M/S. UNITED SPIRITS LTD.,,BANGALORE vs. ACIT, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH: BANGALORE

BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER and SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER

ITA No.1277/Bang/2010 (Assessment year: 2007-08) AND ITA Nos.424 & 605(Bang)/2013 (Assessment years: 2008-09 & 2009-10)

M/s.United Spirits Ltd., 6th floor, UB Towers, UB City, 24, Vittal Mallya Road, Bangalore-560001. … Appellant PAN: AACCM8043J Vs. Asst. Commissioner of Income-tax/ Deputy Commissioner of Income-tax, Central Circle- 2(3), Bangalore. … Respondent AND ITA Nos.652 & 653(Bang)/2013 (Assessment years: 2008-09 & 2009-10)

Deputy Commissioner of Income-tax, Central Circle- 2(3), Bangalore. … Appellant Vs. M/s.United Spirits Ltd., Bangalore. … Respondent Assessee by: Shri K.R.Pradeep, CA. Revenue by: Shri C.H.Sundar Rao, CIT(DR).

Date of hearing : 16/03/2015 Date of pronouncement: 31/03/2015

ITA No.1277/B/2010, 424M605,652&653/Bang/2013 M/s. United Spirits Ltd. Page 2 of 16 O R D E R Per BENCH:

In all these appeals filed by the assessee as well as the revenue against the orders of the CIT(A) for the assessment years 2007-08, 2008-09 and 2009-10, similar issues are involved and therefore, they are heard and disposed of by this common and consolidated order.

2.1 As regards the issue of bad debts and advances written off i.e. ground No.3 of abridged grounds of appeal filed by the assessee is concerned, we find that the AO has disallowed the same on the ground that the assessee has not furnished any details to prove that the advances were made during the course

ITA No.1277/B/2010, 424M605,652&653/Bang/2013 M/s. United Spirits Ltd. Page 3 of 16 of business of the company. We find that in the earlier year i.e. 2006-07, similar issue had arisen and the Tribunal has considered the issue at length and held as under:

“6. Ground No.3 : Disallowance of Bad Debts and Advances written off. 6.1 This ground relates to the disallowance of bad debts written off to the extent of Rs.18,26,06,489 in the following cases :- i) CSD Debtors – in the books of SWD Rs.1,40,83,000. ii) Karnataka Breweries & Distilleries Ltd. Rs.2,76,91,000 iii) Skokie Traders Pvt. Ltd. Rs.8,80,00,000 iv) Midas Golden Distilleries. Rs.3,20,55,000 v) Salson Distilleries. Rs.4,78,000 vi) United Distilleries Rs.20,57,489. vii) Chitwan Distilleries – in the books of TDV. Rs.25,00,000. viii) U B Distilleries Ltd. Rs.1,57,42,000. Total : Rs.18,26,06,489. 6.2 The facts of the matter as emerge from the record are that in the course of assessment proceedings the Assessing Officer observed from the details filed and the computation of income that the assessee had claimed and written off Rs.46,86,87,958 to its general reserve account on account of bad debts and irrevocable advances. Written submissions in this regard were made before the Assessing Officer. On examination thereof, the Assessing Officer allowed the assessee's claim partially and disallowed the claim to the extent of Rs.18,26,06,489 in respect of the parties listed at para 6.1 of this order (supra). The relevant finding of the Assessing Officer while making the said disallowance at page 17 of the order of assessment is as under : “ (iii) For the claims made in the following, no satisfactory evidence for such amounts appearing was furnished during the course of the hearing. In the absence of evidence being filed, the same is not being allowed. Debtors – Advances not recoverable. UB Distilleries Ltd. Rs.1,57,42,000 CSD Debtors – Shaw Wallace Distillery Books. Rs.1,40,83,000. Karnataka Breweries & Distilleries Rs.2,76,91,000. Skokie Traders Pvt. Ltd. Rs.8,80,80,000. Midas Golden Distilleries Ltd. Rs.3,20,55,000. Salson Dist – TMU (Debtors) Rs.4,78,000. UD Distributors (TDV) Rs.20,57,489. Chitwan Distilleries Rs.25,00,000.”

6.3 Before the learned CIT (Appeals), the assessee put forth its explanations and submissions in support of its claim and also produced the ledger extracts and other evidences. The learned CIT (Appeals) while dealing with this issue declined to examine /

ITA No.1277/B/2010, 424M605,652&653/Bang/2013 M/s. United Spirits Ltd. Page 4 of 16 look into the ledger extracts and other evidences while confirming the additions / disallowances; holding as under at page 11 of the impugned order :- “…. Even otherwise, the ledger extract and other evidences produced during the appellate proceedings are not admissible as none of the circumstances mentioned in clause (a) to clause (d) of sub-Rule (1) of Rule 46A of the Income Tax Rules, 1962 existed in the case of the appellant.” 6.4.1 Before us, the learned Authorised Representative of the assessee contended that the assessee's claim consisted of both bad debts covered under section 36(1)(vii) of the Act and also advances given in the course of carrying on business for procurement of goods and services. It was stated that and circumstances for making the claim along with account extracts were submitted before the Assessing Officer even at the time of assessment vide letter dt.19.11.2008 and other such correspondences placed in the assessee's paper book at pages 61 to 86. The learned Authorised Representative submitted that the Assessing Officer neither addressed these submissions and evidences furnished by the assessee nor specified what further evidences were required to establish the claims. It was submitted that in the case of write off of bad debts, write off in the accounts of the assessee's books is sufficient to allow the claim as was held by the Hon'ble Apex Court in the case of TRF Ltd. V CIT (230 CTR 14) and therefore applying this decision of the Hon'ble Apex Court, the assessee's claim for bad debts ought to have been allowed. 6.4.2 As regards the advances written off, the learned Authorised Representative contends that similar type of advances written off in the earlier years were considered and allowed by a co-ordinate bench of the Tribunal in the assessee's own case in ITA No.217(BNG)/09 dt.21.8.2009 for Assessment Year 2005-06 at para 5 thereof which is as under :- “ 5….. We are therefore of the considered view that items of advances for internal control purposes having not been rendered for claiming expenses in the year of advance but becomes irrecoverable as noted by the Board of Directors in the impugned year is a trade / revenue loss as claimed by the assessee being revenue in nature is for the business only. The disallowance under this head therefore is directed to be deleted.” 6.4.3 It was submitted that the Assessing Officer had not considered the aforesaid decision of the Tribunal. It was also submitted by the learned Authorised Representative that the learned CIT (Appeals) erred in refusing to entertain evidences placed before him, in a much as it was the same evidences which were placed before the Assessing Officer and therefore there was no case with the learned CIT (Appeals) for applying Rule 46A in the manner he did. The learned Authorised Representative

ITA No.1277/B/2010, 424M605,652&653/Bang/2013 M/s. United Spirits Ltd. Page 5 of 16 argued that a detailed letter dt.27.9.2010 filed before the learned CIT (Appeals), placed at pages 198 to 205 of the assessee's paper book was only an elaboration of the evidences and explanations which were available before the Assessing Officer and not any fresh evidences. The learned Authorised Representative prayed that in the factual circumstances as laid out above, the issue in question may be restored to the file of the Assessing Officer for fresh consideration of the details and evidences in accordance with the principles laid down by the Hon'ble Apex Court in the case of TRF Ltd. (supra) and the decision of the co-ordinate bench in the assessee's own case for Assessment Year 2005-06 (supra). 6.5 The learned Departmental Representative for revenue submitted that since the assessee's claim of write off of bad debts was made in the statement of total income and not in the profit and loss account, it is not allowable under section 36(1)(vii) of the Act and in view of this, no useful purpose would be served if this issue is restored to the file of the Assessing Officer as the conditions for allowing the claim of bad debts were not met by the assessee. In so far as the advances are concerned, the learned Departmental Representative contended that since the assessee is not in the money lending business, the write off of advances was not allowable. The learned Departmental Representative prayed that in view of the circumstances narrated above disallowances of the claims of bad debts and advances written off made and confirmed by the authorities below be sustained. 6.6 In rejoinder, the learned Authorised Representative drew our attention to the decision of the Hon'ble Bombay High Court in the case of Rallis India Ltd. v ACIT & Another reported in 323 ITR 54, wherein it stated to be held that debit to the profit and loss account was not condition precedent for allowing the claim of bad debts. It was further stated that write off of advances is allowed under section 37 of the Act, even in cases where the main business is not money lending and submitted that the assessee had derived interest income of Rs.6.82 Crores from advancing of money in the impugned assessment period and Rs.4.8 Crores in the earlier assessment year. The learned Authorised Representative prayed that in view of the above, the assessee's claim for write off of advances requires to be allowed. 6.7 We have heard both parties at length, considered the written submissions put forth and perused and carefully considered the material on record; including the judicial decisions cited. On an appreciation of the material on record, we find the submissions and evidences placed by the assessee before the authorities below, viz., both the Assessing Officer and learned CIT (Appeals) have not been considered properly in the light of the principles laid down in the decisions of the Hon'ble Apex Court in the case of TRF Ltd. (supra) and the decision of the Hon'ble Mumbai High Court in the case of Rallis India Ltd. (supra). We are of the view that it was essential for the Assessing Officer to consider the submissions and evidences placed on record by the assessee both in respect of write off of bad debts and write off of

ITA No.1277/B/2010, 424M605,652&653/Bang/2013 M/s. United Spirits Ltd. Page 6 of 16 advances and find that he has not done so. In this factual matrix, we are of the opinion that it would be in the interest of equity and justice that it is absolutely necessary for the Assessing Officer to re-examine all the facts of the matter regarding the assessee’s claims for write off of bad debts and write off of advances so that there is clarity while deciding the issue. We, therefore, restore these issues of the assessee's claims for write off of bad debts and write off of advances to the file of the Assessing Officer to be dealt with in the light of our observations after affording the assessee adequate opportunity of being heard and to file details required and after considering the submissions already made by the assessee in the light of the judicial pronouncements cited and relied on by the assessee (supra). It is ordered accordingly. Consequentially, ground No.3 of the assessee's appeal is treated as allowed for statistical purposes. ”

Since the facts before us are also similar to the facts in the assessment year 2006-07, we remand this issue also to the file of the AO with similar directions for de novo consideration of the issue after giving the assessee a fair opportunity of hearing. The ground No.3 is accordingly allowed.

2.2 Ground Nos.4 to 6 of abridged grounds of appeal filed lby the assessee are against the disallowance u/s 14A of the Act read with rule 8D of the Rules. We find that the AO has made the disallowance u/s 14A of the Act read with rule 8D of the Rules of the interest on borrowed capital relevant to investment in equity. As seen from the order of the Tribunal for the assessment year 2006-07, in similar circumstances, the Tribunal has remitted the matter to the file of the AO for re-consideration after considering the issue at length. The relevant portion of the Tribunal’s order is reproduced hereunder:

ITA No.1277/B/2010, 424M605,652&653/Bang/2013 M/s. United Spirits Ltd. Page 7 of 16 “8. Ground Nos. 7 to 9 : Disallowance u/s.14A of the Act. 8.1.1 In the order of assessment, the Assessing Officer invoking the provisions of section 14A of the Act made a disallowance of Rs.57,00,44,771, which was sustained by the learned CIT (Appeals) to the extent of Rs.44,67,00,833. As per the details filed before the Assessing Officer, the assessee submitted that it had an investment portfolio of Rs.702,26,48,000, the break up of which is given as under :- Investment in SWCL Rs.488.88 Crores Investment in Primo Distributors Pvt. Ltd. Rs.103.00 Crores Interest as sole beneficiary in USL Benefit Trust Rs.68.70 Crores. Others (Investments in Banks acquired on Rs.41.68 Crores. amalgamation) Total : Rs.702.02 Crores. 8.1.2 In respect of the above investments, the assessee submitted that it had earned dividend income of Rs.4,28,93,000. The assessee, in the period under consideration had claimed interest on its borrowings at Rs.173,30,55,000 and submitted that its reserves and surplus for the year amounted to Rs.896,09,73,000. The Assessing Officer issued a notice seeking the assessee's objections to a proposed disallowance under section 14A of the Act. The assessee filed its objections vide letter dt.17.12.2008 which is extracted by the Assessing Officer at pages 7 & 8 of the order of assessment. The Assessing Officer rejected the objections put forth by the assessee holding as under at paras 6.9 to 6.11 in the order of assessment which are extracted hereunder :- “ 6.9 The assessee argues that it is only through the acquisition of investment held by Primo Distributors (15%), Shaw Wallace & Company Ltd. (40%) and SWDL Benefit Trust (40%) that the entire control over Shaw Wallace Distilleries Ltd. has been acquired. It is also stated that through the amalgamation of Shaw Wallace Distilleries Ltd. (with effect from 1.4.2005) it has acquired 10 manufacturing units along with tie-up arrangements in many States, which gave rise to significant addition to turnover and profits. 6.10 It is also argued by the assessee that the shares of Shaw Wallace & Company Limited and Primo Distributors Ltd. are forming part of the overall strategy to acquire the business carried on by the Shaw Wallace & Company Ltd. Regarding the fund invested in the shares of these companies, it is stated that no borrowal could be attributed to these investments, as these investments are not for earning any tax free income. The assessee claims that the provisions of section 14A cannot be applied to any of the investments made by it in shares. 6.11 The assessee has not furnished any details to prove that the investments were made as an overall strategy to acquire the business carried on by the Shaw Wallace & Company Ltd and not for earning interest from it. Since the assessee is claiming that these investments were made as business strategy and not for earning dividend, the onus to prove the claim is on the assessee.

ITA No.1277/B/2010, 424M605,652&653/Bang/2013 M/s. United Spirits Ltd. Page 8 of 16 The assessee has to bring all material facts on records. The department cannot step into the show of the assessee to get the details / documentary evidence to allow the claim of the assessee. One of the principles of equity is that one who asserts a point must prove it by cogent evidence. In the instant case, however, the assessee has not produced any such evidence to prove its case. Without prejudice to the finding above, it cannot be reiterated that provisions of section 14A assessee applicable in “respect of expenditure incurred by assessee in relation to income which does not form part of the total income under the Act.” There is no separate rule to examine this section in the light / merits of the issue. The section has been introduced with the intention to ascertain the income of the assessee correctly which was getting reduced by way of expenditure on interest payment, the returns from which was not taxable. Section 14A(2) has been introduced w.e.f. 1.4.2007, which allows the Assessing Officer to determine such amount of expenditure, the same prescribed as per rule 8D. The assessee has only reiterated the argument of non-applicability of section 14A, no calculations having been furnished. The same is being addressed on merits. Further, it may be stated here that the bank accounts maintained by the assessee are current accounts with overdrawal facility. The amounts invested by the assessee in shares contribute to increase in the overdrawal facility which results in payment of interest. The assessee may also argue that the sources were out of loans in the earlier years and as on date such loans are not in existence. This could hardly be an argument since the net worth being negative the new loans have replaced the old loans which were utilized for such advances. In view of the above the interest on borrowed capital relevant to the investment inequity is to be disallowed under section 14A. As already discussed above, the assessee has not maintained separate books of accounts in respect of the activities involving income under the head dividends and also the income from other activities. Therefore, the interest relatable to the funds invested in equity shares is determined in accordance with the formula s provided under Rule 8D(1) of the Income Tax Rules,1962 as under : Aggregate of the following : (i) Nil (the amount of expenditure directly relating to income which does not form part of total income. (ii) A X B Here, A = 173,30,55,000 (i.e. the amount of C expenditure by way of interest other than the amount of interest directly relating to income which does not form part of total income. B = Rs.505,60,79,500* average of 34550153 & 66671.06 after reducing 3663.67 lakhs (i.e., the average of value of investment, income form which doesnot or shallnot form part of the total income as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year.

ITA No.1277/B/2010, 424M605,652&653/Bang/2013 M/s. United Spirits Ltd. Page 9 of 16 C = Rs.160848.695 lakhs ** (i.e. the average of total assets as appearing on the balance sheet of the assessee on the first day and the last day of the previous year. ( Average of beginning and end + 86278.53 & 235418.86**) Therefore, * Excluding the value of investment of Rs.3663.67 lacs made in Asian Opportunities and Investments Ltd. and Mc Dowell Nepal Limited as this investment is offered to tax and not exempt from tax (as informed by the Authorised Representative.) ** As per Rule 8D(3), the ‘total assets’ mean, total asset as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on revaluation of assets. As per note-1 of schedule 5 there is an increase of Rs.8870.62 lacs in the value of land and building, machinery etc. on account of revaluation and an increase of 754.00 lacs decrease on revaluation. Hence the increase is reduced and decrease is increased to arrive at closing asset value ofRs.235418.86 lakhs (as against Rs.243535.48 lakhs) (the adjusted value of fixed asset is taken at 48254.98 as against Rs.56371.60 lakcs). (iii) Rs.2,52,80,397.5 (being one half per cent of the average of the value of investment of Rs.505,60,79,500, income from which does not ro shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. Therefore, the interest relatable to the funds invested in shares etc. works out to Rs.57,00,44,771 (i.e. the aggregate amount of (i) + (ii) + (iii) determined above). The same is disallowed as not allowable under section 14A of the Income Tax Act.” 8.2 On appeal, out of Rs.57,00,44,771 the learned CIT(A) sustained the disallowance under section 14A of the Act to the extent of Rs.44,67,00,833 after considering the submissions made by the assessee. The findings of the learned CIT(A) in this regard are at pages 26 of this impugned order which are extracted hereunder :- “In view of the above, the proportionate disallowance of the interest & finance charges and other expenses debited to the profit and loss account has to be made on a reasonable basis, even if the methodology prescribed in Rule 8D is not applied. In my view, the disallowance of the interest and financial charges on reasonable basis can be made based on the percentage of borrowing cost of total funds. For this purpose, the gross interest of Rs.173,30,55,000 has to be considered for arriving at percentage borrowing cost considering the fact that the appointment of the interest and finance charges has to be made to work out such expenses attributable to the income which is not includible in total income and the remaining amount represents the expenses incurred for purpose of earning the income (which include the interest income credited to profit and loss account) which form part of the total income.

ITA No.1277/B/2010, 424M605,652&653/Bang/2013 M/s. United Spirits Ltd. Page 10 of 16 During the assessment year under consideration, the total expenses on interest & finance charges are incurred to the extent of Rs.173,30,55,000 against the total of borrowed and interest free fund available to the extent of Rs.2435,35,48,000, thus the average cost of the borrowing works out to 7.11%, on application of this rate to the investment of Rs.592,71,51,000, the disallowable amount out of interest and finance charges under section 14A of the Income Tax Act works out to Rs.42,14,20,436. In addition to the interest and finance charges, for making the huge investments, the appellant has also to incur the expenses out of other expenses and therefore reasonable disallowance out of the other expenses is also to be made, on this regard, the disallowance made by the Assessing Officer at Rs.2,52,80,397 is reasonable looking to the facts and circumstances of the case. Thus the total disallowance under section 14A works out to Rs.44,67,00,833 (Rs.42,14,20,436 + Rs.2,52,80,397), accordingly, the disallowance made by the Assessing Officer under section 14A of the Income Tax Act is upheld to the extent of Rs.44,67,00,833.” 8.3.1 Before us, the learned Authorised Representative contended that the learned Authorised Representative erred in invoking the provisions of section 14A of the Act and disallowing an amount of Rs.57,00,44,771 thereunder, without first satisfying the necessary conditions of section 14A of the Act. The learned Authorised Representative submitted that such disallowance can be made only when there is a case of expenditure incurred in relation to income not includible in total income and the Assessing Officer has not rendered any sustainable findings in this regard, in which case alone section 14A of the Act can be invoked. The learned Authorised Representative submitted that out of the total investment of approx. Rs.702.02 Crores, Rs.698.15 Crores was for acquiring controlling interest, expansion of market share and strategic business purposes as was the case in making the investment in Shaw Wallace Co. Ltd., Primo Distributors Ltd. and USL Beneficial Trust; which was all for business purposes. The learned Authorised Representative further submitted that the total business income earned and offered to tax in the form of augmented sales, royalty, etc., totaled Rs.789.64 Crores as submitted to the learned CIT(A) vide letter dt.24.10.2009, placed at pages 141 to 145 of the assessee's paper book. Thus, the learned Authorised Representative contends that in so far as these investments are concerned, it cannot be said that it was for earning exempt income. Moreover, when investments are made for the purpose of acquiring controlling interest and strategic interest, the provisions of section 14A cannot be invoked as has been held by the Hon'ble Karnataka High Court in the case of CCI Ltd. (250 ITR 291). The learned Authorised Representative submitted that in this regard, the assessee places reliance on the following decisions of the various Tribunals.

ITA No.1277/B/2010, 424M605,652&653/Bang/2013 M/s. United Spirits Ltd. Page 11 of 16 (i) Kingfisher Finvest India Ltd. in ITA No.1368/Bang/2012 dt.17.10.2014; (ii) Garware Wall Ropes Ltd. in ITA No.5408 & 4957/Mum/2012 of the ITAT, Mumbai. (iii) J.M. Financial Ltd. V Addl. CIT in ITA No.4521/Mum/2012 of ITAT, Mumbai. 8.3.2 The learned Authorised Representative further contended that the assessee had its own funds of Rs.896 Crores consisting of capital and reserves and surplus far in excess of the total investments of Rs.702.02 Crores, indicating that the assessee had sufficient non-interest bearing funds. It was conceded that the bank accounts of the assessee consisted of both interest free and interest bearing funds, and thus the assessee's funds were mixed in nature. It is contended by the learned Authorised Representative that even in such cases, no proportionate disallowance, as made by the authorities below, could be sustained as held in the cases of CIT V Suzlon Energy Ltd. (354 ITR 630) (Guj); DCIT V Maharashtra Seamless Ltd. 138 TTJ 244 (ITAT, Delhi) and Voltas Ltd. V ACIT 125 TTJ 601 (ITAT, Mumbai). 8.3.3 The learned Authorised Representative further submitted that the Assessing Officer had made a factual error at page 10 of the order of assessment by holding that the assessee's net own funds were negative even though the net worth was over Rs.896 Crores. Even out of the total dividend earned amounting to Rs.4,28,93,165, an amount of Rs.1,69,29,000 was earned from its overseas subsidiary which is taxable, and the exempt dividend was only Rs.2,59,66,165. The learned Authorised Representative contends that from this it is amply clear that the Assessing Officer had erred both legally and factually in making the disallowance on the entire dividend income; both taxable and exempt. The learned Authorised Representative further contended that the Assessing Officer had not recorded reasons for invoking the provisions of section 14A of the Act, which is a condition precedent and therefore his action in making the disallowance under section 14A of the Act in the manner he did is not sustainable. In support of this argument, the learned A.R. placed reliance in the following decisions :- (i) Balarampur Chini Mills Ltd. V DCIT 140 TTJ 73 (ITAT, Kolkata) (ii) Eimco Elecon (India) Ltd. V Addl. CIT 33 CCH 619 (ITAT, Ahmedabad). The learned Authorised Representative further submitted that the learned CIT(A) has also not applied the law as laid down in the above judicial pronouncements (supra) and therefore the disallowance under section 14A of the Act ought to be deleted. 8.4 Per contra, the learned Departmental Representative supported the orders of the authorities below and prayed for

ITA No.1277/B/2010, 424M605,652&653/Bang/2013 M/s. United Spirits Ltd. Page 12 of 16 confirmation of the disallowance of Rs.44,67,00,833 submitted by the learned CIT(A). 8.5 We have heard both parties at length and perused and considered the material on record; including the judicial pronouncements cited and placed reliance on. The learned A.R. submits that in cases where there has been substantial investment for strategic purposes wherein the intention has been the expansion and support of the assessee's business, and not for the purpose of earning dividend, the provisions of section 14A of the Act ought not to have been invoked even if such expansion has occurred out of interest bearing borrowed funds. Ruling to this effect has been rendered by the Hon'ble Karnataka High Court in the case of CCI Ltd. (supra) relied on by the assessee. This is the proposition put forth in this case by the assessee, apart from its averments that its own funds are more than the investment in equities. We also find that the Assessing Officer has not considered the above arguments of the assessee and his finding that the assessee's net worth is negative suffers from lack of factual clarity, as the assessee's averments to the contrary are that its net worth is positive at Rs.896 Crores. In view of the fact that the orders of the authorities below suffer from non- consideration of arguments, details and evidences put forth by the assessee, we, in the interest of equity and justice, set aside the disallowance under section 14A of the Act and restore the matter to the file of the Assessing Officer with the direction to consider the matter afresh in detail and decide the issue after affording the assessee adequate opportunity of being heard and to file details / evidence required and addressing the submissions made by the assessee in this regard. It is ordered accordingly. Consequently, grounds No.7 to 9 of the assessee's appeal are treated as allowed for statistical purposes.”

The facts and circumstances being similar, we remand this issue also to the file of the AO for re-consideration and in accordance with law after giving the assessee a fair opportunity of hearing.

2.3 Ground No.7 of the abridged grounds of appeal filed by the assessee is against the disallowance of set off of brought forward business loss of Rs.16,13,58,199/-. We find that this issue is consequential to the findings of the AO on the first two issues i.e. bad debts and advances written off and disallowance u/s 14A of the Act read with rule 8D of the Rules. Further, the

ITA No.1277/B/2010, 424M605,652&653/Bang/2013 M/s. United Spirits Ltd. Page 13 of 16 grounds relating to interest u/s 234C and 234D are also consequential in nature. Therefore, grounds Nos.7 to 10 are also set aside to the file of the AO for de novo consideration and for giving consequential effect, if any, to the assessee.

2.4 In the result, the assessee’s appeal for assessment year 2007-08 is treated as allowed for statistical purposes.

3.1 In the assessee’s appeal for assessment year 2008- 09 (ITA No.425/Bnag/2013), there is another issue i.e. disallowance of bad debts and advances written off and the same issue had arisen in the departmental appeal for assessment year 2009-10 (ITA No.653/Bang/2013). Since these issues are also covered by the decision of this Tribunal for assessment year 2006-07 which has been followed by this Tribunal for the assessment year 2007-08 in para. 2.1 above, we set aside these issues also to the file of the AO for de novo consideration.

ITA No.1277/B/2010, 424M605,652&653/Bang/2013 M/s. United Spirits Ltd. Page 14 of 16 3.2 In the result, the assessee’s appeals for the assessment years 2008-09 and 2009-10 are allowed for statistical purposes. The revenue’s appeal for assessment year 2009-10 is also treated as allowed for statistical purposes.

“14.3 We have heard both the learned Departmental Representative of revenue and the learned Authorised Representative of the assessee and perused and carefully considered the material on record, including the judicial decision cited and placed reliance on by the assessee. We find that the issue of foreign exchange loss on similar facts was before the co- ordinate bench of the Tribunal for consideration, in the assessee's own case for Assessment Year 2005-06 (supra), and the issue was decided in favour of the assessee, wherein at para 6 of the order it was held as under :- “ 6. On the issue of foreign exchange loss on conversion claim, as noted by the authorities below, details as in the paper book have been furnished to establish nexus of incurring this loss as a business loss in the hands of the assessee. The annexure furnished indicates the forward rate and the spot rate during the accounting year therefore resulted in loss amounting to Rs.1.8 Crores is brought out clearly to be allowed as a business loss when primarily the assessee indicates that the loans were obtained in foreign exchange for working capital from its banks therefore indicated that a foreign exchange loss as noted by the bank

ITA No.1277/B/2010, 424M605,652&653/Bang/2013 M/s. United Spirits Ltd. Page 15 of 16 was not to be borne by the banks but by the assessee. Therefore it is clear that the assessee has been able to establish its working capital requirements as was not related as otherwise noted by the Assessing Officer claimed as interest on forward contracts for investment in shares of companies which investment increased from Rs.102 crores to Rs.380 crores. Justifiably the learned counsel pointed out the issue in accordance with the provisions of section 43A distinguishing the capital / revenue nature imbibed therein to result in consideration thereof as were claimed by the assessee before the authorities below. The assessee himself rendered income on gain from exchange fluctuation on identical nature of revenue from loans remaining unpaid. The same is to be allowed on the facts and circumstances of the case.” Following the decision of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2006-07 in ITA No.217/Bang/2009 dt.21.8.2009, we uphold the action of the learned CIT(A) in deleting the disallowance of foreign exchange loss of Rs.2,70,00,000 made by the Assessing Officer. Consequently, revenue’s ground at S.No.2 is dismissed.” Respectfully following the same, the revenue’s appeal is dismissed.

Pronounced in the open court on 31st March, 2015.

sd/- sd/- (Abraham P George) (Smt. P.Madhavi Devi) ACCOUNTANT MEMBER JUDICIAL MEMBER eksrinivasulu

ITA No.1277/B/2010, 424M605,652&653/Bang/2013 M/s. United Spirits Ltd. Page 16 of 16 Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order

Assistant Registrar Income-tax Appellate Tribunal Bangalore