TaxTMI 
TaxTMI 
2017 (10) TMI 177
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....as, disallowance made under Section 14A of the Income Tax Act, 1961 ("the Act" for short). 6. As far as the Revenue's appeal before us is concerned, it is restricted only to the disallowance under Section 14A of the Act. 7. Mr. Suresh Kumar would submit that this appeal raises the following substantial question of law:­ "Whether on the facts and in the circumstances of the case, the Hon. Income Tax Appellate Tribunal was justified in restricting the disallowance u/s 14A to Rs. 3,50,000/­ as against Rs. 1,46,78,090/­ made by the Assessing Officer u/s 14A r.w. Rule 8D without appreciating the fact that for invoking disallowance u/s 14A, it is not material that the assessee should have earned such exempt income during the financial year under consideration as per CBDT circular No.5/2014 dated 11.02.2014? Thus, the disallowance made under Section 14A was an issue which the Revenue has projected before us. From the record it appears that the assessee's appeal for the Assessment Year 2008­09 is dismissed, and the assessee's appeal for the Assessment Year 2007­08 and the Revenue's appeal for the Assessment Year 2008­09 were partly allowed. 8. T....
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....unt of Rs. 1,45,52,785/disallowed by the Assessing Officer. Aggrieved, both sides went in appeal to the Tribunal. 13. Mr. Suresh Kumar would submit that the reasons from paras 8 to 8.2 of the Tribunal's order are totally vitiated by non­-application of mind. The Assessing Officer was right for once he was satisfied in terms of Section 14A that having regard to the accounts of the assessee, the claim of the assessee in respect of expenditure incurred in relation to income not includible in total income under the Act was not justified, then, he was obliged to go to Rule 8D and in the submission of Mr. Suresh Kumar, Rule 8D {sub-­rule (2)(iii)} would have to be invoked and applied in this case. On facts, in terms of this sub-­rule, an amount equal to one­half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year, shall be the expenditure in relation to income which does not form part of the total income. Thus, according to Mr. Suresh Kumar, Rule 8D(2), sub-­rule (iii) would enable the Ass....
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....ar, has agreed with the appellant's working of disallowance of Rs. 1,25,66,793/­ instead of the Assessing Officer's disallowance of Rs. 1,45,52,785/­. That is how the Commissioner only partly allowed the assessee's appeal. 17. However, the Tribunal found and rightly that the assessee has allotted the expenses but in relation to investments made in various schemes of Reliance Mutual Fund. The assessee made investments and of the figure set out in para 8 of the Tribunal's order. Thus, out of aggregate investments of Rs. 68.25 crores, the investments made in other companies were only Rupees Eight Crores. The remaining investments are mainly in various schemes of Reliance Mutual Fund only and also in other group concerns. Once there is no dispute that the investments made in the various schemes of Reliance Mutual Fund and also in other group concerns are usually made out of business policy, then, bearing in mind the Investment Schedule provided in the Balance Sheet, the Tribunal should have, in fact, deleted the entire disallowance as worked out. However, even if the Tribunal has restricted the disallowance to be made under Section 14A to Rs. 3,50,000/­, it....
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.... any fault with this conclusion of the First Appellate Authority based as it is on the language of sub­section (2) of Section 14A of the Act, reproduced above. The Commissioner was aware that the assessee is acting as an Asset Management Company of Reliance Mutual Fund. Its principal business is of managing the mutual fund schemes of Reliance Mutual Fund. As Investment Manager, the assessee has earned management and advisory fees. The assessee has invested its own surplus fund in various investments and earned income thereon which included exempt dividend income and exempt capital gains. Once the main activity is of Investment Manager and the expenses are primarily in relation to this activity, the assessee invested the surplus funds into various securities which has given them exempt income. The Tribunal has found that the total investments made are of Rs. 70.62 crores as on 1­-4-­2007 and which has come down to 68.26 crores as on 31­3­2008. The investment is mainly made by the assessee in various schemes of Reliance Mutual Fund and its subsidiaries. There should not be any dispute that the investments made in the various schemes of Reliance Mutual Fund and als....