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2016 (11) TMI 1527 - AT - Income TaxDisallowance made u/s 14A by applying Rule 8D on mutual funds investment - Held that:- We take cognizance of the argument on behalf of the assessee that mutual funds investment bears different traits and is a different species of investment. The mutual funds are supervised by the experts in the field and management charges for such supervision is recovered from the clients. This being so, an investor in the mutual fund separately pays administrative and managerial expenses unlike a case where assessee chooses to make investment in shares directly. In the case of a mutual funds, administrative and managerial expenses are factored in the investments itself. In such a scenario, the explanation offered by the assessee of no expenditure incurred appears to be in congruity with the market practice. Accordingly, we do not find it a fit case for resorting to double disallowance of the similar expenditure in the garb of Rule 8D(iii) of the IT Rules. A bare reading of section 14A suggests that its applicability is not automatic. It is hedged by conditions prescribed therein. Section 14A inheres in it the concept of reasonableness. The formidable amount of expenditure as computed by the AO cannot be said to be attributable to tax-free income by applying a straight jacket formula as per Rule 8D(2)(iii) of the IT Rules in the given facts. Thus, we find considerable merit in the plea of the assessee. Hence, we are disposed to adjudicate the issue in favour of the assessee.
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