ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, Kota V. SUDHA HOSPITAL & MEDICAL RESEARCH CENTRE, Kota

ITA 671/JPR/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1977 (ITAT-JAIPUR)
• Duration Of Justice: 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 24-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: P C PARWAL CA DHK
• Keywords: Earning of tax free income
• Section: 14A; 10

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH HKKXPAN] YS[KK LNL; ,OA JH DQY HKKJR ] U;KF;D LNL; DS LE{K BEFORE: SHRI BHAGCHAND, AM & SHRI KUL BHARAT, JM VK;DJ VIHY LA-@ ITA NO. 671/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2014-15 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, KOTA CUKE VS. SUDHA HOSPITAL AND MEDICAL RESEARCH CENTRE PVT. LTD., 11-A, TALWANDI, KOTA. PAN NO.: AAGCS 2221 N VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI R.A. VERMA (ADDL.CIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C. PARWAL (CA) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 04/10/2017 MN?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 09/10/2017 VKNS'K@ ORDER PER: BHAGCHAND, A.M. THIS IS THE APPEAL FILED BY THE REVENUE EMANATES FR OM THE ORDER OF THE LD. CIT(A), KOTA DATED 27/06/2017 FOR THE A.Y. 2014-15, WHEREIN THE REVENUE HAS TAKEN SOLE EFFECTIVE GROUND OF APPEAL, WHICH IS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN: (I) DELETING THE ADDITION OF RS. 1,61,741/- MADE BY THE A.O. U/S 14A OF THE I.T. ACT, 1961 R.W.R. 8D OF THE I.T. RULES, 1962 AS AMENDED BY THE INCOME TAX (13 TH AMENDMENT) RULES, 2016 AND IN VIEW OF CBDT CIRCULA R NO. 05/2014. ITA 671/JP/2017 ACIT VS. SUDHA HOSPITAL AND MEDICAL RESEARCH CENTRE P LTD. 2 2. THE ONLY ISSUE INVOLVED IN THE APPEAL IS AGAINST DELETING THE ADDITION OF RS. 1,61,741/- MADE U/S 14A OF THE INCO ME TAX ACT, 1961 (IN SHORT THE ACT) READ WITH RULE 8D OF THE INCOME TAX RU LES, 1962 (IN SHORT THE RULES AND IN VIEW OF THE CBDT CIRCULAR NO. 05/201 4. 3. THE LD. CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE BY HOLDING AS UNDER:- I HAVE GONE THROUGH ASSESSEES SUBMISSION AND AOS FINDINGS. AS REGARDS GROUND OF APPEAL NO 1, IT IS NOTABLE THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPTED INCOME ON HIS INVESTMENTS MADE NOR HAS THE COMPANY RECEIVED ANY DIVIDEND. IN VIEW OF THE LATES T JUDICIAL OPINION IN THIS REGARD, THE A.OS WORKING OF DISALLOWANCE BASE D ON RULE 8D IS NOT JUSTIFIED. IN THE FOLLOWING CASES, THIS PROPOSITION IS MORE TH AN AMPLY CLARIFIED. HIGH COURT OF MADRAS IN REDINGTON (INDIA) LTD. V. A DDITIONAL COMMISSIONER OF INCOME-TAX, CO RANGE-V, CHENNAI 77 TAXMANN.COM 257 (MADRAS) HELD- SECTION 14A OF THE INCOME-TAX ACT, 1961, READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 - EXPENDITURE INCURRED IN RE LATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME (CONDITION PRECEDENT) - ASSESSMENT YEAR 2007- 08 - WHETHER PROVISION OF SECTION 14A IS RELATABLE TO EARNING OF ACTUAL INCOME AND NOT NOTIONAL OR ANTICIPATED INCOME, HENC E, WHERE THERE IS NO EXEMPT INCOME IN A YEAR, THERE CANNOT BE A DISALLOW ANCE OF EXPENDITURE IN RELATION TO AN ASSUMED INCOME - HELD, YES (RELEVANT EXTRACT) ..7. PER CONTRA, SRI. T. RAVIKUMAR APPEARING ON BEH ALF OF THE REVENUE DREW OUR ATTENTION TO THE MARGINAL NOTES OF S. 14A POINTING OUT THAT THE PROVISION WOULD APPLY NOT ONLY WHERE EXEMPTED INCOM E IS 'INCLUDED 1 IN THE TOTAL INCOME, BUT ALSO WHERE EXEMPT INCOME IS ' INCLUDABLE' IN TOTAL INCOME. ITA 671/JP/2017 ACIT VS. SUDHA HOSPITAL AND MEDICAL RESEARCH CENTRE P LTD. 3 8. HE RELIED UPON A CIRCULAR ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES IN CIRCULAR NO. 5 OF 2014 DATED 11.2.2014 TO THE EFFECT THAT S. 14A WAS INTENDED TO COVER EVEN THOSE SITUATIONS WHETHER THE RE IS A POSSIBILITY OF EXEMPT INCOME BEING EARNED IN FUTURE. THE CIRCULAR, AT PARAGRAPH 4, STATES THAT IT IS NOT NECESSARY FOR EXEMPT INCOME T O HAVE BEEN INCLUDED IN THE INCOME OF A PARTICULAR YEAR FOR THE DISALLOW ANCE TO BE TRIGGERED. ACCORDING TO THE LEARNED STANDING COUNSEL, THE PROV ISIONS OF S. 14A ARE MADE APPLICABLE, IN TERMS OF SUB-SECTION (1) THEREO F TO INCOME 'UNDER THE ACT' AND NOT 'OF THE YEAR' AND A DISALLOWANCE UNDER S. 14A R.W. RULE 8D CAN THUS BE EFFECTED EVEN IN A SITUATION WHERE A TA X PAYER HAS NOT EARNED ANY TAXABLE INCOME IN A PARTICULAR YEAR. 9. WE ARE UNABLE TO SUBSCRIBE TO THE AFORESAID VIE W. THE PROVISIONS OF SECTION 14A WERE INSERTED AS A RESPONSE TO THE JUDG MENTS OF THE SUPREME COURT IN CIT V. MAHARASHTRA SUGAR MILLS LTD . [1971] 82 ITR 452 AND RAJASTHAN STATE WARE HOUSING CORPN. V. CIT [200 0] 242 ITR 450/109 TAXMAN 145 IN TERMS OF WHICH, EXPENDITURE INCURRED BY AN ASSESSEE CARRYING ON A COMPOSITE BUSINESS GIVING RISE TO BOT H TAXABLE AS WELL AS NON-TAXABLE INCOME, WAS ALLOWABLE IN ENTIRETY WITHO UT APPORTIONMENT. IT WAS THUS THAT S. 14A WAS INSERTED PROVIDING THAT NO DEDUCTION SHALL BE ALLOWABLE IN RESPECT OF EXPENDITURE INCURRED IN REL ATION TO THE EARNING OF INCOME EXEMPT FROM TAXATION. AS OBSERVED BY THE SUP REME COURT IN THE JUDGMENT IN THE CASE OF CIT V. WATFORT SHARE & STOC K BROKERS (P.) LTD. [2010] 326 ITR 1/192 TAXMAN 211. ... THE MANDATE OF S. 14A IS CLEAR IT DESIRES TO CU RB THE PRACTICE TO CLAIM DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME AGAINST TAXABLE INCOME AND AT THE SAME TIME AVAIL O F THE TAX INCENTIVE BY WAY OF AN EXEMPTION OF EXEMPT INCOME W ITHOUT MAKING ANY APPORTIONMENT OF EXPENSES INCURRED IN RE LATION TO EXEMPT INCOME.' 10. THE PROVISION THUS IS CLEARLY RELATABLE TO THE EARNING OF ACTUAL INCOME AND NOT NOTIONAL OR ANTICIPATED INCOME. THE SUBMISS ION OF THE ITA 671/JP/2017 ACIT VS. SUDHA HOSPITAL AND MEDICAL RESEARCH CENTRE P LTD. 4 DEPARTMENT TO THE EFFECT THAT S. 14A WOULD BE ATTRA CTED EVEN TO EXEMPT INCOME 'INCLUDABLE' IN TOTAL INCOME WOULD ENTAIL TH E ASSESSMENT OF NOTIONAL INCOME, ASSUMED TO BE EXEMPT IN THE FUTURE , IN THE PRESENT ASSESSMENT YEAR. THE COMPUTATION OF TOTAL INCOME IN TERMS OF S. 5 OF THE ACT IS ON REAL INCOME AND THERE IS NO SANCTION IN L AW FOR THE ASSESSMENT OF ADMITTEDLY NOTIONAL INCOME, PARTICULARLY IN THE CONTEXT OF EFFECTING A DISALLOWANCE IN CONNECTION THEREWITH. 11. THE COMPUTATION OF DISALLOWANCE IN TERMS OF RU LE 8D IS BY WAY OF A DETERMINATION INVOLVING DIRECT AS WELL AS INDIRECT ATTRIBUTION. THUS, ACCEPTING THE SUBMISSION OF THE REVENUE WOULD RESUL T IN THE IMPOSITION OF AN ARTIFICIAL METHOD OF COMPUTATION ON NOTIONAL AND ASSUMED INCOME. WE BELIEVE THIS WOULD BE CARRYING THE ARTIFICE TOO FAR. HIGH COURT OF DELHI IN CHEMINVEST LTD. V. COMMISSIO NER OF INCOME- TAX-IV 61 TAXMANN.COM 118 (DELHI) HELD- SECTION 14A OF THE INCOME-TAX ACT , 1961 - EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME ( APPLICABILITY) - ASSESSMENT YEAR 2004- 05 - WHETHER SECTION 14A ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME WHICH IS NOT INCLUDIBLE IN TOTAL INCOME; HENCE, SECTION 14A WILL NOT APPLY WHERE NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING RELEVANT PREVIOUS YEA R - HELD, YES (RELEVANT EXTRACT) 15. TURNING TO THE CENTRAL QUESTION THAT ARISES FO R CONSIDERATION, THE COURT FINDS THAT THE COMPLETE ANSWER IS PROVIDED BY THE DECISION OF THIS COURT IN CIT V. HOLCIM INDIA (P.) LTD. [2015] 57 TA XMANN.COM 28. IN THAT CASE A SIMILAR QUESTION AROSE, VIZ., WHETHER THE IT AT WAS JUSTIFIED IN DELETING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT WHEN NO DIVIDEND INCOME HAD BEEN EARNED BY THE ASSESSEE IN THE RELEV ANT A Y? THE COURT REFERRED TO THE DECISION OF THIS COURT IN MAXOPP IN VESTMENT LTD'S, CASE (SUPRA) AND TO THE DECISION OF THE SPECIAL BENCH OF THE ITAT IN THIS VERY ITA 671/JP/2017 ACIT VS. SUDHA HOSPITAL AND MEDICAL RESEARCH CENTRE P LTD. 5 CASE I.E. CHEMINVEST LTD. V. ITO [2009] 121 ITD 318 . THE COURT ALSO REFERRED TO THREE DECISIONS OF DIFFERENT HIGH COURT S WHICH HAVE DECIDED THE ISSUE AGAINST REVENUE. THE FIRST WAS THE DECISI ON IN CIT V. LAKHANI MARKETING INC . [2014] 226 TAXMAN 45/49 TAXMANN.COM 257 OF THE HIGH COURT OF PUNJAB AND HARYANA WHICH IN TURN REFERRED TO TWO EARLIER DECISIONS OF THE SAME COURT IN CIT V. HERO CYCLES L TD. [2010] 323 ITR 518/189 TAXMAN 50 AND CIT V. WINSOME TEXTILE INDUST RIES LTD [2009] 319 ITR 204 THE SECOND WAS OF THE GUJARAT HIGH COURT IN CIT V. CORRTECH ENERGY (P.) LTD. [2014] 223 TAXMAN 130/45 TAXMANN.C OM 116 AND THE THIRD OF THE ALLAHABAD HIGH COURT IN CIT V. SHIVAM MOTORS (P.) LTD [2015] 230 TAXMAN 63/55 TAXMANN.COM 262. THESE THREE DECIS IONS REITERATED THE POSITION THAT WHEN AN ASSESSEE HAD NOT EARNED A NY TAXABLE INCOME IN THE RELEVANT A Y IN QUESTION 'CORRESPONDING EXPE NDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE.' 16. IN HOLCIM INDIA (P.) LTD'S, CASE (SUPRA), THE COURT FURTHER EXPLAINED AS UNDER: '15. INCOME EXEMPT UNDER SECTION 10 IN A PARTICULAR ASSESSMENT YEAR, MAY NOT HAVE BEEN EXEMPT EARLIER AND CAN BECO ME TAXABLE IN FUTURE YEARS. FURTHER, WHETHER INCOME EARNED IN A SUBSEQUENT YEAR WOULD OR WOULD NOT BE TAXABLE, MAY DEPEND UPON THE NATURE OF TRANSACTION ENTERED INTO IN THE SUBSEQUENT ASSES SMENT YEAR. FOR EXAMPLE, LONG TERM CAPITAL GAIN ON SALE OF SHAR ES IS PRESENTLY NOT TAXABLE WHERE SECURITY TRANSACTION TAX HAS BEEN PAID, BUT A PRIVATE SALE OF SHARES IN AN OFF MARKET TRANSACTION ATTRACTS CAPITAL GAINS TAX. IT IS AN UNDISPUTED POSITION THAT RESPON DENT ASSESSEE IS AN INVESTMENT COMPANY AND HAD INVESTED BY PURCHASIN G A SUBSTANTIAL NUMBER OF SHARES AND THEREBY SECURING R IGHT TO MANAGEMENT. POSSIBILITY OF SALE OF SHARES BY PRIVAT E PLACEMENT ETC. CANNOT BE RULED OUT AND IS NOT AN IMPROBABILIT Y. DIVIDEND MAY OR MAY NOT BE DECLARED. DIVIDEND IS DECLARED BY THE COMPANY AND STRICTLY IN LEGAL SENSE, A SHAREHOLDER HAS NO C ONTROL AND CANNOT INSIST ON PAYMENT OF DIVIDEND. WHEN DECLARED , IT IS SUBJECTED TO DIVIDEND DISTRIBUTION TAX.' ITA 671/JP/2017 ACIT VS. SUDHA HOSPITAL AND MEDICAL RESEARCH CENTRE P LTD. 6 17. ON FACTS, IT WAS NOTICED IN HOLCIM INDIA (P.) LTD'S, CASE (SUPRA) THAT THE REVENUE HAD ACCEPTED THE GENUINENESS OF THE EXP ENDITURE INCURRED BY THE ASSESSEE IN THAT CASE AND THAT EXPENDITURE H AD BEEN INCURRED TO PROTECT INVESTMENT MADE. 18. IN THE PRESENT CASE, THE FACTUAL POSITION THAT HAS NOT BEEN DISPUTED IS THAT THE INVESTMENT BY THE ASSESSEE IN THE SHARES O F MAX INDIA LTD. IS IN THE FORM OF A STRATEGIC INVESTMENT. SINCE THE BUSIN ESS OF THE ASSESSEE IS OF HOLDING INVESTMENTS, THE INTEREST EXPENDITURE MU ST BE HELD TO HAVE BEEN INCURRED FOR HOLDING AND MAINTAINING SUCH INVE STMENT. THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE IS IN RELATION TO SUCH INVESTMENTS WHICH GIVES RISE TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. 19. IN LIGHT OF THE CLEAR EXPOSITION OF THE LAW IN HOLCIM INDIA (P.) LTD'S, CASE (SUPRA) AND IN VIEW OF THE ADMITTED FACTUAL PO SITION IN THIS CASE THAT THE ASSESSEE HAS MADE STRATEGIC INVESTMENT IN SHARE S OF MAX INDIA LTD.; THAT NO EXEMPTED INCOME WAS EARNED BY THE ASSESSEE IN THE RELEVANT AY AND SINCE THE GENUINENESS OF THE EXPENDITURE INCURR ED BY THE ASSESSEE IS NOT IN DOUBT, THE QUESTION FRAMED IS REQUIRED TO BE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 20. SINCE THE SPECIAL BENCH HAS RELIED UPON THE DE CISION OF THE SUPREME COURT IN ' RAJENDRA PRASAD MOODY'S CASE (SUPRA), IT IS CONSIDERED NECESSARY TO DISCUSS THE TRUE PURPORT OF THE SAID D ECISION. IT IS NOTICED TO BEGIN WITH THAT THE ISSUE BEFORE THE SUPREME COURT IN THE SAID CASE WAS WHETHER THE EXPENDITURE UNDER SECTION 57(III) OF TH E ACT COULD BE ALLOWED AS A DEDUCTION AGAINST DIVIDEND INCOME ASSESSABLE U NDER THE HEAD 'INCOME FROM OTHER SOURCES'. UNDER SECTION 57(III) OF THE ACT DEDUCTION IS ALLOWED IN RESPECT OF ANY EXPENDITURE LAID OUT OR E XPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SU CH INCOME. THE SUPREME COURT EXPLAINED THAT THE EXPRESSION 'INCURR ED FOR MAKING OR EARNING SUCH INCOME', DID NOT MEAN THAT ANY INCOME SHOULD IN FACT HAVE ITA 671/JP/2017 ACIT VS. SUDHA HOSPITAL AND MEDICAL RESEARCH CENTRE P LTD. 7 BEEN EARNED AS A CONDITION PRECEDENT FOR CLAIMING T HE EXPENDITURE. THE COURT EXPLAINED: 'WHAT S. 57(III) REQUIRES IS THAT THE EXPENDITURE M UST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. IT IS THE PURPOSE OF THE EXPENDITUR E THAT IS RELEVANT IN DETERMINING THE APPLICABILITY OF S. 57( III) AND THAT PURPOSE MUST BE MAKING OR EARNING OF INCOME, S. 57( III) DOES NOT REQUIRE THAT THIS PURPOSE MUST BE FULFILLED IN ORDE R TO QUALIFY THE EXPENDITURE FOR DEDUCTION. IT DOES NOT SAY THAT THE EXPENDITURE SHALL BE DEDUCTIBLE ONLY IF ANY INCOME IS MADE OR E ARNED. THERE IS IN FACT NOTHING IN THE LANGUAGE OF S. 57(III) TO SU GGEST THAT THE PURPOSE FOR WHICH THE EXPENDITURE IS MADE SHOULD FR UCTIFY INTO ANY BENEFIT BY WAY OF RETURN IN THE SHAPE OF INCOME . THE PLAIN NATURAL CONSTRUCTION OF THE LANGUAGE OF S. 57(III) IRRESISTIBLY LEADS TO THE CONCLUSION THAT TO BRING A CASE WITHIN THE S ECTION, IT IS NOT NECESSARY THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF THE EXPENDITURE.' 21. THERE IS MERIT IN THE CONTENTION OF MR. VOHRA THAT THE DECISION OF THE SUPREME COURT IN RAJENDRA PRASAD MOODY'S CASE (SUPR A) WAS RENDERED IN THE CONTEXT OF ALLOWABILITY OF DEDUCTION UNDER SECT ION 57(III) OF THE ACT, WHERE THE EXPRESSION USED IS FOR THE PURPOSE OF MAK ING OR EARNING SUCH INCOME'. SECTION 14A OF THE ACT ON THE OTHER HAND C ONTAINS THE EXPRESSION 'IN RELATION TO INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME.' THE DECISION IN RAJENDRA PRASAD MOODY'S CA SE (SUPRA) CANNOT BE USED IN THE REVERSE TO CONTEND THAT EVEN IF NO INCO ME HAS BEEN RECEIVED, THE EXPENDITURE INCURRED CAN BE DISALLOWED UNDER SE CTION 14A OF THE ACT 22. IN THE IMPUGNED ORDER, THE ITAT HAS REFERRED TO THE DECISION IN MAXOPP INVESTMENT LTD'S, CASE (SUPRA) AND REMANDED THE MATTER TO THE AO FOR RECONSIDERATION OF THE ISSUE AFRESH THE ISSU E IN MAXOPP INVESTMENT LTD'S, CASE (SUPRA) WAS WHETHER THE EXPE NDITURE (INCLUDING INTEREST ON BORROWED FUNDS) IN RESPECT OF INVESTMEN T IN SHARES OF OPERATING COMPANIES FOR ACQUIRING AND RETAINING A C ONTROLLING INTEREST THEREIN WAS DISALLOWABLE UNDER SECTION 14A OF THE A CT. IN THE SAID CASE ITA 671/JP/2017 ACIT VS. SUDHA HOSPITAL AND MEDICAL RESEARCH CENTRE P LTD. 8 ADMITTEDLY THERE WAS DIVIDEND EARNED ON SUCH INVEST MENT. IN OTHER WORDS, IT WAS NOT A CASE, AS THE PRESENT, WHERE NO EXEMPT, INCOME WAS EARNED IN THE YEAR IN QUESTION. CONSEQUENTLY, THE S AID DECISION WAS NOT RELEVANT AND DID NOT APPLY IN THE CONTEXT OF THE IS SUE PROJECTED IN THE PRESENT CASE. 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREINB EFORE THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT THE EXP RESSION 'DOES NOT FORM PART OF THE TOTAL INCOME' IN SECTION 14A OF TH E 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 P URPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID IN COME. IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS R ECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. THE ITAT DELHI BENCH 'A' IN MS. AMITA VERMA V. ASSI STANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-13, NEW DELHI 71 TAXM ANN.COM 91 (DELHI - TRIB.) SECTION 14A OF THE INCOME-TAX ACT, 1961 - EXPENDITU RE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME ( DIVIDEND) - ASSESSMENT YEARS 2006-07 TO 2010-11 - ASSESSEE CONTENDED THAT DURING YEAR IT HAD NO EXEMPT INCOME AND, THEREFORE, NO DISALLOWANCE UN DER SECTION 14A COULD BE MADE - ASSESSING OFFICER RELYING UPON DECI SION OF TRIBUNAL RENDERED IN CASE OF CHEMINVEST LTD. V. ITO (2009J 1 21 ITD 318 (DELHI) (SB) REJECTED ASSESSEE'S CONTENTION - WHETHER SINCE ABOV E DECISION OF TRIBUNAL HAD BEEN REVERSED BY JURISDICTIONAL HIGH COURT IN C ASE OF CHEMINVEST LTD. V. CIT [2015] 378 ITR 33/234 TAXMAN 761/61 TAXMANN. COM 118 (DELHI), IT WOULD HAVE TO BE HELD THAT NO DISALLOWANCE UNDER SE CTION 14A CAN BE MADE, WHERE THERE IS NO EXEMPT INCOME - HELD, YES THE ITAT CHANDIGARH BENCH IN ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-2, LUDHIANA V. PARDEEP KUMAR AGGARWAL 70 TAX MANN.COM 154 (CHANDIGARH - TRIB.) ITA 671/JP/2017 ACIT VS. SUDHA HOSPITAL AND MEDICAL RESEARCH CENTRE P LTD. 9 SECTION 14A OF THE INCOME-TAX ACT, 1961 - EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME ( CONDITION PRECEDENT) - ASSESSMENT YEAR 2011-12 - WHETHER NO DISALLOWANCE C AN BE MADE UNDER SECTION 14A WHERE NO EXEMPT INCOME HAD BEEN EARNED BY ASSESSEE DURING YEAR - HELD, YES (RELEVANT EXTRACT) WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH T HE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. ON PERUSAL OF THE ORD ER OF THE LEARNED CIT (APPEALS), WE DO NOT FIND ANY INFIRMITY IN THE SAME AS THE PROPOSITION LAID DOWN BY THE PUNJAB & HARYANA H IGH COURT IN THE CASE OF LAKHAM MARKETING INC (SUPRA) IS SQUAREL Y APPLICABLE TO THE FACTS OF THE PRESENT CASE, AS NO EXEMPT INCO ME HAS BEEN EARNED BY THE ASSESSEE DURING THE YEAR. AS REGARDS THE CONTENTION OF THE TEAMED D.R. THAT THE SAID JUDGMEN T WAS DELIVERED, BEFORE THE INSERTION OF RULE 8D, WE ARE OF THE VIEW THAT THE RULE 8D IS JUST A MECHANISM PROVIDED TO COMPUTE THE DISALLOWANCE UNDER SECTION 14A OF THE ACT. THE PROV ISIONS OF THE RULES CAN NEVER PREVAILS OVER THE PROVISIONS OF THE ACT. THE JUDGMENT HAS BEEN GIVEN IN THE CONTEXT OF THE PROVI SIONS OF THE SECTION. IF THE SITUATION DEMANDS FOR NO DISALLOWAN CE, THE COMPUTATIONAL PROVISION DOES NOT COME INTO THE PICT URE AT ALL. IN VIEW OF THIS, WE UPHOLD THE ACTION OF THE LEARNED C IT (APPEALS) IN DELETING THE DISALLOWANCE. THE GROUNDS RAISED BY TH E REVENUE ARE DISMISSED. BASED ON THE ABOVE LEGAL PRECEDENTS RELEVANT TO THE FACTS OF THIS CASE WHERE NO EXEMPT INCOME HAS BEEN EARNED BY THE APPEL LANT TO WARRANT DISALLOWANCE AS PER THE PROVISIONS LAID DOWN U/S 14 A RWR 8D, THE ADDITION OF RS. 1,61,741/- IS ACCORDINGLY DIRECTED TO BE DELETED. 4. NOW THE REVENUE IS IN APPEAL BEFORE THE ITAT. THE LD DR HAS RELIED ON THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, THE LD AR OF THE ASSESSEE HAS RELIED ON THE ORDER OF THE LD. CIT(A). ITA 671/JP/2017 ACIT VS. SUDHA HOSPITAL AND MEDICAL RESEARCH CENTRE P LTD. 10 5. AFTER HEARING BOTH THE SIDES ON THIS ISSUE, WE FI ND THAT THE REVENUE WAS NOT ABLE TO CONTROVERT THE FINDINGS AS RECORDED BY THE LD. CIT(A) IN HIS ORDER ON FACTS AS WELL AS ON LAW. THEREFORE, WE FI ND NO REASON TO INTERFERE IN THE ORDER OF THE LD. CIT(A) AND THE SAM E STANDS UPHOLD. 6. IN THE RESULT, APPEAL OF THE REVENUE STANDS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 09/10/2017. SD/- SD/- DQY HKKJR HKKXPAN (KUL BHARAT) (BHAGCHAND) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 09 TH OCTOBER, 2017 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- THE ACIT, CIRCLE-1, KOTA 2. IZR;FKHZ @ THE RESPONDENT- M SUDHA HOSPITAL AND MEDICAL RESEARC H CENTRE PVT. LTD., KOTA. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 671/JP/2017) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR