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

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ITA 6353/MUM/2017Status: DisposedITAT Mumbai27 November 2025AY 2013-1448 pages

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Cases cited in this judgment

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Maxopp Investment Ltd. v. CIT
91 Taxmann.com 154 · 2018 · SC
1,570 citing
Ltd. (1993) 203 ITR 108, CIT Vs. Nirav Modi (2017) 390 ITR 292, CIT v. Chemsword P. Ltd.
132 Taxmann.com 173 · 2021 · HC
12 citing

Income Tax Appellate Tribunal, MUMBAI BENCH “A” MUMBAI

Before: SHRI OM PRAKASH KANT & SHRI RAJ KUMAR CHAUHAN

For Appellant: Mr. Kalpesh Unadkat &, Mr. Hasmukh Ravaria

For Respondent: Mr. Rajesh Kumar Yadav, CIT-DR

Hearing: 29/09/2025Pronounced: 27/11/2025

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.

Firstly, we take up the appeal of the assessee for assessment Firstly, we take up the appeal of the assessee for assessment Firstly, we take up the appeal of the assessee for assessment 13. The grounds raised

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

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,

“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.

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.

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.

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).

9.3 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.

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

“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,

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:

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.

"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.

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.

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.

“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.

“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.

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

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

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).

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 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.