ACIT CORPORATE CIRCLE 3(1) , CHENNAI vs. TAMILNADU SUGAR CORPORATION LTD. , CHENNAI

These cross appeals filed by the assessee as well as Revenue are directed against separate orders of the ld. Commissioner of Income Tax

By relying on the grounds of appeal, it was the submissions of the ld. Counsel for the assessee that the investments were made mainly with the subsidiary company of the assessee and thus, no disallowance should be made by invoking the provisions of section 14A r.w.s. Rule 8D in view of the decision of the Tribunal in the case of EIH Associated Hotels Ltd. v. DCIT in & 1624/Mds/2012 dated 17.07.2013. Hence, the ld. CIT(A) has erred in not deleting the entire disallowance made by the Assessing Officer.

We have heard both sides, perused the materials available on record and gone through the orders of authorities below. We have also perused the paper book filed by assessee. On verification of the accounts of the assessee, the Assessing Officer noticed that the investment portfolio of the assessee as on 31.03.2012 stands at an aggregate value of ₹.36,29,77,025/-. The assessee earned a dividend income of ₹.28,01,000/- and claimed exemption under section 10(34) of the Act. Since the assessee has not admitted any expenditure attributable to earning of the exempt income, by invoking the provisions of section 14A r.w. Rule 8D, the Assessing Officer disallowed a sum of ₹.1,18,25,845/- and brought to tax. During the course of appellate proceedings, the assessee has submitted

In this case, the ld. Counsel for the assessee has argued that the investments were made mainly with the subsidiary company of the assessee and thus, no disallowance should be made by invoking the provisions of section 14A r.w.s. Rule 8D in view of the decision of the Tribunal in the case of EIH Associated Hotels Ltd. v. DCIT. We find force in the arguments of the ld. Counsel. However, on perusal of the Note 11 to Non-current Investments, we find that the total investments as on 31.03.2012 and as on 31.03.2013 is ₹.36,29,77,025/-, which includes various investments in various cooperative banks. The assessee has not filed any cogent evidence to show that the 5 2054-2055/M/17 & C.O. Nos. 150-151/M/17 above investments are made only in the subsidiary of the assessee. Under the above facts and circumstances, we set aside the order of the ld. CIT(A) and remit the matter back to the file of the Assessing Officer to verify as to whether the investments made by the assessee are in its subsidiary and if it is so, no disallowance could be made in view of the decision of the Tribunal in the case of EIH Associated Hotels v. DCIT (supra). Thus, the ground raised by the assessee for both the assessment years is allowed for statistical purposes.

The next ground raised in the appeal of the assessee for the assessment year 2012-13 relates to confirmation of addition of interest on loan of ₹.2,54,372/-. In the assessment order, the Assessing Officer has observed that the assessee advanced an interest free loan of ₹.22,11,931/- to its subsidiary company, M/s. Perambalur Sugar Mills Ltd. The assessee has also debited an amount of ₹.5,03,03,929/- as expenditure on interest. The assessee was asked to clarify the allowability of such an interest free loan to its subsidiary company while interest expenditure was claimed in its profit and loss account. When the assessee was show-caused, it was the submission of the assessee that the interest payment was towards Government of Tamil Nadu. Since the assessee advanced an interest free loan and debited an interest expenditure, the Assessing Officer estimated the interest on the loan amount of ₹.22,11,931/- at the rate of 11.5% 6.1 We have heard the rival contentions. Before us, the ld. Counsel for the assessee has submitted that the assessee had surplus funds to advance interest free loan to its subsidiary for commercial expediency. Otherwise also, by relying on the decision in the case of CIT v. RPG Transmissions Ltd. 359 ITR 673 (Mad), the ld. Counsel for the assessee has argued that interest on borrowed capital is an allowable deduction if the investments are made for strategic business purposes. The assessee has advanced an interest free loan of ₹.22,11,931/- to M/s. Perambalur Sugar Mills Ltd., who is engaged in manufacture of sugar. The interest free loan was advanced purely due to business expediency when they are in need for the same for their running of the business. We have perused the case law relied on by the ld. Counsel. We also find that similar decision was rendered by the Hon’ble Madras High Court in the case of CIT v. Spencers and Co. Ltd. 359 ITR 644. No material was adduced by the Department to show that the borrowed capital was utilized by the assessee for non-business purposes. Under the above facts and circumstances and respectfully following the decisions of the Hon’ble Madras High Court in the case of CIT v. Spencers and Co. Ltd. (supra) and CIT v. RPG Transmissions (supra), we delete the disallowance

In the appeals of the Revenue, the effective ground raised in both the appeals relate to restriction of disallowance. It was the contention of the assessee in its appeals for both the assessment years that the investments have been made in its subsidiary and are strategic investments. After considering the submissions of the assessee, we set aside the orders of the ld. CIT(A) and remitted the matter back to the file of the Assessing Officer for verification as to whether the investments made by the assessee are in its subsidiary and if it is so, no disallowance could be made in view of the decision of the Tribunal in the case of EIH Associated Hotels v. DCIT (supra). During the course of hearing, the plea raised by the ld. DR that the order of the Tribunal in the case of EIH Associated Hotels v. DCIT(supra) has not attained finality and the Department has preferred an appeal before the Hon’ble Madras High Court and the same is pending, cannot be a ground to take a different view. Accordingly, both the appeals filed by the Revenue are dismissed.

Against the appeals of the Revenue, the assessee also filed Cross Objections contending that the investments represent commercial expediency to make such investments. Since we have set aside the orders of the ld. CIT(A) on this issue to verify as to whether the investments made

In the result, the appeals filed by the assessee in is partly allowed for statistical purposes, I.T.A. No. 1828/Mds/2017 is allowed for statistical purposes and both the Cross Objections are dismissed. Both the appeals filed by the Revenue are dismissed.