Oasis Merchants Private Limited, Ludhiana V. ACIT, Ludhiana

ITA 20/CHANDI/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5224 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 03-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Earning of tax free income; Question of law
• Section: 143(3); 14A; 11

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACOCUNTANT MEMBER ITA NO. 20/CHD/2017 ASSESSMENT YEAR: 2013-14 M/S OASIS MERCHANTS PRIVATE LTD., VS. THE ACIT, CI RCLE 7, LUDHIANA LUDHIANA PAN NO. AAACO9926C (APPELLANT) (RESPONDENT) APPELLANT BY : SH. NAVDEEP SHARMA RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 27.02.2017 DATE OF PRONOUNCEMENT : 11.04.2017 ORDER PER ANNAPURNA GUPTA, AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)- 4, LUDHIANA DATED 26.2.2016. THE ONLY ISSUE IN TH E PRESENT APPEAL PERTAINS TO DISALLOWANCE MADE OF RS. 1,55,333/- BY INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D. THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS:- 2. THE ASSESSEE HAS RAISED FOLLOWING GROUND OF APPE AL:- THAT THE WORTHY CIT(A)-3 LUDHIANA ERRED IN LAW AND ON FACTS IN NOT DELETING THE DISALLOWANCE OF RS. 1,55,333/- U/S 14A R.W. RULE 8D IN SPITE OF THE FAC T THAT THE APPELLANT COMPANY NEITHER RECEIVED NOR CLAIMED ANY DIVIDEND INCOME IN ITS RETURN WHICH IS EXEMPT U /S 10(34) OF THE I.T. ACT. 2 B) THAT THE WORTHY CIT(A)-3, LUDHIANA FURTHER ERRED , IN LAW AND ON FACTS IN NOT DELETING SAID DISALLOWAN CE WHICH IS TOTALLY ADVERSE TO THE DECISIONS OF HON'BL E JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. LAKHANI MARKETING IN ITA NO. 970 OF 2008, AND IN CASE OF CIT VS. MASCOT FOOT CARE IN ITA NO. 67 OF 2009 AND IN THE CASE DECIDED BY THE HON'BLE BENCH I N THE CASE OF ARTI STEELS LTD VS. DCIT IN ITA NO. 268/CHD/2015 DIRECTIONS MAY BE GIVEN TO DELETE THE DISALLOWANCE MADE US/ 14A W.R.T RULE L8D. 3. BRIEF FACTS RELATING TO THE CASE ARE THAT ASSESSMENT IN T HE IMPUGNED CASE WAS COMPLETED U/S 143(3) OF THE ACT AT AN INCOME OF RS. 95,54,210/- AS AGAINST RETURNED INCOME OF RS. 93,98,880/- ON ACCOUNT OF D ISALLOWANCE OF EXPENSES BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT R EAD WITH RULE 8-D OF THE INCOME TAX RULE, 1962 ON THE GROUND THAT THE ASSESS EE COMPANY HAD MADE NON- CURRENT INVESTMENT OF RS. 5.65 CRORES, THE INCOME FROM WHICH WHETHER RECEIVED OR NOT WOULD BE EXEMPT FROM TAX. BEFORE THE ASSESS ING OFFICER, THE ASSESSEE CONTENDED THAT NO EXEMPT INCOME WAS EARNED BY IT DU RING THE YEAR AND, THEREFORE, NO DISALLOWANCE U/S 14A OF THE ACT COULD BE MADE. THE ASSESSEE RELIED UPON THE DECISION OF THE JURISDICTIONAL HIG H COURT IN THE CASE OF CIT VS. LAKHANI MARKETING IN ITA NO. 970 OF 2008, DATED 2.4 .2014 AND CIT VS. MASCOT FOOT CARE IN ITA NO. 67 OF DATED 2.7.2014 IN THIS REGARD. THE ASSESSING OFFIC ER REJECTED THIS CONTENTION OF THE ASSESSEE RELYING UP ON THE CBDT CIRCULAR NO.5 OF 2014 DATED 11.2.2014 AND STATED THAT THE SAID CIRCU LAR CLEARLY MENTIONS THAT IT IS NOT MATERIAL WHETHER DIVIDED IS CLAIMED OR NOT. THE ASSESSING OFFICER FURTHER STATED THAT CIRCULAR ISSUED BY BOARD ARE BINDING ON THE DEPARTMENT AND WHATEVER ACTION IS TO BE TAKEN, IT IS CONSISTENT WITH THE CI RCULAR WHICH WAS IN FORCE AT THE RELEVANT POINT OF TIME. THE ASSESSING OFFICER ALSO PLACED RELIANCE ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL ON TH IS ISSUE IN THE CASE OF CHEMINVEST LTD VS. ITO REPORTED IN 121 ITD 318. RE LIANCE WAS ALSO PLACED BY THE ASSESSING OFFICER ON THE DECISION OF THE APEX C OURT IN THE CASE OF CIT VS. 3 RAJENDRA PRASAD MOODY 115 ITR 519 (SC) . THUS, THE ASSESSING OFFICER HELD THAT THE EXPENSES RELATED TO EXEMPT INCOME ARE TO B E DISALLOWED U/S 14A IN THE CASE WHERE EXEMPT INCOME IS NIL DURING THE YEAR. THE ASSESSING OFFICER ALSO REJECTED THE ASSESSEES CONTENTION THAT INVESTMENT IN SECURITIES WERE OLD STATING THAT THE ONUS IS ON THE ASSESSEE TO PROVE IT TO ONE THE NEXUS OF THE SAID INVESTMENT OF NON BORROWED FUNDS. THE ASSESSING OFF ICER STATED THAT IT IS NOT BOUND TO ACCEPT THE DISALLOWANCE U/S 14A MADE BY TH E ASSESSEE HIMSELF AND THE SAME COULD BE COMPUTED IN THE MANNER PROVIDED UNDER THE SAID SECTION, IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECT NESS OF THE CLAIM OF THE ASSESSEE. THE ASSESSING OFFICER THEREFORE, COMPUTE D THE DISALLOWANCE U/S 14A BY APPLYING RULE 8D AND WORKED OUT THE SAME AT RS. 1,55,333/-. 4. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD. CIT(A) WHERE THE ASSESSEE RELIED UPON THE SUBMISSIONS MADE BEFORE TH E ASSESSING OFFICER. THE CIT(A) AFTER CONSIDERING THE SAME, DISMISSED THE AS SESSEES APPEAL UPHOLDING THE ORDER OF THE ASSESSING OFFICER. THE LD. CIT(A) HELD THAT DISALLOWANCE U/S 14A ARE CLEARLY ATTRIBUTED IN THE ASSESSEES CASE A ND DOES NOT MAKE ANY DIFFERENCE WHETHER THE EXEMPT INCOME HAS BEEN EARNE D BY IT OR NOT. THE LD. CIT(A) CONCURRED WITH THE RELIANCE PLACED BY THE AS SESSING OFFICER THE CBDT CIRCULAR NO.5 OF 2014 IN THIS REGARD AND FURTHER ST ATED THAT SINCE HE HAD NOT CAME ACROSS ANY DECISION DELIVERED AFTER THE ISSUE OF SAID CBDT CIRCULAR, THE DISALLOWANCE U/S 1 4A OF THE ACT WAS WARRANTED EVEN IN THE ABSENCE OF ANY EXEMPT INCOME. THE LD. CIT(A) ALSO UPHELD THE OTHER FINDINGS OF THE ASSESSING OFFICER AND RELEVANT FINDINGS OF THE CIT(A) ARE RE PRODUCED AT PARA 5.2 OF THE SAID ORDER:- 5.2 HAVE CONSIDERED THE OBSERVATIONS OF THE ASSESSING OFFICER AS MADE BY HER IN THE ASSESSMENT ORDER WHILE MAKING IMPUGNED ADDITION/DISALLOWANCE. I HAVE ALSO CONSIDERED SUBMISSIONS MADE BY THE ASSESSEE COMPANY THROUGH ITS LD. AR DURING THE 4 COURSE OF ASSESSMENT PROCEEDINGS. I HAVE FURTHER CONSIDERED VARIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE ASSESSEE COMPANY AS WELL AS OTHER MATERIAL PLACED BY IT ON RECORD. ON CAREFUL CONSIDERATION OF THE RIVAL CONTENTIONS, I AM OF THE OPINION THAT THE PROVISIONS OF SECTION 14A OF THE A CT ARE CLEARLY ATTRACTED IN THE CASE OF THE ASSESSEE COMPANY AS IT CANNOT BE SAID THAT THE ASSESSEE COMPANY HAS NOT INCURRED ANY EXPENSES FOR EARNING DIVIDEND INCOME IRRESPECTIVE OF THE FACT THAT AS TO WHETHER THE DIVIDEND INCOME HAS BEEN RECEIVED BY TH E ASSESSEE COMPANY OR NOT AS THE SAME AS AND WHEN RECEIVED WILL BE EXEMPT FROM TAX MORE PARTICULARLY WHEN THE PROVISIONS OF SECTION 14A OF THE ACT ARE READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. 1 AM FURTHER OF THE OPINION THAT THE ASSESSING OFFICE R HAS RIGHTLY REJECTED THE SUBMISSION'S MADE BY THE ASSESSEE COMPANY DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THAT TOO WITH JUSTIFIABLE REASONING . I AM FURTHER OF THE OPINION THAT THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 WILL ALSO BE APPLICABLE ON THOSE INVESTMENTS FROM WHICH THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION HAS NOT RECEIVE D ANY EXEMPT INCOME IN VIEW OF CLARIFICATION ISSUED B Y THE CBDT, NEW DELHI VIDE CIRCULAR NO. 5 OF 2014 WHEREIN THE LEGISLATIVE INTENTION OF THE PARLIAMENT FOR BRINGING SECTION 14A OF THE ACT TO THE STATUTE HAS BEEN DISCUSSED IN DETAIL. MOREOVER, I HAVE NOT COME ACROSS ANY DECISION WHICH HAS BEEN DELIVERED AFTER CONSIDERING CIRCULAR NO. 5 OF 2014 ISSUED BY THE CBDT, NEW DELHI. IN VIEW OF THESE FACTS, I ALSO DO NOT FIND ANY FORCE IN THE ARGUMENTS OF THE ASSESSEE COMPANY WHICH WERE MADE DURING ASSESSMENT PROCEEDINGS. I AM AGAIN OF THE OPINION THAT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT HAS TO BE WORKED OUT IN A WAY AS WORKED OUT BY THE ASSESSING OFFICER AS THE DISALLOWANCE IS TO BE WORKED OUT AS 5 PROVIDED IN RULE 8D OF THE INCOME TAX RULES, 1962. I AM ALSO OF THE OPINION THAT THE DISSATISFACTION OF THE ASSESSING OFFICER IS DISCERNIBLE FROM THE ASSESSMEN T ORDER. I AM FURTHER OF THE OPINION THAT ONCE THE ASSESSING OFFICER CHOSE TO MAKE DISALLOWANCE UNDER SECTION 14A OF THE ACT IT MEANS HE IS NOT SATISFIED WITH THE CLAIM MADE BY THE ASSESSEE COMPANY IN RESPECT OF EARNING OF EXEMPT INCOME. I AM FURTHER O F THE OPINION THAT THERE IS NO SET LANGUAGE WHICH CAN BE USED FOR RECORDING DISSATISFACTION. I AM AGAIN O F THE OPINION THAT ONCE THE ASSESSEE COMPANY HAS INVESTMENT IN SHARES WHICH FETCH ONLY TAX-FREE INCOME, THE PROVISIONS OF SECTION 14A OF THE ACT AR E ATTRACTED AUTOMATICALLY AND THE DISALLOWANCE HAS TO BE WORKED OUT AS PROVIDED IN RULE 8D OF THE INCOME TAX RULES, 1962. ON THIS PREPOSITION, RELIANCE IS PLACED ON THE DECISION OF THE HONOURABLE ALLAHABAD HIGH IN THE CASE OF M/S DHARMPUR SUGARS LIMITED VS. CIT REPORTED AT (2015) 370 ITR 0187 (ALL.). I AM AGAIN OF THE OPINION THAT THE JUDICIAL PRONOUNCEMEN TS RELIED UPON BY THE LD. AR OF THE ASSESSEE COMPANY HAVE NO APPLICATION IN ITS CASE IN VIEW OF DISTINGUISHABLE FACTS OF THOSE CASES FROM THE FACTS OF THE CASE OF THE ASSESSEE COMPANY. I AM AGAIN OF THE OPINION THAT DUE TO INTRODUCTION OF RULE 8D SOME COMPULSORY SOUGHT OF DISALLOWANCE HAS TO BE MADE EVEN IN THOSE CASES WHERE ASSESSEE COMPANY CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN EARNING EXEMPT INCOME. UNDER SUCH CIRCUMSTANCES, THE ACTION OF THE ASSESSING OFFICER IN MAKING AN ADDITION OF RS.1,27,788/- IN THIS CASE ON ACCOUNT OF DISALLOWAN CE OF EXPENSES BY INVOKING PROVISIONS OF SECTION 14A O F THE ACT CANNOT BE SAID TO BE UNJUSTIFIED. 5. AGGRIEVED BY THE SAME, THE ASSESSEE HAS NOW COME UP ON APPEAL BEFORE US. DURING THE COURSE OF HEARING BEFORE US, LD. COU NSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORIT IES BELOW AND STATED THAT IN 6 VIEW OF THE DECISIONS OF THE JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT VS. LAKHANI MARKETING (SUPRA) AND CIT VS. MASCOT FOOT C ARE (SUPRA,) NO DISALLOWANCE U/S 14A WAS WARRANTED IN THE ABSENCE O F ANY DIVIDEND INCOME EARNED DURING THE YEAR. 6. THE LD. DR ON THE OTHER HAND, RELIED ON THE ORDE R OF THE CIT(A) IN THIS REGARD. 7. WE HAVE HEARD BOTH THE PARTIES. THE UNDISPUTED FACT IN THIS CASE IS THAT THE ASSESSEE HAD SHOWN INVESTMENT OF RS. 5,65,00,00 0/- IN NON-CURRENT INVESTMENT. IT IS ALSO NOT DISPUTED THAT NO DIVIDEN D INCOME WAS EARNED ON THE SAME DURING THE YEAR. THE JURISDICTIONAL HIGH COUR T IN THE CASE OF CIT VS. LAKHANI MARKETING (SUPRA) HAS HELD THAT NO DISALLO WANCE U/S 14A IS WARRANTED IN THE ABSENCE OF EXEMPT INCOME.THE RELEVANT FINDIN GS OF THE HONBLE HIGH COURT IS AS FOLLOWS:- 8. THE PRIMARY ISSUE THAT ARISES FOR CONSIDERATION IN THESE APPEALS IS WHETHER THE CIT(A) AS WELL AS THE TRIBUNAL WERE RIG HT IN ALLOWING DEDUCTION OF INTEREST LIABILITY OUT OF OTHER INCOME AND THE CLAIM OF THE REVENUE TO DISALLOW THE SAME UNDER SECTION 14A OF T HE 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 ACCOUNT OF INTEREST AMOUNTING TO RS. 46,91,684/-. IT WAS INCUM BENT ON THE AO TO ESTABLISH A NEXUS BETWEEN THE EXPENDITURE INC URRED AND THE INCOME WHICH WAS EXEMPT UNDER THE ACT. FACTS CL EARLY DO NOT SUPPORT THE ACTION OF THE AO. DISALLOWANCE IS A CCORDINGLY DELETED. THE AO IS DIRECTED TO RECOMPUTE THE INCOME ACCORDINGLY. 7 10. VIDE ORDER DATED 16.5.2008, ANNEXURE A.III, THE TRIBUNAL ON APPEAL BY THE REVENUE WHILE UPHOLDING THE FINDING R ECORDED 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 OFTHE ACT, IT IS CLEAR THAT BEFORE MAKING ANY DISALLOWANC E 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 TH E 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 TH E ACT CANNOT BE INVOKED. IN THIS APPEAL, THE REVENUE HAS NOT DISPELLED THE FINDINGS OF THE CIT(A), NOR THE STATE MENT OF THE ASSESSEE BEFORE AO THAT ASSESSEE IS NOT IN RECE IPT OF ANY DIVIDEND INCOME AND HENCE ACCORDING TO US, THE ASSESSING OFFICER HAS ERRED IN INVOKING SECTION 14A OF THE ACT, TO DISALLOW VARIOUS INTEREST PAYMENTS ON CAPIT AL ACCOUNT, SECURITY DEPOSITS AND UNSECURED LOANS. THI S CONCLUSION OF OURS FINDS SUPPORT IN THE DECISION OF BOMBAY BENCH OF THE TRIBUNAL IN THE CASE OF JOINT COMMISSI ONER OF INCOME TAX V. HOLLAND EQUIPMENT CO. B.V.REPORTED IN (2005) 3 SOT 810 (MUMBAI) AND THE RELEVANT PORTION O F THE ORDER OF THE BOMBAY BENCH OF THE TRIBUNAL IS 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 EN TIRE INCOME OF THE ASSESSEE IS TAXABLE UNDER THE ACT. SE CTION 14A IS APPLICABLE ONLY WHEN ANY PART OF THE INCOME IS NOT TO BE INCLUDED IN 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 8 EXPENDITURE RELATING TO THE EXEMPTED INCOME CAN BE DISALLOWED AND NOT OTHERWISE. SINCE IN THE PRESENT CASE,THE ENTIRE INCOME IS FOUND TO BE TAXABLE, NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A OF THE A CT. 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 TH E 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 CIT(A) CONCERNING ASSES SMENT YEAR 2000-01 AND 2001-02 AND HENCE THE DECISION OF CIT (A) IN DELETING THE DISALLOWANCE OF INTEREST BY INV OKING SECTION 14A OF THE ACT IS CORRECT AND IN ACCORDANCE WITH LAW. 11. IN VIEW OF THE AFORESAID FINDINGS, WHICH COULD NOT BE SHOWN TOBE ERRONEOUS, THE PLEA OF THE REVENUE CANNOT BE ACCEPT ED. 8. FURTHER, WE FIND THAT ISSUE OF DISALLOWANCE U/S 14A OF THE ACT IN THE ABSENCE OF ANY EXEMPT INCOME HAS ALSO BEEN DEALT BY THE HON'BLE DELHI HIGH COURT, IN THE CASE OF CIT-4 VS. HOLCIM INDIA PVT LT D REPORTED IN 90 CCH 81, WHEREIN THE HON'BLE HIGH COURT HELD AS FOLLOWS:- 14 . ON THE ISSUE WHETHER THE RESPONDENT-ASSESSEE COULD HAVE EARNED DIVIDEND INCOME AND EVEN IF NO DIVIDEND INCO ME WAS EARNED, YET SECTION 14A CAN BE INVOKED AND DISALLOWANCE OF EXPENDITURE CAN BE MADE, THERE ARE THREE DECISIONS OF THE DIFFERENT HIGH COURTS DIRECTLY ON THE ISSUE AND AGAINST THE APPELLANT-REV ENUE. NO CONTRARY DECISION OF A HIGH COURT HAS BEEN SHOWN TO US. THE PUNJAB AND HARYANA HIGH COURT IN COMMISSIONER OF INCOME TAX, FARIDABAD VS. M/S. LAKHANI MARKETING INCL., ITA NO. 970/2008, DECIDED ON 02.04.2014, MADE REFERENCE TO TWO EARLIER DECISIONS OF THE SAME COURT IN CIT VS. HERO CYCLES LIMITED, [2010] 323 ITR 518 AND CIT VS. WINSOME TEXTILE INDUSTRIES LIMITED, [2009] 319 ITR 204 TO HOLD THAT SECTION 14A CANNOT BE INVOKED WHEN NO EXE MPT INCOME WAS 9 EARNED. THE SECOND DECISION IS OF THE GUJARAT HIGH COURT IN COMMISSIONER OF INCOME TAX-I VS. CORRTECH ENERGY (P .) LTD. [2014] 223 TAXMANN 130 (GUJ.). THE THIRD DECISION I S OF THE ALLAHABAD HIGH COURT IN INCOME TAX APPEAL NO. 88 OF 2014, COMMISSIONER OF INCOME TAX (II) KANPUR, VS. M/S. SH IVAM MOTORS (P) LTD. DECIDED ON 05.05.2014. IN THE SAID DECISION IT HAS BEEN HELD: 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 SU BSTANTIAL QUESTION OF LAW. HENCE, THE DELETION OF THE DISALLO WANCE OF RS.2,03,752/- MADE BY THE ASSESSING OFFICER WAS IN ORDER . . . . . 17. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY MERIT I N THE PRESENT APPEALS. THE SAME ARE DISMISSED IN LIMINE. 9. FURTHER, THE DECISION OF THE SPECIAL BENCH OF TH E ITAT , REFERRED TO BY THE ASSESSING OFFICER WHILE MAKING THE DISALLOWANCE IN THE PRESENT CASE, IN THE CASE OF CHEMINVIST INDIA VS. CIT (SUPRA) HAS SINCE BEEN REVERSED BY THE DELHI HIGH COURT IN ITS DECISION REPORTED AT 378 ITR 33 A S FOLLOWS:- 19. IN LIGHT OF THE CLEAR EXPOSITION OF THE LAW IN HOLCIM INDIA (P) LTD. (SUPRA) AND IN VIEW OF THE ADMITTED FACTUAL POSITIO N IN THIS CASE THAT THE ASSESSEE HAS MADE STRATEGIC INVE STMENT IN SHARES OF MAX INDIA LTD.; THAT NO EXEMPTED INCOME WA S EARNED BY THE ASSESSEE IN THE RELEVANT AY AND SINCE THE GE NUINENESS 10 OF THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT IN DOUBT, THE QUESTION FRAMED IS REQUIRED TO BE ANSWERED IN FAVOU R OF THE ASSESSEE AND AGAINST THE REVENUE. 10. MOREOVER , WE FIND THAT THE HON'BLE GUJARAT HIG H COURT IN THE CASE OF CIT VS.CORRTECH ENERGY P. LTD. (2015) 372 ITR 97 AND THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V SHIVAM MOTORS PVT L TD IN ITA NO. 88 OF 2014 DATED 5.5.2014 HAVE REITERATED THE POSITION THAT WH EN AN ASSESSEE HAS NOT EARNED ANY TAXABLE INCOME IN THE RELEVANT ASSESSMENT YEAR, CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE U/S 14A. IN VIEW OF THE ABOVE, WE FIND THAT VARIOUS HIGH COURTS HAVE DEALT WITH THE ISSUE OF DISALLOWANCE U/S 14A IN THE ABSENCE OF ANY EXEMPT INCOME AND DECIDED THE SAME IN FAVOUR OF THE ASSESSEE BY HOLDING THAT NO DISALLOWANCE IN SUCH A SITUATION IS WARRANTED. IN VIEW OF THE ABOVE LEGAL POSITION, WE FIND NO REASON TO CONCUR WITH THE LD. CIT(A) THAT BY VIRTUE OF CIRCULAR NO.5 OF 2014 OF THE CBDT, DISALLOWANCE HAS TO BE MADE,IRRESPECTIVE OF WHETHER EXEMPT INCOME I S EARNED OR NOT. AS RIGHTLY STATED BY THE ASSESSING OFFICER THIS CIRCULAR IS BI NDING ONLY ON THE OFFICERS OF THE DEPARTMENT AND DO NOT OVERRIDE THE ORDERS OF THE COURTS. THEREFORE, WE FIND NO MERIT IN THE CONTENTION OF LD. DR AND FIND NO REASON TO UPHOLD THE DISALLOWANCE MADE U/S 14A IN THE PRESENT CASE. MORE OVER, THE RELIANCE WAS PLACED BY THE ASSESSING OFFICER ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF RAJENDER PRASAD MOODY (SUPRA) WHILE MAK ING THE SAID DISALLOWANCE, WE FIND THAT THE ISSUE HAS BEEN DEALT WITH BY THE H ON'BLE DELHI HIGH COURT WHILE RENDERING THE DECISION IN THE CASE OF CHEMINVEST IN DIA (SUPRA), WHEREIN THE HON'BLE HIGH COURT HELD THAT THE DECISION IN THE CA SE OF RAJENDER PRASAD MOODY (SUPRA) HAD BEEN RENDERED IN THE CONTEXT OF SECTIO N 57(III) OF THE ACT WHERE THE EXPRESSION USED WAS FOR THE PURPOSE OF MAKING OR E ARNING SUCH INCOME, WHILE SECTION 14A OF THE ACT ON THE OTHER HAND CONTAINED THE EXPRESSION IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. T HE HONBLE HIGH COURT HELD THAT THEREFORE THE SAID DECISION WOULD NOT APPLY IN THE CONTEXT OF SECTION 14A OF 11 THE ACT. IN VIEW OF THE SAME THE RELIANCE PLACED BY THE ASSESSING OFFICER IN THE CASE OF RAJENDER PRASAD MOODY (SUPRA), WE FIND IS A LSO MISPLACED. IN VIEW OF THE ABOVE, WE HOLD THAT IN THE FACTS AN D CIRCUMSTANCES OF THE PRESENT CASE AND THE LEGAL PRECEDENCE ON THE ISSUE, NO DISA LLOWANCE U/S 14A IS WARRANTED SINCE THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE YEAR. THE ORDER OF THE LD. CIT(A) IS, THEREFORE, SET ASIDE AND APPE AL OF THE ASSESSEE STANDS ALLOWED. 11. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH APRIL, 2017. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :11.04.2017 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR