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Income Tax Appellate Tribunal, ‘ A’ BENCH : CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI CHANDRA POOJARI]
आदेश / O R D E R
PER CHANDRA POOJARI, ACCOUNTANT MEMBER
This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-18, Chennai, dated 31.03.2015 for the assessment year 2011-2012.
The ground raised by the assessee in this appeal is with regard to disallowance u/s.14A of the Act.
ITA No.1433/Mds/2015 :- 2 -:
The facts of the case are that the assessee received dividend income of �51,65,537/- from the mutual funds and the assessee claimed the same as an exempt income. According to the Assessing Officer, the assessee made huge investments in the mutual funds during the year and the assessee incurred the expenditure to earn exempt income. The Assessing Officer by invoking provision u/s.14A r.w. Rule 8D(2)(iii) of the Income Tax Rules, 1962 disallowed a sum of �13,44,712/- as expenditure incurred towards exempt income. Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer. Against this, the assessee is in appeal before us.
The assessee counsel submitted that the company is not an 4. investment company and all these investments in associate companies, have been made for commercial consideration. The ld. Authorised Representative for assessee placed reliance on the order of the Co- ordinate Bench, Chennai in the case of EIH Associated Hotels Limited in wherein it was held that investment in subsidiary is not to be reckoned for disallowance u/s.14A rwr 8D and submitted that the same ratio would be applicable to the assessee’s case and the investment in subsidiaries, should not be reckoned for disallowance u/s.14A. The ld. Authorised Representative for assessee
ITA No.1433/Mds/2015 :- 3 -: contended that the investment in subsidiaries should be outside the purview of Section 14A, as held by the Co-ordinate Bench, Chennai in the case of ACIT vs. M.Baskaran 152 ITD 844 that investments amount on which no income has been earned/received should not be considered while computing the disallowance u/s.14A. The ld. Authorised Representative further contended that the assessee had not incurred any expenditure to earn any return on these investments.
The companies, mutual funds etc are separate entities having their own staff and infrastructure and the assessee or its representative are not entitled to interfere in the affairs of such companies and mutual funds. Even dividends are sent by electronic mode to the bank accounts directly and hence the assessee had not incurred any expenditure on earning the tax free income.
The ld. Departmental Representative relied on the order of 5. the lower authorities.
We have heard both the parties and perused the material on 6. record. As seen from the details filed by the assessee’s counsel before us, the assessee made investments in Tower Travels Pvt. Ltd and RKR Hotels Private Ltd which are said to be subsidiary companies of the assessee company. As held by the Tribunal in the case of EIH Associated Hotels Limited in for the ITA No.1433/Mds/2015 :- 4 -: assessment year 2008-2009 dated 17.07.2013, the investment in subsidiary is not to be considered for disallowance u/s.14A r.w.r. 8D of the Income Tax Rules. Similarly, the Tribunal held in the case of ACIT vs. M. Baskaran 152 ITD 844 that investment which yields no income should not be considered for computing disallowance u/s.14A of the Act. In view of this order of the Co-ordiante Bench, we are inclined to remit the issue back to the file of the Assessing Officer for recomputing the disallowance only to consider other than these two investments and decide accordingly.
In the result, the appeal of the assessee in ITA 7. No.1433/Mds/2015 is partly allowed for statistical purposes.
Order pronounced on Friday, 28th day of August, 2015, at Chennai.