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2020 (10) TMI 835 - AT - Income TaxDisallowance u/s 14A - addition by passing order u/s 154 - addition in respect of the administrative expenses incurred for earning of tax exempt income which include dividend income earned from investment in wholly subsidiary company and Agriculture Income - assessee did not make suo motu disallowance of expenditure in respect of the aforesaid tax exempt income earned by the assessee - Whether there were sufficient funds available with the assessee company for the purposes of making the investment ? - as per assessee investments made were old investment and that the same were out of the own surplus funds of the assessee - HELD THAT:- AO has applied Rule 8D(2)(iii) directly without considering the submissions of the assessee that the assessee has not incurred any expenditure in this respect and that all the investment were strategic investments for business purposes of the assessee. As per the provisions of section 14A of the I.T. Act, before proceeding to calculate disallowance under Rule 8D(2)(iii), the Assessing Officer was supposed to consider the submissions of the assessee and examine the accounts of the assessee and was required to record his findings / reasoning that he is not satisfied with the plea / submissions of the assessee. However, no such exercise has been done by the AO in this case. It is to be noted that out of the total dividend income of ₹ 7,45,55,286/-, an amount of ₹ 7,45,49,286/- has been earned by the assessee from old investments in wholly owned subsidiary company M/s Saraswati Sugar Mills Ltd. The remaining of only ₹ 6,000/- has been earned from other company M/s Reliance Industries Ltd. However, the fact is also on the file that the assessee has maintained / managed not only old strategic investments for business purpose in wholly owned subsidiary / sister concern but also made old investments in other companies. Considering the submissions of the assessee that not much effort has been made by the assessee to manage the old investments and further considering that the major chunk of the dividend amount was earned from strategic investments made in the subsidiaries, in our view, a lump sum disallowance of ₹ 5 lacs will be reasonable on account of administrative expenses incurred for management of old investments. The disallowance made on account of administrative expenses is accordingly restricted to ₹ 5 lacs only. - Decided partly in favour of assessee.
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