TMI Blog2017 (7) TMI 1361X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the out go of the assessee s funds toward investment, so that the two facts/incidents are apparently corroborative. Equally relevant is the quantum increase in the credit, so that whether the same corresponds with the increase in trade may be relevant. The matter arising for determination is factual, i.e., given the law as explained, being the extent to which the transactions of inflow and outflow of funds represent moneys received or paid in discharge of or toward commercial transactions. Clearly, the entire opening credit (₹ 318.38 lacs) shall have to be regarded as a trade credit as no part of it has been regarded as loan or advance in the preceding year. The matter is accordingly restored back to the file of the AO for casting the account, retaining its chronological order, into moneys flows and commercial transactions, and considering the same along with the assessee s explanation, for his factual findings in the matter per a speaking order and decision in accordance with the law. No restraint is placed, we may clarify, on either side by us inasmuch as the issue is essentially factual so that all relevant material/objection could be taken into account. Appeals by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer (AO) was urged. The ld. Departmental Representative (DR) would respond by submitting that r. 8D is only a method, statutorily provided, for estimation of the disallowance u/s. 14A, to be applied under the circumstances provided in the provision, as well as the rule itself. As such, when the same becomes applicable, there is no scope for interference therein. The Legislature could not be presumed to be unaware of the fact that not all the investments in an assessee s portfolio would yield income which does not form part of the total income, during a particular year and which becomes plain and manifest from the fact that both r. 8D(2)(ii) (iii) include the words does not or shall not form part of the total income , i.e., while referring to the value of the investment to be reckoned in computing the disallowance. The rule is consistent with the main provision and well conceived and, in fact, not challenged. 3. We have heard the parties, and perused the material on record. The impugned disallowance stands computed, following the prescription of r. 8D, which reads as under: Method for determining amount of expenditure in relation to income not includible in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of the previous year. (3) For the purposes of this rule, the total assets shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets. We find it rather odd that the calculation per r. 8D is sought to be disputed without challenging the rule itself! When the method of estimating expenditure incurred in relation to income not forming part of the total income as prescribed under rule 8D is sought to be altered, as in the present case, by arguing that only the investment that has yielded the tax-exempt income be included rather than the total investment which could give rise to such income, what is being in effect challenged is the rule itself. In fact, the ld. counsel for the assessee was specifically questioned during hearing if the assessee was questioning the validity of the rule, to which he answered in the negative. The same being delegated legislation, in fact cannot be so before this forum, even as the constitutional validity thereof stands upheld in Godrej Boyce Mfg. Co. Ltd v. Dy. CIT [2010] 328 ITR 81 (Bom) (also refer CIT v. Ajanta Electri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly presumptuous, assuming so would be arbitrary and delinked with the manner in which the expenditure is actually incurred. The method for identifying and estimating such expenditure has to be in harmony therewith. Dividend arises sui generis. The same has little correspondence with the expenditure incurred on the relevant investment. Why, the interest expenditure, a financing cost, would arise only where the shares are financed, either directly or indirectly, i.e., proportionately to the mass of assets, where financed wholly or partly by borrowed capital, the extent of which further depends upon the interest rate contracted. Likewise, for the administrative cost, which again is de hors the accrual of income, though is incurred in its respect. In other words, given the manner and the incurring of expenditure, there is no one to one correspondence between the expenditure (input) with the income (output) that may arise, even as the expenditure (input) is only toward the output, i.e., income that does not form part of the total income. The same however is to be excluded. This expenditure may therefore be lower, at par, or even higher than the income that may finally arise. This explai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spective of the aforesaid question, what cannot be denied is that the requirement for attracting the provisions of section 14A(1) of the Act is proof of the fact that the expenditure sought to be disallowed/deducted had actually been incurred in earning the dividend income. (pgs. 470-471) . claims of the assessee that no expenditure was incurred to earn the dividend income cannot be accepted and why the orders of the Tribunal for the earlier assessment years were not acceptable to the Assessing Officer, particularly . (pg. 471) The aforesaid makes it abundantly clear that it is the expenditure incurred in earning the income not forming part of the total income that is to be disallowed under section 14A. This in fact also flows from the fact that it is the expenditure incurred in earning the income forming part of the total income, i.e., the taxable income, that is to be allowed. That is, irrespective of whether it results in the actual earning of income or not, the total expenditure incurred in relation thereto is to be allowed. Now, surely, this could only be if the expenditure incurred in earning income not forming part of the total income is disallowed, i.e., even if a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of hearing itself, allowing the ld. counsel time to present his arguments qua the same, to which, however, no reference was made by him while pleading his case. At the same time, however, the assessee has enclosed as a part of his paper-book details of term loans and cash credit accounts, on which the bulk of the interest, disallowed proportionately u/s. 14A, is paid. Where the same has been applied for the stated purpose, i.e., as per the agreement, for financing the capital and the working capital assets of the business, the same stands utilized for business purposes and, accordingly, no disallowance u/s. 14A, i.e., to any extent, could arise. That is, in the absence of the AO credibly rebutting the same. The onus to substantiate its claims though would be on the assessee. The matter is, accordingly, restored to the file of the AO to adjudicate afresh in accordance with law. 4. The only other issue per the instant appeals arises in the Revenue s appeal for AY 2010-11. The assessee had received . 28.60 cr. during the relevant year from Shri Ambica Sugars Ltd. (SASL), a company in which public is not substantially interested. As the assessee-company had over 10% share-h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble jurisdictional High Court in CIT v. C. Subba Reddy (TCA No.1462/2007 dated 19.12.2016) and CIT v. F Praveen [2008] 16 DTR (Mad). The tribunal had deleted the addition, holding as under: Being so, in our opinion when there is a running account between the parties on account of business transactions and there is no obligation of repayment by the parties, which is in nature of trade advance, to give effect to commercial transaction does fall within the meaning of section.2(22)(e) of the Act. Hence, in our opinion deletion of addition by the CIT(A) is justified and the order of Ld.CIT(A) is confirmed on this issue. This ground is rejected. The consolidated statement, i.e., grouping the transactions under different heads, descriptive of the nature and/or purpose of the transaction, under his signature, was filed by the ld. AR, claiming, on that basis, that the debits and credits therein reflect transactions arising in the normal course of its business, so that it may be, where resulting in a net credit, i.e., inflow of funds, be regarded as a trade advance, to be settled through (say) supply of goods, or other similar business transaction, so that the nature of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Closing Balance 3730796478 4043334942 312538464 On a quick browse, it was enquired by the Bench during hearing as to how does he then explain the fund transfer appearing at sr. no.9 of the statement (at an aggregate of ₹ 141.31cr). The same, repaid in cash, clearly proves that the amount received, to that extent, is loan or advance, as explained by the Hon'ble jurisdictional High Court in CIT v. Raj Kumar [2009] 318 ITR 462 (Mad), after, as the tribunal (in the assessee s case) notes, considering the decision in Tarulata Shyam v. CIT [1977] 108 ITR 345 (SC), extracted at para 7 of its order, and after which it concludes in the manner afore-stated. He replied by stating that the entries in the said statement are not listed chronologically. As such, it may well be that the same is in discharge of either the opening balance (₹ 318.3 lacs) or trade credit/s arising during the year, as (say) against purchase of raw materials, stores, or finished goods, etc. The matter could be, for necessary verification, restored ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as representing a loan or advance. The same could well be lending/advancing by one (party) to another, i.e., as and when required. Nothing thus turns on only the fact of the transactions being in the nature of a running account as a loan/ advance has not necessarily to be a constant or for a definite period to be so, i.e., a loan or advance, and all that is relevant, as explained by the Hon ble High Court in Raj Kumar (supra) is if it is to give effect to a commercial transaction. Coming to the facts of the case, the addition was made as the assessee could not prove its case of the impugned sum as representing monies advanced in the normal course of business, i.e., as business transactions. The ld. CIT(A) ought to have dislodged this finding by issuing a definite finding/s of fact, and where based on material adduced for the first time before him, by observing the procedure u/r. 46A. He, instead, allows the appeal before him by following that by the first appellate authority for another year (AY 2008-09), which is not on record, nor is there any reference to the findings in the impugned order. As afore-explained, there is no dispute in principle, but the matter arises for want o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oans advances (for value to be received, including in kind) to be reflected as such, i.e., Loan Advance in the balance sheet. Such reflection though may by itself not be determinative, but only indicative. Two, the transactions, in our view, rather than being grouped under several categories, need to be so under two broad categories, i.e., commercial transactions and fund transfer . Certain transaction categories as other debits and other credits shall need to be reduced, on the basis of the underlying transaction that they represent, into these two broad categories. Does the same, as it appears, represent an adjustment in accounts, in which case it is only a transfer of funds, albeit indirectly, or is it toward a business transaction? In this context, clearly sugar money received (on SASL s behalf) and that received by SASL (on assessee s behalf), is only receipt/payment of money, in account, from/to SASL. The word sugar money would not detract from the fact that it is indeed money paid or received by or on behalf of one company by another. Once this statement is re-categorized, it shall be apparent from the chronological flow of funds as to whether a particular ..... X X X X Extracts X X X X X X X X Extracts X X X X
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