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2015 (11) TMI 1061 - AT - Income TaxDisallowance u/s 14A - assessee made a suo motu disallowance u/s 14A - Held that:- In the present case, it is seen that conditions of subsection 2 of section 14A are not satisfied. The AO has not cared to examine the accounts of the assessee and correctness of the claim made by the assessee. Ld. AO in the present case has straight away proceeded to apply Rule 8D for the purpose of disallowance u/s 14A, without satisfying or applying with the mandatory requirement of section 14A(2) r.w. Rule 8D. It is seen that the Assessee has given item wise justification for determination of the proportionate expense incurred on making investments earning tax-free income. No discrepancies have been pointed out by the AO before rejecting the claim of the Assessee. Since the AO has failed to comply with the statutory requirement, he could not have proceeded to make disallowance u/s 14A. It is further noted that out of total dividend income of ₹ 3,70,61,654/- received by the assessee company during the year, an amount of ₹ 3,00,71,654/- was on the investments in Mutual Funds of group companies for strategic reasons and ₹ 50,00,000/- on the preference shares of subsidiary company. Both of these amounts have been received on the investments made ostensibly for strategic reasons. In our considered view, strategic investments are not made for the purpose of earning tax-free income. These should not be considered for making disallowance u/s 14A The remaining amount of dividend was received on the investment in equity shares, only for an amount of ₹ 19,90,000/-. Thus, viewed from this angle also, the disallowance made by the AO is not justified. In view of the aforesaid discussion and keeping in mind the facts and circumstances of the case, disallowance made by the AO is reduced to the amount of ₹ 7,64,949/-, as was voluntarily offered by the assessee. - Decided in favour of assessee in part
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