|CORAM:||A. K. Garodia (AM), Sunil Kumar Yadav (JM)|
|SECTION(S):||14A, Rule 8D|
|CATCH WORDS:||Disallowance u/s 14 & Rule 8D, exempt income|
|COUNSEL:||R. C. Jain|
|DATE:||January 23, 2015 (Date of pronouncement)|
|DATE:||July 8, 2015 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 14A & Rule 8D: (i) Investments in subsidiaries & joint ventures are for strategic purposes and not for earning dividend and so the expenditure cannot be disallowed, (ii) If the AO does not deal with the assessee's submissions and merely says "not acceptable" it means he has not recorded proper satisfaction|
(i) Investment in subsidiary companies and joint venture companies are long term investment and no decision is required in making the investment or disinvestment on regular basis because these investments are strategic in nature and no direct or indirect expenditure is incurred for maintaining the portfolio on these investments or for holding the same. The department has not disputed that the purpose of investment is not for earning the dividend income but having control and business purpose and consideration. Therefore, prima facie the assessee has made out a case to show that no expenditure has been incurred for maintaining these long term investment in subsidiary companies. The Assessing Officer has not brought out any contrary fact or material to show that the assessee has incurred any expenditure for maintaining these investments or portfolio of these investments. Therefore, no disallowance u/s 14A or Rule 8D can be made (M/s JM Financial Limited vs. Addl. CIT, I.T.A. No. 4521/Mum/2012 followed).
(ii) The observations of the High Court in Godrej And Boyce Mfg. Co. Ltd. vs. Dy. CIT & Another  328 ITR 81 (Bom.) and Maxopp Investment Ltd. & Ors. vs. CIT, (2012) 247 CTR 162 (Del), clearly show that the satisfaction of the Assessing Officer with regard to the correctness or otherwise of the claim made by the assessee must be based on reasons and on relevant considerations. Ostensibly, the invoking of rule 8D of the Rules in order to compute the disallowance u/s 14A of the Act is to be understood as being conditional on the objective satisfaction of the Assessing Officer with regard to the incorrectness of the claim of the assessee, having regard to the accounts of the assessee. In order to examine the aforesaid compliance with the pre-condition, we have perused the assessment order and find that no reasons have been advanced as to why the disallowance determined by the assessee was found to be incorrect, having regard to the accounts of the assessee. The only point made by the Assessing Officer is to the effect that “the said disallowance was not acceptable”. In-fact, we find that the assessee made detailed submissions to the Assessing Officer. As per the assessee, the determination of disallowance u/s 14A of the Act of Rs.5,00,000/- was based on the employee costs and other costs involved in carrying out this activity. Further, assessee also explained that the shares which have yielded exempt income were acquired long back out of own funds and no borrowings were utilized. The mutual fund investments were claimed to be also made out of surplus funds. It was specifically claimed that no fresh investments have been made during the year under consideration in shares yielding exempt income. All the aforesaid points raised by the assessee have not been addressed by the Assessing Officer and the same have been brushed aside by making a bland statement that the disallowance is “not acceptable” . Therefore, in our view, in the present case, the Assessing Officer has not recorded any objective satisfaction in regard to the correctness of the claim of the assessee, which is mandatorily required in terms of section 14A(2) of the Act and therefore his action of invoking rule 8D of the Rules to compute the impugned disallowance is untenable (Kalyani Steels Ltd. vs. Addl. CIT, I.T.A. No. 1733/PN/2012 followed).