DCIT, Cir-9(1), Kolkata, Kolkata V. M/s. Damodar Valley Corporation, Kolkata

ITA 438/KOL/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3524 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 06-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G HANGSHING
• Assessee Lawyers: D S DAMLE
• Keywords: Earning of tax free income; Revised return
• Section: 14A; 115JB

Judgement Text

1 ITA NO. 438/KOL/2017 DAMODAR VALLEY CORPORATION, AY 2013-14 , A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA ( ) . . , . ' # $% % , '( ) [BEFORE SHRI A. T. VARKEY, JM & DR. A. L. SAINI, A M] I.T.A. NO. 438/KOL/2017 ASSESSMENT YEAR: 2013-14 DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-9(1), KOLKATA. VS. DAMODAR VALLEY CORPORATION (PAN: AABCD0541M) APPLICANT RESPONDENT DATE OF HEARING 13.06.2018 DATE OF PRONOUNCEMENT 21.08.2018 FOR THE APPELLANT SHRI G. HANGSHING, CIT, DR FOR THE RESPONDENT SHRI D. S. DAMLE, FCA ORDER PER SHRI A.T.VARKEY, JM THIS APPEAL PREFERRED BY THE REVENUE IS AGAINST THE ORDER OF LD. CIT(A) 16, KOLKATA DATED 06.01.2017 FOR AY 2013-14. 2. GROUND NOS. 1 AND 2 OF THE REVENUE ARE AGAINST THE ACTION OF LD. CIT(A) HOLDING THE PROVISIONS OF SEC. 115JB OF THE INCOME-TAX ACT, 196 1 (HEREINAFTER REFERRED TO AS THE ACT) ARE NOT APPLICABLE TO THE ASSESSEE CORPORATION. 3. AT THE TIME OF HEARING LD. DR SUBMITTED THAT IN THE RETURN OF INCOME FILED, THE ASSESSEE HAD DECLARED THE INCOME AS PER PROVISIONS OF SEC. 115JB OF THE ACT. ACCORDING TO HIM, NEITHER IN THE RETURN OF INCOME FILED NOR BY W AY OF FILING REVISED RETURN, THE ASSESSEE HAD DENIED ITS LIABILITY OF BEING ASSESSED ON ITS B OOK PROFIT U/S. 115JB OF THE ACT. THE LD. DR, THEREFORE, SUBMITTED THAT WHEN THE ASSESSEE DID NOT MAKE ANY CLAIM DENYING ITS LIABILITY OF BEING ASSESSED ON BOOK PROFIT BY FILIN G RETURN OR REVISED RETURN, IT WAS NOT OPEN 2 ITA NO. 438/KOL/2017 DAMODAR VALLEY CORPORATION, AY 2013-14 FOR THE LD. CIT(A) TO ENTERTAIN A NEW CLAIM AND ALL OW THE SAME IN THE APPELLATE PROCEEDING. THE LD. DR FURTHER SUBMITTED THAT AS PER GAZETTE NO TIFICATION NO. 1249 DATED 12.11.2012 ISSUED BY GOVT. OF INDIA, THE ASSESSEE CORPORATION HAD PREPARED ITS ANNUAL FINANCIAL ACCOUNTS AS PER REVISED SCHEDULE VI AND, THEREFORE, ALSO THE PROVISION OF SEC. 115JB OF THE ACT WERE SQUARELY APPLICABLE. THE LD. DR ALSO DREW OUR ATTENTION TO SEC. 2(17) AND SEC. 2(26) OF THE ACT, ACCORDING TO WHICH, THE STATUS OF THE ASSESSEE FOR TAX PURPOSE WAS A COMPANY AND IN THAT VIEW OF THE MATTER, HE SUBMIT TED THAT PROVISIONS OF SECTION 115JB OF THE ACT WERE APPLICABLE TO THE ASSESSEE. THE LD. D R, THEREFORE, STRONGLY URGED THAT THE LD. CIT(A)S ORDER SHOULD BE REVERSED AND THE ORDER OF THE AO BE RESTORED. PER CONTRA, THE LD. AR SUPPORTED THE ORDER OF THE LD. CIT(A) AND BROUG HT TO OUR NOTICE THAT THE ISSUE OF APPLICABILITY OF SEC. 115JB OF THE ACT TO THE ASSES SEE CORPORATION WAS CONSIDERED AND DECIDED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2008-09 AND 2009-10 IN ITS DECISION DATED 13.01.2016 IN ITA NO. 1622/KOL/2011 AND ITA NO. 451/KOL/2013. HE FURTHER ARGUED AT LENGTH TO BRING TO OUR ATTENTION TO SALIENT FEATURE OF THE DAMODAR VALLEY CORPORATION ACT, 1948 (IN SHORT 194 8 ACT) WHICH PROVES BEYOND DOUBT THAT ASSESSEE WAS NOT A COMPANY WITHIN THE MEANING OF COMPANIES ACT, 1956 AND THEREFORE, EVEN IN TERMS OF SUB-SECTION (2B) SEC. 1 15JB OF THE ACT IS APPLICABLE IN THE RELEVANT YEAR, THE DEEMING PROVISIONS OF SEC. 115JB OF THE ACT WILL NOT APPLY TO THE ASSESSEES CASE SO AS TO BRING THE CASE WITHIN THE MISCHIEF OF MINIMUM ALTERNATE TAX (MAT). 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. AFTER CONSIDERING THE SUBMISSIONS OF BOT H THE PARTIES WE NOTE THAT THE ASSESSEE CORPORATION WAS INCORPORATED THROUGH THE ACT OF PAR LIAMENT LEGISLATED IN 1948. THE ASSESSEE CORPORATION WAS CONSTITUTED WITH THREE PAR TICIPATING GOVERNMENT NAMELY, UNION GOVERNMENT, STATE GOVT. OF BIHAR (NOW GOVT. OF JHAR KHAND) AND STATE GOVT. OF WEST BENGAL. THE THREE PARTICIPATING GOVERNMENTS CONTRI BUTED THE CAPITAL. WE NOTE THAT THE ACCOUNTS OF THE ASSESSEE ARE MAINTAINED INCONFORMIT Y WITH THE PROVISIONS OF 1948 ACT. WE FIND FROM THE COPY OF THE ANNUAL REPORT OF THE ASSE SSEE THAT AUDIT WAS NOT CONDUCTED BY CHARTERED ACCOUNTANT AS REQUIRED UNDER THE COMPANIE S ACT, 1956, BUT WAS CARRIED OUT BY 3 ITA NO. 438/KOL/2017 DAMODAR VALLEY CORPORATION, AY 2013-14 THE PRINCIPAL DIRECTOR OF COMMERCIAL AUDIT AND EX-O FFICIO PRINCIPAL AUDIT, PART-1, KOLKATA. WE ALSO NOTE THAT WHILE CERTIFYING THE ANNUAL ACCOU NTS, THE AUDITOR HAS STATED THAT THE BALANCE SHEET AND THE STATEMENT OF PROFIT & LOSS HA VE BEEN DRAWN UP IN THE FORMAT APPROVED BY THE GOVT. OF INDIA UNDER SECTION 47 OF THE DVC ACT, 1948 AND DAMODAR VALLEY CORPORATION RULES, 1948. WE, THEREFORE, FIN D THAT THE ACCOUNTS WERE PREPARED INCONFORMITY WITH THE PROVISIONS OF THE DVC ACT, 19 48 AND ANNUAL FINANCIAL STATEMENT WERE PREPARED IN THE FORM PRESCRIBED UNDER THE SAID ACT EVEN THOUGH THE FORMAT APPROVED BY THE GOVERNMENT OF INDIA U/S. 47 OF THE DVC ACT, 1948 WAS ON THE LINES OF SCHEDULE VI OF THE COMPANIES ACT, 1956. 5. WE ALSO NOTE THAT THE ASSESSEE CORPORATION NEVER DISTRIBUTED ITS PROFIT BY WAY OF DIVIDEND WITH THE PARTICIPATING GOVERNMENTS. ON PE RUSAL OF THE PROVISIONS OF SECTION 115JB OF THE ACT AS WERE IN FORCE IN THE RELEVANT Y EAR, IT IS NOTED THAT PROVISIONS OF SUB- SECTION (2B) OF SECTION 115JB OF THE ACT CLEARLY CL ARIFIED THAT THE SAID SECTION IS APPLICABLE TO EVERY ASSESSEE BEING A COMPANY TO WHICH PROVISO TO SUB-SECTION (2) OF SECTION 211 OF COMPANIES ACT, 1956 IS APPLICABLE. WE, HOWEVER, FI ND THAT ASSESSEE CORPORATION THOUGH ASSESSED IN THE STATUS OF A COMPANY WAS NOT A COMPA NY WITHIN THE MEANING OF COMPANIES ACT, 1956 AND, THEREFORE, THE PROVISO TO SEC. 211(2 ) OF THE COMPANIES ACT, 1956 WAS NOT APPLICABLE. AS A CONSEQUENCE, WE FIND MERIT IN THE SUBMISSION OF THE LD. AR THAT THE DEEMING PROVISION OF SECTION 115JB OF THE ACT AS WE RE IN FORCE DURING THE RELEVANT YEAR WERE NOT APPLICABLE TO THE ASSESSEE CORPORATION. T AKING NOTE OF THIS FACTUAL POSITION, THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AYS 2008-09 AND 2009-10 HELD AS FOLLOWS: 3.6. THE NOTES TO CLAUSES TO FINANCE ACT, 2012 ON THE SUBJECT OF MINIMUM ALTERNATE TAX (MAT) IS REPRODUCED BELOW:- I. UNDER THE EXISTING PROVISIONS OF SECTION 115JB OF T HE ACT, A COMPANY IS LIABLE TO PAY MAT OF EIGHTEEN AND ONE HALF PER CENT OF ITS BOOK PROFIT IN CASE OF TAX ON ITS TOTAL INCOME COMPUTED UNDER THE PROVISIONS O F THE ACT IS LESS THAN MAT LIABILITY. BOOK PROFIT FOR THIS PURPOSE IS COMPUTED BY MAKING CERTAIN ADJUSTMENTS TO THE PROFIT DISCLOSED IN THE PROFIT AND LOSS ACCOUNT PREPARED BY THE COMPANY IN ACCORDANCE WITH THE SCHEDULE VI OF THE COMPANIES AC T, 1956. AS PER SECTION 115JB, EVERY COMPANY IS REQUIRED TO PREPARE ITS ACCOUNTS AS PER SCHEDULE VI OF THE COMPANIES ACT, 1956. HOWEVER, AS PER THE PROVISIONS OF THE COMPANIES ACT, 1956, CERTAIN COMPANIES E.G. INSURAN CE, BANKING OR ELECTRICITY 4 ITA NO. 438/KOL/2017 DAMODAR VALLEY CORPORATION, AY 2013-14 COMPANY ARE ALLOWED TO PREPARE THEIR PROFIT AND LOS S ACCOUNT IN ACCORDANCE WITH THE PROVISIONS SPECIFIED IN THEIR REGULATORY ACTS. IN O RDER TO ALIGN THE PROVISIONS OF INCOME-TAX ACT WITH THE COMPANIES ACT, 1956, IT IS PROPOSED TO AMEND SECTION 115JB TO PROVIDE THAT THE COMPANIES WHICH ARE NOT R EQUIRED UNDER SECTION 211 OF THE COMPANIES ACT TO PREPARE THEIR PROFIT AND LOSS ACCO UNT IN ACCORDANCE WITH THE SCHEDULE VI OF THE COMPANIES ACT, 1956, PROFIT AND LOSS ACCOUNT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THEIR REGULATORY ACTS SHALL BE TAKEN AS A BASIS FOR COMPUTING THE BOOK PROFIT UNDER SECTION 115JB. II. IT IS NOTED THAT IN CERTAIN CASES, THE AMOUNT STAND ING IN THE REVALUATION RESERVE IS TAKEN DIRECTLY TO GENERAL RESERVE ON DIS POSAL OF A REVALUED ASSET. THUS, THE GAINS ATTRIBUTABLE TO REVALUATION OF THE ASSET IS N OT SUBJECT TO MAT LIABILITY. IT IS, THEREFORE, PROPOSED TO AMEND SECTION 115JB TO PROVIDE THAT THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB SHALL BE INCREASED BY THE AMOUNT STANDING IN THE REVALUATION RESERVE RELATING TO THE REVALUED ASSET WHICH HAS BEEN RETIRED OR DISPOSED, IF THE SAME IS NOT CREDITED TO THE PROFIT AND LOSS ACCOUNT. III. IT IS ALSO PROPOSED TO OMIT THE REFERENCE OF PART I II OF THE SCHEDULE VI OF THE COMPANIES ACT, 1956 FROM SECTION 115JB IN VIEW OF O MISSION OF PART III IN THE REVISED SCHEDULE VI UNDER THE COMPANIES ACT 1956. THESE AMENDMENTS WILL TAKE EFFECT FROM 1ST APRIL, 2013 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2013- 14 AND SUB SEQUENT ASSESSMENT YEARS. 3.7. IN VIEW OF THE ABOVE, WE HOLD THAT IN VIEW OF THE LEGISLATIVE CHANGE BROUGHT ABOUT BY THE INTRODUCTION OF EXPLANATION 3 IN SECTION 115JB OF T HE ACT BY THE FINANCE ACT, 2012 , THE ASSESSEES CONTENTION IN FACT STANDS MORE FORTIFIED . THE EXPLANATION 3 TO SECTION 115JB MAKES IT EVIDENTLY CLEAR THAT SECTION 115JB IS APPL ICABLE ONLY TO ENTITIES REGISTERED AND RECOGNIZED TO BE COMPANIES UNDER THE COMPANIES ACT, 1956. SINCE THE ASSESSEE IS NOT A COMPANY WITHIN THE MEANING OF COMPANIES ACT, 1956 , SECTION 211(2) AND PROVISO THEREON IS NOT APPLICABLE AND ITA NOS. 1622/KOL/2011 & 451/KOL /2013-A-AM M/S. DAMODAR VALLEY CORPORATION 13 THEREFORE CONSEQUENTLY WE HOLD THAT THE PROVISIONS OF SECTION 115JB OF THE ACT ARE ALSO NOT APPLICABLE. 3.16. IN VIEW OF THE AFORESAID PROVISIONS OF THE AC T, OUR FINDINGS GIVEN THEREON WITH RESPECT TO THE FACTS AND VARIOUS JUDICIAL PRECEDENTS RELIED UPON HEREINABOVE AND FURTHER IN VIEW OF THE FACT THAT NO CONTRARY DECISIONS BEING BROUGHT T O OUR KNOWLEDGE ON THE SAME ISSUE, WE ACCORDINGLY HOLD THAT THE ASSESSEE IS A STATUTORY CORPORATION NOT REGIST ERED UNDER THE COMPANIES ACT, 1956 AND HENCE THE PROVISIONS OF SECTION 115JB OF THE ACT AR E NOT APPLICABLE TO THE ASSESSEE CORPORATION ; THE AMENDMENT BROUGHT IN SECTION 115JB OF THE ACT READ WITH EXPLANATION 3 THEREON BY THE FINANCE ACT 2012 IS APPLICABLE ONLY WITH EFFECT FRO M ASST YEAR 2013-14 ONWARDS IN LINE WITH THE NOTES TO CLAUSES OF FINANCE ACT 2012 ; AND A STATUTORY CLAIM COULD BE MADE BY WAY OF A LETTER BEFORE AN APPELLATE AUTHORITY EVEN WITHOUT FILING A REVISED RETURN IF THE FACTS WITH R EGARD TO THE SAME ARE ALREADY AVAILABLE ON RECORD BEFORE THE LOWER AUTHORITIES AND THEY REMAIN UNDISPUTED. 5 ITA NO. 438/KOL/2017 DAMODAR VALLEY CORPORATION, AY 2013-14 ACCORDINGLY THE GROUND NOS. 1 TO 4 RAISED BY THE AS SESSEE IN ITA NO. 1622 / KOL / 2011 FOR THE ASST YEAR 2008-09 AND GROUND NOS. 1 TO 5 RAISED BY THE ASSESSEE IN ITA NO. 451 / KOL / 2013 FOR THE ASST YEAR 2009-10 ARE ALLOWED. 6. WE ALSO FIND MERIT IN THE LD. ARS SUBMISSION TH AT KEEPING IN MIND THE FACT THAT THE ASSESSEE OTHER THAN THE CORPORATE ASSESSEES ESCAPED THE OBLIGATION TO PAY TAX ON THE PROFITS EARNED FROM BUSINESS BECAUSE OF THE INCENTIVE PROVI DED UNDER THE ACT, THE LEGISLATURE INTRODUCED PROVISIONS OF ALTERNATE MINIMUM TAX BY E NACTING SECTION 115JC OF THE ACT APPLICABLE FROM AY 2013-14. THE ASSESSEES OTHER TH AN COMPANIES WHO EARNED PROFITS FROM CARRYING ON BUSINESS BUT BECAUSE OF THE PROFIT POST DEDUCTIONS ALLOWED UNDER THE ACT DID NOT PAY ANY TAXES, THEN IN SUCH CASE, SECTION 115JC OF THE ACT IN POST OBLIGATION TO PAY ALTERNATE MINIMUM TAX AS PER THE MANDATE PROVIDED I N THAT SECTION. AS PER THE SPECIFIC PROVISIONS OF SECTION 115JC OF THE ACT, HOWEVER, TH E ASSESSEE DID NOT HAVE ANY ALTERNATE MINIMUM TAX LIABILITY. WE, THEREFORE, FIND THAT TH E RATIO LAID DOWN BY THE COORDINATE BENCH OF THIS TRIBUNAL CONTINUED TO BE APPLICABLE TO THE ASSESSEE IN THE YEAR UNDER CONSIDERATION AS WELL BECAUSE THE ASSESSEE CORPORATION WAS NOT A COMPANY WITHIN THE MEANING OF COMPANIES ACT, 1956 AND IN THIS VIEW OF THE MATTER IN TERMS OF SECTION 115JB(2)(B) OF THE ACT, THE PROVISIONS OF SECTION 115JB OF THE ACT IMP OSING TAX LIABILITY ON THE BOOK PROFIT WERE NOT APPLICABLE. WE ACCORDINGLY, UPHOLD THE OR DER OF THE LD. CIT(A). GROUND NOS. 1 AND 2 OF THE APPEALS OF REVENUE ARE DISMISSED. 7. GROUND NOS. 3 TO 5 OF THE REVENUES APPEAL RELA TE TO THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS.36,86,72,174/- MADE U/S. 14A OF THE ACT READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962. 8. BRIEFLY STATED FACTS OF THE CASE ARE THAT ASSESS EE DERIVED EXEMPT INCOME IN THE FORM OF INTEREST FROM CPF INVESTMENT, INTEREST FROM TAX FREE RBI BOND AND DIVIDEND OF SHARES OF POWER TRADING CORPORATION AND BOKARO POWER SUPPLY C ORPORATION LTD. IN THE RETURN FILED, THE ASSESSEE HAD SUO MOTO OFFERED DISALLOWANCE OF R S.14,99,502/- U/S. 14A OF THE ACT TOWARDS MONITORING OF CPF INVESTMENTS. THE AO, HOW EVER, REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY DISALLOWANCE SHOULD NOT BE MADE A S PER PROVISION OF RULE 8D OF THE RULES. THE AO, HOWEVER, BY REFERRING TO THE DECISI ON OF THE HONBLE CALCUTTA HIGH COURT 6 ITA NO. 438/KOL/2017 DAMODAR VALLEY CORPORATION, AY 2013-14 IN THE CASE OF DHANUKA & SONS VS. CIT (339 ITR 319 ) REJECTED THE ASSESSEES CONTENTION AND COMPUTED THE DISALLOWANCE INCONFORMITY WITH RUL E 8D OF THE I T. RULES, 1962. ACCORDINGLY, THE AO DISALLOWED RS.31,49,02,210/- OU T OF INTEREST PAID UNDER RULE 8D(2)(II) OF THE RULES AND RS.5,52,69,466/- UNDER RULE 8D(2)( III) OF THE RULES. AFTER DEDUCTING THE SUO MOTO DISALLOWANCE OF RS.14,99,502/- THE ADDITIO NAL DISALLOWANCE MADE WAS RS.36,86,72,174/- WHICH WAS DELETED IN APPEAL BY LD . CIT(A). AGGRIEVED, THE REVENUE IS BEFORE US. 9. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE LD. DR STRONGLY RELIED ON THE FINDINGS OF THE AO. PER CONTRA, THE LD. AR BROUGHT TO OUR ATTENTION THAT INVESTMENT WHICH HAD YIELDED TAX FREE INCOME WERE ALSO HELD BY THE ASSESSEE IN AYS. 2008-09 AND 2009-10 AS WELL. IN THIS MATTER ALSO THE AO MADE DISALLOWANCE U/S. 14A OUT OF INTEREST AND A DMINISTRATIVE EXPENSES INCONFORMITY WITH RULE 8D WHICH WAS DELETED BY THIS TRIBUNAL VID E ITS ORDER DATED 31.01.2016 FOR BOTH THE ASSESSMENT YEARS (SUPRA). HE, THEREFORE, SUBMI TTED THAT THE INVESTMENTS WHICH HAD YIELDED THE TAX FREE INTEREST AND DIVIDEND WERE ALS O HELD IN THE AYS. 2008-09 AND 2009-10 AND SINCE THE FACTUAL MATRIX DURING THE YEAR UNDER CONSIDERATION REMAINED UNCHANGED, THE ORDER OF THE LD. CIT(A) DESERVES TO BE UPHELD. AFT ER CONSIDERING THE SUBMISSIONS OF THE PARTIES, WE FIND THAT THE LD. CIT(A) HAS CONSIDERED THE FACTS OF THE ASSESSEES CASE AS PREVAILING IN THE RELEVANT ASSESSMENT YEAR 2008-09 AND 2009-10 AND THE FACTS DISCUSSED BY THIS TRIBUNAL IN ASSESSEES CASE FOR AYS. 2008-09 A ND 2009-10, WHICH THE LD. CIT(A) HAS RECORDED IN HIS FOLLOWING FINDINGS: 5. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE A/R AND AO'S FINDINGS IN THE IMPUGNED ORDER. I HAVE ALSO EXAMINED THE RELEVANT I NVESTMENT SCHEDULE OF THE ASSESSEE AND THE APPELLATE ORDER PASSED BY THE ITAT IN THE APPEL LANT'S OWN CASE FOR THE A.YS. 2008-09 & 2009-10 WHEREIN THIS ISSUE WAS ADJUDICATED IN ASSES SEE'S FAVOUR. THE BASIC FACTS ARE IN NARROW COMPASS AND NOT IN DISPUTE. FOR THE A.Y. 201 3-14 THE AVERAGE COST OF INVESTMENT WAS RS.1105.39 CRORES WHICH PRINCIPALLY COMPRISED OF TA X-FREE BONDS OF RBI AND INVESTMENT IN SHARES OF COMPANIES. FROM THE APPELLATE ORDER PASSE D BY THE ITAT FOR THE A.Y. 2008-09 & 2009-10 IT WAS NOTED THAT THE COMPOSITION OF INVEST MENT IN THE RELEVANT YEARS AS ALSO IN THE YEAR UNDER CONSIDERATION WAS SAME AND IDENTICAL. IN THE A.YS. 2008-09 & 2009-10 ALSO THE ASSESSEE HAD OFFERED 20% OF THE GROSS SALARY PAID T O EMPLOYEES OF PROVIDENT FUND SECTION AS EXPENDITURE INCURRED IN RELATION TO INCOME EXEMPT U /S 10(25) OF THE ACT. IN RESPECT OF INCOME WHICH THE ASSESSEE EARNED IN THE FORM OF INTEREST O N TAX-FREE BONDS AND DIVIDEND ON SHARES THE AO HOWEVER INVOKED PROVISIONS OF RULE 8D AND MA DE THE DISALLOWANCE OUT OF INTEREST 7 ITA NO. 438/KOL/2017 DAMODAR VALLEY CORPORATION, AY 2013-14 PAID AND ADMINISTRATIVE EXPENSES ON THE GROUND THAT IT WAS NOT POSSIBLE TO HOLD THAT THE ASSESSEE HAD NOT INCURRED THESE EXPENSES IN RELATIO N-TO EARNING OF SUCH TAX-FREE INCOME. IN THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT HAD ARGUED ON THE SAME LINES AS IN THE FOREGOING PARAGRAPH EXTRACTED ABOVE. AFTER EXAMININ G THE ASSESSEE'S SUBMISSIONS AND THE ASSESSEE'S AUDITED ACCOUNTS FOR THE YEAR ENDED 31ST MARCH 2008 THE ITAT FOUND THAT NO MATERIAL WAS AVAILABLE TO SUBSTANTIATE AO'S CHARGE THAT THE LOAN FUNDS WERE UTILISED FOR ACQUIRING TAX-FREE BONDS OR INVESTMENTS IN SHARES O F COMPANIES JOINTLY PROMOTED BY THE ASSESSEE FOR STRATEGIC BUSINESS PURPOSES. AFTER EXA MINING THE ASSESSEE'S BALANCE-SHEET THE TRIBUNAL NOTED THAT THE ASSESSEE HAD SUFFICIENT OWN FUNDS TO THE EXTENT OF RS.16270,34,38,S28/ - WHEREAS INVESTMENT OF THE ASS ESSEE IN TAX-FREE BONDS & SHARES WAS ONLY TO THE EXTENT OF RS.1466.15 CRORES. ON THESE F ACTS THEREFORE THE ITAT HELD THAT PROVISIONS OF RULE 80(2)(II) COULD NOT BE INVOKED I N THE ASSESSEE'S CASE. ACCORDINGLY THE DISALLOWANCE MADE UNDER RULE 80(2)(II) WAS HELD TO BE UN UNSUSTAINABLE. 6. IN THE A.Y. 2013-14, COMPOSITION OF INVESTMENT C ONTINUED TO REMAIN SAME AS IN A.Y. 2008- 09. I ALSO FIND THAT IN ITS ORDER THE ITAT HAD TAKE N NOTE OF THE FACT THAT IN THE ASSESSMENT ORDER FOR A.Y. 2010-11 THE AO HIMSELF HAD ACCEPTED THE ASSESSEE'S BASIS OF OFFERING DISALLOWANCE U/S 14A AND NO RESORT WAS MADE TO RULE 80 IN THAT YEAR. IN THE CIRCUMSTANCES, I FIND THAT THE FACTUAL MATRIX OF THE ASSESSEE'S CASE IN A.Y. 2013-14 WAS SIMILAR TO A.YS. 2008- 09 & 2009-10 WHEN THE DISALLOWANCE UNDER RULE 80(2) (II) WAS DELETED BY THE ITAT. IT IS FURTHER NOTED THAT AS COMPARED WITH THE AVERAGE INV ESTMENT OF RS.I466.15 CRORES HELD IN A.Y. 2008-09 THE INVESTMENT IN A.Y. 2013-14 WAS SUBSTANT IALLY LOWER AT RS.1105.39 CRORES. IN THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE THEREFORE I HAVE NO HESITATION IN HOLDING THAT THE RATIO LAID DOWN BY THE ITAT KOLKATA IN THE ASSESSEE 'S OWN CASE CONTINUED TO BE APPLICABLE IN A.Y. 2013-14 AS WELL SINCE THE AO HIMSELF WAS NOT A BLE TO BRING ON RECORD ANY EVIDENCE TO PROVE THE NEXUS BETWEEN USE OF BORROWED FUNDS BEING & ACQUISITION OF NEW INVESTMENTS. 7. AS REGARDS ADMINISTRATIVE EXPENSES DISALLOWED UN DER RULE 8D(2)(III) I FIND THAT THE AO DID NOT BRING ON RECORD ANY MATERIAL OR EVIDENCE TO CO- RELATE ANY SPECIFIC EXPENSE WHICH THE ASSESSEE CAN BE SAID TO HAVE INCURRED FOR THE PURPO SE OF EARNING INTEREST ON TAX-FREE BONDS & DIVIDEND. ON THE OTHER HAND THE ASSESSEE POINTED OU T THAT THE INTEREST ON TAX-FREE BONDS WAS PAID DIRECTLY TO THE ASSESSEE'S BANK A/C BY RBI ON SIX MONTHLY BASIS AND NO EXPENSES WERE INCURRED ON COLLECTION OF SUCH INTEREST. THE INTERE ST WAS RECEIVED ONLY ON 2 OCCASIONS IN A YEAR AND INTEREST WAS CREDITED WITHOUT INCURRING BA NK OR COLLECTION CHARGES. SIMILARLY THE DIVIDEND WAS EARNED ONLY ONCE IN A YEAR FROM BOKARO POWER SUPPLY CO. LTD & POWER TRADING CORPORATION AND SUCH DIVIDEND WAS ALSO RECE IVED THROUGH ECS BY CREDIT TO ASSESSEE'S BANK A/C. KEEPING IN MIND THE NUMBER OF TRANSACTIONS INVOLVED IN RECEIVING TAX- FREE INCOME I FIND FORCE IN THE A/R'S SUBMISSIONS T HAT THERE WAS NO NECESSITY FOR THE ASSESSEE TO INCUR EXPENSES OF RS.5,52,69,466/- ON EARNING OR MAKING OF TAX-FREE INCOME PARTICULARLY WHEN ONLY THE INVESTMENTS BROUGHT FORWARD FROM THE EARLIER YEARS HAD PRODUCED THE TAX-FREE INCOME DURING THE RELEVANT YEAR. I FURTHER NOTE ON THE IDENTICAL FACTS WHICH PREVAILED IN A.Y. 2008-09 TO 2010-11 NO DISALLOWANCE AS PER RULE 80(2 ) WAS SUSTAINED. IN THE CIRCUMSTANCES RESPECTFULLY FOLLOWING THE DECISION OF THE ITAT KOL KATA IN THE ASSESSEE'S OWN CASE THE AO IS DIRECTED TO DELETE THE DISALLOWANCES OF RS.36,86,72 ,174/- AS MADE IN THE IMPUGNED ORDER. GROUND NOS. 1 TO 4 ARE ALLOWED. 10. AT THE TIME OF HEARING, THE LD. DR WAS UNABLE T O CONTROVERT THE FACTUAL FINDING RECORDED BY THE LD. CIT(A) . WE ALSO FIND THAT THE ISSUE AT HAND WAS DECIDED IN ASSESSEES FAVOUR IN ASSESSEES OWN CASE FOR AY 2008-09 AND RE SPECTFULLY FOLLOWING THE APPELLATE 8 ITA NO. 438/KOL/2017 DAMODAR VALLEY CORPORATION, AY 2013-14 ORDER PASSED BY THIS TRIBUNAL, WE CONFIRM THE ORDER OF LD. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 11. IN THE RESULT, THE APPEAL OF REVENUE IS DISMIS SED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 21ST AUGUS T, 2018 SD/- SD/- (DR. A. L. SAINI) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 21ST AUGUST, 2018 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT DCIT, CIRCLE-9(1), KOLKATA 2 RESPONDENT M/S. DAMODAR VALLEY CORPORATION, 4 TH FLOOR, DVC TOWERS, VIP ROAD, ULTATANGA, KOLKATA-700 054. 3. 4. CIT(A)-16, KOLKATA. (SENT THROUGH E-MAIL) CIT , KOLKATA. 5. DR, ITAT, KOLKATA. (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, SR. PVT. SECRETARY