ASIA INVESTMENTS PRIVATE LIMITED,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 2(1)(1), MUMBAI

ORDER PER BENCH

These appeals preferred by the assessee are directed against separate orders dated 20.03.2017, 12.07.2017, and 31.07.2019 passed by the Learned Commissioner of Income-tax (Appeals)–4, Mumbai [hereinafter referred to as “the Ld. CIT(A)”] pertaining to the assessment years 2012–13, 2013–14, and 2014–15 respectively. Since common issues in dispute are involved in all these appeals, same were heard together and are being disposed of by this Asia Investments Pvt. Ltd 2 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 consolidated order for the sake of convenience and to avoid consolidated order for the sake of convenience and to avoid consolidated order for the sake of convenience and to avoid repetition of facts.

by the assessee are reproduced year 2012-13. The grounds raised by the assessee are reproduced

13. The grounds raised by the assessee are reproduced as under:

1. In the facts and circumstances of the case and in Law, the Ld CIT (A) 1. In the facts and circumstances of the case and in Law, the Ld CIT (A) 1. In the facts and circumstances of the case and in Law, the Ld CIT (A) erred in confirming disallowance erred in confirming disallowance u/s 14A of the Act in respect of the u/s 14A of the Act in respect of the following: a. Rule 8D(2)(i) a. Rule 8D(2)(i) i. Interest to TATA Capital Interest to TATA Capital Rs. 10,99,16,196 ii. Personnel expenses Personnel expenses Rs. 1,75,00,000 iii. Travelling expenses Travelling expenses Rs. 1,00,95,661 iv. Business Promotion expenses Business Promotion expenses Rs.5,94,168 v. Rent Rs. 45,00,000 vi. Repairs & Maintenance & Maintenance Rs. 25,00,000 vii. Depreciation Depreciation Rs. 50,00,000 b. Rule 8D(2)(ii) Rule 8D(2)(ii) Rs. 1,16,79,947 c Rule 8D(2)(iii) Rule 8D(2)(iii) Rs. 1,07,39,195

2. In the facts and circumstances of the case and in Law and without 2. In the facts and circumstances of the case and in Law and without 2. In the facts and circumstances of the case and in Law and without prejudice to (1) above the Ld. CIT(A) erred in confirming prejudice to (1) above the Ld. CIT(A) erred in confirming disallowance of Rs. disallowance of Rs. 10,99,16,196 being interest paid to Tata Capital in respect of funds 10,99,16,196 being interest paid to Tata Capital in respect of funds 10,99,16,196 being interest paid to Tata Capital in respect of funds borrowed for strategic investment in shares of group companys despite the borrowed for strategic investment in shares of group companys despite the borrowed for strategic investment in shares of group companys despite the fact of assessing officer holding appellant to be engaged in business of fact of assessing officer holding appellant to be engaged in business of fact of assessing officer holding appellant to be engaged in business of investment.

3. In the facts and circumstances of the case and in Law, Without prejudice he facts and circumstances of the case and in Law, Without prejudice he facts and circumstances of the case and in Law, Without prejudice to (1) above, the CIT (A) erred in confirming disallowance of expenses under to (1) above, the CIT (A) erred in confirming disallowance of expenses under to (1) above, the CIT (A) erred in confirming disallowance of expenses under Rule 8D(2)(i) on account of Personnel expenses, Travelling expenses, Rule 8D(2)(i) on account of Personnel expenses, Travelling expenses, Rule 8D(2)(i) on account of Personnel expenses, Travelling expenses, Business Promotion expenses, Rent, Repair Business Promotion expenses, Rent, Repairs Maintenance and Depreciation s Maintenance and Depreciation despite there being no direct nexus of these expenses with earning of despite there being no direct nexus of these expenses with earning of despite there being no direct nexus of these expenses with earning of income on which no tax is payable and further without prejudice to above, income on which no tax is payable and further without prejudice to above, income on which no tax is payable and further without prejudice to above, despite the fact that assessing officer has himself admitted assesse to be despite the fact that assessing officer has himself admitted assesse to be despite the fact that assessing officer has himself admitted assesse to be engaged in business of investment. d in business of investment.

Asia Investments Pvt. Ltd 3 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019

4. In the facts and circumstances of the case and in Law, the Ld CIT (A) 4. In the facts and circumstances of the case and in Law, the Ld CIT (A) 4. In the facts and circumstances of the case and in Law, the Ld CIT (A) erred in confirming disallowance of Rs.1,16,79,947/ erred in confirming disallowance of Rs.1,16,79,947/- out of interest paid out of interest paid despite the fact that assesse has sufficient own funds for making the despite the fact that assesse has sufficient own funds for making the despite the fact that assesse has sufficient own funds for making the investment and, without without appreciating the fact that assessing officer has appreciating the fact that assessing officer has himself admitted assesse to be engaged in business of investment himself admitted assesse to be engaged in business of investment himself admitted assesse to be engaged in business of investment 5. Without prejudice to the Grounds No 1,2 and 3 on the facts and in the Without prejudice to the Grounds No 1,2 and 3 on the facts and in the Without prejudice to the Grounds No 1,2 and 3 on the facts and in the circumstances of the case and in law the learned CIT(A) erred in not circumstances of the case and in law the learned CIT(A circumstances of the case and in law the learned CIT(A appreciating the fact that no disallowance under section 14A read with Rule appreciating the fact that no disallowance under section 14A read with Rule appreciating the fact that no disallowance under section 14A read with Rule 8D can be made where no exempt income was received by the appellant 8D can be made where no exempt income was received by the appellant 8D can be made where no exempt income was received by the appellant during the year under consideration. during the year under consideration. 6. On the facts and in the circumstances of the case and in On the facts and in the circumstances of the case and in law, the learned law, the learned CIT(A) p8: 319 erred in confirming disallowance of professional fees of INR CIT(A) p8: 319 erred in confirming disallowance of professional fees of INR CIT(A) p8: 319 erred in confirming disallowance of professional fees of INR 6,00,00,000 paid to Deep C 6,00,00,000 paid to Deep C Anand Foundation by attributing it towards Anand Foundation by attributing it towards incurred for promoting the interest of group companies and was not incurred incurred for promoting the interest of group companies and was not incurred incurred for promoting the interest of group companies and was not incurred for the business of the assesse of the assessee. 7. On the facts and in the circumstances of the case and in law, the learned On the facts and in the circumstances of the case and in law, the learned On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming disallowance of UK Branch office expenses of INR CIT(A) erred in confirming disallowance of UK Branch office expenses of INR CIT(A) erred in confirming disallowance of UK Branch office expenses of INR 52,98,889 by treating the same as not incurred for the purpose of business 52,98,889 by treating the same as not incurred for the purpose of business 52,98,889 by treating the same as not incurred for the purpose of business of the assessee. 8. On the facts and in the circumstances of the case and in law, the learned On the facts and in the circumstances of the case and in law, the learned On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming disallowance of expenditure of INR 1,41,19,857 CIT(A) erred in confirming disallowance of expenditure of INR 1,41,19,857 CIT(A) erred in confirming disallowance of expenditure of INR 1,41,19,857 Net of depreciation of INR 15,68,873) incurred for carrying out routine depreciation of INR 15,68,873) incurred for carrying out routine depreciation of INR 15,68,873) incurred for carrying out routine repairs and maintenance in repairs and maintenance in the branch office cum transit house at London the branch office cum transit house at London as capitai1expenditure. as capitai1expenditure. 3. Briefly stated, the material facts of the case are that the Briefly stated, the material facts of the case are that the Briefly stated, the material facts of the case are that the assessee-company company company is is is engaged engaged engaged in in in the the the business business business of of of making making making investments in subsidiary concerns of the “Anand” Group as well as investments in subsidiary concerns of the “Anand” Group as well as investments in subsidiary concerns of the “Anand” Group as well as in other corporate entities. For the year under consideration, the in other corporate entities. For the year under consideration, the in other corporate entities. For the year under consideration, the assessee filed its return of income on 29.09.2012 declaring a total filed its return of income on 29.09.2012 declaring a total filed its return of income on 29.09.2012 declaring a total income of ₹36,53,72,580/ 36,53,72,580/-. The said return was selected for . The said return was selected for scrutiny, pursuant to which statutory notices under the relevant scrutiny, pursuant to which statutory notices under the relevant scrutiny, pursuant to which statutory notices under the relevant provisions of the Income provisions of the Income-tax Act, 1961 (hereinafter referred to as tax Act, 1961 (hereinafter referred to as “the Act”) were issued and duly complied with. Consequent thereto, Act”) were issued and duly complied with. Consequent thereto, Act”) were issued and duly complied with. Consequent thereto,

Asia Investments Pvt. Ltd 4 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 the assessment was completed under section 143(3) of the Act on the assessment was completed under section 143(3) of the Act on the assessment was completed under section 143(3) of the Act on 29.03.2015, determining the total income at ₹51,19,60,630/ 29.03.2015, determining the total income at 51,19,60,630/-, after making various additions and disallowances as set out in the making various additions and disallowances as set out in the making various additions and disallowances as set out in the assessment order.

5.1 The Assessing Officer first identified out The Assessing Officer first identified out The Assessing Officer first identified out of the total expenditure debited in the profit and loss account, interest expenditure debited in the profit and loss account, interest expenditure debited in the profit and loss account, interest expenditure of ₹10,99,16,196/ 10,99,16,196/- pertaining to the loan obtained from pertaining to the loan obtained from Tata Chemicals Ltd. as directly relatable to the earning of exempt Tata Chemicals Ltd. as directly relatable to the earning of exempt Tata Chemicals Ltd. as directly relatable to the earning of exempt income and accordingly disallowed the same und income and accordingly disallowed the same under Rule 8D(2)(i) of er Rule 8D(2)(i) of the Rules.

Asia Investments Pvt. Ltd 5 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 5.2 Further, adopting the approach taken in the assessment for Further, adopting the approach taken in the assessment for Further, adopting the approach taken in the assessment for assessment year 2011 assessment year 2011–12, the Assessing Officer held certain 12, the Assessing Officer held certain expenses, on an ad hoc basis, to be directly connected with the expenses, on an ad hoc basis, to be directly connected with the expenses, on an ad hoc basis, to be directly connected with the earning of exempt income. These includ earning of exempt income. These included personnel expenses of ed personnel expenses of ₹1.75 crore, travelling and conveyance expenses of 1.75 crore, travelling and conveyance expenses of ₹1,00,95,661/-, 1.75 crore, travelling and conveyance expenses of business promotion expenses of ₹5,94,168/-, rent of , rent of ₹45,00,000/-, business promotion expenses of ₹25,00,000/ repairs repairs and and maintenance maintenance expenses expenses of of 25,00,000/-, and depreciation of ₹50,00,000/ 50,00,000/-.

5.3 In this manner, the Assessing Officer determined the total nner, the Assessing Officer determined the total nner, the Assessing Officer determined the total disallowance under Rule 8D(2)(i) at disallowance under Rule 8D(2)(i) at ₹15,01,06,025/- - (₹10,99,16,196 + ₹1,75,00,000 + 1,75,00,000 + ₹1,00,95,661 + ₹5,94,168 + 5,94,168 + ₹45,00,000 + ₹25,00,000 + ₹50,00,000). 50,00,000).

5.4 Thereafter, invoking Rule 8D(2)(ii) of the Rules, the Thereafter, invoking Rule 8D(2)(ii) of the Rules, the Thereafter, invoking Rule 8D(2)(ii) of the Rules, the Assessing Officer observed that out of the total interest/finance expenses of Officer observed that out of the total interest/finance expenses of Officer observed that out of the total interest/finance expenses of ₹12,53,95,654/- debited in the profit and loss account, a sum of debited in the profit and loss account, a sum of debited in the profit and loss account, a sum of ₹10,99,16,196/- had already been disallowed under Rule 8D(2)(i) as had already been disallowed under Rule 8D(2)(i) as had already been disallowed under Rule 8D(2)(i) as directly relatable to the earning of exempt i directly relatable to the earning of exempt income. The balance ncome. The balance ₹1,54,79,458/- (₹12,53,95,654 interest interest expenditure expenditure of of 12,53,95,654 – ₹10,99,16,196) was accordingly disallowed on a proportionate basis 10,99,16,196) was accordingly disallowed on a proportionate basis 10,99,16,196) was accordingly disallowed on a proportionate basis in the ratio of average investments to average total assets, which in the ratio of average investments to average total assets, which in the ratio of average investments to average total assets, which worked out to ₹1,16,79,947/ 1,16,79,947/-.

Asia Investments Pvt. Ltd 6 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 5.5 Further, applying Rule 8D(2)(iii) of the Rules, the Assessing ying Rule 8D(2)(iii) of the Rules, the Assessing ying Rule 8D(2)(iii) of the Rules, the Assessing Officer computed disallowance at 0.5% of the average value of Officer computed disallowance at 0.5% of the average value of Officer computed disallowance at 0.5% of the average value of investments towards administrative expenses, which amounted to investments towards administrative expenses, which amounted to investments towards administrative expenses, which amounted to ₹1,07,39,195 5.6 Accordingly, the Assessing Officer determined the total Accordingly, the Assessing Officer determined the total Accordingly, the Assessing Officer determined the total disallowance ance ance under under under section section section 14A 14A 14A read read read with with with Rule Rule Rule 8D 8D 8D at at at ₹17,25,25,167/- (₹15,01,06,025 + 15,01,06,025 + ₹1,16,79,947 + ₹1,07,39,195). 1,07,39,195).

6. On further appeal, the Ld. CIT(A) upheld the disallowance On further appeal, the Ld. CIT(A) upheld the disallowance On further appeal, the Ld. CIT(A) upheld the disallowance following his finding in assessment year 2011 following his finding in assessment year 2011-12. The relevant 12. The relevant finding of the Ld. CIT(A) finding of the Ld. CIT(A) is reproduced as under:

“4. Ground No.2, 3 & 4 are against the disallowance of 4. Ground No.2, 3 & 4 are against the disallowance of 4. Ground No.2, 3 & 4 are against the disallowance of expenditure of Rs. 17,25,25,167/ expenditure of Rs. 17,25,25,167/- and are interconnected, and are interconnected, interdependent hence, taken together. According to the Assessing interdependent hence, taken together. According to the Assessing interdependent hence, taken together. According to the Assessing Officer, the Assessee does not do any business activi Officer, the Assessee does not do any business activi Officer, the Assessee does not do any business activities but has only earned dividend of Rs.33,64,56,517/ only earned dividend of Rs.33,64,56,517/-. Against this income, . Against this income, the Assessee has suo the Assessee has suo-motto disallowed expenditure of Rs. motto disallowed expenditure of Rs. 10,53,857/- u/s. 14A r.w.r.8D. The same issue was therein u/s. 14A r.w.r.8D. The same issue was therein A.Y.2011-12. However, disallowable expenditure is to be made 12. However, disallowable expenditure is to be made 12. However, disallowable expenditure is to be made according to the Rule 8D. Thus, after applying the Rule 8D, the ording to the Rule 8D. Thus, after applying the Rule 8D, the ording to the Rule 8D. Thus, after applying the Rule 8D, the Assessing Officer has disallowed Rs. 17,25,25,167/ Assessing Officer has disallowed Rs. 17,25,25,167/- - against the claim of the Assessee of Rs. 10,53,55,857/ claim of the Assessee of Rs. 10,53,55,857/-. Therefore, the . Therefore, the balance amount of Rs.67169310/ balance amount of Rs.67169310/- has been added to the total has been added to the total income. Against the disallowance of expenditure, it is contended inst the disallowance of expenditure, it is contended inst the disallowance of expenditure, it is contended that the Ld. Assessing Officer has wrongly made the disallowance that the Ld. Assessing Officer has wrongly made the disallowance that the Ld. Assessing Officer has wrongly made the disallowance without properly appreciating the genuineness of expenditure suo without properly appreciating the genuineness of expenditure suo without properly appreciating the genuineness of expenditure suo- motto offered for disallowance. According to the Ld. A.R., company motto offered for disallowance. According to the Ld. A.R., company motto offered for disallowance. According to the Ld. A.R., company has taken unsecured loans & inter aken unsecured loans & inter-corporate deposits from Bank corporate deposits from Bank & related parties which is utilized for the purpose of the business. & related parties which is utilized for the purpose of the business. & related parties which is utilized for the purpose of the business. The details of interest was already given to the Assessing Officer The details of interest was already given to the Assessing Officer The details of interest was already given to the Assessing Officer by letter dated 20.10.2014, such funds have been utilized for by letter dated 20.10.2014, such funds have been utilized for by letter dated 20.10.2014, such funds have been utilized for making investment in share of Group Companies. The similar making investment in share of Group Companies. The similar making investment in share of Group Companies. The similar argument was also there in A.Y.2011 argument was also there in A.Y.2011-12 and same has been 12 and same has been repeated in this year also. repeated in this year also.

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4.1. I have considered the issue under appeal, carefully. I find that 4.1. I have considered the issue under appeal, carefully. I find that 4.1. I have considered the issue under appeal, carefully. I find that there was a similar issue in A.Y.2011 there was a similar issue in A.Y.2011-12 and matter was decided nd matter was decided by Appellate Order dated 14.12.2015 in Para 4.3 which is as by Appellate Order dated 14.12.2015 in Para 4.3 which is as by Appellate Order dated 14.12.2015 in Para 4.3 which is as under :- "4.3 I have considered the findings of the Assessing Officer and "4.3 I have considered the findings of the Assessing Officer and "4.3 I have considered the findings of the Assessing Officer and rival submission of the appellant, carefully. I find that during the rival submission of the appellant, carefully. I find that during the rival submission of the appellant, carefully. I find that during the year assessee has received divi year assessee has received dividend of Rs.35,14,87,406/ dend of Rs.35,14,87,406/-, interest income of Rs.17,265,656/ interest income of Rs.17,265,656/- and professional fees of and professional fees of Rs.14,65,30,638/ Rs.14,65,30,638/-. When there is dividend, which is exempt the . When there is dividend, which is exempt the corresponding expenditure has to be disallowed as per Section corresponding expenditure has to be disallowed as per Section corresponding expenditure has to be disallowed as per Section 14A r.w.r. 8D. Appellant has disallowed suo 14A r.w.r. 8D. Appellant has disallowed suo-motto an amount of motto an amount of Rs.9,08,52,583/ Rs.9,08,52,583/- but there is no proper justification for such but there is no proper justification for such disallowance. As per the appellant's admission by letter dated disallowance. As per the appellant's admission by letter dated disallowance. As per the appellant's admission by letter dated 23.10.2013, assessee was granted loan of Rs.60 crores by Tata 23.10.2013, assessee was granted loan of Rs.60 crores by Tata 23.10.2013, assessee was granted loan of Rs.60 crores by Tata Capital Ltd. Out of which Rs.15 crores was for pu Capital Ltd. Out of which Rs.15 crores was for purchase of 15% rchase of 15% shares of Gabriel India Ltd. and Rs.45 crores was for investment shares of Gabriel India Ltd. and Rs.45 crores was for investment shares of Gabriel India Ltd. and Rs.45 crores was for investment in shares of Group Companies i.e. Rs.30 crores in shares of Mando in shares of Group Companies i.e. Rs.30 crores in shares of Mando in shares of Group Companies i.e. Rs.30 crores in shares of Mando Steering and Rs.15 crores in shares of Degremont. On such loan, Steering and Rs.15 crores in shares of Degremont. On such loan, Steering and Rs.15 crores in shares of Degremont. On such loan, there is interest expenses of Rs.6,89,82,540/ there is interest expenses of Rs.6,89,82,540/- and processing fees and processing fees of Rs.87,42,750/ of Rs.87,42,750/-. Thus, there is direct nexus of expenditure with . Thus, there is direct nexus of expenditure with exempt income. Assessing Officer has rightly pointed out the fact exempt income. Assessing Officer has rightly pointed out the fact exempt income. Assessing Officer has rightly pointed out the fact of such expenditure directly related to earning of exempt income. of such expenditure directly related to earning of exempt income. of such expenditure directly related to earning of exempt income. Similarly, most of the business expen Similarly, most of the business expenses have been incurred for ses have been incurred for promoting the Anand Group of Companies businss hence element promoting the Anand Group of Companies businss hence element promoting the Anand Group of Companies businss hence element of expenditure embedded in personnel cost is very much there. of expenditure embedded in personnel cost is very much there. of expenditure embedded in personnel cost is very much there. Assessing Officer has disallowed only an amount of Rs.1.50 crores Assessing Officer has disallowed only an amount of Rs.1.50 crores Assessing Officer has disallowed only an amount of Rs.1.50 crores out of total expenditure of Rs.2.24 cror out of total expenditure of Rs.2.24 crores. I find that Ld. Assessing es. I find that Ld. Assessing Officer has rightly done so. Similar is the fact related to traveling Officer has rightly done so. Similar is the fact related to traveling Officer has rightly done so. Similar is the fact related to traveling and conveyance expenses and other expenses mentioned by the and conveyance expenses and other expenses mentioned by the and conveyance expenses and other expenses mentioned by the Assessing Officer. Thus, the total disallowance worked out by the Assessing Officer. Thus, the total disallowance worked out by the Assessing Officer. Thus, the total disallowance worked out by the Assessing Officer to the exten Assessing Officer to the extent of Rs.11,44,50,056/- is found to be is found to be directly related to earning the exempt income hence same is to be directly related to earning the exempt income hence same is to be directly related to earning the exempt income hence same is to be disallowed under Rule 8D, first limb. Similarly, in second limb disallowed under Rule 8D, first limb. Similarly, in second limb disallowed under Rule 8D, first limb. Similarly, in second limb interest expenditure has to be disallowed having indirect nexus. Of interest expenditure has to be disallowed having indirect nexus. Of interest expenditure has to be disallowed having indirect nexus. Of course third limb of course third limb of Rule 8D (2) (iii) is also applicable. Thus the Rule 8D (2) (iii) is also applicable. Thus the total disallowance of expenditure worked out by the Assessing total disallowance of expenditure worked out by the Assessing total disallowance of expenditure worked out by the Assessing Officer to the extent of Rs.15,11,02,307/ Officer to the extent of Rs.15,11,02,307/- is sustainable. Appellant is sustainable. Appellant has not explained as to how disallowance offered by it to the has not explained as to how disallowance offered by it to the has not explained as to how disallowance offered by it to the extent of Rs.90 extent of Rs.90852583/- is correct and disallowance has to be is correct and disallowance has to be restricted to this amount. Therefore, after going through the written restricted to this amount. Therefore, after going through the written restricted to this amount. Therefore, after going through the written arguments and facts on records, I find no reason to discard the arguments and facts on records, I find no reason to discard the arguments and facts on records, I find no reason to discard the working of disallowable expenditure made by the Assessing working of disallowable expenditure made by the Assessing working of disallowable expenditure made by the Assessing Officer. Because Officer. Because of facts of the case, none of the decisions relied of facts of the case, none of the decisions relied upon by the Ld. Authorised Representative is applicable, therefore, upon by the Ld. Authorised Representative is applicable, therefore, upon by the Ld. Authorised Representative is applicable, therefore, in the light of the above discussion, the disallowance of in the light of the above discussion, the disallowance of in the light of the above discussion, the disallowance of Asia Investments Pvt. Ltd 8 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 expenditure made by the Assessing Officer of Rs.15,11,02,307/ expenditure made by the Assessing Officer of Rs.15,11,02,307/ expenditure made by the Assessing Officer of Rs.15,11,02,307/- is sustained. Si sustained. Since, assessee has suomoto disallowed exp of nce, assessee has suomoto disallowed exp of Rs.90852583/ Rs.90852583/-, the balance additional disallowance comes to , the balance additional disallowance comes to Rs.60249724/ Rs.60249724/-." With a view to maintain judicial consistency, the disallowance so With a view to maintain judicial consistency, the disallowance so With a view to maintain judicial consistency, the disallowance so made by the Assessing Officer and is hereby made by the Assessing Officer and is hereby sustained. sustained.” 6.1 Before us, the Learned Counsel for the assessee submitted the Learned Counsel for the assessee submitted the Learned Counsel for the assessee submitted that the principal activity of the assessee that the principal activity of the assessee-company comprises company comprises of managing managing managing its its its investments investments investments and and and exploring exploring exploring new new new investment investment investment opportunities. It was further submitted that the assessee also opportunities. It was further submitted that the assessee also opportunities. It was further submitted that the assessee also provides management, corpo provides management, corporate, and support services to Spicer rate, and support services to Spicer India Ltd., a concern forming part of the “Anand” Group. The India Ltd., a concern forming part of the “Anand” Group. The India Ltd., a concern forming part of the “Anand” Group. The Learned Counsel explained that the assessee purchases shares, Learned Counsel explained that the assessee purchases shares, Learned Counsel explained that the assessee purchases shares, grants loans, and provides requisite funding, which is generally grants loans, and provides requisite funding, which is generally grants loans, and provides requisite funding, which is generally various companies. sourced through borrowings from sourced through borrowings from various companies.

6.2 It was contended that the assessee’s income consists of It was contended that the assessee’s income consists of It was contended that the assessee’s income consists of dividend income, interest income, income from the sale of dividend income, interest income, income from the sale of dividend income, interest income, income from the sale of investments, investments, investments, and and and professional professional professional fees fees fees received received received for for for rendering rendering rendering management and support services to group companies. The management and support services to group companies. The management and support services to group companies. The Learned Counsel argued that the assessee is, by its conduct and ned Counsel argued that the assessee is, by its conduct and ned Counsel argued that the assessee is, by its conduct and consistent course of dealings, a predominantly investment company consistent course of dealings, a predominantly investment company consistent course of dealings, a predominantly investment company engaged in the business of managing and holding investments. The engaged in the business of managing and holding investments. The engaged in the business of managing and holding investments. The funds have consistently been utilized for business purposes. It was funds have consistently been utilized for business purposes. It w funds have consistently been utilized for business purposes. It w further submitted that the shares of the “Anand” Group companies further submitted that the shares of the “Anand” Group companies further submitted that the shares of the “Anand” Group companies were acquired primarily with the object of maintaining and were acquired primarily with the object of maintaining and were acquired primarily with the object of maintaining and Asia Investments Pvt. Ltd 9 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 exercising controlling interest, and not with the intention of earning exercising controlling interest, and not with the intention of earning exercising controlling interest, and not with the intention of earning dividend income, which is merely incidental. dividend income, which is merely incidental.

6.3 It was pointed out that the assessee had invested in equity inted out that the assessee had invested in equity inted out that the assessee had invested in equity shares, which, unlike preference shares, do not carry any assured shares, which, unlike preference shares, do not carry any assured shares, which, unlike preference shares, do not carry any assured return by way of dividend. The Learned Counsel submitted that return by way of dividend. The Learned Counsel submitted that return by way of dividend. The Learned Counsel submitted that such systematic and organized investment activity of the assessee such systematic and organized investment activity of the assessee such systematic and organized investment activity of the assessee has, since inception, been regarded as a business activity, and the inception, been regarded as a business activity, and the inception, been regarded as a business activity, and the expenditure incurred in relation thereto has consistently been expenditure incurred in relation thereto has consistently been expenditure incurred in relation thereto has consistently been treated as business expenditure. It was further brought to our treated as business expenditure. It was further brought to our treated as business expenditure. It was further brought to our attention that a similar view has been taken by the Coordinate attention that a similar view has been taken by the Coordinate attention that a similar view has been taken by the Coordinate Bench of the Tribunal in the assessee’s own case for he Tribunal in the assessee’s own case for AY 2010-11 he Tribunal in the assessee’s own case for and earlier assessment years. earlier assessment years.

6.4 The Learned Counsel submitted that, along with the receipt The Learned Counsel submitted that, along with the receipt The Learned Counsel submitted that, along with the receipt from the sale of investments, the assessee has also earned dividend from the sale of investments, the assessee has also earned dividend from the sale of investments, the assessee has also earned dividend income from such investments. income from such investments. Accordingly, it was contended that Accordingly, it was contended that the expenditure incurred relates both to taxable activities (such as the expenditure incurred relates both to taxable activities (such as the expenditure incurred relates both to taxable activities (such as managing and realizing investments) and to non managing and realizing investments) and to non-taxable or exempt taxable or exempt activities (such as earning dividend income). Hence, the same ought activities (such as earning dividend income). Hence, the same ought activities (such as earning dividend income). Hence, the same ought to be apportioned i to be apportioned in proportion to the respective taxable and n proportion to the respective taxable and exempt income.

6.5 The Learned Counsel further submitted that the assessee’s The Learned Counsel further submitted that the assessee’s The Learned Counsel further submitted that the assessee’s business activities could be appropriately categorized under two business activities could be appropriately categorized under two business activities could be appropriately categorized under two heads: (i) strategic investment activity, and (ii) trading in shares. heads: (i) strategic investment activity, and (ii) trading in shares. heads: (i) strategic investment activity, and (ii) trading in shares.

Asia Investments Pvt. Ltd 10 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 Placing reliance on the judgment of the Hon’ble Supreme Court in lacing reliance on the judgment of the Hon’ble Supreme Court in lacing reliance on the judgment of the Hon’ble Supreme Court in Maxopp Investment Ltd vs CIT (2018) 91 taxmann.com 154 Maxopp Investment Ltd vs CIT (2018) 91 taxmann.com 154 Maxopp Investment Ltd vs CIT (2018) 91 taxmann.com 154 (SC), it was submitted that disallowance under section 14A of the , it was submitted that disallowance under section 14A of the , it was submitted that disallowance under section 14A of the Act can be made only to the extent of expenditure relatable to Act can be made only to the extent of expenditure relatable to Act can be made only to the extent of expenditure relatable to earning exempt income, and such allocation must be made in exempt income, and such allocation must be made in exempt income, and such allocation must be made in proportion to the taxable and non proportion to the taxable and non-taxable income of the assessee. taxable income of the assessee.

6.6 The Learned Counsel for the assessee further submitted that The Learned Counsel for the assessee further submitted that The Learned Counsel for the assessee further submitted that the Assessing Officer has not recorded any dissatisfaction with the Assessing Officer has not recorded any dissatisfaction with the Assessing Officer has not recorded any dissatisfaction with disallowance made by the regard to the correctness of the he correctness of the suo-motu disallowance made by the assessee under section 14A of the Act. In the absence of such assessee under section 14A of the Act. In the absence of such assessee under section 14A of the Act. In the absence of such satisfaction, the invocation of Rule 8D by the Assessing Officer, it satisfaction, the invocation of Rule 8D by the Assessing Officer, it satisfaction, the invocation of Rule 8D by the Assessing Officer, it was contended, is void was contended, is void ab-initio. It was submitted that, on this . It was submitted that, on this ground alone, the entire computation made by the Assessing Officer nd alone, the entire computation made by the Assessing Officer nd alone, the entire computation made by the Assessing Officer under Rule 8D deserves to be deleted, and the suo-motu under Rule 8D deserves to be deleted, and the under Rule 8D deserves to be deleted, and the disallowance offered by the assessee ought to be accepted. disallowance offered by the assessee ought to be accepted. disallowance offered by the assessee ought to be accepted.

6.7 With respect to the Assessing Officer’s action of treating a With respect to the Assessing Officer’s action of treating a With respect to the Assessing Officer’s action of treating a portion of the expenditure debited to the profit and loss account as portion of the expenditure debited to the profit and loss account as portion of the expenditure debited to the profit and loss account as directly incurred for earning exempt income and disallowing the directly incurred for earning exempt income and disallowing the directly incurred for earning exempt income and disallowing the same under Rule 8D(2)(i) of the Rules, the Learned Counsel same under Rule 8D(2)(i) of the Rules, the Learned Counsel same under Rule 8D(2)(i) of the Rules, the Learned Counsel submitted that the Assessing Officer has failed to demonstrate any mitted that the Assessing Officer has failed to demonstrate any mitted that the Assessing Officer has failed to demonstrate any proximate nexus between such expenditure and the earning of proximate nexus between such expenditure and the earning of proximate nexus between such expenditure and the earning of dividend income. It was urged that the expenses in the nature of dividend income. It was urged that the expenses in the nature of dividend income. It was urged that the expenses in the nature of personnel cost, travelling and conveyance, business promotion, personnel cost, travelling and conveyance, business promotion, personnel cost, travelling and conveyance, business promotion,

Asia Investments Pvt. Ltd 11 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 depreciation, etc., were essentially incurred in the course of the eciation, etc., were essentially incurred in the course of the eciation, etc., were essentially incurred in the course of the assessee’s business of managing and monitoring its investments, assessee’s business of managing and monitoring its investments, assessee’s business of managing and monitoring its investments, and the dividend income was merely incidental to such business and the dividend income was merely incidental to such business and the dividend income was merely incidental to such business operations. Accordingly, it was contended that the Assessing Officer operations. Accordingly, it was contended that the Assessing Offic operations. Accordingly, it was contended that the Assessing Offic was not justified in holding that such expenses were directly was not justified in holding that such expenses were directly was not justified in holding that such expenses were directly attributable to the earning of exempt dividend income. attributable to the earning of exempt dividend income. attributable to the earning of exempt dividend income.

6.8 With reference to disallowance u/R 8D(2)(ii) of Rules, t With reference to disallowance u/R 8D(2)(ii) of Rules, t With reference to disallowance u/R 8D(2)(ii) of Rules, the Ld. counsel for the assessee before us filed a detailed break up, the counsel for the assessee before us filed a detailed break up, the counsel for the assessee before us filed a detailed break up, the total finance cost of Rs.12,53,95,654/ al finance cost of Rs.12,53,95,654/- for the assessment year for the assessment year under consideration.: :

Particulars AY 2012-13 Amount (Rs.) Amount (Rs.) Interest on Term Loan Interest on Term Loan TATA Capital 10,99,16,196 HDFC Bank (Car Loan) HDFC Bank (Car Loan) 5,55,870 - Yes Bank Kotak Mahindra Prime Kotak Mahindra Prime Ltd (Car Loan) - 11,04,72,066 v

Interest on Working capital Interest on Working capital Yes Bank 61,409 61,409

Interest on Inter-Corporate Corporate Deposits Anand & Anand P. Ltd. Anand & Anand P. Ltd. 21,22,138 Anfilco Limited 1,26,50,697 Dytek India Ltd. 89,344 1,48,62,179

Interest on Finance Lease Finance Lease - Kotak Mahindra Prime Ltd Kotak Mahindra Prime Ltd -

Particulars AY 2012-13

Asia Investments Pvt. Ltd 12 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019

Amount (Rs.) Amount (Rs.) Amount (Rs.) Amo. Processing fees TATA Capital - Corporate guarantee fees: Corporate guarantee fees: Victor Gaskets India Limited Victor Gaskets India Limited - Anfilco Ltd - -

Total Finance Cost (as per financial Total Finance Cost (as per 12,53,95,654 12,53,95,654 statements)

6.9 The Learned Counsel for the assessee submitted that the The Learned Counsel for the assessee submitted that the The Learned Counsel for the assessee submitted that the Assessing Officer had already disallowed a sum of ₹ ₹10,99,16,196/– Assessing Officer had already disallowed a sum of under Rule 8D(2)(i) of the Income under Rule 8D(2)(i) of the Income-tax Rules, 1962, being the tax Rules, 1962, being the interest expenditure incurred on interest expenditure incurred on a loan obtained from Tata Capital, a loan obtained from Tata Capital, treating the same as directly attributable to treating the same as directly attributable to the earning of dividend the earning of dividend income, which he is not justified. income, which he is not justified. He further pointed out that the He further pointed out that the interest expenditure of ₹5,55,870/– was directly related to a car interest expenditure of was directly related to a car m HDFC Bank, while interest of ₹61,409/ loan availed from HDFC Bank, while interest of 61,409/– paid to Yes Bank pertained to working capital facilities. Likewise, interest Yes Bank pertained to working capital facilities. Likewise, interest Yes Bank pertained to working capital facilities. Likewise, interest of ₹21,22,138/ payments 21,22,138/– to to Anand Anand & Anand Pvt. Ltd., & Anand Pvt. Ltd., ₹1,26,50,697/– to Anfilco Ltd., and to Anfilco Ltd., and ₹89,344/– to Dytek India Ltd. to Dytek India Ltd. represented interest on inter t on inter-corporate deposits and were not corporate deposits and were not related to any investment yielding exempt income. related to any investment yielding exempt income.

6.10 The Learned Counsel accordingly contended that out of the The Learned Counsel accordingly contended that out of the The Learned Counsel accordingly contended that out of the total finance cost of ₹12,53,95,654/– debited to the profit and loss total finance cost of debited to the profit and loss account, the interest to Tata C account, the interest to Tata Capital having already been apital having already been disallowed, the balance interest amount of ₹1,16,79,947/ disallowed, the balance interest amount of 1,16,79,947/– stood

Asia Investments Pvt. Ltd 13 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 duly identified as being incurred for specific business purposes and duly identified as being incurred for specific business purposes and duly identified as being incurred for specific business purposes and not connected with any investment generating exempt income. not connected with any investment generating exempt income. not connected with any investment generating exempt income. Hence, the Assessing Officer was not Hence, the Assessing Officer was not justified in apportioning the justified in apportioning the said balance interest expenditure in the ratio of total investments to said balance interest expenditure in the ratio of total investments to said balance interest expenditure in the ratio of total investments to total assets while computing disallowance under Rule 8D(2)(ii) of total assets while computing disallowance under Rule 8D(2)(ii) of total assets while computing disallowance under Rule 8D(2)(ii) of the Rules.

6.11 The Learned Counsel further submitted that the Assessing The Learned Counsel further submitted that the Assessing The Learned Counsel further submitted that the Assessing Officer was also not justified in making an additional disallowance o not justified in making an additional disallowance o not justified in making an additional disallowance of 0.5% of the average value of investments towards administrative of 0.5% of the average value of investments towards administrative of 0.5% of the average value of investments towards administrative expenses under Rule 8D(2)(iii), when disallowance on account of expenses under Rule 8D(2)(iii), when disallowance on account of expenses under Rule 8D(2)(iii), when disallowance on account of administrative and related expenses had already been made administrative and related expenses had already been made administrative and related expenses had already been made separately.

6.12. The Learned Counsel for the assessee further invited our The Learned Counsel for the assessee further invited our The Learned Counsel for the assessee further invited our attention to the order of the Tribunal in the assessee’s own case for attention to the order of the Tribunal in the assessee’s own case for attention to the order of the Tribunal in the assessee’s own case for the assessment year 2011 the assessment year 2011–12 in ITA No. 916/Mum/2016. Referring 12 in ITA No. 916/Mum/2016. Referring to the said decision, it was submitted that the personnel of the to the said decision, it was submitted that the personnel of to the said decision, it was submitted that the personnel of assessee-company were engaged in multifarious business activities, company were engaged in multifarious business activities, company were engaged in multifarious business activities, and that the Assessing Officer had made an ssessing Officer had made an ad-hoc disallowance of ₹1,75,00,000/– without establishing any specific nexus between without establishing any specific nexus between without establishing any specific nexus between such expenditure and the earning of exempt income. The Learned such expenditure and the earning of exempt income. The L such expenditure and the earning of exempt income. The L Counsel contended that an ad hoc disallowance is impermissible Counsel contended that an ad hoc disallowance is impermissible Counsel contended that an ad hoc disallowance is impermissible under Rule 8D(2)(i) of the Income under Rule 8D(2)(i) of the Income-tax Rules, 1962, unless a direct tax Rules, 1962, unless a direct

Asia Investments Pvt. Ltd 14 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 and proximate connection is demonstrated between the expenditure and proximate connection is demonstrated between the expenditure and proximate connection is demonstrated between the expenditure incurred and the earning of exempt income. incurred and the earning of exempt income.

6.13 With regard to the disallowance of travelling expenses, the egard to the disallowance of travelling expenses, the egard to the disallowance of travelling expenses, the Learned Counsel submitted that such expenses were incurred by Learned Counsel submitted that such expenses were incurred by Learned Counsel submitted that such expenses were incurred by the top management of the company in the ordinary course of its the top management of the company in the ordinary course of its the top management of the company in the ordinary course of its business, including attending meetings with prospective investee business, including attending meetings with prospective investee business, including attending meetings with prospective investee companies and financiers, participating in seminars, gatherings, nd financiers, participating in seminars, gatherings, nd financiers, participating in seminars, gatherings, and conventions, and rendering management and advisory services. and conventions, and rendering management and advisory services. and conventions, and rendering management and advisory services. It was further explained that foreign travel undertaken by senior It was further explained that foreign travel undertaken by senior It was further explained that foreign travel undertaken by senior management personnel was aimed at studying global market management personnel was aimed at studying global market management personnel was aimed at studying global market trends, exploring new business opportunities, and understanding ing new business opportunities, and understanding ing new business opportunities, and understanding investor requirements. investor requirements.

6.14 As regards rent, it was submitted that the same pertained to As regards rent, it was submitted that the same pertained to As regards rent, it was submitted that the same pertained to properties taken on lease for business purposes, including the properties taken on lease for business purposes, including the properties taken on lease for business purposes, including the company’s company’s U.K. U.K. office office-cum-transit transit house, house, and and that that the the corresponding repairs and maintenance expenses were incidental to corresponding repairs and maintenance expenses were incidental to corresponding repairs and maintenance expenses were incidental to such rented premises, being incurred for their proper upkeep and such rented premises, being incurred for their proper upkeep and such rented premises, being incurred for their proper upkeep and maintenance.

6.15 The Learned Counsel pointed out that in the assessment year The Learned Counsel pointed out that in the assessment year The Learned Counsel pointed out that in the assessment year 2010–11, in in disallowance disallowance had been made only under Rule 8D(2) only under Rule 8D(2)(ii) and 8D(2)(iii), and not under sub (iii), and not under sub-rule (i) . Further, placing reliance on the decision of the Hon’ble Special Further, placing reliance on the decision of the Hon’ble Special Further, placing reliance on the decision of the Hon’ble Special Bench of the Tribunal in Bench of the Tribunal in ACIT v. Vireet Investment (P) Ltd. ACIT v. Vireet Investment (P) Ltd. [(2017) 82

Asia Investments Pvt. Ltd 15 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 taxmann.com 415 (Delhi) (SB)], it w taxmann.com 415 (Delhi) (SB)], it was submitted that while as submitted that while computing the disallowance under Rule 8D(2)(ii) and Rule 8D(2)(iii), computing the disallowance under Rule 8D(2)(ii) and Rule 8D(2)(iii), computing the disallowance under Rule 8D(2)(ii) and Rule 8D(2)(iii), only those investments which have actually yielded exempt income only those investments which have actually yielded exempt income only those investments which have actually yielded exempt income during the relevant year should be taken into consideration. during the relevant year should be taken into consideration. during the relevant year should be taken into consideration.

6.16 The Learned Counsel further sub The Learned Counsel further submitted that the Coordinate mitted that the Coordinate Bench of the Tribunal, in the assessee’s own case for the Bench of the Tribunal, in the assessee’s own case for the Bench of the Tribunal, in the assessee’s own case for the assessment year 2010 assessment year 2010–11, had accepted this contention and 11, had accepted this contention and following the finding of ACIT Vs Vireet Investments (P) Ltd (2017) 58 following the finding of ACIT Vs Vireet Investments (P) Ltd (2017) 58 following the finding of ACIT Vs Vireet Investments (P) Ltd (2017) 58 the disallowance to ITR(T) 313 (Delhi-Trib)(SB) directed to re Trib)(SB) directed to restrict the disallowance to the average value of investments which had actually yielded exempt the average value of investments which had actually yielded exempt the average value of investments which had actually yielded exempt income during the year. income during the year.

Asia Investments Pvt. Ltd 16 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 8.1 It is well settled that section 14A of the Act mandates the It is well settled that section 14A of the Act mandates the It is well settled that section 14A of the Act mandates the disallowance of expenditure incurred in relation to earning income disallowance of expenditure incurred in relation to earning income disallowance of expenditure incurred in relation to earning income which does not form part of the total income. Whe which does not form part of the total income. Where common books re common books of account are maintained for taxable as well as exempt activities, of account are maintained for taxable as well as exempt activities, of account are maintained for taxable as well as exempt activities, the Assessing Officer must examine the correctness of the suo-motu the Assessing Officer must examine the correctness of the suo the Assessing Officer must examine the correctness of the suo disallowance made by the assessee, having regard to the accounts disallowance made by the assessee, having regard to the accounts disallowance made by the assessee, having regard to the accounts maintained. Only upon being unsatisfied maintained. Only upon being unsatisfied with the correctness of with the correctness of such claim, is he empowered, under section 14A(2), to resort to the such claim, is he empowered, under section 14A(2), to resort to the such claim, is he empowered, under section 14A(2), to resort to the computational mechanism prescribed under Rule 8D. computational mechanism prescribed under Rule 8D. computational mechanism prescribed under Rule 8D.

8.2 At the threshold, the assessee has raised a fundamental At the threshold, the assessee has raised a fundamental At the threshold, the assessee has raised a fundamental submission that the recording of satisfaction or submission that the recording of satisfaction or dissatisfaction by dissatisfaction by the Assessing Officer, as contemplated under section 14A(2), is a the Assessing Officer, as contemplated under section 14A(2), is a the Assessing Officer, as contemplated under section 14A(2), is a mandatory precondition for the application of Rule 8D. It is urged mandatory precondition for the application of Rule 8D. It is urged mandatory precondition for the application of Rule 8D. It is urged that, in the present case, the Assessing Officer has not recorded any that, in the present case, the Assessing Officer has not recorded any that, in the present case, the Assessing Officer has not recorded any such satisfaction before invoking such satisfaction before invoking Rule 8D. For ready reference, Rule 8D. For ready reference, paragraph 8 of the assessment order is reproduced hereunder: paragraph 8 of the assessment order is reproduced hereunder: paragraph 8 of the assessment order is reproduced hereunder:

8. Disallowance u/s.14A 8. Disallowance u/s.14A 8.1. During the year, the assessee has claimed dividend income of 8.1. During the year, the assessee has claimed dividend income of 8.1. During the year, the assessee has claimed dividend income of *33,64,56,517/ *33,64,56,517/-. The assessee has suo-moto disallowed an amount moto disallowed an amount of ₹10,53,55,857/ 5,857/- as disallowance u/s 14A r.w.r. 8D. During the as disallowance u/s 14A r.w.r. 8D. During the A.Y. 2011-12, the same issue was examined and various expenses, 12, the same issue was examined and various expenses, 12, the same issue was examined and various expenses, directly attributable to earning exempt income were added. Since directly attributable to earning exempt income were added. Since directly attributable to earning exempt income were added. Since there is no change in the facts of the case and the assessee has not there is no change in the facts of the case and the assessee has not there is no change in the facts of the case and the assessee has not been able to provide any satisfactory explanation for not making able to provide any satisfactory explanation for not making able to provide any satisfactory explanation for not making similar disallowance this year, the disallowance u/s 14A r.w.r. 8D similar disallowance this year, the disallowance u/s 14A r.w.r. 8D similar disallowance this year, the disallowance u/s 14A r.w.r. 8D is made, following the manner in which it was made in A.Y. 2011 is made, following the manner in which it was made in A.Y. 2011 is made, following the manner in which it was made in A.Y. 2011- 12.

Asia Investments Pvt. Ltd 17 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 8.3 We have given our anxious consideration to the above We have given our anxious consideration to the above We have given our anxious consideration to the above extract and the assessment order in its entirety. We find that the Assessing and the assessment order in its entirety. We find that the Assessing and the assessment order in its entirety. We find that the Assessing Officer has neither recorded any express dissatisfaction nor can any Officer has neither recorded any express dissatisfaction nor can any Officer has neither recorded any express dissatisfaction nor can any implied implied implied dissatisfaction dissatisfaction dissatisfaction be be be reasonably reasonably reasonably inferred, inferred, inferred, save save save for for for a a a mechanical reliance on the order of his predecessor for an earlier mechanical reliance on the order of his predecessor mechanical reliance on the order of his predecessor assessment year. The statutory requirement under section 14A(2) is assessment year. The statutory requirement under section 14A(2) is assessment year. The statutory requirement under section 14A(2) is unequivocal: the Assessing Officer must record, having regard to unequivocal: the Assessing Officer must record, having regard to unequivocal: the Assessing Officer must record, having regard to the accounts, why he considers the assessee’s claim to be incorrect. the accounts, why he considers the assessee’s claim to be incorrect. the accounts, why he considers the assessee’s claim to be incorrect. Such satisfaction is the sine qua non f Such satisfaction is the sine qua non for triggering the machinery or triggering the machinery provisions of Rule 8D. The omission to discharge this mandatory provisions of Rule 8D. The omission to discharge this mandatory provisions of Rule 8D. The omission to discharge this mandatory jurisdictional requirement renders the application of Rule 8D legally jurisdictional requirement renders the application of Rule 8D legally jurisdictional requirement renders the application of Rule 8D legally untenable. It is also pertinent to note that the Assessing Officer has untenable. It is also pertinent to note that the Assessing Officer has untenable. It is also pertinent to note that the Assessing Officer has not even adverted to, n not even adverted to, nor analysed, the break-up or nature of the up or nature of the suo-motu disallowance offered by the assessee. In view of the above, motu disallowance offered by the assessee. In view of the above, motu disallowance offered by the assessee. In view of the above, we hold that the disallowance made by the Assessing Officer under we hold that the disallowance made by the Assessing Officer under we hold that the disallowance made by the Assessing Officer under Rule 8D suffers from a fundamental jurisdictional infirmity and is, Rule 8D suffers from a fundamental jurisdictional infirmity and is, Rule 8D suffers from a fundamental jurisdictional infirmity and is, therefore, unsustainable in law. We accordingly direct the deletion unsustainable in law. We accordingly direct the deletion unsustainable in law. We accordingly direct the deletion of the disallowance computed under Rule 8D. The suo-motu of the disallowance computed under Rule 8D. The suo of the disallowance computed under Rule 8D. The suo disallowance offered by the assessee stands accepted. disallowance offered by the assessee stands accepted. disallowance offered by the assessee stands accepted.

The learned counsel for the assessee has further advanced, 9. The learned counsel for the assessee has further advanced, The learned counsel for the assessee has further advanced, without prejudice, an alt without prejudice, an alternative line of submissions on the merits ernative line of submissions on the merits of the disallowance made under section 14A of the Act. It is noted of the disallowance made under section 14A of the Act. It is noted of the disallowance made under section 14A of the Act. It is noted that while invoking Rule 8D, the Assessing Officer first proceeded to that while invoking Rule 8D, the Assessing Officer first proceeded to that while invoking Rule 8D, the Assessing Officer first proceeded to compute the disallowance under Rule 8D(2)(i). He segregated compute the disallowance under Rule 8D(2)(i). He segregated compute the disallowance under Rule 8D(2)(i). He segregated

Asia Investments Pvt. Ltd 18 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 ture of ₹10,99,16,196/– pertaining to loans interest expenditure of pertaining to loans obtained from Tata Capital Ltd., characterising the same as obtained from Tata Capital Ltd., characterising the same as obtained from Tata Capital Ltd., characterising the same as expenditure directly relatable to the earning of exempt income, and expenditure directly relatable to the earning of exempt income, and expenditure directly relatable to the earning of exempt income, and accordingly disallowed it under Rule 8D(2)(i). Thereafter, he accordingly disallowed it under Rule 8D(2)(i). Thereafter, he accordingly disallowed it under Rule 8D(2)(i). Thereafter, he examined other expendi examined other expenditure debited to the profit and loss account ture debited to the profit and loss account and, relying solely upon the manner in which disallowance had and, relying solely upon the manner in which disallowance had and, relying solely upon the manner in which disallowance had been made in assessment year 2011 been made in assessment year 2011–12, held that part of such 12, held that part of such expenditure was directly connected with the earning of exempt expenditure was directly connected with the earning of exempt expenditure was directly connected with the earning of exempt dividend income and again p dividend income and again proceeded to disallow a portion thereof roceeded to disallow a portion thereof under Rule 8D(2)(i).

9.1 The ld counsel for the assessee submitted that The ld counsel for the assessee submitted that The ld counsel for the assessee submitted that the Assessing Officer has neither demonstrated nor established any proximate Officer has neither demonstrated nor established any proximate Officer has neither demonstrated nor established any proximate nexus between the said expenditure and the earning of exempt nexus between the said expenditure and the earning of exempt nexus between the said expenditure and the earning of exempt income. No objective basis or reasoning has been furnished to . No objective basis or reasoning has been furnished to . No objective basis or reasoning has been furnished to indicate how such expenditure could be said to be directly relatable indicate how such expenditure could be said to be directly relatable indicate how such expenditure could be said to be directly relatable to exempt income, nor is any rational method discernible behind to exempt income, nor is any rational method discernible behind to exempt income, nor is any rational method discernible behind the quantification of the disallowance, which appears to have been the quantification of the disallowance, which appears to have been the quantification of the disallowance, which appears to have been made on an ad hoc and presumptive basis. The Assessing Officer’s made on an ad hoc and presumptive basis. The Assessing Officer’s made on an ad hoc and presumptive basis. The Assessing Officer’s sole premise, carried over mechanically from assessment year sole premise, carried over mechanically from assessment year sole premise, carried over mechanically from assessment year 2011–12, appears to be his conclusion that the activity of making 12, appears to be his conclusion that the activity of making 12, appears to be his conclusion that the activity of making investments in subsidiaries does not constitute a business activity investments in subsidiaries does not constitute a business activ investments in subsidiaries does not constitute a business activ of the assessee, and that since income from the sale of investments of the assessee, and that since income from the sale of investments of the assessee, and that since income from the sale of investments is not declared as business income, the expenditure claimed in the is not declared as business income, the expenditure claimed in the is not declared as business income, the expenditure claimed in the profit and loss account is predominantly relatable to the earning of profit and loss account is predominantly relatable to the earning of profit and loss account is predominantly relatable to the earning of Asia Investments Pvt. Ltd 19 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 exempt income. Such a conclusion, bereft of fact exempt income. Such a conclusion, bereft of factual examination ual examination and unaccompanied by statutory satisfaction as required under and unaccompanied by statutory satisfaction as required under and unaccompanied by statutory satisfaction as required under section 14A(2), cannot by itself justify a disallowance under Rule section 14A(2), cannot by itself justify a disallowance under Rule section 14A(2), cannot by itself justify a disallowance under Rule 8D(2)(i).

9.2 In the backdrop of the foregoing, and without prejudice to our In the backdrop of the foregoing, and without prejudice to our In the backdrop of the foregoing, and without prejudice to our principal finding that, in the abs principal finding that, in the absence of any satisfaction recorded ence of any satisfaction recorded under section 14A(2), the invocation of Rule 8D itself is vitiated, we under section 14A(2), the invocation of Rule 8D itself is vitiated, we under section 14A(2), the invocation of Rule 8D itself is vitiated, we consider it appropriate to analyse the matter on first principles. The consider it appropriate to analyse the matter on first principles. The consider it appropriate to analyse the matter on first principles. The motu disallowance comprises assessee has explained that the suo assessee has explained that the suo-motu disallowance comprises disallowance disallowance of of proportionate proportionate interest interest expenditure expenditure of of ₹9,46,16,662/– in terms of Rule 8D(2)(ii), computed on the ratio of in terms of Rule 8D(2)(ii), computed on the ratio of in terms of Rule 8D(2)(ii), computed on the ratio of investments yielding exempt income to total assets, and a further investments yielding exempt income to total assets, and a further investments yielding exempt income to total assets, and a further sum of ₹1,07,39,195/ 1,07,39,195/– under Rule 8D(2)(iii), being 0.5% of the under Rule 8D(2)(iii), being 0.5% of the average value of investments which yielded exempt income. stments which yielded exempt income. stments which yielded exempt income.

9.3 It is a settled principle, as enunciated by the Hon’ble Supreme It is a settled principle, as enunciated by the Hon’ble Supreme It is a settled principle, as enunciated by the Hon’ble Supreme Court in Maxopp Investment Ltd. v. CIT Maxopp Investment Ltd. v. CIT [(2018) 91 taxmann.com [(2018) 91 taxmann.com 154 (SC)], that where an assessee is engaged in a composite activity 154 (SC)], that where an assessee is engaged in a composite activity 154 (SC)], that where an assessee is engaged in a composite activity which yields both taxable and exempt income, the expenditure which yields both taxable and exempt income, the expenditure which yields both taxable and exempt income, the expenditure incurred cannot be wholly attributed to either activity. A incurred cannot be wholly attributed to either activity. A incurred cannot be wholly attributed to either activity. A proportionate apportionment is required, ha proportionate apportionment is required, having regard to the ving regard to the proximate connection of the expenditure with the respective proximate connection of the expenditure with the respective proximate connection of the expenditure with the respective streams of income. The Supreme Court has held that even in cases streams of income. The Supreme Court has held that even in cases streams of income. The Supreme Court has held that even in cases where investment activity is interwoven with or incidental to the where investment activity is interwoven with or incidental to the where investment activity is interwoven with or incidental to the Asia Investments Pvt. Ltd 20 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 business activity, only that portion of expend business activity, only that portion of expenditure which bears a iture which bears a proximate nexus to the earning of exempt income can be disallowed proximate nexus to the earning of exempt income can be disallowed proximate nexus to the earning of exempt income can be disallowed under section 14A of the Act. under section 14A of the Act.

9.4 Thus, applying the principle laid down in Thus, applying the principle laid down in Maxopp Investment Maxopp Investment Ltd. (supra), even if Rule 8D were to be validly invoked, only the (supra), even if Rule 8D were to be validly invoked, only the (supra), even if Rule 8D were to be validly invoked, only the expenditure relatable to the earning of exempt income ure relatable to the earning of exempt income—determined ure relatable to the earning of exempt income on a rational and proportionate basis on a rational and proportionate basis—could be subjected to could be subjected to disallowance. The suo disallowance. The suo-motu disallowance computed by the assessee motu disallowance computed by the assessee appears to be consistent with this principle, whereas the appears to be consistent with this principle, whereas the appears to be consistent with this principle, whereas the disallowance made by the Assessing Officer lacks both statutory e by the Assessing Officer lacks both statutory e by the Assessing Officer lacks both statutory foundation and factual justification. foundation and factual justification.

9.5 The Coordinate Bench of the Tribunal, in the assessee’s own The Coordinate Bench of the Tribunal, in the assessee’s own The Coordinate Bench of the Tribunal, in the assessee’s own case for the assessment year 2011 case for the assessment year 2011–12 in 12 in has referred to the aforesaid principle of a the aforesaid principle of apportionment as pportionment as enunciated by the Hon’ble Supreme Court in enunciated by the Hon’ble Supreme Court in Maxopp Investment Maxopp Investment (supra). The relevant finding (supra). The relevant finding of the Tribunal (supra), is reproduced of the Tribunal (supra), is reproduced below for ready reference below for ready reference:

“6.3.1. The question that fell for consideration before Hon'ble 6.3.1. The question that fell for consideration before Hon'ble 6.3.1. The question that fell for consideration before Hon'ble Supreme Court in th Supreme Court in the case of Maxopp Investment Ltd. v. CIT(supra) e case of Maxopp Investment Ltd. v. CIT(supra) were on two factual background wherein, the question of were on two factual background wherein, the question of were on two factual background wherein, the question of apportionment of expenditure had arisen and predominant intent of apportionment of expenditure had arisen and predominant intent of apportionment of expenditure had arisen and predominant intent of investment in shares was pleaded, though on different facts, on the investment in shares was pleaded, though on different facts, on the investment in shares was pleaded, though on different facts, on the ground that the obj ground that the objective of investing in shares was not to the ective of investing in shares was not to the dividend income, but to either retain controlling interest over the dividend income, but to either retain controlling interest over the dividend income, but to either retain controlling interest over the company in which the investment was made or to earn the profit company in which the investment was made or to earn the profit company in which the investment was made or to earn the profit from trading in shares. The question was whether the disallowance from trading in shares. The question was whether the disallowance from trading in shares. The question was whether the disallowance under section under section 14 A of the Act could be invoked in the cases where 14 A of the Act could be invoked in the cases where

Asia Investments Pvt. Ltd 21 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 exempt income was earned from shares held as "trading assets" or exempt income was earned from shares held as "trading assets" or exempt income was earned from shares held as "trading assets" or "stock in trade". "stock in trade". 6.3.2. The first set of facts relates to Maxopp Investment Ltd and the 6.3.2. The first set of facts relates to Maxopp Investment Ltd and the 6.3.2. The first set of facts relates to Maxopp Investment Ltd and the second set of facts relates to the State Bank of second set of facts relates to the State Bank of Patiala. In the case Patiala. In the case of Maxopp investment Ltd, the assessee therein was in the business of Maxopp investment Ltd, the assessee therein was in the business of Maxopp investment Ltd, the assessee therein was in the business of finance, investment and was dealing in shares and securities of finance, investment and was dealing in shares and securities of finance, investment and was dealing in shares and securities and that they held the shares and securities, partly as investments and that they held the shares and securities, partly as investments and that they held the shares and securities, partly as investments on the "capital account" and partly on the "capital account" and partly as "trading assets" for the as "trading assets" for the purpose of acquiring and retaining control over its group companies, purpose of acquiring and retaining control over its group companies, purpose of acquiring and retaining control over its group companies, primarily Max India Ltd. Hon'ble Court noted that the profits primarily Max India Ltd. Hon'ble Court noted that the profits primarily Max India Ltd. Hon'ble Court noted that the profits resulting on the sale of shares held as "trading assets" were duly resulting on the sale of shares held as "trading assets" were duly resulting on the sale of shares held as "trading assets" were duly offered to tax as business inc offered to tax as business income of the assessee. 6.3.3. In the case of State Bank of Patiala the assessee therein 6.3.3. In the case of State Bank of Patiala the assessee therein 6.3.3. In the case of State Bank of Patiala the assessee therein earned exempt income in the form of dividend was from securities earned exempt income in the form of dividend was from securities earned exempt income in the form of dividend was from securities held as an stock in trade. held as an stock in trade. 6.4. Hon'ble Supreme Court had considered almost identical issue 6.4. Hon'ble Supreme Court had considered almost identical issue 6.4. Hon'ble Supreme Court had considered almost identical issue as is in the as is in the present facts of the assessee, that where, the present facts of the assessee, that where, the shares/stocks were purchased of a company for the purpose of shares/stocks were purchased of a company for the purpose of shares/stocks were purchased of a company for the purpose of gaining control over the said company or as "stock in trade", though gaining control over the said company or as "stock in trade", though gaining control over the said company or as "stock in trade", though incidentally income is also generated in the form of dividends as incidentally income is also generated in the form of dividends as incidentally income is also generated in the form of dividends as well. It was well. It was argued before the Hon'ble Court that, though argued before the Hon'ble Court that, though incidentally income was also generated in the form of dividends, the incidentally income was also generated in the form of dividends, the incidentally income was also generated in the form of dividends, the dominant intention for purchasing the shares was not to earn the dominant intention for purchasing the shares was not to earn the dominant intention for purchasing the shares was not to earn the dividend income but to acquire and retain the controlling the dividend income but to acquire and retain the controlling the dividend income but to acquire and retain the controlling the business in the business in the company in which shares were invested, or for the company in which shares were invested, or for the purpose of trading in the shares as business activity. purpose of trading in the shares as business activity. 6.4.1. After considering the entire case law on this aspect in the 6.4.1. After considering the entire case law on this aspect in the 6.4.1. After considering the entire case law on this aspect in the light of the facts involved in both the facts, Hon'ble Court vide light of the facts involved in both the facts, Hon'ble Court vide light of the facts involved in both the facts, Hon'ble Court vide paragraph nos. 39 paragraph nos. 39-40 held as under: "(39) In those cases, where shares are held as stock "(39) In those cases, where shares are held as stock "(39) In those cases, where shares are held as stock-in-trade, the main purpose is to trade in those shares and earn profits therefrom. main purpose is to trade in those shares and earn profits therefrom. main purpose is to trade in those shares and earn profits therefrom. However, we are not concerned with those profits which would However, we are not concerned with those profits which would However, we are not concerned with those profits which would naturally be treated as 'income' under t naturally be treated as 'income' under the head 'profits and gains he head 'profits and gains from business and profession'. What happens is that, in the from business and profession'. What happens is that, in the from business and profession'. What happens is that, in the process, when the shares are held as 'stock process, when the shares are held as 'stock-in- trade', certain trade', certain dividend is also earned, though incidentally, which is also an dividend is also earned, though incidentally, which is also an dividend is also earned, though incidentally, which is also an income. However, by virtue of Section 10(3 income. However, by virtue of Section 10(34) of the Act, this 4) of the Act, this dividend income is not to be included in the total income and is dividend income is not to be included in the total income and is dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of Section 14A of the exempt from tax. This triggers the applicability of Section 14A of the exempt from tax. This triggers the applicability of Section 14A of the Act which is based on the theory of apportionment of expenditure Act which is based on the theory of apportionment of expenditure Act which is based on the theory of apportionment of expenditure between taxable and non between taxable and non-taxable income as held in Walfort Share ome as held in Walfort Share and Stock Brokers P Ltd. case. Therefore, to that extent, depending and Stock Brokers P Ltd. case. Therefore, to that extent, depending and Stock Brokers P Ltd. case. Therefore, to that extent, depending

Asia Investments Pvt. Ltd 22 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 upon the facts of each case, the expenditure incurred in acquiring upon the facts of each case, the expenditure incurred in acquiring upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned. those shares will have to be apportioned. (40) We note from the facts in the State Bank of P (40) We note from the facts in the State Bank of Patiala cases that atiala cases that the AO, while passing the assessment order, had already restricted the AO, while passing the assessment order, had already restricted the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt the disallowance to the amount which was claimed as exempt the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules income by applying the formula contained in Rule 8D of the Rules income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would b and holding that section 14A of the Act would be applicable. In spite e applicable. In spite of this exercise of apportionment of expenditure carried out by the of this exercise of apportionment of expenditure carried out by the of this exercise of apportionment of expenditure carried out by the AO, CIT (A) disallowed the entire deduction of expenditure. That AO, CIT (A) disallowed the entire deduction of expenditure. That AO, CIT (A) disallowed the entire deduction of expenditure. That view of the CIT (A) was clearly untenable and rightly set aside by view of the CIT (A) was clearly untenable and rightly set aside by view of the CIT (A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, th the ITAT. Therefore, on facts, the Punjab and Haryana High Court e Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, has arrived at a correct conclusion by affirming the view of the ITAT, has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention though we are not subscribing to the theory of dominant intention though we are not subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those applied by the High Court. It is to be kept in mind that in those applied by the High Court. It is to be kept in mind that in those cases where shares ar cases where shares are held as 'stock-in-trade', it becomes a trade', it becomes a business activity of the assessee to deal in those shares as a business activity of the assessee to deal in those shares as a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes business proposition. Whether dividend is earned or not becomes business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the immaterial. In fact, it would be a quirk of fate that when the immaterial. In fact, it would be a quirk of fate that when the investee company declared investee company declared dividend, those shares are held by the dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares assessee, though the assessee has to ultimately trade those shares assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, by selling them to earn profits. The situation here is, therefore, by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the different from the case like Maxopp Investment Ltd. where the different from the case like Maxopp Investment Ltd. where the assessee would conti assessee would continue to hold those shares as it wants to retain nue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend control over the investee company. In that case, whenever dividend control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be is declared by the investee company that would necessarily be is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at earned by the assessee and the assessee alone. Therefore, even at earned by the assessee and the assessee alone. Therefore, even at the time of in the time of investing into those shares, the assessee knows that it vesting into those shares, the assessee knows that it may generate dividend income as well and as and when such may generate dividend income as well and as and when such may generate dividend income as well and as and when such dividend income is generated that would be earned by the dividend income is generated that would be earned by the dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock assessee. In contrast, where the shares are held as stock assessee. In contrast, where the shares are held as stock-in-trade, this may not be nec this may not be necessarily a situation. The main purpose is to essarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to liquidate those shares whenever the share price goes up in order to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue earn profits. In the result, the appeals filed by the Revenue earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in challenging the judgment of the Punjab and Haryana High Court in challenging the judgment of the Punjab and Haryana High Court in State Bank of Pa State Bank of Patiala also fail, though law in this respect has been tiala also fail, though law in this respect has been clarified hereinabove." clarified hereinabove." (emphasis supplied) (emphasis supplied) 6.4.2. The view of Hon'ble Court is very clear from para 40 above 6.4.2. The view of Hon'ble Court is very clear from para 40 above 6.4.2. The view of Hon'ble Court is very clear from para 40 above that dominant intention is not important for the purposes of that dominant intention is not important for the purposes of that dominant intention is not important for the purposes of computing disallowance under section 14A. As the assessee has computing disallowance under section 14A. As the assessee has computing disallowance under section 14A. As the assessee has acquired the shares in the group companies and has held it as acquired the shares in the group companies and has held it as acquired the shares in the group companies and has held it as investment, whatever may be the dominant purpose, disallowance investment, whatever may be the dominant purpose, disallowance investment, whatever may be the dominant purpose, disallowance under section 14A r.w.Rule 8D is mandatory, if the assessee earns ction 14A r.w.Rule 8D is mandatory, if the assessee earns ction 14A r.w.Rule 8D is mandatory, if the assessee earns dividend from such investments. Respectfully following the view dividend from such investments. Respectfully following the view dividend from such investments. Respectfully following the view

Asia Investments Pvt. Ltd 23 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 expressed by Hon'ble Supreme Court in case of Maxopp Investment expressed by Hon'ble Supreme Court in case of Maxopp Investment expressed by Hon'ble Supreme Court in case of Maxopp Investment Ltd. v. CIT(supra), we hold that the dominant purpose for making Ltd. v. CIT(supra), we hold that the dominant purpose for making Ltd. v. CIT(supra), we hold that the dominant purpose for making investment in shares is not important criteria, even though the tment in shares is not important criteria, even though the tment in shares is not important criteria, even though the assessee has acquired shares for having controlling interest in the assessee has acquired shares for having controlling interest in the assessee has acquired shares for having controlling interest in the group companies. group companies. Accordingly Accordingly Accordingly Ground Ground Ground No.2 No.2 No.2 raised raised raised by by by the the the assessee assessee assessee stands dismissed. dismissed.” 9.6 Though the Tribunal Though the Tribunal in AY 2011-12 has reje has rejected the contention that no disallowance is warranted on the ground that contention that no disallowance is warranted on the ground that contention that no disallowance is warranted on the ground that the dominant purpose of the investment was strategic, it the dominant purpose of the investment was strategic, it the dominant purpose of the investment was strategic, it nevertheless accepted accepted the theory of apportionment.

9.7 We observe that, in the facts before us, the assessee is We observe that, in the facts before us, the assessee is We observe that, in the facts before us, the assessee is admittedly engaged in the business of making and managing gaged in the business of making and managing gaged in the business of making and managing investments in its subsidiary companies, and that the dividend investments in its subsidiary companies, and that the dividend investments in its subsidiary companies, and that the dividend income has arisen only as an incidental outcome of such business income has arisen only as an incidental outcome of such business income has arisen only as an incidental outcome of such business activity. In these circumstances, the disallowance worked out by the activity. In these circumstances, the disallowance worked out by the activity. In these circumstances, the disallowance worked out by the Assessing Officer under section 14A of the Act, read with Rule 8D of cer under section 14A of the Act, read with Rule 8D of cer under section 14A of the Act, read with Rule 8D of the Rules, cannot be applied in a mechanical or undifferentiated the Rules, cannot be applied in a mechanical or undifferentiated the Rules, cannot be applied in a mechanical or undifferentiated manner.

9.8 It is incumbent upon the Assessing Officer to undertake a It is incumbent upon the Assessing Officer to undertake a It is incumbent upon the Assessing Officer to undertake a rational apportionment of the expenditure between taxable and rational apportionment of the expenditure between taxable and rational apportionment of the expenditure between taxable and non-taxable streams of income arising from the investment activity, taxable streams of income arising from the investment activity, taxable streams of income arising from the investment activity, and to identify with precision that part of the expenditure which is and to identify with precision that part of the expenditure which is and to identify with precision that part of the expenditure which is actually relatable to earning the exempt income. Only such actually relatable to earning the exempt income. Only such actually relatable to earning the exempt income. Only such expenditure, demonstrably connected with the exempt income, can expenditure, demonstrably connected with the exempt income, can expenditure, demonstrably connected with the exempt income, can lawfully be disallowed. The balance, being attributable to the lawfully be disallowed. The balance, being attributable to the lawfully be disallowed. The balance, being attributable to the Asia Investments Pvt. Ltd 24 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 assessee’s taxable business operations, must remain outside the assessee’s taxable business operations, must remain outside the assessee’s taxable business operations, must remain outside the purview of disallowance under section 14A. purview of disallowance under section 14A.

9.9 We further note that the Coordinate Bench of the Tribunal, in We further note that the Coordinate Bench of the Tribunal, in We further note that the Coordinate Bench of the Tribunal, in the assessee’s own case for assessment year 2011 the assessee’s own case for assessment year 2011–12, at paragraph 12, at paragraph 7.5 of its order, held that the interest expenditure of ₹10,99,16,196 7.5 of its order, held that the interest expenditure of 7.5 of its order, held that the interest expenditure of paid to Tata Capital Ltd. could not be brought within the ambit of paid to Tata Capital Ltd. could not be brought within the paid to Tata Capital Ltd. could not be brought within the Rule 8D(2)(i) of the Rules. The relevant observation of the Tribunal Rule 8D(2)(i) of the Rules. The relevant observation of the Tribunal Rule 8D(2)(i) of the Rules. The relevant observation of the Tribunal reads as under:

“7.5. It is noted that, Ld.AO disallowed interest expenses 7.5. It is noted that, Ld.AO disallowed interest expenses 7.5. It is noted that, Ld.AO disallowed interest expenses amounting to Rs.6,89,82,540/ amounting to Rs.6,89,82,540/-. In our view interest component . In our view interest component cannot be considered for disallowance un cannot be considered for disallowance under Rule 8D(2)(i). der Rule 8D(2)(i). Accordingly Accordingly Accordingly we we we direct direct direct the the the same same same to to to be be be deleted deleted deleted from from from Rule 8(D)(2)(i). 8(D)(2)(i).” 9.10 With respect, we are unable to subscribe to the aforesaid With respect, we are unable to subscribe to the aforesaid With respect, we are unable to subscribe to the aforesaid conclusion. The Tribunal proceeded on the premise that interest conclusion. The Tribunal proceeded on the premise that interest conclusion. The Tribunal proceeded on the premise that interest expenditure is amenable only to disallowan expenditure is amenable only to disallowance under Rule 8D(2)(ii). ce under Rule 8D(2)(ii). In our considered opinion, such a proposition does not accord with In our considered opinion, such a proposition does not accord with In our considered opinion, such a proposition does not accord with the statutory scheme. Rule 8D(2) clearly delineates two distinct the statutory scheme. Rule 8D(2) clearly delineates two distinct the statutory scheme. Rule 8D(2) clearly delineates two distinct categories of expenditure: categories of expenditure:

(i) direct expenditure direct expenditure, including direct interest expenditure, , including direct interest expenditure, incurred for the purpose of earning exempt income, which must be for the purpose of earning exempt income, which must be for the purpose of earning exempt income, which must be disallowed in full under sub disallowed in full under sub-rule (i); and Asia Investments Pvt. Ltd 25 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 (ii) indirect interest expenditure indirect interest expenditure, being interest that cannot be , being interest that cannot be specifically identified or segregated as relating either to taxable specifically identified or segregated as relating either to taxable specifically identified or segregated as relating either to taxable business activities or business activities or to investment activities yielding exempt to investment activities yielding exempt income, which is to be apportioned proportionately under sub-rule income, which is to be apportioned proportionately under sub income, which is to be apportioned proportionately under sub (ii).

9.11 Thus, where interest expenditure is demonstrably and directly Thus, where interest expenditure is demonstrably and directly Thus, where interest expenditure is demonstrably and directly incurred for the purpose of making investments that have yielded incurred for the purpose of making investments that have yielded incurred for the purpose of making investments that have yielded exempt income, the disallowance must appropriately fall under Rule me, the disallowance must appropriately fall under Rule me, the disallowance must appropriately fall under Rule 8D(2)(i), and not under the apportionment mechanism of Rule 8D(2)(i), and not under the apportionment mechanism of Rule 8D(2)(i), and not under the apportionment mechanism of Rule 8D(2)(ii). To this extent, we find merit in the approach adopted by 8D(2)(ii). To this extent, we find merit in the approach adopted by 8D(2)(ii). To this extent, we find merit in the approach adopted by the Assessing Officer and upheld by the Ld. CIT(A). the Assessing Officer and upheld by the Ld. CIT(A).

9.12 However, in det However, in determining the quantum of disallowance, the ermining the quantum of disallowance, the authority must remain guided by the ratio laid down by the Hon’ble authority must remain guided by the ratio laid down by the Hon’ble authority must remain guided by the ratio laid down by the Hon’ble Supreme Court in Maxopp Investment Ltd. Maxopp Investment Ltd. (supra), which mandates (supra), which mandates a principled and reasonable apportionment so as to disallow only a principled and reasonable apportionment so as to disallow only a principled and reasonable apportionment so as to disallow only such expenditure as bears a proximate nexus with the earning of s bears a proximate nexus with the earning of s bears a proximate nexus with the earning of exempt income. Accordingly, while sustaining the finding that exempt income. Accordingly, while sustaining the finding that exempt income. Accordingly, while sustaining the finding that interest on the loan obtained from Tata Capital Ltd. is liable for interest on the loan obtained from Tata Capital Ltd. is liable for interest on the loan obtained from Tata Capital Ltd. is liable for disallowance under Rule 8D, we direct that the amount be disallowance under Rule 8D, we direct that the amount be disallowance under Rule 8D, we direct that the amount be restricted in accordance restricted in accordance with the apportionment principles with the apportionment principles enunciated by the Hon’ble Supreme Court therein. enunciated by the Hon’ble Supreme Court therein.

9.13 We note, at the outset, that for assessment year 2011 We note, at the outset, that for assessment year 2011 We note, at the outset, that for assessment year 2011–12, the Coordinate Bench had rejected the assessee’s plea for exclusion of Coordinate Bench had rejected the assessee’s plea for exclusion of Coordinate Bench had rejected the assessee’s plea for exclusion of Asia Investments Pvt. Ltd 26 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 various items of expenditure which wer various items of expenditure which were treated by the Assessing e treated by the Assessing Officer as direct expenses for the purpose of disallowance under Officer as direct expenses for the purpose of disallowance under Officer as direct expenses for the purpose of disallowance under Rule 8D(2)(i). The Ld. CIT(A), in the year presently under Rule 8D(2)(i). The Ld. CIT(A), in the year presently under Rule 8D(2)(i). The Ld. CIT(A), in the year presently under consideration, has merely followed this earlier view. The relevant consideration, has merely followed this earlier view. The relevant consideration, has merely followed this earlier view. The relevant extract from the Tribunal’s order read extract from the Tribunal’s order reads as under:

“7.6.2. On analysis of the P & L A/c. regarding the personal 7.6.2. On analysis of the P & L A/c. regarding the personal 7.6.2. On analysis of the P & L A/c. regarding the personal expenses, it is noted that under the head salaries and bonus in expenses, it is noted that under the head salaries and bonus in expenses, it is noted that under the head salaries and bonus in schedule 14 a sum of Rs.1,59,19,089/ schedule 14 a sum of Rs.1,59,19,089/- has been incurred. The has been incurred. The assessment order details the employees to whom the salary assessment order details the employees to whom the salary assessment order details the employees to whom the salary and bonus were paid due to non availability of separate books of bonus were paid due to non availability of separate books of bonus were paid due to non availability of separate books of accounts. The Ld.AO apportioned 1.5 crores under the head accounts. The Ld.AO apportioned 1.5 crores under the head accounts. The Ld.AO apportioned 1.5 crores under the head personal expenses as direct expenditure incurred towards the personal expenses as direct expenditure incurred towards the personal expenses as direct expenditure incurred towards the earning of exempt income. The reasoning for doing so was that, earning of exempt income. The reasoning for doing so was that, earning of exempt income. The reasoning for doing so was that, these employees were involved in the strategic investments made ployees were involved in the strategic investments made ployees were involved in the strategic investments made by the assessee in its group companies. It is pertinent to know by the assessee in its group companies. It is pertinent to know by the assessee in its group companies. It is pertinent to know that amongst the twelve employees four of them belong to Anand that amongst the twelve employees four of them belong to Anand that amongst the twelve employees four of them belong to Anand family. Accordingly, we do not find any infirmity in considering Rs.1.5 Accordingly, we do not find any infirmity in considering Rs.1.5 Accordingly, we do not find any infirmity in considering Rs.1.5 crores as direct expenses towards earning of exempt income rores as direct expenses towards earning of exempt income rores as direct expenses towards earning of exempt income under rule 8D(2)(ii). 8D(2)(ii).” 9.14 Having considered the rival submissions and the Having considered the rival submissions and the Having considered the rival submissions and the record, we find that the central controversy turns upon the record, we find that the central controversy turns upon the record, we find that the central controversy turns upon the character of the assessee’s activity. The Assessing Officer character of the assessee’s activity. The Assessing Officer character of the assessee’s activity. The Assessing Officer proceeded on the premise that the activity of making and proceeded on the premise that the activity of making and proceeded on the premise that the activity of making and managing investments cannot par managing investments cannot partake the character of a take the character of a business activity, and therefore, all related expenditure must business activity, and therefore, all related expenditure must business activity, and therefore, all related expenditure must be regarded as having been incurred for earning exempt be regarded as having been incurred for earning exempt be regarded as having been incurred for earning exempt dividend income. The assessee, however, contends that even dividend income. The assessee, however, contends that even dividend income. The assessee, however, contends that even when shares are held as investments, the activity of when shares are held as investments, the activity of when shares are held as investments, the activity of acquiring quiring quiring and and and holding holding holding controlling controlling controlling interest interest interest in in in group group group

Asia Investments Pvt. Ltd 27 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 companies may, in appropriate cases, constitute a business companies may, in appropriate cases, constitute a business companies may, in appropriate cases, constitute a business activity. In support, the assessee has relied upon several activity. In support, the assessee has relied upon several activity. In support, the assessee has relied upon several judicial precedents— —many rendered subsequent to the many rendered subsequent to the judgment of the Hon’ble Supreme Cour judgment of the Hon’ble Supreme Court in t in Maxopp Investment Ltd.—where strategic investments or controlling where strategic investments or controlling where strategic investments or controlling stakes have been treated as business assets. These stakes have been treated as business assets. These stakes have been treated as business assets. These decisions include ACIT v. Tata Sons Ltd. (ITA No. ACIT v. Tata Sons Ltd. (ITA No. ACIT v. Tata Sons Ltd. (ITA No. 4630/Mum/2016, dt. August 7, 2020) (Mumbai ITAT); 4630/Mum/2016, dt. August 7, 2020) (Mumbai ITAT) 4630/Mum/2016, dt. August 7, 2020) (Mumbai ITAT) Bitwise Solutions Pvt. Ltd. v. DCI Bitwise Solutions Pvt. Ltd. v. DCIT (ITA No. 756/P/2017, T (ITA No. 756/P/2017, dt. April 29, 2022) (Pune ITAT) dt. April 29, 2022) (Pune ITAT) - AY 2011-12; RMZ Hotels 12; RMZ Hotels Private Ltd. v. NFACITA No.954/Bang/2022, dt. February Private Ltd. v. NFACITA No.954/Bang/2022, dt. February Private Ltd. v. NFACITA No.954/Bang/2022, dt. February 22, 2023) (Bang. ITAT); ITAT); ITAT); CIT CIT CIT v. v. v. Future Future Future Corporate Corporate Corporate Resources Ltd. [2021] 132 taxmann.com 173 (Bombay Resources Ltd. [2021] 132 taxmann.com 173 (Bombay Resources Ltd. [2021] 132 taxmann.com 173 (Bombay HC); Tamilnadu Industri HC); Tamilnadu Industrial Development Corporation al Development Corporation Ltd. (TIDCO) v. ACIT (ITA No. 1181/Chny/2008, dt. Ltd. (TIDCO) v. ACIT (ITA No. 1181/Chny/2008, dt. Ltd. (TIDCO) v. ACIT (ITA No. 1181/Chny/2008, dt. February 28, 2020 (Chennai ITAT) February 28, 2020 (Chennai ITAT) - AY 2003- -04. The assessee further submits, relying upon decisions such as assessee further submits, relying upon decisions such as assessee further submits, relying upon decisions such as Rajeev Lochan Kanoria Rajeev Lochan Kanoria (Calcutta HC), that even where (Calcutta HC), that even where investments are not held as stock t held as stock-in-trade, the activity of trade, the activity of managing group-level level level strategic strategic strategic investments investments investments may may may still still still constitute business activity. constitute business activity. mandates that 9.15 It is further urged that although It is further urged that although Maxopp disallowance disallowance disallowance under under under section section section 14A 14A 14A applies applies applies even even even to to to strategic strategic strategic nce such strategic investment activity is held to be investments, once such strategic investment activity is held to be nce such strategic investment activity is held to be Asia Investments Pvt. Ltd 28 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 part of the assessee’s indivisible business, any disallowance of part of the assessee’s indivisible business, any disallowance of part of the assessee’s indivisible business, any disallowance of indirect expenditure must fall under Rule 8D(2)(iii), and not under indirect expenditure must fall under Rule 8D(2)(iii), and not under indirect expenditure must fall under Rule 8D(2)(iii), and not under Rule 8D(2)(i). The assessee has also pointed out that even in the Rule 8D(2)(i). The assessee has also pointed out that even in the Rule 8D(2)(i). The assessee has also pointed out that even in the Tribunal’s subsequent order in MA No. 103/Mum/2025, the entire unal’s subsequent order in MA No. 103/Mum/2025, the entire unal’s subsequent order in MA No. 103/Mum/2025, the entire personnel cost was not treated as directly relatable to exempt personnel cost was not treated as directly relatable to exempt personnel cost was not treated as directly relatable to exempt income, and the Assessing Officer was instead directed to apportion income, and the Assessing Officer was instead directed to apportion income, and the Assessing Officer was instead directed to apportion it. Accordingly, the assessee argues that in a mixed and indivisible it. Accordingly, the assessee argues that in a mixed and indivisib it. Accordingly, the assessee argues that in a mixed and indivisib business, no portion of personnel expense could be notionally business, no portion of personnel expense could be notionally business, no portion of personnel expense could be notionally classified as “direct” expenditure under Rule 8D(2)(i) in the absence classified as “direct” expenditure under Rule 8D(2)(i) in the absence classified as “direct” expenditure under Rule 8D(2)(i) in the absence of evidence, and the only permissible method of attribution is that of evidence, and the only permissible method of attribution is that of evidence, and the only permissible method of attribution is that prescribed under Rule 8D(2)(iii), being 0.5% of the average value of prescribed under Rule 8D(2)(iii), being 0.5% of the a prescribed under Rule 8D(2)(iii), being 0.5% of the a investments yielding exempt income. investments yielding exempt income.

9.16 On a careful consideration of the matter, we find that the On a careful consideration of the matter, we find that the On a careful consideration of the matter, we find that the assessee’s case involves a composite activity from which both assessee’s case involves a composite activity from which both assessee’s case involves a composite activity from which both taxable and exempt income arise. Under section 14A, only such taxable and exempt income arise. Under section 14A, only such taxable and exempt income arise. Under section 14A, only such expenditure as bears a clear and proximate connection with earning ears a clear and proximate connection with earning ears a clear and proximate connection with earning exempt income may be disallowed. Expenditure not so connected exempt income may be disallowed. Expenditure not so connected exempt income may be disallowed. Expenditure not so connected must be examined under section 37(1) to determine whether it is must be examined under section 37(1) to determine whether it is must be examined under section 37(1) to determine whether it is incurred wholly and exclusively for business purposes; but such incurred wholly and exclusively for business purposes; but such incurred wholly and exclusively for business purposes; but such expenditure cannot be denied deduction under section 14A merely not be denied deduction under section 14A merely not be denied deduction under section 14A merely because the assessee has earned exempt income. In the present because the assessee has earned exempt income. In the present because the assessee has earned exempt income. In the present case, the Assessing Officer’s premise is that strategic investments case, the Assessing Officer’s premise is that strategic investments case, the Assessing Officer’s premise is that strategic investments are not a part of the assessee’s business activity. On that basis, he are not a part of the assessee’s business activity. On that basis, he are not a part of the assessee’s business activity. On that basis, he has treated all related expenditure ated all related expenditure—including personnel cost, including personnel cost,

Asia Investments Pvt. Ltd 29 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 travelling, business promotion and rent travelling, business promotion and rent—as directly connected with as directly connected with earning dividend income. However, no cogent evidence has been earning dividend income. However, no cogent evidence has been earning dividend income. However, no cogent evidence has been brought on record to demonstrate such a proximate nexus. The brought on record to demonstrate such a proximate nexus. The brought on record to demonstrate such a proximate nexus. The mere fact that the assessee promotes the interests of its hat the assessee promotes the interests of its hat the assessee promotes the interests of its subsidiaries does not, without more, establish that these expenses subsidiaries does not, without more, establish that these expenses subsidiaries does not, without more, establish that these expenses were incurred wholly or predominantly for earning dividend income. were incurred wholly or predominantly for earning dividend income. were incurred wholly or predominantly for earning dividend income.

9.17 Rule 8D itself provides that only expenditure directly relatable Rule 8D itself provides that only expenditure directly relatable Rule 8D itself provides that only expenditure directly relatable to exempt income can be disallowed under Rule 8D(2)(i); where exempt income can be disallowed under Rule 8D(2)(i); where exempt income can be disallowed under Rule 8D(2)(i); where such direct nexus is not established, the law mandates recourse to such direct nexus is not established, the law mandates recourse to such direct nexus is not established, the law mandates recourse to Rule 8D(2)(iii), which deals with attribution of indirect expenditure Rule 8D(2)(iii), which deals with attribution of indirect expenditure Rule 8D(2)(iii), which deals with attribution of indirect expenditure through a statutory formula. In the year under appeal, the through a statutory formula. In the year under appeal, the through a statutory formula. In the year under appeal, the Assessing Officer has neither identified nor demonstrated any direct ssessing Officer has neither identified nor demonstrated any direct ssessing Officer has neither identified nor demonstrated any direct connection between the impugned expenses and the earning of connection between the impugned expenses and the earning of connection between the impugned expenses and the earning of exempt income. Instead, he has resorted to an ad hoc quantification exempt income. Instead, he has resorted to an ad hoc quantification exempt income. Instead, he has resorted to an ad hoc quantification of certain expenses as “direct”, while simultaneously invoking the of certain expenses as “direct”, while simultaneously invoki of certain expenses as “direct”, while simultaneously invoki formulaic disallowance under Rule 8D(2)(iii). Such an approach, formulaic disallowance under Rule 8D(2)(iii). Such an approach, formulaic disallowance under Rule 8D(2)(iii). Such an approach, being unsupported by evidence and contrary to the statutory being unsupported by evidence and contrary to the statutory being unsupported by evidence and contrary to the statutory scheme, cannot be sustained scheme, cannot be sustained—particularly when, in assessment particularly when, in assessment year 2010–11 and earlier years, similar expenses were consistent 11 and earlier years, similar expenses were consistent 11 and earlier years, similar expenses were consistently considered only under Rule 8D(2)(iii) by the Coordinate Bench . The considered only under Rule 8D(2)(iii) by the Coordinate Bench . The considered only under Rule 8D(2)(iii) by the Coordinate Bench . The relevant finding is reproduced as under: relevant finding is reproduced as under:

“5. Before us, the assessee contended that the computation made by 5. Before us, the assessee contended that the computation made by 5. Before us, the assessee contended that the computation made by the AO for disallowance under section 14A of the Act and confirmed the AO for disallowance under section 14A of the Act and confirmed the AO for disallowance under section 14A of the Act and confirmed by CIT(A) had considered the gross value of fixed assets and current had considered the gross value of fixed assets and current had considered the gross value of fixed assets and current assets rejecting the contention of the assessee that fixed assets assets rejecting the contention of the assessee that fixed assets assets rejecting the contention of the assessee that fixed assets

Asia Investments Pvt. Ltd 30 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 should be considered under all depreciation and current assets should be considered under all depreciation and current assets should be considered under all depreciation and current assets should be considered under all current liabilities. The assessee als should be considered under all current liabilities. The assessee als should be considered under all current liabilities. The assessee also contended that there are conflicting views on the aspect of contended that there are conflicting views on the aspect of contended that there are conflicting views on the aspect of computation of disallowance under section 14A of the Act including computation of disallowance under section 14A of the Act including computation of disallowance under section 14A of the Act including investments which are strategic in nature or investments on which investments which are strategic in nature or investments on which investments which are strategic in nature or investments on which assessee have not receive any exempt income during the year u assessee have not receive any exempt income during the year u assessee have not receive any exempt income during the year under appeal. Now, before us the learned Counsel for the assessee appeal. Now, before us the learned Counsel for the assessee appeal. Now, before us the learned Counsel for the assessee conceded that the issue of investments which are strategic in nature conceded that the issue of investments which are strategic in nature conceded that the issue of investments which are strategic in nature is covered against the assessee by the decision of Hon'ble Supreme is covered against the assessee by the decision of Hon'ble Supreme is covered against the assessee by the decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT [20 Court in the case of Maxopp Investment Ltd. vs. CIT [20 Court in the case of Maxopp Investment Ltd. vs. CIT [2018] 402 ITR 640 (SC). However, the learned Counsel for the assessee stated that 640 (SC). However, the learned Counsel for the assessee stated that 640 (SC). However, the learned Counsel for the assessee stated that the investments on which assessee has not received any exempt the investments on which assessee has not received any exempt the investments on which assessee has not received any exempt income during the year under appeal, the issue is again covered in income during the year under appeal, the issue is again covered in income during the year under appeal, the issue is again covered in favour of assessee by the decision of Special B favour of assessee by the decision of Special Bench of this Tribunal ench of this Tribunal of Delhi Special Bench in the case of ACIT vs. Vireet Investments (P.) of Delhi Special Bench in the case of ACIT vs. Vireet Investments (P.) of Delhi Special Bench in the case of ACIT vs. Vireet Investments (P.) Ltd. [2017] 58 ITR(T) 313 (Delhi Ltd. [2017] 58 ITR(T) 313 (Delhi - Trib.) (SB). The learned Counsel for Trib.) (SB). The learned Counsel for the assessee stated that the assessee has filed revised computation the assessee stated that the assessee has filed revised computation the assessee stated that the assessee has filed revised computation of disallowance under s of disallowance under section 14A read with Rule 8D of the Rules, ection 14A read with Rule 8D of the Rules, which is enclosed at page 33, wherein disallowance made amounting which is enclosed at page 33, wherein disallowance made amounting which is enclosed at page 33, wherein disallowance made amounting to 8,28,13,345/ to 8,28,13,345/-. The learned Counsel for the assessee stated that . The learned Counsel for the assessee stated that the working given by assessee was not considered by the CIT(A) the working given by assessee was not considered by the CIT(A) the working given by assessee was not considered by the CIT(A) hence, the revise hence, the revised the computation, wherein the assessee has d the computation, wherein the assessee has excluded the investment which is not received any exempt income excluded the investment which is not received any exempt income excluded the investment which is not received any exempt income during the year of appeal, is to be excluded. during the year of appeal, is to be excluded.

7. After hearing both the sides and going through the facts and 7. After hearing both the sides and going through the facts and 7. After hearing both the sides and going through the facts and circumstances of the case. We are of the view that the disallowance circumstances of the case. We are of the view that the disallowance circumstances of the case. We are of the view that the disallowance of interest under Rule 8D(2) (ii) and of interest under Rule 8D(2) (ii) and administrative expenses under administrative expenses under Rule 8D(2)(iii) should be restricted to the investment giving rise to Rule 8D(2)(iii) should be restricted to the investment giving rise to Rule 8D(2)(iii) should be restricted to the investment giving rise to exempt income and no disallowance should be made on the exempt income and no disallowance should be made on the exempt income and no disallowance should be made on the investments which are not giving taxable income. The AO will look investments which are not giving taxable income. The AO will look investments which are not giving taxable income. The AO will look into the computation of disallowa into the computation of disallowance made by assessee i.e. the nce made by assessee i.e. the revised computation filed before us on page 34 of assessee's paper revised computation filed before us on page 34 of assessee's paper revised computation filed before us on page 34 of assessee's paper book. The AO will re book. The AO will re-compute the disallowance in term of the above. compute the disallowance in term of the above.

8. The next issue in this appeal of assessee is against the order of 8. The next issue in this appeal of assessee is against the order of 8. The next issue in this appeal of assessee is against the order of CIT(A) confirming the CIT(A) confirming the disallowance of interest on expenditure under disallowance of interest on expenditure under section 37(1) of the Act made by the AO to the tune of section 37(1) of the Act made by the AO to the tune of section 37(1) of the Act made by the AO to the tune of ₹ 4,36,649/-. For this assessee has raised the following ground No. 2: For this assessee has raised the following ground No. 2: For this assessee has raised the following ground No. 2: -

Asia Investments Pvt. Ltd 31 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019

"2. On the facts and in the circumstances of the case and in law, the "2. On the facts and in the circumstances of the case and in law, the "2. On the facts and in the circumstances of the case and in law, the learned CIT( learned CIT(A) erred A) erred in in confirming confirming disallowance disallowance of of interest interest expenditure undersection 37(1) to the tune of INR 4,36,649/ expenditure undersection 37(1) to the tune of INR 4,36,649/ expenditure undersection 37(1) to the tune of INR 4,36,649/- Without prejudice to the above, the CIT(A) erred in not directing the Without prejudice to the above, the CIT(A) erred in not directing the Without prejudice to the above, the CIT(A) erred in not directing the Assessing Officer to allow the above interest as the above interest Assessing Officer to allow the above interest as the above interest Assessing Officer to allow the above interest as the above interest has already been considered in disallowance worked out under dy been considered in disallowance worked out under dy been considered in disallowance worked out under section 14A of the Income Tax Act. section 14A of the Income Tax Act. Without prejudice to the above, the CIT(A) erred in not directing the Without prejudice to the above, the CIT(A) erred in not directing the Without prejudice to the above, the CIT(A) erred in not directing the Assessing Officer that out of the total loans and advances, amount Assessing Officer that out of the total loans and advances, amount Assessing Officer that out of the total loans and advances, amount advanced to KCA Holdings Ltd. wa advanced to KCA Holdings Ltd. was at a lower rate of interest and therefore, if at all any disallowance of interest is to be made, such therefore, if at all any disallowance of interest is to be made, such therefore, if at all any disallowance of interest is to be made, such disallowance has to be restricted to the advance given to disallowance has to be restricted to the advance given to disallowance has to be restricted to the advance given to KCA holdings holdings Ltd." 9.18 We accordingly hold that the Assessing Officer has erred in We accordingly hold that the Assessing Officer has erred in We accordingly hold that the Assessing Officer has erred in treating portions of personnel and other administrative expenditure treating portions of personnel and other administrative expenditure treating portions of personnel and other administrative expenditure as directly relatable to earning exempt income without establishing as directly relatable to earning exempt income without establishing as directly relatable to earning exempt income without establishing the requisite proximate nexus. The ad hoc allocation of such the requisite proximate nexus. The ad hoc allocation of such the requisite proximate nexus. The ad hoc allocation of such expenses under Rule 8D(2)(i), coupled with a further disallowance expenses under Rule 8D(2)(i), coupled with a further disallowance expenses under Rule 8D(2)(i), coupled with a further disallowance under Rule 8D(2)(iii), amounts to an impermissible duplication and under Rule 8D(2)(iii), amounts to an impermissible duplication and under Rule 8D(2)(iii), amounts to an impermissible duplication and is contrary to the statutory framework. In view of the foregoing is contrary to the statutory framework. In view of the foregoing is contrary to the statutory framework. In view of the foregoing discussion, and having regard to the principles laid down by the discussion, and having regard to the principles laid down discussion, and having regard to the principles laid down Hon’ble Supreme Court in Hon’ble Supreme Court in Maxopp Investment Ltd. Maxopp Investment Ltd., the assessee’s grounds No. 2 and 3 merit acceptance. The disallowance under grounds No. 2 and 3 merit acceptance. The disallowance under grounds No. 2 and 3 merit acceptance. The disallowance under Rule 8D(2)(i) is therefore deleted, leaving only such attribution as is Rule 8D(2)(i) is therefore deleted, leaving only such attribution as is Rule 8D(2)(i) is therefore deleted, leaving only such attribution as is permissible under Rule 8D(2)(iii). permissible under Rule 8D(2)(iii). Accordingly, the contention of the contention of the assessee raised in Grounds No. 2 and 3 of the appeal stands assessee raised in Grounds No. 2 and 3 of the appeal stands assessee raised in Grounds No. 2 and 3 of the appeal stands allowed.

Asia Investments Pvt. Ltd 32 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 9.19 With respect to the disallowance of With respect to the disallowance of ₹1,16,79,947/ 1,16,79,947/- made under Rule 8D(2)(ii), we find that the Assessing Officer has under Rule 8D(2)(ii), we find that the Assessing Officer has under Rule 8D(2)(ii), we find that the Assessing Officer has proceeded to apply the proportionate formula m proceeded to apply the proportionate formula mechanically, without echanically, without first ascertaining the actual utilisation of the borrowings on which first ascertaining the actual utilisation of the borrowings on which first ascertaining the actual utilisation of the borrowings on which the impugned interest was paid. Such an approach, in our the impugned interest was paid. Such an approach, in our the impugned interest was paid. Such an approach, in our considered view, overlooks the foundational requirement of section considered view, overlooks the foundational requirement of section considered view, overlooks the foundational requirement of section 14A read with Rule 8D 14A read with Rule 8D—that only expenditure having a proximate e having a proximate and real nexus with the earning of exempt income may be and real nexus with the earning of exempt income may be and real nexus with the earning of exempt income may be disallowed.

9.20 The assessee, however, has placed before us detailed material, The assessee, however, has placed before us detailed material, The assessee, however, has placed before us detailed material, as noted in the preceding paragraphs, demonstrating that the as noted in the preceding paragraphs, demonstrating that the as noted in the preceding paragraphs, demonstrating that the relevant interest expenditure pertains relevant interest expenditure pertains to specific borrowings which to specific borrowings which were not deployed for making investments capable of yielding were not deployed for making investments capable of yielding were not deployed for making investments capable of yielding exempt income. For ready reference, the pertinent portion of the exempt income. For ready reference, the pertinent portion of the exempt income. For ready reference, the pertinent portion of the assessee’s submissions is reproduced below: assessee’s submissions is reproduced below:

The Ld. counsel for the assessee submitted that interest The Ld. counsel for the assessee submitted that interest The Ld. counsel for the assessee submitted that interest amount of Rs. amount of Rs. 10,99,16,196 incurred on loan from Tata 10,99,16,196 incurred on loan from Tata Capital was already disallowed by the AO under Rule Capital was already disallowed by the AO under Rule Capital was already disallowed by the AO under Rule 8D(2)(i) as direct expenditure for earning dividend income. 8D(2)(i) as direct expenditure for earning dividend income. 8D(2)(i) as direct expenditure for earning dividend income. He submitted that He submitted that the interest of Rs.5,55,870/ the interest of Rs.5,55,870/- was directly related to the car loan fro related to the car loan from HDFC Bank. Similarly, he m HDFC Bank. Similarly, he submitted that interest of Rs.61,409/ submitted that interest of Rs.61,409/- paid to Yes Bank was paid to Yes Bank was directly connected with the interest on working capital. directly connected with the interest on working capital. directly connected with the interest on working capital.

Asia Investments Pvt. Ltd 33 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019

Similarly, he submitted that interest of Rs.21,22,138/- paid Similarly, he submitted that interest of Rs.21,22,138/ Similarly, he submitted that interest of Rs.21,22,138/ to Anand & Anand P. Ltd. of Rs.1,26,50,697/- paid to Anfilco to Anand & Anand P. Ltd. of Rs.1,26,50,697/ to Anand & Anand P. Ltd. of Rs.1,26,50,697/ Ltd. and interest of Rs.89,344/ Ltd. and interest of Rs.89,344/- Dytek India Ltd. related to Dytek India Ltd. related to interest at another corporate deposits. interest at another corporate deposits.

9.21 We note that in assessment year 2011 We note that in assessment year 2011–12, the Tribunal had 12, the Tribunal had upheld a similar disallowance under Rule 8D(2)(ii). However, the upheld a similar disallowance under Rule 8D(2)(ii). However, the upheld a similar disallowance under Rule 8D(2)(ii). However, the factual matrix in the present year stands materially distinguished. the present year stands materially distinguished. the present year stands materially distinguished. Here, the assessee has furnished specific, verifiable details Here, the assessee has furnished specific, verifiable details Here, the assessee has furnished specific, verifiable details establishing that the borrowings in question were utilised for establishing that the borrowings in question were utilised for establishing that the borrowings in question were utilised for purposes wholly unconnected with investment in tax-exempt purposes wholly unconnected with investment in tax purposes wholly unconnected with investment in tax assets. In the absence assets. In the absence of any contrary evidence brought on record of any contrary evidence brought on record by the Revenue, and having regard to the settled principle that a by the Revenue, and having regard to the settled principle that a by the Revenue, and having regard to the settled principle that a proportionate disallowance of interest under Rule 8D(2)(ii) is proportionate disallowance of interest under Rule 8D(2)(ii) is proportionate disallowance of interest under Rule 8D(2)(ii) is permissible only where the nexus between borrowed funds and permissible only where the nexus between borrowed funds and permissible only where the nexus between borrowed funds and investments yielding ex investments yielding exempt income cannot be segregated, we are empt income cannot be segregated, we are unable to sustain the disallowance. Accordingly, the disallowance of unable to sustain the disallowance. Accordingly, the disallowance of unable to sustain the disallowance. Accordingly, the disallowance of ₹1,16,79,947/- made under Rule 8D(2)(ii) is directed to be deleted. made under Rule 8D(2)(ii) is directed to be deleted. made under Rule 8D(2)(ii) is directed to be deleted. Ground No. 4 of the assessee’s appeal, therefore, stands allowed. Ground No. 4 of the assessee’s appeal, therefore, stands allowed. Ground No. 4 of the assessee’s appeal, therefore, stands allowed.

9.22 As regards Ground No. 5, the assessee has contended that the As regards Ground No. 5, the assessee has contended that the As regards Ground No. 5, the assessee has contended that the Assessing Officer failed to apply the law as enunciated by the Assessing Officer failed to apply the law as enunciated by the Assessing Officer failed to apply the law as enunciated by the Hon’ble Special Bench of the Tribunal in Hon’ble Special Bench of the Tribunal in Vireet Investment (P.) Ltd. Vireet Investment (P.) Ltd. (supra). The grievance of the assessee is that, while computing the (supra). The grievance of the assessee is that, while computing (supra). The grievance of the assessee is that, while computing disallowance under Rule 8D(2)(iii), the Assessing Officer adopted the disallowance under Rule 8D(2)(iii), the Assessing Officer adopted the disallowance under Rule 8D(2)(iii), the Assessing Officer adopted the Asia Investments Pvt. Ltd 34 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 value of the entire investment portfolio, without restricting the value of the entire investment portfolio, without restricting the value of the entire investment portfolio, without restricting the computation to those investments which actually yielded exempt computation to those investments which actually yielded exempt computation to those investments which actually yielded exempt income during the relevant previous year. This approach is in clear income during the relevant previous year. This appro income during the relevant previous year. This appro departure from the ratio of departure from the ratio of Vireet Investment (P.) Ltd. Vireet Investment (P.) Ltd. (supra), which holds that only income holds that only income-yielding investments are to be considered for yielding investments are to be considered for the purposes of Rule 8D(2)(iii). We also note that the said principle the purposes of Rule 8D(2)(iii). We also note that the said principle the purposes of Rule 8D(2)(iii). We also note that the said principle has been consistently followed has been consistently followed by the Coordinate Bench in the by the Coordinate Bench in the assessee’s own case for assessment year 2010 assessee’s own case for assessment year 2010–11.

In light of the foregoing discussion, and applying the binding 9.23 In light of the foregoing discussion, and applying the binding In light of the foregoing discussion, and applying the binding ratio of the Special Bench decision, we direct the Assessing Officer ratio of the Special Bench decision, we direct the Assessing Officer ratio of the Special Bench decision, we direct the Assessing Officer to re-compute the disallowance under R compute the disallowance under Rule 8D(2)(iii) by taking into ule 8D(2)(iii) by taking into account only such investments as have actually generated exempt account only such investments as have actually generated exempt account only such investments as have actually generated exempt income during the relevant previous year. income during the relevant previous year. Accordingly, Ground No. Accordingly, Ground No. 5 of the assessee’s appeal is allowed for statistical purposes. 5 of the assessee’s appeal is allowed for statistical purposes. 5 of the assessee’s appeal is allowed for statistical purposes.

9.24 For the sake of clarity, we For the sake of clarity, we reiterate that earlier in this order we reiterate that earlier in this order we have already deleted the entire disallowance made under section have already deleted the entire disallowance made under section have already deleted the entire disallowance made under section 14A on the ground that the Assessing Officer failed to record the 14A on the ground that the Assessing Officer failed to record the 14A on the ground that the Assessing Officer failed to record the mandatory satisfaction as required under the said provision. The mandatory satisfaction as required under the said provision. The mandatory satisfaction as required under the said provision. The findings now rendere findings now rendered in relation to Rule 8D are, therefore, purely d in relation to Rule 8D are, therefore, purely on a without-prejudice basis. prejudice basis.

Asia Investments Pvt. Ltd 35 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 10.1 The brief background of The brief background of the issue is that the Assessing Officer, the issue is that the Assessing Officer, relying upon the findings recorded by his predecessor for relying upon the findings recorded by his predecessor for relying upon the findings recorded by his predecessor for assessment year 2011 assessment year 2011–12, observed that the assessee 12, observed that the assessee-company had already made payments to Shri Deep C. Anand in his individual already made payments to Shri Deep C. Anand in his individual already made payments to Shri Deep C. Anand in his individual capacity. According to the Asse capacity. According to the Assessing Officer, a further payment ssing Officer, a further payment made to him in a different capacity made to him in a different capacity—as trustee of Deep C Anand as trustee of Deep C Anand Foundation—was not warranted. Proceeding on the premise that was not warranted. Proceeding on the premise that was not warranted. Proceeding on the premise that the assessee was merely an investment company entitled to the assessee was merely an investment company entitled to the assessee was merely an investment company entitled to deduction only for expenses necessary for deduction only for expenses necessary for the upkeep of its the upkeep of its corporate structure (such as audit fees, statutory dues, and ROC- corporate structure (such as audit fees, statutory dues, and ROC corporate structure (such as audit fees, statutory dues, and ROC related charges), the Assessing Officer concluded that the impugned related charges), the Assessing Officer concluded that the impugned related charges), the Assessing Officer concluded that the impugned expenditure had been incurred not for the assessee’s business, but expenditure had been incurred not for the assessee’s business, but expenditure had been incurred not for the assessee’s business, but for managing the affairs of group com for managing the affairs of group companies, and thus treated it as panies, and thus treated it as not allowable.

10.2 The assessee, however, contended that the professional fees The assessee, however, contended that the professional fees The assessee, however, contended that the professional fees were paid for high- -level consultancy services rendered by the level consultancy services rendered by the Foundation in support of its strategic investment operations. It was Foundation in support of its strategic investment operations. It was Foundation in support of its strategic investment operations. It was submitted that such expenditure was incurred wholly and such expenditure was incurred wholly and such expenditure was incurred wholly and exclusively for the purpose of business. The Assessing Officer, exclusively for the purpose of business. The Assessing Officer, exclusively for the purpose of business. The Assessing Officer, finding no detailed documentation of the services rendered and finding no detailed documentation of the services rendered and finding no detailed documentation of the services rendered and adopting the reasoning applied in assessment year 2011–12, adopting the reasoning applied in assessment year 2011 adopting the reasoning applied in assessment year 2011 disallowed the entire paymen disallowed the entire payment of ₹6 crores. The Ld. CIT(A), 6 crores. The Ld. CIT(A), concurring with this view, sustained the disallowance on the concurring with this view, sustained the disallowance on the concurring with this view, sustained the disallowance on the ground that the assessee had failed to establish business necessity ground that the assessee had failed to establish business necessity ground that the assessee had failed to establish business necessity

Asia Investments Pvt. Ltd 36 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 or demonstrate any tangible advantage resulting from the or demonstrate any tangible advantage resulting from the or demonstrate any tangible advantage resulting from the consultancy services. consultancy services.

10.3 Before us, the Ld. counsel for the assessee placed reliance on the Ld. counsel for the assessee placed reliance on the Ld. counsel for the assessee placed reliance on the order of the Tribunal in the assessee’s own case for assessment the order of the Tribunal in the assessee’s own case for assessment the order of the Tribunal in the assessee’s own case for assessment year 2011–12, wherein a similar disallowance had been deleted. 12, wherein a similar disallowance had been deleted. 12, wherein a similar disallowance had been deleted.

10.4. We have carefully considered the rival submissions and We have carefully considered the rival submissions and We have carefully considered the rival submissions and examined the record. The factual position, which remains record. The factual position, which remains record. The factual position, which remains undisputed, is that the assessee undisputed, is that the assessee-company is engaged in making company is engaged in making and managing strategic investments in various group entities, and managing strategic investments in various group entities, and managing strategic investments in various group entities, frequently in collaboration with foreign partners for acquisition of frequently in collaboration with foreign partners for acquisition of frequently in collaboration with foreign partners for acquisition of controlling interests in joint ventures. This factual matrix has also sts in joint ventures. This factual matrix has also sts in joint ventures. This factual matrix has also been recognized by the Tribunal in assessment year 2011–12, been recognized by the Tribunal in assessment year 2011 been recognized by the Tribunal in assessment year 2011 wherein it was observed: wherein it was observed:

“3. The assessee is stated to be investing company carrying on 3. The assessee is stated to be investing company carrying on 3. The assessee is stated to be investing company carrying on business of acquiring and exercising control over compa business of acquiring and exercising control over compa business of acquiring and exercising control over companies in Anand Group to provide long term finance and to provide Anand Group to provide long term finance and to provide Anand Group to provide long term finance and to provide managements consultancy services to various companies of managements consultancy services to various companies of managements consultancy services to various companies of Anand Group. It is submitted that, Anand Group is a global Anand Group. It is submitted that, Anand Group is a global Anand Group. It is submitted that, Anand Group is a global leader in manufacturing product for automotive industry and is a leader in manufacturing product for automotive industry and is a leader in manufacturing product for automotive industry and is a flagship company of the group, wherein Gabriel India Ltd., was mpany of the group, wherein Gabriel India Ltd., was mpany of the group, wherein Gabriel India Ltd., was formed to manufacture shock absorbers. It is submitted that, the formed to manufacture shock absorbers. It is submitted that, the formed to manufacture shock absorbers. It is submitted that, the group has established around 13 joint ventures and 7 technical group has established around 13 joint ventures and 7 technical group has established around 13 joint ventures and 7 technical collaborations. The assessee submitted that 99% of the collaborations. The assessee submitted that 99% of the collaborations. The assessee submitted that 99% of the investment held by th investment held by the assessee are in the companies of Anand e assessee are in the companies of Anand Group and has been classified as long term investments in its Group and has been classified as long term investments in its Group and has been classified as long term investments in its financial statements. statements.” 10.5 The assessee has consistently maintained that the services The assessee has consistently maintained that the services The assessee has consistently maintained that the services rendered by Deep C Anand Foundation were intrinsically linked to rendered by Deep C Anand Foundation were intrinsically linked to rendered by Deep C Anand Foundation were intrinsically linked to its strategic investment operations and were necessitated by the ts strategic investment operations and were necessitated by the ts strategic investment operations and were necessitated by the Asia Investments Pvt. Ltd 37 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 nature and scale of its business. We find merit in this contention. nature and scale of its business. We find merit in this contention. nature and scale of its business. We find merit in this contention. The assessee’s investment portfolio comprises significant stakes in The assessee’s investment portfolio comprises significant stakes in The assessee’s investment portfolio comprises significant stakes in joint ventures with globally reputed automotive component joint ventures with globally reputed automotive componen joint ventures with globally reputed automotive componen manufacturers, and the need for professional advisory support in manufacturers, and the need for professional advisory support in manufacturers, and the need for professional advisory support in such arrangements cannot be doubted. It is a settled principle of such arrangements cannot be doubted. It is a settled principle of such arrangements cannot be doubted. It is a settled principle of law that the Assessing Officer cannot supplant the commercial law that the Assessing Officer cannot supplant the commercial law that the Assessing Officer cannot supplant the commercial judgment of a businessman with his own view of business judgment of a businessman with his own view of business judgment of a businessman with his own view of business necessity, nor can an expenditure be disallowed merely for want of sity, nor can an expenditure be disallowed merely for want of sity, nor can an expenditure be disallowed merely for want of immediate or measurable business outcome. The only test is immediate or measurable business outcome. The only test is immediate or measurable business outcome. The only test is whether the expenditure was incurred bona fide and in the ordinary whether the expenditure was incurred bona fide and in the ordinary whether the expenditure was incurred bona fide and in the ordinary course of business.

10,6 The Tribunal, while adjudicating the same i The Tribunal, while adjudicating the same issue in assessment ssue in assessment year 2011–12, held that the expenditure was neither unreasonable 12, held that the expenditure was neither unreasonable 12, held that the expenditure was neither unreasonable nor excessive, and observed as under: nor excessive, and observed as under:

“7.6.3. It is also submitted that apart from the services received 7.6.3. It is also submitted that apart from the services received 7.6.3. It is also submitted that apart from the services received from Mr. Deep C. Mehta, the assessee had paid professional fees to from Mr. Deep C. Mehta, the assessee had paid professional fees to from Mr. Deep C. Mehta, the assessee had paid professional fees to one Mr. Aditya Narayan, M/s. Patel Investments and M/s. Rohit one Mr. Aditya Narayan, M/s. Patel Investments and M/s. Rohit one Mr. Aditya Narayan, M/s. Patel Investments and M/s. Rohit Arora & Associates, who were rendering various services in their Arora & Associates, who were rendering various services in their Arora & Associates, who were rendering various services in their individual capacities. The Ld.AR submitted that these individuals individual capacities. The Ld.AR submitted that these individuals individual capacities. The Ld.AR submitted that these individuals were taken on the rolls of an entity called Deep C Anand were taken on the rolls of an entity called Deep C Anand were taken on the rolls of an entity called Deep C Anand Foundation. The Ld.AR thus submitted that the services rendered ation. The Ld.AR thus submitted that the services rendered ation. The Ld.AR thus submitted that the services rendered under individual capacities, were rendered through Deep C Anand under individual capacities, were rendered through Deep C Anand under individual capacities, were rendered through Deep C Anand Foundation during the year under consideration. The Ld.AO Foundation during the year under consideration. The Ld.AO Foundation during the year under consideration. The Ld.AO disallowed Rs.1.6 crore the assessee under the head professional disallowed Rs.1.6 crore the assessee under the head professional disallowed Rs.1.6 crore the assessee under the head professional fees paid. It is the submission of the Ld.AR that in the preceding It is the submission of the Ld.AR that in the preceding It is the submission of the Ld.AR that in the preceding years the professional fees rendered by these three parties were not years the professional fees rendered by these three parties were not years the professional fees rendered by these three parties were not disallowed. 7.6.4. From the arguments advanced by both sides, it is noted that 7.6.4. From the arguments advanced by both sides, it is noted that 7.6.4. From the arguments advanced by both sides, it is noted that the Foundation has offered the money received from the Foundation has offered the money received from the assessee to the assessee to taxation. Also that these are incurred for rendering professional taxation. Also that these are incurred for rendering professional taxation. Also that these are incurred for rendering professional services to Spicer India Ltd., and not for acquiring controlling services to Spicer India Ltd., and not for acquiring controlling services to Spicer India Ltd., and not for acquiring controlling

Asia Investments Pvt. Ltd 38 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 interest. It is noted that Spicer India Ltd for the year under interest. It is noted that Spicer India Ltd for the year under interest. It is noted that Spicer India Ltd for the year under consideration has been allowed the amount paid consideration has been allowed the amount paid to the assessee as to the assessee as business expenditure. Though this is related party transaction, business expenditure. Though this is related party transaction, business expenditure. Though this is related party transaction, there is no loss to the revenue. Further it is not the case of the there is no loss to the revenue. Further it is not the case of the there is no loss to the revenue. Further it is not the case of the revenue that the expenditure incurred by the assessee are revenue that the expenditure incurred by the assessee are revenue that the expenditure incurred by the assessee are unreasonable unreasonable and excessive.” 10.7 In the absence of any distinguishing facts brought to our e of any distinguishing facts brought to our e of any distinguishing facts brought to our notice for the year under consideration, and respectfully following notice for the year under consideration, and respectfully following notice for the year under consideration, and respectfully following the findings of the Tribunal in assessment year 2011–12, we are of the findings of the Tribunal in assessment year 2011 the findings of the Tribunal in assessment year 2011 the view that the disallowance of the view that the disallowance of ₹6 crores is unsustainable in law. 6 crores is unsustainable in law. The expenditure is demonstrated to have been incurred wholly and enditure is demonstrated to have been incurred wholly and enditure is demonstrated to have been incurred wholly and exclusively for the purposes of the assessee’s business activities, exclusively for the purposes of the assessee’s business activities, exclusively for the purposes of the assessee’s business activities, and the contrary conclusion of the Assessing Officer rests on an and the contrary conclusion of the Assessing Officer rests on an and the contrary conclusion of the Assessing Officer rests on an incorrect appreciation of the assessee’s business model. incorrect appreciation of the assessee’s business model. incorrect appreciation of the assessee’s business model.

10.8 We accordingly direct that the disallowance be deleted and the accordingly direct that the disallowance be deleted and the accordingly direct that the disallowance be deleted and the order of the Ld. CIT(A) on this issue be set aside. Ground No. 6 of order of the Ld. CIT(A) on this issue be set aside. Ground No. 6 of order of the Ld. CIT(A) on this issue be set aside. Ground No. 6 of the assessee’s appeal is, therefore, allowed. the assessee’s appeal is, therefore, allowed.

11.1 The essential facts, briefly stated, are that the assessee The essential facts, briefly stated, are that the assessee The essential facts, briefly stated, are that the assessee maintained a branch office maintained a branch office-cum-guest house in London and guest house in London and claimed expenditure of ₹52,98,889/- towards its upkeep. The claimed expenditure of its upkeep. The assessee asserted that the premises were utilised by its senior assessee asserted that the premises were utilised by its senior assessee asserted that the premises were utilised by its senior management during overseas business visits undertaken in the management during overseas business visits undertaken in the management during overseas business visits undertaken in the Asia Investments Pvt. Ltd 39 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 normal course of its investment operations. The Assessing Officer, normal course of its investment operations. The Assessing Officer, normal course of its investment operations. The Assessing Officer, however, rejected this explanation, concluding t however, rejected this explanation, concluding that the expenditure hat the expenditure was incurred not for the assessee’s own business but for advancing was incurred not for the assessee’s own business but for advancing was incurred not for the assessee’s own business but for advancing the business interests of its subsidiary companies. Following the the business interests of its subsidiary companies. Following the the business interests of its subsidiary companies. Following the view adopted in assessment year 2011 view adopted in assessment year 2011–12, he disallowed the entire 12, he disallowed the entire expenditure. The Ld. CIT(A), concurri expenditure. The Ld. CIT(A), concurring with the Assessing Officer, ng with the Assessing Officer, upheld the disallowance on the premise that the expenditure did upheld the disallowance on the premise that the expenditure did upheld the disallowance on the premise that the expenditure did not promote the business of the assessee but that of its not promote the business of the assessee but that of its not promote the business of the assessee but that of its subsidiaries.

11.2 Before us, the Ld. counsel for the assessee submitted that the Before us, the Ld. counsel for the assessee submitted that the Before us, the Ld. counsel for the assessee submitted that the lower authorities failed to correctly appreciate the nature of the lower authorities failed to correctly appreciate the nature of the lower authorities failed to correctly appreciate the nature of the assessee’s business, which is that of making and managing assessee’s business, which is that of making and managing assessee’s business, which is that of making and managing strategic investments in joint ventures. He explained that the strategic investments in joint ventures. He explained that the strategic investments in joint ventures. He explained that the tment process necessarily involves identification, evaluation, investment process necessarily involves identification, evaluation, tment process necessarily involves identification, evaluation, and engagement with prospective foreign partners, which requires and engagement with prospective foreign partners, which requires and engagement with prospective foreign partners, which requires extensive research and due diligence, as well as constant extensive research and due diligence, as well as constant extensive research and due diligence, as well as constant interaction with the management of such target entities. Once the interaction with the management of such target entities. Once the interaction with the management of such target entities. Once the right entity is identified, the assessee invests in it, which may, in t entity is identified, the assessee invests in it, which may, in t entity is identified, the assessee invests in it, which may, in turn, evolve into a subsidiary or a controlled joint venture. Thus, turn, evolve into a subsidiary or a controlled joint venture. Thus, turn, evolve into a subsidiary or a controlled joint venture. Thus, the maintenance of a London office was fundamentally linked to the maintenance of a London office was fundamentally linked to the maintenance of a London office was fundamentally linked to facilitating these pre facilitating these pre-investment activities and the assess investment activities and the assessee’s continuous interface with potential European partners. The Ld. continuous interface with potential European partners. The Ld. continuous interface with potential European partners. The Ld. counsel contended that both authorities below adopted an counsel contended that both authorities below adopted an counsel contended that both authorities below adopted an erroneous post-investment lens and, consequently, misdirected investment lens and, consequently, misdirected investment lens and, consequently, misdirected

Asia Investments Pvt. Ltd 40 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 themselves themselves themselves in in in concluding concluding concluding that that that the the the expenditure expenditure expenditure benefitted benefitted benefitted subsidiaries alone. He further pointed out that although the alone. He further pointed out that although the alone. He further pointed out that although the Tribunal, in assessment year 2011 Tribunal, in assessment year 2011–12, had addressed the matter in 12, had addressed the matter in the context of Rule 8D(2)(i), it had not adjudicated upon the the context of Rule 8D(2)(i), it had not adjudicated upon the the context of Rule 8D(2)(i), it had not adjudicated upon the allowability of such expenditure under Section 37(1). allowability of such expenditure under Section 37(1). allowability of such expenditure under Section 37(1).

11.3 We We have have given given thoughtful though tful consideration consideration to to the the rival rival submissions and examined the material placed on record. The short submissions and examined the material placed on record. The short submissions and examined the material placed on record. The short question for adjudication is whether the expenditure incurred on question for adjudication is whether the expenditure incurred on question for adjudication is whether the expenditure incurred on maintaining the London branch office and guest house qualifies for maintaining the London branch office and guest house qualifies for maintaining the London branch office and guest house qualifies for deduction under Section 37 deduction under Section 37(1) of the Act.

11.4 As earlier noted, the assessee is engaged in the business of As earlier noted, the assessee is engaged in the business of As earlier noted, the assessee is engaged in the business of making strategic investments in joint ventures in the automotive making strategic investments in joint ventures in the automotive making strategic investments in joint ventures in the automotive components sector. Such investment activity does not commence components sector. Such investment activity does not commence components sector. Such investment activity does not commence with the mere act of investing; it necessarily with the mere act of investing; it necessarily includes the pre includes the pre- investment stage involving identification of suitable foreign investment stage involving identification of suitable foreign investment stage involving identification of suitable foreign collaborators, collaborators, collaborators, evaluation evaluation evaluation of of of synergies, synergies, synergies, due due due diligence, diligence, diligence, and and and negotiation. These are activities which often require an overseas negotiation. These are activities which often require an overseas negotiation. These are activities which often require an overseas presence to enable meaningful engagement with prospective presence to enable meaningful engagement with prospe presence to enable meaningful engagement with prospe partners and to facilitate effective decision partners and to facilitate effective decision-making. Expenditure making. Expenditure incurred for such purposes is intimately connected with the incurred for such purposes is intimately connected with the incurred for such purposes is intimately connected with the assessee’s business operations and cannot be disallowed merely assessee’s business operations and cannot be disallowed merely assessee’s business operations and cannot be disallowed merely because, at a subsequent stage, the entities identified during this because, at a subsequent stage, the entities identified durin because, at a subsequent stage, the entities identified durin pre-investment exercise become subsidiaries or joint ventures. The investment exercise become subsidiaries or joint ventures. The investment exercise become subsidiaries or joint ventures. The Asia Investments Pvt. Ltd 41 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 test under Section 37(1) is whether the expenditure was incurred test under Section 37(1) is whether the expenditure was incurred test under Section 37(1) is whether the expenditure was incurred wholly and exclusively for the purposes of business, and not wholly and exclusively for the purposes of business, and not wholly and exclusively for the purposes of business, and not whether the expenditure yielded immediate or direct profit. whether the expenditure yielded immediate or direct prof whether the expenditure yielded immediate or direct prof

It is pertinent to note that although the Tribunal, in 11.6 It is pertinent to note that although the Tribunal, in It is pertinent to note that although the Tribunal, in assessment year 2011 assessment year 2011–12, observed that these expenses did not fall 12, observed that these expenses did not fall within the ambit of Rule 8D(2)(i) and were already subjected to within the ambit of Rule 8D(2)(i) and were already subjected to within the ambit of Rule 8D(2)(i) and were already subjected to disallowance under Section 14A, the Tribunal did not examine the disallowance under Section 14A, the Tribunal did not examine disallowance under Section 14A, the Tribunal did not examine question of their allowability under Section 37(1). We therefore question of their allowability under Section 37(1). We therefore question of their allowability under Section 37(1). We therefore consider the issue independently in the present year. consider the issue independently in the present year. consider the issue independently in the present year.

11.7 In the totality of facts and circumstances, we find that the n the totality of facts and circumstances, we find that the n the totality of facts and circumstances, we find that the expenditure on maintaining the London branch office and guest expenditure on maintaining the London branch office and guest expenditure on maintaining the London branch office and guest house was incurred bona fide and in the ordinary course of the e was incurred bona fide and in the ordinary course of the e was incurred bona fide and in the ordinary course of the assessee’s business, and satisfies the statutory requirement of assessee’s business, and satisfies the statutory requirement of assessee’s business, and satisfies the statutory requirement of being laid out wholly and exclusively for business purposes. The being laid out wholly and exclusively for business purposes. The being laid out wholly and exclusively for business purposes. The disallowance sustained by the lower authorities is consequently disallowance sustained by the lower authorities is consequently disallowance sustained by the lower authorities is consequently unsustainable. We, therefore, direct deletion of the disallowance stainable. We, therefore, direct deletion of the disallowance stainable. We, therefore, direct deletion of the disallowance and set aside the order of the Ld. CIT(A) on this issue. The ground and set aside the order of the Ld. CIT(A) on this issue. and set aside the order of the Ld. CIT(A) on this issue. No. 7 of the appeal is allowed. No. 7 of the appeal is allowed.

Asia Investments Pvt. Ltd 42 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 12.1 The material facts, briefly stated, are that the Assessing Officer The material facts, briefly stated, are that the Assessing Officer The material facts, briefly stated, are that the Assessing Officer noticed a substantial increase in the assessee’s repairs and ticed a substantial increase in the assessee’s repairs and ticed a substantial increase in the assessee’s repairs and maintenance expenditure during the year. Payments aggregating to maintenance expenditure during the year. Payments aggregating to maintenance expenditure during the year. Payments aggregating to ₹1,52,77,730/- were made to Waverly Renovation Ltd., and were made to Waverly Renovation Ltd., and were made to Waverly Renovation Ltd., and ₹4,11,000/- to Vasudeva Manufacturing & Engineering Pvt. Ltd. to Vasudeva Manufacturing & Engineering Pvt. Ltd. to Vasudeva Manufacturing & Engineering Pvt. Ltd. The Assessing Officer held that the expenditure represented Officer held that the expenditure represented Officer held that the expenditure represented renovation and improvement of the building structure, thereby renovation and improvement of the building structure, thereby renovation and improvement of the building structure, thereby giving rise to a capital asset. In respect of the payment to Vasudeva giving rise to a capital asset. In respect of the payment to Vasudeva giving rise to a capital asset. In respect of the payment to Vasudeva Manufacturing & Engineering Pvt. Ltd., it was held that the supply, Manufacturing & Engineering Pvt. Ltd., it was held that the supply, Manufacturing & Engineering Pvt. Ltd., it was held that the supply, installation, testing, and commissioning of pumps could not be ion, testing, and commissioning of pumps could not be ion, testing, and commissioning of pumps could not be characterised as repairs. The entire claim was, therefore, disallowed characterised as repairs. The entire claim was, therefore, disallowed characterised as repairs. The entire claim was, therefore, disallowed as capital expenditure. The Ld. CIT(A), affirming the findings of the as capital expenditure. The Ld. CIT(A), affirming the findings of the as capital expenditure. The Ld. CIT(A), affirming the findings of the Assessing Officer, sustained the disallowance on the reasoning that Assessing Officer, sustained the disallowance on the reasoning Assessing Officer, sustained the disallowance on the reasoning the assessee had failed to demonstrate how the London property the assessee had failed to demonstrate how the London property the assessee had failed to demonstrate how the London property constituted a business asset or how the expenditure represented constituted a business asset or how the expenditure represented constituted a business asset or how the expenditure represented routine repairs. The Ld. CIT(A), observing as under: The Ld. CIT(A), observing as under:

“5.2. I have considered the findings of the Assessing Officer as 5.2. I have considered the findings of the Assessing Officer as 5.2. I have considered the findings of the Assessing Officer as well as rival submission of the Appellant/A.R., carefully. I find well as rival submission of the Appellant/A.R., carefully. I find well as rival submission of the Appellant/A.R., carefully. I find that Appellant has not explained as to how House at London is that Appellant has not explained as to how House at London is that Appellant has not explained as to how House at London is a a a business business business asset asset asset and and and how how how such such such expenditure expenditure expenditure of of of Rs.1,56,88,730/ Rs.1,56,88,730/- is not a Capital Expenditure. Only general not a Capital Expenditure. Only general argument has been advanced without demonstrating as to how argument has been advanced without demonstrating as to how argument has been advanced without demonstrating as to how there is a routine repairs & maintenance of House at 9, there is a routine repairs & maintenance of House at 9, there is a routine repairs & maintenance of House at 9, Waterdelle Manor, 20, Hairwood Avenue, London (U.K.). Waterdelle Manor, 20, Hairwood Avenue, London (U.K.). Waterdelle Manor, 20, Hairwood Avenue, London (U.K.). Therefore, so far as finding of the Assessing Therefore, so far as finding of the Assessing Officer that such Officer that such expenditure is a cpital expenditure is concerned, such finding is expenditure is a cpital expenditure is concerned, such finding is expenditure is a cpital expenditure is concerned, such finding is worth-approval. Similarly, the bills of Vasudeva Manufacturing approval. Similarly, the bills of Vasudeva Manufacturing approval. Similarly, the bills of Vasudeva Manufacturing & Engineering Pvt. Ltd. is found to be for supply, installation & & Engineering Pvt. Ltd. is found to be for supply, installation & & Engineering Pvt. Ltd. is found to be for supply, installation & testing of pumps which is definitely a capi testing of pumps which is definitely a capital expenditure and tal expenditure and not at all Renovation or Repairing which is Miscellaneous in not at all Renovation or Repairing which is Miscellaneous in not at all Renovation or Repairing which is Miscellaneous in nature. The Appellant has also not established the fact that as nature. The Appellant has also not established the fact that as nature. The Appellant has also not established the fact that as Asia Investments Pvt. Ltd 43 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 to how House Property at London is a business asset. Since the to how House Property at London is a business asset. Since the to how House Property at London is a business asset. Since the Assessing Officer has allowed the depreciation a Assessing Officer has allowed the depreciation a Assessing Officer has allowed the depreciation and has disallowed the capital expenditure of Rs. 14119857/ disallowed the capital expenditure of Rs. 14119857/ disallowed the capital expenditure of Rs. 14119857/- hence, there is no option but to confine to the finding of the Assessing there is no option but to confine to the finding of the Assessing there is no option but to confine to the finding of the Assessing Officer hence, disallowance of capital expenditure to the extent Officer hence, disallowance of capital expenditure to the extent Officer hence, disallowance of capital expenditure to the extent of Rs. 1,41,19,857/ of Rs. 1,41,19,857/- is sustained.” 12.2 We have heard the We have heard the rival submissions and examined the rival submissions and examined the material placed on record. The issue that arises for determination is material placed on record. The issue that arises for determination is material placed on record. The issue that arises for determination is whether the expenditure of ₹1,56,88,730/- is to be regarded as whether the expenditure of is to be regarded as capital or revenue in nature for the purposes of Section 37(1) of the capital or revenue in nature for the purposes of Section 37(1) of the capital or revenue in nature for the purposes of Section 37(1) of the Act. the total amount, a sum of ₹1,52,77,730/ 12.3 Out of the total amount, a sum of 1,52,77,730/- pertains to payments made to Waverly Renovation Ltd. The invoices and the payments made to Waverly Renovation Ltd. The invoices and the payments made to Waverly Renovation Ltd. The invoices and the detailed description of work executed include painting, replacement detailed description of work executed include painting, replacement detailed description of work executed include painting, replacement of carpets, repair of kitchen leakages, ceiling and flooring of carpets, repair of kitchen leakages, ceiling and flooring of carpets, repair of kitchen leakages, ceiling and flooring rectification, soundproofing, radiator replacement, electrical work on, soundproofing, radiator replacement, electrical work on, soundproofing, radiator replacement, electrical work involving downlighters and switches, fitting of shelving units, repair involving downlighters and switches, fitting of shelving units, repair involving downlighters and switches, fitting of shelving units, repair and polishing of existing furniture, replacement of patio doors, and and polishing of existing furniture, replacement of patio doors, and and polishing of existing furniture, replacement of patio doors, and other refurbishment measures. other refurbishment measures.

12.4 On a comprehensive appra On a comprehensive appraisal of the nature of the work isal of the nature of the work performed, we find no material to suggest that any new structure, performed, we find no material to suggest that any new structure, performed, we find no material to suggest that any new structure, addition, or expansion of the capital base of the property was addition, or expansion of the capital base of the property was addition, or expansion of the capital base of the property was undertaken. The expenditure is primarily aimed at preserving the undertaken. The expenditure is primarily aimed at preserving the undertaken. The expenditure is primarily aimed at preserving the existing structure and maintain existing structure and maintaining it in a functional and habitable ing it in a functional and habitable condition. It neither brings into existence a new asset nor confers condition. It neither brings into existence a new asset nor confers condition. It neither brings into existence a new asset nor confers on the assessee an enduring benefit in the capital sense. In law, the on the assessee an enduring benefit in the capital sense. In law, the on the assessee an enduring benefit in the capital sense. In law, the Asia Investments Pvt. Ltd 44 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 test of “enduring benefit” must be applied pragmatically and not test of “enduring benefit” must be applied pragmatically and not test of “enduring benefit” must be applied pragmatically and not mechanically; expenditure which merely preserves or restores an penditure which merely preserves or restores an penditure which merely preserves or restores an existing asset to its original condition is revenue in character, existing asset to its original condition is revenue in character, existing asset to its original condition is revenue in character, notwithstanding the magnitude of the amount involved. We notwithstanding the magnitude of the amount involved. We notwithstanding the magnitude of the amount involved. We therefore hold that the expenditure of ₹1,52,77,730/ therefore hold that the expenditure of 1,52,77,730/- incurred on refurbishment by Wa refurbishment by Waverly Renovation Ltd. is allowable as revenue verly Renovation Ltd. is allowable as revenue expenditure under Section 37(1). expenditure under Section 37(1).

12.5 With respect to the payment of With respect to the payment of ₹4,11,000/- made to Vasudeva made to Vasudeva Manufacturing & Engineering Pvt. Ltd. for supply, installation, and Manufacturing & Engineering Pvt. Ltd. for supply, installation, and Manufacturing & Engineering Pvt. Ltd. for supply, installation, and commissioning of pumps, the assessee has not commissioning of pumps, the assessee has not placed on record placed on record any material to show that the installation was by way of any material to show that the installation was by way of any material to show that the installation was by way of replacement of an existing system rather than acquisition of a new replacement of an existing system rather than acquisition of a new replacement of an existing system rather than acquisition of a new one. In the absence of evidence establishing that the expenditure one. In the absence of evidence establishing that the expenditure one. In the absence of evidence establishing that the expenditure was for restorative purposes, we are constrained was for restorative purposes, we are constrained to hold that the to hold that the amount is capital in nature. Depreciation thereon shall, however, be amount is capital in nature. Depreciation thereon shall, however, be amount is capital in nature. Depreciation thereon shall, however, be allowable in accordance with law. allowable in accordance with law.

12.6 In view of the foregoing analysis, the addition to the extent of In view of the foregoing analysis, the addition to the extent of In view of the foregoing analysis, the addition to the extent of ₹4,11,000/- is sustained, whereas the balance addition of is sustained, whereas the balance addition of is sustained, whereas the balance addition of ₹1,52,77,730/- is directed to be deleted. The order of the Ld. CIT(A) is directed to be deleted. The order of the Ld. CIT(A) is directed to be deleted. The order of the Ld. CIT(A) is accordingly set aside to the extent indicated above. is accordingly set aside to the extent indicated above. is accordingly set aside to the extent indicated above.

by the assessee are reproduced 14. The grounds raised by the assessee are reproduced 14. The grounds raised by the assessee are reproduced as under: Asia Investments Pvt. Ltd 45 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019

filed before erred in not adjudicating the revised grounds of appeal filed before erred in not adjudicating the revised grounds of appeal filed before him.

2. Without prejudice to Ground no 1 on the facts and circumstances

2. Without prejudice to Ground no 1 on the facts and circumstances

2. Without prejudice to Ground no 1 on the facts and circumstances of the case and law, the CIT(A) ought to have h of the case and law, the CIT(A) ought to have held that holding eld that holding shares to have controlling interest in the group is a business activity shares to have controlling interest in the group is a business activity shares to have controlling interest in the group is a business activity and consequentially erred in not directing the AO to allow expenses and consequentially erred in not directing the AO to allow expenses and consequentially erred in not directing the AO to allow expenses incurred for carrying on or in relation to business of strategic incurred for carrying on or in relation to business of strategic incurred for carrying on or in relation to business of strategic investment.

3. Without prejudice t

3. Without prejudice to Ground nos 1 and 2, on the facts and o Ground nos 1 and 2, on the facts and circumstances of the case and in law the CIT(A) ought to have held circumstances of the case and in law the CIT(A) ought to have held circumstances of the case and in law the CIT(A) ought to have held that no disallowance could have been made under section 14A to that no disallowance could have been made under section 14A to that no disallowance could have been made under section 14A to the extent of Rs. 17,25,25,167 towards direct expenditure, interest the extent of Rs. 17,25,25,167 towards direct expenditure, interest the extent of Rs. 17,25,25,167 towards direct expenditure, interest and other administr and other administrative expenditure, out of the expenditure ative expenditure, out of the expenditure incurred to carry on business of strategic investment. incurred to carry on business of strategic investment.

4. Without prejudice to the Ground nos. 1, 2 & 3, on the facts and Without prejudice to the Ground nos. 1, 2 & 3, on the facts and Without prejudice to the Ground nos. 1, 2 & 3, on the facts and circumstances of the case and in law, the CIT(A) ought to have held circumstances of the case and in law, the CIT(A) ought to have held circumstances of the case and in law, the CIT(A) ought to have held that no disallowance und that no disallowance under section 14A can be made where no er section 14A can be made where no exempt income was received by the appellate during the year under exempt income was received by the appellate during the year under exempt income was received by the appellate during the year under consideration. consideration.

5. Without prejudice to the Ground nos. 1,2,3,& 4, on the facts and Without prejudice to the Ground nos. 1,2,3,& 4, on the facts and Without prejudice to the Ground nos. 1,2,3,& 4, on the facts and in the circumstances of the case and in law the CIT(A) ought to have in the circumstances of the case and in law the CIT(A) ought to have in the circumstances of the case and in law the CIT(A) ought to have directed the AO to delete the disallowance made by AO towards rected the AO to delete the disallowance made by AO towards rected the AO to delete the disallowance made by AO towards interest expenditure of INR 12,41,47,597, Personnel expenses of interest expenditure of INR 12,41,47,597, Personnel expenses of interest expenditure of INR 12,41,47,597, Personnel expenses of INR 2,00,00,000, Travelling expense of INR 1,31,33,041, Business INR 2,00,00,000, Travelling expense of INR 1,31,33,041, Business INR 2,00,00,000, Travelling expense of INR 1,31,33,041, Business promotion expenses of INR 11,58,874, Rent expenses of INR promotion expenses of INR 11,58,874, Rent expenses of INR promotion expenses of INR 11,58,874, Rent expenses of INR 17,78,696, repairs expenses of INR 89,77,638, and depreciation of , repairs expenses of INR 89,77,638, and depreciation of , repairs expenses of INR 89,77,638, and depreciation of INR 61,27,043 by treating the same as directly linked for earning INR 61,27,043 by treating the same as directly linked for earning INR 61,27,043 by treating the same as directly linked for earning exempt income for the purpose of computing disallowance under exempt income for the purpose of computing disallowance under exempt income for the purpose of computing disallowance under section 14A r.w.r. 8D Without prejudice to the above, the CIT(A) ought Without prejudice to the above, the CIT(A) ought to have held that to have held that the expenses were incurred for the business of the assessee the expenses were incurred for the business of the assessee the expenses were incurred for the business of the assessee company and not for the business of the group companies. company and not for the business of the group companies. company and not for the business of the group companies.

6. On the facts and in the circumstances of the case and in law, the On the facts and in the circumstances of the case and in law, the On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming disallowance made by AO CIT(A) erred in confirming disallowance made by AO CIT(A) erred in confirming disallowance made by AO towards UK Branch office expenses of INR 15,23,314 by treating the same as Branch office expenses of INR 15,23,314 by treating the same as Branch office expenses of INR 15,23,314 by treating the same as incurred for promoting business of the group companies and were incurred for promoting business of the group companies and were incurred for promoting business of the group companies and were not incurred for the purpose of business of the appellant.. not incurred for the purpose of business of the appellant.. not incurred for the purpose of business of the appellant..

7. On the facts and in the circumstances of the case and On the facts and in the circumstances of the case and in law, the On the facts and in the circumstances of the case and CIT(A) erred in confirming the disallowance made by AO towards CIT(A) erred in confirming the disallowance made by AO towards CIT(A) erred in confirming the disallowance made by AO towards

Asia Investments Pvt. Ltd 46 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 professional fees of Rs. 6,00,00,000 paid to Deep C. Anand professional fees of Rs. 6,00,00,000 paid to Deep C. Anand professional fees of Rs. 6,00,00,000 paid to Deep C. Anand Foundation by attributing it towards incurred for promoting the Foundation by attributing it towards incurred for promoting the Foundation by attributing it towards incurred for promoting the interest of group companies and was not incurred for the p interest of group companies and was not incurred for the p interest of group companies and was not incurred for the purpose of business of the the appellant. 13.1 The issues in dispute raised in the aforesaid grounds stand The issues in dispute raised in the aforesaid grounds stand The issues in dispute raised in the aforesaid grounds stand squarely covered by our findings rendered while adjudicating the squarely covered by our findings rendered while adjudicating the squarely covered by our findings rendered while adjudicating the appeal for the Assessment Year 2012 appeal for the Assessment Year 2012-13. Accordingly, these 13. Accordingly, these grounds are decided grounds are decided mutatis mutandis in terms of the said decision. in terms of the said decision.

by the assessee are reproduced 15. The grounds raised by the assessee are reproduced 15. The grounds raised by the assessee are reproduced as under:

“1. In the facts and circumstances of the case and in law, the Ld. In the facts and circumstances of the case and in law, the Ld. In the facts and circumstances of the case and in law, the Ld. CIT(A) ought to CIT(A) ought to have held that holding shares to have controlling have held that holding shares to have controlling interest in the group is a business activity and consequentially interest in the group is a business activity and consequentially interest in the group is a business activity and consequentially erred in not directing the Ld. AO to allow expenses incurred for erred in not directing the Ld. AO to allow expenses incurred for erred in not directing the Ld. AO to allow expenses incurred for carrying on or in relation to business of strategic investment. carrying on or in relation to business of strategic investment. carrying on or in relation to business of strategic investment.

2. Without prejudice to Ground No. 1, in the facts and circumstances prejudice to Ground No. 1, in the facts and circumstances prejudice to Ground No. 1, in the facts and circumstances of the case and in law the Ld. CIT(A) ought to have held that no of the case and in law the Ld. CIT(A) ought to have held that no of the case and in law the Ld. CIT(A) ought to have held that no disallowance could have been made under section 14A to the extent disallowance could have been made under section 14A to the extent disallowance could have been made under section 14A to the extent of Rs. 19,29,64,978 of Rs. 19,29,64,978 towards direct expenditure, interest and other direct expenditure, interest and other administrative expenditure, out of the expenditure incurred to carry administrative expenditure, out of the expenditure incurred to carry administrative expenditure, out of the expenditure incurred to carry on business of strategic investment. on business of strategic investment.

4. Without prejudice to the Ground nos. 1,2 & 3, in the facts and in Without prejudice to the Ground nos. 1,2 & 3, in the facts and in Without prejudice to the Ground nos. 1,2 & 3, in the facts and in the circumstances of the case and in law the L the circumstances of the case and in law the Ld. CIT(A) ought to CIT(A) ought to have directed the Ld. AO to delete the disallowance made by Ld. AO have directed the Ld. AO to delete the disallowance made by Ld. AO have directed the Ld. AO to delete the disallowance made by Ld. AO towards interest expenditure of Rs. 15,05,94,171, Personnel towards interest expenditure of Rs. 15,05,94,171, Personnel towards interest expenditure of Rs. 15,05,94,171, Personnel expenses of Rs. 2,00,00,000, Travelling expense of Rs. 1,05,34,529, expenses of Rs. 2,00,00,000, Travelling expense of Rs. 1,05,34,529, expenses of Rs. 2,00,00,000, Travelling expense of Rs. 1,05,34,529, Business promotion expenses of Rs. 32,90,2 Business promotion expenses of Rs. 32,90,237, Rent expenses of 37, Rent expenses of Rs. 46,00,000, repairs expenses of Rs. 49,00,000, and depreciation Rs. 46,00,000, repairs expenses of Rs. 49,00,000, and depreciation Rs. 46,00,000, repairs expenses of Rs. 49,00,000, and depreciation

Asia Investments Pvt. Ltd 47 6353/MUM/2017, 6353/MUM/2017, 6209/MUM/2019 of Rs.30,00,000 by treating the same as directly linked for earning of Rs.30,00,000 by treating the same as directly linked for earning of Rs.30,00,000 by treating the same as directly linked for earning exempt income for the purpose of computing disallowance under exempt income for the purpose of computing disallowance under exempt income for the purpose of computing disallowance under section 14A r.w.r. &D by relying upon section 14A r.w.r. &D by relying upon the order passed for earlier the order passed for earlier years without appreciating the fact that the facts of each year are years without appreciating the fact that the facts of each year are years without appreciating the fact that the facts of each year are different. Without prejudice to the above, the Ld. CIT(A) ought to have held Without prejudice to the above, the Ld. CIT(A) ought to have held Without prejudice to the above, the Ld. CIT(A) ought to have held that the expenses were incurred for the business of the appellant that the expenses were incurred for the business of the appellant that the expenses were incurred for the business of the appellant and not for the and not for the business of the group companies.

5. On the facts and in the circumstances of the case and in law, Ld. On the facts and in the circumstances of the case and in law, Ld. On the facts and in the circumstances of the case and in law, Ld. the CIT(A) erred in confirming disallowance made by Ld AO towards the CIT(A) erred in confirming disallowance made by Ld AO towards the CIT(A) erred in confirming disallowance made by Ld AO towards UK Branch office expenses of Rs. 67.94,409 by treating the same as UK Branch office expenses of Rs. 67.94,409 by treating the same as UK Branch office expenses of Rs. 67.94,409 by treating the same as incurred for promotin incurred for promoting business of the group companies and were g business of the group companies and were not incurred for the purpose of business of the assessee company not incurred for the purpose of business of the assessee company not incurred for the purpose of business of the assessee company and observing that the appellant did not have any business and observing that the appellant did not have any business and observing that the appellant did not have any business expediency or justification for incurring UK office expenses. expediency or justification for incurring UK office expenses. expediency or justification for incurring UK office expenses.

6. On the facts and in the On the facts and in the circumstances of the case and in law, the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance made by Ld. AO Ld. CIT(A) erred in confirming the disallowance made by Ld. AO Ld. CIT(A) erred in confirming the disallowance made by Ld. AO towards professional fees of Rs. 6,00,00,000 paid to Deep C. Anand towards professional fees of Rs. 6,00,00,000 paid to Deep C. Anand towards professional fees of Rs. 6,00,00,000 paid to Deep C. Anand Foundation by attributing it towards incurred for promoting the Foundation by attributing it towards incurred for promoting the Foundation by attributing it towards incurred for promoting the interest of group co interest of group companies and was not incurred for the purpose of mpanies and was not incurred for the purpose of business of the appellant and also stating that the appellant has business of the appellant and also stating that the appellant has business of the appellant and also stating that the appellant has not not not been been been able able able to to to establish establish establish the the the necessity necessity necessity of of of making making making substantial payments payments to Mr. Deep C Anand both as chairman of Mr. Deep C Anand both as chairman of the company and as the trustee the company and as the trustee of Deep C Anand Foundation. Foundation.” 14.1 The issues in dispute raised in the aforesaid grounds stand The issues in dispute raised in the aforesaid grounds stand The issues in dispute raised in the aforesaid grounds stand squarely covered by our findings rendered while adjudicating the squarely covered by our findings rendered while adjudicating the squarely covered by our findings rendered while adjudicating the appeal for the Assessment Year 2012 appeal for the Assessment Year 2012-13. Accordingly, these 13. Accordingly, these grounds are decided grounds are decided mutatis mutandis in terms of the said decision. in terms of the said decision.

Order pronounced in the open Court on ounced in the open Court on 27/11/2025. /11/2025.