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TMI Blog2016 (4) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [2010] 328 ITR 81 (Bom), invoked Rule 8D (of the Income Tax Rules, 1962), effecting disallowance u/s. 14A(1) toward indirect interest and administrative expenditure under rules 8D(2)(ii) and 8D(2)(iii) respectively, computed as under (refer para 4 of the assessment order): (Amt. in Rs.) A. Interest Paid 1,69,38,980 B. Average value of investments Investments as on 01.4.2008 2,19,31,222 Investments as on 31.03.2009 24,23,22,749 26,42,53,971 Average value of investments 13,21,26,988 C. Average value of total assets Assets as on 01.4.2007 45,19,93,626 Assets as on 31.3.2008 67,71,65,873 112,91,59,499 Average value of assets 56,45,79,750 D. Expenditure relatable to exempt income i) Direct Expenses (disallowed suo motu by the assessee) 3,799 ii) A x B/C = 1,69,38,980 x 13,21,26,988 56,45,79,750 39,64,181 iii) 0.50% of 13,21,26,988 6,60,635 46,28,615 &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below; the only exception to the pro rata computation being the sourcing of FDRs yielding taxable interest income, i.e., from borrowed capital, acceded to by the ld. CIT(A), i.e., to the extent as may be found valid upon verification by the A.O. 4. We have heard the parties, and perused the material on record. 4.1 The principal issue, thus, arising in the instant appeal, i.e., as argued before us, is the correct quantification of the disallowance of the indirect interest expenditure u/s. 14A r/w r. 8D(2)(ii); no contention qua indirect administrative expenses, disallowed per the prescription of r. 8D(2)(iii), having been made. Without doubt, the disallowance u/s. 14A(1) is only qua expenditure - direct or indirect, incurred in relation to income not forming part of the total income, i.e., which is tax-exempt. The assessee's plea, relying on CIT vs. Walfort Shares & Stock Brokers (P.) Ltd. [2010] 326 ITR 1 (SC), therefore, of only that expenditure which has a proximate nexus with such income, cannot be faulted with. Income, by definition, is only net income, i.e., net of expenditure incurred in relation thereto. This, in fact, is abundantly clear per the relevant provision (s. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over current assets) before us may not hold - no interest, which only is being apportioned, being suffered thereon. 4.2 We may, before addressing the principal issue afore-stated, also address the other issues sought to be raised by the assessee per its grounds of appeal. Ground 2 objects the non-recording of the satisfaction by the A.O. As also noted earlier, the assessee despite incurring expenditure by way of interest and administrative expenditure, did not make any disallowance u/s. 14A toward the same per its return of income, which is also sans any explanation with regard thereto. This fact, duly noted by the A.O., is even otherwise admitted and not denied. Further, while the A.O.'s disapproval of the assessee's claim is to be with reference to the assessee's accounts, can the latter's claim be independent of and without reference to its accounts? The assessee cannot, after all, de hors and without regard to its accounts, claim that the entire of such expenditure is only toward income forming part of the total income, i.e., either towards investments yielding taxable income or other business assets. The principal onus or the obligation to prove his return, or the claims pref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also be made to the decision in CIT v. Rajendra Prasad Mody [1978] 115 ITR 519 (SC), wherein, even by giving examples, it was explained by the Hon'ble Apex Court that even if no income results, the expenditure incurred in its respect would yet stand to be deducted in arriving at (net) 'income'. The assessee's plea is wholly without merit. Reference in this regard may be made to the discussion by the tribunal in the matter per its' decisions in D. H. Securities (P.) Ltd. vs. Dy. CIT [2014] 146 ITD 1 (Mum) (TM) and Dy. CIT v. Damani Estates and Finance P. Ltd. [2013] 25 ITR 683 (Mum) (Trib). 4.3 The question that finally survives is whether the disallowance as made and confirmed is sustainable in law, considering the plea raised by the assessee before us (refer para 3). We have already found the course adopted by the Revenue as valid and in keeping with the mandate of law. Though, therefore, strictly speaking, no cognizance of any such plea raised - the assessee's claim of no indirect expenditure on interest or administrative expenses being not supported by any working, much less made with reference to its accounts - could be made at this stage, the matter in our view would require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the corresponding current assets. It is only this excess - and to that extent only, that represents a non-dedicated source of funds, and go to swell the general pool of funds or the common hotch-potch, funding any asset that may be acquired for the time being. This would also hold in relation to 'advance for orders' (from customers), at Rs. 52.55 cr. as at 31.3.2008, as well, as to the extent the amount is retained in the form of current assets (as cash/bank balance or inventory of goods), the same is only a targeted funding, financing current assets only. The unsecured loans, constituting the other major source of finance, is similarly not toward financing any specific asset/s (or class of assets). Self generated funds (profits), which are normally also available, again on a non-dedicated basis, is absent in-as-much as the assessee-company has suffered a loss during the year, which is primarily responsible for the decline in the NWC. Rather than being a generator or source of funds, the firm's operations have become an avenue for absorption of the funds for the current year. In fact, the excess (outstanding) current liabilities (as at the year-end), as a portfolio, represents ..... X X X X Extracts X X X X X X X X Extracts X X X X
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