THE ACIT, CIRCLE - 1, Rajahmundry V. The Andhra Petro Chemical Lmt., Velangi

ITA 51/VIZ/2014

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9769 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 12-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T SATYANANDAM
• Assessee Lawyers: C V K PRASAD
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

ITA NO.51/VIZAG/2014 THE ANDHRA PETRO CHEMICALS LTD., TANUKU 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.51/VIZAG/2014 ( / ASSESSMENT YEAR: 2010-11) ACIT, CIRCLE - 1, RAJAHMUNDRY VS. THE ANDHRA PETRO CHEMICALS LTD., TANUKU [PAN: AAACT6358B ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI T. SATYANANDAM, DR / RESPONDENT BY : SHRI C.V.K. PRASAD, AR / DATE OF HEARING : 04.10.2016 / DATE OF PRONOUNCEMENT : 21.10.2016 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: THIS APPEAL FILED BY REVENUE IS DIRECTED AGAINST T HE ORDER OF THE CIT(A), VISAKHAPATNAM DATED 6.12.2013 FOR THE ASSES SMENT YEAR 2010-11. ITA NO.51/VIZAG/2014 THE ANDHRA PETRO CHEMICALS LTD., TANUKU 2 2. FACTS ARE IN BRIEF THAT THE ASSESSEE COMPANY INV OLVED IN THE BUSINESS OF MANUFACTURE OF PETRO CHEMICALS FILED RE TURN OF INCOME DECLARING TOTAL INCOME OF ` 2,19,04,350/-. THE RETURN FILED BY THE ASSESSEE WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT'), THEREAFTER THE C ASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT. DURING THE COURSE OF THE ASSESSMENT PROCEEDIN GS, THE A.O. HAS OBSERVED THAT THE ASSESSEE COMPANY HAD SECURED LOAN S OF ` 14,588.04 LAKHS DURING THE FINANCIAL YEAR 2009-10 AND INCURRE D AN EXPENDITURE OF ` 1689.54 LAKHS TOWARDS INTEREST. IT WAS FURTHER OBS ERVED THAT THE ASSESSEE HAD INVESTED AN AMOUNT OF ` 526.31 LAKHS IN THE EQUITY SHARES IN ANDHRA PRADESH GAS POWER CORPORATION LIMITED. A S PER THE PROVISIONS OF SECTION 14A OF THE ACT, EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IS NOT ALLOWABLE AS THE DIVIDEND ON EQUITY S HARES IS EXEMPT FROM INCOME TAX, THE A.O. OF THE OPINION THAT THE EXPEND ITURE ON ACCOUNT OF INTEREST ATTRIBUTABLE TO INVESTMENTS IN EQUITY SHAR ES IS NEEDED TO BE DISALLOWED, ACCORDINGLY, HE HAS DISALLOWED AN AMOUN T OF ` 60,95,000/- BY INVOKING SECTION 14A OF THE ACT. 3. ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE HA S SUBMITTED ALL THE DETAILS. ITA NO.51/VIZAG/2014 THE ANDHRA PETRO CHEMICALS LTD., TANUKU 3 4. THE LD. CIT(A) AFTER CONSIDERING DETAILED SUBMIS SIONS MADE BY THE ASSESSEE, HE DIRECTED THE A.O. TO DELETE THE ADDITI ON. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS MADE. I FIND MERI T IN THE ASSESSEES CONTENTION THAT THE INVESTMENT WAS MADE FOR A BUSINESS PURPOSE TO OBTAIN ELECTRICITY AT A LOWER COST TO BE UTILIZED IN THE APPELLANTS BUSINESS. THEREFORE THE INVESTMENT IN APGPCL CAN B E CONSTRUED AS ONE FOR BUSINESS PURPOSE, AND THAT THE INVESTMENT WAS N OT MADE FOR EARNING INVESTMENT INCOME OR DIVIDEND INCOME. BESIDES, THE INVESTMENT IN APGPCL WAS NOT MADE OUT OF BORROWED FUNDS AS COULD BE SEEN FROM THE ANNUAL REPORT FOR THE YEAR 2004-05 AND FOR THE CURR ENT YEAR 2009-10, AND NO INTEREST EXPENDITURE IS ATTRIBUTABLE TO SUCH INV ESTMENT. IN THE ABOVE FACTS AND CIRCUMSTANCES THE DECISIONS RELIED ON BY THE AO WOULD NOT BE APPLICABLE AND I AM OF THE VIEW THAT THE IMPUGNED D ISALLOWANCE DO NOT SATISFY THE CONDITIONS PRESCRIBED IN SECTION 14A AN D THE DISALLOWANCE IS NOT CORRECT AND THE AO IS NOT JUSTIFIED IN MAKING THE S AID DISALLOWANCE. THEREFORE, THE AO IS DIRECTED TO DELETE THE IMPUGNE D ADDITION. THE GROUND NO.1 IS ALLOWED IN FAVOUR OF THE APPELLANT. 5. ON BEING AGGRIEVED, REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. D.R. HAS RELIED ON THE ORDER PASSED BY THE A.O. 6. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE HAS STRONGLY SUPPORTED THE ORDER PASSED BY CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE CASE OF THE A.O. IS THAT THE ASSESSEE HA D SECURED LOANS OF ` 14,588.04 LAKHS DURING THE FINANCIAL YEAR 2009-10 AND INCURRED AN EXPENDITURE OF ` 1,689.54 LAKHS TOWARDS THE INTEREST. IT WAS FURTH ER ITA NO.51/VIZAG/2014 THE ANDHRA PETRO CHEMICALS LTD., TANUKU 4 OBSERVED THAT THE ASSESSEE HAS INVESTED AN AMOUNT O F ` 526.31 LAKHS IN EQUITY SHARES IN ANDHRA PRADESH GAS POWER CORPOR ATION LTD. AS PER THE PROVISIONS OF SECTION 14A OF THE ACT, EXPEN DITURE INCURRED IN RELATION TO EXEMPT INCOME IS NOT ALLOWABLE AS THE D IVIDEND ON EQUITY SHARE IS EXEMPT FROM THE INCOME TAX. ACCORDINGLY, THE A.O. HAS DISALLOWED THE EXPENDITURE ON ACCOUNT OF INTEREST A TTRIBUTABLE TO THE INVESTMENTS IN EQUITY SHARES BY INVOKING SECTION 14 A OF THE ACT. ON APPEAL, THE LD. CIT(A) GAVE A FINDING THAT THE INVE STMENT MADE BY THE ASSESSEE COMPANY FOR THE PURPOSE OF OBTAINING E LECTRICITY AT A LOWER COST IS TO BE UTILIZED FOR THE ASSESSEES BUS INESS. THEREFORE, INVESTMENT MADE BY THE ASSESSEE IN ANDHRA PRADESH G AS POWER CORPORATION LTD. IS FOR THE PURPOSE OF BUSINESS AND NOT TO EARN DIVIDEND INCOME OR EXEMPT INCOME. HE ALSO GAVE A C ATEGORICAL FINDING THAT THE INVESTMENTS MADE BY THE ASSESSEE A RE NOT MADE OUT FROM THE BORROWING FUNDS. THEREFORE, HE HAS HELD T HAT SECTION 14A OF THE ACT HAS NO APPLICATION. AFTER CAREFUL CONSI DERATION OF THE FINDINGS OF THE LD. CIT(A) AND ALSO EXAMINING THE F ACTS AND CIRCUMSTANCES OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). THUS, THIS GROUND OF APPEAL RAISED BY THE REVENUE IS DISMISSED. ITA NO.51/VIZAG/2014 THE ANDHRA PETRO CHEMICALS LTD., TANUKU 5 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 21 ST OCT16. SD/- SD/- ( . ) ( . ) (G. MANJUNATHA) (V. DURGA RAO) /ACCOUNTANT MEMBER /JUDICIAL MEMBER ! /VISAKHAPATNAM: % /DATED : 21.10.2016 VG/SPS '! (! /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ACIT, CIRCLE-1, RAJAHMUNDRY 2. / THE RESPONDENT THE ANDHRA PETRO CHEMICALS LTD. , D.NO.10-253, VENKATARAYAPURAM, TANUKU 3. ) / THE CIT, VISAKHAPATNAM 4. ) ( ) / THE CIT(A),VISAKHAPATNAM 5. ! , , , , ! / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // /0 , (SR.PRIVATE SECRETARY) , , ! / ITAT, VISAKHAPATNAM