M/s Jupiter Entertainment Ventures (P) Ltd., V. ACIT,

ITA 792/BANG/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9295 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-09-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 24-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Earning of tax free income; Fair market value; Speculation loss; Deemed dividend; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 14A; 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.792/BANG/2013 ASSESSMENT YEAR : 2009-10 M/S. JUPITER ENTERTAINMENT VENTURES (P) LTD., NO.54, RICHMOND ROAD, BANGALORE 560 025. PAN: AABCJ 7071Q VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 11(5), BANGALORE. APPELLANT RESPONDENT ITA NO.963/BANG/2013 ASSESSMENT YEAR : 2009-10 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(5), BANGALORE. VS. M/S. JUPITER ENTERTAINMENT VENTURES (P) LTD., NO.54, RICHMOND ROAD, BANGALORE 560 025. PAN: AABCJ 7071Q APPELLANT RESPONDENT ASSESSEE BY : SMT. SHEETAL BORKAR, ADVOCATE REVENUE BY : MS. NEERA MALHOTRA, CIT(DR) DATE OF HEARING : 26-09-2016 DATE OF PRONOUNCEMENT : 03-11-2016 O R D E R PER A.K. GARODIA, ACCOUNTANT MEMBER THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE WHICH ARE DIRECTED AGAINST THE ORDER OF CIT (APPEALS)I, BANG ALORE DATED 28.03.2013 FOR THE ASSESSMENT YEAR 2009-10. ITA NOS. 792 & 963/BANG/2013 PAGE 2 OF 22 2. IN THE ASSESSEES APPEALS, THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER:- SHORT TERM LOSS ON SALE OF SHARES: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN DISALLOWING THE APPELLANTS CLAIM OF SHORT TERM LOS S ON SALE OF THE FOLLOWING INVESTMENTS: 1,00,000 EQUITY SHARES OF RS 10 EACH OF FEDEX FINAN CE LIMITED 1,30,000 EQUITY SHARES OF RS 10 EACH OF FEDEX SECUR ITIES LIMITED. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN HOLDING THAT BECAUSE SHARES WERE ALLOTTED AGAINST A LOAN GI VEN AND THAT THE PURCHASE WAS RATIFIED BY THE BOARD, THE INVESTMENT CANNOT BE TREATED AS STOCK IN TRADE OF THE APPELLANT. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS PRESUMED THAT THE COMPANIES IN WHICH INVESTMENTS ARE MADE ARE SIS TER CONCERNS OF THE APPELLANT. THIS IS FACTUALLY INCORRECT. 4. THE APPELLANT HAS MADE AN INVESTMENT FOR FURTHE RANCE OF ITS BUSINESS. THE INTENTION OF MAKING THE INVESTMENT IS CLEAR. 5. THE APPELLANT HAS NO REPRESENTATION ON THE BOAR D OF THE COMPANIES IN WHICH THE SHARES HAVE BEEN ALLOTTED NOR DO THEY HAV E MAJORITY CONTROL. 6. THE ASSUMPTIONS OF THE ASSESSING OFFICER THAT T HE TRANSACTION IS COLORABLE DEVICE IS NOT BASED ON ANY FACTS OR FINDINGS. THE A SSESSING OFFICER HAS NOT BOUGHT TO RECORD ANY DIRECT NEXUS BETWEEN INVES TING AND SALE OF THE SAID SHARES TO DEEM IT A COLORABLE DEVICE. 7. THE FACT THE TRANSACTION WAS GENUINE AND CARRIE D OUT IN AN ARMS LENGTH MANNER, THOUGHT ADMITTED HAVE NOT BEEN APPRECIATED. THE TRANSACTION IS CARRIED OUT IN THE COURSE OF BUSINESS OF THE APPELL ANT. 8. THE APPELLANT CRAVES PERMISSION TO ADD, DELETE OR ALTER ANY F THE GROUNDS AT THE TIME OF HEARING. PRAYER THE APPELLANT HUMBLY REQUEST THE HONORABLE TRIBUNAL TO : 1. HOLD THE ORDER OF THE CIT (A) IS AGAINST THE LA W AND NOT IN THE INTEREST OF JUSTICE. ITA NOS. 792 & 963/BANG/2013 PAGE 3 OF 22 2. THE LOSS AS CLAIMED BY THE APPELLANT BE ALLOWED , BASED ON THE FACTS OF THE MATTER. 3. IT WAS SUBMITTED BY THE LEARNED AR OF ASSESSEE T HAT IN PARA NO. 4.4 OF PAGES 13-15 OF HIS ORDER, THIS IS THE FINDING OF LE ARNED CIT (APPEALS) THAT ASSESSEE HAD NOT ACQUIRED THE SHARES UNDER NORMAL B USINESS TRANSACTIONS AND HENCE, THE SAME CANNOT BE TAKEN AS STOCK IN TRADE A ND THEREFORE, THIS IS A CAPITAL LOSS AND NOT BUSINESS LOSS. IN THIS REGARD , SHE SUBMITTED THAT TO DETERMINE THIS ASPECT AS TO WHETHER INVESTMENT IS F OR BUSINESS PURPOSE OR FOR INVESTMENT PURPOSE, THE INTENTION OF THE ASSESSEE A T THE TIME OF ACQUISITION OF SHARES IS MOST IMPORTANT AND RELEVANT. IN THIS REG ARD, SHE SUBMITTED A COPY OF BOARD RESOLUTION IN THE BOARD MEETING HELD ON 3.9.2 007 AND IT WAS POINTED OUT THAT AS PER THE BOARDS RESOLUTION, IT WAS DECIDED THAT THIS INVESTMENT IN SHARES OF THESE TWO COMPANIES VIZ., M/S. FEDEX FINANCE LTD ., AND M/S. FEDEX EQUITY LTD. OF RS. 500 LAKHS AND RS. 650 LAKHS RESPECTIVEL Y IS BEING MADE AS STOCK-IN- TRADE AT A PRICE OF RS.500/- PER SHARE AT A PREMIUM OF RS. 490/- PER SHARE. THEREAFTER, IT IS SUBMITTED THAT THE BALANCE SHEET OF THE ASSESSEES COMPANY FOR THE YEAR ENDING 31/3/2008 IS AVAILABLE AT PAGE 13 O F PB AND THIS INVESTMENT OF RS. 11.50 CRORES WAS SHOWN AS INVENTORY AND IT WAS VALUED AT COST WHEREAS INVESTMENT OF RS. 63.01 CRORES WAS SHOWN AS INVESTM ENT, AS CAN BE SEEN ON PAGE 12 OF PB. SHE ALSO DREW ATTENTION TO PAGE 15 OF PAPER BOOK I.E., SCHEDULE V BEING SIGNIFICANT ACCOUNTING POLICIES A ND IT WAS POINTED OUT THAT AS PER THIS ACCOUNTING POLICY, THE ASSESSEE WAS VALUIN G LONG TERM INVESTMENTS AT COST AND INVESTMENT IN SHARES OF BODY CORPORATE HEL D IN INVENTORY WERE VALUED AT COST OR NET REALISABLE VALUE, WHICHEVER IS LESS. THEREAFTER, SHE DREW OUR ATTENTION TO BOARDS CIRCULAR NO. 4/2007 DATED 15.6 .2007, AND PARTICULARLY PARA ITA NOS. 792 & 963/BANG/2013 PAGE 4 OF 22 10 OF THIS BOARDS CIRCULAR WHERE IT IS SPECIFIED T HAT A COMPANY CAN HAVE TWO PORTFOLIOS I.E., AS AN INVESTMENT PORTFOLIO COMPRIS ING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND A TRADING PORTFOLI O COMPRISING OF STOCK-IN-TRADE WHICH ARE TO BE TREATED AS TRADING ASSETS. SHE SUB MITTED THAT UNDER THESE FACTS, THERE IS NO DISPUTE THAT ASSESSEE HAD INCURR ED LOSS ON ACCOUNT OF ITS PURCHASE AND SALE OF SHARES AND THE ONLY OBJECTION OF CIT (APPEALS) IS THIS, THAT IT IS CAPITAL LOSS AND NOT BUSINESS LOSS BUT AT TH E TIME OF ACQUISITION OF SHARES ITSELF, THE SHARES WERE PURCHASED AS STOCK-IN-TRADE AND IN VIEW OF THE BOARD CIRCULAR NO. 4/2007 DATED 15.2.2007, IT SHOULD BE A CCEPTED THAT THE LOSS IS A BUSINESS LOSS AND NOT A CAPITAL LOSS. 4. AT THIS JUNCTURE, A QUERY WAS RAISED BY THE BENC H THAT EVEN IF IT IS HELD THAT LOSS IN THE PRESENT CASE IS A BUSINESS LOSS, T HEN ALSO, THE ASSESSEE WILL BE HIT BY EXPLANATION TO SECTION 73 (1) AND IN THAT SI TUATION, THE LOSS HAS TO BE TREATED AS SPECULATION LOSS WHICH CANNOT BE SET OFF AGAINST NORMAL BUSINESS INCOME AND IT CAN BE SET OFF ONLY AGAINST THE SPECU LATION INCOME. IN REPLY, IT WAS SUBMITTED BY THE LEARNED AR OF THE ASSESSEE THA T ON THIS ASPECT, THE MATTER IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNALS ORDER RENDERED IN THE CASE OF M/S. LAXMI FEEDS & EXPORT LTD. VS. ACIT AS REPORTED IN 62 ITD 315 (MUM). HE SUBMITTED THAT IN THAT CASE, IT WAS HEL D BY THE TRIBUNAL THAT THERE IS DIFFERENCE IN PURCHASE OF SHARES AND ACQUISITION OF SHARES BY ITS ALLOTMENT ON APPLICATION AND IN THE SECOND SITUATION, THE TRANSA CTION IS NOT HIT BY EXPLANATION TO SECTION 73(1). IT WAS SUBMITTED THAT IN THE PRE SENT CASE ALSO, SHARES OF BOTH THE COMPANIES WERE NOT PURCHASED BY THE ASSESSEE BU T WERE ALLOTTED BY THESE COMPANIES AND THE RESPECTIVE SHARE APPLICATION FORM FOR ACQUIRING SHARES OF ITA NOS. 792 & 963/BANG/2013 PAGE 5 OF 22 M/S. FEDEX FINANCE LTD., AND M/S. FEDEX EQUITY LTD. , ARE AVAILABLE AT PAGES 26-32 OF PAPER BOOK RESPECTIVELY. SHE SUBMITTED TH AT UNDER THESE FACTS THIS EXPLANATION TO SECTION 73(1) IS NOT APPLICABLE. SHE ALSO SUBMITTED THAT IN THIS TRIBUNAL ORDER, THE TRIBUNAL HAS FOLLOWED A JUDGMEN T OF HONBLE APEX COURT RENDERED IN THE CASE OF SRI GOPAL JALAN & CO. VS. C ALCUTTA STOCK EXCHANGE AS REPORTED IN 1964 AIR 250 WHEREIN IT WAS HELD THAT T HE WORD PURCHASE CANNOT BE APPLIED TO THE LEGAL TRANSACTION UNDER WHICH A P ERSON BY THE MACHINERY OF APPLICATION AND ALLOTMENT BECOMES A SHARE HOLDER IN THE COMPANY. 5. AS AGAINST THIS, LEARNED DR OF REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW: 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL, FOR READY REFERENCE, WE REPRODUCE PARA 4.4 OF THE ORDER OF LD . CIT(APPEALS) HEREINBELOW:- 4.4 I HAVE CONSIDERED THE FACTS AND SUBMISSIONS M ADE BY THE APPELLANT. THE AO DISALLOWED THE SAID LOSS OF RS.11 ,27,000/- CLAIMED IN THE PROFIT AND LOSS ACCOUNT FOR THE FOLLOWING RE ASONS - I) THAT IT IS NOT A BUSINESS LOSS AS THERE WAS NO O BJECT IN THE MEMORANDUM OF ASSOCIATION OF THE APPELLANT COMPANY. II) THE LOSS CLAIMED IS OF A CAPITAL NATURE AND CA NNOT BE ALLOWED U/S 37 OF THE ACT. III) THE TRANSACTION IS A COLOURFUL DEVICE AND NOT ELIGIBLE FOR DEDUCTION. AS REGARDS THE FIRST ASPECT, IT MAY BE SEEN THAT TH E APPELLANT'S MAIN ACTIVITY IS ADVERTISEMENT AND PUBLICITY. THE APPELL ANT IS NOT IN THE BUSINESS OF PURCHASE AND SALE OF SHARES. FURTHER TH E SHARES WERE NOT ACQUIRED BY A NORMAL PURCHASE BY THE APPELLANT COMP ANY. M/S ASIANET TV HOLDINGS(P) LTD. GAVE ADVANCES TO M/S FE DEX FINANCE LTD AND M/S FEDEX SECURITIES LTD., AND LATER BY THE DECISION OF THE BOARDS OF M/S ASIANET TV HOLDINGS AND THE APPELLANT COMPANY THE ITA NOS. 792 & 963/BANG/2013 PAGE 6 OF 22 SAID AMOUNTS WERE TREATED AS SHARE APPLICATION MONE Y OF THE ASSESSEE AND ACCORDINGLY THE SHARES WERE ISSUED. THUS THE AP PELLANT COMPANY NEVER PURCHASED THE SHARES DIRECTLY BUT ACQUIRED DU E TO THE BOARDS' DECISION. THEREFORE THE TRANSACTION CAN NOT BE CALL ED AS REGULAR BUSINESS TRANSACTION. FURTHER AS RIGHTLY POINTED OU T BY THE A.O THERE IS NO OBJECT IN THE MEMORANDUM OF ASSOCIATION OF THE A PPELLANT COMPANY REGARDING THE PURCHASE AND SALE OF SHARES. THE APPELLANT SHOWED THE SHARES OF THE SAID COMPANY UNDER CURRENT ASSETS IN SCHEDULE 5 OF THE BALANCE SHEET AS ON 31.03.2009 AS STOCK IN TRADE. IT IS ALSO SEEN FROM THE PROFIT AND LOSS ACCOUNT FOR T HE YEAR ENDING 31.03.2009 THE APPELLANT SHOWED CERTAIN TRANSACTION S OF PURCHASE/SALE OF SHARES. MERE DISCLOSURE OF THE SHARES AS A STOCK IN TRADE UNDER CURRENT ASSETS IS NOT ENOUGH FOR CLAIMING THE SAID ASSET AS A TRADING ASSET. THE TRANSACTIONS RECORDED IN THE BOOKS IS ON E OF THE INDICATORS FOR DECIDING THE ISSUE AND THE SAME CAN NOT BE TAKE N AS A SOLE REASON FOR SUPPORTING THE APPELLANTS VIEW. THE INTENTION B EHIND THE ACQUISITION OF THE SHARES IS A DOMINANT FACTOR IN T HE INSTANT CASE. THE APPELLANT HAD NOT ACQUIRED THE SHARES UNDER NORMAL BUSINESS TRANSACTIONS SO THAT THE SAME CAN BE TAKEN AS STOCK IN TRADE. IT IS AS PER THE DECISION OF THE BOARDS' OF THE ASIANET TV HOLDI NGS L TD. AND THE APPELLANT COMPANY, THE ADVANCES WERE CONVERTED INTO SHARES OF THE APPELLANT COMPANY. SUCH A TRANSACTION CAN BE TREATE D AS AN INVESTMENT TRANSACTION AND THE SHARES ACQUIRED THER EBY ARE TO BE TREATED AS INVESTMENTS. IN VIEW OF THIS, THE TRANSA CTION CANNOT BE CALLED AS TRADING TRANSACTION. HENCE THE LOSS SUFFE RED BY THE APPELLANT COMPANY IS NOT ELIGIBLE FOR DEDUCTION. ALTERNATIVEL Y THE SAID LOSS IS A CAPITAL LOSS. THEREFORE, I FULLY AGREE WITH DECISIO N OF THE A.O IN THIS REGARD. 