ASIA INVESTMENTS P.LTD,MUMBAI vs. ADDL CIT RG 2(1), MUMBAI

for your sympathetic consideration:

6. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance under section 14A of the Income Tax Act, 1961 (Act', for short) in respect of investments aggregating to Rs. 198,74,78,114, which were strategic investments not made with the intention of earning dividend income.

7. On the facts and in the circumstances of the case and in law, the learned CIT(A) also erred in confirming the disallowance under section 14A of the Act in respect of investments aggregating to Rs. 92,90,37,345 on which no exempt income was earned by the appellant during the year under appeal. Your appellant reserves the right to add, to alter or amend any of the above grounds, if necessary” 2.1. He submitted that, additional grounds raised by the assessee springs out of Ground no.3 and therefore, all relevant details /information are available on record to decide the issue raised there in. 2.2. The Ld.DR though objected for admission of additional grounds, could not controvert submissions of the assessee. We have perused the submissions advanced by both the sides in light of the records placed before us. 2.3. The issue alleged by the assessee in additional grounds are connected with the expenditure disallowed by the authorities below. It is noted that the assessee has raised the challenge on the disallowance of expenditure in ground nos.3-5. It is also noted that no new facts are required to be investigated to adjudicate the same. Considering the submissions and respectfully following the decisions of Hon’ble Supreme Court in case of National Thermal Power Company Ltd. Vs. CIT reported in (1998) 223 ITR 383 and Jute Corporation of India Vs. CIT reported in 187 ITR 688, we admit the additional grounds raised by the assessee. Accordingly the application filed by the assessee seeming admission of additional grounds stands allowed. Accordingly the application for admission if additional grounds stands allowed.

