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

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ITA 2565/CHNY/2016Status: DisposedITAT Chennai29 March 2017AY 2012-134 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that Rule 8D is applicable only for investments made to earn exempt income. Since the investment was for business purposes in the joint venture, the disallowance of interest was not justified.

What were the facts?

The assessee invested borrowed funds in a joint venture company. The Assessing Officer disallowed interest on these borrowed funds, applying Rule 8D of the Income-tax Rules, 1962.

What were the issues?

Whether disallowance of interest on borrowed funds invested in a joint venture company for business purposes is permissible under Rule 8D.

Which sections of the Income-tax Act were involved?

Rule 8D

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI

Before: SHRI N.R.S. GANESAN & SHRI D.S. SUNDER SINGH

For Respondent: Shri Supriyo Pal, JCIT
Hearing: 28.02.2017Pronounced: 29.03.2017

आदेश /O R D E R

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

1.

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.

2.

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.

Builders Ltd. v. CIT (288 ITR 1). According to the Ld. counsel, Rule 8D is applicable only in respect of investment made for earning exempted income. Since the assessee invested the funds for the purpose of business in the joint venture company and not for the purpose of earning any exempted income, according to the Ld. counsel, the provisions of Rule 8D cannot be made applicable to the assessee.

3.

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.

4.

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.

5.

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

Order pronounced on 29th March, 2017 at Chennai.

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