M/s. Rajmal Lakhichand Jewellers Pvt. Ltd., Jalgaon V. JCIT, Range 1, Jalgaon

ITA 891/PUN/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2588 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 30-12-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 22-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Business income; Depreciation; Business expenditure; Earning of tax free income; Proportionate interest; Question of law; Commercial expediency
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , ! , # $ BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.891/PN/2013 #& & / ASSESSMENT YEAR : 2007-08 M/S. RAJMAL LAKHICHAND JEWELLERS PVT. LTD., 169, BALAJI PETH, JALGAON 425 001 PAN NO.AAECS0061L . / APPELLANT V/S JT.CIT, RANGE-1, JALGAON . / RESPONDENT / ASSESSEE BY : SHRI SUNIL PATHAK / REVENUE BY : SHRI HITENDRA NINAWE / ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 18-02-2013 OF THE CIT(A)-II, NASHIK RELATIN G TO ASSESSMENT YEAR 2007-08. 2. GROUNDS OF APPEAL NO. 1 TO 3 BY THE ASSESSEE ARE AS UNDER : ON FACTS AND IN LAW, 1] THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISA LLOWANCE OF RS.38,87,288/- ON ACCOUNT OF INTEREST AND OF RS.48,194 /- OUT OF TELEPHONE AND ELECTRICITY EXPENSES ON THE GROUND THAT THESE EXPENSES RELATE TO THE FLATS AT KHAR, MUMBAI AND THESE FLATS AR E NOT OWNED BY THE APPELLANT COMPANY BUT BY ITS DIRECTORS SHRI ISHWAR LAL JAIN AND SHRI MANISH JAIN (PAGE 12 CIT(A) ORDER). / DATE OF HEARING :30.12.2015 / DATE OF PRONOUNCEMENT:29.02.2016 2 ITA NO.891/PN/2013 2] THE LEARNED CIT(A) FURTHER ERRED IN ENHANCING THE DISALLOWANCE OF INTEREST BY A SUM OF RS.31,71,622/- ON THE GROUND THAT THE APPELLANT HAD PRIMA FACIE DIVERTED FUNDS OF RS.2,64,30,607/- FOR NON BUSINESS PURPOSES (PAGE 12 CIT(A) ORDER). 3] THE DECISION OF THE LEARNED CIT(A) IN MAKING TH E DISALLOWANCES REFERRED TO IN GROUND NO. 1 & 2 IS GROSSLY INCORRECT FOR THE FOLLOWING REASONS A. THE FLATS AT KHAR WERE PURCHASED IN THE NAME OF TH E DIRECTORS FOR THE SAKE OF CONVENIENCE AND THE COST OF THE FLATS WAS BORNE BY THE APPELLANT COMPANY AND THUS, THE FLATS CONSTITUTED THE PROPERTY OF THE COMPANY AND NOT OF THE DIRECTORS. B. THE LOANS TAKEN FOR MEETING THE COST OF THE FLATS W ERE ALSO REPAID BY THE APPELLANT COMPANY AND THE SAME WAS DULY REFLECTED IN ITS BOOKS. C. IF THE PROPERTIES ARE PURCHASED BY THE APPELLANT C OMPANY IN THE NAME OF THE DIRECTORS AND THE FUNDS ARE PROVIDED BY THE COMPANY, THE PROPERTIES HAVE TO BE CONSIDERED TO BE O WNED BY THE COMPANY AND NOT BY THE DIRECTORS. D. THE FLATS WERE USED FOR THE BUSINESS PURPOSES AND THE REFORE, THE QUESTION OF DISALLOWING THE INTEREST OR OTHER EXPE NDITURE PERTAINING TO THE FLATS SIMPLY DOES NOT ARISE AND THE SAME HAD TO BE ALLOWED AS A BUSINESS EXPENDITURE IN THE HANDS OF THE CO MPANY. E. THE APPELLANT COMPANY HAD NOT DIVERTED THE INTER EST BEARING FUNDS FOR NON BUSINESS PURPOSES AND SUCH FUNDS WERE UTILIZ ED FOR BUSINESS PURPOSES AND THEREFORE, THE QUESTION OF DISALLOWI NG INTEREST OF RS.31,71,672/- DID NOT ARISE. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE A ND DEALERS OF GOLD AND GOLD ORNAMENT. IT FILED ITS RETURN OF INC OME ON 30-11-2007 DECLARING TAXABLE INCOME OF RS.57,29,650/-. THE AO HAD COMPLETED THE ASSESSMENT U/S.143(3) ON 19-11-2009 DETERMINING THE TOTAL INCOME AT RS.57,41,650/- BY ADDING AN AMOUNT OF RS.12,000/- ON ACCOUNT OF INTEREST ON ADVANCE MADE TO REYMONT COMMODITIES PVT. LTD. SUBSEQUENTLY, THE CASE WA S REOPENED BY ISSUE OF NOTICE U/S.148 ON THE GROUND THAT THE ASSESSEE HAS PURCHASED GOODS FROM TIRUPATI STONES WHICH IS AN ENTITY PROVIDING BOGUS BILLS ON COMMISSION RANGING 0.20% TO 1%. 3 ITA NO.891/PN/2013 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO N OTED THAT THE ASSESSEE HAS PURCHASED A DUPLEX FLAT AT 7 TH AND 8 TH FLOOR AT KHAR, MUMBAI AT A COST OF RS.5,98,28,719/. THE FLATS HAV E BEEN PURCHASED IN THE NAME OF SHRI ISHWARLAL LALWANI A ND MANISH LALWANI. THE LOAN HAS BEEN OBTAINED IN THEIR OWN N AME. THE FLATS ARE ALSO UTILIZED FOR THE PURPOSE OF RESIDENCE. AC CORDING TO THE AO NO EVIDENCE OF ANY KIND FOR ITS USE BY THE COM PANY WAS FURNISHED. HOWEVER, INTEREST AMOUNTING RS.38,87,288/- AND TELEPHONE AND ELECTRICITY EXPENSES OF RS.48,194/- HAS BEE N CLAIMED. FURTHER, THE ASSESSEE HAS SHOWN ITS COST PRICE AT RS.5,98,28,719/- IN THE BUSINESS ASSETS OVER WHICH DEPRECIA TION HAS NOT BEEN CLAIMED. ON BEING QUESTIONED BY THE AO, IT WAS SUBMITTED THAT FOR THE SAKE OF CONVENIENCE THE FLAT AT KH AR, MUMBAI WAS PURCHASED IN THE NAMES OF 2 OF THE DIRECTORS NAMELY SHRI ISHWARLAL LALWANI AND SHRI MANISH LALWANI AND ALSO TH E LOANS FOR PURCHASING THE SAID PROPERTY WERE TAKEN IN THE NAMES OF THE SAID 2 DIRECTORS ONLY. HOWEVER, THE SAID PROPERTY B ELONGS TO THE COMPANY AND THE PROPERTY AND THE LOANS HAVE BEE N SHOWN IN THE BOOKS OF THE COMPANY. 5. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. ACCORDING TO HIM SINCE THE PROPE RTY STANDS IN THE NAMES OF INDIVIDUALS, THEREFORE, IT CANNOT BELONG TO TH E COMPANY. THE OWNERSHIP OF IMMOVABLE PROPERTY BELONGS TO THE PERSON IN WHOSE NAME THE PROPERTY IS REGISTERED. THUS , THE COMPANY HAS NO LOCUS STANDI OVER THE KHAR FLATS FOR WHICH THE ASSESSEE COMPANY HAS NOT CLAIMED ANY DEPRECIATION OVER IT. THERE IS NO BUSINESS USE OF THE PROPERTY. THEREFORE, THE AO DIS ALLOWED 4 ITA NO.891/PN/2013 THE INTEREST AND OTHER EXPENSES CLAIMED BY THE ASSESS EE BY HOLDING THAT IT HAS NO RELATION WITH THE BUSINESS OF THE AS SESSEE AND SUCH EXPENDITURE HAS BEEN CLAIMED ONLY TO REDUCE T HE INCOME. THE AO ACCORDINGLY DISALLOWED THE INTEREST EXPEND ITURE OF RS.38,87,288/- AND TELEPHONE AND ELECTRICITY EXPENSES OF RS.48,194/-. 6. BEFORE THE CIT(A) THE ASSESSEE REITERATED MORE OR LESS THE SAME SUBMISSIONS AS MADE BEFORE THE AO. IT WAS ARGUED THAT THE FLATS ARE USED BOTH FOR THE PURPOSE OF ASSESSEES BUSINE SS AS WELL AS THE RESIDENCE OF ONE OF THE DIRECTOR OF THE COMPANY SH RI MANISH I. JAIN. IT WAS SUBMITTED THAT DURING THE COURSE OF ASSE SSMENT PROCEEDINGS ALL THE RELEVANT DETAILS REGARDING THE USE OF FLA TS FOR THE BUSINESS OF THE ASSESSEE COMPANY WAS FILED BEFORE THE AO. MERELY BECAUSE THE FLATS ARE REGISTERED IN THE NAME OF ITS DIRECTORS THE EXPENDITURE CANNOT BE DISALLOWED WHEN THE ASSET STA NDS IN THE BALANCE SHEET OF THE ASSESSEE COMPANY IN THE ASSET SIDE AND THE BANK LOAN STANDS IN THE LIABILITY SIDE OF THE BALANCE SHE ET. IT WAS SUBMITTED THAT WHEN THE CLAIM OF DEPRECIATION ON THE FLATS HAS BEEN ACCEPTED FOR THE YEAR UNDER APPEAL IN THE AS SESSMENT COMPLETED U/S.143(3) THERE IS NO JUSTIFICATION FOR DISALLOWING THE INTEREST. THE SALES TAX REGISTRATION CERTIFICATE SHOWING T HE PARTICULARS OF ITS OFFICES AND ITS ADDRESSES WERE ALSO FILED B EFORE CIT(A). RELYING ON VARIOUS DECISIONS IT WAS SUBMITTED THAT THE INTEREST EXPENDITURE AND THE OTHER EXPENSES SHOULD BE ALLOWED AS DEDUCTION. 7. HOWEVER, THE CIT(A) WAS ALSO NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE NOT ONLY UPHELD T HE ACTION 5 ITA NO.891/PN/2013 OF THE AO BUT ENHANCED THE SAID DISALLOWANCE BY ANOTHER RS.31,71,672/- BY OBSERVING AS UNDER : 7.1 PURCHASE OF KHAR FLATS: A PERUSAL OF THE DOCUMENTS AVAILABLE ON RECORD (AGREEMENT TO SALE DTD. 18/04/2006) REVEALS THAT SHRI ISHWARLAL JAIN (LALWANI) AND HIS SON SHRI MANISH LALWANI BOUGHT A DUPLEX FLAT NO. 701 ADMEASURING 142.96 SQ. MT ON THE 7TH FLOOR AND 173.98 SQ. MT ON THE 8TH FLOOR IN 'MANGAL SANDESH' BUILDING', KHAR, MUMBAI FROM SHRI. VASHU BHAGNANI I N APRIL 2006 FOR RS. 5.53 CRORE. THE APPELLANT COMPANY IN WHICH SHRI ISHWARLA L S.LALWANI HAD 11.05% AND 71.83% AS ON 31/03/2006 AND 31/03/2007, RESPECTIVELY, PAID RS. 1,67,00,000/- ON BEHALF OF THE PURCHASERS IN A.Y. 2006-07. BESIDES, THE PURCHASERS HAD PAID RS. 14 LAC TO THE OWNER FOR FURNISHING OF THE FLAT IN APRI L 2006. A STAMP DUTY OF RS. 27,48,750/- WAS ALSO PAID BY APPELLANT COMPANY ON BEHALF OF THE PURCHASERS. SCRUTINY OF TH E DOCUMENTS/STATEMENT OF ACCOUNTS FURTHER REVEALED TH AT THE APPELLANT COMPANY HAD PAID RS. 66 LAC TO SBI DURING A.Y. 2007-08 TOWARDS REPAYMENT OF PRINCIPAL (RS. 27,12,712/-) AND INTEREST (RS. 38,87,288/-) IN RESPECT OF THE HOUSING LOAN ON BEHALF OF THE DIRECTORS. BESIDES, THE APPELLANT COMPANY IS ALSO S HOWN TO HAVE INCURRED EXPENSES OF RS. 31,30,607/- ON ACCOUNT OF FRANKING CHARGES AND INTERIOR DECORATION IN RESPECT OF THE AFORESAID FLATS ON BEHALF OF THE DIRECTORS. WHEN CONFRONTED, THE AP PELLANT COMPANY STATED THAT THE FLATS WERE OWNED BY THE COM PANY AND THE OWNERSHIP FLATS AND SEI HOUSING LOAN WERE SHOWN IN ITS BOOKS OF ACCOUNTS. THE EXPLANATION OF THE APPELLANT COMPA NY IS CONTRARY TO THE DOCUMENTS AVAILABLE ON RECORD. THE HOUSING L OAN OF RS. 5 CRORE FROM SEI, IALGAON IS IN THE NAME OF SHRI ISHW ARLAL S. LALWANI AND HIS SON SHRI MANISH LALWANI. THE PURCHASERS HAD TAKEN A TERM LOAN (HOUSING FINANCE) OF RS. 5 CRORE FROM SEI, JAL GAON VIDE ARRANGEMENT LETTER DT. 24/04/2006 FOR FLAT NO. 701 (7 TH & 8 TH FLOOR) 17TH ROAD, KHAR (WEST), MUMBAI AGAINST THE EQUITABLE MORTGAGE OF THE SAID FLAT (VALUING RS. 5.67 CRORE BELONGING TO SHRI ISHWARLAL JAIN AND SHRI MANISH JAIN) SMT. PUSHPADEV I ISHWARLAL JAIN AND SMT. NIKITA MANISH JAIN HAD PROVIDED THIRD PARTY GUARANTEE. FURTHER, THE SALE AGREEMENT DT. 18/04/2006 BETWEEN SHRI VASHU BHAGNANI AND SHRI ISHWARLAL S.LALWANI AN D SHRI. MANISH LALWANI CLEARLY SHOWS THAT THE AFORESAID FLA TS WERE JOINTLY PURCHASED BY THE DIRECTORS IN THEIR INDIVIDUAL CAPA CITIES FOR RS. 5.53 CRORE. AN ADDITIONAL AMOUNT OF RS. 14 LAC WAS PAID TO THE OWNER FOR FURNISHING OF THE FLATS. IN VIEW OF THE A BOVE FACTS, AN ENHANCEMENT NOTICE DT. 16/02/20L3 WAS GIVEN TO THE APPELLANT FOR PROPOSING ENHANCEMENT IN ITS INCOME ON ACCOUNT OF DISALLOWANCE OF INTEREST U/S 36(1)(III) ON BORROWED F UNDS DIVERTED BY THE APPELLANT FOR NON-BUSINESS PURPOSES I.E. FOR REPAYME NT OF LOAN, ADVANCE OF RS. 1,67,00,000/-, EXPENSES INCURRED ON FLA TS ETC.. THE APPELLANT IN ITS REPLY DT. 17/02/2013 HAS REITERATED ITS EARLIER STAND THAT THE FLATS WERE OWNED BY THE COMPANY. THE SUBMISSIO N OF THE APPELLANT IS CONTRARY TO THE FACTS. THE REGISTRATION O F THE FLATS IS IN THE NAME OF DIRECTORS. IF COMPANY WOULD HAVE OWNED THE F LATS, IT BEING 6 ITA NO.891/PN/2013 SEPARATE LEGAL ENTITY, COULD HAVE GOT REGISTRATION OF THE FLATS IN ITS OWN NAME. THE EXPLANATION OF THE APPELLANT IS DEVOID OF MERIT AND HENCE REJECTED. IT IS SEEN THAT THE APPELLANT HAD TAK EN LOANS FROM BANKS ON INTEREST RATES RANGING FROM 11 TO 13%. IN TOT AL, THE APPELLANT HAS PRIMA FACIE DIVERTED RS. 2,64,30,607/- (RS.1,67,00,000/- + RS. 66,00,000/- + RS. 31,30,607/-) FOR NON- BUSINESS PURPOSES. INTEREST @ 12% ON THIS AMOUNT COMES TO RS.31,71,672/-. BESIDES, THE APPELLANT HAD CLAIMED INT EREST OF RS.38,87,288/- IN ITS P &, L ACCOUNT ON ACCOUNT OF IN TEREST PAID TO SBI HOUSING LOAN. SINCE THIS INTEREST EXPENDITURE IS NOT IN CONNECTION WITH THE APPELLANT'S BUSINESS, IT CANNOT BE ALLOWED U/S 36(1)(III) OF THE ACT. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AN INTEREST OF RS.70,58,960/- (RS. 31,71,672/- + RS. 38,87,288/-) IS D ISALLOWED U/S 36(1)(III) OF THE ACT FOR DIVERTING THE BORROWED FU NDS FOR NON- BUSINESS PURPOSE. THE AO HAS ALREADY MADE A DISALLOWANCE OF RS.38,87,288/- ON ACCOUNT OF INTEREST AND RS.48,194/- IN RESPECT OF TELEPHONE AND ELECTRICITY CHARGES INCURRED BY THE AP PELLANT FOR THE AFORESAID FLATS. WHILE THE AO'S ADDITION OF RS. 39,35,4 82/- (RS.38,87,288/- + RS.48,194/- IS CONFIRMED, ENHANCEME NT OF RS.31,71,672/- IS MADE TO THE INCOME OF THE APPELLANT . 8. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 9. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY OBJECTED TO THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE ASSESSEE COM PANY IS A JEWELLER AT JALGAON AND IT PURCHASES GOLD ORNAMENTS AND J EWELLERY FROM MUMBAI. THEREFORE, WHEN THE DIRECTORS OR OTHER PERS ONNEL OF THE COMPANY VISIT MUMBAI, THEY HAVE TO STAY AT A PLACE W HICH IS SAFE. ACCORDINGLY, THE FLATS WERE PURCHASED AT MUMBAI AND WERE USED BY THE COMPANY FOR BUSINESS AS WELL AS RESIDENCE OF ONE OF THE DIRECTORS. HE SUBMITTED THAT THE ASSESSEE COMPANY HAD PURCHASED THE FLATS AT A CONSIDERATION OF RS.5,98,28,719/-. REFERRING TO THE AUDITED ACCOUNTS FOR THE A.Y. 2007-08, A COPY OF WHICH IS FILED AT PAGES 4 TO 23 OF THE PAPER BOOK, THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO TH E SCHEDULE OF FIXED ASSETS, A COPY OF WHICH IS PLACED AT PAGE 16. REFERR ING TO ITEM NO.19, I.E. FLAT AT KHAR, HE SUBMITTED THAT THE SAME HAS BEEN 7 ITA NO.891/PN/2013 SHOWN IN THE ASSET SIDE OF THE BALANCE SHEET. REFERRING T O PAGE 13 OF THE PAPER BOOK HE SUBMITTED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION AT RS.1,17,35,982/- FROM THE GROSS BLOCK OF RS.20,46,30,484/-. REFERRING TO COMPUTATION STATEMENT PLACE D AT PAGE 2 AND 3 OF THE PAPER BOOK HE SUBMITTED THAT DEPR ECIATION CLAIMED IS RS.2,18,73,103/- AS PER FORM 3CD. REFERRING TO PAG E 35 OF THE PAPER BOOK, HE DREW THE ATTENTION OF THE BENC H TO THE SCHEDULE OF DEPRECIATION ACCORDING TO WHICH DEPRECIATION OF RS.62,39,688/- HAS BEEN CLAIMED ON BUILDINGS. REFERRING TO TH E COPY OF THE BOARD RESOLUTION DATED 10-02-2006 HE SUBMIT TED THAT THE BOARD OF DIRECTORS HAVE APPROVED FOR PURCHASE OF TH E FLATS BY THE COMPANY IN THE NAME OF THE 2 DIRECTORS. HE SUBMITTE D THAT THE AO HAS ALLOWED DEPRECIATION ON THE FLATS. THIS OTHERWIS E INDICATES THAT THE AO HAS ACCEPTED THE OWNERSHIP OF THE PROPERTY IN THE HANDS OF THE COMPANY AND FOR THE PURPOSE OF BUSI NESS. REFERRING TO VARIOUS DECISIONS FILED BEFORE CIT(A) HE SUBMITTED THAT THE COURTS HAVE HELD THAT EVEN WHEN PROPERTY/VEHICLES ARE NOT REGISTERED IN THE NAME OF THE COMPANY/FIRM BUT ARE REGIST ERED IN THE NAMES OF THE DIRECTORS/PARTNERS, THE ASSESSEE IS EN TITLED TO DEPRECIATION AND INTEREST. SINCE IN THE INSTANT CASE THE AO HAS ALREADY ALLOWED THE DEPRECIATION, THEREFORE, HE HAS ACCEPT ED THE FLAT AS BUSINESS ASSET USED FOR THE PURPOSE OF BUSINESS. HE ACCORDINGLY SUBMITTED THAT THE GROUNDS RAISED BY THE A SSESSEE SHOULD BE ALLOWED. HE ALSO RELIED ON THE FOLLOWING DECISIONS : 1. ADDL.CIT VS. MANJEET ENGG. INDUSTRIES. 154 ITR 509 (DELHI) 2. CIT VS. FAZILKA DABWALI TPT CO. PVT. LTD.270 ITR 398 10. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF CIT(A). 8 ITA NO.891/PN/2013 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PA PER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED BEFORE US. WE FIND THE AO IN THE INSTANT CASE DISALLOWED INTEREST OF RS.38,87,288 AND TELEPHONE/ELECTR ICITY CHARGES OF RS.48,154/- IN RESPECT OF THE PROPERTY AT KHAR, MUMBAI ON THE GROUND THAT THE INTEREST AND OTHER EXPENSES C LAIMED HAS NO RELATION WITH THE BUSINESS OF THE ASSESSEE COMPANY. WE FIND IN APPEAL THE LD.CIT(A) NOT ONLY UPHELD THE ACTION OF THE AO BUT HE FURTHER ENHANCED THE DISALLOWANCE BY RS.31,71,672/- BEING T HE INTEREST ON LOAN AMOUNT OF RS.2,64,30,607/- DIVERTED FOR NON BUSINESS PURPOSES. THE REASONING FOR SUCH ENHANCEMENT HAS ALREADY BEEN REPRODUCED IN THE FINDINGS GIVEN BY THE CIT(A ). IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT S INCE THE FLATS HAVE ALREADY ENTERED INTO THE BLOCK OF ASSET AND D EPRECIATION CLAIMED IN THE ORIGINAL RETURN HAS BEEN ALLOWED AND THE SAM E HAS NOT BEEN WITHDRAWN, THEREFORE, IT IS TO BE HELD THAT THE FLAT AT KHAR IS A BUSINESS ASSET AND UTILIZED FOR THE PURPOSE OF BUSINES S. IT IS ALSO HIS SUBMISSION THAT IN VIEW OF VARIOUS DECISIONS THE FLATS NEED NOT TO BE REGISTERED IN THE NAME OF THE ASSESSEE COMPANY. 12. WE FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE. THERE IS NO DISPUTE TO THE FACT THAT THE FLATS PURCHASED AT KHAR HAS BEEN SHOWN IN THE ASSET SIDE OF THE BALANCE SHEET AND THE LOAN OBTAINED FROM BANK IN THE NAME OF THE DIRECT ORS HAS BEEN SHOWN AS LIABILITY IN THE LIABILITY SIDE OF THE BALANCE SHE ET. THE BOARD OF DIRECTORS VIDE RESOLUTION DATED 10-02-2006 HAVE APPROVED FOR THE PURCHASE OF THE FLATS IN THE NAME OF THE 2 9 ITA NO.891/PN/2013 DIRECTORS. DEPRECIATION IN THE COMPUTATION STATEMENT IS A S PER FORM NO.3CD ENCLOSED ALONG WITH RETURN OF INCOME. IN THE SCHEDULE OF DEPRECIATION ENCLOSED ALONG WITH FORM 3CD WE FIN D DEPRECIATION HAS BEEN CLAIMED AT RS.2,18,73,103/- WHICH INCLUDES THE DEPRECIATION OF RS.62,39,688/- ON BUILDING/FLATS AMOUNTING TO RS.5,98,28,719/- (PAGE 35 OF THE PAPER BOOK). THE SUBMISSION OF THE ASSESSEE BEFORE THE CIT(A) THAT THE ASS ESSEES CLAIM FOR DEPRECIATION HAS BEEN ACCEPTED FOR THE A.Y. 2007 -08 IS ALSO NOT DISPUTED BY THE CIT(A). WE FIND BEFORE CIT(A) THE ASSESSEE HAS INTER ALIA MADE FOLLOWING SUBMISSIONS : IT WAS ONLY FOR THE SAKE OF CONVENIENCE THAT THE SA ID FLATS WERE REGISTERED IN THE NAME OF THE DIRECTORS. THE FACTS OF THE CASE CLEARLY SHOW THAT THE COMPANY IS THE REAL OWNER OF BOTH THE F LATS NOTWITHSTANDING THEIR REGISTRATION IN THE NAMES OF DIR ECTORS. IT IS THE DEFACTO AND BENEFICIAL OWNERSHIP WHICH IS MATERIAL AN D RELEVANT. IN THE CONTEXT OF DEPRECIATION THE COURTS HAVE ACCEP TED THE ASSESSEES CLAIM FOR THE SAME EVEN WHEN PROPERTY/VEHICLES ARE NO T REGISTERED IN THE NAME OF COMPANY/FIRM BUT IN THE NAMES OF DIRECTO RS/PARTNERS. ADDL.CIT VS. MANJEET ENGG. IND. 154 ITR 509 DELHI CIT VS. FAZILKA DABWALI 270 ITR 398; P&H RATIO OF THE SAID DECISIONS WOULD ALSO APPLY TO THE FAC TS OF OUR CASE ALSO. IT IS ALSO IMPORTANT TO NOTE THAT THE APPELLANT S CLAIM FOR DEPRECIATION HAS BEEN ACCEPTED ALSO FOR THE A.Y. 2007 -08. WE ARE ENCLOSING HEREWITH A COPY OF OUR SALES TAX REGI STRATION CERTIFICATE WHEREIN THE PARTICULARS OF OFFICES AND IT S ADDRESSES ARE MENTIONED. 13. FROM THE ABOVE IT IS CLEARLY SEEN THAT THE ASSESSEE S CLAIM OF DEPRECIATION WHICH HAS BEEN ACCEPTED BY THE AO IN THE ORIGINAL ASSESSMENT HAS NOT BEEN WITHDRAWN. THIS OTHERWISE IMPLIES THAT THE AO HAS ACCEPTED THE FLAT AS BUSINESS ASSET USED FO R THE PURPOSE OF BUSINESS. WE FIND THE HONBLE PUNJAB & HARYAN A HIGH COURT IN THE CASE OF CIT VS. FAZILKA DABWALI TPT COMPA NY PVT. LTD. FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN T HE 10 ITA NO.891/PN/2013 CASE OF CIT VS. PODDAR CEMENT PVT. LTD. AND OTHERS REP ORTED IN 226 ITR 625 HAS ALLOWED THE CLAIM OF DEPRECIATION ON BUSES PURCHASED IN THE NAME OF ITS DIRECTORS. ALTHOUGH THE BU SES WERE NOT REGISTERED IN THE NAME OF THE COMPANY IT WAS HELD TH AT REGISTRATION OF THE SAME IN THE NAME OF THE COMPANY IS NO T RELEVANT AND THE COMPANY IS ENTITLED TO DEPRECIATION IN RE SPECT OF THE BUSES. 14. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. POD DAR CEMENT PVT. LTD. (SUPRA) HAS HELD THAT UNDER THE COMMON LAW, OWNER MEANS A PERSON WHO HAS GOT VALID TITLE LEGALLY CONVEYED T O HIM AFTER COMPLYING WITH THE REQUIREMENTS OF LAW SUCH AS T HE TRANSFER OF PROPERTY ACT, REGISTRATION ACT, ETC. BUT, IN THE CONTEXT OF SECTION 22 OF THE INCOME TAX ACT, 1961 HAVING REGARD TO THE GROUND REALITIES AND FURTHER HAVING REGARD TO THE OBJECT OF THE INCOME TAX ACT, NAMELY, ' TO TAX THE INCOME', ' OWNER ' IS A PERSON WHO IS ENTITLED TO RECEIVE INCOME FROM THE PROPERTY IN HIS OWN RIGHT. THE HONBLE DELHI HIGH COURT IN THE CASE OF ADDL.CI T VS. MANJEET ENGINEERING INDUSTRIES (SUPRA) HAS HELD THAT WHE N A PARTNER BRINGS HIS PROPERTY TO THE PARTNERSHIP FIRM AND THE FIRM TREATS HIS PROPERTY AS BELONGING TO THE FIRM ONLY, IT HAS THE EFFECT OF TRANSFERRING THE PROPERTY TO THE FIRM. DOCUMENT IN WR ITING AND REGISTRATION IS NOT NECESSARY. FOLLOWING THE ABOVE PRINCIPLE S AND CONSIDERING THE FACT THAT THE COMPANY HAS ALREADY SHOWN THE ASSET IN THE BALANCE SHEET OF THE ASSESSEE COMPANY AND THE LOAN OBTAINED BY THE DIRECTORS FOR PURCHASE OF THE FLATS HAS BEEN SHOWN AS LIABILITY IN THE LIABILITY SIDE OF THE BALANCE SHEET AND THE DEPRECIATION CLAIMED BY THE ASSESSEE ON SUCH FLAT HAS NOT BEEN 11 ITA NO.891/PN/2013 REJECTED IN THE ASSESSMENT COMPLETED U/S.143(3), THEREFOR E, DISALLOWANCE OF INTEREST AND THE TELEPHONE/ELECTRICITY EXPE NSES ON ACCOUNT OF FLAT AT KHAR, MUMBAI IN OUR OPINION IS NOT JUSTIFIED . IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE CONSIDERED OP INION THAT THE CIT(A) WAS NOT JUSTIFIED IN DISALLOWING THE INTEREST EXPENDITURE AND TELEPHONE AND ELECTRICITY EXPENDITURE RELA TING TO THE FLATS AT MUMBAI. WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT(A) AND THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 15. THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUN DS OF APPEAL NO.4 FOR WHICH THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION. ACCORDINGLY, THIS GROUND BY THE ASSESSEE IS DISMISSED AS NOT PRESSED. 16. GROUNDS OF APPEAL NO.5 TO 5.3 BY THE ASSESSEE ARE AS UNDER: 5] THE LEARNED CIT(A) ERRED IN CONFIRMING THE D ISALLOWANCE OF INTEREST OF S.L,90,82,249/- U/S 14A/ SECTION 36(1)(III) OF THE ACT. 5.1] THE LEARNED CIT(A) ERRED IN APPLYING THE PR OVISIONS OF SECTION 14A WHEN ADMITTEDLY, THE APPELLANT HAD NOT RECEIVED ANY EXEMPT INCOME FROM THE INVESTMENT IN THE SHARES IN THE GROUP COMPANIES DURING THIS YEAR. 5.2] THE LEARNED CIT(A) FAILED TO APPRECIATE THA T THE INTEREST BEARING FUNDS WERE UTILIZED BY THE APPELLANT IN ITS B USINESS AND NOT FOR INVESTMENT IN THE SHARES AND THUS, THE QUESTION OF DISALLOWING ANY INTEREST U/S 14A / SECTION 36(1)(III) DID NOT ARISE. 5.3] WITHOUT PREJUDICE, THE LEARNED CIT(A) ERRED IN REJECTING THE APPELLANT'S ALTERNATIVE CONTENTION THAT THE DISALLOWA NCE U/S 14A R.W.R. 8D WORKED OUT TO RS.12,77,399/- ONLY AND THER EFORE, THE DISALLOWANCE OF RS.L,90,82,249/- MADE BY THE A.O. WAS NOT JUSTIFIED. 17. FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO DURING TH E COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAS INVESTED IN SHARES OF GROUP COMPANIES FROM WHICH NO DIVIDEND INCOME HA S 12 ITA NO.891/PN/2013 BEEN RECEIVED. HE NOTED THAT THE ASSESSEE HAS UTILIZED THE BORROWED FUNDS FOR PURCHASE OF SHARES AND CLAIMED DEDUCT ION OF INTEREST ON SUCH BORROWED FUNDS OUT OF THE BUSINESS INCO ME. ON BEING QUESTIONED BY THE AO THE ASSESSEE VIDE ITS SUBMISS ION DATED 11-08-2011 SUBMITTED AS UNDER WHICH HAS BEEN RE PRODUCED BY THE AO IN THE BODY OF THE ASSESSMENT ORDER : SEC.14A STIPULATES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY AN ASSESSEE IN RELATION TO INCO ME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT . IN THIS CONNECTION WE WOULD LIKE TO STATE THAT WE HAVE MADE INVESTMENT IN THE SHARES OF FEW PRIVATE LIMITED COMPANIES AND A PUB LIC LIMITED COMPANY, UNDER THE SAME MANAGEMENT. HOWEVER, WE MAY ADD THAT NO DIVIDEND WAS DECLARED BY ANY OF THE COMPANIES WHOSE SHARES ARE HELD BY US WE DID NOT HAVE ANY INCOME WHICH WAS EXEMP T AND DID NOT FORM PART OF TOTAL INCOME. AS SUCH QUESTION OF DI SALLOWANCE U/S.14A WE SUBMIT, WOULD NOT ARISE. HOWEVER, AS DESIRED WORKING OF DISALLOWANCE U/S.14A IS ENCLOSED ASSUMING WITHOUT ADMITTI NG THAT THE SAID SEC.14A IS APPLICABLE. 18. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE OBSERVED THAT BORROWED FUND S HAVE BEEN UTILIZED FOR NON BUSINESS PURPOSES, I.E. FOR PURCHASE OF SHARES, HENCE INTEREST IS DISALLOWABLE U/S.36(1)(III). MOREOVER SAME FURNITURE, ELECTRICITY, TELEPHONE AND BUSINESS PREMISES ARE USED FOR THE BUSINESS PURPOSES AS WELL AS FOR THE INVEST MENT IN SHARES. ENTRIES IN THE BOOKS OF ACCOUNT ARE ALSO MADE B Y SAME ACCOUNTANT. HENCE, SOME PORTION OF OTHER EXPENSES ARE ALSO RELATED TO INVESTMENT IN SHARES. HE NOTED THAT THE INTEREST BURDEN TO THE ASSESSEE PAID TO BANK WAS ONLY RS.24,03,497/- AS ON 31- 03-2005 AND NO INTEREST ON UNSECURED LOAN WAS GIVEN BY THE ASSESSEE FOR THE MONEY UTILIZED IN THE PURCHASE OF FLAT AT SURAT. 19. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE H E NOTED THAT ASSESSEES INVESTMENT IN SHARES FROM WHICH NO DIVIDE ND HAS 13 ITA NO.891/PN/2013 BEEN RECEIVED WAS RS.15,19,15,800/-. THIS HAS INCREASED TH E INTEREST BURDEN TO RS.3,81,16,663/- IN A.Y. 2007-08 AS AGAIN ST RS.24,03,497/- IN A.Y. 2005-06. THE TURNOVER HAS GONE UP TO RS.138.67 CRORES IN A.Y. 2007-08 AS AGAINST RS.24.86 CRORES IN A.Y. 2005-06. FROM THE VARIOUS PARAMETERS HE NOTED TH AT THE INCREASE IN TURNOVER IS 5.6 TIMES ONLY WHEREAS THE INTERE ST BURDEN HAS INCREASED TO 15.85 TIMES FROM A.Y. 2005-06. ACCORDIN G TO THE AO HAD THE ASSESSEE NOT INVESTED IN SHARES THERE WAS NO NEED TO PAY SUCH HUGE INTEREST PARTICULARLY PERTAINING TO INVESTM ENT IN SHARES. HENCE, INTEREST EXPENSES NOT PERTAINING TO BUSIN ESS NEEDS TO BE DISALLOWED. SINCE THE ASSESSEE COULD NOT COR RELATE THE DATE WISE UTILIZATION OF FUNDS IN SHARES, THEREFORE, THE AO DISALLOWED PROPORTIONATE INTEREST ON ACCOUNT OF INTEREST FR EE FUNDS AND INTEREST BEARING FUNDS ACCORDING TO WHICH THE DISALLOWA NCE U/S.14A R.W. RULE 8D COMES TO RS.1,90,70,249/-. THE AO ACCORDINGLY APPLYING THE PROVISIONS OF RULE 8D DISALLOWED INT EREST OF RS.1,90,70,249/-. HE ALSO DISALLOWED A SUM OF RS.12,000/- FOR USE OF STAFF AND OTHER FACILITY. THUS, HE DISALLOWED TOTAL AMOU NT OF RS.1,90,82,249/- U/S.14A R.W. RULE 8D OF THE I.T. ACT. 20. IN APPEAL THE LD.CIT(A) REJECTING THE VARIOUS EXPLANAT IONS GIVEN BY THE ASSESSEE UPHELD THE ACTION OF THE AO BY OB SERVING AS UNDER : 7.4 DISALLOWANCE U/S.14A U/S.36(1)(III) OF THE ACT. THE AO HAS MADE AN ADDITION OF RS.1,90,82,249/- ON ACCOUNT OF D ISALLOWANCE U/S 14A OF THE ACT. THE APPELLANT HAS STATED THAT THE PR OVISIONS OF SEE. 14A WERE NOT APPLICABLE IN ITS CASE AS IT DID NOT HAVE ANY EXEMPT INCOME AND NO DIVIDEND WAS RECEIVED ON INVESTMENT MA DE BY IT IN ITS GROUP COMPANIES. THE APPELLANT HAD CITED VARIOUS CASE LAWS IN THIS REGARD. I FIND FROM THE RECORDS THAT THE APPELLANT H AS USED BORROWED FUNDS FOR INVESTMENT IN ITS GROUP COMPANIES. AN INVESTME NT OF RS.1,36,40,800/- WAS MADE BY THE APPELLANT COMPANY IN ITS GROUP COMPANIES AS ON 31/03/2007. THE APPELLANT COMPANY HAS CLAIMED INTEREST OF RS.4,31,88,071/- INCLUDING INTEREST OF RS. 1,04,98,798/- TO 14 ITA NO.891/PN/2013 SBI, RS.11,48,206/- TO HDFC (GOLD LOAN), RS.38,87,288 /- ON HOUSING LOAN (KHAR FLATS) IN ITS P&L ACCOUNT. THE APPELLANT COMPANY IS SHOWING A DEBIT BALANCE OF RS.17,97,55,244/- AGAINST R AJMAL LAKHICHAND WHERE ITS DIRECTOR SHRI ISHWARLAL S. LALWA NI IS HAVING 40% SHARE IN PROFIT/LOSS. THE APPELLANT COMPANY HAS CHA RGED INTEREST @ 6% FROM M/S. RAJMAL LAKHICHAND. SIMILARLY THE APPELLANT COMPANY IS CHARGING INTEREST @ 6% ON BALANCES OUTSTANDI NG AGAINST ITS DIRECTORS. IT IS FURTHER SEEN THAT THE APPELLANT CO MPANY HAS DIVERTED HUGE FUNDS TO M/S. RAJMAL LAKHICHAND WHICH IN TURN HAS PURCHASED SHARES OF THE APPELLANT COMPANY IN THE NAME OF SHRI ISHWARLAL S. LALWANI. THE APPELLANT'S CONTENTION THAT IT HAD USED ITS OWN FUNDS FOR INVESTMENT/LOANS IN/TO ITS GROUPS COMPANIE S IS WITHOUT ANY DOCUMENTARY EVIDENCE. IT IS ALSO SEEN THAT THE APPELLANT COMPANY HAD TAKEN A TERM LOAN OF RS. 2.30 CRORE FROM SARASWAT CO- OP. BANK LTD. IN WHICH IT HAD TO PAY 30% AS MARGIN M ONEY. SIMILARLY, THE APPELLANT HAD TAKEN LOANS FROM VARIOUS OTHER BANK S IN WHICH IT WAS REQUIRED TO PAY MARGIN MONEY. HENCE APPELLANT'S O WN FUNDS ARE PRESUMED TO HAVE BEEN USED FOR OBTAINING LOANS AND WER E THEREFORE NOT AVAILABLE TO MAKE INVESTMENT OR GIVING LOANS/ADVA NCES TO ITS GROUPS COMPANIES AS CLAIMED BY THE APPELLANT. THE HON 'BLE IT AT HYDERABAD IN THE CASE OF RAVINDRA SINGH ARORA VS. ACI T (2012) 53 SOT 124 (HYDERABAD IN REGARD TO DISALLOWANCE OF INTE REST U/S.36(1)(III) HAS HELD AS UNDER : 37. SECTION 36(1)(III) OF THE ACT PROVIDES FOR DEDU CTIONS OF INTEREST ON THE LOANS RAISED FOR BUSINESS PURPOSES. ONCE THE ASSESSEE CLAIMS ANY SUCH DEDUCTION IN THE BOOKS OF ACCOUNTS, THE ONUS WILL BE ON THE ASSESSEE TO SATISFY THE ASSESSI NG OFFICER THAT WHATEVER LOANS WERE RAISED BY THE ASSESSEE, THE SAM E WERE USED FOR BUSINESS PURPOSES. IF IN THE PROCESS OF EXAMINA TION OF GENUINENESS OF SUCH A DEDUCTION, IT TRANSPIRES THAT THE ASSESSEE HAD ADVANCED CERTAIN FUNDS TO SISTER CONCERNS OR AN Y OTHER PERSON WITHOUT ANY INTEREST, THERE WOULD BE VERY HE AVY ONUS ON THE ASSESSEE TO BE DISCHARGED BEFORE THE ASSESSING OFFICER TO THE EFFECT THAT IN SPITE OF PENDING TERM LOANS AND WORK ING CAPITAL LOANS ON WHICH THE ASSESSEE IS INCURRING LIABILITY TO PAY INTEREST, THERE WAS JUSTIFICATION TO ADVANCE LOANS TO SISTER CONCERNS FOR NON BUSINESS PURPOSES WITHOUT ANY INTEREST AND ACCO RDINGLY, THE ASSESSEE SHOULD BE ALLOWED DEDUCTION OF INTEREST BE ING PAID ON THE LOANS RAISED BY IT TO THAT EXTENT. 38. THE ENTIRE MONEY IN A BUSINESS ENTITY COMES IN A COMMON KITTY. MONIES RECEIVED AS SHARE CAPITAL, AS TERM LOAN, AS WORKING CAPITAL LOAN OR AS SALE PROCEEDS DO NOT HAV E ANY DIFFERENT COLOUR. WHATEVER ARE THE RECEIPTS IN THE BUSINESS, THAT HAVE THE COLOUR OF BUSINESS RECEIPTS AND HAVE NO SE PARATE IDENTIFICATION. SOURCES HAS NO CONCERN WHATSOEVER. THE ONLY THING SUFFICIENT TO DISALLOW THE INTEREST PAID ON T HE BORROWING TO THE EXTENT THE AMOUNT IS LENT TO SISTER CONCERN WIT HOUT CARRYING ANY INTEREST FOR NON-BUSINESS PURPOSES WOULD BE THA T THE ASSESSEE HAS SOME LOANS OR OTHER INTEREST BEARING D EBTS TO BE REPAID. IN CASE THE ASSESSEE HAD SOME SURPLUS AMOUN T WHICH, ACCORDING TO IT, COULD NOT BE REPAID PREMATURELY TO ANY FINANCIAL INSTITUTION, STILL THE SAME IS EITHER REQUIRED TO B E CIRCULATED AND UTILISED FOR THE PURPOSE OF BUSINESS OR TO BE INVES TED IN A MANNER IN WHICH IT GENERATES INCOME AND NOT THAT IT IS DIV ERTED TOWARDS 15 ITA NO.891/PN/2013 SISTER CONCERN FREE OF INTEREST. THIS WOULD RESULT IN NOT PRESENTING TRUE AND CORRECT PICTURE OF THE ACCOUNTS OF THE ASSESSEE AS AT THE COST BEING INCURRED BY THE ASSES SEE, THE SISTER CONCERN WOULD BE ENJOYING THE BENEFITS THEREOF. IT CANNOT POSSIBLY BE HELD THAT THE FUNDS TO THE EXTENT DIVER TED TO SISTER CONCERNS OR OTHER PERSONS FREE OF INTEREST WERE REQ UIRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS AND LOANS TO THAT EXTENT WERE REQUIRED TO BE RAISED. WE DO NOT SUBSCRIBE TO THE THEORY OF DIRECT NEXUS OF THE FUNDS BETWEEN BORROWINGS OF THE FUNDS AND DIVERSION THEREOF FOR NON-BUSINESS PURPOSES. RATHER , THERE SHOULD BE NEXUS OF USE OF BORROWED FUNDS FOR THE PU RPOSE OF BUSINESS TO CLAIM DEDUCTION UNDER SECTION 36(1)(III ) OF THE ACT. THAT BEING THE POSITION, THERE IS NO ESCAPE FROM TH E FINDING THAT INTEREST BEING PAID BY THE ASSESSEE TO THE EXTENT T HE AMOUNTS ARE DIVERTED TO SISTER CONCERN ON INTEREST FREE BAS IS ARE TO BE DISALLOWED. 39. IF THE PLEA OF THE ASSESSEE IS ACCEPTED THAT THE INTEREST FREE ADVANCES MADE TO THE SISTER CONCERNS FOR NON-B USINESS PURPOSES WAS OUT OF ITS OWN FUNDS IN THE FORM OF CA PITAL INTRODUCED IN BUSINESS, THAT AGAIN WILL SHOW A CAMO UFLAGE BY THE ASSESSEE AS AT THE TIME OF RAISING OF LOAN, THE ASSESSEE WILL SHOW THE FIGURES OF CAPITAL INTRODUCED BY IT AS A M ARGIN FOR LOANS BEING RAISED AND AFTER THE LOANS ARE RAISED, WHEN SUBSTANTIAL AMOUNT IS DIVERTED TO SISTER CONCERNS F OR NON- BUSINESS PURPOSES WITHOUT INTEREST, A PLEA IS SOUGH T TO BE RAISED THAT THE AMOUNT ADVANCED WAS OUT OF ITS CAPITAL, WH ICH IN FACT STOOD EXHAUSTED IN SETTING UP OF THE UNIT SUCH A PL EA MAY BE ACCEPTABLE AT A STAGE WHEN NO LOANS HAD BEEN RAISED BY THE ASSESSEE AT THE TIME OF DISBURSEMENT OF FUNDS. THIS 'WOULD DEPEND ON FACTS OF EACH CASE. 40. ONCE IT IS BORNE OUT FROM THE RECORD THAT THE A SSESSEE HAD BORROWED CERTAIN FUNDS ON WHICH LIABILITY TO PA Y TAX IS BEING INCURRED AND ON THE OTHER HAND, CERTAIN AMOUN TS HAD BEEN ADVANCED TO SISTER CONCERNS OR OTHERS WITHOUT CARRYING ANY INTEREST AND WITHOUT ANY BUSINESS PURPOSE, THE INTE REST TO THE EXTENT THE ADVANCE HAD BEEN MADE WITHOUT CARRYING A NY INTEREST IS TO BE DISALLOWED UNDER SECTION 36(1)(II I) OF THE ACT.' 7.5 NOTWITHSTANDING THE PROVISIONS OF SEC. 36(1)(III) O F THE ACT, AS REGARDS DISALLOWANCE U/S 14A, I HAVE PERUSED THE DETAIL S FILED BY THE APPELLANT AND THE OTHER MATERIAL ON RECORD. IN THE COURSE OF APPELLATE PROCEEDINGS, THE AR OF THE APPELLANT HAD POINTED OUT THAT THE WORKING OF DISALLOWANCE REFERRED TO IN THE ASSESSMENT OR DER WAS DONE AT THE INSTANCE OF THE AO, WHILE ACCORDING TO T HE APPELLANT IN THE ABSENCE OF ANY EXEMPT INCOME QUESTION OF DISALLOWANCE U/S 14A DID NOT ARISE AT ALL. WITHOUT PREJUDICE TO THE EARLIER SU BMISSIONS, AR HAS DRAWN MY ATTENTION TO THE RECENT DECISIONS OF THE HON 'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. M/S DELITE ENTERPRISE S AND HON'BLE ITAT MUMBAI, 'F' BENCH IN THE CASE OF AVSHESH MERCANT ILE PVT. LTD., V. DY.CIT. I HAVE CONSIDERED THE ISSUE AND GONE THROUG H THE ASSESSMENT ORDER AND SUBMISSION OF THE APPELLANT. IT IS SEE N THAT THE APPELLANT HAD MADE INVESTMENT IN THE SHARES OF ITS GROU P COMPANIES OUT OF THE BORROWED FUNDS (SECURED LOANS RAISED FROM TH E BANKS) AND 16 ITA NO.891/PN/2013 PAID INTEREST ON THE SAID BORROWED FUNDS. THE APPELLA NT HAS ALSO NOT DISPUTED THE FACT THAT BORROWED FUNDS HAVE BEEN USED F OR MAKING INVESTMENT IN SHARE CAPITAL IN THESE GROUP COMPANIES. THE APPELLANT HAS RELIED ON THE DECISION OF JURISDICTIONAL HON'BLE H IGH COURT OF BOMBAY IN THE CASE OF M/S. DELITE ENTERPRISES AND HON 'BLE ITAT, MUMBAI'S DECISION IN THE CASE OF AVSHESH MERCANTILE (P) LTD. (ITA NO. 2 08/MUM/2 009). THE 'DELITE ENTERPRISES' CASE IS UNREPORTED WHI CH CAME ON 26/02/2009. SUBSEQUENTLY, THE HON'BLE MUMBAI HIGH COURT HAS PASSED A JUDGMENT IN THE CASE OF GODREJ & BOYCE MFG . CO. LTD. V IS. DY. CIT [REPORTED IN (2010) 43 DTR (BOM) 177/ (2010 ) 328 ITR 81 (BOM)] ON 12/08/2010. THE HON'BLE HIGH COURT OF BOM BAY IN ITS DECISION HAD HELD THAT DISALLOWANCE UNDER SECTION 14A AS PER RULE 8D, THOUGH CONSTITUTIONALLY VALID, CANNOT BE MADE FOR TH E ASSESSMENT YEARS PRIOR TO THE AY. 2008-09. IN THE PRIOR YEAR'S D ISALLOWANCE WAS REQUIRED TO BE MADE ON REASONABLE BASIS, BUT FROM THE AY 2008-09 DISALLOWANCE U/S 14A AS PER THE RULE 8D WAS REQUIRED TO BE MADE. FURTHER, THE BASIC OBJECT OF SEC. 14A IS TO DISALLOW TH E DIRECT AND INDIRECT EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. IN THE INSTANT CASE, T HERE IS A DIRECT NEXUS IN INTEREST BEARING FUNDS AND INVESTMENTS. AS PER R ULE 8D OF THE INCOME TAX RULES 1961, INTEREST COST DIRECTLY RELA TED TO EARNING EXEMPT INCOME IS FULLY DISALLOWED AS PER PART 'A' OF C ALCULATION OF RULE 8D. AS REGARDS APPELLANT'S RELIANCE ON DELITE ENTERPR ISES, I HAVE GONE THROUGH THE JUDGMENT BUT FIND THAT THE FACTS OF THAT CASE ARE DIFFERENT FROM THAT OF THE PRESENT APPEAL. IN 'DELITE', THE AY S INVOLVED WERE 2001-02 AND 2002-03 WHEN RULE 8D OF IT RULES WAS NOT AVAILABLE. FURTHER, IN THE CASE OF 'DELITE' THE ASSESSEE COMPANY HA D MADE INVESTMENT OF BORROWED FUNDS IN THE CAPITAL OF ANOTHE R PARTNERSHIP FIRM. THE APPEAL RELATED TO THE CLAIM OF THE ASSESSEE FOR DEDUCTION FOR INTEREST PAID ON BORROWED FUNDS U/S 36(1)(III) OF THE ACT. SINCE THERE WAS NO PROFIT FOR THE APPELLANT FOR THE RELEVANT ASSESSM ENT YEAR, THE HON'BLE HIGH COURT HELD THAT THE QUESTION OF DISALLOW ANCE OF INTEREST EXPENSES RELATED TO TAX FREE PROFIT FROM THE FIRM [U/ S.10(2A)] U/S 14A OF THE IT ACT WOULD NOT ARISE. IN THE PRESENT CASE THE APPELLANT USED BORROWED FUNDS AMOUNTING TO RS. 1.36 CRORE FOR M AKING INVESTMENT IN SHARES OF GROUP COMPANIES. SINCE FACTS OF DELITE ENTERPRISES (SUPRA) ARE NOT APPLICABLE, DECISION OF HO N'BLE ITAT IN THE CASE OF AVSHESH MERCANTILE (P) LTD. (SUPRA), BASED ON DELITE ENTERPRISES, WILL ALSO NOT SUPPORT THE APPELLANT. THE HON'BLE ITAT AHMEDABAD BENCH IB' IN THE CASE OF SHANKAR CHEMICAL WORKS VS. DCIT [(2011) 47 SOT 121 (AHMEDABAD)] HAS HELD THAT A NY EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME HAS T O BE DISALLOWED EVEN IF THERE IS NO ACTUAL EARNING OF ANY EXEMPT INCOME. IT HAS FURTHER HELD THAT IF INTEREST BEARING BORROWED FU NDS ARE UTILIZED FOR PURPOSE OF INVESTMENT IN SHARES AND THERE IS NO RECE IPT OF DIVIDEND INCOME OR IF THERE IS ONLY MEAGER AMOUNT OF DIVIDEND INCOME, EVEN THEN, WHOLE AMOUNT OF INTEREST EXPENDIT URE INCURRED FOR THIS PURPOSE WILL BE SUBJECT TO DISALLOWANCE U/S 14A BECAUSE SAME HAS BEEN INCURRED FOR EARNING EXEMPT INCOME. THE REFORE, ACTUAL EARNING OF EXEMPT INCOME IS NOT RELEVANT. FURTHER TH E HON'BLE ITAT DELHI (SPECIAL BENCH) IN THE CASE OF CHEMINVEST LTD. VS. INCOME TAX OFFICER 124 TIT 577 (DEL) (SB) HAS HELD THAT SEC. 14A WOULD BE APPLICABLE EVEN IF THERE IS NO RECEIPT OF EXEMPT INC OME DURING THE YEAR. THE ONLY CONTROVERSY BEFORE THE SPECIAL BENCH W AS WHETHER DISALLOWANCE U/S 14A COULD BE MADE WHERE NO DIVIDEND IS RECEIVED IN THE YEAR UNDER CONSIDERATION. IN THIS CASE THE ASSESSE E HAD 17 ITA NO.891/PN/2013 BORROWED MONIES FOR ACQUIRING SHARES AS A TRADER AS WELL AS AN INVESTOR BUT NO DIVIDEND WAS RECEIVED IN THE CONCERNE D YEAR. THE CONTENTION OF ASSESSEE WAS THAT SINCE NO INCOME FORMING P ART OF TOTAL INCOME WAS RECEIVED, THE QUESTION OF MAKING ANY DISALL OWANCE DID NOT ARISE. AFTER HEARING THE PARTIES, IT WAS HELD THA T IF THE EXPENDITURE IS INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, IT HAS TO SUFFER DISALLOWANCE IRRESPECTIVE OF T HE FACT WHETHER ANY INCOME IS EARNED BY THE ASSESSEE OR NOT. SECTION 14A DOES NOT ENVISAGE ANY SUCH EXCEPTION. WHEN PRIOR TO INTRODUCTI ON OF SEC. 14A, AN EXPENDITURE BOTH UNDER SECTION 36 AND 57 WAS ALLOW ABLE TO AN ASSESSEE WITHOUT SUCH REQUIREMENT OF EARNING OR RECEIPT OF INCOME, SUCH CONDITION CANNOT BE IMPORTED WHEN IT COMES FOR D ISALLOWANCE OF THE SAME EXPENDITURE U/S 14A IN COMING TO THIS CONCLUSI ON, THE BENCH RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RAJENDRA PRASAD MOODY 115 ITR 519 SC. IT H AS BEEN HELD THAT THE TERM 'IN RELATION TO' IS WIDE ENOUGH TO INC LUDE IN ITS SWEEP THE EXPENDITURE BOTH 'FOR MAKING OR EARNING INCOME' AND 'INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS CARRI ED ON BY THE ASSESSEE.' WHAT ONE HAS TO SEE IS WHETHER ANY EXPENDITURE WERE INCURRED BY AN ASSESSEE IN RELATION TO AN INCOME THAT D OES NOT FORM PART OF TOTAL INCOME OF THE ASSESSEE UNDER THE ACT, AND IF THE ANSWER IS IN AFFIRMATIVE THEN THAT EXPENDITURE CANNOT BE AL LOWED IRRESPECTIVE OF THE FACT THAT IT WAS ALLOWABLE UNDER DIFFERENT PR OVISIONS OF THE ACT. FURTHER, DISALLOWANCE HAS TO BE OF THE ENTIRE AMOUNT OF THE EXPENDITURE SO RELATED AND CANNOT BE REDUCED BY THE RECEIPT OF INTEREST WHICH HAS NO RELATION TO SUCH EXPENDITURE. (A .Y. 2004-05). THE HON'BLE ITAT, DELHI IN THE CASE OF TECHNOPAK ADV ISORS (P) LTD. VS. ADDL. CIT [(2012) 50 SOT 31 (DELHI)] HAS HELD THA T ACTUAL EARNING OF THE INCOME IS NOT SINE QUA NON FOR DECIDING THE DE DUCTION OF EXPENDITURE LAID OUT OR EXPENDED WHOLLY OR EXCLUSIVE LY FOR THE PURPOSE OF EARNING THE INCOME. THUS, WHERE INVESTMENT HAS BEEN MADE IN SHARES, WHICH DID NOT YIELD ANY DIVIDEND IN T HE YEAR UNDER CONSIDERATION, THE EXPENDITURE INCURRED FOR EARNING THE INCOME IS DEDUCTIBLE NOTWITHSTANDING THE FACT THAT NO SUCH INC OME HAS BEEN EARNED. THE RATIO OF THESE CASES WILL APPLY MUTATIS MUT ANDIS UNDER SECTION 14A ALSO WHILE ASCERTAINING THE EXPENDITURE IN CURRED FOR EARNING TAX-FREE INCOME FROM INVESTMENT. THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF MAXOPP INVESTMENT LTD. AND OTHER S VS. CIT [(2011) 64 DTR (DEL) 122] WHILE ANALYZING THE PROVI SIONS OF SECTION 14A OF THE ACT HAS HELD AS UNDER: WE ARE OF THE VIEW THAT THE EXPRESSION 'IN RELATION TO' APPEARING IN S. 14A OF THE SAID ACT CANNOT BE ASCRI BED A' NARROW OR CONSTRICTED MEANING. IF WE WERE TO ACCEPT THE SU BMISSION MADE ON BEHALF OF THE ASSESSEE THEN SUB-S. (1) WOUL D HAVE TO BE READ AS FOLLOWS: '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 WITH THE MAIN OBJECT OF EA RNING INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT' THAT IS CERTAINLY NOT THE PURPORT OF THE SAID PROVI SION. THE EXPRESSION 'IN RELATION TO' DOES NOT HAVE ANY EMBED DED OBJECT IT SIMPLY MEANS 'IN CONNECTION WITH' OR 'PERTAINING TO '. IF THE EXPENDITURE IN QUESTION HAS A RELATION OR CONNECTIO N WITH OR PERTAINS TO EXEMPT INCOME, IT CANNOT BE ALLOWED AS A DEDUCTION 18 ITA NO.891/PN/2013 EVEN IF IT OTHERWISE QUALIFIES UNDER THE PROVISIONS OF THE SAID ACT IN WALFORT (SUPRA), THE SUPREME COURT MADE IT VERY CLEAR THAT THE PERMISSIBLE DEDUCTIONS ENUMERATED IN SS. 15 TO 59 ARE NOW TO BE ALLOWED ONLY WITH REFERENCE TO INCOME WHICH I S BROUGHT UNDER ONE OF THE HEADS OF INCOME AND IS CHARGEABLE TO TAX. THE SUPREME COURT FURTHER CLARIFIED THAT IF AN INCOME L IKE DIVIDEND INCOME IS NOT PART OF THE TOTAL INCOME, THE EXPENDI TURE /DEDUCTION RELATED TO SUCH INCOME, THOUGH OF THE NA TURE SPECIFIED IN SS. 15 TO 59, CANNOT BE ALLOWED AGAINS T OTHER INCOME WHICH IS INCLUDIBLE IN THE TOTAL INCOME FOR THE PUR POSE OF CHARGEABILITY TO TAX. ' THE PROVISIONS OF SECTION 14A ARE MANDATORY. SINCE A.Y . UNDER APPEAL HAPPENS TO BE 2007-08 IN WHICH RULE 8D IS NOT APPLICA BLE, I AM OF THE CONSIDERED VIEW THAT AO WAS JUSTIFIED IN DISALLOWING RS. 1,90,82,249/- U/S.14A BY TAKING PROPORTIONATE DISALLOWANCE OF INTER EST ON BORROWED FUNDS. THE APPELLANT HAD 50.03% OF BORROWED FUNDS OUT OF TOTAL FUNDS OF RS. 46,40,63,053/-. THE APPELLANT HAD CLAIMED INTEREST OF RS.3,81,16,663/- (EXCEPT ON SPECIFIC BORROWINGS). HENCE 50.3% OF RS.3,81,16,663/- COMES OUT TO BE RS.1,90,70,249/- WHI CH HAS RIGHTLY BEEN DISALLOWED BY THE AO. APPELLANT'S CALCULATION OF DISALLOWANCE OF RS.12,77,399/- SEC.14A R.W.R. 8D IS NOT APPLICABLE AS F AR AS THE AY. UNDER APPEAL IS CONCERNED. THE DISALLOWANCE OF RS.1,90 ,70,249/- U/S 14A IS THEREFORE CONFIRMED. 21. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 22. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLENGED THE ORDER OF THE CIT(A). REFERRING TO PAGE 15 OF THE PAPER BO OK THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENC H TO THE SHARE CAPITAL AND FREE RESERVES AND SURPLUS AS ON 31-3 0-2007 WHICH IS AT RS.2,93,86,435/-. REFERRING TO THE SAME PAGE T HE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENC H TO THE INVESTMENT IN SHARES OF ASSOCIATED COMPANIES AND SUBSIDIAR IES WHICH IS RS.1,36,40,800/- AS ON 31-03-2007. HE SUBMITTED T HAT SINCE THE OWN CAPITAL AND FREE RESERVES ARE MORE THAN T HE INVESTMENT IN SHARES OF ASSOCIATED CONCERNS AND IN SUBSID IARIES, THEREFORE, NO DISALLOWANCE U/S.14A IS POSSIBLE. FURTHER, RULE 8D IS NOT APPLICABLE FOR THE IMPUGNED ASSESSMENT YEAR SINCE ASSESSMENT YEAR INVOLVED IS 2007-08 AND RULE 8D IS APPLIC ABLE 19 ITA NO.891/PN/2013 FROM A.Y. 2008-09 ONWARDS. HE FURTHER SUBMITTED THAT SINC E NO DIVIDEND HAS BEEN RECEIVED BY THE ASSESSEE COMPANY, THE REFORE, THERE IS NO QUESTION OF ANY EXEMPT INCOME EARNED BY THE ASSESSEE. REFERRING TO PARA 7.4 OF THE ORDER OF THE CIT(A) HE SUBMIT TED THAT THE LD.CIT(A) HAS GIVEN A FINDING THAT ASSESSEE IS PAYING IN TEREST @15% ON THE LOAN OF RS.22 CRORES. HE SUBMITTED THAT UND ER THE FACTS AND CIRCUMSTANCES OF THE CASE NEITHER ANY DISALLOWAN CE U/S.14A IS POSSIBLE NOR ANY DISALLOWANCE U/S.36(1)(III) IS POSSIBLE. 23. REFERRING TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. REP ORTED IN 313 ITR 340 HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT IF THERE WAS FUNDS AVAILABLE BOTH INTE REST FREE AND OVERDRAFT AND OR LOANS TAKEN, THEN A PRESUMPT ION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF THE INTEREST FREE FU NDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FRE E FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. 24. REFERRING TO THE DECISION OF THE PUNE BENCH OF THE TRIB UNAL IN THE CASE OF CIT VS. BEDMUTHA INDUSTRIES LTD. (SUPRA) VID E ITA NO.1277/PN/2013 ORDER DATED 29-01-2015 FOR A.Y. 2009-10 , HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT WHEN AT THE BEGINNING OF THE ASSESSMENT YEAR THE OWN CAPITAL AND FREE RESERVES OF THE ASSESSEE COMPANY IS MUCH MORE THA N THE INVESTMENT IN SHARES AND MUTUAL FUNDS, THE INCOME OF WHICH IS EXEMPT U/S.10(35) THEN NO DISALLOWANCE U/S.14A R.W. RULE 8D IS PERMISSIBLE. REFERRING TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF GOYAL ISHWARCHAND KISHORILAL VS. JCIT V IDE ITA NO.422/PN/2013 ORDER DATED 26-06-2014 HE SUBMITTE D THAT 20 ITA NO.891/PN/2013 THE TRIBUNAL FOLLOWING THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF MOTORS PVT.LTD. AND THE DECISIO N OF HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF LAKHANI MA RKETING HAS HELD THAT WHEN THE ASSESSEE HAS NOT RECEIVED ANY DIVIDEND INCOME OUT OF SHARES HELD AS INVESTMENT AND WHEN NO DISALLOWANCE U/S.14A HAS BEEN MADE IN THE PRECEDING AS WE LL AS IN SUCCEEDING ASSESSMENT YEAR, THEN NO DISALLOWANCE U/S.14 A CAN BE MADE. REFERRING TO THE DECISION OF HONBLE DELHI HIGH COU RT IN THE CASE OF CHEMINVEST LTD. VS. CIT REPORTED IN 318 ITR 33 HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT IN ABSENCE OF RECEIPT OF ANY EXEMPT INCOME IN T HE RELEVANT ASSESSMENT YEAR NO DISALLOWANCE SHOULD BE MADE U/S.14A. REFERRING TO THE DECISION OF HONBLE SUPREME COUR T IN THE CASE OF S.A. BUILDERS REPORTS IN 288 ITR 1 HE SUBMIT TED THAT THE HONBLE SUPREME COURT IN THE SAID DECISION HAS HELD T HAT NO DISALLOWANCE U/S.36(1)(III) OR U/S.37 CAN BE MADE WHEN INTEREST BEARING FUNDS HAS BEEN GIVEN TO SISTER CONCERN WITHOUT C HARGING INTEREST WHEN THERE IS COMMERCIAL EXPEDIENCY. HE ACCORD INGLY SUBMITTED THAT THE ORDER OF THE CIT(A) SHOULD BE SET AS IDE AND THE GROUNDS RAISED BY THE ASSESSEE SHOULD BE ALLOWED. 25. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED T HAT THERE IS A CLEAR CUT FINDING GIVEN BY THE CIT(A) THAT THERE IS DIV ERSION OF INTEREST BEARING FUNDS FOR INVESTMENT IN SHARES OF GROUP COMPANIES AND SUBSIDIARY COMPANY. HAD THE ASSESSEE NOT DIVERTED FUNDS FOR INVESTMENT IN SHARES THE INTEREST BURD EN WOULD HAVE COME DOWN HEAVILY. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE UPHELD AND THE GROUNDS RAISED BY THE AS SESSEE 21 ITA NO.891/PN/2013 SHOULD BE DISMISSED. 26. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PA PER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED BEFORE US. WE FIND THE AO IN THE IN STANT CASE MADE ADDITION OF RS.1,90,82,249/- ON ACCOUNT OF DISALLOWANCE U/S.14A OF THE ACT ON THE GROUND THAT ASSES SEE HAS USED BORROWED FUNDS FOR INVESTMENT IN SHARES OF ITS GROU P COMPANIES. THE LD.CIT(A) FOLLOWING THE DECISION OF HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF RAVINDRA SINGH ARORA VS. ACIT REPORTED IN 53 SOT 124 AND VARIOUS OTHER DECISIONS UPHELD THE ACTION OF THE AO. 27. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE THE INVESTMENT IN SHARES OF ASSOCIATE CONCERNS AN D SUBSIDIARIES IS LESS THAN THE OWN CAPITAL AND FREE RESERVE S, THEREFORE, THERE IS NO JUSTIFICATION IN MAKING ANY DISALLOWANCE . IT IS ALSO THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE THE ASSESSEE HAS NOT RECEIVED ANY DIVIDEND INCOME WHICH IS EXEMPT FROM INCOME TAX, THEREFORE, IN ABSENCE OF RECEIPT OF ANY EXEMPT INCOME, NO DISALLOWANCE U/S.14A R.W. RULE 8D CAN BE MADE. IT IS ALSO THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ADVANCES GIVEN TO VARIOUS SISTER CON CERNS ARE FOR THE PURPOSE OF BUSINESS AND FOR COMMERCIAL EXPEDIEN CY, THEREFORE, NO DISALLOWANCE U/S.36(1)(III) IS ALSO PERMISSIBLE. 28. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE, WE FIND THE INVESTMENT IN ASSOCIATE CONCERNS AND IN SUBSIDIARIES A S ON 22 ITA NO.891/PN/2013 31-03-2006 WAS RS.2,57,15,800/- WHICH HAS COME DOWN TO RS.1,36,46,800/- AS ON 31-03-2007. THE OWN CAPITAL AND FRE E RESERVES OF THE COMPANY HAS GONE UP FROM RS.1,21,33,691/ - AS ON 31-03-2006 TO RS.2,93,86,435/- AS ON 31-03-2007. THU S, THE INVESTMENT IN SHARES OF ASSOCIATE CONCERNS AND SUBSIDIARI ES AT RS.1,36,40,800/- IS MUCH LESS THAN THE OWN CAPITAL AND FREE RESERVES OF RS.2,93,86,435/- AS ON 31-03-2007. IT IS ALS O AN ADMITTED FACT THAT THE ASSESSEE COMPANY HAS NOT RECEIV ED ANY DIVIDEND INCOME DURING THE YEAR WHICH IS EXEMPT FROM INCOME TAX. 29. WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA) HAS HELD AS UNDER : IF THERE BE INTEREST-FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HA D RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FR OM THE INTEREST- FREE FUNDS AVAILABLE. IN OUR OPINION, THE SUPREME CO URT IN EAST INDIA PHARMACEUTICAL WORKS LTD. V. CIT [1997] 224 ITR 627 HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIG H COURT IN WOOLCOMBERS OF INDIA LTD. [1982] 134 ITR 219 WHERE A SIMILAR ISSUE HAD ARISEN. BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTE R THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AN D NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSI DERABLE FORCE, BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOOLCOMBERS OF INDIA LTD.` S CASE [1982] 134 ITR 219 THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROF ITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND TH E PROFITS WERE DEPOSITED IN THE OVER DRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED THAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR T HE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFO RE THE HIGH COURT. THE PRINCIPLE, THEREFORE, WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST-FREE AND OVER DRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST-FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVEST MENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDI NG OF FACT 23 ITA NO.891/PN/2013 BOTH BY THE COMMISSIONER OF INCOME-TAX (APPEALS) AND THE INCOME- TAX APPELLATE TRIBUNAL. 30. WE FIND THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS. CIT HAS HELD THAT WHEN NO EXEMPT INC OME WAS EARNED BY THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR AND THE GENUINENESS OF THE EXPENDITURE INCURRED BY THE ASSE SSEE WAS NOT DOUBTED NO DISALLOWANCE CAN BE MADE U/S.14A. THE RELE VANT OBSERVATION OF THE HONBLE HIGH COURT READS AS UNDER : 15. TURNING TO THE CENTRAL QUESTION THAT ARISES FOR CONSIDERATION, THE COURT FINDS THAT THE COMPLETE ANSWER IS PROVIDED B Y THE DECISION OF THIS COURT IN CIT V. HOLCIM INDIA (P) LTD. (DECISI ON DATED 5TH SEPTEMBER 2014 IN ITA NO. 486/2014). IN THAT CASE A SIMILAR QUESTION AROSE, VIZ., WHETHER THE ITAT WAS JUSTIFIED IN DELETING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT WHEN NO DI VIDEND INCOME HAD BEEN EARNED BY THE ASSESSEE IN THE RELEVANT AY? THE COURT REFERRED TO THE DECISION OF THIS COURT IN MAXOPP INVE STMENT LTD. (SUPRA) AND TO THE DECISION OF THE SPECIAL BENCH OF T HE ITAT IN THIS VERY CASE I.E. CHEMINVEST LTD. V. CIT (2009) 317 ITR 86. THE COURT ALSO REFERRED TO THREE DECISIONS OF DIFFERENT HIGH COU RTS WHICH HAVE DECIDED THE ISSUE AGAINST REVENUE. THE FIRST WAS THE DEC ISION IN COMMISSIONER OF INCOME TAX, FARIDABAD V. M/S. LAKHA NI MARKETING INCL. (DECISION DATED 2ND APRIL 2014 OF THE HIGH COU RT OF PUNJAB AND HARYANA IN ITA NO. 970/2008) WHICH IN TURN REFERRED TO TWO EARLIER DECISIONS OF THE SAME COURT IN CIT V. HERO CYCLES LIMIT ED[2010] 323 ITR 518 AND CIT V. WINSOME TEXTILE INDUSTRIES LTD. [20 09] 319 ITR 204. THE SECOND WAS OF THE GUJARAT HIGH COURT IN COMM ISSIONER OF INCOME TAX-I V. CORRTECH ENERGY (P) LTD. [2014] 223 TAXMANN 130 (GUJ.) AND THE THIRD OF THE ALLAHABAD HIGH COURT IN COMMISSIONER OF INCOME TAX, KANPUR V. SHIVAM MOTORS (P) LTD. (DECISIO N DATED 5TH MAY 2014 IN ITA NO. 88/2014). THESE THREE DECISIONS RE ITERATED THE POSITION THAT WHEN AN ASSESSEE HAD NOT EARNED ANY TAXABL E INCOME IN THE RELEVANT AY IN QUESTION 'CORRESPONDING EXPENDITU RE COULD NOT BE WORKED OUT FOR DISALLOWANCE.' 16. IN CIT V. HOLCIM INDIA (P) LTD. (SUPRA), THE CO URT FURTHER EXPLAINED AS UNDER: '15. INCOME EXEMPT UNDER SECTION 10 IN A PARTICULAR ASSESSMENT YEAR, MAY NOT HAVE BEEN EXEMPT EARLIER AND C AN BECOME TAXABLE IN FUTURE YEARS. FURTHER, WHETHER INC OME EARNED IN A SUBSEQUENT YEAR WOULD OR WOULD NOT BE TAX ABLE, MAY DEPEND UPON THE NATURE OF TRANSACTION ENTERED IN TO IN THE SUBSEQUENT ASSESSMENT YEAR. FOR EXAMPLE, LONG TERM CAPITA L GAIN ON SALE OF SHARES IS PRESENTLY NOT TAXABLE WHERE SEC URITY TRANSACTION TAX HAS BEEN PAID, BUT A PRIVATE SALE OF SH ARES IN AN OFF MARKET TRANSACTION ATTRACTS CAPITAL GAINS TAX. IT IS AN 24 ITA NO.891/PN/2013 UNDISPUTED POSITION THAT RESPONDENT ASSESSEE IS ANINVESTMEN T COMPANY AND HAD INVESTED BY PURCHASING A SUBSTANTIAL NUMBER OF SHARES AND THEREBY SECURING RIGHT TO MANAGEM ENT. POSSIBILITY OF SALE OF SHARES BY PRIVATE PLACEMENT ETC. CANNOT BE RULED OUT AND IS NOT AN IMPROBABILITY. DIVIDEND M AY OR MAY NOT BE DECLARED. DIVIDEND IS DECLARED BY THE COMPANY AND STRICTLY IN LEGAL SENSE, A SHAREHOLDER HAS NO CONTROL AN D CANNOT INSIST ON PAYMENT OF DIVIDEND. WHEN DECLARED, IT IS SUB JECTED TO DIVIDEND DISTRIBUTION TAX.' 17. ON FACTS, IT WAS NOTICED IN CIT V. HOLCIM INDIA (P) LTD. (SUPRA) THAT THE REVENUE HAD ACCEPTED THE GENUINENESS OF THE EXPENDITURE INCURRED BY THE ASSESSEE IN THAT CASE AND THAT EXPENDITU RE HAD BEEN INCURRED TO PROTECT INVESTMENT MADE. 18. IN THE PRESENT CASE, THE FACTUAL POSITION THAT HA S NOT BEEN DISPUTED IS THAT THE INVESTMENT BY THE ASSESSEE IN THE SHAR ES OF MAX INDIA LTD. IS IN THE FORM OF A STRATEGIC INVESTMENT. S INCE THE BUSINESS OF THE ASSESSEE IS OF HOLDING INVESTMENTS, THE INTEREST EX PENDITURE MUST BE HELD TO HAVE BEEN INCURRED FOR HOLDING AND M AINTAINING SUCH INVESTMENT. 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. (SUPRA) AND IN VIEW OF THE ADMITTED FACTUAL POSI TION IN THIS CASE THAT THE ASSESSEE HAS MADE STRATEGIC INVESTMENT IN SHARES OF MAX INDIA LTD.; THAT NO EXEMPTED INCOME WAS EARNED BY TH E ASSESSEE IN THE RELEVANT AY AND SINCE THE GENUINENESS OF THE EXPE NDITURE INCURRED BY THE ASSESSEE IS NOT IN DOUBT, THE QUESTION F RAMED IS REQUIRED TO BE ANSWERED IN FAVOUR OF THE ASSESSEE AND A GAINST THE REVENUE. 31. WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BEDMUTHA INDUSTRIES LTD. (SUPRA) HAS HELD THAT WHEN THE OWN CAPITAL AND FREE RESERVES ARE MORE THAN THE INVESTMENT IN SHARES AND MUTUAL FUNDS THE INCOME OF WHICH IS EXEMPT U/S.10(35), THEN NO DISALLOWANCE CAN BE MADE U/S.14A. THE RELEVANT OBSERVAT ION OF THE TRIBUNAL READ AS UNDER : 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND T HE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERE D THE VARIOUS DECISIONS CITED BEFORE US. THE DISPUTE IS REGARDING D ISALLOWANCE U/S.14A R.W. RULE 8D TOWARDS INTEREST AND ADMINISTRATIV E EXPENSES. SO FAR AS DISALLOWANCE OF INTEREST IS CONCERNED, WE FIN D THE INVESTMENT IN SHARES AND MUTUAL FUNDS AS ON 31-03-2009 I S SHOWN AT RS.19,25,654/- AS AGAINST RS.16,58,300/- IN THE PRECEDI NG YEAR. FURTHER, THERE IS NO DISPUTE TO THE FACT THAT THE OW N CAPITAL AND FREE RESERVES OF THE ASSESSEE COMPANY AS ON 31-03-2009 IS 25 ITA NO.891/PN/2013 RS.19,54,56,058/- AS AGAINST RS.13,78,51,972/- IN THE P RECEDING YEAR. THUS, EVEN AT THE BEGINNING OF THE ASSESSMENT YEAR, THE OWN CAPITAL AND FREE RESERVES OF THE ASSESSEE COMPANY IS MUCH MORE THA N THE INVESTMENT IN SHARES AND MUTUAL FUNDS THE INCOME OF WHI CH IS EXEMPT U/S.10(35). FURTHER, THERE IS NO CATEGORICAL FINDING BY THE AO THAT THE ASSESSEE HAS USED THE INTEREST BEARING FUNDS FOR I NVESTMENT IN SHARES/MUTUAL FUNDS, THE INCOME OF WHICH IS EXEMPT F ROM TAX. 8.1 WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF DHARMEER SAMBHAVI URBAN CO-OP. BANK LTD., (SUPRA) W HILE DELETING THE DISALLOWANCE U/S.14A R.W. RULE 8D IN A CASE WHEN T HERE WAS NO FINDING BY THE AO FOR INCURRING OF SUCH EXPENDITURE FOR EARNING EXEMPT INCOME HAS OBSERVED AS UNDER : 6.3 WE FIND THAT THERE IS NO CATEGORICAL FINDING O F THE AO THAT THE ASSESSEE UTILISED THE INTEREST BEARING FUND FOR MAKING THE INVESTMENT IN THE MUTUAL FUNDS. WE FURTHER FIND TH AT AO HAS APPLIED SECTION 14A(2) BUT SECTION 14A(2) ONLY VEST S POWERS IN THE AO FOR QUANTIFICATION OF THE EXPENDITURE FOR MAKING THE DISALLOWANCE BUT AT THE SAME TIME SECTION 14A(2) DO ES NOT OVERRIDE SECTION 14A(1) OF THE INCOME TAX ACT. 6.4 IN THE CASE OF HERO CYCLES LTD. (SUPRA) THE HON BLE HIGH COURT OF PUNJAB AND HARYANA HAS OBSERVED THAT DISAL LOWANCE U/S.14A REQUIRED FINDING OF INCURRING OF EXPENDITUR E FOR EARNING EXEMPTED INCOME, AND WITHOUT SAID FINDING NO EXPEND ITURE CAN BE DISALLOWED U/S.14A OF THE ACT. THE HONBLE HIGH CO URT CONSIDERED SECTION 14A(2) AND RULE 8D(1) ALSO. IN THE CASE OF CCI LTD. (SUPRA) THE ASSESSEE EARNED THE DIVIDEND INCOME ON THE ASSE TS WHICH WAS CLAIMED EXEMPT BUT THE PROFIT ON THE SALE WAS OFFER ED AS BUSINESS INCOME. IN THIS CASE, THERE CANNOT BE PROFIT ON TH E TRANSFER OF THE MUTUAL FUNDS BUT AS WE HAVE HELD THAT THERE IS NO S PECIFIC FINDING BY THE AO NOR BY THE CIT(A) THAT INFACT THE ASSESSEE H AS USED THE INTEREST BEARING FUNDS FOR INVESTMENT, ON THIS FACT UAL ASPECT, WE HOLD THAT THERE IS NO JUSTIFICATION TO MAKE THE DIS ALLOWANCE. WE ACCORDINGLY DELETE THE ADDITION MADE BY THE AO U/S. 14A R.W. RULE 8D AS THE MANDATE OF SECTION 14A(1) IS NOT FULFILLE D. 8.2 SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN T HE CASE OF M.D. INDUSTRIES (SUPRA). SINCE THE OWN CAPITAL AND FREE R ESERVES OF THE ASSESSEE COMPANY IS MUCH MORE THAN THE INVESTMENT IN SHARE S AND MUTUAL FUNDS, THE DIVIDEND INCOME OF WHICH IS EXEMPT, AND SINCE THERE IS NO CATEGORICAL FINDING BY THE AO THAT BORRO WED FUNDS HAVE BEEN UTILIZED FOR INVESTMENT IN SHARE AND MUTUAL FUND S, THEREFORE, NO DISALLOWANCE UNDER RULE 8D(2)(II) IS WARRANTED IN THE INSTANT CASE. ACCORDINGLY, THE ORDER OF CIT(A) DELETING THE DISALL OWANCE OF RS.57,929/- UNDER RULE 8D(2)(II) IS UPHELD. 8.3 HOWEVER, AS REGARDS THE DISALLOWANCE OF RS.8,636/- UNDER RULE 8D(2)(III) IS CONCERNED THE SAME RELATES TO DISAL LOWANCE OF ADMINISTRATIVE EXPENSES. NOTHING HAS BEEN BROUGHT TO OUR NOTICE THAT ADMINISTRATIVE EXPENSES IS NOT REQUIRED OR HAS NOT BEEN INCURRED FOR EARNING SUCH EXEMPT INCOME. THEREFORE, IN ABSENCE OF ANY SUCH DETAILS THE DISALLOWANCE UNDER RULE 8D(2)(III) AMOUNT ING TO RS.8,636/- HAS TO BE SUSTAINED. WE HOLD AND DIRECT ACC ORDINGLY. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY PARTLY AL LOWED. 26 ITA NO.891/PN/2013 32. THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SHRI G OYAL ISHWARCHAND KISHORILAL VS. JCIT VIDE ITA NO.422/PN/2013 HAS HELD THAT WHEN THE ASSESSEE HAS NOT RECEIVED ANY DIVIDE ND INCOME OUT OF THE SHARES HELD AS INVESTMENT AND WHEN NO SUCH DISALLOWANCE U/S.14A HAS BEEN MADE IN THE PRECEDING AS WE LL AS SUCCEEDING ASSESSMENT YEAR, THEN NO DISALLOWANCE U/S.14A CAN BE MADE. THE RELEVANT OBSERVATION OF THE TRIBUNAL FROM PA RA 9 ONWARDS READ AS UNDER : 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HA VE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FI ND THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.25,10,262/- U/S.14A ON THE GROUND THAT BORROWED FUNDS ARE DIVERTED FOR INVE STMENT IN SHARES, THE DIVIDEND INCOME OF WHICH IS EXEMPT FROM TAX. TH EREFORE, THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.19,23,300/- OUT OF THE INTEREST EXPENSES U/S.14A. THE ASSESSING OFFICER FURTHER D ISALLOWED AN AMOUNT OF RS.5,86,962/- OUT OF THE ADMINISTRATIVE EXPENSES ON THE GROUND THAT THE ASSESSEE MIGHT HAVE INCURRED EXPENSES LI KE BROKERAGE, DOCUMENTATION CHARGES, DEMAT CHARGES, MANP OWER COST ETC. WE FIND THE CIT(A) DELETED THE DISALLOWANCE OU T OF THE INTEREST EXPENSES FOR WHICH THE REVENUE IS NOT IN APPEAL BEFORE US. SO FAR AS THE DISALLOWANCE OF RS.5,86,962/- BY THE ASSESSING OFFICE R BEING 0.5% OF THE AVERAGE VALUE OF INVESTMENT TOWARDS ADMINISTRAT IVE EXPENSES ETC. IS CONCERNED WE FIND THE CIT(A) SUSTAINED THE SAME . 9.1 IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT ALL THE SHARES ARE HELD IN PHYSICAL FORM AND NOT IN DEMAT ACCOUNT AND NO DIVIDEND INCOME HAS BEEN RECEIVED ON ACCOUNT OF SHARE S HELD UNDER THE HEAD INVESTMENT. WHATEVER DIVIDEND WAS RECEIVE D WAS IN THE SHARE TRADING ACCOUNT. THE ABOVE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE COULD NOT BE CONTROVERTED BY THE LD. DEPAR TMENTAL REPRESENTATIVE. WE FIND VARIOUS COURTS HAVE HELD TH AT DISALLOWANCE U/S.14A CANNOT BE MADE WHEN THERE IS NO TAX FREE INCO ME. 9.2 WE FIND THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF SHIVAM MOTORS PVT. LTD.(SUPRA) HAS OBSERVED AS UNDER : AS REGARDS THE SECOND QUESTION, SECTION 14A OF THE ACT PROVIDES THAT 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 A NY 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 F INDING OF FACT IS THAT THE ASSESSEE HAD NOT EARNED ANY TAX FREE I NCOME. 27 ITA NO.891/PN/2013 HENCE, IN THE ABSENCE OF ANY TAX FREE INCOME, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FO R DISALLOWANCE. THE VIEW OF THE C1T(A), WHICH HAS BEEN AFFIRMED BY THE TRIBUNAL, HENCE DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. HENCE, THE DELETION OF TH E DISALLOWANCE OF RS.2,03,752/- MADE BY THE ASSESSIN G OFFICER WAS IN ORDER. 9.3 WE FIND THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF LAKHANI MARKETING (SUPRA) HAS ALSO TAKEN SIMILAR VI EW. THE VARIOUS OTHER DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE A SSESSEE ALSO SUPPORTS THE ABOVE CONTENTION. IT IS ALSO AN UNDISPUTED FACT THAT THE ASSESSING OFFICER IN THE ORDERS PASSED U/S.143(3) FOR A.Y. 2008-09 AND 2010-11 (COPIES OF WHICH ARE PLACED AT PAPER BOOK PA GES 1 TO 4) HAS NOT MADE ANY DISALLOWANCE U/S.14A OF THE INCOME TAX A CT. 9.4 SINCE IN THE INSTANT CASE THE ASSESSEE HAS NOT RECEI VED ANY DIVIDEND INCOME OUT OF THE SHARES HELD AS INVESTMENT AN D SINCE NO DISALLOWANCE U/S.14A HAS BEEN MADE IN THE PRECEDING AS WELL AS SUCCEEDING ASSESSMENT YEARS, THEREFORE, WE AGREE WITH THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT NO D ISALLOWANCE U/S.14A CAN BE MADE UNDER THE FACTS AND CIRCUMSTANCES O F THE CASE. ACCORDINGLY, THE ORDER OF THE CIT(A) IS SET-ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE OF RS.5 ,86,962/- MADE U/S.14A. GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALL OWED. 33. SINCE IN THE INSTANT CASE THE OWN CAPITAL AND FREE RES ERVES OF THE ASSESSEE COMPANY IS MUCH MORE THAN THE INVESTME NT IN SHARES OF GROUP COMPANIES AND ASSOCIATE CONCERNS AND S INCE THE ASSESSEE HAS NOT RECEIVED ANY DIVIDEND INCOME DURING THE YEAR, THEREFORE, IN VIEW OF THE DECISIONS CITED (SUPRA), WE ARE OF TH E CONSIDERED OPINION THAT NO DISALLOWANCE U/S.14A ON ACCOUNT OF INTEREST CAN BE MADE. WE ACCORDINGLY SET ASIDE THE ORD ER OF THE CIT(A) ON THIS ISSUE. HOWEVER, THE INCURRING OF ADMINISTRATIVE EXPENSES FOR INVESTMENT IN THE SHARE CANNOT BE RULED OU T. THE AO HAS ALREADY MADE AN ADDITION OF RS.12,000/- ON ESTIMATE B ASIS, THEREFORE, THE SAME HAS TO BE UPHELD. ACCORDINGLY, THE A DDITION SUSTAINED BY THE CIT(A) TO THE EXTENT OF RS.1,90,70,249/- U/S.14A IS DIRECTED TO BE DELETED. THE GROUNDS RAISED BY THE A SSESSEE ARE ACCORDINGLY PARTLY ALLOWED. 28 ITA NO.891/PN/2013 34. GROUNDS OF APPEAL NO.6 AND 7 BEING GENERAL IN NATURE A RE DISMISSED. 35. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29-02-2016. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE ; DATED : 29 TH FEBRUARY, 2016. ) *#,! -! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A ) - I I , NASHIK 4. 5. 6. THE CIT-II, NASHIK $ ''(, (, / DR, ITAT, B PUNE; - / GUARD FILE. / BY ORDER , // TRUE COPY // // $ ' //TRUE C // /0 ' ( / SR. PRIVATE SECRETARY (, / ITAT, PUNE