Sec 14A not applied on the interest accrued on bond issued by Bank and assessee need to prove the source of investment to claim deduction under sec 10(33)

Court :
HIGH COURT OF DELHI

Brief :
The tribunal in the impugned order has examined the factual matrix relating to acquisition/purchase of the equity shares mentioned at serial nos.1 to 3 and the investment in mutual funds. It has reached a categorical and a firm conclusion that the borrowed funds were not utilized for purchase of the equity share capital mentioned at serial nos.1 to 3 and the investment in the mutual funds. The aforesaid findings are findings of fact and we do not see any reason to go into the said aspects. However, we notice that the Assessing Officer, while making disallowance under Section 14A, had observed as under: “In the computation of income assessee has shown a dividend income of Rs.1,12,89,548/- and claimed the same as exempt u/s 10(33) of I.T. Act. In response to query as to why expenses relatable to dividend income be not disallowed, assessee has filed letters dated 4.3.2003, 5.11.2003 and 17.12.2003 stating that: i) no expenses including interest was incurred to earn dividend income. ii) Provisions of section 14A are not applicable since investment is old. iii) Dividend was not earned on investment which was made out of borrowed funds. The assessee has-not (sic) segregated or lead evidence to show funds used for making investment in shares etc. (18.57 crores) were not out of borrowed funds. I may add here that investment are old and coming from the past years but onus is on the assessee to show that investment in instruments earning Dividend/exempt income is not out of borrowed funds. The plea of the assessee that it is an old investment cannot discharge the onus cast upon assessee. If the funds invested in various assets can not be identified by the assessee the only other alternative is to apportion these in the ratio of investments. Assessee has not discharged the onus to identify fund invested in assets yielding exempt income.”

Citation :
CIT..... Appellant Through Mr. Sanjeev Sabharwal, sr. standing counsel Versus MACHINO PLASTIC LTD..... Respondent Through Dr. Rakesh Gupta with Ms. Rani Kiyala, Advs.