TRIWAY CONTAINER FREIGHT STATION P LTD.,CHENNAI vs. ITO CORPORATE WARD 3(2), CHENNAI

Brief facts of the case are that the assessee has filed its return of income on 28.09.2013 for the assessment year 2013-14 admitting nil income after claiming deduction under section 80IA(4) of the Income

The first common ground raised in both the appeals of the assessee relates to confirmation of disallowance made under section 14A of the Act. On perusal of the balance sheet of the assessee, the Assessing Officer has noted that the assessee has made investment in shares as on 31.03.2014 with M/s. Triway Warehousing and Holdings Pvt. Ltd. at ₹.90,00,000/- and Triway Global Forwarding Pvt. Ltd. at ₹.20,00,000/- totalling to ₹.1,10,00,000/-. Before the Assessing Officer, the assessee has explained that the total owned funds of the company as on 31.03.2014 was ₹.50,82,73,523/-, whereas, the investment in the group concerns amount to ₹.1,10,00,000/- and therefore, no disallowance under section 14A of the Act is warranted. It was also submitted that the paid up share capital was ₹.7.50 crores and free reserves are ₹.43.22 crores totalling to ₹.50.82 crores which far

On being aggrieved, the assessee is in appeal before the Tribunal for both the assessment years. By reiterating the submissions as made before the authorities below, the ld. Counsel for the assessee has submitted that the assessee has not earned any exempt income in the relevant assessment years under appeal and therefore, the disallowance made by the Assessing Officer in view of the provisions of section 14A of the Act read with Rule 8D was completely contrary to the provisions of that section as Rule 8D only provides for a method to determine the amount of expenditure incurred in relation to income, which does not form part of total income of the assessee and prayed for deleting the addition.

On the other hand, the ld. DR supported the orders of authorities below.

We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. Admittedly, the assessee has not earned any exempt income in the relevant assessment years under appeal against the investments. Under these circumstances, in the case of CIT v. Chettinad Logistics (P) Ltd. [2017] 248 taxman 55 (Mad), the Hon’ble Jurisdictional High Court has observed and held that when there was no dividend income earned in the relevant assessment year, the disallowance made by the Assessing Officer in view of the provisions of section 14A of the Act read with Rule 8D was completely contrary to the provisions of that section as Rule 8D only provides for a method to determine the amount of expenditure incurred in relation to income, which does not form part of total income of the assessee. Against the decision of the Hon’ble High Court, the Department preferred Special leave Petition, which was dismissed by the Hon’ble Supreme Court [2018] 257 Taxman 02. In view of the above decision rendered in the case of CIT v. Chettinad Logistics (P) Ltd. (supra), the disallowance of

The next common ground raised in both the appeals of the assessee relates to confirmation of disallowance of interest under section 37 of the Act. In the assessment order, the Assessing Officer has noted that on perusal of the balance sheet, the assessee company has advanced interest free loan of ₹.13.82 crores to related companies as follows: Triway Global Forwarding Pvt. Ltd. ₹. 82,10,000/- Triway Warehousing and Holding Pvt. Ltd. ₹. 13,00,72,000/- However, the assessee has borrowed funds of ₹.32.34 crores from banks and financial institution and paid interest of ₹.4.63 crores. After considering the submissions of the assessee, the Assessing Officer has observed that the assessee has diverted the borrowed funds for non-business purposes and accordingly, proportionate interest @ 12% on ₹.13,82,82,000/- amounting to ₹.1,65,93,840/- has been disallowed under section 37(1) of the Act and added back to the total income of the assessee. On appeal, the ld. CIT(A) confirmed the disallowance.

On being aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that the assessee company had reserve/surplus to the tune of almost 15 crores and no borrowed funds were diverted for non-business purposes and prayed that the addition made towards disallowance under section 37(1) of the Act may be deleted. He also relied on the judgement of the Hon’ble Supreme Court in the case of Hero Cycles (P) Ltd. v. CIT in Civil Appeal No. 514 of 2008 dated 05.11.2015.

On the other hand, the ld. DR supported the orders of authorities below.

We have heard the rival contentions. Against the disallowance of interest under section 37(1) of the Act of ₹.1,65,93,840/-, considering the statement showing the profit earned, loan obtained for specific purpose, working capital loan obtained and loans given to sister concerns year-wise from financial year 2010-11 to 2013-14, in the appellate order, the ld. CIT(A) has observed that the assessee company has had excess of own funds over the amounts advanced to sister concerns. However, in the assessment order, the Assessing Officer has not recorded in his findings about the excess funds

The next common ground raised in both the appeals of the assessee relates to disallowance of interest under section 40(a)(ia) of the Act. In the assessment order, the Assessing Officer has noted that the assessee has made interest payments to various non-banking financial institutions to the extent of ₹.1,28,83,616/- without deducting the tax at source. After considering the submissions of the assessee and by applying the provisions of section 40(a)(ia) of the Act, the Assessing Officer disallowed the entire interest payment on the ground that TDS was not deducted. On appeal, the ld. CIT(A) partly allowed the ground raised by the assessee.

Before us, the ld. Counsel for the assessee has submitted that the creditors have included the interest income in their books of account and therefore, the assessee is eligible to claim the expenditure of interest payment.

On the other hand, the ld. DR has submitted that the assessee has not produced any certificate from NBFCs towards admission of the interest paid by the assessee as income in their returns of income.

We have heard the rival contentions. Against the disallowance under section 40(a)(ia) of the Act, by considering the CA certificate from M/s. Religare Finvest Ltd. to the extent of ₹.58,49,919/- certifying the admission of the same as income in its return of income, the ld. CIT(A) directed the Assessing Officer to delete the amount of ₹.58,49,919/- and sustained the balance amount of ₹.70,33,697/-. By affording an opportunity, we direct the assessee to produce certificate from other NBFCs certifying the admission of the same as income in its return of income so that after verification of the same, the Assessing Officer shall allow the expenses. If the assessee fails to produce such certificate from other NBFCs, the order passed by the ld. CIT(A) would be final for both the assessment years. Thus, the ground of appeal is

In the result, both the appeals filed by the assessee are partly allowed for statistical purposes.