The ACIT, GNR Circle, Gandhinagar V. Sardar Sarovar Narmada Nigam Ltd., Gandhinagar

ITA 2557/AHD/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73097 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 25-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 08-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T P KISHANKUAMR
• Assessee Lawyers: MRS ARTI N SHAH
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: SRI D.K TYAGI, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTAN T MEMBER ASSISTANT COMMISSIONER OF INCOME-TAX, GANDHINAGAR CIRCLE, BLOCK NO. 14, 4 TH FLOOR, UDHOG BHAVAN, SECTOR-11, GANDHINAGAR-382011 (APPELLANT) VS SARDAR SAROVAR NARMADA NIGAM LTD, BLOCK NO. 12, 7 TH FLOOR, NEW SACHIVALAYA, GANDHINAGAR- 382010 PAN: AACCS 67041 (RESPONDENT) SARDAR SAROVAR NARMADA NIGAM LTD, BLOCK NO. 12, 7 TH FLOOR, NEW SACHIVALAYA, GANDHINAGAR- 382010 (CROSS OBJECTOR) VS ASSISTANT COMMISSIONER OF INCOME-TAX, GANDHINAGAR CIRCLE, BLOCK NO. 14, 4 TH FLOOR, UDHOG BHAVAN, SECTOR-11, GANDHINAGAR-382011 PAN: AACCS 67041 (RESPONDENT) REVENUE BY: SRI T.P. KISHANKUAMR, SR.D .R. ASSESSEE BY: MRS ARTI N. SHAH, A.R. ITA NO. 2557/AHD/2012 ASSESSMENT YEAR 2006-07 C.O. NO. 23/ AHD/2013 (ITA NO. 2557/AHD/2012) ASSESSMENT YEAR 2006-07 I.T.A NO .2557/AHD/2012 & CO NO. 23/AHD/2013 A.Y. 2006-07 PAGE NO ACIT VS. SARDAR SAROVAR NARMADA NIGAM LTD 2 DATE OF HEARING : 25-02-2014 DATE OF PRONOUNCEMENT : 28-02-20 14 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER:- REVENUES APPEAL AND CO BY ASSESSEE ARE AGAINST THE ORDER OF LD. CIT(A), GANDHINAGAR DATED 08-08-2012. 2. REVENUE IN ITA NO. 2557/AHD/2012 HAS TAKEN FOLLO WING TWO EFFECTIVE GROUNDS. 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE ADDITION MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF RS. 23,26,000/- MADE U/S. 14A TO RS. 4,00,000/-. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN TREATING VARIOUS INCOME AS INCOME UNDER THE HEAD BUSINESS IN COME AGAINST INCOME UNDER THE HEAD OTHER SOURCES AS TREATED BY T HE AO OF RS. 8,30,67,357/-. 3. ASSESSEE HAS PRESSED ONLY ONE FOLLOWING GROUND O F CO NO. 23/AHD/2013 AT THE TIME OF HEARING:- 1. THE LD. CIT(A), GANDHINAGAR, AHMEDABAD HAS ERRE D IN ESTIMATING DISALLOWANCE U/S. 14A READ WITH RULE 8D AT RS. 4,00,000/- 4. GROUND NO. 1 OF REVENUE AND ONLY GROUND OF CO RE LATES TO DISALLOWANCE OF 23,26,,000/- MADE BY AO U/S. 14A WH ICH HAS BEEN RESTRICTED TO RS. 4 LACS BY LD. CIT(A). 5. DURING THE ASSESSMENT PROCEEDINGS AO ISSUED SHOW CAUSE TO ASSESSEE AS TO WHY RS. 23.26 LACS BE NOT DISALLOWED U/S. 14A OF THE ACT BEING I.T.A NO .2557/AHD/2012 & CO NO. 23/AHD/2013 A.Y. 2006-07 PAGE NO ACIT VS. SARDAR SAROVAR NARMADA NIGAM LTD 3 EXPENDITURE INCURRED TO EARN EXEMPT INCOME. ASSESS EES REPLY WAS AS UNDER:- AT THE OUTSET IT IS SUBMITTED THAT NO EXPENDITURE IS INCURRED FOR EARNING NEITHER DIVIDEND INCOME NOR TAX FREE INTERE ST INCOME AND HENCE THERE IS NO QUESTION OF DISALLOWANCE OF EXPAN SES. HOWEVER WITHOUT PREJUDICE IT IS SUBMITTED THAT RULE 8D IS M ADE EFFECTIVE FROM THE DATE OF ITS PUBLICATION IN THE OFFICIAL GAZETTE . THIS IS PROVIDED BY CLAUSE 1(2) OF THE NOTIFICATION NO SO547(E) DATED 2 4/03/2008 , AND THE NOTIFICATION IS PUBLISHED ON THE SAME DATE I.E 24/0 3/2008 AT ENTRY NO 386 IN PART 2 OF SECTION 3(II) OF GAZETTE OF INDIA. THIS CLEARLY INDICATES THAT THE APPLICATION OF THE RULE IS PROSPECTIVE AND ITS PROVISION SHALL APPLY ONLY W.E.F, 24/03/2008. THUS, IT CANNOT APPLY FOR A.Y. 06 O7. WITHOUT PREJUDICE IT IS SUBMITTED THAT NO EXPENDITU RE IS INCURRED FOR EARNING THE TAX EXEMPT INCOME AND IT IS NO WHERE POINTED OUT OR ESTABLISHED THAT ANY EXPENDITURE IS INCURRED FOR EA RNING TAX, EXEMPT INCOME AND HENCE NO DISALLOWLANCE CAN BE MADE U/S. 14A. WE ALSO WOULD LIKE TO POINT OUT THAT OUR CASE IS SQUARELY A ND FAIRLY COVERED BY THE DECISION OF BOMBAY HIGH COURT M THE CASE OF CIT VS. K. RAHEJA CORPORATION PVT LTD (BOMBAY HC) WHEREIN IT HAS BEE N HELD THAT 'NO SECTION 14 A DISALLOWANCE OF INTEREST ON BORROWED F UNDS IF AO DOES NOR SHOW NEXUS BETWEEN BORROWED FUNDS AND TAX FREE INVESTMENTS ' THE EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTABLE TO THE AO AND HE MADE AN ADDITION OF RS. 23,26 LACS TO THE INCOME OF THE ASSESSEE BY MAKING DISALLOWANCE U/S 14A OF THE ACT. 6. BEFORE LD. CIT(A) ASSESSEES SUBMISSION WAS AS U NDER:- 4). IN DISALLOWING AN AMOUNT OF RS 23.26 CRORE U/S 14A READ WITH RULE 8D, IT IS SUBMITTED AS UNDER: I. IT WAS SPECIFICALLY POINTED OUT THAT NO EXPENDIT URE HAS BEEN INCURRED FOR EARNING EXEMPT INCOME AND RELIANCE WAS ALSO PLA CED ON THE DECISION OF CIT V/S K. RAHEJA CORPORATION PVT. LTD. [2007] 290 ITR (AT) 69 (MUMBAI) AND CIT VS. METALMAN AUTO P. LTD., 336 ITR 434 (P&H) I.T.A NO .2557/AHD/2012 & CO NO. 23/AHD/2013 A.Y. 2006-07 PAGE NO ACIT VS. SARDAR SAROVAR NARMADA NIGAM LTD 4 II. IT IS SUBMITTED THAT AS PER THE LEARNED A.O, I N THE ASSESSMENT ORDER, COMPUTATION AS PER RULE 8D WAS RS.23.26 LAKHS WHILE IN THE INCOME COMPUTATION THE LEARNED A.O HAS DISALLOWED RS.23.26 CRORES. III. IT IS SUBMITTED THAT RULE 8D IS APPLICABLE W.E.F A.Y 08-09 AND HENCE THE SAME CANNOT BE APPLIED FOR THE YEAR UNDER APPEAL. IT IS RESPECTFULLY SUBMITTED THAT IN VIEW OF THE FA CTS AS WELL AS LAW, THE LEARNED A.O OUGHT NOT TO HAVE DISALLOWED ANY EXPEND ITURE U/S 14A OF THE INCOME TAX ACT, 1961. 7. AFTER TAKING INTO CONSIDERATION OF THESE SUBMISS IONS OF THE ASSESSEE, LD. CIT(A) RESTRICTED THIS ADDITION TO RS. 4 LACS B Y OBSERVING AS UNDER:- 7. GROUND NO.4 IS RELATED TO DISALLOWANCE U/S 14A. I AGREE WITH THE APPELLANT TO THE EXTENT THAT RULE 8D IS NOT APPLICA BLE FOR ASSESSMENT YEAR UNDER APPEAL. HOWEVER, THE CUSTODY OF US 64 BO NDS AND EQUITY SHARES OF GUJARAT INFORMATICS LTD; MANAGING RECEIPT S OF DIVIDEND ETC., ACCOUNTING AND MANAGEMENT HAS PROXIMATE RELATIONSHI P WITH THE TOTAL EXPENSES OF ADMINISTRATION, ACCOUNTING ETC., OF THE APPELLANT. THE EXPENSES IN ABSENCE OF SPECIFIC DETAILS WHICH ARE N OT DIRECT AND ONLY PROXIMATE ARE ESTIMATED AT RS. 4,00,000/- AND THE D ISALLOWANCE IS LIMITED TO THIS EXTENT. THE REMAINING DISALLOWANCE IS DIRECTED TO BE DELETED. SINCE THERE IS NO DISPUTE ABOUT THE FACT THAT RULE 8D IS NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER APPEAL AND ASSESSEE HAS RECEI VED EXEMPT INCOME IN THE FORM OF DIVIDEND FROM US 64 BONDS AND EQUITY SH ARES OF GUJARAT INFORMATICS LTD AND NO NEXUS IN INCURRING OF ANY EX PENDITURE FOR EARNING THIS EXEMPT INCOME BEING ESTABLISHED, WE ARE OF THE CON SIDERED OPINION THAT LD. CIT(A) WAS JUSTIFIED IN RESTRICTING THIS DISALLOWAN CE TO A REASONABLE SUM OF 4 LACS OUT OF ADMINISTRATIVE EXPENSES AND THEREFORE THE ORDER PASSED BY HIM IS HEREBY UPHELD. 8. IN THE RESULT, REVENUES GROUND NO. 1 AND ONLY G ROUND OF CO OF ASSESSEE ARE DISMISSED. I.T.A NO .2557/AHD/2012 & CO NO. 23/AHD/2013 A.Y. 2006-07 PAGE NO ACIT VS. SARDAR SAROVAR NARMADA NIGAM LTD 5 9. GROUND NO. 2 OF REVENUES APPEAL RELATES TO TREA TMENT OF VARIOUS INCOMES BY LD. CIT(A) AS INCOME FROM BUSINESS AGAI NST INCOME FROM OTHER SOURCES TREATED BY AO. 10. DURING THE ASSESSMENT PROCEEDINGS AO SHOW CAUSE D TO THE ASSESSEE AS TO WHY INCOME FROM OTHER SOURCES OF RS. 285,681,218 /- SHOULD NOT BE TAXED AS BUSINESS INCOME. ASSESSEES REPLY WAS NOT ACCEP TABLE TO THE AO AND HE WENT ON TO MAKE ADDITION OF RS. 285,681,218/- TO TH E INCOME OF THE ASSESSEE. THE MATTER WAS CARRIED TO LD. CIT(A) BY THE ASSESSE E AND BEFORE LD. CIT(A) ASSESSEES CONTENTION WAS AS UNDER:- 6. THE SECOND AND THIRD GROUND OF APPEAL ARE ON TH E MERITS OF HOLDING VARIOUS TYPES OF INCOME AS INCOME FROM OTHE R SOURCES BY THE AO. THE FOLLOWING ARE THE VARIOUS INCOMES WHICH HA VE BEEN HELD TO BE TAXABLE UNDER THE HEAD BY THE AO: DETAILS OF OTHER INCOME AMOUNT AMOUNT TENDER FEES 4,302898 INTEREST ON UTI INVESTMENT 3,875,391 INTEREST ON INCOME TAX REFUND 175,000 INTEREST ON DEPOSITS AND SINKING FUND INVESTMENT 9 3,714,286 INTEREST ON LOAN TO STAFF 2,333 RENT OF RESIDENTIAL BUILDING 6,684,128 DIVIDEND 225,000 MISCELLANEOUS RECEIPTS 19,919,110 PRIOR PERIOD INCOME 160,883,460 PROFIT ON SALE OF ASSETS 4,204,112 293,958,721 LESS AMOUNTS NOT TAXABLE/CONSIDERED SEPARATELY: DIVIDEND DOMESTIC COMPANY 225,000 TAX FREE INTEREST ON UTI BONDS 3,875,391 I.T.A NO .2557/AHD/2012 & CO NO. 23/AHD/2013 A.Y. 2006-07 PAGE NO ACIT VS. SARDAR SAROVAR NARMADA NIGAM LTD 6 PROFIT ON SALE OF ASSETS 4,20,4,112 8,304,503 285,681,218 DETAILS OF MISC. RECEIPTS DURING F.Y. 2005-06 SR. NO. PARTICULARS AMT. 1 GUEST HOUSE RECOVERY 489617 2 SALE OF SCRAP 4746380 3 PENALTY RECOVERED FROM CONTRACTORS 199756 4 MISC. RECOVERY FROM EMPLOYEES 211267 5 SUNDRY CREDIT BALANCES WRITTEN BACK 79037 6 ENTRY FEES 3296029 7 RECOVERY OF ELECTRICITY BILLS OF EMPLOYEES RESIDING AT KAVADIA COLONY 5280844 8 TESTING CHARGES, MISC. RECOVERIES ETC. FROM THE WORK BILLS OF CONTRACTORS OF VARIOUS DIV. OFFICES AND MISC. INCOME( AROUND 87 OFFICES) 5616180 TOTAL 19919110 DETAILS OF PRIOR PERIOD INCOME SR. NO. PARTICULARS UNIT/GROUP AMOUNT 1 ENTRY OF PASSED FOR RECTIFICATION OF MISCLASSIFICATION IN THE ACCOUNT HEAD OF COUNTER SURVEY & BANKMARK OCCURRED IN F.Y. 2004-05 II 1916857 2 ENTRY OF PASSED FOR RECTIFICATION OF MISCLASSIFICATION IN THE ACCOUNT HEAD OF BANK CHARGES FOR F.Y. 2004-05 V 280322 3 ENTRY OF PASSED FOR RECTIFICATION OF V 1338599 I.T.A NO .2557/AHD/2012 & CO NO. 23/AHD/2013 A.Y. 2006-07 PAGE NO ACIT VS. SARDAR SAROVAR NARMADA NIGAM LTD 7 MISCLASSIFICATION IN THE ACCOUNT HEAD OF ELECTRICITY EXP.-OFFICE PREMISES FOR F.Y. 2004-05 4 ENTRY OF PASSED FOR TRANSFERRING THE LAST YEARS EXCESS PROVISION OF LAND ACQUISITION CLAIMS NOW NOT REQUIRED V 29500 5 ENTRY OF PASSED FOR TRANSFERRING THE LAST YEARS EXCESS PROVISION OF LAND ACQUISITION CLAIMS NOW NOT REQUIRED IV 100577452 6 ENTRY OF PASSED FOR RECTIFICATION OF MISCLASSIFICATION OCCURRED UNDER THE HEAD OF OTHER WORKS OF POWER PROJECT IN EARLIER YEAR V 55333991.58 7 ENTRY OF PASSED FOR TRANSFERRING THE LAST YEARS EXCESS PROVISION OF LAND ACQUISITION CLAIMS NOW NOT REQUIRED V 1169846 8 ENTRY OF PASSED FOR TRANSFERRING THE LAST YEARS EXCESS PROVISION NOW NOT REQUIRED III 54109 9 ENTRY OF PEC LOAN INTEREST PASSED UNDER THE HEAD OF PRIOR PERIOD REVERSED AS PER AUDITORS REMARKS V 164383.56 10 ENTRY OF PASSED FOR TRANSFERRING THE LAST YEARS EXCESS PROVISION NOW NOT REQUIRED. I 18400 TOTAL 160883460.14 I.T.A NO .2557/AHD/2012 & CO NO. 23/AHD/2013 A.Y. 2006-07 PAGE NO ACIT VS. SARDAR SAROVAR NARMADA NIGAM LTD 8 11. AFTER TAKING INTO CONSIDERATION THE SUBMISSION OF THE ASSESSEE LD. CIT(A) GAVE RELIEF TO THE ASSESSEE BY OBSERVING AS UNDER: 6.1. I HAVE CAREFULLY CONSIDERED THE NATURE OF EAC H TYPE OF RECEIPT. I AGREE WITH THE APPELLANT THAT MANY OF THE RECEIPTS ARE INTRICABLY CONNECTED WITH THE RUNNING OF THE BUSINESS OF THE A PPELLANT AND HENCE SHOULD HAVE BEEN TAXED UNDER THE 'BUSINESS INCOME' ONLY. IN THIS REGARD, I FOLLOW THE DECISION OF MY PREDECESSOR WHO WHILE DECIDING THE APPEALS FOR ASST. YEAR 2003-04 ETC,, HAS HELD T HAT RENT OF NIGAM'S RESIDENTIAL BUILDING, TENDER FEE ETC ARE BUSINESS I NCOME. HOWEVER, THE FOLLOWING INCOMES OFFERED FOR TAXATION ARE HELD TAXABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES' FOR THE REASONS GI VEN FOR EACH ONE OF THEM; I) INTEREST ON INCOME-TAX REFUND RS.1,75,000 /-. THIS IS IN NO WAY RELATED TO THE BUSINESS OF THE ASSESSEE. II) INTEREST ON DEPOSITS AND SINKING FUND RS. 9,37 , 14,289/-. THIS IS INTEREST EARNED ON VERY LONG TERM INVESTMEN TS MADE BY PARKING SPARE MONEY NOT NEEDED FOR EVEN SHORT TERM BUSINESS USE. THESE ARE CLEARLY TAXABLE UNDE R THE HEAD 'INCOME FROM OTHER SOURCES' III) INCOMES OFFERED UNDER PRIOR PERIOD INCOME - A) ENTRY PASSED FOR TRANSFERRING THE LAST YEAR'S EX CESS PROVISION OF LAND ACQUISITION CLAIMS NOW NOT REQUIR ED-RS 10,05 , 77,452- + RS. 11,69 , 846/-. THIS INCOME OFFERED IS RELATED TO LONG TERM ASSETS PURCHASES AND CANNOT BE CONSIDERED AS BUSINESS REVENUE. B) ENTRY PASSED FOR RECTIFICATION OF MISCLASSIFICAT ION OCCURRED UNDER THE HEAD OF OTHER WORKS OF POWER PRO JECT EARLIER YEAR RS. 53,33,991/-. THIS INCOME OFFERED I S RELATED TO LONG TERM ASSETS ACQUISITION AND CANNOT BE CONSIDERED AS TO BUSINESS REVENUE. C) ENTRY OF PFC LOAN INTEREST PASSED UNDER THE HEAD OF PRIOR PERIOD REVERSED AS PER AUDITORS REMARKS RS. 16,43,383/-. THIS IS INTEREST EARNED ON VERY LONG T ERM INVESTMENTS MADE BY PARKING SPARE MONEY NOT NEEDED FOR EVEN SHORT TERM BUSINESS USE. THESE ARE CLEARLY TAX ABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES' THEREFORE, THE INCOMES AS SPECIFICALLY DISCUSSED AB OVE AND HELD TO BE TAXABLE UNDER THE HEAD 'INCOME FROM OTHER I.T.A NO .2557/AHD/2012 & CO NO. 23/AHD/2013 A.Y. 2006-07 PAGE NO ACIT VS. SARDAR SAROVAR NARMADA NIGAM LTD 9 SOURCES' ARE DIRECTED TO BE TAXED AS SUCH AND THE R EMAINING INCOME UNDER QUESTION IS DIRECTED TO BE TAXED UNDER THE HEAD 'BUSINESS INCOME'. THE GROUND IS DECIDED ACCORDING LY.' 12. BEFORE US LEARNED COUNSEL OF THE ASSESSEE AT TH E OUTSET SUBMITTED THAT RELIEF GIVEN BY LD. CIT(A) IS IN LINE WITH THE ORDE R OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2002-03 & 2003-04 VIDE ITA NOS 696 & 2106/AHD/2006 DATED 21-12-2012. AND SPECIAL BENCH D ECISION IN ASSESSEES OWN CASE, THEREFORE THE ORDER PASSED BY LD. CIT(A) MAY KINDLY BE UPHELD. THIS SUBMISSION OF THE ASSESSEE WAS NOT DISPUTED BY LD. DR, THEREFORE WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER PASSED BY LD. CIT(A) AND THE SAME IS HEREBY UPHELD. THIS GROUND OF REVENUES AP PEAL IS ALSO DISMISSED. 13. IN THE RESULT, REVENUES APPEAL AS WELL AS CO F ILED BY ASSESSEE BOTH ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (ANIL CHATURVEDI) ( D.K. TYAGI) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD : DATED 28/02/2014 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,