LAKHANI SHOEE CO. PVT. LTD, V. ACIT, Alwar

ITA 854/JPR/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 5579 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 28-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S.L. CHANDEL
• Assessee Lawyers: S.C. VASUDEVA C.A
• Keywords: Earning of tax free income; Rule 8D
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 14A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS [KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NO. 854/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13. M/S LAKHANI SHOE CO. PVT. LTD. PLOT NO. 130, SECTOR-24, FARIDABAD 121005 CUKE VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAACL 2991 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI S.C. VASUDEVA (C.A) JKTLO DH VKSJ LS@ REVENUE BY : SHRI S.L. CHANDEL (ADDL.CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 25.08.2017. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 18/09/2017. VKNS'K@ ORDER PER SHRI KUL BHARAT, JM. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LD. CIT (A)-22, ALWAR DATED 15.07.2016 PERTAINING TO ASSESSMENT YEA R 2012-13. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- 1. THAT THE LD. CIT(A) WHILE SUSTAINING THE ADDITI ON OF RS. 8,91,810/- OUT OF THE ADDITION OF RS. 9,05,772/- AS MADE BY THE LD . ASSESSING OFFICER, UNDER SECTION 14A OF THE ACT READ WITH RULE 8D, HAS FAILED TO CONSIDER THE FACT THAT NO SATISFACTION HAS BEEN RECORDED BY THE LD. ASSESSING OFFICER FOR MAKING THE AFORESAID DISALLOWANCE. 2. THAT IN THIS CONNECTION, THE LD. CIT(A) HAS NOT CONSIDERED THE FACT THAT SINCE NO EXEMPT INCOME HAS BEEN EARNED BY THE APPEL LANT, DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D IS NOT WARRANTED. 3. (A) THAT IN THIS CONNECTIONS, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE AFORESAID ADDITION U/S 14A OF THE ACT READ WITH RULE 8D, WITHOUT GIVING CREDENCE TO THE FACT THAT I NVESTMENT OF RS. 2 ITA NO. 854/JP/2016. M/S LAKHANI SHOE CO. PVT. LTD., FARIDABAD. 2,26,75,000/- MADE IN LAKHANI FOOTWEAR PVT. LTD., W AS AS A RESULT OF THE FAMILY SETTLEMENT/ARRANGEMENT PURSUANT TO THE O RDER OF THE COMPANY LAW BOARD (CLB) DATED 22.05.2008 FOR WHICH THERE WAS NO OUTFLOW OF FUNDS AS WELL AS FACT THAT SUCH SETTLEME NT/ ARRANGEMENT TOOK PLACE IN THE EARLIER YEARS BY VIRTUE OF THE SA ID ORDER. (B) THAT FURTHER IN THIS CONNECTION THE LD. CIT(A) HAS MISINTERPRETED THE PROVISIONS OF LAW INASMUCH AS, HE HAS HIMSELF S TATED IN HIS ORDER THAT THERE HAS BEEN A QUID-PRO-QUO TO SETTLE THE FA MILY DISPUTE FOR WHICH THE PAYMENT W3AS NT MADE IN CASH BUT WOULD HA VE BEEN MADE IN KIND. ACCORDINGLY, THERE BEING NO OUTFLOW OF FU NDS, THERE CANNOT BE A PRESUMPTION THAT INTEREST BEARING FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE OF THE SAID INVESTMENT AND ACCORDINGLY, NO DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D IS WARRANT ED. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND AN D/OR ALTER THE GROUNDS OF APPEAL AT A LATER DATE. 2. GROUNDS NO. 1 TO 3 ARE AGAINST INVOKING THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E ACT) READ WITH RULE 8D OF THE INCOME TAX RULE, 1962. 3. BRIEFLY STATED THE FACTS ARE THAT THE CASE OF T HE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S 143(3) O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VID E ORDER DATED 24/12/2014. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER O BSERVED THAT ON PERUSAL OF NOTE 9 OF BALANCE SHEET IT WAS GATHERED THAT THE ASSESSE E HAD INVESTMENT TO THE TUNE OF RS. 3,00,000/- IN 14500 EQUITY SHARES OF HFC, INVES TMENT OF RS. 55,000/- IN 1000 EQUITY SHARES OF M/S AUTO PIN (INDIA) LTD., INVESTM ENT OF RS. 2,26,75,000/- IN 22,67,500/- SHARES OF M/S LAKHANI FOOTWEAR PRIVATE LIMITED. THUS TOTAL SUCH INVESTMENTS COMES TO RS. 2,30,30,000/- AND NO INCOM E FROM THE ABOVE INVESTMENT HAS BEEN INCLUDED TO THE TOTAL INCOME OF THE ASSESS EE. ON THE OTHER HAND THE ASSESSEE WAS PAYING INTEREST TO THE BANKS. THE ABO VE INVESTMENT ATTRACTS THE 3 ITA NO. 854/JP/2016. M/S LAKHANI SHOE CO. PVT. LTD., FARIDABAD. DISALLOWANCE 14A READ WITH RULE 8D. HENCE, THE ASS ESSING OFFICER APPLIED PROVISION OF SECTION 14A READ WITH RULE 8D AND MADE ADDITION OF RS. 9,05,772/-. APPEAL FROM ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF INTERES T PAID ON UNNEEDED LOSS. 4. AGGRIEVED BY THIS ORDER, ASSESSEE PREFERRED AN A PPEAL BEFORE LD. CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS PARTLY ALLOWED TH E APPEAL. THEREBY, THE LD. CIT(A) DELETED THE ADDITION MADE ON ACCOUNT OF DISA LLOWANCE OF INTEREST OF RS. 50,31,326/- AND RESTRICTED THE ADDITION MADE BY INV OKING THE PROVISIONS OF SECTION 14A TO THE TUNE OF RS. 8,91,810/- OUT OF ADDITION O F RS. 9,05,772/-. LD. COUNSEL FOR THE ASSESSEE REITERATED THE ARGUMENTS AS MADE IN TH E WRITTEN ARGUMENTS. THE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE ARE R EPRODUCED AS UNDER:- THE ONLY ISSUE INVOLVED IN THE APPEAL BEFORE THE H ONBLE BENCH IS WITH REGARD TO SUSTAINING OF AN ADDITION OF RS. 8,91,810/- BY C IT(A) OUT OF THE ADDITION OF RS. 9,05,772/- MADE BY THE LEARNED ASSESSING OFFICE R FOR THE ABOVE ASSESSMENT YEAR UNDER SECTION 14A OF THE INCOME-TAX ACT 1961 (THE ACT) READ WITH RULE 8D OF INCOME-TAX RULES, 1962. THE ABOVE ADDITION OF RS. 9,05,772/- HAS BEEN MADE OUT OF THE INTEREST PAID BY THE APPELLANT TO THE EXTENT TO RS. 1,19,26,519 O N THE BANK BORROWINGS. IN PARAGRAPH 5.1 OF THE ORDER OF THE LD. ASSESSING OFF ICER HAS STATED AS UNDER:- IT WAS GATHERED THAT THE ASSESSEE HAS INVESTMENT T O THE TUNE OF RS. 3,00,000/- IN 14500 EQUITY SHARES OF HFC, INVE STMENT OF RS. 55,000/- IN 1000 EQUITY SHARES OF M/S AUTO PIN (IND IA) LIMITED; INVESTMENT OF RS. 55,000/- IN EQUITY SHARES OF M/S AUTO PIN (INDIA) LIMITED; INVESTMENT OF RS. 2,26,75,000/- IN 22,67,5 00/- SHARS OF M/S LAKHANI FOOTWEAR PRIVATE LIMITED. THUS TOTAL SUCH INVESTMENTS COME OF RS. 2,30,30,000/- AND NO INCOME FROM THE AB OVE 4 ITA NO. 854/JP/2016. M/S LAKHANI SHOE CO. PVT. LTD., FARIDABAD. INVESTMENTS HAS BEEN INCLUDED TO THE TUNE OF THE AS SESSEE. ON THE OTHER HAND THE ASSESSEE WAS PAYING INTEREST TO THE BANKS. THE ABOVE INVESTMENT ATTRACTS THE DISALLOWANCE 14A READ WITH RULE 8D. THE DISALLOWANCE HAS BEEN COMPUTED UNDER RULE 8D OF THE INCOME TAX RULES, 1962. THE COMPUTATIONS IN RESPECT OF SUCH D ISALLOWANCE ARE CONTAINED IN PARAGRAPH 5.4.9 OF THE ASSESSMENT ORDER. IN REPLY TO SHOW CAUSE NOTICE OF LD. ASSESSING OFFI CER, THE APPELLANT HAD EXPLAINED THAT INVESTMENT TO THE EXTENT OF RS. 3,55 ,000/- IN SHARES OF HARYANA FINANCIAL CORPORATION ( 3,00,000/-) AND AUT O PINS (INDIA) LTD. RS. (55,000) HAD BEEN MADE IN FINANCIAL YEAR 1995-96 AN D 1996-97 RESPECTIVELY. THE COMPANY HAD ENOUGH ACCRUALS OF RS. 82.25 LAKHS FOR FINANCIAL YEAR 1995- 96 AND RS. 114.33 LAKHS FOR FINANCIAL YEAR 1996-97 IN WHICH THE AFORESAID INVESTMENT HAD BEEN MADE. IT WAS ALSO EXPLAINED TO THE LD. ASSESSING OFFICER THAT AS FAR AS THE INVESTMENT OF THE RS. 2, 26,75,000/- IN M/S LAKHANI FOOTWEAR PVT. LTD. IS CONCERNED, THIS INVESTMENT HA S ARISEN OUT OF FAMILY SETTLE4MENT AND ARRANGEMENT. NO FUNDS WERE ACTUALL Y UTILIZED. IT IS ONLY A BOOK ENTRY AND THERE WAS NO OUTFLOW OF FUNDS. DURI NG ASS. YEAR 2011-12 ALSO THIS INVESTMENT WAS REFLECTED IN THE BOOKS OF ACCOU NT AND NO ADDITION U/S 14A OF THE ACT READ WITH RULE 8D WAS MADE. IT WAS FURTHER EXPLAINED TO THE LD. AO THAT NO ADDI TION HAS EVER BEEN MADE U/S 14A OF THE ACT FOR ANY OF THE PAST ASSESSMENT Y EARS TAKING INTO ACCOUNT HAS FACTS AS STATED ABOVE. THE APPELLANT HAD ALSO CITED VARIOUS DECISIONS OF THE HIGH COURT AND THE TRIBUNAL WHEREIN IT HAS BEEN HELD THAT NO DISALLOWANCE CAN BE MADE, IF NEXUS BETWEEN THE TAX FREE INCOME A ND AMOUNT OF INTEREST PAID IS NOT RPO9VED. HOWEVER, THE LD. AO RELYING O N THE DECISION OF THE SPECIAL BENCH OF THE HONBLE TRIBUNAL IN THE CASE O F CHEMINVEST LTD. VS. ITO AS WELL AS FEW OTHER DECISIONS QUOTED BY HIM IN THE ASSESSMENT ORDER IN 5 ITA NO. 854/JP/2016. M/S LAKHANI SHOE CO. PVT. LTD., FARIDABAD. PARAGRAPH 5.4.7, HAS GIVEN HIS FINDING IN PARAGRAPH 5.4.8 AND DISALLOWED AMOUNT OF INTEREST COMPUTED IN PARAGRAPH 5.4.9 OF H IS ORDER. THE APPELLANT FILED AN APPEAL BEFORE LD. CIT(A) WHO AFTER GOING THROUGH THE VARIOUS SUBMISSIONS AND UPHELD THE ADDITION OF RS. 8,91,810/- OUT OF RS. 9,05,772/- BY HOLDING THAT PROVISIONS OF SECTION 14 A OF THE ACT WOULD NOT BE APPLICABLE TO INVESTMENTS MADE IN THE SHARES OF HAR YANA FINANCE CORPORATION AND AUTO-PINS AMOUNTING TO RS. 3,55,000/- AS THESE HAVE BEEN MADE OUT OF INTERNAL ACCRUALS BUT WITH REGARD TO INVESTMENT IN SHARES OF LAKHANI FOOTWEAR LTD. AMOUNTING TO RS. 2,26,75,000 THERE HAS BEEN A QUID PRO-QUO BETWEEN TWO FAMILY MEMBERS TO SETTLE THE FAMILY DISPUTE AND THE CONSIDERATION FOR SUCH SHARES STATED TO HAVE NOT BEEN PAID IN CASH BU T WOULD HAVE BEEN PAID IN THE FORM OF FORGOING RIGHTS IN CERTAIN OTHER COMPAN IES INVESTMENT OF THE FAMILY AND THEREFORE, INVESTMENT IN THESE SHARES CA NNOT BE SAID TO BE FREE. IN VIEW THEREOF, THE LD. CIT(A) HELD THAT PROVISIONS O F SECTION 14A OF THE ACT READ WITH RULE 8D ARE APPLICABLE AS REGARDS THE INV ESTMENT IN SHARES OF RS. 2,26,75,000/-. ACCORDINGLY THE ADDITION OF RS. 9,0 5,772 WAS PROPORTIONALLY REDUCED BY6 LD. CIT(A) AND AN ADDITION OF RS. 8,91, 810 WAS UPHELD. IT IS HUMBLY SUBMITTED THAT THE SUB-SECTION (1) OF SECTION 14A OF THE ACT READS AS UNDER:- FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDE R THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT O F EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS A CT. IT WOULD BE OBSERVED FROM THE ABOVE SECTION THAT DI SALLOWANCE IS REQUIRED TO BE MADE UNDER SECTION 14A OF THE ACT IS WITH REFERE NCE TO THE EXPENDITURE INCURRED BY AN ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE LD. AO HAS TO BE S ATISFIED AFTER GOING 6 ITA NO. 854/JP/2016. M/S LAKHANI SHOE CO. PVT. LTD., FARIDABAD. THROUGH THE ACCOUNT BOOKS, THAT AMOUNT OF INTEREST HAS BEEN INCURRED IN RELATION TO A N INCOME WHICH DOES NOT FORM PART OF THE INCOME AND THAT THERE IS EVIDENCE TO SHOW THAT INTEREST BEARING FUNDS HAV E BEEN UTILIZED FOR MAKING INVESTMENT, INCOME IN RESPECT OF WHICH IS EXEMPT FR OM TAX. THE AO IN THIS CASE HAS NEITHER RECORDED HIS SATISFACTION NOR HAS LED ANY EVIDENCE THAT THERE WAS ANY NEXUS BETWEEN THE INTEREST PAID ON BORROWIN GS AND THE EXEMPT INCOME. HIS OBSERVATIONS IN PARAGRAPH 5.1 OF HIS O RDER PROVIDE CLEAR INDICATION THAT HE HAD MADE UP HIS MIND TO DISALLOW INTEREST U/S 14A OF THE ACT. IN THIS REGARD THE LD. CIT(A) HAS ALSO FAILED TO AP PRECIATE THAT THE INVESTMENT IN SHARES OF LAKHNI FOOTWEAR LTD. HAS BEEN MADE BY PASSING A BOOK ENTRY IN THE BOOKS OF ACCOUNT FOR THE YEAR ENDED 31.3.2011 ( PAGE 53 OF THE PAPER BOOKS). THE ISSUE OF QUID PRO-QUO HAS NO RELEVANCE AND IN CASE ANY AMOUNT OF INTEREST HAS NOT BEEN PAID BY THE APPELLANT FOR EARNING ANY EXEMPT INCOME NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A OF TH E ACT. BOTH LD. AO AND LD. CIT(A) HAVE FAILED TO APPRECIATE THAT THERE IS NO NEXUS BETWEEN THE INTEREST BEARING FUNDS WITH THE INVESTMENT IN SHARE S OF LAKHNI FOOTWEAR LTD. THE OBSERVATIONS OF THE LD. CIT(A) THAT ONLY SELECT ED PAGES OF THE ORDER OF THE HONBLE COMPANY LAW BOARD HAD BEEN FILED BEFORE HIM SEEMS TO HAVE BEEN MADE WITHOUT APPRECIATING THAT THE ORDER OF TH E HONBLE COMPANY LAW BOARD HAD 17 ENCLOSURES HAVING 91 PAGES. A REFEREN CE TO THIS HAS ALSO BEEN MADE IN THE ORDER OF THE HONBLE COMPANY LAW BOARD (PAGE 17 OF THE PAPER BOOK). THEREFORE, ONLY RELEVANT PAGES OF THE ENCLO SURES WERE FILED WITH LD. CIT(A) SO THAT THE VOLUME OF PAPER BOOK IS REDUCED. NOTHING PREVENTED HIM TO ASK THE APPELLANT TO FILE A COMPLETE COPY OF THE ORDER ALONG WITH ENCLOSURES WHICH WOULD HAVE BEEN FILED WITHOUT ANY DIFFICULTY. IT IS HUMBLY SUBMITTED THAT THE PROVISION OF SECTIO N 14A OF THE ACT ARE NOT ATTRACTED IN THIS CASE AS THE LD. ASSESSING OFFICER HAS NOT RECORDED SATISFACTION HAVING REGARD TO THE CORRECTNESS OF CL AIM OF THE APPELLANT WITH 7 ITA NO. 854/JP/2016. M/S LAKHANI SHOE CO. PVT. LTD., FARIDABAD. REFERENCE TO THE ACCOUNTS OF APPELLANT. FURTHER, B OTH THE LOWER AUTHORITIES FAILED TO PROVIDE ANY EVIDENCE THAT THERE IS A NEXU S BETWEEN THE INTER4EST BEARING FUNDS HAVING BEEN UTILIZED FOR MAKING INVES TMENTS INCOME IN RESPECT OF WHICH IS EXEMPT FORM TAX. IN ANY CASE, THERE BEI NG NO TAX FREE INCOME IN THE RELEVANT YEAR FROM THE INVESTMENTS REFERRED TO BY THE LD. AO AND CIT(A), PROVISION OF SECTION 14A OF THE ACT WOULD NOT BE AP PLICABLE IN THIS CASE. THE OBSERVATIONS OF THE LD. AO IN PARAGRAPH 5.1 STATE T HAT NO INCOME HAS BEEN EARNED BY THE APPELLANT FROM THE INVESTMENTS IN SHA RES HELD BY THE APPELLANT. (A) THE FOLLOWING CASE LAW SUPPORTS THE CONTENTION THAT THE AO HAS TO RECORD HIS SATISFACTION THAT EXPENDITURE HAS BEEN INCURRED AND CLAIM OF THE APPELLANT IS NOT MAINTAINABLE. 1. GODREJ AND BOYCE MANUFACTURING CO. LTD. VS. DCIT AN D ANOTHER (328 ITR 81) (BOMBAY) 2. CIT VS. TAIKISHA ENGINEERING INDIA LTD. (370 ITR 33 8) (DELHI) 3. CIT- I, LUDHIANA VS. ABHISHEK INDUSTRIES LTD. (2015 ) 56 TAXMANN.COM 391 (PUNJAB & HARYANA ) (B) THE FOLLOWING CASE LAW SUPPORTS THE CONTENTION THAT THERE HAS TO BE NEXUS BETWEEN THE INTEREST BEARING FUNDS AND THE INVESTME NT IN SHARES. 1. COMMISSIONER OF INCOME-TAX, FARIDABAD VS. LAKHANI MARKETING INC. (2014) 49 TAXMANN.COM 257 (PUNJAB & HARYANA) 2. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1 V. E RCON COMPOSITES (2014) 49 TAXMANN.COM 489 (JODHPUR-TRIB. ) 3. COMMISSIONER OF INCOME-TAX V. HERO CYCLES LTD. (201 0) 323 ITR 518 (P&H) 4. COMMISSIONER OF INCOME-TAX III V. GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. (2014) 42 TAXMANN.COM 270 (GUJ ARAT) 8 ITA NO. 854/JP/2016. M/S LAKHANI SHOE CO. PVT. LTD., FARIDABAD. (C) IT HAS ALSO BEEN HELD THAT IN CASE NO INCOME HAS BE EN EARNED FROM INVESTMENT IN RESPECT OF WHICH INTE4REST IS SOUGHT TO BE DISALLOWED U/S 14A OF THE ACT, NO DISALLOWANCE OF INTEREST CAN BE MADE UNDER THE AFORESAID SECTION. FOLLOWING CASES SUPPORT THE ABO VE CONTENTION. 1. REDINGTON (INDIA) LTD. VS. ADDITIONAL COMMISSIONER OF INCOME-TAX, CO. RANGE-V, CHENNAI (2017) 77 TAXMANN. COM 257 (MADRAS) 2. MS. AMITA VERMA VS. ASSISTANT COMMISSIONER OF INCOM E-TAX, CENTRAL CIRCLE-13, NEW DELHI (2016) 71 TAXMANN.COM 91(DELHI-TRIB.) 3. JOINT INVESTMENT (P.) LTD. VS. COMMISSIONER OF INCO METAX (2015) 59 TAXMANN.COM 295 (DELHI) 4. ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCL E-I (2) CHENNAI V. M. BASKARAN (2014) 50 TAXMANN.COM 138 (C HENNAI TRIB.) 5. CHEMINVEST LTD. V. COMMISSIONER OF INCOME-TAX (2015 ) 378 ITR 33 (DELHI). 6. CIT IV VS. HOLCIM INDIA P. LTD. (57 TAXMANN.COM 28) (DELHI) 7. CIT VS. WINSOME TEXTILE INDUSTRIES LTD. (319 ITR 20 4) (P&H) 8. CIT I VS. CORRTECH ENERGY (P) LTD. (2014) 45 TAXM ANN.COM 116 (GUJARAT) 9. CIT VS. SHIVAM MOTORS (P) LTD. (2015) 55 TAXMANN.CO M 262 (ALLAHABAD). 5. PER CONTRA LD. D/R OPPOSED THE SUBMISSIONS, AND SUPPORTED THE ORDER OF AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDER OF THE AUTHORITIES BELOW . THE ASSESSEE HAS CHALLENGED 9 ITA NO. 854/JP/2016. M/S LAKHANI SHOE CO. PVT. LTD., FARIDABAD. THE CORRECTNESS OF THE DECISION OF THE LD. CIT(A) H OLDING THAT THE PROVISION OF SECTION 14A OF THE ACT, READ WITH RULE 8D OF THE IN COME TAX RULES, 1962 IS APPLICABLE WITH REGARD TO THE ALLOTMENT OF SHARES T O THE APPELLANT TO THE TUNE OF RS. 2,26,75,000/-. THE CONTENTION, OF THE ASSESSEE IS THAT THE SHARES HAVE BEEN ALLOTTED UNDER A FAMILY SETTLEMENT, NO FUND WAS TRANSFERRED. IT IS ALSO CONTENDED THAT THE AO HAS NOT RECORDED SATISFACTION WITH REGARD TO THE CL AIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT TH E INVESTMENT OF RS. 2,26,75,000/- WAS MADE IN M/S LAKHANI FOOTWEAR PVT. LTD. THIS INV ESTMENT IS IN PURSUANCE OF FAMILY SETTLEMENT. FURTHER, REVENUE HAS NOT DISPUT ED THE CONTENTION OF THE ASSESSEE THAT NO TAX FREE INCOME IS EARNED FROM THE INVESTME NT IN QUESTION. WE FIND MERIT INTO THE CONTENTION THAT AS PER PROVISION OF SECTIO N 14A, THE AO IS EMPOWERED TO MAKE DISALLOWANCE OF EXPENDITURE IN RELATION TO INC OME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. BY THIS PROVISION O F THE ACT, IT CANNOT BE CONSTRUED THAT MERELY INVESTMENT MADE IN SUCH ASSETS, ON SALE OF SUCH ASSET WOULD FETCH SURPLUS IN FUTURE, WHICH WOULD NOT BE TAXABLE, IN O UR VIEW, EVEN IN THAT SITUATION NO DISALLOWANCE CAN BE MADE BY INVOKING THE PROVISION OF SECTION 14A. FOR MAKING DISALLOWANCE U/S 14A, THERE HAS TO BE INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. IN THE YEAR UNDER APPEAL IT IS NOT THE CAS E OF THE AO THAT THE ASSESSEE HAS EARNED INCOME OUT OF THE INVESTMENT, MOREOVER IT IS NOT THE CASE WHERE THE ASSESSEE HAS CLAIMED LOSS. THEREFORE, IN OUR CONSI DERED VIEW, THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN MAKING DISALLOWANCE OF SECTIO N 14A OF THE ACT. MORE PARTICULARLY IN VIEW OF THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF 10 ITA NO. 854/JP/2016. M/S LAKHANI SHOE CO. PVT. LTD., FARIDABAD. JOINT INVESTMENT PVT. LTD. VS. COMMISSIONER OF INCO ME-TAX HAS HELD THAT - THE WINDOW FOR DISALLOWANCE WAS INDICATED IN SECTIO N 14A AND WAS ONLY TO THE EXTENT OF DISALLOWING EXPENDITURE INCURRED BY THE ASSESSE E IN RELATION TO THE TAX EXEMPT INCOME. THIS PROPORTION OR PORTION OF THE EXEMPT INCOME CANNOT BE SWALLOWED THE ENTIRE AMOUNT AS HAS HAPPENED IN THIS CASE. THEREFORE, RESPECTFULLY FOLLOWING THE RATIO LAID DO WN BY THE HONBLE DELHI HIGH COURT, WE DIRECT THE AO TO DELETE THE ADDITION. 7. GROUND NO. 4 IS GENERAL IN NATURE AND NEEDS NO SEPARATE ADJUDIC ATION. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 854/JP/2016 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON MONDAY, THE 18TH DAY OF SEPTEMBER 2017. SD/- SD/- FOE FLAG ;KNO ( DQY HKKJR ) (VIKRAM SINGH YADAV) ( KUL BHARAT ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 18/09/2017. POOJA/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- M/S LAKHANI SHOE CO. PVT. LTD., F ARIDABAD. 2. THE RESPONDENT- ACIT, CIRCLE-2, ALWAR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 854/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 11 ITA NO. 854/JP/2016. M/S LAKHANI SHOE CO. PVT. LTD., FARIDABAD.