Power Grid Corporation of India Ltd., New Delhi V. ACIT, New Delhi

ITA 5577/DEL/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69313 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 20-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 12-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VEENA JOSHI
• Assessee Lawyers: VED JAIN; RANO JAIN
• Keywords: Earning of tax free income; Revised return
• Section: 12; 10; 11; 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F: NEW DELHI) BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.5577/DEL/ 2011 (ASSESSMENT YEAR: 2008-2009) M/S. POWER GRID CORPORATION OF INDIA LTD., VS. ACIT, CIRCLE 14(1), B-9, QUTAB INSTITUTIONAL AREA, NEW DELHI KATWARIA SARAI, NEW DELHI (PAN : AAACP0252G) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VED JAIN & MS. RANO J AIN RESPONDENT BY : MS. VEE NA JOSHI, C.I.T. D.R O R D E R PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE EMANATES FROM THE ORDER OF THE CIT (APPEALS)-XVII, NEW DELHI DATED 30.9.201 1. 2. THE APPELLANT COMPANY IS A PUBLIC SECTOR UNDE RTAKING AND ENGAGED IN TRANSMITTING POWER FROM GENERATING UNITS TO STATE E LECTRICITY BOARDS. THE RETURN OF INCOME WAS FILED ON 16.9.2008 DECLARING I NCOME AT NIL, HOWEVER, TAXES WERE PAID ON BOOK PROFIT UNDER THE M INIMUM ALTERNATIVE TAX. THE ASSESSING OFFICER DISALLOWED RS.9,53,90,52 1/- BY INVOKING RULE ITA NO.5577/DEL/2011 2 8D(2)(III) OF INCOME-TAX RULES, 1962 BEING 0.5% OF THE AVERAGE INVESTMENT DURING THE RELEVANT FINANCIAL YEAR. 3. THE CIT (A) HAS REJECTED THE ASSESSEES APPE AL BY HOLDING AS UNDER:- 4. GROUND NO. 3 RELATES TO DISALLOWANCE OF RS.9,74,22,250/- U/S 14A IN COMPUTING BOOK PROFIT U NDER SECTION 115JB OF THE I.T. ACT, 1961. I FIND THAT TH E APPELLANT HAS SHOWN THE BOOK PROFIT FOR THE PURPOSE OF MAT AT RS. 22,06,60,50,354/- AS PER REVISED RETURN FILED ON 30 .03.2010. THE AO WHILE COMPUTING THE BOOK PROFIT U/S 115JB HA S ADDED THE AMOUNT OF RS. 9,74,22,250/- BEING EXPENSE S DISALLOWED U/S 14A OF THE I.T. ACT, 1961. THIS HAS BEEN DONE IN THE LIGHT OF CLAUSE (F) OF EXPLANATION 1 OF SECT ION 115 JB. THE RELEVANT PORTION OF CLAUSE (F) OF EXPLANATION 1 IS REPRODUCED BELOW : (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH [SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF) OR SEC TION 11 OR SECTION 12 APPLY; OR] 4.1 ON PERUSAL OF CLAUSE (F) OF EXPLANATION 1, IT I S EVIDENT THAT EXPENDITURE WHICH FALLS U/S 10 SHALL BE LIABLE TO BE INCREASED OTHER THAN THOSE EXPENSES WHICH ARE COVER ED U/S 10(38) OF THE I.T. ACT, 1961. THE AR OF THE APPELLA NT, IN HIS SUBMISSION FILED ON 26.09.2011 HAS RELIED ON THE HO NBLE SUPREME COURT IN THE CASE OF APOLLO TYRES VS. CIT ( 255 ITR 273 SC) AND HE IS OF THE VIEW THAT 14A DISALLOWANCE S DOES NOT FALL UNDER THE EXPLANATION TO 115JB OF THE I.T. ACT, 1961. THE RELEVANT PORTION OF HONBLE SUPREME COURTS DEC ISION IN THE CASE OF APOLLO TYRES IS AS FOLLOWS: TO PUT IT DIFFERENTLY, THE ASSESSING OFFICER DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFIT S HOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION TO SECTION 115J. 4.2 HERE THE EXPLANATION TO 115JB IS CLEARLY APPLIC ABLE AND THE SUPREME COURTS DECISION IN THE CASE OF APO LLO TYRES IS OF NO HELP TO THE APPELLANT. 14A DISALLOWA NCES CLEARLY FALLS UNDER THE ABOVE EXPLANATION AND THE A OS ITA NO.5577/DEL/2011 3 DISALLOWANCE OF RS.9,74,22,250/- U/S 14A IN COMPUTI NG BOOK PROFIT UNDER SECTION 115JB IS CORRECTLY MADE. IN TH E APPELLANT CASE, THERE ARE TWO TYPES OF EXPENDITURE WHICH ARE COVERED U/S 10 I.E EXPENDITURE ATTRIBUTABLE TO THE DIVIDEND INCOME EXEMPT UNDER SECTION 10(34) OF THE I.T.ACT, 1961 AND THE EXPENDITURE ATTRIBUTABLE FOR THE EARNING IN TEREST ON LOANS EXEMPT U/S 10(15)(I) OF THE I.T. ACT, 1961. S INCE THE EXPLANATION TO 115 JB IS CLEAR AND THEREFORE THERE CANNOT BE ANY DISPUTE THAT THE EXPENDITURE ATTRIBUTABLE TO TH E EARNING OF TAX FREE INCOME U/S 10(34) AND U/S 10(15)(I) OF THE I.T. ACT, 1961 IS LIABLE TO BE INCLUDED WHILE WORKING OUT THE BOOK PROFIT UNDER SECTION 115JB. IN THE LIGHT OF FACTS A ND CIRCUMSTANCES OF THE CASE AND THE LEGAL PROVISIONS DISCUSSED ABOVE. I HOLD THAT THE AO WAS JUSTIFIED TO ADD A SU M OF RS.9,74,22,250/- WHILE WORKING OUT THE BOOK PROFIT. THUS, THE ACTION OF THE AO IS UPHELD AND THE GROUND NO. 3 OF THIS APPEAL IS REJECTED. 5. GROUND AND 1 & 4 ARE GENERAL IN NATURE, WHICH REQUIRES NO SPECIFIC FINDINGS. 4. NOW THE ASSESSEE IS IN APPEAL BEFORE US BY TAKIN G THE FOLLOWING GROUNDS :- 1. THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IS AGAINST FACTS AND LAW. 2. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IS NOT JUSTIFIED IN CONFIRMING THE ADDITI ON OF RS.9,53,90,521/- BEING ALLEGED EXPENSES INCURRED IN EARNING EXEMPT INCOME UNDER SECTION L4A OF THE INCOME-TAX A CT, 1961 AS AGAINST THE BASIS OF ADDITION MADE BY THE A PPELLANT IN COMPUTING THE NORMAL INCOME. 3. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IS NOT JUSTIFIED IN CONFIRMING THE ADDITI ON OF RS.9,74,22,250/- BEING ALLEGED EXPENSES INCURRED IN EARNING EXEMPT INCOME UNDER SECTION 14A OF THE INCOME-TAX A CT, 1961 AS AGAINST THE BASIS OF ADDITION MADE BY THE A PPELLANT IN COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE INCOME-TAX ACT, 1961. ITA NO.5577/DEL/2011 4 4. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IS NOT JUSTIFIED IN NOT DEDUCTING THE EXP ENDITURE OF RS.20,81,729/- ALREADY OFFERED BY THE APPELLANT WHI LE CALCULATING THE EXPENDITURE INCURRED IN EARNING EXE MPT INCOME UNDER SECTION 14A OF THE INCOME-TAX ACT, 196 1 AS AGAINST THE BASIS OF ADDITION MADE BY THE APPELLANT IN COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF TH E INCOME-TAX ACT, 1961. 5. THAT THE FURTHER GROUNDS SHALL BE SUBMITTED AT THE TIME OF HEARING. 5. WHILE PLEADING ON BEHALF OF THE ASSESSEE THE LD. AR SUBMITTED THAT THE ACCOUNTS OF THE COMPANY HAVE BEEN DRAWN UP IN ACCORDANCE WITH THE PROVISION OF PART II AND PART III OF SCHEDULE V I OF THE COMPANYS ACT, 1956 AS PER THE REQUIREMENT OF SECTION 115JB OF IT ACT, 1961. THE AUDITED PROFIT / LOSS CAN BE INCREASED OR REDUCED O NLY RESPECT OF THE ITEMS MENTIONED IN EXPLANATION TO SECTION 115JB OF IT ACT . ASSESSEE ITSELF HAD MADE DISALLOWANCE O RS.20,81,729/- IN ITS COMPUTATI ON OF INCOME ON ACCOUNT OF INDIRECT EXPENDITURE FOR EARNING TAX FRE E INCOME. ONLY FOUR EMPLOYEES WERE WORKING IN THE BOND SECTION WHO WERE LOOKING AFTER THE FRESH ISSUE OF BONDS AND INTEREST SAVING ETC. IN AD DITION TO THE AFFAIRS OF TAX FREE BONDS. THEY HARDLY DEVOTE ANY TIME FOR PAS SING ENTRIES IN THE BOOKS FOR THE YEAR. OUT OF THESE FOUR EMPLOYEES, AS SESSEE CALCULATED EXPENSES RELATED TO TWO EMPLOYEES ALONG WITH ALLOCA TED OVERHEAD EXPENDITURE AND DISALLOWED. THIS ADDITION HAS BEEN MADE IN A ROUTINE MANNER. THE ACCOUNTS WERE DULY APPROVED BY THE BOAR D OF DIRECTORS OF ITA NO.5577/DEL/2011 5 ASSESSEE COMPANY WERE ALSO AUDITED AS WELL BY CONTR OLLER AND AUDITOR GENERAL OF INDIA. THE ASSESSING OFFICER HAS NOT BRO UGHT OUT ANY MATERIAL TO SHOW THAT ACCOUNTS HAVE NOT BEEN DRAWN UP IN ACC ORDANCE WITH THE REQUIREMENT OF THE IT ACT OR THE COMPANYS ACT. THE ASSESSING OFFICER UNNECESSARILY MADE DISALLOWANCE BY INVOKING THE PRO VISIONS OF RULE 8D READ WITH SECTION 14A OF IT ACT WHICH ARE NOT CALLE D FOR WHERE THE CASE FALLS UNDER SECTION 115JB OF IT ACT, 1961. HE HAD N OT SATISFIED HIMSELF WITH THE CORRECTNESS OF CLAIM OF ASSESSEE REGARDING EXPENDITURE RELATABLE TO NON-TAXABLE INCOME. LD. AR ALSO SUBMITTED THAT D ISALLOWANCE MADE IN PAST YEARS HAD BEEN DELETED BY ITAT. HE RELIED ON T HE DECISION OF ITAT IN ITA NO.488/DEL/2009 & OTHERS IN ASSESSEES OWN C ASE DATED 31.10.2011 AND PLEADED TO SET ASIDE THE ORDER OF AU THORITIES BELOW. 6. LD. DR HAS RELIED ON THE ORDERS OF THE AUTHORITI ES BELOW AND ALSO PLEADED THAT THERE IS NO DISPUTE WITH REGARD TO THE CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB OF THE INCOME-TAX AC T, 1961 WHERE THE EXPENDITURE DEBITED TO PROFIT AND LOSS ACCOUNT WHIC H IS INCURRED IN RELATION TO THE INCOME EXEMPTED U/S 10 IS TO BE ADD ED FOR COMPUTATION OF THE PROFIT FOR WORKING OUT THE TAXABLE INCOME U/S 1 15JB. THE ASSESSEES RELIANCE ON THE EARLIER YEARS DECISION OF ITAT IN A SSESSEES OWN CASE IS OF NO HELP TO THE ASSESSEE AS THE YEAR UNDER CONSIDERA TION IS 2008-09 WHERE RULE 8D OF INCOME-TAX RULES IS APPLICABLE. HE FURTH ER PLEADED THAT SECTION 14A PROVIDES THAT NO DEDUCTION SHALL BE ALL OWED IN RESPECT OF THE ITA NO.5577/DEL/2011 6 EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE INCOME UNDER THE ACT. THE ASSESSEE IS EARNING I NTEREST INCOME ON THE TAX FREE BONDS WHICH ARE EXEMPTED U/S 10(15)(I) OF INCOME-TAX ACT, 1961. THEREFORE, THE EXPENDITURE INCURRED IN RELATION TO SUCH INCOME HAS TO BE ADDED BACK TO THE INCOME OF THE ASSESSEE IN VIEW OF CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT. 7. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE FI ND FORCE IN THE PLEADINGS OF THE REVENUE THAT THE ASSESSEES CASE C ANNOT BE TAKEN AS COVERED BY THE DECISIONS OF ITAT IN EARLIER YEARS I N VIEW OF THE INSERTION OF RULE 8D WHICH IS APPLICABLE FROM THE ASSESSMENT YEAR 2008-09. THE CONSTITUTIONAL VALIDITY OF RULE 8D HAS BEEN AFFIRME D BY THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE VS. DCIT, 328 ITR 81 (MUM.). THE COURT HAS ALSO HELD IN THIS CASE THAT THESE RULES ARE NOT RETROSPECTIVE AND SHALL BE APPLICABLE W.E.F . ASSESSMENT YEAR 2008-09. EARLIER RULE 8D WAS NOT APPLICABLE. PRIOR TO THE PROVISIONS OF RULE 8D, THE ASSESSING OFFICER WAS TO ENFORCE THE P ROVISIONS OF SECTION 14A BY DETERMINING THE EXPENDITURE WHICH HAS BEEN I NCURRED IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME BY ADOPTING A REASONABLE BASIS. AS PER RULE 8D, THE ASSESSING OFF ICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR IF NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE EXPENDITURE MADE BY THE ASSESSEE OR THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN ITA NO.5577/DEL/2011 7 RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT THEN HE SHALL DETERMINE THE AMOUNT OF EXPENDITU RE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH RULE 8D. THEREFORE, IN OU R CONSIDERED VIEW, THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8 D HAS TO BE CONSIDERED WHILE COMPUTING THE INCOME OF THE ASSESS EE U/S 115JB OF THE ACT IN VIEW OF CLAUSE (F) OF EXPLANATION 1 TO SECTI ON 115JB OF THE ACT. 8. FOR THE QUANTIFICATION AND FOR EXAMINATION OF TH E CONDITIONS AS PER RULE 8D, WE RESTORE THE ISSUE TO THE FILE OF THE AS SESSING OFFICER. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 9 TH DAY OF OCTOBER, 2013. SD/- SD/- (DIVA SINGH) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 9 TH DAY OF OCTOBER, 2013 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XVII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR/ITAT NEW DELHI