THE ACIT, CIRCLE - 1, Rajahmundry V. M/s GVK Power & Infrastructure Ltd.,

ITA 356/VIZ/2013

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9849 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 20-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 142(1); 14A

Judgement Text

ITA NO.356/VIZAG/2013 M/S. GVK POWER & INFRASTRCUTURE LTD., JEGURUPADU, K ADIYAM MANDAL 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.356/VIZAG/2013 ( / ASSESSMENT YEAR: 2008-09) ACIT, CIRCLE - 1, RAJAHMUNDRY VS. M/S. GVK POWER & INFRASTRUCTURE LTD., JEGURUPADU [PAN: AAACJ5599A ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI ARAVINDAKSHAN, DR / RESPONDENT BY : SHRI G.V. N. HARI, AR / DATE OF HEARING : 14.09.2016 / DATE OF PRONOUNCEMENT : 22.09.2016 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF CIT(A)-11, MUMBAI, CAMP AT VISAKHAPATNAM DATED 11.3 .2013 AND IT PERTAINS TO THE ASSESSMENT YEAR 2008-09. ITA NO.356/VIZAG/2013 M/S. GVK POWER & INFRASTRCUTURE LTD., JEGURUPADU, K ADIYAM MANDAL 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF OPERATION AND MA INTENANCE OF POWER PLANT AND INVESTMENTS IN INFRASTRUCTURE COMPA NIES, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 ON 30.9.2 008 DECLARING TOTAL INCOME OF RS.23,39,75,378/-. THE CASE HAS BEEN SEL ECTED FOR SCRUTINY AND ACCORDINGLY, NOTICES U/S 143(2) & 142(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS THE ACT) WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSES SEE APPEARED FROM TIME TO TIME AND FURNISHED BOOKS OF ACCOUNTS AND OT HER DETAILS CALLED FOR. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 83,36,78,000/-, TOWARDS INVESTMENTS MADE IN THE FORM OF SHARES AND MUTUAL FUNDS IN VARIOUS COMPANIES AND THE SAME WAS CLAIMED EXEMPT U /S 10(34) OF THE ACT. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE H AS DISALLOWED INTEREST EXPENDITURE OF RS.6,49,37,938/- DIRECTLY RELATABLE TO EARNING OF EXEMPT INCOME, HOWEVER, FAILED TO ALLOCATE OTHER EXPENDITU RE AS CONTEMPLATED U/S 14A OF THE ACT READ WITH RULE 8D(2)(III) OF THE INCOME TAX RULES, 1962 (HEREINAFTER CALLED AS THE RULES), THEREFORE , ISSUED A SHOW CAUSE NOTICE AND ASKED TO EXPLAIN WHY THE EXPENDITURE AS CONTEMPLATED UNDER RULE 8D SHALL NOT BE DISALLOWED. IN RESPONSE TO NO TICE THE ASSESSEE VIDE ITA NO.356/VIZAG/2013 M/S. GVK POWER & INFRASTRCUTURE LTD., JEGURUPADU, K ADIYAM MANDAL 3 ITS LETTER DATED 6.12.2010 SUBMITTED THAT THE COMPA NY HAD ON ITS OWN DISALLOWED THE EXPENDITURE OF INTEREST ON LOANS WHI CH IS DIRECTLY ATTRIBUTABLE TO THE EXEMPT INCOME IN THE STATEMENT OF COMPUTATION OF TOTAL INCOME. THE ASSESSEE FURTHER SUBMITTED THAT EXCEPT INTEREST ON LOANS, IT HAS NOT INCURRED ANY OTHER EXPENDITURE DI RECTLY ATTRIBUTABLE TO EARNING OF EXEMPT INCOME. IT WAS FURTHER SUBMITTED THAT ACCORDING TO THE O&M BETWEEN THE COMPANY AND THE HOLDING COMPANY I.E. G.V.K. INDUSTRIES LIMITED, THE HOLDING COMPANY HAS REIMBUR SED THE TOTAL BILLABLE EXPENDITURE INCURRED BY THE COMPANY. THE ASSESSEE COMPANY HAS INCURRED CERTAIN EXPENDITURE WHICH WAS REIMBURS ED BY THE HOLDING COMPANY AND THE SAME HAS BEEN CREDITED TO THE RESPE CTIVE EXPENDITURE ACCOUNT. THE OTHER EXPENDITURE I.E. OPERATING FEE, INCENTIVE FEE AND CONSULTANCY FEE, ETC. HAVE NO RELEVANCE WITH DIVIDE ND INCOME AND AS SUCH IT IS NOT DIRECTLY ATTRIBUTABLE TO THE EXEMPT INCOME, AND HENCE NOT DISALLOWED. 4. THE A.O. AFTER CONSIDERING THE EXPLANATIONS OF T HE ASSESSEE, HELD THAT AS PER THE AMENDED PROVISIONS OF SECTION 14A O F THE ACT AND ALSO RULE 8D(2) OF THE RULES, FROM THE ASSESSMENT YEAR 2 008-09, A METHOD IS PRESCRIBED FOR DETERMINATION OF EXPENDITURE RELATAB LE TO THE EXEMPT INCOME. AS PER THE SAID RULES, IN COMPUTING THE TO TAL INCOME OF THE ASSESSEE, ANY EXPENDITURE WHICH RELATES TO EARNING OF EXEMPT INCOME ITA NO.356/VIZAG/2013 M/S. GVK POWER & INFRASTRCUTURE LTD., JEGURUPADU, K ADIYAM MANDAL 4 SHALL BE DISALLOWED. THE A.O. FURTHER OBSERVED THA T AS PER THE SAID RULES, THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME AND THE AMOUNT EQUAL TO ONE-HALF PERCENTAGE OF THE AVERAGE OF THE VALUE OF THE INVES TMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCO ME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST AND LAST DAY OF THE PREVIOUS YEAR SHOULD BE DISALLOWED. THOUGH ASSESSE E ON ITS OWN DISALLOWED INTEREST EXPENDITURE RELATABLE TO EARNIN G OF EXEMPT INCOME, BUT IT HAS NOT DISALLOWED OTHER EXPENDITURE AS CONT EMPLATED UNDER RULE 8D(2)(III) OF THE RULES, THEREFORE, DISALLOWED AN A MOUNT OF RS.3,49,34,765/- WHICH IS ONE-HALF PERCENTAGE OF T HE AVERAGE OF THE VALUE OF INVESTMENT OF THE ASSESSEE. 5. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. THE ASSESSEE FURTHER CONTENDED THAT THE A.O. WAS ERRED IN DISALLOWING ONE-HALF PER CENTAGE OF THE VALUE OF THE AVERAGE INVESTMENT WHEN THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE TOWARDS EARNING OF EXEMPT INCOME EXCEPT INTEREST ON LOAN WHICH WAS DISALLOWED BY THE ASSESSEE ON ITS OWN. T O SUPPORT HIS ARGUMENTS FURNISHED RELEVANT DETAILS BEFORE THE CIT (A). DURING THE COURSE OF APPELLATE PROCEEDINGS, THE CIT(A) FORWARD ED THE SUBMISSIONS ITA NO.356/VIZAG/2013 M/S. GVK POWER & INFRASTRCUTURE LTD., JEGURUPADU, K ADIYAM MANDAL 5 OF THE ASSESSEE ALONG WITH OTHER EVIDENCES TO THE A SSESSING OFFICER FOR HIS COMMENTS. THE ASSESSING OFFICER VIDE HIS REMAN D REPORT DATED 15.1.2013 STATED THAT THE ADDITION APPEARS TO HAVE BEEN MADE IN THE ABSENCE OF ANY SUBMISSION MADE BY THE ASSESSEE WITH REGARD TO THE EXCLUSIVE EXPENDITURE APPLICABLE TO EARNING THE TAX FREE INCOME. HAVING DISALLOWED THE RELATABLE INTEREST U/S 14A OF THE AC T, BY THE ASSESSEE IN THE COMPUTATION ITSELF, THE ASSESSEE OBJECTED FOR F URTHER DISALLOWANCE MADE BY THE A.O., BY WAY OF APPEAL. AS NO SUBSTANT IVE EVIDENCE COULD BE GATHERED OR A PROXIMATE NEXUS OF THE EXPENDITURE WITH THAT OF THE DIVIDENDS COULD BE ESTABLISHED, IT IS SUBMITTED THA T THE ADDITIONAL DISALLOWANCE MADE U/S 14A READ WITH RULE 8D IS UNCA LLED FOR. THE CIT(A) AFTER CONSIDERING THE EXPLANATIONS OF THE AS SESSEE AND ALSO TAKEN INTO ACCOUNT THE REMAND REPORT ISSUED BY THE A.O., DIRECTED THE A.O. TO DELETE THE ADDITIONS MADE BY INVOKING RULE 8D(2)(II I) OF THE RULES, HOWEVER, CONFIRMED ADDITIONS OF RS.3,84,000/- TOWAR DS D-MAT ACCOUNT CHARGES INCURRED BY THE ASSESSEE. AGGRIEVED BY THE CIT(A) ORDER, THE REVENUE IS IN APPEAL BEFORE US. 6. THE LD. D.R. SUBMITTED THAT THE CIT(A) OUGHT TO HAVE SUSTAINED THE DISALLOWANCE MADE U/S 14A OF THE ACT, ON ACCOUN T OF EXPENDITURE INCURRED TOWARDS EARNING OF EXEMPT INCOME. THE D.R . FURTHER SUBMITTED THAT THE CIT(A) OUGHT TO HAVE CONSIDERED THE FACT T HAT THE ASSESSEE DID ITA NO.356/VIZAG/2013 M/S. GVK POWER & INFRASTRCUTURE LTD., JEGURUPADU, K ADIYAM MANDAL 6 NOT MAINTAIN SEPARATE BOOKS OF ACCOUNTS IN RESPECT OF DIVIDEND INCOME AND HENCE, THE A.O. WAS RIGHT IN INVOKING THE PROVI SIONS OF SECTION 14A READ WITH RULE 8D(2)(III) OF THE RULES, AS IT IS MA NDATORY IN NATURE FROM THE ASSESSMENT YEAR 2008-09 ONWARDS. THE CIT(A) WI THOUT APPRECIATING THE FACTS, SIMPLY DELETED THE ADDITIONS MADE BY THE A.O., BASED ON THE REMAND REPORT WHICH IS NOT CORRECT. ON THE OTHER H AND, THE LD. A.R. FOR THE ASSESSEE STRONGLY SUPPORTED THE ORDER OF CIT(A) . 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE A.O. DISALLOWED AN AMOUNT OF RS.3,49,34,765/- BEING ONE-HALF PERCENTAGE OF THE AVERAGE OF THE VALUE OF INVESTMEN T, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCO ME. THE A.O. WAS OF THE OPINION THAT THE ASSESSEE HAS EARNED HUGE DIVID END INCOME, HOWEVER, FAILED TO DISALLOW OTHER EXPENDITURE AS CO NTEMPLATED UNDER RULE 8D(2)(III) OF THE RULES. THE A.O. OBSERVED TH AT AS PER THE AMENDED PROVISIONS OF SECTION 14A OF THE ACT AND RULE 8D(2) , WHICH IS MANDATORY IN NATURE FROM THE ASSESSMENT YEAR 2008-09, PROPORT IONATE EXPENDITURE IS DISALLOWABLE AS CONTEMPLATED UNDER RULE 8D(2). SINCE THE ASSESSEE FAILED TO DISALLOW RELATABLE EXPENDITURE, INVOKED T HE PROVISIONS OF RULE 8D(2)(III) AND DISALLOWED ONE-HALF PERCENTAGE OF TH E AVERAGE VALUE OF THE INVESTMENT. IT IS THE CONTENTION OF THE ASSESS EE THAT IT HAS ITA NO.356/VIZAG/2013 M/S. GVK POWER & INFRASTRCUTURE LTD., JEGURUPADU, K ADIYAM MANDAL 7 DISALLOWED ON ITS OWN INTEREST RELATABLE TO EARNING EXEMPT INCOME. THE ASSESSEE FURTHER CONTENDED THAT EXCEPT INTEREST ON LOAN, IT HAS NOT INCURRED ANY EXPENDITURE WHICH IS DIRECTLY ATTRIBUT ABLE TO EARNING OF EXEMPT INCOME. THE EXPENDITURE INCURRED BY THE ASS ESSEE HAS BEEN REIMBURSED BY ITS HOLDING COMPANY, THEREFORE, THERE IS NO OTHER EXPENDITURE WHICH IS DIRECTLY RELATABLE TO EXEMPT I NCOME AND HENCE, THE A.O. WAS NOT CORRECT IN DISALLOWING THE SAME BY INV OKING THE PROVISIONS OF RULE 8D(2)(III) OF THE RULES. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THE ASSESSEE HAS DISAL LOWED INTEREST ON LOANS DIRECTLY ATTRIBUTABLE TO EARNING OF EXEMPT IN COME. AS REGARDS OTHER EXPENDITURE, THE A.O., HIMSELF IN HIS REMAND REPORT STATED THAT THERE IS NO SUBSTANTIVE EVIDENCES COULD BE GATHERED OR PROXIMATE NEXUS OF THE EXPENDITURE WITH THAT OF THE DIVIDENDS COULD BE ESTABLISHED, THEREFORE, THE ADDITIONAL DISALLOWANCE MADE U/S 14A READ WITH RULE 8D IS UNCALLED FOR. THE CIT(A) AFTER CONSIDERING THE EXP LANATIONS OF THE ASSESSEE AND ALSO TAKEN NOTE OF THE REMAND REPORT I SSUED BY THE A.O., DELETED THE ADDITIONS MADE BY THE A.O. TOWARDS FURT HER ADDITIONS UNDER SUB CLAUSE (III) OF RULE 8D(2) OF THE RULES. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). HENCE, WE INCLINED TO UPHOLD THE CIT(A) ORDER AND REJECT THE APPEAL FILED BY THE REVENUE. ITA NO.356/VIZAG/2013 M/S. GVK POWER & INFRASTRCUTURE LTD., JEGURUPADU, K ADIYAM MANDAL 8 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED . THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22 ND SEPT16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 22.09.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT ACIT, CIRCLE-1, RAJAHMUNDRY 2. / THE RESPONDENT M/S. GVK POWER & INFRASTRUCTURE LTD., NO.5-48, GVK POWER PLANT, JEGURUPADU, KADIYAM MANDAL, EAST GODAV ARI DIST. 3. + / THE CIT, RAJAHMUNDRY 4. + ( ) / THE CIT (A)-11, MUMBAI, CAMP AT VISAKHAPATNAM. 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM