of Income Tax, No.2/10, Ajay Plaza, 1st Main Road, Circle 1(1)(1), N S Palya, Bannerghatta Road, Bangalore. Bangalore 560 076. PAN: AADCA 1623M APPELLANT RESPONDENT Appellant by : Ms. Sunaina Bhatia, Advocate Respondent by : Shri V S Chakrapani, CIT(DR)(ITAT), Bengaluru. Date of hearing : 01.09.2022 Date of Pronouncement : 14.09.2022 ORDER Per Padmavathy S., Accountant Member These appeals by the revenue is against the order of CIT(A)1, Bangalore dated 24.9.2018 for the assessment years 201314 & 2014 15. 2. The common issue arising in both these appeals are as under: (i) Deletion of addition made u/s. 14A of the Act (ii) Deletion of addition made u/s. 40(a)(i) ITA Nos.7 & 8/Bang/2019 Page 2 of 26 3. For the AY 201314, the revenue raised one more ground pertaining to CIT(Appeals) deleting the addition of Rs.9,74,734 made by the AO treating as capital in nature. During the course of hearing, the ld. DR did not press for this ground, therefore the same is dismissed a not pressed. 4. The assessee is into the business of manufacture and export of software. The assessee filed the return of income for AY 201314 on 17.3.2014 by declaring an income of Rs.8,67,63,830 and return for AY 201415 on 12.9.2014 declaring an income of NIL. The case was selected for scrutiny through CASS and notice u/s. 143(2) was duly served on the assessee. The AO made the following disallowances: • Disallowance u/s. 14A r.w. Rule 8D • Addition towards foreign exchange gain • Disallowance of expenses for setting up of office • Onsite project expenses without TDS disallowed u/s. 40(a)(i) 5. Aggrieved, the assessee preferred an appeal before the CIT(Appeals). The CIT(Appeals) gave partial relief to the assessee by deleting the disallowances made u/s. 14A and section 40(a)(i). The revenue is in appeal against the order of the CIT(Appeals). Disallowance u/s. 14A r.w. Rule 8D 6. The AO noticed during the course of assessment that the assessee has made certain investments the income from which is exempt from tax. The AO also noticed that the assessee has not worked out any disallowance towards income from investments ITA Nos.7 & 8/Bang/2019 Page 3 of 26 exempt under the Act. The assessee submitted before the AO that during the year under consideration, it is not having any exempt income and therefore no disallowance u/s. 14A is warranted. However, the AO did not agree with the contention of the assessee and proceeded to invoke section 14A r.w. Rule 8D. In this regard, the AO relied on Circular No.5 / 2014 dated 11.2.2014 issued by the CBDT and also the decision of the ITAT, Kolkata in the case of M/s. Champion Commercial Co. Ltd. (ITA No.644/Kol/2012). 7. Before the CIT(Appeals), in addition to the submission that there is no exempt income earned, the assessee also submitted that the investments are made out of the proceeds of Initial Public Offer and equity capital and no interest expenses is incurred on these investments. The breakup of the investments are as follows: Sl. Particulars Amount (Rs.) No. 1. Binary 1,68,00,000 2. Binary Spectrum Softech Pvt. Ltd. 3,42,00,000 3. Kinfotech Pvt. Ltd. 5,10,00,000 4. Line Beyond Inc. 22,34,98,800 5. Mindriver Information Tec Pvt Ltd. 9,50,42,641 6. Optec Consulting Inc 33,87,80,047 7. Vision Info Inc 1,35,979 75,94,57,467 8. The assessee further submitted that the investments are strategic investments specialized in the areas of IT & ITeS in the process of acquiring major stake in those companies to have business interest. The CIT(A) allowed the appeal in favour of the assessee by stating that