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TMI Blog2016 (2) TMI 422X X X X Extracts X X X X X X X X Extracts X X X X ..... in sustaining of sum of Rs. 20000.00 out of the same. 4. Disallowance of interest of Rs. 2384269.00.00:- 4.1 That the learned Assessing Officer has erred in law as well as on the facts and circumstances of the case in giving a finding that the assessee company has invested its interest bearing funds in the investment in shares, whereas facts remains that assessee company has not invested the interest bearing funds in the form of reserve and surpluses have been invested in the shares and ld CIT(A) has erred in sustaining the same. 4.2 That the learned Assessing Officer has erred in law as well as on facts and circumstances of the case in making a disallowance of Rs. 2384269.00 by applying the rule 8D of the I Tax Rules, 1962 and ld CIT(A) has erred in sustaining the same." 2. The assessee company is engaged in the manufacturing, crushing and extracting of oil from oil seeds, refining of oil, producing of vegetable oil, and manufacturing of bone china crockery, insulators and generation of electricity and also engaged in the activity alleged to its main activity like manufacturing of Tin container. The assessee filed return for the year under consideration on 13/10/2010 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e level of expenses incurred under the head Misc. and the turnover of the period under consideration. Thus, considering all these factors, I find that it would be just and fair to restrict the disallowance under this head to Rs. 2 lac and the appellant would accordingly get a relief of Rs. 2,63,487 on this account. 4. Now the assessee is in appeal before us. The ld AR of the assessee has submitted that the assessee during the course of assessment proceedings had submitted date wise complete details of Misc. Expenses. The Assessing Officer had not pointed out any expenses where the expenditure is excessively booked through self made vouchers. The total expenditure incurred through self made vouchers is only Rs. 3,59,202/-. The ld AR has drawn our attention on page No. 16 of the paper book. There cannot be any correlation of these expenses with the turnover of the assessee. The ld CIT(A) had also not specified as to how the assessee had not been completely controverted the findings of the Assessing Officer, thus, lump sum addition confirmed by the ld CIT(A) deserved to be deleted. He further argued that in preceding year, the Hon'ble ITAT in A.Y. 2006-07 has confirmed the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he period under consideration has declined by 15.75% as compared to the turnover in the preceding year, whereas, the expenses under this head have increased from 17,14,889 (last year) to Rs. 29,61,229 in this year. It was further noted that complete supporting bills were not available for the expenses claimed under this head and some of the vouchers were found to be self made. 6.4 The appellant has stated that no disallowance is warranted and there is no correlation of these expenses with the turnover. These expenses are more or less fixed in nature. Further, due to inflation there has been an increase in the expenditure claimed. The appellant has filed ledger account details of these expenses. It is further stated that in the case of the appellant, CIT(A) had in the preceding year upheld a disallowance of Rs. 30,000 (out of total disallowance of Rs. 1 lac) under this head. 6.5 I have gone through the details and find that the appellant has reiterated the same submissions which were filed before the AO and could not place any evidence to controvert the findings given by the AO. The appellant has not been able to convince on the reasons for increase of 72.67% in the expenses c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee itself admitted that it had claimed expenses on self made vouchers claimed at Rs. 4,50,698/-, which are not verifiable from the third party. The addition made by the Assessing Officer appears to be higher side, therefore, we uphold the disallowance at Rs. 1 lac. On this ground, the appeal of the assessee is partly allowed. 12. The third ground of the appeal is against confirming the addition under the head disallowance of travelling expenses at Rs. 20,000/-. The ld Assessing Officer observed that under this head, the assessee had debited Rs. 40,23,684/-. The assessee was required to furnish complete details thereof alongwith bills/vouchers for verification, which was produced by the assessee. On examination of these details and bills/vouchers, it is noticed that there are certain vouchers for which no supporting bills are available and also at times, the bills for expenses are not printed but self made vouchers and the expenses had been booked on the basis of these vouchers. The assessee company had not also maintained the proper bills regarding journey carried out by the staff and others. Therefore, excess expenses booked cannot be ruled out. Thus, the ld Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof in shares. She further held that calculation for disallowance U/s 14A read with Rule 8D strictly had to be made with reference to total investments. As per calculation in accordance to Rule 8D of the Rules, the disallowance calculated and made. She further relied on the decision of Hon'ble Supreme Court in the case of CIT Vs. United General Trust Ltd. 200 ITR 455 (SC). The expenses to be disallowed in the same proportion as the exempt income bears to the total income of the company. The ld Assessing Officer further held that expenditures were incurred by the assessee company on the earning of the dividend income. She further held that earning of dividend and investment in shares, the management had utilized time in decision making process for selling the scripts for investment and other formalities also were made by the staff. There are incidental expenditures of collection, telephone, follow up etc. therefore, expenses in relation to earning of income are embedded in indirect expenses. The assessee was having composite fund, therefore, she applied Rule 8D for making disallowance. She relied on the decision of ITAT Special Bench 'B' New Delhi in the case of M/s Cheminve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mandate of section 14A is to prevent claims for deduction of expenditure in relation to income which does not form part of the total income of the assessee; (b) section 14A(1) is enacted to ensure that only expenses incurred in respect of earning taxable income are allowed; (c) the principle of apportionment of expenses is widened by section 14A to include even the apportionment of expenditure between taxable and non-taxable income of an indivisible business ; (d) the basic principle of taxation is to tax net income. This principle applies even for the purposes of section 14A and expenses towards non-taxable income must be excluded; (e) once a proximate cause for disallowance is established-which is the relationship of the expenditure with income which does not form part of the total income-a disallowance has to be effected. 10.15 Since the business of appellant is indivisible and the funds available in the business are mixed, the principle of apportionment of expenses, which stands widened by section 14A, have to be applied as per Rule 8D. Further, it may be mentioned that this issue has already been considered in detail by my Id. Predecessor in the case of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ossible since the interest free funds available with the assessee is much more than the investment in shares and this fact could not be controverted by the ld DR." Therefore, he prayed to delete the addition. 18. At the outset, the ld DR has vehemently supported the order of the ld CIT(A) and argued that as per law, this disallowance is to be calculated on the basis of Rule 8D of the Rules, which is applicable on the year under consideration. Therefore, the same be confirmed. 19. We have heard the rival contentions of both the parties and perused the material available on the record. It is undisputed fact that the assessee has reserved and surplus share capital to the extent of Rs. 5888.76 lacs. The assessee has mixed fund, the presumption for interest free fund is also applicable in the case of assessee but following the various decisions on this issue, Section 14A read with Rule 8D becomes redundant. It is also a fact that the management as well as staff and other office facilities available with the assessee are used for making investment in shares, therefore, it cannot be ruled out that no income can be generated without any expenditure. The quantum may be variance and depend ..... 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