DCIT 1(3)(2), MUMBAI V. THOMAS COOK INDIA LTD, MUMBAI

ITA 325/MUM/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6365 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 16-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D G PANSARI
• Keywords: Sale consideration of property below Jantri Value; Business expenditure; Earning of tax free income; Rule 8D; Set aside; Capital Gains
• Section: 14A; 144C; 143(2); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E , MUMBAI BEFORE S HRI SHAMIM YAHYA (AM ) AND SHRI RAM LAL NEGI (JM) ITA NO. 325 /MUM/2017 ASSESSMENT YEAR: 2009 - 2010 THE DEPUTY COMMISSIONER OF INCOME TAX, 1(3)(2), R OOM NO. 5 40, 5 TH FLOOR , AAYAKAR BHAV AN, M.K. ROAD, MUMBAI - 4000 20 VS. M/S THOMAS COOK (INDIA) LTD., A WING, 11 TH FLOOR, MARATHON FUTURES, N M JOSHI MARG, LOWER PAREL, MUMBAI - 4000013 PAN: AAACT4050C (APPELLANT) (RESPONDENT) CO NO. 106 /MUM/2018 (ARISING OUT OF ITA NO. 325 /MUM/20 17 ) ASSESSMENT YEAR: 2009 - 2010 M/S THOMAS COOK (INDIA) LTD., A WING, 11 TH FLOOR, MARATHON FUTURES, N M JOSHI MARG, LOWER PAREL, MUMBAI - 4000013 PAN: AAACT4050C VS. THE DEPUTY COMMISSIONER OF INCOME TAX, 1(3)(2), ROOM NO. 540, 5 TH FLOOR, AAYAKAR BH AVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) REVENUE BY : SHRI D.G. PANSARI (D R) ASSESSEE BY : SHRI PERCY PA RDIWALA & PRATIK PODDAR (A R) DATE OF HEARING: 27/11 /201 8 DATE OF PRONOUNCEM ENT: 31 / 01 /201 9 O R D E R PER RAM LAL NEGI, JM THESE ARE THE APPEAL AND CROSS OBJECTION FILED BY THE REVENUE AND THE ASSESSEE AGAINST THE ORDER 14.10.2016 PASSED BY THE C OMMISSIONER OF INCOME TAX (APPEALS) (FOR SHORT THE CIT (A)) - 3 , MUMBAI , FOR T HE ASSESSMENT YEAR 2009 - 10 , WHEREBY THE LD. CIT (A) HAS PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE 2 ITA NO. 325 /MUM/2017 & CO 106 /MUM/2018 ASSESSMENT YEAR: 2009 - 10 AGAINST ASSESSMENT ORDER PASSED U/S 143 (3) R W S 144C (1) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). ITA NO. 325 /MUM/2017 (ASSESSMENT YEAR: 200 9 - 2010 ) 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME OF RS. 44,28,33,999/ - . SINCE, THE CASE WAS SELECTED FOR SCRUTINY, AO ISSUED NOTICE U/S 143(2) OF TH E ACT . IN RESPONSE TO THE SAID NOTICE , THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED AND FURNISHED THE DETAILS AND EXPLANATIONS CALLED FOR. IT WAS NOTICED THAT DURING THE PREVIOUS YEAR, THE ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS. 2,90,706/ - A ND HAD CLAIMED EXEMPT ION U/S 10(34) OF THE ACT. ACCORDINGLY, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY DISALLOWANCE U/S 14A READ WITH RULE 8D SHOULD NOT BE MADE . T HE ASSESSEE COMPANY CONTENDED THAT IT HAD NOT INCURRED ANY EXPENDITURE FOR EARNING EXEMPT I NCOME AS THE REINVESTMENT WAS INCIDENTAL. HOWEVER, THE AO REJECTING THE CONTENTION OF THE ASSESSEE WORKED OUT THE DISALLOWANCE UNDER THE PROVISIONS OF SECTION 14A ( 2 ) READ WITH RULE 8D AND DETERMINED THE TOTAL DISALLOWANCE AT RS. 87,943/ - . ACCORDINGLY, TH E AO INTER ALIA MAKING THE SAID DISALLOWANCE DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS. 46,84,32,558. SUBSEQUENTLY, T HE LD. C OMMISSIONER OF INCOME TAX (CIT ) SET ASIDE THE FINDINGS OF THE AO EXERCISING THE JURISDICTION U/S 263 OF THE ACT AND DIRECTE D THE AO TO RECOMPUTED THE DISALLOWANCE ON THE GROUND THAT WHILE PASSING ASSESSMENT ORDER AO HAS OMITTED CERTAIN INVESTMENTS FOR CALCULATING DISALLOWANCE U/S 14A READ WITH RULE 8D A N D FURTHER DIRECT ED THE AO TO PASS ASSESSMENT ORDER AFRESH AFTER GIVING DUE OPPORTUNITY TO THE APPELLANT . ACCORDINGLY, AO PASSED ORDER U/S 143 (3) READ WITH SECTION 263 DETERMINING THE TOTAL AMOUNT OF DISALLOWANCE U/S 14A READ WITH RULE 8D AT RS. 91,61,797/ - . THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER ON THE GROUND THAT THE AO HAS ERRED IN DISALLOWING A SUM OF RS. 91,61,797/ - BEFORE THE LD. CIT (A). THE LD. CIT (A) AFTER HEARING THE ASSESSEE 3 ITA NO. 325 /MUM/2017 & CO 106 /MUM/2018 ASSESSMENT YEAR: 2009 - 10 SET ASIDE THIS ISSUE TO THE FILE OF AO WITH THE DIRECTION TO RE - COMPUTE THE DISALLOWANCE U/S 14A READ WITH RULE 8D AFTER EXCLUDING STRATEG IC INVESTMENTS IN SUBSIDIARIES BY FOLLOWING THE DECISION OF ITAT, MUMBAI IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009 - 10 AND 2010 - 11. THE REVENUE IS IN APPEAL AGAINST THE SAI D FINDINGS OF THE LD. CIT (A). 3. THE REVENUE HAS CHALLENGED THE IMPU GNED ORDER PASSED BY THE LD. CIT (A) BY RAISING THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL: - (I) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT (A) WAS JUSTIFIED IN REDUCING THE DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D OF THE INCOME TAX RULES, 1962? (II) WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT (A) ERRED IN HOLDING THAT STRATEGIC INVESTMENTS MADE IN SUBSIDIARY COMPANY TO BE EXCLUDED FOR THE PURPOSE OF COMPUTATION OF DISALLOW ANCE UNDER SECTION 14A OF THE INCOME - TAX ACT, 1961 READ WITH RULE 8D(II) AND RULE 8D(III) OF THE INCOME TAX RULES, 1962 ON THE PRESUMPTION THAT STRATEGIC INVESTMENTS YIELD ONLY TAXABLE INCOME BUT DO NOT YIELD EXEMPT INCOME SUCH AS DIVIDEND? CO NO. 106/MU M/2018 (ASSE SSMENT YEAR: 2009 - 2010 ) 4. ON THE OTHER HAND THE ASSESSEE HAS FILED THE CROSS OBJECTION AGAINST THE IMPUGNED ORDER ON THE FOLLOWING EFFECTIVE GROUNDS: 1. THE APPELLANT SUBMITS THAT DISALLOWANCE UNDER SECTION 14A OF THE ACT SHOULD BE RESTRICTED TO RS. 87,943/ - . 2. THE APPELLANT FURTHER SUBMITS THAT DISALLOWANCE UNDER SECTION 14A OF THE ACT IS NOT WARRANTED AS THE APPELLANT HAS MADE THE INVESTMENT OUT OF ITS OWN FUNDS AND IT HAS 4 ITA NO. 325 /MUM/2017 & CO 106 /MUM/2018 ASSESSMENT YEAR: 2009 - 10 NOT INCURRED ANY DIRECT EXPENDITURE TOWARDS EARNING OF EXEMPT INCOME. 3. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT SUBMITS THAT THE DISALLOWANCE UNDER SECTION 14A SHOULD BE RESTRICTED TO THE AMOUNT OF EXEMPT INCOME EARNED BY THE APPELLANT. 5. SINCE, THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL AND THE GROUNDS RAIS ED BY THE ASSESSEE IN ITS CO ARE CONNECTED, BOTH THE CASES ARE CLUBBED, HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 6. LD. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT SINCE THE AO HAS COMPUTED THE DIS ALLOWANCE U/S 14A READ WITH RULE 8D, THE LD. CIT (A) OUGHT TO HAVE CONFIRMED THE DISALLOWANCE MADE BY THE AO. THE LD. DR FURTHER CONTENDED THAT THE LD.CIT (A) HAS WRONGLY HELD THAT STRATEGIC INVESTMENTS MADE IN THE SUBSIDIARY COMPANY ARE REQUIRED TO BE EXC LUDED FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE RULES. THE LD. DR RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. VS. CIT IN SUPPORT OF HIS CONTENTION. 7 . ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT (A) OUGHT TO HAVE RESTRICTED THE ADDITION TO RS. 87,943/ - AS THE ASSESSEE HAD MADE THE INVESTMENT OUT OF ITS OWN FUNDS AND IT HAD NOT INCURRED ANY DIRECT EXPENDITURE TOWARDS EARNIN G THE EXEMPT INCOME. THE LD. COUNSEL WITHOUT PREJUDICE SUBMITTED THAT THE DISALLOWANCE U/S 14A SHOULD BE RESTRICTED TO THE EXEMPT INCOME EARNED BY THE APPELLANT. THE LD. COUNSEL FURTHER POINTED OUT THAT THE ASSESSEE HAS FILED CO AGAINST THE FINDINGS OF THE LD. CIT (A) AND HAS RAISED THE SAID ISSUES THEREIN . 5 ITA NO. 325 /MUM/2017 & CO 106 /MUM/2018 ASSESSMENT YEAR: 2009 - 10 8 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO GONE THROUGH THE ENTIRE MATERIA L ON RECORD INCLUDING THE CASES RELIED UPON BY THE PARTIES. THE ONLY ISSUE INVOLVED IS IN THIS APPEAL WHETHER ON THE FA CTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN HOLDING THAT THE STRATEGIC INVESTMENTS MADE IN THE SUBSIDIARY COMPANY ARE REQUIRED TO E BE EXCLUDED FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE U/S 14A READ WITH RULE 8D ? IN T HE PRESENT CASE, THE AO HAS MADE DISALLOWANCE U/S 14A READ WITH RULE 8D (2)(III). WE NOTICE THAT THE LD. CIT (A) HAS REMANDED THE MATTER BACK TO THE AO FOR COMPUTING DISALLOWANCE U/S 14A READ WITH RULE 8D AFTER EXCLUDING STRATEGIC INVESTMENTS IN SUBSIDIARI ES BY FOLLOWING THE DIRECTIONS OF THE TRIBUNALS IN THE ASSESSEES FOR THE A.Y. 2009 - 10 AND 2010 - 11. SINCE, THE FINDINGS OF THE LD. CIT (A) ARE CONTRARY TO THE LAW LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. VS. CIT, NEW DE LHI (2018) 91 TAXMANN.COM 154 (SC) , THE SAME CANNOT BE UPHELD. THE HONBLE SUPREME COURT IN THE SAID CASE HAS HELD AS UNDER: - 34. HAVING CLARIFIED THE AFORESAID POSITION, THE FIRST AND FOREMOST ISSUE THAT FALLS FOR CONSIDERATION IS AS TO WHETHER THE DO MINANT PURPOSE TEST, WHICH IS PRESSED INTO SERVICE BY THE ASSESSEE WOULD APPLY WHILE INTERPRETING SECTION 14A OF THE ACT OR WE HAVE TO GO BY THE THEORY OF APPORTIONMENT. WE ARE OF THE OPINION THAT THE DOMINANT PURPOSE FOR WHICH THE INVESTMENT INTO SHARES I S MADE BY AN ASSESSEE MAY NOT BE RELEVANT. NO DOUBT, THE ASSESSEE LIKE MAXOPP INVESTMENT LIMITED MAY HAVE MADE IN THE INVESTMENT IN ORDER TO GAIN CONTROL OF THE INVESTEE COMPANY. HOWEVER,, THAT DOES NOT APPEAR TO BE A RELEVANT FACTOR IN DETERMINING THE ISS UE AT HAND. FACT REMAINS THAT SUCH DIVIDEND INCOME IS NOT - TAXABLE. IN THIS SCENARIO, IF EXPENDITURE IS INCURRED ON EARNING THE DIVIDEND INCOME, THAT MUCH OF THE EXPENDITURE IS ATTRIBUTABLE TO THE DIVIDEND INCOME HAS TO BE DISALLOWED AND CANNOT BE TREATED A S BUSINESS EXPENDITURE KEEPING THIS OBJECTIVE BEHIND SECTION 14A OF THE ACT IN MIND, THE SAID PROVISION HAS TO BE INTERPRETED, PARTICULARLY, THE WORD IN RELATION TO THE INCOME THAT DOES NOT FORM PART OF TOTAL INCOME CONSIDERED IN THIS HUE, THE PRINCIPLE OF APPORTIONMENT OF EXPENSES COMES INTO PLAY AS THAT IS 6 ITA NO. 325 /MUM/2017 & CO 106 /MUM/2018 ASSESSMENT YEAR: 2009 - 10 THE PRINCIPLE WHICH IS ENGRAINED IN SECTION 14A OF THE ACT. THIS IS SO HELD IN WALFORT SHARE AND STOCK BROKERS P LTD., RELEVANT PASSAGE WHEREOF IS ALREADY REPRODUCED ABOVE, FOR THE SAKE OF CONTINUITY OF DISCUSSION, WE WOULD LIKE TO QUOTE THE FOLLOWING FEW LINES THEREFROM. THE NEXT PHRASE IS, IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT. IT MEANS THAT IF AN INCOME DOES NOT FORM PART OF TOTAL INCOME, THEN THE RELAT ED EXPENDITURE IS OUTSIDE THE AMBIT OF THE APPLICABILITY OF SECTION 14A. XXX XXX XXX THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NO N - TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 14A. 9 . SINCE, THE DI RECTIONS GIVEN BY THE LD. CIT (A) IS CONTRARY TO THE LAW LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. VS. CIT (SUPRA), WE SET ASIDE THE ORDER OF THE LD. CIT (A). 10. SO FAR AS THE CONTENTION OF THE ASSESSEE THAT NO EX PENDITURE WAS INCURRED FOR EARNING THE EXEMPT INCOME IS CONCERNED , THEREFORE DISALLOWANCE U/S 14A IS NOT WARRANTED OR AT THE MOST IT SHOULD BE RESTRICTED TO RS. 87,943/ - INITIALLY DETERMINED BY THE AO, THE SAME IS NOT PLAUSIBLE. SINCE, THE AO , AFTER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE , IS NOT SATISFIED WITH THE CORRE CTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE, THE AO HAS RIGHTLY MADE DISA LLOWANCE U/S 14A READ WITH RULE 8D (III). HOWEVER, SINCE, THE DISALLOWANCE MADE BY THE AO IS MORE THAN THE EXEMPT INCOME EARNED BY THE ASSESSEE, THE SAME CANNOT BE UPHELD , IN VIEW OF THE LAW LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF PCIT VS. CARAF BUILDERS & 7 ITA NO. 325 /MUM/2017 & CO 106 /MUM/2018 ASSESSMENT YEAR: 2009 - 10 CONSTRUCTIONS PVT. LTD. 2019 101 TAXMANN.COM 167 (DELHI) IN WHICH THE HONBLE COURT HAS HELD THAT DISALLOWANCE U/S 14A CANNOT EXCEED EXEMPT INCOME OF THE RELEVANT YEAR. THE RELEVANT PARAS OF THE DECISION READ AS UNDER: - 25. TOTAL EXEM PT INCOME EARNED BY THE RESPONDENT - ASSESSEE IN THIS YEAR WAS RS. 19 LAKHS. IN THESE CIRCUMSTANCES, WE ARE NOT REQUIRED TO CONSIDER THE CASE OF THE REVENUE THAT THE DISALLOWANCE SHOULD BE ENHANCED FROM RS. 75.89 CRORES TO RS. 144.52 CRORES. UPPER DISALLOWAN CE AS HELD IN PR. CIT V. MCDONALDS INDIA (P.) LTD. ITA 725/2018 DECIDED ON 22ND OCTOBER, 2018 CANNOT EXCEED THE EXEMPT INCOME OF THAT YEAR. THIS DECISION FOLLOWS THE RATIO AND JUDGMENT OF THE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. V. CIT [201 8] 402 ITR 640/254 TAXMAN 325/91 TAXMANN.COM 154 AND THE EARLIER JUDGMENTS OF THE DELHI HIGH COURT IN CHEMINVEST V. CIT [2015] 378 ITR 33/234 TAXMAN 761/61 TAXMANN.COM 118 AND CIT V. HOLCIM (P.) LTD. [2015] 57 TAXMANN.COM 28 (DELHI). RELEVANT PORTION OF THE JUDGMENT IN MCDONALDS INDIA (P) LTD. (SUPRA) LTD. ( SUPRA ) READS: '8. THE DECISION IN THE CASE OF MAXOPP INVESTMENT LTD. ( SUPRA ) IS SIGNIFICANT AND DOES ANSWER THE QUESTION IN ISSUE. THIS DECISION DOES NOT SUPPORT THE REVENUE AS THE ASSESSING OFFICER IN THE CASE OF MAXOPP INVESTMENT LTD. ( SUPRA ) HAD HIMSELF RESTRICTED THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME. AFTER REFERRING TO WALFORD SHARE AND STOCK BROKERS P. LTD. ( SUPRA ) IT WAS HELD 'AXIOMATICALLY, IT IS THAT EXPENDITURE ALONE WHICH HAS BEEN INCURRED IN RELATION TO THE INCOME WHICH IS INCLUDABLE IN TOTAL INCOME THAT HAS TO BE DISALLOWED. IF AN EXPENDITURE INCURRED HAS NO CAUSAL CONNECTION WITH THE EXEMPTED INCOME, THEN SUCH AN EXPENDITURE WOULD OBVIOUSLY BE TREATED AS NOT RELATED TO THE INCOME THAT IS EXEMPTED FROM TAX, AND SUCH EXPENDITURE WOULD BE ALLOWED AS BUSINESS EXPENDITURE. TO PUT IT DIFFERENTLY, SUCH EXPENDITURE WOULD THEN BE CONSIDERED AS INCURRED IN RESPECT OF OTHER INCOME WHICH IS TO BE TREATED AS PART OF THE TOTAL INCOME.' ** ** ** 8 ITA NO. 325 /MUM/2017 & CO 106 /MUM/2018 ASSESSMENT YEAR: 2009 - 10 10. THE DECISION OF THE DELHI HIGH COURT IN HOLCIM INDIA PVT. LTD. ( SUPRA ) HAD REFERRED TO THE ISSUE WHETHER DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A OF THE ACT WOULD BE MADE EVEN WHEN NO EXEMPT INCOME IN THE FORM OF DIVIDEND WAS EARNED IN THE YEA R, AND IT WAS OBSERVED: '14. ON THE ISSUE WHETHER THE RESPONDENT - ASSESSEE COULD HAVE EARNED DIVIDEND INCOME AND EVEN IF NO DIVIDEND INCOME WAS EARNED, YET SECTION 14A CAN BE INVOKED AND DISALLOWANCE OF EXPENDITURE CAN BE MADE, THERE ARE THREE DECISIONS OF THE DIFFERENT HIGH COURTS DIRECTLY ON THE ISSUE AND AGAINST THE APPELLANT - REVENUE. NO CONTRARY DECISION OF A HIGH COURT HAS BEEN SHOWN TO US. THE PUNJAB AND HARYANA HIGH COURT IN COMMISSIONER OF INCOME TAX, FARIDABAD V. M/S. LAKHANI MARKETING INCL. , ITA NO . 970/2008, DECIDED ON 02.04.2014, MADE REFERENCE TO TWO EARLIER DECISIONS OF THE SAME COURT IN CIT V. HERO CYCLES LIMITED , [2010] 323 ITR 518 AND CIT V. WINSOME TEXTILE INDUSTRIES LIMITED , [2009] 319 ITR 204 TO HOLD THAT SECTION 14A CANNOT BE INVOKED WHEN NO EXEMPT INCOME WAS EARNED. THE SECOND DECISION IS OF THE GUJARAT HIGH COURT IN COMMISSIONER OF INCOME TAX - I V. CORRTECH ENERGY (P.) LTD. [2014] 223 TAXMANN 130 (GUJ). THE THIRD DECISION IS OF THE ALLAHABAD HIGH COURT IN INCOME TAX APPEAL NO. 88 OF 2014 , COMMISSIONER OF INCOME TAX (II) KANPUR , V. M/S. SHIVAM MOTORS (P.) LTD. DECIDED ON 05.05.2014. IN THE SAID DECISION IT HAS BEEN HELD: 'AS REGARDS THE SECOND QUESTION, SECTION 14A OF THE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UND ER THE CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HENCE, WHAT SECTION 14A PROVIDES IS THAT IF THERE IS ANY INCOME WHICH DOES NO T FORM PART OF THE INCOME UNDER THE ACT, THE EXPENDITURE WHICH IS INCURRED FOR EARNING THE INCOME IS NOT AN ALLOWABLE DEDUCTION. FOR THE YEAR IN QUESTION, THE FINDING OF FACT IS THAT THE ASSESSEE HAD NOT EARNED ANY TAX FREE INCOME. HENCE, IN THE ABSENCE OF ANY TAX FREE INCOME, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE. THE VIEW OF THE CIT (A), WHICH HAS BEEN AFFIRMED BY THE TRIBUNAL, HENCE DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION 9 ITA NO. 325 /MUM/2017 & CO 106 /MUM/2018 ASSESSMENT YEAR: 2009 - 10 OF LAW. HENCE, THE DELETION OF THE DISALLOW ANCE OF RS. 2,03,752/ - MADE BY THE ASSESSING OFFICER WAS IN ORDER' . 15. INCOME EXEMPT UNDER SECTION 10IN A PARTICULAR ASSESSMENT YEAR, MAY NOT HAVE BEEN EXEMPT EARLIER AND CAN BECOME TAXABLE IN FUTURE YEARS. FURTHER, WHETHER INCOME EARNED IN A SUBSEQUENT YEAR WOULD OR WOULD NOT BE TAXABLE, MAY DEPEND UPON THE NATURE OF TRANSACTION ENTERED INTO IN THE SUBSEQUENT ASSESSMENT YEAR. FOR EXAMPLE, LONG TERM CAPITAL GAIN ON SALE OF SHARES IS PRESENTLY NOT TAXABLE WHERE SECURITY TRANSACTION TAX HAS BEEN PAID, BUT A PRIVATE SALE OF SHARES IN AN OFF MARKET TRANSACTION ATTRACTS CAPITAL GAINS TAX. IT IS AN UNDISPUTED POSITION THAT RESPONDENT ASSESSEE IS AN INVESTMENT COMPANY AND HAD INVESTED BY PURCHASING A SUBSTANTIAL NUMBER OF SHARES AND THEREBY SECURING RIGHT TO MANA GEMENT. POSSIBILITY OF SALE OF SHARES BY PRIVATE PLACEMENT ETC. CANNOT BE RULED OUT AND IS NOT AN IMPROBABILITY. DIVIDEND MAY OR MAY NOT BE DECLARED. DIVIDEND IS DECLARED BY THE COMPANY AND STRICTLY IN LEGAL SENSE, A SHAREHOLDER HAS NO CONTROL AND CANNOT I NSIST ON PAYMENT OF DIVIDEND. WHEN DECLARED, IT IS SUBJECTED TO DIVIDEND DISTRIBUTION TAX.' 11. DECISION IN HOLCIM INDIA (P.) LTD. ( SUPRA ) WAS FOLLOWED AND ELABORATED IN CHEMINVEST LTD. ( SUPRA ).' 26. THERE IS ANOTHER ERROR MADE BY THE ASSESSING OFFICER IN COMPUTING THE DISALLOWANCE UNDER CLAUSES (II) OF RULE 8D (2) WITH REFERENCE TO THE FORMULA PRESCRIBED. NUMERICAL B IN CLAUSE (II) REFERS TO AVERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT FORM PART OR SHALL NOT FORM PART OF THE TOTAL INCOME. TH E ASSESSING OFFICER FOR NUMERICAL B IN CLAUSE (II) HAD TAKEN THE TOTAL VALUE OF THE INVESTMENT AND NOT THE INVESTMENT THAT HAD YIELDED EXEMPT INCOME. THE DELHI HIGH COURT IN ITA NO. 615/2014, ACB INDIA LTD. V. ASSTT. CIT [2015] 62 TAXMANN.COM 71/235 TAXMAN N 22 HAS HELD THAT ONLY AVERAGE VALUE OF THE ENTIRE INVESTMENT THAT DOES NOT FORM PART OF THE TOTAL INCOME IS THE FACTOR WHICH COULD BE COVERED BY THE NUMERICAL B FOR COMPUTING DISALLOWANCE UNDER CLAUSE (II) OF RULE 8D(2) OF THE RULES . 1 1 . HENCE, RESP ECTFULLY FOLLOWING THE DE CISION OF THE HONBLE DELHI HIGH COURT , WE ALLOW GROUND NO 3 RAISED BY THE ASSESSEE IN ITS CO AND RESTRICT THE 10 ITA NO. 325 /MUM/2017 & CO 106 /MUM/2018 ASSESSMENT YEAR: 2009 - 10 DISALLOWANCE U/S 14A TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. WE THEREFORE PARTLY ALLOW THE APPEAL FILED BY THE REVENUE AND SET ASIDE THE ORDER PASSED BY THE LD. CIT (A) AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO AMOUNT OF EXEMPT INCOME EARNED BY THE ASSESSEE. IN THE RESULT, APPEAL FILED BY THE REVENUE AS WELL AS THE CROSS OBJECTION FILED BY THE ASS ESSEE, ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY , 2019 . SD/ - SD/ - ( SHAMIM YAHYA ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 31 / 01/2019 ALINDRA PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI