Deputy Commissioner of Income Tax Circle-1(1)(1), Bangalore V. M/s Ambuthirtha Power Pvt Ltd , Bangalore

ITA 855/BANG/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7731 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 20-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P V PRADEEP KUMAR; CI; ARUN KUMAR DIT I
• Keywords: Earning of tax free income; Capital receipt
• Section: 14A; 10

Judgement Text

ITA.537 & 855/BANG/2018 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER 1. I.T.A NO.855/BANG/2018 (ASSESSMENT YEAR : 2013-14) 2. I.T.A NO.537/BANG/2018 (ASSESSMENT YEAR : 2014-15) 1. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 1(1)(1), BENGALURU 2. INCOME TAX OFFICER, WARD -1(1)(2), BENGALURU .. APPELLANTS V. M/S. AMBUTHIRTHA POWER P. LTD, NO.37, 1 ST FLOOR, RMJ MANDOTH TOWERS, 2 ND CROSS, VASANTHA NAGAR, BENGALURU 560 052 .. RESPON DENT PAN : AACCA9267G ASSESSEE BY : SHRI. SANDEEP, CA REVENUE BY : SHRI. ARUN KUMAR, DIT (I & CI) & DR. P. V. PRADEEP KUMAR, ADDL. CIT HEARD ON : 02.07.2018 PRONOUNCED ON : 06.07.2018 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THESE ARE APPEALS FILED BY THE REVENUE AGAINST THE SEPARATE ORDERS OF THE CIT (A)-I, BENGALURU, DT.23.01.2018 AND 29.12.2017, FOR THE ASSESSMENT YEARS 2013-14 AND 2014-15, RESPE CTIVELY. ITA.537 & 855/BANG/2018 PAGE - 2 THE EFFECTIVE GROUNDS FOR AY 2013-14 ARE AS UNDER : THE EFFECTIVE GROUNDS FOR AY 2014-15 ARE AS UNDER : 02. GROUND NO.2 OF AY 2013-14 PERTAINS TO THE DELET ION OF THE ADDITION OF RS.6,35,04,451/- IN RESPECT OF SALE OF CARBON CREDITS BY TREATING IT AS CAPITAL RECEIPT. FOR THAT PURPOSES, THE LD. DR RELIES UPON THE ORDER OF ASSESSEE OFFICER. 03. ON THE OTHER HAND THE ASSESSEE RELIES UPON THE ORDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN ITA.243/BAN G/2016, DT.07.07.2017, IN ASSESSEES OWN CASE FOR THE AY 20 12-13, WHEREIN THE TRIBUNAL IN PARA 6 HELD AS UNDER : 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FOR T HE SAKE OF READY REFERENCE, WE REPRODUCE PARA 5.4.2 & 6 OF THE TRIBUNAL ORDER RENDERED IN ASSESSEES OWN CASE FOR A.Y. 2009-10. THE SAME READ AS UNDER : ITA.537 & 855/BANG/2018 PAGE - 3 5.4.2. FOLLOWING THE AFORESAID DECISION OF THE CHE NNAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. AMBIKA CO TTON MILLS LTD V. DCIT, WE HOLD THAT THE SALE OF CARBON CREDITS IS TO BE CONSIDERED AS CAPITAL RECEIPT AND THAT THE LD . CIT (A) ERRED IN CONFIRMING THE ADDITION MADE BY THE AO, HO LDING THAT THE CONSIDERATION RECEIVED ON SALE OF THE CARB ON CREDITS AMOUNTING TO RS.4,87,32,342/- BY THE ASSESSEE GIVES RISE TO REVENUE RECEIPT. CONSEQUENTLY, WE ALLOW THE ASSESS EES GROUND RAISED AT SL.NO.3. 6. IN VIEW OF THE ASSESSEES GRIEVANCE, IN RESPECT OF THE EXIGIBILITY TO TAX OF THE RECEIPTS ON SALE OF CARBO N CREDITS AMOUNTING TO RS.4,87,32,342/- BEING ADDRESSED IN VI EW OF OUR FINDING THAT THE SAME IS TO BE CONSIDERED AS CA PITAL RECEIPT, THERE IS NO REQUIREMENT FOR US TO ADJUDICA TE ON THE GROUND RAISED AT SL.NO.2 REGARDING THE ASSESSEES C LAIM FOR DEDUCTION OF THE SAME U/S.80IA OF THE IT ACT, 1961. SINCE NO DIFFERENCE IN FACTS OR IN LAW COULD BE POI NTED OUT BY THE LD. DR OF THE REVENUE IN THE PRESENT YEAR, WE F IND NO REASON TO TAKE A CONTRARY VIEW IN THE PRESENT YEAR AND THEREFORE, BY RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER, WE DECLINE TO INTERFERE IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. SINCE IS NO DIFFERENCE IN FACTS OR IN LAW COULD BE POINTED OUT BY THE LD. DR IN THE PRESENT YEAR, WE HAVE NO REASON TO TA KE A CONTRARY VIEW FOLLOWING THE DECISION OF THE COORDINATE BENCH (SUPRA). WE DISMISS THIS GROUND OF THE REVENUE FOR AY.2013-14. 04. NOW WE SHALL DEAL WITH GROUND 3 OF AY 2013-14 A ND GROUND 2 OF AY 2014-15 WHICH ARE COMMON. 05. IN THIS REGARD THE LD. AR HAS SUBMITTED THAT DU RING THESE TWO YEARS THE ASSESSEE HAS NOT RECEIVED ANY DIVIDEND IN COME AND THEREFORE THE ADDITION MADE BY THE AO BY INVOKING R ULE 8D R.W.S. 14A IS WITHOUT ANY BASIS. THE CIT (A) IN THE APPEL LATE ORDER HAS ITA.537 & 855/BANG/2018 PAGE - 4 ELABORATELY DISCUSSED THIS ISSUE AND HAS BROUGHT ON RECORD THAT NO INCOME WAS EARNED BY THE ASSESSEE DURING THESE YEAR S AND THEREFORE HAS DELETED THE ADDITION MADE BY THE AO. 06. ON THE OTHER HAND THE LD. DR RELIES UPON THE OR DER PASSED BY THE AO. 07. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL. AS PER THE FINANCIAL STATEMENT FOR THE AYS.2013-14 AND 2014-15, THE ASSESSEE HAS NOT RECEIVED ANY DIVIDEND INCOME O R TAX-FREE INCOME DURING THESE YEARS ON ACCOUNT OF THE INVESTM ENT MADE BY THE ASSESSEE. THIS FACT WAS NOT DISPUTED BY THE LD . DR. THEREFORE IN OUR VIEW, THE ISSUE IS HELD IN FAVOUR OF THE ASS ESSEE. IN SIMILAR CIRCUMSTANCES THE HONBLE DELHI HIGH COURT IN CHEM INVESTMENT [2015] 61 TAXMANN.COM 118 (DELHI) HAS HELD AS UNDER : 15. TURNING TO THE CENTRAL QUESTION THAT ARISES FOR CO NSIDERATION, THE COURT FINDS THAT THE COMPLETE ANSWER IS PROVIDED BY THE DECISION OF THIS COURT IN CIT V. HOLCIM INDIA (P.) LTD. [2015] 57 TAXMANN.COM 28 . IN THAT CASE A SIMILAR QUESTION AROSE, VIZ., WHET HER THE ITAT WAS JUSTIFIED IN DELETING THE DISALLOWANCE UNDER SECTIO N 14A OF THE ACT WHEN NO DIVIDEND INCOME HAD BEEN EARNED BY THE ASSE SSEE IN THE RELEVANT AY? THE COURT REFERRED TO THE DECISION OF THIS COURT IN MAXOPP INVESTMENT LTD'S. CASE (SUPRA) AND TO THE DECISION OF THE SPECIAL BENCH OF THE ITAT IN THIS VERY CASE I.E. CH EMINVEST LTD. V. ITO [2009] 121 ITD 318 . THE COURT ALSO REFERRED TO THREE DECISIONS OF DIFFERENT HIGH COURTS WHICH HAVE DECID ED THE ISSUE AGAINST REVENUE. THE FIRST WAS THE DECISION IN CIT V. LAKHANI MARKETING INC . [2014] 226 TAXMAN 45/49 TAXMANN.COM 257 OF THE HIGH COURT OF PUNJAB AND HARYANA WHICH IN TURN REFE RRED TO TWO EARLIER DECISIONS OF THE SAME COURT IN CIT V. HERO CYCLES LTD. [2010] 323 ITR 518/189 TAXMAN 50 AND CIT V. WINSOME TEXTILE INDUSTRIES LTD . [2009] 319 ITR 204 . THE SECOND WAS OF THE GUJARAT HIGH COURT IN CIT V. CORRTECH ENERGY (P.) L TD. [2014] 223 TAXMAN 130/45 TAXMANN.COM 116 AND THE THIRD OF THE ALLAHABAD HIGH COURT IN CIT V. SHIVAM MOTORS (P.) LTD . [2015] 230 TAXMAN ITA.537 & 855/BANG/2018 PAGE - 5 63/55 TAXMANN.COM 262 . THESE THREE DECISIONS REITERATED THE POSITION THAT WHEN AN ASSESSEE HAD NOT EARNED ANY TAXABLE INCOME IN THE RELEVANT AY IN QUESTION 'CORR ESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANC E.' 16. IN HOLCIM INDIA (P.) LTD'S. CASE (SUPRA), THE COUR T FURTHER EXPLAINED AS UNDER: '15. INCOME EXEMPT UNDER SECTION 10 IN A PARTICULAR ASSESSMENT YEAR, MAY NOT HAVE BEEN EXEMPTEARLIER AND CAN BECOM E TAXABLE IN FUTURE YEARS. FURTHER, WHETHER INCOME EARNED IN A S UBSEQUENT YEAR WOULD OR WOULD NOT BE TAXABLE, MAY DEPEND UPON THE NATURE OF TRANSACTION ENTERED INTO IN THE SUBSEQUENT ASSESSME NT YEAR. FOR EXAMPLE, LONG TERM CAPITAL GAIN ON SALE OF SHARES I S PRESENTLY NOT TAXABLE WHERE SECURITY TRANSACTION TAX HAS BEEN PAI D, BUT A PRIVATE SALE OF SHARES IN AN OFF MARKET TRANSACTION ATTRACT S CAPITAL GAINS TAX. IT IS AN UNDISPUTED POSITION THAT RESPONDENT A SSESSEE IS AN INVESTMENT COMPANY AND HAD INVESTED BY PURCHASING A SUBSTANTIAL NUMBER OF SHARES AND THEREBY SECURING RIGHT TO MANA GEMENT. POSSIBILITY OF SALE OF SHARES BY PRIVATE PLACEMENT ETC. CANNOT BE RULED OUT AND IS NOT AN IMPROBABILITY. DIVIDEND MAY OR MAY NOT BE DECLARED. DIVIDEND IS DECLARED BY THE COMPANY AND S TRICTLY IN LEGAL SENSE, A SHAREHOLDER HAS NO CONTROL AND CANNOT INSI ST ON PAYMENT OF DIVIDEND. WHEN DECLARED, IT IS SUBJECTED TO DIVIDEN D DISTRIBUTION TAX.' 17. ON FACTS, IT WAS NOTICED IN HOLCIM INDIA (P.) LTD' S. CASE (SUPRA) THAT THE REVENUE HAD ACCEPTED THE GENUINENESS OF TH E EXPENDITURE INCURRED BY THE ASSESSEE IN THAT CASE AND THAT EXPE NDITURE HAD BEEN INCURRED TO PROTECT INVESTMENT MADE. 18. IN THE PRESENT CASE, THE FACTUAL POSITION THAT HAS NOT BEEN DISPUTED IS THAT THE INVESTMENT BY THE ASSESSEE IN THE SHARES OF MAX INDIA LTD. IS IN THE FORM OF A STRATEGIC INVESTMENT . SINCE THE BUSINESS OF THE ASSESSEE IS OF HOLDING INVESTMENTS, THE INTE REST EXPENDITURE MUST BE HELD TO HAVE BEEN INCURRED FOR HOLDING AND MAINTAINING SUCH INVESTMENT. THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE IS IN RELATION TO SUCH INVESTMENTS WHICH GIVES RISE TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. 19. IN LIGHT OF THE CLEAR EXPOSITION OF THE LAW IN HOL CIM INDIA (P.) LTD'S. CASE (SUPRA) AND IN VIEW OF THE ADMITTED FAC TUAL POSITION IN THIS CASE THAT THE ASSESSEE HAS MADE STRATEGIC INVE STMENT IN SHARES OF MAX INDIA LTD.; THAT NO EXEMPTED INCOME WAS EARN ED BY THE ASSESSEE IN THE RELEVANT AY AND SINCE THE GENUINENE SS OF THE ITA.537 & 855/BANG/2018 PAGE - 6 EXPENDITURE INCURRED BY THE ASSESSEE IS NOT IN DOUB T, THE QUESTION FRAMED IS REQUIRED TO BE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 20. SINCE THE SPECIAL BENCH HAS RELIED UPON THE DECISI ON OF THE SUPREME COURT IN RAJENDRA PRASAD MOODY'S CASE (SUPR A), IT IS CONSIDERED NECESSARY TO DISCUSS THE TRUE PURPORT OF THE SAID DECISION. IT IS NOTICED TO BEGIN WITH THAT THE ISSU E BEFORE THE SUPREME COURT IN THE SAID CASE WAS WHETHER THE EXPE NDITURE UNDER SECTION 57(III) OF THE ACT COULD BE ALLOWED AS A DE DUCTION AGAINST DIVIDEND INCOME ASSESSABLE UNDER THE HEAD 'INCOME F ROM OTHER SOURCES'. UNDER SECTION 57(III) OF THE ACT DEDUCTIO N IS ALLOWED IN RESPECT OF ANY EXPENDITURE LAID OUT OR EXPENDED WHO LLY OR EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SU CH INCOME. THE SUPREME COURT EXPLAINED THAT THE EXPRESSION 'INCURR ED FOR MAKING OR EARNING SUCH INCOME', DID NOT MEAN THAT ANY INCO ME SHOULD IN FACT HAVE BEEN EARNED AS A CONDITION PRECEDENT FOR CLAIMING THE EXPENDITURE. THE COURT EXPLAINED: 'WHAT S. 57(III) REQUIRES IS THAT THE EXPENDITURE M UST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. IT IS THE PURPOSE OF THE EXPENDITUR E THAT IS RELEVANT IN DETERMINING THE APPLICABILITY OF S. 57(III) AND THAT PURPOSE MUST BE MAKING OR EARNING OF INCOME. S. 57(III) DOES NOT REQUIRE THAT THIS PURPOSE MUST BE FULFILLED IN ORDER TO QUALIFY THE E XPENDITURE FOR DEDUCTION. IT DOES NOT SAY THAT THE EXPENDITURE SHA LL BE DEDUCTIBLE ONLY IF ANY INCOME IS MADE OR EARNED. THERE IS IN F ACT NOTHING IN THE LANGUAGE OF S. 57(III) TO SUGGEST THAT THE PURPOSE FOR WHICH THE EXPENDITURE IS MADE SHOULD FRUCTIFY INTO ANY BENEFI T BY WAY OF RETURN IN THE SHAPE OF INCOME. THE PLAIN NATURAL CO NSTRUCTION OF THE LANGUAGE OF S. 57(III) IRRESISTIBLY LEADS TO THE CO NCLUSION THAT TO BRING A CASE WITHIN THE SECTION, IT IS NOT NECESSAR Y THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RES ULT OF THE EXPENDITURE.' 21. THERE IS MERIT IN THE CONTENTION OF MR. VOHRA THAT THE DECISION OF THE SUPREME COURT IN RAJENDRA PRASAD MOODY'S CAS E (SUPRA) WAS RENDERED IN THE CONTEXT OF ALLOWABILITY OF DEDU CTION UNDER SECTION 57(III) OF THE ACT, WHERE THE EXPRESSION US ED IS 'FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME'. SECTION 14A OF THE ACT ON THE OTHER HAND CONTAINS THE EXPRESSION 'IN RELAT ION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME.' THE DECISION IN RAJENDRA PRASAD MOODY'S CASE (SUPRA) CA NNOT BE USED IN THE REVERSE TO CONTEND THAT EVEN IF NO INCOME HA S BEEN RECEIVED, ITA.537 & 855/BANG/2018 PAGE - 7 THE EXPENDITURE INCURRED CAN BE DISALLOWED UNDER SE CTION 14A OF THE ACT. 22. IN THE IMPUGNED ORDER, THE ITAT HAS REFERRED TO TH E DECISION IN MAXOPP INVESTMENT LTD'S. CASE (SUPRA) AND REMAND ED THE MATTER TO THE AO FOR RECONSIDERATION OF THE ISSUE AFRESH. THE ISSUE IN MAXOPP INVESTMENT LTD'S. CASE (SUPRA) WAS WHETHE R THE EXPENDITURE (INCLUDING INTEREST ON BORROWED FUNDS) IN RESPECT OF INVESTMENT IN SHARES OF OPERATING COMPANIES FOR ACQ UIRING AND RETAINING A CONTROLLING INTEREST THEREIN WAS DISALL OWABLE UNDER SECTION 14A OF THE ACT. IN THE SAID CASE ADMITTEDLY THERE WAS DIVIDEND EARNED ON SUCH INVESTMENT. IN OTHER WORDS, IT WAS NOT A CASE, AS THE PRESENT, WHERE NO EXEMPT INCOME WAS EA RNED IN THE YEAR IN QUESTION. CONSEQUENTLY, THE SAID DECISION W AS NOT RELEVANT AND DID NOT APPLY IN THE CONTEXT OF THE ISSUE PROJE CTED IN THE PRESENT CASE. 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREINBEFOR E THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT THE EXP RESSION 'DOES NOT FORM PART OF THE TOTAL INCOME' IN SECTION 14A O F THE ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, W HICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, SECTION 14A WILL N OT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING T HE RELEVANT PREVIOUS YEAR. FOLLOWING THE SAME, WE DECIDE THIS GROUND IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 08. THE THIRD GROUND FOR AY 2014-15 PERTAINS TO THE DELETION OF ADDITION OF RS.2,99,808/- ON ACCOUNT OF DELAYED PAY MENT OF EMPLOYEES PF AND ESI U/S.43B OF THE ACT. THE CIT (A) IN 3.2 OF HIS ORDER HAS OBSERVED AS UNDER : 3.2 HOWEVER, IT WAS REMITTED BEFORE FILING THE RET URN OF INCOME AND RETURN OF INCOME WAS FILED WITHIN DUE DA TE AS SPECIFIED IN SECTION 139(1) OF THE ACT. THE LEARNE D ASSESSING OFFICER HELD THAT SINCE THE EMPLOYEES CONTRIBUTION HAS NOT BEEN DEPOSITED WITHIN THE DUE DATE AS PER THE RESPECTIVE STATUTES ITA.537 & 855/BANG/2018 PAGE - 8 THEREFORE, THE SAME HAS TO BE ADDED AS INCOME U/S.2 (24)(X) R.W.S. 36(1)(VA) OF THE ACT. BEING AGGRIEVED THE ASSESSEE FILED THIS GROUND BEFO RE US. 09. IN THIS REGARD, WE NOTICE THAT THIS ISSUE IS AL SO COVERED IN FAVOUR OF THE ASSESSEE FOR THE EARLIER YEARS. WE F IND NO DISCREPANCY IN THE ORDER OF THE CIT (A), AS THE PAYMENTS WERE M ADE PRIOR TO FILLING OF THE RETURN OF INCOME. IN VIEW OF THE A BOVE THE GROUND FILED BY THE REVENUE IN BOTH THE APPEALS ARE LIABLE TO BE DISMISSED. 10. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH DAY OF JULY, 2018. SD/- SD/- (INTURI RAMA RAO) (LALIET KU MAR) ACCOUNTANT MEMBER JUDICIAL MEMBER BENGALURU DATED : 06.07.2018 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.