Deputy Commissioner Of Income Tax, Circle- 1(1)(1), Bengaluru V. M/s. Ambuthirtha Power Private Limited, Bangalore

ITA 2324/BANG/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 6542 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Appeal Filed On: 08-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B R BASKARAN , ACCOUNTANT MEMBER IT A NO. 2324/BANG/2019 ASSESSMENT YEAR: 2016 - 17 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(1), BENGALURU. VS. AMBUTHIRTHA POWER PVT. LTD., # 37, RMJ MANDOTH TOWERS, 7 TH CROSS, VASANTH NAGAR, BANGALORE 560 052. PAN: AACCA 9267G APPELLANT RESPONDENT APPELLANT BY : SHRI S. RAMASUBRAMAN I AN, CA RESPONDENT BY : SMT. SOWMYA AACHARYA, ADDL.CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 28 .01.2020 DATE OF PRONOUNCEMENT : 06 .0 2 .2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER D ATED 26.7.2019 OF THE CIT(APPEALS)-I, BENGALURU RELATING TO ASSESSMEN T YEAR 2016-17. 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO, WHETHER THE CIT(APPEALS) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF A SUM OF RS.2,95,61,114 MADE BY THE AO BY INVOKING TH E PROVISIONS OF SECTION 14A OF THE INCOME-TAX ACT, 1961 [THE ACT]. ITA NO.2324/BANG/2019 PAGE 2 OF 4 3. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF GENERATION AND DISTRIBUTION OF HYDRO-ELECTRIC POWER . AS ON 31.3.2016, THE ASSESSEE MADE INVESTMENTS OF RS.55,44,80,070 IN SUB SIDIARY COMPANIES. THE ASSESSEE DID NOT OWN ANY TAX-FREE DIVIDEND INCO ME FROM THE AFORESAID INVESTMENTS. THE AO WAS OF THE VIEW THAT U/S. 14A OF THE ACT, EXPENDITURE INCURRED TO EARN EXEMPT INCOME SHOULD BE DISALLOWED . THE AO ACCORDINGLY COMPUTED THE QUANTUM OF EXPENSES TO BE DISALLOWED U /S. 14A OF THE ACT R.W. RULE 8D OF THE RULES AS FOLLOWS:- (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCO ME WHICH DOES NOT FORM PART OF TOTAL INCOME NIL (II) INT EREST EXPENSES NOT DIRECTLY ATTRIBUTABLE OF ANY PAR TICULAR INCOME OR RECEIPT THEN A X B / C* 2,69,28,714 (III) 1 / 2 % OF THE AVERAGE OF THE VALUE OF INVESTMENTS, INCOM E FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME. 26,32,400 DISALLOWANCE AS PER RULE 8D 2,95,61,114 4. WITH REGARD TO THE CONTENTION OF ASSESSEE THAT I N ABSENCE OF EARNING ANY DIVIDEND INCOME, THERE CAN BE NO DISALLOWANCE U /S. 14A, THE AO REFERRED TO CIRCULAR NO.5/2014 DATED 11.12.2014 ISS UED BY THE CBDT WHEREIN IT WAS LAID DOWN THAT DISALLOWANCE U/S. 14A R.W. RULE 8D OF THE I.T. RULES HAS TO BE MADE EVEN WHERE A TAXPAYER IN A PAR TICULAR YEAR HAS NOT EARNED ANY EXEMPT INCOME. AGGRIEVED BY THE ORDER O F AO, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(APPEALS). 5. THE CIT(APPEALS) DELETED THE DISALLOWANCE MADE B Y THE AO BY FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH CO URT IN THE CASE OF CHEMINVEST LTD. V. CIT, 378 ITR 33 (DEL) WHEREIN IT WAS HELD THAT IF THERE IS ITA NO.2324/BANG/2019 PAGE 3 OF 4 NO EXEMPT INCOME EARNED, THERE CAN BE NO DISALLOWAN CE U/S. 14A OF THE ACT. AGGRIEVED, THE REVENUE HAS PREFERRED THE PRESE NT APPEAL BEFORE THE TRIBUNAL. 6. THE LD. DR RELIED ON THE ORDER OF AO AND THE CBD T CIRCULAR REFERRED TO BY THE AO IN HIS ORDER. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE AR E OF THE VIEW THAT IN THE LIGHT OF THE DECISION HONBLE DELHI HIGH COU RT IN THE CASE OF CHEMINVEST LTD ., 378 ITR 33 (DEL) AND IN LIGHT OF THE ADMITTED FA CTUAL POSITION THAT THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME DURING THE RELEVANT PREVIOUS YEAR, THE DISALLOWANCE OF EXPENSE S U/S. 14A WAS RIGHTLY DELETED BY THE CIT(APPEALS). WE MAY ALSO ADD THAT THE HIGH COURT OF DELHI IN THE CASE OF PRL. CIT VS. IL & FS ENERGY DEVELOPMENT CO. LTD. (2 017) 84 TAXMANN.COM 186(DELHI) HAS HELD THAT CBDT CIRCULAR UPON WHICH EXTENSIVE RELIANCE IS PLACED BY REVENUE DOES NOT RE FER TO RULE 8D(1) AT ALL. BUT ONLY REFERS TO THE WORD 'INCLUDIBLE' OCCURRING IN THE TITLE TO RULE 8D AS WELL AS THE TITLE TO SECTION 14A. THE CIRCULAR CONC LUDES THAT IT IS NOT NECESSARY THAT EXEMPT INCOME SHOULD NECESSARILY BE INCLUDED IN A PARTICULAR YEAR'S INCOME FOR THE DISALLOWANCE TO BE TRIGGERED. THE COURT HELD THAT THE PROCESS OF INTERPRETATION ADOPTED BY THE CBDT WILL BE A TRUNCATED READING OF SECTION 14A AND RULE 8D PARTIC ULARLY WHEN RULE 8D(1) USES THE EXPRESSION 'SUCH PREVIOUS YEAR'. FURTHER, IT DOES NOT ACCOUNT FOR THE CONCEPT OF 'REAL INCOME'. IT DOES NOT NOTE THAT UNDER SECTION 5, THE QUESTION OF TAXATION OF 'NOTIONAL INCOME' DOES NOT ARISE. FOR ALL OF THE AFOREMENTIONED REASONS, THE COURT HELD THAT THE CBD T CIRCULAR DATED 11.5.2014 CANNOT OVERRIDE THE EXPRESS PROVISIONS OF SECTION 14A, READ WITH RULE 8D. 8. FOR THE REASONS GIVEN ABOVE, WE DO NOT FIND ANY MERIT IN THIS APPEAL BY THE REVENUE. ITA NO.2324/BANG/2019 PAGE 4 OF 4 9. IN THE RESULT, THE APPEAL BY REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON THIS 6 TH DAY OF FEBRUARY, 2020. SD/- SD/- ( B R BASKARAN ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 6 TH FEBRUARY, 2020. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FIL E BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.