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TMI Blog2013 (5) TMI 553X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 14A by the ld. CIT(A). While the Assessing Officer (AO) worked out the disallowance with respect to rule 8D (of the Income Tax Rules, 1962), the first appellate authority retained the same only qua the administrative (indirect) expenses, working out the same at 0.5% of the average investment for the year. The AO had not stated as to how the interest bearing borrowed funds have been utilized for the purpose of making the investments (in shares of a subsidiary company), which were claimed by the assessee to be out of internal accruals/built-up reserves. He had made no attempt to analyze and base his findings on the assessee's cash flow statement. The interest component of the disallowance u/s. 14A, computed in terms of r.8D (2) (ii), and which constitutes the (only) other part of the said disallowance, was accordingly deleted. The disallowance qua indirect expenditure, estimated at 0.5% of the average investment by the Assessing Officer (A.O.), was confirmed by him, finding it reasonable, relying on the decision in the case of Godrej & Boyce Manufacturing Co. Ltd. vs. Dy. CIT [2010] 328 TR 81 (Bom). Aggrieved, both the assessee and the Revenue are in appeal. 3. We have heard the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & closing value (cost) thereof. At the same time, the investment/s may well have been made at the beginning of the year, leading to again inappropriateness of the valuation of the average investment made with reference to equal weight-age being accorded to the opening and closing values. Likewise, the time of availing the borrowings during the year may also become relevant. It needs to be realized that the disallowance is in respect of expenditure actually incurred, so that though subject to estimation, the same ought to be as close to actuals, or precise, as possible. In the instant case, the average value of the investments (as per r.8D) has witnessed an increase of Rs. 380 lakhs during the previous year relevant to AY 2007-08 (i.e., with reference to the immediately preceding year), for which year the assessee has in fact returned a loss. In fact, even in a scenario of positive income, it may well be that the same has not been realized, and continues to be embedded in the current assets. In fact, the current assets (or the net current assets, i.e., current assets minus current liabilities) may continue to be maintained at the same level during the year, implying realization of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing values of the investment. We decide accordingly. 4. The matter in our view would therefore require being set aside back to the file of the first appellate authority for adjudication afresh in accordance with law per a speaking order after affording a proper opportunity of hearing to both the sides. We decide accordingly. 5. The only other issue in the assessee's appeals for A.Y. 2006-07 and 2007-08, is the part confirmation of the disallowance effected by the A.O. qua certain expenses @ 10% thereof on account of the same being unverifiable. The assessee claiming before him of a part of the said expenses as being borne by cheque/s, so that there is no question of the same being not verifiable, the ld. CIT(A) allowed it relief with reference to the said expenditure, subject to the verification of the assessee's claim qua verifiability by the A.O. Aggrieved, the assessee is in appeal. 6. The facts are not in dispute. The assessee, a company in the business of builders and developers, was found to have incurred expenditure in an aggregate sum of Rs.14.91 lakhs and Rs.90.46 lakhs for the two successive years respectively, on travelling & conveyance, exhibition, business promotion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing heard in the matter. We decide accordingly. 7. In the result, both the assessee's as well as the Revenue's appeals for A.Ys. 2006- 07 and 2007-08 are allowed for statistical purposes. Assessment Year 2008-09 8. The assessee's appeal raises two grounds; the first of which, as in the case for the preceding two years, concerns the disallowance u/s.14A. The same has been worked out by the A.O. with reference to rule 8D, as under:- Direct expenditure u/r.8D 2(i) - Nil Interest expenditure u/r.8D 2(ii) - Rs.74,721/- Indirect expenditure u/r.8D 2(iii) - Rs.4,35,881/- Total - Rs.5,10,602 The same being u/r. 8D, which is mandatory for the current year, with the assessee being unable to exhibit the financing of the investment/s held during the year as being out of interest-free capital/funds available with it, the disallowance stood confirmed by the ld. CIT(A) (refer para 5 and para 2.3.3 of the assessment and the impugned order respectively). 9. The facts of the case as well as the respective cases of the parties were the same, i.e., as for the preceding years; with, rather, rule 8D being mandatory for the current year. Even as clarified during hearing, there is no scope fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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