TaxTMI 
TaxTMI 
2016 (5) TMI 315
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.... the book profit by adding the disallowance under rule 8D while computing the book profit in accordance with section 115JB of the Act." 3. The brief facts of the case are that the assessee company is a Government Undertaking filed its return of income on 27.09.2012 for the assessment year 2012-13 declaring its income as Rs. 116,18,88,268/- and set off the same by brought forward unabsorbed depreciation and paid minimum alternative tax under section 115JB on book profit of Rs. 120,46,01,185/-. The assessment was completed by the learned Assessing Officer under section 143(3) of the Act on 30.01.2015, wherein the learned Assessing Officer made certain additions amongst which one of the addition was with respect to disallowance of expenditure incurred for earning exempt income under section 14A read with rule 8D of the Act amounting to Rs. 2,59,90,908/- and computation of tax under the provisions of 115JB of the Act by adding the same to the book profit of the assessee. During the course of assessment proceedings, the learned Assessing Officer observed from the Balance Sheet of the assessee that it has made investment in unquoted equity shares to the tune of Rs. 43.75 crores ....
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....ing observations in his order:- i) The shares purchased and held in any manner would attract the provisions of section 14A of the Act. ii) In the case of the assessee investments were made in equity shares and the assessee was monitoring its investment by virtue of the position it had in the Board of those companies in which the assessee has invested. iii) Disallowance in respect of interest would have to be made and no presumption of investment of own funds and the ground of its sufficiency could be drawn. 5. Before us, the learned Authorized Representative reiterated the submissions made before the learned Commissioner of Income Tax (Appeals) that the investments were made in other Government undertakings viz., Sethu Samuthram Corporation Ltd. and Chennai Ennore Port Road Company Ltd, as per the directions of Ministry of Shipping, Government of India. Both these Government Undertakings were connected to the port activities which enhances the activity of the assessee. It was therefore argued that all these companies are sister companies with ancillary supporting objects and incorporated by the Government of India for the development activities of the port. Hen....
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....ted 06.01.2016, ext racted herein below, i t has been held that sect ion 14A of the Act wi l l not be appl icable when investments are made in sister companies. "5. We have heard both the parties and carefully perused the materials available 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 various Benches of the Tribunal and the Hon'ble Bombay High Court have held as follows:- i) Garware wall Ropes Ltd., Vs. ACIT reported in (2014) 65 SOT 086 (Mum.) held as follows:- "When assessee has prima facie brought out case that no expenditure has been incurred for earning income, which does not form part of total income, then in absence of any finding that expenditure has been incurred for earning exempt income pro....
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.... 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 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. 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 investment made by the assessee in its subsidiary is 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." 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 mer....
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....g Officer shall compute the disallowance under sect ion 14A read with rule 8D in accordance with law. " 8. Following the above said decision, we are of the considered view that in the case of the assessee for the relevant assessment year, the provisions of section 14A will not be applicable since it has invested its interest free funds in the sister companies for strategic business reasons. Therefore, we hereby direct the learned Assessing Officer to delete the addition made on account section 14A of the Act. Accordingly, the first ground raised by the assessee is decided in its favour. 9. Since we have held that in the case of the assessee provisions of section 14A will not be applicable, the question of disallowance under section 14A read with Rule 8D for the relevant assessment year for the computation of tax under section 115JB of the Act will not arise and therefore, the second ground raised by the assessee has become infructuous. However, on that issue also as cited by the learned Authorized Representative, the Chennai Bench of the Tribunal in the case of Beach Minerals Company P.Ltd. Vs. ACIT reported in 64 Taxmann.com 218, it has been categorically held that while com....
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.... of the Act, we do not find merit in the contention of the Ld. CIT (A). The relevant provision of the Act is extracted herein below for reference:- Section.115JB Explanation-[1] - For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section(2), as increased by - (a) To (e) ---------------------------------------------------- (f) the amount or amounts of expenditure relatable to any income to which [Section-10 (other than the provisions contained in clause (38) thereof] or section 11 or section 12 apply; (g) To (j) ----------------------------------------------------- From the above it is apparent that the aforesaid provision of the Act does not refer to any disallowance made U/s.14A of the Act while arriving at the Book Profit for the purpose of Section- 115JB(2) of the Act. Further Section 14A of the Act is a provision with fiction disallowing the deemed expenditure attributable to exempt income viz., dividend income U/s. 10 of the Act and Section 115JB of the Act is also a provision with fiction for payment of tax in respe....