Shree Madhur Food Products Pvt. Ltd., Dhule V. Joint Commissioner of Income-tax,

ITA 1530/PUN/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9208 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 05-02-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 23-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHIRUDE
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.1530/PUN/2015 / ASSESSMENT YEAR : 2010-11 SHREE MADHUR FOOD PRODUCTS PRIVATE LIMITED, E-130/2+3 MIDC, AWADHAN, DHULE DISTRICT, DHULE 424001. PAN : AABCM5763A. . / APPELLANT V/S JOINT COMMISSIONER OF INCOME TAX, RANGE 3, DHULE. . / RESPONDENT ASSESSEE BY : SHRI M.R. SHIRUDE. REVENUE BY : SHRI AJAY MODI, JCIT. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE ASSESSEE IS EMANATING OUT OF THE ORDER OF COMMISSIONER OF INCOME TAX (A) 1, NASHIK DT.01.09.2015 FOR THE ASSESSMENT YEAR 2010-11. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- 2.1 ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURING OF EDIBLE OIL. ASSESSEE ELECTRONICALLY FILED ITS / DATE OF HEARING : 05.02.2018 / DATE OF PRONOUNCEMENT: 28.02.2018 2 RETURN OF INCOME FOR A.Y. 2010-11 ON 30.09.2010 DECLARING TO TAL INCOME OF RS.76,12,770/-. THE CASE WAS SELECTED FOR SCRUT INY AND THEREAFTER ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT V IDE ORDER DT.19.03.2013 AND THE TOTAL INCOME WAS DETERMINED AT RS.77,93,620/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE C ARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE ORDER DT.01.09.2015 ( IN APPEAL NO.NSK/CIT(A)-1/258/2013-14) GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUND : IN V IEW O F THE F AC T THAT I N V ES TM ENT IN SHA R ES AT RS . 1 9, 75 , 8 5 0/- , F ROM W HICH IN COME ( DIVIDEND ) NO T FO RM IN G PA R T OF THE T O T A L I NCOM E IS GENERAT ED , WAS MADE O U T OF A SSE SSEE ' S OWN CAPITAL OF RS. 5 0 ,00,000/ - AND R ES ERVE AND SURPLUS OF RS .1 , 7 4, 7 3, 55 1/ - TOT A LING TO RS. 2 ,2 4,73 , 551/- AS O N 31/ 03 /201 0 A ND UNDISP U TE D F AC T THAT NO EXPE N D ITUR E WAS INCUR R ED FO R R E A L I ZING DI V I DEND OF RS. 7 , 5 0 0/- BEING DIRECTLY C REDI T ED BY COM P ANY TO THE B A NK ACCO U NT OF A SSESSEE A N D I N VIEW O F THE FA C T T HAT ASSESS IN G O FF I CER HAD NOT RECORDED HI S DIS - SATISFAC TIO N OF C L AIM OF ASSES S E E THAT NO EXPENDITURE WAS IN C URRED F OR EARNING EXEMPT INCOME AND I N V I EW OF DECISIONS OF J UR I SDICTIONAL BOMBAY H I GH C O U RT IN THE CA SE OF CIT VS. R E LIAN CE UTIL I TIES & POWERS L T D . (2009 ) 3 1 3 IT R 3 4 0 ( BOM ) AND CIT V/S. H D FC B A NK LTD . ( 20 1 4 ) 10 7 DTR ( BOM) 1 4 0 TO TH E EFFE C T THAT WHENEVER F U N D S A R E A V AILAB LE BOTH I NTEREST FREE AN D OVE R DRAFT AND I OR L OAN S TAKEN , T HEN A PRESUM PT I O N WOULD ARISE THA T I N VES T MENT S ARE OUT OF INTE RE ST FREE FU N DS A V AIL A BL E WITH A SSESSEE WH I CH A R E SUF F ICIENT TO MEET T HE INVES T ME N T AND I N VIEW O F THE DE C ISION O F JURISD IC T I ONA L BOM B AY H IGH COUR T IN CASE OF C IT VS. RELI A NCE IN DU ST R IE S L T D. TO T HE EFFECT T H A T THERE WAS NO FINDI N GS TO T HE FACT OF H A VING IN C UR R ED ANY EXP ENDI TU R E FO R THE P U RPOS E OF EA R N I NG DIV I D E ND INCOME, LEARNED COM MISSI ONER O F INCOME TA X, APPEA L S - I, NAS HIK E R RED I N CONFIRMI N G D I S A LL O WANC E O F R S.1,30, 850/- U / S. 14 A R . W. RU LE 8D. 3. THEREAFTER, ASSESSEE HAS REVISED THE GROUND OF APPEA L AND THE REVISED GROUND READS AS UNDER : IN THE FACTS, CIRCUMSTANCES AND POSITION OF LAW LE ARNED CIT(A)-1, NASHIK ERRED IN CONFIRMING DISALLOWANCE U/S.14A R.W. S. RULE 8D(2)(II) AND 8D(2)(III) AT RS.1,30,850/-. 3 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON PERU SING THE BALANCE SHEET, AO NOTICED THAT ASSESSEE HAD MADE INVESTMENTS AND HAD EARNED DIVIDEND INCOME BUT NO EXPEN SES WERE APPORTIONED FOR INCURRING OF EXEMPT INCOME. THE ASSE SSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE DISALLOWANCE SHO ULD NOT BE MADE. THE ASSESSEE INTER-ALIA SUBMITTED THAT IT IS HAV ING SUFFICIENT INTEREST FREE FUNDS OF ITS OWN AND THAT NO INTERE ST BEARING FUNDS HAVE BEEN USED FOR MAKING INVESTMENTS AND THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING EXEMPT INCOME AND THEREFORE NO DISALLOWANCE U/S 14A IS CALLED FOR. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO. AO W AS OF THE VIEW THAT FOR THE PURPOSE OF MAKING INVESTMENTS AND TO CONTROL THE INVESTMENTS, ASSESSEE HAS USED ITS OFFICE STAFF. HE WAS FUR THER OF THE VIEW THAT IN THE ABSENCE OF ANY SEPARATE ACCOUNTS BY WHICH THE MANAGEMENT AND ADMINISTRATIVE EXPENSES COULD BE SEGREGATED, THERE CANNOT BE ANY DOUBT THAT SOME EXPE NDITURE WAS INCURRED FOR MAKING OR EARNING THE EXEMPT INCOME. HE ALSO NOTED THAT ASSESSEE BORROWED CERTAIN FUNDS AND ON WHICH IT PA ID INTEREST. IN VIEW OF THE MIXED ACCOUNTS, THE PLEA OF THE ASSESSEE THAT IT HAD NOT BORROWED FUNDS FOR INVESTMENTS WAS NOT ACCEPTABLE. HE THEREAFTER BY FOLLOWING THE METHODOLOGY PRE SCRIBED UNDER RULE 8D OF THE INCOME TAX RULES, WORKED OUT THE DISALLOWANCE OF EXPENSES U/S 14A AT RS.1,30,850/-. AGGRIEV ED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.C IT(A), WHO UPHELD THE ORDER OF AO BY HOLDING AS UNDER : 5.2 THE ARGUMENT OF THE LD.A.R. IS PERUSED AND SUMMARIZED AS UNDER : 4 1. THE ASSESSEES OWN FUND IS INVESTED IN TAX EXEMPT INVESTMENT. 2. NO EXPENSE IS INCURRED TO EARN EXEMPT INCOME. 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE, THE SUBMIS SION OF THE APPELLANT, THE ASSESSMENT ORDER OF THE AO AN D MATERIAL AVAILABLE ON RECORD. THE CASE PERTAINS TO A.Y. 2010- 11. IT IS FAIRLY SETTLED THAT SECTION 14A R.W.R. 8D IS APPLICABLE FOR THE ASSESSMENT YEAR. SECTION 14A OF THE I.T. AC T IS A SPECIAL PROVISION AND PROVIDES FOR DISALLOWANCES OF EXPENSE RELATABLE TO EXEMPTED INCOME. SECTION 14A(1) STIPUL ATES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDE R CHAPTER IV, NO DEDUCTION, SHALL BE ALLOWED IN RESPECT OF AN EXPENDITURE 'INCURRED' BY THE ASSESSEE 'IN RELATION TO' AN INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE INCOME TAX ACT. 5.4 IF ONE READS SUBSECTION (3) ALONG WITH SUBSECTI ON (2), IT SIMPLY MEANS THAT IN A CASE WHERE THE ASSESSEE CLAI MS THAT NO EXPENDITURE HAS BEEN INCURRED IN RESPECT OF THE EXEMPT INCOME, THE AO SHALL DETERMINE THE AMOUNT OF EXPEND ITURE INCURRED IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE METHOD AS MAY BE PRESCRIBED IN VIEW OF THE PROVISIO NS OF SUBSECTION (2). THEREFORE, SINCE FROM ASSESSMENT YE AR 2008- 09, RULE 80 IS APPLICABLE, THE AO SHALL BE FREE TO COMPUTE THE DISALLOWANCE OF EXPENDITURE AS PER THIS RULE IN RES PECT OF THE EXEMPT INCOME IN ALL SUCH CASES WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RESPECT OF THE SAID INCOME AND NO SUO-MOTO DISALLOWANCE OF EXPENDITURE HAS BEEN MADE BY THE ASSESSEE. THIS IS QUITE LOGICAL AS WELL, BECAUSE IT CANNOT BE THE CASE OF ANY INVESTOR THAT HE HAS NOT INCURRED EVEN A SINGLE PENNY FOR MAKING SUCH INVEST MENT AND EARNING OF EXEMPT INCOME THERE-FROM. THIS IS EX ACTLY THE CASE OF THE APPELLANT, WHERE ACCOUNTS ARE KEPT ON A MIXED FUND BASIS, AND FOR THE PURPOSE OF INVESTMENT IN SH ARES, MUTUAL FUNDS ETC, SEPARATE ACCOUNTS HAVE NOT BEEN K EPT. THE APPELLANT HAS NOT BEEN ABLE TO ESTABLISH THE NE XUS BETWEEN OWN FUND AND INVESTMENT WHICH WAS HIS DUTY TO DO. THEREFORE, THE ARGUMENT THAT OWN FUND THROUGH W HICH INVESTMENT IS MADE IS DISMISSED. ALTHOUGH THE APPEL LANT HAS GIVEN A NUMBER OF ARGUMENTS BASED ON THE FACTS OF ITS 'CASE, STILL, IN SPITE OF THAT, DUE TO REASONS CITE D ABOVE, IT CANNOT BE ACCEPTED THAT THE APPELLANT HAS NOT INCUR RED EVEN A SINGLE PENNY FOR MAKING INVESTMENT, MAINTAINING T HE INVESTMENT PORTFOLIO AND THEREBY EARNING EXEMPT INC OME. THE ARGUMENT OF THE ASSESSEE THAT INVESTMENTS ARE MA DE THROUGH BANK IS TESTIMONY OF THE FACT THAT EXPENDIT URE IS INCURRED FOR MAKING TAX FREE INVESTMENT WHICH WILL YIELD EXEMPT INCOME. THE ARGUMENT OF THE APPELLANT THAT T HEY HAVE REVISED THE RETURN AND PAID TAX ON DIVIDEND IN COME IS NOT INCONSONANCE WITH THE PROVISIONS OF THE ACT AND THEREFORE, DISMISSED. EVEN IF THE REQUIREMENT OF AO 'S SATISFACTION IN THIS' REGARD IS CONSIDERED NECESSAR Y, THE VERY KNOWLEDGE OF THE FACT ON THE PART OF THE AO THAT THE APPELLANT HAS NOT DISALLOWED ANY EXPENDITURE SUO-MO TO, WAS SUFFICIENT FOR HER TO COMPUTE THE DISALLOWANCE UNDE R RULE 8D READ WITH SECTION 14A OF THE ACT. 5 5.5 IN THE JUDGMENT OF THE CHENNAI BENCH OF ITAT I N M/S. LAKSMI RING TRAVELLERS (TS-210 - ITAT-2012 (CHNY.) HELD THAT SEC.14A IS A DEEMING PROVISION FOR PRESUMPTIVE DISALL O WANCE . THUS, SEC.14A DISAL L OWANCE WOULD BE ATTRACTED BY THE FACE OF STATUTE EVEN WHEN THE ASSE SSEE CLAIMS THAT NO EXPEND I TURE INCURRED IN RELATION TO EXEMPT I NCOME. IN A DISTANT MANNER, LITERALLY SPEAK I NG , IT MAY EVEN BE CONSIDERED FOR THE PURPOSE OF CONVENIENCE AS A D EEMING P RO VISION . WHEN SUCH DEEMING PROVISION IS MADE ON THE BASIS OF STATUTORY PRE SU MPTION, THE REQUIREMENT OF FACTUAL EVIDENCE IS REPLACED BY STATUTORY PRESUMPTION AND T HE AO HAS TO FOLLOW THE CONSEQUENCE STATED IN THE STATUTE . 5.6 CBDT VIDE CIRCULAR DATED 11.02.2014 HAS CLARIF IED THAT SUCH EXPENSES WILL BE DISALLOWED U/S.14A EVEN IF TH ERE IS NO CORRESPONDING EXEMPT INCOME. 5.6.1 REFERENCE IS INVITED TO THE DECISION OF HON'B LE MUMBAI ITAT IN THE CASE OF M/S. J.K. INDUSTRIES LTD. FOR A .Y.2008-09 ITA NO.7088/MUM/ 2011 DATED 21.11.2012. I N THE SAI D CASE THE ASSESSEE WAS HAVING INVESTMENT OF RS. 19.43 CRORE ON WHICH HE HAS EARNED EXEMPT INCOME AND ASSE SSEE HAD CLAIMED THAT HE HAS NOT INCURRED ANY EXPENDITUR E FOR EARNING THAT INCOME ON THESE FACTS THE HON'BLE ITAT INTER- ALIA HELD, 'WE HAVE HEARD THE RIVAL CONTENTIONS AND WE ARE OF THE VIEW THAT ON BOTH THE COUNTS, I.E. THE APPLICATION OF THE RATIO LAID DOWN BY THE BOMBAY HIGH COURT IN GODREJ & BOYCE MFR. CO LTD., REPORTED IN 328 ITR 81(BOM), WHERE THE HON'BLE JURISDICTIONAL HIGH COURT HAS HELD THAT RULE 8D SHALL BE APPLICABLE FROM ASSESSMENT YEAR 2008-09 ONWARDS AND ALSO THE RATIO LAID DOWN BY THE SPECIAL BENCH OF THE HON'BLE ITA T DELHI IN THE CASE OF CHEMINVEST LTD. VS ITO 317 ITR AT 86 (DEL-SB), RELIED ON BY THE CIT(A), THE CASE IS AGAINST THE ASSESSEES. RESPECTFULLY FOLLOWING THE DECISIONS AS CITED BY TH E CIT(A), WE HAVE NO REASON TO DISTURB THE FINDINGS OF THE CIT(A), WHICH WE UPHOLD.' 5.6.2 THE HON'BLE SPECIAL BENCH OF ITAT MUMBAI IN M/S. DAGA CAPITAL MANAGEMENT (P) LTD. 26 SOT 603(MUM.) H AS HELD AS UNDER: SECTION 14A IS WIDE ENOUGH TO COVER ALL TYPES OF EXPENSE DIRECT AS WELL AS INDIRECT. THE WORD IN RELATION TO USED IN SECTION 14A ARE VERY BROAD EXPRESSION SECTION 14A APPLIES TO EVEN INCIDENTAL EXEMPT INCOME. SECTION 14A WOULD BE APPLICABLE EVEN IF THERE IS NO DIRECT AND PROXIMATE CONNECTION BETWEEN THE EXEMPT INCOME AND EXPENDITURE. 6 5 .6.3 THE HON'BLE DELHI HIGH COURT IN M/S. MAXOPP INVESTMENT HAS HELD THAT SECTION 14A WILL APPLY EVE N IN CASE WHERE THE MAIN OBJECT OF INCURRING EXPENDITURE IS NOT TO EARN EXEMPT INCOME. 5.7 IN VIEW OF THE AFORESAID DISCUSSION AND RELEVAN T JUDICIAL PRONOUNCEMENT THE CLAIM OF THE APPELLANT THAT RULE 8D IS NOT APPLICABLE SO NO DISALLOWANCE U/S. 14A R.W. RULE 8D CAN BE MADE IS REJECTED. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN AP PEAL BEFORE US. 5. BEFORE US, LD.A.R REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD.CIT(A) AND THEREAFTER POINTED TO SCHEDULE OF INVESTMENTS AT PAGE 57 OF THE PAPER BOOK. FROM THE S CHEDULE OF INVESTMENTS, HE POINTED THAT THERE ARE ONLY TWO INVES TMENTS IN SHARES FROM WHICH ASSESSEE COULD HAVE EARNED DIVIDENDS. HE SUBMITTED THAT THE INVESTMENTS IN SHARES OF OMSHREE AG RO TECH LTD., WERE MADE IN F.Y. 2008-09 I.E., A.Y. 2009-10 AND INVESTMENTS IN THE SHARES OF OMSHREE AGRO INDUSTRIES W ERE MADE IN F.Y. 2004-05 I.E., A.Y. 2005-06 AND THAT NO NEW INVESTMEN TS WERE MADE DURING THE YEAR. HE SUBMITTED THAT THE AVAILA BILITY OF INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL, RESERVES AND SURPLUS IN THE YEAR IN WHICH THE AFORESAID INVESTMENTS WER E MADE WERE FAR IN EXCESS OF THE INVESTMENTS AND THEREFORE NO DISALLOWANCE ON ACCOUNT OF INTEREST U/S RULE 8D(II) IS CALLED FOR . HE POINTED TO THE COPY OF THE BALANCE SHEET PLACED AT P AGE 30 OF THE PAPER BOOK. FOR THE PROPORTION THAT WHEN INTERES T FREE FUNDS ARE MORE THAN INVESTMENTS, THEN NO DISALLOWANCE UNDER RU LE 8D(II) IS CALLED FOR, HE RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BANK LIMITED REPOR TED IN 7 366 ITR 505 (BOM.). HE FURTHER SUBMITTED THAT DURING T HE YEAR UNDER CONSIDERATION, ASSESSEE HAD RECEIVED DIVIDEND OF RS .7,500/- FROM THE SHARES OF SHAMRAO VITTHAL CO-OP BANK LTD., HELD BY THE ASSESSEE. HE SUBMITTED THAT THESE DIVIDENDS WERE NOT ELIGIBLE FOR EXEMPTION U/S 10(34) OF THE ACT AND THEREFORE NO EXEMPTI ON IS CLAIMED AND IN FACT THE INCOME FROM DIVIDENDS HAS BEEN OFFE RED TO TAX. HE FURTHER SUBMITTED THAT FROM SHARES OF OMSHREE AGRO TECH LTD., AND OMSHREE AGRO INDUSTRIES AGGREGATING TO RS.19,75 ,850/- NO DIVIDEND HAS BEEN EARNED DURING THE YEAR AND SINCE N O DIVIDEND HAS BEEN EARNED DURING THE YEAR, THERE IS NO QU ESTION OF DISALLOWANCE U/S 14A R.W. RULE 8D OF INCOME TAX RULES AND FOR THIS PROPOSITION, HE RELIED ON THE DECISION OF SPECIAL BENCH O F ITAT IN THE CASE OF ACIT VS. VIREET INVESTMENT PVT. LTD., (201 7) 154 DTR (DEL) (SB) 241. HE THEREFORE SUBMITTED THAT NO DISALLO WANCE U/S 14A R.W. RULE 8D IS CALLED FOR. LD.D.R. ON THE OTHER HA ND, SUPPORTED THE ORDER OF AO AND LD.CIT(A) AND FURTHER SUP PORTED THE ORDER OF LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO DISALLOWANCE U/S 14A R.W. RULE 8D OF THE INCOM E TAX RULES. BEFORE US, IT IS ASSESSEES SUBMISSION THAT THE INVE STMENT IN SHARES OF OMSHRI AGRO TECH LIMITED OF RS.17,16,600/- WE RE MADE IN F.Y. 2008-09 I.E., A.Y. 2009-10 AND AT THAT TIME THE INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESER VES AND SURPLUS WERE TO THE EXTENT OF RS.1.72 CRORES. AS FAR AS THE INVESTMENTS IN SHARES OF OMSHREE AGRO INDUSTRIES OF RS.2,59,250/- ARE CONCERNED, IT IS ASSESSEES CONTENTION THAT THE 8 SAME WERE MADE IN THE A.Y. 2004-05 I.E., A.Y. 2005-06 AND AS ON 31.03.2005 THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSES SEE WERE TO THE TUNE OF RS.37.78 LAKHS. THE AFORESAID CONTEN TIONS OF THE ASSESSEE OF HAVING INTEREST FREE FUNDS IN THE FORM OF S HARE CAPITAL AND RESERVES AND SURPLUS WHICH ARE MORE THAN TH E INVESTMENTS, HAS NOT BEEN CONTROVERTED BY REVENUE. HO NBLE BOMBAY HIGH COURT IN THE CASE OF HDFC (SUPRA) HAS OBSERVED THAT WHEN INTEREST FREE FUNDS ARE MORE THAN THE INVESTMENTS, THERE IS A PRESUMPTION THAT THE INVESTMENTS COMES OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. THE RELEVANT OBSERVATION OF HO NBLE HIGH COURT IN THE CASE OF HDFC (SUPRA) IS REPRODUCED HEREUNDER :- 15. IT IS CLEAR THAT FOR THE FIRST TIME IN THE CAS E OF HDFC BANK LTD. (SUPRA) THAT THIS COURT TOOK A VIEW THAT THE PRESUM PTION WHICH HAS BEEN LAID DOWN IN RELIANCE UTILITIES AND POWER LTD. (SUPRA) WITH REGARD TO INVESTMENT IN TAX FREE SECURITIES COMING OUT OF ASSESSEE'S OWN FUNDS IN CASE THE SAME ARE IN EXCESS OF THE INV ESTMENTS MADE IN THE SECURITIES (NOTWITHSTANDING THE FACT THAT TH E ASSESSEE CONCERNED MAY ALSO HAVE TAKEN SOME FUNDS ON INTERES T) APPLIES, WHEN APPLYING SECTION 14A OF THE ACT. THUS, THE DEC ISION OF THIS COURT IN HDFC BANK LTD.(SUPRA) FOR THE FIRST TIME O N 23RD JULY, 2014 HAS SETTLED THE ISSUE BY HOLDING THAT THE TEST OF PRESUMPTION AS HELD BY THIS COURT IN RELIANCE UTILITIES AND POW ER LTD. (SUPRA) WHILE CONSIDERING SECTION 36(1)(III) OF THE ACT WOU LD APPLY WHILE CONSIDERING THE APPLICATION OF SECTION 14A OF THE A CT. THE AFORESAID DECISION OF THIS COURT IN HDFC BANK LTD. (SUPRA) ON THE ABOVE ISSUE HAS ALSO BEEN ACCEPTED BY THE REVENUE INASMUC H AS EVEN THOUGH THEY HAVE FILED AN APPEAL TO THE SUPREME COU RT AGAINST THAT ORDER ON THE OTHER ISSUE THEREIN, VIZ., BROKEN PERI OD INTEREST, NO APPEAL HAS BEEN PREFERRED BY THE REVENUE ON THE ISS UE OF INVOKING THE PRINCIPLES LAID DOWN IN RELIANCE UTILITIES AND POWER LTD. (SUPRA) IN ITS APPLICATION TO SECTION 14A OF THE ACT. THERE FORE, THE ISSUE WHICH AROSE FOR CONSIDERATION BEFORE THE TRIBUNAL H AD NOT BEEN DECIDED BY THIS COURT IN GODREJ AND BOYCE MANUFACTU RING CO. LTD. (SUPRA). IT AROSE AND WAS SO DECIDED FOR THE FIRST TIME BY THIS COURT IN HDFC BANK LTD. (SUPRA). THUS, THERE IS NO CONFLI CT AS SOUGHT TO BE MADE OUT BY THE IMPUGNED ORDER. THUS, IMPUGNED O RDER HAS PROCEEDED ON A FUNDAMENTALLY ERRONEOUS BASIS AS THE RATIO DECINDI OF THE ORDER IN GODREJ AND BOYCE MANUFACTURING CO. LTD. (SUPRA) HAD NOTHING TO DO WITH THE REST OF PRESUMPTION CANV ASSED BY THE PETITIONER BEFORE THE TRIBUNAL ON THE BASIS OF THE RATIO OF THE DECISION OF THIS COURT IN HDFC BANK LTD. (SUPRA). 9 16. AT THE HEARING MR. SURESH KUMAR, LEARNED COUNSE L FOR THE REVENUE URGED THAT ON THE FACTS OF THIS CASE NO FAU LT CAN BE FOUND WITH THE ORDER OF THE TRIBUNAL. IT IS SUBMITTED THA T, THE PETITIONER WAS NOT ABLE TO ESTABLISH BEFORE THE ASSESSING OFFI CER AND THE CIT(A) THAT THE AMOUNTS INVESTED IN THE INTEREST FR EE SECURITIES CAME OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE PETITIONER. IN THAT VIEW OF THE MATTER, IT IS SUBMITTED BY HIM THAT THE ORDER OF THIS COURT IN HDFC BANK LTD.(SUPRA) WOULD NOT APPLY TO T HE FACTS OF THE PRESENT CASE. WE ARE UNABLE TO UNDERSTAND THE ABOVE SUBMISSION. THE ASSESSING OFFICER PASSED THE ASSESSMENT ORDER O N 22ND DECEMBER, 2010 UNDER SECTION 143(3) OF THE ACT. THE CIT(A) PASSED AN ORDER ON 21ST NOVEMBER, 2011 DISMISSING THE PETI TIONER'S APPEAL. ON BOTH THE DATES, WHEN THE ORDERS WERE PAS SED BY THE ASSESSING OFFICER AND CIT(A), THE AUTHORITIES DID N OT HAVE THE BENEFIT OF THE ORDER OF THIS COURT IN HDFC BANK LTD . (SUPRA) RENDERED ON 23RD JULY, 2014. ONCE THE ISSUE IS SETT LED BY THE DECISION OF THIS COURT IN HDFC BANK LTD. (SUPRA), T HERE IS NOW NO NEED FOR THE ASSESSEE TO ESTABLISH WITH EVIDENCE TH AT THE AMOUNTS WHICH HAS BEEN INVESTED IN THE TAX FREE SECURITIES HAVE COME OUT OF INTEREST FREE FUNDS AVAILABLE WITH IT. THIS IS BECA USE ONCE THE ASSESSEE IS POSSESSED OF INTEREST FREE FUNDS SUFFIC IENT TO MAKE THE INVESTMENT IN TAX FREE SECURITIES, IT IS PRESUMED T HAT IT HAS BEEN PAID FOR OUT OF THE INTEREST FREE FUNDS. CONSEQUENT LY, WE DO NOT FIND ANY MERIT IN THE ABOVE SUBMISSION MADE AT THE HEARI NG ON BEHALF OF THE REVENUE.' 7. FURTHER IT IS ASSESSEES CONTENTION THAT NO TAX FREE INCOME IN THE FORM OF DIVIDEND HAS BEEN RECEIVED DURING THE YEAR AN D THE DIVIDENDS OF RS.7,500/- WHICH HAS RECEIVED FROM SHAMRAO VIT THAL CO-OP BANK LIMITED HAS BEEN OFFERED TO TAX. THE AFORESA ID CONTENTION OF THE ASSESSEE HAS ALSO NOT BEEN CONTROVER TED BY REVENUE. ON THE ISSUE THAT WHEN NO EXEMPT INCOME IS R ECEIVED, NO DISALLOWANCE U/S 14A IS REQUIRED TO BE MADE, WE FIND THA T THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LIMITED VS. CIT REPORTED IN (2015) 378 ITR 33 (DEL) AT PARA 23 OF TH E ORDER HAS NOTED THAT THE EXPRESSION DOES NOT FORM PART OF TOTAL INCOME IN SEC.14A OF THE ACT ENVISAGES THAT THERE SHOULD BE A N ACTUAL RECEIPT OF INCOME, WHICH HAS NOT INCLUDABLE IN THE TOTAL INCOM E, DURING THE YEAR RELEVANT TO PREVIOUS YEAR FOR THE PURPO SE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, SEC.14A WILL NOT APPLY IF NO EXEMP T 10 INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIO US YEAR. IN THE PRESENT CASE, SINCE THE FACT OF NOT EARNING ANY E XEMPT INCOME IS UNDISPUTED, THEREFORE IN VIEW OF THE AFORESAID DEC ISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LIMITED (SUPRA), WE ARE OF THE VIEW THAT NO DISALLOWANCE U/S 14A IS CALLED FOR ON THIS COUNT ALSO. THUS, CONSIDERING THE TOTALITY OF T HE AFORESAID FACTS, WE DIRECT DELETION OF DISALLOWANCE U/S 14A OF THE ACT. THUS, THE GROUND OF THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 28 TH DAY OF FEBRUARY, 2018. SD/- SD/- ( VIKAS AWASTHY ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 28 TH FEBRUARY, 2018. YAMINI #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A) -1, NASHIK. PR.CIT-1, NASHIK. '#$ %%&',) &', / DR, ITAT, A PUNE; $,-./ GUARD FILE. / BY ORDER // TRUE COPY // // TRUE COPY // /01%2&3 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.