Marg Limited, CHENNAI V. JCIT, CHENNAI

ITA 346/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9637 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 29-02-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 16-02-2016
• Court: TRIBUNAL
• Department Lawyers: MRS VIJAYALAKSHMI
• Assessee Lawyers: K RAVI
• Keywords: Depreciation; Earning of tax free income; Cost of acquisition; Revenue expenditure
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , ! . ! # $ , % $& BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER . /ITA NOS. 344 TO 346/MDS/2016 / ASSESSMENT YEARS : 2009-10 TO 2011-12 AND S.P.NOS. 48 TO 50/MDS/2016 M/S. MARG LIMITED, MARG AXIS, NO.4/318, RAJIV GANDHI SALAI, KOTTIVAKAM, CHENNAI 600 041. PAN AACCM8770G ( /APPELLANT) V. THE JOINT COMMISSIONER OF INCOME-TAX, COMPANY RANGE-V, CHENNAI. RESPONDENT) / APPELLANT BY : SHRI K. RAVI, ADVOCATE / RESPONDENT BY : MRS. VIJAYALAKSHMI, CIT ! / DATE OF HEARING : 07.03.2016 '# ! / DATE OF PRONOUNCEMENT : 06.04.2016 ' / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME-TAX( APPEALS) DATED 31.12.2015. THE ASSESSEE HAS ALSO FILED STAY PETITIONS. ITA 344 TO 346/15 ETC. 2 SINCE, THE ISSUES INVOLVED IN THESE APPEALS ARE COM MON, THESE ARE CLUBBED TOGETHER, HEARD TOGETHER AND DISPOSED O FF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE FIRST COMMON GROUND IN ALL THESE APPEALS IS WITH REGARD TO DISALLOWANCE OF EXPENDITURE U/S.14A OF THE ACT. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSING OFF ICER INVOKED THE PROVISIONS OF SEC.14A R.W. RULE 8D OF T HE I.T. RULES AND DISALLOWED THE EXPENDITURE OF ` 98,16,104/-, ` 1,69,84,915/- AND ` 2,39,01,020/- FOR THE ASST. YEARS 2009-10, 2010-1 1 AND 2011-012 RESPECTIVELY. AGAINST THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS), WHO CONFIRMED THE FINDING OF THE AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD. AR SUBMITTED THAT IN THESE ASST. YEARS, THE EXEMPT INCOME IS AS FOLLOWS : 2009-10 ` 41,042/- 2010-11 NIL 2011-12 ` 74,000/- HE PLACED RELIANCE ON THE ORDER OF THE TRIBUNAL IN THE CASE OF ACIT VS. M/S. THE NUNGAMBAKKAM SASWATHA DHANA RAKSH AKA NIDHI LTD. IN ITA NO.1138/MDS/2013 DATED 5.8.2013, WHEREIN IT WAS HELD THAT UNLESS THE ASSESSING OFFICER ESTABLIS HED THAT ITA 344 TO 346/15 ETC. 3 SPECIFIC EXPENDITURE HAS BEEN INCURRED BY THE ASSES SEE FOR EARNING THE EXEMPT INCOME, THERE CAN BE NO DISALLO WANCE U/S.14A OF THE ACT. FURTHER, ACCORDING TO THE LD . AR, DISALLOWANCE CANNOT BE MORE THAN THE EXEMPTED INCOM E. HE, FURTHER SUBMITTED THAT THE MADRAS HIGH COURT IN THE CASE OF M/S. EID PERRY (INDIA) LIMITED V. JCIT IN IC A NO.2287 O F 2006 DATED 8.8.2012 HELD THAT 2% WOULD BE THE EXEMPTED INCOME. THE LD. AR ALSO RELIED ON THE DECISION OF THE JURISDICTIONA L HIGH COURT IN THE CASE OF SIMPSON & CO. LTD. V. DCIT IN TCA NO.2 261 OF 2006 DATED 15.10.2012 TO SUPPORT HIS ARGUMENT. THE LD. AR FURTHER PLACED RELIANCE ON THE JUDGMENT OF THE DELHI HIGH C OURT IN THE CASE OF JOINT INVESTMENTS PVT. LTD. V. CIT (372 ITR 694) WHEREIN IT WAS OBSERVED AS UNDER : THIS COURT IN COMMISSIONER OF INCOME TAX VI V. TAIKISHA ENGINEERING INDIA LTD., HAD HIGHLIGHTED THE NECESSITY IN VIEW OF THE PECULIAR WORDING OF SECTION 14A (2) THAT COMPUTATION OR DISALLOWANCE OF THE ASSESSEE, OR CLAIM THAT NO EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME SHOULD BE EXAMINED WITH REFERENCE TO THE ACCOUNTS AND ONLY IF THE ASSESSEE'S EXPLANATION IS UNSATISFACTORY, CAN THE AO PROCEED FURTHER. THE COURT IN TAIKISHA ENGINEERING (SUPRA) PERTINENTLY OBSERVED SECTION 14A(2) OF THE ACT AND RULE 80(1) IN UNISON AND AFFIRMATIVELY RECORD THAT ITA 344 TO 346/15 ETC. 4 THE COMPUTATION OR DISALLOWANCE MADE BY THE ASSESSEE OR CLAIM THAT NO EXPENDITURE WAS INCURRED TO EARN EXEMPT INCOME MUST BE EXAMINED WITH REFERENCE TO THE ACCOUNTS, AND ONLY AND WHEN THE EXPLANATION/CLAIM OF THE ASSESSEE WAS NOT SATISFACTORY, COMPUTATION UNDER SUB RULE (2) TO RULE 80 OF THE RULES WAS TO BE MADE . IN THE PRESENT CASE, THE AO HAD NOT FIRSTLY DISCLOS ED WHY THE APPELLANT/ASSESSEE'S CLAIM FOR ATTRIBUTING RS.2,97,440/- AS A DISALLOWANCE UNDER SECTION 14A HAD TO BE REJECTED. TAIKISHA SAYS THAT THE JURISDICTION TO PROCEED FURTHER AND DETERMINE AMOUNTS WAS DERIVED AFTER EXAMINATION OF THE ACCOUNTS AND REJECTION IF ANY OF THE ASSESSEE'S CLAIM OR EXPLANATION. THE SECOND ASPECT WAS THERE APPEARS TO HAVE BEEN NO SCRUTINY OF THE ACCOUNTS BY THE AO, AN ASPECT WHICH WAS COMPLETELY UNNOTICED BY THE CIT (A) AND THE ITAT. THE THIRD, AND IN THE OPINION OF THIS COURT, IMPORT ANT ANOMALY WHICH HIGH COURT CANNOT BE UNMINDFUL IS THAT WHEREAS THE ENTIRE TAX EXEMPT INCOME IS RS.48,90,000/-, THE DISALLOWANCE ULTIMATELY DIRECTED WORKS OUT TO NEARLY 110% OF THAT SUM, I.E., RS.52,56,197/-. BY NO STRETCH OF IMAGINATION CAN SECTION 14A OR RULE 8D BE INTERPRETED SO AS TO MEAN THAT THE ENTIRE TAX EXEMP T INCOME WAS TO BE DISALLOWED. THE WINDOW FOR DISALLOWANCE WAS INDICATED IN SECTION 14A, AND WAS ONLY TO THE EXTENT OF DISALLOWING EXPENDITURE 'INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME'. THIS PROPORTION OR PORTION OF THE TAX EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT AS HAS HAPPENED IN THIS CASE. HE ALSO RELIED ON THE DECISIONS OF THE TRIBUNAL IN THE CASES OF M/S. RAYALLA CORPORATION (P) LTD. V. DCIT(MADRAS) I N ITA ITA 344 TO 346/15 ETC. 5 NO.908/MDS/2015 DATED 16.10.2015 AND M/S. DAGA GLOB AL CHEMICALS PVT. LTD. VS. ACIT(MUMBAI) IN ITA NO.5592 /MUM/2012 DATED 01.01.2015. 5. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE JUDGMENT IS DELIVERED WITHOUT TAKING NOTICE OF CBDT CIRCULAR NO.5/2014 DATED 11.2.2014, WHEREIN IT WAS CLARIFIED THAT RULE 8D READ WITH SEC.14A OF THE ACT PROVIDES FOR DISALLOWANCE OF THE EXPENDITURE EVEN WHERE TAXPAYER IN A PARTICULAR YEAR HAS NOT EA RNED ANY EXEMPT INCOME. ACCORDING TO THE LD. DR, THE ABOVE CIRCULAR IS BINDING ON THE DEPARTMENT AND IT SHOULD BE FOLLOWED . 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE ASSESSEE MADE TOTAL INVESTMENT IN THE ASSESSMENT YEAR 2009-10 AS FOLLOWS : SUBSIDIARIES ` 2,38,89,48,500/- UTI INFRASTRUCTURE ADVANTAGE FUND SERIES ` 10,00,000/- INVESTMENT IN SISTER CONCERNS ` 1,59,39,000/- 6.1 FOR THE ASSESSMENT YEAR 2010-11, THE TOTAL INV ESTMENT IS AS FOLLOWS : SUBSIDIARIES ` 4,35,42,53,360/- UTI INFRASTRUCTURE ADVANTAGE FUND SERIES ` 10,00,000/- INVESTMENT IN SISTER CONCERNS ` 1,59,39,000/- 6.2 FOR THE ASSESSMENT YEAR 2011-12, THE TOTAL INV ESTMENT IS ITA 344 TO 346/15 ETC. 6 AS FOLLOWS : SUBSIDIARIES ` 5,17,41,16,895/- UTI INFRASTRUCTURE ADVANTAGE FUND SERIES ` 8,53,000/- INVESTMENT IN SISTER CONCERNS ` 1,59,39,000/- 6.3 IN THIS CASE, THE ASSESSEE MADE AVERAGE INVEST MENT WHICH YIELDS NO INCOME OR EXEMPTED INCOME IS AS FOL LOWS : 2009-10 ` 1,96,32,20,750/- 2010-11 ` 3,39,69,83,166/- 2011-12 ` 4,78,02,04,127/- THE AO DISALLOWED 5% OF THE AVERAGE INVESTMENT AS F OLLOWS: 2009-10 ` 98,16,104/- 2010-11 ` 1,69,84,915/- 2011-12 ` 2,39,01,020/- THE ASSESSEE DIVIDEND INCOME RECEIVED AND CLAIMED A S EXEMPT FOR THESE ASSESSMENT YEARS ARE AS FOLLOWS : 2009-10 ` 41,024/- 2010-11 NIL 2011-12 ` 74,000/- 6.4 NOW, THE CONTENTION OF THE LD. AR IS THAT DISAL LOWANCE U/S.14A R.W.RULE 8D AT BEST COULD BE EQUIVALENT TO EXEMPT INCOME AS ABOVE. THIS ARGUMENT OF THE ASSESSEES C OUNSEL HAS NO MERIT. THE ASSESSEE USED THE AMOUNT IN THE IN VESTMENT WHICH YIELDS NO INCOME OR EXEMPT INCOME AND U/S.1 4A OF THE ACT. THE EXPENDITURE RELATING TO EXEMPT INCOME IS NOT ALLOWABLE. ITA 344 TO 346/15 ETC. 7 THE ASSESSING AUTHORITY CONSIDERED THE ABOVE AND DISALLOWED THE EXPENDITURE AS PER SEC.14A R.W. RULE 8 D OF T HE I.T.RULES AND IT WAS THE RIGHT ACTION OF THE AO, AS IN OUR OP INION, THE PROVISIONS OF SEC.14A R.W. RULE 8D OF THE I.T.RULES , ARE APPLICABLE AS HELD BY THE TRIBUNAL IN THE CASE OF M /S. LAKSHMI RING TRAVELLERS IN ITA NO.2083/MDS/2011 DATED 2.3.2 012, WHEREIN IT WAS HELD AS UNDER: 6. WE CONSIDERED THE ARGUMENTS OF BOTH THE SIDES IN DETAIL. SEC.14A(1) DECLARES THE LAW THAT THE EXPEN DITURE INCURRED BY THE ASSESSEE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T SHALL NOT BE ALLOWED AS A DEDUCTION IN COMPUTING THE TAXABLE INCOME OF THE ASSESSEE. SEC.14A(2) PROVIDES FOR DETERMINING THE QUANTUM OF SUCH EXPENDITURE WHICH SHALL NOT BE AL LOWED AS A DEDUCTION. THAT IS THE MACHINERY PROVISION AS FA R AS SEC.14A IS CONCERNED. IN THAT PROVISION, IT HAS BEEN PROVIDED THAT IF THE ASSESSING OFFICER IS NOT SATIS FIED WITH THE CORRECTNESS OF THE COMPUTATIONS MADE BY AN ASSESSEE , HE SHALL COMPUTE THE QUANTUM IN ACCORDANCE WITH THE ME THOD THAT MAY BE PRESCRIBED. FOR THIS MATTER, RULE 8D HAS ALREADY BEEN PRESCRIBED. SUB-SEC.(3) FURTHER PROVI DES THAT EVEN IN A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE WAS INCURRED, THE ASSESSING AUTHORITY H AS TO PRESUME THE INCURRING OF SUCH EXPENDITURE AS PROV IDED UNDER SUB-SEC.(2) READ WITH RULE PRESCRIBED. THERE FORE, IT BECOMES CLEAR THAT EVEN IN A CASE WHERE THE ASSESSE E CLAIMS THAT NO EXPENDITURE WAS SO INCURRED, THE STA TUTE HAS PROVIDED FOR A PRESUMPTIVE EXPENDITURE WHICH HAS T O BE DISALLOWED BY FORCE OF THE STATUTE. IN A DISTANT MANNER, LITERALLY SPEAKING, IT MAY EVEN BE CONSIDERED FOR T HE PURPOSE OF CONVENIENCE AS A DEEMING PROVISION. WHEN SUCH DEEMING PROVISION IS MADE ON THE BASIS OF STATUTORY ITA 344 TO 346/15 ETC. 8 PRESUMPTION, THE REQUIREMENT OF FACTUAL EVIDENCE IS REPLACED BY STATUTORY PRESUMPTION AND THE ASSESSING OFFICER HAS TO FOLLOW THE CONSEQUENCES STATED IN THE STATUTE. IT MEANS THAT EVEN IN A CASE WHERE NO EXPENDITURE IS STATED TO HA VE BEEN INCURRED, THE ASSESSING AUTHORITY HAS TO APPLY RULE 8D. AS THE STATUTORY PRESUMPTION SUBSTITUTES THE REQUIREME NT OF FACTUAL EVIDENCE, THE QUESTION OF ENQUIRY DOES NOT ARISE. THEREFORE, WE ARE UNABLE TO AGREE WITH THE ARGUMENT OF THE LEARNED CA. 7. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE IS DISMISSED. 6.5 THIS VIEW OF OURS IS ALSO FORTIFIED BY THE JUDG MENT OF THE KARNATAKA HIGH COURT IN THE CASE OF PRADEEP KAR V. ACIT (319 ITR 416), WHEREIN IT WAS OBSERVED AS UNDER : THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF INTERES T ON THE AMOUNTS BORROWED BY HIM FOR PURCHASE OF SHARES IS DISALLOWED BY THE ASSESSING OFFICER. IN THE APPEAL FILED BY HIM AGAINST THE ASSESSMENT ORDER, THE FIRST APPELLA TE AUTHORITY REVERSED THE ORDER OF THE ASSESSING AUTHORITY BY AP PLYING THE DECISION OF THE SUPREME COURT REPORTED IN CIT VS. R AJENDRA PRASAD MOODY [1978] 115 ITR 519. THE REVENUE TOOK U P THE MATTER IN SECOND APPEAL BEFORE THE INCOME-TAX APPEL LATE TRIBUNAL, HEREINAFTER CALLED AS 'THE TRIBUNAL' IN S HORT. THE TRIBUNAL REVERSED THE DECISION OF THE FIRST APPELLA TE AUTHORITY AND RESTORED THE ORDER OF THE ASSESSING AUTHORITY. BEING AGGRIEVED BY THE SAME, THE ASSESSEE IS BEFORE US BY FILING THIS APPEAL FRAMING SUBSTANTIAL QUESTIONS OF LAW AN D URGED THE GROUNDS IN SUPPORT OF THE SAME. SMT. ANURADHA, LEARNED COUNSEL FOR THE APPELLANT RELIED UPON THE DECISION REPORTED IN CIT VS. RAJENDRA PRAS AD MOODY [1978] 115 ITR 519 WHEREIN, IT IS HELD THAT I NTEREST PAID ON MONEY BORROWED FOR INVESTMENT IN SHARES IS DEDUCTIBLE UNDER SECTION 57(III) OF THE INCOME-TAX ACT, WHICH REQUIRES THAT THE EXPENDITURE MUST BE LAID OUT OR E XPENDED WHOLLY AND EXCLUSIVELY FOR MAKING OR EARNING INCOME . SHE ALSO RELIED UPON ANOTHER DECISION IN THE CASE OF CIT VS. ITA 344 TO 346/15 ETC. 9 SMT. SUSHILA DEVI KHADARIA [2009] 319 ITR 413 (BOM) ; [2009] TIOL 171 HC (MUM-IT) AND SUBMITS THAT THE OR DERS PASSED BY THE ASSESSING AUTHORITY AND THE TRIBUNAL ARE ERRONEOUS AND CONTRARY TO THE AFOREMENTIONED DECISI ONS. THEREFORE, SHE SUBMITS THAT SUBSTANTIAL QUESTIONS ( I) AND (II) FRAMED IN THE APPEAL MEMORANDUM ARISE FOR CONSIDERA TION OF THIS COURT AND REQUESTED TO SET ASIDE THE ORDER PAS SED BY THE TRIBUNAL. THE SUBSTANTIAL QUESTIONS OF LAW FRAMED I N THE APPEAL ARE EXTRACTED AS HEREUNDER. '(I) WHETHER OR NOT THE TRIBUNAL WAS RIGHT IN NOT ALLOWING THE INTEREST INCURRED BY THE ASSESSEE AS EXPENDITUR E IN COMPUTING INCOME OF THE ASSESSEE? (II) WHETHER OR NOT THE TRIBUNAL WAS RIGHT IN REVE RSING THE FINDINGS OF THE COMMISSIONER OF INCOME-TAX (APPEALS ), WHICH WAS BASED ON A SUPREME COURT'S DECISION BY RELYING ON THE DECISION OF OTHER TRIBUNALS? (III) WHETHER OR NOT THE TRIBUNAL WAS JUSTIFIED IN NOT AFFORDING AN OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE DECIDING THE ISSUE ON HAND BY PLACING RELIANCE ON J UDGMENTS, WHICH WERE NOT CITED BY EITHER SIDE? (IV) WHETHER OR NOT THE TRIBUNAL WAS RIGHT IN RELY ING ON THE DECISIONS INAPPLICABLE TO THE FACTS ON HAND BY DISTINGUISHING THE DECISION OF THE HON'BLE SUPREME COURT, WHICH IS SQUARELY APPLICABLE?' WITH REFERENCE TO THE CONTENTIONS URGED, WE HAVE PE RUSED THE ORDERS PASSED BY THE ASSESSING AUTHORITY, THE F IRST APPELLATE AUTHORITY AND THE TRIBUNAL WITH A VIEW TO FIND OUT AS TO WHETHER THE SUBSTANTIAL QUESTIONS OF LAW FRAMED IN THIS APPEAL WOULD ARISE FOR CONSIDERATION OF THIS COURT. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD BORROWED LOANS AND IN VESTED THE SAME IN SHARES. DEDUCTION IS CLAIMED BY HIM OF THE INTEREST AMOUNT PAID ON THE BORROWED LOANS. THE AMO UNTS BORROWED BY THE APPELLANT WERE INVESTED IN SHARES A ND DIVIDEND IS EARNED. WHEN DEDUCTION FOR THE INTEREST PAID IS CLAIMED, THE DIVIDEND EARNED CANNOT BE EXCLUDED FRO M ITA 344 TO 346/15 ETC. 10 INCOME. COMPUTATION OF INCOME HAS TO BE MADE TAKING THE AMOUNT OF DIVIDEND INCOME EARNED BY THE APPELLANT. THE ASSESSING AUTHORITY CONSIDERED THE DECISION IN RAJENDRA PRASAD MOODY'S CASE [1978] 115 ITR 519 (SC) RELIED UPON BY THE LEARNED COUNSEL AND HELD THAT IT IS NOT APPLICA BLE TO THE FACT SITUATION. THE REASONS ASSIGNED FOR SUCH A CON CLUSION IN THE ASSESSMENT ORDER ARE EXTRACTED HEREUNDER: 'THE DECISION IS WITH REFERENCE TO DEDUCTION ALLOWA BLE UNDER SECTION 57(III) OF THE INCOME-TAX ACT. THE DE CISION RELATES TO AN ASSESSMENT YEAR WHERE DIVIDEND INCOME WAS TAXABLE IN THE HANDS OF THE ASSESSEE. WITH THE INTR ODUCTION OF SECTION 10(33) OF THE INCOME-TAX ACT FROM THE ASSESSMENT YEAR 1998-99 THE POSITION OF LAW IN REGA RD TO TAXABILITY OF DIVIDENDS HAS BEEN CHANGED SINCE SUCH INCOME BECOMES A PART OF INCOME WHICH DO NOT FORM A PART OF TOTAL INCOME OF THE ASSESSEE. THE PROVISIONS OF SECTION 14A INTRODUCED BY THE FINANCE ACT, 2001, WITH EFFEC T FROM APRIL 1, 1962, RETROSPECTIVELY BARS ALLOWING ANY EX PENDITURE IN RESPECT OF INCOME WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME. CONSIDERING THIS CHANGE IN THE POSITION OF LAW THE DECISION OF THE SUPREME COURT RELIED UPON BY THE AS SESSEE DOES NOT APPLY TO THE ASSESSEE'S CASE.' THEREFORE, THE DIVIDEND INCOME IS EXEMPTED FROM THE TAX LIABILITY UNDER SECTION 10(33) OF THE ACT. UNDER SE CTION 14A OF THE ACT, EXPENDITURE RELATING TO EXEMPTED INCOME IS NOT ALLOWABLE. THE ASSESSING AUTHORITY HAS CONSIDERED T HE ABOVE RELEVANT FACTOR AND DISALLOWED THE CLAIM OF THE ASS ESSEE. THE FIRST APPELLATE AUTHORITY REVERSED THE ORDER OF THE ASSESSING AUTHORITY BY APPLYING THE DECISION IN RAJ ENDRA PRASAD MOODY'S CASE [1978] 115 ITR 519 (SC), REFERR ED TO SUPRA, WHICH WAS RENDERED PRIOR TO INTRODUCTION OF SECTION 14A OF THE ACT AND WHICH HAS NO APPLICATION TO THE FACT SITUATION. THE TRIBUNAL HAS RIGHTLY SET ASIDE THE O RDER OF THE FIRST APPELLATE AUTHORITY. IT CANNOT BE DISPUTED TH AT DIVIDEND ITA 344 TO 346/15 ETC. 11 INCOME IS EXEMPTED UNDER SECTION 10(33) OF THE ACT FROM THE TAX LIABILITY AND THE SAME CANNOT BE COMPUTED FOR I NCOME UNDER THE HEAD 'OTHER SOURCES'. EXEMPTED INCOME IS NOT ALLOWABLE FOR DEDUCTION IN VIEW OF SECTION 14A OF T HE ACT. IN VIEW OF THESE TWO PROVISIONS, THE CLAIM OF THE ASSE SSEE IS WHOLLY UNTENABLE AND THE DECISIONS RELIED UPON BY T HE LEARNED COUNSEL ON BEHALF OF THE APPELLANT ARE NOT APPLICABLE TO THE FACT SITUATION. WE ARE IN AGREEMENT WITH THE ORDERS PASSED BY THE ASSESSING AUTHORITY AND THE TRIBUNAL AND DIFFER FRO M THE VIEW TAKEN BY THE FIRST APPELLATE AUTHORITY. FOR THE REA SONS STATED SUPRA, INTERFERENCE WITH THE IMPUGNED ORDER OF THE TRIBUNAL IS NOT WARRANTED IN THIS CASE. NO SUBSTANTIAL QUESTION S OF LAW MUCH LESS THE QUESTIONS OF LAW FRAMED BY THE APPELL ANT WILL ARISE FOR CONSIDERATION OF THIS COURT. THE APPEAL I S DEVOID OF MERIT AND LIABLE TO BE DISMISSED. ACCORDINGLY, THE APPEAL IS DISMISSED. 7. SIMILARLY, IN THE CASE OF CIT V. SMT. LEENA RAMACHANDRAN 7339 ITR 296, THE HONBLE KERALA HIGH COURT HAS HELD AS UNDER: DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMEN T YEAR 2001-02, THE ASSESSEE PAID INTEREST AT 24 PER CENT. PER ANNUM ON FUNDS BORROWED FOR PURCHASE OF SHARES IN A COMPANY. HER CLAIM WAS THAT THE ACQUISITION OF SHAR ES WITH THE BORROWED FUNDS WAS FOR THE PURPOSE OF CONTROLLI NG THE COMPANY AND SINCE THE BORROWED FUNDS WERE UTILISED FOR THE ACQUISITION OF SHARES OF THE COMPANY UNDER THE CONT ROL OF THE ASSESSEE, THE UTILISATION OF THE BORROWED FUNDS WAS FOR BUSINESS PURPOSE ENTITLING THE ASSESSEE TO DEDUCTIO N OF INTEREST UNDER SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961. THE ASSESSING OFFICER HELD THAT THE ASSESSEE MADE INVESTMENTS BY UTILISING THE BORROWED FUNDS ILL THE FORM OF ACQUISITION OF SHARES IN THE COMPANY AND THE ONLY BENEFIT THE ASSESSEE GOT WAS DIVIDEND INCOME OF RS. 3 LAKHS . SINCE SECTION 14A OF THE ACT BARS ANY DEDUCTION PERTAININ G TO ANY EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING A NY INCOME WHICH DID NOT FORM PART OF THE TOTAL INCOME, THE ITA 344 TO 346/15 ETC. 12 ASSESSING OFFICER DISALLOWED THE CLAIM TO DEDUCTION OF INTEREST. THE COMMISSIONER (APPEALS) CONFIRMED THE ASSESSMENT. THE TRIBUNAL ALLOWED THE CLAIM BUT MADE A DISALLOWANCE OF RS. 2 LAKHS BEING THE INTEREST STAT ED TO BE ATTRIBUTABLE TO THE DIVIDEND INCOME OF RS. 3 LAKHS EARNED BY THE ASSESSEE FROM THE LEASING COMPANY DURING THE PR EVIOUS YEAR. ON APPEAL: HELD, ALLOWING THE APPEAL, THAT ANY EXPENDITUR E INCURRED FOR EARNING ANY INCOME WHICH WAS NOT TAXABLE UNDER THE ACT WAS NOT AN ALLOWABLE EXPENDITURE. DIVIDEND INCOME W AS EXEMPT UNDER SECTION 10(33) OF THE ACT AND THE DIVI DEND EARNED BY THE ASSESSEE ON THE SHARES ACQUIRED BY HE R WITH THE BORROWED FUNDS DID NOT CONSTITUTE PART OF THE T OTAL INCOME IN THE HANDS OF THE ASSESSEE. THE REASONING GIVEN B Y THE TRIBUNAL FOR DISALLOWANCE OF RS. 2 LAKHS, I.E., BY APPLYING SECTION 14A, SQUARELY APPLIED TO THE INTEREST PAID ON THE BORROWED FUNDS BECAUSE IT WAS ON RECORD THAT THE EN TIRE FUNDS BORROWED WERE UTILISED FOR THE ACQUISITION OF SHARES BY THE ASSESSEE IN THE COMPANY. THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION OF INTEREST UNDER SECTION 36( 1)(III) OF THE ACT ON THE BORROWED FUNDS UTILISED FOR THE ACQUISIT ION OF SHARES ONLY IF SHARES WERE HELD AS STOCK-IN-TRADE A ND THAT WOULD ARISE ONLY IF THE ASSESSEE WAS ENGAGED IN TRA DING IN SHARES. SO FAR AS THE ACQUISITION OF SHARES WAS IN THE FORM OF INVESTMENT AND THE ONLY BENEFIT THE ASSESSEE DERIVE D WAS THE DIVIDEND INCOME WHICH WAS NOT ASSESSABLE UNDER THE ACT, THE DISALLOWANCE UNDER SECTION 14A WAS SQUARELY ATTRACT ED AND THE ASSESSING OFFICER RIGHTLY DISALLOWED THE CLAIM. 6.6 IT IS PERTINENT TO NOTE THAT THE JUDGMENT RELIE D ON BY THE LD. AR IN THE CASE OF SIMPSON & CO. LTD. CITED SUPRA IS RELATING TO THE ASST. YEAR 2007-08 BEFORE THE INTRODUCTION OF RULE 8D OF THE I.T. RULES, WHICH IS INTRODUCED W.E.F. 24.3.2008. HENCE, IT CANNOT ITA 344 TO 346/15 ETC. 13 BE APPLIED TO THE FACTS AND CIRCUMSTANCES OF THE PR ESENT CASE. ACCORDINGLY, THIS GROUND OF APPEAL IS DISMISSED. 7. THE NEXT GROUND FOR THE ASST. YEAR 2009-10 IS WI TH REGARD TO THE DIRECTION OF THE CIT(APPEALS) TO THE ASSESSI NG OFFICER NOT TO ALLOW THE CLAIM OF FOREX LOSS AS REVENUE EXPENDITUR E. 8. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE HA D PURCHASED A DREDGING MACHINERY AND INCURRED FOREX L IABILITY. THE ASSESSEE PAID 4 INSTALMENTS DURING THE ASST. YEAR 2 009-10 AND HAVE TAKEN THE EXCHANGE DIFFERENCE TO THE REVENUE A CCOUNT AS AND WHEN THE PAYMENTS ARE MADE. AT THE YEAR END, T HE FOREX LIABILITY IS RESTATED AND THE DIFFERENCE IS ADJUSTE D AGAINST THE COST OF THE DREDGING MACHINE. THE ASSESSEE HAD DEBITED PROFIT AND LOSS ACCOUNT BY ` 16,47,436/- ON ACCOUNT OF FOREX LOSS DURING THE ASST. YEAR 2009-10. THE LOSS AROSE AS THE VALUE OF RUPEE HAS GONE DOWN AT THE TIME OF REPAYMENT OF LOAN. THE AO HAS HELD THAT THE ABOVE LOSS IS CAPITAL IN NATURE AND THEREF ORE DISALLOWED THE LOSS. ACCORDING TO THE LD. AR, IF THE ABOVE LO SS IS TREATED AS CAPITAL IN NATURE, THEN DEPRECIATION @ 20% HAS TO B E PROVIDED FOR THE SAME. THE AO HAS NOT GRANT THAT. FURTHER, THE SHORT TERM CAPITAL GAIN COMPUTED IN THE NEXT ASST. YEAR I.E. 2 010-11 ON ITA 344 TO 346/15 ETC. 14 ACCOUNT OF SALE OF THIS ASSET WILL GET REDUCED TO T HAT EXTENT. HOWEVER, THE ABOVE ADJUSTMENTS ARE NOT MADE BY THE AO IN HIS ASSESSMENT ORDER FOR BOTH THESE YEARS. IF THIS LOS S IS TO BE TREATED AS CAPITAL LOSS, THEN DIRECTIONS MUST BE ISSUED TO GRANT DEPRECIATION AT 20% AND REWORK THE SHORT TERM CAPIT AL GAIN IN THE NEXT YEAR BECAUSE THE COST OF ACQUISITION WOULD CHA NGE. ACCORDING TO THE LD. AR, ON AN OVERALL BASIS, THERE WILL NOT BE ANY LOSS TO THE REVENUE ON ACCOUNT OF THE ABOVE DISALLO WANCE. 8.1 ON APPEAL, THE CIT(APPEALS) OBSERVED THAT IN V IEW OF THE PROVISIONS OF SEC.43A OF THE ACT, AT THE TIME OF MA KING PAYMENTS IN FOREIGN EXCHANGE TOWARDS ANY BUSINESS ASSET AF TER THE ACQUISITION OF THE ASSET - IF THERE IS ANY FLUCTUA TION IN THE RATE OF EXCHANGE LEADING TO AN INCREASE OR DECREASE IN THE LIABILITY OF THE ASSESSEE, THEN THE AMOUNT OF EXPENDITURE WOULD HAVE TO BE CONSIDERED TO BE OF CAPITAL NATURE, AND SHALL BE T AKEN INTO ACCOUNT IN COMPUTING THE ACTUAL COST OF THE ASSET A S PER THE PROVISIONS OF SECTION 43A. THE EXPENSES CLAIMED BY THE ASSESSEE WERE INCURRED IN CONNECTION WITH THE PURC HASE OF SPARES FOR THE DREDGING MACHINE AND AS RIGHTLY OBSERVED BY THE ASSESSING OFFICER THESE EXPENSES HAVE INCURRED ON THE ITA 344 TO 346/15 ETC. 15 CAPITAL ACCOUNT AND THEREFORE THE SAME CANNOT BE ALLOWED AS REVENUE EXPENDITURE. IT IS PERTINENT HERE TO REFER TO THE DECISION OF THE JURISDICTIONAL HIGH COURT IN A SIMI LAR CASE OF CIT V. SOUTH INDIA VISCOSE LTD., (120 ITR 451) (MAD RAS) WHEREIN IT WAS OBSERVED AS UNDER: THE FACT THAT THE PARLIAMENT PROVIDED FOR THE FLUC TUATION IN THE EXCHANGE RATES BEING TAKEN INTO ACCOUNT IN ARRIVING AT THE COST OF THE ASSET (S.I 43A) DOES NOT IN ANY WAY AFFECT THE POINT IN ISSUE. THE POINT IN ISSUE HAS TO BE CONSIDERED IN THE LIGHT OF THE ACTUAL NATURE OF PAYMENT THAT HAD TO BE MADE A ND IN THE LIGHT OF THE PROVISIONS IN FORCE. THE NATURE OF PAY MENT IS ONLY THE PAYMENT OF THE INSTALMENT OF THE PURCHASE PRIC E WHICH UNFORTUNATELY TURNED OUT TO BE MORE THAN WHAT WAS ORIGINALLY CONTEMPLATED BECAUSE OF FLUCTUATION IN T HE EXCHANGE RATES. THE DIFFERENCE IS THUS WHOLLY ON CAPITAL ACC OUNT. THERE CAN BE NO 'DISPUTE ABOUT THE FACT THAT THE AMOUNT W HICH WAS PAYABLE TO THE FOREIGN COMPANY WAS ON CAPITAL ACCOU NT, AND, THEREFORE, ANY FLUCTUATION IN THE EXCHANGE RATE WOU LD HAVE TO BE CAPITAL IN NATURE. IN VIEW OF THE ABOVE, THE CIT(A), FOLLOWING THE VIE W ENDORSED BY THE HIGH COURT OF MADRAS IN THE CASE OF SOUTH INDIA VISCOSE LTD., THE DISALLOWANCE MADE BY THE ASSESSING OFFICE R WAS CONFIRMED. HOWEVER, IT WAS OBSERVED THAT THE ASSESS EE WOULD BE ENTITLED TO THE DEPRECIATION ON THE ENHANCED VAL UE AS PER THE PROVISIONS OF THE SEC.43A OF THE INCOME TAX ACT AND THE ASSESSEE GOT RELIEF TO THAT EXTENT. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. ITA 344 TO 346/15 ETC. 16 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE DIRECTIONS OF THE CIT(APPEALS) IS I N CONFORMITY WITH THE PROVISIONS OF SEC.43A OF THE ACT AND IT IS ALSO IN CONFORMITY WITH THE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT V. SOUTH INDIA VISCOSE LTD.(SUPRA). ACCORDINGLY, WE D O NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(APPEALS) AND THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 10. SINCE, WE HAVE DISPOSED OF THE APPEALS, THE S TAY PETITIONS FILED BY THE ASSESSEE ARE DISMISSED AS INFRUCTUOUS. 11. IN THE RESULT, THE APPEALS IN ITA NO.344/MDS/2016, ITA NOS.345 & 346/MDS/2016 ARE DISMISSED AS WELL AS THE STAY PETITIONS ARE DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 6 TH OF APRIL, 2016 AT CHENNAI. SD/- SD/- ( $% & ) ( ' ( ) $ ) *%+,-,./01,23 45,.62,+778,293 : ;< /JUDICIAL MEMBER ! ;<=>>70.?,.?@A1BA2 ': /CHENNAI, C; /DATED, THE 6 TH APRIL, 2016. MPO* ITA 344 TO 346/15 ETC. 17 ;D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H3 /CIT(A) 4. H /CIT 5. FIJ K /DR 6. JLM /GF.