TMI Blog2016 (4) TMI 1135X X X X Extracts X X X X X X X X Extracts X X X X ..... that no expenditure was so incurred, the statute has provided for a presumptive expenditure which has to be disallowed by force of the statute. In a distant manner, literally speaking, it may even be considered for the purpose of convenience as a deeming provision. When such deeming provision is made on the basis of statutory presumption, the requirement of factual evidence is replaced by statutory presumption and the Assessing Officer has to follow the consequences stated in the statute. It means that even in a case where no expenditure is stated to have been incurred, the assessing authority has to apply Rule 8D. As the statutory presumption substitutes the requirement of factual evidence, the question of enquiry does not arise. - Decided in favour of assessee. Allowance of claim of forex loss as revenue expenditure - Held that:- In view of the provisions of sec.43A of the Act, at the time of making payments in foreign exchange towards any business asset – after the acquisition of the asset - if there is any fluctuation in the rate of exchange leading to an increase or decrease in the liability of the assessee, then the amount of expenditure would have to be considered to be o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. Further, according to the ld. AR, disallowance cannot be more than the exempted income. He, further submitted that the Madras High Court in the case of M/s. EID Perry (India) Limited v. JCIT in IC A No.2287 of 2006 dated 8.8.2012 held that 2% would be the exempted income. The ld. AR also relied on the decision of the Jurisdictional High Court in the case of Simpson Co. Ltd. v. DCIT in TCA No.2261 of 2006 dated 15.10.2012 to support his argument. The ld. AR further placed reliance on the judgment of the Delhi High Court in the case of Joint Investments Pvt. Ltd. v. CIT (372 ITR 694) wherein it was observed as under : This Court in Commissioner of Income Tax VI v. Taikisha Engineering India Ltd., had highlighted the necessity in view of the peculiar wording of Section 14A (2) that computation or disallowance of the assessee, or claim that no expenditure was incurred for earning exempt income should be examined with reference to the accounts and only if the assessee's explanation is unsatisfactory, can the AO proceed further. The Court in Taikisha Engineering (supra) pertinently observed Section 14A(2) of the Act and Rule 80(1) in unison and affirmatively rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2009-10 as follows : Subsidiaries ₹ 2,38,89,48,500/- UTI Infrastructure Advantage Fund Series ₹ 10,00,000/- Investment in sister concerns ₹ 1,59,39,000/- 6.1 For the assessment year 2010-11, the total investment is as follows : Subsidiaries ₹ 4,35,42,53,360/- UTI Infrastructure Advantage Fund Series ₹ 10,00,000/- Investment in sister concerns ₹ 1,59,39,000/- 6.2 For the assessment year 2011-12, the total investment is as follows : Subsidiaries ₹ 5,17,41,16,895/- UTI Infrastructure Advantage Fund Series ₹ 8,53,000/- Investment in sister concerns ₹ 1,59,39,000/- 6.3 In this case, the assessee made average investment which yields no income or exempted income is as follows : 2009-10 ₹ 1,96,32,20,750/- 2010-11 ₹ 3,39,69,83,166/- 2011-12 ₹ 4,78,02,04,127/- The AO disallowed 5% of the average investment as follows: 2009-10 ₹ 98,16,104/- 2010-11 ₹ 1,69,84,915/- 2011-12 ₹ 2,39,01,020/- The assessee dividend income received and claimed as exempt for these assessment years are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equences stated in the statute. It means that even in a case where no expenditure is stated to have been incurred, the assessing authority has to apply Rule 8D. As the statutory presumption substitutes the requirement of factual evidence, the question of enquiry does not arise. Therefore, we are unable to agree with the argument of the learned CA. 7. In result, this appeal filed by the assessee is dismissed. 6.5 This view of ours is also fortified by the judgment of the Karnataka High Court in the case of Pradeep Kar v. ACIT (319 ITR 416), wherein it was observed as under : The claim of the assessee for deduction of interest on the amounts borrowed by him for purchase of shares is disallowed by the Assessing Officer. In the appeal filed by him against the assessment order, the first appellate authority reversed the order of the assessing authority by applying the decision of the Supreme Court reported in CIT Vs. Rajendra Prasad Moody [1978] 115 ITR 519. The Revenue took up the matter in second appeal before the Income-tax Appellate Tribunal, hereinafter called as the Tribunal in short. The Tribunal reversed the decision of the first appellate authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest amount paid on the borrowed loans. The amounts borrowed by the appellant were invested in shares and dividend is earned. When deduction for the interest paid is claimed, the dividend earned cannot be excluded from income. Computation of income has to be made taking the amount of dividend income earned by the appellant. The assessing authority considered the decision in Rajendra Prasad Moody's case [1978] 115 ITR 519 (SC) relied upon by the learned counsel and held that it is not applicable to the fact situation. The reasons assigned for such a conclusion in the assessment order are extracted hereunder: The decision is with reference to deduction allowable under section 57(iii) of the Income-tax Act. The decision relates to an assessment year where dividend income was taxable in the hands of the assessee. With the introduction of section 10(33) of the Income-tax Act from the assessment year 1998-99 the position of law in regard to taxability of dividends has been changed since such income becomes a part of income which do not form a part of total income of the assessee. The provisions of section 14A introduced by the Finance Act, 2001, with effect from Apr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utilised for the acquisition of shares of the company under the control of the assessee, the utilisation of the borrowed funds was for business purpose entitling the assessee to deduction of interest under section 36(1)(iii) of the Income-tax Act, 1961. The Assessing Officer held that the assessee made investments by utilising the borrowed funds ill the form of acquisition of shares in the company and the only benefit the assessee got was dividend income of ₹ 3 lakhs. Since section 14A of the Act bars any deduction pertaining to any expenditure incurred by the assessee for earning any income which did not form part of the total income, the Assessing Officer disallowed the claim to deduction of interest. The Commissioner (Appeals) confirmed the assessment. The Tribunal allowed the claim but made a disallowance of ₹ 2 lakhs being the interest stated to be attributable to the dividend income of ₹ 3 lakhs earned by the assessee from the leasing company during the previous year. On appeal: Held, allowing the appeal, that any expenditure incurred for earning any income which was not taxable under the Act was not an allowable expenditure. Dividend income wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital in nature, then depreciation @ 20% has to be provided for the same. The AO has not grant that. Further, the short term capital gain computed in the next asst. year i.e. 2010-11 on account of sale of this asset will get reduced to that extent. However, the above adjustments are not made by the AO in his assessment order for both these years. If this loss is to be treated as capital loss, then directions must be issued to grant depreciation at 20% and rework the short term capital gain in the next year because the cost of acquisition would change. According to the ld. AR, on an overall basis, there will not be any loss to the revenue on account of the above disallowance. 8.1 On appeal, the CIT(Appeals) observed that in view of the provisions of sec.43A of the Act, at the time of making payments in foreign exchange towards any business asset after the acquisition of the asset - if there is any fluctuation in the rate of exchange leading to an increase or decrease in the liability of the assessee, then the amount of expenditure would have to be considered to be of capital nature, and shall be taken into account in computing the actual cost of the asset as per the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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