BASED ON NOTIONAL INTEREST ON ACCOUNT OF INVESTMENT MADE IN THE SUBSIDIARY COMPANIES. 1 7 . THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE ON THE ONE HAND HAS MADE INVESTMENT IN THE SUBSIDIARY COMPANY WITHOUT CHARGING ANY INTEREST ON THE INVESTMENT AND ON THE OTHER HAND IT IS INCURRING THE INTEREST COST ON THE LOAN BORROWED BY IT. THEREFORE THE AO WORKED OUT THE AMOUNT OF INTEREST FOR 1 , 24 , 43 , 195 BEING 9.5% ON 13 , 09 , 81 , 000 .00, AN AMOUNT INVESTED IN TH E SUBSIDIARY COMPANIES AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 1 8 . AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A) WHO HAS CONFIRMED THE ORDER OF THE AO. BEING AGGRIEVED BY THE ORDER OF THE LEARNE D C IT ( A ) , THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 17 - 1 9 . THE LEARNED AR BEFORE US SUBMITTED T HAT IN THE IDENTICAL ISSUE THE T RIBUNAL IN THE OWN CASE OF THE ASSESSEE PERTAINING TO THE ASSESSMENT YEAR 2010 - 11 AND 20 11 - 12 HAVE DELETED THE ADDITION MADE BY THE AO AFTER HAVING RELIANCE ON THE ORDER S PERTAINING TO THE ASSESSMENT YEAR 2007 - 0 8 AND 2008 - 0 9. THE LEARNED AR ALSO SUBMITTED THAT THE FINDING OF THE TRIBUNAL WAS ALSO UPHELD BY THE H ON BLE GUJARAT HIGH COURT IN THE OWN CASE OF THE ASSESSEE IN TAX APPEAL NUMBERS 797 AND 798 OF 2017. ON THE OTH ER HAND, THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 20 . WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET , WE NOTE THAT THE IMPUGNED ISSUE HAS ALREADY BE EN ADJUDICATED IN FAVOUR OF THE ASSESSEE BY THE ITAT IN ITS OWN CASE FOR THE ASSESSMENT YEAR 2007 - 0 8 BEARING NO. 2369/AHD/2010 VIDE ORDER DATED 10 - 04 - 2017 . THE RELEVANT FINDING OF THE ORDER IS EX TRACTED BELOW: 4. IN THE FIRST ROUND OF LITIGATION, THIS ISSUE WAS PARTLY DECIDED IN FAVOUR OF THE ASSESSEE AND PARTLY IN FAVOUR OF THE REVENUE. THE ASSESSEE THROUGH THE MISCELLANEOUS APPLICATION PRAYED FOR RECALLING THE ORDER OF THE TRIBUNAL SO FAR AS IT WAS AGAINST THE ASSE SSEE AND THE TRIBUNAL VIDE M.A. NO. 104/AHD/2014 HELD AS UNDER: - 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND HAVE ALSO GONE THROUGH THE MISCELLANEOUS APPLICATION. WITH RESPECT TO DISALLOWANCE U/S, 14A IN ITA NO. 2369/AHD/2010, IT IS SEEN THAT FOR THE YEAR UNDER CONSIDERATION BEING A.Y. 200 7 - 08, THE DISALLOWANCE U/S. 14A HAS BEEN MADE BY FOLLOWING THE PROVISIONS OF RULE 8D. WE FURTHER FIND THAT HON'BLE GUJARAT HIGH COURT IN ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 18 - ASSESSEE'S OWN CASE IS A.Y. 2006 - 07 WHILE DECIDING THE SPECIAL CIVIL APPLICATION NO. 15726 OF 2010, HAS HELD THAT PROVI SIONS OF RULE 8D ARE APPLICABLE FROM A.Y. 2008 - 09 AND IS NOT RETROSPECTIVE. CONSIDERING THE AFORESAID FACT, WE ARE OF THE VIEW THAT THERE IS AN APPARENT MISTAKE IN THE ORDER OF TRIBUNAL AND THEREFORE RECALL THE ORDER IN ITA NO. 2369/AHD/2010 FOR A LIMITED PURPOSE TO DECIDE THE ISSUE WITH RESPECT TO DISALLOWANCE U/S. 14A OF THE ACT. THE REGISTRY IS DIRECTED TO FIX THE HEARING THE APPEAL IN DUE COURSE. 5 . THE REVENUE PREFERRED AN APPEAL BEFORE THE HON BLE HIGH COURT OF GUJARAT IN SO FAR AS THE PART WHICH HAS BE EN DECIDED AGAINST THE REVENUE AND THE HON BLE JURISDICTIONAL HIGH COURT WAS SEIZED WITH THE FOLLOWING SUBSTANTIAL QUESTION OF LAW IN TAX APPEAL NO. 769 OF 2015. 1 . WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE INCOME TAX APPELLATE TRIBUNAL WAS RIGHT IN LAW AND ON FACTS IN REVERSING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DELETING DISALLOWANCE MADE BY THE ASSESSING OFFICER ON TOTAL INVESTMENT MADE IN SHARES OF SUBSIDIARY COMPANY? 