Phenil Sugars Ltd., New Delhi V. ITO, New Delhi

ITA 781/DEL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7230 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 27-07-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 11-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: F R MEENA SENIOR
• Keywords: Earning of tax free income; Proportionate interest; Revenue expenditure; Capital expenditure
• Section: 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F : NEW DELHI) BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.993/MUM./2012 (ASSESSMENT YEAR : 2008-09) M/S. PHENIL SUGARS PVT. LTD., VS. CIT (A) 19, 2 ND FLOOR, BUILDING NO.2, MUMBAI. SOLITAIRE CORPORATE PARK, 167, GURU HARGOVIND MARG, ANDHERI GHATKOPAR LINK ROAD, CHAKALA, ANDHERI, MUMBAI 400 069. (PAN : AADCP0153H) ITA NO.781/DEL./2014 (ASSESSMENT YEAR : 2009-10) M/S. PHENIL SUGARS PVT. LTD., VS. ITO, WARD 14 (4) , 207, ESSEL HOUSE, NEW DELHI. 10, ASAF ALI ROAD, NEW DELHI 110 002. (PAN : AADCP0153H) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI KVSR KRISHNA, CA REVENUE BY : SHRI F.R. MEENA, SENIOR DR DATE OF HEARING : 27.07.2016 DATE OF ORDER : 30.08.2016 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : ITA NO.993/MUM./2012 ITA NO.781/DEL./2014 2 SINCE IDENTICAL QUESTION OF FACT AND LAW HAVE BEEN RAISED IN THE AFORESAID APPEALS, THE SAME ARE BEING DISPOSED OFF BY WAY OF CONSOLIDATED ORDER TO AVOID REPETITION OF DISCUSSIO N. 2. THE APPELLANT, M/S. PHENIL SUGARS PVT. LTD. (HER EINAFTER REFERRED TO AS THE ASSESSEE), BY FILING THE AFORE SAID APPEALS, SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 28.11.2011 PA SSED BY LD. COMMISSIONER OF INCOME-TAX (APPEALS)-19, MUMBAI AND DATED 21.11.2013 PASSED BY LD. COMMISSIONER OF INCOME-TAX (APPEALS)- XVII, NEW DELHI QUA THE ASSESSMENT YEARS 2008-09 AN D 2009-10 RESPECTIVELY ON THE GROUNDS INTER ALIA THAT :- ITA NO.993/MUM./2012 (AY 2008-09) 1) IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND ALSO IN LAW, THE LEARNED ASSESSING OFFICER ERRED IN MAKING ADDITION U/S 14A R.W.S RULE 8D AMOUNTING TO RS.2,14,34,865/- WITHOUT RECORDING SATISFACTION U/S 14A, WITHOUT OBSERVING THAT NO EXPENDITURE WAS INCURRED BY THE APPELLANT AND ALSO WITHOUT CONSIDERING INVESTME NT IN SUBSIDIARY COMPANIES AMOUNTING TO RS. 24,06,43,104/ -. WITHOUT PREJUDICE TO ABOVE AND ALTERNATIVELY, 2) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED ASSESSING OFFICER ERRED IN WRONGLY DISALLOWING THE INTEREST U/S 36(1)(III) TO THE TUNE OF RS.84.99,516/- ON THE LOAN TAKEN FOR THE PURPOSE OF BUSINESS, HOWEVER TO OPTIMIZE THE INTEREST COST OF' BORROWING, A PART OF' THE SAME WAS PARKED IN TERM DEPOSIT OF A BANK TO ACHIEVE THE OBJECTIVE OF LIQUI DITY AND THEREFORE NO DISALLOWANCE COULD HAVE BEEN MADE. 3) IN THE FACTS AND CIRCUMSTANCES OF' THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER ERRED IN WRONGLY ITA NO.993/MUM./2012 ITA NO.781/DEL./2014 3 TREATING INTEREST RECEIVED AND PAID AS 'INCOME FROM OTHER SOURCES' INSTEAD OF PROFITS AND GAINS FROM 'BUSIN ESS AND PROFESSION' EVEN THOUGH THE APPELLANT IS NOT IN THE BUSINESS OF' MONEY LENDING AND INTEREST ON BANK DEP OSITS OUT OF TEMPORARY IDLE FUNDS OBTAINED BY THE APPELLA NT CANNOT BE TERMED AS 'INCOME FROM OTHER SOURCES' 4) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED ASSESSING OFFICER ERRED IN DISALLO WING RS.5,32,200/- ON ACCOUNT OR SHARE ISSUE EXPENSES BY TREATING THE SAME AS CAPITAL EXPENDITURE BY DISREGA RDING THE FACT THAT THE EXPENSES PAID WAS IN THE NATURE O F FEES PAID TO THE ROC FOR INCREASING THE SHARE CAPITAL OF THE COMPANY WHICH IS THE STATUTORY REQUIREMENT AND ALLOWABLE AS REVENUE EXPENDITURE. 5) IN THE FACTS AND CIRCUMSTANCES OF' THE CASE AND IN LAW, THE COMMISSIONER OF' INCOME TAX (A) ERRED IN CONFIRMING THE ABOVE ADDITIONS MADE BY THE ASSESSIN G OFFICER. [B] RELIEF PRAYED: 1) TO DELETE THE ADDITION OR RS. 2,14,34,865/- U/S 14ACT THE ACT. 2) TO DELETE THE DISALLOWANCE OF RS.84,99,516/- U/ S 36(1)(III) OR THE ACT. 3) TO TREAT INTEREST AS INCOME / EXPENDITURE UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. 4) TO DELETE THE DISALLOWANCE OF RS.5.32,200/- ON ACCOUNT OF SHARE ISSUE EXPENSES. (C) GENERAL: 1) THE APPELLANT RESERVES RIGHTS TO ADD ALTER OR DE LETE ANY PORTION OF' THIS APPEAL BEFORE ITS CONCLUSION. 2) THIS APPEAL IS FILED IN TIME AND MAY PLEASE BE ALLOWED IN FULL. ITA NO.993/MUM./2012 ITA NO.781/DEL./2014 4 3) DETAILED PAPER BOOK WITH WRITTEN SUBMISSIONS & CASE LAWS WILL BE PRESENTED AT THE TIME OF HEARING. ITA NO.781/DEL/2014 (AY 2009-10) 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N CONFIRMING DISALLOWANCE OF RS.47,36,853/- ON ACCOUN T OF INTEREST ALLEGED AS NOT INCURRED FOR BUSINESS PURPO SES U/S 36(1)(III). THE DISALLOWANCE MADE BY THE AD AND UPH ELD BY THE CIT(A) IS WRONG AND BAD IN LAW AND DESERVES TO BE DELETED. 2. THE CIT(A) HAS FAILED TO APPRECIATE THAT THE AD HAS DISALLOWED SOME PORTION OF INTEREST WHICH MEANS PART OF THE INTEREST HE IS CONSIDERING AS FOR BUSINESS P URPOSES AND PARTLY AS FOR NON-BUSINESS. THIS IS NOT PERMISS IBLE AS THERE IS NO PROVISION UNDER SEC. 36(1)(III) FOR MAK ING ANY PROPORTIONATE DISALLOWANCE. THEREFORE THE ENTIRE IN TEREST EXPENSES, BEING INCURRED FOR BUSINESS PURPOSES, AS CLAIMED SHOULD BE ALLOWED. 3. THE CIT(A) AS WELL AS THE AD HAS ERRED IN ALLEG ING THAT THE APPLICATION OF LOAN IS TOWARDS ADVANCING L OANS AND ADVANCES ON INTEREST FREE BASIS WITHOUT ANY EVI DENCE TO SUPPORT SUCH ASSUMPTION OF DIVERSION. THEREFORE THE ALLEGATION OF AO AND CIT(A) IS WRONG AND HENCE DISALLOWANCE MADE DESERVES TO BE DELETED. 4. WITHOUT PREJUDICE, THE APPELLANT CONTENDS THAT THE INTEREST INCOME SHOULD BE SET-OFF AGAINST THE INTER EST EXPENDITURE COMPLETELY. THEREFORE THE DISALLOWANCE MADE OF RS.47,36,853/- IS ON ASSUMPTIONS AND PRESUMPTIONS AND HENCE DESERVES TO BE DELETED. 5. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ALLEGED DISALLOWANCE OF ESTIMATED EXPENDITURE BY INVOKING PROVISIONS OF SECTION 14A O F THE INCOME TAX ACT, 1961 READ WITH RULE 8D. THE DISALLOWANCE IS ON SURMISES AND ASSUMPTIONS, WITHOU T ANY NEXUS TO THE EARNING OF DIVIDEND INCOME OF RS.28,666/-AND THEREFORE DESERVES TO BE DELETED. ITA NO.993/MUM./2012 ITA NO.781/DEL./2014 5 6. THE APPELLANT CONTENDS THAT IT HAS FURNISHED WORKING OF EXPENDITURE OF RS.20,064/- BASED ON ACCO UNTS WHICH WAS SIMPLY BRUSHED ASIDE BY THE AO AS WELL AS CIT(A) WITHOUT THERE BEING ANY REASONS FOR DISSATISFACTION AGAINST THE SAME. THEREFORE THE DISALLOWANCE MADE IS WRONG AND BAD IN LAW AND HENCE DESERVES TO BE DELETED. 7. WITHOUT PREJUDICE TO THE ABOVE GROUNDS THAT NO DISALLOWANCE SHOULD BE MADE U/S 14A, THE APPELLANT CONTENDS THAT THE WORKING UNDER RULE 8D IS WRONG, EXCESSIVE AND REQUIRES TO BE REVISED. THE DISALLOWA NCE IF ANY SHOULD BE RESTRICTED TO RS.20,064/-. 8. THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. 9. THE APPELLANT CONTENDS THAT HE MAY BE ALLOWED T O ADD, AMEND, ALTER FORGO ANY OF THE GROUNDS AT THE T IME OF HEARING. BRIEF FACTS OF ITA NO.993/MUM./2012 3. BRIEFLY STATED THE FACTS OF THIS CASE ARE : DURI NG THE ASSESSMENT YEAR 2008-09, ASSESSEE FILED RETURN DECL ARING NEGATIVE TOTAL INCOME OF RS.9,16,452/- WHILE CLAIMING EXEMPT DIVIDEND INCOME OF RS.28,666/- UNDER SECTION 10 (34) OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT). THE CASE WAS SUBJECTED TO SCRUTINY AND SHRI VIPUL SHETH, CA/AR PUT IN APPEARANCE AND FILED NECESSARY DETAILS. ASSESSEE IS INTO THE BUSINESS OF TRADING IN SUGAR ON THE COMMODITY EXCHANGE. PERUSAL OF THE P&L ACCOUNT SHO WS THAT THE TOTAL INCOME RECEIPTS CREDITED WERE AT RS.4,67,79,3 89/- INCLUSIVE OF ITA NO.993/MUM./2012 ITA NO.781/DEL./2014 6 NET INCOME FROM TRADING AT COMMODITY EXCHANGE OF RS .82,49,630/-, INTEREST ON LOANS AND FDS AMOUNTING TO RS.3,84,81,9 41/-, DIVIDEND INCOME OF RS.28,666/- AND PROFIT ON SALE OF MUTUAL FUND UNIT OF RS.19,151/-. ASSESSEE CLAIMED TOTAL EXPENDITURE DE BITED TO P&L ACCOUNT AT RS.4,76,67,736/- ON ACCOUNT OF INTEREST PAID AND SHARE ISSUE EXPENSES OF RS.5,32,200/-. ASSESSEE HAS HUGE INVESTMENT IN THE QUOTED AND NON-QUOTED SHARES OF RS.26,73,81,446 /- IN THE SISTER/ ASSOCIATE CONCERNS AND IT WAS CALLED UPON TO EXPLAI N AS TO WHY THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 (FOR SHORT THE RULES) SHOU LD NOT BE INVOKED SO AS TO DEBIT PROPORTIONATE EXPENSES TO TH E P&L ACCOUNT TOWARDS EARNING OF DIVIDEND INCOME. FINDING EXPLAN ATION FURNISHED BY THE ASSESSEE NOT TENABLE, AO BY INVOKI NG THE PROVISIONS U/S 14A READ WITH RULE 8D WORKED OUT THE TOTAL DISALLOWANCE AT RS.2,14,34,865/- AND MADE AN ADDITI ON THEREOF. AO NOTICED THAT ASSESSEE HAS RECEIVED AND LENT UNSE CURED LOAN TO THE TUNE OF RS.46,19,15,339/- AND RS.46,62,12,735/- RESPECTIVELY. ASSESSEE AVAILED THE LOAN OF RS.1,34,84,19,840/- OU T OF WHICH RETURNED RS.1,08,70,12,639/- DURING THE YEAR UNDER ASSESSMENT LEAVING OUTSTANDING BALANCE OF RS.46,19,15,359/-. ASSESSEE HAS PAID INTEREST OF RS.4,69,81,457/- @ 11% OR 12% BUT HAS FAILED TO ITA NO.993/MUM./2012 ITA NO.781/DEL./2014 7 PROVE THE DIRECT NEXUS OF UTILIZATION OF THE LOANS ACCEPTED AND THE AO FOUND THE SAME HAVING BEEN UTILIZED PARTLY FOR A DVANCING LOANS AND KEPT THE BALANCE IN FIXED DEPOSITS IN BANK. LO AN GRANTED BY THE ASSESSEE DURING THE YEAR UNDER ASSESSMENT WAS AT RS .29,41,09,881/- ON WHICH HE HAS CHARGED INTEREST @ 11% OR 12% AND T HE CLOSING OF DEPOSIT FIGURE COMES TO RS.34,74,92,451/- ON WHICH THE ASSESSEE HAS EARNED INTEREST AT 7% ONLY. ASSESSEE WAS CALLE D UPON TO EXPLAIN AS TO WHY THE DIFFERENTIAL AMOUNT OF RS.82, 49,630/- SHOULD NOT BE DISALLOWED. FINDING EXPLANATION FURNISHED B Y THE ASSESSEE NOT TENABLE, AO DISALLOWED THE DIFFERENTIAL INTERES T OF RS.82,49,630/- AND ASSESSED THE TOTAL INCOME AT RS. 2,28,83,520/-. BRIEF FACTS OF ITA NO.781/DEL./2014 4. BRIEFLY STATED THE FACTS OF THIS CASE ARE : DURI NG SCRUTINY PROCEEDINGS, IT WAS NOTICED BY THE AO THAT ASSESSEE , THOUGH INTO THE BUSINESS OF TRADING OF SUGAR, BUT AS PER P&L AC COUNT, IT HAS EARNED INCOME ONLY FROM INTEREST AND DIVIDEND. AS PER BALANCE SHEET, THERE ARE UNSECURED LOANS RECEIVED AND LENT BY THE ASSESSEE TO THE TUNE OF RS.4,97,00,000/- AND RS.2,14,86,133/ - RESPECTIVELY. AT THE BEGINNING OF THE YEAR UNDER ASSESSMENT, THER E WAS OUTSTANDING LOAN OF RS.46,90,10,257/- AND THE ASSES SEE AVAILED LOAN OF RS.4,22,00,000/- AND RETURNED LOAN OF RS.40,15,1 0,257/- WITH ITA NO.993/MUM./2012 ITA NO.781/DEL./2014 8 OUTSTANDING BALANCE OF RS.4,97,00,000/-. ASSESSEE PAID INTEREST @ 12% ON THESE LOANS AMOUNTING TO RS.2,84,17,666/- WI THOUT SHOWING ANY DIRECT NEXUS OF THE UTILIZATION OF THE LOAN ACCEPTED AND THE MAJOR COMPONENT OF THE LOAN WAS UTILIZED FOR AD VANCING LOANS AND ADVANCES AND INVESTING IN THE FIXED DEPOSIT/IN VESTMENT OUT OF WHICH MOST OF THE MONEY ADVANCED WAS ON INTEREST FR EE BASIS. INTEREST FROM FDR WAS RECEIVED AT AVERAGE RATE OF 1 0%. AO NOTICED THAT DURING THE YEAR UNDER ASSESSMENT, ASSE SSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY AND CLAIMED THAT THE ASSESSEE WAS PREPARING FOR ENTERING THE MARKET AT OPPORTUNE TIME BY RESTRUCTURING ITS FINANCE. ASSESSEE WAS CALLED UPO N TO EXPLAIN AS TO WHY PROPORTIONATE INTEREST BE NOT DISALLOWED AS INT EREST BEARING FUNDS SEEM TO HAVE BEEN USED FOR NON-BUSINESS PURPO SES LIKE LOANS & ADVANCES AND FDRS. FINDING EXPLANATION FURNISHED BY THE ASSESSEE NOT TENABLE, AO DISALLOWED THE PROPORTIONA TE AMOUNT OF INTEREST OF RS.47,36,853/-. 5. DURING THE YEAR UNDER ASSESSMENT, THE ASSESSEE H AS MADE SUBSTANTIAL INVESTMENT AMOUNTING TO RS.26.70 CRORES ON AVERAGE BASIS, AND HAS ALSO EARNED DIVIDEND INCOME OF RS.28 ,666/-. FROM THE COMPUTATION OF INCOME, IT IS NOTICED THAT THE A SSESSEE HAS DISALLOWED ONLY A SUM OF RS.1,235/- BEING DEMAT CHA RGES AS ITA NO.993/MUM./2012 ITA NO.781/DEL./2014 9 EXPENSES PERTAINING TO EXEMPT INCOME. HE WAS CALLE D UPON TO EXPLAIN AS TO WHY RULE 8D BE NOT INVOKED TO CALCULA TE THE DISALLOWANCE U/S 14A. ASSESSEE FILED A WORKING OF EXPENSES ATTRIBUTED TO THE DIVIDEND INCOME AMOUNTING TO RS.2 0,064/-. FINDING EXPLANATION FURNISHED BY THE ASSESSEE NOT T ENABLE, AO DISALLOWED THE EXPENSES TO THE TUNE OF RS.28,666/-. 6. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) BY CHALLENGING ASSESSMENT ORDERS WHO HAVE DISMISSED TH E APPEALS VIDE IMPUGNED ORDERS DATED 28.11.2011 AND 21.11.201 3 QUA THE ASSESSMENT YEARS 2008-09 AND 2009-10 RESPECTIVELY. FEELING AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE THE TRIB UNAL BY WAY OF FILING THE PRESENT APPEALS. 7. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 8. LD. AR FOR THE ASSESSEE CHALLENGING THE IMPUGNED ORDER CONTENDED INTER ALIA THAT SINCE THERE IS NO INCREAS E IN THE INVESTMENT MADE BY THE ASSESSEE DURING THE YEARS UNDER CONSIDE RATION, DISALLOWANCE U/S 14A READ WITH RULE 8D CANNOT BE MA DE; THAT AO HAS ILLEGALLY INVOKED THE SECTION 14 READ WITH RULE 8D AND RELIED ITA NO.993/MUM./2012 ITA NO.781/DEL./2014 10 UPON JUDGMENT CITED AS MAXOPP INVESTMENT LTD. VS. CIT 247 ITR 272 (DEL.) ; THAT AT THE MOST DISALLOWANCE IS TO BE RESTRICTED TO THE DIVIDEND INCOME AND RELIED UPON THE FOLLOWING O RDERS PASSED BY ITAT :- (I) DCM LIMITED VS. DCIT ITA NO.4467/DEL/2012 ITAT B BENCH, DELHI ORDER DATED 01.09.2015 (RELEVANT PAGE 11); (II) M/S. DAGA GLOBAL CHEMICALS VS. ACIT ITA NO.5592/MUM/2012 ITAT D BENCH MUMBAI ORDER DATED 01.01.2015 (RELEVANT PAGE 4); (III) JOINT INVESTMENT PVT. LTD. VS. CIT HONBLE DELHI HIGH COURT VIDE ORDER DATED 25.02.2015 (2015) 372 ITR 0694; HOWEVER, ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY THE LD. CIT(A). GROUND NO.1 OF ITA NO.993/MUM./2012 & GROUNDS NO.5 TO 7 OF ITA NO.781/DEL./2014 9. UNDISPUTEDLY, THERE IS NO INCREASE IN THE INVEST MENT DURING THE YEARS UNDER ASSESSMENT I.E. 2008-09 AND 2009-10 ; THAT THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS.28,666/ - AND CLAIMED AS EXEMPT U/S 10(34); THAT THE ASSESSEE HAS MADE IN VESTMENT IN THE QUOTED AND NON-QUOTED SHARES OF RS.26,73,81,446/- I N THE SISTER/ ITA NO.993/MUM./2012 ITA NO.781/DEL./2014 11 ASSOCIATE CONCERNS; THAT THE ANNUAL ACCOUNTS, TAX A UDIT REPORT AND BOOKS OF ACCOUNT RELIED UPON BY THE ASSESSEE HAVE N OT BEEN DISPUTED BY THE AO; THAT THE ASSESSEE HAS NOT CLAIM ED ANY EXPENDITURE INCURRED TO EARN THE EXEMPT DIVIDEND IN COME DURING THE YEAR UNDER ASSESSMENT. GROUNDS NO.2 & 3 OF APPEAL NO.993/MUM./2012 (AY 2008-09) GROUNDS NO.1, 2, 3 & 4 OF APPEAL NO.781/DEL/2014 (AY 2009-10) 10. IN THE BACKDROP OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE SOLE QUESTION ARISES FOR DETERMINATION IN THIS CASE IS :- AS TO WHETHER SECTION 14A READ WITH RULE 8D IS APPLICABLE WHEN THE ASSESSEE COMPANY HAS NEITHER BORROWED ANY MONEY TO BE INVESTED IN SHARES NOR EARNED ANY EXEMPT DIVIDEND INCOME DURING THE YEAR UNDER ASSESSMENT? 11. SO FAR AS, ASSESSMENT ORDER QUA 2008-09 IS CONC ERNED, THE AO PROCEEDED ON THE PREMISE THAT ASSESSEE HAS MADE HUGE INVESTMENT IN QUOTED AND UNQUOTED SHARES TO THE TUN E OF RS.26,73,81,446/- IN THE SISTER/ASSOCIATE CONCERNS AND IS BOUND TO INCUR SOME EXPENDITURE TO EARN THE SAID DIVIDEND IN COME OR TO MANAGE HUGE INVESTMENT OF RS.26,73,81,446/- AND PRO CEEDED TO INVOKE THE PROVISIONS CONTAINED UNDER SECTION 14A R EAD WITH RULE 8D BY MAKING FOLLOWING OBSERVATIONS :- ITA NO.993/MUM./2012 ITA NO.781/DEL./2014 12 (I) 8D(2)(II): THE EXPENDITURE BY WAY OF INTEREST IS RS.4,69,81,457/- (A). THE AVERAGE VALUE OF INVESTM ENT IS RS.26,74,31,446/- (B). THE AVERAGE VALUE OF THE AS SETS COMES TO RS.62,51,61,759/- (C). THE DISALLOWANCE AS PER CLA USE 8D(2)(II) COMES TO RS.2,00,97,708/- (A*B/C). (II) 8D(2)(III) : THE TOTAL OF THE INVESTMENT AT TH E START AND CLOSE OF THE PREVIOUS YEAR WAS PEGGED AT RS.26,74,8 1,446/- AND RS.26,73,81,446/-. THE AVERAGE OF IT COMES TO RS.2 6,74,31,446/-. THE ONE HALF PERCENT OF THE AVERAGE INVESTMENT COME S TO RS.13,37,157/-. THUS, THE TOTAL DISALLOWANCE U/S 14A R.W.R. 8D WORK S OUT TO RS.2,14,34,865/- AND THE SAME IS BEING DISALLOWED. 12. THE RATIO OF THE JUDGMENT CITED AS MAXOPP INVESTMENTS LIMITED (SUPRA) PASSED BY THE HONBLE JURISDICTIONAL HIGH COURT IS THAT UNDER SECTION 14A(2,) IT IS A CONDITION PRECEDENT FOR ASSESSING OFFICER TO DETERMINE AMOUNT OF EXPENDITUR E INCURRED IN RELATION TO EXEMPT INCOME; THAT HE MUST RECORD H IS DIS- SATISFACTION WITH CORRECTNESS OF CLAIM OF EXPENDITU RE MADE BY THE ASSESSEE OR WITH CORRECTNESS OF THE CLAIM MADE BY T HE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED AND THAT DETE RMINATION OF AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER RULE 8D ONLY COME INTO PLAY WHEN AO REJECTS CLAIM OF ASS ESSEE IN THIS REGARD. 13. WHEN THE ASSESSEE HAS COME UP WITH A CATEGORIC PLEA THAT THERE IS NO INCREASE IN INVESTMENT DURING THE YEAR UNDER ASSESSMENT AND HAS NOT INCURRED ANY EXPENDITURE, THE QUESTION OF RESORTING TO ITA NO.993/MUM./2012 ITA NO.781/DEL./2014 13 ESTIMATION BY THE AO DOES NOT ARISE PARTICULARLY WH EN AO HAS NEITHER DISPUTED THE AUDITED BOOKS OF ACCOUNT MAINT AINED BY THE ASSESSEE IN RESPECT OF INVESTMENT AND DIVIDEND INCO ME NOR AO HAS RECORDED HIS DIS-SATISFACTION AS TO HOW ANY EXPENDI TURE HAS NOT BEEN INCURRED BY THE ASSESSEE IN MAINTAINING THE IN VESTMENT. IN THE GIVEN CIRCUMSTANCE, THE DISALLOWANCE U/S 14A CANNOT EXCEED THE AMOUNT OF RS.28,666/- ALREADY CLAIMED EXEMPT U/S 10 (34). 14. CIT (A) HAS ALSO FAILED TO APPRECIATE THE ARGUM ENTS ADDRESSED BY THE ASSESSEE THAT WHEN NO FRESH INVEST MENT HAS BEEN MADE BY THE ASSESSEE DURING THE YEAR UNDER ASSESSME NT NOR IT HAS INCURRED ANY EXPENDITURE THE QUESTION OF INVOKING P ROVISIONS CONTAINED UNDER SECTION 14A READ WITH RULE 8D DOES NOT ARISE. 15. NOW, THE NEXT QUESTION ARISES FOR DETERMINATION IN THIS CASE IS :- AS TO WHETHER WITHOUT PREJUDICE TO GROUND NO.1 OF APPEAL NO.993/MUM./2012 QUA AY 2008-09 AND GROUNDS NO.1, 2 & 3 RAISED IN APPEAL NO.781/DEL./20 14 QUA AY 2009-10, THE ASSESSEE IS ENTITLED FOR DEDUCT ION OF INTEREST TO THE TUNE OF RS.84,99,516/- QUA AY 20 08-09 AND RS.47,36,853/- QUA AY 2009-10 CLAIMED TO HAVE EXPENDED FOR BUSINESS PURPOSES? 16. LD. CIT (A) WHILE DISPOSING OF THE APPEAL QUA A Y 2008-09 AFFIRMED THE FINDING RETURNED BY THE AO ON THE ABOV E ISSUE AS UNDER :- ITA NO.993/MUM./2012 ITA NO.781/DEL./2014 14 4.6 COMING TO THE ISSUES AT HAND, THE APPELLANT HA S NOT QUESTIONED THE APPLICABILITY OF RULE 8D BUT HAS MER ELY ARGUED THAT IN THE COMPUTATION PORTION UNDER RULE 8 D THE NET INTEREST EXPENDITURE SHOULD HAVE BEEN CONSIDERE D. IT HAS BEEN NOTED THAT THE FUNDS OF THE APPELLANT ARE IN COMMON POOL AND NO NEXUS COULD BE ESTABLISHED OF NO N INTEREST BEARING FUNDS BEING APPLIED TO THE INVESTM ENTS GENERATING EXEMPT INCOME. I AM NOT IN AGREEMENT WIT H THE VIEW OF LD. A.R. AS IN SECOND LIMB OF RULE 8 (2 ) THE DISALLOWANCE OF INTEREST IS TO BE COMPUTED IN ACCOR DANCE WITH THE FORMULA A X B/C WHERE A IS AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN INTEREST DIRECTLY RELATABLE TO EXEMPT INCOME. THERE IS NO MENTION OF NET INTEREST IN THE PROVISION AND THUS THE CONTENTION R AISED IS REJECTED. 4.7 NO SUBMISSIONS HAVE BEEN MADE BEFORE ME IN REGARD TO ALTERNATE ARGUMENTS OF THE A.O. FOR PART DISALLOWANCE OF INTEREST. IT IS AN ADMITTED FACT TH AT THE APPELLANT IS NOT IN THE MONEY LENDING BUSINESS AND THE INTENDED PURPOSE OF RAISING LOANS WAS TO SET UP A F ACTORY BUT THE PROJECT HAVING NOT MATERIALIZED THE FUNDS W ERE INVESTED IN INTEREST EARNING ASSETS AND THUS THE IN TEREST INCOME BEING NOT RELATABLE TO THE BUSINESS OF THE APPELLANT, IS NOTHING BUT INCOME FROM OTHER SOURCES . THE INTEREST PAID IS THUS NOT ALLOWABLE U/S.36( 1). THE ALTERNATE PLEA OF THE A.O. THAT THE INTEREST EXPEND ITURE OF RS.84,99,516/- IS TO BE DISALLOWED IS IN ORDER. GRO UND 1-3 ARE DISMISSED. 17. UNDISPUTEDLY, ASSESSEE HAS RECEIVED UNSECURED L OAN AT RS.46,19,15,339/- AND AT THE SAME TIME GRANTED RS.4 6,62,12,735/- DURING AY 2008-09. ASSESSEE PAID INTEREST AT RS.4, 69,81,457/- ON THESE LOANS @ 11% / 12%. AO AS WELL AS CIT (A) HAV E DISALLOWED THE INTEREST CLAIMED BY THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS FAILED TO PROVE DIRECT NEXUS BETWEEN LOAN LENT AND ACCEPTED AND ITA NO.993/MUM./2012 ITA NO.781/DEL./2014 15 ALL THESE LOANS WERE PRIMARILY USED PARTLY FOR ADVA NCING LOANS AND THE BALANCE WAS KEPT IN FIXED DEPOSITS IN THE BANK. 18. AO IN PARA 4 OF THE ASSESSMENT ORDER HAS CATEGO RICALLY ADMITTED THAT ON THE AMOUNT OF RS.29,41,09,881/-, T HE ASSESSEE CHARGED INTEREST @ 11% / 12% AND ALSO WORKED OUT TH E CLOSING FIXED DEPOSIT FIGURE AT RS.34,74,92,451/- ON WHICH ASSESSEE EARNED 7% ONLY. THE ASSESSEE SET OFF THE SHORT FALL IN TH E INCOME AT RS.82,49,630/- EARNED FROM SUGAR TRADING AT COMMODI TY EXCHANGE. 19. THE ONLY GROUND ON WHICH THE AO/CIT(A) HAS DISA LLOWED THE INTEREST IS THAT THE LOANS WERE UTILIZED FOR NO N-BUSINESS ACTIVITIES. WHEN UNDISPUTEDLY THE LOANS WERE KEPT IN FDR, WHICH ARE IN THE SHAPE OF READY FUNDS AVAILABLE WITH THE ASSESSEE TO BE USED FOR BUSINESS PURPOSE AT THE OPPORTUNE TIME THE ASSESSEE BEING IN TRADING, CANNOT BE TREATED AS NON-BUSINESS PURPO SE IN ANY MANNER WHATSOEVER, PARTICULARLY WHEN THE FUNDS HAVE NOT BEEN DIVERTED TO ANY THIRD PARTY. MOREOVER, THE AO HAS NOT COME UP WITH ANY MATERIAL TO PROVE THAT THE BORROWED FUNDS HAVE BEEN USED FOR NON-BUSINESS PURPOSE. 20. IN THE TOTALITY OF CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE COMPLETE NEXUS HAS BEEN ESTABLISHED BETWEEN THE FUNDS BORROWED AND FUND PARKED IN THE FDRS TO BE UTILIZED FOR BUSINESS ITA NO.993/MUM./2012 ITA NO.781/DEL./2014 16 PURPOSE AT THE TIME OF OPPORTUNE TIME. SO, IN THES E CIRCUMSTANCES, THE REVENUE AUTHORITY WAS NOT JUSTIFIED IN DISALLOW ING THE INTEREST CLAIMED BY THE ASSESSEE BOTH IN AY 2008-09 AND AY 2 009-10. SO, GROUNDS NO.2 & 3 OF APPEAL NO.993/MUM./2012 QUA AY 2008-09 AND GROUNDS NO.1, 2, 3 & 4 OF APPEAL NO.781/DEL/201 4 QUA AY 2009-10 ARE DETERMINED IN FAVOUR OF THE ASSESSEE. 19. GROUND NO.4 OF APPEAL NO .993/MUM./2012 QUA AY 2008-09 HAS NOT BEEN PRESSED BY THE LD. AR FOR THE ASSESSEE DURING THE COURSE OF HEARING AND AS SUCH, THE SAME IS HEREBY D ETERMINED AGAINST THE REVENUE. 20. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, THE A PPEAL NO.993/MUM/2012 QUA AY 2008-09 IS HEREBY PARTLY ALL OWED AND APPEAL NO.781/DEL/2014 QUA AY 2009-10 IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 30 TH DAY OF AUGUST, 2016. SD/- SD/- (J.S. REDDY) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 30 TH DAY OF AUGUST, 2016 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XVII, NEW DELHI 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.