The DCIT, Circle-8, Ahmedabad V. Sagar Drugs & Pharmaceuticals Pvt. Ltd., Ahmedabad

ITA 2632/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0909 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 28-07-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 08-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIBHA BHALLA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Earning of tax free income; Retrospective amendment; Tax effect
• Section: 14A

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI S. S. GODARA, JM, AND SHRI MANISH BORAD , AM ./ITA.NO.2632/AHD/2013 WITH C.O. NO.93/AHD/2014 ( / ASSTT YEAR : 2009-10) DCIT, CIRCLE-8, AHMEDABAD. VS. SAGAR DRUGS & PHARMACEUTICALS PVT. LTD., SAGAR OPP. KAMDHENU COMPLEX, NR. SAHAJANAND COLLEGE, AHMEDABAD. PAN : AADCS9311E (APPELLANT) (RESPONDENT) / APPELLANT BY: SMT. VIBHA BHALLA, CIT DR & SHRI PRASOON KABRA, SR.DR / RESPONDENT BY: SHRI S. N. SOPARKAR, AR / DATE OF HEARING 28/07/2016 /DATE OF PRONOUNCEMENT 29/07/2016 / O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER THIS APPEAL OF REVENUE AND THE CROSS OBJECTION BY ASSESSEE FOR ASST. YEAR 2009-10 ARE DIRECTED AGAINST THE ORDER O F LD.CIT(A)-XIV, AHMEDABAD, DATED 29/8/2013 VIDE APPEAL NO.CIT(A)XI V/ACIT(OSD) - CIR.8/144/2011-12 PASSED AGAINST THE ORDER U/S 143( 3) OF THE IT ACT, 1961 (IN SHORT THE ACT) FRAMED ON 15.11.2011 BY ACIT(OS D),CIRCLE-8, AHMEDABAD. ITA.NO.2632/13 & CO.93-14 - 2 2. FIRST WE TAKE UP REVENUES APPEAL IN ITA NO. 263 2/AHD/2013, WHEREIN THE GRIEVANCES OF THE REVENUE ARE AS UNDER :- 1. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XIV, AH MEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.8,52,365/- OUT OF TOTAL ADDITION OF RS. 19,74,365/- MADE U/S,14A OF TH E ACT, R.W.R. 8D. 2. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XIV, AH MEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.13,61,575/- MADE ON ACCOUNT, OF INTEREST EXPENDITURE U/S.36(1)(III) OF T HE ACT WITHOUT ASSESSEE DISCHARGING THAT THE LOANS/ADVANCES WERE FOR ITS BUSI NESS EXPEDIENCY. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. C OMMISSIONER OF INCOME-TAX (APPEALS)-XIV, AHMEDABAD OUGHT TO HAVE UPHELD THE OR DER OF THE ASSESSING OFFICER. 4) IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD . COMMISSIONER OF INCOME- TAX (APPEALS)-XIV, AHMEDABAD MAY BE SET-A-SIDE AND TH AT OF THE ORDER OF THE ASSESSING OFFICER BE RESTORED. 3. THIS APPEAL WAS PRESENTED ON 08/11/2013. ON 10. 12.2015 THE CBDT HAS ISSUED INSTRUCTIONS BEARING NO. 21/2015 PR OHIBITING ITS SUBORDINATE AUTHORITIES FROM FILING OF THE APPEAL T O THE TRIBUNAL AGAINST THE ORDER OF THE CIT(A) WHERE THE TAX EFFECT BY VIR TUE OF THE RELIEF GIVEN BY THE CIT(A) IS LESS THAN RS.10 LAKHS. THE INSTRU CTIONS HAVE BEEN MADE APPLICABLE WITH RETROSPECTIVE EFFECT, MEANING THERE BY, THESE INSTRUCTIONS ARE APPLICABLE ON PENDING APPEAL ALSO. THE TAX EFF ECT ON DELETION OF THE TOTAL ADDITION IN THIS APPEAL WOULD BE LESS THAN RS .10 LAKHS. THE PRESENT APPEAL DESERVES TO BE DISMISSED BEING TREATED TO BE FILED IN VIOLATION OF CBDT INSTRUCTIONS. THE CASE DOES NOT FALL WITHIN TH E AMBIT OF EXCEPTIONS PROVIDED IN THE INSTRUCTIONS. IT IS FURTHER OBSERVE D THAT SINCE, WHILE HEARING THE APPEAL, SUCH FACTORS WERE NOT CONSIDERE D, THEREFORE, IN CASE, ON RE-VERIFICATION AT THE END OF THE AO, IT CAME TO THE NOTICE THAT THE TAX EFFECT IS MORE OR THEY FALL WITHIN THE AMBIT OF EXC EPTIONS PROVIDED IN THE INSTRUCTION, THEN THE DEPARTMENT WILL BE AT LIBERTY TO APPROACH THE ITA.NO.2632/13 & CO.93-14 - 3 TRIBUNAL FOR RECALL OF THIS ORDER. SUCH APPLICATIO N SHOULD BE FILED WITHIN LIMITATION PROVIDED IN LAW. IN VIEW OF THE ABOVE, THE APPEAL OF THE REVENUE IS DISMISSED. 4. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. 5. NOW WE TAKE UP THE CROSS OBJECTION FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A). ASSESSEE HAS RAISED FOLLOW ING CROSS OBJECTIONS :- 1. THE LEARNED COMMISSIONER (APPEAL) HAS NOT APPRECIATED THE FACTS OF THE CASE OF THE ASSESSEE AND THE SUBMISSIONS MADE AT THE TIME OF HEARING OF THE APPEAL. 2. THE LEARNED COMMISSIONER (APPEAL) ERRED IN CONFIRMING APPLICATI ON OF RULE 8D OF THE INCOME TAX RULES, 1962 FOR COMPUTING DISALLOWANCE (U/S 14A, THOUGH THE ASSESSING OFFICER HAS NOT RECORDED HIS SATISFACTION IN R ESPECT OF THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. 3. THE LEARNED COMMISSIONER (APPEAL) ERRED IN FACT AND IN LAW IN CONFIRMING DISALLOWANCE OF INTEREST EXPENDITURE OF RS.5,34,725/- BY APPLYING RULE 8D THOUGH THE ASSESSING OFFICER HAS NOT ESTABLISHED NEXUS BETWEEN BORROW ED FUND AND INVESTMENT MADE. 4. THE LEARNED COMMISSIONER (APPEAL) ERRED IN FACT AND IN LAW IN CONFIRMING DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE OF RS.5,87,611/- RELATED TO EAR NING EXEMPTED INCOME BY APPLYING RULE 8D THOUGH ACTUAL EXPENDITURE IS L ESS THEN DISALLOWED AMOUNT. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, SUBSTITUTE OR WITHDRA W ANY OF THE GROUNDS STATED HERE IN ABOVE. 6. WE FIND THAT ASSESSEE HAS RAISED 5 CROSS OBJECTI ONS BUT THEY ARE RELATED TO A SIMILAR ISSUE RELATING TO DISALLOWANCE U/S 14A OF THE ACT R.W.R. 8-D OF I.T. RULES, 1962, WHEREIN DISALLOWANC E OF INTEREST OF RS.5,34,725/- AND DISALLOWANCE OF ADMINISTRATIVE EX PENSES OF RS.5,87,611/- HAVE BEEN CONFIRMED BY LD. CIT(A). DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, LD. ASSESSING OFFICER OBSER VED THAT ASSESSEE HAS MADE DISALLOWANCE OF RS.159068/- U/S 14A AS WELL AS A SUM OF ITA.NO.2632/13 & CO.93-14 - 4 RS.273830/- INCURRED ON SECURITY TRANSACTION TAX WH ICH WERE ADDED BACK TO THE TOTAL INCOME. HOWEVER, LD. ASSESSING OFFICER ON OBSERVING THAT ASSESSEE HAS EARNED EXEMPTED INCOME, WENT AHEAD TO CALCULATE DISALLOWANCE U/S 14A OF THE ACT R.W.R 8-D OF THE IT RULES AT RS.2133769/- AND AFTER DEDUCTING RS.159068/- BEING THE AMOUNT ALREADY DISALLOWED BY ASSESSEE, MADE AN ADDITION OF RS.1974 701/- AS INCOME OF THE ASSESSEE. APART FROM OTHER ISSUES ASSESSEE ALSO FILED APPEAL AGAINST THE IMPUGNED DISALLOWANCE U/S 14A OF THE ACT AT RS. 197470 BEFORE THE FIRST APPELLATE AUTHORITY. LD. CIT(A) GAVE PART REL IEF TO THE ASSESSEE BY DELETING THE DISALLOWANCE OF RS.852365/- AND SUSTAI NING RS.11,22,336/-. NOW ASSESSEE HAS FILED THE CROSS OBJECTION AGAINST THE APPEAL OF REVENUE AGAINST CONFIRMATION OF DISALLOWANCE OF RS.11,22,33 6/-. 7. LD. AR SUBMITTED THAT - (1) FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASS ESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITUR E INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOM E UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT S ATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (3) THE PROVISIONS OF SUB -SECTION (2) SHALL ALSO APPLY IN RELATION T O A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RE LATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT: FROM THE READING OI' THE ABOVE PROVISIONS OF THE ACT BEFORE COMPUTI NG THE DISALLOWANCE U/S 14A BY THE ASSESSING OFFICER THE FOLLOWING CONDITIONS ARE REQUIRED TO BE FUL FILLED: THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME. ITA.NO.2632/13 & CO.93-14 - 5 THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT: IN RESPECT OF DISALLOWANCE U/S I4A THE ASSESSEE SUBMITS AS UNDER: THE EXPENDITURE DIRECTLY RELATED TO EARNING EXEMPTED INCOME IS ALREADY DISALLOWED IN THE STATEMENT OF TOTAL INCOME. THE ASSESSEE COMPANY CONTENDS THAT I T HAS NOT INCURRED ANY INDIRECT EXPENDITURE IN RELATION TO EXEMPTED INCOME E.G. DIVIDEND AND LONG TERM CAPITAL GAIN. ALL THE EXPENDITURE DEBITED TO PROFIT & LOSS ACCOUNT EXCEPT FUND MANAGEMENT EXPENSES ME INCURRED IN RELATION TO MANUFACTURING ACTIVITY AND THE OTHER TAXA BLE INCOME AND THEREFORE NO EXPENSES EXCEPT FUND MANAGEMENT IS DISALLOWABLE U/S 14A OF THE I.T. ACT, 1961. THUS THE ASSESSEE DOES NOT CLAIM THAT NO EXPENDITURE HAS BEEN INCURR ED BY IT IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. THEREFORE SUB SECTION 2 ACTION 14A IS NOT APPLICABLE AND AS A RESULT RULE 8D IS NOT APPLICABLE. IT MAY BE NOTED THAT SECTION 14A(1) DOES NOT MENTION THE SEPARATE DISALLOW ANCES IN RESPECT OF DIRECT & INDIRECT EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TO TAL INCOME. THEREFORE AC DISALLOWANCE OF DIRECT EXPENDITURE RS 1,59,068/- BEING FUND MANAGEMENT EXPENSES RELATING TO INVESTMENT ACTIVITIES IS SUFFICI ENT. 1. IT IS TO BE MENTIONED THAT ALL THE EXPENDITURE RS. 10,22,850/- RELATING TO INVESTMENT INCOME ARE SEPARATELY ACCOUNTED UNDER THE HEAD FUND MANAG EMENT EXPENSES, THE BREAK UP OF FUND MANAGEMENT EXPENSES RS. 10,22,850/- WAS SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDING. THE SAME ARE ENCLOSED HEREWIT H FOR YOUR HONOUR'S REFERENCE.(REFER PAGE NO OF THE PAPER BOOK) IN THE RETURN OF INCOME THE ASSESSEE HAS DISALLOWED RS. 1,59,068/- U/S 14A OF THE I.T. ACT, 1961 AS EXPENDITURE IN RE LATION TO EXEMPTED INCOME AND RS. 2,73,830/- BEING SECURITY TRANSACTION TAX. THE WORKI NG OF DISALLOWANCE IS ENCLOSED HEREWITH. (REFER PAGE NO 96 OF THE PAPER BOOK). 2. IT IS TO BE MENTIONED THAT ASSESSING OFFICER HAS NOT CONSIDERE D SECURITY TRANSACTION TAX OF RS.2.73.830/- INCLUDED IN FUND MANAGEMENT EXPENSES WHIC H HAS ALREADY DISALLOWED IN RETURN OF INCOME WHILE CALCULATING DISALLOWA NCE U/S. 14A IN THE ASSESSMENT ORDER. THUS RS. 273830/- SECURITY TRANSACTION TAX HAS BEEN DISALLOWED TWICE. THEREFORE ASSESSEE IS ENTITLED TO GET RELIEF REGARDING SECURITY TRANSACTION TAX WHICH HAS NOT CONSIDERED AS DISALLOWED IN RETURN OF INCOME IN WORKING OUT DISALLOWANCE U/S. 14A. 3. TIE COPY OF THE AUDITED BALANCE SHEET IS ENCLOSED HEREWITH. (REFER PAGE NO 25-65 OF THE PAPER BOOK) FROM THE BALANCE SHEET THE FOLLOWING ISSUES REQUIRE YOUR HONOUR'S KIND CONSIDERATION FOR COMPUTING DISALLOWANCE U/S I4A OF THE INCOME TAX ACT, 1961 EXPLANATION REGARDING UTILIZATION OF FUNDS IN INVESTMENTS MADE DURING THE Y EAR: DURING THE YEAR THERE IS REDUCTION IN THE VALUE OF INVESTMENT. THE INVESTMENT OF RS. 14,00,96,450 AS ON 1ST DAY OF THE YEAR HAS BEEN REDUCED TO RS. 9,49,47,945/-. THERE FORE, NO NEW FUND HAS BEEN INVESTED DURING THE YEAR UNDER CONSIDERATION. THUS IT IS ESTABLISHED THAT NO NEW INVESTMENTS ARE MADE DURING THE YEAR, THE ASSESSE E HAS SOLD MORE INVESTMENTS THAN PURCHASE OF INVESTMENTS. ITA.NO.2632/13 & CO.93-14 - 6 STATEMENT SHOWING YEAR WISE OWNED FUNDS AND BORROWED FUNDS AND UTI LIZATION OF FUNDS FOR INVESTMENTS ENCLOSED. (REFER PAGE NO 92 OF THE PAPER BOOK) IT MAY BE OBSERVED THAT AS ON 31.03.2009 THE ASSESSEE HAVE OWNED FUNDS AMOUNTING TO RS. 31.90 CRORE AND VALUE OF INVESTMENT IS RS. 9.49 CRORES. THUS THE ASSESSEE HAS SUFF ICIENT INTEREST FREE FUNDS AVAILABLE. THE BORROWED FUND IS ONLY RS.1.75 CRORES. STATEMENT SHOWING INVESTMENT INCOME IN FORM OF PROFIT ON SA LE OF INVESTMENTS, INTEREST INCOME AND DIVIDEND INCOME FROM THE ASSESSMENT YEAR 2003-04 TO 2009-10 IS ENCLOSED. (REFER PAGE NO 93 OF THE PAPER BOOK) THE ASSESSEE HAS EAR NED INCOME FROM INVESTMENTS OF RS.9.32 LACS WHICH WERE AVAILABLE FOR MAKING INVESTMENTS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE COPY OF REL EVANT BANK ACCOUNT IS SUBMITTED FOR VERIFICATION OF THE FUNDS AVAILABLE ON THE DATE OF INVESTMENTS MADE. THE BANK BOOK FOR THE YEAR WAS PRODUCED FOR VERIFICATION. THE ASSESSEE HAS UTILIZED FBP FACILITIES AVAILAB LE WITH BANK OF INDIA AGAINST EXPORT OF GOODS. THE SUMMERY IS ENCLOSED BOTH THE FACILITIES HAS BEEN REDUCED DURING THE YEAR UNDER APPEAL. CASH CREDIT IS UTILISED FOR WORKING CAPITAL REQUIRE MENT DETAILS OF UNSECURED LOAN OBTAINED AND REPAID FROM A.Y. 2003-04 TO 2009-10 ARE ENCLOSED. (REFER PAG E NO.94 OF THE PAPER BOOK). DURING THE YEAR INVESTMENT AND THE BORROWED FUNDS ARE REDUCED. DETAILS OF INVESTMENTS IN MUTUAL FUNDS AND REDEMPTION IN MUT UAL FUNDS IN LAST TWO YEARS ARE ENCLOSED. (REFER PAGE NO 95 OF THE PAPER BOOK) IT MAY BE NOTED THAT REDEMPTION IS MORE THAN THE INVESTMENTS. 4. FROM THE ABOVE SUBMISSION IT MAY BE OBSERVED THAT THE INTEREST PAID IS ON THE BORROWINGS FOR THE PURPOSE OF THE BUSINESS AND NO BORROWED MONEY HAS BEEN UT ILISED FOR K INVESTMENTS. INTEREST FREE FUNDS ARE AVAILABLE FOR MAKING INV ESTMENTS. THEREFORE, ST IS DISALLOWABLE U/S I4A IN THE ABSENCE OF ANY FINDINGS FOR UTILISA TION OF FUNDS FOR PURPOSE OF INVESTMENT. 5. THE ASSESSEE HIMSELF HAS DISALLOWED RS, 159068/- BEING EXPENDITUR E INCURRED FOR EARNING TAX FREE INCOME OUT OF PORTFOLIO MANAGEMENT CHARGES FOR I NVESTMENT. IN THE ASSESSMENT ORDER THERE ARE NO FINDINGS FOR INCURRING OF ANY OTHE R EXPENSES IN RELATION TO INCOME NOT ME PART OF TOTAL INCOME. THERE IS NO FINDING THAT THE DISALLOWANCE MADE BY THE ASSESSEE IN THE RETURN OF INCOME IS INCORRECT. IN THE ASSESSMENT ORDER T HE LEARNED ASSESSING OFFICER HAS WORKED OUT THE DISALLOWANCE BY FOLLOWING RULE 8D WI THOUT ANY DISSATISFACTION THE CORRECTNESS OF THE CLAIM OF EXPENSES MADE BY THE ASSESSEE IT I S SUBMITTED THAT THC DISALLOWANCE TO BE MADE MAY NOT EXCEED THE ACTUAL EXPENDITURE I NCURRED BY THE DURING THE RELEVANT YEAR. 6. IN THE ASSESSMENT YEAR 2006-07 THE HONOURABLE ITAT, AHMEDABAD HAS VIDE APPELLA TE ORDER DATED 03/06/2011 DELETED THE ADDITION MADE U/S 14A BY THE ASSESSING OFFICER A ND ENHANCED BY HONOURABLE CIT(A) BY APPLYING RULE 8D. 7. IN THE ASSESSMENT YEAR 2007-08, YOUR HONOUR HAS, VIDE ORDER DATED 16/03/2012, DIRECTED THE ASSESSINE OFFICER AS UNDER DELETE THE ADDITION REGARDING INTEREST EXPENSES INCLUDED IN DISALLOWANCE U/S. 14A. ITA.NO.2632/13 & CO.93-14 - 7 REDUCE THE DISALLOWANCE OF INDIRECT EXPENSES TO 1/10 TH OF AVERAGE INVESTMENT AGAINST THE ADDITION MADE U/S 14A BY THE ASSESSING OFFICER BY APPLYING RULE 8D. THE COPY OF THE SAME IS ENCLOSED HEREWITH. (REFER PAGE NO 66-92 OF PAPER BOOK) I N VIEW OF THE ABOVE SUBMISSION THE ADDITION OF RS. 1974701/- AS PER PROVISIONS OF SECTION WITH RULE 8D MAY BE DELETED. 8. ON THE OTHER HAND LD. DR SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ONLY GRIEVANCE OF THE ASSESSEE IN THIS CROSS OBJECTION IS AGAINST THE ACTION OF LD. CIT(A) CONFIRMING DISALLO WANCE OF RS.11,22,336/- WHICH INCLUDES RS.534725/- RELATING TO DISALLOWANCE OF INTEREST EXPENDITURE AND RS.587611/- RELATING TO AD MINISTRATIVE EXPENSES BEING CALCULATED @ 0.5% ON AVERAGE INVESTMENTS. 10. WE OBSERVE THAT TOTAL EXEMPTED INCOME OF THE AS SESSEE DURING THE YEAR IS RS.639874/-, SHORT TERM CAPITAL LOSS AT RS. 9143491/- AND LONG TERM CAPITAL LOSS OF RS.1828476/-. THE ONLY POSITIV E EXEMPTED INCOME IS FROM DIVIDEND. WE FURTHER OBSERVE THAT AGAINST THE INVESTMENT OF RS.9,29 CRORES ASSESSEE HAD INTEREST FREE FUNDS IN THE FORM OF CAPITAL AND FREE RESERVE AT RS.31.90 CRORES WHICH GIVES CLEAR PICTUR E THAT THERE WAS HARDLY ANY USE OF INTEREST BEARING FUNDS FOR THE PURPOSE O F INVESTMENTS IN EQUITY SHARES AND MUTUAL FUNDS. WE ALSO OBSERVE THAT INVES TMENTS IN EQUITY SHARES FALL DOWN FROM RS.14 CRORES TO RS.9.5 CRORES BY THE CLOSE OF THE YEAR. FURTHER ASSESSEE HAS DISALLOWED SUM OF RS.159 068/- AND SECURITY TRANSACTION TAX OF RS.273830/- TO THE TOTAL INCOME. ITA.NO.2632/13 & CO.93-14 - 8 11. WE FURTHER OBSERVE THAT HON. JURISDICTIONAL HIG H COURT IN THE CASE OF CIT VS. TORRENT POWER LTD. REPORTED AT (2014) 36 3 ITR 474 (GUJ.) HAS HELD THAT NO DISALLOWANCE U/S 14A OF THE ACT IS CAL LED FOR ON THE INTEREST EXPENDITURE IF THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS FOR THE PURPOSE OF INVESTMENTS IN ASSETS FETCHING INTEREST FREE INCOME. WE ALSO OBSERVE THAT HON. DELHI HIGH COURT IN THE CASE OF J OINT INVESMENTS PVT. LTD. VS. CIT IN I.T.A. 117/2015 VIDE JUDGMENT DATED 25.02.15 HAS CATEGORICALLY HELD THAT DISALLOWANCE U/S 14A OF THE ACT CANNOT EXCEED THE EXEMPT INCOME EARNED DURING THE YEAR AND THE WINDOW FOR DISALLOWANCE AS INDICATED IN SECTION 14A OF THE ACT IS ONLY TO T HE EXTENT OF DISALLOWANCE INCURRED BY THE ASSESSEE IN RELATION T O THE TAX EXEMPT INCOME. THIS PROPORTION OR PORTION OF THE TAX EXEMP T INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT AS HAS HAPPENED IN THIS CASE. 12. RESPECTFULLY FOLLOWING THE JUDGMENTS OF HONBLE HIGH COURTS AND APPLYING THE FACTS OF THE CASE ON THESE JUDGMENTS, WE ARE OF THE VIEW THAT IN THE CASE OF ASSESSEE WHEREIN SUFFICIENT INTEREST FREE FUNDS ARE AVAILABLE TO COVER UP THE INVESTMENTS, NO DIRECT NEXUS BEING PROVED BY THE REVENUE RELATING TO USE OF INTEREST BEARING FUNDS F OR INVESTMENTS AS WELL AS DIRECT EXPENDITURE INCURRED FOR EARNING EXEMPT I NCOME AND TO MANAGE THE INVESTMENTS AND, THEREFORE, DISALLOWANCE SHOULD NOT EXCEED THE EXEMPT INCOME OF DIVIDEND OF RS. 639874/-. AS THE A SSESSEE HAS ALREADY OFFERED RS. 432898/- FOR BEING ADDED TO THE TOTAL I NCOME ON ACCOUNT OF EXPENDITURE RELATING TO EARNING EXEMPT INCOME AT RS . RS.159068/- AND ALSO ON SECURITY TRANSACTION TAX OF RS.273830/- MAKING TOTAL OF RS. 432898/- IT IS JUSTIFIED TO SUSTAIN THE DISALLO WANCE FOR THE REMAINING ITA.NO.2632/13 & CO.93-14 - 9 AMOUNT OF RS. 206976/- UNDER SECTION 14A OF THE ACT . IN THE RESULT, C.O. OF THE ASSESSEE IS PARTLY ALLOWED. 12. IN THE APPEAL OF REVENUE IS DISMISSED AND THE C ROSS OBJECTION OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 29 TH JULY, 2016 AT AHMEDABAD. SD/- (S. S. GODARA) JUDICIAL MEMBER SD/- (MANISH BORAD) ACCOUNTANT MEMBER AHMEDABAD; DATED, 29/07/2016 ! '!/ COPY OF THE ORDER FORWARDED TO : 1. $% / THE APPELLANT 2. &$% / THE RESPONDENT. 3. '(( ) * / CONCERNED CIT 4. ) * ( ) / THE CIT(A)- 5. !-. , ,012 /DR,ITAT, AHMEDABAD, 6. .3 45 / GUARD FILE. ) ' / BY ORDER, ' (0 (ASSTT.REGISTRAR) ITAT, AHMEDABAD ITA.NO.2632/13 & CO.93-14 - 10 1. DATE OF DICTATION .. : 29/7/2016. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER : 29/6/2016 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P.S./P.S 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FO R PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P.S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 29/7/2016 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATUR E ON THE ORDER..