2014 (4) TMI 752 - AT - Income Tax

Disallowance u/s 14A of the Act – Applicability of Rule 8D of the Rules - Dividend income earned – Held that:- The assessee has specifically raised a point before the AO that 97.82% of the investment is in the subsidiary companies and joint venture companies and, therefore, no expenditure was incurred for maintaining the portfolio on these investments or for holding the same – the investments are long term investment and no decision is required in making the investment or disinvestment on regular basis because these investments are strategic in nature in the subsidiary companies on long term basis and, therefore, no direct or indirect expenditure is incurred.

The department has not disputed the fact that out of the total investment about 98% of the investment are in subsidiary companies of the assessee and, therefore, the purpose of investment is not for earning the dividend income but having control and business purpose and consideration – Prima facie the assessee has made out a case to show that no expenditure has been incurred for maintaining these long term investment in subsidiary companies – Relying upon GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT] - The assessee has brought out a case to show that no expenditure has been incurred for maintaining the 98% of the investment made in the subsidiary companies – thus, in the absence of any finding that any expenditure has been incurred for earning the exempt income, the disallowance made by the AO is not justified and is liable to be set aside – Decided in favour of Assessee.