TMI Blog2012 (7) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee - Assessing Officer is satisfied that there was an element of expenses involved in earning the exempt income and the assessee has not shown the same - matter remanded back to the file of the Assessing Officer for adjudicating the same afresh - appeal of the Assessee is allowed for statistical purposes - I.T.A. No.2087/Mds/2011 - - - Dated:- 25-5-2012 - SHRI N.S.SAINI, SHRI VIKAS AWASTHY, JJ. Appellant by : Shri Saroj Kumar Parida, Advocate Respondent by : Shri Shaji P. Jacob,Addl.C.I.T.DR O R D E R PER N.S.SAINI, ACCOUNTANT MEMBER: This is an appeal filed by the Assessee against the order of Commissioner of Income Tax(A)-III Chennai dated 29.11.11 for Assessment Year 2008-09. 2. The Assessee has taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is that the Commissioner of Income Tax(A) erred in confirming the disallowance of expenses of ₹ 26,69,572/-/- under Section 14A, alleged to be relatable to earning the dividend income, by applying Rule 8D. 4. The Commissioner of Income Tax(Appeals) has decided the issue by observing as under:- Grounds of Appeal: The assessee in its Grounds of Appeal objected to the Assessing Officer's action of disallowing an amount of Rs.26,69,572/- u/s.14A of the Act read with Rule-8D and also disallowance of interest payments of Rs.3,00,000/-. Decision: As could be seen from the records, the assessee is engaged in trading in shares and securities. The P L ale also revealed that the assessee during the Financial Year 2007-08 had invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance with the provisions of sub-rule ,(2). (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely :- (i) the amount of expenditure directly relating to income which does not form part of total income; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely :- A x B C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year; B = the average of value of investment, income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of Rule-8D. Further, as could be seen from the P L account, the assessee had several activities including investments in shares, mutual funds etc. Such investments as on 31.3.2008 are Rs.56,78,70,183.50 as against Rs.46,1l,14,939/- as on 31.03.2007. Thus, there is an increase in investments of more than Rs.10.50 crores during the financial year 2007 -08. For the purpose of making these investments, monitoring and managing them, disposing them and receiving the dividends etc, the same manpower, machinery and infrastructure and facilities of the assessee are being used. Hence, there is an element of expenditure involved in the process. This expenditure may not be direct. Further, the funds for some of these investments have come fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndirect common interest expenditure at step-2 of the formula. From this amount the Assessing Officer arrived at the net disallowance of Rs.97,109/- as per the calculations specified at step-2 of the formula. As regards to estimation of expenditure at step-3 of the formula i.e. @ 0.5% of the average investments, amounting to Rs.25,72,463/-, the assessee argued that the investments are only few items though the quantum involved is substantial. As the number of transactions are very few and the man power and the other facilities utilised in the process was very norma1, the expenses to be attributable in this activity is negligible. Therefore, the assessee stated that the Assessing Officer's estimation of expenses at Rs.25,72,463/- at step-3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses can be reasonably calculated @ 0.5% of the average investments made by the assessee. For this purpose, the legislature has arrived at a common formula to calculate the expenses @ 0.5% of the average investments made as per step-3 of the formula given in Rule-8D. Accordingly the legislature incorporated and introduced the Rule-8D. Thus, the Assessing Officer is satisfied that there was an element of expenses involved in earning the exempt income and the assessee has not shown the same (either in full or part). Hence, the Assessing Officer is duty bound to invoke the provisions of Rule-8D. Once the provisions of Rule-8D are invoked, the Assessing Officer has no option but to arrive at the expenses @ 0.5% as per step-3 of the formula w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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