DCIT, CHENNAI V. Ravikumar Properties Pvt. Ltd., Pondicherry

ITA 1435/CHNY/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90605 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 27-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Keywords: Earning of tax free income; Question of law; Fair market value; Difference of opinion; Notional interest
• Section: 143(3); 14A

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.NO . 1435/MDS/2013 & C.O.186/MDS/2013 ( / ASSESSMENT YEAR: 2009-10) DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-V(3) 4 TH FLOOR, MAIN BUILDING, CHENNAI-600 034. VS M/S. RAVIKUMAR PROPERTIES PVT. LTD. 1-C, NANDITA APARTMERNS, 47, THIRUMALAI PILLAI STREET, T.NAGAR, CHENNAI-600 017. PAN:AACCR8692L ( /APPELLANT) ( /RESPONDENT/CROSS OBJECTOR) / APPELLANT BY : MR. P.RADHAKRISHNAN, JCIT /RESPONDENT BY : MR. PHILIP GEORGE, ADVOCATE /DATE OF HEARING : 14 TH MAY, 2015 /DATE OF PRONOUNCEMENT : 30 TH JUNE, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: BOTH THE APPEAL AND CROSS OBJECTION ARE FILED BY T HE REVENUE AND ASSESSEE RESPECTIVELY AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-V, CHENNAI DATED 27.03.2013 FOR THE ASSESSMENT YEAR 2009-10. THE ONLY GRIEVANCE OF THE REVENUE IN ITS APPEAL IS THAT COMM ISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE ADDI TION MADE BY THE ASSESSING OFFICER UNDER SECTION 14A READ WIT H RULE 8D OF THE ACT. 2 ITA NO.1435 /MDS/2013 & CO NO.186/MDS/2013 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE FILED RETURN OF INCOME ON 28.10.2010 DECLARING NIL INCOME. ASSESSME NT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 26.12. 2011 DETERMINING THE INCOME AT ` 8,62,30,080/-. WHILE COMPLETING THE ASSESSMENT, ASSESSING OFFICER DISALLOWED ` 1,54,80,121/- UNDER SECTION 14A READ WITH RULE 8D. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE AD DITION MADE UNDER RULE 8D(II) IN RESPECT OF INTEREST EXPEN SES AMOUNTING TO ` 1,48,97,484/-. HOWEVER, HE SUSTAINED THE DISALLOWANCE IN RESPECT OF DISALLOWANCE MADE UNDER RULE 8D(III) BEING 0.5% OF AVERAGE INVESTMENT I.E. ` 5,82,637/-. THE COMMISSIONER OF INCOME TAX (APPEALS) DELETED TH E DISALLOWANCE FOR THE REASON THAT INVESTMENT MADE BY THE ASSESSEE ARE NOT OUT OF BORROWED FUNDS. HE DELETED THE DISALLOWANCE BASED ON THE REMAND REPORT FURNISHED B Y THE ASSESSING OFFICER WHO ACCEPTED THAT INVESTMENTS ARE NOT MADE OUT OF BORROWED FUNDS. HOWEVER, TOWARDS ADMINISTRATIVE EXPENSES, THE COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED 0.5% OF AVERAGE INVESTMENTS AG AINST WHICH THE REVENUE IS IN APPEAL BEFORE US. 3 ITA NO.1435 /MDS/2013 & CO NO.186/MDS/2013 3. THE ASSESSEE FILED CROSS OBJECTION AGAINST THE O RDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) CONTENDING THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTA INING THE DISALLOWANCE TO THE EXTENT OF ` 5,82,637/- UNDER SECTION 14A OF THE ACT. IN THE CROSS OBJECTION, THE ASSESSE E ALSO CONTENDED THAT COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THERE BEING NO EXEMPT INCO ME, THE DISALLOWANCE OF EXPENDITURE ON THE BASIS OF INVESTM ENT MADE IS WRONG. COUNSEL FOR THE ASSESSEE, AT THE OUTSET, SUBMITS THAT THE ISSUE IN CROSS OBJECTION IS SQUARELY COVER ED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. M.BASKARAN IN ITA NO.1717/MDS/2013 DATED 31.07.204 WHEREIN IT WAS HELD THAT WHEN THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME, THE PROVISIONS OF SECTION 14A HAVE NO APPLICATION. COUNSEL SUBMITS THAT WHILE COMING TO S UCH CONCLUSION, THE CO-ORDINATE BENCH FOLLOWED VARIOUS DECISIONS OF HIGH COURTS. HE PLACES RELIANCE ON THE CO-ORDINA TE BENCH DECISION IN THE CASE OF ACIT VS. M.BASKARAN IN ITA NO.1717/MDS/2013 DATED 31.7.2014. 4 ITA NO.1435 /MDS/2013 & CO NO.186/MDS/2013 4. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDER O F ASSESSING OFFICER AND ALSO PLACES RELIANCE ON THE CO- ORDINATE BENCH DECISION IN THE CASE OF M/S.LAKSHMI RING TRAVELLERS IN ITA NO.2083/MDS/2011 DATED 2 ND MARCH, 2012 WHEREIN THE TRIBUNAL HELD THAT EVEN THOUGH THERE IS NO DIVIDEND INCOME, STILL PROVISIONS OF SECTION 14A HA VE TO BE APPLIED. 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISIONS RELIED ON. THE ISSUE IN CROSS OBJ ECTION IS SQUARELY COVERED BY THE CO-ORDINATE BENCH OF THIS T RIBUNAL IN THE CASE OF ACIT VS. M.BASKARAN (SUPRA), WHEREIN TH E TRIBUNAL HELD THAT WHEN THERE IS NO DIVIDEND EARNE D AND THERE IS NO CLAIM FOR ANY DEDUCTION, PROVISIONS OF SECTION 14A HAVE NO APPLICATION. WHILE HOLDING SO, THE TRIBUNAL OBSERVED AS UNDER:- 2. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT DISALLOWED ` 19,28,666/- UNDER SECTION 14A READ WITH RULE 8D OF THE ACT AS EXPENDITURE INCURRE D FOR EARNING EXEMPT INCOME AS THE ASSESSEE WAS HOLDING INVESTMENTS WORTH ` 14.05 CRORES AND INCURRED INTEREST EXPENSES OF ` 4.80 LAKHS. ON APPEAL THE COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE HOLDING THAT ASSESSEE HAS NOT DERIVED INCOME OUT OF INVESTMENTS AND INVESTMENTS ARE MADE FROM HIS OWN SOURCE WHICH DID NOT SUFFER ANY INTEREST. THE 5 ITA NO.1435 /MDS/2013 & CO NO.186/MDS/2013 COMMISSIONER OF INCOME TAX (APPEALS) ALSO OBSERVED THAT ASSESSING OFFICER SHOULD HAVE EXCLUDED SHARE APPLICATION MONEY FROM THE WORKING OF THE QUALIFYIN G AMOUNT. THEREFORE COMMISSIONER OF INCOME TAX (APPEALS) FOLLOWING THE RATIO OF THE DECISION IN TH E CASE OF HERO CYCLES LTD. (320 ITR 518) DELETED THE DISALLOW ANCE MADE UNDER SECTION 14A OF THE ACT. 3. DEPARTMENTAL REPRESENTATIVE RELYING ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF CHEMINVESTLTD.. VS. ITO (121 ITD 318) SUBMITS TH AT EVEN IF THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCO ME, STILL DISALLOWANCE UNDER SECTION 14A READ WITH RUL E 8D HAS TO BE MADE AND IT IS MANDATORY. DEPARTMENTAL REPRESENTATIVE ALSO PLACES RELIANCE ON CIRCULAR NO.5/2014 DATED 11.2.2014 ISSUED BY CBDT AND SUBMITS THAT EVEN IN THE CASE OF THE ASSESSEE NOT RECEIVING ANY EXEMPT INCOME DURING THE FINANCIAL YE AR STILL THE DISALLOWANCE UNDER SECTION 14A HAS TO BE MADE. 4. COUNSEL FOR THE ASSESSEE SUBMITS THAT ASSESSEE HAS NOT RECEIVED ANY EXEMPT INCOME AND IN THE ABSEN CE OF THE ASSESSEE RECEIVING ANY EXEMPT INCOME, THERE IS NO JUSTIFICATION IN DERIVING EXPENSES ATTRIBUTABLE FOR EARNING INCOME WHICH IS NOT RECEIVED BY THE ASSESSE E. HE PLACES RELIANCE ON THE RECENT DECISION OF THE H ONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. M/S. SI VAM MOTORS PVT.LTD. IN I.T. APPEAL NO.88 OF 2014 DATED 5.5.2014 FOR THE ASSESSMENT YEAR 2008-09, THE DECIS ION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CI T VS. CORRTECH ENERGY PVT.LTD. IN TAX APPEAL NO.239 OF 20 14 DATED 24.3.2014 FOR THE ASSESSMENT YEAR 2009-10 AND THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS.DELITE ENTERPRISES IN TAX APPEAL NO.110 OF 2009 DATED 26.2.2009. COUNSEL FOR THE ASSESSEE SUBMITS T HAT EVEN OTHERWISE THE ASSESSING OFFICER SHOULD HAVE EXCLUDED SHARE APPLICATION MONEY IN VARIOUS COMPANI ES WHICH WILL NOT PRODUCE ANY EXEMPT INCOME. HE SUBMIT S THAT IF SUCH SHARE APPLICATION MONEY IS EXCLUDED TH E DISALLOWANCE UNDER SECTION 14A OF THE ACT WILL WORK S OUT TO ` 5,61,125/- AS AGAINST DISALLOWANCE OF ` 19,28,666/- MADE BY THE ASSESSING OFFICER. FOR THE PROPOSITION THAT SHARE APPLICATION MONEY IS NOT INVESTMENT FOR THE PURPOSE OF SECTION 14A, HE PLACES RELIANCE ON THE DECISION OF THE TRIBUNAL IN THE CASE OF RAINY INVES TMENTS PVT.LTD. VS. ACIT IN I.T. APPEAL NO.5491/MUM/2011 DATED 16.1.2013. 6 ITA NO.1435 /MDS/2013 & CO NO.186/MDS/2013 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHORITIES AND SUBMISSIONS MADE BY THE ASSESSEE AN D THE DECISIONS IN RELIED ON. NO DOUBT IN THE DECISIO N OF THE SPECIAL BENCH OF DELHI TRIBUNAL IN THE CASE OFCHEMI NVEST LTD. VS. ITO (SUPRA), THE SPECIAL BENCH HELD THAT DISALLOWANCE UNDER SECTION 14A CAN BE MADE EVEN IN THE YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE. THIS DECISION OF SPECIAL BENCH OF THE TRIBUNAL HAS BEEN IMPLIEDLY OVERRULED BY THE DECISIONS OF HIGH COURTS IN THE FOLLOWING CASES : 6. IN THE CASE OF M/S. SHIVAM MOTORS P.LTD. (SUPRA ), BEFORE THE HONBLE ALLAHABAD HIGH COURT, THE REVENUE RAISED TH E FOLLOWING QUESTION OF LAW:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE INCOME TAX APPELLATE TRIBUNAL WAS JUSTIFIED IN UPHOLDING THE DECISION OF CIT(A) IN DE LETING THE DISALLOWANCE OF ` 2,03,752/- U/S.14A IGNORING THE FACT THAT THERE IS DIFFERENCE OF OPINION OF VARIOUS COURTS ON THE VIEW TAKEN BY THE ITAT THAT IN THE ABSENCE OF TAX FREE I NCOME, 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 ALLOWED 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 PROVIDES IS THAT IF THERE I S ANY INCOME WHICH DOES NOT FORM PART OF THE INCOME UNDER THE ACT, THE EXPENDITURE WHICH IS INCURRED FOR EARNING THE I NCOME IS NOT AN ALLOWABLE DEDUCTION. FOR THE YEAR IN QUESTION, T HE FINDING OF FACT IS THAT THE ASSESSEE HAD NOT EARNED ANY TAX FR EE INCOME. 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. 7 ITA NO.1435 /MDS/2013 & CO NO.186/MDS/2013 8. THE GUJARAT HIGH COURT IN THE CASE OF CIT VS.CO RRTECH ENERGY PVT. LTD.(SUPRA) HELD AS UNDER:- WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE F ACTS 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 (2009) 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, SECTI ON 14A COULD HAVE NO APPLICATION. IN THIS CASE ALSO, THE ASSESSE E HAS NOT CLAIMED ANY EXEMPT INCOME IN THIS YEAR. THEREFORE, RESPECTFULLY FOLLOWING THE JUDGEMENT OF HON'BLE HIGH COURT OF PU NJAB & HARYANA IN THE CASE OF CIT VS. WINSOME TEXTILE INDU STRIES LTD. (SUPRA), WE HEREBY ALLOW THIS GROUND AND DIRECT THE AO TO DELETE THE ADDITION. THEREFORE, GROUND NOS 1 TO 1.2 RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION 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 AFTER THE A SSESSMENT YEAR 20092010. SINCE IN THE PRESENT CASE, WE ARE CO NCERNED WITH THE ASSESSMENT YEAR 20092010, SUCH FORMULA WAS CORRECTLY APPLIED BY THE REVENUE. WE HOWEVER, NOTICE THAT SUB SECTION (1) OF SECTION 14A PROVIDES THAT FOR THE PURPOSE OF COM PUTING TOTAL INCOME UNDER CHAPTER IV OF THE ACT, NO DEDUCTION SH ALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE A SSESSEEIN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME 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 UNDE R SECTION 14A OF THE ACT COULD NOT BE MADE. IN THE PROCESS TRIBUN AL RELIED ON THE DECISION OF DIVISION BENCH OF PUNJAB AND HARYANA HI GH COURT IN CASE OF COMMISSIONER OF INCOME TAX V WINSOME TEXTIL E INDUSTRIES LTD REPORTED IN (2009) 319 ITR 204 (PUNJ & HAR) IN WHICH ALSO THE COURT HAD OBSERVED AS UNDER: ' 7 . WE DO NOT FIND ANY MERIT IN THIS SUBMISSION . THE JUDGEMENT OF THIS COURT IN ABHISHEK INDUSTRIES LTD (2006) 286 ITR 1 WAS ON THE ISSUE OF ALLOWABILITY O F INTEREST PAID ON LOANS GIVEN TO SISTER CONCERNS, WI THOUT INTEREST . IT WAS HELD THAT DEDUCTION FOR INTEREST WAS PERMISSIBLE WHEN LOAN WAS TAKEN FOR BUSINESS PURPOS E AND NOT FOR DIVERTING THE SAME TO SISTER CONCERN WI THOUT HAVING NEXUS WITH THE BUSINESS. THE OBSERVATIONS MADE THEREIN HAVE TO BE READ IN THAT CONTEXT . IN THE 8 ITA NO.1435 /MDS/2013 & CO NO.186/MDS/2013 PRESENT CASE, ADMITTEDLY THE ASSESSE DID NOT MAKE A NY CLAIM FOR EXEMPTION. IN SUCH A SITUATION SECTION 1 4A COULD HAVE NO APPLICATION . ' 5 . WE DO NOT FIND ANY QUESTION OF LAW ARISING, TAX APP EAL 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 T HE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF INTER EST PAID BY THE ASSESSEE COMPANY ON BORROWED FUNDS AMOUNTING TO RS.241.10 LAKHS OVERLOOKING THE FACT THAT THE BORRO WED FUNDS WERE USED BY THE ASSESSEECOMPANY TO INVEST IN THE C APITAL OF ANOTHER PARTNERSHIP FIRM AND SINCE PROFITS DERIV ED BY THE ASSESSEECOMPANY FROM A PARTNERSHIP FIRM WERE EXEMPT FROM TAX U/S.10(2A) OF THE INCOME-TAX ACT, THE INTEREST EXPENSE RELATED TO SUCH TAX FREE PROFITS IS TO BE DISALLOWE D 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 DEPOSIT RECEIVED BY THE ASSESSEECOMPANY WHILE ARRIVING AT T HE FAIR MARKET VALUE U/S.23(1) (A) OF THE INCOME-TAX ACT?' 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 HONBE PUNJA B & 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 DISALLOWANCE M ADE 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 APEPALS IS WHETHER THE CIT(A) AS WELL AS THE TRIBUN AL WERE RIGHT IN ALLOWING DEDUCTION OF INTEREST LIABILITY OUT OF OTHER INCOME AND THE CLAIM OF THE REVENUE TO DISALLOW THE SAME UNDER SECTION 14A 9 ITA NO.1435 /MDS/2013 & CO NO.186/MDS/2013 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 CIRCUMSTANCES OF THE CASE IT IS HELD THAT THE AO WA S NOT CORRECT IN APPLYING SECTION 14A OF THE IT ACT I N DISALLOWING THE EXPENDITURE ON ACCOUNT OF INTEREST AMOUNTING TO ` 46,91,684/-. IT WAS INCUMBENT ON THE AO TO ESTABLISH A NEXUS BETWEEN THE EXPENDITURE INCURR ED AND THE INCOME WHICH WAS EXEMPT UNDER THE ACT. FACTS CLEARLY DO NOT SUPPORT THE ACTION OF THE AO. DISALLOWANCE IS ACCORDINGLY DELETED. THE AO IS DIRECTED TO RECOMPUTETHE INCOME ACCORDINGLY.' 10.VIDE ORDER DATED 16.5.2008, ANNEXURE A.III, TH E TRIBUNAL ON APPEAL BY THE REVENUE WHILE UPHOLDING THE FINDIN G 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 ACT, IT IS CLEAR THAT BEFORE MAKING ANY DISALLOWAN CE THE FOLLOWING CONDITIONS ARE TO EXIST:- A) THAT THERE MUST BE INCOME TAXABLE UNDER THE ACT, AND B) THAT THIS INCOME MUST NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, AND C) THAT THERE MUST BE AN EXPENDITURE INCURRED BY THE ASSESSEE, AND D) THAT THE EXPENDITURE MUST HAVE A RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. 9. THEREFORE, UNLESS AND UNTIL, THERE IS RECEIPT OF EXEMPTED INCOME FOR THE CONCERNED ASSESSMENT YEARS (DIVIDEND FROM SHARES), WE ARE OF THE VIEW, SECTION 14A OF THE ACT CANNOTBE INVOKED. IN THIS APPEAL, THE REVENUE HAS NOT DISPEL LED THE FINDINGS OF THE CIT(A), NOR THE STATEMENT OF THE AS SESSEE BEFORE AO THAT ASSESSEE IS NOT IN RECEIPT OF ANY DIVIDEND INCOME AND HENCE ACCORDING TO US, THE ASSESSING OFFICER HAS ER RED IN INVOKING SECTION 14A OF THE ACT, TO DISALLOW VARIOU S INTEREST PAYMENTS ON CAPITAL ACCOUNT, SECURITY DEPOSITS AND UNSECURED LOANS. THIS CONCLUSION OF OURS 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 10 ITA NO.1435 /MDS/2013 & CO NO.186/MDS/2013 REPRODUCED BELOW:- 'REGARDING APPLICATION OF SECTION 14A OF THE ACT, T HE CONTENTION OF THE LEARNED DEPARTMENT REPRESENTATIVE HAS TO BE REJECTED ON THE FACE OF IT INASMUCH AS THE ENTIRE INCOME OF THE ASSESSEE IS TAXABLE UNDER THE ACT. SECTION 14A IS APPLICABLE ON LY WHEN ANY PART OF THE INCOME IS NOT TO BE INCLUDED I N THE TOTAL INCOME OF THE ASSESSEE AND THE EXPENDITURE RELATING TO THAT PART OF INCOME IS CLAI MED BY THE ASSESSEE AS DEDUCTION. IN SUCH CASES ONLY, THE EXPENDITURE RELATING TO THE EXEMPTED INCOME CAN BE DISALLOWED AND NOT OTHERWISE. SINCE IN THE PRESENT CASETHE ENTIRE INCOME IS FOUND TO BE TAXABLE, NO DISALLOWANCE CAN BE MADE UNDER 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 EXEMPTIO N OF INCOME IN SUCH SITUATION SECTION 14A HAS NO APPLICA TION. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, WE DELE TE THE DISALLOWANCE MADE UNDER SECTION 14A AS THE ASSESSEE HAS NOT EARNED / RECEIVED FOR EXEMPT INCOME DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THUS, WE SUSTAIN THE ORDER OF THE COMMISSIO NER OF INCOME TAX (APPEALS) ON THIS ISSUE. 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. 11 ITA NO.1435 /MDS/2013 & CO NO.186/MDS/2013 6. ADMITTEDLY, IN THIS CASE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO GIVEN A FINDING IN PARA 8.1 THAT DURING THE ASSESSMENT YEAR UNDER CONSIDERATION NO EXEMPT INCOM E WAS RECEIVED BY THE ASSESSEE. THEREFORE, THE RATIO OF T HE DECISION IN THE CASE OF ACIT VS.M.BASKARAN (SUPRA) IS SQUAR ELY APPLICABLE TO THE FACTS OF THIS CASE. RESPECTFULLY FOLLOWING THE SAID DECISION WE DISMISS THE REVENUES APPEAL AND A LLOW THE CROSS OBJECTION FILED BY THE ASSESSEE. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D AND CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE, 2015. SD/- SD/- ( # ) ( & (# ) ( CHANDRA POOJARI ) ( CHALLA NAGENDRA PRASAD ) * / ACCOUNTANT MEMBER ( * / JUDICIAL MEMBER ( /CHENNAI, , /DATED 30 TH JUNE, 2015 SOMU ./ 0/ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 1 () /CIT(A) 4. 1 /CIT 5. / 5 /DR 6. /GF .