M/s Swaraj Engines Ltd., Mohali V. DCIT, C-6(1), Mohali

ITA 1366/CHANDI/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0061 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 05-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: A.K.JINDAL
• Keywords: Earning of tax free income; Tangible material; Onus to prove; Rule 8D
• Section: 14A; 13

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH B , CHANDIGARH , ! '# $ % & '# , BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.1366/CHD/2018 / ASSESSMENT YEAR : 2015-16 M/S SWARAJ ENGINES LTD. MOHALI. (PUNJAB) THE D.C.I.T., CIRCLE 6(1), MOHALI. ./PAN NO: AACCS2990N /ASSESSEE BY : SHRI A.K. JINDAL, CA / REVENUE BY : SHRI MANJIT SINGH, SR.DR ! /DATE OF HEARING : 12.03.2019 '#$% ! /DATE OF PRONOUNCEMENT: 29.03.2019 /ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-2, CHANDIGARH (IN SHORT CIT(A) DATED 28 .8.2018 RELATING TO ASSESSMENT YEAR 2015-16, PASSED U/S 25 0(6) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO A S ACT). 2. THE SOLE ISSUE INVOLVED IN THE PRESENT APPEAL RELATES TO DISALLOWANCE OF EXPENSES INCURRED BY THE ASSESSEE IN RELATION TO EARNING OF EXEMPT INCOME AS PER THE PROVISIONS OF SECTION 14A OF THE ACT. 3. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF ITA NO.1366/CHD/2018 A.Y.2015-16 2 RS.3,23,73,710/- DURING THE RELEVANT YEAR. DURING ASSESSMENT PROCEEDINGS, THE A.O. QUESTIONED THE ASSESSEE ON DIVIDEND INCOME BEING EXEMPT FROM TAX AND, THEREFORE, EXPENSES INCURRED TO EARN EXEMPT INCOME REQUIRED TO BE DISALLOWED AS PER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. TH E ASSESSEE SUBMITTED THAT THE TAX AUDITORS IN THE RELEVANT YEAR AFTER TAKING INTO ACCOUNT RELEVANT FA CTS CONSIDERED AN AMOUNT OF RS.6,87,531/- AS EXPENDITUR E TOWARDS EARNING OF EXEMPT DIVIDEND INCOME AND THE SAME HAD BEEN DISALLOWED BY THE ASSESSEE IN THE COMPUTATION OF INCOME. THE A.O. FOUND THAT ONLY THE SALARY PART OF ONE EMPLOYEE HAD BEEN ATTRIBUTED AS EXPENDITURE TOWARDS EARNING DIVIDEND INCOME. THE CONTENTION OF THE ASSESSEE WAS REJECTED AND DISALLOWANCE U/S 14A R.W.R. 8D WAS MADE BY THE A.O. 4. BEFORE THE LD.CIT(A), THE ASSESSEE CONTENDED BEF ORE HIM THAT THE DISALLOWANCE MADE WAS AGAINST THE PROVISIO NS OF LAW SINCE THE A.O. HAD FAILED TO RECORD HIS SATISFACTIO N REGARDING THE INCORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE REGARDING THE EXPENSES DISALLOWABLE U/S 14A OF THE ACT DESPITE THE FACT THAT THE ASSESSEE HAD IN DETAIL EX PLAINED HIS METHOD AND REASONS FOR WORKING OUT THE SUO MOTO DISALLOWANCE. THE ASSESSEE ALSO CONTENDED THAT SINC E IT HAD AMPLE RESERVES AND SURPLUSES, THERE WAS NO REASON F OR MAKING ANY DISALLOWANCE OF INTEREST U/S 14A OF THE ACT SINCE THE PRESUMPTION IN SUCH CASES IS THAT THE INVESTMEN T HAD ITA NO.1366/CHD/2018 A.Y.2015-16 3 BEEN MADE OUT OF THE ACT ITS OWN FUNDS. THE LD.CIT( A) DISMISSED THE CONTENTION OF THE ASSESSEE AND UPHELD THE ORDER OF THE A.O. FOLLOWING HIS DECISION IN THE IMM EDIATELY PRECEDING YEAR IN THE CASE OF THE ASSESSEE I.E. ASS ESSMENT YEAR 2014-15. 5. AGGRIEVED BY THE SAME, THE ASSESSEE HAS COME UP IN APPEAL BEFORE US RAISING FOLLOWING GROUNDS: 1. THAT THE ORDER PASSED BY THE LEARNED CIT (A) IS B AD IN LAW BEING BASED ON CONJECTURES AND SURMISES AND WITHOUT APPRECIATING MATERIAL ON RECORD. 2. THAT THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING THE DISALLOWANCE OF RS. 21,83,228/- MADE BY LD. AO U/S 14A BY WRONGLY APPLYING RULE 8D OF INCOME TAX RULES,1962. 3. THAT THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS O F THE CASE BY MAKING THE PROVISIONS OF SECTION 14A REA D WITH RULE 8D APPLICABLE TO THE APPELLANT COMPANY IN A MECHANICAL MANNER. 4. THAT THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS OF THE CASE BY IGNORING THE DISALLOWANCE MADE BY THE APPELLANT COMPANY HIMSELF IN RESPECT OF EARNING THE EXEMPT INCOME U/S 14A OF INCOME TAX ACT, 1961. 5. THAT THE APPELLANT CRAVES TO LEAVE, ADD OR MODIFY A NY GROUND OF APPEAL BEFORE THE DISPOSAL OF APPEAL. 6. BEFORE US, THE LD. COUNSEL FOR ASSESSEE CONTENDE D THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL STANDS ADJ UDICATED IN FAVOUR OF THE ASSESSEE BY THE I.T.A.T. RIGHT FRO M ASSESSMENT YEARS 2012-13 TO ASSESSMENT YEAR 2014-15 . COPY OF THE ORDER OF THE I.T.A.T. RELATING TO ASSESSMENT YEAR 2014- 15 PASSED IN ITA NO.775/CHD/2018 DATED 21.11.2018 A ND CONSOLIDATED ORDER FOR ASSESSMENT YEARS 2012-13 AND 2013- 14 IN ITA NOS.1258 & 1259/CHD/2016 DATED 1.6.2017 W AS PLACED BEFORE US. DRAWING OUR ATTENTION TO THE ORD ER PASSED ITA NO.1366/CHD/2018 A.Y.2015-16 4 IN ITA NOS.1258 & 1259/CHD/2016 IT WAS POINTED OUT THAT I.T.A.T. IN THE SAID CASE HAD DELETED THE DISALLOWA NCE MADE HOLDING THAT THE A.O. HAD FAILED TO RECORD HIS SATI SFACTION REGARDING THE INCORRECTNESS OF THE CLAIM OF THE ASS ESSEE OF EXPENSES DISALLOWABLE U/S 14A OF THE ACT. OUR ATTEN TION WAS DRAWN TO THE FINDINGS OF THE I.T.A.T. AT PARAS 12 T O 16 OF THE ORDER AS UNDER: 12. THE FIRST ARGUMENT WHICH WAS RAISED BEFORE US AND WHICH NEEDS TO BE ADDRESSED IS REGARDING THE SATISFACTION OF THE ASSESSING OFFICER VIS--VIS THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT THE EXPENSES INCURRED FOR EARNING THE EXEMPT INCOME AMOUNTED TO RS.8,79,416/-. ON EXAMINING THE ASSESSMENT ORDER AND ON READING PARA 3.1 OF THE SAME, WHICH WAS POINTED OUT TO US BY THE LD. DR WHEREIN PURPORTEDLY THE SATISFACTION OF THE ASSESSING OFFICER WAS RECORDED, WE FIND THE SAME READS AS UNDER: 3.1 I HAVE EXAMINED THE ABOVE SUBMISSION OF THE ASSESSEE SUBMITTED VIDE LETTER DATED 18.12.2014 BUT NOT INCLINED TO ACCEPT THE VIEW THAT ONLY SALARY OF ONE EMPLOYEE PERTAINS TO EXPENDITURE ATTRIBUTABLE TOWAR DS EARNING DIVIDEND INCOME. FROM THE PROFIT AND LOSS ACCOUNT, IT IS OBSERVED THAT THE ASSESSEE HAS INCUR RED RS. 1916.88 LAKHS AS EMPLOYEES BENEFIT EXPENSES AND RS. 7.60 LAKHS ON BANK AND OTHER FINANCIAL CHARGES. THE ASSE SSEE HAS NOT FILED ANY EVIDENCE WITH REGARD TO THE CLAIM THA T NO BUSINESS ASSETS OR FUNDS OUT OF BUSINESS WERE UTILI ZED OR NO ADMINISTRATIVE EXPENDITURE IS INCURRED IN EARNIN G THE DIVIDEND INCOME. ACCORDINGLY, 1 AM NOT SATISFIED WI TH THE CORRECTNESS OF EXPENDITURE CLAIMED BY THE ASSESSEE. 13. THE SUBMISSIONS MADE BY THE ASSESSEE VIDE LETTER DATED 18.12.2014, REFERRED TO ABOVE, IS REPRODUCED IN THE ORDER OF THE AO AS UNDER: 'THE ASSESSEE COMPANY HAS EARNED AN EXEMPTED DIVIDE ND INCOME OF RS. 3,08,09,411/- DURING THE F.Y. 2011-12 . IN THIS REGARD, IT IS SUBMITTED THAT ENTIRE EXEMPTED INCOME PERTAINS TO DIVIDEND RECEIVED FROM INVESTMENTS MADE IN CERTAIN DEBT BASED MUTUAL FUNDS. COMPANY'S BOARD OF DIRECTORS HA S PUT IN PLACE A POLICY DEFINING THE FUNDS WHERE INVESTMENTS ARE REQUIRED TO BE MADE. FURTHER, MAKING AN INVESTMENT IN THE PRESCRIBED DEBT BASED MUTUAL FUNDS IS LIKE CHOOSING FIXED DEPOSITS FROM VARIOUS AVAILABLE OPTIONS WHICH DO NO T INCLUDE ANY EXPENDITURE. NOW, JUST BECAUSE THE INCOME FROM DIVIDEND ITA NO.1366/CHD/2018 A.Y.2015-16 5 IS A TAX FREE INCOME AS PER THE ACT, THAT DOES NOT MEAN THAT THE 'EXPENSE HAVE NECESSARILY TO BE APPORTIONED TO EARN SUCH INCOME. AS YOU ARE AWARE OF THAT 'OURS IS A LARGE MANUFACTURING CONCERN AND ALL THE INVESTMENT ARE MA INLY IN ELECTRONIC MODE WHERE THE ECS CREDIT OF DIVIDEND IS AUTOMATICALLY DONE. WE CAN COMPARE THIS DIVIDEND IN COME WITH THE INCOME FROM DIVIDENDS ON THE INVESTMENTS I N SHARES OF COMPANIES BY THE INDIVIDUALS. ONCE THE INVESTMEN T IS MADE, THERE ARE HARDLY ANY EXPENSES REQUIRED TO BE INCURR ED AFTER THAT. IN ANY CASE, DURING THE COURSE OF TAX AUDIT FOR THE RELEVANT A.Y. 2012-13, THE TAX AUDITORS OF THE COMPANY, AFTE R TAKING INTO CONSIDERATION THE ENTIRE FACTS AND DETAILED DE LIBERATIONS, CONSIDERED AN AMOUNT OF RS.8,79,416/- AS EXPENDITUR E TOWARDS EARNING OF EXEMPTED DIVIDEND INCOME U/S. 14 A OF INCOME TAX ACT, 1961. THIS AMOUNT OF RS.8,79,416/- HAS BEEN WORKED OUT AS FOLLOWS: DISALLOWANCE U/S 14A AMT. (IN RS.) ENTIRE SALARY OF MR.VINOD SHARMA (ACCOUNTS OFFICER) 3,77,249/- 10% SALARY OF MR. M.S.GREWAL (COMPANY SECRETARY) 2,23,856/- SUB TOTAL 6,01,105/- ADD: 46.30% (% AGE OF ADMINISTRATIVE EXPENSES TO THE SALARY) FOR ADMN. EXP. 2,78,311/- GROSS TOTAL 8,79,416/- THIS DISALLOWANCE HAS BEEN DEPICTED IN CLAUSE 17(1) OF THE TAX AUDIT REPORT AND WAS ALSO DISALLOWED IN THE COMPUTA TION OF INCOME FROM BUSINESS OR PROFESSION UNDER SCHEDULE B P OF THE INCOME TAX RETURN. IN VIEW OF THE ABOVE FACTS WE HEREIN SUBMIT THAT NO FURTHER DISALLOWANCE IS WARRANTED IN THE CASE OF ASSESSEE C OMPANY DURING THE A.Y. 2012-13 U/S. 14A READ WITH RULE 8D. FURTHER, IN ORDER TO SUBSTANTIATE OUR CLAIM, WE RELY ON THE FOLLOWING PRECEDENTS: 14. COMING TO THE PROPOSITION REGARDING THE SATISFACTION OF THE ASSESSING OFFICER U/S 14A OF TH E ACT WHICH HAS BEEN LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD.(2016) 380 ITR 652(P&H) AND DEEPAK MITTAL (SUPRA), WE FIND THAT THE HONBLE HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD. (SUPRA), WHILE DEALING WITH THE ISSUE, HELD THAT THE SATISFACTION TO BE RECORDED MUST BE BASED ON CREDIBLE AND RELEVANT EVIDENCE. THE HON'BLE HIGH COURT HAS HELD THAT ONUS TO PROVE THAT THE CLAIM OF THE ASSESSEE WAS INCORRECT LIES ON THE SHOULDERS OF THE REVENUE AND ITA NO.1366/CHD/2018 A.Y.2015-16 6 THE ASSESSING OFFICER CANNOT STATE THAT HE IS NOT SATISFIED ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE BY MAKING GENERAL OBSERVATION. THE HON'BLE HIGH COURT HAS CATEGORICALLY HELD THAT ON THE BASIS OF CLEAR AND COGENT MATERIAL ONLY CAN BE BASED U/S 14A DISALLOWING THE ASSESSEES CLAIM. THE HON'BLE HIGH COURT HAS LAID DOWN THE SAID PROPOSITION AT PARA 9 OF ITS ORDER AS UNDER : SECTION 14A OF THE ACT REQUIRES THE ASSESSING OFFI CER TO RECORD SATISFACTION THAT INTEREST BEARING FUNDS HAV E BEEN USED TO EARN TAX FREE INCOME. THE SATISFACTION TO BE RECORDED MUST BE BASED UPON CREDIBLE AND RELEVANT EVIDENCE. THE ONUS, THEREFORE, TO PROVE THAT INTEREST BEARING FUNDS WERE USED, LIES SQUARELY ON THE SHOULDE RS OF THE REVENUE. THUS, IF THE ASSESSING OFFICER IS ABLE TO REFER TO RELEVANT MATERIAL WHILE RECORDING SATISFACTIO N THAT BORROWED FUNDS WERE USED TO EARN INTEREST FREE INCO ME AS OPPOSED TO THE ASSESSEE'S OWN FUNDS, THE ASSESSIN G OFFICER MAY LEGITIMATELY DISALLOW SUCH A CLAIM. THE ASSESSING OFFICER, HOWEVER, CANNOT, BY RECORDING GENER AL OBSERVATIONS, PARTICULARLY WHERE THE ASSESSEE HAS DENIED USING INTEREST BEARING FUNDS, PROCEED TO INFE R THAT INTEREST BEARING INCOME MUST HAS BEEN USED TO EARN EXEMPTED INCOME. SECTION 14A OF THE ACT, BEING IN THE NATURE OF AN EXCEPTION, HAS TO BE CONSTRUED STRICTLY AND ONLY WHERE THE ASSESSING OFFICER RECORDS SATISFACTIO N, ON THE BASIS OF CLEAR AND COGENT MATERIAL, SHALL AN ORDER BE PASSED UNDER SECTION 14A OF THE ACT, DISALLOWING SUCH A CLAIM. AS THERE IS NO TANGIBLE MATERIAL ON RECORD THAT COULD HAVE ENABLED THE ASSESSING OFFICER TO RECORD SATISFACTION IN TERMS OF SECTION 14A OF THE ACT, FIN DINGS RECORDED BY THE CIT(A) AND THE ITAT THAT THE ASSESS ING OFFICER HAS FAILED TO DISCHARGE THIS ONUS ARE NEITHER PERVERSE NOR ARBITRARY AND, THEREFORE, DO NOT CALL FOR INTERFERENCE. 15. THE HON'BLE HIGH COURT HAS REITERATED THE SAID PROPOSITION IN THE CASE OF DEEPAK MITTAL (2013) 361 ITR 131(P&H) AS UNDER: 9. WHEN CONSISTENT CASE OF THE ASSESSEE, DESPITE NO TICE GIVEN BY THE ASSESSING OFFICER TO GIVE DETAILS OF TH E EXPENDITURE MADE ON EARNING OF EXEMPTED INCOME IN T HE NATURE OF DIVIDEND, VERSION OF THE ASSESSEE WAS THAT HE HAD NOT MADE ANY EXPENDITURE ON EARNING SUCH INCOME , THE ASSESSING OFFICER IN TERMS OF SUB-SECTION 2 OF SE CTION 14-A OF THE ACT WAS TO PROCEED FURTHER TO COLLECT SUCH MATERIAL OR EVIDENCE TO DETERMINE EXPENDITURE, IF ANY, INCURRED BY THE ASSESSEE BUT THE ASSESSING OFFICER INSTEAD RELYING ON RULE 8-D OF THE RULES APPLIED AS A FORMULA, APPLICABLE TO AN ASSESSEE WHO HAS INCURRED EXPENDITURE BY WAY OF INTEREST WHICH IS NOT DIRECTL Y ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT WHI CH IS NOT THE CASE OF THE PRESENT ASSESSEE, WHICH WAS CLEARLY A WRONG APPLICATION INTRODUCED AS A SUBSTITUTE FOR SUB- ITA NO.1366/CHD/2018 A.Y.2015-16 7 SECTION 2 OF SECTION 14-A OF THE ACT AND THUS WAS NO T PERMISSIBLE IN LAW. 16. NOW APPLYING THE AFORESAID PROPOSITION LAID DOWN BY THE HON'BLE HIGH COURT TO THE FACTS OF THE PRESENT CASE, WE FIND THAT THE ASSESSEE HAD STATED THAT ITS ENTIRE INVESTMENTS WERE MADE IN DEBT ORIENTED MUTUAL FUNDS, THAT THE COMPANYS BOARD OF DIRECTORS HAD PUT IN PLACE A POLICY DEFINING FUNDS WHERE INVESTMENTS WERE REQUIRED TO BE MADE AND MAKING SAID INVESTMENT WAS EQUIVALENT TO CHOOSING FIXED DEPOSITS FROM VARIOUS AVAILABLE OPTIONS WHICH DOES NOT ENTAIL INCURRING ANY EXPENDITURE. THE ASSESSEE HAD ALSO SUBMITTED THAT IT IS A LARGE CONCERN AND ALL INVESTMENTS ARE MAINLY IN ELECTRONIC MODE WHEREAS ECS CREDIT TO DIVIDEND IS AUTOMATICALLY DONE. THUS THE ASSESSEE HAD SUBMITTED THAT THE INVESTMENTS HARDLY ENTAILED INCURRING OF ANY EXPENSES. FURTHER THE ASSESSEE HAD SUBMITTED THAT IT HAD DISALLOWED EXPENSES OF TWO OF ITS EMPLOYEES, BEING 100% OF ITS ACCOUNTS OFFICER AND 10% SALARY OF ITS COMPANY SECRETARY AND FURTHER 46.30% OF SALARY GIVEN TO THESE PERSONS, ON ACCOUNT OF ADMINISTRATIVE EXPENSES INCURRED. NOW, THE ASSESSING OFFICER, WE FIND, HAS RECORDED HIS SATISFACTION VIS-A-VIS THE INCORRECTNE SS OF THE CLAIM OF THE ASSESSEE WITHOUT ANY COGENT BASIS, AS A BARE READING OF PARA 3.1 OF THE ORDER, WHERE THE ASSESSING OFFICER HAS EXPRESSED HIS SATISFACTION, REVEALS. THE ASSESSING OFFICER HAS DISBELIEVED THE ASSESSEES CLAIM SINCE THE DISALLOWANCE MADE BY THE ASSESSEE WAS MINISCULE AS COMPARED TO THE EXPENSES INCURRED ON EMPLOYEES BENEFIT EXPENSES AND INTEREST EXPENSES. CLEARLY, THIS ALONE CANNOT BE THE BASIS FOR DISBELIEVING THE ASSESSEES EXPLANATION AND CONTENTION. MORE PARTICULARLY, CONSIDERING THE FACT THE ASSESSEE HAS EXPLAINED AS TO WHY IT WAS INCURRING ONLY A SMALL AMOUNT OF EXPENDITURE FOR THE EARNING OF DIVIDEND INCOME. THE ASSESSING OFFICER WHILE REJECTING ASSESSEES CONTENTION HAS NOT STATED AS TO HOW THE CONTENTION OF THE ASSESSEE THAT SINCE ALL INVESTMENTS WERE MADE IN DEBT ORIENTED FUNDS AND THERE WAS A POLICY LAID DOWN FOR MAKING THE SAID INVESTMENTS AND ALL INVESTMENTS WERE MADE ELECTRONICALLY, THEREFORE, NO EXPENDITURE WAS INCURRED, WAS INCORRECT. THE ASSESSING OFFICER WHILE RECORDING HIS SATISFACTION HAS NEITHER CONTROVERTED THE CONTENTION OF THE ASSESSEE, NOR HAS BROUGHT OUT ANY FALLACY IN THE CLAIM OF THE ASSESSEE. THE ASSESSING OFFICER HAS MERELY STATED THAT SINCE THE ASSESSEE HAD INCURRED HUGE EXPENSES ON EMPLOYEES AND INTEREST IT CANNOT CONTRIBUTE ONLY A VERY SMALL PORTION TO THE EARNING OF DIVIDEND INCOME. FOR THE ABOVE REASONS, WE FIND ITA NO.1366/CHD/2018 A.Y.2015-16 8 THAT THE BASIS WITH THE ASSESSING OFFICER FOR ARRIVING AT SATISFACTION THAT THE CLAIM OF THE ASSESSEE OF EXPENSES INCURRED FOR THE PURPOSE OF EARNING DIVIDEND INCOME WAS INCORRECT, WAS NEITHER BASED ON ANY EVIDENCE, NOR HAS ANY COGENT BASIS AND WAS MERELY A GENERAL STATEMENT. AS HELD BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F ABHISHEK INDUSTRIES LTD. AND CIT VS. DEEPAK MITTAL (SUPRA), THE ASSESSING OFFICER HAD NOT EXHIBITED VALID SATISFACTION REGARDING INCORRECTNESS OF THE CLAIM OF THE ASSESSEE. THE ASSESSING OFFICER IN THE ABSENCE OF SATISFACTION REGARDING CORRECTNESS OF TH E CLAIM OF THE ASSESSEE, COULD NOT HAVE THEREFORE PROCEEDED TO APPLY RULE 8D FOR THE PURPOSE OF DISALLOWING EXPENSES INCURRED FOR EARNING EXEMPT INCOME. FOR THIS REASON, WE HOLD THAT THE DISALLOWANCE MADE U/S 14A AMOUNTING TO RS.27,20,584/- IS UNWARRANTED AND IS THEREBY DIRECTED TO BE DELETED. 7. THE LD. COUNSEL FOR ASSESSEE POINTED OUT THAT TH E IMPUGNED CASE WAS IDENTICAL WITH THE ASSESSEE HAVIN G EXPLAINED THE MANNER OF WORKING OUT SUO MOTO DISALL OWANCE U/S 14A AMOUNTING TO RS.6.88 LACS BY TAKING INTO CONSIDERATION 100% SALARY OF ITS ACCOUNTS OFFICER A ND PROPORTIONATE ADMINISTRATIVE EXPENSES INCURRED IN R ELATION TO THE TOTAL PERSONAL COST AND HAD EXPLAINED THAT SINC E THE INVESTMENTS HAD BEEN MADE AS PER DEFINED INVESTMENT POLICY OF THE COMPANY IN DEBT BASED MUTUAL FUNDS WHICH WAS LIKE CHOOSING FIXED DEPOSITS FROM VARIOUS AVAILABLE OPTI ONS IT DID NOT REQUIRE ANY EXPENDITURE. THE LD. COUNSEL FOR AS SESSEE CONTENDED THAT IN THE PRESENT CASE ALSO THE A.O. HA D NOT RECORDED ANY SATISFACTION AS TO WHY THE CLAIM OF TH E ASSESSEE AS ABOVE WAS INCORRECT, BUT HAD SUMMARILY DISMISSED IT HOLDING AT PARA 3.1 OF HIS ORDER AS UNDER: 3.1 I HAVE EXAMINED THE ABOVE SUBMISSION OF THE ASSESSEE SUBMITTED VIDE LETTER DATED 31.08.2017 BUT NOT INCLINED TO ACCEPT THE VIEW THAT ONLY SALAR Y OF ONE EMPLOYEE PERTAINS TO EXPENDITURE ATTRIBUTABLE TOWARDS EARNING DIVIDEND INCOME. FROM ITA NO.1366/CHD/2018 A.Y.2015-16 9 THE PROFIT AND LOSS ACCOUNT, IT IS OBSERVED THAT TH E ASSESSEE HAS INCURRED RS.2507.05 LAKHS AS EMPLOYEES BENEFIT EXPENSES AND RS.1.28 LAKHS ON BANK AND OTHER FINANCIAL CHARGES. THE ASSESSEE HAS NOT FILED ANY EVIDENCE WITH REGARD TO THE CLAIM THAT NO BUSINESS ASSETS OR FUNDS OUT OF BUSINESS WERE UTILIZED OR NO ADMINISTRATIVE EXPENDITURE IS INCURRED IN EARNING THE DIVIDEND INCOME. ACCORDINGLY, I AM NOT SATISFIED WITH THE CORRECTNES S OF EXPENDITURE CLAIMED BY THE ASSESSEE. 8. THE LD. COUNSEL FOR ASSESSEE, THEREFORE,, CONTEN DED THAT THE FACTS AND CIRCUMSTANCES IN THE PRESENT CASE WER E IDENTICAL TO THAT IN ASSESSMENT YEARS 2012-13 AND 2 013-14 AND THE DISALLOWANCE, THEREFORE, MADE U/S14A OF THE ACT REQUIRED TO BE DELETED FOLLOWING THE ORDER OF THE I .T.A.T. IN ASSESSMENT YEARS 2012-13 AND 2013-14. IT WAS FURTHE R CONTENDED THAT THE I.T.A.T. HAD ALSO ACCEPTED THE A SSESSEES CONTENTION THAT IN VIEW OF SUFFICIENT OWN FUNDS AV AILABLE, NO DISALLOWANCE OF INTEREST EXPENSES WAS WARRANTED U/S 14A OF THE ACT. OUR ATTENTION WAS DRAWN TO THE FINDINGS OF THE I.T.A.T. IN ITA NOS.1258 & 1259 AT PAGES 17 TO 19 O F ITS ORDER AS UNDER: 17. THE LD. COUNSEL FOR ASSESSEE HAS ALSO RAISED THE ARGUMENT BEFORE US THAT IN ANY CASE NO DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE INCURRED COULD BE MADE BY INVOKING RULE 8D(2)(II) O F THE INCOME TAX RULES, 1962 SINCE THE ASSESSEE HAD NOT INCURRED ANY INTEREST EXPENDITURE AT ALL AND ALSO FOR THE REASON THAT IT HAD ENOUGH OWN SURPLUS FUNDS AVAILABLE WITH IT FOR THE PURPOSE OF MAKING INVESTMENT. THE LD. COUNSEL FOR ASSESSEE HAD DEMONSTRATED BOTH THESE FACTS TO US BY DRAWING OUR ATTENTION TO THE ANNUAL ACCOUNTS OF THE ASSESSEE FO R THE IMPUGNED ASSESSMENT YEAR. WE FIND MERIT IN THIS CONTENTION OF THE LD. COUNSEL FOR ASSESSEE. A S POINTED OUT TO US, THE ANNUAL ACCOUNTS OF THE ASSESSEE SHOW TOTAL FINANCE COST INCURRED DURING THE YEAR AMOUNTING TO RS.7.60 LACS, OUT OF WHICH ONLY 0.21 LACS WAS ON ACCOUNT OF INTEREST ON OVER DRAFT WHILE THE REST RELATED TO OTHER INTEREST EXPENSES AND WERE NOT IN THE NATURE OF BORROWING CHARGES, AS IS EVIDENT FROM THE DETAIL PROVIDED IN ITA NO.1366/CHD/2018 A.Y.2015-16 10 THE ANNUAL ACCOUNT OF THE ASSESSEE AND ALSO PLACED BEFORE US AND REPRODUCED ABOVE. AT THE SAME TIME, WE FIND THAT THE DISALLOWANCE MADE UNDER RULE 8D(2)(II) AMOUNTED TO RS.1.27 LACS. THE INTEREST EXPENSES ATTRIBUTABLE TO INTEREST BEARING FUNDS IN THE PRESENT CASE NOT EXCEEDING TO RS.0.21 LACS THE DISALLOWANCE COULD NOT IN ANY CASE HAVE EXCEEDED THE SAID AMOUNT. FURTHER WE FIND THAT IT HAS BEEN CLEARLY DEMONSTRATED BEFORE US THAT THE ASSESSEE HAD SUFFICIENT OWN INTEREST FREE FUNDS TO MAKE THE IMPUGNED INVESTMENTS AND, THEREFORE, THE PRESUMPTION IN SUCH CASES IS THAT THE INVESTMENT HAS BEEN MADE OUT OF THE SAME. THE HONBLE PUNJAB AND HARYANA HIGH COURT HAS LAID DOWN THE SAID PROPOSITION IN THE CONTEXT OF SECTION 14A, IN THE CASE OF CIT VS MAX INDIA LTD., ITA NO.186 OF 2013 (O&M) DATED 6.9.2016, HOLDING AS UNDER: 9. THIS PRESUMPTION IS UNFOUNDED. MERELY BECAUSE THE INTEREST FREE FUNDS WITH THE ASSESSEE HAVE DECREASE D DURING ANY PERIOD, IT DOES NOT FOLLOW THAT THE FUNDS BORROWED ON INTEREST WERE UTILIZED FOR THE PURPOSE OF INVESTING IN ASSETS YIELDING EXEMPT INCOME. IF EVEN A FTER THE DECREASE THE ASSESSEE HAS INTEREST FREE FUNDS SUFFICIENT TO MAKE THE INVESTMENT IN ASSETS YIELDING THE EXEMPT INCOME, THE PRESUMPTION THAT IT WAS SUCH FUND S THAT WERE UTILIZED FOR THE SAID INVESTMENT REMAINS. THERE IS NO REASON FOR IT NOT TO. THE BASIS OF THE PRESUMP TION AS WE WILL ELABORATE LATER IS THAT AN ASSESSEE WOULD INV EST ITS FUNDS TO ITS ADVANTAGE. IT GAINS NOTHING BY INVESTIN G INTEREST FREE FUNDS TOWARDS OTHER ASSETS MERELY ON ACCOUNT OF THE INTEREST FREE FUNDS HAVING DECREASED . IN THAT EVENT SO LONG AS EVEN AFTER THE DECREASE THEREO F THERE ARE SUFFICIENT INTEREST FREE FUNDS THE PRESUMP TION THAT THEY WOULD BE FIRST USED TO INVEST IN ASSETS YI ELDING EXEMPT INCOME APPLIES WITH EQUAL FORCE. 18. IN VIEW OF THE ABOVE, NO DISALLOWANCE OF INTEREST EXPENDITURE WAS WARRANTED IN THE FACTS OF THE PRESENT CASE. 19. WE THEREFORE HOLD THAT IN THE ABSENCE OF SATISFACTION RECORDED BY THE ASSESSING OFFICER VIS- -VIS THE INCORRECTNESS OF THE CLAIM OF THE ASSESSE E OF EXPENSES DISALLOWABLE U/S 14A OF THE ACT AND FURTHER ON ACCOUNT OF SUFFICIENT OWN FUNDS AVAILABL E WITH THE ASSESSEE FOR THE PURPOSE OF MAKING INVESTMENTS WHICH EARNED EXEMPT INCOME, THE DISALLOWANCE OF RS.27,20,584/- MADE U/S 14A OF THE ACT WAS UNWARRANTED IN THE PRESENT CASE. THE ORDER OF THE LD.CIT(APPEALS) IS, THEREFORE, SET ASI DE ON THIS COUNT AND THE DISALLOWANCE MADE U/S 14A AMOUNTING TO RS.27,20,584/- IS DIRECTED TO BE DELETED. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE, THEREFORE, ALLOWED. ITA NO.1366/CHD/2018 A.Y.2015-16 11 AND ALSO TO THE FINDINGS OF THE I.T.A.T. IN ITA NO.775/CHD/2018 RELATING TO ASSESSMENT YEAR 2014-15 AT PARA 3 OF THE ORDER AS UNDER: 3. SO FAR AS THE ISSUE RELATING TO DISALLOWANCE OUT OF INTEREST EXPENDITURE IS CONCERNED, THE LD. C OUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE DURING THE YEAR HAS NOT RAISED ANY SECURED OR UNSECURED LOANS AND NO INTEREST EXPENDITURE HAS BEE N INCURRED BY THE ASSESSEE ON ANY LOAN. THE ONLY INTE REST PAID BY THE ASSESSEE WAS IN RESPECT OF DELAY ON PAYMENT OF EXCISE DUTY AND SERVICE TAX. THE LD, DR ALSO COULD NOT CONTRADICT THIS FACTUAL ASPECT P LEADED BY THE ASSESSEE. SINCE THE ASSESSEE DID NOT BORROW ANY INTEREST BEARING FUNDS DURING THE YEAR, HENCE, THER E IS NO QUESTION OF DISALLOWANCE OF EXPENDITURE OUT OF THE INTEREST EXPENDITURE. IN VIEW OF THIS, SO FAR AS TH E DISALLOWANCE U/S 14A OF THE ACT IN RESPECT OF INTER EST EXPENDITURE IS CONCERNED, WE DO NOT FIND ANY JUSTIFICATION ON THE PART OF THE LOWER AUTHORITIES IN MAKING / CONFIRMING THE SAME. MOREOVER, THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO RELIED UPON THE DECISION OF THIS TRIBUNAL IN THE OWN CASE OF THE ASSESSEE IN RELATION TO THE EARLIER ASSESSM ENT YEARS 2012-13 AND 2013-14, WHEREIN, IDENTICAL ISSUE HAS B EEN RAISED IN ITA NOS.1258 & 1259/CHD./2016 AND THE TRIBUNAL VIDE ORDER DATED 1.6.2017, ON IDENTICAL FACTS HAS DECIDED THE SAME IN FAVOUR OF THE ASSESSEE. 9. THE LD. COUNSEL FOR ASSESSEE CONTENDED THAT IN T HE PRESENT CASE ALSO THE ASSESSEE HAD DEMONSTRATED THE AVAILABILITY OF SUFFICIENT OWN FUNDS IN THE FORM OF SHARE CAPITALS AND RESERVES AMOUNTING TO RS.212.07 CRORES WHILE THE INVESTMENTS FOR EARNING EXEMPT INCOME AMOUNTED TO RS.164.27 CRORES ONLY. IT WAS, THEREFORE, CONTENDE D THAT FOLLOWING THE DECISION OF THE I.T.A.T. IN THE PRECE DING YEAR NO DISALLOWANCE OF INTEREST WAS WARRANTED. 10. THE LD. DR FAIRLY CONCEDED THAT THE ISSUE HAD B EEN DECIDED BY THE I.T.A.T. IN FAVOUR OF THE ASSESSEE I N THE PRECEDING YEARS AS POINTED OUT BY THE LD. COUNSEL F OR ITA NO.1366/CHD/2018 A.Y.2015-16 12 ASSESSEE THOUGH HE VEHEMENTLY RELIED UPON THE ORDER S OF THE A.O. AND THE CIT(A) SUPPORTING THE DISALLOWANCE SO MADE. 11. WE HAVE HEARD THE RIVAL CONTENTIONS. ADMITTEDLY , IDENTICAL ISSUE RELATING TO DISALLOWANCE OF INTERES T AND ADMINISTRATIVE EXPENSES U/S 14A OF THE ACT IN THE C ASE OF THE ASSESSEE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE DELETING THE DISALLOWANCE OF INTEREST ON ACCOUNT OF SUFFICIE NCY OF OWN FUNDS DEMONSTRATED BY THE ASSESSEE AND THE ENTIRE DISALLOWANCE U/S 14A OF THE ACT BEING DELETED ON FI NDING THAT THE A.O. HAD NOT RECORDED NECESSARY SATISFACTI ON REGARDING INCORRECTNESS OF THE CLAIM OF THE ASSESSE E AND THE EXPENSES DISALLOWED SUO MOTO WHICH WAS AN ESSENTIAL PREREQUISITE FOR INVOKING SECTION 14A R.W.R. 8D OF THE RULES. NO DISTINGUISHING FACTS HAVE BEEN POINTED OUT BY TH E LD. DR BEFORE US. IN VIEW OF THE SAME, THE ISSUES INVOLVED IN THE PRESENT APPEAL ARE SQUARELY COVERED BY THE DECISION OF THE I.T.A.T. IN THE PRECEDING YEARS, FOLLOWING WHICH WE DELETE THE DISALLOWANCE MADE U/S 14A OF THE ACT. THE GROUND OF APPEALS RAISED BY THE ASSESSEE ARE, THEREFORE, ALLOWED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAND S ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- $ % & '# (SANJAY GARG) (ANNAPURNA GUPTA) /JUDICIAL MEMBER () /ACCOUNTANT MEMBER +$ /DATED: 29 TH MARCH, 2019 * # * ITA NO.1366/CHD/2018 A.Y.2015-16 13 #&' ()*) / COPY OF THE ORDER FORWARDED TO : 1. + / THE APPELLANT 2. ',+ / THE RESPONDENT 3. - / CIT 4. - ( )/ THE CIT(A) 5. )./' 0 , !0 , 123/4 / DR, ITAT, CHANDIGARH 6. /35 / GUARD FILE #& / BY ORDER, / ASSISTANT REGISTRAR