Dismissed

The Commissioner of Income TAX-1, v. M/S. Hotel and Allied Trades Private Ltd.

Kerala HC7 Feb 2019ITA/25/2013

Case brief

AI extract

What is this about?

The High Court of Kerala dismissed two appeals challenging the disallowance of interest expenditure under Section 14A of the Income Tax Act invoked by revision under Section 263. Holding that Section 14A machinery provisions apply prospectively from AY 2007-08, the court rejected the application of the provision to earlier years.

What did the court decide?

Appeals rejected and orders of the Tribunal upheld in ITA Nos. 1373/2009 and 25/2013.

The Commissioner of Income TAX-1, Vs M/S. Hotel and Allied Trades… — Income Tax | Kerala HC (2019)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN

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THE HONOURABLE MR. JUSTICE ASHOK MENON

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THURSDAY ,THE 07TH DAY OF FEBRUARY 2019 / 18TH MAGHA, 1940

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ITA.No. 1373 of 2009

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AGAINST THE ORDER/JUDGMENT IN ITA 285/COCH/2006 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 28-03-2008

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APPELLANT/S:/RESPONDENT/REVENUE:

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THE COMMISSIONER OF INCOME TAX, COCHIN.

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BY ADVS. SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH SC FOR INCOME TAX

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RESPONDENT/APPELLANT/ASSESSEE:

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HOTEL & ALLIED TRADES (P) LTD., CASINO HOTEL, WILLINGDON ISLAND,, KOCHI-03.

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BY ADVS. SRI.JOSEPH MARKOSE (SR.) SHRI.ALEXANDER JOSEPH MARKOS SHRI.SHARAD JOSEPH KODANTHARA SRI.ABRAHAM JOSEPH MARKOS SRI.ISAAC THOMAS SRI.V.ABRAHAM MARKOS

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THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07.02.2019, ALONG WITH ITA.25/2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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ITAs1373/09& 25/13

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN

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THE HONOURABLE MR. JUSTICE ASHOK MENON

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THURSDAY ,THE 07TH DAY OF FEBRUARY 2019 / 18TH MAGHA, 1940

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ITA.No. 25 of 2013

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AGAINST THE ORDER/JUDGMENT IN ITA 662/COCH/2007 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 27-07-2012

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APPELLANT/APPELLANT/REVENUE:

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THE COMMISSIONER OF INCOME TAX, KOCHI.

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BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX

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RESPONDENT/RESPONDENT/ASSESSEE:

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M/S. HOTEL & ALLIED TRADES (P) LTD., C/O.CASINO HOTEL, W/ISLAND, COCHIN-3.

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BY ADVS. SRI.ABRAHAM JOSEPH MARKOS SRI.ABRAHAM VARGHESE THARAKAN SRI.BINU MATHEW SRI.JOSEPH MARKOSE (SR.) SRI.TOM THOMAS (KAKKUZHIYIL) SRI.V.ABRAHAM MARKOS

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THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07.02.2019, ALONG WITH ITA.1373/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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ITAs1373/09& 25/13

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K.VINOD CHANDRAN & ASHOK MENON, JJ.

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ITA Nos. 1373 of 2009 and 25 of 2013

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------------------------------------------Dated this the 7^th day of February, 2019

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J U D G M E N T

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Vinod Chandran, J.

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Both the appeals are connected, insofar as the dis-allowance of expenditure having been directed in a proceedings under Section 263 of the Income Tax Act, 1961 (“Act” for short) which is challenged in ITA No.1373/2009 and the consequential order is challenged in ITA No.25/2013.

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The question is of dis-allowance of

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interest on borrowed funds. Admittedly, the assessee

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had borrowed funds on which there was interest liability. The assessee had also advanced amounts to a subsidiary company, which was interest free. The

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assessee's case was that they had sufficient own funds to advance money to the subsidiary company and that no

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part of the borrowed amounts were, in fact, advanced to

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ITAs1373/09& 25/13

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the subsidiary company. The Assessing Officer disallowed only a small portion of the interest claimed as expenditure. The Commissioner sought to invoke Section 14A of the Act to disallow proportionate interest in the borrowed funds of the assessee, by an order under Section 263. The Tribunal interfered with the order under Section 263 relying on the decision of the Honourable Supreme Court in (2007) 288 ITR 1

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[M/s.S.A.Builders Ltd. v. Commissioner of Income Tax] .

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The questions arising are two fold.

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Whether there should have been an examination on facts,

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going by the dictum of M/s.S.A.Builders Ltd. as to whether there was a commercial expediency insofar as the interest free advances made to the subsidiary

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company and whether Section 14A could have been applied. We find that the order under Section 263 was

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passed specifically based on Section 14A. As far as

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the applicability of Section 14A is concerned, the

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Honourable Supreme Court in (2018) 401 ITR 445

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ITAs1373/09& 25/13

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[Commissioner of Income Tax v. M/s.Essar Teleholdings

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Ltd.] held that the machinery provisions having come only from the assessment year 2007-08, the application of Section 14A would be prospective to that. In such

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circumstances, we reject the appeals and uphold the

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orders of the Tribunal in both the appeals. No costs.

Sd/-

K.VINOD CHANDRAN

JUDGE

Sd/-

ASHOK MENON JUDGE

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ITAs1373/09& 25/13

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APPENDIX OF ITA 1373/2009

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APPELLANT'S EXHIBITS:

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ANNEXURE-A COPY OF ASSESSMENT ORDER DATED 18/8/2003 FOR THE ASSESSMENT YEAR 200102 ANNEXURE-B COPY OF ORDER U/S.263 DATED 13/3/06 OF THE COMMISSIONER OF INCOME TAX. ANNEXURE-C COPY OF THE ORDER DATED 28/3/2008 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN ITA NO.285/COCH/2006.

[True Copy]

ITAs1373/09& 25/13

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APPENDIX OF ITA 25/2013

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APPELLANT'S EXHIBITS:

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ANNEXURE-A COPY OF THE ASSESSMENT ORDER U/S.143(3) PASSED BY THE ASSESSING OFFICER ON 18/8/2003 FOR AY 2001-02. ANNEXURE-B COPY OF THE CIT'S ORDER U/S 263 DATED 13/3/2006. ANNEXURE-C COPY OF ITAT'S ORDER NO. ITA NO. 285/COCH/2006 DATED 18/3/2008. ANNEXURE-D COPY OF ORDER U/S.143(3) RWS. 263 OF IT ACT DATED 26/4/2006 OF THE ASSESSING OFFICER FOR AY 2001-02. ANNEXURE-E COPY OF ORDER OF THE CIT(A)-II, IN ITA NO. 26/R-1/E/CIT-II/06-07 DATED 19/4/2007. ANNEXURE-F COPY OF THE ITAT'S ORDER IN ITA NO. 662/COCH/2007 DATED 27/7/2012.

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[True Copy]

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The Commissioner of Income TAX-1, v. M/S. Hotel and Allied Trades Private Ltd.

Case brief

What is this about?

What did the court decide?

The Commissioner of Income TAX-1, v. M/S. Hotel and Allied Trades Private Ltd.

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

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Cases cited

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