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Income Tax Appellate Tribunal, BANGALORE BENCH ‘C’, BANGALORE
Before: SHRI A. K. GARODIA & SHRI VIJAY PAL RAO
by way of this common order for the sake of convenience.
The grounds raised by revenue in for AY:
2011-12 are as under; “1. The order of the ld. CIT(A)-5 is opposed to law and not on facts and circumstances of the case.
2. On the facts and circumstances of the case, the ld. CIT(A) erred in law in allowing the appeal of the assessee without appreciating the fact that the assessee company has made investments in shares and NSC. If not financial expenses, the assessee would have used infrastructural machinery for the purpose of investment and management of such investments. Further as per sub-section(3) of sec.14A the provision of sub-section(2) shall also apply in relation to a case where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under the Act.
3. For these and other grounds that may be urged upon, the order of the CIT(A) may be reversed and that assessment order be restored.
4. The appellant craves leave to add, alter, amend or delete any other grounds on or before hearing of the appeal”.
The grounds raised by the revenue in are as under:
“1. The order of the ld. CIT(A)-5 is opposed to law and not on facts and circumstances of the case. 2. On the facts and circumstances of the case, the ld. CIT(A) erred in law in allowing the appeal of the assessee without appreciating the fact that the assessee company has made investments in shares and NSC. If not financial expenses, the assessee would have used infrastructural machinery for the purpose of investment and management of such investments. Further as per sub-section(3) of sec.14A the provision of sub-section(2) shall also apply in relation to a case where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under the Act.
For these and other grounds that may be urged upon, the order of the CIT(A) may be reversed and that assessment order be restored.
4. The appellant craves leave to add, alter, amend or delete any other grounds on or before hearing of the appeal”.
The ld. DR of the revenue supported the assessment order whereas the ld. AR of the assessee supported the order of ld.CIT (A). He also submitted that a copy of the P&L account of the assessee company for the year ending 31-03-2012 along with the figures of previous year is available at page no.46 of the paper book and the details of the other income is available on page no.54 of the paper book and it can be seen that there is no tax free income earned by the assessee in any of these years. Thereafter, he submitted that as per judgment of Hon’ble Delhi High Court rendered in the case of M/s Cheminvest Ltd., Vs CIT 378 ITR 33, sec.14A will not apply, where no exempt income is received or receivable during the relevant previous year. He submitted that under these facts and in view of this judgment, Sec.14A of the IT Act is not applicable.
We have considered the rival submissions. We find force in the submissions of the ld. AR of the assessee that section 14A is not applicable because we find that in none of these two years, the assessee has earned any tax free income and as per the judgment of the Hon’ble Delhi High Court rendered in the case of M/s Cheminvest Ltd. Vs CIT (Supra), it was held that sec.14A of the IT Act will not apply where no exempt income is received or receivable during the relevant previous year. We also find that in this judgment, Hon’ble Delhi High Court has also had considered the judgment of the Hon’ble Apex Court rendered in the case of CIT Vs Rajendra Prasad Moody reported in 115 ITR 519(SC).
Respectfully following this judgment of the Hon’ble Delhi High Court cited supra, we hold that section 14A is not applicable in the facts of the present case.
But we also feel that when the investment in shares is not for stock in trade, if any borrowed fund is used for such investment then deduction on account of interest on such borrowed fund is not allowable under any section of I. T. Act being section 36 (1) (iii) or section 57 (iii) because such interest expenditure is neither for any business purpose nor for earning any income taxable under the head Income from Other Sources and therefore, deduction on account of interest under these facts is not allowable and there is no requirement to invoke section 14A for disallowance of interest. Hence, we feel that the A.O. should examine this aspect as to whether interest expenses in the present case is allowable under any section i.e. 36 (1) (iii) or 57 (iii) and if allowable then allowable to what extent and for this, the matter should go back to the file of the A.O. Accordingly, we set aside the order of CIT (A) in both years and restore the matter back to the file of the A.O. with the direction that although no disallowance can be made u/s 14A in the facts of the present case in view of the judgment of Hon’ble Delhi High Court rendered in the case of M/s Cheminvest Ltd., Vs CIT (Supra)but he should examine the allowability of interest expenditure u/s 36 (1) (iii) and 57 (iii) after affording adequate opportunity of being heard to the assessee. He should also keep in mind the above discussion.
In the result, both these appeals of the revenue are partly allowed for statistical purposes.
Order pronounced in the open court on the date mentioned on the caption page.
(A.K. GARODIA) (VIJAY PAL RAO) JUDICAL MEMBER ACCOUNTANT MEMBER Bangalore: D a t e d : .09.2016 am*