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Income Tax Appellate Tribunal, ‘B’ BENCH : CHENNAI
Before: SHRI ABRAHAM P.GEORGE & SHRI GEORGE MATHAN
आदेश / O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
In this appeal filed by the Revenue, it is aggrieved on the directions given by ld. Commissioner of Income Tax (Appeals)-6,
ITA No. 3123/Mds/2016. :- 2 -:
Chennai to the Assessing Officer for excluding investments made by the assessee in its subsidiary companies while calculating disallowance u/s.14A of the Income Tax Act, 1961 (in short ‘’the Act’’).
Facts apropos are that assessee engaged in the business of 2. providing management and technical consultations had filed its return of income for the impugned assessment year disclosing income of Rs.85,52,410/-. Ld. Assessing Officer noted that assessee was having investments of Rs.24,30,00,000/- in its group companies. As per the ld. Assessing Officer, assessee having received dividend of Rs.3,15,00,000/-, Section 14A of the Act had to be applied. Though the assessee stated that none of its interest paying loans were used for making investments, this was not accepted by the ld. Assessing Officer. According to him, there was increase in unsecured loans by a sum of Rs.1,32,00,000/-, clearly indicating that interest paying funds were used for making investments. An addition of Rs.32,63,884/- was made applying Rule 8D of the Income Tax Rules, 1962 (in short ‘’the Rules’’). Such addition comprised of Rs.21,20,959/- under Rule 8D(2)(i) and Rs.11,42,925/- under Rule 8D(2)(iii). There was no addition under Rule 8D(2) (ii).
ITA No. 3123/Mds/2016. :- 3 -:
Aggrieved, assessee moved in appeal before the ld. Commissioner of Income Tax (Appeals). Argument of the assessee was that Rs.21,20,959/-, out of the total addition of Rs.32,63,884/- was interest expenditure on loans directly used for the purpose of the business of the assessee. Contention of the assessee was that investments made by the assessee in its subsidiary and group companies were strategic in nature and hence such investments fell outside the scope of Sec. 14A of the Act. Reliance was placed on the decision of Co-ordinate Bench in the case of EIH Associated Hotels vs. DCIT (ITA No.1505/Mds/2012, dated 17.07.2013).
Ld. CIT(A) after hearing the submissions of the assessee 4. was of the opinion that interest expenditure directly relatable to the taxable business income of the assessee had to be excluded while computing disallowance under Rule 8D. Further, according to him, investments made by the assessee in its group/subsidiary companies also needed to be excluded since such investments were for strategic purposes.
Now before us, the ld. Departmental Representative strongly 5. assailing the order of the ld. Commissioner of Income Tax (Appeals) submitted that assessee could not bring in any evidence to show that ITA No. 3123/Mds/2016. :- 4 -: interest payments made were on loans, used for the business of the assessee. Further, according to him, there was nothing on record to show that investments made by the assessee in its group/ subsidiary companies were for any strategic purpose. Thus, according to him, ld. Commissioner of Income Tax (Appeals) erred in relying on the decision of Co-ordinate Bench in the case EIH Associated Hotels (supra).
Per contra, ld. Authorised Representative strongly supported 6.
the orders of the authorities below.
We have considered the rival contentions and perused the orders of the authorities below. It is not disputed by the Revenue that investments made by the assessee which gave rise to tax free dividend were in its group companies. Assessee’s argument that such investments were for strategic purpose found acceptance from the ld. Commissioner of Income Tax (Appeals). Ld. Departmental Representative was unable to show why such finding of the ld. Commissioner of Income Tax (Appeals) was incorrect. Ld. Commissioner of Income Tax (Appeals) had also accepted the claim of the assessee that interest bearing borrowings were used for the purpose of its business and not used for making investments in the subsidiaries. Here also Revenue has been unable to place on record anything to contradict this factual finding of the ld.CIT(A). We also ITA No. 3123/Mds/2016. :- 5 -:
find that ld. Commissioner of Income Tax (Appeals) had relied on a decision of Co-ordinate Bench in the case of EIH Associated Hotels (supra), that of Mumbai Bench of the Tribunal in the case of J.M. Financial Limited vs. Add. CIT (ITA No.4521/Mum/2012, dated 26.03.2014) and on a judgment of Hon’ble Delhi High Court in the case of CIT vs. Oriental Structural Engineers Pvt. Ltd (ITA 605/2012, dated 15.01.2013). In the circumstances, we do not find any reason to interfere with the order of the ld.CIT(A).
In the result, appeal of the Revenue stands dismissed.
Order pronounced at the time of hearing on 21st December, 2017 at Chennai.