Kumar Urban Development Pvt. Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 66/PUN/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9284 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 27-06-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 15-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUKESH JHA
• Keywords: Earning of tax free income; Question of law
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 66/PUN/2015 / ASSESSMENT YEAR : 20 08 - 09 KUMAR URBAN DEVELOPMENT PVT. LIMITED, 10 TH FLOOR, KUMAR BUSINESS CENTER (KBC), OPP. BUND GARDEN ROAD, PUNE 411001 PAN : AAACK7659N ....... / APPELLANT / V S. DY. COMMISSIONER OF INCOME TAX, CIRCLE 11(1), PUNE / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : S HRI MUKESH JHA / DATE OF HEARING : 2 7 - 06 - 2017 / DATE OF PRONOUNCEMENT : 28 - 0 6 - 2017 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - I, PUNE DATED 28 - 03 - 2014 FOR THE ASSESSMENT YEAR 2008 - 09. 2 ITA NO . 66/PUN/2015, A.Y. 2008 - 09 2. THE ASSESSEE IN APPEAL HAS RAISED EIGHT GROUNDS AND HAS ALSO FILED ADDITIONAL GROUNDS OF APPEAL. 3. SHRI NIKHI L PATHAK APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSING GROUND NOS. 2 TO 8 RAISED IN THE MAIN GROUNDS OF APPEAL. THUS, THE ONLY GROUND FOR ADJUDICATION IN THE APPEAL IS GROUND NO. 1. GROUND NOS. 1.1 TO 1.3 ARE IN SUPPORT OF THE MAI N ISSUE RAISE IN GROUND NO. 1. IN THE ADDITIONAL GROUND S OF APPEAL MAIN ISSUE IS IN GROUND NO. 1. THE ADDITIONAL GROUND NOS. 2 AND 3 ARE ARGUMENTATIVE AND ARE IN SUPPORT OF GROUND NO. 1 OF ADDITIONAL GROUND. THUS, THE GROUND FOR ADJUDICATION BEFORE THE TRIBUNAL ARE AS UNDER : ON FACTS AND IN LAW, 1] THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF 14A AMOUNTING TO RS.2,66,79,558/ - MADE BY TH E LEARNED A.O. WITHOUT APPRECIATING THAT THE DISALLOWANCE MADE BY THE LEARNED A.O. WAS NOT JUSTIFIED AT ALL. 1.1] THE LEARNED CIT(A) ERRED IN HOLDING THAT THE SHARE APPLICATION MONEY AMOUNTING TO RS.24,73,97,031/ - PAID BY THE APPELLANT COMPANY WAS TO BE CONSIDERED AS PART OF TAX FREE INVESTMENTS FOR DETERMINING THE DISALLOWANCE U/S. 14A R.W.R. 8D. 1.2] WITHOUT PREJUDICE, THE APPELLANT COMPANY SUBMITS THAT IF A T ALL, THE SHARE APPLICATION MONEY PAID BY THE APPELLANT COMPANY IS TO BE CONSIDERED AS PART OF THE TAX FREE INVESTMENTS, IN THAT CASE, ONLY THE AMOUNT IN RESPECT OF WHICH SHARES ARE FINALLY ALLOTTED TO THE APPELLANT COMPANY SHOULD BE CONSIDERED AND THOSE AMOUNTS WHICH ARE ULTIMATELY REFUNDED BACK TO THE APPELLANT COMPANY SHOULD NOT BE CONSIDERED AS PART OF TAX FREE INVESTMENTS. 1.3] WITHOUT PREJUDICE, THE APPELLANT COMPANY FURTHER SUBMITS THAT THE SHARE APPLICATION MONEY WHICH IS PAID OUT OF INTEREST BE ARING FUNDS SHOULD ONLY BE CONSIDERED FOR THE PURPOSES OF MAKING THE 3 ITA NO . 66/PUN/2015, A.Y. 2008 - 09 DISALLOWANCE U/S. 14A AND NOT THE ENTIRE SHARE APPLICATION MONEY PAID BY THE APPELLANT COMPANY. ADDITIONAL GROUNDS OF APPEAL 1] THE ASSESSEE SUBMITS THAT THE INVESTMENTS ON WHICH NO TAX FREE INCOME HAS BEEN EARNED DURING THE YEAR SHOULD BE EXCLUDED FOR THE PURPOSES OF COMPUTING THE DISALLOWANCE U/S. 14A R.W.R. 8D. 2] THE ASSESSEE SUBMITS THAT THE DISALLOWANCE OFFERED BY IT OF INTEREST EXPENDITURE OF RS.4,09,61,696/ - U/S. 14A R.W.R. 8D IN THE RETURN OF INCOME IS NOT WARRANTED AND THE SAME SHOULD BE DELETED WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE. 3] THE ASSESSEE SUBMITS THAT THE DISALLOWANCE OFFERED BY IT ON ACCOUNT OF INDIRECT EXPENDITURE OF RS.27,13,384/ - U/S. 14A R.W.R. 8D IN THE RETURN OF INCOME IS NOT WARRANTED AND THE SAME SHOULD BE DELETED WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSED. 3.1 THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY IS A PARTNER IN A PARTNERSHIP FIRM AND HAS RECEIVED RS.13,61,041/ - AS ITS SHARE OF INCOME FROM PARTNERSHIP FIRM. THE ASSESSEE SUO MOTO MADE DISALLOWANCE OF RS.4,33,75,431/ - U/S. 14A R.W. RULE 8D O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ). THE ASSESSEE HAD MADE INVESTMENTS IN THE GROUP CONCERNS FROM WHICH NO DIVIDEND INCOME WAS EARNED. THE LD. AR REFERRED TO PAGE 42 OF THE PAPER BOOK TO SHOW THE LIST OF GROUP CONCERNS IN WHICH INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE . THE LD. AR SUBMITTED THAT DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER MADE ADDITIONAL DISALLOWANCE OF RS.2,66,79,558/ - U/S. 14A IN RESPECT OF SHARE APPLICATION MONEY PENDING ALLOTMENT. THE AMOUNT LYING IN THE SHARE APPLICAT ION MONEY IS NOT PART OF THE INVESTMENTS TILL THE TIME SHARES ARE ALLOTTED TO THE ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSING OFFICER ERRED IN MAKING DISALLOWANCE 4 ITA NO . 66/PUN/2015, A.Y. 2008 - 09 IN RESPECT OF INVESTMENTS MADE BY THE ASSESSING OFFICER IN GROUP CONCERNS FROM WHERE THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME. THE LD. AR CONTENDED THAT SIMILAR DISALLOWANCES U/S. 14A WERE MADE IN THE ASSESSMENT YEAR 2009 - 10. THE ASSESSEE CARRIED THE ISSUE IN APPEAL TO THE TRIBUNAL IN ITA NO. 1628/PUN/2013. THE CO - ORDINATE BENCH OF THE TRIBUNAL VIDE ORDER DATED 02 - 02 - 2017 DELETED THE ADDITION MADE U/S. 14A R.W.R. 8D ON BOTH THESE COUNTS. THE LD. AR PLACED ON RECORD A COPY OF THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 1628/PUN/2013 (SUPRA). 4. ON THE OTHER H AND SHRI MUKESH JHA REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING THE ADDITIONS U/S. 14A R.W.R. 8D OF THE ACT. THE LD. DR TO STRENGTHEN HIS SUBMISSIONS PLACED RELIANCE ON THE DECISION O F HONBLE KARNATAKA HIGH COURT IN THE CASE OF PRADEEP KAR VS. ASSISTANT COMMISSIONER OF INCOME TAX REPORTED AS 319 ITR 416 . THE LD. DR TO FURTHER FORTIFY HIS SUBMISSIONS ALSO DRAWS SUPPORT FROM CBDT CIRCULAR NO. 5 DATED 11 - 02 - 2014. THE LD. DR SUBMITTED T HAT THE CIRCULAR CLARIFIES THAT RULE 8D READ WITH SECTION 14A OF THE ACT PROVIDES FOR DISALLOWANCE OF THE EXPENDITURE EVEN WHERE TAXPAYER IN A PARTICULAR YEAR HAS NOT EARNED ANY EXEMPT INCOME. 5. W E HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW . THE SOLITARY ISSUE RAISED IN THE APPEAL IS WITH REGARD TO ADDITIONAL DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S. 14A R.W.R. 8D. UNDISPUTEDLY, THE ASSESSEE HAS SUO MOTO MADE DISALLO WANCE OF RS.4,33,75,431/ - UNDER THE PROVISIONS 5 ITA NO . 66/PUN/2015, A.Y. 2008 - 09 OF SECTION 14A R.W.R. 8D. THE ASSESSING OFFICER MADE FURTHER DISALLOWANCE UNDER RULE 8D R.W.S. 14A IN RESPECT OF INVESTMENTS MADE BY ASSESSEE IN SHARE APPLICATION MONEY PENDING ALLOTMENT AND THE INVESTMENTS M ADE IN SHARE OF SISTER CONCERNS ON WHICH NO DIVIDEND INCOME HAS BEEN EARNED BY THE ASSESSEE. 6. IN GROUND NO. 1 OF THE APPEAL THE ASSESSEE HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING ADDITIONAL DISALLOWANCE OF RS.2,66,79,558/ - U/S. 14A QUA INVESTMENT WHERE THE AMOUNT IS STILL LYING IN SHARE APPLICATION MONEY PENDING ALLOTMENT OF SHARES. WE FIND THAT SIMILAR DISALLOWANCE WAS MADE BY THE AUTHORITIES BELOW IN ASSESSMENT YEAR 2009 - 10 AS WELL. THE ASSESSEE CARRIED THE ISSUE IN APPEAL BEFORE THE TRIBUNAL IN ITA NO. 1628/PUN/2013 (SUPRA). THE TRIBUNAL DELETED THE ADDITION IN RESPECT OF SHARE APPLICATION MONEY PENDING ALLOTMENT BY OBSERVING AS UNDER : 30. SO FAR AS INCLUSION OF SHARE APPLICATION MONEY IS CONCERNED, I T IS AN ADMITTED FACT THAT NO SHARES ARE ALLOTTED AS ON 31 - 03 - 2009. WE FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE QUESTION OF EARNING ANY EXEMPT INCOME SIMPLY DOES NOT ARISE ON SUCH SHARE APPLICATION MONEY PENDING ALLOTMENT. WE FIND THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF RAINY INVESTMENTS PVT. LTD. (SUPRA) HAS HELD THAT SHARE APPLICATION MONEY CANNOT BE REGARDED AS AN INVESTMENT IN SHARES OR AN ASSET YIELDING TAX FREE INCOME AND NEITHER IS IT CAPABLE OF YIELDING ANY T AX FREE INCOME. THE RELEVANT OBSERVATION OF THE TRIBUNAL FROM PARA 4 READS AS UNDER : 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 CLAIME D TAX - EXEMPT, AS DIVIDEND INCOME IN THE INSTANT CASE. IN FACT, THERE IS NO DOUBT WITH REGARD TO THIS; THE ASSESSEE ITSELF CONCEDING TO THE SAME BEFORE US AND, BESIDES, BEING ENGAGED IN THE BUSINESS OF MAKING INVESTMENTS AND EARNING DIVIDEND INCOME AS AN I NTEGRAL PART THEREOF. THE ONLY OPTION, THEREFORE, IF IT CONSIDERS THE APPLICATION OF THE PROVISION AS 6 ITA NO . 66/PUN/2015, A.Y. 2008 - 09 OPERATING 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 ARGUMENT 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 SAME CANNOT BE REGARDED AS AN INVESTMENT IN SHARES, OR AN ASSET (OR ASSET CLASS) YIELDING TAX - FREE INCOM E, AND NEITHER IS IT CAPABLE OF YIELDING ANY TAX - FREE INCOME. THE SAME WOULD, THEREFORE, IN OUR CLEAR VIEW, HAVE TO BE EXCLUDED IN WORKING OUT THE DISALLOWANCE U/R. 8D. FURTHER, THOUGH THE REVENUE HAS NOT DISPUTED THE SUMS REFLECTED AS 'SHARE APPLICATION M ONEY' IN THE ASSESSEE'S BALANCE - SHEET, THE AO, TO WHOM THE MATTER IS TO BE IN ANY CASE RESTORED FOR WORKING OUT THE DISALLOWANCE BY EXCLUDING THE SAME, SHALL, IN THE SET ASIDE PROCEEDINGS, ALSO EXAMINE THE VERACITY OF THE ASSESSEE'S CLAIM WITH REGARD TO TH E SAME BEING 'SHARE APPLICATION 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 LD. AR, COULD POSSIBLY BE IN THE ABSENCE OF ANY D ETAILS 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 COMPANIES, SUBJECT TO STRINGENT PROCEDURE, AS IS GENERALLY IN PLACE FOR SUCH FUNDS. WE M AY FURTHER CLARIFY THAT THE EXCLUSION OF 'SHARE APPLICATION MONEY', AS OPINED BY US, IS NOT IN THE LEAST FOR THE REASON THAT IT DID NOT YIELD ANY TAX - FREE INCOME FOR 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 ALLOTMENT, 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 CA PITAL OF THE ISSUING COMPANY ARISE ON THE PAYMENT OF THE SHARE APPLICATION MONEY, IRRESPECTIVE OF THE TIME PERIOD FOR WHICH IT MAY OUTSTAND. THE SAME MAY AT BEST YIELD INTEREST INCOME (FOR WHICH A SPECIAL PROCEDURE THOUGH HAS TO BE FOLLOWED BY THE COMPANY CONCERNED), WHICH IS IN ANY CASE TAXABLE, SO THAT THERE IS NO SCOPE FOR APPLICATION OF SEC. 14A THEREON. 31. WE FIND THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF LGW LTD. (SUPRA) HAS OBSERVED AS UNDER : 6. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, WHO RELIED ON THE ORDER OF AO. THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THE DECISION OF ITAT, CHENNAI BENCH IN THE CASE OF MSA SECURITIES SERVICES PVT. LTD. VS ACIT IN ITA NOS.1523 - 1524/MDS/2012 DATED 17.10.2012 AND IN THE CASE OF RAINY INVESTMENTS P.LTD VS ACIT IN ITA NO.5491/MUM/2011 DATED 16.01.2013. THE HONOURABLE BENCHES HAVE TAKEN THE VIEW THAT THE SHARE 7 ITA NO . 66/PUN/2015, A.Y. 2008 - 09 APPLICATION MONEY GETS CONVERTED INTO SHARES ONLY ON ALLOTMENT BY THE COMPANY. TILL SUCH TIME THE SHARE APPLICATION MONEY IS CONVE RTED INTO SHARES, THE APPLICANT DOES NOT HAVE ANY RIGHTS OF A SHAREHOLDER/MEMBER. THE SHARE APPLICANT SEE WAS NOT ENTITLED TO ANY DIVIDEND. THEREFORE SHARE APPLICATION MONEY CANNOT BE CONSIDERED AS INVESTMENT WHICH IS LIKELY TO EARN TAX FREE DIVIDEND INCOM E. HENCE, THERE CAN BE NO DISALLOWANCE U/S 14A OF THE ACT. 7. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. WE ARE OF THE VIEW THAT ORDER OF CIT(A) ON THIS ISSUE HAS TO BE UPHELD. AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE , SHARE APPLICATION MONEY IS ONLY IN THE NATURE OF AN OFFER TO BUY SHARES MADE BY THE ASSESSEE. IT IS ONLY AFTER THE OFFER IS ACCEPTED BY THE COMPANY RESULTING IN A CONCLUDED CONTRACT, THE ASSESSEE BECOMES THE SHAREHOLDER IN A COMPANY. TILL THIS TIME THE A SSESSEE BECOMES A SHAREHOLDER, THE ASSESSEE CANNOT HAVE ANY RIGHTS TO CLAIM ANY DIVIDEND THAT MAY BE DECLARED BY THE COMPANY. IN SUCH CIRCUMSTANCES WE ARE OF THE VIEW THAT WHILE WORKING OUT THE AVERAGE VALUE OF THE INVESTMENTS U/R 8D(2)(III) OF THE RULES T HE SHARE APPLICATION MONEY SHOULD NOT BE INCLUDED. WE HOLD ACCORDINGLY AND DISMISS GROUND NO.(I) RAISED BY THE REVENUE. 32. RESPECTFULLY FOLLOWING THE DECISIONS OF COORDINATE BENCHES OF THE TRIBUNAL CITED (SUPRA) WE HOLD THAT SHARE APPLICATION MONEY PEN DING ALLOTMENT SHOULD BE EXCLUDED FROM THE INVESTMENTS FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/S.14A. 7. IN ADDITIONAL GROUND OF APPEAL THE ASSESSEE HAS ASSAILED DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S. 14A R.W.R. 8D IN RESPECT OF INVESTMENTS MADE IN GROUP CONCERNS ON WHICH NO DIVIDEND INCOME IS RECEIVED BY THE ASSESSEE. THIS ISSUE HAS ALSO BEEN DEALT WITH BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009 - 10. THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER : 26. WE FIND MERIT IN THE ABOVE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE. IT IS AN ADMITTED FACT THAT NO DIVIDEND HAS BEEN RECEIVED BY THE ASSESSEE FROM THE SHARES INVESTED IN THE GROUP COMPANIES WHICH HAS BEEN CONSIDERED BY THE ASSESSING OFFICER FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/S.14A. FROM PAGE 46 OF THE PAPER BOOK WE FIND WHATEVER 8 ITA NO . 66/PUN/2015, A.Y. 2008 - 09 DIVIDEND THE ASSESSEE HAS RECEIVED IS ON ACCOUNT OF DIVIDEND FROM MUTUAL FUNDS. WE FIND THE PUNE BENCH OF THE TRIBUN AL IN THE CASE OF M/S. KOLTE PATIL DEVELOPERS LTD. (SUPRA) WHILE ADJUDICATING THE ISSUE OF DISALLOWANCE U/S.14A ON ACCOUNT OF INVESTMENT IN SHARES ON WHICH NO DIVIDEND HAS BEEN RECEIVED HAS HELD THAT NO DISALLOWANCE U/S.14A CAN BE MADE IN A CASE WHERE THE ASSESSEE HAS NOT RECEIVED ANY DIVIDEND OUT OF THE SHARES HELD AS INVESTMENT. THE RELEVANT OBSERVATION OF THE TRIBUNAL AT PARA 25 OF THE ORDER READS AS UNDER : 25. WE FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT WHEN NO DIVIDEND IS RECEIVED ON INVESTMENT IN SHARES WORTH RS.117,85,71,206/ - IN SUBSIDIARY/ASSOCIATE COMPANIES NO DISALLOWANCE U/S.14A IS CALLED FOR. WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF GOYAL ISHWARCHAND KISHORILAL (SUPRA) HAS HELD THAT WHEN ASSESSEE HAS NOT RECEIVED ANY DIVIDEND OUT OF THE SHARES HELD AS INVESTMENT, THEN NO DISALLOWANCE U/S.14A CAN BE MADE. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS.HOLSIM INDIA PVT. LTD. VIDE ITA NO. 486 AND 299/2014 AND VARIOUS OT HER DECISIONS THEREFORE, WE FIND MERIT IN THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT DISALLOWANCE U/S.14A IS NOT WARRANTED ON ACCOUNT OF INVESTMENT OF RS.117,85,71,206/ - IN SHARES IN SUBSIDIARY/ASSOCIATE COMPANIES. 27. WE FIND BEFORE THE HONB LE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. THE FOLLOWING SUBSTANTIAL QUESTION OF LAW WAS RAISED : WHETHER DISALLOWANCE U/S.14A OF THE ACT CAN BE MADE IN A YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE. 28. THE HONBLE HIGH COURT IN ITA NO.749/2014 ORDER DATED 02 - 09 - 2015 REVERSED THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. CHEMINVEST LIMITED VS. CIT REPORTED IN (2009) 317 ITR (AT) 86 (DELHI) (SB) AND OBSERVED AS UNDER : 19. IN LIGHT OF THE CLEAR EXPOSITION OF THE LAW IN HOLCIM INDIA (P) LTD. (SUPRA) AND IN VIEW OF THE ADMITTED FACTUAL POSITION IN THIS CASE THAT THE ASSESSEE HAS MADE STRATEGIC INVESTMENT IN SHARES OF MAX INDIA LTD., THAT NO EXEMPTED INCOME WAS EARNED BY THE ASSE SSEE IN THE RELEVANT AY AND SINCE THE GENUINENESS OF THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT IN DOUBT, THE QUESTION FRAMED IS REQUIRED TO BE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. . . . . . . . . . . . . . . . . . . . .. . . 9 ITA NO . 66/PUN/2015, A.Y. 2008 - 09 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREINBEFORE THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT THE EXPRESSION DOES NOT FORM PART OF THE TOTAL INCOME IN SECTION 14 A OF THE ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. 29. SINCE IN THE INSTANT CASE THE ASSESSEE HAS NOT RECEIVED ANY DIVIDEND ON THE INVESTMENT MADE IN SHARES OF GROUP COMPANIES, THEREFORE, THE INVESTMENT MADE IN THE GROUP COMPANIES SHOULD BE EXCLUDED FROM THE INVESTMENTS FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/S.14A R.W. RULE 8D. 8. THE LD. DR HAS NOT BEEN ABLE TO SHOW ANY MATERIAL DIFFERENCE IN THE FACTS AND CIRCUMSTANCES IN THE ASSESSMENT YEAR UNDER APPEAL VIS - - VIS ASSESSMENT YEAR 2009 - 10 , WHEREIN THESE ISSUES HAVE B EEN CONSIDERED AND ADJUDICATED BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. F OLLOWING THE DECISION OF CO - ORDINATE BENCH OF THE TRIBUNAL, WE ALLOW GROUND NO. 1 OF THE MAIN GROUNDS OF APPEAL AND THE ADDITIONAL GROUND NOS. 1 TO 3 RAISE D BY THE ASSESSEE. 9. WE HAVE ALSO CONSIDERED THE JUDGMENT IN THE CASE OF PRADEEP KAR VS. ASSISTANT COMMISSIONER OF INCOME TAX (SUPRA). WE FIND THAT THE FACTS IN THE SAID CASE ARE ENTIRELY DIFFERENT. THE ISSUE BEFORE THE HONBLE HIGH COURT IN SAID CASE WAS WITH RESPECT TO DIS ALLOWANCE U/S. 14A ON INVESTMENT MADE IN SHARES BY USING BORROWED FUNDS. IN THE BACKDROP OF ABOVE FACTS THE HONBLE COURT HELD; U/S. 14A, EXPENDITURE RELATING TO EXEMPT INCOME IS NOT ALLOWABLE. IN OUR CONSIDERED VIEW, THE ABOVE JUDGMENT DOES NOT SUPPORT THE CASE OF DEPARTMENT. 10 ITA NO . 66/PUN/2015, A.Y. 2008 - 09 10. THE LD. AR OF THE ASSESSEE HAS STATED AT THE BAR THAT HE IS NOT PRESSING GROUND NOS. 2 TO 8. ACCORDINGLY, THE SAME ARE DISMISSED AS NOT PRESSED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN THE AFORESA ID TERMS. ORDER PRONOUNCED ON WEDNESDAY, THE 28 TH DAY OF JUNE, 201 7 . SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 28 TH JUNE, 2017 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - I, PUNE 4. / THE CIT - I, PUNE 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / / // TRUE COPY// / BY ORDER, / ASSISTANT REGISTRAR , , / ITAT, PUNE