Rain Industries Limited , Hyderabad V. Dy. Commissioner of Income Tax , Circle-3(1), Hyderabad

ITA 1843/Hyd/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3036 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 10-05-2021
• Assessment Year: 2016-2017
• Appeal Filed On: 20-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER IT A NO. 1843 /H/20 19 ASSESSMENT YEAR: 2 0 1 6 - 1 7 RAIN INDUSTRIES LTD. , HYDERABAD. PAN A ABCP 2276K VS. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 3 ( 1 ), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI NIKHIL KANADIA REVENUE BY: SHRI ROHIT MUJUMDAR DATE OF HEARING: 10 /0 5 /2021 DATE OF PRONOUNCEMENT: 18 /0 6 /2021 O R D E R PER L.P. SAHU, A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST CIT(A) 3 , HYDERABADS ORDER DATED 1 4 / 10 /20 19 FOR AY 20 1 6 - 17 INVOLVING PROCEEDINGS U/S 1 4 3( 3 ) OF THE INCOME TAX ACT, 1961 ; IN SHORT THE ACT ON THE FOLLOWING GROUND S: 1. THE LD. AO AND THE LD. CIT(A) ERRED IN LAW AND IN FACT INVOKING AND RETAINING THE DISALLOWANCE U/S 14A OF THE AC T WITHOUT APPRECIATING THE FACTS OF THE CASE 2. THE LD. CIT(A) ERRED IN NOT ADJUDICATING ON THE GROUND THA T THE INVESTMENTS WERE MADE OUT OF OWN I TA NO. 1843 /HYD /20 19 RAIN INDUSTRIES LTD., HYD. : - 2 - : FUNDS, WHILE AGREEIN G THAT THE INVESTMENTS WERE LOWER THAN THE SURPLUS FUNDS . 3. THE LD. AO AND THE LD. CIT(A) FAILED TO APPRECIATE THAT TH E INVESTMENTS ARE STRATEGIC AND HISTORIC AND ARE MADE OUT 0 ACCUMULATED PROFI TS AND NOT OUT OF BORROWED FUNDS . 4. WITHOUT PREJUDICE TO THE ABOVE, THE LD. AO AND THE LC CIT(A) ERRED IN COMPUTING THE DISALLOWANCE ON TH INVESTMENTS WHICH WERE ACQUIRED UNDER A SCHEME C ARRANGEMENT . 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY E - FILED ITS RETURN OF INCOME ON 28/11/2016 DECLARING TOTAL LOSS OF RS. 9,92,86,739/ - . SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND ACCORDINGLY, STATUTORY NOTICES WERE SERVED U P ON THE ASSESSEE, AGAINS T WHICH, THE ASSESSEE FURNISHED THE INFORMATION CALLED FOR. 2.1 THE AO NOTICED FROM NOTE 12 TO THE BALANCE SHEET THAT THE ASSESSEE COMPANY HA D INVESTMENTS TO THE TUNE O F RS. 916,96,51,115 / - AS ON 31 .03.2016 IN M / S. RAIN CEMENTS L T D (RS. 212,81,04 ,235 / - ) , M / S. CII CARBON (VIZA G ) L T D (RS.1 ,30, 00, 000/ - ) & M / S. RAIN COMMODITIES (USA) INC. (RS.702,85,46,880 / - ). ACCORDING TO THE AO, S INCE THE ASSESSEE HA D INVESTMENTS, INCOME ARISING FROM WHICH IS EXEMPT IN NATURE, DISALLOWANCE U / S. 14A IS SQUARELY APPLICABLE TO ASSESSE E'S CASE. HE NOTED THAT A S PER THE CBDT CIRCULAR NO. 5 / 2014 DATED 11.02.2014, DISALLOWANCE O F EXPENDITURE F OR EARNING EXEMPT INCOME U / S. 14A WOULD BE I TA NO. 1843 /HYD /20 19 RAIN INDUSTRIES LTD., HYD. : - 3 - : ATTRACTED EVEN IF THE CORRESPONDING EXEMPT INCOME HAS NOT BEEN EARNED DURING THE FINANCIAL YEAR. FURTHER, DISALLOWANCE U / S. 14A WAS MADE IN ASSESSMENT U / S. 143(3) F OR AY S 2014 - 15 & 2015 - 16 CONSIDERING DIRECTIONS O F HON'BLE DRP IN THE CASE OF M / S. RAIN CEMENTS L T D F OR AY 2011 - 12 . AC C O R DINGLY, HE MADE THE DISALLOWANCE U / S. 14A AT RS.1,86,77,787/ - . 3. WHEN TH E ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, RESTRICTED THE DISALLOWANCE TO RS. 1,06,73,021/ - APPLYING RULE 8D. 4. THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE MADE U/S 14A HAS BEEN DECIDED BY THE COORDINATE BENCH OF THIS TRIBUNAL ASSESSEES OWN CASE FOR AY 2012 - 13 IN ITA NO. 1728 & 1729/HYD/2016, FOR AY 2012 - 13, DATED 31/01/2018. 5. ON THE OTHER HAND, THE LD. DR NEITHER CONTROVERTED THE SUBMISSION OF AR NOR BROUGHT ANY CONTRARY DECISION IN THIS REGARD. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS SUBMITTED BY THE LD. AR, WE FIND THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN I TA NO. 1843 /HYD /20 19 RAIN INDUSTRIES LTD., HYD. : - 4 - : ASSESSEES OWN CASE CITED SUPRA, WHEREIN THE COORDINATE BENCH HAS HELD AS UNDER: 8. AS REGARDS GROUND NO. 2 RELATES TO DISALLOWANCE U/S 14A OF THE ACT, THE AO NOTI CED FROM THE NOTE 13 OF THE BALANCE SHEET THAT THE ASSESSEE COMPANY HAS INVESTMENTS TO THE TUNE OF RS. 4,16,47,86,500/ - AS ON 31/03/2013. ACCORDING TO THE AO, SINCE THE ASSESSEE HAS INVESTMENTS, INCOME ARISING FROM WHICH IS EXEMPT IN NATURE, DISALLOWANCE U /S 14A IS SQUARELY APPLICABLE TO ASSESSEES CASE. THE AO RELYING ON CBDT CIRCULAR NO. 5/2014, DATED 11 FEBRUARY, 2014, COMPUTED THE DISALLOWANCE AT RS. 7,47,500/ - . WHEN THE ASSESSEE OBJECTED THE SAME BEFORE THE DRP, THE DRP CONFIRMED THE DISALLOWANCE. 5 IT A NOS. 1728 & 1729 /HYD/2016 RAIN CEMENTS LTD AND RAIN INDUSTRIES LTD. 9. BEFORE US, LD. AR SUBMITTED THAT THE INVESTMENT MADE IN MOONGLOW COMPANY BUSINESS INC. BVI OF RS. 4,01,52,86,500/ - IS OVERSEAS INVESTMENT AND THE DIVIDEND EARNED THEREFROM IS TAXABLE IN INDIA. SHE RELIED ON THE DECISION OF THE COORDINATE BENCH OF ITAT, DELHI IN THE CASE OF INTERGLOBE ENTERPRISES LTD. VS. DCIT IN ITA NOS. 1362 & 1032/DEL/2013, ORDER DATED 04/04/2014. FURTHER, SHE SUBMITTED THAT THE INVESTMENT IN APGPCL DOES NOT GENERAT E ANY EXEMPT INCOME AS IT IS INVESTED TO GET THE POWER SUPPLY AT CONCESSIONAL RATE. THE BENEFIT DERIVED BY THE ASSESSEE BY VIRTUE OF INVESTMENT IS NOT DIVIDEND INCOME BUT GETS POWER AT SUBSIDIZED RATES. THIS BENEFIT IS NOT EXEMPT FROM TAX. THEREFORE, THIS INVESTMENT SHOULD BE EXCLUDED FROM CALCULATION OF RULE 8D(2)(III). 10. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 11. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WITH REGARD TO INVESTMENT IN APGPCL, THE COORDINATE BENCH HAS REMITTED THIS ISSUE BACK TO THE FILE OF THE AO TO VERIFY THE CONTENTION OF THE ASSESSEE AND, IF, FOUND CORRECT, THE INVESTMENT SHOULD BE EXCLUDED FROM THE CALCULATION UNDER RULE 8D(2)(III). THEREFORE, WE ARE ALSO INCLINED TO REMIT THI S ISSUE BACK TO THE FILE OF THE AO TO VERIFY THE CONTENTION OF THE ASSESSEE. 6.1 AS THE ISSUE UNDER CONSIDERATION IS MATERIALLY IDENTICAL TO THAT OF THE CASE DECIDED BY THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2012 - 13, RESPECTFULLY FOLLOWING THE SAME, WE RESTORE THE ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE SA ME IN LINE WITH THE DECISION OF THE COORDINATE BENCH CITED SUPRA. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. I TA NO. 1843 /HYD /20 19 RAIN INDUSTRIES LTD., HYD. : - 5 - : 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES IN ABOVE TERMS. PRONOUNCED IN THE OPEN COURT ON 18 TH JUNE , 2021 . SD/ - SD/ - ( S.S. GODARA ) (L . P . SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDE RABAD, DATED : 18 TH JUNE , 20 2 1 . K V C OPY TO : 1 RAIN INDUSTRIES LTD., RAIN CENTER, 34, SRINIGAR COLONY, HYDERABAD . 2 DC IT , CIRCLE 3 ( 1 ), SIGNATURE TOWERS, KONDAPUR, OPP. BOTANICAL GARDEN, HYDERABAD. 3 C I T(A) 3 , HYDERABAD. 4 PR. CIT - 3 , HYDERABAD 5 ITAT, DR, HYDERABAD. 6 GUARD FILE.