DCIT 1(3), MUMBAI V. WEIZMANN LTD, MUMBAI

ITA 87/MUM/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0616 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 09-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 03-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Question of law; Fair market value; Difference of opinion; Scheme of amalgamation; Notional interest
• Section: 14A; 115JB

Judgement Text

M/S WEIZMANN LTD. ITA 7551 / M/20 12 ALON G WITH THREE APPEALS OF THE REVENUE 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI , , BEFORE SHRI R A JEND RA , ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIA L MEMBER ITA ITA NO. : 7551 /MUM/20 12 (ASSESSMENT YEAR: 200 9 - 1 0 ) M/S WEIZMANN LTD . , (IN RESPECT OF M/S KARMA ENERGY LTD. AMALGAMATED WITH WEIZMANN LTD W.E.F. 01.04.2009) , EMPIRE HOUSE, 214, LEARNED DEPARTMENTAL REPRESENTATIVE. D N ROAD, ENT A K NAYAK MARG FORT, MUMBAI - 400 001 .: PAN: AAACW 1260 H VS ASST. CIT - 4 ( 2 ), AAYAKAR BHAVAN, MUMBAI - 400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIJAY MEHTA RESPONDENT BY : SHRI VIJAY KUMAR BORA I TA NO. : 7662 /MUM/20 12 (ASSESSMENT YEAR: 2009 - 10 ) ITA NO. : 86 /MUM/20 1 3 (ASSESSMENT YEAR: 2009 - 10 ) ITA NO. : 87 /MUM/20 1 3 (ASSESSMENT YEAR: 2009 - 10 ) ASST. CIT - 4 ( 2 ) /ACIT 1(3) , ROOM NO. 642/540, 6 TH FLOOR/5 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400 020 VS M/S WEIZMANN LTD . (IN RESPECT OF M/S KARMA ENERGY LTD. AMALGAMATED WITH WEIZMANN LTD W.E.F. 01.04.2009) , MUMBAI - 400 001 .: PAN: AAACW 1260 H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIJAY KUMAR BORA RESPONDENT BY : SHRI VIJAY MEHTA /DATE OF HEARING : 09 - 03 - 201 5 / DATE OF PRONOUNCEMENT : 22 - 04 - 201 5 ORDER , : PER VIVEK VARMA, JM: OUT OF THESE FOUR APPEAL S , ONE APPEAL IS FILED BY THE ASSESSEE & REMAINING THREE HA VE BEEN FILED BY THE DEPARTMENT, WHICH ARE AS UNDER: SR. NO . ITA NO. FILED BY & ASST. YEAR DT OF CIT(A) ORDER CIT(A) 1 7551/MUM/2012 ASSESSEE & 2009 - 10 15.10.2012 CIT(A) 8, MUM 2 7662/MUM/2012 REVENUE & 2009 - 10 15.10.2012 CIT(A) 8, MUM 3 86/MUM/2013 REVENUE & 2009 - 10 29 .10.2012 CIT(A) 2 , MUM 4 87/MUM/2013 REVE NUE & 2009 - 10 29 .10.2012 CIT(A) 2 , MUM M/S WEIZMANN LTD. ITA 7551 / M/20 12 ALON G WITH THREE APPEALS OF THE REVENUE 2 2. AS ALL THE ABOVE FOUR APPEALS ARE OF THE SAME ASSESSEE , HENCE THEY HAVE BEEN CLUBBED & HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 3 . THE BASIC F ACTS OF THE CASES ARE THAT I N AY 2010 - 11 THERE WAS A RESTR UCTURING OF WEIZMANN GROUP WHEREIN ONE OF GROUP COMPANIES OF WEIZMANN LIMITED VIZ. KAMA ENERGY LIMITED WAS AMALGAMATED WITH WEIZMANN LTD W.E.F. MERGER APPOINTED DATED 01.04.2009 AS PER SCHEME OF ARR ANGEMENT SANCTIONED BY THE HONBLE BOMBAY HIGH COURT ON 29.10.2010. AS PER THE SCHEME OF AMALGAMATION, ALL THE ASSETS AND LIABILITIES OF THE TWO AMALGAMATING COMPANY WERE TRANSFERRED TO WEIZMANN LIMITED. SINCE THE APPEALS TO ITAT, BY THE ASSESSEE AND THE D EPARTMENT, WERE FILED IN 2012, WHICH IS AFTER THE APPOINTED DATE, THEY WERE FILED IN THE NAME OF THE AMALGAMATED COMPANY VIZ. WEIZMANN LIMITED ( IN RESPECT OF M/S KARMA ENERGY LTD. AMALGAMATED WITH WEIZMANN LTD . ). ITA NO. 7551/MUM/2012 : BY THE ASSESSEE : 4 . THE SOLITARY GROUND TAKEN BY THE ASSESSEE PERTAINS OF DISALLOWANCE OF RS. 19,76,095/ - UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. 5 . THE FACTS ARE THAT THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS. 3,060/ - FROM M/S MALAD SHAKARI BANK LTD. SINCE THE BANK IS NOT A SCHEDULED BANK, IT WAS NOT COVERED U/S 115 O AND THEREFORE, THE DIVIDEND RECEIVED FROM THIS BANK BECAME TAXABLE. THE ASSE SS EE DID NOT CLAIM THE INCOME TO BE EXEMPT AND INCLUDED THE SAME IN THE TAX COMPUTATION. 6 . THE AO NOTICED THE FIGURE OF DIVIDEND AND CALLED FOR AN EXPLANATION FROM THE ASSESSEE, AS TO WHY THE STATUTORY DISALLOWANCE OF EXPENSE BE NOT MA D E ON THE INCOME CLAIMED AS DIVIDEND. THE ASSESSEE EXPLAINED TO TH E AO THAT THE ASSESSEE HAS M/S WEIZMANN LTD. ITA 7551 / M/20 12 ALON G WITH THREE APPEALS OF THE REVENUE 3 NOT CLAIMED THIS INCOME OF DIVIDEND AS EXEMPT AN D HENCE PROVISIONS OF SECTION 14A READ WITH RULE 8D WOULD NOT BE APPLICABLE. 7 . THE AO NEGATED THE EXPLANATION OF THE ASSESSEE RESORTED TO RULE 8D AND COMPUTED THE DISALLOWANCE OF RS. 52,06,481/ - . 8 . THE ASSESSEE TOOK THE ISSUE BEFORE THE CIT(A), WHO AF TER CONSIDERING THE SUBMISSIONS AND CASE LAWS CITED BEFORE HIM, REDUCED THE DISALLOWANCE TO RS. 19,76,095/ - . 9 . AGAINST THIS DECISION OF THE CIT(A), THE ASSESSEE IS BEFORE THE ITAT. 1 0 . BEFORE US THE PRIMARY ISSUE IS, THAT WHETHER ON FACTS, WHERE THERE I S NO EXEMPT INCOME, CAN THE PROVISIONS OF SECTION 14A BE INVOKED AT ALL. THE HEADING OF SECTION 14A READS, EXPENDITURE RECEIVED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME . SECTION 14A PRESCRIBES THAT IN THE EVENT OF AN INCOME CLAIMED AS EXEMPT, IT ARISES A PRESUMPTION THAT CERTAIN EXPENSE MUST HAVE BEEN INCURRED AND IF NOT INCURRED, IN THAT CASE, CERTAIN DISALLOWANCE SHOULD BE MADE. 1 1 . IN THE INSTANT CASE, THERE IS NO CLAIM OF EXEMPT INCOME. THE ASSESSEE EXPLAINED THE REASON AS WELL, AS TO HOW THE DIVIDEND INCOME RECEIVED IS TAXABLE, BECAUSE, THE RECEIPT OF DIVIDEND WAS FROM A SAHAKARI BANK, WHICH DOES NOT FALL WITHIN THE DEFINITION OF SCHEDULED B ANK AND HENCE DOES NOT COME WITHIN THE SCOPE OF SECTION 115O. THE AR HAS PLACED RELIANCE ON A NUMBE R OF DECISIONS, WHICH ARE AS: ACIT VS BASKARAN, ITA NO. 1717/MDS/2013 , WHEREIN THE COORDINATE BENCH OF THE CHENNAI ITAT, RELYING ON THE DECISION RENDERED BY HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS SIV A M MOTORS PVT LTD IN ITA NO. 88 OF 2014 DATE D 05.05.2014, AND BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS COR R TECH ENERGY PVT LTD ITA NO. 239 OF 2014 VIDE ORDER DT . 24.03.2013 AND M/S WEIZMANN LTD. ITA 7551 / M/20 12 ALON G WITH THREE APPEALS OF THE REVENUE 4 THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS DELITE ENTERPRISES IN ITA NO. 110 OF 2009 DT . 26.02.2009, DELETED THE DISALLOWANCE (COPIES ALSO ENCLOSED) . 1 2 . IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE REVENUE AUTHORITIES ERRED IN COMPUTING THE DISALLOWANCE. 1 3 . THE SECOND LIMB OF THE GOA IS WHETHER THERE WOULD BE AN EFFECT IN THE W ORKING OF TAX IN ACCORDANCE WITH THE PROVISIONS OF SECTION 115JB. 1 4 . PROVISION OF SECTION 115JB WOULD GET ATTACHED, IF THE INCOME DETERMINED UNDER NORMAL PROVISIONS IS LESS THEN MAT, IN SUCH A CIRCUMSTANCES MAT WILL SUPERCEDE THE NORMAL PROVISIONS. HERE IN THE CASE BEFORE US WE DO NOT FIND ANY REFERENCE OF MAT PROVISION. IN SUCH A CIRCUMSTANCE, THE SECOND LIMB BECOME OTIOSE . IN ANY CASE , TAX PAYABLE UNDER NORMAL PROVISIONS WAS MUCH MORE THEN MAT PROVISIONS. 1 5 . AS A RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 7622/MUM/ 2012 : DEPARTMENT APPEAL : 1 6 . THE FOLLOWING GROUNDS HAVE BEEN TAKEN: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE DEPRECIATION CLAIMED ON THE INFLATED COST OF WINDMILL S. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE AS PER SUB CLAUSE (II) OF RULE 8D(2) R.W.S. 14A OF THE INCOME TAX ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE IM PUGNED ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 1 7 . THE FACTS ARE, THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD PURCHASED 12 WINDMILLS FROM M/S NEG MICON (I) PVT LTD, CHENNAI. THEREAFTER, A SURVEY OPERATION WAS CONDUCTED ON M/S NEG MICON. ON THE ANALYSIS OF THE SALE PRICE OF WINDMILLS TO OTHER BUYERS, THE SURVEY PARTY ARRIVED AT A CONC LUSION THAT THE ASSESSEE HAS BEEN CHARGED ON THE HIGHER SIDE BY THE SAID PARTY AND TO THAT EXTENT EVEN THE ASSESSEE HAS SHOWN THE PURCHASE PRICE OF WINDMILL ON HIGHER SIDE. ON THE ALLEGED INFLATED AMOUNT, DEPRECIATION WAS DISALLOWED BY THE ASSESSING OFFICE R FROM THE AY 2002 - 03 ONWARDS. M/S WEIZMANN LTD. ITA 7551 / M/20 12 ALON G WITH THREE APPEALS OF THE REVENUE 5 CONSEQUENTLY, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER DISALLOWED DEPRECATION OF RS. 1,536/ - . 1 8 . THE ISSUE WAS BROUGHT UP BEFORE THE CIT(A), WHO ALLOWED THE CLAIM OF DEPRECIATION, PLACING RELIANCE ON THE DECISION OF HIS PREDECESSORS IN ASSESSMENT YEARS 2002 - 03, 2003 - 04 AND 2008 - 09 IN THE CASE OF KARMA ENERGY LTD. (NOW AMALGAMATED WITH THE ASSESSEE). THE ISSUE WAS TAKEN BY THE DEPARTMENT BEFORE THE ITAT AND THE ITAT, AFTER CONSIDERING DETAILED REPLIES AND S UBMISSIONS FROM EITHER SIDE, REJECTED THE APPEAL AS FILED BY THE DEPARTMENT, ALLOWING THE CLAIM OF DEPRECIATION (APB 67 PARA 23 OF ITAT ORDER IN ITA NO. 4330/MUM/2007). 19 . RESPECTFULLY FOLLOWING THE DECISION (WHERE ONE OF US A PARTY), IN THE CASE OF KAR MA ENERGY LTD NOW ( WEIZMANN LTD. , THE ASSESSEE) S USTAIN THE ORDER OF THE CIT(A), CONSEQUENTIALLY REJECT GROUND TAKEN BY THE DEPARTMENT. 2 0 . GROUND NO. 1, IS THEREFORE, REJECTED. 2 1 . GROUND NO. 2 PERTAINS TO PARTIAL RELIEF GIVEN TO THE ASSESSEE U/S 14A. 2 2 . WE HAVE HELD IN OUR ORDER IN ITA NO. 7551/MUM/2012, THAT NO DISALLOWANCE IS CALLED FOR IN A CASE WHERE THERE IS NO EXEMPT INCOME. 2 3 . FOLLOWING THE DECISION TAKEN BY US, WE REJECT THE GROUND OF APPEAL. 2 4 . GROUND NO. 2 IS THEREFORE, REJECTED. 2 5 . GR OUNDS 3 & 4 ARE GENERAL. 2 6 . AS A RESULT, THE APPEAL FILED BY THE DEPARTMENT IS DISMISSED. ITA NO. 86/MUM/2013 : DEPARTMENT APPEAL : 2 7 . THE FOLLOWING GROUND IS TAKEN BY THE DEPARTMENT: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) ERRED IN HOLDING THAT TAX FREE INVESTMENTS FROM WHICH NO INCOME WAS EARNED IN THE FY M/S WEIZMANN LTD. ITA 7551 / M/20 12 ALON G WITH THREE APPEALS OF THE REVENUE 6 RELEVANT TO AY 2009 - 10 IS TO BE EXCLUDED FROM THE WORKING OF AVERAGE TAX FREE INVESTMENT FOR THE PURPOSE OF WORKING UNDER RULE 8D OF THE IT RULES. 2 8 . THE FACTS ARE , DURING THE ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT DURING THE YEAR, THE APPELLANT HAD SHOWN DIVIDEND INCOME OF RS. 25.57 LACS WHICH IT HAS CLAIMED AS EXEMPT U/S. 10(34). THE APPELLANT HAD NOT ALLOCATED ANY SPECIFIC EXPENDITURE TOWA RDS THE EARNING OF THE ABOVE EXEMPT INCOME IN THE PROFIT AND LOSS ACCOUNT. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ASKED THE APPELLANT TO EXPLAIN AS TO WHY DISALLOWANCE U/S. 14A READ WITH RULE 81) OF THE I.T. RULES SHOULD NOT BE MADE. THE APPELLANT VIDE ITS LETTERS DATED 3/11/2011 AND 30/11/2011 HAS SUBMITTED BEFORE THE A.O. THAT IT HAD ALREADY DISALLOWED AN AMOUNT OF RS. 98.86 LACS U/S. 14 D IN ITS COMPUTATION OF INCOME AGAINST THE SAID EXEMPT INCOME. THE A.O. OBSERVED THAT THE APPELLANT IN PRINCIPLE ACCEPTED THE FACT THAT THE PROVISIONS OF SECTION 14A READ WITH RULE 8D ARE APPLICABLE TO IT. IT HAS, THEREFORE, SUO MOTO DISALLOWED AN AMOUNT OF RS. 98.86 LACS U/S. 14 A READ WITH RULE 8D. 2.3 HOWEVER, THE ASSESSING OFFICER HAS NOT AGREED WITH T HE CORRECTNESS OF THE COMPUTATION OF DISALLOWANCE MADE BY THE A.O. WHILE COMPUTING THE DISALLOWANCE U/S. 14A IN ITS COMPUTATION OF INCOME, THE APPELLANT HAD EXCLUDED CERTAIN INTEREST EXPENDITURE WHICH HAS A DIRECT NEXUS WITH LOANS FROM IREDA, IDBI, LOANS F ROM BANKS FOR PURCHASE OF FOREIGN BILLS PACKING CREDIT ETC. THE CIT(A) HAS DECIDED THIS ISSUE IN FAVOUR OF THE APPELLANT IN A.Y. 2006 - 07 WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT. THE APPELLANT'S CONTENTION IN THIS REGARD WAS ACCEPTED AND THE INTEREST EXP ENDITURE FOR THE PURPOSES OF COMPUTING DISALLOWANCE U/S. 14A RULE 8D WAS COMPUTED BY THE ASSESSING OFFICER AS FOLLOWS: TOTAL INTEREST EXPENDITURE 623.70 INTEREST EXPENDITURE WHICH HAS NO NEXUS WITH INVESTMENT IREDA 56.25 IDBI 11.23 BANKS - FOREIGN B ILLS PURCHASE/INTEREST 54.73 BANKS PACKING CREDIT 23.88 ( - )146.09 TOTAL INTEREST COST WHICH CANNOT BE DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT 477.61 HOWEVER, WHILE COMPUTING THE AVERAGE VALUE OF INVESTMENT, THE APPELLANT HAS CONS IDERED ONLY THOSE INVESTMENTS ON WHICH DIVIDEND HAS BEEN RECEIVED DURING THE YEAR AND HAS IGNORED THOSE INVESTMENTS ON WHICH EXEMPT DIVIDEND INCOME HAS NOT BEEN RECEIVED DURING THE YEAR. THE ASSESSING OFFICER HAS NOT ACCEPTED THIS VIEW OF THE APPELLANT. TH E A.O. OBSERVED THAT THIS ISSUE HAS ALREADY BEEN DECIDED BY THE SPECIAL BENCH OF ITAT, NEW DELHI IN THE CASE OF M/S. CHEMLN V EST LTD. VS ITO (121 ITD 318(DELHI) AND 124 TTJ 577). THE SPECIAL BENCH OF ITAT HAS HELD IN PARA 22 OF ITS ORDER AS FOLLOWS: M/S WEIZMANN LTD. ITA 7551 / M/20 12 ALON G WITH THREE APPEALS OF THE REVENUE 7 T HE C ONTROVERSY RAISED IN THIS CASE IS THAT THE APPELLANT HAD NOT EARNED OR RECEIVED ANY DIVIDEND IN THE YEAR UNDER CONSIDERATION AND, THEREFORE, NO DISALLOWANCE CAN BE MADE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. WE DO NOT FIND ANY FORCE IN THIS CONTENTION OF THE APPELLANT. WHEN A EXPENDITURE OF INTEREST IS INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, IT HAS TO SUFFER THE DISALLOWANCE IRRESPECTIVE OF THE FACT WHETHER ANY INCOME IS EARNED BY THE APPELLANT OR NOT. SECTION 14A DOES NOT ENVISAGE ANY SUCH EXCEPTION'. IT WOULD RESULT IN DISALLOWANCE EVEN IF NO INCOME HAS RESULTED OR MADE OR EARNED BY THE APPELLANT IN THE YEAR UNDER CONSIDERATION . 29 . THE AO, THEREFORE, WORKED OUT THE DISALLOWANCE AT RS. 196.10 LACS, OF W HICH THE ASSESSEE HAD SUO MOTO MADE THE DISALLOWANCE OF RS. 98.86 LA C S. HE, THEREFORE ADDED BACK RS. 97.24 LACS. 3 0 . THE ASSESSEE TOOK UP THE ISSUE BEFORE THE CIT(A) AND SUBMITTED THAT PRIMARILY IT HAS TO BE ASCERTAINED WHETHER THE INVESTMENT MADE IN COMP ANIES WERE FOR THE PURPOSE OF EARNING DIVIDEND , OR FOR GAINING CONTROL. THE SECOND ASPECT TO BE SEEN IS WHETHER THE INVESTMENT MADE IN FROM INTEREST FREE FUNDS OR INTEREST BEARING FUNDS AND FINALLY WHETHER THE INVESTMENTS MADE WERE DIVIDEND INCOME YIELDING OR NON DIVIDEND INCOME YIELDING. 3 1 . AT THE OUTSET, THE AR SUBMITTED THAT THE ASSESSEE HAD BEEN MAKING THE INVESTMENTS IN THE COMPANIES TO GAIN CONTROL ON THE MANAGEMENT, BY USING ITS OWN FREE FUNDS. AS MENTIONED BY THE CIT(A) IN PARA 2.4 & 2.5, THE ORDE R, THAT THE ASSESSEE HAD INTEREST FREE OWN FUNDS OF RS. 8248.44 LACS AND INVESTMENTS OF RS. 5162.95 LACS. THIS WOULD CLEARLY SHOW THAT THERE WOULD BE NO DI VER SION OF INTEREST BEARING FUNDS. IN SUCH A CASE, THE DECISION OF RELIANCE UTILITIES AND POWER LTD R EPORTED IN 313 ITR 340 WOULD SQUARELY COVER THE CONDUCT OF THE ASSESSEE. THE AR ALSO PLACED RELIANCE ON THE DECISION OF SHOP PER S STOP LTD VS ACIT IN ITA NO. 144 & 4475/MUM/2010. 3 2 . COMING TO THE NEXT ASPECT, I.E. WHETHER THE INVESTMENTS WERE MADE FOR DIV IDEND YIELDING OR NON DIVIDEND YIELDING. IT HAS BEEN M/S WEIZMANN LTD. ITA 7551 / M/20 12 ALON G WITH THREE APPEALS OF THE REVENUE 8 ARGUED BY THE AR THAT THE ASSESSEE MADE INVESTMENTS IN COMPANIES TO GAIN CONTROL AND NOT TO EARN THE DIVIDEND. THE FACTUM OF DIVIDEND INCOME A S DECLARED AT RS. 25.57 LACS AND DISALLOWANCE COMPUTED BY THE ASSESSEE AT RS. 98.86 LACS IS UNDISPUTED. 3 3 . SINCE THE ASSESSEE DID NOT INTEND TO EARN DIVIDEND AND THE INVESTMENTS MADE WERE FROM INTEREST FREE FUNDS, IN OUR OPINION, THE CIT(A) WAS CORRECT TO HOLD THAT NO FURTHER DISALLOWANCE WAS CALLED FOR. WE, THERE FORE, SUSTAIN THE ORDER OF THE CIT(A), DELETING THE DISALLOWANCE OF RS. 97.25 LACS. 3 4 . AS A RESULT, THE APPEAL IS FILED BY THE DEPARTMENT IS DISMISSED. ITA NO. 87/MUM/2013 : DEPARTMENT APPEAL : 3 5 . THE FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE DEPARTME NT: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN HOLDING THAT SECTION 14A OF THE IT ACT CANNOT BE APPLIED TO EXPENDITURE INCURRED IN RELATION TO TAX FREE DIVIDEND INCOME AS THERE WAS NO TAX FREE DIVIDEND INCOME EARNED OR RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WHICH IS CONTRARY TO THE JUDGMENT OF THE SPECIAL BENCH OF HONBLE ITAT, NEW DELHI IN THE CASE OF CHEMINVEST LTD. AS REPORTED IN [2009] 121 ITD 318 (DELHI)(SB ) IN WHICH THE SPECIA L BENCH OF THE TRIBUNAL HAS PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RAJENDRA PRASAD MOODY REPORTED IN 115 ITR 522 (SC)? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN N OT CONSIDERING THE DECISION IN THE CASE OF M/S GODREJ & BOYCEE MFG. CO. LTD. [2010] [328 ITR 80 (BOM)], WHEREIN IT HAS BEEN HELD BY THE ASSESSEE IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, BY VIRTUE OF THE PROVISI ONS OF SECTION 14A(A) OF THE IT ACT.? 3 6 . BOTH THE GROUNDS ARE LINKED TO THE DISALLOWANCE U/S 14A. IN THE ASSESSMENT PROCEEDINGS, DESPITE THE SUBMISSION OF THE ASSESSEE THAT IT HAD NOT RECEIVED ANY INCOME, WHICH WAS EXEMPT, THE AO WENT ON TO COMPUTE THE DISALLOWANCE AT RS. 28,94,104/ - . 3 7 . BEFORE THE CIT(A) THE ASSESSEE REITERATED ITS SUBMISSIONS THAT SINCE THE ASSESSEE DID NOT HAVE ANY EXEMPT INCOME, THE PROVISIONS OF SECTION 14A CANNOT BE ATTRACTED. M/S WEIZMANN LTD. ITA 7551 / M/20 12 ALON G WITH THREE APPEALS OF THE REVENUE 9 3 8 . THE CIT(A), CONSIDERING THE ARGUMENTS OF THE ASS ESSEE DELETED THE DISALLOWANCE COMPUTED BY THE ASSESSEE BY PLACING RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS DELIGHT ENTERPRISES PVT LTD, WHEREIN IT WAS HELD THAT IN CASE THERE WAS NOT TAX FREE INCOME, SECTION 14A COULD N OT A PPLY AND THE DECISIONS OF COORDINATE BENCH AT MUMBAI IN THE CASE OF AUSHESH MERCANTILE PVT LTD VS DCIT IN ITA NO. 5779/MUM/2006. 39 . ADVERTING OUR ATTENTION TOWARDS THE DECISION OF SPECIAL BENCH IN THE CASE OF CHEMIVEST LTD REPORTED IN 121 ITD 318 AS REFERRED TO BY THE DEPARTMENT IN ITS G OA , IT MUST BE NOTED THAT THE S PECIAL B ENCH WAS SEIZED WITH AN ISSUE WHETHER THE DISALLOWANCE U/S 14A COULD BE COMPUTED IN CASE OF EXEMPT INCOME YIELDING INVESTMENTS, THOUGH NO INCOME HAD BEEN EARNED. THE SPECIAL BEN CH DECIDED THE CASE IN FAVOUR OF THE DEPARTMENT. BUT THE CASE IS DISTINGUISHABLE BECAUSE, IN THE INSTANT CASE, THERE WAS NO EXEMPT INCOME, HENCE NO DISALLOWANCE WOULD BE MADE. WE ARE FORTIFIED IN THE DECISION, PLACING RELIANCE ON THE DECISION OF ACIT VS M. BASKARAN, ITA NO. 1717/MDS/2013, WHEREIN THE COORDINATE BENCH AT CHENNAI, HELD, HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHORITIES AND SUBMISSIONS MADE BY THE ASSESSEE AND THE DECISIONS IN RELIED ON. NO DOUBT IN THE DECISION OF THE SPECIAL BENCH OF DELHI TRIBUNAL IN THE CASE OF CHEMINVEST LTD. VS. ITO (SUPRA), THE SPECIAL BENCH HELD THAT DISALLOWANCE UNDER SECTION 14A CAN BE MADE EVEN IN THE YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE. THE DECISION OF SPECIAL BENCH O F THE TRIBUNAL HAS BEEN IMPLIEDLY OVERRULED BY THE DECISIONS OF HIGH COURTS IN THE FOLLOWING CASES: 6. IN THE CASE OF M/S SHIVAM MOTORS P LTD (SUPRA), BEFORE THE HONBLE ALLAHABAD HIGH COURT, THE REVENUE RAISED THE FOLLOWING QUESTION OF LAW: - 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE INCOME TAX APPELLATE TRIBUNAL WAS JUSTIFIED IN UPHOLDING THE DECISION OF CIT(A) IN DELETING THE DISALLOWANCE OF 2,O3752/ U/S. 14A IGNORING THE FACT THAT THERE IS DIFFERENCE OF OPINION OF VARIO US COURTS ON THE VIEW TAKEN BY THE ITAT THAT IN THE ABSENCE OF TAX FREE INCOME, NO DISALLOWANCE U/S. 14A IS PERMISSIBLE. 7. THE HIGH COURT WHILE ANSWERING THE SAID QUESTION HELD AS UNDER: - M/S WEIZMANN LTD. ITA 7551 / M/20 12 ALON G WITH THREE APPEALS OF THE REVENUE 10 AS REGARDS THE SECOND QUESTION, SECTION 14A OF THE ACT PROVIDES T HAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THE CHAPTER, NO DEDUCTION SHALL BE 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 ACT, 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 OF 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 QUESTION OF LAW. HENCE, THE DELETION OF THE DISALLOWANCE OF RS.2,03,7521 - MADE BY THE ASSESSING OFFICER WAS IN ORDER.' 8. THE GUJARAT HIGH COURT IN THE CASE OF CIT VS CORRTECH ENERGY PVT. LTD.(SUPRA) HELD AS UNDER: - WE HAVE GIVEN OUR THOUGHTFUL CONSIDERA TION TO THE FACTS AND THE DECISION RELIED UPON BY THE ID AR. THE HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS WINSOME TEXTILE INDUSTRIES LTD REPORTED AT (2009) 3191 TR 204(P&H) HAS HELD THAT IN THE PRESENT CASE ADMITTEDLY, THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPT/ON IN SUCH A SITUATION. SECTION 14A COULD HAVE NO APPLICATION. IN THIS CASE ALSO THE ASSESSEE HAS NOT CLAIMED ANY EXEMPT INCOME IN THIS YEAR. THEREFORE RESPECTFULLY FOLLOWING THE JUDGMENT OF HON B/C HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF CIT VS. WINSOME TEXTILE INDUSTRIES LTD. (SUPRA). WE HEREBY ALLOW THIS GROUND AND DIRECT THE AO TO DELETE THE ADDITION THEREFORE. GROUND NOS 1 TO 12 RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION ARE ALLOWED . 4. COUNSEL FOR THE REVENUE SUBMI TTED THAT THE ASSESSING OFFICER AS WELL AS CIT(APPEALS) HAD APPLIED FORMULA OF RULE 80 OF THE INCOME TAX RULES SINCE THIS CASE AROSE AFTER THE ASSESSMENT YEAR 20092010 SINCE IN THE PRESENT CASE, WE ARE CONCERNED WITH THE ASSESSMENT YEAR 2009 - 2010 SUCH FORM ULA WAS CORRECTLY APPLIED BY THE REVENUE. WE HOWEVER, NOTICE THAT SUBSECTION (1) OF SECTION 14A PROVIDES THAT FOR THE PURPOSE OF COMPUTING TOTAL INCOME UNDER CHAPTER IV OF THE ACT NO DEDUCTION SHALL BE ALLOWED N RESPECT OF EXPENDITURE INCURRED BY THE ASSES SEE N RELATE ON TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IN THE PRESENT CASE THE TRIBUNAL HAS RECORDED THE FINDING OF FACT THAT THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION OF ANY INCOME FROM PAYMENT OF TAX . IT WAS ON THIS BASIS THAT THE TRIBUNAL HELD THAT DISALLOWANCE UNDER SECTION 14A OF THE ACT COULD NOT BE MADE IN THE PROCESS TRIBUNAL RELIED ON THE DECISION OF DIVISION BENCH OF PUNJAB AND HARYANA HIGH COURT IN CASE OF COMMISSIONER OF INCOME TAX V WINSOME TEXTILE INDUSTR IES LTD REPORTED IN (2009) 319 ITR 204 (PUN] & HAR) IN WHICH ALSO THE COURT HAD OBSERVED AS UNDER : 7 WE DO NOT FIND ANY MERIT IN THIS SUBMISSION THE JUDGMENT OF THIS COURT IN ABHISHEK INDUSTRIES LTD (2006) M/S WEIZMANN LTD. ITA 7551 / M/20 12 ALON G WITH THREE APPEALS OF THE REVENUE 11 286 ITR 1 WAS ON THE ISSUE OF ALLOWABILITY OF INTE REST PAID ON LOANS GIVEN TO SISTER CONCERNS, WITHOUT INTEREST. IT WAS HELD THAT DEDUCTION FOR INTEREST WAS PERMISSIBLE WHEN LOAN WAS TAKEN FOR BUSINESS PURPOSE AND NOT FOR DIVERTING THE SAME TO SISTER CONCERN WITHOUT HAVING NEXUS WITH THE BUSINESS. THE OBS ERVATIONS MADE THEREIN HAVE TO BE READ IN THAT CONTEXT. IN THE PRESENT CASE. ADMITTEDLY THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION. IN SUCH A SITUATION SECTION 14A COULD HAVE NO APPLICATION 5 WE DO NOT FIND ANY QUESTION OF LAW ARISING. TAX APPEAL I S THEREFORE DISMISSED 9. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DELITE ENTERPRISES (SUPRA) HELD AS UNDER: THE REVENUE IS IN APPEAL ON THE FOLLOWING QUESTIONS: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW THE HONBLE TR IBUNAL WAS RIGHT IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF INTEREST PAID BY THE ASSESSEE COMPANY ON BORROWED FUNDS AMOUNTING TO RS. 241.10 LAKHS OVERLOOKING THE FACT THAT THE BORROWED FUNDS WERE USED BY THE ASSESSEE COMPANY TO INVEST IN THE CAPITAL OF ANOTHER PARTNERSHIP FIRM AND SINCE PROFITS DERIVED BY THE ASSESSEE COMPANY FROM A PARTNERSHIP FIRM WERE EXEMPT FROM TAX U/S. 10(2A) OF THE INCOME - TAX ACT. THE INTEREST EXPENSE RELATED TO SUCH FAX FREE PROFITS IS TO BE DISALLOWED U S. 14A OF THE INCOME TAX ACT (B) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW THE HON'BLE TRIBUNAL WAS RIGHT IN HOLDING THAT THE ASSESSING OFFICER CANNOT CONSIDER NOTIONAL INTEREST ON DEPOSIT RECEIVED BY THE ASSESSEE COMPANY WHILE ARRIVING AT THE FAIR MARKET VALUE U/ S 23(1)(A) OF THE INCOME - TAX ACT' 2. IN SO FAR AS QUESTION (A) IS CONCERNED ON FACTS WE FIND THAT THERE IS NO PROFIT FOR THE RELEVANT ASSESSMENT YEAR. HENCE THE QUESTION AS FRAMED WOULD NOT ARISE. 10. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. M/S. LAKHANI MARKETING INCL. IN ITA NO. 970 OF 2008 DATED 2.4.2014 . 4 0 . WHILE LOOKING INTO THE SECOND GOA, WE FIND THAT THE AO, WHILE COMPUTING THE DISALLOWANCE U/S 14A READ WITH RULE 8D D ID NOT RECORD HIS SATISFACTION, AS TO WHY DOES NOT BELIEVE IN THE ASSESSEES CONTENTION THAT NO INCOME HAS BEEN EARNED. UNLESS THE AO RECORDS HIS SATISFACTION AND GIVE N REASONS, THE MISCHIEF OF SECTION 14A CANNOT BE APPLIED, AS HELD IN THE DECISIONS OF DCI T VS REI AGRO LTD IN ITA NO. 1181/KOL/2012, CIT VS REI AGRO (CAL HC) AND 3DPLM SOFTWARE SOLUTIONS LTD. VS ITO IN ITA NO. 5736/MUM/2012. I N THIS CASE, THE COORDINATE BENCH HAS CLEARLY HELD THAT THE AO MUST FIRST REJECT THE CLAIM AND EXPLANATION OF THE M/S WEIZMANN LTD. ITA 7551 / M/20 12 ALON G WITH THREE APPEALS OF THE REVENUE 12 ASSE SSEE WITH REGARD TO NOT HAVING EXEMPT INCOME BY GIVING REASONS, WHICH IN THE INSTANT CASE, THE AO HAS NOT DONE. 4 1 . IN SUCH A CIRCUMSTANCE, WE SUSTAIN THE ORDER OF THE CIT(A) AND REJECT THE GOA, AS FILED BY THE DEPARTMENT. 4 2 . AS A RESULT, BOTH THE GOA A RE REJECTED. 4 3 . IN THE RESULT, THE APPEAL AS FILED BY THE DEPARTMENT IS DISMISSED. TO SUM - UP: ASSESSEES APPEAL IN ITA NO. : 7551 OF 2012 FOR AY 2009 - 10 STANDS ALLOWED WHEREAS ALL THE THREE APPEALS FOR AY 2009 - 10 FILED BY THE DEPARTMENT IN: ITA NO. 7662 OF 2012; ITA NO. 86 OF 201 3 & ITA NO. 87 OF 201 3 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND APRIL , 2015. SD/ - SD/ - ( ) ( ) ( RA JENDRA ) ( VIVEK VARMA ) ACCOUNTANT MEMB ER JUDICIAL MEMBER MUMBAI, DATE: 22 ND APRIL , 2015 / COPY TO: - 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT (A) - 8 / - 2 , MUMBAI. 4) THE CIT - 4 / - 1 , MUMBAI/CIT - 4 / - 1 , MUMBAI . 5) , , / THE D.R. G BENCH, MUMBAI. 6) COPY TO GUARD FILE. / BY O RDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS