M/S.KERALA CARS P.LTD,COCHIN vs. ACIT CORPORATE CIRCLE 1(2), COCHIN

The first issue raised by the assessee is that the ld. CIT(A) erred in confirming the addition made by the Assessing Officer (AO) under the provisions of section 14A of Income Tax Act, 1961 (hereinafter "the Act") r.w. rule 8D of Income Tax Rules, 1962 amounting to Rs. 11,94,700/- only.

In the present case, the assessee has made investments in the shares of various companies which were capable of generating exempted income, but the assessee has not made any disallowance of expenses in pursuance to the provisions of section 14A r.w. rule 8D and therefore the AO made disallowance of Rs. 11,94,700/- only. The action of the AO was subsequently confirmed by the ld. CIT(A).

Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.

The learned A.R. before us filed a paper book running from pages 1 to 27 and submitted that there was no dividend income in the year under consideration. Therefore, no disallowance is to be made under the provisions of section 14A r.w. rule 8D of Income Tax Rules.

On the other hand, the ld. Sr. DR vehemently supported the orders of the authorities below.

We have heard rival contentions of both the parties and perused the materials available on record. Admittedly, there was no income received by the assessee by way of dividend. Therefore, there will not any disallowance under section 14A r.w. rule 8D of Income Tax Rules. In holding so, we rely in the order of ITAT Cochin in the case of M/s Muthoot Vehicle & asset finance limited reported in 100 ITR(Trib) 185. Accordingly, we set aside the order of the ld. CIT-A and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed.

Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.

The learned A.R. before us submitted that the own fund of the assessee exceeds the amount of interest free loans and advances extended to the sister concern and therefore no disallowance is warranted.

On the other hand, the learned Sr. DR vehemently supported the orders of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. We note that the Hon’ble Supreme Court in case of CIT vs. Reliance Industries Ltd reported in 410 ITR 466 held that if interest free funds available with the assessee are sufficient to meet the investment, then it could be presumed that the investment was made out of interest free fund available with the assessee. The relevant finding of the Hon’ble Supreme court is extracted as under:

Insofar as the first question is concerned, the issue raises a pure question of fact. The High Court has noted the finding of the Tribunal that the interest free funds available to the assessee were sufficient to meet its investment. Hence, it could be presumed that the investments were made from the interest free funds available with the assessee. The Tribunal has also followed its own order for Assessment Year 2002-03.

In view of the above findings, we find no reason to interfere with the judgment of the High Court in regard to the first question. Accordingly, the appeals are dismissed in regard to the first question.