M/s Vardhman Industries Ltd., New Delhi V. DCIT, Ludhiana

ITA 1039/CHANDI/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9035 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-09-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 16-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI J.SUDHAKAR REDDY,ACCOUNTANT MEMBER ITA NO. 1039,1040 & 1041/CHD/2012 ASSESSMENT YEAR: 2008-09 TO 2010-11 M/S VARDHMAN INDUSTIES LTD., VS THE DCIT, 2 ND FLOOR, JEEVANDEEP BUILDING, CENTRAL CIRCLE-1, PARLIAMENT STREET, LUDHIANA. NEW DELHI. PAN: AAACV3229R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI KUMAR RESPONDENT BY : SHRI S.K.MITTAL DATE OF HEARING : 19.10.2016 DATE OF PRONOUNCEMENT : 21.10.2016 O R D E R PER BHAVNESH SAINI,JM ALL THE APPEALS BY ASSESSEE ARE DIRECTED AGAINST DIFFERENT ORDERS OF LD. CIT(APPEALS)-1 LUDHIANA DAT ED 06.09.2012 FOR ASSESSMENT YEAR 2008-09, 2009-10 AND 2010-11. 2. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF AUTHORITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. 3. EARLIER ALL THE APPEALS WERE DISMISSED FOR DEFAU LT, HOWEVER, ASSESSEE MOVED MISCELLANEOUS APPLICATIONS 2 EXPLAINING THE REASONS FOR NON APPEARANCE. THE EX-P ARTE ORDER WAS RECALLED AND APPEALS WERE RE-FIXED FOR HE ARING ON MERITS. 4. THE ISSUES ARE IDENTICAL IN ALL THE APPEALS THEREFORE, SAME ARE DECIDED AS UNDER. ITA 1039/2012 ( A.Y. 2008-09) 5. ON GROUND NO. 1, ASSESSEE CHALLENGED THE DISALLOWANCE OF RS. 5,49,083/- UNDER SECTION 14A OF THE ACT. THE ASSESSING OFFICER MADE ABOVE DISALLOWANCE UNDER SECTION 14A OF THE ACT AND HAS OBSERVED THAT ASSESSEE HAD INVESTMENT TO THE TUNE OF RS. 37,48,00 0/- AS ON 01.04.2007 AND RS. 1,63,38,000/- AS ON 31.03.2008. NO DISALLOWANCE UNDER SECTION 14A HAD BEEN WORKED OUT. THE ASSESSING OFFICER FURTHER CONSIDERED THAT EXPLANATION OF ASSESSEE TO THE PROP OSED DISALLOWANCE WAS THAT MOST OF THE INVESTMENTS AS APPEARING IN THE BALANCE SHEET ARE CONTINUING FROM PREVIOUS YEAR I.E. THESE ARE OLD INVESTMENTS. THE INVESTMENTS TOWARDS PURCHASE OF THESE INVESTMENTS A RE OUT OF CASH PROFIT AVAILABLE WITH THE ASSESSEE AND IT IS NOT FROM BORROWED FUNDS. IF ANY DISALLOWANCE HAS T O BE MADE, SAME SHOULD NOT EXCEED THE EXEMPTED INCOME. THE ASSESSING OFFICER CONCLUDED THAT ASSESSEE ADMIT TED INCURRING OF THE EXPENDITURE ON INVESTMENTS HAD BEE N MADE AFTER DEBITING THE WORKING CAPITAL LOANS FROM BANK WHERE THE EXPENSES SUCH AS INTEREST HAD BEEN DEBITE D. THE ASSESSING OFFICER RECORDED THAT THOUGH AS PER 3 ASSESSEE, NO EXTRA EXPENDITURE WAS INCURRED AND DEB ITED TO PROFIT & LOSS ACCOUNT BUT AT THE SAME TIME, IT H AS NOT DENIED DEBITING OF THE INTEREST. THE ASSESSING OFF ICER, THEREFORE, MADE ABOVE DISALLOWANCE. 6. THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE LD. CIT(APPEALS) AND SUBMITTED THAT ASSESSEE HAS EARNED DIVIDEND OF RS. 15,000/- ONLY. THIS DISALLO WANCE HAD BEEN MADE WITHOUT PIN-POINTING ANY SPECIFIC AMO UNT OF EXPENSES WHICH HAS BEEN INCURRED TO EARN EXEMPT INCOME. NO OTHER EXEMPT INCOME WAS RECEIVED OR EARNED. SINCE NO EXPENSES WERE INCURRED FOR EARNIN G EXEMPT INCOME, THEREFORE, NO DISALLOWANCE SHOULD BE MADE. FURTHER, MAJORITY OF THESE INVESTMENTS ARE V ERY OLD SINCE 1992. IN ADDITION TO THIS, THE ASSESSEE COMPANY IS MAINLY AND PROMINENTLY ENGAGED IN THE BUSINESS OF MANUFACTURING OF STEELS INGOTS, VANASPA TI GHEE, REFINED OIL, GP SHEETS AND GENERATION OF POWE R ETC. AND HAS TURNOVER EXCEEDING RS. 270.00 CR. IT IS VE RY SMALL INVESTMENT WHICH WAS MADE AND A VERY INSIGNIFICANT PART OF THE TOTAL SET UP OF THE ASSES SEE COMPANY. SINCE NO EXPENSES HAVE BEEN INCURRED SPECIFICALLY AND CORRESPONDINGLY TO THE INVESTMENT MADE AND EARNING OF THE EXEMPT INCOME, THEREFORE, DISALLOWANCE IS NOT PERMISSIBLE. THE ASSESSEE RELI ED UPON DECISIONS OF HON'BLE PUNJAB & HARYANA HIGH COU RT IN THE CASES OF HERO CYCLES LTD. 323 ITR 518 AND WINSOME TEXTILE INDUSTRIES LTD. 31 ITR 204. 4 7. THE LD. CIT(APPEALS), HOWEVER, DID NOT ACCEPT CONTENTION OF THE ASSESSEE AND ALSO NOTED THAT CASE S RELIED UPON BY ASSESSEE ARE DISTINGUISHABLE ON FACT S. HE HAS ALSO NOTED THAT INTEREST BEARING FUNDS HAVE BEEN USED FOR INVESTMENT IN SHARES AND ACCORDINGLY CONFI RMED THE ADDITION. 7(I) THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND SUBMITTED THAT IN THE CASE OF SISTER CONCERN M/S VA LLABH STEEL LTD., ITAT CHANDIGARH BENCH IN ITA 889 TO 891/2012 ETC. VIDE ORDER DATED 18.12.2015 CONSIDERI NG VARIOUS DECISIONS OF THE HON'BLE PUNJAB & HARYANA H IGH COURT DECIDED THE SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE. COPY OF THE ORDER IS PLACED ON RECORD. 7(II) ON THE OTHER HAND, LD. DR RELIED UPON ORDERS OF THE AUTHORITIES BELOW. 7(III) AFTER CONSIDERING RIVAL SUBMISSIONS OF THE PARTIES AND MATERIAL ON RECORD, WE ARE OF THE VIEW THAT ADD ITION IS WHOLLY UNJUSTIFIED. THE ASSESSEE SPECIFICALLY M ADE A CLAIM BEFORE AUTHORITIES BELOW THAT ASSESSEE HAS EA RNED DIVIDEND INCOME OF RS. 15,000/- ONLY AND NO EXPENSE S HAVE BEEN INCURRED TO EARN THE EXEMPT INCOME AND THAT THE INVESTMENTS ARE VERY OLD SINCE 1992. THE ITAT CHANDIGARH BENCH IN THE CASE OF M/S VALLABH SALES LTD. VIDE ORDER DATED 18.12.2015 (S UPRA) DECIDED THE IDENTICAL ISSUE IN FAVO UR OF THE 5 ASSESSEE. FINDINGS IN PARAS 5 TO 11 ARE REPRODUCED AS UNDER : 5. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PARTIES. THE LD. COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW. ON THE OTHER HAND, LD. DR RELIED UPON ORDERS OF THE AUTHORITIES BELOW. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V DEEPAK MITTAL 361 ITR 131 HELD AS UNDER : HELD, DISMISSING THE APPEALS, THAT THE ONUS WAS UPO N THE ASSESSEE TO PROVE THE QUANTUM OF EXPENDITURE INCURR ED ON EARNING OF TAX FREE INCOME OF DIVIDEND. WHEN THE CONSISTENT CASE OF THE ASSESSEE, DESPITE THE NOTICE GIVEN BY THE ASSESSING OFFICER TO GIVE DETAILS OF THE EXPEND ITURE MADE ON EARNING OF EXEMPTED INCOME IN THE NATURE OF DIVIDEND, WAS THAT HE HAD NOT MADE ANY EXPENDITURE ON EARNING SUCH INCOME, THE ASSESSING OFFICER IN TERMS OF SUB-SECTION (2) OF SECTION 14A HAD TO PROCEED FURTH ER TO COLLECT SUCH MATERIAL OR EVIDENCE TO DETERMINE THE EXPENDITURE, IF ANY, INCURRED BY THE ASSESSEE BUT T HE ASSESSING OFFICER INSTEAD, RELYING ON RULE 8D OF TH E RULES, APPLIED AS A FORMULA, APPLICABLE TO AN ASSESSEE WHO HAS INCURRED EXPENDITURE BY WAY OF INTEREST WHICH WAS N OT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR R ECEIPT WHICH WAS NOT THE CASE OF THE PRESENT ASSESSEE, WHI CH WAS CLEARLY A WRONG APPLICATION INTRODUCED AS A SUBST ITUTE FOR SUB-SECTION (2) OF SECTION 14A AND THUS WAS NOT PERMISSIBLE IN LAW. 6. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF HERO CYCLES LTD.(SUPRA) HELD THAT WHER E NO EXPENDITURE IS INCURRED, NO DISALLOWANCE SHOULD BE MADE. SIMILAR VIEW IS TAKEN IN THE CASE OF WINSOME TEXTILE INDUSTRIES LTD. (SUPRA) IN WHICH IT 6 WAS HELD THAT WHEN ASSESSEE DID NOT MAKE CLAIM OF EXEMPTION, 14A DO NOT APPLY. OWN FUNDS USED TO ACQUIRE SHARES, NO EXPENSES INCURRED. IN THE CASE OF METALMAN AUTO P. LTD. 336 ITR 434, HON'BLE PUNJAB & HARYANA HIGH COURT HELD THAT, WHEN NO EXPENSES INCURRED TO EARN EXEMPT INCOME, 14A DO NOT APPLY. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN ITS RECENT DECISION IN THE CASE OF CIT V KAPSON ASSOCIATES ITA 354/2013 VIDE JUDGEMENT DATED 04.08.2015 IN PARA 7 TO 10 HELD AS UNDER : 7. THE ASSESSEE HAD INVESTED AN AMOUNT OF RS.25,22,43,396/- IN SHARES AND MUTUAL FUNDS. THE INCOME IN RESPECT THEREOF WOULD BE EXEMPTED. IN ANSWER TO A QUERY RAISED BY THE ASSESSING OFFICER, THE ASSESSEE CATEGORICALLY STATED THAT THE INVESTMENTS IN SHARES WERE OLD INVESTMENTS WHICH HAD BEEN MADE OUT OF THE CAPITAL AND OUTSTANDING RESERVES OF THE COMPANY AND THAT NO SEPARATE AMOUNT HAD BEEN BORROWED FOR MAKING THE SAID INVESTMENTS. IT FURTHE R STATED THAT NO SPECIAL EXPENDITURE WAS INCURRED FOR EARNING THIS DIVIDEND INCOME. 8. THE ENTIRE RECORD OF THE ASSESSEE WAS AVAILABLE. THE ASSESSEE CANNOT ESTABLISH THE NEGATIVE. IF THE ASSESSING OFFICER DISBELIEVED THE ASSESSEE, IT WAS FOR HIM TO HAVE ESTABLISHED THE SAME FROM THE RECORDS O R OTHERWISE. THE ASSESSING OFFICER HAS NOT EVEN CONSIDERED THIS ASSERTION EXPRESSLY MADE BY THE ASSESSEE. THE ASSESSING OFFICER'S CONCLUSION THAT T HE ASSESSEE HAD NOT PROVIDED DETAILS OF EXPENSES INCURRED ON MAKING THESE INVESTMENTS, THEREFORE, CANNOT BE ACCEPTED. THE ASSESSEE'S CASE WAS THAT NO SUCH EXPENSES HAD BEEN INCURRED. IT WAS, THEREFORE, RIGHTLY OBSERVED BY THE CIT (APPEALS) THAT THE ASSESSING; OFFICER HAD NOT RECORDED ANY REASONS IN THE ASSESSMENT ORDER TO HOLD THAT ANY EXPENDITURE H AD BEEN INCURRED ON EARNING THE EXEMPT INCOME AND THAT 7 THE ASSESSING OFFICER HAD REJECTED THE CLAIM OF THE APPELLANT WITHOUT GIVING .ANY REASONS FOR THE SAME. WE HAVE ALREADY DEALT WITH THIS ISSUE. THE CONCLUSI ON, THEREFORE, THAT THE ASSESSING OFFICER HAD MECHANICA LLY APPLIED RULE 8D OF THE INCOME TAX RULES, 1962 IS WE LL FOUNDED. THE TRIBUNAL REITERATED THESE FACTS AND TH E SAME POSITION. 9. AS HELD BY A DIVISION BENCH OF THIS COURT IN ITA NO. 320 OF 2013 TITLED AS COMMISSIONER OF INCOME TAX-I, LUDHIANA VS. M/S. ABHISHEK INDUSTRIES LTD, LUDHIANA DECIDED ON 27.01.2015, SECTION 14A REQUIRES THE ASSESSING OFFICER TO RECORD SATISFACTI ON THAT THE INTEREST BEARING FUNDS HAVE BEEN USED TO E ARN TAX FREE INCOME AND THAT THE SATISFACTION MUST BE BASED UPON CREDIBLE AND RELEVANT EVIDENCE. IT WAS FURTHER HELD THAT THE TO PROVE THAT INTEREST BEARI NG FUNDS WERE USED LIES SQUARELY ON THE REVENUE. THE ISSUE, THEREFORE, IN THIS REGARD WAS BASED ONLY ON FACTS. THE LEAST THAT MUST BE SAID IN FAVOUR OF TH E RESPONDENTS IS THAT THE FINDINGS OF FACTS RECORDED BY THE CIT (APPEALS) AND BY THE TRIBUNAL ARE NOT PERVERSE AND THAT THE VIEW TAKEN BY THEM IS CERTAIN LY A POSSIBLE VIEW. IN VIEW THEREOF, NO QUESTION OF LA W ARISES WITH RESPECT TO THESE QUESTIONS AS WELL. 10. THE APPEAL IS THEREFORE, DISMISSED. 7. DURING THE ASSESSMENT PROCEEDINGS, ASSESSEE SPECIFICALLY SUBMITTED THAT MOST OF THE INVESTMENTS APPEARING THE BALANCE SHEET ARE COMING FROM PREVIOUS YEAR AND THESE ARE OLD INVESTMENTS. THE INVESTMENTS SO MADE ARE OUT OF CASH PROFIT AVAILABL E TO THE ASSESSEE AND NOT FROM BORROWED FUNDS. THE ASSESSEE ALSO EXPLAINED THAT NO EXPENDITURE HAVE BEEN INCURRED FOR EARNING THE EXEMPT INCOME. THE ASSESSING OFFICER HAS NOT CONSIDERED THE EXPLANATION OF THE ASSESSEE IN PROPER PERSPECTIVE. 8 THE ASSESSING OFFICER INSTEAD OF EXAMINING THE EXPLANATION OF THE ASSESSEE THAT NO EXPENDITURE HAVE BEEN INCURRED TO EARN EXEMPT INCOME, REJECTED EXPLANATION OF THE ASSESSEE WITHOUT ANY REASONS. SECTION 14A REQUIRES THE ASSESSING OFFICER TO RECOR D SATISFACTION THAT INTEREST BEARING FUNDS HAVE BEEN USED TO EARN TAX FREE INCOME AND THAT THE SATISFACTION WAS BASED UPON CREDIBLE AND RELEVANT EVIDENCE. THUS, ONUS UPON ASSESSING OFFICER HAVE NOT BEEN DISCHARGED IN THIS CASE. THE LD. CIT(APPEALS) MERELY ON THE BASIS OF EXPENDITURE PRESUMED THAT CERTAIN AMOUNT OF INTEREST EXPENDITURE RELATE TO EARNING OF EXEMPT INCOME. FINDINGS OF THE AUTHORITIES BELOW HAVE NO BASIS WHAT-SO-EVER, FURTHER RULE 8D WOULD NOT APPLY TO TH E ASSESSMENT YEAR 2007-08 UNDER APPEAL. 8. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ABOVE DECISIONS, IT IS CLEAR THAT WHEN ASSESSEE CLAIMED THAT NO EXPENDITURE HAVE BEEN INCURRED FOR EARNING EXEMPT INCOME, THEN THE ASSESSING OFFICER SHALL HAVE TO RECORD SATISFACTION AS REQUIRED UNDER SECTION 14A WHICH IS NOT SO DONE IN THIS CASE. THEREFORE, DISALLOWANCE MADE BY THE ASSESSING OFFICER IS WHOLLY UNJUSTIFIED PARTICULARLY READ WIT H RULE 8D WHICH IS NOT APPLICABLE TO THE ASSESSMENT YEAR UNDER APPEAL. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DELETE THE ADDITION . THIS GROUND IN ASSESSMENT YEAR 2007-08 IS ACCORDINGLY ALLOWED. 9. IN ASSESSMENT YEAR 2008-09, ASSESSEE CHALLENGED THE DISALLOWANCE UNDER SECTION 14A TO THE EXTENT OF RS. 4,27,517/-. THIS ISSUE IS SAME A S HAVE BEEN CONSIDERED IN ASSESSMENT YEAR 2007-08 EXCEPT THAT IN THIS YEAR, RULE 8D OF THE IT RULES I S APPLICABLE. THEREFORE, FOLLOWING THE ORDER FOR 9 ASSESSMENT YEAR 2007-08, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DELETE THE ADDITION. THIS GROUND IN ASSESSMENT YEAR 2008-09 IS ACCORDINGLY ALLOWED. 10. IN ASSESSMENT YEAR 2009-10, THE ASSESSEE CHALLENGED THE DISALLOWANCE UNDER SECTION 14A TO THE EXTENT OF RS.15,54,936/-. THE FACTS ARE SAME A S HAVE CONSIDERED IN ASSESSMENT YEAR 2007-08. FURTHER, THE ASSESSEE EXPLAINED BEFORE ASSESSING OFFICER THAT ASSESSEE HAS NOT EARNED ANY INCOME WHICH HAS BEEN CLAIMED AS EXEMPT, THEREFORE, NO DISALLOWANCE IS CALLED FOR. THE AUTHORITIES BELOW DID NOT ACCEPT CONTENTION OF THE ASSESSEE AND CONFIRMED THE ADDITION. SINCE ASSESSEE DID NOT MAKE CLAIM OF EXEMPT INCOME, THEREFORE, SECTION 14A WOULD NOT APPLY AGAINST THE ASSESSEE AS IS HELD BY HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF WINSOME TEXTILE INDUSTRIES LTD. (SUPRA). WE, THEREFORE, SET ASIDE THE ORDERS OF AUTHORITIES BELO W AND DELETE THE ADDITION. THIS GROUND OF APPEAL OF THE ASSESSEE IN ASSESSMENT YEAR 2009-10 IS ACCORDINGLY ALLOWED. 11. THE ISSUE IS, THEREFORE, DECIDED IN FAVOUR OF THE ASSESSEE IN ALL ASSESSMENT YEARS. 8. IN THIS ORDER, THE TRIBUNAL HAS CONSIDERED THE IDENTICAL ISSUE, IN WHICH ASSESSEE EXPLAINED THAT N O EXPENDITURES HAVE BEEN INCURRED FOR EARNING EXEMPT INCOME, IN THE LIGHT OF VARIOUS DECISIONS OF HON'BL E PUNJAB & HARYANA HIGH COURT. IN THE PRESENT CASE, THE ASS ESSEE HAS ALSO MADE A SPECIFIC CLAIM THAT NO EXPENDITURES HAVE BEEN INCURRED FOR EARNING EXEMPT INCOME. THE ASSESS ING 10 OFFICER HAS NOT CONSIDERED THE EXPLANATION OF THE A SSESSEE IN PROPER PERSPECTIVE. THE ASSESSING OFFICER INSTE AD OF EXAMINING EXPLANATION OF THE ASSESSEE THAT NO EXPEN DITURE HAS BEEN INCURRED TO EARN EXEMPT INCOME, REJECTED EXPLANATION OF THE ASSESSEE WITHOUT ANY REASONS. SE CTION 14A REQUIRES THE ASSESSING OFFICER TO RECORD SATISF ACTION THAT INTEREST BEARING FUNDS HAVE BEEN USED TO EARN TAX FREE INCOME AND THAT THE SATISFACTION SHOULD BE BASED UP ON CREDIBLE AND RELEVANT EVIDENCE. THE ASSESSING OFFI CER HAS NOT RECORDED ANY SATISFACTION REQUIRED UNDER SECTIO N 14A OF THE ACT, THEREFORE, DISALLOWANCE MADE BY THE ASS ESSING OFFICER IS WHOLLY UNJUSTIFIED. THE ISSUE IS, THERE FORE, COVERED IN FAVOUR OF THE ASSESSEE BY ORDER ITAT CHANDIGARH IN THE CASE OF M/S VALLABH STEELS LTD.(S UPRA). FOLLOWING THE SAME, WE SET ASIDE THE ORDERS OF AUTH ORITIES BELOW AND DELETE THE ENTIRE ADDITION. 8(I) GROUND NO. 1 OF APPEAL OF THE ASSESSEE IS ACCORDINGLY, ALLOWED. 9. ON GROUND NO. 2, ASSESSEE CHALLENGED DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) O F THE ACT OF RS. 8,71,515/-. THE ASSESSING OFFICER IN TH IS REGARD HAS OBSERVED THAT ASSESSEE HAD DEBITED INTER EST EXPENDITURE AMOUNTING TO RS. 7.90 CR IN PROFIT & LO SS ACCOUNT AND AT THE SAME TIME, HAS NOT CHARGED ANY INTEREST FROM FAMILY MEMBERS ON THE AMOUNTS ADVANCE D TO THEM TO THE TUNE OF RS. 1.58 CR. THE ASSESSEE EXPLAINED BEFORE ASSESSING OFFICER THAT COMPANY HAD 11 SUFFICIENT AMOUNT OF BALANCE OF UNSECURED LOANS FRO M FAMILY MEMBERS FREE OF INTEREST AND HAD ITS SHARE CAPITAL/FREE RESERVES TO THE TUNE OF RS. 43.12 CR W HICH MEANT THAT AMOUNTS ADVANCED FREE OF INTEREST WERE F ROM SUCH SOURCES RATHER THAN BORROWED MONEY. THE ASSESSING OFFICER DID NOT ACCEPT CONTENTION OF THE ASSESSEE AND MADE ABOVE ADDITION. THE ASSESSEE REITERATED SAME SUBMISSIONS BEFORE LD. CIT(APPEALS) . IT WAS ALSO EXPLAINED THAT CERTAIN ADVANCES INCLUDE TO THE SUPPLIERS FOR PURCHASE OF MATERIAL AND CONSUMABLES AND ADVANCE TO THE EMPLOYEES AND OTHERS. IT WAS ALSO PLEADED THAT ASSESSEE HAS SUFFICIENT AMOUNT OF BALA NCES OF UNSECURED LOANS FROM THE FAMILY. THE LD. CIT(APPEALS), HOWEVER, FOLLOWING DECISION OF HON'BL E PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD. VS CIT 286 ITR 1 CONFIRMED THE ADDITION AND DISMISSED THIS GROUND OF APPEAL OF THE ASSESSEE. 10. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND SUBMITTED THAT ISSUE IS COVERED BY JUDGEMENT OF HON 'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF KAPSON ASSOCIATES 381 ITR 204 IN WHICH IT WAS HELD THAT WH EN ASSESSEE HAVING SUFFICIENT INTEREST FREE ADVANCES T O COVER INTEREST FREE ADVANCES, NO DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT BE MADE. ON THE OTHE R HAND, LD. DR RELIED UPON ORDERS OF THE AUTHORITIES BELOW. 12 11. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE A M OF THE VIEW ADDITION IS WHOLLY UNJUSTIFIED. THE AS SESSEE PLEADED BEFORE THE AUTHORITIES BELOW THAT IT HAS SUFFICIENT AMOUNT OF BALANCES OF UNSECURED LOANS FR OM FAMILY MEMBERS AND SHARE CAPITAL AND FREE RESERVES ON WHICH NO INTEREST HAVE BEEN PAID. THE AUTHORITIES BELOW HAVE NOT REBUTTED THIS CONTENTION OF THE ASSESSEE. IT IS, THEREFORE, PROVED ON RECORD THAT ASSESSEE HAS SUFFI CIENT INTEREST FREE FUNDS AVAILABLE ON ACCOUNT OF SHARE CAPITAL/RESERVES AND UNSECURED LOANS FROM THE FAMIL Y MEMBERS WHICH WERE MORE THAN THE AMOUNT ADVANCED TO OTHERS WITHOUT ANY INTEREST. THEREFORE, DECISION O F THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF KAPSON ASSOCIATES (SUPRA) SQUARELY APPLY IN FAVOUR OF THE ASSESSEE. THE LD. CIT(APPEALS) WHILE REJECTING CLAIM OF THE ASSESSEE FOLLOWED DECISION IN THE CASE OF AB HISHEK INDUSTRIES (SUPRA) WHICH HAVE BEEN OVER-RULED BY TH E HON'BLE SUPREME COURT IN THE CASE OF HERO CYCLES PV T. LTD. 379 ITR 347 IN WHICH ALSO, IT WAS HELD THAT WHEN ASSESSEE HAVING CREDIT BALANCE IN BANK ACCOUNT AT T HE TIME OF ADVANCES, NO DISALLOWANCE OF INTEREST ON BORROWINGS SHOULD BE MADE. 12. IN VIEW OF THE ABOVE DISCUSSION, WE SET ASIDE T HE ORDERS OF AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. GROUND NO. 2 OF APPEAL OF THE ASSESSEE I S ACCORDINGLY, ALLOWED. 13. IN THE RESULT, ASSESSEE'S APPEAL IS ALLOWED. 13 ITA 1040/2012 ( A.Y. 2009-10) 14. ON GROUND NO. 1, ASSESSEE CHALLENGED THE DISALLOWANCE UNDER SECTION 14A TO THE EXTENT OF RS. 12,44,243/-. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD INVESTMENT TO THE TUNE OF RS. 1,63,38,000/- AS ON 01.04.2008 AND RS. 4,63,38,000/ - AS ON 31.03.2009 AND NO DISALLOWANCE HAVE BEEN MADE . THE ASSESSEE PLEADED THAT INVESTMENTS ARE COMING UP FROM THE PRECEDING YEARS AND MOST OF THE INVESTMENT S ARE OLD. THE INVESTMENTS WERE MADE OUT OF CASH PRO FIT AVAILABLE WITH THE ASSESSEE AND IT IS NOT FROM BORR OWED FUNDS. THE DISALLOWANCE, IF ANY, SHOULD NOT EXCEED THE EXEMPTED INCOME. THE ASSESSEE HAS NOT CLAIMED ANY EXEMPT INCOME, THEREFORE, NO DISALLOWANCE IS PERMISSIBLE. THE ASSESSING OFFICER, HOWEVER, REJEC TED CONTENTION OF THE ASSESSEE AND DISALLOWED ABOVE AMOUNT. THE ASSESSEE SUBMITTED BEFORE LD. CIT(APPE ALS) THAT DISALLOWANCE WAS MADE WITHOUT PIN-POINTING ANY SPECIFIC AMOUNT OF EXPENSES WHICH HAVE BEEN INCURRE D TO EARN EXEMPT INCOME. NO OTHER EXEMPT INCOME WAS RECEIVED/EARNED. SINCE NO EXPENSES WERE INCURRED T O EARN EXEMPT INCOME, THEREFORE, ADDITION IS UNJUSTIF IED. THE ASSESSEE ALSO PLEADED THAT SINCE IT IS ENGAGED IN BUSINESS OF MANUFACTURING OF VARIOUS ITEMS AS EXPLA INED IN ASSESSMENT YEAR 2008-09 AND ITS TURNOVER IS EXCE EDED TO RS. 296.00 CR, THEREFORE, IT IS INSIGNIFICANT INVESTMENT. THE DECISIONS OF HON'BLE PUNJAB & HARYA NA 14 HIGH COURT IN THE CASES OF HERO CYCLES LTD. (SUPRA) AND WINSOME TEXTILE INDUSTRIES (SUPRA). THE LD. CIT(APPEALS), HOWEVER, REJECTED CONTENTION OF THE ASSESSEE AND CONFIRMED ADDITION. 15. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND SUBMITTED THAT ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME AS SUCH, THERE IS NO QUESTION OF INCURRING A NY EXPENDITURE TO EARN ANY EXEMPT INCOME. ON THE OTHE R HAND, LD. DR RELIED UPON ORDERS OF THE AUTHORITIES BELOW. 16. ON CONSIDERATION OF THE ABOVE FACTS, IT IS CLEA R THAT ASSESSEE HAS PLEADED BEFORE AUTHORITIES BELOW THAT IT HAS NOT EARNED ANY EXEMPT INCOME AND ALSO DID NO T INCUR ANY EXPENDITURE TO EARN EXEMPT INCOME IN THE ASSESSMENT YEAR. THE ABOVE CONTENTION OF THE ASSES SEE HAVE NOT BEEN REBUTTED BY THE AUTHORITIES BELOW. TH E ISSUE IS, THEREFORE, COVERED BY ORDER OF ITAT CHAND IGARH BENCH IN THE CASE OF M/S VALLABH SALES LTD. (SUPRA) IN WHICH VARIOUS DECISIONS OF THE HON'BLE PUNJAB & HARYANA HIGH COURT HAVE BEEN RELIED UPON. HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF WINSOME TEXTILE INDUSTRIES LTD. 319 ITR 204 HAS HELD THAT, WHEN ASSESSEE DID NOT MADE CLAIM OF EXEMPTION, 14A WOULD NOT APPLY. SIMILAR VIEW IS TAKEN BY DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. 378 ITR 33 IN WHICH IT WAS HELD THAT WHEN NO EXEMPT INCOME RECEIVED OR RECEIVABLE, NO DISALLOWANCE UNDER SECTION 14A BE MADE. HON'BLE 15 PUNJAB & HARYANA HIGH COURT IN THE CASE OF LAKHANI MARKETING COMPANY 111 DTR 149 SIMILARLY HELD THAT WHEN NO EXEMPT INCOME EARNED, NO DISALLOWANCE UNDE R SECTION 14A BE MADE. FOLLOWING THE ABOVE DECISIONS, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DELET E THE ENTIRE ADDITION. THIS GROUND OF APPEAL OF THE ASSE SSEE IS ACCORDINGLY, ALLOWED. 17. ON GROUND NO. 2, ASSESSEE CHALLENGED DISALLOWAN CE OF INTEREST UNDER SECTION 36(1)(III) OF THE ACT AT RS. 9,25,101/-. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD DEBITED INTEREST EXPENDITURE OF RS. 3. 19 CR IN PROFIT & LOSS ACCOUNT AND HAS NOT CHARGED ANY INTEREST FROM FAMILY MEMBERS ON THE AMOUNTS ADVANCE D TO THEM TO THE TUNE OF RS. 5.15 CR. THE ASSESSEE EXPLAINED THAT ASSESSEE HAS SUFFICIENT AMOUNT OF BALANCE OF UNSECURED LOANS FROM FAMILY MEMBERS FREE OF INTEREST AND HAD ITS SHARE CAPITAL/FREE RESERVES TO THE TUNE OF RS. 43.12 CR WHICH MEANT THAT AMOUNTS ADVANCED FREE OF INTEREST WERE FROM SUCH SOURCE RAT HER THAN BORROWED FUNDS. THE ASSESSING OFFICER, HOWEVE R, DISALLOWED INTEREST. 17(I) THE LD. CIT(APPEALS), FOLLOWING DECISION OF H ON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD. 286 ITR 1 CONFIRMED THE ADDITION. 16 18. LD. REPRESENTATIVES OF BOTH THE PARTIES STATED THAT ISSUE IS SAME AS HAVE BEEN CONSIDERED IN ITA 1039/2 012 FOR ASSESSMENT YEAR 2008-09. FOLLOWING THE REASONS FOR DECISION FOR ASSESSMENT YEAR 2008-09 ON THIS ISSUE, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DELET E THE ENTIRE ADDITION. THIS GROUND OF APPEAL OF THE ASSE SSEE IS ALLOWED. 19. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ITA 1041/2012 ( A.Y. 2010-11 ) 20. IN THIS APPEAL, THE ASSESSEE CHALLENGED THE DISALLOWANCE UNDER SECTION 14A TO THE EXTENT OF RS. 20,35,349/- AND DISALLOWANCE OF INTEREST UNDER SECT ION 36(1)(III) OF THE ACT AT RS. 38,48,607/-. ON DISAL LOWANCE UNDER SECTION 14A OF THE ACT, ASSESSEE CLAIMED THAT ASSESSEE COMPANY HAS NOT EARNED ANY EXEMPT INCOME AND HAS NOT INCURRED ANY EXPENDITURE. WITH REGARD TO DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) O F THE ACT, THE ASSESSEE PLEADED THAT IT HAS MORE INTEREST FREE FUNDS AVAILABLE ON WHICH NO INTEREST HAVE BEEN PAID , THEREFORE, DISALLOWANCE IS UNJUSTIFIED. 21. LD. REPRESENTATIVES OF BOTH THE PARTIES SUBMITT ED THAT ISSUES ARE SAME AS HAVE BEEN CONSIDERED IN ASSESSMENT YEAR 2009-10. FOLLOWING THE REASONS FOR 17 DECISION FOR ASSESSMENT YEAR 2008-09 AND 2009-10, W E SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DELET E THE ADDITIONS ON BOTH THE ISSUES BOTH GROUNDS OF APPEA L OF THE ASSESSEE ARE ALLOWED. 22. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. 23. IN THE RESULT, ALL APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (J.SUDHAKAR REDDY) (BHAVNESH SAI NI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 21 ST OCTOBER,2016. POONAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT,DR ASSISTANT REGISTRAR, ITAT/CHD