ACIT, New Delhi V. M/s. Bhushan Energy Ltd., New Delhi

ITA 4158/DEL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2936 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 25-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K JAIN
• Assessee Lawyers: ADITYA KUMAR
• Keywords: Earning of tax free income; Question of law; Initiation of penalty proceedings
• Section: 14A; 115JB; 10

Judgement Text

PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH - A NEW DELHI BEFORE HON'BLE PRESIDENT SHRI G.D. AGRAWAL AND SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO.3875/DEL/201 4 ASSESSMENT YEAR : 2011-12 BHUSHAN ENERGY LTD. 1 ST FLOOR, F-BLOCK, INTERNATIONAL TRADE TOWER, NEHRU PLACE, NEW DELHI 110 019 PAN AACCB7445H VS. ACIT CENTRAL CIRCLE-13 NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO.4158/DEL/2014 ASSESSMENT YEAR : 2011-12 ACIT CENTRAL CIRCLE-13 NEW DELHI. VS. BHUSHAN ENERGY LTD. 1 ST FLOOR, F BLOCK, INTERNATIONAL TRADE TOWER, NEHRU PLACE, NEW DELHI. PAN AACCB7445H (APPELLANT) (RESPONDENT) PER BHAVNESH SAINI, JUDICIAL MEMBER ORDER ASSESSEE BY : SHRI ASHWANI KUMAR, CA AND SHRI ADITYA KUMAR, CA DEPARTMENT BY: SHRI S.K. JAIN, SR. DR DATE OF HEARING 05//06/2017 DATE OF PRONOUNCEMENT 07/06/2017 ITA NOS. 3875, 4158/DEL/2014 BHUSHAN ENERGY LTD. VS. ACIT AND ACIT VS. BHUSHAN ENERGY LTD. PAGE 2 OF 7 BOTH THE CROSS APPEALS ARE DIRECTED AGAINST THE ORD ER OF LD. CIT(A) I, NEW DELHI DATED 8 TH MAY, 2014 FOR ASSTT. YEAR 2011-12. 2. WE HAVE HEARD LD. REPRESENTATIVE OF BOTH THE PAR TIES AND PERUSED THE MATERIAL ON RECORD. 3. THE ASSESSEE FILED THE APPEAL ON THE FOLLOWING G ROUND:- 1. THAT THE ORDER DATED 8.5.2014 PASSED U/S 250 OF THE INCOME TAX ACT, 1961 BY THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) 1, NEW DELHI IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED IN PARTLY UPHOLDING THE ACTION OF THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX, C ENTRAL CIRCLE-13, NEW DELHI IN RESTRICTING THE DISALLOWANC E UNDER SECTION 14-A OF THE INCOME TAX ACT, 1961 ON ACCOUNT OF EXPE NDITURE INCURRED IN RELATION TO EXEMPT INCOME TO RS. 76,46, 670/- WHILE COMPUTING INCOME UNDER THE NORMAL PROVISIONS OF THE INCOME-TAX ACT, 1961 BY IGNORING THE FACTUAL POSITION AND THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT COMPANY. 4. THE REVENUE HAS FILED THE APPEAL ON THE FOLLOWIN G GROUNDS :- 1. THE ORDER OF LD. CIT(A) IS NOT CORRECT IN LAW AND F ACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 8,52,27,557/- ON ACCOUNT OF DISALLOWANCE U/S 14A READ WITH RULE 8D MADE BY T HE AO. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE IN BOOK PROFIT UNDER THE MAT PROVISIONS U/S 115JB OF RS. 9,28,74,227/- ON AC COUNT OF EXPENSES INCURRED FOR EARNING EXEMPT INCOME MADE BY AO. 5. BRIEFLY THE FACTS OF THE CASE ARE THAT ASSESSEE IS A COMPANY AND DECLARED TOTAL INCOME OF RS. 81.98 CRORE. THE AO AS KED THE ASSESSEE TO GIVE DETAILED NOTE ON APPLICABILITY OF SECTION 14A OF THE INCOME TAX ACT,. THE ASSESSEE SUBMITTED THAT ASSESSEE COMPANY HAS EA RNED EXEMPT ITA NOS. 3875, 4158/DEL/2014 BHUSHAN ENERGY LTD. VS. ACIT AND ACIT VS. BHUSHAN ENERGY LTD. PAGE 3 OF 7 INCOME DURING THE YEAR AND DISALLOWED A SUM OF RS. 1,75,063/- U/S 14A OF THE I.T. ACT. AO HOWEVER DID NOT ACCEPT CONTENTI ON OF THE ASSESSEE AND NOTED THAT AS PER PROVISION OF SECTION 14A, IT IS NOT AT ALL MANDATORY THAT ASSESSEE SHOULD HAVE ACTUALLY EARNED THE EXEMP T INCOME OR EVEN THAT HE SHOULD HAVE ACTUALLY INCURRED ANY EXPENSES FOR EARNING SUCH INCOME DURING THE YEAR UNDER CONSIDERATION. THE AO APPLIED RULE 8D OF THE I.T. ACT AND RELIED UPON ORDER OF ITAT DELHI BE NCH IN THE CASE OF ACIT VS. CHEMINVEST LTD. 317 ITR 86 IN WHICH THE TR IBUNAL HAS OBSERVED THAT DISALLOWANCE U/S 14A OF THE I.T. ACT CAN BE M ADE EVEN IF THERE IS NO EXEMPT INCOME GENERATED FROM THAT INVESTMENT. TH E AO ACCORDINGLY DISALLOWED RS. 9,28,74,227/- U/S 14A R.W.R. 8D OF T HE I.T. RULES. 6. THE ASSESSEE CHALLENGED THE ADDITION BEFORE LD. CIT(A) AND MADE DETAILED SUBMISSIONS AND ALSO SUBMITTED THAT ASSES SEE DID NOT MAKE ANY CLAIM OF EXEMPTION, THEREFORE NO DISALLOWANCE CAN B E MADE. THE ASSESSEE ALSO DEMONSTRATED THAT THE SUBSTANTIAL EXP ENDITURE WAS RELATABLE TO ITS MANUFACTURING / BUSINESS ACTIVITIE S I.E ACTIVITIES DISTINCT FROM PASSIVE ACTIVITY OF INVESTMENT IN SHARES. LD. CIT(A) FOLLOWING THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF MAX OPP INVESTMENT LTD. VS. CIT 347 ITR 272 (DELHI) SUBSTANTIALLY ACCEPTED THE EXPLANATION OF ASSESSEE BECAUSE THE INTEREST EXPENDITURE OF THE AS SESSEE WAS ENTIRELY ATTRIBUTABLE TO THE FUNDS RAISED FROM THE FINANCIAL INSTITUTIONS FOR SETTING UP THE 150 MW POWER PLANT IN ORISSA. THE DISALLOWAN CE U/S 14A R.W.R 8D ITA NOS. 3875, 4158/DEL/2014 BHUSHAN ENERGY LTD. VS. ACIT AND ACIT VS. BHUSHAN ENERGY LTD. PAGE 4 OF 7 WAS RESTRICTED TO RS. 78,21,733/- AND BY REDUCING R S. 1,75,062/- RESTRICTED THE DISALLOWANCE TO RS. 76,46,670/-. APP EAL OF ASSESSEE WAS PARTLY ALLOWED. 7. BOTH THE PARTIES ARE IN APPEALS AS PER THEIR RES PECTIVE GROUNDS OF APPEAL. 8. LD. COUNSEL FOR ASSESSEE RESTRICTED HIS ARGUMENT S TO THE POINT THAT ASSESSEE HAS EARNED EXEMPT INCOME IN A SUM OF RS. 1,75,063/- IN ASSESSMENT YEAR UNDER APPEAL WHICH WAS DISALLOWED W HILE COMPUTING THE INCOME AND COMPLETE DETAILS WERE ALSO SHOWN BY REDUCING THE EXEMPT INCOME U/S 10 OF THE I.T. ACT. HE HAS THEREF ORE SUBMITTED THAT THE DISALLOWANCE U/S 14A COULD NOT BE MORE THAN THE EXEMPT INCOME OF RS. 1,75,063/- WHICH ASSESSEE HAS ALREADY ADDED TO THE INCOME, AS PER COMPUTATION OF INCOME FILED ON RECORD. HE HAS THERE FORE SUBMITTED THAT NO FURTHER ADDITION IS REQUIRED IN THE MATTER. HE H AS RELIED UPON DECISION OF DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT S PVT. LTD. VS. CIT ITA NO. 117/2015 DATED 25 TH FEBRUARY, 2015. HE HAS ALSO RELIED UPON DECISION OF DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD S CIT 378 ITR 33. HE HAS STATED LIBERTY MAY BE GIVEN TO ASSESSEE TO RAISE OTHER CONTENTIONS IN OTHER YEARS AS RAISED IN GROUNDS OF APPEAL. ITA NOS. 3875, 4158/DEL/2014 BHUSHAN ENERGY LTD. VS. ACIT AND ACIT VS. BHUSHAN ENERGY LTD. PAGE 5 OF 7 9. ON THE OTHER HAND, LD. DR RELIED UPON ORDER OF T HE AO AND SUBMITTED THAT AS PER RULE 8D AO MADE CORRECT DISAL LOWANCE IN THE MATTER. 10. WE HAVE CONSIDERED RIVAL SUBMISSIONS. IT IS NOT IN DISPUTE THAT IN ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE HAS EARNE D RS. 1,75,063/- AS EXEMPT INCOME FROM ITS INVESTMENTS. THE ASSESSEE HAS ADDED THE SAME IN COMPUTATION OF INCOME AND LATER ON REDUCED THE SAME U/S 10 OF THE I.T. ACT. THEREFORE ASSESSEE HAS DISALLOWED ENT IRE AMOUNT OF RS. 1,75,063/- U/S 14A R.W.R. 8D OF THE I.T. ACT. HON'B LE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT. LTD. VS. CIT (S UPRA) IN PARA 9 AND 10 HELD AS UNDER :- 9. IN THE PRESENT CASE, THE AO HAS NOT FIRSTLY DI SCLOSED WHY THE APPELLANT/ASSESSEE'S CLAIM FOR ATTRIBUTING RS. 2,9 7,440/- AS A DISALLOWANCE UNDER SECTION 14A HAD TO BE REJECTED. TAIKISHA SAYS THAT THE JURISDICTION TO PROCEED FURTHER AND DETERM INE AMOUNTS IS DERIVED AFTER EXAMINATION OF THE ACCOUNTS AND REJEC TION IF ANY OF THE ASSESSEE'S CLAIM OR EXPLANATION. THE SECOND ASP ECT IS THERE APPEARS TO HAVE BEEN NO SCRUTINY OF THE ACCOUNTS BY THE AO - AN ASPECT WHICH IS COMPLETELY UNNOTICED BY THE CIT (A) AND THE ITAT. THE THIRD, AND IN THE OPINION OF THIS COURT, IMPORTANT ANOMALY WHICH WE CANNOT BE UNMINDFUL IS THAT WHEREA S THE ENTIRE TAX EXEMPT INCOME IS RS. 48,90,000/-, THE DISALLOWA NCE ULTIMATELY DIRECTED WORKS OUT TO NEARLY 110% OF THAT SUM, I.E. , RS.52,56,197/-. BY NO STRETCH OF IMAGINATION CAN SE CTION 14A OR RULE 8D BE INTERPRETED SO AS TO MEAN THAT THE ENTIR E TAX EXEMPT INCOME IS TO BE DISALLOWED. THE WINDOW FOR DISALLOW ANCE IS INDICATED IN SECTION 14A, AND IS ONLY TO THE EXTENT OF DISALLOWING EXPENDITURE 'INCURRED BV THE ASSESSEE IN RELATION T O THE TAX EXEMPT INCOME'. THIS PROPORTION OR PORTION OF THE TAX EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT AS H AS HAPPENED IN THIS CASE. ITA NOS. 3875, 4158/DEL/2014 BHUSHAN ENERGY LTD. VS. ACIT AND ACIT VS. BHUSHAN ENERGY LTD. PAGE 6 OF 7 10. FOR THE ABOVE REASONS, THE IMPUGNED ORDER OF T HE ITAT IS SET ASIDE. THE QUESTION OF LAW IS ANSWERED IN FAVOU R OF THE ASSESSEE. CONSEQUENTLY, ORDER OF THE AO IS SET ASID E. THE INITIATION OF PENALTY PROCEEDINGS ALSO IS SET ASIDE . THE MATTER IS REMITTED TO THE AO FOR FRESH CONSIDERATION IN ACCOR DANCE WITH THE ABOVE DIRECTIONS. THE APPEAL IS PARTLY ALLOWED. 11. THE AO WHILE DISALLOWING THE DEDUCTION U/S 14A RELIED UPON ORDER OF ITAT IN THE CASE OF CHEMINVEST LTD VS. CIT (SUPR A). HOWEVER HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS. CIT 378 ITR 33 (DELHI) HELD AS UNDER :- THAT NO EXEMPTED INCOME WAS EARNED BY THE ASSESS EE IN THE RELEVANT ASSESSMENT YEAR AND SINCE THE GENUINENESS OF THE EXPENDITURE INCURRED BY THE ASSESSEE WAS NOT IN DOU BT, NO DISALLOWANCE COULD BE MADE UNDER SECTION 14A. 12. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ABOVE DECISIONS OF DELHI HIGH COURT, IT IS CLEAR THAT ASS ESSEE EARNED ONLY EXEMPTED INCOME IN A SUM OF RS. 1,75,063/- WHICH IS ALREADY ADDED TO THE INCOME OF THE ASSESSEE. THEREFORE, NO FURTHER DISALLOWANCE SHOULD BE MADE ON THE MATTER IN ISSUE. WE ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITIO N. IN THE RESULT APPEAL OF ASSESSEE IS ALLOWED AND DEPARTMENTAL APPEAL IS D ISMISSED. WE MAY NOTE THAT THE ASSESSEE IS AT LIBERTY TO RAISE OTHER CONTENTIONS IN OTHER YEARS AS PER LAW IF SO ADVISED IN ACCORDANCE WITH L AW. THESE APPEALS HAVE DECIDED ONLY ON SOLE CONTENTION RAISED BY LD. COUNSEL FOR ASSESSEE AS RECORDED IN THIS ORDER. WITH THESE OBSERVATIONS, WE ALLOW THE APPEAL OF ASSESSEE AND DISMISS THE DEPARTMENTAL APPEAL. ITA NOS. 3875, 4158/DEL/2014 BHUSHAN ENERGY LTD. VS. ACIT AND ACIT VS. BHUSHAN ENERGY LTD. PAGE 7 OF 7 13. IN THE RESULT APPEAL OF ASSESSEE IS ALLOWED AND DEPARTMENTAL APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT. SD/- SD/- (G.D. AGRAWAL) ( BHAVNESH SAINI ) HON'BLE PRESIDENT JUDICIAL MEMBER DATED: 07 .06.2017 *VEENA* COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. PRINCIPAL CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR