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2018 (2) TMI 2015 - AT - Income TaxDisallowance u/s 14A r.w.r 8D(2)(iii) - HELD THAT:- Disallowance 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 - 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.Rule 8D(2)(iii) is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investments which has given rise to this income which does not form part of the total income. We note that as far as Rule 8D(2)(iii) of the Rules is concerned, it has been held in the case of DCIT vs REI Agro Ltd. [2013 (5) TMI 582 - ITAT KOLKATA] that it is only the investment which yielded tax free income that should be considered for working out the average value of investment while applying the Rule 8D(2)(iii) of the Rules. This order of the tribunal has been confirmed by the decision of Hon‟ble Calcutta High Court i. [2013 (12) TMI 1517 - CALCUTTA HIGH COURT] - In view of the aforesaid legal position we are of the view that the order of the CIT(A) on this issue cannot be sustained. Plea of the assessee to exclude funds which are not generating exempt income, that is, which had not yielded any exempt dividend income during the previous year while working out the average value of investments for the purpose of applying Rule 8D(2)(iii) of the Rules, should be accepted. 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. 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 compute the disallowance under Rule 8D(2)(iii) of the I.T.Rules. Addition of income under the head of “profit and gains of business or profession”, while computing the tax liability - HELD THAT:- AO while going through the income-tax computation form, has taken the amount of ₹ 7,15,07,112/- as “profit and gains of business or profession”. However, in the assessment order, the AO after making disallowance u/s 14A has correctly computed income under the head “profit and gains of business or profession” at ₹ 7,08,45,144/- - we note that anarithmetic error committed by the assessing officer to the tune of ₹ 25,008/- needs to be rectified. Therefore, we direct the AO to examine the figures and facts referred above and rectify the mistake as per provisions of law.
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