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

ITA 5478/DEL/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7964 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 22-03-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 29-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P DAM KANUNJNA
• Keywords: Earning of tax free income; Additional evidence; Fair market value
• Section: 14A; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ' E' NEW DELHI BEFORE SHRI G. D. AGRAWAL HONBLE VICE PRESIDENT AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER I.T.A.NO. 5478/DEL/2012 (ASSESSMENT YEAR 2008-09) DCIT, CIURCLE 6(1), VS. MALANA POWER CO. LTD., NEW DELHI. BHILWARA BHAWAN, 40-41, COMMUNITY CENTRE, NEW FRIENDS COLONY, NEW DELHI. PAN/GIR NO. AABCM1108R I.T.A .NO.5564/DEL /2012 (ASSESSMENT YEAR 2008- 09) MALANA POWER CO. LTD., BHILWARA BHAWAN, 40-41, COMMUNITY CENTRE, NEW FRIENDS COLONY, NEW DELHI. V S ADDL CIT, RANGE 6, NEW DELHI. APPELLANT BY SHRI AJAY VOHRA, SR. ADV., SHRI ROHIT JAIN, ADV. SHRI DEEPAK JAIN, CA RESPONDENT BY SHRI P. DAM KANUNJNA, SR. DR ORDER PER BEENA PILLAI, JUDICIAL MEMBER : A. FIRST, WE TAKE UP REVENUES APPEAL IN I.T.A.NO. 5478/DEL/2012 (ASSESSMENT YEAR 2008-09): THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVENU E AGAINST THE ORDER OF LD. CIT (A)-IX, NEW DELHI WIDE ORDER DATED DATE OF HEARING 22.03.2016 DATE OF PRONOUNCEMENT 10.05.2016 2 I.T.A.NO. 5564 & 5478/DEL/2012 20.07.2012 FOR ASSESSMENT YEAR 2008-09 ON THE FOLLO WING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED CIT(APPEALS) IS ERRON EOUS & CONTRARY TO FACTS & LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, WHETHER THE LEARNED CIT (APPEALS) HAS ERRED IN DELETING THE PROPORTIONATE DISALLOWANCE OF 50% OF T HE COMMON EXPENSES AMOUNTING TO RS.8,25,500/ PAID TO TWO RELATED PARTIES IGNORING THE REASONS GIVEN IN THE ASSESSMENT ORDER. 2.1. WHETHER, THE CIT (APPEALS) HAS ERRED IN ADMIT TING THE ADDITIONAL EVIDENCES REGARDING THE BASIS OF APPORTI ONMENT OF ABOVE EXPENSES WITHOUT PROVIDING THE AO ANY OPPORTUNITY TO REBUT AS PER THE PROVISIONS OF RULE 46A. 3. WHETHER THE LEARNED CIT (APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.1,39,72,500/- MADE BY THE AO U/S 14A READ WITH RULE 8D(2) ENTIRELY ON THE SUBMISSION OF THE ASSESSEE AND COMPLETELY IGNORING THE REASONS GIVEN IN THE ASSESSMENT ORDER. 3.1. WHETHER, THE LD. CIT (A) ADMITTED ADDITIONAL EVIDENCES REGARDING THE ABOVE DISALLOWANCE MADE U/S 14A READ WITH RULE 8D(2) ON THE BASIS OF THE ADDITIONAL EVIDENCE REGARDING THE CONTENTION OF THE ASSESSEE THAT NO IN TEREST BEARING FUNDS WERE UTILIZED FOR THE MAKING THE INVE STMENT OF RS.353.53 CRORES IN GROUP COMPANY WITHOUT PROVID ING THE AO ANY OPPORTUNITY TO REBUT AS PER THE PROVISIONS O F RULE 46A. 2. BRIEF FACTS OF THE CASE ARE AS UNDER: 2.1 ASSESSEE IS A COMPANY INCORPORATED UNDER COMPAN IES ACT AND IS ENGAGED IN THE GENERATION OF HYDROELECTRIC P OWER AND DEVELOPMENT OF HYDROPOWER PROJECTS. IT HAS SET UP I TS HYDRAULIC PLANT AT VILLAGE CHUAKI POST, JARI DISTRICT, KULLU, HIMACHAL PRADESH. THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.09.2008 DECLARING NIL INCOME WHICH WAS PROCESSED UNDER SECT ION 143 (1) 3 I.T.A.NO. 5564 & 5478/DEL/2012 OF THE ACT. SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143 (2) WAS ISSUED TO THE ASSE SSEE THE LD. ASSESSING OFFICER COMPLETED THE ASSESSMENT BY MAKIN G FOLLOWING ADDITIONS: 1.LEAVE ENCASHMENT RS. 14,93,924/ - 2. ROC FEES RS. 2, 64,776/- 3. U/S. 14 A RS.1,39,7 2,500/- 4. COMMON EXPENSES RS. 8,25,500/ - 5. CONTINUITY LOYALTY BONUS RS. 15,95,349/ - 2.2 AGGRIEVED BY THE ORDER OF THE LD.AO THE ASSESSE E PREFERRED AN APPEAL BEFORE THE LD.CIT(A). 2.3 THE LD. CIT (A) ALLOWED THE CLAIM OF COMMON EXP ENSES AS WELL AS DELETED THE ADDITION MADE BY THE LD. AO UND ER SECTION 14 A READ WITH RULE 8D (2) OF THE ACT. THE LD. IT C IT (A) HOWEVER CONFIRMED THE ADDITION MADE BY THE LD. AO IN RESPEC T OF THE INTEREST INCOME EARNED ON FDRS NOT BEING ELIGIBLE F OR DEDUCTION UNDER SECTION 80 IA OF THE ACT. 2.4 AGGRIEVED BY THE ORDER OF THE LD. IT CIT (A) TH E ASSESSEE AS WELL AS THE REVENUE IS IN APPEAL BEFORE US NOW. 3. WE SHALL FIRST TAKE UP THE APPEAL FILED BY THE R EVENUE: GROUND NO. 1: THIS GROUND RAISED BY THE REVENUE DEALS WITH THE ADDITION BEING DELETED BY THE LD. CIT (A) IN RE SPECT OF THE COMMON EXPENSES PAID TO RELATED PARTIES AMOUNTING T O RS.8,25,500/-. 3.1 THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED 50% OF THE COMMON EXPENSES ON THE GROUND THAT THERE IS NO JUSTIFICATION FOR CLAIMING THAT SUCH EX PENSES AS CLAIMED BY THE ASSESSEE UNDER THE HEAD COMMON EXPEN SES WHEN IT CANNOT BE ASCERTAINED THAT THEY HAVE BEEN I NCURRED FOR 4 I.T.A.NO. 5564 & 5478/DEL/2012 ASSESSEES BUSINESS AS PER THE PROVISIONS OF SECTIO N 37 (1) OF THE ACT. THE LD. AO DISALLOWED THE EXPENSES AS THE ASSESSEE HAD SHOWN THESE EXPENDITURE CLAIMED ON AN AD HOC BA SIS AND IS NOT AN ALLOWABLE EXPENSES AS PER THE PROVISIONS OF THE ACT. 3.2 ON THE CONTRARY THE LD.AR SUBMITTED THAT, THESE EXPENSES INCLUDED REIMBURSEMENT OF COMMON EXPENSES MADE TO T HE GROUP COMPANIES. THE LD. AR HAS SUBMITTED THAT THE APPORTIONMENT IS BASED ON THE AREA OCCUPIED AND THE STRENGTH OF STAFF EMPLOYED IN EACH COMPANY RESULTING INTO TH E BENEFITS DERIVED BY THE RESPECTIVE COMPANY. HE FURTHER SUBM ITTED THAT THE EXPENSES REIMBURSED TO THE GROUP COMPANIES ARE INCLUDED IN RESPECTIVE HEADS OF EXPENDITURE AND THERE IS NO SEPARATE DEDUCTION UNDER THE HEAD COMMON EXPENSES AS BELIEVE D BY AO. THE LD. A.R. SUBMITTED THAT THESE EXPENSES, ARE INC URRED BY ONE GROUP COMPANY AND LATER ON APPORTIONED TO ALL G ROUP COMPANIES ON THE BASIS OF AREA OCCUPIED BY EACH IND IVIDUAL COMPANIES. HE SUBMITTED THAT THE LD. AO IS WRONG IN INVOKING THE PROVISIONS OF SECTION 40A(2)(B), FOR DISALLOWIN G THE EXPENDITURE CLAIMED, AS THE APPORTIONMENT IS ON AD HOC BASIS. HE THUS SUBMITTED THAT THESE EXPENSES INCURRED ARE WHOLLY FOR THE PURPOSES OF BUSINESS AND SHOULD BE ALLOWABLE. 3.3 WE HAVE PERUSED THE ORDERS PASSED BY THE AUTHOR ITIES BELOW AND THE ARGUMENTS OF SUBMITTED BY BOTH THE PA RTIES. ON PERUSAL OF THE ORDER OF LD. CIT (A) IT IS OBSERVED BY HIM THAT THE ASSESSEE HAD SUBMITTED DETAILS OF EACH OF SUCH EXPE NDITURE AND HAD CONTENDED THAT THE SAME WERE INCURRED FOR THE C ORPORATE OFFICE OF THE ASSESSEE. IT HAS BEEN EXPLAINED THAT SINCE THE GROUP COMPANIES HAVE THEIR CORPORATE OFFICE AT ONE PLACE, THE 5 I.T.A.NO. 5564 & 5478/DEL/2012 EXPENSES WERE INCURRED BY ONE GROUP COMPANY AND THE SAME WERE LATER ON APPORTIONED TO ALL THE GROUP COMPANIE S ON THE BASIS OF THE AREA OCCUPIED BY AND THE NUMBER OF EMP LOYEES WORKING IN EACH SUCH COMPANY. IT IS OBSERVED BY THE LD.CIT (A) THAT THE ASSESSEE HAS ALSO FILED A CERTIFICATE FROM THE GROUP COMPANY IN INCURRING THE EXPENDITURE CONFIRMING THE AFORESAID FACT. 3.4 IT IS OBSERVED THAT THE ASSESSING OFFICER HAS D ISALLOWED 50% OF THE EXPENDITURE CLAIMED ON THE GROUND THAT, BASIS OF APPORTIONMENT APPEARS TO BE AD-HOC. THE LD. AO HAS FURTHER FAILED TO BRING ON RECORD ANY JUSTIFICATION AS REGA RDS TO THE DISALLOWANCE OF 50% OF THE EXPENDITURES CLAIMED. H E HAS NOT RECORDED ANY FINDING IN THE ASSESSMENT ORDER, AS TO HOW THE TRANSACTIONS BETWEEN THE GROUP COMPANIES WERE UNREA SONABLE AND NOT AT THE FAIR MARKET VALUE, WHICH IS THE PRER EQUISITE FOR INVOKING THE PROVISIONS OF SECTION 40A(2)(B). EVEN BEFORE US THE LD. D R IS NOT IN A POSITION TO BRING OUT ANY MATER IAL ON RECORD TO PROVE THAT THE EXPENSES INCURRED BY THE ASSESSEE WERE NOT WHOLLY FOR THE PURPOSES OF BUSINESS. UNDER SUCH CIRCUMSTANCES WE ARE INCLINED TO UPHOLD THE FINDING S OF THE LD.CIT (A). ACCORDINGLY THIS GROUND RAISED BY THE R EVENUE STANDS DISMISSED. GROUND NO. 3: 4. THIS GROUND RELATES TO THE ADDITION BEING DELETE D MADE UNDER SECTION 14 A READ WITH RULE 8D OF THE ACT. 4.1 THE LD. AO HAS DISALLOWED RS.1,39,72,400/- UNDE R SECTION 14A READ WITH RULE 8D IN THE HANDS OF THE A SSESSEE 4.2 THE LD. D R SUPPORTED THE ORDER OF THE LD. AO. 6 I.T.A.NO. 5564 & 5478/DEL/2012 4.3 ON THE CONTRARY THE LD.AR SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAS INVESTED RS.353.85 CRORES IN ITS SUBSIDIARY COMPANY BEING M/S A.D. HYDROPOWER LT D, OUT OF WHICH RUPEES TO 32.20 CRORES WAS SOURCED THROUGH SHAREHOLDERS FUND RECEIVED AS SHARE CAPITAL WITH TH E ASSESSEE AND THE BALANCE AMOUNT OF RS.121.65 CRORES WAS FUND ED BY THE COMPANY OUT OF ITS OWN GENERATED FUNDS. THE LD.AR T HUS SUBMITTED THAT NO BORROWED FUNDS WERE UTILIZED BY T HE ASSESSEE FOR SUCH INVESTMENT IN ITS SUBSIDIARY COMPANY BEING M/S. A.D. HHDROPOWER LTD. HE THUS SUBMITTED THAT SECTION 14 A CANNOT BE INVOKED RESORTING TO RULE 8D OF THE ACT AS THE A SSESSEE HAS NOT EARNED ANY EXEMPT INCOME WHICH DO NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. 4.4 WE HAVE PERUSED THE ORDERS PASSED BY THE AUTHOR ITIES BELOW AND THE SUBMISSIONS MADE BY BOTH THE PARTIES. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS NOT USED ANY BORROWED FUNDS FOR MAKING THE INVESTMENT IN ITS SUBSIDIARY C OMPANY. AS PER THE AUDITED FINANCIAL STATEMENT OF THE ASSESSEE FOR YEAR ENDING 31/03/2008, WHICH IS PLACED AT PAGES 6 TO 34 OF THE PAPER BOOK, IT IS EVIDENT THAT THE ASSESSEE COMPANY HAD ENOUGH FUNDS GENERATED FROM ITS OWN OPERATIONS. IT IS A CASE OF THE ASSESSEE THAT THE ASSESSEE HAD SUFFICIENT FUNDS AVAILABLE IN THE FORM OF SHARE CAPITAL, RESERVE AND SURPLUS FOR MAKING THE INVESTMENT IN SHARES AND THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME, WHICH DO NOT FORM PART OF THE TOTAL INCOME. 4.5 THE PRECONDITION SUB CLAUSE 1 OF SECTION 14 A O F THE ACT IS THAT, THERE SHOULD BE AN INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. FURTHER WITH RESPEC T TO SUB SUB 7 I.T.A.NO. 5564 & 5478/DEL/2012 CLAUSE 2 AND 3 OF SECTION 14 A, THE ASSESSING OFFIC ER HAS TO DETERMINE THE EXPENDITURE INCURRED IN RELATION TO S UCH EXEMPT INCOME IF HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN EARN ING SUCH EXEMPT INCOME. SINCE IN THE ASSESSEES CASE THE EXE MPT INCOME AS NIL, THE EXPENDITURE FOR EARNING WOULD ALSO BE N IL AND THEREFORE SECTION 14 A (2) AND (3) CANNOT BE APPLIE D. WE ARE THEREFORE INCLINED TO UPHOLD THE FINDINGS OF THE LD .CIT (A). IN THE RESULT THE GROUND RAISED BY THE REVENUE STANDS DISMISSED 5. IN THE RESULT THE APPEAL FILED BY THE REVENUE ST ANDS DISMISSED. B. NOW WE SHALL TAKE UP THE APPEAL FILED BY THE ASSESSEE IN I.T.A.NO. 5564/DEL/2012 (ASSESSMENT YEAR 2008-09 ): 6. THE ASSESSEE HAS RAISED ONLY ONE ISSUE REGARD ING THE CONFIRMATION OF THE ADDITION MADE BY THE LD. AND AO IN RESPECT OF DISALLOWANCE OF INTEREST INCOME ON FDRS BEING NO T ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IA OF THE ACT. THE SOLE GROUND TAKEN BY THE ASSESSEE IS REPRODUCED AS UNDER: THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THE DED UCTION U/S 80-IA AT RS.37,56,51,627/- AGAINST A CLAIM OF T HE APPELLANT OF RS.38,09,01,627/- IN ITS RETURN OF INC OME, RESULTING IN A DISALLOWANCE OF RS.52.50 LAKH PERTAI NING TO INTEREST INCOME ON FDR BEING NOT ELIGIBLE FOR DEDUC TION U/S 80-IA. 6.1 IT IS FOUND THAT THIS ISSUE STANDS COVERED AGAI NST THE ASSESSEE BY THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF LIBERTY INDIA VS. CIT REPORTED IN 317 ITR 218 WH EREBY THE 8 I.T.A.NO. 5564 & 5478/DEL/2012 HONBLE COURT HAS HELD THAT THE DUTY DRAWBACK RECEI PTS AND DEPB BENEFITS DO NOT FORM PART OF THE NET PROFITS O F ELIGIBLE UNDERTAKING FOR THE PURPOSES OF DEDUCTION UNDER SEC TION 80-IA, 80-IB, 80-IC OF THE ACT. SIMILARLY HONBLE SUPREME COURT IN THE CASE OF PANDAY AND CHEMICALS LTD REPORTED IN 262 IT R 278 HAS HELD THAT INTEREST DERIVED BY THE INDUSTRIAL UNDERT AKING OF THE ASSESSEE ON DEPOSITS COULD NOT BE SAID TO FLOW DIRE CTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF AND WAS NOT PROFITS O R GAINS DERIVED BY SUCH UNDERTAKING FOR THE PURPOSES OF DED UCTION UNDER SECTION80HHC. RESPECTFULLY FOLLOWING THE DEC ISIONS OF HONBLE SUPREME COURT WE ARE INCLINED TO CONFIRM TH E ADDITION MADE BY THE LD. AO AND HOLD THAT INTEREST ON FDR CA NNOT BE CONSIDERED FOR THE PURPOSES OF DEDUCTION UNDER SECT ION 80 IA OF THE ACT. ACCORDINGLY THIS GROUND OF APPEAL STANDS DISMISSED 7. IN THE RESULT APPEAL FILED BY THE ASSESSEE STAND S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH MAY, 2016. SD./- SD./- (G. D. AGARWAL) (BEENA A. PILLAI) VICE PRESIDENT JUDICIAL MEMBER DATE: 10.05.2016 SP. COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY. BY ORDER (ITAT, NEW DELHI) 9 I.T.A.NO. 5564 & 5478/DEL/2012 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 5/5 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 10/5/16 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 10/5 SR. PS/PS 7 FILE SENT TO BENCH CLERK 10/5 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER