Dy. Commissioner of Income Tax , Circle-2(2), Hyderabad V. GVK Energy Limited , Hyderabad

ITA 925/Hyd/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 8042 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2021
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 16-02-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 31-05-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 139(1); 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER IT A NO. 925 /H/20 1 9 ASSESSMENT YEAR: 20 15 - 16 DY. COMMISSIONER OF INCOME - TAX, CIRCLE 2(2), HYDERABAD. VS. GVK ENERGY LTD., HYDERABAD. PAN AADCG 2348H (APPELLANT) (RESPONDENT) REVENUE BY: SHRI ROHIT MUJUMDAR ASSESSEE BY: NONE DATE OF HEARING: 16 /0 2 /2021 DATE OF PRONOUNCEMENT: 25 /0 3 /2021 O R D E R PER L . P. SAHU, AM : T H IS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT( A ) - 2 , HYDERABAD FOR AY 2 0 15 - 16 INVOLVING PROCEEDINGS U/S 143(3) OF THE INCOME - TAX ACT, 1961 (IN SHORT THE ACT) ON THE FOLLOWING GROUNDS OF APPEAL: I TA NO . 925 /HYD/ 1 9 GVK ENERGY LTD., HYDERABAD. : - 2 - : 1. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN 9,21,61,517/ - LAW, THE CIT (A) IS CORRECT IN DELETING THE ADDITIONS MADE BY THE A.Q IN ACCORDANCE WITH THE EXPRES S PROVISIONS U/S.14A OF THE INCOME TAX ACT, 1961 AND CBOT CIRCULAR NO.5/2014 DATED L1002.2014?'' 2. 'WHETHER THE CIT (A) IS CORRECT IN RELATING THE DISALLOWANCES NIL TO EXEMPT INCOME EARNED DURING THE YEAR WHEN SEC.14A DOES NOT USE THE WORD 'INCOME OF TH E YEAR' BUT 'INCOME UNDER THE ACT' AND IN LIGHT OF THE CLARIFICATION ISSUED BY THE CBDT THAT RULE.8D R.W.S.14A PROVIDES FOR DISALLOWANCE OF EXPENDITURE WHERE THE TAXPAYER IN A PARTICULAR YEAR HAS NOT EARNED ANY EXEMPT INCOME ?' 3. 'WHETHER ON THE FACTS A ND CIRCUMSTANCES OF THE CASE AND IN NIL LAW, THE CLT(A) IS CORRECT IN LIMITING DISALLOWANCE ULS.14A R.W.R 8D(2)(II} ONLY ON THE AVERAGE INVESTMENT WHICH YIELDED DIVIDEND INCOME AND NOT ON THE AVERAGE OF THE ENTIRE INVESTMENT BY IGNORING THAT SUBSTITUTED RU LE.8(D)(2)(II} AND ERSTWHILE RULE.8D(2) (III) ENVISAGES DISALLOWANCE ON AVERAGE OF INVESTMENT AND INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME AND ALSO IGNORING THE ORDER OF THE HON'BLE ITAT ORDER IN THE CASE OF MIS. BELLWETHER MICRO F INANCE FUND VS. ITO ON WHICH HE HAS PLACED RELIANCE?' 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A LIMITED COMPANY, FILED ITS RETURN OF INCOME FOR THE AY 2015 - 16 ON 30/09/2015 ELECTRONICALLY U/S 139(1) OF THE ACT DECLARING A TOTAL LOSS OF RS. 35,81,00,299/ - . SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE ISSUED, I TA NO . 925 /HYD/ 1 9 GVK ENERGY LTD., HYDERABAD. : - 3 - : AGAINST WHICH, THE LD. AR OF THE ASSESSEE FILED THE REQUIRED INFORMATION A S CALLED FOR. 2.1 DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAD SHOWN 'LONG TERM BORROWINGS' AT RS. 878,23,00,000/ - AND 'SHORT TERM BORROWINGS' AT RS. 107,76,00,000/ - IN THE BALANCE SHEET AS ON 31 - 03 - 2015. HE NOTICED TH AT THE ASSESSEE COMPANY HAD DEBITED AN AMOUNT OF RS.48,26,00,000/ - AS 'FINANCE COST' TO THE PROFIT AND LOSS ACCOUNT, ON SUCH BORROWINGS. FURTHER, HE OBSERVED THAT THE ASSESSEE COMPANY HA D MADE NON - CURRENT INVESTMENTS TO THE TUNE OF RS.2939,82,00,000/ - AND CURRENT INVESTMENTS TO THE EXTENT OF RS.9,86,00,000/ - OUT OF THE ABOVE BORROWED FUNDS. THEREFORE, THE AO ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE DISALLOWANCE U/S 14A RWR 8 D SHOULD NOT BE MADE IN THIS CASE. THE AR OF THE ASSESSEE COMPANY VIDE ITS LE TTER DATED 03 - 11 - 2017 SUBMITTED THAT FOR THE PURPOSE OF DISALLOWANCE U/S 14A RWR 8 D , THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME WHICH IS NOT FORMING PART OF THE TOTAL INCOME AND THE DISALLOWANCE IS NOT APPLICABLE IF NO EXEMPT INCOME IS EARNED. THE ASSESSE E I TA NO . 925 /HYD/ 1 9 GVK ENERGY LTD., HYDERABAD. : - 4 - : FURTHER STATED THAT IN THE INSTANT CASE, SINCE THE ASSESSEE COMPANY HAS NOT EARNED ANY EXEMPT INCOME, THE PROVISIONS U/S 14A OF THE ACT ARE NOT APPLICABLE. IN SUPPORT OF HIS CLAIM, THE AR OF THE ASSESSEE ALSO RELIED ON VARIOUS CASE LAWS SOME OF WHICH ARE GIVEN AS UNDER: I) CHEMINVEST LIMITED VS CIT (ITA 749/DE L.( 2014) II) CIT VS HOLCIM INDIA PVT LTD (2014) 90 CCH 081 (DEL HC) III) ACIT VS VIREET INVESTMENTS PVT LTD . (ITA 502/0ELL20 12) FURTHER, THE AR OF THE ASSESSEE SUBMITTED THAT THE CO MPANY HA D ALREADY DISALLOWED A SUM OF RS.2,80,900/ - U/S 14A OF THE ACT AND THE OTHER EXPENDITURE CLAIMED BY THE COMPANY CORRESPONDS TO THE BUSINESS OPERATIONS THAT WAS INCURRED FOR THE PURPOSE OF THE BUSINESS. ACCORDINGLY, THE AR REQUESTED THAT NO ADDITION DISALLOWANCE U/S L4A SHOULD BE MADE IN THIS CASE CONSIDERING THE ASSESSEE COMPANY HAS NOT EARNED ANY EXEMPT INCOME. 2.2 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE AO REFERRING TO THE CBDT CIRCLER NO. 05/2014, DATED 11/02/2014, COMPUTED THE D ISALLOWANCE U/S 14A RWR 8D(II) I TA NO . 925 /HYD/ 1 9 GVK ENERGY LTD., HYDERABAD. : - 5 - : AT RS. 27,11,43,034/ - BY HOLDING THAT SINCE THE ASSESSEE HAD INVESTMENTS DURING THE YEAR THE DISALLOWANCE U/S 14A AS PER THE AMENDED RULE 8D , HAS TO BE MADE. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED AN APP EAL BEFORE THE CIT(A), WHO HAS DELETED THE DISALLOWANCE BY RELYING ON THE DECISION OF THE ITAT, HYDERABAD IN THE CASE OF DCIT VS. MAHESHWARI MEGA VENTURES LTD., ITA NO. 367/HYD/2013, DATED 03/02/2017 OBSERVING THAT THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME DURING YEAR ON SUCH INVESTMENTS, THEREFORE, NO DISALLOWANCE IS WARRANTED IN THE CASE OF THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE THE ITAT. 5. AT THE TIME OF HEARING, NONE APPEARED ON BEHALF OF RESPONDE NT - ASSESSEE, THEREFORE, WE DISPOSE OF THIS APPEAL AFTER HEARING LD. CIT - DR AND PERUSING THE MATERIAL AVAILABLE ON RECORD. 6. IT IS SETTLED POSITION OF LAW THAT THE PROVISIONS OF SECTION 14A CAN BE APPLIED TO QUANTIFY THE EXPENSES IN RELATION TO EXEMPT INC OME. THE RULE 8D CAN BE APPLIED ONLY I TA NO . 925 /HYD/ 1 9 GVK ENERGY LTD., HYDERABAD. : - 6 - : WHEN THERE IS DIFFICULTY IN FINDING THE EXPENDITURE RELATING TO EXEMPT INCOME. IN THE CASE UNDER CONSIDERATION, WE FIND DURING THE COURSE OF HEARING THAT THE ASSESSEE HAS NOT DERIVED ANY EXEMPT INCOME IN THE RELEVANT PREVIOUS YEAR SO AS TO ATTRACT SECTION 14A RWR 8D AS PER CASE LAW CHEMINVEST LTD., REPORTED IN (2015) 378 ITR 33 (DEL.) , CHETTINAD LOGISTICS PRIVATE LIMITED [2017] (4) TMI 298 - MADRAS AND CIT VS. CORRTECK ENGINEERING PVT. LTD . 372 ITR 97 (GUJRAT). IT IS HOWEVER MADE CLEAR THAT THE LEARNED ASSESSING OFFICER SHALL BE AT LIBERTY TO EXAMIN E THE ASSESSEES FINANCIALS ALONG WITH SOURCE OF INVESTMENTS IN THE YEAR IN WHICH THEY YIELD EXEMPT INCOME. 7. IN THE RESULT, APPEAL OF THE REVENUE IS ALL OWED FOR STATISTICAL PURPOSES . PRONOUNCED IN THE OPEN COURT ON 25 TH MARCH , 2021 . SD/ - SD/ - ( S.S. GODARA ) (L . P . SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDE RABAD, DATED : 25 TH MARCH , 20 2 1 . KV I TA NO . 925 /HYD/ 1 9 GVK ENERGY LTD., HYDERABAD. : - 7 - : C OPY TO : 1 DCIT, CIRCLE 2(2), ROOM NO. 513, 5 TH FLOOR, SIGNATURE TOWERS, OPP. BOTANICAL GARDENS, KONDAPUR, HYDERABAD 500 084 2 GVK ENERGY LTD., 156 - 159, PAIGAH, SP ROAD, SECUNDERABAD 500 003 3 C I T( A ) - 2 , HYDERABAD. 4 PR. C IT 2, HYDERABAD 5 ITAT, DR, HYDERABAD. 6 GUARD FILE.