ASST CIT 10(3)(2), MUMBAI V. PATEL ENERGY RESOURCES LTD, MUMBAI

ITA 7323/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8417 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 08-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SACHCHIDANAND DUBE
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO. 7323/MUM/2014 (ASSESSMENT YEAR: 2011-12) A C I T 10(3)(2) VS. M/S. PATEL ENERGY RESOURCES LTD. ROOM NO. 218, 2 ND FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 PAREL ESTATE, OFF S.V. ROAD JOGESHWARI (W), MUMBAI 400012 PAN AAECP5477H APPELLANT RESPONDENT APPELLANT BY: SHRI SACHCHIDANAND DUBE RESPONDENT BY: SHRI MAYUR KISNADWALA DATE OF HEARING: 08.02.2017 DATE OF PRONOUNCEMENT: 01.03.2017 O R D E R PER JASON P. BOAZ, A.M. THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF THE CIT(A)-17, MUMBAI DATED 30.09.2014 FOR A.Y. 2011-12. 2. THE FACTS OF THE CASE, BRIEFLY STATED, ARE AS UNDER : - 2.1 THE ASSESSEE, A COMPANY ENGAGED IN GENERATION A ND DISTRIBUTION OF POWER AND ALSO IN FINANCING AND INVESTMENTS, FILED ITS RETURN OF INCOME FOR A.Y. 2011-12 ON 30.11.2011 DECLARING LOSS OF (-) ` 1,73,53,490/-. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE IN COME TAX ACT, 1961 (IN SHORT 'THE ACT') AND THE CASE WAS SUBSEQUENTLY TAKE N UP FOR SCRUTINY. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E ACT VIDE ORDER DATED 19.02.2014, WHEREIN ITS INCOME UNDER THE NORMAL PRO VISIONS WAS COMPUTED AT ` 74,88,590/- IN VIEW OF DISALLOWANCE OF ` 2,48,42,080/- UNDER SECTION 14A R.W. RULE 8D. BOOK PROFITS UNDER SECTION 115JB OF THE ACT DECLARED AT (-) ` 1,96,18,749/- WERE RECOMPUTED AT ` 52,24,831/- IN VIEW OF DISALLOWANCE OF ` 2,48,43,580/- UNDER SECTION 14A R.W. RULE 8D. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT DATED 19.0 2.2014 FOR A.Y. 2011-12, THE ASSESSEE PREFERRED AN APPEAL BEFORE TH E CIT(A)-17, MUMBAI ITA NO. 7323/MUM/2014 M/S. PATEL ENERGY RESOURCES LTD. 2 CHALLENGING THE DISALLOWANCE MADE UNDER SECTION 14A R.W. RULE 8D. THE LEARNED CIT(A) ALLOWED THE ASSESSEES APPEAL VIDE T HE IMPUGNED ORDER DATED 30.09.2014 DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER (AO) UNDER SECTION 14A R.W. RULE 8D. 3.1 AGGRIEVED BY THE ORDER OF THE CIT(A)-17, MUMBAI DATED 30.09.2014 FOR A.Y. 2011-12, REVENUE HAS PREFERRED THIS APPEAL , RAISING THE FOLLOWING GROUND: - ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE U/S 14A WIT HOUT APPRECIATING THAT THE LEGISLATIVE INTENT IS TO ALLO W ONLY THAT EXPENDITURE WHICH IS RELATABLE TO EARNING OF INCOME AND IT THEREFORE FOLLOWS THAT THE EXPENSES WHICH ARE RELATABLE TO EA RNING OF EXEMPT INCOME HAVE TO BE CONSIDERED FOR DISALLOWANCE, IRRE SPECTIVE OF THE FACT WHETHER ANY SUCH INCOME HAS BEEN EARNED DURING THE FINANCIAL YEAR OR NOT. THE LEARNED D.R. FOR REVENUE WAS HEARD IN SUPPORT O F THE GROUND RAISED AND PLACED STRONG RELIANCE ON THE ORDER OF THE ASSE SSING OFFICER (AO) ON THIS ISSUE. 3.2 PER CONTRA, THE LEARNED A.R. OF THE ASSESSEE SU BMITTED THAT THERE IS NO ERROR IN THE ORDER OF THE LEARNED CIT(A) IN DELE TING THE DISALLOWANCE MADE BY THE AO UNDER SECTION 14A R.W. RULE 8D AFTER CONSIDERING THE AOS VIEWS, THE ASSESSEES SUBMISSIONS IN THE MATTER AND THE JUDICIAL PRONOUNCEMENTS ON THIS ISSUE. IT IS SUBMITTED THAT THE FACTS OF THE ASSESSEES CASE IS SQUARELY COVERED BY THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. (378 ITR 33) (DEL). 3.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JU DICIAL PRONOUNCEMENTS CITED. IT IS SEEN THAT THE LEARNED CIT(A) DELETED T HE DISALLOWANCE MADE BY THE AO UNDER SECTION 14A R.W. RULE 8D AFTER CONSIDE RING THE AOS VIEWS, THE ASSESSEES CONTENTIONS, THE FACTS OF THE CASE A ND THE JUDICIAL PRONOUNCEMENTS ON THIS ISSUE IN PARA 1.3 TO 1.3.5 O F THE IMPUGNED ORDER, BEFORE HOLDING AS UNDER AT PARA 1.3.6: - 1.3.6 ADVERTING TO THE FACTS IN THE APPELLANT CASE , I FIND THAT THE ENTIRE INVESTMENT WAS MADE IN THE PREVIOUS ASSESSME NT YEAR AND NOT IN THE CURRENT ASSESSMENT YEAR. THE LD. CIT(A). AO IN THE ASSESSMENT YEAR 2010-11 HAS NOT MADE ANY ADDITION WHILE ASSESS ING THE CASE OF THE APPELLANT AS IT WAS FOUND THAT THE BORROWINGS A S ON 31.03.2010 ITA NO. 7323/MUM/2014 M/S. PATEL ENERGY RESOURCES LTD. 3 WAS RS.3,10,795/- AND THE SAME WAS NOT UTILIZED FOR THE PURPOSE OF INVESTMENT. IN THE CURRENT YEAR THE BORROWING HAS B EEN INCREASED BY RS. 11 LAKHS AND THE SAME WERE INVESTED IN THE SUBS IDIARY CONCERN OF THE APPELLANT. THE REMAINING INVESTMENT IS IN A NON -RESIDENT CONCERN NAMELY NAULO NEPAL, THE DIVIDEND INCOME OF WHICH IS NOT EXEMPT UNDER THE ACT. THE LD.AO WHILE COMPUTING THE DISALL OWANCES UNDER RULE 8D HAS TAKEN THE ENTIRE INTEREST AND FINANCIAL CHARGES AMOUNTED TO RS. 1, 90, 99, 276/- WHICH BY NO MEANS IS CORREC T AS INVESTMENT OF RS. 11 LAKH WILL NOT ATTRACT SUCH FINANCIAL CHARGES EVEN IF IT IS PRESUMED THAT THE ENTIRE BORROWING WERE USED FOR TH E PURPOSES OF MAKING INVESTMENT. THEREFORE, I FACT FIND THAT THE LD.AO IS FACTUALLY INCORRECT IN TAKING THE ENTIRE FINANCIAL CHARGES FO R THE PURPOSES OF COMPUTATION OF DISALLOWANCES UNDER RULE 8D. FURTHER , THE LD.AO MISSED OUT THE POINT THAT APPELLANT HAS NOT EARNED ANY EXEMPT INCOME AND THEREFORE THE PROVISION OF SECTION 14 A ARE NOT APPLICABLE AS DECIDED BY THE VARIOUS HIGH COURTS IN THE DECISI ON AS CITED SUPRA. THE RELIANCE PLACED BY THE LD.AO ON THE DECISION OF CHEMINVEST IS OF NO GOOD ASSISTANCE IN MAKING THE DISALLOWANCES AS T HE FINDING OF THE SPECIAL BENCH IN CHEMINVEST HAS BEEN OVERRULED BY T HE HON'BLE HIGH COURTS, IN VIEW OF THE FOREGOING THE ADDITION MADE BY THE LD.AO IS HEREBY DELETED AND THIS GROUND OF APPEAL IS THUS AL LOWED. 3.3.2 ON A COMBINED PERUSAL AND APPRECIATION OF THE FACTS OF THE CASE FROM THE ORDERS OF THE AUTHORITIES BELOW, IT IS NOT DISP UTED THAT THE ENTIRE INVESTMENT WAS MADE, NOT IN THE ASSESSMENT YEAR UND ER CONSIDERATION, I.E. A.Y. 2011-12 BUT IN THE PERIOD RELATING TO EARLIER ASSESSMENT YEARS. THE LEARNED CIT(A) OBSERVED THAT IN THE IMMEDIATELY PRE CEDING ASSESSMENT YEAR 2010-11, NO DISALLOWANCE UNDER SECTION 14A R.W. RUL E 9D WAS MADE BY THE AO AS IT WAS FOUND THAT BORROWINGS MADE IN THAT YEA R, AMOUNTING TO ` 3,10,795/-, WERE NOT UTILISED FOR THE PURPOSE OF IN VESTMENT. THE LEARNED CIT(A) HAS FURTHER NOTICED THAT IN THE YEAR UNDER C ONSIDERATION, BORROWING HAVE INCREASED BY ` 11 LAKHS AND THE SAME HAS BEEN INVESTED IN A SUBSIDIARY CONCERN OF THE ASSESSEE AND THE REMAININ G INVESTMENT IS MADE IN A NON-RESIDENT CONCERN; NAULO NEPAL, DIVIDEND OF WHICH IS NOT EXEMPT UNDER THE ACT. REVENUE HAS NOT BEEN ABLE TO CONTROV ERT THESE FACTS BEFORE US AND WE THEREFORE UPHOLD THE FINDING OF THE LEARN ED CIT(A) THAT THE AO ERRED FACTUALLY IN TAKING THE ENTIRE FINANCIAL CHAR GES FOR THE PURPOSE OF COMPUTING THE DISALLOWANCE UNDER SECTION 14 R.W. RU LE 8D. 3.3.3 WE FIND THAT THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME IN THE YE AR UNDER CONSIDERATION, I.E. A.Y. 2011-12. IN SIMILAR FACTUA L CIRCUMSTANCES, THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS. CIT (2015) 378 ITA NO. 7323/MUM/2014 M/S. PATEL ENERGY RESOURCES LTD. 4 ITR 33 (DEL) HAS HELD THAT WHEN NO EXEMPT INCOME WA S EARNED BY THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR, NO DISALL OWANCE COULD BE MADE UNDER SECTION 14A OF THE ACT. IN THIS REGARD THE HO N'BLE HIGH COURT OBSERVED THAT THE EXPRESSION DOES NOT FORM PART OF THE TOTAL INCOME IN SECTION 14A OF THE ACT ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF EXEMPT INCOME IN THE RELEVANT ASSESSMENT YEARS FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO SUCH EXEMPT INCOME. IN OTHER WORDS, SECTION 14A OF THE ACT WILL NOT APPLY IF THERE IS NO EXEMPT INCOME RECEIVED OR RECEIVABLE DURING THE PERIOD UND ER CONSIDERATION. IN OUR CONSIDERED VIEW, THE AFORESAID DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. (SUPRA) WOULD SQUARE LY APPLY TO THAT OF THE ASSESSEE IN THE CASE ON HAND ON ALL FOURS AND RESPE CTFULLY FOLLOWING THE SAME WE UPHOLD THE ORDER OF THE LEARNED CIT(A) IN D ELEING THE DISALLOWANCE MADE BY THE AO UNDER SECTION 14A R.W. RULE 8D. CONS EQUENTLY GROUND NO. 1 OF THE REVENUES APPEAL IS DISALLOWED. 4. IN THE RESULT, REVENUES APPEAL FOR A.Y. 2011-12 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST MARCH, 2017. SD/ - SD/ - (RAM LAL NEGI) (JASON P. BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 1 ST MARCH, 2017 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -17, MUMBAI 4. THE CIT - 8, MUMBAI 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.