TaxTMI 
TaxTMI 
2013 (10) TMI 1304
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....ugh qua the same expenditure, i.e., interest expense claimed as business expenditure, entail different obligations as far as the onus on the assessee is concerned, so that the assessee-appellant did not get proper opportunity to explain its case before him. In fact, even on merits, as the assessee had sufficient funds of its own, no disallowance under section 14A qua interest expenditure, which, at Rs. 15,69,896, constitutes the bulk of the disallowance sustained by him, would arise in view of the decision in the case of CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom). The same, though rendered in the context of section 36(1)(iii), would apply in equal measure to a disallowance under section 14A qua interest expenditure, even as approved by the Tribunal in the case of Dhirajlal Morarji v. Asst. CIT (in I. T. A. No. 2139/Mum/2011 dated February 3, 2012). The authorities below have also committed an error while making a disallowance in not adjusting the suo motu disallowance of Rs. 1,97,249, i.e., qua interest, as would be apparent from the reading of their impugned orders. The matter was, accordingly, prayed for being restored to the file of the learned Commissione....
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....s. 15,31,138. Pro rata interest thereon was, accordingly, worked out by him at Rs. 12,34,388, which comprises the second limb of the disallowance. The same stood confirmed by the learned Commissioner of Income-tax (Appeals), again under section 14A, albeit at Rs. 9,32,341, again by following an average (proportionate) formula. The difference arises on account of the method of apportionment adopted. As against only the interest on unsecured loans by the Assessing Officer, the learned Commissioner of Income-tax (Appeals) included the entire interest incurred for the year, save the interest against mutual fund loan already considered (Rs.6.38 lakhs), i.e., at Rs. 47,44,556. This is as the investment under reference arises from the common pool of funds, comprising both interestfree and interest bearing sources of capital. This was with reference to the total investment in the business of Rs. 795 lakhs. 3.3. The third limb of the disallowance, which in fact was not disputed before us, is for Rs. 95,084, towards indirect expenses (other than interest), worked out at 0.5 per cent. of the average value of the investment held during the year. 3.4. During the course of the hearing, it ....
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.... to be appreciated that it is only the fund flow statement for the period that could lead to discerning the various sources of funds and their application. What is of relevance is "funds" as against "cash". For example, if a term-loan is granted for acquisition of a capital asset, the same, even if acquired from own capital in the first instance, would only be considered as sourced-to that extent-from the term loan released in its respect, where the said asset stands acquired, substituting the earlier source of finance ; the funds being fungible, being routed generally through a common "cash/bank account". The exercise of fund flow would also show the avenue/s of the cash profit arising during the year. This is precisely what stands approved of by the apex court in the case of East India Pharmaceutical Works Ltd. v. CIT [1997] 224 ITR 627 (SC), finding considerable force in the appellant's contention that the taxes were paid out of profits pumped into the overdraft account, though did not decide on that basis in the absence of such a plea and, resultantly, of any corresponding findings, before the lower forums. Similarly, where advances have been availed of from bank/s towards ....
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.... (Bom), even as clarified by the Tribunal in the case of Joint CIT v. Reliance Capital Ltd. (in I.T.A. No.3037/Mum/2008 and others dated February 13, 2013/copy on record) (since reported in [2013] 1 ITR (Trib)-OL 695 (Mum)). In the facts of that case, the Tribunal found that most of the investments had already been financed in the earlier years, while in the instant case, as would be apparent from the foregoing, the entire investment in shares and units is only during the relevant year (refer paragraph 5). The assessee's method in arriving at the interest disallowance of Rs. 1,97,249, credit for which of course is to be allowed to it, is wholly erroneous (refer page 7 of the impugned order) inasmuch as it, inter alia, links/correlates the interest expenditure with the dividend earned despite the two being independent and disparate events. The interest expenditure would arise irrespective of the dividend earned, if any, much less have a bearing on its quantum. Reference in this context may be made to the decision in the case of Cheminvest Ltd. v. ITO [2009] 317 ITR (AT) 86 (Delhi) [SB]. In fact, we observe that the learned Commissioner of Income-tax (Appeals) has also, in applyi....