KREDENCE MULTI TRADING LTD, MUMBAI V. ACIT CIR 7(2), MUMBAI

ITA 7798/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3841 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 29-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 31-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN
• Assessee Lawyers: K SHIVARAM
• Keywords: Earning of tax free income; Source of fund; Proportionate interest
• Section: 14A; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI , , BEFORE SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARORA , AM ./ I. T.A. NO. 7798/MUM/2012 ( / ASSESSMENT YEAR: 2009 - 10 ) KREDENCE MULTI TRADING LTD., 301 - 302, JOSHI CHAMBERS, AHMEDABAD STREET, P. DMELLO ROAD, CARNAC BUNDER, MUMBAI - 400 009 / VS. ASST. CIT, CIRCLE 7(2), AAYAKAR BHAVAN, M. K. MARG, MU MBAI 400 020 ./ ./ PAN/GIR NO. AAACS 0778 A ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI K. SHIVARAM / RESPONDENT BY : SHRI ASGHAR ZAIN / DATE OF HEARING : 09.12.2015 / DATE OF PRONOUNCEMENT : 17 .02.2016 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN A PPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 13 , MUMBAI (C IT(A) FOR SHORT) DATED 30.12.2012 , PARTLY ALLOWING THE A SSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2009 - 10 VIDE ORDER DATED 25.3.2011 . 2 ITA NO. 7798/MUM/2012 (A.Y. 2009 - 10) KREDENCE MULTI TRADING LTD. VS. ASST. CIT 2. THE ISSUE ARISING IN TH IS APPEAL IS THE VALIDITY OF THE DISALLOWANCE U/S. 14A EFFECTED BY THE ASSESSING OFFICER (A.O.) IN ASSESSMENT, AS FURTHER MODIFIED BY THE FIRST APPELLATE AUTHORITY. THE A.O. OBSERVED THE ASSESSEE TO HAVE, IN RESPECT OF DIVIDEND INCOME OF RS.1,98,500/ - , CLA IMED AND ALLOWED TAX EXEMPT, MADE A DISALLOWANCE FOR RS.3,799/ - TOWARD DIRECT ( D EMAT ) CHARGES ONLY. HE, THEREFORE, RELYING ON THE DECISION IN GODREJ & BOYCE MFG. CO. LTD. V. DY. CIT [2010] 328 ITR 81 (BOM), INVOKED RULE 8D (OF THE INCOME TAX RULES, 1962) , EFFECTING DISALLOWANCE U/S. 14A(1) TOWARD INDIRECT INTEREST AND ADMINISTRATIVE EXPENDITURE UNDER R ULE S 8D(2)(II) AND 8D(2)(III) RESPECTIVELY , COMPUTED AS UNDER (REFER PARA 4 OF THE ASSESSMENT ORDER) : (AMT. IN RS.) A. INTEREST PAID 1,69,38,980 B. AVERAGE VALUE OF INVESTMENTS INVESTMENTS AS ON 01.4.2008 2,19,31,222 INVESTMENTS AS ON 31.03.2009 24,23,22,749 26,42,53,971 AVERAGE VALUE OF INVESTMENTS 1 3,21,26,988 C. AVERAGE VALUE OF TOTAL ASSETS ASSETS AS ON 01.4.2007 45,19,93,626 ASSETS AS ON 31.3.2008 67,71,65,873 112,91,59,499 AVERAGE VALUE OF ASSETS 56,45,79,750 D. EXPENDITURE RELATABLE TO EXEMPT INCOME I) DIRECT EXPENSES (DI SALLOWED SUO MOTU BY THE ASSESSEE) 3,799 II) A X B/C = 1,69,38,980 X 13,21,26,988 56,45,79,750 39,64,181 III) 0.50% OF 13,21,26,988 6,60,635 46,28,615 IN APPEAL, THE ASSESSEE FOUND FAVOUR WITH THE LD. CIT(A) IN - AS - MUCH