Vaish Associates, New Delhi v. ACIT, New Delhi

ITA 1381/DEL/2013 | 2008-2009
Pronouncement Date: 17-04-2014 | Result: Partly Allowed

Appeal Details

RSA Number 138120114 RSA 2013
Assessee PAN AAAFV2395K
Bench Delhi
Appeal Number ITA 1381/DEL/2013
Duration Of Justice 1 year(s) 1 month(s) 9 day(s)
Appellant Vaish Associates, New Delhi
Respondent ACIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 17-04-2014
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted H
Tribunal Order Date 17-04-2014
Date Of Final Hearing 20-01-2014
Next Hearing Date 20-01-2014
Assessment Year 2008-2009
Appeal Filed On 08-03-2013
Judgment Text
INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H : NEW DELHI BEFORE SHRI SHAMIM YAHYA ACCOUNTANT MEMBER AND SHRI A. T. VARKEY JUDICIAL MEMBER ITA NO. 1381 /DEL/ 2013 (ASSESSMENT YEAR: 2008 - 09 ) VAISH ASSOCIATES FLAT NO. 5 - 7 10 HAILEY ROAD NEW DELHI PAN : AAAFV2395K VS. ACIT CIRCLE - 37(1) NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : AJAY VOHRA ADV. RESPONDENT BY: SAMEER SHARMA SR. DR O R D E R PER A. T. VARKEY JUDICIAL MEMBER THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT(A) - XXVIII NEW DELHI DATED 04.01.2013 FOR THE ASSESSMENT YEAR 2008 - 09. 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS: - 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE COM MISSIONER OF INCOME TAX (APPEALS) ['CIT (A)'] ERRED IN UPHOLDING DISALLOWANCE OF DEDUCTION OF RS.25 00 000 MADE BY THE ASSESSING OFFICER IN RESPECT OF THE AMOUNT CONTRIBUTED BY THE APPELLANT TO 'INTERNATIONAL FISCAL ASSOCIATION - INDIA BRANCH ('IF A')HOLDING THE SAME TO BE NOT RELATABLE TO THE PROFESSIONAL ACTIVITIES OF THE APPELLANT. 1.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE CIT(A) ERRED IN UPHOLDING DISALLOWANCE ALLEGING THAT: (A) THE APPELLANT HAD SUBSTANTIAL INTEREST IN CONSTRUCTION OF BUILDING 'HOUSING THE APPELLANT CONCERN'; (B) THE APPELLANT HAD NO ACTIVITIES RELATING TO IF A; (C) CONTRIBUTION MADE BY THE APPELLANT WAS 'NOT DUE TO PROFESSIONAL ACTIVITIES' OF THE APPELLANT; AND (D) THE BUILDING WAS BEING USED FOR PURPOSES DIFFERENT FROM THE OBJECTS STATES BY THE APPELLANT. 1.2 WITHOUT PREJUDICE THE CIT(A) ERR ED ON FACTS AND IN LAW IN OBSERVING THAT DEDUCTION UNDER SECTION 80 G OF THE ACT WAS IN THE ALTERNATE ALSO NOT ADMISSIBLE ON THE GROUND THAT NO SUCH CLAIM WAS MADE BY THE APPELLANT IN THE RETURN OF INCOME WITHOUT APPRECIATING THAT THE ASSESSING OFFICER HAD IN THE ASSESSMENT OF ASSESSMENT YEAR 2009 - 10 SUO - MOTO ALLOWED DEDUCTION UNDER THE SAID SECTION IN PAGE NO. 2 RESPECT OF THE CONTRIBUTION MADE TO IF A. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN MAKING ADHOC DISALLOWANCE OF RS.L 43 792 BEING @5% OF THE FOLLOWING EXPENDITURE INCURRED BY THE APPELLANT TOWARDS ALLEGED PERSONAL USE: HEAD OF EXPENDITURE AMOUNT CLAIMED BY THE APPELLANT TELEPHONE EXPENSES RS.9 11 663 MOBILE EXPENSES RS.4 13 802 VEHICLE MAINTENANCE EXPENSES RS.7 26 216 DEPRECIATION ON VEHICLES RS.L4 791 HOSPITALITY EXPENSES RS.4 44 680 GIFTS & PRESENTS RS.3 64 691 TOTAL RS.28 75 843 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN MAKING DISALLOWANCE OF THE FOLLOWING PAYMENTS UNDER SECTION 40(A)(IA) ON ACCOUNT OF NON DEDUCTION OF TAX AT SOURCE UNDER SECTIO N 194C OF THE ACT: NAME OF THE PARTY EXPENSE HEAD AMOUNT PAID M / S. UNISING PROJECTS PVT. LTD. REPAIR AND MAINTENANCE RS.5 08 222 M / S. RITU PRINTS PRINTING & STATIONERY RS.L 89 245 M/ S. CHANDRA PRINTERS PRINTING & STATIONERY RS.23 325 3.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN NOT APPRECIATING THAT THE ASSESSING OFFICER DID NOT ALLOW ADEQUATE OPPORTUNITY. OF BEING HEARD TO THE APPELLANT IN THIS REGARD. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE RS.30 698 MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT WITHOUT APPRECIATING .THAT NO EXPENDITURE DIRECT OR INDIRECT WAS INCURRED BY THE APPELLANT IN EARNING THE EXEMPT DI VIDEND INCOME. 4.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN NOT APPRECIATING THAT THE AFORESAID DISALLOWANCE WAS MADE BY THE ASSESSING MERELY BY APPLYING THE FORMULA GIVEN IN RULE 8D OF THE INCOME TAX RULES 1962 WI THOUT APPRECIATING THAT THE SAID RULE HAD NO APPLICATION ON THE FACTS OF THE APPELLANT'S CASE. PAGE NO. 3 3. BRIEF FACTS OF THE CASE IS THAT THE ASSESSEE IS A LAW FIRM ENGAGED IN THE CORPORATE TAX AND BUSINESS ADVISORY SERVICES AND HAS SHOWN INCOME UNDER THE HEADS INCOME FROM PROFESSION AND INCOME FROM OTHER SOURCES. THE ASSESSEE HAS SHOWN A NET PROFIT OF 25.25% (GROSS RECEIPTS RS. 24.57 CRORES) AS AGAINST NET PROFIT OF 23.54 % IN FINANCIAL YEAR 2006 - 07 (GROSS RECEIPTS RS. 18.75 CRORES). THE RETURN OF INCOME DE CLARING TOTAL INCOME OF RS. 6 23 14 832/ - WAS E - FILED BY THE ASSESSEE ON 29.09.2008. THE CASE WAS PROCESSED U/S 143(1) ON 11.12.2009. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) OF THE INCOME TAX ACT 1961 (HEREIN AFTER THE ACT) DATED 13.08. 2009 WAS SERVED ON THE ASSESSEE. THE ASSESSEE BROUGHT THE BOOKS OF ACCOUNT ALONG WITH VOUCHERS WHICH WERE CALLED FOR AND THE ASSESSING OFFICER VERIFIED THE SAME ON TEST - CHECK BASIS. THE ASSESSEE WAS ASKED TO JUSTIFY ALONGWITH DOCUMENTARY EVIDENCE ABOUT EXP ENSES OF RS. 25 00 000/ - DEBITED UNDER THE HEAD OF ADVERTISEMENT EXPENSES. FOR THAT THE ASSESSEE ENCLOSED A COPY OF CERTIFICATE FROM INTERNATIONAL FISCAL ASSOCIATION INDIAN BRANCH CONFIRMING RECEIPT OF PAYMENT OF RS. 25 LAKHS TOWARDS IFA ACADEMY BUILD ING AS DONATION. THE ASSESSING OFFICER POINTS OUT IN THE ASSESSMENT ORDER THAT THE ADDRESS OF THE IFA INDIA BRANCH IS THE SAME AS THAT OF THE ADDRESS OF THE OFFICE OF THE ASSESSEE. THUS THE ASSESSING OFFICER CONCLUDED THAT IT WAS AN ARRANGEMENT ENTERED I NTO BY THE ASSESSEE TO CONTRIBUTE FOR CONSTRUCTION OF A BUILDING WHEREIN THE ASSESSEE FIRM WAS HAVING SUBSTANTIAL INTEREST AND HE HELD THAT THE SAID DONATION CANNOT BE RECOGNIZED U/S 80G OF THE ACT; AND HE DISALLOWED THE EXPENDITURE AS NOT RELATING TO AN Y PROFESSIONAL ACTIVITIES OF THE FIRM; AND ALSO MADE AN OBSERVATION THAT THE SAID EXPENDITURE WAS IN THE NATURE OF AN INVESTMENT AND IT DOES NOT QUALIFY TO BE DEBITED AS A BUSINESS/ PROFESSION EXPENDITURE U/S 37 OF THE ACT; AND HE ADDED BACK THE SAID EXPEN DITURE OF RS. 25 LAKHS TO THE INCOME OF THE ASSESSEE . 4. AGGRIEVED BY THE SAID ORDER OF THE ASSESSING OFFICER THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A) WHO WAS PLEASED TO UPHOLD AND CONFIRM THE ORDER OF THE ASSESSING OFFICER. AGGRIEVED BY THE SAID ORDER OF THE LD CIT(A) THE ASSESSEE IS BEFORE US. 5. AT THE OUTSET THE LD COUNSEL FOR THE ASSESSEE SHRI AJAY VOHRA PARTNER OF THE ASSESSEE FIRM APPEARING AS PARTY IN PERSON BROUGHT TO OUR NOTICE THAT THE PAGE NO. 4 SAID ISSUE HAS ALREADY BEEN COVERED BY A DE C ISION OF THE CO - ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO. 1382/DEL/2012 FOR THE ASSESSMENT YEAR 2009 - 10 DATED 5 TH JULY 2013 IN WHICH THE TRIBUNAL HELD AS UNDER: - 12. COMING TO THE PAYMENT MADE TO THE INDIAN BRANCH OF IFA WE FIND THAT THE FINDING OF THE REVENUE THAT THE ASSESSEE IS SUBSTANTIALLY INTEREST IN IFA IS FACTUALLY INCORRECT. INDIAN BRANCH OF IFA IS A PROFESSIONAL BODY AND IS A NON PROFIT ORGANIZATION ENGAGED IN THE STUDY OF INTERNATIONAL TAX LAWS AND POLICY. IT CARRIES OUT SCIENTIFIC RES EARCH HOLDS CONFERENCES PUBLISHES MATERIAL FOR THE USE OF THE MEMBERS. MR. AJAY VOHRA WHO IS THE PARTNER OF THIS LAW FIRM IS ONE OF THE 27 EXECUTIVES COMMITTEE MEMBERS OF INDIA BRANCH OF IFA. HENCE THIS GROUND OF DISALLOWANCE HAS TO BE VACATED AS DEVOID OF MERIT. THE REVENUES CONTENTION THAT THE FACT THAT THE INDIAN BRANCH OF IFA IS LOCATED IN THE SAME PREMISES AS THAT OF THE ASSESSEES FIRM AND HENCE THE GENUINENESS OF THE PAYMENT SHOULD BE DOUBTED TO SAY THE LEAST IS A FRIVOLOUS ALLEGATION. THIS IS J UST A SURMISE AND CONJECTURE. IN OUR VIEW SUCH INFERENCE CANNOT BE DRAWN FOR THE REASON THAT ANY PROFESSIONAL BODY PROMOTED BY EMINENT PROFESSIONAL ARE INITIALLY LOCATED AT A PLACE WHICH IS GENEROUSLY ALLOWED TO BE USED BY THE FOUNDERS OF THE SOCIETY. IT CANNOT BE EXPECTED THAT A NEWLY FORMED NON - PROFIT ORGANIZATION STARTED WITH NOBLE INTENTION TO PROMOTE A PUBLIC CAUSE WILL HAVE A PREMISES OF ITS OWN SINCE INCEPTION. WE NOTE THAT EVEN CBDT AND AAR ARE MEMBERS OF IFA. AT PRESENT THE INDIAN BRANCH OF THE I FA HAS COME OUT WITH A HUGE BUILDING IN SECTOR 62 NOIDA WHEREIN THE INTERNATIONAL FISCAL ACADEMY FUNCTIONS. HENCE THIS IS ALSO NOT A JUST GROUND FOR DISALLOWANCE. ON THE ISSUE WHETHER THE EXPENDITURE IN QUESTION IS RELATED TO PROFESSIONAL ACTIVITY OF THE FIRM OR NOT WE ARE CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE THAT THE CONTRIBUTION IN QUESTION CREATES AWARENESS ABOUT THE LAW FIRM AMONG CORPORATE EXECUTIVES CAS LAWYERS GOVERNMENT REPRESENTATIVES ETC. WHO FREQUENT IFA ACADEMY FOR CONFERENCES DISCUSSIONS ETC. WHICH WOULD BE HELD IN THE MEETING HALL WHICH IS NAMED AFTER THE ASSESSEE FIRM AND THIS IN TURN WOULD CREATE A POSSIBILITY OF THIS FIRM GETTING SOME PROFESSIONAL ASSIGNMENTS. THUS IN OUR VIEW THE CONTRIBUTION IN QUESTION IS WHOLLY AND EXC LUSIVELY FOR THE PURPOSE OF PROFESSION OF THE ASSESSEE AND HENCE ALLOWABLE U/S 37(1). 13. COMING TO THE CASE LAWS CITED THE CASE OF CIT VS. CHEMICALS AND PLASTICS INDIA LTD. (SUPRA) THE HONBLE HIGH COURT AT PARA 10 HELD AS FOLLOWS: THE FACTS IN THIS CA SE BEFORE US STAND ON A STRONGER FOOTING SINCE THE CONTRIBUTION MADE BY THE COMPANY IS FOR THE CHAMBER OF COMMERCE WHOSE ACTIVITIES ARE CLOSELY LINKED WITH THE WELFARE OF THE CORPORATE ENTITIES WHO ARE MEMBERS THEREIN AND WHOSE INTEREST ARE TAKEN CARE OF BY THE CHAMBER OF COMMERCE IRRESPECTIVE OF WHETHER THE EXPENSE INCURRED IS COMPULSORY OR OTHERWISE. HENCE CONSIDERING THE FACT THAT THE PAYMENT IS MADE FOR THE PURPOSE OF THE BUSINESS IT SATISFIES THE COMMERCIAL EXPEDIENCY TEST TO ACCEPT THE CASE OF THE ASSESSEE. IN THE CIRCUMSTANCES WE DO NOT FIND ANY PAGE NO. 5 JUSTIFICATION TO ACCEPT THE CASE OF THE REVENUE THAT THE PROVISIONS OF S. 37 HAVE TO BE VIEWED IN A VERY STRICT MANNER. IT MAY BE NOTED THAT SECTION 37 ITSELF IS CONCERNED WITH AN EXPENDITURE LAID OUT OR EXPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OR PROFESSION TO QUALIFY FOR DEDUCTION. WITH THE NECESSITY NO LONGER A VALID TEST WE REJECT THE REVENUES APPEAL. 13.1 IN VIEW OF OUR ABOVE DISCUSSION AND APPLYING THE PROPOSITIONS LAID DOW N IN THIS CASE LAW TO THE FACTS OF THE CASE WE ALLOW THIS CLAIM OF THE ASSESSEE 6 . RESPECTFULLY FOLLOWING THE ORDER OF THE CO - ORDINATE BENCH WE ALLOW THIS GROUND IN FAVOUR OF THE ASSESSEE AND DELETE THE SAID ADDITION OF RS. 25 LAKHS AND THIS GROUND OF THE ASSESSEE IS ALLOWED . 7 . APROPOS GROUND NO. 2 IN RESPECT OF AD HOC DISALLOWANCE OF 5% FROM COMMUNICATION AND OTHER EXPENSES. THE ASSESSEE HAD DEBITED COMMUNICATION EXPENSES OF RS. 13 25 465/ - BREAK UP OF IT AS UNDER: - HEAD OF EXPE NDITURE AMOUNT CLAIMED BY THE APPELLANT TELEPHONE EXPENSES RS.9 11 663 MOBILE EXPENSES RS.4 13 802 VEHICLE MAINTENANCE EXPENSES RS.7 26 216 DEPRECIATION ON VEHICLES RS.L4 791 HOSPITALITY EXPENSES RS.4 44 680 GIFTS & PRESENTS RS.3 64 691 TOTAL RS.28 75 843 8 . THE ASSESSEE CLAIMED VEHICLE MAINTENANCE EXPENSES OF RS. 7 26 216/. HOSPITALITY EXPENSES OF RS. 4 44 680/ - AND GIFTS AND PRESENT OF RS. 3 64 691/ - THUS EXPENDITURE AMOUNTING TO RS. 28 75 843/ - W AS CLAIMED AS EXPENDITURE. 9 . THE ASSESSING OFFICER DISALLOWED 5% OF THE TOTAL EXPENSES UNDER THE TELEPHONE AND VEHICLE HEAD AND HOSPITALITY AND GIFTS EXPENSES I.E. 5% OF RS. 28 75 843/ - WHICH COMES TO RS. 1 43 792/ - WAS THUS DISALLOWED ON THE GROUND THAT CHANCES OF PER SONAL USE OF THE SAID EXPENSES BY THE PARTNERS CANNOT BE RULED OUT . 10 . AGGRIEVED BY THE SAID ORDER OF THE LD ASSESSING OFFICER THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A) WHO WAS PLEASED TO UPHOLD THE SAID PAGE NO. 6 AD - HOC DISALLOWANCE OF 5%. AGGRIEVED BY THE SAID ORDER OF THE LD CIT(A) THE ASSESSEE IS BEFORE US. 11 . THE LD COUNSEL SUBMITTED THAT THE AFORESAID EXPENSES WERE INCURRED BY THE ASSESSEE IN THE NORMAL COURSE OF CARRYING OUT ITS PROFESSIONAL ACTIVITIES. DURING THE COURSE OF ASSESSMENT THE ASSESSEE DULY PRODUCED ITS BOOKS OF ACCOUNTS AND VOUCHERS AND SUBMITTED COPIES OF THE LEDGER ACCOUNTS WHICH WERE ALSO CHECKED BY THE ASSES SING OFFICER. THE LD COUNSEL SUBMITTED THAT SINCE THE AFORESAID EXPENDITURE WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF CARRYING OUT ASSESSEES PROFESSIONAL ACTIVITIES AND IS ALSO FULLY VOUCHE RE D AND ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS THEREFORE NO SEPARATE LOG BOOK WAS MAINTAINED BY THE ASSESSEE. LD COUNSEL SHRI AJAY VOHRA CONTENDED THAT ADEQUATE OPPORT UNITY WAS NOT GRANTED TO THE APPELLANT SO THEY COULD NOT PROVIDE THE DETAILS ASKED FOR BY THE ASSESSING OFFICER. SO ACCORDING TO HIM THE ORDER EMANATING IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE NEED S TO BE STRUCK DOWN. ON THE OTHER HAND THE LD DR CONTENDED THAT VIDE NOTE SHEET DATED 16 . 11.2010 THE ASSESSEE WAS ASKED TO JUSTIF Y ALSO WHETHER THE SAID EXPENSES FOR MOBILE AND VEHICLE EXPENSES WERE WHOLLY AND EXCLUSIVELY FOR BUSINESS AND PROFESSIONAL PURPOSE ALONE; AND ALSO THE ASSESSEE WAS ASKED TO JUS TIFY THE CLAIM OF EXPENSES INCURRED ON HOSPITALITY AND PURCHASE OF GIFTS ; AND ALSO THE ASSESSEE WAS SPECIALLY ASKED TO PROVIDE LOG BOOKS HOWEVER THE ASSESSEE FAILED TO PRODUCE THE SAME . ACCORDING TO THE LD DR THE ASSESSING OFFICER FINDS THAT THE ASSESSEE DOES NOT MAINTAIN A LOG BOOK THEREFORE USING THE VEHICLE FOR P ERSONAL USE CANNOT BE RULED OUT; SIMILARLY MOBILE PHONES AND OTHER EXPENSES CLAIMED BY THE ASSESSEE MIGHT HAVE BEEN USED FOR PERSONAL USE CANNOT BE RULED OUT ; AND AFTER CONSIDERING THE FBT PAYM ENT ONLY A VERY REASONABLE AMOUNT I.E 5% OF THE TOTAL EXPENSES UNDER THE TELEPHONE VEHICLE AND HOSPITALITY AND GIFTS 5% EXPENSES WAS DISALLOWED. THEREFORE ACCORDING TO THE LD DR THE LD CIT(A) ALSO FOUND THAT THE DISALLOWANCE OF 5% IS VERY REASONABLE AND UPHELD THE ORDER OF ASSESSING OFFICER AND THE SAID ORDER NEED NOT BE INTERFERED BY US. 12. WE HAVE HEA R D THE RIVAL SUBMISSIONS AND HAVE PERUSED THE RECORDS. THE ASSESSING OFFICER IN HIS OPENING PARAGRAPH OF THE ASSESSMENT ORDER HAS STATED THAT THE BOOKS OF ACCOUNT ALONGWITH VOUCHERS WERE CALLED FOR AND VERIFIED ON TEST - CHECK BASIC. WE FIND THAT THE ASSESSING OFFICER OR THE LD CIT(A) HAS NOT PAGE NO. 7 BROUGHT ANY EVIDENCE ON RECORD TO SUBSTANTIATE THAT THE ABOVE EXPENDITURE WERE NOT INCURRED BY THE ASSESSE E FOR THE OFFICIAL PURPO SES. WE FIND THAT INSPITE OF BOOKS OF ACCOUNTS BEING PRODUCED BEFORE THE ASSESSING OFFICER THE ASSESSING OFFICER WITHOUT POINTING OUT ANY SPECIFIC INSTANCE OF THE ABOVE EXPENDITURE TO HAVE BEEN INCURRED FOR THE PERSONAL USE OF THE PARTNERS OF THE ASSESSEE FIRM HAS ON CONJECTURES AND SURMISES MADE AN AD - HOC DISALLOWANCE @ 5% OF THE TOTAL EXPENDITURE. WE FIND FORCE IN THE SUBMISSION OF THE LD COUNSEL THAT ADEQUATE OPPORTUNITY WAS NOT GRANTED TO THE ASSESSEE TO BRING ANY DOCUMENTS TO SUPPORT THEIR CLAIM OF EXPENSES INCURRED FOR VEHICLE MOBILE PHONES ETC. MERELY ON THE BASIS O F SURMISES AND CONJECTURES THE EXPENDITURE CANNOT BE DISALLOWED ; AND WITHOUT EVIDENCE BEFORE THE ASSESSING OFFICER AND LD CIT(A) THEY CANNOT DRAW A CONCLUSION T HAT SUCH EXPENDITURE CANNOT BE ALLOWED. PRESUMPTION OF EXPENDITURE BY THE PARTNER AND EMPLOYEES OF THE ASSESSEE FOR PERSONAL USE ON AD - HOC BASIS CANNOT BE ACCEPTED. IN THIS CASE WE FIND THAT THE ASSESSING OFFICER DID NOT HAD ANY MATERIAL TO SUBSTANTIATE HI S REASONING THAT CERTAIN EXPENDITURE MIGHT HAVE BEEN USED NOT FOR PROFESSIONAL EXPENSES ; AND DISALLOWANCE OF SUCH EXPENDITURE CANNOT BE MADE IN AB SENCE OF ANY EVIDENCE BROUGHT ON RECORD BY THE DEPARTMENT TO SHOW THAT THE EXPENDITURE INCURRED WAS EXCESSIVE OR UNREASONABLE ; AND THEREFORE THE AD - HOC DISALLOWANCE CAN BE SAID TO BE AN ARBITRARY EXERCISE OF POWER WHICH CANNOT BE COUNTENANCED . THE PRIVY COUNCIL IN CIT V. KAMESWAR SINGH 01 ITR 94 (P.C.) HAS OBSERVED THAT THE ASSESSING OFFICER IS NOT ENTITLED TO MAKE A GUESS WITHOUT EVIDENCE. IN [1954] 25 ITR 216 HC [NAGPUR] WHERE HONBLE DIVISION BENCH OBSERVED THAT: IT IS CERTAINLY NOT A LEAP IN THE DARK AND THE ITO IS NOT ENTITLED TO MAKE A GUESS WITHOUT EVIDENCE. 12(A) IT IS A WELL SETTLED PRINCIPLE O F LAW THAT WHEN A JUDICIAL OR QUASI - JUDICIAL AUTHORITY ARE DECIDING A QUESTION OF FACT THAT HAS TO BE DECIDED ON THE BASIS OF MATERIALS AND EVIDENCES TO SUPPORT THE SAME AND NOT ON THE BASIS OF SURMISES AND CONJECTURES AS LAID DOWN IN UMA CHARAN SHAW & BR OS 37 ITR 271 (SC) AND THAT SUSPICION HOWSOEVER STRONG CANNOT TAKE THE PLACE OF PROOF. 13. IN VIEW OF THE AFORESAID DICTUM OF LAW THE IMPUGNED ORDER OF DISALLOWING 5% OF THE ABOVE EXPENDITURE ON AD - HOC BASIS HAS NO FACTUAL OR LEGAL BASIS AND IS THEREFO RE DELETED. THEREFORE WE SET ASIDE THE SAID AD - HOC DISALLOWANCE PAGE NO. 8 MADE BY THE ASSESSING OFFICER AND ALLOW THIS GROUND OF THE APPEAL OF THE ASSESSEE . 14 . GROUND NO. 3. DISALLOWANCE MADE U/S 140(A)(IA) ON ACCOUNT OF NON DEDUCTION OF TAX AT SOURCE U/S 194 C OF THE ACT. 15 . LD COUNSEL PARTNER OF THE ASSESSEE FIRM HAS NOT PRESSED THIS GROUND THEREFORE THIS GROUND OF THE ASSESSEE IS DISMISSED. 16 . GROUND NO. 4 APR O POS DISALLOWANCE OF SUM OF RS. 30 698/ - MADE U/S 14A OF THE ACT. 17. THE LD COUNSEL SUBMITTED THAT THE ASSESSEE HAS EARNED INCOME EXEMPT FROM TAX AMOUNTING TO RS. 2 76 978/ - . DURING THE RELEVANT ASSESSMENT YEAR THE ASSESSEE HAD EARNED DIVIDEND INC OME OF RS. 2 76 978/ - FROM INVESTMENT IN FRANKLIN TEMPLETON MUTUAL FUND WHICH WAS EXEMPT U/S 10(35) OF THE ACT. LD COUNSEL SUBMITTED THAT AS PER SECTION 14A(1) OF THE ACT FOR THE PURPOSE OF COMPUTING TOTAL INCOME UNDER CHAPTER IV OF THE ACT 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. SUB - SECTION 2 AND 3 OF THE SAID SECTION PROVIDES THAT ASSESSING OFFICER CAN DISALLOW THE EXPENSES IN RELATION TO INCOME WHICH IS EXEMPT FROM INCOME TAX ON THE BASIS OF PRESCRIBED METHOD WHERE HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE ASSESSEES CLAIM REGARDING SUCH EXPENDITURE HAVING REGARD TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE. RULE 8D OF THE RULES IS THE METHOD OF COMPUTATION PRESCRIBED FOR THE PURPOSE OF SAID SECTION. IT WAS SUBMITTED BY THE COUNSEL THAT THE ASSESSEE DURING THE YEAR HAS NOT INCURRED ANY EXPENDITURE DIRECTLY OR INDIRECTLY TOWARDS EARNING EXEMPT DIVIDEND INCOME. THE LD COUNSEL STRENUOUSLY ARGUED T HAT EVEN AFTER INSERTION OF RULE 8D THE DISALLOWANCE U/S 14A OF THE ACT CANNOT BE MADE UNLESS THE ASSESSING OFFICER IS SATISFIED HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE THAT EXPENSES WAS INCURRED IN RELATION TO EXEMPT DIVIDEND INCOME. THEREFORE IT WAS SUBMITTED THAT HAVING REGARD TO THE BOOKS OF ACCOUNT OF THE ASSESSEE AND ON THE FACTS OF THE CASE NO SATISFACTION TOWARDS INCURRING OF EXPENDITURE IN EARNING EXEMPT DIVIDEND INCOME CAN BE REACHED BY THE ASSESSING OFFICER SO NO DISALLOWANCE ON ACCOUNT OF EXPENDITURE WHICH HAS NOT BEEN INCURRED CANNOT BE COMPUTED AGAINST THE ASSESSEE. IT WAS ALSO POINTED PAGE NO. 9 OUT BY THE LD COUNSEL THAT AS PE R RULE 8D THE DISALLOWANCE CAN NOT BE MADE SIMPLY ON THE BASIS OF THE FORMULAE GIVEN THEREIN UNLESS THERE IS EVIDENCE TO DEMONSTRATE THAT ANY EXPENDITURE HAS ACTUALLY BEEN INCURRED FOR EARNING THE EXEMPT INCOME. ACCORDING TO THE LD COUNSEL T HE ASSESSEE HAS CASH MANAGEMENT FUND ACCOUNT WITH THE BANK WHEREIN THE BANK INVEST THE FUNDS STANDING IN THAT ACCOUNT IN FRANKLIN TEMPLETON MUTUAL FUND ON ITS OWN DEPENDING UPON LIQUIDITY POSITION ON THAT DAT E . AND T HE DIVIDEND ON SUCH INVESTMENT IN MUTUAL FUND GETS AUTOMATICALLY CREDITED TO THE ASSESSEES ACCOUNT AND IS THEN REINVESTED AGAIN. AND THE BANK D OES NOT CHARGE ANY FEE FOR MAKING SUCH INVESTMENT. FURTHER NEITHER THE MANAGEMENT NOR ANY ADMINISTRATIVE STAFF IS INVOLVED IN THE AFORESAID ACTIVITY OF INVESTMENT IN MUTUAL FUNDS WHICH THE BANK DOES ON ITS OWN AS PER THE STANDING INSTRUCTIONS GIVEN BY TH E ASSESSEE. FURTHER THE LD COUNSEL CONTINUED THAT THERE WAS NO ADDITIONAL INVESTMENT MADE DURING THE RELEVANT ASSESSMENT YEAR AS THE INVESTMENT IN IDBI APPEARING AS AT THE END OF THE RELEVANT FINANCIAL YEAR WAS MADE IN EARLIER ASSESSMENT YEARS. THUS NO P ORTION OF THE MANAGERIAL AND/ OR ADMINISTRATIVE EXPENDITURE IS ATTRIBUTABLE TOWARDS EARNING DIVIDEND INCOME. FURTHER THE LD COUNSEL SUBMITTED THAT NO INTEREST HAS BEEN INCURRED DURING THE RELEVANT ASSESSMENT YEAR WHICH CAN BE DISALLOWED FOR EARNING DIVIDE ND INCOME. IT WAS SUBMITTED BY THE LD COUNSEL THAT NO PORTION OF THE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR TOWARDS ADMINISTRATIVE AND MANAGERIAL COSTS IS RELATABLE TO EARNING OF DIVIDEND INCOME FROM INVESTMENTS IN VARIOUS MUTUAL FUND S . THEREFORE IT WAS SUBMITTED BY THE LD COUNSEL THAT EVEN AFTER INSERTION OF RULE 8D DISALLOWANCE U/S 14A CANNOT BE MADE ON AD - HOC BASIS WITHOUT BRINGING ON RECORD EVIDENCE OF INCURRENCE OF EXPENDITURE TOWARDS EARNING EXEMPT DIVIDEND INCOME. IN SUPPORT OF HIS CONTENTION LD AR RELIED ON THE DECISION OF PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. HERO CYCLES; 323 ITR 518 AND MAXOPP INVESTMENT LTD. VS. CIT (2012) 347 ITR 272 (DEL.) . 17. LD DR ON THE OTHER HAND RELIED ON THE ORDER OF THE ASSESSING OFFICER AND HAS STATED THAT SECTION 14A WAS INSERTED BY THE FINANCE ACT 2001 SO AS TO AVOID THE LITIGATION WHICH WAS PREVAILING IN RESPECT OF ALLOCATION OF EXPENDITURE BETWEEN THE TAXABLE INCOME AND EXEMPT INCOME. THAT IN FURTHERANCE TO SUCH OBJECTIVE RU LE 8D HAS BEEN PROVIDED. THAT IN THIS CASE THE ASSESSEE HAS PAGE NO. 10 CLAIMED THAT NO DISALLOWANCE IS TO BE MADE U/S 14A. THE ASSESSING OFFICER HAS DISCUSSED THE SAME AT LENGTH AND THEREAFTER CAME TO THE CONCLUSION THAT DISALLOWANCE UNDER SECTION 14A IS REQUIRED TO BE MADE. THEREFORE THE CONTENTION OF THE ASSESSEE THAT NO SATISFACTION IS RECORDED BY THE ASSESSING OFFICER IS FACTUALLY INCORRECT. HE FURTHER STATED THAT TO AVOID THE DISPUTE WITH REGARD TO ALLOCATION OF THE EXPENDITURE RELATING TO EXEMPT INCOME THE LE GISLATURE HAS PROVIDED RULE 8D WHICH IS APPLICABLE IN THE YEAR UNDER CONSIDERATION. ONCE RULE 8D IS APPLICABLE THE ASSESSEE CAN POINT OUT A MISTAKE IF ANY IN THE WORKING MADE BY THE ASSESSING OFFICER IN RESPECT OF RULE 8D. HOWEVER WITHOUT POINTING OUT ANY SUCH MISTAKE THE ASSESSEE CANNOT CLAIM THAT NO DISALLOWANCE U/S 14A IS REQUIRED TO BE MADE. FURTHER THE LD DR TOOK OUR ATTENTION TO THE ASSESSEES REPLY TO THE ASSESSING OFFICER IN WHICH THE ASSESSEE ITSELF HAS WORKED OUT THE AMOUNT OF RS. 30 698/ - C OMPUTED AS PER CLAUSE (III) OF THE SAID RULE. SO ACCORDING TO THE LD DR THAT PLEA ALSO DOES NOT LIE FOR THE ASSESSEE . LD DR ALSO STATED THAT AL L THE DECISION CITED BEFORE US BY THE LD COUNSEL HAS BEEN CITED AND ARGUED AT LENGTH BY HIM BEFORE THE DIVISION B ENCH OF HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. COMMISSIONER OF INCOME - TAX (2012) 347 ITR 272 (DELHI) AND THE HONBLE HIGH COURT AFTER TAKING INTO CONSIDERATION ALL THESE CASES ULTIMATELY HAS REMITTED THE CASES BACK TO THE FILE O F ASSESSING OFFICER TO COMPUTE THE ACTUAL EXPENDITURE INCURRED EVEN IN CASES WHERE THE TRIBUNAL HAS HELD THAT ASSESSEE INCURRED NO EXPENDITURE IN RELATION T O THE EXEMPT DIVIDEND INCOME STILL THE HONBLE HIGH COURT SET - ASIDE THOSE ORDERS AND REMAN D ED IT BACK TO THE ASSESSING OFFICER. THE LD DR TOOK OUR ATTENTION TO THE DECISION IN CIT VS. WALFORT SHARE AND STOCK BROKERS P. LTD. (2010) 326 ITR1 (SC) AND MAXOPP I N VESTMENT LTD. (SUPRA) AND CONTENDED THAT THE ORDER OF THE ASSESSING OFFICER IS VALID AS PER LAW AND THEREFORE NEED NO INTERFERENCE. 18. WE HAVE CAREFULLY CONSIDERED THE SUBMISSION OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE DISPUTE IN THIS APPEAL IS WITH REGARD TO DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A AMOUNTING TO RS. 30 698/ - WHICH IS SUSTAINED BY THE LD CIT(A). THE ASSESSEE HAS DISPUTED THE DISALLOWANCE MAINLY ON TWO GROUNDS - (I) THAT NO SATISFACTION IS RECORDED BY THE ASSESSING OFFICER AS ENVISAGED BY THE SUB - SECTION (2) &(3) OF SECTION 14A AND PAGE NO. 11 (II) THAT NO EXPEN DITURE WAS INCURRED BY THE ASSESSEE FOR EARNING OF EXEMPT INCOME. 19. IN SUPPORT OF THE FIRST CONTENTION THE LD COUNSEL FOR THE ASSESSEE HAS RELIED UPON THE TWO DECISIONS OF MAXOPP INVESTMENTS (SUPRA) AND HERO CYCLES (SUPRA) . SO FAR AS THE LEGAL PROPOSIT ION PUT FORTH BY THE LD COUNSEL IS CONCERNED THERE CANNOT BY ANY DISPUTE. FROM A PLAIN READING OF SECTION 14A(1) AND ALSO THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN MAXOPP INVESTMENTS (SUPRA) AND HONBLE PUNJAB & HARYANA HIGH COURT IN HERO C YCLES(SUPRA) IT IS CLEAR THAT INCURRING OF SOME EXPENDITURE IS ESSENTIAL FOR INVOKING THE PROVISIONS OF SECTION 14A. IN OTHER WORDS IF NO EXPENDITURE IS FOUND TO HAVE BEEN INCURRED FOR EARNING EXEMPT INCOME DISALLOWANCE U/S 14A COULD NOT BE MADE BY THE ASSESSING OFFICER. AS PER SUB - SECTION (2) OF SECTION 14A THE ASSESSING OFFICER CAN EMBARK UPON DETERMINATION OF AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME ONLY IF HE RECORDS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE C LAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. SUB - SECTION (3) OF SECTION 14A FURTHER EXTENDS THE SCOPE OF SUB - SECTION (2) AND THE ASSESSING OFFICER IS REQUIRED TO RECORD THE SIMILAR FINDING EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO THE EXEMPT INCOME. THEREFORE THE CONTENTION OF THE LD COUNSEL THAT BEFORE PROCEEDING TO MAKE THE DISALLOWANCE U/S 14A THE ASSESSING OFFICER HAS TO RECORD HIS SATISFACTION AS REQUIRED BY SUB - SECTION (2) & (3) OF SECTION 14A IS ACCEPTED. 20. NOW WE HAVE TO EXAMINE WHETHER IN THE INSTANT CASE THE SATISFACTION HAS BEEN RECORDED. THE ASSESSING OFF ICER HAS DISCUSSED THIS ISSUE AT PAGES 4 TO 10 OF HIS ORDER. FIRST THE ASSESSING OFFICER ASKED THE ASSESSEE VIDE NOTE - SHEET NOTING DATED 22.12.2010 TO JUSTIFY THE CLAIM IN VIEW OF SECTION 14A READ WITH RULE 8 WITH REFERENCE TO THE DIVIDEND INCOME. THE ASSESSEE VIDE LETTER DATED 29.12.2010 REPLIED AS UNDER ( RELEVANT PORTION ) ARE AS UNDER: - IT IS RESPECTFULLY SUBMITTED B EFORE YOUR HONOUR THAT THE ASSESSEE DURING THE YEAR HAS NOT INCURRED ANY EXPENDITURE WHETHER DIRECTLY OR INDIRECTLY TOWARDS EARNING EXEMPT DIVIDEND INCOME. EVEN AFTER INSERTION OF RULE 8D THE DISALLOWANCE UNDER SECTION 14A OF THE ACT CANNOT BE MADE UNLES S THE ASSESSING OFFICER IS SATISFIED HAVING PAGE NO. 12 REGARD TO THE ACCOUNTS OF THE ASSESSEE THAT EXPENDITURE WAS INCURRED IN RELATION TO THE EXEMPT DIVIDEND INCOME. IT IS RESPECTFULLY SUBMITTED THAT BEFORE YOUR HONOUR THAT HAVING REGARD TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE ON THE FACTS OF THE PRESENT CASE NO SATISFACTION TOWARDS INCURRING OF EXPENDITURE FOR EARNING EXEMPT DIVIDEND INCOME CAN BE REACHED ON ACCOUNT OF THE FOLLOWING REASONS: THE ASSESSEE HAS CASH MANAGEMENT FUND ACCOUNT WITH THE BANK WHEREIN THE BANK INVEST THE FUNDS STANDING IN THAT ACCOUNT IN FRANKLIN TEMPLETON MUTUAL U IND ON ITS OWN DEPENDING AUTOMATICALLY CREDITED TO THE ASSESSEE S ACCOUNT AND IS THEN REINVESTED AGAIN. THE BANK DOES NOT CHARGE ANY FEE FOR MAKING SUCH INVESTMENT. FURTHER NEI THER THE MANAGEMENT NOR ANY ADMINISTRATIVE STAFF IS INVOLVED IN THE AFORESAID ACTIVITY OF INVESTMENT IN MUTUAL FUNDS WHICH THE BANK DOES ON ITS OWN AS PER THE STANDING INSTRUCTIONS GIVEN BY THE ASSESSEE. FURTHER THERE WAS NO ADDITIONAL INVESTMENT MADE D URING THE RELEVANT ASSESSMENT YEAR AS THE INVESTMENT IN IDBI APPEARING AS AT THE END OF THE RELEVANT FINANCIAL YEAR WAS MADE IN EARLIER ASSESSMENT YEARS. THUS NO PORTION OF THE MANAGERIAL AND/ OR ADMINISTRATIVE EXPENDITURE IS ATTRIBUTABLE TOWARDS EARNING DIVIDEND INCOME. FURTHER NO INTEREST HAS BEEN INCURRED DURING THE RELEVANT ASSESSMENT YEAR WHICH CAN BE DISALLOWED FOR EARNING DIVIDEND INCOME. IT MAY KINDLY BE APPRECIATED THAT NO PORTION OF THE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT FOR THE YEA R TOWARDS ADMINISTRATIVE AND MANAGERIAL COSTS IS RELATABLE TO EARNING OF DIVIDEND INCOME FROM INVESTMENTS IN VARIOUS MUTUAL FUNDS. WE MAY POINT OUT THAT UNDER RULE 8D OF THE RULES DISALLOWANCE CANNOT BE MADE SIMPLY ON THE BASIS FORMULATE STATED HEREIN UNLESS THERE IS EVIDENCE TO DEMONSTRATE THAT ANY EXPENDITURE HAS ACTUALLY BEEN INCURRED FOR THE EARNING EXEMPT INCOME. .. WITHOUT PREJUDICE TO THE AFORESAID IN CASE YOUR HONOUR DOES NOT AGREE WITH THE SUBMISSIONS MADE BY THE ASSESSEE AND WERE TO APPLY RULE 8D OF THE RULES THE DISALLOWANCE U/S 14A CANNOT IN OUR RESPECTFUL SUBMISSION EXCEED RS. 30 698/ - COMPUTES AS PER CLAUSE (III) OF THE SAID RULE. 21. THE ASSESSING OFFICER EXAMINED THE ABOVE CONTENTIONS AT LENGTH AND AFTER CITING APEX COURT DECISION IN CIT V. WALFORT SHARE AND STOCK BROKERS P LTD: 326 ITR 1 (SC) AT PAGE 4 TO 10 OF HIS ORDER AND THEREAFTER CONCLUDED AS UNDER: - THE ASSESSING OFFICER HAS TO ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT F ACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. IN THE INSTANT CASE THE ASSESSEE CONTENDED THAT IT HAD NOT INCURRED ANY EXPENDITURE FOR EARNING THE DIVIDEND INCOME AND THAT NO D ISALLOWANCE WAS WARRANTED. THE CONTENTION OF THE ASSESSEE IS NOT PAGE NO. 13 ACCEPTABLE IN VIEW OF THE FACT THAT THE INSERTION OF SECTION 14A WAS CURATIVE AND DECLARATORY. THE ASSESSEE HAS NOT PROVIDE D ANY SEPARATE ACCOUNT FOR EARNING FOR EXEMPT INCOME. THE ASSESSEE FIRM HAS MADE INVESTMENTS FOR EARNING EXEMPT INCOME THROUGHOUT THE YEAR. MANAGING SUCH A LARGE PORTFOLIO ENTAIL EXPENSES RIGHT FROM DIVERSION OF MANPOWER/ STAFF FOR INDULGING IN INVESTMENT A CTIVITIES 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 MUTUAL FUND UNITS ETC. IN VIEW OF PROVISION OF SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULES 1962 AN EXPENDITURE OF RS. 30 698/ - IS DETERMINED WHICH IS ATTRIBUTED TO THE EARNING OF EXEMPT INCOME AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 22 . FROM THE ABOVE IT IS EVIDENT THAT THE ASSESSING OFFICER AFTER DETAILED DISCUSSION HAS ARRIVED AT THE CONCLUSION THAT DISALLOWANCE W AS REQUIRED TO BE MADE U/S 14A READ WITH RULE 8D. IN THE ASSESSEES CASE IN OUR OPINION THE ASSESSING OFFICER AFTER DETAILED DISCUSSION HAS RECORDED HIS SATISFACTION AS ENVISAGED BY SUB - SECTION (2) AND (3) OF SECTION 14A. 23. COMING TO THE ASSESSEES S ECOND CONTENTION THAT NO EXPENDITU RE WAS INCURRED FOR EARNING EXEM PT INCOME THE LD COUNSEL HAS SUBMITTED THAT THE ASSESSEE - FIRM HAS CASH MANAGEMENT FUND ACCOUNT WITH THE BANK WHEREIN THE BANK INVEST THE FUNDS STANDING IN THAT ACCOUNT IN FRANKLIN TEMPLET ON MUTUAL FUND ON ITS OWN DEPENDING UPON LIQUIDITY POSITION ON THAT DATE. THE DIVIDEND ON SUCH INVESTMENT IN MUTUAL FUND GETS AUTOMATICALLY CREDITED TO THE ASSESSEES ACCOUNT AND IS THEN RE - INVESTED AGAIN. ACCORDING TO THE LD COUNSEL FOR THE ASSESSEE THE B ANK DOES NOT CHARGE ANY FEE FOR MAKING SUCH INVESTMENT AND NEITHER THE MANAGEMENT NOR ANY ADMINISTRATIVE STAFF IS INVOLVED IN THE AFORESAID ACTIVITY OF INVESTMENT IN MUTUAL FUND WHICH THE BANK DOES ON ITS OWN AS PER THE STANDING INSTRUCTIONS GIVEN BY THE ASSESSEE. FURTHER IT WAS CONTENDED BY THE LD COUNSEL THAT NO ADDITIONAL INVESTMENTS WERE MADE DURING THE RELEVANT ASSESSMENT YEAR AS THE INVESTMENT IN IDBI WAS MADE IN EARLIER ASSESSMENT YEAR. IT WAS FURTHER CONTENDED THAT NO POR TION OF THE EXPENSES DEBIT ED TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR TOWARDS ADMINISTRATIVE AND MANAGERIAL COST IS RELATABLE TO EARNING OF DIVIDEND INCOME FROM INVESTMENTS IN VARIOUS MUTUAL FUNDS. AND THEREFORE NO DISALLOWANCE IS WARRANTED S INCE THERE IS PAGE NO. 14 NO EXPENDITURE HAD BEEN INCURRED AT THE HANDS OF THE ASSESSEE TO EARN THE EXEMPT INCOME. 24. TO COUNTER THE SAME ASSESSING OFFICER HAS STATED THAT THE MANAGEMENT OF PORTFOLIO THROUGHOUT THE YEAR ENTAILS EXPENSES LIKE DIVERSION OF MANPOWER/ STAFF FOR INDULGING IN INVESTMENT ACTI VITIES TO VARIOUS ACTIVITIES LIKE VISITING BANKS USE OF VEHICLE AND TELEPHONE USE OF INTERNET AND IF THE PORTFOLIO MANAGEMENT IS WEB - BASED COST OF COMPUTER & ITS DEPRECIATION COMPUTER OPERATOR CONSEQUENT ELECTRICITY USE OF OFFICE PREMISES FEE CHARGE D BY MUTUAL FUND AGENTS/ BANKERS (ANNUAL FEE) PORTFOLIO RECORD MAINTENANCES AND ITS TRA C KING TO ENSURE TIMELY SALE/ PURCHASE OF MUT U AL FUND UNIT ETC. THE SAID REASONING OF THE ASSESSING OFFICER HAS BEEN UPHELD BY THE LD CIT(A). AND WE DO NOT FIND ANY PERVERSITY IN THE ORDER OF THE AUTHORITIES BELOW IN THIS REGARD. FOR THE REASONS STATED ABOVE T HE ARGUMENT OF THE LD COUNSEL THAT NO EXPENDITURE WHATSOEVER IS INCURRED BY THE ASSESSEE WHEN THE BANK ON ITS OWN DECIDES AS TO INVEST THE CASH MANAGEMENT FUNDS OF THE ASSESSEE IN FRANKLIN TEMPLETON MUTUAL FUND CANNOT BE COUNTENANCED. SO WE REJECT THE CONTENTION OF THE ASSESSEE IN THE GIVEN FACTS AND CIRCUMSTANCES THAT THERE WAS NO EXPENDITURE DIRECTLY OR INDIRECTLY INCURRED TO EARN THE EXEMPT INCOME. 25. IT MAY BE TAKEN NOTE T HAT RULE 8D HAS BEEN INTRODUCED TO AVOID THE DISPUTE WITH REGARD TO ALLOCATION OF THE EXPENDITURE BETWEEN THE EXEMPT INCOME AND TAXABLE INCOME. THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2008 - 09 AND ADMITTEDLY RU LE 8D WAS APPLICABLE. THAT THE ASSESSING OFFICER HAS COMPUTED THE DISALLOWANCE UNDER RULE 8D AND AS PER FORMULA PROVIDED UNDER RULE 8D THE DISALLOWANCE WORKED OUT TO RS. 30 698/ - . WE FIND THAT THE ASSESSEE ITSELF HAS GIVEN WORKING OF RULE 8D AND CALCULATE D THE SAME TO AN AMOUNT OF RS. 30 698/ - AS AN ALTERNATE PRAYER IN CASE IT FAILS ON THE ARGUMENT THAT DISALLOWANCE U/S 14A READ WITH RULE 8D COULD NOT STAND WHEN THERE IS NO EXPENDITURE INCURRED TO EARN EXEMPT INCOME. SINCE THE ASSESSING OFFICER HAS RECOR DED SATISFACTION AS ENVISAGED IN SECTION 14A WITH REGARD TO APPLICABILITY OF SECTION 14A AND T HE ASSESSEE IS NOT ABLE TO POINT OUT ANY MISTAKE IN ITS OWN WORKING OF DISALLOWANCE UNDER RULE 8D OR BY THE ASSESSING OFFICER AND SINCE THE DISALLOWANCE UNDER RULE 8D HAD BEEN WORKED OUT AS PER THE FORMULA GIVEN IN THE RULES WE ARE NOT INCLINED TO INTERFERE IN THE IMPUGNED ORDER OF THE LD CIT(A) PAGE NO. 15 AND W E DO NOT FIND ANY LEGAL INFIRMITY THEREIN. THE SAME IS THEREFORE SUSTAINED AND THE APPEAL OF THE ASSESSEE IS DISMISSED. 26. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER P RONOUNCED IN THE OPEN COURT ON 17 . 04 .2014. SD/ - SD/ - (SHAMIM YAHYA) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 17 / 04 /2014 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT NEW DELHI