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DSP INVESTMENT MANAGERS PVT LTD,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX 3(1)(1), MUMBAI

ITA 3925/MUM/2023Status: DisposedITAT Mumbai13 February 2026AY 2021-2244 pages

AI SummaryPartly Allowed

Facts

The assessee company, an investment manager, received exempt income from one of its investments. The Assessing Officer (AO) made a disallowance under Section 14A read with Rule 8D(2)(ii) on the total investments held by the assessee. The assessee contended that the disallowance should only be on the average value of investments that actually yielded exempt income.

Held

The Tribunal, following the decision of a Special Bench and High Court pronouncements, held that disallowance under Rule 8D can only be made with reference to the average value of investments that have actually given rise to exempt income during the year. The assessee's suo moto disallowance of Rs. 7,91,667/- was upheld.

Key Issues

Whether disallowance under Section 14A r.w. Rule 8D(2)(ii) should be computed on the average value of total investments or only on those investments that yielded exempt income during the year.

Sections Cited

14A, 8D(2)(ii)

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Income Tax Appellate Tribunal, “D” BENCH MUMBAI

Before: MS. KAVITHA RAJAGOPAL & SHRI GIRISH AGRAWAL

Hearing: 23.01.2026Pronounced: 13.02.2026

O R D E R

PER GIRISH AGRAWAL, ACCOUNTANT MEMBER

The present proceedings arise for passing a confirmatory order in accordance with Office Manual Chapter XIII at para 78(d) under the head ‘Dissenting cases – how to be dealt with’, pursuant to order dated 13.11.2025 passed by the Hon’ble Third Member in .

Briefly recapitulating the facts, assessee is a resident company which acts as an investment manager to various schemes under the DSP Black Rock Mutual Fund. Activities of the assessee are regulated under the guidelines of Securities and Exchange Board of India (SEBI). Assessee had made investments in various funds in the course of its DSP Investment Managers Private Limited AY 2021-22 business activities and had received exempt income of Rs. 5,09,75,022/- during the year under consideration from one of its investments being DSP Emerging Stars Funds.

2.1. In the course of assessment proceedings, assessee was called upon to explain why disallowance should not been made u/s.14A r.w. rule 8D(2)(ii) of the Income Tax Rules, 1962 (the Rules) as ld. AO noticed that assessee though having earned exempt income has not made any suo moto disallowance under the said provisions.

2.2. In response, assessee categorically denied its liability u/s. 14A r.w. rule 8D(2)(ii) by stating that it has not earned any income which can be categorized as exempt income so as to attract the said provisions. In the alternative, assessee submitted that if at all any disallowance has to be made, it has to be made under rule 8D(2)(ii) i.e. on the average value of the investment giving rise to such exempt income during the year and not on all the investments held by the assessee. For this purpose, assessee furnished a computation for the disallowance under rule 8D(2)(ii) which was for an amount of Rs. 7,91,667/- by taking into account average value of investment giving rise to exempt income earned during the year. Not accepting this alternative of the assessee, ld. AO was of the view that disallowance u/s 14A r.w. rule 8D(2)(ii) has to be made based on entire investments held by the assessee whether they yielded any exempt income or not during the year under consideration. He thus, worked out the disallowance at Rs. 60,80,245/- on the average value of entire investments held by the assessee at Rs. 60,80,24,500/.

DSP Investment Managers Private Limited AY 2021-22 held by the assessee have given rise to exempt Income during the year. In fact, before the A.O., the assessee has furnished all the details of investments held during the year, based on which the A.O. has computed the average value of investment. Therefore, there cannot be any dispute regarding the fact that the only investment giving rise to exempt income during the year is DSP Emerging Stars Fund Category III AIFs. From the computation of suo moto disallowance furnished before the A.O., it emerges that the opening balance of the investment is Rs.10 crores and in January, 2021, the fund has matured. Therefore, the value has been shown as zero. The so called mismatch between the opening value of investment shown at Rs.10 crores for computing disallowance and value shown in the account of Rs.7,28,29,699/- has been explained before me by ld. Counsel for the assessee by stating that applying Indian Accounting Standard 109 issued by ICAI dealing with the financial instruments, the assessee has recorded the fair market value of the investment on marked to market basis (MTM) of the said fund at Rs.7,28,29,699/- in the annual accounts. Whereas, for the purpose of computing disallowance under Rule 8D(2)(ii), the assessee has adopted the actual higher figure of investment made of Rs. 10 crores. Thus, in my view, the mismatch pointed out by the Id. first appellate authority is irrelevant and inconsequential so far as the issue at hand is concerned. In any case of the matter, the assessee has computed the disallowance under Rule 8D(2)(ii) by considering the higher figure of Rs.10 crores, instead of Rs.7,28,29,699/-. Hence, no prejudice has been caused to the department. Therefore, the disallowance under Rule 8D(2)(ii) has to be quantified by working out the average value of the investment of DSP Emerging Stars Fund Category III AIFs.” 4.2. Hon’ble Third Member with the aforesaid observations thus, concluded in paragraph 14 that the suo moto disallowance computed by the assessee at Rs. 7,91,667/- is correct. Hence, the disallowance u/s. 14A r.w. rule 8D(2)(ii) has to be restricted to this amount. Thus, upon due consideration of facts and material on record, Hon’ble Third Member concurred with the view expressed by the ld. AM. Contents of paragraph 14 from the order of Hon’ble Third Member is extracted below: “14. Upon examination of working furnished before the A.O., which is incorporated at pg. nos 6 & 7 of the assessment order. It is evident that the assessee has worked out monthly average value of investment and, thereafter, computed the disallowance on the annual average value of investment. Therefore, the suo motu disallowance computed by the assessee at Rs.7,91,667/-, is correct. Hence, the disallowance u/s. 14A read with Rule 8D has to be restricted to that amount. Accordingly, upon

DSP Investment Managers Pvt. Ltd. vs. Dy. CIT 2. Even, there was no consensus between the ld. Members of the Division Bench on the point of difference to be formulated for reference to the Third Member. Both ld. Members have proposed separate set of questions to be placed before the Third Member. The questions proposed by ld. JM are as under: 1. Whether in the absence of bifurcation of expenditure incurred for earning taxable income and exempt income can it be held that the disallowance should be restricted to the assessee's suo moto disallowance of Rs.7,91.667/- as per the theory of apportionment of expenditure? 2. Whether on the facts that there are discrepancies with regard to the details of the investments made by the assessee which has earned exempt income, the ld. CIT(A) was right in directing the Id. AO to re-compute the disallowance in accordance with only those investments which have yielded exempt income during the year under consideration? 3. In case where the assessee has claimed that no expenditure has been incurred for earning exempt income, whether the lower authorities have rightly invoked Section 14A r.w.r. 8D as per the provisions of Section 14A(3) of the Act? 4. Whether in a case where the learned Assessing Officer (ld. A.O. for short) has recorded his dissatisfaction with regard to the correctness of claim of the assessee, which is not disputed, the lower authorities have rightly invoked Section 14A r.w.r. 8D and have rejected the assessee's suo moto disallowance? 5. Where on the facts that the assessee has not made any disallowance in the ITR for expenses related to earning of exempt income stating that the assessee has not incurred any expenditure, whether the Id. CIT(A) had rightly held that the same was an afterthought claiming the same to be a capital receipt where the assessee has approbated and reprobated the income to be an exempt income and in such circumstances can it be held that the assessee's suo moto disallowance was not in accordance with the provisions of the Act? 6. In a case where the assessee has failed to furnish the correct details of the opening balance of DSP Emerging Star Funds with supporting documentary evidences for calculating the monthly average and thereafter to calculate the annual average of the total investment neither before the lower authorities nor before us by way of additional evidence, can the suo moto disallowance be held to be based on scientific method as per the provisions of the Act? 7. Whether in the facts and circumstances of the case, this issue has to be remanded back to the Id. AO for computation of disallowance in accordance with Rule 8D of the I.T. Rules, 1962 by holding that the assessee's suo moto disallowance is against the settled principles of law?

DSP Investment Managers Pvt. Ltd. vs. Dy. CIT 2. Whether in the facts of the case when Id. CITIA) found and held tha working by the Id. Assessing Officer is not strictly as per rule BD and at the same time has described the working made by the assessee for computing the disallowance as per rule 8D(20) which is in line with the principle laid down in the decision of Hon'ble Special Bench in the case of ACIT us. Vireet Pusestments (P) Ltd (2017) 82 taxmann.com 415 (Del) (SB), can the disallowance made by the assessee be held to be not in accordance with the provisions of the Act and settled position of law? 3. Whether in the facts of the case when the working for disallowance under rule 8D(2)(ii) given by the assessee is reproduced by the Id. Assessing Officer in para 5.2 which is self- explanatory and when Id. CIT(A) in para 6.5.1 took note of the working given by the assessee for opening balance, closing balance with monthly and annual average of the investment in DSP Emerging Stars Fund, can the same be doubted for remanding the issue back to the Id. Assessing Officer by holding that working by the assessee is against the settled principles of law? 4. Whether in the facts of the case when Id. CIT(A) had inadvertently mentioned the figure of 7,28,29,699/-instead of 7,91,66,667/- for calculation of disallowance amount at Rs. 7,91,667/- being 1% of annual average which formed the basis for giving direction to the Id. Assessing Officer and when the figure of 7,91,66,667/ is an arithmetic number arrived at by applying mathematical formula prescribed in rule 8D(2)(ii) and in no way can represent opening or closing value of investment accounted in the books of account, it being an annual average of the monthly averages, should the issue be remanded back to ld. Assessing Officer for computation of disallowance? 4. After carefully going through the separate sets of questions proposed by ld. Members and going through the orders of the Departmental Authorities as well as ld. Members, constituting the Division Bench, in my considered opinion, the core issue which arises for consideration is “Whether disallowance under Rule 8D(2) r.w.s. 14A of the Income Tax Act, 1961 (‘the Act’) has to be made based only on the average value of investments giving rise to exempt income in the assessment year under dispute or it has to be based on the average value of the total investments, both exempt income yielding and non-yielding investments?”. Once this core issue is decided one way or the other, most of the other questions referred by ld. Members would become either academic or redundant.

The assessee is a resident corporate entity and stated to be engaged in the activity of Investment Manager to various mutual fund schemes under the DSP Black Rock mutual fund. The assessee’s activities are regulated in terms with the guidelines of Securities and Exchange Board of India (SEBI). In course of its activities, the assessee has invested in various funds and in the financial year relevant to the assessment year under dispute, the assessee had received exempt income to the tune of Rs.5,09,75,022/- from one of its investments, being DSP Emerging Stars Fund. In course of assessment proceedings, when the A.O. noticed that the assessee, though, had earned exempt income, but has not made any suo motu disallowance u/s. 14A read with Rule 8D, called upon the assessee to explain why disallowance should not be made under the aforesaid provisions. In response to the show cause notice, the assessee categorically denied its liability u/s. 14A read with Rule 8D by stating that it has not earned any income, which can be categorized in the nature of exempt income to attract the provisions of section 14A read with Rule 8D. Alternatively, the assessee submitted that if at all any disallowance under Rule 8D(2)(ii), has to be made, it has to be made on the average value of investment giving rise to exempt income during the year and not on all the investments held by the assessee. In support of such claim, the assessee also furnished a computation, computing disallowance under Rule 8D(2)(ii) of an amount of Rs.7,91,667/- on the average value of DSP Investment Managers Pvt. Ltd. vs. Dy. CIT investment giving rise to exempt income during the year. The A.O., however, did not accept the claim of the assessee. He was of the view that disallowance u/s. 14A read with Rule 8D(2)(ii) has to be made based on the entire of investments held by the assessee, irrespective of the fact whether they have given rise to exempt income or not during the year. Accordingly, on the average value of entire investment held by the assessee, worked out at Rs.60,80,24,500/-, the A.O. computed disallowance under Rule 8D(2)(ii) at Rs.60,80,245/-.

11.

I have considered the submissions of Shri Nitesh Joshi, ld. Counsel appearing for the assessee and Shri Annavaram Kosuri, Sr. Departmental Representative. As could be seen from the facts discussed above, though before the Departmental Authorities, the assessee had raised various contentions challenging the applicability of section 14A read with Rule 8D, however, before the Tribunal, the assessee gave up all its contentions and limited its argument only to the alternative claim that disallowance u/s. 14A read with Rule 8D(2)(ii) has to be made only on the average value of investment giving rise to exempt income during the year. In support of such contention, the assessee furnished a working before the A.O. stating that the exempt income earned during the year, amounting to Rs.5,09,75,022/- arose from the investments made in the DSP Emerging Stars Fund Category III AIFs. The computation furnished by the assessee making the suo motu disallowance of Rs.7,91,667/- is incorporated at pg. nos. 6 & 7 of the assessment order. As per the said computation, the opening value of the investment was Rs.10 crores and in January, 2021, the fund matured. The assessee has computed the annual average at Rs.7,91,66,667/- based on monthly average and 1% disallowance thereon in terms with DSP Investment Managers Pvt. Ltd. vs. Dy. CIT Rule 8D(2)(ii) was made at Rs.7,91,667/-. Apparently, the A.O. has rejected the aforesaid claim of the assessee and has computed disallowance under Rule 8D(2)(ii) by taking the entire investment made by the assessee, irrespective of the fact whether such investments have given rise to any exempt income during the year or not. Ld. first appellate authority, more or less, has agreed in principle with the decision of the A.O. that disallowance under Rule 8D(2)(ii) has to be made on the entire value of investment, irrespective of the fact whether such investment have given rise to exempt income or not during the year. In this context, the legal position governing the issue needs to be looked into. In case of Vireet Investments Pvt. Ltd. (supra), ld. Special Bench of ITAT, while seized with the identical issue, has held as under: 11. We have considered the submissions of both the parties and have perused the record of the case. The basic issue for consideration is that the investment, which did not yield any exempt income, should enter or not enter into the computation under Rule 8D, while arriving at the average value of investment, income from which does not or shall not form part of the total income. 11.1 In the present case, our decision is restricted only to the extent of interpretation of language employed in Rule 8(2)(iii). The submission of ld. counsel for the assessee is that this issue is now covered by the decision of the Hon'ble Delhi High Court in the case of CIT v. Hofcin India (P.) Ltd. (supra), wherein it has been held that if no dividend income was earned, section 14A could not be invoked. The Hon'ble Delhi High Court has referred to the decisions, which we have noted earlier i.e.: - Shivam Motors (P) Ltd's. case (supra) - Winsome Textile Industries Ltd's. case (supra) - Lakhani Marketing Inc. case (supra) - Corrtech Energy (P.) Ltd's. case (supra). - CIT v. Hero Cycles Ltd. [2010] 323 ITR 518/189 Taxman 50 (Punj. & Har.). 11.2 The submission of ld. Principal CIT(DR) is that ITAT in the case of Delhi Special Bench in the case of Cheminvest Ltd. (supra) has specifically held that even if there is no exempt income, the provisions of section 14A are applicable in view of the decision of Hon'ble Supreme Court in the case of Rajednra Prasad Moody (supra). His submission is that the decision of Hon'ble Delhi Court reversing the decision of Special Bench in Cheminvest should not be followed because that is contrary to the principles laid down in Rajendra Prasad Moody's case (supra). 11.3 It is against these submissions, we first refer to the facts as were obtaining in these two decisions.

DSP Investment Managers Pvt. Ltd. vs. Dy. CIT 11.4 In the case of Cheminvest Ltd. (supra), the assessee had borrowed funds of Rs. 8,51,65,000/- and during the previous year relevant to assessment year 2004-05 paid interest of Rs. 1,21,02,367/-thereon. Out of this unsecured loan, the assessee invested a sum in purchase of shares, which was shown as investment for the purpose of long term capital gains. The AO disallowed interest proportionate to the investment in shares, though no exempt income was earned during the year. The CIT(A) affirmed this but held that the net interest debited to the P&L A/c was required to be apportioned and not the interest expenditure. The Tribunal held that interest expenditure incurred by the assessee was for borrowing used for the purposes of investment in shares, both held for trading as well as investment purposes. Irrespective of whether or not there was any yield of dividend on the shares purchased, the interest incurred was relatable to earning of dividend on the shares purchased. The dividend income being exempted from tax by virtue of section 10(34) of the Act, the interest paid on borrowed capital utilized in purchase of shares, being the expenditure incurred in relation to dividend income not forming part of the assessee's total income, was held to be not an allowable deduction. In coming to the conclusion, the Special Bench primarily relied on the ratio laid down by the Hon'ble Supreme Court in the case of Rajendra Prasad Moody (supra). 11.5 In the case of Rajendra Prasad Moody (supra), the facts were that the assessees were brothers and each of them had borrowed. moneys for the purposes of making investment in shares of certain companies. During the relevant assessment year they paid interest on the moneys borrowed but did not receive any dividend on the shares purchased with these moneys. Both of them made a claim for deduction of the amount of interest paid on borrowed moneys but this claim was negated by the ITO and on appeal by the AAC on the ground that during the relevant assessment year the shares did not yield any dividend and, therefore, interest paid on the borrowed moneys could not be regarded as expenditure laid out or expended wholly and exclusively for the purposes of making or earning income chargeable under the head 'income from other sources', so as to be allowable as a permissible deduction u/s 57(iii). The Tribunal. however, on further appeal, disagreed with the view taken by the taxing authorities and upheld the claim of each of the two assessees for deduction u/s 57(iii). 11.6 In the backdrop of these facts the Tribunal's order was upheld by the Hon'ble High Court and Hon'ble Supreme Court. The Hon'ble Supreme Court, inter alia, held that it is the purpose of the expenditure that is relevant in determining the applicability of section 57(iii) and that purpose must be making or earning of income. It was further held that section 57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. There is in fact nothing in the language of section 57(iii) to suggest that the purpose, for which the expenditure is made, should fructify into any benefit by way of return in the shape of income. 11.7 Thus, in both the decisions viz. in the case of Cheminvest Ltd. (supra), and in the case of Rajendra Prasad Moody (supra), the issue related to allowability of expenditure which had direct nexus with the earning of income. The borrowing in both the cases has not been disputed being for acquiring shares. Hon'ble Delhi High Court has specifically held in para 21 as under:— "21. There is merit in the contention of Mr. Vohra that the decision of the Supreme Court in Rajendra Prasad Moddy (supra) was rendered in the context of allowability of deduction under Section 57(iii) of the Act, where the expression used is for the purpose of making or earning such income'. Section 14A of the Act on the other hand contains the expression 'in relation to income which does not form part of the total income.' The decision in Rajendra Prasad Moody (supra) cannot be used in the reverse to contend that even if no income has been received, the expenditure incurred can be disallowed under Section 14A of the Act. " 11.8 In the case of Holcin India (P) Ltd. (supra) the facts were that the respondent- assessee was a subsidiary of Holderind Investments Ltd., Mauritius, which was formed as a holding company for 'making downstream investments in cement manufacturing ventures in India. In the return of income filed for the Assessment Year 2007-08, the respondent-assessee declared loss of DSP Investment Managers Pvt. Ltd. vs. Dy. CIT Rs. 8.56 Crores approximately. The respondent-assessee had declared revenue receipts of Rs. 18,02,274/- which included interest of Rs. 726/- from Fixed Deposit Receipts and profit on sale of fixed assets of Rs. 16,52,225/-. As against this, the respondent assessee had claimed administrative and miscellaneous expenditure written off amounting to Rs. 8.75 Crores. For the Assessment Year 2008-09, the assessee had filed return declaring loss of Rs. 6.60 Crores approximately. The assessee had declared revenue receipts in the form of foreign currency fluctuation difference gain of Rs. 12,46,595/-. It had claimed expenses amounting to Rs. 7.02 Crores as personal expenses, operating and other expenses, depreciation and financial expenses. 11.9 In both the assessment orders, the Assessing Officer held that the respondent-assessee had not commenced business activities as they had not undertaken any manufacturing activity or made downstream investments. It was observed that the respondent- assessee, after receiving approval of Foreign Investment Promotion Soard (FIPS) dated 20.12.2000 acquired shares capital of Ambuja Cement India Ltd. This, the Assessing Officer felt, was not sufficient to indicate or hold that the respondent-assessee had started their business. He, accordingly, disallowed the entire expenditure of Rs. 8.75 Crores for the Assessment Year 2007-08 and Rs. 7.02 Crores for the Assessment Year 2008-09. 11.10 Ld. CIT(A) did not agree with the findings of Assessing Officer that the business of the respondent- assessee had not been set up or commenced. The CIT(A) observed that the respondent-assessee had been set up with the business objective of making investment in cement industry after due approval given by the Government of India, Ministry of Commerce and Industry vide letter dated 18.12.2002 and 20.12.2012. It was observed that in fact, the respondent-assessee was not to undertake any manufacturing activity themselves. After considering the FIPS approval and the purchase of shares in the said company of Rs. 1850.91 crores, ld. CIT(A), inter alia, observed that the assessee was engaged in the business of holding of investment and was entitled to claim expenditure provided. There was a direct connection between expenditure incurred and business of the assessee company. However, he pointed out that since the business of the respondent-assessee was to act as a holding company for downstream investment and as it was an accepted fact that they had incurred expenses to protect their business and explore new avenues of investment, the provisions of section 14A were applicable. 11.11 The Hon'ble High Court observed that the reasoning given by the CIT(A) was ambiguous and unclear and on clarity being sought from the Revenue it was pointed out that "the stand of the assessee contained a contradiction to the extent that on the issue of setting up of business, it was stated that the assessee had incurred expenditure on acquiring the shares, therefore, the assessee could not now take different stand than the one taken in the first issue". 11.12 The Hon'ble High Court, after considering in detail the decision of ld. CIT(A) finally observed in para 13 as under: "13. We. are confused about the stand taken by the appellant-Revenue. Thus, we had asked Sr. Standing Counsel for the-Revenue, to state in his own words, their stand before us. During the course of hearing, the submission raised was that the shares would have yielded dividend, which would be exempt income and therefore, the CIT(A) had invoked Section 14A to disallow the entire expenditure. The aforesaid submission does not find any specific and clear narration in the reasons or the grounds given by the CIT(A) to make the said addition. Possibly, the CIT(A), though it is not argued before us, had taken the stand that the respondent-assessee had made investment and expenditure was incurred to protect those investments and this expenditure cannot be allowed under Section 14A." 11.13 Thus, Hon'ble Delhi High Court primarily decided the issue regarding applicability of section 14A even if no dividend income was earned. The Hon'ble High court in paras 14 to 16 of its decision observed as under:

DSP Investment Managers Pvt. Ltd. vs. Dy. CIT '14. On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section 14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No contrary decision of a High Court has been shown to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad v. M/s. Lakhani Marketing Incl, decided on 02.04.2014, made reference to two ' earlier decisions of the same Court in CIT v. Hero Cycles Limited, [2010] 323 ITR 518 and CIT vs. Winsome Textile Industries Limited, [2009] 319 ITR 204 to hold that Section 14A cannot be invoked when no exempt income was earned. The second decision is of the Gujarat High Court in Commissioner of Income Tax-I v. Corrtech Energy (P.) Ltd. [2014] 223 Taxmann 130 (Guj.). The third decision is Of the Allahabad High Court in Income Tax Appeal No. 88 of 2014, Commissioner of Income Tax II Kanpur, v. M/s. Shivam Motors (P) Ltd. decided on 05.05.2014. In the said decision it has been held:- "As regards the second question, Section 14A of the Act provides that for the purposes of computing the total income under the Chapter, 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 under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of fact is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. The view of the C1T(A), which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of Rs. 2,03,752/- made by the Assessing Officer was in order"

15.

Income exempt under Section 10 in a particular assessment year, may not have been exempt earlier and can become taxable in future years. Further, whether Income earned in a subsequent year would or would not be taxable, may depend upon the nature of transaction entered into in the subsequent assessment year. For example, long term, capital gain on sale of shares is presently not taxable where security transaction tax has been paid, but a private sale of shares in an off market transaction attracts capital gains tax: It is an undisputed position that respondent assessee is an investment company and had invested by purchasing a substantial number of shares and thereby securing right to management. Possibility of sale of shares by private placement etc. cannot be ruled out and is not all improbability. Dividend may or may not be declared. Dividend is declared by the company and strictly in legal sense, a shareholder has no control and cannot insist on payment of dividend. When declared, it is subjected to dividend distribution tax. 16. what is also noticeable is that the entire or whole expenditure has been disallowed as if there was no expenditure incurred by the respondent-assessee for conducting business. The CIT(A) has positively held that the business was set up and had commenced. The said finding is accepted. The respondent-assessee, therefore, had to incur expenditure for the business in the form of investment in shares of cement companies and to further expand and consolidate their business. Expenditure had to be also incurred to protect the investment made. The genuineness of the said expenditure and the fact that it was incurred for business activities was not doubted by the Assessing Officer and has also not been doubted by the CIT(A).' 11.14 Now the position of law as stands is that the decision of Hon'ble Jurisdiction High Court is directly on the point in dispute whereas the decision of Hon'ble Supreme court in the case of Rajendra Prasad Moody (supra) has been rendered in the context of section 57(iii), the applicability of which has been ruled out by Hon'ble Delhi High Court in the case of Cheminvest (supra). 11.15 Under Article 227 of the Constitution of India, the courts function under the supervisory jurisdiction of Hon'ble High Court. The decisions rendered by Hon'ble High Court are binding

DSP Investment Managers Pvt. Ltd. vs. Dy. CIT on all subordinate courts working within its jurisdiction. In this regard we may refer to the following decisions:— '(i) CIT v. Thana Electricity Supply Ltd. (1994) 206 ITR 727 (Bom.), wherein on the issue of "whose decision is binding on whom", the. Hon'ble Bombay Court considered in detail the hierarchy of the courts and has observed as under: "It is also well-settled that though there is no specific provision making the law declared by the High Court binding on subordinate courts, it is implicit in the power of supervision conferred on a superior Tribunal that the Tribunals subject to its supervision would conform to the law laid down by it. It is in that view of the matter that the Supreme Court in East India Commercial Co. Ltd. v. Collector of Customs AIR 1962 SC 1893 (at page1905) declared: "We, therefore', hold that the law declared by the highest court in the State is binding on authorities or Tribunals under its superintendence, and they cannot ignore it. ...." This position has been summed up by the Supreme Court in Mahadeolal Kanodia v. Administrator General of West Bengal AIR 1960 SC 936 (at page 941) as follows: "Judicial decorum no less than legal propriety forms the basis of judicial procedure. If one thing is more necessary in law than any other thing, it is the quality of certainty. That quality would totally disappear if judges of co-ordinate jurisdiction in a High Court start overruling one another's decisions. If one Division Bench of a High Court is unable to distinguish a previous decision of another Division Bench, and holding the view that the earlier decision is wrong, itself gives effect to that view, the result would be utter confusion. The position would be equally bad where a judge sitting singly in the High Court is of opinion that the previous decision of another single judge on a question of law is wrong and gives effect to that view instead of referring the matter to a larger Bench." The above decision was followed by the Supreme Court in Baradakanta Mishra v. Bhimsen Dixit, AIR 1972 SC 2466, wherein the legal position was reiterated in the following words (at page 2469) : "It would be anomalous to suggest that a Tribunal over which the High Court has superintendence can ignore the law declared by that court and start proceedings in direct violation of it. If a Tribunal can do so, all the subordinate courts can equally do so, for there is no specific provision, just like in the case of Supreme Court, making the law declared by the High Court binding on subordinate courts. It is implicit in the power of supervision conferred on a superior Tribunal that all the Tribunals subject to its supervision should conform to the law laid down by it. Such obedience would also be conducive to their smooth working; otherwise there would be confusion in the administration of law and respect for law would irretrievably suffer," (ii) CIT v. Svnil Kumar (1995) 212 ITR 238 (Raj.), it was observed as under: "The point which has been raised could have been considered to be debatable because other High Courts have taken a different view. But since the view taken by this court is binding on the Tribunal and other authorities under the Act in this State, it could not be considered to be a debatable point in view of the decision of this court in the case of CIT v. M.L., Sanghi [1988] 170 ITR 670." (iii) Indian Tube Company Ltd. v. CIT & others (1993) 203 ITR 54 (Col.) , it was observed as under: "In the impugned order, respondent No.1 has rejected the petitioner's contention by stating that, although the Calcutta High Court had held that an assessee was entitled to interest on such refund calculated up to the date of the order passed consequent upon an appeal or revision of the original assessment, this view had not been accepted by the Bombay High Court, the Allahabad High Court and the Kerala High Court. Respondent No.1, accordingly, chose to accept the view of the Bombay, Allahabad and Kerala High Courts in preference to the view of the Calcutta High Court. In my view, the order of respondent No. 1 cannot be sustained on the simple ground that respondent No. 1 is an authority operating within the State of West Bengal and is bound by the decisions of the High Court of this State (see CIT v. Indian Press Exchange Ltd. [1989] 176 ITR 331 (Cal) ; East India Commercial Co. Ltd. v. Collector of Customs AIR 1962 SC 1993, paragraph 29). In that view of the matter, the impugned order must be set aside and the Commissioner is directed to consider the matter afresh in keeping with the decisions of this court after giving the petitioners an opportunity of being heard. At least 48 hours clear notice must be given to the petitioners. The Commissioner will communicate the final order to the petitioner within eight weeks from the date of hearing. (iv) CIT v. J.K. Jain [1998] 230 ITR 839 (P&H), observing as under: "We have carefully examined the records and have heard learned counsel representing the parties. We are in respectful agreement with the view expressed by the Allahabad High Court in Omega Sports and Radio Works' case [1982] 134 ITR 28, as also the decision of this court in Mohan Lal Kansal's case [1978] 114 ITR 583. Following the decision in the two cases referred to above, we hold that it was not a case of divergence of opinion inasmuch as the opinion expressed by this court was binding upon the Tribunal."' 11.16 Therefore, in our considered opinion, no contrary view can be taken under these circumstances. We, accordingly, hold that only those investments are to be considered for computing average value of investment which yielded exempt income during the year. 11.17 As far as argument relating to meaning to be ascribed to the phrase 'shall not' used in Rule 8D(2)(iii) is concerned, the Revenue's contention is that it refers to those investments which did not yield any exempt income during the year but if income would have been yielded it would have remain exempt. There is no dispute that if an investment has yielded exempt income in a particular year then it will enter the computation of average value of investments for the purposes of Rule 8D(2)(iii). The assessee's contention that if there is no certainty that an income, which is exempt in current year, will continue to be so in future years and, therefore, that investment should also be excluded, is hypothetical and cannot be accepted. 11.18 In view of above discussion, the matter is restored back to the file of AO for recomputing the disallowance u/s 14A in terms of above observations. Thus, revenue's appeal is dismissed and assessee's cross-objection, on the issue in question, stand allowed for statistical purposes, in terms indicated above.

It is also evident that the Ld. AO has requisitioned the assessee to furnish the complete details of the monthly opening and closing balance of the investment for which the assessee has given a working which was not to the satisfaction of the ld. AO. Though the assessee has declared the total investment in AIF as on 01.04.2020 at Rs. 4955.63 lakhs and as on 31.03.2021 at Rs. 7204,86 lakhs, it had failed to give the complete details of investment which has yield exempt income and has merely stated that only Emergingstarsfund category III AIF investment has earned exempt income. In the failureto furnish the same, the ld. AO computed the disallowances by taking the opening and closing balance of the total investment, whether or not it had earned exempt income during the year and consideration.The ld. CIT(A) has rightly directed the ld. AO to compute the disallowance after calculating the monthly average first and then to calculate annual average and to determine the disallowance accordingly.I do not find any infirmity in the order of Ld. CIT(A) in directing so, for the reason that the assessee has not provided those details which are required for determining the disallowance in a scientific manner in accordance with the provision of Rule 8D of the IT Rule 1962. It is a settled preposition that when the assessee has claimed expenditure and has earned both taxable and exempt income, where the expenditure is not bifurcated and when the ld. AO is not satisfied as to the correctness of the claim, DSP Finance Pvt. Ltd. vs. Dy. CIT he shall record his dissatisfaction and proceed to compute the disallowance in accordance with Rule 8D. Neither the Learned Assessing Officer (ld. A.O. for short) nor the assessee has the liberty to deviate from the provision of law. There is no iota of doubt that the assessee’sSuo Motto disallowance is merely on estimation basis without prescribing to any systematic or scientific method prescribed as per rule 8Din the absence of supporting documentary evidences.

DSP INVESTMENT MANAGERS PVT LTD,MUMBAI vs DEPUTY COMMISSIONER OF INCOME TAX 3(1)(1), MUMBAI | BharatTax