2 . WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE INCOME TAX APPELLATE TRIBUNAL WAS RIGHT IN LAW AND ON FACTS IN HOLDING THAT THE INVESTMENT MADE FOR THE PURCHASE OF SHARES OF SUBSIDIARY COMPANY WAS NOT A LEGITIMATE BUSINESS ACTIVITY OF THE APPELLANT? 6 . AFTER CONSIDERING THE FACTS IN TOTALI TY, THE HON BLE JURISDICTIONAL HIGH COURT OBSERVED AS UNDER: - 7. BEFORE US LEARNED COUNSEL SHRI SOPARKAR FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD SIZEABLE INTEREST FREE FUNDS FOR INVESTMENT WHICH WERE UTILIZED FOR INVESTMENT IN THE SUBSIDIARY COMPANY. THE ASSESSING OFFICER AS WELL AS THE TRIBUNAL COMMITTED A SERIOUS ERROR IN DISALLOWING THE SAME. CERTAIN BORROWINGS WERE MADE DURING EARLIER ASSESSMENT YEARS. SUCH FUNDS WERE INVESTED FOR BUSINESS PURPOSE. DEDUCTION OF INTEREST UNDER SECTION 36(1 )(III) OF THE ACT WAS ALLOWED. HE RELIED ON THE FOLLOWING DECISIONS OF THIS COURT: 1 ) COMMISSIONER OF INCOME TAX - II V. HITACHI HOME AND LIFE SOLUTIONS (I) LTD. REPORTED IN (2014) 41 TAXMANN.COM 540 (GUJRAT). 2 ) COMMISSIONER OF INCOME TAX V. RGGHUVIR SYNTHETICS LTD. REPORTED IN (2013) 354 ITR 222 (GUJ). ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 19 - 8 . ON THE OTHER HAND LEARNED COUNSEL SHRI PARIKH SUPPORTED THE VIEW OF THE TRIBUNAL CONTENDING THAT THE ASSESSEE FAILED TO DEMONSTRATE THAT INTEREST FREE FUNDS WERE AVAILABLE FOR DIVERSION TO SISTER CONCERN. THE P RINCIPLE LAID DOWN BY THE SUPREME COURT IN CASE OF S.A. BUILDERS LTD. V. COMMISSIONER OF INCOME - TAX (APPEALS) AND ANOTHER REPORTED IN (2007) 288 ITR 1 (SC) WOULD NOT APPLY. 9 . FACTS EMERGING FROM THE RECORD ARE QUITE CLEAR. THE ASSESSEE HAD PURCHASED SHARES OF A SUBSIDIARY COMPANY BY INVESTING SUM OF RS.7.86 CRORES. IN VIEW OF THE ASSESSING OFFICER, THERE HAD TO BE DISALLOWANCE OF INTEREST MATCHING TO SUCH SUM SINCE INTEREST BEA RING FUNDS WERE DIVERTED FOR SUCH PURPOSE. FIRSTLY, WE ARE UNABLE TO SEE THE RATIONALE BEHIND SUCH APPROACH. AS NOTED, FOUNDATIONAL QUERY OF THE ASSESSING OFFICER TO THE ASSESSEE IN THIS BACKGROUND WAS THAT THE ASSESSEE HAS NOT CHARGED INTEREST ON SUCH INV ESTMENT IN SHARE. THE ASSESSEE WAS THEREFORE, ASKED TO SHOW CAUSE WHY INTEREST' SHOULD NOT BE CHARGED ON INVESTMENT. UPON PERUSAL OF THE ORDER OF ASSESSMENT, WE DO NOT FIND THAT THE CASE OF THE ASSESSING OFFICER WAS THAT INVESTMENT MADE BY THE COMPANY IN T HE SUBSIDIARY BY PURCHASE OF SHARES WAS IN FACT, A LOAN IN DISGUISE. WHEN EVEN 'ACCORDING TO THE ASSESSING OFFICER THERE WAS NO ADVANCE MADE BY THE ASSESSEE TO THE SUBSIDIARY, THE QUESTION: OF CHARGING INTEREST ON THE INVESTMENT MADE, WOULD NOT ARISE. THE ASSESSING OFFICER IN OUR OPINION THEREFORE, CLEARLY MISDIRECTED HIMSELF BY EXAMINING THE QUESTION OF CHARGING INTEREST ON INVESTMENT BY THE ASSESSEE COMPANY IN THE SUBSIDIARY COMPANY. ENTIRE ISSUE COULD BE LOOKED FROM A DIFFERENT ANGLE HAD THE PREMISE OF A SSESSING OFFICER BEEN THAT IN DISGUISE OF INVESTMENT, WHAT THE ASSESSEE HAD DONE WAS TO ADVANCE THE SUM TO SISTER CONCERN WITHOUT CHARGING INTEREST. THAT WAS NOT EVEN THE CASE OF THE ASSESSING OFFICER. 10 . IT WAS IN THIS BACKGROUND THE ASSESSEE HAD CONVEYED TO THE ASSESSING OFFICER THAT IT HAD PURCHASED SHARES WITH BUSINESS PRUDENCE IN MIND. MERELY BECAUSE DURING THE CURRENT YEAR SUCH SHARES DID NOT YIELD ANY RETURN WOULD NOT IMPLY THAT IN FUTURE ALSO NO RETURN WOULD ACCRUE. QUITE APART FROM THIS ANGLE, EVEN TH E QUESTION OF INVESTMENT IN SUBSIDIARY COMPANY HAS NOT BEEN PROPERLY EXAMINED BY THE ASSESSING OFFICER. MERELY BECAUSE THE ASSESSEE COMPANY HAD INTEREST BEARING FUNDS FOR ITS CAPITAL INVESTMENT, CLAIMING DEDUCTION UNDER SECTION 36(L)(III) OF THE ACT WOULD NOT AUTOMATICALLY IMPLY THAT ANY DIVERSION OF FUNDS WITHOUT INTEREST TO A SUBSIDIARY WOULD AUTOMATICALLY GIVE RISE TO DISALLOWANCE. SO MUCH HAS BEEN DISCUSSED BY THE SUPREME COURT IN CASE OF S.A. BUILDERS LTD.(SUPRA). THE ASSESSEE HAD DEMONSTRATED BEFORE THE ASSESSING OFFICE THAT IT HAD SIZEABLE NET PROFIT AND AVAILABILITY OF INTEREST FREE FUNDS FOR INVESTMENT IN SUBSIDIARY COMPANY. ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 20 - 11 . IN CASE OF RAGHUVIR SYNTHETICS LTD (SUPRA), DIVISION BENCH OF THIS COURT FOLLOWING THE DECISION OF SUPREME COURT IN CASE OF S.A. BUILDERS LTD.(SUPRA), UPHELD THE VIEW OF THE TRIBUNAL REJECTING THE APPEAL OF THE REVENUE ON THE GROUND THAT SUBSTANTIAL INTEREST FREE FUNDS WERE AVAILABLE, THE COMMISSIONER AND THE TRIBUNAL ALSO CONSIDERED THE QUESTION OF BUSINESS EXPEDIENCY. IN CAS E OF HITACHI HOME AND LIFE SOLUTIONS (I) LTD (SUPRA), THE COURT HELD AND OBSERVED AS UNDER: '4. LEARNED COUNSEL MS. MAUNA BHATT HAS FERVENTLY URGED THAT THE TRIBUNAL HAD HELD THE FUNDS TO BE MIXED FUNDS AND THEREFORE, DISALLOWANCES HAD BEEN RIGHTLY MADE BY THE ASSESSING OFFICER, WHICH WERE NOT TO BE DISTURBED. THE TRIBUNALS HOLDING THAT RULE 8D COULD NOT HAVE BEEN INVOKED IS CONTRARY TO ITS OWN FINDING, AND THEREFORE, DELETION NEEDS TO BE QUASHED. RELIANCE IS PLACED ON THE DECISION OF DELHI HIGH COURT IN CA SE OF MAXOPP INVESTMENT LIMITED V. COMMISSIONER OF INCOME TAX, REPORTED IN [2012] 347 ITR 272 [DELHI], WHEREIN, INTRODUCTION OF RULE 8D IS HELD PROSPECTIVE IN NATURE. HOWEVER, IT HAS BEEN HELD THEREIN THAT THE ASSESSING OFFICER IF IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE, PRIOR TO THE INTRODUCTION OF RULE 8D, IS ENTITLED UNDER THE LAW TO CALCULATE THE AMOUNT AND DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO THE INCOME. 5. ON THUS HAVING HEARD LEAR NED COUNSEL AND HAVING CONSIDERED AT LENGTH THE MATERIAL ON RECORD, WE ARE OF THE OPINION THAT NO INTERFERENCE IS DESIRABLE. 6. AS CAN BE NOTED FROM THE 'ELABORATE NOTINGS OF THE ASSESSING OFFICER ITSELF, THE INTEREST FREE FUNDS WITH THE ASSESSEE WAS TO TH E TUNE OF RS. 1.56 CRORES, EVEN IF THE OUTSTANDING LOAN OF RS. 2077.06 LACS AS ON 31 ST MARCH 1999 IS TAKEN INTO ACCOUNT. SINCE WE ARE ONLY CONCERNED WITH A SUM OF RS. 18.38 LACS DISALLOWANCES OF WHICH HAS BEEN MADE UNDER SECTION 14A OF THE ACT; EVEN IF THE TRIBUNAL HAS HELD THAT THIS WAS A QUESTION OF MIXED FUNDS, THE FURTHER REASONINGS GIVEN BY THE TRIBUNAL CANNOT BE IGNORED NOR CAN EARLIER VERSION BE VIEWED IN ISOLATION. THESE FINDINGS CANNOT BE SAID TO BE IN CONSONANCE WITH THE FINDINGS OF THE ASSESSING OFFICER. WE ALSO HOLD THAT THE CIT [A] AND THE TRIBUNAL BOTH HAVE SPECIFICALLY HELD THE SAID AMOUNT HAS NOT BEEN RIGHTLY DISALLOWED SINCE THE SAME HAD BEEN EXPENDED FROM INTEREST FREE FUNDS, THOUGH SPENT FOR EARNING EXEMPT DIVIDEND INCOME. IT IS NOT THE QU ESTION OF THE TOTAL SUM OF RS. 471 LACS, BUT, A LIMITED SUM THAT HAS BEEN SPENT FOR EARNING THE EXEMPT INCOME, THEREFORE, AS RIGHTLY HELD, WHEN THERE WAS INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE, THERE ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 21 - DOES NOT ARISE A QUESTION OF DISALLOWING EXPEND ITURE UNDER SECTION 14A OF THE ACT.' 12.THE TRIBUNAL'S FINDING THAT THE INVESTMENT MADE BY THE ASSESSEE COMPANY FOR PURCHASE OF SHARES IN THE SUBSIDIARY COMPANY WAS NOT A LEGITIMATE BUSINESS ACTIVITY, WAS IN FACT, AN EXPANSION BEYOND WHAT THE ASSESSING OF FICER HAD HIMSELF ENVISAGED. IT WAS NOT EVEN THE CASE OF THE REVENUE THAT INVESTMENT MADE BY THE ASSESSEE IN SUBSIDIARY COMPANY WAS FOR SOME ILLEGITIMATE PURPOSE OR A MERE DEVICE TO DIVERT ITS TAX BEARING INCOME. 13. IN VIEW OF ABOVE, WE ANSWER THE QUESTIO N IN FAVOR OF ASSESSEE, ALLOW THE APPEAL AND REVERSE THE JUDGEMENT OF THE TRIBUNAL ON THIS ISSUE. 7 . A PERUSAL OF THE AFOREMENTIONED JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT QUA THE FACTS IN ISSUE BEFORE US CLEARLY TILTS THE BALANCE OF CONVENIENCE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. SINCE, THE ISSUE IS NOW WELL SETTLED BY THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT (SUPRA), WE DIRECT THE A.O. TO DELETE THE DISALLOWANCE OF RS. 31,87,067/ - . THIS GROUND OF THE APPEAL IS ALLOWED . I N VIEW OF THE ABOVE, WE DO NOT FIND ANY REASON TO UPHOLD THE FINDING OF THE LEARNED CIT (A). HENCE, WE SET ASIDE THE ORDER OF THE LEARNE D C IT - A AND DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. THUS THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED . 21. THE NEXT ISSUE RAISED BY THE ASSESSEE IS THAT THE LEARNED CIT (A) ERRED IN CONFIRMING THE ORDER OF THE AO BY TREATING THE INTEREST OF RS. 18,86,101.00 AS CAPITAL IN NATURE. 22 . THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS PURCHASED SEVERAL MACHINERIES FOR THE PURPOSE OF ITS BUSINESS OUT OF THE BORRO WED FUND . THE ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 22 - ASSESSEE ALSO CLAIMED THAT ALL THE MACHINES PURCHASED WERE PUT TO USE IN THE YEAR UNDER CONSIDERATION AND ACCORDINGLY THE DEP RECIATION WAS CLAIMED THEREON . HOWEVER, THE AO DURING THE ASSESSMENT PROCEEDINGS OBSERVED THAT THERE IS A DIFFERENCE BETWEEN THE DATE OF DISBURSAL OF LOAN AND THE DATE WHEN THE MACHINE WAS ACTUALLY PUT TO USE. THE RELEVANT DETAILS STAND AS UNDER: NAME OF ASSET DATE OF PUT TO USE COST DATE/S DISBURSAL/AMOU NT EFFECTIVE RATE INTEREST TEXO WEAVING LOOM 14.9.2011 10,35,76,479 24.06.2011 5,74,43,766 7.5% 9,67,888/ - 22,07,2011 1,49,25,800 7.5% 1,65,615 / - WIND MILL (LALPUR) 29.02. 20 12 8,81,65,110/ - 23.01.2012 5,58,30,000 12% 6,79,138/ - WIRA FIBRE DIAGRAM MACHINE 18.02.2012 22,67,046/ - 10.02.2012 16,80,000 7.0% 2,578/ - KIER DECATISIN G FINISHING MACHINE 11.03.2012 1,72,70,318/ - 10.02.2012 1,23,20,000 7.0% 70,882/ - TOTAL 21,12,78,953/ - 18,86,101 / - I N VIEW OF THE ABOVE, THE AO OPINED THAT THE AMOUNT OF INTEREST EXPENSES AS DISCUSSED ABOVE NEEDS TO BE CAPITALI Z ED IN TERMS OF THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. ACCORDINGLY, THE AO AFTER GIVING THE ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 23 - OPPORTUNITY OF BEING HEARD TO THE ASSESSEE HAS CAPITALI Z ED THE AMOUNT OF INTEREST AND A DDED TO THE TOTAL INCOME OF THE ASSESSEE. 