TaxTMI 
TaxTMI 
2014 (1) TMI 944
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....des the aforesaid, it was noticed that assessee had also made an investment of Rs.2,16,29,374/- in TMUJV. The Assessing Officer noticed that the assessee-firm had not charged any interest on the capital contribution and the investment made in TMUJV. The Assessing Officer also noticed that assessee received a share in the total profit from TMUJV of Rs.75,91,821/- which was exempt in terms of Section 10(2A) of the Act. The Assessing Officer also noticed that assessee had incurred interest on loans raised amounting to Rs.43,52,604/-. As per the Assessing Officer, the assessee was not charging any interest from TMUJV whereas the income from the said TMUJV-firm was exempt and therefore, the interest expenditure in relation to such exempt income was disallowable in terms of Section 14A of the Act. As per the Assessing Officer, the average cost of funds to the assessee was 1.74% and therefore, the proportionate interest relatable to the total investment made by the assessee in TMUJV-firm of Rs.4,00,58,167/- (i.e. Rs.1,84,28,793/- plus Rs.2,16,29,374/-) worked out to Rs.6,97,012/-, which was disallowed under Section 14A of the Act. The CIT(A) has also upheld the disallowance, against which....
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...., the proportionate interest relatable to the aforesaid exempt income is liable to be disallowed under Section 14A of the Act. 7. In our view, before making the aforesaid disallowance, it is imperative for the Assessing Officer to establish that an expenditure has been incurred in relation to the earning of tax-free income. The Hon'ble Jurisdictional Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT, 328 ITR 81 (Bom.) has observed that once a proximate cause for the disallowance is established -- which is the relationship of the expenditure with income which does not form part of the total income -- a disallowance under Section 14A of the Act has to be effected. In this background, one has to examine as to whether a proximate cause for the disallowance is established in the present case or not i.e. whether there exists a relationship between the impugned interest expenditure and the income which does not form part of the total income i.e. the share in profit earned by the assessee from the TMUJV- firm. In para 2.1 of the assessment order, the Assessing Officer has noticed that the investments in the TMUJV-firm has been made through cash credit account....
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....ction 40(a)(ia) of the Act. 9. Brief facts are that assessee was found to have debited an expenditure of Rs.5,96,04,249/- on account of earth moving charges in its Profit & Loss account. The said expenditure was incurred by way of payments to transporters for bringing earth fill to the site of the assessee. The Assessing Officer show-caused the assessee as to why disallowance be not made under Section 40(a)(ia) of the Act on the ground that the requisite tax was not deducted at source on such payments. In response, assessee furnished details, which have been reproduced in para 3 of the assessment order. As per the assessee out of the total payments of Rs.5,96,04,249/-, a sum of Rs.4,16,83,032/- was paid to different parties below Rs.50,000/- each during the entire year and thus no tax was deductible. The aforesaid position has since been accepted by the Assessing Officer. For the balance of Rs.1,79,21,212/-, the assessee explained that a sum of Rs.1,57,70,442/- was paid to persons who were having one or two trucks and therefore tax was not deductible. For the balance of Rs.21,50,770/-, assessee explained that it was paid to four parties who insisted on cash payments as their incom....
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.... principle there is no dispute that the provisions of Section 40(a)(ia) of the Act are applicable on payments of Rs.1,79,21,212/- made by the assessee towards earth moving charges which also contained an element of transportation charges. The element of transportation charges required deduction on tax at source and in the absence of any such deduction, the provisions of Section 40(a)(ia) of the Act has been invoked. The only dispute is with regard to the element of payment which is attributable to the transportation charges, which are subject to the requirements of tax deduction at source. The assessee had offered before the Assessing Officer 10% of the total expenditure as attributable to the transportation charges, whereas the Assessing Officer has applied a rate of 25%. The Assessing Officer has also referred to some other assessees who agreed to 25% disallowance. However, apart from a bald assertion there is no other detail or information mentioned in the assessment order as to the similarities with other cases so as to justify the adoption of 25%. It is also evident that the entire exercise involves an element of estimation and guess work. Therefore, considering the entirety o....