DCIT, New Delhi V. M/s. Moser Baer Project (P) Ltd., New Delhi

ITA 6058/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2775 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 07-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Assessee Lawyers: SANJEEV KAPOOR
• Keywords: Earning of tax free income; Commercial expediency
• Section: 143(3); 14A; 37

Judgement Text

1 ITA NO. 6058/DEL/2014 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI N. K. SAINI, ACCOUNTANT M EMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER ITA NO. 6058/DEL/201 4 ( A.Y 2011-12) DCIT CENTRAL CIRCLE-5(1) NEW DELHI (APPELLANT) VS HINDUSTAN THERMAL PROJECT LTD. (EARLIER KNOWN AS MOSER BAER POWER AND INFRASTRUCTURES LTD. WHICH WAS PREVIOUSLY KNOWN AS MOSER BAER PROJECT (P) LTD.) 616, (16A SIXTH FLOOR), DEVIKA TOWER, NEHRUPLACE, NEW DELHI AAFCM6703L (RESPONDENT) APPELLANT BY SH. S. R. SENAPATI, SR. DR RESPONDENT BY SH. SANJEEV KAPOOR, CA ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER DATED 22/08/2014 PASSED BY CIT(A)-VIII, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- ITA NO. 6058/DEL/2014 L. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD.CIT(A) IS JUSTIFIED IN DELETING THE ADDITION ON ACCOUNT OF DISALLOWANCE U/S 14A AMOUNTING TO RS.1,70,87,663/-. DATE OF HEARING 08.02.2018 DATE OF PRONOUNCEMENT 22.03.2018 2 ITA NO. 6058/DEL/2014 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) IS JUSTIFIED IN DELETING THE ADDITION ON ACCOUNT OF DISALLOWANCE OF LATE PAYMENT OF INTEREST AMOUNTING TO RS.2,52,360/- . 3. THAT THE ORDER OF THE LD.CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 4. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 3. THE ASSESSEE COMPANY IS ENGAGED IN CONSULTANCY S ERVICES IN THE FIELD OF POWER GENERATION. RETURN DECLARING INCOME OF RS.2, 01,68,980/- WAS E-FILED ON 30/09/2011, WHICH WAS PROCESSED U/S 143(1) OF THE I .T ACT. AS THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS, NOTICE U/S 143(2) DATED 7/8/2012 ISSUED AND SERVED UPON THE ASSESSEE COMPANY. THE ASSESSIN G OFFICER ISSUED A NOTICE U/S 142(1)/143(2) OF THE ACT TO THE ASSESSEE ALONG WITH DETAILED QUESTIONNAIRE. IN THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE AC T THE ASSESSING OFFICER ASSESSED THE INCOME OF THE ASSESSEE AT RS.37,509,00 3/- BY MAKING THE FOLLOWING ADDITIONS: RS.17,087,663/- ON ACCOUNT OF DISALLOWANCE U/S14A O F THE INCOME TAX ACT, 1961. RS.252,360/- ON ACCOUNT OF DISALLOWANCE OF LATE PAY MENT INTEREST. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE ON STATISTICAL PURPOSE. 5. THE LD. DR SUBMITTED THAT THE CIT(A) IS NOT JUST IFIED IN DELETING THE ADDITION ON ACCOUNT OF DISALLOWANCE U/S 14A AMOUNTI NG TO RS.1,70,87,663/-. THE CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITIO N ON ACCOUNT OF DISALLOWANCE OF LATE PAYMENT OF INTEREST AMOUNTING TO RS.2,52,360. THE LD. DR FURTHER SUBMITTED THAT THE ASSESSING OFFICER RIGHTLY OBSERV ED THAT THE ASSESSEE FAILED TO PROVIDE THE REASON FOR NOT SHOWING THE INVESTMENTS MADE IN THE SUBSIDIARIES AS PART OF INVESTMENT FOR THE YEAR BUT RATHER AS ADVAN CES AND FAILED TO STATE THE 3 ITA NO. 6058/DEL/2014 DIFFERENCE BETWEEN THE TWO. THUS, THE ASSESSING OFF ICER RIGHTLY CONSIDERED ADVANCE GIVEN TO SUBSIDIARIES FOR INVESTMENT FOR CO MPUTATION U/S 14A FOR THIS YEAR. THE ASSESSING OFFICER OBSERVED THAT THE ASSES SEE HAS NOT INCURRED ANY INTEREST EXPENSE DURING THE YEAR. HENCE, ONLY, THE PRINCIPAL OF CONSIDERING 0.5% OF THE INVESTMENT HAS DISALLOWANCE U/S 14A WAS APPL IED. THEREFORE, BASED ON THE CALCULATION AS PER RULE 8D WORKS OUT TO BE RS.1 ,70,87,663/- WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. 6. THE LD. AR SUBMITTED THAT NONE OF THE INVESTMENT S MADE BY THE ASSESSEE HAS GENERATED ANY DIVIDEND INCOME WHICH WAS CLAIMED BY THE ASSESSEE TO BE NOT TO FORM PART OF THE TOTAL INCOME. THEREFORE, NO DISALLOWANCE U/S 14A CAN BE MADE ON THE ASSESSEE FOR THE RELEVANT ASSESSMENT YE AR. THE ASSESSING OFFICER WHILE CALCULATING THE DISALLOWANCE U/S 14A IN THE I MPUGNED ORDER ALSO TAKEN INTO ACCOUNT THE ADVANCES MADE BY THE ASSESSEE TO T HE SUBSIDIARIES. THESE ADVANCES AMOUNT TO RS.274,149,299/- AS ON 31.03.201 1 AND 280,315,732 AS ON 01.04.2010 AND WAS DULY CLASSIFIED UNDER THE HEA D LOANS AND ADVANCES IN SCHEDULE 9 FORMING A PART OF BALANCE SHEET. THUS , THE SAME DOES NOT REPRESENT ANY INVESTMENT IN SHARES, A FACT, WHICH W AS DULY ADMITTED BY THE ASSESSING OFFICER IN ASSESSMENT ORDER. THE LD. AR F URTHER SUBMITTED THAT THE ASSESSEE IS A HOLDING COMPANY, WHICH HAS INVESTED I NTO VARIOUS SUBSIDIARIES/SPECIAL PURPOSE VEHICLES (SPV) FOR THE PURPOSE OF ALLOTMENT AND EXECUTION OF VARIOUS POWER PROJECTS IN INDIA. IN VI EW OF THE PROJECTS BEING IN DIFFERENT STATES AND ALLOTTED BY THE RESPECTIVE STA TE GOVERNMENTS, IT IS ESSENTIAL TO CREATE A STAND-ALONE SPV FOR EACH OF SUCH PROJEC TS. THE FUNDS ARE THEN ADVANCED BY THE ASSESSEE TO THESE SUBSIDIARIES/SPV S, BY WAY OF SUBSCRIBING TO THEIR SHARE CAPITAL OR AS SHORT TERM LOANS & ADVANC ES, TO MAKE FURTHER INVESTMENTS IN THE PROJECTS ALLOCATED TO EACH OF TH ESE SUBSIDIARIES/SPV. FURTHER THE SPVS SO FORMED ENGAGED THE ASSESSEE COM PANY FOR PROVIDING THE CONSULTANCY SERVICES FOR THE PROJECTS ALLOTTED TO T HEM. IN ITS PROFIT AND LOSS ACCOUNT FOR THE YEAR, THE ASSESSEE HAS SHOWN THE TU RNOVER FROM CONSULTANCY SERVICES PROVIDE TO THESE SUBSIDIARIES/SPV AND THER EFORE NO EXPENSE 4 ITA NO. 6058/DEL/2014 ATTRIBUTABLE TO THE INVESTMENTS MADE BY THE ASSESSE E IN THE SPVS CAN BE DISALLOWED U/S 14A R.W. RULE 8D BECAUSE IT CANNOT B E TERMED AS EXPENSE INCURRED FOR EARNING EXEMPT INCOME. THESE INVESTMEN TS IN SHARES HAVE BEEN MADE OUT OF COMMERCIAL EXPEDIENCY AND NOT WITH TH E OBJECT OF GENERATING EXEMPTED INCOME. THE SAID FACT HAS BEEN ADMITTED BY THE ASSESSING OFFICER IN ASSESSMENT ORDER. CONSEQUENTLY, THE INVESTMENTS IN THESE SUBSIDIARIES/SPV HAS RESULTED IN INCOME TO THE ASSESSEE WHICH FORMS A PART OF THE TOTAL INCOME UNDER THE ACT AS TAXABLE INCOME. ANY EXPENSE INCURR ED TO EARN TAXABLE INCOME IS OUTSIDE THE AMBIT OF THE PROVISIONS OF SECTION 1 4A AND THEREFORE CANNOT BE DISALLOWED. AS A NECESSARY COROLLARY TO THE AFORESA ID, THE CONSULTANCY FEES ARE CHARGED BY THE ASSESSEE TO RECOVER/REIMBURSE THE EX PENSES INCURRED BY IT ON THE SUBSIDIARIES AND THEREFORE ONCE REIMBURSED, THE RE ARE NO RESIDUAL EXPENSES AVAILABLE WITH THE ASSESSEE, TO BE DISALLOWED UNDER THE PROVISION OF SECTION 14A OF THE ACT. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER AS NOT BEEN ABLE TO ESTABLISH A NEXUS BETWEEN ANY, DIRECT OR INDIRECT E XPENDITURE INCURRED, WITH THE INTEREST FREE INVESTMENTS MADE BY THE ASSESSEE. ADDITIONALLY THE ASSESSING OFFICER HAS NOT DISPUTED THAT THE ASSESSEE DOES NOT HAVE ANY BORROWED FUNDS DURING THE YEAR, THUS, NO DISALLOWANCE IS BEING MAD E IN REGARD TO PAYMENT OF INTEREST ON LOANS. THUS, NO EXPENDITURE INCURRED FO R EARNING ANY TAX FREE INCOME DURING THE PERIOD UNDER CONSIDERATION. AS RE LATES TO GROUND NO. 2, THE LD. AR SUBMITTED THAT IN THE PRESENT CASE, THE SUM OF RS.2,52,360/- ON ACCOUNT OF INTEREST ON DELAYED PAYMENT WAS NEITHER PAID NOR DEBITED TO THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE. THE SAME WAS POINTED OUT FROM THE AUDITED FINANCIALS AND THE TAX AUDIT REPORT FURNISH ED BEFORE THE ASSESSING OFFICER. THE AIR REPORT ONLY QUANTIFIES THE INTERES T ON DELAYED PAYMENT BASED ON THE TDS RETURNS BY THE ASSESSEE FOR NULLIFICATIO N OF THE DEMAND OR DEPOSIT OF THE SAME, IN THE EVENT IT IS NOT DISPUTED BY THE AS SESSEE. ONLY IN THE LATTER SITUATION, PURSUANT TO THE DEPOSIT OF THE AMOUNT IN QUESTION AND BEING CHARGED TO PROFIT & LOSS ACCOUNT, THE SAME WARRANTS DISALLO WANCE AS PER THE EXPLANATION TO SUB-SECTION (1) OF SECTION 37 OF TH E INCOME TAX ACT. THE LD. AR SUBMITTED THAT THE CIT(A) HAS RIGHTLY ALLOWED THE A PPEAL OF THE ASSESSEE. 5 ITA NO. 6058/DEL/2014 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RECORDS. AS REGARDS GROUND NO. 1, THE ASSESSING OFFICER WHILE CALCULATI NG THE DISALLOWANCE U/S 14A ALSO TAKEN INTO ACCOUNT THE FACT THAT THE ADVANCES MADE BY THE ASSESSEE TO THE SUBSIDIARIES WHICH DOES NOT REPRESENT ANY INVESTMEN T IN SHARES. THESE INVESTMENTS IN SHARES HAVE BEEN MADE OUT OF COMMER CIAL EXPEDIENCY AND NOT WITH THE OBJECT OF GENERATING EXEMPTED INCOME. THE SAID FACT IS ADMITTED BY THE ASSESSING OFFICER IN ASSESSMENT ORDER. THE ASSESSEE HAS SHOWN THE TURNOVER FROM CONSULTANCY SERVICES PROVIDE TO THESE SUBSIDIA RIES/SPV TO THE ASSESSING OFFICER. ONCE THESE INVESTMENT ARE SHOWN AS COMMERC IAL EXPEDIENCY THEN ANY EXPENSE INCURRED THEREON CANNOT BE ATTRIBUTABLE TO THE INVESTMENTS MADE BY THE ASSESSEE IN THE SPVS AND THUS, IT CANNOT BE TER MED AS EXPENSE INCURRED FOR EARNING EXEMPT INCOME. THUS, THE LD. ARS SUBMISSIO N THAT THE INVESTMENTS IN THESE SUBSIDIARIES/SPV HAS RESULTED IN INCOME TO TH E ASSESSEE WHICH FORMS A PART OF THE TOTAL INCOME UNDER THE ACT AS TAXABLE I NCOME AND ANY EXPENSE INCURRED TO EARN TAXABLE INCOME IS OUTSIDE THE AMBI T OF THE PROVISIONS OF SECTION 14A, THEREFORE CANNOT BE DISALLOWED APPEARS TO BE CORRECT. THE CIT(A) RIGHTLY HELD AS UNDER: .ADDRESSING THE ISSUES ON MERITS, THE APPELLANT H AS MADE INVESTMENT IN ITS SUBSIDIARIES. IT HAS EARNED NO EXEMPT INCOME IN FOR M OF DIVIDEND FROM INVESTMENT IN SUBSIDIARIES. THE ADVANCES GIVEN TO T HE SUBSIDIARIES BY ITSELF CANNOT YIELD ANY DIVIDEND, UNLESS SHARES WERE ALLOT TED AGAINST SUCH MONEY. THE INVESTMENT HAS BEEN MADE OUT OF COMMERCIAL EXPE DIENCY AND NOT WITH THE OBJECT OF EARNING DIVIDEND INCOME. IN FACT THE APPE LLANT IS EARNING INCOME FROM CONSULTANCY SERVICES FROM THESE SUBSIDIARIES, WHICH IS FORMING A PART OF TAXABLE INCOME OF THE APPELLANT. FURTHER THE APPELL ANT HAS MADE INVESTMENT ONLY IN 7 SUBSIDIARIES. THERE IS NO FACT OF HAVING INCURRED ANY EXPENDITURE FOR THE PURPOSE OF EARNING THE DIVIDEND INCOME. 1. SHAREHOLDERS FUND OF THE COMPANY = 686.46 CRORES. 2. NO BORROWED FUNDS IN BALANCE SHEET AS ON 31.03.2011 . 3. INVESTMENT IN SUBSIDIARIES = RS.500.21 CRORES. 4. NO DIVIDEND INCOME RECEIVED FROM INVESTMENT IN SUBS IDIARIES. 5. FINANCIAL EXPENSE IN THE P & L A/C (SCHEDULE-13) = RS.585/- ONLY AS BANK CHARGES. 6 ITA NO. 6058/DEL/2014 THE DISALLOWANCE, IN MY VIEW, IS MISCONCEIVED AND T HE SAME IS DELETED IN THE LIGHT OF THE ABOVE STATED OBSERVATIONS. THUS, THE ASSESSING OFFICER IGNORED THE FACT THAT T HE ADVANCES MADE BY THE ASSESSEE TO THE SUBSIDIARIES WHICH DOES NOT REPRESE NT ANY INVESTMENT IN SHARES AND IS OF COMMERCIAL EXPEDIENCY. THUS, THE CIT(A) R IGHTLY DELETED THE SAID ADDITION. GROUND NO. 1 OF THE ASSESSEES APPEAL IS ALLOWED. 8. AS RELATES TO GROUND NO. 2, THE SUM OF RS.2,52,3 60/- ON ACCOUNT OF INTEREST ON DELAYED PAYMENT WAS NEITHER PAID NOR DE BITED TO THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE. THE SAME WAS POINTED OUT F ROM THE AUDITED FINANCIALS AND THE TAX AUDIT REPORT FURNISHED BEFORE THE ASSES SING OFFICER, BUT THE ASSESSING OFFICER IGNORED THIS FACT. THE CIT(A) RIG HTLY HELD THAT THE AIR REPORT ONLY QUANTIFIES THE INTEREST ON DELAYED PAYMENT BAS ED ON THE TDS RETURNS UPLOADED BY THE ASSESSEE. THESE WILL BE DISALLOWED, ONCE THE SAME ARE PAID AND DEBITED TO THE PROFIT AND LOSS ACCOUNT. BUT IN ASSE SSESS CASE IT WAS DEBITED IN PROFIT AND LOSS ACCOUNT. SO IT WAS NOT PROPER ON PA RT OF THE ASSESSING OFFICER TO DISALLOW THE SAME. THUS, GROUND NO. 2 OF THE REVENU ES APPEAL IS DISMISSED. 9. IN RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22ND MARCH, 2018 . SD/- SD/- (N. K. SAINI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 22/03/2018 R. NAHEED * 7 ITA NO. 6058/DEL/2014 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 06/02/2018 PS 2. DRAFT PLACED BEFORE AUTHOR 06/02/2018 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2018 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 22.03.2018 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 2 2 .03.2018 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.