TMI Blog2017 (9) TMI 805X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of disallowance cannot exceed exempt income. In this case we find that the assessee has earned exempt income of ₹ 24,138, whereas the AO disallowed an amount of Rs ₹ 3,36,28,000. Therefore, considering the facts and circumstances of the case and also following the ratios of the case laws discussed above, we are of the view that disallowance u/s 14A cannot exceed the exempt income. Hence, we direct the AO to restrict disallowance u/s 14A to the extent of exempt income earned by the assessee. - Decided partly in favour of assessee. - ITA No.4658/Mum/2015 - - - Dated:- 26-7-2017 - Shri D.T. Garasia (JUDICIAL MEMBER) And Shri G Manjunatha (ACCOUNTANT MEMBER) For The Appellant : Shri Vipul Joshi Dinku Haria For The Respondent : Ms Pooja Swaroop ORDER Per G Manjunatha, AM : This appeal filed by the assessee is directed against the order of CIT(A)-16, Mumbai dated 20-05-2015 and it pertains to assessment year 2011-12. 2. The brief facts of the case are that the assessee company has filed its return of income for the assessment year 2011-12 on 29-09-2011 declaring total income of ₹ 6,76,58,135. The case was selected for scrutiny ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts submissions made before the AO. The assessee further contended that it has invested in various subsidiaries and associate companies as part of its business strategy to acquire control over business of group companies, but not to earn dividend income from said investments. The assessee further submitted that the intention was not to earn dividend income and in fact most of the companies have not declared dividend since their inception, which is evident from the fact that during the year it had earned meager amount of dividend of ₹ 24,138 as against which, the AO has disallowed amount of ₹ 3,36,28,000 by invoking the provisions of section 14A r.w.r. 8D of IT Rules, 1962. The assessee further contended that it has acquired certain investments by way of amalgamation in pursuance of order of the Hon ble Bombay High Court for which it has not incurred any specific expenditure, therefore, the AO was incorrect in disallowing huge amount of presumptive expenditure by invoking Rule 8D(2)(iii). 4. The CIT(A), after considering relevant submissions of the assessee observed that the assessee has not disallowed any expenditre u/s 14A on account of administrative and indirect ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed formula provided under rule 8D(2)(iii), therefore, there is no mistake in the disallowance worked out by the AO and his order should be upheld. 7. We have heard both the parties, perused the materials available on record and have gone through the orders of authorities below. There is no dispute with regard to the earning of exempt income. The assessee has earned dividend income which is claimed as exempt u/s 10(34) of the Act. The only dispute is whether assessee has incurred any expenditure to earn exempt income, which needs to be disallowed, as per the provisions of section 14A r.w.r. 8D of IT Rules, 1962. The assessee contends that it did not incur any expenditure to earn exempt income as the dividend income is earned from shares held in subsidiary and other group companies as a promoter. The shares were acquired, and made investments solely and exclusively for the purpose in the course of business as part of its business strategy. The intention was not to earn dividend income. In fact, most of the companies did not declare any dividend which is evident from the fact that it had earned a meager dividend of ₹ 24,138. The assessee further contended that it did not incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court held that provisions of Rule 8D shall be applicable from AY 2008-09 onwards. Therefore, we are of the view that disallowance u/ 14A r.w.r. 8D is applicable, the moment assessee is having exempt income. 9. In this case, the assessee claims to have not incurred any expenditure to earn exempt income as the investments in shares held as strategic investments in group companies as a promoter, but not as investments to earn dividend income. The assessee further claims that it had investments in shares as a result of amalgamation but has not incurred any expenditure to earn exempt income. We do not find any merits in the arguments of the assessee for the reason that on perusal of financial statements filed by the assessee for the relevant financial year, we find that the assessee had various investments in shares and mutual funds including shares in subsidiary companies. Therefore, we are of the view that the assessee failed to prove its claim that it had investments only in subsidiary companies as strategic investments. Insofar as the argument of the assessee with regard to no disallowance u/s 14A, when shares are acquired by way of amalgamation, we find that the assessee had v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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