Power Finance Corporation Ltd., New Delhi V. Dy. CIT, New Delhi

ITA 3747/DEL/2008

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5495 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 07-01-2010
• Assessment Year: 1996-1997
• Appeal Filed On: 23-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJIV MEHROTRA
• Assessee Lawyers: H P AGGARWAL
• Keywords: Depreciation
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH F DELHI ] BEFORE SHRI A. D. JAIN, JM SHRI K. D. RANJAN , AM I. T. APPEAL NO. 3747 (DEL) OF 2008. ASSESSMENT YEAR : 1996-97. M/S. POWER FINANCE CORPORATION LTD., DY. COMMISSIONER OF INCOME-TAX, URJANIDHI, 1 - BARAKHAMBA LANE, VS. C I R C L E : 14 (1), C O N N A U G H T P L A C E, N E W D E L H I. N E W D E L H I. P A N / G I R NO. AAA CP 1561 A. ( APPELLANT ) ( RESPONDE NT ) ASSESSEE BY : SHRI H. P. AGGARWAL, C. A.; DEPARTMENT BY : SHRI RAJIV MEHROTRA [CIT] - D. R.; O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 19 96-97 ARISES OUT OF THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XVII, NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE REA D AS FOLLOWS:- ' 1. THE LD. CIT (APPEALS) HAS ERRED IN LAW AN D ON FACTS OF THE CASE IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER BY NO T ALLOCATING ANY EXPENSE TO GUARANTEE FEES INCOME; 2 I. T. APPEAL NO. 3747 (DEL) OF 2008. 2. THE LD. CIT (APPEALS) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CHARGING INTEREST UNDER SECTION 234-B OF THE INCOME -TAX ACT, 1961; 3. THE LD. CIT (APPEALS) HAS ERRED IN LAW AND O N FACTS OF THE CASE IN WITHDRAWING INTEREST UNDER SECTION 234-D OF THE INC OME-TAX ACT, 1961. ' 3. THE FIRST ISSUE FOR CONSIDERATION RELATES TO NOT ALLOCATING ANY EXPENSE TO GUARANTEE FEES INCOME. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ORIGINAL ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON AN INCOME OF RS. 2,09,78,44,400/-. THE ASSESSED INCOME WAS SUBSEQUENTLY DETERMINED AT RS.1,95,27,73,261/- AS PER ORDER UNDER SECTION 154/250/143(3) OF THE ACT. BOTH THE REVENUE AND TH E ASSESSEE PREFERRED APPEALS BEFORE THE ITAT AND THE ITAT VIDE ORDER DATED 11 TH AUGUST, 2006 IN ITA. NO. 994 AND 1062 (DEL) OF 2000 SET ASIDE THE MATTER TO THE FILE OF THE ASSESS ING OFFICER WITH THE DIRECTIONS TO CONSIDER THE EXPENSES INCURRED BY THE ASSESSEE IN RESPECT OF INC OME BY WAY OF INTEREST AND GUARANTEE FEES AFTER EXAMINING EACH EXPENSE AND SEE ITS APPLICABIL ITY TO EARNING OF SUCH INCOME. THE ASSESSEE FILED DETAILED WORKING OF ALLOCATION OF TO TAL EXPENSES AMOUNTING TO RS.265.64 CRORES. OUT OF THIS AN AMOUNT OF RS.59.39 CRORES WAS SAID T O BE DIRECTLY ALLOCABLE TO THE BUSINESS OF LONG TERM FINANCING AND THE REMAINING EXPENSES AMOU NTING TO RS.206.25 CRORES WAS DETERMINED NOT DIRECTLY ALLOCABLE. THE ASSESSEE DE TERMINED THE RATIO OF COMMON EXPENSES TO THE TOTAL INCOME AT 37.38 PER CENT AND ACCORDINGLY CLAIMED THAT 37.38% OF GUARANTEE FEES BE ALLOWED AS EXPENDITURE. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. HE WAS OF THE OPINION THAT NO EXPENSE CAN DIRECTLY BE ATTRIBUTED TO GUARANTEE FEES. THE EXPENSES ALLOCATED IN RESPECT OF BROKERAGE AND ISSU E EXPENSES INTEREST TAX, PERSONAL AND ADMINISTRATIVE EXPENSES, DEPRECIATION, PRELIMINARY EXPENSES WRITTEN OFF AND PRIOR PERIOD EXPENSES RELATED TO MAIN BUSINESS OF THE ASSESSEE I .E. LONG TERM FINANCING TO POWER PROJECTS. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE O NLY FACTOR FOR CONSIDERATION WAS THE INTEREST CHARGES OF RS.190.45 CRORES. SINCE THE ASSESSEE WA S NOT ABLE TO GIVE ALLOCATION OF INTEREST CHARGES OF RS.190.45 CRORES, THE ASSESSING OFFICER DETERMINED 50 PER CENT OF COMMON INTEREST CHARGES AMOUNTING TO RS.95.22 CRORES TO BE THE AMOU NT OF EXPENDITURE AVAILABLE FOR ALLOCATION TOWARDS INTEREST INCOME OF RS.85.29 CRORES. THE AS SESSING OFFICER DID NOT ALLOW ALLOCATION OF EXPENSES TOWARDS GUARANTEE FEES. 3 I. T. APPEAL NO. 3747 (DEL) OF 2008. 4. BEFORE THE LD. CIT (APPEALS) IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT GUARANTEES WERE ISSUED BY THE ASSESSEE FOR FINANCIN G POWER PROJECTS. THEREFORE, THE AO WAS NOT CORRECT IN HOLDING THAT NO EXPENSES COULD BE AT TRIBUTED DIRECTLY TO GUARANTEE FEES. THE INCOME FROM GUARANTEE FEES COULD NOT BE DIVORCED FR OM THE MAIN ACTIVITY FOR PROVIDING LONG TERM FINANCE. THESE GUARANTEES ARE GIVEN FOR FINAN CING POWER PROJECTS AND ADD TO THE CONTINGENT LIABILITY ATTACHED TO THE ASSESSEE. THI S ADDED LIABILITY RESULTS INTO HIGHER RATE OF INTEREST TO BE PAID BY THE ASSESSEE. THEREFORE, TH E INTEREST COST WAS DIRECTLY LINKED TO GUARANTEE FEES INCOME. THE LD. CIT (APPEALS) EXAMI NED THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE STAND TAKEN BY THE ASSESSING OFFICER, BY OBSERVING AS UNDER:- ' 5.2 AS REGARDS THE ALLOCATION OF COMMON EXPENSES TOWARDS EARNING OF GUARANTEE FEES THE REASONS PUT FORWARD BY THE APPEL LANT THAT GUARANTEE FEES CANNOT BE DIVORCED FROM THE MAIN ACTIVITY OF THE AP PELLANT AND THAT MISC. OTHER EXPENSES LIKE ADMINISTRATION ETC. ARE BOUND TO BE I NCURRED ON ANY SOURCE OF INCOME DO NOT HAVE MUCH FORCE. ON THIS COUNT I AGR EE WITH THE FINDINGS OF THE AO AS THE INCOME OF GUARANTEE FEES CANNOT BE ASSOCI ATED WITH INCURRING OF ANY EXPENDITURE AS THIS INCOME COMES TO THE ASSESSEE LI KE A BY-PRODUCT OF ITS MAIN BUSINESS. THEREFORE, EXCLUSION OF INCOME FOR ALLOC ATION OF EXPENSES APPEARS CORRECT, HENCE THE ADDITION ON THIS ACCOUNT IS CONF IRMED.' 5. BEFORE US THE LD. AR OF THE ASSESSEE REITERATED SIMILAR ARGUMENTS. HE SUBMITTED THAT THE COMMON EXPENSES IN THE RATIO OF COMMON EXPENDIT URE TO TOTAL INCOME WHICH IS 37.38 SHOULD BE ALLOCATED. ON THE OTHER HAND, THE LD. [C IT] - DR SUPPORTED THE ORDER OF THE LD. CIT (APPEALS). 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF T HE ASSESSEE FOR ALLOCATION OF COMMON EXPENSES BY WAY OF BROKERAGE AND ISSUE EXPENSES, PE RSONNEL AND ADMINISTRATIVE EXPENSES, DEPRECIATION, PRELIMINARY EXPENSES WRITTEN OFF, PRI OR PERIOD EXPENSES ON THE GROUND THAT THESE DO NOT HAVE ANY NEXUS WITH GUARANTEE FEES. THE BRO KERAGE AND ISSUE EXPENSES, DEPRECIATION, 4 I. T. APPEAL NO. 3747 (DEL) OF 2008. PRELIMINARY EXPENSES WRITTEN OFF AND PRIOR PERIOD E XPENSES BY NO STRETCH OF IMAGINATION COULD BE ALLOCATED TOWARDS GUARANTEE FEES INCOME. THESE E XPENSES WERE INCURRED FOR CARRYING OF MAIN BUSINESS OF THE ASSESSEE AND NOT TOWARDS INCID ENTAL INCOME TO MAIN BUSINESS OF FINANCING OF MAIN PROJECTS. THUS THE ONLY EXPENSE WHICH COULD BE ATTRIBUTABLE TO GUARANTEE FEES IS PERSONNEL AND ADMINISTRATIVE EXPENSES AMOUN TING TO RS.8.32 CRORES. THE ASSESSEE HAD EARNED GUARANTEE FEES OF RS.3.83 CRORES. THE TOTAL INCOME OF THE ASSESSEE IS RS.551.76 CRORES. THUS THE RATIO OF PERSONNEL AND ADMINISTRATIVE EXPE NSES TO TOTAL INCOME COMES TO 1.5%(8.32/551.76X100). THEREFORE, OUT OF PERSONNEL AND ADMINISTRATIVE EXPENSES, THE EXPENSES WHICH COULD BE ALLOCATED TO GUARANTEE FEES COULD BE 1.50 PER CENT OF RS.8.32 CRORES. THUS TOTAL ALLOCABLE EXPENSES COMES TO RS.12,48,000 /-. THIS, IN OUR OPINION, CAN BE ALLOCATED TOWARDS EARNING OF GUARANTEE FEES INCOME. WE ACCOR DINGLY DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENSE OF RS.12,48,000/- OUT OF PERSONAL AND ADMINISTRATIVE EXPENSES, WHICH WOULD HAVE BEEN INCURRED FOR EARNING GUARANTEE FEES INCOME. 7. THE NEXT ISSUE RELATES TO CHARGING OF INTEREST I NCOME UNDER SECTION 234-B OF THE INCOME-TAX ACT, 1961. CHARGING OF INTEREST U/S 234B IS CONSEQUENTIAL AND MANDATORY AND HENCE THE ASSESSING OFFICER WILL CHARGE INTERES T AFTER GIVING EFFECT TO THIS ORDER. 8. THE NEXT ISSUE RELATES TO WITHDRAWAL OF INTEREST UNDER SECTION 234-D OF THE INCOME-TAX ACT, 1961. THIS ISSUE IS COVERED BY THE DECISION O F THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ITO, WARD : 11(1), NEW DELHI VS. EKTA PROMO TORS (P.) LTD. 113 I.T.D. 719 (DEL.) (SB) WHEREIN IT HAS BEEN HELD THAT PROVISIONS OF SE CTION 234-D WILL BE APPLICABLE FROM ASSESSMENT YEAR 2004-05 IRRESPECTIVE OF THE FACT TH AT PROVISIONS OF SECTION 234-D OF THE ACT WERE INSERTED WITH EFFECT FROM 1/06/2003. THE ASS ESSMENT YEAR INVOLVED IN THIS APPEAL IS 1996-97. HENCE IN VIEW OF DECISION OF SPECIAL BENC H OF THE TRIBUNAL IN THE CASE OF ITO, WARD : 11(1), NEW DELHI VS. EKTA PROMOTORS (P.) LTD .(SUPRA) INTEREST U/S 234D IS NOT CHARGEABLE. ACCORDINGLY, THE ASSESSING OFFICER IS D IRECTED TO DELETE THE INTEREST CHARGED UNDER SECTION 234-D OF THE ACT. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 5 I. T. APPEAL NO. 3747 (DEL) OF 2008. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 19 TH MARCH, 2010. SD/- SD/- [ A. D. JAIN ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 19 TH MARCH, 2010. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT. 6 I. T. APPEAL NO. 3747 (DEL) OF 2008.