Kirloskar Electric Company Ltd. Vs DCIT (ITAT Bangalore)
Material Facts: The assessee, engaged in the business of manufacturing and trading electric motors, alternators, traction equipment, transformers, DG sets, circuit breakers, starters and contractors, filed its return of income for AY 2010-11 declaring Nil income under the normal provisions and book profit of Rs.50,59,46,016 under section 115JB. The return was processed under section 143(1) and subsequently selected for scrutiny. Notices under sections 143(2) and 142(1) were issued, and the assessee furnished the details sought by the Assessing Officer.
The Assessing Officer completed the assessment under section 143(3), making the following additions:
- Disallowance under section 14A – Rs.12,83,690.
- Disallowance of interest – Rs.86,29,243.
- Capitalisation of interest – Rs.9,69,40,630.
Procedural History: The assessee appealed before the Commissioner of Income Tax (Appeals), who partly allowed the appeal. The assessee thereafter appealed before the Tribunal, which remanded the matter to the CIT(A) for fresh examination. After reconsideration, the CIT(A) dismissed the assessee’s appeal. The assessee again appealed before the ITAT. Since identical issues arose for AYs 2010-11, 2011-12 and 2012-13, the Tribunal heard all appeals together and treated AY 2010-11 as the lead case.
Legal Issues: The principal issue before the Tribunal was whether the Assessing Officer was justified in capitalising interest on the ground that borrowed funds had been utilised for making investments in the assessee’s subsidiary company.
