Tamilnadu Power Finance & Infrastructure Development Corpn Ltd., CHENNAI V. ACIT Corporate Circle 3(1), CHENNAI

ITA 1227/CHNY/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3283 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2016-2017
• Appeal Filed On: 25-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 43

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: CHENNAI . . . , , $ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S.JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NO.1227/CHNY/2019 % % /ASSESSMENT YEAR: 2016-17 M/S.TAMILNADU POWER FINANCE & INFRASTRUCTURE DEVELOPMENT CORPORATION LIMITED, 490/3-4,TUFIDCO POWERFIN TOWER, ANNASALAI,NANDANAM, CHENNAI 600 035. VS. THE ACIT, CORPORATE CIRCLE-3(1), CHENNAI. [ PAN: A AACT 2840 A ] ( ( /APPELLANT) ( )*( /RESPONDENT) ( + / APPELLANT BY : MR.SAROJ KUMAR PARIDA,ADVOCATE )*( + /RESPONDENT BY : MR. AR.V.SRINIVASAN,JCIT,D.R + /DATE OF HEARING : 28.11.2019 + /DATE OF PRONOUNCEMENT : 25.02.2020 / O R D E R PER S.JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS)-11, CHENNAI IN ITA NO.60/18- 19, DATED 19.03.2019 FOR THE ASSESSMENT YEAR 2016-1 7. ITA NO.1227/CHNY/2019 :- 2 -: 2. THE ASSESSEE, M/S.TAMILNADU POWER FINANCE & INFRA STRUCTURE DEVELOPMENT CORPORATION LIMITED, IS ENGAGED IN THE BUSINESS OF FINANCIAL ACTIVITIES & CREATING INFRASTRUCTURE FACILITIES AND IS OWNED BY GOVERNMENT OF TAMIL NADU. THE ASSESSEE IS IN THE BUSINESS FOR MORE THAN A DECADE WITH A PRIMARY OBJECT OF MOBILIZING RETAIL SOURCE I N THE FORM OF PUBLIC DEPOSITS AND GENERATES THE SAME FOR INFRASTRUCTURE INVESTMENT IN THE STATE OF TAMILANDU, IN GENERAL AND IN PARTICULAR, T O THE ACTIVITIES OF TAMILNADU ELECTRICITY BOARD. WHILE MAKING THE ASSES SMENT FOR ASSESSMENT YEAR 2016-17, THE A.O. FOUND THAT THE ASSESSEE HAS RECEIVED A DIVIDEND OF .1,67,16,352/- FROM NEYELI LIGNITE CORPORATION AND CLAIMED THE SAME AN AN EXEMPT INCOME. IN THE COMPUTATION OF TOTAL INCOM E, THE ASSESSEE ITSELF VOLUNTARILY DISALLOWED .17,91,038/- TOWARDS EXPENDITURE DISALLOWABLE UNDER SECTION.14A ON EARNING THE EXEMPTED INCOME. W HILE MAKING THE ASSESSMENT, THE A.O. RE-WORKED THE DISALLOWANCE UND ER SECTION.14A R.W.RULE 8D AT .3,17,86,479/-. HOWEVER, RESTRICTED TO AN EXTENT O F DIVIDEND INCOME OF .1,67,16,352/- APPLYING THE DECISION OF THE APEX COURT IN THE CASE OF PR.C.I.T,PATIALA VS. STATE BAN K OF PATIALA IN (2018) 99 TAXMANN.COM. 286(SC) DATED 08.11.2018. AGGRIEVED WI TH THE ORDER OF THE A.O., THE ASSESSEE FILED AN APPEAL BEFORE THE L EARNED CIT(A). THE LEARNED CIT(A) ENHANCED THE DISALLOWANCE FROM .1,67,16,352/- TO .31,78,65,479/-. AGGRIEVED, THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. ITA NO.1227/CHNY/2019 :- 3 -: 3. THE LD. A.R. SUBMITTED THAT WHILE MAKING THE AS SESSMENT, THE A.O. HAS NOT MADE ANY DISALLOWANCE UNDER RULE 8D(I) OF I NCOME TAX RULES,1962. HOWEVER, UNDER RULES 8D(II), HE ARRIVED DISALLOWANCE AT .3,35,77,517/-. AFTER DEDUCTING THE DISALLOWANCE VO LUNTARILY MADE BY THE ASSESSEE AT .17,91,038/-, HE ARRIVED THE DISALLOWANCE AT .31,78,65,479/-. BEFORE THE LEARNED CIT(A), THE ASS ESSEE PLEADED THAT THE ASSESSEE VOLUNTARILY DISALLOWED .17,91,038/- AS AN EXPENDITURE INCURRED FOR EARNING TAX EXEMPT INCOME AS PER CLAU SE (2)(III) OF RULE 8D, THOUGH THE ASSESSEE HAS NOT INCURRED ANY EXPENDITUR E. FURTHER, THE ASSESSEE SUBMITTED THAT ON THE DATE OF INVESTMENT .16,888.72 LAKHS WAS OUTSTANDING AS A GENERAL RESERVES AND THE INVESTMEN T WAS MADE FROM ASSESSEES OWN FUNDS(FROM GENERAL RESERVE). THE A.O . HAS NOT COMMENTED UPON THE CORRECTNESS OR OTHERWISE OF THE ASSESSEES METHOD OF ARRIVING THE DISALLOWANCE OR ITS QUANTIFICATION. THEREFORE, THE A.O. HAS NOT PROVIDED ANY REASON FOR HIS COMPUTATION. WHEN HE IS NOT SAT ISFIED WITH THE SAID WORKING OF THE ASSESSEE AND TERMS IT AS INCORRECT T HEN HE COULD PROCEED TO RE-WORK THE DISALLOWANCE UNDER SECTION.14A R.W.RULE 8D BASED ON OBJECTIVE CRITERIA AND COGENT REASONS. IT WAS ALSO PLEADED THAT THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE AT 15,63,90,01 ,000/- IS DIRECTLY, WHOLLY AND EXCLUSIVELY ATTRIBUTABLE TO THE INCOME E ARNED ON FINANCING OPERATIONS AND THE ASSESSEE HAS NOT MADE ANY INVEST MENT OUT OF BORROWED FUNDS, TO EARN ANY TAX EXEMPTED INCOME. TH EREFORE, THE A.O. SHOULD NOT HAVE CONSIDERED THIS INTEREST EXPENDITUR E UNDER RULE 8D(II), WHICH WAS INCURRED WHOLLY AND EXCLUSIVELY FOR EARNI NG INCOME FROM ITA NO.1227/CHNY/2019 :- 4 -: FINANCING OPERATIONS. FURTHER, THE ASSESSEE BROUGH T TO THE NOTICE OF THE LEARNED CIT(A) THAT THIS TRIBUNAL IN ASSESSEES OWN HOUSE FOR THE ASSESSMENT YEARS 2010-11 & 2011-12 IN I.T.A. NO. NO .1813/MDS/2014 DATED 19.02.2016 AND I.T.A. NO.1036/MDS/2015 DATED 24.03.2016 HELD THAT THE FIRST AND SECOND LIMB OF RULE 8D(II) IS NO T APPLICABLE AND UNDER THE THIRD LIMB, AN AMOUNT EQUAL TO 0.5% OF THE AVER AGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME AS APPEARING IN THE BALANCE SHEET OF THE ASS ESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR, HAS TO BE CO NSIDERED. IN ACCORDANCE WITH SUCH DECISION ONLY, THE ASSESSEE HA S ARRIVED OUT THE DISALLOWANCES QUANTIFIED BY IT. HOWEVER, THE LEARNE D CIT(A) WITHOUT CONSIDERING THE ASSESSEES PLEA, ENHANCED THE DISAL LOWANCES. THEREFORE, THE LD. AR PLEADED THAT THE ASSESSEES APPEAL MAY BE ALLOWED. 4. PER CONTRA, LD. D.R. SUPPORTED THE ORDER OF THE LEARNED CIT(A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND GO NE THROUGH THE RELEVANT MATERIALS. IT IS CLEAR FROM THE ABOVE ASSE SSMENT ORDER THAT THE A.O. HAS RECORDED THAT THE ASSESSEE HAS DEBITED INT EREST EXPENSES IN THE BOOKS OF ACCOUNTS AND THE ASSESSEE HAS BEEN FOLLOWI NG THE MIXED FUNDS ACCOUNTING I.E. USING ITS OWN FUNDS AND BORROWED F UNDS. ON THAT PRINCIPLE, THE A.O. HAS PROCEEDED TO MAKE THE DISAL LOWANCE. IT IS ALSO CLEAR THAT THE ASSESSEE HAS BROUGHT TO THE NOTICE OF THE LEARNED CIT(A) THAT IT HAS INCURRED INTEREST EXPENDITURE OF .1563,93,01,000/-, BUT IT IS DIRECTLY ITA NO.1227/CHNY/2019 :- 5 -: WHOLLY AND EXCLUSIVELY ATTRIBUTABLE TO THE INCOME E ARNED ON FINANCING OPERATIONS AND IT HAS NOT MADE ANY INVESTMENTS OUT OF BORROWED FUNDS TO EARN ANY TAX EXEMPT INCOME. FURTHER, THE ASSESSEE H AS ALSO SUBMITTED THAT AS ON THE DATE OF INVESTMENT .16,888.72 LAKHS WAS OUTSTANDING AS GENERAL RESERVE IN THE ASSESSEES BOOKS AND HENCE, THE INVESTMENT WAS MADE FROM OWN FUNDS (GENERAL FUNDS), THEREFORE, DIS ALLOWANCE UNDER RULE 8D(II) IS NOT WARRANTED. IT APPEARS FROM THE ORDER OF THE LOWER AUTHORITIES THAT THIS ISSUE HAS NOT BEEN EXAMINED PROPERLY. IT IS CLEAR FROM THE ORDER OF THE TRIBUNAL IN THE EARLIER YEARS THAT A FINDING IS RECORDED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE BY WAY OF INTEREST. HOWEVER, DURING THIS ASSESSMENT YEAR, THE ASSESSEE ITSELF IS CLAIMING THAT IT HAS INCURRED AN INTEREST EXPENDITURE OF .15,63,93,01,000. THEREFORE, WE ARE OF THE VIEW THAT THE FACT AND ASSOCIATED CIRCUMSTAN CES REQUIRE EXAMINATIONS. HENCE, WE REMIT THIS ISSUE TO THE FI LE OF A.O. FOR A FRESH EXAMINATION AS TO (I) WHETHER THE ASSESSEES CLAIM THAT ITS IMPUGNED INVESTMENT WAS MADE OUT OF THE OWN FUNDS (GENERAL R ESERVE) ETC IS A FACT, AND (II) WHETHER THE ASSESSEES CLAIM THAT THE INTE REST INCURRED AT .15,63,93,01,000/- IS DIRECTLY, WHOLLY AND EXCLUSIV ELY ATTRIBUTABLE TO THE INCOME EARNED ON FINANCING OPERATIONS IS A FACT. IF BOTH THE CLAIMS OF THE ASSESSEE ARE FOUND CORRECT, THEN ASSESSEES CLAIM T HAT NO DISALLOWANCE COULD BE MADE UNDER SECTION.14A R.W.RUE8D(II) HAS T O BE ALLOWED. THEREFORE, WE DIRECT THE ASSESSEE TO LAY RELEVANT M ATERIAL IN SUPPORT OF ITS CONTENTIONS BEFORE THE A.O. AND COMPLY WITH THE REQ UIREMENTS OF THE A.O IN ACCORDANCE WITH LAW. THE A.O. SHALL EXAMINE THE ISSUES AND AFTER ITA NO.1227/CHNY/2019 :- 6 -: AFFORDING THE ADEQUATE OPPORTUNITY TO THE ASSESSEE SHALL PASS DUE ORDER IN ACCORDANCE WITH LAW. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 25 TH FEBRUARY,2020 IN CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) /ACCOUNTANT MEMBER /CHENNAI, 1 /DATED:25 TH FEBRUARY,2020. JPV + )23 43 /COPY TO: 1. ( /APPELLANT 4. 5 /CIT 2. )*( /RESPONDENT 5. 3 ) /DR 3. 5 ( ) /CIT(A) 6. % /GF