SHRIRAM CONSTRUCTION FINANCE,CHENNAI vs. DCIT, CHENNAI

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ITA 994/CHNY/2017Status: DisposedITAT Chennai28 August 2017AY 2013-20144 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that Section 14A is not applicable if investments in sister concerns are made for strategic reasons from interest-free funds. However, if made from interest-bearing funds, the interest cost is attributable to such investments.

What were the facts?

The assessee, a firm engaged in advancing loans, filed a 'Nil' income return. The Assessing Officer (AO) disallowed Rs. 35,55,637 under Section 14A read with Rule 8D, which was upheld by the CIT(A).

What were the issues?

Whether disallowance under Section 14A is justified when investments in sister concerns are made from interest-free funds for strategic reasons.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘SMC’ ‘B’ BENCH, CHENNAI

Before: Shri A. Mohan Alankamony

Hearing: 28.08.2017

आदेश / O R D E R

1.

This appeal by the assessee is directed against the order passed by the Ld. Commissioner of Income Tax (Appeals)-2, Chennai dated 31.01.2017 in for the assessment year 2013-14 passed U/s.250(6) r.w.s.143(3) of the Act.

2.

The assessee has raised several grounds in its appeal, however the crux of the issue is that the assessee is aggrieved by the order of the Ld.CIT(A) who has erred in confirming the disallowance made by the Ld.AO for Rs.35,55,637/- U/s.14A r.w.r 8D of the Rules.

3.

The brief facts of the case are that the assessee is a firm engaged in the business of advancing loans to group concerns, filed its return of income for the assessment year 2013-14 on 17.09.2013 admitting ‘Nil’ income. Initially the return was processed U/s.143(1) of the Act. Subsequently the case was selected for scrutiny and finally assessment order was passed U/s.143(3) of the Act on 10.12.2015, wherein the Ld.AO made disallowance U/s.14A r.w.r.

8D for Rs.35,55,637/-. On appeal, the Ld.CIT(A) also confirmed the order of the Ld.AO.

4.

At the outset, the Ld.AR submitted before us that the assessee had made investments in equity shares of its sister concerns and therefore the assessee had not incurred any expenditure towards such investments. Hence, it was pleaded that the provision of Section 14A will not be applicable in the case of the assessee. The Ld.DR on the other hand relied on the orders of the Ld.Revenue Authorities.

5.

I have heard the rival submissions and carefully perused the materials on record. If the assessee has invested in its sister concerns for strategically reasons from its own interest free capital and reserves, then provisions of Section 14A of the Act will not be applicable, because prima facie Section 14A warrants that the assessee should have incurred some expenditure in relation to the income which does not form part of the total income under the Act.

Further there will be no overhead cost to the assessee when it decides to invest in its own sister companies for strategic reasons at least in the case of the assessee firm before us. However if the assessee had made such investments out of its interest bearing funds then the interest cost will be directly attributable to such investments and cannot be claimed as deduction from any other activities of the assessee bearing taxable income. Since the Ld.AR had pointed out to us that the assessee had made the investments in its sister concerns for strategic reasons out of its own interest free funds, I find it appropriate to remit the matter back to the file of Ld.AO for fresh consideration and to pass appropriate order in accordance with law and merit and based on our above mentioned observations.

6.

In the result appeal of the assessee is allowed for statistical purposes.

Order pronounced on the 28th August, 2017 at Chennai.

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