TMI Blog2018 (1) TMI 1497X X X X Extracts X X X X X X X X Extracts X X X X ..... :- 8-1-2018 - Sri Mahavir Singh And Sri G. Manjunatha, JJ. Assessee by: JD Mistri, AR Revenue by: TA Khan, DR ORDER Mahavir Singh, This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-58, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-58/Arr.166/2014-15 dated 20.01.2016. Assessment was framed by the Income Tax Officer, Circle (3), Mumbai (in short DCIT) for the assessment year 2010-11 vide order dated 09-04-2014 under section 143(3) of the Income Tax Act, 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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worked out disallowance under rule 8D (2)(iii) i.e. 0.5% of an average value of investment of ₹ 63,10,672/-. The assessee himself has worked out disallowance of administrative expenses allocated for earning of exempt income at ₹ 5,00,000/-. According to AO, the allocation of administrative expenses of ₹ 5,00,000/- is not correct and according to him this figure is disproportionate to the dividend income earned by assessee and moreover there is no logic or basis provided by assessee. Accordingly, he disallowed by invoking the Rule 8D(2)(iii) of the rules. Aggrieved, assessee preferred the appeal before CIT(A), who directed the AO to exclude the strategic investment made by company for the purpose of disallowing expense rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the preceding years, the ITAT held that no administrative expenses could be attributed in the year under reference. Respectfully following the decisions of Hon ble ITAT, the AO is directed to exclude the above amount while computing the disallowance under Rule 8D (iii) of the IT Rules. Aggrieved, now assessee is in appeal before Tribunal. 4. Before us, the learned Counsel for the assessee took us through the Schedule 14 of other income wherein dividend income is reflected at ₹ 5,05,14,710/-. He further took us through Schedule 5 of investment i.e. long term investment and current investment and argued that the strategic investment from where no income is earned should be excluded, this he argued first. Secondly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. (2010) 328 ITR 81 (Bom), wherein it is also held as under: - (viii) As regards rule 8D(2)(iii) since investments and the income that they realize will not usually require direct administrative or management expenses, and since these are usually accounted for in common with all the other businesses of the assessee, logic requires that some mechanism or formula be adopted for attributing part of the administrative/managerial expenses to the tax exempt investment income. It is common knowledge that under the Portfolio Management Scheme portfolio managers charge about 2 to 2.5 per cent of the portfolio value as a fee. The profit element of such fee usually does not excee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare Stock Brokers (P.) Ltd.'s case (supra)]. So understood, even indirect expenses may have a proximate cause to the exempt income, and the same must hence be disallowed. For example, if the staff employed in an office partake in both manufacturing and dividend business, that proportion of the staff (indirect) expenses incurred in relation to the dividend business will be disallowed. However, if the assessee does not maintain separate accounts, it would be necessary for the Assessing Officer to determine the proportion of expenditure incurred in relation to the dividend business (i.e.,earning exempt income). It is for exactly such situations that a machinery/method for computing the proportion of expenditure incurred in relation to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e conclusion that he is not satisfied with the claim of the assessee; 6. When these facts were confronted, the learned Sr. Departmental Representative could not show us as to how the AO has recorded the satisfaction and how the claim of assessee regarding expenses relatable to exempt income amounting to ₹ 5,00,000/- is not correct, he could not answer. 7. In view of the above facts and circumstances, we are of the view that the AO has not recorded any satisfaction while disbelieving the claim of the assessee regarding expenses relatable to exempt income. Once this is not been done, no disallowance can be made, in view of the proposition of law settled by Hon ble Bombay High Court in the case of Godrej Boyce Mf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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