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2017 (4) TMI 915 - ITAT CHENNAI

2017 (4) TMI 915 - ITAT CHENNAI - TMI - Disallowance u/s 14A - Held that:- We 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 in the case of Lakshmi Electrical Drives Ltd [2017 (4) TMI 238 - ITAT CHENNAI] 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 .....

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order passed by the Ld. Commissioner of Income Tax (Appeals)-15, Chennai dated 31.08.2016 in ITA No.128/CIT(A)/2015-16 for the assessment year 2012-13 passed U/s.250(6) r.w.s 143(3) of the Act. 2. The assessee has raised several grounds in its appeal, however the crux of the issue is that the Ld. CIT(A) has erred in invoking the provisions of Section 14A read with Rule 8D of the rules and thereby disallowed the expenditure of ₹ 58,26,308/-. 3. The brief facts of the case are that the asse .....

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ng the relevant assessment year. On appeal, the Ld.CIT(A) also confirmed the order of the Ld. AO citing various decisions of higher judiciary. 4. Before us, the Ld.AR submitted that the entire investment made by the assessee for ₹ 81,60,00,000/- was in its associate concerns due to strategic reasons and hence provisions of Section 14A cannot be invoked. The Ld.DR strongly opposed to the submission of the Ld.AR and argued in favour of the orders of the Revenue authorities. 5. We have heard .....

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subsequently confirmed by the Ld. CIT(A). At the outset, the Ld. AR submitted before us that, the entire investments, for strategically reasons, was made in subsidiary companies and it was sourced from interest free funds. The Ld. AR further argued that on several occasions, the Chennai bench of the Tribunal has held that if such investments are made in sister /subsidiary companies, the provisions of Section 14A cannot be invoked. He therefore pleaded that the addition made by invoking the provi .....

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ny (International) Pvt. Ltd., ITA Nos. 2171& 2172/Mds/2015 vide order dated 03.02.2016, this bench of the Tribunal has held as follows: "7. We have heard both the parties and carefully perused the materials available on record. It is a normal practice to make investment in sister companies due to commercial exigencies. While doing so, no expense can be attributable other than interest expense for making such investments because all management costs will be absorbed for strategic decisio .....

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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 20/08/13 for the assessment year 2009-10 has remitted back the matter to the Ld. Assessing Officer to decide the matter once again afresh based on the findings whether the assessee had actually incurred any expenditure in earning the dividend income. The relevant portion of the order is extracted herein below for reference:- Further, on the identical issue va .....

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, 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 direct or indirect interest expenditure was incurred for making investments. Where the assessee had utilized interest free funds for making fresh investments and that too into its subsidiaries, which was not for the purpose of earning exempt income and which was for strategic purposes only, no disallowance of interest was required .....

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ess 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 w .....

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ant 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 no part of interest on borrowings can be disallowed on the basis that the investments were made out of interest bearing funds." (vi) EIH Associated Hotels Ltd Vs. DCIT reported in 2013-TIOL- 796-ITAT-MAD ".... The investments made by the assessee in the subsidiary company are not on accoun .....

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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." Taking note of the above decisions and the decision of the Chennai bench of the Tribunal in ITA No.156/Mds/13 cited supra, we hereby remit the matter back to the file of Ld. Assessing Officer to examine the issue involved in this case afresh and pass appropriate order as per law and merits and in .....

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y, 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 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/-, .....

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