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TMI Blog2013 (8) TMI 597X X X X Extracts X X X X X X X X Extracts X X X X ..... e mode of payment was both, i.e., by way of cash and by cheque. The cash payments being not supported by third partly vouchers, and in the absence of the assessee being able to substantiate its claim of the expenses being incurred for and on behalf of the various customers, so that the same in fact stood recovered from them, the Assessing Officer (A.O.) disallowed the entire sum. 2.2 In appeal, the ld. CIT(A) found that this was a subsisting issue in the assessee's case. For A.Ys. 2006-07 and 2007-08, the disallowance had been restricted to 50% of the claimed expenses on the same set of facts. Accordingly, a deviation in decision was not permissible in the absence of any change in the facts. He, accordingly, directed for restriction of the disallowance to 50% of the claimed amount, i.e., at the impugned amount of Rs.1,92,810/-. Aggrieved, the assessee is in second appeal. 3. We have heard the parties, and perused the material on record. No improvement in its case has been brought out by the assessee-appellant, while no infirmity in the impugned order could be pointed out by either of the parties. Accordingly, we find no reason to interfere with the impugned order; the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opies of the orders by the Tribunal for the preceding years on record, he would submit that while for A.Y. 2005-06 (in ITA No.6697/Mum/2008) a disallowance of 5% (of dividend) was confirmed by the tribunal, the same was considered reasonable at 10% for the subsequent years, i.e., A.Ys. 2006-07 and 2007-08. The assessee having followed the same percentage for the current year, how could the same be now considered not reasonable and, therefore, unacceptable? Merely because a higher amount is workable under rule 8D, does not imply that a disallowance with reference thereto had to be mandatorily made. The A.O. has to first record his non-satisfaction with the assessee's claim for disallowance, be it in a positive sum, as in the instant case, or even at nil amount, before he could proceed to disturb the same - the assessee's estimate - and apply rule 8D. The said non-satisfaction, as explained by the higher courts of law, viz. Maxopp Investment Ltd. vs. CIT [2012] 347 ITR 272 (Delhi) and Godrej & Boyce (supra), has to be for cogent reasons. No dissatisfaction having been recorded by the A.O. in terms of section 14A(2), much less stating cogent reasons, the impugned disallowance could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d its suo motu disallowance with cogent reasons, the Revenue bases its case on facts, i.e., of the assessee's suo motu disallowance being not valid, so that the same could not be accepted. 6.2 The first question before us is as to the nature of the obligation cast on the A.O. u/s. 14A(2) r.w.s. 14A(3), which reads as under: "Expenditure incurred in relation to income not includible in total income. 14A. (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on has to be explicit and informed. The same, thus, is not a jurisdictional requirement, but toward completing the inbuilt fairness of the procedure as provided for. The requirement of recording dissatisfaction predicates on the discharge of the onus cast on the assessee, and which may not always obtain. The Revenue on its part could only extend opportunity to the assessee for the discharge of the said onus. In a particular case, the assessee may not produce the accounts. How could the A.O. possibly verify the correctness of the assessee's claim in such a case? In another, the assessee does not state the basis of its claim or makes the same de hors the expenses incurred and claimed. The A.O. could not possibly verify the correctness of such an incoherent or infirm claim. True, he should state this in as many words, but then, could one say that his action fails for want thereof where his dissatisfaction otherwise flows from the factual matrix of the case or is otherwise patent or self-evident. The claim (toward disallowance), it needs to be appreciated, is a matter of fact, and so, consequentially, is its verification. The decision as regards its correctness or otherwise thus is ess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th reference to the deductibility of interest u/s.36(1)(iii), the same is met by the ld.CIT(A) with reference to the decision in Godrej & Boyce (supra); the said aspect or contention, also raised in that case, having been considered by the hon'ble court (refer para 3.3.3 of the impugned order). It explains, with reference to the reliance by the assessee-appellant on the decision, inter alia, in CIT vs. Reliance Utilities & Power Ltd. [2009] 313 ITR 340 (Bom), that the fact that the investments (yielding tax-free income) stood made by utilizing own funds would no longer, i.e., after cooption of section 14A on the statute-book, be dispositive of the question as to whether the assessee had incurred any expenditure in relation to the income which does not form part of the total income, and that the disallowance of interest expenditure would have to be made, which is what the A.O. is to determine (para 85,86/pgs.135-137). This aspect stands also clarified by the tribunal in the case of Dy. CIT vs. Damani Estates & Finance Pvt. Ltd. (in ITA No.3029/Mum/2012 dated 17.07.2013/ refer para 5.4). In other words, as also stated by the ld. CIT(A), the onus is on the assessee, and unless it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de for the purpose of generating output or revenue. For example, goods are produced, incurring all the relevant costs, which however are found defective or not meeting the specified quality standards, so that the same (goods) have to be discarded/scrapped. The expenditure stands incurred, and is allowable, even as no income is generated. The funds are borrowed to buy shares and, accordingly, interest expenditure is incurred. But could one say as to how much income, whether on sale of shares subsequently or by way of dividend income thereon, would arise? Pre-determining or limiting the expenditure with reference to income, if any, finally earned, is misconceived and notional. This aspect stands explained at length by the Special Bench of the tribunal in the case of Cheminvest Ltd. v. ITO [2009] 121 ITD 318 (Del) (SB). And to think that it is this inherently erroneous and flawed claim, without any basis in law or fact, that the assessee seeks the A.O.'s verification on, impugning his dissatisfaction on the ground of not being explicit or based on cogent reasons! Not only that, it, on the same being pointed out by the first appellate authority, rather than answering those objections o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) is again without reference to and de hors the facts of that case, and solely on the basis of the legal position, and on which there is no quarrel. In the absence of any reference to facts, the only inference would be of the legal validity of the assessee's claim u/s.14A, which we have found as not so in the instant case, as also by the ld. CIT(A). 6.7 So however, a mere browse of the assessee's balance-sheet for the relevant year- end (PB pgs.4-16), reveals term loans (from banks) at Rs.2864.87 lacs and working capital advances (from banks) at Rs.1401.12 lacs. The corresponding year-end balances of fixed assets (net of depreciation) and net current assets are at Rs.5237.52 lacs and Rs.3328.29 lacs respectively, signifying complete absorption of the borrowed funds for the specified purposes, i.e., for which they stand contractually availed. The assessee, therefore, in our view, has a strong prima facie case of entire bank borrowings being applied for the respective purposes, so that no part thereof could be said to have been invested in relevant securities yielding tax-free income. If so, no part of the interest expenditure thereon could be attributed to the said investments on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring, it was explained by the assessee that the non-credit in its respect had arisen as the assessee was unable to furnish the relevant TDS certificates, and which position obtained even before the first appellate authority, resulting in his dismissal of the assessee's claim. The assessee is now in a position to furnish the same, an opportunity for which was prayed for. The ld. DR did not raise any specific objection to the assessee's request. The claim for TDS is to be firstly substantiated with the necessary evidence and, secondly, is to be allowed in respect of the income which stands brought to tax for the relevant year (section 199). The matter is, accordingly, remitted back to the file of the A.O. for necessary examination and adjudication in accordance with law. We decide accordingly. I.T.A. No.951/Mum/2012 (By the Revenue) 9. With regard to the Revenue's appeal, the penalty stands levied only in respect of the disallowance effected u/s.14A r/w r. 8D. 10. We have heard the parties, and perused the material on record. The facts and circumstances stand delineating in sufficient detail while discussing the assessee's appeal per paras 6.4 to 6.7 of our order in respect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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