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It was held had held that Disallowance u/s 14A for the period before AY 2008-09 i.e pre-Rule 8D period, should be restricted to 2% of the dividend income. Shakuntaladevi Trade & Investments Pvt. Ltd. Vs. ITO (ITAT Mumbai)
In this case only interest of Rs 2,96,731/- was paid on funds utilized for making investments on which exempted income was receivable. Further it was observed that in respect of investment of Rs. 6,07,775,000/- made in subsidiary companies , they are attributable to commercial expediency, because as per submission made by the assessee,
From the above discussion, it transpires that the objective satisfaction of the AO as to the correctness of the assessee’s claim was not recorded in the instant case. However, even if Rule 8D cannot be applied, the AO is obliged to ascertain the expenditure which had been incurred to earn the tax-free income.
During the year only an amount of 4 lakh was invested out of the total investment of 3.39 crores. In the earlier years the assessment of the assessee were completed u/s 143(3) and the AO did not make any disallowance u/s 14A. The term loan taken by the assessee was for specific purposes and it cannot be alleged without proof that the term loan granted by the bank for specific purposes,
Assessee-company is a dealer and trader in shares and securities. Its various business segments are: Futures & Options (F&O) in shares and securities, shares transactions in the cash and derivative markets, speculation business therein (the above classifications may bear some overlapping).
During the course of assessment proceedings, Assessing Officer noticed that Assessee has made investment in shares amounting to Rs. 95,45,400/-. Assessing Officer was of the view that the investment would generate exempt income and therefore provisions of section 14A becomes applicable.
Some of the investments made by the assessee are short term. Since assessee is paying capital gains tax on short term investments, the provisions of Rule 8D will not apply on them. The Assessing Officer is directed to re¬compute dis-allowance u/s. 14A r.w.r. 8D after excluding short term investments.
The first issue in the appeal of the assessee relates to dis-allowance made u/s. 14A r.w.r. 8D. The Assessing Officer has made dis-allowance to the tune of Rs. 4,32,66,500/-. The contention of the assessee is that the assessee has earned dividend income of Rs. 4.6 Lakhs which is fully exempt u/s.
In combined result, one appeal of assessee in ITA No. 1800/Ahd/2008 is partly allowed for statistical purposes and the remaining six appeals of Revenue in the case of three assessees are dismissed and all 16 COs of the three assessees are also dismissed.
From the above portion, we noticed that the Tribunal has bifurcated the expenditure in two parts – first related to investment of Rs. 5907.18 lakhs in foreign subsidiaries, it was held that the dividend income from such subsidiaries is taxable in India and that therefore, Section 14A would have no applicability. The remaining amount pertain to investment of Rs. 38 Crores [rounded off] made in Indian subsidiaries. In this respect, the Tribunal noted that the assessee had to its disposal, own interest free funds many times over the investment in question. As per the balance sheet as on 31st March 2005, the assessee had interest free fund of Rs. 929.57 Crores.
