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TMI Blog2016 (9) TMI 748X X X X Extracts X X X X X X X X Extracts X X X X ..... f the expenses incurred for earning the dividend income nor the AO worked out the expenses directly related to earn the said income. We, therefore, deem it appropriate to set aside this issue back to the file of the AO for adjudicating the same denovo by keeping in view this fact that the Provisions of Rule 8D are not applicable for the year under consideration and only disallowance can be made for the expenses which are directly related to earn the exempt income during the year relevant to the assessment year under consideration i.e. assessment year 2007-08, if there is any increase in the business profit after making the disallowance then the benefit of deduction u/s 10A of the Act if available in accordance with law to the assessee is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been incurred for earning exempt income and there should be clear and direct nexus with such exempt income and in concluding that some expenditure has been incurred by the appellant for earning the tax exempt dividend income on account of common administrative, managerial and infrastructural setup. 1.5 That on the facts and circumstances of the case and in law, the AO / DRP has erred in attributing and disallowing, under section 14A of the Act expenses @ 0.5 percent of the average value of the investments held by the appellant in an ad-hoc manner. 1.6 Without prejudice to the above grounds, that the AO / DRP has erred in not allocating the amount of disallowance under section 14A, proportionately over the units entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34) of the Act. The AO was of the view that the provisions of Section 14A of the Act were applicable in the case of the assessee. He, therefore, asked the assessee to explain as to why proportionate expenses should not be attributed towards such income/investment u/s 14A of the Act r.w.r. 8D of the Income Tax Rules, 1962. The assessee submitted as under: The company has earned a dividend income of ₹ 1,00,14,573/- from the investment in equity oriented units of mutual fund. The dividend income received was exempt from tax as per the provisions of section 10(34) of the Act and accordingly not included in computing the taxable income of the relevant previous year. The company did not incur any expenditure in connection with earnin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Managerial and infrastructural set up for earning income, which does not form part of total income under the Act. The company is incurring expenditure in quality manpower both administrative and managerial, which takes the crucial and complicated decisions regarding the investments, which have yielded exempt income. It is an act of decision-making and consultancy; it should not be seen in terms of actual physical efforts made in making investment and earning income, which does not form part of the total income. As such it is held that the expenditure in relation to income not includable in total income is inbuilt in the case of assessee and debited under various head of Profit and Loss account. 2.8 The assessee has not given any cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act were applicable and since the assessee did not show any expenses for earning the exempt income, the disallowance was rightly made by the AO. It was further submitted that the question regarding the recording of satisfaction by the AO does not arise because the assessee had not shown any expenses. 11. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the AO while making the disallowance invoked the provisions contained in Section 14A of the Act r.w.r. 8D of the Income Tax Rules, 1962, the provisions contained in Rule 8D are applicable w.e.f assessment year 2008-09. In other words, the provisions of Rules 8D are not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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