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The Tax Publishers2018 TaxPub(DT) 0722 (Kol-Trib) Dy. CIT v. EIH Ltd. INCOME TAX ACT, 1961 --Disallowance under section 14A--Expenditure against exempt incomeAssessee suo moto offered expenditure disallowable----Where assessee's own fund was in excess them investment made no disallowance under section 14A read with rule 8D(ii) would be made and dividend income from investment in foreign companies was taxable hence, out side ambit of section 14A, as regard to other dividend income earned assessee so moto offer much higher amount that disallowance made by AO the same therefore, to be retained.--Assessee had suo moto disallowed Rs. 4248,850 on account of indirect expense and Rs. 496 on account of direct expenses attributable towards earning of exempt income. The AO disregarded the same and worked out the disallowance under rule 8D(2)(ii) and rule 8D(2)(iii) of the Rules in the sums of Rs. 2,39,52,830 and Rs. 23,77,882 respectively. This action of the AO was upheld by the CIT(A).Held: Assessee has sufficient own funds for making investments. Hence there cannot be any disallowance of interest under rule 8D(2)(ii) of the Rules. Hence that the disallowance made under the second limb of rule 8D(2)(ii) of the Rules is hereby directed to be deleted. With regard to the third limb of rule 8D(2)(iii) of the Rules, the assessee has got investments in foreign companies, the dividend earned from which would be taxable income and hence should be outside the ambit of disallowance under section 14A of the Act read with rule 8D of the Rules. Similarly, investments made in subsidiary companies would have to be reckoned as strategic investments and hence the same should be excluded while working out the disallowance under rule 8D(2)(iii). Similarly, the investments which had yielded dividend income alone, are to be considered while working out the disallowance under rule 8D(2)(iii). If the disallowance made under second limb of rule 8D(2) of the Rules is deleted, then the disallowance made by the AO would remain at Rs. 23,77,882 and whereas the assessee itself had voluntarily disallowed Rs. 42,48,850. Hence the AO was directed to adopt the disallowance figure of Rs. 42,48,850 which had already been disallowed by the assessee and hence no further disallowance in that regard is to be made. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2018 TaxPub(DT) 0722 (Kol-Trib)

Dy. CIT v. EIH Ltd.

INCOME TAX ACT, 1961

--Disallowance under section 14A--Expenditure against exempt incomeAssessee suo moto offered expenditure disallowable----Where assessee's own fund was in excess them investment made no disallowance under section 14A read with rule 8D(ii) would be made and dividend income from investment in foreign companies was taxable hence, out side ambit of section 14A, as regard to other dividend income earned assessee so moto offer much higher amount that disallowance made by AO the same therefore, to be retained.--Assessee had suo moto disallowed Rs. 4248,850 on account of indirect expense and Rs. 496 on account of direct expenses attributable towards earning of exempt income. The AO disregarded the same and worked out the disallowance under rule 8D(2)(ii) and rule 8D(2)(iii) of the Rules in the sums of Rs. 2,39,52,830 and Rs. 23,77,882 respectively. This action of the AO was upheld by the CIT(A).Held: Assessee has sufficient own funds for making investments. Hence there cannot be any disallowance of interest under rule 8D(2)(ii) of the Rules. Hence that the disallowance made under the second limb of rule 8D(2)(ii) of the Rules is hereby directed to be deleted. With regard to the third limb of rule 8D(2)(iii) of the Rules, the assessee has got investments in foreign companies, the dividend earned from which would be taxable income and hence should be outside the ambit of disallowance under section 14A of the Act read with rule 8D of the Rules. Similarly, investments made in subsidiary companies would have to be reckoned as strategic investments and hence the same should be excluded while working out the disallowance under rule 8D(2)(iii). Similarly, the investments which had yielded dividend income alone, are to be considered while working out the disallowance under rule 8D(2)(iii). If the disallowance made under second limb of rule 8D(2) of the Rules is deleted, then the disallowance made by the AO would remain at Rs. 23,77,882 and whereas the assessee itself had voluntarily disallowed Rs. 42,48,850. Hence the AO was directed to adopt the disallowance figure of Rs. 42,48,850 which had already been disallowed by the assessee and hence no further disallowance in that regard is to be made.