M/s Chadha Super Cars (P) Ltd., Ludhiana V. ACIT, Ludhiana

ITA 1048/CHANDI/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86195 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 18-10-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: RAJIV SHARMA
• Keywords: Business income; Earning of tax free income; Proportionate interest; Retrospective amendment; Question of law; Revenue expenditure; Capital expenditure
• Section: 14A; 37; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO. 1048/CHD/2012 ASSESSMENT YEAR: 2009-10 M/S CHADHA SUPER CARS (P) LTD., VS THE ACIT, CIRCLE V, LUDHIANA LUDHIANA PAN NO. AABCC6944R ITA NO. 818/CHD/2014 ASSESSMENT YEAR: 2009-10 THE ACIT, CIRCLE V, VS M/S CHADHA SUPER CARS (P) LTD., LUDHIANA LUDHIANA PAN NO. AABCC6944R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJIV SHARMA RESPONDENT BY : SHRI S.K.MITTAL DATE OF HEARING : 16.02.2015 DATE OF PRONOUNCEMENT : 13.03.2015 ORDER PER T.R.SOOD, A.M. THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER DATED 30.08.2012 WHEREAS THE APPEAL OF THE REVENUE IS DIR ECTED AGAINST THE ORDER DATED 31.7.2014 OF CIT(A)-II, LUDHIANA. 2. FIRST WE SHALL DEAL WITH THE APPEAL OF THE ASSES SEE IN ITA NO. 1048/CHD/2012 2 3. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS:- 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II, LUDHIANA, ON FACTS AS WELL AS IN LAW, HAS ERRED IN SUSTAINING THE DISALLOWANCE OF INTEREST U/S 36(1)(I II) AGAINST THE ADVANCES MADE TO M/S DEVBHOOMI SPINNING & WEAVI NG MILLS, M/S G.K. ORTHOTICS AND M/S JCBLAUTO PVT. LTD TO THE TUNE OF RS. 241025/- WITHOUT CONSIDERING THE REPLY FILED BY THE APPELLANT AS THESE ADVANCES WERE MADE FOR BUSINESS PURPOSES. THEREFORE, THE ADDITION OF RS. 241025/- U/S 36(1)(I II) IS UNCALLED FOR, UNWARRANTED AND MAY BE DELETED. 2. THAT THE LD. COMMISSONER OF INCOME TAX (APPEALS) -II, LUDHIANA, ON FACTS AS WELL AS IN LAW, HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 3854572/- U/S 14A OF THE IN COME TAX ACT, 1961 WITHOUT GIVING ANY CONSIDERATION TO THE F ACTS OF THE CASE AND THE REPLY FILED BY THE APPELLANT. THEREFOR E THE DISALLOWANCE OF RS. 3854572/- IS WITHOUT ANY BASIS AND MAY BE DELETED. 3. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS )-II, LUDHIANA, ON FACTS AS WELL AS IN LAW, HAS ERRED IN PARTLY SUSTAINING THE DISALLOWANCE EOF RS. 154440/- I/S 36 (1)(III) OF THE INCOME TAX ACT, 1961 WHEREAS IT WAS SUBMITTED B EFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, LU DHIANA THAT THE LAND WAS IMMEDIATELY PUT TO USE FOR PARKIN G VEHICLES RECEIVED FOR REPAIR/SERVICING AND STOCK. THE BOUNDA RY WALLS WERE ERECTED AFTERWARDS WHILE THE LAND WAS IN USE. 4. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT ASSESSEE HAD BORROWED HUGE AMOUNTS OF SECURED LOANS FROM BANK ET C. AND A PART OF THE LOAN WAS DIVERTED TO SISTER CONCERN WITHOUT INTEREST. TH EREFORE, HE INVOKED THE PRINCIPLES LAID DOWN BY HON'BLE PUNJAB & HARYANA HI GH COURT IN THE CASE OF CIT VS ABHISHEK INDUSTRIES LTD 286 ITR 1 A ND DISALLOWED PROPORTIONATE INTEREST AS UNDER:- NAME AMOUNT OF LOAN NO. OF DAYS DISALLOWANCE OF INTEREST @ 12% M/S DEVBHOOMI SPINNING & WEAVIG MILLS 20,00,000/- 365 2,40,000/- M/S G.K. ORTHOTICS 15,00,000/- 82 438/- M/S JCBLAUTO PVT. LTD. 10,73,500 81 587/- M/S PANNATHUR FARM PVT. LTD. 2,50,000 365 30,000/- 3 SH. SURESH KUMAR 3,00,000/- 365 36,000/- TOTAL DISALLOWANCE 3,07,025/- 5. THE LD. CIT(A) FOLLOWING HIS PREDECESSOR ORDERS DELETED THE DISALLOWANCE PERTAINING TO ADVANCES MADE TO M/S PAN NATHUR FARMS PVT LTD AND SURESH KUMAR AND CONFIRMED THE DISALLOWANCE IN RES PECT OF OTHER PARTIES. 6. BEFORE US LD. COUNSEL FOR THE ASSESSEE FAIRLY AD MITTED THAT THIS ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09. 7. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED THE ORDER OF CIT(A). 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT IDENTICAL ISSUE WAS DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL IN ASS ESSEE OWN CASE FOR ASSESSMENT YEAR 2008-09 IN ITA NO. 1241/CHD./2009 VIDE PARA 9 WHICH IS AS UNDER:- 9 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT AS FAR AS THE ADVANCE TO M/S DEVBHUMI SPI NNING & WEAVING MILLS IS CONCERNED, NO PURPOSE FOR THE SAME WAS GIVEN BEFORE THE ASSESSING OFFICER OR THE LD. CIT(A ). THOUGH BEFORE US, IT WAS STATED THAT THE SAME WAS FOR THE PURPOSE OF PURCHASE OF PROPERTY BUT NO EVIDENCE WAS FILED BEFO RE US, THEREFORE, IN THE ABSENCE OF ANY EVIDENCE IT HAS TO BE CONCLUDED THAT MONEY HAS BEEN DIVERTED FOR NON BUSI NESS PURPOSE. SINCE THE ASSESSEE HAS ADMITTEDLY BORROWE D HUGE AMOUNTS ON INTEREST, THE PROPORTIONATE INTEREST HAS TO BE DISALLOWED IN RESPECT OF THE ADVANCES MADE TO M/S D EVBHUMI SPINNING & WEAVING MILLS IN VIEW OF THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT V. ABHIS HEK INDUSTRIES (SUPRA). ACCORDINGLY WE CONFIRM THE DISA LLOWANCE IN RESPECT OF INTEREST RELATING TO ADVANCES MADE TO M/S DEVBHUMI SPINNING & WEAVING MILLS. THEREFORE, FOLLOWING THE ABOVE ORDER WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 4 9. GROUND NO.2 : DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAD MADE VARIOUS INVESTMENT I N SHARES ETC., INTEREST FROM WHICH WAS EXEMPT, THEREFORE, ASSESSING OFFICER INVO KED THE PROVISIONS OF SECTION 14A READ WITH RULE 8D AND DISALLOWED THE PR OPORTIONATE EXPENSES AND INTEREST AMOUNTING TO RS. 38,54,372/-. 10. ON APPEAL LD. CIT(A) FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF DCIT V SUNDER FORGING IN ITA NO. 803/CHD/2011 ORDER -DATED 17.5.2012 DECIDED THE ISSUE AGAINST THE ASSESSEE. 11. BEFORE US LD. COUNSEL FOR THE ASSESSEE FAIRLY A DMITTED THAT THIS ISSUE IS ALSO SQUARELY COVERED AGAINST THE ASSESSEE BY THE D ECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09. 12. ON THE OTHER HAND LD. DR SUPPORTED THE ORDER OF CIT(A). 13. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSE ES OWN CASE FOR ASSESSMENT YEAR 2008-09 IN ITA NO. 1241/CHD/2011 AND THE SAME WAS DECIDED VIDE PARA 17 TO PARA 28 WHICH ARE AS UNDER:- 17 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT DURING THE YEAR THE ASSESSEE HAS MADE INVESTM ENT IN PARTNERSHIP AND MUTUAL FUND. THE PROFIT FROM MUTUAL FUND IN TH E FORM OF DIVIDEND IS EXEMPT. AS FAR AS SHARE PROFIT FROM PARTNERSHIP FIRM IS CONCERNED, THE SAME IS ALSO COVERED U/S 10(2A), THEREFORE, TH ERE IS NO FORCE IN THE SUBMISSIONS THAT THE ASSESSEE HAS MADE INVESTME NT IN FIRM WHICH ITSELF IS PAYING TAX, THEREFORE, IT CANNOT BE CALL ED THAT THE INVESTMENT HAS BEEN MADE TO EARN EXEMPT INCOME. SECTION 10(2A ) READS AS UNDER: [(2A) IN THE CASE OF A PERSON BEING A PARTNER OF A FIRM WHICH IS SEPARATELY ASSESSED AS SUCH, HIS SHARE IN THE TOTAL INCOME OF THE FIRM. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, THE S HARE OF A PARTNER IN THE TOTAL INCOME OF A FIRM SEPARATELY ASSESSED AS SUCH SHALL, NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER LAW, BE AN AMOUNT W HICH BEARS TO THE TOTAL INCOME OF THE FIRM THE SAME PROPORTION AS THE AMOUN T OF HIS SHARE IN THE 5 PROFITS OF THE FIRM IN ACCORDANCE WITH THE PARTNERS HIP DEED BEARS TO SUCH PROFITS ;] IN ANY CASE BOMBAY BENCH OF THE TRIBUNAL HAD AN OCC ASION TO CONSIDER THIS ISSUE IN CASE OF DHARMASINGH M. POPAT V ACIT, 127 TTJ (MUM) 61. IN THAT CASE IT WAS HELD AS UNDER:- THOUGH THE PARTNERSHIP FIRM IS NOT A SEPARATE ENTI TY AS PER GENERAL LAW, FOR A SPECIFIC PURPOSE IT MAY BE TREATED AS INDEPENDENT O F ITS PARTNERS UNDER THE PROVISIONS OF IT ACT, 1961. TO PUT IT DIFFERENTLY, THE CONCEPT OF PARTNERSHIP FIRM, BEING A COMPENDIUM OF ITS PARTNERS IS SUBJECT TO THE MODIFYING SUCH CONCEPT OF PARTNERSHIP LAW WHICH MEANS THAT IF THER E EXIST NO PROVISION IN THE TAX LAWS FOR A PARTICULAR SITUATION, THEN, THE PROVISIO NS OF PARTNERSHIP LAW WOULD BE THE GUIDING FACTOR FOR ADJUDICATION OF THAT ISSUE. THE CURRENT JUDICIAL THOUGHT IS LEANING TOWARDS THE CONCEPT OF SEPARATE LEGAL ENTITY OF PARTNERSHIP FIRM THAN THAT OF ITS PARTNERS FOR THE PURPOSES OF IT ACT, 1961. 'HERE WAS A JUDICIAL OPINION THAT ON DISTRIBUTION OR DIVI SION OR ALLOTMENT OF ASSETS TO PARTNERS BY THE ON DISSOLUTION OR OTHE RWISE THERE RESULTED NO GAIN EXIGIBLE TO TAX, HOWEVER, BY INCORPORATING S. -45(2 ), 45(3) AND 45(4), THE LEGISLATURE HAS DECLARED ITS INTENTION IN CLEAR TER MS THAT PARTNERS AND THE FIRM ARE TWO INDEPENDENT ENTITIES NOT ONLY FOR THE PURPO SES OF ASSESSMENT BUT ALSO FOR THE PURPOSE OF DETERMINING THE CHARGE OF INCOME -TAX ON THE TRANSACTIONS ENTERED INTO BETWEEN THEM. SIMILARLY, FROM ASST. YR . 1993-94 PARTNERSHIP FIRMS HAVE BEEN GIVEN A CORPORATE PERSONALITY IN A LIMITE D SENSE BY MAKING NECESSARY AMENDMENTS IN THE PROVISIONS OF SS. 10(2A), 28(V), 40(B) AND RELEVANT PROCEDURAL SECTIONS WHICH CONCLUSIVELY PROVE THAT P ARTNERSHIP FIRM AS SUCH IS INDEPENDENT FROM ITS PARTNERS AS FAR AS PROVISIONS OF IT ACT, 1961 ARE CONCERNED. SPECIFIC PROVISIONS MENTIONED HEREIN ABOVE READ WITH CIRCULAR NO. 636, DT. 31ST AUG., 1992 GO TO SHOW THAT A FIRM IS TO BE TAXED AS SEPARATE ENTITY AND THE GROSS TOTAL INCOME OF THE FIRM IS TO BE DET ERMINED IN THE NORMAL WAY UNDER DIFFERENT HEADS AS IN THE CASE OF ANY TAXABLE ENTITY, HENCE, ANY EXPENDITURE WHICH HAS BEEN INCURRED BY FIRM FOR THE PURPOSES OF ITS BUSINESS IS TO BE ALLOWED AS A DEDUCTION IN COMPUTING THE TOTAL INCOME OF THE FIRM SUBJECT TO ANY SPECIFIC LIMITATION/PROHIBITION PROVIDED FOR THE ALLOWANCE O F SUCH EXPENDITURE. HAVING REGARD TO JUDICIAL OPINION AND ALSO THE LEGISLATIVE CHANGES IN THE ACT, A PARTNERSHIP FIRM IS A SEPARATE ENTITY THAN THAT OF ITS PARTNERS UNDER THE IT ACT AND IF THERE EXISTS ANY SPECIFIC PROVISION IN THE I NCOME-TAX LAW MODIFYING THE PARTNERSHIP LAW THEN, SUCH SPECIFIC PROVISION SHALL BE APPLIED AND IF THE TAX LAW IS SILENT ON A SPECIFIC ISSUE, THEN A REFERENCE WILL H AVE TO BE MADE TO THE PROVISIONS OF PARTNERSHIP LAW FOR THE ADJUDICATION OF THE SAME AND IN THE PRESENT CASE, PROVISIONS OF LAW SUFFICIENTLY TAKE CARE OF THE ISSUE INVOLVED HEREIN, HENCE, THE ISSUE IS T O BE DECIDED ACCORDINGLY. THERE EXIST SPECIFIC PROVISIONS FOR COMPUTING THE INCOME OF THE PARTNERSHIP FIRM AS WELL AS THAT OF ITS PARTNERS, HENCE, TOTAL INCOME OF BOT H IS LIABLE TO BE COMPUTED IN ACCORDANCE WITH SUCH PROVISIONS. SINCE PARTNERSHIP FIRM, FOR THE PURPOSE OF IT ACT IS A SEPARATE ASSESSABLE ENTITY AND THEREFORE PARTNERS VIS-A-VIS PARTNERSHIP FIRM WOULD STAND ON THE SAME FOOTING OF SHAREHOLDERS VIS-A-VIS COMPA NY. ACCORDINGLY INCOME CHARGED IN THE HANDS OF A PARTNERSHIP FIRM THEREFOR E, PROVISIONS OF SECTION 14A WOULD BE APPLICABLE IN COMPUTING THE TO TAL INCOME OF SUCH PARTNER IN RESPECT OF HIS SHARE IN THE PROFITS OF SUCH FIRM - CIT V. A.W. FIGGIES & CO. & ORS (1953) 24 ITR 405 ( S.C), DY CST (LAW) V K. KELUKUTTY (1985) 155 ITR 158 (S.C), BIST & SONS, VS. CIT (1979) 8 CTR (SC) 152 : (1979) 116 ITR 131 (SC), QT VS. KALURAM PURANMAL (1979) 12 CTR (BOM) 225 : (1979) 119 ITR 564 (BOM) AND CIT VS. CHASE TRADING CO. (1998) 147 CTR (BOM) 228 . (1999) 236 ITR 665 (BOM) APPLIED; CIT VS. R,M, CHIDAMBARARN.PILLAI 1977 CTR (SC) 71 : (1977) 106 I TR 292 (SC) DISTINGUISHED. 6 THEREFORE, IT IS CLEAR THAT INVESTMENT MADE IN A FI RM IS TO BE TREATED AS INVESTMENT FOR EARNING EXEMPT INCOME. 18 COMING TO THE SECOND ASPECT OF THE ISSUE THAT WH ETHER IN ANY NEXUS IS REQUIRED BETWEEN THE INVESTMENT AND THE DI SALLOWANCE TO BE MADE U/S 14A, WE SHALL FIRST REFER TO THE DECISION RELIED ON BY THE LD. COUNSEL OF THE ASSESSEE IN CASE OF CIT V. WINSOM TE XTILE, 319 ITR 204. IN THAT CASE FOLLOWING QUESTION OF LAW WAS CO NSIDERED: WHETHER, IN THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HON'BLE INCOME-TAX APPELLATE TRIBUNAL WAS JUSTI FIED IN HOLDING THAT THE ORDER OF THE JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT V. ABHISHEK INDUSTRIES LTD. REPORTED IN (2006) 286 ITR 1 (PH); 156 TAXMAN 257 (PH) ARE NOT APPLICABLE IN THIS CASE AND THE DISALLOWANCE MADE BY THE ASSESSING OFF ICER U/S 14A OF THE INCOME-TAX ACT IS NOT AS PER LAW. THE ASSESSEE WAS ENGAGED IN THE MANUFACTURING AND S ALE OF COTTON YARN AND HAD MADE CERTAIN INVESTMENTS. THE ASSESSI NG OFFICER DISALLOWED INTEREST ON INVESTMENT IN SHARES U/S 14A BECAUSE DIVIDEND INCOME WAS EXEMPT. THE LD. CIT(A) DELETED THE DISAL LOWANCE BY OBSERVING THAT THE ASSESSEE HAD MADE INVESTMENT USI NG ITS OWN FUNDS AND NO INTEREST WAS INCURRED. THE TRIBUNAL CONFIRM ED THE FINDINGS OF THE LD. CIT(A). BEFORE THE HON'BLE HIGH COURT THE CONTENTION WAS RAISED THAT EVEN IF THE ASSESSEE MADE INVESTMENT OU T OF ITS OWN FUNDS THE ASSESSEE HAD TAKEN LOANS ON WHICH INTEREST WAS PAID AND THEREFORE, THE MONEY AVAILABLE WITH THE ASSESSEE WA S IN COMMON KITTY IN VIEW OF THE DECISION OF THE COURT IN CASE OF CIT V.ABHISHEK INDUSTRIES (SUPRA). HON'BLE HIGH COURT HELD VIDE P ARA 7 AS UNDER:- WE DO NOT FIND ANY MERIT IN THIS SUBMISSION. THE JUDGMENT OF THIS COURT IN ABHISHEK INDUSTRIES LTD. (2006) 286 I TR 1 WAS ON THE ISSUE OF ALLOWABILITY OF INTEREST PAID ON LOANS GIVEN TO SISTER CONCERNS, WITHOUT INTEREST. IT WAS HELD THAT DEDUC TION FOR INTEREST WAS PERMISSIBLE WHEN LOAN WAS TAKEN FOR BU SINESS PURPOSE AND NOT FOR DIVERTING THE SAME TO SISTER CO NCERN WITHOUT HAVING NEXUS WITH THE BUSINESS. THE OBSERVATIONS M ADE THEREIN HAVE TO BE READ IN THAT CONTEXT. IN THE PRESENT CA SED, ADMITTEDLY, THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION. IN SUCH A SITUATION, SECTION 14A COULD HAVE NO APPL ICATION. 19 SECOND DECISION RELIED ON IS THAT OF CIT V. HERO CYCLES (SUPRA). IN THAT CASE FOLLOWING QUESTION WAS RAISE D BEFORE THE COURT: WHETHER ON THE FACTS AND IN LAW, THE HON'BLE INCOM E-TAX APPELLATE TRIBUNAL WAS LEGALLY JUSTIFIED IN DELETIN G THE DISALLOWANCE OF IGNORING THE EVIDENCE RELIED ON BY THE ASSESSING OFFICER AND HOLDING THAT A CLEAR NEXUS HAS NOT BEEN ESTABLISHED THAT THE INTEREST BEARING FUNDS HAVE BEEN VESTED FO R INVESTMENTS GENERATING TAX FREE DIVIDEND INCOME. 20 IN THIS CASE THE ASSESSING OFFICER MADE DISALLO WANCE U/S 14A(3) WHICH WAS PARTLY UPHELD BY THE LD. CIT(A). ON FURTHER APPEAL, THE TRIBUNAL HELD THAT THERE WAS NO NEXUS BETWEEN T HE EXPENDITURE INCURRED AND THE INCOME GENERATED, THEREFORE, DISAL LOWANCE CANNOT BE MADE. IT WAS ALSO OBSERVED THAT MAIN UNIT, LUDHIAN A HAD MORE INTEREST INCOME THAN THE EXPENDITURE AND THE FUNDS FLOW POSITION 7 SHOWS THAT ONLY NON INTEREST BEARING FUNDS HAVE BEE N UTILIZED FOR MAKING THE INVESTMENT. 21 BEFORE THE COURT, THE DEPARTMENT ALSO CONTENDED THAT RULE 8D PROVIDE THAT EVEN WHERE THE ASSESSEE CLAIMED THAT N O EXPENSES HAVE BEEN INCURRED, CORRECTNESS OF SUCH CLAIM CAN BE GON E INTO BY THE ASSESSING OFFICER. HON'BLE HIGH COURT HELD VIDE PA RA 5 AS UNDER: IN VIEW OF THE FINDING REPRODUCED ABOVE, IT IS CLE AR THAT THE EXPENDITURE ON INTEREST WAS SET OFF AGAINST THE INC OME FROM INTEREST AND THE INVESTMENT IN THE SHARE AND FUNDS WERE OUT OF T HE DIVIDEND PROCEEDS. IN VIEW OF THIS FINDING OF FACT, DISALLOWANCE U/S 1 4A WAS NO SUSTAINABLE. WHETHER, IN A GIVEN SITUATION, ANY EXPENDITURE WAS INCURRED WHICH WAS TO BE DISALLOWED, IS A QUESTION OF FACT. THE CONTENTION O F THE REVENUE THAT DIRECTLY OR INDIRECTLY SOME EXPENDITURE IS ALWAYS INCURRED WHIC H MUST BE DISALLOWED UNDER SECTION 14A AND THE IMPACT OF EXPENDITURE SO INCURRED CANNOT BE ALLOWED TO BE SET OFF AGAINST THE BUSINESS INCOME WHICH MAY NULLI FY THE MANDATE OF SECTION 14A, CANNOT BE ACCEPTED. DISALLOWANCE UNDER SECTION 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE WHERE IT IS FOUND THAT FOR EARNING EXEM PTED INCOME NO EXPENDITURE HAS BEEN INCURRED, DISALLOWANCE UNDER S ECTION 14A CANNOT STAND. IN THE PRESENT CASE, FINDING ON THIS ASPECT, AGAINS T THE REVENUE, IS NOT SHOWN TO BE PERVERSE. CONSEQUENTLY, DISALLOWANCE IS NOT PERMISS IBLE. WE HAVE TAKEN THIS VIEW EARLIER SO IN I. T. A. NO. 504 OF 2008 IN CIT V. W INSOME TEXTILE INDUSTRIES LTD. 1)09] 319 ITR 204 (P&H), (DECIDED O N AUGUST 25, 2009), WHEREIN IT WAS OBSERVED AS UNDER (PAGE 207) : 'THE CONTENTION RAISED ON BEHALF OF THE REVENUE IS THAT EVEN IF THE ASSESSEE HAD MADE INVESTMENT IN SHARES OUT OF ITS O WN FUNDS, THE ASSESSEE HAD TAKEN LOANS ON WHICH INTEREST WAS PAID AND ALL THE MONEY AVAILABLE WITH THE ASSESSEE WAS IN COMMON KITTY, AS HELD BY THIS COURT IN CIT V. ABHISHEK INDUSTRIES LTD. [2006] 286 ITR 1 AND, THEREFORE, DI SALLOWANCE UNDER SECTION 14A WAS JUSTIFIED. WE DO NOT FIND ANY MERIT IN THIS SUBMISSION. THE JU DGMENT OF THIS COURT IN ABHISHEK INDUSTRIES LTD. [2006] 286 ITR 1 WAS ON TH E ISSUE OF ALLOWABILITY OF INTEREST PAID ON LOANS GIVEN TO SIS TER CONCERNS, WITHOUT INTEREST. IT WAS HELD THAT DEDUCTION FOR INTEREST WAS PERMISSIBL E WHEN LOAN WAS TAKEN FOR BUSINESS PURPOSE AND NOT FOR DIVERTING THE SAME TO SISTER CONCERN WITHOUT HAVING NEXUS WITH THE BUSINESS. OBSERVATIONS MADE THEREIN HAVE TO BE READ IN THAT CONTEXT. IN THE PRESENT CASE, ADMITTEDLY, THE ASSES SEE DID NOT MAKE ANY CLAIM FOR EXEMPTION. IN SUCH A SITUATION, SECTION 14A COU LD HAVE NO APPLICATION.' IN VIEW OF THE ABOVE, WE ARE OF THE OPINION THAT N O SUBSTANTIAL QUESTION OF LAW ARISE. 22 IT IS CLEAR THAT BOTH THE ABOVE DECISIONS PERTAI N TO ASSESSMENT YEAR 2004-05 WHEN RULE 8D WAS NOT EVEN IN STATUTE BOOK. RULE 8D HAS BEEN INTRODUCED BY I.T. RULES (5 TH AMENDMENT) W.E.F. 24.3.2008. THEREFORE, IN BOTH THE ABOVE CASES, RULE 8D COULD N OT HAVE BEEN POSSIBLY APPLIED. IN ANY CASE IN A LEADING JUDGMEN T THE HON'BLE BOMBAY HIGH COURT IN CASE OF GODREJ AND BOYCEE MANU FACTURING V DCIT, 328 ITR 81 (BOM) HELD THAT RULE 8D CAN NOT HA VE RETROSPECTIVE APPLICATION AND THE SAME CAN BE APPLIED ONLY FROM A SSESSMENT YEAR 2008-09. FURTHER IN CASE OF CIT V. WINSOM TEXTILE, 319 ITR 204, THE ISSUE WAS WHETHER THE PRINCIPLES LAID DOWN IN CASE OF ABHISHEK INDUSTRIES (SUPRA) WERE APPLICABLE FOR THE DISALLOW ANCE U/S 14A AND 8 THE HON'BLE COURT HELD THAT THE DECISION OF ABHISHE K INDUSTRIES (SUPRA) OPERATES IN A DIFFERENT FIELD. SIMILARLY IN CASE OF HERO CYCLES (SUPRA) THE TRIBUNAL HAS GIVEN A CATEGORICAL FINDIN G THAT THE INVESTMENT HAS BEEN MADE OUT OF NON INTEREST BEARIN G FUNDS. FROM THESE TWO DECISIONS ONLY IT CAN BE CONCLUDED THAT I F INVESTMENT HAS BEEN MADE CLEARLY OUT OF NON INTEREST BEARING FUNDS THEN SECTION 14A IS NOT BE APPLICABLE. IN CASE BEFORE US, THE SITUA TION IS DIFFERENT WHICH WE SHALL SEE LITTLE LATER. WE WOULD ALSO LIK E TO OBSERVE THAT EVEN HON'BLE PUNJAB & HARYANA HIGH COURT IN A LATTE R DECISION IN CASE OF CIT V. PUNJAB STATE INDUSTRIAL DEVELOPMENT COOPERATIVE LTD. HAS MADE OBSERVATIONS WHICH WE WILL ALSO LIKE TO DI SCUSS LITTLE LATER. 23 HON'BLE BOMBAY HIGH COURT CONSIDERED THE ISSUES ARISING OUT OF SECTION 14A AS WELL AS IMPLICATIONS OF RULE 8D. HON'BLE HIGH COURT REACHED THE FOLLOWING CONCLUSION AT PARA 88 W HICH READS AS UNDER: 88 OUR CONCLUSION IN T HIS JUDGMENT ARE AS FOLLOWS : (I) DIVIDEND INCOME AND INCOME FROM MUTUAL FUNDS FA LLING WITHIN THE AMBIT OF SECTION 10(33) OF THE INCOME-TAX ACT, 1961 , AS WAS APPLICABLE FOR THE ASSESSMENT YEAR 2002-03 IS NOT I NCLUDIBLE IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. CONSEQUENTLY, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T, BY VIRTUE OF THE PROVISIONS OF SECTION 14A(1) ; (II) THE PAYMENT BY A DOMESTIC COMPANY UNDER SECTIO N 115-O(1) OF ADDITIONAL INCOME-TAX ON PROFITS DECLARED, DISTRIBU TED OR PAID IS A CHARGE ON A COMPONENT OF THE PROFITS OF THE COMPANY . THE COMPANY IS CHARGEABLE TO TAX ON ITS PROFITS AS A DISTINCT TAXABLE ENTITY AND IT PAYS TAX IN DISCHARGE OF ITS OWN LIABILITY AND NOT ON BEHALF OF OR AS AN AGENT FOR ITS SHAREHOLDERS. IN THE HANDS OF THE SHAREHOLDER AS TH E RECIPIENT OF DIVIDEND, INCOME BY WAY OF DIVIDEND DOES NOT FORM P ART OF THE TOTAL INCOME BY VIRTUE OF THE PROVISIONS OF SECTION 10(33). INCOME FROM MUTUAL FUNDS STANDS ON THE SAME BASIS ; (III) THE PROVISIONS OF SUB-SECTIONS (2) AND '(3) O F SECTION 14A OF THE INCOME-TAX ACT 1961 ARE CONSTITUTIONALLY VALID ; (IV) THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RU LES AS INSERTED BY THE INCOME-TAX (FIFTH AMENDMENT) RULES, 2008, ARE N OT ULTRA VIRES THE PROVISIONS OF SECTION 14A, MORE PARTICULARLY SUB-SE CTION (2) AND DO NOT OFFEND ARTICLE 14 OF THE CONSTITUTION ; (V) THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RUL ES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, SHALL APP LY WITH EFFECT FROM THE ASSESSMENT YEAR 2008-09 ; (VI) EVEN PRIOR TO THE ASSESSMENT YEAR 2008-09, WHE N RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORCE THE PROVISIONS OF SUBSECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DUT Y BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSI NG OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD ; 9 (YII) THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2002- 03 SHALL STAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL DETE RMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) IN RE LATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE T OTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT A REAS ONABLE BASIS FOR EFFECTING THE APPOR- TIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSE SSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. FROM ABOVE, IT IS CLEAR THAT EVEN THE TAXES PAID U/ S 115-O WHICH IS ALSO KNOWN AS DIVIDEND DISTRIBUTION TAXES, WOULD NO T MAKE DIVIDEND INCOME IN THE HANDS OF SHAREHOLDER AS NON-EXEMPT. S IMILARLY THE TAXES PAID BY A FIRM WOULD BE TAXES ON THE PROFIT OF THE FIRM AND NOT IN THE HANDS OF THE ASSESSEE. THE ABOVE DECISION ALSO HEL D THAT RULE 8D WOULD BE APPLICABLE ONLY FROM ASSESSMENT YEAR 2008- 09. IN THIS DECISION THE THEORY OF APPORTIONMENT OF EXPENDITURE WHICH WAS CONFIRMED BY THE HON'BLE SUPREME COURT IN CASE OF C IT V. WALFORT SHARE AND STOCK BROKERS P LTD (2010) 326 ITR 1 (S.C ), WAS FOLLOWED. IN FACT BEFORE INTRODUCTION OF SECTION 14A, THE ASS ESSEE HAD A RIGHT TO CLAIM ALL THE EXPENSES IF SUCH EXPENSES COULD NOT B E BI-FURCATED AGAINST NORMAL TAXABLE INCOME AS WELL AS EXEMPTED I NCOME IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN CASE OF RA JASTHAN WAREHOUSING COOPERATION V CIT, 242 ITR 450. THIS P OSITION GOT CHANGED AFTER THE INTRODUCTION OF SECTION 14A BY FI NANCE ACT, 2001. THE MEMORANDUM EXPLAINING THE PROVISIONS OF FINANCE BILL READS AS UNDER: CERTAIN INCOME ARE NOT INCLUDIBLE WHILE COMPUTATIN G THE TOTAL INCOME AS THESE ARE EXEMPT UNDER VARIOUS PROVISIONS OF THE ACT. THERE HAVE BEEN CASES WHERE DEDUCTIONS HAVE BEEN CL AIMED IN RESPECT OF SUCH EXEMPT INCOME. THIS IN EFFECT MEANS THAT T HE TAX INCENTIVE GIVEN BY WAY OF EXEMPTIONS TO CERTAIN CATEGORIES OF INCOME IS BEING USED TO REDUCE ALSO THE TAX PAYABLE ON THE NON-EXEM PT INCOME BY DEBITING THE EXPENSES INCURRED TO EARN THE EXEMPT I NCOME AGAINST TAXABLE INCOME. THIS IS AGAIN THE BASIC PRINCIPLES OF TAXATION WHEREBY ONLY THE NET INCOME, I.E., GROSS INCOME MIN US THE EXPENDITURE IS TAXED. ON THE SAME ANALOGY, THE EXEMPTION IS AL SO IN RESPECT OF THE NET INCOME. EXPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME. IT IS PROPOSED TO INSERT A NEW SECTION 14A SO AS TO CLARIFY THE INTENTION OF THE LEGISLATURE SINCE THE INCEPTION OF THE INCOME-TAX ACT, 1961, THAT NO DEDUCTION SHALL BE MADE IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE INCOME-TAX ACT. THE PROPOSED AMENDMENT WILL TAKE EFFECT RETROSPECTI VELY FROM APRIL 1, 1962 AND WILL ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 1962-63 AND SUBSEQUENT ASSESSMENT YEAR. 24 HON'BLE BOMBAY HIGH COURT NOTED THIS DECISION AN D THEN CONFIRMED THE THEORY OF APPORTIONMENT OF EXPENSES A ND HELD THAT SAME IS VERY MUCH APPLICABLE IN SECTION 14A. AT PLACITU M 28 IT HAS BEEN OBSERVED AS UNDER: 10 DURING THE COURSE OF THIS JUDGMENT, IT WOULD BE NE CESSARY TO REVISIT THE DECISION OF HON'BLE SUPREME COURT IN WALFORT. AT THIS STAGE, HOWEVER, IT NEEDS TO BE EMPHASIZED THAT THE PROVISI ONS OF SECTION 14A WERE CONSTRUED IN WALFORT TO EVINCE PARLIAMENTARY I NTENT NOT TO ALLOW DEDUCTION IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AGAINST TAXABLE INCOME. SECTION 14A IS CLAR IFICATORY OF THE POSITION THAT EXPENSE CAN BE ALLOWED ONLY TO THE EX TENT THAT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME. ONLY T HOSE EXPENSES WHICH ARE IN RESPECT OF THE EARNING OF TAXABLE INC OME CAN BE ALLOWED. THE SECTION 14A BROADENS THE THEORY OF AP PORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE INC OME IS EVIDENT FROM THE FOLLOWING OBSERVATIONS OF THE HON'BLE SUPR EME COURT PAGE 17) THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED U/S 14A. READING SECTION 14 IN JUXTAPOSITION WITH SECTIONS 1 5 TO 59, IT IS CLEAR THAT THE WORDS EXPENDITURE INCURRED IN SECT ION 14A REFERS TO EXPENDITURE ON RENT, TAXES, SALARIES, INT EREST, ETC., IN RESPECT OF WHICH ALLOWANCES ARE PROVIDED FOR (SEE SECTIONS 30 TO 37). THUS ON THE BASIS OF ABOVE, IT WAS HELD THAT AFTER INTRODUCTION OF SECTION 14A, IT WAS POSSIBLE TO APPORTION THE EXPENDITURE B ETWEEN TAXABLE INCOME AND EXEMPTED INCOME. 25 AS OBSERVED EARLIER, ALMOST SIMILAR OBSERVATIONS HAVE BEEN MADE BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN A RECENT JUDGMENT IN CASE OF CIT V. PUNJAB STATE INDUSTRIAL DEVELOPMENT COOPERATION LTD. IN ITA NO. 565 OF 2006 VIDE ORDER DATED 18.7.2011. 11. ADVERTING TO QUESTION NO.(II), LEARNED COUNSEL FOR THE REVENUE SUBMITTED THAT WHILE DETERMINING THE QUANTUM OF DEDUCTION ADMISSIB LE TO THE ASSESSEE UNDER SECTION 80M OF THE ACT, THE EXPENDITURE INCURRED RELATING T O THE EARNING OF DIVIDEND INCOME HAS TO BE EXCLUDED THERE-FROM. ACCORDING TO THE LEARNED COUNSEL, THE EXPENDITURE WHICH WAS TO BE DEDUCTED WAS REQUIRED TO BE DEDUCTE D ON PROPORTIONAL BASIS FOR INCURRING OF SUCH EXPENDITURE. RELIANCE WAS PLA CED ON SECTION 14A OF THE ACT WHICH WAS INCORPORATED BY FINANCE ACT 2001 RETROSPECTIVEL Y .W.E.F. 1.4,1962. SUPPORT WAS GATHERED FROM THE DECISION OF THE RAJASTHAN HIGH CO URT IN SHEKHAVATI GENERAL TRADERS LTD. VS. COMMISSIONER OF INCOME TAX (1987) 167 ITR116 AND THE JUDGMENT OF THIS COURT IN INCOME TAX APPEAL NO. 530 OF 2006 (THE PUNJAB STATE COOPERATIVE MILK PRODUCER'S FEDERATION LTD, VS. COM MISSIONER OF INCOME TAX-IF AND ANOTHER) DECIDED ON 28,3,2011 AND OF THE APEX COURT IN COMMISSIONER OF INCOME TAX VS. WALFORT SHARE & STOCK BROKERS (P) LTD. (2010) 41 DTR JUDGMENTS 233. 12. CONTROVERTING THE AFORESAID SUBMISSION, LEARNED COU NSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF THE CA LCUTTA HIGH COURT IN COMMISSIONER OF INCOME TAX VS. UNITED COLLIERIES LT D. (1993) 203 ITR 857 (CALCUTTA). LEARNED COUNSE L ALSO RELIED UPON COMMISSIONER OF INCOME TAX VS. CENTRAL BANK OF INDI A (2003) 264 ITR 522 (BOMBAY) AND STATE BANK OF INDORE VS. COMMISSIONER OF INCOME TAX (2005) 275 ITR 23 (MP). IT WAS CONTENDED THAT IT WAS ONLY THE ACTUAL EXPENSE INCUR RED FOR EARNING DIVIDEND WHICH WAS TO BE DEDUCTED FROM THE DIVIDEND INCOME FOR CALCULATING THE ADMISSIBLE DEDUCTIONS UNDER SECTION 80M OF THE ACT. IT WAS URGED THAT THE PLEA OF THE REVENUE THAT PROP ORTIONAL EXPENSES 11 SHOULD ALSO BE REDUCED, WAS AGAINST THE STATUTE. 13. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE RESPECTIVE SUBMISSIONS OF THE LEARNED COUNSEL FOR T HE PARTIES AND FIND *FORCE IN THE SUBMISSIONS OF THE LEARNED COUNSEL FO R THE REVENUE. FINANCE ACT 2001 HAD INSERTED SECTION 14A WITH EFFECT FROM 1.4.1962. ACC ORDING TO THE SAID SECTION, ANY EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING IN COME WHICH DID NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT WAS NOT TO BE ALL OWED AS EXPENSES. THIS COURT IN THE CASE OF PUNJAB STATE COOPERATIVE MILK PRODUCER'S FEDERATION LTD.'S CASE (SUPRA) RELYING UPON THE DECISION OF THE APEX COURT IN WALFORT SHARE AND STOCK BROKERS'S CASE (SUPRA), WHEREIN, WHILE DEFINING THE SCOPE OF SECTION 14A OF THE ACT, INCORPORATED RETROSPECTIVELY W.E.F. 1.4.1962, IT HA D LAID DOWN AS UNDER: THE INSERTION OF SECTION 14A WITH RETROSPECTIVE EFFECT IS THE SERIOUS ATTEMPT ON THE PART OF THE PARLIAMENT NOT TO ALLOW DEDUCTION I N RESPECT OF ANY EXPENDIIURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME, WHICH DOES N OT FORM PART OF THE TOTAL INCOME UNDER THE ACT AGAINST THE TAXABLE INCOME (SEE CIRCULAR NO. 14 OF 2001 DATED 22.11.2001 K IN OTHER WORDS, SECTION 14A CLARIFIES THAT EXPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME. IN MANY CASES THE NATURE OF EXPENSES INCURRED BY THE ASSESSEE MAY BE RELATABLE PARTLY TO THE EXEMPT INCOME AND PARTLY TO THE TAXABLE INCOME. IN THE ABSENCE OF SECTION 14A, THE EXPENDITURE INCURRED IN RESPECT OF EXEMPT INCOME WAS BEING CLAIMED AGAINST TAXABLE INCOME. TH E MANDATE OF SECTION 14A IS CLEAR. IT DESIRES TO CURB THE PRACTICE TO CLAIM DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME AGAINST TAXABLE INCOME AND AT THE SAME TIME AVAIL THE TAX INCENTIVE BY WAY OF EXEMPTION OF EXEMPT INCOME WITHOUT MAKING ANY APPOR TIONMENT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. THE BASIC REASON FOR INS ERTION OF SECTION 14A IS THAT CERTAIN INCOMES ARE NOT INCLUDIBIE WHILE COMPUTING TOTAL IN COME AS THESE ARE EXEMPT UNDER CERTAIN PROVISIONS OF THE ACT. IN THE PAST, THERE HAVE BEAN IN WHICH DEDUCTION HAS BEEN SOUGHT IN RESPECT OF SUCH INCOMES WHICH IN EFFECT WOU LD MEAN THAT TAX INCENTIVES TO CERTAIN INCOMES WAS BEING USED TO REDUCE THE TAX PAYABLE ON THE NON-EXEMPT INCOME BY DEBITIN G THE EXPENSES, INCURRED TO EARN THE EXEMPT INCOME, AGAIN ST TAXABLE INCOME. THE BASIC PRINCIPLE OF TAXATION IS TO TAX THE NET INCOME, I.E., GROSS I NCOME MINUS THE EXPENDITURE. OH THE SAME ANALOGY THE EXEMPTION IS ALSO IN RESPECT OF NET INC OME. EXPENSES ALLOWED CAN ONLY BE IN RESPECT OF EARNING OF TAXABLE INCOME. THIS IS THE P URPORT OF SECTION 14A. IN SECTION 14A, THE FIRST PHRASE IS 'FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER' WHICH MAKES IT CLEAR THAT VARIOUS HEADS OF INCOME AS PRES CRIBED UNDER CHAPTER IV WOULD FALL WITHIN SECTION 14A. THE NEXT PHRASE IS, 'IN RELATIO N TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT'. IT MEANS THAT IF AN IN COME DOES NOT FORM PART OF TOTAL INCOME, THEN THE RELATED EXPENDITURE IS OUTSIDE THE AMBIT O F THE APPLICABILITY OF SECTION 14A. FURTHER, SECTION 14 SPECIFIES FIVE HEADS OF INCOME WHICH ARE CHARGEABLE TO TAX. IN ORDER TO BE CHARGEABLE, AN INCOME HAS TO BE BROUGHT UNDER ONE OF THE FIVE HEADS. SECTIONS 15 TO 59 LAY DOWN THE RULES FOR COMPUTING INCOME FOR THE PURPOSE OF CHARGEABILITY TO TAX UNDER THOSE HEADS. SECTIONS 15 TO 59 QUANTIFY THE TOTAL INCOME CHARGEABLE TO TAX. THE PERMISSIBLE DEDUCTIONS ENUME RATED IN SECTIONS 15 TO 59 ARE NOW TO BE ALLOWED ONLY WITH REFERENCE TO INCOME WHICH IS B ROUGHT UNDER ONE OF THE ABOVE HEADS AND IS CHARGEABLE TO TAX. IF AN INCOME LIKE DIVIDEND INCOME IS NOT A PART OF THE TOTAL INC OME, THE EXPENDITURE/DEDUCTION THOUGH OF THE NATURE SPEC IFIED IN PART OF TOTAL INCOME COULD NOT BE ALLOWED AGAINST ORE INCOME INCL UDIBLE IN THE TOTAL INCOME FOR THE PURPOSE OF CHARGEABILITY TO TAX. THE THEORY OF APPO RTIONMENT OF EXPENDITURES BETWEEN TAXABLE AND NON-TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 14A. READING SECTION 14 IN JUXTAPOSITION WI TH SECTIONS 15 TO 59, IT IS CLEAR THAT THE WORDS 'EXPENDITURE INCURRED' IN SECTION 14 A REFERS TO EXPENDITURE ON RENT, TAXES, SALARIES, INTEREST,ETC. IN RESPECT OF WHICH ALLOWANCES ARE PROVIDED FOR (SEE SECTIONS 30 TO 37).' ' 14. THE APEX COURT HAD SPECIFICALLY RECORDED THAT THE THEORY OF APPORTIONMENT OF AMOUNT OF EXPENSE* BETWEEN TAXABLE AND NON- 12 TAXABLE INCOME STOOD WIDENED BY INCORPORATION OF SE CTION 14A. IT WAS FURTHER NOTICED THAT THE EXPRESSION 'EXPENSES INCURRED' OCCURRING IN SEC TION 14A REFERRED TO TAX, SALARY, INTEREST ETC. IN RESPECT' OF WHICH ALLOWANC ES ARE PROVIDED FOR UNDER SECTIONS 30 TO 37 OF THE ACT. 15. IN ALL FAIRNESS TO THE ASSESSEE, IN THE JU DGMENTS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE, SECTI ON 14A AS INCORPORATED BY FINANCE ACT 2001, WITH EFFECT FROM 1.4.1962, WAS NOT UNDER CONSIDERATION AND, THEREFORE, THE SAME DO NOT COME TO THE RESCUE OF THE ASSESSEE. 16. IN VIEW OF THE ABOVE, THE SUBSTANTIAL QU ESTION NO.(II) IS ANSWERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. INCOME TAX APPEAL NOS. 565, 567 AND 569 STAND DISPOSED OF ACCORDINGLY. 26 THUS THEORY OF APPORTIONMENT AS APPROVED BY THE HON'BLE SUPREME COURT IN CASE OF CIT V. WALFORT SHARE AND S TOCK BROKERS P LTD (2010) 326 ITR 1 (S.C) FOLLOWED BY HON'BLE BOMB AY HIGH COURT IN CASE OF GODREJ AND BOYCEE (SUPRA) HAS ALSO BEEN APPROVED BY HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT V. PUNJAB STATE INDUSTRIAL DEVELOPMENT COOP LTD. (SUPRA). 27 NOW THE QUESTION IS HOW SUCH EXPENDITURE CAN BE APPORTIONED. THERE MAY BE A SITUATION WHETHER THE EXPENSES OR IN TEREST CANNOT BE IDENTIFIED AGAINST THE PARTICULAR ITEM OF INCOME TO MEET THESE DIFFICULTIES RULE 8D WAS INTRODUCED WHICH HAS BEEN HELD TO BE CONSTITUTIONALLY VALID BY HON'BLE BOMBAY HIGH COURT IN CASE OF GODREJ AND BOYCEE (SUPRA). RULE 8D READS AS UNDER: RULE 8D READS AS UNDER: (1) WHERE THE ASSESSING OFFICER HAVING REGARD TO T HE ACCOUNT OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED W ITH (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDIT URE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, HE HAL L DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB-RULE (2). (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOE S NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWING AMOUNTS, NAMELY:- (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME; (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPE NDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT D IRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMP UTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY:- A X B C 13 WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR; B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPE ARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; C = THE AVERAGE OF TOTAL ASSET AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; (III) AN AMOUNT EQUAL TO ONE-HALF PER CENT OF THE A VERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALAN CE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. (3) FOR THE PURPOSES OF THIS RULE, THE TOTAL ASSET S SHALL MEAN, TOTAL ASSET AS APPEARING IN THE BALANCE SHEET EXCLU DING THE INCREASE ON ACCOUNT OF REVALUATION OF ASSET BUT INCLUDING T HE DECREASE ON ACCOUNT OF REVALUATION OF ASSETS.). 28 CLAUSE (II) OF SUB-RULE (2) CLEARLY SHOWS THAT I F THE ASSESSEE SHOW THAT INTEREST HAS BEEN INCURRED SPECIFICALLY F OR A PARTICULAR ITEM OF INCOME THEN IT HAS TO BE APPORTIONED. IN CASE B EFORE US, THE ASSESSEE HAS PROVIDED SOURCES OF FUNDS BUT THEY CA NNOT BE SAID TO HAVE BEEN MAINTAINED SEPARATELY. FIRST OF ALL IT W AS CONCEDED THAT THE ASSESSEE IS HAVING MIXED FUNDS. THE DETAILS OF FUNDS WAS STATED TO BE AS UNDER BEFORE THE LD. CIT(A): 31.3.2008 RS. IN LAKHS SHARE CAPITAL 78.36 RESERVES AND SURPLUSES 130.82 OWN FUNDS 209.18 WORKING CAPITAL BORROWINGS 1779.62 CURRENT ASSETS 2243.45 AMOUNT INVESTED IN EXCESS OF LOAN 463.83 TERM LOAN BORROWINGS 253.31 FIXED ASSETS 451.82 AMOUNT INVESTED IN EXCESS OF LOAN 198.51 AMOUNT INVESTED IN CHADHA MOTORS 255.96 CONSEQUENTLY BY SIMPLY SAYING THAT THE FUNDS INVEST ED IN FIXED ASSETS AND CURRENT ASSETS ARE MORE THAN THE BORROWED FUNDS , WOULD NOT SHOW THAT SPECIFIC FUNDS HAVE BEEN BORROWED FOR SPECIFIC PURPOSE. FOR EXAMPLE IT CAN BE VERY EASILY SAID THAT THE ASSESSE E SUPPORTED ITS BUSINESS WITH OWN FUNDS AND BORROWED LOANS HAVE BEE N USED FOR MAKING INVESTMENT IN ASSETS AS WELL AS IN INVESTMEN TS WHICH GENERATE EXEMPTED INCOME. ONCE THE FUNDS ARE MIXED, THERE I S NO WAY TO FIND OUT ACTUAL USAGE OF THE FUNDS. TO MEET THIS SITUAT ION ONLY RULE 8D WAS INSERTED TO REMOVE THE DIFFICULTIES. IN FACT T HIS ASPECT WAS ALSO EXAMINED BY HON'BLE BOMBAY HIGH COURT IN CASE OF GO DREJ & BOYCEE (SUPRA). MANY OBSERVATIONS WERE MADE UNDER THE HEA D PARAMETERS OF JUDICIAL REVIEW AT PARA 62 TO 72 OF THE ORDER. WITHOUT 14 UNNECESSARILY BURDENING THIS ORDER WITH THESE OBSER VATIONS WE WILL QUOTE PARA 73 WHICH DEALS WITH JUSTIFICATION OF RUL E 8D: IN THE AFFIDAVIT IN REPLY THAT HAS BEEN FILED ON BE HALF OF THE REVENUE AN EXPLANATION HAS BEEN PROVIDED OF THE RAT IONALE UNDERLYING RULE 8D. IN THE WRITTEN SUBMISSIONS WHI CH HAVE BEEN FILED BY THE ADDITIONAL SOLICITOR GENERAL IT HAS BE EN STATED, WITH REFERENCE TO RULE 8D(2)(II) THAT SINCE FUNDS ARE FU NGIBLE, IT WOULD BE DIFFICULT TO ALLOCATE THE ACTUAL QUANTUM O F BORROWED FUNDS THAT HAVE BEEN USED FOR MAKING TAX FREE INVES TMENT. IT IS ONLY THE INTEREST ON BORROWED FUNDS THAT WOULD BE A PPORTIONED AND THE AMOUNT OF EXPENDITURE BY WAY OF INTEREST TH AT WILL BE TAKEN (AS A IN THE FORMULA) WILL EXCLUDE ANY EXPE NDITURE BY WAY OF INTEREST WHICH IS DIRECTLY ATTRIBUTABLE TO A NY PARTICULAR INCOME OR RECEIPT (FOR EXAMPLE ANY ASPECT OF THE ASSESSEES BUSINESS SUCH AS PLANT/MACHINERY ETC.). AS REGARDS RULE 8D(2)(III) IT HAS BEEN SUBMITTED THAT SOME MECHANIS M OR FORMULA HAD TO BE ADOPTED FOR ATTRIBUTING PART OF T HE ADMINISTRATIVE/MANAGERIAL EXPENSES TO TAX EXEMPT IN VESTMENT INCOME. THE ADMINISTRATIVE EXPENSES ATTRIBUTABLE T O TAX FREE INVESTMENT INCOME HAVE A FIXED COMPONENT AND A VARI ABLE COMPONENT. A VIEW WAS TAKEN THAT THE DISALLOWANCE SHOULD ALSO BE LINKED TO THE VALUE OF THE INVESTMENT RATHER THA N THE AMOUNT OF EXEMPT INCOME. UNDER PORTFOLIO MANAGEMENT SCHEM E (PMS) THE FEE CHARGED RANGES BETWEEN 2 AND 2.5 PER CENT O F THE PORTFOLIO VALUE WHICH WOULD BE INCLUSIVE OF A PROFI T ELEMENT FOR THE PORTFOLIO MANAGER. WHILE THE FIXED ADMINISTRAT IVE EXPENSE WERE EXCLUDED, ON THE GROUND THAT IN THE CAASE OFA LARGE CORPORATE TAXPAYER THEY WOULD BE SPREAD OVER A LARG E NUMBER OF VOLUMINOUS ACTIVITIES, THE VARIABLE EXPENSES WERE C OMPUTED AT ONE-HALF PER CENT OF THE VALUE OF THE INVESTMENT. THE JUSTIFICATION THAT HAS BEEN OFFERED IN SUPPORT OF T HE RATIONALE FOR RULE 8D CANNOT BE REGARDED AS BEING CAPRICIOUS, PERVERSE OR ARBITRARY. APPLYING THE TESTS FORMULATED BY THE HO N'BLE SUPREME COURT IT IS NOT POSSIBLE FOR THIS COURT TO HOLD THAT THERE IS WRIT ON THE STATUTE OR ON THE SUBORDINATE LEGISL ATION PERVERSITY, CAPRICE OR IRRATIONALITY. THERE IS CER TAINLY NO MADNESS IN THE METHOD. THUS ABOVE RULE WAS FOUND TO BE VALID AND RATIONAL. COMING BACK TO THE CASE IN HAND, THE PERUSAL OF THE ASSESSMENT ORD ER SHOWS AS OBSERVED EARLIER, NO WHERE BEFORE THE ASSESSING OF FICER OR THE LD. CIT(A), THE ASSESSEE HAS MADE A SPECIFIC MENTION TO SHOW WHICH PARTICULAR FUNDS WERE BORROWED FOR WHICH PARTICULAR REQUIREMENT AND IN THE ABSENCE OF SUCH SPECIFIC UTILIZATION RULE 8D , WOULD BE APPLICABLE. PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT DISALLOWANCE U/S 14A HAS BEEN WORKED OUT ON THE BASIS OF RULE 8 D WHICH IS AS OBSERVED EARLIER APPLICABLE IN CASE OF THE ASSESSEE . THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE T HAT OF THE ASSESSING OFFICER. 14. FOLLOWING THE SAME WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 15. GROUND NO.3: AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT ASSESSEE HAS MADE 15 ADDITION IN LAND ACCOUNT AMOUNTING TO RS. 47,56,240 /-. THEREFORE, ASSESSEE WAS ASKED TO EXPLAIN WHY PROPORTIONATE INTEREST SHOULD NOT BE CAPITALIZED. IN RESPONSE IT WAS STATED AS UNDER:- ADDITION OF LAND, THE COMPANY HAD PURCHASED AN AD DITIONAL PIECE OF LAND ON DATED 31,05,2008 AT BATHINDA WHICH WAS BACKSIDE ITS EXISTING SHOWROOM, THIS ADDITIONAL LAN D WAS NEEDED BECAUSE THE COMPANY WAS FORESEEING THAT IN T HE ENSUING PERIODS THERE MAY BE PROBLEMS IN CATERING T O THE DAILY INCREASING TRAFFIC OF VEHICLES IN WORKSHOP AREA AND IN ADDITION TO THIS THE COMPANY ALSO WANTS TO HAVE STOCK YARD A T THIS PLACE FOR THE PARKING OF NEW VEHICLES, WHICH WAS NEEDED F OR THE PURPOSE OF INCREASED VOLUME IN SALES. NO LOAN HAS B EEN TAKEN FOR THE PURCHASE OF THIS LAND. THE CONSTRUCTION HAS BEEN COMPLETED IN THE ASSESSMENT YEAR 2009-10. SO THIS L AND IS PURELY USED FOR THE BUSINESS PURPOSE AND NOT FOR TH E INVESTMENT PURPOSE. 16. THE ASSESSING OFFICER WAS NOT SATISFIED WITH T HE ABOVE REPLY AND OBSERVED THAT IN VIEW OF THE PROVISO TO SECTION 36(I)(III), THE INTEREST WAS REQUIRED TO BE CAPITALIZED AND HE DISALLOWED THE PROPORTIONATE INT EREST AMOUNTING TO RS. 4,51,355/- FOR 300 DAYS. 17. ON APPEAL, THE SUBMISSIONS MADE BEFORE THE ASSE SSING OFFICER WERE REITERATED. THE LD. CIT(A) AFTER EXAMINING THE SUBM ISSIONS RESTRICTED THE DISALLOWANCE TO RS. 1,54,440/-. 18. BEFORE US LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT LAND WAS PUT TO USE IMMEDIATELY AFTER PURCHASE FOR PARKING PURPOSES AND THIS FACT HAS NOT BEEN DENIED BY ASSESSING OFFICER OR CIT(A). ONCE ASSET W AS PUT TO USE THEN THERE IS NOT NEED TO CAPITALIZE THE INTEREST. 19. ON THE OTHER HAND LD. DR POINTED OUT THAT ASSES SEE HAS NOT FURNISHED ANY EVIDENCE SHOWING THAT LAND WAS USED FOR BUSINESS PU RPOSE. FURTHER, THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE TO ABOUT 1/3 RD , WHICH IS VERY REASONABLE. 16 20. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THIS ISSUE HAS BEEN ADJUDICATED BY LD. CIT(A) VIDE PARA 5.3 WHICH IS AS UNDER:- 5.3 I HAVE CAREFULLY CONSIDERED THE APPELLANTS SU BMISSION. IT IS AN ADMITTED POSITION THAT THE LAND WAS PURCHASED TO MEET THE INCREASING NEED OF THE BUSINESS TO KEEP THE STOCK O F VEHICLES ON PARKING THE VEHICLES RECEIVED IN THE WORKSHOP. THE APPELLANT HAS CONTENDED THAT THE LAND WAS USED FOR KEEPING TH E VEHICLES FROM THE VERY FIRST DAY. THE APPELLANT ALSO SUBMITT ED COPIES OF PHOTOGRAPHS OF THE LAND SHOWING VEHICLES PARKED ON IT. PERUSAL OF THE PHOTOS REVEALED THAT CONSTRUCTION OF BOUNDAR Y WALL HAD BEEN CARRIED OUT ON THE LAND AND A TIN SHED HAS BEE N ERECTED ON ONE SIDE OF THE LAND. FURTHER, CONCRETE FLOOR TILES HAVE BEEN LAID ON THE WHOLE OF THE LAND. THUS FROM THE EVIDENCE SU BMITTED BY THE APPELLANT IT IS CLEAR THAT CONSTRUCTION WAS CAR RIED OUT ON THIS LAND BEFORE THE SAME WAS PUT TO USE. THIS IS A LSO BORNE OUT FORM THE APPELLANTS SUBMISSION DURING THE ASSESSME NT PROCEEDINGS THAT CONSTRUCTION ON THIS LAND WAS COMP LETED DURING THE AY 2009-10. THE EXPENDITURE INCURRED ON INTEREST ON BORROWED FUNDS FOR EXPANSION OF EXISTING BUSINESS I S ALLOWABLE AS REVENUE EXPENDITURE ONLY WHEN SUCH ASSET STARTS YIELDING INCOME AND NOT FOR ANY PERIOD PRIOR THERETO. RELIAN CE IN THIS REGARD, IS PLACED ON FOLLOWING CASE LAWS:- CIT VS. VARDHMAN POLYTEX LTD. (P&H) 299 ITR 152 INTEREST PAID ON CAPITAL BORROWED FOR SETTING UP OF A NEW UNIT IN THE SAME LINE OF BUSINESS IS CAPITAL EXPENDITURE. I NTEREST ON CAPITAL BORROWED FOR THE PURPOSE OF ACQUISITION OF THE ASSETS OF THE NEW UNIT IS TO BE ALLOWED AS A REVENUE EXPENDIT URE ONLY WHEN SUCH ASSTS START YIELDING INCOME AND NOT FOR A NY PERIOD PRIOR THERETO-SEC. 36 (1)(III) TO BE READ ALONG WIT H EXPL. 8 TO SEC. 43(1) PROVISO TO SEC. 36(1)(III) ADDED BY FI NANCE ACT, 2003 IS MERELY CLARIFICATORY AS IT HAS MADE EXPLICI T WHAT WAS ALREADY IMPLICIT. NAHAR POLY FILMS LTD. VS. CIT (P&H) 201 TAXMAN 304. ASSESSEE RAISED TERM LOAN FROM BANK FOR ACQUISITION ING NEW MACHINERY FOR INCREASING SPINDLE CAPACITY OF ITS UN IT SINCE THIS AMOUNTS TO EXTENSION OF BUSINESS AND MACHINERY WAS NOT PUT TO USE DURING THE PREVIOUS YEAR, INTEREST INCURRED IS TO BE CAPITALIZED TILL THE MACHINERY IS PUT TO USE PROV ISO TO SEC. 36(I)(III) CONSIDERED. KEEPING IN VIEW THE NATURE AND EXTENT OF CONSTRUCT ION IT WOULD BE FAIR AND REASONABLE TO ASSUME THAT THE AFO RESAID CONSTRUCTION WAS CARRIED OUT BY THE APPELLANT IN 10 0 DAYS AND THEREAFTER THE LAND WAS USED FOR BUSINESS PURPOSES FOR THE REMAINING 200 DAYS OF THE YEAR. THE DISALLOWANCE ON THIS ACCOUNT IS ACCORDINGLY REDUCED TO 1/3 RD OF RS. 4,51,355/-I.E. RS. 1,54,440/-. THIS GROUND OF APPEAL IS PARTLY ALLOWED . IN THE RESULT THE APPEAL OF THE APPELLANT IS PARTLY ALLOWED. 17 IN OUR OPINION LD. CIT(A) HAS CORRECTLY DECIDED THE ISSUE BY FOLLOWING THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT WHI CH HAVE BEEN CITED BY HIM IN THE ABOVE NOTED PARAS. . SINCE NO EVIDENCE WAS THER E TO SHOW THAT LAND WAS IMMEDIATELY USED FOR BUSINESS PURPOSES, THEREFORE, WE ARE OF THE OPINION THAT LD. CIT(A) HAS CORRECTLY GIVEN REASONABLE RELIEF TO THE ASSESSEE. THEREFORE, WE UPHOLD HIS ORDER. 21. IN THE RESULT APPEAL OF THE ASSESSEE IS DISMISS ED. ITA NO. 818/CDH/2014 22. IN THIS APPEAL REVENUE AHS RAISED THE FOLLOWING GROUNDS :- 1. (A) THAT THE LD. CIT(A)-II, LUDHIANA HAS ERRED I N LAW AS WELL AS ON FACTGS IN CANCELING THE PENALTY OF RS . 17,24,190/- LEVIED UPON THE ASSESSEE U/S 271(1)(C) OF THE INCOM E-TAX ACT.1961 FOR THE DEFAULT OF FURNISHING OF INACCURAT E PARTICULARS OF INCOME FOR THE ASSESSMENT YEAR 2009-10. (B) THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL A S ON FACTS IN APPLYING THE RATIO OF JUDGMENT OF THE HONBLE SU PREME COURT OF INDIA IN THE CASE OF RELIANCE PETRO CHEMIC ALS LTD. REPORTED IN (2010) 322 ITR 158 (SC) AS FACTS AND CIRCUMSTANCES ARE NOT SIMILAR. 23. AFTER HEARING BOTH THE PARTIES WE FIND THAT DUR ING APPEAL THE ADDITION WAS MADE ON ACCOUNT OF (A) DISALLOWANCE OF PROPORTIONATE INTEREST U/S 36( 1)(III) (B) DISALLOWANCE U/S 14A (C ) DISALLOWANCE ON ACCOUNT OF CAPITALIZATION OFF INTEREST AND ON ALL THESE ADDITIONS PENALTY PROCEEDINGS U/S 271(1)(C) WERE ALSO INITIATED. IN RESPONSE TO THE SHOW CAUSE NOTICE FOR LEVY OF PE NALTY, THE ASSESSEE MERELY SUBMITTED THAT SINCE THE APPEALS HAS BEEN FIELD BEF ORE THE TRIBUNAL, THEREFORE, PENALTY SHOULD BE STAYED. HOWEVER, THE ASSESSING O FFICER DID NOT AGREE WITH THE SAME AND LEVIED MINIMUM PENALTY @ 100% AMOUNTIN G TO RS. 17,24,190/- U/S 271(1)(C) OF THE ACT. 18 23. ON APPEAL, IT WAS MAINLY SUBMITTED THAT ASSESSE E HAS MADE ALL THE DISCLOSURES IN THE RETURN AND, THEREFORE, IT CANNOT BE SAID THAT ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME OR FURNISHED IN ACCURATE PARTICULARS OF INCOME. RELIANCE WAS ALSO PLACED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE PETROPPRODUCTS PVT LTD IN 322 ITR 158 AND SOME OTHER CASES. 24. THE LD. CIT(A) FOUND FORCE IN THE SAME AND DEL ETED THE PENALTY 25. BEFORE US LD. DR SUBMITTED THAT ASSESSEE WAS FU LLY AWARE THAT HE HAS DIVERTED THE FUNDS AND, THEREFORE, INTEREST WAS TO BE DISALLOWED. SIMILARLY, THE ASSESSEE HAD INVESTED FUNDS IN SHARES ETC. AND INCO ME WAS EXEMPT, THEREFORE, PENALTY WAS JUSTIFIED. HE ALSO SUBMITTED THAT IF CA SE WAS NOT SELECTED FOR SCRUTINY, THE ASSESSEE WOULD HAVE GONE SCOT FREE AN D THAT CANNOT BE INTENTION OF THE LEGISLATURE. 26. ON THE OTHER HAND LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE CIT(A) AND SUPPORTED THE IMPUGNED ORDE R. 27. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND FORCE IN THE SUBMISSIONS OF LD. COUNSEL FOR THE ASSESSEE. THE ASSESSEE HAS M ADE ALL THE DISCLOSURES IN THE RETURN ITSELF AND ONLY CERTAIN EXPENSES HAVE BEEN D ISALLOWED BECAUSE OF TECHNICAL REASONS OR VARIOUS STATUTORY PROVISIONS B UT IT CANNOT BE SAID THAT ASSESSEE HAS CONCEALED PARTICULARS OF INCOME OR FUR NISHED INACCURATE PARTICULARS OF INCOME. HON'BLE SUPREME COURT IN THE CASE OF R ELIANCE PETROPODUCTS PT LTD (SUPRA) HAS HELD AS UNDER. A GLANCE AT THE PROVISIONS OF SECTION 271(1)(C) OF THE INCOME-TAX ACT, 1961, SUGGESTS THAT IN ORDER TO BE COVERED BY IT, THERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISHED INACCURA TE PARTICULARS 19 OF HIS INCOME. THE MEANING OF THE WORD PARTICULARS USED IN SECTION 271(1)(C) WOULD EMBRACE THE DETAILS OF THE CLAM MADE. WHERE NO INFORMATION GIVEN IN THE RETURN IS FOUND T O BE INCORRECT OF INACCURATE, THE ASSESSEE CANNOT BE HELD GUILTY OF F URNISHING INACCURATE PARTICULARS. IN ORDER TO EXPOSE THE ASSE SSEE TO PENALTY, UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISIO N, THE PROVISION CANNOT BE INVOKED. BY NO STRETCH OF IMAGINATION CAN MAKING AN INCORRECT CLAIM TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. THERE CAN BE NO DISPUTE THAT EVERYTHING WOULD DEPEN D UPON THE RETURN FILED BY THE ASSESSEE, BECAUSE THAT IS THE O NLY DOCUMENT WHERE THE ASSESSEE CAN FURNISH THE PARTICULARS OF H IS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE, THE LI ABILITY WOULD ARISE. TO ATTRACT PENALTY, THE DETAILS SUPPLIED IN THE RETURN MUST NO BE ACCURATE, NOT EXACT OR CORRECT NOT ACCORDING TO THE TRUTH OR ERRONEOUS. THEREFORE, FOLLOWING THE SAME WE FIND NOTHING WRONG WITH THE ORDER OF LD. CIT(A) AND WE CONFIRM THE SAME. 29. THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 13.03.2015. SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 13 TH MARCH, 2015 RKK COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR