DCIT, Circle-1(1), Hyderabad, Hyderabad V. Amrit Jal Ventures Private Limited, Secunderabad, Secunderabad

ITA 1705/HYD/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2366 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 19-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S S GOPINATH
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1705/HYD/2016 ASSESSMENT YEAR: 2013-14 THE DY COMMISSIONER OF INCOME TAX, CIRCLE- 1(1) HYDERABAD. VS. M/S. AMRIT JAL VENTURES PRIVATE LIMITED, SECUNDERABAD. PAN AACCG2242B (APPELLANT) (RESPONDENT) REVENUE BY : SHRI G.S.S. GOPINATH ASSESSEE BY : SHRI Y. RATNAKAR DATE OF HEARING : 20-06-2017 DATE OF PRONOUNCEMENT : 23-06-2017 ORDER PER P. MADHAVI DEVI, J.M.: IN THIS APPEAL, THE REVENUE IS AGGRIEVED BY THE ORDER OF THE CIT(A)-1, HYDERABAD DATED 21-09-2016, DELETING THE DISALLOWANCE MADE BY THE A.O U/S 14A R.W.R 8D OF THE IT RULES, 1962, THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL. 1. LD. CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE A.O ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE U/S 14A R.W.R. 8D BY OBSERVING THAT THE INVESTMENTS YIELDING EXEMPT INCOME HAVE NOT BEEN MADE FROM THE BORROWED FUNDS. 2. LD. CIT(A), OUGHT TO HAVE CONSIDERED THAT UNDER CLAUSE (II) OF RULE 8D IT IS OF NO CONSEQUENCE WHETHER THE INVESTMENTS WERE MADE OUT OF BORROWED FUNDS OR OWN FUNDS AND SAID CLAUSE COMES INTO PLAY ONCE INVESTMENTS YIELDING EXEMPT INCOME WERE MADE OUT OF COMMON POOL OF FUNDS. 2 ITA NO. 1705/HYD/2016 M/S AMRIT JAL VENTURES PVT LTD., SECUNDERABAD. 3. WHILE DELETING THE ADDITION, LD. CIT(A) ERRED IN COMPLETELY IGNORING THE DISALLOWANCE OF RS. 1.06 CRORES MADE UNDER CLAUSE (III) OF RULE 8D BY THE A.O VIZ. AT 0.5% ON AVERAGE VALUE OF INVESTMENTS AND THERE IS NO FINDING IN THE APPELLATE ORDER IN RESPECT OF DISALLOWANCE MADE UNDER CLAUSE (III) OF RULE 8D. 4. LD. CIT(A) ALSO FAILED TO NOTE THAT IN THE CONTEXT OF SECTION 14A R.W.R. 8D AS APPLICABLE TO THE YEAR UNDER CONSIDERATION IT IS OF NO RELEVANCE WHETHER INVESTMENTS YIELDING EXEMPT INCOME WERE MADE BY WAY STRATEGIC INVESTMENTS OR CONTROLLING INTEREST OR OTHERWISE. 5. LD. CIT(A) OUGHT TO HAVE FURTHER CONSIDERED THAT ANY INVESTMENT WHICH IS YIELDING OR LIKELY TO YIELD EXEMPT INCOME FALLS WITHIN THE AMBIT OF SECTION 14A AND EXPENDITURE IN RELATION TO SUCH INVESTMENTS HAS TO BE COMPUTED AS PER THE FORMULA IN RULE 8D AND THERE IS NO EXEMPTION IN CASE OF STRATEGIC INVESTMENTS. 6. THE APPELLANT CRAVES LEAVE TO ADD, DELETE, SUBSTITUTE, AMEND ANY GROUND OF APPEAL BEFORE THE HEARING OF APPEAL AND/ OR AT THE TIME OF HEARING OF APPEAL. 7. FOR THESE AND OTHER GROUNDS OF APPEAL THAT MAY BE CANVASSED AT THE TIME OF THE HEARING OF APPEAL, IT IS PRAYED THAT ADDITION MADE BY THE A.O ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE U/S 14A BE RESTORED. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF GENERATION OF SOLAR POWER, FILED ITS RETURN OF INCOME FOR THE A.Y 2013-14 ON 30- 09-2013 DECLARING A LOSS OF RS. (-)42,49,042/- UNDER THE NORMAL PROVISIONS OF INCOME TAX ACT AND BOOK PROFITS AT A LOSS OF RS. (-)1,17,69,669/-. THE CASE WAS SELECTED FOR SCRUTINY AND WHILE COMPLETING THE ASSESSMENT U/S 143(3) OF THE IT ACT, THE A.O OBSERVED THAT THE ASSESSEE HAS MADE INVESTMENTS IN THE SHARES OF THE OTHER COMPANIES DURING THE RELEVANT PREVIOUS YEAR AND THE DIVIDEND EARNED FROM SUCH SHARES DURING THE YEAR IS NIL. OBSERVING THAT AS PER SEC. 14A(1) OF THE IT ACT, NO DEDUCTION SHALL BE ALLOWED IN 3 ITA NO. 1705/HYD/2016 M/S AMRIT JAL VENTURES PVT LTD., SECUNDERABAD. RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THE A.O COMPUTED THE DISALLOWANCE UNDER RULE 8D OF THE IT ACT. FOR MAKING THE DISALLOWANCE, THE A.O FOLLOWED THE CBDT CIRCULAR NO. 14 OF 2001 TO HOLD THAT EXPENDITURE WHICH IS RELATABLE TO EARNING OF INCOME IS TO BE DISALLOWED U/S 14A R.W.R 8D OF THE ACT AND THAT IT IS NOT NECESSARY THAT EXEMPT INCOME SHOULD NECESSARILY BE INCLUDED IN PARTICULAR YEARS INCOME. HE, THEREFORE, DISALLOWED THE INTEREST EXPENDITURE AND ALSO 0.5% OF THE AVERAGE VALUE OF INVESTMENTS. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE CIT(A). 4. THE CIT(A), CONSIDERED THE FACT THAT THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME IN THE RELEVANT ASSESSMENT YEAR AND ALSO FOLLOWING THE JUDICIAL PRECEDENTS ON THE ISSUE AND ALSO AFTER CONSIDERING THE FACT THAT THE LOANS TAKEN BY THE ASSESSEE ARE FOR THE BUSINESS PURPOSES OF THE ASSESSEE HAS ALLOWED THE ASSESSEES CLAIM. AGGRIEVED, BY THE RELIEF GIVEN BY THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 5. THE LD. DR SUPPORTED THE ORDER OF THE A.O WHILE THE LD. COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A) AND ALSO FILED COPIES OF THE ORDERS ON WHICH THE ASSESSEE HAS PLACED RELIANCE UPON BEFORE THE CIT(A). 4 ITA NO. 1705/HYD/2016 M/S AMRIT JAL VENTURES PVT LTD., SECUNDERABAD. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE A.O HAS MADE THE DISALLOWANCE OF INTEREST EXPENDITURE AND 0.5% OF THE AVERAGE INVESTMENTS DURING THE YEAR UNDER RULES 8D(II) AND 8D(III) OF THE IT RULES RESPECTIVELY. IT IS AN UNDISPUTED FACT THAT THE LOANS TAKEN BY THE ASSESSEE HAVE BEEN USED FOR THE PURPOSES OF BUSINESS AND THE CIT(A), IN THE LAST PARA ON PAGE SEVEN OF HIS ORDER, HAS CLEARLY BROUGHT OUT THE PURPOSE FOR WHICH THE LOANS HAVE BEEN UTILIZED. THEREFORE, CLEARLY THE INTEREST EXPENDITURE IS NOT DISALLOWABLE U/S 14A OF THE ACT. FURTHER, THE A.O HIMSELF HAS RECORDED THAT THE ASSESSEE NOT EARNED ANY DIVIDEND INCOME. THE HONBLE MADRAS HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD., VS ADD. CIT REPORTED IN [2017] 77 TAXMANN. COM 257 (MADRAS) HAS CONSIDERED THE ISSUE AT LENGTH INCLUDING THE CBDT CIRCULAR NO. 5 OF 2014 DATED 11.02.2014 AND HAS HELD THAT THE EXEMPTION EXTENDED TO DIVIDEND INCOME WOULD RELATE ONLY TO THE PREVIOUS YEAR WHEN THE INCOME WAS EARNED AND NONE OTHER AND CONSEQUENTLY THE EXPENDITURE INCURRED IN CONNECTION THEREWITH SHOULD ALSO BE DEALT WITH IN THE SAME PREVIOUS YEAR AND THE PROVISIONS OF SEC. 14A R.W.R 8D OF THE RULES CANNOT BE MADE APPLICABLE IN THE ABSENCE OF EXEMPT INCOME. SIMILAR VIEW HAS BEEN EXPRESSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TRANSPORT CORPORATION OF INDIA LTD., VS. ASST. COMMISSIONER OF INCOME TAX IN ITA NO. 117/HYD/2016 DATED 21-09-2016, WHEREIN IT WAS HELD THAT THE ABOVE DECISION IS APPLICABLE EVEN TO DISALLOWANCE TO BE MADE U/S 14A R.W.R 8D(III) OF 5 ITA NO. 1705/HYD/2016 M/S AMRIT JAL VENTURES PVT LTD., SECUNDERABAD. THE RULES. IN VIEW OF THE SAME WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). 7. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 23 RD JUNE, 2017. SD/- SD/- (S. RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 23 RD JUN , 2017. KRK 1 AMRIT JAL VENTURES PRIVATE LIMITED, SECUNDERABAD, 1-7-293, M.G. ROAD, SECUNDERABAD-500003. 2 DY. COMMISSIONER OF INCOME TAX, CIRCLE-1(1), HYDERABAD 3 CIT(A)-1, HYDERABAD. 4 THE ADDL. COMMISSIONER OF INCOME TAX, RANGE-1, HYDERABAD. 5 THE DR, ITAT HYDERABAD 6 GUARD FILE