Appeal Details
Counselvise Citation
[2017] 126 COUNSELVISE.COM (IT) 8493 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 8 month(s) 27 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
08-11-2017
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
B
Assessment Year
2009-2010
Appeal Filed On
11-02-2015
Judgement Text
ITA NO.948/M/2015 & CO.NO. 143/MUM/2016 BAJAJ ECO-TEC PRODUCTS LIMITED ASSESSMENT YEAR 2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , , BEFORE SHRI MAHAVIR SINGH, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO. 948/MUM/2015 ( / ASSESSMENT YEAR: 2009-10) DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 3(1)(1) ROOM NO.607,AAYKAR BHAVAN MUMBAI 400 020 / VS. BAJAJ ECO - TEC PRODUCTS LIMITED 2 ND FLOOR, BAJAJ BHAVAN, JAMNALAL BAJAJ MARG NARIMAN POINT MUMBAI 400 021 ./ ./PAN/GIR NO. AACCB-8572-B ( /APPELLANT ) : ( !' / RESPONDENT ) & CROSS OBJECTION NO.143/MUM/2016 ( / ASSESSMENT YEAR: 2009-10) BAJAJ ECO - TEC PRODUCTS LIMITED 2 ND FLOOR, BAJAJ BHAVAN, JAMNALAL BAJAJ MARG NARIMAN POINT MUMBAI 400 021 / VS. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 3(1)(1) ROOM NO.607,AAYKAR BHAVAN MUMBAI 400 020 ./ ./PAN/GIR NO. AACCB-8572-B ( /APPELLANT ) : ( ! ' / RESPONDENT ) A SSESSEE BY : KIRIT KAMADAR & PARTH ACHWAL ,LD.AR S RE VENUE BY : SUMAN KUMAR, LD.DR / DATE OF HEARING : 04/10/2017 / DATE OF PRONOUNCEMENT : 08/11 /2017 ITA NO.948/M/2015 & CO.NO.143/MUM/2016 BAJAJ ECO-TEC PRODUCTS LIMITED ASSESSMENT YEAR 2009-10 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY REVENUE FOR ASSESSMENT Y EAR [AY] 2009- 10 ASSAILS THE ORDER OF THE LD. COMMISSIONER OF IN COME-TAX (APPEALS)- 5 [CIT(A)], MUMBAI, APPEAL NO. IT-390/11-12/215/14-15 ORDER DATED 14/11/2014 . THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. DEPUTY COMMISSIONER OF INCOME TAX 3(1)(1), MUMBAI ON 30/12/2011 U/S 1 43(3) OF THE INCOME TAX ACT,1961 . THE ASSESSEE HAS FILED CROSS OBJECTION AGAINST THE SAME WHICH SUPPORTS THE ORDER OF FIRST APPEAL AUTHORITY. THE REVENUE HAS RAISED THE FOLLOWING EFF ECTIVE GROUNDS OF APPEAL:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE A.O OF RS.3,04,36,209/-, BEING DEPRECIA TION CLAIMED BY THE ASSESSEE ON CIVIL WORK OF FACTORY BUILDING, WITHOUT APPRECIATING THE FACT THAT ASSESSEE COULD NOT PROVE THE GENUINENESS OF THE TRANSACTION. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE A.O OF RS.13,58,162/-, BEING EXPENDITUR E INCURRED ON EARNING THE EXEMPT INCOME BY INVOKING PROVISION OF SECTION 14A OF THE I.T.ACT READ WITH RULE 8D 2.1 BRIEFLY STATED THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURING OF MDF AND PARTICLE BOARDS FROM SUGARCANE BAGASSE , WAS ASSESSED U/S 143(3) FOR IMPUGNED AY ON 30/12/2011 AT LOSS OF RS.115.89 CRORES AS AGAINST R ETURNED LOSS OF RS.121.80 CRORES AS PER REVISED RETURN OF INCOME FILED BY THE ASSESSEE ON 02/11/2009. THE ISSUES INVOLVED IN THE PRESENT A PPEAL ARE DISALLOWANCE OF DEPRECIATION FOR RS.3,04,36,209/- A ND DISALLOWANCE U/S 14A FOR RS.13,58,162/-. ITA NO.948/M/2015 & CO.NO.143/MUM/2016 BAJAJ ECO-TEC PRODUCTS LIMITED ASSESSMENT YEAR 2009-10 3 2.2 DURING ASSESSMENT PROCEEDINGS, WITH THE VIEW TO EXAMINE THE EXPENSE & DEPRECIATION CLAIMED BY THE ASSESSEE, NO TICE U/S 133(6) WAS SENT TO A CONCERN NAMELY TERACON CONSTRUCTION INDIA PRIVATE LIMITED WHO STATED TO HAVE CARRIED OUT CERTAIN CIVIL WORK A T FACTORY BUILDING OF THE ASSESSEE FOR AN AMOUNT OF RS.30,43,62,085/-. HOWEV ER THE NOTICE WAS RETURNED BACK UN-SERVED. IT WAS FURTHER NOTED THAT CERTAIN PAYMENTS REFLECTED AGAINST THE SAID PARTY WAS, IN FACT, ISSU ED IN THE NAME OF THE CERTAIN INDIVIDUALS. SINCE THE ASSESSEE COULD NOT F ILE ANY COGENT MATERIAL TO ESTABLISHED THE GENUINENESS OF THE PURCHASES, TH E LD. ASSESSING OFFICER [AO] TREATED THE SAME AS NON-GENUINE AND D ISALLOWED THE CORRESPONDING DEPRECIATION OF RS.3,04,36,209/- CLAI MED AGAINST THE SAME. 2.3 THE SECOND ADDITION PERTAINS TO DISALLOWANCE U/ S 14A. IT WAS NOTED THAT THE ASSESSEES INVESTMENT AS ON 31/03/2009 STO OD AT RS.5 CRORES BUT NO SUO-MOTO DISALLOWANCE AGAINST THE SAME WAS MADE BY THE ASSESSEE U/S 14A. THE ASSESSEE DID NOT EARN ANY EXE MPT INCOME DURING THE YEAR. THE LD. AO OPINED THAT SECTION 14A WAS AP PLICABLE TO THE CASE OF THE ASSESSEE AND ACCORDINGLY, APPLYING RULE 8D, COMPUTED AGGREGATE DISALLOWANCE OF RS.13,58,162/- WHICH COMPRISED OF I NTEREST DISALLOWANCE OF RS.12,33,162/- U/R 8D(2)(II) AND EXPENSE DISALLO WANCE OF RS.1,25,000/- U/R 8D(2)(III). 3. AGGRIEVED, THE ASSESSEE CONTESTED BOTH THE ISSUE S SUCCESSFULLY BEFORE LD.CIT(A) VIDE IMPUGNED ORDER DATED 14/11/20 14. QUA CIVIL WORK EXPENSES, THE ASSESSEE SUBMITTED THAT THE PARTY IN QUESTION REGULARLY CARRIED OUT SUCH WORK FOR VARIOUS OTHER CONCERNS OF THE ASSESSEE IN THE ITA NO.948/M/2015 & CO.NO.143/MUM/2016 BAJAJ ECO-TEC PRODUCTS LIMITED ASSESSMENT YEAR 2009-10 4 PAST. THE ASSESSEE ALSO PROVIDED COMPLETE DETAILS O F THE SAID PARTY INCLUDING OF INCOME TAX RETURNS, RELEVANT DATA FROM REGISTRAR OF COMPANIES, CHEQUE CLEARANCE CERTIFICATE, PROJECT WI SE CAPITALIZATION OF EXPENSES, PHOTOGRAPHS ETC. TO CONTEND THAT THE EXPE NDITURE WAS GENUINE. THE LD. CIT(A), AFTER CONSIDERING THE SAME , WAS CONVINCED WITH ASSESSEES EXPLANATION SINCE MANUFACTURING COULD NO T BE POSSIBLE WITHOUT REQUISITE CIVIL WORK IN THE CONSTRUCTION OF FACTORY BUILDING. SIMILARLY, DISALLOWANCE U/S 14A WAS DELETED ON THE PREMISES THAT THE ASSESSEE HAD OWN SUFFICIENT FUNDS TO MAKE THE REFLE CTED INVESTMENTS. AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 4. THE LD. DEPARTMENTAL REPRESENTATIVE [DR] CONTEND ED THAT THE ASSESSEE FURNISHED CERTAIN ADDITIONAL EVIDENCES, QUA CIVIL WORK, BEFORE LD. CIT(A) WHICH WERE NEVER CONFRONTED TO THE LD. A O AND THEREFORE, THE SAME STOOD VITIATED FOR WANT OF PRINCIPLES OF NATUR AL JUSTICE. PER CONTRA, LD. COUNSEL FOR ASSESSEE [AR] FAIRLY CONCEDED THE S AME. 5. WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS AN D PERUSED RELEVANT MATERIAL ON RECORD. SINCE, PRIMA FACIE, THE ADDITIONAL EVIDENCES SUBMITTED BY ASSESSEE BEFORE LD. FIRST APPELLATE AU THORITY WERE NEVER CONFRONTED TO LD. AO AND NO REMAND REPORT WAS CALLED AGAINST THE SAME, WE REMIT THE MATTER BACK TO THE FILE OF LD. AO TO R E-APPRECIATE THE CONTENTIONS OF THE ASSESSEE AND DECIDE AS PER LAW A FTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . THE ASSESSEE, IN TURN, IS DIRECTED TO SUBSTANTIATE HIS CLAIM IN THIS REGARD. THIS GROUND OF REVENUES APPEAL STANDS ALLOWED FOR STATISTICAL PUR POSES. ITA NO.948/M/2015 & CO.NO.143/MUM/2016 BAJAJ ECO-TEC PRODUCTS LIMITED ASSESSMENT YEAR 2009-10 5 6. SO FAR DISALLOWANCE U/S 14A IS CONCERNED, WE CON FIRM THE STAND OF LD.CIT(A) FIRSTLY BECAUSE IT WAS NOTED THAT OWN INT EREST FREE FUNDS OF THE ASSESSEE FAR EXCEEDED THE IMPUGNED INVESTMENTS AND SECONDLY, NO EXEMPT INCOME HAS BEEN EARNED BY THE ASSESSEE DURIN G THE YEAR AND HENCE DISALLOWANCE U/S 14A WAS NOT ATTRACTED. THESE FACTS ARE NOWHERE DISPUTED OR CONTROVERTED BY THE REVENUE. OUR VIEW I S FORTIFIED BY A RECENT JUDGMENT OF HONBLE DELHI HIGH COURT RENDERED IN PCIT VS. IL&FS ENERGY DEVELOPMENT CO. LTD. [84 TAXMANN.COM 186 DAT ED 16/08/2017] WHERE THE HONBLE COURT HAS DISCUSSED THE ISSUE ELA BORATELY IN THE LIGHT OF STATUTORY PROVISIONS AND CBDT CIRCULAR DATED 11/ 05/2014. WE ARE INCLINED TO REPRODUCE HERE-IN-BELOW THE RELEVANT OB SERVATIONS MADE BY HONBLE COURT IN THE SAID JUDGMENT:- 11. AT THE OUTSET, IT REQUIRES TO BE NOTICED THAT WE A RE CONCERNED WITH THE AY 2011- 12 AND, THEREFORE, THE QUESTION OF THE APPLICABILIT Y OF RULE 8D, WHICH WAS INSERTED WITH EFFECT FROM 24TH MARCH 2008, IS NOT IN DOUBT. 12. SECTION 14A OF THE ACT, WHICH WAS INSERTED WITH RE TROSPECTIVE EFFECT FROM 1ST APRIL 1962, PROVIDES FOR DISALLOWANCE OF THE EXPEND ITURE INCURRED IN RELATION TO INCOME EXEMPTED FROM TAX. FROM 11TH MAY 2001, A PRO VISO WAS INSERTED IN SECTION 14A TO CLARIFY THAT IT COULD NOT BE USED TO REOPEN OR RECTIFY A COMPLETED ASSESSMENT. SUB-SECTIONS (2) AND (3) OF SECTION 14A WERE INSERT ED WITH EFFECT FROM 1ST APRIL, 2007 TO PROVIDE FOR METHODOLOGY FOR COMPUTING OF DI SALLOWANCE UNDER SECTION 14A. HOWEVER, THE ACTUAL METHODOLOGY WAS PROVIDED IN TER MS OF RULE 8D ONLY FROM 24TH MARCH 2008. THERE WAS A FURTHER AMENDMENT TO RULE 8 D WITH EFFECT FROM 2ND JUNE 2016 LIMITING THE DISALLOWANCE THE AGGREGATE OF THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTA L INCOME AND AN AMOUNT EQUAL TO ONE PER CENT OF THE ANNUAL AVERAGE OF THE MONTHLY A VERAGE OF THE OPENING AND CLOSING BALANCES OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT FORM PART OF THE TOTAL INCOME. IT IS ALSO PROVIDED THAT THE A MOUNT SHALL NOT EXCEED THE TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE. 13. IN THE ABOVE BACKGROUND, THE KEY QUESTION IN THE P RESENT CASE IS WHETHER THE DISALLOWANCE OF THE EXPENDITURE WILL BE MADE EVEN W HERE THE INVESTMENT HAS NOT RESULTED IN ANY EXEMPT INCOME DURING THE AY IN QUES TION BUT WHERE POTENTIAL EXISTS FOR EXEMPT INCOME BEING EARNED IN LATER AYS. 14. IN THE EXPLANATORY MEMORANDUM TO THE FINANCE ACT 2 001, BY WHICH SECTION 14A WAS INSERTED WITH EFFECT FROM 1ST APRIL 1962, IT WA S CLARIFIED THAT 'EXPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABL E TO THE EARNED INCOME OF TAXABLE ITA NO.948/M/2015 & CO.NO.143/MUM/2016 BAJAJ ECO-TEC PRODUCTS LIMITED ASSESSMENT YEAR 2009-10 6 INCOME' . THE OBJECT BEHIND SECTION 14A WAS TO PROVIDE THAT ' NO DEDUCTION SHALL BE MADE IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE INCOME TAX ACT' . 15. WHAT IS TAXABLE UNDER SECTION 5 OF THE ACT IS THE 'TOTAL INCOME' WHICH IS NEITHER NOTIONAL NOR SPECULATIVE. IT HAS TO BE 'REAL INCOME '. THE SUBSEQUENT AMENDMENT TO SECTION 14A DOES NOT PARTICULARLY CLARIFY WHETHER T HE DISALLOWANCE OF THE EXPENDITURE WOULD APPLY EVEN WHERE NO EXEMPT INCOME IS EARNED I N THE AY IN QUESTION FROM INVESTMENTS MADE, NOT IN THAT AY, BUT EARLIER AYS. 16. RULE 8D (1) OF THE RULES IS HELPFUL, TO SOME EXTEN T, IN UNDERSTANDING THE ABOVE ISSUE. IT READS AS UNDER: '8D. (1) WHERE THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH ( A ) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR ( B ) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITUR E HAS BEEN INCURRED, IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, HE SHALL DETERMINE THE AMOUNT OF EXPENDITURE IN REL ATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB-RULE (2).' 17. THE WORDS 'IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR' IN THE ABOVE RULE 8 D (1) INDICATES A CORRELATION BETWEEN THE EXEMPT INCOME EARNED IN THE AY AND THE EXPENDITURE INCURRED TO EARN IT. IN OTHER WORDS, THE EXPENDITUR E AS CLAIMED BY THE ASSESSEE HAS TO BE IN RELATION TO THE INCOME EARNED IN 'SUCH PRE VIOUS YEAR'. THIS IMPLIES THAT IF THERE IS NO EXEMPT INCOME EARNED IN THE AY IN QUEST ION, THE QUESTION OF DISALLOWANCE OF THE EXPENDITURE INCURRED TO EARN EX EMPT INCOME IN TERMS OF SECTION 14A READ WITH RULE 8D WOULD NOT ARISE. 18. THE CBDT CIRCULAR UPON WHICH EXTENSIVE RELIANCE IS PLACED BY MR. HOSSAIN DOES NOT REFER TO RULE 8D (1) OF THE RULES AT ALL BUT ON LY REFERS TO THE WORD 'INCLUDIBLE' OCCURRING IN THE TITLE TO RULE 8D AS WELL AS THE TI TLE TO SECTION 14A. THE CIRCULAR CONCLUDES THAT IT IS NOT NECESSARY THAT EXEMPT INCO ME SHOULD NECESSARILY BE INCLUDED IN A PARTICULAR YEAR'S INCOME FOR THE DISA LLOWANCE TO BE TRIGGERED. 19. IN THE CONSIDERED VIEW OF THE COURT, THIS WILL BE A TRUNCATED READING OF SECTION 14 A AND RULE 8D PARTICULARLY WHEN RULE 8D (1) USES TH E EXPRESSION 'SUCH PREVIOUS YEAR'. FURTHER, IT DOES NOT ACCOUNT FOR THE CONCEPT OF 'REAL INCOME'. IT DOES NOT NOTE THAT UNDER SECTION 5 OF THE ACT, THE QUESTION OF TA XATION OF 'NOTIONAL INCOME' DOES NOT ARISE. AS EXPLAINED IN COMMISSIONER OF INCOME TAX V. WALFORT SHARE AND STOCK BROKERS PVT. LTD [2010] 326 ITR 1 (SC), THE MANDATE OF SECTION 14A O F THE ACT IS TO CURB THE PRACTICE OF CLAIMING DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME BEING TAXABLE INCOME AND AT THE SAME TIME AV AIL OF THE TAX INCENTIVES BY WAY OF EXEMPTION OF EXEMPT INCOME WITHOUT MAKING AN Y APPORTIONMENT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. CONSEQUENTLY , THE COURT IS NOT PERSUADED THAT IN VIEW OF THE CIRCULAR OF THE CBDT DATED 11TH MAY 2014, THE DECISION OF THIS COURT IN CHEMINVEST LTD. ( SUPRA ) REQUIRES RECONSIDERATION. 20. IN M/S. REDINGTON ( INDIA ) LTD. V. THE ADDITIONAL COMMISSIONER OF INCOME TAX, COMPANY RANGE V, CHENNAI (ORDER DATED 23RD DECEMBER, 2016 OF THE HIGH COURT OF MADRAS IN TCA NO. 520 OF 2016), A SIMILAR CONTEN TION OF THE REVENUE WAS ITA NO.948/M/2015 & CO.NO.143/MUM/2016 BAJAJ ECO-TEC PRODUCTS LIMITED ASSESSMENT YEAR 2009-10 7 NEGATED. THE COURT THERE DECLINED TO APPLY THE CBDT CIRCULAR BY EXPLAINING THAT SECTION 14A IS 'CLEARLY RELATABLE TO THE EARNING OF THE ACTUAL INC OME AND NOT NOTIONAL INCOME OR ANTICIPATED INCOME.' IT WAS FURTHER EXPLAINED THAT, 'THE COMPUTATION OF TOTAL INCOME IN TERMS OF RULE 8 D IS BY WAY OF A DETERMINATION INVOLVING DIRECT AS WELL AS INDIRECT ATTRIBUTION. T HUS, ACCEPTING THE SUBMISSION OF THE REVENUE WOULD RESULT IN THE IMPOSITION OF AN AR TIFICIAL METHOD OF COMPUTATION ON NOTIONAL AND ASSUMED INCOME. WE BELIEVE THUS WOU LD BE CARRYING THE ARTIFICE TOO FAR.' 21. THE DECISIONS IN CIT V. M/S LAKHANI MARKETING INC. 2014 SCC ONLINE P&H 20357 , CIT V. WINSOME TEXTILE INDUSTRIES LIMITED [2009] 319 ITR 204 (P&H), CIT V. SHIVAM MOTORS ( P ) LTD. [2014]272 CTR (ALL) 277 HAVE ALL TAKEN A SIMILAR VI EW. THE DECISION IN TAIKISHA ENGINEERING INDIA PVT. LTD. ( SUPRA ) DOES NOT SPECIFICALLY DEAL WITH THIS ISSUE. 22. IT WAS SUGGESTED BY MR. HOSSAIN THAT, IN THE CONTE XT OF SECTION 57(III), THE SUPREME COURT IN COMMISSIONER OF INCOME TAX, WEST V. RAJENDRA PRASAD MOODY [1978] 115 ITR 519 ( SC ) EXPLAINED THAT DEDUCTION IS ALLOWABLE EVEN WHERE INCOME WAS NOT ACTUALLY EARNED IN THE AY IN QUESTION. THIS ASPECT OF THE MATTER WAS DEALT WITH BY THIS COURT IN M/S CHEMINVEST LTD. ( SUPRA ) WHERE IT REVERSED THE DECISION OF THE SPECIAL BENCH OF THE ITAT BY OBSERVING AS UNDER : '20. SINCE THE SPECIAL BENCH HAS RELIED UPON THE DE CISION OF THE SUPREME COURT IN RAJENDRA PRASAD MOODY ( SUPRA ), IT IS CONSIDERED NECESSARY TO DISCUSS THE TRUE PURPORT OF THE SAID DECISION. IT IS NOTICED TO BEGIN WITH THAT THE ISSUE BEFORE THE SUPREME COURT IN THE SAID CASE WAS WHETHER THE EXPENDITURE UNDER SECTION 57 (III) OF THE ACT COULD BE ALLOWED AS A DEDUCTION AGAINST DIVIDEND INCOME ASSESSABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCE S'. UNDER SECTION 57 (III) OF THE ACT DEDUCTION IS ALLOWED IN RESPECT OF ANY E XPENDITURE LAID OUT OR EXPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF M AKING OR EARNING SUCH INCOME. THE SUPREME COURT EXPLAINED THAT THE EXPRES SION 'INCURRED FOR MAKING OR EARNING SUCH INCOME', DID NOT MEAN THAT ANY INCO ME SHOULD IN FACT HAVE BEEN EARNED AS A CONDITION PRECEDENT FOR CLAIMING T HE EXPENDITURE. THE COURT EXPLAINED: 'WHAT S. 57(III) REQUIRES IS THAT THE EXPENDITURE M UST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. IT IS THE PURPOSE OF THE EXPENDITURE THAT IS RELEVANT IN DETE RMINING THE APPLICABILITY OF S. 57(III) AND THAT PURPOSE MUST BE MAKING OR EARNING OF INCOME. S. 57(III) DOES NOT REQUIRE THAT THIS PURPOSE MUST BE FULFILLED IN ORDE R TO QUALIFY THE EXPENDITURE FOR DEDUCTION. IT DOES NOT SAY THAT THE EXPENDITURE SHA LL BE DEDUCTIBLE ONLY IF ANY INCOME IS MADE OR EARNED. THERE IS IN FACT NOTHING IN THE LANGUAGE OF S. 57(III) TO SUGGEST THAT THE PURPOSE FOR WHICH THE EXPENDITURE IS MADE SHOULD FRUCTIFY INTO ANY BENEFIT BY WAY OF RETURN IN THE SHAPE OF INCOME . THE PLAIN NATURAL CONSTRUCTION OF THE LANGUAGE OF S. 57(III) IRRESIST IBLY LEADS TO THE CONCLUSION THAT TO BRING A CASE WITHIN THE SECTION, IT IS NOT NECES SARY THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF THE EXPENDITUR E.' 21. THERE IS MERIT IN THE CONTENTION OF MR. VOHRA T HAT THE DECISION OF THE SUPREME COURT IN RAJENDRA PRASAD MOODY ( SUPRA ) WAS RENDERED IN THE CONTEXT OF ALLOWABILITY OF DEDUCTION UNDER SECTION 57(III) OF THE ACT, WHERE THE EXPRESSION USED IS 'FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME.' SECTION 14A OF THE ITA NO.948/M/2015 & CO.NO.143/MUM/2016 BAJAJ ECO-TEC PRODUCTS LIMITED ASSESSMENT YEAR 2009-10 8 ACT ON THE OTHER HAND CONTAINS THE EXPRESSION 'IN R ELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME.' THE DECISION IN RAJENDRA PRASAD MOODY ( SUPRA ) CANNOT BE USED IN THE REVERSE TO CONTEND THAT EVE N IF NO INCOME HAS BEEN RECEIVED, THE EXPENDITURE INCURRED CAN BE DISA LLOWED UNDER SECTION 14A OF THE ACT.' 23. THE DECISIONS OF THE ITAT IN ACIT V. RATAN HOUSING DEVELOPMENT LTD. ( SUPRA ) AND RELAXO FOOTWEAR LTD. V. ADDL. CIT ( SUPRA ), TO THE EXTENT THAT THEY ARE INCONSISTENT WITH WHAT HAS BEEN HELD HEREINBEFORE D O NOT MERIT ACCEPTANCE. FURTHER, THE MERE FACT THAT IN THE AUDIT REPORT FOR THE AY I N QUESTION, THE AUDITORS MAY HAVE SUGGESTED THAT THERE SHOULD BE A DISALLOWANCE CANNO T BE DETERMINATIVE OF THE LEGAL POSITION. THAT WOULD NOT PRECLUDE THE ASSESSEE FROM TAKING A STAND THAT NO DISALLOWANCE UNDER SECTION 14 A OF THE ACT WAS CALL ED FOR IN THE AY IN QUESTION BECAUSE NO EXEMPT INCOME WAS EARNED. 24. FOR ALL OF THE AFOREMENTIONED REASONS, THIS COURT IS OF THE VIEW THAT THE CBDT CIRCULAR DATED 11TH MAY 2014 CANNOT OVERRIDE THE EX PRESSED PROVISIONS OF SECTION 14A READ WITH RULE 8D. 25. NO SUBSTANTIAL QUESTION OF LAW ARISES FROM THE IMP UGNED ORDER OF THE ITAT. THE APPEAL IS ACCORDINGLY DISMISSED. RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THIS GR OUND OF REVENUES APPEAL. 7. THE CROSS OBJECTION OF THE ASSESSEE SUPPORTS THE ORDER OF FIRST APPELLATE AUTHORITY QUA DISALLOWANCE U/S 14A. SINCE, WE HAVE ALREADY DISMISSED THIS GROUND OF REVENUES APPEAL, THE SAME BECOMES INFRUCTUOUS AND HENCE DISMISSED IN LIMINE. 8. RESULTANTLY, THE REVENUES APPEAL STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES WHEREAS ASSESSEES CROSS OBJEC TION STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 08 TH NOVEMBER, 2017. SD/- SD/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 08.11.2017 SR.PS:- THIRUMALESH ITA NO.948/M/2015 & CO.NO.143/MUM/2016 BAJAJ ECO-TEC PRODUCTS LIMITED ASSESSMENT YEAR 2009-10 9 ! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT 3. * ( ) / THE CIT(A) 4. * / CIT CONCERNED 5. !$- , - , / DR, ITAT, MUMBAI 6. ./ / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI
