M/s Trumboo Cement Industries Pvt. Ltd., Srinagar V. The Assistant Commissioner of Income Tax, Srinagar

ITA 427/ASR/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7707 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 10-08-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P K MISHRA
• Keywords: Business income; Depreciation; Earning of tax free income
• Section: 14A; 32; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. NO. 427/(ASR)/2015 ASSESSMENT YEAR: 2011-12 PAN: AABCT3414F M/S. TRUMBOO CEMENT INDUSTRIES PVT. LIMITED, 156-C, JAVINDAN BUILDING, RAJBAGH, SRINAGAR. VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3, SRINAGAR. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. P. K. MISHRA ( C.A.) RESPONDENT BY: SH. RAHUL DHAWAN (D.R.) DATE OF HEARING: 13.09.2017 DATE OF PRONOUNCEMENT: 15.12.201 7 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORD ER OF LD. CIT(A), JAMMU, DATED 10.06.2015 FOR ASST. YEAR: 2011-12. 2. THE GROUNDS OF APPEAL TAKEN BY ASSESSEE ARE REPR ODUCED BELOW: 1. THAT THE ORDER OF LEARNED COMMISSIONER OF INCOM E-TAX (APPEALS) IS BAD IN LAW AND ON FACTS OF THE CASE. 2. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APP EALS) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF DEPRECIATION AMOUNTI NG TO RS.6,86,001/- ON ACCOUNT OF SUBSIDY. 3. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APP EALS) HAS ERRED IN SUSTAINING THE ADDITION OF RS.2,20,030/- ON ACCOUNT OF PRIOR PERIOD EXPENSES. 4. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APP EALS) HAS ERRED/ IN SUSTAINING THE ADDITION OF RS.69,23,561/- UNDER SEC TION 14A OF THE INCOME TAX ACT, 1961. ITA NO. 427(ASR)/2015 ASSESSMENT YEAR: 2011-12 2 5. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APP EALS) HAS ERRED IN PARTIALLY SUSTAINING THE ADHOC DISALLOWANCE AMOUNTI NG TO RS.5,44,546/- OUT OF TRAVELLING & CONVEYANCE, STAFF WELFARE, ENTE RTAINMENT, LABOUR WELFARE, MISCELLANEOUS EXPENSES ETC. IGNORING THE F ACT THAT NO SPECIFIC INSTANCE HAS BEEN BROUGHT ON RECORD BY THE ASSESSIN G OFFICER TO JUSTIFY THE ADHOC ADDITION. 6. THE ABOVE GROUNDS OF APPEAL ARE WITHOUT PREJUDIC E TO EACH OTHER. 7. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR MODIFY THE ABOVE GROUNDS OF APPEAL. 3. AT THE OUTSET, THE LD. AR SUBMITTED THAT HE WILL NO BE PRESSING GROUND NO. 3, THEREFORE THE SAME MAY BE DISMISSED A S NOT PRESSED. AS REGARDS GROUND NO. 2, THE LD. AR SUBMITTED THAT ASS ESSING OFFICER MADE AN ADDITION OF RS.6,86,001/- AT THE RATE OF 15% ON RS.45,73,340/- ON ACCOUNT OF EXCESS DEPRECIATION ON THE BASIS OF SIMI LAR DISALLOWANCE MADE IN ASSESSMENT YEAR 2009-10. THE LD. AR SUBMITTED TH AT THE LD. CIT(A) SUSTAINED THE ADDITION RELYING ON THE STATUTORY PRO VISIONS THAT IS EXPLANATION 10 TO SECTION 43(1) OF THE ACT. THE LD. AR SUBMITTED THAT IN FACT IN THE BALANCE SHEET CAPITAL INVESTMENT SUBSI DY OF RS.53,80,400/- HAS BEEN SHOWN UNDER THE HEAD RESERVES & SURPLUS WITHOUT REDUCING THE COST OF ASSET. HOWEVER FOR CLAIMING DEPRECIATIO N UNDER THE ACT THE SAME WAS ADJUSTED AGAINST THE COST OF THE ASSET FOR WHICH A SEPARATE DEPRECIATION CHART WAS PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT FOR CLAIMING DEPRECIATION. IT WAS SUBMITTED THA T ASSESSING OFFICER MISGUIDED HIMSELF CONSIDERING THAT DEPRECIATION HAS BEEN CLAIMED ON THE FIGURES APPEARING IN THE BALANCE SHEET. WITHOUT PREJUDICE IT WAS SUBMITTED THAT THE DISALL OWANCE IF ANY WAS TO BE RESTRICTED TO THE EXTENT OF WDV WHICH WAS RS.1,58,006/- AND ITA NO. 427(ASR)/2015 ASSESSMENT YEAR: 2011-12 3 OUR ATTENTION WAS INVITED TO THE DEPRECIATION CHART ON THE SUBSIDY AMOUNT. AS REGARDS DISALLOWANCE U/S 14A, THE LD. AR SUBMITTED THAT THE ASSESSEE HAD MADE AN INVESTMENT WITH THE GROUP COMP ANY IN THE FORM OF SHARE APPLICATION MONEY AND LD. CIT(A) HAS HELD THA T BORROWED FUNDS WERE UTILIZED TO ACQUIRE CONTROLLING INTEREST IN A SUBSIDIARY COMPANY AND THEREFORE HE DISALLOWED EXPENDITURE IN RELATION TO EXEMPTED INCOME. THE LD. AR SUBMITTED THAT IT IS A FACT THAT ASSESSEE WA S NOT ALLOTTED ANY SHARES AND NO EXEMPT INCOME HAS BEEN EARNED BY THE ASSESSEE. THE LD. AR SUBMITTED THAT SHARE APPLICATION MONEY IS NOT CA PABLE OF EARNING ANY EXEMPT INCOME SUCH AS DIVIDEND ETC. AND HENCE NO DI SALLOWANCE CAN BE MADE IN RESPECT OF SUCH INVESTMENT AND RELIANCE WAS PLACED ON THE JUDGMENT OF RAINY INVESTMENTS (P) LTD. VS. ACIT 30 TAXMANN.COM 169 (MUMBAI TRIB.). WITHOUT PREJUDICE IT WAS SUBMITTED THAT THE ASSESS EE HAS NOT EARNED ANY EXEMPT INCOME DURING THE YEAR UNDER CONS IDERATION AND THEREFORE ALSO THE DISALLOWANCE U/S 14A WAS NOT WAR RANTED AND RELIANCE IN THIS RESPECT WAS PLACED ON THE FOLLOWING JUDGMEN TS: CIT V. HOLCIM INDIA (P) LTD (2015) 57 TAXMANN.COM 28 (DELHI) CIT V. LAKHANI MARKETING , INC. (2014) 49 TAXMANN.C OM 257 (PUNJ & HAR) CIT V. HERO CYCLES LIMITED (2010) 323 ITR 518 (PUNJ & HAR) CIT V. SHIVAM MOTORS (P) LTD (2014) 272 ITR 247 (AL LAHABAD) CIT V. CORRTECN ENERGY (P) LTD (2014) 223 TAXMAN 13 0 (GUJ) AS REGARDS THE THIRD ADDITION, THE LD. AR SUBMIT TED THAT ASSESSING OFFICER HAD MADE ADHOC DISALLOWANCE OUT OF VARIOUS EXPENSES AT THE RATE ITA NO. 427(ASR)/2015 ASSESSMENT YEAR: 2011-12 4 OF 15% AND WHEREAS THE LD. CIT(A) HAS RESTRICTED TH E SAME TO BE 8% WHERE THE HON'BLE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF FOR ASSESSMENT YEAR 2009-10 RESTRICTED THE SAME TO BE THE EXTENT O F 5%. 4. THE LD. DR ON THE OTHER HAND SUBMITTED THAT THE AUTHORITIES BELOW HAD MADE THE DISALLOWANCE ON ACCOUNT OF DEPRECIATIO N AS THE ASSESSEE HAD CLAIMED EXCESS DEPRECIATION AS IT HAD NOT REDUC ED THE SUBSIDY AMOUNT FROM THE FIGURE OF FIXED ASSETS. AS REGARDS DISALLOWANCE U/S 14A, THE LD. DR SUBMITTED THAT THE DISALLOWANCE U/S 14A IS A STATUTORY DISALLOWANCE AND IT HAS TO BE MADE EVEN IF THERE IS NO EXEMPT INCOME. AS REGARDS THE OTHER ADDITION SUSTAINED BY LD. CIT(A) ON ACCOUNT OF ADHOC DISALLOWANCE, THE LD. DR RELIED ON THE ORDER OF LD. CIT(A). 5. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH OUGH THE MATERIAL PLACED ON RECORD. GROUND NO. 1 IS GENERAL AND DO NO T REQUIRE ANY ADJUDICATION. AS REGARDS GROUND NO. 2 REGARDING EXC ESS DEPRECIATION, THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER HAS MIS DIRECTED HIMSELF IN DISALLOWING A PART OF THE DEPRECIATION AS EXCESS DE PRECIATION WHEREAS THE FACT REMAINS THAT THE ASSESSEE HAD REDUCED THE AMOU NT OF CAPITAL INVESTMENT SUBSIDY FROM THE COST OF ASSETS AND HAD PLACED RELIANCE ON THE DEPRECIATION CHART CALCULATED ON THE SUBSIDY AM OUNT. IN THIS RESPECT, WE FIND THAT ASSESSING OFFICER HAD DISALLOWED A PAR T OF DEPRECIATION UNDER THE HEADING CAPITAL INVESTMENT SUBSIDY BY HOL DING THAT THE ASSESSEE HAD NOT REDUCED THE AMOUNT OF SUBSIDY FROM COST WHILE CLAIMING DEPRECIATION WHEREAS THE ASSESSEE HAD EXPL AINED TO THE ITA NO. 427(ASR)/2015 ASSESSMENT YEAR: 2011-12 5 ASSESSING OFFICER THAT ASSESSEE HAD SHOWN CAPITAL I NVESTMENT SUBSIDY AMOUNT SEPARATELY UNDER RESERVES & SURPLUS INSTEA D OF REDUCING IT FROM THE RELEVANT FIXED ASSET FOR THE PURPOSE OF PR EPARING FINANCIAL ACCOUNTS WHEREAS FOR THE PURPOSE OF CLAIMING DEPREC IATION U/S 32 FOR THE RELEVANT ASSESSMENT YEARS, THE ACTUAL COST OF ASSET WAS DULY ADJUSTED AS REQUIRED BY EXPLANATION 10 TO SECTION 43 AND THE AS SESSEE HAD DULY EXPLAINED AND DEPRECIATION WAS ACCORDINGLY ALLOWED AS ALLOWABLE UNDER INCOME TAX ACT. HOWEVER THE ASSESSING OFFICER MADE THE ADDITION BY HOLDING THAT LD. CIT(A) HAD UPHELD THE ADDITION IN THE EARLIER YEAR WHEREAS IN OUR OPINION, THE ASSESSING OFFICER SHOUL D HAVE EXAMINED THE CLAIM OF THE ASSESSEE REGARDING THE CLAIM OF DEPREC IATION. THEREFORE, WE DEEM IT TO REMIT THIS ISSUE BACK TO THE OFFICE OF T HE ASSESSING OFFICER WHO SHOULD EXAMINE THE PAST RECORD AND ALSO EXAMINE THE DEPRECIATION AS PER CHART CALCULATED ON THE SUBSIDY AMOUNT. IN VIEW OF THE ABOVE GROUND NO. 2 IS ALLOWED FOR S TATISTICAL PURPOSES, GROUND NO. 3 IS DISMISSED AS NOT PRESSED. AS REGARDS GROUND NO. 4 WITH RESPECT TO DISALLOWAN CE U/S 14A, WE FIND THAT IT IS AN UNDISPUTED FACT THAT ASSESSEE HA D NOT EARNED INCOME DURING THE YEAR UNDER CONSIDERATION AND VARIOUS COU RTS INCLUDING PUNJAB & HARYANA HIGH COURT AND DELHI HIGH COURT IN A NUMB ER OF CASES HAS HELD THAT WHERE THERE IS NO EXEMPT INCOME, THE DISA LLOWANCE U/S 14A CANNOT BE MADE. THE FINDINGS OF THE HON'BLE PUNJAB & HARYANA HIGH ITA NO. 427(ASR)/2015 ASSESSMENT YEAR: 2011-12 6 COURT IN THE CASE OF LAKHANI MARKETING INC. (2014) 49 TAXMANN.COM 257 ARE REPRODUCED BELOW: 4. WE HAVE HEARD LEARNED COUNSEL FOR THE PARTIES AND P ERUSED THE RECORD. 5. LEARNED COUNSEL FOR THE APPELLANT SUBMITTED THAT TH E CIT(A) AS WELL AS THE TRIBUNAL WERE IN ERROR IN DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE WITHOUT PROPERLY APPRECIATING THE PROVISIONS OF SEC TION 14A OF THE ACT. ACCORDING TO THE LEARNED COUNSEL, THE ASSESSEE HAD INVESTED IN SHARES OF M/S LAKHANI MARKETING INCL. WHICH HAD YIELDED DIVID END INCOME AND WAS NOT FORMING PART OF TOTAL INCOME BY VIRTUE OF SECTI ON 10(33) OF THE ACT AND HENCE INTEREST LIABILITY CLAIMED FOR DEDUCTION FROM THE INCOME WAS IMPERMISSIBLE. 6. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE BESIDES SUPPORTING THE ORDER PASSED BY THE CIT(A) AND THE TRIBUNAL REL IED UPON JUDGMENTS OF THIS COURT IN CIT V. HERO CYCLES LTD. [2010] 323 ITR 518/189 TAXMAN 50 AND CIT V. WINSOME TEXTILE INDUSTRIES LTD. [2009] 319 ITR 204 , TO CONTEND THAT FINDING HAS BEEN RECORDED BY THE CIT(A) AS WEL L AS THE TRIBUNAL THAT THERE WAS NO DIVIDEND INCOME AND IN SUCH A SITUATIO N, PROVISIONS OF SECTION 14A OF THE ACT HAD NO APPLICABILITY. ACCORD ING TO THE LEARNED COUNSEL, THE CIT(A) AND THE TRIBUNAL HAD HELD THE A SSESSEE TO BE ENTITLED TO CLAIM DEDUCTION ON ACCOUNT OF INTEREST LIABILITY. 7. AFTER HEARING LEARNED COUNSEL FOR THE PARTIES, WE D O NOT FIND ANY MERIT IN THE APPEALS. 8. THE PRIMARY ISSUE THAT ARISES FOR CONSIDERATION IN THESE APPEALS IS WHETHER THE CIT(A) AS WELL AS THE TRIBUNAL WERE RIG HT IN ALLOWING DEDUCTION OF INTEREST LIABILITY OUT OF OTHER INCOME AND THE C LAIM OF THE REVENUE TO DISALLOW THE SAME UNDER SECTION 14A OF THE ACT WAS JUSTIFIED. 9. THE CIT(A) VIDE ORDER DATED 24.6.2004, ANNEXURE A.I I RECORDED AS UNDER: '7.2 KEEPING IN VIEW THE ABOVE FACTS AND CIRCUMSTAN CES OF THE CASE IT IS HELD THAT THE AO WAS NOT CORRECT IN APPLYING SEC TION 14A OF THE IT ACT IN DISALLOWING THE EXPENDITURE ON ACCOUNT OF IN TEREST AMOUNTING TO RS. 46,91,684/-. IT WAS INCUMBENT ON THE AO TO ESTA BLISH A NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE INCOME WHI CH WAS EXEMPT UNDER THE ACT. FACTS CLEARLY DO NOT SUPPORT THE ACT ION OF THE AO. DISALLOWANCE IS ACCORDINGLY DELETED. THE AO IS DIRE CTED TO RECOMPUTE THE INCOME ACCORDINGLY.' 10. VIDE ORDER DATED 16.5.2008, ANNEXURE A.III, THE TRI BUNAL ON APPEAL BY THE REVENUE WHILE UPHOLDING THE FINDING RECORDED BY THE CIT(A) NOTICED AS UNDER: 'WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE PERUSED T HE MATERIAL ON RECORD. FROM THE READING OF SECTION 14A OF THE ACT, IT IS CLEAR THAT BEFORE MAKING ANY DISALLOWANCE THE FOLLOWING CONDIT IONS ARE TO EXIST: ITA NO. 427(ASR)/2015 ASSESSMENT YEAR: 2011-12 7 (A) THAT THERE MUST BE INCOME TAXABLE UNDER THE ACT, AN D (B) THAT THIS INCOME MUST NOT FORM PART OF THE TOTAL IN COME UNDER THE ACT, AND (C) THAT THERE MUST BE AN EXPENDITURE INCURRED BY THE A SSESSEE, AND (D) THAT THE EXPENDITURE MUST HAVE A RELATION TO THE IN COME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. 9. THEREFORE, UNLESS AND UNTIL, THERE IS RECEIPT OF EXEMPTED INCOME FOR THE CONCERNED ASSESSMENT YEARS (DIVIDEND FROM SHARE S), WE ARE OF THE VIEW, SECTION 14A OF THE ACT CANNOT BE INVOKED. IN THIS APPEAL, THE REVENUE HAS NOT DISPELLED THE FINDINGS OF THE CIT(A ), NOR THE STATEMENT OF THE ASSESSEE BEFORE AO THAT ASSESSEE IS NOT IN R ECEIPT OF ANY DIVIDEND INCOME AND HENCE ACCORDING TO US, THE ASSE SSING OFFICER HAS ERRED IN INVOKING SECTION 14A OF THE ACT, TO DISALL OW VARIOUS INTEREST PAYMENTS ON CAPITAL ACCOUNT, SECURITY DEPOSITS AND UNSECURED LOANS. THIS CONCLUSION OF OURS FINDS SUPPORT IN THE DECISI ON OF BOMBAY BENCH OF THE TRIBUNAL IN THE CASE OF JOINT COMMISSIONER O F INCOME TAX V. HOLLAND EQUIPMENT CO. B.V. [2005] 3 SOT 810 (MUM.) AND THE RELEVANT PORTION OF THE ORDER OF THE BOMBAY BENCH OF THE TRI BUNAL IS REPRODUCED BELOW: 'REGARDING APPLICATION OF SECTION 14A OF THE ACT, T HE CONTENTION OF THE LEARNED DEPARTMENT REPRESENTATIVE HAS TO BE REJECTE D ON THE FACE OF IT INASMUCH AS THE ENTIRE INCOME OF THE ASSESSEE IS TA XABLE UNDER THE ACT. SECTION 14A IS APPLICABLE ONLY WHEN ANY PART O F THE INCOME IS NOT TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE AND THE EXPENDITURE RELATING TO THAT PART OF INCOME IS CLAIMED BY THE A SSESSEE AS DEDUCTION. IN SUCH CASES ONLY, THE EXPENDITURE RELA TING TO THE EXEMPTED INCOME CAN BE DISALLOWED AND NOT OTHERWISE . SINCE IN THE PRESENT CASE, THE ENTIRE INCOME IS FOUND TO BE TAXA BLE, NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A OF THE ACT.' 10. MOREOVER, THE AO HAS NOT ESTABLISHED THE NEXUS BETWEEN INVESTED FUNDS AND THE INTEREST BEARING FUNDS, SINCE THE INV ESTMENTS IN SHARES ARE IN THE YEARS 1995-96, 1998-99 AND 1999-2000 AND THE INTEREST DISALLOWANCE IS FOR THE ASSESSMENT YEARS 2000-01 AN D 2001-02. ON THE CONTRARY PERUSAL OF THE BALANCE SHEET FOR THE Y EAR ENDING 31.3.1995, 31.3.1998 AND 31.3.1999, IT IS CLEAR THA T INTEREST BEARING FUNDS HAVE NOT BEEN UTILIZED FOR INVESTMENT FOR PUR CHASE OF SHARES. 11. FOR THE AFORESAID REASONS, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) CONCERNING ASSESSMENT YEAR 2000-01 AND 2001-02 AND HENCE THE DECISION OF CIT (A) IN DELETING THE DISAL LOWANCE OF INTEREST BY INVOKING SECTION 14A OF THE ACT IS CORRECT AND IN A CCORDANCE WITH LAW.' 11. IN VIEW OF THE AFORESAID FINDINGS, WHICH COULD NOT BE SHOWN TO BE ERRONEOUS, THE PLEA OF THE REVENUE CANNOT BE ACCEPT ED. FURTHER, THIS COURT IN HERO CYCLES LTD.'S CASE (SUPRA) RECORDED AS UNDE R: ITA NO. 427(ASR)/2015 ASSESSMENT YEAR: 2011-12 8 '5. IN VIEW OF FINDING REPRODUCED ABOVE, IT IS CLEA R THAT THE EXPENDITURE ON INTEREST WAS SET OFF AGAINST THE INCOME FROM INT EREST AND THE INVESTMENTS IN THE SHARE AND FUNDS WERE OUT OF THE DIVIDEND PROCEEDS. IN VIEW OF THIS FINDING OF FACT, DISALLOWANCE UNDER SECTION 14A WAS NOT SUSTAINABLE. WHETHER, IN A GIVEN SITUATION, ANY EXP ENDITURE WAS INCURRED WHICH WAS TO BE DISALLOWED, IS A QUESTION OF FACT. THE CONTENTION OF THE REVENUE THAT DIRECTLY OR INDIRECT LY SOME EXPENDITURE IS ALWAYS INCURRED WHICH MUST BE DISALLOWED UNDER S ECTION 14A AND THE IMPACT OF EXPENDITURE SO INCURRED CANNOT BE ALL OWED TO BE SET OFF AGAINST THE BUSINESS INCOME WHICH MAY NULLIFY THE M ANDATE OF SECTION 14A, CANNOT BE ACCEPTED. DISALLOWANCE UNDER SECTION 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE; WHERE IT IS FO UND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAS BEEN INCURRED, D ISALLOWANCE UNDER SECTION 14A CANNOT STAND. IN THE PRESENT CASE FINDING ON THIS ASPECT, AGAINST THE REVENUE, IS NOT SHOWN TO BE PER VERSE. CONSEQUENTLY, DISALLOWANCE IS NOT PERMISSIBLE. WE H AVE TAKEN THIS VIEW EARLIER ALSO IN IT APPEAL NO.504 OF 2008, CIT V. WINSOME TEXTILE INDUSTRIES LIMITED, DECIDED ON 25TH AUGUST, 2009 WH EREIN IT WAS OBSERVED AS UNDER: '6. THE CONTENTION RAISED ON BEHALF OF THE REVENUE IS THAT EVEN IF THE ASSESSEE HAD MADE INVESTMENT IN SHARES OUT OF ITS O WN FUNDS, THE ASSESSEE HAD TAKEN LOANS ON WHICH INTEREST WAS PAID AND ALL THE MONEY AVAILABLE WITH THE ASSESSEE WAS IN COMMON KIT TY, AS HELD BY THIS COURT IN CIT V. ABHISHEK INDUSTRIES LTD. [2006] 205 CTR (P&H) 304 : [2006] 286 ITR 1 (P&H) AND THEREFORE, DISALLOWANCE UNDER SECTION 14A WAS JUSTIFIED. 7. WE DO NOT FIND ANY MERIT IN THIS SUBMISSION. JUD GMENT OF THIS COURT IN ABHISHEK INDUSTRIES (SUPRA) WAS ON THE ISSUE OF ALLOWABILITY OF INTEREST PAID ON LOANS GIVEN TO SISTER CONCERNS, WI THOUT INTEREST. IT WAS HELD THAT DEDUCTION FOR INTEREST WAS PERMISSIBLE WH EN LOAN WAS TAKEN FOR BUSINESS PURPOSE AND NOT FOR DIVERTING THE SAME TO SISTER CONCERN WITHOUT HAVING NEXUS WITH THE BUSINESS. OBSERVATION S MADE THEREIN HAVE TO BE READ IN THAT CONTEXT. IN THE PRESENT CAS E, ADMITTEDLY, THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION. IN S UCH A SITUATION, SECTION 14A COULD HAVE NO APPLICATION.' 12. AS A RESULT, THE SUBSTANTIAL QUESTIONS OF LAW ARE A NSWERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. CONSEQUENTLY , FINDING NO MERIT IN THE APPEALS, THE SAME ARE HEREBY DISMISSED. THEREFORE FOLLOWING THE ABOVE JUDGMENTS OF PUNJAB & HARYANA HIGH COURT THE DISALLOWANCE U/S 14A IS NOT WARRANTED. MO REOVER, WE FIND THAT IT IS A FACT THAT ASSESSEE HAD MADE INVESTMENTS IN THE FORM OF SHARE APPLICATION MONEY. THE HON'BLE MUMBAI ITAT BENCH IN THE CASE OF RAINY INVESTMENTS (P) LTD. VS. ACIT (2013) 30 TAXMANN.COM 169 HAS HELD THAT ITA NO. 427(ASR)/2015 ASSESSMENT YEAR: 2011-12 9 WHERE THE ASSESSEE HAD MADE INVESTMENT IN THE FORM OF SHARE APPLICATION MONEY, THE SAME CANNOT BE REGARDED AS INVESTMENT IN SHARES LEADING TO TAX FREE INCOME. THE FINDINGS OF THE HON'BLE TRIBUN AL ARE REPRODUCED BELOW: 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. SECTION 14A R/W R. 8D IS MANDATORY IN ITS APPLICATION WHERE THE ASSESSEE EARNS INCOME WHICH IS CLAIMED TAX-EXEMPT, AS DIVIDEND INCOME IN THE IN STANT CASE. IN FACT, THERE IS NO DOUBT WITH REGARD TO THIS; THE ASSESSEE ITSELF CONC EDING TO THE SAME BEFORE US AND, BESIDES, BEING ENGAGED IN THE BUSINESS OF MAKING IN VESTMENTS AND EARNING DIVIDEND INCOME AS AN INTEGRAL PART THEREOF. THE ON LY OPTION, THEREFORE, IF IT CONSIDERS THE APPLICATION OF THE PROVISION AS OPERA TING TO ITS DETRIMENT, IS TO FORFEIT ITS RIGHT TO EXEMPTION FROM TAX IN ITS RESPECT. QUA MERITS, WE FIND MUCH FORCE IN THE ASSESSEE'S AR GUMENT THAT 'SHARE APPLICATION MONEY', TO THE EXTENT IT IS ACTUALLY SO, SO THAT IT ONLY REPRESENTS AMOUNT/S PAID BY WAY OF APPLICATION FOR ALLOTMENT OF SHARES, THE SAM E CANNOT BE REGARDED AS AN INVESTMENT I N SHARES, OR AN ASSET (OR ASSET CLASS) YIELDING TAX -FREE INCOME, AND NEITHER IS IT CAPABLE - OF YIELDING ANY TAX-FREE INCOME. THE SAME WOULD, TH EREFORE, IN OUR CLEAR VIEW, HAVE TO BE EXCLUDED IN WORKING OUT THE DISALLOWANCE U/R. 8D. FURTHER, THOUGH THE REVENUE HAS NOT DISPUTED THE SU MS REFLECTED AS 'SHARE APPLICATION MONEY' IN THE ASSESSEE'S BALANCE-SHEET, THE AO, TO WHOM THE MATTER IS TO BE IN ANY CASE RESTORED FOR WORKING OUT THE DISA LLOWANCE BY EXCLUDING THE SAME, SHALL, IN THE SET ASIDE PROCEEDINGS, ALSO EXAMINE T HE VERACITY OF THE ASSESSEE'S CLAIM WITH REGARD TO THE SAME BEING 'SHARE APPLICAT ION MONEY'. THIS IS IN VIEW OF THE PERTINENT QUESTIONS RAISED BY THE BENCH IN ITS RESPECT, TO WHICH NO SATISFACTORY ANSWER WAS FORTHCOMING DURING HEARING, NOR - TO BE FAIR TO THE ID. AR, COULD POSSIBLY BE IN THE ABSENCE OF ANY DETAILS ON RECORD . WE STATE SO AS THE 'SHARE APPLICATION MONEY' WOULD ORDINARILY ONLY BE 'PUBLIC MONEY' AND, THUS, EXCEPT PERHAPS WHERE TOWARD SHARES OF PRIVATE LIMITED COMP ANIES, SUBJECT TO STRINGENT PROCEDURE, AS IS GENERALLY IN PLACE FOR SUCH FUNDS. WE MAY FURTHER CLARIFY THAT THE EXCLUSION OF 'SHARE APPLICATION MONEY', AS OPINED B Y US, IS NOT IN THE LEAST FOR THE REASON THAT IT DID NOT YIELD ANY TAX-FREE INCOME FO R THE RELEVANT YEAR, BUT FOR THE REASON THAT IT IS INCAPABLE OF ANY SUCH INCOME. THE SAME IS ONLY IN THE NATURE OF APPLICATION (OFFER) MONEY, WHICH WOULD THOUGH, ON A LLOTMENT, GET ADJUSTED AGAINST THE COST OF THE SAID SHARES, AND ONLY WHEREUPON ANY RIGHTS IN THE INVESTEE COMPANY INURE TO THE ALLOTTEE. NO RIGHTS, NOT EVEN INCHOATE, IN THE SHARE CAPITAL OF THE ISSUING COMPANY ARISE ON THE PAYMENT OF THE SHA RE APPLICATION MONEY, IRRESPECTIVE OF THE TIME PERIOD FOR WHICH IT MAY OU TSTAND. THE SAME MAY AT BEST YIELD INTEREST INCOME (FOR WHICH A SPECIAL PROCEDUR E THOUGH HAS TO BE FOLLOWED BY THE COMPANY CONCERNED), WHICH IS IN ANY CASE TAXABL E, SO THAT THERE IS NO SCOPE FOR APPLICATION OF SEC. 14A THEREON. ITA NO. 427(ASR)/2015 ASSESSMENT YEAR: 2011-12 10 IN VIEW OF THE ABOVE JUDICIAL PRECEDENTS RELIED ON BY ASSESSEE WE HOLD THAT DISALLOWANCE U/S 14A WAS NOT WARRANTED AN D THEREFORE THE GROUND NO. 4 IS ALLOWED. NOW COMING TO THE LAST ADDITION ON ACCOUNT OF ADHO C DISALLOWANCE, WE FIND THAT IN THE CASE OF ASSESSEE ITSELF IN ASSE SSMENT YEAR 2009-10. THE HON'BLE TRIBUNAL HAS RESTRICTED THE DISALLOWANC E TO 5% AS IS APPARENT FROM THE FINDINGS OF THE TRIBUNAL AS CONTAINED IN P ARA 12 AND 13. IN THAT CASE THE LD. CIT(A) HAD RESTRICTED THE DISALLOWANCE FROM10% TO 5% AND ON AN APPEAL, THE HON'BLE ITAT DID NOT FIND ANY INF IRMITY IN THE ORDER OF LD. CIT(A) MEANING THEREBY THAT HON'BLE TRIBUNAL CO NFIRMED THE DISALLOWANCE TO THE EXTENT OF 5%. IN VIEW OF THE AB OVE, WE HOLD THAT DISALLOWANCE OUT OF EXPENSES BE RESTRICTED TO 5%. IN VIEW OF THE ABOVE GROUND NO. 5 IS PARTLY ALLOWE D, GROUND NO. 6 AND 7 DO NOT REQUIRE ANY ADJUDICATION. 6. IN NUTSHELL, THE APPEAL FILED BY ASSESSEE IS PAR TLY ALLOWED, PARTLY DISMISSED AND PARTLY ALLOWED FOR STATISTICAL PURPOS ES. ORDER PRONOUNCED IN THE OPEN COURT ON 15.12.2017 SD/- SD/- (N. K. CHOUDHRY) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 15.12.2017. /GP/SR. PS . COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE ITA NO. 427(ASR)/2015 ASSESSMENT YEAR: 2011-12 11 (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER