DCIT, CHENNAI V. Sri Power Generation (India) Pvt ltd, CHENNAI

ITA 1676/CHNY/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6256 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 27-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 21-07-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VAJAYAPRABHA JT
• Assessee Lawyers: J D SRIKANTH VARMA
• Keywords: Depreciation; Rectification of order; Revised return; Unabsorbed depreciation
• Section: 143(3); 14A; 154

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D, CHENNAI , . ! #$, & #' BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER ./ITA NOS.1504 & 1676/MDS/2015 & ! (! / ASSESSMENT YEAR : 2011-12 DY. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-6(2), AAYAKAR BHAVAN, NEW BLOCK, 7 TH FLOOR, M.G.ROAD, CHENNAI 600 034. VS. SRI POWER GENERATION (INDIA) PVT. LTD., OLD NO.41, NEW NO.54, 2ND FLOOR, DEVARAJ STREET, STRAHANS ROAD, PAATTALAM, CHENNAI 600 012. [PAN: AALCS 8744F] ( /APPELLANT ) ( / RESPONDENT ) $) * + / APPELLANT BY : MS. VAJAYAPRABHA, JT. CIT ,-$) * + / RESPONDENT BY : SHRI J.D.SRIKANTH VARMA, ADVOCATE . * / / DATE OF HEARING : 29.08.2017 0( * / / DATE OF PRONOUNCEMENT : 06.09.2017 /O R D E R PER SANJAY ARORA, AM : THIS IS A SET OF TWO APPEALS BY THE REVENUE DIRECT ED AGAINST THE ORDER DATED 30.03.2015 BY THE COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI (CIT(A) FOR SHORT), PARTLY ALLOWING THE ASSESSEE S APPEAL CONTESTING ITS ASSESSMENT UNDER SECTION 143(3) OF INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR ASSESSMENT YEAR (AY) 2011-12 DATED 31.01.2014, AS WELL AS THE SUBSEQUENT ORDER DATED 29.05.2015 MODIFYING THE ORI GINAL ORDER BY THE LD. CIT(A) U/S. 154 OF THE ACT. THE TWO APPEALS RAISING COMMON ISSUES WERE POSTED 2 ITA NOS. 1504 & 1676/MDS/2015 (AY 2011-12) D Y. CIT V. SRI POWER GENERATION (INDIA) PVT. LTD. AND, ACCORDINGLY, HEARD TOGETHER, AND ARE THEREFORE BEING ADJUDICATED PER A COMMON ORDER. 2. THE APPEALS RAISE TWO ISSUES. THE FIRST ISSUE IS IN RESPECT OF THE CORRECT AMOUNT OF DEPRECIATION EXIGIBLE UNDER THE ACT. THE ASSESSEE, A COMPANY MANUFACTURING SOLAR POWER EQUIPMENT, FILED ITS RETU RN OF INCOME FOR THE YEAR ON 15.09.2011, CLAIMING DEPRECIATION AT . 2,26,20,833/-, OF WHICH, ON ACCOUNT OF INSUFFICIENCY OF PROFITS AND GAINS, . 2,15,29,924/ WAS CLAIMED FOR CARRY FORWARD AS UNABSORBED DEPRECIATION TO THE SUBSEQUEN T YEAR/S. THIS WAS IN ADDITION TO THE CLAIM OF UNABSORBED LOSSES AND UNAB SORBED DEPRECIATION BROUGHT FORWARD FROM EARLIER YEARS. DURING THE COURSE OF TH E ASSESSMENT PROCEEDINGS, COMMENCED BY THE ISSUE OF NOTICE U/S. 143(2) ON 21. 