TMI Blog2015 (11) TMI 1548X X X X Extracts X X X X X X X X Extracts X X X X ..... is bad in law. 2. That in the facts and circumstances of the case in law the Ld. CIT (A) grossly erred in interpreting Section 14A and Rule 8D by concluding that Rule 8D provides for allocation of expenditure relatable to exempt income and that such expenditure is to be disallowed even when there is actually no exempt income during the previous year. 3. The facts and circumstances in both the years are similar. Therefore, we are discussing the facts for assessment year 2008-09. A search and seizure action u/s 132 of the Income Tax Act, 1961 (hereinafter the Act ) was carried out in M/s. Diamond Hut Group of cases on 27.10.2009. The case of the assessee was also covered in operation u/s 132 of the Act and accordingly, notice u/s 153A was issued on 13.04.2010. In response to the notice, the assessee had filed return of income, declaring a total Income of ₹ 23,01,940/- on 07.09.2010. The AO issued notice u/s 143(2) on 14.09.2010 and subsequently another notice u/s 143(2) was issued on 12.07.2011. Thereafter, a detailed questionnaire u/s 142(1) was issued on 12.08.2011. In response to the same, the AR for the assessee attended the proceedings from time to time and fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provision of section 14A read with Rule 8D, which is reproduced as under :- S.No. Particulars Amount (Rs.) 1 The amount of expenditure directly relating to income which does not form part total income A NIL 2 Expenditure on Interest B 81,13,085 3 The average of value of investment income from which does not or shall not form part of the total income [(Rs.Nil + ₹ 3,35,00,000) / 2] C 1,67,50,000 4 The average of total asset appearing in the balance sheet of the assessee [(Rs.2,47,24,108/- + ₹ 8,89,27,895/-) / 2] D 5,68,26,002 5 B X C/D 23,91,408 6 % of the average of the value of investment, income from which does not or shall not form part of the total income. E 83,750 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. We have heard both the sides and perused the material on record. In the present case it is an admitted fact that the assessee had not earned any dividend income during the year under consideration. Now this issue is no longer Res-Integra as held by the Hon ble jurisdictional High Court in Holcim (P) Ltd (supra) and by Punjab and Haryana High Court in M/s Lakhani Marketing Incl (Supra). We take a look at section 14 A(1) of the Act which is reproduced as under below: For the purposes of computing the total income under this 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 this Act. From a bare perusal of the section it is clear that before making the disallowance the following conditions are to exist as noted by co-ordinate Bench in M/s Kee Pharma Ltd. ITA NO 5108/Del/2012: (i) There must be income taxable under the Act; (ii) The said income must not form part of the total income under the Act; (iii) There must be an expenditure incurred by the assessee; and (iv) The said expenditure must have a relation to the income which does not form part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , nor the statement of the assessee before AO that assessee is not in receipt of any dividend income and hence according to us, the Assessing Officer has erred in invoking Section 14A of the Act, to disallow various interest payments on capital account, security deposits and unsecured loans. This conclusion of ours finds support in the decision of Bombay Bench of the Tribunal in the case of Joint Commissioner of Income Tax v. Holland Equipment Co. B. V. reported in (2005) 3 SOT 810 (Mumbai) and the relevant portion of the order of the Bombay Bench of the Tribunals reproduced below:- Regarding application of Section 14A of the Act, the contention of the learned Department Representative has to be rejected on the face of it inasmuch as the entire income of the assessee is taxable under the Act. Section 14A is applicable only when any part of the income is not to be included in the total income of the assessee and the expenditure relating to that part of income is claimed by the assessee as deduction. In such cases only, the expenditure relating to the exempted income can be disallowed and not otherwise. Since in the present case, the entire income is found to be taxable, no dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had taken loans on which interest was paid and all the money available with the assessee was in common kitty, as held by this Court in CIT vs. Abhishek Industries Limited , (2006) 205 CTR (P H) 304 : (2006) 286 ITR 1 (P H) and therefore, disallowance under section 14A was justified. 7. We do not find any merit in this submission. Judgment of this Court in Abhishek Industries (supra) was on the issue of allowability of interest paid on loans given to sister concerns, without interest. It was held that deduction for interest was permissible when loan was taken for business purpose and not for diverting the same to sister concern without having nexus with the business. Observations made therein have to be read in that context. In the present case, admittedly, the assessee did not make any claim for exemption. In such a situation, section 14A could have no application. Similarly, the Hon ble Jurisdictional High Court in the case of CIT Vs Holcim India (P) Ltd. in ITA Nos. 486 299/2014 vide order dated 05.09.2014 dismissed the appeal of the revenue and observed in para 14 as under: 14. On the issue whether the respondent-assessee could have earned dividend inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in the case of CIT Vs M/s Lakhani Marketing (supra) we find force in the contention of the Ld. AR that no disallowance u/s 14A of the Act can be made if there is no income earned. In that view of the matter, we delete the disallowance made by the AO and later confirmed by the ld. CIT(A) in both the assessment years. 9. During the course of proceedings, the assessee has also raised the following additional grounds of appeal in assessment year 2008-09 :- 1. That the additions made are illegal, bad in law and without jurisdiction as the same are not based on any incriminating material found during the search. 2. That the assessment for the relevant Assessment Year 2008- 09 was already completed. Hence in the absence of any incriminating material no addition could have been made while completing assessment u/s 153A. 3. That the CIT (A) has erred in law and on facts in not appreciating the fact that the AO had no jurisdiction to make the additions which were not based on any incriminating seized material and hence the said additions are illegal and bad in law. 10. Since we have deleted the disallowance made in the assessment year 2008-09, the issues raised ..... 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