TMI Blog2017 (4) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld on this issue. Applicability of the provisions of the Section 14A with respect to subsidiary companies (for the assessment years 2008-09 & 2010-11) - Held that:- Remit back the matter to the file of the Ld. AO to consider the issue afresh in the light of the above order of the Tribunal and pass appropriate order in accordance with merits and law. We also make it clear that for the investments made in mutual funds, provisions of Section 14A read with Rule 8D will be applicable since the assessee would incur some expenditure at least for the decision making process as to in which mutual fund the investment has to be made and at what point of time exit from such funds. - ITA Nos. 2684 to 2687/Mds/2016 - - - Dated:- 23-3-2017 - SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER, AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER Appellant by : Shri SP Chidambaram, Advocate Respondent by : Shri Shiva Srinivas, JCIT ORDER PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER: These appeals are filed by the assessee aggrieved by the orders of the Ld. Commissioner of Income Tax (Appeals) all dated 29.03.2016 in ITA No. 15/2007-08, 73/2009-10, 46/2010-11, 21/2013-14 passed u/s. 250(6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed, which amounts to ₹ 19,62,003/- b) AY2007-08 : the Ld.AO worked out the disallowance invoking Section 14A of the Act, in accordance with Rule 8D. 4.1 The Ld. AR submitted before us that for both the assessment years 2005-06 and 2007-08, Rule 8D cannot be invoked because it is applicable with effect from 24.03.2008 i.e., for the assessment year 2008-09 onwards. Further the Ld. AR argued by stating that on similar instance the Hon ble Jurisdictional Madras High Court in the case India Nippon Electricals Limited vs. DCIT, Company Circle II(3) has held that 2% of exempts income can be estimated as the expenses that would have incurred for the purpose of earning exempt income. Therefore, it was pleaded that the same decision may be followed in the case of assessee for both the assessment years. 4.2 Though the Ld. DR vehemently argued in support of the orders of the Revenue, he could not successfully controvert to the submission of the Ld. AR. 4.3 We have heard the rival submissions and carefully perused the materials from record. We find merits in the submission of Ld. AR. As pointed out by him, Rule 8D has come into effect only from 24.03.2008. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required before putting the asset to use. Therefore we do not find any merit in the arguments advanced by the Ld. AR. Accordingly this ground is decided against the assessee and the orders of the Revenue authorities are upheld on this issue. 6. Ground iii: Applicability of the provisions of the Section 14A with respect to subsidiary companies (for the assessment years 2008-09 2010-11). For the assessment years 2008-09 and 2010-11, the Ld. AO invoked the provisions of Section 14A of the Act and computed the disallowance in accordance with Rule 8D of the Rules which was confirmed by the Ld. CIT(A). 6.1 The argument of the Ld. AR before us is that the assessee had made investments out of its interest free funds in equity shares of its subsidiary company for strategical purposes; therefore the provisions of Section 14A cannot be invoked. We find merit in the contention of the Ld. AR. On several earlier occasions for instance in the case of M/s. Data Software Research Company (International) Pvt. Ltd. v. ACIT, ITA Nos.2169 2170/Mds/2015 and ACIT v. M/s. Data Software Research Company (International) Pvt. Ltd., ITA Nos. 2171 2172/Mds/2015 vide order dated 03.02.2016, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st was required to be made under Rule 8D(i) 8D(ii) and strategic investment has to be excluded for purpose of arriving at disallowance under Rule 8D(iii). iii) M/s.JM Financial Ltd., Vs. ACIT reported in 2014-TIOL-202- ITAT-MUM 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 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 noninterest bearing fund by way of share capital and reserves and there was no nexus between the borrowals of assessee and the advances given, no disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance U/s. 14A rw Rule 8D CIT upheld disallowance Held that investments made by the assessee in the subsidiary company are not on account of investment for earning capital gains or dividend income. Such investments have been made by the assessee to promote subsidiary company into the hotel industry. A perusal of the order of the CIT(Appeals) shows that out of total 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 re-compute 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 ..... 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