Parasnath Tech Garments (P) Ltd., Kanpur V. Asstt. Commissioner of Income Tax-VI, Kanpur

ITA 360/LKW/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100377 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 08-05-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Source of fund
• Section: 14A; 15

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI, SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.360/LKW/2014 ASSESSMENT YEAR 2010-11 ACIT-VI, AAYKAR BHAWAN, KANPUR. VS PARASNATH TECH GARMENTS (P) LTD. PLOT NO. 5&6, IIND FLOOR, 14/75, CIVIL LINES, KANPUR PIN 208001 PAN AACCP 2649 F (RESPONDENT) (APPELLANT) SHRI ABHINAV MEHROTRA, ADVOCATE APPELLANT BY SHRI AMIT NIGAM, DR RESPONDENT BY 25/08/2015 DATE OF HEARING 24 /0 9 /2015 DATE OF PRONOUNCEMENT O R D E R PER A. K. GARODIA, A.M. THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE ORDER OF LD. CIT (A)-I, KANPUR DATED 25.02.2014 FOR THE AY 2010-11. 2. THE ASSESSEE HAS RAISED AS MANY AS NINE GROUNDS OF APPEAL BUT ONLY GRIEVANCE OF THE ASSESSEE IS REGARDING CONFIRMATION OF THE ADDITION OF RS.304622/- U/S 14A READ WITH RULE 8D OF THE INCOME TAX RULE. 3. LD. AR OF THE ASSESSEE SUBMITTED WRITTEN SUBMISS IONS WHICH ARE REPRODUCED BELOW:- PARASNATH TECHGARMENTS PRIVATE LIMITED ASSESSMENT YEAR 2012-13 JUSTIFICATION OF NON APPLICABILITY OF SECTION 14A F ACTS OF THE CASE: 1. THE ASSESSES COMPANY HAS MADE AN INVESTMENT OF RS. 17000000/- BY WAY OF EQUITY SHARES IN MAHAVIR SPINFAB PRIVATE LIM ITED IN EARLIER YEARS. NO 2 INVESTMENTS HAS BEEN MADE BY THE COMPANY DURING THE FINANCIAL YEAR 2012- 13 2. THE COMPANY HAS MADE ENTIRE INVESTMENTS IN EQU ITY SHARES OF THE SAID COMPANY OUT OF INTERNAL ACCRUAL OF THE COMPANY AND NO SPECIFIC BORROWINGS HAVE BEEN MADE FOR THE INVESTMENTS BY THE COMPANY. 3. THE COMPANY IS AN EXPORT ORIENTED UNIT AND IS AVAILING WORKING CAPITAL LIMITS IN FORM PACKING CREDIT AND FOUBP/FOUBNLC LIM IT FROM PUNJAB NATIONAL BANK, BIRHANA ROAD, KANPUR. THE LOAN HAS BEEN GRANT ED TO THE COMPANY FOR SPECIFIC PURPOSE OF MANUFACTURING GARMENTS & EXPORT ING THE SAME TO BUYERS. THE BANK RELEASES THE PACKING CREDIT LIMIT ON THE B ASIS OF EXPORT ORDERS RECEIVED BY THE COMPANY FOR PURCHASE OF RAW MATERIA LS FOR MANUFACTURING OF THE GOODS. WHEN THE GOODS ARE MANUFACTURED AND SHIP PED TO THE FOREIGN BUYERS, THE BANK RELEASES THE FUNDS UNDER FOUBP/FOU BNLC LIMIT ON THE BASIC OF BILL OF LADING PRODUCED BEFORE IT. THUS TH E FUNDS RELEASED AND INTEREST CHARGED BY THE BANK ON BOTH THE LIMITS ARE FOR BUSI NESS PURPOSE ONLY AND THERE IS NO POSSIBILITY FOR DIVERSION OF FUNDS FOR INVESTMENTS UNDER TERMS OF SANCTION OF THE BANK. 4. THE BOTH WORKING CAPITAL LIMITS ARE SANCTIONED FOR SHORT TERM PERIOD ONLY AND ARE RENEWED YEAR DEPENDING UPON BUILT UP OF CUR RENT ASSETS COMPRISING OF INVENTORY, EXPORT DEBTORS ETC. 5. THE FINANCIAL POSITION OF THE COMPANY IS AS UN DER: FINANCIAL YEAR 2011-12 2010-11 2009-10 SOURCE OF FUNDS: A) OWN FUNDS 394.92 384.67 354.34 B) WORKING CAPITAL LOAN 170.50 89.45 87.59 TOTAL 565.42 474.12 441.93 APPLICATION OF FUNDS: A) FIXED ASSETS 92.50 102.70 88.18 B) INVESTMENTS 170.00 170.00 170.00 C) NET WORKING CAPITAL 302.91 201.42 183.75 3 TOTAL 565.42 474.12 441.93 6. IT IS EVIDENT FROM THE ABOVE FIGURES THAT: 7. BAN-OWED FUNDS FROM THE BANK RS. 170.50 LACS H AS BEEN APPLIED IN CURRENT ASSES AMOUNTING TO RS. 302.91 LACS COMPRISI NG OF INVENTORY & DEBTORS AND OTHER CURRENT ASSETS AND NO PART HAS BEEN USED FOR MAKING IN INVESTMENT IN MAHAVIR SPINFAB PVT LTD . 8. THE COMPANY HAS SUFFICIENT OWN FUNDS OF RS. 3 94.92 LACS AS AT 31.03.2012, OUT OF WHICH COMPANY HAS MADE INVESTMEN TS IN FIXED ASSETS RS. 92.50 LACS, INVESTMENTS IN MAHAVIR SPINFAB PVT LTD RS. 170.00 LACS AND REMAINING AMOUNT RS. 132.42 IN CURRENT ASSETS AS MA RGIN MONEY AS REQUIRED BY BANK. 9. THEREFORE INTEREST PAID ON WORKING CAPITAL CAN NOT BE PROPORTIONATELY DISALLOWED UNDER RULE 8D. 10. MR. SANDEEP KUMAR JAIN, DIRECTOR OF THE COMPANY , IS LOOKING AFTER THE INVESTMENT MADE BY THE COMPANY IN MSPL . OUT OF HIS SALARY , A SUM OF RS. 12000/- HAS ALREADY BEEN ADDED BACK IN THE COMPUTAT ION OF TOTAL INCOME TOWARDS EXPENDITURE INCURRED AS STIPULATED U/S 14A OF THE ACT , FILED ON YOUR RECORD, HENCE NO DISALLOWANCE SHOULD BE MADE UNDER SECTION 14A. RECENT JUICIAL JUDGEMENTS: 1. IT IS ESTABLISHED LAW IN THE ARENA OF SECTION 14 A READ WITH RULE 8D THAT IF NO EXPENDITURE HAS BEEN INCURRED OR IF THERE IS NOT ANY NEXUS BETWEEN THE EXPENDITURE AND INVESTMENT, QUESTION OF DISALLOWANC E DOES NOT ARISE. IN SUPPORT OF THIS LINE OF REASONING RELEVANCE IS PLAC ED UPON THE FOLLOWINGS: C.I.T. VS. METALMAN AUTO PRIVATE LIMITED 336 ITR 43 4 C.I.T. VS. RELIANCE INDUSTRIES LIMITED 339 ITR 632 GODREJ & BOYCE MANUFACTURING COMPANY VS. DCIT 328 I TR 81 2. THE DISALLOWANCE DESERVES TO BE DELETED ON THE A DDITIONAL GROUND THAT APPELLANT HAS NOT EARNED ANY EXEMPT INCOME DURING T HE YEAR. IN SUPPORT OF THIS LINE OF REASONING, RELIANCE IS PLACED UPON:- 4 IN THE CASE OF M/S. SHIVAM MOTORS (P) LTD. VS CIT ( ALLAHABD HIGH COURT) MAY 2014 IT WAS HELD BY THE HON'BLE HIGH COURT THAT IN THE ABSENCE OF ANY TAX FREE INCOME, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE.( COPY OF ORDER ENCLOSED} IN THE CASE OF CIT VS. HOLCIM INDIA P. LTD. (DELHI HIGH COURT) SEPTEMBER, 2014, IT WAS HELD THAT IN THE ABSENCE OF ANY TAX FR EE INCOME, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT F OR DISALLOWANCE.( COPY OF ORDER ENCLOSED ) IN THE CASE OF ACIT VS. MR. M. BASKARAN, (ITAT CHEN NAI) JUNE2014, THE COURT OBSERVED THAT: 'NO DOUBT IN THE DECISION OF THE SPECIAL BENCH OF D ELHI TRIBUNAL IN THE CASE OF CHEMINVEST LTD. VS. ITO (SUPRA),THE SPECIAL BENCH H ELD THAT DISALLOWANCE UNDER SECTION 14ACAN BE MADE EVEN IN THE YEAR IN WH ICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE. THIS D ECISION OF SPECIAL BENCH OF THE TRIBUNAL HAS BEEN IMPLIEDLY OVERRULED BY THE DECISIONS OF HIGH COURTS IN THE IN THE CASE OF M/S. SHIVAM MOTORS P.LTD.' .( CO PY OF ORDER ENCLOSED ) IN THE CASE OF CIT VS. M/S LAKHANI MARKETING LNC (H IGHCOURT P&H) APRIL 2014 , THE COURT OBSERVED THAT ' THE CONTENTION RAISED ON BEHALF OF THE REVENUE IS THAT EVEN IF THE ASSESSEE HAD MADE INVESTMENT IN SHARES OUT OF ITS OWN FUNDS, THE ASSESSEE HAD TAKEN LOANS ON WHICH INTEREST WAS PAID AND ALL THE MONEY AVAILABLE WITH THE ASSESSE WAS IN COMMON KITTY, AS HELD BY THIS COURT IN CIT V S. ABHISHEK INDUSTRIES LIMITED, (2006) 286 ITR 1(P&H) AND THEREFORE, DISAL LOWANCE UNDER SECTION 14A WAS JUSTIFIED. WE DO NOT FIND ANY MERIT IN THIS SUBMISSION. JUDGME NT OF THIS COURT IN ABHISHEK INDUSTRIES (SUPRA) WAS ON THE ISSUE OF ALL OWABILITY OF INTEREST PAID ON LOANS GIVEN TO SISTER CONCERNS, WITHOUT INTEREST. I T WAS HELD THAT DEDUCTION FOR INTEREST WAS PERMISSIBLE WHEN LOAN WAS TAKEN FOR BU SINESS PURPOSE AND NOT FOR DIVERTING THE SAME TO SISTER CONCERN WITHOUT HA VING NEXUS WITH THE BUSINESS. OBSERVATIONS MADE THEREIN HAVE TO BE READ IN THAT CONTEXT. IN THE PRESENT CASE, ADMITTEDLY, THE ASSESSEE DIDNT MAKE ANY CLAIM FOR EXEMPTION. IN SUCH A SITUATION, SECTION!4A COULD HAVE NO APPLI CATION.' .( COPY OF ORDER ENCLOSED ) 5 IN THE CASE OF SHIVA INDUSTRIES & HOLDING LIMITED V S. ACIT 59 DTR 182 (ITAT CHENNAI BENCH), IT HAS BEEN HELD THAT IF ASSESSEE H AS NOT EARNED ANY EXEMPT INCOME. NO ' DISALLOWANCE UNDER SECTION 14A CAN BE MADE. 3, IN THE APPELLANT OWN CASE FOR THE ASS YEAR 2009- 10, THE LEARNED CIT (A)-L HAS MISINTERPRETED THE PROVISIONS OF THE LAW BY FOL LOWING THE DECISION OF TECHOPACK ADVISORS (P) LTD VS, ACIT ,2012 , 18 TAXM AN.COM 146 , WHEREIN THE CASE WAS REMANDED TO ASSESSING OFFICE FOR EXAMI NING THE NEXUS BETWEEN INCOME & EXPENDITURE FOR DISALLOWANCE U/S 14A (COPY OF CASE LAW IS ENCLOSED FOR KIND PERUSAL). FURTHER THE LEANED CIT(A)-1 HAD FAILED TO APPRECIAT E THAT ALL OWN SURPLUS FUNDS OF THE ASSESSEE, AS IS EVIDENT FROM FUND FLOW STATEMENT, REMAINED PARKED IN STOCK , DEBTORS AND CURRENT ASSISTS DURIN G THE ASSESSMENT YEARS 2007-08 AND 2008-09 THE ASSESSEE HAS MADE INVESTMEN TS OF RS. 6500000/- DURING A.Y. 2007-08 AND RS. 10500000/-DURING A.Y. 2 008-09 OUT OF OWN FUNDS, EARLIER PARKED IN STOCKS AND DEBTORS, BY WAY OF REALIZATION OF EXPORT DEBTORS IN PRE & POST SHIPMENT LOAN ACCOUNTS . AS P ER TERMS OF THE SANCTION OF PRE-SHIPMENTS & POST-SHIPMENT CREDIT FACILITIES ALL THE SALE PROCEEDS ARE REQUIRED TO BE CREDITED IN BANKS LOAN ACCOUNT , ACC ORDINGLY THE ASSESSEE REALIZED ITS OWN FUNDS IN THE SAME LOAN ACCOUNTS. THE LEARNED CIT(A)-1 HAS ALSO FAILED TO APPRECIATE THAT THERE WAS NO NEXUS BETWEEN INTEREST PAID ON WORKING CAPITAL LOAN AND E XEMPT INCOME DURING ASSESSMENT YEAR 2009-10. IN THE CASE OF HERO CYCLES LIMITED VS. CIT, 323 1TR 518 THE HONBLE COURT DECIDED THAT DISALLOWANCE U/S 14A IS NOT PERMISSIBL E WHERE THERE IS NO NEXUS BETWEEN EXPENDITURE INCURRED AND INCOME GENERATED. IN THE CASE OF CIT VS. WINSOME TEXTILES LIMITED, 20 4 ITR 319, THE COURT DECIDED THAT WHEN SHARES WERE ACQUIRED BY WAY OF OW N FUNDS AND NO INTEREST WAS INCURRED, THEN THERE CANNOT BE ANY DISALLOWANCE U/S 14A OF THE ACT. WALLFORT SHARES & STOCK BROKERS LIMITED VS. IT0310 ITR 421 (BOMBAY) THE HON'BLE HIGH COURT HELD AS UNDER: 'WHAT SECTION 14A CONTEMPLATES IS THE EXPENDITURE A CTUALLY INCURRED FOR EARNING TAX FREE INCOME AND NOT ASSUMED OF DEEMED E XPENDITURE. IN THESE CIRCUMSTANCES, THE DECISION OF TRIBUNAL IN REJECTIN G THE ALTERNATE ARGUMENT OF REVENUE CANNOT BE 6 THE ABOVE VIEW HAS BEEN UPHELD, ON APPEAL, BY THE H ON'BLE SUPREME COURT VIDE JUDGMENT DATED 06.07.2010 (CIT VS. WALLFORT) B Y HOLDING AS UNDER: 'FOR ATTRACTING SECTION 14A, THERE HAS TO BE PROXIM ATE CAUSE FOR DISALLOWANCE, WHICH IS ITS RELATIONSHIP WITH THE TAX EXEMPT INCOM E. PAY-BACK OF RETURN OF INVESTMENT IS NOT SUCH PROXIMATE CAUSE, HENCE SECTI ON 14A IS NOT APPLICABLE IN THE PRESENT CASE. THUS, IN THE ABSENCE OF SUCH P ROXIMATE CAUSE FOR DISALLOWANCE, SECTION 14A CANNOT BE INVOKED. ' THE HON'BLE SUPREME COURT FURTHER OBSERVED THAT; 'THE BASIC PRINCIPLE OF TAXATION IS TO TAX THE NET INCOME, I.E., GROSS INCOME MINUS THE EXPENDITURE. ON THE SAME ANALOGY THE EXEM PTION IS ALSO IN RESPECT OF NET INCOME. EXPENSES ALLOWED CAN ONLY BE IN RESP ECT OF EARNING OF TAXABLE INCOME. THIS IS THE PURPORT OF SECTION 14A, THE FIR ST PHRASE IS 'FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS C HAPTER' WHICH MAKES IT CLEAR THAT VARIOUS HEADS OF INCOME AS PRESCRIBED UN DER CHAPTER IV WOULD FALL WITHIN SECTION 14A. 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 RELATED EXPENDI TURE IS OUTSIDE THE AMBIT OF THE APPLICABILITY OF SECTION 14A.' 'IF AN INCOME LIKE DIVIDEND INCOME IS NOT A PART OF THE TOTAL INCOME, THE EXPENDITURE/ DEDUCTION THOUGH OF THE NATURE SPECIFI ED IN SECTIONS 15 TO 59 BUT RELATED TO THE INCOME NOT FORMING PART OF TOTAL INC OME COULD NOT BE ALLOWED AGAINST OTHER INCOME INCLUDIBLE IN THE TOTAL INCOME FOR THE PURPOSE OF CHARGEABILITY TO TAX. THE THEORY OF APPORTIONMENT O F EXPENDITURES BETWEEN TAXABLE AND NON-TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 14A.' 'ONE NEEDS TO READ THE WORDS 'EXPENDITURE INCURRED' IN SECTION 14A IN THE CONTEXT OF THE SCHEME OF THE ACT AND , IF SO READ, IT IS CLEAR THAT IT DISALLOWS CERTAIN EXPENDITURE INCURRED TO EARN EXEMPT INCOME FROM BEING DEDUCTED FROM OTHER INCOME WHICH IS INCLUDIBLE IN THE 'TOTAL INCOME' FOR THE PURPOSE OF CHARGEABILITY TO TAX/' GODREJ & BOYCE MFG CO LTD- VS. DCIT (UNREPORTED JUDGMENT OF HON'BLE BOMBAY HIGH COURT I N ITA 626 & WP 758 OF 2010 DATED 12TH AUGUST 2010.) 7 SUB SECTION (2) OF SECTION 14A DOES NOT IPSO FACTO ENABLE THE ASSESSING OFFICER TO APPLY THE METHOD PRESCRIBED BY THE RULES STRAIGHTAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH-DO ES NOT FORM PART OF THE TOTAL INCOME IS CORRECT. THE ASSESSING OFFICER MUST , IN THE FIRST INSTANCE, DETERMINE WHETHER THE CLAIM OF THE ASSESSEE IN THAT REGARD IS CORRECT AND THE DETERMINATION MUST BE MADE HAVING REGARD TO THE ACC OUNTS OF THE ASSESSEE. IN THE VIEW OF ABOVE FACTS AND JUDICIAL PREANNOUNCE MENTS OF JURISDICTIONAL HIGH COURT AND OTHER COURTS, THE DISALLOWANCE U/S 1 4 A IS NOT CALLED FOR. 4. HE ALSO SUBMITTED THAT AS PER AUDITED BALANCE SH EET FOR PRESENT YEAR AND PRECEDING FOUR YEARS AVAILABLE ON PAGE 56 OF TH E PAPER BOOK, IT CAN BE SEEN THAT INVESTMENT WAS FIRST MADE IN FY 2006-07 O F RS.55 LAKH WHICH HAVE GONE UP RS.107 LAKH IN FY 2007-08 AND THE SAME IS C ONTINUING TILL THE END OF FY 2009-10 RELEVANT FOR THE PRESENT ASSESSMENT YEAR . HE ALSO SUBMITTED THAT OWN FUND OF THE ASSESSEE COMPANY WAS OF RS.195.33 L AKH AS ON 31.03.2007 AND RS.249.80 LAKH AS ON 31.03.2008 AND THE SAME WA S MUCH IN EXCESS OF INVESTMENT. HE SUBMITTED THAT UNDER THESE FACTS, NO DISALLOWANCE U/S 14A IS CALLED FOR AND IN SUPPORT OF HIS CONTENTION, HE PLA CED RELIANCE ON A JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF RAJASTHAN STATE WAREHOUSING CORPORATION VS. CIT REPORTED IN 242 ITR 450. HE ALS O SUBMITTED THAT THERE IS VIOLATION OF SECTION 14A (2) OF THE ACT BECAUSE NO SATISFACTION HAS BEEN RECORDED BY THE AO. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIN D THAT THIS IS ADMITTED POSITION OF FACT THAT THE AMOUNT WAS INVESTED IN SH ARES TO THE EXTENT OF RS.170 LAKH AT THE END OF FY 2007-08 AND THE SAME I S CONTINUING IN THE PRESENT YEAR ALSO AT THE SAME FIGURE. THIS IS ALSO ADMITTED FACT THAT THIS INVESTMENT IN SHARES IS IN COURSE OF INVESTMENT AND NOT IN COURSE OF DEALING IN SHARES. IN THE LIGHTS OF THESE FACTS, WE EXAMINE TH E ALLOWABILITY OF INTEREST EXPENDITURE OF RS.6,29,197/- CLAIMED BY THE ASSESSE E IN THE PRESENT YEAR. THIS IS ADMITTED POSITION OF FACT THAT THE ASSESSEE WAS HAVING MIXED FUND 8 BECAUSE THE ASSESSEE WAS ENJOYING PACKING CREDIT AN D POST SHIPMENT LOAN FROM PUNJAB NATIONAL BANK IN THE PRESENT YEAR AS WE LL AS IN THE PRECEDING FOUR YEARS. IN THE LIGHT OF THIS FACT THAT THE ASSESSEE HAS USED MIXED FUND FOR MAKING INVESTMENT IN SHARES, AS PER RULE 8D, PROPOR TIONATE DISALLOWANCE IS TO BE MADE IF THE ASSESSEE IS NOT ABLE TO ESTABLISH BY BRINGING DIRECT NEXUS ON RECORD THAT THE ENTIRE INVESTMENT IS OUT OF INTERES T FREE FUND AND AS A CONSEQUENCE, ENTIRE INTEREST BEARING BORROWING FUND WAS USED ONLY FOR EARNING TAXABLE INCOME. THIS IS NOT THE CASE OF THE ASSESSEE THAT THE ASSESSEE HAS BEEN ABLE TO BRING ANY DIRECT NEXUS ON RECORD T O ESTABLISH THAT THE INVESTMENT IN SHARES IS OUT OF INTEREST FREE FUND O R THAT THE ENTIRE BORROWED FUND WAS ACTUALLY USED FOR EARNING TAXABLE INCOME O NLY AND NO PART THEREOF WAS USED FOR MAKING INVESTMENT IN SHARES. RELEASE O F FUND BY BANK FOR USE IN EXPORT BUSINESS IS A DIFFERENT THING AND ACTUAL USE OF SUCH FUNDS FOR EXPORT BUSINESS IS AN ALTOGETHER DIFFERENT THING AND APART FROM RAISING THIS CLAIM THAT THE BANK RELEASES THE FUNDS FOR EXPORT BUSINESS, NE ITHER ANY CONTENTION IS RAISED NOR ANY EVIDENCE HAS BEEN BROUGHT ON RECORD THAT IN FACT, SUCH LOAN FROM BANK WAS ACTUALLY USED ONLY FOR EXPORT BUSINES S WHEREAS, AN UNCOTROVERTED FINDING HAS BEEN GIVEN BY CIT (A) IN AN EARLIER YEAR THAT ALMOST ENTIRE INVESTMENT IS ROUTED THROUGH THE BANK LOAN A CCOUNT. REGARDING THIS CONTENTION THAT THERE WAS NO ACTUAL DIVIDEND INCOME IN THE PRESENT YEAR AND RELIANCE ON THE JUDGMENT OF THE HONBLE ALLAHABAD H IGH COURT RENDERED IN THE CASE OF SHIVAM MOTORS AS PER JUDGMENT MADE IN 2014, WE WOULD LIKE TO OBSERVE THAT AS PER THE JUDGMENT OF THE HONBLE APE X COURT RENDERED IN THE CASE OF RAJENDRA PRASAD MOODY REPORTED IN 115 ITR 5 19 (SC), IT WAS HELD THAT FOR ALLOWING DEDUCTION U/S 57 (III) IN RESPECT OF I NTEREST PAID ON MONEY BORROWED FOR INVESTMENT IN SHARES, ACTUAL RECEIPT O F DIVIDEND IS NOT NECESSARY. ON THE BASIS OF SAME ANALOGY, FOR THE PURPOSE OF DI SALLOWANCE U/S 14A ALSO, IN RESPECT OF INTEREST EXPENDITURE ON MONEY BORROWED I N INVESTMENT IN SHARES, ACTUAL RECEIPT OF DIVIDEND IN THE PRESENT YEAR IS N OT NECESSARY. THIS JUDGMENT 9 OF THE HONBLE APEX COURT WAS NOT BROUGHT TO THE NO TICE OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF SHIVAM MOTORS (SUPRA) AND THE SAME WAS THEREFORE NOT CONSIDERED AND HENCE, THIS ISSUE IS COVERED AGA INST THE ASSESSEE BY THE JUDGMENT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF RAJENDRA PRASAD MOODY (SUPRA). 6. REGARDING THIS CONTENTION THAT NO SATISFACTION W AS RECORDED BY THE AO AS REQUIRED U/S 14A(2), WE FIND THAT ON PAGE 6 OF T HE ASSESSMENT ORDER, IT IS NOTED BY THE AO THAT IN AY 2009-10, LD. CIT(A) HAS NOT ONLY CONFIRMED THE ADDITION U/S 14A IN THAT YEAR BUT ALSO DIRECTED TO COMPUTE THE DISALLOWANCE OF INTEREST ALSO U/S 14A READ WITH RULE 8D OF THE RULE . DURING THE COURSE OF APPELLATE PROCEEDING, LD. CIT(A) HAS FOUND THAT ALM OST ALL OF THE INVESTMENT OF RS.170 LAKH WAS MADE ON THE STRENGTH OF CREDIT R ECEIPT IN ASSESSEES BANK ACCOUNT FROM PACKING CREDIT/POST SHIPMENT CREDIT. H ENCE, IT IS SEEN THAT NOT ONLY SATISFACTION WAS RECORDED BY THE AO BUT HE HAS GIVEN A BASIS OF THAT SATISFACTION ALSO THAT THE ENTIRE INVESTMENT OF RS. 170 LAKH WAS MADE ON THE STRENGTH OF CREDIT RECEIPT IN ASSESSEES BANK ACCOU NT FROM PACKING CREDIT/POST SHIPMENT CREDIT. AS PER THE FUND FLOW STATEMENT AV AILABLE AT PAGE 56 OF THE PAPER BOOK, ENTIRE INVESTMENT OF RS.170 LAKH WAS MA DE TILL 31.03.2008 AND THERE IS NO FRESH INVESTMENT IN THE PRESENT YEAR. H ENCE THERE IS NO MERIT IN THIS CONTENTION ALSO THAT NO SATISFACTION WAS RECOR DED BY THE AO AS REQUIRED UNDER SUB SECTION 2 OF SECTION 14A. 7. REGARDING THIS CONTENTION RAISED BY THE LD. AR O F THE ASSESSEE IN THE WRITTEN SUBMISSIONS AS REPRODUCED ABOVE, WE FIND TH AT RELIANCE HAS BEEN PLACED ON VARIOUS JUDICIAL PRONOUNCEMENTS IN SUPPOR T OF THIS CONTENTION THAT IF NO EXPENDITURE HAS BEEN INCURRED OR IF THERE IS NO NEXUS BETWEEN THE EXPENDITURE AND INVESTMENT, QUESTION OF DISALLOWANC E DOES NOT ARISE. REGARDING THIS CONTENTION, WE FIND THAT AS PER THE FACTS OF THE PRESENT CASE, INTEREST ON BORROWED FUND WAS VERY MUCH INCURRED BY THE ASSESSEE AND THERE IS NEXUS BETWEEN SUCH INTEREST EXPENDITURE AND INVE STMENT AS PER THE FINDING 10 OF THE LD. CIT(A) IN AY 2009-10 WHICH COULD NOT BE CONTROVERTED BY THE ASSESSEE AND THEREFORE, THERE IS NO MERIT IN THIS C ONTENTION ALSO AND THESE JUDGMENTS CITED IN SUPPORT OF THIS CONTENTION ARE N OT RELEVANT IN THE PRESENT CASE. WE HAVE ALREADY DEALT WITH THIS CONTENTION TH AT IF THERE IS NO DIVIDEND INCOME IN THE PRESENT YEAR, NO DISALLOWANCE CAN BE MADE U/S 14A AND IT IS HELD BY US THAT AS PER THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF RAJENDRA PRASAD MOODY (SUPRA), THERE IS NO SUCH REQ UIREMENT. OUR DECISION IS ON THIS BASIS THAT ALTHOUGH THIS JUDGMENT OF THE HO NBLE APEX COURT IS IN THE CONTEXT OF SECTION 57 (III) BUT THE REQUIREMENTS AN D LANGUAGE OF SECTION 14A AND SECTION 57 (III) ARE SIMILAR. IN SECTION 57 (II I), THE REQUIREMENT IS THAT IF ANY EXPENDITURE IS INCURRED FOR THE PURPOSE OF MAKI NG OR EARNING INCOME FROM OTHER SOURCES, THE SAME IS ALLOWABLE AND IN SECTION 14A, IT IS PRESCRIBED THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDI TURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. SINCE THE LANGUAGE AND REQUIREMENT OF BOTH SECTIONS ARE SIMILAR, THE RATIO LAID DOWN BY THE HONBLE APEX CO URT IN THE CASE OF RAJENDRA PRASAD MOODY (SUPRA) IS APPLICABLE IN THE CONTEXT O F DISALLOWANCE U/S 14A ALSO. THEREFORE THESE JUDGMENTS CITED BY THE LD. AR OF THE ASSESSEE INCLUDING THE JUDGMENT OF THE HONBLE ALLAHABAD HIGH COURT RE NDERED IN THE CASE OF SHIVAM MOTOR (SUPRA) ARE NOT APPLICABLE BECAUSE THI S JUDGMENT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF RAJENDRA PRASAD MOODY (SUPRA) WAS NOT BROUGHT TO NOTICE AND AS A CONSEQUENCE NOT CONSIDER ED IN THESE JUDGMENTS. 8. REGARDING OTHER JUDGMENTS CITED BY LD. AR OF THE ASSESSEE IN SUPPORT OF THIS CONTENTION THAT NO DISALLOWANCE U/S 14A IS PERMISSIBLE WHERE THERE IS NO NEXUS BETWEEN EXPENDITURE INCURRED AND INCOME GE NERATED, WE WOULD LIKE TO OBSERVE THAT IN THE PRESENT CASE, NEXUS HAS BEEN ESTABLISHED BETWEEN INTEREST EXPENDITURE OF BORROWED FUND AND INVESTMEN T IN SHARES AND THEREFORE, THESE JUDGMENTS ARE ALSO NOT RENDERING A NY HELP OF THE ASSESSEE IN THE FACTS OF THE PRESENT CASE. 11 9. NOW, WE DEAL WITH THE APPLICABILITY OF THE JUDGM ENT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF RAJASTHAN STATE WAREH OUSING CORPORATION VS. CIT (SUPRA). REGARDING THIS JUDGMENT, WE WOULD LIKE TO OBSERVE THAT THIS JUDGMENT IS BEFORE INSERTION OF SECTION 14A IN THE INCOME TAX ACT AND IN THAT SITUATION, IT WAS HELD BY HONBLE APEX COURT THAT E XPENDITURE CANNOT BE APPORTIONED AND PART EXPENSES RELATING TO INCOME EX EMPT CANNOT BE DISALLOWED BUT AFTER INSERTION OF SECTION 14A IN TH E INCOME TAX ACT AS PER WHICH APPORTIONMENT IS SPECIFICALLY PRESCRIBED, THI S JUDGMENT IS NOT APPLICABLE IN THE PRESENT CASE. 10. AS PER ABOVE DISCUSSION, WE HAVE SEEN THAT NONE OF THE CONTENTIONS RAISED BY THE LD. AR OF THE ASSESSEE IS RENDERING A NY HELP TO THE ASSESSEE IN THE PRESENT CASE AND NONE OF THE JUDGMENTS CITED BY HIM IS APPLICABLE IN THE FACTS OF THE PRESENT CASE AND THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) IS IN ACCORDANCE WITH RULE 8D AND SECTION 14A OF THE ACT AND THEREFORE, WE FIND NO REASON TO INTERFERE IN TH E ORDER OF THE LD. CIT(A). 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DAT E MENTIONED ON THE CAPTION PAGE) SD/- SD/- (SUNIL KUMAR YADAV) (A.K. G ARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 24 /09/2015 AKS COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR