By TIOL News Service

CHENNAI, JAN 08, 2016: THE issue is - Whether provisions of Sec 14A cannot be invoked, when investments made were in sister concerns, or after such investments those companies became sister concerns. YES is the answer.

Facts of the case

The assessee is engaged in the business of providing logistics services and supply chain management. It had declared loss. During assessment, the AO held that given the volume and portfolio of investment, the assessee should have incurred expenditure in the form of managerial, administrative and monitoring nature. Therefore, made a disallowance u/s 14A relying on the CBDT circular No. 5 of 2014 dated 11- 02-2014 which had clarified that even when there was no exempt income earned during the year, section 14A can be invoked. On appeal, the DRP confirmed the same and held that as there was an increase in investment of more than 38 crores which clearly indicates that there was a direct nexus in increase in investment and borrowed capital and interest on borrowed capital charges to P&L A/c.

The Tribunal held that,

++ the main contention of the assessee is that the investments were made for acquiring control of other companies which are in the similar business of the assessee and all those companies subsequent to acquisition of the shares has become the sister concerns of the assessee. Moreover, the investments made were out of non-interest bearing funds of the assessee company. We find that these facts were not taken into consideration by the Revenue before invoking the provisions of Section.14A in the case of the assessee;

++ since the Revenue has not examined these facts, in the interest of justice, we hereby remit back the matter to the file of AO, in order to verify whether the investments made by the assessee company were in its sister concerns, or after such investments those companies have become the sister concerns of the assessee company by virtue of such investments, and further such investments were made from the non-interest bearing fund of the assessee company, and if found so, grant relief to the assessee in the light of the decision of the Chennai Bench of the Tribunal mentioned herein above.

(See 2016-TIOL-49-ITAT-MAD)