TaxTMI 
TaxTMI 
2014 (1) TMI 868
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....income of Rs.32,45,679/- from investments, which is exempt under the provisions of the Act. During the course of assessment proceedings, the AO observed that the assessee has not attributed any expenditure to the earning of this exempt income in its return of income. The assessee stated that without prejudice to contest its claim that no expenditure has been incurred toward earning of exempt income, the assessee furnished details of administrative expenditures considered to be attributed to earning of exempt dividend income, amounting to Rs.88,800/-. The AO has stated that in arriving at such expenses, the salary cost of employees was considered and the assessee submitted detailed working of such expenditure incurred. The AO did not accept the working of the assessee and stated that investment in mutual fund requires very good experience and professional skills. Considering the amount of investment, it cannot be said that no expenditure has been incurred for earning dividend income. The AO stated that even though the assessee has identified the expenditure incurred of Rs.88,800/-, disallowance u/s 14A of the Act is required to be made in accordance with Rule 8D of the Income Tax Ru....
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....vestment - income from which does not or shall not form part of the total income because the assessee will have certain variable expenses and certain other expenses for managing this portfolio/investment and when the accounts are composite and assessee cannot itself segregate the various expenses which can be attributed to the exempt income and those to the taxable income then the only reasonable method to determine the expenses incurred in relation to the exempt income can be by apportionment. The ld. CIT(A) has stated that normally in similar schemes undertaken by Portfolio Managers and the like , the total expenses charged by such Portfolio Managers are in the range of 2 to 3% which also includes their profit element of 1 to 1 ½% which has to be excluded while doing such apportionment and the balance that remains is 1: 1 ½% out of which the fixed expenses (administrative) will be excluded because the Portfolio Managers is doing the same exclusively whereas the assessee as his own business other than the exempt income. In view of above, the ld. CIT(A) has stated that 0.5% is considered for estimating verifiable expenses incurred in relation to exempt income. The ld.....
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....mine the amount of expenditure by the AO were not satisfied as he has not referred his decision with the correctness of the claim of expenditure made by the assessee. To substantiate his submissions the ld.AR relied on the decision of the Mumbai Bench "J" of the Tribunal in the case of JK Investors (Bombay) Ltd, V/s ACIT in ITA No.7858/Mum/2011 and 7851/Mum/2011 (AY- 2008-09) dated 13.3.2013, decision in the case of Justice Sam P.Bharucha V/s Addl.CIT in ITA No.3889/Mum/2011 (AY-2008-09) dated 25.7.2012, the decision of the Kolkata Bench "A" of the Tribunal in the case of DCIT V/s Ashish Jhunjhunwala in ITA No.1809/Kol/2012 (AY-2009-10) dated 14.5.2013, the decision of the Hon'ble Delhi High Court in the case of CIT V/s Consolidated Photo and Finvest Ltd (2012)211 Taxman 184 (Del), the decision of the Ahmedabad Bench "B" of the Tribunal in the caase of Torrent Power Ltd V/s DCIT (2013)33 Taxmann.com 287 (Ahmedabad-Trib) and the decision of the Delhi Bench "F" of theTribunal in the case of Priya Exhibitors (P) Ltd V/s ACIT (2012)27 taxmann.com 88 (Del)=54 SOT 356 (Del). The ld. AR submitted that in view of the above decisions and in the absence of dissatisfaction recorded by the AO ....
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....ich does not form part of the total income of the assessee under the Act before he proceeds to make disallowance u/s 14A of the Act. However, in the case before us, we are of the considered view that for the purpose of making the investments in the various mutual funds and to keep a track of the dividend income received from them and also to manage the investments, the assessee needs not only an expert professional advise but to incur indirect and direct cost. The ld. CIT(A) has rightly stated that normally in managing similar schemes undertaken by Portfolio Managers, the total expenses charged by such Portfolio Managers are in the range of 2 to 3% which also includes their profit element of 1 to 1 ½%. The ld. CIT(A) has considered 0.5% of average investments towards cost stated to be incurred by the assessee which he has arrived at Rs.2,64,521/- on the average investment of Rs.5,29,04,206 in assessment year 2006-07, as against Rs.88,800/- offered by the assessee without prejudice to his submission that no cost has been incurred by the assessee in respect of investment made on earning and receipt of income which is exempt under the Act. Considering the facts of the case and ....