INCOME TAX ACT, 1961

Section 14A Rule 8D(2)(iii)

Disallowance under section 14A - Expenditure against exempt income - Administrative expenses under rule 8D(2)(iii) - Major chunk of dividend amount was earned from strategic investments made in subsidiaries

Assessee earned tax free dividend income of Rs. 7,45,55,000 but claimed no disallowance under section 14A. AO invoked rule 8D(2)(iii) and made disallowance of Rs. 79 lakhs. Assessee's case was that out of total dividend, income of Rs. 7,45,49,000 was earned by assessee from old investments in wholly owned subsidiary company M/s. Saraswati Sugar Mills Ltd. The remaining of only Rs. 6,000 was earned from other company M/s. Reliance Industries Ltd.Held: The fact is that assessee had maintained/managed not only old strategic investments for business purpose in wholly owned subsidiary/sister concern but also made old investments in other companies. Considering submissions of assessee that not much effort had been made by assessee to manage the old investments and further considering that major chunk of dividend amount was earned from strategic investments made in subsidiaries, a lump sum disallowance of Rs. 5 lakhs would be reasonable on account of administrative expenses incurred for management of old investments.

REFERRED :

FAVOUR : Partly in assessee's favour.

A.Y. :

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