Kee Pharma Ltd., New Delhi V. DCIT, New Delhi

ITA 5108/DEL/2012

• Counselvise Citation: 510820114 RSA 2012
• Duration Of Justice: 2 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 21-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 03-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAURAV DUDEJA
• Assessee Lawyers: V M CHAURASIA
• Keywords: Business income; Earning of tax free income; Question of law
• Section: 14A; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D , NEW DELHI BEFORE SH. N. K. SAINI, AM AND SH. H. S. SIDHU, JM ITA NO. 5108 /DEL/2012 : ASSTT. YEAR : 2009 - 10 M/S KEE PHARMA LTD., A - 1, COMMUNITY CENTRE, NARAINA INDUSTRIAL AREA, NEW DELHI - 28 VS ACIT, CIRCLE 5(1), ROOM NO. 409A, C.R BUILDING, NEW DELHI - 2 (APPELLANT) (RESPONDENT) PAN NO. AAACK0120C ASSESSEE BY : SH. RANO JAIN, CA & SH. V. M. CHAURASIA, ADV. REVENUE BY : SH. GAURAV DUDEJA, SR. DR DATE OF HEARING: 13.11.2014 DATE OF PRONOUNCEMENT: 16. 01.2015 ORDER PER N. K. SAINI, AM: THIS IS AN APPEAL BY THE ASSESSEE AND IS DIRECTED AGAINST THE ORDER DATED 23.7.2012 OF LD. CIT(A) - VIII , NEW DELHI . THE ONLY GRIEVANCE OF THE ASSESSEE IN THIS APPEAL RELATES TO THE CONFIRMATION OF DISALLOWANCE OF RS. 5,83,124/ - MADE BY THE AO BY INVOKING THE PROVISIONS OF SEC. 14A OF THE IT ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. FACTS OF THE CASE IN BRIEF ARE THAT T HE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF PHARMACEUTICALS AND FILED ITS RETURN OF INCOME ON 27.9.2009 DECLARING AN INCOME OF RS. 55,35,110/ - WHICH WAS PROCESSED U/S 143(1) OF THE IT ACT, 1961 (HEREINAFTER REFERRED ITA NO. 5108 /DEL/2012 KEE PHARMA LTD. 2 TO AS THE AC T) ON 8.3.2011. LATER ON THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD BEEN INVESTING IN QUOTED AND UNQUOTED EQUITY SHARES. HE REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY DISALLOWANCE IN TERMS OF PROVISIONS OF RULE 8D MAY NOT BE MADE F OR ADDITION U/S 14A OF THE ACT. THE ASSESSEE VIDE LETTER DATED 4.10.2011 SUBMITTED TO THE AO AS UNDER: THE COMPANY HAS MADE INVESTMENTS IN THE UNQUOTED SHARES OF ITS SUBSIDIARIES COMPANIES WHICH ARE WHOLL Y OWNED SUBSIDIARIES. HENCE THERE IS NO EXPENDITURE REQUIRED TO BE INCURRED TO INVEST IN WHOLLY OWNED SUBSIDIARIES. THE COMPANY HAD ALSO INVESTED A SMALL SUM OF RS. 20,000/ - IN PURCHASE OF SHARES OF A QUOTED COMPANY BUT THAT INVESTMENT WAS MADE LONG BACK A ND HAS BEEN WRITTEN OFF IN THE BOOKS AS ITS MARKET VALUE IS NIL. HENCE NO INCOME ON SUCH INVESTMENT WOULD ACCRUE TO THE COMPANY AND THEREFORE NO DISALLOWANCE IS CALLED FOR U/S 14A. 3. THE AO, HOWEVER, DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSE E AND MADE A DISALLOWANCE OF RS. 5,83,124/ - BY OBSERVING THAT THE DISALLOWANCE U/S 14A IS TO BE MADE EVEN IF NO INCOME HAS RESULTED OR EARNED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. THE RELIANCE WAS PLACED ON THE DECISION OF THE ITAT SPECIAL BENCH , NEW DELHI IN THE CASE OF M/S CHEMINVEST LTD. IN ITA NO. 87/DEL/2008. 4. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSEE IN ITS BID TO FOCUS ON EFFORTS ON ENHANCING THE RESEARCH & DEVELOPMENT ACTIVITIES ITA NO. 5108 /DEL/2012 KEE PHARMA LTD. 3 HAD ACQUIRED TWO SUBSIDIARY COMPANIES NAMELY HELVETICA INDUSTRIES PVT. LTD., HYDERABAD AND KEE GAD BIOGEN PVT. LTD. , DELHI. BOTH THOSE COMPANIES PRESENTED IMMENSE POSSIBILITIES FOR GROWTH AND WERE LIKELY TO CONTRIBUTE SUBSTANTIALLY TO THE PROFITABILITY IN THE YEARS TO COME. THE ASSESSEE WAS HOLDING 60% SHARES IN M/S HELVETICA INDUSTRIES PVT. LTD. AND 99.9% IN M/S KEE GAD BIOGEN PVT. LTD. THE SAID INVESTMENT HAD BEEN MADE KEEPING IN VIEW THE COMMERCIAL INTEREST OF THE ASSESSEE COMPANY SINCE BOTH THE COMPANI ES IN WHICH IN VESTMENTS HAVE BEEN MADE INDULGED IN R & D ACTIVITIES, THE PRODUCTS INVENTED BY THEM WOULD EXCLUSIVELY BENEFIT THE ASSESSEE IN ITS BUSINESS OF PHARMACEUTICALS. HENCE, IT WOULD NOT BE THE DIVIDEND ON AMOUNT INVESTED IN THOSE COMPANIES WHICH TH E ASSESSEE WAS LOOKING FORWARD BUT THE ASSESSEE WOULD EARN HUGE PROFITS FROM ITS BUSINESS BY USING THE RESEARCH MADE BY THOSE TWO SUBSIDIARIES BY MAKING THE WORLD CLASS PRODUCTS. RELIANCE WAS PLACED ON THE FOLLOWING CASES: SA BUILDERS PVT. LTD. (2007) 288 ITR 1 (SC) CIT VS DALMIA CEMENT (B) LTD. (2002) 254 ITR 377 (SC) CIT VS DALMIA CEMENTS BHARAT LTD., APPEAL ITR NO. 249 - 250/1987 DECIDED ON 04/07/2009 BY THE HON BLE DELHI HIGH COURT ITA NO. 5108 /DEL/2012 KEE PHARMA LTD. 4 5 . THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSE RVED THAT THE HON BLE BOMBAY HIGH COURT IN THE CASE OF M/S GODREJ & BOYCE MANUFACTURING CO. LTD. VS DCIT REPORTED AT 328 ITR 81 HAS HELD THAT RULE 8D IS APPLICABLE FROM THE ASSESSMENT YEAR 2008 - 09 AND THE SAID RULE CONSIDERS THREE CIRCUMSTANCES UNDER WHICH DISALLOWANCE IS REQUIRED TO BE MADE WHICH ARE AS UNDER: I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME; II) SECONDLY, PROPORTIONATE DISALLOWANCE OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PA RTICULAR INCOME OR RECEIPT, AND; III) THIRDLY, AN AMOUNT EQUAL TO ONE - HALF PERCENT OF THE AVERAGE OF THE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. 6. THE LD. CIT(A) FURTHER OBSERVED THAT THE DISALLOWANCE AS ENVISAGED ABOV E IS AGGREGATE OF ALL THE THREE, T HEREFORE, IN ASSESSEE S CASE AS PER THE PROVISIONS OF RULE 8D AGGREGATE OF ALL THE THREE DISALLOWANCE HA VE TO BE MADE. HE ALSO OBSERVED THAT THE CONTENTION OF THE ASSESSEE THAT NO DISALLOWANCE CAN BE MADE SINCE NO EXEMPT INCOME HAD BEEN EARNED DOES NOT HOLD GOOD IN VIEW OF THE DECISION OF THE ITAT SPECIAL BENCH DELHI ITA NO. 5108 /DEL/2012 KEE PHARMA LTD. 5 IN THE CASE OF M/S CHEM INVEST LTD. IN IT A NO. 87/DEL/2008 WHICH CLEARLY HELD THAT DISALLOWANCE U/S 14A OF THE ACT HAS TO BE MADE EVEN IF NO EXEMPT INCOME HAS BEEN EARNED BY THE ASSESSEE. HE, THEREFORE, CONFIRMED THE DISALLOWANCE MADE BY THE AO. 7. NOW THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT AS THERE WAS NO DIVIDEND INCOME RECEIVED BY THE ASSESSEE , THE PROVISIONS OF SECTION 14A OF THE ACT WERE NOT APPLICABLE AND NO DISALLOWANCE WAS CALLED F OR. IT WAS FURTHER STATED THAT THERE SHOULD HAVE BEEN A POSITIVE INCOME FOR MAKING THE DISALLOWANCE U/S 14A OF THE ACT R.W. RULE 8D OF THE INCOME TAX RULES, 1962. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: CIT VS M/S LAKHANI MARKETING INCL., IN I TA NO. 970/2008 (O&M) ORDER DATED 02.04.2014 HON BLE P & H HIGH COURT CIT VS HOLCIM INDIA (P) LTD. I N ITA NOS. 486/2014 AND 299/2014 ORDER DATED 05.09.2014 OF HON BLE DELHI HIGH COURT 8. IN HIS RIVAL SUBMISSIONS THE LD. DR STRONGLY SUPPORTED THE ORDER S OF THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE EARNING OF INCOME I S NOT A CRITERIA FOR MAKING THE DISALLOWANCE U/S 14A OF THE ACT AND EVEN IF NO INCOME HAS BEEN EARNED THE ITA NO. 5108 /DEL/2012 KEE PHARMA LTD. 6 DISALLOWANCE HAS TO BE MADE U/S 14A OF THE ACT R.W. RULE 8D OF THE IT RULES. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: CHEMINVEST LTD. VS ITO (2009) 121 ITD 318 (DEL) (SB) MAXOPP INVESTMENT LTD. VS CIT (2011) 15 TAXMANN.COM 390 (DEL) 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH TH E MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE IT IS AN ADMITTED FACT THAT THE ASSESSEE HAD NOT EARNED ANY DIVIDEND INCOME FROM THE INVESTMENT MADE IN THE SHARES OF M/S HELVETICA INDUSTRIES PVT. LTD., HYDERABAD AND M/S KEE GAD BIOGEN PVT. LTD., DE LHI. THE ASSESSEE ACQUIRED THE SHARES OF THOSE COMPANIES FOR ITS GROWTH IN THE FUTURE AND THE INVESTMENT WAS MADE KEEPING IN VIEW THE INTEREST OF THE ASSESSEE COMPANY . TO RESOLVE THIS CONTROVERSY, I T IS NECESSARY TO DISCUSS THE PROVISIONS CONTAINED IN SECT ION 14A (1) OF THE ACT WHICH READ AS UNDER: FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME UNDER THIS ACT. 10. FROM THE ABOVE PROVISION IT IS CLEAR THAT BEFORE MAKING THE DISALLOWANCE THE FOLLOWING CONDITIONS ARE TO EXIST: ITA NO. 5108 /DEL/2012 KEE PHARMA LTD. 7 I) THERE MUST BE INCOME TAXABLE UNDER THE ACT. II) THE SAID INCOME MUST NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. III) THERE MUST BE AN EXPENDITURE INCURRED BY THE ASSESSEE AND IV) THE SAID EXPENDITURE MUST HAVE A RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. 11. FROM THE AFORESAID CONDITION IT WOULD BE CLEAR THAT CONCERNED ASSESSMENT YEAR AS THERE IS NO INCOME WHICH DOES NOT FORM PART OF THE TAXABLE INCOME UNDER THE ACT I.E. DIVIDEND FROM THE SHARES, IN OUR OPINION THE PROVISIONS OF SECTION 14A OF THE ACT CANNOT BE INVOKED. IN THE PRESENT CASE IT IS AN ADMITTED FACT THAT THE ASSESSEE WAS NOT IN RECEIPT OF ANY DIVIDEND INCOME AS SUCH THERE WAS NO INCOME FROM THE INVESTMENT IN QUESTION WHICH WAS TAXABLE UNDER THE I.T ACT, THEREFORE, THE AO WRONGLY INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT TO DISALLOW VARIOUS INTEREST PAY MENTS. ON A SIMILAR ISSUE THEIR LORDSHIPS OF THE HON BLE PUNJAB HIGH COURT IN THE CASE OF CIT VS M/S LAKHANI MARKETING INCL. IN ITA NO. 970/2008 VIDE ORDER DATED 02.04.2014 OBSERVED AT PARAS 9 TO 11 AS UNDER: 9. THE CIT(A) VIDE ORDER DATED 24.6.2004, ANN EXURE A.II RECORDED AS UNDER: - ITA NO. 5108 /DEL/2012 KEE PHARMA LTD. 8 7.2 KEEPING IN VIEW THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE IT IS HELD THAT THE AO WAS NOT CORRECT IN APPLYING SECTION 14A OF THE IT ACT IN DISALLOWING THE EXPENDITURE ON ACCOUNT OF INTEREST AMOUNTING TO RS. 46,91,684 / - . IT WAS INCUMBENT ON THE AO TO ESTABLISH A NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE INCOME WHICH WAS EXEMPT UNDER THE ACT. FACTS CLEARLY DO NOT SUPPORT THE ACTION OF THE AO. DISALLOWANCE IS ACCORDINGLY DELETED. THE AO IS DIRECTED TO RECOMPUTE THE INCOME ACCORDINGLY. 10. VIDE ORDER DATED 16.5.2008, ANNEXURE A.III, THE TRIBUNAL 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 THE MATERIAL ON RECORD. FROM THE READING OF SECTION 14A OF THE ACT, IT IS CLEAR THAT BEFORE MAKING ANY DISALLOWANCE THE FOLLOWING CONDITIONS ARE TO EXIST: - A) THAT THERE MUST BE INCOME TAXABLE UNDER THE ACT, AND B) THAT THIS INCOME MUST NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T, AND C) THAT THERE MUST BE AN EXPENDITURE INCURRED BY THE ASSESSEE, AND D) THAT THE EXPENDITURE MUST HAVE A RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. 9. THEREFORE, UNLESS AND UNTIL, THERE IS RECEIPT OF EXEMPTED I NCOME FOR THE CONCERNED ASSESSMENT YEARS (DIVIDEND FROM SHARES), 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 ASSESS EE IS NOT IN RECEIPT OF ANY DIVIDEND INCOME AND HENCE ACCORDING TO US, THE ASSESSING OFFICER HAS ERRED IN INVOKING SECTION 14A OF THE ACT, TO DISALLOW VARIOUS ITA NO. 5108 /DEL/2012 KEE PHARMA LTD. 9 INTEREST PAYMENTS ON CAPITAL ACCOUNT, SECURITY DEPOSITS AND UNSECURED LOANS. THIS CONCLUSION OF O URS FINDS SUPPORT IN THE DECISION OF BOMBAY BENCH OF THE TRIBUNAL IN THE CASE OF JOINT COMMISSIONER OF INCOME TAX V. HOLLAND EQUIPMENT CO. B. V. REPORTED IN (2005) 3 SOT 810 (MUMBAI) AND THE RELEVANT PORTION OF THE ORDER OF THE BOMBAY BENCH OF THE TRIBUNAL IS REPRODUCED BELOW: - REGARDING APPLICATION OF SECTION 14A OF THE ACT, THE CONTENTION OF THE LEARNED DEPARTMENT REPRESENTATIVE HAS TO BE REJECTED ON THE FACE OF IT INASMUCH AS THE ENTIRE INCOME OF THE ASSESSEE IS TAXABLE UNDER THE ACT. SECTION 14A IS AP PLICABLE ONLY WHEN ANY PART OF 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 ASSESSEE AS DEDUCTION. IN SUCH CASES ONLY, THE EXPENDITURE RELATING TO THE EXEMPTED IN COME CAN BE DISALLOWED AND NOT OTHERWISE. SINCE IN THE PRESENT CASE, THE ENTIRE INCOME IS FOUND TO BE TAXABLE, 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 INT EREST BEARING FUNDS, SINCE THE INVESTMENTS IN SHARES ARE IN THE YEARS 1995 - 96, 1998 - 99 AND 1999 - 2000 AND THE INTEREST DISALLOWANCE IS FOR THE ASSESSMENT YEARS 2000 - 01 AND 2001 - 02. ON THE CONTRARY PERUSAL OF THE BALANCE SHEET FOR THE YEAR ENDING 31.3.1995, 31.3.1998 AND 31.3.1999, IT IS CLEAR THAT INTEREST BEARING FUNDS HAVE NOT BEEN UTILIZED FOR INVESTMENT FOR PURCHASE 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 200 1 - 02 AND HENCE THE DECISION OF CIT (A) IN DELETING THE DISALLOWANCE OF INTEREST BY INVOKING ITA NO. 5108 /DEL/2012 KEE PHARMA LTD. 10 SECTION 14A OF THE ACT IS CORRECT AND IN ACCORDANCE WITH LAW. 11. IN VIEW OF THE AFORESAID FINDINGS, WHICH COULD NOT BE SHOWN TO BE ERRONEOUS, THE PLEA OF THE REV ENUE CANNOT BE ACCEPTED. FURTHER, THIS COURT IN HERO CYCLES LIMITED S CASE (SUPRA) RECORDED AS UNDER: - 5. IN VIEW OF FINDING REPRODUCED ABOVE, IT IS CLEAR THAT THE EXPENDITURE ON INTEREST WAS SET OFF AGAINST THE INCOME FROM INTEREST 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 EXPENDITURE WAS INCURRED WHICH WAS TO BE DISALLOWED, IS A QUESTION OF FACT. THE CONTENTION OF THE REVENUE THAT DIRECTLY OR INDIRECTLY SOME EXPENDITURE IS ALWAYS INCURRED WHICH MUST BE DISALLOWED UNDER SECTION 14A AND THE IMPACT OF EXPENDITURE SO INCURRED CANNOT BE ALLOWED TO BE SET OFF AGAINST THE BUSINESS INCOME WHICH MAY NULLIFY THE MANDATE OF SECTION 14A, CANNOT BE ACCEPTED. DISALLOWANCE UNDER SECTION 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE; WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAS BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A CANNOT STAND. IN T HE PRESENT CASE FINDING ON THIS ASPECT, AGAINST THE REVENUE, IS NOT SHOWN TO BE PERVERSE. CONSEQUENTLY, DISALLOWANCE IS NOT PERMISSIBLE. WE HAVE TAKEN THIS VIEW EARLIER ALSO IN IT APPEAL NO.504 OF 2008, CIT VS. WINSOME TEXTILE INDUSTRIES LIMITED, DECIDED O N 25TH AUGUST, 2009 WHEREIN 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 OWN FUNDS, THE ASSESSEE HAD TAKEN LOANS ON WHICH INTEREST WAS PAID AND ALL THE MONEY AVAILABLE WITH THE ITA NO. 5108 /DEL/2012 KEE PHARMA LTD. 11 ASSESSEE WAS IN COMMON KITTY, AS HELD BY THIS COURT IN CIT VS. ABHISHEK INDUSTRIES LIMITED , (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. JUDGMENT OF THIS COURT IN ABHISHEK INDUSTRIES (SUPRA) WAS ON THE ISSUE OF ALLOWABILITY OF INTEREST PAID ON LOANS GIVEN TO SISTER CONCERNS, WITHOUT INTEREST. IT WAS HELD THAT DEDUCTION FOR INTEREST WAS PERMISSIBLE WHEN LOAN WAS TAKEN FO R BUSINESS PURPOSE AND NOT FOR DIVERTING THE SAME TO SISTER CONCERN WITHOUT HAVING NEXUS WITH THE BUSINESS. OBSERVATIONS MADE THEREIN HAVE TO BE READ IN THAT CONTEXT. IN THE PRESENT CASE, ADMITTEDLY, THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION. IN SU CH A SITUATION, SECTION 14A COULD HAVE NO APPLICATION. 12. SIMILARLY, THEIR LORDSHIPS OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS HOLCIM INDIA (P) LTD. IN ITA NOS. 486 & 299/2014 VIDE ORDER DATED 05.09.2014 DISMISSED THE APPEAL OF THE REVENUE AND OBSERVED IN PARA 14 AS UNDER: 14. ON THE ISSUE WHETHER THE RESPONDENT - ASSESSEE COULD HAVE EARNED DIVIDEND INCOME AND EVEN IF NO DIVIDEND INCOME WAS EARNED, YET SECTION 14A CAN BE INVOKED AND DISALLOWANCE OF EXPENDITURE CAN BE MADE, THERE ARE THREE DECISIONS OF THE DIFFERENT HIGH COURTS DIRECTLY ON THE ISSUE AND AGAINST THE APPELLANT - REVENUE. NO CONTRARY DECISION OF A HIGH COURT HAS BEEN SHOWN TO US. THE PUNJAB AND HARYANA HIGH COURT IN COMMISSIONER OF INCOME TAX, FARIDABAD VS. M/S. LAKHANI MAR KETING INCL., ITA NO. 970/2008, DECIDED ON 02.04.2014, MADE REFERENCE TO TWO EARLIER DECISIONS OF THE SAME COURT IN CIT VS. HERO CYCLES LIMITED, [2010] 323 ITR 518 AND CIT VS. WINSOME TEXTILE INDUSTRIES LIMITED, [2009] 319 ITR 204 TO HOLD ITA NO. 5108 /DEL/2012 KEE PHARMA LTD. 12 THAT SECTION 14A CANNOT BE INVOKED WHEN NO EXEMPT INCOME WAS EARNED. THE SECOND DECISION IS OF THE GUJARAT HIGH COURT IN COMMISSIONER OF INCOME TAX - I VS. CORRTECH ENERGY (P.) LTD. [2014] 223 TAXMANN 130 (GUJ.). THE THIRD DECISION IS OF THE ALLAHABAD HIGH COURT IN INCOME TA X APPEAL NO. 88 OF 2014, COMMISSIONER OF INCOME TAX (II ) KANPUR, VS. M/S. SHIVAM MOTORS (P) LTD. DECIDED ON 05.05.2014. IN THE SAID DECISION IT HAS BEEN HELD: AS REGARDS THE SECOND QUESTION, SECTION 14A OF THE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUT ING THE TOTAL INCOME UNDER THE CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HENCE, WHAT SECTION 14A PROVIDES IS THAT IF THERE IS ANY INCOME WHICH DOES NOT FORM PART OF THE INCOME UNDER THE ACT, THE EXPENDITURE WHICH IS INCURRED FOR EARNING THE INCOME IS NOT AN ALLOWABLE DEDUCTION. FOR THE YEAR IN QUESTION, THE FINDING OF FACT IS THAT THE ASSESSEE HAD NOT EARNED ANY TAX FREE INCOME. HENCE, IN THE ABSENCE OF ANY TAX FREE INCOME, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE. THE VIEW OF THE CIT(A), WHICH HAS BEEN AFFIRMED BY THE TRIBUNAL, HENCE DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. HENCE, THE D ELETION OF THE DISALLOWANCE OF RS.2,03,752/ - MADE BY THE ASSESSING OFFICER WAS IN ORDER. 13. IN THE AFORESAID CASE THEIR LORDSHIPS HAS ALSO CONSIDERED THE DECISIONS OF THE HON BLE PUNJAB AND HARYANA, GUJARAT AND ALLAHABAD HIGH COURT WHICH ARE IN FAVOUR OF THE ASSESSEE. W E, THEREFORE, BY KEEPING IN VIEW THE RATIO LAID D O W N BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS ITA NO. 5108 /DEL/2012 KEE PHARMA LTD. 13 HOLCIM INDIA (P.) LTD. ORDER DATED 05.09.2014 AND THE HON BLE P & H HIGH COURT IN THE CASE OF CIT VS M/S LAKHANI MARKETING (SUPRA) ARE OF THE CONSIDERED VIEW THAT NO DISALLOWANCE U/S 14A OF THE ACT CAN BE MADE IF THERE IS NO INCOME EARNED. IN THAT VIEW OF THE MATTER WE DELETE THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A). 1 4 . IN THE RESULT, APPEAL OF THE AS SESSEE IS ALLOWED . ( ORDER PRONOU N CED IN T HE OPEN COURT ON 16 /0 1 / 2015 ) . SD/ - SD/ - ( H. S. SIDHU ) ( N. K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 16 /0 1 / 2015 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPOND ENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR DATE INITIAL 1. DRAFT DICTATED ON 14.01.2015 PS 2. DRAFT PLACED BEFORE AUTHOR 14.01.2015 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SEC OND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH O F ORDER.