2013 (10) TMI 695

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....s of direct selling of consumer products. Dividend income of Rs.4.98 crore was earned which was claimed as exempt u/s 10(34) of the Act. In the absence of the assessee showing any disallowance u/s 14A, the AO, relying on a judgment of the Hon'ble Supreme Court and two Special Bench decisions came to hold that such disallowance was called for as per Rule 8D. The above referred disallowance amounting to Rs.51.12 lac towards other expenses was made as per clause (iii) of Rule 8D(2), being ½ per cent of average value of investment. The ld. CIT (A) sustained the disallowance by noticing that the investment in shares/securities fetching exempt income, stood increased from Rs.89.99 crore at the end of the preceding year to Rs.114.51/- crore....

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....s an increase during the year of about Rs.25 crore in the investments in shares yielding exempt income. It is but natural that the investment of such a magnitude cannot be made otherwise than by involvement of top management of the company. The ld. CIT (A) rightly pointed out that somebody has to take decisions regarding the purchase and sale of the shares, monitoring of the portfolio for which the resources of the company are used, and hence such expenses require consideration under this section. In that view of the matter, such implicit satisfaction of the AO about the incurring of expenses in relation to the exempt income got converted into explicit satisfaction by reason of the ld. CIT (A)'s discussion and decision on the matter. 5. ....