Brief facts of the case are as under: 3. The assessee is stated to be investing company carrying on business of acquiring and exercising control over companies in Anand Group to provide long term finance and to provide managements consultancy services to various companies of Anand Group. It is submitted that, Anand Group is a global leader in manufacturing product for automotive industry and is a flagship company of the group, wherein Gabriel India Ltd., was formed to manufacture shock absorbers. It is submitted that, the group has established around 13 joint ventures and 7 technical collaborations. The assessee submitted that 99% of the investment held by the assessee are in the companies of Anand Group and has been classified as long term investments in its financial statements. 3.1. The Ld.AR submitted that, the assessee for the year under consideration had made investment in group companies for acquiring controlling power. It is submitted that these investments were treated as its business activity in the nature of trade and commerce. The Ld.AR submitted that the assessee earned dividend 4 of Rs. 35,14,87,406/- from the shares held for controlling interest in the group companies. The assessee had filed its return of income for the year under consideration on 29.09.2011 declaring income of Rs. 5,14,12,930/-. 3.2. The case was selected for scrutiny and based on the submissions furnished by the assessee in response to the notice issued. The Ld.AO after perusal of submissions filed by the assessee was of the opinion that the activity of acquiring shares by assessee though for controlling interest, cannot be treated as business activity. Instead it amounts to investment made by the assessee for the reason that the assessee never treated the shares issued by the group companies of Anand Group as stock in trade but was shown as Investment in the balance sheet. 3.3. The assessee was called upon to furnish details and explanation towards the expenditure claimed for rend paid and other expenses like electricity, postage and telephone, vehicle expenses, kitchen expenses and maintenance expenses paid while staying in UK. 3.4. The Ld.AO disallowed Rs.1,02,63,993/- by observing that, these were incurred towards rent paid while staying in UK and other expenses like electricity, postage and telephone, vehicle expenses, kitchen expenses and maintenance expenses as assessee was not carrying out any business. It was observed by the Ld.AO that, these expenses were said to have been incurred for meeting foreign customers and collaborators on behalf of the group 5 companies, which cannot be considered to be incurred for the purposes of business of the assessee. 3.5. The Ld.AO further noted that the portion of the professional fees was paid to the Trust of the Chairman being Mr. Deep C Anand for which no proper justification was given except for stating that Deep C Anand Foundation was appointed to provide management services to the assessee in the area of human resources, review of financial performance, to help assessee to improve its performance of its affiliate company and to guide for hirer but in a different capacity being trust of Mr. Deep C Foundation. 3.5.1. The assessee was called upon to file details regarding the professional fees debited under the head “Selling and Administration head. From the details furnished by the assessee, the Ld.AO noted that Rs.1.60 crore was paid to Mr. Deep C Anand Foundation Trust managed by Mr. Deep C Anand and Mrs. Kiran Deep C Anand. The Ld.AO thus disallowed the said amount paid by the assessee to Mr. Deep C Anand by holding that the payment was made without any basis. 3.6. The Ld.AO noted that the assessee had earned huge dividend from the investments made in the group companies. The assessee was thus called upon to furnish the details. The assessee in response to showcause notice submitted that, it had received dividend income from its group company and subsidiary company Gabriel India Ltd., Degremont Ltd., Manovitor and Spicer India Ltd. Amounting to Rs.35,14,87,406/-. It was submitted that, the 6 assessee had suo-moto disallowed Rs. 9,08,52,583/- in the computation of income under section 14A r.w. 3.6.1. The Ld.AO noted that assessee had not made any disallowance under Rule 8D(i) towards the direct expenses and thus computed the disallowance under section 8D(i) by disallowing following items: (i) Interest payment processing fee Rs. 7,77,25,290/- (ii) The percentage of disallowance Rs. 1.5 Crores out of personal expenses (iii) Traveling and conveyance Rs. 1,04,34,529/- expenses (iv) Business Promotion Expenses Rs. 32,90,237/- (v) Rent Expenses Rs. 40, lakhs (vi) Repair and Maintenance Rs. 10 lakhs Expenses (vii) Disallowance on deprecation Rs. 29 lakhs Total Rs. 11,44,50,056/- 3.6.2. Further, under the limb Rule 8D(ii), interest expenses of Rs. 2,74,33,122/- was disallowed. And under the Rule 8D(iii) 0.5% of the average value of the total investment in the balance sheet a sum of Rs. 92,19,129/- was also disallowed. 3.7. The assessment was thus completed under section 143(3) of the Income Tax Act, 1961 (the Act) by making following additions: (i) Addition under section 14A - Rs. 6,02,49,724/- (ii) Disallowance out of professional expenses - Rs. 1,60,00,000/- 7 (iii) Disallowance of U.K. Guest House Expenses - Rs. 1,02,63,993/- (iv) Share of loss from partnership - Rs. 1,125/- 3.8. Aggrieved by the order of Ld.AO, the assessee preferred appeal before the Ld.CIT(A). “3.1 Ground No.1 and 2 are interconnected, hence taken together. Assessing Officer has mentioned that in reality assessee does not do any manufacturing activities or commercial business, rather it acts as an investment Company. It is evident that this company is one of the companies of Anand Group Companies. During the year no manufacturing has taken place. Total sale is shown of Rs.40,000. Entire opening stock of Rs.7.91 lac has been sold out for loss of Rs.7.51 lac, There is no material consumption but same has been mentioned in balance sheet. Further, according to the Assessing Officer this company is being used for making investment with a view to hold the stake of other companies, that is why investment has not been shown as stock in trade. As and when assessee sales the shares, income is shown as capital gain / loss and not as a business income / loss. Obviously, such company is entitle to claim a statutory corporate expenses only and not other expenses. The assessee shows only capital gain. Its shares are shown as a stock in trade, then only regular business expenses can be claimed. It is very obvious that Anand Group of Companies comprises of number of companies and assessee is merely holding the shares of these companies. Therefore, assessee is not entitled for various expenses, hence Assessing Officer has disallowed the expenses of U.K. Office and professional fees, and thereafter has made disallowance u/s. 14A r.w.r.8D. 3.2 In appeal, on other hand it is contended that assessee does business of investment. It was incorporated in 1966 with the main business activities of exercising control over companies in Anand Group and to provide long term finance and consultancy services. The shares have been purchased with the intention to maintain controlling there is systematic activities. Ld. Assessing Officer has properly appreciated the same. The written submission is as under :- "During the year the appellant company has eamed income by way of dividend, interest income, income earned on sale of its investments and professional fees for providing management support services to group company. 8 During the assessment proceedings the AO had disallowed various expenditure on the ground that these expenditure have been incurred to further the interests of subsidiary companies and not the assessee's own business interest. In this respect we wish to submit as follows:  The A.O. had recorded a finding to the effect that the appellantis an investment company and as such cannot claim business expenditure unless it holds such shares as stock in trade. He accepts the fact that the appellant company has been incurring expenditure to further the interests of its subsidiary companies. His objection is that such expenditure is not for purposes of business. According to him, the appellanthas no manufacturing or export activity which it carries on in its own right as would justify such expenditure being incurred.  Respectfully it is submitted that the main business interest of the assesse company qua a holding company is to protect and further the business interests of the subsidiary companies which it has promoted  The learned authors Kanga and Palkhivala, in Law and Practice of Income Tax Vol.1, 10th edition, have pointed out at page 953 that the expression "wholly and exclusively for business" is not to be interpreted as wholly and exclusively for the assessee's own business only. A holding company, for example, has often to act in the interests of its subsidiaries, even if they are involved in a different line of business from that of the holding company. It might for example may have to stand guarantee for such subsidiaries or advance loans to them. Thus in CIT v. United Breweries Ltd. 292 ITR 188 (Kar), it was held that irrecoverable loans granted to a subsidiary company were an allowable deduction.  In CIT v. Amalgamation Pvt. Ltd. (226 ITR 188), the Supreme Court confirmed the finding of the High court (73 ITR 380) thatin view of sec. 23A of the 1922 Act holding of investments, in appropriate cases, would equally be a business as dealing in them and what is required is that there must be a real, substantial and systematic or organised course of activity or conduct with the set purpose of earning profit which is the test for a business. The High Court has observed that the assessee-company is not a mere investor in a single company but has investments in sixteen companies and had taken active interest in the business of these companies as is clear from the services that had been rendered in the shape of export promotion, liaison office at Delhi and internal audit and it also rendered consultation in respect of finance by its directors meeting every day with reference to the needs and requirements of each 9 company and that it is not a case where the assessee-company contented itself with merely making an investment and looking for the dividend. The High Court has, therefore, held that there was a business activity in the matter of holding of investments.  In CIT v. RajeevaLochankanoria208 ITR 616( Cal), it was held that funds borrowed for acquiring interest in managed companies was an allowable deduction. The Court observed that the activity of managing, controlling, administering and financing companies is a business/ professional/vocational activity in its own right."  It is submitted that in the present case the assesse qua holding company has similarly to act to advance the business interests of its subsidiary companies. It has often to engage with joint venture partners of the subsidiaries because it has long experience of carrying out such negotiations. Secondly and equally importantly, as a promoter it has an interest in ensuring that the subsidiary companies continue to grow and remain in good health.  It has necessarily to hold shares as investment and not stock in trade because it is a not dealer in shares and has a long term interest in the future of the subsidiary companies it has promoted.  It is further submitted that these are precisely the considerations which may have weighed with the Courts when they held interest paid on borrowed capital utilized to buy shares of managed companies for purposes of carrying on its managing agency business was for purposes of business (CITv. J.M. Industries 218 ITR 218(Cal) and CIT V. Cotton Fabrics Ltd. (Guj)). If interest liability accruing on capital borrowed to purchase shares of a managed company so as to maintain control over the latter can be allowed as deduction, the justification for allowance of expenditure for furthering the interests of a subsidiary company by a holding company would perhaps be equally, if not more, justifiable.  The A.O. has opined that since the shares in subsidiary companies are held as investments and the assesse eams only dividend income from such investments, no business expenditure to further their interests can be allowed as a deduction for earning such income.  In this connection it is submitted that expenditure laid out or expended wholly and exclusively for business as stipulated u/s.37 is much wider than expenditure laid or expended for earning dividend income stipulated u/s. 57 (refer, India Cement v. CIT 60ITR 52(SC). In Hughes v. Bank of New Zealand6 ITR 636 it was held that the interest paid by a bank for capital borrowed for buying tax free securities had to be allowed as deduction in arriving at taxable profits, notwithstanding the fact that interest on tax free securities could not be taxed. The court observed that a receipt on the credit 10 side is not required to justify the deduction of an expense. In other words, every debit does not have to correspond to a matching credit. Similarly, in CIT v. Anniversary Investment Agency195 ITR 199 (Cal) it was held that where dividend income is attributable to the business carried on by the assesse, the nature or quality of the expenditure to earn dividend income, as expenditure laid out or expended for the purpose of business, would not be affected, notwithstanding the fact that the dividend income is not taxable under the head business. The court reached an identical conclusion in Commissioner of Income-Tax vs Jardine Henderson Ltd. 1994 210 ITR 981 (Cal). In the case of S.A. Builders Ltd. v. CIT (281 ITR 1) (SC) the Supreme Court held that where a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, Bench opined that, ordinarily be entitled to deduction of interest on its borrowed loans." 3.3 I have considered the findings of the Assessing Officer and rival submission of the appellant, carefully. I find that appellant has admitted the fact that it has purchased shares of group companies only "with the intention to maintain controlling interest in group companies". Therefore, the finding of the Assessing Officer that appellant does not do any regular course of business or manufacturing activities or any other sort of business, is correct. It can be seen from the balance sheet that assessee simply shows dividend, interest and income from other source. Thus, it is very evident that no other business activities is done, hence the finding of the Assessing Officer is worth approvable. As such, I find no reason to accept the counter arguments of Ld. A.R. / Appellant. Thus, the approach and finding of the Assessing Officer is sustained. 3.4 In the result, both Ground No.1 and 2 are dismissed. 4.1 Ground No.3 is against disallowance of expenditure under Section 14A r.w.r.8D. During the previous year the appellant company had earned income by way of dividend, interest income, income earned on sale of its investments and professional fees for providing management support services to group company. In this year, assessee has received dividend of Rs.35,14,87,406/- from the group companies and subsidiaries which is exempt. The appellant had disallowed suo- motto expenditure of INR 9,08,52,583 under section 14A by applying Rule 8D for earning exempt income in the return of income. However, the Assessing Officer disallowed expenditure of INR 11,44,50,056 by treating it as directly linked for 11 earning exempt income, INR 2,74,33,122 as disallowance for interest expenditure under Rule 8D (ii) and INR 92,19,129 as administrative expenses aggregating to total disallowance of INR 15,11,02,307. Out of the total personnel expenses of INR 2,24,72,875, amount of INR 1,50,00,000 has been considered as direct expenses by the Assessing Officer for the purpose of working out disallowance as per Rule 8D(i). The travelling and conveyance expenses of INR 1,05,34,529 and business promotion expenses of INR 32,90,237 have been considered by the Assessing Officer as direct expenses for the purpose of working out disallowance as per Rule 8D(i). Out of the total rent expenses of INR 81,96,051 and repairs expenses of INR 21,25,437, amount of INR 40,00,000 and INR 10,00,000 respectively have been considered as direct expenses by the Assessing Officer for the purpose of working out disallowance as per Rule 8D(1). Out of total depreciation of INR 58,98,281, amount of INR 29,00,000 has been considered as direct expenses by the Assessing Officer for the purpose of working out disallowance as per Rule 8D(i). According to the Assessing Officer the assesse has not apportioned any direct expenses related to earning of dividend whereas it is seen that entire borrowings from capital have been utilised for investing in the shares of Anand Group Companies, hence direct nexus is established therefore the interest expenditure of Rs.7,77,25,290/- has to be disallowed u/s.14A. Thus, Assessing Officer has found that total expenditure of Rs. 11,44,50,056/- are directly related to earning of dividend. Further, as per Rule allowable expenditure is there, hence, Assessing Officer has worked out the same at Rs.2,74,33,122/- and Rs.92, 19, 129/-. Thus, finally Assessing Officer has disallowed an amount of Rs. 15,11,02,307/- 4.2 In appeal, on other hand, it is submitted that Ld. Assessing Officer has wrongly disallowed the expenditure ignoring the disallowance made by the Appellant. The written submission is as under :-  "During the year under consideration the appellant had eamed dividend income of INR 35,14,87,406 from various companies. The appellant while filing the retum of income had disallowed expenditure of INR 9,08,52,385 under section 14A by applying Rule 8D for earning exempt income. However the Assessing Officer disallowed expenditure of INR 11,44,50,056 by treating it as directly linked for earning exempt income under Rule 8D (i) and enhanced disallowance of INR 2,74,33,122 as disallowance for interest expenditure under Rule 8D (ii). Disallowance of personnel expenses INR 1,50,00,000 12  The appellant apart from being an investment company also provided management/corporate services to Spicer India Limited, part of Anand Group. The appellant had been carrying out the above business activity though its employees and various consultants. The details of the personnel expenses are enclosed herewith. The aggregate expenditure towards personnel cost during the year was INR 2,24,72,875 as against INR 1,49,85,165 incurred in previous financial year Le. FY 2009-10. We also wish to draw your attention that these expenses have been allowed in the past as business expenditure. The AO without giving any cogent reason held that the payment to employees are excessive and unreasonable and made an ad-hoc disallowance of INR 1,50,00,000 as attributable to earning dividend income. Disallowance of Interest of INR 2,74,33,122  The appellant Company had taken secured and unsecured loans and inter corporate deposits from Anfilco Ltd., Tata Capital Ltd, Kotak Mahindra Bank and HDFC bank for the purpose of business. These loans and deposits taken by the appellant Company were for making investment in shares in Anand Group of companies, working capital purpose, giving loans to group companies and purchase of vehicles. The main business activities of the appellant Company weremaking investment in and giving finance to the Anand group of companies and providing management support to the Anand group of companies.  During the year under consideration the appellant had incurred Interest expenditure of INR 10,38,96,282. Since there was no direct nexus with the investment in equity shares dividend from which was exempt, the appellant while filing retum of income had itself disallowed interest expenses of INR 8,16,33,454 in accordance with Rule 8D(ii) r.w.s. 14A.  However AO has held that since loan taken of INR 60,00,00,000 from Tata Capital Limited had been utilised for purchasing shares of Gabriel India Limited, Mando Steering and Degremont Limited, the expenditure of interest paid of INR 6,89,82,540 and processing fees of INR 87,42,750 paid to Tata Capital Limited have been disallowed by concluding that it had direct nexus with the investment.  We wish to point out that even if the loan of INR 65 crore was taken the incremental investment in equity shares of these companies are as follows: Name of the Company Investment As Investment As Incremental on 31st March on 31st March investment 2010 2011 13 Gabriel India Limited 42,46,71,286 57,64,65,268 15,17,93,982 Mando India Limited 7,86,26,000 7,86,26,000 Nil Degremont Limited 3,86,72,160 3,86,72,160 Nil  In fact the aggregate increase in Investment during the year under consideration was only INR 30,48,44,095. Thus it was incorrect on the part of the AO to conclude that the entire borrowings from Tata Capital have been utilised for investing in shares of Anand Group Companies. He has observed that the entire loan of INR 65 crore was utilised for purchase of shares.  Thus as explained above there was no direct nexus between the borrowed funds and investment and considering the fact that money was fungible, the appellant had correctly applied Rule 8D (ii) and disallowed the expenditure of INR 8,16,33,454.  The expenditure towards proceeding fees is not an interest expenditure and the same has been considered while computing disallowance under Rule 8D(iii).  In view of the above the expenditure disallowed under Rule 8D be deleted. Disallowance of Travelling expenses of INR 1,05,34,529 and Business promotion expenses of INR 32,90,237  We are enclosing the details of the travelling expenses and business promotion expenses. These expenses include air fares, lodging and boarding, purchase of foreign exchange, etc. The details of personnel, origin and destination and duration of the trip are also enclosed. These expenses have been incurred by the top management and senior personnel of the appellant Company for the purposes of the business of the Company. These expenditure had been incurred wholly and exclusively for the business activity. As mentioned earlier, the holding of investment or having a controlling interest in subsidiaries is the main business activity of the appellant company. The same can be substantiated with the fact that appellant was holding 99% its investment in the group companies. Therefore, it is submitted that the primary object of investment is holding controlling stake in the group concern and not earning any income out of investment. Further the investment were made long back and not in the year under consideration. Therefore, in view of the fact that the investment are in the group concern, there is no reason to believe that the appellant would have incurred any administrative expenses in holding these investments. The AO has 14 not brought on record any material to show that the appellant has incurred any expenditure in relation to the income which does not form part of the total income. Section 14A has within it implicit the notion of apportionment in the cases where the expenditure is incurred for composite/indivisible activities in which taxable and non taxable income is received but when no expenditure has been incurred in relation to the exempt income then principle of apportionment embedded in section 14A has no application. Therefore, the question of considering the same for the purpose of disallowance under Section 14A would not arise. Case laws relied upon  Garware Wall Ropes Limited Vs. AddI. CIT Mumbai Tribunal has held as follows: "We have considered the rival submission and carefully perused the relevant records. So far as the issue regarding disallowance u/s 14A in the case where no dividend has been received, the same is covered against the assessee by the order of Tribunal in assessee's own case for the assessment year 2008-09, wherein the Tribunal has followed the decision of special bench of Tribunal while deciding the issue. Therefore, we do agree with the finding of the Tribunal on this point. Further since the assessee has raised the new plea in the year under consideration that no expenditure had been incurred by the assessee for earning the exempt income or for the investment in question. We find merit and substance in the contention of the assessee on this point because the investment has been made by the assessee in the group concern and not in the shares of any un- related party. Therefore, the primary object of investment is holding controlling stake in the group concern and not earning any income out of investment. Further the Investment were made long back and not in the year under consideration. Therefore, in view of the fact that the investment are in the group concern we do not find any reason to believe that the assessee would have incurred any administrative expenses in holding these investments. The AO has not brought on record any material to show that the assessee has incurred any expenditure in relation to the income which does not form part of the total income. Section 14A has within it implicit the nation of apportionment in the cases where the expenditure is incurred for composite/indivisible activities in which taxable and non taxable income is received but when no expenditure has been incurred in relation to the exempt income then principle of apportionment embedded in section 14A has no application. The object of section 14A is not allowing to reduce tax payable on the non exempt income by deducting the expenditure incurred to earn 15 the exempt income. In the case in hand it is not the case of the revenue that the assessee has incurred any direct expenditure or any interest expenditure for earning the exempt income or keeping the investment in question. If there is expenditure directly or indirectly incurred in relation to exempt income the same cannot be claimed against the income which is taxable. For attracting the provisions of section 14A- "there should be proximate cause for disallowance which has relationship with the tax exempt income as held by the Hon'ble Supreme Court in case of CIT Vs. Walfort Share and Stock Brokers P. Ltd. (326 ITR 1). Therefore, there should be a proximate relationship between the expenditure and the income which does not form part of the total income. In the case in hand the assessee has claimed that no expenditure has been incurred for earning the exempt income, therefore, it was incumbent on the AD to find out as to whether the assessee has incurred any expenditure in relation to income which does not form part of the total income and if so to quantify the expenditure of disallowance. The AO has not brought on record any fact or material to show that any expenditure has been incurred on the activity which has resulted into both taxable and non taxable income. Therefore, in our view when the assessee has prima facie brought out a case that no expenditure has been incurred for earning the income which does not form part of the total income then in the absence of any finding that expenditure has been incurred for earning the exempt income the provisions of section 14A cannot be applied. Accordingly we delete the addition/disallowance made by AO u/s 14A r.w. Rule 8D."  Mumbai Tribunal in case of JM Financial Limited Vs Additional Commissioner of Income Tax 4(3) has held as follows: In view of the above discussion and facts and circumstances of the case we agree with the view taken by this Tribunal in the above stated cases and accordingly hold that the assessee has brought out a case to show that no expenditure has been incurred for maintaining the 98% of the investment made in the subsidiary companies, therefore, in the absence of any finding that any expenditure has been incurred for earning the exempt income, the disallowance made by the AO is not justified, accordingly the same is deleted." 4.3 I have considered the findings of the Assessing Officer and rival submission of the appellant, carefully. I find that during the year assessee has received dividend of Rs.35,14,87,406/-, interest income of Rs. 17,265,656/- and professional fees of Rs. 14,65,30,638/-. When there is dividend, which is exempt the corresponding expenditure has to be disallowed as per Section 14A 16 r.w.r. 8D. Appellant has disallowed suo-motto an amount of Rs.9,08,52,583/- but there is no proper justification for such disallowance. As per the appellant's admission by letter dated 23.10.2013, assessee was granted loan of Rs.60 crores by Tata Capital Ltd. Out of which Rs. 15 crores was for purchase of 15% shares of Gabriel India Ltd. and Rs.45 crores was for investment in shares of Group Companies ie. Rs.30 crores in shares of Mando Steering and Rs. 15 crores in shares of Degremont. On such loan, there is interest expenses of Rs.6,89,82,540/- and processing fees of Rs.87,42,750/-. Thus, there is direct nexus of expenditure with exempt income. Assessing Officer has rightly pointed out the fact of such expenditure directly related to earning of exempt income. Similarly, most of the business expenses have been incurred for promoting the Anand Group of Companies businss hence element of expenditure embedded in personnel cost is very much there. Assessing Officer has disallowed only an amount of Rs.1.50 crores out of total expenditure of Rs.2.24 crores. I find that Ld. Assessing Officer has rightly done so. Similar is the fact related to traveling and conveyance expenses and other expenses mentioned by the Assessing Officer. Thus, the total disallowance worked out by the Assessing Officer to the extent of Rs. 11,44,50,056/- is found to be directly related to earning the exempt income hence same is to be disallowed under Rule 8D, first limb. Similarly, in second limb interest expenditure has to be disallowed having indirect nexus. Of course third limb of Rule 8D (2)(iii) is also applicable. Thus the total disallowance of expenditure worked out by the Assessing Officer to the extent of Rs. 15,11,02,307/- is sustainable. Appellant has not explained as to how disallowance offered by it to the extent of Rs.90852583/- is correct and disallowance has to be restricted to this amount. Therefore, after going through the written arguments and facts on records, I find no reason to discard the working of disallowable expenditure made by the Assessing Officer. Because of facts of the case, none of the decisions relied upon by the Ld. Authorised Representative is applicable, therefore, in the light of the above discussion, the disallowance of expenditure made by the Assessing Officer of Rs. 15,11,02,307/- is sustained. Since, assessee has suomoto disallowed exp of Rs.90852583/-, the balance additional disallowance comes to Rs.60249724/-. 4.4 In the result, Ground No. 3 is dismissed. 5.1 Ground No.4 is against the disallowance of professional fees of Rs.1,60,00,000/- paid to Deep C. Anand foundation. Assessing Officer has noticed that assessee has shown professional fees of Rs.23869,173/- which includes an amount of Rs. 1.60 crores as 17 paid to Deep C. Anand foundation. Mr. Deep C. Anand is the Chairman of the assessee company. According to the Assessing Officer, such expenditure is not at all related to any business needs of the assessee. The explanation of the assessee is that this foundation has given advises and consultancy is not supported with the any evidence. According to the Assessing Officer there is not business expediency for making such payment to the Trust. There is no justification for such expenses, hence Assessing Officer has disallowed the such professional fees of Rs. 1.60 crores claimed to be given to the Trust. 5.2 In appeal, appellant submit as under :-  Respectfully it is submitted that the main business interest of the appellant company qua a holding company is to protect and further the business interests of the subsidiary companies which it has promoted.  The learned authors Kanga and Palkhivala, in Law and Practice of Income Tax Vol.1, 10 edition, have pointed out at page 953 that the expression "wholly and exclusively for business" is not to be interpreted as wholly and exclusively for the assessee's own business only. A holding company, for example, has often to act in the interests of its subsidiaries, even if they are involved in a different line of business from that of the holding company. It might for example may have to stand guarantee for such subsidiaries or advance loans to them. Thus in CIT v. United Breweries Ltd. 292 ITR 188 (Kar), it was held that irrecoverable loans granted to a subsidiary company were an allowable deduction.  In CIT v. Amalgamation Pvt. Ltd. (226 ITR 188), the Supreme Court confirmed the finding of the High court (73 ITR 380) that in view of sec. 23A of the 1922 Act holding of investments, in appropriate cases, would equally be a business as dealing in then and what is required is that there must be a real, substantial and systematic or organised course of activity or conduct with the set purpose of earning profit which is the test for a business. The High Court has observed that the assessee-company is not a mere investor in a single company but has investments in sixteen companies and had taken active interest in the business of these companies as is clear from the services that had been rendered in the shape of export promotion, liaison office at Delhi and internal audit and it also rendered consultation in respect of finance by its directors meeting every day with reference to the needs and requirements of each company and that it is not a case where the assessee-company contented itself with merely making an investment and looking for the dividend. The High Court has, therefore, held that there was a business activity in the matter of holding of investments.  In CIT v. RajeevaLochanKanoria208 ITR 616( Cal), it was held that funds borrowed for acquiring interest in managed companies was an allowable deduction. The Court observed that the activity of managing, controlling, administering and financing companies is a business/ professional/vocational activity in its own right."  In the case of S.A. Builders Ltd. v. CIT (281 ITR 1)(SC) the Supreme Court held that where a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, Bench opined that, ordinarily be entitled to deduction of interest on its borrowed loans.  It is submitted that in the present case the assesse qua holding company has similarly to act to advance the business interests of its subsidiary companies. It has often to engage with joint venture partners of the subsidiaries because it has long experience of carrying out such negotiations. Secondly and equally importantly, as a promoter it has an interest in ensuring that the subsidiary companies continue to grow and remain in good health.  It has necessarily to hold shares as investment and not stock in trade because it is a not dealer in shares and has a long term interest in the future of the subsidiary companies it has promoted.  It is further submitted that these are precisely the considerations which may have weighed with the Courts when they held interest paid on borrowed capital utilized to buy shares of managed companies for purposes of carrying on its managing agency business was for purposes of business (CITV. J.M. Industries 218 ITR 218(Cal) and CIT V. Cotton Fabrics Ltd. (Guj)). If interest liability accruing on capital borrowed to purchase shares of a managed company so as to maintain control over the latter can be allowed as deduction, the justification for allowance of expenditure for furthering the interests of a subsidiary company by a holding company would perhaps be equally, if not more, justifiable.  The A.O. has opined that since the shares in subsidiary companies are held as investments and the assesse eams only dividend income from such investments, no business expenditure to further their interests can be allowed as a deduction for earning such income.  In this connection it is submitted that expenditure laid out or expended wholly and exclusively for business as stipulated u/s.37 is much wider than expenditure laid or expended for earning dividend income stipulated u/s57 (refer, India Cement v. CIT 60ITR 52(SC). In Hughes v. Bank of New Zealand6 ITR 636 it was held 19 that the interest paid by a bank for capital borrowed for buying tax free securities had to be allowed as deduction in arriving at taxable profits, notwithstanding the fact that interest on tax free securities could not be taxed. The court observed that a receipt on the credit side is not required to justify the deduction of an expense. In other words, every debit does not have to correspond to a matching credit. Similarly, in CIT v. Anniversary Investment Agency195 ITR 199 (Cal) it was held that where dividend income is attributable to the business carried on by the assesse, the nature or quality of the expenditure to earn dividend income, as expenditure laid out or expended for the purpose of business, would not be affected, notwithstanding the fact that the dividend income is not faxable under the head business. The court reached an identical conclusion in Commissioner of Income-Tax vs Jardine Henderson Ltd. 1994 210 ITR 981 (Cal).  Delhi High Court in CIT vs. Dalmia Cement (Bhart) Ltd. (2002) 254 ITR 377 held that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman." 5.3 I have considered the findings of the Assessing Officer and rival submission of the appellant, carefully. I find that Ld. Assessing Officer has rightly disallowed the claim of professional fees of Rs.1.60 crores given to a Trust namely Deep C. Foundation, headed by Chairman of the Company. It is very evident from the written submission that such an amount of Rs.1.60 crores have not been incurred wholly and exclusively for business purposes. Since, the all the investment has been made in group companies, there is no need of any professional expertise. The copy of Management Service Agreement claimed to be inter into with Deep С. Anand Foundation is a "self serving documents". It does not reveal any valid reason for such huge expenditure. It is very evident that all the investment has made in the group companies, therefore, nothing more is required for other professional experts opinion or services. Appellant has not demonstrated any such evidence which could show the requirement of such additional professional or inputs. Obviously, attempt has 20 been made to given color of genuineness of expenditure whereas fact on record show that such expenditure has not been incurred for any business purposes. No business gain has been demonstrated which is on account of any role of a Trust. Therefore the disallowance of expenditure of Rs. 1.60 crores made by the Assessing Officer is sustained. 5.4 In the result, Ground No.4 is dismissed. 6.1 Ground No.5 is against disallowance of expenditure of Rs. 1,02,63,993/- According to the Assessing Officer, assessee has shown such expenditure as UK transit house expenses which is not at all the expenditure of the assessee. The explanation given by the assessee that such expenditure has been incurred for meeting foreign customers and collaborators, is factually incorrect. This expenditure comprises of expenditure of electricity, fees, rent, vehicle expenses, kitchen expenses and office maintenance in U.K. is not at all incurred for any business purposes. The nature expenses show that apartment has U.K. is more or less guesthouse than an office. Assessee was asked to explain with the evidences the claim of expenditure Howver, the assessee has not furnishd any evidence showing business needs of such expenditure. Infact, Mr. Deep C. Anand was in London and was utilizing such Apartment or office. He is also Director in other companies. Assessee has not been able to establish that such expenses at all related to any business acties of the assessee. Thus, in these reasoning Assessing Officer has disallowed the calim of the expenditure. 6.2 In appeal, on other hand appellant submit as under :-  Respectfully it is submitted that the main business interest of the assesse company qua a holding company is to protect and further the business interests of the subsidiary companies which it has promoted.  The learned authors Kanga and Palkhivala, in Law and Practice of Income Tax Vol.1, 10 edition, have pointed out at page 953 that the expression "wholly and exclusively for business" is not to be interpreted as wholly and exclusively for the assessee's own business only. A holding company, for example, has often to act in the interests of its subsidiaries, even if they are involved in a different line of business from that of the holding company. It might for example may have to stand guarantee for such subsidiaries or advance loans to them. Thus in CIT v. United Breweries Ltd. 292 ITR 188 (Kar), it was held that irrecoverable loans granted to a subsidiary company were an allowable deduction.  In CIT v. Amalgamation Pvt. Ltd. (226 ITR 188), the Supreme Court confirmed the finding of the High court (73 ITR 380) that in view of 21 sec. 23A of the 1922 Act holding of investments, in appropriate cases, would equally be a business as dealing in them and what is required is that there must be a real, substantial and systematic or organised course of activity or conduct with the set purpose of earning profit which is the test for a business. The High Court has observed that the assessee-company is not a mere investor in a single company but has investments in sixteen companies and had taken active interest in the business of these companies as is clear from the services that had been rendered in the shape of export promotion, liaison office at Delhi and internal audit and it also rendered consultation in respect of finance by its directors meeting every day with reference to the needs and requirements of each company and that it is not a case where the assessee-company contented itself with merely making an investment and looking for the dividend. The High Court has, therefore, held that there was a business activity in the matter of holding of investments  In CIT v. RajeevaLochanKanoria208 ITR 616( Cal), it was held that funds borrowed for acquiring Interest in managed companies was an allowable deduction. The Court observed that the activity of managing, controlling, administering and financing companies is a business/ professional/vocational activity in its own right."  It is submitted that in the present case the assessee qua holding company has similarly to act to advance the business interests of its subsidiary companies. It has often to engage with joint venture partners of the subsidiaries because it has long experience of carrying out such negotiations. Secondly and equally importantly, as a promoter it has an interest in ensuring that the subsidiary companies continue to grow and remain in good health.  It has necessarily to hold shares as investment and not stock in trade because it is a not dealer in shares and has a long term interest in the future of the subsidiary companies it has promoted.  In the case of S.A. Builders Ltd. v. CIT (281 ITR 1)(SC) the Supreme Court held that where a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, Bench opined that, ordinarily be entitled to deduction of interest on its borrowed loans.  It is further submitted that these are precisely the considerations which may have weighed with the Courts when they held interest paid on borrowed capital utilized to buy shares of managed companies for purposes of carrying on its managing agency business was for purposes of business (CITV. JM Industries 218 ITR 218(Cal) and CIT V. Cotton Fabrics Ltd. (Guj)). If interest liability 22 accruing on capital borrowed to purchase shares of a managed company so as to maintain control over the latter can be allowed as deduction, the justification for allowance of expenditure for furthering the interests of a M/s. Asia Investments Pvt. Ltd. subsidiary company by a holding company would perhaps be equally, if not more, justifiable.  The A.O. has opined that since the shares in subsidiary companies are held as investments and the assesse eams only dividend income from such investments, no business expenditure to further their interests can be allowed as a deduction for earning such income.  In this connection it is submitted that expenditure laid out or expended wholly and exclusively for business as stipulated u/s.37 is much wider than expenditure laid or expended for earning dividend Income stipulated u/s57 (refer, india Cement v. CIT 60ITR 52(SC). In Hughes v. Bank of New Zealands ITR 636 it was held that the interest paid by a bank for capital borrowed for buying tax free securities had to be allowed as deduction in arriving at taxable profits, notwithstanding the fact that interest on tax free securities could not be taxed. The court observed that a receipt on the credit side is not required to justify the deduction of an expense. In other words, every debit does not have to correspond to a matching credit. Similarly, in CIT v. Anniversary Investment Agency 195 ITR 199 (Cal) it was held that where dividend income is attributable to the business carried on by the assesse, the nature or quality of the expenditure to eam dividend income, as expenditure laid out or expended for the purpose of business, would not be affected, notwithstanding the fact that the dividend income is not taxable under the head business. The court reached an identical conclusion in Commissioner of Income-Tax vs Jardine Henderson Ltd. 1994 210 ITR 981 (Cal).  It is submitted respectfully that the judicial precedents reviewed above would lead to the inevitable inference that: i. The expenditure on maintaining the guest house in the U.K. was for furthering the interests of the subsidiary companies, and in pursuing the same, the assesse also furthered its own business interests; ii. The expenditure incurred was for purposes of business even though it incidentally resulted in some dividend income.  Delhi High Court in CIT vs. Dalmia Cement (Bhart) Ltd. (2002) 254 ITR 377 held that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the 23 businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman." 6.3. I have considered the findings of the Assessing Officer and rival submission of the appellant, carefully. It is very evident from the explanation of the appellant that there is no verifiable reason for claiming such expenditure of U.K. Office of Rs. 10263993/-. Appellant has not been able to furnish any such evidence which could demonstrate the business need of such expenditure. When it is admitted fact that this company has been floated only with a view to purchase shares of Anand Group of Companies with intention to maintain controlling interest, it means there is no independence of existence of such company. Most of the Companies of this Group might be incurring such expenses. Obviously, for no valid reason accounts of the appellant has been debited with this expenditure which is not incurred wholly and exclusively for business purposes. Because of failure of showing any such evidence, Ld. A.R. has refer to and relied upon the various case laws on theoretical basis. Obviously, there is no substance in any of the arguments or written explanation. I find that Ld. Assessing Officer has correctly observed that none of such expenditure like maintaining car in London incurring expenditure for kitchen, grocery, electricity expenses and giving rent is related to business activity. Therefore, the facts of the case do not justify such expenditure. None of the case laws relied upon by the Ld. A.R. is applicable to the facts of the case as elaborated by the Assessing Officer. Therefore, appellant does not deserve any relief. Considering the facts of the case, the disallowance made by the Assessing Officer of Rs. 1,02,63,993/- is sustained. 6.4 In the result, Grounds of Appeal

No. 5 is dismissed. 7.1 Ground No.6 is against the charging of interest u/s.234 B and 234 C which is consequential in nature, requires no adjudication, however Assessing Officer is directed to charge the interest correctly as per law. 7.2 In the result, Ground No.6 is disposed off accordingly.

8. Ground No.7 is against the initiation of penalty proceeding which deserves no adjudication as there is no appealable ground or order, hence for statistical purpose Ground No.7 is dismissed. 24 9. In the result, appeal is partly allowed.” Aggrieved by the above order of CIT(A), the assessee preferred appeal before this Tribunal.

10. The assessee is seeking constitution of Larger/Special Bench on the ground that the order of Division Bench dated 23/02/2018 is per-incuriam and the Bench would be constrained to follow earlier order.

11. A reference can be made to a Special/Larger Bench, where there is doubt over the correctness of earlier decision by the Bench on law or facts [Re. UOI vs. Paras Laminates Ltd., 1991 taxmann.com 31/186 ITR 722 (SC)). In the present case, prima facie the view expressed by the Division Bench on facts of the case is one of the possible views.

12. In our considered view, the order dated 23/2/2014 is not per-incuriam in light of the findings of Bench. Further, the apprehension of assessee that the Division Bench in subsequent assessment years would be constrained to follow earlier order is unfounded. If the assessee is able to show any distinguishing factor in present set of appeals or that the issue involved in the appeals is covered by the decision of Hon'ble Jurisdictional High Court, the Division Bench can decide the issue accordingly. Hence, in our opinion reference to Larger/Special Bench is not warranted.”

4.3. The then Hon’ble President of this Tribunal vide administrative order dated 09.02.2024 was of the opinion that, no case is made out to constitute larger/special bench in the case of the assessee by observing as under: “8. I have heard parties. Perused record.‬ 9. The only contention raised on behalf of the applicant-assessee is that the finding as recorded in order dated 23.02.2018 would come in the way of the appellant in prosecuting the present appeals. It is pointed out that the appeal filed before the High Court challenging the order dated 23.02.2018 came to be withdrawn only on account of the appellant assessee opting to take benefit of the VSV Scheme. It is therefore pointed out that there is a possibility that the findings as recorded in the order dated 23.02.2018 would be treated as having attained finality.

10. The learned CIT-DR has submitted that the application, merely based on any such apprehension, cannot be entertained.

11. I have carefully considered the circumstances as obtaining in the present case. A perusal of the comments by the Bench dated 20.06.2022 would go to show that the Bench has found that prima facie the view expressed by the Division Bench on the facts of the case is one of the possible views. The comments of the Bench as found in para 9 onwards are as under: "9. After having considered the facts as narrated above and the submissions of both sides, we find that the issue which is now subject matter of appeals of the assessee for assessment year 2011- 12, 2012- 13 and 2013-14 has already been considered by the Division Bench of the Tribunal in assessee's appeal for assessment year 2003-04 decided on 23/02/2018. The Tribunal after considering submissions of the assessee and documents on record viz. auditors report, object clause of Memorandum of Association, etc. decided the issue against the assessee. The case laws relied on by the assessee would support the argument of assessee for allowing interest expenditure u/s 36(1)(iii) of the Act, if the Bench would have accepted the contention of assessee that investment in shares is the 'business activity' of assessee. Thus, in the light of specific findings of the Bench, the case laws referred by assessee would not reinforce the cause of assessee.

(i) The investments were shown in the balance sheet as long term investments. (ii) Any profit on sale thereof would be assessed under the head capital gains & (iii) The Memorandum of Association of the assessee did not have the necessary object clause permitting it to carry on the business of acquiring controlling interest.

5.5. The Ld.AR relied on following decisions to buttress his contention that buying a long term investment for acquiring controlling interest is to be treated as business activity by placing reliance on the following decisions. He also submitted that, these decisions by the jurisdictional High court as well as other Hon’ble High Court and of this Tribunal has always held that, interest under section 36(1)(iii) was allowable expenditure as assessee was making investment for acquiring controlling interest.

 decision of Hon’ble Supreme Court in case of S.A. Builders Ltd. v. CIT (A) reported in (2007) 288 ITR 1  decision of Hon’ble Bombay High court in case of CIT Panaji, Goa vs. Phil Corp. Ltd., reported in (2011) 244 CTR 226  decision of Hon’ble Bombay High court in case of PCIT v. Concentrix Services (I) Pvt.Ltd., reported in (2019) 111 taxmann.com 269  decision of Hon’ble Bombay High court in case of CIT v. Srishti Securities Pvt Ltd reported in (2009) 321 ITR 498  decision of Hon’ble Delhi High court in case of PCIT v. Gaursons Realty (P) Ltd reported in (2020) 120 taxmann.com 259 31  decision of Hon’ble Delhi High court in case of CIT v. Premier Auto Finance P. Ltd. reported in (1980) 128 ITR 540  decision of Hon’ble Gujrat High court in case of Addl. CIT v. Laxmi Agents P. Ltd (1980) 125 ITR 227  decision of Hon’ble Delhi High court in case of Eicher Goodearth Ltd v. CIT reported in (2015) 378 ITR 28  decision of Hon’ble Calcutta High court in case of CIT v. Jardine Henderson and Company Ltd. reported in 210 ITR 981  decision of coordinate bench of this Tribunal in case of Tata Industries v. Govt. ITO reported in (2017) 181 TTJ 600 5.6. The Ld.AR referring to the Memorandum and Articles of Association submitted that clause-13(1) allows the assessee to acquire shares, stocks, debentures, debenture and bonds, obligation and securities by original subscription or otherwise, render, purchase, exchange or otherwise and to subscribe for the same, either conditionally or otherwise and to co-ordinate conditionally or otherwise and guarantee the subscription thereof and to exercise and enforce all rights and duties confirmed by or incident to the ownership thereof. 5.6.1. He submitted that though these object was incidental or ancillary to the attainment of the main objects, it is form part of Memorandum of Association and therefore, the investment carried out by the assessee to acquire controlling interest has to be treated as business activity of the assessee. Similarly he also referred to Clause-(9), 13(17), 13(27), Cause-35(2) to substantiate the above submission. 5.7. The Ld.AR submitted that the exercise of gaining controlling interest over group companies in organized and systematic manner was carried on by the assessee by acquiring the shares in its group company over the period of time. He submitted that the assessee has rendered management support services to Spicer India Ltd., one such group company in which the assessee has its controlling interest. The Ld.AR submitted that the assessee earned Rs.14.65 Crores in lieu of rendering management support services to Spicer India Ltd and has been assessed under the head “Income from Business”. 5.7.1. Referring to the decision of Hon’ble Pune Tribunal in case of Spicer India Ltd. for AY 2009-10 in & 1327/Pun/2014 and AY 2010-11 in and 1350/Pun/2015 vide order dated 24.10.2017, allowed the payment made by Spicer India Ltd. to the assessee as an expenditure in its hands. 5.8. The Ld.AR submitted that, the assessee has also carried on activity of financing group companies by providing inter-corporate the deposits. He submitted that the assessee earned interest of Rs.1.72 crores and offered it as “Income under the head Business”. The Ld.AR thus submitted that, the assessee was in way involved in the day to day management, administration and finance various group companies was not only to earn dividend income but also for having complete control over the group companies. 33 5.9. The Ld.AR emphasized that by holding controlling interest in the group companies, the assessee was to perform various managerial functions, participating board meetings and to take vital decisions for grown of subsidiaries and group concerns. He submitted that, merely because the shares of the group company in which the assessee has controlling interest are shown as investment, does not mean that assessee is not carrying any business activity. He placed reliance on the decision of the Hon’ble Calcutta High Court in case of CIT Vs. Rajeeva Lochan Kanoria reported in 208 ITR 616, wherein it is held that, funds borrowed for acquiring interest was allowable deduction. Hon’ble Kolkata High Court had observed that the activity of managing, controlling, administrating and financing companies was a business /professional/occasional activity in its own right. He also placed reliance on the following decisions in support of the above propositions.

Decision of Hon’ble Supreme Court in case of CIT vs. Amalgamation Pvt. Ltd. (1997) 226 ITR 188 Decision of Hon’ble Supreme Court in case of S.A. Builders Ltd. vs. CIT (Appeals) (2007) 288 ITR 1 Decision of Hon’ble Delhi High Court in case of Eicher Goodearth Ltd v. CIT (2015) 378 ITR 28 Decision of Hon’ble Calcutta High Court in case of CIT v. Jardine Henderson And Company Ltd. 210 ITR 981 Decision of Hon’ble Gujrat High Court in case of ACIT v. Laxmi Agents P. Ltd 125 ITR 227 Decision of Hon’ble Delhi High Court in case of CIT v. Premier Auto Finance P. Ltd. (1980)128 ITR 540 34 Decision of Hon’ble Bombay High Court in case of CIT v. Srishti Securities (P.) Ltd (2009) 183 Taxman 159 Decision of Hon’ble Madras High Court in case of CIT vs. Shriram Investments (Firm) (2015) 54 taxmann.com 15 Third Member Decision of Hon’ble Delhi Tribunal in case of Poysha Oxygen (P.) Ltd. v. ACIT (2008) 19 SOT 711 Decision of coordinate bench of this Tribunal in case of Tata Sons Ltd reported in TS-418-ITAT-2020 Decision of coordinate bench of this Tribunal in case of Tata industries vs. Tata industries. ITO (2017) 181 TTJ 600 Decision of coordinate bench of this Tribunal in case of Pistabai Rikhabchand Kothari v. ITO (2013) 56 SOT 222 5.10. He also Referred to the decision of Hon’ble Supreme Court in case of Maxopp Investment Ltd. Vs. CIT reported in (2018) 91 taxmann.com 154, and submitted that, there can be two different types of business. (i) Business of making strategic investment i.e. to gain control over the investing company (ii) Trading in shares 5.11. He submitted that, in case of strategic investment, disallowance can be proportionate basis between dividend income and taxable income. He thus prayed that the disallowance of expenses incurred in the context of carrying on the business of exercising controlling interest should be allowed. 5.12. The Ld.AR thus argued that, the main business activity of the assessee is to safeguard the interest of Anand Group of Companies and therefore, all the activities carried by the assessee would constitute one single and indivisible business of the assessee. 35 Hence, all the expenditure incurred by the assessee are wholly and exclusively for the above indivisible business. There is a direct nexus of the expenditure incurred by the assessee for the purpose of above business. The assessee has not maintained separate books of account for earning all the sources of income and therefore, it would be difficult to bifurcate the total expenditure incurred for earning professional fees from Spicer India Limited.

5.13. On the contrary, the Ld.DR vehemently opposed all the submissions of the Ld.AR and placed reliance on para-3.3 of the order passed by the Ld.CIT(A):

“3.3 I have considered the findings of the Assessing Officer and rival submission of the appellant, carefully. I find that appellant has admitted the fact that it has purchased shares of group companies only "with the intention to maintain controlling interest in group companies". Therefore, the finding of the Assessing Officer that appellant does not do any regular course of business or manufacturing activities or any other sort of business, is correct. It can be seen from the balance sheet that assessee simply shows dividend, interest and income from other source. Thus, it is very evident that no other business activities is done, hence the finding of the Assessing Officer is worth approvable. As such, I find no reason to accept the counter arguments of Ld. A.R. / Appellant. Thus, the approach and finding of the Assessing Officer is sustained.” 5.14. He thus submitted that it is an admitted fact that the assessee purchased shares of the group companies with the intention to maintain the controlling interest. He also referred to various submissions of the assessee as well as the Ld.AR placed on the record that the intention of the assessee is to invest in the group companies to control them. 5.15. The Ld.DR emphasized on the decision of Hon’ble Supreme Court in case of Maxopp Investment Ltd. Vs. CIT (supra). He submitted that Hon’ble Supreme Court held that the dominant intention has to be looked into. The Ld.DR submitted that in the present facts of the case, the dominant intention of the assessee is investment in the group companies to controlling and manage the group companies. Though the assessee had not invested in shares of the group companies to earn dividend, and that the intention was to have controlling interest in those companies, the assessee was not trader in shares. The assessee always held the shares of the group companies as investment that served the purpose of having control over the companies. Therefore the purchase of shares of group companies cannot be treated as business activity. Thus for the purposes of computing disallowance under Rule 8D, the expenditure incurred towards making such investment are to be considered as direct expenses towards earning of dividend as held by Hon’ble Supreme Court in case of Maxopp Investment Ltd. v. CIT(supra). He submitted that the decisions relied by the Ld.AR are therefore distinguishable on facts of the present assessee. 5.16. The Ld.DR thus submitted that the expenditure claimed by the assessee has been thus has been rightly disallowed in the present facts of the case. He placed reliance on the observations of the Ld.CIT(A)/AO. 37 We have perused the submissions advanced by both sides in light of records placed before us.

6.3. The Ld.AR vehemently relied on various decisions of jurisdictional High Court, Hon’ble Delhi High Court, Hon’ble Gujrat High Court, decicions of this Tribunal, (referred to herein above). On perusal of the same we note that most of the decisions are prior to insertion of Rule 8D that particularly deals with computation of expenditure that would have to disallowed as incurred for earning exempt income. There are decisions that deal with facts wherein the shares were purchased and held as stock in trade, which is not the facts in case of the present assessee. We are therefore of the opinion that the decisions relied by the Ld.AR reproduced herein above are distinguishable on facts. Even otherwise, the decision of Hon’ble Supreme Court on applicability of section 14A is very clear in respect of shares held by an assessee for contoling interest. 6.3.1. The question that fell for consideration before Hon’ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT(supra) were on two factual background wherein, the question of apportionment of expenditure had arisen and predominant intent of investment in shares was pleaded, though on different facts, on the ground that the objective of investing in shares was not to the dividend income, but to either retain controlling interest over the company in which the investment was made or to earn the profit from trading in shares. The question was whether the disallowance under section 14 A of the Act could be invoked in the cases where exempt income was earned from shares held as "trading assets" or "stock in trade". 39 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 Patiala. In the case of Maxopp investment Ltd, the assessee therein was in the business of finance, investment and was dealing in shares and securities and that they held the shares and securities, partly as investments on the "capital account" and partly as "trading assets" for the purpose of acquiring and retaining control over its group companies, primarily Max India Ltd. Hon’ble Court noted that the profits resulting on the sale of shares held as “trading assets” were duly offered to tax as business income of the assessee. 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 held as an stock in trade. 6.4. Hon'ble Supreme Court had considered almost identical issue as is in the present facts of the assessee, that where, the shares/stocks were purchased of a company for the purpose of gaining control over the said company or as "stock in trade", though incidentally income is also generated in the form of dividends as well. It was argued before the Hon'ble Court that, though incidentally income was also generated in the form of dividends, the dominant intention for purchasing the shares was not to earn the dividend income but to acquire and retain the controlling the business in the company in which shares were invested, or for the purpose of trading in the shares as business activity.

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 paragraph nos. 39 - 40 held as under: “(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. However, we are not concerned with those profits which would naturally be treated as 'income' under the head 'profits and gains from business and profession'. What happens is that, in the process, when the shares are held as 'stock-in- trade', certain dividend is also earned, though incidentally, which is also an income. However, by virtue of Section 10(34) of the Act, this 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 Act which is based on the theory of apportionment of expenditure between taxable and non-taxable income as held in Walfort Share and Stock Brokers P Ltd. case. Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned. (40) We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT (A) disallowed the entire deduction of expenditure. That view of the CIT (A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, 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 cases where shares are held as 'stock-in-trade', it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, 41 this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove.” (emphasis supplied)

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 computing disallowance under section 14A. As the assessee has acquired the shares in the group companies and has held it as investment, whatever may be the dominant purpose, disallowance under section 14A r.w.Rule 8D is mandatory, if the assessee earns dividend from such investments. Respectfully following the view expressed by Hon’ble Supreme Court in case of Maxopp Investment Ltd. v. CIT(supra), we hold that the dominant purpose for making investment in shares is not important criteria, even though the assessee has acquired shares for having controlling interest in the group companies. Accordingly Ground No.2 raised by the assessee stands dismissed.

7.6.1. The Ld.AO noted that while carrying on the activity of promoting, managing, financing and controlling companies by purchasing shares of group companies, the assessee has earned consultancy fees from Spicer India Ltd. amounting to Rs.14.65 crores. The assessee has also not maintained separate books of accounts for various sources of income and therefore apportioned all expenditures vis-à-vis income earned was not possible. 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 schedule 14 a sum of Rs.1,59,19,089/- has been incurred. The assessment order details the employees to whom the salary and bonus were paid due to non availability of separate books of accounts. The Ld.AO apportioned 1.5 crores under the head personal expenses as direct expenditure incurred towards the earning of exempt income. The reasoning for doing so was that, these employees were involved in the strategic investments made by the assessee in its group companies. It is pertinent to know that amongst the twelve employees four of them belong to Anand family. Accordingly, we do not find any infirmity in considering Rs.1.5 crores as direct expenses towards earning of exempt income under rule 8D(2)(ii). 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 one Mr. Aditya Narayan, M/s. Patel Investments and M/s. Rohit Arora & Associates, who were rendering various services in their 45 individual capacities. The Ld.AR submitted that these individuals were taken on the rolls of an entity called Deep C Anand Foundation. The Ld.AR thus submitted that the services rendered under individual capacities, were rendered through Deep C Anand Foundation during the year under consideration. The Ld.AO 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 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 the Foundation has offered the money received from the assessee to taxation. Also that these are incurred for rendering professional services to Spicer India Ltd., and not for acquiring controlling interest. It is noted that Spicer India Ltd for the year under consideration has been allowed the amount paid to the assessee as business expenditure. Though this is related party transaction, there is no loss to the revenue. Further it is not the case of the revenue that the expenditure incurred by the assessee are unreasonable and excessive. Accordingly, we direct this disallowance to be deleted under Rule 8D(2)(i). 7.7. In so far as disallowance of depreciation is concerned, it is in the nature of allowance and not an expenditure incurred by the assessee. In our view, this in any manner cannot be considered for computing disallowance under Rule 8D. 46 Accordingly we direct to exclusion of depreciation from the computation under Rule 8D(2)(i). 7.8. In so far as the disallowance under Rule 8D(2)(ii) is concerned, we note from the computation that the assessee has suo moto disallowed Rs.8,16,33,454/- out of total interest amounting to Rs.10,38,96,282/-. 7.8.1. We are of the opinion that from the computation placed at page 47 of the paper book, proportionate disallowance was made, as the assessee was maintaining mixed source of funds. No further disallowance is called for under Rule 8D(ii). We place reliance on the decision of Hon’ble Supreme Court in case of CIT vs. Reliance Utilities & Power Ltd reported in 410 ITR 466 in support of the same. Accordingly, the Ld.AO is directed to delete the disallowance computed by the Ld.AO under Rule 8D(2)(ii). Accordingly Ground No.3 to 6 raised by the assessee stands partly allowed.