DCIT, Circle-17(2), Hyd, Hyderabad V. VBC Ferro Alloys Ltd., Hyd, Hyderabad

ITA 801/HYD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2538 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-02-2018
• Assessment Year: 2009-2010
• Appeal Filed On: 30-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H PHANI RAJU
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Principle of natural justice; Earning of tax free income; Proportionate interest; Revised return
• Section: 143(3); 14A; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. A.Y. APPELLANT RESPONDENT 835/HYD/16 2009-10 M/S. VBC FERRO ALLOYS LIMITED, HYDERABAD [PAN: AAACV7258A] DY. COMMISSIONER OF INCOME TAX, CIRCLE-3(3), HYDERABAD 801/HYD/16 DY. COMMISSIONER OF INCOME TAX, CIRCLE-17(2), HYDERABAD M/S. VBC FERRO ALLOYS LIMITED, HYDERABAD [PAN: AAACV7258A] FOR ASSESSEE : SHRI V. SIVA KUMAR, AR FOR REVENUE : SHRI H. PHANI RAJU, DR DATE OF HEARING : 09-02-2018 DATE OF PRONOUNCEMENT : 21-02-2018 O R D E R PER B. RAMAKOTAIAH, A.M. : THESE ARE CROSS-APPEALS BY ASSESSEE AND REVENUE AGA INST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) -5, HYDERABAD, BOTH DATED 29-02-2016. 2. BRIEFLY STATED, ASSESSEE-COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF FERRO ALLOYS, FI LED ITS RETURN OF INCOME ON 23-09-2009 DECLARING NET TAXABLE INCOME AT NIL M/S. VBC FERRO ALLOYS LTD., :- 2 -: AND LATER ON FILED A REVISED RETURN ON 25-06-2010 DEC LARING NET LOSS OF RS. 6,30,31,889/-. THE CASE WAS SELECTED F OR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S. 143(3) DETERMINING THE LOSS AT RS. 60,94,828/-. WHILE COMPLETING THE ASSESSM ENT, THE ASSESSING OFFICER (AO) DISALLOWED THE CLAIM OF INTER EST AND FINANCE CHARGES TO BANKERS AND OTHERS U/S. 36(1)(II I) OF THE INCOME TAX ACT [ACT]. AO NOTICED THAT THE ASSESSEE HAD C LAIMED SUBSTANTIAL DEDUCTION ON ACCOUNT OF INTEREST AND FINANCE CHARGES TO BANK AND OTHERS (RS. 5,69,37,061/-). AS P ER THE BALANCE SHEET AS ON 31-03-2009, ASSESSEE HAD SECURED LOANS AGGREGATING TO RS. 10,68,00,085/- AS AGAINST RS. 9,28, 26,372/- AS ON 31-03-2008. SIMILARLY SECURED LOAN LIABILITY WAS RS. 17,58,25,760/- (AGAINST RS. 17,53,52,860/-). IT WAS F URTHER NOTICED THAT AS PER THE SAID BALANCE SHEET, THE ASSESSEE HAS TOTAL INVESTMENTS OF RS.1,43,21,96,137/- AS ON 31-03-20 09. ASSESSEE CLAIMED THAT IT EXPANDED ITS ACTIVITIES IN THE P OWER SECTOR FOR WHICH INVESTMENTS WERE MADE IN KONASEEMA GA S POWER LTD. DURING THE ASSESSMENT PROCEEDINGS IT WAS EXP LAINED THAT ASSESSEE-COMPANY MADE INVESTMENTS IN EARLIER YEAR S IN KGPL (FORMERLY KONASEEMA EPS OAKWELL POWER LTD. (KEO PL) AND RS. 9.9 CRORES IN OTHER COMPANIES. DURING THE PR EVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION, I T MADE FURTHER INVESTMENT OF RS. 2,82,67,573/- IN THE SHARE APPLICATION MONEY OF M/S.KRAEL. IT WAS SUBMITTED THAT SIN CE THE FERRO ALLOYS IS A POWER INTENSIVE INDUSTRY AND POW ER CHARGES ACCOUNT FOR ABOUT 50% OF THE COST OF PRODUCTION , IT HAD PROPOSED TO SET UP 65 MEGA WATT COAL BASED CAPTIVE POWER PLANT IN ASSOCIATION WITH M/S.KRAEL. ASSESSEE STATED TH AT AS PER THE UNDERSTANDING, ASSESSEE WILL HOLD 26% OF EQUI TY IN M/S. VBC FERRO ALLOYS LTD., :- 3 -: M/S. KRAEL AND CAN DRAW POWER AT CHEAPER RATES FOR TH E PURPOSE OF ITS BUSINESS OF MANUFACTURE OF FERRO ALLO YS. ASSESSEE ALSO SUBMITTED THAT IT HAD MADE THE INVESTMENTS OUT OF INTERN AL ACCRUALS AND NOT OUT OF BORROWINGS WITH THE SOLE INTEN TION OF DRAWING POWER FROM THE POWER PLANT AT A CHEAPER PRICE. 2.1. THE AO OBSERVED KONASEEMA OAKWELL POWER LIMITED, HAS NOT STARTED ITS COMMERCIAL PRODUCTION. AO FORMED AN OPINION THAT IF ASSESSEE HAD NOT INVESTED ITS FUNDS IN KGPL, IT WOULD HAVE UTILISED ITS FUNDS FOR ITS OWN BUSINESS WITHOUT HAVING THE NECESSITY TO BORROW MONEY FROM BANKS AND OTHER INCURRING HUGE INTEREST BURDEN. AO RELYING UPON THE D ECISION OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF V. 1. BA BY AND CO. (254 ITR 248) AND HON'BLE PUNJAB AND HARYANA HIGH C OURT IN THE CASE OF ABHISHEKH INDUSTRIES (286 ITR 1), HELD THA T ASSESSEE HAS INVESTED INTEREST BEARING FUNDS IN SHARE CAPITAL OF OTHER COMPANIES, WHEREFROM NO INTEREST WAS RECEIVED. THEREFORE, PROPORTIONATE INTEREST OUT OF THE TOTAL INTERES T CLAIMED AS EXPENDITURE WAS DISALLOWED U/S. 36(1)(III ) OF THE ACT. 2.2. WHILE WORKING OUT INTEREST ON INVESTMENTS AO APPLIED THE OF AVERAGE BPLR (BENCH-MARK PRIME LENDIN G RATE) OF 16.82% AND WORKED OUT THE CORRESPONDING INTEREST AT RS. 24,76,23,390/-. HOWEVER, CONSIDERING THE CLAIM OF IN TEREST AND FINANCE CHARGES TO BANK AND OTHERS AT 5.69 CRORES, TH E AO RESTRICTED IT TO RS. 5,69,37,061/- U/S. 36(1)(III) OF THE ACT IE. ENTIRE CLAIM. M/S. VBC FERRO ALLOYS LTD., :- 4 -: 3. BEFORE THE LD.CIT(A), IT WAS CONTENDED THAT INVESTMENT OF RS. 1,34,31,00,000/- IN KGPL AND RS. 9,90,94,064/- IN OTHER COMPANIES WERE MADE IN THE EAR LIER YEARS. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION , ASSESSEE HAD MADE FRESH INVESTMENTS OF RS. 2,82,67,5 73/- IN KARTHIK RUKMINI ALLOYS LTD.. EXPLAINING THE SOURCES F OR THE SAID INVESTMENTS MADE DURING THE YEAR, IT WAS SUBMITTE D THAT FROM SALE PROCEEDS OF FERRO ALLOYS, THE INVESTMENTS IN KARTHIK RUKMINI WAS MADE. IT WAS SUBMITTED THAT NO PART OF THE BORROWED FUNDS OF THE YEAR WAS UTILISED FOR MAKING TH E SAID INVESTMENTS EITHER EARLIER OR DURING THE YEAR. ASSESSE E CONTENDED THAT INVESTMENT MADE IN KGPL WAS FOR BUSINESS PURPOSES ONLY, AS ON ACCOUNT OF SUCH INVESTMENT, ASSE SSEE WOULD BE ABLE TO DRAW QUALITY POWER AT LOWER RATE FOR ITS FERRO ALLOYS PLANT. ASSESSEE SUBMITTED THAT THE ITAT, HYDERABAD IN ASSESSEE'S OWN CASE FOR AYS. 2005-06, 2004-05 AND 2 003-04 IN ITA NOS. 1763 AND 842/HYD/08 AND ITA NO.919/HYD/06 DATED 03-11-2009 DELETED THE DISALLOWANCE OF INTEREST MADE B Y THE AO FOR THOSE YEARS. 4. LD.CIT(A) FOLLOWING THE ORDERS OF ITAT IN EARLI ER YEARS AND ORDER OF CIT(A) IN AY. 2010-11 HAD ALLOWE D ASSESSEES CONTENTIONS AS UNDER: 6.10 THE COMMISSIONER OF INCOME TAX (APPEALS) III VIDE THE APPEAL NO.03021 DCIT 3(3)/CIT(A)-II, HYD/2014-15 FO R ASSESSMENT YEAR 2010-11, FOLLOWING THE ABOVE ORDERS OF HON'BLE ITAT DIRECTED THE ASSESSING OFFICER TO ALLOW THE TOTAL INTEREST OF RS .3,23,11,701 FOR THE ASSESSMENT YEAR 2010-11. M/S. VBC FERRO ALLOYS LTD., :- 5 -: 6.11 IN TUNE WITH THE DIRECTIONS GIVEN BY THE HONOU RABLE ITAT THE ASSESSING OFFICER VERIFIED WHETHER THE INVESTME NTS MADE BY THE APPELLANT WERE FOR THE PURPOSE OF BUSINESS OR NOT A ND PASS ORDER U/S 143(3) READ WITH SECTION 254, ON 15 MARCH 2014 FOR BOTH THE YEARS 2007-08 AND 2008-09. THE ASSESSING OFFICER HAS RECO RDED THAT THE INVESTMENT WAS MADE FOR THE PURPOSE OF BUSINESS IN ORDER TO PURCHASE THE POWER AT CONCESSIONAL RATE. 6.12 IN VIEW OF THE ABOVE ORDERS OF THE JURISDICTIO NAL ITAT IN ASSESSEES OWN CASE, THE FINDINGS OF AO IN AY 2007- 08 AND 2008-09 AND OPINION OF CIT(A)-III FOR AY 2010-11, I AM OF T HE OPINION THAT NO DISALLOWANCE OF INTEREST U/S. 36(1) COULD BE MADE I N RESPECT OF THE INVESTMENT IN KGPL AS ALSO THOSE OF RS. 7,96,73,563 /- IN SHARES OF OTHER COMPANIES, WHICH HAVE ALREADY BEEN CONSIDERED BY THE HON'BLE ITAT IN THE APPELLANT'S APPEAL FOR THE EARLIER YEAR S. 4.1. HOWEVER, WITH REFERENCE TO THE INVESTMENT MADE IN THE YEAR, HE WITHOUT GIVING OPPORTUNITY TO ASSESSEE, PR OCEEDED TO INVOKE THE PROVISIONS OF SECTION 14A AND AFTER DISC USSING VARIOUS CASE LAW, FINALLY CONFIRMED THE DISALLOWANCE OF AN AMOUNT OF RS. 3,91,90,153/- AS UNDER: 6.17 THUS, APPLYING RULE 8D(II), WHICH PROVIDES TH AT IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTR IBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY: = A * (B/C) WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR ; B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARI NG IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAS T DAY OF THE PREVIOUS YEAR ; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; ACCORDINGLY THE QUANTUM OF INTEREST TO BE DISALLOWE D IS M/S. VBC FERRO ALLOYS LTD., :- 6 -: = 5,69,37,061 X (145,80,62,350/211,83,32,755) = RS. 3,91,90,153 THUS, I DIRECT THE AO TO DISALLOW INTEREST OFRS. 3, 91,90,153 INSTEAD OF RS 5,69,37,061 IN ACCORDANCE WITH THE PROVISIONS OF SECTION 14A OF THE ACT. HENCE, THE GROUND IS PARTLY ALLOWED. 5. ON THE RELIEF GIVEN BY THE LD.CIT(A), REVENUE I S AGGRIEVED AND RAISED THE FOLLOWING GROUNDS: 2. THE LD.CIT(A) ERRED IN HOLDING THAT NO DISALLOW ANCE OF INTEREST U/S. 36(1) COULD BE MADE IN RESPECT OF INV ESTMENT IN KGPL AS ALSO THOSE OF RS. 7,96,73,563/- IN SHARES OF OTHER COMPANIES. 3. THE LD.CIT(A) ERRED IN RESTRICTING THE DISALLOWA NCE OF INTEREST TO RS. 3,91,90,153/- BY APPLYING ONLY RULE 8D(2)(II ) WHEREAS THE APPLICATION OF RULE 8D(2)(III) OF THE INCOME TAX RU LES, 1962 WAS IGNORED. GROUND NOS. 1 & 4 ARE GENERAL IN NATURE. 5.1. ON THE DISALLOWANCE CONFIRMED U/S. 14A, ASSESS EE HAS RAISED THE FOLLOWING GROUNDS AND ADDITIONAL GROUN DS: GROUNDS OF APPEAL 1. THE ORDER OF THE COMMISSIONER OF INCOME-TAX (AP PEALS)-5, HYDERABAD DATED 29-02-2016 IS ERRONEOUS, CONTRARY T O LAW AND FACTS OF THE CASE. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N LAW IN DIRECTING THE ASSESSING OFFICER TO DISALLOW INTEREST OF RS. 3 ,91,90,153/- FOR THE ASSESSMENT YEAR 2009-10 APPLYING SEC.14A R.W.R.8D(2 )(II) ON THE GROUND THAT EXPENSES INCURRED IN RELATION TO INCOME NOT CHARGEABLE TO TAX ARE DISALLOWABLE. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO SEE THAT THE APPELLANT MADE ITS INVESTMENTS (BOTH OLD AND DURING THE YEAR) OUT OF ITS OWN FUNDS AND THAT TOO DUE TO BUSINESS EXPEDIEN CY BUT DID NOT UTILISE ANY BORROWED FUNDS AND THEREFORE THERE IS N O JUSTIFICATION FOR SUSTAINING DISALLOWANCE OF INTEREST OF RS.3,91,90,1 53/-. COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE SEEN THAT M/S. VBC FERRO ALLOYS LTD., :- 7 -: HON'BLE INCOME TAX APPELLATE TRIBUNAL IN SIMILAR CI RCUMSTANCES HELD THAT DISALLOWANCE OF INTEREST IS NOT WARRANTED IN T HE FACTS OF THE APPELLANT'S CASE. 4. FOR ALL OF THE ABOVE AND SUCH OTHER GROUNDS AS M AY BE URGED AT THE TIME OF HEARING IT IS MOST RESPECTFULLY PRAYED THAT THIS HON'BLE TRIBUNAL MAY BE PLEASED TO DIRECT THE RESPONDENT HE REIN TO DELETE THE DISALLOWANCE OF INTEREST OF RS.3,91,90,153/-. ADDITIONAL GROUNDS 1. WITHOUT PREJUDICE TO GROUND NOS.2 AND 3 RAISED IN THE APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIRECTING DISALLOWANCE OF RS.3,91,90,153 U/S.14A R.W.RULE 8D( 2)(II). 2. WITHOUT PREJUDICE TO GROUND NOS.2 AND 3 RAISED I N THE APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIRECTING DISALLOWANCE U/S.14A R.W. RULE 8D(2)(II) WITHOUT AF FORDING AN OPPORTUNITY TO THE APPELLANT TO EXPLAIN ITS CASE. 3. WITHOUT PREJUDICE TO GROUND NO.2 AND 3 RAISED IN THE APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIRECTING DISALLOWANCE U/S.14A R.W. RULE 8D(2)(II) EVEN THOUG H THE APPELLANT DID NOT RECEIVE ANY EXEMPT INCOME FROM THE IMPUGNED INV ESTMENTS IN THE YEAR UNDER ACCOUNT. 4. WITHOUT PREJUDICE TO GROUND NOS.2 AND 3 RAISED I N THE APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE RESTRICTED THE DISALLOWANCE UNDER SEC.14A TO THE DI VIDEND EARNED DURING THE YEAR UNDER ACCOUNT. ADDITIONAL GROUNDS BEING LEGAL IN NATURE, ARE ADMITTE D AS THEY DO NOT REQUIRE ANY FACTUAL VERIFICATION. 6. IT WAS THE CONTENTION OF LD.DR THAT CIT(A) ERRED IN GIVING RELIEF AND HE SUPPORTED THE ORDER OF AO. 6.1. LD. COUNSEL IN HIS REPLY SUBMITTED THAT THE ISSUE CONTENDED IN REVENUES APPEAL WAS CRYSTALISED IN EARL IER YEARS AS FOR BUSINESS PURPOSES. THE SAME ARE CONSIDERED A S FOR M/S. VBC FERRO ALLOYS LTD., :- 8 -: BUSINESS PURPOSES ONLY AND REFERRED TO THE FINDINGS O F AO IN CONSEQUENTIAL ORDERS IN THE LATER YEAR. HE THEREFORE S UBMITTED THAT THE INVESTMENTS IN KRAEL WERE FOUND TO BE FOR THE BUSINESS PURPOSES, AS PER THE CONSEQUENTIAL ORDER IN AY. 2010- 11. SO THE ORDER OF CIT(A) ON THIS ISSUE IS NOT COR RECT. FURTHER, HE REFERRED TO THE CALCULATION OF DISALLOWANCE TO SUBMI T THAT EVEN THE INVESTMENT IN KGPL AND OTHER COMPANIES HELD TO BE FOR THE PURPOSE OF BUSINESS WERE CONSIDERED FOR DISA LLOWANCE WHEN ONLY RS. 2,82,67,573/-WAS THE INVESTMENT MADE DU RING THE YEAR. THUS, THE CALCULATION OF DISALLOWANCE U/S. 8D(II) IS NOT AS PER THE PROVISIONS. HE SUBMITTED THAT DIVIDEND EA RNED DURING THE YEAR WAS RS. 59,000/- ONLY. 7. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE FINDINGS OF LD.C IT(A) HOLDING THAT THE INVESTMENTS ARE FOR BUSINESS PURPOSES AND NO AMOUNT OF INTEREST CAN BE DISALLOWED U/S. 36(1)(III). THE ORDER OF LD. CIT(A) IS AS PER THE FINDING OF FACTS BY AO IN CONSEQUENTIAL PROCEEDINGS AND IN TUNE WITH THE ORDERS OF ITAT IN EARLIER YEARS. TO THAT EXTENT, THE ORDER OF CIT(A) AN D FINDINGS UPTO PARA 6.12 ARE CONFIRMED. THERE IS NO MERIT IN REVENUES GROUNDS AS AO HAS GIVEN CONSEQUENTIAL ORDERS ACCEPTIN G ASSESSEE CONTENTIONS ON VERIFICATION, WHEN THE MATTER W AS REMANDED TO HIM EVEN IN LATER YEAR OF AY. 2010-11. I N THE RESULT, APPEAL OF REVENUE IS DISMISSED. 8. COMING TO THE APPEAL OF ASSESSEE, WE ARE NOT IN AGREEMENT WITH THE ORDER OF CIT(A) PARTIALLY DISALLOWI NG THE AMOUNT. FIRST OF ALL, HE HAS NOT GIVEN ANY OPPORTUNI TY TO M/S. VBC FERRO ALLOYS LTD., :- 9 -: ASSESSEE BEFORE INVOKING THE PROVISIONS OF SECTION 14 A, WHICH AO HAS NOT CONSIDERED. AGREED THAT HE HAS COTERMINOUS POWERS AS THAT OF AO, BUT HE HAS TO FOLLOW THE PRINCIP LES OF NATURAL JUSTICE BY GIVING AN OPPORTUNITY TO ASSESSEE TO EXPLAIN. ON THAT REASON, THE ORDER OF CIT(A) IS NOT SUSTAINABLE . SECONDLY, HAVING GIVEN A FINDING THAT THE INVESTMENTS AR E FOR THE PURPOSES OF BUSINESS, INCLUDING THE IMPUGNED INVE STMENT IN KRAEL (AS PER THE AO ORDER IN LATER YEAR AS WELL) , HOW THE SAME CAN BE CONSIDERED UNDER RULE 8D(II) IS NOT EXPL AINED. RULE 8D(II) ENVISAGES ONLY THE INTEREST WHICH IS NOT D IRECTLY ATTRIBUTABLE. HAVING GIVEN A FINDING THAT THE INTEREST PAID IS FOR THE PURPOSE OF INVESTMENT IN BUSINESS AND ALLOWING THE SAME U/S. 36(1)(III), THE SAME CANNOT BE CONSIDERED AS DI RECTLY NOT ATTRIBUTABLE INTEREST. WHEN THERE IS DIRECT NEXUS WITH BUSINESS, THE SAME CANNOT BE CONSIDERED AGAIN U/R 8D( II). THEREFORE, THE DISALLOWANCE OF INTEREST UNDER RULE 8D( II) DOES NOT ARISE. TO THAT EXTENT, THE ORDER OF CIT(A) IS NOT CORRECT FACTUALLY AS WELL AS LEGALLY. MOREOVER, WHILE EXAMI NING THE FRESH INVESTMENT OF RS. 2,82,67,573/- IN KRAEL DURING THE YEAR, IF ANY INTEREST ALLOWABLE TO THAT INVESTMENT OUT OF BORROWED FUNDS, THE CORRESPONDING INTEREST IS DIRECTLY DISALLOWABLE U/S. 36(1)(II). BUT, HE GAVE A FINDING THAT THE INVESTMENT IS FOR THE PURPOSE OF BUSINESS, CONSEQUENT TO FINDING OF AO IN LATER YEAR. WHILE INVOKING RULE 8D (II), HE SHOULD HAVE AT BEST CONSIDERED THAT AMOUNT OF INVESTMENT FOR PROPORTIONATE DISALLOWANCE, BUT DIRECTLY HE TOOK ENTIRE AVERAGE OF ENTIRE INVESTMENT AND DISALLOWED, EVEN THE INTEREST ALLOWABLE UNDER THE HEAD BUSINESS. THE ORDER OF CIT(A) IS TH US BASED ON MISCONCEPTIONS AND WRONG APPRECIATION OF FACTS AND LAW THUS, M/S. VBC FERRO ALLOYS LTD., :- 10 -: NOT SUSTAINABLE. HENCE, HIS ORDER AND FINDINGS FROM PARAS 6.13 TO 6.17 ARE THUS, SET ASIDE. 9. NEITHER THE AO NOR THE CIT(A) HAS CONSIDERED ANY AMOUNT FOR DISALLOWANCE UNDER RULE 8D(III). THEREFOR E, THIS FORUM CANNOT INVOKE THE SAID RULE. CONSEQUENTLY, THE ADDITIONAL GROUND NO. 4 NEED NOT BE ADJUDICATED. EVEN THOUGH THE PRINCIPLES LAID DOWN IN M/S. KAMADHENU SUKRIT PVT. LTD., VS. ITO IN ITA NO. 460/HYD/2017 DT. 22-11-2017 WAS R ELIED ON BY THE COUNSEL FOR ASSESSEE, WE ARE OF THE OPINION TH AT DISALLOWANCE U/S. 14A CANNOT BE MADE/RESTRICTED, BY TH IS FORUM AS THERE IS NOTHING TO DISALLOW UNDER RULE 8D( II) AND AO OR CIT(A) HAS NOT DISALLOWED ANY AMOUNT UNDER RULE 8 D(III). THE GROUNDS ARE ACCORDINGLY CONSIDERED ALLOWED. 10. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED AN D APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST FEBRUARY, 2018 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 21 ST FEBRUARY, 2018 TNMM M/S. VBC FERRO ALLOYS LTD., :- 11 -: COPY TO : 1. VBC FERRO ALLOYS LIMITED, 6-2-913/914, 3 RD FLOOR, PROGRESSIVE TOWERS, KHAIRATABAD, HYDERABAD. 2. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(3), HYDERABAD. 3. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-17(2), HYDERABAD. 4. CIT(APPEALS)-5, HYDERABAD 5. PR.CIT-5, HYDERABAD. 6. D.R. ITAT, HYDERABAD. 7. GUARD FILE.