M/s Vardhman Acrylics Ltd., Ludhiana V. ACIT, Ludhiana

ITA 911/CHANDI/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5391 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 29-09-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 20-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: SUBHASH AGGARWAL; VINEET J AIN
• Keywords: Earning of tax free income; Question of law; Capital receipt
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 911/CHD/2013 ASSESSMENT YEAR : 2010-11 VARDHMAN ACRYLICS LTD VS. A.C.I.T CIRCLE 1 CHANDIGARH ROAD LUDHIANA LUDHIANA AAACV 7602 E (APPELLANT) (RESPONDENT) APPELLANT BY S/SHRI SUBHASH AGGARWAL & VINEET J AIN RESPONDENT BY: SHRI MANJIT SINGH DATE OF HEARING 15.1.2014 DATE OF PRONOUNCEMENT 20 .1.2014 O R D E R PER T.R.SOOD, A.M THIS APPEAL IS DIRECTED AGAINST THE ORDER DATED 30 .7.2013 OF THE LD CIT(A)-I, LUDHIANA. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING EFFECTIVE GROUNDS: 2 THAT THE LD. CIT(A) HAS ERRED IN TESTING THE SAL ES TAX SUBSIDY OF RS. 7,62,72,378/- AS REVENUE RECEIPT AND NOT CAPITAL RECEIPT AS CLAIMED BY THE ASSESSEE. 3 THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOCATING RS. 1,09,281/- AS PER RULE 8D IGNORING T HE CONTENTIONS RAISED BY THE ASSESSEE. 3 GROUND NO. 2 - AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD RECEIVED SALES TAX SUBSIDIARY AMOUNTING TO RS. 7,62,72,378/- WHICH WAS TREATED AS CAPITAL R ECEIPT. THE ASSESSEE WAS ASKED THAT WHY DECISION OF HON'BLE JUR ISDICTIONAL HIGH COURT IN CASE OF CIT VS. ABHISHEK INDUSTRIES, 286 ITR 1 SHOULD NOT BE FOLLOWED AND A DETAILED REPRESENTATIO N WAS MADE 2 BY THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER WA S NOT SATISFIED AND FOLLOWING THE DECISION OF HON'BLE PUN JAB AND HARYANA HIGH COURT IN CASE OF CIT VS. ABHISHEK IND USTRIES (SUPRA) TREATED THE SUM OF RS. 7,62,72,378/- AS REV ENUE INCOME. 4 ON APPEAL THE ACTION OF THE ASSESSING OFFICER WAS CONFIRMED BY THE LD. CIT(A). 5 BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE FAIRL Y ADMITTED THAT THIS ISSUE IS COVERED AGAINST THE ASS ESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2006-07 IN ITA NO. 773/CHD/2012. 6 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE STRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). 7 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND T HAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION OF THE TR IBUNAL IN AY 2006-07 IN ITA NO. 773/CHD/2012. SAME WAS DECIDED BY THE TRIBUNAL VIDE PARA 10 TO 12 WHICH ARE AS UNDER: 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE ISSUE IN THE PRESENT APPEAL IS AGAINST THE TREA TMENT OF INCENTIVES GRANTED TO THE ASSESSEE UNDER THE PREMIU M/PRESTIGIOUS UNIT SCHEME 1995-2000 OF GUJARAT. ADMITTEDLY SIMIL AR SALES TAX SUBSIDY WAS RECEIVED BY THE ASSESSEE IN ASSESSMENT YEARS 2003- 04 TO 2005-06 AND THE SAME WAS HELD AS REVENUE IN N ATURE. THE TRIBUNAL IN ITA NOS.592 & 824/CHD/2007 RELATING TO ASSESSMENT YEARS 2003-04 AND 2004-05 VIDE ORDER DATED 31.1.200 8, FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS. ABHISHEK INDUSTRIES LTD. (SUPRA) HAD DECIDE D THE ISSUE AGAINST THE ASSESSEE. THE ASSESSEE IS IN APPEAL AG AINST THE SAID ORDER OF THE TRIBUNAL AND THE MATTER IS SUB-JUDICE BEFORE THE HON'BLE PUNJAB & HARYANA HIGH COURT. THE APPEAL OF THE ASSESSEE BEFORE THE HON'BLE PUNJAB & HARYANA HIGH COURT IN I NCOME TAX APPEAL NOS.632 & 633 OF 2008 HAD BEEN ADMITTED VIDE ORDER DATED 15.12.2008. THE ASSESSEE IN ASSESSMENT YEAR 2005-0 6 HAD MOVED A DECLARATION UNDER SECTION 158A(1) OF THE ACT IN F ORM NO.8 POINTING OUT THAT AS IDENTICAL QUESTION OF LAW WAS PENDING BEFORE THE HON'BLE HIGH COURT IN THE APPEAL RELATING TO AS SESSMENT YEARS 2003-04 & 2004-05 AND THE DECISION IN THE APPEALS P ENDING BEFORE THE HON'BLE HIGH COURT SHALL APPLY TO THE ISSUES RA ISED IN ASSESSMENT YEAR 2005-06. THE TRIBUNAL IN ITA NO.232 /CHD/2011 3 RELATING TO ASSESSMENT YEAR 2005-06 VIDE ORDER DATE D 25.11.2011 HAD DIRECTED THE ASSESSING OFFICER TO APPLY THE RAT IO SETTLED BY THE HON'BLE PUNJAB & HARYANA HIGH COURT RELATING TO ASS ESSMENT YEARS 2003-04 & 2004-05 TO THE ISSUES RAISED IN THE SAID APPEAL, ON THE RECEIPT OF THE SAID JUDGMENT. THE SAID DIRECTIONS WERE GIVEN BY THE TRIBUNAL AT THE REQUEST OF THE ASSESSEE AND AFT ER THE REPORT OF THE ASSESSING OFFICER THAT THE QUESTIONS OF LAW RAI SED IN ASSESSMENT YEARS 2003-04 & 2004-05 BEFORE THE HON'B LE PUNJAB & HARYANA HIGH COURT WERE IDENTICAL TO THE ISSUE RAIS ED IN THE ASSESSMENT YEAR 2005-06. 11. THE CONTENTION OF THE LEARNED A.R. FOR THE ASSE SSEE NOW BEFORE US, HOWEVER, IS THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE RATIO LAID DOWN BY THE HON' BLE SUPREME COURT IN PONNI SUGARS & CHEMICALS LTD. VS. CIT (SUP RA) WITH REGARD TO THE TAXABILITY OF INCENTIVES BESTOWED TO NEW/EXTENDED SUGAR FACTORY. IT WAS POINTED OUT BY THE LEARNED A .R. FOR THE ASSESSEE THAT THE HON'BLE APEX COURT IN PONNI SUGAR S & CHEMICALS LTD. VS. CIT (SUPRA) FOLLOWING THE EARLIER DECISION OF THE HON'BLE SUPREME COURT IN SAHNEY STEEL & PRESS WORKS LTD. (S UPRA) HAD HELD THAT THE SUBSIDY RECEIVED BY THE ASSESSEE WAS IN THE NATURE OF CAPITAL RECEIPT, SINCE THE OBJECT BEHIND THE SAM E WAS SETTING UP OF NEW UNIT/EXPANSION OF EXISTING BUSINESS. FURTHE R RELIANCE WAS PLACED ON THE DECISION OF THE CALCUTTA HIGH COURT I N CIT VS. RASOI LTD. (SUPRA) POINTING OUT THAT THE TAXABILITY OF TH E RECEIPTS GIVEN BY WAY OF SUBSIDY, ESSENTIALLY BOILS DOWN TO THE PURPO SE FOR WHICH THE SUBSIDY WAS GRANTED. THE CONTENTION OF THE ASSESSE E WAS THAT THE PURPOSE OF GRANTING EXEMPTION FROM SALES TAX FOR A FIXED PERIOD OF TIME, IN THE FACTS OF THE PRESENT CASE, WAS CLEARLY TO PROVIDE INCENTIVES FOR ESTABLISHMENT OF NEW INDUSTRY IN THE UNDERDEVELOPED REGION OF THE STATE. AS THE INTENTION WAS NOT TO I NCREASE THE PROFITABILITY OF THE ELIGIBLE UNIT, THE SAID INCENT IVE RECEIVED BY THE ASSESSEE WAS CAPITAL RECEIPT NOT LIABLE TO TAX. F URTHER IT WAS POINTED OUT BY THE LEARNED A.R. FOR THE ASSESSEE TH AT THE FACTS OF THE PRESENT CASE ARE SQUARELY COVERED BY THE RECENT DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V S. BIRLA VXL (SUPRA), WHICH WHILE ADJUDICATING THE ISSUE OF TAXA BILITY OF SUBSIDY GRANTED UNDER THE SCHEME HAD HELD THAT THE SUBSIDY GRANTED FOR THE DEVELOPMENT OF INDUSTRIES IN UNDERDEVELOPED ARE AS WAS PRINCIPALLY AIMED TO COVER THE CAPITAL OUTLAY OF TH E ELIGIBLE UNIT AND WAS CAPITAL RECEIPT. FURTHER RELIANCE WAS PLACED O N THE RATIO LAID DOWN IN DCIT VS. MARUTI SUZUKI INDIA LTD. (SUPRA) A ND SHREE BALAJI ALLOYS VS. CIT (SUPRA). THE LEARNED A.R. FOR THE A SSESSEE POINTED OUT THAT THE DECISION OF THE HON'BLE PUNJAB & HARYA NA HIGH COURT IN CIT VS. ABHISHEK INDUSTRIES LTD. (SUPRA) WAS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IT WAS FURTHER P OINTED OUT THAT THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE SUCC EEDING DECISION IN CIT VS. SHAM LAL BANSAL, INCOME TAX APP EAL NO.472 OF 2010 (SUPRA) AND CIT VS. SIA RAM GARG (HUF) (SUPRA) HAD HELD THE SUBSIDY RECEIVED BY THE ASSESSEE THEREIN TO BE CAPITAL RECEIPT. 12. WE FIND THAT THE ISSUE RAISED BEFORE US IS SUB- JUDICE BEFORE THE HON'BLE PUNJAB & HARYANA HIGH COURT IN ASSESSEE S OWN CASE IN ASSESSMENT YEARS 2003-04 & 2004-05. THE ISSUE I S ALSO PENDING IN ASSESSMENT YEAR 2005-06. THE TRIBUNAL I N ASSESSEES OWN CASE IN EARLIER YEARS VIDE ORDER DATED 31.1.200 8 HAD DECIDED THE ISSUE AGAINST THE ASSESSEE WHICH IS NOW SUBJECT MATTER OF APPEAL BEFORE THE HON'BLE HIGH COURT. THE LEARNED A.R. FOR THE ASSESSEE VEHEMENTLY STATED THAT THE FACTS OF THE CA SE WERE SQUARELY COVERED BY THE DECISION OF THE HON'BLE GUJ ARAT HIGH COURT IN CIT VS. BIRLA VXL (SUPRA) WHEREIN IT IS HELD THA T THE SUBSIDY GRANTED UNDER THE SCHEME WAS FOR CAPITAL OUTLAY OF THE UNIT. IN THE WRITTEN SUBMISSIONS FILED, THE LEARNED A.R. FOR THE ASSESSEE HAS ALSO POINTED OUT THAT THE SCHEME BEFORE THE HON'BLE HIGH COURT WAS THE SALES TAX SCHEME PREDECEASING THE SCHEME UN DER CONSIDERATION, WHICH SCHEME IS NOT BEFORE US. THE LEARNED A.R. FOR THE ASSESSEE HAS FAILED TO POINT OUT THE CONTEN TS OF THE EARLIER SCHEME OF STATE OF GUJARAT AND WHETHER THE SCHEME U NDER 4 CONSIDERATION FOR THE YEAR UNDER APPEAL IS SIMILAR TO THE EARLIER SCHEME OF STATE OF GUJARAT. IN THE ABSENCE OF THE SAME, WE FIND NO MERIT IN THE RELIANCE PLACED UPON THE DECISION O F THE HON'BLE GUJARAT HIGH COURT IN CIT VS. BIRLA VXL (SUPRA) AND THE PLEA OF THE ASSESSEE THAT THE FACTS OF THE CASE ARE SQUARELY COVERED BY THE SAID DECISION. IT MAY ALSO BE BROUGHT ON RECORD TH AT THE ASSESSEE ITSELF IN THE PRECEDING YEAR I.E. ASSESSMENT YEAR 2 005-06 HAD FILED A DECLARATION UNDER SECTION 158A(1) OF THE ACT AND IT WAS POINTED OUT THAT THE ISSUE WAS IDENTICAL TO THE ISSUE RAISE D IN ASSESSMENT YEARS 2003-04 AND 2004-05, WHERE THE APPEAL OF THE ASSESSEE WAS PENDING BEFORE THE HON'BLE HIGH COURT. REQUEST WAS MADE BEFORE US TO APPLY THE DECISION OF THE HON'BLE HIGH COURT IN ASSESSMENT YEARS 2003-04 AND 2004-05 TO THE ISSUE RAISED IN AS SESSMENT YEAR 2005-06. IN VIEW OF THE ABOVE SAID FACTS AND CIR CUMSTANCES AND RESPECTFULLY FOLLOWING THE EARLIER ORDER OF THE TRI BUNAL IN ASSESSEES OWN CASE, WE CONFIRM THE ORDER OF THE CI T (APPEALS) IN HOLDING THAT THE SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE IS REVENUE IN NATURE. THE GROUND NOS.1 AND 2 RAISED B Y THE ASSESSEE ARE THUS DISMISSED. FOLLOWING THE ABOVE, WE DECIDE THIS ISSUE AGAINST T HE ASSESSEE. 8 GROUND NO. 3 - AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICE NOTICED THAT THE ASSESSEE HAS MADE INVESTMENTS IN BHARUCH ECO-AQUA INFRASTRUCTURE LTD. (IN SHORT BEIL) AND SOME MUTUA L FUNDS, THEREFORE SEC 14A R.W.R. 8D WAS INVOKED AND DISALLO WANCE OF RS. 3,85,921/- WAS MADE OUT OF INTEREST AND EXPEND ITURE. 9 ON APPEAL IT WAS MAINLY SUBMITTED THAT INVESTMENT OF RS. 164.75 LAKHS WAS MADE IN BEIL. THIS INVESTMENT WAS OLD INVESTMENT AND WAS MADE IN EARLIER YEAR IN A SUBSID IARY OF GUJARAT INDUSTRIAL DEVELOPMENT CORPORATION (FOR SHO RT GIDC). THE COMPANY WAS FLOATED BY THE MEMBERS OF INDUSTRY AND GIDC TO UNDERTAKE THE PROJECT OF LAYING DOWN OF PIPE LIN E FOR CARRYING OUT WATER FROM INDUSTRIAL UNITS. THIS COMPANY WAS S TARTED ON THE DIRECTIONS OF HON'BLE GUJARAT HIGH COURT. THE C OMPANY WAS FORMED U/S 25 OF THE COMPANIES ACT, 1956 WHICH IS N ON PROFIT MAKING COMPANY AND THEREFORE NO INCOME SHOULD HAVE BEEN GENERATED. AS FAR AS INVESTMENT IN MUTUAL FUNDS I S CONCERNED, 5 THE SAME WOULD NOT YIELD ANY DIVIDEND INCOME AND IN THIS REGARD DETAILS WERE FILED. IT WAS URGED THAT RULE 8D WAS NOT APPLICABLE AND IN ANY CASE THE ASSESSEE HAS ITSELF ADMITTED DISALLOWING OF RS. 10,000 U/S 14A. 10 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS WAS SATISFIED ABOUT THE CONTENTIONS IN RESPECT OF INVE STMENT IN THE MUTUAL FUNDS. HOWEVER, HE WAS NOT SATISFIED WITH TH E CONTENTIONS REGARDING INVESTMENT IN BEIL AND THEREF ORE REWORKED THE DISALLOWANCE ONLY IN RESPECT OF INVEST MENTS MADE TOWARDS BEIL AND RESTRICTED THE DISALLOWANCE TO RS. 109,281/-. 11 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REIT ERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). HE REFERRE D TO PAGE 10 & 11 OF PAPER BOOK WHICH IS A COPY OF ARTICLES O F ASSOCIATION OF BEIL AND ARTICLE 178 CLEARLY PROVIDE S THAT COMPANY WILL NOT BE PAYING DIVIDEND IN TERMS OF SEC 25 OF COMPANIES ACT, 1956. HE ALSO REFERRED TO PAGE 12 T O 14 WHICH IS COPY OF A LETTER ADDRESSED TO THE ASSESSEE REGAR DING CONTRIBUTION. IN THIS LETTER IT IS ALSO CLARIFIED THAT CONTRIBUTION WAS REQUIRED TO SATISFY THE HON'BLE HIGH COURT REGA RDING ENVIRONMENT PROTECTION MEASURES. SINCE NO INCOME W AS TO BE RECEIVED, THEREFORE SEC 14A COULD NOT HAVE BEEN INV OKED. 12 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE STRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). 13 WE HAVE GONE THROUGH THE RIVAL SUBMISSIONS CAREF ULLY. IT IS NOT DISPUTED THAT INVESTMENT OF RS. 164.75 LAKHS HAS BEEN MADE IN BEIL. FROM PAGE 30 OF PAPER BOOK WHICH GIV ES THE OVER VIEW OF THE OBJECTS OF BEIL READS AS UNDER: 6 NCTL OVERVIEW NARMADA CLEAN TECH LTD. (NCTL) FORMERLY KNOWN AS BH ARUCH ECO AQUA INFRASTRUCTURE LTD. (BEAIL) IS A COMPANY SUBSIDIARY OF GUJARAT INDUSTRIAL DEVELOPMENT CORPORATION (GIDC) AND JOINTLY PROMOTED BY MEMBER INDUSTRIES OF ANKLESHWAR, JHAGADIA AND PANOLI INDUS TRIAL ESTATES. THE OBJECTIVE IS TO RECEIVE THE INDUSTRIAL EFFLUENT TRE ATMENT PLANT (FETP) UPTO MARINE STANDARDS AND THEN TO CONVEY DEEP INTO THE SEA. VC&MD-GIDC IS THE CHAIRMAN OF NCTL. EVER SINCE THE ISSUES OF ENVIRONMENT PROTECTION BEC OME A PRIORITY AGENDA ACROSS THE WORLD, INDIAN GOVERNMENT & GUJARA T GOVERNMENT HAS JOINED THE INTERNATIONAL COMMUNITY IN ITS COMMITMEN T TOWARDS ENVIRONMENT PROTECTION PROGRAM. THE PRIORITY ACCORD ED TO CONTROL OF ENVIRONMENT POLLUTION IS EVIDENT FROM THE NUMBER OF POLLUTION CONTROL ACTS ENACTED ALONGWITH RULES AND REGULATIONS. KEEPI NG THE SPIRIT AND INTENT OF THESE POLICIES, IMPLEMENTATION AT GROUND LEVEL IS THE MAJOR CHALLENGE. PRIOR TO COMMENCEMENT OF THIS PROJECT, TREATED EFFL UENT FROM THREE INDUSTRIAL ESTATES WERE DISPOSING OFF INTO A NATURA L CREEK NAMELY AMLAKHADI LEADING TO NARMADA ESTUARY. OBJECTION WAS RAISED BY LOCAL POPULATION AND NGOS AGAINST DISPOSAL OF EFFLUENT AN D SUBSEQUENTLY HIGH COURT HAS INTERVENED AND DIRECTED TO STOP THE DISPO SAL OF EFFLUENT INTO AMLAKHADI. AFTERWARDS IN HIGH LEVEL COMMITTEE MEETI NG CHAIRED BY ACS, IT WAS DECIDED TO TREAT EFFLUENT UP TO MARINE STAND ARD AND TO RELEASE INTO GULF OF KHAMBHAT BEYOND NARMADA ESTUARINE ZONE. NCT L WAS SET UP TO HONOR THE DIRECTIVES GIVEN BY THE HIGH COURT. THE FINAL EFFLUENT TREATMENT PLANT (FETP) IS SPREAD OVER MORE THAN 3,00,000 SQ. METERS OF LAND, HAS TREATMENT CAPACITY OF 75,000 M 3 PER DAY. MORE THAN 38000 TREES ARE PLANTED TO COVER BAR E LAND. FACILITY WAS COMMISSIONED IN DECEMBER, 2006 AT THE COST OF 131 C RORES TO TREAT 40000 M 3 PER DAY OF EFFLUENT USING CONVENTIONAL BIOLOGICAL TREATMENT. FACILITY WAS ENHANCED BY 20000 M 3 PER DAY AT AN ADDITIONAL COST OF 32 CRORES TAKING TOTAL PROJECT COST TO 167 CRORES. THE CONTINUAL IMPROVEMENT PROJECTS INCLUDES ADDITIO N OF PREPRIMARY CLARIFIED TO REDUCE CARRY OVER OF SUSPENDED SOLIDS, INSTALLATION OF ADDITIONAL DECANTERS FOR SOLID REMOVAL, INSTALLATIO N OF CULTURE TANK FOR SUSTAINABLE DEVELOPMENT OF MICROBES, ETC. TECHNICAL & ECONOMICAL VIABILITY OF OTHER TECHNOLOGIES TO REDUCE COD NAMEL Y ELECTRO COAGULATION, OZONATION, ULTRASONIC SOUND, RO, ETC. ARE IN PROGRESS. FROM ABOVE IT BECOMES CLEAR THAT THIS ORGANIZATION WAS BROUGHT INTO PICTURE TO COMPLY WITH DIRECTIONS GIVEN BY THE HON'BLE GUJARAT HIGH COURT FOR CONTROLLING WATER POLLUTION. THE COMPANY WAS STARTED WITH THE CONTRIBUTION FROM VARIOUS INDU STRIAL UNDERTAKING AND ASSESSEE HAS ALSO CONTRIBUTED CAPIT AL FOR STARTING THIS VENTURE. ARTICLE 178 READS AS UNDER: DIVIDENDS 7 DIVISION OF PROFITS 178 AS PER REQUIREMENT OF THE PROVISIONS OF SECTION 25 OF THE COMPANIES ACT, 1956, THE COMPANY PROHIBITS THE PAYM ENT OF DIVIDENDS TO THE SHAREHOLDERS OF THE COMPANY. THE COMPANY INTENDS TO APPLY ITS PROFITS, IF ANY, OR OTHER INCO ME EARNED IN PROMOTING THE OBJECTS OF THE COMPANY. 14 ABOVE MAKES IT CLEAR THAT NO DIVIDEND WAS TO BE DECLARED IN VIEW OF THE PROVISIONS OF SECTION 25 OF COMPANIE S ACT, 1956. THEREFORE IT WAS NOT POSSIBLE TO RECEIVE ANY EXEMPT INCOME FROM THIS INVESTMENT BY THE ASSESSEE. ONCE THERE WA S NO EXEMPT INCOME THEN SEC 14A COULD NOT BE INVOKED. T HEREFORE WE FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE AND HOLD THAT SEC 14A COULD NOT HAVE BEEN INVOKED TO MAKE DISALLOWANCE OF RS. 109,281/-. 15 IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20.1.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 20.1.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR