TaxTMI 
TaxTMI 
2018 (2) TMI 2015
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.... Act, 1961 (hereinafter referred to as the "Act‟). 2. Ground No.1 raised by the Assessee relates to disallowance under section 14A read with Rule 8D(2)(iii) at Rs. 6,36,960/-. 2.1 The brief facts apropos this issue are that while making assessment u/s 143(3) of the Act, the Assessing Officer noticed that the assessee has earned a dividend income of Rs. 14,79,630/- in the assessment year under consideration. At the same time, the assessee has claimed interest expenses of Rs. 29,09,739/-. The assessee has shown non-current investments at Rs. 8,38,68,940/- and investments of Rs. 19,57,15,948/- in its balance sheet as on 31.03.2012. During the assessment proceedings, the assessee was asked to justify its claim of vario....
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....idend income without its existence and management, therefore, some expenses must have incurred by the assessee, in order to take the investments decisions. Therefore, CIT(A) held that the AO had correctly applied Rule 8D(2) (iii) and worked disallowance u/s 14A of the Act to the tune of Rs. 6,36,960/- 2.3 Not being satisfied with the order of the ld. CIT(A), the assessee is in further appeal before us. The ld. Counsel for the assessee submitted before us that assessee-company has not incurred any expenses in relation to earning of exempt income. The counsel pointed out that a financial advisor was appointed by the mutual fund and the said financial advisor is paid commission by the mutual fund directly therefore, company is not incurring....
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....ital Protection Oriented Fund 30,00,000 Series 1 - Growth 3 Birla Sun Life Monthly Income - Growth 41,76,261 4 DWS Short Maturity Fund - Growth Plan 40,00,000 5 HDFC Cash Management Fund - Treasury Advantage Retail Growth 1,50,49,917 Reliance Regular Savings Fund Debt Plan - Growth Fund 30,69,004 Total(B) 4,43,45,600 Total Mutual Funds (A+B) 5,90,67,943/- Details of Mutual Funds as on 31st March 2012 - Closing Investments Sl. No. Particulars Amount (Rs.) A Funds generating Exempt Income i. Equity Oriented Mutual Funds 1 Birla Sunlife Dividend Yield Plus - Growth 63,00,000 2 ....
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....nt, if any disallowance is to be made under Rule 8D(2)(iii), then it should be in relation to funds generating exempt income. Based on the funds generating exempt income, the counsel submitted before us that the disallowance u/s 14A r.w.r 8D(2)(iii) vis-à-vis the disallowance made by the AO in his assessment order are analyzed and compared, which aregiven below: Disallowance u/s.14A SN Particulars As per Assessing Officer As per Appellant Amount (Rs.) Amount (Rs.) Amount (Rs.) Amount (Rs.) i. Rule 8D(i) - Direct Expenses - - ii. Rule 8D(ii) - Interest expenses - - iii. Rule 8D(iii) - administrative expenses ....
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....nce u/s 14A r.w.r8D(2)(iii) should be in relation to funds generating exempt income only. In respect of provisions of Rule 8D(2)(iii), which is the subject matter of the appeal in the assessee‟s case under consideration, a perusal of the said provision shows that what is disallowable under Rule 8D(2)(iii) is the amount equal to ½% of the average value of investment, the income from which does not and shall not form part of the total income. Thus, under Rule 8D(2)(iii) what is disallowable is ½% of the dividend bearing securities or funds generating exempt income. Therefore, not all investments become the subject matter of consideration while computing disallowance u/s 14A r.w Rule 8D(2)(iii). The disallowance u/s 14A r.w....
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....ed. However, we do not accept the plea of the assessee that commission of financial advisor was paid by the Mutual Fund directly therefore no any expenses have been incurred by the company to maintain the investment portfolio. Ultimately, the directors of the company or top management instructs the financial advisor, about how much investment is to be done, how much is to be sold or retained. Considering the ratio of above cited judgmentsof coordinate Bench of ITAT Kolkata and Hon'ble Kolkata High Court (supra),we restore the present issue to the file of the assessing officer for computation of disallowance u/s 14A r.w. Rule 8D(2)(iii) and we direct the assessing officer to consider only funds generating exempt income to co....