Appeal Details
Counselvise Citation
[2014] 120 COUNSELVISE.COM (IT) 5867 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 8 month(s) 22 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
26-03-2014
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
J
Next Hearing Date
13-03-2014
Assessment Year
2009-2010
Appeal Filed On
04-07-2012
Judgement Text
M/S JM FINANCIAL LIMITED 1 IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUM BAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER ITA NO. 4521/MUM/2012 ASSESSMENT YEAR.2009-10 M/S JM FINANCIAL LIMITED 7 TH FLOOR, CNERGY, APPASAHEB MARATHE MARG PRABHADEVI, MUMBAI 400 025. VS. ADDITIONAL COMMISSIONER OF INCOME TAX -4(3) MUMBAI. PAN: AAACJ 2590B APPELLANT RESPONDENT ASSESSEE BY SHRI K. SHIVARAM AND SHRI SANJAY R. PARIKH REVENUE BY SHRI S.D. SRIVASTAVA ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 11.04.2012 OF CIT(A) FOR A.Y. 2009-10. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN THIS APPEAL:- 2. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE EARNED DIVIDEND INCOME OF RS. 14,14,000/- WHICH IS EXEMPT U/S 10 (3 4). THE ASSESSEE HAS DISALLOWED A SUM OF RS. 1,40,000/- U/S 14A. HOWEVER THE AO DID NOT DATE OF HEARING 13.3.2014 DATE OF PRONOUNCEMENT 26.3.2014 M/S JM FINANCIAL LIMITED 2 ACCEPT THE DISALLOWANCE MADE BY THE ASSESSEE AND PR OCEEDED TO MAKE THE DISALLOWANCE U/S 14A BY APPLYING RULE 8D. ACCORDING LY, THE AO MADE THE DISALLOWANCE OF RS. 7,61,37,727/- AS PER RULE 8D OF INCOME TAX RULES. 3. ASSESSEE CHALLENGED THE ACTION OF AO BEFORE CIT( A) AND CONTENDED THAT RULE 8D CANNOT BE APPLIED WITHOUT RECORDING TH E SATISFACTION THAT THE CLAIM OF THE ASSESSEE WAS NOT PROPER. IT WAS FURTHE R CONTENDED THAT THE INVESTMENT MADE BY THE ASSESSEE WAS STRATEGIC INVES TMENT AND IN THE SUBSIDIARY COMPANIES. ACCORDINGLY NO EXPENDITURE WA S REQUIRED TO BE INCURRED FOR MAINTAINING THE PORTFOLIO. CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE MADE BY AO. 4. BEFORE US, THE LD. AR OF THE ASSESSEE HAS POINT ED OUT THAT THOUGH AN IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL F OR THE A.Y. 2008-09 AND IT WAS HELD THAT RULE 8D IS APPLICABLE FOR DISALLOW ANCE U/S 14A IN RESPECT OF EXEMPT INCOME, HOWEVER FOR THE A.Y. 2008-09, THE AS SESSEE WAS ASKED TO FURNISH THE COMPUTATION OF EXPENDITURE DISALLOWED B Y HIM WHICH WAS NOT EXPLAINED AND, THEREFORE, THE DISALLOWANCE MADE BY AO WAS CONFIRMED. THE LD. AR HAS SUBMITTED THAT THE AO WAS REQUIRED T O RECORD THE SATISFACTION THAT THE CLAIM OF THE ASSESSEE IS NOT CORRECT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AND ONLY IF THE AO IS NOT SATISFIED WITH THE EXPLANATION OFFERED BY THE ASSESSEE WITH REGARD TO THE ACCOUNTS, HE COULD APPLY RULE 8D. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISIONS OF HONBLE JURISDICTIONAL HIGH COURT IN T HE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT (328 ITR 81) AND SU BMITTED THAT THE MAJOR INVESTMENT OF THE ASSESSEE COMPANY I.E. RS. 1490.86 CRORES OUT OF M/S JM FINANCIAL LIMITED 3 RS. 1524.08 CRORES WHICH COMES TO 97.82% IS STRATEG IC INVESTMENT IN UNLISTED SUBSIDIARY COMPANIES AND JOINT VENTURE COM PANIES AND ARE LONG TERM INVESTMENTS. NO EXPENSES ARE INCURRED FOR MAIN TAINING THE PORTFOLIO OF THESE INVESTMENTS OR FOR HOLDING THE SAME. HENCE, N O DISALLOWANCE U/S 14A CAN BE MADE WITH RESPECT TO THESE INVESTMENTS. THE LD. AR HAS RELIED UPON THE DECISION OF THIS TRIBUNAL IN THE CASE OF G ARWARE WALL ROPES LIMITED VS. ADDL. CIT, DATED 15/01/2014 IN ITA NO. 5408/MUM/2012. HE HAS ALSO RELIED UPON THE DECISION DATED 02/12/2011 OF DELHI BENCH OF THIS TRIBUNAL IN THE CASE OF ORIENTAL STRUCTURAL ENGINEE RS (P) LTD., VS. ACIT, AS WELL AS THE DECISION OF PUNE BENCH OF THIS TRIBUNAL IN THE CASE OF KALYANI STEELS LTD. VS. ACIT DATED 30.01.2014 AND SUBMITTED THAT THE TRIBUNAL HAS DEALT WITH AN IDENTICAL ISSUE IN THESE DECISIONS A ND HELD THAT WHEN THE ASSESSEE HAS BROUGHT ON RECORD THE FACT TO SHOW THA T NO EXPENDITURE HAS BEEN INCURRED ON THE INVESTMENT MADE IN THE SUBSIDI ARY COMPANIES THEN THE AO HAS TO RECORD ITS SATISFACTION FOR NOT ACCEP TING THE CLAIM OF THE ASSESSEE AND ALSO GIVE THE FINDING THAT EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR EARNING THE EXEMPT INCOME. THE LD. AR HAS ALSO RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT, DATE D 15.01.2013 IN THE CASE OF CIT VS. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD, WHEREBY THE DECISION OF DELHI BENCH OF THIS TRIBUNAL HAS BEEN CONFIRMED BY THE HONBLE HIGH COURT. 5. ON THE OTHER HAND, THE LD. CIT(DR) HAS VEHEMENTL Y CONTENDED THAT IT IS IMMATERIAL WHETHER THE INVESTMENT IS IN SUBSI DIARY COMPANIES OR IN UNRELATED COMPANIES. THE DISALLOWANCE OF EXPENDITUR E U/S 14A HAS TO BE COMPUTED AS PER RULE 8D OF THE INCOME TAX RULES. TH E AO HAS CALCULATED M/S JM FINANCIAL LIMITED 4 THE AMOUNT OF DISALLOWANCE AS PER RULE 8D AND, THER EFORE, THERE IS NO QUESTION OF ACCEPTING THE DISALLOWANCE MADE BY THE ASSESSEE WHICH IS NOT IN ACCORDANCE WITH THE FORMULA GIVEN IN RULE 8D. TH E LD. DR HAS SUBMITTED THAT FOR THE PURPOSE OF DISALLOWANCE UNDER RULE 8D, THE ENTIRE INVESTMENT AS WELL AS THE ENTIRE EXPENDITURE WHICH IS BOOKED T O THE PROFIT & LOSS ACCOUNT HAS TO BE TAKEN INTO ACCOUNT. HE HAS REFERR ED PARA 51 OF THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN T HE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD (SUPRA) AND SUBMITTED THAT ON CE THE PROXIMATE RELATIONSHIP BETWEEN THE EXPENDITURE AND THE EXEMPT INCOME IS ESTABLISHED THE DISALLOWANCE HAS TO BE MADE AS PER RULE 8D. HE HAS RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 6. IN REBUTTAL, THE LD. AR HAS SUBMITTED THAT HONB LE HIGH COURT IN PARA 32 AND 33 HAS CLEARLY LAID DOWN THE PRINCIPLES FOR DISALLOWANCE U/S 14A AND HELD THAT SUB SECTION 2 DOES NOT IFSO FACTO ENABLE THE AO TO APPLY THE METHOD PRESCRIBED BY THE RULE STRAIGHTAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF EXPEND ITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IS CORRECT. THUS THE HONBLE HIGH COURT HAS HELD THAT WHERE THE ACCOUNTS OF THE ASSESSEE FURNISH AN OBJECTIVE BASIS FOR THE AO TO A RRIVE AT A SATISFACTION IN REGARD TO CORRECTNESS OF THE CLAIM OF THE ASSESSEE OF THE EXPENDITURE, THERE WOULD BE NO WARRANT FOR TAKING RECOURSE TO THE METH OD PRESCRIBED BY THE RULES. 7. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD, WE NOTE THAT SO FAR AS APPLICABILITY OF RULE 8D IS CONCERNED, M/S JM FINANCIAL LIMITED 5 THERE IS NO QUARREL ON THIS POINT THAT FOR THE A.Y. UNDER CONSIDERATION RULE 8D IS APPLICABLE. FURTHER FOR THE A.Y. 2008-09, THE TRIBUNAL HELD IN PARA 15 AS UNDER:- WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAP ER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED BEFORE US. IN THE INSTANT CASE, THE ONLY DISP UTE IS REGARDING DETERMINATION OF DISALLOWANCE OF EXPENDITURE FOR EA RNING TAX FREE DIVIDEND INCOME OF RS. 18,17,68,458/- THE ASSESSEE DISALLOWE D ON ITS OWN RS. 16.50 LAKHS U/S 14A. DESPITE BEING ASKED BY THE AO TO FURNISH THE DISALLOWANCE UNDER RULE 8D, THE ASSESSEE DID NOT FU RNISH THE DETAILS. THE PROVISIONS OF RULE 8D INSERTED BY THE IT (FIFTH AME NDMENT) RULES 2008 WITH EFFECT FROM 24.3.2008 ARE APPLICABLE FOR A.Y. 2008-09 AND ONWARDS. THEREFORE, THE REVENUE AUTHORITIES ARE BOUND TO FOL LOW THE MANDATORY PROVISIONS FOR CALCULATION OF DISALLOWANCE U/S 14A. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) UPHOL DING THE ACTION OF THE AO FOR DISALLOWING THE DEDUCTION U/S 14A READ WITH RUL E 8D. THE CONTENTION OF THE ASSESSEE THAT THE AO WITHOUT SATISFACTION BEING REACHED INVOKED THE PROVISIONS OF RULE 8D, IN OUR OPINION, DOES NOT HOL D GOOD ESPECIALLY IN ABSENCE OF NON-FURNISHING OF DETAILS FOR THE PURPOS ES OF CALCULATION OF DISALLOWANCE AT RS. 16.50 LAKHS BY THE ASSESSEE ON ITS OWN. IN THIS VIEW OF THE MATTER AND IN ABSENCE OF ANY DISTINGUISHABLE FE ATURE BROUGHT TO OUR NOTICE BY THE LEARNED COUNSEL FOR THE ASSESSEE AGAI NST THE ORDER OF THE CIT(A), WE DO NOT FIND ANY INFIRMITY IN THE SAME. A CCORDINGLY THE SAME IS UPHELD AND THE GROUND RAISED BY THE ASSESSEE IS DIS MISSED. 8. AS IT IS CLEAR FROM THE FINDING OF TRIBUNAL THAT THE ASSESSEE FAILED TO FURNISH THE DETAILS OF DISALLOWANCE UNDER SECTION 1 4A AND, THEREFORE, THE DISALLOWANCE MADE BY THE AO WAS FOUND BY THE TRIBUN AL WITHOUT ANY INFIRMITY. FOR THE YEAR UNDER CONSIDERATION THE AS SESSEE HAS SPECIFICALLY RAISED A POINT BEFORE THE AO THAT 97.82% OF THE INV ESTMENT IS IN THE SUBSIDIARY COMPANIES AND JOINT VENTURE COMPANIES AN D, THEREFORE, NO EXPENDITURE WAS INCURRED FOR MAINTAINING THE PORTFO LIO ON THESE INVESTMENTS OR FOR HOLDING THE SAME. THE ASSESSEE H AS ALSO POINTED OUT THAT THESE INVESTMENTS ARE LONG TERM INVESTMENT AND NO DECISION IS REQUIRED IN MAKING THE INVESTMENT OR DISINVESTMENT ON REGULAR BASIS M/S JM FINANCIAL LIMITED 6 BECAUSE THESE INVESTMENTS ARE STRATEGIC IN NATURE I N THE SUBSIDIARY COMPANIES ON LONG TERM BASIS AND, THEREFORE, NO DIR ECT OR INDIRECT EXPENDITURE IS INCURRED. WE FIND THAT THE DEPARTMEN T HAS NOT DISPUTED THIS FACT THAT OUT OF THE TOTAL INVESTMENT ABOUT 98% OF THE INVESTMENT ARE IN SUBSIDIARY COMPANIES OF THE ASSESSEE AND, THEREFORE , THE PURPOSE OF INVESTMENT IS NOT FOR EARNING THE DIVIDEND INCOME B UT HAVING CONTROL AND BUSINESS PURPOSE AND CONSIDERATION. THEREFORE, PRIMA FACIE THE ASSESSEE HAS MADE OUT A CASE TO SHOW THAT NO EXPENDITURE HAS BEEN INCURRED FOR MAINTAINING THESE LONG TERM INVESTMENT IN SUBSIDIAR Y COMPANIES. THE AO HAS NOT BROUGHT OUT ANY CONTRARY FACT OR MATERIAL T O SHOW THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE FOR MAINTAINI NG THESE INVESTMENTS OR PORTFOLIO OF THESE INVESTMENTS. IN THE CASE OF G ODREJ & BOYCE MFG. CO. LTD. (SUPRA) HONBLE JURISDICTIONAL HIGH COURT WHIL E DEALING WITH THE ISSUE OF DISALLOWANCE U/S 14A AND APPLICATION OF RULE 8D HAS RECORDED THE PRINCIPLES AS LAID DOWN BY THE HONBLE SUPREME COUR T IN THE CASE OF WALFORT SHARE AND STOCK BROKERS P. LTD. [2010] ( 326 ITR 1 ,) IN PARA 31 AS UNDER:- (A) THE MANDATE OF SECTION 14A IS TO PREVENT CLAIMS FO R DEDUCTION OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME. (B) SECTION 14A(1) IS ENACTED TO ENSURE THAT ONLY EXPEN SES INCURRED IN RESPECT OF EARNING TAXABLE INCOME ARE ALLOWED; (C) THE PRINCIPLE OF APPORTIONMENT OF EXPENSES IS WIDE NED BY SECTION 14A TO INCLUDE EVEN THE APPORTIONMENT OF EXPENDITURE BETWE EN TAXABLE AND NON- TAXABLE INCOME OF AN INDIVISIBLE BUSINESS; (D) THE BASIC PRINCIPLE OF TAXATION IS TO TAX NET INCOM E. THIS PRINCIPLE APPLIES EVEN FOR THE PURPOSE OF SECTION 14A AND EXPENSES TO WARDS NON-TAXABLE INCOME MUST BE EXCLUDED; (E) ONCE A PROXIMATE CAUSE FOR DISALLOWANCE IS ESTABLIS HED WHICH IS THE RELATIONSHIP OF THE EXPENDITURE WITH INCOME WHICH D OES NOT FORM PART OF THE TOTAL INCOME A DISALLOWANCE HAS TO BE EFFECTE D. ALL EXPENDITURE UNDER THE PROVISIONS OF THE ACT HAS TO BE DISALLOWE D UNDER SECTION 14A M/S JM FINANCIAL LIMITED 7 INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IS BROADLY ADVERTED TO AS EXEMPT INCOME AS AN ABBREVIATED APPELLATION. 9. AFTER CONSIDERING THESE PRINCIPLES AS EMERGED FR OM THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF WALFORT SHARE AND STOCK BROKERS P. LTD. (SUPRA), HONBLE JURISDIC TIONAL HIGH COURT HAS HELD IN PARA 32 AND 33 AS UNDER:- 32. SUB-SSECTION (2) AND (3) TO SECTION 14A WERE I NSERTED BY AN AMENDMENT BROUGHT ABOUT BY THE FINANCE AC T OF 2006 WITH EFFECT FROM APRIL 1, 2007. SUB SECTIONS ( 2) AND (3) PROVIDE AS FOLLOWS. '14A.(2) THE ASSESSING OFFICER SHALL DETERMI NE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH I NCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, IF THE ASSESS ING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SA TISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SU CH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOT AL INCOME UNDER THIS ACT. (3) THE PROVISIONS OF SUB-SECTION (2) SHAL L ALSO APPLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPE NDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NO T FORM PART OF THE TOTAL INCOME UNDER THIS ACT : PROVIDED THAT NOTHING CONTAINED IN THIS SE CTION SHALL EMPOWER THE ASSESSING OFFICER EITHER TO REASSESS UNDER SECTION 147 OR PASS AN ORDER ENHANCING THE ASSESSMENT OR REDUCING A REF UND ALREADY MADE OR OTHERWISE INCREASING THE LIABILITY OF THE ASSESSEE UNDER SECTION 154 FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1ST DAY OF APRIL, 2001.' (THE PROVISO WAS INSERTED EARLIER BY THE FI NANCE ACT OF 2002 WITH RETROSPECTIVE EFFECT FROM MAY 11, 2001) 33. UNDER SUB-SECTION (2), THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED BY AN ASSESSEE IN RE LATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED. THE METHOD, HAVING REGARD TO THE MEANING OF THE EXPRESSION 'PRESCRIBED' IN SECTION 2 (33), MUST BE PRES- CRIBED BY RULES MADE UNDER THE ACT. WHAT MERITS EMP HASIS IS THAT THE JURIS- DICTION OF THE ASSESSING OFFICER TO DETERMINE THE E XPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, IN ACCORDANCE WITH THE PRESCRIBED METHOD, ARISES IF TH E ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF M/S JM FINANCIAL LIMITED 8 THE EXPENDITURE WHICH THE ASSESSEE CLAIMS TO HAVE I NCURRED IN RELATION TO INCOME WHICH DOES NOT PART OF THE TOTAL INCOME. MOR EOVER, THE SATISFACTION OF THE ASSESSING OFFICER HAS TO BE ARRIVED AT, HAVI NG REGARD TO THE ACCOUNTS OF THE ASSESSEE. HENCE, SUB-SECTION (2) DOES NOT IP SO FACTO ENABLE THE ASSESSING OFFICER TO APPLY THE METHOD PRESCRIBED BY THE RULES STRAIGHTAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE A SSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHIC H DOES 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 ACCOUNTS OF THE ASSESSEE. THE SATISFACTION OF THE ASSESSING OFFICER MUST-BE ARRIVED AT ON AN OBJECTIVE BASIS. IT IS ONLY WHEN THE ASSESSING OFFI CER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE, THAT THE LEGISLATURE DIR ECTS HIM TO FOLLOW THE METHOD THAT MAY BE PRESCRIBED. IN A SITUATION WHERE THE ACCOUNTS OF THE ASSESSEE FURNISH AN OBJECTIVE BASIS FOR THE ASSESSI NG OFFICER TO ARRIVE AT A SATISFACTION IN REGARD TO THE CORRECTNESS OF THE CL AIM OF THE ASSESSEE OF THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THERE WOULD BE NO WA RRANT FOR TAKING RECOURSE TO THE METHOD PRESCRIBED BY THE RULES. FOR , IT IS ONLY IN THE EVENT OF THE ASSESSING OFFICER NOT BEING SO SATISFIED THA T RECOURSE TO THE PRESCRIBED METHOD IS MANDATED BY LAW. SUB-SECTION ( 3) OF SECTION 14A PRO- VIDES FOR THE APPLICATION OF SUB-SECTION (2) ALSO T O A SITUATION WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURR ED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. UNDER THE PROVISO, IT HAS BEEN STIPULATED THAT NOTHING IN THE SECTION WILL EMPOWER THE ASSESSING OFFICER, FOR AN ASSESSMENT YEAR BEGIN NING ON OR BEFORE APRIL 1,2001, EITHER TO REASSESS UNDER SECTION 147 OR PAS S AN ORDER ENHANCING THE ASSESSMENT OR REDUCING THE REFUND ALREADY MADE OR O THERWISE INCREASING THE LIABILITY OF THE ASSESSEE UNDER SECTION 154. 10. IT HAS BEEN MADE CLEAR BY THE HONBLE HIGH CO URT THAT SUB-SECTION (2) DOES NOT IFSO FACTO EMPOWER THE AO TO APPLY THE METHOD PRESCRIBED BY RULES STRAIGHTAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IS CORRECT. 11. THE ASSESSEE HAS RELIED UPON VARIOUS DECISIONS OF THIS TRIBUNAL WHEREIN AN IDENTICAL ISSUE HAS BEEN CONSIDERED. IN THE CASE OF GARWARE WALL ROPES LIMITED VS. ADDL. CIT (SUPRA), THE TRIBU NAL WHILE DECIDING AN IDENTICAL ISSUE HAS HELD IN PARA 2.4 AS UNDER:- M/S JM FINANCIAL LIMITED 9 WE HAVE CONSIDERED THE RIVAL SUBMISSION AND CAREFU LLY PERUSED THE RELEVANT RECORDS. SO FAR AS THE ISSUE REGARDING DISALLOWANCE U/S 14A IN THE CASE WHERE NO DIVIDEND HAS BEEN RECEIVED, THE SAME IS COVERED AGA INST THE ASSESSEE BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE AS SESSMENT YEAR 2008-09, WHEREIN THE TRIBUNAL HAS FOLLOWED THE DECISION OF S PECIAL BENCH OF TRIBUNAL WHILE DECIDING THE ISSUE. THEREFORE, WE DO AGREE WITH THE FINDING OF THE TRIBUNAL ON THIS POINT. FURTHER SINCE THE ASSESSEE HAS RAISED T HE NEW PLEA IN THE YEAR UNDER CONSIDERATION THAT NO EXPENDITURE HAD BEEN INCURRED BY THE ASSESSEE FOR EARNING THE EXEMPT INCOME OR FOR THE INVESTMENT IN QUESTION . WE FIND MERIT AND SUBSTANCE IN THE CONTENTION OF THE ASSESSEE ON THIS POINT BECAUSE THE INVESTMENT HAS BEEN MADE BY THE ASSESSEE IN THE GROUP CONCERN AND NOT IN THE SHARES OF ANY UN-RELATED PARTY. THEREFORE, THE PRIMARY OBJECT OF INVESTMENT IS HOLDING CONTROLLING STAKE IN THE GROUP CONCERN AND NOT EARN ING ANY INCOME OUT OF INVESTMENT. FURTHER THE INVESTMENT WERE MADE LONG B ACK AND NOT IN THE YEAR UNDER CONSIDERATION. THEREFORE, IN VIEW OF THE FACT THAT THE INVESTMENT ARE IN THE GROUP CONCERN WE DO NOT FIND ANY REASON TO BELIEVE THAT THE ASSESSEE WOULD HAVE INCURRED ANY ADMINISTRATIVE EXPENSES IN HOLDIN G THESE INVESTMENTS. THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE IN RELATION TO THE INCOME WHICH DOE S NOT FORM PART OF THE TOTAL INCOME. SECTION 14A HAS WITHIN IT IMPLICIT THE NOTI ON OF APPORTIONMENT IN THE CASES WHERE THE EXPENDITURE IS INCURRED FOR COMPOSI TE/INDIVISIBLE ACTIVITIES IN WHICH TAXABLE AND NON TAXABLE INCOME IS RECEIVED BU T WHEN NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO THE EXEMPT INCOME THEN PRINCIPLE OF APPORTIONMENT EMBEDDED IN SECTION 14A HAS NO APPLICATION. THE OBJ ECT OF SECTION 14A IS NOT ALLOWING TO REDUCE TAX PAYABLE ON THE NON EXEMPT IN COME BY DEDUCTING THE EXPENDITURE INCURRED TO EARN THE EXEMPT INCOME. IN THE CASE IN HAND IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS INCURRED ANY DIRECT EXPENDITURE OR ANY INTEREST EXPENDITURE FOR EARNING THE EXEMPT INCOME OR KEEPING THE INVESTMENT IN QUESTION. IF THERE IS EXPENDITURE DIRECTLY OR INDIR ECTLY INCURRED IN RELATION TO EXEMPT INCOME THE SAME CANNOT BE CLAIMED AGAINST TH E INCOME WHICH IS TAXABLE. FOR ATTRACTING THE PROVISIONS OF SECTION 14A- THER E SHOULD BE PROXIMATE CAUSE FOR DISALLOWANCE WHICH HAS RELATIONSHIP WITH THE TA X EXEMPT INCOME AS HELD BY THE HONBLE SUPREME COURT IN CASE OF CIT VS. WALFORT SHARE AND STOCK BROKERS P. LTD. ( 326 ITR 1). THEREFORE, THERE SHOULD BE A PROXIMATE RELATIONSHIP BETWEEN THE EXPENDITURE AND THE INCOME WHICH DOES N OT FORM PART OF THE TOTAL INCOME. IN THE CASE IN HAND THE ASSESSEE HAS CLAIME D THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMPT INCOME, THEREF ORE, IT WAS INCUMBENT ON THE AO TO FIND OUT AS TO WHETHER THE ASSESSEE HAS INCUR RED ANY EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND IF SO TO QUANTIFY THE EXPENDITURE OF DISALLOWANCE. THE AO HA S NOT BROUGHT ON RECORD ANY FACT OR MATERIAL TO SHOW THAT ANY EXPENDITURE HAS B EEN INCURRED ON THE ACTIVITY WHICH HAS RESULTED INTO BOTH TAXABLE AND NON TAXABL E INCOME. THEREFORE, IN OUR VIEW WHEN THE ASSESSEE HAS PRIMA FACIE BROUGHT OUT A CASE THAT NO EXPENDITURE M/S JM FINANCIAL LIMITED 10 HAS BEEN INCURRED FOR EARNING THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME THEN IN THE ABSENCE OF ANY FINDING THAT EXP ENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMPT INCOME THE PROVISIONS OF SEC TION 14A CANNOT BE APPLIED. ACCORDINGLY WE DELETE THE ADDITION/DISALLOWANCE MAD E BY AO U/S 14A R.W. RULE 8D. 12. A SIMILAR VIEW WAS TAKEN BY THE DELHI BENCH OF THIS TRIBUNAL IN THE CASE OF M/S ORIENTAL STRUCTURAL ENGINEERS (P) LTD ( SUPRA) WHICH HAS BEEN CONFIRMED BY THE HONBLE DELHI HIGH COURT VIDE DECI SION DATED 15.01.2013 IN PARA 6.3 AS UNDER:- '6.3 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEAL S) HAS GIVEN A FINDING THAT ONLY INTEREST OF RS 2,96,731/- WAS PAID ON FUN DS UTILIZED FOR MAKING INVESTMENTS ON WHICH EXEMPTED INCOME WAS RECEIVABLE . FURTHER, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS OBSERVED T HAT IN RESPECT OF INVESTMENT OF RS 6,07,775,000/- MADE IN SUBSIDIARY COMPANIES AS PER DOCUMENTS PRODUCED BEFORE HIM, THEY ARE ATTRIBUTABL E TO COMMERCIAL EXPEDIENCY, BECAUSE AS PER SUBMISSION MADE BY THE A SSESSEE, IT HAD TO FORM SPECIAL PURPOSE VEHICLES (SPY) IN ORDER TO OBTAIN C ONTRACTS FROM THE NHAI AND THE SPVS SO FORMED ENGAGED THE ASSESSEE COMPANY AS CONTRACT TO EXECUTE THE WORKS AWARDED TO THEM (I.E. SPVS) BY TH E NHAI. IN ITS PROFIT AND LOSS ACCOUNT FOR THE YEAR, THE ASSESSEE HAS SHOWN T HE TURNOVER FROM EXECUTION OF THESE CONTRACTS AND THEREFORE NO EXPEN SE AND INTEREST ATTRIBUTABLE TO THE INVESTMENTS MADE BY THE APPELLA NT IN THE PSVS CAN BE DISALLOWED U/S 14A LW. RULE 8D BECAUSE IT CANNOT BE TERMED AS EXPENSE/ INTEREST INCURRED FOR EARNING EXEMPTED INCOME. UNDE R THE CIRCUMSTANCES, LD. COMMISSIONER OF INCOME TAX (APPEALS) IS CORRECT IN HOLDING THAT DISALLOWANCE OF A FURTHER SUM RS 40,556/- CALCULATED@2%OFTHEDIVI DEND EARNED IS SUFFICIENT. UNDER THE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), HE NCE WE UPHOLD THE SAME. 13. IN VIEW OF THE ABOVE DISCUSSION AND FACTS AND C IRCUMSTANCES OF THE CASE WE AGREE WITH THE VIEW TAKEN BY THIS TRIBUNAL IN THE ABOVE STATED CASES AND ACCORDINGLY HOLD THAT THE ASSESSEE HAS BR OUGHT OUT A CASE TO SHOW THAT NO EXPENDITURE HAS BEEN INCURRED FOR MAIN TAINING THE 98% OF THE INVESTMENT MADE IN THE SUBSIDIARY COMPANIES, TH EREFORE, IN THE ABSENCE OF ANY FINDING THAT ANY EXPENDITURE HAS BEE N INCURRED FOR EARNING THE EXEMPT INCOME, THE DISALLOWANCE MADE BY THE AO IS NOT JUSTIFIED, ACCORDINGLY THE SAME IS DELETED. M/S JM FINANCIAL LIMITED 11 14. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 26 /03/2014 SD/- SD/- (N.K. BILLAIYA) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 26 /03/2014 SKS SR. P.S COPY TO: THE APPELLANT THE RESPONDENT THE CONCERNED CIT(A) THE CONCERNED CIT THE DR, J BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI
