Atul Auto Limited, RAJKOT-GUJARAT V. The Joint Commissioner of Income Tax, Range-1, RAJKOT-GUJARAT

ITA 200/RJT/2012

• Counselvise Citation: 20024914 RSA 2012
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-07-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 19-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Assessee Lawyers: PM MAHARISHI
• Keywords: Earning of tax free income; Retrospective amendment
• Section: 143(3); 14A; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBULAL: RAJKOT BENCH: RAJKOT BEFORE SHRI T K SHARMA, JM AND SHRI D K SRIVASTAVA, AM ITA NO. 200/RJT/2012 ASSESSMENT YEAR: 2009-10 ATUL AUTO LIMITED, PLOT NO.1 TO 4, SURVEY NO.86, NR. MICROWAVE TOWERS, NH 8B, SHAPAR VARAVAL, TAL. KOTDA SANGANI, RAJKOT PAN : AACCA 3018 M V. JCIT, RANGE-1, RAJKOT DATE OF HEARING : 11.07.2013 DATE OF PRONOUNCEMENT : 04.10.2013 ASSESSEE BY : SHRI P M MAHARISHI, CA REVENUE BY : SHRI AVINASH KUMAR, DR ORDER D. K. SRIVASTAVA: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER PASSED BY THE CIT(A)-I, RAJKOT ON 28.03.2012. THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF THREE W HEELERS, AUTO-RICKSHAWS AND THEIR SPARES, APART FROM GENERATION OF ELECTRICITY. IT FILED ITS RETURN OF INCOME ON 05.09.2009 RETURNING TOTAL INCOME AT RS.1,01,94,270 /- AS AGAINST WHICH ITS TOTAL INCOME WAS ASSESSED U/S 143(3) OF THE I-T ACT AT RS .1,49,98,540/- AFTER DISALLOWING/ADDING, INTER-ALIA, A SUM OF RS.2,07,24 3/- U/S 40(A)(IA) OF THE I-T ACT AND FURTHER SUM OF RS.4,97,439/- U/S 14A OF THE I-T ACT. 2. AGGRIEVED BY THE AFORESAID ADDITIONS/DISALLOWANC ES, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WITHOUT SUCCESS. THE ASSESSEE IS NOW IN APPEAL AGAINST THE AFORESAID TWO ADDITIONS/DISAL LOWANCES MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD CIT(A) BE FORE THIS TRIBUNAL. 3. GROUND NO.1 TAKEN BY THE ASSESSEE READS AS UNDER :- LEARNED A.O. ERRED IN LAW AS WELL AS ON FACTS IN D ISALLOWING THE EXPENSES OF RS.2,07,243/- U/S. 40(A)(IA) OF THE ACT AND LD. CIT(A) ALSO ERRED IN CONFIRMING THE SAME. 4. THE IMPUGNED DISALLOWANCE WAS MADE BY THE ASSESS ING OFFICER WITH THE FOLLOWING OBSERVATIONS:- 8.2 AS REGARDS ADDITION OF RS.2,07,243/- ON ACCOUN T OF DISALLOWANCE U/S.40(A)(IA) OF THE ACT, THE ASSESSEE HAS STATED T HAT THE TAX DEDUCTED WAS 2 200-RJT-2012 -ATUL AUTO PAID BEFORE THE DUE DATE OF FILING OF RETURN, HENCE THE SAME SHOULD NOT BE ALLOWED U/S.40(A)(IA) OF THE ACT. THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE A S THE SUM OF RS.2,07,243/- RELATABLE TO TDS WAS DEDUCTIBLE UP TO THE MONTH OF FEBRUARY 2009 AND SHOULD HAVE BEEN PAID ON OR BEFORE 31.3.20 09. IT HAS BEEN HELD BY THE ITAT SPECIAL BENCH MUMBAI IN THE CASE OF BHA RTI SHIPYARD LTD. V/S. DCIT 61 DTR 41 THAT SUCH EXPENSES FOR THE FIRST 11 MONTHS OF THE FINANCIAL YEAR WHICH ARE SUBJECTED TO TDS, SUCH TDS SHOULD BE PAID BY THE END OF THE FINANCIAL YEAR. ACCORDINGLY, A SUM OF RS.2,07,2 43/- ON ACCOUNT OF EXPENSES ON WHICH TDS WAS NOT PAID BEFORE THE END O F THE FINANCIAL YEAR AND WHICH WERE DEDUCTED/DEDUCTIBLE UP TO FEBRUARY 2 009, IS DISALLOWED U/S.40(A)(IA) OF THE ACT. 5. ON APPEAL, THE LD. CIT(A) HAS CONFIRMED THE IMPU GNED DISALLOWANCE WITH THE FOLLOWING OBSERVATIONS:- 5.2 I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSI ON. THIRD GROUND OF APPEAL IS AGAINST THE DISALLOWANCE MADE U/S 40(A)(I A) FOR NOT DEPOSITING THE TDS DEDUCTED ON THE EXPENSES OF RS.2,07,243/- AS PE R THE TIME LIMIT SPECIFIED IN THE ACT. APPELLANT HAS PAID AMOUNT OF RS.1,56,737/- FOR TRANSPORT EXPENSES & MATERIAL TESTING FEES AND RS.5 0,506/- FOR CONSULTATION FEES DURING THE YEAR FINANCIAL YEAR EN DED ON 31.03.2009 ON WHICH TDS WAS DEDUCTIBLE UPTO THE MONTH OF FEBRUARY 2009 AND SHOULD HAVE BEEN PAID ON OR BEFORE 31.03.2009. BUT THE SAM E WAS PAID AFTER THE TIME LIMIT SPECIFIED WHICH IS ALSO EVIDENT FROM THE CHART AS GIVEN IN THE WRITTEN SUBMISSION AND HENCE THE SAME WAS DISALLOWE D BY THE LD. AO U/S.40(A)(IA) OF THE ACT BY FOLLOWING THE DECISION OF ITAT SPECIAL BENCH MUMBAI IN THE CASE OF BHARTI SHIPYARD LTD. V/S. DCI T 61 DTR 41 WHEREIN IT WAS HELD THAT SUCH EXPENSES FOR THE FIRST 11 MONTHS OF THE FINANCIAL YEAR WHICH ARE SUBJECTED TO TDS, SUCH TDS SHOULD BE PAID BY THE END OF THE FINANCIAL YEAR. APPELLANT CONTENDED THAT IT WAS ALL OWABLE AS IT WAS PAID BEFORE THE DUE DATE OF FILING RETURN OF INCOME AS T HE AMENDED PROVISO INSERTED W.E.F. 1/4/2010 APPLIES RETROSPECTIVELY AN D THEREFORE SAME SHOULD 3 200-RJT-2012 -ATUL AUTO BE APPLIED TO AY 2009-10 AND DISALLOWANCE CANNOT BE MADE. THE CONTENTION OF APPELLANT IS NOT TENABLE AS PER THE P ROVISIONS OF SECTION 40(A)(IA) AND AS PER THE DECISION OF HONBLE ITAT M UMBAI BENCH IN THE CASE OF BHARTI SHIPYARD LTD. 61 DTR 41WHEREIN IT HA S BEEN HELD AS UNDER: 56 IN VIEW OF THE FOREGOING REASONS WE ARE SATISFIED T HAT THE AMENDMENT CARRIED OUT BY THE FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FROM ASST. YR. 2010-11 CANNOT BE HELD TO BE RETROSPECTIVE FROM ASST. YR. 2005-06. TWO DIAMETRICALLY OPPOSITE VIEWS ON THIS ISSUE EXPRESSED; INTER ALIA, BY THE MUMBAI BENCHES OF THE TRIBUNAL, WERE PLACED BEFORE US. WITH UTMOST RESPECT TO THE OTHER, WE ARE INCLINED TO ACCEPT THE ONE IN FAVOUR OF THE REVENUE. WE, THEREF ORE, HOLD THAT THE AUTHORITIES BELOW WERE FULLY JUSTIFIED IN SUSTAININ G DISALLOWANCE OF RS.50.12 LAKHS UNDER S. 40(A)(IA) IN THE YEAR UNDER CONSIDERATION. THE QUESTION POSTED BEFORE THE SPECIAL BENCH IS, TH EREFORE, ANSWERED IN NEGATIVE, IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE BY HOLDING THAT THE AMENDMENT BROUGHT OUT BY THE FINANCE ACT, 2010 TO S.40(A)(IA) W.E.F. 1 ST APRIL, 2010, IS NOT REMEDIAL AND CURATIVE IN NATURE. THUS, RESPECTFULLY FOLLOWING THE DECISION OF HONBL E ITAT MUMBAI BENCH, THE DISALLOWANCE MADE BY ASSESSING OFFICER IS HELD AS CORRECT AND I HEREBY CONFIRM THE ADDITION MADE OF RS.2,07,243/- U/S.40(A )(IA) OF THE ACT. THEREFORE, GROUND NO.3 IS DISMISSED. 6. IN SUPPORT OF APPEAL, THE LD. AUTHORIZED REPRESE NTATIVE FOR THE ASSESSEE SUBMITTED THAT THE TAX WAS DEDUCTED AT SOURCE AND P AID BEFORE THE DUE DATE PRESCRIBED FOR FILING THE RETURN OF INCOME U/S 139 AND THEREFORE THE SAME SHOULD BE ALLOWED FOLLOWING THE JUDGMENT DATED 23.11.2011 OF THE HONBLE CALCUTTA HIGH COURT IN CIT V. VIRGIN CREATIONS, ITA NO.302 OF 201 1. IT WAS SUBMITTED THAT THE PROVISO INSERTED IN SECTION 40(A)(IA) WITH EFFECT F ROM 01.04.2010 HAS BEEN HELD BY THE HONBLE CALCUTTA HIGH COURT TO BE RETROSPECTIVE IN NATURE WHICH HAS SINCE BEEN FOLLOWED BY THIS TRIBUNAL ALSO. HE HAS ALSO RE LIED UPON THE DECISION OF BANGALORE BENCH OF THIS TRIBUNAL IN CIT V. M K GURU MURTHY, 52 SOT 84 AND 4 200-RJT-2012 -ATUL AUTO CHANDIGARH BENCH OF THIS TRIBUNAL IN PUNJAB STATE COOPERATIVE FEDERATION OF HOUSING BUILDING SOCIETIES LTD., 53 SOT 19. 7. IN REPLY, THE LD. DR SUPPORTED THE ORDER PASSED BY THE AO/CIT(A). 8. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CON SIDERED THEIR SUBMISSIONS. IN ITS JUDGMENT DATED 02.05.2013 IN CIT V. SIKANDAR KHAN N TUNVAR, TAX APPEAL NO. 905/2012, THE HONBLE JURISDICTIONAL HIGH COURT HAS OBSERVED THUS: SECTION 40(A)(IA) PROVIDES THAT IN CASE OF ANY INTEREST, CO MMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB -CONTRACTOR FOR CARRYING OUT ANY WORK ON WHICH TAX IS DEDUCTIBLE AT SOURCE AND SUCH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION HAS NOT BEEN PAID BEFORE THE DUE DA TE, SUCH AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER T HE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION IRRESPECTIVE OF THE PROV ISIONS CONTAINED IN SECTIONS 30 TO 38 OF THE ACT. TWO PROPOSITIONS CLEARLY EMERGE FROM THE AFORESAID OBSERVATIONS OF THE HONBLE HIGH COURT: ONE , THE DISALLOWANCE UNDER SECTION 40(A)(IA) IS ATTRACTED IN RESPECT OF AMOUNTS OUT OF WHICH TAX IS DEDUCTIBLE AT SOURCE AND SUCH TAX IS EITHER NOT DEDUCTED OR AFTER DEDUCTION IS NO T PAID BEFORE THE SPECIFIED DATE; AND, TWO, THE DISALLOWANCE U/S 40(A)(IA) CAN BE MADE IRRESPE CTIVE OF THE PROVISIONS CONTAINED IN SECTIONS 30-38 OF THE INCOM E-TAX ACT. 9. DEDUCTION OF TAX AT SOURCE AS CONTEMPLATED BY SE CTION 40(A)(IA) AND IN THE AFORESAID JUDGMENT NEEDS TO BE REAL AND NOT ILLUSOR Y. DEDUCTION OF TAX AT SOURCE IMPLIES SUBTRACTION OF THE AMOUNT OF TAX FROM THE A MOUNT PAYABLE BY THE ASSESSEE TO THE PAYEE OUT OF WHICH TAX IS DEDUCTIBLE AT SOUR CE BEFORE IT IS PAID TO THE PAYEE OR IS CREDITED TO THE ACCOUNT OF THE PAYEE. IT IS A FTER DEDUCTION OF SUCH TAX FROM THE AMOUNT PAYABLE TO THE PAYEE THAT THE ASSESSEE CAN P AY/CREDIT THE REMAINING AMOUNT. ENTRIES IN THE BOOKS BY THE ASSESSEE BY WHI CH THE AMOUNT OF TAX DEDUCTIBLE IS DEBITED TO THE RUNNING ACCOUNT OF THE PAYEE DOES NOT CONSTITUTE REAL DEDUCTION OF TAX AT SOURCE OUT OF THE AMOUNTS PAYAB LE TO THE PAYEE UNLESS SUCH DEDUCTION HAS ACTUALLY BEEN MADE SIMULTANEOUSLY AT THE TIME WHEN THE AMOUNT WAS PAID/CREDITED BY THE ASSESSEE. THE LAW CONTEMPL ATES REAL DEDUCTION OF TAX AT SOURCE OUT OF AMOUNTS PAYABLE BY THE ASSESSEE AND N OT MERE BOOK ENTRIES BY 5 200-RJT-2012 -ATUL AUTO WHICH SUCH TAX IS DEBITED TO THE RUNNING ACCOUNT OF THE PAYEE IN THE BOOKS OF THE ASSESSEE UNLESS SUCH ENTRIES ARE SUPPORTED BY ACTUA L DEDUCTION. 10. THE ASSESSEE HAS FILED A COPY OF THE TAX AUDIT REPORT WHICH IS PLACED AT PP. 15-51 OF THE PAPER BOOK FILED BEFORE THIS TRIBU NAL. SR. NO. 17(F) OF THE TAX AUDIT REPORT REQUIRES THE AUDITOR TO SPECIFY THE A MOUNT INADMISSIBLE UNDER SECTION 40(A). INSTEAD OF GIVING THE INFORMATION R EQUIRED TO BE GIVEN REGARDING THE AMOUNT INADMISSIBLE U/S 40(A) UNDER SR. NO.17(F) OF THE TAX AUDIT REPORT, THE TAX AUDITOR HAS SOUGHT TO EVADE THE RELEVANT INFORMATIO N BY STATING THAT HE HAS CARRIED VERIFICATION AS PER AUDITING STANDARDS GENE RALLY ACCEPTED IN INDIA WHICH INCLUDE TEST CHECKS AND THE CONCEPT OF MATERIALITY AND ON SUCH BASIS AMOUNT INADMISSIBLE U/S 40A HAS BEEN WORKED OUT. THE RELEVANT COLUMN, I.E., 1 7(F) OF THE TAX AUDIT REPORT AND THE INFORMATION GIVEN BY THE T AX AUDITOR IN THE SAID COLUMN ARE REPRODUCED HEREIN BELOW FOR PROPER APPRECIATION :- 17(F) AMOUNT INADMISSIBLE UNDER SECTION 40(A); WE HAVE CARRIED VERIFICATION AS PER AUDITING STANDARDS GENERALLY ACCEPTED IN INDIA WHICH INCLUDE TEST CHECKS AND THE CONCEPT OF MATERIALITY AND ON SUCH BASIS AMOUNT INADMISSIBLE U/S.40A ARE AS UNDER INCOME TAX: RS.30,65,753/- DEFERRED TAX RS.(31,49,176)/- FRINGE BENEFIT TAX RS.14,25,891/-. 11. IT IS QUITE EVIDENT THAT THE TAX AUDITOR HAS NO T GIVEN THE RELEVANT INFORMATION WITH REGARD TO AMOUNT INADMISSIBLE U/S 40(A). INSTEAD, HE HAS WORKED OUT THE AMOUNT INADMISSIBLE U/S 40A. TAX AUDITOR IS A PROFESSIONAL EXPERT. HE KNOWS THE DIFFERENCE BETWEEN THE PROVISIONS OF SECT ION 40(A) AND 40A. HIS WISDOM IN CARRYING OUT THE TAX AUDIT IS HIGHLY VALU ED. IT WAS EXPECTED OF HIM THAT HE WOULD FAITHFULLY AND CORRECTLY GIVE RELEVANT INF ORMATION WITH REGARD TO THE AMOUNTS INADMISSIBLE U/S 40(A) BUT HE, INSTEAD OF G IVING THAT INFORMATION IN TERMS OF SECTION 40(A), SKIRTED THE ISSUE AND GAVE THE IN FORMATION WITH REGARD TO THE AMOUNTS INADMISSIBLE U/S 40A. BE THAT AS IT MAY, TH E ASSESSING OFFICER CARRIED OUT REQUISITE INQUIRIES AND NOTICED THAT THE ASSESSEE H AD CLAIMED DEDUCTION IN RESPECT OF THOSE AMOUNTS ON WHICH HE WAS REQUIRED TO DEDUCT TAX AT SOURCE AND PAY THE 6 200-RJT-2012 -ATUL AUTO SAME TO THE GOVERNMENT WITHIN THE SPECIFIED TIME WI THOUT DOING SO. HE THEREFORE DISALLOWED THE IMPUGNED EXPENDITURE. 12. AT THE TIME OF HEARING, THE LD. AUTHORIZED REPR ESENTATIVE FOR THE ASSESSEE WAS POINTEDLY ASKED TO SPECIFICALLY STATE THE DATE ON WHICH THE BILL WAS RECEIVED FROM THE PAYEES TOGETHER WITH THE AMOUNT SHOWN IN T HOSE BILLS AS PAYABLE BY THE ASSESSEE, THE DATE ON WHICH THE AMOUNT WAS PAID OR CREDITED BY THE ASSESSEE TO THE ACCOUNT OF THE PAYEE AND THE DETAILS OF TAX DED UCTED OUT OF SUCH AMOUNT PAID/CREDITED TO THE ACCOUNT OF THE PAYEE. THE ASSE SSEE DID NOT GIVE THE AFORESAID INFORMATION. HE GAVE ALTOGETHER DIFFERENT INFORMATI ON. IT IS QUITE OBVIOUS THAT THE ASSESSEE IS WITHHOLDING THE RELEVANT INFORMATION ON LY FOR THE REASON THAT THE INFORMATION, IF GIVEN BY THE ASSESSEE, WOULD GO AGA INST THE ASSESSEE. OTHERWISE THERE WAS NO REASON AS TO WHY THE ASSESSEE SHOULD W ITHHOLD THE INFORMATION IN SPITE OF BEING SPECIFICALLY ASKED TO FURNISH THE SA ME. 13. THERE IS ABSOLUTELY NO EVIDENCE BEFORE US THAT TAX WAS ACTUALLY DEDUCTED BY THE ASSESSEE AT SOURCE OUT OF THE AMOUNTS PAID O R CREDITED BY THE ASSESSEE TO THE PAYEE IN THE YEAR UNDER APPEAL ALTHOUGH SUCH TA X WAS DEDUCTIBLE AT SOURCE. AS STATED EARLIER, THE LAW REQUIRES ACTUAL DEDUCTIO N OF TAX AT SOURCE OUT OF AMOUNTS PAID/CREDITED BY THE ASSESSEE AND NOT MERE DEBIT EN TRIES IN THE RUNNING ACCOUNT OF PAYEES. THE ASSESSEE HAS NEITHER BEEN ABLE TO PROVE ACTUAL DEDUCTION OF TAX AT SOURCE OUT OF AMOUNTS PAID/CREDITED BY THE ASSESSEE IN FAVOUR OF THE PAYEE IN THE YEAR UNDER APPEAL NOR ACTUAL PAYMENT OF SUCH TAX IN THE YEAR UNDER APPEAL. UNLESS THE ASSESSEE PROVES THAT IT HAS ACTUALLY DED UCTED THE TAX AT SOURCE OUT OF AMOUNTS PAID/CREDITED IN FAVOUR OF THE PAYEE IN THE YEAR UNDER APPEAL, IT IS NOT POSSIBLE TO DELETE THE IMPUGNED DISALLOWANCE. GROUN D NO.1 TAKEN BY THE ASSESSEE IS DISMISSED. 14. GROUND NO.2 TAKEN BY THE ASSESSEE READS AS UNDE R:- LEARNED A.O. ERRED IN LAW AS WELL AS ON FACTS IN M AKING DISALLOWANCE OF EXPENSES OF RS.4,97,349/- U/S.14A OF THE ACT AND LD . CIT (A) ALSO ERRED IN CONFIRMING THE SAME. 7 200-RJT-2012 -ATUL AUTO 15. THE IMPUGNED DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER WITH THE FOLLOWING OBSERVATIONS:- 8.3. AS REGARDS DISALLOWANCE U/S.14A OF THE ACT, T HE ASSESSEE HAS CONTENDED THAT THE ASSESSEE HAS NEITHER EARNED ANY EXEMPT INCOME NOR INCURRED ANY EXPENDITURE TO EARN IT. IN VIEW OF THE ABOVE, DISALLOWANCE U/S.14A OF THE ACT SHOULD NOT BE MADE. ALTHOUGH THE ASSESSEE HAS CLAIMED THAT NO EXEMPT I NCOME HAS BEEN EARNED DURING THE YEAR, BUT IT IS SEEN THAT TH E ASSESSEE HAS INVESTED A SUM OF RS.2,29,94,620/- IN INVESTMENTS, THE INCOM E FROM WHICH IS NOT CHARGEABLE TO TAX. ACCORDINGLY, THE DISALLOWANCE U/ S.14A R. W. RULE 8D IS COMPUTED AT RS.4,97,439/- AND ADDED TO THE INCOME O F THE ASSESSEE. 16. ON APPEAL, THE LD. CIT(A) HAS CONFIRMED THE IMP UGNED DISALLOWANCE WITH THE FOLLOWING OBSERVATIONS:- 6.2 I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSI ON. FORTH GROUND OF APPEAL IS AGAINST THE ADDITION MADE ON ACCOUNT OF D ISALLOWANCE OF EXPENSES OF RS.4,97,349/- U/S.14A OF THE ACT STATIN G THAT APPELLANT HAS EARNED EXEMPT INCOME DURING THE YEAR. ASSESSING OFF ICER STATED THAT ALTHOUGH APPELLANT HAS CLAIMED THAT NO EXEMPT INCOM E HAS BEEN EARNED DURING THE YEAR, BUT IT IS SEEN THAT THE APPELLANT HAS INVESTED A SUM OF RS.2,29,94,620/- IN INVESTMENTS, THE INCOME FROM WH ICH IS NOT CHARGEABLE TO TAX. ACCORDINGLY THE DISALLOWANCE U/S.14A R.W. R ULE 8D IS COMPUTED AT RS.4,97,439/- AND ADDED TO THE INCOME OF THE ASSESS EE. APPELLANT HAS CONTENDED THAT IT HAS NOT EARNED ANY INCOME IN RELA TION TO THE ABOVE INVESTMENTS AND HAS ALSO NOT INCURRED ANY EXPENSE I N RELATION TO SAME. FURTHER, THE INVESTMENT IS MADE BY THE APPELLANT CO MPANY SINCE LONG AND THERE IS NO NEW INVESTMENT MADE. HOWEVER, DURING TH E YEAR UNDER CONSIDERATION APPELLANT HAS NEITHER EARNED EXEMPT I NCOME NOR INCURRED ANY EXPENDITURE TO EARN IT. AND HENCE, SECTION 14A WILL NOT BE APPLICABLE AT ALL. APPELLANT ALSO RELIED ON THE RECENT JUDGMENT OF ITA T CHENNAI BENCH IN THE CASE OF SIVA INDUSTRIES & HOLDINGS LTD. VS. ACIT WH EREIN IT IS STATED THAT FOR 8 200-RJT-2012 -ATUL AUTO THE APPLICABILITY OF S. 14A THERE MUST BE (A)TAXABL E INCOME AND (B)TAX-FREE INCOME. IF EITHER ONE IS ABSENT, S. 14A HAS NOT APP LICABILITY. APPELLANT ALSO RELIES ON THE JUDGMENTS OF WALFORT SHARE AND STOCK BROKERS 326 ITR 1 (SC), GODREJ & BOYCE 328 ITR 81 (BOM) AND WINSOME T EXTILE 319 ITR 204 (P&H) WHEREIN IT HAS HELD THAT IF THERE IS NO CLAIM FOR TAX-FREE INCOME, THERE CANNOT BE ANY DISALLOWANCE U/S.14A. DURING THE YEAR UNDER CONSIDERATION APPELLANT HAS EARNED NO TAX-FREE INCOME AND CLAIMED THE SAME. HOWEVER ALL THE CASE LAWS RELIED UPON ON BY THE APPELLANT A RE PERTAINING TO ASSESSMENT YEAR EARLIER THAN AY 2008-09, THEREFORE THEY DO NOT APPLY TO THE FACTS OF THE CASE. WITH EFFECT FROM AY 2008-09, RULE 8 D HAS BEEN INSERTED WHICH CLEARLY LAYS DOWN RULE FOR DISALLOWA NCE OF EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME. IT IS DISALLOWA BLE IN THE ABSENCE OF ANY INCOME AS WELL AS EXPENDITURE ALSO. THEREFORE, ARGU MENTS OF THE APPELLANT THAT NO DISALLOWANCE CAN BE MADE U/S.14A IN CASE OF APPELLANT HAS NO EXEMPT INCOME IS EARNED AND CLAIMED BY APPELLANT IS DEVOID OF ANY MERIT. A.O. HAS MADE DISALLOWANCE AS PER PROVISION OF RULE 8 D THAT IS IN ACCORDANCE WITH THE LAW APPLICABLE TO AY 2008-09. T HUS, THE DISALLOWANCE MADE OF RS.4,97,439/- U/S.14A IS UPHELD. 17. IN SUPPORT OF APPEAL, THE LD AUTHORIZED REPRESE NTATIVE FOR THE ASSESSEE HAS MADE THE FOLLOWING SUBMISSIONS IN WRITING:- 2. REGARDING DISALLOWANCE U/S.14A OF RS.497439/- A) DURING THE FINANCIAL YEAR ASSESSEE HAS NOT EARNE D ANY EXEMPT INCOME AND HAS ALSO STATED THAT THERE CANNOT BE ANY DISALL OWANCE U/S.14A. HOWEVER LD AO HAS DISALLOWED RS.497439/- APPLYING R ULE 8D OF THE ACT. B) APPELLANT SUBMITS THAT IN THE ABSENCE OF ANY INC OME WHICH IS EXEMPT FROM TAX NO DISALLOWANCE CAN BE MADE U/S.14A. DURIN G THE YEAR ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME. C) FURTHER THE AMOUNT OF INVESTMENTS MADE BY THE AS SESSEE IN ITS SUBSIDIARY WHEREFROM THE DIVIDEND INCOME CAN ARISE IS ONLY RS.2,29,94,620/- WHEREAS THE FREE RESERVE AND CAPIT AL AVAILABLE WITH 9 200-RJT-2012 -ATUL AUTO COMPANY IS RS.30,47,72,201/-. THEREFORE THE INTERES T FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE FAR HIGHER THAN THE AMOUNT INVESTED IN EXEMPT INCOME YIELDING SOURCES. THEREFORE THE DISAL LOWANCE OF RS.3,83,466/- MADE AS PER RULE 8D (2)(II) IS INCORR ECT. THE AMOUNT OF DISALLOWANCE TO THAT EXTENT IS ERRONEOUS. RELIANCE PLACE UP ON DECISION OF HONOURABLE GUJARAT HIGH COURT IN CASE OF TAX APP EALNO.82 OF 2013 CIT V. GSFC LIMITED. IN VIEW OF THIS THE DISALLOWAN CE MADE U/S.40(A)(IA) TO THE EXTENT OF RS.3,82,466/- IS ERRONEOUS. 18. IN REPLY, THE LD. DR SUPPORTED THE ORDER PASSED BY THE AO/CIT(A). 19. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CO NSIDERED THEIR SUBMISSIONS. ACCORDING TO THE ASSESSEE, IT HAS NOT EARNED ANY EX EMPT INCOME AND THEREFORE NO DISALLOWANCE CAN BE MADE U/S 14A. WE ARE UNABLE TO ACCEPT THE AFORESAID SUBMISSIONS IN THE FACE OF CLEAR AND UNAMBIGUOUS LA NGUAGE USED IN SECTION 14A OF THE I-T ACT ACCORDING TO WHICH NO DEDUCTION SHA LL 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 INCOME-TAX ACT. SECTION 14A DOES NOT REQUIRE THAT THE ASSESSEE SHOULD HAVE ACTUALLY EARNED AND S HOWN EXEMPT INCOME IN THE RETURN OF INCOME. WHAT IS CONTEMPLATED BY SECTION 1 4A IS THAT NO DEDUCTION CAN BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY TH E ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME . IT IS THEREFORE THE RELATIONSHIP BETWEEN THE EXPENDITURE INCURRED WITH THE EXEMPT IN COME WHICH IS THE BASIS FOR DISALLOWANCE U/S 14A AND NOT THE ACTUAL EARNING OF EXEMPT INCOME AND ITS BEING SHOWN IN THE RETURN OF INCOME. 20. IN CIT V. WALFORT SHARE AND STOCK BROKERS P. LT D., 326 ITR 1(SC) AND GODREJ AND BOYCE MFG. CO. LTD., 328 ITR 81, IT HAS BEEN HELD THAT SECTION 14A(1) HAS BEEN ENACTED TO ENSURE THAT ONLY THE EXPENSES I NCURRED IN RESPECT OF EARNING TAXABLE INCOME ARE ALLOWED SO AS TO PREVENT CLAIMS FOR DEDUCTION OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE. IT IS THUS ABSOLUTELY CLEAR THAT THE OBJECT OF SECTION 14A IS TO ENSURE THAT ONLY EXPENSES INCURRED IN RESPECT OF EARNING TAXABLE INC OME ARE ALLOWED. FOR THIS PURPOSE, ACTUAL EARNING OF EXEMPT INCOME IS NOT NEC ESSARY. IN THIS VIEW OF THE 10 200-RJT-2012 -ATUL AUTO MATTER, THE SUBMISSIONS OF THE ASSESSEE THAT THE AS SESSEE HAS NOT EARNED EXEMPT INCOME AND SHOWN THE SAME AS SUCH IN RETURN OF INCOME AND THEREFORE NO DISALLOWANCE U/S 14A CAN BE MADE IS REJECTED. 21. THE ASSESSEE HAS GIVEN NO OTHER EXPLANATION EIT HER BEFORE THE ASSESSING OFFICER OR BEFORE THE LD CIT(A). IT IS NOW THE CASE OF THE ASSESSEE BEFORE US THAT INVESTMENTS IN SHARES GIVING RISE TO DIVIDEND INCOM E HAVE BEEN MADE OUT OF FREE RESERVES AND CAPITAL AND THAT IT IS THE INTEREST-FR EE FUNDS AVAILABLE WITH THE ASSESSEE WHICH HAVE BEEN UTILIZED FOR MAKING INVEST MENTS IN SHARES GIVING RISE TO DIVIDEND. THIS PLEA HAS NOT BEEN EXAMINED BY THE AS SESSING OFFICER AND THE LD CIT(A). WE, THEREFORE RESTORE THIS ASPECT OF THE MA TTER TO THE FILE OF THE LD. CIT(A) FOR EXAMINATION, CONSIDERATION AND DECISION. IT IS FOR THE ASSESSEE TO ESTABLISH THAT THE SAID SUM OF RS.30,47,72,201/- WAS ACTUALLY AVAI LABLE WITH THE ASSESSEE FOR INVESTMENTS IN SHARES/SECURITIES AS EXEMPT INCOME O N THE RELEVANT DATES WHEN INVESTMENTS WERE MADE IN SHARES/SECURITIES. THE ISS UE WILL BE EXAMINED NOW BY THE LD. CIT(A) IN CONFORMITY WITH LAW AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO BOTH THE PARTIES. GROUND NO.2 TAKEN BY THE ASSE SSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 22. THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLO WED. ORDER PRONOUNCED ON 04.10.2013 SD/- SD/- (T. K. SHARMA) ( D. K. SRIVASTAVA) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT: 04.10.2013 BT COPY OF ORDER FORWARDED TO:- 6. APPELLANT ATUL AUTO LIMITED, PLOT NO.1 TO 4, S URVEY NO.86, NR. MICROWAVE TOWERS, NH 8B, SHAPAR VARAVAL, TAL. KOTDA SANGANI , RAJKOT 2. RESPONDENT- JCIT, RANGE-1, RAJKOT 3. CONCERNED CIT-I, RAJKOT 4. CIT (A)-I, RAJKOT 5. DR, ITAT, RAJKOT 6. GUARD FILE. BY ORDER TRUE COPY PRIVATE SECRETARY, ITAT, RAJKOT