- (1.) This appeal preferred by the Revenue is directed against a judgment and order dt. 28th Feb., 2007 by which the order of the CIT dt. 4th Sept., 2006 passed under s. 263 of the IT Act of 1961 was reversed. The undisputed facts and circumstances of the case are as follows. The assessee earned a sum of Rs. 2,85,08,419 on account of dividend which is not taxable. The assessee earned interest amounting to a sum of Rs. 2,68,75,491. The assessee paid interest amounting to a sum of Rs. 4,49,02,775. No expenditure with respect to the aforesaid non-taxable income was shown. Out of the interest paid by the assessee, a sum of Rs. 1,33,51,132 was shown as interest paid towards the non-taxable income. On the aforesaid basis, a total loss was computed at a sum of Rs. 85,93,770 which was accepted by the AO. The CIT in exercise of power under s. 263 directed the AO to pass a fresh order in accordance with law and to make appropriate disallowance under s. 14A of the IT Act. The reasons assigned by the CIT are as follows: Under the provisions of s. 14A, the AO has to disallow the expenditure in relation to the income which does not fall a part of the total income. On the other hand, it is clear from the assessment order that the AO has failed to take recourse to the provisions of s. 14A. On this basis alone the assessment order is erroneous in as much as it is prejudicial to the interest of the Revenue. The assessee company contended that its own funds as well as borrowed funds have been deployed for various activities including that of investment in shares. However, 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. It is well-settled law that for claiming a certain expenditure as allowable, it is the responsibility of the assessee to submit details. In other words the burden of proof to claim interest expenditure of Rs. 4,49,02,775 is on the assessee. 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 under s. 14A of the IT Act. The assessee's contention that this is a case where the estimate of the AO is being substituted by the estimate of the CIT is not correct. As mentioned above, this is actually a case in which the AO failed to appreciate the facts of the case. Therefore, the assessment order passed by him is clearly erroneous and prejudicial to the interest of the Revenue.
(2.) The learned Tribunal reversed the order of the CIT in an appeal preferred by the assessee on the basis of the following reasons: In this case, the CIT has observed that the AO has not dealt with the issue of disallowance of interest under s. 14A of the IT Act. However, the above observation of CIT is not based upon appreciation of the facts involved in this case as the assessee has itself disallowed a sum of Rs. 1.33 crores in its computation of income filed before the Department and the AO has completed the assessment, after taking into consideration the above facts and submissions of the assessee. We have also observed that CIT, while invoking the proceedings under s. 263 of the IT Act, has observed that the entire interest expenditure was supposed to be disallowed. However, such observation of CIT is not supported by any material evidence or observation on record whereas the AO has completed the assessment, after taking into consideration the relevant details and evidences and explanation filed by the assessee and such action of the AO has not been held erroneous and prejudicial to the interest of Revenue by CIT with the help of any concrete material, evidence or observation on record. Since the action of CIT, while initiating proceedings under s. 263 of the IT Act, is based on mere change of opinion, such action of CIT is devoid of any merit. We, therefore, quash such order of the CIT and as such accept the ground of the assessee.
(3.) Therefore, two-fold questions arise for consideration: (A) whether the provisions of s. 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?;