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TMI Blog2014 (1) TMI 1622X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of ₹ 1,50,000 paid to the accountant can be termed as indirectly related to exempted income. Other administrative expenses consisted of director's remuneration, paid to Shri Rakesh Agarwal and Shri Rajesh Agarwal who were looking after local sales of marble and granites. Therefore, salary paid to the directors were related to marble and granite manufacturing activities. Motor car expenses incurred by the assessee were directly related to marble and granite manufacturing activities. Out of the telephone expenses of ₹ 3,46,117, ₹ 20,051 related to telephone expenses of Shri Rajesh Agarwal, which could be termed as indirectly related to the exempted income. The assessee has also incurred expenditure on payment of rent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer observed that management expenses were incurred in relation to exempt income, accordingly he proportionately made disallowance under section 14A. A plain reading of provisions of section 14A read with rule 8D, it emerges that an expenditure which is incurred in relation to exempt income, shall not be allowed as deduction. The expenditure in relation to exempted income is required to be computed in accordance with the prescribed method as per rule 8D, when the Assessing Officer is not satisfied about the correctness of the assessee's claim having regard to accounts. Rule 8D(1) clearly provides that sub-rule (2) shall be applicable only in the event of when the Assessing Officer is not satisfied, having regard to its accounts, about t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same. 'The said rule 8D also makes it clear that where the Assessing Officer having regard to the accounts of the assessee of a previous year, is not satisfied with (a) the correctness of the claim of expendi ture made by the assessee ; or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act for such previous year, the Assessing Officer shall determine the amount of the expenditure in relation to such income in accordance with the provisions of sub-rule (2) of rule 8D. Rule 8D(1) places ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utside the purview of section 14A. Selling and distribution expenses at Mumbai office were directly incurred in relation to sale of marble and granite and, therefore, they were not at all related to investment activity of the assessee. Employees remuneration incurred at Mumbai office consisted of salary to sales personnel engaged in local sales of marble and granites. However out of total remuneration of ₹ 11,25,000, we found that salary of ₹ 1,50,000 paid to the accountant can be termed as indirectly related to exempted income. Other administrative expenses consisted of director's remuneration, paid to Shri Rakesh Agarwal and Shri Rajesh Agarwal who were looking after local sales of marble and granites. Therefore, salary pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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