AS IT WAS CONTENDED THAT THE ASSESSEE HAD ALSO EARNED INTEREST INCOME ON FDRS AT RS.35,27,028/ - , WHICH IS TAXABLE, SO THAT TO THE EXTENT THE SAME IS SOURCED FROM 3 ITA NO. 7798/MUM/2012 (A.Y. 2009 - 10) KREDENCE MULTI TRADING LTD. VS. ASST. CIT BORROWED CAPITAL, ONLY THE NET (INTEREST) EXPENDITURE BE CONSIDERED FOR COMPUTING THE DISALLOWANCE UNDER R ULE 8D(2)(II). AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL, RAISING THE FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) HAS ERRED IN IGNORING THE CRUCIAL FACT THAT PROVISIONS OF SEC TION 14A OF THE INCOME TAX ACT, 1961 CANNOT BE APPLIED UNL ESS THERE IS A PROXIMATE CAUSE FOR DISALLOWANCE AND APPLICATION OF SUB SECTIONS (2) & (3) OF SECTION 14A AND RULE 8D OF THE INCOME TAX RULES, 1962 IS NOT AUTOMATIC IN EACH AND EVERY CASE WHERE THERE IS INCOME NOT FORMING PART OF TOTAL INCOME. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) HAS ERRED IN ONLY PARTIALLY DELETING THE DISALLOWANCE BY NOT APPRECIATING THE FACT THAT THE AO HAS APPLIED THE PROVISIONS OF SECTIO N 14A REA D WITH RULE 8D WITHOUT GIVING ANY FINDING AS TO WHY HE WAS NOT SATISFIED WITH THE APPELLANT'S BOOKS OF ACCOUNTS AND SUBMISSIONS THAT IT DID NOT INCUR ANY EXPENDITURE FOR EARNING THE EXEMPT INCOME. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LEARNED CIT (A) HAS ERRED IN NOT ACCEPTING THE CLAIM OF THE APPELLANT THAT THE DISALLOWANCE OF RS.46,24,816/ - U/S 14A SHOULD NOT EXCEED THE EXEMPT DIVIDEND INCOME OF R S .1,98,5001 - . 3 . BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE (AR), ADVER TING TO THE ASSESSEES BALANCE - SHEET AS ON 31.3.2009 (PB PG S . 6 - 13 ) , WOULD SUBMIT THAT THE PROPORTIONATE FORMULA FOR COMPUTING THE DISALLOWANCE OF INTEREST EXPENDITURE ATTRIBUTABLE TO INCOME NOT FORMING PART OF THE TOTAL INCOME SHALL NOT APPLY IN THE INSTA NT CASE AS THERE HAS BEEN, AS APPARENT, A DECLINE IN TH E NET WORKING CAPITAL, I.E., FROM (A POSITIVE OF) RS.8.15 LACS AS ON 31.3.2008 (I.E., IMMEDIATELY PRIOR TO THE BEGINNING OF THE CURRENT YEAR ) TO A NEGAT IVE OF RS.967.18 LACS AS ON 31.3.2009 . CLEARLY, T HE EXCESS CURRENT L IABILITY (RS.9 . 67 CR.) , WHICH IS NON - INTEREST BEARING , HAS FUNDED THE INVESTMENTS TO A SIGNIFICANT EXTENT. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) WOULD, ON THIS, STATE THAT NO SUCH PLEA WAS RAISED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW; THE ONLY EXCEPTION TO THE PRO RATA COMPUTATION BEING THE SOURCING OF FDR S YIELD ING TAXABLE 4 ITA NO. 7798/MUM/2012 (A.Y. 2009 - 10) KREDENCE MULTI TRADING LTD. VS. ASST. CIT INTEREST INCOME, I.E., FROM BORROWED CAPITAL, ACCEDED TO BY THE LD. CIT(A), I.E., TO THE EXTENT AS MAY BE FOUND VALID UPON VERIFICATION BY THE A.O. 4 . WE HA VE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. 4.1 T HE PRINCIPAL ISSUE, THUS , ARISING IN THE INSTANT APPEAL, I.E., AS ARGUED BEFORE US , IS THE CORRECT QUANTIFICATION OF THE DISALLOWANCE OF THE INDIRECT INTEREST EXPENDITURE U/S. 14A R/W R. 8D(2 )(II) ; NO CONTENTION QUA INDIRECT ADMINISTRATIVE EXPENSES, DISALLOWED PER THE PRESCRIPTION OF R. 8D(2)(I I I) , HAVING BEEN MADE . WITHOUT DOUBT, THE DISALLOWANCE U/S. 14A(1) IS ONLY QUA EXPENDITURE DIRECT OR INDIRECT, INCURRED IN RELATION TO INCOME NOT FORM ING PART OF THE TOTAL INCOME, I.E., WHICH IS TAX - EXEMPT. THE ASSESSEES PLEA, RELYING ON CIT VS. WALFORT SHARES & STOCK BROKERS (P.) LTD. [2010] 326 ITR 1 ( SC ) , THEREFORE, OF ONLY THAT EXPENDITURE WHICH HAS A PROXIMATE NEXUS WITH SUCH INCOME, CANNOT BE FAU LTED WITH. INCOME, BY DEFINITION, IS ONLY NET INCOME, I.E., NET OF EXPENDITURE INCURRED IN RELATION THERETO. THIS, IN FACT, I S ABUNDANTLY CLEAR PER THE RELEVANT PROVISION (S. 14A) ITSELF, WHICH SPEAKS OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH, TAX - EXEMPT INCOME. THIS, HOWEVER, DOES NOT TAKE US FAR, I.E., IN - SO - FAR AS THE PRESENT CASE IS CONCERNED, AS THE REVENUE SEEKS AND HAS DISALLOWED ONLY THE PROPORTIONATE INTEREST EXPENDITURE (INCURRED IN THE SUM OF RS.169.39 LACS), I.E., AS COULD BE R EASONABLY ATTRIBUTED TO THE INVESTMENT YIELDING ( OR LIABLE TO YIELD ) INCOME NOT FORMING PART OF THE TOTAL INCOME, I.E., IS TAX - EXEMPT, WHICH IN FACT IS THE PRINCIPL E UNDERLYING SECTION 14A. SURELY, A REGARD HAS TO BE MADE TO THE ACCOUNTS OF THE ASSESSEE BEFORE THE A.O. PROCEEDS TO APPLY R ULE 8D(2)(II) OR, FOR THAT MATTER, ANY LIMB OF R ULE 8D (2 ). THE REASON IS SIMPLE. WHERE THE ASSESSEE SHOWS WITH REFERENCE TO ITS ACCOUNTS, OR IT IS OTHERWISE FOUND THAT A LOWER THAN PROPORTIONATE FUNDS HAVE BEEN UTILIZED F OR FUNDING TAX - EXEMPT INVESTMENT, IT IS ONLY THE INTEREST QUA SUCH REDUCED BORROWINGS THAT SHALL BE LIABLE FOR DISALLOWANCE U/S.14A (1) . THIS WOULD, FOR THE REASONS AFORE - STATED, DEFIN ING THE RATIONAL E OF THE PROVISION, HOLD EQUAL LY WHERE BORROWED FUNDS SO UTILIZED ARE IN EXCESS 5 ITA NO. 7798/MUM/2012 (A.Y. 2009 - 10) KREDENCE MULTI TRADING LTD. VS. ASST. CIT OF TH AT ON A PRO - RATA BASIS . THE MATTER, IN OTHER WORDS, IS FACT - SPECIFI C , AND WOULD STAND TO BE ESTABLISHED , EVEN AS WE MAY CLARIFY THAT THE AO, WHERE NOT SATISFIED WITH THE ASSESSEES WORKING IN RESPECT OF THE DISALLOWANCE U/S. 14 A (INCLUDING AT NIL), IS BOUND BY THE MANNER PRESCRIBED U/R. 8D(2), AND IS THUS STATUTORILY PROSCRIBED TO APPLY A HIGHER THAN PROPORTIONATE RATIO IN COMPUTING THE DISALLOWANCE QUA INTEREST. THE ASSESSEE DID NOT MAKE OUT ANY CASE FOR A LOWER THAN THE AVERAG E (FOR THE YEAR) PROPORTION BEFORE THE REVENUE AUTHORITIES, WHO THEREFORE PROCEEDED TO APPLY, IN THE ALTERNAT IVE , THE PROPORTIONATE FORMULA, PRESCRIBED BY LAW, WHICH PRESUMES A UNIFORM FUNDING OF ALL THE ASSETS OF THE ASSESSEE ( ENTITY) , I.E., OF THE SAME B EING FUNDED PROPORTIONATELY FROM A COMMON GENERAL POOL OF FUNDS. NO CASE FOR IT BEING NOT SO HA VING BEEN MADE EITHER BEFORE THE A.O. OR EVEN THE LD. CIT(A) BY THE ASSESSEE, WHO HAS MERELY CHOSEN NOT TO MAKE ANY DISALLOWANCE QUA INTEREST , THEIR ACTION IN AD OPTING THE STATUTORY FORMULA (RATIO) CANNOT BE FAULTED . THE SAID FORMULA, WE MAY CLARIFY, IS VALID AND SHALL HOLD IRRESPECTIVE OF THE NATURE AND COMPOSITION OF THE FINANCING, SO THAT THE ASSESSEES ALLUDING TO INTEREST - FREE F UNDS IN THE FORM OF EXCESS CURR ENT LIABILITIES (OVER CURRENT ASSETS) BEFORE US MAY NOT HOLD NO IN TEREST, WHICH ONLY IS BEING APPORTION ED, BEING SUFFERED THEREON. 4.2 WE MAY, BEFORE ADDRESSING THE PRINCIPAL ISSUE AFORE - STATED , ALSO ADDRESS THE OTHER ISSUES SOUGHT TO BE RAISED BY THE ASSESSEE PER ITS GROUNDS OF APP EAL. GROUND 2 OBJECTS THE NON - RE CO RDING OF THE SATISFACTION BY THE A.O. A S ALSO NOTED EARLIER, THE ASSESSEE DESPITE INCURRING EXPENDITURE BY WAY OF INTEREST AND ADMINISTRATIVE EXPENDITURE, DID NOT MAKE ANY DISALLOWANC E U/S. 1 4A TOWARD THE SAME PER I T S RETURN OF INCOME, WHICH IS ALSO SANS ANY EXPLANATION WITH REGARD THERETO. THIS FACT , DULY NOTED BY THE A.O., IS EVEN OTHERWISE ADMITTED AND NOT DENIED. FURTHER, WHILE THE A.O.S DISAPPROVAL OF THE ASSESSEES CLAIM IS TO BE WITH R EFERENCE TO THE ASSESSEES ACCOUNTS, CAN THE L A TTERS CLAIM BE INDEPENDENT OF AND WITHOUT RE FERENCE TO ITS ACCOUNTS ? THE ASSESSEE CANNOT, AFTER ALL , DE HORS AND WITHOUT REGARD TO ITS ACCOUNTS , CLAIM THAT THE 6 ITA NO. 7798/MUM/2012 (A.Y. 2009 - 10) KREDENCE MULTI TRADING LTD. VS. ASST. CIT ENTIRE OF SUCH EXPENDITURE IS ONLY TOWARD INCOME FORMING PART OF THE TOTAL INCOME, I.E., EITHER TOWARDS INVESTMENTS YIELDING TAXABLE INCOME OR OTHER BUSINESS ASSETS. THE PRINCIPAL ON U S OR THE OBLIGAT I ON TO PROVE HIS RETURN, OR THE CLAIMS PREFERRED THEREBY, IS ONLY ON THE ASSESSEE ( CIT V . CALCUTTA AGEN CY [1951] 19 ITR 191 ( SC ) ). IT IS ONLY WHERE HE DOES SO, AT LEAST PRIMA FACIE , THAT THE ONUS CAN BE SAID TO SHI F T T O THE OTHER SIDE, SO THAT THE ASSESSING AUTHORITY IS OBLIGED TO STATE THE REASON /S FOR FINDING THE ASSESSEES CLAIM /S AS NOT ACCEPTABLE. HE, B A S E D ON HIS FACTUAL FINDINGS, MAY ADOPT THE METHOD DEEM ED REASONABLE, CORRECTING THE ASSESSEES CLAIM TO THE EXTENT FOUND DEFICIENT, OR MERELY ADOPT THE PROPORTIONATE FORMULA, AS MANDATED BY LAW. REFERENCE IN THIS REGARD MAY PROFITABLY BE MADE TO THE DECI SION BY THE TRIBUNAL IN THE CASE OF AFL P. LTD. VS. ASST. CIT [2013] 28 ITR (TRIB) 263 (MUM) , WHERE THIS ASPECT STANDS DISCUSSED IN DETAIL. EVEN SO, IN THE PRESENT CASE, THE LD. CIT(A), ON SUCH A CONTENTION BEING RAISED BEFORE HIM , STATES THE REASONS WHICH ARE PATENT ON THE FACE OF THE BALANCE - SHEET, AS TO WHY THE INTEREST - BEARING UNSECURED LOANS HAVE ONLY FINANCED THE INCREASE IN THE INVESTMENTS DURING THE YEAR, MAKING GOOD THE DEFICIENCY, IF ANY, IN THIS REGARD AT THE STAGE OF THE A.O. , AND WHICH THE SAID AUTHORITY IS , AGAIN, ONLY OBLIGED IN LAW TO ( REFER : CIT VS. KANPUR COAL SYNDICATE [1964] 53 ITR 225 (SC); KAPURCHAND SHRIMAL V S . CIT [ 1981 ] 131 ITR 451 (SC) ) . IT WAS, UNDER THE CIRCUMSTANCES, INCUMBENT ON THE ASSESSEE TO MEET THE SAME WHERE IT INTENDS TO AGITATE TH IS ASPECT FURTHER, AND WHICH IT DOES NOT, I.E., APART FROM MERELY TAKING IT AS A G ROUND IN THE MEMORANDUM OF APPEAL. THEN, VIDE G ROUND 3 , IT STATES OF RESTRICTING THE DISALLOWANCE U/S. 14A(1) TO THE DIVIDEND INCOME, I.E., RS.1,98,500/ - . NO BASIS FOR THE SAME IS GIVEN. INCOME FROM ANY ACTIVITY , INCLUDING FROM INVESTMENTS, IS A MATTER OF FACT, OTHER THAN WHERE ITS QUANTUM IS PRESUMED BY LAW. THE ASSESSEE HAS INCURRED SOME EXPENDITURE TOWARD TH E INVESTMENT ACTIVITY , YIELDING (OR LIABLE TO YIELD) TAX - EXEMPT INCOME. I T IS ONLY AFTER DEDUCTING THE SAME, EITHER AS INFERABLE FROM ITS ACCOUNTS , OR DEDUCE D APPLYING S O ME REASONABLE BASIS WITH REFERENCE THERE TO , THAT THE NET INCOME FROM SUCH ACTIVITY COULD BE ARRIVED AT, AND WHICH COULD BE, DEPENDING ON THE E XTENT OF (GROSS) INCOME WHICH 7 ITA NO. 7798/MUM/2012 (A.Y. 2009 - 10) KREDENCE MULTI TRADING LTD. VS. ASST. CIT IS UNCERTAIN, AS WELL AS THE EXPENDITURE INCURRED IN ITS RESPECT, B E EITHER POSITIVE OR NEGATIVE OR EVEN ZERO. TO THEREFORE STATE THAT THE INCOME IS ZERO, IMPLYING THE E XPENDITURE MATCH ES THE GROSS INCOME, IS ONLY PRESUMPTUO US. REFERENCE IN THIS REGARD MAY ALSO BE MADE TO THE DECISION IN CIT V. RAJENDRA PRASAD MOD Y [ 1978 ] 115 ITR 519 (SC) , WHEREIN , EVEN BY GIVING EXAMPLES, IT WAS EXPLAINED BY THE H ONBLE A PEX C OURT THAT EVEN IF NO INCOME RESULTS , THE EXPENDITURE INCURRED IN I T S RESPECT WOULD YET STAND TO BE DEDUCTED IN ARRIV ING AT (NET) INCOME. THE ASSESSEES PLEA IS WHOLLY WITHOUT MERIT. REFERENCE IN THIS REGARD MAY BE MADE TO THE DISCUSSION BY THE TRIBUNAL IN THE MATTER PER ITS DECISIONS IN D. H. SECURITIES (P.) LTD. VS. DY. CIT [2014] 146 ITD 1 (MUM) (TM) AND DY. CIT V. DAMANI ESTATES AND FINANCE P. LTD. [2013] 25 ITR 683 (MUM) (TRIB) . 4.3 THE QUESTION THAT FINALLY SURVIVES IS WHETHER THE DISALLOWANCE AS MADE AND CONFIRMED IS SUSTAINABLE IN LAW, CONSIDERING THE PLEA RAI SED BY THE ASSESSEE BEFORE US (REFER PARA 3) . WE HAVE ALREADY FOUND THE COURSE ADOPTED BY THE REVENUE AS VALID AND IN KEEPING WITH THE MANDATE OF LAW. THOUGH, THEREFORE, STRICTLY SPEAKING, NO COGNIZANCE OF ANY SUCH PLEA RAISED THE ASSESSEE S CLAIM OF NO INDIRECT EXPENDITURE ON INTEREST OR ADMINISTRATIVE EXPENSES BEING NOT SUPPORTED BY ANY WORKING, MUCH LESS MADE WITH REFERENCE TO ITS ACCOUNTS - COULD BE MADE AT THIS STAGE, THE MATTER IN OUR VIEW WOULD REQUIRE BEING CONSIDERED HOLISTICALLY, TAKING INTO ACC OUNT THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, I.E., DOES NOT ADMIT OF ANY STANDARD PRESCRIPTION. IN A GIVEN CASE, THE ASSESSEE MAY RAISE A VERY PERTINENT ASPECT, APPARENT FROM A BARE REFERENCE TO ITS ACCOUNTS (ON RECORD) , THAT WOULD EXHIBI T GROSS INAPPROPRIATENESS OF THE COMPUTATIONAL FORMULA PROVIDED BY LAW, MOVING THE TRIBUNAL TO INTERFERE, EVEN WHERE RAISED BEFORE IT FOR THE FIRST TIME. COMING BACK TO THE FACTS OF THE PRESENT CASE, WE HAVE ALREADY CLARIFIED THAT THE PLEA RAISED DOES N OT IMPACT THE DISALLOWANCE U/R. 8D(2)(II) IN ANY MANNER. THIS IS AS THE EXCESS LIABILITIES - WHICH ARE INTEREST - FREE, CAN ONLY BE CONSIDERED AS HAVING 8 ITA NO. 7798/MUM/2012 (A.Y. 2009 - 10) KREDENCE MULTI TRADING LTD. VS. ASST. CIT FINANCED ALL THE ADDITIONS TO ASSETS FOR THE YEAR EQU IVALENTLY , I.E., PROPORTIONATELY, SO THAT, BY IMPLIC ATION, SO IS THE CASE FOR INTEREST - BEARING BORROWINGS (BY WAY OF UNSECURED LOANS AGAIN, A NON - DEDICATED SOURCE OF FINANCE), ON WHICH INTEREST IS INCURRED, AS WELL. THE ASSESSEES ARGUMENT IS, THUS, TO NO MOMENT. WE HAVE HOWEVER, TWO OBSERVATIONS, PATENT FROM THE FACE OF THE BALANCE - SHEET, THAT, THEREFORE, OUGHT TO BE TAKEN INTO ACCOUNT. ONE, THE VALUE OF THE ASSETS, TO ARRIVE AT THE AVERAGE VALUE THEREOF, IS TO BE AS AT THE BEGINNING AND END OF THE RELEVANT PREVIOUS YEAR (I.E., AS ON 01.4.2008 AND 31.3.20 09), AND NOT AS ON 01.4.2007 AND 31.3.2008, AS TAKEN. TWO, THE CURRENT ASSETS, WHERE THE NET WORKING CAPITAL (CURRENT ASSETS CURRENT LIABILITIES) IS NOT NEGATIVE, WOULD ONLY BE AT NET OF CURRENT LIABILITIES . THIS IS AS CURRENT LIABILITIES ARE BY THEIR NA TURE SPONTANEOUS LIABILITIES AND, THUS, TO THE EXTENT OF CURRENT ASSETS, GO TO FINANCE THEM. ACCORDINGLY, WHERE THE NET WORKING CAPITAL (NWC) IS NOT POSITIVE, IT IS ONLY THE EXCESS OF SUCH LIABILITIES OVER CURRENT ASSETS THAT CAN BE CONSIDERED AS FORMING P ART OF THE GENERAL POOL OF FUNDS AND SUBJECT TO THE PRO - RATA FORMULA. NEEDLESS TO ADD, THE VALUE OF TOTAL ASSETS SHALL BE ADJUSTED ACCORDINGLY , I.E., BY TAKING THE CURRENT ASSETS AT NET OF CURRENT LIABILITIES A NET POSITIVE FIGURE. WE MAY EXPLAIN THIS FURTHER. THE CURRENT LIABILITIES (FOR MOST PART) ARISE SPONTANEOUSLY ON THE ACQUISITION OF THE CURRENT ASSETS, AND ARE THUS ONLY TOWARD THE SAME, CONSTITUTING A DEDICATED SOURCE OF FINANC E. THE EXCESS CURRENT LIABILITIES (OVER CURRENT ASSETS) TRANSLATE INTO LIQUID FUNDS WITH THE ENTITY ONLY ON THE LIQUIDATION OF THE CORRESPONDING CURRENT ASSETS . IT IS ONLY THIS EXCESS AND TO THAT EXTENT ONLY , THAT REPRESENT S A NON - DEDICATED SOURCE OF FUNDS, AND GO TO SWELL THE GENERAL POOL OF FUNDS OR THE COMMON HOTCH - POTCH, FUNDI NG ANY ASSET THAT MAY BE ACQUIRED FOR THE TIME BEING. THIS WOULD ALSO HOLD IN RELATION TO ADVANCE FOR ORDERS (FROM CUSTOMERS), AT RS.52.55 CR. AS AT 31.3.2008, AS WELL, AS TO THE EXTENT THE AMOUNT IS RETAINED IN THE FORM OF CURRENT ASSETS (AS CASH/BANK BALANCE OR INVENTORY OF GOODS), THE SAME IS ONLY A TARGETED FUNDING, FINANCING CURRENT ASSETS ONLY. THE UNSECURED LOANS, CONSTITUTING THE OTHER MAJOR SOURCE OF FINANCE, IS SIMILARLY NOT TOWARD FINANCING ANY SPECIFIC ASSET/S (OR 9 ITA NO. 7798/MUM/2012 (A.Y. 2009 - 10) KREDENCE MULTI TRADING LTD. VS. ASST. CIT CLASS OF ASSETS). SELF GENER ATED FUNDS (PROFITS), WHICH ARE NORMALLY ALSO AVAILABLE, AGAIN ON A NON - DEDICATED BASIS, IS ABSENT IN - AS - MUCH AS THE ASSESSEE - COMPANY HAS SUFFERED A LOSS DURING THE YEAR, WHICH IS PRIMARILY RESPONSIBLE FOR THE DECLINE IN THE NWC . RATHER THAN BEING A GENERA TOR OR SOURCE OF FUNDS, THE FIRMS OPERATIONS HAVE BECOME AN AVENUE FOR ABSORPTION OF THE FUNDS FOR THE CURRENT YEAR. IN FACT, THE EXCESS (OUTSTANDING) CURRENT LIABILITIES (AS AT THE YEAR - END), AS A PORTFOLIO, REPRESENTS SUCH LOSS TO THE EXTENT NOT MET - T HE ASSESSEE CONTINUING TO MAINTAIN THE CURRENT ASSETS AT THE SAME LEVEL. LOOKED AT IN ANY MANNER, THE ENHANCED CURRENT LIABILITIES OR FUNDS GENERATED FROM THE DECLINE IN NWC CAN THEREFORE ONLY BE SAID TO FINANCE ALL THE ADDITIONS TO THE ASSETS PROPORTIONAT ELY. THE PRO - RATA FORMULA OF FUNDING ENSHRINED IN RULE 8D(2)(II) WOULD THUS APPLY ON FACTS TO THE ASSETS, BOTH AS AT THE BEGINNING AND THE CLOSE OF THE RELEVANT YEAR AND, THUS, TO THE AVERAGE ASSETS, INCLUDING INVESTMENTS, HELD DURING THE YEAR, SIGNIFYING THE APPROPRIATENESS OF THE FORMULA U/R. 8D(2)(II) BOTH ON FACTS AND IN LAW. FINALLY, THE LD. CIT(A) HAS, SUBJECT TO A.O.S VERIFI CATION , HELD FOR AN ADJUSTMENT FOR INTEREST ON (B ANK ) FDRS. THE SAME SHALL, ACCORDINGLY, STAND TO BE SIMILARLY EXCLUDED, AT AN AVERAGE FOR THE YEAR, BOTH FROM THE VALUE OF INVESTMENTS AND THE TOTAL ASSETS IN COMPUTING THE PRO - RATA INDIRECT INTEREST U/R. 8D(2)(II). SUBJECT TO THESE ADJUSTMENTS IN APPLYING THE SAID RULE , WE CONFIRM THE SAME. 4.4 NO PLEA WITH REGARD TO INDIRECT ADM INISTRATION EXPENSES, DISALLOWED U/R. 8D(2)(III), STANDS MADE AT ANY STAGE, I.E., EITHER BEFOR E THE REVENUE OR EVEN BEFORE US, S O THAT WE FIND NO REASON TO INTERFERE WITH THE REVENUES APPLYING THE STATUTORY PRESCRI PTION . 4.5 WE DECIDE ACCORDINGLY. 10 ITA NO. 7798/MUM/2012 (A.Y. 2009 - 10) KREDENCE MULTI TRADING LTD. VS. ASST. CIT 5. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUARY 17 , 201 6 SD/ - SD/ - ( JOGIN DER SINGH ) (S ANJAY ARORA) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 17 . 0 2 .201 6 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASS TT. REGISTRAR) , / ITAT, MUMBAI