ITO vs. Pioneer Radio Training Services Pvt. Ltd (ITAT Delhi)

DATE: January 19, 2015 (Date of pronouncement)
DATE: January 22, 2015 (Date of publication)
AY: 2009-10
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S. 14A/ Rule 8D: (i) Expenditure (like audit fees) required to be incurred irrespective of income cannot be disallowed, (ii) investments in subsidiaries are not to earn dividend income and cannot be considered for disallowance

(i) There was no basis for the Ld. CIT(A) to sustain ad-hoc disallowance of Rs.50,OOO/- by holding that “the only expenses which can be attributed to exempt income likely to be earned in future are the auditor’s remuneration and legal & professional charges”. The auditor’s remuneration and legal & professional charges incurred for maintenance of statutory books and its audit etc. were required to be incurred irrespective of whether the Company had any income or not and hence, there was absolutely no basis for considering a part of such expenditure towards earning of exempt income. In this connection, reliance is placed on Gujarat High Court judgment in the case of CIT vs. Suzion Energy Ltd. 354 ITR 630, in which the Court confirmed the deleting of disallowance u/s 14A in respect of interest expenses incurred for investments in subsidiaries and administrative expense such as staff salary of corporate office, audit fees, building rent and communication expenses.

(ii) It is also evident from the balance sheet of the Appellant Co., its investments in shares were only in two subsidiary companies. Such investments in subsidiary companies were made by the Appellant to acquire/promote the subsidiary companies which are in the media business and were not made purely for earning dividend income. Neither any dividend income has been earned since the time such investments were made in the shares of the subsidiary companies. Hence, such investments cannot be considered for disallowance u/s 14A read with Rule 8D.

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