TMI Blog2016 (5) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... er/subsidiary companies, for strategic business reasons, then the provisions of section 14A will not be applicable. - Decided in favour of assessee MAT applicability - Held that:- While computing the tax under the provisions of section 115JB of the Act which is a provision with fiction, any disallowance made by virtue of another provision with fiction viz., section 14A of the Act, cannot be added to the book profit because a provision with fiction cannot be superimposed on another provision with fiction. - I.T.A.No.2205/Mds/2015 - - - Dated:- 23-3-2016 - SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER For The Appellant : Mr. K.Meenatchisundaram, C.A. For The Respondent : Mr. A.V.Sreekanth, JCIT ORDER Per A. Mohan Alankamony, AM:- This appeal is filed by the assessee aggrieved by the order of the learned Commissioner of Income Tax (Appeals)- 8, Chennai dated 16.09.2015 in ITA No.120/2014-15 passed under section 143(3) r.w.s. 250(6) of the Act. 2. The assessee has raised several grounds and additional ground in its appeal and they are concised herein below for adjudication:- i) The learned Commissioner of Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred for earning an income exempt from tax cannot be allowed as expenditure in computing the taxable income. It essentially means that the expenses debited to profit and loss account of the assessee company are to be divided into two categories viz. one relating to the exempt stream of income and the other relating to the taxable stream of income. The expenses relating to the exempt stream of income cannot be claimed against the taxable stream of income. It is not necessary that there should be any income earned during the year. The expenditure incurred for earning an income can be lesser than the income itself. On some occasions, there could not even be any income though expenses are incurred towards earning the same. Even in such circumstances, the provisions of section 14A read with rule 8D were held to be applicable as held by the Special Bench of ITAT., Delhi in M/s.Cheminvest Ltd. Vs. DCIT in ITA No.2048/De/2005 and by ITAT., Chennai in M/s. MGM Diamond Beach Resorts P.Ltd. Vs. DCIT in ITA No.2173/Mds/2005. 4. On appeal, the learned Commissioner of Income Tax (Appeals) relying on the following the decisions confirmed the order of the learned Assessing Officer:- i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and reserves surplus to the extent of ₹ 5,38,04,75,152/- which is much more than the investment made by the assessee company in its sister companies amounting to ₹ 43.75 crores. Hence, it is apparent that the assessee is having interest free funds in order to make such investments. In such situation, this Bench of the Tribunal on the earlier occasion had held that when investments are made by the assessee company from its interest free funds in its sister/subsidiary companies, for strategic business reasons, then the provisions of section 14A will not be applicable. The gist of the relevant decision in the Chennai Bench of the Tribunal in the case of M/s.Data Software Research Company (International) Pvt. Ltd., Vs. ACIT in ITA Nos 2169 to 2172/Mds/2015, order dated 03.02.2016 is reproduced herein below for reference:- 7. We have heard both the par t ies and careful ly perused the mater ials avai lable on record. I t is a normal pract ice to make investment in sister companies due to commercial exigencies. Whi le doing so, no expense can be at t r ibutable other than interest expense for making such investments because al l management costs wi l l be absorbed for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diary 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. 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, therefore, in the absence of any finding that any expenditure has been incurred for earning the exempt income, the disallowance made by the Assessing Officer is not justified, accordingly the same is deleted. (iv) CIT Vs. Bharti Televenture Ltd. reported in (2011) 331 ITR 0502. Where the assessee was found to be having adequate non-interest bearing fund by way of share capital and reserves and there was no nexus between the borrowals of assessee and the advances given, no disallowance for interest was called for. (v) CIT Vs. Reliance Utilities Power Ltd., reported in (2009) 313 ITR 0340(Bom.) has held as follows:- Tribunal having recorded a clear finding that the assessee possessed sufficient interest-free funds of its own which were generated in the course of the relevant financial year, apart from substantial shareholders fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l investment of ₹ 64,18,19,775/-, ₹ 63,31,25,715/- is invested in wholly owned subsidiary. This fact supports the case of the assessee that the assessee is not into the business of investment and the investments made by the assessee are on account of business expediency. Any dividend earned by the assessee from investment in subsidiary company is purely incidental. Therefore, the investments made by the assessee in its subsidiary are not to be reckoned for disallowance U/s. 14A r.w.r. 8D. The Assessing Officer is directed to recompute the average value of investment under the provisions of Rule 8D after deleting investments made by the assessee in subsidiary company Decided in favour of assessee. For the above said reasons, we hereby hold that in the case of the assessee the provisions of Section 14A read with Rule 8D will not be applicable in regard to investments made for acquiring the shares of the assessee s sister concerns. Accordingly we restrain ourselves from interfering with the Order of the Ld.CIT(A) on this regard. 8. Therefore, following the aforesaid decision of the Tribunal, we hereby direct the learned Assessing Officer to delete the addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of clause (f) of Explanation-1 to Section-115JB, confirmed the order of the Ld. Assessing Officer. The relevant portion of the order of the Ld. CIT (A) is reproduced herein below for reference:- 10.2 I have gone through the facts and circumstances of the case. The Assessing Officer has taxed the income U/s.115JB since the tax on book profits is more than the tax under normal computation. While doing so, she made disallowance of the amount relatable to exempt income on the basis of the amount worked out U/s.14A r.w.Rule 8D under normal computation. The provisions of clause (f) of Explanation-1 to s.115JB makes it abundantly clear that the amount of expenditure relatable to any exempt income, other than s.10(38), is liable to be added back to the amount of net profit as shown in the P L A/c. Reliance is placed on the latest decision of the ITAT Mumbai in the case of Dabur India Ltd., 37 taxmann.com 289. Reliance is also placed on the latest decision of the ITAT Mumbai in the case of RBK Share Broking P. Ltd in ITA No.6678 7546/Mum/2011 dated 24.7.2013 wherein it was held that the amount disallowable U/s.14A can be added back while computing book profit under Explanation- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer, thereafter, has the limited power of making increases and reductions as provided for in the Explanation to section 115J . The Assessing Officer does not have the jurisdiction to go behind the net profits shown in the profit and loss account except to the extent provided in the Explanation. The use of the words in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act in section 115J was made for the limited purpose of empowering the Assessing Officer to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinized and certified by statutory auditors and approved by the company in general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Sub-section (1A) of section 115J d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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