PRAKASH LAL POTLURI,USA V. ITO (INT TAXN)-2, HYDERABAD

ITA 1284/HYD/2024

AI Insights

The case involves appeals by the revenue against the orders of the Learned Commissioner of Income Tax (Appeals), which had allowed the appeals of M/s. Engenrin Hydro Power Limited (the assessee) for the assessment years 2016-17 to 2018-19. The primary issue was the disallowance made under section 14A of the Income Tax Act, 1961, related to investments in unquoted equity shares. The AO had made a disallowance of Rs.3,84,42,000 under section 14A read with Rule 8D, citing an increase in investments and potential exempt income. The CIT(A) reversed this decision, leading to the revenue's appeal. The Tribunal noted discrepancies in the assessee's claims regarding the source of funds for the investments and the lack of exempt income, necessitating a re-examination of the facts by the AO.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 103651 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: 2015-2016
• Other Referred Cases: CIT Vs. Chettinad Logistics Ltd., PCIT(C) Vs. Oil Industry Development Board
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRINATH SADANALA
• Assessee Lawyers: P. MURALI MOHAN RAO
• Keywords: Set aside; Opportunity of being heard; Earning of tax free income; Rule 8D
• Section: 250; 13; 14A

Judgement Text

" आयकर अपीलीय अधिकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘A’ Bench, Hyderabad BEFORE SHRI VIJAY PAL RAO, VICE PRESIDENT AND SHRI MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER आ.अपी.सं /ITA Nos.828 to 831/Hyd/2024 (निर्धारण वर्ा/Assessment Years:2016-17 to 2018-19) Asst. Commissioner of Income Tax, Circle-5(1), Hyderabad. Vs. M/s. Engenrin Hydro Power Limited, (Erstwhile Lanco Hydro Power Ltd.), Hyderabad. PAN : AABCV6385R (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri P. Murali Mohan Rao, C.A. रधजस् व द्वधरध/Revenue by: Shri Srinath Sadanala, SR-DR सुिवधई की तधरीख/Date of hearing: 10/03/2025 घोर्णध की तधरीख/Pronouncement: 09/04/2025 आदेश/ORDER PER BENCH : These appeals are filed by revenue in the case of M/s. Engenrin Hydro Power Limited (“the assessee”), feeling aggrieved by the separate orders passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”), all dated 25.06.2024 for the ITA Nos.828 to 831/Hyd/2024 2 A.Ys. 2016-17 to 2018-19. Since these appeals are identical and inter related, they are heard together and one consolidated order is being passed for the sake of convenience and brevity. ITA No.828/Hyd/2024 2. The revenue has raised the following grounds : 3. The brief facts of the case are that the assessee is a company filed its Return of Income (“ROI”) for A.Y. 2016-17 on 17.10.2016 admitting loss at Rs.1,19,39,478/- under the normal provisions of the Income Tax Act, 1961 (“the Act”) and book profit at Rs.Nil u/s.115JB of the Act. The case of the assessee was selected for manual scrutiny, accordingly, notice u/s.143(2) of the Act dated 25.09.2017 was issued by Ld. AO. The assessment of the ITA Nos.828 to 831/Hyd/2024 3 assessee was completed u/s.143(3) on 28.12.2018 by making addition of Rs.3,84,42,000/- u/s.14A of the Act. 4. Aggrieved with the order of Ld. AO, the assessee filed appeal with the Ld. CIT(A). The Ld. CIT(A) allowed the appeal of the assessee relying on the decision of this Tribunal in assessee's own case for A.Ys. 2013-14 and 2014-15 in ITA Nos.1931 & 1932/Hyd/2017 dated 03.05.2018. 5. Aggrieved with the order of Ld. CIT(A), the revenue is in appeal before us. The Learned Department Representative (“Ld. DR”) invited our attention to para no.4 of the order of Ld. AO and submitted that, the Ld. AO has given a factual finding that the assessee had opening balance of investment of Rs.8,34,34,47,000/- in unquoted shares, however, the closing balance of the same are Rs.8,97,96,98,000/- during the year under consideration. As such, there is increase in investment in unquoted equity shares during the year under consideration by Rs.63,62,51,000/-. The Ld. AO also noted that the dividend income, if any receivable from investment in unquoted equity shares would be exempted under the Act. Accordingly, he invoked ITA Nos.828 to 831/Hyd/2024 4 section 14A r.w. Rule 8D in the case of assessee. The Ld. AO also relied on the CBDT Circular no.5/2014 dated 11.02.2014 wherein it has been stated that section 14A r.w. Rule 8D provide for disallowance of expenditure even where the assessee has not earned any exempted income during a particular year. The Ld. AO calculated the disallowance u/s.14A r.w. Rule 8D which was more than the net expenditure of Rs.3,84,42,000/- claimed by the assessee. Accordingly, the Ld. AO restricted the disallowance u/s.14A of the Act to Rs.3,84,42,000/-. The Ld. DR further submitted that, the Ld. CIT(A) has deleted the disallowances made by the Ld. AO