7. FROM THE ABOVE PARA OF THE ORDER OF LD. CIT (A), WE FIND THAT THIS IS THE ONLY OBJECTION OF THE LD. CIT (A) THAT THE LOSS IN QUESTION IS A CAPITAL LOSS AND NOT BUSINESS LOSS. IN ORDER TO DETERMINE AS TO WHETHER THE LOSS IN QUESTION IS CAPITAL LOSS OR BUSINESS LOSS, ONE HAS TO FIND OUT THE INTENTION AT THE TIME OF ACQUISITION OF SHARES. THE SHARES WERE ACQUIRED BY WAY OF APPLICATION AND AS PER THE BOARD RESOLUTION, THESE SHARES WERE ACQUIRE D AS STOCK-IN-TRADE. THIS IS NOT IN DISPUTE THAT SHARES ARE IN FACT ACQUIRED BY THE ASSESSEE AT RS.500 PER SHARE IN THE FY 2007-08 AND WERE SHOWN BY THE ASSES SEE IN ITS BALANCE SHEET AS ON 31.3.2008 AS INVENTORY AND THEREAFTER IN THE PRESENT YEAR, THESE SHARES ITA NOS. 792 & 963/BANG/2013 PAGE 7 OF 22 ARE SOLD BY THE ASSESSEE AT A LOWER PRICE RESULTING INTO LOSS IN QUESTION AND THERE IS NO VALID REASON OR BASIS INDICATED IN THE ORDER OF CIT (A) TO SAY THAT IT IS CAPITAL LOSS PARTICULARLY WHEN THE LOSS ITSELF IS B EING ACCEPTED BY THE CIT(A) AND THE REVENUE IS NOT IN APPEAL AGAINST THIS DECISION OF CIT(A) THAT THE LOSS IN QUESTION IS A FACT. 8. THE ONLY OBJECTION OF THE LD. CIT(A) IS THAT IT IS NOT A BUSINESS LOSS BUT CAPITAL LOSS AND THE REASONING OF THE CIT(A) IS THI S THAT THE ASSESSEE HAS NOT ACQUIRED THE SHARES UNDER NORMAL BUSINESS TRANSACTI ON SO THAT THE SAME CAN BE TAKEN AS STOCK-IN-TRADE. WE FIND NO MERIT IN TH IS OBJECTION OF CIT(A) IN VIEW OF THIS FACT THAT SHARES WERE ACQUIRED BY THE ASSES SEE AS PER BOARD RESOLUTION DATED 3.9.2007, AS PER WHICH, THE SHARES IN THESE T WO COMPANIES ARE TO BE ACQUIRED AS STOCK-IN-TRADE. HENCE, ON THIS ISSUE, WE REVERSE THE ORDER OF THE CIT(APPEALS) AND HOLD THAT LOSS IN QUESTION IS A BU SINESS LOSS AND NOT A CAPITAL LOSS. 9. HAVING HELD THAT THE LOSS IN QUESTION IS A BUSIN ESS LOSS, WE HAVE TO EXAMINE AND DECIDE AS TO WHETHER THIS BUSINESS LOSS IN SHARES IS HIT BY EXPLANATION TO SECTION 73(1) OR NOT. THE LD. AR OF ASSESSEE HAD PLACED RELIANCE ON THE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S. LAXMI FEEDS & EXPORT LTD. VS. ACIT (SUPRA) AND ON THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF SRI GOPAL JALAN & CO. VS. CALCUTTA STOCK EXCHANGE (SUPRA). AS PER THIS JUDGMENT, IT WAS HELD BY THE TRIBUNAL THAT IF THE SHARES ARE ACQUIRED BY THE ASSESSEE ON APPLICATION AND ALLOTME NT AND NOT BY WAY OF PURCHASE, THE SAID ACQUISITION OF SHARES IS NOT A P URCHASE OF SHARES BECAUSE ITA NOS. 792 & 963/BANG/2013 PAGE 8 OF 22 ON APPLICATION OF SHARES, WHETHER THE ASSESSEE WILL GET ALLOTMENT OF SHARES OR NOT IS NOT CERTAIN AND AS PER EXPLANATION TO SECTIO N 73(1), ONLY THAT BUSINESS IS HIT BY THIS EXPLANATION WHICH CONSISTS OF PURCHASE AND SALE OF SHARES. SINCE ACQUISITION OF SHARES IN THE PRESENT CASE IS NOT BY WAY OF PURCHASE, BUT IS BY WAY OF ALLOTMENT ON APPLICATION, LOSS ON SALE OF SU CH SHARES WHICH ARE ACQUIRED BY APPLICATION AND ALLOTMENT ARE NOT HIT BY EXPLANA TION TO SECTION 73(1). THE TRIBUNAL IN THIS CASE HAS APPLIED AND FOLLOWED THE RATIO OF THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF SRI GOPA L JALAN & CO. VS. CALCUTTA STOCK EXCHANGE (SUPRA) WHEREIN IT WAS HELD THAT THE WORD PURCHASE CANNOT BE APPLIED TO THE LEGAL TRANSACTION UNDER WHICH A P ERSON BY THE MACHINERY OF APPLICATION AND ALLOTMENT BECOMES A SHARE HOLDER IN THE COMPANY. IN THE PRESENT CASE, THE FACTS ARE SIMILAR BECAUSE IN THE PRESENT CASE ALSO, SHARES WERE ACQUIRED BY APPLICATION AND ALLOTMENT OF SHARE S AND NOT BY WAY OF PURCHASE. HENCE THIS TRIBUNAL ORDER AND THIS JUDGM ENT OF HONBLE APEX COURT ARE SQUARELY APPLICABLE IN THE FACTS OF THE PRESENT CASE AND THEREFORE, RESPECTFULLY FOLLOWING THESE JUDICIAL PRONOUNCEMENT S, WE HOLD THAT THE LOSS IN QUESTION IN THE PRESENT CASE IS NOT HIT BY EXPLANAT ION TO SECTION 73(1) AND THEREFORE, SUCH LOSS IS ENTITLED TO BE SET OFF AGAI NST NORMAL BUSINESS INCOME OF THE ASSESSEE. 10. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWE D. 11. NOW WE TAKE UP APPEAL OF THE REVENUE. THE GROU NDS RAISED BY THE REVENUE ARE AS UNDER:- ITA NOS. 792 & 963/BANG/2013 PAGE 9 OF 22 1. THE ORDER OF THE LEARNED CIT(APPEALS), IN SO F AR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, IS OPPOSED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE CIT (A) ERRED IN DELETING THE DISALLOWANCE MADE UNDER SECTION 14A READ WITH RULE 8D (2)(II) FOR THE REASON THAT T HE INVESTMENT WAS NOT MADE DURING THE YEAR WITHOUT APPRECIATING THE F ACT THAT THE WHEN THE INVESTMENT OF RS 63 CR IN SHARE CAPITAL AND IN GROUP COMPANIES WAS MADE THE COMPANY DID NOT HAVE EITHER OWN OR SUR PLUS FUNDS TO MAKE SUCH INVESTMENTS. 3. THE LEARNED CIT (APPEALS) ERRED IN ALLOWING THE APPEAL ON THE ISSUE OF DISALLOWANCE MADE UNDER SECTION 14A READ WITH RU LE 8D (2)(II) FOR THE REASON THERE WAS NO EVIDENCE ON RECORD TO S HOW THAT ANY BORROWED FUNDS WERE UTILISED FOR THE SAID INVESTMEN TS YEAR WITHOUT APPRECIATING THE FACT WHEN THE INTEREST EXPENSE INC URRED CANNOT BE DIRECTLY ATTRIBUTED TO ANY PARTICULAR INCOME OR REC EIPT, PROVISIONS OF RULE 8D(2)(II) AUTOMATICALLY BECOME APPLICABLE. 4. THE LEARNED CIT (APPEALS), ERRED IN NOT APPRECI ATING THAT THE BORROWINGS ARE NEITHER DIRECTLY ATTRIBUTABLE TO BOR ROWINGS SPECIFICALLY USED FOR TAX EXEMPT INCOMES OR RECEIPT S, NOR IS DIRECTLY ATTRIBUTABLE TO BORROWINGS SPECIFICALLY USED FOR TA XABLE INCOMES OR RECEIPTS AND AS SUCH, PROVISIONS OF RULE 8D(2)(II) AUTOMATICALLY BECOME APPLICABLE FOR THE SAID INTEREST. 5. THE LEARNED CIT (APPEALS) ERRED IN ALLOWING THE APPEAL ON THE ISSUE OF DISALLOWANCE UNDER SEC 36(1) (III) HOLDING THAT THE ADVANCES WERE MADE FOR COMMERCIAL EXPEDIENCY AND TO HAVE CONTROLL ING INTEREST AS A LARGER BUSINESS ACTIVITY IN THE COURSE OF BUSINES S WITHOUT APPRECIATING THE FACT THAT THE ADVANCES WERE MADE O UT OF FUNDS BORROWED FROM ICDS 6. THE LEARNED CIT (APPEALS) ERRED IN ALLOWING THE APPEAL ON THE ISSUE OF DISALLOWANCE UNDER SEC 36(1) (III) HOLDING THAT WHERE THERE WERE INTEREST FREE FUNDS BY WAY OF CAPITAL OR RESERVE OR BY WAY OF INTEREST FREE DEPOSITS FROM CUSTOMERS, THERE IS AN INFERENCE THAT BORROWED FUNDS ARE NOT DIVERTED FOR NON-BUISNESS PURPOSES WI THOUT APPRECIATING THE FACT THAT THE FUNDS FROM ICDS WERE DIVERTED FOR NON BUSINESS PURPOSES 7. THE LEARNED CIT (APPEALS) ERRED IN ALLOWING THE APPEAL ON THE ISSUE OF DISALLOWANCE OF MANAGENMENT CONSULTANCY FEE OF R S 6,89,59,600 HOLDING THAT THERE IS NO FINDING BY THE AO THAT THE EXPENDITURE IS EXCESSIVE OR UNREASONABLE IN RELATION TO ANYONE OF THE THREE REQUIREMENTS PRESCRIBED IN SEC 40A(2) WITHOUT APPRE CIATING THE FACT ITA NOS. 792 & 963/BANG/2013 PAGE 10 OF 22 THAT THE AO HAD GIVEN A FINDING THAT THE AR OF THE COMPANY WAS ASKED TO GIVE EXACT DETAILS OF THE CONSULTANCY PROV IDED AND THE AR HAD PREFERRED NOT TO PRODUCE ANY FURTHER EVIDENCE R ELATING TO THE SAME. 8. THE LEARNED CIT (APPEALS) ERRED IN ALLOWING THE APPEAL ON THE ISSUE OF DISALLOWANCE OF MANAGENMENT CONSULTANCY FEE OF R S 6,89,59,600 HOLDING THAT AS THERE WAS NO MATERIAL ON RECORD TO SHOW THAT THE EXPENDITURE WAS IN THE NATURE OF CAPITAL EXPENDITUR E OR NOT FOR THEW PURPOSES OF BUSINESS, THE ALTERNATIVE DISALLOWANCE U/S 37 WAS ALSO NOT JUSTIFIABLE WITHOUT APPRECIATING THE FACT THAT THE AO HAD GIVEN A FINDING THAT THE AR OF THE COMPANY WAS ASKED TO GIV E EXACT DETAILS OF THE CONSULTANCY PROVIDED AND THE AR HAD PREFERRE D NOT TO PRODUCE ANY FURTHER EVIDENCE RELATING TO THE SAME AND THERE FORE THE AO DISALLOWED THE SAME GIVING A FINDING THAT THE EXPEN DITURE WAS NOT INCURRED EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. 9. THE LEARNED CIT (APPEALS) ERRED IN HOLDING THAT THE PAYMENTS OF RS 1,79,88,838 CANNOT BE DISALLOWED UNDER SEC 37 AS TH E SAID PAYMENTS WERE NOT IN THE NATURE OF CAPITAL. 10. THE LEARNED CIT (APPEALS) ERRED IN HOLDING THA T THE EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS OF JOINT VENTU RE WITH THE STAR GROUP WITHOUT APPRECIATING THE FACT THAT THE BALANC E SHEET DID NOT SHOW ANY INVESTMENT REGARDING THE JOINT VENTURE 11. THE LEARNED CIT (APPEALS) ERRED IN HOLDING THA T LOANS AND ADVANCES OF RS 25,69,43,380 FROM HINDUSTAN INFRASTUCTURE PRO JECT AND ENGINEERING LIMITED CANNOT BE TREATED AS DEEMED DIV IDEND WITHOUT APPRECIATING THE FACT THAT THE AMOUNTS WERE ADVANCE D BY HINDUSTAN INFRASTUCTURE PROJECT AND ENGINEERING LIMITED TO TH E ASSESSEE COMPANY AND THE COMPANY JUPIER CAPITAL PVT LTD IS A COMMON SHAREHOLDER BOTH IN THE ASSESSEE COMPANY AND THE LE NDER COMPANY. 12. THE LEARNED CIT(A) HAS ERRED IN LAW IN NOT APP RECIATING THAT SECTION 2(22)(E) OF THE I.T.ACT, 1961 COVERS CONCERNS HAVIN G COMMON SHAREHOLDER(S) WITH SUBSTANTIAL BENEFICIAL INTEREST IN BOTH THE COMPANIES / CONCERNS THAT IS PAYER AND PAYEE. 13. THE LEARNED CIT(A) HAS ERRED IN LAW IN NOT APP RECIATING THAT SECTION 2(22)(E) OF THE I.T.ACT, 1961 ALSO REFERS TO PAYMEN T TO ANY CONCERN WHEREIN SUCH SHAREHOLDER IS COMMON HAVING A SUBSTAN TIAL INTEREST IN THE COMPANY AS WELL AS PAYEE CONCERN. ITA NOS. 792 & 963/BANG/2013 PAGE 11 OF 22 14. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE U RGED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT(A) BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 15. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, A MEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARIN G OF THE APPEAL. 12. AS PER GROUNDS NO.1 TO 4, THE ISSUE INVOLVED IS REGARDING DELETION OF DISALLOWANCE MADE BY AO U/S. 14A. THE LD. DR OF RE VENUE SUPPORTED THE ASSESSMENT ORDER, WHEREAS THE LD. AR OF ASSESSEE SU PPORTED THE ORDER OF LD. CIT (A). SHE ALSO SUBMITTED THAT IN VIEW OF THIS F ACT THAT NO EXEMPT DIVIDEND INCOME WAS EARNED BY THE ASSESSEE IN THE PRESENT YE AR, NO DISALLOWANCE CAN BE MADE U/S. 14A IN THE PRESENT YEAR AND IN SUPPORT OF HIS CONTENTION, RELIANCE WAS PLACED BY HER ON THE JUDGMENT OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CHEMINVEST LTD. VS . CIT AS REPORTED IN 378 ITR 33 (DEL) . 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT AS PER THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE FOR THE PRESENT YEAR AVAILABLE ON PAGES 11 OF PB, THERE IS NO INCOME EARNED BY THE ASSESSEE UNDER THE HEAD DIVIDEND WHICH IS EXEMPT U/S 10. IN THE CASE OF CHEMINVEST LTD. (SUPRA) CITED BY THE LD. AR OF ASSESSEE, IT WAS HELD BY THE HONBLE DELHI HI GH COURT THAT WHERE THE ASSESSEE HAD NOT EARNED ANY EXEMPT INCOME, NO DISAL LOWANCE CAN BE MADE U/S. 14A. SINCE THERE IS NO ACTUAL RECEIPT OF EXEM PT INCOME BY THE ASSESSEE IN THE PRESENT YEAR, WE ARE OF THE CONSIDERED OPINION THAT NO DISALLOWANCE CAN BE MADE U/S. 14A AS PER THIS JUDGMENT OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CHEMINVEST LTD. (SUPRA) . RESPECTFULLY FOLLOWING THIS JUDGMENT OF HONBLE DELHI HIGH COURT, WE DECLINE TO INTERFERE I N THE ORDER OF CIT(APPEALS) ITA NOS. 792 & 963/BANG/2013 PAGE 12 OF 22 ON THIS ISSUE. ACCORDINGLY, GROUND NOS. 1 TO 4 OF REVENUES APPEAL ARE REJECTED. 14. GROUND NOS.5 TO 6 ARE REGARDING THE DISALLOWANC E MADE BY THE AO U/S. 36(1)(III). LD. DR OF REVENUE SUPPORTED THE ASSESSM ENT ORDER AND THE LD. AR OF ASSESSEE SUPPORTED THE ORDER OF CIT(A). IN PARTICU LAR, OUR ATTENTION WAS DRAWN TO PARA 6.4 TO 6.6 APPEARING ON PAGES 24 TO 27 OF T HE ORDER OF CIT(APPEALS. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL, WE REPRODUCE PARA 6.4 TO 6.6 FROM THE ORDER OF LD. CIT(APPEALS) ON PAGE 24 TO 27 OF HIS ORDER AS UNDER:- 6.4. I HAVE CONSIDERED THE FACTS AND SUBMISSIONS MADE BY THE APPELLANT AND ALSO THE REASON GIVEN BY THE A.O IN T HE ASSESSMENT ORDER. THE A.O MADE THE DISALLOWANCE OF RS. 1,45,83 ,467/- U/S . 36(1)(III) R.W.S. 37(1) OF THE ACT. THE A.O MADE TH IS DISALLOWANCE ON PROTECTIVE BASIS ON THE GROUND THAT THE SAME WAS CO NSIDERED FOR DISALLOWANCE U/S 14A OF THE ACT R.W. RULE 80 OF I.T . RULES. IT MAY BE MENTIONED HERE THE DISALLOWANCE U/S 14A HAS BEEN DE LETED BY VIDE PARA NO.S 4.4 & 4.5 OF THIS ORDER. THE A.O ALSO STA TED THAT THE LOANS TO THE SISTER CONCERNS WERE GIVEN OUT OF BORROWED FUND S AND THERE WAS NO COMMERCIAL EXPEDIENCY. THE A.O ALSO RELIED ON CE RTAIN JUDICIAL DECISIONS IN THIS REGARD. 6.5. THE AMOUNT OF ADVANCE GIVEN TO M/S ASIANET T. V HOLDING (P) LTD. IS RS. 79.49 CRORES. THE APPELLANT PAID THIS A MOUNT AS A SHARE APPLICATION AMOUNT TO CONSOLIDATE THE APPELLANTS HO LDING IN THE SAID COMPANY. AS THE SHARES WERE YET TO BE ALLOTTED THE SHARES CAN NOT BE TREATED AS INVESTMENT IN SHARES. SINCE IT IS A SHAR E APPLICATION AMOUNT NO INTEREST IS RECEIVABLE IN THE NORMAL COURSE. THI S INVESTMENT IS MADE BY THE APPELLANT COMPANY OUT OF COMMERCIAL EXP EDIENCY. EVEN THOUGH, THE BORROWED MONIES ARE UTILIZED FOR THIS P URPOSE THE PAYMENT OF INTEREST CANNOT BE DENIED. THEREFORE, NO INTEREST CAN BE DISALLOWED. AN AMOUNT OF RS. 10.2 CRORES WAS INVEST ED IN M/S INDIA RADIO VENTURES PVT. LTD. THIS INVESTMENT IS ALSO MA DE BY THE APPELLANT COMPANY TO HAVE CONTROLLING INTEREST. THE REFORE, THERE IS A COMMERCIAL EXPEDIENCY FOR MAKING THE SAID BUSINESS INVESTMENT, ITA NOS. 792 & 963/BANG/2013 PAGE 13 OF 22 HENCE NO INTEREST IS DISALLOWABLE ON THIS COUNT. TH E OTHER ADVANCE OF RS. 3.23 CRORES GIVEN TO M/S. INDIA RADIO VENTURES PVT. LTD. WAS ALSO FOR THE PURPOSE OF BUSINESS EXPEDIENCY. THE APPELLA NT HAD ADVANCED CERTAIN SMALLER AMOUNTS TO VARIOUS OTHER GROUP COMP ANIES AND THESE ADVANCES WERE STATED HAVE BEEN GIVEN AS A PART OF T HE LARGER BUSINESS STRATEGY IN THE ORDINARY COURSE OF BUSINESS. THE AP PELLANT'S SUBMISSION THAT THESE ADVANCES ARE GIVEN FOR BUSINE SS PURPOSE, THEREFORE, ARE JUSTIFIABLE. FURTHER, IN THE ABSENCE OF SPECIFIC FINDINGS / EVIDENCE ON RECORD THAT THE BORROWED FUNDS HAVE DIV ERTED FOR NON BUSINESS PURPOSE IT IS DIFFICULT TO REJECT THE ASSE SSEE'S SUBMISSION. 6.6. EVEN OTHERWISE, WHERE THE APPELLANT HAD INTER EST-FREE FUNDS BY WAY OF CAPITAL AND RESERVES OR BY WAY OF INTEREST-F REE DEPOSITS FROM CUSTOMERS, THERE IS AN INFERENCE THAT BORROWED FUND S ARE NOT DIVERTED FOR NON-BUSINESS PURPOSE. IN SUCH CIRCUMSTANCES, TH ERE CAN BE NO DISALLOWANCE. THIS IS THE RATIO LAID DOWN BY THE HO N'BLE HIGH COURT OF ALLAHABAD IN THE CASE OF PREM ENGINEERING PVT. L TD. [285 ITR 554]. A SIMILAR VIEW HAS BEEN EXPRESSED BY THE HIGH COURT OF BOMBAY IN THE CASE OF RELIANCE UTILITIES & POWER LT D. [313 ITR 340]. IT WAS HELD THAT, WHERE THERE WERE FUNDS AVAI LABLE BOTH INTEREST- FREE AND INTEREST-BEARING, A PRESUMPTION COULD ARIS E THAT INVESTMENTS COULD BE OUT OF INTEREST-FREE FUNDS GENERATED OR AV AILABLE WITH THE COMPANY IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THEIR INVESTMENTS. IN THE PRESENT CASE, SUFFICIENT INTERE ST-FREE FUNDS WERE AVAILABLE WITH THE APPELLANT, AS PER THE BALANCE SH EET. THUS THERE CANNOT BE ANY DISALLOWANCE OF INTEREST ON ACCOUNT O F INTEREST-FREE ADVANCES MADE TO THE SISTER CONCERNS IN THE INSTANT CASE. IT IS ALSO THE ARGUMENT OF THE APPELLANT THAT THE INTEREST-FREE AD VANCES WERE FOR COMMERCIAL EXPEDIENCY. THEREFORE, THE DECISION OF T HE HON'BLE SUPREME COURT IN THE CASE OF SA BUILDERS [288 ITR 1 ] IS APPLICABLE TO THE INSTANT CASE. THE AO RELIED ON THE FOLLOWING DECISIONS I. M/S. CONTINENTAL CONSTRUCTION LTD. (195-ITR-81) II. HINDUSTAN CONDUCTORS P. LTD. (240-ITR-762(BOM. H.C) III. K. SOMASUNDARAM & BROS. (238-ITR-939(MAD. H.C) IV. ABHISHEK INDUSTRIES LTD. (286-ITR-1 (P&H H.C) THE DECISION IN THE CASE OF M/ S. CONTINENTAL CONST RUCTION LTD. (195- ITR-81) IS WITH REGARD TO 80HHB & 80O OF THE ACT AN D THE A.O QUOTED AN OBSERVATION IN THE CONTEXT OF FINANCE CHA RGES IN RESPECT OF THE SAID SECTION HENCE THE SAID SECTION IS NOT APPL ICABLE TO THE PRESENT FACTS OF THE CASE. THE DECISION IN THE CASE OF HIND USTAN CONDUCTORS P. ITA NOS. 792 & 963/BANG/2013 PAGE 14 OF 22 LTD. (240-ITR-762(BOM. H.C) IS ON DIFFERENT FACTS A ND DISTINGUISHABLE. IN THE SAID CASE THERE IS A FINDIN G THAT THE APPELLANT ADVANCED MONEY TO SISTER CONCERN FOR EXTRA COMMERCI AL CONSIDERATION AND THE HON'BLE HIGH COURT STATED THAT THE INTEREST PAID FOR EXTRA COMMERCIAL CONSIDERATION IS DISALLOWABLE AND ALLOWE D TO THE EXTENT WHICH IS PAID FOR BUSINESS PURPOSE U/S 36(1)(III) O F THE ACT. IN THE INSTANT CASE THERE IS NO EVIDENCE TO SHOW THAT THER E WERE ANY EXTRA COMMERCIAL CONSIDERATIONS. THE DECISION IN THE CASE OF K. SOMASUNDARAM & BROS. (238-ITR-939(MAD. H.C) IS ALSO ON DIFFERENT FACTS. IN THE SAID CASE THERE WAS A SUFFICIENT PROO F TO SHOW DIVERSION OF BORROWED FUNDS. THE HON'BLE HIGH COURT HELD THAT THE BORROWED FUNDS WERE USED FOR BUSINESS AND SOME TIME LATER DI VERTED WOULD NOT ENTITLE THE ASSESSEE TO CLAIM THE INTEREST PAID ON THE BORROWING AS DEDUCTION. THEREFORE, THE SAID DECISION IS NOT APPL ICABLE TO THE PRESENT FACTS OF THE CASE. THE DECISION IN THE CASE OF ABHI SHEK INDUSTRIES LTD. (286-ITR-L (P&H H.C) WAS OVERRULED BY THE APEX COUR T IN THE CASE OF MANJULA SALES CORPN. (298- ITR-298(S.C) HENCE, N OT APPLICABLE. IN VIEW OF THE DETAILED DISCUSSION ABOVE, THE AO IS NO T JUSTIFIED IN MAKING THE DISALLOWANCE OF INTEREST IN THE PRESENT CASE. HENCE, THE SAME IS DELETED. 16. IN THE ABOVE PARAS REPRODUCED FROM THE ORDER OF CIT(APPEALS), WE FIND THAT A CATEGORICAL FINDING HAS BEEN GIVEN BY THE CI T(A) THAT THE ADVANCES GIVEN TO M/S. ASIANET T.V. HOLDING (P) LTD. OF RS.79.40 C RORES AND TO M/S. INDIA RADIO VENTURES OF RS.10.2 CRORES AND RS.3.23 CRORE S AND THE REMAINING ADVANCES GIVEN TO M/S. AZURE SERVICES PVT. LTD. AND SOME MORE ADVANCE TO OTHER GROUP COMPANIES WERE ALL GIVEN AS PART OF LAR GER BUSINESS STRATEGY IN THE ORDINARY COURSE OF BUSINESS AND HENCE THESE ADVANCE S WERE GIVEN FOR BUSINESS EXPEDIENCY AND THEREFORE, AS PER JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF S.A. BUILDERS AS REPORTED IN 288 ITR 1, NO DISALLOWANCE OF INTEREST IN RESPECT OF THIS INTEREST FREE ADVANC E IS JUSTIFIED. SINCE THIS FINDING OF ACT OF LD. CIT (APPEALS) COULD NOT BE CONTROVERT ED BY THE LD. DR OF REVENUE AND IN VIEW OF THE FACTS OF THE PRESENT CASE, THIS ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY JUDGMENT OF HONBLE APEX COURT IN THE C ASE OF S.A. BUILDERS ITA NOS. 792 & 963/BANG/2013 PAGE 15 OF 22 (SUPRA) AND WE FIND NO JUSTIFICATION TO INTERFERE IN THE ORDER OF LD. CIT(APPEALS) ON THIS ISSUE ALSO. ACCORDINGLY, GROUNDS NOS. 5 & 6 ARE ALSO REJECTED. 17. GROUND NOS. 7 & 8 OF REVENUES APPEAL ARE IN RE SPECT OF DELETION OF DISALLOWANCE OF RS.6,89,59,600 AND IN THIS REGARD A LSO, THE LD. DR SUPPORTED THE ASSESSMENT ORDER AND LD. AR OF ASSESSEE SUPPORT ED THE ORDER OF LD. CIT(APPEALS). SHE ALSO SUBMITTED THAT THE DECISION OF LD. CIT (A) ON THIS ISSUE IS CONTAINED IN PARA 7.4 ON PAGE NO.30 OF HIS ORDER . IN THE REJOINDER, IT WAS SUBMITTED BY THE LD. DR THAT THERE IS NO SPECIFIC F INDING GIVEN BY THE CIT (APPEALS) ON THIS ISSUE. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRS T OF ALL, WE REPRODUCE PARA 7.4 OF THE ORDER OF CIT (APPEALS) WHICH IS AVA ILABLE AT PAGES 30 TO 33 OF HIS ORDER. THE SAME IS AS UNDER:- 7.4 I HAVE CONSIDERED THE FACTS AND SUBMISSIONS M ADE BY THE APPELLANT AND THE REASONS GIVEN BY THE A.O IN THIS REGARD. THE A.O DISALLOWED THE ABOVE SUMS U/S 40A(2) OF THE ACT. SH E ALSO DISALLOWED THE SAME ON AN ALTERNATIVE REASON THAT THE SAID EXP ENDITURE WAS NOT INCURRED FOR THE EXCLUSIVE BUSINESS PURPOSE U/S 37 OF THE ACT. THE MAJOR AMOUNT OF THE DISALLOWANCE IS RS. 6,06,65,000 /- PAID TO M/ S. HINDUSTAN INFRASTRUCTURE PROJECT AND ENGINEERING LT D (HIPE). IT IS SUBMITTED BY THE APPELLANT THAT THE SAID AMOUNT WAS PAID FOR THE MANAGEMENT AND CONSULTANCY SERVICES. THE APPELLANT PRODUCED THE COPY OF THE INVOICE FOR MAKING THE SAID PAYMENT AND ALSO THE AGREEMENT ENTERED WITH M/S. HIPE ON 11.01.2008. HOW EVER, THE A.O REJECTED THE EVIDENCE AND RESORTED TO THE DISALLOWA NCE ON THE GROUND THAT THE APPELLANT PAID THE SAID AMOUNT FOR REDUCIN G THE TAX LIABILITY. THE APPELLANT SERIOUSLY CONTESTED THE A.OS REASONS STATING THAT M/S. HIPE WAS THE TAX PAYING COMPANY DURING THAT PERIOD. THE A.O ALSO STATED THAT M/ S. JUPITER CAPITAL PVT. LTD. WHICH W AS THE SHARE HOLDER OF THE APPELLANT COMPANY HAD ALSO SHARE HOLDING IN M/S. HIPE HENCE PRESUMED THAT THE TRANSACTIONS WAS ONLY FOR REDUCTI ON OF TAX LIABILITY. THE A.OS PRESUMPTIONS ARE NOT BASED ON ANY EVIDENC E. THE ITA NOS. 792 & 963/BANG/2013 PAGE 16 OF 22 APPELLANT PAID THE SAID AMOUNT FOR THE FOLLOWING RE ASONS AS PER THE AGREEMENT DATED 11.08.2008. COMMENCING ON THE EFFECTIVE DATE AND CONTINUING THR OUGHOUT THE TERM, HIPE SHALL BE RESPONSIBLE FOR PROVIDING TO JE VL: 1. DULY QUALIFIED PERSONNEL FOR ASSISTING J EVL IN ITS BUSINESS RELATED TO ENTERTAINMENT AND MEDIA. HIPE SHALL ASSI ST JEVL IN PREPARING BUSINESS PLAN, STRATEGIES, AND MANAGEMENT RESOURCES TO CONCEPTUALISE, BUILD AND ROLL OUT IN A COST EFFECTI VE MANNER ITS BUSINESS IN ENTERTAINMENT, MEDIA AND PUBLISHING. 2. ASSISTANCE IN LIASONING WITH BANKS, FINANCIAL I NSTITUTIONS, STATUTORY AND GOVERNMENT AGENCIES AND ANY INTERNATI ONAL BUSINESS THAT JEVL MAY SET UP AT A FUTURE DATE. 3. THE SERVICES IN ACCORDANCE WITH THE TERMS OF TH IS AGREEMENT AND AS NECESSARY TO MEET THE REQUESTED SERVICE STANDARD S AS SET OUT IN THIS AGREEMENT., THE ADMINISTRATIVE PROCESSING R EQUIREMENTS AND 4. ANY INCIDENTAL SERVICES., FUNCTIONS AND RESPONS IBILITIES NOT SPECIFICALLY DESCRIBED IN THIS AGREEMENT., BUT WHIC H ARE REQUIRED FOR THE PERFORMANCE AND DELIVERY OF THE SERVICES (1 ) AND (2) COLLECTIVELY. IN THE ABSENCE OF ANY CONTRARY EVIDENCE IT IS DIFFI CULT TO REJECT THE ABOVE AS THE APPELLANT HAD DISCHARGED ITS ONUS. THE APPELLANT HAS VERY LIMITED EMPLOYEES AS CAN BE SEEN FROM THE EMPLOYEES COST DEBITED TO THE PROFIT AND LOSS ACCOUNT HENCE, THE ARGUMENT THA T THE PAYMENT MADE TO M/S. HIPE FOR MANAGING ITS AFFAIRS CANNOT B E REJECTED. A PLAIN READING OF S. 40A(2) REVEALS THAT WHERE AN AS SESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT IS REQUIRED TO BE MADE OR HAS BEEN MADE TO ANY PERSON REFERRED TO IN CL. (B) OF S . 40A(2) AND THE AO IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIV E OR UNREASONABLE HAVING REGARD TO (A) FAIR MARKET VALUE OF THE GOODS ., SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE; OR (B) TH E LEGITIMATE NEEDS OF THE BUSINESS OF THE ASSESSEE; OR (C) THE BENEFIT S DERIVED BY OR ACCRUING TO THE ASSESSEE ON RECEIPT OF SUCH GOODS, SERVICES OR FACILITIES., THEN THE AO SHALL NOT ALLOW AS A DEDUC TION SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY THE AD TO BE EXC ESSIVE OR UNREASONABLE. THEREFORE, IT BECOMES APPARENT THAT T HE AO IS REQUIRED TO RECORD A FINDING AS TO WHETHER THE EXPENDITURE I S EXCESSIVE OR UNREASONABLE IN RELATION TO ANYONE OF THE THREE REQ UIREMENTS PRESCRIBED., WHICH ARE INDEPENDENT AND ALTERNATIVE TO EACH OTHER. BUT ITA NOS. 792 & 963/BANG/2013 PAGE 17 OF 22 IN INSTANT CASE THERE IS NO SUCH FINDING BY THE A.O . ALTERNATIVELY THE DISALLOWANCE U/S 37 OF THE ACT IS ALSO NOT JUSTIFIA BLE. THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE EXPENDITURE WAS IN THE NATURE OF CAPITAL EXPENDITURE OR NOT FOR THE PURPOSE OF BUSIN ESS. THE EXPENDITURE IS COVERED UNDER THE NORMAL PROVISIONS OF THE ACT. THEREFORE, THE DISALLOWANCE CAN NOT BE CONFIRMED U/ S 37 OF THE ACT. HENCE, THE DISALLOWANCE IS DELETED. 19. FROM THE ABOVE PARA FROM THE ORDER OF CIT (APPE ALS), WE FIND THAT THE DISALLOWANCE MADE BY THE AO WAS ON THIS BASIS THAT THE AMOUNT PAID IS EXCESSIVE AND HE INVOKED THE PROVISIONS OF SECTION 40A(2) OF THE I.T. ACT AND HE ALSO HELD THAT THIS IS TO BE DISALLOWED U/S. 37 ALSO BECAUSE AS PER AO, THIS EXPENDITURE WAS NOT UTILIZED EXCLUSIVELY FOR THE PU RPOSE OF BUSINESS. 20. THE LD. CIT (APPEALS) HAS GIVEN A CATEGORICAL F INDING THAT SECTION 40A (2)(B) CAN BE INVOKED WHEN THE AO FEELS THAT SUCH E XPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO FAIR MARKET VALUE OF GOODS , SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE AND SINCE, THE AO HAS NOT GIVEN A CATEGORICAL FINDING THAT THE EXPENDITURE IN QUESTION IS EXCESSI VE OR UNREASONABLE, HE CANNOT INVOKE THE PROVISIONS OF SECTION 40A(2). O N THIS ASPECT, WE FIND NO INFIRMITY IN THE ORDER OF CIT (APPEALS) BECAUSE IN FACT, NO SUCH FINDING IS GIVEN BY THE A.O. THAT THE AMOUNT PAID IS EXCESSIVE OR UN REASONABLE. 21. REGARDING THE SECOND ASPECT I.E., WHETHER THE E XPENSE WAS FOR BUSINESS PURPOSE OR NOT, A CATEGORICAL FINDING HAS BEEN GIVE N BY THE CIT(APPEALS) THAT THERE IS NO MATERIAL ON RECORD TO SHOW THAT EXPENDI TURE WAS IN THE NATURE OF CAPITAL EXPENDITURE OR NOT FOR THE PURPOSE OF BUSIN ESS. ALTHOUGH IN THE ASSESSMENT ORDER, THE AO HAS STATED THAT THIS EXPEN DITURE WAS NOT INCURRED EXCLUSIVELY FOR THE BUSINESS OR PROFESSION, NO BASI S OR REASON HAS BEEN INDICATED BY THE AO FOR SAYING SO. ON THIS ISSUE A LSO, WE FIND NO INFIRMITY IN THE ITA NOS. 792 & 963/BANG/2013 PAGE 18 OF 22 ORDER OF CIT (APPEALS). ACCORDINGLY, GROUNDS NOS. 7 & 8 OF REVENUES APPEAL ARE ALSO REJECTED. 22. REGARDING GROUND NOS. 9 & 10 IN RESPECT OF DELE TION OF DISALLOWANCE OF RS.1,79,88,838 MADE BY THE AO U/S. 37 BY HOLDING TH AT THIS EXPENSE IS CAPITAL IN NATURE, THE LD. DR SUPPORTED THE ASSESSMENT ORDE R, WHEREAS THE LD. AR OF ASSESSEE SUPPORTED THE ORDER OF CIT(APPEALS). IN P ARTICULAR, OUR ATTENTION WAS DRAWN TO PARA 8.4 OF THE ORDER OF LD. CIT(APPEALS). IT WAS SUBMITTED THAT A CATEGORICAL FINDING HAS BEEN GIVEN BY CIT(APPEALS) THAT THERE WAS NOTHING IN THE INVOICES SUBMITTED BY THE ASSESSEE TO SHOW THE PAYMENTS FOR ACQUISITION OF SHARES AND DECISION WAS TAKEN BY THE AO ON THIS BAS IS THAT THIS PAYMENT IS TOWARDS ACQUISITION OF SHARES WITHOUT ANY BASIS. 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRS T OF ALL, WE REPRODUCE PARA 8.4 FROM THE ORDER OF LD. CIT(APPEALS) WHICH I S AVAILABLE ON PAGE 35 OF HIS ORDER:- 8.4 I HAVE CONSIDERED THE FACTS AND SUBMISSIONS M ADE BY THE APPELLANT AND THE REASONS GIVEN BY THE A.O IN THIS REGARD. THE PAYMENTS OF MANAGEMENT CONSULTANCY FEES PAID TO M/S . LEXICON FINANCE LTD. AND M/S. LEXICON SECURITIES LTD. WAS D ISALLOWED U/S 37 OF THE ACT REJECTING THE EVIDENCE IN THE FORM OF IN VOICES FILED BY THE APPELLANT BEFORE THE A.O ON THE GROUND THAT THE SAI D EXPENDITURE CAN NOT BE ALLOWED AS REVENUE EXPENDITURE. THE A.O ALSO WAS OF THE OPINION THAT THE SAID PAYMENTS WERE TOWARDS ACQUISI TION OF SHARES. THE APPELLANT SERIOUSLY CONTESTED THE FINDINGS OF T HE A.O STATING THAT THE REASONS GIVEN BY THE A.O WERE BASED ON PRESUMPT ION WITHOUT ANY VALID EVIDENCE. IT MAY BE SEEN FROM THE COPIES OF T HE INVOICES OF PAGE NO. S 25 & 26 OF THE ASSESSMENT ORDER THAT THE SAID PAYMENTS WERE PAID AS A CONSULTANCY FEES FOR SETTING JOINT VENTUR E WITH A STAR GROUP. THE EVIDENCE WAS REJECTED WITHOUT ANY CONTRARY MATE RIAL ON RECORD. THERE WAS NOTHING ON THE INVOICES SUBMITTED BY THE APPELLANT TO SHOW THAT THE SAID PAYMENTS WERE FOR ACQUISITIONS OF SHA RES. THE APPELLANT INCURRED THE ABOVE EXPENDITURE FOR THE PURPOSE OF B USINESS OF JOINT ITA NOS. 792 & 963/BANG/2013 PAGE 19 OF 22 VENTURE WITH THE STAR GROUP. THEREFORE, THE SAID PA YMENTS WERE NOT IN THE NATURE OF CAPITAL HENCE, CAN NOT BE DISALLOWED U/S 37 OF THE ACT. 24. AS PER BILL OF LEXICON FINANCE LTD. AVAILABLE A T PAGE 197 OF PB, THIS AMOUNT IS PAID TOWARDS CONSULTATION FEE FOR SETTING UP A JOINT VENTURE WITH STAR GROUP AND THERE IS NO MENTION ABOUT ANY PURCHASE OF SHARES. IN PARA 10.4 OF THE ASSESSMENT ORDER ALSO, IT IS NOTED BY THE AO TH AT NO INVESTMENT HAS BEEN SHOWN IN THE BALANCE SHEET OF ASSESSEE REGARDING AN Y JOINT VENTURE. IN THE SAME PARA, HE HAS GIVEN A FINDING THAT THE SAID EXP ENDITURE IS IN THE NATURE OF CAPITAL EXPENDITURE AND IT IS RELATED TO COST OF AC QUISITION OF SHARES. THIS FINDING OF AO IS WITHOUT ANY BASIS THAT THIS EXPENDITURE IS CAPITAL IN NATURE AND THE SAME IS IN RESPECT OF PURCHASE OF SHARES PARTICULAR LY IN VIEW OF THIS FINDING OF THE A.O. IN THE SAME PARA OF THE ASSESSMENT ORDER T HAT THERE IS NO INVESTMENT SHOWN IN THE BALANCE SHEET OF ASSESSEE REGARDING AN Y JOINT VENTURE AND HENCE, ON THIS ASPECT ALSO, WE DECLINE TO INTERFERE IN THE ORDER OF LD. CIT (APPEALS). 25. REGARDING THE FIRST ASPECT AS TO WHETHER EXPENS ES IN QUESTION IS ALLOWABLE U/S. 37 OR NOT, THIS IS THE OBJECTION OF AO THAT THE GENUINENESS OF EXPENDITURE IS SUSPECT. IN THIS REGARD, THIS WAS THE STATEMENT OF ASSESSEE BEFORE THE CIT (APPEALS) THAT ASSESSEE HAD NEITHER PURCHASED NOR SOLD ANY SHARES. IN THIS CONNECTION, THIS FACT WAS BROUGHT TO THE NOTICE THAT IN FACT, THE SUBSIDIARY COMPANY HAD HELD CERTAIN SHARES AND ASSE SSEE COMPANY HAD RECEIVED NON-COMPETE FEE AND FEES PAID BY THE ASSES SEE IS RELATING TO NEGOTIATING NON-COMPETE AGREEMENT AND RELATED TRANS ACTION. IF AN EFFORT IS MADE FOR A JOINT VENTURE AND THE SAME IS ABORTED, T HEN THE EXPENSES INCURRED FOR THE JOINT VENTURE HAS TO BE ALLOWED AS REVENUE EXPENDITURE. IN THE PRESENT ITA NOS. 792 & 963/BANG/2013 PAGE 20 OF 22 CASE, EXPENSES WERE INCURRED IN RELATION TO JOINT V ENTURE WITH STAR GROUP AND CATEGORICAL FINDING OF AO IS THAT NO SUCH VENTURE H AS TAKEN PLACE AND THEREFORE, WE FIND NO REASON TO INTERFERE IN THE ORDER OF CIT( APPEALS) ON THIS ASPECT OF THE MATTER ALSO. HENCE GROUNDS NOS.9 & 10 ARE ALSO REJ ECTED. 26. REGARDING GROUND NOS. 11 TO 13 OF REVENUES APP EAL WHICH ARE RELATED TO ISSUE IN RESPECT OF DELETION OF ADDITION MADE BY THE AO OF RS.25,59,43,380 AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT, THE LD . DR SUPPORTED THE ASSESSMENT ORDER WHEREAS THE LD. AR OF ASSESSEE SUP PORTED THE ORDER OF LD. CIT(APPEALS). SHE ALSO PLACED RELIANCE ON THE JUDG MENT OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF DCIT V. SHRI RAJIV CHANDRASHEKAR IN ITA NO.305/2015 DATED 23.02.2016. SHE SUBMITTED A COPY OF THE JUDGMENT. SHE POINTED OUT THAT IN THIS CASE, THE ASSESSEE WAS NOT A SHAREHOLDER OF THE LENDER COMPANY AND UNDER THESE FACTS, IT WAS HELD BY THE H ONBLE KARNATAKA HIGH COURT THAT THE MATTER IS COVERED IN FAVOUR OF ASSES SEE BY THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V. HOTEL HILL TOP AS REPORTED IN 313 ITR 116 (RAJ) AND THE MATTER WAS DECIDED BY THE HONBLE KARNATAKA HIGH COURT ALSO IN FAVOUR OF ASSESSEE. IT IS SUBMITTED T HAT IN THE PRESENT CASE ALSO, THE LENDER COMPANIES ARE JUPITER CAPITAL PVT. LTD. AND HINDUSTAN INFRASTRUCTURE PROJECTS AND ENGG. PVT. LTD. AND ON PAGE 27 OF ASSE SSMENT ORDER, THE AO HIMSELF HAS NOTED THE SHAREHOLDING PATTERN OF THESE TWO COMPANIES AND AS PER THE SAME, THE ASSESSEE IS NOT A SHAREHOLDER OF THES E TWO COMPANIES AND THEREFORE, AS PER THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT, NO ADDITION CAN BE MADE U/S. 2(22)(E) OF THE ACT IN RESPECT OF THESE ADVANCES FROM THESE TWO COMPANIES. ITA NOS. 792 & 963/BANG/2013 PAGE 21 OF 22 27. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND FORCE IN THE SUBMISSIONS OF THE LD. AR OF ASSESSEE AND WE FIND T HAT THE DISPUTE IS REGARDING RECEIPT OF LOAN ADVANCED BY THE LENDER COMPANY JUPI TER CAPITAL PVT. LTD. RS.5432.90 LAKHS AND HINDUSTAN INFRASTRUCTURE PROJE CT & ENGG. PVT. LTD. RS.2569.43 LAKHS AND AS PER THE AO ALSO, THE ASSESS EE IS NOT A SHAREHOLDER IN ANY OF THESE TWO COMPANIES. UNDER THESE FACTS, THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF DCIT V. SRI RAJIV CHANDRASHEKAR (SUPRA) IS SQUARELY APPLICABLE WHEREIN IT WAS HELD BY THE HIGH COURT THAT IF THE ASSESSEE IS NOT A SHAREHOLDER IN THE LENDER COMPANY , ADDITION CANNOT BE MADE U/S. 2(22)(E) OF THE I.T. ACT. RESPECTFULLY FOLLOW ING THIS JUDGMENT OF HONBLE KARNATAKA HIGH COURT, WE DECLINE TO INTERFERE IN TH E ORDER OF LD. CIT(APPEALS) ON THIS ISSUE. GROUNDS NOS.11 TO 13 OF REVENUE ARE ALSO REJECTED. 28. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. 29. IN THE COMBINED RESULT, THE APPEAL OF ASSESSEE IS ALLOWED, AND THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS DAY OF NOVEMBER, 2016. (SMT.ASHAVIJAYARAGHAVAN ) ( A.K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 3 RD NOVEMBER, 2016. /AM/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE. ITA NOS. 792 & 963/BANG/2013 PAGE 22 OF 22 1. DATE OF DICTATION .. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P. S. .. 4 DATE ON WHICH THE ORDER IS P LACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT .. 5. DATE ON WHICH THE ORDER COMES BACK TO THE SR. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. IF NOT UPLOADED, FURNISH THE RE ASON FOR DOING SO. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER DOES FOR XEROX & ENDORSEMENT . 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK. 11 THE DATE ON WHICH THE FILE GOES TO TH E ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER. 12 THE DATE ON WHICH THE FILE GOES TO THE DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER 13 DATE OF DISPATCH OF ORDER