2016 (9) TMI 553 - HC - Income Tax

Addition u/s 14A - Discharge of the burden that interest free fund far exceeds the value of investment - Held that - The burden is upon the assessee to show and prove that interest free fund far exceeds the value of investment and thereafter, to justify the quantification of amount of ₹ 4 lakhs towards disallowance for the exempted income. In the present case, the said burden has not been discharged satisfactorily and thereafter, the assessing officer has proceeded to apply the formula provided under Section 8D(2)(iii) read with Section 14-A of the Act. Discharge of the burden is essentially a question of fact. The authority up to the level of Tribunal has recorded finding of fact for non-discharge of burden by appellant-asses see. So far as applicability of Section 14-A read Rule 8D(2)(iii) is concerned when the assessee has failed to discharge the burden of proving quantification of the amount for disallowance towards exempted income, there would be hardly any scope for consideration of the matter as any substantial questions of law. The aforesaid is coupled with the aspects as referred by us hereinabove that the finding of fact for non-discharge of the burden which is upto the level of the Tribunal which is the ultimate fact finding authority, has remained final. The finding of fact in our view is outside the scope of judicial scrutiny in the present appeal. Thus we find that the decision upon which the reliance has been placed is of no help because the assessee in the present case has not been able to prove that the interest free fund far exceeded the value of investment and further if such was the position, there was no question of disallowance but in the present case, even as per the assessee, the amount of ₹ 4 lakhs was quantified.

Summary

Issues:
1. Justification of addition under Section 14A r.w.s. Rule 8D(2)(iii) when no expenditure is incurred for earning exempt income.
2. Applicability of Rule 8D read with Section 14A to the relevant assessment year.

Analysis:
1. The appellant raised substantial questions of law regarding the addition under Section 14A r.w.s. Rule 8D(2)(iii) without incurring any expenditure for earning exempt income. The CIT (Appeals) rejected the appellant's claim for disallowance of expenses towards exempted income. The Tribunal upheld the addition, stating that the appellant failed to explain why only a portion of the claimed amount should be disallowed. The Tribunal emphasized the need for the assessing officer to follow Rule 8D(2)(iii) for quantifying the disallowance amount. The appellant argued that interest-free funds exceeding investments should be considered, but the burden of proof was not satisfactorily discharged, leading to the application of Rule 8D(2)(iii).

2. Regarding the applicability of Rule 8D read with Section 14A to the relevant assessment year, the Tribunal found that the earlier order for a different assessment year was not relevant to the current case. The Tribunal dismissed the appellant's argument that the interest-free fund exceeded investments, emphasizing the failure to quantify the disallowance amount satisfactorily. The Court upheld the Tribunal's decision, stating that the burden of proof was on the appellant, and the factual findings regarding non-discharge of burden by the appellant were final. The Court concluded that no substantial questions of law arose and dismissed the appeal based on the facts and circumstances presented.

This detailed analysis of the judgment addresses the issues raised by the appellant and the decisions made by the Tribunal and the Court, providing a comprehensive understanding of the legal reasoning and outcomes in the case.