Sec 14A and Rule 8D does not attract in case of Investment made in Subsidiary Companies: ITAT Mumbai [Read Order]

The ITAT, Mumbai bench, in the case ACIT v. ITD Cementation India Ltd, held that Section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules cannot be invoked in a case where the assessee made investment in subsidiary companies, wherein the assessee is a partner.

In the instant case, the assessee is engaged in the business of civil, mining, marine, engineering and construction activities. Against the return filed by the assessee declaring loss, the AO competed assessment and disallowed ‘interest expenditure’ by invoking section 14A and Rule 8D. The AO observed that theassessee has made huge investments,income from which was likely to be exempt as per the provisions of the Act.The first appellate authority sustained the order on appeal.

The assessee impugned the assessment order by contending that no expenditure had been incurred towards earning of the exempt income, that no disallowance under section 14A should be made.It was also contended that investment was made in subsidiaries companies of the group or in the JBCs, that assessee had claimed no expenditure against the exempt income. It was also pointed out that the first appellate authority had deleted the addition for the earlier assessment year.

The bench found that that the AO had made disallowance under the head administrative expenses for the reason that the assessee had not claimed any expenditure for earning exempt income, and the investment was made in subsidiary companies or the JVC.s, where the assessee was the partner. In view of this finding, the assessment was quashed.

Read the full text of the Judgment below.