TaxTMI 
TaxTMI 
2008 (2) TMI 455
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....ch may be heard by the Special Bench of the Tribunal. For this purpose, they have narrated the relevant facts to indicate that one of the issues involved requires examination of ambit and scope of Section 14A for deciding the allow ability of interest. 3. These facts are given in Paras 1 and 2 of the Order of Division Beikbxm its Order dt. 7th Dec, 2006 and are as under: 1. The assessee derives income from the business of sub-letting of properties. In addition, it also received income from interest and dividend. The assessee received interest income of Rs. 6,79,678 on interoperate deposits and received dividend of Rs. 3,06,630 from a subsidiary company. The dividend related to financial year 1995-96 but was declared and received on 9th May, 1997 i.e. during this assessment year. The assessee had declared the entire income from sub-letting, interest and dividend as business income. The assessee paid interest of Rs. 20,34,339 on borrowings made, which has been claimed as deduction. The perusal of the balance sheet shows that in the beginning of the year i.e. on 1st April, 1997, the share capital and the reserves were to the tune of Rs. 22.60 lacs and the loans taken amoun....
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.... mentioned earlier which were delivered prior to insertion of Section 14A were not applicable. Thus, even if income from investments is accepted as business income, expenses relating to investment in shares is exempt from tax. After the record date for dividend in May 1997, investment in shares is not going to yield any taxable income as the dividend income is exempt from tax w.e.f. 1st June, 1997. Therefore interest payable on such borrowings for the period 1st June, 1997 to 31st March, 1998 is not allowable in view of Section 14A. In fact, before CIT(A) the assessee had made an alternate submission that, disallowance of interest if any could only be made for the period 1st June, 1997 to 31st March, 1998. 4. After considering these facts, relevant provision of the IT Act and the Orders of different Benches of the Tribunal on the issue, the Division Bench forwarded the record of the appeal to the Hon'ble President for constituting a Special Bench. The relevant findings of the Division Bench in this regard are as under: Thus, there is a difference of opinion between different Benches regarding applicability of proviso to Section 14A to the proceedings pending in appe....
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.... to Section 14A, can any disallowance be made by invoking the provisions of Section 14A for any assessment year beginning on or before the 1st day of April, 2001, by: (a) the Hon'ble Tribunal in an appeal pending before it; or (b) the learned CIT(A) in an appeal pending before such authority; when in either of the aforementioned cases it has not been invoked during assessment proceedings? 7. Vide Order dt. 11th April, 2007 it was directed that the question raised by the applicant being of general nature shall be treated as Question No. 1 and the questions already referred to the Special Bench shall be treated to be question Nos. 2 and 3. Thus the following three questions are to be examined and adjudicated by this Bench: 1. Whether considering the provisions and objectives of the proviso to Section 14A, can any disallowance be made by invoking the provisions of Section 14A for any assessment year beginning on or before the 1st day of April, 2001, by: (a) the Tribunal in an appeal pending before it; or (b) the CIT(A) in an appeal pending before such authority; when in either of the aforementioned cases it has not ....
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....ssment year under consideration. Thus, the claim of the assessee was that since all the activities relating to earning of income were undertaken simultaneously and there was intermixing of the funds, any part of borrowed funds cannot be linked or identified with any particular activity, hence the entire interest was allowable as business expenditure. It was specifically pleaded that even if the income from dividend was taken to be exempt during the year under consideration, since the loan had been borrowed for business purposes, the conditions set out in Section 36(1)(iii) of IT Act are satisfied and therefore the interest is allowable. 8.2. The AO, after considering the relevant material came to the Conclusion that business activity of the assessee was sub-letting of properties and the interest expenses were not laid out for this activity. He applied the provisions of Sections 56 and 57 of the IT Act and disallowed interest to the tune of Rs. 12,94,978. The income was computed by him accordingly. The relevant portion of the assessment Order in this regard is as under: 5. in view of the above discussion, it is held that business activity of the assessee was sub-letting of pro....
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....r, rejected the pleas taken before him and upheld the Order of the AO by observing as under: 8. It will be clear from the above reproduction that for the purpose of business the appellant company is investing only idle funds which are required for the main objects at section Nos. 1 to 5 in shares and deposits. The appellant is accordingly not making any borrowings of taking any deposits for the purpose of earning income from interest or dividends. The interest/dividends earned by the company on her surplus funds would be taxable under the head other sources. The AO has already allowed interest to the extent of interest income earned by the appellant under the head other sources. As the remaining interest was on borrowings which were not wholly and exclusively for the purpose of business the same would not be allowable. The Order of the AO holding the dividends to pertain to the preceding year and disallowance of interest of Rs. 12,94,478 is upheld. 8.4 The assessee thereafter challenged the Order of the learned CIT(A) before the Tribunal by taking following grounds: 1. That on the facts and in the circumstances of the case and under the provisions of the law, t....
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....n 14A to disallow the expenditure then the consequence will be that the matter will have to be restored to the AO who will be allowed to reopen the whole thing for the adjudication of the issue which power is not given to the AO because of the restriction imposed under the proviso to Section 14A introduced w.e.f. 11th May, 2001. The contention of the learned Counsel, therefore, was that firstly the Tribunal cannot invoke the provisions under Section 14A in absence of any request from any party. Secondly the Tribunal cannot disallow expenditure in view of the provisions contained under Section 14A because the relevant material has not been collected and produced on record by the Revenue. Thirdly, in case the Tribunal does so and restores the matter to the AO for collecting the material, then the Tribunal will be permitting the AO to do an act, which would not be within his powers; and fourthly, while doing so, the Tribunal will be enhancing the liability of the assessee. It was also submitted that since the issue relating to disallow ability of interest does not arise out of the Order of AO or that of the learned CIT(A), it would amount transgression of power by the Tribunal. In sup....
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....g in Section 254 of the IT Act, confers limited powers on Tribunal and the Tribunal cannot give a direction when there is no cross-appeal by the other party, as is the case here. 6.6. Coming to the issue of disallowance of interest under Section 36(1)(iii) of the IT Act, which issue was raised before the Tribunal, his contention was that for allowing or disallowing interest under Section 36 of IT Act, it is to be seen that the interest was incurred for business purposes and for commercial expediency or not, but so far as Section 14A is concerned, the Department is required to prove that the expenditure was incurred which related to earning of exempt income i.e. borrowed funds were used for the earning of tax-free income. He also pointed out that in the return, the assessee did not claim any income to be exempt and whatever dividend income was earned by the assessee, the same was offered for taxation. 6.7. Dealing with the scope of the proviso, it was submitted by the learned Counsel for the assessee that no assessment could be reopened relating to assessment prior to 1st April, 2001 i.e. prior to asst. yr. 2001-02. It was also contended by him that AO cannot reopen the assess....
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.... Shri Mehta that the assessee was not having any tax-free income in this assessment year and therefore there was no question for making disallowance under Section 14A. He also pointed out that no allegation was made by the AO that interest has to be paid for earning tax-free income nor any income was treated as exempt by him. For this purpose the learned Counsel for the assessee went through the assessment Order and the Order of the learned CIT(A) to demonstrate that in spite of the observations made by the AO and the learned CIT(A) no disallowance was made under Section 14A nor any query was raised in relation thereto. According to him, under these circumstances, how at the subsequent stage i.e. at the appellate stage such disallowance can be made by the Tribunal by invoking the provisions of Section 14A for the first time. In this regard and on the scope and powers of the Tribunal the learned Counsel made reference to the cases including the following authorities: (a) Orissa Weavers Co-operative Spinning Mills Ltd. v. CIT (b) CIT v. Princess Sarla Kumari and Anr. (c) CIT v. Nanalal Tribhovandas and Anr. (d) CIT v. Steel Cast Corporation ....
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....sessee, who challenges the Order of the AO and CIT(A) invokes and applies Section 14A then such an assessee will be in worse position because in the case of assessee who has not preferred any appeal, by virtue of the proviso, the AO cannot reopen the assessment for invoking the provisions of Section 14A. According to learned Counsel this will create anomalous situation which will not be in consonance with the object of the legislature for introducing the provisions of Section 14A and the proviso to that section. In support of this contention, the learned Counsel placed reliance on the following authorities: (i) ABN Amro Bank NV v. Jt. CIT (2005) 96 TTJ (Kol)(TM) 1041; (ii) ITO v. Decca Survey Overseas Ltd. ITA No. 8489/Bom/1991; (iii) ITO v. Decca Survey Overseas Ltd. ITA No. 3604/Bom/1994; (iv) Chohung Bank v. Dy. Director of IT ITA No. 4948/Mum/2005, reported at (2006) 104 TTJ (Mum) 612-Ed.; (v) Naveen Bharat Industries Ltd. v. Dy. CIT (supra). 7.2. He also made reference to the provisions contained under Section 43B and submitted that initially the provision contained under Section 43B was found to be a harassing provision and ther....
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....es of. V. Uppalaiah v. Dy. CIT (2005) 95 TTJ (Hyd) 706 : (2005) 94 ITD 178 (Hyd); Narinder Singh Dhingra v. CIT; CIT v. Rafiulla Tea & Industries (P) Ltd. and CIT v. Matrix Intel (P) Ltd. (2007) 294 ITR 257 (Mad). Coming to the powers of CIT(A) it was contended by him that powers of CIT(A) are coterminous with that of the AO and if the AO is barred in exercising jurisdiction, CIT(A) cannot exercise the same jurisdiction because what AO cannot do, CIT(A) can also not be allowed to do the same and since the jurisdiction of the AO has been taken away by the proviso, the same effect will be on the powers of the CIT(A) and even on the power of the Tribunal. 8. The learned CIT-Departmental Representative Shri Rajnish Kumar made very elaborate submissions for meeting out the contentions raised by the learned Counsel for the assessee and by the learned Counsel for the intervener. He also filed a written submission dt. 23rd April, 2007. In brief, the submission of the learned CIT-Departmental Representative, as given in the written arguments are as under: 1. The stand of the Revenue as regards question No. 1 is an unequivocal affirmative so far as the CIT(A) is concerned. ....
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....cultural Co-operative Marketing Federation of India Ltd. v. Union of India & Ors. (vii) J.M. Bhatia, AAC v. J.M. Shah (viii) CIT v. Devidayal Stainless Steel India (P) Ltd. (ix) CIT v. Shah Electrical Corpn. and (x) Asstt. CIT v. Shakti Builders (2005) 93 TTJ (Del) 425 : (2005) 93 ITD 269 (Del). 9. Regarding the scope of Section 14A, the submission of the learned CIT--departmental Representative was. that proviso to Section 14A was inserted w.e.f. 11th May, 2001 on which date the retrospective section came on the statute book. The proviso takes away the power of the AO in respect of any assessment year before 1st April, 2001, under various specific circumstances. These circumstances have been elaborated in the written submissions of the Department. 10. The powers of Tribunal are to dispose of any appeal before it. In such a clasp if the subject matter of appeal relates to the claim of deductibility of "expenditure, whether it is assessee's or Revenue's appeal even provisions JJFS. 14A are to be taken into account. For explaining the meaning of subject matter of appeal, the learned CIT-Departmental Representative placed reliance on t....
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....or supporting the argument that proviso to Section 14A cannot curtail the powers of CIT(A) and the Tribunal and also on the scope of Section 14A, he placed reliance on the following authorities: (a) CIT v. Rajendra Prasad Moody (b) Asstt. CIT v. Citicorp Finance (India) Ltd. (2007) 111 TTJ (Mum) 82 : (2007) 12 SOT 248 (Mumbai). In the paper book, filed with the written submissions, the learned CIT-Departmental Representative has also filed copies of the various decisions reference to which was made by him during the course of arguments before us. 14. We have carefully considered the entire material on record, the arguments raised on behalf of the assessee, on behalf of the intervener and on behalf of the Department. Before proceeding to deal with the questions referred to the Special Bench, we would consider it proper to deal with the scope of amendment introduced in Section 14A, the scope of proviso to that section inserted w.e.f. 11th May, 2001 and the scope of other relevant provisions, instructions of CBDT and the relevant case law relating to these provisions, because the controversy involved in various questions, referred to the Special Bench, centers ....
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....der to clarify and state the position of law that any expenditure relatable to income which does not form part of total income cannot be set off against other taxable income. This section was not introduced with prospective effect, as that would have implied that before the introduction of the said provisions, expenditure incurred to earn exempt income was allowable. Instances of reopening of old assessments, which had attained finality, after insertion of Section 14A in the Act, have come to the notice of the Board. Reopening of past completed assessments, having attained finality, on the basis of newly inserted provisions of Section 14A is likely to cause hardship to a large number of taxpayers and would result in increasing avoidable litigation. The Board has considered this matter and hereby directs that the assessments where the proceedings have become final before the 1st day of April, 2001 should not be reopened under Section 147 of the Act to disallow expenditure incurred to earn exempt income by applying the provisions of newly inserted Section 14A of the Act. This may be brought to the notice of all officers in your region immediately. Yours ....
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.... Section 14A and proviso attached thereto was that after feeling the difficulty which arose on account of retrospective amendment introduced under Section 14A, the proviso was introduced to virtually make it prospective so that the assessees who had filed returns earlier may not be put to any disadvantageous position. In this regard the learned Counsel referred to the entire legislative history for introducing the proviso. It was pointed out by him that the proviso was introduced w.e.f. 11th May, 2001, on which date the assent of the President was obtained for amending Section 14A. The learned Counsel in this regard made reference to the Finance Bill, 2001 and the Notes on Clauses of this Bill. According to him, in view of the ratio of various decisions of apex Court regarding allowance of deduction for business expenses under Section 36 or 37 the aspect of taxability or non-taxability of income was not relevant. Thus in Order to do away with the impact of decisions of Hon'ble apex Court in the case of Indian Bank and Rajasthan Warehousing (supra), the proviso was introduced and further Sub-sections (2) and (3) were introduced w.e.f. 1st April, 2007 and now the provision contai....
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.... 1949, was amended and an Explanation was inserted. On appeal to Supreme Court, the Department relied upon the amended provision. The Hon'ble Supreme Court held that the answer to the reference was to be given in accordance with the amended law unless the question referred by the Tribunal was not couched in terms of sufficient amplitude to cover an inquiry into the question in the light of the amendment. 17.3 The Hon'ble Supreme Court while holding so, placed reliance on its Earlier decision in the case of CST v. Bijli Cotton Mills (supra). The observations made by Justice Shah, J. in that case, which have been quoted by the apex Court in its decision in the case of Straw Products Ltd. (supra), at p. 163 of the report, are as under: Undoubtedly the Tribunal called upon to decide a taxing dispute must apply the relevant law applicable to a particular transaction to which the problem relates and that law normally is the law applicable as on the date on which the transaction in dispute has taken place. If the law which the Tribunal seeks to apply to the dispute is amended, so as to make the law applicable to the transaction in dispute, it would be bound to decide t....
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....of the law which may have taken place after the Tribunal's decision and during the pendency of the reference. 17.6 In the case of State of U.P. v. Modi Industries Ltd. after decision in the reference by the High Court and before the Tribunal could act upon it, the law was amended retrospectively. The Tribunal, thereupon, did not act on the basis of the decision of the High Court under the reference. The assessee moved the High Court under Article 226 and the Hon'ble High Court viewed that the revising authority was not free to take a different view from the one expressed by the High Court on any ground whatsoever, including any subsequent amendment in the law and that it was bound to decide the case in conformity with the judgment of the High Court. On appeal, the Hon'ble Supreme Court set aside the decision of the High Court by holding that the retrospective amendment clearly indicated the intention of the legislature of restoring the assessments and Orders made earlier and hence the Tribunal was entitled to take such retrospective amendment into account. 17.7 In the case of CIT v. May & Baker (India)(P) Ltd. (supra), while answering the reference on the basis of....
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....by all authorities including Tribunal, if the facts involve the issue warranting application of the amended law as contained under Section 14A of the IT Act. Scope and ambit of proviso attached to Section 14A 18. The settled legal position is that the normal functioning of a proviso is to except something from the enactment or to qualify something enacted thereto but the proviso would be within the purview of the enactment. 19. In the case of Mullins v. Treasurer of Survey (1980) 5 QBD 170 at p. 173, the learned Lush, J., observed that "when one finds a proviso to a section the natural presumption is that, but for the proviso, the enactment part of the section would have included the subject matter of the proviso". In the words of Lord Macmillan expressed in the case of Local Government Board v. South Stoneham Union (1909) AC 57 p. 62 (HL), the proviso may be a qualification of the preceding enactment, which is expressed in terms too general to be quite accurate. Hon'ble Mr. Justice Hidayatulla has expressed this Rule in the case of Shah Bhojraj Kuverji Oil Mills & Ginning Factory v. Subhash Chandra Yograj Sinha in the following words: As a general Rule, a proviso i....
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....ed w.e.f. 11th May, 2001. We have already reproduced the relevant proviso and also the circular letters of the CBDT clarifying the position. The terminology and the language adopted in the proviso is very clear. According to the settled Rule of literal construction, if the meaning of any statutory provision is plain and clear, then effect has to be given to the terminology used therein. Thus, as per its plain meaning, what the proviso protects is the pre-existing assessment Orders and deprives the AO to unsettle the same by taking recourse to the provisions contained under Section 147 or 154. The proviso therefore, excludes the jurisdiction of AO to reassess the income or to rectify the assessment upto asst. yr. 2001-02, so far as Section 14A is concerned. 24. The contention of the learned Counsel for the assessee that since under the proviso, the AO has been deprived of making the reassessment or in amending the assessment already made, the CIT(A) and Tribunal can also not do anything to empower the AO to do the same act, the doing of which is prohibited by the proviso, cannot be accepted. The language adopted in the proviso is very specific. Only reassessment under Section 147....
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....truing a statute is to seek the intention of its maker. In the case of RMD Chamarbaugwala v. Union of India, the Hon'ble Supreme Court has observed that, "a statute is to be construed according to the intent of them that make it and the duty of the judicature is to act upon the true intention of the legislature--'the mens or sentential legis'. The intention of the legislature assumes two aspects i.e. in one aspect it carries the concept of meaning i.e. what the words mean and in another aspect, it conveys the concept of purpose and object or the reason and spirit prevailing through the statute. The process of construction, therefore, combines both literal and purposive approaches. In other words, the legislative intention i.e. the true or legal meaning of an enactment is derived by considering the meaning of the words used in the enactment in the light of any discernible purpose or object which comprehends the mischief and its remedy to which the enactment is directed. This Rule of construction has been termed as the cardinal principle of construction by the Hon'ble Supreme Court of India in the case of Union of India v. Elphinstone Spg. & Wvg. Co. Ltd. 26. On th....
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....ognizance of the same if the issue related to the subject covered under the main provision as contained under Section 14A. The real controversy therefore centers around the point as to in what manner the two provisions should be construed so as to avoid the consequence of rendering one provision as redundant or nugatory in giving life and effect to the other. In such a situation and for resolving such controversies, the best Rule of construction of statutory provision is to take recourse to harmonious construction, which requires that the two provisions should be construed harmoniously so that both can be given effect according to the desired legislative intention and also to fulfill the object behind their enactment. It has been observed by the Courts that a statute must be read as a whole and one provision of the Act should be construed with reference to other provisions of the same Act so as to make a consistent enactment of the whole statute. Such a construction has the merit of avoiding any inconsistency or repugnancy either within a section or between a section and other parts of the statute. In the case of Raj Krushna v. Binod Kanungo, the Hon'ble Supreme Court has obser....
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....opounded in the arguments of the learned Counsel of the assessee and those of the intervener also cannot be accepted because then indirectly the proviso will affect the powers of higher authorities. Under the IT Act, the powers of AO are well defined. These powers include power of reassessment and rectification. Only these two powers cannot be exercised by the AO in relation to the completed assessments for asst. yr. 2001-02 and earlier years. However, in relation to such years also if assessments are not completed or concluded, the proviso will not come in the way and the provision as contained in Section 14A, will be given effect because no authority can ignore the law prevailing at the time when the matter is being considered and decided. 30. In the instant case, since the proceedings are pending before Tribunal, which is to be regarded as continuation of assessment proceedings as held in the case of CIT v. Mayur Foundation, it cannot be said that the assessment stands concluded and therefore the proviso will bar the Tribunal in giving effect to the provisions as contained under Section 14A. 31. In view of the above, it is clear that proviso imposes restriction on the main....
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....owed to raise the question for the first time with regard to the application of para 2 of the Taxation Laws Order. We shall, however, assume in favour of the assessee that the question was implicit in the question actually framed and referred to the High Court. Even upon that assumption we are of opinion that the Tribunal had jurisdiction to permit the question to be raised for the first time in appeal. The powers of the Tribunal in dealing with appeals are expressed in Section 33(4) of the Act in the widest possible terms. Section 33(3) of the Act states that 'an appeal to the Tribunal shall be in the prescribed form and shall be verified in the prescribed manner Section 33(4) reads as follows: 33(4) The Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such Orders thereon as it thinks fit, and shall communicate any such Orders to the assessee and to the CIT. 34. In view of the above decision, the term "thereon" restricts the jurisdiction of the Tribunal to the subject matter of the appeal. The words, "pass such Orders as it thinks fit" include all the powers which are conferred on the Departmental authorities excep....
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.... ITO in the manner it has done. It is necessary to state that Rules 12 and 27 are not exhaustive of the powers of the Tribunal. The Rules are merely procedural in character and do not, in anyway, circumscribe or control the power of the Tribunal under Section 33(4) of the Act. We are accordingly of the opinion that the Tribunal had jurisdiction to entertain the argument of the Department in this case and to direct the ITO to find whether any depreciation was actually allowed under the Industrial Tax Rules and whether such depreciation should be taken into consideration for the purpose of computing the written down value. 37. In the case of CAT v. Mahalaxmi Textile Mills Ltd. (supra), the Hon'ble apex court has held that the Tribunal, which has wide powers in respect of the subject matter of an appeal before it, can decide any question which is "material to the subject matter" even though it was riot raised by the parties to the appeal. In the case of CIT v. P.B. Corporation (supra), the Hon'ble Gujarat "High Court has gone to the extent of saying that the powers available to the appellate Court under Order 41 Rule 33 of the CPC, are also available to the Trib....
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....ents although such a respondent may not have filed any appeal or objection. In the facts of the instant case, the AO exercised powers under the provisions of Section 14A because the notices under Sections 142(1) and 143(2) of the IT Act were not complied with by the assessee and the ITO substantially enhanced the assessment for the concerned five years. Once the Tribunal found that there was no warrant for assessing the income at the particular amounts mentioned hereinabove, it was but natural that the entire matter was required to be kept at large and to permit the parties to lead evidence. In this set of circumstances, the assessee could not have been tied down to the amounts assessed by the AAC and the Tribunal, therefore, rightly set aside the assessment Orders passed by the AAC as well.... 38. In view of the above, the argument of the learned Counsel for the assessee that the Tribunal cannot suo motu consider an issue which has not been considered by the lower authorities or which has not been raised by the parties before it, is not acceptable. If the subject matter of appeal or any ground of appeal includes an issue which requires proper adjudication then for deci....
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....ion 263 of the IT Act for fresh adjudication, the AO shall not be debarred from invoking Section 14A if the application of Section 14A becomes necessary. 40. The CIT(A) can invoke the provisions of Section 14A under following 'circumstances: (i) When the matter relating to asst. yr. 2001-02 or earlier years is pending before the CIT(A) and the amended provision is applicable then the amended provision cannot be ignored if the subject matter pending for consideration before such appellate authority involves the issue requiring adjudication by applying Section 14A. (ii) When the facts placed before him at the appellate stage involve the issue relating to the applicability of Section 14A, then he can invoke Section 14A, even if the AO had not invoked Section 14A, because such provision was not in existence at the time of passing the assessment Order. 41. The Tribunal shall have the power to invoke the provisions as contained in Section 14A inter alia in the following situations: (a) Where the assessment proceedings pertaining to asst. yr. 2001-02 and earlier years have not been concluded or finalized and the matter is pending before Tribunal involv....
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....ing the applicability of Section 14A. The submission of the learned Counsel for the assessee was that Section 14A was applicable only in respect of the "expenditure incurred" in respect of income which is not includible in the total income and does not deal with the losses from that source. The learned Departmental Representative on the other hand submitted that amendment introduced under Section 14A brought on statute book, is effective from 1st April, 1962. 43.3 The learned AM held that the Tribunal cannot use that provision to disallow something by making use of the same. The findings of learned AM as contained in para 25 of the Order are as under: 25. Coming to Section 14A relied upon by the learned Departmental Representative, we find that even though Section 14A has been given retrospective effect w.e.f. 1st April, 1962, the operation of the section has been made prospective. This was also clarified by the Circular No. 11 of 2001, dt. 23rd July, 2001 (2001) 169 CTR (St) 1. According to the circular, the AO should not reopen the assessments to disallow the expenditure to earn the exempt income by applying the provisions of newly inserted Section 14A of the Act. Fur....
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....rposes of computing the total income under this chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. 17. This section puts restriction on the allow ability of expenditure. Can this restriction be extended to loss also? Whether loss could be construed to be expenditure? Are some of the questions, which need to be examined. 18. 'Spending' in the sense of paying out or away of money is the primary meaning of 'expenditure'. 'Expenditure' is what is paid out or away and is something which is gone irretrievably. Expenditure relates to disbursements; that means something that a trader paid out indicating a sort of volition on his part. He chooses to pay out some disbursement; it is an expense; it is something which comes out of his pocket. A 'loss' is something different. That is not a thing, which he expends or disburses. That is a thing, which comes upon him ab extra. Business expenditure is allowable if it is laid out or expended wholly and exclusively for the assessee's business, while a business loss is allowable....
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....he assessee company amounting to Rs. 23,87,458 included a sum of Rs. 23,15,802, which was dividend income and balance of Rs. 71,656 was interest received. The AO did not consider the provisions of Section 14A and did not disallow the proportionate expenditure attributable to dividend income, which was not includible in the total taxable income. The CIT invoked the power under Section 263 by holding that the Order of the AO was erroneous and prejudicial to the interest of the Revenue because the AO ignored the provisions of Section 14A, which existed on statute at the time when he was making the assessment and which provisions were attracted in the matter. The assessee had filed appeal before the learned CIT(A) against the assessment Order and a further appeal before Tribunal, which was decided. On these facts, the contention of the assessee for challenging the Order of CIT under Section 263 was that since the assessment proceedings had been completed and concluded by the Order of Tribunal, in view of the proviso attached to Section 14A, the CIT was not empowered to direct the AO to apply the provisions of Section 14A by passing Order under Section 263. The main contention of the Re....
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....bound to consider the provisions of Section 14A at the time of framing the assessment but he failed to do so. Hence, the insertion of proviso to Section 14A in the statute is of no significance in the facts and circumstances of the case of the assessee. For the reasons stated above, we are of the clear view that neither the proviso to Section 14A is relevant in the instant case nor the restrictions imposed upon the AO by the proviso have any effect on the powers of CIT conferred under Section 263 of the Act. 28. We have already held that the AO while considering the allowance of the interest expenditure in the assessment Order had completely ignored to consider and apply the provisions of Section 14A of the' Act r/w Section 10(33) of the Act which existed at the time of framing assessment on 13th March, 2002 hence this assessment Order was erroneous and prejudicial to the interest of Revenue and hence CIT has rightly invoked his powers under Explanation to Section 263(1) of the Act in view of ratio of decisions of apex Court in the case of Shri Arbuda Mills Ltd. (supra) wherein they held that as per Explanation to Section 263(1) introduced w.e.f. 1st June, 1989 extends to su....
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.... by the assessee are as under: (i) That on the facts and in the circumstances of the case, and under the provisions of law, the lower authorities have erred in disallowing the interest to the tune of Rs. 12,94,978. (ii) That the petitioner reserves the right to assail the assessment on any additional ground, which may be advanced at the time of hearing of the appeal. 48.1 Briefly stated the facts of the case are as follows : The assessee during the relevant year derived income from business of sub-letting of properties. In addition, it also received income from interest and dividend. The assessee received interest income of Rs. 6,79,968 on interoperate deposits and received dividend income of Rs. 3,06,630 from share investment in a subsidiary company. The dividend related to financial year 1995-96 but the same was declared and received on 9th May, 1997 i.e. during the relevant assessment year. The assessee had declared the entire income from sub-letting, interest and dividend as business income. The assessee paid interest of Rs. 20,34,339 on borrowings made, which was claimed as deduction. The assessee explained before the AO that it had a composite business ac....
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....e assessee also argued that even if the dividend income was exempt, the assessee had a composite activity of sub-letting, inter-corporate deposits and investment in shares and therefore, interest on borrowings utilized for the composite business activities has to be allowed even if some of the activities did not yield any taxable income. Reliance was placed on the judgment of Hon'ble Supreme Court in case of Indian Bank (supra) and in the case of Rajasthan State Warehousing Corporation (supra). The attention of learned Authorised Representative was drawn to Section 14A which was inserted by the Finance Act, 2001 with retrospective effect from 1st April, 1962 as per which any expenditure incurred by the assessee in relation to the income which did not form part of total income, was not allowable. The learned Authorised Representative then came up with the plea that even if Section 14A was applicable, the Tribunal had no power to disallow interest in view of proviso to Section 14A inserted by the Finance Act, 2002 as per which the AO was not empowered to reopen or rectify any assessment for the asst. yr. 2001-02 and earlier years. It was argued that in case the AO was not empower....
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....le and had rightly been offered for tax. But after the record date in May, 1997, any dividend that may be received after 1st June, 1997 is not taxable. Therefore, the borrowings utilized in investment of shares are not going to yield any taxable income after 31st May, 1997. Thus, the interest on borrowings utilized in investment in shares for the period 1st June, 1997 to 31st March, 1998, is not allowable as deduction while computing the taxable income of the assessee in view of Section 14A. In fact, the assessee, before the lower authorities had made an alternate submission that disallowance of interest if any could be made only for the period 1st June, 1997 to 31st March, 1998. There is a prima facie case as pointed out earlier that substantial borrowings have been utilized for investment in shares. However, exact computation of interest on borrowings utilised for investment in shares will require detailed scrutiny. We, therefore, restore this issue to the file of the AO for quantification of interest for the period 1st June, 1997 to 31st March, 1998 in respect of borrowings utilized for investment in shares and the same will be disallowed. The balance interest will be allowed as....