EIH Associated Hotels Ltd vs. DCIT (ITAT Chennai)

S. 14A & Rule 8D: Investments in subsidiaries to be excluded while computing disallowance

In AY 2008-09, the assessee had investments of Rs. 64 crore of which Rs. 9.4 crore was made in the present year. The entire investment was either in subsidiary or associated companies. The assessee claimed that the investments were not made for the purpose of earning dividend but out of business expediency and that no disallowance u/s 14A and Rule 8D could be made. The AO made a disallowance of Rs. 4.32 crore which was reduced to Rs. 34.20 lakhs by the CIT(A). On appeal by the assessee HELD allowing the appeal:

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. A perusal of the order of the CIT(A) shows that out of total investment of Rs. 64.18 crore, Rs. 63.31 crore 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 investment made by the assessee in its subsidiary are not to be reckoned for disallowance u/s 14A r.w.r. 8D. The AO 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.