9911796707
TMI Blog2007 (11) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... providing guarantees. The assessee is an investment company and makes investments in shares of Jindal group of companies. Through the assessee company the Jindal family exercise control and management over the Jindal group of companies. 2.2 The assessee filed a return of income for asst. yr. 1999-2000 declaring loss of ₹ 3,74,05,126. In the course of the assessment proceedings the AO noticed that the assessee had claimed interest income to the tune of ₹ 95,06,780 on loans and securities. The assessee claimed to have paid interest and bank charges to the extent of ₹ 4,90,22,387. The assessee had earned dividend income on investments amounting to ₹ 49,99,388. This was claimed to be exempt under s. 10(33) of the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest amounting to ₹ 4,90,22,387. Even if it is assumed that assessee has lent money out of the borrowed funds at the same rate of interest at which it has borrowed these funds, then the total interest paid by the assessee should not exceed the amount of interest earned by it. Therefore, the excess of interest paid by the assessee over the interest earned by it pertains to funds borrowed for investment yielding exempt dividend income. Moreover, dividend income has been treated as income from other sources specifically within the provisions of s. 56 of the IT Act. Thus, difference of interest received and paid is [Rs. 4,90,22,387 minus ₹ 95,06,780] ₹ 3,95,15,607. The same is disallowed under s. 14A of the IT Act and add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to above, the action of the AO in making an enquiry for making disallowance under s. 14A of the Act in the assessment proceedings under s. 143(3) was in violation of the prohibition laid down in the proviso to s. 14A of the Act. According to him, in the case of the assessee for asst. yr. 1999-2000 doing so would amount to reducing a refund already granted, which is expressly prohibited under the proviso. In support of his contention the learned counsel for the assessee has placed reliance on two decisions, both of the Single Member Bench of the Tribunal in the case of Paul John, Delicious Cashew Co. vs. ITO (2005) 98 TTJ (Coch) 440: (2005) 94 ITD 131(Coch) and V. Uppalaiah vs. Dy. CIT (2005) 95 TTJ (Hyd) 706: (2005) 94 ITD 178(Hyd). Besid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, which was a Single Member decision, related to a case where provisions of s. 263 of the Act were invoked by the CIT directing the AO to make disallowance under s. 14A of the Act in respect of asst. yr. 2000-01. This was held to be in contravention of the proviso. In the facts of that case there was only an intimation under s. 143(1) of the Act and in exercise of powers under s. 263, the CIT set aside the assessment for the purpose of making disallowance under s. 14A of the Act. The Tribunal held that while issuing an intimation under s. 143(1) of the Act the AO could not make any disallowance by invoking s. 14A of the Act and, therefore, the finding of the CIT that the AO failed to invoke s. 14A of the Act was not correct. In the case d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der s. 154 which were opted or resorted to by the AO, it would also not be a case of increasing the liability of the assessee under s. 154 as well. 5. We may also mention here that the expression 'reducing a refund' already made has to be held in the context of exercise of such power by the AO under s. 154 of the Act. The AO cannot reduce a refund already allowed except by resort to the provisions of s. 154 of the Act. Therefore, the only instance of reducing a refund will be only by exercise of powers under s. 154. This is another reason why the proviso will not be applicable to the facts of the present case. 6. The decision in the case of Thacker Co. vs. ITO (supra) is again a case of reopening under s. 147 of the Act. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that some expenditure must have been incurred for the purpose of earning the tax-free income. It has also been laid down that the burden in this regard would be that of the AO, both to show that expenditure was factually incurred and also the relationship with the expenditure with the income exempt from tax. 7.2 We notice that the AO in the present case has made the impugned disallowance on estimation. In the circumstances, we are of the view that the matter should be restored to the file of the AO with a direction that he will follow the ratio laid down in the Third Member decision referred to above and decide the issue afresh in accordance with law. The order of the CIT(A) is accordingly set aside and the issue is restored to the fil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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