Case Law Details
Puran Associates Pvt. Ltd. Vs ACIT (ITAT Delhi)
The issue under consideration is whether the expense disallowed u/s 14A by A.O. is justified in law?
In the present case, the assessee is engaged in the business of sale and purchase of the shares in mutual funds. During the year, the assessee disclosed income of ₹ 3 crores and made disallowance of ₹ 10,82,334/-, under section 14A of the Act. The Assessing Officer, rejected the action of the assessee and disallowed ₹53,16,568/- u/s 14A claiming to be expense on account of the income on which no activity was done in the previous year. The assessee explained that, the investment in the shares of ‘Dabur India Ltd’ has been made as a promoter of the company and no expenditure was incurred for earning dividend income from the said investment. It is a a strategic investment.
ITAT relying on the Supreme Court judgement in the case of Maxopp Investment Ltd states that prior to the introduction of Section 14A of the Act, the law was that when an assessee had a composite and indivisible business which had elements of both taxable and non-taxable income, the entire expenditure in respect of said business was deductible and, in such a case, the principle of apportionment of the expenditure relating to the non-taxable income did not apply. According to the Court, the said reasoning would be applicable in cases where shares are held as an investment in the investee company, maybe for the purpose of having a controlling interest therein.
Hence, the contention of the assessee investment made for acquiring controlling interest in Dabur India Ltd should not be subject to disallowance under section 14A is rejected.
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