TMI Blog2017 (9) TMI 1964X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision in Kapurchand Shrimal [ 1981 (8) TMI 2 - SUPREME COURT] . Disallowance of personnel and administration expenses - extent of expenditure incurred for or attributable to the property income, which constitutes the principal receipt and, correspondingly, the principal activity during the year - HELD THAT:- It was upon the assessee to show that the expenditure incurred in relation thereto is lower in proportion to that obtaining on the basis of the proportionate receipt in the total turnover - both before the AO as well as the ld. CIT(A) no explanation, muchless materials, stand furnished by the assessee toward the same. The position continues to be the same before us. How, therefore, we wonder, can the AO s estimate, who is entitled to make the same on the basis of the material and the information on record, be faulted with (refer Consolidate Coffee Ltd. v. State of Karnataka [ 2000 (11) TMI 136 - SUPREME COURT] - AO is entitled to make a reasonable estimate is well settled. The reasonability of the estimate apart, personnel and administrative expenditure is inadmissible u/ss. 23 24, so that the AO has in fact, in allowing proportionate expenditure thereon, been liberal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd (at . 37.76 lacs), against fabric purchase orders, placed on them for . 31.69 lacs and . 39.78 lacs respectively (refer paras 2.1 and 5.5 of assessment and the impugned order respectively). However, no goods were supplied nor were the amounts forthcoming and, rather, the companies were subsequently dissolved. Accordingly, the assessee was constrained to write off the debts as irrecoverable, claiming the same as business loss. The advances, as found by the Assessing Officer (AO), are to related parties. The companies were dissolved on 11.04.2011 and 28.01.2011, i.e., soon after being advanced on 19.07.2010. How could it be that the assessee company, a group concern, was not aware of their financial status? The transaction was only a camouflage to derive a tax advantage. The claim was accordingly dismissed. In appeal, the same was confirmed in the absence of any improvement being effected in its case by the assessee. Aggrieved, the assessee is in second appeal. 3. Before us, the ld. Authorized Representative (AR) would, placing reliance on CIT v. Crescent Films (P.) Ltd. [2001] 248 ITR 670 (Mad), submit that the assessee had purchased from the lendee concerns in the past ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e doubt that the amounts stand lost irrecoverably and, thus, of the assessee incurring loss of capital to that extent. However, in view of the purchase orders, the same assumes the nature of a business loss. The companies are not in the relevant business/trade. Why did, then, the assessee place the orders? We have already opined that there exist reasons to doubt the genuineness of the transaction/s. This becomes all the more relevant as but for the orders, the amount advanced would be a capital transaction and, it s loss, consequently, a capital loss, inadmissible as a business deduction. Further, as aforesaid, the financial condition would only be deleterious for the said companies to have been declared defunct just a few months later. The group concerns would, in any case, be in the intimate know of their own affairs. Why, and under what circumstances, then, did they accept the order/s, implying them to be in business, i.e., as going concerns, which they are apparently not. Again, even if facing financial stress, the supplies could yet been affected. That is, by securing goods from the market using the assessee s money, earning a neat margin in the bargain and, rather, mitigating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ze, composition, spun, colour, weave, design, etc. Unless communicated, it is neither possible for the assessee to source the material, nor for its supplier/s to do so. Again, how would they quote of price, or agree to a price, which implies a communication and understanding in the matter, which is conspicuous by its absence. This is all the more significant as, as it appears, the assessee itself did not receive any advance for the purpose, so that payment in advance does not characterize the trade. Continuing further, the purchase orders reflect the terms of payments as 50% advance. How, then, has the assessee given nearly the entire amount, which, rather, in one case (VK Investment, at .32.90 lacs) exceeds 100% (of the order), as advance? This is all the more significant as, as it appears, the assessee itself did not receive any advance for the purpose, so that payment in advance does not characterize the trade. The ledger accounts of the advancees (PB pgs. 33, 34) reveal the assessee to have money transactions with them; in fact settling their account (by making payment ( . 6.53 lacs) in one case, and receiving ( . 13.52 lacs) in another) months before the placement of purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books, as required to yield a nil balance sheet. This aspect would also be required to be examined. All these explanations/details, among others, would be readily available with the assessee if the transactions have actually arisen in the normal course of its business, to which surprisingly no reference has at all been made, even in passing, by the assessee while pleading its case. The facts/incidents referred to are only to enable definite findings of fact in the conspectus of the case. We, accordingly, only consider it proper to restore the matter back to the file of the AO to allow the assessee, in the interest of justice, another opportunity to prove its claims, which could be so on various counts and per a number of supporting documents and corroborative circumstances. Needless to add, he shall decide per a speaking order. The burden to prove its claims being on the assessee, an inability on its part to do so shall entitle the AO to draw inference(s) as may be proper under the circumstances. Reference here may be made to the decision in Kapurchand Shrimal v. CIT [1981] 131 ITR 451 (SC). We decide accordingly. 5. The next ground relates to the disallowance of personnel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e impugned order and, accordingly, confirm the disallowance. We decide accordingly. Revenue s Appeal 7. The only issue in the Revenue s appeal is the disallowance u/s. 14A in respect of dividend income of . 1,12,122/-, which stands worked out u/r. 8D at a total of . 58,29,423/-, comprising direct expenditure (on interest) (at . 56.16 lacs), indirect interest expenditure (. 49,555/-) and indirect administrative expenditure (. 1.64 lacs). The basis of the relief by the ld. CIT(A), approving the disallowance in principle, is that the disallowance u/s. 14A cannot exceed the exempt income, as held in Joint Investments Pvt. Ltd. v. CIT [2015] 372 ITR 694 (Del). 8. We have heard the parties, and perused the material on record. Section 14A seeks to disallow, in computing the assessee s total income, expenditure incurred in relation to income not forming part of the total income under the Act. This is as, as explained in Godrej Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81 (Bom), income implies only net income, i.e., net of expenditure incurred for or toward earning the same, whether taxable or taxexempt. Where, therefore, expenditure is incurred which is partly in relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where not determinable with reference to the assessee s accounts, has been provided for by law to be at a fraction (0.5%) of the average value of investment held during the relevant year. As regards interest, the same would without doubt depend upon the financing, direct or indirect, of the relevant investment, so that the same would again depend on the facts of the case. The Finance Act, 2017 further fine tunes the attribution method prescribed u/r. 8D by averaging the investment on a monthly basis, rather than the simple mean of the opening and closing balance for the year. Further, by way of abundant caution, it also provides that the disallowance (of expenditure) shall not exceed the total expenditure claimed by the assessee. This is in fact axiomatic as the same cannot possibly exceed the expenditure actually incurred, which is/is to be attributed, i.e., in whole or in part, to the income not forming part of the total income. In other words, the disallowance of expenditure is essentially a matter of fact, and cannot be either prejudged or predetermined by law. Why, the amount of income, with reference to and at which the expenditure is said to be artificially pegged/limited t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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