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I-T - Rule 8D - Fact that various sale and purchase of securities involved time and energy of top management, it is reasonable to believe that certain administrative expenses were involved: ITAT

 

By TIOL News Service

AHMEDABAD, AUG 29, 2018: THE ISSUE IS - Whether certain amount of administrative expenses are bound to be incurred if company enters into various sale and purchase transaction of securities during relevant year and to take such decision time and energy of top management is involved. YES IS THE VERDICT.

Facts of the case

The assessee company, engaged in the business of transmission of electricity, had filed return for relevant AY. The assessee during the year had earned certain dividend income, which was claimed as exempted income u/s 10(34) of the Act. However, the assessee did not made any disallowance of the expenses incurred in relation to such exempted income. The assessee during the assessment proceedings claimed that it had not spent any time and energy for earning such dividend income. Therefore, no disallowance in respect to administrative expenses could be made under Rule 8D(2)(iii). However, the AO was of the view that the decisions of the top management in relation to the investment were very strategic and mind-boggling. Therefore some element of expenditure must have been incurred by the assessee. Moreover, the assessee was maintaining combined books of accounts for its exempted as well as taxable income. Therefore the expenses need to be disallowed as per Rule 8D of the Income Tax Rule. Thus, the AO made the disallowances and added to the total income of the assessee. On appeal, the CIT(A) confirmed the addition on account of administrative expenses.

Tribunal held that,

++ the assessee claims that it has not incurred any expenses in relation to such dividend income. However, on perusal of its Financial Statement, it was noted that there were sale and purchase of investment during the year. Therefore, the plea of the assessee that it has not spent any time and energy on such investment does not appear to be correct. It is because the top management is certainly involved in the process of purchase and sale of investment. Therefore, the AO has rightly invoked the provision of Rule 8D for making the disallowance of expenditure in relation to dividend income. Thus, the ground raised by the assessee is dismissed.

(See 2018-TIOL-1365-ITAT-AHM)


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