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Income Tax Appellate Tribunal, DELHI BENCH “SMC”, NEW DELHI
Before: SHRI S.V. MEHROTRA
O R D E R PER S.V. MEHROTRA, A.M :
This is an appeal filed by the assessee against the order dated 26.04.2016 passed by the Commissioner of Income Tax (Appeals)-20, New Delhi, u/s 143(3) of the Income Tax Act, 1961 (in short “the Act”) relating to assessment year 2012-13.
Brief facts of the case are that during the year under consideration, the assessee firm was engaged in the profession of Chartered Accountancy. It filed its return of income declaring total income at Rs.39,99,843/-. The assessee derived income from profession and income from capital gain. The Assessing Officer noticed that the assessee had earned exempt income of Rs.1,16,552/- on account of dividend from mutual funds. He, therefore, required the assessee to explain why expenses relating to exempt income should not be disallowed as per provisions of section 14A. The assessee, inter-alia, submitted that no expenditure was incurred for earning dividend income and furnished the details of mutual funds from where dividend income was received, which are as under :-
Amount (Rs.) 1. Canara Robeco Equity Diversified-Dividend Plan 23,390.31 (Received vide cheque No.722050 dated 08.11.2011 drawn on HDFC Bank) 2. Mirae Asset India Opportunity Fund – Regular 93,161.92 Dividend (Received vide cheque No.123393 dated 29.03.2012 drawn on Citi Bank.
The assessee also pointed out that no borrowings were made for making investments in mutual funds. The assessee further pointed out that only time spent by a partner for investment in mutual funds, was in signing a cheque in favour of relevant mutual funds. The dividend income was received only on two dates which had been deposited in the bank. Mutual funds were being managed by the Trustees of that relevant mutual fund.
Therefore, assessee had not incurred any expenditure in relation to exempt income. The Assessing Officer did not accept the assessee’s contentions and, inter-alia, observed as under :-
“The assessee has not provided any separate account for earning of exempt income. The assessee has made investments for earning exempt income and managing such a large portfolio entail expenses right from diversion of manpower/staff for indulging in investment activities to various activities like visiting banks, use of vehicle and telephone, use of internet if portfolio management is web based, cost of computer & its depreciation, computer operator, consequent electricity, use of office premises, fee charged by Mutual Fund agents/bankers (Annual Fee), portfolio record maintenance and its tracking to ensure timely sale/purchase of investments.”
He, therefore, made a disallowance of Rs.24,148/-. Ld. CIT(A) confirmed the action of Assessing Officer on this issue.
Ld. counsel reiterated the submissions advanced before the lower revenue authorities and in the alternative pointed out that the dividend of Rs.1,16,552.23 was received on investments of Rs.15,80,879.54 in two mutual funds and, therefore, ld. CIT(A) was wrong in upholding the action of Assessing Officer in considering the total investments in mutual fund of Rs.50,79,630/- as on 31.03.2012 and Rs.45,79,630/- as on 31.03.2011 for averaging the investment for the purposes of Rule 8D(2)(iii) of the Income Tax Rules, 1962 only on account of administrative cost incurred for earning of exempt income.
I have considered the submissions of both the parties and have perused the record of the case. The plea of ld. counsel that no disallowance is called for on account of negligible involvement of management cannot be accepted in view of clear mandate of law. However, the plea of ld. counsel for the assessee that only those investments are to be considered for averaging purposes which yielded dividend, is to be accepted, in view of various pronouncements in this regard including the decision of ITAT, Ahmedabad Bench, in the case of Sarabhai Holding Pvt. Ltd. vs. ACIT in decided on 11.04.2014, wherein, it has been, inter- alia, held as under :-
“5. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find force in the contention of the ld.counsel for the assessee that the interest has been wrongly taken as the assessee has sufficient interest-free funds available, hence the addition made on account of interest amounting to Rs.1,37,060/- is hereby directed to be deleted. In respect of the disallowance towards administrative expenses, since both the authorities below have not given finding as to whether the ½% of average investment is of those investments wherefrom the assessee has earned exempt income. As per the provision of Rule 8D, it is only the average of the value of the investment from which the income has been earned which is not falling within the part of total income that is to be considered. Thus, it is not the total investment at the beginning of the year and at the end of year which is to be considered but it is the average of the value of the investment which has given rise to the income which does not form part of total income is to be considered. Hence, the issue is restored back to the file of AO to verify as to how much investment was made during the year on which the assessee has earned exempt income and, accordingly, re-compute the disallowance under Rule 8D of the Income Tax Rules, 1962. As a result, this ground of assessee's appeal is partly allowed for statistical purposes.
In view of the above discussion, the Assessing Officer is directed to re-compute the impugned disallowance in terms of aforementioned directions.
In the result, the assessee’s appeal is partly allowed. Order pronounced in the open court on this 31st day of January, 2017.