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The Assistant Commissioner of Income Tax Versus M/s. Data Software Reseach Company (International) Pvt. Ltd. And Vice-Versa

2016 (2) TMI 905 - ITAT CHENNAI

Disallowance u/s 14A - Held that:- Addition made on account of section 14A where investments are made in sister concerns such as equity shares and share application money. However, if the investments are made from borrowed funds, section 14A of the Act would be applicable and learned Assessing Officer shall compute the disallowance under section 14A read with rule 8D in accordance with law. - I.T.A.Nos.2169 & 2170/Mds. /2015 & I.T.A.Nos.2171 & 2172/Mds. /2015 - Dated:- 3-2-2016 - SHRI N.R.S.GANE .....

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& u/s.143(3) r.w.s.147 of the Act for the assessment years 2004-05 & 2005-06 respectively and the other two appeals in ITA Nos.2171/Mds/2015 & No.2172/Mds/2015 are filed by the Revenue, aggrieved by the order of the learned CIT(A) in No.ITA.88/CIT(A)-1/09-10 (supra) & No.ITA.37/CIT(A)-1/10-11 both the orders dated 27.08.2015 for the assessment years 2005-06 & 2006-07 respectively. 2.1 Assessee s appeal The assessee has raised three elaborate identical grounds in its appeals, .....

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r of the LD. CIT(A) who has erred in directing the Ld. A.O to delete the disallowance made u/s.14A of the Act to the tune of ₹ 35,69,500/- & ₹ 12,53,356/- for the assessment year 2005-06 & 2006-07 respectively. 3. Brief facts of the case are that the assessee is a private limited company engaged in the business of software export. The assessee has filed its return of income for all the relevant assessment years. Subsequently, returns filed by the assessee for all the three as .....

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opined that provisions of section 14A will be applicable and accordingly invoked the same for all the three assessment years. The learned CIT(A) upheld the view of the learned Assessing Officer in all the three assessment years. 5. At the outset, learned AR submit ted before us that all the investments were made in sister company of the assessee and therefore section 14A of the Act will not be applicable in the case of the assessee. 6. Learned DR, on the other hand, relied on the orders of the R .....

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d as the entire investments were made out of own funds. Further in the decision of the Tribunal in ITA No.115/Mds/2015 dated 06.01.2016, extracted herein below, it has been held that section 14A of the Act will not be applicable when investments are made in sister companies. 5. We have heard both the parties and carefully perused the materials available on record. On the identical issue as pointed out by the Ld. A.R. the Chennai bench of the Tribunal in ITA No.156/Mds/2013 vide order dated 20/08 .....

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5 SOT 086 (Mum.) held as follows:- When assessee has prima facie brought out case that no expenditure has been incurred for earning income, which does not form part of total income, then in absence of any finding that expenditure has been incurred for earning exempt income provisions 14A cannot be applied.. ii) Integlobe Enterprieses Ltd., Vs. DCIT repoted in (2014) 40 CCH 0022(Del. Trib.) held as follows:- No disallowance of interest is required to be made under rule 8D(i) & 8D(ii) where no .....

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Ltd., Vs. ACIT reported in 2014-TIOL-202-ITATMUM held as follows: …the department has not disputed this fact 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. 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 subsidi .....

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ance 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, presumption stands established that the investments in sister concerns were made by the assessee out of interest free funds and therefore .....

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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 investment made by the assessee in its subsidiary is 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. Taking not .....

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herein it was held as follows:- 7.2 In regard to applicability of Section 14A of the Act read with Rule 8D also; the above view will be applicable. Moreover in the case EIH Associated Hotels Ltd v. DCIT reported in 2013 (9) TMI 604 in ITA No.1503, 1624/Mds/2012 dated 17th July, 2013, it has been held by the Chennai Bench of the Tribunal as follows:- Disallowance U/s. 14A rw Rule 8D - CIT upheld disallowance - Held that - investments made by the assessee in the subsidiary company are not on accou .....

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