The ACIT, (OSD),Range-1, Ahmedabad V. Ahmedabad Steelcraft Limited, Ahmedabad

ITA 3563/AHD/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9384 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 23-11-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 24-08-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K DHANISTA
• Keywords: Earning of tax free income; Proportionate interest; Retrospective amendment
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI G.D.AGRAWAL, VICE-PRESIDENT (AZ) AND SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER DATE OF HEARING : 23/11/2010 DRAFTED ON: 23/1 1/2010 1. ITA NO.3563/AHD/2007 2. ITA NO.3813/AHD/2007 ASSESSMENT YEAR : 2004-05 1.THE ASST.CIT(OSD) RANGE-1, AHMEDABAD 2. AHMEDABAD STEEL CRAFT LTD. AHMEDABAD VS. 1. AHMEDABAD STEEL CRAFT LTD. 205-06, ABHIJIT NR. MITHAKHALI SIX ROAD NAVRANGPURA, AHMEDABAD 2. THE INCOME TAX OFFICER WARD-1(2) AHMEDABAD PAN/GIR NO. : AACCA 3036 B (APPELLANT) .. (RESPONDENT) REVENUE BY : SHRI R.K.DHANISTA, SR.D.R. ASSESSEE BY: SHRI DHIREN SHAH O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THESE ARE CROSS-APPEALS ARISING FROM THE ORDER OF LEARNED CIT(APPEALS)-V AHMEDABAD DATED 05/06/2007. BOTH THE APPEALS ARE CONSOLIDATED AND FOR THE SAKE OF CONVENIENCE HEREUN DER DECIDED BY THIS COMMON ORDER. (A) ASSESSEES APPEAL (ITA NO.3813/AHD/2007) 2. GROUND NOS.1 & 2 ARE AS UNDER:- THE APPELLANT COMPANY RESPECTFULLY PRAYS THAT :- ITA NOS.3563/AHD/2007(BY REVENUE) & ITA NO.3813/AHD/2007 (BY ASSESSEE) ASST.CIT (OSD) VS. AHMEDABAD STEEL CRAFT ASST.YEAR 2004-05 - 2 - 1. THE DISALLOWANCE U/S.94(7) OF RS.2,070/- CONFI RMED BY THE LEARNED CIT(APPEALS) MAY KINDLY BE DELETED. 2. THE DISALLOWANCE OF PRELIMINARY EXPENSES U/S.3 5D OF THE ACT RESTRICTED BY THE LD. CIT(A) TO THE EXTENT OF R S.2,160/- MAY KINDLY BE DELETED. 2.1. LEARNED AUTHORISED REPRESENTATIVE OF THE ASSES SEE MR. DHIREN SHAH APPEARED AND EXPRESSED NOT TO PRESS THESE GROU NDS, HENCE, DISMISSED BEING NOT PRESSED. 3. GROUND NO.3 IS AS UNDER: 3. THE DISALLOWANCE U/S.14A OF RS.10,000/- RESTRI CTED BY THE LD. CIT(A) MAY KINDLY BE DELETED. 3.1. THE ASSESSEE HAS CLAIMED INTEREST AS A DEDUCTI ON, HOWEVER, BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT, THE ASSESSING OFFICER HAS MADE THE PROPORTIONATE DISALLOWANCE. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, IT WAS HELD A S UNDER:- 6.2. I HAVE CONSIDERED THE OBSERVATION OF THE A.O. IN THE ASSESSMENT ORDER AND THE SUBMISSIONS MADE BY THE AP PELLANT. I AGREE WITH THE CONTENTION OF THE APPELLANT THAT IT IS HAVING SUFFICIENT INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES AND SURPLUS TO THE TUNE OF RS.120117138/- AS WELL AS INVESTMENTS ARE MADE IN THE PAST YEARS WHEREIN ALSO THE APPELLANT WAS SUFFICIENT INTEREST FREE FUNDS AND THAT IN PAST YEAR NO DISALLOWANCE HAS BEEN MADE. HOWEVER, SOME ADMINIS TRATIVE EXPENSES HAVE TO BE INCURRED FOR EARNING DIVIDEND B ECAUSE ACCOUNTS ETC HAVE TO BE MAINTAINED IN THIS REGARD. THUS, THOUGH OUT OF INTEREST NO DISALLOWANCE IS TO BE MADE, BUT OUT OF EXPENSES RELATABLE AMOUNT HAS TO BE DISALLOWED. THE SAME IS ESTIMATED AT ITA NOS.3563/AHD/2007(BY REVENUE) & ITA NO.3813/AHD/2007 (BY ASSESSEE) ASST.CIT (OSD) VS. AHMEDABAD STEEL CRAFT ASST.YEAR 2004-05 - 3 - RS.10,000/- WHICH IS CONFIRMED AND THE BALANCE DISA LLOWANCE IS DELETED. 3.2. IT IS WORTH TO MENTION THAT NOW THE ISSUE OF T HE APPLICABILITY OF THE PROVISIONS OF SECTION 14A OF THE ACT HAS BEEN SETTL ED BY THE HON'BLE BOMBAY HIGH COURT PRONOUNCED IN THE CASE OF GODREJ & BOYCE MFG. CO.LTD. MUIMBAI VS. DY.CIT IN INCOME TAX APPEAL NO.626 OF 2010 AND WRIT PETITION NO.758 OF 2010 ORDER DATED 12/08/ 2010 [ NOW REPORTED AS 328 ITR 81(BOM)]. IN THIS JUDGEMENT AT THE END, THE HON'BLE COURT HAS ALSO RECAPITULATED THE CONCLUSION AND PRONOUNCE D THAT A FINDING IS REQUIRED WHETHER THE INVESTMENT IN SHARES IS MADE O UT OF OWN FUNDS OR OUT OF BORROWED FUNDS. A NEXUS IS REQUIRED TO BE E STABLISHED BETWEEN THE INVESTMENTS AND THE BORROWINGS. IN SECTION 14A OF THE ACT EXPENDITURE INCURRED IN RELATION TO EXEMPTED INCOME IS TO BE DI SALLOWED ONLY IF THE ASSESSING OFFICER IS SATISFIED WITH THE EXPENDITURE CLAIMED BY THE ASSESSEE PERTAINING TO THE SAID EXEMPT INCOME. RA THER, THE COURT WAS VERY SPECIFIC THAT IN CASE, NO SUCH EXERCISE WAS CA RRIED OUT BY THE ASSESSING OFFICER THEN THE MATTER IS TO BE REMANDED BACK FOR AFRESH INVESTIGATION. IT HAS ALSO BEEN MADE CLEAR THAT TH E PROVISO TO SECTION 14A OF THE ACT WAS EFFECTIVE FROM 2001-02. THE HON'BL E COURT HAS ALSO POINTED OUT THE IMPORTANCE OF RULE 8D OF THE I.T.RU LES, 1962. IT WAS MADE CLEAR THAT SUB-SECTION (1) TO SECTION 14A WAS INSERTED WITH RETROSPECTIVE EFFECT FROM 01/04/1962, HOWEVER, SUB- SECTIONS (2) & (3) WERE MADE APPLICABLE WITH EFFECT FROM 01/04/2007. THE PROVISO WAS INSERTED WITH RETROSPECTIVE EFFECT FROM 11/05/2001 , HOWEVER RULE 8D WAS INSERTED BY THE INCOME TAX (FIFTH AMENDMENT), RULES, 2008 BY ITA NOS.3563/AHD/2007(BY REVENUE) & ITA NO.3813/AHD/2007 (BY ASSESSEE) ASST.CIT (OSD) VS. AHMEDABAD STEEL CRAFT ASST.YEAR 2004-05 - 4 - PUBLICATION IN THE GAZETTE DATED 24/03/2008, RELEVA NT FINDINGS ARE REPRODUCED BELOW:- A) THE ITAT HAD RECORDED A FINDING IN THE EARLIE R ASSESSMENTS THAT THE INVESTMENTS IN SHARES AND MUTUAL FUNDS HAVE BEE N MADE OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS AND THAT TH ERE IS NO NEXUS BETWEEN THE INVESTMENTS AND THE BORROWINGS. HOWEVER, IN NONE OF THOSE DECISIONS WAS THE DISALLOWABILITY OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME EARNED OUT OF INVESTMENTS MADE OUT OF OWN FUNDS CONSIDERED. MOREOVER, UNDER SECTION 14A, EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME C AN BE DISALLOWED ONLY IF THE ASSESSING OFFICER IS NOT SAT ISFIED WITH THE CORRECTNESS OF THE EXPENDITURE CLAIMED BY THE ASSES SEE. IN THE PRESENT CASE, NO SUCH EXERCISE HAS BEEN CARRIED OUT AND, THEREFORE, THE TRIBUNAL WAS JUSTIFIED IN REMANDING THE MATTER. B) SECTION 14A WAS INTRODUCED BY THE FINANCE ACT 20 01 WITH RETROSPECTIVE EFFECT FROM 1 APRIL 1962. HOWEVER, I N VIEW OF THE PROVISO TO THAT SECTION, THE DISALLOWANCE THEREUNDE R COULD BE EFFECTIVELY MADE FROM ASSESSMENT YEAR 2001-2002 ONW ARDS. THE FACT THAT THE TRIBUNAL FAILED TO CONSIDER THE APPLI CABILITY OF SECTION 14A IN ITS PROPER PERSPECTIVE, FOR ASSESSMENT YEAR 2001-2002 WOULD NOT BAR THE TRIBUNAL FROM CONSIDERING DISALLO WANCE UNDER SECTION 14A IN ASSESSMENT YEAR 2002-2003. C) THE DECISIONS REPORTED IN SRIDEV ENTERPRISES (SUPRA), MUNJAL SALES CORPORATION (SUPRA) AND RADHASOAMI SATSANG (SUPRA) HOLDING THAT THERE MUST BE CONSISTENCY AND DEFINITE NESS IN THE APPROACH OF THE REVENUE WOULD NOT APPLY TO THE FACT S OF THE PRESENT CASE, BECAUSE OF THE MATERIAL CHANGE INTRODUCED BY SECTION 14A BY WAY OF STATUTORY DISALLOWANCE IN CERTAIN CASES. TH ERE, THE DECISIONS OF THE TRIBUNAL IN THE EARLIER YEARS WOUL D HAVE NO RELEVANCE IN CONSIDERING DISALLOWANCE IN ASSESSMENT YEAR 2002- 2003 IN THE LIGHT OF SECTION 14A OF THE ACT. 73. FOR THE REASONS WHICH WE HAVE INDICATED, WE HA VE COME TO THE CONCLUSION THAT UNDER SECTION 14A(1) IT IS FOR THE ASSESSING OFFICER TO DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED A NY EXPENDITURE IN ITA NOS.3563/AHD/2007(BY REVENUE) & ITA NO.3813/AHD/2007 (BY ASSESSEE) ASST.CIT (OSD) VS. AHMEDABAD STEEL CRAFT ASST.YEAR 2004-05 - 5 - RELATION TO THE EARNING OF INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME UNDER THE ACT AND IF SO TO QUANTIFY THE EXTE NT OF THE DISALLOWANCE. THE ASSESSING OFFICER WOULD HAVE TO ARRIVE AT HIS DETERMINATION AFTER FURNISHING AN OPPORTUNITY TO TH E ASSESSEE TO PRODUCE ITS ACCOUNTS AND TO PLACE ON THE RECORD ALL RELEVANT MATERIAL IN SUPPORT OF THE CIRCUMSTANCES WHICH ARE CONSIDERE D TO BE RELEVANT AND GERMANE. FOR THIS PURPOSE AND IN LIGHT OF OUR OBSERVATIONS MADE EARLIER IN THIS SECTION OF THE JUDGMENT, WE DEEM IT APPROPRIATE AND PROPER TO REMAND THE PROCEEDINGS BACK TO THE ASSESS ING OFFICER FOR A FRESH DETERMINATION. CONCLUSION : 74. OUR CONCLUSIONS IN THIS JUDGMENT ARE AS FOLLOWS ; I) DIVIDEND INCOME AND INCOME FROM MUTUAL FUNDS FALLIN G WITHIN THE AMBIT OF SECTION 10(33) OF THE INCOME TA X ACT 1961, AS WAS APPLICABLE FOR ASSESSMENT YEAR 2002-03 IS NOT INCLUDIBLE IN COMPUTING THE TOTAL INCOME OF THE ASS ESSEE. CONSEQUENTLY, NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, BY VIRTUE OF THE PROVISIONS OF SECTION 14A (1); II) THE PAYMENT BY A DOMESTIC COMPANY UNDER SECTION 115 O(1) OF ADDITIONAL INCOME TAX ON PROFITS DECLARED, DISTR IBUTED OR PAID IS A CHARGE ON A COMPONENT OF THE PROFITS OF T HE COMPANY. THE COMPANY IS CHARGEABLE TO TAX ON ITS PROFITS AS A DISTINCT TAXABLE ENTITY AND IT PAYS TAX IN DIS CHARGE OF ITS OWN LIABILITY AND NOT ON BEHALF OF OR AS AN AGENT F OR ITS SHAREHOLDERS. IN THE HANDS OF THE SHAREHOLDER AS T HE RECIPIENT OF DIVIDEND, INCOME BY WAY OF DIVIDEND DO ES NOT FORM PART OF THE TOTAL INCOME BY VIRTUE OF THE PROV ISIONS OF SECTION 10(33). INCOME FROM MUTUAL FUNDS STANDS ON THE SAME BASIS; III) THE PROVISIONS OF SUB SECTIONS (2) AND (3) OF SECTI ON 14A OF THE INCOME TAX ACT 1961 ARE CONSTITUTIONALLY VALID; ITA NOS.3563/AHD/2007(BY REVENUE) & ITA NO.3813/AHD/2007 (BY ASSESSEE) ASST.CIT (OSD) VS. AHMEDABAD STEEL CRAFT ASST.YEAR 2004-05 - 6 - IV) THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES A S INSERTED BY THE INCOME TAX (FIFTH AMENDMENT) RULES 2008 ARE NOT ULTRA VIRES THE PROVISIONS OF SECTION 14A, MORE PARTICULARLY SUB SECTION (2) AND DO NOT OFFEND ARTI CLE 14 OF THE CONSTITUTION; V) THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES W HICH HAVE BEEN NOTIFIED WITH EFFECT FROM 24 MARCH 2008 S HALL APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09; VI) EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORC E THE PROVISIONS OF SUB SECTION (1) OF SECTION 14A. FOR THT PURPOSE, THE ASSESSING OFFICER IS DUTY BOUND TO DET ERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASON ABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FA CTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE R ECORD; VII) THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 SHALL S TAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESS ING OFFICER SHALL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) IN RE LATION TO DIVIDEND INCOME / INCOME FROM MUTUAL FUNDS WHICH DO ES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 3.3. IN ADDITION TO THE ABOVE PRECEDENT, WE ARE AL SO GOVERNED BY A DECISION OF RESPECTED ITAT MUMBAI BENCH PRONOUNCED IN THE CASE OF ITA NOS.3563/AHD/2007(BY REVENUE) & ITA NO.3813/AHD/2007 (BY ASSESSEE) ASST.CIT (OSD) VS. AHMEDABAD STEEL CRAFT ASST.YEAR 2004-05 - 7 - DAGA CAPITAL MANAGEMENT PVT.LTD. REPORTED AS 117 IT D 169 (MUM.), WHEREIN ALSO IT WAS PRONOUNCED THAT IN ORDER TO ESC APE THE APPLICABILITY OF SECTION 14A, ONUS IS ON THE ASSESSEE TO PROVE TH AT THE EXPENDITURE WAS INCURRED FOR EARNING ONLY TAXABLE INCOME. HOWEVER, IT HAS ALSO BEEN PRESCRIBED THAT AFTER INTRODUCTION OF RULE 8D, IT B ECOMES CLEAR THAT NOT ONLY THE EXPENDITURE DIRECTLY RELATING TO EXEMPTED INCOME BUT ALSO THE INDIRECT EXPENDITURE LIKE INTEREST WHICH IS NOT DIR ECTLY ATTRIBUTABLE TO ANY PARTICULAR: INCOME OR RECEIPT ARE TO BE TAKEN IN TO FOR THE PURPOSE OF INVOCATION OF THE PROVISIONS OF SECTION 14A OF THE I.T. ACT, 1961. 3.4. APART FROM THE ABOVE DISCUSSION, AN ANOTHER CASE LAW SHOULD ALSO NOT ESCAPE OUR ATTENTION AS PRONOUNCED IN THE CASE OF WAL FORT SHARES AND STOCK BROKERS LTD. [2009](310 ITR 421) [BOM]. THE OBSERVATION WAS THAT WHAT SECTION 14A OF THE ACT CONTEMPLATES I S THE EXPENDITURE ACTUALLY INCURRED FOR EARNING TAX-FREE INCOME AND N OT ASSUMED EXPENDITURE OR DEEMED EXPENDITURE. THEREFORE CONFIR MING THE DECISION OF THE RESPECTED SPECIAL BENCH { 96 TTJ 673(SB)(MUM.)} AN OBSERVATION WAS MADE THAT THERE WAS NO MERIT IN THE CONTENTION THAT THE LOSS ARISING FROM THE TRANSACTION WAS LIABLE TO BE TREATED AS A N EXPENDITURE INCURRED FOR EARNING THE TAX FREE INCOME AND HENCE DISALLOWA BLE UNDER SECTION 14A. ADMITTEDLY, NO EXPENDITURE WAS INCURRED IN PUR CHASING THE DIVIDEND BEARING UNITS. THE TRIBUNAL WAS JUSTIFIED IN HOLDIN G THAT THE LOSS ARISING FROM THE TRANSACTION WAS LIABLE TO BE SET OFF AGAIN ST THE OTHER TAXABLE INCOME OF THE ASSESSEE. WHILE UPHOLDING THE DECISI ON OF HON'BLE HIGH COURT, THE HON'BLE SUPREME COURT { CIT VS WALFORT SHARE & STOCK ITA NOS.3563/AHD/2007(BY REVENUE) & ITA NO.3813/AHD/2007 (BY ASSESSEE) ASST.CIT (OSD) VS. AHMEDABAD STEEL CRAFT ASST.YEAR 2004-05 - 8 - BROKERS 326 ITR PG.1(SC) } HAS ALSO SAID THAT FOR ATTRACTING SECTION 14A OF THE ACT THERE HAS TO BE A PROXIMATE CAUSE FOR DI SALLOWANCE, WHICH IS ITS RELATIONSHIP WITH THE TAX EXEMPT INCOME, RELEVANT P ARA FROM THE HELD PORTION IS AS FOLLOWS :- SECTION 14A OF THE INCOME-TAX ACT, 1961, CLARIFIES THAT EXPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME. IN MANY CASES THE NATU RE OF EXPENSES INCURRED BY THE A MAY BE RELATABLE PARTLY TO EXEMPT INCOME AND PARTLY TO TAXABLE INCOME. IN THE ABSENCE OF SECT ION 14A, THE EXPENDITURE INCURRED IN RESPECT OF EXEMPT INCOME WA S BEING CLAIMED AGAINST TAXABLE INCOME. THE MANDATE OF SEC TION 14A IS CLEAR: IT DESIRES TO CURB THE PRACTICE OF CLAIMING DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME AGAI NST TAXABLE INCOME AND AT THE SAME TIME AVAIL OF THE TAX INCENT IVE BY WAY OF EXEMPT INCOME WITHOUT MAKING ANY APPORTIONMENT OF E XPENSES INCURRED IN RELATION TO EXEMPT INCOME. THE BASIC R EASON FOR INSERTION OF SECTION 14A IS THAT CERTAIN INCOMES AR E NOT INCLUDIBLE WHILE COMPUTING THE TOTAL INCOME BECAUSE THESE ARE EXEMPT UNDER CERTAIN PROVISIONS OF THE ACT. THE BASIC PRINCIPLE OF TAXATION IS TO TAX THE NET I NCOME, I.E., GROSS INCOME MINUS EXPENDITURE. ON THE SAME ANALO GY, EXEMPTION IS ALSO IN RESPECT OF NET INCOME. THE TH EORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NO N-TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 1 4A. A PAY BACK IS NOT AN EXPENDITURE IN THE SCHEME OF S ECTION 14A; FOR ATTRACTING SECTION 14A THERE HAS TO BE A P ROXIMATE CAUSE FOR DISALLOWANCE, WHICH IS IN RELATIONSHIP WITH THE TAX EXEMPT INCOME. PAY BACK OR RETURN OF INVESTMENT IS NOT SU CH PROXIMATE CAUSE. 3.5. IT IS WORTH TO MENTION, AS HELD IN THE CASE OF HERO CYCLES (323 ITA NOS.3563/AHD/2007(BY REVENUE) & ITA NO.3813/AHD/2007 (BY ASSESSEE) ASST.CIT (OSD) VS. AHMEDABAD STEEL CRAFT ASST.YEAR 2004-05 - 9 - ITR 518)[P&H] THAT IF THERE IS SUFFICIENT MATERIAL ON RECORD TO E STABLISH THAT INVESTMENT IN SHARES/UNITS WAS MADE OUT OF NON -INTEREST BEARING FUNDS, THEN NO DISALLOWANCE HAS TO BE MADE OUT OF I NTEREST DEBITED TO PROFIT & LOSS ACCOUNT, EVEN IF THERE IS DIVIDEND IN COME FROM SUCH INVESTMENT. WHERE THE EXPENDITURE INCURRED COULD NOT BE RELATED TO EXEMPTED INCOME, THE PROVISIONS OF SECTION 14A WOUL D ALSO NOT BE ATTRACTED. IT IS ALSO A SETTLED LAW THAT THE THE ORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE INCOME, HAS BEEN ACCEPTED. HOWEVER, ASSESSING OFFICER HAS TO SATISFY HIMSELF A ND SUCH SATISFACTION MUST BE ARRIVED AT ON THE OBJECTIVE BASIS. IF BEN EFIT ARISING FROM INVESTMENT IN SHARES OUT OF INTEREST-BEARING FUND I S THE DIVIDEND INCOME EXEMPT U/S.10(34) OF THE ACT, THE RELATED EXPENDITU RE HAS TO BE DISALLOWED . 3.6. HOWEVER, IT DEPENDS ON THE FACTS OF EACH C ASE. BUT THE FACT OF THE PRESENT CASE WAS THAT THE ASSESSING OFFICER HAD NOT ENQUIRED THE ISSUE IN THE LIGHT OF THE ABOVE LEGAL PRONOUNCEMENTS. SPECIA LLY THE PRONOUNCEMENT OF THE HON'BLE BOMBAY HIGH COURT WAS NOT AVAILABLE AT THAT TIME, HENCE, THE ASSESSING OFFICERS ASSESSMEN T ORDER WAS DEVOID OF MERITS AS ALSO APPLICABLE LAW. NOW WE HAVE GOT CER TAIN GUIDELINES, THOUGH CAN NOT BE SAID TO BE EXHAUSTIVE OR COMPLETE , BUT ON THESE LINES, THE ASSESSING OFFICER IS EXPECTED HENCEFORTH TO COM PUTE THE CORRECT DISALLOWANCE, NEEDLESS TO SAY AFTER PROVIDING AN A DEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. THEREFORE, THE MATTER IS RESTORED TO BE DECIDED AFRESH, HENCE, THIS GROUND OF THE ASSESSEE MAY BE T REATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NOS.3563/AHD/2007(BY REVENUE) & ITA NO.3813/AHD/2007 (BY ASSESSEE) ASST.CIT (OSD) VS. AHMEDABAD STEEL CRAFT ASST.YEAR 2004-05 - 10 - 4. GROUND NO.4 IS AS UNDER: 4. THE DISALLOWANCE OF DEDUCTION U/S.80HHC OF THE ACT AMOUNTING TO RS.13,64,232/- CONFIRMED BY THE CIT(A) MAY KINDLY BE DELETED. 4.1. THE ASSESSEE HAS CLAIMED A DEDUCTION U/S.80HHC OF RS.13,64,232/-, HOWEVER, THE ASSESSING OFFICER HAS MADE CERTAIN ADJUSTMENTS AND DISALLOWED THE CLAIM. AS PER THE ASSESSING OFFICERS CALCULATION THE FIGURE OF DEDUCTION WAS ARRIVED AT RS.NIL. THE ADJUSTMENTS WERE STATED TO BE IN THE TOTAL TURNOVER IN RESPECT OF SALES-TAX AND EXCISE DUTY. THE ACTION OF THE ASSESSING OFF ICER WAS CONFIRMED BY THE LEARNED CIT(APPEALS). HOWEVER, NOW BEFORE US, TWO DECISIONS IN ASSESSEES OWN CASE DECIDED BY THE ITAT C BENCH A HMEDABAD BEARING ITA NOS.1849 AND 1862/AHD/2005 FOR ASSESSME NT YEAR 2002-03 ORDER DATED 24/04/2009 AND ANOTHER DECISION BEARING ITA NO.581/AHD/2007 FOR ASSESSMENT YEAR 2003-04 ORDER D ATED 05/09/2006 ARE PLACED. FOR BOTH THE YEARS, THE RESPECTED CO- ORDINATE BENCH HAS RESTORED THE MATTER BACK TO THE STAGE OF ASSESSING OFFICER WITH CERTAIN DIRECTIONS AFTER CITING THE DECISION OF HON'BLE SUP REME COURT IN THE CASE OF CIT VS. LAXMI MACHINE WORKS (290 ITR 667)[SC]. SINCE THE MATTER HAS TO BE DECIDED NOW IN THE LIGHT OF THE PAST HIST ORY AND AS PER THE DIRECTIONS OF THE TRIBUNAL, THEREFORE, WE HAVE NOTH ING MUCH TO ADD BUT TO FOLLOW THE SAME. IN THE RESULT, THIS GROUND MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES BEING RESTORED TO ASSESSING OF FICER. ITA NOS.3563/AHD/2007(BY REVENUE) & ITA NO.3813/AHD/2007 (BY ASSESSEE) ASST.CIT (OSD) VS. AHMEDABAD STEEL CRAFT ASST.YEAR 2004-05 - 11 - (B) REVENUES APPEAL (ITA NO.3563/AHD/2007) 5. GROUND NO.1 IS AS UNDER: 1. THE CIT(A) ERRED IN LAW AND ON FACTS IN DELETI NG DISALLOWANCE OF RS.5,15,689/- MADE ON ACCOUNT OF IN TEREST EXPENSES. 5.1. AS PER ASSESSING OFFICER, THE ASSESSEE HAS BOR ROWED FUNDS AN ADVANCE ON A LOWER RATE OF INTEREST. AFTER DISCUSS ING THE DETAILS OF ADVANCE TO CERTAIN PARTIES A PROPORTIONATE INTEREST EXPENSE DISALLOWANCE OF RS.5,15,689/- WAS MADE. WHEN THE MATTER WAS C ARRIED BEFORE THE FIRST APPELLATE AUTHORITY, WE HAVE OBSERVED THAT TH E LEARNED CIT(APPEALS) HAS GIVEN A FINDING THAT AS PER THE BA LANCE-SHEET, THE SHARE CAPITAL WAS TO THE TUNE OF RS.4,09,20,000/- AND SUR PLUS RESERVES WAS RS.7,91,97,138/-. AS PER ASSESSEE, THE TOTAL INTE REST-FREE FUNDS AVAILABLE WERE RS.12,01,17,138/-. AS AGAINST THAT, ADVANCES ALLEGED TO BE INTEREST- FREE WERE TO THE TUNE OF RS.45,05,003/-. IN THE L IGHT OF THIS BACKGROUND, NOW BEFORE US A DECISION OF RELIANCE UTILITIES & PO WER LTD. PLACED ON RECORD, REPORTED AS 313 ITR 340 ( BOM.) . ONCE THE HON'BLE COURT HAS TAKEN A VIEW THAT THE ASSESSEE POSSESSED SUFFICIENT INTEREST-FREE FUNDS OF ITS OWN, THEN THE PRESUMPTION STANDS ESTABLISHED TH AT THE INVESTMENT TOWARDS ALLEGED INTEREST-FREE FUNDS WERE OUT OF THE AVAILABLE INTEREST-FREE RESERVES. IT WAS HELD THAT NO PART OF INTEREST ON BORROWINGS SHOULD BE DISALLOWED ON THE BASIS THAT THE INVESTMENTS WERE M ADE OUT OF INTEREST- BEARING FUNDS. FOLLOWING THIS PRECEDENT WE HEREBY AFFIRM THE FINDINGS OF LD. CIT(A) .THIS GROUND OF THE REVENUE IS, THER EFORE, DISMISSED. ITA NOS.3563/AHD/2007(BY REVENUE) & ITA NO.3813/AHD/2007 (BY ASSESSEE) ASST.CIT (OSD) VS. AHMEDABAD STEEL CRAFT ASST.YEAR 2004-05 - 12 - 6. GROUND NO.2 IS AS UNDER: 2. THE CIT(A) ERRED IN LAW AND ON FACTS IN RESTRICT ING THE ADDITION OF RS.154,594/- MADE U/S.14A TO RS.10,000/ -. 6.1. THE QUESTION OF DISALLOWANCE U/S.14A OF THE AC T HAS ALREADY BEEN RESTORED BACK TO ASSESSING OFFICER AS DISCUSSED HER EINABOVE. SINCE THE GROUND OF THE REVENUE IS CONNECTED WITH THE AFORE D ECIDED GROUND OF THE ASSESSEE ON THE QUESTION OF THE CORRECT APPLICABILI TY OF SECTION 14A, THEREFORE, FOLLOWING THE ABOVE VIEW WE HEREBY RESTO RE THIS GROUND, AS WELL, TO BE DECIDED AS PER THE ABOVE OBSERVATIONS. THIS GROUND OF THE REVENUE MAY THEREFORE BE TREATED AS ALLOWED BUT FOR STATISTICAL PURPOSE. 7. IN THE RESULT, THESE CROSS- APPEALS OF THE ASSES SEE AS ALSO OF THE REVENUE, BOTH ARE PARTLY ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 26/ 11 /2010. SD/- SD/- ( G.D.AGRAWAL ) ( MUKUL KR. SHRAWAT ) VICE PRESIDENT (AZ) JUDICIAL ME MBER AHMEDABAD; DATED 26 / 11 /2010 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPA RTMENT. 3. THE CIT CONCERNED. 4. THE LD. CIT(AP PEALS)-V, AHMEDABAD 5. THE DR, AHMEDABAD BENCH.6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD ITA NOS.3563/AHD/2007(BY REVENUE) & ITA NO.3813/AHD/2007 (BY ASSESSEE) ASST.CIT (OSD) VS. AHMEDABAD STEEL CRAFT ASST.YEAR 2004-05 - 13 - 1. DATE OF DICTATION..23/11/2010 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 23/11/2010 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S26.11.10 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 26.11.10 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER