TMI Blog2013 (11) TMI 1633X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of ₹ 6,666/- in the computation of total income. The expenditure estimated by the appellant appears to be highly inadequate. Appellant has to incur various direct and indirect expenses in as much as the efforts of the employees go in tracking the mutual fund and other investments, purchase and sale of mutual funds and other assets, deposit of the dividend warrants, portfolio management etc. Considering the facts and circumstances of the case and judicial precedents discussed in preceding paras, a sum of ₹ 50,000/- is considered as reasonable expenditure to earn the exempt income. Accordingly, the disallowance is restricted to ₹ 50,000/-. This ground is partly allowed - ITA No. 305/Mds/2013 - - - Dated:- 7-11-2013 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interest expenditure incurred and the exempt income earned during the year. Therefore, there is no justification in disallowing ₹ 58,64,016/- under section 14A read with Rule 8D. The Commissioner of Income Tax (Appeals) considering the submissions of the assessee restricted the disallowance to ₹ 50,000/- under section 14A of the Act against which the Revenue is in appeal before us. 3. The Departmental Representative supports the order of the Assessing Officer . 4. The counsel for the assessee supports the order of the Commissioner of Income Tax (Appeals) and also places reliance on the decision of the co-ordinate Bench of this Tribunal in the case of Shiva Distilleries in ITA No.2125/Mds/2012 dated 26.8.2013 in support o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this investment was made in the year 2003-04, there was no fresh investment in the relevant assessment year in this company from which dividend was. received. Appellant has given break-up of interest expenditure of ₹ 1,13,15,453/-, from the details reproduced in para 4.1.3 (supra), it is noted that no part of interest expenditure can be attributed to any borrowing which was utilised for making investments which could generate exempt income. From the above discussion, the following points emerge: 1. The appellant did .not make any fresh investment during the year which could generate exempt income in forthcoming years. 2. The exempt income of ₹ 3,33,320/- earned by the appellant during the year comprised of dividend receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs Hero Cycles Ltd (2010) (323 ITR 518) has held that for the purpose of disallowance under section 14A of the Act, expenses must have been incurred for the purpose of earning exempt income. The mere fact that some interest expenses were incurred cannot be the reason for disallowance unless the nexus between the expense and the exempt income is established. It is held in the case of Godrej and Boyce Mfg Co. Ltd vs. DC IT (194 Taxman 203) High Court of Bombay) Sub-section (2) of section 14A does not enable the AO to apply the method prescribed by rule 8D without determining in the first instance the correctness of the claim of the assessee, having regard to the accounts of the assessee. Sub-section (2) of section 14A mandates that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s dividend income during the year is ₹ 3,33,320/- and appellant estimated an expenditure of 2% of dividend income as related to exempt income and disallowed an amount of ₹ 6,666/- in the computation of total income. The expenditure estimated by the appellant appears to be highly inadequate. Appellant has to incur various direct and indirect expenses in as much as the efforts of the employees go in tracking the mutual fund and other investments, purchase and sale of mutual funds and other assets, deposit of the dividend warrants, portfolio management etc. Considering the facts and circumstances of the case and judicial precedents discussed in preceding paras, a sum of ₹ 50,000/- is considered as reasonable expenditure t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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