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TMI Blog2013 (11) TMI 1233X X X X Extracts X X X X X X X X Extracts X X X X ..... 004-05 -do- Assessee 8. 153(Asr)/2011 2004-05 -do- Revenue 9. 122(Asr)/2011 2005-06 -do- Assessee 10. 154(Asr)/2011 2005-06 -do- Revenue 11. 123(Asr)/2011 2006-07 -do- Assessee 12. 155(Asr)/2011 2006-07 -do- Revenue 2. In ITA No.103(Asr)/2006 for the assessment year 2001-02, the Revenue has raised following grounds of appeal: "1. That on the facts of the case and in law, the ld. CIT(A) has erred: a) in accepting the claim of the assessee regarding the conversion of shares from "stock-in-trade" to "Investments" to be genuine. He has not appreciated that the conversion of shares had been made with a view to circumvent the provisions of the Explanation to section 73 as the market price of the shares had gone down substantially leading to loss from dealing in them. Moreover, the shares in question had been purchased by the amalgamated company with an intention to trade in them and the subsequent change of character was only a colorable device to avoid the mischief of the Explanation to section 73. b) in holding that the provisions relating to capital gains are applicable to the transactions relating to sale of shares as the shares were held as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee for depreciation @ 25% on building used as Nursing Home ignoring the fact that the area which could be considered to be part and parcel of plant and machinery was nominal and rest of the building was a normal building. He has also ignored the fact that the enhanced claim was not backed by tax auditors. 7. The Ld. CIT(A) has, on facts of the case and in law, erred in reducing the disallowance out of expenses incurred in relation to income not includible in total income. The appellant craves leave to add or amend the grounds of appeal on or before the appeal is heard and disposed of. It is prayed that the order of the Commissioner of Income-tax (Appeals) be set aside and that of the AO be restored." 3. In ITA No.78 (Asr)/2006 for the assessment year 2001-02, the assessee has raised following grounds of appeal: "1. On the fact and in the circumstances of the case, the ld. CIT(A) has erred both on facts and in law in upholding the order of the Assessing Officer relating to disallowance under section 14A of the Income-tax Act, 1961. 2. The appellant craves leave, to add, alter or amend the grounds of appeal at any stage." 4. In ITA No.119(Asr)/2011 for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1.3. That the Ld. CIT(A) further erred in law in holding that interest expenditure to the extent of Rs. 4,32,94,905/- incurred by the appellant during the relevant previous year had proximate nexus with the earning of tax exempt income and was disallowable u/s 14A of the Act. 1.3.1. That the Ld. CIT(A) further erred in law in not issuing a show cause notice or affording an opportunity to the appellant to rebut the formula or the basis adopted by him to compute the disallowance on account of interest expenditure u/s 14A of the Act. 1.4 That the Ld. CIT(A) erred in law in disallowing, on adhoc basis, a sum of Rs. 20,00,000/- u/s 14A of the Act, in respect of personnel and administrative expenses alleged to have been incurred for purpose of earning tax exempt income. 1.5 Without prejudice to above, that the Ld. CIT(A) further erred in law in rejecting the appellant's plea to restrict the disallowance of interest and other expenses to Rs. 10,00,000/- u/s 14A of the Act on a 'reasonable basis', as computed by the predecessor Ld. CIT(A) for the AY 2001-02 and by the Ld. AO himself for the AY 2003-04, AT 2004-05 and AT 2005-06. 2. That the ld. CIT(A) erred on facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e head of capital gains. 7. That it is prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. restored. 8. That the appellant requests for leave to add or amend or alter the grounds of appeal before the appeal is heard and disposed of." 6. In ITA No.120(Asr)/2011 for the assessment year 2003-04, the assessee has raised following grounds of appeal: "1. That the Ld. CIT(A)- Jalandhar erred on facts and in law in confirming the disallowance of legal and professional expenses of Rs. 1,544,209/- made by the Ld. A.O. being the retainership fees paid to Max UK Limited for providing various business support services. That the appellant requests for leave to add or amend or alter the grounds of appeal before the appeal is heard and disposed of." 7. In ITA No.152(Asr)/2011 for the assessment year 2003-04, the Revenue has raised following grounds of appeal: "1. Whether on the facts and the circumstances of the case, the ld. CIT(A) has erred in law in allowing the payment made on account of non-compete fee of Rs. 35,39,483/-. 2. Whether on the facts and the circumstances of the case, the ld. CIT(A) has erred in law in allowing the disallowance of Rs. 46,05,171/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same was demonstrated by placing on record extensive documentation and details. 1.2.3 That the Ld. CIT(A) further erred in law in drawing a nexus of the interest bearing borrowed funds with the instruments yielding exempt income solely for the reason that bank statements were not furnished b the appellant, not properly appreciating the cash/fund flow statement made available by the appellant and further alleging that the contention of the appellant that the bank statements were not readily available does not appear to be tenable. 1.2.4 That without prejudice the Ld. CIT(A) further erred in law in not appreciating that investments in instruments which did not yield tax exempt income and/or were held as stock in trade were not required to be taken into consideration for purposes of computing the percentage of borrowed funds alleged to have been used for earning tax exempt income, for the purposes of making disallowance u/s 14A of the Act. 1.3 That the Ld. CIT(A) further erred in law in holding that interest expenditure to the extent of Rs. 5,64,00,000/- incurred by the appellant during the relevant previous year had proximate nexus with the earning of tax exempt income and was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions in listed securities to be in the nature of investment of the assessee rather than speculation income/loss. 4. That it is prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. restored. 5. That the appellant requests for leave to add or amend or alter the grounds of appeal before the appeal is heard and disposed of." 10. In ITA No.122(Asr)/2011 for the assessment year 2005-06, the assessee has raised following grounds of appeal: "1. That the Ld. Commissioner of Income Tax (Appeals) - Jalandhar [hereinafter referred to as Ld. CIT(A)], erred on facts and in law, in not deleting the disallowance of Rs. 10,00,000 made by the Ld. AO u/s 14A of the Income Tax Act, ('the Act'); instead in enhancing the amount of disallowance under the said section to Rs. 4,48,00,000/-. 1.1 That the Ld. CIT(A) further erred in law in ignoring that the Ld. AO had failed to substantiate record/establish any proximate nexus between the exempt income earned and expenditure incurred during the year for computing the alleged disallowance u/s 14A of the Act. 1.2 That the Ld. CIT(A) further erred in law in on fact and in law, in computing Rs. 4,48,00,000/- as the disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther erred on facts and in law in rejecting the appellant's plea to allow it to withdraw its ground of appeal relating to disallowance u/s 14A of the Act or in the alternative treat it as "not pressed". 1.6. Without prejudice to above, that the Ld. CIT(A) further erred in law in rejecting the appellant's plea to restrict the disallowance of interest and other expenses to Rs. 10,00,000/- u/s 14A of the Act on a 'reasonable basis', as computed by the predecessor Ld. CIT(A) for the AY 2001-02 and by the Ld. AO himself for the AY 2003-04, AY 2004-05 and AY 2005-06. 2. That the ld. CIT(A) erred on facts and in law in confirming the action of the Ld. AO in not deleting the addition of Rs. 10,00,000/- being the amount disallowed u/s 14A, made to the net profit by the Ld. AO while computing 'book profit' u/s 115JB of the Act; instead in enhancing the said amount of addition to Rs. 4,48,00,000/-. All the above grounds are independent and without prejudice to each other." 11. In ITA No.154(Asr)/2011 for the assessment year 2005-06, the Revenue has raised following grounds of appeal: "1. Whether on the facts and the circumstances of the case, the ld. CIT(A) h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention of the appellant that the bank statements were not readily available does not appear to be tenable. 1.2.4. That without prejudice the Ld. CIT(A) further erred in law in not appreciating that investments in instruments which did not yield tax exempt income and/or were held as stock in trade were not required to be taken into consideration for purposes of computing the percentage of borrowed funds alleged to have been used for earning tax exempt income, for the purposes of making disallowance u/s 14A of the Act. 1.4 That the Ld. CIT(A) further erred in law in holding that interest expenditure to the extent of Rs. 3,38,00,000/- incurred by the appellant during the relevant previous year had proximate nexus with the earning of tax exempt income and was disallowable u/s 14A of the Act. 1.3.1 That the Ld. CIT(A) further erred in law in not issuing a show cause notice or affording an opportunity to the appellant to rebut the formula or the basis adopted by him to compute the disallowance on account of interest expenditure u/s 14A of the Act. 1.4. That the Ld. CIT(A) erred in law in disallowing, on adhoc basis, a sum of Rs. 30,00,000/- u/s 14A of the Act, in respect of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ', prior to merger and which vested with the assessee post merger, were decided to be held as 'investment'. Accordingly, the said shares were converted from stock in trade to investment. On the date of conversion, the assessee claimed a loss on account of difference in market value of such shares and cost price thereof. The said loss was claimed as business deduction. Out of the aforesaid converted shares, certain shares were also sold by the assessee during the year. The assessee computed loss from the aforesaid sale, i.e. difference between the sale price and market price as on the date of conversion (3.7.2000) at Rs. 2.12 crores, which was disclosed under the head 'capital gains'. Further, during the relevant previous year, the assessee sold shares of three companies, which were as held as stock in trade and acquired from erstwhile MCL, which resulted in business loss of Rs. 3.72 crores. ii) The AO did not accept the action of conversion of shares from stock in trade to investment in the books of account on the ground that even after merger, the company was taking decisions on day to day basis on sale and purchase of shares and therefore, the shares were cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the said conversion was done to avoid application of Explanation to section 73 of the Act because if the conversion had not been done, the loss on sale of shares would have been a speculation loss under that Explanation and not adjustable against other income. It was further submitted that as per resolution passed by the company for conversion of shares, it was stated that the reason for such conversion was future prospects of the securities held as stock in trade, staggered requirement of funds by the company in next 3-4 years and the current volatile market conditions etc. 16.2. The Ld. DR pointed out that the company, in fact, sold 33% of the shares acquired from Max Corporation Ltd. during the relevant previous year itself, whereas object was to hold the same for 3 to 4 years. It was also submitted that shares were sold to minimise the risk of the volatile market condition and avoid further cash loss to the company on these share holdings. Such considerations as per Ld. DR were not relevant in respect of shares held as investments. In other words, as per the Ld DR shares were not actually held as investments. 16.3. The Ld. DR has also objected to the action of the Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sell the entire converted shares in the year of conversion and sold only few shares during the year and few shares were sold in succeeding years depending upon market conditions. 17.2. The Ld. counsel for the assessee invited our attention to page 105 of the supplementary paper book to point out that shares of 36 different Companies were received from Max Corporation Ltd at the time of amalgamation out of which only 11 shares were converted into investment ( as per Board Resolution of the Company, dated 25.10.2000 appearing at PB- 47) by the assessee and even out of such 11 shares only part of which were sold during the relevant previous year. The details of the shares converted into investments is given at PB-49. It was pointed out by the Ld. counsel for the assessee that in fact the assessee had suffered loss even in relation to the shares held as stock in trade, a part whereof was sold during the relevant previous year. It was pointed out that the assessee could not have envisaged at the time of conversion of shares that the share price would go down and there would be a loss, moreso considering that the shares which were converted into investments were of large size blue chip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot applicable in relation to the shares held as investments. For this proposition, reference was made to the following decisions: i) Mysore Rolling Mills (P) Ltd vs CIT 195 ITR 404 (Ker.) ii) CIT vs. VIP Growth Fund Ltd 95 Taxman 313 (Del) iii) Standipack (P) Ltd vs. CIT 255 CTR 197 (Cal) iv) Trade Team (P) Ltd. vs. DCIT 54 ITD 306 (Mumbai) v) DCIT vs. Jindal Exports Ltd. 287 ITR 172 (Del) (AT) vi) Sterlite Industries (India) Ltd. vs. Addl. CIT 102 TTJ 53 (Mumbai) vii) A.N.Corpn. Ltd. vs. ITO (2006) 6 sot 458 (Mum) viii) ACIT vs. Bright Star Investment (P) Ltd. 120 TTJ 498 (Mum) ix) ACIT vs. R.Raman (HUF) 48 SOT 28 (Chennai) x) Krishnalakshmi Multi Trade (P) Ltd v. ACIT 130 ITD 584 (Ahd) 18.1. In view of the aforesaid, it was submitted that loss of Rs. 6.52 crores arising on sale of shares was held as investment cannot be disallowed by applying Explanation to section 73 of the Act. 19. As regards the loss in relation of shares held as stock in trade which were sold during the previous year, it was submitted that Explanation to section 73 was not applicable to such loss since composition of income derived from various sources which was considered while computing total in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Union of India vs. Azad Bachao Andolan and Another reported in 263 ITR 706. The bonafides of the assessee are demonstrated by the fact that only 1/3rd of the shares converted into investments only part of the shares so converted were sold during the previous year and even in respect of shares held as stock in trade, there was a loss on sale of such shares during the relevant previous year also. At the time of conversion of shares, the assessee could not have known that the prices would fall subsequently. 22.1. In view of the aforesaid, the order of the Ld. CIT(A) accepting the conversion of the stock in trade into investment is upheld. Section 73 of the Act reads as under: "Losses in speculation business. 73. (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. (2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t comparison should be made after setting off of the brought forward losses, we are of view that this approach cannot be followed and would be erroneous, in the facts of the present case because we find that ultimately income assessed after setting off of the brought forward losses at nil both the under the head 'Capital Gains' and 'Business income'. This would be clear from the computation of income made by the AO as under: Total Business Loss (-) 10,26,93,058/- Total income under the head capital gains and income from house property 13,66,84,993/- Set off business loss of current year (-) 10,26,93,058/- Net capital gains (-) 3,39,91,935/- Set off brought forward capital loss (-) 3,39,91935 Balance of capital gains Nil Balance under the head Business Nil In this kind of situation, no comparison can be made if the approach suggested by the Ld.DR is to be followed. We are of the view that in order to give effect to the provisions of Explanation to section 73 of the Act and the exclusion contained therein in a case like the present one, comparison has to be made between the income actually earned from various sources during the current year uninfl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee could have commenced the same only by procuring licences from the Government. The Ld. DR also distinguished the decision of the Hon'ble Supreme Court in the case of Produce Exchange Corporation Ltd. reported at 77 ITR 739 relied upon by the assessee as also other cases laying down the tests for determining whether difference business form part of the same business or not on the ground that in the said decision nowhere held that if new business licences are required in relation to a business, the same can be treated as part of the existing/same business. The Ld. DR also pointed that the said decision cannot be applied for deciding the admissibility of an expenditure under the provisions of the Act, since the same was rendered in connection with the setting off of losses of business from the profits of a different business under section 24(2) of the Income Tax Act, 1922. The Ld. DR also argued that there was no inter-connection, inter-dependence, inter-lacing of the health care business carried on by the assessee. 23.4. The Ld. DR relying upon the decision of the Hon'ble Calcutta High Court in the case of Ashoke Marketing Ltd. vs. CIT (1994) 208 ITR 941, wherein it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 589 (SC) vii) B.R.Ltd. v. V.P. Gupta 113 ITR 647 (SC) In the case of company the new healthcare division was under the control and supervision of the existing management of the company. The various expenses incurred towards acquisition of assets and those of revenue nature incurred in relation to the new facility, were met out of funds generated from the existing business or from funds borrowed on the strength of the assets of existing business and assurance of the existing management. Therefore, since there was common management, common administration, interlacing of funds and unity of control applying the test laid down in the aforesaid decisions, the new healthcare division was nothing but extension of the existing business. Mr. N.S. Chawla, whose services were doubted and held to be dedicated to healthcare division in the assessment order, was a full fledged director looking after the total businesses. He had no medical background. He attached various board meetings where business decisions relating to different divisions were taken. He was joint signatory to financial statements of the assessee company. 24.2. In view of the above, it was submitted that the impugned expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar revenue expenditure in those years in relation to healthcare which was being set up was allowed after examining the facts and allegation of the AO, which has been repeated in the impugned assessment order. 24.4. The relevant observations in those orders are as under: Assessment year 1999-2000 ( page 72 of PB) "I also find force in the ld. counsel's arguments that the AO disallowed the assessee's claim without affording any opportunity of being heard, of his view, if any, that different activities including Healthcare did not constitute the same business. It was not justified on the part of the AO to arrive at a conclusion regarding such an important factor without even a show cause addressed to the assessee, and without any discussion in the order passed as to how such a major departure was being made as compared to the past. I have considered the rival submissions in the matter. On merits, I find that the assessee has been able to ordain well that the various businesses carried on by it (including healthcare) do constitute the SAME BUSINESS of assessee. I accordingly hold that the various businesses carried on by the assessee including Healthcare business, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) however, allowed the assessee's claim after detailed examination and considering plethora of judicial precedents. The department's appeal against the above order of the CIT(A) was dismissed by this Bench of the Tribunal vide order dated 1.1.2010 in ITA No.373(Asr)/2002. In paragraph 12 of the said order, the ld. CIT(A)'s finding that the healthcare business was only an expansion of the existing business of the assessee and not a new line of business was upheld and the revenue expenses were held to be allowable. 45. In view of the aforesaid, the facts in the year under consideration being the same as in the earlier years, the expenses relating to healthcare business being incurred in connection with expansion of existing business have been rightly allowed deduction by the A.O. and view taken by the A.O., therefore, was plausible view." 25. As regards the contention of the ld. DR that the healthcare division could be the extension of existing business carried on by the assessee since the same required a new licence from the Government to start the same, it was submitted that no licence was required from the Government to commence the health care business and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disallowance of expenditure relating to expansion of healthcare division is upheld and the ground of appeal raised by the revenue is dismissed. 27. In ground No.3, the Revenue has challenged the order of the ld. CIT(A) in allowing deductions of expenses of revenue in nature which were in relation to BOPP film division and were shown as pre-operative expenses pending capitalization in the books of account. 27.1. The facts in relation to this ground are that during the relevant previous year, the assessee incurred expenditure of Rs. 1.60 crores on expansion of its existing BOPP film division by way of putting up a second plan/second film line. Out of the aforesaid total expenditure, Rs. 0.32 crores was directly related to import of film line and, therefore, capital expenditure. In the computation of income, the assessee claimed deduction of balance of revenue expenses, amounting to Rs. 1.28 crores as business deduction, having been incurred for the purposes of the existing business. 27.2. The AO disallowed the above expenditure on the ground that that the same were related to setting up of new line of business and therefore they were of capital in nature. 27.3. The Ld. CIT(A) r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding in the aforesaid JVs to Max Telecom Venture Ltd. which was also a wholly owned subsidiary of the assessee. As a result, the restrictive covenants/obligations undertaken by the assessee under the JV agreement also devolved upon MTVL. Mr. Ashwani Windlass was in employment of the assessee since April 1, 1984 and held the position of Jt. Managing Director until resignation w.e.f. 31.7.1998. He, in his various capacities in the company, played a pivotal role in the formation of the JV companies and growth of the said businesses. Given his position, he had access to vital/confidential information relating to such business. Mr. Windlass having left the assessee company, was in a position to adversely affect the business of the JV companies and consequently defeat the restrictive obligation undertaken by the assessee company, at the time of entering into the JV agreements. 29.2. Accordingly, since at the relevant time , shareholding in the JV businesses was held by MTVL, MTVL executed two agreements dated 21.11.1998 with Mr. Ashwani Windlass (ex-employee) for placing following restrictive/negative covenants on him for a period of four years. i) to join or seek service or carry on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue submitted that non- compete fee was paid as a result of an agreement entered by the subsidiary company and the business in question already stood transferred to joint venture companies and the payment was made as a pre-condition for entering into joint venture and was not incidental to the day to day running of business. 32.1. The Ld. DR further submitted that the payment was made by the subsidiary companies and the ld. CIT(A) has not appreciated the aforesaid crucial facts. It was submitted that the ld. CIT(A) has wrongly allowed the claim of the assessee on the basis of the decision of the Hon'ble Madras High Court in the cse of CIT vs. Late G.D. Naidu reported at 168 ITR 63, as the decision was not applicable in the present case. 32.2. The Ld. DR also relied upon the following decisions to contend that the deduction of non-compete fee was held as not admissible as the same was capital expenditure: i) CIT vs. Tata Coffee Ltd. 326 ITR 214 (Karnataka) ii) Pitney Bowes India (P) Ltd. vs. CIT 204 Taxman 333 (Del) iii) CIT vs. United Breweries Ltd. 325 ITR 485 (Karnataka) iv) Indo Tech electric Co. vs DCIT 49 DTR 218. 52 33. The Ld. counsel for the assessee, Mr. Rupesh J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch of ITAT in the case of Intervet India (P) Ltd. vs. ACIT (supra) is squarely applicable on the facts of the assessee's case since in that case also payment of non-compete was made to the employee on leaving employment which was held to be allowable. The assessee has also referred to the decision of Hon'ble Madras High Court in the case of M/s. Carborandum Universal Limited vs. JCIT : Tax Case (Appeal) No.244 of 2006 in support of its claim wherein a different view has been taken than the view taken by the Hon'ble Delhi High Court in the case of Pitney Bowes India (P) Ltd. (supra). It was, therefore, submitted that that the decision of the Hon'ble Delhi High Court in the case of Pitney Bowes India (P) Ltd. vs CIT (supra) cannot be applied in the case of the assessee to disallow the deduction of non-compete fee. In view of the aforesaid, it was submitted by the ld. counsel for the assessee that the aforesaid order of the Tribunal in assessee's own case for the assessment year 2000-01 needs to be followed and the order of the ld. CIT(A) should be upheld. 34. We have heard the rival contention and perused the facts of the case . We find that identical issue came ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue deduction by the A.O. 43. Both the Ld. authorized representatives and the Ld. DR have referred to several case laws as to whether payment of non-compete fee is capital or revenue expenditure. In our opinion, it is not necessary to deal with the case law cited on the above assessee and it is suffice to say that the issue whether the above expenditure is of revenue or capital in nature is at most an issue on which two opinions are possible, moreso, considering that the Ld. CIT(A) in assessee's own case for the assessment year 2001-02 allowed similar claim." 34.1. We have also perused four decisions referred to by the Ld. DR. Except for the decision of Hon'ble Delhi High Court in the case of Pitney Bowes India (P) Ltd. (supra), all other decisions deal with the issue whether the amount received as non-compete fee is a capital or revenue receipt. The said decisions are of no relevance in the present case. As regards, the decision of Pitney Bowes (supra), we agree with the ld. AR that the decisions too are not applicable in the present case since the same pertained to payment of non-compete fee in relation to transfer of business. The case of the assessee in fact is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Patrika (P) Ltd reported in 41 ITD 349 wherein it has been held as under: "Having regard to the function of the 'comp set' in question it was clear that it was a computer printing machine having minicomputer brain and memory which was treated a computer and it would, therefore, fall under sub-item C(3) of sub part III of Part-1 of Appendix 1 of the Rules, for which 20% depreciation was allowable." 37.1. Reliance was also placed on the following decisions of High Court, wherein it has been held that various accessories, which can be used without computer, forms integral part of computer and are entitled to depreciation @ 60%: i) CIT vs. BSES Rajdhani Powers Ltd. 1266/2010 (Del)\ ii) CIT vs. Orient Ceramics and Inds. Ltd. 200 Taxman 64 (Del) iii) CIT vs. Citicorp Maruti Finance Ltd. ITA 1712 and 1714/2010 (Del.) iv) DCIT vs. Datacraft India Ltd 133 TTJ 377 (Mum) (SB) v) CIT vs. BSES Yamuna Powers Ltd. ( ITA No.1267/2010 (Del) It is, therefore, submitted that since the term 'computer' is not defined in the Act, going by the meaning given by various forums and dictionaries, the same includes electronic devices with software and micro-processors and accessorie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d higher rate applicable to plant and machinery on the following grounds: i) out of 4 floors in the total building, first 3 floors including the ground floor consisting of large waiting and reception areas, conference halls, toilets, pediatric waiting rooms, offices, executive waiting hall and rooms for examination of outdoor patients, whereas in the case of Dr. B. Venkata Rao (supra), the major portion of the nursing home was occupied by sterilization and operation theatre. ii) The AO presumed that the area occupied by minor operation theatre room and sub-sterile room on 3rd floor was less than 5% of the total building. iii) In view of the above, the AO held that the nursing home building of the assessee was like a normal building, entitled to depreciation @ normal rate of 10% instead of rate applicable to plant and machinery. 39.2. The ld. CIT(A) held that the lay out submitted by the assessee clearly established that substantial area of the nursing home was occupied by sophisticated medical equipments, as opposed to adverse inferences drawn by the AO, simply on surmises and conjectures. The Ld. CIT(A), therefore, held that the aforesaid decision of Hon'ble Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring House Pvt. Ltd. vs. CIT 157 ITR 86, wherein it has been held that meaning of the term 'plant' is of the widest amplitude and would include every asset which is used by an assessee as a tool of business.. 40.3. Reliance was also placed on the decision of the Hon'ble Supreme Court in the case of Dr. B. Venkata Rao (supra) wherein it has been held that nursing home building constitutes plant and is eligible for depreciation at the rate applicable to plant as opposed to normal building. 40.4. It was submitted that the ld. DR has not given any cogent reason to distinguish the aforesaid decisions of the Hon'ble Supreme Court. It was therefore, submitted that the order of the Ld. CIT(A) needs to be upheld. 41. We have heard both the parties and considered the rival contentions. We are of the view that assessee's claim needs to be succeeded. The assessee had given details of various equipments being used in the various rooms at the nursing home. Also, it is accepted fact that the building was customized in a manner that it could be used as a Nursing Home. It has not been disputed as per lay out plan to which reference has been made by the AO. The aforesaid build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince making investment is not a regular activity. As per ld. CIT(A), the disallowance made by the A.O. was excessive considering the diversified nature of activities carried on by the assessee. The ld. CIT(A) held disallowance of Rs. 10 lacs to be proper on the facts and circumstances not accepting the contention of the assessee that in the absence of specific expenditure relatable to dividend income, no disallowance on notional or proportionate basis can be made. Reference is made to the case of CIT vs. United Collaries 49 Taxamn 271 (Cal). 45. The Ld. DR argued that the assessee had invested Rs. 361.64 crores in shares and the disallowance made by the AO on estimated basis was not excessive. It was further stated that the ld. CIT(A) has in principle upheld the disallowance u/s 14A but not given any good reason for reducing the same to Rs. 10 lacs. As per Ld. DR reduction of disallowance made by the Ld. CIT(A) was totally on adhoc basis and cannot be sustained. Ld. DR, therefore, prayed that the disallowance made by the AO under section 14A of the Act should be restored. 46. The Ld. counsel for the assessee argued that the assessee had made investments in shares which were held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of borrowed funds in as much as the MCL did not had any interest bearing borrowed funds, nor any interest expenditure was debited in the profit & loss account of that company, prior to merger with the assessee.(PB-97 and 102 of supplementary PB). Therefore, the investments to the extent of Rs. 195.48 crores, held by the assessee as on 1.4.2000 had no nexus with the borrowed funds. A.2 Balance Investments ' Rs. 67.65 crores A.2.1 Investments, not resulting in earning of exempt income - Rs. 36.01 crores. As regards the balance investments, amounting to Rs. 67.65 crors (RS.263.13 crore -Rs.195.48 crores) held as on 1.4.2000, the same included investment in shares of foreign subsidiary company and other Government securities/Bonds/Mutual Funds, the income wherefrom was not exempt from tax under the provisions of the Act, aggregated to Rs. 36.01 crores. The break up of the aforesaid investments is as under(PB87-88 of supplementary PB): Nature of investment Amount in Rs. and crores Foreign Subsidiaries Max Asia Pac Ltd. 11.33 Max UK Ltd. 2.13 Max Visions Inc. 0.95 BONDS Reliance Zero Coupon Bonds 6.10 HDFC Bonds 0.62 MTNL Ltd. 0.57 RELIAN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments, repayment of term loans and investment in joint ventures. However, Note.3 of the Offer Document (PB-251), stipulated that proceeds of NCD (interest bearing) were not be utilized for investment in shares of group companies of joint ventures. The aforesaid object was to be met out of the proceeds of zero coupon FCDs. The relevant portion of the aforesaid note reads as under: "As per the SEBI guidelines for disclosure and investor protection- Clarification II, the proceeds of NCD issue cannot be utilized for acquisition of shares and/or providing loan to any company belonging to the same group. "In line, with above, Company's requirements for investments into joint ventures in Phase I, is proposed to be met through the proceeds of FCD issue and/or preferential issue of warrants to the management group" In view of the above, no portion of the interest bearing NCD was utilized towards investment in shares of MTVL, a group company of the Assessee. Further, as is evident from the case flow statement of the year ending 31.03.1996, against the aforesaid aggregate interest bearing borrowing of Rs. 40.33 crores (from NCD), the Assessee had acquired fixed assets from an am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in earning of any exempt income) of Rs. 357.29 crores. As against the aforesaid investment, the Assessee realized Rs. 302.26 crores from sale of investments made in earlier year(s) and Rs. 3.44 crores from interest and dividend income, etc. The assessee also generated interest free cash from operations, aggregating to Rs. 97.63 crores, from operating activities. Furthermore, the Assessee had an opening cash balance of Rs. 20.47 crores,. The aforesaid interest free flow of funds aggregating to Rs. 423.80 crores was sufficient to make investment of Rs. 357.29 crores. Further, it would be appreciated that during the relevant year the assessee only made an incremental borrowing of Rs. 37.50 crores which was utilized for other business purposes of the Assessee, like purchase of fixed assets, aggregating to Rs. 79.08 crores (PB-66 of supplementary PB). In that view of the matter, it would be appreciated that the Assessee had substantial surplus interests free funds, which were sufficient to cover additional investments in shares made during the year and, therefore, there was no nexus of interest paid on borrowed funds with the said investments in the Assessment Year 2001-02. Relian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein and not to earn dividend income. Dividend received, if any, on such shares is only incidental to holding of such shares. Therefore, even assuming with admitting that some expenses incurred during the year had remote nexus with such investments, no portion thereof can be attributed to earning of exempt dividend income therefrom, warranting disallowance under Section 14A of the Act. Reliance, in this regard, is placed on the following decisions, wherein it has been held that no portion of the expenditure can be disallowed under section 14A, where the investment in shares is held as stock in trade: - CCI Ltd. Vs. Jt. CIT: 206 Taxman 563 (Kar) - Apoorva Patni Vs. ACIT :[2012] 24 taxmann. com 223 (Pune) - Ethio Plastics P Ltd. [TS-882-I.T.A.T.-2012(Ahd)] In view of the above, without prejudice to the submission that no portion of the expenditure incurred during the year can be disallowed under Section 14A, in the absence of proximate nexus of expenses with investments being established, it is submitted that no portion of the expenditure relatable to investment in shares held as stock in trade can be made and the disallowance to that extent needs to be deleted. b. Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quity players. Thus, the role and responsibilities of the treasury department is very critical and crucial and no special efforts are made at their end nor expenditure incurred at the department have any direct relation with earning of exempt dividend income, which, in fact, constitutes only 1.30 % of the total income. In view of the above, it is submitted, that no administrative expenditure having direct or indirect relation with making investment in shares, much less for earning exempt dividend income, was incurred by the Assessee, and, therefore, the disallowance made by the Ld. AO/Ld. CIT(A) calls for being deleted. Further without prejudice-Reduced disallowance, having regard to consistency. Further without prejudice to the above, it is submitted, that the disallowance, if any, needs to be restricted to disallowance of Rs. 0.10 crores estimated by the Ld. CIT(A) on reasonable basis, which was even followed by the Ld. AO in the Assessment orders for the Assessment years 2003-04, 2004-05 and 2005-06 (although subsequently enhanced by the Ld. CIT(A) (Refer page 31 of CIT(A)'s order and challenged in further appeal by the Assessee before I.T.A.T.). Therefore, on the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration. 49. In view of the above, ground raised by the assessee in this regard is dismissed and that of assessee is allowed. 50. In the result, the appeal of the Revenue in ITA No.103(Asr)/2006 is dismissed and the appeal of the assessee in ITA No. 78(Asr)/2006 is allowed. 51. Now, we take up appeal of the assessee in ITA No.119(Asr)/2011 for the assessment year 2002-03. Ground No.1 of the assessee involves the issue of disallowance of expenditure under section 14A of the Act. 51.1. The brief facts are that during the relevant previous year, the assessee had earned dividend income of Rs. 2.91 crores and interest of Rs. 0.55 crores aggregating to Rs. 3.46 crores from various investments held in shares/bonds, which is exempt under the relevant provisions of section 10 of the Act. No amount was offered for disallowance by the assessee under section 14A of the Act. 51.2. The A.O. following the assessment for the A.Y. 2001-02 made an ad- hoc disallowance of Rs. 1.50 crores out of total expenses incurred by the assessee during the year under section 14A of the Act on the ground that the assessee cannot be said to have incurred any expense in relation to earning of aforesaid exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of borrowed funds for making investments yielding exempt income. The findings about utilization of funds can be made only from study of bank statement/bank book which was not produced. The Ld. CIT(A) stated that the assessee was intentionally not furnishing the bank statement and the plea of the assessee that the bank statement pertain to very old period and are not available with the assesse is without basis since bank statement even for the assessment year 2006-07 have not been submitted. In view of the same, it was stated by the Ld. CIT(A) that presumption needs to be drawn against the assessee and the borrowed funds have to be considered as having been made for the purposes of making investments. The Ld. CIT(A) referred to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Orissa Cement Ltd. 258 ITR 365 wherein as regards the issue whether the interest free advances had been made out of the sale proceeds or out of borrowed funds, it was observed that such determination should be made on the basis of material on record placed by parties. 51.5. The Ld. CIT(A) also referred to the decision of the Hon'ble Punjab & Haryana High Court in the case of Shashi K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ast India India Pharmaceutical Works Ltd. vs. CIT 224 ITR 627 (SC) and Hon'ble Calcutta High Court in the case of Woolcomber's of India Ltd. vs. CIT 134 ITD 219 (Cal), wherein it was observed that whether a assumption can be drawn that the taxes were paid out of profits of the relevant year and not out of over- draft account, would depend depend upon the fact as to whether the entire profits had been pumped into the overdraft account and whether such profits were more than the tax amount paid for the relevant year and all other germane factors. The Ld. CIT(A), therefore, was of the view that the decision of the ITAT, Delhi Bench in the case of Maruti Udyog Ltd. vs. DCIT (surpa) was not to be preferred. 50.10 Whether cash from operations as appearing in the cash flow statement was utilized for the purchase of investments, payment of dividend, fixed assets etc. is not discernible in the absence of bank statements/bank book and presumption in favour of the assessee on the basis of cash flow statement cannot , therefore, be drawn. Also in some cases, the proceeds from sale of investment was to be used for repayment of loan funds and were not available for investments. At the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd. ITA No.803/2008 (Delhi HC) - CIT vs. Ms. Sushma Kapoor 319 ITR 299 (Delhi) - ACIT vs. SIL Investment Ltd. ITA No.2431/Del/2010 (Del) - Sipra Engineers Pvt. Lt. [TS-671-ITAT-2012 (Mum)] 51.1. The Ld. counsel for the assessee pointed out that during the relevant previous year the assessee incurred expenses which were necessary for the regular business operations of the company carried on during the year and no expenses debited to the profit and loss account for the year was relatable to earning of dividend income from investments in shares of various companies. It was submitted that the AO without establishing the proximate nexus of any expenditure incurred during the year with investments yielding exempt income, made ad-hoc disallowance of Rs. 1.50 crores out of total expenses incurred during the year. The fact that the AO made ad-hoc disallowance only establishes that the AO could not pin point any expenditure, which had proximate nexus with investments resulting in exempt dividend income. In that view of matter it was submitted that the disallowance made by the AO needs to be deleted at the threshold on the aforesaid ground itself. That apart, even other, it was subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ousted from the application of the provisions of section 14A of the Act. A.2.2. Remaining Investments, out of interest free funds-- R.s.31.64 crores(Refer PB 87-88 supplementary PB of AY 2001- 02). The break-up of balance investments, aggregating to Rs. 31.64 criers, is as under: Nature of Investment Amout in Rs. and crores. Max Telecom Ventures Ltd. ('MTVL') 30 Alliance Capital Mutual Fund & Ors. 1.64 Total 31.64 Out of the aforesaid investments, aggregating to Rs. 31.64 crores, it would be appreciated that, major investment related to investment in shares of MTVL, amounting to Rs. 30 crores. The said total investment in shares of MTVL, it is submitted, was made in the previous year ending 31.03.1996. On perusal of the cash flow statement of the Assessee company for the year ending 31.03.1996. On perusal of the cash flow statement of the Assessee company for the year ending 31.03.1996, attached as Annexure A to this Chart, it would be noted that the Assessee had made a fresh issue of share capital at a premium, aggregating to Rs. 41.55 cr(Rs. 1.42+40.13 crores). Further, the Assessee received funds of Rs. 22.65 crores from issue of zero coupon fully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment, which were utilized for other business purposes of the Assessee, and, years 2000- 01 and onwards, had no nexus with said investment, warranting disallowance under section 14A of the Act. Furthermore, the aforesaid opening investments were accepted to be made out of interest free funds, in as much as, no portion of the interest expenditure incurred in the earlier years was ever attributed to investments in the completed Assessments of those years. Reference in this regard is made to the following decisions wherein it has been held that where no portion of the borrowed funds have been attributed to investments made as at the beginning o the relevant previous year, no part of the interest expenditure allegedly relating to such investment, can be disallowed during the relevant year by drawing nexus of outstanding borrowed funds as at the end of the relevant previous year with opening investments: - CIT v. Sridev Enterprises: 192 ITR 165 (Kar.) - CIT vs. Givo Ltd.: ITA No. 941/2010 (Del) - Punjab Wool Combers Ltd. V. ACIT: (2004) 1 SOT 114 (Chandi.) - Motor and General Finance Ltd. Vs. DCIT : 90 ITD 449 (ITAT, Del.) - Meenakshi Synthetics Vs CIT: 84 ITD 563 (ITAT, Lko. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e following the ratio emanating from the aforesaid decisions, disallowance of interest expenditure under Section 14A has been deleted, where the Assessee was found to have interest free funds, exceeding interest bearing funds for making investment in shares: - Lubi Submeribles Ltd. :ITA No.868 of 2010 (Guj.) (High Court) - CIT vs. K. Raheja Corporation Pvt Ltd: ITA No. 1260 of 2009 (Bom) Furthermore, in the impugned Assessment order, the Ld. AO did not establish the aforesaid nexus of interest paid on borrowed funds with various investments, resulting in exempt income, and only made an ad-hoc disallowance of Rs. 1.50 crores under section 14A of the Act, which was further reduced by the Ld. CIT(A) to Rs. 0.10 crores. In view of the above, there was no proximate nexus of borrowed funds with investment in shares, warranting disallowance under Section 14A, nor has the same been established or pointed by the Ld. AO or Ld. CIT(A). 51.2. The Ld. counsel for the assessee pointed out that during the relevant previous year, the assessee made investments, as detailed below: "Investments during the period 1.4.2001 to 31.3.2002 (relevant to AY 2002-03 (Refer PB-892) Ref; Cash flow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Interest on Debenture 101.73 TERM LOAN ICICI BANK 30.00 1)The objective is to expand the manufacturing capacity of BOPP division by 5000 tpa i.e. from 3150 tpa to 8150 tpa and 2) The copy of relevant pages of sanction letter from ICICI Bank is enclosed herewith at pages 2000-208 of paper book IDBI Foreign currency loan Karnataka Bank 19.93 5.00 The objective is to meet the working capital requirement of the company and the copy of loan document is enclosed at pg. 309-310 of PB The objective is to meet the working capital requirement of the company and the copy of loan document is enclosed at PB 309-310 of PB ICICI Bank 3.72 The objective is to meet the working capital requirement of the company and copy of loan document is enclosed at pg 311 to 319 of paper book. Total Term Loan 38.72 INTER CORPORATATE LOANS IL & FS Rabo India - - 20.00 The The objective is to meet the working capital requirement of the company and the copy of loan document is enclosed at pg. 320-337 of PB Total Corporate Loan 20.00 Acceptance 0.86 The objective is to meet the working capital requirement of the company and document are voluminous in natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of actual funds and source of the same cannot, therefore, be appropriately determined with/from the balance sheet, prepared after considering non-cash expenses, as explained above. It is respectfully submitted that the determination of the source of investments, which involve deployment of cash funds, can more appropriately, correctly and completely be made on the basis of actual cash/funds available with the assessee during the year before making such investments. For instance, as per balance sheet, there is decrease in fixed assets during the year from Rs. 142.57 cr. To Rs. 110.58 cr; whereas as per the cash flow statement, the assessee had acquired new assets for Rs. 54.62 crores PB-868). The aforesaid decrease in fixed assets as per balance sheet was on account of removal/deletion of fixed assets, primarily relating to healthcare division, having cost of Rs. 56 crores, from the fixed asset schedule, which were hived off into a wholly owned subsidiary company of the assessee viz. Max Healthcare Institute Ltd; in lieu of fresh allotment of shares, without involving any cash inflow (PB 883, Note No.15). The aforesaid adjustments, it would be appreciated, are non- cash adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inference drawn by the ld. CIT(A) against the assessee is purely based on presumption/surmises and conjectures, which needs to be ignored (Refer PB 93-106 of supplementary PB A.Y. 2001-02). (iii) Ref; Nexus through Bank statements/cash flow statement The Ld. CIT(A) held that the proximate nexus of borrowed funds/interest free funds with investment in shares could be established only through the bank statements and not on the basis of aforesaid macro cash flow position. In view thereof, in the absence of the bank statements being available on record, the ld. CIT(A) attributed nexus of interest expenditure with various investments on the basis of presumption and made disallowance of interest expenditure, on ad-hoc basis, u/s 14A of the Act, on the basis of formula reproduced above. It is respectfully submitted that establishing nexus of interest free/borrowed funds and investments with reference to entries in the bank statements, is not a correct/appropriate method and leads to fallacious results/conclusion regarding the presence or absence of such nexus. 51.4 Reliance was also placed on the following decisions , wherein the courts/tribunal have held the over-all funds flow p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of funds was erroneous. In view of the above, it is submitted that the correct method to establish source of investment would be to consider the macro funds cash flow position during the year and if the assessee had sufficient surplus funds available, presumption should be drawn in favour of the assessee that surplus funds have been utilized for making investments. Reliance in this regard was placed on the following decisions, wherein the exercise of establishing nexus of funds on the basis of macro fund flow position has been upheld. i) East India Pharmaceutical Works Ltd. vs. CIT 224 ITR 627 (SC) ii) Woolcombers of India vs. CIT 134 ITR 219 (Cal.) iii) India Explosives Ltd. vs. CIT 147 ITR 392 9Cal) iv) CIT vs. Reliance Utilities and Power Ltd. 313 ITR 340 (Bom.) v) CIT vs. Ashok Commercial Enterprises ITA No. 2958 of 2009 (Bom.) Reliance was also placed on the following decisions, wherein while following the ratio emanating from the aforesaid decisions, disallowance of interest expenditure under section 14A has been deleted, where the assessee was found to have interest free funds, exceeding interest bearing funds or making investment in shares: - Lubi Submeri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest free receipt of Rs. 9,00,000, which instead of being deposited in Account A was deposited in Account B 9,00,000 Day 3 Mr. X made an investment in mutual funds of Rs. 9,00,000 from Account B (9,00,000) Balance -Rs.10,00,000 0 In the aforesaid illustration , Mr. X had an option to deposit business receipts of Rs. 9,00,000 in Account A or Account B. In the aforesaid illustration, if nexus of funds with reference to bank statements were to be made, the investment of Rs. 9,00,000 would have to be considered as having come out of business receipts deposited in Account B, although there were borrowed funds in Account A. However, that is not the correct position, since in actuality, there is on a net basis and in reality an overdraft of Rs. 10 lacs, on account of investment of 9 lacs in mutual fund. This is the result which would have followed if the business receipts had been deposited in Account A. The position, if funds would have been deposited in Account A would be as under: Bank Statements of Mr. X Date Particulars/Narration Account A Account B Day 1 Assume that Mr. X has an - overdrawn balance of Rs. 10,00,000 in A/c A and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord to establish nexus of funds. Further, it was pointed out that in the case of the assessee there was sufficient material on record in the form of : i) The overall funds flow position on year to year basis forming part of audited accounts which was duly explained to the ld. CIT(A). ii) The purpose of borrowed funds established through agreement entered with lenders, which required the presumption to be drawn in favour of the assessee. Accordingly, it was submitted that the aforesaid decision of the Hon'ble Delhi High Court does not support the case of the ld. CIT(A). 51.8 The Ld. counsel for the assessee distinguished the decision of the Hon'ble Punjab & Haryana High Court in the case of Shashi Kiran vs. CIT reported in 195 Taxman 332 referred to by the ld. CIT(A) to hold that the assessee by not submitting bank statements had failed to discharge the initial onus placed on him to establish nexus of borrowed funds. It was submitted in that case, it was held that the initial burden placed on the Revenue to establish with evidence the actual amount of consideration paid by the assessee for purchase of property stood discharged pursuant to statement of the seller. The b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e such funds for other purposes, including various modes of investments. It was submitted by the Ld. counsel for the assessee in this regard that it was not that in every loan agreement, there was no stipulation/restrictive covenant on the assessee not to utilize the borrowed funds for the purposes other than the purpose of borrowing stated in the loan agreement as demonstrated below: * For instance, as pointed above, which has even been accepted by the Ld. CIT(A), at page 33 of his order, the offer document relating to issue of 12% NCD in the year 1995-96, clearly stipulated that the proceeds of said borrowing shall not be utilized for making investment in shares. The relevant portion of the order of CIT(A) readsas under: "Issue of Zero Coupon Fully Convertible Debentures and 12.5% Non-Convertible Debentures in 1995-96 by the assessee company. The issue was for capital expenditure as well as for making strategic investments. The offer documents mentioned that in light of the directions by SEBI, the proceeds of non- convertible debentures could not be utilized for acquisition of shares/or providing loan to any company belonging to the same group" * It wa similarly observed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ends were received by single dividend warrant. No effort or expenses are incurred to earn the income by way of dividend from these companies. For depositing single dividend warrant(s) in the bank account during the financial year, the assessee could not be said to have incurred expenditure, as the same was deposited along with other cheques in the normal course of the business of the assessee company. Further, there was no specific employee kept by the assesee to keep record of the dividend income. The same was recorded in the normal course of conduct of the business of the assessee. During the relevant year, the assessee had earned dividend income of Rs. 3.47 crores out of the total revenue of Rs. 185.02 crores earned during the year. Thus, the exempt income was only 1.87% of the total revenue offered for tax. Further during the year, the assessee had earned revenue of Rs. 19.44 crores from investment activities, out of which exempt income was only 3.47 crores and balance was offered for tax. Major revenue was earned by the assessee form manufacturing business units, as would be clear from the details of major expenses incurred by the assessee, as follows: Amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegory during the relevant year. As regards the shares held at the beginning of the relevant year, the entire shares vested in the Assessee on merger of MCL. As discussed (supra), considering that MCL had no interest bearing borrowing, there was, thus, no nexus of interest expenditure incurred during the year with shares held under the head 'stock in trade'. 51.15. Without prejudice to above, it was submitted by the ld. counsel Mr. Rupesh Jain that the disallowance under section 14A cannot in any circumstances be made with respect of investments held by the assessee as stock in trade. It was submitted that intent behind holding investments as stock in trade is to earn profit from trading therein and not to earn incidental exempt dividend income therefrom, warranting disallowance u/s 14A of the Act. For the aforesaid proposition, the ld. counsel for the assessee relied upon the following decisions wherein disallowance of expenditure under section 14A of the Act in respect of shares held as stock in trade was deleted: - CCI Ltd. vs. Jt. CIT 206 Taxman 563 (Kar) - Apoorva Patni vs. ACIT (2012) 24 Taxman.com 223(Pune) - Ethio Plastics P. Ltd. [TS-882-ITAT-2012 (Ahd.) 51.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of East India Pharmaceutical Works Ltd. vs. CIT (supra) and the Hon'ble Calcutta High Court in the case of Woolcombers of India Ltd.(supra) relied upon by the assessee are distinguishable since in the aforesaid cases bank statements were available on record pursuant to which the proposition regarding presumption to be drawn in favour of the assessee in case of mixed pool propounded. 52.2. The Ld. DR also relied upon the decisions of the Hon'ble Delhi High Court in the case of Orissa Cement Ltd. (supra) and Hon'ble Punjab & Haryana High Court in the case of Shashi Kiran (supra). 52.3. The Ld. DR also distinguished the decision of the Hon'ble Supreme Court in the case of Walfort Share and Stock Brokers (P) Ltd. (supra) relied upon by the assessee for the proposition that only expenditure can be disallowed u/s 14A on the ground that the same was rendered in the context of provisions of section 94(7) of the Act. 52.4. The Ld. DR relied upon the decision of the Hon'ble Bombay High Court in the case of Godrej and Boyce Co. Ltd.(supra) and argued that the disallowance u/s 14A could be made for the assessment years prior to assessment year 2008-09 on a rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o disallowance of Rs. 0.10 crores estimated by the Ld. CIT(A) on reasonable basis, which was even followed by the Ld. AO in the Assessment orders for the Assessment years 2003-04, 2004-05 and 2005-06 (although subsequently enhanced by the Ld. CIT(A) and challenged in further appeal by the Assessee before I.T.A.T.). Therefore, on the grounds of consistency as well, in the absence of any change in facts, it is submitted, that disallowance under Section 14A of the Act, if any, needs to be restricted to Rs. 0.10 crores only. 54. We have heard the rival contentions and perused the facts of the present case. The main thrust on the order of the ld. CIT(A) in computing/enhancing the amount of disallowance of interest expenditure u/s 14A was of non-furnishing of bank statements by the assessee and drawing adverse inference regarding use regarding use of interest free funds with investments yielding exempt income on that basis. We have gone through the decisions of various courts of law and Tribunal wherein the theory of drawing presumption as regards utilization of interest free/borrowed funds in the manner most favourable to the assessee in the case of mixed pool of funds has been propoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree funds of its own which had been generated in the course of the year commencing from April 1, 1999. Apart from that in terms of the balance-sheet there was a further availability of Rs. 398.19 crores including Rs. 180 crores of share capital. In this context, in our opinion, the finding of fact recorded by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal as to availability of interest- free funds really cannot be faulted. If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free funds available. In our opinion, the Supreme Court in East India Pharmaceutical Works Ltd. v. CIT [1997] 224 ITR 627 had the occasion to consider the decision of the Calcutta High Court in Woolcombers of India Ltd. [1982] 134 ITR 219 where a similar issue had arisen. Before the Supreme Court it was argued that it should have been presumed that in essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t contained in the audited accounts of the financial years 1999-2000 to 2001-02. The aforesaid statements have been drawn by the assessee on the basis of audited accounts of the assessee for the year under consideration alongwith various other disclosures/notes to the accounts, which have been relied upon by the AO while accepting the books of account and completing the assessment for the impugned year. We also find that the assessee is a listed company and is required to publish its accounts and submit the same before various statutory authorities like SEBI, Stock Exchanges, shareholders and Financial Institutions etc. Under these circumstances, we do not find any merit in the contention of the ld. DR that the said fund flow statements are not authentic. We are also in agreement with the arguments advanced by the ld. counsel for the assessee that the cash flow statement is a better guide for determining the results of borrowed funds/interest funds towards investments made during the year instead drawing such nexus on the basis of figures in the balance sheet of a company as at the end of the year, since the figures in the balance sheet are arrived at after making adjustment of non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(A) in drawing adverse presumption and allowing interest expenditure on an adhoc basis under section 14A being not based on proper appreciation of facts and record is hereby reversed and disallowance made on that account is deleted. 55. As regards disallowance in relation to other expenses, we find that as per material available on record in the appeal for the assessment year under consideration, the assessee had separate Treasury Division and one of the main functions of such division as explained hereinabove by the assessee was to invest the funds of the company in various financial instruments. It cannot therefore, be said that no expenditure has been incurred by the assessee for earning exempt income. As per information available on record, total expenditure incurred during the relevant previous year in relation to the Treasury Division was Rs. 1.52 crores. Considering that the assessee has manufacturing operation of BOPP films and pharmaceuticals and it was running clinics, nursing homes etc. which require incurring of substantial personnel and administrative expenses, whereas once a decision is taken to make investment, the income received therefrom is passive income n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO or the ld. CIT(A), no such expenditure was disallowable under section 14A and consequently was not liable to be added back while computing book profit u/s 115JB of the Act. 57.1 Without prejudice to the above, it was submitted that even otherwise the amount of disallowance computed under section 14A of the Act cannot be adopted for the addition to book profits under section 115JB of the Act, since the scope of disallowance of expenses relatable to earning of exempt income under the aforesaid provision was different. 57.2 It was pointed out that in clause (f) of Explanation-1 to section 115JB of the Act, the amount of expenses relatable to earning of income exempt u/s 10(38) of the Act, was not liable to be added to book profit, since the income referred to in that section is liable to taxation as part of book profit. Whereas under section 14A, the amount of disallowance of expenses is computed even with respect to income under the said section 10(38) of the Act, since the income is exempt under normal provisions of the Act. Reliance in this regard placed by the ld. counsel for the assessee on the following decisions where it was held that the amount of disallowance comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partly allowed. 60. As regards ground No.3 of the assessee, where the assessee has challenged the order of the ld. CIT(A) in confirming the disallowance of legal and professional expenses of Rs. 1.25 crores paid to Max UK Limited for providing various business support services to the assessee. In this regard, the facts emanating from the order of the AO are that the assessee paid GBP.60,000/- equivalent to Rs. 1.25 crores to Max UK as retainership fee for availing business support services as defined in agreement dated 1.7.1999 with Max UK Limited. The services mainly related to exploring business opportunities outside India for the assessee. In the course of assessment proceedings, the AO asked the assessee to justify the claim of aforesaid expenditure. In response thereof, the assessee relied upon the agreement entered with Max UK Limited and pointed out that the assessee achieved export sales in excess of Rs. 29 crores with the help of information/services received from Max UK Ltd.. The AO , however, did not accept the submissions of the assessee and disallowed the aforesaid expenditure on the ground that the assessee could not prove with evidence that the services were actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ign party and invoice raised by that party was discharged by the assessee. 64.1. In view of the matter for the aforesaid cumulative reasons, we reverse the action of the AO/Ld. CIT(A) in disallowing the aforesaid expenditure and accordingly, we direct the deletion of the said disallowance. Thus, ground No.3 of the assessee is allowed. 65. Now, we take up appeal of the Revenue in ITA No.151(Asr)/2011 for the assessment year 2002-03. As regards ground No.1, the Revenue has challenged the order of the Ld. CIT(A) in allowing deduction of Rs. 54 lacs claimed on proportionate basis on account of non-complete fee paid to Mr. Ashwani Windlass in earlier years. 65.1. The facts of the case are that during the relevant year , the assessee Claimed deduction of Rs. 54 lacs being proportionate amount of non- compete fee paid to Sh. Ashwani Windlass in earlier years under the agreement entered upto with Mr. Windlass. 66. Having heard both parties, that the present issue had come for consideration before this Bench of the Tribunal in the assessment year 1999-2000 to 2000-01, where we have deleted the disallowance on account of non-compete fee paid to Mr. Ashwani Windlass in earlier assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilm forming part of Maxxon division since past several years.The setting up of second film line is nothing but extension of existing business only. Accordingly, for the reasons given in our order for the assessment year 2001-02 in ITA No.103(Asr)/2006 hereinabove, in assessee's own case for allowing a revenue expenditure incurred by the assessee towards healthcare division, the order of the ld. CIT(A) deleting the disallowance of above expenditure is upheld and the aforesaid ground of appeal of the Revenue is dismissed. 70. As regards ground No.4 of the Revenue, where the Revenue has challenged the order of the ld. CIT(A) in allowing deduction of expenses (i) Rs. 12.05 lacs being product development expenses incurred on MAX FOIL division (ii) Rs. 474 lacs being expenses incurred on expansion of Pharma divison, (iii) Rs. 57.12 lacs being expenses incurred on abandoned project and Rs. 19.66 lacs being expenses incurred on foreign travel of employees which were treated as capital expenditure by the A.O. on the ground that the expenses were incurred for expansion of business. The aforesaid disallowances were made separately in the assessment order and therefore each disallowance i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure. 72. We have heard the rival contentions and perused the facts on record. We find that the issue under appeal with regard to allowability of expenses incurred on development of new products in the existing business of an assessee was decided in favour of the assessee by this Bench of the Tribunal in assessee's own case for the assessment year 1991-92 reported in 105 TTJ 102. The relevant findings of the Tribunal in that order are as under: "6. We have heard both the parties and carefully considered the rival contentions, examined the facts, evidence and material placed on record and referred to the relevant pages of the paper book to which our attention has been drawn. From the facts discussed above, it is clear that the assessee was already in the business of manufacture of BOPP films and its unit had started commercial production on 6.3.1990 relating to asstt. year 1990-91. This fact is admitted by the AO on page 1 of the assessment order. Page 19 of the paper book which is a copy of Director's report and page 17 of the paper book being explanatory Notes to the financial statements clearly mentioned that the expenditure incurred by the assessee related to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of section 35D would not be applicable. In the present case, the expenditure incurred could not be considered to fall in the capital field. Therefore, no disallowance u/s 35D in respect of the expenditure incurred by the assessee could be made. 6.1. The A.O. has laid undue emphasis on the treatment given by the assessee for capitalizing and amortising the impugned expendiure in the books of accounts. It is settled position under the law that accounting entries are not the determinant factor in deciding whether expenditure incurred was capital or revenue in nature. Reliance in this regard is placed on the judgment of Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd; Vs. CIT (supra). The same is to be determined by looking to the nature of expenditure whether the same relates to capital or revenue filed. In the case of ACIT Vs. Medicamen Biotech Ltd; (supra), the ITAT, Delhi Bench has held that test of enduring benefit alone was not conclusive for treating any expenditure as capital and it is relevant to find out or ascertain as to whether such expenditure results into an advantage of enduring nature to assessee in capital field or revenue field so as to decide ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had incurred crop development expenses of Rs. 20,36,157/- for propagating a new crop among the local farmers and further incurred expenses of Rs. 16,41,125/- for advertisement through visual and print media and also for designing and printing leaflets, brochures etc. All these expenses were held to be in the nature of business expenditure entitled for deduction in computing the assessee's income. 6.3. Now whether the expenditure incurred has resulted in enduring benefit or not has to be seen in the context of today's world where changes in the technological field are taking place at rapid pace. The present time is a time of multinationals. In order to survive in the business, the industry is required to make continuous efforts on Research and Development in order to keep pace with the technological changes that are taking place every day and to strive for improvement in the existing product and also to bring new product attractive in design and better in quality. Therefore, what could be termed as a enduring benefit in the olden days may not be so in the present times. The very fact that the assessee has capitalized or amortised the expenses in the books of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide Adjustment No.(3i). 73.1 The A.O. disallowed the above said expenditure on the ground that the same provided enduring benefit to the assessee and therefore, the same was capital in nature. 73.2 The Ld. CIT(A) deleted the disallowance made by the AO on the ground that the same was same was incurred in connection with carrying on of existing business of sale of pharmaceutical goods and no new unit came into existence and therefore, the same was allowable revenue expenditure. 73.2(a). The Ld. DR relied upon the AO's order and argued that the expenditure towards FDA approval and patent related expenses provided enduring benefit to the assessee and therefore, the same were clearly of capital in nature, which disallowance should have been confirmed by the Ld. CIT(A). 73.3. The Ld. counsel for the assessee argued that the aforesaid expenses towards FDA approval and patent were necessary for the assessee to sale its Pharma related products which was a existing business division, outside India and no new capital asset was required nor there was any accretion to the profit earning apparatus as a result of the said expenses. It was argued that it is well settled law that every en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, was claimed as revenue expenditure. 75.1 The AO treated the aforesaid expenditure as capital in nature on the ground that the same was incurred towards setting up of the new healthcare centre prior to commencement. 75.2 The Ld. CIT(A) deleted the disallowance made by the AO on the ground that since projects were abandoned, no capital asset came into existence by virtue of incurring expenses. The Ld. CIT(A) in this regard relied upon the decision of Hon'ble Delhi High court in the case of Indo Rama Synthetics (I) Ltd. vs. CIT 185 Taxman 277 (Del) and CIT vs. Priya Village Road Shows Ltd. 185 ITR 44 (Del). 75.3 The ld. DR, relied upon the order of the A.O. and argued that the ld. CIT(A) has deleted the disallowance without examining the nature of expenditure incurred in this connection. 75.4 The Ld. counsel for the assessee argued that the assessee was already engaged in healthcare business and was running Nursing Home Clinics since assessment year 2001-02. Accordingly, the expenditure incurred in connection with setting up of a new clinics was for extension of existing business, which is an allowable business deduction under the provisions of the Act. The Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we find that the expenditure of revenue in nature incurred in relation to abandoned project has been held to be allowable by the Jurisdictional High Court in the case of CIT vs. Vardhman Spinning and General Mills (supra) and the Hon'ble Delhi High Court in the case of Indo Rama Synthetics Ltd. (supra). Accordingly, the disallowance cannot be sustained for the aforesaid reasons as well. In view of the above, ground of appeal of the revenue is dismissed. (iv) Expenses incurred on foreign travel of employees 77. The aforesaid issue is discussed at page 7 to 8 of the assessment order. During the relevant previous year, the assessee had incurred expenditure of Rs. 19.66 lacs on foreign traveling of various employees under the Collaboration Agreement dated 1.3.1999 executed with Harvard Medical International, Boston, USA. 77.1 In the course of assessment proceedings, the AO sought justification of allowability of the aforesaid foreign travelling expenditure as business deduction. It was submitted by the assessee that foreign traveling was undertaken under the Collaboration Agreement to pursue quality programmes and systems, medical education, critical education and training pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T) 77.6 The Ld. counsel for the assessee also distinguished the decision relied upon by the AO in the assessment order. The arguments of the ld. counsel in this connection which also contained in the chart on issue filed for the present appeal is reproduced hereunder: "In the case of Ambica Mills Ltd.(supra) the assessee company was carrying on the business of textile manufacturer. In the relevant previous year the assessee company had sent its director and superintendent on a tour to Europe to study the latest development in manufacturing, designing and processing of cloth in textile mills in Europe. After their visit to the textile mills, the assessee company imported certain new and improved machinery for United Kingdom. It was categorically observed by the Gujarat High Court that since the foreign tours undertaken by the employees of the company were for the purpose of strengthening the fixed framework of the profit making apparatus of the assessee company, i.e. textile mills and not for carrying on of business, i.e. manufacture and sale of cloth, the same amounted to capital expenditure. It is imperative to note here that unlike the above case, in the present case, no new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Reference has been made by the ld. counsel that such expenditure does not result in and was not in relation to acquisition of any capital assets and therefore, does not constitute capital expenditure. The decisions referred to by the A.O. have rightly been distinguished by the ld. counsel for the assessee since in those decisions foreign travel expenditure resulted in acquisition of new assets and/or setting up of new business. Accordingly, the order of the ld. CIT(A) is upheld and ground of appeal of the Revenue is dismissed. 79. As regards ground Revenue, No.5 of the where the revenue has challenged the order of the ld. CIT(A) in not treating the loss arising on sale of investment as speculative loss. 80. We find that this issue has come up for our consideration in assessee's own appeal for the assessment year 2001-02 in ITA No.103(Asr)/2006 hereinabove. The loss in question relates to sale of shares held as investments including those shares which were received from MCL in the year 1999-2000 and were converted into investment by the assessee in the financial year 2000-01. We have held the aforesaid conversion from stock in trade to the investment as valid and upheld the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable to the year under consideration. The Ld. CIT(A) also observed that, even otherwise, the cost of acquisition of asset in the nature of 'right to carry on business' u/s 55(2) had also been inserted w.e.f. A.Y. 2003-04 and for that reason, too, no capital gains could be brought to tax in the hands of assessee company in the year under appeal. 81.4. The Ld. DR argued that by amendment to section 55(2)(a) by the Finance Act, 2002 w.e.f. 1.4.2003, the legislature has only prescribed that the cost of acquisition in case of 'right to carry on any business' shall be taken as Nil but that does not mean that 'right to carry on business' ceases to be a capital asset. It was further argued that merely because the cost of acquisition of such asset was treated as Nil u/s 55(2)(a) w.e.f. 1.4..2003 does not mean that prior to assessment year 2003-04 such transaction could be brought to tax u/s 45 of the Act. The Ld. DR also referred to the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Tata Coffee Ltd. reported at 326 ITR 214 in support of his contentions that non-compete fee received is taxable as revenue receipt. 81.5 The Ld. counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and have perused the material on record.The first dispute here is as to whether the learned CIT(A) was justified in deciding the issue on merits in favour of the assessee, in view of the fact that as recorded in the assessment order, the assessee had not pressed the issue before the A.O. In this regard, we find that the assessee is correct when ir contends that the issue of taxability of non compete fee being a legal one, even if the assessee did not press it before the A.O., it could well have been pressed before the learned CIT(A), as was done. Further, it is also correct that all the facts being before the A.O., the Commissioner having powers co-terminus with those of the A.O., was not incorrect in not remitting the issue to the A.O. for decision. Moreover, evidently, the A.O. duly represented the case of the department before the learned CIT(A) and no objection was raised regarding the assessee having not pressed the issue before the A.O. 48.On merits, evidently, there has been no transfer of assets as envisaged under section 45 of the Act read with section 2(47) of the Act. The A.O., pertinently, had agreed that the fee in question represented a capital receipt and not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not amount to transfer of right in any business and therefore, non-compete fee cannot be considered as resulting in capital gains. There are several other decisions of the Courts/Tribunal on the issue in question which have been referred to by the ld. counsel for the assessee also support the contentions of the assessee. The contention of the Ld. DR that non-compete fee has to be considered as income under the head capital gains from the transfer of right in a business is without any factual or legal basis. We find that section 55(2)(a), which is prospective in nature, is not applicable to the facts of the present case, in the absence of any capital asset being transferred by the assessee in lieu of which the assessee has received the impugned amount of non-compete fee. Our views are supported by the decision of the Special Bench of ITAT Hyderabad in the case of ACIT vs. B.V.Raju (supra). 82.1 As regards the decision of the Hon'ble Karnataka High Court referred to by the ld. DR in the case of CIT vs. Tata Coffee Ltd. (supra), we find that the said decision is in the context of non-compete fee received i.e. whether it is revenue or capital in nature, it is not the case of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndlass in earlier years. The said ground of appeal is identical to ground of appeal No.1 in Revenue's appeal for the assessment year 2002-03. 87.1. Both the parties also did not address and additional arguments with reference to the aforesaid ground in the present appeal and agreed that the facts of this ground are identical to the ground of appeal for the A.Y. 2002-03. Accordingly following our own order for the assessment year 2002-03 hereinabove, the disallowance made has rightly been deleted by the AO. 88. As regards ground No.2 of the Revenue, the revenue has challenged the order of the ld. CIT(A) in allowing deduction of expenses of Rs. 46 lacs incurred by the assessee towards expansion of existing MAXXON division. The facts of the present ground of appeal are identical to the facts in ground No.3 in the appeal of the Revenue for the assessment year 2002-03 where we have decided the aforesaid issue in favour of the assessee by dismissing the appeal of the Revenue for assessment year 2002-03 hereinabove. Both the parties also did not address any additional argument with respect to the aforesaid ground and agreed that the facts in the present ground are identical to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. CIT(A) in not deleting the disallowance of Rs. 10 lacs made by the AO u/s 14A of the Act and instead enhanced the amount of disallowance under the said section to Rs. 5.84 crores. 92.1. The aforesaid ground of appeal is identical to ground No.1 of the appeal raised by the assessee in ITA No119(Asr)/2011 for the A.Y. 2002-03. In this year as well, the Ld. CIT(A) did not accept the contention of the assessee qua no nexus of borrowed funds with investment yielding exempt income on the basis of overall positive funds flow position/statement of the year. The Ld. CIT(A) on the ground of the assessee having not established the aforesaid nexus through bank statements drew adverse inference against the assessee and apportioned the interest expenditure on the basis of formula adopted in the assessment year 2002-03 for the purposes of disallowance u/s 14A of the Act. 92.2. We have decided the aforesaid issue in favour of the assessee in ground No.1 in assessee's appeal for the A.Y. 2002-03 hereinabove that in case of mixed pool of funds, the assessee can establish utilization of borrowed funds and interest free funds on the basis of overall fund flow statement for the relevant y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of expenses quantified as relatable to earning of exempt income u/s 14A of the Act in computing book profit for the purpose of section 115JB and instead enhancing the disalalowance u/s 115JB to Rs. 5.84 crores. 93.1. The above said ground of the assesse is identical to ground No.2 in assessee's appeal for the A.Y. 2002-03 decided by us hereinabove. Both the parties did not address any additional argument with respect to the present ground and agreed that the identical facts in the present appeal are there as in ground of appeal for the A.Y.2002-03 mentioned hereinabove. In the assessment year 2002-03, we have held that the amount of disallowance of other expenses i.e. other than interest expenditure computed u/s 14A can be adopted for the purposes of addition to book profit u/s 115JB of the Act. Accordingly, following the order for the A.Y.2002-03, the aforesaid addition to book profit u/s 115JB is restricted to Rs. 8.8 lacs and the balance disallowance confirmed by the ld. CIT(A) is directed to be deleted. Accordingly, the present ground of appeal is partly allowed. Thus, the appeal of the assessee for the A.Y.2004-05 is partly allowed. 94. Now, we take up the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 2002-03. Accordingly, following our own order for the A.Y. 2002-03, we find no infirmity in the order of the ld. CIT(A), who has rightly allowed the ground of the assessee. Thus, this ground of the Revenue is dismissed. 97. As regards ground No.3, the revenue has challenged the order of the ld. CIT(A) in not treating the loss arising on sale of investments as speculative loss. 97.1. We find that this issue came for our consideration in the appeal of the revenue for the assessment year 2001-02 in ITA No.103(Asr)/2006 and in ground No.5, in Revenue's appeal for the A.Y.2002-03 decided by us hereinabove, the loss in question relates to sale of shares held as investment including those shares which were received from Max Corpn. Ltd. in the financial year 1999-2000 and were converted into investments by the assessee in the A.Y. 2000-01. We have held that the aforesaid conversion from stock in trade into investment as valid by upholding the order of the Ld. CIT(A) treating loss on sale of investments arising in the A.Y. 2001-02 as not speculative business loss. The explanation under section 73 of the Act invoked by the AO was held to be not applicable in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, Rs. 8.15 from the issue of warrants, Rs. 29 crores from receipt of option deposit from New York Life International Inc., and Rs. 7.34 crores from operations. 99.3. In view of the above, we are of the view that the facts for the assessment year under consideration are identical to the facts for the A.Y. 2002-03 and both the parties did not address any additional argument with respect to the present ground of appeal. Accordingly, following our own order for the A.Y.2002-03, the disallowance confirmed by the ld. CIT(A) is directed to be deleted on account of interest expenditure u/s 14A of the Act. 99.4 As regards the disallowance in relation to other expenses, as per information available on record, total expenditure incurred during the relevant previous year in relation to the Treasury Division was raised to Rs. 41 lacs as per PB 114 in assessee's appeal for the A.Y.2002-03 decided by us hereinabove where we have held that 20% of the expenses of Treasury Division/Department are reasonable for attribution towards activities of investment yielding exempt income carried on by it. Following the same, we restrict the disallowance of other expenses to 20% of Rs. 41 lacs i.e. Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessmet year 2006- 07 in ITA No.123(Asr)/2011. 104. In ground No.1 of the assessee, the assessee has challenged the order of the ld. CIT(A) in confirming the disallowance made by the A.O. u/s 14A of the Act, to the extent of Rs. 3.38 crores. 104.1. The aforesaid ground of appeal is identical to ground of appeal No.1 in assessee's appeal for the A.Y.2002-03. In this year, the AO computed disallowance under section 14A at Rs. 10.98 lacs by applying provisions of Rule 8D of the I.T. Rules. 104.2. The Ld. CIT(A) held that the provisions of Rule 8D are applicable only w.e.f. the assessment year 2008-09 and were not applicable to preceding assessment years including the assessment year under consideration. Accordingly, the Ld. CIT(A) reversed the action of the A.O. in computing disallowance u/s 14A as per Rule 8D of I.T.Rules. However, the ld. CIT(A) following his own order for the assessment year 2002-03 computed the disallowance of Rs. 3.38 crores out of which total interest expenditure incurred during the year under consideration u/s 14A on the basis of formula applied by him in the order in that year. The Ld. CIT(A) held the investments to the extent of Rs. 421.31 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent appeal. Accordingly, following our order for the A.Y. 2002-03, where the facts are identical to the present ground of appeal, decided by us hereinabove, we direct the deletion of disallowance of interest expenditure under section 14A confirmed by the ld. CIT(A). 104.5. As regards disallowance in relation to other expenditure as per information available on record, the total expenditure incurred during the relevant previous year in relation to the Treasury Department was Rs. 41 lacs which is given at PB-122 in assessee's appeal for the A.Y. 2002-03 decided by us hereinabove, we have held 20% of the expenses of Treasury Division/Department are reasonable attribution towards activities of investments yielding exempt income carried on by the assessee. Following our order for the A.Y. 2002-03, we restrict the disallowance of other expenses in this year too at 20% of Rs. 41 lacs i.e. Rs. 8.2 lacs and direct the deletion of the balance disallowance confirmed by the ld. CIT(A). Accordingly, assessee's ground is partly allowed. 105. As regards ground No.2 of the assessee, where the assessee has challenged the order of the ld. CIT(A) in confirming the action of the A.O. in add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee are not there. The disallowance has been made simply on the ground that the payment of non-compete fee is a capital expenditure. The issue is identical to the assessee in the A.Y. 2002- 03 where the issue has been decided in favour of the assessee by dismissing the appeal of the Revenue in that year. Accordingly, following our own order for the A.Y. 2002-03, we find no infirmity in the order of the ld. CIT(A), who has rightly deleted the disallowance made by the A.O. Accordingly, ground of appeal of the Revenue is dismissed. 108. In ground No.2, the Revenue has challenged the order of the ld. CIT(A) in reducing disallowance of Rs. 10.98 crores made by the A.O. u/s 14A as per Rule 8D to Rs. 3.38 crores. As discussed in cross appeals filed by the assessee on the aforesaid issue in ITA No.123(Asr)/2011, the Ld. CIT(A) has reversed the action of the A.O. in computing disallowance u/s 14A for the impugned year as per provisions of Rule 8D on the ground that the same are not applicable to the impugned year. 108.1. We find that the Hon'ble Bombay High Court in the case of Godrej &Boyce Mfg. Co. Ltd. vs. Dy. CIT 328 ITR 81 and Hon'ble Delhi High Court in the case of Maxopp I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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