DELHI POWER COMPANY LTD,NEW DELHI V. DCIT CIRCLE-10(1), NEW DELHI

ITA 5961/DEL/2019

AI Insights

The case involves Delhi Power Company Ltd, which appealed against the disallowance of expenses under section 14A of the Income Tax Act, 1961, amounting to Rs 10,57,00,598, as determined by the Assessing Officer. The company argued that its investments, which generated exempt dividend income of Rs 54,00,000, were made under directives from the Government of National Capital Territory of Delhi (GNCTD) and did not incur any costs attributable to earning exempt income. The Commissioner of Income Tax (Appeals) upheld the disallowance due to lack of evidence from the assessee. The Tribunal, referencing the Supreme Court's decision in Maxopp Investments, limited the disallowance to the amount of exempt income received.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 34785 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Other Referred Cases: Maxopp Investments vs. CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR DHANESTA
• Assessee Lawyers: DIVYA SHARMA
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 10; 14A

Judgement Text

"Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B”: NEW DELHI BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No. 5961/Del/2019 (Assessment Year: 2011-12) Delhi Power Company Ltd, Shakti Sadan, Kotla Marg, New Delhi-110002 Vs. DCIT, Circle-10(1), New Delhi (Appellant) (Respondent) PAN:AABCD5265G Assessee by : Ms. Divya Sharma, Adv Revenue by: Shri Rajesh Kumar Dhanesta, Sr. DR Date of Hearing 13/01/2025 Date of pronouncement 29/01/2025 O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.5961/Del/2019 AY 2011-12, arises out of the order of the Commissioner of Income Tax (Appeals)-24, New Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No. 288/14-15 dated 23.04.2019 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 24.03.2014 by the Assessing Officer, DCIT, Circle-10(1), New Delhi (hereinafter referred to as ‘ld. AO’). 2. The only issue to be decided in this appeal is challenging the disallowance u/s 14A of the Act. 3. We have heard the rival submissions and perused the materials available on record. During the year under consideration, the assessee ITA No. 5961/Del/2019 Delhi Power Company Ltd Page | 2 company was engaged in the business of holding of investment and finance. The return of income for the Assessment Year 2011-12 was filed by the assessee company on 29-9-2011 which was later revised on 16-5- 2012 declaring loss of Rs 27,06,93,487/-. It is not in dispute that the assessee had earned Rs 54,00,000/- as dividend income which was claimed as exempt u/s 10 in the return of income. No expenses were disallowed by the assessee suo moto u/s 14A of the Act for the purpose of earning such exempt income. Hence the Ld AO directly applied the computation mechanism provided in 2nd and 3rd limb of Rule 8D(2) of the Income Tax Rules and arrived at the disallowance u/s 14A of the Act at Rs 10,57,00,598/-. 4. Before the Learned CITA, the assessee submitted that the very objective for which the GNCTD vide a decision passed in the cabinet created the entity i.e. the assessee, only with an objective to take over the assets and liabilities of erstwhile DESU and Delhi Vidyut Board including their contingent liabilities. The objective of setting up of the assessee company was also to support cash starved power generation company owned by the GNCTD. The assessee company does not have mandate to make any investment elsewhere. Its investments are restricted only to be made in power generation companies owned by GNCTD to ensure continuous and non-interruptive power generation for the state. The amount of investment made by the assessee is received by it by way of loan from GNCTD right from the inception of the assessee company with the directive to invest only as per the decision of GNCTD. Since the investment made by the assessee as per the directive of GNCTD, as such it cannot be stated to be an investment made with an objective of earning exempt income by the assessee company. It was submitted that no interest is charged or paid by the assessee to GNCTD for availing ITA No. 5961/Del/2019 Delhi Power Company Ltd Page | 3 such loan liabilities, as such it cannot be alleged that the assessee has incurred any cost attributable for earning exempt income. The assessee further pleaded that the interest amount debited to Profit and Loss Account amounting to Rs. 20,62,43,000/- comprises only of the interest which the erstwhile Delhi Vidyut Board was to have paid to electricity generating CPSU for the period pertaining to the period prior to incorporation of the assessee and assessee company was incorporated by GNCTD of Delhi to take care of all assets and liabilities of Delhi Government pertaining to erstwhile Delhi Vidyut Board. Similarly, it was submitted that the indirect cost attributed by the Ld AO towards earning of such income is also wrong as the assessee is not authorized by its constitution to have made any investment other than as directed by GNCTD. With these submissions, the assessee pleaded that provisions of section 14A of the Act could not be applied in the facts of the instant case. 5. The Ld CITA held that assessee had failed to explain with evidence that investment in equity shares was made by its own funds and not from the borrowed funds. The entire contentions of the assessee were rejected by the ld CITA for want of evidences and disallowance made by the ld AO was upheld. Aggrieved, the assessee is in appeal before us. 6. We find that the total exempt income derived by the assessee company was only Rs 54,00,000/-, whereas the disallowance of expenses u/s 14A of the Act had been made to the tune of Rs 10.57 crores. The Hon’ble Supreme Court in the case of Maxopp Investments reported in 402 ITR 640 (SC) had held that the disallowance of expenses u/s 14A of the Act cannot exceed exempt income. Hence respectfully following the same, we direct the ld AO to restrict the disallowance u/s 14A of the Act only to the extent of exempt income of Rs 54,00,000/-. Accordingly, the grounds raised by the assessee are partly allowed. ITA No. 5961/Del/2019 Delhi Power Company Ltd Page | 4 7. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 29/01/2025. -Sd/- -Sd/- (YOGESH KUMAR U.S.) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 29/01/2025 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi "