DCIT 14(3)(1), MUMBAI V. RELIANCE INFRASTRUCTURE LTD, NAVI MUMBAI

ITA 945/MUM/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 7813 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 10-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A MOHAN
• Keywords: Depreciation; Earning of tax free income; Proportionate interest; Cost of acquisition; Revised return; Capital expenditure
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN , JM ITA NO. 945 / MUM/20 1 7 ( ASSESSMENT YEAR : 2012 - 13 ) DCIT 14(3)(1) 455, AAYAKAR BHAVAN 4 TH FLOOR,M.K. MARG MUMBAI - 400020 VS. M/S. RELIA NCE INFRASTRUCTURE LTD., H BLOCK, 1 ST FLOOR DAKC, KOPERKHAIRANE NAVI MUMBAI 400 710 PAN/GIR NO. AACCR7446Q ( APPELLANT ) .. ( RESPONDENT ) ITA NO. 793 /MUM/20 17 ( ASSESSMENT YEAR : 2012 - 13 ) M/S. RELIA NCE INFRASTRUCTURE LTD., H BLOCK, 1 ST FLOOR DAKC, KOPERKHAIR ANE NAVI MUMBAI 400 710 VS. DCIT 14(3)(1) 455, AAYAKAR BHAVAN 4 TH FLOOR,M.K. MARG MUMBAI - 400020 PAN/GIR NO. AACCR7446Q ( APPELLANT ) .. ( RESPONDENT ) REVENUE BY SHRI A. MOHAN ASSESSEE BY SHRI JITENDRA SANGHVI DATE OF HEARING 30/11 /201 8 DA TE OF PRONOUNCEMENT 27 / 12 /201 8 / O R D E R PER R.C.SHARMA (A.M) : ITA NO. 945/MUM/2017 & 793/MUM/2017 M/S. RELIANCE INFRASTRUCTURE LTD., 2 THESE ARE CROSS APPEALS FILED BY ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A) - 22, MUMBAI DATED 10/11/2016 FOR A.Y.2012 - 13 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. 2. GROUNDS TAKEN BY REVENUE REA DS AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE ON ACCOUNT OF REPLACEMENT OF ELECTRICITY METERS, EVEN THOUGH THE IMPUGNED EXPENDITURE IS INHERENTLY CAPITAL IN CHAR ACTER AS IHE INSTALLATION AND REPLACEMENT OF THE ELECTRICITY METERS GIVEN TO THE END CONSUMERS IS CAPITAL INVESTMENT AND THE METER DEPOSITS RECEIVED AGAINST THE SAME IS SHOWN AS CAPITAL ADVANCES BY THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE PROPORTIONATE APPORTIONMENT OF HEAD OFFICE EXPENSES AND ALLOCATION OF THE HEAD OFFICE EXPENSES TO GOA UNIT, SAMALKOT UNIT AND WINDMILL UNIT OF THE ASSESSEE, WHILE COMPUTING THE ELIGIBLE PROFITS FO R DEDUCTION U/S 80IA OF THE RESPECTIVE UNITS, BY THE ASSESSING OFFICER. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DIRECTING THE AO TO EXCLUDE THE INVESTMENTS MADE IN SUBSIDIARY COMPANIES BY THE ASSESSEE WHIL E WORKING OUT 0.5% OF THE AVERAGE INVESTMENTS SO AS TO CALCULATE THE DISALLOWANCE U/S 14A RWR 8D OF THE IT ACT EVEN THOUGH THE ASSESSEE HAS RECEIVED EXEMPT INCOME FROM THE INVESTMENTS MADE IN SUBSIDIARY COMPANIES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN CONCLUDING THAT THE PROVISIONS OF SECTION 115JB AND THE MAT LIABILITY THEREOF IS NOT APPLICABLE TO THE ASSESSEE AS THE ASSESSEE IS AN ELECTRIC / POWER GENERATING AND DISTRIBUTING COMPANY THOUGH PROVISIONS OF SECTION 115JB OF THE IT ACT IS SQUARELY APPLICABLE TO ALL THE COMPANIES BEING ASSESSED TO TAX IN INDIA. 5. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE APPEAL BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORE D. 6. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS GROUND WHICH MAY BE DEEMED NECESSARY. 3 . GROUNDS TAKEN BY ASSESSEE READS AS UNDER: - ITA NO. 945/MUM/2017 & 793/MUM/2017 M/S. RELIANCE INFRASTRUCTURE LTD., 3 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 22, MUMBAI [HEREINAFTER REFERRED TO AS CIT(A)] ERRED IN CONSIDERING ALL I NVESTMENTS (EXCLUDING INVESTMENT IN SUBSIDIARIES) CAPABLE OF EARNING TAX FREE INCOME WHETHER THEY HAVE YIELDED TAX FREE INCOME OR NOT DURING THE YEAR FOR COMPUTATION OF DISALLOWANCE U/S. 14A READ WITH RULE 8D. YOUR APPELLANT SUBMITS THAT ONLY THOSE INVEST MENTS (EXCLUDING INVESTMENT IN SUBSIDIARIES) WHICH HAD ACTUALLY YIELDED TAX FREE INCOME DURING THE YEAR OUGHT TO HAVE BEEN CONSIDERED WHILE WORKING OUT DISALLOWANCE U/S.14A R. W. RULE 8D. 2. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, AMEND OR VARY ALL O R ANY OF THE ABOVE GROUNDS OF APPEAL AS IT MAY THINK FIT. 4 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 5 . THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS ENGAGED IN GENERATION AND DISTRIBUTION OF POWER AND CONTRACT WORK. D URING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD CAPITALISED IN ITS BOOKS OF ACCOUNT THE COST OF 55935 METERS AMOUNTING TO RS. 8,49,37,890/ - OUT OF WHICH RS.4,00,36,015/ - PERTAINED TO REPLACEMENT OF 27608 METERS. THESE EXPENSES WERE NOT DEBITED TO THE PROFIT & LOSS ACCOUN T. THE ASSESSEE HAD CLAIMED THE COST OF RS.4,00,36,015/ - ON REPLACEMENT OF OLD METERS AS DEDUCTION IN ITS COMPUTATION OF INCOME. IN THIS REGARD, EXPLANATION WAS CALLED FOR BY AO FROM THE ASSESSEE COMPANY AS TO WHY THE SAID CLAIM OF REPLACEMENT OF METERS SH OULD NOT BE TREATED AS CAPITAL EXPENDITURE. VIDE ITS LETTER DATED 28.01.2015, THE ASSESSEE COMPANY MADE SUBMISSIONS BEFORE THE A.O. WHICH HAVE BEEN REPRODUCED AT PAGES 11 TO 13 OF THE ASSESSMENT ORDER. THE SUBMISSIONS MADE BY THE ASSESSEE CO MPANY WERE CONS IDERED BY THE A.O . BUT WERE NOT FOUND ACCEPTABLE. THE A.O. MADE ITA NO. 945/MUM/2017 & 793/MUM/2017 M/S. RELIANCE INFRASTRUCTURE LTD., 4 OBSERVATI ONS AT PARAS 6.2 TO 6.9 OF THE ASSESSMENT ORDER AND HELD THAT THE EXPENDITU RE TOWARDS REPLACEMENT OF MATERS WAS CAPITAL EXPENDITURE IN NATURE AND DISALLOWED THE ASSESSEE 'S CLAIM FOR DEDUCTION OF RS. 4,00,36,015/ - . HOWEVER, DEPRECIATION OF RS.45,04,052/ - WAS ALLOWED THEREON AND THE NET DISALLOWANCE OF RS.3,55,31,963/ - WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. BY THE IMPUGNED ORDER THE CIT(A) HA D ALLOWED ASSESSEES CLAIM, AGAINST WHICH REVENUE IS IN FURTHER APPEAL BEFORE US. 6 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE DISALLOWANCE MADE ON ACCOUNT OF REPLACEMENT OF METERS HAS BEEN CON SISTENTLY ALLOWED BY THE ITAT AND THE HONBLE BOMBAY HIGH COURT IN ASSESSEES OWN CASE IN ASSESSEES FAVOUR. THE CIT(A) AFTER RELYING ON THESE DECISIONS OF THE TRIBUNAL AND THE HIGH COURT HAVE DELETED THE DISALLOWANCE. PRECISE FINDING OF CIT(A) WAS AS UNDE R: - I HAVE CONSIDERED THE FACTS OF THE CAS E AND THE APPELLANTS SUBMISSIONS. IT IS SEEN THAT MY ID. PREDECESSORS AND THE HON'BLE IT AT HAD DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT IN TH E EARLIER YEARS AS DETAILED ABOVE IN THE HON'BLE BOMBAY HIGH COU RT HAS NOT SUBMITTED THE DEPARTMENTS APPEALS IN RESPECT OF EXPENDITURE ON REPLACEMENT OF METERS. FAC TS AND CIRCUMSTANCES BEING THE SAME AS THAT OF EARLIER YEARS, RESPECTFULLY FOLLOWING TH E DECISION OF MY LD. PREDECESORS AND THE HON'BLE ITAT, THE DISALLOW ANCE MADE BY THE DELETED. THE APPELLANT'S GROUND OF APPEAL IS ALLO WED. 7 . RESPECTFULLY FOLLOWING THE ORDER OF HIGH COURT AND THE TRIBUNAL AS NARRATED BY THE CIT(A) IN ITS APPELLATE ORDER OF PAGE NO.5 & 6, WE DO NOT ITA NO. 945/MUM/2017 & 793/MUM/2017 M/S. RELIANCE INFRASTRUCTURE LTD., 5 FIND ANY REASON TO INTERFERE IN THE ORD ER OF CIT(A) FOR DELETING DISALLOWANCE ON ACCOUNT OF REPLACEMENT OF METERS. 8 . IN THE COURSE OF ASSESSMENT, AO HAS ALSO DISALLOWED HEAD OFFICE EXPENSES BY ALLOCATING THE SAME WHILE COMPUTING THE DEDUCTION U/S.80IA FOR GOA, SAMALKOT UNITS AND WINDMILL UNITS . THE BRIEF FACTS ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. CALLED FOR EXPL ANATION FROM THE ASSESSEE COMPA NY AS TO WHY THE HEAD OFFICE EXPENSES SHOULD NOT BE ALLOCATED AMONG THE VARIOUS UNITS TO ARRIVE AT THE CORRECT PROFITS DERIVED F ROM THE ELIGIBLE UNDERTAKINGS. THE A SSESSEE MA DE THE SUBMISSIONS WHICH WERE CONSIDERED BY AO . THE A.O. OBS ERVED THAT THE CLAIM OF DEDUCTION U/S. 80IA HAD BEEN LODGED BY THE ASSESSEE COMPANY WITHOUT APPORTIONING TH E HEAD OFFICE EXPENSES HAD BEEN INCURRED OR RUNNING AND ADMINISTRATION OF ALL THE UNITS/ACTIVITIES OF THE A SSESSEE COMPANY INCLUDIN G THE ACTIVITIES OF THE ELIGIBLE UNITS. AS PER SECTION 80IA(5), PROFITS OF THESE UNITS WERE TO BE COMPUTED AS IF THESE UNITS WERE THE ONLY SOURCE OF INCOME AND THEREFOR E, THE EXPENSES OF THE HEAD OFFICE, WHICH CONTROLLED THE BUSINESS OF THESE UNITS, MUST BE APPORTIONED TO ARRIVE AT THE CORRECT ELIGIBLE PROFITS. AO OBSERVED THAT THIS ISSUE HAD BEEN EXAMINED IN THE EARLIER ASSESSMENT YEARS AND APPORTIONMENT OF THE HEAD OF FICE EXPENSES HAD BEEN MADE CONSISTENTLY. THE APPEALS OF THE ASSESSEE COMPANY ON THE ISSUE HAD BEEN TREATED IN A MIXED MANNER BY THE APPELLATE AUTHORITIES. HOWEVER, IN THE ASSESSMENT Y EARS, WHEREIN RELIEF WAS ALLOWED TO THE A SSESSEE COMPANY, THE APPELLATE ITA NO. 945/MUM/2017 & 793/MUM/2017 M/S. RELIANCE INFRASTRUCTURE LTD., 6 DECISIONS HAD NOT BEEN ACCEPTED BY THE DEPARTMENT AND FURTHER APPEALS HAD BEEN FILED, BEFORE THE HIGHER APPELLATE AUTHORITIES, WHICH WERE STILL P ENDING. ACCORDINGLY, THE HEAD OFFICE EXPENSES TO THE EXTENT OF RS. 10,57,147/ - WERE ALLO CATED BY AO TO THE ABOVE THREE UNITS AND THE DEDUCTION U/S.80IA OF THE SAID UNITS STOOD REDUCED TO RS.60,02,10,795/ - TO THE EXTENT OF ALLOCATED EXPENSES AS AGAINST RS.66,13,29,596/ - CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME. 9 . BY THE IMPUGNED ORDER, T HE CIT(A) DELETED ADDI TION SO MADE BY THE AO AFTER FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE AS WELL AS THE ORDER OF THE BOMBAY HIGH COURT. PRECISE OBSERVATION OF CIT(A) WAS AS UNDER: - I HAVE CONSIDERED THE FACTS OF THE CASE AND THE APPELLANT'S SUBMISSIONS. I T IS SEEN THAT MY ID. PREDECESSORS AND THE HON'BLE ITAT HAD DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT IN THE EARLIER YEARS AS DETAILED ABOVE IN THE APPELLANT'S SUBMISSIONS. I ALSO FIND THAT THE HON'BLE BOMBAY HIGH COURT HAS NOT ADMITTED THE DEPARTMENT'S APPEALS IN RESPECT OF ALLOCATION OF HEAD OFFICE EXPENSES TO THE ELIGIBLE UNITS. FACTS AND CIRCUMSTANCES BEING THE SAME AS THAT OF THE EARLIER YEARS, RESPECTFULLY FOLLOWING THE DECISION OF MY ID. PREDECESSORS AND THE HON'BLE ITAT, THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF ALLOCATION OF HEAD OFFICE EXPENSES TO THE ELIGIBLE UNITS IS DELETED. THE APPELLANT'S GROUND OF APPEAL IS ALLOWED. 10 . WE HAD CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT ISSUE UNDER CONSIDERATION IS SQU ARELY COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES WON CASE IN THE A.Y.2004 - 05 TO 2009 - 10. WE ALSO FOUND THAT THE ORDER OF THE TRIBUNAL FOR THE A.Y.2006 - 07 AND 2008 - 09 ITA NO. 945/MUM/2017 & 793/MUM/2017 M/S. RELIANCE INFRASTRUCTURE LTD., 7 HAVE ALREADY BEEN UPHELD BY THE HONBLE HIGH COURT. RESPECTFULLY FOLLOWING THE SA ME, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). 1 1 . IN THE COURSE OF ASSESSMENT, AO HAS ALSO MADE ADDITION BY RECOMPUTING THE CAPITAL GAIN / LEASE ON REJECTION OF UNITS IN RELIANCE FIXED HORIZON FUND XVI SERIES. GROWTH AND THEREBY NOT REDUCING THE SHORT TERM CAPITAL GAIN AS RETURNED IN RESPECT THEREON BY RS.4,41,35,000/ - AND NOT COMPUTING THE LONG TERM CAPITAL LOSS AR ISING THEREON AT RS.79,04,381/ - 1 2 . T HE BRIEF FACTS ARE THAT THE A SSESSEE HAD OFFERED TO TAX SHORT TERM CAPITAL GAIN OF RS.31,99, 03,854 / - IN THE RETURN OF INCOME. THE ASSESSEE WAS ASKED TO GIVE A NOTE ON LOW CAPITAL GAINS, IN RESPONSE TO WHICH THE ASSESSEE COMPANY VIDE ITS LETTER DATED 02.02.2015 MADE THE SUBMISSIONS WHICH HAS BEEN REPRODUCED BY THE A.O. AT PAGES 22 TO 24 OF THE ASS ESSMENT O RDER S UBMISSIONS OF THE ASSESSEE COMPANY WERE CONSIDERED BY THE A.O. T HE A.O. OBSERVED THAT THE ASSESSEE HA D CL AIMED REDUCTION OF SHORT TERM CAPITAL GAIN T O THE EXTENT OF RS. 4,41,35,000/ - AND CA RR Y FORWARD OF LONG TERM CAPITAL LOSS OF RS.79,04,38 1 / - . THE ASSESSEE HAD MADE THE CLAIMS WITHOUT FILING OF REVISED RETURN OF INCOME. THE DECISION OF THE SUPREME COU RT IN THE CASE OF GOETZE INDIA LTD. ON THE SUBJECT OF CLAIMS WITHOUT FILING REVISED RETURN WAS AGAINST TH E ASSESSEE . FOLLOWING THE SAID DECI SION, THE CLAIM OF THE ASSESSEE WAS REJECTE D BY THE A.O 13 . BY THE IMPUGNED ORDER CIT(A) DELETED THE ADDITION AFTER OBSERVING AS UNDER: - ITA NO. 945/MUM/2017 & 793/MUM/2017 M/S. RELIANCE INFRASTRUCTURE LTD., 8 7.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE APPELLANT'S SUBMISSIONS. ADMITTEDLY, THE CLAIM FOR REDUCTION OF SH ORT TERM CAPITAL GAIN TO THE EXTENT OF RS. 4,41,35,000/ - AND CARRY FORWARD OF LONG TERM CAPITAL LOSS OF RS.79,04,381/ - WAS MADE DURING ASSESSMENT PROCEEDINGS ONLY AND NOT BY A REVISED RETURN OF INCOME. THE AO BY RELYING ON THE DECISION OF THE HON'BLE SUPRE ME COURT IN THE CASE OF GOETZE INDIA LTD. DID NOT CONSIDER THE APPELLANT'S CLAIM. HOWEVER, ON THE ISSUE OF JURISDICTION FOR CONSIDERING CLAIMS NOT MADE IN THE RETURN OF INCOME BY APPELLATE AUTHORITIES, THERE ARE VARIOUS JUDGEMENTS OF THE HON'BLE APEX COUR T AND ALSO OTHER COURTS HOLDING THAT AN ASSESSEE IS ENTITLED TO RAISE ADDITIONAL GROUNDS NOT MERELY IN TERMS OF LEGAL SUBMISSIONS, BUT ALSO ADDITIONAL CLAIMS WHICH WERE NOT MADE IN RETURN FILED BY IT AND THAT THE APPELLATE AUTHORITIES HAVE JURISDICTION TO ENTERTAIN THE SAME. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. PRUTHVI BROKERS & SHAREHOLDERS PVT. LTD, [2012] (23 TAXMANN.COM 23) HAD DISCUSSED SOME OF THESE JUDGEMENTS AT LENGTH AND HELD THAT THE APPELLATE AUTHORITIES HAVE JURISDICTION TO CONSIDER ADDITIONAL CLAIMS EVEN THOUGH NOT CLAIMED IN THE RETURN OF INCOME. IN V IEW OF THIS JUDGEMENT OF THE HON BLE JURISDICTIONAL HIGH COURT (SUPRA), THE APPELLANT S CLAIM FOR REDUCTION OF SHORT TERM CAPITAL GAIN TO THE EXTENT OF RS. 4,41,35,000/ - AN D CARRY FORWARD OF LONG TERM CAPITAL LOSS OF RS.79,04,381/ - IS BEING CONSIDERED AND ADJUDICATED . 14. WE HAVE HEARD RIVAL CONTENTIONS AND FOUND THAT BEFORE THE AO ASSESSEE HAS FILED REVISED CLAIM WITH RESPECT TO LONG TERM CAPITAL GAINS EARNED ON SALE OF UN ITS, WHICH WAS NOT ACCEPTED BY THE AO ON THE PLEA THAT ASSESSEE HAS NOT FILED REVISED RETURN OF INCOME. ACCORDINGLY, BY FOLLOWING THE DECISION OF GOETZE INDIA LTD. (SC), AO DECLINED ASSESSEES CLAIM. 15. BY THE IMPUGNED ORDER , CIT(A) ACCEPTED ASSESSEES CLA IM BY OBSERVING THAT THE REVISED CLAIM FILED BEFORE THE AO WITHOUT FILING REVISED RETURN ARE REQUIRED TO BE ADMITTED IN VIEW OF THE DECISION OF BOMBAY HIGH COURT IN CASE OF PRUTHVI BROKERS & SHAREHOLDERS PVT. LTD (SUPR A). WE FOUND THAT ALL THE FACTS AND FIGURES ARE VERY MUCH AVAILABLE BEFORE THE AO. THEREFORE , THE CIT(A) ITA NO. 945/MUM/2017 & 793/MUM/2017 M/S. RELIANCE INFRASTRUCTURE LTD., 9 HAS VERIFIED ASSESSEES CLAIM WHEREIN HE FOUND THAT S INCE UNITS WERE HELD FOR MORE THAN 12 MONTHS ASSESSEE WAS ELIGIBLE FOR BENEFIT OF LONG TERM CAPITAL GAIN. ACCORDINGLY, HE DIRECTED THE AO TO EXCLUDE THE AMOUNT OF RS. 4,41,35,000/ - FROM THE TOTAL SHORT TERM CAPITAL GAIN OF RS. 31,99,03,854 / - , AND TO ALLOW CARRY FORWARD OF LONG TERM CAPITAL LOSS OF RS. 79,04, 381/ - AFTER HAVING THE DETAILED OBSERVATION AS UNDER: - 7. 4 I FIND THAT VIDE LETTER DATED 02.02.2015, THE APPELLANT HAD SUBMITTED BEFORE THE ASSESSING OFFICER THAT IN CA SE OF ITS INVESTMENT IN RELIANCE FIXED HORIZON FUND XVI SERIES 5 - GROWTH, THE PERIOD OF HOLDING HAD EXCEEDED 365 DAYS AND ACCORDINGLY THE GAIN THEREON OF RS. 4,41,35,000/ - SHOULD HAVE BEEN TREATED AS LONG TERM CAPITAL GAIN. THAT .HOWEVER, ERRONEOUSLY IT HAD BEEN CONSIDERED AS SHORT TERM CAPITAL GAIN. THAT THE LONG TERM CAPITAL GAIN COMPUTED AFTER INDEXATION WOULD WORK OUT AS UNDER: SALES PROCEEDS (A) - RS. 54,41,35,000 PURCHASE COST (B) - RS. 50,00,00,000 INDEX FOR THE YEAR OF PURCHASE (F.Y. 2010 - 11) (C) - 711 INDEX FOR THE YEAR OF SALE (F.Y. 2011 - 12) (D) - 785 INDEXED COST (E) = (B)/(C)*(D) - RS. 55,20,39,381 LONG TERM CAPITAL GAIN / (LOSS) (F) = (A) - (E) - RS. (79,04,381) PERUSAL OF THE DETAILS OF SHORT TERM CAPITAL GAIN OF RS.1,99,03,854/ - SHOWN IN T HE RETURN OF INCOME SHOWS THAT IT INCLUDES AN AMOUNT OF RS. 4,41,35,000/ - ON ACCOUNT OF SALES OF 5,00,00,000 UNITS OF RELIANCE FIXED HORIZON FUND - XVI SERIES 5 - GROWTH . IT IS ALSO SEEN THAT THESE U NITS WERE PURCHASED @ RS. 10/ - P ER UNIT ON 04/12/2010 AND W ERE SOLD ON 07/12/2011 FOR A CONSIDERATION OF RS. 54,41,35,000/ - - AS THE UNITS WERE HELD BY THE APPELLANT FOR MORE THAN 12 MONTHS, THE GAINS/LOSS ARISING OUT OF THE SALE OF THESE UNITS ARE TO BE TREATED AS LONG TERM CAPITAL GAINS/LOSS. IN VIEW OF THESE FA CTS, THE ASSESSING OFFICER IS DIRECTED TO EXCLUDE THE AMOUNT OF RS. 4,41,35,000/ - FROM THE TOTAL SHORT TERM CAPITAL GAINS OF RS. 31,99,03,854/ - SHOWN IN THE RETURN OF INCOME AND ALLOW CARRY FORWARD OF LONG TERM CAPITAL LOSS OF RS.79,04,381/ - . THE APPELLANT 'S GROUNDS OF APPEAL ARE ALLOWED. ITA NO. 945/MUM/2017 & 793/MUM/2017 M/S. RELIANCE INFRASTRUCTURE LTD., 10 16. DETAILED FINDING SO RECORDED BY CIT(A) ARE AS PER MATERIAL ON RECORD, WHICH HAS NOT BEEN CONTROVERTED BY BRINGING ANY POSITIVE MATERIAL ON RECORD. WE THEREFORE, DO NOT FIND ANY REASON TO INTERFERE IN THE FINDINGS OF CIT(A). 1 7 . DURING THE COURSE OF ASSESSMENT, AO HAS ALSO MADE DISALLOWANCE OF RS.79,01,87,173/ - U/S.14A. THE BRIEF FACTS ARE THAT DURING THE YEAR UNDER CONSIDERATION, INCOME OF 66,20,36,555/ - WAS CLAIMED EXEMPT U/S. 10 OF T HE ACT. THE DETAILS OF EXPENSES I NCURRED IN RELATION TO THE INCOME NOT FORMING PART OF THE TOT AL INCOME WERE CALLED FOR. THE ASSESSEE COMPANY WAS REQUIRED TO FURNISH THE DETAILS A S PER THE PROVISIONS OF SECTION 14A AND RULE 8D. IN RESPONSE, SUBMISSIONS WERE MAD E BY ASSESSEE AND THE SAME W ERE REPRODUCED BY THE A.O. AT PAGES 3 TO 8 OF THE ASSESSMENT ORDER. THE SUBMISSIONS MADE BY THE ASSESSEE COMPANY WERE CONSIDERED BY THE AO BUT WERE NOT FOUND ACCEPTABLE. THE AO WAS OF THE VIEW THAT ALL INVESTMENT CAPABLE OF EARNING TAX FREE INVESTMENTS SHO ULD BE CONSIDERED FOR COMPUTATION OF DISALLOWANCE. FURTHER THE AO OBSERVED THAT HIS HIS PREDECESSOR FOR A.Y.2006 - 07 TO A.Y.2011 - 12 HAD WORKED OUT THE DISALLOWANCE U/S.14A AS PER RULE 8D CONSIDERING ALL TAX FREE INVESTMENTS. THE A.O. ACCORDINGLY PROCEEDED T O WORK OUT DISALLOWANCE U/S.14A R.W.R 8D AS UNDER: 1. UNDER RULE 8D (2)(I) NIL 2. UNDER RULE 8D (2)(II) RS. 118,48,897/ - 3. UNDER RULE 8D (2){III) RS . 83,38.276/ - TOTAL RS .79,01,87,173/ - ITA NO. 945/MUM/2017 & 793/MUM/2017 M/S. RELIANCE INFRASTRUCTURE LTD., 11 1 8 . AS THE A SSESSEE HAD SUO MOTO DISALLOWED RS.99,91,665/ - IN ITS RETURN, THE DIFFERENTIAL AMOUNT OF RS.78,01,95,509 / - (RS.79,01,87,17 3 / RS.99,91,665/ - ) WAS ADDED BACK BY AO TO THE TOTAL INCOME OF THE ASSESSEE. 19 . BY THE IMPUGNED ORDER OF CIT(A), PROPORTIONATE DISALLOWANCE OF INTEREST UNDER RULE 8D(2)(II) WAS DEL ETED BY CIT(A) AFTER OBSERVING AS UNDER: - 8.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE APPELLANT'S SUBMISSIONS. IT IS SEEN THAT THE APPELLANT'S OWN INTEREST FREE FUNDS ARE IN EXCESS OF THE INVESTMENTS MADE. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. ,313 ITR 340 (BOM)., HELD THAT IF THERE ARE FUNDS AVAILABLE, BOTH, INTEREST - FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION CAN BE DRAWN THAT INVESTMENTS WOULD BE OUT OF INTEREST - FREE FUNDS. THI S RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT HAS BEEN FURTHER REAFFIRMED IN THE CASES OF CIT VS. HDFC BANK LTD., (2014)(49.TAXMANN.COM 335) (BOM.) AND HDFC BANK LTD. VS. DCIT (2016) (67 TAXMANN.COM 42) (BOM.). IN VIEW OF THE LEGAL POSITION ON THIS IS SUE AS DECIDED PROPORTIONATE INTEREST DISALLOWANCE UNDER RULE 8D(2)(II) IS DELETED. THE APPELLANTS GROUND OF APPEAL ON THIS ISSUE IS ALLOWED. 20 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT CIT(A) HAS GIVEN RELIEF WITH RESPECT TO THE PROPORTIONA TE INTEREST FREE FUNDS ALLEGED TO BE UTILIZED FOR EXEMPT INVESTMENT. THE CIT(A) HAS CORRECTLY RELIED ON THE JUDICIAL PRONOUNCEMENTS OF JURISDICTIONAL HIGH COURT IN THE CASE OF HDFC BANK LTD., AND RELIANCE UTILITIES & POWER LTD., FOR REACHING TO THE CONCLUS ION THAT NO DISALLOWANCE OF INTEREST IS WARRANTED IN CASE ASSESSEE ITA NO. 945/MUM/2017 & 793/MUM/2017 M/S. RELIANCE INFRASTRUCTURE LTD., 12 IS HAVING SUFFICIENT INTEREST FREE FUNDS. FROM THE RECORD WE ALSO OBSERVE THAT ASSESSEE WAS HAVING SUFFICIENT FREE FUNDS, WHICH WAS MORE THAN THE INVESTMENT SO MADE. ACCORDINGLY, FOLLOWING THE DECISION OF JURISDICTIONAL HIGH COURT AS MENTIONED BY CIT(A), WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING DISALLOWANCE OF INTEREST UNDER RULE 8D2(II) OF THE IT ACT. 21 . WITH REGARD TO THE ASSESSEES CONTENTION FOR EXCLUDING INVEST MENT IN SUBSIDIARIES WHILE WORKING OUT DISALLOWANCE UNDER RULE 8D(II), THE CIT(A) ALLOWED THE SAME AFTER OBSERVING AS UNDER: - 8.3. I HAVE CONSIDERED THE FACTS OF THE CASE AND THE APPELLANT'S SUBMISSIONS. IT IS SEEN THAT THE APPELLANT'S OWN INTEREST FREE F UNDS ARE IN EXCESS OF THE INVESTMENTS MADE. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. , 313 ITR 340 (BOM), HELD THAT IF THERE ARE FUNDS AVAILABLE, BOTH, INTEREST - FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION CAN BE DRAWN THAT INVESTMENTS WOULD BE OUT OF INTEREST - FREE FUNDS. THIS RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT HAS BEEN FURTHER REAFFIRMED IN THE CASES OF CIT VS HDFC BANK LTD. [2014] (49 TAXMANN.COM 335) (BOM.) AND HDFC BANK LTD. VS. DCIT (2016)] (67 TAXMANN,COM 42) (BOM.). IN VIEW OF THE LEGAL POSITION ON THIS ISSUE AS DECIDED BY THE HON'BLE JURISDICTIONAL HIGH COURT, THE PROPORTIONATE INTEREST DISALLOWANCE UNDER RULE 8D (2)(II) IS DELETED. THE APPELLANT'S GROUND OF APPEAL ON THI S ISSUE IS ALLOWED. 22 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND DO NOT FIND ANY MERIT IN THE ACTION OF CIT(A) AND IN SO FAR AS RECENTLY THE HONBLE SUPREME COURT IN THE CASE OF MAXOOP INVESTMENT , DATED 12/02/2018 HELD THAT INVESTMENT IN SUBSIDIARY SHOUL D NOT BE EXCLUDED FOR WORKING OUT DISALLOWANCE UNDER RULE 8D(2)(II) OF THE IT ACT. ACCORDINGLY, WE REVERSE THE ORDER OF CIT(A) ON THIS ISSUE AND UPHELD THE ORDER OF AO. ITA NO. 945/MUM/2017 & 793/MUM/2017 M/S. RELIANCE INFRASTRUCTURE LTD., 13 23 . WITH REGARD TO COMPUTATION OF BOOK PROFIT, THE CIT(A) HELD AS UNDER: - 4.3. I HAV E CONSIDERED THE FACTS OF THE CASE AND THE APPELLANT'S SUBMISSIONS. I FIND THAT ISSUE STANDS DECIDED IN FAVOUR OF THE APPELLANT BY THE HON'BLE ITAT IN THE APPELLANT'S 'APPEALS FOR A.Y.S 2001 - 12 TO 2005 - 06 & 2007 - 08 TO 2009 - 10 BY OBSERVING THAT THE APPELLAN T WAS FOLLOWING THE ACCOUNTING POLICIES UNDER THE ELECTRICITY SUPPLY ACT PREPARED ITS ACCOUNTS IN VIEW OF THOSE VERY POLICIES. THAT FOLLOWING THOSE VERY POLICIES, THE ACCOUNTS IN ACCORDANCE WITH PART II AND PART III SCHEDULE VI OF THE COMPANIES ACT WERE NO T APPLICABLE AT ALL AND HENCE HELD THAT THE PROVISIONS OF SECTION 115JB WERE NOT APPLICABLE IN , APPELLANT'S CASE. THE DECISION OF THE HON'BLE ITAT HAS BEEN FOLLOWED BY MY ID. PREDECESSOR IN THE APPEALS FOR A.YS 2010 - 11 & 2011 - 12. RESPECTFULLY FOLLOWING THE DECISIONS OF THE HON'BLE ITAT AND MY ID. PREDECESSOR THE COMPUTATION OF BOOK PROFITS U/S. 115JB OF THE ACT BY THE ASSESSING OFFICER IS DELETED. THE APPELLANT'S GROUND OF APPEAL IS ALLOWED. 2 4 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT ISSUE UNDER CONSIDERATION IS COVERED BY THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR THE A.Y.2010 - 11 AND 2011 - 12, WHEREIN IT WAS HELD THAT PROVISIONS U/S.115JB IS NOT APPLICABLE TO THE ELECTRICITY SUPPLY COMPANY. IN THE INSTANT CASE, THE ASSESSEE HAS FOLLOWED THE ACCOUNTING POLICIES UNDER THE ELECTRICITY SUPPLY ACT AND PREPARED ITS ACCOUNTS IN VIEW OF THOSE VERY POLICIES. ACCORDINGLY, ASSESSEE DID NOT PREPARE THE ACCOUNTS IN ACCORDANCE WITH PART II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT A S THE SAME IS NOT APPLICABLE, HENCE, PROVISIONS U/S.115JB WERE NOT APPLICABLE IN ASSESSEES CASE. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). ITA NO. 945/MUM/2017 & 793/MUM/2017 M/S. RELIANCE INFRASTRUCTURE LTD., 14 25 . IN THE RESULT, BOTH TH E APPEALS OF ASSESSEE AND REVENUE ARE ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 / 12 /201 8 SD/ - ( SANDEEP GOSAIN ) SD/ - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 27 / 12 /201 8 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//