9911796707
TMI Blog2012 (4) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Act, 1961?" 2. The assessee is a company and has made investment in equity shares, preference shares and bonds as per details given below : S. No. Particulars Year of Investment Amount Invested Source of Fund Dividend Received during the Fin. Year 2000-01 Interest Received during the Fin. Year 2000-01 1. Equity Share capital of Caparo Maruti Limited 1994-95 1,25,00,000 Retained earning of the Business 18,75,000 -- 2. Equity Share capital of Machino Basell India Limited. 1997-98 4,00,00,000 Issue of Share Capital in consideration of Re-arrangement of business -- -- 3. Preference Share capital of Machino Basell India Limited. 1998-99 2,60,00,000 Issue of Preference Share Capital in consideration of Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation of income assessee has shown a dividend income of Rs.1,12,89,548/- and claimed the same as exempt u/s 10(33) of I.T. Act. In response to query as to why expenses relatable to dividend income be not disallowed, assessee has filed letters dated 4.3.2003, 5.11.2003 and 17.12.2003 stating that i) no expenses including interest was incurred to earn dividend income. ii) Provisions of section 14A are not applicable since investment is old. iii) Dividend was not earned on investment which were made out of borrowed funds. The assessee has-not (sic) segregated or lead evidence to show funds used for making investment in shares etc. (18.57 crores) were not out of borrowed funds. I may add here that investment are old and coming from the pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee derives income from various activities like business, earning of interest, capital Gains. In the case of waterfall Estate 219 ITR 563 the bifurcation of expenses attributable to earning the exempt income was upheld. Therefore, I am apportioning interest expenses between exempt income and other income as under. Therefore provisions of section 14A are applicable in the case of assessee. From the above discussion and in view of the fact that the assessee has not been able to segregate/ earmark expenses relatable to earning of dividend income, I allocate the same in the ratio of total funds and investment yielding exempt income‟ (sic) The interest expenses which are incurred for various activities are: - Interest expenses other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a condition precedent is also implicit in section 14A(1) [as it now stands] as also in its initial avatar as section 14A. It is only the prescription with regard to the method of determining such expenditure which is new and which will operate prospectively. In other words, section 14A, even prior to the introduction of sub-sections (2) & (3) would require the assessing officer to first reject the claim of the assessee with regard to the extent of such expenditure and such rejection must be for disclosed cogent reasons. It is then that the question of determination of such expenditure by the assessing officer would arise. The requirement of adopting a specific method of determining such expenditure has been introduced by virtue of sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm part of total income, the assessing officer will have to verify the correctness (sic) of such claim. In case, the assessing officer is satisfied with the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, the assessing officer is to accept the claim of the assessee insofar as the quantum of disallowance under section 14A is concerned. In such eventuality, the assessing officer cannot embark upon a determination of the amount of expenditure for the purposes of section14A(1). In case, the assessing officer is not, on the basis of objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 14A of the Act. We may, however, clarify that the disallowance, if any, to be made by the Assessing Officer will not exceed the disallowance which was made in the original assessment order as reduced by the CIT(Appeals). 8. In view of the said decision, we are inclined to pass an order of remit to the Assessing Officer to examine the aforesaid aspects/ ratio and, if required and necessary, compute the disallowance under Section 14A. We may note that this order should not be construed as an expression of opinion by this Court that some disallowance must be made under Section 14A. The quantum, if any, has also not been examined. The Assessing Officer will examine the said questions keeping in mind the directions and ratio in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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