TMI Blog2014 (1) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... ds and to keep a track of the dividend income received from them and also to manage the investments, the assessee needs not only an expert professional advise but to incur indirect and direct cost - The ld. CIT(A) has rightly stated that normally in managing similar schemes undertaken by Portfolio Managers, the total expenses charged by such Portfolio Managers are in the range of 2 to 3% which also includes their profit element of 1 to 1 ½% - it will be fair and reasonable to consider the indirect/direct cost in relation thereto on an adhoc basis of Rs.1,50,000/- as against Rs.2,64,521/- considered by the CIT(A). The estimate of Rs.1,50,000 has been considered keeping in view the facts that the assessee has to use the services of its employees to maintain proper record of the investment, the receipt of dividend income from the mutual funds in the bank account, to follow up with the mutual funds where the assessee has made investment and also the other administrative expenses indirectly the assessee has to incur with regard to the said investments - the disallowance restricted on adhoc basis of Rs.1,50,000 u/s 14A of the Act relating to the assessment year 2006-07 – Decided partl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove, the AO worked out the disallowance under Section 14A of the Act read with Rule 8D of the Rules at Rs.2,64,521/- and disallowed it and added back the same to the total income of the assessee. Being aggrieved, assessee filed appeal before the ld. CIT(A). 4. On behalf of the assessee, it was contended that Rule 8D of the Rules has been introduced w.e.f.24.3.2008 and as per the decision of the Hon'ble Bombay High Court has held in the case of Godrej Boyce Mfg Co Ltd Vs DCIT (2010) 43 DTR (Bom) 177 = 328 ITR 81 (Bom), Rule 8D is applicable from the assessment year 2008-09 and it is not applicable to assessment year 2006-07. It was also contended that the assessee has invested its surplus funds in Kotak Liquid Institutional Weekly Dividend /Kotak Liquid (Institutional Premium) Weekly Dividend/Kotak Liquid Institutional Daily Dividend on which no expenditure has been incurred. It was contended that there are no expenses required to earn dividend income. That only 5.55 % of the cost of investment worked out, which comes to Rs.88,800/-, can be considered for disallowance u/s 14A of the Act. The ld. CIT(A) considered the submissions of the assessee. He has stated that as per the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the average investment of Rs.5,29,04,206/- at the rate of 0.5%, comes to Rs.2,64,521/- and accordingly confirmed the disallowance as made by the AO of Rs.2,64,521/-. Hence this appeal by the assessee before the Tribunal. 5. The ld. AR referred page 14 of the paper book which is a copy of letter dated 19.11.2008 filed before the AO and stated that the assessee stated therein that no expenditure was incurred for earning exempt income. The ld. AR submitted that the entire investment has been made in mutual funds and there is no borrowings for making the said investment. The ld. AR of the assessee submitted that the assessee vide its above letter worked out of its own disallowance which could be made u/s 14A of the Act at Rs.88,800/-, the details are given in the annexure enclosed to the said , copy placed at page 16 of the paper book and the same can be disallowed on account of administrative costs. The ld. AR submitted that the said disallowance was also offered without prejudice to the contention of the assessee that there is no finding by the AO with regard to the account of the assessee that he was not satisfied with the correctness of the claim of the assessee in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s offered by the assessee vide its letter dated 19.11.2008, a copy of which is placed at pages 14 to 16 of the paper book. 6. On the other hand, the ld. DR supported the order of the ld. CIT(A) and submitted that the accounts of the assessee are composite as observed by the ld. CIT(A). She further submitted that investment has been made by the assessee in various mutual funds and a professional is required to keep a track of working of the mutual funds as well as the account for the investment made in mutual funds. 7. The ld. DR submitted that considering the amount of investment made by the assessee in the various mutual funds, the disallowance of Rs.2,64,521/- on the average investment of Rs.5,29,04,206/- is reasonable on account of administrative cost even though no direct expenditure has been incurred by the assessee. She therefore, submitted that the disallowance made by the ld. CIT(A) should be confirmed. 8. We have carefully considered the submissions of the ld. Representatives of the parties and the orders of the authorities below. We have also considered the cases cited before us (supra). We agree with the ld. AR that the Rule 8D of the Rules is not applicable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, we are of the considered view that it will be fair and reasonable to consider the indirect/direct cost in relation thereto on an adhoc basis of Rs.1,50,000/- as against Rs.2,64,521/- considered by the ld. CIT(A). We may state that the said estimate of Rs.1,50,000/- has been considered keeping in view the facts that the assessee has to use the services of its employees to maintain proper record of the investment, the receipt of dividend income from the mutual funds in the bank account, to follow up with the mutual funds where the assessee has made investment and also the other administrative expenses indirectly the assessee has to incur with regard to the said investments. Hence, we restrict the disallowance on adhoc basis of Rs.1,50,000/- u/s 14A of the Act relating to the assessment year 2006-07 considering the facts of the case as against Rs.2,64,521/- made by the authorities below. Accordingly, ground of appeal taken by the assessee is allowed in part. 9. In respect of assessment year 2007-08, the disallowance has been made by the AO of Rs.4,42,994/- u/s 14A r.w.Rule 8D of the Rules but the ld. CIT(A) has confirmed the said disallowance of Rs.4,42,994/- by considering t ..... 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