DCIT, CHENNAI vs. TAFE MOTOR & TRACTORS LTD., CHENNAI

This appeal of the revenue is directed against the order of CIT(A)-11, Chennai dated 17.03.2016 and pertains to assessment year 2009-10.

Shri B.Sahadevan, the learned department representative submitted that in the original assessment, the assessing officer disallowed the expenditure for earning the exempted income at 5%. The assessing officer has not applied the provisions of Rule 8D(2) of the Income Tax Rules. Therefore, the assessment was re-opened by issuing notice under Section 148. After re- opening the assessment, the assessing officer computed the disallowance under Rule 8D(2) of the Income Tax Rules. However, on appeal by the assessee, the CIT(A) found that the investment was made in subsidiary companies. Therefore, the disallowance made by the assessing officer was deleted. Referring to rule 8D(2), the department representative submitted that Rule 8D(2) does not distinguish the investment made by the assessee for earning he exempted income either in the subsidiary company or in the other companies. Irrespective of company in which the assessee invested the funds according to the learned representative, the disallowance has to be computed under Rule 8D(2) of the Income Tax, since the income of such investment would not form part of the total income of the assessee for taxation. Therefore, the CIT(A) is not justified in allowing the claim of the assessee.

On the contrary, Shri Saroj Kumar Parida, the learned counsel for the assessee submitted that the assessee made investment in the subsidiary companies for the purpose of business. Therefore, the provisions of Rule 8D is not applicable at all. The learned counsel for the assessee placed his reliance on this Tribunal’s decision in the case of EIH Associated Hotels Ltd. Vs. DCIT reported in dated 17.07.2013.

On a query from the bench, how the companies in which the investment was made by the assessee is the subsidiary company. The learned counsel for the assessee submitted that the facts of the case are examined by both the authorities below.

We have considered the rival submissions on either side and also perused the material available on record. When the assessee earned exempted income, the disallowance for earning such exempted income has to be computed under Rule 8D(2) of the Income Tax Rules. The assessee claims that the investment was made in the subsidiary company for the purpose of business. However, no material is available on record to suggest that the company in which investment was made was subsidiary company of the assessee. It is also not known, the nature of the investment made by the assessee. Hence, the matter needs to be re-examined by the assessing officer.

In the result, the appeal filed by the revenue stands allowed for statistical purposes.