In the absence of exempt income, Rule 8D reads as Section 14A
Fact and issue of the case
This appeal is filed by the Revenue as against the appellate order dated 30.05.2017 passed by the Commissioner of Income Tax (Appeals)-1, Ahmedabad arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2014-15.
The brief facts of the case is that the assessee is a company engaged in the business of manufacturing and trading of metal equipments. For the Assessment Year 2014-15, the assessee filed its Return of Income on 30.11.2014 declaring a loss of Rs.53,01,335/-. The return was taken up for scrutiny assessment and interest expenses of Rs. 2,61,90,163/- was disallowed, since the above interest expenses incurred were other than the business purposes and not allowable u/s. 36(1)(iii) of the Act. The Ld. A.O. also made disallowance u/s. 14A r.w. Rule 8D of Rs. 29,85,830/-and assessed the total income as Rs.2,38,16,658/-.
Aggrieved against the same, the assessee filed an appeal before Commissioner of Income Tax (Appeals). After considering various submissions and judicial precedents, the Ld. CIT(A) restricted the disallowance u/s. 36(1)(iii) to the extent of Rs. 16,05,213/- by observing as follows: “…
After considering facts of the case and various judicial pronouncements as argued by A.R of the appellant(supra), the utilization of funds, interest free loans and advances given and availability of interest-free funds with the appellant it can be seen that the appellant has given total advances of Rs.26,15,95,884/-. It is also seen that total interest free funds available comes to Rs. 28,40,84,158/- against which the interest free advances are Rs.26,15,95,884/- only which is less than the amount of interest free funds available. The appellant has stated that amount given as advances (as above) to Jaihind Projects Ltd (JPL) are in the nature of share investment and not in the nature of loans and advances The appellant company has made strategic investment in JPL and as per the terms of lenders and the Corporate Debt Restructuring Package approved by the CDR cell which is govered by Reserve Bank of India. The funds given to Jaihind Projects Ltd (JPL) were as per the requirement of lending banks to infuse funds by promoters in the JPL Accordingly, the same was for business expediency to give the funds to JPL by the Appellant without interest. Further, the Appellant contended that the amount was not in the nature of loans and advances but the same is to be converted into equity investment and in view of this it was not be disallowed under section 36(1)(ii) of the Act.
Observation of the court
We have given our thoughtful consideration and perused the materials available on record. It is undisputed fact that the assessee had interest free funds of Rs. 28,40,84,158/- against which it has advanced money to the extent of Rs. 26,15,95,884/-which is less than the interest free funds available with the assessee. The Ld. A.O. has ignored the fact that the amount given as advances to Jaihind Projects Ltd. (JPL) in the nature of share investment and not in the nature of loans and advances. The assessee company has made strategic investment in JPL and as per the terms of lenders and the Corporate Debt Restructuring Package approved by the CDR cell which is governed by Reserve Bank of India, the assessee made further share investment. However the Ld. A.O. only considered that amount invested is to be disallowed. The Ld. CIT(A) held that the funds given to JPL were as per the requirement of lending banks to infuse funds by promoters in the JPL which is business expediency to give the funds to JPL without interest. The above investments were converted into equity shares, in view of the same, the disallowance made u/s. 36(1)(iii) of the Act is not justified relying upon Gujarat High Court judgment in the case of Gujarat Narmada Valley Fertilizers Co. Ltd. and Supreme Court judgment in the case of S.A. Builders. However the Ld. CIT(A) has agreed with the remaining interest payments are for non-business purposes and thereby confirmed the disallowance made u/s. 36(1)(iii) of the Act of Rs. 16,05,213/-. We do not find any infirmity in the above finding of the Ld. CIT(A) and the Revenue could not place any material on record in substantiating its ground before us. Therefore Ground No. 1 raised by the Revenue is hereby dismissed.
Regarding the 2nd ground, it is an admitted fact that the assessee has not received any dividend income against the investments made by it. Therefore the Ld. CIT(A) following Jurisdictional High Court judgment in the case of CIT vs. Corrtech Energy Pvt. Ltd. 45 com 116 held that no disallowance u/s. 14A should be made and deleted the addition made by the A.O. It is further seen that the Ld. CIT(A) has followed Co-ordinate Bench of this Tribunal following Gujarat High Court Judgment of Corrtech Energy Pvt. Ltd. as well as other High Court judgments on this issue. We do not find any infirmity in the order passed by the Ld. CIT(A). Thus this Ground No. 2 raised by the Revenue is devoid of merits and the same is rejected.
In the result, the appeal filed by the Revenue is hereby dismissed.
Order pronounced in the open court on 10-11-2023
