Den Networks Ltd., Delhi V. ACIT, New Delhi

ITA 819/DEL/2012

• Counselvise Citation: 81920114 RSA 2012
• Duration Of Justice: 2 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 17-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Keywords: Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI T.S. KAPOOR ITA NO. 819/DEL/2012 ASSTT. YR: 2008-09 DEN NETWORKS LTD., VS. ACIT CIR. 10(1), 236, OKHLA INDUSTRIAL ESTATE, NEW DELHI. PHASE-II, NEW DELHI. PAN: AACCD 6420 E AND ITA NO. 1149/DEL/2012 ASSTT. YR: 2008-09 ACIT CIR. 10(1), VS. DEN NETWORKS LTD., NEW DELHI. 236, OKHLA INDUSTRIAL ESTATE, PHASE-II, NEW DELHI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI TARANDEEP SINGH CA REVENUE BY : MS. ASHIMA NEB SR. DR O R D E R PER R.P. TOLANI, J.M: : THESE ARE CROSS APPEALS, FILED BY THE ASSESSEE AS W ELL AS THE REVENUE ASSAILING THE ORDER OF CIT(A)-XVII, NEW DELHI DATED 19-12-2011 ON RESPECTIVE GRIEVANCES PERTAINING TO A.Y. 2008-09. 2. ONE COMMON GROUND IN BOTH THE APPEALS PERTAINS T O DISALLOWANCE U/S 14A. THE ASSESSEE IS AGGRIEVED AGAINST THE SUSTENA NCE OF DISALLOWANCE OF RS. 37,49,875/- WHEREAS THE REVENUE IS AGGRIEVED AG AINST THE DISALLOWANCE OF RS. 37,91,230/- AS AGAINST DISALLOWANCE OF RS. 75,4 1,875/- MADE BY THE AO U/S 14A READ WITH RULE 8D. ITA 819 & 1149/DEL/12 DEN NETWORKS LTD. 2 2.1. THE OTHER GROUND RAISED IN THE REVENUE APPEAL IS AS UNDER: WHETHER THE LD. CIT(A) UNDER THE FACTS AND CIRCUMS TANCES OF THE CASE AND IN LAW WAS JUSTIFIED IN ALLOWING 60% D EPRECIATION ON PRINTERS, UPS, SCANNER ETC. AS AGAINST NORMAL RA TE OF 15% DEPRECIATION ALLOWED BY THE AO. 3. GROUND NO. 2 OF THE REVENUES APPEAL IS COVERED AGAINST THE REVENUE BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COUR T OF DELHI IN THE CASE OF CIT VS. BSES YAMUNA POWERS LTD. (2010-TIOL-636-HC-D EL-IT) IN ITA NO. 1267/2010 DATED 31-08-2010, ALLOWING DEPRECIATI ON ON COMPUTER ACCESSORIES AND PERIPHERALS AT THE HIGHER RATE OF 6 0%. THE ORDER OF CIT(A) ON THE ISSUE IN QUESTION BEING IN CONFORMITY WITH T HE AFOREMENTIONED DECISION OF HONBLE JURISDICTIONAL HIGH COURT, WE U PHOLD THE ORDER OF CIT(A). CONSEQUENTLY, GROUND NO. 2 TAKEN BY THE REV ENUE IS DISMISSED. 4. APROPOS FIRST GROUND, BRIEF FACTS ARE: THE ASSE SSEE IS A MULTI CABLE OPERATOR ENGAGED IN THE DISTRIBUTION OF ANALOG AND DIGITAL CABLE TELEVISION SERVICES AND WAS INCORPORATED ON 10-7-2007. THIS YE AR IS THE FIRST YEAR OF OPERATIONS, ASSESSEE FURNISHED E-RETURN ON 30-9-200 8 DECLARING A LOSS OF RS. 14,89,72,768/- ALONG WITH SUO MOTU DISALLOWANCE OF RS. 14,676/- U/S 14A. 4.1. DURING THE COURSE OF ASSESSMENT ASSESSING OFFI CER REJECTED THE ASSESSEES WORKING AND DISALLOWED AN AMOUNT OF RS . 75,41,105/- U/S 14A READ WITH RULE 8D, APPLYING RULE 8D(2) FORMULA. AGG RIEVED, ASSESSEE PREFERRED FIRST APPEAL CHALLENGING THE DISALLOWANCE ON VARIOUS GROUNDS INCLUDING A GROUND THAT STATUTORY SATISFACTION HAS NOT BEEN RECORDED BEING NOT SATISFIED WITH THE WORKING OF 14A DISALLOWANCE MADE BY THE ASSESSEE. BESIDES, AO HAS FAILED TO DISCHARGE ITS ONUS IN THE FIRST PLACE IN PROVING THAT THE EXPENSES INCURRED BY THE ASSESSEE HAVE ANY CONN ECTION OR PROXIMATE NEXUS WITH EARNING OF EXEMPT INCOME IN TERMS OF HON BLE SUPREME COURT ITA 819 & 1149/DEL/12 DEN NETWORKS LTD. 3 JUDGMENT IN THE CASE OF WALLFORT STOCK BROKERS 326 ITR 1. ASSESSEE FURTHER CONTENDED THAT: NO INTEREST BEARING FUNDS HAVE BEEN UTILIZED FOR I NVESTMENTS IN MUTUAL FUNDS AND THEREFORE, NO INTEREST IS TOWARDS EARNING OF INCOME THAT IS EXEMPT FROM INCOME TAX (BEING DIVIDE ND ON MUTUAL FUNDS). THEREFORE, RULE 8D OF INCOME TAX RUL ES IS NOT APPLICABLE. PLEASE NOTE THAT COMPANY USED ITS IDLE SHARE CAPITAL AND RESERVES FOR INVESTMENT IN THE MUTUAL FUNDS. 4.2. THE ASSESSEE FILED FOLLOWING BREAK UP OF INTER EST EXPENSES OF RS. 51,76,000/- BEFORE LOWER AUTHORITIES TO DEMONSTRATE THAT NO INTEREST EXPENSES WERE INCURRED FOR EARNING OF EXEMPT INCOME FROM DIV IDEND. S.NO. TYPE OF OAN TOTAL LOAN AMOUNT INTEREST PAID 1. TERM LOANS 7.88 CRORES 31,70,000/- 2. WORKING CAPITAL 2.26 CRORES 16,05,000/- 3. VEHICLE LOANS 0.49 CRORES 4,01,000/- TOTAL INTEREST BEARING FUNDS 10.64 CRORES 51,76,000/- 4.3. IT WAS FURTHER PLEADED THAT THE TOTAL INTEREST BEARING FUNDS OF RS. 10.64 CRORES MENTIONED ABOVE ARE UTILIZED FOR ACQUI RING BUSINESS ASSETS AND INVESTING WORKING CAPITAL REQUIREMENTS TOTALING TO RS. 25.45 CRORES QUA WHICH THE ASSESSEE FURTHER CONTRIBUTED 14.80 CRORE S FROM ITS FUNDS. THUS, THE ENTIRE INTEREST BEARING FUNDS WERE UTILIZED FOR BUS INESS PURPOSE AND NO SUCH FUND WAS USED IN ACQUIRING THE MUTUAL FUND WHICH IN COME IS EXEMPT. THE INVESTMENT OF RS. 98.19 CRORES IN MUTUAL FUNDS AND RS. 51.80 CRORES IN SUBSIDIARY COMPANIES WAS MET OUT OF SHARE CAPITAL O F RS. 215 CRORES WHICH IS APPARENT FROM THE FINANCIAL STATEMENTS FILED BY THE ASSESSEE. ASSESSEE FURTHER RELIED ON HONBLE DELHI HIGH COURT JUDGMENT IN THE CASE OF MAXOPP INVESTMENT LTD. (ITA NO. 687/2009 DATED 18-11-2011) 15 TAXMAN.COM 390. ITA 819 & 1149/DEL/12 DEN NETWORKS LTD. 4 4.4. LD. CIT(A) HOWEVER DID NOT FULLY ACCEPT THE AS SESSEES CONTENTION AND HELD AS UNDER: AS PER THE ABOVE DECISION, RULE 8D(2)(II) OR THE S ECOND COMPONENT IS APPLICABLE ONLY IF THE APPELLANT INCU RS ANY EXPENDITURE BY WAY7 OF INTEREST WHICH IS NOT DIRECT LY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT IN VIEW OF THE ABOVE, AS REGARDS TO DISALLOWANCE OF RS. 38,05,926/ - UNDER RULE 8D(2)(II) THE APPELLANT IS HERBY DIRECTED TO F URNISH THE CASH FLOW STATEMENT REGARDING THE LOANS AND SHARE C APITAL BEFORE THE AO WITHIN 30 DAYS OF RECEIPT OF THIS OR DER TO PROVE THAT THE APPELLANT HAS NOT INCURRED ANY EXPENDITURE BY WAY OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. THE AO IS DIRECTED TO VERIFY TH E SAME AND DELETE THE DISALLOWANCE OF RS. 38,05,926/- UNDER RU LE 8D(2)(II), IF THE SUBMISSIONS OF THE APPELLANT ARE FOUND TO BE CORRECT. AS REGARDS TO DISALLOWANCE OF RS. 37,49,875/- UNDER RULE 8D(2)(II), THE APPELLANTS OWN COMPUTATION FOR 14A DISALLOWANCE IS AN ADMISSION THAT QUALIFIED PERSONS ARE HANDLING THEIR MUTUAL FUNDS PORTFOLIO. THE TOTAL IN VESTMENTS IN MUTUAL FUNDS DURING THE YEAR ARE 98.19 CRORES WHILE THE INVESTMENTS IN SHARES OF THE SUBSIDIARY COMPANY ARE RS. 51.80 CRORES. THE APPELLANT HAD RECEIVED THE DIVIDEND INC OME OF RS. 25,77,300/- DURING THE YEAR AND HAS ESTIMATED THE E XPENDITURE DISALLOWANCE U/S 14A AT RS. 14,676/-. SINE THIS IS ONLY AN ESTIMATE THE PROVISIONS OF RULE 8D(2)(III) IS CLEAR LY APPLICABLE AS THE AO HAD RECORDED THAT HE IS NOT SATISFIED WI TH CORRECTNESS OF THIS ESTIMATE MADE IN THE COMPUTATION STATEMENT BY THE APPELLANT. EVEN THE HONBLE HIGH COURT IN THE MAXOP P INVESTMENT LTD., HAS HELD THAT THE THIRD COMPONENT OF RULE 8D(2)(III) IS AN ARTIFICIAL FIGURE AND ALSO HELD TH AT IN CASES WHERE THE INDIRECT 3EXPENDITURE IS NOT BY WAY OF IN TEREST, RULE OF THUMB FIGURE OF ONE HALF PERCENT OF THE AVERAGE VAL UE OF THE INVESTMENT IS TO BE TAKEN AS EXPENDITURE TO EARN IN COME WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME . IN VIEW OF THE ABOVE DECISION OF HONBLE DELHI HIGH COURT, THE DISALLOWANCE OF RS. 37,49,875/- MADE UNDER RULE 8D( 2)(II) IS UPHELD AND THIS GROUND OF APPEAL IS PARTLY ALLOWED. ITA 819 & 1149/DEL/12 DEN NETWORKS LTD. 5 4.5. AGGRIEVED, ASSESSEE IS BEFORE US. 5. LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT HONB LE DELHI HIGH COURT JUDGMENT IN THE MAXOPP INVESTMENT LTD. JUDGMENT (SU PRA) HAS ANALYSED RULE 8D(2)(II) AND LAID DOWN A METHOD FOR DETERMINA TION OF EXPENDITURE IN RELATION TO EXEMPT INCOME ON THREE COMPONENTS- (I) ASCERTAINMENT OF AMOUNT OF EXPENDITURE INCLUDING I NTEREST EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME; (II) ASCERTAINMENT OF AMOUNT COMPUTED ON THE BASIS OF F ORMULA GIVEN THEREIN IN A CASE WHERE THE ASSESSEE INCURS INTERES T EXPENDITURE WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULA R INCOME OR RECEIPT. (III) THE AMOUNT DISALLOWABLE U/S 14A IS AN ARTIFICIAL F IGURE I.E. ONE HALF PERCENT OF THE AVERAGE VALUE OF THE INVESTMENT . 5.1. IT IS THE AGGREGATE OF THESE THREE COMPONENTS TO WORK OUT THE EXPENDITURE QUA EXEMPT INCOME WHICH CAN BE DISALLOW ED U/S 14A IN TERMS OF SAID RULE. THIS RULE IN RELATION TO WORKING OF E XPENDITURE ATTRIBUTABLE TO EXEMPT INCOME HAS TO ASPECTS (A) DIRECT AND (B) I NDIRECT. THE DIRECT EXPENDITURE IS STRAIGHTAWAY TAKEN INTO ACCOUNT BY V IRTUE OF CLAUSE (I) OF SUB- RULE (2) OF RULE 8D. THE INDIRECT EXPENDITURE, WHIC H IT IS BY WAY OF UNASCERTAINABLE OR MIXED ACCOUNTING OF INTEREST, IS COMPUTED BY THE PRINCIPLE OF APPORTIONMENT, AS INDICATED ABOVE AND IN CASES W HERE THE INDIRECT EXPENDITURE IS NOT BY WAY OF INTEREST, RULE OF APPL YING FIGURE OF ONE HALF PERCENT OF THE AVERAGE VALUE OF THE INVESTMENT IS W ORKED OUT QUA THE EXEMPT INCOME I.E. WHICH DOES NOT OR SHALL NOT FORM PART O F THE TOTAL INCOME, IS TAKEN. ITA 819 & 1149/DEL/12 DEN NETWORKS LTD. 6 5.2. LD. COUNSEL THEN CONTENDS THAT FUNDAMENTALLY A QUESTION ARISES THAT ASSESSEE HAS EARNED TAX FREE DIVIDEND INCOME OF RS. 25.77 LACS AND FURNISHED A WORKING FOR SUO MOTU DISALLOWANCE OF RS. 14,676/ - U/S 14A. THE AO SUMMARILY HELD THE WORKING IN QUESTION NOT IN ACCOR DANCE WITH RULE 8D OF THE I.T. RULES BUT DID NTO RECORD ANY SATISFACTION FOR ITS BEING INCORRECT. IN RESPONSE THERETO ASSESSEE VIDE LETTER DATED 22-11-2 010 REPLIED AS UNDER: NO INTEREST BEARING FUNDS HAVE BEEN UTILIZED FOR I NVESTMENTS IN MUTUAL FUNDS AND THEREFORE, NO INTEREST IS TOWARDS EARNING OF INCOME THAT ARE EXEMPT FROM INCOME TAX (BEING DIVID END ON MUTUAL FUNDS). THEREFORE, RULE 8D OF INCOME TAX RUL ES IS NOT APPLICABLE. PLEASE NOTE THAT COMPANY USED ITS IDLE SHARE CAPITAL AND RESERVES FOR INVESTMENT IN THE MUTUAL FUNDS. CALCULATIONS OF EXPENSES DISALLOWED U/S 14A ARE AS PER ANNEXURE-E. IT ALSO MAY BE NOTED THAT THESE HAVE BE EN DISALLOWED BY THE ASSESSEE COMPANY IN THE COMPUTATI ON OF INCOME FILED ALONG WITH RETURN FOR AY 2008-09. 5.3. THE AO, THEREFORE, WITHOUT CONSIDERING THE FIN ANCIAL STATEMENTS AND CORRECTNESS OF ASSESSEES WORKING U/S 14A, DISALLO WED THE EXPENDITURE, BY MECHANICALLY APPLYING FORMULA PROVIDED BY RULE 8D. LD. CIT(A) HAS GIVEN PART RELIEF WITHOUT CONSIDERING THE ISSUES, FINANCI AL STATEMENTS AND MERITS OF DISALLOWANCE. 5.4. LD. COUNSEL CONTENDS THAT BEFORE LOWER AUTHORI TIES IT WAS FULLY DEMONSTRATED THAT THE INVESTMENT IN MUTUAL FUNDS W AS EXCLUSIVELY MET OUT BY THE SHARE CAPITAL AVAILABLE TO IT WHICH IS A HUG E FIGURE OF RS. 215 CRORES. THE INTEREST BEARING FUNDS OF RS. 10.64 CRORES HAVE BEEN SPECIFICALLY UTILIZED FOR PROCURING THE BUSINESS ASSETS AND WORKING CAPIT AL REQUIREMENTS ALONG WITH OTHER CONTRIBUTION FROM ASSESSEES OWN FUNDS. THUS, THERE IS NO ITA 819 & 1149/DEL/12 DEN NETWORKS LTD. 7 JUSTIFICATION IN HOLDING THAT ANY BORROWED FUND OR INTEREST PAID FOR IT WAS IN ANY WAY ATTRIBUTABLE TO INVESTMENT IN MUTUAL FUND F OR EARNING EXEMPT INCOME. THEREFORE, THE DIRECTIONS OF LD. CIT(A) THO UGH TAKE SUPPORT OF MAXOPP INVESTMENT LTD. JUDGMENT, IN EFFECT RUN CONT RARY TO THE JUDGMENT. THEREFORE, THE CONFIRMATION OF DISALLOWANCE OF RS. 37,49,875/- IS ARBITRARY AND EXCESSIVE. 6. PER CONTRA, LD. DR CONTENDS THAT THERE IS NO MER IT IN THE ARGUMENTS OF LD. COUNSEL FOR THE ASSESSEE THAT ASSESSING OFFICER HAS NOT RECORDED ANY SATISFACTION WHILE REJECTING THE WORKING OF 14A DIS ALLOWANCE PROVIDED BY THE ASSESSEE. BESIDES, ONCE THE PROVISIONS OF SEC. 14A ARE ATTRACTED THE MANDATORY FORMULA OF RULE 8D(2)(III) COMES INTO MOT ION AND THE DISALLOWANCE IS CALLED FOR. 7. LD. COUNSEL FOR THE ASSESSEE IN REPLY CONTENDS THAT THE ORDER OF CIT(A) IN THE PRESENT FACTS AND CIRCUMSTANCES IS UN JUST AND CONTRARY TO RECORD AND HONBLE DELHI HIGH COURT JUDGMENT INASMU CH AS WHEN NO INTEREST BEARING FUNDS ARE UTILIZED FOR ACQUIRING T HE MUTUAL FUNDS, RULE 8D(2)(III) DOES NOT COME INTO PLAY AT ALL. BESIDES, FOR THE EXEMPT DIVIDEND INCOME OF RS. 25,77,300/- AN AMOUNT OF RS. 37,49,87 5/- HAS BEEN DISALLOWED WHICH IS MUCH MORE THAN EVEN THE INCOME EARNED. THU S, THERE IS MANIFEST ABSURDITY AND ARBITRARINESS IN THE ORDER OF CIT(A) . IT IS PLEADED THAT THE ORDER OF CIT(A) ON THIS ISSUE DESERVES TO BE REVERS ED. 8. APROPOS THE REVENUES APPEAL, LD. DR CONTENDS TH AT CIT(A) HAS NO POWER TO SET ASIDE THE MATER BACK TO THE FILE OF AO THEREFORE, THERE IS NO ITA 819 & 1149/DEL/12 DEN NETWORKS LTD. 8 JUSTIFICATION IN DIRECTING THE AO TO VERIFY THE NE XUS OF PAYMENT DISALLOWED U/S 14A OF THE I.T. ACT. 9. LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT IT A MOUNTS TO A TECHNICAL INFIRMITY WHICH IS CURABLE. ON MERITS RELIANCE IS P LACED ON FOLLOWING JUDGMENTS: - HONBLE DELHI HIGH COURT JUDGMENT DATED 18-11-201 1 IN THE CASE OF MAXOPP INVESTMENT LTD. (ITA NOS. 57,683,702/2008 & OTHERS). - ITAT DELHI BENCH ORDER DATED 30-12-2010 IN THE CASE OF M/S MUZAFFARNAGAR DISTT. CO-OP. BANK LTD. (ITA NO. 4604 /DEL/2010 A.Y. 2007-08); - ITAT DELHI BENCH ORDER DATED 24-6-2011 IN THE CASE OF M/S TSL DEFENCE TECHNOLOGIES PVT. LTD. (ITA NO. 2056/DEL/20 11 FOR AY 2004-05). - ITAT DELHI BENCH ORDER DATED 2-3-2012 IN THE CASE O F ACIT VS. MOHAN EXPORTS (P) LTD. 138 ITD 108 (DEL); - ITAT KOLKATA BENCH ORDER DATED 29-7-2011 IN THE CA SE OF BALARAMPUR CHINI MILLS LTD. VS. DCIT 140 TTJ (KOL)( UO) 73. - ITAT PANJI BENCH ORDER DATED 8-3-2013 IN THE CASE O F SESA GOA LTD. VS. JCIT (2013-TIOL-285-ITAT-PANJI). - ITAT MUMBAI BENCH ORDER DATED 13-3-2013 IN THE CASE OF JK INVESTORS (BOMBAY) LTD. VS. ACIT (ITA NO. 7858/MUM/ 2011). 10. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAS GIVEN A COMPL ETE BREAK UP OF THE LOANS TAKEN BY IT AND INTEREST PAID THEREON AND HAS DEMON STRATED THAT THE ENTIRE LOAN OF RS. 10.64 CRORES WAS UTILIZED FOR ACQUIRING BUSINESS ASSETS AND WORKING CAPITAL AMOUNTING TO RS. 25.45 CRORES. NEIT HER THE AO NOR THE CIT(A) HAS DISPUTED OR CONTROVERTED THESE FACTS WHI CH EMANATE FROM THE RECORD. IN THE ABSENCE OF ANY DISPUTE ABOUT THE UTI LIZATION OF BORROWED FUND FOR ACQUISITION OF BUSINESS ASSET AND THERE BEING N O FINDING OF FACT THAT ANY BORROWED FUND WAS USED FOR ACQUISITION OF MUTUAL FU ND, THE ONLY GERMANE ITA 819 & 1149/DEL/12 DEN NETWORKS LTD. 9 LOGICAL CONCLUSION IS THAT MUTUAL FUNDS HAVE NO ATT RIBUTION OF ANY INTEREST INCOME. CONSEQUENTLY, WE UPHOLD THE ASSESSEES CONT ENTION THAT INTEREST BEARING FUNDS WERE NOT UTILIZED FOR ACQUIRING OF MU TUAL FUNDS ON WHICH ASSESSEE HAS EARNED EXEMPT DIVIDEND INCOME. 10.1. IT HAS FURTHER BEEN POINTED OUT THAT ASSESSEE HAS SHARE CAPITAL OF RS. 215 CRORES OUT OF WHICH THE MUTUAL FUNDS WERE ACQUI RED. THE SECOND COMPONENT OF MAXOPP JUDGMENT IS APPLICABLE WHEN SOM E OF THE INTEREST IS FOUND WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PAR TICULAR INCOME OR RECEIPT. IN THE PRESENT CASE ASSESSEE HAS DEMONSTRATED THAT INTEREST PAID IS DIRECTLY ATTRIBUTABLE ONLY TO THE ACQUISITION OF BUSINESS AS SETS AND WORKING CAPITAL AND IT HAS NO NEXUS WITH THE ACQUISITION OF MUTUAL FUNDS. 10.2. IT HAS NOT BEEN DISPUTED THAT ASSESSEE FURNIS HED A WORKING OF SUO MOTU DISALLOWANCE U/S 14A ON INDIRECT EXPENSES. FROM THE RECORD WE FIND, NONE OF THE LOWER AUTHORITIES HAVE OBJECTIVELY POINTED OUT ANY FAULT IN THIS WORKING. THEY HAVE ADDRESSED THE ISSUE ONLY ON THE BASIS OF INTEREST WHICH IS NOT ATTRIBUTABLE OR APPORTIONABLE IN VIEW OF ABOVE FIND INGS. IN BOTH THE JUDGMENTS I.E. MAXOPP AND GODREJ BOYCE, SCOPE OF RE ASONABLE DISALLOWANCE OF INDIRECT EXPENSES HAS BEEN INDICATED. SINCE, ASS ESSEES WORKING HAS NOT BEEN OBJECTIVELY CHALLENGED, IN OUR VIEW THERE IS N O FACTUAL CHALLENGE TO THE DISALLOWANCE. IN THE CIRCUMSTANCES, WE HAVE TO INFE R THAT THE SUO MOTU WORKING OF ASSESSEE IS REASONABLE IN DISALLOWANCE Q UA SEC. 14A. IN THESE CIRCUMSTANCES WE ARE OF THE CONSIDERED VIEW THAT C IT(A) SHOULD NOT HAVE SUSTAINED THE DISALLOWANCE OF RS. 37,49,875/- BY RE COURSING TO RULE 8D(2)(III). WHEN THE INTEREST COMPONENT IS NOT DISP UTED TOWARDS ACQUISITION OF BUSINESS ASSETS, THE APPLICATION OF RULE 8D(2)(I II) DOES NOT ARISE. IN THIS EVENTUALITY, WE ARE OF THE VIEW THAT CIT(A) WAS NOT JUSTIFIED IN UPHOLDING ITA 819 & 1149/DEL/12 DEN NETWORKS LTD. 10 THE DISALLOWANCE AND SENDING IT TO AO FOR VERIFICAT IONS. THE GROUND RAISED BY THE ASSESSEE IS THUS ALLOWED. 10.3. THE REVENUES GROUND IN THIS BEHALF IS AS UND ER: WHETHER THE LD. CIT(A) UNDER THE FACTS AND CIRCUMS TANCES OF THE CASE AND IN LAW WAS CORRECT TO DIRECT THE AO TO VERIFY THE NEXUS OF PAYMENT DISALLOWED U/S 14A OF THE I.T. ACT READ WITH RULE 8D OF THE I.T. RULES AFRESH? 10.4. SINCE WE HAVE HEARD BOTH THE PARTIES AND HELD THAT NO BORROWED FUNDS HAVE BEEN USED FOR ACQUIRING MUTUAL FUNDS, THEREFOR E, NO INTEREST ELEMENT IS ATTRIBUTABLE TO EARNING OF EXEMPT INCOME. THUS THER E IS NO REQUIREMENT OF VERIFYING NEXUS AS ASSESSEE HAS DEMONSTRATED THIS F ACT FROM RECORD. CONSEQUENTLY THERE IS NO REQUIREMENT OF FURTHER VER IFICATION. 10.5. IN VIEW THEREOF ASSESSEES APPEAL IS ALLOWED AND REVENUES APPEAL IS DISMISSED. 11. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED AND THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 28-2-2014. SD/- SD/- ( T.S. KAPOOR ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 28-02-2014. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR ITA 819 & 1149/DEL/12 DEN NETWORKS LTD. 11