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TMI Blog2019 (7) TMI 1953X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax Act, 1961 as expenses for earning dividend is unjust, illegal, arbitrary and against the facts and circumstances of the case. 2. Briefly stated facts of the case are that the assessee was engaged in the business of automobile dealership, workshop etc. and for the year under consideration filed return of income on 30/09/2013, declaring total income of Rs.12,77,25,100/-. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (in short 'the Act') was issued and complied with. The assessment under section 143(3) of the Act was completed on 04/03/2016 after making disallowance of Rs.6,05,176/- under section 14A of the Act read with rule 8D of Income Tax Rules, 1962. On further appeal, the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment Ltd. Vs. CIT, 402 ITR 640 (SC). 5. We have heard the rival submissions and perused the relevant material on record. The assessee shown dividend income of Rs.12,92,735/- on account of investment in shares and securities of Tata Motors Ltd., Tata Consultancy Ltd. and Mudra Port and claimed the same as exempt. The assessee made disallowance of Rs. 14A of the Act amounting to Rs.1,29,274/- at the rate of 10% of the dividend income earned. The Assessing Officer asked the assessee as why the disallowance may not be made in terms of Rule 8D of the Income Tax Rules, 1962. Not satisfied with the submission of the assessee, the Assessing Officer invoked Rule 8D of Income Tax Rules and computed disallowance as under: S. No Particulars Am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eleting the addition of Rs. 13,363/- made under section 14A of the Act, the Assessing Officer held that the assessee had incurred administrative expenditure of more than Rs.6 crores and financial expenses of Rs.3,77,64,000/- and a part of which is contributed to the exempt income. He accordingly estimated 10% of the total dividend income as expenditure on account of administrative expenses. CIT (Appeals) deleted the addition by observing that the dividend income was only from two companies and only three dividend warrants were received; out of which two dividends from Tata Motors Limited were received from ECS and the same were directly credited by the dividend paying company to the bank account of the assessee for which no expenses were in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, in our considered view the authority below was not justified in confirming the ad-hoc disallowance of Rs.1,00,000/-. We, therefore, decide the appeal in favour of the assessee." Fact and circumstances being similar, we uphold the order of the CIT(Appeals) on this issue following the aforesaid decision of the Tribunal." 5.4 On perusal of the above, it is evident that said decision is for the period prior to introduction of the Rule 8D of Income Tax Rules, 1962. According to the provisions of section 14A(2) of the Act relevant for year under consideration, if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of expenditure related to exempted income, he shall determine such expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which is pressed into service by the assessees would apply while interpreting Section 14A of the Act or we have to go by the theory of apportionment. We are of the opinion that the dominant purpose for which the investment into shares is made by an assessee may not be relevant. No doubt, the assessee like Maxopp Investment Limited may have made the investment in order to gain control of the investee company. However, that does not appear to be a relevant factor in determining the issue at hand. Fact remains that such dividend income is non-taxable. In this scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was divisible. It is to find a cure to the aforesaid problem that the Legislature has not only inserted Section 14A by the Finance (Amendment) Act, 2001 but also made it retrospective, i.e., 1962 when the Income Tax Act itself came into force. The aforesaid intent was expressed loudly and clearly in the Memorandum explaining the provisions of the Finance Bill, 2001. We, thus, agree with the view taken by the Delhi High Court, and are not inclined to accept the opinion of Punjab & Haryana High Court which went by dominant purpose theory. The aforesaid reasoning would be applicable in cases where shares are held as investment in the investee company, may be for the purpose of having controlling interest therein. On that reasoning, appeals of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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