Bellwether Microfinance Fund Pvt Ltd v ITO (ITA No. 1743/Hyd/2013 dated 27.06.2014) Hyderabad ITAT Background: Assessee is a non-banking financing company engaged in the business of investing in microfinance companies in India. Assessee entered into a fund management agreement with Caspian Advisors Pvt. Ltd. (‘CAPL’) on 27/05/2005 as per which the said company would render consultation services to the assessee in the matter of investment etc. as fund manager. CAPL was holding 18.7% shareholding in the assessee company. The fund manager was to be paid remuneration for the fund based services. During the course of assessment proceedings, the AO noticed that while computing its income, assessee has disallowed expenditure of Rs. 35,65,860/- under section 14A read with Rule 8D. The assessee under clause (i) of Rule 8D(2) i.e. amount of expenditure directly relating to income which does not form part of total income had already disallowed an amount of Rs 25,20,080 towards fund management fees. However, on the basis of the agreement with fund manager, AO worked out the fees paid to the fund manager and arrived at an amount of Rs 2,47,49,044 as fees paid. The AO then reworked the disallowance and added Rs. 1,97,36,624/- to the income of the assessee.