M/S Muthoot Bankers v. Assistant Commissioner Of Income Tax

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No.290 of 2009 (O&M)Date of decision: 19.01.2011 M/s Muthoot Bankers. -----Appellant. Vs. Assistant Commissioner of Income Tax. -----Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE AJAY KUMAR MITTALHON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:-Mr. Sumeet Goel, Advocatefor the appellant.for the appellant. Ms. Urvashi Dhugga, Standing Counselfor the respondent. --- ADARSH KUMAR GOEL, J. 1.This appeal has been preferred by the assesseeunder Section 260-A of the Income Tax Act, 1961 (for short, “theAct”) against the order of the Income Tax Appellate Tribunal, NewDelhi dated 18.1.2008 in I.T.A. No.3792/DEL/2006 and wasadmitted to consider following substantial question of law:- “WHETHER the provisions of Sec.14A of the Act areapplicable to a case where an Assessee follows cashsystem of account and no expenditure has beenincurred by it in the relevant Assessment Year forderiving dividend income which is exempt from taxand does not form part of total income under the Act?” 2. The assessee is engaged in the business of bankingand financing. It made investment in shares and receiveddividend income, which was exempt from income tax underSection 10(33) of the Act. The Assessing Officer did not allow theexpenditure claimed by the assessee in view of Section 14A ofthe Act, rejecting the claim of the assessee that during the yearsunder consideration, Section 14A was not applicable. On appeal,the disallowance was set aside and payment of interest claimedas deduction by the assessee was allowed. The CIT(A) held thatborrowing of the assessee was utilised only for working capitalpurposes and direct nexus between the amount invested and theamount borrowed was not established. Appeal of the revenuehas been allowed by the Tribunal and the matter remanded to theAssessing Officer to determine the question as to how acquisitionof shares in the earlier years was financed. 3. We have heard learned counsel for the parties. 4. Learned counsel for the assessee submitted thatSection 14A of the Act was not retrospective and there is noevidence to surplus disallowance of expenditure, as no nexuswas established between the investment made in shares and theamount borrowed. The business of the assessee is indivisiblebusiness of banking and financing and unless nexus ofborrowing, on which interest was paid, was established withinvestment in shares, the disallowance under Section 14A of theAct was not permissible. 5. On the other hand, learned counsel for the revenuesubmitted that the Tribunal has merely remanded the matter todetermine the source of funds of the assessee for investment inshares and at this stage, interference was not called for.Reliance has been placed on judgment of this Court in PunjabSmall Industries and Export Corporation Ltd.v. CIT[2009]316 ITR 239. Reliance has also been placed on judgment of theHon’ble Supreme Court in CITv. Walfort Share & StockBrokers (P) Ltd.(2010) 41 DTR Judgments 233 to submit thatSection 14A of the Act was only clarificatory to curb the practiceto claim reduction of expenses incurred in relation to exemptincome. Moreover, sub-sections (1) of Section 14A wasretrospective w.e.f. 1.4.1962. The judgment of the Hon’bleSupreme Court in Walfort Share & Stock Brokers (P) Ltd. hasalso been applied by the Bombay High Court inGodrej & BoyceMfg. Co. Ltd.v. D.C. of Income Tax & another(2010) 43 DTRJudgments 177. 6. In view of the fact that the question whetherexpenditure claimed by the assessee on the payment of intereston borrowed capital was admissible, having been remanded inthe context of applicability of Section 14A of the Act, nointerference is called for at this stage. The Assessing Officer hasto go into the question of admissibility of expenditure in relation ofincome which does not form part of the total income as required 6. In view of the fact that the question whetherexpenditure claimed by the assessee on the payment of intereston borrowed capital was admissible, having been remanded inthe context of applicability of Section 14A of the Act, nointerference is called for at this stage. The Assessing Officer hasto go into the question of admissibility of expenditure in relation ofincome which does not form part of the total income as required under Section 14A(1) of the Act. The question is accordingly answered against the assessee. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE January 19, 2011ashwani ( AJAY KUMAR MITTAL ) JUDGE