360 ONE INVESTMENT ADVISER AND TRUSTEE SERVICES LIMITED,LOWER PAREL WEST, MUMBAI vs. DCIT CIRCLE 6(1)(2), MUMBAI, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “C”, MUMBAI BEFORE SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND SHRI MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER ITA No.1684/Mum/2026 (Assessment year: 2017-18)

360 One Investment Adviser vs DCIT Circle 6(1)(2) and Trustee Services Limited Aayakar Bhavan, Mumbai – 360 One Centre Kamala City, 400020. Senapati Bapat Marg, Lower Parel West, Mumbai – 400013. PAN: AACCI5005Q APPELLANT RESPONDENT Assessee by : Shri Pritesh Mehta - CA Revenue by : Shri V.S. Mahajan (Sr.DR)

Date of hearing : 12/05/2026 Date of pronouncement : 26/05/2026 O R D E R Per: Anikesh Banerjee (JM): The instant appeal of the assessee filed against the order of the NFAC, Delhi [for brevity the “Ld. CIT(A)”], order passed under section 250 of the Income Tax Act 1961 (for brevity ‘the Act’) for Assessment Year 2017-18, date of order 29.01.2026. The impugned order emanated from the order of the Ld. Assistant

ITA NO. 1684/Mum/2026; 360 One Investment Adviser And Trustee Services Limited Commissioner of Income Tax Officer, Circle 6(3)(1), Mumbai order passed under section 143(3) date of order 13.12.2019. 2. The brief facts of the case are that the assessee filed the return by declaring income amount of Rs. 76,86,750/-. Subsequently, the case was selected for scrutiny under cash and notice u/s 143(2) was issued. In response to the notice, the assessee submitted that the assessee is engaged in business of acting of trustee, custodian, etc. of funds and trust. The main source of income of the assessee is trusteeship and advisory fees and in the main head of expenses of the assesse is salary. During the impugned assessment year the assessee earned the capital gain which is offered for taxation and also made the different expenses related to its income. The Ld. AO found that the assessee had not made any disallowance related to expenses for exempted income u/s 14A r.w. Rule 8D of the Income Tax Rules, 1962. So, the Ld. AO made the additional amount to Rs. 12,50,000/- by disallowing u/s 14A of the Act and disallowed the expenditure related to employees benefit expenses, travelling and conveyance expenses, manpower, outsource expenses, rent paid and software expenses. Finally, the addition was made related u/s 14A of the Act, Rs. 12,50,000/- and related to disallowance of expenses amount to Rs. 3,50,95,637/-. Aggrieved, the assessee filed a appeal before the Ld. CIT(A). The Ld. CIT(A) rejected the appeal of the assessee. Being aggrieved, the assessee filed an appeal before us. 3. The Ld. AR argued filed a paper book comprising pages 1 to 113 which has been placed on record. The Ld. AR made the ground-wise arguments which are as follow:

ITA NO. 1684/Mum/2026; 360 One Investment Adviser And Trustee Services Limited 4. Disallowance expenditure u/s 14A amount to Rs. 12,50,000/- The Ld. AR contended that the disallowance was made by the Ld. AO where the assessee had not earned any exempted income during the impugned assessment year. The assessee declared total income of Rs. 76,86,750/- and Audited the books of account u/s 44AB of the Act. The assessee earned capital gain income which has been offered to tax. The assessee invested in growth scheme of “IIFL Liquid Mutual Fund” from which the assessee earned capital gain which was offered to tax. Since the investment in growth scheme is not related to exempt income. So, considering the decision of Hon’ble Delhi High Court in case of Cheminvest Ltd. Vs. CIT reported at 378 ITR 333 (Del) where it was held that if there is no exempted income there cannot be disallowance u/s 14A. It has subsequently be followed by CIT v. Chettinad Logistics Pvt. Ltd. reported at 80 taxmann.com 221 (Mad). The Ld. AO mechanically applied the Rule 8D without recording any satisfaction viz a viz the assessee had not claimed any expenditure. 5. Considering the argument of the assessee, the Ld. CIT(A) had made his observations which is reproduced as below: “5.1.1. The primary contention of the Appellant is that in the absence of any exempt income earned during the year, no disallowance under section 14A can be made. The Appellant has relied on various judicial precedents to support this "no exempt income, no disallowance" theory. 5.1.2. However, I find that the Appellant’s interpretation of the law is narrow and fails to account for the operational reality of a financial services firm. Section 14A(1) clearly states that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income. The

ITA NO. 1684/Mum/2026; 360 One Investment Adviser And Trustee Services Limited "relation" mentioned here is with the activity of earning exempt income, not necessarily the receipt of it in a specific window of 12 months. 5.1.3. The Appellant's Balance Sheet reveals a massive churn in investments—purchases and sales exceeding Rs. 7,000 Crores each. To claim that such a high-volume treasury operation was managed without any human intervention, administrative support, or management oversight is logically fallacious. Even if the current investments are in "Growth Schemes," the decision-making process to invest in Growth vs. Dividend schemes itself involves management time and resources. 5.1.4. The AO has noted that the Appellant failed to provide a suo-moto disallowance for the indirect costs (like management salaries, office space, and communication) attributable to this massive investment portfolio. Therefore, the AO's "dissatisfaction" is clearly evident from the facts of the case. Once dissatisfaction is recorded, the application of Rule 8D is mandatory. I hold that the AO was correct in applying the formula-based disallowance to capture the management cost of the investment portfolio. The addition of Rs. 12,50,000/- is sustained.” 6. The Ld. DR argued and stands in favour of the order of the revenue authorities but had not able to submit any contrary judgment against the submission of the Ld. AR. 7. We heard the rival submission and considered the documents available in the record. The assessee had made the investment in the growth scheme and no dividend was duly earned during the impugned assessment year. The income was earned under the head capita gain which was duly offered for tax. There is no dispute in the facts of the case that the assessee had not earned any exempted income from the investment. So, we find that the observations made by the Hon’ble Delhi High Court in Cheminvest Ltd. (supra) & Hon’ble Madras High Court in Chettinad Logistics Pvt. Ltd.. The assessee is not liable to be disallowed 4

ITA NO. 1684/Mum/2026; 360 One Investment Adviser And Trustee Services Limited expenses u/s 14A of the Act. So, accordingly the addition made by the Ld. AO and sustained by the Ld. CIT(A) amount to Rs. 12,50,000/- is deleted. Accordingly, the ground taken by the assessee stands allowed. 8. Disallowance of expenses: The Ld. AR stated that without any basis the expenses are disallowed on employees benefit expenses, on travelling and manpower, on rent expenses, on software expenses. The assessee had submitted a comparative chart with details of turnover for F.Y. 2015-16, 2016-17, 2017-18, 2018-19. The said chart in tabular format is reproduced as below:

ITA NO. 1684/Mum/2026; 360 One Investment Adviser And Trustee Services Limited

2016-2017 (Year Under Particulars 2015-2016 Appeal) 2017-2018 2018-2019 Revenue Fees and commission Income 3,71,33,346 5,88,42,832 32,22,12,551 49,63,63,492 Other Income 1,42,32,388 4,04,36,441 5,75,01,444 3,65,01,156 Total Income 5,13,65,734 9,92,79,273 37,97,13,995 53,28,64,648 Expenses Finance Costs 74,63,190 71,96,602 69,57,116 44,88,943 Fees and commission expense 2,38,54,655 2,21,31,952 Impairment on financial instruments 2,40,366 24,24,279 Employee Benefits Expenses 2,07,01,098 5,62,94,524 15,14,47,120 19,76,49,698 Other expenses 1,54,87,637 2,92,25,801 5,48,20,688 6,27,00,120 Total Expenses 4,36,51,925 9,27,16,927 23,73,19,945 28,93,94,992 Profit / (loss) before tax 77,13,809 65,62,346 14,23,94,050 24,34,69,656 Year-on-year growth in Revenue 282.47% 40.33% Year-on-year growth in Net Profit 2069.87% 70.98% Year-on-year increase in Employee 169.03% 30.51% Benefit Expenses Year-on-year Increase in Travelling and Conveyance Expenses (forming part of 'Other Expenses' in the Profit and Loss Account) 44.63% 22.00% Year-on-year Increase in Manpower Outsource Expenses (forming part of 'Other Expenses' in the Profit and Loss Account) 39.70% -6.45% Travelling and Conveyance Expenses (forming part of 'Other Expenses' in the Profit and Loss Account) 23,94,414 84,97,807 1,22,90,566 1,49,94,412 Manpower Outsource Expenses (forming part of 'Other Expenses' in the Profit and Loss Account) - 67,24,618 93,94,224 87,88,702

ITA NO. 1684/Mum/2026; 360 One Investment Adviser And Trustee Services Limited 9. The Ld. AR contended that the assessee had submitted the argument before the Ld. CIT(A). The Ld. CIT(A) has taken note the argument of the assessee in impugned appellate order. The relevant part of the observations of Ld. CIT(A) is reproduced as below: “4.3. Submission on Employee Benefit Expenses: "The Appellant has made detailed submissions regarding the break-up of the various heads of employee costs along with details of TDS thereon. The employee cost includes salary, bonus, PF contribution, gratuity and leave encashment. These are statutory and contractual obligations. The AO has not pointed out a single instance where the payment was not made to an employee or was not for business. The AO has worked out the disallowance of Rs. 2,35,86,789/-, on ad hoc basis without any basis. This is purely on conjectures and surmises." 4.4. Submission on Travelling and Manpower: "The Appellant has incurred travelling and conveyance expenses of Rs. 84,97,807/-. The Appellant has provided detailed break- up of the various heads. Similarly, for manpower outsource expenses of Rs. 67,23,872/-, details were provided. The AO made a 20% ad-hoc disallowance. It is a settled law that ad-hoc disallowances are not permissible when books of accounts are audited and no specific defects are found. We rely on the case of Sayaji Iron and Engg. Co. vs. CIT (253 ITR 749)." 4.5. Submission on Rent and Shared Services: "During F.Y. 2016-2017, a sum of Rs. 52,81,166/- was allocated to the assessee as rent for use of premises, infrastructure and other facilities and services provided by the holding company of the assessee, IIFL Wealth Management Limited. The Appellant has made detailed submission, providing copy of the agreement for cost allocation for common shared services including premises along with copies of the relevant invoices. The Appellant has duly deducted TDS on these payments. The AO disallowed the entire amount stating no evidence of use was found. This is contrary to the facts as the company operates from the same premises."

ITA NO. 1684/Mum/2026; 360 One Investment Adviser And Trustee Services Limited 4.6. Submission on Software Expenses: "The software expenses of Rs. 31,83,346/- are in the nature of annual license fees and other annual recurring expenses. The details are: Hardware-AMC (Rs. 5,079), IT Enabled Services (Rs. 2,437), IT Services - Hosting (Rs. 15,431), Software - Annual License (Rs. 5,43,858), IT Services - Annual Support (Rs. 12,39,214), etc. These do not result in the creation of a new capital asset but are for the smooth running of the existing system. Reliance is placed on the decision of the Hon'ble Supreme Court in the case of CIT vs. IAEC Pumps Ltd (232 ITR 316)."”

ITA NO. 1684/Mum/2026; 360 One Investment Adviser And Trustee Services Limited 3.5. On Software Expenses: "The software expenses of Rs. 31,83,346/- give an enduring benefit to the company. These are not recurring in nature in the sense of consumption. Hence, they are capital in nature."”

ITA NO. 1684/Mum/2026; 360 One Investment Adviser And Trustee Services Limited 12. Further, with regard to travelling, conveyance and manpower outsource expenses, we find that the assessee had maintained audited books of accounts and the revenue authorities have not brought any specific defect in the vouchers or supporting documents. The disallowance was made merely by estimating personal element and on ad-hoc basis at 20% of the expenditure. It is settled proposition of law that no ad-hoc disallowance can be sustained in absence of any specific defect or non-genuine expenditure. Accordingly, the disallowance made under the head travelling and manpower outsource expenses is deleted.

ITA NO. 1684/Mum/2026; 360 One Investment Adviser And Trustee Services Limited allocation, actual utilization of premises and supporting agreements/invoices require proper verification at the end of the Ld. AO. But the Ld. DR pointed out the observations of the Ld. AO which was not addressed properly by the assessee. The Relevant observation of the Ld. AO is reproduced as below:- “8.3 The submission of the assessee is duly considered but not found to acceptable. Since the assessee has not furnished any supporting documentary evidence in respect of these expenses the same is not acceptable. As the assessee has not provided the rent agreement in support of its claim, the genuineness and the reasonableness of the expenditure are not verifiable. Further, on perusal of the audited Report in Form 3CD it is seen that the auditor has reported in Notes 34(a), no TDS deducted on Rent paid, however, the assessee has credited in its financial statement an amount of Rs.52,81,166/- on account of Rent. Considering the above the total expenditure on account of Rent of Rs.52,81,166/- is disallowed. Penalty proceedings u/s.270A are initiated separately for misreporting of income in consequences to under reporting of income for the year under consideration.” Therefore, in the interest of justice, this limited issue is restored to the file of the Ld. AO for fresh verification of supporting documents and agreements to be furnished by the assessee. The assessee is directed to cooperate and furnish all necessary evidences. Needless to say, reasonable opportunity of hearing shall be granted to the assessee. Accordingly, the grounds raised by the assessee relating to employee benefit expenses, travelling and manpower expenses and software expenses stand allowed, whereas the issue relating to rent expenses is restored to the file of the Ld. AO for limited verification purpose.

ITA NO. 1684/Mum/2026; 360 One Investment Adviser And Trustee Services Limited 15. In the result, the appeal of the assessee bearing ITA No.1684/Mum/2026 is partly allowed for statistical purposes. Order pronounced in the open court on 26th day of May 2026.

Sd/- Sd/- (MAKARAND VASANT MAHADEOKAR) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,िदनांक/Dated: 26/05/2026 Soumili Das, PS Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. 3. आयकरआयु� CIT 4. िवभागीय�ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, Mumbai 5. गाड�फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, MUMBAI