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TMI Blog2016 (1) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... . The facts of the case are that the Assessing Officer disallowed F94,83,093/- by invoking provisions of Sec.14A r.w. Rule 8D(ii) of the Act. The contention of the ld. Authorised Representative is that the assessee not incurred any expenditure in earning exempt income therefore no notional expenditure can be disallowed. The investment made was from free funds and no borrowed funds were utilized for making such investments. The borrowed funds are in the nature of export packing credit, export bill discounting and terms loans which were meant for specific purpose and were used for that purpose only. The disallowance at the rate of 5% of average of investment is on higher side. The Assessing Officer has not brought out any specific reason as per the mandate of Sec. 14A(2) before invoking Rule 8D. He relied on the order of the Tribunal in the case of TVS Investments Ltd vs. ACIT in ITA No.1609/Mds/2012, dated 29.01.2013 and in that case the Tribunal held that 2% of the dividend income can be taken as expenditure for earning such income and the same may be adopted in this case also. The ld. Authorised Representative further relied on the following orders of the Various High Courts and T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e corresponding expenditure for earning such interest will have to be excluded as per section 57(iii) of the Act. 9. On the other hand, the ld. Departmental Representative relied on the orders of the lower authorities. 10. We have heard both the sides and perused the material on record. Similar issue was considered by Madras High Court in the case of Dollar Apparels vs. ITO (294 ITR 484) wherein it was held that interest on deposits with bank even assuming that the bank had insisted for making short term deposits for opening letters of credit is not income derived from export business hence not eligible for deduction u/s.80HHC. Being so, applying this same ratio, we are inclined to dismiss this ground of the assessee. 11. The last ground raised by the assessee is with regard to levy of interest under section 234B and 234C of the Act. Since, the interest is consequential and mandatory in nature, the same to be considered by Assessing Officer while passing consequential order. With these observations, the appeal of the assessee is dismissed. 12. In the result, the appeal of the assessee in ITA No.1436/Mds/2014 is partly allowed. 13. Now, we take up ITA No.1643/Mds/2014 and ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed an appeal before the Commissioner of Income Tax (Appeals). 16. On appeal, the Commissioner of Income Tax observed that the AO has made disallowance by invoking limbs (ii) & (iii) of Rule 8D(2). The AO has given opportunity to the assessee to explain the expenditure relatable to exempt income. On being not satisfied with the explanation, the AO had made the disallowance by invoking provisions of s.14A r.w. Rule 8D. The AO has noticed that the assessee has received dividend income but not disallowed any expenditure relatable to earning of such income even though it has debited several expenses in earning income during the year. The AO is of the opinion that some expenditure, direct or indirect, must have been incurred and such expenditure should be disallowed as per Sec.14A. The Assessing Officer went by the principle ex nihilo nihil fit (out of nothing nothing comes). Further, 14A(3) itself states that, ''The provisions of sub-section (2) shall also apply in relation to a case where the 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''. 16.1 Which means to say that provisions of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome under the Act. Consequently, de hors the provisions of sub-sec (2) and (3) of Sec.14A and Rule 8D, the Assessing Officer was entitled to determine by the application of a reasonable method as to what quantum of the expenditure incurred by the assessee would have to be disallowed on the ground that it was incurred in relation to the earning of income which does not form part of the total income under the Act''. 16.3 From the assessee's side it should come forward with evidence/finding to show that there was no such expenditure incurred for earning exempt income. The simple rhetoric that it has not incurred any expenditure for earning exempt income, therefore invoking of s.14A is not correct, is not acceptable. Therefore, when the AO was not satisfied with the correctness of the claim of the assessee in the absence of detailed accounts, we cannot find fault with the AO when he makes disallowance by invoking provisions of s.14A. In my opinion this is a sufficient reason for AO's dissatisfaction and invoking of the provisions. Before me also, the assessee has not produced any cogent evidence to show that it has not incurred any expenditure for earning exempt income exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the avenues which have earned exempt income. Even this argument also has to be taken with a pinch of salt since there is a possibility of parking the idle funds for temporary period in exempt income earning avenues and recouped with the other surpluses of the year during the course of time. It is astonishing to note that the appellant is keen to keep record of the expenses relatable to taxable income whereas it is not so keen to keep the track of the expenditure relatable to exempt income. When the appellant shows expenditure relatable to earning of various heads of income in its P&L alc but unable to separate the expenditure relatable to exempt income and taxable income, a scientific formula in the form of Rule 8D has been devised. The appellant should itself have invoked the provisions of Rule 8D for the disallowance of expenditure relatable to exempt income, since it is applicable for the AY. in question in view of the decision in the case of Godrej & Boyce (supra). Accordingly, the Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer. Against this, the assessee is in appeal before us. 17. We have heard both the sides, perused the written submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts income at Rs. 74,40,000/- on 26/09/2009. The assessee credited dividend income of Rs. 1,82,262/- in its profit and loss account. The Assessing Officer while framing the assessment invoke section 14A r.w. Rule 8D by contending that assessee claimed various expenses which are related to exempt income in its profit & loss account and disallowed Rs. 14,58,412/-. On appeal, before the ld. Commissioner of Income tax (Appeals) broadly the stand taken in the assessment order was affirmed against which the assessee is in further appeal before this Tribunal. The totality of facts clearly indicates, as claimed by the assessee that no borrowed funds were utilized for earning the exempt income by the assessee and further the dividend were directly credited in the bank account of the assessee and no expenditure was claimed. What it may be, we find that the assessee only received Rs. 1,82,362/- as dividend income, therefore, there is no question of disallowance of Rs. 14,58.412/- by invoking section 14A r.w. Rule 8D under the facts available on record. It was also explained by the ld. counsel for the assessee that on identical fact in earlier years, no disallowance was made. In the present ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts were not settled by actual delivery but by cancellation or premature closure by paying or receiving the difference in amount between the rate at which the contract has been entered and the prevailing exchange rate on the date of cancellation of the settlement. 20. On appeal, the Commissioner of Income Tax (Appeals) observed that the AO has disallowed the loss on account of cancellation or postponement of forward contracts holding that the loss so arrived at is not derived from the business of the assessee and also as per sec 43(5) the loss is to be treated as "losses from speculation business". The assessee has contended that foreign currency losses are on revenue account only and are incidental to the core business of the assessee of manufacture and export of garments and hence allowable as business expenditure. This issue has engaged the attention of various Courts for quite sometime. The Supreme Court in the case of Woodward Governor India 312 ITR 254 (SC) held that the loss in foreign exchange, if any, as at the end of the year would be deductible u/s 37 by valuing the outstanding liability at the rate marked to market as on date of closing of accounts, and the method of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s allowed in favour of the assessee. it is a settled issue that the assessee has to discharge the onus on why he has to resort to premature cancellation. While setting aside the order of the AO in the above referred case, the ITAT has directed the AO to disallow the loss in the absence of specific explanation as to why the forward contracts were cancelled prematurely. In the above referred case, the ITAT has allowed one segment of forward contracts which were closed three days before the due date and the explanation given by the assessee as week-end days was accepted. In another segment of forward contracts which were cancelled prematurely, the explanation given by the assessee was very general and the delay was more than three days (more than a month). The Commissioner of Income Tax (Appeals) directed the Assessing Officer to verify whether any forward contracts have been cancelled prematurely and verify the reason submitted for such premature cancellation and allowed the appeal for statistical purposes. Against this, the assessee is in appeal before us. 21. We have heard both the sides and perused the material on record. In this case, the Commissioner of Income Tax (Appeals) giv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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