WIND WORLD WIND FARMS (INDIA) LTD, MUMBAI V. DCIT RG 8(1), MUMBAI

ITA 2712/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4138 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 16-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 21-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

G BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 2712 /MUM/2014 ( / ASSESSMENT YEAR : 2010-11) WIND WORLD WIND FARMS (INDIA) LTD., (FORMERLY KNOWN AS ENERCON WIND FARMS (INDIA) LTD.), WIND WORLD TOWER, PLOT NO. A-9, VEERA INDUSTRIAL ESTATE, VEERA DESAI ROAD, ANDHERI (WEST), MUMBAI 400 053. / V. THE DEPUTY COMMISSIONER OF INCOME TAX- RANGE 8(1), AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI- 400 020. ./ PAN : AAACE3530A ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY : SHRI J.P. BAIRAGRA REVENUE BY : SHRI ABANI KANTA NAYAK (D.R.) / DATE OF HEARING : 16-11-2015 / DATE OF PRONOUNCEMENT : 08-02-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE COMPANY, BEING ITA NO. 2712/MUM/2014, IS DIRECTED AGAINST THE ORDER DATED 21-02-2014 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 1 6, MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2010- 11. 2. THE GROUNDS RAISED BY THE ASSESSEE COMPANY IN TH E MEMO OF APPEAL FILED WITH THE TRIBUNAL READ AS UNDER:- ITA 2712/MUM/2014 2 I.0. RE.: DISALLOWANCE U/S 14A OF THE INCOME TAX A CT, 1961 AMOUNTING TO RS. 302,500/-. 1.1 THE CIT (APPEALS) HAS ERRED IN DISALLOWING THE E XPENDITURE AGGREGATING TO RS.302,500/- U/S 14A OF THE INCOME TAX ACT, 1961 INSPITE OF THE FACT THAT: A. DURING THE YEAR UNDER CONSIDERATION THE APPELLANT H AD NOT INCURRED ANY EXPENDITURE, WHETHER DIRECT OR INDIRECT FOR THE EAR NING OF THE EXEMPT INCOME. B. THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULE S ARE NOT APPLICABLE IN THE PRESENT CASE AS THERE IS NO EXPENDITURE INCURRED AT ALL. THE PROVISIONS OF RULE 8D ARE ATTRACTED ONCE THERE IS ANY ELEMENT OF DIRECT/INDIRECT EXPENSES. IN THE PRESENT CASE THE APPELLANT HAD CLEARLY MADE OUT THAT IT HAS NOT INCURRED ANY EXPENSES - WHETHE R DIRECT OR INDIRECT IN RELATION TO THE EXEMPT INCOME. BESIDES NEITHER THE ASSESSING OFFICER NOR THE LEARNE D COMMISSIONER - APPEALS HAS FOUND ANY EXPENSES TO HAVE BEEN INCURRED FOR EARNING THE EXEMPT INCOME. HENCE THE DISALLOWANCE COMPUTED @ 1/2 % OF THE AVERAGE VALUE OF INVESTMENTS TOWARDS INDIRECT EXPENSES FOR EARNING THE EXEMPT INCOME AND AS CONFIRMED BY THE CIT - APPEALS IS ERRONEOUS, INCORRECT AND NOT IN THE ACCORDANCE WITH THE LAW. C. THE LEARNED COMMISSIONER - APPEALS HAS ERRED IN UPHOLDING THE ADDITIONS BY DEEMING THAT THE APPELLANT WOULD HAVE I NCURRED AN EXPENSES FOR EARNING THE EXEMPT INCOME BY HOLDING THAT THE 'EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE INCOME IS WIDE ENOUGH TO COVER ALL FORMS OF EXPENSES PROVIDED THAT HA VE SOME CONNECTION WITH THE EXEMPT INCOME. WHILE UPHOLDING THE ADDITION MADE BY THE AO, THE LEAR NED COMMISSIONER - APPEALS FAILED TO APPRECIATE THAT THERE WAS NO EXPENSES INCURRED WHATSOEVER FOR EARNING THE EXEMPT INCOME. HEN CE WITHOUT ESTABLISHING THAT THE EXPENDITURE HAS BEEN INCURRED THE LEARNED COMMISSIONER HAS UPHELD, THOUGH WRONGLY, THAT THE SAME NEEDS TO BE DISALLOWED. D. THE LEARNED COMMISSIONER - APPEALS HAS ALSO ERRE D IN RELYING ON UNRELATED DECISION OF HONOURABLE MUMBAI ITAT IN THE CASE OF PRAKASH HEAT TREATMENT & INDUSTRIES (P) LTD.. V. ITO (2007) 1 4S0T 348 (MUM) WHERE THE EXPENDITURE ELIGIBLE TO BE DISALLOWED UNDER SECTION 14A WAS HELD TO BE INCLUDING FIXED, VARIABLE, DIRECT, INDIREC T, ADMINISTRATIVE, MANAGERIAL OR FINANCIAL'. IN THE PRESENT CASE THE APP ELLANT HAS NOT INCURRED ANY EXPENDITURE - NOR HAS THE LEARNED COMM ISSIONER GAVE ANY ITA 2712/MUM/2014 3 FINDING OF ANY EXPENDITURE HAVING INCURRED - HENCE T HE SAID DECISION IS NOT APPLICABLE TO THE FACTS OF THE CASE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF GENERATION OF POWER PRODUCED THROUG H WIND TURBINE GENERATORS. DURING THE COURSE OF ASSESSMENT PROCEED INGS U/S 143(3) READ WITH SECTION 143(2) OF THE INCOME TAX ACT,1961 (HER EINAFTER CALLED THE ACT) THE LEARNED ASSESSING OFFICER( HEREINAFTER CALLED THE AO) OBSERVED THAT THE ASSESSEE COMPANY MADE INVESTMENT IN SHARES , INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME . THE AS SESSEE COMPANY HELD AT THE BEGINNING OF THE YEAR INVESTMENT OF RS. 3 CRORES W HICH WERE INCREASED TO 9.10 CRORES DURING THE YEAR. THE AO FURTHER OBSERVED THA T THE ASSESSEE COMPANY OUGHT TO HAVE MADE DISALLOWANCE OF EXPENDITURE IN R ELATION TO THE INCOME WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCO ME AS REQUIRED U/S 14A OF THE ACT IN ACCORDANCE WITH THE PROVISIONS OF RULE 8 D OF INCOME TAX RULES, 1962. THE ASSESSEE COMPANY WAS ASKED TO FURNISH TH E DETAILS OF ITS INVESTMENTS. THE ASSESSEE COMPANY, IN RESPONSE, CO NTENDED THAT IT HAS MADE INVESTMENT IN THE PREFERENCE SHARES OF ITS GRO UP COMPANIES AND IT HAS NOT RECEIVED ANY DIVIDEND DURING THE YEAR. THE ASS ESSEE COMPANY FURTHER CONTENDED THAT NO EXPENDITURE IS INCURRED ON MAKING INVESTMENT IN THESE GROUP COMPANIES, HENCE, NO DISALLOWANCE U/S 14A OF THE ACT IS CALLED FOR. THE ASSESSEE COMPANY FURTHER CONTENDED IT HAS ITS O WN FUNDS AS WELL AS FREE RESERVES OUT OF WHICH THE ASSESSEE COMPANY HAS MADE SUCH INVESTMENTS AND AS SUCH NO INTEREST COST IS INCURRED BY THE ASSESSE E COMPANY FOR MAKING SUCH INVESTMENT AND AS SUCH INTEREST EXPENDITURE IS NOT DISALLOWABLE U/S 14A OF THE ACT. THE A.O. DID NOT ACCEPT THE CONTENTIONS O F THE ASSESSEE COMPANY AND APPLIED RULE 8D(2)(III) AND DISALLOWED 0.5% OF AVERAGE OF THE INVESTMENTS HELD BY THE ASSESSEE COMPANY, WHEREBY TOTAL DISALLO WANCE OF RS. 3,02,500/- WAS MADE BY THE AO VIDE ORDERS DATED 31.01.2013 . ITA 2712/MUM/2014 4 4.AGGRIEVED BY THE ORDERS DATED 31.01.2013 PASSED B Y THE AO, THE ASSESSEE COMPANY PREFERRED AN APPEAL BEFORE THE CIT(A). 5. BEFORE THE CIT(A), THE ASSESSEE COMPANY REITERA TED THE SUBMISSION WHAT WAS MADE BEFORE THE A.O. AND SUBMITTED THAT TH E INVESTMENTS WERE MADE OUT OF ITS OWN RESERVES AND SURPLUS AND THE AS SESSEE COMPANY HAS NOT BORROWED ANY FUNDS FOR INVESTING IN THE SHARES OF I TS GROUP COMPANIES. THE ASSESSEE COMPANY SUBMITTED THAT IT IS IN THE BUSINE SS OF GENERATION AND SALE OF POWER GENERATED THROUGH WINDMILLS AND THE COMPAN Y SET UP 8.4 MW OF WIND FARM PROJECT CONSISTING OF 14 NOS. OF WIND TUR BINE GENERATORS IN CHITRADURGA DIST. IN KARNATAKA. THE ASSESSEE COMPA NY SUBMITTED THAT IT HAS MADE INVESTMENTS IN SHARES OF ITS GROUP COMPANIES O UT OF ITS OWN FUNDS AND THAT NO DIRECT OR INDIRECT EXPENDITURE HAS BEEN INC URRED DURING THE YEAR FOR MAKING THE ABOVE INVESTMENTS. THE ASSESSEE COMPANY SUBMITTED ITS BANK BOOK AND BANK STATEMENT TO SUPPORT ITS CONTENTIONS. THE CIT(A) HELD THAT ALL EXPENSES CONNECTED WITH THE EXEMPT INCOME HAVE TO B E DISALLOWED U/S 14A OF THE ACT REGARDLESS OF WHETHER THEY ARE DIRECT OR IN DIRECT, FIXED OR VARIABLE AND MANAGERIAL OR FINANCIAL AND WHETHER THE INCOME IS E ARNED OR NOT EARNED , THUS THE CIT(A) VIDE ORDERS DATED 21.02.2014 UPHELD THE ADDITIONS MADE BY THE A.O.. 6.AGGRIEVED BY THE ORDERS OF THE CIT(A) DATED 21.02 .20014, THE ASSESSEE COMPANY IS IN APPEAL BEFORE THE TRIBUNAL. 7. THE LD. COUNSEL FOR THE ASSESSEE COMPANY SUBMITT ED THAT THE A.O. HAS APPLIED RULE8D(2)(III) OF INCOME TAX RULES, 1962 TO DISALLOW 0.5% OF AVERAGE INVESTMENT I.E. RS. 3,02,500/-. THE LD. COUNSEL SU BMITTED THAT NO EXPENDITURE IS INCURRED ON MAKING INVESTMENT IN THE GROUP COMPANIES. THE LD. COUNSEL CONTENDED THAT THE ASSESSEE COMPANY HAS ITS OWN FUNDS AS WELL AS FREE RESERVES OUT OF WHICH THE ASSESSEE COMPANY HAS MADE SUCH ITA 2712/MUM/2014 5 INVESTMENTS. NO LOAN IS APPEARING IN THE BALANCE S HEET. NO DIRECT OR INDIRECT EXPENDITURE HAS BEEN INCURRED DURING THE YEAR FOR M AKING THE INVESTMENTS. THE LD. COUNSEL OF THE ASSESSEE COMPANY CONTENDED T HAT THE ASSESSEE COMPANY HAS NOT INCURRED ANY EXPENDITURE DURING THE FINANCIAL YEAR 2009-10 TO EARN THE EXEMPT INCOME. THE LD. COUNSEL FOR THE ASSESSEE COMPANY SHOWED US THE BALANCE SHEET OF THE ASSESSEE COMPAN Y WHICH IS PLACED IN PAPER BOOK FILED WITH THE TRIBUNAL, WHEREIN THE SHA RE CAPITAL AND RESERVES AND SURPLUS WAS SHOWN AT RS. 40.79 CRORES AND THE I NVESTMENTS WERE APPEARING TO THE TUNE OF RS. 9.1 CRORES AS AT 31-03 -2010. THE LD. COUNSEL ALSO DREW OUR ATTENTION TO THE P&L ACCOUNT WHEREIN IT REFLECTED RS. 9.24 CRORES AS INCOME FROM OPERATIONS , AND RS. 42.13 LA CS TOWARDS OTHER INCOME WHICH MAINLY COMPRISES INTEREST INCOME WHICH IS TAX ABLE. THE LD. COUNSEL RELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. V. CIT [2015] 61 TAXMANN.COM 118 (DELHI) AND S UBMITTED THAT SINCE THERE IS NO DIVIDEND RECEIVED BY THE ASSESSEE DURING THE YEAR, THE RATIO LAID IN THE ABOVE CASE IS APPLICABLE TO THE PRESENT CASE. THE ASSESSEE COMPANY ALSO RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COU RT IN THE CASE OF CIT V. HDFC BANK LIMITED , 366 ITR 505(BOM.). 8. THE LD. D.R., ON THE OTHER HAND, RELIED UPON THE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT THE A.O. HAS RIGHTLY APPLI ED RULE 8D OF INCOME TAX RULES ,1962 IN THE CASE OF THE ASSESSEE COMPANY TO MAKE DISALLOWANCE U/S 14A OF THE ACT. HE SUBMITTED THAT DISALLOWANCE OF E XPENSES WHICH ARE ATTRIBUTABLE FOR EARNING EXEMPT INCOME IS TO BE MAD E AND THE SAME HAS TO BE COMPUTED AS PROVIDED IN RULE 8D OF THE INCOME TAX R ULES,1962 WHICH ARE APPLICABLE W.E.F. THE ASSESSMENT YEAR 2008-09 AS LA ID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . CO. LTD.(2010) 194 TAXMAN 203( BOM.) ITA 2712/MUM/2014 6 9. WE HAVE CONSIDERED THE RIVAL CONTENTION AND ALSO PERUSED THE MATERIAL ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE COM PANY HAS MADE INVESTMENT IN ITS GROUP COMPANIES OF RS. 9,10,00,0 00/- AS AT 31-03-2010 , WHILE THE SAME WAS RS.3,00,00,00.00 AS AT 31-03-200 9. WE HAVE OBSERVED THAT THE ASSESSEE COMPANY HAS OWN FUNDS OF AROUND R S. 40.79 CRORES AS AT 31-03-2010 WHICH COMPRISES SHARE CAPITAL AND RESERV ES AS PER BALANCE SHEET FILED IN THE PAPER BOOK. WE HAVE ALSO PERUSED THE COPY OF BALANCE SHEET AS WELL AS THE P&L ACCOUNT WHERE IT IS CLEAR THAT THE ASSESSEE COMPANY HAS EARNED NO DIVIDEND INCOME DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR AND IN VIEW OF THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD.(SUPRA), THE RATIO LAID DOWN THEREIN IS SQUARELY APPLICABLE TO THE PRESENT CASE OF THE ASSESSEE COMP ANY . THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT READS AS UNDER:- . THE EXPRESSION DOES NOT FORM PART OF THE TOTAL INCOME IN SECTION 14A OF THE ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCO ME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. IN OUR CONSIDERED VIEW BASED ON OUR ABOVE DISCUSSI ONS AND REASONING , THE CIT(A) IS NOT CORRECT IN UPHOLDING THE ORDERS OF TH E A.O. AND HENCE WE DELETE THE DISALLOWANCE MADE BY THE A.O. AND AS CONFIRMED BY THE CIT(A) AND ALLOW THE APPEAL FILED BY THE ASSESSEE COMPANY. WE ORDER ACCORDINGLY. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE COMPANY IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH FEBRUARY, 2016. # $% &' 08-02-2016 ( ) SD/- SD/- (AMIT SHUKLA) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 08-02-2016 [ ITA 2712/MUM/2014 7 .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI H BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI