2016 (7) TMI 1567 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D(2)(iii) - investments made by assessee were of strategic nature as these were not made with the purpose of earning any dividend on the investments but were prompted by strategic considerations in order to gain control over these subsidiaries/sister concern and thus should not be considered for the purpose of calculating the disallowance u/s 8D(2)(iii) - HELD THAT - Assessee has made investments in the subsidiary companies to the tune of ₹ 16.61 crores which in our opinion should not be considered for the purpose of working out the disallowance under section 14A read with rule 8D (2)(iii). Respectfully following the ratio of INTERGLOBE ENTERPRISES LTD. 2014 (4) TMI 269 - ITAT DELHI set aside the order of CIT(A) and direct the AO to verify the strategic investment and recalculate the disallowance accordingly by not considering the investments made in subsidiary companies/sister concern. - Appeal of the assessee stands allowed for statistical purposes.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act, 1961
2. Treatment of investments in subsidiaries/sister concerns for calculating disallowance u/s 14A r.w.r. 8D(2)(iii)

Issue 1: Disallowance under section 14A of the Income Tax Act, 1961:

The appellant contested the disallowance of ?11,28,990/- by the Ld. CIT(A), invoking section 14A of the Act, compared to the appellant's self-disallowance of ?41,753/-. The AO disallowed a higher amount, considering salaries, operating expenses, and financial charges. The AO rejected the adhoc disallowance made by the appellant and invoked section 14A read with rule 8D 2(iii). The Ld. CIT(A) upheld the AO's decision citing the Godrej & Boyce Mfg. Co. Ltd. case. The Ld. AR argued against this mechanically passed decision. The Mumbai Tribunal's decision in M/s Puja Impex Pvt Ltd case was cited. Eventually, the appeal was allowed for statistical purposes.

Issue 2: Treatment of investments in subsidiaries/sister concerns for calculating disallowance u/s 14A r.w.r. 8D(2)(iii):

The appellant argued that investments in subsidiaries were strategic and not for earning dividends, thus should not be considered for disallowance under rule 8D(2)(iii). Citing the Interglobe Enterprises Ltd case, it was emphasized that strategic investments should be excluded from disallowance calculations. The Tribunal's decision in the Promain Ltd. case supported this argument. The Tribunal directed the AO to recalculate the disallowance excluding investments in subsidiary companies/sister concerns. The appeal was allowed for statistical purposes based on this analysis.

In conclusion, the judgment addressed the issues of disallowance under section 14A of the Income Tax Act and the treatment of investments in subsidiaries/sister concerns. The decision was based on legal precedents and interpretations of relevant rules, ultimately allowing the appeal for statistical purposes.