ASSISTANT COMMISSIONER OF INCOME TAX, CHENNAICORPORATE CIRCLE 1(1), CHENNAI V. EQUITAS HOLDINGS LIMITED , CHENNAI

ITA 37/CHNY/2025

AI Insights

The case involves the Assistant Commissioner of Income Tax, Corporate Circle-1(1), Chennai as the appellant and Equitas Holdings Ltd. as the respondent. The dispute centered on the assessment year 2018-19, concerning the disallowance of certain expenditures related to interest income and the application of section 14A of the Income-tax Act, 1961. The Assessing Officer had disallowed expenditures claiming they were not incurred to earn the interest income, and also made disallowances under section 14A. However, the CIT(A) reversed these decisions, leading to the Revenue's appeal to the Tribunal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 396833 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2018-2019
• Other Referred Cases: Murli Investment Co. vs. CIT, HTC Global Services India Pvt. Ltd., Chettinad Logistics (P) Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R. ANITHA
• Assessee Lawyers: D.ANAND
• Keywords: Set aside; Business income; Earning of tax free income; Rule 8D
• Section: 143(3); 37; 14A

Judgement Text

"आयकर अपीलीय अिधकरण, ‘सी’ \u0011ा यपीठ, चे\u0016ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH: CHENNAI \u0019ी एबी टी. वक , \u0011ा ियक सद! एवं \u0019ी जगदीश, लेखा सद! क े सम( BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI JAGADISH, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.37/Chny/2025 िनधा9रण वष9 /Assessment Year: 2018-19 The Asst. Commissioner of Income Tax, Corporate Circle-1(1), Chennai. Vs. Equitas Holdings Ltd., 410A, 4th Floor, Spencer Plaza, Phase II, No.769, Mount Road, Anna Salai, Chennai – 600 002. [PAN: AAACU 9126C] (अपीलाथ\u0007/Appellant) (\b यथ\u0007/Respondent) अपीलाथ की ओर से/ Assessee by : Shri D. Anand, Advocate IJथ की ओर से /Revenue by : Ms. R. Anitha, Addl. CIT सुनवाई की तारीख/Date of Hearing : 26.03.2025 घोषणा की तारीख /Date of Pronouncement : 27.05.2025 आदेश / O R D E R PER JAGADISH, A.M : Aforesaid appeal filed by the Revenue for Assessment Year (AY) 2018-19 arises out of the order of Learned Commissioner of Income Tax (NFAC), Delhi [hereinafter “CIT(A)”] dated 26.09.2024 in the matter of assessment framed by the Assessing Officer [AO] u/s. 143(3) r.w.s 143(3A) & 143(3B) of the Income-tax Act,1961 (hereinafter “the Act”) on 12.04.2021. ITA No.37/Chny/2025 :- 2 -: 2. The ground of appeal raised by the Revenue are as under: “i. The order of the learned CIT(A) is contrary to the facts and circumstances of the case. ii. The Ld. CIT(A) has erred in deleting the disallowance of expenditure on interest earned as regular business income only considering the fact that that the assessee was engaged in the business of money lending when the assessee had failed to prove that it was eligible for lending money to its subsidiary. iii. The Ld. CIT(A) has erred in deleting the disallowance made u/s 14A r.w.r. 8D when the assessee was unable to prove the activity of money lending. iv. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.” 3. There is a delay of 07 days in filing the appeal by the Revenue. The Revenue has filed condonation petition/affidavit stating the reasons for delay in filing the appeal. We have considered the petition/affidavit of delay in filing the appeal and satisfied that there was sufficient cause for not filing the appeal within the prescribed time limit. Hence, the delay is hereby condoned. 4. Ground No.1 is general in nature, therefore, no adjudication is required for the same. 5. Ground No.2 is against disallowance of expenditure of Rs.3,16,54,266/- against the income earned in the nature of interest. ITA No.37/Chny/2025 :- 3 -: 5.1 The assessee has shown interest income from the bank deposits of Rs. 13,57,17,326/- and debited expenses to the tune of Rs.3,16,54,266/-. The assessee has disallowed the expenditure for the reason that the expenditure has not been incurred to earn the interest income. The A.O has relied on the various case laws including the decision of Hon’ble Rajasthan High Court in the case of Murli Investment Co. vs. CIT 167 ITR 368 (Raj.). The A.O has also made disallowance of Rs. 14,66,85,890/- u/s. 14A of the Act applying rule 8D. On appeal, the Ld. CIT(A) has deleted the disallowance of expenditure u/s 37 of the Act stating that the assessee-company is a registered NBFC and as part of business investment company, the assessee was entitled to money lending and at the same time to have deposit in other financial institution including bank. The Ld. CIT(A) therefore held that computation of total income submitted with the return of income was completely acceptable and income of the assessee earned as interest from lending as well as from investment in deposit is to be treated as a business income and deleted the addition. Aggrieved, the Revenue is in appeal against the above disallowance. ITA No.37/Chny/2025 :- 4 -: 5.2 The Ld. Authorized Representative (A.R) of the assessee has submitted that the assessee was a NBFC and income shown in profit and loss account was interest income, which is part of the business of the assessee and therefore, the assessee-company is entitled to expenditure debited in profit and loss account. The Ld. AR has relied on the order of Ld. CIT(A). 5.3 On the other hand, the Ld. Departmental Representative (DR) has drawn our attention to the financials of the company and submitted that the assessee is a investment company and the only investment made in subsidiary M/s. Equitas Small Finance Bank and M/s. Equitas Technologies Pvt. Ltd., which are being continued from earlier years and during the year the surplus fund available after investment have been kept as deposit with bank including Equitas Small Finance Bank. Further, the Ld. DR has submitted that the interest income has been earned from the deployment of surplus funds and therefore, the expenditure claimed during the year have neither been spend towards earning the interest income nor for the purpose of business. 5.5 We have heard the rival submissions, and perused the materials available on record. The assessee is NBFC company incorporated on 22.06.2007 and has subsequently, amalgamated with Equitas Small ITA No.37/Chny/2025 :- 5 -: Finance Bank Ltd., w.e.f 01.11.2021. The assessee-company has shown interest income of Rs.13,57,17,326/- in the profit and loss account and has claimed expenses of Rs. 5,15,00,000/- in the profit and loss account. The A.O had disallowed the claim of expenditure of Rs.3,16,54,267/- holding that the income shown in the profit and loss account is not a business income, but income from other sources and therefore, these expenses are not allowable. The Ld. CIT(A) has held that the interest income earned from investment in deposit is a business income. We do not find any infirmity in the order of Ld. CIT(A) , as assessee was a NBFC company and interest income was part of the business of company . We accordingly uphold the order of Ld CIT(A) on this account. 6. Ground No.3 is against the disallowance of Rs. 14,66,85,890/- u/s. 14A of the Act made by the A.O. 6.1 The Ld. CIT(A) has deleted the addition relying on the decision of Hon’ble Jurisdictional High Court in the case of HTC Global Services India Pvt. Ltd. in Tax case Appeal Nos.171-174 dated 09.07.2021 (Mad.) and other case laws, wherein it has been held that no disallowance is to be made u/s. 14A of the Act if there is no exempt income. ITA No.37/Chny/2025 :- 6 -: 6.2. We have heard the rival contentions, and perused the materials available on record. It is evident from the computation of income that the assessee has not earned any exempt income therefore, in view of the decision of Hon’ble Madras High Court in the case of Chettinad Logistics (P) Ltd., reported in 80 taxmann.com 221 (Mad.), no disallowance is to be made u/s. 14A of the Act. We accordingly , find no infirmity in the order of Ld. CIT(A) and therefore, the same is confirmed. 7. In the result, the appeal filed by the Revenue is dismissed. Order pronounced on 27th May, 2025. Sd/- Sd/- (एबी टी. वक ) (ABY. T. Varkey) \u0011ाियक सद! / Judicial Member (जगदीश) (Jagadish) लेखा सद! /Accountant Member चे\u0010नई/Chennai, \u0013दनांक/Dated: 27th May, 2025. EDN/- आदेश क\u0016 \bितिल\u0019प अ\u001aे\u0019षत/Copy to: 1. अपीलाथ\b/Appellant 2. थ\b/Respondent 3. आयकर आयु\u0010/CIT, Chennai 4. िवभागीय ितिनिध/DR 5. गाड\u0019 फाईल/GF "