Sh. Shiv Parshad Aggarwal, Ludhiana v. Addl. CIT,, Ludhiana

ITA 945/CHANDI/2010 | 2007-2008
Pronouncement Date: 21-10-2010 | Result: Dismissed

Appeal Details

RSA Number 94521514 RSA 2010
Assessee PAN AABCA4454C
Bench Chandigarh
Appeal Number ITA 945/CHANDI/2010
Duration Of Justice 4 month(s) 2 day(s)
Appellant Sh. Shiv Parshad Aggarwal, Ludhiana
Respondent Addl. CIT,, Ludhiana
Appeal Type Income Tax Appeal
Pronouncement Date 21-10-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 21-10-2010
Date Of Final Hearing 03-08-2010
Next Hearing Date 03-08-2010
Assessment Year 2007-2008
Appeal Filed On 18-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI G.S.PANNU ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA JUDICIAL MEMBER ITA NO. 981/CHD/2010 ASSESSMENT YEAR: 2007-08 THE ACIT VS. M/S AARTI INTERNATIONAL LTD CIRCLE-V LUDHIANA LUDHIANA PAN: AABCA 4454 C ITA NO. 946/CHD/2010 ASSESSMENT YEAR: 2007-08 M/S AARTI INTERNATIONAL LTD V THE ADDL CIT LUDHIANA RANGE-V LUDHIANA PAN: AABCA 4454 C DEPARTMENT BY : SMT. JAI SHREE SHARMA ASSESSEE BY: SHRI SUBHASH AGGARWAL (APPELLANT) (RESPONDENT) ITA NO. 945/CHD/2010 ASSESSMENT YEAR: 2007-08 SHIV PARSHAD AGGARWAL C/O V. THE ADDL CIT C/O SALIG RAM SHIV PARSHAD RANGE-V LUDHIANA LUDHIANA PAN: ABKPA 7653 E & ITA NO. 982/CHD/2010 ASSESSMENT YEAR: 2007-08 THE ACIT VS SHIV PARSHAD AGGARWAL CIRCLE V LUDHIANA LUDHIANA (APPELLANT) (RESPONDENT) 2 ASSESSEE BY: SHRI SUBHASH AGGARWAL DEPARTMENT BY : SHRI N.K. SAINI ORDER PER SUSHMA CHOWLA JM THESE FOUR APPEALS COMPRISES OF TWO CROSS APPEALS FILED BY THE REVENUE AND THE TWO DIFFERENT ASSESSEES AGAINST DIF FERENT ORDERS OF CIT(A)-II LUDHIANA BOTH DATED 15.4.2010 RELATING TO ASSESSMENT YEAR 2007-08 AGAINST THE SEPARATE ORDER PASSED UNDER SEC TION 143(3) OF THE I.T. ACT. ITA NOS. 981/CHD/2010 & 946/CHD/2010 2. THE REVENUE IN ITA NO. 981/CHD/2010 HAS RAISED T HE FOLLOWING GROUNDS OF APPEAL:- (I) THAT THE LD. CIT(A)-II HAS ERRED IN LAW AND ON FACT S IN ALLOWING THE RELIEF OF RS. 64 29 947 OUT OF TOTAL DISALLOWANCE OF RS. 75 77 959 MADE BY THE ASSESSIN G OFFICER U/S 14A OF THE INCOME TAX ACT 1961. (II) THAT THE ORDER OF THE LD. CIT(A)-II BE SET ASI DE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE ASSESSEE IN ITA NO. 946/CHD/2010 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 11 48 013 UNDER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D(2)(III). 2. THAT ONCE THE LD. CIT(A) HAVING HELD THAT THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE THERE WAS NO JUSTIFICATION TO MAKE DISALLOWANCE OF RS. 11 48 013/- 3 3. THAT IN ANY CASE THE ADDITION SUSTAINED IS AGAINST THE LAWS AND FACTS OF THE CASE. 4. THAT IN ANY CASE THE ORDER PASSED BY LD. CIT(A) IS AGAINST THE LAW AND FACTS OF THE CASE. 4 THE ASSESSEE IN ITA NO.945/CHD/2010 HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 5 51 667 UNDER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D(2)(III). 2. THAT ONCE THE LD. CIT(A) HAVING HELD THAT THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE THERE WAS NO JUSTIFICATION TO MAKE DISALLOWANCE OF RS. 5 51 667/-. 3. THAT IN ANY CASE THE ADDITION SUSTAINED IS AGAI NST THE LAWS AND FACTS OF THE CASE. 4. THAT IN ANY CASE THE ORDER PASSED BY LD. CIT(A) IS AGAINST THE LAW AND FACTS OF THE CASE. 5. THE REVENUE IN ITA NO. 982/CHD/2010 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1 THAT THE LD. CIT(A)-II HAS ERRED IN LAW AND ON FACT S IN ALLOWING THE RELIEF OF RS. 25 37 284 OUT OF TOTAL DISALLOWANCE OF RS. 30 88 951 MADE BY THE ASSESSIN G OFFICER U/S 14A OF THE INCOME TAX ACT 1961. 2 THAT THE LD. CIT(A HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS. 4 30 451 MADE BY THE ASSESSING OFFICER U/S 36(1)(III) OF THE INCOME-TAX ACT 1961. 6. ALL THE APPEALS OF THE REVENUE AND ASSESSEE HAVI NG IDENTICAL GROUNDS OF APPEAL WERE HEARD TOGETHER AND ARE BEIN G DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE 7. THE ISSUE RAISED IN THE PRESENT APPEALS IS IN CO NNECTION WITH THE COMPUTATION OF DISALLOWANCE IF ANY U/S 14A OF THE ACT. 4 ITA NO. 981/CHD/2010 & 946/CHD/2010 8. THE BRIEF FACTS OF THE CASE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD DECLARED DIVIDEND INCOME OF RS. 16 66 227/-. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD RECEI VED THE DIVIDEND AGAINST INVESTMENT OF RS. 22.97 CRORES AS ON 31.3.2 007 AND RS. 22.94 CRORES AS ON 1.4.2006. THE SAID DIVIDEND FROM SHAR ES WAS CLAIMED AS EXEMPT AND THE ASSESSING OFFICER WAS OF THE VIEW TH AT EXPENDITURE INCURRED IN RELATION OF SUCH EXEMPT INCOME WAS TO B E DISALLOWED U/S 14A OF THE ACT. IN REPLY TO THE SHOW CAUSE ISSUED IN T HIS REGARD THE CLAIM OF THE ASSESSEE WAS THAT IT HAD NOT INCURRED ANY EXPEN DITURE IN RELATION TO THE EARNING OF SAID INCOME. IN FURTHER COMMUNICATION THE EXPLANATION OF THE ASSESSEE WAS THAT THE INVESTMENT IN SHARES OF M/S A ARTI STEELS LTD AMOUNTED TO RS. 22.97 CORES WHICH WAS MADE BY THE ASSESSEE FROM ITS INTERNAL CASH ACCRUALS AND NO AMOUNT WAS BORROWED F OR THE SAID INVESTMENT. IT WAS FURTHER POINTED OUT THAT NO DIV IDEND WAS RECEIVED FORM THE ABOVE SAID INVESTMENTS IN THE SAID CONCERN . THE BORROWINGS OF THE ASSESSEE WERE CLAIMED TO HAVE BEEN INVESTED FOR BUSINESS PURPOSES IN EITHER FIXED ASSETS OR STOCK OR BOOK DEBTS. A REF ERENCE WAS ALSO MADE TO THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF HERO CYCLES LTD (ITA NO. 331 OF 2009 DAT E OF DECISION 4.11.2009) FOR ASSESSMENT YEAR 2004-05. THE ASSE SSING OFFICER EXPANDING ON THE PROVISIONS OF THE SECTION 14A OF T HE ACT READ WITH RULE 8D OF I.T. RULES WAS OF THE VIEW THAT WHAT IS RELE VANT IS TO WORK OUT THE EXPENDITURE IN RELATION TO THE EXEMPT INCOME AND NO T TO EXAMINE WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE RESULTED I NTO EXEMPT INCOME OR TAXABLE INCOME. THE SECOND PLEA OF THE ASSESSEE T HAT WHERE NO INCOME WAS RECEIVED EXPENDITURE INCURRED COULD NOT BE DIS ALLOWED U/S 14A OF THE 5 ACT WAS HELD TO BE NON BONAFIDE. FURTHER RULE 8D WAS HELD TO BE A PROCEDURAL PROVISION FOR DETERMINING THE DISALLOWAN CE OF THE EXPENDITURE IN RELATION TO INCOME NOT FORMING PART OF TOTAL INC OME. THE ASSESSING OFFICER THUS COMPUTED THE DISALLOWANCE ON ACCOUNT O F INTEREST COST AND ALSO THE ADMINISTRATIVE EXPENDITURE ATTRIBUTABLE TO EARNING OF SUCH EXEMPT INCOME. THE ASSESSING OFFICER DISALLOWED RS. 75 77 959/- U/S 14A OF THE ACT. 9. BEFORE THE CIT(A) THE FIRST PLEA OF THE LD. AR FOR THE ASSESSEE WAS THAT THOUGH THERE WAS INVESTMENT OF SHARES OF M/S A ARTI STEEL LTD AMOUNTING TO RS. 22.97 CRORES THE SAID INVESTMENT WAS MADE FROM INTERNAL CASH ACCRUALS AND NO BORROWED FUNDS WERE U TILIZED FOR THE SAME. FURTHER NO DIVIDEND WAS RECEIVED FROM THE ABOVE SAI D INVESTMENT. THE MUTUAL FUNDS PURCHASED DURING THE YEARS WERE REDEEM ED AND THE DIVIDEND ON THE SAME AMOUNTING TO RS. 16 57 794/- WAS EARNED . A CHART WAS FILED BEFORE THE CIT(A) REFLECTING THE INVESTMENT IN THE SHARES AND MUTUAL FUNDS HAVING BEEN MADE OUT OF CURRENT ACCOUNT WHER E NO OVERDRAFT FACILITY WAS AVAILED BY THE ASSESSEE. THE CLAIM OF THE ASSESSEE WAS THAT NO INVESTMENT WAS MADE OUT OF ANY BORROWINGS. FUR THER THE ASSESSEE HAD RECEIVED DIVIDEND ON SHARES OF RS. 7 282/- ONLY . THE LD. COUNSEL FOR THE ASSESSEE ELABORATELY CLARIFIED THE INVESTMENT I N SHARES REPRODUCED UNDER PARA 2.7 AT PAGES 5 TO 7 OF THE APPELLATE ORD ER AND POINTED OUT THAT WORKING CAPITAL FACILITY WAS BEING AVAILED FROM THE CONSORTIUM OF STATE BANK OF PATIALA PUNJAB NATIONAL BANK AND STATE BAN K OF INDIA IN ASSESSMENT YEAR 2004-05. THE SAID WORKING CAPITAL WAS INVESTED IN STOCKS WORTH RS. 52.08 CRORES. THE ASSESSEE ALSO F ILED THE CASH FLOW STATEMENT FOR ASSESSMENT YEAR 2004-05 2006-07 AND 2007-08 SHOWING THAT THE BORROWED FUNDS WERE INVESTED IN THE STOCK AND EVEN AS PER THE 6 TERMS AND CONDITIONS OF THE BANK THE SANCTION LIMI TS COULD NOT BE UTILIZED FOR ANY OTHER PURPOSES. FURTHER THE CONTENTION OF THE LD. AR WAS THAT IT HAD INTEREST FREE FUNDS IN THE SHARE CAPITAL OF RS. 180 CRORES RESERVE AND SURPLUS OF RS. 120.80 CRORES DEPRECIATION RESERVES OF 95.39 CRORES AND INTEREST FREE FUNDS OF 398.119 CRORES WHICH WERE AV AILABLE TO THE ASSESSEE. THUS IT WAS POINTED OUT THAT THERE WAS NO MERIT IN DISALLOWING ANY PART OF THE INTEREST EXPENDITURE. THE LD. COUNSEL ALSO SUB MITTED THAT NO DISALLOWANCE WAS MADE IN THE EARLIER YEARS AND THE INVESTMENTS IN THE SHARES OF M/S AARTI STEELS LTD BEING OLD THERE WAS NO BASIS FOR ANY DISALLOWANCE IN THE CURRENT YEAR. 10. THE CIT(A) IN PRINCIPLE UPHELD THE APPLICABILIT Y OF THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT AND RULE 8-D OF THE I.T. RULES. HOWEVER COMING TO THE WORKING OF DISALLOWANCE UNDE R RULE 8-D IN RESPECT OF DISALLOWANCE ON ACCOUNT OF PART OF INTER EST LIABILITY INCURRED BY THE ASSESSEE ON ACCOUNT OF INVESTMENT FROM WHICH T AX FREE INCOME WAS EARNED THE CIT(A) OBSERVED THAT WITHOUT VERIFYING THE CONTENTION OF THE ASSESSEE THAT NO INTEREST BORROWING HAD BEEN INVEST ED IN SUCH INVESTMENTS AND THE EVIDENCE BEING AVAILABLE ON RE CORD BEFORE THE ASSESSING OFFICER THERE WAS NO JUSTIFICATION IN CO NSIDERING THAT THE SAID INTEREST EXPENDITURE INCURRED WAS NOT DIRECTLY ATTR IBUTABLE TO NON EXEMPT INCOME OF THE ASSESSEE. 11. THE CIT(A) IN PARA 3.9 AT PAGE10 HAS CONSIDERED THE DETAILS SUBMITTED BY THE ASSESSEE ELABORATELY IN CONNECTION WITH THE ENTIRE INVESTMENT IN SHARES BEING MADE DURING THE PERIOD 2 002-03 TO 2005-06. THE FINDINGS OF THE CIT(A) IN PARA 3.9 REGARDING TH E INVESTMENT OF SHARES IN AARTI STEELS LTD ARE BEING REFERRED TO AND NOT B EING REPRODUCED FOR THE 7 SAKE OF BREVITY. THE CONCLUSION OF THE CIT(A) ON AP PRECIATION OF THE ENTIRE FACTS WAS IN VIEW OF THE ABOVE FACTUAL POSITION AND NO DISALLOWANCE OF INTEREST U/S 14A OF THE ACT HAVING BEEN MADE IN THE RESPECTIVE PRECEDING YEARS I AGREE WITH THE LD. CO UNSELS THAT IT HAS TO BE CONSIDERED THAT NO PART OF INTEREST BEARING BORROWE D FUNDS WERE INVESTED IN THE PURCHASE OF THESE SHARES IN THE RESPECTIVE P RECEDING YEARS. ACCORDINGLY NO PART OF THE INTEREST EXPENDITURE CL AIMED IN THE ASSESSMENT YEAR UNDER CONSIDERATION CAN BE DISALLOWED ON THE G ROUND THAT ANY INTEREST BEARING LOANS WERE INVESTED FOR THE PURCHA SE OF THESE SHARES. 12. THE CIT(A) IN PARA 3.10 AT PAGES 10 & 11 OF THE APPELLATE ORDER HAD ELABORATELY CONSIDERED THE SOURCE OF INVESTMENT MAD E DURING THE YEAR UNDER CONSIDERATION IN UNITS OF MUTUAL FUNDS AND TH E EARNING OF DIVIDEND OF RS. 16 57 794/-. THE ASSESSEE HAD FILED THE CO PIES OF RELEVANT EXTRACT FROM BANK STATEMENTS FROM WHICH THE AFORESAID INVES TMENTS FOR THE PURCHASE OF MUTUAL FUND WAS MADE AND THE SAID COPIE S WERE STATED TO HAVE BEEN FILED BEFORE THE ASSESSING OFFICER ALSO. THE CIT(A) OBSERVED THAT ALL THE CREDITS IN THE BANK ACCOUNTS UTILIZED FOR I NVESTMENT IN THE MUTUAL FUNDS HAD BEEN EXPLAINED AND THE ASSESSEE HAD HUGE OUTSTANDING AMOUNTS AGAINST M/S AARTI STEELS LTD AND WAS EARNING INTERE ST ON THE SAME. THE CIT(A) OBSERVED THAT FROM THESE DETAILS IT BECOMES AMPLY CLEAR THAT ALL THE INVESTMENTS IN THE MUTUAL FUNDS DURING THE RELE VANT PERIOD HAD BEEN MADE BY THE APPELLANT MAINLY OUT OF THE FUNDS TRANS FERRED FROM THE CREDIT BALANCE IN THE ACCOUNT OF M/S AARTI STEELS LTD WHI CH WAS APPELLANTS OWN MONEY AND FROM WHICH INTEREST WAS EARNED BY THE APP ELLANT. THESE MUTUAL FUNDS ARE FURTHER SHOWN TO BE PURCHASED EITH ER OUT OF THE DIVIDEND INCOME RECEIVED ON REDEMPTION OF SUCH MUTUAL FUNDS DURING THE RELEVANT PERIOD OR THE AMOUNTS RECEIVED ON SUCH REDEMPTION .. THE CONCLUSION OF 8 THE CIT(A) WAS THAT NO INTEREST BEARING FUNDS WERE UTILIZED BY THE ASSESSEE FOR INVESTMENT IN THESE MUTUAL FUNDS DURIN G THE RELEVANT PERIOD. IN VIEW THEREOF AND FOLLOWING THE RATIO LAID DOWN B Y THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS. HERO CYCLES LTD (SUPR A) THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER RULE 8-D(2)(II) OF THE I.T. RULES OF RS. 6429947/- WAS DELETED BY THE CIT(A). 13. IN CONNECTION WITH THE DISALLOWANCE UNDER RULE 8-D(III) OF THE I.T. RULES THE CONTENTION OF THE ASSESSEE THAT IT HAD N OT INCURRED ANY EXPENDITURE FOR EARNING THE DIVIDEND INCOME WAS HEL D TO BE NOT CORRECT AND APPLYING THE PROVISIONS OF RULES 8-D DISALLOWA NCE OF RS. 11 48 013/- WAS CONFIRMED BY THE CIT(A) VIDE PARA 3.7 OF THE AP PELLATE ORDER. 14. THE REVENUE IS IN APPEAL AGAINST THE RELIEF ALL OWED BY THE CIT(A) AMOUNTING TO RS. 64 29 947/- AND THE ASSESSEE IS IN APPEAL AGAINST THE CONFIRMATION OF ADDITION OF RS. 11 48 014/-. THE LD. AR FOR THE ASSESSEE PLACED RELIANCE ON THE WRITTEN SUBMISSIONS FILED BE FORE THE CIT(A) AND THE EVIDENCE PRODUCED BEFORE THE CIT(A) IN CONNECTION W ITH NON UTILIZATION OF INTEREST BEARING FUNDS IN INVESTMENTS ON WHICH EXEM PT INCOME WAS EARNED. THE LD. AR ALSO ELABORATELY EXPLAINED THE SOURCES O F INVESTMENT IN THE MUTUAL FUNDS ON WHICH DIVIDEND WAS EARNED AND WAS C LAIMED TO EXEMPT. THE LD. DR PLACED RELIANCE ON THE ORDER OF ASSESSIN G OFFICER / CIT(A). 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. IN THE APPEAL FILED BY THE REVENUE THE OBJECTION IS RAISED IN CONNECTION WITH THE RELIEF ALLOWED OUT OF ADDITION MADE ON ACCOUNT OF D ISALLOWANCE OF INTEREST EXPENDITURE BEING ATTRIBUTABLE TO INTEREST BEARING ADVANCES UTILIZED FOR MAKING INVESTMENT ON WHICH THE INCOME EARNED WAS EX EMPT. THE LD. DR 9 FOR THE REVENUE HAS FAILED TO BRING ON RECORD ANY E VIDENCE TO DISPROVE THE CLAIM OF THE ASSESSEE AND THE FINDINGS OF CIT(A). THE CIT(A) HAD CONSIDERED THE FACTUAL ASPECTS AT LENGTH AND AFTER VERIFYING THE SOURCES OF INVESTMENT IN MUTUAL FUNDS ON WHICH EXEMPT DIVIDEND INCOME WAS DECLARED BY THE ASSESSEE HAD CONCLUDED THAT INTERE ST BEARING FUNDS WERE NOT UTILIZED FOR THE SAID INVESTMENT. THE CIT(A) HA D ALSO VERIFIED THE INVESTMENT IN SHARES OF M/S AARATI STEEL LTD. MADE BY THE ASSESSEE IN THE EARLIER YEARS AND FOUND THAT NO PART OF THE INTERES T EXPENDITURE WAS DISALLOWED IN THE EARLIER YEARS. IN THE TOTALITY OF FACTS AND CIRCUMSTANCES AND IN THE ABSENCE OF THE REVENUE POINTING ANYTHING TO THE CONTRARY WE ARE IN CONFORMITY WITH THE ORDER OF CIT(A) IN ALLOW ING THE RELIEF OF RS. 64 29 947/- COMPUTED BY THE ASSESSING OFFICER UNDE R THE PROVISIONS OF SECTION 8-D (2)(II) OF THE I.T. ACT . THE GROUND O F APPEAL OF APPEAL RAISED BY THE REVENUE IS THUS DISMISSED. 16. THE ASSESSEE IS IN APPEAL AGAINST THE PART DISA LLOWANCE OUT OF ADMINISTRATIVE EXPENDITURE IN VIEW OF THE PROVISION S OF THE SECTION14A OF THE I.T. AND RULE 8-D OF THE I.T. RULES. THE CLAI M OF THE ASSESSEE WAS THAT NO EXPENDITURE HAD BEEN INCURRED IN RELATION T O EARNING OF SUCH EXEMPT INCOME. THE AUTHORITIES BELOW HAVE FAILED TO POINT ANY EXPENDITURE INCURRED FOR EARNING THE EXEMPT INCOME AND HAS COMPUTED THE DISALLOWANCE ON ADHOC BASIS. WE FIND GUIDANCE FROM THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT V M/S HERO CYCLES LTD (SUPRA) WHEREIN IT WAS HELD THAT DISALLOWANCE UNDER SECTION14A REQUIRES FINDING OF INCURRING OF EXPENDI TURE WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HA S BEEN INCURRED DISALLOWANCE US/ 14A CANNOT STAND. FOLLOWING THE ABOVESAID RATIO AND 10 IN THE FACTS OF THE PRESENT CASE WHERE THE AUTHORIT IES HAVE FAILED TO POINT OUT ANY EXPENDITURE INCURRED FOR EARNING THE SAID E XEMPT INCOME WE FIND NO MERIT IN THE SAID DISALLOWANCE U/S 14A OF THE I. T.ACT R.W.S RULE 8D OF I.T. RULES. WE SET ASIDE THE ORDER OF CIT AND DIR ECT THE ASSESSING OFFICER DELETE THE ADDITION OF RS. 11 48 013/-. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS THUS ALLOWED. 17. IN THE RESULT APPEAL OF THE REVENUE (ITA NOS. 981/CHD/2010) IS DISMISSED AND APPEAL OF THE ASSESSEE ( ITA NO. 946/ CHD/2010) IS ALLOWED. ITA NO. 945/CHD/2010 AND 982/CHD/2010 18. THE FACTUAL ASPECTS IN THE PRESENT APPEAL ARE S IMILAR TO THE FACTS ARISING IN APPEALS OF THE REVENUE AND ASSESSEE IN I TA NOS. 981/CHD/2010 & 946/CHD/2010) RELATING TO THE ASSESSMENT YEAR 20 07-08. 19. IN THE APPEAL UNDER CONSIDERATION THE ASSESSIN G OFFICER INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8-D OF I.T. RULES HAD COMPUTED THE DISALLOWANCE OUT OF THE INTEREST EXPEN DITURE UNDER RULE 8-D (2) (II) OF THE ACT AND ADMINISTRATIVE EXPENSES U/S 8-D(2)(III) OF THE ACT. THE ASSESSING OFFICER HAD DISALLOWED RS.30 88 951/- APPLYING THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RUL E 8-D OF THE IT RULES. DURING THE YEAR THE ASSESSEE HAD EARNED DIVIDED I NCOME OF RS. 13.37 LACS. THE ASSESSEE HAD PAID INTEREST OF RS. 60.17 L ACS AND HAD EARNED INTEREST OF RS.135.28 LACS DURING THE RELEVANT PERI OD. THE CIT(A) AT LENGTH HAD ELABORATED UPON THE FACTUAL ASPECTS OF T HE INVESTMENTS MADE IN PARA 3.6 IN PAGES 10 & 11 OF THE APPELLATE ORDER ON THE ISSUE OF INVESTMENT IN MUTUAL FUNDS AND SHARES ON WHICH EX EMPT INCOME HAD BEEN 11 EARNED. ON CONSIDERATION OF THE SAID FACTS THE CI T(A) CONCLUDED THAT ASSESSEE HAD HUGE DEPOSITS WITH M/S AARTI STEELS LT D ON WHICH HE WAS EARNING INTEREST AND OUT OF THESE AMOUNTS THE PROC EEDS WERE TRANSFERRED TO THE BANK ACCOUNTS OUT OF WHICH INVESTMENT IN P URCHASE OF SHARES / MUTUAL FUNDS WERE MADE. IT WAS ALSO NOTED BY THE C IT(A) THAT THERE WAS NO OVERDRAFT IN THE SAID BANK ACCOUNT OUT OF WHICH INVESTMENT WAS MADE AND IN VIEW THEREOF THERE WAS NO JUSTIFICSATION IN DISALLOWING ANY PART OF INTEREST LIABILITY BEING ATTRIBUTABLE TO INVESTMENT MADE FOR EARNING TAX FREE DIVIDEND INCOME. 20. IN THE FACTS AND CIRCUMSTANCES OF THE CASE WHE RE THE ASSESSEE HAD ESTABLISHED WITH EVIDENCE THAT NO PART OF INTEREST BEARING FUNDS WERE UTILIZED FOR INVESTMENT IN SUCH SECURITIES FROM WHI CH EXEMPT INCOME WAS EARNED AND FOLLOWING OUR ORDER IN PARAS 14 & 15 HER EINABOVE WE ARE IN CONFORMITY WITH THE ORDER OF CIT(A) AND WE HOLD TH AT THERE IS NO MERIT IN DISALLOWING ANY PART OF INTEREST LIABILITY U/S 14A OF THE ACT. THE GROUND OF APPEAL RAISED BY THE REVENUE IS DISMISSED 21. THE SECOND DISALLOWANCE MADE BY THE ASSESSING O FFICER WAS ON ACCOUNT ADMINISTRATIVE EXPENSES BEING ATTRIBUTABLE TO EARNING OF DIVIDEND INCOME. THE ASSESSEE CLAIMED NOT TO HAVE INCURRED ANY SUCH EXPENSES. FOLLOWING THE RATIO DOWN BY THE HON'BLE PUNJAB & HA RYANA HIGH COURT IN CIT V HERO CYCLES LTD (SUPRA) WE REVERSE THE ORDE R OF CIT(A) THAT IN THE ABSENCE OF ANY PARTICULAR EXPENDITURE BEING FOUND T O HAVE BEEN INCURRED FOR EARNING THE TAX FREE INCOME THERE IS NO MERIT IN THE SAID DISALLOWANCE. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS THUS DISMISSED. 12 22. IN THE RESULT APPEAL OF THE REVENUE ( ITA NOS. 982/CHD/2010) IS DISMISSED AND APPEAL OF THE ASSESSEE ( ITA NO. 945/ CHD/2010) IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 1 ST OCTOBER 2010. SD/- SD/- (G.S.PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 21 ST OCTOBER 2010 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR