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TMI Blog2015 (11) TMI 1061X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 3,00,71,654/- was on the investments in Mutual Funds of group companies for strategic reasons and ₹ 50,00,000/- on the preference shares of subsidiary company. Both of these amounts have been received on the investments made ostensibly for strategic reasons. In our considered view, strategic investments are not made for the purpose of earning tax-free income. These should not be considered for making disallowance u/s 14A The remaining amount of dividend was received on the investment in equity shares, only for an amount of ₹ 19,90,000/-. Thus, viewed from this angle also, the disallowance made by the AO is not justified. In view of the aforesaid discussion and keeping in mind the facts and circumstances of the case, disallowance made by the AO is reduced to the amount of ₹ 7,64,949/-, as was voluntarily offered by the assessee. - Decided in favour of assessee in part - ITA No. 1863/Mum/2013 - - - Dated:- 7-10-2015 - Amit Shukla, JM And Ashwani Taneja, AM For the Appellant : Shri Vipsi T Patel (AR) For the Respondent :: Shri S S Kumaran (DR) ORDER Per Ashwani Taneja (Accountant Member) This appeal has been filed by the assessee again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment proceedings, the AO observed that the investments may require monitoring by senior professional in the company. The quantum involved in these investments is high and so is the amount of returns in the form of dividends. It was suggested by the AO that higher amount of disallowance was called for as per Rule 8D of section 14A. In response, the assessee submitted a working sheet showing that a maximum amount of ₹ 7.64 lakhs can be considered for making disallowance u/s.14A. But, the submissions of the Assessee were not accepted by the AO, and invoking the provisions of Rule 8D of section 14A, the disallowance of ₹ 1,79,85,122/- was made by the AO as expenditure incurred for earning of exempt income. 4. Being aggrieved, the assesse filed an appeal before the Ld. CIT(A), wherein it was submitted by the Assessee that the AO did not consider submissions of the assessee properly, and disallowance made u/s 14A was contrary to law and facts. But Ld. CIT(A) was not convinced with the arguments of the Assessee and confirming and endorsing the observations of the AO, disallowance made u/s 14A r.w. Rule 8D was confirmed by the Ld. CIT(A). 5. Before us, the Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 As regards dividend earned on investment in Preference Shares, there is no other expense incurred for earning this income. We get one cheque of dividend from our subsidiary company which is deposited into Bank A/c. As regards dividend earned on equity shares the same are directly deposited to our bank A/c by the respective companies without requiring anything to be done by us. As regards expenses for earning dividend on Mutual Fund investment, we submit as under: The surplus funds of the company are invested in units of high liquid dividend scheme of identified mutual fund scheme of the JM Financial Mutual Fund promoted by JM financial Group, so- that the funds are available at any point of time for any business requirements. The investments are made by issuing cheques in favour of the Funds and redemption is done by issuing a redemption slip. Redemption proceeds directly credited to our bank account without deduction of any charges. Monitoring this activity is relating to issuing cheques and checking of bank balances which is very in significant. In the Company, this function is handled by CFO, along with one junior assisstant, For estimate the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Net Overhead cost 85,317,396 % of overhead cost to compensation 19.41 6.1. The perusal of the above said details would show that the assessee has given an item wise, and detailed justification for the amount, liable to be disallowed, as per facts. On the other hand, Ld. AO in the assessment order has not given any reasoning or justification as to how and in what manner, keeping in view and having regard to the accounts of the assessee, voluntary disallowance offered by the assessee was incorrect. No justification has been recorded by the AO in the assessment order, on the basis of facts and figures, that some more expenses have to be disallowed, which have been incurred by the assessee for the purpose of earning exempt income. The AO has made merely general observations in the assessment order. Ld. Counsel has relied upon the judgment of Hon'ble Mumbai Bench in the case of Gravis Hospitality Ltd.,supra, on this issue. We find it appropriate to reproduce some relevant paras from this judgment: 10. We have heard the rival submissions and also perused the impug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with either the correctness of the claim made by the assessee or made a claim that no expenditure at all has been incurred for the purpose of earning the exempt income, then only he can resort to Rule 8-D. In the present case, we find that the A.O. has straight-away proceeded to apply Rule 8-D for the purpose of disallowance u/s 14A without satisfying or complying with the mandatory requirement of section 14A(2) or Rule 8-D(1). Once the A.O. has failed to comply the statutory requirement, then he cannot proceed to make the disallowance u/s 14A(1) and accordingly, the disallowance made by the A.O. and partly sustained by the ld. CIT(A) over and above the disallowance made by the assessee is deleted. In the result, ground No. 1 of the Department's appeal is dismissed, whereas the assessee's ground No.1 is treated as allowed. 6.2. Hon'ble Mumbai Bench has held that once all the details were made available along with entire accounts of the assessee, the AO was required to satisfy himself that having regard to the accounts of the assessee, claim of the assessee in respect of expenditure debited is not correct, and that there could have been certain other expenditures wh ..... 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