Income Tax Officer Ward-1(1)(2), Bangalore V. M/s Atria Hydel Power Limited , Bangalore

ITA 3365/BANG/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9701 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2015-2016
• Appeal Filed On: 24-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V. SRINIVASAN
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 201; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKA RAN , ACCOUNTANT MEMBER ITA NO. 3365/ BANG / 2018 ASSESSMENT YEAR : 2015 - 16 THE INCOME TAX OFFICER, WARD 1(1)(2), BANGALORE. VS. M/S. ATRIA HYDEL POWER LTD., NO.1, 1 ST FLOOR, COMMISSIONARIAT ROAD, BENGALURU 560 025. PAN: AACCA 3754 E APPELLANT RESPONDENT APP E LLANT B Y : SHRI V. SRINIVASAN , ADVOCATE RESP ONDENT BY : DR. P.V. PRADEEP KUMAR, ADDL.C I T(DR)(ITAT), BENGALURU. DAT E OF HEARING : 26 .0 6 .2019 DATE OF PRONOUNCEMENT : 28 . 0 6 . 2 0 1 9 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDE R DATED 20.08.2018 OF THE CIT(APPEALS)-1, BENGALURU RELATIN G TO ASSESSMENT YEAR 2015-16. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE LIMITED LIABILITY CARRYING ON THE BUSINESS OF GENERATING AND SELLING HYDRO ELE CTRIC POWER. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED TH AT THE ASSESSEE HAS MADE INVESTMENTS IN SHARES AND MUTUAL FUNDS OF THE VALUE OF RS.25,03,89,952. THE AO HELD THAT THE ASSESSEE HAS USED BORROWED FUNDS ON WHICH INTEREST WAS PAID AND SUCH INTEREST WAS CLAIMED AS ITA NO. 3365/BANG/2018 PAGE 2 OF 5 EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT. THE AO THEREFORE INVOKED THE PROVISIONS OF SEC.14A OF THE INCOME TAX ACT, 1961 ( ACT) AND DISALLOWED EXPENSES THAT WERE INCURRED TO EARN INCOME THAT DOE S NOT FORM PART OF THE TOTAL INCOME. THE AO APPLIED THE METHODOLOGY OF DI SALLOWANCE UNDER RULE 8D OF THE INCOME TAX RULES, 1962 (RULES). 3. ON APPEAL BY THE ASSESSEE THE CIT(A) DELETED THE A DDITION MADE BY THE AO FOR THE REASON THAT THE ASSESSEE DID NOT EAR N ANY EXEMPT INCOME DURING THE RELEVANT PREVIOUS YEAR AND THEREFORE THE RE CANNOT BE ANY DISALLOWANCE UNDER SECTION 14A OF THE ACT, WHEN EXEMPT INCOME WAS NOT EARNED IN A PARTICULAR ASSESSMENT YEAR. 4. THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINS T THE DELETION OF DISALLOWANCE U/S.14A OF THE ACT BY THE CIT(A). 5. AT THE TIME OF HEARING OF THIS APPEAL, IT WAS BROUG HT TO OUR NOTICE THAT THE ADMITTED FACTUAL POSITION IN THE PRESENT CASE I S THAT THERE WAS NO DIVIDEND INCOME OR OTHER EXEMPT INCOME EARNED BY TH E ASSESSEE DURING THE RELEVANT PREVIOUS YEAR. OUR ATTENTION WAS BROU GHT TO A DECISION OF THE BANGALORE BENCH OF ITAT IN THE CASE OF M/S UB INFRA STRUCTURE PROJECTS LTD., VS. DCIT 2098/BANG/2016 (ASST. YEAR 2012-13) ORDER DATED 22/12/2017, WHEREIN THIS TRIBUNAL TOOK THE VIEW THAT THERE CAN BE NO DISALLOWANCE OF EXPENSES U/S 14A OF THE ACT, IF THERE IS NO EXEMPT INCOME EARNED DURING THE RELEVANT PREVIOUS YEAR. THE FOLLOWING ARE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THIS REGARD:- 3. HAVING CAREFULLY EXAMINED THE ORDERS OF AUTHOR ITIES BELOW, WE FIND THAT UNDISPUTEDLY THE ASSESSEE HAS NOT EARN ED ANY EXEMPTED INCOME. NOW IT IS SETTLED POSITION OF LAW THAT WHENEVER ASSESSEE DID NOT EARN ANY EXEMPT INCOME, NO DISALLO WANCE COULD BE MADE U/S. 14A OF THE ACT. THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. V. CIT, 378 ITR 33 (DEL) HA S ITA NO. 3365/BANG/2018 PAGE 3 OF 5 CATEGORICALLY HELD THAT SECTION 14A ENVISAGES THAT THERE SHOULD BE ACTUAL RECEIPT OF INCOME WHICH WAS NOT INCLUDIBLE I N THE TOTAL INCOME DURING THE RELEVANT PREVIOUS YEAR FOR THE PU RPOSE OF DISALLOWING ANY EXPENDITURE IN RELATION TO THE SAID INCOME. WHEREVER THERE IS NO EXEMPT INCOME INCLUDIBLE IN TH E TOTAL INCOME OF THE ASSESSEE, THE PROVISIONS OF SECTION 14A CANN OT BE INVOKED. THE RELEVANT OBSERVATIONS OF THE JUDGMENT OF THE HO NBLE DELHI HIGH COURT ARE EXTRACTED HEREUNDER:- 15. TURNING TO THE CENTRAL QUESTION THAT ARISES FO R CONSIDERATION, THE COURT FINDS THAT THE COMPLETE AN SWER IS PROVIDED BY THE DECISION OF THIS COURT IN CIT V. HO LOLCIM INDIA (P) LTD. (DECISION DATED 5TH SEPTEMBER 2014, IN I.T. A. NO. 486 OF 2014). IN THAT CASE, A SIMILAR QUESTIO N AROSE, VIZ., WHETHER THE INCOME-TAX APPELLATE TRIBUNAL WAS JUSTIFIED IN DELETING THE DISALLOWANCE UNDER SECTIO N 14A OF THE ACT WHEN NO DIVIDEND INCOME HAD BEEN EARNED BY T HE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR ? THE COUR T REFERRED TO THE DECISION OF THIS COURT IN MAXOPP INVESTMENT LTD. (SUPRA) AND TO THE DECISION OF THE SPECIAL BENCH OF THE INCOME-TAX APPELLATE TRIBUNAL IN THIS V ERY CASE, I.E., CHEMINVEST LTD. V. CIT [2009] 317 !TR ( AT) 86 (DELHI) [SB]. THE COURT ALSO REFERRED TO THREE DECI SIONS OF DIFFERENT HIGH COURTS WHICH HAVE DECIDED THE ISSUE AGAINST REVENUE. THE FIRST WAS THE DECISION IN CIT V. LAKHANI MARKETING INCL. (DECISION DATED APRIL 2, 201 4, OF THE HIGH COURT OF PUNJAB AND HARYANA IN I. T. A. NO. 970 OF 2008)--SINCE REPORTED IN [2015] 4 ITR-OL 246 (P&H )-- WHICH IN TURN REFERRED TO TWO EARLIER DECISIONS OF THE SAME COURT IN CIT V. HERO CYCLES LTD. [2010] 323 ITR 518 (P&H) AND CIT V. WINSOME TEXTILE INDUSTRIES LTD. [20 09] 319 ITR 204 (P&H). THE SECOND WAS OF THE GUJARAT HIG H COURT IN CIT V. CORRTECH ENERGY (P.) LTD. [2014] 22 3 TAXMANN 130 (GUJ) ; [2015] 372 1TR 97 (GUJ) AND THE THIRD OF THE ALLAHABAD HIGH COURT IN CIT V. SHIVAM MOTORS (P) LTD. (DECISION DATED 5TH MAY, 2014, IN T .A. NO. 88 OF ITA NO.1 1071BANG12016 2014). THESE THREE DECISIONS REITERATED THE POSITION THAT WHEN AN ASSE SSEE HAD NOT EARNED ANY TAXABLE INCOME IN THE RELEVANT ASSESSMENT YEAR IN QUESTION 'CORRESPONDING EXPENDIT URE COULD NOT BE WORKED OUT FOR DISALLOWANCE.' ITA NO. 3365/BANG/2018 PAGE 4 OF 5 4. THIS WAS ALSO EXAMINED BY THE TRIBUNAL IN THE AS SESSEE'S OWN CASE FOR ASSESSMENT YEAR 2010-11 AND HELD THAT WHEN THERE IS NO EXEMPT INCOME, PROVISION OF SECTION 14 OF THE AC T CANNOT BE APPLIED. 5. IN THE LIGHT OF THE AFORESAID JUDGMENT, THE PROV ISIONS OF SECTION 14A CANNOT BE INVOKED AS THERE IS NO EXEMPT INCOME IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, WE FIND NO INFI RMITY IN THE ORDER OF THE CIT(APPEALS) WHO HAS RIGHTLY DELETED T HE ADDITION 6. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE DECISIO N OF THE TRIBUNAL REFERRED TO EARLIER WHICH IN TURN IS BASED ON DECIS IONS OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. (SUPRA) THE DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT DESERVES TO BE DELET ED. WE MAY ALSO ADD THAT THE HIGH COURT OF DELHI IN THE CASE OF PRL.CIT VS. IL & FS ENERGY DEVELOPMENT CO.LTD. (2017) 84 TAXMANN.COM 186(DELHI ) HAS HELD THAT CBDT CIRCULAR NO.5/14 DATED 11-5-2014 DOES NOT REFE R 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 EXPRESSED PROVISIONS OF SE CTION 14A, READ WITH RULE 8D. ITA NO. 3365/BANG/2018 PAGE 5 OF 5 7. FOR THE REASONS GIVEN ABOVE, WE FIND NO MERIT IN THE APPEAL BY THE REVENUE AND CONSEQUENT THE APPEAL BY THE REVENUE IS DISMISSED PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF JUNE, 2019. SD/- SD/- ( B.R. BASKARAN ) ( N.V . VASUDEVAN ) A C COUNTANT M EMBER VICE PRESIDENT BANGALORE, DATED, THE 28 TH JUNE, 2019. / D ESAI S MURTHY / COPY TO: 1. A PP ELL ANT 2. RESPONDENT 3. C IT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.