DCIT, Jaipur V. AU FINACIERS (INDIA), Jaipur

ITA 122/JPR/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5397 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 30-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K JAIN D
• Assessee Lawyers: ADITYA VIJAY DH
• Keywords: Earning of tax free income; Reason to believe
• Section: 143(3); 14A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI T.R. MEENA, AM VK;DJ VIHY LA-@ ITA NO. 122/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2011-12 THE DCIT CIRCLE- 2 JAIPUR CUKE VS. M/S. A.U. FINANCIERS (INDIA) LTD. 19-A, DHULESHWAR GARDEN AJMER ROAD, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AAACL 2777 N VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI S.K. JAIN, DCIT-DR FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY :SHRI SANJAY JHANWAR AND SHRI ADITYA VIJAY LQUOKBZ DH RKJH[K@ DATE OF HEARING : 28/04/2016 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 05 /05/2016 VKNS'K@ ORDER PER KUL BHARAT, JM THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-1, JAIPUR DATED 14-11-2014 PERTAINING TO AS SESSMENT YEAR 2011- 12. THE REVENUE HAS RAISED SOLITARY GROUND AS UND ER:-. 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 42,22,857/- MADE BY THE AO U/S 14A OF THE I.T. ACT, 1961. ITA NO. 122/JP/2015 DCIT,CIRCLE- 2,JAIPUR VS. M/S. A.U. FINANCIERS (IN DIA) LTD. ,JAIPUR . 2 2.1 BRIEFLY STATED THE FACTS THAT THE CASE OF THE A SSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT WAS MADE U/S 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO ACT FOR SHORT) VIDE ORDER DATED 28-02-2014 BY THE AO. WHILE FRAMING THE ASSES SMENT, THE AO INVOKED THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RULES, 1962 (HEREINAFTER REFERRED TO RULES FOR SHORT) AND T HUS MADE DISALLOWANCE OF EXPENDITURE OF RS. 42,42,857/- U/S 14A OF THE ACT. 2.2 ASSESSEE AGGRIEVED BY THIS ORDER OF THE AO PREF ERRED FIRST APPEAL BEFORE THE LD. CIT(A) WHO AFTER CONSIDERING THE SUB MISSIONS DELETED THE DISALLOWANCE. 2.3 THE LD. DR VEHEMENTLY ARGUED THAT THE LD. CIT(A ) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE. HE SUBMITTED THAT THE YEAR UNDER APPEAL IS FOR THE ASSESSMENT YEAR 2011-12. THEREFORE, THE PRO VISIONS OF RULE 8D HAS RIGHTLY BEEN APPLIED BY THE AO. THE LD. DR STRO NGLY RELIED ON THE ORDER OF THE AO. 2.4 ON THE CONTRARY, THE LD. COUNSEL FOR THE ASSESS EE OPPOSED THE SUBMISSION OF THE LD. DR AND SUBMITTED THAT THE AO WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE AS THE ASSESSEE IS HAVING S UFFICIENT INTEREST FREE FUNDS AND IT HAS BEEN UTILIZED FOR MAKING INVESTMEN T. HE FURTHER SUBMITTED THAT THE ASSESSEE IS HAVING HIGHER OPERAT IONAL INCOME THAN THE ITA NO. 122/JP/2015 DCIT,CIRCLE- 2,JAIPUR VS. M/S. A.U. FINANCIERS (IN DIA) LTD. ,JAIPUR . 3 EXPENDITURE TOWARDS INTEREST. THE LD. COUNSEL FOR T HE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NOT BORROWED THE FUNDS. HE SU BMITTED THAT UNDER THESE FACTS, THE AO COULD NOT HAVE MADE DISALLOWANC E TOWARDS INTEREST EXPENDITURE. HE FURTHER SUBMITTED THAT THE AO HAS F AILED TO APPRECIATE THE FACTS THAT THE ASSESSEE ITSELF HAD MADE THE DISALLO WANCE OF EXPENDITURE TOWARDS ADMINISTRATIVE EXPENDITURE OF RS. 62,878/- WHILE THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS. 27,006/-. THE LD. COUNS EL FOR THE ASSESSEE RELIED ON FOLLOWING DECISIONS. (I) CIT VS. GUJARAT POWER CORPORATION LTD. [2013] 3 52 ITR 583 (GUJ) (II) DIRECTOR OF INCOME-TAX (IT)-II VS. BNP PARIBUS SA [2013] 214 TAXMAN 548 (BOM.) (III) CIT VS. HDFC BANK LTD. [2014] 366 ITR 505 (BOM.) (IV) MUMBAI ITAT BENCH IN CASE OF GARWARE WALL ROPE S LTD. VS. ADDL. CIT (ITA NO. 5408/MUM/2012, A.Y. 200 9-10 ORDER DATED 15-01-2014) (V) CHENNAI ITAT BENCH IN THE CASE OF EIH ASSOCIATE D HOTELS LTD. VS. DCIT (ITA NO. 1503/MDS/2012, A.Y. 2 008- 09 ORDER DATED 17-07-2013) 2.5 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE AO MADE DISALLOWANCE WHILE OBSERVING PARA 3.2 TO 3.4 AS UNDER:- ITA NO. 122/JP/2015 DCIT,CIRCLE- 2,JAIPUR VS. M/S. A.U. FINANCIERS (IN DIA) LTD. ,JAIPUR . 4 3.2 THE ASSESSEE HAS MADE CONTENTIONS STATING THA T NO INTEREST EXPENSES SHOULD BE ATTRIBUTED TO EARNING E XEMPT INCOME AS ALL INVESTMENT IS DIVIDEND EARNING SHARES HAS BEEN MADE OUT OF SHARE CAPITAL AND SURPLUS PROFIT. HOWEVER, KEEPING IN VIEW THE PAST HISTORY OF THE CASE, DISALLOWANCE IS MADE AS P ER RULE 8D READ WITH SECTION 14A. 3.3 THE METHOD FOR CALCULATING DISALLOWANCE UNDER T HIS SECTION IS PRESCRIBE BY RULE 8D WHICH READS AS UNDE R:- METHOD FOR DETERMINING AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME. 8D. (1) WHERE THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH:- (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T FOR SUCH PREVIOUS YEAR, HE SHALL DETERMINE THE AMOUNT OF EXP ENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE P ROVISIONS OF SUB-RULE (2) (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME SHALL BE AGG REGATE 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 EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULA R INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA NAMELY:- ITA NO. 122/JP/2015 DCIT,CIRCLE- 2,JAIPUR VS. M/S. A.U. FINANCIERS (IN DIA) LTD. ,JAIPUR . 5 B AXB/C------- C WHERE A= AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUS E (1) INCURRED DURING THE PREVIOUS YEAR B= THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL FORM PART OF THE TOTAL INCO ME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. C= THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR 3. FOR THE PURPOSE OF THIS RULE, THE TOTAL ASSETS SHALL MEAN, TOTAL ASSETS AS APPEARING IN THE BALANC E SHEET EXCLUDING THE INCREASE ON ACCOUNT OF REVALUATION O F ASSETS BUT INCLUDING THE DECREASE AN AMOUNT OF REVALUATION OF ASSETS.] 3.4 BY LOOKING AT THIS METHOD, IT BECOMES CLEAR THA T THE CLAUSE (I) IS NOT APPLICABLE TO THE CASE OF THE ASS ESSEE. HOWEVER, CLAUSE (II) AND (III) IS APPLICABLE TO IT AND THE DISALLOWANCE U/S 14A IS CALCULATED AS UNDER:- DISALLOWANCE AS PER CLAUSE (II) INTEREST* AVERAG E INVESTMENT AVERAGE OF TOTAL ASSETS TOTAL INVESTMENT AT THE END OF THE CURRENT YEAR AND PREVIOUS YEAR ARE RS. 5,87,35,676/- AND RS. 3,27,20,329/- RE SPECTIVELY, THE OPENING AND CLOSING VALUE OF TOTAL ASSETS ARE RS. 2 ,23,61,71,756/- AND RS. 5,25,51,557/- RESPECTIVELY. HENCE, DISALLOW ANCE TO BE MADE U/S 14A IS AS UNDER:- = 327173662*45728003 3745664657 ITA NO. 122/JP/2015 DCIT,CIRCLE- 2,JAIPUR VS. M/S. A.U. FINANCIERS (IN DIA) LTD. ,JAIPUR . 6 = 39,94,217 DISALLOWANCE = 0.5% OF AVERAGE VALUE OF INVESTMEN T 0.005*45728003 = 2,28,640/- THEREFORE, DISALLOWANCE OF RS. 42,22,857/- IS MADE U/S 14A READ WITH RULE 8D IS ADDED BACK TO THE INCOME OF TH E ASSESSEE. PENALTY U/S 271(1)(C ) OF THE I.T. ACT, 1961 IS SEP ARATELY INITIATED FOR FILING INACCURATE PARTICULARS/ CONCEALMENT OF I NCOME AND NOTICE ISSUED. 2.6 HOWEVER, THE LD. CIT(A) HAD GIVEN FINDING ON FA CTS IN THE APPELLATE ORDER BY OBSERVING AS UNDER:- 3.2.1 IT IS ALSO SEEN THAT DURING THE PERIOD UNDR REVIEW COMPANY HAD EARNED DIVIDEND OF RS. 27,006/- AND ALSO DISALLOWED CORRESPONDING MANAGEMENT FEE EXPENSE OF RS. 62,878/ -. CONSIDERING THE PROVISION OF SECTION 14A OF THE ACT, AO OBSERVED TH E ASSESSEE HAS INVESTED IN ASSETS WHICH YIELDED OR / COULD YIELD I T INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER INCOME-TAX ACT, 196 1 AND ISSUED A SHOW CAUSE NOTICE TO ASSESSEE AS TO WHY EXPENDITURE PERT AINING TO EARNING OF DIVIDEND INCOME SHOULD NOT BE ALLOWED U/S 14A READ WITH RULE 8D. IN RESPONSE TO NOTICE ISSUED APPELLANT SUBMITTED ITS R EPLY ALONGWITH RELEVANT SUPPORTING DOCUMENTS. HOWEVER, AO WAS NOT SATISFIED WITH THE EXPLANATION AND FINALLY THE ASSESSMENT WAS COMPLETE D BY MAKING THE FOLLOWING DISALLOWANCE WHEREIN AN ADDITION OF RS. 4 2,22,857/- BY DISALLOWANCE EXPENSES U/S 14A OF THE I.T. ACT 1961, WAS CALCULATED BY APPLYING CLAUSE (II) AND CLAUSE (III) OF RULE 8D WH ICH IS AS UNDER:- DISALLOWANCE AS PER CLAUSE (II) = RS. 39,94,217/- DISALLOWANCE AS PER CLAUSE (III) - RS. 2,28,64 0/- 3.2.3 ON PERUSAL OF CASE RECORD, IT IS SEEN THAT AP PELLANT COMPANY (NBFC) DURING THE YEAR WAS ENGAGED IN THE BUSINESS OF FINANCING AND IT HAD INCURRED INTEREST EXPENSES OF RS. 32,71,73,662/ - ON LOANS TAKEN WHICH WERE UTILIZED FOR FURTHER FINANCING. ITS INCOME FR OM OPERATION MAINLY ITA NO. 122/JP/2015 DCIT,CIRCLE- 2,JAIPUR VS. M/S. A.U. FINANCIERS (IN DIA) LTD. ,JAIPUR . 7 INCLUDES INTEREST INCOME EARNED FROM THESE ADVANCES . DURING THE F.Y. RELEVANT TO A.Y. 2010-11, APPELLANT COMPANY EARNED TOTAL OPERATION INCOME OF RS. 1,36,97,84,029/- FURTHER, APPELLANT HAS ALSO SUBMITTED THAT DURING THE FINANCIAL YEAR UNDER APPEAL, ASSESSEE COMPANY HAS MADE TOTAL INVES TMENT OF RS. 5.87 CRORES IN SHARES AND MUTUAL FUNDS, OUT OF WHICH RS . 5.65 CRORES WERE INVESTED IN ITS SUBSIDIARY COMPANIES, WHICH CONSTIT UTES MAJOR PROPORTION OF ITS TOTAL INVESTMENT I.E. 96.25% AND ALL THE INV ESTMENTS WERE MADE OUT OF ITS OWN SURPLUS FUND AND APART FROM THIS, IT HAD ALSO MADE SHORT TERM INVESTMENT IN THE SHARES, LIQUID FUNDS AND MUTUAL F UNDS OUT OF ITS OWNED FUNDS FOR PROPER UTILIZATION OF SURPLUS FUNDS. APPE LLANT COMPANY INCORPORATED A WHOLLY NEW SUBSIDIARY COMPANY NAMED M/S. AU HOUSING FINANCE (P) LTD. IN FEB. 2011 TO FOCUS ON RETAIL MO RTGAGE AND HOUSING FINANCE DURING THE PERIOD UNDER REVIEW AND IN THIS APPELLANT HAS MADE TOTAL INVESTMENT OF RS. 225.00 LAKHS AND 30.00 LACS IN WHOLLY SUBSIDIARIRES M/S. AU HOUSING FINANCE (P) LTD. AND M/S. AU INSURANCE BROKING (P) LTD. RESPECTIVELY AND RS. 259 LAKHS IN M/S. INDEX MONEY LTD. FROM ITS OWN FUND THAT IS AMOUNT RECEIVED FROM CAPI TAL RAISED AND SURPLUS AVAILABLE FROM OPERATIONAL ACTIVITIES WHICH CONSTIT UTES MAJOR PART OF THE TOTAL INVESTMENT I.E. 96.25% OF TOTAL INVESTMENT HO WEVER APPELLANT DID NOT RECEIVE ANY INCOME FROM THESE SUBSIDIARY COMPANIES. APPELLANT HAS ALSO SUBMITTED THAT THESE INVESTMENTS ARE MEANT FOR LONG TERM BASIS AND IT HAD NOT INCURRED ANY DAY TO DAY ADMINISTRATIVE EXPENDIT URE ON MAKING THESE INVESTMENTS OR DISINVESTMENT ON REGULAR BASIS. APP ELLANT HAS CLARIFIED THAT THE VERY PURPOSE OF INVESTMENT WAS FOR CONTROL AND BUSINESS PURPOSE AND AO HAS NOT BROUGHT OUT ANY FACT CONTRARY TO THI S. 3.2.4 ON PERUSAL OF AUDITED ACCOUNTS FOR F.Y. 2010 -11 AND APPELLANTS SUBMISSION , IT IS ALSO SEEN AS UNDER: - DURING THE CURRENT F.Y. IT HAS ALSO EARNED NET PR OFIT (PAT) AS PER P&L A/C OF RS. 42.00 CRORES (ROUNDED F IG.) - APPELLANTS TOTAL NET WORTH IS RS. 162.06 CRORES AND VALUE OF INVESTMENT AS ON 31-03-2011 IS ONLY RS. 6. 11 CRORES, INCLUDING INVESTMENT IN SUBSIDIARY COMPANY IS 3.77% OF THE TOTAL NET WORTH ITA NO. 122/JP/2015 DCIT,CIRCLE- 2,JAIPUR VS. M/S. A.U. FINANCIERS (IN DIA) LTD. ,JAIPUR . 8 - DURING THE FINANCIAL YEAR 2010-11, APPELLANT EARN ED TOTAL OPERATING INCOME OF RS. 1,36,97,84,029/- WHER EAS IT INCURRED INTEREST EXPENSES OF RS. 32,71,73,662/- - IT WAS ALSO ARGUED THAT IF THE APPELLANT HAD SHOW N NET POSITIVE INTEREST INCOME, THERE COULD BE NO DISALLO WANCE OF INTEREST EXPENDITURE U/S 14A READ WITH RULE 8D. THE SAME HAS ALSO BEEN HELD IN CASE OF DCIT VS. DAMANI ESTAT ES AND FINANCE (P) LTD. (2013) 25 ITR 683 (MUM.) (TRIBUNAL ) - FACTS OF THE CASE RELIED UPON BY AO ARE CLEARLY DISTINGUISHABLE WITH THIS CASE AS CITI CORP FINANCE LTD. (SUPRA) PERTAINS TO SUBSTANTIAL DIVIDEND INCOME AND MAGANLAL CHAAGAN LAL (P) LTD. (SUPRA) PERTAINS TO C LAIM MADE U/S 80M OF THE ACT. - AOS SATISFACTION FOR INVOKING THE PROVISIONS OF SECTION 14A IS ALSO VERY CRYPTIC AND BASED ON SUSPI CION ONLY. 3.2.5 I FIND MERIT AND SUBSTANCE IN THE CONTENTION OF THE APPELLANT THAT NO EXPENDITURE HAD BEEN INCURRED BY THE ASSESS EE FOR EARNING THE EXEMPT INCOME ON THIS POINT BECAUSE THE INVESTMENT HAS BEEN MADE BY IT ITS SUBSIDY AND NOT IN THE SHARES OF ANY UNRELATED PARTY. THEREFORE, THE PRIMARY OBJECT OF INVESTMENT IS HOLDING AND CONTROL LING STAKE IN THE GROUP CONCERN AND NOT EARNING ANY INCOME OUT OF INVESTME NT. FURTHER, THE INVESTMENTS WERE MADE FOR LONG TERM BASIS FOR HAVIN G BUSINESS CONTROL OVER THESE SUBSIDIARIES. THEREFORE, IN VIEW OF THE FACT THAT THE INVESTMENT ARE IN THE GROUP CONCERN, I DO NOT FIND ANY REASON TO BELIEVE THAT THE APPELLANT WOULD HAVE INCURRED ANY ADMINISTRATIVE EX PENSES IN HOLDING THESE INVESTMENTS OR DISINVESTMENTS ON REGULAR BASI S. THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE ASS ESSEE HAS INCURRED ANY EXPENDITURE IN RELATION TO THE INCOME WHICH DOE S NOT FORM PART OF THE TOTAL INCOME. SECTION 14A HAS WITHIN ITS IMPLICIT T HE NOTION OF APPORTIONMENT IN THE CASES WHERE THE EXPENDITURE IS INCURRED FOR COMPOSITE / INDIVISIBLE ACTIVITIES IN WHICH TAXABLE AND NON-TAXABLE INCOME IS RECEIVED BUT WHEN NO EXPENDITURE HA BEEN INCURRE D IN RELATION TO THE EXEMPT INCOME THEN PRINCIPLE OF APPORTIONMENT EMBED DED IN SECTION 14A HAS NO APPLICATION. THE OBJECT OF SECTION 14A IS NO T ALLOWING THE REDUCE TAX PAYABLE ON THE NON-EXEMPT INCOME BY DEDUCTING T HE EXPENDITURE ITA NO. 122/JP/2015 DCIT,CIRCLE- 2,JAIPUR VS. M/S. A.U. FINANCIERS (IN DIA) LTD. ,JAIPUR . 9 INCURRED TO EARN THE EXEMPT INCOME. IN THE CASE IN HAND IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS INCURRED ANY D IRECT EXPENDITURE OR ANY INTEREST EXPENDITURE FOR EARNING THE EXEMPT INC OME OR KEEPING THE INVESTMENT IN QUESTION. IF THERE IS EXPENDITURE DIR ECTLY OR INDIRECTLY INCURRED IN RELATION TO EXEMPT INCOME THE SAME CANN OT BE CLAIMED AGAINST THE INCOME WHICH IS TAXABLE. FOR ATTRACTING THE PRO VISIONS OF SECTION 14A OF THE ACT, THERE SHOULD BE PROXIMATE CAUSE FOR DIS ALLOWANCE WHICH HAS NO RELATIONSHIP WITH THE TAX EXEMPT INCOME AS HELD BY THE HON'BLE SUPREME COURT IN CASE OF CIT VS. WALFOT SHARE AND S TOCK BROKERS (P) LTD. (2010) 326 ITR 1. THEREFORE, THERE SHOULD BE A PROXIMATE RELATIONSHIP BETWEEN THE EXPENDITURE AND THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. IN THE CASE IN HAND THE A SSESSEE HAS CLAIMED THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EX EMPT INCOME, THEREFORE, IT WAS INCUMBENT ON THE AO TO FIND OUT AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE IN RELATION T O INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME AND IF SO TO QUANTIFY THE EXPENDITURE OF DISALLOWANCE. THE AO HAS NOT BROUGHT ON RECORD ANY FACT OR MATERIAL TO SHOW THAT ANY EXPENDITURE HAS BEEN INCURRED ON THE ACTIVITY WHICH HAS RESULTED INTO BOTH TAXABLE AND NON-TAXABLE INCOME. THEREFORE, IN OUR VIEW WHEN THE ASSESSEE HAS PRIMA FACIE BROUGHT OUT A CAS E THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME THEN IN THE ABSENCE OF ANY FINDING THA T EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMPT INCOME THE PROVISIO NS OF SECTION 14A CANNOT BE APPLIED. ACCORDINGLY, THE ADDITION/ DISALLOWANCE MADE BY AO U/S 14A OF THE ACT R.W. RULE 8D AMOUNTING TO RS. 42,22,857/- IS HE REBY DELETED. APPELLANT GETS RELIEF OF RS. 42,22,857/-. 2.7 THE ABOVE FINDING ON FACT BY THE REVENUE IS NOT CONTROVETED BY PLACING ANY MATERIAL ON RECORD. MOREOVER, THERE IS NO DISPUTE WITH REGARD TO FACT THAT THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS.27,006/- AGAINST WHICH DISALLOWANCE OF EXPENDITURE AMOUNTING TO RS. 42,22,857/- WAS MADE. THE AO HAS NOT RECORDED HIS SATISFACTION AS T O HOW THE EXPENDITURE ITA NO. 122/JP/2015 DCIT,CIRCLE- 2,JAIPUR VS. M/S. A.U. FINANCIERS (IN DIA) LTD. ,JAIPUR . 10 DISALLOWED BY THE ASSESSEE OF RS. 62,878/- TOWARDS ADMINISTRATIVE EXPENSES IS NOT REASONABLE. FURTHER, WE FIND THAT THE ASSESSEE HAS DEMONSTRATED BY PLACING SUFFICIENT MATERIAL ON RECO RD THAT NO BORROWED FUNDS WERE UTILIZED FOR MAKING INVESTMENT AND WHERE FROM THE EXEMPT INCOME IS EARNED. IN OUR CONSIDERED VIEW, THE PROVI SIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF INCOME-TAX RULES, C ANNOT BE INVOKED IN MECHANICAL WAY BY THE AO . AS PER SECTION 14A(2), T HE AO IS REQUIRED TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN REL ATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AND IN ACCORDANCE WITH RULE 8D OF INCOME-TAX RULES, 1962 I F THE AO HAVING REGARD TO THE ACCOUNTS, IS NOT SATISFIED WITH THE C ORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN REL ATION TO SUCH EXEMPT INCOME, HE IS EMPOWERED FOR MAKING DISALLOWANCE AS PER RULE 8D. IN THE CASE IN HAND, NO FINDING IS RECORDED BY THE AO IN T HIS REGARD. ON THE CONTRARY, THE LD. CIT(A) HAS GIVEN A FINDING AFTER EXAMINING THE ACCOUNTS OF THE ASSESSEE. THE AO HAS NOT BROUGHT ON RECORD A NY MATERIAL TO SHOW THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE IN R ELATION TO THE INCOME WHICH DO NOT FORM PART OF THE TOTAL INCOME. MOREOVE R, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS. 2 7,006/- AND EXPENDITURE AMOUNTING TO RS. 42,22,857/- IN RELATIO N TO THIS IS DISALLOWED ITA NO. 122/JP/2015 DCIT,CIRCLE- 2,JAIPUR VS. M/S. A.U. FINANCIERS (IN DIA) LTD. ,JAIPUR . 11 THE FINDING OF THE LD. CIT(A) IS NOT REBUTTED BY RE VENUE BY PLACING ANY CONTRARY MATERIALS. THEREFORE, WE DO NOT SEE ANY RE ASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). THE SAME IS HEREBY UPH ELD. THE GROUND RAISED BY THE REVENUE IS DISMISSED. 3.0 IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05 /05/ 2016. SD/- SD/- VH-VKJ-EHUK DQY HKKJR (T.R. MEENA) (KUL BHARAT) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 05/5/ 2016 *MISHRA VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- THE DCIT , CIRCLE- 2, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- M/S. A.U. FINANCIERS (INDIA) LTD. , JAIPUR 3. VK;DJ VK;QDRVIHY ) @ CIT(A), 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.122/JP/2015) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR