2016 (7) TMI 1275 - AT - Income Tax

Addition invoking the provisions of section 14A r.w.r 8D - Held that - We remit back the matter to the file of the learned Assessing Officer to verify whether the investments are made by the assessee out of its interest free funds in its sister concern for strategic reasons and if found so delete the addition and if found otherwise pass appropriate orders as per merit & law.

Summary

Issues involved:
1. Whether the addition made under section 14A r.w.r 8D by the Assessing Officer can be deleted?
2. Whether provisions of section 14A can be invoked when no income from dividend is earned?

Analysis:
1. The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) regarding the addition of ?86,62,748 made by the Assessing Officer under section 14A r.w.r 8D. The assessee company had made investments from which it earned exempt dividend income. The Commissioner of Income Tax (Appeals) deleted the addition, stating that since no income from dividend was earned during the relevant year, the provisions of section 14A did not apply. Citing precedents, the Commissioner held that section 14A does not apply if no exempt income is received or receivable during the relevant year. The Tribunal remitted the matter back to the Assessing Officer to verify if investments were made in sister concerns out of interest-free funds for strategic reasons, and if so, to delete the addition.

2. The Tribunal considered the argument that investments were made in sister concerns out of interest-free funds for strategic reasons, based on precedents where it was held that no disallowance should be made under section 14A if no expenditure was incurred for earning exempt income. The Tribunal cited various decisions where it was established that if investments were made for strategic purposes and not for earning exempt income, no disallowance under section 14A should be made. The Tribunal remitted the matter back to the Assessing Officer to examine whether investments were made in sister concerns out of interest-free funds for strategic purposes, directing the Assessing Officer to delete the addition if so.

Conclusion:
The Tribunal allowed the appeal of the Revenue for statistical purposes and remitted the matter back to the Assessing Officer to verify the nature of investments made by the assessee in its sister concerns out of interest-free funds for strategic reasons. If the investments were found to be made for strategic purposes and not for earning exempt income, the addition made under section 14A r.w. Rule 8D was to be deleted.