As informed in 11th Sep. 2012 and reported in (2012) 6 TaxCorp (DT) 52547 (SC), Involving disallowance under S. 14A of the Act. A division bench of SC observed that there was no judgment of High Court on the interpretation of S. 14A and yet HC, in its order, had merely stated that no substantial question of law arose in the case and SC, remits issue of S. 14A applicability back to HC.
Recently Hon`ble high court held that, Since the assessee has not given one to one co-relation between the funds available and the funds deployed, it has not discharged its onus. Therefore, the entire gross interest paid of Rs.4,49,02,775/- should have been taken for the purpose of disallowance U/s. 14A of the IT Act.
Two-fold questions arise for consideration before Hon`ble high court
(A) Whether the provisions of Section 14A of the IT Act were followed by the assessee by disallowing a sum of Rs.1.33 crores in its computation of income? (B) Whether the order passed by the CIT was based on a mere change of opinion?
Hon`ble high court observed that the assessee has not given one to one co-relations between the funds available and the funds deployed. The assessee alone is expected to be in the knowledge as to which fund was deployed for what purpose. No separate accounts are maintained for the purposes of taxable income and exempt income. In such a situation how the Revenue will know whether the payment of gross interest amounting to Rs. 4,49,02,775/- is for the purpose of earning taxable income or the exempt income.
Held, We are of the opinion that the Assessment Officer in its order dated 28th January, 2005 did not make provision for disallowance of expenditure in terms of Section 14A of the IT Act. The assessee has paid interest of Rs.4,49,02,775/- out of which only a sum of Rs.1,33,51,132/- was shown to be relatable to the non-taxable income. 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/-. The said sum 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. The learned Tribunal did not realize the facts and circumstances correctly. The requirement of the provision of Section 14A of the IT Act, 1961 has not been satisfied. The interference by the CIT was based on facts and not any change of opinion.
For the aforesaid reasons, both the questions framed above are answered in the negative.
The order passed by the Tribunal is set aside and the order of the CIT is restored. The appeal is thus allowed.
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Rupesh Srivastava
E.mail: ropsrivastava@gmail.com, rupesh@thetaxcorp.com
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