TaxTMI 
TaxTMI 
2016 (3) TMI 1329
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....e has raised several grounds, however the crux of the issue is that the learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance made by the learned Assessing Officer of Rs. 3,79,87,050/- being the expenditure attributable for earning exempt income by invoking the provisions of section 14A read with rule 8D. 3. Brief facts of the case are that the assessee company is engaged in the business of telecommunication, networking, computer systems, software sales & services filed its e-return of income on 25.09.2010 for the assessment year 2010-11 declaring total income of Rs. 9,14,95,650/- and computed book profit of Rs. 16,78,95,019/- under section 115JB of the Act. The case was selected for scrutiny and the asses....
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.... relation to the investments in shares and earning the exempt income, which needs to be quantified and disallowed u/s.14A of the Act. Accordingly, as provided u/s.14A of the Act the Assessing Officer had rightly quantified the said expenses at Rs. 3,79,87,050/-, by using the rule 8D, and disallowed u/s.14A of the Act. 4.9 Thus, the Assessing Officer is satisfied that there was an element of expenses involved in making investments whose income is exempt from tax. The Assessing Officer is duty bound to invoke the provisions of Rule-8D. Once the provisions of Rule- 8D are invoked, the Assessing Officer has no option but to arrive at the expenses @ 0.5% as per step-3 of the formula which is mandatory. In fact, the Assessing Officer in ....
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....on record. It is apparent from the facts of the case that the assessee has invested the entire amount in its subsidiary companies as strategic investment. In such situation, no expense can be said to have been incurred for managing / investing in such funds when the assessee has interest free funds to that extent. In the case of the assessee, it is evident from its balance sheet that the assessee has reserves and surplus exceeding the investment made by it in its subsidiary companies. Further, the Chennai Bench of the Tribunal in the case of M/s.Data Software Reseach Company (International) Pvt. Ltd., Vs. ACIT in ITA Nos 2169 to 2172/Mds/2015 vide order dated 03.02.2016 on the similar issue has held as under:- "7. We have heard bot....
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.... 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 provisions 14A cannot be applied.." ii) Integlobe Enterprieses Ltd., Vs. DCIT repoted in (2014) 40 CCH 0022(Del. Trib.) held as follows:- "No disallowance of interest is required to be made under rule 8D(i) & 8D(ii) where no direct or indirect interest expenditure was incurred for making investments. Where the assessee had utilized interest free funds for making fresh investments and that too into its subsidiaries, which was not for ....
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....ded a clear finding that the assessee possessed sufficient interest-free funds of its own which were generated in the course of the relevant financial year, apart from substantial shareholders fund, presumption stands established that the investments in sister concerns were made by the assessee out of interest free funds and therefore no part of interest on borrowings can be disallowed on the basis that the investments were made out of 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 asse....
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.... rw Rule 8D - CIT upheld disallowance - Held that - 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. A perusal of the order of the CIT(Appeals) shows that out of total investment of Rs. 64,18,19,775/-, Rs. 63,31,25,715/- is invested in wholly owned subsidiary. This fact supports the case of the assessee that 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 inves....