COMPUTER SCIENCES CORPORATION BUSINESS PROCESS SERVICES INDIA LTD. (FORMERLY KNOWN AS FORTUNE INFOTECH LTD.),VADODARA vs. THE ACIT, CIRCLE-1(1)(2), VADODARA

The solitary grievance of the assessee by way of its grounds of appeal is towards disallowance of Rs.22,36,435/- out of expenditure incurred in terms of Section 14A of the Act r.w. Rule 8D of the I.T. Rules.

Briefly stated, the assessee is engaged in business of IT enables services in the field of Health Care & Financial Services. In the course of scrutiny assessment, the AO observed that the assessee has earned dividend income of Rs.3,28,67,968/- during the year which was claimed as exempt from taxation. It was suo motu further noticed that assessee has disallowed Rs.1,06,654/- under s.14A of the Act as expenses on account of exempted income. The AO observed that there was no proper justification for making suo motu disallowance of Rs.1,06,654/- as against the disallowance of Rs.23,43,089/- worked out as per Rule 8D(2)(iii) for disallowance of general and administrative expenditure being 0.5% of the average value of investment. The estimation of expenses per transaction by the assessee at Rs.1,06,654/- was not found to be on sound basis. The AO accordingly disallowed the remaining amount of Rs.22,36,435/- under s.14A r.w. Rule 8D of the Rules and added the same to the total income of the assessee.

In the first appeal also the assessee could not get any relief from the CIT(A). The CIT(A) examined all factual aspects in great length and could not gather any merit in the plea of the assessee for lesser quantification of disallowance vis-à-vis the statutory formula provided for in this regard. The CIT(A) accordingly dismissed the appeal of the assessee.

Aggrieved, the assessee preferred appeal before the Tribunal.

We have heard rival submissions on the issue and perused the material referred to and relied upon in the course of hearing. The case was made out before us on behalf of the assessee that the computation of disallowance of Rs.1,06,654/- was made on the basis of time spent by various employees as detailed in page 32 of the paper book. We do not find any substance in the working shown by the assessee. The assessee has named some personnel in the lower hierarchy and shown hardly any time spent on maintenance of investments. The CIT(A) has examined the issue in perspective and found that the dividend income constitutes more than 20% of the total revenue of the assessee company and more than 65% of the profit earned by the assessee. Consequently, the revenue in form of dividend income is one of the most important source of earning of the assessee. The CIT(A) rightly observed that claim of the assessee that only a small part of the salaries paid to junior level staff is attributable to such large investment is clearly without any rational. On perusal of the financial statement filed by the assessee also, we observe that the investment in shares and mutual funds stands at Rs.51.01 crores as against the total own funds of Rs.56 Crore or so. Apparently, almost entire fund has found its way in the investment activity. It is difficult to appreciate the argument canvassed on behalf of the assessee that the Senior Management/Directors etc. have not played any role in such crucial venture. The statutory formula for estimation of expenditure squarely applied to the facts of the case. We find that CIT(A) has seen the issue in the context. There is no

In the result, appeal of the assessee is dismissed.