CHANAKYA INTERNATIONAL P.LTD,MUMBAI vs. DCIT 5(1), MUMBAI

We have heard the parties and perused the record. This is the second round of proceedings. In the first round, the Tribunal had set aside the matter to the file of Assessing Officer with the observation that the Assessing Officer has not recorded any dissatisfaction on the workings made by the assessee in respect of disallowance to be made u/s. 14A of the Act. In the set aside proceedings, the Assessing Officer sustained the very same disallowance that was made in the original assessment proceedings. The learned CIT(A) also confirmed the same. Hence the assessee has filed this appeal before us.

Learned counsel appearing for the assessee submitted that the assessee has made investments under PMS scheme and hence purchase and sale of shares and mutual funds are being managed by the PMS agent. Learned counsel submitted that the assessee has disallowed the direct expenses incurred towards Demat charges and security transaction tax. Further the assessee estimated the expenses incurred for any exempt income of ` 5,18,000/-, which consisted of PMS charges and a portion of administrative expenses. He submitted that the Assessing Officer did not find fault with the workings given by the assessee but proceeded to make the disallowance under Rule 8D(2)(iii) of the I.T. Rules at 0.5% average value of investments. Learned Counsel submitted that most of the investments have been brought forward from the earlier years. Accordingly, he submitted that the tax authorities were not justified in computing disallowance at 0.5% of the average value of the investments.

On the contrary, learned Departmental Representative strongly supported the orders passed by the tax authorities.

The undisputed fact remains that the assessee had carried out investment activities through PMS scheme, meaning thereby, the assessee did not utilise its own establishment for making investments. We notice that the assessee itself has disallowed PMS charges of ` 3,20,898/- and a sum of ` 1,97,102/- out of other expenses. Perusal of the details of investments placed at page No. 22 & 23 would show that major portion of investments have been brought forward from the earlier years. This fact, in our view, shows that there is merit in the workings given by the assessee for working out the disallowance u/s. 14A of the Act. We noticed that the Assessing Officer did not objectively examine the methodology adopted by the assessee for working out the disallowance and instead he has proceeded to apply the provision of Rule 8D(2)(iii) of the I.T. Rules without considering the factual aspects. We noticed that the learned CIT(A) also confirmed the disallowance without examining the factual details discussed above. Under these set of facts, we are of the view

In the result, appeal filed by the assessee is allowed. Order has been pronounced in the Court on 16.11.2016