IN INCOME TAX APPELLATE TRIBUNAL D Bench, Mumbai Before Shri B.R. Baskaran (AM)& Pawan Singh (JM) I.T.A. No. 589/Mum/2015 (Assessment Year 2010-11) M/s. Techprocess Payment DCIT-10(1) Services Ltd. Vs. 455, Aayakar (formerly known as M/s. Bhavan Techprocess Solutions Ltd.) M.K. Road Building No. 2, 1 s t Floor Mumbai-400 020. Mehra Industrial Estate Next to Jaswant Landmark Mumbai-400 079. (Appellant) (Respondent) PAN No.AABCB5216D Assessee by Ms. Krupa R. Gandhi Department by Shri B.S. Bist Date of Hearing 28.7.2016 Date of Pronouncement 14.9.2016 ORDER Per B.R. Baskaran (AM) :- assessee has filed this appeal challenging order dated 03.11.2014 passed by Ld CIT(A)-21, Mumbai confirming disallowance made by AO u/s 14A of Act for assessment year 2010-11. 2. assessee is engaged in business of transaction processing and payment services. During year under consideration, assessee received dividend income of Rs.2.07 crores and claimed same as exempt. assessee disallowed sum of Rs.3,94,711/- u/s 14A of Act towards administrative expenses by allocating part of salary and other expenses. AO, however, was not satisfied with workings of assessee and accordingly computed disallowance under Rule 8D(2)(iii) of I T Rules at 2 M/s. Techprocess Payment Services Ltd. Rs.19,82,296/-, being 0.5% of average value of investments. Accordingly he added difference amount of Rs.15,87,585/- to total income of assessee. Ld CIT(A) also confirmed same. 3. Ld A.R submitted that assessee has made investments in group companies and mutual funds. She further submitted that mutual funds investments were mostly made under Reinvestment of daily dividend scheme. Accordingly she submitted that involvement of resources of assessee in making investments and in receiving dividends were very minimum. Despite these facts, assessee has voluntarily disallowed sum of Rs.3,94,711/- by allocating portion of administrative and salary expenses on reasonable basis. Ld A.R also urged various propositions to contend that no disallowance u/s 14A is warranted in facts and circumstances of case. 4. On contrary, Ld D.R submitted that provisions of Rule 8D has been held to be mandatory for year under consideration by Hon ble Bombay High Court in case of Godrej & Boyce Mfg. Co. Ltd (328 ITR 81). He submitted that assessee has allocated only junior employees salary only. He further submitted that assessee has purchased mutual fund units to tune of Rs. 8323 crores and sold equal amount of mutual fund units. 5. We heard parties and perused record. We have also gone through details of Investments given in Schedule 4 to Balance Sheet. perusal of same shows that assessee has made investments in two subsidiary companies to tune of Rs.14.98 crores. opening balance of investments in these two companies stand at Rs.12.87 crores, meaning thereby assessee has made additional investment of about Rs.2.00 crores during this year. assessee has brought forward investment of Rs.4.93 lakhs made in another company. Besides above, assessee is making short term investments in 3 M/s. Techprocess Payment Services Ltd. mutual funds, mostly in debt funds giving daily dividends. details of such investments are given in page 53 of paper book. perusal of same would show that assessee has made investments in 12 types of schemes floated by various mutual funds. assessee has invested in lump sums and withdrawn in lump sums. In fact, assessee has invested Rs.8275 crores in three schemes during year under consideration and withdrawn same during current year itself. 6. With regard to disallowance u/s 14A worked out by assessee, we notice that assessee has allocated portion of salary expenses towards dividend income as detailed below:- Staff Salary 2,54,622 Authorised signatory 1% of CTC 68,656 0.1% of CEO deputation expenses 8,237 Office boy 1% of CTC 1,112 Besides above, assessee has allocated portion of rent and other expenses also. Accordingly total amount disallowed by assessee works out to Rs.3,94,711/-. 7. We notice that assessing officer has observed that assessee has not categorised expenses incurred for making investment from which it has earned exempt income. Accordingly he has expressed view that he is satisfied that disallowance needs to be made under Rule 8D. Thus, we notice that assessing officer did not examine workings furnished by assessee vis-a-vis books of accounts. Hence we are of view that AO has not shown that he was not satisfied with correctness of working of assessee by having regard to accounts of assessee as mandated under Sec/ 14A(2) of Act. Accordingly we are of view that AO could 4 M/s. Techprocess Payment Services Ltd. not have resorted to make disallowance as per Rule 8D without entertaining objective dis-satisfaction. 8. We have noticed that assessee has increased investment made in two subsidiary companies by about Rs.2.00 crores during year under consideration. Further, assessee has invested in 15 schemes of mutual funds and made withdrawals from those accounts. Thus, major investment activity of assessee was in mutual funds category, which has been categorised as Short term investments. We have earlier noticed that assessee has made investments to tune of Rs.8,275 crores and withdrawn equal amounts. Decision for making investment of such high magnitude would definitely require involvement of high officials. assessee has not furnished basis for allocating 1% of Authorised Signatory s (CEO) salary expenses and 0.1% of his deputation expenses. It is also not known as to whether CEO alone took decision for making investments in mutual funds. Normally such decisions are taken by consulting finance department and investment experts. However, such details are not available on record. 9. In view of above reasons, it is difficult to accept workings given by assessee and we are of view that disallowance of Rs.3,94,711/- made by assessee appears to be on lower side. However, since number of transactions is limited, we are of view that this issue may be settled by making estimate on reasonable basis. Accordingly, we are of view that, considering facts and circumstances of case, disallowance u/s 14A of Act may be made at Rs.10.00 lakhs in order to cover up expenses relating to utilisation of human/other resources not considered by assessee. In our considered view, same would meet ends of justice and we order accordingly. Accordingly order passed by Ld CIT(A) stands 5 M/s. Techprocess Payment Services Ltd. modified accordingly and AO is directed to disallow above said amount of Rs.10.00 lakhs u/s 14A of Act. 10. In result, appeal filed by assessee is partly allowed. Order has been pronounced in Court on 14.9.2016 Sd/- Sd/- (PAWAN SINGH) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 14/9/2016 Copy of Order forwarded to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai PS M/s. Techprocess Payment Services Ltd. (formerly known as M/s. Techprocess Solutions Ltd.) v. DCIT-10(1), Mumbai