Hindustan Vacuum Glass Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 5805/DEL/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7458 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 10-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 16-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIKRAM SAHAI
• Assessee Lawyers: R K KAPOOR
• Keywords: Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI G.D. AGRAWAL: VICE PRESIDENT AND SHRI H.S. SIDHU : JUDICIAL MEMBER ITA NO. 5805/DEL/2012 A.Y. 2009-10 HINDUSTAN VACUUM GLASS PVT. LTD. VS. DCIT, CIRCLE 1 0(1), DIAMOND PRESS BUILDING, NEW DELHI. 8E, RANI JHANSI ROAD, JHANDEWALAN EXTENSION, NEW DELHI-110055 PAN: AAACH 0068 G AND ITA NO. 6144/DEL/2012 A.Y. 2009-10 DCIT, CIRCLE 10(1), VS. HINDUSTAN VACUUM GLASS PVT . LTD. NEW DELHI. DIAMOND PRESS BUILDING, 8E, RANI JHANSI ROAD, JHANDEWALAN EXTENSION, NEW DELHI-110055 ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI PRADEEP DINODIA CA & SHRI R.K. KAPOOR CA DEPARTMENT BY : SHRI VIKRAM SAHAI SR. DR DATE OF HEARING : 16-12-2014 DATE OF ORDER : 19-12-2014. O R D E R PER G.D. AGRAWAL, V.P:- THE ASSESSEE AS WELL AS THE REVENUE ARE IN CROSS AP PEALS AGAINST THE ORDER DATED 4-9-2012 PASSED BY THE LD. CIT(APPEALS )-XIII, NEW DELHI, IN APPEAL NO. 219/11-12 RELATING TO A.Y. 2009-10. BOTH THE APPEALS WERE HEARD 2 5805 & 6144/DEL/12 M/S HINDUSTAN VACUUM GLASS P. LTD. TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. GROUND NO. 1 RAISED IN THE REVENUES APPEAL READ S AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE OF INTEREST MADE U/S 36(1)(III) FROM RS. 26,78,282/- IN RESPECT OF INTEREST FREE LOANS/ ADVANCES GIVEN TO ITS SISTER CONCERNS A ND OTHER TO RS. 1,36,234/- ONLY BY SIMPLY RELYING UPON THE SUBM ISSIONS OF THE ASSESSEE. 3. THE OTHER GROUNDS IN THE REVENUES APPEALS ARE O NLY ARGUMENTS IN SUPPORT OF GROUND NO. 1. 4. GROUND NO. 1 OF THE ASSESSEES APPEAL IS OF GENE RAL NATURE AND NEEDS NO ADJUDICATION. 5. GROUND NO. 2 OF THE ASSESSEES APPEAL READS AS U NDER: THAT O N THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN S USTAINING THE DISALLOWANCE OF RS. 1,36,234/- OUT OF THE TOTAL DISALLOWANCE OF RS. 26,78,282/- MADE BY THE ASSESSING OFFICER OU T OF INTEREST PAID AS RELATABLE TO INTEREST FREE LOAN ADVANCED TO M/S HIVAC WARES PVT. LTD. IN F.Y. 2007-08 OUT OF OWN FUNDS AV AILABLE WITH THE APPELLANT. HE OUGHT TO HAVE HELD THAT NO AMOUNT OF INTEREST PA ID IS RELATABLE TO THE ABOVE LOAN SINCE THE SAME WERE ADV ANCED OUT OF THE OWN FUNDS AVAILABLE WITH THE APPELLANT IN THAT YEAR, AS HAS BEEN HELD BY HIS PREDECESSOR IN A.Y. 2008-09 AND AC CEPTED BY THE DEPARTMENT. 3 5805 & 6144/DEL/12 M/S HINDUSTAN VACUUM GLASS P. LTD. 6. SINCE GROUND NO. 1 OF THE REVENUES APPEAL AND G ROUND NO. 2 OF THE ASSESSEES APPEAL ARE INTER-RELATED, THEY ARE BEING ADJUDICATED UPON TOGETHER. 7. THE FACTS OF THE CASE ARE THAT DURING THE ASSES SMENT PROCEEDINGS THE AO NOTICED THAT THERE WAS INTEREST FREE ADVANCE AS PER ASSESSEES BALANCE- SHEET AT RS. 1,17,38,186/-. HE ALSO NOTICED THAT TH E ASSESSEE HAD PAID INTEREST AMOUNTING TO RS. 33,61,815/-. HE, AFTER DISCUSSING SEVERAL DECISIONS, MADE PROPORTIONATE DISALLOWANCE OF INTEREST AS UNDER: INTEREST PAID AS PER BOOKS X INTEREST FREE LOAN S AND ADVANCES TOTAL FUNDS AS PER BOOKS I.E. 33,67,815 X 1,17,38,186 1,47,60,218 =RS. 26,78,282/- HENCE, AN AMOUNT OF RS. 26,78,282/- IS DISALLOWED U NDER SECTION 36(1)(III) OF THE I.T. ACT, 1961. SINCE THE ASSESSE E FURNISHED INACCURATE PARTICULARS OF INCOME AND HEREBY CONCEAL ED THE INCOME, PENALTY PROCEEDINGS U/S 271(1)(C) IS INITIATE D SEP ARATELY. 8. ON APPEAL, THE CIT(A) RESTRICTED THE DISALLOWANC E OF INTEREST TO RS. 1,36,234/- I.E. ONLY IN RESPECT OF INTEREST FREE AD VANCE GIVEN TO M/S HIVAC WARES PVT. LTD. THE PROPORTIONATE WORKING MADE BY T HE CIT(A) READS AS UNDER: INTEREST PAID AS PER BOOKS X INTEREST FREE ADVANCES GIVEN TO HIVAC WARES LTD . TOTAL FUNDS AS PER BOOKS I.E. RS. 3361815 X 2500000 RS. 6,17,61,000/- (IN THE ASSESSMENT ORDER THE ASSESSING OFFICER HAD TAKEN TOTAL FUNDS AS PER BOOKS AT RS. 1,47,60,218/- , HOWEVER THE TOTAL FUNDS AS PER BOOKS ARE AT RS. 6,17,61000/- THEREFORE, THE SAID FIGURE HAS BEEN TAKEN HERE WHILE WORKING OUT DISALLOWANCE) 4 5805 & 6144/DEL/12 M/S HINDUSTAN VACUUM GLASS P. LTD. 9. THE REVENUE, AGGRIEVED WITH THE RELIEF ALLOWED B Y THE CIT(A), IS IN APPEAL BEFORE US, WHILE THE ASSESSEE, AGGRIEVED WIT H THE DISALLOWANCE SUSTAINED, IS IN APPEAL BEFORE US. 10. IT WAS POINTED OUT BY THE LD. COUNSEL THAT IN T HE IMMEDIATELY PRECEDING YEAR SIMILAR DISALLOWANCE WAS MADE BY THE AO, BECAU SE THE TOTAL INTEREST FREE ADVANCE IN THAT YEAR WAS RS. 125.36 LACS MAINL Y TO HIVAC / STARLITE AND MMPL. THE CIT(A) RECORDED THE FINDING THAT ADVANCE TO HIVAC WAS FROM ASSESSEES OWN FUNDS AND ADVANCE TO STARLITE AND MM PL WAS IN RESPECT OF COMMERCIAL TRANSACTIONS BETWEEN THEM AND ASSESSEE. HE POINTED OUT THAT IN AY 2008-09, THE ABOVE FINDING OF THE CIT(A) WAS ACC EPTED BY THE REVENUE. THOUGH THE REVENUE HAD FILED THE APPEAL AGAINST THE ORDER OF THE CIT(A) IN A.Y. 2008-09, BUT THIS GROUND WAS NOT TAKEN. HE, TH EREFORE, SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION ALSO THE ADVANC E IS TO THESE PARTIES ONLY AND IN FACT IN THE CASE OF HIVAC THERE IS NO ADVANC E DURING THE YEAR UNDER CONSIDERATION, BUT, ON THE OTHER HAND, THE OUTSTAND ING BALANCE WAS RECEIVED IN THE YEAR UNDER APPEAL. HE FURTHER SUBMITTED THA T THE REVENUE, HAVING ACCEPTED THE ORDER OF THE CIT(A) IN THE IMMEDIATELY PRECEDING YEAR, CANNOT AGITATE THE SAME FINDING IN THE SUBSEQUENT YEAR. I N SUPPORT OF THIS CONTENTION, HE RELIED UPON THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. M/S EXCEL INDUSTRIES LTD. VIDE CIVIL APPEA L NO. 125 OF 2013. 11. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE AO AND STATED THAT THE AO HAS EXAMINED THE FACTS OF THE CA SE AND HAS ALSO DISCUSSED VARIOUS JUDICIAL PRONOUNCEMENTS AND THEREAFTER HAS ARRIVED AT THE CORRECT 5 5805 & 6144/DEL/12 M/S HINDUSTAN VACUUM GLASS P. LTD. CONCLUSION. HE, THEREFORE SUBMITTED THAT THE DISALL OWANCE MADE BY THE AO U/S 36(1)(III) SHOULD BE SUSTAINED IN TOTO. 12. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE SIDES AND PERUSED THE MATERIAL PLACED ON RECORD. WE FIND THAT SIMILAR ISSUE CAME UP BEFORE THE CIT(A) IN THE IMMEDIATELY PRECEDING YEAR I.E. FOR A.Y. 2008-09, WHEREIN THE AO HAD DISALLOWED THE INTEREST AMOUNTIN G TO RS. 16,75,588/- IN RESPECT OF INTEREST FREE ADVANCE OF RS. 125.36 LACS . THE CIT(A) HAS DELETED THE ADDITION WITH THE FOLLOWING FINDINGS: I HAVE GONE THROUGH THE ABOVE SUBMISSIONS OF THE AP PELLANT AND PERUSED THE ORDER OF THE AO AND HAVE ALSO CONSI DERED THE FACTS AND THE EVIDENCES PLACED ON RECORDS BY THE AP PELLANT AND THE CASE LAWS RELIED UPON BOTH BY THE APPELLANT AS WELL AS BY THE AO. I FIND FORCE IN THE CONTENTION OF THE APPELLANT THA T THE SUM OF RS. 25 LACS ADVANCED TO HIVAC DURING THE YEAR WERE OUT OF THE APPELLANTS OWN FUND AS THE PERUSAL OF THE ANNUAL (A CCOUNTS REVEAL THAT THERE WERE NO LOANS PAYABLE OUTSTANDING AS ON THE DATE OF THE BALANCE SHEET EXCEPT THE LOAN PAYABLE T O CENTRAL BANK OF INDIA, FARIDABAD WITH WHOM THE APPELLANT HA D ARRIVED AT ONE TIME SETTLEMENT FOR SETTLING THE ACCOUNT. FU RTHER IT IS FOUND THAT THE ONLY INCREASE IN LOANS AND ADVANCES PAYABLE AS ON THE DATE OF BALANCE SHEET WAS ALSO ON ACCOUNT OF THE AFORE MENTIONED SETTLEMENT AND NO FRESH CASH LOANS HAS BE EN RAISED BY THE APPELLANT DURING THE YEAR UNDER CONSIDERATIO N. HENCE IN THESE EVENT, I AM OF THE CONSIDERED VIEW THAT NO DI SALLOWANCE OF INTEREST IS CALLED FOR IN RESPECT OF LOAN GIVEN TO HIVAC WARES LTD. WITH REGARD TO AMOUNTS OF RS. 125.36 LACS DUE FROM HIVAC/ STARLITE/ MMPL THE DOCUMENTS PLACED ON RECORD PROVE THAT 6 5805 & 6144/DEL/12 M/S HINDUSTAN VACUUM GLASS P. LTD. THESE WERE IN THE NATURE OF TRADE DUES RECEIVABLE F ROM THEM IN RESPECT OF COMMERCIAL TRANSACTIONS THE APPELLANT HA D WITH THEM IN EARLIER YEARS AND NOT ON ACCOUNT OF ANY LOANS AN D ADVANCES RECEIVABLE FROM THEM AS CATEGORIZED IN THE ANNUAL A CCOUNTS OF THE APPELLANT. FOR THESE AMOUNTS, THE APPELLANT HAS SUBMITTED THAT NO INTEREST WAS STIPULATED TO BE CHARGED AND A LSO THAT THESE AMOUNTS HAVE BEEN RECEIVED BY THE APPELLANT IN SUBS EQUENT YEARS. IT IS ALSO WORTH MENTIONING HERE THAT IN EAR LIER ASSESSMENTS YEARS NO ADDITION/ DISALLOWANCE ON ACCO UNT OF ABOVE OUTSTANDING AMOUNTS HAVE BEEN MADE. ON GOING THROUGH THE COPIES OF ACCOUNTS OF RESPECTI VE 3 PARTIES, I FIND THAT THE APPELLANT WAS HAVING THE COMMERCIAL DEALINGS IN EARLIER YEARS ACCORDINGLY THEY CANNOT BE TREATED AS LOANS AND ADVANCES. HENCE KEEPING IN VIEW THE FACTS OF THE CA SE AND ALSO THAT THERE IS NO CHANGE IN FACTS AND CIRCUMSTANCES OF THE CASE IN THE YEAR UNDER CONSIDERATION AS COMPARED TO EARLIER YEAR) I HOLD THAT THE AO WAS NOT CORRECT IN DISALLOWING THE SUM OF RS. 16,75,588 ON ACCOUNT OF INTEREST. 13. THOUGH, THE REVENUE HAD FILED APPEAL AGAINST TH E SAID ORDER OF THE CIT(A), HOWEVER, THE ONLY GROUND RAISED IN THE REVE NUES APPEAL WAS AGAINST THE DELETION OF DISALLOWANCE U/S 14A. THEREFORE, T HE FINDING OF THE CIT(A) WITH REGARD TO THE DELETION OF DISALLOWANCE U/S 36( 1)(III) WAS ACCEPTED BY THE REVENUE IN THAT YEAR. DURING THE YEAR UNDER CONSID ERATION THE CIT(A) HAS GIVEN COMPLETE BREAK UP AND DETAILS OF THE INTERES T FREE ADVANCE AMOUNTING TO RS. 1,17,38,186/-, WHICH READS AS UNDER: - INTER-CORPORATE LOANS 1,60,385 - RECEIVABLE FROM EXCISE DEPARTMENT 1,260 - ADVANCES RECOVERABLE IN CASH OR IN KIND 1,15,76,54 1 1,17,38,186 7 5805 & 6144/DEL/12 M/S HINDUSTAN VACUUM GLASS P. LTD. THE DETAILS OF THESE WERE AS UNDER, WHICH WERE FILE D BEFORE THE ASSESSING OFFICER VIDE LETTER DATED NOVEMBER 9,2011:- INTER-CORPORATE LOANS: NAME OF PARTY OP. BAL. GIVEN DURING THE YEAR RECD. BACK DURING THE YEAR RATE OF INTT. INTT. FOR THE YEAR TDS CL. BAL. DIVINE INVESTMENTS PVT. LTD. 519010 0 519010 12% 13973 2878 11095 GENTECH CHEMICALS PVT. LTD. 518510 0 518510 12% 13973 2878 11095 MERIDIAN MERIDIAN PVT. LTD. 207664 0 207664 12% 16241 3346 12895 QUICK LITHOGRAPHERS PVT. LTD. 517010 0 517010 12% 24526 5052 19474 BANTAM ENTERPRISES PVT. LTD. 821503 200000 1021503 12& 37546 7734 29812 STARLITE SYNTHETICS PVT. LTD. 312652 0 300000 12% 24362 5020 31994 SUPER WARES PVT. LTD. 518510 0 502500 12% 35277 7267 44020 HIVAC WARES PVT. LTD. 250000 0 0 2500000 0 TOTAL 591485 9 160385 RECEIVABLE FROM EXCISE DEPARTMENT: 1260 - ADVANCES TO EMPLOYEES 10919 - PREPAID EXPENSES 7771 - ADVANCES FOR SUPPLIES 3927923 - VAT RECEIVABLES 341066 - ADVANCE TO WORKERS 27538 - ADVANCE WITH ESI DEPTT. 734418 - CLAIMS/ EXPENSES RECEIVABLES 2710769 - IMPORT & EXPORT LICENCE FEE 150000 - MERIDIAN MARKETING PVT. LTD. 778787 - STARLITE SYNTHETICS PVT. LTD. 2887350 11576541 14. FROM THE ABOVE IT IS EVIDENT THAT INTER CORPORA TE LOAN IN THE CASE OF M/S HIVAC WARES PVT. LTD. WAS THE OPENING BALANCE, WHICH WAS PAID BY 8 5805 & 6144/DEL/12 M/S HINDUSTAN VACUUM GLASS P. LTD. THEM DURING THE YEAR UNDER CONSIDERATION. THERE WAS NO CLOSING BALANCE AT THE END OF THE YEAR AND NO AMOUNT WAS RECEIVABLE F ROM THEM. THE CIT(A) SUSTAINED THE DISALLOWANCE IN RESPECT OF ADVANCES M ADE TO M/S HIVAC WARES PVT. LTD. HOWEVER, WE FIND THAT THE CIT(A) IN AY 20 08-09 HAS RECORDED THE FINDING THAT THE INTEREST FREE ADVANCE TO M/S HIVAC WARES PVT. LTD. WAS OUT OF APPELLANTS OWN FUND. THIS FINDING OF THE CIT(A ) WAS ACCEPTED BY THE REVENUE. DURING THE YEAR UNDER CONSIDERATION NO NEW ADVANCE WAS GIVEN TO M/S HIVAC WARES PVT. LTD. IN VIEW OF ABOVE, IN OUR OPINION, THE CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF INTE REST IN RESPECT OF ADVANCE GIVEN TO M/S HIVAC WARES PVT. LTD. 15. WITH REGARD TO OTHER ADVANCES, THE CIT(A) IN TH E YEAR UNDER CONSIDERATION RECORDED SIMILAR FINDING THAT ALL OTH ER ADVANCES WERE FOR THE PURPOSE OF BUSINESS. SIMILAR FINDING WAS RECORDED B Y THE CIT(A) IN THE IMMEDIATELY PRECEDING YEAR, WHICH WAS ALSO ACCEPTED BY THE REVENUE. IN VIEW OF ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE FINDING OF CIT(A) WITH REGARD TO ADVANCE TO OTHER PARTIES, NAMELY, STARLIT E AND MMPL, WHICH IS SIMILAR TO THE FINDING RECORDED BY THE CIT(A) IN TH E IMMEDIATELY PRECEDING YEAR, WHICH WAS ACCEPTED BY THE REVENUE. THE HONBL E APEX COURT IN THE CASE OF M/S EXCEL INDUSTRIES LTD. (SUPRA) HAS OBSE RVED AS UNDER: ++ SECONDLY, AS NOTED BY THE TRIBUNAL, A CONSIS TENT VIEW HAS BEEN TAKEN IN FAVOUR OF THE ASSESSEE ON THE QUE STIONS RAISED, STARTING WITH THE ASSESSMENT YEAR 1992-93, THAT THE BENEFITS UNDER THE ADVANCE LICENCES OR UNDER THE DU TY ENTITLEMENT PASS BOOK DO NOT REPRESENT THE REAL INC OME OF THE ASSESSEE. CONSEQUENTLY, THERE IS NO REASON FOR US T O TAKE A 9 5805 & 6144/DEL/12 M/S HINDUSTAN VACUUM GLASS P. LTD. DIFFERENT VIEW UNLESS THERE ARE VERY CONVINCING REA SONS, NONE OF WHICH HAVE BEEN POINTED OUT BY THE LEARNED COUNSEL FOR THE REVENUE. ++ IT APPEARS FROM THE RECORD THAT IN SEVERAL ASSESSMENT YEARS, THE REVENUE ACCEPTED THE ORDER OF THE TRIBUN AL IN FAVOUR OF THE ASSESSEE AND DID NOT PURSUE THE MATTER ANY F URTHER BUT IN RESPECT OF SOME ASSESSMENT YEARS THE MATTER WAS TAK EN UP IN APPEAL BEFORE THE BOMBAY HIGH COURT BUT WITHOUT ANY SUCCESS. THAT BEING SO, THE REVENUE CANNOT BE ALLOWED TO FLI P-FLOP ON THE ISSUE AND IT OUGHT LET THE MATTER REST RATHER THAN SPEND THE TAX PAYERS MONEY IN PURSUING LITIGATION FOR THE SAKE O F IT. 16. IN VIEW OF THE ABOVE OBSERVATION OF THE HONBLE APEX COURT, WE HOLD THAT THE REVENUE WAS NOT JUSTIFIED IN AGITATING TH E REDUCTION IN THE DISALLOWANCE OF INTEREST IN THE YEAR UNDER CONSIDER ATION ON THE SAME FACTS, WHICH WAS ACCEPTED BY THEM IN THE IMMEDIATELY PRECE DING YEAR. IN VIEW OF ABOVE, GROUND NO. 1 RAISED BY REVENUE IN ITS APPEAL IS REJECTED, WHILE GROUND NO. 2 RAISED BY THE ASSESSEE IN ITS APPEAL IS ALLOW ED. 17. GROUND NO. 3, IN ASSESSEES APPEAL, READS AS U NDER: 3.0 THAT O N THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER HOLDI NG THAT THE NEW UNIT OF THE APPELLANT COMMENCED PRODUCED IN DEC EMBER 2008 AS AGAINST SEPTEMBER 2008 AND THEREBY DISALLOW ING 50% OF THE DEPRECIATION CLAIMED ON BUILDING AND PLANT & MACHINERY. 18. AT THE TIME OF HEARING BEFORE US THIS GROUND OF APPEAL WAS NOT PRESSED BY THE LD. COUNSEL. ACCORDINGLY, THE SAME IS REJECT ED. 10 5805 & 6144/DEL/12 M/S HINDUSTAN VACUUM GLASS P. LTD. 19. GROUND NO. 4 OF THE ASSESSEES APPEAL IS AGAINS T THE SUSTENANCE OF DISALLOWANCE OF RS. 6,80,602/- U/S 14A. 20. AT THE TIME OF HEARING BEFORE US, IT WAS CONTEN DED BY THE LD. COUNSEL THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESS EE HAS NOT RECEIVED ANY DIVIDEND I.E. INTEREST FREE INCOME AND, THEREFORE, NO DISALLOWANCE U/S 14A IS CALLED FOR. IN SUPPORT OF THIS CONTENTION, HE RELI ED UPON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF C IT VS. HOLCIM INDIA LTD. (ITA NO. 486 & 299/2014, WHEREIN THE HONBLE JURISD ICTIONAL HIGH COURT FOLLOWED THE DECISIONS OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. HERO CYCLES LTD. 323 ITR 518; GUJARAT HI GH COURT IN THE CASE OF CIT VS. CORRTECH ENERGY (P) LTD. 223 TAXMANN 130 (G UJ.); AND ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. M/S SHIVAM MOTORS (P) LTD. (ITA NO. 88 OF 2014). IN ALL THE ABOVE DECISIONS, A VIEW HAS BE EN TAKEN THAT NO DISALLOWANCE U/S 14A CAN BE MADE UNLESS THE ASSESSE E HAS EARNED DIVIDEND INCOME. 21. THE LD. DR, ON THE OTHER HAND, STATED THAT NONE OF THE ABOVE DECISIONS WERE AVAILABLE AT THE TIME WHEN THE AO PASSED THE O RDER. HE ALSO STATED THAT WHETHER ANY EXEMPT INCOME IS EARNED BY THE ASSESSEE OR NOT IS ALSO NOT ON RECORD, BECAUSE NO SUCH CLAIM WAS MADE BY THE ASSES SEE BEFORE THE AO. HE, THEREFORE, CONTENDED THAT EITHER THE ORDER OF THE A UTHORITIES BELOW SHOULD BE SUSTAINED OR THE MATTER MAY BE SENT BACK TO THE FIL E OF AO FOR RE-ADJUDICATION IN THE LIGHT OF ABOVE DECISIONS OF HONBLE HIGH COU RTS. 11 5805 & 6144/DEL/12 M/S HINDUSTAN VACUUM GLASS P. LTD. 22. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT HAS CONSIDERED THE ISSUE OF DISALLOWANCE U/S 14A IN THE CASE OF HOLCIM INDIA LTD. (SUPRA) AND THEIR LORDSHIPS EXPRESSED THEIR CONCURRENCE TO THE DECISIONS OF HONBLE PUNJAB & H ARYANA HIGH COURT; GUJARAT HIGH COURT; AND ALLAHABAD HIGH COURT, WHERE IN A VIEW HAS BEEN TAKEN THAT IF NO EXEMPT INCOME IS EARNED BY THE AS SESSEE, NO DISALLOWANCE U/S 14A CAN BE MADE. THE RELEVANT OBSERVATION OF TH EIR LORDSHIPS OF JURISDICTIONAL HIGH COURT READS AS UNDER: 14. ON THE ISSUE WHETHER THE RESPONDENT-ASSESSEE CO ULD HAVE EARNED DIVIDEND INCOME AND EVEN IF NO DIVIDEND INCOME WAS EARNED, YET SECTION 14A CAN BE INVOKED AND DISALLOWANCE OF EXPE NDITURE CAN BE MADE, THERE ARE THREE DECISIONS OF THE DIFFERENT HI GH COURTS DIRECTLY ON THE ISSUE AND AGAINST THE APPELLANT-REVENUE. NO CONTRARY DECISION OF A HIGH COURT HAS BEEN SHOWN TO US. THE PUNJAB A ND HARYANA HIGH COURT IN COMMISSIONER OF INCOME TAX, FARIDABAD VS. M/S. LAKHANI MARKETING 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 H OLD THAT SECTION 14A CANNOT BE INVOKED WHEN NO EXEMPT INCOME WAS EAR NED. THE SECOND DECISION IS OF THE GUJARAT HIGH COURT IN COM MISSIONER OF INCOME TAX-I VS. CORRTECH ENERGY (P.) LTD. [2014] 2 23 TAXMANN 130 (GUJ.). THE THIRD DECISION IS OF THE ALLAHABAD HIGH COURT IN INCOME TAX APPEAL NO. 88 OF 2014, COMMISSIONER OF I NCOME TAX (II) KANPUR, VS. M/S. SHIVAM MOTORS (P) LTD. DECIDE D ON 05.05.2014. IN THE SAID DECISION IT HAS BEEN HELD: AS REGARDS THE SECOND QUESTION, SECTION 14A OF T HE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THE CHAPTER, NO DEDUCTION SHALL BE 12 5805 & 6144/DEL/12 M/S HINDUSTAN VACUUM GLASS P. LTD. 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 AC T, 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 O F 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 QUESTIO N OF LAW. HENCE, THE DELETION OF THE DISALLOWANCE OF RS.2,03,752/- MADE BY THE ASSESSING OFFICER WAS IN ORDER . 15. INCOME EXEMPT UNDER SECTION 10 IN A PARTICULAR ASSESSMENT YEAR, MAY NOT HAVE BEEN EXEMPT EARLIER AND CAN BECOME TAX ABLE IN FUTURE YEARS. FURTHER, WHETHER INCOME EARNED IN A SUBSEQU ENT YEAR WOULD OR WOULD NOT BE TAXABLE, MAY DEPEND UPON THE NATURE OF TRANSACTION ENTERED INTO IN THE SUBSEQUENT ASSESSMENT YEAR. F OR EXAMPLE, LONG TERM CAPITAL GAIN ON SALE OF SHARES IS PRESENTLY NO T TAXABLE WHERE SECURITY TRANSACTION TAX HAS BEEN PAID, BUT A PRIVA TE SALE OF SHARES IN AN OFF MARKET TRANSACTION ATTRACTS CAPITAL GAINS TA X. IT IS AN UNDISPUTED POSITION THAT RESPONDENT ASSESSEE IS AN INVESTMENT COMPANY AND HAD INVESTED BY PURCHASING A SUBSTANTIA L NUMBER OF SHARES AND THEREBY SECURING RIGHT TO MANAGEMENT. P OSSIBILITY OF SALE OF SHARES BY PRIVATE PLACEMENT ETC. CANNOT BE RULED OUT AND IS NOT AN IMPROBABILITY. DIVIDEND MAY OR MAY NOT BE DECLARED . DIVIDEND IS DECLARED BY THE COMPANY AND STRICTLY IN LEGAL SENSE , A SHAREHOLDER HAS NO CONTROL AND CANNOT INSIST ON PAYMENT OF DIVI DEND. WHEN DECLARED, IT IS SUBJECTED TO DIVIDEND DISTRIBUTION TAX. 23. HOWEVER, THERE IS NO FINDING BY THE LOWER AUTHO RITIES WHETHER DURING THE YEAR UNDER CONSIDERATION, THERE WAS ANY EXEMPT INCOME OR NOT,. IN VIEW OF ABOVE, WE DEEM IT PROPER TO SET ASIDE THE ORDER OF THE AUTHORITIES BELOW ON 13 5805 & 6144/DEL/12 M/S HINDUSTAN VACUUM GLASS P. LTD. THIS POINT AND RESTORE THE MATTER BACK TO THE FILE OF AO. WE DIRECT THE AO TO VERIFY WHETHER DURING THE YEAR UNDER CONSIDERATION, ASSESSEE RECEIVED ANY EXEMPT INCOME AND IF NO EXEMPT INCOME IS EARNED THE N FOLLOWING THE ABOVE DECISION OF HONBLE JURISDICTIONAL HIGH COURT, NO D ISALLOWANCE U/S 14A WOULD BE MADE. 24. IN THE RESULT, REVENUES APPEAL IS DISMISSED, W HILE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 19-12-2014. SD/- SD/- ( H.S. SIDHU ) ( G.D. AGRAWAL ) JUDICIAL MEMBER VICE PRESIDENT DATED: 19-12-2014. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR