OPG Energy Private Limited, CHENNAI V. ITO, CHENNAI

CO 50/CHNY/2017

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3416 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 6 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 18-01-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 12-05-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V RA VICHANDRAN
• Keywords: Commercial expediency
• Section: 14A; 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI ... , . ! , # $ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ./ ITA NO.466/MDS/2017 & C.O. NO.50/MDS/2017 (IN I.T.A. NO.466/MDS/2017 & '& / ASSESSMENT YEAR : 2013-14 ./ ITA NO.3415/MDS/2016 & C.O. NO.16/MDS/2017 (IN 3415/MDS/2016) & '& / ASSESSMENT YEAR : 2012-13 THE INCOME TAX OFFICER, CORPORATE WARD 5(1), CHENNAI - 600 034. V. M/S OPG ENERGY (P) LTD., NO.6, SARDAR PATEL ROAD, GUINDY, CHENNAI - 600 032. PAN : AAACO 4724 G ()*/ APPELLANT) ( RESPONDENT & CROSS-OBJECTOR) )* + , / APPELLANT BY : SHRI AR.V. SREENIVASAN, JCIT -.)* + , / RESPONDENT BY : SHRI V. RAVICHANDRAN, CA / + 0# / DATE OF HEARING : 17.01.2018 12' + 0# / DATE OF PRONOUNCEMENT : 18.01.2018 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS OF THE REVENUE ARE DIRECTED AGAI NST THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-3, 2 I.T.A. NO.466/MDS/17 I.T.A. NO.3415/MDS/16 C.O. NOS.50 & 16/MDS/17 CHENNAI, FOR ASSESSMENT YEARS 2013-14 AND 2012-13. THE ASSESSEE HAS ALSO FILED CROSS-OBJECTIONS AGAINST TH E SAME ORDERS OF THE CIT(APPEALS). THEREFORE, WE HEARD THE APPEALS AND THE CROSS- OBJECTIONS TOGETHER AND DISPOSING OF THE SAME BY TH IS COMMON ORDER. 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE OF EXPENDITURE FOR EARNING EXEMPTED IN COME UNDER SECTION 14A OF THE INCOME-TAX ACT, 1961 (IN SHORT ' THE ACT'). 3. SHRI AR.V. SREENIVASAN, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT DISALLOWANCE OF EXPE NDITURE FOR EARNING EXEMPTED INCOME HAS TO BE MANDATORILY COMPU TED UNDER SECTION 8D(2) OF THE INCOME-TAX RULES, 1962. ACCOR DING TO THE LD. D.R., THE CIT(APPEALS) ALLOWED THE CLAIM OF THE ASS ESSEE ON THE GROUND THAT THE EXPENDITURE HAS TO BE RESTRICTED TO THE EXTENT OF EXEMPTED INCOME EARNED BY THE ASSESSEE. PLACING RE LIANCE ON THE JUDGMENT OF PUNJAB & HARYANA HIGH COURT IN PUNJAB T RADERS LTD. V. CIT (2017) 78 TAXMANN.COM 65, THE LD. D.R. SUBMITTE D THAT WHEN THE ASSESSEE HAS EARNED TAX-FREE INCOME, THE PRESUM PTION IS THAT THE ASSESSEE HAS INCURRED EXPENDITURE TOWARDS ADMIN ISTRATIVE ACTIVITIES FOR EARNING SUCH INCOME, THEREFORE, THE ASSESSING OFFICER 3 I.T.A. NO.466/MDS/17 I.T.A. NO.3415/MDS/16 C.O. NOS.50 & 16/MDS/17 HAS TO NECESSARILY COMPUTE THE DISALLOWANCE BY APPL YING THE METHOD PROVIDED IN RULE 8D(2). HENCE, ACCORDING TO THE LD. D.R., THE CIT(APPEALS) IS NOT JUSTIFIED IN RESTRICTING TH E DISALLOWANCE TO THE EXTENT OF EXEMPTED INCOME. 4. ON THE CONTRARY, SHRI V. RAVICHANDRAN, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE CIT(APPEALS) BY PLACING RELIANCE ON THE DECISION OF THIS BENCH OF T HE TRIBUNAL IN M/S ROYALA CORPORATION PVT. LTD. IN I.T.A. NO.908/MDS/2 015, FOUND THAT THE DISALLOWANCE SHALL BE RESTRICTED TO THE EXTENT OF EXEMPTED INCOME EARNED BY THE ASSESSEE. THE LD. REPRESENTAT IVE FURTHER SUBMITTED THAT RULE 8D(2) IS MANDATORY, HOWEVER, TH ERE CANNOT BE ANY EXPENDITURE IN THE ABSENCE OF ANY INCOME. THER EFORE, ACCORDING TO THE LD. REPRESENTATIVE, THE CIT(APPEAL S) HAS RIGHTLY DIRECTED THE ASSESSING OFFICER RESTRICT THE DISALLO WANCE TO THE EXTENT OF THE EXEMPTED INCOME EARNED BY THE ASSESSEE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE EARNED DIVIDEND INCOME WHICH IS EXEMPTED F ROM TAXATION. THE MADRAS HIGH COURT IN THE CASE OF REDINGTON (IND IA) LTD. V. ADDL. CIT (2017) 77 TAXMANN.COM 257 FOUND THAT WHEN THERE WAS NO 4 I.T.A. NO.466/MDS/17 I.T.A. NO.3415/MDS/16 C.O. NOS.50 & 16/MDS/17 EXEMPTED INCOME EARNED BY THE ASSESSEE, THERE CANNO T BE ANY DISALLOWANCE OF EXPENDITURE IN VACUUM. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE DISA LLOWANCE HAS TO BE RESTRICTED ONLY TO THE EXTENT OF INCOME WHICH IS EX EMPTED FROM TAXATION. IN THE ABSENCE OF ANY INCOME, EVEN THOUG H THE ASSESSEE INCURRED CERTAIN EXPENDITURE, THERE CANNOT BE ANY D ISALLOWANCE AS HELD BY MADRAS HIGH COURT IN REDINGTON (INDIA) LTD. (SUPRA). EVEN THOUGH COMPUTING DISALLOWANCE UNDER RULE 8D(2) IS M ANDATORY, HOWEVER, IN VIEW OF THE JUDGMENT OF MADRAS HIGH COU RT IN REDINGTON (INDIA) LTD. (SUPRA), THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT IN THE ABSENCE OF ANY INCOME, THERE CA NNOT BE ANY DISALLOWANCE. CONSEQUENTLY, THE ASSESSING OFFICER HAS TO RESTRICT THE DISALLOWANCE ONLY TO THE EXTENT OF EXEMPTED INC OME EARNED BY THE ASSESSEE. A SIMILAR VIEW WAS TAKEN BY THIS TRI BUNAL IN THE CASE OF ROYALA CORPORATION PVT. LTD. (SUPRA). THEREFORE , THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 6. THE REVENUE HAS TAKEN ONE MORE GROUND FOR ASSESS MENT YEAR 2013-14 WITH REGARD TO COMPUTATION OF BOOK PRO FIT UNDER SECTION 115JB OF THE ACT. 5 I.T.A. NO.466/MDS/17 I.T.A. NO.3415/MDS/16 C.O. NOS.50 & 16/MDS/17 7. WE HEARD SHRI AR.V. SREENIVASAN, THE LD. DEPARTM ENTAL REPRESENTATIVE AND SHRI V. RAVICHANDRAN, THE LD. RE PRESENTATIVE FOR THE ASSESSEE. THE CIT(APPEALS) BY PLACING RELIANCE ON THE ORDER OF THIS TRIBUNAL IN BEACH MINERALS COMPANY PVT. LTD. V . ACIT (64 TAXMANN.COM 218) FOUND THAT DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT CANNOT BE DISALLOWED WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT. THE CIT(APPEALS) H AS RIGHTLY PLACED HIS RELIANCE ON THE ORDER OF THIS TRIBUNAL, THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH T HE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRM ED. 8. NOW COMING TO THE CROSS-OBJECTIONS FILED BY THE ASSESSEE, THE FIRST ISSUE IS WITH REGARD TO INVESTMENT MADE B Y THE ASSESSEE FOR STRATEGIC PURPOSES. 9. WE HEARD THE LD. REPRESENTATIVE FOR THE ASSESSEE AND THE LD. DEPARTMENTAL REPRESENTATIVE. THE ASSESSEE, EVE N THOUGH CLAIMS THAT INVESTMENTS WERE MADE FOR STRATEGIC PUR POSES, THE DETAILS OF SUCH INVESTMENTS ARE NOT AVAILABLE ON RE CORD. UNLESS THE ASSESSEE ESTABLISHES THAT THE INVESTMENTS WERE MADE IN THE COMPANY IN WHICH IT WAS HOLDING 100% SHARES OR ATLE AST MAJORITY OF 6 I.T.A. NO.466/MDS/17 I.T.A. NO.3415/MDS/16 C.O. NOS.50 & 16/MDS/17 SHARES, IT CANNOT BE SAID THAT THE INVESTMENTS MADE FOR STRATEGIC PURPOSES ARE FOR COMMERCIAL EXPEDIENCY. IN THE ABS ENCE OF ANY DETAILS, THIS TRIBUNAL DO NOT FIND ANY REASON TO IN TERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SA ME IS CONFIRMED. 10. FOR THE ASSESSMENT YEAR 2013-14, THE ASSESSEE H AS TAKEN ONE MORE GROUND IN THE CROSS-OBJECTION WITH REGARD TO DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. 11. WE HEARD THE LD. REPRESENTATIVE FOR THE ASSESSE E AND THE LD. DEPARTMENTAL REPRESENTATIVE. THE ASSESSEE CLAI MS THAT SECTION 14A OF THE ACT HAS NO APPLICATION IN RELATI ON TO SHARE APPLICATION MONEY WHEN THE SHARES REMAIN TO BE ALLO TTED IN THE RESPECTIVE PREVIOUS YEAR. THE ASSESSING OFFICER HA S ALSO FOUND THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE. FRO M THE MATERIAL AVAILABLE ON RECORD IT IS NOT KNOWN IN WHICH COMPAN Y THE ASSESSEE MADE APPLICATION AND PENDING FOR ALLOTMENT OF SHARE S. UNLESS THE ASSESSEE FURNISHES DETAILS WITH REGARD TO PENDENCY OF ALLOTMENT OF SHARES AFTER INVESTMENTS, THIS TRIBUNAL IS OF THE C ONSIDERED OPINION THAT THE MATTER CANNOT BE DECIDED. IN THE ABSENCE OF SUCH DETAILS, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE W ITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRM ED. 7 I.T.A. NO.466/MDS/17 I.T.A. NO.3415/MDS/16 C.O. NOS.50 & 16/MDS/17 12. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE AND BOTH THE CROSS-OBJECTIONS OF THE ASSESSEE STAND DISMISSED. ORDER PRONOUNCED ON 18 TH JANUARY, 2018 AT CHENNAI. SD/- SD/- ( . ! ) ( ... ) (M. BALAGANESH) (N.R.S. GANESAN) # / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 18 TH JANUARY, 2018. KRI. + -056 76'0 /COPY TO: 1. )* /APPELLANT 2. -.)* /RESPONDENT 3. / 80 () /CIT(A)-3, CHENNAI 4. PRINCIPAL CIT-5, CHENNAI 5. 69 -0 /DR 6. :& ; /GF.