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2016 (11) TMI 654 - AT - Income TaxDisallowance u/s 14A - investment made in foreign companies - Held that - Since admittedly the assessee has made investments in a foreign company, the dividend income of which is taxable in India and the CIT(A) in the first para of its order has also upheld the same view holding that the investment made in company incorporated outside India, the dividend income of which is taxable in India should not be considered for calculation of disallowance under Rule 8D and the revenue is not in appeal against this part of the order and since the assessee has submitted full details of dividend income as well as the investment in foreign company, therefore, the order of the CIT(A) being self contradictory is set aside and the grounds raised by the assessee are allowed. - Decided in favour of assessee
Issues Involved:
1. Disallowance under Section 14A read with Rule 8D. 2. Inclusion of investment in foreign subsidiaries for disallowance computation. 3. Self-contradictory findings by the CIT(A). Issue-Wise Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D: The primary issue revolves around the disallowance of expenses related to exempt income under Section 14A of the Income Tax Act, read with Rule 8D of the Income Tax Rules. The Assessing Officer (AO) noted that the assessee claimed dividend income of ?4,44,237 as exempt but did not allocate any expenses against this income. Consequently, the AO invoked Section 14A r.w. Rule 8D and recomputed the disallowance at ?13,27,400, adding ?12,41,577 to the total income after reducing the amount already disallowed by the assessee. 2. Inclusion of Investment in Foreign Subsidiaries for Disallowance Computation: The assessee argued that the investment in Kalyani Mauritius Pvt. Ltd., amounting to ?25,33,44,800, should be excluded from the disallowance computation as the dividend from this investment is taxable in India. The AO, however, included this investment while calculating the disallowance under Rule 8D. The CIT(A) initially agreed with the assessee that the investment in a foreign company, whose dividend is taxable in India, should not be included for Rule 8D computation. However, the CIT(A) also upheld the AO's disallowance on the grounds that the assessee did not furnish details of dividends received. 3. Self-Contradictory Findings by the CIT(A): The CIT(A)'s order was found to be self-contradictory. In one part, the CIT(A) agreed that the investment in a foreign company should not be considered for Rule 8D computation, but in another part, upheld the AO's disallowance. The Tribunal noted this contradiction and observed that the assessee had demonstrated that it received only ?4,44,237 as dividend from mutual funds and had calculated the disallowance at ?85,823. The only difference between the AO's and the assessee's computation was the inclusion of the investment in Kalyani Mauritius Pvt. Ltd. Tribunal's Decision: The Tribunal referred to several judicial precedents, including the Gujarat High Court's decision in CIT Vs. Suzlon Energy Ltd. and the Mumbai Tribunal's decision in ITO Vs. Strides Arcolab Ltd., which support the exclusion of investments in foreign companies for Section 14A disallowance. Given that the dividend income from the foreign company is taxable in India, the Tribunal concluded that the CIT(A)'s order was self-contradictory. Consequently, the Tribunal set aside the CIT(A)'s order and allowed the grounds raised by the assessee. Conclusion: The appeal filed by the assessee was allowed, and the disallowance under Section 14A r.w. Rule 8D was restricted to ?85,823, excluding the investment in Kalyani Mauritius Pvt. Ltd. from the disallowance computation. The Tribunal emphasized the need for consistency and adherence to judicial precedents in such matters.
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