08.2012, THE ASSESSEE FILED A REVISED RETURN CLAIMING DEPRECIATION AT . 1,25,34,533/, INCLUDING . 1,06,05,262/ ON POWER GENERATING UNITS. THE BALANC E .19,29,271/ WAS ON OTHER ASSETS. THE REVISION IN DEPRECIATION, IT WAS EXPLAINED, WAS ON ACCOUNT OF APPLICATION OF INCORRECT RATES OF DEPRECIATION ON S OLAR PLANTS AS WELL AS THE BUILDING IN WHICH THEY ARE HOUSED, WHICH IS TO BE P ER STRAIGHT LINE METHOD (SLM) AS AGAINST THE WRITTEN DOWN VALUE (WDV) METHO D (FOR OTHER ASSETS), IN THE ORIGINAL RETURN. THE ASSESSING OFFICER (AO), AC CEPTING THE ASSESSEES REVISED RETURN, DISALLOWED THE EXCESS DEPRECIATION CLAIMED PER THE ORIGINAL RETURN, I.E., .1,20,15,571/- (22620833 10605262), HOLDING AS UN DER: 2.1 THE ASSESSEE HAD RETURNED A LOSS OF A RS.(2,1 5,29,924) IN THE ORIGINAL RETURN OF INCOME BY CLAIMING DEPRECIATION OF RS.2,26,20,833/-. VIDE LETTER DATED 20.08.2013, THE AR PRODUCED THE R EVISED RETURN OF THE ASSESSEE COMPANY FILED ON 16.08.2013 IN WHICH IT HA D SHOWN A LOSS OF ONLY RS.(1,1 4,43,624). THE AR BROUGHT VIDE THE LETTER MENTIONED ABOVE STATED THAT THE ASSESSEE HAD REVISED THE RETURN AS IT WAS NOT ELIGIBLE FOR THE DEPRECIATION CLAIM OF RS.2,26,20,833/-. THE AR MENT IONED IN THE LETTER THAT THE ASSESSEE WAS ELIGIBLE FOR DEPRECIATION ON SOLAR POWER PLANT FOR ONLY 7.69% BY STRAIGHT LINE METHOD AND DEPRECIATION ON BUILDING USED FOR SOLAR POWER PLANT FOR ONLY 3.02% BY STRAIGHT LINE M ETHOD. IN THE REVISED RETURN, THE CURRENT YEAR DEPRECIATION CLAIMED WAS O NLY RS.1,06,05,262/-. THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION ONLY AS P ER THE APPENDIX LA OF 3 ITA NOS. 1504 & 1676/MDS/2015 (AY 2011-12) D Y. CIT V. SRI POWER GENERATION (INDIA) PVT. LTD. THE INCOME TAX RULES. RULE 5(1A) ALLOWS DEPRECIATIO N IN CERTAIN CASES ONLY ON STRAIGHT LINE METHOD. THE DIFFERENCE OR DEP RECIATION BETWEEN THE ORIGINAL AND REVISED RETURN AMOUNTING TO RS. 1,20,1 5,571/- IS BEING ADDED BACK TO THE TOTAL LOSS AS PER THE ORIGINAL RETURN O F INCOME. THE DISALLOWANCE WAS WORKED AT . 120.16 LACS. AS APPARENT, THE AO, IN COMPUTING THE TOTAL INCOME, REGARDED THE INCOME ORI GINALLY RETURNED AS A STARTING POINT. IN THE ASSESSEES VIEW, THIS DISALL OWANCE OUGHT TO HAVE BEEN RESTRICTED TO .1,00,86,300/- (I.E., 22620833 12534533), SO THAT THERE WAS AN EXCESS DISALLOWANCE BY . 19,29, 271/ (I.E., 12015571 - 10086300). IN APPE AL, THE LD. CIT(A), WHILE UPHOLDING THE AOS ACTION IN PRINCIPLE, HELD AS UNDER: 5.2 THE FIRST GROUND FILED IS WITH RESPECT TO THE DISALLOWANCE OF DIFFERENCE OF DEPRECIATION BETWEEN THE ORIGINAL AND REVISED RETURN FOR AN AMOUNT RS.L,20,15,571/-. IN THE REVISED RETU RN OF INCOME, THE APPELLANT CLAIMED DEPRECIATION OF RS.19,29,271/- IN RESPECT OF THE ASSETS OTHER THAN THE POWER GENERATION EQUIPMENTS. THE APPELLANT ALSO CLAIMED DEPRECIATION OF RS.L,06,05,262/- ON ST RAIGHT LINE METHOD FOR POWER GENERATING UNITS. THE TOTAL DEPRECIATION CLAIM IN THE REVISED RETURN WAS RS.L,25,34,533/- AS AGAINST THE CLAIM OF RS.2,26,20,833/- IN THE ORIGINAL RETURN. NO DETAILS ARE PROVIDED IN RESPECT OF THE CLAIM OF DEPRECIATION OF RS.19,29,27 1/- . AS THE APPELLANT IS ONLY ENGAGED IN THE POWER GENERATION, IT IS NOT KNOWN WHY THE APPELLANT CLAIMED DEPRECIATION OF RS.19,29, 271/-. HOWEVER, THE ASSESSING OFFICER IS NOT CORRECT IN DI SALLOWING AN AMOUNT OF RS.1,20,15,571/-. THEREFORE, THE ASSESSIN G OFFICER IS DIRECTED TO RESTRICT THE DISALLOWANCE TO RS.19,29,2 71/- AND THE GROUNDS OF APPEAL FILED ON THIS ISSUE IS PARTLY ALL OWED. [EMPHASIS, SUPPLIED] 2.2 THE ASSESSEE, INVOKING SECTION 154, CLAIMED BEF ORE THE FIRST APPELLATE AUTHORITY THAT INSTEAD OF RESTRICTING THE DISALLOWA NCE OF DEPRECIATION TO . 19,29,271/-, THE LD. CIT(A) OUGHT TO HAVE ALLOWED R ELIEF TO THIS EXTENT, BEING THE DEPRECIATION ON ASSETS OTHER THAN POWER GENERATING EQUIPMENTS, FOR WHICH DETAILS HAD BEEN EXAMINED BY THE AO. THE FIRST APPE LLATE AUTHORITY, IF IN DOUBT, COULD HAVE CALLED FOR THE RELEVANT DETAILS. THE LD. CIT(A), AFTER NOTING THE RELEVANT FACTS AT PARA 2 OF HIS ORDER IN THE RECTIF ICATION PROCEEDINGS, HELD AS UNDER TOWARD THE END OF THE SAID PARA: 4 ITA NOS. 1504 & 1676/MDS/2015 (AY 2011-12) D Y. CIT V. SRI POWER GENERATION (INDIA) PVT. LTD. 2. .. THIS ISSUE WAS DISCUSSED WITH THE AR OF THE APPELLANT IN THE COURSE OF RECTIFICATION PROCEEDINGS TO THE APPELLAT E ORDER DATED 30.03.2015 WHEREIN THE AR OF THE APPELLANT AGREED F OR THE RELIEF RS.19,29,171/- INSTEAD OF DIRECTION TO RESTRICT THE DISALLOWANCE TO RS. 19,29,271/- IN THE PARA 5.2 OF THE APPELLATE ORDER DATED 30.03.2015. THIS MISTAKE ARISES FROM THE APPELLATE RECORD ITSELF AND SAME IS RECTIFIED. THE FINAL SENTENCE OF THE PARA 5.2 OF THE APPELLATE ORD ER SHOULD BE READ AS UNDER: 'THEREFORE, THE AO IS DIRECTED TO GIVE A REL IEF OF RS.19,29,171/- (RS.1,20,15,571 - RS.1,00,86,400) ONLY AND GROUNDS OF APPEAL FILED ON THIS ISSUE IS PARTLY ALLOWED IN PLACE OF THE SENTE NCE READ IN THE APPELLATE ORDER DATED 30.03.2015 AS UNDER: 'THEREFORE, AO IS DIRECTED TO RESTRICT TH E DISALLOWANCE TO RS.19,29,271/- AND THE GROUNDS OF APPEAL FILED ON T HIS ISSUE ARE PARTLY ALLOWED.' 2.3 AGGRIEVED, THE REVENUE IS IN APPEAL AGAINST BOT H THE ORIGINAL AS WELL AS THE RECTIFICATION ORDER BY THE LD. CIT(A). 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD, AS WELL AS THE WRITTEN SUBMISSIONS FILED BY THE LD. AUTHORIZED REPRESENTATIVE (AR). THE ISSUE CLEARLY INVOLVES THE ASSESSEES CLAIM FOR DEPRECIATION (AT . 19.29 LACS) ON ASSETS OTHER THAN POWER GENERATING U NITS, CLAIMED TO BE VEHICLES, COMPUTERS, OFFICE EQUIPMENT AND FURNITURE. IT IS NO T CLEAR IF DEPRECIATION IN RESPECT OF THESE ASSETS WAS CLAIMED PER THE ORIGINA L RETURN; IT BEING CLAIMED IN A SINGLE, CONSOLIDATED SUM OF . 226.21 LACS. EVEN IF NOT, AS APPEARS TO BE THE CASE, THE ASSESSEE IS WELL ENTITLED TO MAKE A CLAIM PER THE REVISED RETURN, WHICH IT DOES. WHETHER, THEREFORE, THE AO OUGHT TO HAVE A LSO DISALLOWED THIS CLAIM FOR DEPRECIATION OF . 19.29 LACS, OR RESTRICTED THE DISALLOWANCE ONLY T O THAT CLAIMED ON POWER GENERATION PLANT, ADMITTEDLY IN EXCESS, TH E CORRECT AMOUNT BEING . 106.05 LACS, WAS THE ONLY ISSUE BEFORE THE LD. CIT( A) IN THE APPELLATE PROCEEDINGS. HE, HOWEVER, AFTER CORRECTLY RECORDING THE ISSUE BEFORE HIM, RENDERING HIS FINDING, DIRECTED THE AO TO RESTRICT THE DISALLOWANCE TO . 19,29, 271/- , I.E., THE AMOUNT CLAIMED, IN HIS VIEW, WITHOUT AN Y BASIS. FURTHER, AS 5 ITA NOS. 1504 & 1676/MDS/2015 (AY 2011-12) D Y. CIT V. SRI POWER GENERATION (INDIA) PVT. LTD. APPARENT, HE PRESUMED THE AO TO HAVE PROCEEDED, IN COMPUTING THE TOTAL INCOME, FROM THE INCOME AS RETURNED PER THE REVISED RETURN, WHILE THE AO HAD IN FACT ADOPTED THAT PER THE ORIGINAL RETURN. THE LD. CIT(A) REALIZES HIS MISTAKE, EVEN AS ADMITTED BY HIM IN HIS ORDER DATED 29.05.20 15 IN THE FOLLOWING WORDS (AT PARA 2 OF HIS ORDER): SINCE THE AO STARTED THE COMPUTATION OF DISALLOWAN CE IN THE ASSESSMENT ORDER FROM THE ORIGINAL RETURN OF LOSS R S.2,15,29,924/-, THE ENTIRE ISSUE OF RESTRICTION OF THE DISALLOWANCE TO RS.19,29,271/- IN THE APPELLATE ORDER DATED 30.03.2015 WOULD CHANG E. HE, THEREFORE, OUGHT TO HAVE, IN CONSEQUENCE, CONFI RMED THE ASSESSMENT ORDER PER THE ORDER UNDER S. 250(6) R/W S.154, BY DELETIN G THE LAST TWO SENTENCES OF PARA 5.2 OF HIS ORDER, I.E., BEGINNING WITH THE WOR DS HOWEVER, THE ASSESSING OFFICER IS NOT. AND ENDING WITH THE WORDS PARTLY ALLOWED, REPLACING THEM WITH WORDS DISALLOWANCE AS MADE BY THE AO IS CONFI RMED. HOWEVER, HE, AGAIN COMMITS A MISTAKE AND, CONTRARY TO HIS FINDIN G IN THE ORIGINAL ORDER, ALLOWS ASSESSEE RELIEF FOR THE IMPUGNED SUM OF .19.29 LACS. THIS WOULD ALSO BE APPARENT UPON READING THE REVISED PARA 5.2, I.E., S UBSTITUTING THE LAST SENTENCE AS DIRECTED PER THE RECTIFICATION ORDER DATED 29/5/201 5: 5.2 THE FIRST GROUND FILED IS WITH RESPECT TO THE DISALLOWANCE OF DIFFERENCE OF DEPRECIATION BETWEEN THE ORIGINAL AND REVISED RETURN FOR AN AMOUNT RS.L,20,15,571/-. IN THE REVISED RETU RN OF INCOME, THE APPELLANT CLAIMED DEPRECIATION OF RS.19,29,271/- IN RESPECT OF THE ASSETS OTHER THAN THE POWER GENERATION EQUIPMENTS. THE APPELLANT ALSO CLAIMED DEPRECIATION OF RS.L,06,05,262/- ON ST RAIGHT LINE METHOD FOR POWER GENERATING UNITS. THE TOTAL DEPRECIATION CLAIM IN THE REVISED RETURN WAS RS.L,25,34,533/- AS AGAINST THE CLAIM OF RS.2,26,20,833/- IN THE ORIGINAL RETURN. NO DETAILS ARE PROVIDED IN RESPECT OF THE CLAIM OF DEPRECIATION OF RS.19,29,27 1/-. AS THE APPELLANT IS ONLY ENGAGED IN THE POWER GENERATION, IT IS NOT KNOWN WHY THE APPELLANT CLAIMED DEPRECIATION OF RS.19,29, 271/-. HOWEVER, THE ASSESSING OFFICER IS NOT CORRECT IN DI SALLOWING AN AMOUNT OF RS.1,20,15,571/-. THEREFORE, THE AO IS DIRECTED TO GIVE A RELIEF OF RS.19,29,171/- (RS.1,20,15,571 - RS.1,0 0,86,400) ONLY AND GROUNDS OF APPEAL FILED ON THIS ISSUE IS PARTLY ALLOWED . [EMPHASIS, SUPPLIED] 6 ITA NOS. 1504 & 1676/MDS/2015 (AY 2011-12) D Y. CIT V. SRI POWER GENERATION (INDIA) PVT. LTD. THIS CONTRARY POSITION CANNOT BE ALLOWED TO SUBSIST . IN FACT, THE LD. CIT(A), IN THE RECTIFICATION PROCEEDINGS, COULD NOT HAVE DISTU RBED HIS FINDING AS TO THERE BEING NO BASIS FOR THE CLAIM OF DEPRECIATION FOR . 19,29,271/- ON ASSETS OTHER THAN POWER GENERATING EQUIPMENT, ISSUED IN THE ABSE NCE OF ANY DETAILS. EVEN IF THE SAID BASIS WAS INDICATED TO HIM IN THE RECTIFIC ATION PROCEEDINGS, AND WHICH DOES NOT APPEAR TO BE THE CASE AND NEITHER IS SO ST ATED BY HIM, THE QUESTION IS IF THE SAME WERE BEFORE THE AO, AND WHICH WOULD WARRAN T A VERIFICATION BY THE LD. CIT(A). AND, IN THIS CASE THEY WERE BEFORE THE AO, THE ONLY MANNER FOR THE ASSESSEE TO CAUSE AN ALTERATION IN THE SAID FINDING WAS TO FILE AN APPEAL AGAINST HIS ORIGINAL ORDER DATED 30.03.2015. THE LD. CIT(A) , HOWEVER, UNMINDFUL OF THE SAME, PROCEEDS TO DISTURB HIS FINDING. THIS IS ALSO SURPRISING AS HE REALIZES HIS MISTAKE' IN THE RECTIFICATION ORDER. HIS REVISED D IRECTION THEREFORE CANNOT BE SUSTAINED. COMING TO THE MERITS OF THE CASE, THE ASSESSEE BEF ORE THE LD. CIT(A) IN THE RECTIFICATION PROCEEDINGS CLAIMED THAT ALL THE BILL S (FOR ASSETS ON WHICH DEPRECIATION OF . 19,29,271/- STANDS PREFERRED) HAD BEEN VERIFIED B Y THE AO AND, FURTHER, THAT HE WAS ALSO SATISFIED ABOUT THE USER OF THE SAID ASSETS (REFER PARA 1/PG. 2 OF IMPUGNED ORDER DATED 29.05.2015). T HERE IS NO DISCUSSION BY THE AO ON THIS IN HIS ORDER. THAT BEING THE CASE, IF AT ALL, IT IS THIS ORDER THAT OUGHT TO HAVE BEEN SUBJECT TO RECTIFICATION BY THE ASSESSEE, WHILE WE FIND NO SUCH CLAIM BY IT EVEN IN THE APPELLATE PROCEEDINGS IN THE FIRS T INSTANCE. WE ARE NOT, WE MAY CLARIFY, FOR A MOMENT DOUBTING THE ASSESSEES SAID CLAIMS, BUT ONLY THAT THE SAME BEING MADE IN THE RECTIFICATION PROCEEDINGS, WOULD NOT BY ITSELF CAUSE TO ALTER THE CATEGORICAL FINDING (BY THE LD. CIT(A)) OF NO D ETAILS QUA DEPRECIATION HAVING BEEN SUBMITTED BY THE ASSESSEE, I.E., IN RESPECT OF ITS IMPUGNED CLAIM, AND WHICH IMPLIES NO DETAILS BEING FURNISHED AT ANY STAGE, IN CLUDING BEFORE THE AO. UNDER THE CIRCUMSTANCES, HAVING REGARD TO THE CONSPECTUS OF THE CASE, WE ONLY CONSIDER IT PROPER THAT THE MATTER IS RESTORED BACK TO THE F ILE OF THE LD. CIT(A) FOR A DECISION ON MERITS. THE LD. CIT(A), IN THE SET ASID E PROCEEDINGS, IN VERIFICATION 7 ITA NOS. 1504 & 1676/MDS/2015 (AY 2011-12) D Y. CIT V. SRI POWER GENERATION (INDIA) PVT. LTD. OF THE ASSESSEES SAID CLAIM, VERIFY THE SAME, ALSO SEEKING THE AOS COMMENTS/VERIFICATION, AND ADJUDICATE AFRESH QUA THE ASSESSEES CLAIM FOR . 19,29,271/-. THE ASSESSEE SHALL, MEANWHILE, BE ALLO WED DEPRECIATION ON SOLAR GENERATION ASSETS, AS PER THE REVISED RETURN, I.E., AT . 1,06,05,262/- . WE DECIDE ACCORDINGLY. 4. THE SECOND ISSUE ARISING IN THE INSTANT APPEALS IS QUA THE DISALLOWANCE U/S. 14A. THE ASSESSEE HAVING A SIZEABLE INVESTMENT IN SHARES/UNITS, BOTH AS AT THE BEGINNING AND THE CLOSE OF THE RELEVANT YEAR, A S WELL AS SUBSTANTIAL MOVEMENT THEREIN, ENTAILING EXPENDITURE, BOTH ON IN TEREST AND INDIRECT, ADMINISTRATIVE EXPENDITURE, WAS SHOW CAUSED FOR DIS ALLOWANCE U/S. 14A IN THE ASSESSMENT PROCEEDINGS; IT HAVING NOT MADE ANY SUO MOTU DISALLOWANCE. THE ASSESSEES EXPLANATION OF HAVING NOT EARNED ANY DIV IDED INCOME WAS FOUND NOT SATISFACTORY INASMUCH AS THE EXPENDITURE WOULD, NEV ERTHELESS, BE INCURRED, SO THAT A DISALLOWANCE IN ITS RESPECT WOULD IN ANY CAS E ENSUE. THE ASSESSEE HAD INCURRED INTEREST EXPENDITURE ON TERM LOAN, WHILE, AT THE SAME TIME, THERE WAS NO NEXUS OF THE INVESTMENT WITH THE SURPLUS FUNDS, AS WELL AS THERE WAS A PROXIMATE RELATIONSHIP OF THE OTHER EXPENDITURE, VIZ. PROFESS IONAL CHARGES, COMMUNICATION EXPENSES, SALARIES, ETC., WITH INVESTMENTS MADE. DI SALLOWANCE WAS ACCORDINGLY MADE APPLYING R. 8D, AT . 61,13,860/-, INCLUDING . 4,99,943/- QUA ADMINISTRATIVE EXPENDITURE. IN APPEAL, THE PROVISIO N (S.14A) WAS FOUND TO BE APPLICABLE, WITH THE ASSESSEE HAVING IN FACT EARNED A TAX-EXEMPT DIVIDEND INCOME OF . 5,50,638/ . HOWEVER, THE ASSESSEE HAD, AGAINST INTEREST EXPEN DITURE OF . 5,23,57,286/-, APPORTIONED TO INVESTMENT, EARNED INTEREST INCOME AT . 5,52,63,653/-. THE LD. CIT(A), ACCORDINGLY, DIRECTE D DISALLOWANCE OF INDIRECT, INTEREST EXPENDITURE ONLY WITH REFERENCE TO THE EXC ESS EXPENDITURE OF . 29,06,367/- (I.E., 55263653 - 52357286), HOLDING AS UNDER: 5.3.5 HOWEVER, WHILE MAKING DISALLOWANCE, THE ASSE SSING OFFICER DID NOT TAKE INTO CONSIDERATION THE INTEREST INCOME RECEIVED OF RS.5,52,63,653/- IN THE CALCULATION OF THE DISALLOW ABLE AMOUNT IN THE 8 ITA NOS. 1504 & 1676/MDS/2015 (AY 2011-12) D Y. CIT V. SRI POWER GENERATION (INDIA) PVT. LTD. RULE 80D(II) OF THE IT RULES. THE NET INTEREST EXPE NDITURE IS ONLY REQUIRED TO BE TAKEN UP FOR THE PURPOSE OF COMPUTAT ION. HENCE THE ASSESSING OFFICER IS DIRECTED TO CONSIDER THE NET I NTEREST EXPENDITURE OF RS.29,06,367/- (RS.5,52,63,653 - RS.5,23,57,286) FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE UNDER RULE 80(II) OF THE IT RULES. NO MODIFICATION IS REQUIRED IN RESPECT OF CALCULATION OF DISALLOWABLE AMOUNT UNDER RULE 8D(II) OF THE IT RULES. WITH THE ABOVE DIRECTIONS, THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTED THE DISALLOWABLE EXPENDITURE U/S. 14A OF THE IT ACT, 1961. THE ASSESSEE MOVED A RECTIFICATION, STATING THAT . 29.06 LACS WAS THE EXCESS OF INCOME OVER EXPENDITURE, I.E., THE NET IN COME, SO THAT NO NET EXPENDITURE HAD BEEN INCURRED FOR IT TO BE DISALLOW ED U/S. 14A. THE LD. CIT(A) DIRECTED LIKEWISE, SO THE DISALLOWANCE U/S. 14A STA NDS NOW RESTRICTED TO THAT ON THE INDIRECT, ADMINISTRATIVE EXPENDITURE OF . 4.99 LACS. AGGRIEVED, THE REVENUE IS IN APPEAL AGAINST BOTH THE ORDERS. 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE DISALLOWANCE U/S. 14A, WHICH IS THEREFORE DISPUTED, IS QUA INTEREST EXPENDITURE, INCURRED AT .56,13,917/- (REFER PARA 3.4 OF THE ASSESSMENT ORDE R). THE SAME IS IN RESPECT OF INTEREST EXPENDITURE ON TERM LOAN, IN CURRED AT RS. 523.57 LAKHS. WHAT WOULD THEREFORE HAVE TO BE SEEN IS IF THE TERM LOAN/S, OR ANY PART THEREOF, IS APPLIED FOR SHARES/UNITS. THIS IS AS NORMALLY A TER M LOAN WOULD STAND TO BE APPLIED FOR THE PURPOSE FOR WHICH IT HAS BEEN ALLOW ED. EVEN IF THEREFORE THERE IS NO ONE-TO-ONE CORRESPONDENCE, AS CLAIMED BY THE AO, INASMUCH AS THE SAME GETS MIXED UP IN THE COMMON POOL OF FUNDS, IF THE A SSET TO THE REQUIRED EXTENT IS CREATED, THE BORROWED FUNDS WOULD HAVE TO BE REGARD ED AS DEPLOYED TOWARD THE SAME. THAT IS, IF A TERM LOAN IS GRANTED FOR A SPEC IFIED ASSET/ASSET CLASS, AS IS NORMALLY THE CASE, STIPULATING A MARGIN (SAY, AT 25 %), AN ASSET CREATION OF RS. 133/- WOULD JUSTIFY THE ABSORPTION OF THE TERM LOAN OF RS. 100/-, EVEN IF A ONE- TO-ONE CORRESPONDENCE IS NOT, AS STATED, FORTHCOMIN G. THAT APART, WE OBSERVE THAT OUT OF THE TOTAL INTEREST EXPENDITURE OF RS. 523.57 LAKHS, RS.518.16 LAKHS HAS BEEN SET OFF, BOTH IN THE ORIGINAL AND THE REVISED RETURN, AGAINST INTEREST INCOME 9 ITA NOS. 1504 & 1676/MDS/2015 (AY 2011-12) D Y. CIT V. SRI POWER GENERATION (INDIA) PVT. LTD. OF RS. 552.64 LAKHS, RETURNING THE NET INCOME OF RS . 34.47 LAKHS AS INCOME FROM OTHER SOURCES. THE SAME HAS NOT BEEN DISTURBED BY T HE AO IN ANY MANNER, SO THAT, APPARENTLY, THE INTEREST-BEARING FUNDS TO T HAT EXTENT, HAVE BEEN APPLIED TOWARD INTEREST-BEARING LOANS, EARNING INTEREST. TH E TWO RATES OF INTEREST ARE NOT KNOWN, AND WOULD WELL BE DIFFERENT, BUT THE VERY FA CT THAT THE ENTIRE INTEREST EXPENDITURE IS SET OFF AGAINST THAT EARNED IMPLIES ABSORPTION OF THE ENTIRE BANK LOAN FUNDS TOWARD INTEREST BEARING LOANS. THAT LEAV ES US WITH AN INTEREST EXPENDITURE OF RS. 5,40,711 (I.E., 52357286 - 51816 575). THERE BEING NO SPECIFIC EXPLANATION QUA THIS INTEREST EXPENDITURE, THE SAME SHALL BE APPROPRIATED UNDER RULE 8D(2)(II) FOR ESTIMATING TH E DISALLOWANCE U/S. 14A. NEEDLESS TO ADD, THE TOTAL ASSETS SHALL, IN ESTIMAT ING THE DISALLOWANCE, REDUCED BY THE INTEREST-BEARING LOANS (BOTH AS AT THE BEGIN NING AND THE END OF THE YEAR) INASMUCH AS FUNDING OF ASSETS TO THAT EXTENT IS EST ABLISHED. WE DECIDE ACCORDINGLY. 6. IN THE RESULT, THE REVENUES APPEALS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON SEPTEMBER 06, 2017 AT CHENNAI . SD/- SD/- ( ! #$ ) (GEORGE MATHAN) & / JUDICIAL MEMBER ( ) (SANJAY ARORA) /ACCOUNTANT MEMBER /CHENNAI, 1 /DATED, SEPTEMBER 06, 2017. EDN 2 * ,&/34 54(/ /COPY TO: 1. $) /APPELLANT 2. ,-$) /RESPONDENT 3. . 6/ ( )/CIT(A) 4. . 6/ /CIT 5. 478 ,&/& /DR 6. 8 ! 9 /GF