M/s Nahar Spinning Mills Ltd., Ludhiana V. ACIT, Ludhiana

CO 4/CHANDI/2015

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2072 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 29-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Earning of tax free income; Proportionate interest; Cost of acquisition; Capital receipt
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 1054/CHD/2014 ASSESSMENT YEAR: 2010-11 THE ACIT, CIRCLE VII, VS. M/S NAHAR SPINNING MIL LS LTD., LUDHIANA LUDHIANA PAN NO. AAACN5710D & C.O. NO. 4/CHD/2015 ITA NO. 1054/CHD/2014 ASSESSMENT YEAR: 2010-11 M/S NAHAR SPINNING MILLS LTD., VS. THE ACIT, CIRCL E VII, LUDHIANA LUDHIANA PAN NO. AAACN5710D (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SUSHIL KUMAR RESPONDENT BY : SH. NAVDEEP SHARMA DATE OF HEARING : 11/02/2016 DATE OF PRONOUNCEMENT : 16.03.2016 ORDER PER H.L.KARWA, VP THE APPEAL FILED BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARE AGAINST THE ORDER OF CIT(A)-II LUDHIANA DATED 17.9. 2014 RELATING TO ASSESSMENT YEAR 2010-11. 2. GROUND NO.1 OF THE REVENUES APPEAL READS AS UND ER:- 2 1) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF CASE THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.1,32,71,325/- ACCRUED ON ACCOUNT OF CARBON CREDITS ENTITLEMENT IGNORING THAT SUCH PROFITS ARE INCLUDED IN THE DEFINITION OF INCOME AS PER SECTION 2 (24) (XII ) OF THE I.T. ACT, 1961 AND ALSO NOT NOTICING THE DECISION OF HON 'BLE 1TAT, CHENNAI IN THE CASE OF M/S SRIPATHI PAPER & BOARDS (P) LTD. VS. DCIT, CIRCLE 1(2), COIMBATORE IN I TA NO. 1452/MDS/2012 DATED 29.11.2012 FOR THE AY 2009-10. (COPY ENCLOSED) 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT AS SESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN MANUFACTURING AND TRADING OF COT TON / BLENDED YARD, HOSIERY GOODS AND KNITTED CLOTHS. THE ASSESSING OFF ICER NOTED THAT ASSESSEE HAD SHOWN INCOME OF RS. 1,32,71,325/- UNDER THE HEAD C ARBON CREDIT RECEIPTS. THIS INCOME IS BASED ON TOTAL CARBON EMISSION REDUC TION MADE BY THE COMPANY DURING THE CALENDAR YEAR. ACCORDING TO ASSESSING OF FICER, IT IS BASED ON THE POWER GENERATION BY THE COMPANY. THE ASSESSEE CLAIM ED THAT AMOUNT OF CARBON CREDIT MAY BE CONSIDERED AS CAPITAL RECEIPT RELYING ON THE DECISION OF ITAT HYDERABAD BENCH IN THE CASE OF MY HOME POWER LTD V DCIT 151 TTJ (HYD) 616 . THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTI ON OF THE ASSESSEE STATING THAT CARBON EMISSION REDUCTION (CDR) DO NOT COME UNDER T HE SECOND PROVISO TO SECTION 28(VA)OF THE INCOME TAX ACT, 1961 (IN SHOR T 'THE ACT'), WHICH EXCLUDE ANY SUM RECEIVED UNDER AGREEMENT FROM PROFIT UNDER BUSINESS & PREPARATION AND IT IS INCLUDED IN THE DEFINITION OF INCOME AS PER S ECTION 2(24)(XII) OF THE ACT. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE REVENUE HAS NOT ACCEPTED THE ABOVE VIEW OF THE TRIBUNAL AND HAS PREFERRED APPEAL BEFO RE THE HON'BLE HIGH COURT. ACCORDINGLY, THE ASSESSING OFFICER TREATED THE AMOU NT IN QUESTION AS REVENUE RECEIPT. 3 4. ON APPEAL, THE CIT(A) RELYING ON THE ORDER OF IT AT, JAIPUR IN THE CASE OF SHREE CEMENT LTD VS. ADDL CIT IN ITA NO.503/JP/2012 03 DATED 27.1.2014 HELD THAT THE RECEIPT ON ACCOUNT OF CARBON CREDITS ARE C APITAL RECEIPTS AND CONSEQUENTLY DELETED THE ADDITION MADE BY THE ASSES SING OFFICER. 5. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH TH E PARTIES, WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF ITAT, CHANDIGARH BENCH DATED 16.12 .2015 PASSED IN THE CASE OF ACIT, LUDHIANA VS. M/S OSWAL WOOLEN MILLS LTD, LUDH IANA IN ITA NO. 1122/CHD/2014 RELATING TO ASSESSMENT YEAR 2010-11. WHILE DECIDING A SIMILAR ISSUE, THE TRIBUNAL HELD AS UNDER:- 3. THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY ORDER OF ITAT CHANDIGARH BENCH DATED 15.04.2015 IN ITA NO. 389/CHD/2013 FOR ASSESSMENT YEAR 2009-10 IN THE CAS E OF DCIT VS KOTLA HYDRO POWER PVT. LTD., COPY OF THE SAME IS PLACED ON RECORD IN WHICH IN PARA 7 TO 9, THE TRIBUNAL HELD A S UNDER : 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. THE FACTS OF THE CASE ARE IDENTICAL TO THE FACTS OF THE CASE DECIDED BY HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF M Y HOME POWER LTD VS. DCIT (SUPRA). IN THAT CASE IT WAS HE LD AS UNDER:- HELD, THAT CARBON CREDIT WAS IN THE NATURE OF AN ENTITLEMENT RECEIVED TO IMPROVE WORLD ATMOSPHERE AND ENVIRONMEN T REDUCING CARBON, HEAT AND GAS EMISSIONS. IT WAS NOT AN OFFSH OOT OF BUSINESS BUT AN OFFSHOOT OF ENVIRONMENTAL CONCERNS. NO ASSET WAS GENERATED IN THE COURSE OF BUSINESS. CREDIT FOR REDUCING CARB ON EMISSION OR GREENHOUSE EFFECT COULD BE TRANSFERRED TO ANOTHER P ARTY IN NEED OF REDUCTION OF CARBON EMISSION. IT DOES NOT INCREASE PROFITS IN ANY MANNER AND DOES NOT NEED ANY EXPENSES. IT WAS IN TH E NATURE OF ENTITLEMENT TO REDUCE CARBON EMISSION, AND THERE WA S NO COST OF ACQUISITION OR COST OF PRODUCTION TO GET THIS ENTIT LEMENT. CARBON CREDIT WAS NOT IN THE NATURE OF PROFIT OR IN THE NA TURE OF INCOME. THE AMOUNT REALIZED ON TRANSFER OF CARBON CREDIT WAS NO T TAXABLE. 4 8. THIS DECISION WAS CONFIRMED BY HON'BLE ANDHRA PR ADESH HIGH COURT IN THE DECISION OF CIT VS. MY HOME POWER LTD VS. DCIT 365 ITR 82(A.P.) AND IT WAS HELD AS UNDER:- HELD, DISMISSING THE APPEAL, THAT THE ASSESSEE WAS CARRYING ON THE BUSINESS OF POWER GENERATION FOR THE ASSESSMENT YEA R 2007-08. CARBON CREDIT WAS NOT AN OFFSHOOT OF BUSINESS OF TH E ASSESSEE BUT AN OFFSHOOT OF ENVIRONMENTAL CONCERNS. NO ASSET WAS GE NERATED IN THE COURSE OF BUSINESS BUT IT WAS GENERATED DUE TO ENVI RONMENTAL CONCERNS. THERE WAS NO COST OF ACQUISITION OR COST OF PRODUCTION TO GET ENTITLEMENT FOR THE CARBON CREDITS. THEREFORE, THE INCOME FROM SALE OF CARBON CREDITS WAS TO BE CONSIDERED AS CAPI TAL RECEIPT AND NOT LIABLE TO TAX UNDER ANY HEAD OF INCOME UNDER TH E INCOME-TAX ACT, 1961. 9. FURTHER, THIS DECISION HAS BEEN FOLLOWED BY CHEN NAI BENCH IN TWO CASES OF AMBIKA COTTON MILLS LTD V DCI T (SUPRA) AND SRI VELAYUDHASWAMY SPINNING MILLS P. LTD V DCI T (SUPRA). EVEN JAIPUR BEACH HAS FOLLOWED THIS DECIS ION IN THE CASE OF SHREE CEMENT LTD VS. ADDL CIT (SUPRA). NO DOUBT THE DR HAS BEEN ABLE TO POINT OUT THE CONTRARY DECISION RENDERED BY COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF APOL LO TYRES LTD V ACIT (SUPRA). SINCE THE DECISION OF HYDERABA D TRIBUNAL BENCH HAS ALREADY BEEN CONFIRMED BY THE HON'BLE AND HRA PRADESH HIGH COURT AND THERE IS NO CONTRARY DECISIO N FROM ANY OTHER HIGH COURT, IN OUR OPINION, WE ARE BOUND TO F OLLOW THE DECISION OF HIGH COURT. THEREFORE, FOLLOWING THIS DECISION WE DECIDE THIS ISSUE AGAINST THE REVENUE. 4. CONSIDERING THE ABOVE, WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY ORDER OF ITAT CHANDIGA RH BENCH IN THE CASE OF KOTLA HYDRO POWER PVT. LTD. (SUPRA). THE DEPARTMENTAL APPEAL, THEREFORE, STANDS DISMISSED. 6. THE FACTS OF THE PRESENT CASE AND THE ISSUE INVO LVED ARE SIMILAR TO THAT OF M/S OSWAL WOOLLEN MILLS LTD (SUPRA). RESPECTFULLY F OLLOWING THE ORDER OF THE TRIBUNAL, PASSED IN THE CASE OF ACIT VS. M/S OSWAL WOOLEN MILLS LTD, REFERRED TO ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND, HENCE WE REJECT THE GROUND OF APPEAL RAISED BY THE REVENUE . 7. GROUND NO.2 OF THE APPEAL READS AS UNDER;_ 2) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF CASE THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE 5 DISALLOWANCE OF INTEREST OF RS.9,97,118/- U/S 36 (I ) (III) @ 12.5% ON ADVANCE PAID TO NAHAR INDUSTRIAL INFRASTR UCTURE COOPERATIVE LTD. TOWARDS PURCHASE OF LAND IGNORING THE FACTUAL FINDING OF THE A.O. THAT THE AMOUNT OF RS.7 9,76,949/- WAS PAID BY THE APPELLANT ON BEHALF OF OSWAL WOOLEN MILLS LTD. FOR NON-BUSINESS PURPOSE AND THE RATIO OF DECI SION IN THE CASE OF ABHISHEK INDUSTRIES 286 ITR 1 IS APPLICABLE . 8. THE ASSESSING OFFICER NOTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD GIVEN AS CAPITAL ADVANCE OF RS. 452.36 LAKHS TO NAHAR INDUSTRIAL INFRASTRUCTURE CORPORATION LTD. AS ADVANCE TOWARDS LAND AND INFRASTRUCTURE. THE ASSESSING OFFICER OBSERVED THAT AGAINST THESE ADVAN CES, 71.33 ACRES OF LAND WAS ALLOTTED TO THE ASSESSEE AND 29 ACRES OF THE LAND H AD BEEN ALLOTTED TO OSWAL WOOLEN MILLS LTD AT NAHAR INDUSTRIAL ENTERPRISES. T HE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY ADVANCES WERE GIV EN BY IT BUT POSSESSION OF THE LAND HAS BEEN GIVEN TO ITS SISTER CONCERN. THE ASSESSING OFFICER ALSO NOTICED THAT AS PER THE ANNUAL REPORT OF OSWAL WOOLEN MILLS LTD POSSESSION OF 31.66 ACRES OF LAND WAS TAKEN BY SAID CONCERN FORM NAHAR INDUSTRIAL INFRASTRUCTURE CORPORATION. THE ASSESSING OFFICER FURTHER FOUND TH AT OSWAL WOOLEN MILLS LTD HAS TAKEN POSSESSION OF TOTAL 35.04 ACRES WHICH INC LUDED 31.66 ACRES FROM NAHAR INDUSTRIAL INFRASTRUCTURE CORPORATION AND 3.38 ACR ES FROM NAHAR ENTERPRISES LTD. THE ASSESSING OFFICER FURTHER OBSERVED THAT M/ S OSWAL WOOLEN MILLS HAD PAID RS. 97,01,600/- TO NAHAR INDUSTRIAL ENTERPRISE S LTD FOR PURCHASE OF 3.38 ACRES. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY PROPORTIONATE INTEREST ON ADVANCES GIVEN FOR LAND S HOULD NOT BE DISALLOWED AS THE ADVANCES WERE UTILIZED FOR NON BUSINESS PURPOSE S. IN RESPONSE TO THE ABOVE QUERY, THE ASSESSEE CONTENDED THAT THE PAYMENT OF RS. 23.45 CRORES WAS MADE FROM TIME TO TIME IN EARLIER YEARS. IT WAS ALSO STA TED BY THE ASSESSEE THAT FOR THE YEAR ENDING 31.3.2011, ALLOTMENT OF 148.410 ACRES WAS SETTLED AND THE EXCESS PAYMENT OF RS. 6.78 CRORES MADE BY THE COMPANY WAS REFUNDABLE. ACCORDING TO 6 THE ASSESSEE, THE SAID AMOUNT WAS RETURNED BACK. T HE ASSESSEE ALSO SUBMITTED THAT REGARDING DISALLOWANCE OF PROPORTIONATE INTERE ST ON BORROWED FUNDS U/S 36(1)(III) OF THE ACT, THAT THESE INVESTMENTS ON TH E ADVANCES WERE MADE OUT OF OWN FUNDS AVAILABLE WITH THE ASSESSEE. THE ASSESSIN G OFFICER DID NOT ACCEPT THE ABOVE EXPLANATION OF THE ASSESSEE AND RELYING ON T HE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. (2006) 286 ITR 1 (P&H) DISALLOWED PROPORTIONATE INT EREST OF RS. 9,97,118/- APPLYING THE INTEREST @ 12.5% ON ALLEGED EXCESSIVE ADVANCE OF RS. 79,86,949/-. 9. ON APPEAL, THE CIT(A) DELETED THE ADDITION, OBS ERVING AS UNDER:- 7.3. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. THE DISALLOWANCE OF RS. 9,97,118/- HAS BEEN MADE BY THE AO ON THE GROUND THAT OUT OF THE TOTAL ADVANCE OF RS. 452 .36 LACS GIVEN BY THE APPELLANT TO NAHAR INDUSTRIAL INFRASTR UCTURE CORPORATION LTD., AGAINST ALLOTMENT OF 71.33 ACRE O F LAND, AMOUNT OF RS. 79,76,949/- WAS PAID ON BEHALF OF M/S OSWAL WOOLLEN MILLS LTD., AGAINST THE ALLOTMENT OF 31.66 ACRES OF LAND. THE AO HAS HELD THAT IN THESE CIRCUMSTANCES T HERE WAS A DIVERSION OF RS. 79,76,949/- OF ITS BUSINESS FUND S FOR PAYING ADVANCE ON BEHALF OF M/S OSWAL WOOLLEN MILLS LTD. I DO NOT AGREE WITH THESE FINDING OF THE AO. THE APPELLANT H AS CONTENDED THAT THE ADVANCE OF RS. 452.36 LACS WAS W ITH RESPECT TO THE TOTAL LAND MEASURING 200.78 ACRE WHI CH WAS ALLOTTED TO THE APPELLANT. THE APPELLANT HAS CONTEN DED THAT IN FACT TOTAL AMOUNT OF RS. 23.45 CRORE WAS PAID TO NL CCO FOR THIS PURPOSE. FINALLY 148.48 ACRES OF LAND WAS ALLO TTED AND THE TOTAL PAYMENTS WERE ADJUSTED AGAINST THIS ALLOT MENT RESULTING IN A REFUND OF RS. 6.78 CRORES WHICH WAS REFUNDED TO THE APPELLANT. THERE IS NOTHING IN THE ASSESSMEN T ORDER TO SHOW THAT THE AMOUNT OF RS. 79,76,949/- WAS PAID BY THE APPELLANT ON BEHALF OF OSWAL WOOLLEN MILLS LTD. IT IS NOT THE AO'S CASE THAT THIS AMOUNT WAS GIVEN UNDER ANY AGRE EMENT WITH M/S OSWAL WOOLLEN MILLS LTD. OR WAS SHOWN AS RECEIVABLE FROM M/S OSWAL WOOLEN MILLS LTD. IT IS A LSO NOT 7 THE AO'S CASE THAT THIS AMOUNT WAS RECEIVED BACK BY THE APPELLANT FROM M/S OSWAL WOOLLEN MILLS LTD., IN ANY SUBSEQUENT YEAR. THE ADDITION HAS BEEN MADE PURELY ON THE BASIS OF CONJECTURES AND SURMISES. SUCH ADDITIONS C ANNOT BE SUSTAINED. THE ADDITION MADE BY THE AO IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 10. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH T HE PARTIES, WE FIND THAT THERE IS NO MATERIAL ON RECORD TO CONTROVERT THE A BOVE FINDINGS OF THE CIT(A). THE LD. CIT(A) HAS CATEGORICALLY STATED IN THE IMPU GNED ORDER THAT ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO D EMONSTRATE THAT THE AMOUNT OF RS. 79,76,949/- WAS PAID BY THE ASSESSEE ON BEHALF OF OSWAL WOOLEN MILLS LTD. HE FURTHER POINTED OUT THAT ASSESSING OFFICER HAS N OT BROUGHT ANY MATERIAL ON RECORD TO SHOW THIS AMOUNT WAS GIVEN UNDER ANY AGRE EMENT WITH M/S OSWAL WOOLEN MILLS LTD. OR WAS SHOWN AS RECEIVABLE BY TH E ASSESSEE FROM M/S OSWAL WOOLEN MILLS LTD. IT APPEARS THAT THAT ASSESSING OF FICER HAS NOT CORRECTLY APPRECIATED THE EXPLANATION OF THE ASSESSEE. IN F ACT, THE ADVANCE OF RS. 452.36 LAKHS HAS BEEN GIVEN BY THE ASSESSEE WITH RESPECT T O THE TOTAL LAND MEASURING 200.78 ACRES WHICH WAS ALLOTTED TO THE ASSESSEE. TH E CASE OF THE ASSESSEE IS THAT THE TOTAL AMOUNT OF RS. 23.45 CRORES WAS PAID TO M/ S NAHAR INDUSTRIAL INFRASTRUCTURE CORPORATION LTD FOR ALLOTMENT OF LA ND. HOWEVER, M/S NAHAR INDUSTRIAL INFRASTRUCTURE CORPORATION LTD ALLOTTED 148.48 ACRES OF LAND AND THE TOTAL PAYMENTS WERE ADJUSTED AGAINST THIS ALLOTMENT WHICH RESULTED IN A REFUND OF RS. 6.78 CROES WHICH WAS REFUNDED TO THE ASSESSEE. AS WE HAVE ALREADY OBSERVED HEREIN ABOVE THAT THERE IS NO MATERIAL ON RECORD TO CONTROVERT THE ABOVE NARRATED FACTS. THEREFORE, WE DO NOT SEE ANY MERIT IN THIS GROUND OF APPEAL AND ACCORDINGLY, WE DISMISS THE SAME. 11. IN THE RESULT, THE APPEAL IS DISMISSED. 8 C.O.NO. 4/CHD/2015 12. IN THE CROSS OBJECTIONS, THE ASSESSEE HAS RAIS ED THE FOLLOWING GROUNDS:- 1. A THAT THE WORTHY CIT(A)-II ERRED IN LAW AND ON FACTS IN UPHOLDING THE DISALLOWANCE OF RS. 46,65,735/- U/S 1 4A OF THE ACT MADE BY THE ASSESSING OFFICER BY APPLYING RULE 8D OF THE INCOME TAX ACT, AND IN VIEW OF THE FACT THAT APPELL ANT ITSELF DISALLOWED RS. 13,600/- IN ITS RETURN ON PROPORTION ATE BASIS. DIRECTIONS MAY BE GIVEN NOT TO APPLY RULE 8D IN THE CASE OF APPELLANT COMPANY WHEN THE APPELLANT ITSELF DISALLO WED EXPENDITURE OF RS. 13,600/- IN ITS RETURN ON THE BA SIS AND METHOD RECOGNIZED BY COURTS ON PROPORTION BASIS AND THE SAME BE RESTRICTED TO THE AMOUNT SHOWN IN THE RETUR N. B. THAT THE WORTHY CIT(A)-II HAS FURTHER ERRED IN L AW AND ON FACTS IN UPHOLDING THE ORDER OF THE ASSESSING OFFIC ER THAT THE AMOUNT OF INTEREST PAID ON TERM LOANS AND ON WORKIN G CAPITAL LOANS AMOUNTING TO RS 2048 LACS & RS. 1817.15 LACS RESPECTIVELY, BE CONSIDERED WHILE COMPUTING DISALLO WANCE U/S 14 A READ WITH RULE 8 D . DIRECTIONS BE GIVEN TO EX CLUDE THE AMOUNT OF INTEREST PAID ON TERM LOANS AS WELL AS IN TEREST ON WORKING CAPITAL LOANS WHILE COMPUTING THE DISALLOWA NCE U/S 14 A BY APPLYING RULE 8D, AS THE SAID LOANS WERE O BTAINED AND UTILIZED FOR SPECIFIC BUSINESS PURPOSES. C. THAT THE WORTHY C.I.T(A) FURTHER ERRED IN LAW A ND ON FACTS IN UPHOLDING THE METHOD OF CALCULATING DISALLOWANCE U/ S 14A READ WITH RULE 8D, BY CONSIDERING THE AVERAGE TOTAL INVESTMENT, WHICH IS TOTALLY WRONG AND AGAINST THE SPIRIT OF SECTION 14A OF THE ACT. DIRECTIONS BE GIVEN TO CONSIDER ONLY THE AVERAGE OF TOTAL INVESTMENTS ON WHICH THE DIVIDEND INCOME I.E. EXEMP T INCOME WAS RECEIVED DURING THE YEAR INSTEAD OF THE AVERAGE TOTAL INVESTMENTS OF THE COMPANY 13. DURING THE YEAR, UNDER CONSIDERATION, THE ASSES SEE HAD MADE INVESTMENT IN SHARES. ACCORDING TO ASSESSING OFFICER, THE BALANC E OUTSTANDING UNDER THE HEAD 9 INVESTMENT IN SHARES AS ON 31.3.2010 WAS 1094.51 LAKHS. THE ASSESSEE RECEIVED THE DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERA TION AT RS. 1,85,157/-. THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFFICER THA T IT HAD ITSELF APPORTIONED THE EXPENSES OF RS. 13,600/- FOR DISALLOWANCE U/S 14A OF THE ACT.. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD C OMPUTED THE DISALLOWANCE TAKING THE PROPORTIONATE OPERATING INCOME AND DIVID END EARNED. THE ASSESSING OFFICER FURTHER NOTED THAT THE ADMINISTRATIVE EXPEN SES HAD BEEN PROPORTIONALLY DIVIDED. HE, THEREFORE, OPINED THAT SUCH BASIS WAS NOT CORRECT. HOWEVER, THE ASSESSING OFFICER COMPUTED THE DISALLOWANCE UNDER R ULE 8-D OF THE I.T. RULES, 1962 READ WITH SECTION 14A OF THE ACT AT RS. 46,65, 735/-. AFTER ALLOWING A RELIEF OF RS. 13,600/- BEING THE AMOUNT DISALLOWED BY THE ASSESSEE ITSELF, THE ASSESSING OFFICER DISALLOWED THE BALANCE AMOUNT OF RS. 46,52,135/- 14. ON APPEAL, THE CIT(A) UPHELD THE ORDER OF THE A SSESSING OFFICER AND, HENCE, THE ASSESSEE HAS FILED THE INSTANT CROSS OBJ ECTIONS. 15. AT THE TIME OF HEARING OF THE APPEAL, SHRI NAVD EEP SHARMA, LD. COUNSEL FOR THE ASSESSEE INVITED OUR AT TENTION TO THE DECISION OF ITAT, CHANDIGARH BENCHES SMC CHANDIGARH DATED 18. 6.2015 IN THE CASE OF M/S EMPIRE PACKAGES (P) LTD, CHANDIGARH VS. ITO IN ITA NO. 978/CHD/2013 RELATING TO ASSESSMENT YEAR 2009-10 WHEREIN THE BEN CH DECIDED A SIMILAR ISSUE, OBSERVING AS UNDER:- 7. IN THE INSTANT CASE, THE INCOME FROM DIVIDEND H AS BEEN SHOWN AT RS. 1,11,564, THE DISALLOWANCE UNDER SECTI ON 14 A READ WITH RULE 8 D WORKED OUT BY THE ASSESSING OFFI CER COMES TO RS. 4,09,675/-. THUS IT IS CLEAR THAT THE AO HAS DISALLOWED THE ENTIRE TAX EXEMPT INCOME WHICH IS NOT PERMISS IBLE IN VIEW OF THE JUDGMENT OF THE HONBLE DELHI HIGH COUR T REFERRED TO ABOVE. THE HONBLE DELHI HIGH COURT HEL D THAT 10 THE WINDOW FOR DISALLOWANCE IS INDICATED IN SECTION 14 A, AND IS ONLY TO THE EXTENT OF DISALLOWING EXPENDITURE INCURRED BY HE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME. THE DISALLOWANCE UNDER SECTION 14 A READ WITH RULE 8 D AS WORKED OUT BY THE AO IS NOT IN ACCORDANCE WITH LAW AND AS SUCH WORKING IS NOT SUSTAINABLE. 8. IN VIEW OF THE ABOVE OBSERVATIONS, I THINK IT IS APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A ) ON THIS ISSUE AND REMIT THE MATTER TO THE FILE OF AO WITH A DIRECTION TO DECIDE THE ISSUE A FRESH IN ACCORDANCE WITH LAW AFTER AFFORDING DUE AND REASONABLE OPPORTUNITY OF BEING H EARD TO THE ASSESSEE. 16. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FUL LY AGREE WITH THE VIEW TAKEN BY THE SMC BENCH OF THE TRIBUNAL AND, ACCO RDINGLY, WE ENDORSE THE SAME. TAKING INTO THE ENTIRE FACTS AND CIRCUMSTANCE S OF THE PRESENT CASE, WE SET ASIDE THE FINDINGS OF THE CIT(A) ON THIS ISSUE AND REMAND THE MATTER TO THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE IS SUE AFRESH IN ACCORDANCE WITH LAW KEEPING IN VIEW THE OBSERVATIONS MADE BY THE TR IBUNAL IN THE CASE OF M/S EMPIRE PACKAGES (P) LTD, CHANDIGARH VS. ITO (SUPRA) . THE ASSESSING OFFICER SHOULD GIVE AN OPPORTUNITY OF BEING HEARD TO THE AS SESSEE. 17. FOR STATISTICAL PURPOSES, THE CROSS OBJECTIONS IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.03.2016 SD/- SD/- (RANO JAIN) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 16 TH MARCH, 2016 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR