TaxTMI 
TaxTMI 
2015 (2) TMI 672
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.... briefly refer to the facts. The assessee filed a return of income on 30.09.2008, declaring an income of Rs. 13,05,01,310/-, followed by a revised return, declaring an income of Rs. 1,04,37,640/-. The Assessing Officer completed assessment under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') by making numerous additions, and disallowing certain exemptions claimed by the assessee. The present appeal relates to Rs. 2,37,67,894/-, disallowed by the Assessing Officer, under Section 14A of the Act read with Rule 8D of the Income Tax Rules (hereinafter referred to as 'the Rules'), by holding that interest bearing funds had been used to earn tax free dividend etc. Aggrieved by this order, t....
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....in the form of dividend. ii) Whether on the facts and in the circumstances of the case and in law the Hon'ble Income Tax Appellate Tribunal was justified in relying on the decision of jurisdictional High Court in the case of M/s Hero Cycles Ltd. for the Assessment Year 2004-05 ignoring the provision of Rule 8D inserted w.e.f. 24.03.2008 and applicable from assessment year 2008-09." Counsel for the assessee submits that a perusal of the impugned orders reveals that the Assessing Officer admitted that it is not possible to refute or rebut the assessee's statement that investments were not sourced from interest bearing funds. The Assessing Officer having failed to add....
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....t that the contention put forwarded by the assessee was erroneous or misleading. In fact the AO has observed that it was not possible to disprove the claim of the assessee in this regard. It clearly meant that the mandatory requirement as stipulated by Section 14A with regard to the satisfaction that certain expenditure had been incurred to earn the tax exempt income, has not been fulfilled." Section 14A of the Act empowers an Assessing Officer to disallow, exempted income if interest bearing funds have been used, by the assessee. The scope and ambit of Section 14A of the Act came up for consideration in CIT v. Winsome Textile Inustries Ltd. (supra). After appraisal of Section 14A of the Act, a Division Bench of this Court held that Sectio....
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....ertained as to whether the assessee has made the investment in purchase of shares out of borrowed funds or invested its own funds. If the assessee has invested its own money in the purchase of shares then there is no question of any disallowance in respect of interest on borrowed funds u/s 14A. However, if the borrowed funds have been utilised for purchase of shares of M/s Winsome Yarns Limited, disallowance u/s 14A shall have to be calculated even when investment has been made in the course of business of the assessee and the assessee qualifies for deduction u/s 36(1)(iii). So, however, section 14A provides that no deduction shall be allowed in respect of expenditure incurred by the assessee in relating to income which does not form part o....
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....f Income Tax (Appeals) in having deleted the disallowance. The ground of appeal raised by the revenue in this regard in thus dismissed." Section 14A of the Act requires the Assessing Officer to record satisfaction that interest bearing funds have been used to earn tax free income. The satisfaction to be recorded must be based upon credible and relevant evidence. The onus, therefore, to prove that interest bearing funds were used, lies squarely on the shoulders of the revenue. Thus, if the Assessing Officer is able to refer to relevant material while recording satisfaction that borrowed funds were used to earn interest free income as opposed to the assessee's own funds, the Assessing Officer may legitimately disallow such a claim. The A....