Siva Industries and Holdings Limited, CHENNAI v. DCIT, CHENNAI

ITA 687/CHNY/2015 | 2010-2011
Pronouncement Date: 07-10-2016

Appeal Details

RSA Number 68721714 RSA 2015
Assessee PAN AAACS4460M
Bench Chennai
Appeal Number ITA 687/CHNY/2015
Duration Of Justice 1 year(s) 6 month(s)
Appellant Siva Industries and Holdings Limited, CHENNAI
Respondent DCIT, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 07-10-2016
Appeal Filed By Assessee
Bench Allotted D
Date Of Final Hearing 21-09-2016
Next Hearing Date 21-09-2016
Assessment Year 2010-2011
Appeal Filed On 06-04-2015
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . ! '# BEFORE SHRI CHANDRA POOJARI ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR JUDICIAL MEMBER I.T.A.NOS. 1039/MDS./2014 2108/MDS./2012 687/MDS./2015 884/MDS./2015 ASSESSMENT YEARS :2009-10 2008-09 2010-11 20 10-11 M/S.SIVA INDUSTRIES & HOLDINGS LTD. (FORMERLY KNOWN AS STERLING INFOTECH LTD. ) FIRST FLOOR BLOCK-1 BELICIAA TOWERS DOOR NO.71/1 MRC NAGAR MAIN ROAD RAJA ANNAMALAIPUAM CHENNAI 600 028. VS. ASSISTANT COMMISSIONER OF INCOME TAX COMPANY CIRCLE VI(3) CHENNAI 600B 034. [PAN AAACS 4460 M ] ( $% / APPELLANT) ( &'$% /RESPONDENT) I.T.A.NOS.1074/MDS./2014 & CO NO.52/MDS./2014 AND ITA NO.706/MDS./2015 / ASSESSMENT YEARS : 2009-10 AND 2010-11 ASSISTANT COMMISSIONER OF INCOME TAX COMPANY CIRCLE VI(3) CHENNAI 600B 034. VS. M/S.SIVA INDUSTRIES & HOLDINGS LTD. (FORMERLY KNOWN AS STERLING INFOTECH LTD. ) FIRST FLOOR BLOCK-1 BELICIAA TOWERS DOOR NO.71/1 MRC NAGAR MAIN ROAD RAJA ANNAMALAIPUAM CHENNAI 600 028. [PAN AAACS 4460 M ] ( $% / APPELLANT) ( &'$% /RESPONDENT/ CROSS OBJECTOR) M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 2 -: ASSESSEE BY : MR.SRIRAM SESHADRI C.A REVENUE BY : MR.JAIRAM RAIPURA CIT DR / DATE OF HEARING : 21 - 0 9 - 201 6 / DATE OF PRONOUNCEMENT : 07 - 10 - 2016 ( / O R D E R PER CHANDRA POOJARI ACCOUNTANT MEMBER ALL THESE FOUR APPEALS FILED BY THE ASSESSEE AND TWO APPEALS OF THE REVENUE ARE DIRECTED AGAINST THE DIRECTIONS OF THE OF THE DISPUTE RESOLUTION PANEL (DRP) CHENNAI PERTAINING TO RELEV ANT ASSESSMENT YEARS MENTIONED HEREINABOVE AND CORRESPONDINGLY TH E ASSESSEE FLED A CROSS OBJECTION IN C.O.NO.52/MDS./2014 FOR ASSESSME NT YEAR 2009-10 IN SUPPORT OF DIRECTION OF DRP. SINCE ISSUES INVOLV ED IN ALL THESE ASSESSEES APPEALS AND REVENUES APPEALS & CROSS OB JECTION ARE HAVING CERTAIN ISSUES IN COMMON NATURE THESE APPEA LS ARE CLUBBED TOGETHER HEARD TOGETHER DISPOSED OFF BY THIS COMM ON ORDER FOR THE SAKE OF CONVENIENCE IN ITA NO.2108/MDS./2012 1039/ MDS./2014 AND 884/MDS./2015. 2. FIRST WE TAKE COMMON ISSUE IN ALL THESE APPEALS OF ASSESSEE. THE FIRST COMMON GROUND IN ALL THESE THREE ASSESSME NT YEARS IS WITH REGARD TO DISALLOWANCE U/S.14A OF THE ACT. 3. THE BRIEF FACTS OF THE ISSUE ARE THAT THE AO FO UND THAT THE ASSESSEE RECEIVED AN AMOUNT OF RS.1 94 75 000/-(FOR A.Y.2008-09) M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 3 -: RS.36 68 430/- (FOR A.Y.2009-10) AND RS.47 84 162/- (FOR A.Y.2010- 11) AS DIVIDEND INCOME WHICH HAS BEEN CLAIMED AS EX EMPT. FURTHER THE AO NOTED THAT THE ASSESSEE COMPANY MADE INVESTM ENTS IN THE FORM OF SHARES AND MUTUAL FUNDS. THOUGH THE ASSESSE E COMPANY WAS HAVING SECURED LOAN ON WHICH IT WAS PAYING INTERES T IN ADDITION TO INCURRING FINANCE CHARGES AND INTEREST PAID TO OTHE RS AND ALSO INCURRED OTHER ROUTINE EXPENDITURE TOWARDS ESTABLISHMENT AND ADMINISTRATION IT HAS NOT ATTRIBUTED ANY PORTION OF INTEREST AND OTHE R EXPENDITURES TOWARDS EARNING OF EXEMPT INCOME. HENCE THE AO INV OKED THE PROVISIONS OF THE SECTION 14A OF THE ACT ON THE GRO UND THAT THE INVESTMENT MADE BY IT WAS IN THE NATURE OF STRATEGI C INVESTMENT AND THE AO COMPUTED THE DISALLOWANCE U/S.14A R.W.RULE 8 D. AGGRIEVED WITH THE DRAFT ASSESSMENT ORDER OF AO THE ASSESS EE CARRIED THE APPEAL BEFORE THE DRP. 3.1 THE MAIN CONTENTION OF THE LD.A.R BEFORE THE DR P IS THAT THE ASSESSEE COMPANY HAS MADE STRATEGIC EQUITY INVESTME NT IN TATA TELE SERVICES LTD. (TTSL) AN UNREGISTERED TELECOM COMPA NY OF THE TATA GROUP AND THAT TTSL IS A HUGE LOSS MAKING COMPANY A ND HENCE NO DIVIDEND WAS RECEIVED FROM IT DURING THE YEAR. IT WAS FURTHER CONTENDED THAT THE EXPENDITURE INCURRED BY THE COMP ANY TOWARDS INTEREST FINANCE CHARGES AND OTHER EXPENSES WAS NO T IN RELATION TO INCOME NOT INCLUDABLE IN ITS TOTAL INCOME AND IS CO NTRA DISTINCTIVE TO THE M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 4 -: PROVISIONS OF THE SECTION 14A. FURTHER LD.A.R RELI ED ON THE DECISION OF TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2006-07 IN ITA NO.2148/MDS./2010 IN FAVOUR OF THE ASSESSEE. THE DR P OBSERVED THAT THE DEPARTMENT HAS FILED AN APPEAL AGAINST THE ORDE R OF THE TRIBUNAL IN ASSESSEE'S OWN CASE CITED SUPRA BEFORE JURISDICTION AL HIGH COURT WHICH IS PENDING. AS THE ISSUE IS PENDING BEFORE THE HON BLE HIGH COURT THE DRP RESOLVED NOT TO INTERVENE IN THE PROPOSED DISAL LOWANCE MADE BY THE AO. AGAINST THIS THE ASSESSEE IS IN APPEAL BEF ORE US. 4. BEFORE US LD.A.R SUBMITTED THAT THE ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSEE'S OW N CASE FOR ASSESSMENT YEAR 2006-07 CITED SUPRA VIDE ORDER DATE D 20 TH MAY 2011 IT WAS DECIDED IN FAVOUR OF THE ASSESSEE BY OBSERVI NG AS UNDER:- 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT TH E OUTSET A PERUSAL OF THE DECISION OF THE HON'BLE JURISDICTION AL HIGH COURT IN THE CASE OF VISVAS PROMOTORS (P) LTD. REFERRED TO SUPRA C LEARLY SHOWS THAT THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF WINSOME TEXTILE INDUSTRIES LTD. REFERRED TO SUPRA AS ALSO THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. REFERRED TO SUPRA WOULD NOT HAVE THE FORCE O F BINDING PRECEDENT ON THIS TRIBUNAL. HOWEVER A FURTHER READING OF THE S AID DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT CLEARLY SHOWS THA T THE SAID DECISIONS OF THE HON'BLE HIGH COURTS WOULD HAVE A PERSUASIVE EFFECT. KEEPING IN MIND THIS POSITION IF WE SEE THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. IT IS NOTICED THAT T HE HON'BLE BOMBAY HIGH COURT HAS CONSIDERED THE DECISION OF THE HON'BLE SU PREME COURT IN THE CASE OF WALFORT SHARE AND STOCK BROKERS P. LTD. REFERRE D TO SUPRA AND THE M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 5 -: FOLLOWING PRINCIPLES HAVE BEEN SHOWN TO EMERGE FROM SECTION 14A AND THE DECISION IN WALFORT SHARE AND STOCK BROKERS P. LTD. : (A) THE MANDATE OF SECTION 14A IS TO PREVENT CLAIM S FOR DEDUCTION OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE; (B) SECTION 14A(1) IOS ENACTED TO ENSURE THAT ONLY EXPENSES INCURRED IN RESPECT OF EARNING TAXABLE INC OME ARE ALLOWED; (C) THE PRINCIPLE OF APPORTIONMENT OF EXPENSES IS WIDENED BY SECTION 14A TO INCLUDE EVEN THE APPORTIO NMENT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE INCOME OF AN INDIVISIBLE BUSINESS; (D) THE BASIC PRINCIPLE OF TAXATION IS TO TAX NET INCOME. THIS PRINCIPLE APPLIES EVEN FOR THE PURPOS ES OF SECTION 14A AND EXPENSES TOWARDS NON-TAXABLE INCOME MUST BE EXCLUDED; (E) ONCE A PROXIMATE CAUSE FOR DISALLOWANCE IS ESTABLISHED WHICH IS THE RELATIONSHIP OF THE EXPE NDITURE WITH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME - A DISALLOWANCE HAS TO BE EFFECTED. AS PER THE SAID DECISION ONE OF THE MAIN PRINCIPLE S ARE THAT SEC. 14A IS TO PREVENT CLAIMS OF DEDUCTION OF EXPENDITURE IN RELAT ION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSES SEE. SIMILARLY SEC. 14A*(1) IS ENACTED TO ENSURE THAT ONLY EXPENSES INC URRED IN EARNING TAXABLE INCOME ARE ALLOWED. SIMILARLY THE BASIC P RINCIPLE OF TAXATION IS TO TAX THE NET INCOME AND THIS PRINCIPLE APPLIES EVEN FOR THE PURPOSE OF SEC. 14A AND EXPENSES TOWARDS NON TAXABLE INCOME MUST BE EXCLUDED. A PERUSAL OF THE PROVISIONS OF SEC. 5(1) OF THE ACT P ROVIDES FOR THE SCOPE OF THE TOTAL INCOME. IT INCLUDES ALL INCOMES FROM WHA TEVER SOURCE DERIVED WHICH IS RECEIVED OR DEEMED TO BE RECEIVED ACCRUES ARISES OR IS DEEMED TO ACCRUE OR ARISE IN INDIA OR ACCRUES OR ARISES OU TSIDE INDIA DURING SUCH YEAR. THUS WHAT IS TO BE UNDERSTOOD IS THAT THE T OTAL INCOME IS RELATING TO SUCH YEAR. IF THE ASSESSEE DOES NOT HAVE ANY IN COME AS FALLING WITHIN THE SCOPE OF TOTAL INCOME DURING ANY YEAR THE PRO VISIONS OF THE ACT COULD NOT BE APPLIED TO HIM. A PERUSAL OF THE PROV ISIONS OF SEC. 14A CLEARLY SHOWS THAT THE WORDS USED THEREIN ARE FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER .E XPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THIS ACT. THUS FOR THE APPLICABILITY OF SEC.14A T HERE MUST BE (I) INCOME M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 6 -: WHICH IS TAXABLE UNDER THE ACT FOR THE RELEVANT ASS ESSMENT YEAR AND (2) THERE SHOULD ALSO BE INCOME WHICH DOES NOT FORM PAR T OF THE TOTAL INCOME UNDER THE ACT DURING THE RELEVANT ASSESSMENT YEAR. IF EITHER ONE IS ABSENT THEN SEC. 14A(1) HAS NO APPLICABILITY. IF WE HAVE TO ASSUME THAT SECTION 14A(1) WOULD APPLY EVEN WHEN THE ASSESSEE DOES NOT HAVE ANY INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME THEN IT WOULD REACH IN A POSITION WHERE IF THE ASSESSEE MAKES ANY INVES TMENT IN ANY SHARES EVEN THOUGH THE ASSESSEE DOES NOT RECEIVE DIVIDEND INCOME THE EXPENDITURE IN RELATION TO THE INVESTMENT IN THE SH ARES WOULD STAND TO DISALLOWANCE. THIS DISALLOWANCE WOULD CONTINUE YEA R AFTER YEAR AS LONG AS THE ASSESSEE HOLDS THE INVESTMENT WHETHER HE GE TS ANY INCOME OUT OF SUCH INVESTMENT OR NOT. AT A FUTURE POINT OF TIME IF THE ASSESSEE LIQUIDATES THAT INVESTMENT AND DERIVES A PROFIT ON INVESTMENT WHICH WOULD BE LIABLE FOR TAXATION UNDER THE HEAD LONG TERM CA PITAL GAINS THEN THE PROFIT ON THE INVESTMENT WOULD ALSO BE TAXED. THIS IS NOT WHAT IS CONTEMPLATED U/S 14A. WHAT IS TAXABLE DURING THE R ELEVANT ASSESSMENT YEAR IS THE TOTAL INCOME COMPUTED AS PER THE PROVIS IONS OF THE ACT. WHEN COMPUTING THE TOTAL INCOME AS PER SEC.5 THE INCOME SHOULD BE RECEIVED OR DEEMED TO BE RECEIVED OR ACCRUED OR ARISE OR DEE MED TO ARISE ANY INCOME DURING THE YEAR OR ACCRUE OR ARISE TO HIM OU TSIDE INDIA DURING THE YEAR. A N INVESTMENT WHICH DOES NOT GIVE RISE TO A NY INCOME DEEMED TO ACCRUE OR ARISE CANNOT FORM PART OF THE TOTAL INCOM E AND THEREFORE CANNOT FORM INCOME WHICH DOES NOT FORM PART OF THE TOTAL I NCOME UNDER THE ACT. THUS ONCE THERE IS NO CLAIM OF INCOME WHICH DOES NO T FORM PART OF THE TOTAL INCOME UNDER THE ACT THERE CANNOT BE ANY DIS ALLOWANCE IN RELATION TO AN INVESTMENT WHICH MAY OR MAY NOT GIVE RISE TO ANY 0INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. IN THE PRE SENT CASE IT IS NOTICED THATNONE OF THE INVESTMENTS MADE BY THE ASSESSEE HA S GENERATED ANY DIVIDEND INCOME WHICH HAS BEEN CLAIMED BY THE ASSES SEE ATO BE NOT TO FORM PART OF THE TOTAL INCOME. IN THE CIRCUMSTANCE S AS IT IS NOTICED THAT THE ASSESSEE DOES NOT HAVE ANY INCOME WHICH DOES NO T FORM PART OF THE TOTAL INCOME NOR HAS THE ASSESSEE MADE SUCH A CLAIM WE ARE OF THE VIEW THAT NO DISALLOWANCE UNDER SEC. 14A CAN BE MADE ON THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR. THIS VIEW OF OURS ALSO F INDS SUPPORT FROM THE M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 7 -: DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF WALFORT SHARE AND STOCK BROKERS P. LTD. REFERRED TO SUPRA OF THE HO N'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. REFERRED TO SUPRA AND IS ALSO SUPPORTED BY THE VIEW EXPRESSED BY THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF WINSOME TEXTILE INDUSTRIE S LTD. THE OTHER DECISIONS RELIED UPON BY BOTH THE SIDES ARE NOT BEI NG DISCUSSED AS THEY ARE FOUND TO HAVE NO SPECIFIC RELEVANCE TO THE ISSU E IN THE APPEAL BEFORE US. 4.1 FURTHER HE SUBMITTED THAT THERE IS ANOTHER D ECISION OF CO- ORDINATE BENCH OF THIS TRIBUNAL IN FAVOUR OF THE AS SESSEE IN ITA NO.1717/MDS./2013 DATED 31.07.2014 AS FOLLOWS:- 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND SUBMISSIONS MADE BY THE ASSESSEE AND THE DECISI ONS IN RELIED ON. NO DOUBT IN THE DECISION OF THE SPECIAL BENCH OF DELHI TRIBUNAL IN THE CASE OF CHEMINVEST LTD. VS. ITO (SU PRA) THE SPECIAL BENCH HELD THAT DISALLOWANCE UNDER SECTION 14A CAN BE MADE EVEN IN THE YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE. THIS DECISION OF SPECIAL BENCH OF THE TRIBUNAL HAS BEEN IMPLIEDLY OVERRULED BY THE DECISIONS OF HIGH COURTS IN THE FOLLOWING CASES: 6. IN THE CASE OF M/S. SHIVAM MOTORS P.LTD. (SUPRA ) BEFORE THE HONBLE ALLAHABAD HIGH COURT THE REVENUE RAISE D THE FOLLOWING QUESTION OF LAW:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE INCOME TAX APPELLATE TRIBUNAL WAS J USTIFIED IN UPHOLDING THE DECISION OF CIT(A) IN DELETING THE DI SALLOWANCE OF ` 2 03 752/- U/S.14A IGNORING THE FACT THAT THER E IS DIFFERENCE OF OPINION OF VARIOUS COURTS ON THE VIEW TAKEN BY THE ITAT THAT IN THE ABSENCE OF TAX FREE INCOME NO DISALLOWANCE U/S.14A IS PERMISSIBLE. 7. THE HIGH COURT WHILE ANSWERING THE SAID QUESTION HELD AS UNDER:- M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 8 -: AS REGARDS THE SECOND QUESTION SECTION 14A OF THE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER T HE CHAPTER NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITUR E INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HENCE WHAT SECTION 14A PROVI DES IS THAT IF THERE IS ANY INCOME WHICH DOES NOT FORM PART OF THE INCOME U NDER THE ACT THE EXPENDITURE WHICH IS INCURRED FOR EARNING THE INCOM E IS NOT AN ALLOWABLE DEDUCTION. FOR THE YEAR IN QUESTION THE FINDING OF FACT IS THAT THE ASSESSEE HAD NOT EARNED ANY TAX FREE INCOME. HENCE IN THE A BSENCE OF ANY TAX FREE INCOME THE CORRESPONDING EXPENDITURE COULD NO T BE WORKED OUT FOR DISALLOWANCE. THE VIEW OF THE CIT(A) WHICH HAS BEE N AFFIRMED BY THE TRIBUNAL HENCE DOES NOT GIVE RISE TO ANY SUBSTANTI AL QUESTION OF LAW. HENCE THE DELETION OF THE DISALLOWANCE OF RS.2 03 752/- MADE BY THE ASSESSING OFFICER WAS IN ORDER. 8. THE GUJARAT HIGH COURT IN THE CASE OF CIT VS.CO RRTECH ENERGY PVT.LTD.(SUPRA) HELD AS UNDER:- WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE F ACTS AND THE DECISION RELIED UPON BY THE ID AR. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS . WINSOME TEXTILE INDUSTRIES LTD . REPORTED AT (2009) 3191TR 204(P&H) HAS HELD THAT IN THE PRESENT CASE ADMITTEDLY THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION . IN SUCH A SITUATION SECTION 14A COULD HAVE NO APPLICATION. IN THIS CASE ALSO THE ASSESSEE HAS NOT CLAIMED ANY EXEMPT INCOME IN THIS YEAR . THEREFORE RESPECTFULLY FOLLOWING THE JUDGEMENT OF HON ' BLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF CIT VS. WINSOME TEXTILE INDU STRIES LTD. (SUPRA) WE HEREBY ALLOW THIS GROUND AND DIRECT THE AO TO DE LETE THE ADDITION . THEREFORE GROUND NOS 1 TO 1 . 2 RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION ARE ALLOWED .' 4. COUNSEL FOR THE REVENUE SUBMITTED THAT THE ASSES SING OFFICER AS WELL AS CIT(APPEALS) HAD APP L IED FORMULA OF RULE 80 OF THE INCOME TAX RULES SINCE THIS CASE AROSE AFTER THE ASSESSMENT YEAR 20092010 . SINCE IN THE PRESENT CASE WE ARE CONCERNED WITH THE ASSESSMENT YEAR 20092010 SUCH FORMULA WAS CORRECTLY APPLIED BY THE REVENUE. WE HOWEVER NOTICE THAT SUBSECTION (1) OF SECTION 14A PROVIDES T HAT FOR THE PURPOSE OF COMPUTING TOTAL INCOME UNDER CHAPTER IV OF THE ACT NO DEDUCTION SHALL BE ALLOWED I N RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE I N M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 9 -: RELAT I ON TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT . IN THE PRESENT CASE THE TRIBUNAL HAS RECORDED THE FINDING OF FACT THAT THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION OF ANY INCOME FROM PAYMENT OF T AX . IT WAS ON THIS BASIS THAT THE TRIBUNA L HELD THAT DISALLOWANCE UNDER SECTION 14A OF THE ACT COULD NOT BE MADE . IN THE PROCESS TRIBUNAL RELIED ON THE DECISION OF DIVISION BENCH OF PUNJAB AND HARYANA HIGH COURT IN CASE OF COMMISSIONER OF INCOME TAX V WINSOME TEXTILE INDUST RIES LTD REPORTED IN (2009) 319 ITR 204 (PUNJ&HAR) IN WHICH ALSO THE COURT HAD OBSERVED AS UNDER : ' 7 . WE DO NOT FIND ANY MERIT IN THIS SUBMISSION . THE JUDGEMENT OF THIS COURT IN ABHISHEK INDUSTRIES LTD (2006) 286 ITR 1 WAS ON THE ISSUE OF ALLOWABILITY OF INTER EST PAID ON LOANS GIVEN TO SISTER CONCERNS WITHOUT INTEREST . IT WAS HELD THAT DEDUCTION FOR INTEREST WAS PERMISSIBLE WHEN LO AN WAS TAKEN FOR BUSINESS PURPOSE AND NOT FOR DIVERTING TH E SAME TO SISTER CONCERN WITHOUT HAVING NEXUS WITH THE BUSINE SS. THE OBSERVATIONS MADE THEREIN HAVE TO BE READ IN THAT C ONTEXT . IN THE PRESENT CASE ADMITTEDLY THE ASSESSE DID NOT MAKE ANY CLAIM FOR EXEMPTION. IN SUCH A SITUATION SECTI ON 14A COULD HAVE NO APPLICATION . ' 5 . WE DO NOT FIND ANY QUESTION OF LAW ARISING TAX APP EAL IS THEREFORE DISMISSED . 9. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS.DELITEENTERPRISES(SUPRA) HELD AS UNDER:- THE REVENUE IS IN APPEAL ON THE FOLLOWING QUESTIONS :- ' WHETHE R O N THE FAC T S A ND IN THE CI R C U MSTA N C E O F TH E CAS E A N D IN L AW TH E HON ' B L E T R I BUN A L WAS R IG H T IN D E L E T I NG THE D ISA LLOW A NCE MADE B Y THE ASSESSIN G OFFICER OF INTERE S T PA I D B Y T HE ASS E S SEE COMPAN Y ON B OR R OWE D FUNDS A MOUNTING TO RS.241 . 10 LAKHS OVERLOOKING T HE F AC T THAT THE BORRO W ED F U NDS W ERE USED B Y T HE A S S ESSE E CO MP ANY TO IN V EST IN THE CAPITAL OF A NOTHER PARTNER S HIP FIRM AND SINCE PROFIT S D ERI V E D B Y THE ASSE S SE E COMPAN Y F ROM A PARTNERSHIP FIRM WERE EXEMPT FROM TA X U / S.10 ( 2A ) OF THE INCOME- TAX ACT TH E INTERE S T EX P E NSE REL A TED T O SU C H TAX F R E E PROFITS IS TO BE DISALLOWED U / S.14A OF T HE INCOME TAX ACT ? ( B ) W HE T H E R ON T HE FACTS AND IN THE C IRCUMSTANCE OF THE CASE AND IN L AW M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 10 - : THE HON ' BLE TRIBUN A L W A S RI G H T I N HOLD I N G THAT THE ASSESSING OFFICER CANNOT CONSIDER NOTIONAL INTERE ST ON DEPOSIT RECEIVED B Y THE ASSES SEE COMPAN Y W HILE ARRIVING AT THE FAIR MARKET V ALUE U / S.23(1 ) (A ) OF THE IN COME -TA X ACT ?' 2. IN SO FA R A S QUESTION ( A ) IS C ONCERNED ON F A C T S W E FIND THAT THE RE I S NO PROFIT FOR T HE RELE V AN T A S SESSM EN T YEAR . HENCE T HE QUESTION AS FRAMED W OULD NO T ARISE. 10. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBE PUNJA B & HARYANA HIGH COURT IN THE CASE OF CIT VS. M/S. LAKHANI MARKETING INCL . IN ITA NO.970 OF 2008 DATED 2.4.2014. THE HONBLE HIGH COURT WHILE AFFIR MING THE DECISIONS OF CIT(A) AS WELL AS THE TRIBUNAL IN DELETING THE DISA LLOWANCE MADE UNDER SECTION 14A OBSERVED AS UNDER:- 7. AFTER HEARING LEARNED COUNSEL FOR THE PARTIES WE DO NOT FIND ANY MERIT IN THE APPEALS. 8. THE PRIMARY ISSUE THAT ARISES FOR CONSIDERATION IN THESE APEPALS IS WHETHER THE CIT(A) AS WELL AS THE TRIBUNAL WERE RIGHT IN ALLOWING DEDUCTION OF INTEREST LIABILITY OUT OF OTHER INCOME AND THE CLAIM OF THE REVENUE TO DISALLOW THE SAME UNDER SECTION 14A OF T HE ACT WAS JUSTIFIED. 9. THE CIT(A) VIDE ORDER DATED 24.6.2004 ANNEXURE A .II RECORDED AS UNDER:- '7.2 KEEPING IN VIEW THE ABOVE FACTS AND CIRCUMSTAN CES OF THE CASE IT IS HELD THAT THE AO WAS NOT CORRECT IN APPLYING SECTION 14A OF THE IT ACT IN DISALLOWING THE EXPEND ITURE ON ACCOUNT OF INTEREST AMOUNTING TO ` 46 91 684/-. IT WAS INCUMBENT ON THE AO TO ESTABLISH A NEXUS BETWEEN TH E EXPENDITURE INCURRED AND THE INCOME WHICH WAS EXEMP T UNDER THE ACT. FACTS CLEARLY DO NOT SUPPORT THE ACT ION OF THE AO. DISALLOWANCE IS ACCORDINGLY DELETED. THE AO IS DIRECTED TO RECOMPUTETHE INCOME ACCORDINGLY.' 10.VIDE ORDER DATED 16.5.2008 ANNEXURE A.III THE TRIBUNAL ON APPEAL BY THE REVENUE WHILE UPHOLDING THE FINDING RECORDED BY THE CIT(A) NOTICED AS UNDER:- 'WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE PERUSED T HE MATERIAL ON RECORD. FROM THE READING OF SECTION 14A OF THE ACT IT IS CLEAR THAT BEFORE MAKING ANY DISALLOWANCETHE FOLLOWING CONDITIONS ARE TO EXIST:- A) THAT THERE MUST BE INCOME TAXABLE UNDER THE ACT AN D M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 11 - : B) THAT THIS INCOME MUST NOT FORM PART OF THE TOTAL IN COME UNDER THE ACT AND C) THAT THERE MUST BE AN EXPENDITURE INCURRED BY THE ASSESSEE AND D) THAT THE EXPENDITURE MUST HAVE A RELATION TO THE IN COME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. 9. THEREFORE UNLESS AND UNTIL THERE IS RECEIPT OF EXEMPTED INCOME FOR THE CONCERNED ASSESSMENT YEARS (DIVIDENDFROM SHARES ) WE ARE OF THE VIEW SECTION 14A OF THE ACT CANNOTBE INVOKED. IN T HIS APPEAL THE REVENUE HAS NOT DISPELLED THE FINDINGS OF THE CIT(A ) NOR THE STATEMENT OF THE ASSESSEE BEFORE AO THAT ASSESSEE I S 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 DI SALLOW VARIOUS INTERESTPAYMENTS ON CAPITAL ACCOUNT SECURITY DEPOS ITS 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 RELEV ANT PORTION OF THE ORDER OF THE BOMBAY BENCH OF THE TRIBUNAL IS REPRODUCED BELOW:- 'REGARDING APPLICATION OF SECTION 14A OF THE ACT T HE CONTENTION OF THE LEARNED DEPARTMENT REPRESENTATIVE HAS TO BE REJECTED ON THE FACE OF IT INASMUCH AS THE EN TIRE INCOME OF THE ASSESSEE IS TAXABLE UNDER THE ACT. SE CTION 14A IS APPLICABLE ONLY WHEN ANY PART OF THE INCOME IS NOT TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEEA ND THE EXPENDITURE RELATING TO THAT PART OF INCOME IS CLAI MED BY THE ASSESSEEAS DEDUCTION. IN SUCH CASES ONLY THE EXPENDITURE RELATING TO THE EXEMPTED INCOME CAN BE DISALLOWED AND NOT OTHERWISE. SINCE IN THE PRESENT CASETHE ENTIRE INCOME IS FOUND TO BE TAXABLE NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A OF THE A CT.' 10. MOREOVER THE AO HAS NOT ESTABLISHED THE NEXUS BETWEEN INVESTED FUNDS AND THE INTEREST BEARING FUN DS SINCE THE INVESTMENTS IN SHARES ARE IN THE YEARS 19 95-96 1998-99 AND 1999-2000 AND THE INTEREST DISALLOWANCE IS FOR THE ASSESSMENT YEARS 2000-01 AND 2001 -02. ON T HE CONTRARY PERUSAL OF THE BALANCE SHEET FOR THE YEAR ENDING 31.3.1995 31.3.1998 AND 31.3.1999 IT IS CLEAR THA T INTEREST BEARING FUNDS HAVE NOT BEEN UTILIZED FOR INVESTMENT FOR PURCHASE OF SHARES. 11. FOR THE AFORESAID REASONS WE SEE NO REASON TO INTERFERE WITH THE ORDER OF CLT(A) CONCERNING ASSESSMENT YEAR 2000-01 AND 2001-02 AND HENCE THE DECISION OF CIT (A) IN DELETING THE DISAL LOWANCE OF INTEREST BY INVOKING SECTION 14A OF THE ACT IS CORRECT AND I N ACCORDANCE WITH M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 12 - : LAW.' 11. IN VIEW OF THE AFORESAID FINDINGS WHICH COULD NOT BE SHOWN TO BE ERRONEOUS THE PLEA OF THE REVENUE CANNOT BE AC CEPTED. 11. IN THE CASE OF CIT VS. WINSOME TEXTILES INDUSTR IES LTD. (319 ITR 204) THE HONBLE PUNJAB & HARYANA HIGH COURT HE LD THAT WHEN THERE IS NO CLAIM FOR EXEMPTION OF INCOME IN SUCH S ITUATION SECTION 14A HAS NO APPLICATION. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS WE DELETE THE DISALLOWANCE MADE UNDER SECTION 14A A S THE ASSESSEE HAS NOT EARNED / RECEIVED FOR EXEMPT INCOME DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THUS WE SUSTAIN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S) ON THIS ISSUE. 12. IN THE RESULT APPEAL OF THE REVENUE IS DISMISS ED . 4.2 FURTHER HE HAS RELIED ON THE JUDGEMENT OF LUC KNOW BENCH OF TRIBUNAL IN THE CASE OF JCIT VS. M/S.SHIVAM MOT ORS (P) LTD. IN ITA NO.17/LKW/2012 VIDE ORDER DATED 12.11.2014 AS FOLLO WS:- 6. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CA REFUL PERUSAL OF THE RECORD IN THE LIGHT OF THE RELEVANT PROVISIO NS OF THE ACT WE FIND THAT AS PER THE PROVISIONS OF SECTION 14A NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY TH E ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. MEANING THEREBY THE BASIC CONDITION PRECEDENT FOR INVOKING THE PROVISIONS OF SECTION 14A IS THAT THER E SHOULD BE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOM E UNDER THIS ACT. THUS WHEREVER THE ASSESSEE EARNED THE INTERES T FREE INCOME M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 13 - : THE CORRESPONDING EXPENDITURE INCURRED IN EARNING T HAT INCOME IS TO BE DISALLOWED. [N THE ABSENCE OF ANY INTEREST FR EE INCOME THERE CANNOT BE ANY DISALLOWANCE AS NO CORRESPONDING EXPE NDITURES WERE INCURRED TO EARN A PARTICULAR TAX FREE INCOME. FOR THE SAKE OF REFERENCE WE EXTRACT THE PROVISIONS OF SECTION 14A OF THE ACT AS UNDER: 14A. [(1)] FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER NO DEDUCTION SHALL BE ALLOWED I N RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT.] [(2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOU NT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHI CH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED I F THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELA TION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (3) THE PROVISIONS OF SUB-SECTION (2) SHALL ALSO AP PLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. 6.1 TURNING TO THE FACTS OF THE CASE WE FIND THAT UNDISPUTEDLY THE ASSESSEE HAS MADE THE INVESTMENT IN THE SHARES OF M /S KAILASH AUTO FINANCE LTD. IN EARLIER YEARS AND IN THE IMPUGNED A SSESSMENT YEAR THE ASSESSEE HAS NOT EARNED ANY TAX FREE INCOME WHICH CAN FORM PART OF TOTAL INCOME OF THE ASSESSEE. IN THE ABSENCE OF TAX FREE INCOME THE CORRESPONDING EXPENDITURE TO EARN THAT INCOME CANNO T BE WORKED OUT FOR ITS DISALLOWANCE. THEREFORE IN A SITUATION WHE RE THERE IS NO TAX FREE INCOME NO DISALLOWANCE U/S 14A IS POSSIBLE. 6.2 THE SIMILAR VIEW WAS ALSO EXPRESSED BY THE TRIB UNAL IN THE CASE OF SIVA INDUSTRIES & HOLDINGS LTD. (FORMERLY KNOWN AS STERLING INFOTECH LTD.) VS. ACIT COMPANY CIRCLE-VI(9) (SUPRA). THERE FORE THE CIT(A) HAS RIGHTLY HELD THAT IN THE ABSENCE OF TAX FREE IN COME NO DISALLOWANCE U/S 14A IS PERMISSIBLE. SINCE WE DO NO T FIND ANY INFIRMITY IN THE ORDER OF CIT(A) WE CONFIRM HIS ORDER. M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 14 - : 4.3 LD.A.R RELIED ON THE JUDGEMENT OF DELHI HIGH IN THE CASE OF CHEMINVEST LTD.V. ITO NEW DELHI REPORTED IN [2009] 121 ITD 318 (DELHI) WHEREIN HELD THAT WHEN THE EXPENDITURE IS INCURRED IN RELATION TO EXEMPT INCOME IT HAS TO SUFFER DISALLOWANCE IRRESP ECTIVE OF THE FACT WHETHER ANY EXEMPT INCOME IS EARNED BY THE ASSESSEE OR NOT. 5. ON THE OTHER HAND LD.D.R RELIED ON THE ORDER O F LOWER AUTHORITIES. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS . M. ETHURAJAN (273 ITR 95) CONSIDERED THE PRO VISION OF SECTION 57(III) OF THE ACT AND FOLLOWED THE JUDGMEN T OF SUPREME COURT IN THE CASE OF CIT V. RAJENDRA PRASAD MOODY [1978] 115 ITR 519 (SC) WHEREIN HELD THAT:- THE PLAIN AND NATURAL CONSTRUCTION OF THE LANGUAG E OF SECTION 57(III) OF THE INCOME-TAX ACT 1961 IRRESISTIBLY LEADS TO THE CONCLUSION THAT TO BRING A CASE WITHIN THAT SECTION IT IS NOT NECESSA RY THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF THE EXPENDITURE. WHAT SECTION 57(III) OF THE ACT REQUIRES IS THAT THE EXP ENDITURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF MAKING OR EARNING INCOME. THE SECTION DOES NOT REQUIRE THAT T HIS PURPOSE MUST BE FULFILLED IN ORDER TO QUALIFY THE EXPENDITURE FO R DEDUCTION. IT DOES NOT SAY THAT THE EXPENDITURE SHALL BE DEDUCTIBLE ON LY IF ANY INCOME IS MADE OR EARNED. INTEREST ON MONEYS BORROWED FOR INV ESTMENT IN SHARES WHICH HAD NOT YIELDED ANY DIVIDEND IS ADMISS IBLE AS A DEDUCTION UNDER SECTION 57(III) 6.1 FURTHER KARNATAKA HIGH COURT IN THE CASE OF PR ADEEP KAR VS. ACIT REPORTED IN (2009) 319 ITR 0416(KAR HC) HELD T HAT:- 5 . THE ASSESSING AUTHORITY CONSIDERED THE DECISION IN RAJENDRA PRASAD MOODY' S CASE [1978] 115 ITR 519 (SC) RELIED UPON B Y THE LEARNED COUNSEL AND HELD THAT IT IS NOT APPLICABLE TO THE F ACT SITUATION. THE REASONS ASSIGNED FOR SUCH A CONCLUSION IN THE ASSES SMENT ORDER ARE EXTRACTED HEREUNDER : M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 15 - : ' THE DECISION IS WITH REFERENCE TO DEDUCTION ALLOW ABLE UNDER SECTION 57(III) OF THE INCOME-TAX ACT. THE DECISION RELATES TO AN ASSESS MENT YEAR WHERE DIVIDEND INCOME WAS TAXABLE IN THE HANDS OF THE ASSESSEE. WITH THE INTRODUCTION OF SEC TION 10(33) OF THE INCOME-TAX ACT FROM THE ASSESSMENT YEAR 1998-99 THE POSITION OF LAW IN REGARD TO TAXABILITY OF DIVIDEND S HAS BEEN CHANGED SINCE SUCH INCOME BECOMES A PART OF INCOME WHICH DO NOT FORM A PART OF TOTAL INCOME OF THE ASSESSEE. TH E PROVISIONS OF SECTION 14A INTRODUCED BY THE FINANCE ACT 2001 WI TH EFFECT FROM APRIL 1 1962 RETROSPECTIVELY BARS ALLOWING ANY EX PENDITURE IN RESPECT OF INCOME WHICH IS NOT INCLUDIBLE IN THE TO TAL INCOME. CONSIDERING THIS CHANGE IN THE POSITION OF LAW THE DECI SION OF THE SUPREME COURT RELIED UPON BY THE ASSESSEE DOES NOT APPLY TO THE ASSESSEE' S CASE.' 6. THEREFORE THE DIVIDEND INCOME IS EXEMPTED FROM THE TAX LIABILITY UNDER SECTION 10(33) OF THE ACT. UNDER SECTION 14A OF THE ACT EXPENDITURE RELATING TO EXEMPTED INCOME IS NOT ALLOWABLE. THE A SSESSING AUTHORITY HAS CONSIDERED THE ABOVE RELEVANT FACTOR AND DISALLOWED THE CLAIM OF THE ASSESSEE. 7. HOWEVER THE FIRST APPELLATE AUTHORITY DECIDED THE ISSUE IN VIEW OF THE ORDER OF THE SPECIAL BENCH IN THE CASE OF CHEMINVEST LTD.V. ITO NEW DELHI (SUPRA) WHICH HAS BEEN REVERSED BY D ELHI HIGH COURT. BUT HOWEVER IN THIS CASE THE UNDISPUTED FACTS ARE THAT THE ASSESSEE NOT ABLE TO SHOW THAT SOURCES OF FUNDS WERE DIVERTE D INTO INVESTMENT IN SHARES WHICH HAS NOT YIELDED ANY INTEREST OR DI VIDEND INCOME EVEN IF ASSESSEE EARNED DIVIDEND INCOME IT IS EXEMPTED U/S.10(33) OF THE ACT FROM THE TAX LIABILITY AND THE SAME CANNOT BE C OMPUTED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE EXPENDITURE R ELATING TO EXEMPTED INCOME IS NOT LIABLE FOR DEDUCTION IN VIEW OF SEC.14A OF THE ACT. IN VIEW OF THIS THE CLAIM OF ASSESSEE IS ONLY UNTENABLE AND DECISION RELIED UPON BY THE LD.A.R BEFORE THE LD.CI T(A) HAVE NO APPLICATION TO THE FACTS OF THE CASE. M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 16 - : 8. FURTHER THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SESHASAYEE PAPER AND BOARDS LTD. REPORTED IN [1985] 156 ITR 542 (MAD) WHEREIN HELD THAT THE BORROWING HAS NOT BEEN MADE EXCLUSIVELY AND WHOLLY FOR THE PURPOSE OF EARNING INTEREST IN WHICH CASE ALONE IT SHOULD BE TAKEN AS INCOME WHICH SHOULD BE DEDUCTED FROM THE INTEREST RECEIPTS. FURTHER HONBLE KARNATAKA HIGH COURT IN THE CASE OF PRADEEP KAR VS. ACIT REPORTED IN (2009) 319 ITR 041 6(KAR HC) WHEREIN HELD THAT DIVIDEND INCOME BEING EXEMPT U/S. 10(33) AND NOT ASSESSABLE TO TAX ASSESSEE WAS NOT ENTITLED TO DED UCTION FOR INTEREST IN VIEW OF SEC.14A OF THE ACT. ACCORDINGLY THIS GROU ND OF THE ASSESSEE STANDS DISMISSED.. 9. THIS GROUND IN ALL THESE ASSESSEES APPEALS IS DISMISSED. 10. THE NEXT GROUND IN ITA NO.2108/MDS./12 FOR ASS ESSMENT YEAR 2008-09 IS THAT THE DRP HAD ERRED IN HOLDING T HAT THE TRANSACTIONS BETWEEN THE ASSESSEE AND ITS AE WERE NOT AT ARMS L ENGTH AND IN UPHOLDING THE ADJUSTMENT OF RS.47 85 606/- MADE TO THE INTEREST INCOME OF THE ASSESSEE BY THE TPO AND MERELY ADOPTI NG THE OBSERVATIONS OF THE TPO WITHOUT GIVING DETAILED REA SONS WHICH IS IN VIOLATION OF PRINCIPLES OF EQUITY AND NATURAL JUSTI CE. 11. THE FACTS OF THE ISSUE ARE THAT THE AO IN THE DRAF T ASSESSMENT ORDER MADE AN ADJUSTMENT OF RS.47 85 606/- TOWARDS THE IN TEREST RECEIVED AT 6% M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 17 - : P.A. FROM HIS WHOLLY OWNED SUBSIDIARY INDIA TELECOM HOLDINGS LTD MAURITIUS BASED ON THE TPOS ORDER DATED 28-10-2011. THE TPO HAS NOTED THAT THE ASSESSEE ADVANCED A LOAN OF 45 MILLION US DOLLARS A T AN INTEREST OF 6% P.A. TO ITS WHOLLY OWNED SUBSIDIARY. IN THE TPO DOCUMENT ATION THE BENCH MARKING OF INTEREST WAS DONE UNDER CUP METHOD. THE COMPARABLE TRANSACTION TAKEN BY THE ASSESSEE WAS THE INTEREST ON LOAN FROM STANDARD CHARTERED BANK TAKEN BY AVIS VENTURE LTD(ITS SUBSID IARY IN MAURITIUS). THE INTEREST RATE PAYABLE BY AVIS VENTURE LTD ON THE AF ORESAID LOAN WAS AT THE RATE OF 1.9% + LIBOR. THE ASSESSEE ITSELF STATED TH AT THE AVERAGE LIBOR DURING THE FINANCIAL YEAR 2007-08 WAS 4.41H THERE FORE THE ARMS LENGTH INTEREST FOR THE TRANSACTION OF THE COMPARABLE AS S TATED BY THE ASSESSEE ITSELF WAS 6.3L%(4.4L% + 1.9%). THEREFORE THE TPO ACCORDINGLY HAS MADE AN ADJUSTMENT AT THE RATE OF 0.31%(6.31- 6%) WHICH WORKED OUT TO RS.47 85 606/-. IN THE WRITTEN SUBMISSIONS BEFORE T HE DRP IT WAS INTEREST RATE TO BE ADOPTED IN RESPECT OF LOAN GRANTED TO TH E A.E IN FOREIGN CURRENCY SHOULD BE BENCH MARKED TO LIBOR RATE. THE ASSESSEE RELIED ON THE DECISION OF THE ITAT IN ITS OWN CASE FOR THE AY 2006-07 AND ALSO OF THE DECISION OF THE HYDERABAD TRIBUNAL IN THE CASE OF FOURSOFT VS D CIT AND REQUESTED FOR DELETION OF THE PROPOSED ADDITION OF RS.47 85 606/- . THE REASONS GIVEN BY THE TPO WHILE PROPOSING THE ADJUSTMENT AND THE CONT ENTIONS RAISED BY THE ASSESSEE IN ITS OBJECTIONS TO THE PROPOSED ADJUSTME NT HAVE BEEN CONSIDERED. THE DRP IS OF THE VIEW THAT THERE IS NO DISPUTE ON THE LIBOR BASED BENCH MARKING BEING APPLICABLE IN THE ASSESSEES CASE. ON LY ONE COMPARABLE HAS BEEN CONSIDERED BY THE ASSESSEE ITSELF IN THE TP DO CUMENTATION. AS THERE IS M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 18 - : ONLY ONE COMPARABLE AND THERE BEING ONLY ONE ARMS L ENGTH PRICE WHICH IS DETERMINED ON THE BASIS OF COMPARABLE TRANSACTION THE DRP DID NOT FIND ANY INFIRMITY IN THE PROPOSAL OF ADJUSTMENT MADE BY THE TPO. AGGRIEVED BY THE DIRECTION OF DRP THE ASSESSEE IS IN APPEAL BEFORE US. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE MUMBAI BENCH OF TRIBUNAL IN THE CASE OF DCIT (INTERNATIONAL TAXATI ON) VS. DEVELOPMENT BANK OF SINGAPORE REPORTED IN [2013] 155 TTJ 265 (ITAT[M UM]) WHEREIN HELD THAT:- 12. WE REVERT TO THE POSITION OF LAW GOVERNED BY T HE SINGLE PROVISO BEFORE SUBSTITUTION BY THE FINANCE (NO.2) ACT 2009 WHICH HAS BEEN ACCEPTED BY THE ASSESSEE AS LAYING DOWN THAT IF THE RE IS ONLY ONE PRICE DETERMINED BY THE MOST APPROPRIATE METHOD TH EN THIS OPTION OF PLUS MINUS 5 PERCENT IS NOT AVAILABLE FOR DETERM INATION OF ALP. NOW THE MOOT POINT FOR OUR DETERMINATION IS AS TO W HETHER THE LIBOR RATE SHOULD BE CONSIDERED AS A SINGLE INTERES T RATE OR THE ARITHMETICAL MEAN OF MORE THAN ONE INTEREST RATE. I N ORDER TO FIND ANSWER TO THIS QUESTION IT IS SINE QUA NON TO UNDE RSTAND THE CONNOTATION AND IMPORT OF LIBOR. IN THIS REGARD BO TH THE SIDES HAVE PLACED ON RECORD SOME LITERATURE THROWING LIGHT ON LIBOR. WIKIPEDIA THE FREE ENCYCLOPEDIA DEFINE THE LONDON INTER BANK OFFERED RATE (LIBOR) AS `THE AVERAGE INTEREST RATE ESTIMATED BY LEADING BANKS IN LONDON THAT THEY WOULD BE CHARGED IF BORROWING FROM OTHER BANKS.' IT HAS FURTHER BEEN EXPLAINED THAT LIBOR 'IS A BENC HMARK GIVING AN INDICATION OF THE AVERAGE RATE AT WHICH A LIBOR CON TRIBUTOR BANK CAN OBTAIN UNSECURED FUNDING IN THE LONDON INTERBANK MA RKET FOR A GIVEN PERIOD. 'INDIVIDUAL BBALIBOR RATES ARE THE END-PROD UCT OF A CALCULATION BASED UPON SUBMISSIONS FROM LIBOR CONTRIBUTOR BANKS WHICH ARE THEN AVERAGED UNDER A `TRIMMED MEAN' METHODOLOGY'. LIBOR RATES ARE CALCULATED FOR TEN CURRENCIES AND 15 BORROWING PERIODS RANGING M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 19 - : FROM OVERNIGHT TO ONE YEAR AND ARE PUBLISHED DAILY AT 11.30 A.M. (LONDON TIME) BY THOMSON REUTERS. CURRENTLY 18 BANK S CONTRIBUTE TO THE FIXING OF THE US $ LIBOR. MODUS OPERANDI FOR CA LCULATION OF LIBOR IS EXTRACTED AS UNDER : 'LIBOR IS CALCULATED AND PUBLISHED BY THOMSON REUTE RS ON BEHALF OF THE BRITISH BANKERS' ASSOCIATION (BBA). IT IS AN IN DEX THAT MEASURES THE COST OF FUNDS TO LARGE GLOBAL BANKS OPERATING I N LONDON FINANCIAL MARKETS OR WITH LONDON-BASED COUNTERPARTIES. EACH D AY THE BBA SURVEYS A PANEL OF BANKS (18 MAJOR GLOBAL BANKS FOR THE USD LIBOR) ASKING THE QUESTION 'AT WHAT RATE COULD YOU BORROW FUNDS WERE YOU TO DO SO BY ASKING FOR AND THEN ACCEPTING INTER-BAN K OFFERS IN A REASONABLE MARKET SIZE JUST PRIOR TO 11 AM?' THE BB A THROWS OUT THE HIGHEST 4 AND LOWEST 4 RESPONSES AND AVERAGES THE REMAINING MIDDLE 10 YIELDING A 23 PERCENT TRIMMED MEAN. THE AVERAGE IS REPORTED AT 11:30 A.M.' 13. IT CAN BE SEEN THAT EACH LIBOR CONTRIBUTOR PANE L BANK FORMULATES ITS OWN RATE FOR A DAY WHICH IS PUT INTO THE APPLICATION WHICH LINKS DIRECTLY TO A RATE SETTING TEAM AT THOM SON REUTERS. THEN TRIMMING IS DONE OF SUCH RATES SUBMITTED BY DIFFERE NT CONTRIBUTOR BANKS. AFTER EXCLUDING FOUR HIGHEST AND LOWEST RATE S AN AVERAGE IS WORKED OUT WHICH BECOMES LIBOR RATE. THUS IT IS EV IDENT THAT LIBOR IS NOT A RATE IN ITSELF WHICH IS CHARGED OR P AID FOR THE USER OF INTER BANK DEPOSITS. IT IS ONLY AN `AVERAGE' OF THE RATES SUBMITTED BY VARIOUS PANEL BANKS AFTER EXCLUSION OF FOUR EACH O F HIGHEST AND LOWEST RESPONSES WHICH IS DAILY REPORTED AT 11:30 A.M. ALBEIT TECHNICALLY SPEAKING IT IS ONLY ONE RATE BUT IN RE ALITY IT IS AN AVERAGE OF RATES AT WHICH VARIOUS BANKS BORROW OR LEND INTE R BANK DEPOSITS. RETURNING TO OUR CONTEXT OF RULE 10B(1)(A) READ WIT H SECTION 92C(2) PROVISO IT CAN BE EASILY DEDUCED THAT THE LIBOR IS NOTHING BUT ARITHMETICAL MEAN OF RATES OF INTEREST CHARGED OR P AID ON INTER BANK DEPOSITS BY A NUMBER OF PANEL BANKS REPRESENTING DI FFERENT COMPARABLE UNCONTROLLED TRANSACTIONS. CONSIDERING T HE LIBOR AS ONE COMPARABLE UNCONTROLLED INTEREST RATE IN OUR CONSI DERED OPINION IS A RESTRICTED AND NARROW APPROACH INCAPABLE OF ACCEPTA NCE. FURTHER M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 20 - : SINCE THE LIBOR IS NOT A RATE IN ITSELF AT WHICH SO ME BANK IS WILLING TO BORROW OR LEND BUT AN AVERAGE OF RATES AT WHICH VA RIOUS PANEL BANKS OFFER TO BORROW OR LEND INTER BANK OFFERS THE SAME CANNOT BE CHARACTERIZED AS ONE PRICE DETERMINED UNDER THE COM PARABLE UNCONTROLLED PRICE METHOD. IT IS REQUIRED TO BE CON SIDERED AS ARITHMETICAL MEAN OF SUCH PRICES THEREBY MAKING AV AILABLE THE OPTION OF PLUS MINUS 5 PERCENT VARIATION TO THE ASS ESSEE. AS THE PRESENT ADDITION OF RS.50 476 MADE BY THE AO WAS TH E OUTCOME OF NOT ALLOWING PLUS MINUS 5 PERCENT CUSHION WHICH IN OUR CONSIDERED OPINION IS RICHLY DUE TO THE ASSESSEE WE HOLD THAT THE LEARNED CIT(A) WAS JUSTIFIED IN DELETING THIS ADDITION. IN VIEW OF THE ABOVE DECISION OF THE CO-ORDINATE BE NCH OF MUMBAI WE ARE INCLINED TO DECIDE THE ISSUE IN FAVOUR OF THE A SSESSEE AND AGAINST THE REVENUE. THIS GROUND OF ASSESSEE RAISED IN ITA NO.2108/MDS./12 IS ALLOWED. 13. THE NEXT COMMON GROUND IN ITA NO.1039/MDS./14 BY ASSESSEE 1074/MDS./14 BY DEPARTMENT CO NO.52/MDS. /14 BY THE ASSESSEE AND ITA NO.706/MDS./15 BY DEPARTMENT IS WI TH REGARD TO TRANSFER PRICING ADJUSTMENT IN RESPECT OF GUARANTEE FEE. 13.1. THE RELATED GROUNDS RAISED BY ASSESSEE IN I TA NO.1039/MDS./2014 IS THAT THE DRP TPO AND THE AO HA D ERRED IN HOLDING THAT THE PROVISIONS OF THE SECTION 92 OF TH E ACT WOULD BE APPLICABLE TO THE TRANSACTION OF EXTENDING GUARANTE E BY THE APPELLANT TO ITS AE. M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 21 - : 13.2 THE RELATED GROUNDS RAISED BY DEPARTMENT IN IT A NO.1074/MDS./2014 IS THAT THE DRP ERRED IN DIRECTIN G THE TPO TO ADOPT 1% AS GUARANTEE COMMISSION RATE INSTEAD OF RS.8 24 42 500/- AT THE RATE OF 3.5% ON OUTSTANDING GUARANTEE WHICH WAS ADO PTED BY TPO. 13.3. IN ASSESSEES C.O THE RELATED GROUND IS THAT THE TPO HAD ERRED IN NOT PROVIDING ANY BASIS FOR ARRIVING AT 3.5% AS ALP COMMISSION FOR ISSUING CORPORATE GUARANTEE FOR THE SUBJECT A.Y.200 9-10. 13.4. THE RELATED GROUNDS RAISED BY DEPARTMENT IN ITA NO.706/MDS./2015 IS THAT THE DRP HELD THAT THE ACTI ON OF THE TPOS ACTION OF DETERMINING THE ALP AT RS.3 36 50 000/- I S NOT JUSTIFIED AND CONSEQUENTLY THE PROPOSED UPWARD ADJUSTMENT OF RS.3 36 50 000/- IS DELETED AS PROVIDING OF CORPORATE GUARANTEE WILL NO T CONSTITUTE AN INTERNATIONAL TRANSACTION FOR THE PURPOSE OF DETERM INING THE ALP. 13.5 REVENUES APPEAL IN ITA NO.1074/MDS./2014 FOR ASSESSMENT YEAR 2009-10 HAS BEEN FILED LATE BY 3 DAYS. CONDO NATION PETITION HAS NOT BEEN FILED BY DEPARTMENT. BEFORE US THE LD.D.R EXPLAINED THE REASONS FOR DELAY IN FILING THE APPEAL DUE TO ADMIN ISTRATIVE REASONS. REASONS EXPLAINED BY THE LD.D.R ARE JUSTIFIED AND H ENCE DELAY IS CONDONED AND APPEAL ADMITTED. 14. THE FACTS OF THE ISSUE ARE THAT TPO HAS MADE A N ADJUSTMENT OF RS.8 24 42 500/- AS COMMISSION INCOME FOR THE S AME AMOUNT FOR THE SAME GUARANTEE IN THE CASE OF SIVA VENTURES LTD . WHICH WAS A M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 22 - : WHOLLY OWNED SUBSIDIARY OF THE ASSESSEE AND IS NOW MERGED WITH THE ASSESSEE RESULTING IN DOUBLE TAXATION WHILE PASSI NG THE TRANSFER PRICING ORDER U/S.92CA(3) OF THE ACT. THE DRP OBSER VED THAT THE PANEL CANNOT GIVEN DIRECTION ON AN OBJECTION WHICH IS NOT PART OF APPLICATION IN FORM 35A FILED BY THE ASSESSEE. THEREFORE THE P ANEL DID NOT GIVE ANY DIRECTION ON THIS ISSUE. AGAINST THIS BOTH TH E PARTIES ARE IN APPEAL BEFORE US. 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THIS ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN THE CASE OF REDINGTON INDIA LTD. VS. JCIT IN ITA NO.513 /MDS./2014 DATED 07.07.2014 FOR ASSESSMENT YEAR 2009-10 WHEREIN HELD THAT:- 47. REGARDING THE ABOVE ISSUE THE LEARNED SENIOR COUNSEL CONTENDED THAT CORPORATE GUARANTEE G RANTED BY THE ASSESSEE COMPANY IS NOT AN INTERNATIONAL TRANSACTION. THE ASSESSEE HAS NOT GRANTED ANY NEW GUARANTEE IN THE PREVIOUS YEAR. THEREFORE THE REL IANCE PLACED BY THE TPO ON THE DEFINITION OF THE TERM INTERNATIONAL TRANSACTION AS RETROSPECTIVELY AMEN DED BY THE FINANCE ACT 2012 IS ERRONEOUS AND BAD IN LAW. THE CORPORATE GUARANTEES PROVIDED BY THE ASSESSEE COMPA NY TO ITS AES ENABLE THEM TO SECURE CREDIT IN THEIR RE SPECTIVE OVERSEAS JURISDICTIONS AND TO COMPLY WITH THE LAWS IN THOSE JURISDICTIONS. SUCH CORPORATE GUARANTEES GRANTED B Y THE ASSESSEE TO THE AES ENABLED THEM TO SECURE FUNDS FO R THEIR WORKING ON COMPETITIVE RATES IN THE RELEVANT JURISD ICTIONS. IN THE ABSENCE OF SUCH LOCALLY SOURCED FUNDING THE ASSESSEE WOULD HAVE TO SUPPORT ITS AES BUSINESS M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 23 - : OPERATIONS BY PROVIDING FUNDS THROUGH EQUITY OR OTH ERWISE. ACCORDINGLY THE TRANSACTION CAN BE SAID TO BE ONE OF QUASI- EQUITY OR SHAREHOLDER ACTIVITY. THE WELL-BEING OF THE AES IS OF DEEP INTEREST TO THE ASSESSEE; ESPECIALLY WHERE THE BUSINESS OF THE SUBSIDIARY GENERATES SYNERGIES FOR THE ASSESSEE. IT IS IN THE BEST INTEREST OF THE GROUP THAT THE ASSESSEE HAS PROVIDED CORPORATE GUARANTEES TO ITS A ES. THE LEARNED SENIOR COUNSEL RELIED ON THE DECISION O F THE ITAT DELHI BENCH RENDERED IN THE CASE OF BHARTI A IRTEL LTD. V. ACIT (43 TAXMAN.COM 150) WHEREIN IT HAS HELD THAT PROVIDING CORPORATE GUARANTEE DOES NOT INVOLVE ANY COST TO THE ASSESSEE AND IT IS NOT AN INTERNATIONAL TRANSA CTION EVEN UNDER THE DEFINITION OF THE SAID TERM AS AMEND ED BY THE FINANCE ACT 2012 AS IT DOES NOT HAVE ANY BEAR ING ON PROFITS INCOME LOSSES OR ASSETS OF THE ASSESSEE C OMPANY. 48. AS AN ALTERNATIVE CONTENTION THE LEARNED SENIOR COUNSEL ARGUED THAT GUARANTEES ARE PROVIDED TO THE ASSESSEE ON BEHALF OF AES AS AN INTEGRAL BUSINESS A CTIVITY OF THE ASSESSEE RELATING TO SUPPLY OF GENERAL MANAG EMENT AND DISTRIBUTION OF LOGISTIC BUSINESS WORLDWIDE. THEREFORE THE TRANSACTION MUST BE TESTED UNDER THE COMBINED TRANSACTION TNMM APPROACH RATHER THAN ON A STAND-AL ONE BASIS. THE ITAT PUNE BENCH IN THE CASE OF DEMAG CRANES & COMPONENTS (INDIA) (P.) LTD. V. DCIT 56 S OT 187(PUNE) AND ITAT DELHI BENCH IN THE CASE OF MC CANN ERIKSON INDIA PVT. LTD. V. ADDL.CIT (24 TAXMANN.COM 21) HAVE HELD THAT TNMM APPLIED ON AN ENTITY-WIDE BASIS IS THE MOST APPROPRIATE METHOD FOR BENCHMARKING TRANSACTIO NS THAT ARE NOT INDEPENDENT OF THE BUSINESS CARRIED ON BY AN ASSESSEE. THE LEARNED SENIOR COUNSEL SUBMITTED THA T THE ADJUSTMENT MADE AGAINST THE CORPORATE GUARANTEE MAY BE DELETED. M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 24 - : ACCORDINGLY THIS GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 16. FURTHER IT IS NOTED THAT THE ASSESSEE HAS NOT PRESSED ANY OTHER GROUND BEFORE US. ACCORDINGLY OTHER THAN AB OVE GROUNDS ARGUED BY THE LD.A.R IN ASSESSEES APPEALS OUGHT TO BE CONSIDERED AS WITHDRAWN AND NOT PRESSED. 16.1 FURTHER ITA NO.687/MDS./15 IS A REPETITIVE AP PEAL FOR ASSESSMENT YEAR 2010-11 BYTHE ASSESSEE. HENCE IT I S DISMISSED. 17. TO SUMMARISE THE ASSESSEES APPEALS IN ITA NO.2108/MDS./12 & ITA NO.1039/MDS./2014 ARE PARTLY ALLOWED IN 687/MDS./15 IS DISMISSED & ITA NO.884/MDS./15 IS DISMISSED AND BOTH THE REVENUES APPEALS IN ITA NOS.1074 & 706/MD S./14 ARE DISMISSED AND CROSS OBJECTION NO.52/MDS./2014 RAISE D BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON 7 TH OCTOBER 2016 AT CHENNAI. SD/ - SD/ - ( . ) ( G.PAVAN KUMAR ) ! / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER / CHENNAI / DATED: 7 TH OCTOBER 2016 K S SUNDARAM M/S.SIVA INDUSTRIES & HOLDIGNS LTD. :- 25 - : ! '#$ %&$ / COPY TO: 1 . %#'( / APPELLANT 3. ) ) * (%#) / CIT(A) 5. $-.) ! / / DR 2. !0)'( / RESPONDENT 4. ) ) * / CIT 6. .1 2# / GF