IN THE HIGH COURT OF DELHI AT NEW DELHI 
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   ITA 68/2012  
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 CIT ..... Appellant 
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 Through Mr. Sanjeev Sabharwal, Sr. Standing Counsel. 
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 versus 
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 JINDAL EQUIPMENT LEASING and CONSULTANCY  SERVICES LTD.   ..... Respondent 
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 Through Nemo. 
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 CORAM: 
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 HON'BLE MR. JUSTICE SANJIV KHANNA 
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 HON'BLE MR. JUSTICE R.V.EASWAR 
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 O R D E R 
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   03.02.2012 
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 Revenue impugns the order dated 21st April, 2011 passed by the 
 Income Tax Appellate Tribunal (tribunal, for short) confirming the order 
 of the Commissioner of Income Tax (Appeals) deleting penalty under 
 Section 271(1)(c) of the Income Tax Act, 1961 (Act, for short). 
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 2. The Assessing Officer imposed penalty, inter alia, recording that 
 the Assessing Officer had disallowed expenses to the extent of 
 Rs.1,07,34,968/- (from interest expenses) and Rs.5,12,401/- (from 
 administrative costs) under Section 14A read with Section 115O of the 
 Act.  The respondent assessee had challenged the additions before the 
 CIT(Appeals), but was unsuccessful.  Appeal filed before the tribunal was 
 dismissed for non-prosecution. 
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 3 The Assessing Officer thereafter passed a penalty order under 
 Section 271(1)(c) of the Act, which as noted above, was set aside and the 
 penalty was deleted by the CIT(Appeals).  The tribunal has affirmed the 
 order passed by the CIT (Appeals). 
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 4. During the course of assessment proceedings, the assessee had given 
 the following explanation and expressed their stand, why no disallowance 
 should be made under Section 14A of the Act:- 
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 ? Section 14A deals with those expenditure which are incurred by the 
 assessee in relation to income does not form part of the total income 
 under this Act.  The expression ?in relation to? has to be read in a 
 broader sense.  The words ?in relation to? signify or imply a direct and 
 proximate relationship between expenditure and income.  It cannot cover 
 any expenditure relating to the source but not attributable to exempt 
 income.  It is submitted that in a case of one indivisible business, 
 Section 14A does not have any applicability.  As was explained, the 
 company holds shares as a part of the promoters stake and not as 
 investment simpliciter.  The main activity of the company is to have 
 control over the investee companies. 
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 Dividend income is only incidental to the holding of the shares. 
 These are other types of income/rights which are earned from the holding 
 of promoters stake, like 
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 Profit on sale of shares 
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 Right to appoint Director/Directors fees 
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 Right to participate in Rights issue 
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 Stock Lending 
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 Voting rights 
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 All of the above are valuable rights and the income referred above 
 is earned, e.g. the directors of the company earn directors 
 fees/commission which is chargeable to tax. 
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 All such income find their genesis in the promoters? holding. 
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 In view of the above, it is submitted that it is wholly wrong to 
 state that the interest expenditure has been incurred by the company to 
 earn dividend income.  At the sake of repetition, it is once again stated 
 that the shares are held by the company as a part of the promoters stake 
 and are therefore, are the tools through which the company conducts its 
 business of acquiring / retaining management control over the investee 
 companies.  Expenditure for the purpose of business merits to be allowed 
 as a deduction.? 
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 5. The assessee in support of its contention had relied upon CIT 
 versus Raeeva Lochan Kanoria, (1994) 208 ITR 616 (Cal.), CIT versus 
 Indian Bank Limited, (1965) 56 ITR 77 (SC), CIT versus Maharashtra Sugar 
 Mills Limited, (1971) 82 ITR 452 (SC) and Rajasthan State Warehousing 
 Corporation versus CIT, (2000) 242 ITR 450 (SC). 
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 6. The CIT (Appeals) and the tribunal have considered the aforesaid 
 explanation given by the assessee to justify their claim why no 
 disallowance was mandated under Section 14A in the present case.  They 
 have accepted that the explanation given by the assessee was genuine and 
 bona fide.  The contention of the respondent assessee may have been 
 rejected in the quantum proceedings but when deciding whether or not 
 penalty for concealment should be imposed, the justification and 
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 explanation why the assessee had made the claim, is to be examined.  Disallowance under the said Section have been subject matter of debate 
 and different views have been expressed.  A legal contention which was 
 plausible and merited consideration was raised.  Accordingly, the 
 appellate authorities have applied the explanation to Section 271(1)(c) 
 of the Act.   Looking at the nature of explanation offered and the 
 provision in question i.e. Section 14A, which was incorporated by the 
 Finance Act, 2001 with retrospective effect from 1st April, 1962, we do 
 not think in the present case any substantial question of law arises in 
 view of the factual matrix involved.  Accordingly, the appeal is 
 dismissed. 
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 SANJIV KHANNA, J. 
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 R.V. EASWAR, J. 
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 FEBRUARY 03, 2012 
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 VKR 
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 $ 62. 
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