9911796707
TMI Blog2013 (10) TMI 1304X X X X Extracts X X X X X X X X Extracts X X X X ..... er dated November 27, 2009. 2.1. Before us, the assessee's principal case was that while the Assessing Officer (A.O.) had effected a disallowance under section 14A at Rs. 95,084, the learned Commissioner of Income-tax (Appeals) had enhanced it to Rs. 16,64,980 by treating the disallowance under section 36(1)(iii) at Rs. 18,71,943 by the Assessing Officer as under section 14A. The two provisions, though qua the same expenditure, i.e., interest expense claimed as business expenditure, entail different obligations as far as the onus on the assessee is concerned, so that the assessee-appellant did not get proper opportunity to explain its case before him. In fact, even on merits, as the assessee had sufficient funds of its own, no disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be, before we proceed to delineate the issue involved and its adjudication, recount the facts of the case, which are fairly simple and undisputed. The assessee, a firm acting as a manufacturer's representatives, commission agent and dealer in a variety of items, viz., iron and steel and hardware materials, oil and oil seeds and chemicals, was observed during the course of the assessment proceedings to have made investments at Rs. 397.37 lakhs during the relevant year, the break-up of which, including the opening value of the investments, i.e., as on March 31, 2006 (at Rs. 9.65 lakhs), as provided, is as under : (Rs. in lakhs) 1 In shares and units of mutual fund 361.12 2 Office premises 9.56 3 FDR/s with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred for the year, save the interest against mutual fund loan already considered (Rs.6.38 lakhs), i.e., at Rs. 47,44,556. This is as the investment under reference arises from the common pool of funds, comprising both interestfree and interest bearing sources of capital. This was with reference to the total investment in the business of Rs. 795 lakhs. 3.3. The third limb of the disallowance, which in fact was not disputed before us, is for Rs. 95,084, towards indirect expenses (other than interest), worked out at 0.5 per cent. of the average value of the investment held during the year. 3.4. During the course of the hearing, it was an admitted position that the disallowance for Rs. 6.37 lakhs has been rightly worked out by the authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in or for business. The disallowance of interest under section 14A(1), on the other hand, is a statutory disallowance. The same would follow unless the assessee is able to exclude the possibility of interest bearing funds having been applied towards asset/s yielding income that does not form part of the total income. There is no question of any presumption with regard to the application of funds, for example, based on the quantum of own funds vis-a-vis borrowed funds inasmuch as the computation formula provides equal weightage to all the sources of funds, providing for funds being applied proportionately. Funds, in a business enterprise, are always in a state of flux. As such, the daily cash flows apart, which may enable location of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to qualify for the proportionate formula. We say so as the matter is essentially factual, and toward which we extract from the decision by the co-ordinate bench in the case of AFL P. Ltd. v. Asst. CIT in I.T.A. Nos. 3123/Mum/2011 and 951/Mum/2012 dated August 14, 2013 (since reported in [2013] 28 ITR (Trib) 263 (Mum)) (page 272) : 6.5. ". . . In other words, as also stated by the learned Commissioner of Income-tax (Appeals), the onus is on the assessee, and unless it is able to show that the borrowed funds have been utilised for specified purposes, as in the case of dedicated funds, viz., term loans, working capital advances, etc., the ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and others dated February 13, 2013/copy on record) (since reported in [2013] 1 ITR (Trib)-OL 695 (Mum)). In the facts of that case, the Tribunal found that most of the investments had already been financed in the earlier years, while in the instant case, as would be apparent from the foregoing, the entire investment in shares and units is only during the relevant year (refer paragraph 5). The assessee's method in arriving at the interest disallowance of Rs. 1,97,249, credit for which of course is to be allowed to it, is wholly erroneous (refer page 7 of the impugned order) inasmuch as it, inter alia, links/correlates the interest expenditure with the dividend earned despite the two being independent and disparate events. The interest e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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