TMI Blog2020 (11) TMI 809X X X X Extracts X X X X X X X X Extracts X X X X ..... In this case, the assessee has made payment of non compete fee and rightly treated and classified under intangible assets and claimed depreciation thereon @25%. We set aside the order of Ld. CIT(A) and direct the AO to allow the depreciation - Decided in favour of assessee. Disallowance made u/s. 14A - AO rejected the working of the assessee and by invoking provisions of Rule 8D worked out disallowance - HELD THAT:- Since the revenue accepted the decision of the Ld.CIT(A) that the working of the assessee is more scientific than the adhoc estimation made by the Assessing Officer and such working of the assessee since made on scientific basis we do not see any reason to reject the computation of disallowance made by the assessee for the year under appeal. Thus, we direct the Assessing Officer to accept the working made for disallowance u/s. 14A by the assessee and restrict the disallowance u/s. 14A to the amount as adopted by the assessee. However, since the assessee had already made suomoto disallowance we direct the Assessing Officer to delete the disallowance made u/s. 14A r.w. Rule 8D of I.T. Rules. This ground is allowed. Disallowance u/s. 35D - expenses towards issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee from the said property. Disallowance of expenditure incurred towards earning exempt income while computing its book profit taxable under section 115JB - HELD THAT:- This issue has been decided by the Hon'ble Special Bench of Delhi in the case of Vireet Investment Pvt. Ltd. [ 2017 (6) TMI 1124 - ITAT DELHI] wherein it has been held that computation under clause (f) of explanation 1 to section 115JB(2) is to be made without resorting to computation as contemplated u/s. 14A r.w. Rule 8D of the Act. In view of the decision above the claim of disallowance as computed under Rule 8D cannot be made while computing the book profits - assessee himself disallowed an amount of ₹.37,07,020/- as expenditure incurred towards earning exempt income while computing its book profits u/s. 115JB(2) - the assessee while computing the income under normal provisions of the Act had made suomoto disallowance u/s. 14A at ₹.37,66,085/-, as this computation of suomoto disallowance was made on a scientific basis we feel it appropriated to adopt the same even while computing the book profits u/s. 115JB. Disallowance made u/s. 36(1)(ii) - commission paid to the Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s out to ₹.55,25,752/- lakhs and not accepting the disallowance offered by the appellant u/s 14A of ₹.37,66,085/- (being ₹.19,87,289/- towards administrative expenses and ₹.17,78,796/- towards interest expenditure). 3) The CIT(A) erred in confirming the disallowance of ₹.147,635/- (i.e. 1/5th of ₹.738,189/-) incurred towards preferential issue of shares and ₹.185,640/- (i.e. 1/5th of ₹.928,198/-) towards warrant issue u/s 35D of the Act. 4) The CIT(A) also erred in confirming the disallowance of ₹.738,189/- being expenditure of revenue nature towards preferential issue expense and ₹.928,198/-towards warrant issue expense u/s.37(1) of the Act, being capital expenditure. 5) The CIT(A) erred in confirming the disallowance made by AO towards the amount amortized in respect of the appellant's Employees' Stock Option Scheme (ESOP) of ₹.1,53,87,028/- under section 37(1) of the Act. 6) A) The CIT(A) erred in not deciding Annual Letting Value of the premises at Taj building as per municipal valuation u/s 23(1)(a). B) The CIT(A) erred in rejecting appellant's contention that fair market ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 78% of the interest in a firm known as M/s. Landmark which was engaged in the business of retailing and publishing the books and magazines. The assessee paid ₹ 10 lakh each to two partners vide two separate agreements dated 30.08.2005 as non compete fee for not carrying on or competing with the firm for 5 years from the date of agreement. The assessee claims that the said payment was made as non compete fee in order to protect 78% of the business interest in the firm M/s. Landmark and therefore the reasoning given by the AO that payment to the existing partners has been made with an intent to avoid taxes is wrong, misleading and fallicious. After going through the non compete agreements dated 30.08.2005 and considering the facts that assessee acquired 78% of the interest in the partnership firm, we are of the firm view that any payment which is made for not competing with the firm for the period of five years is evidently falls within the ambit of non compete fee as the payment was made to protect the business interest of the assessee as the assessee s cost of investment in the said firm was ₹ 91.51 crores which was made by way of capital contribution to the tun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to take day-to-day decisions regarding purchase and sale of investment as per the guidelines issued by the investment committee. The salary of investment manager is included in expenses pertaining to investment activity. c. 10% of salary of head of accounts was allocated to investment activity. d. All other administrative expenses consisting of office rent, electricity, telephone, travel, audit fees, etc. is apportioned to investment activity on proportionate basis. e. The total expenses pertaining to investment activity are apportioned between taxable income and tax-free income proportionately. 2. Its investments are mainly in mutual funds and considering the nature of its investment activity and other facts of the case the amount of ₹ 19.87 lakhs as administrative expenses has been correctly worked out. 13. Not convinced with the submissions made by the assessee the Assessing Officer rejected the working of the assessee and by invoking provisions of Rule 8D worked out disallowance at ₹.4,44,08,023/. Further, since the assessee himself disallowed expenses of ₹.37,66,085/- the disallowance was restricted to ₹.4,06,41,938/-. 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he mutual funds. 16. Referring to Page No. 114 of the Paper Book Learned Counsel for the assessee submitted that Administrative expenses of ₹19,87,796/-considered for disallowance u/s. 14A have been computed based on a percentage of operating expenses. The detailed working showing the computation of administrative expense is submitted in the paper book. Referring to Page Nos. 121 and 122 of the Paper Book Learned Counsel for the assessee submitted that suomoto disallowance made in A.Y.2007-08 is on exactly similar basis as the suomoto disallowance made in A.Y.2006-07. Referring to Page Nos. 155 and 156 of the Paper Book, Ld. Counsel for the assessee submitted that in A.Y. 2006-07 the Assessing Officer had disregarded the disallowance offered by the assessee and computed disallowance as per Rule 8D of the I.T. Rules. On appeal, the Ld.CIT(A) had held that a reasonable amount be disallowed under section 14A of the Act, giving effect to which, the Assessing Officer disallowed 5% of the exempt income under section 14A of the Act. Referring to Page Nos. 165 and 166 of the Paper Book Ld. Counsel for the assessee submitted that an appeal was filed against the order giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er estimated the disallowance at 5% as a reasonable expense attributable for earning exempt income referring to the decision of the Mumbai Bench of the Tribunal and also noticed that provisions of Rule 8D have no application for the A.Y. 2007-08. On a perusal of the order of the Ld.CIT(A) for the A.Y. 2006-07 dated 19.04.2012 we find that the assessee made suomoto disallowance of ₹.37,29,108/- wherein a detailed working was also furnished showing the basis for making such disallowance and this was accepted by the Ld.CIT(A). Further, Ld. Assessing Officer estimated the expenditure attributable for earning exempt income at 5% as reasonable expenditure. However, the Ld.CIT(A) after examining the detailed working of the assessee the basis for arriving at the expenses attributable for earning exempt income he came to the conclusion that the assessee s computation is more scientific than the Assessing Officer s estimation at 5% observing as under: - 4. The issue has been examined in the appeal order for AY 2008-09.at Para 3 to Para 3.2.1. The Para 3.2.1 is quoted as under: 3.2.1 The appellant has considered the entire salary of Investment Manager of 15.8 lacs, 10% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to disallowance made U/s. 35D of the Act. 25. Briefly stated the facts are that, the Assessing Officer while completing the assessment noticed that the assessee in its computation of income claimed deduction of ₹.33,31,710/- u/s. 35D of the Act. The Assessing Officer required the assessee to explain as to why claim made u/s. 35D of the Act shall not be disallowed as was made in earlier years. 26. The assessee submitted that during the A.Y. 2007-08 it had incurred expenses towards issue of shares to promoters and also for conversion of warrants and the expenses incurred for issue of shares/warrants are eligible for deduction u/s. 35D of the Act. However, the Assessing Officer denied the claim for deduction u/s. 35D observing as under: - The claim u/s 35D is not allowable as they do not fall under the mentioned expense of section 35D in the assessee's case. The assessee has claimed this deduction with the reasoning that they are in connection with establishment of new stores and such purposes. The reply submitted is however vague. Moreover the assessee is not an industrial undertaking which is under extension nor are these expenses incurred for setting up of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted that the assessee issued equity shares and warrants to its promoters on preferential basis during AY 2007-08. The proceeds of the share issue were to be utilized for setting up of new stores for its retailing business and other purposes of its business. The assessee claimed 1/5th of expenses incurred on such issue under section 35D of the Act. Learned Counsel for the assessee submitted that the Assessing Officer rejected the claim of the assessee on the grounds that the Assessee s business does not fall under the definition of industrial undertaking and therefore, deduction under section 35D of the Act cannot be claimed. Ld. Counsel for the assessee inviting our attention to the amendment to section 35D made w.e.f. 1 April 2009, wherein the word 'industrial' has been omitted and submitted that the said omission is merely clarificatory in nature and therefore, should be applied retrospectively. 29. Further reliance was placed on the following decisions for the proposition that any business is an Industrial undertaking: (i) Tolani Bulk Carriers Ltd. [2008] ITA Appeal No. 1079 of 2008 dated 05.09.2008 (Bombay High Court). (ii) Tolani Bulk Carriers Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quivalent to 20% of the total expenditure of ₹.64,68,381/- incurred by the assessee-company in connection with the issue of shares to meet the requirement of funds for the acquisition of new ships was amortized. The return was processed u/s. 143(1). However, the Assessing Officer issued notice u/s. 148 for re-opening the assessment u/s 147 on the ground that amortization of shares issue expenses claimed allowed to the assesse was not allowable because these expenses were of capital nature in view of the decision of Hon'ble Supreme Court in the case of M/s Brooke Bond India Ltd. as reported in 225 1TR 79 and hence income escaped assessment. The Assessing Officer, after obtaining necessary details of the expenses and considering the submissions made by the assessee, disallowed the claim of the assessee on the ground that the assessee- company was not an Industrial Undertaking and accordingly provisions of section 35D were not applicable. On appeal, the learned CIT(A) following the decision in assessee's own case for A.Y. 1996-97 confirmed the disallowance made by the Assessing Officer, Aggrieved by the decision of the learned CIT(A), the assessee is in appeal before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses if the conditions specified therein are fulfilled. It is also not in doubt the expenses incurred by the assessee fall with the category of expenses which are eligible for amortization. The only question which is required to be considered is whether the assessee-company is a Industrial undertaking or not within the meaning of provisions of Section 35 D of the Act. No doubt the definition of the term has not been given in the Section itself. The assessee has contended that in the absence of any specific definition, the definition of the term Industrial Undertaking can be imported from the definition of the term given in other sections or other Acts to arrive at the correct conclusion while the Revenue has contended that this term has been used with a specific meaning in respective provisions and, therefore, the same cannot be applied in other sections. In this background we have to look at the general meaning of the term Industrial Undertaking . The term Industrial Undertaking is made of two terms i.e. Industrial and other Undertaking . According to the dictionary meaning the word Industry means business which implies a systematic activity carried on in an organized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare issue expenses @ 10% of the total expenses incurred by the assessee, Thus, this ground of the assessee Is accepted. 35. This decision of the Tribunal was appealed before the Hon'ble Bombay High Court by the Revenue in Income Tax Appeal No. 1079 of 2008 and the Hon'ble Bombay High Court by order dated 05.09.2008 dismissed the appeal of the Revenue observing as under: - 1. Heard the learned Counsel for the parties. In this Appeal the Appellant has sought to raise the following substantial question of law: - Whether on the facts and in the circumstances of the case, the Hon ble Tribunal was right in law in holding that the shipping business is an Industrial Undertaking and in allowing deduction u/s.35D of the IT Act, 1961? 2. Perused the order passed by the Division Bench of this Court on 14th August, 2008 in Income Tax Appeal No.305 of 2008. For the same reasons as recorded in the aforesaid order dated 14th August, 2008 passed in Income Tax Appeal No.305 of 2008 we are not entertaining the present Appeal. Hence, the present Appeal also stands dismissed. 36. In the case of DCIT v. Mira Industries (supra) the Ahmadabad Bench of the Tribunal examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning that should be given to these words 'industrial undertaking' must be the natural meaning. It is all the more so because the Income-tax Act is one consolidating and amending the law relating to income-tax and supertax. (See Rao Bahadur Ravula Subha Rao v. CIT [1956] 30 ITR 163 (SC) at p. 169). ...Undertaking' in common parlance means an 'enterprise', 'venture', 'engagement'. It can as well mean 'the act of one who undertakes or engages in a project or business' (Webster). An undertaking mentioned in Section 54D must be one maintained by a person for the purpose of carrying on his business. 'Undertaking', for the purpose of this Section, however, must be an 'industrial undertaking'. The demonstrative adjective 'industrial undertaking' qualifying the word 'undertaking' unmistakably and with precision shows that the undertaking must be one which partakes of the character of a business. (b) The term, in the case of CIT v. Bhageeratha Engg. Ltd. [1992] 193 ITR 674 : 61 Taxman 248 (Ker.), again came up for consideration in connection with investment allowance under Section 32A of the Act. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 2(;) defines it: industry means any business, trade undertaking, manufacture or calling of employers and includes any calling, service, employment, handicraft, or industrial occupation or avocation of workmen. Let us put it plain. The canons of construction are trite that we must read the statute as a whole to get a hang of it and a holistic perspective of it. We must have regard to the historical background, objects and reasons, international thoughtways, popular understanding, contextual connotation and suggestive subject-matter. Equally important dictionaries, while not absolutely binding are aids to ascertain meaning. Nor are we writing on a tabula rasa. Since Banerjee, 1953 SCR 302: (AIR 1953 SC 58), decided a silver span of years ago, we have a heavy harvest of rulings on what is an 'industry' and we have to be guided by the variorum of criteria stated therein, as far as possible and not spring a creative surprise on the industrial community by a stroke of freak originality. 35. Another sobering sign. In a world of relativity where law and life interlace, a search for absolutes is a self-condemned exercise. Legal concepts, ergo, are relativist, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olution thereof. 39. An industry is not a utility but geared to utilities in which the community has concern. And in this mundane world where law lives now, economic utilities - material goods and services, not transcendental flights nor intangible achievements - are the functional focus of industry. Therefore, no temporal utilities, no statutory industry, is axiomatic. If society, in its advance, experiences subtler realities and assigns values to them, jurisprudence may reach out to such collective good. Today, not tomorrow, is the first charge of pragmatic law of western heritage. So we are confined to material, not ethereal end products. (d) The Karnataka High Court in the case of Shankar Construction Co. v. CIT [1991] 189 ITR 463 : 56 Taxman 98, held that the activities of a firm carrying on business in manufacturing and sale of tiles and specialising in construction of dams and canals to be those of an industrial undertaking. It was a claim of investment allowance which could be claimed by an industrial undertaking. In this regard the term industrial undertaking was explained to be as under: The expression industrial undertaking has not been defined in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .- In Section 35-D of the Income Tax Act, with effect from the 1st day of April, 2009,- (a) for the words industrial undertaking , wherever they occur, the word undertaking shall be substituted; (b) for the words industrial unit , wherever they occur, the word unit shall be substituted. The learned Counsel appearing for the appellant would contend that there being a substitution, the amendment would have to be deemed to be retrospective. The judgment of a Division Bench of this Court in Commercial Tax Officer v. Najeem [2018 (3) KLT 877] is also put forth. It is argued that this Court had found that when there is a substitution, if it is not specifically expressed to be prospective, then the Courts could always interpret it to be retrospective, looking at the scheme of the enactment, the purpose and object of the amendment, especially when the amendment by substitution, was intended at removing an obvious anomaly or correcting a blatant error or obliterating an absurdity or bringing it in consonance with any other law or the Constitution... . Hence, the intention definitely was to extend the benefit to all undertakings. 9. The learned Standing Counsel fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02 (Ker)] and C.I.T. v. Peerless Consultancy and Service (P.) Ltd. [(2001) 248 ITR 178]. The learned Standing Counsel for Government of India (Taxes) has relied on the decision in Ansal Housing and Construction Ltd. v. CIT [(2010) 320 ITR 420 (Delhi)]. 11. In Alikunju, M.A.Nazeer Cashew Industries, this Court was concerned with the issue whether the construction of a lodging house would be considered as an industrial undertaking . Therein the provision was one which granted exemption to gains arising on transfer of land and building forming part of industrial undertaking; when invested in setting up another industrial undertaking. The assessee had an ice factory; the land and buildings of which were acquired by the Government. The consideration was treated as long term capital gains as against which, the assessee claimed exemption under Section 54D on the ground that he had invested the capital gains in the construction of a lodging house. This Court found that the running of a lodge would be an industrial undertaking within the meaning of Section 54D. 12. In Shankar Construction Co., the Karnataka High Court was considering the meaning of industrial undertaking under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Co. We also notice that the decision in Alikunju, M.A.Nazeer Cashew Industries was distinguished, finding that the Division Bench of this Court had only dealt with the expression undertaking and not with the expression industrial undertaking . We are unable to agree with the High Court of Delhi on that issue since the specific finding was that the running of a lodge could be said to be an industrial undertaking within the meaning of Section 54D . 17. The Division Bench decisions of this Court in Alikunju, M.A.Nazeer Cashew Industries and Computerised Accounting and Management Service Pvt. Ltd., have a binding effect on us while the decision of the High Court of Delhi in Ansal Housing and Construction Ltd. can only be persuasive. We, hence, respectfully follow the Division Bench decisions of this Court and in doing so, we reiterate the principle as stated by the Karnataka High Court insofar as the assessee being favoured when two views are possible in construing a taxing statute. We also notice that the Division Bench of the High Court of Delhi had also construed the words industrial undertaking on the common parlance test. The Division Bench of this Court in Alikunj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income Tax Act, in our opinion, is proper. The grievance of the learned Counsel appearing for appellant-department that the decision of this Court in the Case of Insight Diagnostic and Oncological Research Institute Pvt.Ltd. Vs. Deputy Commissioner of Income Tax, reported in (2003)262 ITR 0041W was not considered by the Tribunal, in our opinion, is not proper because that judgment though interprets the term industrial undertaking it interprets the term industrial undertaking found in sub-section (1) of Section 32A of the Income Tax Act. For the purpose of section 35D of the Act that judgment is not relevant. In our opinion, in so far as interpretation of the term industrial undertaking found in section 35D of the Act is concerned, the tribunal has rightly considered the meaning of the term industrial undertaking common parlance. We see no question of law arising. The appeal is, therefore, rejected. 39. In the facts and circumstances of the assessee s case which is engaged in the business of retailing of readymade garments, other accessories and household items through a chain of retail stores across the country and part of the garments sold are manufactured on job ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, perused the orders of the authorities below and the decision of the Coordinate Bench. On a perusal of the order of the Coordinate Bench in ITA.No. 1163/Mum/2011 dated 27.08.2018 an identical issue has been decided in favour of the assessee by the Tribunal wherein it was held as under: - 10. The issue raised in third ground of appeal is against the confirmation of disallowance of ₹ 64,75,000/- by Ld. CIT(A) as made by the AO towards amortization in respect of Company s Employee Stock Options Scheme (ECOS) under section 37(1) of the Act. 11. The facts in brief are that the AO during the course of scrutiny proceedings observed that assessee has amortized ₹ 0.64 crore in the P L Account out of the stock options of 45,850 granted under the Employee Stock Options Scheme (ECOS) to senior manager and selected officers of the company the total cost of which was ₹ 3.96 crores. The assessee has appended note in the annual report to this extent that company has granted stock options under Employee Stock Options Scheme (ECOS), 2005 in accordance with the SEBI s guidelines and the accounting value of options is accounted as deferred employee compensation and is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A). We are not in agreement with the conclusion drawn by the Ld. CIT(A) on this issue that the amortization of expenditure claimed by the assessee is not admissible as revenue in nature and the issue is settled by the various judicial forums. The case of the assessee is supported by a series of decisions referred to above by the Ld. A.R. We have perused all these decisions and found that the case of the assessee is squarely covered by ratio laid down in these decisions. In view of these facts and ratio laid down by the various judicial forums, we set aside the order of Ld. CIT(A) and direct the AO to delete the disallowance. 45. Facts being identical respectfully following the said decision of the Tribunal for the immediately preceding Assessment Year i.e. A.Y.2006-07 we allow the claim of the assessee for the year under appeal. This ground is allowed. 46. Ground No. 6(a) of grounds of appeal of the assessee is relating to determination of Annual Letting Value (ALV) of the premises at Taj Building u/s. 23(1)(a) of the Act. 47. Ld. Counsel for the assessee at the outset submitted that this ground of appeal has not been decided by the Ld.CIT(A). Ld. Counsel for the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) Tip Top Typography vs CIT [2014] 48 taxmann.com 191 (Bombay High Court) 50. Ld. DR vehemently supported the order of the Assessing Officer. 51. We have heard the rival submissions, perused the orders of the authorities below and the decision of the Coordinate Bench in assessee s own case for the A.Y. 2006-07. On a perusal of the order of the Tribunal we observed that identical issue has come up before the Tribunal for the A.Y. 2006-07 in ITA.No. 1163/Mum/2011 dated 27.08.2018 and the Tribunal held as under: - 16. The issue raised in 4th ground of appeal is against the order of Ld. CIT(A) in deciding the annual letting value of the premises known as Taj Building as per section 23(1)(a) of the Act and also erred in rejecting the assessee s contention that fair market rent of the building should be compared with the total sum received from letting of premises along with furniture hire charges. 17. The facts in brief are that the assessee has entered into a Leave and License Agreement with M/s. Freight Systems (I) Pvt. Ltd. for a license fees amounting to ₹ 94,392/- per month working out to ₹ 11,32,704/- per annum. Simultaneously, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only 20% on the residential property, with which the impugned property was compared, to evaluate the potential rental of the commercial property in question. The impugned commercial property, as rightly observed by the AO is in a posh area and the AO has been very reasonable in estimating the sum for which the property might reasonably be expected to let from year to year. Hence, the action of the AO in estimating the ALV of this property at ₹ 35,50,000/- is upheld. This limb of the ground is dismissed. 18. The Ld. A.R. submitted before the bench that the AO has wrongly treated Taj Building as Taj Hotel by referring to the observations of AO in para 5.6 A4 at page No.4 of the assessment order. The Ld. A.R. further referred to para 5.6 A6 wherein the AO compared the Taj Building which is located at Fort, Mumbai with another building owned by the central government used for officer s residences known as Belvedere which is Breach Candy and thus pointed out that the whole exercise of the AO to find out the fair market rent was fallacious and full of anomalies as two buildings are at two different locations and therefore can not be compared. The Ld. A.R. further pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. DCIT (2017) 166 ITD 488 (Mumbai Tribunal) 19. The Ld. D.R., on the other hand, relied on the order of authorities below and submitted before the Bench that the AO is free to determine the ALV of the premises let out by the assessee where the fair rent is enormously low as compared with the market rate. The Ld. D.R. relied on the decision of Hon ble Bombay High Court in the case of CIT vs. Tip Top Typography v. CIT [2014] 48 taxmann.com 191 (Bombay High Court) and ACIT vs. Virendra Jain in ITA No.2116/M/2012 A.Y. 2009-10. The Ld. D.R. finally prayed before the Bench that the order passed by the AO is well reasoned based on the comparable instances of the fair rent in the vicinity and was rightly upheld by the Ld. CIT(A) and therefore deserves to be sustained. 20. We have heard the rival submissions of both the parties and perused the material on record including the decisions cited by both the parties. We find that in the present case the assessee has let out Taj Building which is located in D.N. Road, Fort, Mumbai to M/s. Freight Systems (I) Pvt. Ltd. The assessee entered into two agreements (i) for lease of premises dated 14.08.2003 at a monthly rent of ₹ 94,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ALV as the municipal valuation of the said premises is ₹ 1,31,300/-. The case of the assessee is supported by the various decisions referred to and relied by the Ld. A.R. of the assessee during the course of hearing. In the case of M.V. Sonavala vs. CIT (supra) the Hon ble Bombay High Court has upheld the order of the Tribunal wherein it has been held that annual value of the property is to be taken at an amount which is higher of the two i.e. rent received by the assessee in respect of different properties and not at their municipal rateable rate. In the present case, the municipal rate of valuation is below the actual rent received and therefore the actual rent has to be taken as ALV. In the case of CIT vs. Tip Top Typography (supra) the Hon ble Bombay High Court has held that the market rate in the locality is an approved method of determining the fair rental value but it is only when the AO is convinced and satisfied that the case before him is suspicious and determination by the parties is doubtful that he can resort to enquire about the prevailing rate in the locality. So the Hon ble High Court has held that only in the event of suspicion and some manipulation, the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts and in the circumstances of the case and in law, considering that an adhoc disallowance computed under section 14A of the Act does not represent actual expenditure incurred for earning exempt income, the same should not be added back while computing 'book profit' under section 115JB of the Act. 58. Ld. Counsel for the assessee submits that the assessee has disallowed an amount of ₹.35,07,020/- as expenditure incurred towards earning exempt income while computing its book profit taxable under section 115JB of the Act. The expenses disallowed pertain to those incomes which are exempted/ excluded while computing book profit under section 115JB of the Act. The Assessing Officer has applied Rule 8D of I.T. Rules to compute the disallowance u/s. 14A of the Act at ₹.3,71,34,919/- and added back the same to the assessee s income taxable under normal provisions of the Act, as well as to the book profit under section 115JB of the Act. Ld. Counsel for the assessee further submits that disallowance computed u/s. 14A of the Act r.w. Rule 8D of I.T. Rules is not the actual expenditure incurred by the assessee for earning exempt income, but is a notional amount, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal is not maintainable. In view of the submissions of both parties this appeal is dismissed as not maintainable as the tax effect is below ₹.50 Lacs. ITA.No. 1036/Mum/2012 (A.Y: 2008-09) (Assessee s Appeal) 61. Assessee has raised following grounds in its appeal: - 1) The Commissioner of Income Tax (Appeals) [CIT(A)] erred in confirming the disallowance made by Assessing Officer (AO) for depreciation claim of ₹.281,250/-on intangible assets - non-compete fees. 2) The CIT(A) erred in confirming the disallowance of ₹.147,635/- (i.e. 1/5th of ₹.738,189/-) incurred towards preferential issue of shares and ₹.185,640/- (i.e. 1/5th of ₹.928,198/-) towards warrant issue claimed u/s 35D of the Act. 3) The CIT(A) erred in confirming the disallowance of ₹.20,95,679/- (i.e. 1/5th of ₹.10,478,393/-) incurred in AY 2008-09 towards issue of equity shares on right basis claimed u/s 35D of the Act. 4) The CIT(A) erred in not dealing with alternate plea of the appellant to allow ₹.39,02,000/- claimed u/s 37(1) of the Act being expenses of revenue nature out of ₹.10,478,393/- incurred towards issue of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the A.Y.2007-08 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y. 2008-09. We order accordingly. 64. Ground No. 9 of grounds of appeal is relating to disallowance towards Employees' Stock Option Scheme (ESOP) u/s. 37(1) of the Act. This ground is similar to Ground No. 5 of grounds of appeal raised for the A.Y. 2007-08 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y. 2008-09 also. We order accordingly. 65. Ground No. 10 of grounds of appeal relating to the disallowance made u/s. 36(1)(ii) of the Act by the Assessing Officer in respect of commission paid to the Directors on the ground that they hold equity shares of the company. 66. Briefly stated the facts are, the Assessing Officer while completing the assessment noticed that assessee has paid commission to its Directors. The Assessing Officer required the assessee to furnish the commission paid to its Directors and their shareholding in the company. On going through the details furnished by the assessee the Assessing Officer noticed that Executive Director Shri K.M. Santuk was holding 360 shares in the company and was paid commission of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T [1946] 14 ITR 647 (Bombay High Court) iii) AMD Metplast (P.) Ltd. vs DCIT [2012] 20 taxmann.com 647 (Delhi High Court) iv) CIT vs Career Launcher India Ltd. [2012] 20 taxmann.com 637 (Delhi High Court) v) CIT vs Convertech Equipments (P.) Ltd. [2013] 36 taxmann.com 314 (Delhi High Court) vi) Colour Publications (P.) Ltd. vs Pr. CIT [2018] 97 taxmann.com 116 (Mumbai Tribunal) vii) Coil Company (P.) Ltd. vs Asst. CIT [2012] 22 taxmann.com 75 (Delhi Tribunal) viii) Mandovi Motors (P.) Ltd. [2010] 8 taxmann.com 225 (Bangalore Tribunal) ix) Arihantam Infraprojects (P.) Ltd. vs Joint CIT [2015] 64 taxmann.com 404 (Pune Tribunal) 69. Ld. DR vehemently supported the orders of the authorities below. 70. We have heard the rival submissions, perused the orders of the authorities below and the decision relied on. In the case of New Silk Route Advisors Pvt. Ltd., (supra) the Hon'ble Bombay High Court held as under: 2. The Revenue urges the following questions of law for our consideration: (i) Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified in holding that the payment of bonus to shareholde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of less taxes in comparison to tax payable on the same if distributed as dividend was found incorrect. Reliance was also placed upon the decision of the Supreme Court in the case of CIT v/s. Shahzada Nand and Sons (108 ITR 358) wherein almost identical circumstances an issue of commission paid to the employee shareholders was held to be allowable under Section 36(1)(ii) of the Act. In the above view, the appeal of the respondent was allowed by the impugned order dated 20th February, 2015. (c) The grievance of the Revenue before us is that the bonus which was paid to the employee directors was much higher than the bonus which was to be paid to the other employees of the respondentassessee. It is on the above basis that it is contended by Mr. Suresh Kumar that the entire payment made of the employee directors of bonus was in lieu of dividend which would have been otherwise paid to the shareholders. Thus, on the above ground it is submitted that this question requires admission. (d) As is evident from the chart hereinabove of the payment of bonus made to the employee directors, it is clear that all the four employee directors own identical number of shares i.e. 12.20% aggr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nil N.A.Soonawala 550,000 Nil B.S.Bhesania 550,000 Nil A.D. Cooper 550,000 Nil K.N.Suntook 500,000 360 Zubin Dubash 250,000 Nil Total 3,000,000.00 Excess provision of ₹ 60000 has been written back in the accounts and offered for tax, In the return the company claims the commission in the year of payment after approval by the shareholders. Accordingly, in the a.y. 08-09, the company has claimed actual commission paid to the directors ₹ 3450000 for the f.y. 06-07 which was offered for disallowance in the return for a.y. 07-08. Similarly, in ay. 08-09 the company has offered for disallowance provision of commission ₹ 30.60 lakhs and has claimed it in ay. 09-10 on payment. Kindly refer to Items no, 2(1) and item no. 9(9) of Annexure A to Computation of income. 72. As could be see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Hon'ble Commissioner of Income-tax (Appeals) erred on facts and in law in upholding the action of the learned Assessing Officer in making upward adjustment of disallowance computed under section 14A of the Act r.w. Rule 8D of the rules while computing book profit under section 115JB of the Act. 2. On the facts and in the circumstances of the case and in law, considering that the disallowance computed under section 14A of the Act r.w. Rule 8D of the Rules does not represent actual expenditure incurred for earning exempt income, the same should not be added back while computing 'book profit' under section 115JB of the Act. 75. These additional grounds are similar to additional grounds of appeal raised for the A.Y. 2007-08 regarding the disallowance u/s. 14A r.w. Rule 8D while computing the book profits u/s. 115JB of the Act and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y 2008-09 also. We order accordingly. ITA.No. 2509/MUM/2012 (A.Y. 2008-09) (Revenue Appeal) 76. The revenue has raised following grounds in its appeal: - 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llaneous expense at ₹.1.86 Crores over and above the disallowance computed as per Rule 8D, specially on account of the fact that Rule 8D (iii) itself provides for disallowance of administrative expense in form of 0.5% of the average value of investment. As the appellant's computation of disallowance u/s.14A is satisfactory, the disallowance u/s,14A is restricted to ₹.35,90,326/- and the disallowance by the AO is deleted. 81. We also further noticed from the Assessment Order that, the assessee has made elaborate submissions and a detailed computation of the expenditure attributable for earning exempt income which is said to be consistent method of computation on a scientific basis made from the A.Y.2006-07. We further find that even though the Assessing Officer extracted the elaborate submissions and the computation of disallowance made by the assessee, there is no satisfaction recorded by the Assessing Officer as to why the suomoto computation of disallowance of expenses made by the assessee is not satisfactory having regard to the Books of Accounts of the assessee and the correctness of the claim of expenditure made by the assessee. The Ld.CIT(A) while disposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71,000/- (i.e. 1/5th of ₹ 355,000/-) incurred in AY 2008-09 towards issue of warrants to promoters claimed u/s 35D of the Act. 7) The CIT(A) erred in not deleting the disallowance made by AO in respect of commission paid u/s 36(l)(ii) to the extent of ₹ 9,359/- in case of Mr. K.N.Suntook, Director of the company on the ground that they hold equity shares of the company. 8) The CIT(A) erred in confirming the interest income of ₹ 8,63,99,000/- would be taxed under the head income from other sources and not as business income as offered by the appellant. 83. Ground No. 1 of grounds of appeal is relating to depreciation on intangible assets i.e. non-compete fees. This ground is similar to Ground No. 1 of grounds of appeal raised for the A.Y. 2007-08 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y.2009-10 also. We order accordingly. 84. Ground No. 2 to 6 of grounds of appeal are relating to disallowance towards warrant issue expenses claimed u/s 35D of the Act. This ground is similar to Ground No. 3 and 4 of grounds of appeal raised for the A.Y.2007-08 and the decision taken therein shall apply mutatis-mutandis t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 161,853/- on intangible assets - non-compete fees. 2) The CIT(A) erred in applying Rule 8D for purposes of disallowance u/s 14A of the Act. 3) The CIT(A) has further erred in considering the disallowance under section 14A of ₹ 4,38,60,777/- for the purposes of calculation of book profits under section 115JB of the Act. 4) The CIT (A) erred in confirming the disallowance of ₹ 147,635/- (i.e. 1/5th of ₹ 738,189/-) incurred towards preferential issue of shares claimed u/s 35D of the Act. 5) The CIT (A) erred in confirming the disallowance of ₹ 185,640/- (i.e. l/5th of ₹ 928,198/-) towards warrant issue claimed u/s 35D of the Act. 6) The CIT (A) erred in confirming the disallowance of ₹ 20,95,679/- (i.e. l/5th of ₹ 10,478,393/-) incurred in AY 2008-09 towards issue of equity shares on right basis claimed u/s.35D of the Act. 7) The CIT (A) erred in confirming the disallowance of ₹ 163,225/- (i.e. 1/5th of ₹ 816,129/-) incurred in AY 2008-09 towards issue of equity shares to promoters claimed u/s 35D of the Act. 8) The CIT (A) erred in confirming the disallowance of ₹ 71,000/- (i.e. 1/5th of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee shall be adopted even while computing the book profits u/s. 115JB of the Act as the disallowance was computed on a scientific method. This ground is partly allowed. 93. Ground No. 4 to 8 of grounds of appeal are relating to disallowance towards warrant issue expenses claimed u/s 35D of the Act. This ground is similar to Ground No. 3 and 4 of grounds of appeal raised for the A.Y.2007-08 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y. 2010-11. We order accordingly. 94. Ground No. 9 of grounds of appeal is relating to the disallowance made u/s. 36(1)(ii) of the Act by the Assessing Officer in respect of commission paid to the Directors on the ground that they hold equity shares of the company. This ground is similar to Ground No. 10 of grounds of appeal raised for the A.Y. 2008-09 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y. 2010-11. We order accordingly. 95. Ground No. 10 of grounds of appeal is relating to confirming the interest disallowance on the loans given to subsidiaries, interest on Income-tax refund and interest on warrants conversion, application money, taxed under the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not represent actual expenditure incurred for earning exempt income, the same should not be added back while computing 'book profit' under section 115JB of the Act. 98. The additional grounds are purely legal grounds, therefore the same are admitted on hearing both the parties. 99. Ground No. 1 of grounds of appeal is relating to depreciation on intangible assets i.e. non-compete fees. This ground is similar to Ground No. 1 of grounds of appeal raised for the A.Y. 2007-08 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y.2011-12 also. We order accordingly. 100. Ground No. 2 and additional grounds raised by the assessee are similar to Ground Nos. 2 and 3 of grounds of appeal raised for the A.Y.2010-11 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y.2011-12 also. We order accordingly. 101. Ground No. 3 and 4 of grounds of appeal are relating to disallowance towards warrant issue expenses claimed u/s 35D of the Act. This ground is similar to Ground No. 3 and 4 of grounds of appeal raised for the A.Y. 2007-08 and the decision taken therein shall apply mutatis-mutandis to the appeal for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te fees. 3) The CIT(A) erred in applying Rule 8D(2)(iii) towards disallowance u/s 14A of the Act without giving any reasons for not accepting disallowance offered by Appellant towards 14A. 4) The CIT(A) erred in applying Rule 8D (2)(iii) towards disallowance u/s 14A of the Act for working out book profit u/s 115JB of the Act without giving any reasons for not accepting disallowance offered by Appellant towards 14A. 5) The CIT(A) erred in confirming disallowance of ₹ 20,95,679/- (i.e. 1/5th of ₹ 10,478,393/-) incurred in AY 2008-09 towards issue of equity shares on right basis claimed u/s 35D of the Act. 6) The CIT (A) erred in confirming disallowance of ₹ 37,65,576/- (i.e. 1/5th of ₹ 18,827;878/-) incurred in AY 2011-12 towards issue of CCPS on right basis claimed u/s 35D of the Act. 7) The CIT (A) erred in confirming disallowance of ₹ 99,39,752/- (i.e. 1/5th of ₹ 4,96,98,760/-) incurred in AY 2012-13 towards issue of CCPS on right basis claimed u/s 35D of the Act. 8) The CIT(A) erred in not accepting alternate plea of the appellant to allow ₹ 58,99,785/- being expenses of revenue nature incurred in AY 12-13 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loans given to subsidiaries, interest on Income-tax refund and interest on warrants conversion, application money, taxed under the Income from other sources instead of business income . Ld. Counsel for the assessee submitted that this ground is not pressed as there is no impact on the assessed income and hence academic. In view of the submissions of the Ld. Counsel for the assessee this ground is treated as not pressed. Further, we keep the issue open and the decision taken for this assessment year shall not be treated as precedent for later years. This ground is dismissed as indicated above. ITA NO.364/MUM/2017 (A.Y: 2012-13) (Revenue Appeal) 114. Revenue has raised following grounds in its appeal: - 1. Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in holding that disallowance made u/s 14A of the I T Act, as per Rule 8D(2)(ii) is not correct since the reserve Surplus of the assessee company is more than investment relying on the decision in the case of HDFC Ltd.( 366 ITR 505) without appreciating the fact that the decision of HDFC Ltd. is not applicable to the instant case since the same relate to A.Y. 2001-02 to 2005- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground No. 1 of grounds of appeal raised for the A.Y. 2007-08 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y.2013-14 also. We order accordingly. 118. Ground No. 2 grounds of appeal is relating to disallowance u/s. 14A r.w. Rule 8D(2)(iii) of the I.T. Rules. This ground is similar to Ground No. 3 of grounds of appeal raised for the A.Y. 2010-11 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y.2013-14 also. We order accordingly. 119. Ground Nos. 3 to 5 of grounds of appeal are relating to disallowance towards warrant issue expenses claimed u/s 35D of the Act. This ground is similar to Ground No. 3 and 4 of grounds of appeal raised for the A.Y.2007-08 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y. 2013-14 also. We order accordingly. 120. Ground No. 6 of grounds of appeal is relating to the disallowance made u/s. 36(1)(ii) of the Act by the Assessing Officer in respect of commission paid to the Directors on the ground that they hold equity shares of the company. This ground is similar to Ground No. 10 of grounds of appeal raised for the A.Y. 2008-09 and the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Civil Appeal No.l423of 2015 in the case of M/s. Avon Cycles Ltd. affirmed that if the funds utilized by the assessee are mixed funds the interest paid by the assessee is also interest on the investment made 122. Ground Nos. 1 and 2 are relating to disallowance made u/s. 14A r.w. Rule 8D(2)(ii) of I.T. Rules. As we have already held that the computation of disallowance as made by the assessee is to be accepted applying the principle of consistency ground Nos. 1 and 2 are dismissed. 123. Ground Nos. 3 and 4 of grounds of appeal are relating to disallowance u/s. 14A while computing the book profits u/s. 115JB of the Act. This issue is covered by the Delhi Special Bench of the Tribunal in the case of ACIT v. Vireet Investments Private Limited [165 ITD 27] wherein it has been held that the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s. 14A r.w. Rule 8D of the I.T Rules, 1962. Thus, the disallowance as computed under Rule 8D cannot be applied while computing the disallowance u/s. 115JB of the Act. Therefore, the suomoto disallowance as computed by the assessee shall be adopted even while ..... 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