VAKKASH CAPITAL COMPANY LIMITED ,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-14(3)(1), MUMBAI

The present appeal has been preferred by the assessee against the order dated 04.04.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2012-13.

The brief facts of the case are that during the year assessee has made total investment of Rs.2,61,06,000/- which was made in group companies and all the group companies in which the investments are made related to entities of the assessee. The assessee has shown the dividend of Rs.3,52,500/- which was claimed as exempt under section 10(34) of the Act. The assessee was asked to show the working of section 14A read with rule 8D for earning the exempt income. Therefore, no disallowance under section 14A of the Act 2 M/s. Vakkash Capital Co. Ltd. should be made. However, AO was of a view that for making investment and earning exempt income it requires some efforts. Administrative and other expenses are incurred by the assessee company facilitating earning of income including exempt income. Therefore, Assessing Officer (hereinafter referred to as the AO) computed the disallowance under section 14A read with rule 8D at Rs.10,52,020/-. The Ld. A.R. submitted that assessee is an investment company and has invested by purchasing substantial number of shares thereby securing right to management. Assessee had incurred for expenditure for business in form of investment in shares of cement companies. The Ld. A.R. relied upon the decision of Chem Investment vs. CIT 378 ITR 33 wherein it is held that if the assessee has made strategic investment and no exempt income was earned by the assessee in relevant year and since the genuineness of the expenditure incurred by the assessee is not in doubt, no disallowance can be made. The Ld. A.R. relied upon the decision of Garware Wall Ropes Ltd. vs. ACIT (2014) 65 SOT 86 (Mumbai – Trib.) wherein it is held that where the assessee had made certain investments with an object of acquiring controlling stake in a group concern and not for earning any income out of investment no disallowance can be made under section 14A read with rule 8D. The Ld. A.R. relied upon Thomas Cook vs. DCIT 49 ITR(T) 178 (Mumbai – Trib.) wherein it is held that assessee had made investment in domestic and foreign subsidiaries as part of strategic investment and strategic investment which should be excluded from the list of investments while computing the disallowance under ITA No.4919/M/2017 3 M/s. Vakkash Capital Co. Ltd. section 14A read with rule 8D of the rules. The Ld. A.R. relied upon the decision of SSPDL Ltd. vs DCIT(2013) 24 ITR (Trb) 290 (Hyd. –Trib.) wherein it is held that when assessee company has no income from sister concern and there is no necessity for using the borrowed fund investment in sister concern and when assessee has not incurred any expenditure by way of interest in the previous year which is not directly attributed to any income or receipt no disallowance can be made. The Ld. A.R. relied upon the decision of DCIT vs. Binani Industries Ltd. in wherein it is held that when the assessee has made investment in subsidiary companies and if the dividend is received from subsidiary company no disallowance can be made under section 14A read with rule 2.