23 . AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A) WHO HAS CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER: 4.4. GROUND NO.4 PERTAINS TO DISALLOWANCE OF RS.18,86,101/ - U/S.36(1)(III) OF THE A CT. IT IS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY HAS UTILIZED INTEREST BEARING FUNDS IN THE FORM OF TERM LOAN FOR PURCHASE OF PLANT & MACHINERY. THE TOTAL INVESTMENT IN PURCHASE OF PLANT & MACHINERY AMOUNTED TO RS.21,12,78,953/ - . IN VIEW OF THE PROVISION OF SECTION 36(1)(III), THE ASSESSING OFFICER HAS DISALLOWED INTEREST ON BORROWED FUND UPTO THE DATE OF ACTUAL USE OF CAPITAL ASSETS FOR BUSINESS PURPOSES. UTILIZATION OF BORROWED FUNDS FOR PURCHASE OF THE CAPITAL ASSETS IS NOT DISPUT ED BY THE LD. AUTHORIZED REPRESENTATIVE. HOWEVER, IT HAS BEEN ARGUED THAT THE ASSETS WERE NOT PURCHASED FOR EXTENSION OF BUSINESS OR NEW UNIT AND HENCE NO DISALLOWANCE IS CALLED FOR. ON EXAMINATION OF THE SANCTION LETTERS OF THE TERM LOAN, I FIND THAT TH E APPELLANT HAS CARRIED OUT MODERNIZATION OF THE BUSINESS WITH ADVANCED TECHNOLOGY AND ALSO VENTURED INTO NEW AREA OF GENERATING ELECTRICITY THROUGH WIND MILL AND HENCE IN MY CONSIDERED VIEW, THE PURCHASE OF NEW PLANT & MACHINERY WAS FOR THE PURPOSES OF EX TENSION OF BUSINESS. THE QUANTUM OF INVESTMENT MADE TO THE TUNE OF RS.21.13 CRORES ALSO GOES TO ESTABLISHED THAT THE APPELLANT HAS CARRIED OUT MAJOR EXTENSION OF THE BUSINESS BY WAY OF ENHANCING ITS MANUFACTURING CAPACITY. THUS, IN VIEW OF THE PROVISIONS OF PROVISO TO SECTION 36(1)(III), INTEREST EXPENDITURE IS REQUIRED TO BE CAPITALIZED WITH THE COST OF ASSETS UNTIL THE ASSETS ARE PUT TO USE. THUS, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS CONFIRMED AND APPELLANT FAILS IN RESPECT OF GROUND NO.4. B EING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. 24 . THE LD. AR BEFORE US SUBMITTED THAT THERE WAS NO EXTENSION IN THE EXISTING BUSINESS OF THE ASSESSEE. THEREFORE THE INTEREST EXPENSES CANNOT BE CAPITALIZED AS ENVISAGED UNDER SECTION 36(1)(III) OF THE ACT. ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 24 - 2 5 . ON THE OTHER HAND, THE LD. DR BEFORE US VEHEMENTLY SUPPORTED THE ORDER OF THE AO. 2 6 . WE HAVE HEARD THE ARGUMENTS OF BOTH SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ISSUE IN THE PRESENT CASE RELATES WHETHER THERE WAS ANY EXTENSION IN THE EXISTING BUSINESS OF THE ASSESSEE ON ACCOUNT OF THE PURCHASE OF THE MACHINERIES. THE PROVISO TO SEC. 36(1)(III) SPECIFICALLY DEALS WITH TWO SITUATIONS , FIRST LY, T HERE SHOULD BE ACQUISITION OF AN ASSET AND SECONDLY S UCH ACQUISITION IS FOR EXTENSION OF EXISTING BUSINESS . ADMITTEDLY, I N THE INSTANT CASE INTEREST EXPENDITURE HAS BEEN INCURRED FOR THE ACQUISITION OF THE MACHINES OUT OF THE BORROWED FUNDS. AS PER THE LD. CIT - A, THE BORROWED FUND W AS USED FOR THE EXTENSION OF THE EXISTING BUSINESS AS WELL AS FOR ESTABLISHING THE NEW BUSINESS BEING ELECTRICITY GENERATION UNIT. HOWEVER, WE NOTE THAT THERE IS NO SUCH BREAKUP AVAILABLE IN THE ORDER OF THE AUTHORITIES BELOW REGARDING THE ACQUISITION OF M ACHINERIES FOR THE EXISTING BUSINESS AND ELECTRICITY GENERATION UNIT . 2 6 .1 SIMILARLY, THE AUTHORITIES BELOW HAVE NOT BROUGHT ANYTHING ON RECORD SUGGESTING THERE WAS EXPANSION IN THE PRODUCTION CAPACITY OR IN THE SPHERE OF MARKET AREA. THUS MERELY ACQUIS ITION OF THE MACHINERY DOES NOT IPSO FACTO REFER TO THE EXTENSION OF THE BUSINESS. ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 25 - 2 6 .2 THE CASE LAW REFERRED BY THE LD. AR I.E. CIT VS. NICHOLAS PIRAMAL (INDIA) LTD. REPORTED IN 69 TAMANN.COM 164 IS DISTINGUISHABLE FROM THE FACTS OF THE PRESENT CASE S O FAR AS THE BOTTLING PLANT WAS ALREADY IN EXISTENCE AND THERE WAS INTERLACING OF THE FUNDS IN THAT CASE . BUT IN THE CASE ON HAND THERE IS NEW ACTIVITY OF ELECTRICITY GENERATION UNIT AND THERE WAS NO INTERLACING OF THE FUND UTILIZED IN THE ACQUISITION OF M ACHINERIES. 26 .3 THEREFORE, TAKING ALL FACTS AND CIR CUMSTANCES INTO CONSIDERATION, W E ARE OF THE OPINION THAT THE ISSUE NEEDS TO BE RE - EXAMINED BY THE AO IN THE LIGHT OF THE ABOVE STATED DISCUSSION AND AS PER THE PROVISION OF LAW. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 27. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR THE S TATISTICAL PURPOSES . COMING TO ASSESSEE S APPEAL BEARING ITA NO. 3180/AHD/2016 FOR AY 2013 - 14 28. T HE ASSESSEE HAS RAISED THE FOLLOWING CONCISE GROUNDS OF APPEAL: 1. LD.CIT( A) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE U/S.14A IGNORING FACT THAT INVESTMENT HAS BEEN MADE OUT OF SURPLUS INTEREST FREE FUNDS AND NOT BY UTILIZING BORROWED FUNDS. LD.CIT(A) OUGHT TO HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND DELE TE THE DISALLOWANCE. IT BE SO HELD NOW. ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 26 - 2. &3. LD. CIT(A)ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF NOTIONAL INTEREST OF RS.1,24,43,195/ - FOR INVESTMENT MADE IN SUBSIDIARY COMPANY DINESH REMEDIES LTD. U/S.36(1)(III) OF THE ACT. LD. CIT( A) OUGHT TO HAVE CONSIDERED THE SUBMISSION REGARDING AVAILABILITY OF INTEREST FREE FUNDS AND DELETE THE DISALLOWANCE. IT BE SO HELD NOW. 3. LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF INTEREST OF RS.18,86,101/ - FOR INTEREST PAID O N TERM LOAN FOR PURCHASE OF CAPITAL ASSETS TILL DATE OF ASSETS PUT TO USE U/S.36(1)(III) OF THE ACT. LD. CIT(A) OUGHT TO HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND DELETE THE DISALLOWANCE. IT BE SO HELD NOW. 4. THE ORDER PASSED BY CIT(A) IS BA D IN LAW AND CONTRARY TO THE PROVISIONS OF THE LAW AND FACTS. 5. APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OF THE ABOVE GROUNDS AT THE TIME OF HEARING OF THIS APPEAL. 29. THE 1 ST ISSUE RAISED BY THE ASSESSEE IS THAT THE LEARNED CIT (A) ERRED IN CONFIRMING THE ADDITION MADE BY THE AO IN PART U NDER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF I NCOME TAX R ULE. 30 . AT THE OUTSET WE NOTE THAT, WE HAVE DECIDED THE IDENTICAL ISSUE IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 1191/AHD/2016 AND 781/AHD/2016 FOR THE ASSESSMENT YEAR 2012 - 13 WHEREIN THE APPEAL OF THE ASSESSEE WAS PARTLY ALLOWED. FOR DETAILED DISCUSSION, PLEASE REFER THE PARAGRAPH NUMBER 6 OF THIS ORDER. HENCE , THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 27 - 31. THE 2 ND ISSUE RAISED BY THE ASSESSEE IS THAT THE LEARNED CIT (A) ERRED IN CONFIRMING THE ADDITION MADE BY THE AO FOR INTEREST EXPENSES ON ACCOUNT OF THE INTEREST - FREE INVESTMENT MADE IN TH E SUBSIDIARY COMPANY. 32 . AT THE OUTSET WE NOTE THAT, WE H AVE DECIDED THE IDENTICAL ISSUE IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 781/AHD/2016 FOR THE ASSESSMENT YEAR 2012 - 13 WHEREIN THE GROUND OF APPEAL OF THE ASSESSEE WAS ALLOWED. FOR DETAILED DISCUSSION, PLEASE REFER THE PARAGRAPH NUMBER 16 OF THIS ORDER. H ENCE , THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 33. THE 3 RD ISSUE RAISED BY THE ASSESSEE IS THAT THE LEARNED CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS. 5,40,109.00 BY TREATING THE SAME AS CAPITAL IN NATURE UNDER SECTION 36 1(III) OF THE ACT. 3 4. AT THE OUTSET WE NOTE THAT THE IMPUGNED ISSUE HAS ALREADY BEEN RESTORED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION AS PER THE PROVISION OF LAW IN ITS OWN CASE PERTAINING TO THE ASSESSMENT YEAR 2012 - 13 IN ITA NO. 781/AHD/2016 . PLEASE REFER THE RELEVANT PARAGRAPH BEARING NUMBER 21 OF THIS ORDER FOR THE DETAILED DISCUSSION. HENCE RESPECTFULLY FOLLOWING THE SAME WE ALLOW THE GROUND OF APPEAL OF THE REVENUE FOR STATISTICAL PURPOSES. 35. IN THE RESULT , THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR THE STATISTICAL PURPOSES. ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 28 - COMING TO REVENUE S APPEAL BEARING ITA NO. 3369/AHD/2016 FOR AY 2013 - 14 36. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1.(A) 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN DIRECTING THE AO NOT TO CONSIDER THE INVESTMENT MADE IN HDFC FIXED MUTUAL FUND AND HDFC CASH MANAGEMENT FUND FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE PUT OF INTEREST PAID AS PER SUB CLAUSE (II) TO CLAUSE 2 OF RULE 8D, BUT TO CONSIDER THESE INVESTMENTS FOR MAKING DISALLOWANCES AS P ER CLAUSE (III) TO CLAUSE 2 OF RULE 8D WITHOUT APPR ECIATING THE FACT THAT AS PER RULE 8D(II)B THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR HAS TO BE TAKEN FOR COMPUTING THE DISALLOW ANCE UNDER SUB CLAUSE CLAUSE(II) OF CLAUSE (2) OF RULE 8D'. (B) 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN DIRECTING THE AO NOT TO CONSIDER THE INTEREST PAID ON TERM LOAN FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE AS PER RULE 8D W ITHOUT APPRECIATING THE FACT THAT AS PER RULE 8D(II)A AMOUNT OF EXPENDITURE BYWAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR IS TO BE TAKEN FOR WORKING OUT DISALLOWANCE UNDER SUB - CLAUSE ( II) OF CLAUSE (2) OF RULE 8D. CLAUSE (I) PERTAINS TO THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. THERE IS NO PROVISION IN RULE 8D TO EXCLUDE PART OF THE INTEREST FOR WORKING OUT THE DISALLOWANCE U/S.!4A'. 2.(A) 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION IN RESPECT OF INTEREST O N THE INVESTMENT MADE IN THE SUBSIDIARY COMPANY BY INVOKING THE PROVISIONS OF SEC. 40A(2 ) (B ) OF THE ACT WITHOUT APPRECIATING T HE FACTS BROUGHT ON RECORD BY THE A.O'. (B) 'THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO PROVE THE BUSINESS EXPEDIENCY IN MAKING INVESTMENT IN SHARES OF ITS OWN SUBSIDIARY C OMPANY AND THAT THE AO HAS PROVED BEYOND DOU BT THAT THE INVESTMENT IN SHARES OF ITS SUBSIDIARY CO MPANY HAS BEEN MADE TO GIVE UNDUE ADVANTAGE TO ITS SUBSIDIARY COMPANY. ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 29 - 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE OF 2,05,95,000/ - MADE BY THE AO BY INVOKING PROVISIONS OF SEC.40(A)(IA) OF THE ACT, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE WAS PAYING COMMISSION TO THE DEALERS WITHIN THE MEANING OF SEC. 1 94H ATTRACTING THEREBY THE MANDATORY PROVISIONS OF SCE.40(A)(IA) OF THE ACT. 4 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) ERRED IN DELETING DISALLOWANCE MADE U/S. 14A FOR DETERMINATION OF BOOK PROFIT MADE BY THE AO WITHOUT APPRECIATING THE FACT THAT THE PROVISIONS OF CLAUSE (F) OF EXPL.L BELOW SEC.115 3B CLEAR LY PROVIDE THAT BOOK PROFIT M EA N S NET PROFIT AS PER PROFIT & LOSS ACCOUNT AND AS INCREASED BY AMOUNT OF EXPENDITURE RELATABLE TO INCOME EXEMPT U/S. 10. ACCORDINGLY, THE AO HAS CORRECTL Y COMPUTED BOOK PROFIT U/S.115 J B OF THE ACT BY INCREASING THE AMOUNT OF EXPENDITURE RELATABLE TO EXEMPT INCOME AS PER RULE 8D . 5. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR ALTER THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY. RELIEF CLAIMED IN APPEAL IT IS PRAYED THAT THE ORDER OF THE CIT (APPEALS) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 37. THE 1 ST ISSUE RAISED BY THE REVENUE IS THAT THE LEARNED CIT (A) ER R ED IN DELETING THE ADDITION MADE BY THE AO IN PART UNDER THE PROVISIONS OF SE CTION 14A READ WITH RULE 8D OF I NCOME T AX R ULE. AT THE OUTSET , WE NOTE THAT THE I DENTICAL ISSUE HAS ALREADY BEEN ADJUDICATED ALON G WITH THE APPEAL FILED BY THE R EVENUE BEARING ITA NO. 1191 / AHD /2 016 WHEREIN THE APPEAL OF THE ASSESSEE WAS PARTLY ALLOWED. FOR DETAILED DISCUSSION, PLEASE REFER THE RELEVANT PARAGRAPH BEAR ING NUMBER 6 OF THIS ORDER. RESPECTFULLY FOLLOWING THE SAME, WE PARTLY ALLOWED THE GROUND OF APPEAL RAISED BY THE REVENUE . ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 30 - 38. THE 2 ND ISSUE RAISED BY THE REVENUE IS THAT THE LEARNED CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF NOTIONAL INTEREST UNDER SECTION 36 ( 1 ) (III) OF THE ACT. 39 . AT THE OUTSET WE NOTE THAT THE IMPUGNED ISSUE HAS ALREADY BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE PERTAINING TO THE ASSESSMENT YEAR 20 12 - 2 0 13 IN ITA NO. 781/AHD/2016. PLEASE RE FER THE RELEVANT PARAGRAPH BEARING NUMBER 16 OF THIS ORDER F OR THE DETAILED DISCUSSION. HENCE , THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED . 40. THE 3 RD ISSUE RAISED BY THE REVENUE IS THAT THE LEARNED CIT (A) ERRED IN CONFIRMING THE ADDITION MADE B Y THE AO FOR RS. 2 , 05 , 95 , 000 .00 ON ACCOUNT OF NON - DEDUCTION OF TDS UNDER SECTION 194H R.W.S. 40(A)(IA) OF THE ACT. 41 . AT THE OUTSET WE NOTE THAT, WE HAVE DECIDED THE IDENTICAL ISSUE IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 1191 /AHD/2016 FOR THE ASSESSM ENT YEAR 2012 - 13 WHEREIN THE GROUND OF APPEAL OF THE REVENUE WAS DISMISSED . FOR DETAILED DISCUSSION, PLEASE REFER THE PARAGRAPH NUMBER 10 OF THIS ORDER. HENCE , THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED . 42. THE 4 TH ISSUE RAISED BY THE R EVENUE IS THAT THE LEARNED CIT (A) ERRED IN CONFIRMING THE ADDITION MADE BY THE AO FOR THE AMOUNT DISALLOWED UNDER THE PROVISIONS OF SECTION 14 A READ WITH RULE 8D OF ITA NO.781/AHD/2016 & 3 OTHERS SHREE DINESH MILLS LTD. VS. DCIT/ACIT (CROSS - APPEALS) ASST.YEARS 2012 - 13 & 2013 - 14 - 31 - INCOME TAX RULE WHILE DETERMINING THE INCOME UNDER SECTION 115 JB OF THE ACT. 43 . AT THE OUTSET WE NOTE THAT, WE HAVE DECIDED THE IDENTICAL ISSUE IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 1191 /AHD/2016 FOR THE ASSESSMENT YEAR 2012 - 13 WHEREIN THE GROUND OF APPEAL OF THE REVENUE WAS PARTLY ALLOWED. FOR DETAILED DISCUSSION, PLEASE REFER THE PARAGRAPH NUMBER 11 OF THIS ORDER. HENCE , THE GROUND OF APPEAL OF THE REVENUE IS PARTLY ALLOWED. 44. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 45. IN THE COMBINED RESULT, THE A SSESSEE S APPEAL S BEARING ITA NOS. 781/AHD/2016 AND 3180/AHD/2016 ARE PARTLY ALLOWED FOR THE STATISTICAL PURPOSES AND THE REVENUE S APPEALS BEARING ITA NOS. 1191/AHD/2016 & 3369/AHD/2016 FOR AYS 2012 - 13 & 2013 - 14 ARE PARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 25 / 0 9 / 201 9 - SD - - SD - ( M S . MADHUMITA ROY ) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (TRUE COPY) A HMEDABAD; DATED 25 / 0 9 /20 19 . . , . . . / T.C. NAIR, SR. PS