2014 (4) TMI 269 - ITAT DELHI

Disallowance u.s 14A of the Act r.w Rule 8d – Held that:- The cash flow statement reflects cash from operating activities including cash profits - The assessee has also raised an amount by issue of fresh preference shares - it is apparent that assessee had utilized interest free funds for making fresh investments and that too into its subsidiaries which is not for the purpose of earning exempt income and which are for strategic purposes only - no disallowance of interest is required to be made under rule 8D(i) & 8D (ii) as no direct or indirect interest expenditure has incurred for making investments.

Disallowance under Rule 8D(iii) – Held that:- Assessee had invested in four debt oriented schemes of DSP Merile Lynch, reliance Liquid Plus, Reliance Monthly Interval Mutual Funds and SBI Liquid Plus Funds - these are not really investments and these are in fact parking of surplus funds in a more tax efficient manner – the decision in Maxopp Investment Ltd. & Others Versus Commissioner of Income Tax [2011 (11) TMI 267 - Delhi High Court] followed - the calculation of disallowance under Rule 8D(iii) made by the AO and upheld by CIT(A) is not correct In view of the fact that AO had included the value of total investments for calculation of disallowance whereas 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 – thus, the value of strategic investments should be excluded for the purpose of disallowance under Rule 8D(iii) – the AO is directed to calculate the disallowance under Rule8D(iii) by excluding the value of strategic investments in the calculation of disallowance – Decided partly in favour of Assessee.