Marg Limited, CHENNAI V. DCIT, CHENNAI

ITA 543/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9384 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 09-03-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH JCITD R
• Assessee Lawyers: K RAVI
• Keywords: Earning of tax free income; Commercial expediency
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI , ! ' . #$ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.543/MDS./2016 / ASSESSMENT YEAR : 2012-13 M/S.MARG LIMITED , 4/318,RAJIV GANDHI SALAI, KOTTIVAKKAM, CHENNAI 600 041. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE 4(1), CHENNAI. [PAN AACCM 8770 G ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : MR.K.RAVI,ADVOCATE /RESPONDENT BY : MR.A.V.SREEKANTH,JCIT,D.R / DATE OF HEARING : 10 - 05 - 201 6 / DATE OF PRONOUNCEMENT : 20 - 05 - 2016 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS-8) DATED 2 9.02.2016 PERTAINING TO ASSESSMENT YEAR 2012-13. ITA NO. 543/MDS./2016 :- 2 -: 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS. 1.THE ORDER OF THE LD.CIT(A) IS CONTRARY TO THE LA W, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF RS.2,61,96,790/- U/S.14A OF INCOME TAX ACT, 1961 READ WITH RULE 8D(2)(III) OF INCOME TAX RULES, 1962 WHEN THE APPELLANT HAD NOT EARNED ANY EXEMPT INCOME DURING T HE YEAR. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING DISALLOWANCE U/S. 14A OF INCOME TAX ACT, 1961 READ WITH RULE 8D(2)(III) OF INCOME TAX RULES, 1962 WITHOUT C ONSIDERING THE PRECEDENTS SET BY THE JURISDICTIONAL HIGH COURT & T RIBUNAL IN THE FOLLOWING CASES A. CIT VS. TUBE INVESTMENTS OF INDIA LTD IN TCA NO. 524 OF 2007 (MAD HC) B. EID PARRY INDIA VS. ACIT IN TCA NO.2287 OF 2006 (MAD HC) C. SIMPSON & CO LTD VS. DCIT IN TCA NO.2621 OF 2006 (MAD HC) D. ACIT VS. THE NUNGAMBAKKAM SASWATHA OHANA RAKSHAK A NIDHI LTD IN ITA NO.1138/MDS/2013 (CHENNAI ITAT) 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING DISALLOWANCE U/S.14A OF INCOME TAX ACT, 1961 READ WITH RULE 8D(2)(III) OF INCOME TAX RULES, 1962 IGNORING VARIO US OTHER PLEAS RAISED BY THE APPELLANT DURING THE APPEALS AND DEALING WIT H ONLY ONE OF THE PLEA, I.E., 14A DISALLOWANCE CANNOT BE MADE WHEN I NVESTMENTS ARE MADE OUT OF OWN FUND IN THE APPELLATE ORDER. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING DISALLOWANCE U/S. 14A OF INCOME TAX ACT, 1961 READ WITH RULE 8D(2)(III) OF INCOME TAX RULES, 1962 BY WRONGL Y INTERPRETING RULE 8D (2)(III) TO HOLD THAT 0.5% OF THE ENTIRE INVESTM ENTS AS EXPENDITURE IN RELATION TO EXEMPT INCOME WHEREAS THE RULE CLEARLY PRESCRIBES THAT EXPENDITURE SHOULD BE CALCULATED BY APPLYING 0.5% T O THE AVERAGE ITA NO. 543/MDS./2016 :- 3 -: VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF CONSTRUCTION AND RELATED SERVICES IN THE RELEVANT PREVIOUS YEAR. THE ASSESSEE FILED ITS RE TURN OF INCOME FOR THE ASSESSMENT YEAR 2012-13 ON 1ST DECEMBER, 2012 ELECT RONICALLY RETURNING GROSS TOTAL INCOME OF ` L,40,06,74,516/-. THE ASSESSEE COMPANY DECLARED A NET PROFIT OF ` 1,62,61,40,388/- AGAINST THE INCOME FROM OPERATIONS VALUED AT ` 15,01,08,76,906/- WITH THE NET PROFIT RATIO FOR TH E PERIOD BEING 10.83%. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND N OTICE U/ S 143(2) WAS ISSUED BY AO. THE AO COMPLETED THE ASSESSMENT U/S. 143(3) DATED 31ST MARCH, 2015. THE AO DISALLOWED AN AMOUNT OF ` 2,61,96,790/- U/S 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D(III) OF INCOME TAX RULES, 1962 AND ADDED ESTIMATED INCOME OF ` 21,40,00,000/- FOR CERTAIN PROJECTS AND CREATED DEMAND THERE ON. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFERRED AN APPEAL AGAINST THE ASSESSMENT ORDER BE FORE THE CIT(A). ON APPEAL THE CIT(A) HAD CONFIRMED THE DISALLOWANCE U /S. 14A OF THE ACT, 1961. AGGRIEVED WITH THE ORDER OF CIT(A), THE ASSE SSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. LD.A.R SUBMITTED THAT THOUGH THE ISSUE WAS DECI DED BY THIS TRIBUNAL IN ASSESSEE'S OWN CASE IN ITA NOS.344 TO 346/MDS./201 6 DATED 06.04.2016, THE TRIBUNAL HAD FAILED TO CONSIDER THE FOLLOWING P OINTS:- ITA NO. 543/MDS./2016 :- 4 -: 1) INTERPRETATION OF RULE 8D(2)(III) WAS CHALLENGED IN GROUND 5, WHICH WAS NOT DEALT WITH IN THE ITAT ORDER. AS PER RULE 8D(2) (III), 0.5% OF AVERAGE VALUE OF INVESTMENTS, INCOME FROM WHICH DOE S NOT OR SHALL NOT FORM PART OF THE INCOME, HAS TO BE DISALLOWED. IN T HE PRESENT CASE, 0.5% OF AVERAGE VALUE OF ENTIRE INVESTMENT IS DISAL LOWED. 2) RULING OF DELHI HIGH COURT IN THE CASE OF CHEMIN VEST LTD VS. CIT WAS NOT CONSIDERED IN THE ITAT ORDER. WHERE NO EXEMPT I NCOME IS EARNED DURING THE YEAR, NO DISALLOWANCE CAN BE MADE U/S.14 A. 3) ITAT HAS NOT CONSIDERED VARIOUS DECISIONS WHERE IT IS WAS HELD THAT DISALLOWANCE CANNOT BE MADE FOR INVESTMENT IN SUBSI DIARY COMPANIES. 4) ITAT HAS NOT CONSIDERED DECISIONS WHERE IT WAS H ELD INVESTMENT IN COMPANIES WHICH HAVE NOT YIELDED ANY DIVIDEND DURIN G THE YEAR SHOULD NOT BE CONSIDERED FOR THE PURPOSE OF CALCULATION OF DISALLOWANCE U/R. 8D(2)(III) 5) ITAT HAS NOT CONSIDERED WHETHER CIT(A) HAS APPLI ED IN MIND IN ANSWERING VARIOUS /CONTENTIONS RAISED BY THE APPELL ANT DURING THE APPELLATE PROCEEDINGS BEFORE CIT(A) ACCORDINGLY THE LD.A.R PLEADED THAT THE TRIBUNAL HA S TO RE-CONSIDER THE ISSUE IN DISPUTE AS THE ORDER RELIED BY TRIBUNAL IN EARLIER YEARS HAVE NO APPLICATION TO THE ASSESSEES CASE. 5. ON THE OTHER HAND, THE LD.D.R SUBMITTED THAT TH E ISSUE IS SQUARELY COVERED BY THE EARLIER ORDER OF THE TRIBUN AL IN ASSESSEE'S OWN CASE CITED SUPRA. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. ADMITTEDLY, THE SAME ISSUE HAS BEEN COME F OR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASS ESSMENT YEARS 2009- ITA NO. 543/MDS./2016 :- 5 -: 10 TO 2011-12 IN ITA NOS.344 TO 346/MDS./2016 VIDE ORDER DATED 06.04.2016 WHEREIN HELD AS FOLLOWS:- 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE MADE TOTAL INVESTMENT IN THE ASSESSMEN T YEAR 2009-10 AS FOLLOWS : SUBSIDIARIES ` 2,38,89,48,500/- UTI INFRASTRUCTURE ADVANTAGE FUND SERIES ` 10,00,000/- INVESTMENT IN SISTER CONCERNS ` 1,59,39,000/- 6.1 FOR THE ASSESSMENT YEAR 2010-11, THE TOTAL INV ESTMENT IS AS FOLLOWS : SUBSIDIARIES ` 4,35,42,53,360/- UTI INFRASTRUCTURE ADVANTAGE FUND SERIES ` 10,00,000/- INVESTMENT IN SISTER CONCERNS ` 1,59,39,000/- 6.2 FOR THE ASSESSMENT YEAR 2011-12, THE TOTAL INV ESTMENT IS AS FOLLOWS : SUBSIDIARIES ` 5,17,41,16,895/- UTI INFRASTRUCTURE ADVANTAGE FUND SERIES ` 8,53,000/- INVESTMENT IN SISTER CONCERNS ` 1,59,39,000/- 6.3 IN THIS CASE, THE ASSESSEE MADE AVERAGE INVEST MENT WHICH YIELDS NO INCOME OR EXEMPTED INCOME IS AS FOLLOWS : 2009-10 ` 1,96,32,20,750/- 2010-11 ` 3,39,69,83,166/- 2011-12 ` 4,78,02,04,127/- THE AO DISALLOWED 5% OF THE AVERAGE INVESTMENT AS F OLLOWS: 2009-10 ` 98,16,104/- 2010-11 ` 1,69,84,915/- 2011-12 ` 2,39,01,020/- THE ASSESSEE DIVIDEND INCOME RECEIVED AND CLAIMED A S EXEMPT FOR THESE ASSESSMENT YEARS ARE AS FOLLOWS : 2009-10 ` 41,024/- 2010-11 NIL 2011-12 ` 74,000/- ITA NO. 543/MDS./2016 :- 6 -: 6.4 NOW, THE CONTENTION OF THE LD. AR IS THAT DISAL LOWANCE U/S.14A R.W.RULE 8D AT BEST COULD BE EQUIVALENT TO EXEMPT I NCOME AS ABOVE. THIS ARGUMENT OF THE ASSESSEES COUNSEL HAS NO MERI T. THE ASSESSEE USED THE AMOUNT IN THE INVESTMENT WHICH YIELDS N O INCOME OR EXEMPT INCOME AND U/S.14A OF THE ACT. THE EXPENDIT URE RELATING TO EXEMPT INCOME IS NOT ALLOWABLE. THE ASSESSING AU THORITY CONSIDERED THE ABOVE AND DISALLOWED THE EXPENDITURE AS PER S EC.14A R.W. RULE 8 D OF THE I.T.RULES AND IT WAS THE RIGHT ACTION OF T HE AO, AS IN OUR OPINION, THE PROVISIONS OF SEC.14A R.W. RULE 8D OF THE I.T.RULES, ARE APPLICABLE AS HELD BY THE TRIBUNAL IN THE CASE OF M /S. LAKSHMI RING TRAVELLERS IN ITA NO.2083/MDS/2011 DATED 2.3.2012, WHEREIN IT WAS HELD AS UNDER: 6. WE CONSIDERED THE ARGUMENTS OF BOTH THE SIDES IN DETAIL. SEC.14A(1) DECLARES THE LAW THAT THE EXPENDITURE IN CURRED BY THE ASSESSEE IN RELATION TO THE INCOME WHICH DOES NOT F ORM PART OF THE TOTAL INCOME UNDER THE ACT SHALL NOT BE ALLOWED AS A DEDUCTION IN COMPUTING THE TAXABLE INCOME OF THE AS SESSEE. SEC.14A(2) PROVIDES FOR DETERMINING THE QUANTUM OF SUCH EXPENDITURE WHICH SHALL NOT BE ALLOWED AS A DEDUCTI ON. THAT IS THE MACHINERY PROVISION AS FAR AS SEC.14A IS CONCE RNED. IN THAT PROVISION, IT HAS BEEN PROVIDED THAT IF THE ASSESSI NG OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE COMPUTATIONS MADE BY AN ASSESSEE, HE SHALL COMPUTE THE QUANTUM IN ACCORDANC E WITH THE METHOD THAT MAY BE PRESCRIBED. FOR THIS MATTER, R ULE 8D HAS ALREADY BEEN PRESCRIBED. SUB-SEC.(3) FURTHER PROVI DES THAT EVEN IN A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDIT URE WAS INCURRED, THE ASSESSING AUTHORITY HAS TO PRESUME T HE INCURRING OF SUCH EXPENDITURE AS PROVIDED UNDER SUB-SEC.(2) READ WITH RULE PRESCRIBED. THEREFORE, IT BECOMES CLEAR THAT EVEN IN A CASE WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE WAS S O INCURRED, THE STATUTE HAS PROVIDED FOR A PRESUMPTIVE EXPENDI TURE WHICH HAS TO BE DISALLOWED BY FORCE OF THE STATUTE. IN A DISTANT MANNER, LITERALLY SPEAKING, IT MAY EVEN BE CONSIDER ED FOR THE PURPOSE OF CONVENIENCE AS A DEEMING PROVISION. WH EN SUCH DEEMING PROVISION IS MADE ON THE BASIS OF STATUTORY PRESUMPTION, THE REQUIREMENT OF FACTUAL EVIDENCE IS REPLACED BY STATUTORY PRESUMPTION AND THE ASSESSING OFFICER HAS TO FOLLOW THE CONSEQUENCES STATED IN THE STATUTE. IT MEANS THAT EVEN IN A CASE WHERE NO EXPENDITURE IS STATED TO HAVE BEEN INCURRE D, THE ASSESSING AUTHORITY HAS TO APPLY RULE 8D. AS THE S TATUTORY ITA NO. 543/MDS./2016 :- 7 -: PRESUMPTION SUBSTITUTES THE REQUIREMENT OF FACTUAL EVIDENCE, THE QUESTION OF ENQUIRY DOES NOT ARISE. THEREFORE, WE ARE UNABLE TO AGREE WITH THE ARGUMENT OF THE LEARNED CA. 7. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE IS DISMISSED. 6.5 THIS VIEW OF OURS IS ALSO FORTIFIED BY THE JUDG MENT OF THE KARNATAKA HIGH COURT IN THE CASE OF PRADEEP KAR V. ACIT (319 ITR 416), WHEREIN IT WAS OBSERVED AS UNDER : THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF INTERES T ON THE AMOUNTS BORROWED BY HIM FOR PURCHASE OF SHARES IS D ISALLOWED BY THE ASSESSING OFFICER. IN THE APPEAL FILED BY HIM A GAINST THE ASSESSMENT ORDER, THE FIRST APPELLATE AUTHORITY REV ERSED THE ORDER OF THE ASSESSING AUTHORITY BY APPLYING THE DECISION OF THE SUPREME COURT REPORTED IN CIT VS. RAJENDRA PRASAD M OODY [1978] 115 ITR 519. THE REVENUE TOOK UP THE MATTER IN SECOND APPEAL BEFORE THE INCOME-TAX APPELLATE TRIBUNAL, HE REINAFTER CALLED AS 'THE TRIBUNAL' IN SHORT. THE TRIBUNAL REV ERSED THE DECISION OF THE FIRST APPELLATE AUTHORITY AND RESTO RED THE ORDER OF THE ASSESSING AUTHORITY. BEING AGGRIEVED BY THE SAM E, THE ASSESSEE IS BEFORE US BY FILING THIS APPEAL FRAMING SUBSTANTIAL QUESTIONS OF LAW AND URGED THE GROUNDS IN SUPPORT O F THE SAME. SMT. ANURADHA, LEARNED COUNSEL FOR THE APPELLANT RELIED UPON THE DECISION REPORTED IN CIT VS. RAJENDRA PRASAD MO ODY [1978] 115 ITR 519 WHEREIN, IT IS HELD THAT INTEREST PAID ON MONEY BORROWED FOR INVESTMENT IN SHARES IS DEDUCTIBLE UND ER SECTION 57(III) OF THE INCOME-TAX ACT, WHICH REQUIRES THAT THE EXPENDITURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR MAKING OR EARNING INCOME. SHE ALSO RELIED UPON ANOTHER D ECISION IN THE CASE OF CIT VS. SMT. SUSHILA DEVI KHADARIA [2009] 3 19 ITR 413 (BOM); [2009] TIOL 171 HC (MUM-IT) AND SUBMITS THAT THE ORDERS PASSED BY THE ASSESSING AUTHORITY AND THE TR IBUNAL ARE ERRONEOUS AND CONTRARY TO THE AFOREMENTIONED DECISI ONS. THEREFORE, SHE SUBMITS THAT SUBSTANTIAL QUESTIONS ( I) AND (II) FRAMED IN THE APPEAL MEMORANDUM ARISE FOR CONSIDERA TION OF THIS COURT AND REQUESTED TO SET ASIDE THE ORDER PASSED B Y THE TRIBUNAL. THE SUBSTANTIAL QUESTIONS OF LAW FRAMED I N THE APPEAL ARE EXTRACTED AS HEREUNDER. '(I) WHETHER OR NOT THE TRIBUNAL WAS RIGHT IN NOT ALLOWING THE INTEREST INCURRED BY THE ASSESSEE AS EXPENDITUR E IN COMPUTING INCOME OF THE ASSESSEE? (II) WHETHER OR NOT THE TRIBUNAL WAS RIGHT IN REVE RSING THE FINDINGS OF THE COMMISSIONER OF INCOME-TAX (APPEALS ), WHICH WAS ITA NO. 543/MDS./2016 :- 8 -: BASED ON A SUPREME COURT'S DECISION BY RELYING ON T HE DECISION OF OTHER TRIBUNALS? (III) WHETHER OR NOT THE TRIBUNAL WAS JUSTIFIED IN NOT AFFORDING AN OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE DECIDING THE ISSUE ON HAND BY PLACING RELIANCE ON J UDGMENTS, WHICH WERE NOT CITED BY EITHER SIDE? (IV) WHETHER OR NOT THE TRIBUNAL WAS RIGHT IN RELY ING ON THE DECISIONS INAPPLICABLE TO THE FACTS ON HAND BY DIST INGUISHING THE DECISION OF THE HON'BLE SUPREME COURT, WHICH IS SQU ARELY APPLICABLE?' WITH REFERENCE TO THE CONTENTIONS URGED, WE HAVE PE RUSED THE ORDERS PASSED BY THE ASSESSING AUTHORITY, THE FIRST APPELLATE AUTHORITY AND THE TRIBUNAL WITH A VIEW TO FIND OUT AS TO WHETHER THE SUBSTANTIAL QUESTIONS OF LAW FRAMED IN THIS APP EAL WOULD ARISE FOR CONSIDERATION OF THIS COURT. IT IS NOT IN DISPU TE THAT THE ASSESSEE HAD BORROWED LOANS AND INVESTED THE SAME I N SHARES. DEDUCTION IS CLAIMED BY HIM OF THE INTEREST AMOUNT PAID ON THE BORROWED LOANS. THE AMOUNTS BORROWED BY THE APPELLA NT WERE INVESTED IN SHARES AND DIVIDEND IS EARNED. WHEN DED UCTION FOR THE INTEREST PAID IS CLAIMED, THE DIVIDEND EARNED C ANNOT BE EXCLUDED FROM INCOME. COMPUTATION OF INCOME HAS TO BE MADE TAKING THE AMOUNT OF DIVIDEND INCOME EARNED BY THE APPELLANT. THE ASSESSING AUTHORITY CONSIDERED THE DECISION IN RAJENDRA PRASAD MOODY'S CASE [1978] 115 ITR 519 (SC) RELIED UPON BY THE LEARNED COUNSEL AND HELD THAT IT IS NOT APPLICABLE TO THE FACT SITUATION. THE REASONS ASSIGNED FOR SUCH A CONCLUSI ON IN THE ASSESSMENT ORDER ARE EXTRACTED HEREUNDER: 'THE DECISION IS WITH REFERENCE TO DEDUCTION ALLOWA BLE UNDER SECTION 57(III) OF THE INCOME-TAX ACT. THE DECISION RELATES TO AN ASSESSMENT YEAR WHERE DIVIDEND INCOME WAS TAXABL E IN THE HANDS OF THE ASSESSEE. WITH THE INTRODUCTION OF SEC TION 10(33) OF THE INCOME-TAX ACT FROM THE ASSESSMENT YEAR 1998 -99 THE POSITION OF LAW IN REGARD TO TAXABILITY OF DIVIDEND S HAS BEEN CHANGED SINCE SUCH INCOME BECOMES A PART OF INCOME WHICH DO NOT FORM A PART OF TOTAL INCOME OF THE ASSESSEE. THE PROVISIONS OF SECTION 14A INTRODUCED BY THE FINANCE ACT, 2001, WITH EFFECT FROM APRIL 1, 1962, RETROSPECTIVELY BAR S ALLOWING ANY EXPENDITURE IN RESPECT OF INCOME WHICH IS NOT I NCLUDIBLE IN THE TOTAL INCOME. CONSIDERING THIS CHANGE IN THE PO SITION OF LAW THE DECISION OF THE SUPREME COURT RELIED UPON B Y THE ASSESSEE DOES NOT APPLY TO THE ASSESSEE'S CASE.' ITA NO. 543/MDS./2016 :- 9 -: THEREFORE, THE DIVIDEND INCOME IS EXEMPTED FROM THE TAX LIABILITY UNDER SECTION 10(33) OF THE ACT. UNDER SECTION 14A OF THE ACT, EXPENDITURE RELATING TO EXEMPTED INCOME IS NOT ALLO WABLE. THE ASSESSING AUTHORITY HAS CONSIDERED THE ABOVE RELEVA NT FACTOR AND DISALLOWED THE CLAIM OF THE ASSESSEE. THE FIRST APPELLATE AUTHORITY REVERSED THE ORDER OF THE ASSESSING AUTHORITY BY APPLYING THE DECISION IN RAJENDRA PRAS AD MOODY'S CASE [1978] 115 ITR 519 (SC), REFERRED TO SUPRA, WH ICH WAS RENDERED PRIOR TO INTRODUCTION OF SECTION 14A OF TH E ACT AND WHICH HAS NO APPLICATION TO THE FACT SITUATION. THE TRIBUNAL HAS RIGHTLY SET ASIDE THE ORDER OF THE FIRST APPELLATE AUTHORITY. IT CANNOT BE DISPUTED THAT DIVIDEND INCOME IS EXEMPTED UNDER SECTION 10(33) OF THE ACT FROM THE TAX LIABILITY AN D THE SAME CANNOT BE COMPUTED FOR INCOME UNDER THE HEAD 'OTHER SOURCES'. EXEMPTED INCOME IS NOT ALLOWABLE FOR DEDUCTION IN V IEW OF SECTION 14A OF THE ACT. IN VIEW OF THESE TWO PROVIS IONS, THE CLAIM OF THE ASSESSEE IS WHOLLY UNTENABLE AND THE DECISIO NS RELIED UPON BY THE LEARNED COUNSEL ON BEHALF OF THE APPELLANT A RE NOT APPLICABLE TO THE FACT SITUATION. WE ARE IN AGREEMENT WITH THE ORDERS PASSED BY THE A SSESSING AUTHORITY AND THE TRIBUNAL AND DIFFER FROM THE VIEW TAKEN BY THE FIRST APPELLATE AUTHORITY. FOR THE REASONS STATED S UPRA, INTERFERENCE WITH THE IMPUGNED ORDER OF THE TRIBUNA L IS NOT WARRANTED IN THIS CASE. NO SUBSTANTIAL QUESTIONS OF LAW MUCH LESS THE QUESTIONS OF LAW FRAMED BY THE APPELLANT WILL A RISE FOR CONSIDERATION OF THIS COURT. THE APPEAL IS DEVOID O F MERIT AND LIABLE TO BE DISMISSED. ACCORDINGLY, THE APPEAL IS DISMISSED. 7. SIMILARLY, IN THE CASE OF CIT V. SMT. LEENA RAM ACHANDRAN 7339 ITR 296, THE HONBLE KERALA HIGH COURT HAS HEL D AS UNDER: DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMEN T YEAR 2001-02, THE ASSESSEE PAID INTEREST AT 24 PER CENT. PER ANNUM ON FUNDS BORROWED FOR PURCHASE OF SHARES IN A COMPANY. HER CLAIM WAS THAT THE ACQUISITION OF SHARES WITH THE BORROWE D FUNDS WAS FOR THE PURPOSE OF CONTROLLING THE COMPANY AND SINC E THE BORROWED FUNDS WERE UTILISED FOR THE ACQUISITION OF SHARES OF THE COMPANY UNDER THE CONTROL OF THE ASSESSEE, THE UTIL ISATION OF THE BORROWED FUNDS WAS FOR BUSINESS PURPOSE ENTITLING T HE ASSESSEE TO DEDUCTION OF INTEREST UNDER SECTION 36(1)(III) O F THE INCOME-TAX ACT, 1961. THE ASSESSING OFFICER HELD THAT THE ASSE SSEE MADE INVESTMENTS BY UTILISING THE BORROWED FUNDS ILL THE FORM OF ITA NO. 543/MDS./2016 :- 10 - : ACQUISITION OF SHARES IN THE COMPANY AND THE ONLY BENEFIT THE ASSESSEE GOT WAS DIVIDEND INCOME OF RS. 3 LAKHS. SI NCE SECTION 14A OF THE ACT BARS ANY DEDUCTION PERTAINING TO ANY EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING ANY INCOME WHI CH DID NOT FORM PART OF THE TOTAL INCOME, THE ASSESSING OFFICE R DISALLOWED THE CLAIM TO DEDUCTION OF INTEREST. THE COMMISSIONE R (APPEALS) CONFIRMED THE ASSESSMENT. THE TRIBUNAL ALLOWED THE CLAIM BUT MADE A DISALLOWANCE OF RS. 2 LAKHS BEING THE INTERE ST STATED TO BE ATTRIBUTABLE TO THE DIVIDEND INCOME OF RS. 3 LAK HS EARNED BY THE ASSESSEE FROM THE LEASING COMPANY DURING THE PR EVIOUS YEAR. ON APPEAL: HELD, ALLOWING THE APPEAL, THAT ANY EXPENDITUR E INCURRED FOR EARNING ANY INCOME WHICH WAS NOT TAXABLE UNDER THE ACT WAS NOT AN ALLOWABLE EXPENDITURE. DIVIDEND INCOME WAS EXEMP T UNDER SECTION 10(33) OF THE ACT AND THE DIVIDEND EARNED B Y THE ASSESSEE ON THE SHARES ACQUIRED BY HER WITH THE BOR ROWED FUNDS DID NOT CONSTITUTE PART OF THE TOTAL INCOME IN THE HANDS OF THE ASSESSEE. THE REASONING GIVEN BY THE TRIBUNAL FOR D ISALLOWANCE OF RS. 2 LAKHS, I.E., BY APPLYING SECTION 14A, SQUA RELY APPLIED TO THE INTEREST PAID ON THE BORROWED FUNDS BECAUSE IT WAS ON RECORD THAT THE ENTIRE FUNDS BORROWED WERE UTILISED FOR TH E ACQUISITION OF SHARES BY THE ASSESSEE IN THE COMPANY. THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION OF INTEREST UNDER SECTION 36( 1)(III) OF THE ACT ON THE BORROWED FUNDS UTILISED FOR THE ACQUISITION OF SHARES ONLY IF SHARES WERE HELD AS STOCK-IN-TRADE AND THAT WOUL D ARISE ONLY IF THE ASSESSEE WAS ENGAGED IN TRADING IN SHARES. SO F AR AS THE ACQUISITION OF SHARES WAS IN THE FORM OF INVESTMENT AND THE ONLY BENEFIT THE ASSESSEE DERIVED WAS THE DIVIDEND INCOM E WHICH WAS NOT ASSESSABLE UNDER THE ACT, THE DISALLOWANCE UNDE R SECTION 14A WAS SQUARELY ATTRACTED AND THE ASSESSING OFFICER RI GHTLY DISALLOWED THE CLAIM. 6.6 IT IS PERTINENT TO NOTE THAT THE JUDGMENT RELIE D ON BY THE LD. AR IN THE CASE OF SIMPSON & CO. LTD. CITED SUPRA IS RELATING TO THE ASST. YEAR 2007-08 BEFORE THE INTRODUCTION OF RULE 8 D OF THE I.T. RULES, WHICH IS INTRODUCED W.E.F. 24.3.2008. HENCE, IT CA NNOT BE APPLIED TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. A CCORDINGLY, THIS GROUND OF APPEAL IS DISMISSED. 7. HOWEVER, THE A.R STRONGLY AGITATED THAT THE AB OVE CITED ORDER IS NOT REQUIRED TO BE FOLLOWED BY THIS BENCH FOR THIS ASSESSMENT YEAR. IN OUR OPINION, THE ARGUMENT OF ASSESSEE IS HAVING NO MERIT AND AS IT IS ADMITTED FACT THAT THE ASSESSEE HAS DIVERTED INTERE ST BEARING FUNDS TO ITA NO. 543/MDS./2016 :- 11 - : THE SUBSIDIARIES AND THE BENCH ASKED A SPECIFIC QUE STION WITH THE LD.A.R TO SHOW WHETHER THERE IS ANY CASE WHEREIN DE CIDED THE SIMILAR ISSUE IN FAVOUR OF ASSESSEE, WHEN THE ASSESSEE HAS DIVERTED INTEREST BEARING FUNDS TO THE SUBSIDIARIES WHILE INVOKING TH E PROVISIONS OF THE SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INC OME TAX RULES, 1962. FOR WHICH THE LD.A.R EXPRESSES HIS INABILITY. HENCE, IN OUR OPINION WHEN THE ASSESSEE DIVERTED THE INTEREST BEA RING FUNDS TO SUBSIDIARIES, AND THERE IS NO COMMERCIAL EXPEDIENCY , PROVISIONS OF THE SECTION 14A R.W.RULE 8D IS APPLICABLE. AS SUCH WE DO NOT FIND ANY INFIRMITY IN THE ORDERS OF LOWER AUTHORITIES. THE S AME IS CONFIRMED. THE GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS REJECTED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH MAY, 2016, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 20 TH MAY, 2016 K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 4. - 1 / CIT 2. / RESPONDENT 5. /23- 4 / DR 3. - 1-!' / CIT(A) 6. 3&-5 / GF