2016 (2) TMI 33

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....ent year was engaged in the business of export of ladies garments. Besides, he was also in receipt of inspection charges for consultancy/ certification services. The assessee had filed return of income showing total income of Rs. 26,76,240/-. The AO noticed that assessee had shown short term capital gain of Rs. 1,54,011/- on listed securities and offered to tax u/s 111A of the Income-tax Act. He further noticed that assessee had credited in the P&L A/c a sum of Rs. 10,87,898/- on account of dividend received. Besides, long term capital gain on sale of listed securities amounting to Rs. 11,36,768/- had also been shown. The dividend and long term capital gain had been claimed exempt u/s 10. The AO noticed that in the P&L A/c the assessee had ....

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....equal to the income exempt U/s 10. As per the AIR details also, the assessee during the year has made investment of Rs. 1,28,33,890/- in mutual fund. It is not the quantum of exempt income which is material. What important is that whether or not expenditure has been incurred on earning exempt income." 4. He referred to Rule 8D and pointed out that in cases where assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the amount of expenditure in relation to such income is to be worked out in accordance with sub-rule (2) of Rule 8D.He referred to Rule 8D(2)(iii) and pointed out that proportionate expenses is to be worked out after averaging out the total of investment as on the ....

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....ying on the evidence of expenditure so incurred on the scrutiny of the accounts. (b) Further the CIT (A) has further failed to appreciate that the assessee has not incurred any expenditure against the earning of exempted income and the expenditure cannot be presumed. 6. That the CIT (A) and AO both have failed to appreciate that all the investment have been made by the appellants out of the spare funds available with the appellants and there are no presumption of expenditure - reference ACIT Vs. MAXXOP L TO 347 ITR 272 (DELHI) 3. The order of the CIT (A) and AO are bad in law and against the facts of the case." 7. We have heard rival submissions and perused the material available on record. As far as ground no. 1 raised by assess....