TaxTMI 
TaxTMI 
2017 (4) TMI 1278
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....ds: 3.1 The Ld. CIT(A) erred in directing the AO to exclude the investments made in subsidiaries while calculating disallowance u/s. 14A and to restrict the disallowance to the amount of dividend received. 3.2 The Ld CIT(A) ought to have noted that investment made in subsidiaries are not liable for disallowance u/s 14A when the provisions contained in the said section as well as Rule 8D does not provide for any such exception. 3.3 The Ld CIT(A) failed to appreciate that investment in shares of subsidiary companies also yielded dividend income, which is exempt from income tax and hence provisions of sec 14A are applicable. 3.4 The Ld CIT (A) ought to have noted that investment in subsidiary companies also will earn dividend income only Which is exempt under IT Act and in view of the decision in the case of Godrej & Boyce Mfg CO Ltd. (Bombay) 328 ITR 81, Maxopp Investment Ltd (Del) 347 ITR 272 and Leena Ramachandra (Ker) 339 ITR 296 on identical issue, and instead follow a decision of ITAT and whether such an order following an inferior judicial authority makes the order of CIT(A) perverse in the eyes of law. 3.5 Th....
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....r, the Ld. AO found that the assessee has earned dividend income of Rs. 15,53,306/- in the financial year2009-10 and claimed exemption. The Ld. AR submitted the letter dated 13.03.2013 explaining that the amount of Rs. 3,00,282/- was disallowed as expenditure for earning dividend income in respect of Establishment and Administration expenditure. But the Assessing Officer found the method adopted by the assessee is not in accordance with law and applied the provisions of section 14A r.w.r. 8D of the IT Rules and the Ld. AO calculated disallowance u/s. 14A r.w.r. 8D(ii) & (iii) of the IT Rules Rs. 61,01,054/- and passed the order u/s. 143(3) dated 20.03.2013. 5. Aggrieved by the order, the assessee has filed an appeal with the CIT(A). In the appellate proceedings, the Ld. AR argued the grounds and reiterated the submissions of assessment proceedings in respect of disallowance u/s. 14A r.w.r. 8D Rs. 61,01,054/-, the Ld. AR made submissions dealt at Para 5.2.1 of CIT(A) order. The Ld CIT(A) considered the facts, findings and judicial decisions and the submissions that the investments are made by the assessee in the sister concern and with profit motive and th....
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.... with profit motive. But not for earning dividend income. The fact remains these investments are to be made out of its own funds and not interest bearing borrowed funds. The Ld. AR submitted that the assessee company has adequate own funds represented by share capital, Reserves and surplus over a period of time. Whereas, the Ld. DR submitted that the investments are made to obtain controlling interest in the company. We find similar issue decided by the Hon'ble High Court of Karnataka in M/s. United Breweries Ltd. v. DCIT [2016] 72 taxmann.com 102, held at para 8 & 9 which read as under: 8. So far as second question of applicability of Sec.14A of the Act to the expenses incurred by the appellant towards interest and others on the loan borrowed is concerned, the finding of the Tribunal is at paragraph11 which reads as under : "11. The revenue is in appeal and we have considered the rival contentions. IN our view, the recent judgment of the Special Bench in Bombay in ITO v. Daga Capital Management Pvt. Ltd. (2009) 312 ITR (AT) 1, is applicable to the facts of the present case. In this order, it has been held that section 14A is applicable eve....
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.... to be canvassed would not arise for consideration at this stage on the said aspects as sought to be canvassed. We rely on the judicial decision and In the interest of justice, we remit the disputed issue to the file of the Ld. AO for verification of investments of the assessee in subsidiary companies/sister concern with own funds or borrowed funds for the purpose of disallowance U/s.14A of the Act and the assessee should be provided adequate opportunity of hearing before passing the order on merits. Accordingly we remit the disputed issue for limited purpose to the file of AO and allow the ground of the Revenue for statistical purpose. 8. On the second disputed issue the Ld. CIT(A) found that the Assessing Officer has made disallowance of employee's contribution of Rs. 26,37,965/- u/s. 2(24)(X) of the Act for delayed payment of PF and ESI. The Ld. AR submitted that the payments/contributions are deputed by the assessee company within the due date of filing the Return of income u/s. 139(1) of the Act. The Ld. CIT(A) relied on the Jurisdictional High Court decision in the case of CIT vs. Industrial Security & Intelligence India Pvt. Ltd, and directed the ....