2016 (11) TMI 1527

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... es to make investment in shares directly. In the case of a mutual funds, administrative and managerial expenses are factored in the investments itself. In such a scenario, the explanation offered by the assessee of no expenditure incurred appears to be in congruity with the market practice. Accordingly, we do not find it a fit case for resorting to double disallowance of the similar expenditure in the garb of Rule 8D(iii) of the IT Rules. A bare reading of section 14A suggests that its applicability is not automatic. It is hedged by conditions prescribed therein. Section 14A inheres in it the concept of reasonableness. The formidable amount of expenditure as computed by the AO cannot be said to be attributable to tax-free income by applying .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... h is allowable for proportionate disallowance under section 14A of the Act. The AO further observed that the assessee must have also incurred administrative expenses such as documentations, salary to the employees, handling the investment portfolio and other administrative over-heads. Like, stationery, telephone, computer office equipments, vehicles, etc. every year a part of which can be attributable to the investment portfolio. 4. He accordingly, applied Rule 8D of the IT Rules, 1962 and resorted to disallowance of ₹ 27,857/- under Rule 8D(2)(ii) and ₹ 1,36,166/- under Rule 8D(2)(iii). Thus, the aggregate disallowance under Rule 8D was worked out to ₹ 1,64,063/-. 5. The CIT(A) confirmed the action of the AO in first ap .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... tment is supported by the balance-sheet filed by the assessee. There is no rebuttal from the Revenue in this regard. In view of the long line of judicial precedents on the issue, we find merit in the contention of the assessee that proportionate disallowance of expenditure under Rule 8D(2)(ii) is not justified where the interest-free own capital together with reserves exceeds the corresponding investment. With reference to the disallowance made by the AO under Rule 8D2(iii) agitated by the assessee, we notice the averments made on behalf of the assessee that in tax-free income by way of dividend arises entirely out of mutual funds which are one time single investments without any proactive involvement of the management per se. The surplus f .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X