without considering the facts that the assessee has made fresh investment of Rs.63,62,51,000/- during the year under consideration in unquoted equity shares. The Ld. CIT(A), further, did not follow the CBDT Circular no.5/2014 dated 11.02.2014, wherein it has been stated that the disallowance u/s.14A of the Act can still be made in a case where there is no exempted income. Hence, the order of Ld. CIT(A) is liable to be set aside. ITA Nos.828 to 831/Hyd/2024 5 6. Per contra, the Learned Authorised Representative (“Ld. AR”) relied on the decision of this Tribunal in assessee's own case for A.Ys. 2013-14 and 2014-15 (supra). The Ld. AR further submitted that, the facts of the case for A.Y. 2016-17 are identical to the facts of A.Ys. 2013-14 and 2014-15. Therefore, the findings given by this Tribunal in assessee's own case for A.Ys. 2013-14 and 2014-15 shall apply mutatis mutandis to A.Y. 2016- 17 also. As far as the argument of Ld. DR that, the CBDT Circular No.5/2014 stated that the disallowance u/s.14A can be made in a case where there is no exempted income earned by the assessee in a particular year, the Ld. AR submitted that, various Courts have decided the issue that when there is no exempted income in a particular year, no disallowances u/s.14A of the Act can be made in the hands of the assessee. In support of their submission, the assessee relies on the decisions in the case of CIT Vs. Chettinad Logistics Ltd. 95 taxmann.com 250 and PCIT(C) Vs. Oil Industry Development Board 103 taxmann.com 326. As far as the objection raised by the Ld. DR regarding fresh investment of Rs.63,62,51,000/- made during the year, the Ld. AR invited our attention to page no.49 of the paper book and submitted that no ITA Nos.828 to 831/Hyd/2024 6 actual payment has been made by the assessee on account of such fresh investment. Such fresh investment has been accounted in the books of the assessee, by increasing the current liability to the same amount and sufficient disclosure in this regard has already been made by the auditor in the audited balance sheet. Hence, no fresh fund has been deployed during the year on account of investment in unquoted equity shares. Finally, the Ld. AR submitted that during the year under consideration no exempted income has been earned by the assessee and there is no fresh investment made in unquoted equity shares. Accordingly, as per the precedence laid down by various courts, no disallowance can be made u/s.14A of the Act in the hands of the assessee. 7. We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We have gone through the order of Ld. AO wherein at para no.4 of his order, the Ld. AO has given factual finding that the assessee has opening balance of investment of Rs.8,34,34,47,000/- in unquoted equity shares and the closing ITA Nos.828 to 831/Hyd/2024 7 balance of the same are Rs.8,97,96,98,000/- during the year under consideration. As such there is fresh investment in unquoted equity shares during the year under consideration. However, the Ld. AR invited our attention to note no.11 related to non-current investment forming part of financial statement for the year ended 31.03.2016 placed at page no.49 of the paper book and submitted that no actual payment has been made by the assessee of such fresh investment. Such fresh investment has been accounted in the books of account by increase in the other current liability to the same amount and sufficient disclosure in this regard has been made by the auditor in the audited financial statements. Hence, no fresh funds have been deployed during the year on account of investment in unquoted equity shares. We have gone through note no.9 related to other current liabilities and note no.11 related to non-current investment forming part of financial statements of the assessee for the year ended 31.03.2016 which are placed at page nos.48 and 49 respectively of the paper book, which are to the following effect : ITA Nos.828 to 831/Hyd/2024 8 7.1 On perusal of above, we found that there is increase in total non-current investments by Rs.63,62.51 lakhs and increase in other current liabilities by Rs.25,25.82 lakhs. As such the increase in other current liabilities not at par as compared to ITA Nos.828 to 831/Hyd/2024 9 increase in non-current investment . Therefore, the submission of the Ld. AR that no fresh funds have been deployed during the year towards fresh investment is not acceptable. Accordingly, the same is required to be reverified. Further, whether fresh investments are out of borrowed fund or not is also to be verified. We have also gone through the decision of this Tribunal in assessee's own case for A.Ys. 2013-14 and 2014-15 in ITA nos.1931 & 1932/Hyd/2017 dated 03.05.2018, wherein this Tribunal has decided the issue at para nos.2 & 3 in favour of the assessee, which are to the following effect : “ 2. There is no dispute with regard to the fact that the assessee company did not earn any exempt income during the years under consideration. In fact, in the grounds, duly authorised by the Ld. CIT, the Revenue has not objected to the claim of the assessee that no exempt income was earned during the years under consideration. Identical issue had come for adjudication before the ITAT Hyderabad in number of cases wherein the Bench observed that section 14A refers to disallowance of expenditure “in relation to income” which pre- supposes existence of income in the form of dividend as otherwise section 14A cannot be pressed into service. In the ITA Nos.828 to 831/Hyd/2024 10 following cases, the ITAT, Hyderabad Bench had taken an identical view. (i) DCIT vs. M/s. Modi Builders and Realtors Private Limited (ITA No.1167/Hyd/2017, dated 03.04.2017) (ii) Vinayak Steels Limited vs. ITO (ITA No. 103/Hyd/2017, dated 04.04.2018) and (iii) M/s. Kamadhenu Sukrit Pvt Ltd vs. ITO (ITA No.460/Hyd/2017, dated 22.11.2017) 3. Since the view taken by the Ld. CIT(A) is in consonance with the view taken by the ITAT Hyderabad Bench, in the absence of any direct decision cited by the Learned Departmental Representative holding a contrary view, we do not find any infirmity in the orders passed by the Ld. CIT(A).” 7.2 On perusal of above, we found that the dispute regarding sources of fresh investment was not there before the Tribunal in assessee's own case for A.Ys. 2013-14 and 2014-15 (supra). Accordingly, the decision of this Tribunal in assessee's own case for A.Ys. 2013-14 and 2014-15 (supra) cannot be applied to the present case before us. Further, as held by us, the issue regarding sources of fresh investment and the quantum of fresh investment is required to be verified, we deem it appropriate to set ITA Nos.828 to 831/Hyd/2024 11 aside the issue to the file of Ld. AO for reverification of the issue and decide the issue as per law. Accordingly, we direct the Ld. AO to verify the quantum of fresh investments made during the year under consideration and the amount of borrowed fund directly attributable to such fresh investments and decide the issue as per law after providing an opportunity of being heard to the assessee. 8. In the result, the appeal of the revenue is allowed for statistical purpose. ITA Nos.829 & 830/Hyd/2024 9. The issue involved in both these appeals are identical to the issue involved in ITA no.828/Hyd/2024. We have already decided the issue in ITA no.828/Hyd/2024 and allowed the appeal of the revenue for statistical purposes. Accordingly, our discussion and findings in ITA no.828/Hyd/2024 shall apply mutatis mutandis to these two appeals also. Therefore, the appeals of the revenue in these two are also allowed for statistical purposes. ITA No.831/Hyd/2024 10. The revenue has raised the following grounds : ITA Nos.828 to 831/Hyd/2024 12 “ 1. The CIT(A) erred in deleting the penalty u/s.270A(9) levied towards ‘under reporting of income in consequence of misreporting thereof’ amounting to Rs.1,94,47,800/- for A.Y. 2018-19 though the Assessing Officer has crystallised the ‘under-reported income’ which was qualified after disallowing an amount of Rs.3,24,13,000/- u/s.14A of the Act and against such assessment order u/s.143(3) dt.09.04.2021, the revenue has preferred appeal before the Hon'ble ITAT. 2. Any other ground that may be urged at the time of hearing.” 11. The solitary issue raised by the revenue in this appeal is deletion of penalty of Rs.1,94,47,800/- levied by Ld. AO u/s.270A(9) of the Act. The said penalty was levied against the quantum addition of Rs.3,24,13,000/- by the Ld. AO u/s.14A of the Act. The quantum addition of Rs.3,24,13,000/- was subject matter of the appeal before us in ITA no.830/Hyd/2024. As we have setaside the issue related to the said quantum addition of Rs.3,24,13,000/- qua penalty of Rs.1,94,47,800/- to the file of Ld. AO, the penalty of Rs.1,94,47,800/- is also liable to be setaside to the file of Ld. AO. Accordingly, we setaside the issue to the file of Ld. AO for reconsideration of the issue in accordance with the outcome the corresponding quantum addition. ITA Nos.828 to 831/Hyd/2024 13 12. In the result, the appeal of revenue in ITA no.831/Hyd/2024 is allowed for statistical purpose. 13. To sum up, all the appeals of revenue are allowed for statistical purpose. Order pronounced in the open Court on 9th April, 2025. Sd/- Sd/- (VIJAY PAL RAO) (MADHUSUDAN SAWDIA) VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad. Dated: 09.04.2025. * Reddy gp Copy of the Order forwarded to : 1. M/s. Engenrin Hydro Power Ltd., Plot No.4, Software Units, Hitech City, Madhapur, Hyderabad-500081 2. ACIT, Circle-5(1), Hyderabad. 3. Pr. CIT, Hyderabad. 4. DR, ITAT, Hyderabad. 5. Guard File. BY ORDER, "