Dy. Commissioner of Income Tax , Circle-16(2), Hyderabad V. Pioneer Genco Limited, Hyderabad

ITA 734/Hyd/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0620 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-09-2018
• Assessment Year: 2014-2015
• Appeal Filed On: 23-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KIRAN KATTA
• Assessee Lawyers: P VINOD
• Keywords: Earning of tax free income
• Section: 14A; 37(1)

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE S MT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S . RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO. 734 /HYD/201 8 ASSESSMENT YEAR: 20 14 - 15 DY . COMMISSIONER OF INCOME - TAX, CIRCLE 16 ( 1 ), HYDERABAD. VS. PIONEER GENCO LTD., HYDERABAD. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI KIRAN KATTA ASSESSEE BY : SHRI P. VINOD DATE OF HEARING : 0 7 - 0 9 - 201 8 DATE OF PRONOUNCEMENT : 14 - 0 9 - 201 8 O R D E R PER S . RIFAUR RAHMAN, A .M.: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A) 4 , HYDERABAD, DATED 14 / 02 /201 8 FOR AY 20 14 - 15 WHEREIN THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. T HE COMMISSIONER OF INCOME TAX (A) ERRED IN DELETING THE DISALLOWANCE UNDER SECTION 14A OF RS 5,48,09,881 / - . 2. THE COMMISSIONER OF INCOME TAX(A) ERRED IN IGNORING C BDT 'S CIRCULAR NO.5 OF 2014 DATED 11.02.2014. 3. THE COMMISSIONER OF INCOME TAX (A) ERRED IN IGNORING THE SUPREME COURT DECISION IN THE CASE OF COMMISSIONER OF INCOME TAX VS WALFORT SHARE OF STOCK BROKERS P LTD (326ITR 1), WHEREIN IT WAS HELD THAT THE MANDATE OF SECTION 14A WAS TO CURB THE PRACTICE OF CLAIMING DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME AGAINST TAXABLE INCOME AND AT THE SA ME TIME AVAIL OF THE TAX INCENTIVE BY WAY OF EXEMPT INCOME WITHOUT MAKING ANY APPORTIONMENT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. 2 ITA NO. 734 /HYD/201 8 PIONEER GENCO LTD., HYD. 4. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 2. BRIEF FACTS OF THE CASE ARE, ASSESSEE COMPANY, ENGAGED IN THE BUSINESS OF GENERATION AND SALE OF POWER, FILED ITS RETURN OF INCOME FOR THE AY 2014 - 15 ON 27/09/2014 DECLARING TOTAL INCOME OF RS. 80,990/ - , WHICH WAS PROCESSED U/S 143(1) OF THE INCOME - TAX ACT, 1961 ( IN SHORT THE ACT). SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE ISSUED ACCORDINGLY. IN RESPONSE TO THE NOTICES, THE LD. AR OF THE ASSESSEE FILED THE INFORMATION CALLED FOR. THE AO COMPLETED TH E ASSESSMENT BY ADDING RS. 5,48,09,881/ - TOWARDS DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT AND RS. 1.96,19,471/ - TOWARDS DISALLOWANCE U/S 37(1) OF THE ACT. 3. WHEN THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), THE CIT(A) DELETED THE DISALLOWAN CE MADE U/S 14A OF THE ACT AND PARTLY ALLOWED THE DISALLOWANCE U/S 37(1) OF THE ACT. 4. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US AGAINST THE DELETION OF DISALLOWANCE U/S 14A OF THE ACT. 5. WE HAVE HEARD THE PARTIES. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT IN THE BALANCE SHEET, THE ASSESSEE COMPANY HAS INVESTMENTS TO THE TUNE OF RS. 311,07,79,400/ - AS ON 31/03/2014. WHEN THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE PROVISIONS OF SECTION 14A SHALL NOT BE APPLIED AS THE COMPANY HAS MADE INVESTMENT WHICH YIELD EXEMPT INCOME, THE AR OF THE ASSESSEE REQUESTED NOT TO DISALLOW ANY EXPENDITURE U/S 14A OF THE ACT AS THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME FROM INVESTMENTS MADE IN EQUITY SHARES. FURTH ER, AR SUBMITTED THAT THE INVESTMENTS WERE MADE OUT OF INTERNAL ACCRUALS OF THE COMPANY AND THE ASSESSEE COMPANY HAS NOT MADE ANY 3 ITA NO. 734 /HYD/201 8 PIONEER GENCO LTD., HYD. INVESTMENTS OUT OF BORROWED CAPITAL AND THUS THE DISALLOWANCE U/S 14A OF THE ACT DOES NOT ARISE. 6.1 H OWEVER, THE AO REFERRING TO THE PROVISIONS OF SECTION 14A AS WELL AS REFERRING TO THE CBDT CIRCULAR NO. 5/2014, DATED 11/02/2014, COMPUTED THE DISALLOWANCE U/S 14A AT RS. 5,48,09,881/ - . 7. ON APPEAL, THE CIT(A) DELETED THE DISALLOWANCE FOLLOWING THE DECIS ION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF PRATHISTA INDUSTRIES LTD., IN ITA NO. 1302/HYD/2015 FOR AY 2011 - 12, BY HOLDING THAT SINCE THERE IS NO DIVIDEND INCOME DURING THIS YEAR, THE ADDITION U/S 14A IS NOT WARRANTED. 8 . AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 9 . CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS PER THE INFORMATION SUBMITTED BY THE ASSESSEE BEFORE THE CIT(A), THE CIT(A) CAME TO THE CONCLUSION THAT THE ASSESSEE HAS NOT R ECEIVED ANY DIVIDEND INCOME FROM ANY COMPANY DURING THE FY 2013 - 1 4 RELEVANT TO THE AY 2014 - 15 AND ACCORDINGLY, HE DELETED THE DISALLOWANCE MADE U/S 14A RELYING ON THE DECISION OF ITAT HYDER A BAD IN THE CASE OF PRATHISTA INDUSTRIES LTD. (SUPRA). IT IS A SETT LED POSITION OF LAW THAT THE PROVISIONS OF SECTION 14A CAN BE APPLIED TO QUANTIFY THE EXPENSES IN RELATION TO EXEMPT INCOME. SINCE THE EXEMPT INCOME IS NIL, SECTION 14A WILL NOT APPLY. THE RULE 8D CAN BE APPLIED ONLY WHEN THERE IS DIFFICULTY IN FINDING THE EXPENDITURE RELATING TO EXEMPT INCOME. THE PROVISIONS OF SECTION 14A AND RULE 8D WILL NOT APPLY TO THE PRESENT CASE. IT IS THE CONSISTENT VIEW OF THE HYDERABAD BENCHES AND ACCORDINGLY WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THE GROUNDS RAISED BY THE REVENUE IN THIS REGARD. 4 ITA NO. 734 /HYD/201 8 PIONEER GENCO LTD., HYD. 6 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 14 TH SEPTEMBER , 2018. SD/ - SD/ - ( P. MADHAVI DEVI ) (S . RIFAUR RAHMAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 14 TH SEPTEMBER , 2 018. KV COPY TO: - 1) D CIT, CIRCLE 16 ( 2 ), 2 RD FLOOR, B BLOCK, IT TOWERS, AC GUARDS, MASAB TANK, HYD. 2) M/S PIONEER GENCO LTD., FLAT NO. 705, LAKSMI NIVAS, ROAD NO.3, BANJARA HILLS, HYDERABAD. 3) CIT(A) 4 , HYDERABAD. 4) PR. CIT 4 , HYD . 5 ) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6 ) GUARD FILE