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2013 (3) TMI 437 - HC - Income TaxJurisdiction u/s 263 by CIT(A) - as per CIT(A) AO has failed to take recourse to the provisions of Section 14A to disallow the expenditure in relation to the income which does not fall a part of the total income - Tribunal reversed the order of the C.I.T. as his observation are not based upon appreciation of the facts as the assessee has itself disallowed a sum of Rs.1.33 crores in its computation of income - Held that - The assessee did not maintain any separate accounts for the purpose of the exempt income. The assessee did not give one to one co-relation between the funds available and the funds deployed.It was, therefore, not possible to follow with any amount of certainty as to the part or portion of the sum of Rs.4,49,02,775/- paid on account of interest relatable to the exempt income. The assessee has admittedly earned interest amounting to a sum of Rs.2,68,75,491/-. which could not have been set off against the sum of Rs.4,49,02,775/- because the sum of Rs.2,68,75,491/- earned on account of interest is clearly taxable. The interest paid by the assessee amounting to Rs.4,49,02,775/- is both on account of taxable income and the exempt income. It was for the assessee to furnish the actual amount of interest paid for the purpose of earning the dividend income which the asessee did not do. The assessee, as such, did not discharge its burden and, therefore, the assessee could not have claimed that only a sum of Rs.1,33,51,132/- was relatable to interest paid for the purpose of earning the exempt income. There was, as such, reason enough to hold that the assessment was erroneous and was also prejudicial to the interest of the Revenue. Thus the Tribunal did not realize the facts and circumstances correctly. The interference by the C.I.T. was based on facts and not any change of opinion, thus the order of the CIT is restored.
Issues:
1. Interpretation of Section 14A of the Income Tax Act. 2. Validity of the order passed by the Commissioner of Income Tax (C.I.T). 3. Compliance with provisions of Section 14A. 4. Burden of proof on the assessee regarding expenditure. Analysis: Issue 1: Interpretation of Section 14A of the Income Tax Act The judgment revolves around the interpretation and application of Section 14A of the Income Tax Act. The C.I.T directed the Assessment Officer to make appropriate disallowance under Section 14A. The main contention was whether the provision of Section 14A was followed correctly by the assessee and whether the order passed by the C.I.T was based on a mere change of opinion. Issue 2: Validity of the order passed by the Commissioner of Income Tax (C.I.T) The C.I.T invoked Section 263 of the Income Tax Act based on the failure of the Assessing Officer to disallow the expenditure in relation to income not part of the total income. The C.I.T reasoned that the assessment order was erroneous and prejudicial to the interest of the Revenue due to the lack of correlation between funds available and funds deployed by the assessee. Issue 3: Compliance with provisions of Section 14A The Tribunal reversed the order of the C.I.T, stating that the C.I.T's observation of disallowing the entire interest expenditure lacked material evidence. The Tribunal found that the assessee had disallowed a sum in its computation of income and that the C.I.T's action was based on a mere change of opinion, devoid of merit. Issue 4: Burden of proof on the assessee regarding expenditure The High Court analyzed the facts and circumstances, emphasizing that the assessee did not provide a one-to-one correlation between funds available and funds deployed. The Court held that the assessee failed to discharge its burden of proof regarding the interest expenditure, leading to the conclusion that the assessment was erroneous and prejudicial to the interest of the Revenue. In conclusion, the High Court set aside the Tribunal's order and restored the order of the C.I.T, allowing the appeal by the Revenue. The judgment highlights the importance of complying with the provisions of Section 14A, the burden of proof on the assessee, and the validity of orders passed by tax authorities based on factual considerations rather than a mere change of opinion.
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