2017 (5) TMI 1304

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....Rs. 25.37 crores.The AO completed the assessment u/s.143(3)of the Act,on 31/ 01/2014,determining its income at Rs.(-)19.62 crores. ITA/2784/Mum/2015: 2.Effective ground of appeal,raised by the AO,is about deletion of disallowance made u/s.14A of the Act.During the assessment proceedings,the AO found that the assessee had shown investments amounting Rs. 253.07 crores as on 31/03/2011, that it had incurred interest and financial charges of Rs. 15.18 crores.He directed the assessee to explain as to why disallowance u/s.14A read with rule 8D of Income Tax Rules, 1962 (Rules) should not be made. The assessing replied that it had earned more exempt income during the year, that no disallowance was required to made.However,the AO made a disal....

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....ttled law about matching principle of accountancy,that no expenditure would be allowed at all against the exempt income,that otherwise the matching principle would get disturbed, that there was fundamental difference between the receipt and the income, that the concept had to be understood and applied in reference to dividend and income by way of dividend which was used in various provisions of the Act.He referred to the cases of Distributor (Baroda)Private Ltd.(22 taxman 49),Cloth Traders P Limited(118 ITR 243),ACG Associates Capsules P Ltd. (343 ITR 89) and the provisions of section 80M of the Act along with the circular No. 5, dated 11/02/2014. He further argued that in section 10(34) of the Act it was income by way of dividend and no....

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....essee did not make any claim for exemption of any income from payment of tax. It was on this basis that he held that disallowance u/s.14A of the Act could not be made.In the case before us,admittedly the assessee did not make any claim for exemption.In such a situation section 14A of the Act would have no application. The honorable Delhi High Court in the case of Cheiminvest India (supra) has held as under: "The expression "does not form part of the total income" in section 14A of the Income-tax Act, 1961, envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the income. In other word....

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....of own funds, that all the funds of the assessee flow into the common fund and all the expenses were incurred out of the same,that the onus of establishing that own funds had been used for purpose of advancing money for purchase of fixed assets was on assessee, that it had not discharge its onus with supporting documents.He referred to the provisions of section 36 and made an addition of Rs. 64,52,322/-total income of the assessee. 3.1.During the appellate proceedings,the FAA, after considering the submission of the assessee,held that the assessee had increased capital work in progress, that the interest payable on the increase had to be disallowed in view of the proviso to section 36. He confirmed the order of the AO. 3.2.Before us,t....