2013 (7) TMI 193 - AT - Income Tax

Disallowance of expenditure u/s.14A r.w.r 8D - Held that - The primary onus to exhibit that no indirect expenditure has in fact been incurred in respect of the tax-free income so that no apportionment thereto would hold is on the assessee. Investments are generally managed by the companies in a separate division entail as does expertise. As such to contend that no indirect expenditure stands incurred only as there has been no fresh investments during the year would need being proved with reference to the actual management of the investment portfolio as well as the assessee s accounts. Thus to clarify that the incurring of expenditure has no direct correlation with the earning of the income from the investments the two being independent variables disallowance has to be only in respect of the expenditure incurred and in the instant case only in respect of indirect expenditure where and to the extent it can be reasonably ascribed to the management of the investments. The matter is restored back to the file of the A.O. to enable the assessee to present its case before him. Levy of interest u/s.234C - Held that - The charge is no doubt mandatory but there is nothing consequential about it inasmuch as the same is to be worked out with reference to the tax on the returned income so that it is inflexible and would not vary with time i.e. on assessment being made at a different income or being modified in the appellate proceedings. There being no finding in relation to the said levy in the orders of the authorities below it is fit and proper that the matter is restored back to the file of the A.O. to whom the matter in relation to the disallowance u/s.14A remitted for verification of the assessee s claim.

Summary

Issues:
1. Disallowance of expenditure u/s.14A
2. Disallowance of deduction claimed u/s.35DDA
3. Levy of interest u/s.234C

Issue 1: Disallowance of expenditure u/s.14A

The appeal raised three issues, with the first being the disallowance of expenditure u/s.14A amounting to Rs.29,41,000. The disallowance was based on Rule 8D following a Tribunal decision. The assessee argued that no expenditure was incurred related to dividend income, as investments were funded from capital and reserves. The Assessing Officer did not accept this claim, especially considering external commercial borrowings made by the assessee. The CIT(A) also rejected the assessee's contentions, upholding the disallowance. However, the Tribunal noted that Rule 8D is not retrospective and applied from A.Y. 2008-09 onwards. The Tribunal agreed with the assessee that no disallowance should be made regarding interest expenses on foreign currency loans. The Tribunal also found no evidence of indirect expenditure and deleted the disallowance.

Issue 2: Disallowance of deduction claimed u/s.35DDA

The second ground of disallowance was related to the deduction claimed u/s.35DDA, which the assessee did not press during the hearing. The deduction claim was dismissed as not pressed, with the assessee clarifying to have obtained relief in other proceedings.

Issue 3: Levy of interest u/s.234C

The final ground concerned the levy of interest u/s.234C, which the assessee disputed. The assessee argued that the installments of advance tax exceeded the minimum percentage required, thus precluding the application of section 234C. The Tribunal observed that the charge of interest u/s.234C is mandatory but not consequential, as it is based on the tax on the returned income. The matter was remitted back to the Assessing Officer for verification of the claim and a decision in accordance with the law.

In conclusion, the Tribunal partly allowed the assessee's appeal on various grounds, including the disallowance of expenditure u/s.14A and the levy of interest u/s.234C. The deduction claim u/s.35DDA was dismissed as not pressed. The Tribunal provided detailed reasoning for each issue, considering legal provisions and precedents to arrive at its decision.