SHREE SHYAMKAMAL FINANCE AND LEASING CO. P. LTD, MUMBAI v. ITO 8(3)-1, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI D.K.AGARWAL JUDICIAL MEMBER & SHRI T.R.SOOD ACCOUNTANT MEMBER I.T.A.NO.433/MUM/2010 A.Y 2004-05 M/S SHREE SHYAMKAMAL FINANCE AND LEASING CO. PVT. LTD. SHYAMKAMAL BUILDING B.N.AGARWAL MARKET TEJPAL ROAD VILE PARLE (E) MUMBAI 400 057. PAN: AAFCS 8670 J VS. INCOME TAX OFFICER 8(3) 1 MUMBAI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.M.BANDI. REVENUE BY : SMT. AMRITA MISRA (SR.AR) O R D E R PER T.R.SOOD AM: IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED B UT AT THE TIME OF HEARING THE LD. COUNSEL OF THE ASSESSEE SUBMITTE D THAT THE ONLY TWO DISPUTES ARE INVOLVED WHICH ARE AS UNDER: 1. THE REOPENING OF ASSESSMENT; AND 2. THE CONFIRMATION OF DISALLOWANCE WHICH WAS MADE U/S.36[1][III] BY THE AO BUT CONFIRMED BY THE CIT( A) U/S.14A. 2. AFTER HEARING BOTH THE PARTIES WE FIND THAT ORI GINALLY RETURN WAS PROCESSED U/S.143[1] ON 30-12-04. LATER ON ASSESSME NT WAS REOPENED U/S.147. THE REASONS RECORDED FOR REOPENING HAVE BE EN MENTIONED IN THE ASSESSMENT ORDER ITSELF WHICH ARE AS UNDER: RETURN OF INCOME DECLARING TOTAL INCOME OF RS.6 32 205/- WAS FILED ON 31-10-2004. RETURN OF INCOME WAS PROCESSED U/S.143[ 1] OF THE I.T.ACT. 2 IN ASSESSMENT ORDER U/S.143[3] FOR A.Y 2002-2003 I T WAS FOUND THAT THE ASSESSEE WAS PAYING INTEREST EXPENSES OF RS.163 5493/- AGAINST UNSECURED LOAN OF RS.17544902/-. THE ENTIRE LOAN WA S TAKEN FROM TWO DIRECTORS OF THE ASSESSEE COMPANY AND INTEREST AMOU NT OF RS.14 28 063/- AND RS.2 07 490/- WERE PAID TO SHRI ANIL KUMAR AGARWAL AND SMT. ARATI AGARWAL RESPECTIVELY @ 12% P ER ANNUM. THIS UNSECURED LOAN HAD BEEN INVESTED IN ACQUIRING THE U NQUOTED SHARES OF SUBSIDIARY COMPANY M/S INDIA FINANCE AND CONSTRUCTI ON CO. PVT. LTD. (IFCCPL). THE ASSESSEE INVESTED RS.1 60 00 000/- [P .Y RS.1 10 00 000/-] IN ACQUIRING 20 000 SHARES OF IFC CPL OF RS.1000/- EACH RS.800/- PAID UP [FACE VALUE OF RS.1000 PER EQ UITY SHARES]. THE SHARES WERE DECLARED AS INVESTMENT IN THE BALANCE S HEET. THE BORROWED FUND HAD NOT BEEN USED FOR ANY BUSINESS ACTIVITIES BUT FOR INVESTMENT IN SHARES. DIVIDEND INCOME IF ANY IS TAX FREE U/S.10 (33) OF THE I.T.ACT. THEREFORE INTEREST CLAIMED WAS DISALLOWED U/S.14A OF THE I.T.ACT AFTER PROVIDING TRANSACTION WISE NEXUS BETWEEN THE BORROW ED FUND AND INVESTMENT. ALTERNATIVELY IT WAS ALSO HELD THAT IN TEREST EXPENSES ARE CAPITAL EXPENDITURE TO CONTROL INTEREST IN A SUBSID IARY GROUP COMPANY. THE LD. CIT(A) DISMISSED THE APPEAL AGAINST THE ADD ITIONS. IN A.Y 2004-2005 THERE WAS UNSECURED LOAN OF RS.1 58 81 352/- AND RS.152 77 108/- AS ON 31-03-2003 RESPECTIVELY. INVE STMENT OF RS.1 60 00 000/- WAS ALSO THERE. THEREFORE THIS YE AR ALSO THE BORROWED FUND HAD NOT BEEN USED FOR ANY BUSINESS ACTIVITIES BUT FOR INVESTMENT IN SHARES. THE ISSUE INVOLVED IS SAME AS THAT OF ISSUE FOR A.Y 2002-2003. CLAIMED INTEREST EXPENSES OF RS.12 24 308/- SHOULD BE DISALLOWED U/S.14A. ON THIS GROUND INCOME CHARGEABLE TO TAX O F RS.12 34 308/- HAS ESCAPED ASSESSMENT AS PER SECTION 147 OF THE AC T. FOR PREVIOUS YEAR ENDING ON 31-03-2004 THE ASSESSE E HAS SHOWN INCOME OF RS.12 30 720/- FROM SHARE TRADING WITHOUT SHOWING ANY DETAILS OF TRADE SHARE. THE ASSESSEE DID NOT HAVE A NY OPENING STOCK OR CLOSING STOCK. THEREFORE SHARE TRADING INCOME IS N OTHING BUT SPECULATION PROFIT. BUSINESS LOSS CANNOT BE ADJUSTE D AGAINST SPECULATION PROFIT. ON THIS GROUND INCOME CHARGEABLE TO TAX OF RS.12 30 720/- HAS ESCAPED ASSESSMENT AS PER PROVISION OF SECTION 147 OF THE ACT. IT IS ALSO NOTED THAT CARRY FORWARD CLAIM OF LOSS S HOULD NOT BE ALLOWED IN VIEW OF ASSESSMENT ORDER FOR A.Y 2002-2003 WHERE IN TOTAL INCOME WAS DETERMINED AT RS.3 12 999/-. I HAVE REASONS TO BELIEVE THAT THE AMOUNT OF RS.24 55 008/- IS INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT AS PER SE CTION 147 OF THE I.T.ACT 1961. 3. ON APPEAL THE ACTION OF THE AO WAS CONFIRMED BY THE LD. CIT(A) BY OBSERVING THAT ORIGINAL RETURN WAS PROCESSED ONL Y U/S.143[1]. 3 4. BEFORE US LD.COUNSEL OF THE ASSESSEE FILED A LI ST OF IMPORTANT DATES AND POINTED OUT THAT ORIGINAL RETURN WAS FILE D ON 31-10-2004 AGAINST WHICH DATE THE SAME COULD HAVE BEEN SELECTE D FOR SCRUTINY UPTO 31-10-2005 AND NOTICE WAS REQUIRED TO BE SERVE D U/S.143[2] BY THAT DATE BUT NOT NOTICE WAS SERVED. HE THEN REFER RED TO THE VARIOUS REASONS RECORDED IN THE ASSESSMENT ORDER WHEREIN IT IS MAINLY STATED THAT IN A.Y 2002-03 ASSESSMENT WHICH WAS COMPLETED U/S.143[3] AND IT WAS NOTICED THAT ASSESSEE HAD DIVERTED CERTAIN U NSECURED LOANS FOR PURCHASE OF SHARES AND ACCORDINGLY CERTAIN ADDITION ON ACCOUNT OF INTEREST WAS MADE U/S.14A. HE ARGUED THAT THIS TANG IBLE MATERIAL ON THE BASIS OF WHICH ASSESSMENT HAS BEEN REOPENED WAS VERY MUCH AVAILABLE TO THE AO BEFORE 31-10-2005 BECAUSE ASSES SMENT ORDER FOR A.Y 2002-2003 WAS PASSED ON 23-3-2005. HE ARGUED TH AT SINCE THE MATERIAL ON THE BASIS OF WHICH ASSESSMENT HAS BEEN RE-OPENED IS IN TURN BASED ON THE ASSESSMENT FOR A.Y 2002-2003 THE REFORE AO COULD HAVE VERY WELL SELECTED THE RETURN FOR THIS YEAR UN DER SCRUTINY AND ISSUED NOTICE U/S.143[2] WHEREAS AO HAS IGNORED THI S PROVISION AND WENT ON TO REOPEN THE ASSESSMENT. 5. HE THEN REFERRED TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF BALKRISHNA HIRALAL WANI 321 IT R 519 WHEREIN IT WAS CLEARLY HELD THAT ASSESSMENT COULD NOT BE REOPENED IF THERE WAS NO TANGIBLE MATERIAL BEFORE THE AO. HE PARTICULARLY RE FERRED TO THE OBSERVATIONS OF THE COURT AT PAGE 523 WHEREIN IT WA S CLEARLY OBSERVED 4 THAT EVEN IF THERE IS NO ASSESSMENT ORDER PASSED U/ S.143[3] UNLESS AO HAS A TANGIBLE MATERIAL THE ASSESSMENT COULD NOT B E REOPENED. 6. ON MERITS HE SUBMITTED THAT IN ASSESSEES OWN C ASE THE ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN I.T.A.NO.15/MUM/2006 FOR A.Y 2002-03. IN THAT CASE AN ADDITION U/S.14A WAS DELETED MAINLY BECAUSE ASSESSEE DID NOT HAVE ANY INCOME WHICH WAS EXEMPT HOWEVER HE ADMITTED THAT THIS DE CISION WAS RENDERED BEFORE THE DECISION OF THE SPECIAL BENCH O F THE TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. & ORS. (2008) 119 TTJ (MUM) (S.B) 289 IN ITA NO.8057/M/03 & ORS. DATED 20 TH OCTOBER 08 7. ON THE OTHER HAND LD.DR SUBMITTED THAT THE AO H AS CLEARLY BROUGHT THE TANGIBLE MATERIAL WHICH WAS AVAILABLE F OR REOPENING OF THE ASSESSMENT. SHE ALSO ARGUED THAT SINCE ORIGINAL RET URN WAS PROCESSED ONLY U/S.143[1] THEREFORE ASSESSMENT COULD BE REO PENED IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE C ASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS P. LTD. 291 ITR 500. ON MERITS SHE SUBMITTED THAT EARLIER YEARS DECISION COULD NOT BE FOLLOWED BECAUSE SAME WAS DECIDED ON THE BASIS THAT SINCE ASSESSEE HAD NO INCOME WHICH IS EXEMPT THEREFORE PROVISIONS OF SEC.14A W ERE NOT APPLICABLE. THIS POSITION STANDS CHANGED IN VIEW OF THE DECISIO N OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF CHEMINVEST LTD . VS. ITO [124 TTJ 577] WHEREIN IT WAS HELD THAT PROVISIONS OF SEC.14 A ARE APPLICABLE EVEN WHEN THERE IS ABSENCE OF EXEMPT INCOME IN THE RELEVANT YEAR. 5 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. WE FIND THAT THE AO HAS ALREADY GIVEN REASONS FOR REOPENING OF T HE ASSESSMENT WHICH ARE AS UNDER: RETURN OF INCOME DECLARING TOTAL INCOME OF RS.6 32 205/- WAS FILED ON 31-10-2004. RETURN OF INCOME WAS PROCESSED U/S.143[ 1] OF THE I.T.ACT. IN ASSESSMENT ORDER U/S.143[3] FOR A.Y 2002-2003 I T WAS FOUND THAT THE ASSESSEE WAS PAYING INTEREST EXPENSES OF RS.163 5493/- AGAINST UNSECURED LOAN OF RS.17544902/-. THE ENTIRE LOAN WA S TAKEN FROM TWO DIRECTORS OF THE ASSESSEE COMPANY AND INTEREST AMOU NT OF RS.14 28 063/- AND RS.2 07 490/- WERE PAID TO SHRI ANIL KUMAR AGARWAL AND SMT. ARATI AGARWAL RESPECTIVELY @ 12% P ER ANNUM. THIS UNSECURED LOAN HAD BEEN INVESTED IN ACQUIRING THE U NQUOTED SHARES OF SUBSIDIARY COMPANY M/S INDIA FINANCE AND CONSTRUCTI ON CO. PVT. LTD. (IFCCPL). THE ASSESSEE INVESTED RS.1 60 00 000/- [P .Y RS.1 10 00 000/-] IN ACQUIRING 20 000 SHARES OF IFC CPL OF RS.1000/- EACH RS.800/- PAID UP [FACE VALUE OF RS.1000 PER EQ UITY SHARES]. THE SHARES WERE DECLARED AS INVESTMENT IN THE BALANCE S HEET. THE BORROWED FUND HAD NOT BEEN USED FOR ANY BUSINESS ACTIVITIES BUT FOR INVESTMENT IN SHARES. DIVIDEND INCOME IF ANY IS TAX FREE U/S.10 (33) OF THE I.T.ACT. THEREFORE INTEREST CLAIMED WAS DISALLOWED U/S.14A OF THE I.T.ACT AFTER PROVIDING TRANSACTION WISE NEXUS BETWEEN THE BORROW ED FUND AND INVESTMENT. ALTERNATIVELY IT WAS ALSO HELD THAT IN TEREST EXPENSES ARE CAPITAL EXPENDITURE TO CONTROL INTEREST IN A SUBSID IARY GROUP COMPANY. THE LD. CIT(A) DISMISSED THE APPEAL AGAINST THE ADD ITIONS. IN A.Y 2004-2005 THERE WAS UNSECURED LOAN OF RS.1 58 81 352/- AND RS.152 77 108/- AS ON 31-03-2003 RESPECTIVELY. INVE STMENT OF RS.1 60 00 000/- WAS ALSO THERE. THEREFORE THIS YE AR ALSO THE BORROWED FUND HAD NOT BEEN USED FOR ANY BUSINESS ACTIVITIES BUT FOR INVESTMENT IN SHARES. THE ISSUE INVOLVED IS SAME AS THAT OF ISSUE FOR A.Y 2002-2003. CLAIMED INTEREST EXPENSES OF RS.12 24 308/- SHOULD BE DISALLOWED U/S.14A. ON THIS GROUND INCOME CHARGEABLE TO TAX O F RS.12 34 308/- HAS ESCAPED ASSESSMENT AS PER SECTION 147 OF THE AC T. FOR PREVIOUS YEAR ENDING ON 31-03-2004 THE ASSESSE E HAS SHOWN INCOME OF RS.12 30 720/- FROM SHARE TRADING WITHOUT SHOWING ANY DETAILS OF TRADE SHARE. THE ASSESSEE DID NOT HAVE A NY OPENING STOCK OR CLOSING STOCK. THEREFORE SHARE TRADING INCOME IS N OTHING BUT SPECULATION PROFIT. BUSINESS LOSS CANNOT BE ADJUSTE D AGAINST SPECULATION PROFIT. ON THIS GROUND INCOME CHARGEABLE TO TAX OF RS.12 30 720/- HAS ESCAPED ASSESSMENT AS PER PROVISION OF SECTION 147 OF THE ACT. IT IS ALSO NOTED THAT CARRY FORWARD CLAIM OF LOSS S HOULD NOT BE ALLOWED IN VIEW OF ASSESSMENT ORDER FOR A.Y 2002-2003 WHERE IN TOTAL INCOME WAS DETERMINED AT RS.3 12 999/-. 6 I HAVE REASONS TO BELIEVE THAT THE AMOUNT OF RS.24 55 008/- IS INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT AS PER SE CTION 147 OF THE I.T.ACT 1961. EVEN THE LD.COUNSEL OF THE ASSESSEE ADMITTED THAT T HIS WOULD CONSTITUTE TANGIBLE MATERIAL FOR THE PURPOSE OF REO PENING BUT HE HAS ARGUED THAT SINCE AO HAD TIME TO ISSUE NOTICE U/S.1 43[2] BEFORE 31-10- 2005 AND THE TANGIBLE MATERIAL IN THE FORM OF ASSES SMENT U/S.143[3] ITSELF WAS COMPLETED ON 23-3-2005 WAS AVAILABLE BEF ORE THAT DATE. WE FURTHER FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF BALKRISHAN HIRALAL WANI [SUPRA] WAS CONCERNED WITH THE FOLLOWING FACTS- 'THE ASSESSEE WAS A PARTNER IN A FIRM OF SOLICITORS .. ON HIS RETIREMENT ON OCTOBER 2 2003 HE RECEIVED A CERTAIN AMOUNT FRO M THE FIRM. IN A FOOTNOTE OF COMPUTATION OF TOTAL INCOME FURNISHED W ITH THE RETURN FOR THE ASSESSMENT YEAR 2004-05 THE ASSESSEE HAD SHOWN RECEIVABLES FROM THE FIRM ON RETIREMENT AMOUNTING TO RS. 21 65 625 A S NOT TAXABLE. THERE WAS NO ASSESSMENT UNDER SECTION 143[3] OF THE ACT. A NOTICE UNDER SECTION 148 WAS ISSUED WITHIN FOUR YEARS TO T HE ASSESSEE. WHILE RECORDING HIS REASONS FOR THE FORMATION OF BELIEF T HAT INCOME HAS ESCAPED ASSESSMENT THE ASSESSING OFFICER PLACED RE LIANCE ON CLAUSE 35 OF THE DEED OF PARTNERSHIP WHICH STATED THAT A PART NER WHO RETIRED VOLUNTARILY OR WAS REQUIRED TO WITHDRAW FROM THE FI RM UNDER CLAUSE 41 SHALL NOT SO LONG AS THE CONTINUING OR SURVIVING P ARTNERS OR ANY OF THEM SHALL CARRY ON THE BUSINESS SOLICIT THE CLIENTS OF THE FIRM FOR A PERIOD OF THREE YEARS. THE INFERENCE WHICH THE ASSESSING OFFI CER DREW FROM CLAUSE 35 WAS THAT THE AMOUNT PAID BY THE FIRM TO T HE RETIRING PARTNER IS ON ACCOUNT OF THE RETIRING PARTNER'S RENUNCIATION O F THE RIGHT TO HAVE FREE TRADE AND PROFESSION ENVISAGED IN THE CONSTITU TION OF INDIA FOR THREE YEARS. WHILE DISPOSING OF THE OBJECTIONS RAIS ED BY THE ASSESSEE THE ASSESSING OFFICER OBSERVED THAT THE AMOUNT RECE IVED BY THE ASSESSEE ON HIS RETIREMENT WAS ASSESSABLE UNDER SEC TION 28[IV] AS THE VALUE OF ANY BENEFIT OR PERQUISITE WHETHER CONVERT IBLE INTO MONEY OR NOT ARISING FROM BUSINESS OR THE EXERCISE OF A PRO FESSION. THUS IN ABOVE CASE IT IS CLEAR THE REOPENING WAS QUASHED ON THE BASIS THAT CLAUSE 35 HAD NO APPLICATION. WE FURTHER FIND THAT THE HONBLE 7 HIGH COURT HAS ALSO MADE THE FOLLOWING OBSERVATIONS AT PAGE 523 WHICH ARE AS UNDER: THOUGH IN THE PRESENT CASE NOTICE UNDER SECTION 1 48 HAS BEEN ISSUED WITHIN A PERIOD OF FOUR YEARS OF THE EXPIRY OF THE RELEVANT ASSESSMENT YEAR AND THERE IS NO ORDER OF ASSESSMENT UNDER SECT ION 143(3) NONETHELESS IN VIEW OF THE WELL SETTLED POSITION O F LAW IT IS URGED THAT THE ASSESSING OFFICER MUST HAVE TANGIBLE MATERIAL ON THE BASIS OF WHICH HE CAN HAVE A REASON TO BELIEVE THAT INCOME H AS ESCAPED ASSESSMENT. IN THE PRESENT CASE IT IS SUBMITTED TH AT THERE WAS A TOTAL ABSENCE OF ANY TANGIBLE MATERIAL TO FORM A BELIEF. THE EXISTENCE OF BELIEF MUST BE TESTED ON THE BASIS OF THE REASONS R ECORDED. THUS ABOVE OBSERVATIONS CLEARLY SHOWS THAT THE ASS ESSMENT CANNOT BE REOPENED UNLESS AND UNTIL TANGIBLE MATERIAL IS AVAI LABLE WITH THE AO. IN THE CASE BEFORE US THIS MATERIAL CAME TO THE KNOWL EDGE OF THE AO IN THE FORM OF ASSESSMENT ORDER PASSED U/S.143[3] FOR A.Y 2002-03 ON 23-3-2005. EVEN THE LD.COUNSEL OF THE ASSESSEE ACCE PTED THAT THIS WAS TANGIBLE MATERIAL BUT HIS ARGUMENT IS THAT IN THAT CASE AO SHOULD HAVE ISSUED NOTICE LU/S.143[2]. BUT THAT IS NOT NECESSAR Y. THIS BECOMES CLEAR FROM THE DECISION OF THE HONBLE SUPREME COURT IN T HE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS P. LTD. [SUPRA] WHEREI N IT WAS HELD AS UNDER: TAXING INCOME ESCAPING AN ASSESSMENT IN THE CASE O F AN INTIMATION UNDER SECTION 143[1][A] IS COVERED BY THE MAIN PROV ISION OF SECTION 147 AS SUBSTITUTED WITH EFFECT FROM APRIL 1 1989 AND INITIATING RE ASSESSMENT PROCEEDINGS IN THE CASE OF INTIMATION WO ULD BE COVERED BY THE MAIN PROVISION OF SECTION 147 AND NOT THE PROVI SO THERETO. ONLY ONE CONDITION HAS TO BE SATISFIED. FAILURE TO TAKE STEP S UNDER SECTION 143[3] WILL NOT RENDER THE ASSESSING OFFICER POWERLESS TO INITIATE RE ASSESSMENT PROCEEDINGS WHEN INTIMATION UNDER SECTIO N 143[1] HAS BEEN ISSUED. IN THE ABOVE DECISION THE HONBLE SUPREME COURT HA S CLEARLY OBSERVED THAT FAILURE TO TAKE STEPS U/S.143[3] WILL NOT REND ER THE AO POWERLESS 8 WHICH MEANS THAT EVEN IF NOTICE U/S.143[2] HAS NOT BEEN ISSUED STILL ASSESSMENT CAN BE REOPENED AS LONG AS CONDITIONS OF SECTION 147 ARE SATISFIED I.E. AO HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT WHICH IN TURN MEANS THAT AO HAS SOME TAN GIBLE MATERIAL TO BELIEVE SO. AS OBSERVED EARLIER AO HAD VALID REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT AND THEREFORE WE AR E OF THE VIEW THAT THE SAME WAS REOPENED VALIDLY AND ACCORDINGLY WE CONFIRM THE ORDER OF THE LD. CIT(A). 9. AS FAR AS MERITS ARE CONCERNED NO DOUBT IN EAR LIER YEAR THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE ON THE BASIS THAT SINCE ASSESSEE HAD NO EXEMPT INCOME THEREFORE SEC.14A W AS NOT APPLICABLE. THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF CHEMINVEST LTD. VS. ITO [SUPRA] HAS HELD AS UNDER: BUSINESS EXPENDITUREDISALLOWANCE UNDER S. 14AABS ENCE OF EXEMPT INCOME IN THE RELEVANT YEARWHEN THE EXPENDI TURE OF INTEREST IS INCURRED IN RELATION TO INCOME WHICH DOES NOT FO RM PART OF TOTAL INCOME IT HAS TO SUFFER THE DISALLOWANCE IRRESPECT IVE OF THE FACT WHETHER ANY INCOME IS EARNED BY THE ASSESSEE OR NOT SEC. 14A DOES NOT ENVISAGE ANY SUCH EXCEPTIONTHIS IS EVEN IF THE INTEREST PAID ON BORROWINGS FOR THE PURCHASE OF SHARE WERE ALLOWABLE UNDER S. 57 AS AN EXPENDITURE INCURRED FOR EARNING OR MAKING INCOME O R UNDER S. 36(1)(III) AS AN EXPENDITURE INCURRED WHOLLY AND EX CLUSIVELY FOR THE PURPOSES OF BUSINESSTERM IN RELATION TO IS WID E ENOUGH TO INCLUDE IN ITS SWEEP THE EXPENDITURE BOTH FOR MAKING OR E ARNING INCOME AND INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS CARRIED ON BY THE ASSESSEE WHAT ONE HAS TO SEE IS WHETHE R ANY EXPENDITURE WERE INCURRED BY AN ASSESSEE IN RELATION TO AN INCO ME THAT DOES NOT FORM PART OF TOTAL INCOME OF THE ASSESSEE UNDER THE ACT AND IF THE ANSWER IS IN AFFIRMATIVE THEN THAT EXPENDITURE CANN OT BE ALLOWED IRRESPECTIVE OF THE FACT THAT IT WAS ALLOWABLE UNDE R DIFFERENT PROVISIONS OF THE ACTFURTHER DISALLOWANCE HAS TO BE OF THE E NTIRE AMOUNT OF THE EXPENDITURE SO RELATED AND CANNOT BE REDUCED BY THE RECEIPT OF INTEREST WHICH HAS NO RELATION TO SUCH EXPENDITURE. 9 10. THE ABOVE CLEARLY SHOWS THAT EVEN IF THERE IS N O EXEMPT INCOME STILL PROVISIONS OF SEC.14A ARE APPLICABLE. HOWEVE R AT THE SAME TIME RULE 8D HAS BEEN HELD TO BE NOT OF RETROSPECTIVE NA TURE BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . CO. LTD. VS. DCIT [43 DTR 171] . THEREFORE IN THE INTERESTS OF JUSTICE WE SET ASIDE THE ISSUE IN THE LIGHT OF THE DECISION OF THE HONB LE BOMBAY HIGH COURT IN THE CASE OF OF GODREJ & BOYCE MFG. CO.LTD. VS. D CIT [43 DTR 171] [SUPRA]. 11. IN THE RESULT APPEAL IS PARTLY ALLOWED FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF FEBRUARY 2011. SD/- SD/- (D.K.AGARWAL) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 4 TH FEBRUARY 2011. P/-*