Andhra Pradesh Gas Power Corporation Limited, Hyderabad V. Deputy Commissioner of Income Tax, Circle-1(1), Hyderabad

ITA 1847/Hyd/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3191 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 27-04-2021
• Assessment Year: 2010-2011
• Appeal Filed On: 10-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD (THROUGH VIRTUAL HEARING) BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO. 1847/HYD/2017 A.Y. 2010 - 11 ANDHRA PRADESH GAS POWER CORPORATION LIMITED, HYDERABAD. PAN: AABCA 9105 CIT(A) VS. DCIT, CIRCLE - 1(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI V. SIVA KUMAR REVENUE BY: SHRI ROHIT MUJUMDAR, DR DATE OF HEARING: 27/04/2021 DATE OF PRONOUNCEMENT: 15 /0 6 /2021 ORDER PER A. MOHAN ALANKAMONY , A.M: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A) - 8, HYDERABAD IN APPEAL NO. 0099/CIT(A) - 8/HYD /2015 - 16, DATED 15/09/2017 PASSED U/S. 143(3) R.W.S 250(6) OF THE ACT FOR THE A.Y. 2010 - 11. 2. THE ASSESSEE HAS RAISED THREE GROUNDS IN ITS APPEAL HOWEVER, THE CRUX OF THE ISSUE IS THAT: 2 THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 17,89,428/ - MADE BY THE LD. A.O. , INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D(2)(III) OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF POWER GENERATION. FOR THE A.Y. 2010 - 11, TH E ASSESSEE - COMPANY FIELD ITS E - RETURN OF INCOME ON 28/09/2010 DECLARING TOTAL LOSS OF RS. 5,75,24,496/ - UNDER THE NORMAL PROVISIONS. THEREAFTER, ASSESSEES CASE WAS TAKEN UP FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT ON 28/02/2013 WHE REIN THE LD. AO INVOKED THE PROVISIONS OF SECTION 14A R.W. RULE 8D OF THE RULES AND MADE DISALLOWANCE OF RS. 24,35,222/ - AS THE ASSESSEE COMPANY HAD MADE INVESTMENT IN VARIOUS MUTUAL FUNDS EARNING EXEMPT DIVIDEND INCOME AGGREGATING TO RS. 3,64,66,440/ - BY RELYING ON THE VARIOUS DECISIONS OF HIGHER JUDICIARY CITED IN THE ORDER . ON APPEAL, THE LD. CIT (A) PARTIALLY CONFIRMED THE ORDER OF THE LD. AO BY OBSERVING AS UNDER: - 4. THE APPELLANT COMPANY HAS CLAIMED EXEMPTION OF DIVIDEND INCOME OF RS. 3,64,66,440/ - AND NO EXPENDITURE WAS ALLOWED BY THE APPELLANT FOR EARNING THE SAME EXEMPT INCOME. WITH REGARD TO THE DISALLOWANCE OF EXPENDITURE U/S. 14A R.W.R 8D OF THE ACT, THE AR CONTENDED BEFORE THE AO THAT IT HAD OWNED CAPITAL AND RESERVES SU FFICIENT FOR MAKING THE SAID INVESTMENTS. REJECTING THE CLAIM OF THE APPELLANT, THE AO MADE DISALLOWANCE UNDER RULE 8D (2)(II) OF RS. 6,45,794/ - AND UNDER RULE 8D(2)(III) OF RS. 17,89,428/ - TOTALLING TO RS. 24,35,222/ - . 4.1. THE ABOVE ACTION OF THE AO WAS CONTESTED IN GROUND NO.3 OF APPEAL. BEFORE ME, THE AR SUBMITTED THAT THE APPELLANT HAD INVESTED ONLY IN THE UNITS OF UNITS TRUST OF INDIA DURING THE YEAR AND SUCH INVESTMENTS WERE MADE OUT OF ITS OWN FUNDS AND IN FACT THE APPELLANT HAD NO BORROWED 3 FUNDS. IN SUPPORT OF THE CONTENTION, THE AR FURNISHED STATEMENT OF INVESTMENTS PURCHASED AND SOLD DURING THE YEAR AND ALSO THE BALANCE SHEET AS ON 31/3/2010 WHICH INDICATES THAT THERE ARE NO LOAN FUNDS. SINCE THERE WERE NO BORROWED FUNDS, THE QUESTION OF ALLO CATING EXPENDITURE INCURRED WHICH IS ATTRIBUTABLE IN EXEMPT INCOME UNDER RULE 8D(2)(II) DOES NOT ARISE. IN SUPPORT OF THE CONTENTIONS, THE AR RELIED UPON A NUMBER O CASE LAWS WHICH HAVE BEEN FURNISHED ALONG WITH SUBMISSIONS. 4.2. I HAVE CAREFULLY CONSIDER ED THE ISSUE AND THE SUBMISIONS MADE B THE AR. AS EVIDENT FROM THE BALANCE SHEET, IT IS SEEN THAT THERE ARE NO BORROWED FUNDS. SINCE, NO INTEREST EXPENDITURE WAS INCURRED ON ACCOUNT OF BORROWINGS, THE ISSUE OF DISALLOWANCE OF EXPENDITURE UNDER RULE 8D(2) (II) DOES NOT ARISE AND THEREFORE THE DISALLOWANCE OF RS. 6,45,794/ - IS DELETED. 4.3. REGARDING DISALLOWANCE UNDER RULE 8D2(III), THE AR SUBMITTED BEFORE ME THAT THE EXPENDITURE WAS MADE ONLY IN ONE MUTUAL FUND AND THAT TOO IN BULK AMOUNTS (TOTAL 55 INVESTMENTS AND REDEMPTION PUT TOGETHER) . THE FEW TRANSACTIONS DO NOT INVOLVE MUCH TIME AND ONLY ONE OF THE FINANCE PERSONS DEALT WITH THEM AND TIME SPENT IS ALSO VERY SMALL. THEREFORE, THE AO IS NOT JUSTIFIED IN DISALLOWING RS. 17,89,428 / - UNDER RULE 8D (2)(III). 4.4. I HAVE CONSIDERED THE ISSUE AND THE SUBMISSIONS MADE BY THE AR. THE PROVISIONS OF RULE 8D(2)(III) PROVIDE FOR THE DISALLOWANCE OF EXPENDITURE RELATABLE TO ADMINISTRATION AND ESTABLISHMENT EXPENSES. SINCE IT WOULD NOT BE PRACTICABLE TO PREC ISELY ARRIVE AT THE EXPENDITURE INCURRED FOR EARNING THE SAID EXEMPT INCOME ON THE BASIS OF TIME / EFFORT DEVOTED BY THE ADMINISTRATION / ESTABLISHMENT, THE SAID RULE STIPULATED 0.5% OF THE AVERAGE VALUE OF INVESTMENT, AS APPEARING IN THE BALANCE SHEET ON THE FIRST DAY AND LAST DAY OF THE PREVIOUS YEAR, AS THE DISALLOWANCE. THOUGH THE AR TRIED TO JUSTIFY THAT HARDLY ANY AMOUNT WAS SPENT AND THE SAID INVESTMENTS YIELDING EXEMPT INCOME, NO QUALIFICATION OR THE BASIS FOR DISALLOWING THE APPROPRIATE EXPENDITUR E WAS FURNISHED. SINCE THE SAID RULE PROVIDED FOR NOMINAL DISALLOWANCE OF EXPENDITURE AS PER THE GIVEN WORKING TOWARDS ESTABLISHMENT / ADMINISTRATION EXPENSES, I DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE AO IN RESORTING TO DISALLOWANCE UNDER RULE 8D(2)( III). THUS, THE DISALLOWANCE OF RS. 17,89,428/ - BY THE AO IS UPHELD AND THE GROUND OF APPEAL IS PARTLY ALLOWED. 4. AT THE OUTSET, THE LD. AR SUBMITTED BEFORE US THAT THE ASSESSEE COMPANY HAD NOT INCURRED ANY EXPENDITURE TOWARDS THE INVESTMENT MADE FOR EARNING EXEMPT INCOME. THE LD. REVENUE AUTHORITIES WITHOUT CONSIDERING THE PRAYER OF THE ASSESSEE AND WITHOUT EXAMINING THE FACTS OF THE CASE HAD INVOKED THE PROVISIONS OF SECTION 14A R.W RULE 8D OF THE 4 RULES AND MADE DISALLOWANCE OF RS. 24,35,222/ - WHIC H WAS FURTHER SUSTAINED BY THE LD. AO TO THE EXTENT OF RS. 17,89,428/ - . ON THE OTHER HAND, THE LD. DR ARGUED IN SUPPORT OF THE ORDER OF THE LD. CIT (A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD. THE PROVISIONS O F SECTION 14A( 2) MAKES IT CLEAR THAT THE ASSESSEE SHALL COMPUTE THE EXPENDITURE INCURRED BY IT FOR MAKING INVESTMENT WHICH EARNS EXEMPT INCOME AND ONLY IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE HE IS AUTHOR ISED TO INVOKE THE PROVISIONS OF RULE 8D OF THE IT RULES, 1962. IN THE CASE OF THE ASSESSEE SUCH EXERCISE IS LACKING. FACTUALLY I T IS ALSO OBVIOUS THAT THE ASSESSEE WOULD HAVE DEFINITELY INCURRED SOME EXPENDITURE TOWARDS INVESTMENT S MADE , WHICH EARN S EXEMPT INCOME , SUCH AS: - (I) INTEREST ON INTEREST BEARING FUNDS THAT IS UTILISED FOR THE PURPOSE OF MAKING SUCH INVESTMENT. (II) DIRECT AND INDIRECT EXPENSES ATTRIBUTABLE TO THE PROCESS OF MAKING SUCH INVESTMENT SUCH AS EXPENDITURE INCURRED FOR DUE DILIGENCE, MANAGERIAL EXPENDITURE, CLERICAL EXPENSE, STATIONARY EXPENDITURE AND PORTFOLIO MANAGEMENT EXPENDITURE ETC. . 6. THEREFORE, IN THE INTEREST OF JUSTICE, WE HEREBY REMIT THE ENTIRE MATTER BACK TO THE FILE OF THE LD. AO THEREBY PROVIDING AN OPPORTUNI TY TO THE ASSESSEE TO COMPUTE THE ACTUAL EXPENDITURE INCURRED BY IT FOR 5 MAKING INVESTMENT WHICH EARNS EXEMPT INCOME . NEEDLESS TO MENTION THAT ANY INCOME/LOSS DERIVED FROM ANY COMMERCIAL/INVESTMENT ACTIVITY IS NOT DIRECTLY PROPORTIONAL TO THE EXPENDITURE INCURRED ON SUCH COMMERCIAL/ INVESTMENT ACTIVITY . SINCE WE HAVE REMITTED THE MATTER BACK TO THE FILE OF LD.AO , WE ALSO HEREBY DIRECTED THE ASSESSEE TO PROMPTLY CO - OPERATE BEFORE THE LD. REVENUE AUTHOR ITIES BY FURNISHING THE ABOVE STATED STATEMENT OF ACTUAL EXPENDITURE INCURRED BY IT FOR MAKING INVESTMENT WHICH EARNS EXEMPT INCOME IN ORDER TO EXPEDITE THE PROCEEDINGS OF THE LD. REVENUE AUTHORITIES FAILING WHICH THE LD. REVENUE AUTHORITIES SHALL BE AT LI BERTY TO PASS APPROPRIATE ORDER IN ACCORDANCE WITH LAW AND MERITS BASED ON THE MATERIALS ON RECORD . 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THE 15 TH JUNE , 2021. SD/ - SD/ - (P. MADHAVI DEVI) ( A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 15 TH JUNE , 2021. OKK COPY TO: - 1) ANDHRA PRADESH GAS POWER CORPORATION LIMITED, 201, 2 ND FLOOR, MY HOME SAROVAR PLAZA, SECRETARIAT ROAD, HYDERABAD 500 063. 2) DY. COMMISSIONER OF INCOME TAX, CIRCLE - 1(1), HYDERABAD. 3) THE CIT(A) - 8, HYDERABAD . 4) THE PR. CIT - I, HYDERABAD. 6 5) THE DR, ITAT, HYDERABAD 6) GUARD FILE