Dy. Commissioner of Income Tax , Circle-2(1), Hyderabad V. KSK Electricity Financing India Private Limited , Hyderabad

ITA 801/Hyd/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7236 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-B
• Next Hearing Date: 04-09-2020
• Assessment Year: 2016-2017
• Appeal Filed On: 17-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Keywords: Earning of tax free income; Rule 8D
• Section: 154; 14A; 115JB; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE SHRI C.N. PRASAD , JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA NO. 800 & 801 /HYD/201 9 ASSESSMENT YEAR S : 20 1 4 - 15 & 2016 - 17 (THROUGH VIDEO CONFERENCE) DY. COMMISSIONER OF INCOME - TAX, CIRCLE 2(1), HYDERABAD. VS. KSK ELECTRICITY FINANCING INDIA PVT. LTD., HYDERABAD. PAN AACCK7257L ( APPELLANT ) (RESPONDENT) REVENUE BY : SHRI YVST SAI ASSESSEE BY : S HRI S. RAMA RAO DATE OF HEARING : 0 4 / 0 9 /20 20 DATE OF PRONOUNCEMENT : 04 / 09 / 20 20 O R D E R PER M. BALAGANESH , A .M. : BOTH T H E S E APPEAL S FILED BY THE REVENUE ARE DIRECTED AGAINST THE SEPARATE ORDER S OF CIT(A) 2 , BOTH DATED 22/03/2019 , HYDERABAD FOR AY 2014 - 15 & 2016 - 17. 2. TO DISPOSE OF THESE APPEALS, WE REFER TO THE FACTS IN AY 2014 - 15. THE ONLY EFFECTIVE ISSUE TO BE DECIDED IN THIS APPEAL IS , AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE U/S 14A READ WITH RULE 8D OF THE IT RULES. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. 4. WE FIND THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF FINANCING, ACQUIRING AND OWNING POWER GENERATION PROJECTS. IN VIEW OF THE HUGE INVESTMENTS MADE BY THE ASSESSEE, THE 2 ITA NO S . 800 & 801 /HYD/1 9 KSK ELECTRICITY FINANCING INDIA PVT. LTD., HYD. LD. AO SHOW - CAUSED THE ASSESSEE AS TO WHY DISALLOWANCE U/S 14A OF THE ACT SHOULD NOT BE MADE IN ACCORDANCE WITH RULE 8D(2) OF THE RULES IN RESPECT OF INTEREST ON BORROWED FUNDS AND TOWARDS DISALLOWANCE OF ADMINISTRATIVE EXPENSES. WE FIND THAT THE ASSESSEE HAD RELIED BEFORE THE LD. AO THAT IT HAD NOT BEEN DERIVED ANY EXEMPT INC OME FROM INVESTMENTS MADE AND ACCORDINGLY, IT HAD NOT MADE ANY DISALLOWANCE OF EXPENSES U/S 14A OF THE ACT. THE ASSESSEE ALSO PLEADED THAT THE PROVISIONS OF SECTION 14A WOULD NOT BE APPLICABLE IN THE INSTANT CASE IN THE ABSENCE OF EXEMPT INCOME. 4.1 WE F IND THAT THE LD. AO, HOWEVER, DID NOT HEED TO THIS CONTENTION OF THE ASSESSEE AND PROCEEDED TO MAKE DISALLOWANCE IN ACCORDANCE WITH THE COMPUTATION MECHANISM PROVIDED IN THE RULE 8D(2) OF THE RULES AS UNDER: 1. UNDER RULE 8D(2)(I) - RS. 9 , 46 , 69 , 60 1 / - 2. UNDER RULE 8D(2)(II I ) - RS. 8 6 ,99,650/ - T OTAL DISALLOWANCE - RS.10,33,69,251/ - =============== THE SAID DISALLOWANCE U/S 14A OF THE ACT WAS MADE BY THE LD. AO BOTH UNDER THE NORMAL PROVISIONS OF THE ACT AS WELL AS IN COMPUTATION OF BOOK PROFITS U/S 115JB OF THE ACT. THIS DISALLOWANCE WAS FURTHER ENHANCED BY THE LD. AO IN THE PROCEEDINGS U/S 154 OF T HE ACT. 5. THE LD. CIT(A) DELETED THE DISALLOWANCE BY APPRECIATING THE CONTENTION OF THE ASSESSEE THAT SINCE THERE WAS NO EXEMPT INCOME, PROVISIONS OF SECTION 14A WOULD NOT COME INTO OPERATION. THE LD. CIT(A) ALSO PLACED RELIANCE ON T HE DECISION OF THIS TRIBUNAL IN THE CASE OF DCIT VS. MAHESWARI MEGA VENTURES LTD., HYDERABAD IN ITA NO. 367/ H YD/2013, DATED 03/02/2017 IN SUPPORT OF HIS DECISION. 6. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 3 ITA NO S . 800 & 801 /HYD/1 9 KSK ELECTRICITY FINANCING INDIA PVT. LTD., HYD. 7. WE FIND THAT THE LAW IS NOW VERY WELL SETTLED THA T WHEN THERE IS NO EXEMPT INCOME DERIVE D BY THE ASSESSEE FROM THE INVESTMENTS MADE, PROVISIONS OF SECTION 14A OF THE ACT WOULD NOT COME INTO OPERATION AT ALL. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF JOIN T INVESTMENTS PVT. LTD. VS. CIT REPORTED IN 372 ITR 694. SIMILAR VIEWS WERE TAKEN BY VARIOUS HIGH COURTS IN THE FOLLOWING DECISIONS: 1. CIT VS. CHETTINAD LOGISTICS (P) LTD., [2017] 80 TAXMANN.COM 221 (MADRAS HC ) . 2. CIT VS. HOLCIM INDIA PVT. LTD. IN ITA N O. 486/2014 (DELHI HC) 3. CHEMINVEST LTD VS. CIT, 378 ITR 33 (DELHI HC) 4. CIT VS. LAKHANI MARKETING IN ITA NO. 970/2008, DATED 02/04/2014 ( P&H HC). 5. CIT VS. CORRTECH ENERGY PVT. LTD., 223 TAXMAN 130 (GUJ.) 6. CIT VS. SHIVAM MOTORS PVT. LTD., IN ITA NO. 88 OF 2014 (ALL. HC) 7. PR. CIT VS. IL & FS ENERGY DEVELOPMENT CO. LTD., [2017] 399 ITR 483 (DEL.) 8. THE LD. DR BEFORE US HEAVIL Y RELIED ON THE CIRCULAR OF THE CBDT NO. 5/2014 BY ARGUING THAT THE DEPARTMENT BELIEVES THAT PROVISIONS OF SECTION 14A OF THE ACT WOULD COME INTO OPERATION EVEN WHEN THERE IS NO EXEMPT INCOME DERIVED BY THE ASSESSEE. WE FIND THAT THIS CIRCULAR NO. 5/2014 H AD BEEN DULY CONSIDERED IN THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF IL & FS ENERGY DEVELOPMENT CO. LTD. REFERRED TO SUPRA AND STILL RELIEF WAS GRANTED TO THE ASSESSEE. 9. RESPECTFULLY FOLLOWING THE AFORESAID DECISION S , WE DO NOT FIND ANY IN FIRMITY IN THE ORDER OF LD. CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE AO U/S 14A OF THE ACT. ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THE GROUND S RAISED BY THE REVENUE IN THIS REGA RD. 4 ITA NO S . 800 & 801 /HYD/1 9 KSK ELECTRICITY FINANCING INDIA PVT. LTD., HYD. 10 . AS THE FACTS AND GROUNDS IN AY 2016 - 17 ARE IDENTICAL TO THAT OF AY 2014 - 15, FOLLOWING THE DECISION THEREIN, WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THE GROUNDS RAISED BY THE REVENUE. 11 . IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. PRO NOUNCED IN THE OPEN COURT ON 4 TH SEPTEMBER , 20 20 . SD/ - SD/ - ( C.N. PRASAD ) ( M. BALAGANESH ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 4 TH SEPTEMBER , 20 20 . KV C OPY TO: - 1) D C IT, CIRCLE 2(1), ROOM NO. 514, 5 TH FLOOR, SIGNATURE TOWERS, KONDAPUR, HYDERABAD 500 084 2) M/S KSK ELECTRICITY FINANCING INDIA PVT. LTD., 8 - 2 - 293/82/A/431/A, ROAD NO. 22, JUBILEE HILLS, HY DERABAD 500 033. 3) CIT(A) 2 HYDERABAD. 4) PR. CIT - 2 , HYD. 5 ) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6 ) GUARD FILE