ACIT, New Delhi V. M/s. Hindustan Clean Energy Ltd., New Delhi

ITA 5569/DEL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4695 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 24-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARUN KUMAR YADAV SENIOR
• Assessee Lawyers: SANJIV KAPOOR
• Keywords: Earning of tax free income; Commercial expediency
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C : NEW DELHI) BEFORE SHRI B.P. JAIN, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.5569/DEL./2015 (ASSESSMENT YEAR : 2011-12) ACIT, CIRCLE 11 (2), VS. M/S. HINDUSTAN CLEAN ENER GY LTD. NEW DELHI. 616A, 16A, SIXTH FLOOR, DEVIKA TOWER, NEHRU PLACE, NEW DELHI 110 019. (PAN : AAFCM8367C) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANJIV KAPOOR, CA REVENUE BY : SHRI ARUN KUMAR YADAV, SENIOR DR DATE OF HEARING : 30.08.2017 DATE OF ORDER : 31.08.2017 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, ASSISTANT COMMISSIONER OF INCOME-TAX, C IRCLE 11 (2), NEW DELHI (HEREINAFTER REFERRED TO AS THE REV ENUE), BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 12.05.2015 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)- 6, NEW DELHI, FOR THE ASSESSMENT YEAR 2011-12 ON TH E GROUNDS INTER ALIA THAT :- ITA NO.5569/DEL./2015 2 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING TH E DISALLOWANCE MADE U/S 14A READ WITH RULE 8D(III) IN RESPECT OF INVESTMENT IN THE SUBSIDIARY DOMESTIC COMPANY. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING TH E DISALLOWANCE U/S 14A HOLDING NO DISALLOWANCE CAN BE MADE WHEN NO EXEMPT INCOME IS EARNED IGNORING THE CIRCULAR NO. 5/2014 OF THE BOARD. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN RELYING UPO N THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CA SE OF M/S HOLCIM INDIA PVT. LTD. IGNORING THE FACT THA T THE HONBLE HIGH COURT HAS NOT MADE ANY DECISION ON THE APPLICABILITY OF DISALLOWANCE U/S 14A IN ITS ORDER. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : DURING THE SCRUTINY PROCE EDINGS, ASSESSING OFFICER NOTICED FROM THE BALANCE SHEET TH AT NO DISALLOWANCE HAS BEEN MADE BY THE ASSESSEE UNDER SE CTION 14A OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 (FOR SHORT THE RULES) B Y FOLLOWING THE DECISION RENDERED BY ITAT, SPECIAL BENCH, NEW DELHI IN CASE OF M/S. CHEMINVEST LTD. ITA NO.87/DEL/2008 COMPUTED THE DISALLOWANCE AS PER RULE 8D AS UNDER :- ITA NO.5569/DEL./2015 3 S.NO. PARTICULARS AMOUNT I) ONE HALF% OF AVERAGE VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT FORM PART OF TOTAL INCOME INVESTMENT AS ON 01.04.2010 1,268,845,297 INVESTMENT AS ON 31.03.2011 2,694,761,539 3,963,606,836 AVERAGE VALUE OF INVESTMENTS (3,963,606,836/2 1,981,803,418 ONE HALF % OF AVERAGE VALUE OF INVESTMENT (1,981,803,418 X 0.5%) = 99,09,017/- DISALLOWACNE AS PER RULE 8D 3. AO ON THE BASIS OF HIS OWN COMPUTATION WORKED OU T THE DISALLOWANCE AT RS.99,09,017/- AND MADE ADDITION TH EREOF TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. 4. ASSESSEE CARRIED THE MATTER BY WAY OF FILING AN APPEAL BEFORE THE LD. CIT (A) WHO HAS DELETED THE ADDITION OF RS. 99,09,017/- MADE BY THE AO BY ALLOWING THE APPEAL FILED BY THE ASSESSEE. FEELING AGGRIEVED, THE REVENUE HAS COME UP BEFORE T HE TRIBUNAL BY WAY OF CHALLENGING THE IMPUGNED ORDER PASSED BY LD. CIT. 5. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.5569/DEL./2015 4 6. LD. DR FOR THE REVENUE CHALLENGING THE IMPUGNED ORDER CONTENDED INTER ALIA THAT THE AO HAS WORKED OUT THE DISALLOWANCE UNDER RULE 8D AS PER ACCOUNTS RENDERED BY THE ASSES SEE HAVING BEEN DULY EXPLAINED AT THE SECOND LAST PAGE OF THE ASSESSMENT ORDER; THAT SECTION 114 OF THE EVIDENCE ACT, 1872 R AISES PRESUMPTION IN FAVOUR OF THE REVENUE THAT THERE WAS NON- SATISFACTION OF THE AO AND RELIED UPON THE ORDER OF THE AO. 7. HOWEVER, ON THE OTHER HAND, THE LD. AR FOR THE A SSESSEE TO REPEL THE ARGUMENTS ADDRESSED BY LD. DR CONTENDED I NTER ALIA THAT THE AO PROCEEDED TO INVOKE THE PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D WITHOUT RECORDING HIS DIS-SATISFACTION ; THAT INVESTMENT MADE BY THE ASSESSEE IN ITS SUBSIDIARIES IS FOR COMMERCIAL EXPEDIENCY AND NOT FOR EARNING ANY DIVID END NOR ANY DIVIDEND HAS BEEN RECEIVED BY THE ASSESSEE; AND REL IED UPON THE CASES OF MAXOPP INVESTMENT LTD. VS. CIT (2012) 347 ITR 27 2 (DEL.) AND GODREJ & BOYCE MANUFACTURING COMPANY LTD . VS. DCIT 394 ITR 449 (SC). 8. UNDISPUTEDLY, THE AO, WITHOUT RECORDING DIS-SATI SFACTION, AS THE WORKING OUT MADE BY THE ASSESSEE THAT NO EXPENS ES HAVE BEEN INCURRED NOR EARNED ANY DIVIDEND INCOME, PROCEEDED TO INVOKE THE PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D IN A MECHANICAL MANNER WHICH IS NOT PERMISSIBLE. ITA NO.5569/DEL./2015 5 9. HONBLE DELHI HIGH COURT IN JUDGMENT CITED AS MAXOPP INVESTMENT LTD. (SUPRA) WHILE DECIDING THE IDENTICAL ISSUE HELD AS UNDER :- SECTION 14A EVEN PRIOR TO THE INTRODUCTION OF SUB- SECTIONS (2) AND (3) WOULD REQUIRE THE ASSESSING OFFICER TO FIRST REJECT THE CLAIM OF THE ASSESSEE W ITH REGARD TO THE EXTENT OF SUCH EXPENDITURE AND SUCH REJECTION MUST BE FOR DISCLOSED COGENT REASONS. IT IS THEN THAT THE QUESTION OF DETERMINATION OF SUCH EXPENDITURE BY THE ASSESSING OFFICER WOULD ARISE. THE REQUIREMENT OF ADOPTING A SPECIFIC METHOD OF DETERMINING SUCH EXPENDITURE HAS BEEN INTRODUCED BY VIRTUE OF .SUB-SECTION (2) OF SECTION 14A . PRIO R TO THAT, THE ASSESSEE WAS FREE TO ADOPT ANY REASONABLE AND ACCEPTABLE METHOD. SO, EVEN FOR THE PRE-RULE 80 PERIOD, WHENEVER THE ISSUE OF SECTION 14A ARISES BEFORE AN ASSESSING OFFICER, HE HAS, FIRST OF ALL, TO ASCERTAIN THE CORRECTNESS OF THE CLAIM OF THE ASSES SEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN' RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME , THE ASSESSING OFFICER WILL HAVE TO VERIFY THE CORRECTNESS OF SUCH CLAIM. IN CASE, THE ASSESSING OFFICER IS SATISFIED WITH THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, A S THE CASE MAY BE, THE ASSESSING OFFICER IS TO ACCEPT THE CLAIM OF THE ASSESSEE IN SO FAR AS THE QUANTUM OF DISALLOWANCE UNDER SECTION 14A IS CONCERNED. IN SUCH EVENTUALITY, THE ASSESSING OFFICER CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE FOR THE PURPOSES OF SECTION 14A(1). IN CASE, THE ASSESSING OFFICER IS NOT, ON THE BASIS OF THE OBJECTIVE CRITERIA AND AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASONS FOR DOING SO. HAVING DONE SO, THE ASSESSING OFFICER WIL L HAVE TO DETERMINE THE AMOUNT OF EXPENDITURE ITA NO.5569/DEL./2015 6 INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HE IS REQUIRED TO DO SO ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. 10. HONBLE APEX COURT IN GODREJ & BOYCE MANUFACTURE COMPANY LTD. VS. DCIT 394 ITR 449 (SC) THRASHED THE ISSUE IN CONTROVERSY AS TO INVOKING OF THE PROVISIONS CONTAI NED UNDER RULE 8D OF THE RULES BY OBSERVING AS UNDER :- 37. WE DO NOT SEE HOW IN THE AFORESAID FACT SITUATION A DIFFERENT VIEW COULD HAVE BEEN TAKEN FO R THE ASSESSMENT YEAR 2002-2003. SUB-SECTIONS (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES MERELY PRESCRIBE A FORMULA FOR DETERMINATION OF EXPENDITURE INCURRED IN RELATION T O INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WHERE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSE SSEE. WHETHER SUCH DETERMINATION IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT THE LAW POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQU ISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONLY THEREAFTER THAT T HE PROVISIONS OF SECTION 14A(2) AND (3) READ WITH RULE 8D OF THE RULES OR A BEST JUDGMENT DETERMINATION, A S EARLIER PREVAILING, WOULD BECOME APPLICABLE. 11. BY FOLLOWING THE LAW LAID DOWN BY HONBLE APEX COURT IN JUDGMENT CITED AS GODREJ & BOYCE MANUFACTURE COMPANY LTD. (SUPRA) AND HONBLE HIGH COURT OF DELHI IN MAXOPP INVESTMENT LTD. (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE FIN DINGS ITA NO.5569/DEL./2015 7 RETURNED BY AO THAT, DISALLOWANCE TO THE TUNE OF RS.99,09,017/- NEEDS TO BE DISALLOWED AS PER RULE 8D ARE NOT SUSTAINABLE IN THE EYES OF LAW AS THERE IS NOT AN IOTA OF REASONS OF D IS-SATISFACTION RECORDED BY AO AS TO COMPUTATION OF INCOME MADE BY THE ASSESSEE BECAUSE SUB-SECTION (2) & (3) OF SECTION 14A WITH R ULE 8D OF THE RULES HAS ONLY PRESCRIBED A FORMULA FOR DETERMINATI ON OF AN EXPENDITURE TO EARN THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, WHICH CAN ONLY BE INVOK ED IF THE AO IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. 11. LD. CIT (A) HAS THRASHED THE ISSUE IN CONTROVER SY IN DETAIL BY OBSERVING AS UNDER :- 4.2 IT IS SEEN THAT AO HAS MECHANICALLY APPLIED RULE 8D TO MAKE THE ABOVE DISALLOWANCE U/S 14A WITHOUT EXAMINING THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURES ARE INCURRED IN RELATION TO THE EXEMPT INCOME HAVING WITH REGARD TO THE ACCOUNTS OF THE ASSESSEE. FROM THE BALANCE SHEET, IT IS EVIDENT THAT TOTAL INVESTMENT AS ON 31.03.2010 WAS RS.120,71,56,297/- WHICH HAS GONE UP TO RS.269,47,61,539/- AS ON 31.03.2011. THE ENTIRE INVESTMENTS ARE IN LONG TERM UNQUOTED NON TRADE INVESTMENTS IN SUBSIDIARY COMPANIES. OUT OF THE ABOVE INVESTMENTS IN SUBSIDIARY COMPANIES, INVESTMENT TO THE TUNE OF RS.19.62 CRORES AS ON 31.03.2011 WAS IN DEBENTURES WHICH WAS NIL AS ON 31.03.2010. THE INTEREST INCOME ON DEBENTURES IS TAXABLE IN INDIA. THEREFORE, AO HAS ERRED IN CONSIDERING THE ABOVE INVESTMENTS IN DEBENTURES FOR THE PURPOSE OF DISALLOWANCE U/S 14A. SIMILARLY, INVESTMENTS OF RS.91.55 LAKHS AS ON 31.03.2010 AND RS.6.86 CRORES AS ON 31.03.2010 ARE INVESTMENTS IN EQUITY SHARES OF FOREIGN SUBSIDIARY COMPANIES. THE ITA NO.5569/DEL./2015 8 DIVIDEND INCOME FROM FOREIGN COMPANIES IS TAXABLE. THEREFORE, AO HAS ERRED IN CONSIDERING THE ABOVE INVESTMENTS IN SHARES OF FOREIGN SUBSIDIARY COMPANIES FOR THE PURPOSE OF DISALLOWANCE U/S 14A. THE REMAINING INVESTMENTS ARE ENTIRELY INVESTMENTS IN EQUITY SHARES IN DOMESTIC SUBSIDIARY COMPANIES FOR STRATEGIC BUSINESS ADVANTAGE. APPELLANT SUBMITTED THAT THE INVESTMENTS IN SUBSIDIARY/SPECIA L PURPOSE VEHICLES (SPY) ARE FOR THE PURPOSE OF ALLOTMENT AND EXECUTION OF VARIOUS POWER PROJECTS I N INDIA. SPYS SO FORMED ENGAGED THE ASSESSEE COMPANY FOR PROVIDING CONSULTANCY SERVICES FOR THE PROJECTS ALLOTTED TO THEM. APPELLANT SUBMITTED THAT CONSULTANCY INCOME RECEIVED FROM THE SUBSIDIARY COMPANIES ARE OFFERED FOR TAX AS TAXABLE INCOME IN THE RETURN FILED BY THE ASSESSEE. THEREFORE, NO DISALLOWANCE U/S 14A WAS WARRANTED ON ACCOUNT OF THESE STRATEGIC INVESTMENTS FOR THE PURPOSE OF PROMOTION OF BUSINESS OF THE ASSESSEE COMPANY. 13. MOREOVER, THE ASSESSEE HAS COME UP WITH SPECIFI C ARGUMENT THAT IT HAS NOT INCURRED ANY INTEREST COST FOR EARN ING EXEMPT INCOME BUT THIS PLEA OF THE ASSESSEE HAS ALSO BEEN BRUSHED ASIDE BY THE AO WITHOUT RECORDING ANY REASON OF DIS-SATISFACTION. EVEN OTHERWISE, WHEN IT IS ADMITTED FACT THAT THE ASSESSEE HAS NOT INCURRED ANY INTEREST EXPENSES DURING THE YEAR UNDER ASSESSMENT AND IT WAS HAVING AMPLE COST FREE FUNDS TO INVEST IN ITS SUBSI DIARIES FOR COMMERCIAL EXPEDIENCY, THE QUESTION OF DISALLOWANCE UNDER RULE 8D DOES NOT ARISE. MOREOVER, IT IS ALSO NOT IN DIS PUTE THAT THE INCOME DERIVED BY THE ASSESSEE COMPANY FROM THE INV ESTMENT MADE IN ITS SUBSIDIARY IS OTHERWISE TAXABLE. WHEN ASSESSEE HAS NOT ITA NO.5569/DEL./2015 9 UTILIZED ANY BORROWED FUND FOR INVESTMENT NOR MADE ANY INTEREST PAYMENT NOR EARNED ANY DIVIDEND, THERE IS NO QUESTI ON OF MAKING DISALLOWANCE BY THE AO U/S 14A READ WITH RULE 8D OF THE RULES. 13. LD. CIT (A), BY CONSIDERING ALL THESE FACTS, HA S RIGHTLY DELETED THE ADDITION. SO, FINDING NO ILLEGALITY OR PERVERSITY IN THE IMPUGNED ORDER, WE HEREBY DISMISS THE APPEAL FILED BY THE REVENUE. ORDER PRONOUNCED IN OPEN COURT ON THIS 31 ST DAY OF AUGUST, 2017. SD/- SD/- (B.P. JAIN) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 31 ST DAY OF AUGUST, 2017 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-6, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.