JIGAR P. SHAH,MUMBAI vs. ACIT 21(1), MUMBAI

The present appeal has been preferred by the assessee against the order dated 19.05.2014 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11.

The sole issue raised by the assessee through his grounds of appeal is relating to the confirmation of addition under section 14A of Rs.2,46,650/-. At the outset, the Ld. A.R. of the assessee has invited our attention to page 11 of the paper book which is the detail of investments to show that 99.98% of the total investments were made in the group companies. The assessee has contended that the same were strategic investments for having control over the group companies. The Ld. A.R. of the assessee has further submitted that the investments so made were old investments and that no new investments were made during the year. He, therefore, has submitted that the 2 Shri Jigar P. Shah strategic investments made by the assessee were not for the purpose of earning of exempt income but the same were relating to the business strategy of the assessee. He, therefore, has contended that while making out the disallowance under section 14A read with rule 8D of the Income Tax Rules, the strategic investments made in the group concerns should not be considered and be excluded while calculating the disallowance under rule 8D.

We have considered the rival contentions, carefully gone through the orders of authorities below. We have also deliberated upon the judicial pronouncements cited with reference to the exclusion of investment made in the companies which are strategic in nature. As per the judicial pronouncements cited above, such investments should not be taken into account for working out the disallowance u/s 14A of the Act.”

The Ld. A.R. of the assessee has further brought our attention to the decision of the Hon’ble Bombay High Court in the case of “CIT, Panaji, Goa vs. Phil Corpn. Ltd.” (2011) 202 Taxman 368 wherein the Hon’ble Bombay High Court has held that where the investment in shares of sister/subsidiary company is made to have control over that company and further that such an investment was accordingly part of the business of the assessee, in that event the assessee is entitled to deduction of interest paid on the borrowed amount under section 36(1)(iii) of the Act. We, further find that recently the Hon’ble Delhi High Court in the case of “Eicher Goodearth Ltd. vs. CIT” (2015) 60 taxman.com 268 (Del.) has held that if the expenditure is incurred for the purpose of promotion of business-more specifically to retain control or as part of his strategic investment of the assessee company, such expenses by way of interest out go would have to be treated as allowable under section 36(1)(iii) of the Act.