DCIT, Madurai V. M/s. Rajapalayam Mills Ltd., Rajapalayam

ITA 3165/CHNY/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5003 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 20-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 16-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: V JAGADISAN
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI ... , . !, # !$ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NO.3165/MDS/2016 & '& / ASSESSMENT YEAR : 2012-13 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2, MADURAI. V. M/S RAJAPALAYAM MILLS LTD., RAJAPALAYAM MILLS PREMISES, PAC RAMASAMY RAJA SALAI, RAJAPALAYAM. PAN : AAACR 8897 F ()*/ APPELLANT) (+,)*/ RESPONDENT) )* - . / APPELLANT BY : SHRI N. MADHAVAN, ADDL.CIT +,)* - . / RESPONDENT BY : SHRI V. JAGADISAN, CA / - 0# / DATE OF HEARING : 04.01.2018 12' - 0# / DATE OF PRONOUNCEMENT : 25.01.2018 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, MADURAI , DATED 24.08.2016 AND PERTAINS TO ASSESSMENT YEAR 2012-13. 2. SHRI N. MADHAVAN, THE LD. DEPARTMENTAL REPRESENT ATIVE, SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED 2,15,52,400/- 2 I.T.A. NO.3165/MDS/16 UNDER SECTION 14A OF THE INCOME-TAX ACT, 1961 (IN S HORT 'THE ACT') READ WITH RULE 8D(2) OF THE INCOME-TAX RULES, 1962. HOWEVER, ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) DELETED TH E ADDITION MADE BY THE ASSESSING OFFICER. ACCORDING TO THE LD . D.R., THE CIT(APPEALS) FOUND THAT THE BORROWED FUNDS WERE NOT UTILIZED FOR THE PURPOSE OF INVESTMENT. THE CIT(APPEALS) HAS NOT PR OVED THAT THE ASSESSEE HAD OWN FUNDS FOR USING THE SAME FOR PURCH ASE OF SHARES. ON A QUERY FROM THE BENCH, IS IT A CASE OF REVENUE THAT THE ASSESSEE HAD NO OWN FUNDS FOR THE PURPOSE OF MAKING INVESTMENT? THE LD. D.R. SUBMITTED THAT THE CIT(APPEALS) HAS NO T BROUGHT ON RECORD THAT THE ASSESSEE HAD SUFFICIENT FUNDS FOR M AKING INVESTMENT IN THE SHARES. REFERRING TO SECTION 14A OF THE ACT READ WITH RULE 8D(2), THE LD. D.R. SUBMITTED THAT RULE 8D(2) DOES NOT SAY THAT IN CASE THE ASSESSEES OWN FUNDS WERE USED FOR INVESTM ENT, THERE CANNOT BE ANY DISALLOWANCE. IN THE ABSENCE OF ANY SUCH CLAUSE IN RULE 8D(2) OF INCOME-TAX RULES, ACCORDING TO THE LD . D.R., THE CIT(APPEALS) IS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. 3. ON THE CONTRARY, SHRI V. JAGADISAN, THE LD. REPR ESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE CIT(APPEALS) BY RE FERRING TO THE BALANCE SHEET, FOUND THAT THE ASSESSEE HAD OWN FUND S TO THE EXTENT OF 43,451.32 LAKHS. ACCORDING TO THE LD. REPRESENTATI VE, WHAT WAS 3 I.T.A. NO.3165/MDS/16 INVESTED IS ONLY 4417.20 LAKHS, THEREFORE, IT IS NOT CORRECT TO SAY THAT THE CIT(APPEALS) HAS NOT PROVED THAT THE ASSES SEE WAS HAVING ITS OWN FUNDS. ACCORDING TO THE LD. REPRESENTATIVE , THE FACT THAT THE ASSESSEE WAS HAVING 43,451.32 LAKHS IS NOT IN DISPUTE. IT IS ALSO NOT IN DISPUTE THAT THE INVESTMENT WAS ONLY 4417.20 LAKHS. ACCORDING TO THE LD. REPRESENTATIVE, THE ENTIRE INV ESTMENT WAS MADE ONLY IN THE SUBSIDIARY COMPANY, NAMELY, M/S RAJAPAL AYAM SPINNING MILLS LIMITED OUT OF THE PROFIT GENERATED DURING TH E YEAR UNDER CONSIDERATION. THEREFORE, ACCORDING TO THE LD. REP RESENTATIVE, THE CIT(APPEALS) BY PLACING RELIANCE ON THE JUDGEMENT O F KARNATAKA HIGH COURT IN CIT V. MICRO LABS (383 ITR 490) FOUND THAT THE INTEREST FREE FUNDS WERE AVAILABLE MORE THAN THE IN VESTMENT, THEREFORE, THERE CANNOT BE ANY DISALLOWANCE UNDER S ECTION 14A OF THE ACT. THE CIT(APPEALS) HAS ALSO PLACED RELIANCE ON THE JUDGEMENT OF BOMBAY HIGH COURT IN CIT V. RELIANCE U TILITIES AND POWER LIMITED (313 ITR 340). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE HAD SURPLUS FUNDS OF ITS OWN. IT IS NOT D ISPUTED THAT THE ASSESSEE WAS HAVING 43,451.32 LAKHS. THE INVESTMENT IS ONLY 4417.20 LAKHS. IT IS ALSO NOT IN DISPUTE THAT THE INVESTMENT WAS 4 I.T.A. NO.3165/MDS/16 MADE ONLY IN THE SUBSIDIARY COMPANY, NAMELY, M/S RA JAPALAYAM SPINNING MILLS LIMITED. IN THOSE CIRCUMSTANCES, TH IS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CIT(APPEALS) HAS RI GHTLY DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THE INVESTMENT MADE IN THE SISTER CONCERN / SUBSIDIARY COMPANY IS AN INVESTMENT FOR BUSINESS EVEN THOUGH EARNING OF DIVIDEND INCOME IS INCIDENTAL TO THE INVESTMENT. MOREOVER, THE ASSESSEE HAS INVESTE D ITS OWN PROFIT IN THE SUBSIDIARY COMPANY, THEREFORE, THE CIT(APPEA LS) HAS RIGHTLY DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFI CER. THEREFORE, THIS TRIBUNAL DO NOT HAVE ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SA ME IS CONFIRMED. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. ORDER PRONOUNCED ON 25 TH JANUARY, 2018 AT CHENNAI. SD/- SD/- (. ! ) ( ... ) (S. JAYARAMAN) (N.R.S. GANESAN) # / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 25 TH JANUARY, 2018 KRI. 5 I.T.A. NO.3165/MDS/16 - +056 76'0 /COPY TO: 1. )* /APPELLANT 2. +,)* /RESPONDENT 3. / 80 () /CIT(A)-1, MADURAI 4. PRINCIPAL CIT-1, MADURAI 5. 69 +0 /DR 6. :& ; /GF.