M/S. SICAL MULTIMODAL AND RAIL TRANSPORT LTD.,CHENNAI vs. ACIT, CHENNAI

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) -15, Chennai, dated 12.07.2016 and pertains to assessment year 2010-11.

Sh. R. Vijayaraghavan, the Ld.counsel for the assessee, submitted that the only issue arises for consideration is disallowance of `4,27,221/-. According to the Ld. counsel, the invested to the extent of `12,57,55,617/- in the joint venture company, namely, M/s Sical Hambuja Logistics Pvt. Ltd. The Assessing Officer disallowed the claim of interest by taking a clue from Rule 8D of Income-tax Rules, 1962. According to the Ld. counsel, the borrowed funds were invested in the joint venture company for the purpose of business, therefore, there cannot be any disallowance in view of the judgment of Apex Court in S.A.

On the contrary, Shri Supriyo Pal, the Ld. Departmental Representative, submitted that the assessee invested in the joint venture company from and out of borrowed funds, therefore, the Assessing Officer by taking clue under Rule 8D, disallowed the proportionate interest to the extent of `47,27,221/-. According to the Ld. D.R., since the investment would result in income which is not taxable under the Income-tax Act, the Assessing Officer has rightly applied the provisions of Rule 8D of the Income-tax Rules, 1962, therefore, the CIT(Appeals) has rightly confirmed the addition made by the Assessing Officer.

We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that investment was admittedly made in the joint venture company. When the assessee invested in the joint venture company so as to facilitate the joint venture company and its business, this Tribunal is of the considered opinion that the provisions of Rule 8D cannot be made applicable at all. It is not the case of the Revenue that the assessee or the joint venture company misused the borrowed funds. When the assessee admittedly invested in the joint venture company for the purpose of business, this Tribunal is of the considered opinion that there cannot be any disallowance of interest on the borrowed funds. Therefore, the disallowance made by the Assessing Officer as confirmed by the CIT(Appeals) to the extent of `47,27,221/- is not justified. Accordingly, the orders of the lower authorities are set aside and the addition of `47,27,221/- is deleted.

In the result, the appeal filed by the assessee is allowed.