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TMI Blog2012 (7) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Counsel for the assessee and the Ld. Sr. DR. For this purpose the facts and the ground for assessment Year 2005-06 have been taken to be illustrative for all the three years. Accordingly we take up these three years at the first instance. 2. The common ground taken by the assessee for all these three years is that the Ld. CIT(A) erred in holding that the AO has fairly estimated the expenditure incurred in earning the exempt income at Rs. 7,16,753/-, being 10% of the income. 3. Briefly speaking, the facts are that the assessee had shown dividend income of about Rs. 71.68 lacs, which is not be included in the total income by dint of provision contained in section 10 (35). In the first round of litigation, the Tribunal had inter-alia held that in view of the decision of Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT (2010) 194 Taxman 203, Rule 8D could not have been pressed into service as it comes into operation from assessment year 2008-09. However, even in absence of the rule, the AO is bound to determine the amount of expenditure which has been incurred in relation to income which does not form part of the total income. For doing so, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he administrative expenses incurred by the assessee are not amenable to proper allocation in view of the position of the maintenance of accounts. It has been held that the AO, under the circumstances, was duty bound to determine the expenditure incurred in relation to earning the dividend income. The assessee has failed to prove that no expenditure has been incured in this respect. An alternative plea was also raised that an estimated sum of Rs. 50,000/- may be disallowed from general administrative expenses and staff and personnel expenses. In this connection, it is mentioned that similar submissions were made in earlier years but were retracted subsequently. Finally, he came to the conclusion that the disallowance made by the AO was fair and proper. 4.1 Aggrieved by this order the assessee is in appeal before us. 5. Before us, the Ld. Counsel for the assessee furnished brief history of the litigation in this case that the AO had applied Rule 8 D for determining the expenditure incurred in relation to earning of the dividend income. This order was set aside by the Tribunal to determine fair and reasonable amount as Rule 8 D is not applicable for these years. In the present order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of units of two mutual funds. Fresh investments have been made in units of 20 mutual funds. The total of the investments at the beginning of the year amounts to Rs. 8.68 crore and Rs. 13.04 crore at the end of the year. These figures will show that substantial activity has taken place in purchase / subscription, and sale / redemption of the units. Therefore, it will be naïve to accept that such activities have been undertaken merely at the advice of the bank and without any substantial participation of the managerial personnel in this behalf . The assessee has simply assereted that no expenditure has been incurred in respect of management of the portfolio in earning exempt income therefrom. In this connection we may recapitulate the findings of the Jurisdictional High Court in the case of Maxopp Investment Ltd., which are contained inn paragraph No. 42, in which it has been held that the AO is required to determine the expenditure on apportionment thereof on a reasonable and acceptable method. For the sake of ready reference these findings are reproduced below :- "So, even for the pre-Rule 8D period, whenever the issue of section 14A arises before an Assessing Officer, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive churning of the portfolio. Looking to similarity of facts, the order for assessment year 2005-06 is made applicable to these years also. 8. There are cross appeals for assessment year 2009-10. The ground taken by the assessee is same as in earlier years that the Ld. CIT(A) erred in holding that AO has fairly estimated the expenditure incurred for earning exempt income at 10%. The ground of appeal taken by the revenue is that the Ld. CIT(A) erred in deleting the addition of Rs. 9,69,977/- made by the AO u/s 14A of the Act. 9. Briefly the facts are that the assessee earned dividend income of Rs. 5,73,806/- and long-term capital gain of Rs. 308279/-. Both these incomes are excluded from the total income u/s 10. The assessee disallowed a sum of Rs. 50,000/- under Rule 8D. This working was not accepted by the AO. He worked out the disallowance of Rs. 10,19,977/-. Since the assessee had suo motu disallowed a sum of Rs. 50,000/-, therefore, further disallowance of Rs. 969977/- was made. 10. The matter was agitated before the Ld. CIT(A). It was submitted that no expenditure has been incurred in earning the exempt income. The Ld. CIT(A) considered the facts of the case and sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain. Accordingly, it is argued that the amount of addition sustained by the Ld. CIT(A) may also be deleted. 11.1. In the rejoinder reply, the Ld. Sr. DR submitted that the Ld. CIT(A) has taken a general view in disregard of provision contained in Rule 8D, which is binding on him. 12. We have considered the facts of the case and submissions made before us. We have also perused schedule 5 regarding investments. It is seen that the investments at the beginning of the year stood at about Rs. 14.65 crores, which were reduced to about Rs. 13.01 crores at the end of the year. The assessee has earned dividend income and capital gain, which are tax-free incomes as mentioned earlier. Therefore, these incomes have not been included in the total income. The Ld. CIT(A) has given a finding that no fresh investment has been made in this year. However, the fact remains that some investments have been liquidated. In any case looking to the large portfolio it can be said that managerial personnel have devoted time for taking decision that most of the units may be continued to be held during the year, and some units may be liquidated. We have already given a finding in earlier years that it will b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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