DCIT, C-1, Ludhiana V. M/s Vardhman Special Steels Ltd., Ludhiana

ITA 407/CHANDI/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8479 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 03-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S PHANI KISHOR
• Assessee Lawyers: VINEET J AIN
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH B, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 407/CHANDI/2018 (ASSESSMENT YEAR: 2014-15) DCIT CIRCLE- 1, LUDHIANA VS. M/S VARDHMAN SPECIAL STEELS LTD VARDHMAN PREMISES, CHANDIGARH ROAD, LUDHIANA PAN NO. AADCV4812B APPELLANT RESPONDENT ITA NO. 350/CHANDI/2018 (ASSESSMENT YEAR: 2014-15) M/S VARDHMAN SPECIAL STEELS LTD VARDHMAN PREMISES, CHANDIGARH ROAD, LUDHIANA PAN NO. AADCV4812B VS. DCIT CIRCLE- 1, LUDHIANA APPELLANT RESPONDENT DEPARTMENT BY : SHRI. G.S. PHANI KISHOR, CIT(DR) ASSESSEE BY : SHRI. VINEET JAIN, ADV. DATE OF HEARING :20/03/2019 DATE OF PRONOUNCEMENT :04/04/2019 O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER : THE ABOVE CROSS APPEALS ARE FILED BY THE ASSESSEE A ND REVENUE AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-1, LUDHIANA [IN SHORT REFERRED AS CIT(A)] U/S 250(6) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) DATED 30-01-2018. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL IN ITA NO. 350/CHANDI/2018 : 1. THAT THE ORDER PASSED BY THE LD.CIT(A) IS CONTRARY TO LAW AND FACTS OF THE CASE. 2. THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN UPH OLDING THE APPLICABILITY OF RULE 8D AND MAKING DISALLOWANCE THEREUNDER. 3. THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN AP PLYING AMENDED PROVISIONS OF RULE 8D WHICH WERE EFFECTIVE FROM 02.06.2016. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD/ALTER/AMEND ANY GROUND OF APPEAL ON OR BEFORE THE DUE DATE OF HEARING OF APPEAL. PAGE 2 OF 8 (3) THE SOLE ISSUE RAISED BY THE ASSESSEE IN ITS AP PEAL RELATES TO DISALLOWANCE OF EXPENSES MADE U/S 14A OF THE ACT PERTAINING TO T HOSE INCURRED FOR THE PURPOSE OF EARNING EXEMPT INCOME. (4) BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURI NG THE IMPUGNED YEAR THE ASSESSEE COMPANY HAD EARNED EXEMPT INCOME (FROM HOL DING OF INVESTMENTS) FOR WHICH THERE WAS A VOLUNTARY AND SUO-MOTU DISALL OWANCE OF RS. 2,66,084/- MADE BY THE ASSESSEE IN THE COMPUTATION OF INCOME FILED ALONG WITH RETURN OF INCOME. NOT BEING SATISFIED WITH THIS VOLUNTARY DI SALLOWANCE, THE ASSESSING OFFICER INVOKED THE MACHINERY PROVISION CONTAINED IN RULE 8D OF THE INCOME TAX RULES,1962,(HEREINAFTER REFERRED TO AS RULES) AND WORKED OUT THE DISALLOWANCE AT RS. 17,61,949/-. REDUCING THERE FROM THE AMOUNT ALREADY DISALLOWED BY THE ASSESSEE AMOUNTING TO RS. 2,66,084/-, A FURTHER DI SALLOWANCE OF RS. 14,95,865/- WAS MADE BY THE AO, OF EXPENSES U/S 14A OF THE ACT. (5) AGGRIEVED BY THE SAME, THE ASSESSEE WENT IN AP PEAL BEFORE THE CIT(A) WHO UPHELD THE ACTION OF THE AO IN MAKING DISALLOWA NCE U/S 14A OF THE ACT R.W RULE 8D OF THE RULES, BUT AT THE SAME TIME HELD TH AT THE AMOUNT OF DISALLOWANCE WAS TO BE CALCULATED AS PER THE AMENDE D PROVISIONS OF RULE 8D WHICH HAD BEEN MADE EFFECTIVE FROM 2 ND JUNE, 2016, HOLDING THAT THEY WERE RETROSPECTIVE IN APPLICATION. ACCORDINGLY, THE LD. CIT(A) DIRECTED THE AO TO CALCULATE THE DISALLOWANCE OF EXPENSES U/S 14A AS P ER THE AMENDED PROVISIONS OF RULE 8D. (6) AGGRIEVED BY THE SAME THE ASSESSEE HAS COME IN APPEAL BEFORE US CHALLENGING THE ORDER OF THE LD.CIT(A) IN UPHOLDING THE DISALLOWANCE U/S 14A, THE APPLICABILITY OF RULE 8D OF THE RULES AND ALSO THE APPLICABILITY OF THE AMENDED RULE 8D. (7) BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE,AT THE OUTSET , CONTENDED THAT THE ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT, CHANDIGARH BENCH IN THE CASE OF THE ASSESSEE ITSELF IN PRECEDING YEARS I.E. ASSESSMENT YEAR 2013-14 VIDE THEIR ORDER IN ITA NO. 1510 & 1518/CHD/2017 DATED 20.12.2018 AND ASSESSMENT YEAR 2012-13 IN ITA NO. 5 74/CHD/2017 DATED 11.12.2017. LD. COUNSEL FOR THE ASSESSEE FURTHER C ONTENDED THAT THE ITAT HAD DELETED THE DISALLOWANCE MADE IN ASSESSMENT YEAR 20 13-14 ON FINDING THAT THE REQUISITE SATISFACTION OF THE AO VIS-A-VIS THE INCO RRECTNESS OF THE CLAIM OF THE ASSESSEE OF THE AMOUNT DISALLOWABLE U/S 14A WAS ABS ENT. THEREFORE, FOLLOWING THE PROPOSITION OF LAW LAID DOWN BY THE JURISDICTIO NAL HIGH COURT IN THE CASES OF CIT VS. DEEPAK MITTAL, (2014) 361 ITR 131 (P&H) & C IT VS. ABHISEK INDUSTRIES LTD., PAGE 3 OF 8 (2016) 380 ITR 652 (P&H), THAT THE AFORESAID SATISFACTION OF THE AO WAS A NECESSARY PREREQUISITE FOR INVOKING THE MACHINERY P ROVISION OF RULE 8D, THE DISALLOWANCE MADE U/S 14A WAS DELETED. OUR ATTENTIO N WAS DRAWN TO THE RELEVANT FINDINGS OF THE ITAT AT PARA 12-14 OF THE ORDER .) DRAWING OUR ATTENTION TO THE SAID PARAGRAPHS, LD. COUNSEL FOR THE ASSESSEE C ONTENDED THAT IN THE SAID CASE IT WAS NOTED BY THE ITAT THAT THE ASSESSEE HAD EXPLAINED THE BASIS FOR MAKING THE SUO-MOTU DISALLOWANCE STATING THAT VIS-A -VIS INVESTMENTS MADE DIRECTLY THE ASSESSEE HAD DISALLOWED RS. 50,000/- W HILE IN RELATION TO THOSE INVESTMENTS MADE THROUGH PMS, THE ASSESSEE HAD WORK ED OUT THE PROPORTIONATE AMOUNT OF EXPENSES INCURRED ON PMS IN THE RATIO OF TAXABLE INCOME TO NON- TAXABLE INCOME GENERATED BY THE PMS AND DISALLOWED THE SAME. IT WAS POINTED OUT FROM PARA 13 OF THE ORDER THAT AFTER NOTING THE SAID FACT, THE ITAT FOUND THAT THE AO IN HIS ENTIRE ORDER HAD NOT GIVEN ANY FINDIN G AS TO WHY THIS BASIS OF CALCULATING THE DISALLOWANCE OF EXPENSES WAS INCORR ECT, BUT HAD ONLY STATED THAT AS PER THE PROVISIONS OF SECTION 14A THE ONUS WAS ON THE ASSESSEE TO PROVE THAT IT HAD NOT INCURRED ANY EXPENDITURE TO OWN EXE MPT INCOME, WHICH THE ASSESSEE HAD NOT BEEN ABLE TO DISCHARGE. IT WAS POI NTED OUT THAT THE ITAT FOUND THIS TO BE FACTUALLY INCORRECT, NOTING THAT IT WAS NEVER THE CLAIM OF THE ASSESSEE THAT IT HAD NOT INCURRED ANY EXPENDITURE, HAVING SU O-MOTU MADE DISALLOWANCE OF EXPENDITURE. THE ITAT THEREFORE, HELD THAT THERE WAS NO SATISFACTION OF THE AO REGARDING THE INCORRECTNESS OF THE CLAIM OF THE ASS ESSEE OF EXPENDITURE INCURRED IN RELATION TO EXPENDITURE INCURRED FOR EARNING EXE MPT INCOME AND ACCORDINGLY, THE DISALLOWANCE COMPUTED BY THE AO WAS DELETED. (8) OUR ATTENTION DRAWN TO PARA 13 OF THE ORDER WHI CH IS REPRODUCED HEREUNDER: 13. IN THE FACTS OF THE PRESENT CASE, WE FIND THAT THE ASSESSEE HAD SUO-MOTU MADE A DISALLOWANCE OF EXPENSES INCURRED IN RELATION TO EARNING OF EXEM PT INCOME AMOUNTING TO RS. 1,84,871/-. DURING ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD EXPLAINED THE BASIS FOR MAKING THE IMPUGNED DISALLOWANCE SUBMITTING A CALCULATION OF THE SAME A LSO. THE ASSESSEE HAD EXPLAINED THAT IT HAD MADE CERTAIN INVESTMENTS DIRECTLY WHILE OTHERS HAD BEEN MADE THROUGH PORTFOLIO MANAGEMENT SERVICES. IN RELATION TO THOSE INVESTMENTS WHICH HA D BEEN MADE DIRECTLY, IT HAD DISALLOWED EXPENSES OF RS. 50,000/- WHILE IN RELATION TO THOSE INVESTMENTS MADE THROUGH PMS, IT HAD WORKED OUT THE PROPORTIONATE AMOUNT OF EXPENSES INCURRED O N PMS IN THE RATIO OF TAXABLE INCOME TO NON- TAXABLE INCOME GENERATED BY THE PMS AND DISALLOWED THE SAME. THEREFORE, THE ASSESSEE HAD EXPLAINED THE RATIONALE OF MAKING THE SUO-MOTU DISA LLOWANCE TO THE AO. AS RIGHTLY POINTED OUT BY THE ID. COUNSEL FOR THE ASSESSEE THE AO IN HIS ENTI RE ORDER HAS NOT GIVEN ANY FINDING AS TO WHY THIS BASIS OF CALCULATING THE DISALLOWANCE OF EXPENSES W AS INCORRECT. THE AO HAS ONLY STATED THAT AS PER THE PROVISIONS OF SECTION 14A, THE ONUS WAS ON THE ASSESSEE TO PROVE THAT IT HAD NOT INCURRED ANY EXPENDITURE TO EARN THE EXEMPT INCOME AND ASSES SEE HAS NOT BEEN ABLE TO DISCHARGE ITS ONUS. THIS FINDING OF THE AO IS, WE FIND, FACTUALLY INCOR RECT BECAUSE IT IS NOT THE CLAIM OF THE ASSESSEE THAT IT HAS NOT INCURRED ANY EXPENDITURE. THE ASSES SEE HAD HIMSELF SUO-MOTU MADE DISALLOWANCE OF THIS EXPENDITURE. THEREFORE, THIS FINDING OF THE AO IS TOTALLY IRRELEVANT. FURTHER, THE AO HAS STATED THAT IN THE ABSENCE OF ANY DIRECT EVIDENCE O F EXPENSES INCURRED TO EARN EXEMPT INCOME, DISALLOWANCE U/S 14A IS TO BE COMPUTED AS PER RULE 8D AND HAS FURTHER STATED THAT SINCE THE ASSESSEE HAD MIXED FUNDS, RULE 8D WAS APPLICABLE. T HIS FINDING OF THE AO ALSO, WE FIND, DOES NOT PAGE 4 OF 8 DISLODGE THE EXPLANATION OF THE ASSESSEE REGARDING THE DISALLOWANCE COMPUTED BY IT. THEREFORE, CLEARLY THERE IS NO SATISFACTION OF THE AO REGARDIN G THE INCORRECTNESS OF THE CLAIM OF EXPENDITURE BY THE ASSESSEE INCURRED IN RELATION TO EARNING EXE MPT INCOME. IN VIEW OF THE SAME, THE DISALLOWANCE COMPUTED BY THE AO IS BAD IN LAW AND I S, THEREFORE, DIRECTED TO BE DELETED. (9) LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE FACTS IN THE PRESENT CASE WERE TO THAT IN THE ASSESSMENT YEAR 2013-14. TAKIN G US THROUGH THE ASSESSMENT ORDER,FOR THE IMPUGNED YEAR, LD. COUNSEL FOR THE AS SESSEE POINTED OUT FROM PARA 4.1 THEREOF THAT IT HAD EXPLAINED THE BASIS OF MAKI NG THE SUO-MOTU DISALLOWANCE U/S 14A OF RS. 2,66,084/-, AS RS. 1,00,000/- AGAINS T INVESTMENTS MADE DIRECTLY AND REMAINING ON ACCOUNT OF PROPORTIONATE AMOUNT PAID T HROUGH PMS WHICH WAS CALCULATED BY APPLYING THE TOTAL AMOUNT PAID TO THE PMS IN THE RATIO OF TAXABLE INCOME AND NON-TAXABLE INCOME GENERATED BY THE PMS. THE CALCULATION OF THE SAME WAS ALSO ATTACHED. THE REPLY OF THE ASSESSEE I N PARA 4.1 OF THE AOS ORDER IS REPRODUCED HEREUNDER: THE ASSESSEE VIDE REPLY DATED 21.03.2016 STATED THA T:- THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATI ON EARNED DIVIDEND {INCOME OF RS.22.57 LACS AGAINST THE INVESTMENTS MADE. THE ASSESSEE COMPANY DISALLOWED RS.2,66,084/- IN CO MPLIANCE WITH THE PROVISION OF SECTION 14A. THE CALCULATION OF SAID AMOUNT IS ATTACHED AT ANNEX URE-5. A PERUSAL OF THE THE SAME REFLECTS THAT THE ASSESSEE DISALLOWED RS. 1,00,000/- AGAINST THE INVESTMENTS MADE BY IT DIRECTLY AND THE REMAINING RS. 1,66,084/- ON ACCOUNT OF PROPORTIONAT E AMOUNT PAID TO PMS. THE SAID PROPORTIONATE AMOUNT WAS CALCULATED BY APPLYING TO THE TOTAL AMOUNT PAID TO PMS THE RATIO OF TAXABLE INCOME AND NON TAXABLE INCOME GENERATED BY PMS. THE ASSESSEE THEREFORE ADOPTED A RATIONAL METHOD TO DISALLOW EXPENDITURE IN RELATION TO EXEMPT INCOME. (10) LD. COUNSEL FOR THE ASSESSEE THEREAFTER CONTEN DED THAT THE AO AFTER CONSIDERING THE REPLY OF THE ASSESSEE HAS NOWHERE D ISCUSSED IN THE ASSESSMENT ORDER AS TO HOW THE ABOVE CLAIM OF THE ASSESSEE WAS NOT CORRECT. DRAWING OUR ATTENTION TO PARA 4.2 OF THE ORDER, LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE SAID PARAGRAPH PROBABLY RECORDED THE SATISFACTI ON OF THE AO SINCE THE SAME WAS MENTIONED IN BOLD AS UNDER: 4.2 THE REPLY OF THE ASSESSEE HAS BEEN CONSIDERED AND I S FOUND TO BE UNACCEPTABLE. A PERUSAL OF THE BALANCE SHEET AS ON 31.3.2014 SHOW S THAT THE ASSESSEE HAS INVESTED AN AMOUNT OF RS.31,75,27,000/- AS ON 31.03.2014 AND RS.224,34 ,61,000/- AS ON 31.03.2013 IN VARIOUS EQUITY FUNDS AND SHARES OF DIFFERENT COMPANIES INCLUDING G ROUP COMPANIES EARNING TAX FREE INCOME IN THE FORM OF DIVIDENDS ETC. THE ASSESSEE HAS TAKEN H UGE LOANS AND ON THE OTHER HAND IS INVESTING INDIRECTLY FROM LOAN FUNDS AND THE COMMON KITTY OF FUNDS, SO AS TO AVOID THE TAX LIABILITY. NO SEPARATE BOOKS OF ACCOUNTS OR FUNDS ARE BEING MAINT AINED BY THE ASSESSEE FOR MAKING INVESTMENT AND TO ACCOUNT FOR THE EXEMPT INCOME, BEING EARNED BY THE ASSESSEE. HENCE, I AM SATISFIED THAT DISALLOWANCE U/S 14A NEEDS TO BE MADE IN THIS CASE. (11) REFERRING TO THE SAME, LD. COUNSEL FOR THE ASS ESSEE POINTED OUT THAT IT IS CLEAR FROM THE ABOVE THAT THERE WAS NO SATISFACTION RECORDED IN THE SAME BY THE AO VIS-A-VIS THE INCORRECTNESS OF THE CLAIM OF THE ASSESSEE AS EXPLAINED TO THE AO SINCE THERE IS NO REFERENCE TO THE SAME AT ALL. LD. COUNSEL FOR THE ASSESSEE PAGE 5 OF 8 CONTENDED THAT IN VIEW OF THE SAME THE ISSUE WAS SQ UARELY COVERED BY THE DECISION OF THE ITAT IN ASSESSMENT YEAR 2013-14 IN THE CASE OF THE ASSESSEE. (12) LD. DR, ON THE OTHER HAND, HEAVILY RELIED UPON THE FINDINGS OF THE LD. CIT(A), THAT THE ASSESSEE HAD SUO-MOTU MADE DISALLO WANCE AND WAS THUS AD IDEM WITH THE APPLICABILITY OF THE SECTION 14A AND THEREFORE, THE REQUISITE CONDITIONS, FOR INVOKING THE PROVISIONS OF SECTION 14A, WERE RIGHTLY FOUND TO BE APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE CA SE. IT WAS ALSO POINTED OUT THAT THE LD.CIT(A) HAD FOUND THAT THE ASSESSEE HAD MAINTAINED COMMON AND UN-DEMARCATED FUNDS AND COULD NOT IDENTIFY THE UTIL IZATION OF NON-INTEREST BEARING FUNDS FOR MAKING INVESTMENTS AND THEREFORE, IN THESE CIRCUMSTANCES THE ALLEGATION AGAINST THE AO IN NOT RECORDING HIS SATI SFACTION WAS INCORRECT. OUR ATTENTION WAS DRAWN TO THE FINDINGS OF THE LD. CIT( A) AT PARA 6 OF HIS ORDER AS UNDER: 6. THE SUBMISSIONS OF THE APPELLANT AND THE BASIS O F THE IMPUGNED DISALLOWANCE MADE BY THE AO HAVE BEEN CAREFULLY CONSIDERED. THE APPELLAN T HAS, ADMITTEDLY, EARNED EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION, FOR WHICH A VO LUNTARY DISALLOWANCE OF RS.2,66,084/- WAS MADE IN THE RETURN OF INCOME. THIS CLEARLY INDICATE S THAT THE APPELLANT IS AD IDEM WITH THE APPLICABILITY OF SECTION 14A IN THE FACTS AND CIRCU MSTANCES OF THE CASE. IT IS, THEREFORE, HELD THAT THE REQUISITE CONDITIONS FOR INVOKING THE PROVISION S OF SECTION 14A ARE FOUND TO BE APPLICABLE IN THE FACTS AND CIRCUMSTANCES OBTAINING IN THE CASE O F THE APPELLANT IN AS MUCH AS THERE HAS BEEN A RECEIPT OF EXEMPT INCOME. THE OUTLAY IN TERMS OF IN TEREST ON BORROWED CAPITAL IS ALSO A FACT ON RECORD. THAT THE APPELLANT COMPANY MAINTAINS COMMON AND UN-DEMARCATED FUNDS IS ALSO NOT DISPUTED. IT IS ALSO FAIRLY UNDERSTANDABLE THAT THE APPELLANT COULD NOT IDENTIFY OR DEMARCATE THE UTILIZATION OF NON-INTEREST-BEARING FUNDS FOR MAKIN G INVESTMENTS BECAUSE OF THE COMMON POOL OF FUNDS AS ALSO ON ACCOUNT OF THE ENORMITY OF THE SAM E. SIMILARLY, IN VIEW OF THE MASSIVE TURNOVER OF THE APPELLANT COMPANY AND ITS COMPLICATED FUND FLOW , THE DIFFICULTY IN IDENTIFYING AS TO WHICH FUNDS HAVE BEEN USED FOR WHAT PURPOSES ALSO CANNOT BE EMPHASISED MORE. THERE IS NO DOUBT ABOUT THE UNITY OF CONTROL AND COMMONALITY OF FUNDS AND MANAGEMENT IN RELATION TO THE 'BUSINESS ACTIVITY' AND 'INVESTMENT ACTIVITY, INCOME FROM WHI CH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME'. IN THE CIRCUMSTANCES, THE ALLEGATION AGAIN ST THE AO IN NOT RECORDING HIS SATISFACTION BEFORE REJECTING THE APPELLANT'S CALCULATION RINGS HOLLOW AND AN ARTIFICE TO TURN THE TABLES AND EXPECT FROM THE AO, WHAT SHOULD HAVE BEEN KNOWN AND POINTED OUT BY THE APPELLANT ITSELF. IT IS SEEN THAT THE AO HAS DEALT WITH THE MATTER WHILE RE JECTING THE APPELLANTS CALCULATIONS AND INVOKING THE MACHINERY PROVISION OF RULE 8D AND HIS SATISFACTION CAN BE EASILY AND CLEARLY DISCERNED FROM THE ASSESSMENT ORDER. (13) WE HAVE HEARD THE CONTENTIONS OF BOTH THE PART IES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND HAVE ALSO GONE THROUGH TH E DECISIONS REFERRED TO BY THE LD. COUNSEL FOR THE ASSESSEE BEFORE US. (14) AFTER CONSIDERING THE SAME, WE ARE IN AGREEMEN T WITH THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE FACTS IN THE PRESENT CASE ARE IDENTICAL TO THAT IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2013-14 ,WHICH WAS DECIDED BY THE ITAT IN ITA NO. 1510/CHD/2017 DATED 20.12.2018. IT HAS BEEN DULY DEMONSTRATED BEFORE US THAT AS IN THAT CASE, IN THE IMPUGNED YEAR ALSO THE ASSESSEE HAD EXPLAINED THE BASIS OF WORKING OUT THE SUO-MOTU DISALLOWANCE MADE OF EXPENSES U/S 14A AND HAD ALSO PROVIDED A CA LCULATION OF THE SAME TO PAGE 6 OF 8 THE AO POINTING OUT THAT A SUM OF RS. 1,00,000/- HA D BEEN DISALLOWED ON ACCOUNT OF INVESTMENTS DIRECTLY MADE BY THE ASSESSE E, WHILE FOR THE INVESTMENTS MADE THROUGH PMS THE TOTAL EXPENSES INCURRED ON THE PMS WERE APPORTIONED IN THE RATIO OF TAXABLE INCOME AND NON-TAXABLE INCOME EARNED FROM THE INVESTMENTS AND THE AMOUNT RELATING TO THE NON-TAXA BLE INCOME WAS ACCORDINGLY DISALLOWED BY THE ASSESSEE. THAT AS IN THE CASE OF THE ASSESSEE IN ASSESSMENT YEAR 2013-14, IN THE IMPUGNED YEAR ALSO ,WE FIND , THE AO HAS NOT RECORDED ANY FINDING AS TO WHY HE FOUND THE CALCULA TION OF THE DISALLOWANCE OF EXPENSES U/S 14A MADE BY THE ASSESSEE AS ABOVE TO B E INCORRECT. THE AO, AS IN THE CASE OF ASSESSMENT YEAR 2013-14 HAS ONLY MADE G ENERAL STATEMENTS REGARDING THE AVAILABILITY OF MIXED FUNDS . EVEN TH E LD. DR WAS UNABLE TO POINT OUT BEFORE US ANY FINDINGS OF THE AO REGARD THE IN CORRECTNESS OF THE CLAIM OF EXPENSES DISALLOWABLE MADE BY THE ASSESSEE. THE LD. DR HAS BEEN UNABLE TO POINT OUT ANY DISTINGUISHING FACTS BEFORE US. THE ISSUE THEREFORE, WE AGREE WITH THE LD. COUNSE L FOR THE ASSESSEE, IS SQUARELY COVERED BY THE DECISION OF THE ITAT IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2013-14. FOLLOWING THE SAME ,WE THE REFORE HOLD THAT IN THE ABSENCE OF ANY SATISFACTION RECORDED BY THE AO VIS- A-VIS INCORRECTNESS OF THE CLAIM OF THE ASSESSEE OF EXPENSES DISALLOWABLE U/S 14A OF THE ACT, THE DISALLOWANCE MADE BY THE AO IS BAD IN LAW. THE SAME IS THEREFORE, DIRECTED TO BE DELETED. (15) SINCE WE HAVE DELETED THE DISALLOWANCE MADE U/ S 14A FOR THE AFORESAID REASONS, WE DO NOT CONSIDER IT NECESSARY TO DEAL WI TH THE OTHER CONTENTIONS RAISED BY THE LD. COUNSEL FOR THE ASSESSEE VIS-A-VI S THE AVAILABILITY OF SUFFICIENT OWN FUNDS WARRANTING NO DISALLOWANCE U/S 14A AND AG AINST THE APPLICABILITY OF THE AMENDED PROVISIONS OF RULE 8D OF THE RULES. (16) IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. (17) WE SHALL NOW BE TAKING UP THE APPEAL OF THE RE VENUE. GROUND NO. 1 READS AS UNDER: 1. WHETHER UPON FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING RELIEF ON ACCOUNT OF THE DISA LLOWANCE U/S 14A OF THE INCOME TAX ACT,1961 READ WITH RULE 8D OF INCOME TAX RULES, 1962 BY APPLYING AMENDED PROVISIONS OF RULE 8D (14 TH AMDT), WHILE THE SAME AMENDMENT WAS INTRODUCED W.E.F. 02.06.2016 AND DOES NOT HAVE RETROSPECTIVE E FFECT? (17.1) THE ABOVE GROUND RELATES TO THE ISSUE OF DIS ALLOWANCE OF EXPENSES U/S 14A OF THE ACT CHALLENGING THE DIRECTION OF THE LD. CIT (A) TO APPLY THE AMENDED PAGE 7 OF 8 PROVISIONS OF RULE 8D OF THE RULES. SINCE, WE HAVE DELETED THE DISALLOWANCE MADE WHILE ADJUDICATING THE ASSESSEES GROUND RAISE D IN THIS REGARD IN ITS APPEAL ABOVE, THE GROUND RAISED ABOVE BY THE REVENUE BECO MES INFRUCTUOUS AND IS THEREFORE, DISMISSED. (18) GROUND NO. 2 RAISED BY THE REVENUE READS AS UN DER: 2. WHETHER UPON FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE U/S 36(1)(III) OF THE INCOME TAX ACT, 1961? (18.1) THE ABOVE GROUND RELATES TO DISALLOWANCE OF INTEREST EXPENSES MADE U/S 36(1)(III) OF THE ACT. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE AO NOTED THAT THE ASSESSEE COMPANY HAD MADE INVESTMENTS IN S HARES / MUTUAL FUNDS WHICH WERE FINANCED BY COMMON POOL OF FUNDS COMPRIS ING OF BOTH INTEREST BEARING AND NON-INTEREST BEARING FUNDS. SINCE, THE FUNDS UTILIZED FOR THE PURPOSE OF MAKING THE INVESTMENTS COULD NOT BE IDENTIFIED A ND THE ASSESSEE WAS NOT ENGAGED IN THE BUSINESS OF MAKING INVESTMENTS, THE AO SHOW CAUSED THE ASSESSEE TO EXPLAIN WHY THE CLAIM OF EXPENDITURE ON INTEREST MAY NOT BE DISALLOWED PERTAINING TO THAT INCURRED FOR MAKING I NVESTMENTS WHICH WERE NOT FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE ASSESS EE CONTENDED THAT IT HAD SUFFICIENT INTEREST FREE FUNDS FOR MAKING THE INVES TMENTS WARRANTING NO DISALLOWANCE U/S 36(1)(III) OF THE ACT. THE AO DISM ISSED THE CONTENTIONS OF THE ASSESSEE AND DISALLOWED INTEREST, WORKING OUT THE SAME AT THE RATE OF 12% ON THE INVESTMENTS IN SHARES / MUTUAL FUNDS WHICH WERE NOT CONSIDERED TO BE FOR NON BUSINESS PURPOSE. THE DISALLOWANCE WAS ACCORDIN GLY WORKED OUT AT RS. 373.29 LAKHS WHICH WAS RESTRICTED TO 358.99 LAKHS A FTER TAKING INTO ACCOUNT INTEREST ALREADY DISALLOWED UNDER THE PROVISIONS OF SECTION 14A OF THE ACT. (19) THE LD. CIT(A) DELETED THE DISALLOWANCE ON FIN DING THAT THE ASSESSEE HAD SUFFICIENT OWN INTEREST FREE FUNDS FOR THE PURPOSE OF MAKING THE IMPUGNED INVESTMENTS. (20) BEFORE US, LD. DR RELIED ON THE ORDER OF THE A O, WHILE THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT(A) AND FURTHER, POINTED OUT THAT IDENTICAL ISSUE HAD RISEN IN THE CASE OF THE ASSESS EE IN ASSESSMENT YEAR 2012-13 AND 2013-14 IN ITA NO. 574/CHD/2017 DATED 11.12.201 7 AND ITA NO. 1518/CHD/2017 DATED 20.12.2018 RESPECTIVELY, WHEREI N THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE ON FINDING THAT SUFFICIENT O WN INTEREST FREE FUNDS WERE AVAILABLE WITH THE ASSESSEE AND RELYING UPON THE DE CISION OF THE JURISDICTIONAL PAGE 8 OF 8 HIGH COURT IN THE CASE OF M/S BRIGHT ENTERPRISES PV T. LTD VS. CIT (2015) 234 TAXMAN 509. (21) WE HAVE HEARD THE CONTENTIONS OF BOTH THE PART IES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND ALSO GONE THROU GH THE DECISIONS REFERRED TO BEFORE US. THE FINDING OF THE FACT RECORDED BY THE LD. CIT(A) THAT THE ASSESSEE HAS SUFFICIENT OWN INTEREST FREE FUNDS FOR MAKING T HE INVESTMENTS HAS NOT BEEN CONTROVERTED BY THE REVENUE BEFORE US. IN FACT, WE FIND ,THAT THE LD.CIT(A) HAS NOTED THAT THE AO DID NOT CONTEST THIS PLEA OF THE ASSESSEE IN THE ASSESSMENT ORDER. FURTHER IT IS AN ADMITTED FACT THAT IN IDENT ICAL FACTS AND CIRCUMSTANCES DISALLOWANCE MADE U/S 36(1)(III) IN EARLIER YEARS H AD BEEN DELETED BY THE ITAT. THE LD. DR HAS BEEN UNABLE TO POINT OUT ANY DISTING UISHING FACTS BEFORE US. MOREOVER, WE FIND THAT THE HONBLE APEX COURT IN RE CENT DECISION IN THE CASE OF COMMISSIONER OF INCOME TAX(LARGE TAXPAYERS UNIT) VS RELIANCE INDUSTRIES IN CIVIL APPEAL NO.10 OF 2018 & OTHERS DATED 02-01-2019,HAS SETTLED THE PROPOSITION OF LAW THAT WHERE SUFFICIENT OWN INTEREST FREE FUNDS A RE AVAILABLE THE PRESUMPTION IS THAT THE SAME WERE USED FOR THE PURPOSE OF MAKING N ON-BUSINESS PURPOSE ADVANCES CALLING FOR NO DISALLOWANCE OF INTEREST U/ S 36(1)(III) OF THE ACT. THE RELEVANT FINDINGS IN THIS REGARD ARE AS UNDER: INSOFAR AS THE FIRST QUESTION IS CONCERNED, THE ISS UE RAISES A PURE QUESTION OF FACT. THE HIGH COURT HAS NOTED THE FINDING OF THE TRIBUNAL TH AT THE INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE WERE SUFFICIENT TO MEET ITS INVESTMENT . HENCE, IT COULD BE PRESUMED THAT THE INVESTMENTS WERE MADE FROM THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. THE TRIBUNAL HAS ALSO FOLLOWED ITS OWN ORDER FOR ASSESS MENT YEAR 2002-03. IN VIEW OF THE ABOVE FINDINGS, WE FIND NO REASON TO INTERFERE WITH THE JUDGMENT OF THE HIGH COURT IN REGARD TO THE FIRST QUESTION. ACCORDINGLY, THE APPE ALS ARE DISMISSED IN REGARD TO THE FIRST QUESTION 22. IN VIEW OF THE SAME, THE ORDER OF THE LD. CIT(A )DELETING THE DISALLOWANCE OF INTEREST U/S 36(1)(III) IN THE PRESENT CASE IS U PHELD. GROUND NO. 2 OF THE APPEAL RAISED BY THE REVENUE IS THEREFORE, DISMISSED. (23) IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 04.04.2019. (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT ME MBER DATED : 04/04/2019 BCG COPY TO: 1.THE APPELLANT, 2. THE RESPONDENT, 3. THE CIT(A), 4. THE CIT, 5. THE DR