DCIT, MADURAI vs. M/S. RAJAPALAYAM MILLS LTD., RAJAPALAYAM

PDF · subscribers
ITA 3165/CHNY/2016Status: DisposedITAT Chennai25 January 2018AY 2012-135 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 held that the assessee had sufficient own funds, and the investment in the subsidiary company was for business purposes. Therefore, the deletion of the disallowance by the CIT(Appeals) was justified.

What were the facts?

The Assessing Officer disallowed an amount under Section 14A read with Rule 8D(2) for investments made by the assessee. The CIT(Appeals) deleted this addition, finding that the borrowed funds were not used for investment and the assessee had sufficient own funds.

What were the issues?

Whether disallowance under Section 14A is warranted when the assessee has sufficient own funds for investment, even if borrowed funds are also available.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(2)Show list

Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.

Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI

Before: SHRI N.R.S. GANESAN & SHRI S. JAYARAMAN

For Respondent: Shri V. Jagadisan, CA
Hearing: 04.01.2018Pronounced: 25.01.2018

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

1.

This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-1, Madurai, dated 24.08.2016 and pertains to assessment year 2012-13.

2.

Shri N. Madhavan, the Ld. Departmental Representative, submitted that the Assessing Officer disallowed ₹2,15,52,400/- read with Rule 8D(2) of the Income-tax Rules, 1962. However, on appeal by the assessee, the CIT(Appeals) deleted the addition made by the Assessing Officer. According to the Ld. D.R., the CIT(Appeals) found that the borrowed funds were not utilized for the purpose of investment. The CIT(Appeals) has not proved that the assessee had own funds for using the same for purchase of shares.

On a query from the Bench, is it a case of Revenue that the assessee had no own funds for the purpose of making investment? The Ld. D.R. submitted that the CIT(Appeals) has not brought on record that the assessee had sufficient funds for making investment in the shares. Referring to Section 14A of the Act read with Rule 8D(2), the Ld. D.R. submitted that Rule 8D(2) does not say that in case the assessee’s own funds were used for investment, there cannot be any disallowance. In the absence of any such clause in Rule 8D(2) of Income-tax Rules, according to the Ld. D.R., the CIT(Appeals) is not justified in allowing the claim of the assessee.

3.

On the contrary, Shri V. Jagadisan, the Ld. representative for the assessee, submitted that the CIT(Appeals) by referring to the balance sheet, found that the assessee had own funds to the extent of ₹43,451.32 lakhs. According to the Ld. representative, what was 3 invested is only ₹4417.20 lakhs, therefore, it is not correct to say that the CIT(Appeals) has not proved that the assessee was having its own funds. According to the Ld. representative, the fact that the assessee was having ₹43,451.32 lakhs is not in dispute. It is also not in dispute that the investment was only ₹4417.20 lakhs. According to the Ld. representative, the entire investment was made only in the subsidiary company, namely, M/s Rajapalayam Spinning Mills Limited out of the profit generated during the year under consideration. Therefore, according to the Ld. representative, the CIT(Appeals) by placing reliance on the judgement of Karnataka High Court in CIT v. Micro Labs (383 ITR 490) found that the interest free funds were available more than the investment, therefore, there cannot be any disallowance under Section 14A of the Act. The CIT(Appeals) has also placed reliance on the judgement of Bombay High Court in CIT v. Reliance Utilities and Power Limited (313 ITR 340).

4.

We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the assessee had surplus funds of its own. It is not disputed that the assessee was having ₹43,451.32 lakhs. The investment is only ₹4417.20 lakhs. It is also not in dispute that the investment was 4 made only in the subsidiary company, namely, M/s Rajapalayam Spinning Mills Limited. In those circumstances, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly deleted the disallowance made by the Assessing Officer. The investment made in the sister concern / subsidiary company is an investment for business even though earning of dividend income is incidental to the investment. Moreover, the assessee has invested its own profit in the subsidiary company, therefore, the CIT(Appeals) has rightly deleted the disallowance made by the Assessing Officer. Therefore, this Tribunal do not have any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

5.

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

More judgments on Section 14A

All 15,875 judgments and leading authorities on Section 14A →

Recent GST High Court judgments

Search GST case law →