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TMI Blog2019 (11) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... EU Commission. 2.1. On the facts and circumstances of the case and in law, the lower authorities erred in disallowing the fine of Rs. 141.50 Crores levied by the ED Commission under section 37(1) of the Act. 2.2. The Ld. CIT(A) has erred in concluding that only expenses incurred for earning an income for the year should be allowed as a deduction under section 37(1) for the following reasons. 2.2.1. the settlement was purely compensatory in nature and not penal in nature. 2.2.2. the fine was designed only as a 'take back' of the amount originally received by the Appellant for entering into a non-compete agreement, which was offered to tax in FY 2004-05. 2.3. Without prejudice, the levy by ED Commission is allowable as a business loss under section 28 of the Act. 3. Disallowance of depreciation on goodwill recorded on amalgamation : 3.1. On facts and in the circumstances of the case and in law, the lower authorities erred in not allowing the depreciation on goodwill arising on amalgamation (amounting to Rs-4492 "ore 1 as claimed by the Appellant in its return of income of Rs. 561.60 Crores. 3.2. The lower authorities have erred in not following the binding jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account during the previous year and accordingly, the pre-requisite of section 68 fails at threshold. 4.5. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in making an addition in respect of an outgo of money, which is a 'debit' as an unexplained cash credit u/s 68 of the Act. 4.6. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in disregarding all the documents/evidence already on record, which proves the nature of the transaction as well as its genuineness as a loan given by the Appellant to its wholly owned subsidiaries to settle their subsisting debts. 5. Disallowance under section 14A of Rs. 3.11 Crores 5.1. On facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in upholding the action of Ld.AO in disallowing amount of Rs. 3.11 Crores under section 14A under normal computation of the Act and under MAT . 6. Interest levied under section 234C 6.1. The Ld. AO has erred in levying interest under section 234C. The appellant denies its liability to pay interest under section 234C. The Appellant prays that directions be given to grant all such relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee company and other companies, each of which entered into agreements with another Company Les Laboratories Servier ('Servier'), relating to a product "perindopril", and that on 27th of July, 2012 the EC issued a statement of Objections against the assessee and others setting out its preliminary case and that the assessee had submitted its response to EC on the statement of objections. 3.3. Further on 9th July, 2014 the EC issued a decision to the effect that the Assessee company and Mylan Inc., as well as the other companies have violated European Union competition rules and for this violation, it imposed a fine/fee equivalent to the patent infringement settlement consideration received from Servier, of approximately Rs. 1415.09 millions (EUR 17.2 Million) including approximately Rs. 662.29 millions (EUR 8.05 Million) jointly and severally with Mylan Inc. USA, the ultimate holding company. He observed that the assessee company continued to contest the case in General Court of EU, while the management has made a provision towards the same in its books of accounts on prudent basis. 3.4. The AO, therefore, issued a show cause notice to the Assessee as to why the litigation expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice left taxpayer settled with Servier under a settlement agreement wherein for a GBP of 11.8 million - taxpayer shall not, and shall procure that its affiliates shall not, (i) carry out in relation to Perindopril made using the process any restricted act in any country of the territory; and/or (ii) manufacture and/or supply Perindopril made using the process, for use anywhere in the Territory. 7. The non-compete obligation prevented taxpayer from launching a generic version of perindopril manufactured on the basis of the process developed in cooperation with Niche in the Territory. 8. Servier had entered similar settlement agreement with Krka, Lupin,Teva and Unichem. 9. The payment received from Servier of GBP 11.8 million was fully offered to tax in F. Y 2004-05 and deferred in the books for 44 months by taxpayer. During the F. Y 2013-] 4 in view of the EU commission order, the equivalent amount of GBP 11.8 million i.e EUR 17.16 million was paid back to ED by Mylan. In this connection, we would reiterate that it will fall under the provisions of Sec 28. The same is extracted for your ready reference. "28. The following income shall be chargeable to income tax under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 1 to Sec 37(1) and we provide our reasons below : a. For the sake of convenience, the sub-section with explanation thereto is quoted below: "37 (1) Any expenditure (not being expenditure of the nature described in sections 3010 36 and not being in the nature of Capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Explanation-For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an Offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction Or allowance shall be made in respect of such expenditure. b. The Explanation was introduced in 1998 and the amendment Was made retrospective from 01st April, 1962. The Memorandum Explaining the Provisions of the Finance Bill 1998 stated as follows: It is proposed to insert an explanation after sub-section (i) of section 37 to clarify that no allowance shall be made in respect of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23 (Mag.)(Mum.) judgment. In that case a sum of Rs. 20 lakhs had been paid as protection money by builder as the areas were vulnerable to hafta and extortion and this money was allowed as deduction. Thus, to disallow income-tax deductions for hafta, the Explanation had been incorporated. But extending the proviso to fines was never intended. Hence, disallowing income-tax deduction for any kind of fine is not proper. g. Another noteworthy point is that the Explanation to section 37(1) is a deeming provision. It only creates a legal fiction. Next, the Explanation comes into play when expenditure, though incurred for business purpose, is coupled with purpose which is offence or prohibited by law. Here the purpose is to do business and there is no double purpose to do unlawful or illegal acts. h. The Andhra Pradesh High Court in CIT v. Hyderabad Allwyn Metal Works Ltd. [(1988) 172 I1R 113, 118-19](AP) has taken the view that the amount of such damages comprises both an element of penalty levy as well as compensatory payment. Therefore, the entire sum can neither be considered as mere penalty nor as mere interest. In that view of the matter, that portion out of the amount of such da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d pressure drug, and filed the necessary regulatory applications (DMFs) for manufacture of the API drug from its manufacturing unit. (b) The assessee and Niche Generics Limited ("Niche") entered into a co-development agreement to jointly develop the generic version of Perindopril tablets, for which the API would be supplied by the assessee and accordingly Niche filed the Dossiers for manufacture of Perindopril, at its Unichem facility, based on the supplies from the assessee. (c) that "Perindopril" is Servier Laboraties Limited's ('Servier') most successful innovator product in the European Union ("EU') region, for which it is the originator company/patent company. 'Niche', a competitor to 'Servier', was working with 'Matrix' (now called as 'Mylan') and Unichem Laboratores Limited for the generic entry of Perindopril in the EU region. (d) 'Servier', in February 2004, warned 'Niche' about its existing patent protection for perindopril, and after a series of discussions, on 8th February, 2005, a 'Patent Settlement Agreement', was concluded by Servier with Niche. (e) As the assessee did not have capability to produce independently the final perindopril product, but only had th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r deduction u/s 28(i) of the Act. It was submitted that for arriving at the figure of profits and gains of the business of the assessee in a particular year, business expenditure of all types, whether specifically provided for or not, may be allowed u/s 28(i) of the Act itself. He also referred to Sections 30 to 43C of the Act, submitting that these sections expressly provide for the deductions in computing business income and if an expenditure comes within any of the enumerated classes of allowances, it can be considered under the appropriate provision. He further submitted that in assessing the amount of the profits and gains of the year, account must necessarily be taken of all losses incurred besides the expenditure allowable u/sec. 30 to 43C of the Act. In support of this contention, he placed reliance upon the decision of Hon'ble Supreme Court in the case of Badridas Daga reported in (1958) 034 ITR 0010. He also submitted that in the A.Y. 2005-06, the assessee had received an amount of GBP Rs. 1.18 crores which was duly offered to tax and during the relevant AY, assessee was intimated that it would be required to pay back the entire amount received earlier, to the EU Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed except to the extent of difference in foreign exchange fluctuation rate, and since it is a payment towards patent infringement or settlement, the same is compensatory in nature and cannot be disallowed, particularly because the expenditure is purely for commercial purposes. For this proposition, he placed reliance upon the decision of Hon'ble High Court of Delhi in the case of Desiccant Rotors International (P) Ltd. Reported in 245 CTR 572 (2012). 6.3. Without prejudice to the above arguments, the Ld.Counsel for the assessee submitted that the word 'law' referred to in Explanation 1 to Sec.37(1) of the Act is only the 'law of the land' i.e. laws in force in India and violation of the provisions of the Treaty on the Functioning of the European Union (TFEU in short) cannot be considered as violation of the law under Explanation 1 to Sec.37(1) of the Act. He submitted that the treaty on the functioning of the EU (TEFU) is between the constituents of the EU i.e. 28 Member States that are located primarily in Europe and is applicable only within such states and is separate from International Law. Therefore EU Treaties are like any other international agreements between the countrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below and submitted that the assessee had resorted to Anti Competitive Practices by way of delaying the entry into market of certain generic medicines and this issue was investigated by the European Commission and the EC has levied the fine for infringement of EC Treaty Rules that outlaws cartels and other restrictive business practices as well as abuse of dominant position. He submitted that the EC levies fines as a measure of deterrence so that the companies do not resort to such type of anti-competitive behaviour, and that the General Court has also confirmed the levy of penalty imposed by EU Commission. Therefore, he argued that the amount is paid as penalty for breach of law and not as a compensatory settlement. He submitted that fine is not compensation but is a payment made for infringement of law and hence cannot be allowed under Explanation 1 to Sec. 37(1) of the Act. He also submitted that the same is also not allowable u/s 28(i) as the payment is made for infringement of law. In support of his contentions, he placed reliance upon the following cases. i. Haji Aziz and Abdul Shakoor Bros (1961) 41 ITR 350 (SC) ii. Maddi Venkataraman & Co. (P) Ltd. (1998) 96 Taxman 643 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctively from 1st April, 1962 and will, accordingly, apply in relation to the assessment year 1962-63 and subsequent years." 8.3. The General Clauses Act also defines an 'offence' u/s 3(38) of the Act to mean "any act or omission made punishable by law for the time being in force". 8.4. The Hon'ble Allahabad High Court in the case of Abdul Hameed vs. Mohd. Ishaq cited (supra) had the occasion to deal with this provision of the General Clauses Act. The Hon'ble High Court was dealing with the Provisions of U.P. (Temporary) Control of Rent and Eviction Act, 1947 and the applicability of Sec.7A of the Act, while dealing with the said provision, the Hon'ble Court was considering the meaning of the word 'law' and at Para 12 of its decision, has held as under: "12. The expression 'law' has not been defined in the Contract Act, nor in the U. P. General Clauses Act, 1904, but in the Central General Clauses Act. 1897, 'Indian Law' is defined in Section 3 (29) as below:- " 'Indian law' shall mean any Act, Ordinance, Regulation, rule, order, bye-law or other instrument which before the commencement of the Constitu1ion had the force of law in any Province of India o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Calcutta High Court, after considering various provisions of the Constitution of India and also the Hon'ble Supreme Court judgements on the issue, held that a reference to the word 'law' is any law for the time being in force in Indian territory and not in the foreign country. For the sake of clarity and ready reference, the relevant para is reproduced hereunder. "4. The point that arises for consideration is whether the words "offence", "conviction" and 'imprisonment" occurring in Rule 10 (2)(b) also includes an" offence", "conviction" and "imprisonment" under the penal law of a foreign country. In other words, whether, when a Government servant is convicted of an offence and sentenced to a term of imprisonment exceeding forty-eight hours under the law of a foreign country, he can be suspended in accordance with Rule 1O(2)(b). The Rules do not define these terms. The words "offence" and "imprisonment" have, however, been defined in the General Clauses Act. Under Section 3(38) of the said Act "offence" shall mean any act or omission made punishable by any law for the time being in force. The expression "any law for the time being in force" undoubtedly refers to any I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al notice of, inter alia, all laws in force in the territory of India. Foreign laws are not included therein. Sections 45 and 84 of Evidence Act permit proof being tendered and opinion of experts being adduced in evidence in proof of a point of foreign law. Under Order VI Rule 2 of the Code of Civil Procedure, 1908, every Pleading shall contain a statement in concise form of the material facts relied on by a party but not the evidence nor the law of which a Court may take judicial notice. But the rule against pleading law is restricted to that law only of which a Court is bound to take judicial notice. As the Court does not take judicial notice of foreign law, it should be pleaded like any other fact, if a party wants to rely on the same (See Moghas Law of Pleadings, 13th Edition, Page 22). In Guaranty Trust Company of New York Vs. Hannay & Co., 1918 (2) KB 623, it was held that, Foreign law is a question of fact to an English Court the opinion of an expert on the fact, to be treated with respect, but not necessarily conclusive. In Beatty Vs. Beatty, 1924 (1) KB 807, it was held that the American law in English courts must be proved by the evidence of experts in that law. In Lazard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by law and would not be allowable under Section 37 of the Act. 18. At the outset, we are inclined to accept the submission of the assessee that the paramount and governing consideration behind such a settlement/agreement can be to avoid the expenses and uncertainty of further litigation. It is a matter of common knowledge that litigation can turn out to be quite expensive and it cannot be even possible, what to talk of feasible, for a small time/middle level company in India like the assessee to litigate in US Court. Furthermore, the settlement agreement contains a specific recital to this effect inasmuch as it records "whereas, in order to avoid the expenses or uncertainty or further litigation, the parties desired to settle and adjust all differences and controversies among themselves subject to the terms of this Agreement." No doubt in the Agreement, the assessee accepted the patent of SEMCO. That by itself would not mean that the assessee also accepted that it was infringing the said patent. Secondly, payment is made by the assessee to SEMCO for "loss of goodwill and damages to its capital and for terminating of case US Courts" as is clearly mentioned in Clause (3) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree with the contention of the learned counsel for the assessee that the payment under the settlement is compensatory in nature. The remedy for infringement of patent involves civil action for compensating the damage to private properties. It may be noted that in the plaint filed by it, SEMCO has sought civil damages under Sections 284 and 285 of the US Paten Code (US 35). Criminal Suit is scored out in the plaint. The relevant provisions of US 35 (Patent Code) read as follows: "Section 284. Damages Upon finding for the claimant the Court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the sue made of the invention by the infringer, together with interest and costs as fixed by the Court. Section 285. Attorney fees The Court in exceptional cases may award reasonable attorney fees to the prevailing party." 21. It will be seen from the above that the damages are calculated for compensating the owner of the patent rights for the loss of profit/royalty even under the laws of USA. There is no element of penalty even in USA. Even the Indian Patents Act, 1970 (as amended by the Act of 2005) does not pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontravention of laws in force in India that disallowance under Explanation 1 to Sec.37(1) of the Act is to be made. 8.10. The next question before us is whether the payment is compensatory or penal in nature. 8.11. We find that the European Commission had required the assessee to pay 1.18 crores of GBP which is equivalent to 141,50,90,000 INR which is the exact amount received by assessee from Niche. The assessee had claimed it to be disgorgement/compensatory, whereas the Revenue had pleaded that it is only by coincidence that the penalty levied by EU is also exactly the same amount which is received by the assessee. Ld.DR argued that it is not disgorgement because though the receipt is from Niche, the payment by the assessee is to European Commission. Therefore, we agree with the Ld.DR that it cannot be treated as disgorgement or compensatory in nature. The next contention of the assessee is that without such payment and without such agreement, the assessee could not have carried out its business in EU and therefore it is towards commercial expediency and to carry on business of assessee, and, therefore, it is business loss. However, we find that the authorities below have not e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, AO was of the opinion that since the goodwill was not existent in the books of ASPL and was introduced only under the scheme of amalgamation, the proviso to section 32(1) of the Act is applicable and, therefore, the depreciation, allowable in the case of succession, amalgamation or merger, demerger should not exceed the depreciation allowable had the succession not taken place. In other words, the allowance of depreciation to the successor/amalgamated company in the year of amalgamation would be on the WDV of assets in the books of the amalgamated company and not on the cost as recorded in the books of amalgamating company. Therefore, he held that the assessee cannot claim depreciation on the goodwill that has arisen only as a result of amalgamation scheme. Further, he also placed reliance upon the decision of ITAT, Bangalore in the case of M/s United Breweries Ltd. Vs. Addl. CIT, vide its order dated 30/09/2016 in ITA Nos. 722,801 & 1065/Bang/2014 for disallowing the depreciation on good will. 11. Aggrieved, Assessee preferred an appeal before the CIT(A), who confirmed the order of AO and the assessee is in second appeal before us. 12. The ld. Counsel for the assessee, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excess of net consideration amounting to INR 4,331was accounted as goodwill including various intangibles arising on amalgamation. He submitted that the details of transaction and its accounting was duly disclosed in the notes to the Accounts. 12.1 Similarly, the assessee for the purposes applying the principles of purchase method of accounting considered the difference between the amount of investment (INR 4,386 Crores) and the fair value/ tax WDV value of net assets (being INR (106) Crores) as Goodwill arising on amalgamation. This Goodwill of INR 4,492 Crores encompassing the specified intangible asset (INR 1,465 Crores) were grouped under the Intangible Assets block as 'Goodwill' and depreciation at half of eligible rate of 25 per cent was claimed by the Appellant in return of income for AY 201415 since assets were put to use for less than 180 days. 12.2 He submitted that the issue of depreciation on goodwill arising on amalgamation is directly covered by the decision of the Hon'ble Apex Court in the case of Smiff Securities Ltd. (supra). In support of the contention that the law interpreted by the Hon'ble Supreme Court is binding on all courts and lower authorities, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Smifs Securities ltd. (supra) for the AY 2001-02 and the said question was not pressed by the department by conceding that it was covered by the decision of the Hon'ble Supreme Court. It is submitted that the revenue has not filed any appeal before the SC and once the revenue has chosen not to challenge a particular decision, it is bound by the principles laid down in those decisions. In this regard, reliance was placed on the decision of the Hon'ble Supreme Court in the case of Narendra Doshi, 254 IYT 606 [2002][SC]. 12.5 Ld. Counsel for the assessee also submitted that though ld. CIT(A) in principle agreed that depreciation is allowable on goodwill in view of the Supreme Court judgement in the case of Smiffs Securities Ltd., she has held that assessee should have carried the expenditure over a period of 5 years and depreciation should have been claimed accordingly. He submitted that there is no provision under the Act, which requires that, only a portion of goodwill is to be recognized during a year for claiming depreciation. He, therefore, argued that artificially splitting of the goodwill by the ld. CIT(A) is an arbitrary action and the said direction goes beyon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. Therefore, u/s 2(47)(v), transfer of capital assets by subsidiary to parent is not recognized as transfer and claiming goodwill would be a case of making profit out of oneself. He also referred to clause 3.1 of the share purchase agreement to submit that the purchase price was equal to the enterprise value minus a sum equal to cash, a sum equal to debt, a sum equal to withholding or deductions and Sr. Manager transaction proceeds and therefore, there is substantial out go in the form of payments to Sr. Managers and as a result, the assessee lost technical expertise let alone gaining any goodwill. According to him, the payment made to Sr. Managers cannot be considered for deduction from the asset value. With regard to debt, withholdings and deductions also, he submitted that it is not known whether they are related to the assets or not and therefore, the valuation of the goodwill suffers from serious flaws, because the payments which are unrelated to assets are set off against the value of assets. He submitted that the valuation of the enterprise for purchase of shares cannot be equated to the valuation for amalgamation as there is no basis made available in the valuation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) of the Act, to hold that the claim of depreciation on goodwill cannot exceed the depreciation allowable to the amalgamating company if the succession had not taken place. But as explained in AS-14, amalgamation can be, a) in the nature of merger; and b) in the nature of purchase. In the second type of amalgamation by purchase, the consideration paid in excess of the net value of assets and liabilities of the amalgamating company is to be treated as goodwill. In the case before us, the goodwill on which depreciation is claimed by the assessee is arising out of the amalgamation scheme, but is not solely the self-generated goodwill as alleged by the AO. Further, the AO followed the decision of Bangalore bench of ITAT in the case of United Breweries (cited supra) to disallow the claim of depreciation on goodwill. The Tribunal had considered the judgment of the Hon'ble Supreme Court in the case of Smiffs Securities Ltd. and has held that the Hon'ble Supreme Court has only held that goodwill is an intangible asset and that depreciation is allowable thereon, but, that it does override the provisions of 5th Proviso to section 32(1) of the Act. We find that the facts of United Breweries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words `any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression `any other business or commercial right of a similar nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). In the circumstances, we are of the view that `Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income Tax (Appeals) [`CIT(A)', for short] has come to the conclusion that the authorised representatives had filed copies of the Orders of the High Court ordering amalgamation of the above two Companies; that the assets and liabilities of M/s. YSN Shares and Securities Private Limited were transferred to the assessee for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber, 2018 sought for the details of the transaction of amalgamation undertaken by the assessee, which resulted in the goodwill being recorded in its books. The assessee explained in detail the mechanism of the said transaction and that the goodwill was the excess of consideration paid over and above the fair value of the assets and liabilities taken over by it. Ld. CIT(A) invoking the provisions of section 251(2) of the Act and asked the assessee to explain, (i) how the goodwill was arrived at and why the goodwill, which is shown as an asset should not be treated as non-existing and added back, (ii) why should the claim of depreciation on goodwill not be treated as wrong claim that should be disallowed; , and (iii) how extending liabilities were shown in the financials or books of account. The assessee filed its detailed reply. However, ld. CIT(A) was not convinced and he held that deal value of the shares was INR 5,978 crores while the corresponding investment recorded in the books of assessee is INR 4,386/- and the differential amount of Rs. 1,592 crores used for repayment of third party loan and liabilities of Agila and Onco was held to be unexplained creditors in the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uine. as part of total income and added the same to the total income u/s 68 of the Act for want of proof. 19. Having regard to the rival contentions and material on record. We find that u/s 251(1) of the Act, the CIT(A) has the power to confirm, reduce, enhance or annul the assessment in an appeal against an order of assessment. The Hon'ble Supreme Court in the case of Shapoorji Pallonji Mistry (supra) confirmed the decision of the Hon'ble Bombay High court reported in [1958] 34 ITR 342 (Bom, wherein the Hon'ble High court held as under: "So the power of the Appellate Assistant Commissioner is confined to considering the matter which has been considered by the Income-tax Officer and determined in the course of the assessment; and "matter" is used, not in the sense of a head of income, but in the sense of a specific source of income. So the question that has to be asked when deciding whether the Appellate Assistant Commissioner has the power or not is : "Is this the matter which was considered and decided by the Income-tax Officer ?" If it was, irrespective of the nature of the appeal preferred by the assessee, the Appellate Assistant Commissioner Commissioner would have the powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Motilal Chamaria (supra) also, the Hon'ble Supreme Court, reiterated its stand as under: "The principle that emerges as a result of the authorities of this Court is that the Appellate Assistant Commissioner has no jurisdiction, under s. 31(3) of the Act, to assess a source of income which has not been processed by the Income- tax Officer and which is not disclosed either in the returns filed by the assessee or in the assessment order, and therefore, the Appellate Assistant Commissioner cannot travel beyond the subject- matter of the assessment. In other words, the power of enhancement under s. 31 (3) of the Act is restricted to the subject-matter of assessment or the sources of income which have been considered expressly or by clear implication by the Income-tax Officer from the point of view of the taxability of die assessee. It was argued by Mr. Vishwanath lyer on behalf of the appellant that by applying the principle to the present case, the Appellate Assistant Commissioner had jurisdiction to enhance the quantum of income of the assessee. It was pointed out that the fact of alleged transfer of Rs. 5,85,000 to Forbesganj branch was noted by the Income-tax Officer and also the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of view of its taxability and therefore the Appellate Assistant Commissioner had no jurisdiction, in an appeal under s. 31 of the Act, to enhance the assessment." 19.2 The Hon'ble Delhi High Court in the case of CIT Vs. Sardarilal & Co. (supra), also held as under: "The Appellate Assistant Commissioner, on an appeal preferred by the assessed, had jurisdiction to invoke, for the first time, the provisions of rule 33 of the Indian Income Tax Rules, 1922 (hereinafter referred to as 'the Rules'), for the purpose of computing the income of a non-resident even if the Income Tax Officer had not done so in the assessment proceedings. But, in Shapoorji Pallonji Mistry's case (supra), this court, while considering the extent of the power of the Appellate Assistant Commissioner, referred to a number of cases decided by various High Courts including the Bombay High Court judgment in Narrondas' case (supra) and also the decision of this court in McMillan and Co.'s case (supra) and held that, in an appeal filed by the assessed, the Appellate Assistant Commissioner has no power to enhance the assessment by discovering new sources of income not considered by the Income Tax O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome was received from the investments for the year under consideration. It was also submitted that the investments were made strategically in the group companies for achieving better business results and not for earning exempt income. AO, However, held that for making disallowance u/s 14A, it is not necessary that exempt income should necessarily be included in a particular year's income for disallowance to be triggered. He also placed reliance on CBDT Circular No. 5/2014, dated 11/02/2014 to hold that the expenditure is to be disallowed u/s 14A rwr 8D of the Act. Accordingly, he worked out the disallowance at Rs. 3,11,70,470/-. On appeal, the CIT(A) confirmed the disallowance made by the AO. Aggrieved, the assessee is in second appeal before us. 22. The ld. Counsel for the assessee submitted that assessee had sufficient interest free funds in the form of share capital and reserve and surplus is far in excess of the amount of investments and therefore, it is to be presumed that such investments would be out of such interest-free funds available with the assessee. For this purpose, he placed reliance upon the decision of the Hon'ble Apex Court in the case of Reliance Industries ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X
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