M/s. Apollo Finance Ltd., New Delhi V. DCIT, New Delhi

ITA 339/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3664 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 16-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAVIKANT GUPTA
• Assessee Lawyers: MANU K GIRI
• Keywords: Depreciation; Opportunity of being heard; Earning of tax free income; Question of law
• Section: 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : A , NEW DELHI BEFORE SH. AMIT SHUKLA , JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO. 339 /DE L/ 2015 ASSESSMENT YEAR: 2008 - 09 M/S. APOLLO FINANCE LTD., 414/1, 4 TH FLOOR, DDA COMM. COMPLEX, DISTT. CENTER, NEW DELHI VS. DCIT, CIRCLE - 2(1), NEW DELHI PAN : AAACA5354J ( APPELLANT ) (RESPONDENT) APPELLANT BY SH. MANU K. GIRI, ADVOCATE RESPONDENT BY SH. RAVI KANT GUPTA, SR.DR DATE OF HEARING 24.01.2018 DATE OF PRONOUNCEMENT 31.01.2018 ORDER PER O.P. KANT , A. M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER DATED 31/10/2014 PASSED BY THE LD. COMMISSIONER OF INCOME - TAX ( APPEALS) - V, NEW DELHI [ IN SHORT THE LD. CIT - ( A) ] FOR ASSESSMENT YEAR 2008 - 09 RAISING FOLLOWING GROUNDS: 1. THAT THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS BAD IN LAW, EQUITY AND JUSTICE. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 5,46,34,862/ - MADE BY THE 2 ASSESSING OFFICER IN ACCORDANCE WITH THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961, READ WITH RULE 8D, IGNORING COMPA NY'S CONTENTIONS BASED ON VARIOUS JUDICIAL PRONOUNCEMENTS. A) THAT THE DISALLOWANCE BE RESTRICTED TO RS. 10,000/ - BEING THE AMOUNT OF DIVIDEND INCOME EARNED BY THE COMPANY DURING THE YEAR UNDER ASSESSMENT; OR B) WITHOUT PREJUDICE TO THE ABOVE, THE DISALL OWANCE BE RESTRICTED TO RS. 1,82,803/ - IN ACCORDANCE WITH THE PROVISIONS OF SECTION 14A READ WITH RULE 8D BY CONSIDERING ONLY THE AVERAGE VALUE OF INVESTMENTS IN EQUITY SHARES ON WHICH THE COMPANY HAS RECEIVED DIVIDEND INCOME DURING THE YEAR UNDER ASSESSME NT AND NOT THE AVERAGE VALUE OF INVESTMENT IN ALL EQUITY SHARES HELD BY THE COMPANY AS AT THE CLOSE OF THE YEAR. C) THAT DISALLOWANCE U/S 14A IS TO BE CALCULATED AS PER RULE 8D BY EXCLUDING THE VALUE OF STRATEGIC INVESTMENTS. THAT THE APPELLANT CRAVES LE AVE TO ADD, ALTER, AMEND OR WITHDRAW ANY GROUND OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 2. THE FACTS IN BRIEF OF THE CASE ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF FINANCING, LEASING AND INVESTMENT ACTIVITIES. THE ASSE SSEE FIL ED RETURN DECLARING LOSS OF RS. 5,51,91,000/ - ON 29/09/2008. THE CASE WAS SELECTED FOR SCRUTINY AND NOTI CE UNDER SECTION 143(2) OF THE INCOME - TAX ACT, 1961 (IN SHORT THE ACT ) WAS ISSUED AND COMPLIED WITH. THE ASSESSING OFFICER NOTICED DIVIDEND INC OME OF RS. 10,000/ - CLAIMED AS EXEMPT UNDER SECTION 10(34) OF THE ACT. THE ASSESSING OFFICER ISSUED SHOW CAUSE AS WHY THE DISA LLOWANCE IN TERMS OF SECTION 14 A OF TH E ACT READ WITH R ULE 8D OF THE INCOME - TAX R ULES, 1962 BE NOT MADE. THE ASSESSEE SUBMITTED THA T NO EXPENDITURE WAS INCURRED FOR EARNING DIVIDEND INCOME, HOWEVER THE ASSESSEE C OMPUTED THE DISALLOWANCE OF RS. 5,42,74,410/ - IN T ERMS OF PROVISION OF SECTION 14A OF THE ACT, UNDER PROTEST. THE ASSESSING OFFICER COMPUTED THE SAID 3 DISALLOWANCE AT RS. 5, 45, 52 ,862/ - AND ACCORDINGLY , MADE DISA LLOWANCE IN TERMS OF SECTION 14 A OF THE ACT READ WITH R ULE 8D OF THE INCOME - TAX R ULES, 1962. ON FURTHER APPEAL, THE LD. CIT - (A) RESTRICTED THE DISALLOWANCE TO RS. 10,000/ - I.E. TO THE EXTENT OF DIVIDEND INCOME EARNED. 3. ON FURTHER APPEAL BY THE R EVENUE BEFORE THE TRIBUNAL, IT WAS CONTENDED THAT THE ASSESSEE INCURRED DEMAT EXPENSES OF RS. 82,000/ - AND DEBITED TO PROFIT AND LOSS ACCOUNT, WHICH WERE INCURRED FOR THE PURPOSE OF MAKING INVESTMENT OF RS. 74,99,18,000/ - . FURTHER IT W AS SUBMITTED THAT NO WORKING/COMPUTATION WAS GIVEN BY THE ASSESSEE IN RESPECT OF EXPENSES INCURRED TOWARDS EXEMPT INCOME EXCEPT THE CRYPTIC CLAIM THAT NO EXPENDITURE WAS INCURRED FOR EARNING DIVIDEND. THE TRIBUNAL IN ITS ORDER DATED 31/08/2012 IN ITA NO. 5 20/DEL/2012 HAS NOTED THAT THE B ENCH RAISED FOLLOWING QUERIES TO THE AUTHORIZED REPRESENTATIVE OF THE ASSE SSEE THAT : (I) WHY THE AMOUNT OF RS. 82,000/ - WHICH ADMITTEDLY WAS DIRECTLY RELATED TO THE INCOME , WHICH DID NOT FORM PART OF THE TOTAL INCOME, HAD NO T BEEN OFFERED FOR DISALLOWANCE SUO MOTU ? (II) AS HUGE INVESTMENT OUTSTANDING AS ON 31/03/2008, TO THE EXTENT OF RS. 74,99,80,000/ - WERE MADE OUT OF BORROWED FUNDS OR OWN FUNDS ? 3.1 T HE TRIBUNAL FURTHER NOTED THAT T HE LD. AR ARGUED THAT SUCH DETAILS WERE NEVER REQUISITIONED BY THE LOWER AUTHORITIES. THE TRIBUNAL FURTHER OBSERVED AS UNDER: 6. WE HAVE HEARD FOR BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY, THE AO DISALLOWED THE AFORESAID AMOUNT OF RS.5,45,52,862/ - , INVOKING PROVISIONS OF SECTION 14A(2) OF THE ACT READ WITH RULE 8D OF I.T. RULES, 1962,WITHOUT EVEN ANAL YZING THE NATURE OF THE EXPENDITURE NOR IT APPEARS THAT 4 RELEVANT DETAILS OF EXPENDITURE AND ACCOUNTS OR CASH FLOW STATEMENT WERE PLACED BEFORE THE AO OR THE ID. CIT(A). THE ASSESSEE MERELY SUBMITTED THAT NO EXPENDITURE HAD BEEN INCURRED FOR EARNING DIVIDEN D INCOME EVEN WHEN HUGE INVESTMENTS WERE MADE TO THE EXTENT OF RS.74,99,18,000/ - UNTIL 31.3.2008 AND DID NOT EVEN OFFER FOR DISALLOWANCE, AN AMOUNT OF RS.82,200/ - WHICH ADMITTEDLY WAS INCURRED FOR EARNING INCOME WHICH DID NOT FORM PART OF TOTAL INCOME. THE RE IS NOTHING TO SUGGEST AS TO WHETHER OR NOT ANY CASH FLOW STATEMENT OR SOURCES OF THE INVESTMENT IN THE VARIOUS FUNDS BY THE ASSESSEE WERE PLACED BEFORE THE AO OR THE ID, CIT(A) . APPARENTLY, THE ASSESSEE DID NOT FURNISH ANY DETAILS OF EXPENDITURE INCURR ED FOR MANAGEMENT AND SUPERVISION OF AFORESAID HUGE INVESTMENTS EVEN WHEN THE ASSESSEE ITSELF STATED THAT AN EXPENDITURE OF ?82,000/ - WAS INCURRED FOR EARNING INCOME WHICH DID NOT FORM PART OF TOTAL INCOME. IN ANY CASE, NO MATERIAL WAS PLACED BEFORE THE AO IN ORDER TO ENABLE HIM TO RECORD HIS SATISFACTION WHILE THE ID.CIT(A) CONCLUDED THAT THE AO WAS REQUIRED TO RECORD HIS SATISFACTION ON THE CLAIM OF THE ASSESSEE U/S 14A(2) OF THE ACT, IRRESPECTIVE OF THE FACT OF FILING OF DETAILS OR OTHERWISE .THERE IS NO APPARENT BASIS NOR THERE IS ANY SUCH PROVISION, RESTRICTING THE DISALLOWANCE TO DIVIDEND INCOME RECEIVED BY THE ASSESSEE DURING THE YEAR. HON BLE APEX COURT IN KANTAMANI VENKATA NARAYANA AND SONS V. FIRST ADDL. ITO [1967] 63 ITR 638 AND AGAIN IN MALEGAON ELECTRICITY CO. P. LTD. V. CIT [1970] 78 ITR 466 (SC) OBSERVED THAT IT IS THE DUTY OF THE ASSESSEE TO BRING TO THE NOTICE OF THE INCOME TAX OFFICER PARTICULAR ITEMS IN THE BOOKS OF ACCOUNT OR PORTIONS OF DOCUMENTS WHICH ARE RELEVANT. THE LAW CASTS A DUTY O N THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THAT YEAR. NOT EVEN A WHISPER HAS BEEN MADE BEFORE US AS TO WHETHER OR NOT RELEVANT ACCOUNTS WERE PLACED BEFORE THE AO OR THE ID. CIT(A) IN ORDER TO ENABLE THEM TO EXAMINE THE CLAIM OF THE ASSESSEE. THE ID. CIT(A) MERELY REFERRED TO CERTAIN DECISIONS IN RELATION TO THE DISALLOWANCE WITHOUT EVEN EXAMINING THE RELEVANT ACCOUNTS OR ASCERTAINING THE RELEVANT FACTS AND CIRCUMSTANCES. 4. THE TRIBUNAL AFTER REFERRING THE VARIOUS DECISIONS OF HON BLE C OURTS RESTORED THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH FINDING AS UNDER: 5 6.7 AS ALREADY OBSERVED, IN THE INSTANT CASE, THE ASSESSEE DENIED INCURRING ANY EXPENDITURE FOR EARNING INCOME, WHICH DID NOT FORM PART OF TOTAL INCOME DURING THE COURSE OF ASSESSMENT PROCEEDINGS EVEN WHEN HUGE INVESTMENTS WERE MADE BY THE ASSESSEE IN SECU RITIES . IN TERMS OF THE AFORESAID DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN MAXOPP INVESTMENT LTD.(SUPRA), EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, THE AO IS REQUIRED TO VERIFY THE CORRECTNESS OF SUCH CLAIM. IN CASE, THE AO IS NOT, ON THE BASIS OF OBJECTIVE CRITERIA AND AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASONS FOR DOING SO. HAVING DONE SO, THE AO HAS TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT, HON BLE HIGH COURT CONCLUDED. FOLLOWING THE VIEW TAKEN IN THIS DECISION, HON BLE JURISDICTIONAL HIGH COURT IN CIT VS. MACHINO PLASTIC LTD IN THEIR DECISION DATED 28.2.2012 IN ITA NO. 92 OF 2011, RESTORED THE MATTER TO THE FILE OF THE AO, BEING HANDICAPPED BECAUSE OF FAILURE OF THE ASSESSEE TO FURNISH RE LEVANT DETAILS AND PARTICULARS .IN THE INSTANT CASE ALSO, THE AO WAS HANDICAPPED, BECAUSE OF FAILURE OF THE ASSESSEE TO FURNISH RELEVANT DETAILS/PARTICULARS AND ACCOUNTS WHILE MAKING THE DISALLOWANCE IN TERMS OF PROVISIONS OF SEC. 14A OF THE ACT. THERE IS NOTHING IN THE ASSESSMENT ORDER OR IMPUGNED ORDER AS TO WHETHER THE ASSESSEE PLACED THE RELEVANT DETAILS & ACCOUNTS BEFORE THE AO NOR THE ID. CIT(A) SEEMS TO HAVE UNDERTAKEN ANY EXERCISE TO ASCERTAIN THE DETAILS OF EXPENDITURE OBJECTIVELY IN MANAGING AND S UPERVISING THE AFORESAID HUGE INVESTMENTS IN VARIOUS FUNDS & SECURITIES. IN VIEW OF THE FOREGOING, WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE ID. CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECIDING THE ISSUE, AFRESH IN A CCORDANCE WITH LAW IN THE LIGHT OF OUR AFORESAID OBSERVATIONS AND VARIOUS JUDICIAL PRONOUNCEMENTS, INCLUDING THOSE REFERRED TO ABOVE, AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE NEEDLESS TO SAY THAT WHILE REDECIDING THE ISSUE, THE AO SHALL PASS A SPEAKING ORDER, GIVING REASONS FOR HIS SATISFACTION OR OTHERWISE, AS POINTED OUT BY THE HON BLE JURISDICTIONAL HIGH COURT IN THEIR DECISION IN MAXOPP INVESTMENT LTD (SUPRA). THE ASSESSEE IS ALSO DIRECTED TO FURNISH ALL THE 6 RELEVANT DETAILS OF EXPENDITURE ACTUALLY INCURRED IN MANAGING AND SUPERVISING THE AFORESAID HUGE INVESTMENTS IN FUNDS & SECURITIES ALONG WITH RELEVANT ACCOUNTS AND CASH FLOW STATEMENT. WITH THESE OBSERVATIONS, GROUND NO 1 IN THE APPEAL IS DISPOSED OF. 5. IN COMPLIANCE TO THE ORDER OF THE TRIBUNAL, THE ASSESSING OFFICER AGAIN INITIATED ASSESSMENT PROCEEDINGS AND AFTER PROVIDING OPPORTUNITY OF BEIN G HEARD, HE INVOKED RULE 8D OF INCOME - TAX R ULES AND AGAIN MADE DISALLOWANCE OF RS. 5 ,45,52,862/ - . ON FURTHER APPEAL BY THE ASSESSEE, THE LD. CI T - ( A ) REJECTED THE CONTENTION OF THE ASSESSEE AND OBSERVED AS UNDER: 3.3 THE STATEMENT OF THE APPELLANT THAT RS.82,000/ - ONLY ON DEMAT CHARGES AND A TOTAL OF RS.L,82,803/ - UNDER RULE 8D WAS DISALLOWABLE U/S 14A IS NOT TENABLE. THIS IS BECAUSE DURING THE YEAR THE APPELLANT HAD AVERAGE INVESTMENT IN SHARES TO THE TUNE OF RS.60.34 CRORES AND IT HAD PAID INTEREST TO THE TUNE OF RS.7.46 CRORE S WHICH WAS NOT STRICTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME. DESPITE THE DIRECTIONS OF THE HON BLE ITAT AND THE NUMEROUS OPPORTUNITIES PROVIDED BY THE AO AFTER THE ASSESSMENT WAS SET ASIDE, THE APPELLANT FAILED TO SATISFY THE ASSESSING OFFICER AND ALSO TO EXPLAIN AT THE APPELLATE STAGE AS TO HOW SUCH HUGE INVESTMENTS WERE BEING MAINTAINED BY IT WITHOUT INCURRING ANY EXPENSES(EVEN THE DEMAT EXPENSES OF RS.82,000/ - WERE INITIALLY NOT DISALLOWED BY IT U/S 14A AND WERE LATER OFFERED FOR DISALLOWANCE ON BEING CONFRONTED BY THE ASSESSING OFFICER) AND THE PURPOSE FOR WHICH THE FUNDS ON WHICH INTEREST EXPENSE OF RS.7.46 CRORES WAS INCURRED, WERE UTILIZED. FROM THE FINAL ACCOUNTS OF THE APPELLANT IT IS OBSERVED THAT AS ON 31.3.2008 IT WAS HAVING INVESTMENTS IN SHA RES OF M/S APTECH LTD., M/S HEXAWARE TECHNOLOGIES LTD., M/S PANTASOFT TECHNOLOGIES LTD., M/S APOLO TYRES LTD. AND APOLO INTERNATIONAL LTD. FOR MAKING INVESTMENTS ON SUCH A SCALE AND FOR MAINTAINING THEM, THE APPELLANT MUST HAVE UTILIZED THE SERVICES/ADVICE OF PROFESSIONALS. IT MUST HAVE ALSO INCURRED EXPENSES ON SALARY, TELEPHONE, POSTAGE ETC. TO FOLLOW UP IN REGARD TO DIVIDEND INCOME. 7 6. FURTHER, THE LD. CIT - A HELD THAT THE ASSESSEE DID NOT COMPLY WITH THE DIRECTION OF THE TRIBUNAL IN ITA NO. 520/DEL/20 12, AND ACCORDINGLY HE UPHELD THE DISALLOWANCE WITH FOLLOWING OBSERVATIONS: 3.5 THE ASSESSING OFFICER HAD ASKED THE APPELLANT TO PROVIDE ALL RELEVANT DETAILS OF EXPENDITURE ACTUALLY INCURRED IN MANAGING AND SUPERVISING THE INVESTMENTS IN FUNDS AND SECUR ITIES ALONG WITH RELEVANT ACCOUNTS AND CASH FLOW STATEMENTS IN RESPONSE TO WHICH A SKETCHY REPLY, AS DISCUSSED IN PARAS - 3.2 AND 3.3 ABOVE, WAS FURNISHED. THE APPELLANT HAS CONTENDED THAT AT THE MOST DISALLOWANCE U/S 14A CAN BE MADE ON INVESTMENTS ON WHICH INCOME WAS EARNED DURING THE YEAR. HOWEVER, IT IS PERTINENT THAT IN THE JUDGMENT OF THE HON BLE ITAT IN THE CASE OF CHEMINVEST LTD. V/S ITO 317 ITR(AT)86, IT WAS HELD THAT WHEN THE EXPENDITURE IS INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T OTAL INCOME, IT HAS TO SUFFER THE DISALLOWANCE IRRESPECTIVE OF THE FACT WHETHER ANY INCOME IS EARNED BY THE ASSESSEE OR NOT AND THE PROVISIONS OF SEC.L4A OF THE ACT DO NOT ENVISAGE ANY SUCH EXCEPTION. THEREFORE, IT IS IRRELEVANT THAT THE APPELLANT RECEIVED DIVIDEND INCOME ONLY TO THE EXTENT OF RS. 10,000/ - DURING THE YEAR AND ONLY ON SHARES OF M/S HEXAWARE TECHNOLOGIES LTD. WHAT IS RELEVANT IS THAT IT WAS MAINTAINING INVESTMENTS IN SHARES TO THE TIME OF CRORES OF RUPEES WHICH WOULD EARN DIVIDEND INCOME FOR THE APPELLANT IN THE FUTURE, IF NOT IN THE CURRENT YEAR, AND DESPITE THE DIRECTION OF THE HON BLE ITAT IT DID NOT COME FORWARD TO DISCLOSE THE EXPENSES INCURRED BY IT FOR EARNING OF DIVIDEND INCOME/MAINTAINING OF SUCH HUGE INVESTMENTS, ALTHOUGH AS ALSO HEL D BY THE HON BLE ITAT, THE ONUS WAS ON THE APPELLANT TO PROVE THAT IT HAD NOT INCURRED ANY EXPENDITURE FOR THE PURPOSE. FURTHER, AS ALREADY EMPHASIZED BY THE HON BLE ITAT IN THEIR ORDER WHILE SETTING ASIDE THE ASSESSMENT OF THE APPELLANT, IT WAS INCUMBENT ON THE APPELLANT TO PROVE THAT THE FUNDS ON WHICH INTEREST OF RS.7.46 CRORES WAS PAID BY IT WERE NOT USED AT ALL FOR MAKING INVESTMENTS IN SHARES. THE APPELLANT ALSO FAILED TO DISCHARGE THIS ONUS CAST UPON IT. THEREFORE, THE DISALLOWANCE MADE BY THE AO IS UPHELD AND THIS GROUND OF APPEAL IS DISMISSED. 8 7. B EFORE US, THE LD. COUNSEL OF THE ASSESSEE, INITIALLY ARGUED GROUND NO. 2A OF THE APPEAL AND RELIED ON THE DECISION OF THE HON BLE DELHI HIGH COURT D ATED 25/02/2015 IN THE CASE OF JOINT INVESTMENT PRIVATE L IMITED IN ITA 117/2015 BUT SUBSEQUENTLY ONLY PRESSED THE ALTERNATE GROUND NO. 2B OF THE APPEAL RELYING ON THE DECISION OF THE TRIBUNA L S PECIAL B ENCH IN THE CASE OF V IREET INVESTMENT PVT . LTD . AND ANR. (2017) 165 ITD 0027 (DELHI) ((SB)) . THE LD. DR ON THE OTHER AND RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 8. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. IN THIS CASE THE DIRECT EXPENDITURE OF RS. 82,000/ - HAS BEEN ADMITTEDLY INCURRED ON DEMAT ACCOUNTS, WHICH IS EVIDENTLY TOWARD EARNING EXEMPT INCOME. SINCE IN THIS CASE EXEMPT INCOME IS ONLY OF RS. 10,000/ - , APPLYING THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF J OINT INVESTMENT PRIVATE L IMITED (SUPRA) WOULD NOT BE APPROPRIATE AS IN THAT CASE THE ASS ESSEE ITSELF VOLUNTEERED FOR DISALLOWANCE OF RS. 2, 97, 440/ - AS ATTRIBUTABLE UNDER SECTION 14A OF THE ACT, BUT IN THE INSTANT CASE ASSESSEE HAS NOT ATTRIBUTED ANY EXPENSES TOWARD EARNING THE EXEMPT INCOME, EVEN THE DIRECT EXPENDITURE OF RS. 82,000/ - ON DEM AT ACCOUNTS. THE LD. COUNSEL HAS NOT PRESSED THE GROUND NO. 2A, IN VIEW OF ALTERNATIVE GROUND NO. 2B ARGUED BY HIM. ACCORDINGLY , THE G ROUND NO. 2A OF THE APPEAL IS DISMISSED AS INFRUCTUOUS. 9. IN THE ALTERNATIVE G ROUND NO. 2B , THE LD. COUNSEL HAS RELIED O N THE DECISION OF THE S PECIAL B ENCH IN THE CASE V IREET INVESTMENT PVT . LTD . AND ANR. (SUPRA). IN THE SAID CASE, THE TRIBUNAL HAS HELD THAT AS FAR AS COMPUTATION OF THE DISALLOWANCE UNDER RULE 8D2(III) OF THE INCOME - TAX R ULES IS CONCERNED, THE AVERAGE VALUE OF INVESTMENT IN SHARES ETC SHOULD BE LIMITED TO THE ONLY INVESTMENTS FROM WHICH THE ASSESSEE HAS RECEIVED EXEMPT INCOME AND NOT AVERAGE VALUE OF ALL INVESTMENTS IN 9 EQUITY SHARES ETC. THE RELEVANT FINDING OF THE TRIBUNA L IS REPRODUCED AS UNDER: 11. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. THE BASIC ISSUE FOR CONSIDERATION IS THAT THE INVESTMENT, WHICH DID NOT YIELD ANY EXEMPT INCOME, SHOULD E NTER OR NOT ENTER INTO THE COMPUTATION UNDER RULE 8D, WHILE ARRIVING AT THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME. 11.1 IN THE PRESENT CASE, OUR DECISION IS RESTRICTED ONLY TO THE EXTENT OF INTER PRETATION OF LANGUAGE EMPLOYED IN RULE 8(2)(III). THE SUBMISSION OF ID. COUNSEL FOR THE ASSESSEE IS THAT THIS ISSUE IS NOW COVERED BY THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. HOFCIN INDIA (P) LTD. (SUPRA), WHEREIN IT HAS BEEN HELD THAT IF NO DIVIDEND INCOME WAS>EARNED, SECTION 14A COULD NOT BE INVOKED. THE HON'BLE DELHI HIGH COURT HAS REFERRED TO THE DECISIONS, WHICH WE HAVE NOTED EARLIER I.E.: - CIT V. M/S SHIVAM MOTORS (P) LTD. ITA 88 OF 2014 (ALL.); - CIT V. WINSOME TEXTILE INDU STRIES LTD. 319 ITR 204 (P&H) - CIT V. M/S LAKHANI MARKETING ITA 970 OF 2008 (P&H) - CORRTECH ENERGY PVT. LTD. 223 TAXMAN 130 (GUJ.). - CIT V. HERO CYCLES LTD. 323 ITR 518. 11.2 THE SUBMISSION OF LD. PRINCIPAL CIT(DR) IS THAT ITAT IN THE CASE OF DELHI SPEC IAL BENCH IN THE CASE OF CHEMINVEST LTD. (SUPRA) HAS SPECIFICALLY HELD THAT EVEN IF THERE IS NO EXEMPT INCOME, THE PROVISIONS OF SECTION 14A ARE APPLICABLE IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RAJEDNRA PRASAD MOODY (SUPRA). HIS S UBMISSION IS THAT THE DECISION OF HON'BLE DELHI COURT REVERSING THE DECISION OF SPECIAL BENCH IN CHEMINVEST SHOULD NOT BE FOLLOWED BECAUSE THAT IS CONTRARY TO THE PRINCIPLES LAID DOWN IN RAJENDRA PRASAD MODI(SUPRA). 11.3 IT IS AGAINST THESE SUBMISSIONS, WE FIRST REFER TO THE FACTS AS WERE OBTAINING IN THESE TWO DECISIONS. 11.4 IN THE CASE OF CHEMINVEST LTD. (SUPRA), THE ASSESSEE HAD BORROWED FUNDS OF RS. 8,51,65,000/ - AND DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2004 - 05 PAID INTEREST OF RS. 1,21 ,02,367/ - THEREON. OUT OF THIS UNSECURED LOAN, THE ASSESSEE INVESTED A SUM IN PURCHASE OF SHARES, WHICH WAS SHOWN AS INVESTMENT FOR THE PURPOSE OF LONG TERM CAPITAL GAINS. THE AO DISALLOWED INTEREST PROPORTIONATE TO THE INVESTMENT IN SHARES, THOUGH NO EXEMP T INCOME WAS EARNED DURING THE YEAR. THE CIT(A) AFFIRMED THIS BUT HELD THAT THE NET INTEREST DEBITED TO THE P&L A/C WAS REQUIRED TO BE APPORTIONED AND NOT THE S INTEREST EXPENDITURE. THE TRIBUNAL HELD THAT INTEREST EXPENDITURE INCURRED BY THE ASSESSEE WAS FOR BORROWING USED FOR THE PURPOSES - OF INVESTMENT IN SHARES, BOTH HELD FOR TRADING AS WELL AS INVESTMENT PURPOSES. IRRESPECTIVE OF WHETHER OR NOT THERE WAS ANY YIELD OF DIVIDEND ON THE SHARES PURCHASED, THE INTEREST INCURRED WAS RELATABLE TO EARNING OF DI VIDEND ON THE SHARES PURCHASED. THE DIVIDEND INCOME BEING EXEMPTED FROM TAX BY VIRTUE OF SECTION 10(34) OF THE ACT, 10 THE INTEREST PAID ON BORROWED CAPITAL UTILIZED IN PURCHASE OF SHARES, BEING THE EXPENDITURE INCURRED IN RELATION TO DIVIDEND INCOME NOT FORM ING PART OF THE ASSESSEE'S TOTAL INCOME, WAS HELD TO BE NOT AN ALLOWABLE DEDUCTION. IN COMING TO THE CONCLUSION, THE SPECIAL BENCH PRIMARILY RELIED ON THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF RAJENDRA PRASAD MOODY (SUPRA). 11.5 IN TH E CASE OF RAJENDRA PRASAD MOODY (SUPRA), THE FACTS WERE THAT THE ASSESSEES WERE BROTHERS AND EACH OF THEM HAD BORROWED. MONEYS FOR THE PURPOSES OF MAKING INVESTMENT IN SHARES OF CERTAIN COMPANIES. DURING THE RELEVANT ASSESSMENT YEAR THEY PAID INTEREST ON T HE MONEYS BORROWED BUT DID NOT RECEIVE ANY DIVIDEND ON THE SHARES PURCHASED WITH THESE MONEYS. BOTH OF THEM MADE A CLAIM FOR DEDUCTION OF THE AMOUNT OF INTEREST PAID ON BORROWED MONEYS BUT THIS CLAIM WAS NEGATED BY THE ITO AND ON APPEAL BY THE AAC ON THE G ROUND THAT DURING THE RELEVANT ASSESSMENT YEAR THE SHARES DID NOT YIELD ANY DIVIDEND AND. THEREFORE, INTEREST PAID ON THE BORROWED MONEYS COULD NOT BE REGARDED AS EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF MAKING OR EARNING INCOME CHARGEABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES', SO AS TO BE ALLOWABLE AS A PERMISSIBLE DEDUCTION U/S 57(III). THE TRIBUNAL. HOWEVER, ON FURTHER APPEAL, DISAGREED WITH THE VIEW TAKEN BY THE TAXING AUTHORITIES AND UPHELD THE CLAIM OF EACH OF T HE TWO ASSESSEES FOR DEDUCTION U/S 57(III). 11.6 IN THE BACKDROP OF THESE FACTS THE TRIBUNAL'S ORDER WAS UPHELD BY THE HON'BLE HIGH COURT AND HON'BLE SUPREME COURT. THE HON'BLE SUPREME COURT, INTER ALIA, HELD THAT IT IS THE PURPOSE OF THE EXPENDITURE THAT IS RELEVANT IN DETERMINING THE APPLICABILITY OF SECTION 57(III) AND THAT PURPOSE MUST BE MAKING OR EARNING OF INCOME. IT WAS FURTHER HELD THAT SECTION 57(III) DOES NOT REQUIRE THAT THIS PURPOSE MUST BE FULFILLED IN ORDER TO QUALIFY THE EXPENDITURE FOR DEDU CTION. 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 SECTION 57(III) TO SUGGEST THAT THE PURPOSE, FOR WHICH THE EXPENDITURE IS MADE, SHOULD FRUCTIFY INTO ANY BENEF IT BY WAY OF RETURN IN THE SHAPE OF INCOME. 11.7 THUS, IN BOTH THE DECISIONS VIZ. IN THE CASE OF CHEMINVEST LTD. (SUPRA), AND IN THE CASE OF RAJENDRA PRASAD MOODY (SUPRA), THE ISSUE RELATED TO ALLOWABILITY OF EXPENDITURE WHICH HAD DIRECT NEXUS WITH THE EAR NING OF INCOME. THE BORROWING IN BOTH THE CASES HAS NOT BEEN DISPUTED BEING FOR ACQUIRING SHARES. HON'BLE DELHI HIGH COURT HAS SPECIFICALLY HELD IN PARA 21 AS UNDER: - '21. THERE IS MERIT IN THE CONTENTION OF MR. VOHRA THAT THE DECISION OF THE SUPREME COURT IN RAJENDRA PRASAD MODDY (SUPRA) WAS RENDERED IN THE CONTEXT OF ALLOWABILITY OF DEDUCTION UNDER SECTION 57(HI) OF THE ACT, WHERE THE EXPRESSION USED IS FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME'. SECTION 14A OF THE ACT ON THE OTHER HAND CONTAINS TH E EXPRESSION 'IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME.' THE DECISION IN RAJENDRA PRASAD MOODY (SUPRA) CANNOT BE USED IN THE REVERSE TO CONTEND THAT EVEN IF NO INCOME HAS BEEN RECEIVED, THE EXPENDITURE INCURRED CAN BE DISALLOWED U NDER SECTION 14A OF THE ACT.' 11.8 IN THE CASE OF HOLCIN INDIA (P) LTD. (SUPRA) THE FACTS WERE THAT THE RESPONDENT - ASSESSEE WAS A SUBSIDIARY OF HOLDERIND INVESTMENTS LTD., MAURITIUS, WHICH WAS FORMED AS A HOLDING COMPANY FOR 'MAKING DOWNSTREAM INVESTMENTS IN. CEMENT MANUFACTURING VENTURES IN INDIA. IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR 2007 - 08, THE RESPONDENT - ASSESSEE DECLARED LOSS 11 OF RS. 8.56 CRORES APPROXIMATELY. THE RESPONDENT - ASSESSEE HAD DECLARED REVENUE RECEIPTS OF RS. 18,02,274/ - WHI CH INCLUDED INTEREST OF RS. 726/ - FROM FIXED DEPOSIT RECEIPTS AND PROFIT ON SALE OF FIXED ASSETS OF RS. 16,52,225/ - . AS AGAINST THIS, THE RESPONDENT ASSESSEE HAD CLAIMED ADMINISTRATIVE AND MISCELLANEOUS EXPENDITURE WRITTEN OFF AMOUNTING TO RS. 8.75 CRORES. FOR THE ASSESSMENT YEAR 2008 - 09, THE ASSESSEE HAD FILED RETURN DECLARING LOSS OF RS. 6.60 CRORES APPROXIMATELY. THE ASSESSEE HAD DECLARED REVENUE RECEIPTS IN THE FORM OF FOREIGN CURRENCY FLUCTUATION DIFFERENCE GAIN OF RS. 12,46,595/ - . IT HAD CLAIMED EXPEN SES AMOUNTING TO RS. 7.02 CRORES AS PERSONAL EXPENSES, OPERATING AND OTHER EXPENSES, DEPRECIATION AND FINANCIAL EXPENSES. 11.9 IN BOTH THE ASSESSMENT ORDERS, THE ASSESSING OFFICER HELD THAT THE RESPONDENT - ASSESSEE HAD NOT COMMENCED BUSINESS ACTIVITIES AS T HEY HAD NOT UNDERTAKEN ANY MANUFACTURING ACTIVITY OR MADE DOWNSTREAM INVESTMENTS. IT WAS OBSERVED THAT THE RESPONDENT - ASSESSEE, AFTER RECEIVING APPROVAL OF FOREIGN INVESTMENT PROMOTION SOARD (FIPS) DATED 20.12.2000 ACQUIRED SHARES CAPITAL OF AMBUJA CEMENT INDIA LTD. THIS, THE ASSESSING OFFICER FELT, WAS NOT SUFFICIENT TO INDICATE OR HOLD THAT THE RESPONDENT - ASSESSEE HAD STARTED THEIR BUSINESS. HE, ACCORDINGLY, DISALLOWED THE ENTIRE EXPENDITURE OF RS. 8.75 CRORES FOR THE ASSESSMENT YEAR 2007 - 08 AND RS. 7.02 CRORES FOR THE ASSESSMENT YEAR 2008 - 09. 11.10 LD. CIT(A) DID NOT AGREE WITH THE FINDINGS OF ASSESSING OFFICER THAT THE BUSINESS OF THE RESPONDENT - ASSESSEE HAD NOT BEEN SET UP OR COMMENCED. THE CIT(A) OBSERVED THAT THE RESPONDENT - ASSESSEE HAD BEEN SET UP WITH THE BUSINESS OBJECTIVE OF MAKING INVESTMENT IN CEMENT INDUSTRY AFTER DUE APPROVAL GIVEN BY THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY VIDE LETTER DATED 18.12.2002 AND 20.12.2012. IT WAS OBSERVED THAT IN FACT, THE RESPONDENT - ASSESSEE WA S NOT TO UNDERTAKE ANY MANUFACTURING ACTIVITY THEMSELVES. AFTER CONSIDERING THE FIPS APPROVAL AND THE PURCHASE OF SHARES IN THE SAID COMPANY OF RS. 1850.91 CRORES, LD. CIT(A), INTER ALIA, OBSERVED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF HOLDING OF INVESTMENT AND WAS ENTITLED TO CLAIM EXPENDITURE PROVIDED. THERE WAS A DIRECT CONNECTION BETWEEN EXPENDITURE INCURRED AND BUSINESS OF THE ASSESSEE COMPANY. HOWEVER, HE POINTED OUT THAT SINCE THE BUSINESS OF THE RESPONDENT ASSESSEE WAS TO ACT AS A HOLDING COMPANY FOR DOWNSTREAM INVESTMENT AND AS IT WAS AN ACCEPTED FACT THAT THEY HAD INCURRED EXPENSES TO PROTECT THEIR BUSINESS AND EXPLORE NEW AVENUES OF INVESTMENT, THE PROVISIONS OF SECTION 14 A WERE APPLICABLE. 11.11 THE HON'BLE HIGH COURT OBSERVED THAT THE REASONING GIVEN BY THE CIT(A) WAS AMBIGUOUS AND UNCLEAR AND ON CLARITY BEING SOUGHT FROM THE REVENUE IT WAS POINTED OUT THAT 'THE STAND OF THE ASSESSEE CONTAINED A CONTRADICTION TO THE EXTENT THAT ON THE ISSUE OF SETTING UP OF BUSINESS, IT WAS STATED THAT THE ASSESSEE HAD INCURRED EXPENDITURE ON ACQUIRING THE SHARES, THEREFORE, THE ASSESSEE COULD NOT NOW TAKE DIFFERENT STAND THAN THE ONE TAKEN IN THE FIRST ISSUE'. 11.12 THE HON'BLE HIGH COURT, AFTER CONSIDERING IN DETAIL THE DE CISION OF LD. CIT(A) FINALLY OBSERVED IN PARA 13 AS UNDER: 13. WE. ARE CONFUSED ABOUT THE STAND TAKEN BY THE APPELLANT - REVENUE. THUS, WE HAD ASKED SR. STANDING COUNSEL FOR THE - REVENUE, TO STATE IN HIS OWN WORDS, THEIR STAND BEFORE US. DURING THE COURSE OF HEARING, THE SUBMISSION RAISED WAS THAT THE SHARES WOULD HAVE YIELDED DIVIDEND, WHICH WOULD BE EXEMPT INCOME 12 AND THEREFORE, THE CIT(A) HAD INVOKED SECTION 14A TO DISALLOW THE ENTIRE EXPENDITURE. THE AFORESAID SUBMISSION DOES NOT FIND ANY SPECIFIC AND CLEAR NARRATION IN THE REASONS OR THE GROUNDS GIVEN BY THE CIT(A) TO MAKE THE SAID ADDITION. POSSIBLY, THE CIT(A), THOUGH IT IS NOT ARGUED BEFORE US, HAD TAKEN THE STAND THAT THE RESPONDENT - ASSESSEE HAD MADE INVESTMENT AND EXPENDITURE WAS INCURRED TO PROTECT TH OSE INVESTMENTS AND THIS EXPENDITURE CANNOT BE ALLOWED UNDER SECTION 14A. 11.13 THUS, HON'BLE DELHI HIGH COURT PRIMARILY DECIDED THE ISSUE REGARDING APPLICABILITY OF SECTION 14A EVEN IF NO DIVIDEND INCOME WAS EARNED. THE HON'BLE HIGH COURT IN PARAS 14 TO 1 6 OF ITS DECISION OBSERVED AS UNDER: 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 D ECISIONS 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 I NCH, TTA NO. 970/2008, DECIDED ON 02.04.2014, MADE REFERENCE TO TWO ' EARLIER DECISIONS OF THE SAME COURT IN CIT V. HERO CYCLES LIMITED, [2010J323 ITR 518 AND CIT VS. 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 N O. 88 OF 2014, COMMISSIONER OF INCOME TAX (LI) KANPUR, V. MIS. 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 TOT AL INCOME UNDER 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 NOT 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 T HE ABSENCE OF ANY TAX FREE INCOME, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE. THE VIEW OF THE C1T(A), WHICH HAS BEEN AFFIRMED BY THE TRIBUNAL, HENCE DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. HENCE, THE DELETION OF THE DISALLOWANCE OF RS. 2,03,752/ - MADE BY THE ASSESSING OFFICER WAS IN ORDER' '15. INCOME EXEMPT UNDER SECTION 10 IN 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 BEE N 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 13 INVESTMENT COMPANY AND HAD INVESTED BY PURCHASING A SUBSTANTIAL NUMBER OF SHARES AND THEREBY SECURING RIGHT TO MANAGEMENT. POSSIBILITY OF SALE OF SHARES BY PRIVATE PLACEMENT ETC. CANNOT BE RULED OUT AND IS NOT ALL IMPROBABILITY. DIVIDEND MAY OR MAY NOT BE DECLARED. DIVIDEND IS DECLARED BY THE COMPANY AND STRICTLY IN LEGAL SENSE, A SHAREHOLDER HAS NO CONTRO L AND CANNOT INSIST ON PAYMENT OF DIVIDEND. WHEN DECLARED, IT IS SUBJECTED TO DIVIDEND DISTRIBUTION TAX. 16. WHAT IS ALSO NOTICEABLE IS THAT THE ENTIRE OR WHOLE EXPENDITURE HAS BEEN DISALLOWED AS IF THERE WAS NO EXPENDITURE INCURRED BY THE RESPONDENT - ASSES SEE FOR CONDUCTING BUSINESS. THE CIT(A) HAS POSITIVELY HELD THAT THE BUSINESS WAS SET UP AND HAD COMMENCED. THE SAID FINDING IS ACCEPTED. THE RESPONDENT - ASSESSEE, THEREFORE, HAD TO INCUR EXPENDITURE FOR THE BUSINESS IN THE FORM OF INVESTMENT IN SHARES OF C EMENT COMPANIES AND TO FURTHER EXPAND AND CONSOLIDATE THEIR BUSINESS. EXPENDITURE HAD TO BE ALSO INCURRED TO PROTECT THE INVESTMENT MADE. THE GENUINENESS OF THE SAID EXPENDITURE AND THE FACT THAT IT WAS INCURRED FOR BUSINESS ACTIVITIES WAS NOT DOUBTED BY T HE ASSESSING OFFICER AND HAS ALSO NOT BEEN DOUBTED BY THE CIT(A). 11.14 NOW THE POSITION OF LAW AS STANDS IS THAT THE DECISION OF HON'BLE JURISDICTION HIGH COURT IS DIRECTLY ON THE POINT IN DISPUTE WHEREAS THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RAJENDRA PRASAD MOODY (SUPRA) HAS BEEN RENDERED IN THE CONTEXT OF SECTION 57(III), THE APPLICABILITY OF WHICH HAS BEEN RULED OUT BY HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST (SUPRA). 11.15 UNDER ARTICLE 227 OF THE CONSTITUTION OF INDIA, THE COU RTS FUNCTION UNDER THE SUPERVISORY JURISDICTION OF HON'BLE HIGH COURT. THE DECISIONS RENDERED BY HON'BLE HIGH COURT ARE BINDING ON ALL SUBORDINATE COURTS WORKING WITHIN ITS JURISDICTION. IN THIS REGARD WE MAY REFER TO THE FOLLOWING DECISIONS: (I) CIT V. TH ANA ELECTRICITY SUPPLY LTD. (1994) 206 ITR 727 (BOM.), WHEREIN ON THE ISSUE OF 'WHOSE DECISION - IS BINDING ON WHOM', THE. HON'BLE BOMBAY COURT CONSIDERED IN DETAIL THE HIERARCHY OF THE COURTS AND HAS OBSERVED AS UNDER: 'IT IS ALSO WELL - SETTLED THAT THOUGH T HERE IS NO SPECIFIC PROVISION MAKING THE LAW DECLARED BY THE HIGH COURT BINDING ON SUBORDINATE COURTS, IT IS IMPLICIT IN THE POWER OF SUPERVISION CONFERRED ON A SUPERIOR TRIBUNAL THAT THE TRIBUNALS SUBJECT TO ITS SUPERVISION WOULD CONFORM TO THE LAW LAID D OWN BY IT. IT IS IN THAT VIEW OF THE MATTER THAT THE SUPREME COURT IN EAST INDIA COMMERCIAL CO. LTD. V. COLLECTOR OF CUSTOMS, AIR 1962 SC 1893 (AT PAGE1905) DECLARED: 'WE, THEREFORE', HOLD THAT THE LAW DECLARED BY THE HIGHEST COURT IN THE STATE IS BINDING ON AUTHORITIES OR TRIBUNALS UNDER ITS SUPERINTENDENCE, AND THEY CANNOT IGNORE IT. ....' THIS POSITION HAS BEEN SUMMED UP BY THE SUPREME COURT IN MAHADEOLAL KANODIA V. ADMINISTRATOR GENERAL OF WEST BENGAL, AIR 1960 SC 936 (AT PAGE 941) AS FOLLOWS: 'JUDICIAL DECORUM NO LESS THAN LEGAL PROPRIETY FORMS THE BASIS OF JUDICIAL PROCEDURE. IF ONE THING IS MORE NECESSARY IN LAW THAN ANY OTHER THING, IT IS THE QUALITY OF CERTAINTY. THAT QUALITY WOULD TOTALLY DISAPPEAR IF JUDGES OF CO - ORDINATE JURISDICTION IN A HIGH CO URT START OVERRULING ONE ANOTHER'S DECISIONS. IF ONE 14 DIVISION BENCH OF A HIGH COURT IS UNABLE TO DISTINGUISH A PREVIOUS DECISION OF ANOTHER DIVISION BENCH, AND HOLDING THE VIEW THAT THE EARLIER DECISION IS WRONG, ITSELF GIVES EFFECT TO THAT VIEW, THE RESUL T WOULD BE UTTER CONFUSION. THE POSITION WOULD BE EQUALLY BAD WHERE A JUDGE SITTING SINGLY IN THE HIGH COURT IS OF OPINION THAT THE PREVIOUS DECISION OF ANOTHER SINGLE JUDGE ON A QUESTION OF LAW IS WRONG AND GIVES EFFECT TO THAT VIEW INSTEAD OF REFERRING T HE MATTER TO A LARGER BENCH.' THE ABOVE DECISION WAS FOLLOWED BY THE SUPREME COURT IN BARADAKANTA MISHRA V. BHIMSEN DIXIT, AIR 1972 SC 2466, WHEREIN THE LEGAL POSITION WAS REITERATED IN THE FOLLOWING WORDS (AT PAGE 2469) : 'IT WOULD BE ANOMALOUS TO SUGGEST THAT A TRIBUNAL OVER WHICH THE HIGH COURT HAS SUPERINTENDENCE CAN IGNORE THE LAW DECLARED BY THAT COURT AND START PROCEEDINGS IN DIRECT VIOLATION OF IT. IF A TRIBUNAL CAN DO SO, ALL THE SUBORDINATE COURTS CAN EQUALLY DO SO, FOR THERE IS NO SPECIFIC PROVIS ION, JUST LIKE IN THE CASE OF SUPREME COURT, MAKING THE LAW DECLARED BY THE HIGH COURT BINDING ON SUBORDINATE COURTS. IT IS IMPLICIT IN THE POWER OF SUPERVISION CONFERRED ON A SUPERIOR TRIBUNAL THAT ALL THE TRIBUNALS SUBJECT TO ITS SUPERVISION SHOULD CONFO RM TO THE LAW LAID DOWN BY IT. SUCH OBEDIENCE WOULD ALSO BE CONDUCIVE TO THEIR SMOOTH WORKING; OTHERWISE THERE WOULD BE CONFUSION IN THE ADMINISTRATION OF LAW AND RESPECT FOR LAW WOULD IRRETRIEVABLY SUFFER,' (II) CIT V. SVNIL KUMAR (1995) 212 ITR 238 (RAJ. ), IT WAS OBSERVED AS UNDER: 'THE POINT WHICH HAS BEEN RAISED COULD HAVE BEEN CONSIDERED TO BE DEBATABLE BECAUSE OTHER HIGH COURTS HAVE TAKEN A DIFFERENT VIEW. BUT SINCE THE VIEW TAKEN BY THIS COURT IS BINDING ON THE TRIBUNAL AND OTHER AUTHORITIES UNDER TH E ACT IN THIS STATE, IT COULD NOT BE CONSIDERED TO BE A DEBATABLE POINT IN VIEW OF THE DECISION OF THIS COURT IN THE CASE OF CIT V. M.I, SANGHI [1988] 170 ITR 670.' (III) INDIAN TUBE COMPANY LTD. V. CIT & OTHERS (1993) 203 ITR 54 (COL.) , IT WAS OBSERVED A S UNDER: 'IN THE IMPUGNED ORDER, RESPONDENT NO.1 HAS REJECTED THE PETITIONER'S CONTENTION BY STATING THAT, ALTHOUGH THE CALCUTTA HIGH COURT HAD HELD THAT AN ASSESSEE WAS ENTITLED TO INTEREST ON SUCH REFUND CALCULATED UP TO THE DATE OF THE ORDER PASSED CONS EQUENT UPON AN APPEAL OR REVISION OF THE ORIGINAL ASSESSMENT, THIS VIEW HAD NOT BEEN ACCEPTED BY THE BOMBAY HIGH COURT, THE ALLAHABAD HIGH COURT AND THE KERALA HIGH COURT. RESPONDENT NO.1, ACCORDINGLY, CHOSE TO ACCEPT THE VIEW OF THE BOMBAY, ALLAHABAD AND KERALA HIGH COURTS IN PREFERENCE TO THE VIEW OF THE CALCUTTA HIGH COURT. IN MY VIEW, THE ORDER OF RESPONDENT NO. 1 CANNOT BE SUSTAINED ON THE SIMPLE GROUND THAT RESPONDENT NO. 1 IS AN AUTHORITY OPERATING WITHIN THE STATE OF WEST BENGAL AND IS BOUND BY THE DECISIONS OF THE NIGH COURT OF THIS STATE ( SEE CIT V. INDIAN PRESS EXCHANGE LTD. [1989] 176 ITR 331 (COL) ; EAST INDIA COMMERCIAL CO. LTD. V. COLLECTOR OF CUSTOMS AIR 1962 SC 1993, PARAGRAPH 29). 15 IN THAT VIEW OF THE MATTER, THE IMPUGNED ORDER MUST BE SET ASIDE AND THE COMMISSIONER IS DIRECTED TO CONSIDER THE MATTER AFRESH IN KEEPING WITH THE DECISIONS OF THIS COURT AFTER GIVING THE PETITIONERS AN OPPORTUNITY OF BEING HEARD. AT LEAST 48 HOURS CLEAR NOTICE MUST BE GIVEN TO THE PETITIONERS. THE COMMISSIONER W ILL COMMUNICATE THE FINAL ORDER TO THE PETITIONER WITHIN EIGHT WEEKS FROM THE DATE OF HEARING. (IV) CIT V. J.K. JAIN [1998] 230 ITR 839 (P&H), OBSERVING AS UNDER: 'WE HAVE CAREFULLY EXAMINED THE RECORDS AND HAVE HEARD LEARNED COUNSEL REPRESENTING THE PARTI ES. WE ARE IN RESPECTFUL AGREEMENT WITH THE VIEW EXPRESSED BY THE ALLAHABAD HIGH COURT IN OMEGA SPORTS AND RADIO WORKS' CASE [1982] 134 ITR 28, AS ALSO THE DECISION OF THIS COURT IN MOHAN LAL KANSAL'S CASE [1978] 114 ITR 583. FOLLOWING THE DECISION IN THE TWO CASES REFERRED TO ABOVE, WE HOLD THAT IT WAS NOT A CASE OF DIVERGENCE OF OPINION INASMUCH AS THE OPINION EXPRESSED BY THIS COURT WAS BINDING UPON THE TRIBUNAL.' 11.16 THEREFORE, IN OUR CONSIDERED OPINION, NO CONTRARY VIEW CAN BE TAKEN UNDER THESE CIRCU MSTANCES. WE, ACCORDINGLY, HOLD THAT ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMENT WHICH YIELDED EXEMPT INCOME DURING THE YEAR. 11.17 AS FAR AS ARGUMENT RELATING TO MEANING TO BE ASCRIBED TO THE PHRASE 'SHALL NOT' US ED IN RULE 8D(2)(III) IS CONCERNED, THE REVENUE'S CONTENTION IS THAT IT REFERS TO THOSE INVESTMENTS WHICH DID NOT YIELD ANY EXEMPT INCOME DURING THE YEAR BUT IF INCOME WOULD HAVE BEEN YIELDED IT WOULD HAVE REMAIN EXEMPT. THERE IS NO DISPUTE THAT IF AN INVE STMENT HAS YIELDED EXEMPT INCOME IN A PARTICULAR YEAR THEN IT WILL ENTER THE COMPUTATION OF AVERAGE VALUE OF INVESTMENTS FOR THE PURPOSES OF RULE 8D(2)(III). THE ASSESSEE'S CONTENTION THAT IF THERE IS NO CERTAINTY THAT AN INCOME, WHICH IS EXEMPT IN CURRENT YEAR, WILL CONTINUE TO BE SO IN FUTURE YEARS AND, THEREFORE, THAT INVESTMENT SHOULD ALSO BE EXCLUDED, IS HYPOTHETICAL AND CANNOT BE ACCEPTED. 11.18 IN VIEW OF ABOVE DISCUSSION, THE MATTER IS RESTORED BACK TO THE FILE OF AO FOR RECOMPUTING THE DISALLOWANCE U/S 14A IN TERMS OF ABOVE OBSERVATIONS. THUS, REVENUE'S APPEAL IS DISMISSED AND ASSESSEE'S CROSS - OBJECTION, ON THE ISSUE IN QUESTION, STAND ALLOWED FOR STATISTICAL PURPOSES, IN TERMS INDICATED ABOVE. 10. RESPECTFULLY FOLLOWING THE FINDING OF THE TRIBUNAL IN CASE OF VIREET I NV ESTMENT PRIVATE L IMITED (SUPRA) , WE RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO CONSIDER ONLY THE INVESTMENT WHICH YIELDED EXEMPT INCOME, FOR THE PURP OSE OF AVERAGE VALUE OF INVESTMENT WHILE COMPUTING THE DISALLOWANCE UNDER SECTION 14 A OF THE ACT READ WITH RULE 8D OF I NCOME - TAX R ULES, 1962. 11. ACCORDINGLY, THE GROUND NO. 2B OF THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. T H E G R O U N D N O . 2 C W A S N O T P R E S S E D . 16 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED PARTLY FOR STATISTICAL PURPOSES. THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 3 1 S T JAN . , 201 8 . S D / - S D / - ( AMIT SHUKLA ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 3 1 S T JANUARY , 201 8 . RK / - (D.T.D) COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI