DCIT, New Delhi V. M/s. ONGC Tripura Power Company Ltd., New Delhi

ITA 3119/DEL/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5856 (ITAT-DELHI)
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 30-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAUSHLENDRA TIWARI
• Assessee Lawyers: VED JAIN SH SANJAY JAIN; AVININDER GUPTA ADVS
• Keywords: Business expenditure; Earning of tax free income; Revenue expenditure
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G , NEW DELHI BEFORE SH. N. K. SAINI, AM AND MS. SUCHITRA KAMBLE , JM ITA NO. 3119 /DEL/2016 : ASSTT. YEAR : 2012 - 13 DCIT, CIRCLE - 19(1), NEW DELHI VS M/S ONGC TRIPURA POWER COMPANY LTD., 6 TH FLOOR, A - WING , IFCI TOWER, 61, NEHRU PLACE, NEW DELHI - 110019 (APPELLANT) (RESPONDENT) PAN NO. A A CC T2591G ITA NO. 3100/DEL/2016 : ASSTT. YEAR : 2012 - 13 M/S ONGC TRIPURA POWER COMPANY LTD., 6 TH FLOOR, A - WING, IFCI TOWER, 61, NEHRU PLACE, NEW DELHI - 110019 VS DCIT, CIRCLE - 19(1), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AACCT2591G ASSESSEE BY : SH. VED JAIN, SH. SANJAY JAIN & SH. AVININDER GUPTA, ADVS. REVENUE BY : SH. KAUSHLENDRA TIWARI, SR. DR DATE OF HE ARING : 28.05 .201 8 DATE OF PRONOUNCE MENT : 30 .05 .201 8 ORDER PER N. K. SAINI, AM : THESE CROSS APPEALS BY THE DEPARTMENT AND THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 14.03.2016 OF LD. CIT(A) - 7, NEW DELHI. 2. THE GROUNDS RAISED BY THE DEPARTMENT IN ITS APPEAL READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ID. CIT(A) HAS ERRED IN LAW AND THE FACTS IN RESTRICTING ITA NO S. 3119 & 3100 /DE L/201 6 ONGC TRIPURA POWER COMPANY LTD. 2 THE DISALLOWANCE OF RS.97,96,205/ - OUT OF THE TOTAL DISALLOWANCE OF RS.3,58,50,860/ - M ADE BY THE ASSESSING OFFICER U/S 14A R.W.R. 8D BY IGNORING THE MANDATORY PROVISIONS OF SUB - RULE 8D R.W.S. 14A OF THE INCOME TAX ACT, 1961.' 2. ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CASE, THE ID. CIT(A) HAS ERRED IN LAW AND THE FACTS IN DELETING THE DISALLOWANCE OF RS.3,58,50,860/ - MADE U/S 14A BY THE ASSESSING OFFICER WHICH WAS ADDED BACK TO THE BOOK PROFIT THEREBY REVISING THE BOOK PROFIT OF RS.4,37,50,752/ - AS AGAINST THE DECLARED BOOK PROFIT OF RS.78,99,892/ - BY THE ASSESSEE - COMPANY.' 3. THE APPELLANT CRAVES TO BE ALLOWED TO ADD ANY FRESH GROUND (S) OF APPEAL AND/OR DELETE OR AMEND ANY OF THE GROUNDS OF APPEAL. 3. THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL ARE AS UNDER: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE CIT APPEAL VI I ERRED TO CONFIR M THE DISALLOWANCE OF RS. 979620 5/ - U/S 14A IN RELATION TO EXEMPT INCOME. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE APPELLANT PRAYS THAT THE DISALLOWANCE OF RS.9796205/ - FROM THE CAPITAL WORK IN PROGRESS BE DELETED AND SET A SIDE AS THE APPELLANT HAS NOT CLAIMED DEDUCTION OF ANY INCURRED EXPENDITURE BY WAY OF DEBIT IN PROFIT AND LOSS A/C . THE INCURRED EXPENDITURE IS CAPITALIZED. FURTHER, THE CAPITAL WORK IN PROGRESS HAS ALREADY BEEN REDUCED BY THE DIVIDEND INCOME EARNED OF R S. 9796205/ - , DURING THE ABOVE PERIOD IN THE BOOKS OF ACCOUNTS. THIS IS AS PER THE GENERALLY ACCEPTED ACCOUNTING PRINCIPLE, CONSISTENTLY FOLLOWED BY THE COMPANY. THE APPELLANT SEEK TO ADD, ALTER, MODIFY ANY GROUNDS OF APPEAL IF IT IS NECESSARY TO DO SO IN INTEREST OF JUSTICE. ITA NO S. 3119 & 3100 /DE L/201 6 ONGC TRIPURA POWER COMPANY LTD. 3 4. FROM THE ABOVE GROUNDS, IT IS GATHERED THAT THE COMMON ISSUE INVOLVED IN BOTH THESE APPEALS RELATES TO THE DELETION/SUSTENANCE OF DISALLOWANCE MADE BY THE AO U/S 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) R.W. RULE 8D OF THE INCOME TAX RULES, 1962. 5. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE E - FILED THE RETURN OF INCOME ON 27.09.2012 DECLARING NIL INCOME UNDER THE NORMAL PROVISION OF THE ACT AND BOOK PROFIT OF RS.78,99,892/ - COMPUTED AS PER T HE PROVISIONS OF SECTION 115JB OF THE ACT. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE CAPITALIZED EXPENSES AMOUNTING TO RS.803,00,85,206/ - AS CAPITAL WORK IN PROGRESS WHICH IN CLUDED INTEREST ON BORROWED FUND S AMOUNTING TO RS.134,08,35,558/ - . HE ALSO OBSERVED THAT THE ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE IN ITS PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION AND HAD CAPITALIZED ALL EXPENDITURE INCURRED BY IT. THE AO ALSO OBSERVED THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME FROM INVESTMENT IN MUTUAL FUND AMOUNTING TO RS.97,96,205/ - BUT IT HAD NOT DISALLOWED/CONSIDERED ANY EXPENSES AS PER THE PROVISIONS OF SECTION 14A OF THE ACT. THE AO MADE THE DISALLOWANCE OF RS.358 ,50,860/ - U/S 14A OF THE ACT R.W. RULE 8D OF THE INCOME TAX RULES, 1962. 6. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) WHO RESTRICTED THE DISALLOWANCE TO RS.97,96,205/ - WHICH WAS THE EXEMPT INCOME CLAIMED BY THE ASSESSEE. 7. NOW BOTH THE PARTIES ARE IN APPEAL. THE ASSESSEE IS IN APPEAL AGAINST THE SUSTENANCE OF DISALLOWANCE OF RS.97,96,205/ - WHILE THE DEPARTMENT IS IN APPEAL AGAINST THE RELIEF ALLOWED BY THE LD. CIT(A). THE LD. COUNSEL FOR THE ASSESSEE AT ITA NO S. 3119 & 3100 /DE L/201 6 ONGC TRIPURA POWER COMPANY LTD. 4 THE VERY OUTSET STATED T HAT THE ASSESSEE HAD NOT CLAIMED ANY EXPENSES IN ITS PROFIT AND LOSS ACCOUNT, BECUASE THE ASSESSEE WAS IN THE PROCESS OF SETTING UP OF ITS POWER PLANT IN TRIPURA AND IT HAD NOT CLAIMED ANY REVENUE EXPENDITURE IN RELATION TO EARNING OF THE EXEMPT INCOME . IT WAS ALSO STATED THAT THE ASSESSEE HAD SUFFICIENT FUNDS FOR MAKING THE INVESTMENT IN MUTUAL FUND/SHARES AND THAT IT HAD NOT USED BORROWED FUNDS FOR SUCH PURPOSES. THEREFORE, THE DISALLOWANCE MADE BY THE AO AND SUSTAINED BY THE LD. CIT(A) WAS NOT JUSTIFIED. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: ITO VS M/S ARIHANT ADVERTISING PVT. LTD. 2012 (9) TMI 968 ITAT DEL. MODERN INFO TECHNOLOGY P. LTD. VS ITO, WARD - 5(4), NEW DELHI 2012 (10) TMI 857 ITAT, DEL ACIT VS VIREET INVESTMENT (P.) LTD. 2017 (6 ) TMI 1124 ITAT DEL. 8. IN HIS RIVAL SUBMISSIONS, THE LD. SR. DR STRONGLY SUPPORTED THE ORDER OF THE AO AND FURTHER SUBMITTED THAT THE PROVISIONS CONTAINED U/S 14A OF THE ACT CLEARLY SHOWS THAT EXPENDITURE INCURRED TO EARN THE INCOME NOT FORMING PART OF THE TOTAL INCOME IS NOT ALLOWABLE AS A DEDUCTION. IT WAS FURTHER STATED THAT IT WAS IMMATERIAL AS TO WHETHER THE EXPENSES INCURRED WERE CAPITAL OR REVENUE IN NATURE. IT WAS ALSO STATED THAT SINCE THE ASSESSEE HAD NOT COMMENCED THE OPERATION, THE EXPENSES WERE TO BE CAPITALIZED AS PER LAW , H OWEVER, INCURRING OF EXPENSES IS NOT IN DISPUTE. THEREFORE, THE DISALLOWANCE WAS REQUIRED TO BE MADE U/S 14A OF THE ACT. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE ALTHOUGH EARNED DIVIDEND INCOME OF RS.97,96,205/ - BUT DID NOT CLAIM ANY EXPENSES AGAINST THE EARNING OF THE INCOME WHICH IS EVIDENT FROM THE COPY OF PROFIT AND LOSS ACCOUN T ON 31.03.20 12 PLACED AT PAGE ITA NO S. 3119 & 3100 /DE L/201 6 ONGC TRIPURA POWER COMPANY LTD. 5 NO. 8 OF THE ASSESSEE S PAPER BOOK WHEREIN THE EXPENSES CLAIMED ARE SHOWN AS NIL. THE PROVISIONS CONTAINED IN SECTION 14A OF THE ACT PROVIDES FOR DISALLOWANCE OF THE EXPENSES. THE SAID PROVISIONS READ AS UNDER: 14A(1) FOR TH E PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. 10. FROM THE ABOVE PROVISION S, IT IS CLEAR THAT FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER CHAPTER - III, NO DEDUCTION OF EXPENDITURE IS ALLOWABLE IN RESPECT OF THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. HOWEVER, IN THIS CASE NO EXPENSES WERE CLAIMED AGAINST ANY OF THE INCOME EARNED BY THE ASSESSEE. THEREFORE, WHEN THERE IS NO CLAIM FOR EXPENSES TO BE ADJUSTED AGAINST THE INCOME THAN NO DISALLOWANCE U/S 14A OF THE ACT CAN BE MADE. 11. ON A SIMILAR ISSUE, THE ITAT DELHI BENCH IN THE CASE OF MODERN INFO TECHNOLOGY P. LTD. VS ITO, WARD - 5(4), NEW DELHI 2012 (10) TMI 857 (SUPRA) HELD AS UNDER: 6. IN VIEW OF THE ABOVE DISCUSSION AND FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE CONSIDERED OPINION THAT NO DISALLOWANCE UNDER SECTION 14A IS CALLED FOR WHEN THE ASSESSE E HAS NOT INCURRED AND CLAIMED ANY EXPENDITURE FOR EARNING THE EXEMPT INCOME. 12. SIMILARLY, THE ITAT DELHI BENCH IN THE CASE OF ITO VS M/S ARIHANT ADVERTISING PVT. LTD. 2012 (9) TMI 968 ITAT DEL. (SUPRA), THE DISALLOWANCE OF SIMILAR NATURE BY OBSERVI NG AS UNDER: 10. IN VIEW OF ABOVE DISCUSSION, WE ARE INCLINED TO HOLD THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS BASED ON HYPER TECHNICAL APPROACH AND ALSO IGNORING THE ESSENCE OF SECTION 14A(1). THE ASSESSING OFFICER ALSO IGNORED THIS FACT T HAT THE ASSESSEE HAS CAPITALIZED SUBSTANTIAL AMOUNT OF INTEREST PAID ON LOANS TAKEN FOR INVESTMENT AND THE SAME WAS NOT CLAIMED AS BUSINESS EXPENSES BY THE ASSESSEE. THEREFORE, THE APPORTIONMENT ON ITA NO S. 3119 & 3100 /DE L/201 6 ONGC TRIPURA POWER COMPANY LTD. 6 A PRO RATA BASIS WAS IMPROPER IN THE ABSENCE OF ANYTHING B ROUGHT BY THE ASSESSING OFFICER TO ESTABLISH A NEXUS BETWEEN THE EXPENSES INCURRED AND THE EXEMPTED INCOME EARNED ON THE INVESTMENT WHICH WAS A PARAMOUNT REQUIREMENT FOR MAKING A DISALLOWANCE U/S 14A(1) OF THE ACT. 13. SO, RESPECTFULLY FOLLOWING THE AFO RESAID REFERRED TO ORDERS OF THE CO - ORDINATE BENCH, WE ARE OF THE VIEW THAT NO DISALLOWANCE IS CALLED FOR U/S 14A OF THE ACT WHEN THE ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE AGAINST ITS INCOME IN THE PROFITS AND LOSS ACCOUNT. IN THAT VIEW OF THE MATTER, T HE ADDITION SUSTAINED BY THE LD. CIT(A) U/S 14A OF THE ACT R.W. RULE 8D OF THE INCOME TAX RULES, 1962 IS DELETED. 14 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED AND THAT OF THE DEPARTMENT IS DISMISSED. (ORDER PRONOUNCED IN THE COURT ON 30 /05 /2018 ) SD/ - SD/ - ( SUCHITRA KAMBLE ) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30 /05 /2018 *SUBODH* COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTAN T REGISTRAR