ASSISTANT COMMISSIONER OF INCOME TAX , CENTRAL CIRCLE -1,RAIPUR (CG), RAIPUR (CG) V. M/S SARDA ENERGY & MINERALS LTD , NAGPUR

ITA 225/NAG/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5394 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 27-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: U U KASAR JT
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 80IA

Judgement Text

UKXIQJ , UKXIQJ IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR . , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NOS.224 & 225/NAG/2017 / ASSESSMENT YEARS : 201112 & 2012-13 ACIT, CENTRAL CIRCLE-1, RAIPUR (CG). ....... / APPELLANT / V/S. M/S. SARDA ENERGY & MINERALS LTD., 73-A, CENTRAL AVENUE, NAGPUR. PAN : AAACR6149L / RESPONDENT REVENUE BY : SHRI U. U. KASAR, JT. CIT ASSESSEE BY : SHRI RAJESH LOYA, ADV. / DATE OF HEARING : 28.03.2019 / DATE OF PRONOUNCEMENT : 25.04.2019 / ORDER PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS BY THE REVENUE UNDER CONSIDERATION. BOTH THE APPEALS ARE AGAINST THE COMMON ORDER OF CIT(A)-4, NAGPUR DATED 24.03.2017 FOR THE ASSESSMENT YEARS 2011-12 AND 2012-13 RESPECTIVELY. SINCE THE FACTS AND ISSUES INVOLVED IN BOTH THE APPEALS 2 ITA NOS.224 & 225/NAG/2017 ARE COMMON, THEREFORE, BOTH THE APPEALS OF THE REVENUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMPOSITE ORDER. ITA NO.224/NAG/2017 (A.Y. 2011-12) 2. SINCE THE FACTS, GROUNDS, ISSUES AND ARGUMENTS ARE IDENTICAL IN BOTH THE APPEALS, THEREFORE, THE APPEAL IN ITA NO.224/NAG/2017 FOR THE ASSESSMENT YEAR 2011-12 TAKEN AS THE LEAD CASE. 3. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION MADE BY THE A.O. OF RS.3,85,95,867/- ON ACCOUNT OF DISALLOWANCE U/S 80IA(8) OF THE INCOME TAX ACT, 1961 AND RS.36,70,781/- ON ACCOUNT OF DISALLOWANCE U/S 14A R.W. RULE 8D OF THE INCOME TAX RULES WITHOUT APPRECIATING THE FACTS AND EVIDENCES BROUGHT INTO LIGHT BY THE A.O. DURING ASSESSMENT PROCEEDINGS. 2. THE APPELLANT RESERVES HIS RIGHT TO ADD, AMEND OR ALTER THE GROUNDS OF APPEAL ON OR BEFORE THE DATE; THE APPEAL IS FINALLY HEARD FOR DISPOSAL. 4. FROM THE ABOVE EXTRACTED GROUNDS, IT IS EVIDENT THAT THE COUPLE OF ISSUES RELATING TO (I) THE DISALLOWANCE U/S 80IA(8) OF THE ACT AND (II) THE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. 3 ITA NOS.224 & 225/NAG/2017 5. BRIEFLY STATED THE RELEVANT FACTS INCLUDE THAT THE ASSESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SPONGE IRON, STEEL, FERRO ALLOYS AND GENERATION AND SALE OF ELECTRICITY. THE ASSESSEE FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.39,92,030/-. THE VALUATION OF THE ELECTRICITY CONSUMED FOR CAPTIVE CONSUMPTION AS WELL AS INVOKING OF THE PROVISIONS OF SECTION 14A OF THE ACT ARE THE ISSUES RAISED IN THE SCRUTINY ASSESSMENT. AT THE END OF THE ASSESSMENT, THE ASSESSING OFFICER MADE THE FOLLOWING ADDITIONS :- 4. SUBJECT TO THE ABOVE REMARKS, TOTAL INCOME OF THE ASSESSEE COMPANY IS COMPUTED AS UNDER :- INCOME AS PER RETURN OF INCOME RS. 39,92,030/- ADD: (1) DISALLOWANCE U/S.80IA(8) RS.3,85,95,867/- (2) DISALLOWANCE U/S. 14A R.W. RULE 8D RS. 36,70,781/- TOTAL INCOME RS.4,62,58,678/- 6. IT IS THE CASE OF THE ASSESSEE THAT THE VALUATION OF ELECTRICITY FOR CAPTIVE CONSUMPTION BY STEEL DIVISION OF THE ASSESSEE IS NOT PROPERLY DONE BY THE ASSESSING OFFICER. THE ASSESSEE ADOPTED PER UNIT RATE OF RS.2.99; WHEREAS THE ASSESSING OFFICER ADOPTED ONLY RS.2.88 PER UNIT RATE. THE ASSESSING OFFICER MADE ADDITION OF RS.3,85,95,867/- ON THIS ISSUE FOR THE ASSESSMENT YEAR 2011-12. 4 ITA NOS.224 & 225/NAG/2017 7. FURTHER, THE ASSESSING OFFICER INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT R.W. RULE 8D(2)(III) OF THE I.T. RULES, QUANTIFIED THE DISALLOWANCE ON THESE PROVISIONS AMOUNTING TO RS.36,70,781/- FOR ADDITION. THE ASSESSEE EARNED DIVIDEND INCOME OF RS.68,48,647/-. THE SAID DISALLOWANCE WAS MADE UNDER CLAUSE (III) OF RULES 8D(2) OF THE I.T. RULES. THE RELEVANT DISCUSSION GIVEN IN PARA 3.5 OF THE ASSESSMENT ORDER AND THE SAME IS EXTRACTED HEREUNDER :- 3.5 IN VIEW OF THE ABOVE, I AM OF THE OPINION THAT CERTAIN PORTION OF EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE DISALLOWED U/S. 14A, REGARDING EXPENDITURE INCURRED FOR EARNING THE INCOME, NOT FORMING THE PART OF THE TOTAL INCOME. WORKING UNDER RULE 8D FOR SUCH DISALLOWANCE IS AS UNDER :- RULE 8D : (I) NIL (II) NIL (III) 36,70,781/- ..... % OF AVERAGE INVESTMENT I.E. % OF 73,41,56,127 = 36,70,781 (WORKING AS PER ANNEXURE A ATTACHED) THEREFORE, AN AMOUNT OF RS.36,70,781/- HAS BEEN DISALLOWED U/S. 14A, R.W. RULE 8D AS DISCUSSED ABOVE. PENALTY PROCEEDINGS U/S.271(1)(C) ARE SEPARATELY INITIATED AS THE ASSESSEE HAS FILED INACCURATE PARTICULARS OF ITS INCOME. 8. AGGRIEVED WITH THE ABOVE ADDITION, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). THE CIT(A) DELETED THE ADDITION OF RS.3,85,95,867/- U/S 80IA(8) OF THE ACT RELYING ON BINDING JUDGEMENTS IN THIS REGARD. 5 ITA NOS.224 & 225/NAG/2017 FOR THE SAKE OF COMPLETENESS, THE OPERATIONAL PARA FROM THE ORDER OF THE CIT(A) IS EXTRACTED HEREUNDER :- THUS, IN VIEW OF THE FACTS OF THE CASE, STATUTORY PROVISIONS AND JUDICIAL PRONOUNCEMENTS CITED ABOVE, I HAVE NO HESITATION TO HOLD THAT THE APPELLANT HAS FULLY JUSTIFIED THE RATE AT WHICH POWER IS SOLD TO ITS OWN FERRO ALLOY, STEEL AND OTHER DIVISIONS FOR THE PURPOSE OF CAPTIVE CONSUMPTION. THE SECTION 80IA PROVIDES THAT THE ASSESSEE MUST ADOPT MARKET VALUE AS THE TRANSFER PRICE. IN THE OPEN MARKET, WHERE A BASKET OF MARKET VALUES LIKE INDEPENDENT THIRD PARTY TRANSACTIONS, GRID PRICE (AVERAGE ANNUAL LANDED COST AT WHICH GRID HAS SOLD POWER TO THE ASSESSEE), POWER EXCHANGE PRICE FOR THE RELEVANT PERIOD ETC. ARE AVAILABLE, THE LAW DOES NOT PUT ANY RESTRICTION ON THE ASSESSEE AS TO WHICH MARKET VALUE IT HAS TO ADOPT. SO LONG AS THE ASSESSEE HAS ADOPTED A SUITABLE AND CORRECT MARKET VALUE AS THE TRANSFER PRICE, THAT IS SUFFICIENT COMPLIANCE OF LAW. A.O. CAN ADOPT A DIFFERENT VALUE ONLY WHERE THE VALUE ADOPTED BY ASSESSEE DOES NOT CORRESPOND TO THE MARKET VALUE. IN THE CASE BEFORE ME, THE ASSESSEE HAS ADOPTED THE AVERAGE RATE AS PER THE IEX AS THE MARKET VALUE AT WHICH THE POWER IS SOLD TO ITS OTHER DIVISIONS. THE RATE AS PER THE IEX IS THE RATE AT WHICH THE CONSUMERS CAN BUY POWER IN OPEN MARKET THROUGH THE ENERGY EXCHANGE. IT IS THUS THE MARKET RATE FOR PURCHASE OF POWER BY ALL CONSUMERS FROM IEX. THIS FACT HAS NOT BEEN CONTROVERTED BY THE A.O. ANYWHERE. HE HAS NOT BASED HIS ACTION ON A SOUND FOOTING BUT HAS INSTEAD ERRONEOUSLY HELD THAT THE CORRECT AUTHORITY TO DETERMINE MARKET RATE IS THE CSEB AND NOT IEX. THIS CONTENTION OF THE A.O. IS MISPLACED. THEREFORE, AS PER THE STATUTE AND RESPECTFULLY RELYING UPON THE AFORESAID JUDICIAL PRONOUNCEMENTS, I HEREBY HOLD THAT THE RATE AT WHICH THE APPELLANT HAS SOLD THE POWER TO ITS FERRO, STEEL & OTHER DIVISIONS CORRECTLY REPRESENTS THE MARKET RATE AND THE PROFIT CLAIMED TO BE EARNED BY UNIT ELIGIBLE U/S 80IA(8) IS JUSTIFIED BY THE APPELLANT. I FIND NO COGENT REASON WITH THE A.O. TO DISTURB THE SAME. I HEREBY HOLD THAT THE ACTION OF THE A.O. CONSIDERING THE RATE OF RS.2.88 INSTEAD OF RS.2.99 AS THE AVERAGE RATE OF POWER FOR THE PURPOSE OF CONSUMPTION BY APPELLANTS OTHER DIVISIONS TO BE UNJUSTIFIED AND CONTRARY TO THE LAW. FURTHER, I FIND THAT THE ISSUE IN QUESTION HAS BEEN EXAMINED BY HONBLE ITAT, MUMBAI BENCH FOR A.Y. 2003-04 TO 2005-06 IN APPELLANTS OWN CASE AND BY ITAT, NAGPUR BENCH FOR A.Y. 2007-08 & 2008-09 IN APPELLANTS OWN CASE . THE ISSUE HAS ALSO BEEN EXAMINED BY ME PREDECESSOR FOR A.Y. 2009-10 AND A.Y. 2010-11. THE ISSUE FOR ALL THESE YEARS HAS BEEN DECIDED IN APPELLANTS FAVOUR. FOLLOWING THE SAME I HEREBY DIRECT TO 6 ITA NOS.224 & 225/NAG/2017 FULLY ALLOW THE CLAIM OF DEDUCTIONS U/S.80IA(8) AS CLAIMED BY THE ASSESSEE AND DELETE THE ADDITION MADE OF RS.3,85,95,867/-. THE GROUND IS HEREBY ALLOWED. 9. WHILE GRANTING RELIEF TO THE ASSESSEE ON THIS ACCOUNT, THE CIT(A) RELIED HEAVILY ON THE VARIOUS JUDGEMENTS SUCH AS (I) ADDL.CIT VS. JINDAL STEEL & POWER LTD. 16 SOT 509 (DEL.); (II) CIT VS. GODAWARI POWER & ISPAT LTD., 223 TAXMANN.COM 234; AND, (III) WEST COAST PAPER MILLS LTD. VS. ACIT, 103 ITD 19 (MUM.). THUS, IT IS A CASE WHERE THE RELIEF IS GIVEN TO THE ASSESSEE FOR THE ASSESSMENT YEARS 2003-04 TO 2005-06, 2007-08 AND 2008-09 IN ASSESSEES OWN CASE. CONSIDERING THE SAME, WE ARE OF THE OPINION, THE ORDER OF THE CIT(A) IS FAIR AND REASONABLE ON THIS ACCOUNT AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, RELEVANT LIMBS OF THE GROUNDS STAND DISMISSED. 10. COMING TO THE DISALLOWANCE U/S 14A OF THE ACT, IT IS THE SUBMISSION OF THE ASSESSEE THAT INCURRING OF RS.36,70,781/- FOR EARNING OF RS.68,48,647/- IS ABSOLUTELY BEYOND THE COMMONSENSE. IT IS THE SUBMISSION OF THE ASSESSEE THAT DEPOSITING OF DIVIDEND INCOME 7 ITA NOS.224 & 225/NAG/2017 TO THE ACCOUNT OF THE ASSESSEE, IS NO REQUIREMENT OF EXPENDING SUCH HUGE MONEY OF RS.36,70,781/-. 11. ON HEARING BOTH THE SIDES ON THIS ISSUE, WE PERUSED THE ORDER OF THE CIT(A) AND FIND THE FOLLOWING OBSERVATION OF THE CIT(A) IS RELEVANT IN THIS REGARD AND THE SAME IS EXTRACTED HEREUNDER :- IN CASE BEFORE ME, THE APPELLANT, BY WAY OF ITS TOTAL RECEIPTS/TURNOVER, DIVIDEND INCOME, PROFITABILITY AND DETAILS OF EXPENDITURE HAS ESTABLISHED BEYOND DOUBTS THAT IT IS PRIMARILY AND MAINLY ENGAGED IN THE BUSINESS OF GENERATION AND SALE OF POWER AND MANUFACTURING OF SPONGE IRON, STEEL ETC. AND INVESTMENTS ARE MAINLY IN SUBSIDIARY AND ASSOCIATE COMPANIES FOR STRATEGIC PURPOSES. IT HAS BEEN ALSO PROVEN ON RECORD THAT OTHER THIRD PARTY INVESTMENTS ARE DONE AT SELDOM OCCASIONS WHEN THERE IS AVAILABILITY OF EXCESS FUNDS. THE INVESTMENTS DO NOT REQUIRE THE USE OF PERSONNEL AND FACILITIES RELATING TO COMPANYS BUSINESS. I FIND THAT THERE IS NO EVIDENCE BROUGHT ON RECORD AGAINST THE CLAIM OF THE ASSESSEE THAT THERE IS NO SYSTEMATIC AND REGULAR INVESTMENT ACTIVITY. THE A.O. HAS ALSO NOT CONTROVERTED THE CLAIM OF THE APPELLANT COMPANY THAT IT HAS NOT DEPLOYED ANY STAFF, PERSONNEL OR ANY OTHER ADMINISTRATIVE ASSET TOWARDS EARNING THE DIVIDEND INCOME. FURTHER, I FIND THAT THE A.O. HAS ALREADY ACCEPTED THAT NO INTEREST EXPENDITURE HAS BEEN INCURRED IN RELATION TO THE EXEMPT INVESTMENTS MADE AND HENCE HAS NOT MADE ANY DISALLOWANCE OF INTEREST BY INVOKING RULE 8D(II). HE FAILED TO BRING ON RECORD ANY COGENT REASONS FOR DISBELIEVING THE ASSESSEES CLAIM THAT NO EXPENDITURE HAS BEEN INCURRED TO EARN EXEMPT INCOME. THUS, WITHOUT ANY SOUND FOOTING, HE INVOKED SECTION 14A AND RULE 8D(II). THIS ACTION OF THE A.O. IN INVOKING THE 8 ITA NOS.224 & 225/NAG/2017 PROVISIONS OF SECTION 14A AND RULE 8D(II) TO MAKE DISALLOWANCE OF ADMINISTRATIVE EXPENSES STEMS OUT OF INCORRECT INTERPRETATION AND APPLICATION OF THE STATUTORY PROVISIONS AND NON-CONSIDERATION OF FACTS AND IS HENCE UNJUSTIFIED AND LIABLE TO BE QUASHED. FURTHER, I FIND THAT SIMILAR ISSUE HAD COME FOR ADJUDICATION BEFORE CIT(A) FOR A.Y. 2010-11 AS WELL. VIDE ORDER NO. CIT(A)-4/167/13-14 DATED 25.03.2015 MY PREDECESSOR HAS DELETED DISALLOWANCE U/S. 14A FOR EARNING DIVIDEND INCOME. FACTS OF THIS A.Y. BEING SAME I HEREBY DIRECT THE A.O. TO DELETE THE ADDITION OF RS.36,70,781/- MADE TO THE TOTAL INCOME BY DISALLOWING EXPENSES AS PER SECTION 14 R.W.R. 8D. THE GROUND IS HEREBY ALLOWED. 12. FROM THE ABOVE, WE FIND THAT THE DISALLOWANCE OF SUCH A HUGE EXPENDITURE OF RS.36,70,781/- IS UNCALLED MERELY FOR DEPOSITING FEW DIVIDEND WARRANTS IN THE BANK ACCOUNT OF THE ASSESSEE. THE ASSESSING OFFICER HAS NOT MADE OUT A CASE IN SUPPORT OF HIS DISALLOWANCE OF THE EXPENDITURE OF THAT MAGNITUDE. THE SAID DISALLOWANCE MADE BY HIM IS IMPROPER. THEREFORE, IN OUR VIEW, THE ORDER OF THE CIT(A), IN THIS REGARD, IS FAIR AND REASONABLE. 13. ON EXAMINING THE FACTS AS WELL AS THE ISSUES RAISED BEFORE US BY THE REVENUE, WE FIND THE SIMILAR ISSUE RELATING TO THE DISALLOWANCE U/S 14A OF THE ACT R.W. RULE 8D(2) OF THE RULES WAS EXAMINED BY THE NAGPUR BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ITA NOS.174 9 ITA NOS.224 & 225/NAG/2017 & 175/NAG/2015 FOR THE ASSESSMENT YEARS 2009-10 & 2010-11 ORDER DATED 20.06.2018 RESPECTIVELY AND THE SAME WAS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE CONTENTS OF PARAS 7 AND 8 OF THE ORDER OF THE TRIBUNAL (SUPRA) ARE RELEVANT IN THIS REGARD. FOR THE SAKE OF COMPLETENESS, THE RELEVANT PARA IS EXTRACTED AS UNDER :- 7. ........... 8. AS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE, THE ISSUE INVOLVED IN THIS APPEAL IS COVERED BY THE ORDERS RENDERED BY THE NAGPUR BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN APPEAL FOR THE A.Y. 2003- 04, 2004-05, 2005-06, 2007-08 AND 2008-09. SINCE, THE LD. CIT(A) HAS DECIDED THE ISSUE IN ACCORDANCE WITH THE VIEW TAKEN BY THE COORDINATE BENCH, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). WE THEREFORE UPHOLD THE FINDINGS OF THE LD. CIT(A) AND DISMISS THE SOLE GROUND OF THE APPEAL FILED BY THE REVENUE. THE A.O. IS DIRECTED TO DELETE THE ADDITION IN TERMS OF THE ORDER PASSED BY THE LD. CIT(A). 14. FOLLOWING THE PARITY OF REASONING, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). THUS, RELEVANT LIMBS OF THE GROUND RAISED BY THE REVENUE ARE DISMISSED. ITA NO.225/NAG/2017 (A.Y. 2012-13) 15. SINCE THE FACTS AND ISSUES INVOLVED IN THIS APPEAL ARE IDENTICAL TO THE APPEAL OF THE REVENUE IN ITA NO.224/NAG/2017 FOR THE ASSESSMENT YEAR 2011-12, THEREFORE, OUR DECISION IN ITA 10 ITA NOS.224 & 225/NAG/2017 NO.224/NAG/2017 SHALL APPLY MUTATIS MUTANDIS TO THIS APPEAL ALSO. THUS, THE APPEAL OF THE REVENUE IN ITA NO.225/NAG/2017 FOR THE ASSESSMENT YEAR 2012-13 IS DISMISSED. 16. TO SUM UP, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON 25 TH DAY OF APRIL, 2019. SD/- SD/- ( /VIKAS AWASTHY) ( . /D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER UKXIQJ / NAGPUR; / DATED : 25 TH APRIL, 2019. SUJEET / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A) 4. THE CIT 5. , , UKXIQJ , UKXIQJ / DR, ITAT, NAGPUR BENCH, NAGPUR. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , UKXIQJ / ITAT, NAGPUR.