KOLUR SREENIVASAN KAMALAKANNAN,DINDIGUL vs. ITO CORPORATE WARD 4(4), CHENNAI

This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 8, Chennai dated 07.09.2017 relevant to the assessment year 2013-14. The effective ground raised in the appeal of the assessee relates to confirmation of disallowance of ₹.29,75,079/- on the application of section 14A of the Income Tax Act, 1961 [“Act” in short].

Brief facts of the case are that the assessee filed its return of income for the assessment year 2013-14 on 24.09.2013 admitting an income of ₹.37,85,000/-. The return filed by the assessee was selected for scrutiny and against the statutory notices, the assessee furnished the details. On verification of the details filed by the assessee, the Assessing Officer completed the assessment under section 143(3) of the Act by assessing total income of the assessee at ₹.67,60,079/- after making disallowance under section 14A of the Act r.w. Rule 8D at ₹.29,75,079/-. On appeal, the ld. CIT(A) confirmed the disallowance made under section 14A r.w. Rule 8D.

On being aggrieved, the assessee is in appeal before the Tribunal. By referring to the financial statements filed in the form of paper book, the ld. Counsel for the assessee has submitted that the assessee has sufficient own funds/internal accruals for making investments. The interest expenditure incurred by the assessee should not have been disallowed under section 14A r.w. Rule 8D since no part of the borrowed funds were used by the assessee for making investments and prayed for deleting the disallowance of expenditure. On the other hand, the ld. DR supported the orders of authorities below.

We have heard both the sides through video conferencing, perused the materials available on record and gone through the orders of authorities below including financials of the assessee. On perusal of the accounts, the Assessing Officer noticed that the assessee has claimed interest expenses of ₹.1,53,26,748/- and shown dividend income of ₹.35,90,592/- and also investment in shares for ₹.4,86,42,452/- with various companies and others. However, the assessee has not admitted any expenditure attributable to such investments. Hence, by invoking the provisions of section 14A r.w. Rule 8D, the Assessing Officer determined the expenditure attributable for earning such exempt income by applying Rule 8D and brought to tax an amount of ₹.29,75,079/-. Before the ld. CIT(A), the assessee has filed the computation of income and financials of the assessee for the year under consideration. From the details furnished by the assessee, the ld. CIT(A) has observed that the assessee has received a dividend of ₹.35,90,592/- for the year out of tax exempt investments made of ₹.4.83 crores during the year. The assessee has also shown an opening balance of loan creditors at ₹.19.97 crores and a closing balance of ₹.20.03 crores on which the assessee has debited an interest of ₹.1,53,26,748/- during the year. The assessee has loan debtors of ₹.12.34 crores and personal properties of ₹.7.10 crores for the year. Thus, the ld. CIT(A) has confirmed the disallowance under section 14A r.w. Rule 8 D. since the assessee has not objected to the working of the disallowance. Before us, it was the contention of the ld. Counsel for the assessee that the Assessing Officer failed to appreciate that under capital account, the assessee had balance amount of ₹.6,25,90,602/-, but the assessee invested in shares only for ₹.4,83,82,452/-. Therefore, it was the submission that the assessee made the investment in shares out of his own fund. Though the assessee has borrowed an amount of ₹.20 crores, the said amount has nothing to do with the investments made by the assessee. The said facts are not discussed in the assessment order while concluding the assessment.