DCIT, New Delhi v. M/s. Riviera Home Furnishing (P) Ltd., Delhi

ITA 4112/DEL/2013 | 2009-2010
Pronouncement Date: 21-10-2016 | Result: Dismissed

Appeal Details

RSA Number 411220114 RSA 2013
Assessee PAN AAACR4448J
Bench Delhi
Appeal Number ITA 4112/DEL/2013
Duration Of Justice 3 year(s) 3 month(s) 17 day(s)
Appellant DCIT, New Delhi
Respondent M/s. Riviera Home Furnishing (P) Ltd., Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 21-10-2016
Appeal Filed By Department
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 21-10-2016
Date Of Final Hearing 22-08-2016
Next Hearing Date 22-08-2016
Assessment Year 2009-2010
Appeal Filed On 04-07-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F NEW DELHI BEFORE SH. H.S. SIDHU JUDICIAL M EMBER AND SH. O.P. KANT ACCOUNTANT MEMBER ITA NO. 3516 /DEL/ 2013 ASSESSMENT YEAR: 2009 - 10 M/S. RIVIERA HOME FURNISHINGS PVT. LTD. 501 5 TH FLOOR AGGARWAL CORPORATE HEIGHTS NETAJI SUBHASH PLACE DISTRICT CENTRE WAZIRPUR DELHI VS. ACIT RANGE - 15 NEW DELHI PAN : AAACR4448J (APPELLANT) (RESPONDENT) AND ITA NO. 4112 /DEL/ 2013 ASSESSMENT YEAR: 2009 - 10 DCIT CIRCLE - 15(1) ROOM NO. 412 C.R. BUILDING I.P. ESTATE NEW DELHI VS. M/S. RIVIERA HOME FURNISHINGS PVT. LTD. 501 5 TH FLOOR AGGARWAL CORPORATE HEIGHTS NETAJI SUBHASH PLACE DISTRICT CENTRE WAZIRPUR DELHI PAN : AAACR4448J (APPELLANT) (RESPONDENT) ASSESSEE BY SH. VED JAIN ADVOCATE SH. ASHISH GOEL CA AND SH. ASHISH CHADHA CA DEPARTMENT BY SH. F.R. MEENA SR. DR DATE OF HEARING 22.08.2016 DATE OF PRONOUNCEMENT 21.10.2016 ORDER PER O.P. KANT A. M. : THESE CROSS APPEALS BY THE ASSESSEE AND R EVENUE RESPECTIVELY ARE DIRECTED AGA INST THE ORDER DATED 26/04/2013 OF THE LEARNED 2 ITA NOS. 3516 & 4112/DEL/2013 AY: 2009 - 10 COMMISSIONER OF INCOME - TAX ( APPEALS) - XVIII NEW DELHI FOR ASSESSMENT YEAR 2009 - 10. SINCE BOTH THE APPEALS HAVE EMANATED FROM THE SAME ORDER BOTH ARE HEARD TOGETHER AND DISPOSED OF BY THIS CONSOLID ATED ORDER. THE GROUNDS RAISED IN THE APPEAL OF THE ASSESSEE I.E. ITA NO. 3516/DEL/2013 ARE AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] IS BAD BOTH IN THE EYE OF LAW AND ON FACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN MAKING DISALLOWANCE UNDER SECTION 14A OF THE ACT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN REJECTING THE CONTENTION OF THE ASSESSEE THAT PROVISIONS OF SECTION 14A ARE NOT APPLICABLE TO INVESTMENT MADE IN EOU COVERED UNDER THE PROVISIONS OF SECTION 10B OF THE ACT. 4(I) ON THE FACTS AND CIR CUMSTANCES OF THE CASE THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN REJECTING THE CONTENTION OF THE ASSESSEE THAT THE COMPUTATION OF DISALLOWANCE UNDER RULE 8D READ WITH SECTION 14A IS BAD IN LAW. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CAS E THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN REJECTING THE CONTENTION OF THE ASSESSEE THAT NO DISALLOWANCE IS CALLED FOR SINCE ALL THE INVESTMENTS ARE IN SUBSIDIARY COMPANIES AND THERE IS NO CHANGE DURING THE YEAR (EXCEPT A SMALL CHANGE IN T HE VALUATION OF MUTUAL FUNDS). (II I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN REJECTING THE CONTENTION OF THE ASSESSEE THAT INTEREST ON BORROWED FUNDS ON WHICH INTEREST HAS BEEN PAID HAVE BEEN UT ILIZED FOR SPECIFIC PURPOSE AND THERE IS DIRECT NEXUS BETWEEN THE LOAN AND ITS UTILIZATION. 5(I) ON THE FACT S AND CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF TH E ASSESSING OFFICER IN COMPUTING ADMINISTRATIVE EXPENSES AT THE RATE OF 0.5% DESPITE THE FACT THAT NO EXPENSES WERE REQUIRED FOR MANAGING THE MUTUAL FUND. (II)ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE DISALLOWANCE SUSTAINED BY THE LEARNED COMMISSION ER OF INCOME TAX (APPEALS) IS BAD IN THE ABSENCE OF ANY LINKAGE OR FINDING ABOUT ANY PARTICULAR EXPENDITURE HAVING BEEN INCURRED FOR SUCH INVESTMENTS. 3 ITA NOS. 3516 & 4112/DEL/2013 AY: 2009 - 10 6. THAT THE APPELLANT CRAVES LEAVE TO ADD AMEND OR ALTER ANY OF THE GROUNDS OF APPEAL. 2. T HE GROUN DS RAISED IN THE APPEAL OF THE R EVENUE I.E. ITA NO. 4112/DEL/2013 ARE AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 53 78 318/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE U/S 14A OF THE ACT. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN NOT APPRECIATING THE FACT THAT THE ASSESSEE DEBITED A TOTAL AMOUNT OF RS. 2.81 CORE IN PROFIT A LOSS ACCOUNT UNDER THE HEAD OF 'INTEREST PAID TO BANK LOAN' WHEREAS TOTAL AMOUNT OF BANK INTEREST SHOWN IN PAL ACCOUNT OF ITS 100% EOU UNIT IS RS. 42.63 LAKH ONLY WHICH CLEARLY SHOWS THAT THE ASSESSEE COMPANY HAS BORROWED FUNDS WHICH WAS USED FOR MIXED PURPOSES. 3.THE APPELLANT CRAVES TO BE ALLOWED TO ADD AN Y FRESH GROUNDS OF APPEAL AND /OR DELETE OR AMEND ANY OF THE GROUNDS OF APPEAL. ITA NO. 3516/DEL/2013 3. T HE FACTS IN BRIEF OF THE CASE ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF HOME FURNISHING ITEMS SUCH AS R UGS AND BATH MATS BLANKET ETC. FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE FILED RETURN OF INCOME ON 29/ 03/2010 DECLARING INCOME OF RS.10 26 41 949/ - . THE CASE WAS SELECTED FOR SCRUTI NY AND NOTICE UNDER SECTION 143(2) OF THE INCOME T AX ACT 1961 (IN SHORT THE ACT ) WAS ISSUED AND SERVED WITHIN S TIPULATED PERIOD. DURING THE SCRUTINY PROCEEDINGS THE ASSESSI NG OFFICER OBSERVED LOSS OF RS.24 85 249/ - FROM ONE OF THE UNIT ELIGIBLE UNDER SECTION 10 B OF THE ACT. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE MADE INVESTMENT IN SHARES AN D EARN ED DIVIDEND INCOME OF RS. 4 49 521/ WHICH WAS CLAIMED AS EXEMPT UNDER SECTION 10(33) OF THE ACT. THE ASSESSING OFFICER ALSO OBSERVED THAT THE ASSESSEE MADE INVESTMENT IN THE UNIT ELIGIBLE UNDER SECTION 10 B OF THE ACT THE INCOME OF WHICH WAS EXEMPT. ACCOR DING TO THE ASSESSING OFFICER DISALLOWANCE UNDER SECTION 14 A OF THE ACT WAS ATTRACTED IN THE CASE OF THE ASSESSEE. HOWEVER THE ASSESSEE DID NOT DISALLOW ANY 4 ITA NOS. 3516 & 4112/DEL/2013 AY: 2009 - 10 EXPENSES RELATING TO THE INVESTMENT IN TERMS OF SECTION 14 A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX R ULES 1962 (IN SHORT THE RULES ) . ACCORDINGLY INVOKING R ULE 8D OF THE RULES THE ASSESSING OFFICER COMPUTED TOTAL DISALLOWANCE OF RS. 63 8 5 457/ - AS UNDER: (I) INTEREST EXPENSES CORRESPONDING TO THE AVERAGE VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE UNDER RULE 8 D(2)(II) AMOUNTING TO RS. 53 75 318/ - (II) ONE HALF PERCENT OF THE AVERAGE VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTA L INCOME OF THE ASSESSE E UNDER R ULE 8D(2)(III) AMOUNTING RS. 10 10 140/ - 3.1 B EFORE THE LEARNED COMMISSIONER OF INCOME - TAX( APPEALS) THE ASSESSEE CHALLENGED THE INVESTMENT MADE IN THE UNIT COVERED UNDER SECTION 10B OF THE ACT FOR THE PURPOSE O F DISALLOWANCE UNDER SECTION 14 A O F THE ACT. ACCORDING TO THE ASSESSEE THE SECTION 10B PROVIDES FOR DEDUCTION AND NOT EXEMPTION AND THEREFORE PROVISIONS OF SECTION 14 A OF THE ACT WERE NOT APPLICABLE FOR INVESTMENT MADE IN EXPORT ORIENTED UNIT (EOU). THE ASSESSEE RELIED UPON THE JUDGMENT OF THE TRIBUNAL IN THE CASE OF MADITAP SPECIALITIES PRIVATE LIMITED VS. A DDITIONAL CIT IN ITA NO. 6835/MUM/2010 AND DECISION OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN UNILEVER VS. DCIT REPORTED IN (2010) 325 ITR 102 (BOM.) HOWEVER THE L EARNED COMMISSIONER OF INCOME - TAX (APPEALS) RELIED ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V S. TEI TECHNOLOGIES PRIVATE LIMITED IN ITA 347/2011 & 2067 /2010 WHEREIN THE SECTION 10 A HAS BEEN HELD ESSENTIALLY AND IN SUB STANCE HELD AS EXEMPTION PROVISION. ACCORDINGLY HE HELD THAT PROVISI ONS OF SECTION 14 A OF THE ACT WERE CLEARLY APPLICABLE TO THE INVESTMENT MADE IN A EOU COVERED UND ER THE PROVISIONS OF SECTION 10 B OF THE ACT. 5 ITA NOS. 3516 & 4112/DEL/2013 AY: 2009 - 10 3.2 HOWEVER THE LEARNED COMMISSIONER OF INCOME - TA X (APPEALS) HELD THAT NO FUNDS HAVE BEEN BORROWED FOR INVESTMENT IN THE EOU THEREFORE NO DISALLOWANCE UNDER R ULE 8D(2)(II) CORRESPONDING TO INTEREST TOWARDS INVESTMENT IN EOU COULD BE DISALLOWED. 3.3 WITH REGARD TO THE INVESTMENT MADE IN SHARES THE LE ARNED COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT INVESTMENT IN SHARES/MUTUAL FUNDS WAS MADE FROM THE REGULAR BUSINESS ACCOUNT WHERE THE FUNDS WERE MIXED AND THEREFORE HE UPHELD THE DISALLOWANCE UNDER R ULE 8D(2)(II) CORRESPONDING TO THE INVESTMENT IN SHARES/MUTUAL FUNDS . T HE COMMISSIONER OF INCOME TAX (APPEALS) ALSO UPHELD THE DISALLOWANCE AT THE RATE OF 0.5% OF THE AVERAGE INVESTMENT TOWARDS ADMINISTRATIVE EXPENSES UNDER R ULE 8D(2)(III) OF THE RULES AMOUNTING TO RS.10 10 140/ - . 3.4 AGGRIEVED WITH THE ABOVE FINDINGS OF THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) BOTH THE ASSESSEE AND R EVENUE ARE IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. 4. THE GROUND NO. 1 AND 2 OF THE ASSESSEE S APPEAL ARE GENERAL IN NATURE AND THEREFORE NOT REQUIRED TO BE ADJUDICATED UPON SPECIFICALLY. 5. THE GROUND NO. 3 OF THE ASSESSEE S APPEAL RELATES TO THE ISSUE WHETHER SECTION 10 B IS A DEDUCTION OR AN EXEMPTION PROVISION. 5.1 THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED TH AT THE PROVISIONS OF SECTION 14 A OF THE ACT ARE APPLICABLE IN RESPECT OF THE INCOME WHICH IS EXEMPT AND NOT IN RESPECT OF THE INCOME FOR WHICH DEDUCTION IS AVAILABLE. HE SUBMITTED THAT IN THE CASE THE ASSESSEE HAS CLA IMED DEDUCTION UNDER SECT ION 10 B OF THE ACT IN RESPECT OF THE EXPORT ORIENTED UNIT. ACCORDING TO THE LEARNED AUTHORIZED REPRESENTATIVE IT WAS SETTLED LAW THAT SECTION 10 B IS A DEDUCTION PROVISION AND NOT AN EXEMPTION PROVISION AND THEREFORE PROVISIONS OF SECTION 14 A OF THE ACT WERE NOT APPLICABLE TO THE INVESTMENT MADE IN EOU COVERED UNDER THE 6 ITA NOS. 3516 & 4112/DEL/2013 AY: 2009 - 10 PROVISIONS OF SECTIO N 10 B OF THE ACT. IN SUPPORT OF THE CONTENTION HE RELIED ON THE FOLLOWING DECISIONS: (I) D E CISION OF THE TRIBUNAL MUMBAI B ENCH IN THE CASE OF MEDITAP SPECIALTIES PRIVAT E LIMITED VS. ACIT RANGE - 2(2) MUMBAI IN ITA NO. 6835/MUM/2010 . (II) D ECISION OF THE TRIBUN AL AHMEDABAD B ENCH DATED 10/06/2011 IN THE CASE OF CIT VS. NET SQUARE SOLUTION IN ITA NO. 3145 AND 3146/AHD/2010 . (III) D ECISION OF THE HON BLE BOMBAY HIGH COURT IN THE CASE O F HINDUSTAN UNILEVER LTD . VS. DCIT REPORTED IN (2010) 325 ITR 102. (IV) DECISION OF THE TRIBUNAL P UNE B ENCH IN THE CASE OF OPUS SOFTWARE SOLUTIONS PRIVATE LIMITED VERSUS ACIT IN ITA NO. 584/PUNE/2011 5.2 O N THE OTHER H AND THE LEARNED SR. DEPARTMENTAL REPRES ENTATIVE RELIED ON THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND SUBMITTED THAT SECTION 10B FALLS UNDER THE C H APTER - III OF THE ACT HEADING OF WHI CH CLEARLY SAYS THAT UNDER THE C HAPTER PROVISIONS RELATED TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME HAVE BEEN LEGISLATED AND THEREFORE THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THE ISSUE IN DISPUTE MIGHT BE UPHELD. 5.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE TRIBUNAL IN THE CASE OF MADITAP S PECIALTIES PRIVATE L IMITED (SUPRA) NET SQUARE SOLUTION (SUPRA) OPUS SOFTWARE PRIVATE L IMIT ED (SUPRA) HELD THAT SECTION 10A/10 B ARE IN THE NATURE OF DEDUCTION AND NOT EXEMPTION. THE RELEVANT FINDINGS OF THE D ECISIONS ARE REPRODUCED AS UNDER: MEDITAP SPECIALITIES PRIVATE L IMITED VS. ACIT(SUPRA) DISALLOWANCE U/S 14A IS CONTEMPLATED IN RESPECT OF EXEMPT INCOME AND NOT WHICH IS ELIGIBLE FOR DEDUCTION UNDER ANY RELEVANT PROVISION. IT IS IMPERMISSIBLE TO MIX BOTH THE DEDUCTION AND EXEMPTION PROVISIONS AND THEN TAKE THEM IN ONE STRIDE FOR COMPUTING DI SALLOWANCE U/S 14A. WE THEREFORE HOLD THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN PLACING THE EXEMPTION PROVISION AND DEDUCTION 7 ITA NOS. 3516 & 4112/DEL/2013 AY: 2009 - 10 PROVISION ON ONE PLATFORM FOR THE PURPOSE OF MAKING DISALLOWANCE UNDER SECTION 14A. ITO VS. NET SQUARE S OLUTION (SUPRA) 7.1 WITHOUT PREJUDICE TO ABOVE WE ARE CONVINCED THAT FOR BOTH THE ASSESSMENT YEARS THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN THE COGENT REASON FOR HOLDING THAT NO DISALLOWANCE UNDER SECTION 14A CAN BE CALLED FOR BECAUSE EXEMPTION UNDER SECTION 10B WAS ALLOWED AFTER EXCLUDING THE EXPENSES RELATED TO SUCH INCOME. THE SAID EXEMPTION WAS QUANTIFIED IN ACCORDANCE WITH SECTION 10B OF THE ACT. THEREFORE APPLYING THE PROVISIONS OF SECTION 14A RESULTING IN DUPLICATING THE EXERCISE IS NOT CAL LED FOR. WE THEREFORE INCLINE TO UPHOLD THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THIS REGARD AND DISMISS THE GROUND NO. 2 FOR BOTH THE ASSESSMENT YEARS. OPUS SOFTWARE SOLUTIONS P RIVATE L IMITED VS. ACIT(SUPRA) IT IS A SECTION WHI CH SEEKS TO ALLOW A DEDUCTION OF THE PRESCRIBED PROFITS WHILE COMPUTING TOTAL INCOME OF THE ASSESSEE AND NOT A PROVISION WHICH PROVIDES FOR AN EXEMPTION OR TO EXCLUDE CERTAIN INCOME FROM THE TOTAL INCOME OF THE ASSESSEE. NEW PROVISIONS OF SECTION 10A PROVIDES FOR DEDUCTION AND NOT EXEMPTION OSTENSIBLY WHILE DENYING THE CLAIM OF CARRIED FORWARD UNABSORBED LOSS/DEPRECIATION ASSESSED UNDER THE NORMAL PROVISIONS OF THE ACT THE ASSESSING OFFICER HAS PROCEEDED ON THE BASIS THAT SECTION 10A PROVIDES AN E XEMPTION AND THEREFORE LOSS SUFFERED IN SUCH UNIT IS NOT ALLOWED TO BE SET OFF OR CARRIED FORWARD FOR FURTHER SET OFF AGAINST OTHER NORMAL BUSINESS INCOME. IN THIS CONTEXT IT IS FOUND THAT SECTION 10A WAS SUBSTITUTED BY FINANCE ACT 2000 WITH EFFECT FRO M 1 - 4 - 2001. FROM THE PERUSAL OF AMENDED PROVISIONS OF SECTION 10A IT IS QUITE CLEAR THAT THE PROVISION ENVISAGES AND ALLOWS A DEDUCTION OF PROFITS AND GAINS SPECIFIED THEREIN AND IT IS NO LONGER A PROVISION WHICH PROVIDES FOR EXCLUDING AN INCOME FROM THE TOTAL INCOME OF AN ASSESSEE. THEREFORE THERE IS WEIGHT IN THE PLEA SET UP BY THE ASSESSEE THAT IN SO FAR AS THE NATURE OF SECTION 10A WITH EFFECT FROM 1 - 4 - 2001 IS CONCERNED IT IS A SECTION WHICH SEEKS TO ALLOW A DEDUCTION OF THE PRESCRIBED PROFITS WH ILE COMPUTING TOTAL INCOME OF THE ASSESSEE AND NOT A PROVISION WHICH PROVIDES FOR AN EXEMPTION 8 ITA NOS. 3516 & 4112/DEL/2013 AY: 2009 - 10 OR TO EXCLUDE CERTAIN INCOME FROM THE TOTAL INCOME OF THE ASSESSEE OR SET OFF WHERE SUCH LOSS RELATES TO ANY OF THE RELEVANT ASSESSMENT YEARS ENDING BEFORE 1 - 4 - 2 001. THEREFORE THE VIEW OF THE ASSESSING OFFICER THAT THE PROVISIONS OF SECTION 10A AS IT STOOD WITH EFFECT FROM 1 - 4 - 2001 CONTINUED TO BE A PROVISION FOR EXEMPTION CANNOT BE SUBSCRIBED TO. FURTHERMORE SECTION 10A(6)(II) CLEARLY PROVIDES THAT NO LOSS W HICH RELATES TO THE BUSINESS OF THE UNDERTAKING SHALL BE CARRIED FORWARD OR SET OFF WHERE SUCH LOSS RELATES TO ANY OF THE RELEVANT ASSESSMENT YEARS ENDING BEFORE 1 - 4 - 2001. UNABSORBED DEPRECIATION LOSS SUFFERED BY ON EOU UNIT CAN BE CARRIED FORWARD FROM ASS ESSMENT YEAR 2001 - 02 QUITE CLEARLY LOSSES WHICH ARE SOUGHT TO BE CARRIED FORWARD BY THE ASSESSEE ARE FOR THE ASSESSMENT YEAR ENDING AFTER 1 - 4 - 2001 AND THEREFORE DO NOT FALL IN THE RESTRICTION CONTAINED IN SECTION 10A(6)(II). AS A CONSEQUENCE THEREFO RE THERE ARE NO REASONS TO INTERFERE WITH THE CONCLUSION DRAWN BY THE COMMISSIONER OF INCOME - TAX (APPEALS) TO THE EFFECT THAT THE ASSESSEE IS ELIGIBLE TO CARRY FORWARD THE UNABSORBED DEPRECIATION/LOSS SINCE THE SAME RELATED TO ASSESSMENT YEAR 2001 - 02 AND ONWARDS THUS ON THIS GROUND REVENUE FAILS. IN VIEW OF ABOVE CATENA OF JUDGMENTS IT IS IMPORTANT TO NOTE THAT PROVISIONS OF SECTION 14A ARE NOT APPLICABLE TO INVESTMENT MADE IN EOU COVERED UNDER THE PROVISION OF SECTION 10B OF THE ACT AND HENCE DISALL OWANCE UNDER SECTION 14A IS UNTENABLE. 5.4 FURTHER THE HON BLE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN UNILEVER LTD VS. DEPUTY COMMISSIONER OF INCOME TAX (SUPRA) HELD THAT AFTER THE SUBSTITUTION OF SECTION 10B BY THE FINANCE ACT 2000 THE PROVISION AS IT NOW STANDS PROVIDES FOR DEDUCTION OF SUCH PROFIT AND GAINS AS ARE DERIVED BY 100% EXPORT ORIENTED UNDERTAKINGS FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE. THE RELEVANT FINDING OF THE HON BLE HIGH COURT IS REPRODUCED AS UNDER: 23. THE FOURTH AND FINAL GROUND WHICH HAS WEIGHED WITH THE ASSESSING OFFICER IN RE - OPENING THE ASSESSMENT IS THAT THE ASSESSEE CLAIMED A DEDUCTION OF RS. 14.53 CRORES UNDER SECTION 10B. THE 9 ITA NOS. 3516 & 4112/DEL/2013 AY: 2009 - 10 DEDUCTION WAS RESTRICTED TO RS. 11.11 CRORES IN THE ORDER. WHILE RE - OPENING THE ASSESSMENT THE ASSESSING OFFICER HAS PROCEEDED ON THE BASIS THAT SECTION 10B PROVIDES AN EXEMPTION AND THAT IN RESPECT OF THE CRAB STICK UNIT THE ASSESSEE HAD SUFFERED A LOSS OF RS. 1.33CRORES. THE ASSESSING OFFICER HAS OBSERVED THAT SINCE THE INCOME OF THE UNIT WAS EXEMPT FROM TAXATION THE LOSS OF THE UNIT COULD NOT HAVE BEEN SET OFF AGAINST THE NORMAL BUSINESS INCOME. HOWEVER THIS WAS ALLOWED BY THE ASSESSMENT ORDER AND IT IS OPINED THAT THE ASSESSEE S INCOME TO THE EXTENT OF RS. 1.33 CR ORES HAS ESCAPED ASSESSMENT. 24. THERE IS MERIT IN THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS WHILE RE - OPENING THE ASSESSMENT EX FACIE PROCEEDED ON THE ERRONEOUS PREMISE THAT SECTION 10B IS A PROVISION IN THE NATURE OF AN EXEMPTION. PLAINLY SECTION 10B AS IT STANDS IS NOT A PROVISION IN THE NATURE OF AN EXEMPTION BUT PROVIDES FOR A DEDUCTION. SECTION 10B WAS SUBSTITUTED BY THE FINANCE ACT OF 2000 WITH EFFECT FROM 1 - 4 - 2001. PRIOR TO THE SUBSTITUTION OF THE PROVISION THE EARLIER PROVISION STIPULATED THAT ANY PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM A HUNDRED PER CENT EXPORT ORIENTED UNDERTAKING TO WHICH THE SECTION APPLIES 'SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE'. THE PROVISION THER EFORE AS IT EARLIER STOOD WAS IN THE NATURE OF AN EXEMPTION. AFTER THE SUBSTITUTION OF SECTION 10B BY THE FINANCE ACT OF 2000 THE PROVISION AS IT NOW STANDS PROVIDES FOR A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER CENT EXPORT OR IENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE. CONSEQUENTLY IT IS EVIDENT THAT THE BASIS ON WHICH THE ASSESSMENT HAS SOUGHT TO BE RE - OPENED IS BELIED BY A PLAIN READING OF THE PROVISION. THE ASSESSING OFFICER WAS PLAINLY IN ERROR IN PROCEEDING ON THE BASIS THAT BECAUSE THE INCOME IS EXEMPTED THE LOSS WAS NOT ALLOWABL E. ALL THE FOUR UNITS OF THE ASSESSEE WERE ELIGIBLE UNDER SECTION 10B. THREE UNITS HAD RETURNED A PROFIT DURING THE COURSE OF THE ASSESSMENT YEAR WHILE THE CRAB STICK UNIT HAD RETURNED A LOSS. THE ASSESSEE WAS ENTITLED TO A DEDUCTION IN RESPECT OF THE PRO FITS OF THE THREE ELIGIBLE UNITS WHILE THE LOSS SUSTAINED BY THE FOURTH UNIT COULD BE SET OFF AGAINST THE NORMAL BUSINESS INCOME. IN THESE CIRCUMSTANCES THE BASIS ON WHICH THE ASSESSMENT IS SOUGHT TO BE RE - OPENED IS CONTRARY TO THE PLAIN LANGUAGE OF SECTI ON 10B. 10 ITA NOS. 3516 & 4112/DEL/2013 AY: 2009 - 10 5.5 H OWEVER WE FIND FROM THE IMPUGNED ORDER THAT THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) HAS RELIED ON THE DECISION OF THE J URISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TEI T ECHNOLOGIES PRIVATE LIMITED (SUPRA) WHEREIN THE HON BLE H IGH COURT HAS TAKEN NOTE OF THE DECISION OF THE HON BLE BOMBAY HIGH COUR T IN THE CASE OF HINDUSTAN UNILI VER LTD AND HELD THAT SECTION 10 A IS A PROVISION EXEMPTING PARTICULAR KIND OF INCOME EVEN AFTER TH E AMENDMENTS BY THE FINANCE ACT 2000 W.E.F. 01/04/200 1. THE RELEVANT FINDING OF THE HON BLE DELHI HIGH COURT IS REPRODUCED AS UNDER: IN INTERPRETING SUB - SECTION (1) OF SECTION 10A AFTER THE AMENDMENT MADE BY THE FINANCE ACT 2000 W. E. F. 01.04.2001 ONE CANNOT DENY THAT THERE IS AMBIGUITY OR DOUBT BECAUSE OF THE LANGUAGE USED AS TO WHETHER THE SUB - SECTION PROVIDES FOR AN EXEMPTION OR A DEDUCTION. WE HAVE EARLIER REFERRED TO THE DIFFICULTY CAUSED BY THE LANGUAGE WHICH SAYS THAT THE DEDUCTION SHALL BE MADE FROM THE TOTAL INCOME WHEN THE ACT CONTAINS NO PRO VISION TO ALLOW ANY DEDUCTIONS FROM THE TOTAL INCOME. THE SECTION HAS BEEN INTERPRETED BY THE KARNATAKA HIGH COURT (SUPRA) AS AN EXEMPTION PROVISION WHEREAS THE BOMBAY HIGH COURT HAS UNDERSTOOD THE SAME AS A DEDUCTION SECTION THOUGH THE ULTIMATE RESULT DI D NOT MAKE ANY DIFFERENCE TO THE ASSESSEE'S CLAIM IN BLACK & VEATCH CONSULTING (SUPRA). THEREFORE IT CANNOT BE DENIED THAT THERE IS UNCERTAINTY AND LACK OF CLARITY OR PRECISION IN THE LANGUAGE EMPLOYED IN SUB - SECTION (1). IT IS THEREFORE NOT IMPERMISSIB LE TO RELY ON THE HEADING OR TITLE OF CHAPTER III AND INTERPRET THE SECTION AS PROVIDING FOR AN EXEMPTION RATHER THAN A DEDUCTION. 29. THE KEY TO THE PROBLEM SEEMS TO LIE IN APPRECIATING THE DIFFERENCE BETWEEN A PROVISION WHICH EXEMPTS AN INCOME AND A PRO VISION WHICH PROVIDES FOR A DEDUCTION OF THE INCOME OR A PART THEREOF IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. WE HAVE ATTEMPTED TO OUTLINE THE DIFFERENCE BETWEEN THE TWO KINDS OF PROVISIONS IN THE LIGHT OF THE AUTHORITIES CITED ABOVE. THE MATTER IS NOT ALTOGETHER FREE FROM DIFFICULTY. HOWEVER AS S. RANGANATHAN J. (AS HE THEN WAS) HAS POINTED OUT IN CIT V. DALMIA CEMENT (BHARAT) LTD. (SUPRA): - 'IN THE PROCESS OF JUDICIAL ASSESSMENT OF SUCH CONFLICTING INTERPRETATIONS THERE IS NO SENSITIVE BALANCE WITH WHICH TO WEIGH 11 ITA NOS. 3516 & 4112/DEL/2013 AY: 2009 - 10 THE PROS AND CONS AND DETERMINE WITH SCIENTIFIC ACCURACY WHICH SIDE IS THE WEIGHTIER AND PERHAPS IN THE DRAWING OF THE ULTIMATE INFERENCE ONE WAY OR THE OTHER THE SUBJECTIVE ELEMENT IS NOT ALTOGETHER EXCLUDED.' 30. WITH THIS CAUTION OR DISCLAIMER IN MIND WE ARE INCLINED TO HOLD THAT SECTION 10A IS A PROVISION EXEMPTING A PARTICULAR KIND OF INCOME EVEN IN ITS PRESENT FORM THAT IS TO SAY EVEN AFTER BEING AMENDED BY THE FINANCE ACT 2000 W.E.F. 01.04.2001. WE ARE INCLINED WITH RESPEC T TO AGREE WITH THE VIEW TAKEN BY THE KARNATAKA HIGH COURT IN THE CASE OF CIT V. YOKOGAVA (SUPRA). AS NOTICED THE BOMBAY HIGH COURT REACHED IN THE CASE OF CIT V. YOKOGAVA (SUPRA) IN ITS JUDGMENTS IN HINDUSTAN UNILEVER LTD. (SUPRA) AND CIT V. BLACK & VE ATCH CONSULTING PVT. LTD. (SUPRA) DESPITE TAKING THE VIEW THAT THE SECTION PROVIDES FOR A DEDUCTION AND NOT AN EXEMPTION. WE HAVE ALREADY SEEN THAT SECTION 10A AS IT PRESENTLY STANDS THOUGH WORDED AS DEDUCTION PROVISION IS ESSENTIALLY AND IN SUBSTANCE AN EXEMPTION PROVISION. WE HAVE ALSO HELD THAT THE IMPLICATION OF AN EXEMPTION PROVISION IS THAT THE PARTICULAR INCOME WHICH IS EXEMPT FROM TAX DOES NOT ENTER THE FIELD OF TAXATION AND IS NOT SUBJECT TO ANY COMPUTATION. THE COMPUTATION PROVISIONS OF THE ACT DO NOT GET ATTRACTED AT ALL TO THE EXEMPTED INCOME. 5.6 F OLLOWING THE ABOVE DECISION OF THE HON BLE DELHI HIGH COURT THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) HELD AS UNDER: THUS THE HON'BLE DELHI HIGH COURT HAS HELD THAT FROM THE LANGUAG E OF THE HEADING OF CHAPTER III IT IS CLEAR THAT INCOME AS CONTEMPLATED UNDER SECTION 10B IS OUTSIDE THE SCOPE OF TOTAL INCOME AND HAS NO RELEVANCE WITH THE GROSS TOTAL INCOME. IT IS THEREFORE A SECTION WHICH PROVIDES FOR EXEMPTION OF INCOME AND NOT F OR DEDUCTION. IT IS FURTHER IMPORTANT TO NOTE THAT PROVISIONS OF SECTION 14A ARE APPLICABLE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME . THIS VERY PHRASE IS THE HEADING FOR CHAPTER III UNDER WHICH THE SECTION 10B AND ALSO SECTION 10(3 3) LIES. THIS MAKES IT VERY APPARENT AND CONCLUSIVE THAT THE PROVISIONS OF SECTION 14A ARE CLEARLY APPLICABLE TO THE INVESTMENT MADE IN A EOU COVERED UNDER THE PROVISIONS OF SECTION 10B. THE CLAIM OF THE APPELLANT THAT SECTION 14A IS NOT APPLICABLE TO INVE STMENT MADE IN AN EOU COVERED UNDER 12 ITA NOS. 3516 & 4112/DEL/2013 AY: 2009 - 10 THE PROVISIONS OF SECTION 10B IS THEREFORE NOT ACCEPTED. THIS GROUND OF APPEAL IS THEREFORE DISMISSED. 5.7 R ESPECTFULLY FOLLOWING THE DECISION OF THE J URISDICTIONAL HIGH COURT WE UPHOLD THE FINDING OF LEARNED CO MMISSIONER OF INCOME TAX (APPEALS) ON THE ISSUE IN DISPUTE. THE GROUND NO. 3 OF THE APPEAL OF THE ASSESSEE IS ACCORDINGLY DISMISSED. 6. IN GROUND NO. 4 OF THE ASSESSEE S APPEAL THE ASSESSEE HAS CHALLENGED THE UPHOLDING OF DISALLOWANCE UNDER R ULE 8D( 2)(II) IN RESPECT OF SHARES AND MUTUAL FUNDS. 6.1 BEFORE US THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT ALL THE INVESTMENTS WERE MADE IN THE SUBSIDIARY COMPANY AND THERE WAS NO CHANGE DURING THE YEAR EXCEPT SMALL CHANGE IN VALUAT ION OF MUTUAL FUNDS. HE FURTHER SUBMITTED THAT THE BORROWED FUNDS ON WHICH INTEREST HAS BEEN PAID WERE UTILIZED FOR SPECIFIC PURPOSE AND THERE WAS DIRECT NEXUS BETWEEN THE LOAN AND ITS UTILIZATION. 6.2 REFERRING TO PAGE 21 OF THE PAPER BOOK THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT COMPAN Y HAD INTRODUCED CAPITAL OF RS.15 01 00 200/ - IN THE FINANCIAL Y EAR 2006 - 07 AND DURING THAT YEAR IT EARNED A PROFIT OF RS.14 31 35 118/ - (PB PAGE - 22) AND OUT OF THESE FUNDS A SMAL L INVESTMENT OF RS.1 2 49 980 ( PB PAGE - 21) WAS MADE IN THE SHARES. HE FURTHER SUBMITTED THAT IN THE FINANCIAL YEAR 2007 - 08 THE ASSESS EE COMPANY EARNED PROFIT OF RS.10 12 63 956/ - (PB PAGE 37). I TS CAPITAL AS ON 31 ST OF MARCH 2008 WAS RS.15 01 00 200/ - ITS ACCUMULATED PROFIT WAS RS.20 67 80 239/ - (PB PAGE 36) AND THE ASSESSEE M ADE A FURTHER INVESTMENT OF RS.4 35 61 398/ - IN SHARES/MUTUAL FUNDS DURING THE YEAR THUS MAKING THE TOTAL IN VESTMENT AT THE END OF YEAR TO RS.2 04 48 11 378/ - (PB PAGE 36). HE FURTHER SUBMITTED THAT I N FINANCIAL YEAR 2008 - 09 THE ASSESSEE COMPANY EARNED A PROFIT OF RS.7 96 56 513/ - (PB PAGE 4) . I TS CAPITA L AS ON 31/03/2009 STOOD AT RS.15 01 00 200/ - 13 ITA NOS. 3516 & 4112/DEL/2013 AY: 2009 - 10 ACCUMULATED PROFIT WAS OF RS.29 76 51 796/ - (PB PAGE 3) AND THE TOTAL INVEST MENT IN THE SHARES STOOD AT RS.4 43 05 740/ - ( PB PAGE 3) . IN VIEW OF ABOVE THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT NO BORROWED FUNDS HAVE BEEN UTILIZED IN THE INVESTMENT IN SHARES/MUTUAL FUNDS. 6.3 FURTHER THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS TAKEN INTO CONSIDERATION THE ENTIRE INTEREST AMOUNT IGNORING THE FACT THAT THE INTEREST HAS BEEN PAID ON LOANS RAISED FOR SPECIFIC PURPOSES. HE SUBMITTED THAT THE ASSESSEE COMPANY HAS CAR LOAN WHICH HAS BEEN UTILIZED FOR THE PURPOSE OF PURCHASING THE CAR. HE FURTHER SUBMITTED THAT THE ASSESSEE COMPANY TOOK TERM LOAN FROM THE BANK FOR THE PURCHASE OF MACHINERY AND THE INTEREST PAID ON SUCH LOAN WAS DIRECTLY RELATABLE TO THE ACQUISITION OF THE MACHINERY . HE FURTHER SUBMITTED THAT THE WORKING CAPITAL LOAN RAISED FROM THE BANK WAS UTILIZED FOR THE PURPOSE OF WORKING CAPITAL. AS REGARD LOANS FROM OTHERS THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT ENTIRE AMOUNT OF SUCH LOANS HAVE BEEN UTILIZED FOR THE PURPOSE OF BUSINESS AND NO PART OF THE SAME WAS UTILIZED TOWARDS INVESTMENT. IN THIS REGARD HE SUBMITTED THAT AS ON 31 ST OF MARCH 2007 WHEN IT RAIS ED THE UNSECURED LOAN FROM THE DIRECTORS AND SHAREHOLDERS TO THE TUNE OF RS.10 21 65 76/ - THE INVES TME NT IN SHARES WAS ONLY OF RS.12 49 980 / - WHICH CAME OUT OF LOAN CAPITAL BROUGHT DURIN G THE YEAR TO THE EXTENT OF RS.15 01 00 200 / - AND PROFIT OF RS.14 31 35 118/ - EARNED DURING THE YEAR. HE FURTHER SUBMITTED THAT THERE HAS BEEN NO INCREASE IN UNSECURED LOAN DURING THE FINANCIAL YEAR 2007 - 08 WHEN THE INVESTMENT GONE UP FROM RS.12 49 980/ - TO RS.4 48 11 378/ - WHICH SHOWS THAT THE INVESTMENT HAS COME OUT OF THE PROFIT EARNED BY THE APPELLA NT COMPANY TO THE EXTENT OF RS.10 12 63 956/ - 14 ITA NOS. 3516 & 4112/DEL/2013 AY: 2009 - 10 6.4 I N VIEW OF ABOVE THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT INVESTMENT IN SHARES WAS NOT MADE OUT OF BORROWED FUNDS AND ACCORDINGLY DISALLOWANCE IN RESPEC T OF SHARES/MUTUAL FUNDS UNDER R ULE 8D2(II) MADE BY THE ASSESSING OFFICER AND UPHELD BY THE LEARNED COMMISSION ER OF INCOME - TAX ( APPEALS) WAS NOT JUSTIFIED. 6.5 ON THE OTHER HAND THE LEARNED SR. DEPARTMENTAL REPRESENTATIVE RELIED ON THE FINDINGS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 6.6 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDING THE PAPER BOOK OF THE ASSESSEE. THE ISSUE IN DISPUTE BEFORE US IS WHETHER ANY BORROWED FUNDS HAVE BEEN UTILIZED TOWARDS THE INVESTMENT IN SHARES/MUTUAL FUNDS BY THE ASSESSEE. THE L EARNED AUTHORIZED REPRESENTATIVE HAS DEMONSTRATED BEFORE US THAT AS ON 31/03/2007 INVES TMENT IN SHARES WAS OF ONLY RS.12 49 980/ - WHICH WAS OUT OF THE OWNED CAPITAL OF RS.15 01 00 200 / - AND PROFIT OF RS.14 31 35 118/ - . DURING THAT YEAR THE ASSESSEE ALSO TOOK UNSECURED LOAN OF RS.10 21 65 762/ - FROM DIRECTORS AND S HAREHOLDERS. THESE FACTS CLEARLY DEMONSTRATE THAT THE UNSECURED LOAN RAISED FROM THE DIRECTORS AND S HAREHOLDERS WERE NOT UTILIZED TOWARDS INVESTMENT IN SHARES/MUTUAL FUNDS. IN THE SUBSEQUENT YEAR I.E. FINANCIAL YEAR 2007 - 08 T HE INVEST MENT IN SHARES GONE UP FROM RS.12 49 980/ - TO RS.4 48 11 378/ - BUT THE ASSESSEE HAS NOT TAKEN ANY UNSECURED LOAN DURING THE YEAR WHICH GOES TO ESTABLISH THAT INVESTMENT CAME OUT OF THE PROFIT EARNED BY THE ASSESSEE COMPANY TO THE EXTE NT OF RS.10 12 63 956/ - DURING THE YEAR. THE ASSESSEE HAS DEMONSTRATED THAT THE INTEREST PAID WAS TO THE SPECIFIC LOANS UTILIZED TOWARDS PURCHASE OF CAR PURCHASE OF MACHINERY WORKING CAPITAL ETC. THE ASSESSING OFFICER HAS NOT BEEN ABLE TO ESTABLISH THAT THE INTEREST WAS TOWARDS LOANS FOR NON - SPECIFIC PURPOSE WHICH COULD BE ATTRIBUTED TO THE INVESTMENT IN SHARES ON PROPORTIONATE BASIS. 15 ITA NOS. 3516 & 4112/DEL/2013 AY: 2009 - 10 6.7 IN VIEW OF ABOVE FACTS AND CIRCUMSTANCES WE HOLD THAT NO INVESTMENT IN SHARES/MUTUAL FUNDS HAVE BEEN MADE OUT OF THE BORROWED FUNDS AND THEREFORE NO DISALLOWANCE UNDER R ULE 8D2(II) OF THE RULES COULD BE MADE FOR INTEREST ON PROPORTIONATE BASIS TOWARDS INVESTMENT IN SHARES/MUTUAL FUNDS WHICH COULD EARN EXEMPTED INCOME. THE GROUND NO. 4 OF THE ASSESSEE S APPEAL IS ACCORDINGLY ALL OWED. 7. THE GROUND NO. 5(I) AND 5(II) OF THE ASSESSEE S APPEAL WERE NOT PRESSED BEFORE US AND THEREFORE ACCORDINGLY ARE DISMISSED AS INFRUCTUOUS. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 4112/DEL/2013 9 . IN GROUND S NO. 1 AND 2 OF THE R EVENUE S APPEAL THE R EVENUE HAS CHALLENGED THE DELETION OF DISALLOWANCE UNDER R ULE 8D2(II) CORRESPONDING TO INVESTMENT IN EOU UNIT. 9 .1 BEFORE US THE LEARNED SR. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT IN THE GROUND RAISED TOTA L AMOUNT OF RS.53 78 318 / - DISALLOWED BY THE ASSESSING OFFICER UNDER R ULE 8D2(II) TOWARDS BOTH INVESTMENT IN EOU AS WELL AS INVESTMENT IN SHARE S/MUTUAL FUNDS IS MENTIONED BUT THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) ALLOWED RELIEF TO THE ASSESSEE ONLY IN RESPECT OF DISALLOWANCE TOWARDS INVESTMENT IN EOU A ND DISALLOWANCE TOWARDS SHARES/ MUTUAL FUND INVE STMENTS ALREADY STOOD CONFIRMED THEREFORE HE PREFERRED TO ARGUE ONLY ISSUE OF DISALLOWANCE CORRESPONDING TO INVESTMENT IN EOU IN THE APPEAL OF THE REVENUE. ADDRESSING THE GROUND NO. 2 THE LEARNED SR. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT TH E ASSESSEE DEBITED A SUM OF RS.2.81 CRORES IN THE P ROFIT AND LOSS ACCOUNT UNDER THE HEAD INTEREST PAID TO BANK LOAN WHEREAS TOTAL AMOUNT OF INTEREST SHOWN IN PROFIT AND LOSS ACCOUNT OF 100% EOU UNIT IS RS. 42.60 LAKHS ONLY WHICH SHOWED THAT THE ASSESSEE COMPANY HAS BORROWED FUNDS WHICH WERE UTILISED FO R MIXED 16 ITA NOS. 3516 & 4112/DEL/2013 AY: 2009 - 10 PURPOSES. IN VIEW OF THE ARGUMENTS THE LEARNED SR. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THE ISSUE IN DISPUTE NEED TO BE CONFIRMED. 9 .2 THE LEARNED AUTHORIZED REPRESENTATIVE ON THE OTHER HAND S UBMITTED THAT THE ASSESSING OFFICER HAS ASSUMED THAT THE INVESTMENT IN EOU HAS COME OUT OF BORROWED FUNDS AND TAKEN THE VALUE OF OPENING INVESTMENT AT RS.16 04 07 523/ - AN D THE CLOSING INVESTMENT AT RS.15 45 31 633/ - . TO EXPLAIN THAT NO BORROWED FUNDS HAVE BEEN INVESTED IN EOU THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED AS UNDER: (I) T HAT THE ASSESSEE COMP ANY WAS HAVING A CAPITAL OF RS.1 00 200/ - AS ON 31/03/2006 ( PB PAGE NO. 21 ) . (II) I N FINANCIAL YEAR 2006 - 07 THE ASSES SEE INTRODUCED A CAPITAL OF RS. 15 CRORE AN D OUT OF WHICH AN AMOUNT OF RS.7 67 14 975/ - WAS INVESTED IN EOU. IN FINANCIAL YEAR 2006 - 07 THE EOU EARNED A PROFIT OF RS.5 1 8 85 665/ - AND THUS MAKING THE CAPITAL OF THE EOU AT RS.12 86 00 636/ - . (PB PAGE 28) (III) I N FINANCIAL YEAR 2007 - 08 THE EOU FURTHE R EARNED A PROFIT OF RS.2 49 76 052/ - (PB PAGE NO. 44) . IT FURTHER RECEIVED A SUM OF RS.68 30 836/ - FROM THE HEAD OFFICE AND THE CAPITAL OF THE EOU BECAME RS.16 04 07 523/ - (PB PAGE 43). THIS AMOUNT OF RS.68 30 836/ - WAS RECEIVED OUT OF THE PROFIT EARNED BY THE HEAD OFFICE DURING THE FINANCIAL YEAR 2007 - 08. IN THE FINANCIAL YEAR 2006 - 07 THE HEA D OFFICE EARNED A PROFIT OF RS.14 32 18 159/ - ( PB PAGE - 22) . THUS THIS OPENING BALANCE OF RS.16 04 07 523/ - CONSISTED OF THE OPENING CAPITAL AS ON 01.04.2007 PR OFIT OF THE EOU AND A PART OF THE PROFIT OF HEAD OFFICE AND IT IS HAVING NO LINKS WITH THE BORROWED FUNDS. 17 ITA NOS. 3516 & 4112/DEL/2013 AY: 2009 - 10 (IV) IN FINANCIAL YEAR 2008 - 09 I.E THE YEAR UNDER CONSIDERATION THE EOU EARNED A PROFIT OF RS.8 27 197/ - ( PB PA GE - 11) AND RETURNED A SUM OF RS.67 03 08 6/ - TO THE HEAD OFFICE LEAVING BALANCE OF RS.15 45 31 633/ - AS ON 31/03/2009 (PB PAGE - 10). THUS THE ASSUMPTION BY THE ASSESSING OFFICER THAT THE EOU CAPITAL CONSIST OF BORROWED FUNDS WAS ABSOLUTELY AGAINST THE FACTS ON RECORD. (V) THE EOU WAS MAINTAINING SE PARATE BOOKS OF ACCOUNTS AND PREPARING ITS BALANCE SHEET AND PROFIT AND LOSS ACCOUNT. IT HAS BORROWINGS FROM THE BANK AND FOR WHICH INTEREST WAS BEING DEBITED IN THE PROFIT AND LOSS ACCOUNT OF THE EOU ( PB PAGE - 10 - 11) 9 .3 I N VIEW OF ABOVE THE LEARNED AU THORIZED REPRESENTATIVE EMPHASIZED THAT THE ACTION OF THE ASSESSING OFFICER IN INCLUDING THE AMOUNT OF CAPITAL OF EOU FOR THE PURPOS E OF DISALLOWANCE UNDER SECTION 14 A OF THE ACT WAS ABSOLUTELY UNJUSTIFIED AND AGAINST THE PROVISIONS OF THE LAW. 9 .4 WE HAV E HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS EVIDENT FROM THE SUBMISSION OF THE ASSESSEE AND THE DOCUMENTS IN SUPPORT FILED IN THE PAPER BOOK THAT THE CAPITAL OF THE EOU CONSIST S OF : (I) INVESTMENT OF RS.7 67 14 975/ - IN FINANCIAL YEAR 2006 - 07 BY THE HEAD OFFICE OUT OF THE CAPITAL RAISED IN FINANCIAL YEAR 2006 - 07 ; (II) INVEST MENT OF RS.68 30 836/ - BY THE HEAD OFFICE IN FINANCIAL YEAR 2007 - 08 OUT OF THE PROFIT OF THE HEAD OFFICE ; (III) PROFIT OF THE EOU OF RS.5 18 85 665/ - IN FINANCIA L YEAR 2006 - 07 RS.2 49 76 052 / - IN FINANCIAL YEAR 2007 - 08 AND RS.8 27 197/ - IN FINANCIAL YEAR 2008 - 09. 9 . 5 IN VIEW OF ABOVE IT IS MANIFESTED THAT NO BORROWED FUNDS HAVE BEEN UTILIZED BY THE HEAD O FFICE FOR INVESTMENT IN THE EOU. IN OUR 18 ITA NOS. 3516 & 4112/DEL/2013 AY: 2009 - 10 OPINION THE ARG UMENT OF THE LEARNED SR. DEPARTMENTAL REPRESENTATIVE THAT ASSESSEE DEBITED RS. 2.81 CRORE IN PROFIT AND LOSS ACCOUNT UNDER THE HEAD INTEREST PAID TO BANK LOAN WHEREAS TOTAL AMOUNT OF BACK INTEREST SHOWN IN THE PROFIT AND LOSS ACCOUNT OF ITS EOU UNIT IS RS. 42.63 LAKHS ONLY IS THUS NOT RELEVANT TO THE FACTS FOR DECIDING WHETHER ANY BORROWED FUND HAS BEEN UTILISED IN INVESTMENT IN EOU . BEFORE US THE ASSESSEE HAS ALREADY EXPLAINED THAT LOANS BORROWED FOR SPECIFIC PURPOSE HAVE BEEN UTILIZED TOWARDS THOSE PURPOSES ONLY. IN SUCH CIRCUMSTANCES NO DI SALLOWANCE COULD BE MADE UNDER R ULE 8D2(II) OF THE RULES . 9 . 6 WE FIND THAT THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) HAS ALSO ALLOWED RELIEF TO THE ASSESSEE WITH FOLLOWING OBSERVATIONS: (II) WHETHER DISALLOWANCE UNDER SECTION 14A IS TO BE MADE ON INVESTMENTS MADE BY THE HEAD OFFICE IN THE EOU. THE APPELLANT HAS CLAIMED THAT THE INVESTMENT IN EOU HAS BEEN ASSUMED BY THE ASSESSING OFFICER TO BE OUT OF BORROWED FUNDS. HOWEVER DURING FINANCIAL YEAR 2006 - 07 A CAPITAL OF RS.15 CRORES WAS INTRODUCED OUT OF WHICH RS.7 67 14 975/ - WAS CONTRIBUTED TOWARDS THE EOU. THUS NO BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF EOU. THE PROFITS EARNED BY THE EOU CONTRIBUTED TO THE RESERVES & SURPLUS. THUS THE ENTIRE AMOUNT OF RS.15 45 31 633/ - AS ON 31.03.2009 IS OUT OF CAPITAL AND PROFIT EARNED OVER THE YEAR. THE ASSESSING OFFICER HAS IN THE ASSESSMENT ORDER NOT PROVIDED ANY BASIS TO SHOW THAT THE INVESTMENT IN THE EOU HAS BEEN MADE OUT OF BORROWED FUNDS. THE UNIT HA S ON ITS OWN TAKEN SOME LOANS ON WHICH INTERST IS BEING PAID AND IS BEING DEBITED TO ITS PROFIT & LOSS ACCOUNT FOR THE PURPOSE OF COMPUTING ITS PROFIT. THE ASSESSING OFFICER HAS NOT BROUGHT ANYTHING ON RECORD TO SHOW THAT THE HEAD OFFICE HAS TAKEN LOANS FO R THE PURPOSE OF INVESTMENT IN THE EOU. THE ASSESSING OFFICER HAS TAKEN THE OPENING INVESTMENT IN THE EOU AT RS.16 04 07 523/ - AND THE CLOSING INVESTMENT AT RS.15 45 31 633/ - . THE DISALLOWANCE UNDER SECTION 14A ON THE AVERAGE OF THIS INVESTMENT IS DELETED AS THE FUNDS ARE OUT OF APPELLANT S OWN SOURCES. 19 ITA NOS. 3516 & 4112/DEL/2013 AY: 2009 - 10 9 . 7 IN VIEW OF OUR DISCUSSION ABOVE WE HOLD THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ON THE ISSUE IN DISPUTE IS WELL REASONED AND NO FURTHER INTERFERENCE ON OUR PART IS REQUIRED ACCORDINGLY WE UPHOLD THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) ON THE ISSUE IN DISPUTE AND THE GROUNDS OF THE R EVENUE IS DISMISSED. 10 . THE GROUND NO. 3 OF THE REVENUE S APPEAL BEING GENERAL IN NATURE NOT REQUIRED TO BE ADJUDICATED UPON BY US. 11 . IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE R EVENUE IS DISMISSED. THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 2 1 S T OCTOBER 2016 . S D / - S D / - (H.S. SIDHU ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 1 S T OCTOBER 2016 . LAPTOP / - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR ITAT NEW DELHI