JM FINANCIAL PROPERTY FUND I,MUMBAI vs. INCOME TAX OFFICER, WARD - 25(1)(1), MUMBAI, MUMBAI

PER OM PRAKASH KANT, AM

These two appeals by the assessee are directed against separate orders, both dated 15.02.2024, passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2012-13 and 2016-17 respectively. Identical issues in dispute have been

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raised in both these appeals both these appeals except quantum of addition, except quantum of addition, therefore, same were heard together and disposed off by way of this same were heard together and disposed off by way of this same were heard together and disposed off by way of this consolidated order for convenience. consolidated order for convenience.

Ground No. 1: General Ground No. 1: General On the facts and in the circumstances of the case and in law, the On the facts and in the circumstances of the case and in law, the On the facts and in the circumstances of the case and in law, the reassessment order dated 27.12.2019 passed under section 143(3) read reassessment order dated 27.12.2019 passed under section 143(3) read reassessment order dated 27.12.2019 passed under section 143(3) read with section 147 of the Income with section 147 of the Income-tax Act, 1961 ('the Act') by the Ld. tax Act, 1961 ('the Act') by the Ld. Income Tax Officer - 17(2)(1), 17(2)(1), Mumbai (Ld. AO') and the order dated 15.02.2024 Mumbai (Ld. AO') and the order dated 15.02.2024 passed under section 250 of the Act by the Ld. Commissioner of Income passed under section 250 of the Act by the Ld. Commissioner of Income passed under section 250 of the Act by the Ld. Commissioner of Income- tax (Appeals) - National Faceless Appeal Centre ('Ld. CIT(A) National Faceless Appeal Centre ('Ld. CIT(A) - NFAC*) are without application of mind, bad in law and liable to be quashed without application of mind, bad in law and liable to be quashed without application of mind, bad in law and liable to be quashed. Ground No. 2: Reassessment order is invalid and non Ground No. 2: Reassessment order is invalid and non Ground No. 2: Reassessment order is invalid and non-est in absence of a valid DIN absence of a valid DIN On the facts and in the circumstances of the case and in law, the On the facts and in the circumstances of the case and in law, the On the facts and in the circumstances of the case and in law, the reassessment order dated 27.12.2019 being passed in absence of a valid reassessment order dated 27.12.2019 being passed in absence of a valid reassessment order dated 27.12.2019 being passed in absence of a valid Document Identification Number (DIN Document Identification Number (DIN) is in violation of the Circular No. ) is in violation of the Circular No. 19/2019 dated 14 August 2019 issued by the Central Board of Direct 19/2019 dated 14 August 2019 issued by the Central Board of Direct 19/2019 dated 14 August 2019 issued by the Central Board of Direct Taxes and therefore, is invalid, non Taxes and therefore, is invalid, non-est and is liable to be quashed. est and is liable to be quashed. Ground No. 3: Reopening of the assessment is bad in law Ground No. 3: Reopening of the assessment is bad in law Ground No. 3: Reopening of the assessment is bad in law On the facts and in the c On the facts and in the circumstances of the case and in law, the Ld. ircumstances of the case and in law, the Ld. CIT(A) - NFAC, has erred in upholding the reopening of the assessment NFAC, has erred in upholding the reopening of the assessment NFAC, has erred in upholding the reopening of the assessment under section 147 of the Act by the Ld. AO, without appreciating that the under section 147 of the Act by the Ld. AO, without appreciating that the under section 147 of the Act by the Ld. AO, without appreciating that the reopening is without jurisdiction, bad in law and void reopening is without jurisdiction, bad in law and void-ab-initio. initio. The Appellant prays that reassessment proceeding be held as without he Appellant prays that reassessment proceeding be held as without he Appellant prays that reassessment proceeding be held as without jurisdiction, bad in law and void jurisdiction, bad in law and void-ab-initio. Ground Nos. 4 to 10 are without prejudice to Ground Nos. 1 to 3 Ground Nos. 4 to 10 are without prejudice to Ground Nos. 1 to 3 Ground Nos. 4 to 10 are without prejudice to Ground Nos. 1 to 3 Ground No. 4: Denying the exemption under section 10(23FB) of Ground No. 4: Denying the exemption under section 10(23FB) of Ground No. 4: Denying the exemption under section 10(23FB) of the Act On the facts and circumstances of the case, and in law, the Ld. CIT(A) ts and circumstances of the case, and in law, the Ld. CIT(A) - ts and circumstances of the case, and in law, the Ld. CIT(A) NFAC erred in upholding the AO's action of denying the exemption under NFAC erred in upholding the AO's action of denying the exemption under NFAC erred in upholding the AO's action of denying the exemption under section 10(23FB) of the Act to the Appellant. section 10(23FB) of the Act to the Appellant.

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While doing so, the Ld. CIT(A) While doing so, the Ld. CIT(A) - NFAC erred in, inter alia, not appreciating NFAC erred in, inter alia, not appreciating that: a. The Ld. AO grossly erred in usurping the statutory jurisdiction of the a. The Ld. AO grossly erred in usurping the statutory jurisdiction of the a. The Ld. AO grossly erred in usurping the statutory jurisdiction of the Securities and Exchange Board of India (SEBI) in alleging that the Securities and Exchange Board of India (SEBI) in alleging that the Securities and Exchange Board of India (SEBI) in alleging that the Appellant has violated SEBI (VCF) Regulations; Appellant has violated SEBI (VCF) Regulations; b. The Ld. AO erred in considering the investments made in mu b. The Ld. AO erred in considering the investments made in mu b. The Ld. AO erred in considering the investments made in mutual funds as violation of SEBI (VCF) Regulations; as violation of SEBI (VCF) Regulations; c. The Ld. AO erred in alleging that the Appellant has invested in The Ld. AO erred in alleging that the Appellant has invested in The Ld. AO erred in alleging that the Appellant has invested in associate company; associate company; d. The Ld. AO erred in alleging that the investment made in Maytas The Ld. AO erred in alleging that the investment made in Maytas The Ld. AO erred in alleging that the investment made in Maytas Properties Limited is in violation of SEBI (VCF) R Properties Limited is in violation of SEBI (VCF) Regulations; e. The Ld. AO erred in not considering the interpretive letters dated 10 The Ld. AO erred in not considering the interpretive letters dated 10 The Ld. AO erred in not considering the interpretive letters dated 10 June 2016 and 28 January June 2016 and 28 January 2019 issued by the SEBI. The Appellant prays that the exemption under section 10(23FB) of the Act The Appellant prays that the exemption under section 10(23FB) of the Act The Appellant prays that the exemption under section 10(23FB) of the Act may kindly be granted to the Appellant. may kindly be granted to the Appellant. Ground No. 5: Denying the exemption under the provisions of o. 5: Denying the exemption under the provisions of o. 5: Denying the exemption under the provisions of section 10(35) of the Act section 10(35) of the Act Without prejudice to the above, on the facts and circumstances of the Without prejudice to the above, on the facts and circumstances of the Without prejudice to the above, on the facts and circumstances of the case, and in law, the Ld. CIT(A) case, and in law, the Ld. CIT(A) - NFAC erred in upholding the AO's NFAC erred in upholding the AO's contention in denying the exemption und contention in denying the exemption under section 10(35) of the Act on er section 10(35) of the Act on income earned from distribution from units held in mutual funds. income earned from distribution from units held in mutual funds. income earned from distribution from units held in mutual funds. The Appellant prays, on a without prejudice basis, that the income from The Appellant prays, on a without prejudice basis, that the income from The Appellant prays, on a without prejudice basis, that the income from distribution from units held in mutual funds be treated as exempt under distribution from units held in mutual funds be treated as exempt under distribution from units held in mutual funds be treated as exempt under section 10(35) of the Act. of the Act. Ground No. 6: Order passed in violation of the Hon'ble Tribunal's Ground No. 6: Order passed in violation of the Hon'ble Tribunal's Ground No. 6: Order passed in violation of the Hon'ble Tribunal's order On the facts and circumstances of the case, and in law, the Ld. CIT(A) On the facts and circumstances of the case, and in law, the Ld. CIT(A) On the facts and circumstances of the case, and in law, the Ld. CIT(A) - NFAC has erred in not following the Hon'ble Mumbai Tribunal's order in NFAC has erred in not following the Hon'ble Mumbai Tribunal's order in NFAC has erred in not following the Hon'ble Mumbai Tribunal's order in the case of JM Financial Ind the case of JM Financial India Fund Scheme B (JMFIF*) for the AY 2015 ia Fund Scheme B (JMFIF*) for the AY 2015- 16 (ITA No. 277/Mum/2019). 16 (ITA No. 277/Mum/2019). The Appellant prays that the order passed by the Ld. CIT(A) The Appellant prays that the order passed by the Ld. CIT(A) The Appellant prays that the order passed by the Ld. CIT(A) - NFAC is bad-in-law as it is passed in violation of the binding decision of the law as it is passed in violation of the binding decision of the law as it is passed in violation of the binding decision of the Hon'ble Tribunal. Hon'ble Tribunal. Ground No. 7: Assessment und Ground No. 7: Assessment under the provisions of section 161(1) er the provisions of section 161(1) of the Act Without prejudice to the above, on the facts and circumstances of the Without prejudice to the above, on the facts and circumstances of the Without prejudice to the above, on the facts and circumstances of the case, and in law, the Ld. CIT(A) case, and in law, the Ld. CIT(A) - NFAC erred in not appreciating that the NFAC erred in not appreciating that the Ld. AO, having denied the exemption under section Ld. AO, having denied the exemption under section 10(23FB) and section 10(23FB) and section

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10(35) of the Act, ought to have made the assessment in terms of section 10(35) of the Act, ought to have made the assessment in terms of section 10(35) of the Act, ought to have made the assessment in terms of section 161(1) of the Act. of the Act. The Appellant prays, on a without prejudice basis, that where exemption The Appellant prays, on a without prejudice basis, that where exemption The Appellant prays, on a without prejudice basis, that where exemption is denied under section 10(23FB) and section 10(35) of the Act, the is denied under section 10(23FB) and section 10(35) of the Act, the is denied under section 10(23FB) and section 10(35) of the Act, the income be assessed as per the provision of section 161(1) of the Act. ome be assessed as per the provision of section 161(1) of the Act. ome be assessed as per the provision of section 161(1) of the Act. Ground No. 8: Taxation of income which had already been Ground No. 8: Taxation of income which had already been Ground No. 8: Taxation of income which had already been considered in the returns of income of the beneficiaries considered in the returns of income of the beneficiaries considered in the returns of income of the beneficiaries On the facts and circumstances of the case, and in law, the Ld. CIT(A) On the facts and circumstances of the case, and in law, the Ld. CIT(A) On the facts and circumstances of the case, and in law, the Ld. CIT(A) - NFAC erred in upholding the AO's action of taxing in the hands of the C erred in upholding the AO's action of taxing in the hands of the C erred in upholding the AO's action of taxing in the hands of the Appellant, income which had already been taxed in the hands of the Appellant, income which had already been taxed in the hands of the Appellant, income which had already been taxed in the hands of the beneficiaries of the trust. beneficiaries of the trust. Ground No. 9: Levy of interest of Rs. 1,11,96,456 under section Ground No. 9: Levy of interest of Rs. 1,11,96,456 under section Ground No. 9: Levy of interest of Rs. 1,11,96,456 under section 234B of the Act 234B of the Act On the facts and circumstances of the case, and in law, the Ld. CIT(A) nd circumstances of the case, and in law, the Ld. CIT(A) - nd circumstances of the case, and in law, the Ld. CIT(A) NFAC erred in upholding the AO's action of levying the interest of NFAC erred in upholding the AO's action of levying the interest of NFAC erred in upholding the AO's action of levying the interest of Rs.1,11,96,456 under section 234B of the Act. Rs.1,11,96,456 under section 234B of the Act. The Appellant prays that no interest be levied under section 234B of the The Appellant prays that no interest be levied under section 234B of the The Appellant prays that no interest be levied under section 234B of the Act. Ground No. 10: Initiation of penalty proceedings No. 10: Initiation of penalty proceedings On the facts and circumstances of the case, and in law, the Ld. CIT(A) On the facts and circumstances of the case, and in law, the Ld. CIT(A) On the facts and circumstances of the case, and in law, the Ld. CIT(A) - NFAC erred in upholding the AO's contention in initiating penalty NFAC erred in upholding the AO's contention in initiating penalty NFAC erred in upholding the AO's contention in initiating penalty proceedings under section 271(1)(c) of the Act against the Appellant on proceedings under section 271(1)(c) of the Act against the Appellant on proceedings under section 271(1)(c) of the Act against the Appellant on account of furnishing inaccurate particulars and concealment of income. count of furnishing inaccurate particulars and concealment of income. count of furnishing inaccurate particulars and concealment of income. The Grounds stated above are independent of, and without prejudice to The Grounds stated above are independent of, and without prejudice to The Grounds stated above are independent of, and without prejudice to one another. 3. Briefly stated, facts of the case are that the assessee is a Briefly stated, facts of the case are that the assessee is a Briefly stated, facts of the case are that the assessee is a venture capital fund venture capital fund (VDF) registered with the Security ith the Security Exchange Board of India (SEBI). In the return of income (SEBI). In the return of income declaring Nil income , declaring Nil income , filed on 30/07/2012, filed on 30/07/2012, the assessee claimed its income from the assessee claimed its income from investment in venture capital undertaking nt in venture capital undertaking (VCU) as exempt u/s (VCU) as exempt u/s 10(23FB) of the Income 10(23FB) of the Income-tax Act, 1961 (in short ‘the Act’) and tax Act, 1961 (in short ‘the Act’) and dividend from investment dividend from investment in shares and return from mutual funds in shares and return from mutual funds was claimed as exempted u/s exempted u/s 10(34)/10(35) of the Act. The return 10(35) of the Act. The return

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of income filed by the assessee was processe of income filed by the assessee was processed u/s 143(1) of the Act. d u/s 143(1) of the Act. Thereafter, the Assessing Officer reopened the assessment u/s 147 Thereafter, the Assessing Officer reopened the assessment u/s 147 Thereafter, the Assessing Officer reopened the assessment u/s 147 of the Act. Consequently, notice u/s 148 of the Act was issued on of the Act. Consequently, notice u/s 148 of the Act was issued on of the Act. Consequently, notice u/s 148 of the Act was issued on 31.03.2019. In response, the assessee filed return of income 31.03.2019. In response, the assessee filed return of income 31.03.2019. In response, the assessee filed return of income declaring Nil income. Thereafter, asse declaring Nil income. Thereafter, assessment u/s 147 r.w.s. 143(3) ssment u/s 147 r.w.s. 143(3) of the Act was competed wherein, the Assessing Officer withdrawn of the Act was competed wherein, the Assessing Officer withdrawn of the Act was competed wherein, the Assessing Officer withdrawn the exemption u/s u/s u/s 10(23FB) 10(23FB) 10(23FB) of of of the the the Act Act Act amounting to Rs.96,97,401/-,holding that the assessee violated provisions of the holding that the assessee violated provisions of the holding that the assessee violated provisions of the SEBI (VCF) Regulations SEBI (VCF) Regulations and therefore, not eligible for said ligible for said exemption . The Assessing Officer further denied the exemption u/s . The Assessing Officer further denied the exemption u/s . The Assessing Officer further denied the exemption u/s 10(35) of the Act amounting to Rs.3,29,90,151/ of the Act amounting to Rs.3,29,90,151/- claimed in respect claimed in respect of dividend/income from sale of the mutual fund dividend/income from sale of the mutual fund. In this manner, total income of the assessee total income of the assessee was assessed at Rs.4,26,87,552/ at Rs.4,26,87,552/-.

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passed in absence of invalid documentation identification number passed in absence of invalid documentation identification number passed in absence of invalid documentation identification number and therefore, the said reassessment order being in violation of and therefore, the said reassessment order being in and therefore, the said reassessment order being in Circular NO. 19/2019 dated 14.08.2019 issued by the Central Circular NO. 19/2019 dated 14.08.2019 issued by the Central Circular NO. 19/2019 dated 14.08.2019 issued by the Central Board of Direct Taxes (CBDT), it is Direct Taxes (CBDT), it is invalid, non-est est , therefore, it was liable to be quashed quashed. In ground No. 3, the Ld. counsel for the . In ground No. 3, the Ld. counsel for the assessee has challenged the reassessment proceedings as being assessee has challenged the reassessment proceedings as being assessee has challenged the reassessment proceedings as being without jurisdiction and and bad in law. The ground Nos s. 4 and 5 of the appeal of the assessee are in relation to merit of the disallowance appeal of the assessee are in relation to merit of the disallowance appeal of the assessee are in relation to merit of the disallowance made by the Assessing Officer. made by the Assessing Officer.

9.1 The brief facts qua the issue in dispute The brief facts qua the issue in dispute raised in ground No. 4 raised in ground No. 4 in relation to denying exemption u/s 10(23FB) of the Act , are that in relation to denying exemption u/s 10(23FB) of th in relation to denying exemption u/s 10(23FB) of th assessee is a venture capital fund and raised funds from the assessee is a venture capital fund and raised funds from the assessee is a venture capital fund and raised funds from the investors and further invest investors and further invested in venture capital undertaking (VCU). in venture capital undertaking (VCU). The income earned from the VCU has been distributed to the The income earned from the VCU has been distributed to the The income earned from the VCU has been distributed to the

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investors in proportion of their investment. investors in proportion of their investment. The sectio ection 10(23FB) of the Act prescribe exemption of income from the venture capital exemption of income from the venture capital exemption of income from the venture capital undertaking in the hands of the VCF. The relevant provision of undertaking in the hands of the VCF. The relevant provision of undertaking in the hands of the VCF. The relevant provision of section 10(23FB) is reproduced as under: section 10(23FB) is reproduced as under:

"(23FB) any income of a venture capital company or venture capital fun any income of a venture capital company or venture capital fund any income of a venture capital company or venture capital fun from investment in a venture capital undertaking.” from investment in a venture capital undertaking. 9.2 Further w.e.f. 01.04.2016 i.e. AY 2016 Further w.e.f. 01.04.2016 i.e. AY 2016-17 proviso has been 17 proviso has been inserted which exclude certain funds from this exemption. The inserted which exclude certain funds from this exemption. The inserted which exclude certain funds from this exemption. The relevant proviso is reproduced as under: relevant proviso is reproduced as under:

“Provided that nothing contained in t Provided that nothing contained in this clause shall apply in respect of his clause shall apply in respect of any income of a venture capital company or venture capital fund, being an any income of a venture capital company or venture capital fund, being an any income of a venture capital company or venture capital fund, being an investment fund specified in clause (a) of the Explanation 1 to section investment fund specified in clause (a) of the Explanation 1 to section investment fund specified in clause (a) of the Explanation 1 to section 115UB, of the previous year relevant to the assessment year beginning on 115UB, of the previous year relevant to the assessment year beginning on 115UB, of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2016. or after the 1st day of April, 2016.” 9.3 Further, venture capital fund Further, venture capital fund (VCF) and venture capital and venture capital undertaking (VCU) undertaking (VCU) has been defined under Explanation below has been defined under Explanation below section 10(23FB) of the Act as under: section 10(23FB) of the Act as under:

“(a) ………………………………………… “(a) ………………………………………… (b) "venture capital fund" venture capital fund" means a fund— (A)operating under a trust deed registered under the provisions of the (A)operating under a trust deed registered under the provisions of the (A)operating under a trust deed registered under the provisions of the Registration Act, 1908 (16 of 1908), which Registration Act, 1908 (16 of 1908), which— (I) has been granted a certificate of registration, before the 21st day of has been granted a certificate of registration, before the 21st day of has been granted a certificate of registration, before the 21st day of May, 2012, as a Venture Capital Fund and is regulated under May, 2012, as a Venture Capital Fund and is regulated under May, 2012, as a Venture Capital Fund and is regulated under the Venture Capital Funds Regulations; or Capital Funds Regulations; or (i) it has invested not less than two it has invested not less than two-thirds of its investible funds in thirds of its investible funds in unlisted equity shares or equity linked instruments of venture unlisted equity shares or equity linked instruments of venture unlisted equity shares or equity linked instruments of venture capital undertaking; capital undertaking; (ii) it has not invested in any venture capital undertakin it has not invested in any venture capital undertakin it has not invested in any venture capital undertaking in which its trustee or the settler holds, either individually or collectively, its trustee or the settler holds, either individually or collectively, its trustee or the settler holds, either individually or collectively, equity shares in excess of fifteen per cent of the paid equity shares in excess of fifteen per cent of the paid equity shares in excess of fifteen per cent of the paid-up equity share capital of such venture capital undertaking; and share capital of such venture capital undertaking; and share capital of such venture capital undertaking; and

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(iii)the units, if any, issued by it are not listed i (iii)the units, if any, issued by it are not listed in any recognised n any recognised stock exchange; or stock exchange; or (II) has been granted a certificate of registration as Venture Capital Fund has been granted a certificate of registration as Venture Capital Fund has been granted a certificate of registration as Venture Capital Fund as a sub-category of Category I Alternative Investment Fund under the category of Category I Alternative Investment Fund under the category of Category I Alternative Investment Fund under the Alternative Investment Funds Regulations and which fulfils the following Alternative Investment Funds Regulations and which fulfils the following Alternative Investment Funds Regulations and which fulfils the following conditions, namely: onditions, namely:— (B)operating as a venture capital scheme made by the Unit Trust of India (B)operating as a venture capital scheme made by the Unit Trust of India (B)operating as a venture capital scheme made by the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963); established under the Unit Trust of India Act, 1963 (52 of 1963); established under the Unit Trust of India Act, 1963 (52 of 1963);” (c)"venture capital undertaking venture capital undertaking" means— (i)a venture capital undertaking as defined in clause (n) of regulation 2 of i)a venture capital undertaking as defined in clause (n) of regulation 2 of i)a venture capital undertaking as defined in clause (n) of regulation 2 of the Venture Capital Funds Regulations; or the Venture Capital Funds Regulations; or (ii)a venture capital undertaking as defined in clause (aa) of sub (ii)a venture capital undertaking as defined in clause (aa) of sub (ii)a venture capital undertaking as defined in clause (aa) of sub-regulation (1) of regulation 2 of the Alternative Investment Funds Regu (1) of regulation 2 of the Alternative Investment Funds Regulations; lations;” 9.5 The assessee company received funds from investor The assessee company received funds from investor The assessee company received funds from investors but before investment in before investment in the VCU, temporarily parked ked the funds in portfolio companies or in the mutual funds and income earned portfolio companies or in the mutual funds and income earned portfolio companies or in the mutual funds and income earned there on during was claimed exempted was claimed exempted u/s 10(34) and 10(35) of the u/s 10(34) and 10(35) of the Act. Thereafter, the funds were Act. Thereafter, the funds were ultimately invested into the VCU invested into the VCU income earned there income earned there from has been distributed among the unit from has been distributed among the unit holders and which has been claimed as u/s 10(23FB) of the Act. holders and which has been claimed as u/s 10(23FB) of the Act. holders and which has been claimed as u/s 10(23FB) of the Act. The income received from VCU was also The income received from VCU was also invested temporarily in invested temporarily in mutual find etc before distribution to unit holders or investors. mutual find etc before distribution to unit holders or investors. mutual find etc before distribution to unit holders or investors. According to the Ld. Assessing Officer, the assessee was authorized According to the Ld. Assessing Officer, the assessee was authorized According to the Ld. Assessing Officer, the assessee was authorized for investment in the VCU investment in the VCU only, and not to invest funds to invest funds temporarily in the mutual funds etc. the in the mutual funds etc. therefore, the assessee has violated refore, the assessee has violated Regulations of the SEBI prescribed for the purpose of the VCF fund. Regulations of the SEBI prescribed for the purpose of the VCF fund. Regulations of the SEBI prescribed for the purpose of the VCF fund. Thus, According to the Assessing Officer, the assessee , According to the Assessing Officer, the assessee , According to the Assessing Officer, the assessee was not entitled for benefit u/s 10(23FB) of the Act. entitled for benefit u/s 10(23FB) of the Act. The ld CIT(A) laos The ld CIT(A) laos upheld the finding of the upheld the finding of the AO. However, we find that in the case of However, we find that in the case of

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the assessee, the Tribunal in ITA No. 277/Mum/2019 for the assessee, the Tribunal in ITA No. 277/Mum/2019 for the assessee, the Tribunal in ITA No. 277/Mum/2019 for assessment year 2015 assessment year 2015-16 has discussed the issue in detail discussed the issue in detail and held that SEBI has not given any adverse report in respect of the that SEBI has not given any adverse report in respect of the that SEBI has not given any adverse report in respect of the assessee. The relevant finding o assessee. The relevant finding of the Tribunal (supra) is reproduced f the Tribunal (supra) is reproduced as under:

“10. We We We have have have considered considered considered the the the rival rival rival submission submission submission of of of the the the learned learned learned representatives of the parties. We have also deliberated on various case representatives of the parties. We have also deliberated on various case representatives of the parties. We have also deliberated on various case laws relied by lower authorities as well as by ld. representatives of the laws relied by lower authorities as well as by ld. representatives of the laws relied by lower authorities as well as by ld. representatives of the parties and gone through the orders of authorities below. During the rties and gone through the orders of authorities below. During the rties and gone through the orders of authorities below. During the assessment the assessing officer denied the exemption under section 10 assessment the assessing officer denied the exemption under section 10 assessment the assessing officer denied the exemption under section 10 (23CF), holding that the assessee made investment in mutual funds and (23CF), holding that the assessee made investment in mutual funds and (23CF), holding that the assessee made investment in mutual funds and violated SEBI (VCF) Regulations and also violate violated SEBI (VCF) Regulations and also violated the objects of clause of d the objects of clause of the trust deed. The learned Commissioner (Appeals) confirmed the action of the trust deed. The learned Commissioner (Appeals) confirmed the action of the trust deed. The learned Commissioner (Appeals) confirmed the action of assessing officer on similar line. We have also gone through the various assessing officer on similar line. We have also gone through the various assessing officer on similar line. We have also gone through the various documentary evidences placed on record by the assessee, which include the documentary evidences placed on record by the assessee, which include the documentary evidences placed on record by the assessee, which include the trust deed dated 18th March 2006, registration of assessee under eed dated 18th March 2006, registration of assessee under eed dated 18th March 2006, registration of assessee under registration Act and certificate of registration dated 13th October 2006 registration Act and certificate of registration dated 13th October 2006 registration Act and certificate of registration dated 13th October 2006 granted by SEBI (VCF) Regulations. Before discussing the issue involved in granted by SEBI (VCF) Regulations. Before discussing the issue involved in granted by SEBI (VCF) Regulations. Before discussing the issue involved in the present appeal, we may refer the relevant prov the present appeal, we may refer the relevant provisions of section 10(23FB) isions of section 10(23FB) and section 115U of the Act. and section 115U of the Act. "(23FB) any income of a venture capital company or venture capital fund from any income of a venture capital company or venture capital fund from any income of a venture capital company or venture capital fund from investment in a venture capital undertaking. investment in a venture capital undertaking. Explanation. Explanation.--For the purposes of this clause,-- (a) "venture capital (a) "venture capital company" means a company which— (A) has been granted a certificate of registration, before the 21st day of (A) has been granted a certificate of registration, before the 21st day of (A) has been granted a certificate of registration, before the 21st day of May, 2012, as a Venture Capital Fund and is regulated under the May, 2012, as a Venture Capital Fund and is regulated under the May, 2012, as a Venture Capital Fund and is regulated under the Securities and Exchange Board of India (Venture Capital Funds) Securities and Exchange Board of India (Venture Capital Funds) Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996 (her Regulations, 1996 (hereinafter referred to as the Venture Capital Funds einafter referred to as the Venture Capital Funds Regulations) made under the Securities and Regulations) made under the Securities and Exchange Board of India Act Exchange Board of India Act, 1992 (15 of 1992); or 1992 (15 of 1992); or (B) has been granted a certificate of registration as (B) has been granted a certificate of registration as Venture Capital Fund as a Venture Capital Fund as a sub-category of Category I Alternative Investment Fund and is regulated category of Category I Alternative Investment Fund and is regulated category of Category I Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment under the Securities and Exchange Board of India (Alternative Investment under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (hereinafter referred to as the Alternative Funds) Regulations, 2012 (hereinafter referred to as the Alternative Funds) Regulations, 2012 (hereinafter referred to as the Alternative Investment Funds Investment Funds Regulations) made under the Securities and Regulations) made under the Securities and Exchange Board of India Act Board of India Act, 1992 (15 of 1992), and which fulfils the following , 1992 (15 of 1992), and which fulfils the following conditions, namely: conditions, namely:-- (i) it is not listed on a recognized stock exchange; (i) it is not listed on a recognized stock exchange;

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(ii)it has invested not less than two t has invested not less than two-thirds of its investible funds in unlisted thirds of its investible funds in unlisted equity shares or equity linked instruments of venture capital equity shares or equity linked instruments of venture capital equity shares or equity linked instruments of venture capital undertaking; and undertaking; and

(iii) it has not invested in any venture capital undertaking in which its (iii) it has not invested in any venture capital undertaking in which its (iii) it has not invested in any venture capital undertaking in which its director or a substantial s director or a substantial shareholder (being a beneficial owner of equity hareholder (being a beneficial owner of equity shares exceeding ten per cent of its equity share capital) holds, either shares exceeding ten per cent of its equity share capital) holds, either shares exceeding ten per cent of its equity share capital) holds, either individually or collectively, equity shares in excess of fifteen per cent of individually or collectively, equity shares in excess of fifteen per cent of individually or collectively, equity shares in excess of fifteen per cent of the paid- the paid-up equity share capital of such venture capital un up equity share capital of such venture capital undertaking;

(b) "venture capital fund" means a fund (b) "venture capital fund" means a fund--

(A) operating under a trust deed registered under the provisions of (A) operating under a trust deed registered under the provisions of (A) operating under a trust deed registered under the provisions of the Registration Act Registration Act, 1908 (16 of 1908), which--

(I) has been granted a certificate (I) has been granted a certificate of registration, before the 21st day of May, of registration, before the 21st day of May, 2012, as a Venture Capital Fund and is regulated under the Venture 2012, as a Venture Capital Fund and is regulated under the Venture 2012, as a Venture Capital Fund and is regulated under the Venture Capital Funds Regulations; or (II) has been granted a certificate of Capital Funds Regulations; or (II) has been granted a certificate of Capital Funds Regulations; or (II) has been granted a certificate of registration as Venture Capital Fund as a sub registration as Venture Capital Fund as a sub-category of Category I category of Category I Alternative Investment Fund under the Alternative Investment Funds native Investment Fund under the Alternative Investment Funds native Investment Fund under the Alternative Investment Funds Regulations and which fulfils the following conditions, namely: Regulations and which fulfils the following conditions, namely: Regulations and which fulfils the following conditions, namely:--

(i) it has invested not less than two (i) it has invested not less than two-thirds of its investible funds in unlisted thirds of its investible funds in unlisted equity shares or equity linked instruments of v equity shares or equity linked instruments of v equity shares or equity linked instruments of venture capital undertaking; undertaking;

(ii) it has not invested in any venture capital undertaking in which its (ii) it has not invested in any venture capital undertaking in which its (ii) it has not invested in any venture capital undertaking in which its trustee or the settler holds, either individually or collectively, equity trustee or the settler holds, either individually or collectively, equity trustee or the settler holds, either individually or collectively, equity shares in excess of fifteen per cent of the paid shares in excess of fifteen per cent of the paid-up equity share capital up equity share capital of such venture capital undertaking; and

(iii) the units, if any, issued by it are not listed in any recognized stock (iii) the units, if any, issued by it are not listed in any recognized stock (iii) the units, if any, issued by it are not listed in any recognized stock exchange; or (B) operating as a venture capital scheme made by the exchange; or (B) operating as a venture capital scheme made by the exchange; or (B) operating as a venture capital scheme made by the Unit Trust of India established under the Unit Trust of India established under the Unit Trust of India Act Unit Trust of India Act, 1963 (52 of 1963); (52 of 1963);

(c) "venture capital undertaking" means (c) "venture capital undertaking" means--

(i) a venture capital undertaking as defined in clause (n) of regulation 2 of (i) a venture capital undertaking as defined in clause (n) of regulation 2 of (i) a venture capital undertaking as defined in clause (n) of regulation 2 of the Venture Capital Funds Regulations; or the Venture Capital Funds Regulations; or (ii) a venture capital undertaking (ii) a venture capital undertaking as defined in clause (aa) of sub as defined in clause (aa) of sub-regulation (1) of regulation 2 of the Alternative Investment Funds Regulations;" (1) of regulation 2 of the Alternative Investment Funds Regulations;" (1) of regulation 2 of the Alternative Investment Funds Regulations;"

"115U.(1) Notwithstanding anything contained in any other provisions of this "115U.(1) Notwithstanding anything contained in any other provisions of this "115U.(1) Notwithstanding anything contained in any other provisions of this Act, any income accruing or arising to or received by a person o Act, any income accruing or arising to or received by a person o Act, any income accruing or arising to or received by a person out of investments made in a venture capital company or venture capital fund shall investments made in a venture capital company or venture capital fund shall investments made in a venture capital company or venture capital fund shall be chargeable to income be chargeable to income-tax in the same manner as if it were the income tax in the same manner as if it were the income accruing or arising to or received by such person had he made investments accruing or arising to or received by such person had he made investments accruing or arising to or received by such person had he made investments directly in the venture capi directly in the venture capital undertaking.

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(2) The person responsible for crediting or making payment of the income on (2) The person responsible for crediting or making payment of the income on (2) The person responsible for crediting or making payment of the income on behalf of a venture capital company or a venture capital fund and the venture behalf of a venture capital company or a venture capital fund and the venture behalf of a venture capital company or a venture capital fund and the venture capital company or venture capital fund shall furnish, within such time as may capital company or venture capital fund shall furnish, within such time as may capital company or venture capital fund shall furnish, within such time as may be prescribed, to the person who is liable to tax in respect of such income and escribed, to the person who is liable to tax in respect of such income and escribed, to the person who is liable to tax in respect of such income and to the prescribed income to the prescribed income- tax authority, a statement in the prescribed form and tax authority, a statement in the prescribed form and verified in the prescribed manner, giving details of the nature of the income verified in the prescribed manner, giving details of the nature of the income verified in the prescribed manner, giving details of the nature of the income paid or credited during paid or credited during the previous year and such other relevant details as the previous year and such other relevant details as may be prescribed. may be prescribed.

(3) The income paid or credited by the venture capital company and the (3) The income paid or credited by the venture capital company and the (3) The income paid or credited by the venture capital company and the venture capital fund shall be deemed to be of the same nature and in the same venture capital fund shall be deemed to be of the same nature and in the same venture capital fund shall be deemed to be of the same nature and in the same proportion in the hands of the per proportion in the hands of the person referred to in sub-section (1) as it had section (1) as it had been received by, or had accrued or arisen to, the venture capital company or been received by, or had accrued or arisen to, the venture capital company or been received by, or had accrued or arisen to, the venture capital company or the venture capital fund, as the case may be, during the previous year. the venture capital fund, as the case may be, during the previous year. the venture capital fund, as the case may be, during the previous year.

(4) The provisions of Chapter XII (4) The provisions of Chapter XII-D or Chapter XII-E or Chapt E or Chapter XVII-B shall not apply to the income paid by a venture capital company or venture capital fund apply to the income paid by a venture capital company or venture capital fund apply to the income paid by a venture capital company or venture capital fund under this Chapter. under this Chapter.

(5) the income accruing or arising to or received by the venture capital (5) the income accruing or arising to or received by the venture capital (5) the income accruing or arising to or received by the venture capital company or venture capital fund, during a previous year, from inv company or venture capital fund, during a previous year, from inv company or venture capital fund, during a previous year, from investments made in venture capital undertaking if not paid or credited to the person made in venture capital undertaking if not paid or credited to the person made in venture capital undertaking if not paid or credited to the person referred to in sub referred to in sub-section (1), shall be deemed to have been credited to the section (1), shall be deemed to have been credited to the account of the said person on the last day of the previous year in the same account of the said person on the last day of the previous year in the same account of the said person on the last day of the previous year in the same proportion in which proportion in which such person would have been entitled to receive the such person would have been entitled to receive the income had it been paid in the previous year. income had it been paid in the previous year.

Explanation 1. Explanation 1.--For the purposes of this Chapter, "venture capital company", For the purposes of this Chapter, "venture capital company", "venture capital fund" and "venture capital undertaking" shall have the "venture capital fund" and "venture capital undertaking" shall have the "venture capital fund" and "venture capital undertaking" shall have the meanings respectively assigned to them in clause (23FB) of respectively assigned to them in clause (23FB) of respectively assigned to them in clause (23FB) of section 10.

Explanation 2. Explanation 2.--For the removal of doubts, it is hereby declared that any For the removal of doubts, it is hereby declared that any income which has been included in total income of the person referre income which has been included in total income of the person referre income which has been included in total income of the person referred to in sub-section (1) in a previous year, on account of it having accrued or arisen in section (1) in a previous year, on account of it having accrued or arisen in section (1) in a previous year, on account of it having accrued or arisen in the said previous year, shall not be included in the total income of such person the said previous year, shall not be included in the total income of such person the said previous year, shall not be included in the total income of such person in the previous year in which such income is actually paid to him by the in the previous year in which such income is actually paid to him by the in the previous year in which such income is actually paid to him by the venture capital company or the venture capital fund." al company or the venture capital fund."

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of such commission and consequently provident fund on such commission of such commission and consequently provident fund on such commission of such commission and consequently provident fund on such commission was sought to be disallowed. The matter went up to the Hon. Supreme was sought to be disallowed. The matter went up to the Hon. Supreme was sought to be disallowed. The matter went up to the Hon. Supreme Court. It observed as under : Court. It observed as under :- "It would be conducive to judicial discipline and the maintaining of "It would be conducive to judicial discipline and the maintaining of "It would be conducive to judicial discipline and the maintaining of certainty and u certainty and uniformity in administering the law that the taxing niformity in administering the law that the taxing authorities should proceed on the basis that the recognition granted authorities should proceed on the basis that the recognition granted authorities should proceed on the basis that the recognition granted and available for any particular assessment year implies that the and available for any particular assessment year implies that the and available for any particular assessment year implies that the provident fund satisfies all the conditions under rule 4 of Part A of provident fund satisfies all the conditions under rule 4 of Part A of provident fund satisfies all the conditions under rule 4 of Part A of the Fourth Schedule to the Act, and not sit in judgment over it." Fourth Schedule to the Act, and not sit in judgment over it." Fourth Schedule to the Act, and not sit in judgment over it." Thus it was held that it was not open to the AO to take the view contrary Thus it was held that it was not open to the AO to take the view contrary Thus it was held that it was not open to the AO to take the view contrary to the registration already granted by the CIT and therefore disallow a to the registration already granted by the CIT and therefore disallow a to the registration already granted by the CIT and therefore disallow a part of the contribution. It was pointed out part of the contribution. It was pointed out that when recognition that when recognition continues in operation it would be implied that the conditions laid down continues in operation it would be implied that the conditions laid down continues in operation it would be implied that the conditions laid down there-under are satisfied and any part of disallowance would tantamount under are satisfied and any part of disallowance would tantamount under are satisfied and any part of disallowance would tantamount to questioning the recognition. In other words entries made in the register to questioning the recognition. In other words entries made in the register to questioning the recognition. In other words entries made in the register of independe of independent body should be accepted as true and they should not be nt body should be accepted as true and they should not be questioned while deciding the issue relating to the matters concluded by questioned while deciding the issue relating to the matters concluded by questioned while deciding the issue relating to the matters concluded by the entries made in such registers. From this it follows that if assessee the entries made in such registers. From this it follows that if assessee the entries made in such registers. From this it follows that if assessee trust is registered with SEBI as per certificate gr trust is registered with SEBI as per certificate granted under Regulation anted under Regulation 7(3) then it should be accepted that such certificate is granted after 7(3) then it should be accepted that such certificate is granted after 7(3) then it should be accepted that such certificate is granted after ensuring that conditions laid down before granting of such certificate are ensuring that conditions laid down before granting of such certificate are ensuring that conditions laid down before granting of such certificate are fulfilled. In other words conditions laid down in sub fulfilled. In other words conditions laid down in sub-clause (i) and sub clause (i) and sub- clause (ii) ar clause (ii) are deemed to be fulfilled under explanation e deemed to be fulfilled under explanation-1(b) to section 10(23FB), the moment relevant certificates are produced before the AO. 10(23FB), the moment relevant certificates are produced before the AO. 10(23FB), the moment relevant certificates are produced before the AO. Therefore, he is not required to go into violation of conditions, if any, Therefore, he is not required to go into violation of conditions, if any, Therefore, he is not required to go into violation of conditions, if any, pertaining to the matters of grant of such certifica pertaining to the matters of grant of such certificates. 25. So far as condition laid down in sub So far as condition laid down in sub-clause (iii) of clause (b) under clause (iii) of clause (b) under Explanation 1 is concerned what we consider appropriate for the AO is to Explanation 1 is concerned what we consider appropriate for the AO is to Explanation 1 is concerned what we consider appropriate for the AO is to find out whether any action for default has been taken by SEBI under find out whether any action for default has been taken by SEBI under find out whether any action for default has been taken by SEBI under regulation regulation -30 as referred to above for default committed by the assessee for default committed by the assessee trust. So far as any violation of investment pattern as laid down in trust. So far as any violation of investment pattern as laid down in trust. So far as any violation of investment pattern as laid down in regulation 12(d) is concerned it is also covered under clause (a) of regulation 12(d) is concerned it is also covered under clause (a) of regulation 12(d) is concerned it is also covered under clause (a) of regulation- -30 which shows that assessee trust can be penalized for 30 which shows that assessee trust can be penalized for contraventio contravention of any provision of this Act or these regulations. Thus, if n of any provision of this Act or these regulations. Thus, if assessee trust contravenes regulation assessee trust contravenes regulation-12(d) then SEBI is competent to 12(d) then SEBI is competent to penalize assessee trust within the powers given under regulation 30. So penalize assessee trust within the powers given under regulation 30. So penalize assessee trust within the powers given under regulation 30. So long as SEBI does not find any default of any contravention of the long as SEBI does not find any default of any contra long as SEBI does not find any default of any contra provisions of the SEBI Act or SEBI (VCF) Regulation 1996 then it can be provisions of the SEBI Act or SEBI (VCF) Regulation 1996 then it can be provisions of the SEBI Act or SEBI (VCF) Regulation 1996 then it can be inferred that assessee trust fulfils the conditions laid down under these inferred that assessee trust fulfils the conditions laid down under these inferred that assessee trust fulfils the conditions laid down under these regulations. The AO, however, can look into the issue whether assessee regulations. The AO, however, can look into the issue whether assessee regulations. The AO, however, can look into the issue whether assessee trust fulfils such condi trust fulfils such conditions as laid down in regulation 12(d) (and not tions as laid down in regulation 12(d) (and not under regulation under regulation-8) and report the matter to SEBI taking a protective view 8) and report the matter to SEBI taking a protective view under I.T. Act, 1961. If finally SEBI does not find any default on the part under I.T. Act, 1961. If finally SEBI does not find any default on the part under I.T. Act, 1961. If finally SEBI does not find any default on the part of the assessee trust then view of the AO that there is violation cannot of the assessee trust then view of the AO that there is v of the assessee trust then view of the AO that there is v survive. In other words fulfillment of condition under sub-clause (iii) is survive. In other words fulfillment of condition under sub survive. In other words fulfillment of condition under sub subject to the final finding by SEBI authorities. Their final view on the subject to the final finding by SEBI authorities. Their final view on the subject to the final finding by SEBI authorities. Their final view on the alleged contravention by the assessee trust will prevail over the view of alleged contravention by the assessee trust will prevail over the view of alleged contravention by the assessee trust will prevail over the view of AO. Thus in our v AO. Thus in our view role of the AO in examining the issue about iew role of the AO in examining the issue about fulfillment of conditions laid down in clause (b) is limited to the extent as fulfillment of conditions laid down in clause (b) is limited to the extent as fulfillment of conditions laid down in clause (b) is limited to the extent as described above. described above.

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enough potency in the pleadings of the appellant that there is an industry enough potency in the pleadings of the appellant that there is an industry enough potency in the pleadings of the appellant that there is an industry and trade practice whereby Venture Capital Funds retain certain amounts and trade practice whereby Venture Capital Funds retain certain amounts and trade practice whereby Venture Capital Funds retain certain amounts with them, pending regular investments in Venture Capital Undertakings th them, pending regular investments in Venture Capital Undertakings th them, pending regular investments in Venture Capital Undertakings for certain purposes, like disbursement of expenses, distribution to unit- for certain purposes, like disbursement of expenses, distribution to unit for certain purposes, like disbursement of expenses, distribution to unit holders, etc. Till such time the funds are not utilised for the main holders, etc. Till such time the funds are not utilised for the main holders, etc. Till such time the funds are not utilised for the main purposes, advisably the Venture Capital Fund purposes, advisably the Venture Capital Fund would make temporary would make temporary investments to earn monies. The course adopted by the assessee in this investments to earn monies. The course adopted by the assessee in this investments to earn monies. The course adopted by the assessee in this regard was by investing in units of mutual funds or even by way of fixed regard was by investing in units of mutual funds or even by way of fixed regard was by investing in units of mutual funds or even by way of fixed deposits with banks. Insofar as the objection of the Assessing Officer deposits with banks. Insofar as the objection of the Assessing Officer deposits with banks. Insofar as the objection of the Assessing Officer regarding non regarding non-compliance with the VCF Regulations of SEBI is concerned, iance with the VCF Regulations of SEBI is concerned, here also we do not find any support for the stand taken by the here also we do not find any support for the stand taken by the here also we do not find any support for the stand taken by the Assessing Officer. In fact, our attention was drawn to SEBI (Informal Assessing Officer. In fact, our attention was drawn to SEBI (Informal Assessing Officer. In fact, our attention was drawn to SEBI (Informal Guidance) Scheme, 2003 issued by SEBI with regard to VCF Regulations Guidance) Scheme, 2003 issued by SEBI with regard to Guidance) Scheme, 2003 issued by SEBI with regard to where the temporary deployment of funds by a Venture Capital Fund in where the temporary deployment of funds by a Venture Capital Fund in where the temporary deployment of funds by a Venture Capital Fund in liquid mutual funds or bank deposits or other liquid assets of high quality liquid mutual funds or bank deposits or other liquid assets of high quality liquid mutual funds or bank deposits or other liquid assets of high quality such as treasury bills, etc. were permissible. Moreover, we cannot lose such as treasury bills, etc. were permissible. Moreover, we cannot lose such as treasury bills, etc. were permissible. Moreover, we cannot lose sight of the fact that the Certificate sight of the fact that the Certificate of Registration as a Venture Capital of Registration as a Venture Capital Fund issued by SEBI continues to subsist during the period under Fund issued by SEBI continues to subsist during the period under Fund issued by SEBI continues to subsist during the period under consideration, which clearly belies the assertion of the Assessing Officer consideration, which clearly belies the assertion of the Assessing Officer consideration, which clearly belies the assertion of the Assessing Officer that there has been a violation of VCF Regulations of SEBI. Thus, on an that there has been a violation of VCF Regulations of SEBI. Thus, on an that there has been a violation of VCF Regulations of SEBI. Thus, on an overall analysis of the situation, we find that the temporary investment analysis of the situation, we find that the temporary investment analysis of the situation, we find that the temporary investment made in the units of mutual funds is within the ambit of appellant‟s made in the units of mutual funds is within the ambit of appellant made in the units of mutual funds is within the ambit of appellant Trust Deed and also within the ambit of VCF Regulations of SEBI. Trust Deed and also within the ambit of VCF Regulations of SEBI. Trust Deed and also within the ambit of VCF Regulations of SEBI. 13. Insofar as the investment made by the assessee in Debenture 13. Insofar as the investment made by the assessee in De 13. Insofar as the investment made by the assessee in De application monies is concerned, in this context also we find that application monies is concerned, in this context also we find that application monies is concerned, in this context also we find that appellant has a good case. At the time of hearing, our attention was also appellant has a good case. At the time of hearing, our attention was also appellant has a good case. At the time of hearing, our attention was also drawn to the detailed written submissions made before the lower drawn to the detailed written submissions made before the lower drawn to the detailed written submissions made before the lower authorities, which bring out that the inves authorities, which bring out that the investment in question were towards tment in question were towards Optionally Convertible Debentures. The assessee asserted before the Optionally Convertible Debentures. The assessee asserted before the Optionally Convertible Debentures. The assessee asserted before the lower lower lower authorities authorities authorities that that that putting putting putting application application application money money money in in in Convertible Convertible Convertible Debentures is also to be understood as investment in equity linked Debentures is also to be understood as investment in equity linked Debentures is also to be understood as investment in equity linked instruments because ultima instruments because ultimately the Debenture will be converted into tely the Debenture will be converted into equity shares. In this context, with reference to the VCF Regulations of equity shares. In this context, with reference to the VCF Regulations of equity shares. In this context, with reference to the VCF Regulations of SEBI, assessee pointed out that Regulation 12(ii) of the VCF Regulations SEBI, assessee pointed out that Regulation 12(ii) of the VCF Regulations SEBI, assessee pointed out that Regulation 12(ii) of the VCF Regulations prescribes that not more than 33.33% of investible surplus may be in debt prescribes that not more than 33.33% of investible surplus may be in prescribes that not more than 33.33% of investible surplus may be in instrument of a VCU in which the VCF has already made investment by instrument of a VCU in which the VCF has already made investment by instrument of a VCU in which the VCF has already made investment by way of equity. The learned representative has pointed out that assessee way of equity. The learned representative has pointed out that assessee way of equity. The learned representative has pointed out that assessee had made investment in one of the VCUs by way of equity and had made investment in one of the VCUs by way of equity and had made investment in one of the VCUs by way of equity and accordingly, even if the instant Debenture application money is accordingly, even if the instant Debenture applica accordingly, even if the instant Debenture applica considered as a debt instrument, the same is within the permissible limits considered as a debt instrument, the same is within the permissible limits considered as a debt instrument, the same is within the permissible limits though, according to him, investment in equity linked Convertible though, according to him, investment in equity linked Convertible though, according to him, investment in equity linked Convertible Debentures is to be understood as linked to equity shares only. All these Debentures is to be understood as linked to equity shares only. All these Debentures is to be understood as linked to equity shares only. All these aspects have been time and aspects have been time and again reiterated by the assessee before the again reiterated by the assessee before the lower authorities as well as before us and we find that in neither of the lower authorities as well as before us and we find that in neither of the lower authorities as well as before us and we find that in neither of the orders of the authorities below there is any orders of the authorities below there is any negation to the same. So far negation to the same. So far as VCF Regulations of SEBI are concerned, we are in agreement with the as VCF Regulations of SEBI are concerned, we are in agreement wi as VCF Regulations of SEBI are concerned, we are in agreement wi assessee that it does envisage investments in Convertible Debenture assessee that it does envisage investments in Convertible Debenture assessee that it does envisage investments in Convertible Debenture application money as being investments which can be said to be linked to application money as being investments which can be said to be linked to application money as being investments which can be said to be linked to investment in equity shares. Thus, on account of the aforesaid discussion, investment in equity shares. Thus, on account of the aforesaid discussion, investment in equity shares. Thus, on account of the aforesaid discussion, we find that the assessee fulfils we find that the assessee fulfils the requirements of claiming exemption the requirements of claiming exemption under Section 10(23FB) Section 10(23FB) of the Act so far as it is relatable to the year of the Act so far as it is relatable to the year under consideration. under consideration.

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“24. We have considered the rival submission about the parties and find 24. We have considered the rival submission about the parties and find 24. We have considered the rival submission about the parties and find that we have already allowed exemption to the assessee under section that we have already allowed exemption to the assessee under section that we have already allowed exemption to the assessee under section 10(23FB) of the Act, which was the basis for denying further exemption 10(23FB) of the Act, which was the basis for denying further exemption 10(23FB) of the Act, which was the basis for denying further exemption under section 10(34) and section 10(35). Considering the fact that we section 10(34) and section 10(35). Considering the fact that we section 10(34) and section 10(35). Considering the fact that we have already allowed relief to the assessee on the exemption under have already allowed relief to the assessee on the exemption under have already allowed relief to the assessee on the exemption under section 10(23FB) therefore, the basis on which the assessee was denied section 10(23FB) therefore, the basis on which the assessee was denied section 10(23FB) therefore, the basis on which the assessee was denied exemption under section 10(34) and section 10(35) has exemption under section 10(34) and section 10(35) has already been set already been set aside therefore the discussion on the merit of these grounds of appeal aside therefore the discussion on the merit of these grounds of appeal aside therefore the discussion on the merit of these grounds of appeal have become academic, resultantly, they assessee is also allowed have become academic, resultantly, they assessee is also allowed have become academic, resultantly, they assessee is also allowed exemption under section 10(34) and 10(35) of the Act. exemption under section 10(34) and 10(35) of the Act.” 10.1 Further, the Tribunal in the case of Aditya Further, the Tribunal in the case of Aditya Birla Real Estate Birla Real Estate Fund in ITA No. 2684/Mum/2023 for assessment year 2017-18 has Fund in ITA No. 2684/Mum/2023 for assessment year 2017 Fund in ITA No. 2684/Mum/2023 for assessment year 2017 relied in the order of the Tribunal in assessment year 2016-17 relied in the order of the Tribunal in assessment year 2016 relied in the order of the Tribunal in assessment year 2016 wherein it is held that provisions of section 10(35) of the Act and wherein it is held that provisions of section 10(35) of the Act and wherein it is held that provisions of section 10(35) of the Act and section 10(24FB) of the Act operate in diffe section 10(24FB) of the Act operate in different fields and therefore, rent fields and therefore, Assessing Officer cannot exclude Assessing Officer cannot exclude either of exemption either of exemption. The relevant finding of the Tribunal finding of the Tribunal(supra) is reproduced as under: is reproduced as under:

“5.1 We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant materia dispute and perused the relevant material on record. We find that the Ld. l on record. We find that the Ld. CIT(A) has followed the finding of the Tribunal in assessment year 2016 CIT(A) has followed the finding of the Tribunal in assessment year 2016 CIT(A) has followed the finding of the Tribunal in assessment year 2016- 17 on the issue in dispute. The relevant finding of the Ld. CIT(A) is 17 on the issue in dispute. The relevant finding of the Ld. CIT(A) is 17 on the issue in dispute. The relevant finding of the Ld. CIT(A) is reproduced as under: reproduced as under:

JM Financial Property Fund I 18 ITA Nos. 1689 & 1691/MUM/2024 ITA Nos. 1689 & 1691/MUM/2024

“1. As can be seen from the submissions made and the “1. As can be seen from the submissions made and the “1. As can be seen from the submissions made and the assessment order for A.Y. 2016 assessment order for A.Y. 2016-17 placed on record, the 17 placed on record, the exemption in respect of dividend income from the mutual exemption in respect of dividend income from the mutual exemption in respect of dividend income from the mutual funds of Rs. 6,64,92,670/ funds of Rs. 6,64,92,670/- was denied by the Assessing was denied by the Assessing Officer on the identical ground that the appellant being VCF Officer on the identical ground that the appellant being VCF Officer on the identical ground that the appellant being VCF was only eligible for exempt was only eligible for exemption u/s. 10(23FB) of the Act if ion u/s. 10(23FB) of the Act if the conditions therein were complied. As such, the appellant the conditions therein were complied. As such, the appellant the conditions therein were complied. As such, the appellant cannot be granted exemption u/s. 10(35) of the Act if they cannot be granted exemption u/s. 10(35) of the Act if they cannot be granted exemption u/s. 10(35) of the Act if they are entitled to exemption u/s. 10(23FB) of the Act. Against are entitled to exemption u/s. 10(23FB) of the Act. Against are entitled to exemption u/s. 10(23FB) of the Act. Against the said disallowance, my predecessor had decided the the said disallowance, my predecessor had de the said disallowance, my predecessor had de issue in favour of the appellant vides his order dated 18-09- issue in favour of the appellant vides his order dated 18 issue in favour of the appellant vides his order dated 18 2019. In an appeal filed by the Assessing Officer before the 2019. In an appeal filed by the Assessing Officer before the 2019. In an appeal filed by the Assessing Officer before the Hon'ble Tribunal in ITA No. 7504/Mum/2019, the Hon'ble Hon'ble Tribunal in ITA No. 7504/Mum/2019, the Hon'ble Hon'ble Tribunal in ITA No. 7504/Mum/2019, the Hon'ble Tribunal, vide its order dated 13.08.2021, held as under. Tribunal, vide its order dated 13.08.2021, held as under. Tribunal, vide its order dated 13.08.2021, held as under. 17. We have heard both the parties and perused the heard both the parties and perused the records. Learned Departmental Representative relied records. Learned Departmental Representative relied upon the order of the Assessing Officer.However, he upon the order of the Assessing Officer.However, he could not point out as to why assessee shall not be could not point out as to why assessee shall not be allowed exemption under section 10(35) of the Act allowed exemption under section 10(35) of the Act with respect to dividend income. 18. Upon careful consideration we note that the 18. Upon careful consideration we note that the Assessing Officer's view that VCF was eligible for Assessing Officer's view that VCF was eligible for deduction under a specific section 10(23FB) and deduction under a specific section 10(23FB) and therefore it cannot claim deduction under another therefore it cannot claim deduction under another section 10(35) of the Act is totally inapplicable in the inapplicable in the facts and circumstances of the case. Exemption facts and circumstances of the case. Exemption facts and circumstances of the case. Exemption under section 10(23FB) and exemption under section under section 10(23FB) and exemption under section 10(25) of the Act operates in different fields. Learned 10(25) of the Act operates in different fields. Learned CIT(A) is correct in holding that operations of these CIT(A) is correct in holding that operations of these sections are independent. Assessee's income in VCU ssessee's income in VCU is exempt under section 10(23FB) of the Act and the is exempt under section 10(23FB) of the Act and the dividend income is exempt under section 10(35) of dividend income is exempt under section 10(35) of the Act. Hence, there is no infirmity in the assessee's the Act. Hence, there is no infirmity in the assessee's claim of exemption on dividend income under section claim of exemption on dividend income under section 10(35) of the Act. Learned CIT(A)'s order in this rned CIT(A)'s order in this regard is cogent. Decisions referred by the Assessing regard is cogent. Decisions referred by the Assessing Officer has been duly distinguished by learned Officer has been duly distinguished by learned CIT(A). We do not find any infirmity in the same. CIT(A). We do not find any infirmity in the same. Accordingly, we uphold the order of learned CIT(A)." Accordingly, we uphold the order of learned CIT(A)." 1. Since the aforesaid i 1. Since the aforesaid issue is decided by the Hon'ble Tribunal in ssue is decided by the Hon'ble Tribunal in case of the appellant for A.Y. 2016 case of the appellant for A.Y. 2016-17, respectfully following the 17, respectfully following the findings of the Horible Tribunal, the appellant is held eligible for findings of the Horible Tribunal, the appellant is held eligible for findings of the Horible Tribunal, the appellant is held eligible for exemption u/s. 10(35) of the Act on the incame of Rs. exemption u/s. 10(35) of the Act on the incame of Rs. exemption u/s. 10(35) of the Act on the incame of Rs.

JM Financial Property Fund I 19 ITA Nos. 1689 & 1691/MUM/2024 ITA Nos. 1689 & 1691/MUM/2024

2,24,18,067/ 2,24,18,067/-. As a result the said grounds of appeal are held ult the said grounds of appeal are held allowed.” 10.2 In view of the above, the disallowance of dividend income u/s In view of the above, the disallowance of dividend income u/s In view of the above, the disallowance of dividend income u/s 10(35) of the Act sustained sustained by the Ld. CIT(A) is by the Ld. CIT(A) is set-aside. The ground No. 5 of appeal of the assessee is accordingly allowed. Since, of appeal of the assessee is accordingly allowed. Since, of appeal of the assessee is accordingly allowed. Since, we have already allowed the ground No ve already allowed the ground Nos. 4 and 5 of the appeal of . 4 and 5 of the appeal of the assessee, the other grounds are rendered merely academic and the other grounds are rendered merely academic and the other grounds are rendered merely academic and therefore, we are not required to adjudicate upon. therefore, we are not required to adjudicate upon.

JM Financial Property Fund I 20 ITA Nos. 1689 & 1691/MUM/2024 ITA Nos. 1689 & 1691/MUM/2024

Order pronounced in the open Cou Order pronounced in the open Court on 24/07 /07/2024.

Sd/- - Sd/ Sd/- (SANDEEP SINGH KARHAIL ANDEEP SINGH KARHAIL) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 24/07/2024 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai