ITO, New Delhi V. Athena Energy Ventures Pvt. Ltd., New Delhi

ITA 3456/DEL/2013

• Counselvise Citation: 345620114 RSA 2013
• Duration Of Justice: 2 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 30-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Assessee Lawyers: DR RAKESH GUPTA
• Keywords: Business income; Business expenditure; Principle of natural justice; Rule of consistency; Earning of tax free income; Additional evidence; Question of law; Commercial expediency
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : A , NEW DELHI BEFORE SMT.DIVA SINGH, J.M. AND SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER I.T.A. NO. 3456 /DEL/2013 A.Y. 200 9 - 10 ITO, WARD 2(2) ROOM 389 A C.R.BDLG. IP ESTATE NEW DELHI VS. ATHENA ENERGY VENTURES P.LTD. HALL NO.1, NBCC TOWER 15 BHIKAJI CAMA PLACE NEW DELHI 66 PAN: AAGCA 2179 K (APPELLANT) (RESPONDENT) ASSESSEE BY : DR.RAKESH GUPTA, ADV. AND SH.A MIT AGARWAL, C.A. DEPARTMENT BY : MS.Y.KAKKAR, DR ORDER PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGAINST THE ORDER OF LD.CIT(A) - V, NEW DELHI DATED 11.03.2013 PERTAINING TO THE A.Y. 2009 - 10. 2. THE FACTS OF THE CASE ARE BROUGHT OUT AT PARA 2 OF THE LD.CIT(A) S ORDER WHICH IS EXTRACTED FOR READY REFERENCE. 2. THE APPELLANT COMPANY WAS CARRYING OUT THE BUSINESS OF DEVELOPING POWER AN D OTHER INFRASTRUCTURE PROJECTS DIRECTLY OR INDIRECTLY THROUGH SPECIAL PURPOSE VEHICLE. THE AO HAS COMPLETED THE ASSESSMENT AT AN INCOME OF RS.56,91,500/ - AGAINST THE RETURNED LOSS OF RS.12,16,883/ - AFTER MAKING VARIOUS ADDITIONS/DISALLOWANCES. BEING AGG RIEVED WITH THE ABOVE ADDITIONS, THIS APPEAL HAS BEEN FILED IN WHICH IT HAS BEEN CONTENDED THAT (I) THE AO HAS NOT FOLLOWED THE PRINCIPLES OF NATURAL JUSTICE AND THE ORDER PASSED BY HIM U/S 143(3) IS ARBITRARY. (II) DISALLOWANCE OF EXPENSES AT RS.30,377,14 8/ - CLAIMED BY THE APPELLANT AS BUSINESS EXPENDITURE IS NOT IN ORDER. (III) INITIATION OF PROCEEDINGS U/S 271(1)(C ) IS AGAINST LAW AND FACTS. ITA 3456/DEL/2013, AY: 2009 - 10 ATHENA ENERGY VENTURES P.LTD. 2 2.1. DURING APPEAL PROCEEDINGS THE APPELLANT HAS FILED AN APPLICATION UNDER RULE 46A SUBMITTING THEREWITH EVIDEN CE TO PROVE ITS POINT THAT THE BUSINESS WAS BEING CARRIED OUT BY IT DURING THE PREVIOUS YEAR. THE ADDL. EVIDENCE HAS BEEN REQUESTED TO BE ADMITTED BECAUSE THE AO HAD NOT RAISED ANY SPECIFIC QUERY ON THE BUSINESS BEING CARRIED OUT BY THE APPELLANT AND HAD DISALLOWED THE EXPENSES CLAIMED AS BUSINESS EXPENSES. THE ADDL.EVIDENCE RUNNING INTO AS MANY AS 958 PAGES WAS REFERRED TO THE AO FOR HIS VERSION. THE AO SUBMITTED HIS REPORT AS PER A LETTER DT. 30.1.2013 IN WHICH HE HAS NOT RESISTED THE ADMISSION OF ADDL . EVIDENCE, IT HAS HOWEVER BEEN SUBMITTED BY HIM THAT WITHOUT PREJUDICE TO THE OBSERVATION MADE IN PARA 4 OF THE ORDER U/S 143(3), EVEN IF THE CONTENTION OF THE ASSESSEE IS GIVEN CREDENCE THAT IT IS CARRYING ACTIVITIES THAT SHOULD BE CONSIDERED AS BUSINES S BEING BUSINESS OF HOLDING OF INVESTMENTS THEN THE EXPENSES DEBITED UNDER P&L ACCOUNT HAVE DIRECT CORRELATION WITH THE DIVIDEND INCOME FROM THE INVESTMENTS OF THE COMPANY. PROVISION OF S.14A THEREFORE BECOME APPLICABLE WITH REGARD TO EXEMPT DIVIDEND INCO ME. 3. THE FIRST APPELLATE AUTHORITY ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS. 1. WHETHER THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN ALLOWING THE BUSINESS EXPENSES CLAIMED IN THE ABS ENCE OF LIKELIHOOD OF ANY BUSINESS INCOME. 2. WHETHER THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN IGNORING THE FACT THAT PROVISIONS OF S.14A ARE ATTRACTED ON THE EXEMPT INCOME IF THE EXISTENCE OF BUSINESS IS ACCEPTED. 3. THE APPELLANT CRAVES LEAVE TO A DD, ALTER OR AMEND ANY/ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF HEARING OF THE APPEAL. 4. WE HAVE HEARD MS.Y.KAKKAR, LD.D.R. ON BEHALF OF THE REVENUE AND DR.RAKESH GUPTA, LD. ADVOCATE ON BEHALF OF THE ASSESSEE. 5. THE LD.D.R. RELIED ON PAGE 2 LAST PARA OF THE ASSESSMENT ORDER AND SUBMITTED THAT 91% OF THE TOTAL FUNDS AVAILABLE WERE INVESTED BY THE COMPANY IN EQUITY SHARES OF THE ASSOCIATED COMPANIES/SVPS. SHE SUBMITTED THAT THE FIRST APPELLATE AUTHORITY HAS NOT EXA MINED THE PAPERS AND HAS UNJUSTLY REVERSED THE ORDER OF THE ASSESSING OFFICER . ON S.14A SHE SUBMITTED THAT IT IS A SUBJECT MATTER OF APPEAL AND THE FIRST APPELLATE AUTHORITY HAD CONSIDERED THIS SECTION IN HIS APPELLATE ORDER. SHE VEHEMENTLY CONTENDED T HAT JUST BECAUSE THE A.O. HAS COMMITTED A MISTAKE, ITA 3456/DEL/2013, AY: 2009 - 10 ATHENA ENERGY VENTURES P.LTD. 3 IT CANNOT BE CONTINUED BY THE FIRST APPELLATE AUTHORITY OR BY THE TRIBUNAL. REFERRING TO ASSESSEE S PAPER BOOK PAGE 40, HE SUBMITTED THAT THE CASH FLOW DOES NOT INDICATE THAT THE ASSESSEE HAS DONE ANY BU SINESS. SHE DISTINGUISHED THE CASE LAWS CITED BY THE ASSESSEE AND PRAYED THAT THE ORDER OF FIRST APPELLATE AUTHORITY BE UPHELD . 6. DR.RAKESH GUPTA, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD.CIT(A) HAS GIVEN A FINDING THAT THE ASSESSEE IS IN TH E BUSINESS OF SETTING UP OF POWER PROJECTS AND SINCE THERE IS A GESTATION PERIOD, MERE NON RECEIPT OF BUSINESS INCOME, CANNOT LEAD TO A CONCLUSION THAT BUSINESS HAS NOT COMMENCED. HE FILED COMPUTATION OF INCOME, AUDITED BALANCE SHEETS, ASSESSMENT ORDERS FOR THE A.Y. 2007 - 08, 2008 - 09, 2009 - 10 AND 2010 - 11 AND SUBMITTED THAT IN THE EARLIER A.Y . 2008 - 09 AND IN SUBSEQUENT A.Y . 2010 - 11 THE LD.A.O. HAS ASSESSED INCOME UNDER THE HEAD INCOME FROM BUSINESS AND THUS TO HOLD THAT THERE IS NO INCOME FROM BUSINE SS DURING THE IMPUGNED A.Y. AS THE BUSINESS HAS NOT BEEN SET UP, IS NOT CORRECT. HE SUBMITTED THAT THE OBJECT OF THE ASSESSEE IS NOT TO HOLD INVESTMENT BUT TO DO BUSINESS THROUGH A SPECIAL PURPOSE VEHICLE. HE DREW THE ATTENTION OF THE BENCH TO THE ASSES SMENT ORDERS FOR THE A.Y. 2008 - 09 AT ASSESSEE S PAPER BOOK PAGE 29 AND FOR THE A.Y. 2010 - 11 WHICH IS AT ASSESSEE S PAPER BOOK PAGE 72, AND POINTED OUT THAT THE A.O. HAS ASSESSED THE INCOME IN QUESTION UNDER THE HEAD INCOME FROM BUSINESS . HE PLEADED THAT RULE OF CONSISTENCY SHOULD BE FOLLOWED AS WAS DONE BY THE LD.CIT, D.R . FOR THIS PURPOSE HE RELIED ON THE JUDGEMENT OF HON BLE SUPREME COURT IN THE CASE OF EXCEL INDUSTRIES LTD. R EPORTED IN 358 ITR 295 (SC) . ON THE ISSUE OF DISALLOWANCE U/S 14A, HE SUBMITTED THAT THE A.O. HAD INTENDED TO MAKE A DISALLOWANCE U/S 14A BUT THE ASSESSEE HAD MADE DETAILED SUBMISSIONS AS TO WHY THE DISALLOWANCE SHOULD NOT BE MADE U/S 14A. HE DREW THE ATTENTION OF THE BENCH TO THE LETTER DT. 18 TH OCTOBER,2011 PARA 1 1 AND SUBMITTED THAT , THE A.O. ON GETTING CONVINCED WITH THESE SUBMISSIONS OF THE ASSESSEE, HAS NOT MADE ANY DISALLOWANCE U/S 14A. HE SUBMITTED THAT ALL THE INVESTMENTS IN QUESTION ARE BUSINESS INVESTMENTS AND UNDER THOSE CIRCUMSTANCES NO DISALLOWANCE U /S 14A CAN BE MADE. FOR THE PROPOSITION HE RELIED ON THE ITA 3456/DEL/2013, AY: 2009 - 10 ATHENA ENERGY VENTURES P.LTD. 4 JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ORIENTAL STRUCTURE ENGINEERS P.LTD. IN ITA 605/2012 JUDGEMENT DT. 15.1.2013. 7. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATIO N OF THE FACTS AND CIRCUMSTANCES OF THE CASE, ON PERUSAL OF MATERIAL ON RECORD, ORDERS OF THE AUTHORITIES BELOW, CASE LAWS CITED, WE HOLD AS FOLLOWS. 8. THE A.O. IN THIS CASE HAD NOT RAISED ANY SPECIFIC QUERY DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE ASPECT AS TO WHETHER THE ASSESSEE HAS SET UP BUSINESS AND WHETHER THE BUSINESS IS BEING CARRIED OUT BY THE ASSESSEE. HE SIMPLY DISALLOWED THE EXPENDITURE CLAIMED ON THE PRESUMPTION THAT THE ASSESSEE HAS NOT COMMENCED BUSINESS. BEFORE THE FIRST APPEL LATE AUTHORITY THE ASSESSEE FILED ADDITIONAL EVIDENCES. THE A.O. DID NOT OBJECT TO THE ADMISSION OF THESE ADDITIONAL EVIDENCES. EVEN BEFORE US THERE IS NO GROUND TAKEN BY THE REVENUE ON THE ISSUE OF ADMISSION OF ADDITIONAL EVIDENCE. WE ALSO FIND THAT T H E ASSESSMENT ORDER S FOR THE ASSESSMENT YEAR A.Y. 2008 - 09 AS WELL AS FOR THE A.Y. 2010 - 11 WAS PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) AND THE INCOME IN QUESTION WAS ASSESSED UNDER THE HEAD INCOME FROM BUSINESS . THUS FOR THE IMMEDIATE PRECEDING YEAR AND THE SUBSEQUENT YEAR THE AO ACCEPTS THE ASSESSEE S STAND THAT BUSINESS HAS COMMENCED. THE PURPOSE FOR WHICH THE ASSESSEE COMPANY WAS SET UP, IS TO DE VELOP POWER AND OTHER INFRASTRUCTURE PROJECTS, EITHER DIRECTLY OR INDIRECTLY, THROUGH SPECIAL PURPOSE VEHICLES (SVPS) BY PARTICIPATING IN THE EQUITY SHARE HOLDING AND MANAGEMENT OF THE PROJECT COMPANIES. THE FIRST APPELLATE AUTHORITY HAS ON THE GROUND OF CONSISTENCY ALLOWED THE CLAIM OF THE ASSESSEE. WE FIND NO INFIRMITY IN THIS ORDER OF THE LD.CIT(A). HENCE WE UPHOLD THE SAME AND DISMISS THIS GROUND OF REVENUE. 9. THIS BRINGS US TO THE GROUND OF DISALLOWANCE U/S 14A. THE A.O. HAS NOT MADE DISALLOWANCE U/S 14A. THE CASE OF THE REVENUE IS THAT THE LD.CIT(A) IGNORED THE PROVISIONS OF S .14A OF THE ACT IN THE APPELLATE PROCEEDINGS. 10. ADMITTEDLY THE ASSESSEE IS IN THE BUSINESS OF SETTING UP OF POWER PROJECTS BY ENTERING INTO JOINT VENTURES AND FOR THIS PUR POSE MAKING ITA 3456/DEL/2013, AY: 2009 - 10 ATHENA ENERGY VENTURES P.LTD. 5 INVESTMENTS IN THE SVPS. HENCE THE INVESTMENTS IN QUESTION ARE TRADE INVESTMENTS. THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. ORIENTAL STRUCTURAL ENGINEERS P.LTD. IN ITA 605 /2012 DT. 15.1.2013 (SUPRA) HAS HELD AS FOLLOWS. IT WAS THE CONTENTION OF THE REVENUE THAT RULE 8D OF THE I.T. RULES, 1962 HAD NOT BEEN APPLIED PROPERLY IN RESPECT OF THE A.Y. 2008 - 09. THIS ASPECT HAS BEEN CONSIDERED BY THE TRIBUNAL IN DETAIL AND IT HAS OBSERVED AS UNDER: 6.3. WE HAVE CAREFULLY CONSIDERED TH E SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT LD.CIT(A) HAS GIVEN A FINDING THAT ONLY INTEREST OF RS.2,96,731/ - WAS PAID ON FUNDS UTILISED FOR MAKING INVESTMENTS ON WHICH EXEMPTED INCOME WAS RECEIVABLE. FURTHER LD.CIT(A) HAS OBSERVED THAT IN RESPEC T OF INVESTMENT OF RS.6,07,775,000/ - MADE IN SUBSIDIARY COMPANIES AS PER DOCUMENTS PRODUCED BEFORE HIM, THEY ARE ATTRIBUTABLE TO COMMERCIAL EXPEDIENCY, BECAUSE AS PER SUBMISSION MADE BY THE ASSESSEE, IT HAD TO FORM SPVS IN ORDER TO OBTAIN CONTRACTS FROM TH E NHAI AND THE SPVS SO FORMED ENGAGED THE ASSESSEE COMPANY AS CONTRACT TO EXECUTIVE THE WORKS AWARDED TO THEM (I.E. SPVS) BY THE NHAI. IN ITS PROFIT AND LOSS ACCOUNT FOR THE YEAR, THE ASSESSEE HAS SHOWN THE TURNOVER FROM EXECUTION OF THESE CONTRACTS AND T HEREFORE NO EXPENSE AND INTEREST ATTRIBUTABLE TO THE INVESTMENTS MADE BY THE APPELLANT IN THE PSVS CAN BE DISALLOWED U/S 14A R.W. RULE 8D BECAUSE IT CANNOT BE TERMED AS EXPENSE/INTEREST INCURRED FOR EARNING EXEMPTED INCOME. UNDER THE CIRCUMSTANCES, LD.CI T(A) IS CORRECT IN HOLDING THAT DISALLOWANCE OF A FURTHER SUM OF RS.40,556/ - CALCULATED @ 2% OF THE DIVIDEND EARNED IS SUFFICIENT. UNDER THE CIRCUMSTANCES, LD.CIT(A) IS CORRECT IN HOLDING THAT DISALLOWANCE OF A FURTHER SUM OF RS.40,556/ - CALCULATED @ 2% O F THE DIVIDEND EARNED IS SUFFICIENT. UNDER THE CIRCUMSTANCES WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A), HENCE WE UPHOLD THE SAME. ON GOING THROUGH THE ABOVE OBSERVATIONS WE ARE OF THE VIEW THAT THIS IS MERELY A QUESTION OF FACT AND DOES N OT INVOLVE ANY QUESTION OF LAW MUCH LESS A SUBSTANTIAL QUESTION OF LAW, AS THE TRIBUNAL HELD THAT THE EXPENSES WHICH HAVE BEEN CLAIMED BY THE ASSESSEE WERE NOT TOWARDS THE EXEMPTED INCOME. THE DISALLOWANCE, THEREFORE, WAS RIGHTLY LIMITED TO A SUM OF RS.40 ,556/ - . THE QUESTION OF INTERPRETING RULE 8D IS NOT IN DISPUTE AND THE ONLY DISPUTE IS WITH REGARD TO FACTS WHICH HAVE BEEN SETTLED BY THE TRIBUNAL. THE APPEAL IS DISMISSED. 10.1. THE LD.D.R. TRIED TO DISTINGUISH THE CASE BY SUBMITTING THAT IN THE CASE OF ORIENTAL STRUCTURAL ENGINEERS P.LTD. (SUPRA) IN THE P&L ACCOUNT THE ASSESSEE HAS SHOWN TURNOVER FROM EXECUTION OF CONTRACTS. IN OUR VIEW ITA 3456/DEL/2013, AY: 2009 - 10 ATHENA ENERGY VENTURES P.LTD. 6 THIS IS NOT MATERIAL AS THE INVESTMENT IN THIS CASE IS MADE IN THE FORM OF SPVS TO UNDERTAKE CONTRACTS AND THUS TRADE INVESTMENT. 11. APPLYING THE PROPOSITIONS LAID DOWN IN THIS CASE LAW TO THE FACTS OF THE CASE, WE HOLD THAT NO DISALLOWANCE CAN BE MADE U/S 14A OF THE ACT. 12. IN THE RESULT, REVENUE S APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03 RD JULY , 2015. SD/ - SD/ - [ DIVA SINGH ] [J. SUDHAKAR REDDY] JUDICIAL MEMBER ACCOUNTANT MEMBER DT. THE 03 RD JU LY , 2015 MANGA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES