ACIT, Circle-1, Warangal, Warangal V. Northern Power Distribution Company of Telangana Limited, Warangal, Warangal

ITA 186/HYD/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3394 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 22-04-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 06-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R DIPAK
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Depreciation; Earning of tax free income; Additional evidence; Cost of acquisition; Rule 8D; Set aside
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER I.T.A. NO. 186/HYD/2017 ASSESSMENT YEAR: 2013-14 ASST.COMMISSIONER OF INCOME TAX, CIRCLE-1, WARANGAL VS M/S.NORTHERN POWER DISTRIBUTION COMPANY OF TELANGANA LTD., WARANGAL [PAN: AABCN2875L] (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI R.DIPAK, DR FOR ASSESSEE : SHRI V.SIVA KUMAR, AR DATE OF HEARING : 22-04-2021 DATE OF PRONOUNCEMENT : 11-06-2021 O R D E R PER S.S.GODARA, J.M. : THIS REVENUES APPEAL FOR AY.2013-14 ARISES FROM THE CIT(A)-3, HYDERABADS ORDER DATED 09-11-2016 PASSED IN CASE NO.0083/CIT(A)-3/16-17, INVOLVING PROCEEDINGS U/S.1 43(3) OF THE INCOME TAX ACT, 1961 [IN SHORT, THE ACT]. HEARD BOTH THE PARTIES. CASE FILE/RECORDS PERUSED. 2. THE REVENUE HAS PROPOSED THE FOLLOWING SUBSTANTIVE GROUNDS IN THE INSTANT APPEAL: 1. THE LD.CIT(A) ERRED BOTH IN LAW AND FACTS OF TH E CASE. ITA NO. 186/HYD/2017 :- 2 -: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCES OF R S. 7,40,94,331/- MADE U/S.14(A) R.W.R.8D OF THE IT RULES DISREGARDIN G THE CBDT CIRCULAR NO.5 OF 2014 DATED 15.02.2014 WHICH MANDAT ES THE ASSESSING OFFICER TO MAKE SUCH DISALLOWANCE EVEN IF THE INVESTMENTS DO NOT YIELD EXEMPT INCOME? 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.199, 98,23,666/- MADE TOWARDS DISALLOWANCE OF INTEREST ON CAPITAL LIABILI TIES BASED ON ADDITIONAL EVIDENCES SUBMITTED BY THE APPELLANT IN THE APPEAL PROCEEDINGS WITHOUT AFFORDING AN OPPORTUNITY TO THE ASSESSING OFFICER AS REQUIRED U/R 46A OF THE IT RULES 1962. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.1398 ,54,00,000/- MADE TOWARDS DISALLOWANCE OF PROVISIONS MADE ON FINANCIA L RESTRUCTURING PACKAGE IN THE APPEAL PROCEEDINGS WITHOUT AFFORDING AN OPPORTUNITY TO THE ASSESSING OFFICER AS REQUIRED U/R 46A OF THE IT RULES 1962. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE AMOUNT DISALLOWED TOWARDS CLAIM OF CONSUMER CONTRIBUTION A MORTIZATION OF RS.39,44,46,826/- AFTER FURTHER VERIFICATION, DESPI TE A CLEAR FINDING GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT OR DER TO THE EFFECT THAT, DEPRECIATION ON THE ASSETS CREATED OUT OF UTI LIZATION OF CONSUMER CONTRIBUTIONS WAS CLAIMED AND ALLOWED IN THE P&L A/ C AND THE AMORTIZATION CLAIM IN THE COMPUTATION OF INCOME AMO UNTS TO DOUBLE DEDUCTION. 6. ANY OTHER GROUND(S) THAT MAY BE URGED AT THE TIM E OF HEARING. 3. COMING TO THE REVENUES FIRST AND FOREMOST SUBSTANTIVE GROUND SEEKING TO REVIVE SECTION 14A R.W. RULE 8D DISALLOWANCE OF RS.7,40,94,331/-, WE FIND NO SUBSTAN CE IN THE INSTANT GROUND SINCE THE CIT(A) HAS HELD THAT THE ASSESS EE HAS NOT DERIVED ANY EXEMPT INCOME IN THE RELEVANT PREVIOUS YEAR. C ASE LAW:- I. CIT VS. CHETTINAD LOGISTICS PVT. LTD., [80 TAXMANN.COM 221] (MADRAS); ITA NO. 186/HYD/2017 :- 3 -: II. CIT VS. CORRTECH ENERGY PVT. LTD., [223 TAXMAN 130] (GUJ); III. CHEMINVEST LTD., VS. CIT (2015) [378 ITR 33] (DEL) HOLDS THAT SECTION 14A READ WITH RULE 8D APPLIES ONLY IN RELATION TO AN ASSESSEES EXEMPT INCOME AND NOT OTHERWI SE. WE THEREFORE AFFIRMING THE CIT(A)S FINDINGS DELETING THE IMPUGNED DISALLOWANCE. THE REVENUE FAILS IN ITS FIRST SUBSTANTIVE GROUND THEREFORE. 4. WE NEXT COME TO REVENUES SECOND SUBSTANTIVE GROUND THAT THE ASSESSING OFFICER HAD RIGHTLY ADDED ASSESSEES INTEREST ON CAPITAL LIABILITIES TO THE TUNE OF RS.199,98,23,666/ - WHICH STANDS DELETED IN THE CIT(A)S ORDER AFTER ADMITTING ADD ITIONAL EVIDENCE FOR VIOLATION OF RULE 46A OF THE INCOME TAX RULES, 1962. THE LOWER APPELLATE DISCUSSION TO THIS EFFECT RE ADS AS UNDER: 7.1 THE SIXTH GROUND OF APPEAL IS AS UNDER: 6. THE ASSESSING OFFICER IS NOT JUSTIFIED IN DISALL OWING RS.99,98,23,666/- BEING 50% OF INTEREST OF (RS.399,96,47,332/- STATING THAT THE APPELLANT HAD CLAIMED 50% RATE OF DEPRECIATION ON FIXED ASSETS PUT TO USE DURING THE YEAR ON THE GROUND THAT THE DATE OF USE OF SUCH ASS ETS CANNOT BE FURNISHED WHEREAS INTEREST WAS CLAIMED IN FULL. THE ASSESSING OFFICER OUGHT TO HAVE SEEN THAT INTEREST OF RS.399,96,47,332/- WAS INCURRED ON TERM/ WORKING CA PITAL LOANS IN THE NORMAL COURSE OF BUSINESS BUT SUCH LOA NS WERE NOT USED FOR ACQUIRING FIXED ASSETS WHICH ARE PUT TO US E DURING THE YEAR AND IN FACT THE APPELLANT ITSELF HAD CAPITALIZ ED INTEREST OF RS.18,39,94,797/- INCURRED ON FIXED ASSETS PUT TO U SE DURING THE YEAR. 7.2 DURING THE COURSE OF ITS BUSINESS THE ASSESSEE USED BORROWED FUNDS TOWARDS ACQUISITION/ CONSTRUCTION OF ASSETS. SINCE THE EXACT DATE OF COMPLETING THE CONSTRUCTION AND PUTTING THE ASSET TO USE CANNOT BE EASILY DETERMINED AND ALSO TO AVOID POSSI BLE PROBLEMS FROM ITA NO. 186/HYD/2017 :- 4 -: IT DEPARTMENT, THE ASSESSEE CLAIMED ONLY 50% OF THE DEPRECIATION ON ALL THE ASSETS ADDED DURING THE YEAR. HE HAS BEEN F OLLOWING THIS PRACTICE EVERY YEAR. WHEREAS THE ASSESSING OFFICER OBSERVED THAT THE ASS ESSEE DEBITED AN AMOUNT OF RS.399,96,47,332/- TOWARDS INTEREST ON CA PITAL LIABILITY', THE ASSESSING OFFICER FURTHER OBSERVED THAT FOLLOWI NG THE SAME LOGIC WHICH THE ASSESSEE ADOPTED FOR THE PURPOSE OF DEPRE CIATION, ONLY 50% OF INTEREST EXPENSES ARE TO BE ALLOWED AND THE BALA NCE OF RS.199,98,23,666/- IS TO BE DISALLOWED. 7.3 IT WAS EXPLAINED BY THE APPELLANT THAT INTEREST OF RS.399,96,47,332/- PERTAINS TO INTEREST ON ALL THE LOANS TAKEN INCLUDING THE LOAN TAKEN IN EARLIER YEARS FOR MEETI NG THE COST OF FIXED ASSETS AND WORKING CAPITAL. THE APPELLANT FURTHER S UBMITTED THAT TOTAL FIXED ASSETS ADDED DURING THE YEAR WERE RS.388.64 C RORES ON WHICH OBVIOUSLY THE ASSESSEE COULD NOT HAVE CLAIMED INTER EST OF RS.399.90 CRORES. 7.4 AFTER CONSIDERING THE INFORMATION ON RECORD AND SUBMISSIONS OF THE APPELLANT, I CONSIDER THERE NO MERIT IN ADDITIO N MADE BY THE ASSESSING OFFICER. THE APPELLANT BEING EXTREMELY CA UTIOUS CLAIMED ONLY 50% OF THE DEPRECIATION AS HE MIGHT NOT BE IN A POSITION TO PROVE TO THE DEPARTMENT THE EXACT DATE OF PUTTING THE ASS ET TO USE. THE SAME LOGIC CANNOT BE APPLIED FOR THE PURPOSE OF ALL OWING INTEREST AS THE INTEREST HAS TO BE PAID FROM THE DATE OF OBTAIN ING LOAN. THEREFORE THE DISALLOWANCE MADE BY ASSESSING OFFICER IS DELET ED. 4.1. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO RIVA L PLEADINGS AGAINST AND IN SUPPORT OF THE IMPUGNED INTE REST ADDITION ON CAPITAL LIABILITIES. WE NOTICE FIRST OF AL L THAT THE CIT(A) HAS NOT ADMITTED ANY ADDITIONAL EVIDENCE AT ALL S O AS TO INVOKE RULE 46A OF THE INCOME TAX RULES. IT ALSO EMER GES THAT THE ASSESSING OFFICER HAS DISALLOWED/ADDED THE IMPUG NED INTEREST @50% GOING BY THE ASSESSEES DEPRECIATION CLA IM TO THE SAID EXTENT ONLY THAN RECORDING A CLEARCUT FINDING O N FACTS THAT THE SAME HAD NOT BEEN INCURRED WHOLLY AND EXCLUSIV ELY FOR THE PURPOSE OF BUSINESS U/S.37 OF THE ACT. WE FURTHER FIND THAT THE REVENUE IS ITSELF FAIR ENOUGH IN NOT DISPUTING THE ASSESSEES ENTITLEMENT TO CLAIM THE IMPUGNED INTEREST O N ITA NO. 186/HYD/2017 :- 5 -: MERITS TO THIS EFFECT AS WELL. WE THUS AFFIRM CIT(A)S FINDINGS QUA THE INSTANT SECOND ISSUE THEREFORE. 5. THE REVENUES THIRD SUBSTANTIVE GROUND SEEKS TO REV IVE THE ASSESSING OFFICERS ACTION DISALLOWING PROVISION MADE ON FINANCIAL RESTRUCTURING PACKAGE TO THE TUNE OF RS.13,98,54,00,000/- WHICH STANDS REVERSED IN THE CIT (A)S ORDER, AS UNDER: ITA NO. 186/HYD/2017 :- 6 -: ITA NO. 186/HYD/2017 :- 7 -: ITA NO. 186/HYD/2017 :- 8 -: 5.1. LEARNED DEPARTMENTAL REPRESENTATIVE IS FAIR ENOUGH NOT BEING ABLE TO PINPOINT ANY VIOLATION OF RULE 46A OF THE INCOME TAX RULES SINCE THE CIT(A) HAS NOT ADMITTED ANY ADDITI ONAL EVIDENCE FILED AT THE ASSESSEES BEHEST. COUPLED WITH THIS, IT HAS COME ON RECORD THAT THE ASSESSEE HAS ITSELF DISALLOWED IN ITS COMPUTATION, A S UM OF RS.2240.42 CRORES [(EXPENSES QUA POWER PURCHASE COST, FINANCE AND EMPLOYEE COSTS (SUPRA)]. THIS IS WHAT LE D THE CIT(A) TO DELETE THE IMPUGNED DISALLOWANCE/ADDITION. WE ACCORDINGLY AFFIRM THE SAME SINCE THERE IS NO REBUTTAL TO CORRECTNESS THEREOF COMING FROM THE REVENUE SIDE. ITA NO. 186/HYD/2017 :- 9 -: 6. WE ARE NOW LEFT WITH LAST ISSUE OF CONSUMER CONTRIB UTION AMORTIZATION DISALLOWANCE OF RS.39,44,46,826/- MADE B Y THE ASSESSING OFFICER AND DELETED IN THE CIT(A)S ORDER A S UNDER: ITA NO. 186/HYD/2017 :- 10 -: ON ONE HAND THE APPELLANT CLAIMS THAT AMOUNT OF RS. 169,81,09,511/- DOES NOT INCLUDED DEPRECIATION ON ASSETS PURCHASED FROM CONSUMER FUND, WHEREAS THE ASSESSING OFFICER STATES THAT THI S AMOUNT INCLUDES RS.39,44,46,826/-. THEREFORE WHAT NEEDS TO BE DONE IS TO VERIFY WHETHE R THE AMOUNT OF RS.169,81,09,511/- INCLUDES RS.39,44,46,826/- OR NO T? THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE SAME, I F THE AMOUNT OF RS.39,44,46,826/- IS ALREADY INCLUDED IN DEPRECIATI ON OF RS.169,81,09,511/-, THE APPELLANT WOULD NOT BE ENTI TLED FOR ADDITIONAL CLAIM OF RS.39,44,46,826/-. THEREFORE T HIS GROUND OF APPEAL IS TREATED AS PARTLY ALLOWED. 6.1. SUFFICE TO SAY, CIT(A) HAS ONLY DIRECTED THE ASSE SSING OFFICER TO VERIFY THE RELEVANT FACTS AT THE ASSESSING OF FICERS END ITSELF AND THEREFORE, THE REVENUE ITSELF CANNOT BE TAKEN AS AN AGGRIEVED PARTY PER SE EXCEPT THE FACT THAT SUCH AN EXERCISE OF LOWER APPELLATE JURISDICTION IS NO MORE EXIGIBLE AS P ER THE FINANCE ACT, 2001 OMITTING OR HE MAY SET ASIDE ITA NO. 186/HYD/2017 :- 11 -: W.E.F.01-06-2001. WE THUS ACCEPT THE REVENUES ARGUME NT IN PRINCIPLE BUT FOLLOW THE VERY COURSE OF ACTION OURSELV ES AND DIRECT THE ASSESSING OFFICER TO VERIFY THE NECESSARY F ACTS PERTAINING TO THE INSTANT ISSUE. THE REVENUES INSTANT LAST SUBSTANTIVE GROUND IS PARTLY ACCEPTED FOR STATISTICAL PURPOSES IN FOREGOING TERMS. 7. THIS REVENUES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH JUNE, 2021 SD/- SD/- (LAXMI PRASAD SAHU) (S.S.G ODARA) ACCOUNTANT MEMBER JUDICIAL MEM BER HYDERABAD, DATED: 11-06-2021 TNMM ITA NO. 186/HYD/2017 :- 12 -: COPY TO : 1.ASST.COMMISSIONER OF INCOME TAX, CIRCLE-1, WARANG AL. 2.M/S.NORTHERN POWER DISTRIBUTION COMPANY OF TELANG ANA LIMITED, 2-5-31/2, VIDYUTH BHAVAN, NAKKALAGUTTA, HANAMKONDA, WARANGAL. 3.CIT(APPEALS)-3, HYDERABAD. 4.PR.CIT-3, HYDERABAD. 5.D.R. ITAT, HYDERABAD. 6.GUARD FILE.