ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, KOTA, KOTA vs. CHAMBAL FERTILIZERS AND CHEMICALS LTD., KOTA

ITA 1099/JPR/2024Status: DisposedITAT Jaipur27 August 2025AY 2016-1739 pages
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What did the Tribunal hold?

The Tribunal set aside the findings of the CIT(A) regarding the disallowance of interest claimed under Section 36(1)(iii) in respect of amounts invested in subsidiaries/group companies/associates. The matter is remitted to the Assessing Officer (AO) to determine the amount of interest-free funds available with the assessee during the assessment years under consideration, after verifying relevant documents, and then adjudicate the issue in accordance with law. Regarding the valuation of shares and any resultant loss from the merger of CFCL Technology Limited, the Tribunal also set aside the CIT(A)'s findings. This issue is remanded to the AO for determination of the valuation of shares as on the date of transfer, after providing a reasonable opportunity to the parties. The Tribunal noted that the merger appeared to be a veiled attempt at tax avoidance. The appeals filed by the department are partly allowed for statistical purposes, and for other issues, the appeals are dismissed.

What were the facts?

The assessee, Chambal Fertilizers and Chemicals Ltd. (CFCL), is a public limited company engaged in manufacturing and trading. The appeals by the Revenue challenge orders of the CIT(A) for assessment years 2010-11, 2011-12, 2015-16, 2016-17, and 2017-18. These appeals arise from a remand by the ITAT to the CIT(A) concerning notional interest on investments in subsidiaries. The CIT(A) had previously allowed the assessee's appeal on this issue, directing deletion of additions made by the Assessing Officer (AO). The Revenue contested this, arguing the AO had invoked Section 36(1)(iii), not Section 14A, for disallowance. The CIT(A) also deleted additions related to club expenses, advances to subsidiaries/group companies, and contribution to DAV Trust Management Society for AY 2015-16. For AY 2016-17, the CIT(A) deleted additions for interest, club expenses, and loans/advances. A specific issue involves a cross-border merger of subsidiaries, CFCL Technology Limited and CFCL Ventures Limited, leading to a claimed capital loss by the assessee.

What were the issues?

1. Whether the disallowance of interest under Section 36(1)(iii) of the Income Tax Act, 1961, in respect of funds utilized for investment in subsidiary companies is justified? The assessee contends that the CIT(A) rightly deleted the addition, relying on previous ITAT decisions for AYs 2012-13 to 2014-15 which held no disallowance could be made under Section 36(1)(iii) or 14A for investments in subsidiaries. The Revenue argues that the CIT(A) erred in deleting the addition, as the AO had invoked Section 36(1)(iii) and not Section 14A. 2. Whether the extinguishment of rights in CFCL Technology Limited, Cayman Islands, due to its merger with CFCL Ventures Limited, Cayman Islands, constitutes a 'transfer' under Section 2(47) of the Act, and if so, whether the claimed capital loss is allowable? The assessee relies on the CIT(A)'s finding that it was a transfer and a capital loss. The Revenue disputes this, arguing it was not a transfer under Section 45 and no loss arose. The Tribunal also needs to determine the correct valuation of shares and the resultant loss, if any.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii),Section 14A,Section 45,Section 2(47)

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Income Tax Appellate Tribunal, JAIPUR BENCHES,A-Bench JAIPUR

Before: SHRI GAGAN GOYAL, AM & SHRI NARINDER KUMAR, JM

For Appellant: Shri P.J. Pardiwala, Adv, Adv. &
For Respondent: Shri Rajesh Ojha, CIT &
Hearing: 27/08/2025Pronounced: 27/08/2025

PER: NARINDER KUMAR, JUDICIAL MEMBER .

All the above captioned five appeals are interconnected and are being taken up together for disposal, as common issues, arising out of similar facts are involved, and Ld. DRs for the department-appellant and Learned counsel for the assessee have argued all the appeals simu

The order continues below.

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