Dy. Commissioner of Income Tax , Circle-16(1), Hyderabad V. NSL Renewable Power Private Limited , Hyderabad

ITA 2031/Hyd/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3006 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2021
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 23-04-2021
• Assessment Year: 2012-2013
• Appeal Filed On: 11-10-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K DIPAK
• Keywords: Bonafide belief; Earning of tax free income; Source of fund; Additional evidence; Initiation of penalty proceedings; Revised return; Rule 8D
• Section: 271(1)(c); 143(3); 80HHC; 14A; 115JB; 143(1); 80IA; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B ', HYDERABAD BEFORE S HRI SATBEER SINGH GODARA , JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU , ACCOUNTANT MEMBER ITA NO. 1024 /H/201 7 ASSESSMENT YEAR: 20 11 - 12 NSL RENEWABLE POWER PVT. LTD., HYDERABAD. PAN AABCN 6009L VS. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 1 6 ( 1 ), HYDERABAD. (APPELLANT) (RESPONDENT) ITA NO. 2031/H/2018 AND CO NO. 9 / H/2020 ASSESSMENT YEAR: 2012 - 13 DY. COMMISSIONER OF INCOME - TAX, CIRCLE 16(1), HYDERABAD. VS. NSL RENEWABLE POWER PVT. LTD., HYDERABAD. PAN AABCN 6009L (APPELLANT) (RESPONDENT/ CROSS OBJECTOR) ASSESSEE BY: SHRI ALIASGAR RAMPURWALA REVENUE BY: SHRI K. DIPAK & SHRI SUNIL KUMAR PANDEY DATE OF HEARING: 22/04/2021 DATE OF PRONOUNCEMENT: 17 /0 6 /2021 O R D E R PER L.P. S AHU , AM: ITA NO. 1024/HYD/2017 THIS APPEAL FILED BY THE ASSESSEE FOR AY 20 11 - 12 IS DIRECTED AGAINST THE CIT(A) - 4 , HYDERABADS ORDER, I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 2 DATED 06 /0 4 /201 7 INVOLVING PROCEEDINGS U/S 143(3) OF THE INCOME TAX ACT, 1961 ; IN SHORT THE ACT ON THE FOLLOWING GROUNDS OF APPEAL: THE GROUNDS MENTIONED HEREIN BY THE APPELLANT ARE INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - IV ['LD. CIT(A)'] ERRED IN CONFIRMING THE ACTION OF DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 16(1), HYDERABAD ('LD. AO') IN RESTRICTING THE CLAIM OF DEDUCTION UNDER SECTION 80IA OF THE ACT ONLY TO THE EXTENT OF INCOME FROM BUSINESS AND PROFESSION AND THEREBY NOT ALLOWING DEDUCTION TO THE EXTENT OF RS. 15,07,380/ - FROM THE GROSS TOTAL INCOME. THE APPELLANT THEREFORE PRAYS THAT THE LD. AO BE DIRECTED TO ALLOW THE CLAIM OF DEDUCTION UNDER SECTION 80IA OF THE ACT AGAINST THE GROSS TOTAL INCOME. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE OF RS. 3,02,91,857/ - MADE BE THE LD. AO UNDER SECTION 14A OF THE ACT ~ READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (' THE RULES'). THE APPELLANT THEREFORE PRAYS THAT THE LD. AO BE DIRECTED TO DELETE THE DISALLOWANCE OF EXPENDITURE MADE UNDER SECTION 14A OF THE ACT. 3 . WITHOUT PREJUDICE TO GROUND NO. 2, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE LD. AO IN MAKING DISALLOWANCE OF RS. 2,66,66,650/~ UNDER SECTION 14A OF THE EXPENDITURE INCURRED IN RELA TION TO INVESTMENT IN ITS SUBSIDIARIES WITHOUT APPRECIATING THE FACT THAT INVESTMENT IN SUBSIDIARIES I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 3 WAS FOR THE PURPOSE OF ACQUIRING CONTROLLING TAKE IN THE COMPANIES AND NOT FOR THE PURPOSE OF EARNING EXEMPT INCOME . THE APPELLANT THEREFORE PRAYS THAT THE LD. AO BE DIRECTED TO DELETE THE DISALLOWANCE OF EXPENDITURE O F RS. 2,66,66,650/ - MADE UNDER SECTION 14A OF THE ACT. 4. WITHOUT PREJUDICE TO GROUND NO. 2 AND 3, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT ADJUDICATING THE GROUND THAT THE LD. AO ERRED IN MAKING DI SALLOWAN CE UNDER SECTION 14A OF RS. 3,02,91,857/ - WHICH WAS MORE TH AN THE EXEMPT INCOME OF RS. 42,35,977/ - RECEIVED BY THE APPELLANT. THE A PP ELLANT THEREFORE PRAYS THAT DISALLOWANCE UNDER SECTION 14A, IF ANY, SHOULD BE RESTRICTED TO THE AM OUNT OF EXEMPT INCOME RECEIVED BY THE APPELLANT. 5. ON THE FACTS AND IN CIRCUMST ANCES OF THE CASE, THE LD. AO ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. _. . _ THE APPELLANT THEREFORE PRAYS THAT THE ACTION OF THE LD. AO IN INITIATING PENALTY PROCEEDINGS BE QUASHED. THAT THE APPELLANT RESERVES ITS RIGHT TO ADD, ALTER, AMEND, DELETE OR WITHDRAW ANY GROUND OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THIS APPEALS. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED 5 GROUNDS OF APPEAL, OUT OF WHICH GROUND NO. 1 IS RELATING TO DISALLOWANCE OF ASSESSEES CLAIM U/S 80IA OF RS. 15,07,380/ - . THE AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT THE GROSS TOTAL INCOME SHOULD BE COMPUTED AS PER SECTION 80A OF THE INCOME TAX ACT. 1961(ACT.) AND HE FURTHER SUBMITTED THAT THE ASSESSEE I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 4 CAN CL AIM DEDUCTION OF ENTIRE PROFIT DERIVED FROM ELIGIBLE UNIT FROM GROSS TOTAL INCOME OF THE ASSESSEE. THERE WAS INCOME FROM HOUSE PROPERTY OF RS. 15,07,380/ - EARNED DURING THE YEAR. THE ELIGIBLE INCOME FOR DEDUCTION COMPUTED BY THE ASSESSING OFFICER IS RS. 8 ,20,78,932/ - THE ASSESSEE COMPUTED DEDUCTION U/S 80IA OF RS. 17,12,67,722/ - THE ASSESSEE CLAIMED DEDUCTION TO THE EXTENT OF GROSS TOTAL INCOME OF THE IMPUGNED ASSESSMENT YEAR INCLUDING INCOME FROM HOUSE PROPERTY AND INCOME FROM BUSINESS & PROFESSION. IN THIS REGARD, DURING THE COURSE OF ARGUMENTS, IT WAS ASKED THE AR OF THE ASSESSEE TO JUSTIFY THE CLAIMS MADE U/S 80IA FROM INCOME FROM HOUSE PROPERTY AS CLAIMED BY THE ASSESSEE. THE BENCH ALSO ASKED THE LD. AR OF THE ASSESSEE THAT WHETHER THE ASSESSEE IS ELIGIBLE FOR CLAIMING DEDUCTION U/S 80IA FROM INCOME FROM HOUSE PROPERTY , BUT, THE LD. AR UNABLE TO GIVE REPLY WHICH MEANS THE LD. AR UNABLE TO SUBSTANTIATE HIS CLAIM. AFTER HEARING OF THE CASE, THE ASSESSEE FILED A LETTER DATED 22/04/2021 VIDE INWARD RECE IPT NO. 2094, DATED 22/04/2021, STATING THAT IT DOES NOT WANT TO PRESS THIS GROUND, THE CONTENTS OF WHICH ARE AS UNDER FOR READY REFERENCE: NSL RENEWABLE POWER PRIVATE LIMITED 22 APRIL, 2021 REGISTERED OFFICE: NSL ICON PO WE R 4TH FLOOR, 8 - 2 - 684/2/A , ROAD NO.12, BANJARA HILLS HYDERABAD _ 500 034, TELANGANA WWW.NSLPOWER.COM CLN: U40 I09TG I 985PTC I 14078 I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 5 HON'BLE INCOME TAX APPELLATE TRIBUNAL - HYDERABAD DEAR SIR, RE: NSL RENEWABLE POWER PRIVATE LIMITED ('NSL' OR 'WE') AY 2011 - 12 - ITA NO. 1024/HYD/2017 (ASSESSEE APPEAL) SUB: NOTE ON GROUND NO. 1 WE REFER TO THE CAPTIONED APPEAL WHICH WAS HEARD BEFORE THE HON'BLE 'A' BENCH OF THE INCOME - TAX APPELLATE TRIBUNAL, HYDERABAD ON 22 APRIL, 2021 FOR AY 2011 - 12. DURING THE COURSE OF HEARING, THE AUTHORIZED REPRESENTATIVE CAR') ARGUED THAT GROUND NO.1 RAISED BY NSL IN THE CAPTIONED CASE IS COVERED ON MERITS BY THE ITAT ORDER FOR AY 2010 - 11 IN ITA NO. 2146/HYD/2017 AND AY 2012 - 13 IN ITA NO. 988/HYD/2017 AND HENCE PRAYED THAT T HE ADDITION SHOULD BE DELETED. HOWEVER, YOUR HONOUR'S ASKED THE AR TO FILE A NOTE / CLARIFICATION ON CERTAIN POINTS RAISED DURING THE COURSE OF HEARING FOR THE PURPOSE OF COMPLETENESS. FOR THE SAKE OF REFERENCE, THE RELEVANT GROUND IS RE - PRODUCED HEREIN BE LOW: FOR THE SAKE OF REFERENCE, THE RELEVANT GROUND IS RE - PRODUCED HEREIN BELOW: '1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - IV ('LD. CIT(A)'] ERRED IN CONFIRMING THE ACTION OF DE PUTY COMMISSIONER OF INCOME TAX, CIRCLE 16(1), HYDERABAD ('LD. AO') IN RESTRICTING THE CLAIM OF DEDUCTION UNDER SECTION 80IA OF THE ACT ONLY TO THE EXTENT OF INCOME FROM BUSINESS AND PROFESSION AND THEREBY NOT ALLOWING DEDUCTION TO THE EXTENT OF RS. 15,07, 380/ - FROM THE GROSS TOTAL INCOME. I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 6 THE APPELLANT THEREFORE PRAYS THAT THE LD. AO BE DIRECTED TO ALLOW THE CLAIM OF DEDUCTION UNDER SECTION 80IA OF THE ACT AGAINST THE GROSS TOTAL INCOME.' IN THIS REGARD, WE MOST HUMBLY SUBMIT THAT, WE DON'T WANT TO PRE SS THIS GROUND CONSIDERING THE SMALLNESS OF AMOUNT. WE FURTHER SUBMIT THAT THIS SHOULD NOT BE TREATED AS OUR ACCEPTANCE OF THE AO'S ORDER FOR ANY OTHER ASSESSMENT YEARS AND WE RESERVE OUR RIGHT TO CONTEST THE SAID ISSUE ON MERITS IN THOSE YEARS. KINDLY T AKE THE ABOVE ON RECORD AND OBLIGE. THANKING YOU. YOURS FAITHFULLY, FOR NSL RENEWABLE POWER PRIVATE LIMITED \ AUTHORISED SIGNATORY ENCL.: AS ABOVE C.C.: LEARNED DEPARTMENTAL REPRESENTATIVE, 'A' BENCH 2.1 IN VIEW OF THE ABOVE OF OUR DISCUSSION , THE ASSESSEE IS NOT ELIGIBLE TO CLAIM THE DEDUCTION U/S 80IA OF THE ACT. THE LEGISLATURE HAS CLEARLY SPELT OUT IN THE DEDUCTION PROVISIONS THAT WHICH INCOMES ARE ELIGIBLE TO CLAIM DEDUCTION U/S 80IA, AND THEREFORE, THE ASSESSEE CANNOT G O BEYOND THE PROVISIONS AND CLAIM DEDUCTION U/S 80IA. THE DEDUCTION PROVISIONS SHOULD BE INTERPRETED STRICTLY AND IF THERE IS ANY AMBIGUITY, IT GOES TO IN FAVOUR OF REVENUE. THIS PROPOSITION WE RELY ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF RAMNATH & CO. VS. CIT IN CIVIL APPEAL NOS . 2506 - 2509 OF 2020 (ARISING OUT OF SLP (CIVIL) NOS. 23535 23538 OF 2016) , VIDE I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 7 JUDGMENT DATED 5 TH JUNE, 2020, WHEREIN IT IS HELD AS UNDER: 10.2. AS REGARDS THE PRINCIPLES OF INTERPRETATION, THE LEARNED SENIOR COUNSEL FOR REVENUE HAS STRONGLY RELIED UPON THE CONSTITUTION BENCH DECISION IN COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI V. DILIP KUMAR & CO. AND ORS: (2018) 9 SCC 1 TO S UBMIT THAT IT IS NOW SETTLED BEYOND DOUBT THAT TAXING STATUTES ARE SUBJECT TO THE RULE OF STRICT INTERPRETATION, LEAVING NO ROOM FOR ANY INTENDMENT; AND THE BENEFIT OF AMBIGUITY IN CASE OF AN EXEMPTION NOTIFICATION OR AN EXEMPTION CLAUSE MUST GO IN FAVOUR OF THE REVENUE, AS EXEMPTIONS FROM TAXATION HAVE A TENDENCY TO INCREASE THE BURDEN ON THE UNEXEMPTED CLASS OF TAX PAYERS. THE SAME PRINCIPLES, ACCORDING TO THE LEARNED COUNSEL, SHALL APPLY TO SECTION 80 - O OF THE ACT AND, FOR THE LAW DECLARED BY THE CONSTIT UTION BENCH, THE DECISION RELIED UPON BY THE LEARNED COUNSEL FOR THE APPELLANT IN BABY MARINE EXPORTS (SUPRA), WHICH EVEN OTHERWISE DEALT WITH SECTION 80HHC OF THE ACT AND NOT SECTION 80 - O, IS OF NO HELP TO THE APPELLANT. 2.2 ACCORDINGLY, THE ASSESSEE IS NOT ELIGIBLE TO CLAIM DEDUCTION U/S 80IA FROM THE INCOME FROM HOUSE PROPERTY AS CLAIMED. THUS, WE DISMISS THE GROUND NO. 1 RAISED BY THE ASSESSEE ON THIS ISSUE. 3. GROUND NOS. 2 TO 4 ARE PERTAINING TO DISALLOWANCE U/S 14A OF THE ACT. GROUND NO. 5 IS RELATING TO INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C), WHICH IS PREMATURE IN NATURE AND ASSESSEE DOES NOT WANT TO PRESS THIS GROUND ALSO. I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 8 4 . BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY 2011 - 12 ON 30/09/2011 DECLARING NIL INCOME AFTER CLAIMING DEDUCTION UNDER CHAPTER VI - A AND BOOK PROFITS U/S 115JB AT RS. 2,17,47,553/ - . THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT A ND SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY. ACCORDINGLY, STATUTORY NOTICES WERE ISSUED TO THE ASSESSEE, AGAINST WHICH, THE ASSESSEE FILED THE INFORMATION AS CALLED FOR. 4 .1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WITH REGARD TO DISALLOWAN CE OF INTEREST EXPENDITURE U/S 14A, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS IN RECEIPT OF DIVIDEND INCOME TO THE TUNE OF RS.42,35,977/ - FROM MUTUAL FUNDS DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION AND CLAIMED THE S A ME AS EXEMPT, BUT , NO EXPENDITURE IN THIS REGARD HAD BEEN DISALLOWED U/S 14A . THE ASSESSING OFFICER FURTHER OBSERVED THAT AS PER THE PROVISIONS OF SECTION 14A OF THE ACT, EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME SHALL BE DISALLOWED AND THE PROVISIONS OF THIS SECTION ALSO APPLY TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE T OTAL INCOME. IN VIEW OF TH E ABOVE OBSERVATIONS , THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE U /S 14A AT RS.3,02,91,857/ - . I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 9 5 . WHEN THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), THE CIT(A) FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S PRABHAT AGRI BIOTECH VS. DEPARTMENT OF INCOME TAX IN ITA NO. 752/HYD/2014 DATED 28/08/2014 RESTRICTED TO THE DISALLOWANCE TO RS. 2,26,66,650/ - U/S 14A AGAINST THE ADDITION OF RS. 3,02,91,857/ - MADE BY THE AO U/S 14A OF THE ACT. 6 . AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APP EAL BEFORE US. 7 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AS WELL AS GONE THROUGH THE ORDERS OF REVENUE AUTHORITIES. IT IS A SETTLED POSITION THAT D ISALLOWANCE OF EXPENDITURE U/S. 14A READ WITH RULE 8D SHALL NOT EXCEED EXEMPT INCOME EARNED FOR THE YEAR AS PER CASE LAW JOINT INVESTMENT PVT. LTD. VS. CIT 372 ITR 694 (DEL.) . THE ASSESSEE EARNED EXEMPT INCOME OF RS. 42,35,977/ - AS PER COMPUTATION OF INCOME. THEREFORE, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE U/S 14A RWR 8D TO RS. 42,35,977/ - . THUS, GROUND NOS. 2 TO 4 RAISED IN MAIN APPEAL 1024/HYD/2017 BY THE ASSESSEE ARE PARTLY ALLOWED. I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 10 ITA NO. 2031/HYD/2018 APPEAL BY THE REVENUE: 8 . THIS APPEAL FILED BY THE REVENUE FOR AY 2012 - 13 IS DIRECTED AGAINST THE CIT(A) - 4, HYDERABADS ORDER, DATED 20/07/2018 INVOLVING PROCEEDINGS U/S 143(3) OF THE INCOME TAX ACT, 1961 ; IN SHORT THE ACT ON THE FOLLOWING GROUNDS OF APPEAL: 1. THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE U/S 14A FROM RS.12,73,86,991/ - TO RS.57/60/120/ - I.E TO THE DIVIDEND INCOME EARNED BY THE ASSESSEE WHICH IS IN CONTRAVENTION TO THE CBDT CIRCULAR NO. 5/2014 IN THIS REGARD. 2. THE LD. CIT(A) ERRED I N HOLDING THAT THE DISALLOWANCE U/S 14A SHALL BE RESTRICTED TO THE EXEMPT INCOME EARNED BY THE ASSESSEE. 3. THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO UNDER THE HEAD 'INCOME FROM OTHER SOURCES' TO THE TUNE OF RS.57,60,121/ - . 4. THE LD . CIT(A) ERRED IN NOT REMANDING ADDITIONAL EVIDENCE, IF ANY, WITH REGARD TO CLAIM OF EXEMPT DIVIDEND INCOME WHICH IS IN CONTRAVENTION TO THE PROVISIONS OF RULE 46A OF THE INCOME TAX RULES. 5. ANY OTHER GROUND THAT MAY BE RAISED AT THE TIME OF HEARING. 9 . BRIEFLY THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASST. YEAR 2012 - 13 ON 30.09.2012 ADMITTING NIL INCOME AFTER CLAIMING DEDUCTION U/S 80IA AMOUNTING TO RS. 21,67,91,677/ - AND BOOK PROFITS U/S 115JB AT RS. 13,78,32,6 70/ - . THE RETURN WAS PROCESSED U/S 143(1) ON 07.02.2012. LATER, THE I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 11 APPELLANT HAS FILED A REVISED RETURN ON 05.10.2012 ADMITTING NIL INCOME AFTER CLAIMING DEDUCTION U/S 80IA AMOUNTING TO RS. 21,67,91,677/ - . FURTHER, IT HAD AGAIN FILED REVISED RETURN ON 21. 11.2012 ADMITTING NIL INCOME AFTER CLAIMING DEDUCTION U/S 80IA AMOUNTING TO RS. 21,35,54,327/ - . THE COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT ON 31/07/2015 BY DETERMINING THE ASSESSED INCOME OF THE ASSESSEE AT RS. 7,00,54,372/ - BY MAKING THE FOLLOWIN G DISALLOWANCES: 1. DISALLOWANCE U/S 14A OF THE ACT RS. 12,73,86,991/ - 2. DAILY DIVIDEND TREATED AS OTHER SOURCES OF INCOME RS. 57,60,121/ - . 10 . WHEN THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE. 1 1 . AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE THE ITAT AND THE ASSESSEE ALSO FILED CROSS OBJECTIONS IN CO NO. 09/HYD/2020 WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWING OBJECTIONS: ALL THE GROUNDS OF CROSS OBJECTIONS STATED HERE ARE WITHOUT PREJUDICE TO THE RELIEF GRANTED BY THE COMMISSIONER OF INCOME - TAX (APPEALS) - 4 ['CIT(A)']. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT (A) ERRED IN NOT GIVING RELIEF TO THE CROSS - OBJECTOR ON THE DISALLOWANCE OF EXPENDITURE MADE BY THE LD. AO IN RESPECT OF INVESTMENTS MADE IN ITS SUBSIDIARIES, UNDER SECTION 14A READ WITH RULE 8D, EVEN THOUGH THE CROSS - I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 12 OBJECTO R HAS NOT EARNED ANY EXEMPT INCOME FROM SUCH INVESTMENTS DURING THE YEAR. THE CROSS - OBJECTOR PRAYS THAT LD. AO BE DIRECTED TO DELETE THE DISALLOWANCE OF EXPENDITURE MADE UNDER SECTION 14A READ WITH RULE OF THE ACT IN RESPECT OF INVESTMENTS MADE IN ITS SU BSIDIARIES, SINCE IT HAS NOT EARNED ANY EXEMPT INCOME FROM SUCH INVESTMENTS DURING THE YEAR. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT GIVING RELIEF TO THE CROSS - OBJECTOR ON THE DISALLOWANCE OF EXPENDITU RE U] S 14A READ WITH RULE 8D(2)(II) MADE BY THE LD. AO IN RESPECT OF INVESTMENTS MADE IN ITS SUBSIDIARIES, EVEN THOUGH THE CROSS - OBJECTOR HAS NOT EARNED ANY EXEMPT INCOME FROM SUCH INVESTMENTS DURING THE YEAR. THE CROSS - OBJECTOR PRAYS THAT LD. AO BE DIR ECTED TO DELETE THE DISALLOWANCE OF EXPENDITURE MADE UNDER SECTION 14A READ WITH RULE 8D(2)(II) OF THE ACT IN RESPECT OF INVESTMENTS MADE IN ITS SUBSIDIARIES, SINCE IT HAS NOT EARNED ANY EXEMPT INCOME FROM SUCH INVESTMENTS DURING THE YEAR. 3. ON THE FACT S AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT GIVING RELIEF TO THE CROSS - OBJECTOR WHILE CALCULATING THE DISALLOWANCE UNDER SECTION 14A READ WI TH RULE 8D(2)(III) MADE BY THE LD. AO, BY TAKING INTO CONSIDERATION EVEN THOSE IN VESTMENTS WHICH HAVE NOT YIELDED ANY EXEMPT INCOME DURING THE YEAR. THE CROSS - OBJECTOR THEREFORE PRAYS THAT THE INVESTMENTS MADE IN SUBSIDIARIES WHICH HAS NOT YIELDED ANY EXEMPT INCOME DURING THE YEAR SHOULD NOT BE TAKEN INTO CONSIDERATION FOR CALCULATI NG AVERAGE INVESTMENTS FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2)(III). I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 13 THE CROSS - OBJECTOR CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL AND TO SUBMIT SUCH STATEMENTS, DOCUMENTS AND PAPERS A S MAY BE CONSIDERED NECESSARY EITHER AT OR BEFORE THE APPEAL HEARING. 1 2 . AS REGARDS THE CO NO. 09/HYD/2020 FILED BY THE ASSESSEE, WE NOTICE AT THE OUTSET THAT ASSESSEES CO SUFFERS FROM 398 DAYS DELAY IN FILING. TO THIS EFFECT, THE ASSESSEE FILED PET ITION FOR CONDONATION OF THE SAID DELAY STATED THEREIN THAT DUE TO THE BONAFIDE BELIEF THAT THE REVENUES APPEAL DECIDED BY THE CIT(A) IS IN FAVOUR OF THE ASSESSEE CAUSED THE IMPUGNED DELAY IN FILING OF THE INSTANT APPEAL. CASE LAW COLLECTOR LAND ACQUISITI ON VS MST. KATIJI & ORS, 1987 AIR 1353 (SC) AND UNIVERSITY OF DELHI VS. UNION OF INDIA, CIVIL APPEAL NO. 9488 & 9489/2019 DATED 17 DECEMBER, 2019, HOLD THAT SUCH A DELAY; SUPPORTED BY COGENT REASONS, DESERVES TO BE CONDONED SO AS TO MAKE WAY FOR THE CAUSE OF SUBSTANTIAL JUSTICE. WE ACCORDINGLY HOLD THAT ASSESSEES IMPUGNED DELAY OF 398 DAYS IS NEITHER INTENTIONAL NOR DELIBERATE B UT DUE TO THE CIRCUMSTANCES BEYOND ITS CONTROL. THE SAME STANDS CONDONED. CASE IS NOW TAKEN UP FOR ADJUDICATION ON MERITS. 1 3 . WITH REGARD TO GROUND NO S . 1 , 2 & 3 RAISED BY THE REVENUE , THE CIT(A) DIRECTED THE AO TO RESTRICT THE DISALLOWANCE TO THE EX TENT OF DIVIDEND INCOME OF RS. 57,60,120/ - RECEIVED BY THE ASSESSEE BY OBSERVING AS UNDER: I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 14 7.3 THE APPELLANT'S SUBMISSIONS IN THI S REGARD ARE ACCEPTED AND THEREFORE KEEPING IN VIEW THE CASE OF MAXOPP INVESTMENT LTD VS. COMMISSIONER OF INCOME TAX, NEW DELHI, A.K. SIKRI AND ASHOK BHUSHAN, JJ, WHICH WAS PASSED BY SUPREME COURT OF INDIA VIDE 154 (SC)/[2018] 254 TAXMAN 325 (SC)/[2018] 40 2 ITR 640 (SC)/[2018] 301 CTR 489 (SC), WHICH SAYS THAT 'ONLY EXPENSES PROPORTIONATE TO EARNING EXEMPT INCOME COULD BE DISALLOWED UNDER SECTION 14A' THE ASSESSING OFFICER IS DIRECTED TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF DIVIDEND INCOME OF RS. 57,6 0,120/ - RECEIVED. HENCE, PARTLY ALLOWED. 1 3 .1 AFTER HEARING BOTH THE PARTIES, WE ARE OF THE VIEW THAT THE CIT(A) HAS RESTRICTED THE DISALLOWANCE TO THE EXTENT OF DIVIDEND INCOME OF RS. 57,60,120/ - . IN CROSS OBJECTIONS NO. 09/HYD/2020, THE OBJECTION OF THE ASSESSEE IS THAT CIT(A) HAS WRONGLY DECIDED THE ISSUE AND RESTRICTED THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. WHILE GOING THROUGH THE CALCULATION OF DISALLOWANCE MADE BY THE AO, THE AO HAS TAKEN THE VALUE OF AVERAGE INVES TMENTS OF RS. 174.87 CRORES, BUT, THE CONTENTION OF THE ASSESSEE IN THE CROSS OBJECTIONS, THE ASSESSEE HAS NOT RECEIVED ANY EXEMPT INCOME FROM ITS SUBSIDIARIES. AS PER OUR THOUGHTFUL CONSIDERATION, THE DISALLOWANCE U/S 14A RWR 8D(2)(II) AND (III) THE VALUE OF INVESTMENTS SHOULD BE CONSIDERED ONLY ON THE INVESTMENTS FROM WHICH THE ASSESSEE HAS EARNED EXEMPT INCOME. IN THIS CONNECTION, WE RELY ON THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF TRANSPORT CORPORATION OF INDIA LTD. IN ITA I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 15 NO. 117/HYD/2016, ORDER DATED 21/09/2016 , WHEREIN THE COORDINATE BENCH HAS HELD AS UNDER: 11. CONSIDERED THE SUBMISSIONS OF BOTH THE COUNSELS AND PERUSED THE MATERIAL FACTS ON RECORD. THE AR SUBMITTED THAT THE ASSESSEE HAS SUFFICIENT OWN FUNDS WHICH ARE INTEREST FREE TO MAKE INVESTMENT. HE ALSO RELIED ON VARIOUS DECISIONS, IN PARTICULAR, RELIANCE U TILITIES & POWER LTD. (SUPRA). WE CANNOT TAKE THIS ARGUMENT FURTHER BECAUSE THERE EXIST INTEREST BEARING FUNDS AND IT IS DIFFICULT TO IDENTIFY THE UTILIZATION OF THE FUNDS IN THE BUSINESS UNLESS THE ASSESSEE BRINGS PROPER RECORDS TO SHOW THAT THE SPECIFIC INTEREST FREE FUNDS WERE UTILIZED TO ACQUIRE THE INVESTMENT WHICH ARE EXEMPT FROM TAX. IN THE PRESENT CASE, IT IS DIFFICULT TO IDENTIFY THE FUNDS UTILIZATION CONSIDERING THE COMPLICATED STRUCTURE OF THE BUSINESS. TO ADDRESS THIS ISSUE, THE LEGISLATURE HAS INTRODUCED RULE 8D FOR CALCULATION OF DISALLOWANCE RELATING TO DIRECT EXPENSES ASSOCIATED WITH THE EXEMPT INCOME, INTEREST RELATING TO THE INVESTMENT AND ADMINISTRATIVE EXPENSES. 11.1 WHILE CAREFULLY READING THE RULE 8D(2)(II), THE FORMULA GIVEN ARE: A X B /C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR: B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; IN PARTIC ULAR, THE NOTES FOR 'B' CLEARLY STATES THAT THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME. I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 16 IT IS CLEAR THAT WE HAVE TO INCLUDE THOSE INVESTMENTS WHICH HAS GENERATED INCOME AND EXCLUDE THOSE INVESTMEN TS, WHICH HAVE NOT GENERATED INCOME. IN THE PRESENT CASE, AO HAD TAKEN THE TOTAL INVESTMENT INSTEAD OF THOSE INVESTMENTS, WHICH HAVE GENERATED INCOME. ACCORDINGLY, WE DIRECT THE AO TO CALCULATE THE DISALLOWANCE OF INTEREST AS BELOW ( AS PER RULE 8D): INTER EST X INVESTMENT( WHICH GENERATED INCOME) AVERAGE TOTAL ASSETS THE MAIN REASON IS THAT AS PER SECTI ON 14A , NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME, WHICH IS EXEMPT FROM TAX. THE RELEVANCE IS THE EXPENDITURE IN RELATION TO INCOME. THE QUANTIFICATION HAS TO BE UNDERTAKEN IN RELATION TO THE EXEMPT INCOME. THE INVESTMENT WHICH HAS NOT GENERATED EXEMPT INCOME SHOULD BE EXCLUDED FROM THE CALCULATION OF RATIO TO DETERMINE THE DISALLOWANCE. 11.2 SIMILARLY, FOR THE ADMINISTRATIVE EXPENSES, 0.5% OF AVERAGE INVESTMENTS FROM WHICH THE EXEMPT INCOME IS RECEIVED SHOULD BE CONSIDERED INSTEAD OF AVERAGE OF THE TOTAL INVESTMENTS. 11.3 CONSIDERING THE ABOVE DISCUSSION, WE DIRECT THE AO TO RECALCULATE THE DISALLOWANCE AS PER RULE 8D AS PER THE ABOVE GUIDANCE. ACCORDINGLY, GROUND RAISED BY ASSESSEE IS ALLOWED. 1 3 .2 WE DIRECT THE AO TO REC ALCULATE THE DISALLOWANCE AS PER RULE 8D AS PER THE ABOVE GUIDANCE. WE FURTHER DIRECT THE AO IF THE DISALLOWANCE U/S 14A IS HIGHER IN THE RECALCULATION MADE BY THE AO, THE SAME SHALL BE RESTRICTED TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE AS PE R THE C ASE LAW JOINT INVESTMENT PVT. LTD. VS. CIT 372 ITR 694 (DEL.). I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 17 1 3 . 3 . FURTHER, THE REVENUE HAS RAISED A GROUND REGARDING THE DIVIDEND INCOME OF RS. 57,60,120/ - SHOULD BE TREATED AS INCOME FROM OTHER SOURCES IS ALSO NOT CORRECT. ON THE ONE HAND, THE ASSESSING OFFICER HIMSELF HAS TREATED IT AS A DIVIDEND INCOME WHICH IS EXEMPT AND ON OTHER HAND, HE HAS TREATED AS DAILY DIVIDEND INCOME AND TAXED UNDER THE INCOME FROM OTHER SOURCES . W HILE RE CALCULATING DISALLOWANCE U/S 14A , WE HAVE RESTRICTED THE DISALLOWANCE TO THE EXTENT OF EXEMPT EARNED BY THE ASSESSEE OR LESS THAN THE EXEMPT INCOME, WHICHEVER IS LOWER AND THE SAME AMOUNT CANNOT BE TAXED AS INCOME FROM OTHER SOURCE, WHICH AMOUNTS DOUBLE TAXATION IN THE HANDS OF THE ASSE SSEE. THE DIVIDEND AMOUNT RECEIVED BY THE ASSESSEE IS EXEMPT AS PER SECTION 10(35) OF THE IT ACT. THE ASSESSEE HAS RELIED ON THE FOLLOWING CASE LAW, WHICH SUPPORT THE CASE OF THE ASSESSEE: 1. PCIT VS. CARAF BUILDERS & CONSTRUCTIONS (P) LTD. (ITA NO. 1260 OF 2018) (DELHI HC) 2. PCIT VS. MCDONALDS INDIA PVT. LTD., (ITA 725/2018 (DELHI HC) 3. DCIT VS. PITTI ELECTRICAL EQUIPMENT PVT. LTD. ITA NO. 735/HYD/2018. 4. VANNI POTLURI VS. DCIT, ITA NO. 2263/HYD/2017 5. MYLAN LABORATORIES LTD. VS. DCIT, 180 ITD 558. 1 3 . 4 ACCORDINGLY, THE GROUNDS NO S . 1 TO 3 RAISED BY THE REVENUE AND CROSS OBJECTIONS FILED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSE. I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 18 1 4 . AS REGARDS GROUND NO. 4 RAISED BY THE REVENUE, WE OBSERVE THAT T HE LD. DR COULD NOT ESTABLISH THAT THERE WAS ANY ADDITIONAL EVIDENCE FILED BY THE ASSESSEE BEFORE THE CIT(A) IN VIOLATION OF THE RULE 46A OF THE IT RULES . THEREFORE, TH E GROUND NO. 4 RAISED B Y THE REVENUE ON THIS ISSUE IS ALSO DISMISSED. 1 5 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND REVENUES APPEAL AND CO FILED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. A COPY OF THIS COMMON ORDER BE PLACED IN RESPECTIVE CASE FILES. PRONOUNCED IN THE OPEN COURT ON 17 TH JUNE , 2021. SD/ - ( S.S. GODARA ) JUDICIAL MEMBER SD/ - ( L.P. SAHU ) ACCOUNTANT MEMBER HYDERABAD, DATED 17 TH JUNE , 2021 KV 1 NSL RENEWABLE POWER PVT. LTD., 8 - 2 - 684/2/A, NSL ICON, ROAD NO. 12, BANJARA HILLS, HYDERABAD 500 0 34 2 DC IT, CIRCLE 1 6 ( 1 ), IT TOWER S , AC GUARDS, MASAB TANK, , HYDERABAD - 500004 3 CIT(A) - 4 , HYDERABAD. 4 PR. CIT 4 , HYDERABAD. 5 ITAT, DR, HYDERABAD. 6 GUARD FILE. I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 19 I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 20 I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 21 I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 22 I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 23 I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 24 I.T.A. NO. 1024 /HYD/201 7 AND OTHERS NSL RENEWABLE POWER PVT. LTD., , HYD. 25 S . N O . DETAILS DATE 1 DRAFT DICTATED ON 2 DRAFT PLACED BEFORE AUTHOR 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5 APPROVED DRAFT COMES TO THE SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 7 FILE SENT TO BENCH CLERK 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER