ADDL CIT 8(1), MUMBAI vs. M/S. SANOFI INDIA LIMITED (FORMERLY KNOWN AS M/S. AVENTIS PHARMA LTD), MUMBAI

The ld. DR relied on the order of the lower authorities.

We have heard the parties and perused the material on record. We noticed that the Co-ordinate Bench in assessee's own case for AY 2003-04 has considered an identical issue and held that “10. Considered the rival submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2002-03. While deciding the issue, the Coordinate Bench of the Tribunal in ITA.No. 3092/Mum/2006 dated 11.08.2021 held as under: - “15. We have considered rival submissions and perused materials on record. It evident, assessee's claim of depreciation on the opening WDV of block of assets has been disallowed simply for the reason that similar claim made by the assessee in preceding assessment years has been disallowed. As brought to our notice by learned senior counsel for the assessee, while deciding identical issue in assessee's own case in assessment years 1998-99 to 2001-02, the Tribunal has allowed assessee's claim of depreciation. In the latest order passed for the assessment year 2001-02 in & 8746/Mum/2004 dated 28-07-2014, the Tribunal, following its earlier order, has allowed assessee's claim holding as under:- "8.1 We have considered rival contentions and found from the record that exactly similar issue has been decided by the Tribunal in assessee's own case for the assessment year 1998-99 and 1999-2000, wherein the Tribunal after considering the decision in the case of G.R.Shipping Company and Inductotherm India Ltd, 73 1TD 529, held that depreciation was allowable on obsolete assets to the assessee. However, against this decision of the Tribunal, the department has not filed any further appeal before the Hon'ble High Court. Thereafter relying the same, the Tribunal in assessee’s own se for the assessment year 2000-01 hasdecided the issue in favour of the assessee. 8.2 As the facts and circumstances during the year under consideration are same, respectfully following the decision of the Tribunal in assessee's own case, we do not find any merit in the action of the AO for declining assessee's claim of depreciation on obsolete assets."

Further, the Coordinate Bench in assessee’s own case for the A.Y.2001-02 in ITA.No. 8978/Mum/2004 held as under: - “8. Ground No.3 is regarding disallowance of estimated depreciation on obsolete assets of Rs. 68,16,036/-. It was contended by the learned AR that this issue has been decided by the Hon'ble Bombay High Court in the case of CIT VS. GR Shipping Ltd., in favour of the assessee and relying upon the aforesaid decision of the Hon'ble jurisdictional High Court, the Tribunal has decided the issue in assessee's own case for the assessment year 2000-01 vide order dated 16-4- 2014. 8.1 We have considered rival contentions and found from the record that exactly similar issue has been decided by the Tribunal in assessee's own case for the assessment year 1998- 99 and 1999- 2000, wherein the Tribunal after considering the decision in the case of G.R.Shipping Company and Inductotherm India Ltd, 73 ITD 529. held that depreciation was allowable on obsolete assets to the assessee. However, against this decision of the Tribunal, the department has not filed any further appeal before the Hon'ble High court. Thereafter relying the same, the Tribunal in assessee's own for the assessment year 2000-01 has decided the issue in favour of the assessee. 8.2 As the facts and circumstances during the year under consideration are same, respectfully following the decision of the Tribunal in assessee's own case, we do not find any merit in the action of the AO for declining assessee's claim of depreciation on obsolete assets.”

We noticed that the lower authorities have made the disallowance by placing reliance on their own orders in assessee's case for earlier AYs. Therefore, there is merit in the contention of the ld. AR that the decision of the Tribunal for AY 2003- 04 is applicable for the year under consideration also. Accordingly respectfully following the above decision, we hold that the disallowance made towards depreciation is not sustainable. This ground of the assessee is allowed.

The assessee during the year under consideration has purchased 47,83,150 vials of Rabipur Vaccines from M/s Chiron Behrings Vaccines Pvt. Ltd. (CBV) at the average price of Rs. 123 per vial. The assessee is substantially interested in CBV since the assessee holds 49% of shares in CBV. The assessee entered into marketing and distribution agreement with CBV and accordingly the assessee has undertaken the marketing and distribution of Vaccines produced by CBV in India, Sri Lanka and Bangladesh. The AO invoked the provisions of section 40A(2)(b) to hold that the price at which the assessee has bought the vials is an excess as compared to the price at which CBV is selling the vials to its other Associated Enterprises (AE). Therefore, the AO made an addition of Rs. 16,26,69,188/-. The AO had relied on the decision in assessee's case for earlier AYs in this regard. The assessee before the CIT(A) submitted that the issue is covered by the decision of the Jurisdictional High Court in the case of CIT Vs. Indo-Saudi Services (Travel) Pvt. Ltd. (2008) 12 ITR Bombay 304 and also placed reliance on the CBDT Circular No. 6-P dated 06.07.1968. The assessee further submitted that both the assessee and CBV are assessed to tax under the same jurisdiction paying taxes at the same rate and therefore, there is no question of tax evasion in the transaction of purchasing the vials from CBV by the assessee. Accordingly, the assessee submitted that the disallowance under section 40A(2)(b) is not sustainable. The CIT(A) however upheld the disallowance by placing reliance on the decision of his predecessor in assessee's own case for AY 2003-04.

In subsequent AY 2004-05, the respective CIT(A) has decided the issue in favour of the assessee by distinguishing point of view of the AO. After careful consideration of the fact on record, we are of the view that the Rabipur vaccine is unique and manufactured and marketed in the South Asia by the assessee with the agreement with the Chiron Group. The majority of the vaccines are sold in the India and adjacent countries. There is no equivalent vaccine manufactured by any other pharmaceutical companies. Therefore, Chiron Group of companies holding monopoly in this line of business, it shows that there is no comparable available for this vaccine. Therefore, it has to be analyzed independently and on commercial basis.

As per the JV agreement, the Chiron India will produce and market the same by the assessee company with full monopoly on the market, therefore there is no comparable. Then it has to be bench marked on the commercial terms only. As per the commercial understanding, Chiron India produces and sells 80 to 85% of the vaccines to assessee and rest of the capacity are utilized to manufacture and sells to Chiron USA having marketing right to the rest of the world. Therefore, the success of the venture depends upon the marketing of the vaccines in the South Asia, where the assessee has the marketing rights. Further we observe that the assessee buys the vaccine at the 60% of the selling price of vaccine marketed by it. Since, the assessee has to buy the vaccine only from Chiron India, which supplies the same having monopoly over the product, it is left to the Chiron group of companies to decide on the pricing of the vaccines. They sell the vaccines to assessee at the cost of 60% of the selling price, which ultimately recovers its cost of manufacturing, which is also based on the JV agreement. The Chiron group markets the same at the lesser cost does not make, anyway, affects the marketability or achieving the profitability of the assessee in the whole marketing strategy of the Chiron Group. It is wrong on the part of the revenue authorities in invoking the provisions of section 40A(2) of the Act in this case. Even otherwise, the existence of the assessee depends on the JV agreement and majority of the vaccines are marketed only by the assessee and the business of the assessee depends on the supply of vaccines from Chiron India, it is like co existence and mutual dependence.

Learned Counsel for the appellant submitted that the present case falls under sub-clause (ii) or subclause (iv) of clause (b) of Section 40A(2). Subclause (ii) provides that where the assessee is a company, firm, association of persons or Hindu undivided family, any director of the company, partner of the firm, or member of the association or family, or any relative of such director, partner or member would be a related person. In the present case, the assessee is a company and the seller is its subsidiary company. The seller i.e. the subsidiary company does not fall in any of the capacities mentioned under sub-clause (ii) of clause (b). Only a director of the company, partner of the firm, or member of the association or family or any relative of such director, partner or member is a related person, under subclause (ii) of clause (b) of sub-section (2). Another company, even if it is a subsidiary of the assessee , is not a related person within the meaning of sub-clause (ii) of clause (b) of Section 40A(2). Sub- clause (iv) of clause (b) of Section 40A(2) provides that in case of a company, firm, association of persons or Hindu undivided family having a substantial interest in the business or profession of the assessee or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member is a related person. Again a subsidiary company does not fall in any of the class of persons mentioned in sub-clause (iv) of clause (b) of Section 40A(2). In law, a holding company is a member of subsidiary company and holds more than 50% equity share capital of the subsidiary company (except in cases where it controls the composition of the board of directors without holding majority of the shares). While the holding company is a member of its subsidiary company, the subsidiary company is not a member of the holding company. As, the subsidiary company was not a member of the assessee subclause (iv) of clause (b) of Section 40A(2) of the Act is also not attracted in the present case.”

Taking note of the said observations, we find that in the present case, the learned Tribunal has found in the impugned order dated 18.02.2009 for the Assessment Years 2003-2004 that there is no evidence brought on record to show that the payment itself was excessive and it had enriched the individual Directors. It is also noted that the records reveal that there is no undue advantage by the Directors by the arrangement and there is no loss to the Revenue as the subject amount has already been taxed in the hands of the HUF. It is further noted that the case of the HUFs has not been reopened and there is no reopening of the assessment of the individual Directors. It is also pointed out that the records reveal that the barges were taken on payment of time charter charges of income earned from the transportation of iron ore on the basis of per tonne rate as prescribed by the Goa Barge Owners Association. Considering the said factual position, the learned Tribunal observed that in the absence of any comparative case that the payments were excessive and unreasonable, the orders of the Revenue Authorities are liable to be set aside. The learned Tribunal also took note of the Circular dated 06.07.1968, particularly para 74 thereof and noted that there is nothing on record to show that either of the parties enriched by getting a fixed sum of money as charter hire charges and the tax due by the Assessee has been reduced by this arrangement. The learned Tribunal also found that as far as the other appeal being the issues involved are identical and consequently, the appeal filed by the respondents came to be allowed.

In the present case, we find that the factual findings are that there is no excessive payment or that the arrangement has in any way enriched the respondents which cannot be faulted as they are based on the appreciation of evidence by the learned Tribunal and no perversity has been shown to such findings by the appellant.

Respectfully following the above said decision of Hon'ble High Court and discussions in the above paras, we are inclined to allow the ground raised

The ld. DR on the other hand relied on the order of the lower authorites.

We have heard the parties and perused the material on record. We noticed that the Co-ordinate Bench in assessee's own case for AY 2003-04 has considered a similar issue where it has been held that “19. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2002-03. While deciding the issue, the Coordinate Bench of the Tribunal in ITA.No. 3092/Mum/2006 dated 11.08.2021 held as under: - “34. Facts being identical, respectfully following the aforesaid decision of the co-ordinate bench, we restore the issue to the assessing officer with similar directions. This ground is allowed for statistical purpose.

Further, the Coordinate Bench in assessee’s own case for the A.Y.1999- 2000 in ITA.No. 4180/Mum/2003 held as under: - “2.9.1 We have heard both the parties, perused records and considered the matter carefully. The dispute is regarding adjustment on account of Modvat Credit u/s 145A of the Income-tax Act. Under the said provision, valuation of purchase and sale of goods and inventory has to be made on the basis of method of accounting regularly followed and further adjustment is required to be made to include the amount of any tax, duty, cess to bring the goods to the place of its location condition on the date of the valuation. Therefore, under the provision u/s 145A adjustment on account of tax, duty etc has to be made at all stages that is, opening stock, purchases and sales and closing stock. It has been held by the Hon'ble High Court of Delhi in case of Mahavir Aluminium Ltd. (295 ITR 77) that adjustment u/s 145A has to be made both to the opening stock and closing stock. This issue therefore in our view requires fresh examination. We, therefore, set aside the order of CIT(A), and restore the matter to AO for passing a fresh order after allowing opportunity of hearing to assessee.”

Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in previous Assessment Years is respectfully followed. It is brought to our notice that the department has accepted the similar decisions in the AY 2006-07 and 2007-08 were accepted by the revenue by not preferring appeals and subsequently no adjustments were proposed by Assessing Officer in the subsequent years, accordingly, this ground is decided in favour of the assessee. Hence this ground of appeal

During the year under consideration the assessee has claimed expenditure towards leave encashment amounting to Rs. 40,75,171/-. The said claim is made on the basis of actual payment of leave encashment during the year in accordance with provisions of section 43B of the Act. The AO noticed that in the earlier years the assessee had claimed provision towards leave encashment as a deduction on the basis of actuarial valuation and that the same has been allowed by the revenue. Therefore the AO was of the view that the assessee during the year under consideration has claimed double deduction by making the claim on payment basis also. The AO further noticed that in earlier AYs the assessee was allowed 1/24th of the amount claimed and accordingly made an addition of Rs. 39,05,372/-.

The ld. AR submitted that the assessee was claiming leave encashment on provision basis and the same was allowed until AY 2001-02. The ld. AR further submitted that during the year under consideration the assessee has made the claim on payment basis which cannot be disallowed in view of Explanation (3B) to section 43B. Accordingly, the ld. AR submitted that the leave encashment as claimed by the assessee should be allowed as a deduction.

The ld. DR on the other hand, submitted that since the assessee was allowed to claim leave encashment on provision basis until AY 2001-02, the assessee has to substantiate that the amount claimed during the year under consideration on payment basis does not include the amount already claimed on provision basis. Therefore, the ld. DR argued that the assessee has to evidence the claim that the amount debited to the P&L A/c does not pertain to earlier year's provision or otherwise the opening balance in the provision for leave encashment account needs to be disallowed.

We have heard the parties and perused the material on record. We noticed that in assessee's own case for AY 2003-04 the Co-ordinate bench has considered a similar issue and held that “47. Considered the rival submissions and material placed on record, we observe from the submissions made and material available on record. We notice that the assessee has started adopting the amended provisions of section 43B and started claiming actual payments of leave encashment. However, until previous AY, it has claimed deduction based on Actuarial valuation by claiming on the basis of provisions created. Since the assessee has started adopting the expenses on actual payment basis, it is the duty of the assessee to declare the provisions created until previous assessment years and the same has to be reversed in the current assessment year and start claiming on the basis of actual payments.

We observe that the AO has rejected the submissions of the assessee and disallowed the actual claim made by the assessee without any discussion on the reversal of provisions by the assessee. Before us Ld.AR of the assessee submitted that the assessee has reversed the provisions made. It is fact on record that the assessee has claimed the expenses on leave encashment on the basis of actuarial valuation until previous year and no specific details were submitted before us to adjudicate the issue on merit, since it is factual matter, in our considered view, it needs to be verified by the tax authorities on the aspect of status of opening provisions outstanding in the books of the assessee, which was based on the actuarial valuation, which needs to be reversed first before allowing any expenditure on actual basis. Therefore, we are inclined to remit this issue back to the file of Assessing Officer to determine the provisions outstanding in the books of the assessee and disallow the same during this year and allow the actual claim of the assessee on the basis of actual payment. Accordingly, we allow the ground raised

The AO did not accept the submissions of the assessee. The AO held that no expenditure is allowed when the income is offered under the "Income from House Property" except the adhoc deduction at 30%. Accordingly the AO disallowed the amount of Rs. 3,24,000/- claimed by the assessee towards brokerage charge. The CIT(A) upheld the order of the AO by placing reliance on the order of his predecessor for AY 2003-04. The ld. AR submitted that the brokerage expenditure was incurred by the assessee prior to letting out the flat on rent and therefore, cannot be disallowed on the basis that the same was not allowable under section 24 of the Act. The ld. AR further submitted the expenditure was incurred by the assessee in order to put the business asset to profitable use and therefore, it should be allowed as a deduction under section 37 of the Act.

The ld. DR on the other hand relied on the decision of the lower authorities.

We have heard the parties and perused the material on record. From the perusal of the submissions made by the assessee before the AO it is clear that the assessee has rented out the excess space available which was earlier used by the company's Managing Director to McKinsey & Co. and has entered into a leave and license agreement in this regard. It is further noticed that the assessee has paid a brokerage of Rs. 3,24,000/- to Mehta Enterprises who procured the tenant to the assessee. From these facts it is clear that the income arising to the assessee by renting out the excess space is to be taxed under the head "Income from House Property". Accordingly, the assessee is entitled to claim the deductions that are allowable only under section 24 of the Act. Therefore, we are inclined to agree with the findings given by the lower authorities while considering the claim of the assessee. In this regard we direct the AO to consider the claim of the assessee as a deduction under the head "Income from House Property" and allowed the claim in accordance with law. It is ordered accordingly.

The AO while considering the deduction claimed by the assessee under section 80IB did not allow the claim to the extent of 30% of Rs. 10,70,852/- which was attributable to interest income from bank deposits, interest on deposits with Reliance Energy and vendor balances written back. The CIT(A) upheld the disallowance made by the AO by placing reliance on the decision of the Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. v/s CIT 262 ITR 278.

The ld. AR in this regard submitted that the interest from bank deposits to the tune of Rs.4,26,913/- is derived from the bank deposit of Rs. 28,00,000/- placed by the assessee's Goa Unit to secure a bank guarantee in favour of the Goa Electricity Board. The ld. AR further submitted that the electricity power to the Goa Unit was supplied based on the bank guarantee and therefore, the interest earned on such deposit cannot be treated as not derived from business of the assessee. With regard the interest earned on deposit with Reliance Energy the ld. AR placed similar arguments since the deposit is linked with the power supply to the assessee. With regard to the amount written back the ld. AR submitted that the amount represents the profit derived from the business of the industrial undertaking since the balance outstanding i.e. written back now pertain to the business expenditure of the assessee. The ld. AR argued that the words used in section 80IB are "derived from the business of an industrial undertaking" and therefore, the income earned by the business which has a direct nexus to the business of the assessee should be included for the purpose of deduction under section 80IB.

The ld. DR on the other hand relied on the order of the lower authorities to submit that the words "derived from" should interpreted narrowly as has been held by the Hon'ble Supreme Court in the case of Pandian Chemicals (supra).

We have heard the parties and perused the material on record. We notice that the issue of interest on deposits whether to be included for the purpose of deduction under section 80IB has been considered by the Hon'ble Bombay High Court in the case of CIT vs JagdishprasadM. Joshi ([2009] 318 ITR 420 (Bombay)) and the relevant observations are extracted below –

With regard to the vendor balances written back, we are of the view that in order to be eligible for deduction under section 80IB, income earned should be inseparably connected with the business carried on by the assessee and that so long as profits and gains emanate directly from the business itself then the assessee would be eligible to get a deduction u/s.80IB. The Hon'ble Supreme Court in the case of Liberty India Ltd. Vs CIT [2009] 183 Taxman 349 (SC) has laid down the ratio that by using the expression “derived from”, Parliament intended to cover sources not beyond the first degree from where the profit/income is generated .The vendor balances written back in our view is not directly emanating from the business of the assessee since writing back the vendor balance which is no longer payable is an independent activity that has no first degree nexus to the eligible business of the assessee eligible for deduction under section 80IB. Accordingly we uphold the disallowance made by the AO to the extent of vendor balances written back. This ground of the assessee is partly allowed.

During the course of hearing the assessee raised an additional ground with regard to disallowance under section 14A r.w.r 8D. The ld. AR in this regard submitted that the additional ground does not warrant examination of any new facts and is purely a legal contention and accordingly prayed for admission of the additional ground.

On the other hand, the ld. DR vehemently opposed the admission of additional ground.

The additional grounds raised are pure legal issue, which does not require investigation of new facts. Hence, placing reliance on the judgment of the Hon’ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC), we admit the additional grounds.

During the year under consideration the assessee has earned Rs. 82,512/- as interest from tax free bonds and Rs. 2,45,03,282/- as dividend income. The assessee had claimed exemption towards these amounts. Besides the assessee had earned interest income of Rs. 12,55,99,897/- and offered the same to tax under the head "Income from Other Sources". The AO invoked the provision of section 14A r.w.r. 8D and arrived at a disallowance of Rs. 2,64,718/- under Rule 8D(2)(iii). The CIT(A) upheld the disallowance made by the AO.

The ld. AR submitted that the assessee did not incur any expenditure towards earning the exempt income since the investment out of which such exempt income is earned are old investments. The ld. AR further submitted that for the year under consideration the AO should not applied Rule 8D since the same was not applicable for the year under consideration.

The ld. DR on the other hand relied on the order of the lower authorities.

We have heard the parties and perused the material on record. We notice that in the year under consideration, the AO has made disallowance under section 14A by invoking provisions of Rule 8D of the Income Tax Rules, 1962. Rule 8D was introduced on March 24, 2008 by CBDT vide Notification No. 45/2008, dated March 24, 2008 to take effect from AY 2008-09. It is a settled position as held in the decision of the jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs DCIT ([2010] 194 Taxman 203 (Bombay)) that Rule 8D is not retrospective. Therefore the AO is not correct in applying Rule 8D while making the disallowance under section 14A. We accordingly restore the matter back to the file of the AO to compute disallowance on the same basis in the year under consideration after taking requisite details from the assessee and giving opportunity of being heard by following the principle of natural justice. This ground is allowed for statistical purposes.

In the result the appeal for AY 2005-06 is partly allowed. AY 2006-07 –Assessee's appeal

The AO disallowed 30% of the following amounts from the deduction claimed under section 80IB (i) Foreign Exchange gain – Rs. 7,728/- (ii) Sales Tax / Service Tax Refund – Rs. 4,07,449/- (iii) Sale of scrap – Rs. 3,66,342/- (iv) Miscellaneous Income – Rs. 3,35,939/-

The CIT(A) deleted the disallowance made towards Foreign Exchange gain and upheld the rest of the disallowances made by the AO.

We have while considering the similar issue of adjustment made to deduction under section 80IB for AY 2005-06 held that in order to be eligible for deduction under section 80IB, income earned should be inseparably connected with the business carried on by the assessee and that so long as profits and gains emanate directly from the business itself then the assessee would be eligible to get a deduction u/s.80IB. Out of the above disallowances made by the AO in our considered view Sales Tax / Service Tax Refund and Sale of scrap have a first degree nexus with the business of the assessee and accordingly we direct the AO to delete the adjustment made towards Sales Tax / Service Tax Refund and Sale of scrap while considering the deduction claimed under section 80IB. With regard to miscellaneous income no evidences were brought on record before us to establish the direct nexus with the business of the assessee and therefore we hold that the same is not eligible for deduction under section 80IB. This ground of the assessee is partly allowed.

In the result, the appeal of the assessee for AY 2006-07 is allowed. – AY 2006-07 – Revenue's appeal

Ground No.1 raised by the Revenue is with regard to the relief given by the CIT(A) against the disallowance of depreciation on obsolete asset made by the AO. We have while considering the same issue for AY 2005-06 have already held that this is a recurring issue in assessee's case and that the Co-ordinate Bench in assessee's own case for AY 2003-04 has deleted the disallowance. The facts for the year under consideration being similar, the decision in earlier AYs as relied on in the decision for AY 2005-06 are mutatis mutandis applicable for AY 2006-07 also. Accordingly, we dismissed the ground raised by the Revenue.

In the result, the appeal of the Revenue for AY 2006-07 is dismissed.

The Revenue raised grounds pertaining to the following issues: (i) Disallowance of depreciation on obsolete assets – Ground No.1 (ii) Addition under section 40A(2)(b) in respect of purchases from CBV – Ground No.2 (iii) Disallowance under section 14A r.w.r. 8D – Ground No. 3 to 5

Both the parties fairly conceded that the issues contended by the Revenue in (i) & (ii) as listed above are covered by the decision of the Co-ordinate Bench in assessee's own case for AY 2003-04. In this regard it is also relevant to notice that the similar issues are considered by us for AY 2005-06 and by placing reliance on the decision for AY 2003-04 we have deleted the additions made by the AO. Accordingly, we see no infirmity in the order of the CIT(A) in giving relief to the assessee and therefore we dismiss these grounds raised by the Revenue in this regard.

With regard to the issue of disallowance under section 14A, we notice that the similar issue has been considered by us for AY 2005-06 and our decisions are given in the earlier part of this order. The facts being identical in our considered view the same is applicable mutatis mutandis to the issue for AY 2007-08 also with similar directions. Accordingly, the grounds raised by the Revenue in this regard is allowed for statistical purposes.

In the result, the appeal of the Revenue is partly allowed.

The assessee through Ground No.1 of the C.O. has objected to curtailing the deduction under section 80IB by making adjustment towards sales tax/service tax refund. We have already deleted the similar adjustment made by the AO while considering the deduction under section 80IB for AY 2006-07. Since the facts for the year under consideration being identical we are of the view that our decision for AY 2005-06 is mutatis mutandis applicable for AY 2007-08 also. Accordingly, Ground No.1 is allowed in favour of the assessee.

Through Ground No.2 of the C.O. the assessee is contending the decision of the CIT(A) in not deleting the disallowance under section 14A r.w.r. 8D to the extent of Rs. 2,65,440/-.

The AO observed during the course of assessment proceedings that the assessee has earned dividend income which is exempt from tax but has not disallowed any corresponding expenditure. The AO observed that in the decision of the Special Bench of the ITAT, Mumbai in the case of Daga Management Pvt. Ltd. (117 ITD 169) where it was held that the provisions of section 14A would apply to securities and shares held as stock-in-trade. Therefore, the AO made a disallowance of Rs. 2,65,440/-. The assessee submitted before the CIT(A) that the investments are very old and that the assessee has not incurred any expenditure during the year under consideration for earning the exempt income. The CIT(A) restored the issue back to the AO with a direction to consider the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT 328 ITR 81 and determine the disallowance accordingly.

We have heard both the parties. we notice that the similar issue has been considered by us for AY 2005-06 and our decisions are given in the earlier part of this order. The facts being identical in our considered view the same is applicable mutatis mutandis to the issue for AY 2007-08 also with similar directions. Accordingly, we see no reason to intefere with decision of the CIT(A). This ground of the assessee is dismissed.

In the result, the C.O. of the assessee for AY 2007-08 is partly allowed.

In result, the appeal of the assessee in for AY 2005-06, in ITA No. 7987/Mum/2010, for AY 2006-07 and in C.O. No. 165/Mum/2012 for AY 2007-08 are partly allowed. The appeal of the Revenue in ITA No. 7712/Mum/2010 for AY 2006-07 is dismissed and in 2007-08 is partly allowed.