TMI Blog2013 (8) TMI 597X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee, which finding has been endorsed by revenue, the disallowance cannot be impugned for want of non-compliance of the procedure laid down u/s.14A(2). Again, however, none of the parties or their representatives have even as much as cared to look at the facts, which prima facie reflect an apparent case of bank borrowings having been availed for and utilized for specified purposes, so that the interest thereon could not be subject to apportionment on the basis of general pool of funds hypothesis, which would otherwise prevail. The matter, therefore, travelled back to the file of the A.O. Penalty u/s 271(1)(c) under Income Tax Act - The assessee, per its return, made an estimated disallowance at 10% of the dividend income received for the year, as accepted in the past, i.e., the two immediately preceding years. In fact, for the years prior thereto, a lower percentage by half, i.e., @ 5%, was found acceptable, with the matter having travelled upto the tribunal – Held that:- In this view of the matter, so that there was a suo motu disallowance u/s.14A as found acceptable for the preceding years, coupled with complete disclosure of facts, it would take the case away f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason to interfere with the impugned order; the ld. CIT(A) having taken a reasonable view in consistence with the past history of the case. We decide accordingly, and the assessee's relevant ground stands dismissed in result. 4. Ground Nos. 2 3 concern the disallowance in the sum of Rs.47,34,478/- effected u/s.14A r/w r. 8D of the Act. The assessee, a company in the logistics business, received dividend income in the sum of Rs.51,05,222/- for the relevant year. The same being claimed exempt u/s. 10(34) of the Act, the assessee suo motu disallowed a sum @ 10% thereof, i.e., Rs.5,10,522/-, u/s.14A. As no basis for the same, i.e., apart from a similar disallowance having been sustained for the preceding year/s, stood advanced by the assessee, in view of the A.O. rule 8D would apply, the disallowance per which admittedly worked to an amount of Rs.52.45 lacs. Accordingly, the difference of Rs.47,34,478/- (Rs.52,45,000 - Rs.5,10,522) stood disallowed by him. The same stood confirmed in appeal on principally the same basis. The appellant had not been able to substantiate its claim qua the amount disallowable u/s.14A at Rs.5,10,522/- in any manner. No bifurcation of the said amount st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess stating cogent reasons, the impugned disallowance could not stand, as was also found by the co-ordinate Bench of the tribunal in J. K. Investors (Bombay) Ltd. vs. ACIT (OSD) (in ITA No.7858/Mum/2011 dated 13.03.2013). The dissatisfaction of the A.O. cannot be inferred, as was done by the ld. CIT(A) in the instant case. The same constitutes a fundamental flaw, so that the matter could not be remitted back to the assessing authority, for which he would refer to pg.290 of the decision in the case of Maxopp Investment Ltd. (supra). 5.2 The ld. DR, on the other hand, would submit that the very fact that the assessee had made an ad hoc disallowance of a part of its dividend income, would be sufficient to exhibit that it had no objective basis for making the claim of expenditure stated to have been incurred in relation thereto, i.e., to income not forming part of the total income. The disallowance of the expenditure, to which there is no reference by the assessee, much less as to how the same has been identified and quantified, would be of no assistance to the assessee. It is under these circumstances that the A.O. proceeded to determine the disallowance in terms of the method presc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act:- Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001." The obligation aforesaid has been subject to judicial review, as by the hon'ble jurisdictional High Court in Godrej Boyce (supra), holding as under: (Pg.109) "The satisfaction envisaged by sub-section (2) of section 14A is an objective satisfaction that has to be arrived at by the Assessing Officer having regard to the accounts of the assessee. The safeguard introduced by sub-section (2) of section 14A for a fair and reasonable exercise of power by the Assessing Officer, conditioned as it is by the requirement of an objective satisfaction, must, therefore, be scrupulously observed. An objective satisfaction contemplate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification. The decision as regards its correctness or otherwise thus is essentially an issue which turns on facts. The law postulates a disallowance on the assessee's part, and fairness or procedure requires informing the basis of the adjustment, so as to enable the assessee to meet it where the A.O. does not accept the assessee's estimate. As long as these ingredients are satisfied, or alternatively incapable of being so, the A.O.'s action in effecting the disallowance under rule 8D cannot be assailed. 6.4 Coming to the facts of the case, the assessee's claim is without reference to the expenses incurred and claimed, much less as to which expenditure is included and to what extent. There is no break-up of the expenditure disallowed into direct or indirect expenditure. There is, further, no indication of interest, if any, included therein, and which could be both in the form of direct and/or indirect expenditure. When questioned in its respect in the assessment proceedings, all that the assessee in effect does is to furnish a working of the disallowance under r.8D (refer para 4.2 of the assessment order), further making the following claims (refer assessee's letter dated Dec, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also stated by the ld. CIT(A), the onus is on the assessee, and unless it is able to show that the borrowed funds have been utilized for specified purposes, as in the case of dedicated funds, viz. term loans, working capital advances, etc., the general pool of funds hypothesis shall prevail, and the disallowance of the interest to the proportionate extent, ensue. Reference in this context is also made to the decision in the case of Hercules Hoists Ltd. vs. Asst. CIT [2013] 22 ITR (Trib) 527 (Mum) (para 48, at pg. 563 564 of the reports). The matter is principally factual, to be decided on the facts as led by the assessee. It is only in that circumstance, whether the assessee claims the expenditure liable to be disallowed u/s.14A to be at nil or in a positive sum, that the A.O. is obliged, nay, duty bound, under law to verify the correctness of the assessee's said claim. The decisions in the case of Maxopp Investment Ltd. (supra) Godrej Boyce (supra), clarifying on this aspect of the matter, and on which there is no, nor could be, any quarrel or difference, are premised on the assumption of the assessee making a proper claim u/s. 14A, i.e., as envisaged per the said sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted out by the first appellate authority, rather than answering those objections on merits, questions the legality thereof on the ground of competence. So much for legal ingenuity. We can understand the assessee having made out a case, i.e., on a factual basis, before the ld. CIT(A), and which stands met by him rather than requiring the A.O. to examine the same first. However, in the absence of any factual basis to the assessee's claim, which position continues before us, the assessee's claim would not in fact even qualify to be termed as one, much less one which is to be subject to the procedure as laid down u/s.14A(2). That the same stood accepted for another year, even by the tribunal, would not detract from the merits of the case for the current year. Put differently, it is only the action for those years, i.e., if at all, that is not consistent with the law, so that no benefit there-from could be derived by the assessee. As explained in Godrej Boyce (supra), failure to consider the applicability of section 14A in its proper perspective would not bar the authorities from so considering the same for any other, later year. Also, the prescription of a method (per rule 8D - whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the interest expenditure thereon could be attributed to the said investments on the assumption of the same comprising the general pool of funds. The matter, accordingly, is to be restored to the file of the A.O., who shall confirm the utilization of the borrowed funds for the specified purposes for the entire year, returning a finding in the matter. Where so, the proportionate formula would apply by excluding the corresponding assets. As such, if an asset of Rs.100/- is financed by bank borrowings to the extent of Rs.75/-, assets to that extent (Rs.100/-) would stand excluded in computing the proportionate formula under rule 8D; the financing of the said asset having been established. 7. In our clear view, therefore, the initial onus to state its case qua the claimed disallowance u/s.14A is on the assessee, which is to be made with reference to its accounts and/or other records, with the A.O. obliged to allow the assessee an opportunity to prove the same. Then the A.O. is to examine the same with a view to satisfy himself as to its correctness, stating the reasons for his objective satisfaction, or not so, as the case may be, and proceed accordingly. In the instant case, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile discussing the assessee's appeal per paras 6.4 to 6.7 of our order in respect of the assessee's appeal (in ITA No. 3123/Mum/2011). We are unable to comprehend the Revenue's case insofar as the levy of penalty u/s. 271(1)(c) is concerned. The assessee, per its return, made an estimated disallowance at 10% of the dividend income received for the year, as accepted in the past, i.e., the two immediately preceding years. In fact, for the years prior thereto, a lower percentage by half, i.e., @ 5%, was found acceptable, with the matter having travelled upto the tribunal. The issue arising is whether the rule of apportionment as prescribed would apply for this year or could the assessee claim a different amount. The assessee though unable to substantiate its claim was yet found in quantum proceedings to have a prima facie case on the basis of its accounts, i.e., the annual accounts, forming part of its return of income. The matter stands, accordingly, remitted back to the file of the A.O. In this view of the matter, so that there was a suo motu disallowance u/s.14A as found acceptable for the preceding years, coupled with complete disclosure of facts, it would take the case away from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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