DEPUTY COMMISSIONER OF INCOME TAX, MADURAI vs. SRI JAYAJOTHI TEXTILE MILLS PRIVATE LIMITED, RAJAPALAYAM, VIRUDHUNAGAR

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ITA 2216/CHNY/2024Status: DisposedITAT Chennai14 February 2025AY 2016-17Bench: Ld. CIT(A) against the above disallowance. On appeal, the Ld. CIT(A) has deleted the disallowance under Section 14A of Rs.67,479/- relying the decision of Hon'ble Madras High Court in the case of Redington (India) Ltd. v. ACIT 392 ITR 633 (Mad.)as assessee has not earned any exempt income during the year. As regard to disallowance of interest expenses of Rs.5,78,04,602/- relating to loan given to sister concern, the Ld. CIT(A) relying on the decision this tribunal in assessee's case on simi6 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s deletion of the Section 14A disallowance, noting that no exempt income was earned and the relevant amendment to Section 14A is prospective. It also upheld the deletion of the interest disallowance under Section 37, affirming the commercial expediency of the interest-free loan to the sister concern, based on prior tribunal and Supreme Court decisions.

What were the facts?

The assessee, Sri Jayajothi Textile Mills Pvt. Ltd., for AY 2016-17, faced disallowance by the AO of Rs. 67,749/- under Section 14A r/w Rule 8D and Rs. 5,78,04,602/- under Section 37 for an interest-free loan to its sister concern. The Ld. CIT(A) subsequently deleted both disallowances, leading the Revenue to appeal to the ITAT.

What were the issues?

Whether disallowance under Section 14A is applicable in the absence of exempt income; and whether interest on an interest-free loan to a sister concern can be disallowed under Section 37, considering commercial expediency.

Which sections of the Income-tax Act were involved?

Section 14A,Section 37,Section 143(3),Section 8D

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI

Before: SHRI ABY T. VARKEY & SHRI JAGADISH

Hearing: 20.11.2024Pronounced: 14.02.2025

आदेश / O R D E R

PER JAGADISH, A.M : Aforesaid appeal filed by the Revenue for Assessment Year (AY) 2016-17 arises out of the order of Learned Commissioner of Income Tax, Appeal, Chennai-16 [hereinafter “CIT(A)”] dated 25.06.2024 in the matter of assessment framed by the Assessing Officer [AO] u/s. 143(3) of the Income-tax Act,1961 (hereinafter “the Act”) on 21.12.2018.

1.

engaged in trading of cotton yarn and cotton grey fabrics. The assessee filed its return of income declaring total income of Rs.1,57,97,180/-. The A.O in the order passed u/s. 143(3) of the Act has made disallowance u/s. 14A of the Act r/w Rule 8D of the Income Tax Rules, 1963 (hereinafter “the Rules”) of Rs. 67,749/-. The A.O has also made disallowance of interest of Rs.5,78,04,602/- u/s. 37 of the Act in respect of interest free loan given to its sister concern.

Aggrieved, the assessee filed an appeal before Ld. CIT(A) against the above disallowance. On appeal, the Ld. CIT(A) has deleted the disallowance u/s. 14A of Rs. 67,479/- relying the decision of Hon’ble Madras High Court in the case of Redington (India) Ltd. v. ACIT 392 ITR 633 (Mad.)as assessee has not earned any exempt income during the year. As regard to disallowance of interest expenses of Rs. 5,78,04,602/- relating to loan given to sister concern, the Ld. CIT(A) relying on the decision this tribunal in assessee’s case on similar transaction in earlier year and on the decision of Hon’ble Supreme Court in the case of SA Builders vs. CIT 288 ITR 1 (SC) and Hero Hero Cycles (P) Ltd. vs. CIT (SC), has deleted the addition.

3.

The Ld. Departmental Representative (DR) supporting the order of A.O has submitted that Section 14A of the Act has been amended even in case where the income not forming part of total income has not accrued or arising or has not been received during the previous year and the provision is applicable since its inception. The Ld. DR on the issue of disallowance of interest expenses u/s.37 of the Act has argued that the commercial expediency between the assessee and sister concern M/s. Sree Iswarya Textiles Pvt. Ltd. (SITPL), whom interest free loan was advanced has not been established and as the sister concern is running in loss, the loan is a device to reduce the overall tax liability of the group.

4.

The Ld. Authorized Representative (A.R) of the assessee, on the other hand, relied on the order of Ld. CIT(A) and argued that it has been held by the jurisdiction High Court that disallowances u/s.14A of the Act is not be made in case where there is no exempt income earned during the year. The Ld. AR further argued that the various courts have held that amendment in section 14A of the Act, by Finance Act, 2022 w.e.f 01.04.2022 is prospective in nature and is not applicable for the current year. As regard to interest disallowance in respect of interest free loan given to sister concern M/s. SITPL, the Ld. A.R has argued that the same disallowance was made in A.Y 2013-14 which was deleted by Ld CIT(A) on appeal by the department the disallowance. The Ld. AR has submitted that the Hon’ble High Court has also dismissed the Departmental appeal.

5.

We have heard the rival submissions, and perused the materials available on record. The A.O has made disallowance of Rs. 67,749/- u/s. 14A of the Act r/w. Rule 8D of the Rules. Admittedly, the assessee does not does not have any exempt income. The Ld CIT(A), relying on the order of jurisdictional High Court in the case of Redington (India)

Ltd. v. ACIT, supra, has held that disallowances u/s 14A of the Act is uncalled for as no exempt income has been included in the total income. As regard to Ld AR argument on amendment in section 14A of the Act, Hon’ble Delhi High Court in the case of PCIT vs. Era Infrastructure (India) Ltd. has held that the amendment is prospective in nature, therefore applicable w.e.f from 01.04.2022. Therefore, we find no infirmity in the order of Ld. CIT(A) in deleting the disallowance u/s. 14A of the Act.

6.

As regard to disallowance of interest of Rs. 5,78,04,602/- u/s. 37 of the Act in respect of interest free loan given to its sister concern M/s. SITPL , the Ld CIT(A) has deleted the addition relying on the decision of this tribunal in for A.Y 2013-14.

The Hon’ble bench in A.Y 2013-14, where similar disallowances of was deleted by Ld CIT(A), has upheld the order of Ld CIT(A) as under:

“7. A perusal of the order of the Ld.CIT(A) clearly shows that the Ld.CIT(A) has taken into consideration the fact of the commercial expediency in respect of providing interest free loans by the assessee to its sister concern. In fact, a perusal of the Assessment Order clearly shows that this issue was also before the AO and in Page No.3 of the Assessment Order, the AO has recognized that the assessee has done total value of power purchased from M/s. Sree Iswarya Textiles Mills Pvt. Ltd., from 2006 to 2013 at Rs.53.16 Crs. This being so, clearly the advance has been given only for the purpose of commercial expediency. Further, as the Revenue has not been able to dislodge any of the findings on the fact as arrived by the Ld.CIT(A) in his order, we find no reason to interfere in the same. Consequently, the findings of the Ld.CIT(A) on this issue stands confirmed.”

7.

As the facts are identical and Ld CIT(A) has followed the order of tribunal, we find no infirmity in the order of Ld. CIT(A). In view of the above, the appeal filed by the Revenue is dismissed.

8.

In the result, the appeal filed by the Revenue is dismissed.

Order pronounced on 14th February, 2025.

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