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

ITA 63/COCH/2023

AI Insights

The case involves Kerala Cars Pvt. Ltd., which appealed against the order of the National Faceless Appeal Centre, Delhi, concerning the assessment year 2014-15. The primary issues in the appeal were the disallowance made under section 14A read with rule 8D of the Income Tax Rules, 1962, and the addition of Rs. 19,12,500 as interest on loans given to a sister concern without any commercial purpose. The Tribunal found that since no dividend income was received, no disallowance under section 14A was warranted. Regarding the second issue, the Tribunal noted the need for a detailed examination of whether the own funds of the assessee were sufficient to cover the interest-free loans given to the sister concern and remanded the issue back to the AO for further investigation.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 31379 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 30-04-2024
• Assessment Year: 2014-2015
• Appeal Filed On: 19-01-2023
• Other Referred Cases: CIT vs. Reliance Industries Ltd, CIT vs. Torrent Power Ltd
• Laws Referred To: Income Tax Act, 1961, Income Tax Rules, 1962
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LEENA LAL
• Assessee Lawyers: PARVATHY AMMAL; WAY OF DIVIDEND. THEREFORE; THERE WILL NOT ANY DISALLOWANCE UNDER SECTION A R.W
• Keywords: Set aside; Rule 8D
• Section: 14A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN Before Shri Waseem Ahmed, Accountant Member and Shri Soundararajan K., Judicial Member ITA No. 63/Coch/2023 (Assessment Year: 2014-15) Kerala Cars Pvt. Ltd. 508-A, Illakkattu Building Edappally, Kunamthai Kochi 682024 [PAN: AABCK4746M] vs. Asst. CIT, Corporate Circle-1(2) Kochi (Appellant) (Respondent) Appellant by: Smt. Parvathy Ammal, CA Respondent by: Ms. Leena Lal, Sr. D.R. Date of Hearing: 03.10.2024 Date of Pronouncement: 21.10.2024 O R D E R Per Bench This is an appeal by the assessee directed against the order of the National Faceless Appeal Centre, Delhi [CIT(A)] dated 30.11.2022for 2014-15. 2. 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. 3. 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 2 ITA No. 63/Coch/2023 Kerala Cars Pvt. Ltd. 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). 4. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 5. 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. 6. On the other hand, the ld. Sr. DR vehemently supported the orders of the authorities below. 7. 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. 8. The second issue raised by the assessee is that the CIT(A) erred in confirming the addition of Rs.19,12,500/- on account of diversion of funds to sister concern without any commercial purpose. 8.1 The AO during the assessment proceedings worked out the amount of interest of Rs. 19,12,500/- attributable to the interest free loans given to the sister concern without any commercial purpose and added the same to the total income of the assessee. The view taken by the AO was subsequently confirmed by the ld. CIT(A). 3 ITA No. 63/Coch/2023 Kerala Cars Pvt. Ltd. 9. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 10. 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. 11. On the other hand, the learned Sr. DR vehemently supported the orders of the authorities below. 12. 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: 7. 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. 8. 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. 12.1 We also draw support and guidance from the judgment of Hon’ble Gujarat High court in the case of CIT vs. Torrent Power Ltd reported in 363 ITR 474 where it was held as under: It was noted from records that the assessee was having shareholding funds to the extent of 2607.18 crores and the investment made by it was to the extent of`Rs.195.10 crores. In other words, the assessee had sufficient funds for making the investments and it had not used the borrowed funds for such purpose. This aspect of huge surplus funds is not disputed by the revenue which earned it the interest on bonds and dividend income. [Para 7] 4 ITA No. 63/Coch/2023 Kerala Cars Pvt. Ltd. 12.2 In view of the above, we hold that no disallowance of interest is warranted if the own fund of the assessee exceeds the amount advanced to the sister concern without any interest. At the time of hearing the learned A.R. has not brought anything on record demonstrating whether the own funds exceed the amount of interest free loans and advances given to the sister concern. Accordingly, we set aside the issue to the file of the AO for fresh adjudication as per the provisions of law in the light of the above discussion. Hence the ground of appeal of the assessee is partly allowed for statistical purposes. 13. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced on 21st October, 2024 under Rule 34 of The Income Tax (Appellate Tribunal) Rules, 1963 Sd/- Sd/- (Soundararajan K.) Judicial Member (Waseem Ahmed) Accountant Member Cochin, Dated: 21st October, 2024 n.p. Copy to: 1. The Appellant 2. The Respondent 3. The Pr. CIT concerned 4. The Sr. DR, ITAT, Cochin 5. Guard File By Order Assistant Registrar ITAT, Cochin "