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2019 (11) TMI 1368

..... quo;income from house property’ in addition to depreciation and other maintenance expenses claimed? - HELD THAT:- We have observed that the Tribunal while disposing off appeal for the A.Y. 2005-06 to A.Y. 2007-08 [2019 (4) TMI 1809 - ITAT MUMBAI] directed the Assessing Officer to allow the depreciation as claimed by the assessee on residential premises however it is also directed to verify the fact as to whether deduction U/s.24(a) was claimed by the assessee or not and if it is claimed the same is to be disallowed. As the facts being identical respectfully following the said decision, we direct the Assessing Officer to carry out similar exercise as directed by the Tribunal in the order for the A.Y. 2005-06 to A.Y. 2007-08 and decide accordingly. Disallowance of amortization of premium paid on leasehold land - HELD THAT:- As decided in own case [2019 (4) TMI 1809 - ITAT MUMBAI] amortization of lease premium over the lease period was capital in nature and hence, not allowable to the assessee. The ground of assessee's appeal stands dismissed. Disallowance u/s. 14A r.w.s 8D(2)(iii) - HELD THAT:- As decided in own case we restore this issue to the file of the Assessing Office .....

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..... ng Officer with a direction to Assessing Officer to furnish necessary information to the assessee so as to reconcile the transactions by the assessee. The Assessing Officer shall provide complete details in respect of the transactions for the purpose of the reconciliation by the assessee. Disallowance of interest on loan given to IL & FS Employees Welfare Trust - HELD THAT:- It is the finding of the Ld. CIT(A) that the assessee has not proved that the loan is given for the purpose of business of the assessee. Even before us the assessee could not substantiate that the loan has been given for the purpose of business of the assessee. In the circumstances, we are not inclined the disturb the finding of the Ld. CIT(A) hence, the action of the Ld.CIT(A) is sustained. Ground raised by the assessee is rejected. Software development expenditure - allowable revenue expenditure No disallowance u/s. 40(a)(ia) for short deduction of TDS - See M/S. SK. TEKRIWAL [2011 (10) TMI 10 - ITAT, KOLKATA] Disallowance of claim for deduction u/s. 36(1)(viii) - HELD THAT:- As per sec.36(l)(viii) the appellant is eligible if it fulfills two conditions i.e. one is appellant should be specified entity and .....

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..... of land premium amounting to ₹ 22,32,084/- is not justified and the said disallowance may be deleted. 3. On the facts & circumstances of the case the Learned Commr. of Income Tax (A) has erred in confirming the disallowance u/s 14A amounting to ₹ 24.37 crores attributing the interest relating to the exempt income earned by appellant. On the facts & circumstances of the case the appellant submit that the determination of interest attributable to earning interest income which is exempt u/s 10 is not justified and the said disallowance may be deleted. 4. On the facts & circumstances of the case the Learned Commr. of Income Tax (A) has erred in confirming the disallowance of ₹ 28,48,716/- being the lease equalisation charge debited to Profit and Loss account. The appellant submits that the said amount is allowable deduction u/s 37(1) of the Income Tax Act, 1961. The disallowance confirmed by the Learned Commr. of Income Tax (A) is not justified and be deleted. 5. On the facts and circumstances of the case the Learned Commr. of Income Tax (Appeals) has erred in confirming the disallowance of depreciation on the Toll Road amounting to ₹ 3,16,705/-. 6. .....

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..... laws. We find that Hon'ble Delhi High Court in the cited case laws has observed that under the new scheme of depreciation prescribed in amended Section 32, the depreciation is to be allowed on WDV of each 'block of assets' at such percentage as may be prescribed and therefore, with the introduction of concept of 'block of assets', an individual asset loses its identity and there was no requirement to compute depreciation for each and individual asset separately. Making these observations, the assessee was allowed depreciation on assets held by assessee with respect to his closed units. Similar view has been taken in the cited decision of Mumbai Tribunal. We also find that no mechanism has been provided in the statute to bifurcate the WDV in such a situation. Therefore, after perusal of statutory provisions and cited judgments, we also conclude that each asset has lost its identity, in the concept of block of assets and therefore, no segregation thereof could be done the fact that the income from certain properties was offered under the head Income from House property . Therefore, we allow this ground of assessee s appeal by deleting the impugned disallowance. 7. .....

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..... er to carry out similar exercise as directed by the Tribunal in the order for the A.Y. 2005-06 to A.Y. 200708 and decide accordingly. This ground is partly allowed. 9. Coming to Ground No. 2 of grounds of appeal the Ld. Counsel for the assessee fairly submitted that this ground relating to disallowance of amortization of premium paid on leasehold land has been decided in favour of the Revenue in ITA No. 3203/Mum/2008 and ITA.No. 3156/Mum/2008 dated 28.06.2017 at Para No. 4.6 observing as under: - 4.6. The Ld. AR contended that the same was revenue in nature and no TDS was deducted there-from since the land was acquired long ago when there was no requirement to deduct the TDS against the said payment. However, we find that the issue before us is regarding the nature of the impugned expenditure and since we have already noted that the said expenditure was capital in nature, the same was not allowable to the assessee. Therefore, after considering the factual position and various judicial pronouncements, we are of the considered opinion that the amortization of lease premium over the lease period was capital in nature and hence, not allowable to the assessee. The ground of assessee' .....

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..... ities held as stock in trade and the income of which has been offered under the head business income. Therefore, in the light of these facts / observations, we remit the matter back to the file of AO to re-compute the said disallowance qua interest and administrative expenses after properly appreciating the capital structure of the assessee. The assessee is also directed to substantiate its claim forthwith in the light of our observations before the lower authorities, falling which the authorities shall be at liberty to decide the same on the basis of available material on record. The assessee s grounds of appeals stand allowed for statistical purposes. 14. Similarly, the Tribunal for the A.Y. 2005-06 to A.Y. 2007-08 in ITA.Nos. 3339/Mum/2011, ITA.No. 3340/Mum/2011 and 3341/Mum/2011 dated 30.04.2019 at Para No. 19 held as under: - 19. We have heard both the parties, perused materials available on record and gone through the orders of authorities below. The facts with regard to applicability of provisions of section 14A was not disputed by the assessee. The only dispute is with regard to quantification of average value of investment considering the investment made in group/associate .....

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..... by the Tribunal. It is further submitted that the Assessing Officer allowed the deduction for lease equalization for the A.Y.2004-05 by passing consequential order dated 31.12.2018. It is also submitted that the Hon'ble Bombay High Court in I.T. Appeal No. 411 of 2014 dated 14.02.2019 has dismissed the revenue s appeal for the A.Y.1994-95 to A.Y.1998-99. 17. On the other hand, Ld. DR strongly supported the orders of the authorities below. 18. We have heard the rival submissions and perused the orders of the authorities below and the Tribunal decision in assessee s own case. For the A.Y. 2004-05 the Tribunal at Para No. 7.2 of the order wherein the Tribunal held as under: - 7.2. We have appreciated the rival contentions and perused the Tribunal s decisions cited by the representatives. Upon appreciation of Guidance note on Leases issued by ICAT and the above cited judgments, we note that the four elements have to be considered for proper treatment of lease rentals viz., Lease rentals, Implicit Rate of Return [IRR], Depreciation and lease equalization charge. Lease rental in monetary terms is a sum total of the financing charge and the amount embedded in it in the form of a capit .....

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..... red this issue observing as under: 24. We have heard both the parties, perused materials available on record and gone through the orders of authorities below. An identical issue has been considered by the Co ordinate Bench of the Tribunal in asessee s own case for AY 2004-05. The Tribunal, after considering relevant facts held that lease equalisation reserve is an allowable deduction, however, for the purpose of computation of quantum of allowances, lease equalisation reserve should be computed on the basis of tax depreciation instead of book depreciation. The relevant observations of the Tribunal are as under:- 7.2. We have appreciated the rival contentions and perused the Tribunal s decisions cited by the representatives. Upon appreciation of Guidance note on Leases issued by ICAI and the above cited judgments, we note that the four elements have to be considered for proper treatment of lease rentals viz. Lease Rentals, Implicit Rate of Return [IRR], Depreciation and lease equalization charge. Lease rental in monetary terms is a sum total of the financing charge and the amount embedded in it in the form of a capital sum. The said financing charge constitutes the real income, whic .....

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..... I is an allowable deduction because there is no express bar in the IT Act, 1961 regarding application of such accounting standards. The Hon ble Court further held that only real income i.e. finance income should be taxed for the purpose of Income Tax which can be arrive only after applying such method which is prescribed in the guidance note. Therefore, we are of the considered view that prima-facie, the issue is settled by the decision of the Hon ble Supreme Court, however, consistent with view taken by the Co-ordinate Bench for earlier years, we restore this issue to the file of the AO and direct him to decide computation of lease equalisation reserve in accordance with the direction of Hon ble Supreme Court in the case of Virtual Soft Systems Ltd. (supra). 20. Following the said order, we restore this issue to the file of the Assessing Officer and direct the Assessing Officer to follow the directions of the Tribunal in assessee s own case for the A.Y.2004-05 to A.Y.200708 and decide the issue accordingly. This ground is partly allowed for the statistical purpose. 21. Ground No. 5 of grounds of appeal is relating to disallowance of depreciation on toll road. The Ld. Counsel for t .....

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..... e of plant and machinery. However, the Tribunal allowed depreciation as intangible asset being right to collect the toll. Similarly, in respect of estimation of income from toll road, direct the AO to ascertain correct facts with regard to attainment of arbitration proceedings before estimation of income. The relevant findings of the Tribunal are as under:- 11.10 We have heard the rival contentions. So far as the estimation of income from the toll road is concerned, we find that the issue in hand is related with estimation of income only and not with notional income since the claim of the assessee has already been crystallized by the Appellate Tribunal and the assessee has certain right to claim the same particularly when the payment is backed by the guarantee of the state government. There is no dispute as to the fact that the assessee has unfettered right to claim the same from the government agency and only the quantification thereof is in dispute. The contention of the Ld. AR is that since the government agency has agitated the same before higher authorities, the same has not yet attained finality. However, whatever the case may be, the assessee following mercantile system of a .....

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..... 25. It is submitted that by the Ld. Counsel for the assessee that this issue was also decided by the Tribunal in Para No. 11.10 for the A.Y.2004-05 and Para Nos. 32 for the A.Y. 2005-06 to 2007-08 and the Assessing Officer passed consequential order dated 31.12.2018 for the A.Y. 2004-05 restricting addition only to the amount awarded by arbitrator of Arbitration Tribunal and granted relief for the balance amount. 26. On a perusal of the order of the Tribunal we find that this issue was also considered by the Tribunal in Para No. 11.11 for the A.Y. 2004-05 and for the A.Y. 2005-06 to A.Y. 2007-08 and restored to the file of the Assessing Officer as extracted above. Thus, respectfully following the said decision, we restore this issue to the file of the Assessing Officer with a direction to follow the order the Tribunal for the A.Y. 2004-05 and for the A.Y. 2005-06 to A.Y. 2007-08 and decide accordingly. This ground is allowed for statistical purpose. 27. Ground No. 7 of the grounds of appeal relates to disallowance U/s.14A while computing the book profits U/s. 115JB of the Act. Ld. Counsel for the assessee submits that this issue has been decided by the Tribunal for the A.Y. 2005-0 .....

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..... allowed for statistical purpose. 29. Ground Nos. 8 and 9 of the grounds of appeal relates to levy of interest U/s. 234B and 234D of the Act which are only consequential and thus, we restore these grounds to the file of the Assessing Officer to decide in accordance with law. 30. Now we take up the appeal of the assessee in ITA.No. 3786/Mum/2013 for the A.Y. 2009-10. 31. The assessee has raised the following grounds in its appeal: - 1. On the facts & circumstances of the case the Learned Commr. of Income Tax (A) has erred in confirming the disallowance of the claim of the depreciation of ₹ 15,80,623/- in respect of residential properties. On the facts and circumstances of the case the appellant submits that the disallowance of depreciation of ₹ 15,80,623/- is not justified and the said disallowance may be deleted. 2. On the facts & circumstances of the case the Learned Commr. of Income Tax (A) has erred in confirming the disallowance of the amortization of the premium paid on leasehold land on which the commercial complex has been constructed by the appellant amounting to ₹ 22,32,084/-. On the facts & circumstances of the case the appellant submit that .....

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..... /s. 115JB. On the facts and circumstances of the case the appellant submits that the disallowance of ₹ 85,81,73,0267- is not justified and be deleted. 32. Ground Nos. 1 of Grounds of appeal for the A.Y. 2009-10 is relating to disallowance of depreciation on residential properties. This ground which is similar to Ground No.1 in the appeal for the A.Y. 2008-09 has been decided while disposing off the appeal and the decision taken therein shall apply mutatis mutandis for this year also i.e. A.Y. 2009-10. We order accordingly. 33. Ground No. 2 of Grounds of appeal for the A.Y. 2009-10 is relating to disallowance of amortization of premium paid on leasehold land. This ground which is similar to Ground No.2 in the appeal for the A.Y. 2008-09 has been decided while disposing off the appeal and the decision taken therein shall apply mutatis mutandis for this year also i.e. A.Y. 2009-10. We order accordingly. 34. Ground Nos. 3 & 4 of Grounds of appeal for the A.Y. 2009-10 is relating to disallowance interest u/s. 14A of the Act. This ground which is similar to Ground No.3 in the appeal for the A.Y. 2008-09 has been decided while disposing off the appeal and the decision taken ther .....

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..... ssee has given interest free loans to IL & FS Employees Welfare Trust. The Assessing Officer is of the view that the loan given is for non-business purposes and taking note of the fact that the assessee is having mixed funds i.e., borrowed as well as own funds, proportionate interest of ₹.30.01 Crores @ 5.63% was disallowed while computing the income of the assessee. 42. Before the Ld. CIT(A) the assessee has contended that the loan was given for IL & FS Employees Welfare Trust and it is for the welfare of the employees and for the business purpose only. Alternatively, it was submitted that there is error in calculation of the Assessing Officer and if the correct method of calculation is applied the proportionate interest works out to only ₹.11 Crores and not ₹.30.01 Crores and requested the Ld. CIT(A) that if entire addition is not deleted Assessing Officer may be directed to rectify and compute the disallowance at ₹.11 Crores as calculated by the assessee. 43. Before us, Ld. Counsel for the assessee submitted that the loan was given to employee s welfare trust for the benefit of employees and therefore the said loan is for the purpose of business o .....

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..... A to ₹ 25.03 crs. as against ₹ 47.47 crs computed by the AO; thereby erred in not accepting the working required as per Rule 8D of the Income Tax Rules as applied by the AO during assessment. l(ii). restricting the Interest attributable to the earning of exempt income to ₹ 24.37 crs. as against the disallowance of ₹ 46.56 crs. computed by the AO U/S.14A of the Act. Further erred in not appreciating that the assessee company has inter-mix of huge amount of borrowed funds since long time with that of reserve funds and ignoring the fact that the assessee has not substantiated if it earned the exempt income only out of its reserve fund. l(iii). restricting the Other Expenses attributable to the earning of exempt income to ₹ 0.66 crs as against the disallowance of ₹ 0.92 crs computed by the AO U/S.14A of the Act. 2. holding that expenditure of ₹ 6,01,694/- was incurred by the assessee towards the license fee paid for acquiring right to use software and the said expenditure incurred on accounting software was allowable as revenue expenditure. 3. ought to have upheld the action of the AO in estimating the income from the toll road at ₹ 1,50, .....

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..... estored to the file of the Assessing Officer. We order accordingly. 51. Ground No.2 of grounds of appeal relates to disallowance of software development expenditure. Ld. Counsel for the assessee submits that this issue has been decided in favour of the assessee by the Tribunal at Para No. 20.2 for the A.Y. 2004-05. Similarly, Tribunal for the A.Y. 2005-06 to A.Y. 2007-08 in ITA.Nos. 3165/Mum/2017, ITA.No. 3339/Mum/2011, ITA.No. 3340/Mum/2011 and ITA.No. 3341/Mum/2011 dated 30.04.2019 at Para Nos. 60 and 61 decided the issue in favour of the assessee. 52. On the other hand, Ld. DR strongly supported the orders of the authorities below. 53. We have heard the rival submissions and perused the orders of the authorities below and the decision of the Tribunal in assessee own case. We find that he Tribunal while disposing of the Revenue s appeal in ITA 3165/Mum/2017 for the A.Y. 2007-08 held as under: - 60. We have heard both the parties and perused the material available on record. The Tribunal has considered an identical issue for AY 2004-05 where it was held that Software Development Expenses is debited under the head miscellaneous expenses are in the nature of AMC Charges, internet ac .....

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..... the said decision, we uphold the order of the Ld. CIT(A) and reject the ground raised by the revenue. 55. Ground No. 3 of Grounds of appeal of the revenue is relating to addition of notional interest income in respect of toll road from Madhya Pradesh State Industrial Development Corporation. This ground which is identical to Ground No. 6 in the appeal of the assessee for the A.Y. 200809 has been decided while disposing off the appeal and the decision taken therein shall apply mutatis mutandis for this appeal also. Since we have decided this issue by restoring the ground to the file of the Assessing Officer this ground is also restored to the file of the Assessing Officer. We order accordingly. 56. Ground No.4 of grounds of appeal relates to disallowance of payments made to clubs. Ld. Counsel for the assessee submitted that this issue has been decided in favour of the assessee for the A.Y. 200506 to A.Y.2007-08 at Para No. 70 of the Tribunal order. 57. On the other hand, Ld. DR strongly supported the orders of the authorities below. 58. We have heard the rival submissions and perused the orders of the authorities below. We find that the Tribunal while disposing off the appeal filed .....

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..... d the orders of the authorities below. The Calcutta Bench of the Tribunal in the case of S.K. Tekriwal s [48 SOT 515] held as under: - 5. From the order of CIT(A), we find that CIT(A) has gone into the controversy of assessee falling under the head sub contractor or falling under the head rent , the expenses made under the head machinery hire charges . It is also a fact that the assessee has deducted TDS u/s. 194C(2) of the Act and covered itself under the head sub contractor . We find that CIT(A) after verifying records and explanation submitted by assessee reached to a conclusion that payments are in the nature of contract payments made to sub contractors. On merits, we are in agreement with the findings of CIT(A) and even revenue before us could not controvert the same. Another facet of this issue is that once the assessee has deducted TDS u/s. 194C(2) of the Act, whether disallowance can be made by invoking the provisions of section 40a(ia) of the Act. The relevant provision reads as under: 40a(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub c .....

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..... re of machinery hire charges falling under the head rent and the previous provisions of section 194I of the Act are applicable. According to revenue, the assessee has deducted tax @ 1% u/s. 194C(2) of the Act as against the actual deduction to be made at 10% u/s. 194I of the Act, thereby lesser deduction of tax. The revenue has made out a case of lesser deduction of tax and that also under different head and accordingly disallowed the payments proportionately by invoking the provisions of section 40(a)(ia) of the Act. The Ld. CIT, DR also argued that there is no word like failure used in section 40(a)(ia) of the Act and it referred to only non-deduction of tax and disallowance of such payments. According to him, it does not refer to genuineness of the payment or otherwise but addition u/s. 40(a)(ia) can be made even though payments are genuine but tax is not deducted as required u/s. 40(a)(ia) of the Act. We are of the view that the conditions laid down u/s. 40(a)(ia) of the Act for making addition is that tax is deductible at source and such tax has not been deducted. If both the conditions are satisfied then such payment can be disallowed u/s. 40(a)(ia) of the Act but where tax i .....

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..... 1% u/s. 194C(2) of the Act as against the actual deduction to be made at 10% u/s. 194I of the Act, thereby lesser deduction of tax. The revenue has made out a case of lesser deduction of tax and that also under different head and accordingly disallowed the payments proportionately by invoking the provisions of section 40(a)(ia) of the Act. The Ld. CIT, DR also argued that there is no word like failure used in section 40(a)(ia) of the Act and it referred to only nondeduction of tax and disallowance of such payments. According to him, it does not refer to genuineness of the payment or otherwise but addition u/s. 40(a)(ia) can be made even though payments are genuine but tax is not deducted as required u/s. 40(a)(ia) of the Act. We are of the view that the conditions laid down u/s. 40(a)(ia) of the Act for making addition is that tax is deductible at source and such tax has not been deducted. If both the conditions are satisfied then such payment can be disallowed u/s. 40(a)(ia) of the Act but where tax is deducted by the assessee, even under bonafide wrong impression, under wrong provisions of TDS, the provisions of section 40(a)(ia) of the Act cannot be invoked. Here in the present .....

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..... ory back office and capital market related services to M/s. ILFS Securities Services Ltd. and iii) portfolio management and related services to M/s. ILFS Portfolio Managers Services Ltd. The assessee company, after this became a non-banking, non-financial company that primarily manages its investments in group entities and effects loans and advances to its subsidiaries and affiliate. It also owns and manages reality assets. As per sec.36(l)(viii) of the Act, the deduction is available only on the profits derived from eligible business and eligible business is defined as a business of providing long term finance for industrial or agricultural development or development of infrastructural facility in India or construction or purchase of houses in India for residential purposes. 17.2 After the reorganization of the business the assessee is only engaged in managing its investments in group entities. Assessee company became a non-financial and non-banking company, and thus is nowhere engaged in directly providing long term finance as specified for the- eligible business in section 36(l)(viii). Therefore, the deduction claimed by the assessee of ₹ 63000000/- is disallowed and added .....

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..... mpany has granted loans amounting to ₹ 1401.24 crores to its various group companies towards infrastructure projects. The company has claimed deduction u/s.36(l)(viii) on only those net interest income which has been earned on long term financing. As such the income from the long term loans given to the group companies are eligible for deduction u/s.36(l)(viii). It is submitted that the disallowance of₹ 6.3 crores made by the A.O. may be deleted." ……. (A) Industrial or agricultural development; (c) ''banking company" means a company to which the Banking Regulation Act, 1949 applies and includes any bank or banking institution referred to in section 51 of that Act; (h) "long term finance" means any loan or advance where the terms under which moneys are loaned or advanced provide for re-payment alongwith interest thereof during a period of not less than five years." As per sec.36(l)(viii) the appellant is eligible if it fulfills two conditions i.e. one is appellant should be specified entity and 2nd condition is extend loans for infrastructural facilities for a long term basis i.e. above 5 years. I had examined appellant' .....

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..... g tax depreciation instead of book depreciation. However, in respect of determination of book profit and the relevancy of computation of lease equalisation reserve by taking note of depreciation as per Income Tax may not be appropriate. But fact remains that since the Tribunal has already considered this issue, we do not want to deviate from the findings recorded by the Tribunal for AY 2004-05. Hence, we restore this issue also to the file of the AO and direct him to re compute book profit by taking note of findings of the Tribunal in assessee s own case for AY 2004-05 and also considering the latest judgment of Hon ble Supreme Court in the case of CIT vs Virtual Soft Systems Ltd. in Civil Appeal No. 4358 to 4376 of 2018. 77. Facts being identical, we restore this issue to the file of the Assessing Officer to follow the directions of the Tribunal in its order for A.Y. 2005-06 to A.Y. 2007-08 and recompute the book profits accordingly. This ground is allowed for statistical purpose. 78. Ground No. 8 of Grounds of appeal of the revenue is relating to disallowance u/s. 14A while computing book profits u/s. 115JB(2) of the Act. This ground which is similar to Ground No. 7 in the appeal .....

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..... portfolio management and related services to M/s.ILFS Portfolio Managers Services Ltd. 5(iii) ignoring the stipulated condition laid down in sec.36(l)(viii) wherefrom it is noted by AO that the assessees business was not eligible business for the deduction. 5(iv). ignoring further that, after re-orgnization of business w.e.f. 1.4.2007, the / assessee company is only engaged in managing its investments within group / entities. 6. restricting the disallowance of the interest to the extent of ₹ 11,00,00,000/- as against the disallowance of ₹ 30,01,92,990/- computed by the AO in respect of the interest-free loans given to IL&FS Employees Welfare Trust. 81. Ground No. 1 of Grounds of appeal of the revenue for the A.Y.2009-10 is relating to disallowance u/s. 14A of the Act r.w. Rule 8D of the Act. This ground is similar to Ground No.1 in the appeal of the Revenue for the A.Y. 2008-09 and it has been decided while disposing off the appeal. The decision taken therein shall apply mutatis mutandis for this year also i.e. A.Y. 2009-10. We order accordingly. 82. Ground No. 2 of Grounds of appeal of the revenue for the A.Y.2009-10 is relating to disallowance software developmen .....

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