Halwasiya Development Pvt. Limited, Lucknow V. Addl. CIT, Lucknow

ITA 275/LKW/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87837 (ITAT-LUCKNOW)
• Duration Of Justice: 4 year(s) 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 25-02-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 21-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y P SRIVASTA VA
• Assessee Lawyers: K R RASTOGI
• Keywords: Capital asset; Business income; Salary income; Principle of natural justice; Earning of tax free income; Cost of acquisition; Notional interest; Commercial expediency
• Section: 143(3); 14A; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. A. K. GARODIA, ACCOUNTANT MEMBER ITA NO. 275/LKW/2010 ASSESSMENT YEAR: 2006 - 07 HALWASIYA DEVELOPMENT PVT. LTD. HALWASIYA COURT, HAZRATGANJ LUCKNOW V. ACIT RANGE I LUCKNOW T AN /PAN : AAACH7106B (APP ELL ANT) (RESPONDENT) ITA NO. 24 & 588/LKW/2012 ASSESSMENT YEAR: 2007 - 08 & 2008 - 09 HALWASIYA DEVELOPMENT PVT. LTD. HALWASIYA COURT, HAZRATGANJ LUCKNOW V. ACIT RANGE I LUCKNOW T AN /PAN : AAACH7106B (APP ELL ANT) (RESPONDENT) ITA NO. 81/LKW/2013 ASSESSMENT YEAR: 2009 - 10 HALWASIYA DEVELOPMENT PVT. LTD. HALWASIYA COURT, HAZRATGANJ LUCKNOW V. ACIT RANGE I LUCKNOW T AN /PAN : AAACH7106B (APP ELL ANT) (RESPONDENT) ITA NO. 62/LKW/201 4 ASSESSMENT YEAR: 2010 - 11 HALWASIYA DEVELOPMENT PVT. LTD. HALWASIYA COURT, HAZRATGANJ LUCKNOW V. ACIT RANGE I LUCKNOW T AN /PAN : AAACH7106B (APP ELL ANT) (RESPONDENT) :-2-: APP ELL ANT BY: SHRI. K. R. RASTOGI, C.A. RESPONDENT BY: SHRI. Y. P. SRIVASTAVA, D.R. DATE OF HEARING: 25 02 201 5 DATE OF PRONOUNCEMENT: 31 0 3 2015 O R D E R PER SUNIL KUMAR YADAV: THESE APPEALS ARE PREFERRED BY THE ASSESSEE AGAINS T THE RESPECTIVE ORDERS OF THE LD. CIT(A). 2. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEALS, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF THROUGH THIS CON SOLIDATED ORDER. WE, HOWEVER, PREFER TO ADJUDICATE THEM ONE AFTER THE OT HER. I.T.A. NO. 275/LKW/2010: 3. THROUGH THIS APPEAL, THE ASSESSEE HAS ASSAILED THE ORDER OF THE LD. CIT(A), INTER ALIA, ON VARIOUS GROUNDS, WHICH ARE A S UNDER:- 1. THE LD. C.I.T. (APPEALS)-I, ERRED ON FACTS AND IN L AW IN UPHOLDING THE ORDER OF THE LD. A. O. THAT RECEIPTS OF RS.29,2 1,771-00 SHOULD BE ASSESSED AS 'BUSINESS INCOME' INSTEAD OF 'INCOME FROM HOUSE PROPERTY' AS SHOWN BY THE APPELLANT. 1.1 THE LD. C.I.T. (APPEALS) DID NOT APPRECIATED THAT T HE RECEIPT OF RS.29,21,771-00 BEING RENT OF 'INFRASTRUCTURE FACIL ITIES' INSTALLED IN THE PROPERTY LET OUT, AND ARE INTEGRAL PART OF P ROPERTY IN TOTAL WHICH IS LET OUT, AS SUCH, IT SHOULD BE ASSESSED AS 'RENTAL INCOME' 2. THE LD. C.I.T. (APPEALS) ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.1109156-00 ON ACCOUNT OF 'FO REIGN TRAVELLING EXPENSES' OF THE DIRECTORS OF THE COMPAN Y, WHICH WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF DEVELOPMENT OF BUSINESS AND FOR EXPLORING BUSINESS OPPORTUNITIES FOR COMPANY. :-3-: 3. THE LD. C.I.T. (APPEALS) ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF. RS.1,32,953-00 INCURRED IN CON NECTION WITH SPONSOR SHIP OF 'EDUCATIONAL EXPENSES' OF DIRECTOR OF THE COMPANY FOR CONDUCTING PROFESSIONAL COURSE . 3.1 THE LD. C.I.T. (APPEAL) DID NOT APPRECIATE THAT EXP ENSES INCURRED ARE FOR THE PURPOSE OF BUSINESS AS BENEFIT RESULTED IN DEVELOPMENT AND GROWTH OF THE COMPANY IN SUBSEQUENT YEAR. 3.2 THE LD. C.I.T. (APPEAL) DID NOT APPRECIATED THAT AF TER COMPLETION OF THE STUDIES IN FINANCIAL YEAR 2008-09 , THE SAID DIRECTOR JOINED THE COMPANY AND BECAUSE OF HIS SPEC IFIED KNOWLEDGE, PROFITABILITY OF THE COMPANY HAS INCREAS ED. 4. THE LD. C.I.T. (APPEALS) ERRED ON FACTS AND IN LAW IN CONFORMING THE AD-HOC DISALLOWANCE OF RS.70,010-00 ON ACCOUNT OF 'BUSINESS PROMOTION EXPENSES' INCURRED SOLELY AND E XCLUSIVELY FOR THE PURPOSE OF BUSINESS, WITHOUT BRINGING OUT A NY CONTRARY EVIDENCE, THAT EXPENSES ARE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 5. THE LD. C.I.T. (APPEALS) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS.9,52,017-00 UNDER SECTION 14A OF INCOME TAX ACT, 1961 WHICH IS NOT APPLICABLE IN THE PRESENT OF SETS OF FACTS AND CIRCUMSTANCES. WITHOUT PREJUDICE TO ABOVE 5.1 THE LD. C.I.T. (APPEALS) DID NOT APPRECIATED THAT R S. 35750-00 BEING INCOME FROM DIVIDEND AS BEEN CLAIMED AS 'EXEMPTED', ACCORDINGLY DISALLOWANCE SHOULD BE COMPUTED CORRESPONDING TO THIS INCOME. THUS, DISALLOWANCE RS. 952017-00 FOR THIS INCOME IS NOT A S PER LAW. 5.2 THE LD. C.I.T. (APPEALS) DID NOT APPRECIATED THAT T HE ADVANCE OF RS.21218417-00 MADE IN EARLIER YEAR FOR WHICH NOTIONAL INTEREST ADDITION MADE IN EARLIER YE AR HAD BEEN DELETED BY LD. C.I.T. (APPEALS) IN A.Y. 2005-0 6 BY :-4-: TREATING AS 'NATURE OF BUSINESS TRANSACTION FOR COMMERCIAL EXPEDIENCY'. ACCORDINGLY, IN PRESENT YEA R, THIS ADVANCE SHOULD NOT BE CONSIDER FOR COMPUTING THE PR ESENT ADDITION OF RS. 952017-00 UNDER SECTION 14A OF INCO ME TAX ACT, 1961. 6. THE ADDITIONS UPHELD ARE HIGHLY EXCESSIVE, CONTRARY TO THE FACTS, LAW AND PRINCIPLE OF NATURAL JUSTICE WITHOUT PROVIDING SUFFICIENT OPPORTUNITY TO HAVE ITS SAY ON THE REASONS RELIED UPON BY HIM. 4. APROPOS GROUND NO.1, IT IS NOTICED FROM THE ORDERS OF THE AUTHORITIES BELOW THAT THE ASSESSEE OWNS A BUILDING AT A-10, SA NSKRIT BHAWAN, QUTAB INSTITUTIONAL AREA, NEW DELHI AND INCOME GENERATED FROM THE BUILDING IS IN THE FORM OF RENT AND INFRASTRUCTURE CHARGES. THE A SSESSEE HAS TREATED THE ENTIRE RECEIPTS UNDER HEAD INCOME FROM HOUSE PROPE RTY AND CLAIMED DEDUCTION AT 30% UNDER SECTION 24(A) OF THE INCOME- TAX ACT, 1961 (HEREINAFTER CALLED IN SHORT THE ACT'). THE ASSES SING OFFICER HAS TREATED THE INFRASTRUCTURE CHARGES RECEIVED BY THE ASSESSEE AS BUSINESS INCOME AND DISALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 24(A) OF THE ACT. 5. AN APPEAL WAS FILED BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT THE NAME DIFFERENTIATIONS ARE ONLY THE BIFURCATION OF THE RENT OF THE PROPERTY AND ARE PART AND PARCEL OF EACH OTHER. THE INFRAST RUCTURE FACILITIES, NAMELY LIFT, GENERATOR, AIR CONDITIONING PLANT, FIRE FIGHT ING PLANT, ETC. ALONG WITH THE BUILDING SPACE FORM A COMPOSITE AS A WHOLE. NEITHE R OF THE BUILDING SPACE NOR THE INFRASTRUCTURE FACILITIES CAN BE USED SOLEL Y WITHOUT DEPENDENCE ON EACH OTHER. THE PRIMARY OBJECT WAS TO LET OUT THE PROPERTY ALONG WITH THE RIGHT TO USE COMMON FACILITIES. HE HAS ALSO LACED RELIANCE UPON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE O F SHAMBHU INVESTMENT PVT. LTD. VS. CIT [2003] 129 TAXMAN 70 ( SC). THE LD. CIT(A) RE-EXAMINED THE CLAIM OF THE ASSESSEE IN THE LIGHT OF ASSESSEES :-5-: CONTENTIONS, BUT WAS NOT CONVINCED WITH IT AND HE H AS CONFIRMED THE ORDER OF THE ASSESSING OFFICER TREATING THE INFRASTRUCTUR E CHARGES AS BUSINESS INCOME. 6. NOW THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL WITH THE SUBMISSION THAT ALL THE INFRASTRUCTURE FACILITI ES LIKE LIFT, GENERATOR, AIR CONDITION PLANT AND FIRE FIGHTING PLANT ARE FITTED AND INSTALLED IN THE BUILDING AND THESE ARE THE INTEGRAL PART OF THE BUILDING. N EITHER THE BUILDING SPACE NOR THE INFRASTRUCTURE FACILITIES CAN BE USED SOLEL Y WITHOUT INTER DEPENDENCE ON EACH OTHER. IT WAS FURTHER CONTENDED THAT UNDER THE SIMILAR SET OF FACTS IN ASSESSMENT YEAR 2005-06, THE ASSESSMENT WAS COMP LETED UNDER SECTION 143(3) OF THE ACT AND THE ASSESSING OFFICER HAS TRE ATED THIS RECEIPT AS INCOME UNDER HEAD INCOME FROM HOUSE PROPERTY. CO PY OF THE ASSESSMENT ORDER IS ALSO PLACED ON RECORD. THE LD. COUNSEL FO R THE ASSESSEE HAS FURTHER CONTENDED THAT ONCE THE ASSESSING OFFICER HAS TREAT ED THE RECEIPTS AS INFRASTRUCTURE CHARGES UNDER THE HEAD INCOME FROM HOUSE PROPERTY IN ONE ASSESSMENT YEAR, HE CANNOT GIVE A DIFFERENT TREATME NT ON THE SAME RECEIPT IN SUCCEEDING ASSESSMENT YEAR. IN SUPPORT OF HIS C ONTENTION, THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO PLACED RELIANCE U PON THE FOLLOWING JUDGMENTS:- 1. DCIT VS. VAISHNAV S. PURI (HUF), 58 DTR 26 2. SHAMBHU INVESTMENT PVT. LTD. VS. CIT, 263 ITR 143 3. MARWAR TEXTILES (AGENCY) (P) LTD. VS. INCOME TAX OF FICER, 119 TTJ 131. 7. COPIES OF THE LEASE DEED AND INFRASTRUCTURE AGREEME NT ARE ALSO PLACED ON RECORD FOR OUR PERUSAL. 8. THE LD. D.R., ON THE OTHER HAND, HAS PLACED RELIANC E UPON THE ORDER OF THE LD. CIT(A). :-6-: 9. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER A UTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, SUBLEASE DEED, INFR ASTRUCTURE AGREEMENT AND THE JUDGMENTS REFERRED TO BY THE LD. COUNSEL FOR TH E ASSESSEE, WE FIND THAT THE ASSESSEE HAS LET OUT DIFFERENT PREMISES TO DIFF ERENT TENANTS AGAINST A PARTICULAR RATE OF RENT, BESIDES EXECUTION OF SUBLE ASE DEED, A SEPARATE INFRASTRUCTURE AGREEMENT WAS ALSO EXECUTED BETWEEN THE ASSESSEE AND DIFFERENT TENANTS. THROUGH THIS AGREEMENT, THE ASS ESSEE HAS AGREED TO PROVIDE CERTAIN FACILITIES TO THE TENANTS AGAINST F IXED PAYMENT. THE RECEIPTS RECEIVED AGAINST THIS INFRASTRUCTURE FACILITY WERE TREATED TO BE THE BUSINESS INCOME BY THE REVENUE WHEREAS THE ASSESSEE HAS CLAI MED IT AS INCOME FROM HOUSE PROPERTY. 10. THE SOLE DISPUTE RAISED BEFORE US IS WHETHER THE RE CEIPTS FOR PROVIDING CERTAIN FACILITIES TO ITS TENANTS CAN BE CALLED TO BE PART OF RENTAL INCOME OF THE ASSESSEE FOR ITS TREATMENT AS INCOME FROM HOUSE PROPERTY OR IT WOULD BE TREATED AS BUSINESS INCOME. THIS ASPEC T WAS EXAMINED BY THE HON'BLE APEX COURT IN THE CASE OF SHAMBHU INVESTMEN T PVT. LTD. VS. CIT (SUPRA), IN WHICH THEIR LORDSHIPS HAS HELD THAT THE INCOME DERIVED BY THE ASSESSEE BY LETTING OUT FURNISHED PREMISES ON MONTH LY RENT BASIS TO VARIOUS PARTIES ALONG WITH FURNITURE, FIXTURE, LIGHT, AIR C ONDITIONERS, ETC. FOR BEING USED AS TABLE SPACE AND PROVIDING SERVICES LIKE WAT CH AND WARD STAFF, ELECTRICITY AND WATER AND OTHER COMMON AMENITIES WI THOUT ANY SEPARATE CHARGES WAS ASSESSABLE AS INCOME FROM PROPERTY AND NOT BUSINESS INCOME. THROUGH THIS JUDGMENT, THE HON'BLE APEX COURT HAS C ONFIRMED THE JUDGMENT OF THE HON'BLE HIGH COURT OF CALCUTTA. 11. SIMILAR VIEW WAS ALSO EXPRESSED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. VAISHNAV S. PURI (HUF) (SUP RA), IN WHICH THE TRIBUNAL HAS HELD THE INCOME FROM LETTING OUT OF BU ILDING FOR CONSOLIDATED MONTHLY RENT WHICH INCLUDES THE FURNITURE AND FIXTU RES, AIR CONDITIONERS, ETC. :-7-: IS TO BE TREATED AS INCOME FROM HOUSE PROPERTY AND NOT AS BUSINESS INCOME. 12. SIMILAR VIEW WAS ALSO EXPRESSED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MARWAR TEXTILES (AGENCY) (P) LTD. VS . INCOME TAX OFFICER (SUPRA), IN WHICH IT IS HELD THAT THE ENTIRE RECEIP TS BEING COMPOSITE RECEIPTS ON ACCOUNT OF LETTING OUT OF FURNISHED ACCOMMODATIO N, WAS RIGHTLY HELD AS INCOME FROM HOUSE PROPERTY. 13. WE HAVE ALSO CAREFULLY PERUSED THE LEASE DEED AND I NFRASTRUCTURE AGREEMENT EXECUTED ON 1.9.2003 AND OTHER RELEVANT D OCUMENTS AND WE FIND THAT THE ASSESSEE HAS CLAIMED THESE RECEIPTS A S INCOME FROM HOUSE PROPERTY IN ASSESSMENT YEAR 2005-06 AND THE ASSESSI NG OFFICER HAS ACCEPTED THE SAME. ONCE THE ASSESSING OFFICER HAS TREATED THESE RECEIPTS AS INCOME FROM HOUSE PROPERTY IN ASSESSMENT YEAR 20 05-06, WE FIND NO JUSTIFICATION IN TREATING THE SAME RECEIPTS IN SUCC EEDING YEAR AS BUSINESS INCOME. MOREOVER, THROUGH THE AFORESAID JUDGMENTS, IT HAS BEEN HELD THAT WHERE THE ASSESSEE HAS RECEIVED CERTAIN CHARGES FOR PROVIDING CERTAIN FACILITIES ALONG WITH RENTAL INCOME, THE ENTIRE REC EIPTS SHALL BE INCOME FROM HOUSE PROPERTY AND NOT BUSINESS INCOME. WE, THEREF ORE, FIND NO MERIT IN THE ORDER OF THE LD. CIT(A) CONFIRMING THE INFRASTR UCTURE RECEIPTS AS BUSINESS INCOME OF THE ASSESSEE. WE, ACCORDINGLY, SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DELETE THE ADDITIO N. 14. APROPOS GROUND NO.2, IT IS NOTICED THAT THE ASSESSE E HAS CLAIMED TOTAL TRAVEL EXPENSES AT RS.15,87,478/-, OUT OF WHI CH THE ASSESSING OFFICER HAS DISALLOWED FOREIGN TRAVEL EXPENSES AT RS.11,09, 156/- INCURRED TOWARDS THE VISIT OF THE DIRECTOR, SHRI. U.S. HALWASIA AND HIS WIFE TO EGYPT AND U.S.A. THOUGH THE ASSESSEE HAS CLAIMED THE PURPOSE OF THE VISIT AS TO EXPLORE BUSINESS OPPORTUNITIES, BUT DURING THE COUR SE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COULD NOT PLACE ANY EVIDE NCE BEFORE THE ASSESSING OFFICER TO JUSTIFY HIS VISIT THAT IT WAS INCURRED TO EXPLORE THE :-8-: BUSINESS OPPORTUNITIES IN THE LIGHT OF THE FACT THA T THE ASSESSEE WAS ENGAGED IN CONSTRUCTION ACTIVITIES. THE ASSESSING OFFICER ACCORDINGLY MADE DISALLOWANCE OF A SUM OF RS.11,09,156/- INCURRED ON FOREIGN TRAVEL TO EGYPT AND U.S.A. 15. AN APPEAL WAS PREFERRED BEFORE THE LD. CIT(A), BUT NO EVIDENCE WAS FILED TO JUSTIFY THAT THIS FOREIGN TRAVEL WAS UNDER TAKEN TO EXPLORE THE BUSINESS OPPORTUNITIES AND THE LD. CIT(A) ACCORDING LY CONFIRMED THE ADDITION. 16. NOW THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND HAS REITERATED ITS CONTENTIONS, BUT NO DOCUMENTARY EVIDENCE EXCEPT ORAL SUBMISSION IS PLACED ON RECORD. IT WAS ALSO CONTEN DED ON BEHALF OF THE ASSESSEE THAT IN ORDER TO GET AWARE OF THE PATTERN, MODE OF ELEVATION, METHOD OF CONSTRUCTION, NATURE OF STRUCTURE DESIGN AND DISTRIBUTION OF LOAD BEARING, ARCHITECTURAL DESIGN, INTERIOR, MODERN WAY OF CONSTRUCTION OF COMMON PASSAGE AND SITE DEVELOPMENT, INTERNAL ROOM SIZE, ELEVATION, ETC., THE M.D. AND DIRECTOR OF THE COMPANY DECIDED TO VIS IT EGYPT AS EGYPT HAS SOME OF THE BEST FOR RESIDENTIAL APARTMENTS IN THE WORLD. HE HAS ALSO PLACED RELIANCE UPON THE MINUTES OF THE BOARD OF ME ETING AND THE FOLLOWING CASE LAWS IN SUPPORT OF HIS CONTENTIONS:- 1. RAHULJEE & COMPANY (P) LTD., VS. ITAT & OTHERS, 73 DTR 89. 2. CIT VS. WILLIAMSON TEA (ASSAM) LTD., 38 TAXMANN.COM 154 17. THE LD. D.R., ON THE OTHER HAND, HAS PLACED RELIANC E UPON THE ORDER OF THE LD. CIT(A), WITH THE SUBMISSION THAT ONUS IS UPON THE ASSESSEE TO PLACE THE RELEVANT EVIDENCE ON RECORD IN ORDER TO J USTIFY THAT THE FOREIGN TRAVEL WAS UNDERTAKEN TO EXPLORE THE BUSINESS OPPOR TUNITIES. MERE ORAL SUBMISSIONS ARE NOT SUFFICIENT TO JUSTIFY THE CLAIM . IF THE ASSESSEE HAS GONE TO EXPLORE BUSINESS OPPORTUNITIES, THERE MUST HAVE BEEN SOME CORRESPONDENCE EXCHANGED BETWEEN THE ASSESSEE AND T HE FOREIGN :-9-: CLIENTS/ADVISERS/CONSULTANTS. IN THE ABSENCE OF AN Y EVIDENCE PLACED ON RECORD, THE CLAIM OF THE ASSESSEE IS NOT JUSTIFIED AND THE LD. CIT(A) HAS RIGHTLY DISALLOWED THE EXPENDITURE INCURRED ON FORE IGN TRAVEL. 18. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER A UTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS AND THE MATERIAL AVA ILABLE ON RECORD, WE FIND THAT THE LD. COUNSEL FOR THE ASSESSEE HAS EMPHATICA LLY ARGUED THAT THE FOREIGN TRAVEL WAS UNDERTAKEN TO EXPLORE THE BUSINE SS OPPORTUNITIES, BUT NO EVIDENCE IN THIS REGARD IS PLACED ON RECORD. WE FI ND FORCE IN THE CONTENTION OF THE REVENUE THAT IF THE ASSESSEE HAS UNDERTAKEN THE FOREIGN TRAVEL TO EXPLORE BUSINESS OPPORTUNITIES, THERE MUST HAVE BEE N SOME CORRESPONDENCE EXCHANGED BETWEEN THE ASSESSEE AND I TS FOREIGN CLIENTS/CONSULTANT/ADVISERS, BUT NOTHING IS PLACED ON RECORD. HE HAS ALSO PLACED RELIANCE UPON THE AFORESAID JUDGMENTS, BUT O N A CAREFUL PERUSAL, WE FIND THAT IN THOSE JUDGMENTS, IT HAS BEEN HELD THAT ONUS IS UPON THE ASSESSEE TO PROVE THAT FOREIGN VISITS WERE UNDERTAK EN FOR THE BUSINESS PURPOSE. NO DOUBT, ASSESSEE CAN UNDERTAKE FOREIGN TRAVEL TO EXPLORE BUSINESS OPPORTUNITIES, BUT THE ONUS IS ENTIRELY UP ON THE ASSESSEE TO ESTABLISH, BY PLACING SOME DOCUMENTARY EVIDENCE, TH AT THE FOREIGN TRAVEL WAS UNDERTAKEN FOR THE BUSINESS PURPOSE. IN THE ABS ENCE OF ANY DOCUMENTARY EVIDENCE, WE ARE UNABLE TO ACCEPT THE C ONTENTION OF THE ASSESSEE THAT THE FOREIGN TRAVEL WAS UNDERTAKEN TO EXPLORE THE BUSINESS OPPORTUNITIES. WE, THEREFORE, FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND WE ACCORDINGLY CONFIRM THE SAME. 19. APROPOS GROUND NO.3, IT IS NOTICED THAT THE ASSESSI NG OFFICER HAS MADE DISALLOWANCE OF THE EDUCATIONAL EXPENSES TO TH E TUNE OF RS.1,32,953/- INCURRED IN CONNECTION WITH SPONSORSH IP OF THE EDUCATIONAL EXPENSES OF SHRI. MUKUND HALWASIYA, DIRECTOR FOR HI S STUDIES ABROAD FOR PROFESSIONAL COURSE IN ACCOUNTS AND FINANCE. :-10- : 20. AGAINST THE DISALLOWANCE, AN APPEAL WAS FILED BEFOR E THE LD. CIT(A) WITH THE SUBMISSION THAT THE SAID EXPENDITURE WAS F OR BUSINESS PURPOSE, AS THE BENEFIT WOULD RESULT IN DEVELOPMENT AND GROWTH OF THE INCOME IN SUBSEQUENT YEARS AND LATER ON IN FINANCIAL YEAR 200 8-09, SHRI. MUKUND HALWASIYA HAS JOINED THE COMPANY AS WORKING DIRECTO R ON A MEAGER REMUNERATION OF RS.12,000/- PER MONTH AFTER PURSUIN G THE SAID HIGHER PROFESSIONAL COURSE IN THE FIELD OF ACCOUNTS AND FI NANCE, WHICH IN ITSELF PROVES THAT THE EDUCATIONAL EXPENSES WERE INCURRED BY THE COMPANY ON THE GROUNDS OF COMMERCIAL EXPEDIENCY. BESIDES, HE HAS ALSO PLACED RELIANCE UPON VARIOUS JUDICIAL PRONOUNCEMENTS. THE LD. CIT( A), RELYING UPON HIS ORDER FOR ASSESSMENT YEAR 2005-06, HAS CONFIRMED TH E ORDER OF THE ASSESSING OFFICER AND THE CLAIM OF THE ASSESSEE WAS DISALLOWED. 21. NOW THE ASSESSEE IS BEFORE THE TRIBUNAL AND DURING THE COURSE OF HEARING OF THE APPEAL, THE LD. COUNSEL FOR THE ASSE SSEE HAS INVITED OUR ATTENTION TO THE ORDER OF THE TRIBUNAL IN THE ASSES SEES OWN CASE FOR ASSESSMENT YEAR 2005-06 WITH THE SUBMISSION THAT TH E IMPUGNED ISSUE WAS RAISED BEFORE THE TRIBUNAL AND THE TRIBUNAL HAS DEC IDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE EXPENDITURE WAS INCURRED FOR BUSINESS PURPOSES. COPY OF THE ORDER OF THE TRIBUNAL IS PLA CED ON RECORD. SINCE THE IMPUGNED ISSUE HAS ALREADY BEEN ADJUDICATED BY THE TRIBUNAL IN ASSESSMENT YEAR 2005-06 AND THE CLAIM OF EXPENDITUR E INCURRED ON EDUCATION OF SHRI. MUKUND HALWASIYA WAS ALLOWED, WE FIND NO REASON TO DISALLOW THE CLAIM IN THE IMPUGNED ASSESSMENT YEAR. WE, THEREFORE, FOLLOWING THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2005-06, ALLOW THE CLAIM OF THE ASSESSEE AFTER SETTING ASIDE THE ORDER OF THE LD. CIT(A) IN THIS REGARD. ACCORDINGLY, THE ADDITION MADE ON THIS COU NT IS HEREBY DELETED. 22. APROPOS GROUND NO.4, IT IS NOTICED THAT THE ASSESSI NG OFFICER HAS MADE AD HOC DISALLOWANCE OF RS.1,42,038/- AGAINST T HE EXPENSES UNDER THE HEAD BUSINESS PROMOTION CLAIMED AT RS.2,84,075/- ON THE GROUND THAT :-11- : COMPLETE DETAILS OF THESE EXPENSES WERE NOT FURNISH ED BEFORE THE ASSESSING OFFICER AND THE LD. CIT(A) HAS RESTRICTED THE DISAL LOWANCE TO RS.71,019/- AFTER GRANTING A PART RELIEF. 23. NOW THE ASSESSEE IS BEFORE US WITH THE SUBMISSION T HAT WITHOUT POINTING OUT ANY DEFECT IN THE MAINTENANCE OF THE A CCOUNTS, THE DISALLOWANCE ON AD HOC BASIS IS NOT PERMISSIBLE. 24. THE LD. D.R., ON THE OTHER HAND, HAS PLACED RELIANC E UPON THE ORDER OF THE LD. CIT(A). 25. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER A UTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT THE AS SESSEE HAS CLAIMED EXPENSES OF RS.2,84,075/- UNDER THE HEAD BUSINESS PROMOTION AND FOR WANT OF DETAILS, THE ASSESSING OFFICER HAS MADE DIS ALLOWANCE OF 50% WHICH WAS LATER ON REDUCED TO 25% BY THE LD. CIT(A), BUT THE LOWER AUTHORITIES HAVE NOT POINTED OUT ANY SPECIFIC DEFECT IN THE MAI NTENANCE OF THE ACCOUNTS. THE DISALLOWANCE WAS MADE ON AD HOC BASI S. IT HAS BEEN REPEATEDLY HELD BY VARIOUS JUDICIAL FORUMS THAT IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE MAINTENANCE OF THE BOOKS OF ACCO UNT, HE MAY DISPUTE THE PARTICULAR ENTRY AND MAKE DISALLOWANCE, BUT DISALLO WANCE ON AD HOC BASIS SHOULD BE AVOIDED. IN THE INSTANT CASE, NOTHING IS BORNE OUT FROM THE ORDERS OF THE LOWER AUTHORITIES AS TO WHETHER THE A SSESSING OFFICER HAS RAISED ANY QUERY IN RESPECT OF A PARTICULAR ENTRY. HE HAS SIMPLY MADE AD HOC DISALLOWANCE, WHICH IS NOT PERMISSIBLE UNDER TH E LAW. WE ACCORDINGLY SET ASIDE THE ORDER OF THE LD. CIT(A) AND DELETE TH E ADDITION IN THIS REGARD. 26. APROPOS GROUND NO.5 RELATING TO DISALLOWANCE UNDER SECTION 14A OF THE ACT, IT IS NOTICED THAT THE ASSESSING OFFICER H AS CONSIDERED RS.19,91,741/- AS INVESTMENT IN SHARES AND MUTUAL F UNDS AND RS.2,39,90,493/-, ADVANCE TO M/S G.R. MAINTENANCE & SERVICES PVT. LTD. AS :-12- : A SOURCE OF INCOME, WHICH IS EXEMPT AND HAS DISALLO WED AN AMOUNT OF RS.9,52,017/- CALCULATED AS PER RULE 8D READ WITH S ECTION 14A OF THE ACT. 27. AGGRIEVED, THE ASSESSEE HAS PREFERRED AN APPEAL BEF ORE THE LD. CIT(A) WITH THE SUBMISSION THAT AN AMOUNT OF RS.2,3 9,90,493/- ADVANCED TO M/S G.R. MAINTENANCE & SERVICES PVT. LTD. WAS IN THE NATURE OF SHARE APPLICATION MONEY HELD WITH THE CONCERN PENDING FOR ALLOTMENT. THE CORRESPONDING SHARES WERE ALLOTTED IN FINANCIAL YEA R 2007-08. THEREFORE, THE ASSESSING OFFICER HAS FAILED TO APPRECIATE THE FACT THAT THE SAID ADVANCE DID NOT BECOME INCOME GENERATING INVESTMENT IN THE CONCERNED FINANCIAL YEAR I.E. 2005-06, IN WHICH IT WAS ADVANCED. IT WA S FURTHER EXPLAINED THAT THE SHAREHOLDER BECOMES ELIGIBLE FOR DIVIDEND INCOM E ONLY WHEN SHARES ARE ALLOTTED TO HIM AND ALLOTMENT PROCESS WAS COMPLETED IN FINANCIAL YEAR 2007- 08. THUS, THERE WAS NO QUESTION OF ELIGIBILITY OF ANY EXEMPT INCOME IN FINANCIAL YEAR 2005-06. IT WAS FURTHER CONTENDED T HAT THE TOTAL INCOME EXEMPTED FROM TAX WAS RS.87,111.76 CONSISTING OF DI VIDEND INCOME OF RS.35,750/- EXEMPTED UNDER SECTION 10(34) OF THE AC T, LONG TERM CAPITAL GAIN OF RS.1,18,922.27 EXEMPTED UNDER SECTION 10(38 ) OF THE ACT AND SHORT TERM CAPITAL LOSS OF RS.67,560.51. THEREFORE, DISAL LOWANCE MADE BY THE ASSESSING OFFICER AT RS.9,52,017/- WAS IRRATIONAL. IT WAS FURTHER CONTENDED THAT PROVISIONS OF SUB-SECTION (1) AND (2) OF SECTI ON 14A OF THE ACT WERE INTRODUCED W.E.F. 1.4.2007 BY THE FINANCE ACT, 2006 , THEREFORE, IT CANNOT BE INVOKED TO THE ISSUE PERTAINING TO ASSESSMENT YEAR 2006-07 AND NO ALLEGED DISALLOWANCE CAN BE MADE. 28. WITH REGARD TO RULE 8D, IT WAS CONTENDED THAT RULE 8D WAS INTRODUCED W.E.F. 24.3.2008 BY (5 TH AMENDMENT) RULES, 2008. IN THE LIGHT OF THESE FACTS, DISALLOWANCE CANNOT BE COMPUTED AS PER PROVI SIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES. 29. THE LD. CIT(A) RE-EXAMINED THE ISSUE, BUT WAS NOT C ONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE AND HE CONFIRMED THE D ISALLOWANCE. :-13- : 30. NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL A ND REITERATED ITS CONTENTIONS. 31. THE LD. D.R. HAS SIMPLY PLACED RELIANCE UPON THE OR DER OF THE LD. CIT(A). 32. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER A UTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT BEFORE THE LD. CIT(A), THE ASSESSEE HAS CATEGORICALLY STATED THAT HE HAS GIVEN AN ADVANCE OF RS.2,39,90,493/- TO M/S G.R. MAINTENANCE & SERVICES PVT. LTD. AS SHARE APPLICATION MONEY AND SHARES WERE ALLOTTED IN FINAN CIAL YEAR 2007-08. THESE CONTENTIONS OF THE ASSESSEE WAS NOT REBUTTED BY THE LD. CIT(A) IN HIS ORDER. IN THE LIGHT OF THESE FACTS, ONCE THE ADVAN CE IS GIVEN TO M/S G.R. MAINTENANCE & SERVICES PVT. LTD. FOR ALLOTMENT OF S HARES, THE SAID INVESTMENT CANNOT BE CALLED TO BE INCOME GENERATING INVESTMENT IN THE CONCERNED FINANCIAL YEAR I.E. 2005-06 IN THE FORM O F DIVIDEND INCOME. THEREFORE, WE ARE OF THE VIEW THAT NO DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MADE ON ACCOUNT OF THIS INVESTMENT M ADE FOR ALLOTMENT OF SHARES UNDER SECTION 14A OF THE ACT. MOREOVER, PRO VISIONS OF SUB-SECTION (1) AND (2) OF SECTION 14A WERE INTRODUCED BY THE F INANCE ACT, 2006 W.E.F. 1.4.2007 RELEVANT TO THE ASSESSMENT YEAR 2007-08. THEREFORE, THESE PROVISIONS CANNOT BE INVOKED FOR MAKING DISALLOWANC E UNDER SECTION 14A OF THE ACT. 33. WE HAVE ALSO CAREFULLY EXAMINED THE PROVISIONS OF R ULE 8D AND WE FIND THAT THIS RULE WAS INTRODUCED W.E.F. 24.3.2008 , AND THE RELEVANT ASSESSMENT YEAR WOULD BE 2008-09. THEREFORE, COMPUT ATION OF DISALLOWANCE UNDER RULE 8D IS NOT CALLED FOR IN THE IMPUGNED ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2006-07. THE LD. CIT(A) HAS NOT EXAMINED THE ISSUE OF INVESTMENT IN SHARES AND MUTUAL FUNDS AT R S.19,91,741/-, BUT IN ANY CASE FOR MAKING DISALLOWANCE, SUB-SECTIONS (1) & (2) OF SECTION 14A OF THE ACT CANNOT BE INVOKED IN THE IMPUGNED ASSESSMEN T YEAR I.E. :-14- : ASSESSMENT YEAR 2006-07, AS IT WAS INTRODUCED W.E.F . 1.4.2007 BY THE FINANCE ACT, 2006. THEREFORE, WE ARE OF THE CONSID ERED VIEW THAT NO DISALLOWANCE UNDER SECTION 14A OF THE ACT IS CALLED FOR FOR INVESTMENT IN SHARES AND MUTUAL FUNDS AND ADVANCES GIVEN TO M/S G .R. MAINTENANCE & SERVICES PVT. LTD. FOR ALLOTMENT OF SHARES. WE ACC ORDINGLY SET ASIDE THE ORDER OF THE LD. CIT(A) IN THIS REGARD AND DELETE T HE ADDITION. I.T.A. NO. 24/LKW /2012: 34. THROUGH THIS APPEAL, THE ASSESSEE HAS ASSAILED THE ORDER OF THE LD. CIT(A), INTER ALIA, ON FOLLOWING GROUNDS:- 1. THE LD. C.I.T. (APPEALS)-I, ERRED ON FACTS AND IN L AW IN UPHOLDING THE ORDER OF THE LD. A.O. THAT RECEIPTS OF RS.24,61 ,858-00 SHOULD BE ASSESSED AS 'BUSINESS INCOME' INSTEAD OF 'INCOME FROM HOUSE PROPERTY' AS SHOWN BY THE APPELLANT. 1.1 THE LD. C.I.T. (APPEALS) DID NOT APPRECIATED TH AT THE RECEIPT OF RS.24,61,858-00 BEING RENT OF 'INFRASTRUCTURE FACIL ITIES' INSTALLED IN THE PROPERTY LET OUT, AND ARE INTEGRAL PART OF P ROPERTY IN TOTAL WHICH IS LET OUT, AS SUCH, IT SHOULD BE ASSESSED AS 'RENTAL INCOME' 2. THE LD. C.I.T. (APPEALS) ERRED ON FACTS AND IN L AW IN CONFORMING THE ADHOC. DISALLOWANCE OF RS.6,43,333.00 ON ACCOUN T OF 'TRAVELLING AND BUSINESS PROMOTION EXPENSES' INCURR ED SOLELY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, WITHOU T BRINGING OUT ANY CONTRARY EVIDENCE, THAT EXPENSES ARE NOT INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 3. THE LD. C.I.T. (APPEALS) ERRED ON FACTS AND IN L AW IN CONFIRMING THE ADDITION OF RS.9,94,092-00 UNDER SECTION 14AOF INCOME TAX ACT, 1961 WHICH IS NOT APPLICABLE IN THE PRESENT / SETS -OF FACTS AND CIRCUMSTANCES. 4. THE LD. C.I.T. (A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.1,23,000-00 BEING RENT PAID TO H ALWASIYA COURT. :-15- : 5. THE ADDITIONS UPHELD ARE HIGHLY EXCESSIVE, CONTR ARY TO THE FACTS, LAW AND PRINCIPLE OF NATURAL JUSTICE WITHOUT PROVID ING SUFFICIENT OPPORTUNITY TO HAVE ITS SAY ON THE REASONS RELIED U PON BY HIM. 35. GROUND NO.1 RELATES TO THE NATURE OF RECEIPTS RECEI VED FOR PROVIDING INFRASTRUCTURE FACILITY. THIS ISSUE WAS EXAMINED B Y US IN THE FOREGOING APPEAL WHEREIN WE HAVE HELD THAT THE RECEIPTS FOR I NFRASTRUCTURE FACILITY IS IN THE NATURE OF INCOME FROM HOUSE PROPERTY. WE, THER EFORE, FOLLOWING THE AFORESAID ORDER IN I.T.A. NO. 275/LKW/2010 DECIDE T HIS ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE RECEIPTS ON ACCOUN T OF INFRASTRUCTURE FACILITY PROVIDED BY THE ASSESSEE ARE THE INCOME FR OM HOUSE PROPERTY. ACCORDINGLY, THE ORDER OF THE LD. CIT(A) ON THIS IS SUE IS SET ASIDE AND THE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. 36. APROPOS GROUND NO.2, IT IS NOTICED THAT THE ASSESSI NG OFFICER HAS MADE AD HOC DISALLOWANCE OF RS.12,87,067/- BEING 50 % OF THE CLAIMS FOR TRAVELLING AND BUSINESS PROMOTION EXPENSES. 37. WHEN THE MATTER WAS BROUGHT BEFORE THE LD. CIT(A), THE LD. CIT(A), FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 2005-06, HA S RESTRICTED IT TO 25% RESULTING INTO AN ADDITION OF RS.6,43,333/-. 38. AN IDENTICAL ISSUE WAS RAISED IN THE FOREGOING APPE AL FOR ASSESSMENT YEAR 2006-07, IN WHICH WE HAVE CONFIRMED THE TRAVEL LING DISALLOWANCE, BUT DELETED THE DISALLOWANCE ON ACCOUNT OF BUSINESS PRO MOTION EXPENSES, AS IT WAS DONE ON AD HOC BASIS. THE LD. CIT(A) WHILE ADJ UDICATING THE APPEAL HAS FOLLOWED HIS EARLIER ORDER FOR ASSESSMENT YEAR 2006-07, THEREFORE, FOLLOWING THE ORDER FOR ASSESSMENT YEAR 2006-07 IN THE FOREGOING PARAS, WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOW ANCE MADE ON ACCOUNT OF BUSINESS PROMOTION EXPENSES, AS IT WAS DONE ON AD H OC BASIS. 39. SO FAR AS TRAVELLING DISALLOWANCE IS CONCERNED, WE FIND THAT IN ASSESSMENT YEAR 2006-07 DISALLOWANCE MADE FOR EXPEN SES INCURRED ON :-16- : FOREIGN TRAVEL WAS CONFIRMED BY THE TRIBUNAL, BUT I N THE PRESENT ASSESSMENT YEAR I.E. 2007-08 NO EXPENSE ON ACCOUNT OF FOREIGN TRAVEL WAS CLAIMED. THE DISALLOWANCE OF LOCAL EXPENSES WAS DELETED BY T HE LD. CIT(A) IN ASSESSMENT YEAR 2006-07 AND THE ORDER OF THE LD. CI T(A) WAS LATER ON CONFIRMED BY THE TRIBUNAL. THEREFORE, FOLLOWING TH E ORDER OF THE TRIBUNAL, WE FIND NO MERIT ON ACCOUNT OF TRAVELLING EXPENSES, AS IT WAS ALSO DONE ON AD HOC BASIS. ACCORDINGLY, WE DELETE THE ADDITION. 40. APROPOS GROUND NO.3, IT IS NOTICED THAT IDENTICAL I SSUE WAS RAISED IN ASSESSMENT YEAR 2006-07. THE TRIBUNAL HAS ADJUDICA TED THIS ISSUE IN THE LIGHT OF THE AMENDMENT BROUGHT IN SECTION 14A AND I NTRODUCTION OF RULE 8D. SINCE THE PROVISIONS OF SUB-SECTION (1) AND (2) OF SECTION 14A WAS INSERTED W.E.F. 1.4.2007 AND THE PROVISIONS OF RULE 8D WAS I NTRODUCED W.E.F. 24.3.2008 RELEVANT TO THE ASSESSMENT YEAR 2008-09, DISALLOWANCE UNDER SECTION 14A OF THE ACT CANNOT BE MADE IN ASSESSMENT YEAR 2007-08. IT WAS ALSO HELD IN THE LIGHT OF THE FACT THAT SHARES WERE ALLOTTED IN FINANCIAL YEAR 2007-08. THEREFORE, FOLLOWING THE ORDER OF THE TRI BUNAL IN ASSESSMENT YEAR 2006-07, WE ARE OF THE VIEW THAT NO DISALLOWANCE UN DER SECTION 14A OF THE ACT CAN BE MADE IN THE IMPUGNED ASSESSMENT YEAR I.E . 2007-08. WE ACCORDINGLY DELETE THE ADDITION MADE BY THE ASSESSI NG OFFICER IN THIS REGARD. 41. APROPOS GROUND NO.4, IT IS NOTICED THAT THE ASSESSI NG OFFICER HAS MADE DISALLOWANCE OF RS.1.23 LAKHS CLAIMED BY THE A SSESSEE AS RENT PAID TO ITS SISTER CONCERN. 42. AGAINST THE DISALLOWANCE, ASSESSEE PREFERRED AN APP EAL BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT THE RENT WAS PAID T O THE SISTER CONCERN FOR USE OF THE PREMISES; WHEREAS THE ASSESSING OFFICER HAS MADE DISALLOWANCE WITH THE OBSERVATION THAT THE ASSESSEE WAS EARNING INCOME FROM THE SAME PREMISES. BEING NOT CONVINCED WITH THE EXPLANATION S OF THE ASSESSEE, THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE. :-17- : 43. NOW THE ASSESSEE IS BEFORE US WITH THE SUBMISSION T HAT THE LOWER AUTHORITIES HAVE NOT VERIFIED THE RELEVANT FACTS, A S THE PREMISES WAS USED BY THE ASSESSEE FOR ITS OFFICE PURPOSE. THEREFORE, NO DISALLOWANCE ON RENT CAN BE MADE FOR THE SIMPLE REASON THAT THE RENT WAS PAID TO ITS SISTER CONCERN. THE LD. COUNSEL FOR THE ASSESSEE HAS FURT HER CONTENDED THAT SINCE THE FACTS WERE NOT PROPERLY VERIFIED BY THE LOWER A UTHORITIES, THE MATTER MAY BE SENT BACK TO THE ASSESSING OFFICER FOR VERIF ICATION IN THE LIGHT OF ASSESSEES CONTENTIONS. 44. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER A UTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT THIS I SSUE WAS NOT PROPERLY EXAMINED BY THE LOWER AUTHORITIES. WE, THEREFORE, SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE ASSESS ING OFFICER WITH A DIRECTION TO ADJUDICATE THE ISSUE AFRESH AFTER MAKI NG VERIFICATION FROM THE RELEVANT EVIDENCE FILED BY THE ASSESSEE IN THIS REG ARD. I.T.A. NO. 588/LKW/2012: 45. THROUGH THIS APPEAL, THE ASSESSEE HAS ASSAILED THE ORDER OF THE LD. CIT(A) ON THE FOLLOWING GROUNDS:- 1. THE LD. C.I.T. (APPEALS)-I, ERRED ON FACTS AND IN L AW IN UPHOLDING THE ORDER OF THE LD. A.O. THAT RECEIPTS O F RS.7,05,276-00 SHOULD BE ASSESSED AS 'BUSINESS INCO ME' INSTEAD OF 'INCOME FROM HOUSE PROPERTY' AS SHOWN BY THE APPELLANT. 1.1 THE LD, C.I.T. (APPEALS) DID NOT APPRECIATED TH AT THE RECEIPT OF RS.7,05,276-00 BEING RENT OF 'INFRASTRUCTURE FACILI TIES' INSTALLED IN THE PROPERTY LET OUT, AND ARE INTEGRAL PART OF P ROPERTY IN TOTAL WHICH IS LET OUT, AS SUCH, IT SHOULD BE ASSES SED AS 'RENTAL INCOME' 2. THE LD. C.I.T. (APPEALS) ERRED ON FACTS AND IN L AW IN CONFIRMING THE ADDITION OF RS.14,43,346-00 UNDER SECTION 14A O F JNCOME :-18- : TAX ACT, 1961 WHICH IS NOT APPLICABLE IN THE PRESEN T OF SETS OF FACTS AND CIRCUMSTANCES. 3. THE ADDITIONS UPHELD ARE HIGHLY EXCESSIVE, CONTR ARY TO THE FACTS, LAW AND PRINCIPLE OF NATURAL JUSTICE WITHOUT PROVIDING SUFFICIENT OPPORTUNITY TO HAVE ITS SAY ON THE REASO NS RELIED UPON BY HIM. 46. APROPOS GROUND NO.1, IT IS NOTICED THAT THE RECEIPT S ON ACCOUNT OF INFRASTRUCTURE FACILITY WAS TREATED TO BE BUSINESS INCOME FOLLOWING THE ORDERS OF EARLIER YEARS. 47. THIS ISSUE WAS EXAMINED BY US IN THE FOREGOING APPE ALS, IN WHICH IT HAS BEEN HELD THAT THE ENTIRE RECEIPTS WOULD BE THE RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. SINCE THERE IS NO CHANGE IN THE FACTS IN THE IMPUGNED ASSESSMENT YEAR, WE TREAT THE RECEIPTS ON ACCOUNT OF INFRASTRUCTURE FACILITIES AS RENTAL INCOME UNDER TH E HEAD INCOME FROM HOUSE PROPERTY AND ALLOW THE GROUND OF APPEAL OF THE ASSE SSEE ON THIS ISSUE. 48. APROPOS GROUND NO.2, IT IS NOTICED THAT THE DISALLO WANCE OF RS.14,43,346/- WAS MADE UNDER SECTION 14A OF THE AC T. 49. ALTHOUGH THIS ISSUE WAS RAISED IN EARLIER ASSESSMEN T YEAR, BUT NO DISALLOWANCE WAS UPHELD FOR THE REASON THAT PROVISI ONS OF SUB-SECTION (1) AND (2) OF SECTION 14A WERE NOT APPLICABLE IN THOSE ASSESSMENT YEARS, AS IT WAS INTRODUCED W.E.F. 1.4.2007. BUT FOR THE IMPUGN ED ASSESSMENT YEAR, SUB-SECTIONS (1) AND (2) OF SECTION 14A OF THE ACT READ WITH RULE 8D ARE APPLICABLE AND THE ASSESSING OFFICER HAS CALCULATED THE DISALLOWANCE UNDER SECTION 14A OF THE ACT AS PER RULE 8D OF THE RULES AND MADE DISALLOWANCE OF RS.14,43,346/-, AGAINST WHICH AN APPEAL WAS FILED B EFORE THE LD. CIT(A) WITH THE SUBMISSION THAT IT HAS NOT INCURRED ANY EX PENDITURE AGAINST EXEMPT INCOME AND EXEMPT INCOME WAS ALSO NIL. IT W AS ALSO CONTENDED THAT THE ASSESSING OFFICER HAS NEITHER IDENTIFIED A NY INCOME WHICH DOES NOT :-19- : FORM PART OF TOTAL INCOME NOR HAS IDENTIFIED ANY EX PENDITURE WHICH HAS INCURRED IN EARNING SUCH INCOME AND DISALLOWANCE HA S BEEN MADE MERELY BECAUSE INVESTMENT HAS BEEN MADE IN SHARES AND MUTU AL FUNDS. BEING NOT CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE, TH E LD. CIT(A) HAS CONFIRMED THE ORDER OF THE ASSESSING OFFICER ON THI S ISSUE. 50. NOW THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL WITH THE SUBMISSION THAT NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE DURING THE IMPUGNED ASSESSMENT YEAR, THEREFORE, NO DISALLO WANCE UNDER SECTION 14A OF THE ACT IS CALLED FOR. HE HAS ALSO DISPUTED THE APPLICABILITY OF RULE 8D OF THE RULES. 51. THE LD. D.R., ON THE OTHER HAND, HAS PLACED RELIANC E UPON THE ORDER OF THE TRIBUNAL IN THE CASE OF INCOME TAX OFFICER V S. M/S COMMERCIAL AUTO CENTRE IN I.T.A. NO. 180/LKW/2010, IN WHICH IT HAS BEEN HELD THAT EVEN IN CASE OF NON-EXEMPT INCOME PROVISIONS OF SECTION 14A OF THE ACT CAN BE INVOKED AND DISALLOWANCE AS PER RULE 8D OF THE RULE S CAN BE MADE. THEREFORE, THERE IS NO INFIRMITY IN THE ORDER OF TH E LD. CIT(A). 52. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER A UTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT IN THE IMPUGNED ASSESSMENT YEAR, PROVISIONS OF SECTION 14A OF THE ACT CAN BE I NVOKED EVEN IN A CASE NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE. THIS ISS UE WAS EXAMINED BY US IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS IN THE CASE INCOME TAX OFFICER VS. M/S COMMERCIAL AUTO CENTRE IN I.T.A. NO . 180/LKW/2010, IN WHICH IT HAS BEEN HELD AS UNDER:- 38. FROM THE ABOVE PARAS FROM THE ORDER OF CIT(A), WE FIND THAT THE ADDITION WAS DELETED BY HIM ON THE BASIS T HAT THE ASSESSING OFFICER HAS NOT APPRECIATED THE BUSINESS CONNECTION WITH THE SISTER CONCERN AND COMMERCIAL EXPEDIENCY A S ARGUED BY THE ASSESSEE IN RESPECT OF THESE TRANSACTIONS OF INVESTMENT. HE HAS NOTED IN PARA 13 OF HIS ORDER THAT DEDUCTION WAS :-20- : CLAIMED BY THE ASSESSEE U/S 36 (1) (III) OF THE I. T. ACT. THEREAFTER IT IS NOTED BY CIT(A) IN PARA 14 OF HIS ORDER THAT IT CANNOT BE SAID THAT THE AMOUNTS INVESTED BY ASSESSE E ARE FOR NON BUSINESS PURPOSE, THOUGH SAME MAY BE INDIRECT B USINESS CONNECTION. WE ARE OF THE CONSIDERED OPINION THAT H AVING BUSINESS CONNECTION IS DIFFERENT THING AND MAKING I NVESTMENT FOR BUSINESS EXPEDIENCY IS DIFFERENT THING ALTOGETH ER. IN THE PRESENT CASE, THIS IS THE ONLY CLAIM OF THE ASSESSE E BEFORE THE ASSESSING OFFICER AND BEFORE US ALSO THAT THE INVES TMENTS MADE BY THE ASSESSEE IN SISTER CONCERNS WHO ARE ENG AGED IN A CONNECTED OR SIMILAR BUSINESS. EVEN IF THIS IS COR RECT THEN ALSO, IT CANNOT BE SAID THAT THIS INVESTMENT IN SISTER CO NCERN IS FOR BUSINESS PURPOSE OR FOR BUSINESS EXPEDIENCY. HENCE , THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF S. A. BUILDERS (SUPRA) IS NOT RENDERING ANY HELP TO THE A SSESSEE. INVESTMENT IN SHARES IS MADE ONLY TO EARN DIVIDEND INCOME AND AS IN CASE OF ANY OTHER INVESTMENT, THERE MAY BE CA PITAL GAIN OR LOSS ALSO AT THE TIME OF SALE OF CAPITAL ASSET. TILL THE ASSESSMENT YEAR 2003-04, DIVIDEND INCOME WAS TAXABL E AND THEREFORE, DEDUCTION ON ACCOUNT OF INTEREST ON BORR OWED FUND FOR MAKING INVESTMENT IN SHARE HAD TO BE ALLOWED U/ S 57(III) OF THE ACT AS HAS BEEN HELD BY US WHILE DECIDING THE A PPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2003-04 BY FOLLOWING TH E JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF RAJENDRA PRASAD MOODY (SUPRA). IN THIS CASE, IT WA S HELD BY HON'BLE APEX COURT THAT IF BORROWED FUNDS HAVE BEEN USED FOR MAKING INVESTMENT IN SHARES, THEN INTEREST EXPENDIT URE INCURRED ON SUCH BORROWED FUND HAS TO BE ALLOWED AS DEDUCTION U/S 57(III) OF THE ACT EVEN IF THERE WAS NO DIVIDEND INCOME EARNED DURING THE YEAR UNDER CONSIDERATION. THE RELEVANT PARA OF THIS JUDGMENT OF HON'BLE APEX COUR T IN THE CASE OF RAJENDRA PRASAD MOODY VS. CIT AS REPORTED I N [1978] 115 ITR 519 IS REPRODUCED BELOW: :-21- : WHAT S. 57(III) REQUIRES IS THAT THE EXPENDITURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. IT IS THE PURPOSE OF THE EXPENDITURE THAT IS RELEVANT IN DETERMINING THE APPLICABILITY OF S. 57(III) AND THAT PURPOSE MUST B E MAKING OR EARNING OF INCOME. S. 57(III) DOES NOT REQUIRE THAT THIS PURPOSE MUST BE FULFILLED IN ORDE R TO QUALIFY THE EXPENDITURE FOR DEDUCTION. IT DOES NOT SAY THAT THE EXPENDITURE SHALL BE DEDUCTIBLE ONLY IF ANY INCOME IS MADE OR EARNED. THERE IS IN FACT NOTHING IN THE LANGUAGE OF S. 57(III) TO SUGGEST THAT THE PURPOSE FOR WHICH THE EXPENDITURE IS MADE SHOULD FRUCTIFY INTO ANY BENEFIT BY WAY OF RETURN IN THE SHAPE OF INCOME. THE PLAIN NATURAL CONSTRUCTION OF THE LANGUAGE OF S. 57(III) IRRESISTIBLY LEADS TO THE CONCLUSION THA T TO BRING A CASE WITHIN THE SECTION, IT IS NOT NECESSAR Y THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF THE EXPENDITURE. IT MAY BE POINTED OUT THAT AN IDENTICAL VIEW WAS TAKEN BY THIS COURT IN EASTERN INVESTMENTS LTD. V. CIT [1951] 20 ITR 1, 4 (SC), WHERE INTERPRETING THE CORRESPONDING PROVISION IN S. 12(2) OF THE INDIAN I.T. ACT, 1922, WHICH WAS IPSISSIMA VERBA IN THE SAME TERMS AS S. 57(III). BOSE J., SPEAKING ON BEHALF OF THE COUR T, OBSERVED : 'IT IS NOT NECESSARY TO SHOW THAT THE EXPENDITURE WAS A PROFITABLE ONE OR THAT IN FACT ANY PROFIT WAS EARNED.' IT IS INDEED DIFFICULT TO SEE HOW, AFTER THIS OBSERVATION OF THE COURT, THERE CAN BE ANY SCOPE :-22- : FOR CONTROVERSY IN REGARD TO THE INTERPRETATION OF S. 57(III). IT IS ALSO INTERESTING TO NOTE THAT, ACCORDING TO THE REVENUE, THE EXPENDITURE WOULD DISQUALIFY FOR DEDUCTION ONLY IF NO INCOME RESULTS FROM SUCH EXPENDITURE IN A PARTICULAR ASSESSMENT YEAR, BUT IF THERE IS SOME INCOME, HOWSOEVER SMALL OR MEAGRE, THE EXPENDITURE WOULD BE ELIGIBLE FOR DEDUCTION. THIS MEANS THAT IN A CASE WHERE THE EXPENDITURE IS RS. 1,000, IF THERE IS INCOME OF EVEN RE. 1, THE EXPENDITURE WOULD BE DEDUCTIBLE AND THERE WOULD BE RESULTING LOSS OF RS. 999 UNDER THE HEAD ' INCOME FROM OTHER SOURCES '. BUT IF THERE IS NO INCOME, THEN, ON THE ARGUMENT OF THE REVENUE, THE EXPENDITURE WOULD HAVE TO BE IGNORED AS IT WOULD NOT BE LIABLE TO BE DEDUCTED. THIS WOULD INDEED BE A STRANGE AND HIGHLY ANOMALOUS RESULT AND IT IS DIFFICULT TO BELIEVE THA T THE LEGISLATURE COULD HAVE EVER INTENDED TO PRODUCE SUCH ILLOGICALITY. MOREOVER, IT MUST BE REMEMBERED THAT WHEN A PROFIT AND LOSS ACCOUNT IS CAST IN RESPECT OF ANY SOURCE OF INCOME, WHAT IS ALLOWED BY THE STATUTE AS PROPER EXPENDITURE WOULD BE DEBITED AS AN OUTGOING AND INCOME WOULD BE CREDITED AS A RECEIPT AND THE RESULTING INCOME OR LOSS WOULD BE DETERMINED. IT WOULD MAKE NO DIFFERENCE TO THIS PROCESS WHETHER THE EXPENDITURE IS X OR Y OR NIL; WHATEVER IS THE PROPER EXPENDITURE ALLOWED BY THE STATUTE WOULD BE DEBITED. EQUALLY, IT WOULD MAKE NO DIFFERENCE WHETHER THERE IS ANY INCOME AND IF SO, WHAT, SINCE WHATEVER IT BE, X OR Y OR NIL, WOULD BE CREDITED. AND THE ULTIMATE INCOME OR LOSS WOULD :-23- : BE FOUND. WE FAIL TO APPRECIATE HOW EXPENDITURE WHICH IS OTHERWISE A PROPER EXPENDITURE CAN CEASE TO BE SUCH MERELY BECAUSE THERE IS NO RECEIPT OF INCOME. WHATEVER IS A PROPER OUTGOING BY WAY OF EXPENDITURE MUST BE DEBITED IRRESPECTIVE OF WHETHER THERE IS RECEIPT OF INCOME OR NOT. THAT IS THE PLAIN REQUIREMENT OF PROPER ACCOUNTING AND THE INTERPRETATION OF S. 57(III) CANNOT BE DIFFERENT. THE DEDUCTION OF THE EXPENDITURE CANNOT, IN THE CIRCUMSTANCES, BE HELD TO BE CONDITIONAL UPON THE MAKING OR EARNING OF THE INCOME. 40. THERE WAS AN ARGUMENT THAT SINCE NO DIVIDEND IN COME WAS EARNED DURING A.Y. 2004 05, NO DISALLOWANCE C AN BE MADE U/S 14A. RELIANCE WAS PLACED ON A TRIBUNAL DEC ISION RENDERED IN THE CASE OF SHIVAM AUTO, WHICH IS UPH ELD BY HONBLE ALLAHABAD HIGH COURT IN ITA NO.88 OF 2014 D ATED 5.5.2014. RELIANCE WAS ALSO PLACED ON A JUDGMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CIT VS. CORRTECH ENERGY (P) LTD. 145 TAXMAN 116. BUT THIS IS TO BE N OTED THAT IN THE PRESENT CASE, DISALLOWANCE IS NOT MADE BY THE A .O. U/S 14A OF THE I. T. ACT ALONE. THE DISALLOWANCE IS MADE ON THIS BASIS THAT IT IS NOT ALLOWABLE U/S 36 (1) (III) BECAUSE I NVESTMENT IN SHARES IS NOT A BUSINESS OF THE ASSESSEE. THEREAFTE R IT IS STATED BY THE A.O. THAT SUCH DISALLOWANCE IS ALSO TO BE MA DE KEEPING IN VIEW THE PROVISIONS OF SECTION 14A. HERE, WE WOU LD LIKE TO OBSERVE THAT WHETHER ANY DISALLOWANCE U/S 14A IS CA LLED FOR OR NOT IS REQUIRED TO BE SEEN ONLY IF EXPENDITURE IS O THERWISE ALLOWABLE UNDER A PROVISION OF THE ACT MINUS SECTIO N 14A. IN FACT, SECTION 14A IS A DISALLOWING SECTION, AS PER WHICH, EVEN IF DEDUCTION IS ALLOWABLE IN RESPECT OF ANY EXPENDITUR E AS PER SOME PROVISION OF THE ACT THEN IN VIEW OF THE PROVI SION OF SECTION 14A OF THE ACT, DEDUCTION CANNOT BE ALLOWED OF SUCH :-24- : EXPENDITURE IF IT IS FOUND THAT SUCH EXPENDITURE IS INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. HENCE, IT HAS TO BE FIRST ESTABLIS HED BY THE ASSESSEE THAT DEDUCTION ON ACCOUNT OF INTEREST IS A LLOWABLE UNDER SOME PROVISIONS OF THE ACT. IN OUR CONSIDERED OPINION, IN THE FACTS OF THE PRESENT CASE, INTEREST IS NOT AN A LLOWABLE EXPENDITURE UNDER ANY PROVISION OF THE ACT. IT IS D EFINITELY NOT ALLOWABLE FOR COMPUTING SALARY INCOME OR INCOME FRO M HOUSE PROPERTY. IT CANNOT BE SAID THAT DEDUCTION ON ACCOU NT OF INTEREST EXPENDITURE IS TO BE ALLOWED FOR COMPUTING INCOME FROM CAPITAL GAIN SINCE INCOME ON ACCOUNT OF CAPITA L GAIN IS TAXABLE BECAUSE DEDUCTION ON ACCOUNT OF INTEREST EX PENDITURE IS NOT ALLOWABLE FOR COMPUTING CAPITAL GAIN. FOR CO MPUTING CAPITAL GAIN, DEDUCTION IS ALLOWABLE IN RESPECT OF COST OF ACQUISITION, COST OF IMPROVEMENT AND COST OF TRANSF ER ONLY AND INTEREST DOES NOT FALL IN ANY OF THESE THREE CATEGO RIES. FROM A.Y. 2004 05, IT IS NOT AN ALLOWABLE DEDUCTION U/ S 57 (III) I.E. FOR COMPUTING INCOME FROM OTHER SOURCES ALSO BECAUS E, DEDUCTION IS ALLOWABLE UNDER THIS SECTION FOR THOSE EXPENSES WHICH ARE INCURRED FOR EARNING AN INCOME TAXABLE UN DER THE HEAD INCOME FROM OTHER SOURCES. SINCE NOW DIVIDEND INCOME IS NOT TAXABLE UNDER THIS HEAD, DEDUCTION IS NOT ALLOW ABLE U/S 57 (III). NOW, THE ONLY REMAINING SECTION IS SECTION 3 6 (1) (III) FOR ALLOWABILITY OF INTEREST EXPENDITURE. THIS IS ADMIT TED POSITION THAT THE ASSESSEE IS NOT DEALING IN SHARES AS THE A SSESSEE ITSELF HAS SHOWN IT AS INVESTMENT IN THE BALANCE SHEET. OT HERWISE ALSO, THE ASSESSEE HAS NOT BROUGHT ANYTHING ON RECO RD TO ESTABLISH THAT THIS INVESTMENT IN SHARES IS A BUSIN ESS OF THE ASSESSEE. ONLY CONTENTION OF THE ASSESSEE BEFORE LO WER AUTHORITIES AND BEFORE US IS THAT SINCE THE INVESTM ENT IS IN SHARES OF SISTER CONCERNS ENGAGED IN CONNECTED BUSI NESS, IT IS FOR BUSINESS EXPEDIENCY BUT WE FIND NO MERIT IN THI S CONTENTION. THE DECISION OF LEARNED CIT (A) IS ON T HIS BASIS THAT IT CANNOT BE SAID THAT THE AMOUNTS INVESTED BY :-25- : APPELLANT ARE FOR NON BUSINESS PURPOSE, THOUGH SAME MAY BE INDIRECT BUSINESS CONNECTION. IN OUR CONSIDERED OPINION, THE ORDER OF LEARNED CIT (A) IS NOT SUSTAI NABLE BECAUSE DEDUCTION U/S 36 (1) (III) IS NOT ALLOWABLE ON THE BASIS OF A BUSINESS CONNECTION. DEDUCTION FOR INTEREST U/ S 36 (1) (III) IS ALLOWABLE IN RESPECT OF MONEY BORROWED FOR THE P URPOSES OF THE BUSINESS. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAS FAILED TO ESTABLISH THAT INTEREST IS INCURRED FOR B ORROWINGS FOR BUSINESS PURPOSES. HENCE, WE HAVE NO HESITATION IN HOLDING THAT IN THE FACTS OF THE PRESENT CASE, DEDUCTION ON ACCOUNT OF INTEREST IS NOT ALLOWABLE UNDER ANY PROVISION OF IN COME TAX ACT AND THERE IS NO NEED TO TAKE HELP OF SECTION 14A TO DISALLOW THE INTEREST EXPENDITURE. 41. STILL, WE DEAL WITH THIS CONTENTION THAT NO SUC H DISALLOWANCE U/S 14A IS JUSTIFIED BECAUSE THERE IS NO ACTUAL EARNING OF THE DIVIDEND IN THE PRESENT YEAR. WE FIN D THAT IN THIS REGARD, THE JUDGMENT OF HON'BLE APEX COURT IN THE C ASE OF RAJENDRA PRASAD MOODY (SUPRA) SUPPORTS THE CASE OF THE REVENUE BECAUSE WHILE DECIDING THE ISSUE IN RESPECT OF ALLOWABILITY OF INTEREST EXPENDITURE U/S 57(III), I T WAS HELD BY HON'BLE APEX COURT THAT SECTION 57(III) DOES NOT SU GGEST THAT THE PURPOSE FOR WHICH THE EXPENDITURE IS MADE SHOUL D FRUCTIFY INTO ANY BENEFIT BY WAY OF RETURN IN THE SHAPE OF I NCOME. AS PER THE SAME LOGIC, WHEN THE INTEREST EXPENDITURE I S INCURRED FOR EARNING DIVIDEND INCOME, IT HAS TO BE ACCEPTED THAT THIS INTEREST EXPENDITURE WAS INCURRED IN RELATION TO EA RNING EXEMPT DIVIDEND INCOME AND HENCE, IT IS NOT RELEVANT AS TO WHETHER THERE WAS ACTUAL DIVIDEND INCOME IN THE PRESENT YEA R OR NOT. IN THIS REGARD, WE ARE AWARE THAT THERE ARE TRIBUNA L DECISIONS AS WELL AS THE JUDGMENT OF HON'BLE ALLAHABAD HIGH C OURT ALSO THAT IF THERE IS NO DIVIDEND INCOME ACTUALLY EARNED THEN NO DISALLOWANCE CAN BE MADE U/S 14A BUT IN THESE JUDGM ENTS, THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF RAJENDRA PRASAD MOODY (SUPRA) WAS NOT BROUGHT TO TH E NOTICE :-26- : OF THE TRIBUNAL AND HONBLE HIGH COURT AND HENCE, I T WAS NOT TAKEN NOTE OF. IT WAS ALSO NOT TAKEN NOTE OF THAT EVEN IF IT IS HELD THAT NO DISALLOWANCE IS TO BE MADE U/S 14A OF THE ACT, THEN ALSO, THERE HAS TO BE A POSITIVE FINDING THAT UNDER WHICH SECTION, THIS INTEREST EXPENDITURE IS ALLOWABLE. S INCE DIVIDEND INCOME IS NOT SUBJECT TO TAX AS INCOME FROM OTHER S OURCES FROM ASSESSMENT YEAR 2004-05, IT CANNOT BE SAID THAT INT EREST EXPENDITURE HAS TO BE ALLOWED U/S 57(III) OF THE AC T. THIS IS ALSO NOT A CASE OF THE ASSESSEE THAT INVESTMENT IN SHARES WAS MADE OUT OF BORROWED FUNDS IN COURSE OF DEALING IN SHARES AND THEREFORE, INTEREST EXPENDITURE IS ALLOWABLE U/S 36 (1) (III) OF THE ACT. WE HAVE ALREADY SEEN THAT INTEREST INCOME IS NOT ALLOWABLE WHILE COMPUTING CAPITAL GAIN. HENCE, EVE N IF IT IS HELD THAT SECTION 14A IS NOT TO BE INVOKED FOR MAKI NG DISALLOWANCE IN A YEAR IN WHICH THERE IS NO ACTUAL DIVIDEND INCOME AS WAS HELD BY HONBLE JURISDICTIONAL HIGH C OURT AND HONBLE GUJARAT HIGH COURT, THEN ALSO, IT HAS TO BE SEEN AS TO WHETHER DEDUCTION ON ACCOUNT OF INTEREST EXPENDITUR E IS ALLOWABLE UNDER ANY PROVISION OF THE ACT. SINCE IN THE PRESENT CASE, SUCH DEDUCTION ON ACCOUNT OF INTEREST EXPENDI TURE IS NOT ALLOWABLE U/S 36 (1) (III) OR 57(III) OF THE ACT, T HERE IS NO NEED TO INVOKE THE PROVISIONS OF SECTION 14A OF THE ACT FOR MAKING DISALLOWANCE BECAUSE INVOKING THE PROVISION OF THIS SECTION IS REQUIRED WHERE THE DEDUCTION IS OTHERWISE ALLOWABLE . 42. AS PER ABOVE DISCUSSION, WE FIND THAT THE ORDER OF CIT (A) ON THIS ISSUE IS NOT SUSTAINABLE BECAUSE IT IS NOT AS PER LAW AND FACTS OF THE PRESENT CASE BECAUSE THE DECISION OF CIT (A) IS ON THE BASIS THAT IN HIS OPINION, THE INVESTMENT MA DE BY THE ASSESSEE IN SISTER CONCERN IS IN COURSE OF BUSINESS AS PER BUSINESS EXPEDIENCY BUT WE HAVE ALREADY SEEN THAT M AKING INVESTMENT IN SHARES AS A CAPITAL ASSET CANNOT BE S AID TO BE IN COURSE OF BUSINESS OR FOR BUSINESS EXPEDIENCY. THE SECOND REASONING OF CIT (A) IS THAT THE INVESTMENT HAS BEE N MADE IN THE EARLIER YEAR AT THE TIME WHEN INTEREST FREE FUN DS WERE :-27- : AVAILABLE IN THE HANDS OF THE ASSESSEE. THIS FINDI NG OF CIT (A) IS WITHOUT ANY BASIS BECAUSE AS PER THE COPY OF FUN D FLOW STATEMENT AVAILABLE ON PAGE NO. 11 OF THE PAPER BOO K AND AS PER COPY OF BALANCE SHEET AVAILABLE ON PAGE NO. 12, WE FIND THAT EVEN AT THE END OF THE YEAR ON 31/03/2003 ALSO , THERE WAS DEBIT BALANCE IN THE CAPITAL ACCOUNTS OF THE PARTNE RS. HENCE, EVEN IF THERE WAS PROFIT AT ANY POINT OF TIME, THE SAME WAS WITHDRAWN BY THE PARTNERS AND IN FACT THE WITHDRAWA L WAS MORE THAN THE CONTRIBUTION OF CAPITAL AND PROFIT OF THE FIRM RESULTING INTO DEBIT BALANCE IN PARTNERS CAPITAL A CCOUNTS AND THEREFORE, IT CANNOT BE SAID THAT AT ANY POINT OF T IME, OWN FUND WAS AVAILABLE WITH THE ASSESSEE FIRM FOR MAKING INV ESTMENT IN SHARES. THE FUND IS AVAILABLE WITH THE ASSESSEE OU T OF UNSECURED LOANS AND SUNDRY CREDITORS. THE ASSESSEE IS PAYING INTEREST ON UNSECURED LOAN AND FOR SUNDRY CREDITORS , THE ASSESSEE IS GETTING SUPPLY OF MATERIALS WITHOUT PAY MENT AND THE ASSESSEE DOES NOT GET CASH FROM SUNDRY CREDITOR S FOR MAKING INVESTMENT IN SHARES AND THEREFORE, IT CANNO T BE ACCEPTED THAT THE INVESTMENT WAS MADE OUT OF FUND A VAILABLE IN THE FORM OF SUNDRY CREDITORS. 43. AS PER ABOVE DISCUSSION, WE HAVE SEEN THAT INTE REST EXPENDITURE INCURRED BY THE ASSESSEE BY BORROWING F UNDS FOR MAKING INVESTMENT IN SHARES IS NOT ALLOWABLE FROM A SSESSMENT YEAR 2004-05 BECAUSE THE DIVIDEND INCOME IS NOT TAX ABLE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AND THEREFORE, DEDUCTION IS NOT ALLOWABLE U/S 57(III) O F THE ACT. WE HAVE ALSO SEEN THAT NO DEDUCTION IS ALLOWABLE U/S 3 6 (1) (III) ALSO. HENCE WE REVERSE THE ORDER OF LEARNED CIT (A) AND RESTORE THAT OF THE A.O. REGARDING VARIOUS JUDGMENT S CITED BY THE LEARNED AR OF THE ASSESSEE INCLUDING THE JUDGME NT OF HONBLE APEX COURT RENDERED IN THE CASE OF S. A. BU ILDERS (SUPRA), WE WOULD LIKE TO OBSERVE THAT NO JUDGMENT IS RENDERING ANY HELP TO THE ASSESSEE BECAUSE WE HAVE SEEN THAT DEDUCTION IS NOT ALLOWABLE UNDER ANY PROVISIONS OF ANY SECTION :-28- : OF INCOME TAX ACT. HENCE, THERE IS NO NEED TO DISAL LOW ANY EXPENSES WHICH IS NOT ALLOWABLE. IN FACT, THE ASSE SSEE HAS FAILED TO MAKE OUT A CASE THAT DEDUCTION OF INTERES T EXPENDITURE IS ALLOWABLE UNDER THE PROVISIONS OF AN Y SECTION OF INCOME TAX ACT, 1961. 53. THE SCOPE OF RULED 8D OF THE RULES WAS ALSO EXAMINE D BY US IN THE CASE OF INCOME TAX OFFICER VS. M/S SHRUTI FINSEC PT . LTD. IN I.T.A. NO. 592/LKW/2012, IN WHICH IT HAS BEEN HELD THAT COMPUT ATION AS PER RULE 8D TAKES CARE OF ALL THE DIRECT AND INDIRECT EXPENSES. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE AS UNDER:- 6. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS ADVA NCED BY THE RESPECTIVE PARTIES AND HAVE ALSO CAREFULLY E XAMINED THE ORDERS OF THE LOWER AUTHORITIES AND THE RELEVANT PR OVISIONS OF THE ACT AND RULE. 7. BEFORE COMING TO THE CONTROVERSY INVOLVED IN THI S CASE, WE WOULD LIKE TO PREFER TO EXAMINE THE PROVISIONS O F SECTION 14A OF THE ACT, ACCORDING TO WHICH FOR COMPUTING TH E TOTAL INCOME UNDER CHAPTER-IV, NO DEDUCTION SHALL BE ALLO WED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL IN COME UNDER THIS ACT. IN ORDER TO DETERMINE THE AMOUNT OF EXPE NDITURE INCURRED IN RELATION TO SUCH INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE, THE ASSESSING OFFICER HAS TO FOLLOW THE METHOD PRESCRIBED, IF HE IS NOT SATIS FIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THE METHOD FOR DETERMINING THE AMOUNT OF EXPENDITURE HAS BEEN PRESCRIBED UNDER RULE 8D OF TH E RULES WHICH WAS INTRODUCED W.E.F. 24.3.2008 BY THE INCOME -TAX (5TH AMENDMENT) RULES, 2008 RELEVANT TO THE ASSESSMENT Y EAR 2008-09. FOR THE SAKE OF REFERENCE, WE EXTRACT THE PROVISIONS OF SECTION 14A OF THE ACT AND 8D OF THE RULES AS UN DER:- :-29- : SECTION 14A OF THE ACT: 14A. EXPENDITURE INCURRED IN RELATION TO INCOME NO T INCLUDIBLE IN TOTAL INCOME.FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITUR E INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS A CT. 3(2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOU NT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS A CT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, I F THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNT S OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITUR E IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. 3(3) THE PROVISIONS OF SUB-SECTION (2) SHALL ALSO A PPLY IN RELATION TO A CASE WHERE AN 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. PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHA LL EMPOWER THE ASSESSING OFFICER EITHER TO REASSESS UN DER SECTION 147 OR PASS AN ORDER ENHANCING THE ASSESSME NT OR REDUCING A REFUND ALREADY MADE OR OTHERWISE INCREASING THE LIABILITY OF THE ASSESSEE UNDER SECT ION 154, FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1ST DAY OF APRIL, 2001. RULE 8D OF THE RULES: 8D. METHOD FOR DETERMINING AMOUNT OF EXPENDITURE I N RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME. (1) WHERE THE ASSESSING OFFICER HAVING REGARD TO THE :-30- : ACCOUNTS OF THE ASSESSEE OF THE PREVIOUS YEAR, IS N OT SATISFIED WITH (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MAD E BY THE ASSESSEE ; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDIT URE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, HE SHALL DETERMINE THE AMOUNT OF EXPENDITURE IN RELATI ON TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SU B- RULE (2). (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOE S NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGAT E OF FOLLOWING AMOUNTS, NAMELY: (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME ; (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCO ME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY : B A X--- C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUS E (I) INCURRED DURING THE PREVIOUS YEAR ; B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE-SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR ; :-31- : C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE-SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; (III) AN AMOUNT EQUAL TO ONE-HALF PER CENT. OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPE ARING IN THE BALANCE-SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. 3. FOR THE PURPOSES OF THIS RULE, THE TOTAL ASSETS SHALL MEAN, TOTAL ASSETS AS APPEARING IN THE BALANCE-SHEE T EXCLUDING THE INCREASE ON ACCOUNT OF REVALUATION OF ASSETS BUT INCLUDING THE DECREASE ON ACCOUNT OF REVALUATION OF ASSETS. 8. FROM A BARE READING OF THE AFORESAID PROVISIONS, IT HAS BECOME ABUNDANTLY CLEAR THAT ONCE THE ASSESSING OFF ICER HAS ANY REASON TO DOUBT THE EXPENDITURES AND IS NOT SAT ISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RES PECT OF SUCH EXPENDITURES IN RELATION TO THE INCOME WHICH DOES N OT FORM PART OF THE TOTAL INCOME UNDER THE INCOME-TAX ACT, THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXP ENDITURES SO INCURRED IN ACCORDANCE WITH SUCH METHOD AS MAY B E PRESCRIBED UNDER RULE 8D OF THE RULES. NO OPTION W AS GIVEN TO THE ASSESSING OFFICER TO ADOPT DIFFERENT FORMULA TO COMPUTE THE AMOUNT OF EXPENDITURES INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. ONLY TWO OPTIONS ARE LEFT WITH THE ASSESSING OFFICE R ONE IS TO ACCEPT THE EXPENDITURES CLAIMED BY THE ASSESSEE AND IF HE DISPUTES THE SAME, HE HAS TO COMPUTE THE EXPENDITUR ES BY ADOPTING THE FORMULA LAID DOWN IN RULE 8D OF THE RU LES. 9. TURNING TO THE FACTS OF THE CASE, THE ASSESSEE HAS EARNED THE DIVIDEND INCOME AT RS.68,635/- FOR WHICH IT HAS CLAIMED EXPENDITURES OF ONLY RS.16,544/- OF WHICH D ETAILS WERE :-32- : FURNISHED BEFORE THE ASSESSING OFFICER. APPARENTLY , THE QUANTUM OF EXPENDITURES DOES NOT COMMENSURATE WITH THE EXEMPTED INCOME CLAIMED BY THE ASSESSEE. THEREFORE , THE ASSESSING OFFICER HAS EVERY REASON TO DOUBT THE COR RECTNESS OF THE EXPENDITURES CLAIMED BY THE ASSESSEE FOR EARNIN G THE EXEMPTED INCOME OF RS.17,68,735/-. THEREFORE, WE A RE OF THE VIEW THAT THE ASSESSING OFFICER HAS TO RE-COMPUTE T HE EXPENDITURES RELATING TO THE DIVIDEND INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THIS ACT AND FOR CO MPUTING THE EXPENDITURES, THE ASSESSING OFFICER HAS NO OTHER OP TION BUT TO ADOPT THE FORMULA LAID DOWN UNDER RULE 8D OF THE RU LES AND HE DID THE SAME. BUT FROM THE CALCULATION, WE FIND TH AT THE ASSESSING OFFICER HAS NOT DETERMINED THE AMOUNT OF EXPENDITURES DIRECTLY RELATED TO THE INCOME WHICH D OES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE AS PE R SUB-RULE (2) (I) OF RULE 8D. IT IS ALSO NOT CLEAR WHETHER T HE ASSESSING OFFICER HAS MADE ANY VERIFICATION WITH REGARD TO TH E AMOUNT OF EXPENDITURES DIRECTLY RELATING TO THE INVESTMENT MA DE IN EARNING DIVIDEND INCOME. THE OTHER DEFECT WE FIND IN THE CALCULATION IS THAT AS PER DEFINITION (C) OF RULE 8 D, THE AVERAGE OF THE TOTAL AS APPEARING IN THE BALANCE SHEET OF T HE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS Y EAR IS TO BE TAKEN, BUT THE ASSESSING OFFICER HAS TAKEN THE AVER AGE OF INVESTMENT OF THE ASSESSEE-COMPANY AS PER BALANCE S HEET AS ON 31.3.2008 AND 31.3.2009. THE MINOR MISTAKES ARE NOTED IN THE CALCULATION OF THE ASSESSING OFFICER FOLLOWING THE METHOD OF RULE 8D. WE, HOWEVER, DO NOT AGREE WITH THE ORDER O F THE LD. CIT(A) RESTRICTING THE DISALLOWANCE TO THE EXTENT O F RS.16,544/- EVEN WITHOUT ASSIGNING ANY REASON AND IN FEW LINES HE ACCEPTED THE CLAIM OF THE ASSESSEE. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A), BUT SO FAR AS CALCULAT ION OF DISALLOWANCE OF EXPENDITURES ARE CONCERNED, WE REST ORE THE MATTER TO THE ASSESSING OFFICER WITH A DIRECTION TO RE-VERIFY THE CALCULATION OF DISALLOWANCE OF EXPENDITURES AS PER RULE 8D. :-33- : ACCORDINGLY, THE APPEAL OF THE REVENUE IS ALLOWED F OR STATISTICAL PURPOSES. 54. IN THE LIGHT OF THE AFORESAID JUDGMENTS, WE ARE OF THE VIEW THAT THE PROVISIONS OF SECTION 14A OF THE ACT ARE TO BE INVO KED IN THE IMPUGNED ASSESSMENT YEAR AND THE DISALLOWANCE OF EXPENDITURE S ARE TO BE COMPUTED IN ACCORDANCE WITH RULE 8D OF THE RULES. WHILE COM PUTING THE DISALLOWANCE UNDER RULE 8D OF THE RULES, IT IS NECESSARY TO EXAM INE WHETHER THE INVESTMENT WAS MADE OUT OF BORROWED FUNDS OR PERSON AL FUNDS OF THE ASSESSEE. IN THE INSTANT CASE, IT IS AN ADMITTED F ACT THAT THE ASSESSEE HAS MADE INVESTMENT DURING THE ASSESSMENT YEAR 2005-06 AND ASSESSEE HAS CLAIMED THAT THE INVESTMENT WAS MADE OUT OF PERSONA L FUNDS OF THE ASSESSEE. THE REVENUE HAS DISPUTED THESE FACTS AND THE MATTER HAS GONE BEFORE THE LD. CIT(A) AND THE LD. CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT MAJOR ADVANCE OF RS.2,12,18,417/- HAS BEEN MADE TO M/S G.R. MAINTENANCE & SERVICES PVT. LTD. TOWARDS SHARE CAPI TAL, WHICH STANDS ALLOTTED TO THE ASSESSEE IN FINANCIAL YEAR 2007-08. THIS ORDER OF THE LD. CIT(A) HAS NOT BEEN CHALLENGED BY THE REVENUE, THER EFORE, IT ATTAINED FINALITY. FOR THE SAKE OF REFERENCE, WE EXTRACT TH E RELEVANT PORTION OF THE ORDER OF THE LD. CIT(A) AS UNDER:- 6.3.1 I HAVE CAREFULLY CONSIDERED THE DETAILED SUB MISSIONS MADE BY THE ID. AR AND ALSO PERUSED THE MATERIAL IN THE FORM OF ANALYSIS OF VARIOUS ADVANCES MADE DURING THE YEAR AMOUNTING TO RS. 2,70,38,236/-. I HAVE TAKEN NOTE OF THE FACT THAT T HE ABOVE ADVANCES HAVE BEEN MADE TO VARIOUS PARTIES IN THE M ANNER AS DETAILED IN PARA 6.1 HEREIN ABOVE.. THIS DEMONSTRAT E THAT THE MAJOR ADVANCE OF RS. 2,12,18,417/- HAS BEEN MADE TO M/S. G.R. MAINTENANCE AND SERVICES PVT. LTD, TOWARDS SHARE CA PITAL, WHICH STANDS ALLOTTED TO THE APPELLANT IN THE F.Y. 2007-0 8. SOME OTHER INTEREST FREE 'ADVANCES' HAVE BEEN AGAINST THE CRED IT CARD :-34- : PAYMENT TO AEB LTD. (RS. 92,501) UNMATERIALISED LAN D DEALS ( RS. 10 LACS, RS. 2.5 LACS, RS. 2 LACS & RS. 2 LACS TO A SHA GARG, ASHOK PATHAK, MOHAN KAPOOR AND SONIA SHETTI), ADVANCE MAD E AND RECEIVED BACK TO SHRI R.K. ALMAL AND S.K. ALMAL ( R S. 62,400/- EACH), ADVANCE MADE FOR SUPPLY OF MATERIAL OR BUSIN ESS TRANSACTION ( RS. 8 LACS TO COUNTRY POWER MANAGEMENT CO. PVT. L TD., AND UNIQUE CONSTRUCTION ), AND REFUND OF FLAT BOOKING A MOUNT (RS.5,65,082/- AND RS. 22,33,830/- IN THE CASES OF VICTORY GLASS INDUSTRIES AND SHRI BHARAT HALWASIA). THE ABOVE MAK ES IT APPARENT THAT THE OUTSTANDING BALANCES IN THE CASE OF 9 PART IES OUT OF 13 PARTIES ARE ON ACCOUNT OF BUSINESS TRANSACTION WHER EAS IN THE CASE ANOTHER TWO PARTIES IT APPEARS AS AN ADVANCE DUE TO INSUFFICIENT CREDIT BALANCE IN THE BOOKS OF ACCOUNTS OF THE APPE LLANT COMPANY. IT IS ALSO SEEN THAT THESE CREDIT BALANCES ALSO PER TAIN TO ADVANCES AGAINST FLAT, FOR WHICH, NO INTEREST HAS BEEN PAID ,TO THEM. AS ALREADY OBSERVED ABOVE, THE LARGEST ADVANCE MADE TO M/S. G.R. MAINTENANCE AND SERVICE PVT. LTD. IS ON ACCOUNT OF SUBSCRIPTION IN THE SHARE CAPITAL, WHICH WAS ALLOTTED TO THE APPELL ANT IN THE F.Y. 2007-08, AND IS ACCORDINGLY IN THE NATURE OF BUSINE SS TRANSACTION FOR COMMERCIAL EXPEDIENCY. 6.3.2. I HAVE ALSO GONE THROUGH THE DETAILED CHART (AS PER ANNEXURE-B) OF THE SUBMISSIONS DATED 22.1.2010. ON THE BASIS OF THIS ANALYSIS, IT HAS BEEN EXPLAINED TO ME THAT THE ABOVE MENTIONED ADVANCES HAVE BEEN MADE OUT OF THE OWN FU NDS AVAILABLE TO THE APPELLANT COMPANY, ALL FUNDS RECEI PTS FREE OF INTEREST FROM PERSONS BOOKING FLATS WITH THE APPELL ANT COMPANY, OR INTEREST FREE ADVANCE RECEIVED FROM CERTAIN BUSINES S ASSOCIATES OR OUT OF THE ADVANCE/SALE PROCEED OF THE APPELLANT CO MPANY. THE APPELLANT HAS ALSO PLACED ON RECORD THE COPIES OF R ELEVANT BANK ACCOUNT FOR EXHIBITING THE SOURCES OF VARIOUS ADVAN CES, IN SUPPORT OF THE ANALYSIS AS CONTAINED IN THE ABOVE SAID ANNE XURE-B. ON A CLOSER LOOK INTO THE SUBMISSIONS OF THE ID. AR I FI ND THAT THERE IS MERIT IN THE CLAIM THAT THE ADVANCES IN QUESTION HA VE COME OUT OF THE INTEREST-FREE SOURCES AVAILABLE WITH THE APPELL ANT COMPANY ON :-35- : THE RELEVANT DATES ON WHICH INTEREST FREE ADVANCES HAVE BEEN MADE TO VARIOUS PARTIES. AS AN ILLUSTRATION, THE AD VANCE OF RS. 40 LACS AND RS. 30 LACS TO M/S. G.R. MAINTENANCE & SER VICES PVT. LTD. ON 28.5.2004 AND 7.6.2004 HAVE BEEN MADE OUT OF THE RECEIPT OF RS. 70 LACS FROM SHRI BHARAT HALWASIA ON 24.5.2004 AS INTEREST-FREE ADVANCE AGAINST THE BOOKING OF FLAT, WHICH IS ALSO REFLECTED IN THE FINANCIAL STATEMENT. 55. THE SHARES WERE ALLOTTED TO THE ASSESSEE DURING THE FINANCIAL YEAR 2007-08 RELEVANT TO THE ASSESSMENT YEAR 2008-09. O NCE IT IS HELD IN ASSESSMENT YEAR 2005-06 THAT THE INVESTMENT IN SHAR ES WERE MADE OUT OF OWN FUNDS AVAILABLE WITH THE ASSESSEE-COMPANY, THE SAME INVESTMENT CANNOT BE CONSIDERED TO BE OUT OF BORROWED FUNDS IN SUCCEEDING YEAR. WE HAVE ALSO CAREFULLY EXAMINED THE CALCULATION MADE B Y THE ASSESSING OFFICER AS PER RULE 8D OF THE RULES AND WE FIND THAT THE AS SESSING OFFICER HAS TREATED THE INVESTMENT OUT OF MIXED FUNDS AND HE HA S COMPUTED THE DISALLOWANCE BY APPLYING THE FORMULA GIVEN IN RULE SUB-RULE (2) CLAUSE (3) OF RULE 8D OF THE RULES; WHEREAS NO DISALLOWANCE CAN B E MADE WHERE IT IS ESTABLISHED THAT THE INVESTMENT IN SHARES ARE MADE OUT OF OWN FUNDS AVAILABLE WITH THE ASSESSEE. IN THE INSTANT CASE, IT HAS BEEN ESTABLISHED THAT THE INVESTMENT IN SHARES WERE MADE BY THE ASSE SSEE OUT OF OWN FUNDS AVAILABLE WITH IT. THEREFORE, NO DISALLOWANCE CAN BE MADE ON ACCOUNT OF EXPENDITURE INCURRED BY WAY OF INTEREST DURING THE PREVIOUS YEAR. WHATEVER DISALLOWANCES ARE TO BE MADE THAT CAN ONLY BE MADE AS PER CLAUSE (3) OF SUB-RULE(2) OF RULE 8D OF THE RULES. WE, THEREFORE, SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSIN G OFFICER TO RE-COMPUTE THE DISALLOWANCE AS PER CLAUSE (3) OF SUB-RULE(2) O F RULE 8D OF THE RULES. I.T.A. NO. 81/LKW/2013: 56. THROUGH THIS APPEAL, THE ASSESSEE HAS ASSAILED THE ORDER OF THE LD. CIT(A) ON THE FOLLOWING GROUNDS:- :-36- : 1. THE LD. C.I.T (A)-I, LKO, ERRED ON FACTS AND IN LAW IN HOLDING INFRASTRUCTURE CHARGES RS.23,77571-00 AS INCOME FRO M OTHER SOURCES, INSTEAD OF INCOME UNDER THE HEAD HOUSE PRO PERTY, AS SHOWN BY THE APPELLANT. 1.1 THE LD. C.I.T. (APPEALS)-I, DID NOT APPRECIATED THAT 'INFRASTRUCTURE FACILITIES' INSTALLED IN THE PROPER TY LET OUT AND IS AN INTEGRAL PART OF PROPERTY. THUS THE RENT RECEIVE D ON IT HAS BEEN CORRECTLY SHOWN AS 'RENTAL INCOME'. 2. THE LD. C.I.T. (APPEALS) ERRED ON FACTS AND IN L AW IN CONFIRMING THE ADDITION OF RS.16,31,126-00 U/S 14A OF I. T. ACT 1961 WHICH IS NOT APPLICABLE IN THE PRESENT SETS OF FACTS AND CIRCUMSTANCES. 3. THE ADDITIONS UPHELD ARE HIGHLY EXCESSIVE, CONTR ARY TO THE FACTS, LAW AND PRINCIPLE OF NATURAL JUSTICE WITHOUT PROVIDING SUFFICIENT OPPORTUNITY TO HAVE ITS SAY ON THE REASO NS RELIED UPON BY HIM. 57. GROUND NO.1 RELATES TO THE NATURE OF RECEIPT RE CEIVED ON ACCOUNT OF INFRASTRUCTURE FACILITY AND THIS ISSUE HAS ALREADY BEEN ADJUDICATED BY US IN THE FOREGOING APPEAL, IN WHICH IT HAS BEEN HELD THA T IT IS A PART OF RENTAL INCOME AND TO BE ASSESSED AS INCOME FROM HOUSE PROP ERTY. FOLLOWING THE VIEW TAKEN IN THE FOREGOING APPEALS, WE HOLD THAT R ECEIPTS ON ACCOUNT OF INFRASTRUCTURE FACILITY IS A RENTAL INCOME AND IS T O BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 58. GROUND NO.2 RELATES TO THE DISALLOWANCE MADE UN DER SECTION 14A OF THE ACT. THIS ISSUE HAS ALREADY BEEN EXAMINED BY U S IN THE FOREGOING PARAS, IN WHICH IT HAS BEEN HELD THAT PROVISIONS OF SECTION 14A OF THE ACT AND RULE 8D OF THE RULES ARE APPLICABLE IN THE IMPU GNED ASSESSMENT YEAR. HOWEVER, THE DISALLOWANCE CALCULATED BY THE ASSESSI NG OFFICER AS PER RULE :-37- : 8D OF THE RULES WAS NOT FOUND TO BE CORRECT. IT HA S BEEN HELD IN THE FOREGOING PARAS THAT INVESTMENT IN SHARES WERE MADE OUT OF OWN FUNDS OF THE ASSESSEE, THEREFORE, DISALLOWANCE IS TO BE COMP UTED AS PER CLAUSE (3) OF SUB-RULE (2) OF RULE 8D OF THE RULES ONLY. ACCORDI NGLY, FOLLOWING THE OBSERVATIONS IN THE FOREGOING PARAS, WE SET ASIDE T HE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE AS SESSING OFFICER WITH A DIRECTION RE-COMPUTE THE DISALLOWANCE AS PER CLAUSE (3) OF SUB-RULE(2) OF RULE 8D OF THE RULES. I.T.A. NO. 62/LKW/2014: 59. THROUGH THIS APPEAL, THE ASSESSEE HAS ASSAILED THE ORDER OF THE LD. CIT(A) ON THE FOLLOWING GROUNDS:- 1. THE LD. C. I. T. (A)-I, LKO, ERRED ON FACTS AND IN LAW IN HOLDING INFRASTRUCTURE CHARGES RS.7,87,155-00 AS INCOME FRO M OTHER SOURCES, INSTEAD OF INCOME UNDER THE HEAD HOUSE PRO PERTY, AS SHOWN BY THE APPELLANT. 1.1 THE LD. C. I. T. (APPEALS)-L, DID NOT APPRECIAT E THAT 'INFRASTRUCTURE FACILITIES' INSTALLED IN THE PROPERTY LET OUT AND I S AN INTEGRAL PART OF PROPERTY. THUS THE RENT RECEIVED ON IT HAS BEEN COR RECTLY SHOWN AS 'RENTAL INCOME'. 2. THE LD. C. I. T. (APPEALS) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS.15,07,703-00 U/S 14A OF I. T. AC T 1961 WHICH IS NOT APPLICABLE IN THE PRESENT SETS OF FACTS AND CIR CUMSTANCES. 4. THE ADDITIONS UPHELD ARE HIGHLY EXCESSIVE, CONTR ARY TO THE FACTS, LAW AND PRINCIPLE OF NATURAL JUSTICE WITHOUT PROVID ING SUFFICIENT OPPORTUNITY TO HAVE ITS SAY ON THE REASONS RELIED U PON BY HIM. 60. GROUND NO.1 RELATES TO THE NATURE OF RECEIPT RE CEIVED ON ACCOUNT OF INFRASTRUCTURE FACILITY AND THIS ISSUE HAS ALREADY BEEN ADJUDICATED BY US IN :-38- : THE FOREGOING APPEAL, IN WHICH IT HAS BEEN HELD THA T IT IS A PART OF RENTAL INCOME AND TO BE ASSESSED AS INCOME FROM HOUSE PROP ERTY. FOLLOWING THE VIEW TAKEN IN THE FOREGOING APPEALS, WE HOLD THAT R ECEIPTS ON ACCOUNT OF INFRASTRUCTURE FACILITY AS RENTAL INCOME AND IS TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 61. GROUND NO.2 RELATES TO THE DISALLOWANCE MADE UN DER SECTION 14A OF THE ACT. THIS ISSUE HAS ALREADY BEEN EXAMINED BY U S IN THE FOREGOING PARAS, IN WHICH IT HAS BEEN HELD THAT PROVISIONS OF SECTION 14A OF THE ACT AND RULE 8D OF THE RULES ARE APPLICABLE IN THE IMPU GNED ASSESSMENT YEAR. HOWEVER, THE DISALLOWANCE CALCULATED BY THE ASSESSI NG OFFICER AS PER RULE 8D OF THE RULES WAS NOT FOUND TO BE CORRECT. IT HA S BEEN HELD IN THE FOREGOING PARAS THAT INVESTMENT IN SHARES WERE MADE OUT OF OWN FUNDS OF THE ASSESSEE, THEREFORE, DISALLOWANCE IS TO BE COMP UTED AS PER CLAUSE (3) OF SUB-RULE (2) OF RULE 8D OF THE RULES ONLY. ACCORDI NGLY, FOLLOWING THE OBSERVATIONS IN THE FOREGOING PARAS, WE SET ASIDE T HE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE AS SESSING OFFICER WITH A DIRECTION RE-COMPUTE THE DISALLOWANCE AS PER CLAUSE (3) OF SUB-RULE(2) OF RULE 8D OF THE RULES. 62. IN THE RESULT, APPEALS OF THE ASSESSEE IN I.T.A . NO. 275/LKW/2010 AND 24/LKW/2014 ARE PARTLY ALLOWED; I.T.A. NO.62/LK W/2013; I.T.A. NO. 81,LKW/2013 AND I.T.A. NO. 588/LKW/2012 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DAT E MENTIONED ON THE CAPTIONED PAGE. SD/ - SD/ - [ A. K. GARODIA ] [ S UNIL KUMAR Y ADAV ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31 ST MARCH, 2015 JJ:181903 :-39- : COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR