NSL Renewable Power Private Limited , Hyderabad V. Asst. Commissioner of Income Tax, Circle-16(1), Hyderabad

ITA 600/Hyd/2019

• Counselvise Citation: [NaN] 107 COUNSELVISE.COM (IT) 1869 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB-A
• Assessment Year: 2014-2015
• Appeal Filed On: 24-04-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 14A; 115JB; 80IA; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A”: HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SH RI SAT B EER S INGH GO DA RA , JU DI CIA L MEMBE R AND SHR I L AXMI PR AS A D SAHU , AC COUNT ANT MEMBE R ITA No. 600/H/2019 Assessment Year: 2014-15 NSL Renewable Power Pvt. Ltd., Hyderabad. PAN – AABCN 6009L Vs. Asst. Commissioner of Income-tax, Circle – 16(1), Hyderabad. (Appellant) (Respondent) Assessee by: Shri Aliasgar Rampurwala Revenue by: Shri Rajendra Kumar Date of hearing: 16/12/2021 Date of pronouncement: 04/01/2022 O R D E R PER L.P. SAHU, A.M.: This appeal filed by the assessee is directed against CIT - 4, Hyderabad’s order dated 14/03/2019 for AY 2014- 15 involving proceedings u/s 263 of the Income Tax Act, 1961 ; in short “the Act on the following grounds of appeal: “1. On the facts and in the circumstances of the case and in law, the Learned Principal Commissioner of Income-tax - 4 (Ld. Pr. CIT) erred in revising the ITA No.. 600/Hyd/2019 N S L R e n e w a b l e P o w e r P v t . L t d . , H y d . :- 2 -: assessment order passed by the Assistant Commissioner of Income-tax, Circle 16(1) (Ld. AO) under Section 263 of the Income-tax Act, 1961 (Act'). The Appellant prays that the order passed under section 263 be held as bad in law and liable to be quashed. 2. On the facts and in the circumstances of the case and in law, the Ld. Pro CIT erred in exercising his jurisdiction for initiating proceedings under section 263 of the Act, without appreciating that the Ld. AO had passed the assessment order after making due enquiries and verification of records and hence the said order is not erroneous and/or prejudicial to the interest of the revenue. The Appellant prays that the order passed under section 263 is not in consonance with the provisions of the Act and hence liable to be quashed. 3· On the facts and in the circumstances of the case and in law, the Ld. Pro CIT erred in initiating proceedings under section 263 of the Act on the ground that interest paid of Rs. 3,62,71,333 should be allowed as deduction in computing business income and not from Income from other sources. The Appellant prays that the Ld. AO was correct in allowing deduction of interest expenses of Rs. 3,62,71,333 while computing income under the head 'Income from Other Sources' and hence, the assessment order cannot be treated as erroneous and / or prejudicial to the interest of the revenue. 4· On the facts and circumstances of the case and in law, the Ld. Pro CIT erred in initiating proceedings under section 263 of the Act on the ground that disallowance under section 14A of the Act amounting to Rs. 2,67,05,035 should also be added to the book profits ITA No.. 600/Hyd/2019 N S L R e n e w a b l e P o w e r P v t . L t d . , H y d . :- 3 -: computed under section 115JB of the Act, without appreciating the fact that book profits under section 115JB of the Act cannot be adjusted with items other than those specifically mentioned under that section. The Appellant prays that the Ld. AO was correct in not adding the amount disallowed under section 14A of the Act while computing book profits under section 115JB of the Act and hence, the assessment order cannot be treated as erroneous and / or prejudicial to the interest of the revenue The above grounds of appeal are without prejudice to each other. The appellant craves leaves to add to and/or alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this appeal.” 2. Briefly the facts of the case are that the assessee company filed Return of Income for the Asst. Year 2014-15 on 28.11.2014 declaring an income of Rs.1,27,48,070/- after claiming deduction of Rs.16,29,42,462/- under sec.80IA. The book profits declared u/s 115JB at Rs.13,19,86,703/-. The assessment was completed u/s 143(3) of the Act on 30.11.2016 determining the total income of Rs.18,66,98,748/- and Book profit u/s. 115JB at Rs.13,19,86,700/-. While passing the order an amount of Rs.2,67,05,035/- pertaining to disallowance u/s.14A was made and the amount was set off against the declared loss from business of Rs. 1,10,08,215/- there by assessing the ITA No.. 600/Hyd/2019 N S L R e n e w a b l e P o w e r P v t . L t d . , H y d . :- 4 -: Income from business at Rs.1,56,96,820/-. The entire business Income was allowed as deduction u/s.80IA. 3. By exercising the powers vested u/s 263 of the Act, the CIT – 4, Hyd, called for the assessment record of the assessee and on examining the same, noticed the following: “1. The disallowance u/s.14A amounting to Rs.2,67,05,035/- was made and normal income was re- computed, however, the AO omitted to add the same amount to the book profits assessed u/s.115JB. 2. Under the head income from other sources the assessee has declared the following incomes: a. Income u/s.56(2)(viia) Rs.96,21,893/- The Interest receipts were arrived at after claiming the expenditure of" (l)Interest on term loan from IDFC- Anthlyur unit Rs.2,18,33,217 and (2)Interest expenses considered in other sources Rs.1,44,38,116/- totaling to Rs.3,62,71,333/-. As per the provisions of Section 57(iii), the same needs to be expended wholly and exclusively for the purpose of earning such Income. Hence the expenditure claimed on account of Interest payments amounting to Rs.3,62,71/333/- is not an allowable deduction u/s.57(iii) from out of the Income from other sources, even though, the same can be allowed under the head 'Income from business', 3.1 Thus, according to the CIT, Income from business and therefore deduction u/s. 80IA had been computed at a higher figure to this extent and Income from other sources ITA No.. 600/Hyd/2019 N S L R e n e w a b l e P o w e r P v t . L t d . , H y d . :- 5 -: had been computed by allowing expenditure of Rs.3,62,71,333/- which is not allowable. 3.2. In view of the above, the CIT held that the order passed by the AO u/s 143(3) of the Act dated 30.11.2016 was apparently erroneous in so far as it is prejudicial to the interests of revenue as per the provisions of section 263 of IT Act. Accordingly, a show cause notice u/s. 263, dated 13-11-2018 was issued to the assessee as to why the Assessment order dtd. 30-11-2016 should not be revised as per the issues mentioned therein. 4. In response to the above said notice dtd.13-11-2018, the AR of the assessee submitted as under: 2.0 The first relevant issues are as under: Wrong claim of business expenditure under the head 'Income from Other . sources' . a. The assessee has flied the return admitting a gross total Income of Rs. 17,56,90,533/- and claimed deduction u/s. 80IA at Rs. 16,29,42,462/-. T1tus the Income returned was shown at Rs. 1,27,48,070/- under normal provisions. Further, the book profit u/s. 115JB was shown at Rs. 13,19,86,703/-. The Income returned under normal provisions at Rs. 1,27,86,703/-. The income returned under normal provisions at Rs. 1,27,48,070/- was arrived as under: Loss from business Rs. 1,10,08,215 Income from house property Rs. 13,63,103 Income from other sources Rs. 18, 53,35,645 Gross total Income Rs. 17,56,90,533 ITA No.. 600/Hyd/2019 N S L R e n e w a b l e P o w e r P v t . L t d . , H y d . :- 6 -: Less: Deduction u/s.80IA Rs. 16,29,42,462 Income returned Rs. 1,27,48 071 b. During the scrutiny proceedings, the Assessing Officer has made an addition of Rs. 2,67,05,035/- u/s. 14A and the income from business was computed at Rs. 1, 56,96,820/-. Further, the deduction claimed u/s. 80IA was restricted to the business income only i.e., Rs, 1,56,96,820/- and accordingly the income from business was computed at NIL. However, the income was assessed at Rs, 18,66,98,748/- (1363103 + 185335645) being the sum of income from house property and income from other sources. c. On verification of the statement of computation, it is seen that the income from other sources was shown at Rs. 18,53,35,645/- which included Rs. 96,21,893/- being Income admitted u/s. 56(2)(viia) and Rs. 17,57,13,752/- being the net Interest receipts. The net interest Income was arrived as under: Interest received on FDs, ICDs & CCD Rs. 21,19,85,085 Less: Interest on term loan from IDFC - Anthiyur unit Rs. 2,18,33,217 Less: Interest expenses considered in other sources Rs. 1,44,38,116 Net Interest income Rs. 17,57,13,752 d. With regard to claim of Interest expenditure u/s. 57 (iii), such expenditure shall have to be expended wholly and exclusively for the purpose of earning such Income. However, from details available on record, it is observed that no such nexus was established with regard to the interest expenditure against the interest income. Therefore, the expenditure claimed on account of Interest payments amounting to Rs. 3,62,71,333/- (2,18,33,217 + 1,44,38,116) cannot be allowed as deduction u/s. 57(iii) even though the same can be allowed under the head 'Income from business'. ITA No.. 600/Hyd/2019 N S L R e n e w a b l e P o w e r P v t . L t d . , H y d . :- 7 -: Therefore, the Income arrived in the Assessment order has to be recomputed as under: Income under the head - Business: Loss returned from business Rs. 1,10,08,215 Add: Disallowance U/s. 14A Rs. 2,67,05,035 Income from business Assessed Rs. 1,56,96,820 Less: Interest expenditure claimed under the head "income from other sources" Rs. 3,62,71,333 Loss from business Rs. 2 05,74,513 Income under the head-Other sources: Income admitted u/s 56(2)(viia) Rs. 96,21 893 Interest received – ICD, FDR & Others Rs.21,19,85,085 Income from other sources Rs.22,16,06,978 computation of Total Income: Loss from business Rs. 2,05,74,513 Income from other sources Rs. 22,16,06,978 Income from house property Rs. 13,63,103 Taxable income Rs. 20,23,95,568 e, Thus, the income should be assessed at Rs. 20,23,95,568/- as against income assessed u/s. 143(3) at Rs. 18,66,98,748/-. This resulted in short computation of Income to the tune of Rs. 1,56,96,820/-. 2.1 On this Issue, the reply of the assessee is as under: I. Note on claim of interest expenditure under the head 'Income from Other sources' During the financial year 2013-14 relevant to the assessment year 2014-15, the assessee has earned total ITA No.. 600/Hyd/2019 N S L R e n e w a b l e P o w e r P v t . L t d . , H y d . :- 8 -: Interest Income of Rs.21,19,85,085/- from Inter Corporate Deposits, Fixed Deposits and others. Further, the assessee has incurred Rs. 46,26,57,930/- towards interest expenses during the year which includes Interest expenditure of Rs.3,62,71,333/- directly related to earn to above said interest Income. Accordingly, the interest income and interest expenditure directly related to earn said interest income has not been considered while computing the business profit. The Interest expenditure relates to interest paid on loans taken from IDFC and IREDA for different power units including ·Anthlyur and Jaglur units. During the year 2011-12, the Company had transferred assets of power unit at Anthlyur to M/s. Windage Power Company Pvt. Ltd and amount receivable has been considered as Inter Corporate Deposit. During the year, the company earned interest Income of Rs.3,46,57,611/- on said inter corporate deposit and the Company has also paid interest expenses of Rs. 1,08,31,413 to IDFC and Rs.1,11,01,804 to IREDA aggregating to Rs.2,18,33,217 on loans taken for said unit. Hence, the Interest of Rs.2,18,33,217 has been considered wholly and exclusively for the purpose of earning Interest Income and claimed under sec. 57(iii). Further, the company also earned interest Income of Rs.91,79,178/- from Jaglur Unit - 1, Rs. 1,16,47,338/- from Jaglur Unit 2 and Rs.2,58,46,807 from Jaglur Unit 5 on Fixed deposits, CCD and ICD. The company also paid interest of Rs. 1,44,38,115 to IDFC and IREDA for loans taken for above units. Hence, the Interest of RS.1,44,38,115 has been considered as expenses under the head other sources, since loans funds obtained from IDFC and IREDA has been utilized towards CCD, ICD and fixed deposits In said units" It may be noted that only pari of the interest expenditure directly related to earn interest income has ITA No.. 600/Hyd/2019 N S L R e n e w a b l e P o w e r P v t . L t d . , H y d . :- 9 -: been considered as expenditure-under the head Income from other source. In view of the above, the above said interest expenditure of Rs.3,62,74,333/- have been expended wholly and exclusively for the purpose of earning interest income and allowable under section 57(iii) under the head "Income from Other Sources" and not business expenditure as proposed by your honour. 5. After going through the submissions made in this regard, the CIT observed that it is clear that the assessee is unable to show how the interest expenditure was claimed can be allowed against the income from other sources. The assessee failed to prove the nexus between the interest income and expenditure incurred. The assessee claimed expenditure u/s.57(iii) of Rs.3,62,71,333/-(Interest on term loan from IDFC Anthiyur unit Rs.2,18,33,217 + Interest expenses considered In other sources Rs. 1,44,38,116) from out of the other sources amounting to Rs.21,19,85,085/-(Interest received on FDs, ICDs & CCD) as against the correct claim of such interest expenditure against business income. Therefore, this expenditure has to be allowed against Income assessed under the head income from business as narrated in the show cause notice re- produced supra, and the deduction u/s 80lA deserves to be recomputed accordingly. 5.1 In view of the above, the CIT held that the order passed u/s. 143(3) dated 30-11-2016 Is erroneous and prejudicial ITA No.. 600/Hyd/2019 N S L R e n e w a b l e P o w e r P v t . L t d . , H y d . :- 10 -: to the interest of revenue on the above issue as the expenditure of Rs.3,62,71,333/- has been wrongly allowed against Income from other Sources and deduction u/s 80IA has been allowed is excess as detailed above. 6. As regards the Second relevant issue of Non- consideration of disallowance u/s. 14A in computation of book profits, the CIT observed that The assessee filed return admitting book profits at Rs. 13,19,86,700/- and paid taxes accordingly. In the assessment order u/s. 143(3), disallowance u/s. 14A amounting to Rs. 2,67,05,035/- was made and normal Income was recomputed. The disallowance u/s. 14A was also required to be added to the book profits and the book profits should have been recomputed at Rs. 15,86,91,735/-. Failure to do so has resulted in under assessment of book profits at Rs. 2,67,05,035/-. In this regard, the reply of the assessee was as under: “Assessee in its reply dated 06-12-2018 has stated that the tax liability u/s.115JB to. be worked out only on the basis of adjusted book profit and not on the basis of income computed under the normal provisions of the Act. The A.D. cannot go beyond the audited Left space intentionally ITA No.. 600/Hyd/2019 N S L R e n e w a b l e P o w e r P v t . L t d . , H y d . :- 11 -: 7. Aggrieved by the order of the CIT, the assessee is in appeal before the ITAT. 8. As regards ground Nos. 1 to 3 regarding deduction of interest expenses of Rs. 3,62,71,333/-, the ld. AR submitted that this expenditure had been expended wholly and exclusively for the purpose of earning interest income and allowable under section 57(iii) under the head income from ITA No.. 600/Hyd/2019 N S L R e n e w a b l e P o w e r P v t . L t d . , H y d . :- 12 -: other sources and not business expenditure as alleged by CIT. 9. The ld. DR on the other hand, besides relying on the order of CIT submitted that the assessee claimed expenditure u/s 57(iii) of Rs. 3,62,71,333/- from out of the other sources amounting to Rs. 21,19,85,085/- as against the correct claim of such interest expenditure against business income and, therefore, the CIT has rightly held that this expenditure had wrongly allowed against income from other sources and deduction u/s 80IA had been allowed was excessive. He, therefore, prayed that the order of the CIT passed u/s 263 be upheld. 10. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The crux of the issue to be adjudicated is whether the CIT is right in holding that the interest expenditure claimed by the Assessee u/s 57(iii) is not allowable under the head “income from other sources” ? The CIT observed that the interest receipts were arrived at after claiming the expenditure of i) interest on term loan from IDFC-Anthiyur unit Rs. 2,18,33,217/- and ii) interest expenses considered in other sources Rs. 1,44,38,116/- totalling to Rs. 3,62,71,333/-. According to CIT, as per the provisions of Section 57(iii), the same needs to be expended wholly and exclusively for the purpose of earning ITA No.. 600/Hyd/2019 N S L R e n e w a b l e P o w e r P v t . L t d . , H y d . :- 13 -: such income. Hence the expenditure claimed on account of interest payments amounting to Rs.3,62,71/333/- is not an allowable deduction u/s.57(iii) from out of the Income from other sources, even though, the same can be allowed under the head 'Income from business'. Since the assessee failed to prove the nexus between the interest income and expenditure incurred, the CIT set aside the order of AO, who allowed the same under the head “income from other sources”. Even before us, the ld. AR of the assessee failed ot prove the nexus between the interest income and expenditure incurred and, therefore, we uphold the order of CIT on this issue and dismiss the grounds raised by the assessee on this issue. 11. As regards ground No. 4 relating to the disallowance u/s 14A should also be added to the profits compute du/s 115JB, , the ITAT in the AY 2008-09 being ITA No. 196/Del/2013 vide order dated 25-4-2016, reported in 68 taxmann.com 322, held as under: “55. We have carefully considered the rival contentions. The ld. AO has imputed the addition u/s 115JB of the Act as disallowance computed u/s 14A, read with Rule 8D of the Income Tax Rule, 1962. As we have already deleted the disallowance as per ground No.10 of the appeal wherein we have held that the amount of disallowance cannot be worked out by ld. AO without recording satisfaction on examination of books about the correctness of disallowance made by the assessee which in this case has been made by assessee of Rs.3311708/-.We have also held that disallowance cannot exceed the amount of exempt income. Hence, now no disallowance survives u/s 14A of the act so far as normal computation of total income of the appellant. The AO has added to the book profit amount of expense disallowed u/s.14A applying rule 8D of the Income tax act. As per our considered view, no addition u/s.115JB is warranted for amount of disallowance u/s.14A of the IT Act. Our view is supported by following decisions :— ITA No.. 600/Hyd/2019 N S L R e n e w a b l e P o w e r P v t . L t d . , H y d . :- 14 -: (i) Cadila Healthcare Ltd. v. Addl. CIT[2012] 21 com 483/67 SOT 110 (URO)(Ahd. – Trib.); (ii) Reliance Industrial Infrastructure Ltd. [IT Appeal Nos. 69 & 70 (Mum) of 2009, dated 5-4-2013]; (iii) EssarTeleholdings Ltd. [IT Appeal No. 3850 (Mum.) of 2010, dated 29-7-2011]; (iv) J. K. Paper Ltd. [IT Appeal Nos. 979 (Ahd.) of 2006 & 4027 & 4080 (Ahd.) of 2008]; (v) National Commodity Derivatives Exchange Ltd. [IT Appeal No. 2923 (Mum) of 2010, dated 26-8-2011]; and (vi) Quippo Telecom Infrastructure Ltd. [IT Appeal No. 4931 (De1hi) of 2010, dated 18-22011]. Respectfully following the propositions laid down in the previously mentioned decisions, we direct the Ld. AO to exclude the amount of addition of Rs.7,66,40,105/- made u/s.14A, while computing the book profit u/s.115JB. In view of this we allow ground no.11 of the appeal.” 11.1 Before the Delhi Special Bench of ITAT in the case of ACIT v. Vireet Investments Pvt. Ltd., 165 ITD 25 (Del)(SB). two questions were posed and considered by the Special Bench which are as follows:- "(i) Whether the expenditure incurred to earn exempt income computed u/s 14A could not be added while computing book profit u/s 115JB of the Act? And (ii) Whether investments which did not yield any exempt income should enter into the computation under Rule 8D while arriving at the average value of investment, income from which does not form part of the total income? 11. The Special Bench answered the aforesaid questions as follows:- "(i) We answer the question referred to us in favour of assessee by holding that the computation under clause (f) of Explanation 1 to section 115JB(2). is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income-tax Rules, 1962. (ii) Only those investments are to be considered for computing the average value of investment which yielded exempt income during the year. ITA No.. 600/Hyd/2019 N S L R e n e w a b l e P o w e r P v t . L t d . , H y d . :- 15 -: 11.2 Respectfully following the above decisions, we hold that the disallowance made u/s 14A should not be added to the book profits computed under section 115JB. Therefore, we set aside the order of CIT on this issue and allow the ground No. 4 raised by the assessee. 12. In the result, appeal of the assessee is partly allowed in above terms. Pronounced in the open court on 4 th January, 2022 Sd/- Sd/- (S.S. GODARA) (L. P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 4 th January, 2022. kv Copy to : 1 NSL Renewable Power Pvt. Ltd., 8-2-684/2/A, NSL Icon, Road No. 12, Banjara Hills, Hyderabad – 500 034 2 ACIT, Circle – 16(1), AC Guards, IT towers, Masab Tank, Hyderabad. 3 CIT - 4, Hyderabad. 4 Addl. CIT, Range – 16, Hyderabad 5 ITAT, DR, Hyderabad. 6 Guard File. ITA No.. 600/Hyd/2019 N S L R e n e w a b l e P o w e r P v t . L t d . , H y d . :- 16 -: S . N o . D e t a i l s D a t e 1 D r a f t d i c t a t e d o n 2 D r a f t p l a c e d b e f o r e a u t h o r 3 D r a f t p r o p o s e d & p l a c e d b e f o r e t h e S e c o n d M e m b e r 4 D r a f t d i s c u s s e d / a p p r o v e d b y S e c o n d M e m b e r 5 A p p r o v e d D r a f t c o m e s t o t h e S r . P S / P S 6 K e p t f o r p r o n o u n c e m e n t 7 F i l e s e n t t o B e n c h C l e r k 8 D a t e o n w h i c h t h e f i l e g o e s t o H e a d C l e r k 9 D a t e o n w h i c h f i l e g o e s t o A . R . 10 D a t e o f D i s p a t c h o f o r d e r