DCIT, New Delhi V. M/s Keshav Power Ltd., New Delhi

ITA 4277/DEL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4928 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 02-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN GOTRU
• Assessee Lawyers: R M MEHTA
• Keywords: Earning of tax free income
• Section: 143(3); 142(1); 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 4277/ DEL/201 5 A.Y. : 20 11 - 12 DCIT, CIRCLE - 14(2) NEW DELHI VS. M/S KESHAV POWER LTD., 4, SCINDIA HOUSE, NEW DELHI 110 001 (PAN: AACCK5351M) (APPELLANT) (RESPONDENT) DEPARTMENT BY : SH. SHRAVAN GOTRU, SR. DR ASSESSEE BY : SH. R.M. MEHTA, CA ORDER PER H.S. SIDHU, JM THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST THE IMPUGNED ORDER DATED 22/4/2015 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-V, NEW DELHI O N THE FOLLOWING GROUNDS:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 4,15,24,709/- MADE U/S. 14A R/W RUL E 8D OF THE ACT. 2 2. THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 3. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR FOREGO ANY GROUND(S) OF APPEAL RAISED ABOVE AT T HE TIME OF HEARING. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS ENGAGED IN THE BUSINESS OF GENERATION AND DISTRIBUTI ON OF POWER. THE COMPANY HAD TAKEN A 27 MW THERMAL POWER PLANT O N OPERATING LEASE W.E.F. MARCH 2005 AT DALMIAPURAM, DISTT. TIRUC HIRAPALLI AND IS OPERATING THE SAME. THE ASSESSEE E-FILED RETURN OF I NCOME DECLARING NIL INCOME ON 26/09/2011, WHICH WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS THE ACT) . LATER ON, THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS, NOTICE U/S 143(2) OF THE ACT DATED 07/08/2012 WAS ISSUED AND SERVED UPON TH E ASSESSEE. DUE CHANGE INCUMBENT, NOTICES U/S. 143(2) & 142(1) OF THE ACT ALONG WITH A DETAILED QUESTIONNAIRE DATED 24/12/ 2013 WERE ISSUED FIXING THE CASE FOR HEARING AND REQUIRING THE ASSESSEE TO FILE NECESSARY DETAILS. IN RESPONSE, THE AR OF THE ASSESS EE COMPANY ATTENDED THE PROCEEDINGS FROM TIME TO TIME AND FURNISHE D THE REQUISITE DETAILS/ INFORMATION. AO OBSERVED THAT SECTI ON 14A OF THE 3 I.T. ACT, 1961 REGULATES THE EXPENDITURE WHICH WAS IN CURRED IN RELATION TO EXEMPT INCOME. BY VIRTUE OF THIS SECTION N O DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED B Y THE ASSESSEE ON ACCOUNT OF INCOME WHICH DOES NOT FORM PART OF THE TO TAL INCOME UNDER THE ACT. THE CBDT HAS NOTIFIED RULE 8D TO AVOID AD-HOC DISALLOWANCE TO IMPART VISIBILITY TO THE EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME. MOREOVER, PROCEDURE FOR COMP UTATION OF DISALLOWANCE HAS BEEN PROVIDED IN SUB-SECTIONS (2) A ND (3) OF SECTION 14A OF THE I T ACT. THE ITAT, SPECIAL BENCH, NEW DELHI IN THE CASE OF M/S CHEMINVEST LTD. ITA NO 87/DEL/2008 H AS ALSO HELD THAT THE DISALLOWANCE U/S 14A IS TO BE MADE EVEN IF NO INCOME HAS RESULTED OR EARNED BY THE ASSESSEE IN THE YEAR UNDE R CONSIDERATION. THEREFORE, IN VIEW OF THE SPECIFIC PROVISIONS FOR QU ANTIFICATION OF DISALLOWANCE AS CONTAINED IN SUB-SECTIONS (2) AND ( 3) OF SECTION 14A, WHICH ARE PROCEDURAL. THE DISALLOWANCE IS STRIC TLY TO BE MADE IN TERMS OF THE SPECIFIC PROVISIONS OF RULE 8D. THE ASSE SSEE HAS OFFERED THE TOTAL DIVIDEND INCOME AS DISALLOWANCE U/S 14A BUT IT IS NOT ACCEPTABLE AS COMPUTATION UNDER RULE 8D. THE ASSESSE E HAS NOT ESTABLISHED WITH THE NECESSARY DOCUMENTARY EVIDENCE THAT IT HAD NOT INCURRED ANY INTEREST EXPENDITURE FOR THE INVESTME NT WHICH HAS YIELDED DIVIDEND OR SHALL YIELD SUCH INCOME AND ANY OTHER EXPENDITURE FOR EARNING EXEMPTED DIVIDEND INCOME. TH E ASSESSEE 4 HAS INCURRED INTEREST EXPENDITURE AND OTHER EXPENDITURE DURING THE YEAR AS WELL AS EARLIER YEARS AND THE EXACT QUANTUM OF EXPENDITURE FOR THE YEAR AS WELL AS EARLIER YEARS COULD NOT BE W ORKED OUT. THE DISALLOWANCE U/S- 14A AND AS PER RULE 8D IS BEING M ADE IN THE ASSESSEE'S CASE YEAR AFTER YEAR AS NOTED FROM THE ASS ESSMENT ORDERS OF THE PREVIOUS YEARS. THIS YEAR AS WELL, THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 88,83,863/-. THEREFOR E, THE DISALLOWANCE WAS MADE AS PER RULE 8D UNDER SEC-14A OF THE ACT AT RS. 5,04,08,572/- AND DEDUCTION OF DISALLOWANCE MADE BY THE ASSESSEE U/S. 14A RS. 88,83,863/- IN THE COMPUTATION OF INCOME WHICH COMES TO TOTAL DISALLOWANCE AS PER RULE 8D AT RS. 4,15,24,709/- AND ASSESSED THE INCOME OF THE ASS ESSEE AT RS. 4,37,12,090/- VIDE ORDER DATED 21.2.2014 PASSED U/S 143(3) OF THE ACT. 3. AGGRIEVED BY THE ASSESSMENT ORDER DATED 21.2.2014, ASSESSEE FILED APPEAL BEFORE THE LD. FIRST APPELLATE A UTHORITY WHO HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE VIDE O RDER DATED 22.4.2015 AND DELETED THE ADDITION OF RS. 4,15,24,70 9/- MADE U/S. 14A OF THE ACT. 5 4. LD. DR RELIED UPON THE ORDER OF THE AO AND REITERA TED THE CONTENTIONS RAISED IN THE GROUNDS OF APPEAL AND REQ UESTED THAT THE APPEAL OF THE REVENUE MAY BE ALLOWED. 5. LD. COUNSEL OF THE ASSESSEE HAS RELIED UPON THE OR DER OF THE LD. CIT(A) AND STATED THAT LD. CIT(A) HAS PASSED A W ELL REASONED ORDER WHICH DOES NOT NEED ANY INTERFERENCE, HENCE, H E REQUESTED THAT THE APPEAL OF THE REVENUE MAY BE DISMISSED. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECO RDS AVAILABLE ON RECORD ESPECIALLY THE IMPUGNED ORDER. WE FIND THAT THERE ARE 3 LIMBS OF DISALLOWANCE IN RULE 8D(2). 1(I) THE DIRECT EXPENSES TAKEN BY AO FROM AY 2010-11 (LAST AY ORDER) IS WRONGLY TYPED. 2(I) THE AOS EXPENDITURE OF INTEREST OF RS. 2,30,75 ,321/-. 3(I) THE ASSESSEE HAS MADE ADDITION OF RS. 1,04,90, 253/- U/S. 14A ON EARNING OF EXEMPT INCOME OF RS. 88,83,863/- WHI CH IS MORE THAN THE EXEMPT INCOME. SINCE THE ADDITION MADE BY THE ASSESSEE IS REASONABLE AND MORE THAN THE EXEMPT INCOME EARNED , NO FURTHER DISALLOWANCE IS NECESSARY. THEREFORE, THE ADDITION O F RS. 4,15,24,709/- WAS RIGHTLY DELETED BY THE LD. CI T(A), WHICH DOES NOT NEED ANY INTERFERENCE ON OUR PART, THEREFORE, WE AFFIRM THE 6 IMPUGNED ORDER ON THE ISSUE IN DISPUTE INVOLVED IN G ROUND NO. 1 AND ACCORDINGLY REJECT THE SAME. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 01/09/2017. SD/- SD/- (PRASHANT MAHARISHI) [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 01/09/2017 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES