2013 (11) TMI 11 - AT - Income Tax

Strategic business investments exempt from disallowance under section 14A, Tribunal rules

The Tribunal allowed the appeals of the assessee, emphasizing the business nature of the investments and the lack of dividend income, leading to the ... Disallowance u/s 14A of the Income Tax Act – Held that:- Reliance has been placed on the case of M/s Spray Engineering Devices Ltd [2012 (7) TMI 587 - ITAT CHANDIGARH], which is squarely applicable in the present case - The decision making of a business man by way of strategy planning in allied line of business is a decision made in the course of carrying on the business and the Assessing officer cannot sit in judgment seat to comment upon the same. One the assessee has been found to have made a business investment by way of shares in related line of business, the said investment though held by way of shares in the said company cannot be subjected to disallowance under section 14A of the Act, which in any case is relatable to disallowance of the expenditure out of the exempt income earned by the assessee, by way of its investment in shares of other company. In the facts of the present case the investment was purely of business nature as the company in which the amount was invested was a loss making company and there was no question of earning any dividend income from such investment. In the totality of the facts and circumstances of the case, no merit in the order of the authorities. The assessee acquired controlling interest in those companies just to run these companies properly - Till date no dividend has been earned by the assessee as assessee is doing the business in these companies from the amounts invested through shares.- Therefore, no question of any disallowance u/s 14A of the Income Tax Act – Decided in favor of Assessee. Issues:- Disallowance of total business expenditure under section 14A for AY 2007-08 and AY 2008-09.Analysis:1. The assessing officer disallowed various expenses claimed by the assessee as the business was deemed not set up, resulting in disallowances of Rs. 8,75,35,452/- for AY 2007-08 and Rs. 7,02,54,564/- for AY 2008-09 under section 14A.2. The CIT(A) reversed the disallowance, stating that the business was indeed set up and the expenses were justified, emphasizing a direct connection between the expenses and the business. The department did not challenge these findings.3. However, the CIT(A) later disallowed the expenses under section 14A, stating that any expenditure incurred for earning exempt income falls under this provision, regardless of actual exempt income earned. The disallowance was confirmed, leading to the appeal before the Tribunal.4. The Tribunal held that the CIT(A) had wrongly assumed jurisdiction to make the disallowance under section 14A, citing a High Court decision. It was emphasized that the assessee had not invested for earning dividends but for business purposes, as confirmed by the CIT(A) as well.5. Referring to a similar case, the Tribunal ruled that strategic investments made by the assessee for business expansion did not warrant disallowance under section 14A. The Tribunal found no merit in the disallowance and deleted the same for both years in question.6. Ultimately, the Tribunal allowed the appeals of the assessee, emphasizing the business nature of the investments and the lack of dividend income, leading to the deletion of the disallowance made by the CIT(A) under section 14A for both assessment years.