Income Tax Appellate Tribunal - Mumbai
Asia Investments Private ... vs Assistant Commissioner Of Income Tax ... on 27 November, 2025
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "A" MUMBAI
BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER)
AND
SHRI RAJ KUMAR CHAUHAN (JUDICIAL MEMBER)
ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019
Assessment Year: 2012-13, 2013-14, 2014-15
Asia Investments Pvt. Ltd., Asst. CIT Circle 2(1)(1),
10, Prasad Chambers, Opera Dy. CIT Circle 2(1)(1),
House, Vs. Aayakar Bhavan, M.K. Road,
Mumbai-400004. Mumbai-400020.
PAN NO. AAACA 4539 K
Appellant Respondent
Assessee by : Mr. Kalpesh Unadkat &
Mr. Hasmukh Ravaria
Revenue by : Mr. Rajesh Kumar Yadav, CIT-DR
Date of He aring : 29/09/2025
Date of pronouncement : 27/11/2025
ORDER
PER BENCH These appeals preferred by the assessee are directed against separate orders dated 20.03.2017, 12.07.2017, and 31.07.2019 passed by the Learned Commissioner of Income-tax (Appeals)-4, Mumbai [hereinafter referred to as "the Ld. CIT(A)"] pertaining to the assessment years 2012-13, 2013-14, and 2014-15 respectively. Since common issues in dispute are involved in all these appeals, same were heard together and are being disposed of by this Asia Investments Pvt. Ltd 2 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 consolidated order for the sake of convenience and to avoid repetition of facts.
2. Firstly, we take up the appeal of the assessee for assessment
13. The grounds raised by the assessee are reproduced year 2012-13.
as under:
1. In the facts and circumstances of the case and in Law, the Ld CIT (A) erred in confirming disallowance u/s 14A of the Act in respect of the following:
a. Rule 8D(2)(i) i. Interest to TATA Capital Rs. 10,99,16,196 ii. Personnel expenses Rs. 1,75,00,000 iii. Travelling expenses Rs. 1,00,95,661 iv. Business Promotion expenses Rs.5,94,168 v. Rent Rs. 45,00,000 vi. Repairs & Maintenance Rs. 25,00,000 vii. Depreciation Rs. 50,00,000 b. Rule 8D(2)(ii) Rs. 1,16,79,947 c Rule 8D(2)(iii) Rs. 1,07,39,195
2. In the facts and circumstances of the case and in Law and without prejudice to (1) above the Ld. CIT(A) erred in confirming disallowance of Rs.
10,99,16,196 being interest paid to Tata Capital in respect of funds borrowed for strategic investment in shares of group companys despite the fact of assessing officer holding appellant to be engaged in business of investment.
he facts and circumstances of the case and in Law, Without prejudice
3. In the to (1) above, the CIT (A) erred in confirming disallowance of expenses under Rule 8D(2)(i) on account of Personnel expenses, Travelling expenses, Business Promotion expenses, Rent, Repair Repairss Maintenance and Depreciation despite there being no direct nexus of these expenses with earning of income on which no tax is payable and further without prejudice to above, despite the fact that assessing officer has himself admitted assesse to be engaged d in business of investment.
Asia Investments Pvt. Ltd 3 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019
4. In the facts and circumstances of the case and in Law, the Ld CIT (A) erred in confirming disallowance of Rs.1,16,79,947/-
Rs.1,16,79,947/ out of interest paid despite the fact that assesse has sufficient own funds for making the investment and, without appreciating the fact that assessing officer has himself admitted assesse to be engaged in business of investment
5. Without prejudice to the Grounds No 1,2 and 3 on the facts and in the circumstances of the case and in law the learned CIT(A CIT(A) erred in not appreciating the fact that no disallowance under section 14A read with Rule 8D can be made where no exempt income was received by the appellant during the year under consideration.
6. On the facts and in the circumstances of the case and in law, the learned CIT(A) p8: 319 erred in confirming disallowance of professional fees of INR 6,00,00,000 paid to Deep C Anand Foundation by attributing it towards incurred for promoting the interest of group companies and was not incurred for the business of the assessee.
assesse
7. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming disallowance of UK Branch office expenses of INR 52,98,889 by treating the same as not incurred for the purpose of business of the assessee.
8. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming disallowance of expenditure of INR 1,41,19,857 Net of depreciation of INR 15,68,873) incurred for carrying out routine repairs and maintenance in the branch office cum transit house at London as capitai1expenditure.
3. Briefly stated, the material facts of the case are that the assessee-company company is engaged in the business of making investments in subsidiary concerns of the "Anand" Group as well as in other corporate entities. For the year under consideration, the assessee filed its return of income on 29.09.2012 declaring a total income of ₹36,53,72,580/ 36,53,72,580/-.. The said return was selected for scrutiny, pursuant to which statutory notices under the relevant provisions of the Income tax Act, 1961 (hereinafter referred to as Income-tax "the Act") were issued and duly complied with. Consequent thereto, Asia Investments Pvt. Ltd 4 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 the assessment was completed under section 143(3) of the Act on 29.03.2015, determining the total income at ₹51,19,60,630/ 51,19,60,630/-, after making various additions and disallowances as set out in the assessment order.
4. On further appeal, the Ld. CIT(A) dismissed the appeal of the assessee and upheld the finding of the Assessing Officer.
5. Nos. 1 to 5 of the appeal relate to the issue of The ground No disallowance u/s 14A of the Act r.w.r. 8D of the Income-tax Inc Rules, 1962 (in short 'the Rules'). Facts in brief qua the issue in dispute are that during the year under consideration, the assessee had earned dividend income amounting to ₹33,64,56,570/ 33,64,56,570/-. The assessee, on its own accord, made a suo-motu disallowance of ₹10,53,55,857/- under section 14A of the Act . The Assessing Officer, however, following the findings recorded by his predecessor in the assessment for assessment year 2011 12, proceeded to 2011-12, compute the disallowance in accordance with Rule 8D of the Rules.
5.1 The Assessing Officer first identified out of the total expenditure debited in the profit and loss account, interest expenditure of ₹10,99,16,196/ 10,99,16,196/- pertaining to the loan obtained from Tata Chemicals Ltd. as directly relatable to the earning of exempt income and accordingly disallowed the same und under er Rule 8D(2)(i) of the Rules.
Asia Investments Pvt. Ltd 5 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 5.2 Further, adopting the approach taken in the assessment for assessment year 2011-12, 2011 12, the Assessing Officer held certain expenses, on an ad hoc basis, to be directly connected with the included personnel expenses of earning of exempt income. These included ₹1.75 1.75 crore, travelling and conveyance expenses of ₹1,00,95,661/-, business promotion expenses of ₹5,94,168/-,, rent of ₹45,00,000/-, repairs and maintenance expenses of ₹25,00,000/ 25,00,000/-, and depreciation of ₹50,00,000/ 50,00,000/-.
5.3 In this manner, nner, the Assessing Officer determined the total disallowance under Rule 8D(2)(i) at ₹15,01,06,025/-- (₹10,99,16,196 + ₹1,75,00,000 1,75,00,000 + ₹1,00,95,661 + ₹5,94,168 5,94,168 + ₹45,00,000 + ₹25,00,000 + ₹50,00,000).
50,00,000).
5.4 Thereafter, invoking Rule 8D(2)(ii) of the Rules, the Assessing Officer observed that out of the total interest/finance expenses of ₹12,53,95,654/- debited in the profit and loss account, a sum of ₹10,99,16,196/- had already been disallowed under Rule 8D(2)(i) as ncome. The balance directly relatable to the earning of exempt iincome.
interest expenditure of ₹1,54,79,458/- 12,53,95,654
(₹12,53,95,654 -
₹10,99,16,196)
10,99,16,196) was accordingly disallowed on a proportionate basis in the ratio of average investments to average total assets, which worked out to ₹1,16,79,947/ 1,16,79,947/-.
Asia Investments Pvt. Ltd 6 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 5.5 ying Rule 8D(2)(iii) of the Rules, the Assessing Further, applying Officer computed disallowance at 0.5% of the average value of investments towards administrative expenses, which amounted to ₹1,07,39,195 5.6 Accordingly, the Assessing Officer determined the total ance disallowance under section 14A read with Rule 8D at ₹17,25,25,167/- (₹15,01,06,025 15,01,06,025 + ₹1,16,79,947 + ₹1,07,39,195).
1,07,39,195).
6. On further appeal, the Ld. CIT(A) upheld the disallowance following his finding in assessment year 2011 12. The relevant 2011-12.
finding of the Ld. CIT(A) is reproduced as under:
4. Ground No.2, 3 & 4 are against the disallowance of "4.
expenditure of Rs. 17,25,25,167/ 17,25,25,167/- and are interconnected, interdependent hence, taken together. According to the Assessing Officer, the Assessee does not do any business activities activi but has only earned dividend of Rs.33,64,56,517/-.
Rs.33,64,56,517/ . Against this income, suo motto disallowed expenditure of Rs. the Assessee has suo-motto 10,53,857/- u/s. 14A r.w.r.8D. The same issue was therein
12. However, disallowable expenditure is to be made A.Y.2011-12.
ording to the Rule 8D. Thus, after applying the Rule 8D, the according 17,25,25,167/- against the Assessing Officer has disallowed Rs. 17,25,25,167/- claim of the Assessee of Rs. 10,53,55,857/-.
10,53,55,857/ . Therefore, the Rs.67169310/ has been added to the total balance amount of Rs.67169310/-
income. Against inst the disallowance of expenditure, it is contended that the Ld. Assessing Officer has wrongly made the disallowance without properly appreciating the genuineness of expenditure suosuo- motto offered for disallowance. According to the Ld. A.R., company has taken aken unsecured loans & inter-corporate inter corporate deposits from Bank & related parties which is utilized for the purpose of the business. The details of interest was already given to the Assessing Officer by letter dated 20.10.2014, such funds have been utilized for making investment in share of Group Companies. The similar argument was also there in A.Y.2011 A.Y.2011-12 12 and same has been repeated in this year also.
Asia Investments Pvt. Ltd 7 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 4.1. I have considered the issue under appeal, carefully. I find that there was a similar issue in A.Y.2011-12 A.Y.2011 and nd matter was decided by Appellate Order dated 14.12.2015 in Para 4.3 which is as under :-
"4.3 I have considered the findings of the Assessing Officer and rival submission of the appellant, carefully. I find that during the year assessee has received divi dividend Rs.35,14,87,406/ dend of Rs.35,14,87,406/-, Rs.17,265,656/- and professional fees of interest income of Rs.17,265,656/ Rs.14,65,30,638/ . When there is dividend, which is exempt the Rs.14,65,30,638/-.
corresponding expenditure has to be disallowed as per Section 14A r.w.r. 8D. Appellant has disallowed suo suo-motto motto an amount of Rs.9,08,52,583/ but there is no proper justification for such Rs.9,08,52,583/-
disallowance. As per the appellant's admission by letter dated 23.10.2013, assessee was granted loan of Rs.60 crores by Tata Capital Ltd. Out of which Rs.15 crores was for purchase purchase of 15% shares of Gabriel India Ltd. and Rs.45 crores was for investment in shares of Group Companies i.e. Rs.30 crores in shares of Mando Steering and Rs.15 crores in shares of Degremont. On such loan, Rs.6,89,82,540/- and processing fees there is interest expenses of Rs.6,89,82,540/ Rs.87,42,750/ . Thus, there is direct nexus of expenditure with of Rs.87,42,750/-.
exempt income. Assessing Officer has rightly pointed out the fact of such expenditure directly related to earning of exempt income.
expenses have been incurred for Similarly, most of the business expenses promoting the Anand Group of Companies businss hence element of expenditure embedded in personnel cost is very much there. Assessing Officer has disallowed only an amount of Rs.1.50 crores out of total expenditure of Rs.2.24 crores.
crores. I find that Ld. Assessing Officer has rightly done so. Similar is the fact related to traveling and conveyance expenses and other expenses mentioned by the Assessing Officer. Thus, the total disallowance worked out by the exten of Rs.11,44,50,056/- is found to be Assessing Officer to the extent directly related to earning the exempt income hence same is to be disallowed under Rule 8D, first limb. Similarly, in second limb interest expenditure has to be disallowed having indirect nexus. Of course third limb of Rule 8D (2) (iii) is also applicable. Thus the total disallowance of expenditure worked out by the Assessing Rs.15,11,02,307/- is sustainable. Appellant Officer to the extent of Rs.15,11,02,307/ has not explained as to how disallowance offered by it to the Rs.90852583/- is correct and disallowance has to be extent of Rs.90 restricted to this amount. Therefore, after going through the written arguments and facts on records, I find no reason to discard the working of disallowable expenditure made by the Assessing Officer. Because of facts of the case, none of the decisions relied upon by the Ld. Authorised Representative is applicable, therefore, in the light of the above discussion, the disallowance of Asia Investments Pvt. Ltd 8 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 expenditure made by the Assessing Officer of Rs.15,11,02,307/ Rs.15,11,02,307/- is sustained. Since, Since, assessee has suomoto disallowed exp of Rs.90852583/ , the balance additional disallowance comes to Rs.90852583/-, Rs.60249724/ Rs.60249724/-."
With a view to maintain judicial consistency, the disallowance so made by the Assessing Officer and is hereby sustained."
sustained.
6.1 Before us, the Learned Counsel for the assessee submitted that the principal activity of the assessee assessee-company company comprises of managing its investments and exploring new investment opportunities. It was further submitted that the assessee also provides management, corpo corporate, rate, and support services to Spicer India Ltd., a concern forming part of the "Anand" Group. The Learned Counsel explained that the assessee purchases shares, grants loans, and provides requisite funding, which is generally sourced through borrowings from various companies.
6.2 It was contended that the assessee's income consists of dividend income, interest income, income from the sale of investments, and professional fees received for rendering management and support services to group companies. The ned Counsel argued that the assessee is, by its conduct and Learned consistent course of dealings, a predominantly investment company engaged in the business of managing and holding investments. The funds have consistently been utilized for business purposes. It was w further submitted that the shares of the "Anand" Group companies were acquired primarily with the object of maintaining and Asia Investments Pvt. Ltd 9 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 exercising controlling interest, and not with the intention of earning dividend income, which is merely incidental.
6.3 It was pointed inted out that the assessee had invested in equity shares, which, unlike preference shares, do not carry any assured return by way of dividend. The Learned Counsel submitted that such systematic and organized investment activity of the assessee has, since inception, been regarded as a business activity, and the expenditure incurred in relation thereto has consistently been treated as business expenditure. It was further brought to our attention that a similar view has been taken by the Coordinate Bench of the he Tribunal in the assessee's own case for AY 2010-11 and earlier assessment years.
6.4 The Learned Counsel submitted that, along with the receipt from the sale of investments, the assessee has also earned dividend income from such investments. Accordingly, it was contended that the expenditure incurred relates both to taxable activities (such as non taxable or exempt managing and realizing investments) and to non-taxable activities (such as earning dividend income). Hence, the same ought to be apportioned iin n proportion to the respective taxable and exempt income.
6.5 The Learned Counsel further submitted that the assessee's business activities could be appropriately categorized under two heads: (i) strategic investment activity, and (ii) trading in shares.
Asia Investments Pvt. Ltd 10 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 lacing reliance on the judgment of the Hon'ble Supreme Court in Placing Maxopp Investment Ltd vs CIT (2018) 91 taxmann.com 154 (SC),, it was submitted that disallowance under section 14A of the Act can be made only to the extent of expenditure relatable to earning exempt income, and such allocation must be made in non taxable income of the assessee.
proportion to the taxable and non-taxable 6.6 The Learned Counsel for the assessee further submitted that the Assessing Officer has not recorded any dissatisfaction with he correctness of the suo-motu disallowance made by the regard to the assessee under section 14A of the Act. In the absence of such satisfaction, the invocation of Rule 8D by the Assessing Officer, it was contended, is void ab-initio.. It was submitted that, on this ground nd alone, the entire computation made by the Assessing Officer under Rule 8D deserves to be deleted, and the suo-motu disallowance offered by the assessee ought to be accepted.
6.7 With respect to the Assessing Officer's action of treating a portion of the expenditure debited to the profit and loss account as directly incurred for earning exempt income and disallowing the same under Rule 8D(2)(i) of the Rules, the Learned Counsel mitted that the Assessing Officer has failed to demonstrate any submitted proximate nexus between such expenditure and the earning of dividend income. It was urged that the expenses in the nature of personnel cost, travelling and conveyance, business promotion, Asia Investments Pvt. Ltd 11 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 eciation, etc., were essentially incurred in the course of the depreciation, assessee's business of managing and monitoring its investments, and the dividend income was merely incidental to such business operations. Accordingly, it was contended that the Assessing Officer Offic was not justified in holding that such expenses were directly attributable to the earning of exempt dividend income.
6.8 With reference to disallowance u/R 8D(2)(ii) of Rules, the t Ld. counsel for the assessee before us filed a detailed break up, the total Rs.12,53,95,654/ for the assessment year al finance cost of Rs.12,53,95,654/-
under consideration.::
Particulars AY 2012-13
Amount (Rs.) Amount (Rs.)
Interest on Term Loan
TATA Capital 10,99,16,196
HDFC Bank (Car Loan) 5,55,870
Yes Bank -
Kotak Mahindra Prime Ltd (Car Loan) - 11,04,72,066 v
Interest on Working capital
Yes Bank 61,409 61,409
Interest on Inter-Corporate
Corporate
Deposits
Anand & Anand P. Ltd. 21,22,138
Anfilco Limited 1,26,50,697
Dytek India Ltd. 89,344 1,48,62,179
Interest on Finance Lease
Kotak Mahindra Prime Ltd - -
Particulars AY 2012-13
Asia Investments Pvt. Ltd 12
ITA No. 4529, 6353/MUM/2017,
6209/MUM/2019
Amount (Rs.) Amount (Rs.)
Processing fees Amo.
TATA Capital -
Corporate guarantee fees:
Victor Gaskets India Limited -
Anfilco Ltd - -
Total Finance Cost (as per financial 12,53,95,654
statements)
6.9 The Learned Counsel for the assessee submitted that the ₹ Assessing Officer had already disallowed a sum of ₹10,99,16,196/-
Income tax Rules, 1962, being the under Rule 8D(2)(i) of the Income-tax interest expenditure incurred on a loan obtained from Tata Capital, treating the same as directly attributable to the earning of dividend income, which he is not justified. He further pointed out that the interest expenditure of ₹5,55,870/- was directly related to a car m HDFC Bank, while interest of ₹61,409/ loan availed from 61,409/- paid to Yes Bank pertained to working capital facilities. Likewise, interest payments of ₹21,22,138/ 21,22,138/- to Anand & Anand Pvt. Ltd., ₹1,26,50,697/- to Anfilco Ltd., and ₹89,344/- to Dytek India Ltd. represented interestt on inter corporate deposits and were not inter-corporate related to any investment yielding exempt income.
6.10 The Learned Counsel accordingly contended that out of the total finance cost of ₹12,53,95,654/- debited to the profit and loss account, the interest to Tata Capital Capital having already been disallowed, the balance interest amount of ₹1,16,79,947/ 1,16,79,947/- stood Asia Investments Pvt. Ltd 13 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 duly identified as being incurred for specific business purposes and not connected with any investment generating exempt income. Hence, the Assessing Officer was not justified in apportioning the said balance interest expenditure in the ratio of total investments to total assets while computing disallowance under Rule 8D(2)(ii) of the Rules.
6.11 The Learned Counsel further submitted that the Assessing Officer was also o not justified in making an additional disallowance of 0.5% of the average value of investments towards administrative expenses under Rule 8D(2)(iii), when disallowance on account of administrative and related expenses had already been made separately.
6.12. The Learned Counsel for the assessee further invited our attention to the order of the Tribunal in the assessee's own case for 2011 12 in ITA No. 916/Mum/2016. Referring the assessment year 2011-12 to the said decision, it was submitted that the personnel of the company were engaged in multifarious business activities, assessee-company ssessing Officer had made an ad-hoc disallowance of and that the Assessing ₹1,75,00,000/- without establishing any specific nexus between such expenditure and the earning of exempt income. The Learned L Counsel contended that an ad hoc disallowance is impermissible Income tax Rules, 1962, unless a direct under Rule 8D(2)(i) of the Income-tax Asia Investments Pvt. Ltd 14 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 and proximate connection is demonstrated between the expenditure incurred and the earning of exempt income.
6.13 With regard egard to the disallowance of travelling expenses, the Learned Counsel submitted that such expenses were incurred by the top management of the company in the ordinary course of its business, including attending meetings with prospective investee nd financiers, participating in seminars, gatherings, companies and and conventions, and rendering management and advisory services. It was further explained that foreign travel undertaken by senior management personnel was aimed at studying global market trends, exploring ing new business opportunities, and understanding investor requirements.
6.14 As regards rent, it was submitted that the same pertained to properties taken on lease for business purposes, including the company's U.K. transit office-cum-transit office house, and that the corresponding repairs and maintenance expenses were incidental to such rented premises, being incurred for their proper upkeep and maintenance.
6.15 The Learned Counsel pointed out that in the assessment year 2010-11, in ITA No. 5829/Mum/2015 disallowance had been made only under Rule 8D(2) (iii), and not under sub-rule 8D(2)(ii) and 8D(2)(iii), sub (i) .
Further, placing reliance on the decision of the Hon'ble Special Bench of the Tribunal in ACIT v. Vireet Investment (P) Ltd. [(2017) 82 Asia Investments Pvt. Ltd 15 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 was submitted that while taxmann.com 415 (Delhi) (SB)], it was computing the disallowance under Rule 8D(2)(ii) and Rule 8D(2)(iii), only those investments which have actually yielded exempt income during the relevant year should be taken into consideration.
submitted that the Coordinate 6.16 The Learned Counsel further submitted Bench of the Tribunal, in the assessee's own case for the 2010 11, had accepted this contention and assessment year 2010-11, following the finding of ACIT Vs Vireet Investments (P) Ltd (2017) 58 ITR(T) 313 (Delhi-Trib)(SB) restrict the disallowance to Trib)(SB) directed to re the average value of investments which had actually yielded exempt income during the year.
7. On the contrary, the Ld. Departmental Representative (DR) relied on the order of the lower authorities.
8. We have carefully considered the rival submissions and perused the material placed on record. The undisputed facts reveal that the assessee has earned dividend income of ₹33,64,56,570/ 33,64,56,570/-, in addition to other taxable income. The assessee, on its own volition, n, has made a suo-motu suo ₹10,53,55,857/-
disallowance of ₹ under section 14A of the Act. The Assessing Officer, however, relying upon the approach adopted by his predecessor in the assessment for assessment year 2011 12, proceeded to compute 2011-12, the disallowance by Income--tax Rules, 1962 y invoking Rule 8D of the Income (hereinafter "the Rules").
Asia Investments Pvt. Ltd 16 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 8.1 It is well settled that section 14A of the Act mandates the disallowance of expenditure incurred in relation to earning income which does not form part of the total income. Whe re common books Where of account are maintained for taxable as well as exempt activities, the Assessing Officer must examine the correctness of the suo-motu suo disallowance made by the assessee, having regard to the accounts maintained. Only upon being unsatisfied with the correctness of such claim, is he empowered, under section 14A(2), to resort to the computational mechanism prescribed under Rule 8D.
8.2 At the threshold, the assessee has raised a fundamental submission that the recording of satisfaction or dissatisfaction by the Assessing Officer, as contemplated under section 14A(2), is a mandatory precondition for the application of Rule 8D. It is urged that, in the present case, the Assessing Officer has not recorded any such satisfaction before invoking Rule 8D. For ready reference, paragraph 8 of the assessment order is reproduced hereunder:
8. Disallowance u/s.14A 8.1. During the year, the assessee has claimed dividend income of *33,64,56,517/ The assessee has suo-moto *33,64,56,517/-. moto disallowed an amount of ₹10,53,55,857/ 5,857/- as disallowance u/s 14A r.w.r. 8D. During the 12, the same issue was examined and various expenses, A.Y. 2011-12, directly attributable to earning exempt income were added. Since there is no change in the facts of the case and the assessee has not been able to provide any satisfactory explanation for not making similar disallowance this year, the disallowance u/s 14A r.w.r. 8D is made, following the manner in which it was made in A.Y. 2011 2011-
12.
Asia Investments Pvt. Ltd 17 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 8.3 We have given our anxious consideration to the above extract and the assessment order in its entirety. We find that the Assessing Officer has neither recorded any express dissatisfaction nor can any implied dissatisfaction be reasonably inferred, save for a mechanical reliance on the order of his predecessor for an earlier assessment year. The statutory requirement under section 14A(2) is unequivocal: the Assessing Officer must record, having regard to the accounts, why he considers the assessee's claim to be incorrect.
for triggering the machinery Such satisfaction is the sine qua non for provisions of Rule 8D. The omission to discharge this mandatory jurisdictional requirement renders the application of Rule 8D legally untenable. It is also pertinent to note that the Assessing Officer has not even adverted to, n up or nature of the nor analysed, the break-up motu disallowance offered by the assessee. In view of the above, suo-motu we hold that the disallowance made by the Assessing Officer under Rule 8D suffers from a fundamental jurisdictional infirmity and is, therefore, unsustainable in law. We accordingly direct the deletion of the disallowance computed under Rule 8D. The suo suo-motu disallowance offered by the assessee stands accepted.
9. The learned counsel for the assessee has further advanced, without prejudice, an alternative alternative line of submissions on the merits of the disallowance made under section 14A of the Act. It is noted that while invoking Rule 8D, the Assessing Officer first proceeded to compute the disallowance under Rule 8D(2)(i). He segregated Asia Investments Pvt. Ltd 18 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 interest expenditure ture of ₹10,99,16,196/- pertaining to loans obtained from Tata Capital Ltd., characterising the same as expenditure directly relatable to the earning of exempt income, and accordingly disallowed it under Rule 8D(2)(i). Thereafter, he examined other expenditure expenditure debited to the profit and loss account and, relying solely upon the manner in which disallowance had been made in assessment year 2011 2011-12, 12, held that part of such expenditure was directly connected with the earning of exempt dividend income and again proceeded proceeded to disallow a portion thereof under Rule 8D(2)(i).
9.1 The ld counsel for the assessee submitted that the Assessing Officer has neither demonstrated nor established any proximate nexus between the said expenditure and the earning of exempt income.. No objective basis or reasoning has been furnished to indicate how such expenditure could be said to be directly relatable to exempt income, nor is any rational method discernible behind the quantification of the disallowance, which appears to have been made on an ad hoc and presumptive basis. The Assessing Officer's sole premise, carried over mechanically from assessment year 2011-12, 12, appears to be his conclusion that the activity of making investments in subsidiaries does not constitute a business activity activ of the assessee, and that since income from the sale of investments is not declared as business income, the expenditure claimed in the profit and loss account is predominantly relatable to the earning of Asia Investments Pvt. Ltd 19 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 factual examination exempt income. Such a conclusion, bereft of factual and unaccompanied by statutory satisfaction as required under section 14A(2), cannot by itself justify a disallowance under Rule 8D(2)(i).
9.2 In the backdrop of the foregoing, and without prejudice to our principal finding that, in the abs absence ence of any satisfaction recorded under section 14A(2), the invocation of Rule 8D itself is vitiated, we consider it appropriate to analyse the matter on first principles. The suo motu disallowance comprises assessee has explained that the suo-motu disallowance of proportionate interest expenditure of ₹9,46,16,662/- in terms of Rule 8D(2)(ii), computed on the ratio of investments yielding exempt income to total assets, and a further sum of ₹1,07,39,195/ 1,07,39,195/- under Rule 8D(2)(iii), being 0.5% of the stments which yielded exempt income.
average value of investments 9.3 It is a settled principle, as enunciated by the Hon'ble Supreme Court in Maxopp Investment Ltd. v. CIT [(2018) 91 taxmann.com 154 (SC)], that where an assessee is engaged in a composite activity which yields both taxable and exempt income, the expenditure incurred cannot be wholly attributed to either activity. A proportionate apportionment is required, ha having ving regard to the proximate connection of the expenditure with the respective streams of income. The Supreme Court has held that even in cases where investment activity is interwoven with or incidental to the Asia Investments Pvt. Ltd 20 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 business activity, only that portion of expenditure which bears a expenditure proximate nexus to the earning of exempt income can be disallowed under section 14A of the Act.
9.4 Thus, applying the principle laid down in Maxopp Investment Ltd. (supra), even if Rule 8D were to be validly invoked, only the expenditure ure relatable to the earning of exempt income--determined income basis could be subjected to on a rational and proportionate basis--could disallowance. The suo suo-motu motu disallowance computed by the assessee appears to be consistent with this principle, whereas the e by the Assessing Officer lacks both statutory disallowance made foundation and factual justification.
9.5 The Coordinate Bench of the Tribunal, in the assessee's own 2011 12 in ITA No. 916/Mum/2016, case for the assessment year 2011-12 has referred to the aforesaid principle of apportionment as apportionment enunciated by the Hon'ble Supreme Court in Maxopp Investment (supra). The relevant finding of the Tribunal (supra), is reproduced below for ready reference reference:
"6.3.1.
6.3.1. The question that fell for consideration before Hon'ble the case of Maxopp Investment Ltd. v. CIT(supra) Supreme Court in the were on two factual background wherein, the question of apportionment of expenditure had arisen and predominant intent of investment in shares was pleaded, though on different facts, on the ground that the obj objective ective of investing in shares was not to the dividend income, but to either retain controlling interest over the company in which the investment was made or to earn the profit from trading in shares. The question was whether the disallowance under section 14 A of the Act could be invoked in the cases where Asia Investments Pvt. Ltd 21 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 exempt income was earned from shares held as "trading assets" or "stock in trade".
6.3.2. The first set of facts relates to Maxopp Investment Ltd and the second set of facts relates to the State Bank of Patiala. In the case of Maxopp investment Ltd, the assessee therein was in the business of finance, investment and was dealing in shares and securities and that they held the shares and securities, partly as investments on the "capital account" and partly as "trading assets" for the purpose of acquiring and retaining control over its group companies, primarily Max India Ltd. Hon'ble Court noted that the profits resulting on the sale of shares held as "trading assets" were duly offered to tax as business inc income of the assessee.
6.3.3. In the case of State Bank of Patiala the assessee therein earned exempt income in the form of dividend was from securities held as an stock in trade.
6.4. Hon'ble Supreme Court had considered almost identical issue as is in the present facts of the assessee, that where, the shares/stocks were purchased of a company for the purpose of gaining control over the said company or as "stock in trade", though incidentally income is also generated in the form of dividends as well. It was argued before the Hon'ble Court that, though incidentally income was also generated in the form of dividends, the dominant intention for purchasing the shares was not to earn the dividend income but to acquire and retain the controlling the business in the company in which shares were invested, or for the purpose of trading in the shares as business activity.
6.4.1. After considering the entire case law on this aspect in the light of the facts involved in both the facts, Hon'ble Court vide paragraph nos. 39 39-40 held as under:
"(39) In those cases, where shares are held as stock-in-trade, stock the main purpose is to trade in those shares and earn profits therefrom.
However, we are not concerned with those profits which would naturally be treated as 'income' under the the head 'profits and gains from business and profession'. What happens is that, in the process, when the shares are held as 'stock-in-
'stock trade', certain dividend is also earned, though incidentally, which is also an income. However, by virtue of Section 10(34)10(34) of the Act, this dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of Section 14A of the Act which is based on the theory of apportionment of expenditure between taxable and non-taxable non income ome as held in Walfort Share and Stock Brokers P Ltd. case. Therefore, to that extent, depending Asia Investments Pvt. Ltd 22 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned.
Patiala cases that (40) We note from the facts in the State Bank of Patiala the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT (A) disallowed the entire deduction of expenditure. That view of the CIT (A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, th the e Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those cases where shares are ar held as 'stock-in-trade', trade', it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the continue to hold those shares as it wants to retain assessee would continue control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, stock necessarily a situation. The main purpose is to this may not be necessarily liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in Patiala also fail, though law in this respect has been State Bank of Patiala clarified hereinabove."
(emphasis supplied) 6.4.2. The view of Hon'ble Court is very clear from para 40 above that dominant intention is not important for the purposes of computing disallowance under section 14A. As the assessee has acquired the shares in the group companies and has held it as investment, whatever may be the dominant purpose, disallowance under section ction 14A r.w.Rule 8D is mandatory, if the assessee earns dividend from such investments. Respectfully following the view Asia Investments Pvt. Ltd 23 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 expressed by Hon'ble Supreme Court in case of Maxopp Investment Ltd. v. CIT(supra), we hold that the dominant purpose for making investment tment in shares is not important criteria, even though the assessee has acquired shares for having controlling interest in the group companies.
Accordingly Ground No.2 raised by the assessee stands dismissed."
dismissed.
9.6 Though the Tribunal in AY 2011-12 has rejected reje the contention that no disallowance is warranted on the ground that the dominant purpose of the investment was strategic, it nevertheless accepted the theory of apportionment.
9.7 We observe that, in the facts before us, the assessee is admittedly engaged gaged in the business of making and managing investments in its subsidiary companies, and that the dividend income has arisen only as an incidental outcome of such business activity. In these circumstances, the disallowance worked out by the cer under section 14A of the Act, read with Rule 8D of Assessing Officer the Rules, cannot be applied in a mechanical or undifferentiated manner.
9.8 It is incumbent upon the Assessing Officer to undertake a rational apportionment of the expenditure between taxable and taxable streams of income arising from the investment activity, non-taxable and to identify with precision that part of the expenditure which is actually relatable to earning the exempt income. Only such expenditure, demonstrably connected with the exempt income, can lawfully be disallowed. The balance, being attributable to the Asia Investments Pvt. Ltd 24 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 assessee's taxable business operations, must remain outside the purview of disallowance under section 14A.
9.9 We further note that the Coordinate Bench of the Tribunal, in 2011 12, at paragraph the assessee's own case for assessment year 2011-12, 7.5 of its order, held that the interest expenditure of ₹10,99,16,196 paid to Tata Capital Ltd. could not be brought within the ambit of Rule 8D(2)(i) of the Rules. The relevant observation of the Tribunal reads as under:
7.5. It is noted that, Ld.AO disallowed interest expenses "7.5.
amounting to Rs.6,89,82,540/-.
Rs.6,89,82,540/ . In our view interest component under Rule 8D(2)(i).
cannot be considered for disallowance under Accordingly we direct the same to be deleted from Rule 8(D)(2)(i)."
8(D)(2)(i).
9.10 With respect, we are unable to subscribe to the aforesaid conclusion. The Tribunal proceeded on the premise that interest disallowance under Rule 8D(2)(ii).
expenditure is amenable only to disallowance In our considered opinion, such a proposition does not accord with the statutory scheme. Rule 8D(2) clearly delineates two distinct categories of expenditure:
(i) direct expenditure, expenditure, including direct interest expenditure, incurred for the purpose of earning exempt income, which must be disallowed in full under sub-rule sub (i); and Asia Investments Pvt. Ltd 25 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019
(ii) indirect interest expenditure expenditure,, being interest that cannot be specifically identified or segregated as relating either to taxable business activities or to investment activities yielding exempt income, which is to be apportioned proportionately under sub-rule sub
(ii).
9.11 Thus, where interest expenditure is demonstrably and directly incurred for the purpose of making investments that have yielded exempt income, me, the disallowance must appropriately fall under Rule 8D(2)(i), and not under the apportionment mechanism of Rule 8D(2)(ii). To this extent, we find merit in the approach adopted by the Assessing Officer and upheld by the Ld. CIT(A).
9.12 However, in det determining ermining the quantum of disallowance, the authority must remain guided by the ratio laid down by the Hon'ble Supreme Court in Maxopp Investment Ltd. (supra), which mandates a principled and reasonable apportionment so as to disallow only s bears a proximate nexus with the earning of such expenditure as exempt income. Accordingly, while sustaining the finding that interest on the loan obtained from Tata Capital Ltd. is liable for disallowance under Rule 8D, we direct that the amount be restricted in accordance with the apportionment principles enunciated by the Hon'ble Supreme Court therein.
9.13 We note, at the outset, that for assessment year 2011 2011-12, the Coordinate Bench had rejected the assessee's plea for exclusion of Asia Investments Pvt. Ltd 26 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 various items of expenditure which were treated by the Assessing were Officer as direct expenses for the purpose of disallowance under Rule 8D(2)(i). The Ld. CIT(A), in the year presently under consideration, has merely followed this earlier view. The relevant extract from the Tribunal's order read reads as under:
7.6.2. On analysis of the P & L A/c. regarding the personal "7.6.2.
expenses, it is noted that under the head salaries and bonus in Rs.1,59,19,089/ has been incurred. The schedule 14 a sum of Rs.1,59,19,089/-
assessment order details the employees to whom the salary and bonus were paid due to non availability of separate books of accounts. The Ld.AO apportioned 1.5 crores under the head personal expenses as direct expenditure incurred towards the earning of exempt income. The reasoning for doing so was that, ployees were involved in the strategic investments made these employees by the assessee in its group companies. It is pertinent to know that amongst the twelve employees four of them belong to Anand family.
Accordingly, we do not find any infirmity in considering Rs.1.5 rores as direct expenses towards earning of exempt income crores under rule 8D(2)(ii)."
8D(2)(ii).
9.14 Having considered the rival submissions and the record, we find that the central controversy turns upon the character of the assessee's activity. The Assessing Officer proceeded on the premise that the activity of making and managing investments cannot partake partake the character of a business activity, and therefore, all related expenditure must be regarded as having been incurred for earning exempt dividend income. The assessee, however, contends that even when shares are held as investments, the activity of acquiring quiring and holding controlling interest in group Asia Investments Pvt. Ltd 27 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 companies may, in appropriate cases, constitute a business activity. In support, the assessee has relied upon several judicial precedents-- many rendered subsequent to the
--many judgment of the Hon'ble Supreme Courtt Cour in Maxopp where strategic investments or controlling Investment Ltd.--where stakes have been treated as business assets. These decisions include ACIT v. Tata Sons Ltd. (ITA No. 4630/Mum/2016, dt. August 7, 2020) (Mumbai ITAT);
ITAT) DCIT (ITA No. 756/P/2017, Bitwise Solutions Pvt. Ltd. v. DCIT dt. April 29, 2022) (Pune ITAT) - AY 2011-12;
12; RMZ Hotels Private Ltd. v. NFACITA No.954/Bang/2022, dt. February 22, 2023) (Bang. ITAT); CIT v. Future Corporate Resources Ltd. [2021] 132 taxmann.com 173 (Bombay Industrial Development Corporation HC); Tamilnadu Industrial Ltd. (TIDCO) v. ACIT (ITA No. 1181/Chny/2008, dt. February 28, 2020 (Chennai ITAT) - AY 2003--04. The assessee further submits, relying upon decisions such as Rajeev Lochan Kanoria (Calcutta HC), that even where investments are nott held as stock-in-trade, stock trade, the activity of managing group-level level strategic investments may still constitute business activity.
9.15 It is further urged that although Maxopp mandates that disallowance under section 14A applies even to strategic nce such strategic investment activity is held to be investments, once Asia Investments Pvt. Ltd 28 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 part of the assessee's indivisible business, any disallowance of indirect expenditure must fall under Rule 8D(2)(iii), and not under Rule 8D(2)(i). The assessee has also pointed out that even in the unal's subsequent order in MA No. 103/Mum/2025, the entire Tribunal's personnel cost was not treated as directly relatable to exempt income, and the Assessing Officer was instead directed to apportion it. Accordingly, the assessee argues that in a mixed and indivisible indivisib business, no portion of personnel expense could be notionally classified as "direct" expenditure under Rule 8D(2)(i) in the absence of evidence, and the only permissible method of attribution is that prescribed under Rule 8D(2)(iii), being 0.5% of the average a value of investments yielding exempt income.
9.16 On a careful consideration of the matter, we find that the assessee's case involves a composite activity from which both taxable and exempt income arise. Under section 14A, only such ears a clear and proximate connection with earning expenditure as bears exempt income may be disallowed. Expenditure not so connected must be examined under section 37(1) to determine whether it is incurred wholly and exclusively for business purposes; but such not be denied deduction under section 14A merely expenditure cannot because the assessee has earned exempt income. In the present case, the Assessing Officer's premise is that strategic investments are not a part of the assessee's business activity. On that basis, he has treated ated all related expenditure including personnel cost, expenditure--including Asia Investments Pvt. Ltd 29 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 rent as directly connected with travelling, business promotion and rent--as earning dividend income. However, no cogent evidence has been brought on record to demonstrate such a proximate nexus. The mere fact that hat the assessee promotes the interests of its subsidiaries does not, without more, establish that these expenses were incurred wholly or predominantly for earning dividend income.
9.17 Rule 8D itself provides that only expenditure directly relatable to exempt income can be disallowed under Rule 8D(2)(i); where such direct nexus is not established, the law mandates recourse to Rule 8D(2)(iii), which deals with attribution of indirect expenditure through a statutory formula. In the year under appeal, the ssessing Officer has neither identified nor demonstrated any direct Assessing connection between the impugned expenses and the earning of exempt income. Instead, he has resorted to an ad hoc quantification of certain expenses as "direct", while simultaneously invoki invoking the formulaic disallowance under Rule 8D(2)(iii). Such an approach, being unsupported by evidence and contrary to the statutory sustained particularly when, in assessment scheme, cannot be sustained--particularly 11 and earlier years, similar expenses were consistently year 2010-11 consistent considered only under Rule 8D(2)(iii) by the Coordinate Bench . The relevant finding is reproduced as under:
5. Before us, the assessee contended that the computation made by "5.
the AO for disallowance under section 14A of the Act and confirmed by CIT(A) had considered the gross value of fixed assets and current assets rejecting the contention of the assessee that fixed assets Asia Investments Pvt. Ltd 30 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 should be considered under all depreciation and current assets should be considered under all current liabilities. The assessee also als contended that there are conflicting views on the aspect of computation of disallowance under section 14A of the Act including investments which are strategic in nature or investments on which assessee have not receive any exempt income during the year u under appeal. Now, before us the learned Counsel for the assessee conceded that the issue of investments which are strategic in nature is covered against the assessee by the decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT [2018] [20 402 ITR 640 (SC). However, the learned Counsel for the assessee stated that the investments on which assessee has not received any exempt income during the year under appeal, the issue is again covered in favour of assessee by the decision of Special B Bench ench of this Tribunal of Delhi Special Bench in the case of ACIT vs. Vireet Investments (P.) Ltd. [2017] 58 ITR(T) 313 (Delhi - Trib.) (SB). The learned Counsel for the assessee stated that the assessee has filed revised computation of disallowance under s ection 14A read with Rule 8D of the Rules, section which is enclosed at page 33, wherein disallowance made amounting to 8,28,13,345/-.
8,28,13,345/ . The learned Counsel for the assessee stated that the working given by assessee was not considered by the CIT(A) hence, the revised revised the computation, wherein the assessee has excluded the investment which is not received any exempt income during the year of appeal, is to be excluded.
6. When these facts were confronted to the learned Sr. Departmental Representative, he stated that the matter can be restored back to the file of the AO for re re-computation of disallowance.
7. After hearing both the sides and going through the facts and circumstances of the case. We are of the view that the disallowance of interest under Rule 8D(2) (ii) and administrative expenses under Rule 8D(2)(iii) should be restricted to the investment giving rise to exempt income and no disallowance should be made on the investments which are not giving taxable income. The AO will look disallowance made by assessee i.e. the into the computation of disallowance revised computation filed before us on page 34 of assessee's paper book. The AO will re-compute re compute the disallowance in term of the above.
8. The next issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of interest on expenditure under section 37(1) of the Act made by the AO to the tune of ₹ 4,36,649/-. For this assessee has raised the following ground No. 2: -
Asia Investments Pvt. Ltd 31 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 "2. On the facts and in the circumstances of the case and in law, the learned CIT(A) CIT(A) erred in confirming disallowance of interest expenditure undersection 37(1) to the tune of INR 4,36,649/-
4,36,649/ Without prejudice to the above, the CIT(A) erred in not directing the Assessing Officer to allow the above interest as the above interest dy been considered in disallowance worked out under has already section 14A of the Income Tax Act.
Without prejudice to the above, the CIT(A) erred in not directing the Assessing Officer that out of the total loans and advances, amount advanced to KCA Holdings Ltd. wa was at a lower rate of interest and therefore, if at all any disallowance of interest is to be made, such disallowance has to be restricted to the advance given to KCA holdings Ltd."
9.18 We accordingly hold that the Assessing Officer has erred in treating portions of personnel and other administrative expenditure as directly relatable to earning exempt income without establishing the requisite proximate nexus. The ad hoc allocation of such expenses under Rule 8D(2)(i), coupled with a further disallowance under Rule 8D(2)(iii), amounts to an impermissible duplication and is contrary to the statutory framework. In view of the foregoing discussion, and having regard to the principles laid down by the Ltd. the assessee's Hon'ble Supreme Court in Maxopp Investment Ltd., grounds No. 2 and 3 merit acceptance. The disallowance under Rule 8D(2)(i) is therefore deleted, leaving only such attribution as is permissible under Rule 8D(2)(iii). Accordingly, the contention of the assessee raised in Grounds No. 2 and 3 of the appeal stands allowed.
Asia Investments Pvt. Ltd 32 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 1,16,79,947/- made 9.19 With respect to the disallowance of ₹1,16,79,947/ under Rule 8D(2)(ii), we find that the Assessing Officer has mechanically, without proceeded to apply the proportionate formula mechanically, first ascertaining the actual utilisation of the borrowings on which the impugned interest was paid. Such an approach, in our considered view, overlooks the foundational requirement of section 14A read with Rule 8D--that 8D only expenditure e having a proximate and real nexus with the earning of exempt income may be disallowed.
9.20 The assessee, however, has placed before us detailed material, as noted in the preceding paragraphs, demonstrating that the relevant interest expenditure pertains to specific borrowings which were not deployed for making investments capable of yielding exempt income. For ready reference, the pertinent portion of the assessee's submissions is reproduced below:
The Ld. counsel for the assessee submitted that interest amount of Rs. 10,99,16,196 incurred on loan from Tata Capital was already disallowed by the AO under Rule 8D(2)(i) as direct expenditure for earning dividend income. He submitted that the interest of Rs.5,55,870/-
Rs.5,55,870/ was directly from HDFC Bank. Similarly, he related to the car loan from Rs.61,409/ paid to Yes Bank was submitted that interest of Rs.61,409/- directly connected with the interest on working capital.
Asia Investments Pvt. Ltd 33 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 Similarly, he submitted that interest of Rs.21,22,138/-
Rs.21,22,138/ paid Rs.1,26,50,697/ paid to Anfilco to Anand & Anand P. Ltd. of Rs.1,26,50,697/-
Rs.89,344/ Dytek India Ltd. related to Ltd. and interest of Rs.89,344/-
interest at another corporate deposits.
9.21 We note that in assessment year 2011-12, 2011 12, the Tribunal had upheld a similar disallowance under Rule 8D(2)(ii). However, the factual matrix in the present year stands materially distinguished.
Here, the assessee has furnished specific, verifiable details establishing that the borrowings in question were utilised for tax purposes wholly unconnected with investment in tax-exempt assets. In the absence of any contrary evidence brought on record by the Revenue, and having regard to the settled principle that a proportionate disallowance of interest under Rule 8D(2)(ii) is permissible only where the nexus between borrowed funds and exempt income cannot be segregated, we are investments yielding exempt unable to sustain the disallowance. Accordingly, the disallowance of ₹1,16,79,947/- made under Rule 8D(2)(ii) is directed to be deleted. Ground No. 4 of the assessee's appeal, therefore, stands allowed.
9.22 As regards Ground No. 5, the assessee has contended that the Assessing Officer failed to apply the law as enunciated by the Hon'ble Special Bench of the Tribunal in Vireet Investment (P.) Ltd. (supra). The grievance of the assessee is that, while computing the disallowance under Rule 8D(2)(iii), the Assessing Officer adopted the Asia Investments Pvt. Ltd 34 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 value of the entire investment portfolio, without restricting the computation to those investments which actually yielded exempt income during the relevant previous year. This approach appro is in clear departure from the ratio of Vireet Investment (P.) Ltd. (supra), which holds that only income-yielding income yielding investments are to be considered for the purposes of Rule 8D(2)(iii). We also note that the said principle has been consistently followed by the Coordinate Bench in the assessee's own case for assessment year 2010-11.
20109.23 In light of the foregoing discussion, and applying the binding ratio of the Special Bench decision, we direct the Assessing Officer to re-compute compute the disallowance under R Rule ule 8D(2)(iii) by taking into account only such investments as have actually generated exempt income during the relevant previous year. Accordingly, Ground No. 5 of the assessee's appeal is allowed for statistical purposes.
9.24 For the sake of clarity, we reiterate that earlier in this order we have already deleted the entire disallowance made under section 14A on the ground that the Assessing Officer failed to record the mandatory satisfaction as required under the said provision. The findings now rendere renderedd in relation to Rule 8D are, therefore, purely on a without-prejudice prejudice basis.
10. Ground No. 6 of the assessee's appeal pertains to the disallowance of professional fees amounting to ₹6 6 crores paid to Deep C Anand Foundation.
Foundation Asia Investments Pvt. Ltd 35 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 10.1 The brief background of the issue is that the Assessing Officer, relying upon the findings recorded by his predecessor for 2011 12, observed that the assessee-company assessment year 2011-12, assessee had already made payments to Shri Deep C. Anand in his individual capacity. According to the Assessing Assessing Officer, a further payment made to him in a different capacity as trustee of Deep C Anand capacity--as Foundation--was was not warranted. Proceeding on the premise that the assessee was merely an investment company entitled to deduction only for expenses necessary for the upkeep of its corporate structure (such as audit fees, statutory dues, and ROC-
ROC related charges), the Assessing Officer concluded that the impugned expenditure had been incurred not for the assessee's business, but companies, and thus treated it as for managing the affairs of group companies, not allowable.
10.2 The assessee, however, contended that the professional fees were paid for high--level level consultancy services rendered by the Foundation in support of its strategic investment operations. It was submitted that such expenditure was incurred wholly and exclusively for the purpose of business. The Assessing Officer, finding no detailed documentation of the services rendered and adopting the reasoning applied in assessment year 2011-12, 2011 paymen of ₹6 disallowed the entire payment 6 crores. The Ld. CIT(A), concurring with this view, sustained the disallowance on the ground that the assessee had failed to establish business necessity Asia Investments Pvt. Ltd 36 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 or demonstrate any tangible advantage resulting from the consultancy services.
10.3 Before us, the Ld. counsel for the assessee placed reliance on the order of the Tribunal in the assessee's own case for assessment 12, wherein a similar disallowance had been deleted. year 2011-12, 10.4. We have carefully considered the rival submissions and examined the record. The factual position, which remains assessee company is engaged in making undisputed, is that the assessee-company and managing strategic investments in various group entities, frequently in collaboration with foreign partners for acquisition of sts in joint ventures. This factual matrix has also controlling interests been recognized by the Tribunal in assessment year 2011-12, 2011 wherein it was observed:
3. The assessee is stated to be investing company carrying on "3.
business of acquiring and exercising control over companies compa in Anand Group to provide long term finance and to provide managements consultancy services to various companies of Anand Group. It is submitted that, Anand Group is a global leader in manufacturing product for automotive industry and is a mpany of the group, wherein Gabriel India Ltd., was flagship company formed to manufacture shock absorbers. It is submitted that, the group has established around 13 joint ventures and 7 technical collaborations. The assessee submitted that 99% of the the assessee are in the companies of Anand investment held by the Group and has been classified as long term investments in its financial statements."
statements.
10.5 The assessee has consistently maintained that the services rendered by Deep C Anand Foundation were intrinsically linked to ts strategic investment operations and were necessitated by the its Asia Investments Pvt. Ltd 37 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 nature and scale of its business. We find merit in this contention. The assessee's investment portfolio comprises significant stakes in joint ventures with globally reputed automotive component componen manufacturers, and the need for professional advisory support in such arrangements cannot be doubted. It is a settled principle of law that the Assessing Officer cannot supplant the commercial judgment of a businessman with his own view of business sity, nor can an expenditure be disallowed merely for want of necessity, immediate or measurable business outcome. The only test is whether the expenditure was incurred bona fide and in the ordinary course of business.
issue in assessment 10,6 The Tribunal, while adjudicating the same issue year 2011-12, 12, held that the expenditure was neither unreasonable nor excessive, and observed as under:
"7.6.3.
7.6.3. It is also submitted that apart from the services received from Mr. Deep C. Mehta, the assessee had paid professional fees to one Mr. Aditya Narayan, M/s. Patel Investments and M/s. Rohit Arora & Associates, who were rendering various services in their individual capacities. The Ld.AR submitted that these individuals were taken on the rolls of an entity called Deep C Anand ation. The Ld.AR thus submitted that the services rendered Foundation.
under individual capacities, were rendered through Deep C Anand Foundation during the year under consideration. The Ld.AO disallowed Rs.1.6 crore the assessee under the head professional fees paid. It is the submission of the Ld.AR that in the preceding years the professional fees rendered by these three parties were not disallowed.
7.6.4. From the arguments advanced by both sides, it is noted that the Foundation has offered the money received from the assessee to taxation. Also that these are incurred for rendering professional services to Spicer India Ltd., and not for acquiring controlling Asia Investments Pvt. Ltd 38 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 interest. It is noted that Spicer India Ltd for the year under consideration has been allowed the amount paid to the assessee as business expenditure. Though this is related party transaction, there is no loss to the revenue. Further it is not the case of the revenue that the expenditure incurred by the assessee are unreasonable and excessive."
10.7 In the absence e of any distinguishing facts brought to our notice for the year under consideration, and respectfully following the findings of the Tribunal in assessment year 2011-12, 2011 we are of 6 crores is unsustainable in law.
the view that the disallowance of ₹6 enditure is demonstrated to have been incurred wholly and The expenditure exclusively for the purposes of the assessee's business activities, and the contrary conclusion of the Assessing Officer rests on an incorrect appreciation of the assessee's business model.
10.8 We accordingly direct that the disallowance be deleted and the order of the Ld. CIT(A) on this issue be set aside. Ground No. 6 of the assessee's appeal is, therefore, allowed.
11. Ground No. 7 of the appeal pertains to the disallowance of expenses amounting to ₹50,98,889/- incurred in respect of the assessee's branch office in the United Kingdom.
11.1 The essential facts, briefly stated, are that the assessee maintained a branch office-cum-guest office guest house in London and claimed expenditure of ₹52,98,889/- towards its upkeep. The assessee asserted that the premises were utilised by its senior management during overseas business visits undertaken in the Asia Investments Pvt. Ltd 39 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 normal course of its investment operations. The Assessing Officer, however, rejected this explanation, concluding that that the expenditure was incurred not for the assessee's own business but for advancing the business interests of its subsidiary companies. Following the view adopted in assessment year 2011 2011-12, 12, he disallowed the entire concurring with the Assessing Officer, expenditure. The Ld. CIT(A), concurring upheld the disallowance on the premise that the expenditure did not promote the business of the assessee but that of its subsidiaries.
11.2 Before us, the Ld. counsel for the assessee submitted that the lower authorities failed to correctly appreciate the nature of the assessee's business, which is that of making and managing strategic investments in joint ventures. He explained that the tment process necessarily involves identification, evaluation, investment and engagement with prospective foreign partners, which requires extensive research and due diligence, as well as constant interaction with the management of such target entities. Once the rightt entity is identified, the assessee invests in it, which may, in turn, evolve into a subsidiary or a controlled joint venture. Thus, the maintenance of a London office was fundamentally linked to facilitating these pre-investment pre investment activities and the assessee's assess continuous interface with potential European partners. The Ld. counsel contended that both authorities below adopted an investment lens and, consequently, misdirected erroneous post-investment Asia Investments Pvt. Ltd 40 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 themselves in concluding that the expenditure benefitted subsidiaries alone. He further pointed out that although the 2011 12, had addressed the matter in Tribunal, in assessment year 2011-12, the context of Rule 8D(2)(i), it had not adjudicated upon the allowability of such expenditure under Section 37(1).
11.3 We have given thoughtful thoughtful consideration to the rival submissions and examined the material placed on record. The short question for adjudication is whether the expenditure incurred on maintaining the London branch office and guest house qualifies for deduction under Section 37(1) 37 of the Act.
11.4 As earlier noted, the assessee is engaged in the business of making strategic investments in joint ventures in the automotive components sector. Such investment activity does not commence with the mere act of investing; it necessarily includes the pre pre-
investment stage involving identification of suitable foreign collaborators, evaluation of synergies, due diligence, and negotiation. These are activities which often require an overseas presence to enable meaningful engagement with prospe prospective partners and to facilitate effective decision decision-making.
making. Expenditure incurred for such purposes is intimately connected with the assessee's business operations and cannot be disallowed merely because, at a subsequent stage, the entities identified durin during this investment exercise become subsidiaries or joint ventures. The pre-investment Asia Investments Pvt. Ltd 41 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 test under Section 37(1) is whether the expenditure was incurred wholly and exclusively for the purposes of business, and not whether the expenditure yielded immediate or direct profit.
prof 11.6 It is pertinent to note that although the Tribunal, in 2011 12, observed that these expenses did not fall assessment year 2011-12, within the ambit of Rule 8D(2)(i) and were already subjected to disallowance under Section 14A, the Tribunal did not examine the question of their allowability under Section 37(1). We therefore consider the issue independently in the present year.
n the totality of facts and circumstances, we find that the 11.7 In expenditure on maintaining the London branch office and guest house e was incurred bona fide and in the ordinary course of the assessee's business, and satisfies the statutory requirement of being laid out wholly and exclusively for business purposes. The disallowance sustained by the lower authorities is consequently stainable. We, therefore, direct deletion of the disallowance unsustainable.
and set aside the order of the Ld. CIT(A) on this issue. The ground No. 7 of the appeal is allowed.
12. Ground No. 8 of the appeal concerns the disallowance of expenditure amounting to ₹1,41,19,857/- incurred towards routine repairs and maintenance of the assessee's branch office-cum-
office transit house at London, which the Assessing Officer treated as capital in nature.
Asia Investments Pvt. Ltd 42 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 12.1 The material facts, briefly stated, are that the Assessing Officer noticed ticed a substantial increase in the assessee's repairs and maintenance expenditure during the year. Payments aggregating to ₹1,52,77,730/- were made to Waverly Renovation Ltd., and ₹4,11,000/- to Vasudeva Manufacturing & Engineering Pvt. Ltd. The Assessing Officer held that the expenditure represented renovation and improvement of the building structure, thereby giving rise to a capital asset. In respect of the payment to Vasudeva Manufacturing & Engineering Pvt. Ltd., it was held that the supply, ion, testing, and commissioning of pumps could not be installation, characterised as repairs. The entire claim was, therefore, disallowed as capital expenditure. The Ld. CIT(A), affirming the findings of the Assessing Officer, sustained the disallowance on the reasoning that the assessee had failed to demonstrate how the London property constituted a business asset or how the expenditure represented routine repairs. The Ld. CIT(A), observing as under:
5.2. I have considered the findings of the Assessing Officer as "5.2.
well as rival submission of the Appellant/A.R., carefully. I find that Appellant has not explained as to how House at London is a business asset and how such expenditure of Rs.1,56,88,730/ is not a Capital Expenditure. Only general Rs.1,56,88,730/-
argument has been advanced without demonstrating as to how there is a routine repairs & maintenance of House at 9, Waterdelle Manor, 20, Hairwood Avenue, London (U.K.). Therefore, so far as finding of the Assessing Officer that such expenditure is a cpital expenditure is concerned, such finding is worth-approval.
approval. Similarly, the bills of Vasudeva Manufacturing & Engineering Pvt. Ltd. is found to be for supply, installation & testing of pumps which is definitely a capi capital tal expenditure and not at all Renovation or Repairing which is Miscellaneous in nature. The Appellant has also not established the fact that as Asia Investments Pvt. Ltd 43 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 to how House Property at London is a business asset. Since the Assessing Officer has allowed the depreciation and a has disallowed the capital expenditure of Rs. 14119857/-
14119857/ hence, there is no option but to confine to the finding of the Assessing Officer hence, disallowance of capital expenditure to the extent of Rs. 1,41,19,857/-
1,41,19,857/ is sustained."
12.2 We have heard the rival submissions and examined the material placed on record. The issue that arises for determination is whether the expenditure of ₹1,56,88,730/- is to be regarded as capital or revenue in nature for the purposes of Section 37(1) of the Act.
12.3 Out of the total amount, a sum of ₹1,52,77,730/ 1,52,77,730/- pertains to payments made to Waverly Renovation Ltd. The invoices and the detailed description of work executed include painting, replacement of carpets, repair of kitchen leakages, ceiling and flooring on, soundproofing, radiator replacement, electrical work rectification, involving downlighters and switches, fitting of shelving units, repair and polishing of existing furniture, replacement of patio doors, and other refurbishment measures.
12.4 On a comprehensive appra isal of the nature of the work appraisal performed, we find no material to suggest that any new structure, addition, or expansion of the capital base of the property was undertaken. The expenditure is primarily aimed at preserving the existing structure and maintaining it in a functional and habitable maintaining condition. It neither brings into existence a new asset nor confers on the assessee an enduring benefit in the capital sense. In law, the Asia Investments Pvt. Ltd 44 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 test of "enduring benefit" must be applied pragmatically and not mechanically; expenditure penditure which merely preserves or restores an existing asset to its original condition is revenue in character, notwithstanding the magnitude of the amount involved. We therefore hold that the expenditure of ₹1,52,77,730/ 1,52,77,730/- incurred on Waverly Renovation Ltd. is allowable as revenue refurbishment by Waverly expenditure under Section 37(1).
12.5 With respect to the payment of ₹4,11,000/- made to Vasudeva Manufacturing & Engineering Pvt. Ltd. for supply, installation, and commissioning of pumps, the assessee has not placed on record any material to show that the installation was by way of replacement of an existing system rather than acquisition of a new one. In the absence of evidence establishing that the expenditure was for restorative purposes, we are constrained to hold that the amount is capital in nature. Depreciation thereon shall, however, be allowable in accordance with law.
12.6 In view of the foregoing analysis, the addition to the extent of ₹4,11,000/- is sustained, whereas the balance addition of ₹1,52,77,730/- is directed to be deleted. The order of the Ld. CIT(A) is accordingly set aside to the extent indicated above.
13. Now, we take up the appeal of the assessee for assessment
14. The grounds raised by the assessee are reproduced year 2013-14.
as under:
Asia Investments Pvt. Ltd 45 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019
1.. In the facts and circumstances of the case and in law, the CIT(A) erred in not adjudicating the revised grounds of appeal filed before him.
2. Without prejudice to Ground no 1 on the facts and circumstances of the case and law, the CIT(A) ought to have held held that holding shares to have controlling interest in the group is a business activity and consequentially erred in not directing the AO to allow expenses incurred for carrying on or in relation to business of strategic investment.
3. Without prejudice toto Ground nos 1 and 2, on the facts and circumstances of the case and in law the CIT(A) ought to have held that no disallowance could have been made under section 14A to the extent of Rs. 17,25,25,167 towards direct expenditure, interest and other administr ative expenditure, out of the expenditure administrative incurred to carry on business of strategic investment.
4. Without prejudice to the Ground nos. 1, 2 & 3, on the facts and circumstances of the case and in law, the CIT(A) ought to have held that no disallowance und er section 14A can be made where no under exempt income was received by the appellate during the year under consideration.
5. Without prejudice to the Ground nos. 1,2,3,& 4, on the facts and in the circumstances of the case and in law the CIT(A) ought to have rected the AO to delete the disallowance made by AO towards directed interest expenditure of INR 12,41,47,597, Personnel expenses of INR 2,00,00,000, Travelling expense of INR 1,31,33,041, Business promotion expenses of INR 11,58,874, Rent expenses of INR 17,78,696,, repairs expenses of INR 89,77,638, and depreciation of INR 61,27,043 by treating the same as directly linked for earning exempt income for the purpose of computing disallowance under section 14A r.w.r. 8D Without prejudice to the above, the CIT(A) ought to have held that the expenses were incurred for the business of the assessee company and not for the business of the group companies.
6. On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming disallowance made by AO towards UK Branch office expenses of INR 15,23,314 by treating the same as incurred for promoting business of the group companies and were not incurred for the purpose of business of the appellant..
7. On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the disallowance made by AO towards Asia Investments Pvt. Ltd 46 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 professional fees of Rs. 6,00,00,000 paid to Deep C. Anand Foundation by attributing it towards incurred for promoting the interest of group companies and was not incurred for the p purpose of business of the appellant.
13.1 The issues in dispute raised in the aforesaid grounds stand squarely covered by our findings rendered while adjudicating the 2012 13. Accordingly, these appeal for the Assessment Year 2012-13.
grounds are decided mutatis mutandis in terms of the said decision.
14. Now, we take up the appeal of the assessee for assessment
15. The grounds raised by the assessee are reproduced year 2014-15.
as under:
"1. In the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have held that holding shares to have controlling interest in the group is a business activity and consequentially erred in not directing the Ld. AO to allow expenses incurred for carrying on or in relation to business of strategic investment.
2. Without prejudice to Ground No. 1, in the facts and circumstances of the case and in law the Ld. CIT(A) ought to have held that no disallowance could have been made under section 14A to the extent of Rs. 19,29,64,978 towards direct expenditure, interest and other administrative expenditure, out of the expenditure incurred to carry on business of strategic investment.
3. Without prejudice to the Ground Nos. 1 & 2, in the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have disallowance under section 14A can be made in respect held that no disallowance of which no exempt income was received by the appellate during the year under consideration.
4. Without prejudice to the Ground nos. 1,2 & 3, in the facts and in the circumstances of the case and in law the L Ld. CIT(A) ought to have directed the Ld. AO to delete the disallowance made by Ld. AO towards interest expenditure of Rs. 15,05,94,171, Personnel expenses of Rs. 2,00,00,000, Travelling expense of Rs. 1,05,34,529, Business promotion expenses of Rs. 32,90,2 37, Rent expenses of 32,90,237, Rs. 46,00,000, repairs expenses of Rs. 49,00,000, and depreciation Asia Investments Pvt. Ltd 47 ITA No. 4529, 6353/MUM/2017, 6209/MUM/2019 of Rs.30,00,000 by treating the same as directly linked for earning exempt income for the purpose of computing disallowance under section 14A r.w.r. &D by relying upon the order passed for earlier years without appreciating the fact that the facts of each year are different.
Without prejudice to the above, the Ld. CIT(A) ought to have held that the expenses were incurred for the business of the appellant and not for the business of the group companies.
5. On the facts and in the circumstances of the case and in law, Ld. the CIT(A) erred in confirming disallowance made by Ld AO towards UK Branch office expenses of Rs. 67.94,409 by treating the same as incurred for promotin promoting g business of the group companies and were not incurred for the purpose of business of the assessee company and observing that the appellant did not have any business expediency or justification for incurring UK office expenses.
6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance made by Ld. AO towards professional fees of Rs. 6,00,00,000 paid to Deep C. Anand Foundation by attributing it towards incurred for promoting the interest of group co companies mpanies and was not incurred for the purpose of business of the appellant and also stating that the appellant has not been able to establish the necessity of making substantial payments to Mr. Deep C Anand both as chairman of the company and as the trustee of Deep C Anand Foundation."
Foundation.
14.1 The issues in dispute raised in the aforesaid grounds stand squarely covered by our findings rendered while adjudicating the appeal for the Assessment Year 2012-13.
2012 13. Accordingly, these grounds are decided mutatis mutandis in terms of the said decision.
appeal are allowed partly.
15. In the result, all the three appeals Order pronounced /11/2025.
ounced in the open Court on 27/11/2025.
Sd/- Sd/-
Sd/
(RAJ KUMAR CHAUHAN)
CHAUHAN OM PRAKASH KANT)
(OM KANT
JUDICIAL MEMBER ACCOUNTANT MEMBER
Asia Investments Pvt. Ltd 48
ITA No. 4529, 6353/MUM/2017,
6209/MUM/2019
Mumbai;
Dated: 27/11/2025
Rahul Sharma, Sr. P.S.
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. CIT
4. DR, ITAT, Mumbai
5. Guard file.
BY ORDER,
//True Copy//
(Assistant Registrar)
ITAT, Mumbai