2019 (2) TMI 1054 - AT - Income Tax

Disallowance u/s 14A - investments made by the assessee in its subsidiary / group companies - Held that - The issue under dispute is squarely covered in favour of the Revenue by the recent decision of the Hon ble Supreme Court in the case of Maxopp investment Ltd. Vs. CIT 2018 (3) TMI 805 - SUPREME COURT OF INDIA wherein the Hon ble Supreme Court rejected the dominant purpose theory for which investments in shares were made in group companies or subsidiary companies. The Hon ble Supreme Court further held that the provisions of section 14A of the Act are applicable irrespective of the fact whether the investments were made in order to gain control or held as stock-in-trade - Decided in favour of revenue.

Summary

Issues:
Validity of disallowance u/s 14A of the Income-tax Act in relation to investments made by the assessee in its subsidiary/group companies.

Analysis:
The appeals by the Revenue were directed against the order of the Ld. CIT(A)-47, Mumbai for the A.Ys 2009-10, 2010-2011 & 2011-12, related to disallowance u/s 14A of the Act for investments in subsidiary/group companies. The issue was whether such disallowance could be validly made. Since the identical issue was involved in all appeals, they were taken together for convenience. The assessee did not appear, and the Revenue provided evidence of serving notice. The Tribunal proceeded to hear the Revenue.

The Tribunal found the issue was covered in favor of the Revenue by a recent decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. Vs. CIT. The Supreme Court rejected the 'dominant purpose theory' and held that section 14A of the Act applies irrespective of the purpose of investments. The Court emphasized that if expenditure is incurred on earning dividend income, that portion of expenditure attributable to dividend income must be disallowed. The principle of apportionment of expenses under Section 14A was highlighted. The Court clarified that the provision applies even if the investments were made for gaining control or as stock-in-trade.

The Court referred to the Delhi High Court's observation on the introduction of Section 14A, emphasizing the need for apportionment where income does not form part of the total income. The Court disagreed with the Punjab & Haryana High Court's dominant purpose theory. The Tribunal, following the Supreme Court's decision, allowed the appeals of the Revenue. Consequently, the appeals filed by the Revenue were allowed, and the order was pronounced on 20th December 2018.