2015 (1) TMI 1289 - AT - Income Tax

Disallowance u/s 14A - exclusion of investment made in the companies which are strategic in nature - Held that - In the case of Interglobe Enterprises Ltd. vs. DCIT 2014 (4) TMI 269 - ITAT DELHI held that the calculation of disallowance under Rule 8D(iii) made by the Assessing Officer and upheld by the ld. CIT(A) is not correct in view of the fact that Assessing Officer had included the value of total investments for calculation of disallowance whereas in our opinion the value of those investments should have been included which were made for the purpose of earning exempt income. The assessee had made significant investments in the shares of subsidiary companies which are definitely not for the purpose of earning exempt income Since this aspect of strategic investment has not examined by lower authorities we restore the matter for both the assessment years back to the file of the A.O. for recomputing afresh the disallowances made u/s 14 A read with Rule 8-D. - Decided in favour of assessee for statistical purpose.

Summary

Issues:
- Disallowance under section 14A read with Rule 8-D of the Income Tax Rules, 1962 for assessment years 2008-09 and 2009-10.

Analysis:
1. The appeals were filed against two separate orders of the ld. CIT(A) regarding disallowances made under section 14A read with Rule 8-D of the Income Tax Rules, 1962. The common grievance in both appeals was the disallowance made by the A.O. and confirmed by the ld. CIT(A).

2. The A.O. had disallowed 0.5% of administrative expenses under section 14A read with Rule 8-D without considering interest expenses. The appellant argued that investments in group companies, where a substantial stake was held, did not require day-to-day monitoring as they were strategic long-term investments. The appellant cited various judicial decisions to support the argument that strategic investments should be excluded from attributing administrative expenses for disallowance under section 14A.

3. The ld. D.R. supported the lower authorities' orders, but after considering the contentions and judicial pronouncements, the Tribunal agreed that investments made in companies of strategic nature should not be considered for disallowance under section 14A. Citing the case of Interglobe Enterprises Ltd. vs. DCIT, the Tribunal emphasized that only investments made for earning exempt income should be considered for disallowance.

4. As the lower authorities had not examined the aspect of strategic investments, the Tribunal remanded the matter back to the A.O. for recomputing the disallowances under section 14A read with Rule 8-D for both assessment years. The A.O. was directed to provide a sufficient opportunity for the assessee to present their case before deciding the issue again.

5. Consequently, both appeals of the assessee were allowed for statistical purposes, and the order was pronounced in open court on 21st January 2015.