M/S EDELWISS RURAL & CORPORATE SERVICES PRIVATE LIMITED,MUMBAI vs. ACIT CENTRAL CIRCLE-1(2), MUMBAI

PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 26/07/2022 passed by the Ld. Commissioner of Income- tax(Appeals)-47, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2016-17, raising following grounds: 1. (i) The CIT(A) erred in upholding the action of the AO in making disallowance of Rs. 4,34,79,702/- being loss incurred on sale of Mentha Oil to two parties namely Ms. Barabanki Trading Co. Limited and Sharp Mint Limited at a

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 2 ITA No. 2471/M/2022

price lesser than the market price holding the same as price lesser than the market price holding the same as price lesser than the market price holding the same as artificially created loss. lly created loss. (ii) The CIT(A) erred in upholding the action of the AO in (ii) The CIT(A) erred in upholding the action of the AO in (ii) The CIT(A) erred in upholding the action of the AO in substituting the selling price of the commodities with the substituting the selling price of the commodities with the substituting the selling price of the commodities with the market price of the commodities. market price of the commodities. The Appellant submits that it has sold the commodities and The Appellant submits that it has sold the commodities and The Appellant submits that it has sold the commodities and incurred the loss in the incurred the loss in the normal course of business activities; normal course of business activities; hence, the loss disallowed by the AO shall be deleted as hence, the loss disallowed by the AO shall be deleted as hence, the loss disallowed by the AO shall be deleted as well as A0's action of substituting the selling price with well as A0's action of substituting the selling price with well as A0's action of substituting the selling price with market price shall be quashed. market price shall be quashed. 2. (i) The Commissioner of Income Tax (Appeals) 2. (i) The Commissioner of Income Tax (Appeals) 2. (i) The Commissioner of Income Tax (Appeals) - 47, Mumbai [hereinaft Mumbai [hereinafter referred as CIT(A)] erred in upholding er referred as CIT(A)] erred in upholding the action of the Deputy Commissioner of Income Tax, the action of the Deputy Commissioner of Income Tax, the action of the Deputy Commissioner of Income Tax, Central Circle Central Circle -1(1) [AO] in making disallowance w/s 14A of 1(1) [AO] in making disallowance w/s 14A of Income Tax Act, 1961 (Act) r.w. Rule Income Tax Act, 1961 (Act) r.w. Rule 8D of the Income Tax D of the Income Tax Rules. 1962 (Rules) without recording his d Rules. 1962 (Rules) without recording his dis-satisfaction satisfaction with fault correctness of the claim of the Appellant having with fault correctness of the claim of the Appellant having with fault correctness of the claim of the Appellant having regard to its books of accounts. regard to its books of accounts. (ii) The CIT(A) erred in upholding the action of the A in ) The CIT(A) erred in upholding the action of the A in ) The CIT(A) erred in upholding the action of the A in considering all investment for the purposes of making considering all investment for the purposes of making considering all investment for the purposes of making disallowance as per rule 8D(2) of disallowance as per rule 8D(2) of the Rules as against only the Rules as against only those investment on which Appellant has actually earned those investment on which Appellant has actually earned those investment on which Appellant has actually earned the exempt income and excluding the investment on which the exempt income and excluding the investment on which the exempt income and excluding the investment on which no exempt income is earned during subjected year. no exempt income is earned during subjected year. no exempt income is earned during subjected year. The Appellant craves leave to add, amend, modify, The Appellant craves leave to add, amend, modify, The Appellant craves leave to add, amend, modify, substitute the abo substitute the above grounds of appeal. 2. Briefly stated facts of the case are that the assessee company stated facts of the case are that the assessee company stated facts of the case are that the assessee company was mainly engaged in the business of activity of trading in was mainly engaged in the business of activity of trading in was mainly engaged in the business of activity of trading in commodities for itself and its clients through physical mode as well commodities for itself and its clients through physical mode as well commodities for itself and its clients through physical mode as well as on commodity exchange. as on commodity exchange. For the year under consideration, the under consideration, the assessee filed its return of income electronically on 30/11/2016 assessee filed its return of income electronically on 30/11/2016 assessee filed its return of income electronically on 30/11/2016 declaring declaring total total income income at at ₹109,26,62,140/-, , which which was was subsequently revised to subsequently revised to ₹105,45,28,560/-on 21/03/2018. The on 21/03/2018. The return of income filed by the assessee was selected for scrutiny and return of income filed by the assessee was selected for scrutiny and return of income filed by the assessee was selected for scrutiny and

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 3 ITA No. 2471/M/2022

statutory notices under the Income nder the Income-tax Act, 1961 (in short in short ‘the Act’) were issued and complied with. In the case of the assessee, in view were issued and complied with. In the case of the assessee were issued and complied with. In the case of the assessee of international transact of international transactions carried out by the assessee by the assessee with its associated enterprises, a reference was made to the transfer pricing associated enterprises, a reference was made to the transfer pricing associated enterprises, a reference was made to the transfer pricing officer, however no adjustment was recommended to the value of officer, however no adjustment was recommended to the value of officer, however no adjustment was recommended to the value of the international transactions. In the case of the assessee accounts the international transactions. In the case of the assessee accounts the international transactions. In the case of the assessee accounts were audited by the special auditor in terms of section 142(2A) of by the special auditor in terms of section 142(2A) of by the special auditor in terms of section 142(2A) of the Act. On the certain observations by the special auditor in ct. On the certain observations by the special auditor in ct. On the certain observations by the special auditor in relation to trading in Mentha oil, the Assessing Officer made relation to trading in Mentha oil, the Assessing Officer made relation to trading in Mentha oil, the Assessing Officer made addition to the returned income along with other additions and addition to the returned income along with other additions and addition to the returned income along with other additions and completed the assessment on 12/02/2020 assessing the total assessment on 12/02/2020 assessing the total assessment on 12/02/2020 assessing the total income at ₹113,21,14, 113,21,14,176/-in terms of section 143(3) of the in terms of section 143(3) of the Act. On further appeal, the Ld. CIT(A) dismissed the grounds raised by the further appeal, the Ld. CIT(A) dismissed the grounds raised by the further appeal, the Ld. CIT(A) dismissed the grounds raised by the assessee. Aggrieved with the finding of the Ld. CIT(A), the assessee assessee. Aggrieved with the finding of the Ld. CIT(A), the assessee assessee. Aggrieved with the finding of the Ld. CIT(A), the assessee is in appeal before the ppeal before the Income-tax Appellate Tribunal ( tax Appellate Tribunal (in short the ‘Tribunal’) raising the grounds ) raising the grounds as reproduced above. 3. Before us the assessee also filed Before us the assessee also filed an additional ground on additional ground on 25/11/22 stating that impugned assessment order is barred by 25/11/22 stating that impugned assessment order is barred by 25/11/22 stating that impugned assessment order is barred by limitation as provided under section 153 of the ed under section 153 of the Act,hence deserve to hence deserve to be quashed. However, er, during hearing of the appeal during hearing of the appeal before us, the Ld. counsel of the assessee submitted that assessee was not of the assessee submitted that assessee was not of the assessee submitted that assessee was not interested in pursuing that erested in pursuing that additional ground. In view of the written . In view of the written request filed, the additional ground raised by the assessee is request filed, the additional ground raised by the assessee is request filed, the additional ground raised by the assessee is accordingly dismissed as not pressed. accordingly dismissed as not pressed.

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 4 ITA No. 2471/M/2022

3.1 Before us the Ld Counsel of the assessee filed Before us the Ld Counsel of the assessee filed Before us the Ld Counsel of the assessee filed a paper book containing pages 1 to 45. containing pages 1 to 45. 4. The ground No.2 of the appeal relate The ground No.2 of the appeal relates to disallowance of loss allowance of loss on trading in Mentha oil. on trading in Mentha oil. 5. The brief facts qua the issue in dispute are that the special The brief facts qua the issue in dispute are that the special The brief facts qua the issue in dispute are that the special auditor in his report observed that assessee incurred loss on auditor in his report observed that assessee incurred loss on auditor in his report observed that assessee incurred loss on trading in ‘Mentha oil Mentha oil’ amounting to ₹1,39,01,126/ 126/-. The assessee explained that purchase and sale transactions were transacted at that purchase and sale transactions were transacted at that purchase and sale transactions were transacted at different dates and at the prevailing market rate as per Multi different dates and at the prevailing market rate as per Multi different dates and at the prevailing market rate as per Multi commodity exchange ( exchange (MCX) and this loss which is 1.35% of the MCX) and this loss which is 1.35% of the total sales turnover, was merely incidental. The learned Assessing total sales turnover, was merely incidental. The learne total sales turnover, was merely incidental. The learne Officer observed that substantial served that substantial number of the transactions of sale of the transactions of sale had been carried out by the assessee at the prevailing market rate, had been carried out by the assessee at the prevailing market rate, had been carried out by the assessee at the prevailing market rate, but few transactions were carried out below the prevailing market but few transactions were carried out below the prevailing market but few transactions were carried out below the prevailing market prices to regular sale parties. prices to regular sale parties. The Assessing Officer rejected cer rejected such a loss of Rs.4,34,79,702/ 702/-incurred in relation to transactions with incurred in relation to transactions with two parties namely m/s ‘ m/s ‘Barabanki trading Co Ltd’ and m/s ‘Sharp Mint Ltd’. Before the Ld. CIT(A) the assessee submitted that books . Before the Ld. CIT(A) the assessee submitted that books . Before the Ld. CIT(A) the assessee submitted that books of accounts of the assessee has not been rejected by the Assessing of accounts of the assessee has not been rejected by the Assessing of accounts of the assessee has not been rejected by the Assessing Officer and therefore he was not justified in tempering the book Officer and therefore he was not justified in tempering the book Officer and therefore he was not justified in tempering the book results except as provided under deeming provisions 40A(2) of the results except as provided under deeming provisions results except as provided under deeming provisions Act in case of transactions ct in case of transactions with related parties. The Ld. CIT(A) related parties. The Ld. CIT(A) rejected the contention of the assessee and case laws relied upon. rejected the contention of the assessee and case law rejected the contention of the assessee and case law He followed his finding He followed his finding in preceding assessment year 2012 preceding assessment year 2012-13

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 5 ITA No. 2471/M/2022

wherein the trading loss on transactions of the sale of the jewelry wherein the trading loss on transactions of the sale of the jew wherein the trading loss on transactions of the sale of the jew below the market price below the market price was rejected. The Ld. CIT(A) in assessment rejected. The Ld. CIT(A) in assessment year 2012-13 observed that assessee carried out circular trading in 13 observed that assessee carried out circular trading in 13 observed that assessee carried out circular trading in gold business with the help of group members of the assessee with gold business with the help of group members of the assessee with gold business with the help of group members of the assessee with active involvement of INTL commodities DMCC and Kaloti jewelry active involvement of INTL commodities DMCC and Kal active involvement of INTL commodities DMCC and Kal International DMCC ( International DMCC (buyer parties), where everyone benefited , where everyone benefited except the assessee, and thus the loss generated was artificial. except the assessee, and thus the loss generated was artificial. except the assessee, and thus the loss generated was artificial. Relying on his finding in assessment year 2012 Relying on his finding in assessment year 2012-13, the Ld. CIT(A) 13, the Ld. CIT(A) rejected the loss on sale of the Mentha oil during the year under rejected the loss on sale of the Mentha oil during t rejected the loss on sale of the Mentha oil during t consideration observing as under: consideration observing as under: “6.3 In the instant year AY 2016 6.3 In the instant year AY 2016-17 too, identical situation 17 too, identical situation exists. The appellant has incurred losses by selling "Mentha exists. The appellant has incurred losses by selling "Mentha exists. The appellant has incurred losses by selling "Mentha Oil" to Barabanki Trading Co. and Sharp Mint Limited at a Oil" to Barabanki Trading Co. and Sharp Mint Limited at a Oil" to Barabanki Trading Co. and Sharp Mint Limited at a price much lower than the pr price much lower than the prevailing Market price. The evailing Market price. The following table will demonstrate, as extracted from the reply to following table will demonstrate, as extracted from the reply to following table will demonstrate, as extracted from the reply to the Spl. Auditor: the Spl. Auditor: Month Average Price to Barabanki Trading Average Price to Barabanki Trading Average proce shown as Average proce shown as Co. and Sharp Mint Limited Co. and Sharp Mint Limited per the MCX per the MCX April, 15 801.31/KG 801.31/KG 1053.24/KG 1053.24/KG July, 15 948.22/KG 948.22/KG 1082.92/KG 1082.92/KG Aug, 15 917.98/KG 917.98/KG 1049.38/KG 1049.38/KG Sept, 15 916.74/KG 916.74/KG 1045.76/KG 1045.76/KG Oct, 15 868.66/KG 868.66/KG 1016.77/KG 1016.77/KG Nov, 15 890.25/KG 890.25/KG 1046.35/KG 1046.35/KG Dec, 15 1029.60/KG 1029.60/KG 1039.68/KG 1039.68/KG Jan, 16 873.30/KG 873.30/KG 1024.29/KG 1024.29/KG Feb, 16 895.59/KG 895.59/KG 1049.97/KG 1049.97/KG 6. Before us the Ld. Ld. counsel of the assessee submitted that in of the assessee submitted that in assessment assessment year year 2012 2012-13, the Tribunal Tribunal in ITA No. 1040/Mum/2022 allowed the appeal of the assessee on the legal 1040/Mum/2022 allowed the appeal of the assessee on the legal 1040/Mum/2022 allowed the appeal of the assessee on the legal ground of the validity of the reassessment and therefore the issue of ground of the validity of the reassessment and therefore the issue of ground of the validity of the reassessment and therefore the issue of

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 6 ITA No. 2471/M/2022

loss on sale of the jewelry below loss on sale of the jewelry below the market price was not the market price was not adjudicated being rendered as academic only. The learned consul adjudicated being rendered as academic only. The learne adjudicated being rendered as academic only. The learne however before a submitted that the transactions of the sale and however before a submitted that the transactions of the sale and however before a submitted that the transactions of the sale and purchase were made in the course of normal business activity of the purchase were made in the course of normal business activity of the purchase were made in the course of normal business activity of the assessee and the buyer parties ar assessee and the buyer parties are not related parties as defined e not related parties as defined under section 40A(2) 40A(2) of the Act and therefore there was no and therefore there was no occasion for the lower ower authorities to disallow the loss claimed in the authorities to disallow the loss claimed in the course of normal business transactions unless books of accounts of course of normal business transactions unless books of accounts of course of normal business transactions unless books of accounts of the assessee are rejected rejected. The learned consul submitted that consul submitted that transactions are carried out below the market price by the assessee transactions are carried out below the market price by the assessee transactions are carried out below the market price by the assessee keeping in view of the other business consideration. It was keeping in view of the other business consideration. It was keeping in view of the other business consideration. It was submitted that M/s Barabanki trading Co submitted that M/s Barabanki trading Co. Ltd Ltd. had made substantial purchases with the assess substantial purchases with the assessee and was one of the ee and was one of the prominent customers customers, which the assessee never wanted to lose. He , which the assessee never wanted to lose. He submitted that Assessing Officer cannot substitute the transacted essing Officer cannot substitute the transacted essing Officer cannot substitute the transacted price with the market price price with the market price unless the transaction is carried out unless the transaction is carried out with related parties or the Assessing with related parties or the Assessing Officer could demonstrate with Officer could demonstrate with evidence any under hand transfer of the cash in the transaction. under hand transfer of the cash in the transaction. under hand transfer of the cash in the transaction. The learned counsel of the assessee relied on the decision of the l of the assessee relied on the decision of the l of the assessee relied on the decision of the Tribunal in the case of ribunal in the case of Flipkart India Private Limited in IT Flipkart India Private Limited in ITA No. 202/Bang/2018 for for assessment year 2015-16, wherein it is held wherein it is held that the Assessing Officer cannot disregard the profit or loss as that the Assessing Officer cannot disregard the profit o that the Assessing Officer cannot disregard the profit o disclosed in the profit and loss account, unless he invokes the disclosed in the profit and loss account, unless he invokes the disclosed in the profit and loss account, unless he invokes the provision of section 145(3) of the provision of section 145(3) of the Act and can’t can’t substitute the transaction price with the market price ignoring the real price faced with the market price ignoring the real price faced with the market price ignoring the real price faced

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 7 ITA No. 2471/M/2022

as what can be tax is the only the income which accrue to the as what can be tax is the only the income which accrue to the as what can be tax is the only the income which accrue to the assessee as laid down in section 5 of the as laid down in section 5 of the A588ct. 7. The Ld. Departmental Representative Departmental Representative on the other hand relied on the other hand relied on the order of the lower lower authorities. 8. We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The assessee dispute and perused the relevant material on record. The assessee dispute and perused the relevant material on record. The assessee transacted with two parties for sale of Mentha oil in normal course transacted with two parties for sale of Mentha oil in normal course transacted with two parties for sale of Mentha oil in normal course of the business and suffered loss of of the business and suffered loss of ₹4,34,79,702/-. The contention . The contention of the Assessing Officer is that those transactions have been carried of the Assessing Officer is that those transactions have been carried of the Assessing Officer is that those transactions have been carried out at the below the market price and therefore loss cannot be out at the below the market price and therefore loss cannot be out at the below the market price and therefore loss cannot be allowed to the assessee. On perusal of the order of the lower allowed to the assessee. On perusal of the order of the allowed to the assessee. On perusal of the order of the authorities it is evident that there authorities it is evident that there is no adverse evidence against is no adverse evidence against the assessee except that transactions have been carried out below the assessee except that transactions have been carried out below the assessee except that transactions have been carried out below the market price. the market price. Before us the assessee contended that Before us the assessee contended that transactions were carried out below market price because was in transactions were carried out below market price because was in transactions were carried out below market price because was in dire need of finance and also wanted t dire need of finance and also wanted to retain the customer. o retain the customer. Under the provisions of the ions of the Act in section 40A(2) , it has , it has been provided that if transactions with with related parties are carried out below the related parties are carried out below the market price, then Assessing Officer can substitute the market market price, then Assessing Officer can substitute the market market price, then Assessing Officer can substitute the market price of the products with the transacted price, however in case of price of the products with the transacted price, however in case of price of the products with the transacted price, however in case of unrelated party the Assessing Officer cannot unrelated party the Assessing Officer cannot invoke section 40A(2) invoke section 40A(2) of the Act and substitute the ubstitute the ‘transacted price’ with the with the ‘market price’ unless books of accounts of the assessee unless books of accounts of the assessee are rejected invoking rejected invoking section 145(3) of the section 145(3) of the Act and profit or loss of the business is ct and profit or loss of the business is

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 8 ITA No. 2471/M/2022

estimated/recasted by the Assessing Officer. In this case, the by the Assessing Officer. In this case, the Assessing Officer has neither pointed out any defects in the books Officer has neither pointed out any defects in the books Officer has neither pointed out any defects in the books of accounts of the assessee and no of the assessee and nor rejected the books of accounts rejected the books of accounts and thus Assessing Officer is prohibited from rejecting such and thus Assessing Officer is prohibited from rejecting such and thus Assessing Officer is prohibited from rejecting such transactions although carried out below the market price. The transactions although carried out below the market price. The transactions although carried out below the market price. The assessee has to arrange his business affair keeping in view the best has to arrange his business affair keeping in view the best has to arrange his business affair keeping in view the best interest of the business including retaining of the customers and interest of the business including retaining of the customers and interest of the business including retaining of the customers and Assessing Officer cannot doubt the business transactions merely on Assessing Officer cannot doubt the business transactions merely on Assessing Officer cannot doubt the business transactions merely on ground that same is below the market ground that same is below the market price, without without bringing on record any malafide in transactions. record any malafide in transactions. The Tribunal in the case of ribunal in the case of Flipkart India Private Limited (supra) Flipkart India Private Limited (supra) on the issue of substituting on the issue of substituting transaction price by by the market price by the Assessing Officer the market price by the Assessing Officer, observed as under: “52. As laid down by the Hon'ble Supre 52. As laid down by the Hon'ble Supreme Court in the case of me Court in the case of Calcutta Discount Company(supra), when one trader transfers Calcutta Discount Company(supra), when one trader transfers Calcutta Discount Company(supra), when one trader transfers his goods to another trader at a price less than the market his goods to another trader at a price less than the market his goods to another trader at a price less than the market price, the taxing authority cannot take into consideration the price, the taxing authority cannot take into consideration the price, the taxing authority cannot take into consideration the market price of those goods, ignoring the real pr market price of those goods, ignoring the real price fetched. As ice fetched. As laid down by the Hon'ble Supreme Court in the case of laid down by the Hon'ble Supreme Court in the case of laid down by the Hon'ble Supreme Court in the case of A.Raman & Co. (supra), income which has accrued or arisen A.Raman & Co. (supra), income which has accrued or arisen A.Raman & Co. (supra), income which has accrued or arisen can only be subject matter of total income and not income can only be subject matter of total income and not income can only be subject matter of total income and not income which could have been earned but not earned. The decision of which could have been earned but not earned. The decision of which could have been earned but not earned. The decision of the Hon'ble Karnataka High Court in the case of A.Khader le Karnataka High Court in the case of A.Khader le Karnataka High Court in the case of A.Khader Basha (supra) is squarely applicable to the facts of the present Basha (supra) is squarely applicable to the facts of the present Basha (supra) is squarely applicable to the facts of the present case. The facts of the Assessee's case and the facts of the case. The facts of the Assessee's case and the facts of the case. The facts of the Assessee's case and the facts of the case decided by the Hon'ble Karnataka High Court were case decided by the Hon'ble Karnataka High Court were case decided by the Hon'ble Karnataka High Court were identical. The Hon'ble Karnat identical. The Hon'ble Karnataka High Court held following aka High Court held following Hon'ble Supreme Court decision in the case of Calcutta Hon'ble Supreme Court decision in the case of Calcutta Hon'ble Supreme Court decision in the case of Calcutta Discount Co. Ltd., reported in 1973(91) ITR 8 (SC) that where Discount Co. Ltd., reported in 1973(91) ITR 8 (SC) that where Discount Co. Ltd., reported in 1973(91) ITR 8 (SC) that where a trader transfers his goods to another trader at a price less a trader transfers his goods to another trader at a price less a trader transfers his goods to another trader at a price less than the market price and the transaction is a than the market price and the transaction is a bonafide one, bonafide one, the taxing authority cannot take into account the market price the taxing authority cannot take into account the market price the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched to ascertain the of those goods, ignoring the real price fetched to ascertain the of those goods, ignoring the real price fetched to ascertain the

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 9 ITA No. 2471/M/2022

profit from the transaction. The Hon'ble Court explained that profit from the transaction. The Hon'ble Court explained that profit from the transaction. The Hon'ble Court explained that the only exception was if the only exception was if Section 40(A)(2)(a) of the Act applies of the Act applies viz., where the parties to the transaction are related. viz., where the parties to the transaction are related. viz., where the parties to the transaction are related. Following the aforesaid decisions, we hold that the AO was Following the aforesaid decisions, we hold that the AO was Following the aforesaid decisions, we hold that the AO was not right in proceeding to ignore the books results not right in proceeding to ignore the books results not right in proceeding to ignore the books results of the Assessee and resorting to a process of estimating total income Assessee and resorting to a process of estimating total income Assessee and resorting to a process of estimating total income of the Assessee in the manner in which he did. We find force of the Assessee in the manner in which he did. We find force of the Assessee in the manner in which he did. We find force in the submission of the learned counsel for the Assessee that in the submission of the learned counsel for the Assessee that in the submission of the learned counsel for the Assessee that what can be taxe is only income that accrues or ITA Nos.202 what can be taxe is only income that accrues or ITA Nos.202 what can be taxe is only income that accrues or ITA Nos.202 & 693/B/18 693/B/18 arises as laid down in Sec.5 of the Act. Nothing arises as laid down in Sec.5 of the Act. Nothing beyond Sec.5 of the Act can be brought to tax. As contended beyond Sec.5 of the Act can be brought to tax. As contended beyond Sec.5 of the Act can be brought to tax. As contended by him there was nothing to show accrual of income so as to by him there was nothing to show accrual of income so as to by him there was nothing to show accrual of income so as to disregard the loss declared by the Assessee in the return of disregard the loss declared by the Assessee in the return of disregard the loss declared by the Assessee in the return of income filed. As income filed. As we have already seen there is no provision in we have already seen there is no provision in the Act by which the AO can ignore the sale price declared by the Act by which the AO can ignore the sale price declared by the Act by which the AO can ignore the sale price declared by an Assessee and proceed to enhance the sale price without an Assessee and proceed to enhance the sale price without an Assessee and proceed to enhance the sale price without material before him to show that the Assessee has in fact material before him to show that the Assessee has in fact material before him to show that the Assessee has in fact realized higher sale price. As c realized higher sale price. As contended by the learned ontended by the learned counsel for the Assessee, wherever the legislature wanted to counsel for the Assessee, wherever the legislature wanted to counsel for the Assessee, wherever the legislature wanted to tax income not earned, it had made specific provisions in the tax income not earned, it had made specific provisions in the tax income not earned, it had made specific provisions in the Act by way of deeming fiction like provisions of Sec.43CA(1, Act by way of deeming fiction like provisions of Sec.43CA(1, Act by way of deeming fiction like provisions of Sec.43CA(1, Sec.45(4) and Sec.50C(1) of the Act. Sec.45(4) and Sec.50C(1) of the Act. 53. In view of the above conclusion, there may not be any of the above conclusion, there may not be any necessity to deal further with the manner in which the AO has necessity to deal further with the manner in which the AO has necessity to deal further with the manner in which the AO has proceeded to compute total income of the Assessee and we proceeded to compute total income of the Assessee and we proceeded to compute total income of the Assessee and we can conclude by holding that the loss returned by the can conclude by holding that the loss returned by the can conclude by holding that the loss returned by the Assessee has to be accepted and the Assessee has to be accepted and the manner of determination manner of determination of total income as done by the AO is not in accordance with of total income as done by the AO is not in accordance with of total income as done by the AO is not in accordance with law. Nevertheless, we shall also address the issue as to law. Nevertheless, we shall also address the issue as to law. Nevertheless, we shall also address the issue as to whether the conclusions of the AO that the Assessee incurred whether the conclusions of the AO that the Assessee incurred whether the conclusions of the AO that the Assessee incurred expenses in creating intangibles/brand or goodwill and expenses in creating intangibles/brand or goodwill and expenses in creating intangibles/brand or goodwill and also the question whether the conclusion of the AO that to the the question whether the conclusion of the AO that to the the question whether the conclusion of the AO that to the extent the Assessee has foregone his profit margin, he can be extent the Assessee has foregone his profit margin, he can be extent the Assessee has foregone his profit margin, he can be said said said to to to have have have incurred incurred incurred expenditure expenditure expenditure in in in creating creating creating intangibles/brand or goodwill. intangibles/brand or goodwill.” 8.1 We observed that sales by the assessee to observed that sales by the assessee to ‘Barab Barabanki trading company’ and ‘Sharp Mint Ltd Sharp Mint Ltd’ is of ₹49,47,21,623/ 623/- for 5,38,105 kgs which constitutes 48.31 percent of the tota kgs which constitutes 48.31 percent of the total sales value of the l sales value of the Mentha oil, thus the contention of the assessee of carrying out , thus the contention of the assessee of carrying out , thus the contention of the assessee of carrying out

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 10 ITA No. 2471/M/2022

transactions in the below market price for re transactions in the below market price for retaining the customer is taining the customer is having some basis which cannot be ignored. Respectfully, following having some basis which cannot be ignored. Respectfully having some basis which cannot be ignored. Respectfully the ratio of the Tribunal Tribunal in the case of Flipkart India Private Flipkart India Private Limited (supra), we hold that in case we hold that in case of unrelated party of unrelated party transactions, , , the the the Assessing Assessing Assessing Officer Officer Officer cannot cannot cannot substitute s s the transaction price with the market price unless he invokes transaction price with the market price unless he invokes transaction price with the market price unless he invokes provisions of section 145 (3) of the provisions of section 145 (3) of the Act and thus, we set aside the we set aside the finding of the Ld. CIT(A) on the issue in dispute and delete finding of the Ld. CIT(A) on the issue in dispute finding of the Ld. CIT(A) on the issue in dispute disallowance of loss by the Assessing Officer disallowance of loss by the Assessing Officer. The grou . The ground No. 2 of the appeal of the assessee the appeal of the assessee is accordingly allowed. 8.2 The ground No. 1 of the appeal No. 1 of the appeal relates to the relates to the disallowance under section 14A real with Rule 8D under section 14A real with Rule 8D of Income-tax tax Rules 1962 (in short ‘the Rules’). It is the contention of the assessee that while ). It is the contention of the assessee that while ). It is the contention of the assessee that while making this disallowance allowance, the Assessing Officer has not recorded the Assessing Officer has not recorded dissatisfaction with the correctness of the claim of the assessee dissatisfaction with the correctness of the claim of the assessee dissatisfaction with the correctness of the claim of the assessee having regard to its books of accounts. It is also contended that having regard to its books of accounts. It is also contended that having regard to its books of accounts. It is also contended that following the decision of the special bench in the case of Vireet g the decision of the special bench in the case of Vireet g the decision of the special bench in the case of Vireet investment Private Limited investment Private Limited in ITA No. 502/Del/2012 in ITA No. 502/Del/2012 dated 16/06/2017 for AY 2008 16/06/2017 for AY 2008-09, for the purpose of making or the purpose of making disallowance under rule 8D(2) only those investment should be allowance under rule 8D(2) only those investment should be allowance under rule 8D(2) only those investment should be considered on which assess considered on which assessee has actually earned the exempted ee has actually earned the exempted income and investment on which no exempt income is earned income and investment on which no exempt income is earned income and investment on which no exempt income is earned during the subject year during the subject year, should be excluded.

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 11 ITA No. 2471/M/2022

8.3 The brief facts The brief facts qua the issue in dispute are that during the qua the issue in dispute are that during the year under consideration assessee received dividend income of year under consideration assessee received dividend year under consideration assessee received dividend ₹6,91,13,757/- on shares held in stock in trade and on shares held in stock in trade and on shares held in stock in trade and ₹1,82,000/-on preferential shares held as non preferential shares held as non-current investments. The s current investments. The scrip wise dividend reported by the assessee is as under: dividend reported by the assessee is as under: Sr. No. Name of the scrips Name of the scrips Dividend Amount Amount Balance Balance on on Balance on 31/03/2016 31/03/2015 1. Edelweiss Securities 1,82,000 Edelweiss Securities 26,00,00,000 26,00,00,000 26,00,00,000 Limited 2. Indiabulls Indiabulls Mutual 6,91,13,757 Mutual - - Funds Total 6,92,95,757 26,00,00,000 26,00,00,000 26,00,00,000 8.4 The assessee made suo assessee made suo-moto disallowance of moto disallowance of ₹15,59,662/- considering employee cost incurred for earning exempt income. The considering employee cost incurred for earning exempt income. The considering employee cost incurred for earning exempt income. The Ld. Assessing Officer rejected the contention and invoke Assessing Officer rejected the contention and invoke Assessing Officer rejected the contention and invoked Rule 8D of ‘Rules’ observing as under: observing as under:

“7.3 In response to the said notice, the assessee, vide 7.3 In response to the said notice, the assessee, vide 7.3 In response to the said notice, the assessee, vide reply dated 03.02.2020, has stat reply dated 03.02.2020, has stated that no further ed that no further disallowance should be made us 14A of the IT Act. The disallowance should be made us 14A of the IT Act. The disallowance should be made us 14A of the IT Act. The submission of the assessee has been perused, however submission of the assessee has been perused, however submission of the assessee has been perused, however the same is not acceptable. The case records and the the same is not acceptable. The case records and the the same is not acceptable. The case records and the replies submitted by the assessee have been perused. It is replies submitted by the assessee have been perused. It is replies submitted by the assessee have been perused. It is a fact that the as a fact that the assessee cannot earn Exempt income to the sessee cannot earn Exempt income to the tune tune of of Rs. Rs. 6,92,95,7571-without 6,92,95,7571 without any any systematic systematic management of its investment. Further, investment management of its investment. Further, investment management of its investment. Further, investment decisions being complex in nature require market research, decisions being complex in nature require market research, decisions being complex in nature require market research, day to day analysis and planning. Furthermore, the day to day analysis and planning. Furthermore, the day to day analysis and planning. Furthermore, the assessee has not maintained separate accounts for its has not maintained separate accounts for its has not maintained separate accounts for its taxable and exempt income. Hence, the present case is a taxable and exempt income. Hence, the present case is a taxable and exempt income. Hence, the present case is a fit case to invoke Rule 8D of the I T Rules. fit case to invoke Rule 8D of the I T Rules. 7.4 In view of the above, Rule 8D of the IT Rules is invoked 7.4 In view of the above, Rule 8D of the IT Rules is invoked 7.4 In view of the above, Rule 8D of the IT Rules is invoked and the disallowance us 14A of the IT Act is wor and the disallowance us 14A of the IT Act is wor and the disallowance us 14A of the IT Act is worked out

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 12 ITA No. 2471/M/2022

following the ruling of the Apex court in the case of Maxopp following the ruling of the Apex court in the case of Maxopp following the ruling of the Apex court in the case of Maxopp Investments [(2018) 402 ITR 0640 (SC)]. Investments [(2018) 402 ITR 0640 (SC)]. Rule 8D (i) Rule 8D (i) Nil Rule 8D(ii) Rule 8D(ii) Nil Rule 8D(iii) 0.5% of Rs.7133115170 Rule 8D(iii) 0.5% of Rs.7133115170 3,56,65,576/- Disallowance u/s 14A as per Rule 8D Disallowance u/s 14A as per Rule 8D 3,56,65,576/- Less Disallowance already made Disallowance already made 15,59,662/- Total disallowance u/s 14A Total disallowance u/s 14A 3,41,05,914/- 8.5 The Ld. CIT(A) upheld the disallowance observing as under: Ld. CIT(A) upheld the disallowance observing as under: Ld. CIT(A) upheld the disallowance observing as under:

“7.3 I have carefully considered the facts of the case. As 7.3 I have carefully considered the facts of the case. As 7.3 I have carefully considered the facts of the case. As per provisions of Section14A of the Act, the expenditure per provisions of Section14A of the Act, the expenditure per provisions of Section14A of the Act, the expenditure incurred by a taxpayer in relation to income that excludes incurred by a taxpayer in relation to income that excludes incurred by a taxpayer in relation to income that excludes total income as per the provisions of the Act should not be total income as per the provisions of the Act should not be total income as per the provisions of the Act should not be considered as deductio considered as deduction while computing the total income n while computing the total income of the taxpayer. It is relevant to mention over here that the of the taxpayer. It is relevant to mention over here that the of the taxpayer. It is relevant to mention over here that the AO in his assessment order has stated that, he is not AO in his assessment order has stated that, he is not AO in his assessment order has stated that, he is not satisfied with the assessee's claim that no expenditure satisfied with the assessee's claim that no expenditure satisfied with the assessee's claim that no expenditure has been incurred to earn exempted income, since has been incurred to earn exempted income, since has been incurred to earn exempted income, since some expenditure would definitely have been incurred for expenditure would definitely have been incurred for expenditure would definitely have been incurred for making and maintaining such investments. With respect to making and maintaining such investments. With respect to making and maintaining such investments. With respect to the expenses incurred for earning exempt income, the the expenses incurred for earning exempt income, the the expenses incurred for earning exempt income, the assessee submitted that, assessee has earned exempt assessee submitted that, assessee has earned exempt assessee submitted that, assessee has earned exempt income in the form of dividend for wh income in the form of dividend for which assessee has not ich assessee has not incurred any expenditure and was therefore not required incurred any expenditure and was therefore not required incurred any expenditure and was therefore not required to calculate any disallowance of gh, expenses w/s. 14A to calculate any disallowance of gh, expenses w/s. 14A to calculate any disallowance of gh, expenses w/s. 14A rwr. 8D of the act. On perusal of Capital a/c of the rwr. 8D of the act. On perusal of Capital a/c of the rwr. 8D of the act. On perusal of Capital a/c of the assessee, the A noticed that, expenses incurred includes assessee, the A noticed that, expenses incurred includes assessee, the A noticed that, expenses incurred includes demat charges demat charges and other suchexpenses which have been and other suchexpenses which have been debited. Further, AO was also not satisfied with the debited. Further, AO was also not satisfied with the debited. Further, AO was also not satisfied with the contention of the assessee that, no expenditure was contention of the assessee that, no expenditure was contention of the assessee that, no expenditure was incurred to earn exempt income. It is a common knowledge incurred to earn exempt income. It is a common knowledge incurred to earn exempt income. It is a common knowledge that a person cannot make investment without due that a person cannot make investment without due that a person cannot make investment without due diligence and necessary analysis and the investment nce and necessary analysis and the investment nce and necessary analysis and the investment decisions are very complex in nature which require decisions are very complex in nature which require decisions are very complex in nature which require substantial market research, day substantial market research, day-to-day analysis of day analysis of market trends and decisions with regard to acquisition, market trends and decisions with regard to acquisition, market trends and decisions with regard to acquisition, retention and sale of shares at the most appropriat retention and sale of shares at the most appropriat retention and sale of shares at the most appropriate time. Therefore, being not satisfied about claim of assessee, he Therefore, being not satisfied about claim of assessee, he Therefore, being not satisfied about claim of assessee, he worked out the disallowance at Rs. 3,56,65,576/ worked out the disallowance at Rs. 3,56,65,576/ worked out the disallowance at Rs. 3,56,65,576/- as per rule 8D read with sec 14A of the Act @ 1% of average rule 8D read with sec 14A of the Act @ 1% of average rule 8D read with sec 14A of the Act @ 1% of average

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 13 ITA No. 2471/M/2022

value of investment in assets, income from which was value of investment in assets, income from which was value of investment in assets, income from which was claimed as exempted and add claimed as exempted and added back to the total income ed back to the total income of the assesse.The assessee had argued that, it has not of the assesse.The assessee had argued that, it has not of the assesse.The assessee had argued that, it has not incurred expenses in excess of Rs.34,46,555/ incurred expenses in excess of Rs.34,46,555/- towards earning exempt income during the year and therefore the earning exempt income during the year and therefore the earning exempt income during the year and therefore the disallowance should be restricted to Rs. 15,59,662/ disallowance should be restricted to Rs. 15,59,662/ disallowance should be restricted to Rs. 15,59,662/-. However, the AO did not agree with that. the AO did not agree with that. 7.4 Here, it is relevant to mention that, Hon'ble Bombay 7.4 Here, it is relevant to mention that, Hon'ble Bombay 7.4 Here, it is relevant to mention that, Hon'ble Bombay High Court decision dated 12.08.2010 and Hon'ble High Court decision dated 12.08.2010 and Hon'ble High Court decision dated 12.08.2010 and Hon'ble Supreme Court decision dated 8 Supreme Court decision dated 8-5-2017 in the case of 2017 in the case of Godrej & Boyce Mfg. Co. Ltd. v/s DCIT in Civil Appeal Godrej & Boyce Mfg. Co. Ltd. v/s DCIT in Civil Appeal Godrej & Boyce Mfg. Co. Ltd. v/s DCIT in Civil Appeal No.7020 of 2011, has examined this issue in great length 2011, has examined this issue in great length 2011, has examined this issue in great length and has upheld the constitutional validity of the provision and has upheld the constitutional validity of the provision and has upheld the constitutional validity of the provision of sec. 14A as also of the rule 8D. The relevant part of the of sec. 14A as also of the rule 8D. The relevant part of the of sec. 14A as also of the rule 8D. The relevant part of the said decision Hon'ble Bombay High Court is as under: said decision Hon'ble Bombay High Court is as under: said decision Hon'ble Bombay High Court is as under: "iii) The provisions of sub section ) The provisions of sub sections (2) and (3) of Section s (2) and (3) of Section 14A of the Income Tax Act 1961 are constitutionally valid; 14A of the Income Tax Act 1961 are constitutionally valid; 14A of the Income Tax Act 1961 are constitutionally valid; iv)The provisions of Rule 8D of the Income Tax Rules as iv)The provisions of Rule 8D of the Income Tax Rules as iv)The provisions of Rule 8D of the Income Tax Rules as inserted by the Income Tax (Fifth Amendment) Rules 2008 inserted by the Income Tax (Fifth Amendment) Rules 2008 inserted by the Income Tax (Fifth Amendment) Rules 2008 are not ultra vires the provisions of Section 14A, more are not ultra vires the provisions of Section 14A, more are not ultra vires the provisions of Section 14A, more particularly sub section (2) and do not offend Article 14 of icularly sub section (2) and do not offend Article 14 of icularly sub section (2) and do not offend Article 14 of the Constitution; the Constitution; v) The provisions of Rule 8D of the Income Tax Rules which v) The provisions of Rule 8D of the Income Tax Rules which v) The provisions of Rule 8D of the Income Tax Rules which have been notified with effect from 24 March 2008 shall have been notified with effect from 24 March 2008 shall have been notified with effect from 24 March 2008 shall apply with effect from Assessment Year 2008 apply with effect from Assessment Year 2008-09; vi)Even prior to A vi)Even prior to Assessment Year 2008-09, when Rule 8D 09, when Rule 8D was not applicable, the Assessing Officer has to enforce was not applicable, the Assessing Officer has to enforce was not applicable, the Assessing Officer has to enforce the BC 121 ITXA626.10 provisions of sub section (1) of the BC 121 ITXA626.10 provisions of sub section (1) of the BC 121 ITXA626.10 provisions of sub section (1) of Section 14A. For that purpose, the Assessing Officer is Section 14A. For that purpose, the Assessing Officer is Section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has b duty bound to determine the expenditure which has b duty bound to determine the expenditure which has been incurred in relation to income which does not form part of incurred in relation to income which does not form part of incurred in relation to income which does not form part of the total income under the Act. the total income under the Act. 74. Our conclusions in this judgment are as follows : 74. Our conclusions in this judgment are as follows : 74. Our conclusions in this judgment are as follows : i) Dividend income and income from mutual funds falling ) Dividend income and income from mutual funds falling ) Dividend income and income from mutual funds falling within the ambit of Section 10(33) of the Income Ta within the ambit of Section 10(33) of the Income Ta within the ambit of Section 10(33) of the Income Tax Act 1961, as was applicable for Assessment Year 2002 1961, as was applicable for Assessment Year 2002 1961, as was applicable for Assessment Year 2002-03 is not includible in computing the total income of the not includible in computing the total income of the not includible in computing the total income of the

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 14 ITA No. 2471/M/2022

assessee. Consequently, no deduction shall be allowed in assessee. Consequently, no deduction shall be allowed in assessee. Consequently, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation respect of expenditure incurred by the assessee in relation respect of expenditure incurred by the assessee in relation to such income which does to such income which does not form part of the total not form part of the total income under the Act, by virtue of the provisions of Section income under the Act, by virtue of the provisions of Section income under the Act, by virtue of the provisions of Section 14A(1);" 7.5 Further, the principles laid down by Hon'ble Supreme 7.5 Further, the principles laid down by Hon'ble Supreme 7.5 Further, the principles laid down by Hon'ble Supreme Court are relevant while disposing of this ground. While Court are relevant while disposing of this ground. While Court are relevant while disposing of this ground. While deciding the first question before the Hon'bl deciding the first question before the Hon'ble Supreme e Supreme Court that Sec. 14A would apply to dividend income on Court that Sec. 14A would apply to dividend income on Court that Sec. 14A would apply to dividend income on which tax is payable u/s 115 which tax is payable u/s 115-0 of the Act, it is enunciated 0 of the Act, it is enunciated by the Apex Court that: by the Apex Court that:- "The literal meaning of Section 14A, far from giving rise to "The literal meaning of Section 14A, far from giving rise to "The literal meaning of Section 14A, far from giving rise to any absurdity, appears to be wholly consistent any absurdity, appears to be wholly consistent with the scheme of the Act and the object/purpose of levy of tax on scheme of the Act and the object/purpose of levy of tax on scheme of the Act and the object/purpose of levy of tax on income. Therefore, the well entrenched principle of income. Therefore, the well entrenched principle of income. Therefore, the well entrenched principle of interpretation that where the words of the statute are clear interpretation that where the words of the statute are clear interpretation that where the words of the statute are clear and unambiguous recourse cannot be had to principles of and unambiguous recourse cannot be had to principles of and unambiguous recourse cannot be had to principles of interpretation oth interpretation other than the literal view will apply. While er than the literal view will apply. While answering the said question this Court considered the answering the said question this Court considered the answering the said question this Court considered the object of insertion of Section 14A in the Income Tax Act by object of insertion of Section 14A in the Income Tax Act by object of insertion of Section 14A in the Income Tax Act by Finance Act, 2001, details of which have already been Finance Act, 2001, details of which have already been Finance Act, 2001, details of which have already been noticed. noticed. noticed. Noticing Noticing Noticing the the the objects objects objects and and and reasons reasons reasons beh behind beh introduction of Section 14A of the Act this Court held that: introduction of Section 14A of the Act this Court held that: introduction of Section 14A of the Act this Court held that: "Expenses allowed can only be in respect of earning of "Expenses allowed can only be in respect of earning of "Expenses allowed can only be in respect of earning of taxable income." In paragraph 17, this Court went on to taxable income." In paragraph 17, this Court went on to taxable income." In paragraph 17, this Court went on to observe that: "Therefore, one needs to read the words observe that: "Therefore, one needs to read the words observe that: "Therefore, one needs to read the words "expenditure incurred" in "expenditure incurred" in section 144 in the context of the section 144 in the context of the scheme of the Act and, if so read, it is clear that it scheme of the Act and, if so read, it is clear that it scheme of the Act and, if so read, it is clear that it disallows certain expenditure incurred to earn exempt disallows certain expenditure incurred to earn exempt disallows certain expenditure incurred to earn exempt income from being deducted from other income which is income from being deducted from other income which is income from being deducted from other income which is includible in the "total income" for the purpose of includible in the "total income" for the purpose of includible in the "total income" for the purpose of chargeability to tax" bility to tax" 7.6 Further, the CBDT vide Circular No. 5/2014, Dated 7.6 Further, the CBDT vide Circular No. 5/2014, Dated 7.6 Further, the CBDT vide Circular No. 5/2014, Dated - 11.02.2014 clarified that,"Rule 8D read with section 14A 11.02.2014 clarified that,"Rule 8D read with section 14A 11.02.2014 clarified that,"Rule 8D read with section 14A of the Act provides for disallowance of the expenditure of the Act provides for disallowance of the expenditure of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned even where taxpayer in a particular year has not earned even where taxpayer in a particular year has not earned any exempt incom any exempt income." The relevant portion of the circular is e." The relevant portion of the circular is reproduced as under: reproduced as under:- "Thus, legislative intent is to allow only that expenditure "Thus, legislative intent is to allow only that expenditure "Thus, legislative intent is to allow only that expenditure which is-relatable to earning of income and it therefore relatable to earning of income and it therefore relatable to earning of income and it therefore

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 15 ITA No. 2471/M/2022

follows that the expenses which are relatable to earning follows that the expenses which are relatable to earning follows that the expenses which are relatable to earning exempt income ha exempt income have to be considered for disallowance, ve to be considered for disallowance, irrespective of the fact whether such income has been irrespective of the fact whether such income has been irrespective of the fact whether such income has been earned during the financial earned during the financial-year or not. 4' The above year or not. 4' The above position is further clarified by the usage of term 'includible' position is further clarified by the usage of term 'includible' position is further clarified by the usage of term 'includible' in the Heading to section in the Heading to section-14A of the Act and 14A of the Act and-also-the heading-to "Rule 8D of to "Rule 8D of-I-T.Rules,!962 which indicates that T.Rules,!962 which indicates that it is not necessary that exempt income should necessarily it is not necessary that exempt income should necessarily it is not necessary that exempt income should necessarily be included in a particular years income, for disallowance be included in a particular years income, for disallowance be included in a particular years income, for disallowance to be triggered. Also, section 14A of the Act does not the to be triggered. Also, section 14A of the Act does not the to be triggered. Also, section 14A of the Act does not the word "income word "income of the year" but "income under the Act". This of the year" but "income under the Act". This also indicates that invoking disallowance under section also indicates that invoking disallowance under section also indicates that invoking disallowance under section 14A, it is not material that assessee should have earned 14A, it is not material that assessee should have earned 14A, it is not material that assessee should have earned such exempt income during the financial year under such exempt income during the financial year under such exempt income during the financial year under consideration" consideration" 7.7 Further the issue of 7.7 Further the issue of strategic investments in group strategic investments in group concerns has been decided by the Hon'ble Supreme Court concerns has been decided by the Hon'ble Supreme Court concerns has been decided by the Hon'ble Supreme Court In case of Maxopp Investments Ltd. Vs CIT402 IT 640 9 In case of Maxopp Investments Ltd. Vs CIT402 IT 640 9 In case of Maxopp Investments Ltd. Vs CIT402 IT 640 9 SC). In this judgment the Hon'ble Court held that making SC). In this judgment the Hon'ble Court held that making SC). In this judgment the Hon'ble Court held that making strategic investment does not absolve the assessee from strategic investment does not absolve the assessee from strategic investment does not absolve the assessee from disallowance us 14A and that such disallowance should allowance us 14A and that such disallowance should allowance us 14A and that such disallowance should be made in accordance with the expenditure incurred in be made in accordance with the expenditure incurred in be made in accordance with the expenditure incurred in proportion to the exempted income. For clarity the relevant proportion to the exempted income. For clarity the relevant proportion to the exempted income. For clarity the relevant portion of the judgment is reproduced as under : portion of the judgment is reproduced as under : "Fact remains that such dividend income i "Fact remains that such dividend income is non taxable. In s non taxable. In this scenario, if expenditure is incurred on earning the this scenario, if expenditure is incurred on earning the this scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure which is dividend income, that much of the expenditure which is dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed attributable to the dividend income has to be disallowed attributable to the dividend income has to be disallowed and can not be treated as a business expenditure. Keeping and can not be treated as a business expenditure. Keeping and can not be treated as a business expenditure. Keeping this objective behind section 14A in mind, the said ive behind section 14A in mind, the said ive behind section 14A in mind, the said provision has to be interpreted particularly the word ' in provision has to be interpreted particularly the word ' in provision has to be interpreted particularly the word ' in relation to income' that does not form part of the total relation to income' that does not form part of the total relation to income' that does not form part of the total income.Considered income.Considered income.Considered in in in this this this hue, hue, hue, the the the principle principle principle ofapportionment of expenses comes into play as that is ofapportionment of expenses comes into play as that is ofapportionment of expenses comes into play as that is the principle which is engrained in section 14A." principle which is engrained in section 14A." "intentions "intentions "intentions of of of Holding Holding Holding Investment Investment Investment is is is irrelevant irrelevant irrelevant for for for computation of disallowance us 14A. The strategic computation of disallowance us 14A. The strategic computation of disallowance us 14A. The strategic investment claimed by assessee in inconsequential investment claimed by assessee in inconsequential investment claimed by assessee in inconsequential - all investments must be considered for 14A disallow investments must be considered for 14A disallow investments must be considered for 14A disallowance as per plain and clear language of Rule 8D." per plain and clear language of Rule 8D."

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 16 ITA No. 2471/M/2022

7.8Apart from that the Chennai Bench of the Income 7.8Apart from that the Chennai Bench of the Income 7.8Apart from that the Chennai Bench of the Income-tax Appellate Tribunal in the case of Mr. M. A. Alagappan vide Appellate Tribunal in the case of Mr. M. A. Alagappan vide Appellate Tribunal in the case of Mr. M. A. Alagappan vide order dated 03.04.2017 has held that, even in cases order dated 03.04.2017 has held that, even in cases order dated 03.04.2017 has held that, even in cases where no expenditure has been incurred, where no expenditure has been incurred, the tax authority the tax authority has to apply Rule 8D of the Income has to apply Rule 8D of the Income-tax Rules, 1962 for the tax Rules, 1962 for the disallowance of expenditure under Section 14A of the disallowance of expenditure under Section 14A of the disallowance of expenditure under Section 14A of the Income-tax Act. The relevant para of the said decision is as tax Act. The relevant para of the said decision is as tax Act. The relevant para of the said decision is as under: "6. We considered the arguments of both the sides in "6. We considered the arguments of both the sides in "6. We considered the arguments of both the sides in detail. Sec.14A(1) declares the law that the expenditure l. Sec.14A(1) declares the law that the expenditure l. Sec.14A(1) declares the law that the expenditure incurred by the assessee in relation to the income which incurred by the assessee in relation to the income which incurred by the assessee in relation to the income which does not form part of the total income under the Act shall does not form part of the total income under the Act shall does not form part of the total income under the Act shall not be allowed as a deduction in computing the taxable not be allowed as a deduction in computing the taxable not be allowed as a deduction in computing the taxable income of the assessee. Sec. 14A( income of the assessee. Sec. 14A(2) provides for 2) provides for determining the quantum of such expenditure which shall determining the quantum of such expenditure which shall determining the quantum of such expenditure which shall not be allowed as a deduction. That is the machinery not be allowed as a deduction. That is the machinery not be allowed as a deduction. That is the machinery provision as far as sec.14A is concerned. In that provision. provision as far as sec.14A is concerned. In that provision. provision as far as sec.14A is concerned. In that provision. it has been provided that if the Assessing Officer is not it has been provided that if the Assessing Officer is not it has been provided that if the Assessing Officer is not satisfied with the correctness of the computations made by th the correctness of the computations made by th the correctness of the computations made by an assessee. he shall compute the quantum in accordance an assessee. he shall compute the quantum in accordance an assessee. he shall compute the quantum in accordance with ITA No3290./16: 6 with ITA No3290./16: 6 -: the method that may be : the method that may be prescribed. For this matter. Rule 8D has already been prescribed. For this matter. Rule 8D has already been prescribed. For this matter. Rule 8D has already been prescribed.Sub prescribed.Sub-sec. (3) further provides that even in a case where an assessee claims that no expenditure was where an assessee claims that no expenditure was where an assessee claims that no expenditure was incurred, the assessing authority has to presume the incurred, the assessing authority has to presume the incurred, the assessing authority has to presume the incurring of such expenditure as provided under sub incurring of such expenditure as provided under sub incurring of such expenditure as provided under sub- sec.(2) read with Rule prescribed. Therefore, it becomes sec.(2) read with Rule prescribed. Therefore, it becomes sec.(2) read with Rule prescribed. Therefore, it becomes clear that even in a case where th clear that even in a case where the assessee claims that e assessee claims that no expenditure was so incurred, the statute has provided no expenditure was so incurred, the statute has provided no expenditure was so incurred, the statute has provided for a presumptive expenditure which has to be disallowed for a presumptive expenditure which has to be disallowed for a presumptive expenditure which has to be disallowed by force of the statute. In a distant manner. Literally by force of the statute. In a distant manner. Literally by force of the statute. In a distant manner. Literally speaking, it may even be considered for the purpose of speaking, it may even be considered for the purpose of speaking, it may even be considered for the purpose of convenience as a deeming provision.When such deeming nce as a deeming provision.When such deeming nce as a deeming provision.When such deeming provision is made on the basis of statutory presumption, provision is made on the basis of statutory presumption, provision is made on the basis of statutory presumption, the requirement of factual evidence is replaced by the requirement of factual evidence is replaced by the requirement of factual evidence is replaced by statutorypresumption and the Assessing Officer has to statutorypresumption and the Assessing Officer has to statutorypresumption and the Assessing Officer has to follow the consequences stated in the statute. It follow the consequences stated in the statute. It follow the consequences stated in the statute. It means that even in a case where no expenditure is stated to have that even in a case where no expenditure is stated to have that even in a case where no expenditure is stated to have been incurred, the assessing authority has to apply Rule been incurred, the assessing authority has to apply Rule been incurred, the assessing authority has to apply Rule 8D. 8D. 8D. As As As the the the statutory statutory statutory presumption presumption presumption substitutes substitutes substitutes the the the requirement of factual evidence, the question of enquiry requirement of factual evidence, the question of enquiry requirement of factual evidence, the question of enquiry

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 17 ITA No. 2471/M/2022

does not arise. In the resu does not arise. In the result the appeal of the assessee is lt the appeal of the assessee is dismissed." 7.9 I am of the considered view that, all the assets which 7.9 I am of the considered view that, all the assets which 7.9 I am of the considered view that, all the assets which either yield exempted income or could yield exempted either yield exempted income or could yield exempted either yield exempted income or could yield exempted income should to be considered for working out the income should to be considered for working out the income should to be considered for working out the disallowance under rule 8D. As stated above, the disallowance under rule 8D. As stated above, the disallowance under rule 8D. As stated above, the constitutional validity of the rule 8D has been upheld by constitutional validity of the rule 8D has been upheld by constitutional validity of the rule 8D has been upheld by the Hon'ble Bombay High Court in the case of Godrej and the Hon'ble Bombay High Court in the case of Godrej and the Hon'ble Bombay High Court in the case of Godrej and Boyce manufacturing Company Limited, later upheld by Boyce manufacturing Company Limited, later upheld by Boyce manufacturing Company Limited, later upheld by the Hon'ble Supreme Court in the same case. the Hon'ble Supreme Court in the same case. 7.10 It is also noted that, vide notificatio 7.10 It is also noted that, vide notification no. 43/2016, n no. 43/2016, the method of computation of disallowance us 14A r.w.r. the method of computation of disallowance us 14A r.w.r. the method of computation of disallowance us 14A r.w.r. 8D is amended with effect from02.06.2016. The amended 8D is amended with effect from02.06.2016. The amended 8D is amended with effect from02.06.2016. The amended provisions read as under: provisions read as under: Rule 8D(2) applicable we.f 02.06.2016 [As per Notification Rule 8D(2) applicable we.f 02.06.2016 [As per Notification Rule 8D(2) applicable we.f 02.06.2016 [As per Notification No 43/2016, dated 02.06.16.J No 43/2016, dated 02.06.16.J (2) The expenditu (2) The expenditure in relation to income which does not re in relation to income which does not form part of the total income shall be the aggregate of form part of the total income shall be the aggregate of form part of the total income shall be the aggregate of following amounts, namely: following amounts, namely: (i) the amount of expenditure directly relating to income (i) the amount of expenditure directly relating to income (i) the amount of expenditure directly relating to income which does not form part of total income; and which does not form part of total income; and (ii) an amount equal to one p (ii) an amount equal to one per cent of the annual average er cent of the annual average of the monthly average of the opening and closing of the monthly average of the opening and closing of the monthly average of the opening and closing balances of the value of investment, income from which balances of the value of investment, income from which balances of the value of investment, income from which does not or shall not form part of total income : does not or shall not form part of total income : Provided that the amount referred to in clause (i) and Provided that the amount referred to in clause (i) and Provided that the amount referred to in clause (i) and clause (i) shall clause (i) shall not exceed the total expenditure claimed by not exceed the total expenditure claimed by the assessee. the assessee. 7.11 The above amendment has been brought on statutory 7.11 The above amendment has been brought on statutory 7.11 The above amendment has been brought on statutory we.f. 02.06.2016which states that an amount equal to 1% we.f. 02.06.2016which states that an amount equal to 1% we.f. 02.06.2016which states that an amount equal to 1% of the average investments income from which does not or of the average investments income from which does not or of the average investments income from which does not or shall not form part of the total income and that the shall not form part of the total income and that the shall not form part of the total income and that the disallowanceshall not exceed the to disallowanceshall not exceed the total expenditure. The tal expenditure. The amended rule does not say that, only those assets amended rule does not say that, only those assets amended rule does not say that, only those assets wherefrom exempted income is earned, should be wherefrom exempted income is earned, should be wherefrom exempted income is earned, should be considered. The use of the "Shall" in addition to "does not" considered. The use of the "Shall" in addition to "does not" considered. The use of the "Shall" in addition to "does not" takes within its fold those investments too, which have not takes within its fold those investments too, which have not takes within its fold those investments too, which have not

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 18 ITA No. 2471/M/2022

vielded any exemp vielded any exempt income during the year under t income during the year under consideration. consideration. 7.12 The assessee's claim that, the disallowance should 7.12 The assessee's claim that, the disallowance should 7.12 The assessee's claim that, the disallowance should have been computed only on investments from which have been computed only on investments from which have been computed only on investments from which exempted income was earned is erroneous. The provision exempted income was earned is erroneous. The provision exempted income was earned is erroneous. The provision says that "even those investments income from whi says that "even those investments income from whi says that "even those investments income from which shall not form part of the total income have to be shall not form part of the total income have to be shall not form part of the total income have to be considered and not only the ones from which it is earning considered and not only the ones from which it is earning considered and not only the ones from which it is earning exempted income." exempted income." 7.13 The above proposition is confirmed by Hon'ble 7.13 The above proposition is confirmed by Hon'ble 7.13 The above proposition is confirmed by Hon'ble Mumbai Tribunal in the case of Apurva Natvar Parikh & Mumbai Tribunal in the case of Apurva Natvar Parikh & Mumbai Tribunal in the case of Apurva Natvar Parikh & Co. Pvt. Ltd. bearing Co. Pvt. Ltd. bearing IT.A. No. 1704/Mum/2020 in IT.A. No. 1704/Mum/2020 in following words following words- 2.3 Another argument is that while computing the 2.3 Another argument is that while computing the 2.3 Another argument is that while computing the disallowance, only those investments are to be considered disallowance, only those investments are to be considered disallowance, only those investments are to be considered which have yielded exempt income during the year. This which have yielded exempt income during the year. This which have yielded exempt income during the year. This plea is also to be rejected since after amendment plea is also to be rejected since after amendment plea is also to be rejected since after amendment to Rule 8D w.e.f.02/06/2016, the computation u/r 8D has 8D w.e.f.02/06/2016, the computation u/r 8D has 8D w.e.f.02/06/2016, the computation u/r 8D has undergone change and it has been made clear that the undergone change and it has been made clear that the undergone change and it has been made clear that the amount equal to 1% of the annual average of the monthly amount equal to 1% of the annual average of the monthly amount equal to 1% of the annual average of the monthly averages of the opening and closing balances of the value averages of the opening and closing balances of the value averages of the opening and closing balances of the value of investment, income from which of investment, income from which does not or shall not does not or shall not form part of total income, shall be disallowed. Therefore, form part of total income, shall be disallowed. Therefore, form part of total income, shall be disallowed. Therefore, post 02/06/2016, the plea to exclude the non post 02/06/2016, the plea to exclude the non post 02/06/2016, the plea to exclude the non-income yielding investment is to be rejected. yielding investment is to be rejected. 7.14 Apart from that even before the amendment took 7.14 Apart from that even before the amendment took 7.14 Apart from that even before the amendment took place, Hon'ble Karnataka High C place, Hon'ble Karnataka High Court in the case of United ourt in the case of United Breweries Ltd. Vs Dy. CIT (2016) 72 taxmann. com 102 Breweries Ltd. Vs Dy. CIT (2016) 72 taxmann. com 102 Breweries Ltd. Vs Dy. CIT (2016) 72 taxmann. com 102 (Kar.) had held that section 14A is applicable even where (Kar.) had held that section 14A is applicable even where (Kar.) had held that section 14A is applicable even where motive of acquiring shares is to obtain controlling interest motive of acquiring shares is to obtain controlling interest motive of acquiring shares is to obtain controlling interest in in companies. companies. Also Also in in cases cases where where pre-amended pre amended provisions apply, Hon'ble Mumbai ITAT in the case of Mrs. apply, Hon'ble Mumbai ITAT in the case of Mrs. apply, Hon'ble Mumbai ITAT in the case of Mrs. mimt. mimt. mimt. or Varsha R. Taurani vs or Varsha R. Taurani vs or Varsha R. Taurani vs ACIT (2013) 40 ACIT (2013) 40 ACIT (2013) 40 taxmann.com 517 (Mum taxmann.com 517 (Mum - Trib.) has held as "The marginal note to section 144 clearly states that "The marginal note to section 144 clearly states that "The marginal note to section 144 clearly states that exenditure incurred in relation to income not "includible" in exenditure incurred in relation to income not "includible" in exenditure incurred in relation to income not "includible" in total income which means that if the income is not income which means that if the income is not income which means that if the income is not includible in total income whether it is actually earned or includible in total income whether it is actually earned or includible in total income whether it is actually earned or not, the corresponding expenditure has to be disallowed." not, the corresponding expenditure has to be disallowed." not, the corresponding expenditure has to be disallowed."

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 19 ITA No. 2471/M/2022

In view of the above, the contention of the assessee in this In view of the above, the contention of the assessee in this In view of the above, the contention of the assessee in this regard, is rejected. regard, is rejected. Therefore, the computation done by the AO is found to be the computation done by the AO is found to be the computation done by the AO is found to be fully in accordance with the law following above judicial fully in accordance with the law following above judicial fully in accordance with the law following above judicial precedence and hence deserved to be upheld. precedence and hence deserved to be upheld. 7.15 Finally, the Finance Bill 2022 has again amended 7.15 Finally, the Finance Bill 2022 has again amended 7.15 Finally, the Finance Bill 2022 has again amended and inserted an Explanation to section 14A of the Act, and inserted an Explanation to section 14A of the Act, and inserted an Explanation to section 14A of the Act, to clarify that notwithstanding anything to the contrary clarify that notwithstanding anything to the contrary clarify that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall contained in this Act, the provisions of this section shall contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a apply and shall be deemed to have always applied in a apply and shall be deemed to have always applied in a case where exempt income has not accrued or arisen or case where exempt income has not accrued or arisen or case where exempt income has not accrued or arisen or has not been received during t has not been received during the previous year relevant to he previous year relevant to an assessment year and the expenditure has been an assessment year and the expenditure has been an assessment year and the expenditure has been incurred during the said previous year in relation to such incurred during the said previous year in relation to such incurred during the said previous year in relation to such exempt income. This amendment has nullified several exempt income. This amendment has nullified several exempt income. This amendment has nullified several judgements as relied by the appellant wherein it was held judgements as relied by the appellant wherein it was held judgements as relied by the appellant wherein it was held that no disallowance u/s 14A of the Act could be made in sallowance u/s 14A of the Act could be made in sallowance u/s 14A of the Act could be made in respect of any expenditure incurred in earning any exempt respect of any expenditure incurred in earning any exempt respect of any expenditure incurred in earning any exempt income, in the absence of any exempt income. income, in the absence of any exempt income. 7.16 In the light of the foregoing discussion, I am 7.16 In the light of the foregoing discussion, I am 7.16 In the light of the foregoing discussion, I am convinced that, all the assets which have either yield convinced that, all the assets which have either yield convinced that, all the assets which have either yielded exempt income during the year or could have yielded exempt income during the year or could have yielded exempt income during the year or could have yielded exempted income will be considered for working out the exempted income will be considered for working out the exempted income will be considered for working out the disallowance under rule 8D. All contentions of the disallowance under rule 8D. All contentions of the disallowance under rule 8D. All contentions of the appellant in this regard deserved to be dismissed. Also the appellant in this regard deserved to be dismissed. Also the appellant in this regard deserved to be dismissed. Also the case laws relied upon by the appell case laws relied upon by the appellant are distinguishable ant are distinguishable on facts as well as recent changes in the law. Accordingly, on facts as well as recent changes in the law. Accordingly, on facts as well as recent changes in the law. Accordingly, the disallowance of Rs. 3,56,65,576/ the disallowance of Rs. 3,56,65,576/-made by AO us. 14A made by AO us. 14A is upheld. The grounds no. 3 is accordingly dismissed. is upheld. The grounds no. 3 is accordingly dismissed. is upheld. The grounds no. 3 is accordingly dismissed.” 8.5 Before us the us the Ld. counsel of the assessee contested the of the assessee contested the disallowance on two grounds. Firstly, according to him before disallowance on two grounds. according to him before invoking Rule 8D of the 8D of the Rules, the Assessing Officer was required to , the Assessing Officer was required to record dissatisfaction on the claim of the assessee having regard to record dissatisfaction on the claim of the assessee having regard to record dissatisfaction on the claim of the assessee having regard to its books of accounts. its books of accounts. Secondly, following finding of Vi Secondly, following finding of Vireet Investments P. Ltd (supra) Investments P. Ltd (supra), the disallowance should have been , the disallowance should have been restricted to investments, which has yielded dividend income. restricted to investments, which has yielded dividend income. restricted to investments, which has yielded dividend income.

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 20 ITA No. 2471/M/2022

According to the learne According to the learned counsel, the Assessing Officer the Assessing Officer has not verified the expenses already disallowed by the assessee particularly verified the expenses already disallowed by the assessee parti verified the expenses already disallowed by the assessee parti in the view of the expenses debited in the books of accounts. The in the view of the expenses debited in the books of accounts. The in the view of the expenses debited in the books of accounts. The Assessing Officer has made only presumption of expenses for as made only presumption of expenses for as made only presumption of expenses for systematic management of the investment and market research, systematic management of the investment and market research, systematic management of the investment and market research, whereas the assessee earned dividend whereas the assessee earned dividend of Rs.6,91, 91,13,757/-mainly from the investment from the investment in ‘India Bulls mutual funds funds’. The learned counsel of the assessee submitted that the learne l of the assessee submitted that the learned Assessing l of the assessee submitted that the learne Officer for invoking Officer for invoking Rule 8D of the Rules has recorded general has recorded general statement asserting exempt income cannot be earned without statement asserting exempt income cannot be earned without statement asserting exempt income cannot be earned without incurring expenses, without g expenses, without recording as how the disallowance the disallowance made by the assessee was not correct. The learned counsel made by the assessee was not correct. The learne made by the assessee was not correct. The learne submitted that as per the provisions of section 14 submitted that as per the provisions of section 14A A of the Act the Assessing Officer shall determine the amount disallowable as per Assessing Officer shall determine the amount disallowable as per Assessing Officer shall determine the amount disallowable as per Rule 8D, if he is not satisfied with the correctness of the claim of 8D, if he is not satisfied with the correctness of the claim of 8D, if he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to exempt respect of such expenditure in relation to exempt respect of such expenditure in relation to exempt income. It is the contention of the assessee income. It is the contention of the assessee that that the Assessing Officer has nowhere in the body of the assessment order discus nowhere in the body of the assessment order discussed nowhere in the body of the assessment order discus his dissatisfaction on the claim made by the assessee. his dissatisfaction on the claim made by the assessee. his dissatisfaction on the claim made by the assessee. 8.6 Further the Ld. counsel Ld. counsel of the assessee submitted that in view of the assessee submitted that in view of the decision of the special bench in the case of Vireet investment of the decision of the special bench in the case of Vire of the decision of the special bench in the case of Vire private Limited (supra) only the investment yielding exempt supra) only the investment yielding exempted supra) only the investment yielding exempt income were to be considered for the purpose of computation of the income were to be considered for the purpose of computation of the income were to be considered for the purpose of computation of the disallowance under disallowance under Rule 8D of the Rules and there being no and there being no opening and closing stock of opening and closing stock of ‘India Bulls mutual fund India Bulls mutual fund’, the

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 21 ITA No. 2471/M/2022

disallowance computed under rule 8D(2) wance computed under rule 8D(2), corresponding to dividend , corresponding to dividend income from India bulls Mutual fund works out to nil. As far as ncome from India bulls Mutual fund works out to nil. As far as ncome from India bulls Mutual fund works out to nil. As far as disallowance for remaining di disallowance for remaining dividend income of Rs. 1,82,000/ end income of Rs. 1,82,000/-, the suo-moto disallowance by the assessee being exceeding the moto disallowance by the assessee being exceeding the moto disallowance by the assessee being exceeding the exempted income, no disallowance was called for in view of the exempted income, no disallowance was called for in view of the exempted income, no disallowance was called for in view of the decision dated 2/09/2015 dated 2/09/2015 of the Hon’ble Delhi High Court in the of the Hon’ble Delhi High Court in the case of Cheminvest P Ltd Cheminvest P Ltd in ITA 749 of 2014. 9. The Ld. DR on the other hand, relied on the order of the lower DR on the other hand, relied on the order of the lower DR on the other hand, relied on the order of the lower authorities. 10. We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. and perused the relevant material on record. We find that and perused the relevant material on record. against the dividend income earned of against the dividend income earned of ₹6,92,95,757/ 757/-the assessee has made sou-moto disallowance of oto disallowance of ₹15,59,662/- -considering the employee cost incurred for earning exempted income. The detail of employee cost incurred for earning exempted income. The detail employee cost incurred for earning exempted income. The detail the disallowance computed by the assessee is reproduced as under: the disallowance computed by the assessee is reproduced as under: the disallowance computed by the assessee is reproduced as under: Particulars Amount debited to Amount debited to Expenses Basis of allocation profit profit and and loss loss disallowance u/s account account 14A Employee Cost 36,31,97,672/ 36,31,97,672/- 10,00,000 Proportionate employee cost of an employee Auditor 23,08,270 23,08,270 6,355.41 % of employee cost Remuneration % of employee cost Communication 96,27,773 96,27,773 26,508.36 % of employee cost Computer Exp 1,94,58,253 1,94,58,253 53,574.83 % of employee cost Electricity Exp 3,49,10,427 3,49,10,427 96,119.63 % of employee cost Office Expenses 7,95,62,364 7,95,62,364 2,19,060.78 % of employee cost Printing and 28,22,308 28,22,308 7,770.72 Stationery % of employee cost Rent 5,34,83,120 5,34,83,120 1,47,256.23 % of employee cost Miscellaneous 10,95,530 10,95,530 3,016.35

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 22 ITA No. 2471/M/2022

expenses Total 1,59,662 10.1 As per the provisions of the section 14 provisions of the section 14A of the of the Act, the Assessing Officer can invoke the rule 8D of the Assessing Officer can invoke the rule 8D of the Rules Rules for computing disallowance, if he’s not satisfied with the correctness of the claim disallowance, if he’s not satisfied with the correctness of the claim disallowance, if he’s not satisfied with the correctness of the claim of the assessee in respect of expenditure for earning exempt income. of the assessee in respect of expenditure for earning exempt income. of the assessee in respect of expenditure for earning exempt income. We find that the Assessing Officer did not record a specific find that the Assessing Officer did not record a specific find that the Assessing Officer did not record a specific satisfaction as why the claim of the assessee of disallowance in satisfaction as why the claim of the assessee of disallowance in satisfaction as why the claim of the assessee of disallowance in terms of the employee cost was not correct. The Assessing Officer terms of the employee cost was not correct. The Assessing Officer terms of the employee cost was not correct. The Assessing Officer only recorded that assessee cannot only recorded that assessee cannot earn exempt income without exempt income without any systematic management of its investments which being ystematic management of its investments which being ystematic management of its investments which being complex in nature require market research, data analysis and complex in nature require market research, data analysis and complex in nature require market research, data analysis and planning. Whereas the assessee has duly planning. Whereas the assessee has duly itself itself disallowed the various expenses out of the employee cost, auditor remuneration, various expenses out of the employee cost, auditor remuneration, various expenses out of the employee cost, auditor remuneration, communication, computer expenses, electricit omputer expenses, electricity expenses, office y expenses, office expenses etc, which according to the assessee were part of the , which according to the assessee were part of the , which according to the assessee were part of the expenses which ought to have been incurred as expenses which ought to have been incurred as proposed proposed by the Assessing Officer. In view of the above facts and circumstances, we Assessing Officer. In view of the above facts and circumstances, we Assessing Officer. In view of the above facts and circumstances, we are of the opinion that the Assessing Officer has not fulfilled the on that the Assessing Officer has not fulfilled the on that the Assessing Officer has not fulfilled the requirement of the recording dissatisfaction under provisions of the requirement of the recording dissatisfaction under provisions of the requirement of the recording dissatisfaction under provisions of the section 14A of the Act Act and therefore invoking of the rule 8D is not and therefore invoking of the rule 8D is not in accordance with law. The second argument of considering Only in accordance with law. The second argument of considering Only in accordance with law. The second argument of considering Only the investment which has yielded exempted income ich has yielded exempted income, for the purpose , for the purpose of computation of disallowance under rule 8D(2) f disallowance under rule 8D(2) f disallowance under rule 8D(2), is rendered academic only and therefore w academic only and therefore we are not adjudicating the same e are not adjudicating the same. The

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 23 ITA No. 2471/M/2022

finding of the Ld. CIT(A) on the issue in dispute is set aside and the finding of the Ld. CIT(A) on the issue in dispute is set aside finding of the Ld. CIT(A) on the issue in dispute is set aside disallowance made by the Assessing Officer is deleted. The ground disallowance made by the Assessing Officer is deleted. The ground disallowance made by the Assessing Officer is deleted. The ground of the appeal of the assessee is accordingly allowed. of the appeal of the assessee is accordingly allowed. 11. In the result, the appeal of the assessee is allowed. In the result, the appeal of the assessee is allowed. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on Order pronounced in the open Court on 31/03/2023. /03/2023. Sd/- sd/- - (ABY T VARKEY ABY T VARKEY) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 31/03/2023 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai

M/s Edelweiss Rural & Corporate Services Ltd. M/s Edelweiss Rural & Corporate Services Ltd. 24 ITA No. 2471/M/2022

Date Initials Original dictation pad is enclosed at Original dictation pad is enclosed at the end of file 1. Draft dictated on: Draft dictated on: 31.03.2023 Sr. PS/PS 2. Draft placed before author: Draft placed before author: 31.03.2023 Sr. PS/PS 3. Draft proposed & placed before the Draft proposed & placed before the JM/AM second member: 4. Draft discussed/approved by Second Draft discussed/approved by Second JM/AM Member: 5. Approved Draft comes to the Sr. Approved Draft comes to the Sr. Sr. PS/PS PS/PS: 6. Order pronounced on: Order pronounced on: Sr. PS/PS 7. File sent to the Bench Clerk: File sent to the Bench Clerk: 8. Date on which file goes to the Head Date on which file goes to the Head Sr. PS/PS Clerk: 9. Date on which file goes to AR Date on which file goes to AR