2017 (11) TMI 1350

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....ation technology and entertainment. The case was selected for scrutiny and statutory notices were issued to the assessee. The total business profit in the year was Rs. 7,86,19,745/- and the same had been adjusted against the earlier year's loss. During the assessment proceedings, the AO observed from the balance sheet of the assessee that the assessee had invested in quoted and unquoted equity shares and income from which is exempt from tax. The details are as under : Trade investment (valued at cost unless stated otherwise) As at 31.03.2012 As at 31.03.2011 Investment in subsidiaries     Unquoted equity instruments 10,100,000 (31st March, 2011: 10,100,000) Equity shares of Rs. 5 each fully paid-up in Aksh Technologies Ltd. out of which 10,000,000 equity shares of Rs. 5 each at the premium of Rs. 25 each (refer note 25). - Rs.30,05,00,000/- 22,59,50,000 (31 March 2011: 225,950,000) Equity shares of Rs. 5/- each in APAKSH Broadband Ltd. Rs.112,97,50,000/- Rs.112,97,50,000/- Sub -total Rs. 112,97,50,000/- Rs.143,02,50,000/-   ....

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....tal investment in subsidiaries is Rs. 113.16 crores, out of which 0.18 crores is in foreign subsidiaries and rest amount of Rs. 112.98 crores has been invested in Indian subsidiary companies. The dividend received from foreign subsidiary companies is taxable. It is evident from the record available before us that the assessee has not paid any interest for making investment in subsidiaries and no fresh investment has also been made during the year. The ld. CIT(A), after considering the submissions of the assessee and the order of the Assessing Officer has made good reasoned order which is reproduced as under : "I have carefully considered the aforesaid submissions of appellant company. I find that the AO has invoked Section 14A and Rule 8D on investments made in subsidiary company even though there is no dividend income earned by the appellant company during the year. In the case of appellant similar disallowances were made in preceding assessment years on the investments made in the subsidiary company and in that year also no dividend income was received by the appellant company. Such disallowances of expenses was deleted for A.Y. 2010-11 vide order dated 10.07.20....

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....e exempt income or keeping the investment in question. If there is expenditure directly or indirectly incurred in relation to exempt income, the same cannot be claimed against the income which is taxable. It was also held that for attracting the provision of Section 14A there should be a proximate cause for disallowance which has relationship with the tax exempt income as held by the Hon'ble Supreme Court in the case of CIT vs Watfort Share & Stock Brokers Pvt. Ltd. (326) ITR 1. Therefore, there should be a proximate relationship between the expenditure and the income which does not form part of the total income. I find that the AO has not pointed out any such proximate relationship. Similarly, the Hon'ble ITAT Kolkata in the case of Rei Agro Ltd. vs. CIT (supra) has held that value of strategic investment should be excluded for the purpose of disallowance under Rule 8D (Hi). The above decision of Kolkata ITA T was followed by jurisdictional ITAT Delhi C Bench in the case of Interglobe Enterprises Ltd. in their decision dated 4.4.2014 wherein the Hon'ble ITAT has held that value of strategic investment should be excluded for the purpose of disallowance under Rule 8D(iii....

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....on the judgment of Hon'ble Allahabad High Court in the case of CIT Vs. Shivam Motors Pvt. Ltd. wherein it has held as under: "As regards the second question, Section 14A of the Act provides that for the purposes of computing the total income under the Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of fact is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. The view of the CIT(A), which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of Rs. 2,03,752/-made by the Assessing Officer was in order". Commissioner of Income-tax v. Oriental Structural Engineers (P.) Ltd. [ 2013 ] 35 taxmann.com 210 (....