DCIT 1(1)(2), MUMBAI vs. HDFC ASSET MANAGEMENT CO. LTD, MUMBAI

At the outset, the Ld. Counsel for the Assessee submits that all investments income from which is exempt were made in the schemes of HDFC Mutual Fund which are usually made out of business policy and does not require complex analysis by technical experts. The Ld.Counsel submits that this can be seen from the investment schedule furnished in the balance sheet. Therefore, it is submitted that since the Assessee has not incurred expenditure, these investments should not be considered for working out Rule 8(D)(iii) disallowance. The Ld. Counsel further submits that the Assessee has received dividends from 91 transactions all in the form of reinvestment of dividend i.e., the dividend amount was reinvested and was not physically received. The Ld. Counsel submits that the details furnished in Exhibit ‘2’ shows the table of details of dividend receipts. Therefore, it is submitted that as it is seen from the table the transactions relating to earning dividend income are limited, therefore, no administrative expenses have been incurred by the Assessee for earning such exempt income. The Ld. Counsel further submits that on identical 3 M/s HDFC Asset Management Co. Ltd. 3058, 3223 &3224/Mum/2015 A.Ys.2010-11 and 2011-12 facts, the Co-ordinate Bench of the Tribunal for the immediate preceding assessment year i.e. 2009-10 in ITA No.754/Mum/2013 has been decided in favour of the Assessee and restored for fresh consideration. A copy of the order is placed on record.

The Ld. Counsel further submits that the Ld. CIT (Appeals) sustained the disallowance to the expenditure of Rs.21,82,475/- for the assessment year 2010-11 and Rs.35,18,492/- for the assessment year 2011-12 being the expenditure with respect to investments made in HDFC (dividend plan). The Ld. Counsel further submits that the Ld. CIT (Appeals) deleted the disallowance in respect of the expenditure incurred on investments made in HDFC in Debt Oriented Mutual Funds (Growth Plan). He further submits that the revenue is in appeal in respect of the disallowance deleted by the Ld. CIT (Appeals) on the investments made in HDFC Mutual Fund (Growth Plan) and investment in foreign subsidy company.

The Ld. DR supports the orders of the lower authorities.

We have heard the rival submissions perused the orders of the authorities below and the case law relied on. We find that for the assessment year 2009-10 identical issues arose in Assessee’s case and the Co-ordinate Bench decided the issue of disallowance made under 8D(2)(iii) observing as under : “4. On the other hand the ld. A.R. brought to our notice distinguishing feature to the effect that strategic investment was made by the assessee during the year which should not be taken into account while computing disallowance under Rule 8D(2)(iii). It was submitted by the ld. A.R. that all the investments, 4 M/s HDFC Asset Management Co. Ltd. 3058, 3223 &3224/Mum/2015 A.Ys.2010-11 and 2011-12 income from which is exempt, made by the assessee company are in the schemes of HDFC Mutual Fund. These investments made in the various schemes of HDFC Mutual Fund are usually made out of business policy and the same does not require complex analysis by technical experts and does not involve or requires any incurrence of expenditure. Hence, these investments should not be considered in working out disallowance under Rule 8D. Reliance was placed on the decision of Tribunal in Reliance Capital Asset Management Ltd. vs. DCIT (ITA No. 4459/Mum/2012) on identical sets of facts held that Rule 8D(iii) should not be applied as investments made by the assessee is mainly in schemes of Reliance Mutual Fund and group concern which does not requires incurrence of any major expenditure as these investment are driven by the central business policy and strategy. 5. Further reliance was placed on the following decisions of Mumbai Bench of ITAT:- - Garware Wall Ropes Limited vs. Addl. CIT (I.T.A.No.4957/Mum/2012) . - JM financial Ltd. vs. Addl. CIT (I.T.A. No.4521/Mum/2012). - Interglobe Enterprises Ltd. vs. DCIT (I.T.A. No.1580/Del./2013).

We have considered the rival contentions and the judicial pronouncements cited at bar according to which calculation of disallowance as per Rule 8D(2)(iii) is erroneous, as the AO without assigning any reason did not reduce the investment in mutual funds and group concern which does not quire incurrence of major expenditure. 7. In view of the above, we restore this ground back to the file of A.O. for fresh consideration in terms of our above discussion.”

6. As could be seen from the above, the Tribunal restored the issue back to the file of the Assessing Officer for fresh consideration in the light of the observation thereon. Therefore, following the said order, we restore this issue to the file of the Assessing Officer who shall consider the issue keeping in view the observation of the Tribunal for assessment year 2009-10 after providing adequate opportunity of being heard to the Assessee.