MIGHTY CONSTRUCTION P.LTD, MUMBAI V. DCIT 10(2)(2), MUMBAI

CO 205/MUM/2017

• Counselvise Citation: [2017] 119 COUNSELVISE.COM (IT) 3491 (ITAT-MUMBAI)
• Duration Of Justice: 19 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 06-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 18-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESH
• Assessee Lawyers: DHAVAL SHAH LD ARS
• Keywords: Bogus purchase; Opportunity of cross examination; Earning of tax free income; Question of law; Third party statement; Onus to prove; Reassessment proceedings
• Section: 69C; 143(3); 14A; 133(6); 147; 148

Judgement Text

ITA NO 2205/MUM/2017 & CO 205/MUM/2017 MIGHTY CONSTRUCTION PVT. LTD ASSESSMENT YEAR 2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI . . , , BEFORE SHRI D.T. GARASIA, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO. 2205/MUM/2017 & CO. NO. 205/MUM/2017 ( / ASSESSMENT YEAR: 2009-10) DEPUTY COMMISSIONER OF INCOME TAX 10(2)(2) R.NO.209,2 ND FLOOR AAYKAR BHAVAN M.K.ROAD MUMBAI 400 020 / VS. MIGHTY CONSTRUCTION PVT.LTD (SUCCESSOR TO AVENUE REAL ESTATE PVT.LTD) 6 TH FLOOR, A WING, UNIVERSAL BUSINESS PARK, CHANDIVALI FARM OFF. SAKI VIHAR ROAD, ANDHERI(E) MUMBAI -400 072 ./ ./PAN/GIR NO. AADCM-3581-C ( ' /APPELLANT ) : ( #$ ' / RESPONDENT ) ASSESSEE BY : DHARMESH SHAH & DHAVAL SHAH, LD. ARS REVENUE BY : SAURABH DESHPANDE, LD. DR / DATE OF HEARING : 24/08/2017 / DATE OF PRONOUNCEMENT : 06 /09/2017 ITA NO 2205/MUM/2017 & CO 205/MUM/2017 MIGHTY CONSTRUCTION PVT. LTD ASSESSMENT YEAR 2009-10 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY] 2009- 10 ASSAILS THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-20 [CIT(A)], MUMBAI DATED 06/12/2016 QUA RESTRICTING ADDITION ON ACCOUNT OF CERTAIN BOGUS PURCHASES TO 3% & DELETION OF DISALLOWANCE OF RS.36.27 LACS U/S 14A. THE ASSESSEE, IN HIS CROSS-OBJECTIONS , ASSAILS THE REASSESSMENT PROCEEDINGS ON LEGAL GROUNDS AND ADDIT IONS CONFIRMED BY LD. CIT(A) ON MERITS. HOWEVER, THE LEGAL GROUNDS RA ISED IN THE CROSS- OBJECTION HAS BEEN WITHDRAWN DURING HEARING BEFORE US AND THEREFORE, THE SAME IS DISMISSED AS BEING NOT PRESSED. 2.1 FACTS LEADING TO THE SAME ARE THAT THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE ENGAGED AS PROPERTY DEVELOPER, WAS SUBJECTED TO AN ASSESSMENT U/S 143(3) READ WITH SECTION 147 FOR IMPUGNED AY ON 16/03/2015 AT RS.24,92,50,817/- AFTER ADDITION U/S 69C FOR BOGUS PURCHASES FOR RS.4,75,20,254/- AND DISALLOWANCE U/S 14A FOR RS.42,46,050/-. THE ORIGINAL RETURN WAS E-FILED ON 29/09/2009 AT RS.19,74,84,513/- WHICH WAS ASSESSED AT SAME FIGURE S U/S 143(3). BOTH THE AFORESAID ADDITIONS ARE THE SUBJECT MATTER OF T HIS APPEAL. 2.2 THE REASSESSMENT PROCEEDINGS WERE INITIATED UPO N RECEIPT OF CERTAIN INFORMATION FROM SALES TAX DEPARTMENT, MAHARASHTRA REGARDING DEALERS INDULGING IN BOGUS PURCHASES BILLS AND IT WAS NOTED THAT THE ASSESSEE STOOD BENEFICIARY OF SUCH BOGUS PURCHASE BILLS TO THE TUNE OF RS.4,75,20,254/- FROM EIGHT PARTIES. CONSEQUENTLY, NOTICE U/S 148 DATED ITA NO 2205/MUM/2017 & CO 205/MUM/2017 MIGHTY CONSTRUCTION PVT. LTD ASSESSMENT YEAR 2009-10 3 25/03/2014 WAS ISSUED TO THE ASSESSEE WHICH WAS FOL LOWED BY REQUISITE STATUTORY NOTICES. 2.3 THE ASSESSEE, IN SUPPORT OF PURCHASE TRANSACTIO NS, PRODUCED LEDGER EXTRACTS, COPY OF INVOICES, DELIVERY CHALLAN S, BANK STATEMENTS AND CONTENDED THAT IT DULY DISCHARGED THE ONUS TO PROVE THE GENUINENESS OF THE TRANSACTIONS. HOWEVER, ALL NOTICES ISSUED U/S 1 33(6) TO ALLEGED BOGUS SUPPLIERS TO CONFIRM THE TRANSACTIONS WERE RETURNED BACK UN-SERVED WHICH LED THE LD. AO TO BELIEVE THAT THE TRANSACTIO NS WERE NOT VERIFIABLE AND SINCE THE ASSESSEE COULD NOT DISCHARGE THE ONUS OF PROVING THE SAME, THE SAME WERE DISALLOWED & ADDED TO THE INCOM E OF THE ASSESSEE U/S 69C. 2.4 IT WAS FURTHER NOTICED THAT THE ASSESSEE REFLEC TED NON-CURRENT INVESTMENT OF RS.24.75 CRORES AND PAID INTEREST OF RS.63.98 L ACS AND THEREFORE, CALLED FOR DISALLOWANCE U/S 14A READ WITH RULE 8D. ACCORDINGLY, LD. AO WORKED OUT AGGREGATE DISALLOWAN CE OF RS.42.46 LACS AS PER RULE 8D WHICH COMPRISED OF INTEREST DIS ALLOWANCE OF RS.36.27 LACS U/R 8D(2)(II) & EXPENSE DISALLOWANCE OF RS.6.18 LACS U/R 8D(2)(III). 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITH PARTIAL SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 06/12/2 016. THE ASSESSEE CONTESTED THE REASSESSMENT PROCEEDINGS ON LEGAL GRO UNDS AS WELL AS ON MERIT. HOWEVER, LD. CIT(A), WHILE REJECTING THE LEG AL GROUNDS, APPRECIATED ASSESSEES SUBMISSION AGAINST ADDITION OF BOGUS PURCHASES AND NOTED THAT THE PAYMENTS WERE THROUGH BANKING CH ANNELS AND DELIVERY OF MATERIAL WAS SUPPORTED BY DELIVERY CHAL LANS. FINALLY, PLACING RELIANCE ON SEVERAL JUDICIAL PRONOUNCEMENTS, LD. CI T(A) RESTRICTED THE ITA NO 2205/MUM/2017 & CO 205/MUM/2017 MIGHTY CONSTRUCTION PVT. LTD ASSESSMENT YEAR 2009-10 4 ADDITIONS TO 3% TO ACCOUNT FOR PROFIT ELEMENT EMBED DED IN THE ALLEGED BOGUS TRANSACTIONS. AGGRIEVED, THE REVENUE IS IN AP PEAL BEFORE US WHEREAS THE ASSESSEE, IN HIS CROSS-OBJECTIONS HAS C ONTESTED THE ADDITION OF 3%. 4. THE LD. DEPARTMENTAL REPRESENTATIVE [DR] DREW OU R ATTENTION TO THE FACT THAT NOTICES U/S 133(6) WAS RETURNED BACK SINCE NONE OF THE PARTY WAS FOUND AT THE GIVEN ADDRESS. FURTHER, THE ASSESSEE COULD NOT PRODUCE A SINGLE PARTY TO CONFIRM THE PURCHASE TRAN SACTION AND THEREFORE, THE WHOLE ADDITION WAS JUSTIFIED. PER CONTRA, LD. COUNSEL FOR ASSESSEE [AR] DREW OUR ATTENTION TO THE FACT THAT T HE TURNOVER WAS NEVER DISPUTED BY THE REVENUE, ALL PAYMENTS WERE THROUGH BANKING CHANNELS, PURCHASES WERE BACKED BY INVOICES AND DELIVERY CHAL LANS AND THEREFORE, NO ADDITION WAS WARRANTED PARTICULARLY BY PLACING R ELIANCE ON THIRD PARTY STATEMENTS WITHOUT CONFRONTING THE SAME TO THE ASSE SSEE. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORD. WE ARE OF THE CONSIDERED OPINION THAT TH ERE COULD BE NO SALE WITHOUT PURCHASE / CONSUMPTION OF MATERIAL KEEPING IN VIEW THE ASSESSEES NATURE OF BUSINESS WHICH WAS MATERIAL IN TENSIVE AND COULD NOT BE CARRIED OUT WITHOUT CONSUMPTION OF MATERIAL. THE SALES TURNOVER ACHIEVED BY THE ASSESSEE HAS NOT BEEN DISPUTED BY T HE REVENUE AND THE PAYMENTS WERE THROUGH BANKING CHANNELS. THE PURCHAS ES WERE BACKED BY INVOICES AND DELIVERY CHALLANS. AT THE SAME TIME , NONE OF THE NOTICE ISSUED U/S 133(6) COULD BE SERVED ON ALLEGED BOGUS SUPPLIERS AND THE ASSESSEE COULD NOT PRODUCE ANY CONFIRMATIONS FROM A NY OF THE ALLEGED BOGUS SUPPLIERS , WHICH CAST SERIOUS DOUBT ON ASSESSEES CLAIM. THEREFORE, IN SUCH A SITUATION, THE ADDITION, WHICH COULD BE MADE, WAS TO ITA NO 2205/MUM/2017 & CO 205/MUM/2017 MIGHTY CONSTRUCTION PVT. LTD ASSESSMENT YEAR 2009-10 5 ACCOUNT FOR PROFIT ELEMENT EMBEDDED IN THESE PURCHA SE TRANSACTIONS TO FACTORIZE FOR PROFIT ELEMENT EARNED BY ASSESSEE AGA INST POSSIBLE PURCHASE OF MATERIAL IN THE GREY MARKET AND UNDUE BENEFIT OF VAT AGAINST BOGUS PURCHASES, WHICH LD. CIT(A) HAS RIGHT LY DONE. THEREFORE, FINDING THE SAME QUITE FAIR AND REASONABLE, WE SEE NO REASON TO INTERFERE WITH THE SAME. RESULTANTLY, THE GROUNDS RAISED IN T HIS REGARD IN RESPECTIVE APPEALS STANDS DISMISSED. 6. THE SECOND ISSUE RELATES WITH DISALLOWANCE U/S 1 4A U/R 8D MADE BY LD. AO FOR RS.42.46 LACS. THE ASSESSEE, BEFORE F IRST APPELLATE AUTHORITY, CONTENDED THAT THE SAID INVESTMENTS WERE STRATEGIC INVESTMENTS IN THE GROUP CONCERN AND THE ASSESSEE COMPANY MERG ED WITH THE INVESTEE COMPANY IN AY 2012-13 AND THEREFO RE, THE MAIN MOTIVE WAS NOT TO EARN DIVIDEND AND HENCE, NO DISAL LOWANCE U/S 14A WAS JUSTIFIED. RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN CIT VS ORIENTAL STRUCTURAL ENGINEERS PVT. LTD. [35 TAXMANN.COM 210] & CHEMINVEST LTD. VS. CIT [378 ITR 33] AND SEVERAL OTHER JUDICIAL PRONOUNCEMENTS. THE ASSESSEE RAISED ANOTHER CONTENTION THAT INTEREST FREE FUNDS WERE MORE THAN THE INVESTM ENT AND THEREFORE, THE PRESUMPTION HAD TO BE DRAWN THAT THE INVESTMENTS WE RE OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE IN VIEW OF THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK LTD. [366 ITR 505]. THE ASSESSEE ALSO DREW ATTENTION TO THE FACT THAT N O DIVIDEND INCOME WAS EARNED ON THE SAID INVESTMENT DURING THE IMPUGN ED AY AND THEREFORE, NO DISALLOWANCE COULD BE MADE U/S 14A IN VIEW OF THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN CIT VS. DELITE ENTERPRISES ITA NO 2205/MUM/2017 & CO 205/MUM/2017 MIGHTY CONSTRUCTION PVT. LTD ASSESSMENT YEAR 2009-10 6 PVT. LTD. [ITA NO. 110 OF 2009 DATED 26/02/2009] AN D HONBLE DELHI HIGH COURT IN CHEMINVEST LTD. VS. CIT [378 ITR 33]. 7. THE LD. CIT(A), AFTER APPRECIATING THE VARIOUS C ONTENTIONS RAISED BY THE ASSESSEE DELETED INTEREST DISALLOWANCE OF RS.36 .27 LACS MADE U/R 8D(2)(II) BUT CONFIRMED THE SAME TO THE EXTENT OF R S.6.18 LACS, BEING 0.5% OF AVERAGE INVESTMENTS U/R 8D(2)(III). AGGRIEV ED, THE REVENUE AS WELL ASSESSEE HAS CONTESTED THE SAME BEFORE US. 8. THE LD. AR STRESSED SOLITARY POINT THAT SINCE NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE DURING THE YEAR, NO DISA LLOWANCE U/S14A COULD BE MADE IN VIEW OF SEVERAL JUDICIAL PRONOUNCE MENTS. PER CONTRA, LD. DR CONTENDED THAT THE DISALLOWANCE AS PER RULE 8D WAS MANDATORY AND HAD TO BE CALCULATED AS PER THE PRESCRIBED FORM ULAE IRRESPECTIVE OF MOTIVE OF INVESTMENTS. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORD. SO FAR AS THE INTEREST DISALLOWANCE U/R 8D(2)(II) IS CONCERNED, WE NOTE THAT LD. CIT (A) HAS NOTED THAT THE NON-INT EREST BEARING FUNDS IN THE SHAPE OF SHARE CAPITAL & RESERVES AT YEAR-END STOOD AT RS.21.28 CRORES AS AGAINST CLOSING INVESTMENT OF RS.16.34 CR ORES. THE LD.AO HAS NEITHER PROVED THE NEXUS OF BORROWED FUNDS WITH THE INVESTMENT NOR CARRIED OUT ANY EXERCISE IN THIS REGARD. THEREFORE, IN OUR OPINION, THE ISSUE STOOD SQUARELY IN ASSESSEES FAVOR BY THE JUD GMENT OF OUR JURISDICTIONAL HIGH COURT RENDERED IN CIT VS. RELIANCE UTILITIES & POWER LTD. [313 ITR 340] & CIT VS. HDFC BANK LTD. [366 IT R 505]. THEREFORE, THE STAND OF LD. CIT(A) IN THIS REGARD STANDS CONFI RMED. 10. THE ASSESSEE HAS CONTESTED THE ADDITION OF RS. 6.18 LACS U/R 8D(2)(III) MADE ON ACCOUNT OF EXPENSES PRIMARILY ON THE GROUND THAT NO ITA NO 2205/MUM/2017 & CO 205/MUM/2017 MIGHTY CONSTRUCTION PVT. LTD ASSESSMENT YEAR 2009-10 7 EXEMPT INCOME WAS EARNED BY THE ASSESSEE DURING THE YEAR. WE FIND THAT THIS MATTER STOOD SQUARELY COVERED IN ASSESSEE S FAVOR BY A RECENT JUDGMENT OF HONBLE DELHI HIGH COURT RENDERED IN PCIT VS. IL&FS ENERGY DEVELOPMENT CO. LTD. [84 TAXMANN.COM 186 DAT ED 16/08/2017] WHERE THE HONBLE COURT HAS DISCUSSED THE ISSUE ELA BORATELY IN THE LIGHT OF STATUTORY PROVISIONS AND CBDT CIRCULAR DATED 11/ 05/2014. WE ARE INCLINED TO REPRODUCE HERE-IN-BELOW THE RELEVANT OB SERVATIONS MADE BY HONBLE COURT IN THE SAID JUDGMENT:- 11. AT THE OUTSET, IT REQUIRES TO BE NOTICED THAT WE A RE CONCERNED WITH THE AY 2011- 12 AND, THEREFORE, THE QUESTION OF THE APPLICABILIT Y OF RULE 8D, WHICH WAS INSERTED WITH EFFECT FROM 24TH MARCH 2008, IS NOT IN DOUBT. 12. SECTION 14A OF THE ACT, WHICH WAS INSERTED WITH RE TROSPECTIVE EFFECT FROM 1ST APRIL 1962, PROVIDES FOR DISALLOWANCE OF THE EXPEND ITURE INCURRED IN RELATION TO INCOME EXEMPTED FROM TAX. FROM 11TH MAY 2001, A PRO VISO WAS INSERTED IN SECTION 14A TO CLARIFY THAT IT COULD NOT BE USED TO REOPEN OR RECTIFY A COMPLETED ASSESSMENT. SUB-SECTIONS (2) AND (3) OF SECTION 14A WERE INSERT ED WITH EFFECT FROM 1ST APRIL, 2007 TO PROVIDE FOR METHODOLOGY FOR COMPUTING OF DI SALLOWANCE UNDER SECTION 14A. HOWEVER, THE ACTUAL METHODOLOGY WAS PROVIDED IN TER MS OF RULE 8D ONLY FROM 24TH MARCH 2008. THERE WAS A FURTHER AMENDMENT TO RULE 8 D WITH EFFECT FROM 2ND JUNE 2016 LIMITING THE DISALLOWANCE THE AGGREGATE OF THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTA L INCOME AND AN AMOUNT EQUAL TO ONE PER CENT OF THE ANNUAL AVERAGE OF THE MONTHLY A VERAGE OF THE OPENING AND CLOSING BALANCES OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT FORM PART OF THE TOTAL INCOME. IT IS ALSO PROVIDED THAT THE A MOUNT SHALL NOT EXCEED THE TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE. 13. IN THE ABOVE BACKGROUND, THE KEY QUESTION IN THE P RESENT CASE IS WHETHER THE DISALLOWANCE OF THE EXPENDITURE WILL BE MADE EVEN W HERE THE INVESTMENT HAS NOT RESULTED IN ANY EXEMPT INCOME DURING THE AY IN QUES TION BUT WHERE POTENTIAL EXISTS FOR EXEMPT INCOME BEING EARNED IN LATER AYS. 14. IN THE EXPLANATORY MEMORANDUM TO THE FINANCE ACT 2 001, BY WHICH SECTION 14A WAS INSERTED WITH EFFECT FROM 1ST APRIL 1962, IT WA S CLARIFIED THAT 'EXPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABL E TO THE EARNED INCOME OF TAXABLE INCOME' . THE OBJECT BEHIND SECTION 14A WAS TO PROVIDE THAT ' NO DEDUCTION SHALL BE MADE IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE INCOME TAX ACT' . 15. WHAT IS TAXABLE UNDER SECTION 5 OF THE ACT IS THE 'TOTAL INCOME' WHICH IS NEITHER NOTIONAL NOR SPECULATIVE. IT HAS TO BE 'REAL INCOME '. THE SUBSEQUENT AMENDMENT TO SECTION 14A DOES NOT PARTICULARLY CLARIFY WHETHER T HE DISALLOWANCE OF THE EXPENDITURE WOULD APPLY EVEN WHERE NO EXEMPT INCOME IS EARNED I N THE AY IN QUESTION FROM INVESTMENTS MADE, NOT IN THAT AY, BUT EARLIER AYS. ITA NO 2205/MUM/2017 & CO 205/MUM/2017 MIGHTY CONSTRUCTION PVT. LTD ASSESSMENT YEAR 2009-10 8 16. RULE 8D (1) OF THE RULES IS HELPFUL, TO SOME EXTEN T, IN UNDERSTANDING THE ABOVE ISSUE. IT READS AS UNDER: '8D. (1) WHERE THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH ( A ) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR ( B ) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITUR E HAS BEEN INCURRED, IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, HE SHALL DETERMINE THE AMOUNT OF EXPENDITURE IN REL ATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB-RULE (2).' 17. THE WORDS 'IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR' IN THE ABOVE RULE 8 D (1) INDICATES A CORRELATION BETWEEN THE EXEMPT INCOME EARNED IN THE AY AND THE EXPENDITURE INCURRED TO EARN IT. IN OTHER WORDS, THE EXPENDITUR E AS CLAIMED BY THE ASSESSEE HAS TO BE IN RELATION TO THE INCOME EARNED IN 'SUCH PRE VIOUS YEAR'. THIS IMPLIES THAT IF THERE IS NO EXEMPT INCOME EARNED IN THE AY IN QUEST ION, THE QUESTION OF DISALLOWANCE OF THE EXPENDITURE INCURRED TO EARN EX EMPT INCOME IN TERMS OF SECTION 14A READ WITH RULE 8D WOULD NOT ARISE. 18. THE CBDT CIRCULAR UPON WHICH EXTENSIVE RELIANCE IS PLACED BY MR. HOSSAIN DOES NOT REFER TO RULE 8D (1) OF THE RULES AT ALL BUT ON LY REFERS TO THE WORD 'INCLUDIBLE' OCCURRING IN THE TITLE TO RULE 8D AS WELL AS THE TI TLE TO SECTION 14A. THE CIRCULAR CONCLUDES THAT IT IS NOT NECESSARY THAT EXEMPT INCO ME SHOULD NECESSARILY BE INCLUDED IN A PARTICULAR YEAR'S INCOME FOR THE DISA LLOWANCE TO BE TRIGGERED. 19. IN THE CONSIDERED VIEW OF THE COURT, THIS WILL BE A TRUNCATED READING OF SECTION 14 A AND RULE 8D PARTICULARLY WHEN RULE 8D (1) USES TH E EXPRESSION 'SUCH PREVIOUS YEAR'. FURTHER, IT DOES NOT ACCOUNT FOR THE CONCEPT OF 'REAL INCOME'. IT DOES NOT NOTE THAT UNDER SECTION 5 OF THE ACT, THE QUESTION OF TA XATION OF 'NOTIONAL INCOME' DOES NOT ARISE. AS EXPLAINED IN COMMISSIONER OF INCOME TAX V. WALFORT SHARE AND STOCK BROKERS PVT. LTD [2010] 326 ITR 1 (SC), THE MANDATE OF SECTION 14A O F THE ACT IS TO CURB THE PRACTICE OF CLAIMING DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME BEING TAXABLE INCOME AND AT THE SAME TIME AV AIL OF THE TAX INCENTIVES BY WAY OF EXEMPTION OF EXEMPT INCOME WITHOUT MAKING AN Y APPORTIONMENT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. CONSEQUENTLY , THE COURT IS NOT PERSUADED THAT IN VIEW OF THE CIRCULAR OF THE CBDT DATED 11TH MAY 2014, THE DECISION OF THIS COURT IN CHEMINVEST LTD. ( SUPRA ) REQUIRES RECONSIDERATION. 20. IN M/S. REDINGTON ( INDIA ) LTD. V. THE ADDITIONAL COMMISSIONER OF INCOME TAX, COMPANY RANGE V, CHENNAI (ORDER DATED 23RD DECEMBER, 2016 OF THE HIGH COURT OF MADRAS IN TCA NO. 520 OF 2016), A SIMILAR CONTEN TION OF THE REVENUE WAS NEGATED. THE COURT THERE DECLINED TO APPLY THE CBDT CIRCULAR BY EXPLAINING THAT SECTION 14A IS 'CLEARLY RELATABLE TO THE EARNING OF THE ACTUAL INC OME AND NOT NOTIONAL INCOME OR ANTICIPATED INCOME.' IT WAS FURTHER EXPLAINED THAT, 'THE COMPUTATION OF TOTAL INCOME IN TERMS OF RULE 8 D IS BY WAY OF A DETERMINATION INVOLVING DIRECT AS WELL AS INDIRECT ATTRIBUTION. T HUS, ACCEPTING THE SUBMISSION OF THE REVENUE WOULD RESULT IN THE IMPOSITION OF AN AR TIFICIAL METHOD OF COMPUTATION ON NOTIONAL AND ASSUMED INCOME. WE BELIEVE THUS WOU LD BE CARRYING THE ARTIFICE TOO FAR.' ITA NO 2205/MUM/2017 & CO 205/MUM/2017 MIGHTY CONSTRUCTION PVT. LTD ASSESSMENT YEAR 2009-10 9 21. THE DECISIONS IN CIT V. M/S LAKHANI MARKETING INC. 2014 SCC ONLINE P&H 20357 , CIT V. WINSOME TEXTILE INDUSTRIES LIMITED [2009] 319 ITR 204 (P&H), CIT V. SHIVAM MOTORS ( P ) LTD. [2014]272 CTR (ALL) 277 HAVE ALL TAKEN A SIMILAR VI EW. THE DECISION IN TAIKISHA ENGINEERING INDIA PVT. LTD. ( SUPRA ) DOES NOT SPECIFICALLY DEAL WITH THIS ISSUE. 22. IT WAS SUGGESTED BY MR. HOSSAIN THAT, IN THE CONTE XT OF SECTION 57(III), THE SUPREME COURT IN COMMISSIONER OF INCOME TAX, WEST V. RAJENDRA PRASAD MOODY [1978] 115 ITR 519 ( SC ) EXPLAINED THAT DEDUCTION IS ALLOWABLE EVEN WHERE INCOME WAS NOT ACTUALLY EARNED IN THE AY IN QUESTION. THIS ASPECT OF THE MATTER WAS DEALT WITH BY THIS COURT IN M/S CHEMINVEST LTD. ( SUPRA ) WHERE IT REVERSED THE DECISION OF THE SPECIAL BENCH OF THE ITAT BY OBSERVING AS UNDER : '20. SINCE THE SPECIAL BENCH HAS RELIED UPON THE DE CISION OF THE SUPREME COURT IN RAJENDRA PRASAD MOODY ( SUPRA ), IT IS CONSIDERED NECESSARY TO DISCUSS THE TRUE PURPORT OF THE SAID DECISION. IT IS NOTICED TO BEGIN WITH THAT THE ISSUE BEFORE THE SUPREME COURT IN THE SAID CASE WAS WHETHER THE EXPENDITURE UNDER SECTION 57 (III) OF THE ACT COULD BE ALLOWED AS A DEDUCTION AGAINST DIVIDEND INCOME ASSESSABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCE S'. UNDER SECTION 57 (III) OF THE ACT DEDUCTION IS ALLOWED IN RESPECT OF ANY E XPENDITURE LAID OUT OR EXPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF M AKING OR EARNING SUCH INCOME. THE SUPREME COURT EXPLAINED THAT THE EXPRES SION 'INCURRED FOR MAKING OR EARNING SUCH INCOME', DID NOT MEAN THAT ANY INCO ME SHOULD IN FACT HAVE BEEN EARNED AS A CONDITION PRECEDENT FOR CLAIMING T HE EXPENDITURE. THE COURT EXPLAINED: 'WHAT S. 57(III) REQUIRES IS THAT THE EXPENDITURE M UST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. IT IS THE PURPOSE OF THE EXPENDITURE THAT IS RELEVANT IN DETE RMINING THE APPLICABILITY OF S. 57(III) AND THAT PURPOSE MUST BE MAKING OR EARNING OF INCOME. S. 57(III) DOES NOT REQUIRE THAT THIS PURPOSE MUST BE FULFILLED IN ORDE R TO QUALIFY THE EXPENDITURE FOR DEDUCTION. IT DOES NOT SAY THAT THE EXPENDITURE SHA LL BE DEDUCTIBLE ONLY IF ANY INCOME IS MADE OR EARNED. THERE IS IN FACT NOTHING IN THE LANGUAGE OF S. 57(III) TO SUGGEST THAT THE PURPOSE FOR WHICH THE EXPENDITURE IS MADE SHOULD FRUCTIFY INTO ANY BENEFIT BY WAY OF RETURN IN THE SHAPE OF INCOME . THE PLAIN NATURAL CONSTRUCTION OF THE LANGUAGE OF S. 57(III) IRRESIST IBLY LEADS TO THE CONCLUSION THAT TO BRING A CASE WITHIN THE SECTION, IT IS NOT NECES SARY THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF THE EXPENDITUR E.' 21. THERE IS MERIT IN THE CONTENTION OF MR. VOHRA T HAT THE DECISION OF THE SUPREME COURT IN RAJENDRA PRASAD MOODY ( SUPRA ) WAS RENDERED IN THE CONTEXT OF ALLOWABILITY OF DEDUCTION UNDER SECTION 57(III) OF THE ACT, WHERE THE EXPRESSION USED IS 'FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME.' SECTION 14A OF THE ACT ON THE OTHER HAND CONTAINS THE EXPRESSION 'IN R ELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME.' THE DECISION IN RAJENDRA PRASAD MOODY ( SUPRA ) CANNOT BE USED IN THE REVERSE TO CONTEND THAT EVE N IF NO INCOME HAS BEEN RECEIVED, THE EXPENDITURE INCURRED CAN BE DISA LLOWED UNDER SECTION 14A OF THE ACT.' 23. THE DECISIONS OF THE ITAT IN ACIT V. RATAN HOUSING DEVELOPMENT LTD. ( SUPRA ) AND RELAXO FOOTWEAR LTD. V. ADDL. CIT ( SUPRA ), TO THE EXTENT THAT THEY ARE INCONSISTENT WITH WHAT HAS BEEN HELD HEREINBEFORE D O NOT MERIT ACCEPTANCE. FURTHER, THE MERE FACT THAT IN THE AUDIT REPORT FOR THE AY I N QUESTION, THE AUDITORS MAY HAVE ITA NO 2205/MUM/2017 & CO 205/MUM/2017 MIGHTY CONSTRUCTION PVT. LTD ASSESSMENT YEAR 2009-10 10 SUGGESTED THAT THERE SHOULD BE A DISALLOWANCE CANNO T BE DETERMINATIVE OF THE LEGAL POSITION. THAT WOULD NOT PRECLUDE THE ASSESSEE FROM TAKING A STAND THAT NO DISALLOWANCE UNDER SECTION 14 A OF THE ACT WAS CALL ED FOR IN THE AY IN QUESTION BECAUSE NO EXEMPT INCOME WAS EARNED. 24. FOR ALL OF THE AFOREMENTIONED REASONS, THIS COURT IS OF THE VIEW THAT THE CBDT CIRCULAR DATED 11TH MAY 2014 CANNOT OVERRIDE THE EX PRESSED PROVISIONS OF SECTION 14A READ WITH RULE 8D. 25. NO SUBSTANTIAL QUESTION OF LAW ARISES FROM THE IMP UGNED ORDER OF THE ITAT. THE APPEAL IS ACCORDINGLY DISMISSED. RESPECTFULLY FOLLOWING THE RATIO OF THE SAME, WE DE LETE THE IMPUGNED ADDITIONS. 11. RESULTANTLY, THE REVENUES APPEAL STANDS DISMIS SED WHEREAS THE ASSESSEES APPEAL STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 06 TH SEPTEMBER, 2017. SD/- SD/- (D.T. GARASIA) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 06. 09.2017 SR.PS:- THIRUMALESH ! / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #$ ' / THE RESPONDENT 3. , ( ) / THE CIT(A) 4. , / CIT CONCERNED 5. #&. , . , / DR, ITAT, MUMBAI 6. / / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI