2013 (11) TMI 1656 - AT - Income Tax

Disallowance made under section 14A - Held that - Since the investments in shares of group concerns are within the course of trading activities and out of commercial expediency and the decision of the Hon ble Supreme Court in the case of S.A.Builders (2006 (12) TMI 82 - SUPREME COURT ) is applicable to the assessee, the provisions of section 14A are not applicable.

Summary

Issues:
Disallowance under section 14A read with Rule 8D of the Act for assessment year 2009-10.

Analysis:
The appeal was filed by the Revenue against the Commissioner of Income Tax (Appeals) Chennai's order dated 28.03.2013 for the assessment year 2009-10. The Revenue contended that the disallowance made under section 14A read with Rule 8D of the Act was erroneously deleted by the Commissioner of Income Tax (Appeals).

The Assessing Officer disallowed &8377; 2,01,89,775/- under section 14A read with Rule 8D of the Act. However, the Commissioner of Income Tax (Appeals) deleted this disallowance based on the submission that the investments were made in group concerns as part of the business of investing in financing, and hence, section 14A did not apply. This decision was supported by the assessee, citing precedents like ITO Vs. MSA Security Services and NMS Consultancy P.Ltd.

The Commissioner of Income Tax (Appeals) observed that investments in group concerns were made as part of advancing loans to them, and the funds were borrowed from these concerns for their trade purposes. Regarding the share application money in sister concerns, it was noted that it did not yield any income or right to a benefit, thus section 14A was deemed inapplicable. The Commissioner upheld that the disallowance was unwarranted and directed its deletion.

The Commissioner held that the assessee, being an investment company, made investments in group concerns as part of its business of advancing loans. The investments in group concerns were considered within the course of trading activities and out of commercial expediency, leading to the inapplicability of section 14A. Similarly, investments in sister concerns as share application money were found not capable of generating income, aligning with precedents set by the Tribunal. The Revenue's grounds were rejected, and the order of the Commissioner of Income Tax (Appeals) was upheld, resulting in the dismissal of the Revenue's appeal.