The ITO, Ward-3(1)(1), Ahmedabad V. M/s. Nirma Credit & Capital Pvt. Ltd., Ahmedabad

ITA 2830/AHD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8212 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 27-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: HEMANSHU C SHAH A R
• Keywords: Earning of tax free income; Question of law
• Section: 14A; 115JB

Judgement Text

, LH LHLH LH IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD OLHE VGEN] YS[KK LNL; OLHE VGEN] YS[KK LNL; OLHE VGEN] YS[KK LNL; OLHE VGEN] YS[KK LNL; , BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ I.T.A. NO.2830/AHD/2016 ( / ASSESSMENT YEAR : 2013-14) INCOME TAX OFFICER, WARD 3(1)(1), AHMEDABAD. / VS. M/S. NIRMA CREDIT & CAPITAL PVT. LTD., NIRMA HOUSE, ASHRAM ROAD, AHMEDABAD. ./ ./ PAN/GIR NO. : AAACN 5351 J ( / APPELLANT ) .. ( !' / RESPONDENT ) # / APPELLANT BY : SHRI PRASOON KABRA, SR. D.R. !' $ # / RESPONDENT BY : SHRI HEMANSHU C. SHAH, A.R. % &' $ () / DATE OF HEARING 30/05/2018 *+,- $ () / DATE OF PRONOUNCEMENT 08/06/2018 . / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE APPELLATE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-9, AHMEDABAD [CIT(A) IN SHORT] VIDE APPEAL NO.CIT(A)- 9/397/ITO WD.3(1)(1)/15-16 DATED 03/08/2016 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) OF THE INCOME TAX ACT, 1961 (HERE-IN-AFTER REFERRED TO AS 'THE ACT') DATED 29/01/2016 RELEVAN T TO ASSESSMENT YEAR (AY) 2013-14. ITA NO.2830/AHD/2016 ITO VS. M/S. NIRM A CREDIT AND CAPITAL PVT. LTD. ASST.YEAR 2013-14 - 2 - 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS UNDER:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.41,57,789/- MADE ON ACCOUNT OF DISAL LOWANCE U/S. 14A OF THE ACT. 2. THE LD. CIT(A) HAS FURTHER ERRED IN LAW AND IN N OT APPRECIATING THE FACT THAT THE ASSESSEE COULD NOT ESTABLISH THAT THE INVESTMENT IN ASSETS YIELDING EXEMPT INCOME WAS CLEARLY MADE O UT OF INTEREST FREE FUNDS AVAILABLE. 3. THE LD. CIT(A) HAS ERRED IN LAW AND IN DELETING THE ADDITION OF RS.41,57,789/- MADE IN BOOK PROFIT ON ACCOUNT OF DI SALLOWANCE U/S.14A OF THE ACT FOR MAT PURPOSES. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 5. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE L D. CIT(A) MAY BE SET ASIDE AND THAT OF THE AO BE RESTORED. 3. THE FIRST ISSUE RAISED BY THE REVENUE IN GROUND NO.1 AND 2 IS THAT LEARNED CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 41,57,789/- UNDER THE PROVISION OF SECTION 14A R.W. R. 8D OF INCOME TAX RULE. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY, REGISTERED WITH RBI AS NBFC AND ENGAGED IN THE TRADING ACTIVITY OF SHARES AND SECURITIES. THE ASSESSEE DUR ING THE YEAR HAS DECLARED DIVIDEND INCOME OF RS. 1,13,392/- ONLY, WH ICH WAS CLAIMED AS EXEMPTED INCOME U/S 10(34) OF THE ACT. THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS SUBMITTED THAT A DIVIDEND IN COME OF RS.375/- OUT OF TOTAL DIVIDEND INCOME OF RS.1,13,392/- IS CHARGE ABLE TO TAX, WHICH WAS OFFERED TO TAX IN THE INCOME TAX RETURN. ITA NO.2830/AHD/2016 ITO VS. M/S. NIRM A CREDIT AND CAPITAL PVT. LTD. ASST.YEAR 2013-14 - 3 - THE ASSESSEE ALSO CLAIMED THAT IT HAD OWNED SUFFICI ENT FUND AMOUNTING TO RS.50,74,76,015/- AS ON 31-03-2013 WHEREAS, THE ASS ESSEE HAS SHOWN INVESTMENT FOR RS.5,91,73,404/- AS ON 31-03-2013 IN ITS BALANCE SHEET. THEREFORE, IT IS CLEAR THAT NO BORROWED FUND HAS BE EN INVESTED IN THE INVESTMENT AS SHOWN BY IT. THUS, THE QUESTION OF DI SALLOWING THE INTEREST EXPENSES DOES NOT ARISE. SIMILARLY, THE ASSESSEE ALSO CLAIMED THAT IT HAD SH OWN INTERESTS EXPENSE OF RS.5,06,58,597/- ON THE LOANS AND DEPOSITS TAKEN FROM THE PARTIES, WHEREAS IT HAS EARNED INTEREST INCOME OF RS.12,76,0 2,705/- ON LOANS AND DEPOSITS GRANTED BY IT. THUS, THERE IS A NET INTERE ST INCOME OF RS.7,69,44,108/- ONLY. THEREFORE, THERE IS NO QUEST ION OF MAKING DISALLOWANCE OF INTEREST EXPENSES UNDER THE PROVISI ONS OF SECTION 14A OF THE ACT R.W.R. 8D OF INCOME TAX RULE 1963. THE ASSESSEE ALSO CLAIMED THAT THERE WAS NO INDIREC T EXPENSE INCURRED BY IT IN RELATION TO SUCH DIVIDEND INCOME AS THE DIVID END WAS DIRECTLY CREDITED TO THE BANK ACCOUNT. IN THE CASE WHERE THE COMPANY ISSUED THE DIVIDEND WARRANTS THEN THE SAME WAS DEPOSITED IN TH E BANK ACCOUNT OF THE ASSESSEE. THE ASSESSEE ALSO CLAIMED THAT IT HAD INCURRED INDI RECT EXPENSES FOR RS.6,14,64,433/- EXCLUDING THE AMOUNT OF INTEREST E XPENSE AND AGAINST SUCH EXPENSE, A DISALLOWANCE AGGREGATING TO RS.5,28 ,73,291/- WAS MADE IN THE INCOME TAX RETURN. THUS, THE BALANCE EXPENSE S OF RS.85,91,142/- ITA NO.2830/AHD/2016 ITO VS. M/S. NIRM A CREDIT AND CAPITAL PVT. LTD. ASST.YEAR 2013-14 - 4 - (6,14,64,433 - 5,28,73,291) CLAIMED AS DEDUCTIBLE E XPENDITURE IN ITS INCOME TAX RETURN. HOWEVER, THE AO DISREGARDED THE CONTENTION OF THE A SSESSEE BY OBSERVING AS UNDER: I. THE CONTENTIONS RAISED BY THE ASSESSEE ARE GENERAL AND DEVOID OF ANY SUBSTANCE. II. THERE WAS A FRESH INVESTMENT OF THE PREFERENCE SHAR ES IN NIRMA LTD., AND SIMILARLY, THE SHARES OF SAURASHTRA CHEMICALS LTD. WERE LIQUIDATED DURING THE YEAR. THE REFORE, IN THE PROCESS OF PURCHASE AND SALE OF SHARES, SOME EFFORTS OF THE MANAGEMENT MUST BE INVOLVED. THEREFORE, THE ARG UMENT OF THE ASSESSEE THAT THE DIVIDEND INCOME WAS DIRECT LY CREDITED TO THE BANK ACCOUNT WITHOUT INVOLVING ANY EXPENDITURE IS NOT TENABLE. III. THE ASSESSEE IN ITS INCOME TAX RETURN HAS CLAIMED E XPENSES UNDER THE HEAD SALARY, WAGES AND BONUS AMOUNTING TO RS.3,91,669/-, STATUTORY AUDIT FEE RS.56,180/- AND OTHER EXPENSES OF RS.67,664/- ONLY. THEREFORE, THE DISALL OWANCE U/S 14A R.W.R. 8D REQUIRES TO BE MADE. IV. THE SHARE CAPITAL, RESERVE AND SURPLUS AS SHOWN BY THE ASSESSEE IN ITS BALANCE SHEET HAS BEEN ALLOCATED TO ITS BUSINESS ACTIVITIES AS DETAILED UNDER: OTHER TANGIBLE ASSETS RS. 52,52,174/- CASH AND CASH EQUIVALENTS RS. 15,72,044/- LONG TERM LOANS AND ADVANCES RS.86,82,33,910/- ITA NO.2830/AHD/2016 ITO VS. M/S. NIRM A CREDIT AND CAPITAL PVT. LTD. ASST.YEAR 2013-14 - 5 - DIFFERED TAX ASSETS RS. 5,85,03,474/- TOTAL RS.93,35,61,602/- THEREFORE, IT CANNOT BE CONCLUDED THAT THE ASSESSEE HAS NOT INVESTED ANY MONEY IN THE IMPUGNED INVESTMENT OUT O F THE BORROWED FUND. THE ENTIRE CAPITAL OF THE ASSESSEE I NCLUDING BORROWED FUND FORM PART OF A COMMON KITTY AND MIXED FUND. THEREFORE, IT IS NOT POSSIBLE TO ALLOCATE THE FUND WHETHER BORROWED OR OWN FUNDS USED FOR INVESTMENT. THEREFOR E, THE PROVISION OF RULE 8D FOR THE PURPOSE OF DISALLOWANC E COMES INTO OPERATION. V. THE ASSESSEE HAS NOT BROUGHT ANYTHING ON RECORD SUGGESTING THAT THE BORROWED FUND WAS NOT USED FOR INVESTMENT. VI. THE ASSESSEE HAS NOT MAINTAINED SEPARATE BOOKS OF ACCOUNTS FOR ITS INVESTMENT ACTIVITIES AND THEREFORE, HE FAI LED TO ESTABLISH A CORRELATION BETWEEN THE FUNDS AVAILABLE AND DEPLOYMENT OF THE FUND. GIVEN ABOVE, THE AO INVOKED THE PROVISIONS OF SECTI ON 14A R.W.R. 8D OF THE INCOME TAX RULE AND MADE THE DISALLOWANCE AS UN DER: SR. NO. PARTICULARS AMOUNT 1. DIRECT EXPENSES NIL 2. INTEREST EXPENSES 37,37,600/- 3. ADMINISTRATIVE EXPENSES 4,20,189/- TOTAL 41,57,789/- ITA NO.2830/AHD/2016 ITO VS. M/S. NIRM A CREDIT AND CAPITAL PVT. LTD. ASST.YEAR 2013-14 - 6 - THUS, THE AO DISALLOWED THE SUM OF RS.41,57,789/- U /S 14A R.W.R. 8D AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LEARN ED CIT(A). THE ASSESSEE BEFORE THE LEARNED CIT(A) SUBMITTED THAT T HE INVESTMENT IN NONCONVERTIBLE PREFERENCE SHARES OF NIRMA LTD. WAS MADE DURING THE YEAR OUT OF SALE PROCEEDS OF JMFARC SHREE RAMA TRUST. THEREFORE, IT IS CONCLUDED THAT THE ASSESSEE HAS USED NO BORROWED FU ND DURING THE YEAR FOR THE ACQUISITION OF PREFERENCE SHARES OF NIRMA L TD. THE ASSESSEE ALSO SUBMITTED THAT OWN FUNDS INCLUDIN G RESERVE AND SURPLUS EXCEEDS THE AMOUNT OF INVESTMENT AS SHOWN IN ITS BA LANCE SHEET AS ON 31- 03-2013. THE AMOUNT OF DIVIDEND WAS DIRECTLY RECEIVED BY IT IN THE BANK ACCOUNT AND THEREFORE, NO COST WAS INCURRED ON THE EARNING OF SUCH DIVIDEND INCOME. THE LEARNED CIT(A) AFTER CONSIDERING THE SU BMISSION OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO BY OBS ERVING AS UNDER: 6.2 I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS, CASE LAW RELIED UPON AND THE OBSERVATIONS MADE BY THE A.O. IN THE O RDER. THE A.O HAS MADE AN ADDITION OF RS.41,57,789/- ON ACCOUNT OF DI SALLOWANCE U/S.14A R.W. RULE 8D OF THE I. T. RULES. APPELLANT COMPANY SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION IT ACQUIRED NON CONVER TIBLE PREFERENCE SHARES OF NIRMA LIMITED WHICH WERE ACQUIRED OUT OF THE SALE PROCEEDS ON SALE OF SECURITY OF JMFARC - SHREE RAMA TRUST SE RIES 1. APPELLANT SUBMITTED THAT IT DID NOT INCUR ANY EXPENSE FOR ACQ UISITION OF THESE SHARES. APPELLANT ALSO SUBMITTED THAT IT DID NOT IN CUR OTHER EXPENSES TO EARN INCOME WHICH IS TAX FREE. OUT OF DIVIDEND INCO ME OF RS 1,13,392/-, RS.375/- WAS OFFERED FOR TAXATION AND FOR BALANCE D IVIDEND OF ITA NO.2830/AHD/2016 ITO VS. M/S. NIRM A CREDIT AND CAPITAL PVT. LTD. ASST.YEAR 2013-14 - 7 - RS.1,13,017/- RECEIVED ON EQUITY SHARES OF COMPANIE S, THE SAME WAS EITHER DIRECTLY CREDITED TO BANK ACCOUNT OR DIVIDEN D WARRANTS WERE ISSUED WHICH WERE DEPOSITED IN BANK. DURING THE ASS ESSMENT PROCEEDINGS AS WELL AS APPELLATE PROCEEDINGS THE AP PELLANT HAD SUBMITTED THAT IT HAD SHARE CAPITAL AND RESERVES OF RS. 50.90 CRORES AS ON 31/3/2013. FURTHER, THE APPELLANT HAS ALSO RELIE D ON VARIOUS JUDGMENTS DISCUSSING THE AVAILABILITY OF NON-INTERE ST BEARING FUNDS AND DISALLOWANCE U/S.14A OF THE ACT. IT IS A MATTER OF FACT THAT THE APPELLANT HAD THE SHARE CAPITAL AND RESERVES AMOUNTING TO RS. 50.90 CRORES AGAINST THE INVESTMENT OF RS.5.70 CRORES WHICH IS S UBSTANTIALLY HIGHER THAN THE INVESTMENT. IT IS SEEN FROM THIS EXPLANATI ON THAT THESE INVESTMENTS HAVE NOT BEEN MADE OUT OF ANY BORROWED FUNDS. THE APPELLANT HAS PLACED ITS RELIANCE ON THE JUDGMENT O F JURISDICTIONAL HIGH COURT IN THE CASE OF UTI BANK LTD. 32 TAXMAN.COM 37 0 (GUJ.) AND CIT VS SUZLON ENERGY LTD. 354 ITR 630 (GUJ). IN BOTH TH E CASES IT HAS BEEN HELD THAT WHERE THE ASSESSEE HAS SUFFICIENT INTERES T FREE FUNDS TO MEET ITS TAX FREE INVESTMENT YIELDING EXEMPT INCOME THEN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE MADE FROM INTEREST FREE FUNDS AND NOT LOANED FUNDS AS WELL AS THERE EXIST NO DIRECT NEXUS BETWEEN INTE REST BEARING BORROWED FUNDS AND SUCH INVESTMENTS. THEREFORE, NO DISALLOWA NCE U/S.14A IS WARRANTED. THE APPELLANT HAS ALSO RELIED UPON VARIO US OTHER CASE LAWS AS MENTIONED IN THE SUBMISSION OF THE APPELLANT. I AGREE WITH THE PRINCIPLES LAID DOWN IN THE CASE LAW OF UTI BANK LT D. AND SUZLON ENERGY LTD(SUPRA) AND VARIOUS OTHER JUDGMENTS OF JU RISDICTIONAL COURT. CONSIDERING THE AVAILABILITY OF NON-INTEREST BEARIN G FUNDS IN THE HANDS OF THE APPELLANT FOR MAKING INVESTMENTS AND EARNING EXEMPT INCOME, I AM OF THE CONSIDERED OPINION THAT NO DISALLOWANCE U NDER SUB-SECTION 14A IS WARRANTED IN THIS CASE. ACCORDINGLY, THE AO IS DIRECTED TO DELETE THE DISALLOWANCE OF RS.41,57,789/- MADE U/S. 14A OF THE ACT. THUS, THIS GROUND OF APPEAL IS DISMISSED. BEING AGGRIEVED BY ORDER OF LEARNED CIT(A) REVENUE IS IN THE SECOND APPEAL BEFORE US. BOTH LEARNED DR AND AR RELIED ON THE ORDER OF AUTHORITIES BELOW AS FAVORABLE TO THEM. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE FACTS OF THE CASE ARE NOT IN DISPUTE WHICH HAS ITA NO.2830/AHD/2016 ITO VS. M/S. NIRM A CREDIT AND CAPITAL PVT. LTD. ASST.YEAR 2013-14 - 8 - BEEN ELABORATELY DISCUSSED IN THE PRECEDING PARAGRA PH. THEREFORE, FOR THE SAKE OF BREVITY, WE ARE NOT INCLINED TO REPEAT THE SAME. IT IS UNDISPUTED FACTS THAT THE OWNED FUND OF THE A SSESSEE AS ON 31-03- 2013 IS AMOUNTING TO RS.50,90,26,015/- AND THE INVE STMENT AS ON 31-03- 2013 IS AMOUNTING TO RS. 5,91,73,404/- ONLY, THUS, IT IS CLEAR THAT OWN FUND OF THE ASSESSEE EXCEEDS THE AMOUNT OF INVESTME NT AS DISCUSSED ABOVE. IN SUCH CIRCUMSTANCES, THE HONBLE GUJARAT H IGH COURT IN THE CASE OF UTI BANK LTD. REPORTED IN 32 TAXMANN.COM 370 HAS OBSERVED THAT WHERE SUFFICIENT INTEREST FREE FUNDS ARE AVAILABLE TO MEET THE AMOUNT OF INVESTMENT THEN NO DISALLOWANCE ON ACCOUNT OF INTER EST EXPENSES IS WARRANTED UNDER SECTION 14A R.W.R. 8D OF INCOME TAX RULES. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW: 3. THE ISSUE PERTAINS TO DISALLOWANCE UNDER SECTION 1 4A OF THE ACT MADE BY THE ASSESSING OFFICER WHICH WAS PARTIALLY DELETE D BY THE CIT(A). SUCH ORDER OF CIT(A) GAVE RISE TO CROSS APPEALS AT THE H ANDS OF THE ASSESSEE AS WELL AS THE REVENUE. TRIBUNAL CONFIRMED THE VIEW OF THE CIT(A) MAKING FOLLOWING OBSERVATIONS: '33. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD, THE UNDISPUTED FACTS ARE THAT DURING THE YE AR THE ASSESSEE HAS EARNED INTEREST OF RS. 17.45 CRORE ON TAX FREE BOND AND DEBENTURES AS AGAINST WHICH THE ASSESSEE HAD SUO MOTU DISALLOWED RS. 5.53 CRORE BEING THE INTEREST EXPENSES U/S. 14A AS AGAINST WHICH THE AO HAS WORKED OUT THE DISALLOWANCE OF RS. 32.76 CRORE. AFTER GIVING THE C REDIT OF DISALLOWANCE OF RS. 5.53 CRORE MADE BY THE ASSESSEE, THE AO DISALLO WED RS. 27.23 CRORE U/S. 14A. AS ON 31ST MARCH, 2003, THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WAS TO THE TUNE OF RS. 3404 CRORE (COMPRIS ING OF SHARE CAPITAL OF RS. 230 CRORE RESERVES OF RS. 689 CRORES AND INTERE ST FREE DEMAND DEPOSITS AND RS. 2485 CRORES) AS AGAINST WHICH THE TAX FREE INVESTMENTS WERE TO THE TUNE OF RS. 589 CRORE. THUS THE INTEREST FREE FUNDS WERE FAR IN EXCESS OF THE INVESTMENTS. CIT(A) HAS GIVEN A FINDING THAT THE FA CTS IN AY 2003-04 ARE ITA NO.2830/AHD/2016 ITO VS. M/S. NIRM A CREDIT AND CAPITAL PVT. LTD. ASST.YEAR 2013-14 - 9 - IDENTICAL TO THE FACTS OF THE CASE IN AY 2002-03 AN D ACCORDINGLY HE HAS FOLLOWED THE DECISION OF CIT(A) FOR AY 2002-03. THE SE FACTS HAVE NOT BEEN CONTROVERTED BY THE LD. D.R. NOR HAVE THEY BROUGHT ON RECORD ANY FACTS TO THE CONTRARY. HON'BLE BOMBAY HIGH COURT IN CASE OF CIT V. RELIANCE UTILITIES & POWER LTD. (SUPRA) HAS HELD THAT IF THE RE ARE INTEREST FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INV ESTMENTS AND AT THE SAME TIME THE ASSESSEE HAS RAISED A LOAN IT CAN BE PRESU MED THAT THE INVESTMENTS WERE FROM INTEREST FREE FUNDS AVAILABLE. IN THE PRE SENT CASE, SINCE THE ASSESSEE HAS SUO MOTO DISALLOWED RS. 5.53 CRORE U/S . 14A, RESPECTFULLY FOLLOWING THE DECISION OF BOMBAY HIGH COURT, WE ARE OF THE VIEW THAT IN THE FACTS OF THE PRESENT CASE, NO FURTHER DISALLOWA NCE OVER AND ABOVE THAN WHAT HAS BEEN DISALLOWED BY THE ASSESSEE IS CALLED FOR. AS FAR AS DISALLOWANCE OF OTHER ADMINISTRATIVE EXPENSES IS CO NCERNED, THE UNDISPUTED FACT IS THAT THE DISALLOWANCE HAS BEEN M ADE BY THE AO WITHOUT GIVING A FINDING AS TO HOW MUCH ADMINISTRATIVE EXPE NDITURE HAS BEEN INCURRED TO EARN THE EXEMPT INCOME. IN THE CASE OF HERO CYCLES (SUPRA) THE HON'BLE HIGH COURT HAS HELD THAT THE CONTENTION OF THE REVENUE THAT DIRECTLY OR INDIRECTLY SOME EXPENDITURE IS ALWAYS I NCURRED WHICH MUST BE DISALLOWED U/S. 14A CANNOT BE ACCEPTED. DISALLOWANC E U/S. 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE. IN THE PRESENT CASE, THE AO HAS PRESUMED THAT THE ASSESSEE MIGHT HAVE INCURRED EXPE NDITURE TO EARN THE EXEMPT INCOME. HE HAS NOT GIVEN ANY FINDING OF INCU RRING OF EXPENDITURE. IN VIEW OF THESE FACTS AND RESPECTFULLY FOLLOWING T HE DECISION OF HIGH COURT, WE ARE OF THE VIEW THAT NO DISALLOWANCE OF A DMINISTRATIVE EXPENSES CAN BE MADE. WE ACCORDINGLY DIRECT FOR THE DELETION OF THE ADDITION MADE BY THE AO AND ALLOW THIS GROUND OF THE ASSESSEE.' 4. IN OUR OPINION THE TRIBUNAL HAS COMMITTED NO ERROR . BASICALLY THE ENTIRE DISALLOWANCE HAS BEEN MADE ON THE BASIS OF FACTS EM ERGING ON RECORD. THE TRIBUNAL ALSO RELIED ON THE DECISION OF THE BOMBAY HIGH COURT IN CASE OF CIT V. RELIANCE UTILITIES & POWER LTD. [2009] 31 3 ITR 340/178 TAXMAN 135 . ADDITIONALLY, WE FIND THAT THE ASSESSING OFFICER HAD, WITHOUT GIVING A FINDING AS TO HOW MUCH ADMINISTRATIVE EXPENDITURE H AVE BEEN INCURRED TO EARN THE EXEMPT INCOME, HAD MADE DISALLOWANCE. IN T HE EARLIER YEARS ALSO, SIMILAR POSITION OBTAINED. THAT BEING THE FACT, NO QUESTION OF LAW ARISES. BESIDES THE ABOVE WE ALSO NOTE THAT THE HONBLE GUJ ARAT HIGH COURT IN THE OWN CASE OF THE ASSESSEE REPORTED IN 85 TAXMANN .COM 72 HAS OBSERVED ITA NO.2830/AHD/2016 ITO VS. M/S. NIRM A CREDIT AND CAPITAL PVT. LTD. ASST.YEAR 2013-14 - 10 - THAT THE INTEREST INCOME EXCEEDS THE AMOUNT OF INTE REST EXPENSES. THUS NO DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSES IS WAR RANTED UNDER SECTION 14A R.W.R. 8D OF INCOME TAX RULES. THE RELEVANT EXT RACT OF THE ORDER IS REPRODUCED BELOW: WE HOLD THAT FOR THE PURPOSE OF APPLYING THE FACTO RS CONTAINED IN CLAUSE (II) OF SUB-RULE (2) OF RULE 8D, PRIOR TO ITS AMENDMENT WITH EFFECT FROM 2.6.2016, WHAT WOULD BE CONSIDERED AS AMOUNT OF EXPENDITURE B Y WAY OF INTEREST WOULD BE THE INTEREST PAID BY THE ASSESSEE ON THE BORROWI NGS MINUS THE TAXABLE INTEREST EARNED DURING THE FINANCIAL YEAR. IT IS BEYOND DOUBT THAT THE INTEREST INCOME FOR THE YEAR UNDER CONSIDERATION EXCEEDS THE INTEREST EXPENSES. THUS, GIVEN ABOVE, WE CONCLUDE THAT THERE IS NO QUESTION OF MAKING THE DI SALLOWANCE ON ACCOUNT OF INTEREST EXPENSES UNDER RULE 8D (2)(II) IN THE G IVEN FACTS AND CIRCUMSTANCES. 7. NOW COMING TO THE DISALLOWANCE MADE BY THE ASSES SEE ON ACCOUNT OF ADMINISTRATIVE EXPENSES FOR RS.4,20,189/-, IN TH IS REGARD, WE NOTE THAT THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF RS. 1,13, 017/- ONLY, BUT THE AO HAS MADE THE DISALLOWANCE OF RS.4,20,189/- EXCEE DING THE AMOUNT OF DIVIDEND INCOME. IN SUCH FACTS AND CIRCUMSTANCE THE TRIBUNAL HAS TAKEN A VIEW THAT THE AMOUNT OF DISALLOWANCE CANNOT EXCEED THE AMOUNT OF DIVIDEND INCOME. IN THIS REGARD, WE FIND SUPPORT AN D GUIDANCE FROM THE ORDER OF THIS TRIBUNAL IN THE CASE OF CHUDGAR RANCH HODLAL JETHALAL VS. DCIT IN ITA NO.245/AHD/2013, WHEREIN, IT WAS HELD A S UNDER: 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. WE FIND THAT THE CLAIM OF WEIGHT SHORTAGE E XPENSES WAS DISALLOWED BY THE A.O AND THE DISALLOWANCE WAS CONF IRMED BY LD. ITA NO.2830/AHD/2016 ITO VS. M/S. NIRM A CREDIT AND CAPITAL PVT. LTD. ASST.YEAR 2013-14 - 11 - CIT(A) BY FOLLOWING HIS PREDECESSOR ORDER FOR A.Y. 07-08. AGAINST THE ORDER OF CIT(A) FOR A.Y. 07-08, ASSESSEE HAD PREFER RED APPEAL BEFORE HONBLE ITAT. WE FIND THAT THE CO-ORDINATE BENCH OF TRIBUNAL IN ITA NO. 1008/AHD/2011 FOR A.Y. 07-08 (ORDER DATED 04.04 .2014) DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER :- 1. LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CON FIRMING ACTION OF AO IN DISALLOWING RS.5,38,121/-, BEING WEIGHT SHORT AGE EXPENSES. BOTH THE LOWER AUTHORITIES ERRED IN IGNORING THE EV IDENCES PRODUCED BY THE APPELLANT IN THE FORM OF CORRESPONDENCES WIT H THE PARTIES AND DEBIT NOTES ISSUED BY THE PARTIES. LD. CIT(A) OUGHT TO HAVE DELETED THE DISALLOWANCE. 3. APROPOS TO GROUND NO.L, THE ID.COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN TRADING OF READY CO TTON BALES SINCE LAST MORE THAN 21 YEARS AND THE DEBIT NOTES WERE RA ISED BY THE CONCERNED PARTIES. THE ID.COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THERE IS NO DISPUTE THAT THE MATERIAL WAS WEIG HED AND TRANSPORTED AND DURING THE COURSE OF TRANSIT, THERE WAS WEIGHT LOSS. THE ID.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN DISALLOWING THE GENUINE EXPEN SES. 3.1. THE LD.SR.DR SUBMITTED THAT THE ASSESSEE HAS B EEN ENGAGED IN THIS LINE OF BUSINESS FOR MANY YEARS AND THE ASSESS EE HAS NEVER CLAIMED THIS KIND OF EXPENSES IN EARLIER YEARS. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT GIVEN ANY EVIDENCE IN SUP PORT OF ITS CLAIM THAT THERE WAS LOSS OF WEIGHT. 3.2. IN REJOINDER, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE EVIDENCES WERE PLACED ON RECORD; NAMELY, THE LEDGER ACCOUNT OF WEIGHT SHORTAGE EXPENSES, THE DEBIT NOTES RAISED BY THE CONCERNED PARTIES. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT MERELY BECAUSE THE ASSESSEE HAS CLAIMED THIS KIND OF EXPEN DITURE FOR THE FIRST TIME AND IT CANNOT BE THE SOLE GROUND FOR MAK ING DISALLOWANCE. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE AO AS WELL AS THE ID.CIT(A) HAS DISALLOWED THE EXPENDITURE ON THE BASIS THAT IN EARLIER YEAR T HE ASSESSEE HAS NOT CLAIMED SUCH KIND OF EXPENDITURE. IN OUR CONSIDERED VIEW, SINCE THE ASSESSEE HAS PLACED ON RECORD THE DEBIT NOTES RAISE D BY VARIOUS PARTIES TO WHOM THE MATERIAL WAS SUPPLIED, THEREFOR E THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN DISALLOWING THE EXPENSE S CLAIMED BY THE ASSESSEE. WE THEREFORE DIRECT THE AO TO DELETE THIS ADDITION. ACCORDINGLY, GROUND RAISED BY THE ASSESSEE IS ALLOW ED. ITA NO.2830/AHD/2016 ITO VS. M/S. NIRM A CREDIT AND CAPITAL PVT. LTD. ASST.YEAR 2013-14 - 12 - 8. BEFORE US, REVENUE HAS NOT BROUGHT ON RECORD ANY MA TERIAL TO DEMONSTRATE AS TO HOW THE DECISION OF HONBLE TRIBU NAL FOR A.Y. 07-08 IN ASSESSEES OWN CASE WOULD NOT BE APPLICABLE TO T HE FACTS OF THE CASE FOR THE YEAR UNDER APPEAL MORE SO WHEN LD. CIT(A) H IMSELF HAS NOTED THAT IDENTICAL ISSUE AROSE IN A.Y. 07-08 AND HAD FO LLOWED THE ORDER OF HIS PREDECESSOR. IN VIEW OF THE AFORESAID FACTS AND RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUN AL, THIS GROUND OF ASSESSEE IS ALLOWED. THUS, RESPECTFULLY FOLLOWING THE SAME WE ARE INCLIN ED TO RESTRICT THE DISALLOWANCE TO THE TUNE OF DIVIDEND INCOME OF RS.1 ,13,017/- UNDER RULE 8D(2)(III) OF INCOME TAX RULE. THE AO IS DIRECTED A CCORDINGLY. THUS, THE GROUND OF APPEAL OF THE REVENUE IS PARTLY ALLOWED. 8. THE NEXT ISSUE RAISED BY THE REVENUE IS THAT LEA RNED CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 41, 57,789/- WHILE COMPUTING THE BOOK PROFIT UNDER THE PROVISION OF SE CTION 115JB OF THE ACT. THE AO DURING THE ASSESSMENT PROCEEDINGS MADE THE D ISALLOWANCE WHILE COMPUTING THE INCOME UNDER THE HEAD MAT IN PURSUANC E TO THE CLAUSE (F) TO SECTION 115JB OF THE ACT FOR THE EXACT AMOUNT, W HICH WAS DISALLOWED UNDER THE PROVISION OF SECTION 14A R.W.R 8D OF INCO ME TAX RULE UNDER NORMAL COMPUTATION OF INCOME. THUS, THE AO MADE THE DISALLOWANCE OF RS. 41,57,789/- AND ADDED TO THE BOOK PROFIT DETERM INED U/S 115JB OF THE ACT. ITA NO.2830/AHD/2016 ITO VS. M/S. NIRM A CREDIT AND CAPITAL PVT. LTD. ASST.YEAR 2013-14 - 13 - 9. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LEARN ED CIT(A) WHO HAS DELETED THE ADDITION MADE BY THE AO BY OBSERVIN G AS UNDER: 7.2 I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND THE ORDER OF AO. IT IS OBSERVED THAT AO HAD MADE AN ADDITION OF RS.41,57,789/- ON ACCOUNT OF DISALLOWANCE U/S. 14A OF THE ACT WHILE W ORKING OUT MAT LIABILITY U/S. 115JB OF THE ACT. SINCE THE ADDITION ON ACCOUNT OF DISALLOWANCE U/S.14A R.W.R. 8D IS DIRECTED TO BE DE LETED IN THE DECISION FOR THE PREVIOUS GROUND, NO ADDITION IS SUSTAINABLE ON ACCOUNT OF REWORKING OF MAT BASED ON DISALLOWANCE U/S. 14A. AC CORDINGLY, ADDITION OF RS.41,57,789/- IS DIRECTED TO BE DELETE D. THIS GROUND IS THUS, ALLOWED. BEING AGGRIEVED BY ORDER OF LEARNED CIT(A) REVENUE IS IN THE SECOND APPEAL BEFORE US. BOTH LEARNED DR AND AR RELIED ON THE ORDER OF AUTHORITIES BELOW AS FAVORABLE TO THEM. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSU E IN THE INSTANT CASE RELATES TO THE DISALLOWANCES MADE BY ASSESSING OFFI CER U/S 14A R.W.R. 8D OF THE INCOME TAX RULES WHILE DETERMINING THE INCOM E UNDER THE HEAD MINIMUM ALTERNATE TAX (MAT) UNDER SECTION 115JB OF THE ACT. THE DISALLOWANCE MADE UNDER THE NORMAL COMPUTATION OF I NCOME UNDER SECTION 14A R.W.R. 8D OF INCOME TAX RULE FOR RS. 41 ,57,789/- WAS ADDED IN DETERMINING THE PROFIT U/S 115JB OF THE ACT. HOW EVER, WE NOTE THAT IN THE RECENT JUDGMENT OF SPECIAL BENCH OF HONBLE DEL HI TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENT PVT. LTD. REPORT ED IN 82 TAXMANN.COM 415 THAT THE DISALLOWANCES MADE U/S 14A R.W.R. 8D CANNOT BE THE SUBJECT MATTER OF DISALLOWANCES WHILE DETERM INING THE NET PROFIT ITA NO.2830/AHD/2016 ITO VS. M/S. NIRM A CREDIT AND CAPITAL PVT. LTD. ASST.YEAR 2013-14 - 14 - U/S 115JB OF THE ACT. THE RELEVANT PORTION OF THE S AID ORDER IS REPRODUCED BELOW: IN VIEW OF ABOVE DISCUSSION, THE COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2), IS TO BE MADE WITHOUT RESORTING TO THE COMPUTATION AS CONTEMPLATED UNDER SECTION 14A, READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962. THE RATIO LAID DOWN BY THE HONBLE TRIBUNAL IS SQUA RELY APPLICABLE TO THE FACTS OF THE CASE. THUS IT CAN BE CONCLUDED THAT TH E DISALLOWANCE MADE UNDER SECTION 14A R.W.R. 8D CANNOT RESORT WHILE DET ERMINING THE EXPENSES AS MENTIONED UNDER CLAUSE (F) TO EXPLANATION 1 TO S ECTION 115JB OF THE ACT. HOWEVER, IT IS ALSO CLEAR THAT THE DISALLOWANCE NEE DS TO BE MADE IN TERMS OF THE PROVISIONS OF CLAUSE (F) TO SECTION 115JB OF THE ACT WHILE DETERMINING THE BOOK PROFIT. IN HOLDING SO, WE DRAW OUR SUPPORT FROM THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. JAYSHREE TEA INDUSTRIES LTD. IN GO NO.1501 OF 2014 (ITAT NO.47 OF 2014) DATED 19.11.14 WHEREIN IT WAS HELD THAT THE DISALLOWANCE ABOUT EXEMPTED INCOME NEEDS TO BE MADE AS PER THE CLAUSE (F) TO EX PLANATION-1 OF SEC. 115JB OF THE ACT INDEPENDENTLY. THE RELEVANT EXTRAC T OF THE JUDGMENT IS REPRODUCED BELOW:- WE FIND COMPUTATION OF THE AMOUNT OF EXPENDITURE R ELATABLE TO EXEMPTED INCOME OF THE ASSESSEE MUST BE MADE SINCE THE ASSESSEE HAS NOT CLAIMED SUCH EXPENDITURE TO BE NIL. SUCH COMPUT ATION MUST BE MADE BY APPLYING CLAUSE (F) OF EXPLANATION 1 UNDER SECTI ON 115JB OF THE ACT. WE REMAND THE MATTER FOR SUCH COMPUTATION TO BE MAD E BY THE LEARNED TRIBUNAL. ITA NO.2830/AHD/2016 ITO VS. M/S. NIRM A CREDIT AND CAPITAL PVT. LTD. ASST.YEAR 2013-14 - 15 - WE ACCEPT THE SUBMISSION OF MR. KHAITAN, LEARNED SE NIOR ADVOCATE THAT THE PROVISION OF SECTION 115JB IN THE MATTER OF COM PUTATION IS A COMPLETE CODE IN ITSELF AND RESORT NEED NOT AND CAN NOT BE MADE TO SECTION 14A OF THE ACT. GIVEN ABOVE, WE HOLD THAT THE DISALLOWANCES MADE UN DER THE PROVISIONS OF SEC. 14A R.W.R. 8D OF THE IT RULES, CANNOT BE AP PLIED TO THE PROVISION OF SEC. 115JB OF THE ACT AS PER THE DIRECTION OF TH E HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. JAYSHREE TEA INDUSTRIES LTD. (SUPRA). IN VIEW OF ABOVE, WE ARE OF THE VIEW THAT THE AO NE EDS TO WORK OUT THE DISALLOWANCES IN TERMS OF THE CLAUSE (F) TO EXPLANA TION-1 OF SEC. 115JB OF THE ACT INDEPENDENTLY AFTER CONSIDERING THE EXPENSE S DEBITED IN THE PROFIT & LOSS ACCOUNT AS MANDATED UNDER THE PROVISIONS OF LAW. THEREFORE WE ARE INCLINED TO RESTORE THIS ISSUE TO THE FILE OF A O FOR FRESH ADJUDICATION BY LAW AND IN THE LIGHT OF ABOVE DISCUSSION. THUS T HIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER PRONOUNCED IN OPEN COURT ON 08/06/2018 SD/- SD/- JKTIKY ;KNO JKTIKY ;KNO JKTIKY ;KNO JKTIKY ;KNO OLHE VGEN OLHE VGEN OLHE VGEN OLHE VGEN U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; YKS[KK LN YKS[KK LN YKS[KK LN YKS[KK LNL LL L ; ; ; ; (RAJPAL YADAV) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 08/06/2018 PRITI YADAV, SR.PS ITA NO.2830/AHD/2016 ITO VS. M/S. NIRM A CREDIT AND CAPITAL PVT. LTD. ASST.YEAR 2013-14 - 16 - !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT. 3. /01( % 2( / CONCERNED CIT 4. % 2( ( ) / THE CIT(A)-9, AHMEDABAD. 5. 567 !(&01 , ) 01- , 8 / / DR, ITAT, AHMEDABAD 6. 79 :' / GUARD FILE. % & / BY ORDER, ' 5( !( //TRUE COPY// '/& () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION 05/06/2018 (DICTATION-PAD 7 PA GES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 06/06/2018 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 08/06/2018 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR 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 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER