DCIT-14(3)(1), Mumbai V. RELIANCE INFRASTRUCTURE , Mumbai

ITA 1704/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 5655 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2015-2016
• Appeal Filed On: 22-03-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VATSALYA SAXENA
• Keywords: Business income; Depreciation; Earning of tax free income; Rule 8D
• Section: 115JB; 80IA; 201; 13; 22; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , D BENCH MUMBAI BEFORE : HON BLE JUSTICE P P BHATT, PRESIDENT & SHRI M.BALAGANESH, AM ITA N O. 1704 /MUM/ 20 19 ( ASSESSMENT YEAR : 20 15 - 16 ) DCIT - 14(3)(1), MUMBAI R.NO.455, 6 TH FLOOR AAYAKAR BHAVAN MUMBAI - 400020 VS. M/S. RELIANCE INFRASTRUCTURE 3 RD FLOOR, RELIANCE CEN TRE NEAR PRABHAT COL ONY OFF. W.E. HIGHWAY SANTACRUZ EAST MUMBAI 400 055 PAN /GIR NO. AACCR7446Q (APPELLANT ) .. (RESPONDENT ) REVENUE BY SHRI VATSA LYA SAXENA ASSESSEE BY SHRI JI T ENDRA SANGHVI DATE OF HEARING 09 / 02 /202 1 DATE OF PRONOUNCEMENT 27 / 04 /202 1 / O R D E R PER M. BALAGANESH (A.M) : THIS APPEAL IN ITA NO. 1704/ MUM / 2019 FOR A.Y. 201 5 - 16 ARISES OUT OF THE ORDER BY THE LD. COMMISSIONER OF INCOME TAX ( APPEALS) - 22 , MUMBAI IN APPEAL NO. CIT(A) - 22/DCIT - 14(3)(1)/IT - 1019 2/2017 - 18 DATED 28/12/2018 (LD. CIT(A) IN SHORT) AGAINST THE ORDER OF ASSESS MENT PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT) DATED 2 5/10 /20 17 BY THE LD. DY . COMMISSIONER OF INCOME TAX - 1 4(3)( 1) , MUMBAI (HEREINAFTER REFERRED TO AS LD. AO). ITA NO . 17 04/MUM/2019 M/S. RELIANCE INFRASTRUCTURE 2 2. THE GROUND NOS. 1 - 3 RAISED BY THE REVENUE ARE CHALLENGING THE DELETION O F DISALLOWANCE MADE U /S.14A OF THE ACT. 2.1 . WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATE RI AL S AVAILABLE ON RECORD. WE FIND THAT ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF GENERATION, TRA NSMISSION AND DISTRIBUTION OF ELECTRICITY. THE ASSESSEE IS A LEADING PLAYER IN THE COUNTRY IN THE E NGINEERING , PROCUREMENT AND C ONSTRUCTION (EPC) SEGMENT OF THE POWER AND INFR ASTRUCTURE SECTORS. THE ASSESSEE IS ALSO EN GAGED IN IMPLEMENTATION, OPERATION AND MAINTENANCE THROUGH S PECIAL P URPOSE V EHI C LES IN VARIOUS INFRASTRUCTURAL AREAS. 2.2 . WE FIND THAT ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.27,55,59,525/ - WHICH WAS CLAIMED AS EXE MPT U/S.10 OF T HE ACT IN THE RETURN OF INCOME. WE FIND THAT ASSESSEE HAD MADE SUOMOTO DISALLOWANCE OF RS.16,09,800/ - TOWA RDS EXPENSES AT TRIBUTABLE TO EARNING EXEMPT INCOME. WE FIND THAT THE LD. AO P ROCEEDED TO APPLY THE COMPUTATIO N MECHANI SM PROVIDED IN RULE 8D(2) OF THE RULES AND MADE DIS ALLOWANCE UNDER SECOND AND TH IRD LIMB THEREON. ACCORDINGLY, TOTAL DISALLOWANCE MADE BY THE LD. AO AFTER REDUCING THE SUOMOTO DISALLOWANCE MADE BY THE ASSESSEE U/S.14A OF THE ACT R.W.RULE 8D(2) W AS WORKED OUT TO RS.208,38,55,287/ - . WE FIND THAT ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS IN THE F O RM OF SHARE CAPITAL AND RESERVES AND SURPLUS AS TABULATED IN PAGE 14 OF THE O RDER OF THE LD. CIT(A), WHICH IS MUCH MORE THAN THE IN VESTMENTS THAT HAD ACTUA LLY YIELDED EXEMPT INCO M E TO THE ASSESSEE. HENCE, FOLLOWING THE RATIO DECIDENDI OF THE HON BLE JU R ISDICTIONAL HIGH COURT, IN THE CASE OF HDFC BANK REPORTED IN 366 ITR 505, WE HOLD THAT THE LD. CIT(A) HAD RIGHTLY DELETED DIS ALLOWANCE OF INTEREST UNDER SECON D LIMB OF RULE 8D(2) OF THE RULES. WITH REGARD TO 8 D( 2)( I II) O F THE RULES , THE ITA NO . 17 04/MUM/2019 M/S. RELIANCE INFRASTRUCTURE 3 LD. CIT(A) HAD ONLY DIRECTED THE LD. AO TO CONSIDER ONLY INVESTMENTS WHICH HAD ACTUALLY YIELDED EXEMPT INCOME . T HIS WE FIND IS IN CONSONANCE WITH THE DECISION OF THE HON BLE SPE CIAL BENCH DECISION OF DELHI TRIBUNA L IN THE CASE OF VIRE ET INVESTMENTS REPORTED IN 165 ITD 27 AND HENCE, WE DO NOT FIND ANY I NFIRMITY IN THE ORDER OF THE LD. CIT(A) GRANTING RELIEF TO THE ASSESSEE IN THIS REGARD. ACCORDINGLY, WE DIRECT THE LD. AO TO CONSI DER ONLY TH OSE INVESTMENTS WHICH HAD AC TUALLY YIEL DED EXEMPT INCOME FOR THE PURPOSE OF MAKING DISALLOWANCE UNDER RULE 8D(2)(III) OF THE RULES AND RECOMPUTE THE DISALLOWANCE ACCORDINGLY AND THEREAFTER REDUCE THE VOLUNTARY DISALLOWANCE MADE BY T HE ASSESSEE I N THE RETURN OF INCOME. AC CORDINGLY, THE GROUND NOS . 1 3 RAISED BY THE REVENUE ARE PAR TLY ALLOWED. 3 . THE GROUND NO.4 RAISED BY T HE REVENUE IS CHALLENGING THE DELETION OF EXPENSES INCURRED ON REPLACEMENT OF ELECTRICITY METERS AMOUNTING TO RS.7,66,72,484 / - . 3 .1 . WE HAVE HEARD RIVAL SUBMIS SIONS AND PERUSED THE MATERIALS AVAILAB LE ON RE CORD. WE FIND THAT ASSESSEE HAD CAPITALISED IN ITS BOOKS OF ACCOUNTS, THE COST OF 88,186 METERS AMOUNTING TO RS.12,02,86,487/ - , O UT OF WHICH RS.7,66,72,484/ - PERTAINING TO R EPLACEM ENT OF 63 , 619 METERS . THE ASSESSEE, HOWEVER, CLAIMED COST OF RS.7,66,72,484/ - ON REPLACEMENT OF OLD METERS AS DEDUCTION IN ITS COM PUTATION OF IN CO ME . THE LD. AO BY DISREGARDING THE ENTIRE CONTENTIONS OF THE ASSESSEE IN THIS RE GARD, PROCEED ED TO TREA T THE EXPENDIT URE INC URRED ON REPLACEMENT OF THESE OLD METERS AMOUNTING TO RS.7,66,72,484/ - AS CA PITAL EXPENDITURE AND GRANTED DEPRECIATION AMOUNTING TO RS.8 6,25,654/ - WHI LE COMPLETING THE ASSESSMENT. ITA NO . 17 04/MUM/2019 M/S. RELIANCE INFRASTRUCTURE 4 3 .2. WE FIND T HAT THI S ISSUE HAS BEEN DECIDE D IN FAV OU R OF THE ASSESSEE FOR ALL THE EARLIER ASSESSMENT YEARS BY VAR IOUS ORDERS OF TH IS TRIBUNAL AND VARIOUS ORDERS OF THE HON BLE JURISDICTIONAL HIGH COURT ON THE SIMILAR FACTS AND CIRCUMSTANCES IN ASSESSEE S OWN CASE. WE FIND THAT LD. CIT(A ) HAD RELIED ON THE D ECISION OF THE HON BLE JURISDICTION AL HIGH COURT FOR A.YRS 1999 - 2 0 00 TO 2004 - 05 WHEREIN THE HON BLE BOMBAY HIGH COURT DID NOT ADMIT THE DEPART MENTAL APPEALS IN RESPECT OF THIS ISSUE OF EXPENDITURE O N REPLACEMENT OF METERS . WE ALSO FIND TH AT THIS IS SUE IS A LSO DECIDED IN FAVOUR OF THE ASSESSEE IN ASSESSEE S OWN CASE IN A.Y.2011 - 12 IN ITA NO .4345 AND 3407/ MUM/2015 DATED 20/12/2017. HENCE, B Y RESPECTF ULLY FOLLOWING THE SAID DECISION S , WE D O NOT FIND ANY INFIRMITY IN THE ORDER OF TH E LD. CIT(A). ACCORDI NGLY, TH E GROUND NO.4 R AISED BY THE REVENUE IS DISMISSED. 4 . T HE GROUND NO.5 RAISED BY THE REVENUE IS CHALLENGING THE ACTION O F THE LD. CIT(A) DELETING THE ADDITION MADE ON ACCOU NT OF PROPORTIONATE APPORTI ONMENT AND ALLOCATION OF HEAD OFFICE EXPENSES WHI L E CALCUL ATING DEDUCTION U/S.80( IA ) O F T HE ACT. 4 .1. WE HAVE HEAR D RIVAL SUBMISSIONS AND PERUSED THE MATERI ALS AVAIL ABLE ON RECORD. WE FIND THAT DURING THE COURSE OF AS SESSMENT PROCEEDINGS, THE LD. AO SOUGHT EXPLANATION FROM THE ASSESSEE AS TO WHY THE HEAD OFFICE EXPENSES SHOULD NOT BE ALLOCATED AMONG THE VARIOUS UNITS TO ARRIVE AT THE CORRECT PROF ITS DERIVED FROM THE ELIGIBLE UNDERTAKINGS. THE LD. AO DISREGARDING THE CONTENTIONS OF THE ASSESSEE PROCEEDED TO AL LOCATE THE HEAD OFFICE EXPENSES OF RS.114,00,77,5 26/ - T O VARIOUS UNITS AND ACCORDINGLY, DEDUCTION U/S.80 IA OF THE ACT WAS REDUCED TO RS.828 , 92 , 70 , 272/ - AS AGAINST RS.942,93,47,798/ - CLAIMED BY THE ASSESSEE IN THE RE TURN OF INCOME. WE FIND THAT THIS ISSUE IS SQUARELY ITA NO . 17 04/MUM/2019 M/S. RELIANCE INFRASTRUCTURE 5 COVERED IN FA VOUR OF THE ASSESSEE IN I TS OWN CASE FOR A.Y.2013 - 14 & 2014 - 15 IN ITA NO.1839 AND 1 84 0/MUM/2018 DATED 06/11/2019 WHEREIN IT WAS HELD AS UNDER: - 3.1 WE HAVE HEARD THE RIVAL SUBMISSIONS . W E FIND THAT THE LD. AO HAD CALLED FOR EXPLANATION FROM THE ASSESSEE COMPANY AS TO WHY THE HEA D OFFI CE EXPENSES SHOULD NOT BE ALLOCATE D AMONG THE VARIOUS UNITS TO ARRIVE AT THE CORRECT PROFITS DERIVED FROM THE ELIGIBLE UNDERTAKINGS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80IA OF THE ACT. THE ASSESSEE SUBMITTED THAT THIS ISSUE HAS ALREADY BEEN D ECIDED IN ITS FAVOUR IN EARLIER YEARS . SINCE THE DEPARTMENT HAD NOT ACCEPTED THE DECISION OF APPELLATE AUTHORITIES AND APPEALS PREFERRED BEFORE THE H IGHER APPELLATE FORUM WERE PENDING, THE LD. A.O IN ORDER TO MAINTAIN JUDICIAL CONSISTENCY AND IN ORDER TO KEEP T HE ISSUE ALIVE RESORTED TO REDUCE THE CLAIM OF DEDUCTION U/S 80IA OF THE ACT IN RESPECT OF THESE TWO ELIGIBLE UNITS TO THE EXTENT OF ALLOCATION OF HEAD OFFICE EXPENSES. AT THE OUTSET, WE FIND THAT THERE IS NO DISPUTE THAT THESE UNITS ARE ELIGIBLE FO R CLAI MING DEDUCTION U/S 80IA OF THE ACT . WE FIND THAT THE LD. CIT(A) HAD GRANTED RELIEF TO THE ASSESSEE IN RESPECT OF IMPUGNED ISSUE BY PLACING RELIANCE ON VARIOUS DECISIONS OF THIS TRIBUNAL IN ASSESSEES OWN CASE PASSED UP TO A.Y 2010 - 11 AND ALSO ON THE DECIS IONS OF HONBLE JURISDICTION AL HI GH COURT IN THE ASSESSEES OWN CASE PASSED UP TO A.Y 2008 - 09. WE FIND THAT THE LD. CIT(A) HAD ALSO RELIED ON THE ORDER PASSED HIS PREDECESSOR FOR A.Y 2012 - 13 AND GRANTED RELIEF TO THE ASSESSEE. WE FIND THAT HONBLE JURIS DICTIONAL HIGH COURT IN ASSESSEES OWN CASE FOR A.Y 2006 - 07 IN I NCOME T AX A PPEAL NO. 2180 OF 2011 DATED 17.04.2014 HAD DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE, WHEREIN IT WAS HELD AS UNDER: 5. IN SO FAR AS THE QUESTION (C) IN RELATION TO HEAD O FFICE EXPENSES IS CONCERNED, THE FINDINGS OF THE FACTS BY THE ITAT FOR THE PRIOR ASSESSMENT YEARS HAVE BEEN REFERRED TO AND IF AT ALL ANY REFERENCE NEEDED, PARAGRAPHS 17 AND 18 OF THE ITATS ORDER ARE COMPLETE ANSWERS. THEREFORE, THE FACTUAL FINDINGS D O NOT RAISE ANY SUBSTANTIAL QUEST ION OF LAW IN RELATION TO DISCLAIM AS WELL. 3.2 RESPECTFULLY FOLLOWING THE SAID DECISION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN GRANTING RELIEF TO THE ASSESSEE. ACCORDINGLY THE GROUND NO. 2 RAIS ED BY THE REVENUE IS DISMISSED. 4 .2. RESPECTFULLY FOLLOWI NG THE SAME, GROUND NO.5 RAISED BY THE REVENUE IS DISMISSED. ITA NO . 17 04/MUM/2019 M/S. RELIANCE INFRASTRUCTURE 6 5 . T HE GROU ND NO.6 RAISED BY THE REVENUE IS CHALLENGING THE ACTION OF THE LD . CIT(A) AS TO W HETHER THE DEDUCTION U/S.80 IA OF THE ACT I S ALLO W ABLE TO THE EXTENT OF GROSS TOT AL INCOME OR ONLY TO THE EXTENT O F BUSINESS INCOME. 5 .1. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THIS ISSUE HAS ALREAD Y BEEN CONSIDERED BY T HE HON BLE JURIS DICTIONAL HIGH COUR T IN ASSESSEE S OWN CASE FOR A.Y. 2001 - 02 IN ITA NO.1688 OF 20 09 DATED 24/06/2013 WHEREIN THE QUESTION RAISED BEFORE THE HON BLE BOMBAY HIGH COURT AND THE DECISION RENDERED THEREON BY THE HON BLE BOMBAY HIGH COURT IS AS U NDER: - D) WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE ITAT IS RIGHT IN HOLDING THAT THE RESPONDENT IS ENTITLED TO SET OFF THE DEDUCTION U/S.80IA OF THE ACT AGAINST THE GROSS TOTAL INCOME COMPUTED AND NOT AGAINST THE NET BUSINESS INCOME ONLY? THE HON BLE HIGH COURT AT PARA 4 OF ORDER HELD AS UND ER: - 4) AS REGARDS QUESTION (D), THE LEARNED COUNSEL FO R THE PARTIES A GREE THAT THE SAID QUESTION IS COVERED BY THE JUDGMENT OF THIS COURT DATED 4 FEBRUARY 2010 IN INCOME TAX APPEAL NO.2432 OF 2009 IN THE MATTER O F CIT V/S. M/S. TRIDORS LABORATORIES LTD. AND THE JUDGMENT DATED 25 MARCH 2010 IN INCOME TAX APPEA L NO.184 OF 2007 IN THE MATTER OF CIT V/S. M/S. ESKAY KNIT (INDIA) LTD.. IN VIEW OF THE ABOVE, THE ISSUE BEING CONC LUDED IN FAVOUR OF THE RESPONDENT ASSESSEE BY THE DECISION OF THIS COURT, WE SEE NO REASON TO ENTERTAIN QUESTION (D). 5 .2. SINCE THIS ISSUE IS ALREADY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN ASSESSEE S OWN CASE, WHICH HAS BEEN FOLLO WED BY THE L D. CIT(A), WE D O NOT FIND ANY IN FIRMITY IN THE ORDER OF THE LD. CIT(A) IN THIS REGARDS. ACCORDINGLY, THE GROUND NO.6 RAISED BY THE REVENUE IS DISMISSED. ITA NO . 17 04/MUM/2019 M/S. RELIANCE INFRASTRUCTURE 7 6 . THE GROUND NO.7 RAISED BY THE REVENUE IS CHALLENGING THE DELETION OF DISALLOW ANCE MADE U/S.14A O F THE ACT WHILE COMPUTING BOOK PROFIT U/S.115JB OF THE ACT. 6 .1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT ASSESSEE HAD MADE VOLUNTARY DISALLOWANCE OF EXPENS ES OF RS.16 , 09 , 800/ - UNDER CLAUSE (F) OF EXPL ANATION - 1 TO SECTION 115JB (2) OF THE ACT IN THE RETURN OF INCOME. WE FIND THAT THE SPECIAL BENCH OF DEL HI TRIBUNAL IN THE CASE OF VIREET INVESTMENTS REPORTED IN 165 ITD 2 7 HAD CATEGORICALLY HELD THAT COMPUTATI ON MECHANISM PROVIDED IN RULE 8D(2) OF THE RU LES CANNOT BE APPLIED FOR MAKING DISALLOWANCE OF EXPENSES UNDER CLAUSE ( F) OF EXPLANATION 1 TO SECTION 115JB(2) OF THE ACT. WE FIND THAT THE SPECIAL B ENC H OF DELHI TRIBUNAL HAD HELD THAT ACTUAL EXPENSES DEBITED TO P ROFIT AND LOSS ACCOUNT WHICH ARE INCURRED F OR THE PURPOSE OF EARNING EXEMPT INCOME NEED TO BE DISALLOWED UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2) OF THE ACT. AS STATED SUPRA, WE FIND THAT ASSESSEE HAD ALREADY MADE DISALLOWANCE OF RS 16,09, 800/ - VOLUNTARILY IN THE RETURN O F INCOME WHICH ALONE NEED TO BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF BOOK PROFITS U/S 1 15JB OF THE ACT. HENCE, NO FURTHER DISALLOW ANCE NEED T O BE MADE THEREON. ACCORDINGLY, WE FIND THAT THE LD. CIT(A) HAD RIGHTLY DE LETED THE DISALLOWAN CE MADE BY THE LD. AO IN THIS REGARD. ACCORDINGLY, THE GROUND NO.7 RAISED BY THE REVENUE IS DI SMISSED. 7 . THE GROUND NO.8 & 9 RAISED BY THE R EVENUE AR E GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. ITA NO . 17 04/MUM/2019 M/S. RELIANCE INFRASTRUCTURE 8 8 . IN THE RES ULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 27 / 04 /202 1 BY WAY OF PROPER MENTIONING IN THE NOTICE BOARD. SD/ - ( JUSTICE P P BHATT ) SD/ - (M.BALAGANESH) PRESIDENT ACCOUNTANT MEMBER MUMBAI ; DATED 27 / 04 / 2 021 KARUNA , SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//