M/s. Hotz Industries Ltd., New Delhi V. DCIT (OSD), New Delhi

ITA 876/DEL/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8096 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 28-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 22-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEV RAMKA
• Keywords: Earning of tax free income; Wholly owned subsidiary
• Section: 143(3); 14A; 115JB; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C NEW DELHI) BEFORE SHRI I.C. SUDHIR AND SHRI L .P. S A HU ITA NO. 876 /DEL/201 2 ASSESSMENT YEAR: 200 8 - 09 HOTZ INDUSTRIES LTD., VS. DCIT(OSD), 32 - HANUMA N ROAD, CIT - IV, NEW DELHI. NEW DELHI. (PAN: AAAC H0092G ) (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI SALIL AGGARWA L , ADV. & SHRI SHAILESH GUPTA, FCA DEPARTM EN T BY: SHRI RAJEEV RAMKA , SR. DR DATE OF HEARING : 0 3 . 0 2 .201 6 DATE OF PRONOUNCEMENT: 29 : 0 4 .201 6 ORDER PER I.C. SUDHIR : JUDICIAL MEMBER THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER ON TH E FOLLOWING GROUNDS: 1. T HAT THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FACT S IN UPHOLDING THE DISALLOWANCE UNDER SEC. 14A READ WITH RULE 8D OF RS.1,22,48,177 BY MERELY GIVING A RELIEF OF RS.4,95,635 AND DIRECTING THE ASSESSING OFFICER TO RECOMPUTED TH E DISALLOWANCE UNDER SEC. 14A READ WITH RULE 8D. 1.1 THAT WHILE UPHOLDING THE AFORESAID DISALLOWANCE, THE LEARNED CIT(APPEALS) HAS OVERLOOKED THAT, THE ASSESSEE HAD COMPUTED DISALLOWANCE OF RS.40,23,829 UNDER SECTION 14A READ WITH RULE8D AND AS SUCH, DISALLOWANCE SUSTAINED IN DISREGARD OF THE CLAIM OF THE APPELLANT IS CONTRARY TO LAW AND, HENCE UNTENABLE. IN FACT, EVEN THE LEARNED ASSESSING OFFICER HAS OVERLOOKED SUCH 2 COMPUTATION OF DISALLOWANCE, WHILE MAKING THE DISALLOWANCE OF RS.1,22,48,177 IN THE O RDER OF ASSESSMENT. 1.2 THAT THE LEARNED CIT(APPEALS) FURTHER FAILED TO APPRECIATE THE FACT THAT ASSESSEE COMPANY MAINTAINS ACCOUNTS SEPARATELY FOR EACH DIVISION AND SUCH INTEREST PAID ON TERM LOANS OF TEXTILE DIVISION WAS PURCHASE OF SUBSTANTIAL MACHINERY, TH E SAME WAS NOT AN INTEREST WITHIN THE SCOPE OF RULE 8D(2)(II) OF THE I.T. RULES. 1.3 THAT, MERE FACT THAT THERE WAS A COMMON BANK ACCOUNT COULD NOT BE A GROUND TO ASSUME AND, CONCLUDE THAT INTEREST OF RS.91,21,827 WAS NOT UTILIZED FOR MACHINERY AND, USED FOR MAKING INVESTMENT. THE FINDING IS FACTUALLY AND, LEGALLY INCORRECT AND THUS, UNSUSTAINABLE. 2. THAT THE LEARNED CIT(APPEALS) HAS ALSO ERRED BOTH IN LAW AND ON FACTS IN UPHOLDING A DISALLOWANCE OF RS.26,25,571 OUT OF INTEREST PAID AND CLAIMED AS DEDUCTION UNDER SEC. 36(1)(III) OF THE ACT. 2.1 THAT THE LEARNED CIT(APPEALS) HAS FAILED TO APPRECIATE THAT INTEREST FREE FUNDS WERE FAR IN EXCESS OF INTEREST FREE ADVANCES AND SUCH ADVANCES WERE GIVEN TO WHOLLY OWNED SUBSIDIARY COMPANIES, IT COULD NOT LEGALLY BE VALIDLY CONCLUDED THAT, ANY DISALLOWANCE WAS WARRANTED. 2.2 THAT THE DISALLOWANCE SUSTAINED IS OTHERWISE ARBITRARY, MISCONCEIVED AND IT NOT ONLY OVERLOOKS JUDICIAL PRONOUNCEMENTS OF BOTH APEX COURT AND, JURISDICTIONAL HIGH COURT AND, BUT ALSO FACTUAL POSI TION ON RECORD. IN FACT, EACH OF THE FINDINGS RECORDED BELOW ARE CONTRARY TO LAW AND FACTS AND, THEREFORE, UNTENABLE. 3 3. THAT THE LEARNED CIT(APPEALS) HAS GROSSLY ERRED IN LAW AND ON FACTS IN SUSTAINING A DISALLOWANCE OF RS.4,59,225 ON ACCOUNT OF INTEREST FREE ADVANCES GIVEN TO OTHERS. 3.1 THAT THE LEARNED CIT(APPEALS) HAS IGNORED THE FACT THAT SUMS OF RS.1,20,00,000 GIVEN TO MR.ASHWIN CHANDOK AND RS,1,33,00,000 TO M/S. AGGARWAL DEVELOPERS PVT. LTD. WERE GIVEN FOR PURCHASE OF PROPERTIES IN STATE OF GOA AND DELHI FOR WHICH REQUIRED CONFIRMATIONS AND STATEMENT OF ACCOUNTS WERE PRODUCED BEFORE THE ASSESSING OFFICER, WHO IN UTTER DISREGARD OF THE DOCUMENTS ON RECORD MADE A DISALLOWANCE OF RS.4,59,225 ON ACCOUNT OF INTEREST FREE ADVANCES TO OTHERS. 3.2 THAT THE L EARNED CIT(APPEALS) HAS FURTHER IGNORED THE BASIC FACT THAT THE ASSESSEE FURNISHED THE CONFIRMATIONS AND OTHER DOCUMENTARY EVIDENCES TO ESTABLISH THE FACT THAT THE ADVANCES WERE GIVEN IN NORMAL COURSE OF BUSINESS AND THE ASSESSING OFFICER COULD HAVE ISSUED SUMMONS TO THE ABOVE SAID PARTIES OR COULD HAVE ASKED THE ASSESSEE TO PRODUCE THE ABOVE PARTIES, WHICH HE FAILED TO DO SO AND MADE THE ABOVE DISALLOWANCE ON MERE SURMISES, CONJECTURE AND SUSPICION. 4. THAT THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING A DISALLOWANCES OF RS.46,790 ON ACCOUNT OF LOANS AND ADVANCES WRITTEN OFF. 5. THAT THE LEARNED CIT(APPEALS) HAS FURTHER ERRED BOTH IN LAW AND ON FACTS AND, ON FACTS IN NOT DELETING THE ADJUSTMENT MADE TO THE BOOK PROFIT UNDER SEC. 115J B OF THE ACT ON ACCOUNT OF DISALLOWANCE OF RS.1,22,48,177 UNDER SEC. 14A READ WITH RULE 8D OF THE RULES. THUS, 4 ENHANCEMENT OF BOOK PROFIT FROM RS.50.14 LACS TO RS.172.62 LACS IS ENTIRELY ILLEGAL, MISCONCEIVED AND, WITHOUT JURISDICTION. 2. HEARD AND CONSI DERED THE ARGUMENTS ADVANCED BY THE PARTIES IN VIEW OF ORDERS OF THE AUTHORITIES BELOW, MATERIAL AVAILABLE ON RECORD AND THE DECISIONS RELIED UPON. 3. GROUND NOS. 1, 1.1 TO 1.3: THE RELEVANT FACTS ARE THAT DURING THE YEAR IN ITS RETURN OF INCOME THE ASSES SEE HAS DECLARED LOSS OF RS.2,93,28,600. IN THE ASSESSMENT FRAMED UNDER SEC. 143(3) OF THE ACT, THE ASSESSING OFFICER HA D , HOWEVER, ASSESSED THE INCOME AT RS.1,72,62,244 CONSISTING OF DISALLOWANCES ON THE ABOVE HEADS QUESTIONED IN THE APPEAL. 3.1 THE ASSE SSEE COMPANY IS RUNNING A TEXTILE PROCESS HOUSE AND A HOSPITALITY DIVISION ALONG WITH INVESTMENT IN STOCK AND SECURITIES . THE ASSESSING OFFICER NOTED THAT A BIG PART OF INCOME REVOLVES AROUND SALE PURCHASE OF EQUITY, DIVIDEND INCOME AND CAPITAL GAIN AND TH AT FUNDS HAVE BEEN UTILIZED TO THE GREAT EXTENT TO EARN THIS PART OF INCOME. HE WAS THUS OF THE VIEW THAT THE ASSESSEE HAS INCURRED EXPENSES TO MANAGE ITS INVESTMENT WHICH HAVE YIELDED EXEMPT INCOME OR WHICH MAY YIELD EXEMPT INCOME. HE NOTED THAT THE ASSES SEE HAS FAILED TO CALCULATE SUCH EXPENSES IN A REASONABLE MANNER TO ASCERTAIN THE TRUE AND CORRECT PICTURE OF ITS INCOME AND EXPENSES. THE ASSESSING OFFICER ACCORDINGLY COMPUTED SUCH EXPENSES AT RS.1,22,48,177 AS PER THE PROVISIONS OF SEC. 14A READ WITH RU LE 8D. THE 5 LEARNED CIT(APPEALS) HAS, HOWEVER, DIREC TED THE ASSESSING OFFICER TO REWORK THE DISALLOWANCE CONSIDERING THE INTEREST OF RS.1,72,86,481 AFTER SUBTRACTING RS.4,95,635 I.E. THE INTEREST PAID ON CAR LOAN. 4 . IN SUPPORT OF THE GROUNDS, THE LEAR NED AR SUBMITTED THAT OUT OF THE TOTAL INTEREST EXPENDITURE DEBITED IN THE PROFIT AND LOSS ACCOUNT AMOUNTING TO RS.1,77,81,116, WHICH SHOULD HAVE BEEN REDUCED BY INTEREST SPECIFICALLY WITH REGARD TO CAR LOAN AMOUNTS TO RS.4,94,635 AND INTEREST PAID ON TERM LOAN AMOUNTING TO RS.91,22,827 PERTAINING TO TEXTILE DIVISION WHERE NO INVESTMENT WAS MADE AND NO EXEMPT INCOME WAS EARNED AND AS SUCH INTEREST PORTION AMOUNTING TO RS.81,63,654 SHOULD HAVE ONLY BEEN TAKEN FOR WORKING OUT DISALLOWANCE UNDER RULE 8D(2)(III ) I.E. THE INTEREST PORTION WHICH CANNOT BE IDENTIFIED WHETHER IT HAS BEEN GONE TO EARN EXEMPT INCOME OR TAXABLE INCOME. HE SUBMITTED THAT FOR WORKING OUT AVERAGE VALUE OF INVESTMENTS UNDER RULE 8D(2)(II) AND (III) ONLY THOSE INVESTMENTS SHOULD HAVE BEEN C ONSIDERED WHICH HAD YIELDED EXEMPT/TAX FREE INCOME AND NOT THE ENTIRE INVESTMENT, WHICH HAS BEEN DONE BY THE ASSESSING OFFICER. THE LEARNED AR SUBMITTED THAT FOR WORKING OUT AVERAGE VALUE OF TOTAL ASSETS UNDER RULE 8D(2)(II) ONLY TOTAL OF FIXED AND CURRENT ASSETS SHOULD HAVE BEEN TAKEN AND NOT THE NET OF TOTAL ASSETS I.E. AFTER SUBTRACTING TOTAL ASSETS BY CURRENT LIABILITY AS DONE BY THE ASSESSING OFFICER. 6 4 . 1 THE LEARNED AR SUBMITTED THAT THE ASSESSEE REVISED THE WORKING UNDER SEC. 14A READ WITH RULE 8D AT RS.64,11,091 AS AGAINST RS.40,23,829 EARLIER WORKED OUT BEFORE THE ASSESSING OFFICER. THE LEARNED CIT(APPEALS) HAS, HOWEVER, FOLLOWING THE DECISION OF SPECIAL BENCH OF THE ITAT IN THE CASE OF CHEM INVEST LTD. VS. ITO 124 TTJ 577 HAS HELD THAT ENTIRE I NVESTMENT HA S TO BE CONSIDERED FOR WORKING OUT DISALLOWANCE UNDER SEC. 14A READ WITH RULE 8D AND THERE IS NO NEED TO SEGREGATE INVESTMENT ON WHICH EXEMPT INCOME HAS BEEN EARNED AND ON WHICH EXEMPT INCOME HAS NOT BEEN EARNED. THE LEARNED CIT(APPEALS) DIRECT ED THAT RS.4,95,635 I.E. INTEREST PAID ON CAR LOAN IS TO BE EXCLUDED FROM INTEREST PORTION WHILE WORKING OUT DISALLOWANCE UNDER RULE 8D(2)(II), HOWEVER, WITH RESPECT TO INTEREST PAID BY TEXTILE DIVISION AMOUNTING TO RS.91,22,827 , T HE LEARNED CIT(APPEALS) H ELD THAT SINCE SEPARATE BANK ACCOUNT HAVE NOT BEEN MAINTAINED HENCE THE SAME CANNOT BE EXCLUDED. 4 .2 T HE LEARNED AR POINTED OUT THAT DISALLOWANCE UNDER SEC. 14A READ WITH RULE 8D SHOULD HAVE BEEN RESTRICTED TO RS.64,11,091 I.E. AS PER THE WORKING GIVEN BY THE ASSESSEE . F OR CLEAR UNDERSTANDING THE APPROACH OF THE AUTHORITIES BELOW AS WELL AS THE SUBMISSI ON OF THE ASSESSEE ON THE ISSUE, THE LEARNED AR HAS SUMMARIZED THE SAME AS UNDER: S. NO. DATE EVENT 1 . - ASSESSEE COMPANY IS RUNNING A TEXTILE PROCESS H OUSE AND A HOSPITALITY DIVISION ALONG WITH INVESTMENTS IN STOCKS AND SECURITIES. EVENTS W.R.T. DISALLOWANCE OF RS. 1, 22, 48, 177 / - UNDER SECTION 14A R.W. RULE 8D (GROUND NOS. 1 TO 1.3) 2. 29.09.2008 RETURN OF INCOME FILED BY THE ASSESSEE APPELLANT AN D NO DISALLOWANCE WAS MADE UNDER SECTION 14A OF THE ACT, HOWEVER, DIVIDEND CLAIMED EXEMPT UNDER SECTION 10(34) AMOUNTED TO RS. 89, 67, 440/ - AND UNDER SECTION 10(35) AMOUNTED TO RS. 72, 22, 420/ - (KINDLY SEE PAGE 2 TO 3 OF THE PAPER BOOK). 3. - AO VIDE O RDER SHEET ENTRY DIRECTED ASSESSEE TO PRODUCE WORKING OF DISALLOWANCE UNDER SECTION 14A R.W.R. 8D (KINDLY SEE PAGE 2, PARA 3.1 OF AOS ORDER). 4. 03.12.2010 REPLY TO AO, FURNISHING WORKING OF DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D AMOUNTING TO RS. 4 0, 23, 829 / - , HOWEVER, IT WAS AGAIN REITERATED BY ASSESSEE APPELLANT THAT NO EXPENDITURE HAS BEEN INCURRED BY ASSESSEE TO EARN EXEMPT INCOME (KINDLY SEE PAGES 135 TOO 177 OF THE PAPER BOOK, RELEVANT PAGES 135, 137 (WORKING U/R 8D) AND 138 (DETAILS OF INV ESTMENTS ON WHICH EXEMPT INCOME IS EARNED) 180 (DETAILS OF LOANS RAISED AND ITS UTILIZATION IN SPECIFIED BUSINESS ASSETS)). 5 . 27.12.2010 AO VIDE ORDER UNDER SECTION 143 (3) MADE A DISALLOWANCE OF RS. 1, 22, 48, 177 / - U/S 14A R.W. RULE 8D, GIST OF AOS F INDINGS ARE (KINDLY SEE PAGES 2 TO 5 OF AOS ORDER) : MAKING INVESTMENTS AND EARNING EXEMPT INCOME IS NOT A PASSIVE ACTIVITY AND REQUIRES CONSCIOUS 8 MANAGEMENT DECISIONS . FOLLOWED GODREJ & BOYCE MFG. CO. LTD. VS DCIT IN ITA NO. 626/ 2010 AND ITAT SPECIAL BEN CH IN THE CASE OF CHEM INVEST LTD. VS ITO REPORTED IN 317 ITR 86. DISALLOWANCE U/S 14A R.W. RULE 8D WORKED OUT AT RS. 1, 22, 48, 177/ - . (KINDLY SEE PAGES 2 TO 5 OF AOS ORDER). 6 . - SUBMISSIONS FILED BEFORE CIT (A) DATED 17.11.2011 , GIST OF SUCH SUBMISSIO NS ARE (KINDLY SEE PAGES 331 TO 365 OF THE PAPER BOOK) : APPELLANT COMPANY SUBMITTED THAT OUT OF THE TOTAL INTEREST EXPENDITURE DEBITED IN THE PROFIT & LOSS ACCOUNT AMOUNTING TO RS. 1, 77, 81, 116/ - , WHICH SHOULD HAVE BEEN REDUCED BY INTEREST SPECIFICALLY W .R.T. CAR LOAN AMOUNTS TO RS. 4, 94, 635/ - AND INTEREST PAID OF TERM LOAN AMOUNTING TO RS. 91, 22, 827/ - PERTAINS TO TEXTILE DIVISION WHERE NO INVESTMENT WAS MADE AND NO EXEMPT INCOME WAS EARNED AND AS SUCH, INTEREST PORTION AMOUNTING TO RS. 81, 63, 654/ - SHOULD HAVE ONLY BEEN TAKEN FOR WORKING OUT DISALLOWANCE UNDER RULE 8D(2)(III) I.E. THE INTEREST PORTION WHICH CANNOT BE IDENTIFIED WHETHER IT HAS BEEN GONE TO EARN EXEMPT INCOME OR TAXABLE INCOME (KINDLY SEE PAGE 331 AND 338 OF THE PAPER BOOK) . FOR WORKIN G OUT AVERAGE VALUE OF INVESTMENTS UNDER RULE 8D(2)(II) AND (III) ONLY THOSE INVESTMENTS SHOULD HAVE BEEN CONSIDERED WHICH HAD YIELDED EXEMPT/ TAX FREE INCOME AND NOT THE ENTIRE INVESTMENTS (WHICH HAS BEEN DONE BY AO) (KINDLY SEE PAGE 334 OF THE PAPER BOOK ) . FOR WORKING OUT AVERAGE VALUE OF TOTAL ASSETS UNDER RULE 8D(2)(II) ONLY TOTAL OF FIXED AND CURRENT ASSETS SHOULD HAVE BEEN TAKEN AND NOT THE NET OF TOTAL ASSETS I.E. AFTER SUBTRACTING TOTAL ASSETS BY CURRENT LIABILITIES (AS DONE BY AO) (KINDLY SEE PAGE 334 OF THE PAPER BOOK) . ASSESSEE APPELLANT REVISED THE WORKING UNDER SECTION 14A R.W. RULE 8D AT RS. 64, 11, 091/ - AS AGAINST RS. 40, 23, 829/ - WORKED OUT BEFORE AO (KINDLY SEE PAGES 334 TO 335 A OF THE PAPER BOOK ). 7 . 2 7.12 .2011 CIT (A) FINDINGS ON PA GES 4 TO 5 OF HIS ORDER, PARA 5, GIST OF SUCH FINDINGS ARE AS BELOW: 9 FOLLOWING ITAT DELHI SPECIAL BENCH CHEMINVEST LTD. VS ITO REPORTED IN 124 TTJ 577, LD. CIT (A) HELD THAT ENTIRE INVESTMENTS HAVE TO BE CONSIDERED FOR WORKING OUT DISALLOWANCE UNDER SECTIO N 14A R.W. RULE 8D AND THERE IS NO NEED TO SEGREGATE INVESTMENTS ON WHICH EXEMPT INCOME HAS BEEN EARNED AND ON WHICH EXEMPT INCOME HAS NOT BEEN EARNED (KINDLY SEE PAGES 4 AND 5 OF THE ORDER) . INTEREST ON CAR LOAN AMOUNTING TO RS. 4, 95, 635/ - WAS DIRECTED TO BE EXCLUDED TO BE EXCLUDED FROM INTEREST PORTION WHILE WORKING OUT DISALLOWANCE UNDER RULE 8D(2)(II), HOWEVER, WITH RESPECT TO INTEREST PAID BY TEXTILE DIVISION AMOUNTING TO RS. 91, 22, 827/ - , LD CIT (A) HELD THAT SINCE SEPARATE BANK ACCOUNTS HAVE NOT B EEN MAINTAINED AND HENCE, THE SAME CANNOT BE EXCLUDED. (KINDLY SEE PAGES 4 TO 5 OF CIT (A)S ORDER) 4 . THAT AT THE OUTSET, THE ASSESSEE APPELLANT WOULD SEEK TO MAKE CONTENTIONS IN BRIEF WITH RESPECT TO ITS GROUND NO. 1 TO 1.3 WHICH ARE WITH RESPECT TO WRONG SUSTENANCE OF DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D AMOUNTING TO RS. 1, 22, 48, 177/ - , SUBMISSION FOR THE SAME ARE AS FOLLOWS: 4.1 THAT TO BEGIN WITH , DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D SHOULD HAVE BEEN RESTRICTED TO RS. 64, 11, 091/ - I.E. AS PER THE WORKING GIVEN BY ASSESSEE APPELLANT (KINDLY SEE PAGES 334 TO 335A OF THE PAPER BOOK) . IN THIS REGARD, A COMPARATIVE READING OF DISALLOWANCES MADE BY ASSESSEE, ENHANCED BY AO AND SUSTAINED BY CIT (A) SHOULD BE MADE, AS BELOW: PART ICULARS DISALLOWED BY ASSESSEE DURING ASSESSMENT PROCEEDINGS DISALLOWED BY AO VIDE ORDER DATED 27 .12.2010 DISALLOWANCE BY ASSESSEE REVISED BEFORE CIT (A) SUSTAINED BY CIT (A) VIDE ORDER DATED 27.12.2011 RULE 8D (2) ( I I) NIL NIL NIL NIL RULE 8D (2) (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY : SEE PAGE 137 AND 138 OF PAPER BOOK. A = RS. 17, 45, 471 / - (TOOK NET OF INTEREST EXPENDITURE AND INTEREST RECEIPT) . SEE PAGE 4 OF AOS ORDER A = RS. 1, 77, 81, 116/ - ( TOOK ENTIRE INTEREST EXPENDITURE DEBITED IN P&L ACCOUNT SEE PAGE 9 OF PAPER BOOK) SEE PAGE 331 AND 335 A OF PAPER BOOK A = RS. 81, 63, 654/ - (TOOK ONLY THAT PORTION OF INTEREST WHICH WAS NOT IDENTIFIABLE AS TO WHETHER, THE SAME WAS INCURRED FOR EARNING TAXABLE SEE PAGE 4 AND 5 OF CIT (A)S ORDER . A = RS. 1, 72, 86, 481/ - (ONLY GAVE RELIEF OF RS. 4, 94, 635/ - I .E. FOR INTEREST PAID ON CAR LOAN). 11 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 TOT AL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR ; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, B = RS. 67, 49, 19, 096/ - (TOOK AVERAGE OF ONLY THOSE INVESTMENTS FROM WHICH DIVIDEND / EXEMPT INCOME HAS BEEN RECEIVED). C = RS. 181, 45, 27, 933 / - (TOOK AVERAGE OF TOTAL VALUE OF ASSETS) A*B/C = RS. 6, 49, 233 / - B = RS. 81, 17, 7 4, 486/ - ( TOOK ENTIRE INVESTMENTS AS APPEARING IN BALANCE SHEET, SEE PAGE 8 OF PAPER BOOK). C = RS. 176, 24, 76, 679 / - ( TOOK AVERAGE VALUE OF TOTAL ASSETS AS REDUCED BY CURRENT LIABILITIES AND PROVISIONS) A*B/C = RS. 81, 89, 455 / - INCOME OR TAX FREE INCOME). B = RS. 67, 49, 19, 096/ - (TOOK AVERAGE OF ONLY THOSE INVESTMENTS F ROM WHICH DIVIDEND / EXEMPT INCOME HAS BEEN RECEIVED). C = RS. 181, 45, 27, 933 / - (TOOK AVERAGE OF TOTAL VALUE OF ASSETS) A*B/C = RS. 30, 36, 496/ - B = RS. 81, 17, 74, 486 ( TOOK ENTIRE INVESTMENTS AS APPEARING IN BALANCE SHEET, SEE PAGE 9 OF PAPER BOOK). C = RS. 176, 24, 76, 679 / - ( TOOK AVERAGE VALUE OF TOTAL ASSETS AS REDUCED BY CURRENT LIABILITIES AND PROV ISIONS) A*B/C = RS. 79, 61, 935/ - 12 ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS Y EAR ; RULE 8D (2) (III) AN AMOUNT EQUAL TO ONE - HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. 0.5% OF RS. 67, 49, 19, 096 / - = RS. 33, 74, 595 / - (TOOK ONLY THOSE INVESTMENTS ON WHICH EXEMPT INCOME HAS BEEN EARNED) 0.5% OF RS. 81, 17, 44, 486/ - = RS. 40, 58, 722 / - (TOO ENTIRE INVESTMENTS ) 0.5% OF RS. 67, 49, 19, 096 / - = RS. 33, 74, 595 / - (TOOK ONLY THOSE INVESTMENTS ON WHICH EXEMPT INCOME HAS BEEN EARNED) 0.5% OF RS. 81, 17, 44, 486/ - = RS. 40, 58, 722 / - (TOO ENTIRE INVESTMENTS) TOTAL DISALLOWANCE U/S 14A R.W. RULE 8D RS. 40, 23, 829 / - RS. 1, 22, 48, 177/ - RS. 64, 11, 091/ - RS. 1, 20, 20, 657 / - 4.2 THAT THE BASIC REASON OF DIFFERENCE BETWEEN ASSESSEES WORKING AND AOS WORKING IS W.R.T. ITEMS A AND B IN RULE 8D(II), WHICH CAN BE UNDERSTOOD FROM BELOW AND SUBMISSIONS FOR THE SAME HAS ALSO BEEN INCORPORATE IN THE CHART BELOW: PARTICULARS AS TAKEN BY ASSESSEE COMPANY AS TAKEN BY AO AND SUSTAINED BY CIT (A) (SECTION 8D(2)(II) IN A CASE WHERE THE ASSESSEE HAS INCURRED ASSESSEE HAS TAKEN THIS TO BE 81, 63, 654/ - (SEE PAGE 331 OF PAPER BOOK). APPELLANT COMPANY HAD SUBMITTED THAT AO TOOK THE ENTIRE INTEREST EXPENDITUR E AS DEBITED IN P&L 13 EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH I S NOT DIRECTLY ATTRIBUTABLE 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 ; OUT OF THE TOTAL INTEREST EXPENDITURE DEBITED IN THE PROFIT & LOSS ACCOUNT AMOUNTING TO RS. 1, 77, 81, 116/ - , INTEREST SPECIFICALLY W.R.T. CAR LOAN AMOUNTS TO RS. 4, 94, 635/ - AND INTEREST PAID OF TERM LOAN AMOUNTING TO RS. 91, 22, 827/ - PERTAINING TO TEXTILE DIVISION WHERE NO INVESTMENT WAS MADE AND NO EXEMPT INCOME WAS EARNED SHOULD HAVE BEEN REDU CED AND AS SUCH, INTEREST PORTION AMOUNTING TO RS. 81, 63, 654/ - SHOULD HAVE ONLY BEEN TAKEN FOR WORKING OUT DISALLOWANCE UNDER RULE 8D(2)(III) I.E. THE INTEREST PORTION WHICH CANNOT BE IDENTIFIED WHETHER IT HAS BEEN GONE TO EARN EXEMPT INCOME OR TAXABLE I NCOME (KINDLY SEE PAGE 331 AND 338 OF THE PAPER BOOK) . HERE, THE APPELLANT COMPANY WOULD SEEK TO PLACE ITS RELIANCE ON THE JUDGMENT OF HONBLE KOLKATA ITAT IN THE CASE OF ACIT VS CHAMPION COMMERCIAL LTD. ACCOUNT AMOUNTING TO RS. 1, 77, 81, 116/ - - AS RELATABLE TO INVESTMEN T, HOWEVER, THE LEARNED CIT (A) HAS REDUCED THE FIGURE OF RS. 4, 94, 635/ - ON ACCOUNT OF INTEREST ON CAR LOAN AND IN DOI NG SO, BOTH THE LOWER AUTHORITIES HAVE IGNORING THE FACT THAT INTEREST AMOUNTING TO RS. 81, 63, 654/ - SHOULD ALSO HAVE BEEN REDUCED FOR WORKING OUT INTEREST EXPENDITUR E TO BE 14 REPORTED IN 152 TTJ 241 , WHEREIN, HONBLE BENCH HAS HELD THAT: PARA 11 THERE IS NO DISPUTE ABOUT WORKING OF THIS METHOD SO FAR AS RULE 8D(2)(I) AND (III) IS CONCERNED. IT IS ONLY WITH REGARD TO THE COMPUTATION UNDER RULE 8D(2)(II) THAT THE ASSESSING OFFICER AND THE CIT(A) HAVE DIFFERENT APPROACHES. THIS PR OVISION ADMITTEDLY DEALS WITH A SITUATION IN WHICH THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT . CLEARLY, THEREFORE, THIS SUB CLAUSE SEEKS TO AL LOCATE COMMON INTEREST EXPENSES TO TAXABLE INCOME AND TAX EXEMPT INCOME. IN OTHER WORDS, GOING BY THE PLAIN WORDINGS OF RULE 8D(2)(II) WHAT IS SOUGHT TO BE ALLOCATED IS EXPENDITURE BY WAY OF INTEREST..WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICU LAR INCOME OR RECEIPT AND THE ONLY CATEGORIES OF INCOME AND RECEIPT, SO FAR AS SCHEME OF RULE 8 D IS CONCERNED, ARE MUTUALLY EXCLUSIVE DISALLOWED UNDER RULE 8D(2)(II), AS THE SAID EXPENDITUR E WAS DIRECTLY IN RELATION TO TEXTILE DIVISION, WHEREIN, NO INVESTMEN T WAS MADE AND AS SUCH, NO EXEMPT INCOME WAS EARNED . 15 CATEGORIES OF TAX EXEMPT INCOME AND RECEIPT AND TAXABLE INCOME AND RECEIPT. NO OTHER CLASSIFICATION IS GERMANE TO TH E CONTEXT IN WHICH RULE 8 D IS SET OUT, NOR DOES THE SCHEME OF SECTION 14A LEAVE ANY AMBIGUITY ABOUT IT. THUS, A LOOK AT THE ABOVE CASE LAW, WOULD CLEARLY BRING HOME THE POINT THAT NO DISALLOWANCE CAN BE MADE U/S 14A R.W. RULE 8D WHEREIN THE INTEREST EXP ENDITURE ARE DIRECTLY RELATABLE TO ANY TAXABLE INCOME OR RECEIPT, AS IS THE CASE OF THE APPELLANT COMPANY WITH REGARDS TO INTEREST EXPENDITURE OF RS. 91, 22, 827/ - AND THUS, THE SAME NEEDS TO BE EXCLUDED WHILE WORKING OUT FIGURE OF INTEREST UNDER RULE 8D(2 )(II). RULE 8D (2) (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE HERE THE APPELLANT COMPANY TOOK AVERAGE OF ONLY THOSE INVESTMENTS WHICH HAD EARNED EXEMPT INCOME DURING THE YEAR AND AVERAGE OF ALL THOSE INVESTMENTS AO TOOK THE AVERAGE OF TOTAL INVESTMEN TS AND THE SAID STAND OF AO WAS 16 PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY P ARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY : A B C B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN TH E BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR ; AMOUNTED TO RS . 67, 49, 19, 096/ - . THIS STAND OF THE APPELLAN T COMPANY IS SUPPORTED BY THE JURISDICTIONAL HIGH COURT IN FOLLOWING CASES: (A) COMMISSIONER OF INCOME - TAX - IV VS. HOLCIM INDIA (P.) LTD. (DEL HC) REPORTED IN 272 CTR 282. (B) ACB INDIA LTD. VS ACIT (DEL HC) REPORTED IN 615/2014. (C) CIT VS BHARAT HOTELS LTD. (DELHI HC) IN ITA NO. 535, 536/DEL/2015 . ALSO UPHELD BY CIT (A) FOLLOWING JUDGMENT OF ITAT DELHI SPECIAL BENCH IN THE CASE OF CHEMINVES T LTD. VS CI T REPORTED IN 124 TTJ 577 . THIS STAND OF AO AND CIT (A) IS CONTRARY TO THE JUDGMENT OF JURISDICTIO NAL HIGH COURTS AND AS SUCH, ONLY THOSE INVESTMEN TS SHOULD BE ALLOWED TO BE CONSIDERED ON WHICH ASSESSEE APPELLANT HAS EARNED EXEMPT INCOME. RULE 8D (2) (I I) IN A CASE WHERE THE ASSESSEE HAS ASSESSEE APPELLANT TOOK ONLY AVERAGE VALUE OF TOTAL ASSETS AMOUNTING TO RS. 181, BOTH LEARNED AO AND CIT (A) TOOK 17 INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY : A B C WHERE 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 ; 45, 27, 933/ - , WHICH IS WHAT HAS ALSO BEEN MENTIONED UNDER RULE 8D(2)(II) AVERAGE VALUE OF TOTAL ASSETS AS REDUCED BY CURRENT LIABILITIES AND PROVISIONS AT RS. 176, 24, 76, 679, WHICH IS NOT THE MANDATE OF RULE 8D(2)(II) AND AS SU CH, ONLY THE AVERAGE VALUE OF TOTAL ASSETS, AS TAKEN BY ASSESSEE APPELLANT SHOULD BE TAKEN FOR THE PURPOSES OF RULE 8D(2)(II). RULE 8D (2) (III) AN AMOUNT EQUAL TO ONE - HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, HERE THE APPELLANT COMPANY TOOK AVERAGE OF ONLY THOSE INVESTMENTS WHICH HAD EARNED EXEMPT AO TOOK THE AVERAGE OF TOTAL INVESTMEN 18 INCOME FROM WHICH DOES NOT O R SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR INCOME DURING THE YEAR AND AVERAGE OF ALL THOSE INVESTMENTS AMOUNTED TO RS. 67, 49, 19, 096/ - . THIS STAND OF THE APPELLAN T COMPANY IS SUPPORTED BY THE JURISDICTIONAL HIGH COURT IN FOLLOWING CASES: (D) COMMISSIONER OF INCOME - TAX - IV VS. HOLCIM INDIA (P.) LTD. (DEL HC) REPORTED IN 272 CTR 282. (E) ACB INDIA LTD. VS AC IT (DEL HC) REPORTED IN 374 ITR 108 . (F) CIT VS BHARAT HOTELS LTD. (DELHI HC) IN ITA NO. 535, 536/DEL/2015 . TS AND THE SAID STAND OF AO WAS ALSO UPHELD BY CIT (A) FOLLOWING JUDGMENT OF I TAT DELHI SPECIAL BENCH IN THE CASE OF CHEMINVES T LTD. VS CIT REPORTED IN 124 TTJ 577 . THIS STAND OF AO AND CIT (A) IS CONTRARY TO THE JUDGMENT OF JURISDICTIO NAL HIGH COURTS AND AS SUCH, ONLY THOSE INVESTMEN TS SHOULD BE ALLOWED TO BE CONSIDERED ON WHICH AS SESSEE APPELLANT HAS EARNED EXEMPT INCOME. 19 4. 3 THE LEARNED AR PLACED RELIANCE ON THE FOLLOWING DECISIONS: I) CIT VS. HOLCIM INDIA P. LTD. ITA NO. 486/2014 AND 299/2014, DECISION DATED 5.9.2014 (DEL.); II) ACB INDIA LTD. VS. ACIT ITA NO. 615/2 014 DECISION DATED 24.3.2015 (DEL.); III) QUIPPO TELECOM INFRASTRUCTURE LTD. VS. ACIT ITA NO. 4931/DEL/2010 (A.Y. 2007 - 08) ORDER DATED 18.2.2011; IV) INTEGRATED DATA BASES INDIA LTD. VS. DCIT ITA NO. 4582/DEL/2013 (A.Y. 2009 - 10) - ORDER DAT ED 6.2.2015. 4. 4 THE LEARNED AR SUBMITTED FURTHER THAT THE ASSESSING OFFICER HAS INVOKED THE PROVISIONS UNDER SECTION 14A READ WITH RULE 8D WITHOUT RECORDING HIS COMMENTS ADVERSELY ON THE WORKING OF THE DISALLOWANCE MADE UNDER THE ABOVE PROVISIONS FURNISH ED BY THE ASSESSEE. THUS, ON THE SOLE GROUND, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT MAINTAINABLE. IN THIS REGARD, HE PLACED RELIANCE ON THE FOLLOWING DECISIONS: I) CIT V TAIKISHA ENGINEERING INDIA LTD . 370 ITR 338 (DEL.); II) JOINT INVESTME NT (P) LTD. VS. CIT - 233 TAXMANN 117 (DEL.); & I II ) MAXOPP INVESTMENT LTD. VS. CIT - 347 ITR 27 2 (DEL.); 5. THE LEARNED SENIOR DR ON THE OTHER HAND TRIED TO JUSTIFY THE FIRST APPELLATE ORDER ON THE ISSUE. HE SUBMITTED THAT I T APPEARS FROM THE VERY 20 ASSE SSMENT ORDER THAT THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE WORKING OF DISALLOWANCE OF EXPENSES UNDER SEC. 14A READ WITH RULE 8D MADE BY THE ASSESSEE. SIZEABLE OVERDRAFT WAS THERE TO SUPPORT THE EXISTENCE OF BORROW ED FUNDS. AS PER THE BALANCE SHEET, LOAN AND OVERDRAFT WERE INCREASED. NO SUCH DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER IN EARLIER YEARS DOES NOT MEAN THAT THE ASSESSING OFFICER IS PREVENTED TO ACT DIFFERENTLY ON THE BASIS OF FACTS OF THE CAS E ON THE ISSUE DURING THE YEAR BEFORE HIM. HE SUBMITTED THAT RULE 8D(I)(II) PRESCRIBES AS TO WHAT TYPE OF INVESTMENT IS TO BE CONSIDERED. HE PLACED RELIANCE IN THE CASE OF CAM INVEST LTD. VS. ITO & ORS. ITA NO. 87/DEL/2008 (A.Y.2002 - 03) AND 2004 - 05 (ORDER DATED 05.08.2009 (SB) . 6. WE FIND THAT THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE THAT OUT OF THE TOTAL INTEREST EXPENDITURE DEBITED IN THE PROFIT AND LOSS ACCOUNT AMOUNTING TO RS.1,77,81,116, INTEREST SPECIFICALLY WITH REGARD TO CAR LOAN AMOUNTING TO RS.4,94, 634 AND INTEREST PAID OF TERM LOAN AMOUNTING TO RS.91,22,827 PERTAINED TO TEXTILE DIVISION WHERE NO INVESTMENT WAS MADE AND NO EXEMPT INCOME WAS EARNED SHOULD HAVE BEEN REDUCED AND AS SUCH INTEREST PORTION AMOUNTING TO RS.81,63,654 SHOULD HAVE ONLY BEEN TA KEN FOR WORKING OUT DISALLOWANCE UNDER RULE 21 8D(2)(III). THE ASSESSING OFFICER TOOK THE ENTIRE INTEREST EXPENDITURE AS DEBITED IN PROFIT AND LOSS ACCOUNT AMOUNTING TO RS.1,77,81 ,116 AS RELATABLE TO INVESTMENT. THE LEARNED CIT(APPEALS), HOWEVER, HAS REDUCED THE FIGURE OF RS.4,94,635 ON ACCOUNT OF INTEREST ON CAR LOAN. BOTH THE AUTHORITIES BELOW HA VE IGNORED THE SUBMISSION OF THE ASSESSEE THAT INTEREST AMOUNTING TO RS.81,63,654 SHOULD ALSO HAVE BEEN REDUCED FOR WORKING OUT INTEREST EXPENDITURE TO BE DISALLOWED UNDER RULE 8D(2)(II) AS THE SAID EXPENDITURE WAS DIRECTLY IN RELATION TO TEXTILE DIVISION, WHEREIN NO INVESTMENT WAS MADE AND AS SUCH NO EXEMPT INCOME WAS EARNED . IN ITS RECENT DECISION, THE HON'BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF CIT V S. TAIKISHA ENGINEERING INDIA LTD. HAS BEEN PLEASED TO HOLD THAT (I) SUB - RULE (2) OF RULE 8D SPECIFICALLY PRESCRIBES THE MODE AND METHOD FOR COMPUTING THE DISALLOWANCE UNDER SEC. 14A. THUS, THE INTERPRETATION OF CLAUSE (II) TO SUB - RULE (2) OF RULE 8D BY T HE COMMISSIONER (APPEALS) AND THE TRIBUNAL WAS NOT SUSTAINABLE. CLAUSE (II) EXPRESSLY STATES THAT WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST IN THE PREVIOUS YEAR AND THE INTEREST PAID IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULARS INCO ME OR RECEIPT THEN THE FORMULA PRESCRIBED WOULD APPLY. UNDER CLAUSE (II) OF RULE 8D(2), THE ASSESSING OFFICER IS REQUIRED TO EXAMINE WHETHER THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST IN THE PREVIOUS YEAR AND, SECONDLY WHETHER THE INT E REST 22 PA ID WAS DIRECTLY ATTRIBUTABLE TO A PARTICULAR INCOME OR RECEIPT. IN CASE THE INTEREST PAID WAS DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, THEN THE INTEREST ON LOAN AMOUNT TO THIS EXTENT OR IN ENTIRETY, AS THE CASE MAY BE, HAS TO BE EXCLUDED FOR MAKING COMPUTATION AS PER THE FORMULA PRESCRIBED. PERTINENTLY, THE AMOUNT TO BE DISALLOWED AS EXPENDITURE RELATABLE TO EXEMPT INCOME, UNDER SUB - RULE (2) IS THE AGGREGATE OF THE A M OUNT UNDER CLAUSE (I), CLAUSE (II) AND CLAUSE (III). CLAUSE (I) RELATES T O DIRECT EXPENDITURE RELATING TO INCOME FORMING PART OF THE TOTAL INCOME AND UNDER CLAU S E (III) AN AMOUNT EQUAL TO 0.05 PER CENT. OF THE AVERAGE AMOUNT OF VALUE OF INVESTMENT, APPEARING IN THE BALANCE - SHEET ON THE FIRST DAY AND THE LAST DAY OF THE ASSESSEE HAS TO BE DISALLOWED. THE ASSESSING OFFICER HAS TAKEN THE AVERAGE OF TOTAL INVESTMENT WHICH HAS BEEN UPHELD BY THE LEARNED CIT(APPEALS) FOLLOWING THE DECISION OF SPECIAL BENCH OF THE ITAT IN THE CASE OF CAM INVEST LTD. VS. CIT - 124 TTJ 577 (SB) (DEL.). T HIS STAND OF THE AUTHORITIES BELOW IS CONTRARY TO THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASES OF CIT VS. HOLCIM INDIA (P) LTD. (SUPRA), ACB INDIA LTD. VS. ACIT (SUPRA) AND CIT VS. BHARAT HOTELS LTD. (SUPRA) HOLDING THAT ON LY THOSE INVESTMENTS SHOULD BE ALLOWED TO BE CONSIDERED ON WHICH ASSESSEE HAS EARNED INCOME . WE AGREE WITH THE CONTENTION OF THE LEARNED AR THAT ONLY AVERAGE VALUE OF TOTAL ASSETS IS TO BE TAKEN AS PER RULE 23 8D(2)(II) . ON THE CONTRARY, THE AUTHORITIES BELOW HAVE TAKEN AVERAGE VALUE OF TOTAL ASSETS AS REDUCED BY CURRENT LIABILITY , WHICH IS CONTRARY TO THE PROVISIONS LAID DOWN UNDER RULE 8D(2)(II) . WE THUS FIND THAT THE WORKING OF THE DISALLOWANCE UNDER SEC. 14A READ WITH RULE 8D AT RS. 64,11,091 IS CORRECT. AS PER THE PROVISIONS LAID DOWN UNDER SEC. 14A AND RULE 8D AND THE DECISIONS RELIED UPON, AS DISCUSSED ABOVE, THE ASSESSEE HAS RIGHTLY REDUCED INTEREST WITH REGARD TO CAR LOAN AMOUNTING TO RS.4,94,635 AND INTEREST PAID OF T ERM LOAN AMOUNTING TO RS.91,22,82 7 PERTAINING TO TEXTILE DIVISION (WHERE NO INVESTMENT WAS MADE AND NO EXEMPT INCOME WAS EARNED) OUT OF THE TOTAL INTEREST EXPENDITURE DEBITED IN THE PROFIT AND LOSS ACCOUNT AMOUNTING TO RS.1,77,81,116. AS SUCH INTEREST PORTION AMOUNTING TO RS.81,63,654 SHO ULD HAVE ONLY BEEN TAKEN FOR WORKING OUT DISALLOWANCE UNDER RULE 8D(2)(II I ) I.E. THE INTEREST PORTION WHICH CANNOT BE IDENTIFIED WHETHER IT HAD BEEN GONE TO EARN EXEMPT INCOME OR TAXABLE INCOME. WE ALSO CONCUR WITH THE SUBMISSION OF THE LEARNED AR THAT FOR WORKING OUT AVERAGE VALUE OF INVESTMENT UNDER RULE 8D(2)(II)AND (III) ONLY THOSE INVESTMENTS SHOULD HAVE BEEN CONSIDERED WHICH HAVE YIELDED EXEMPT/TAX FREE INCOME AND NOT THE ENTIRE INVESTMENT (AS IT HAS BEEN DONE BY THE A.O.). AGAIN FOR WORKING OUT AVERA GE VALUE OF TOTAL ASSETS UNDER RULE 8D(2)(II), WE AGREE WITH THE SUBMISSIONS OF THE LEARNED AR THAT ONLY TOTAL OF FIXED AND CURRENT ASSETS SHOULD HAVE BEEN TAKEN AND NOT 24 THE NET OF TOTAL ASSETS I.E. AFTER SUBTRACTING TOTAL ASSETS BY CURRENT LIABILITY AS DO NE BY THE ASSESSING OFFICER. WE THUS FIND THAT STAND TAKEN BY THE AUTHORITIES BELOW IN WORKING OUT THE DISALLOWANCE IS CONTRARY TO THE PROVISIONS LAID DOWN UNDER SEC. 14A READ WITH RULE 8D AND THE RATIO LAID DOWN BY THE ABOVE CITED DECISION S BY THE LEARNE D AR. WE THUS WHILE SETTING ASIDE ORDERS OF THE AUTHORITIES BELOW IN THIS REGARD DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE UPHELD BY THE LEARNED CIT(APPEALS).THE GROUND NO.1, 1.1, 1.2 AND 1.3 ARE ACCORDINGLY ALLOWED. 7. GROUND NOS. 2, 2.1 AND 2.2 : IN THESE GROUNDS, SUSTAINING OF DISALLOWANCE OF RS.26,25,571 OUT OF INTEREST PAID AND CLAIMED AS DEDUCTION UNDER SEC. 36(1)(III) OF THE ACT HAS BEEN QUESTIONED. 8. THE RELEVANT FACTS ARE THAT THE ASSESSEE HAD ADVANCED VARIOUS AMOUNTS TO ITS SUBS IDIARY COMPANIES. THE AUTHORITIES BELOW HAVE MADE AND SUSTAINED THE DISALLOWANCE IN QUESTION ON THE BASIS THAT ASSESSEE WAS HAVING A MIXED FUND AND THEY COULD NOT SHOW THAT THE ADVANCES MADE WERE THROUGH ONLY KNOWN INTEREST BEARING FUNDS. THE AUTHORITIES B ELOW WERE ALSO NOT SATISFIED THAT THE LOANS GIVEN TO THE SUBSIDIARIES WERE FOR BUSINESS EXPEDIENCY. 25 9. BEFORE THE ITAT, THE LEARNED AR SUBMITTED THAT THE AMOUNT IN QUESTION WAS ADVANCED BY THE ASSESSEE TO ITS SUBSIDIARY COMPANIES OUT OF ITS OWN FUNDS. IN SUPPORT, THE ASSESSEE HAS FURNISHED BALANCE SHEET OF THE ASSESSEE COMPANY SHOWING THAT THE SHARE CAPITAL OF ASSESSEE COMPANY WAS RS.5,34,00,000 AND THE RESULT AND SURPLUS WERE RS.1,51,17,98,030. THUS, THE TOTAL INTEREST FREE FUNDS AVAILABLE WITH THE ASS ESSEE COMPANY WAS RS.1,56,51,98,030. HE SUBMITTED THAT THE ASSESSEE HAD ALSO FURNISHED THE DETAILS OF ADVANCES GIVEN TO ITS SUBSIDIARY COMPANIES ENCLOSING WITH ACCOUNT OF SUCH COMPANY SINCE 01.04.2003. PERUSAL OF THE SAME MADE IT CLEAR THAT MOST OF THE ADV ANCES WERE GIVEN IN THE PREVIOUS YEARS AND NOT IN THE YEAR UNDER APPEAL. THE LEARNED AR SUBMITTED FURTHER THAT THE ASSESSEE HAD ALSO FURNISHED DETAILS OF LOAN AMOUNTS TAKEN BY IT TO SUPPORT ITS EXPLANATION THAT TOTAL OF RS.1,47,00,000 LOAN WAS RAISED DURIN G THE YEAR AND TOTAL AMOUNT OF INTEREST PAID FOR THE LOANS PAID DURING THE YEAR WAS ONLY RS.52,75,000. 10. THE LEARNED AR SUBMITTED THAT THE CHART FURNISHED SHOWING YEAR - WISE AMOUNT RECEIVABLE FROM WHOLLY OWNED SUBSIDIARY COMPANIES WAS ALSO ENCLOSED, PERUSAL OF WHICH WOULD SHOW THAT AMOUNTS OF RS.26,17,26,062 WAS RECEIVABLE AS ON 31.3.2008. THE AMOUNTS ADVANCED DURING THE YEAR WAS RS.16,71,896 ONLY. HE SUBMITTED FURTHER THAT NO SUCH DISALLOWANCE WAS 26 MADE IN ANY YEAR PRIOR TO THE YEAR UNDER APPEAL . HE PLACED RELIANCE ON THE FOLLOWING DECISION: I) CIT VS. DALMIA CEMENT BHARAT LTD. (2009) 183 TAXMAN 422 (DEL.); II) CIT VS. SOUTH INDIA CORPORATION (AGENCIES) LTD. 209 CTR (MAD.) 233; III) CIT VS. STERY SHEETS LTD. (2007) 106 TTJ 460 (DEL.). 11 . THE LEARNED SENIOR DR ON THE OTHER HAND TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW. 12. HAVING GONE THROUGH THE ABOVE CITED DECISIONS, WE FULLY CONCUR WITH THE CONTENTION OF THE LEARNED AR THAT IN CASE OF AVAILABILITY OF INTEREST FREE FUNDS WIT H AN ASSESSEE, THE NATURE OF USER OF FUNDS IS THE ABSOLUTE OPTION OF THE ASSESSEE. AS DISCUSSED ABOVE, THE ASSESSEE HAD FURNISHED SUFFICIENT EVIDENCE BEFORE THE AUTHORITIES BELOW THAT IT WAS HAVING INTEREST FREE FUNDS OF RS.1,56,51,98,030 OUT OF WHICH IT H AD MADE ADVANCE OF RS. 2,626.66 LACS TO ITS SUBSIDIARY COMPANIES. THE CONTENTION OF THE ASSESSEE IN THIS REGARD REMAINED THAT NO SUCH DISALLOWANCE WAS MADE IN EARLIER ASSESSMENT YEARS RIGHT FROM 2003 - 04 AND SUCH ADVANCES MADE BY THE ASSESSEE HAVE BEEN ACCEP TED BY THE ASSESSING OFFICER AS MEANT FOR BUSINESS PURPOSES. IN THIS REGARD, THE LEARNED AR HAS REFERRED PAGE NOS. 70, 80, 139, 275 AND 301 OF 27 THE PAPER BOOK WHICH ARE COPIES OF SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW . IN THESE SUBMISSIONS MADE BEFOR E THE AUTHORITIES BELOW, THE ASSESSEE HAS FILED ITS BALANCE SHEET SHOWING THAT IT WAS HAVING ITS OWN FUNDS OF MORE THAN RS.156 CRORES OUT OF WHICH LOANS OF SLIGHTLY MORE THAN RS.40 CRORES WERE ADVANCED INCLUDING LOANS TO SUBSIDIARY COMPANIES. IT WAS CONTEN DED THAT NO FRESH LOAN WAS ADVANCED BY THE ASSESSEE TO RTC RESTAURANT INDIA LTD. DURING THE YEAR UNDER CONSIDERATION. 12.1 REGARDING TWO MAJOR ADVANCES GIVEN TO (I) SHRI ASHWIN CHANDOK FOR RS.1,20,00,000 AND NO.(II) AGGARWAL DEVELOPERS FOR RS.1,33,00,000 FOR THE BUSINESS PURPOSES, THE ASSESSING OFFICER WAS THUS NOT JUSTIFIED IN MAKING DISALLOWANCE OF RS.4,69,225 AGAINST SUCH ADVANCES MADE INTEREST FREE BY THE ASSESSEE TO DIFFERENT PERSONS EXCEPT ITS SUBSIDIARY COMPANIES. THE SUBMISSION OF THE LEARNED AR R EMAINED THAT BEFORE AUTHORITIES BELOW, THE ASSESSEE HAD SUBMITTED THE REASONS FOR MAKING SUCH INTEREST FREE ADVANCES BY THE ASSESSEE MADE AVAILABLE AT PAGES NOS. 276 AND 277 OF THE ACT. IN THIS REGARD, IT WAS SUBMITTED THAT SHRI ASWIN CHANDOK HAD MADE A R E PRESENTATION ABOUT REAL ESTATE OPPORTUN I TIES IN THE STATE OF GOA AND MORE PARTICULARLY AROUND THE CITY OF PANJIM FOR COMMERCIAL AND RESIDENTIAL COMPLEXES. HE SUGGESTED THAT ASSESSEE COULD ADVANCE IN A SUM OF RS.1.25 CRORES SO THAT HE COULD UTILIZE THE SAME ON BEHALF OF THE ASSESSEE COMPANY FOR PROVIDING 28 SECURITY DEPOSIT, EARNEST MONEY, ADVANCES ETC. IT WAS ALSO DECIDED THAT MR. CHANDOK WOULD KEEP THE COMPANY POSTED ON A MONTHLY BASIS ON SUCH OPPORTUNITY AND IN CASE OF FINALIZATION OF ANY PROPOSITION, IMMED IATE CONTACT WOULD BE ESTABLISHED TO DISC U SS AND EVALUATE THE SAME. LIKEWISE, MR. AGGARWAL DEVELOPERS WERE ADVANCED MONEY WITH THE OBJECTIVE THAT THEY WERE TO IDENTIFY TRACTS OF LAND, NEGOTIATE WITH THE FARMERS, INVESTIGATE TITLE OF LAND, SIGN MOU FOR PURC HASE OF LAND FROM FARMERS, CONSOLIDATE ALL SUCH PURCHASES AND RESALE THE SAID LAND TO PROSPECTIVE BUILDERS IN THAT AREA. IT WAS SUBMITTED THAT AS A NORMAL TRADE PRACTICE IN PURCHASE OF LAND, CERTAIN SUM OF MONEY IS GIVEN AS ADVANCE ON SIGNING OF MOU, WITH THE SELLER AGREEING TO RECOVER THE BALANCE PAYMENT WITHIN A PERIOD OF THREE TO SIX MONTHS. IT WAS SUBMITTED THAT DUE POOR AND UNCERTAIN MARKET CONDITION IN THE TRADE, IT WAS DECIDED TO GO SLOW ON THIS ARRANGEMENT AND THE COMPANY RECEIVED BACK A SUM OF RS.7 8 LACS VIDE CHEQUE NO. 048517 DATED 18.6.2010 DRAWN ON STANDARD CHARTERED BANK. THE LEARNED AR HAS REFERRED PAGE NOS. 237 TO 241, 271, 276 TO 280 OF THE PAPER BOOK. 13. HAVING GONE THROUGH THE DECISIONS RELIED UPON BY THE LEARNED AR, WE CONCUR WITH THE C ONTENTION OF THE LEARNED AR THAT IN CASE OF AVAILABILITY OF SUFFICIENT INTEREST FREE FUND WITH AN ASSESSEE, SUCH ASSESSEE IS AT LIBERTY TO 29 MAKE ADVANCES OF SUCH AVAILABLE FUND WITHOUT CHARGING INTEREST IN THE MANNER THE ASSESSEE DEEMS FIT IN THE INTEREST O F ITS BUSINESS. WITHOUT VERIFYING THE ABOVE EXPLANATION OF THE ASSESSEE FILED IN DETAIL BEFORE THE AUTHORITIES BELOW, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING DISALLOWANCES QUESTIONED IN GROUND NOS. 2 TO 3.2 OF THE APPEAL I.E. RS.26,25,571 TOWARDS THE ADVANCES MADE TO ITS SUBSIDIARY COMPANIES AND RS.4,59,225 TOWARDS THE ADVANCES GIVEN TO OTHERS UNDER SEC. 36(1)(III) OF THE ACT. SUCH DISALLOWANCES CANNOT BE SUSTAINED IN ABSENCE OF THE FINDING OF THE ASSESSING OFFICER THAT THE CLAIMED INTEREST FREE F UNDS WERE NOT AVAILABLE WITH THE ASSESSEE AND THE VERY STATED PURPOSE FOR WHICH THE SAID INTEREST FREE ADVANCE WAS MADE BY THE ASSESSEE TO ITS SUBSIDIARY COMPANIES AND OTHERS FOUND FALSE. THE DISALLOWANCES IN QUESTION ARE THUS DIRECTED TO BE DELETED. GROUN D NOS. 2 TO 2.2 ARE ACCORDINGLY ALLOWED. 14. GROUND NO.4 HAS NOT BEEN PRESSED BY THE LEARNED AR, HENCE, THE SAME IS REJECTED AS SUCH. 15. GROUND NO.5: IN THIS GROUND, THE ACTION OF THE LEARNED CIT(APPEALS) IN NOT DELETING THE ADJUSTMENT MADE TO THE BO OK PROFIT UNDER SEC. 115JB OF THE ACT ON ACCOUNT OF DISALLOWANCE OF RS.1,22,48,177 UNDER SEC. 14A OF THE 30 ACT READ WITH RULE 8D OF THE RULES. THE CONTENTION OF THE ASSESSEE REMAINED THAT SUCH ENHANCEMENT OF BOOK PROFIT FROM RS.50.14 LACS TO RS.172.62 LACS I S ENTIRELY ILLEGAL. SINCE WE HAVE DELETED THE DISALLOWANCE MADE UNDER SEC. 14A READ WITH RULE 8D QUESTIONED IN GROUND NOS. 1, 1.1, 1.2 AND 1.3 HEREINABOVE, THE ISSUE RAISED IN GROUND NO.5 HAS BECOME INFRUCTUOUS. THIS GROUND IS DISPOSED OFF ACCORDINGLY. 16. IN RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 . 0 4 . 201 6 S D/ - SD/ - ( L .P . S A HU ) ( I.C. S UDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29 / 0 4 /201 6 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR 31 DATE DRAFT DICTATED DIRECTLY ON COMPUTER 29 . 0 4 .201 6 DRAFT PLACED BEFORE AUTHOR 29 . 0 4 .2016 DRAFT PROP OSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 29 .04 .2016 APPROVED DRAFT COMES TO THE SR.PS/PS 29 . 0 4 .2016 KEPT FOR PRONOUNCEMENT ON 29 .04 .2016 FILE SENT TO THE BENCH CLERK 29 . 0 4 .2016 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.