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2018 (1) TMI 586 - AT - Income TaxAddition u/s 14A r.w.s. Rule 8D - investment in subsidiary company from which the dividend income was earned - Held that:- No disallowance of interest expense claimed by the assessee can be made under the provision of Section 14A of the Act r.w.r 8D of IT Rules. Now coming to the disallowance made by the AO in respect of administrative expense we note that the investment which have given rise to the dividend income during the year can only be considered for the purpose of disallowance under Rule 8D(2)(iii) of IT Rules. In holding so we find guidance & support from the order of Coordinate Bench of this Tribunal in the case of REI Agro Ltd. v. Dy. CIT [2013 (9) TMI 156 - ITAT KOLKATA]wherein it was held that the disallowance as per Rule 8D shall be made by taking into consideration only those shares, which have yielded dividend income in the year under consideration. Therefore we direct the AO to make the disallowance under rule 8D after considering the investments which have yielded the dividend income during the year. We also find that the assessee has made investment in subsidiary company from which the dividend income was earned by it during the year. In this regard, we observed that the assessee has made strategic investment in its subsidiary company to control the interest in the company and not with the object to earn dividend income. The dividend income is merely incidental from the subsidiary company. Therefore no disallowance of whatsoever can be made in respect of dividend income earned from the subsidiary company. In holding so, we find support and guidance from the order of the Hon’ble Tribunal in the case of Electrosteel Casting Limited Vs. DCIT [2017 (2) TMI 685 - ITAT KOLKATA] wherein it was held that no disallowance shall be made against the dividend income if it arises from the strategic investment.Thus, the strategic investments need to be excluded for the purpose of the disallowance under section 14A read with rule 8D The investments made in the non-subsidiary company which have yielded dividend income can only be considered for the purpose of the disallowance under section 14A r.w.r. 8D(2)(iii) of Income Tax Rules 1962. Thus the appeal filed by Revenue is partly allowed. Accordingly, AO is directed.
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