TMI Blog2013 (5) TMI 553X X X X Extracts X X X X X X X X Extracts X X X X ..... e would be required to be verified at the end of the A.O. Assessment Year 2008-09 - disallowance u/s.14A. with reference to rule 8D - Held that:- Rule 8D being mandatory for the current year. This is as the assessee has not been able to substantiate its claim that no expenditure whatsoever stands incurred in relation to the tax-free investments, which in fact have again witnessed an increase for the current year, i.e., at an average of Rs.871.76 lakhs, as against at Rs.579.88 lakhs for the immediately preceding year. Considering large scale movement in funds during the year & Not only has the investment portfolio witnessed a (net) increase of approximately Rs.2 crores, the interest expenditure stands reduced to a mere fraction, i.e., to Rs.8.72 lakhs (for the current year) from Rs.67.82 lakhs for A.Y. 2007-08, signifying retirement of debt to a substantial extent. Under the circumstances, therefore, the interest disallowance on a generalized basis, particularly considering that the assessee has not made out any case, cannot be faulted with. The disallowance is, therefore, confirmed. - I.T.A. Nos.4524 & 4523/Mum/2011, I.T.A. Nos.4667, 4669 & 4662/Mum/2011 - - - Dated:- 15-5-201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly or partly, out of interest bearing funds. The assessee in this regard, as appears to us, has furnished a cash flow statement. We say so as we are unable to see the import of the assessee's argument that the AO did not 'see' the cash flow statement, which finds mention in the impugned order, otherwise, i.e., if the assessee has itself not furnished the same. In fact, even assuming it's submission before the AO, so that it was incumbent on him to examine the same, and base his decision on the findings arising there-from, the ld. CIT(A) ought to have either required the AO to do so - by calling for a remand report from him - or himself examined the same, issuing appropriate findings of fact. In its absence, the matter, which is primarily factual, gets decided de hors any facts and figures. There is no room for any presumption. On the contrary, as afore-noted, it is not even clear if the cash flow statement was submitted by the assessee, to which no reference stood made even in the course of hearing before us. The primary onus to support its claim of no interest (or any other expenditure for that matter), and with reference to its accounts, is on the assessee. Only once it so does, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee before us. The application of the borrowings can only be ascertained with reference to the purpose/s for which they were extended, subject of course to the borrowing entity maintaining the corresponding asset/s at the required level. For example, in case of a working capital advance, with a margin of 25%, net current assets of Rs.100 would signify a utilization of the borrowed funds to the extent of Rs.75 and own capital at Rs.25. If that be so, even if the assessee had applied its own funds to the relevant assets, the subsequent borrowings would have to be considered as substituting the existing source of finance; the funds being fungible, so that no disallowance qua interest expenditure on this advance would ensue. As such, a fund flow analysis, in preference to a cash flow analysis, would be more appropriate or relevant, while none obtains in the instant case. Again, in case of both dedicated borrowings as well as general borrowings, the average formula can be applied only for the latter, excluding the quantum of the dedicated funds (and the corresponding assets) in working out the average assets (total) for allocating the interest on the general borrowings. Reverting back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance, worked out at 10% of the relevant expenditure, stood reduced to Rs.1,43,620/- and Rs.6,09,905/- for the said two years respectively. We are unable to understand the cause of the assessee's grievance, given the fact that the basis of the disallowance as confirmed is the non-verification of the relevant expenditure. How could, in view of the same, it be said to have been, firstly, incurred and, secondly, wholly and exclusively for the purposes of its business by the assessee? The assessee before us also claimed that the entire expenditure stands carried over in the form of work-in-progress (WIP) for the relevant years. As such, no disallowance for the current year/s would arise, as the disallowance would only result in reduction of the WIP to the extent of the amount/s disallowed. We find merit in this alternate argument, which of course would be required to be verified at the end of the A.O. We decide so, as this alternate plea, concerning a matter of fact, has not been raised by the assessee for the first time before us, but before the ld.CIT(A) as well (refer grounds of appeal before him), who though has not rendered any finding in the matter. Accordingly, the matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e whatsoever stands incurred in relation to the tax-free investments, which in fact have again witnessed an increase for the current year, i.e., at an average of Rs.871.76 lakhs, as against at Rs.579.88 lakhs for the immediately preceding year. With regard to the interest expenditure, though we would normally, i.e., in the regular course, be inclined to restore the matter back inasmuch as the aspect of determination of the financing pattern of the investments has been remitted to the file of the first appellate authority for the immediately preceding year, and which may have a bearing in the matter, however, we do not consider it necessary in the facts and circumstances of the case. This is because we observe a large scale movement in funds during the year. Not only has the investment portfolio witnessed a (net) increase of approximately Rs.2 crores, the interest expenditure stands reduced to a mere fraction, i.e., to Rs.8.72 lakhs (for the current year) from Rs.67.82 lakhs for A.Y. 2007-08, signifying retirement of debt to a substantial extent. Under the circumstances, therefore, the interest disallowance of Rs.74,721/- on a generalized basis, particularly considering that the ass ..... 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