TMI Blog2015 (8) TMI 1516X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be denied that these are the expenses which have been perceived while drafting clause (iii) of Rule 8D. In such circumstances, the part of the expenses being in the nature of PMS expenses, which the assessee itself has disallowed, it is pertinent to give credit of the same to the assessee under the same clause. Credit of suomoto disallowance made by assessee on account of PMS expenditure incurred by it is to be allowed to it. AO is directed to reduce the amount of PMS expenses from the disallowance computed by him under Rule 8D(2)(iii). - ITA No.477/Chd/2015 - - - Dated:- 14-8-2015 - SHRI H.L. KARWA, HON BLE VICE PRESIDENT For the Appellant : Shri. Subhash Aggarwal For the Respondent : Mrs. Rajinder Kaur ORDER PER H.L.KARWA, VP This is an appeal filed by the assessee against the order of the CIT(A)-2, Ludhiana dt. 27/03/2015. 2. The brief facts of the case are that the assessee is running a software development unit. It had shown investments of ₹ 6,28,46,044/- and ₹ 5,28,71,243/- as on 31/03/2008 and 31/03/2009 respectively. The AO noted that the assessee had incurred interest expenses of ₹ 75,010/- and portfolio managemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)(iii), . The CIT(A) held as under: 4.7 As regards the disallowance made under Rule 8D(2)(iii) the appellant has contended that it had itself disallowed ₹ 1,81,677/- being portfolio management expenses. The appellant contented that credit of this disallowance may be given out of disallowance made by the AO. As discussed above, the disallowance of ₹ 1,81,677/- being portfolio management expenses is to be made under Rule 8D(2)(i) being the direct expenses and therefore no credit for this disallowance can be given while computing disallowance under Rule 8D(2)(iii). As regards the appellant s contention that the computation of disallowance under Rule 8D(2)(iii) is not correct, the AO is directed to verify the facts and recomputed the disallowance under Rule 8D(2)(iii) by taking the value of investment pertaining to only those investments, income from which is not taxable. This ground of appeal is accordingly partly allowed. This way CIT(A) partly allowed the appeal of the assessee on this ground. Now, the assesee has came in appeal before me, raising the following grounds of appeal. 1. That the learned CIT(A)-II has erred in confirming the disallowance of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention to the finding given by the CIT(A) at page 6 para 4.4 which reads as under: 4.4 I have carefully considered the appellant s submissions. The appellant has himself submitted that it had disallowed ₹ 1,81,677/- u/s 14A being portfolio management expenses. Thus the appellant has itself admitted that expenses were incurred in relation to exempt income. However, the appellant has disallowed only direct expenses. No amount of administrative expenses has been disallowed. Making investments, continuing with Portfolio managers, selecting portfolio managers and deciding about the amount of investments and period of investments involve decision making process at managerial level and therefore involve administrative costs. As the appellant has not disallowed any administrative expenditure, the disallowance made by the appellant is not correct and therefore the provisions of Section 14A were applicable in this case. In this way it was argued that the PMS expenses being directly relatable to the tax free income yielding investments the benefit of same having been imputed in Rule 8D(2)(i) , no further benefit of the same under Rule 8D(2)(iii) should be given. 9. I have hear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emand the matter to the AO for a fresh decision as per law. Since arguments at length were made on the merits of the case also, therefore, I proceed to decide the merits of case in succeeding paragraphs. 14. Ld. AR also raised the issue that while making computation under Rule 8D(2)(iii) the AO has taken the total value of investments both at the opening and closing of the year, while it should be the total value of tax free income yielding investments only. I see that even the CIT(A) has agreed with the said contention of the assessee and had given the A.O. a direction to do the same. The findings are given at page 7 para 4.7 last sentence of the CIT(A) s order in the following words: The AO is directed to verify the facts and recompute the disallowance under Rule 8D(2)(iii) by taking the value of investment pertaining to only those investments, income from which is not taxable. 15. Shri Subhash Aggarwal , Ld. Counsel for the assessee submitted that the direction given by the Ld. CIT(A) are not proper and correct in law. According to the Ld. Counsel for the assessee the AO may be directed that while working out the disallowance under Rule 8D(2)(iii), it is only the inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drafting clause (iii) of Rule 8D. In such circumstances, the part of the expenses being in the nature of PMS expenses, which the assessee itself has disallowed, it is pertinent to give credit of the same to the assessee under the same clause. The reliance, in this regard, placed by the AR on the order of the Bangalore Bench of the ITAT in the case of M/s ICICI Venture Funds Management (supra), is not out of place, where, in a similar circumstances the ITAT held as under: 10. As regards the disallowance of the general administrative expenses under rule 8D (2)(iii) the AO has computed the disallowance being 0.5% of the average investments. It is not disputed that the assesse has received dividend income on which the expenditure incurred by various venture capital funds has already been disallowed and the amount received by the assessee is net amount. Therefore, for the purpose of disallowance u/s 14A expenditure already disallowed from the dividend income prior ot the allocation to the assessee is required to be taken into account. In the facts and circumstances of the case, we direct the AO to re-compute the disallowance by reducing the amount of expenditure already disallowe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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