Sanmar Speciality Chemicals Limited, CHENNAI V. DCIT, CHENNAI

ITA 1360/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96529 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-12-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 03-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Keywords: Earning of tax free income; Question of law; Reasonable cause; Notional interest; Condonation of delay
• Section: 14A; 10B; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , ! # , $ & BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NOS.1523 & 1524/MDS/2015 ( / ASSESSMENT YEARS: 2009-10 & 2011-12) THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-6(1), AAYAKAR BHAVAN, NEW BLOCK, CHENNAI-600 034. VS M/S.SANMAR SPECIALITY CHEMICALS LTD. 9, CATHEDRAL ROAD, CHENNAI-600 086. PAN: AABCS0201P ( /APPELLANT) ( /RESPONDENT) & ./ I.T.A.NOS.1360/MDS/2015 ( / ASSESSMENT YEAR: 2011-12) M/S. SANMAR SPECIALITY CHEMICALS LTD. 9, CATHEDRAL ROAD, CHENNAI-600 086. VS THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-6(1), AAYAKAR BHAVAN, NEW BLOCK, CHENNAI-600 034 PAN: AABCS0201P ( /APPELLANT) ( /RESPONDENT) REVENUE BY : MR. P.RADHAKRISHNAN, JCIT ASSESSEE BY : MR. SAROJ KUMAR PARIDA, ADVOCATE /DATE OF HEARING : 15 TH DECEMBER, 2015 /DATE OF PRONOUNCEMENT : 18 TH DECEMBER, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THESE THREE APPEALS ARE FILED BY THE REVENUE AND THE ASSESSEE FOR THE ASSESSMENT YEARS 2009-10 AND 20 11-12 AGAINST THE ORDERS OF COMMISSIONER OF INCOME TAX ( APPEALS) -15, CHENNAI DATED 30.03.2015 . THE COMMON ISSUE IN THE APPEALS OF THE REVENUE FOR THE ASSESSMENT YEAR 2009 -10 2 ITA NOS. 1523, 1524 & 1360/MDS/2015 AND 2011-12 IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE UNDER SECTION 40A(7)(B) OF TH E ACT. 2. BOTH THESE APPEALS OF THE REVENUE ARE TIME BARR ED BY TWO DAYS. THE REVENUE FILED PETITIONS EXPLAINING R EASON THAT RECORDS OF THE CASE WAS NOT TRACEABLE IMMEDIATELY AND THUS THERE WAS A DELAY OF TWO DAYS IN FILING OF APPEALS AND PRAYS FOR CONDONATION OF DELAY. WE HAVE PERUSED THE REASO NS AND ARE SATISFIED THAT THERE IS A REASONABLE CAUSE FOR THE SHORT DELAY IN FILING OF THE APPEALS. IN THE INTEREST OF JUSTICE, WE CONDONE THE DELAY OF TWO DAYS IN FILING OF THE APPE ALS. THE PETITIONS FOR CONDONATION OF DELAY ARE ALLOWED AND APPEALS ARE ADMITTED FOR HEARING. 3. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITS T HAT THE ISSUE IN APPEAL IS DECIDED IN FAVOUR OF THE ASSESSE E BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF D CIT VS. BS & B SAFETY SYSTEMS (I) LTD. IN ITA NO.359/MDS/2015 DATED 31.07.2015, WHEREIN THE TRIBUNAL HELD THAT PROVISIO N FOR GRATUITY SHOULD BE CONSIDERED FOR ALLOWANCE UNDER S ECTION 40A(7)(B) OF THE ACT. 3 ITA NOS. 1523, 1524 & 1360/MDS/2015 4. DEPARTMENTAL REPRESENTATIVE REFERRING TO THE GRO UNDS OF APPEAL SUBMITS THAT THIS ISSUE HAS COME UP BEFOR E THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN C ASE FOR THE ASSESSMENT YEAR 2008-09 AND THE CO-ORDINATE BEN CH BY ORDER IN ITA NO.1411/MDS/2012 DATED 07.03.2013 REM ITTED BACK THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION IN ACCORDANCE WITH LAW TO LOOK INTO C ERTAIN ASPECTS OF THE MATTER AND THEREFORE HE SUBMITS THAT SIMILAR DIRECTION MAY BE ISSUED IN THIS CASE ALSO. 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISIONS RELIED ON. THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE IMMEDIATELY PRECEDING ASSESSMENT YE AR IN ASSESSEES OWN CASE RESTORED THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION AFRESH. FOLLOWIN G THE SAID ORDER OF THIS TRIBUNAL, WE RESTORE THIS ISSUE TO TH E FILE OF THE ASSESSING OFFICER, WHO SHALL DECIDE THE ISSUE AFRES H FOLLOWING THE DIRECTION OF THE CO-ORDINATE BENCH IN ITA NO.14 11/MDS/ 2012 DATED 07.03.2013 FOR THE ASSESSMENT YEAR 2008 -09. 4 ITA NOS. 1523, 1524 & 1360/MDS/2015 6. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2009-10 IS THAT COMMISSIONER OF INC OME TAX (APPEALS) ERRED IN DIRECTING THE ASSESSING OFFI CER TO RECOMPUTE THE DEDUCTION UNDER SECTION 10B OF THE AC T BY EXCLUDING FREIGHT AND CLEARING EXPENSES AND BUSINES S DEVELOPMENT FEE FROM EXPORT TURNOVER AND TOTAL TURN OVER. 7. COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS ISSUE IS DECIDED BY THE SPECIAL BENCH OF THIS TRIBUNAL IN TH E CASE OF ITO VS. SAK SOFT LTD. (121 TTJ 865) WHICH DECISION HAS BEEN FOLLOWED BY THE COMMISSIONER OF INCOME TAX (AP PEALS), THEREFORE HE PLEADS FOR SUSTAINING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 8. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDER O F THE ASSESSING OFFICER. 9. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISION RELIED ON. THE ASSESSING OFFICER D URING THE ASSESSMENT PROCEEDINGS EXCLUDED FREIGHT AND CLEARIN G EXPENSES AND BUSINESS DEVELOPMENT FEE FROM EXPORT TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10 B OF THE ACT. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS ) 5 ITA NOS. 1523, 1524 & 1360/MDS/2015 FOLLOWING THE SPECIAL BENCH DECISION IN THE CASE O F ITO VS. SAK SOFT LTD. (313 ITR (AT) 353) DIRECTED THE ASSES SING OFFICER TO REDUCE THE SAID AMOUNTS FROM THE TOTAL T URNOVER ALSO FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UN DER SECTION 10A OF THE ACT. WE FIND NO INFIRMITY IN THE DIRECTION OF THE COMMISSIONER OF INCOME TAX (APPEALS) AS THE SAM E IS INCONFORMITY WITH THE DECISION OF THE SPECIAL BENCH IN THE CASE OF SAK SOFT LTD.(SUPRA). THUS, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 10. THE ONLY GROUND IN THE APPEAL OF THE ASSESSEE I S THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE DISALLOWANCE MADE UNDER SECTION 14A READ WITH R ULE 8D OF THE ACT. 11. AT THE OUTSET, COUNSEL FOR THE ASSESSEE SUBMITS THAT PROVISIONS OF SECTION 14A READ WITH RULE 8D HAVE NO APPLICATION TO THE FACTS OF THE ASSESSEES CASE AS NO DIVIDEND HAS BEEN RECEIVED BY THE ASSESSEE DURING THE ASSESS MENT YEAR 2011-12. PLACING RELIANCE ON THE DECISION OF T HE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. M.BASKARAN IN ITA NO.1717/MDS/2013 DATED 31.07.2014 , 6 ITA NOS. 1523, 1524 & 1360/MDS/2015 COUNSEL SUBMITS THAT WHEN NO DIVIDEND IS EARNED, DISALLOWANCE UNDER SECTION 14A IS NOT WARRANTED. 12. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES AND THE DECISION RELIED ON. ON GOING THROUGH THE DE CISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M.BASKARAN IN ITA NO.1717/MDS/2013 DATED 31.07.2014 , WE FIND THAT THE ISSUE IN APPEAL IS SQUARELY COVERED B Y THE SAID DECISION WHEREIN THE TRIBUNAL HELD THAT WHEN THE AS SESSEE HAS NOT EARNED DIVIDEND INCOME, DISALLOWANCE UNDER SECTION 14A IS NOT WARRANTED. WHILE HOLDING SO, THE TRIBUNA L OBSERVED AS UNDER:- 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES AND SUBMISSIONS MADE BY THE ASSESSEE AND THE DECISI ONS IN RELIED ON. NO DOUBT IN THE DECISION OF THE SPECIAL BENCH OF DELHI TRIBUNAL IN THE CASE OFCHEMINVEST LTD. VS. IT O (SUPRA), THE SPECIAL BENCH HELD THAT DISALLOWANCE U NDER SECTION 14A CAN BE MADE EVEN IN THE YEAR IN WHICH N O EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE. THIS DECISION OF SPECIAL BENCH OF THE TR IBUNAL HAS BEEN IMPLIEDLY OVERRULED BY THE DECISIONS OF HI GH COURTS IN THE FOLLOWING CASES: 6. IN THE CASE OF M/S. SHIVAM MOTORS P.LTD. (SUPRA ), BEFORE THE HONBLE ALLAHABAD HIGH COURT, THE REVENU E RAISED THE FOLLOWING QUESTION OF LAW:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE INCOME TAX APPELLATE TRIBUNAL WAS JUSTIFIED IN UPHOLDING THE DECISION OF CIT(A) I N DELETING THE DISALLOWANCE OF ` 2,03,752/- U/S.14A IGNORING THE FACT THAT THERE IS DIFFERENCE OF OPINI ON OF VARIOUS COURTS ON THE VIEW TAKEN BY THE ITAT THAT I N 7 ITA NOS. 1523, 1524 & 1360/MDS/2015 THE ABSENCE OF TAX FREE INCOME, NO DISALLOWANCE U/S.14A IS PERMISSIBLE. 7. THE HIGH COURT WHILE ANSWERING THE SAID QUESTION HELD AS UNDER:- AS REGARDS THE SECOND QUESTION, SECTION 14A OF THE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOT AL INCOME UNDER THE CHAPTER, NO DEDUCTION SHALL BE ALL OWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HENCE, WHAT SECTION 14A PROVI DES IS THAT IF THERE IS ANY INCOME WHICH DOES NOT FORM PART OF THE INCOME UNDER THE ACT, THE EXPENDITURE WHICH IS INCURRED FOR EARNING THE INCOME IS NOT AN ALLOWABLE DEDUCTION. FOR THE YEAR IN QUESTION, THE FINDING OF FACT IS THAT THE ASSESSEE HAD NOT EARNED ANY TAX FREE INCOM E. HENCE, IN THE ABSENCE OF ANY TAX FREE INCOME, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT F OR DISALLOWANCE. THE VIEW OF THE CIT(A), WHICH HAS BEE N AFFIRMED BY THE TRIBUNAL, HENCE DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. HENCE, THE DELETION OF THE DISALLOWANCE OF RS.2,03,752/- MADE BY THE ASSESSING OFFICER WAS IN ORDER. 8. THE GUJARAT HIGH COURT IN THE CASE OF CIT VS.CORRTECH ENERGY PVT.LTD.(SUPRA) HELD AS UNDER:- WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE FACTS AND THE DECISION RELIED UPON BY THE ID AR. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. WINSOME TEXTILE INDUSTRIES LTD. REPORTED AT (20 09) 3191TR 204(P&H) HAS HELD THAT IN THE PRESENT CASE, ADMITTEDLY, THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION. IN SUCH A SITUATION, SECTION 14A COULD H AVE NO APPLICATION. IN THIS CASE ALSO, THE ASSESSEE HAS NO T CLAIMED ANY EXEMPT INCOME IN THIS YEAR. THEREFORE, RESPECTFULLY FOLLOWING THE JUDGEMENT OF HON'BLE HIG H COURT OF PUNJAB & HARYANA IN THE CASE OF CIT VS. WINSOME TEXTILE INDUSTRIES LTD. (SUPRA), WE HEREBY ALLOW TH IS GROUND AND DIRECT THE AO TO DELETE THE ADDITION. THEREFORE , GROUND NOS 1 TO 1.2 RAISED BY THE ASSESSEE IN ITS CROSS OB JECTION ARE ALLOWED.' 4. COUNSEL FOR THE REVENUE SUBMITTED THAT THE ASSES SING OFFICER AS WELL AS CIT(APPEALS) HAD APPLIED FORMULA OF RULE 80 OF THE INCOME TAX RULES, SINCE THIS CASE AROSE AFTE R THE ASSESSMENT YEAR 20092010. SINCE IN THE PRESENT CASE, 8 ITA NOS. 1523, 1524 & 1360/MDS/2015 WE ARE CONCERNED WITH THE ASSESSMENT YEAR 20092010, SUCH FORMULA WAS CORRECTLY APPLIED BY THE REVENUE. WE HOWEVER, NOTICE THAT SUBSECTION (1) OF SECTION 14A PROVIDES THAT FOR THE PURPOSE OF COMPUTING TOTAL INCOME UNDE R CHAPTER IV OF THE ACT, NO DEDUCTION SHALL BE ALLOWE D IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEEIN R ELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL I NCOME UNDER THE ACT. IN THE PRESENT CASE, THE TRIBUNAL HA S RECORDED THE FINDING OF FACT THAT THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION OF ANY INCOME FROM PAYMENT OF TAX. IT WAS ON THIS BASIS THAT THE TRIBUNAL HELD THAT DISALLOWANCE UNDER SECTION 14A O F THE ACT COULD NOT BE MADE. IN THE PROCESS TRIBUNAL RELI ED ON THE DECISION OF DIVISION BENCH OF PUNJAB AND HARYANA HI GH COURT IN CASE OF COMMISSIONER OF INCOME TAX V WINSO ME TEXTILE INDUSTRIES LTD REPORTED IN (2009) 319 ITR 2 04 (PUNJ&HAR) IN WHICH ALSO THE COURT HAD OBSERVED AS UNDER: '7. WE DO NOT FIND ANY MERIT IN THIS SUBMISSION. TH E JUDGEMENT OF THIS COURT IN ABHISHEK INDUSTRIES LTD (2006) 28 6 ITR 1 WAS ON THE ISSUE OF ALLOWABILITY OF INTEREST PAID ON LOANS GIVEN TO SISTER CONCERNS, WITHOUT INTEREST. IT WAS HELD THAT DEDUCT ION FOR INTEREST WAS PERMISSIBLE WHEN LOAN WAS TAKEN FOR BUSINESS PU RPOSE AND NOT FOR DIVERTING THE SAME TO SISTER CONCERN WITHOU T HAVING NEXUS WITH THE BUSINESS. THE OBSERVATIONS MADE THEREIN HA VE TO BE READ IN THAT CONTEXT. IN THE PRESENT CASE, ADMITTED LY THE ASSESSE DID NOT MAKE ANY CLAIM FOR EXEMPTION. IN SUCH A SI TUATION SECTION 14A COULD HAVE NO APPLICATION.' 5. WE DO NOT FIND ANY QUESTION OF LAW ARISING, TAX APPEAL IS THEREFORE DISMISSED. 9. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS.DELITEENTERPRISES(SUPRA) HELD AS UNDER:- THE REVENUE IS IN APPEAL ON THE FOLLOWING QUESTION S:- 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE OF TH E CASE AND IN LAW THE HON 'BLETRIBUNAL WAS RIGHT IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF INTEREST PAID BY T HE ASSESSEE COMPANY ON BORROWED FUNDS AMOUNTING TO RS.241.10 LA KHS OVERLOOKING THE FACT THAT THE BORROWED FUNDS WERE U SED BY THE ASSESSEE COMPANY TO INVEST IN THE CAPITAL OF ANOTHE R PARTNERSHIP FIRM AND SINCE PROFITS DERIVED BY THE ASSESSEE COMP ANY FROM A PARTNERSHIP FIRM WERE EXEMPT FROM TAX U/S.10(2A) OF THE INCOME- TAX ACT, THE INTEREST EXPENSE RELATED TO SUCH TAX F REE PROFITS IS TO BE DISALLOWED U/S.14A OF THE INCOME TAX ACT? (B) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW THE HON'BLE TRIBUNAL WAS RIGHT IN HOLDING TH AT THE ASSESSING OFFICER CANNOT CONSIDER NOTIONAL INTEREST ON DEPOSI T RECEIVED BY THE ASSESSEE COMPANY WHILE ARRIVING AT THE FAIR MAR KET VALUE U/S.23(1) (A) OF THE INCOME-TAX ACT?' 9 ITA NOS. 1523, 1524 & 1360/MDS/2015 2. IN SO FAR AS QUESTION (A) IS CONCERNED, ON FACTS WE FIND THAT THERE IS NO PROFIT FOR THE RELEVANT ASSESSMENT YEAR. HENCE THE QUESTION AS FRAMED WOULD NOT ARISE. 10. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE PUNJ AB & HARYANA HIGH COURT IN THE CASE OF CIT VS. M/S. LAK HANI MARKETING INCL. IN ITA NO.970 OF 2008 DATED 2.4.201 4. THE HONBLE HIGH COURT WHILE AFFIRMING THE DECISIONS O F CIT(A) AS WELL AS THE TRIBUNAL IN DELETING THE DISALLOWANC E MADE UNDER SECTION 14A OBSERVED AS UNDER:- 7. AFTER HEARING LEARNED COUNSEL FOR THE PARTIES, WE DO NOT FIND ANY MERIT IN THE APPEALS. 8. THE PRIMARY ISSUE THAT ARISES FOR CONSIDERATION IN THESE APPEALS IS WHETHER THE CIT(A) AS WELL AS THE TRIBUN AL WERE RIGHT IN ALLOWING DEDUCTION OF INTEREST LIABILITY OUT OF OTH ER INCOME AND THE CLAIM OF THE REVENUE TO DISALLOW THE SAME UNDER SEC TION 14A OF THE ACT WAS JUSTIFIED. 9. THE CIT(A) VIDE ORDER DATED 24.6.2004 ANNEXURE A .II RECORDED AS UNDER:- '7.2 KEEPING IN VIEW THE ABOVE FACTS AND CIRCUMSTAN CES OF THE CASE IT IS HELD THAT THE AO WAS NOT CORRECT IN APPL YING SECTION 14A OF THE IT ACT IN DISALLOWING THE EXPENDITURE ON ACC OUNT OF INTEREST AMOUNTING TO ` 46,91,684/-. IT WAS INCUMBENT ON THE AO TO ESTABLISH A NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE INCOME WHICH WAS EXEMPT UNDER THE ACT. FACTS CLEARL Y DO NOT SUPPORT THE ACTION OF THE AO. DISALLOWANCE IS ACCOR DINGLY DELETED. THE AO IS DIRECTED TO RECOMPUTETHE INCOME ACCORDING LY.' 10.VIDE ORDER DATED 16.5.2008, ANNEXURE A.III, THE TRIBUNAL ON APPEAL BY THE REVENUE WHILE UPHOLDING THE FINDING RECORDED BY THE CIT(A) NOTICED AS UNDER:- 'WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE PERUSED T HE MATERIAL ON RECORD. FROM THE READING OF SECTION 14A OF THE A CT, IT IS CLEAR THAT BEFORE MAKING ANY DISALLOWANCE THE FOLLOWING CONDITIONS ARE TO EXIST:- A) THAT THERE MUST BE INCOME TAXABLE UNDER THE ACT, AN D B) THAT THIS INCOME MUST NOT FORM PART OF THE TOTAL IN COME UNDER THE ACT, AND C) THAT THERE MUST BE AN EXPENDITURE INCURRED BY THE A SSESSEE, AND D) THAT THE EXPENDITURE MUST HAVE A RELATION TO THE IN COME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T. 10 ITA NOS. 1523, 1524 & 1360/MDS/2015 9. THEREFORE, UNLESS AND UNTIL, THERE IS RECEIPT OF EXEMPTED INCOME FOR THE CONCERNED ASSESSMENT YEARS (DIVIDENDFROM SH ARES), WE ARE OF THE VIEW, SECTION 14A OF THE ACT CANNOTBE IN VOKED. IN THIS APPEAL, THE REVENUE HAS NOT DISPELLED THE FINDINGS OF THE CIT(A), NOR THE STATEMENT OF THE ASSESSEE BEFORE AO THAT AS SESSEE IS NOT IN RECEIPT OF ANY DIVIDEND INCOME AND HENCE ACCORDI NG TO US, THE ASSESSING OFFICER HAS ERRED IN INVOKING SECTION 14A OF THE ACT, TO DISALLOW VARIOUS INTERESTPAYMENTS ON CAPITAL ACCOUN T, SECURITY DEPOSITS AND UNSECURED LOANS. THIS CONCLUSION OF OU RS FINDS SUPPORT IN THE DECISION OF BOMBAY BENCH OF THE TRIBUNAL IN THE CASE OF JOINT COMMISSIONER OF INCOME TAX V. HOLLAND EQUIPMENT CO. B.V. REPORTED IN (2005) 3 SOT 810 (MUMBAI) AND THE RELEV ANT PORTION OF THE ORDER OF THE BOMBAY BENCH OF THE TRI BUNAL IS REPRODUCED BELOW:- 'REGARDING APPLICATION OF SECTION 14A OF THE ACT, T HE CONTENTION OF THE LEARNED DEPARTMENT REPRESENTATIVE HAS TO BE REJ ECTED ON THE FACE OF IT INASMUCH AS THE ENTIRE INCOME OF THE ASS ESSEE IS TAXABLE UNDER THE ACT. SECTION 14A IS APPLICABLE ONLY WHEN ANY PART OF THE INCOME IS NOT TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEEAND THE EXPENDITURE RELATING TO THAT PART O F INCOME IS CLAIMED BY THE ASSESSEEAS DEDUCTION. IN SUCH CASES ONLY, THE EXPENDITURE RELATING TO THE EXEMPTED INCOME CAN BE DISALLOWED AND NOT OTHERWISE. SINCE IN THE PRESENT CASETHE ENT IRE INCOME IS FOUND TO BE TAXABLE, NO DISALLOWANCE CAN BE MADE UN DER SECTION 14A OF THE ACT.' 10. MOREOVER, THE AO HAS NOT ESTABLISHED THE NEXUS BETWEEN INVESTED FUNDS AND THE INTEREST BEARING FUN DS, SINCE THE INVESTMENTS IN SHARES ARE IN THE YEARS 19 95-96, 1998-99 AND 1999-2000 AND THE INTEREST DISALLOWANCE IS FOR THE ASSESSMENT YEARS 2000-01 AND 2001 -02. ON T HE CONTRARY PERUSAL OF THE BALANCE SHEET FOR THE YEAR ENDING 31.3.1995, 31.3.1998 AND 31.3.1999, IT IS CLEAR THA T INTEREST BEARING FUNDS HAVE NOT BEEN UTILIZED FOR INVESTMENT FOR PURCHASE OF SHARES. 11. FOR THE AFORESAID REASONS, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF CLT(A) CONCERNING ASSESSMENT YEAR 2000 -01 AND 2001-02 AND HENCE THE DECISION OF CIT (A) IN DELETI NG THE DISALLOWANCE OF INTEREST BY INVOKING SECTION 14A OF THE ACT IS CORRECT AND IN ACCORDANCE WITH LAW.' 11. IN VIEW OF THE AFORESAID FINDINGS, WHICH COULD NOT BE SHOWN TO BE ERRONEOUS, THE PLEA OF THE REVENUE CANNOT BE AC CEPTED. 11. IN THE CASE OF CIT VS. WINSOME TEXTILES INDUSTR IES LTD. (319 ITR 204) THE HONBLE PUNJAB & HARYANA HIG H COURT HELD THAT WHEN THERE IS NO CLAIM FOR EXEMPTION OF I NCOME IN SUCH SITUATION SECTION 14A HAS NO APPLICATION. RESP ECTFULLY 11 ITA NOS. 1523, 1524 & 1360/MDS/2015 FOLLOWING THE ABOVE DECISIONS, WE DELETE THE DISALL OWANCE MADE UNDER SECTION 14A AS THE ASSESSEE HAS NOT EARN ED / RECEIVED FOR EXEMPT INCOME DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THUS, WE SUSTAIN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. 13. RESPECTFULLY FOLLOWING THE SAID DECISION, WE AL LOW THE GROUNDS OF APPEAL OF THE ASSESSEE ON THIS ISSUE. 14. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO.1523/MDS/2015 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THAT OF ITA NO. 1524/MDS/2015 IS ALLOWED FOR ST ATISTICAL PURPOSES AND THE APPEAL OF THE ASSESSEE IN ITA NO.1360/MDS/2015 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH DECEMBER, 2015. SD/- SD/- ( ! ) ( $ '! ) ( CHANDRA POOJARI ) ( CHALLA NAG ENDRA PRASAD ) ) / ACCOUNTANT MEMBER ' ) / JUDICIAL MEMBER ' /CHENNAI, + /DATED 18 TH DECEMBER, 2015 SOMU -. /. /COPY TO: 1. ASSESSEE 2. ASSESSING OFFICER 3. 0 () /CIT(A) 4. 0 /CIT 5. . 4 /DR 6. /GF .