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

Brief facts of the case are that the assessee filed its return of income for the assessment year 2014-15 on 24.09.2014 admitting an income of ₹.1,91,98,220/-. 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 ₹.2,21,14,218/- after making disallowance under section 14A of the Act r.w. Rule 8D at ₹.29,15,998/-. 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 balance sheet 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(2)(ii) 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, perused the materials available on record and gone through the orders of authorities below including paper book filed by the assessee. On perusal of the accounts, the Assessing Officer noticed that the assessee has claimed interest expenses of ₹.1,48,41,644/- and shown dividend income of ₹.36,41,636/- and also investment in shares of ₹.4,88,89,852/- in various companies and other ₹.3,10,000/- aggregating to ₹.4,91,99,852/-. 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(2)(ii) at ₹.26,71,392/- and Rule 8D(2)(iii) at ₹.2,44,606/- totalling to ₹.29,15,998/- and brought to tax. Before the ld. CIT(A), the assessee has contended that the investments in the acquisition of shares were from its own interest free funds. Upon the above submissions, the ld. CIT(A) has observed that the assessee earned dividend income of ₹.36,41,636/- from mutual funds and similar tax exempt investments. The assessee has also had land and other immovable properties worth of ₹.7.45 crores. The assessee has also various other investments and advances which are made for the purposes other than for earning income. Thus, while observing that the entire amount on investments are from own funds is not borne of facts, the ld. CIT(A) held that even if the tax exempt investments were to be from own funds of the assessee, the disallowance under section 14A of the Act is attracted in view of the various judgements of various Courts and accordingly confirmed the disallowance.

In the result, the appeal filed by the assessee is allowed for statistical purposes.