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TMI Blog2018 (1) TMI 1497X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961(hereinafter 'the Act'). 2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO disallowing expenses relatable to exempt income under Rule 8D (2)(iii) of the Income Tax Rules 1962 (hereinafter the 'Rules') read with section 14A of the Act. For this assessee has raised following ground: - "1. On the facts and in the circumstances of the case and in law, the Honorable Commissioner of Income Tax (Appeals) - 58 (hereinafter referred to as the "the CIT (A)) erred in confirming the action of the then Deputy Commissioner of Income Tax - Range 3(3), currently assessed to the Deputy Commissioner of Income Tax - Range 15(3)(1) Mumbai (hereinafter referred to as the "the learned DCIT) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appeal before CIT(A), who directed the AO to exclude the strategic investment made by company for the purpose of disallowing expense relatable to exempt income i.e. 0.5 % of average value of investment under rule 8D(2)(iii) and sustain the balance by observing in para 5.13 and 5.14 as under: - "5.13 However, the appellant has submitted that the following investments, totaling to Rs. 3,78,69,000 are non-current strategic investments made by the company which are not reviewed yearly and they have not been made for the purpose of earning dividend but are out of business expediency. The appellant has further claimed that these investments were not made during the year. The appellant has claimed that these should be excluded while computin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m where no income is earned should be excluded, this he argued first. Secondly, the learned Counsel for the assessee took us through the assessment order and stated that the assessee has worked out administrative expenses for earning of exempt income in the shape of salary of one person and the basis of allocation of Rs. 1000/- per transaction towards sale and purchase of mutual funds, which make the disallowance suo moto by assessee at Rs. 5,00,000/-. According to the learned Counsel, the AO has not recorded any satisfaction or has not given any basis for not accepting assessee disallowance. He simply stated that the suo moto disallowance by the assessee is not correct. According to the learned Counsel, in view of the decision of Hon'ble B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a fee. The profit element of such fee usually does not exceed 1 per cent of the portfolio value. As set out in detail in the affidavit in reply adopting 0.50 per cent of the average of the value of investments (income from which is tax exempt) is not unreasonable and results in identification of expenditure which has a direct and immediate connection with the tax exempt income; (ix) If a pro rata method was applied in the alternative to the aforesaid method provided in rule 8D(2)(iii) the amount of disallowance would be immense, as set out in the Chart tendered to the Court by the revenue. In the case of the appellant for the assessment year under consideration, on an expenditure of Rs. 189.77 crores (excluding direct expenditure and exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proportion of expenditure incurred in relation to the dividend business has been provided by way of section 14A(2)/(3) and rule 8D." 5. He also referred to clause (viii) and (ix) in Para 55 which reads as under: - "(viii) Sub-section (2) of section 14A does not enable the Assessing Officer 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 it is only when having regard to the accounts of the assessee, the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to income which does not form par ..... X X X X Extracts X X X X X X X X Extracts X X X X
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