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TMI Blog2016 (7) TMI 1567X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act, 1961 (hereinafter called as the Act) as against Rs. 41,753/- disallowed by the appellant under section 14A on its own and the issue raised in the second ground of appeal ,without prejudice, to the first ground is with respect to the investment made in subsidiaries company/ sister concerns amounting to Rs. 16.61 crores which were wrongly considered by the AO while working out the average investment for the purpose of calculating the disallowance u/s 14A r.w.r. 8D(2)(iii) which was wrong and against the provision of the Act. 3. Brief facts of the case are that the assessee filed its return of income on 29.09.2009 declaring loss of Rs. 6,22,06,413/- which was revised on 30.3.2010 and again on 28.1.2011. The return was processed unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the mutual funds. The AO observed that the assessee must have monitored the said transactions and therefore involved application of some human and financial resources and rejected the adhoc disallowance of Rs. 41,753/- as made by the assessee suo-mottu and disallowed a sum of Rs. 11,52,084/-by invoking the provisions of section 14A of the Act read with rule 8D 2(iii). Aggrieved by the order of AO, the assessee preferred an appeal before the ld. CIT(A), who also dismissed the appeal by observing and holding s under : "4. I have considered the facts of the case and submissions of the assessee. Hon'ble Bombay High Court has held in the case of Godrej & Boyce Mfg. Co. Ltd. vs. CIT 328 ITR 81, that Rule 8D is applicable from A.Y. 08-09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been filed. Therefore, the A.O.is directed to restrict the amount to be added to Rs. 41,753/- which are the direct expenses relating to dividend income and which are offered for disallowance by the assessee also in the return of income. In result, ground of appeal No.1 is rejected and ground of appeal No.2 is allowed." 5. The ld. AR vehemently argued before us that the orders passed by the authorities below were totally wrong as these orders were passed mechanically without pointing out any mistake in the disallowance made by the assessee suo-motto and also with no satisfaction was recorded by the AO. The ld. Counsel placed strong reliance on the decision of the Mumbai Tribunal in the case of M/s Puja Impex Pvt Ltd V/s ITO in ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The Hon'ble Tribunal in I.T.A. No.3349/Del/2011 in the case of Promain Ltd., after relying upon a Kolkatta judgment of Tribunal in I.T.A. No.1331 has held that strategic investment has to be excluded for the purpose of arriving at disallowance under Rule 8D(iii). The Tribunal had relied upon the findings of Kolkatta Tribunal in the case of Rei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii). This has to be calculated on the same lines as mentioned earlier in respect of Numerator B in the Rule 8D(2)(ii). Thus, not all investments become the subject matter of consideration when computing disallowance u/s 14A read with Rule 8D. The disallowance u/s 14A read with Rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. (A.Y.) (I.T.A. No.1331/Kol/2011 dated 29.7.2011. "Following the above judicial precedents, we held that value of strategic investments should be excluded for the purpose of disallowance under Rule 8D)iii) facts, we direct the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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