TMI Blog2016 (4) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... asis, 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 such loss to the extent not met - the assessee continuing to maintain the current assets at the same level. Looked at in any manner, the enhanced current liabilities or funds generated from the decline in NWC can therefore only be said to finance all the additions to the assets proportionately. The pro-rata formula of funding enshrined in Rule 8D(2)(ii) would thus apply on facts to the assets, both as at the beginning and the close of the relevant year and, thus, to the average assets, including investments, held during the year, signifying the appropriateness of the formula u/r. 8D(2)(ii) both on facts and in law. Finally, the ld. CIT(A) has, subject to A.O.’s verification, held for an adjustment for interest on (bank) FDRs. The same shall, accordingly, stand to be similarly excluded, at an ave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 In appeal, the assessee found favour with the ld. CIT(A) in-as-much as it was contended that the assessee had also earned interest income on FDRs at ₹ 35,27,028/-, which is taxable, so that to the extent the same is sourced from bor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 14A) itself, which speaks of expenditure incurred by the assessee in relation to such, tax-exempt income. This, however, does not take us far, i.e., in-so-far as the present case is concerned, as the Revenue seeks and has disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 preferred thereby, is only on the assessee ( CIT v. Calcutta Agency [1951] 19 ITR 191 (SC)). It is only where he does so, at least prima facie , that the onus can be said to shift to the other side, so that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 being considered holistically, taking into account the entirety of the facts and circumstances of the case, i.e., does not admit of any standard prescription. In a given case, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ₹ 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 such loss to the extent not met - the assessee continuing to maintain the current assets at the same level. Looked at in any manner, the enhanced current liabilities or funds gener ..... X X X X Extracts X X X X X X X X Extracts X X X X
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