TaxTMI 
TaxTMI 
2021 (7) TMI 664
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.... 'the Act'). 2. The brief facts of the case are that the assessee company is engaged in the business of engineering & supply of grinding machinery for cement plants. The return of income was filed declaring an income of Rs. 8,87,97,510/- and the assessment u/s. 143(3) of the Act was completed at an income of Rs. 8,91,01,367/- after making a disallowance of Rs. 3,03,857/- u/s. 14A of the Act. While making the disallowance u/s. 14A of the Act, the Assessing Officer (AO) noted that the assessee has made investments in mutual funds at Rs. 3,47,28,114/- and had earned dividend income of Rs. 28,53,014/- during the year under consideration. The Assessing Officer further noted that the assessee has not made any suo moto disallowance u/s. 1....
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....ing in "Mutual Fund". 3. That the Learned Commissioner of Income Tax (Appeals) has grossly erred in not appreciating the fact that the provision of Rule 8D are not applicable to the facts and circumstances in the case of the Appellant as the assessee had not incurred any expenses for earning the exempt income which was purely from dividend income out of investment in Mutual Funds and no expenses had been incurred. 4. That the Learned Commissioner of Income Tax (Appeals) has grossly erred in not appreciating the fact that before any disallowance can be made under section 14A there should be nexus between the expenses debited and the exempted income and no ad hoc disallowance of any expense without nexus is allowed or permissible as per s....
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....dividend income, no disallowance could have been made u/s. 14A read with Rule 8D. A copy of the said order was placed on record. 4. Per contra, the Ld. Sr. Departmental Representative (DR) placed reliance on the order of the Lower Authorities. 5. We have heard the rival submissions and have also perused the material on record. We have gone through the findings of the Assessing Officer in this regard and it is seen that the Assessing Officer has only observed that the assessee's claim that it had not incurred any expenses in respect of management of investment affairs was not acceptable. The Assessing Officer has also observed that the earning of exempt income is not in nature of passive activity having no input. The relevant observati....
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....onnection to earn tax free income does not have any substance." 5.1. It was the assessee's submission before the Assessing Officer that the exempt income was only in the form of dividend from mutual funds and further that there was no buying and selling of such funds frequently or on regular basis and it was only on maturity of old funds that new investments were made. It was also the assessee's submission before the Assessing Officer that the assessee company had made investments in mutual funds on the basis of advisory services given by the Deutsche Bank investment advisors which was offered free of cost to all institutional buyers since they received a commission on the sale of mutual funds from the Mutual Fund Company. However,....
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....d by the operators and a certificate to that extent was submitted before the learner Assessing Officer. Further, the instructions are that the dividend income will be directly credited to the bank account of the assessee so that no probable expenditure at the end of the assessee for deposit of the dividend in bank could have occurred. Having regard to this set of facts and circumstances involved in this matter, we are of the considered opinion that instead of making a sweeping enumeration of the probable expenses involved in investment process, learned Assessing Officer could have taken legal exercise to verify the correctness or otherwise of the certificate that was issued by the asset management companies or the Citibank in this respect. ....
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....'ble Supreme Court observed as under: "37. We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to....