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2014 (1) TMI 868 - AT - Income TaxDisallowance of expenses u/s 14A of the Act r.w Rule 8D of the Rules - Held that:- The Rule 8D of the Rules is not applicable to the assessment years i.e; AY 2006-07 as well as AY 2007-08 as Rule 8D is applicable with effect from assessment year 2008-09 and onwards as per the decision of the in the case of Godrej & Boyce Mfg Co Ltd Vs DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT]. The assessee has not made any disallowance on account of direct as well as indirect expenses on account of the investment made in the various mutual funds - The assessee has earned dividend income on the investments which is exempt under the provisions of the Act - the AO has to record his objective satisfaction that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditures in relation to income which does not form part of the total income of the assessee under the Act before he proceeds to make disallowance u/s 14A of the Act. For the purpose of making the investments in the various mutual funds and to keep a track of the dividend income received from them and also to manage the investments, the assessee needs not only an expert professional advise but to incur indirect and direct cost - The ld. CIT(A) has rightly stated that normally in managing similar schemes undertaken by Portfolio Managers, the total expenses charged by such Portfolio Managers are in the range of 2 to 3% which also includes their profit element of 1 to 1 ½% - it will be fair and reasonable to consider the indirect/direct cost in relation thereto on an adhoc basis of Rs.1,50,000/- as against Rs.2,64,521/- considered by the CIT(A). The estimate of Rs.1,50,000 has been considered keeping in view the facts that the assessee has to use the services of its employees to maintain proper record of the investment, the receipt of dividend income from the mutual funds in the bank account, to follow up with the mutual funds where the assessee has made investment and also the other administrative expenses indirectly the assessee has to incur with regard to the said investments - the disallowance restricted on adhoc basis of Rs.1,50,000 u/s 14A of the Act relating to the assessment year 2006-07 – Decided partly in favour of Assessee.
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